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Believe In Simon Property Group? Use These 2 Strategies To Boost Yield

Jun. 02, 2020 8:11 AM ETSimon Property Group, Inc. (SPG)63 Comments
Roberts Berzins, CFA profile picture
Roberts Berzins, CFA


  • SPG is perhaps the most widely known retail REIT. It has the highest market cap and the only "A" rated balance sheet among the other sector peers.
  • SPG has four distinctive value engines - superb location, fortress balance sheet, resilient cash flows and world class management team - that warrant long-term, sustainable growth.
  • The Q1 2020 report revealed massive liquidity reserves comprising 45% of SPG's market cap. All these elements together with the YTD peer outperformance confirm the underlying value in SPG.
  • If you hold SPG and believe in its fundamentals and the ability to ride out of the crisis successfully, you should consider selling covered calls and covered puts.
  • You would get a 3.4% and 2.4% yield enhancement in just 46 days, respectively, and be exposed to maximum gain of 20% and the potential cost basis of $43.87, respectively.

Whenever someone thinks of retail REITs, Simon Property Group (NYSE:SPG) is the first name which pops up. Rightly so - SPG is the largest retail REIT among the 36 other publicly traded peers. Its market cap of $18.2 billion exceeds that of popular names such as Realty Income (O), Regency Centers (REG) and Kimco Realty Corp. (KIM).

In addition, SPG holds the only "A" (not "A-) investment grade balance sheet in the whole sector, and has a globally recognized management team, winning many awards including the “best-performing global CEOs” by Harvard Business Review in 2013, 2014, 2016, 2017 and 2018.

Source (The Galleria in Houston, owned by Simon Property Group)

SPG and its competitive advantages in the context of COVID-19

Relatively recently, I wrote an article "Simon Property Group: Liquidity Is King" examining both financial and operating leverage of SPG amid the deadly outbreak of COVID-19.

The key takeaway was that even though SPG has a rather sticky cost structure (i.e., degree of operating leverage around 1.1), it is completely offset with the ample liquidity reserves and the fortress balance sheet. SPG has considerable flexibility and capacity to withstand the crisis helping the management to make sustainable, long-term decisions despite a complete demand shock in the industry.

The comment by David E. Simon in the Q1 2020 earning call confirms the robustness of SPG's balance sheet and/or significant liquidity reserves:

"Now, let me turn to the balance sheet. We have always maintained a strong balance sheet in order to capitalize on opportunities, but also to withstand economic downturns. On March 16, two days before we shut down our portfolio, we amended and extended our $4 billion credit facility with a $6 billion facility that includes a $2 billion delayed draw term loan. At quarter end, our total liquidity was $8.7 billion

This article was written by

Roberts Berzins, CFA profile picture

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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