What I noticed is that the same-store NOI growth of Simon Properties Group (SPG) is dropping year over year:
The per-share numbers show that slower growth is ahead as well. In the following table, owner EPS is FAD - share-based compensations:
The FFO in 2017 was impacted by a $0.38 charge from extinguishment of debt, otherwise, the growth for 2017 would be 10.4%, which is pretty good. However, that makes the 2018 comparison worse. The FFO for the first half of 2018 and 2017 were $5.85 and $5.56 (adjusted with a $0.36 charge from extinguishment of debt) respectively, so the growth was only 5.2%. With the 2018 full-year guidance of $12.09 in FFO at mid-point, the growth will be less than 5%.
The slowdown in growth is a structural issue. The management intentionally increased the dividend fast than the FFO growth because they found less opportunity to reinvest. It's evidenced by an increasing payout ratio, and the management has said that the payout ratio will increase because of less capital need going forward (I forgot which earnings conference call this mention was from).
While the forward P/FFO ~14.5 is not expensive, I am not if it can justify a 4.6% dividend yield with an expected future growth of 5% a year. Using the Gordon Growth model, the expected return of the stock will be 4.6 + 5 = 9.6%, which is lower than the 10% that I typically require.
TTM company's share of EBITDA is $5,207,529,000, and the enterprise value is about $90 billion. Hence, the cap rate assumed by the market is 5.6% with the current share price of $174. I use EBITDA instead of NOI for the conservative reason; you get around 5.9% cap rate if using NOI. 5.6% is not a low cap rate. However, with the expected same-center growth around 3%, and the US treasury interest rate going up, I see upward pressure on cap rates ahead. SPG is not overvalued, but I do not think it is undervalued, either.
I still have a bit of SPG shares, but I will consider selling all of it very soon.
Disclosure: I am/we are long SPG.
Additional disclosure: I am long SPG at the moment but I will consider selling it very soon.