Simon Property Group Stock: Bullish 6.5%-Yielder Raises 2023 Guidance & Dividends
June 30, 2023
Why SPG Stock Has 40%+ Upside Potential
The retail real estate sector took a big hit during the COVID-19 pandemic. Not a big surprise, since quarantine orders kept millions of people at home and shuttered the doors of tens of thousands of businesses. Not ideal for real estate investment trusts (REITs) that generate their income from rent.
One retail REIT that has fared better than most is Simon Property Group Inc (NYSE:SPG).
In 2019, the last glorious year before the pandemic, the company posted industry-leading record results, including revenues of $5.8 billion, cash flow of $4.0 billion, and funds from operations (FFO) of $4.4 billion. It also paid $8.30 per share in cash dividends that year.
Unfortunately, Simon Property Group Inc suffered during the pandemic, much like everyone else. Since then, though, the company’s revenues and FFO have come roaring back. So too have its dividends, share repurchases, and share price.
Thanks to its well-located real estate and top-tier tenants, the REIT bounced back in 2021 with significant occupancy gains and record retail sales. Its full-year 2021 revenues increased by more than $500.0 million to $5.1 billion, its cash flow increased by $1.3 billion to $3.9 billion, and its FFO climbed by $1.2 billion to $4.5 billion. This allowed the company to increase its quarterly dividend by 27%. (Source: “2021 Annual Report,” Simon Property Group Inc, last accessed June 23, 2023.)
The company did better in 2022, with consolidated revenues of $5.3 billion, FFO of $4.5 billion, net operating income of $6.1 billion, and net income of $2.1 billion, or $6.52 per share.
It looks like 2023 will end up being even better.
About Simon Property Group Inc
Simon Property Group is a REIT that buys premier shopping, dining, entertainment, and mixed-use destinations across North America, Europe, and Asia.
In 1993, its portfolio consisted of 114 properties, which were primarily middle-market malls in the U.S. Midwest. Today, the company’s diverse portfolio includes more than 250 properties in 37 U.S. states and 14 countries. (Source: “Simon 2022 Annual Report,” Simon Property Group Inc, last accessed June 23, 2023.)
Its properties are anchored by more than 3,000 powerhouse brands, including “Apple,” “Gucci,” “Hugo Boss,” “Microsoft,” and “Tiffany & Co.” (Source: “Iconic Properties Infinite Opportunities,” Simon Property Group Inc, last accessed June 23, 2023.)
In addition to premium retail spaces, the company’s growing real estate portfolio includes offices, hotels, residential properties, and partner outlets. Over the last several years, it has added more than 4,200 hotel and residential units to its portfolio.
Simon Property Group Inc owns an 80% non-controlling interest in The Taubman Realty Group, LLC, which has interests in 24 regional, super-regional, and outlet malls in the U.S. and four malls in Asia. It also owns a 22.4% equity stake in Paris, France-based Klépierre SA, which is Europe’s second-largest publicly traded mall operator. (Source: “Simon 2022 Annual Report,” Simon Property Group Inc, op cit.)
The REIT is still growing, too. In 2022, it completed 14 redevelopment projects and opened 44 anchor/specialty tenants. It expects to open more than 40 in 2023.
During the first quarter of 2023, construction restarted on a 338,000-square-foot upscale retail outlet in Jenks, Oklahoma. It’s projected to open in the fall of 2024. Simon Property Group Inc owns 100% of this project.
On April 27, the company opened an open-air retail outlet and leisure center in Normandy, France. It includes 228,000 square feet of luxury and premium brand retailers. The REIT owns a 74% interest in the center.
Construction continues on numerous redevelopment and expansion projects at the REIT’s properties in North America, Europe, and Asia.
Management Reported Strong Q1 Results & Raised Guidance
For the first quarter ended March 31, Simon Property Group announced that its revenues increased by more than four percent year-over-year to $1.4 billion. (Source: “Simon Reports First Quarter 2023 Results and Increases Full Year 2023 Guidance and Raises Quarterly Dividend,” Simon Property Group Inc, May 2, 2023.)
Its net income climbed by six percent year-over-year to $451.8 million, or $1.38 per share. Its FFO went up slightly to $1.02 billion, or $2.74 per share, from $1.01 billion, or $2.70 per share, in the same period last year.
The REIT’s occupancy rates improved to 94.4% as of March 31, compared to 93.3% as of the same date in 2022. Its minimum rent per square foot increased in the first quarter by 3.1% year-over-year to $55.84, versus $54.14 a year earlier. The retailers could afford that rent hike; their sales improved by 3.3% in the trailing 12 months to $759.00 per square foot.
Commenting on the results, David Simon, who is Simon Property Group Inc’s chairman, CEO, and president, said, “We continue to strengthen our company through disciplined investments and proactive capital markets activities, further enhancing our already strong financial flexibility.” (Source: Ibid.)
He continued, “Given our current view for the remainder of 2023, today we raised our quarterly dividend and are increasing the mid-point of our full-year 2023 guidance.”
The company currently expects to report full-year net income of $6.35 to $6.60 per diluted share and comparable FFO in the range of $11.70 to $11.95 per share.
Simon Property Group Stock’s Quarterly Dividend Hiked 8.8%
Simon Property Group Inc is known for creating value for its shareholders. Since going public in September 1993, SPG stock has paid more than $39.0 billion in dividends. In 2022, it returned $2.8 billion to investors: $2.6 billion in dividends and $180.0 million in share buybacks.
From its initial public offering (IPO) through year-end 2022, Simon Property Group common stock provided total returns to shareholders of approximately 2,400%, or a compound annual growth rate (CAGR) of about 12%.
The company has a solid history of raising its dividends. Admittedly, it cut Simon Property Group stock’s quarterly dividend during the COVID-19 pandemic, from $2.10 per share in February 2020 to $1.30 per share in June of the same year. In fact, Simon Property Group Inc held it there until June 2021, when management raised it to $1.40 per share. The dividends have been going up steadily since then, including in seven of the last nine quarters.
In May, Simon Property Group Inc’s board announced that it was raising SPG stock’s quarterly dividend by 8.8% year-over-year to $1.85 per share, for a current yield of 6.5%.
There’s every reason to believe the company will raise it again over the coming quarters. Its dividend is well covered, with a payout ratio of less than 60%.
Chart courtesy of StockCharts.com
As for Simon Property Group stock’s price, it’s about $113.00 as of this writing, down from its November 2021 high of $154.51. That decline can be attributed to investor concerns about inflation, rising interest rates, and a long-promised upcoming recession.
Still, SPG stock is mostly in the black, up by 10.5% over the last month and 27% year-over-year. It is, however, down by 0.9% year-to-date.
The outlook for Simon Property Group stock is bullish, with Wall Street analysts providing a 12-month projection in the range of $130.00 to $160.00 per share. This points to potential gains in the range of 15% to 42%.
The Lowdown on Simon Property Group Inc
Simon Property Group is the largest mall REIT, managing one of the top retail property portfolios in the U.S. and internationally. It’s the No. 1 choice for retail brands, and because of its top-tier tenants, its malls and outlets are popular with high-income earners and international tourists.
Simon Property Group Inc has been reporting outstanding financial results, it has the No. 1 balance sheet in its industry, it raised its full-year guidance, and it recently increased SPG stock’s high-yield quarterly dividend again.
