Why SPG Stock’s Price Has Been Rising
With inflation cooling and interest rates expected to start coming down in the coming months, the shine is back on interest-rate-sensitive stocks, including real estate investment trusts (REITs) like Simon Property Group Inc (NYSE:SPG).
Last year was challenging for REITs, thanks to the rapid increase in interest rates. Even industry stalwarts like Simon Property Group struggled for much of 2023. From the start of the year through October 31, Simon Property Group stock went down by 1.87%.
But in early November 2023, the Federal Reserve hinted it was done raising interest rates for this cycle. Then, on December 13, the Fed not only held interest rates pat again, but the Fed’s chair, Jerome Powell, said outright that it was “not likely” that the Fed would raise interest rates further.
Now, it’s expected that the Fed will begin cutting its rates in 2024, as many as three times.
Suffice it to say, stock investors have been exceptionally bullish since early November 2023. The biggest surprise may have been the REIT sector. In the final two months of 2023, the Real Estate Select Sector SPDR Fund (NYSEARCA:XLRE) rallied by an impressive 22.3%.
SPG stock has also been on a tear, rising by 43.0% since early November (as of this writing).
In 2023, Simon Property Group Inc delivered total shareholder returns of 29.3%, returned $2.9 billion to its shareholders via dividends and share repurchases, and raised its quarterly dividends. (Source: “Simon Reports Fourth Quarter and Full Year 2023 Results and Raises Quarterly Dividend,” Simon Property Group Inc, February 5, 2024.)
A rising tide lifts all boats, but Simon Property Group stock comes by its gains honestly. In addition to benefiting from macroeconomic tailwinds, the company reported excellent fourth-quarter and full-year 2023 results, with record-high funds from operations (FFO),18 million square feet of leases, and 13 significant redevelopment projects.
About Simon Property Group Inc
Simon Property Group is a REIT that owns premier shopping, dining, entertainment, and mixed-use properties across North America, Europe, and Asia.
In 1993, its real estate portfolio was valued at $3.5 billion and consisted of 114 properties, primarily in middle-market malls in the Midwest U.S. (Source: “2022 Annual Report,” Simon Property Group Inc, last accessed March 19, 2024.)
Today, Simon Property Group’s diverse portfolio is valued at “well over” $80.0 billion and includes more than 250 properties in 37 U.S. states and 14 countries.
Over the past three decades, the company’s consolidated revenues increased by about 13 times from $424.0 million to $5.3 billion in 2022, with its FFO increasing by nearly 30 times from $150.0 million to about $4.5 billion in 2022.
Three of Simon Property Group Inc’s U.S. properties are The Shops at Crystals in Las Vegas, Nevada (the only all-luxury shopping destination in the U.S.); Sawgrass Mills in Miami, Florida (the biggest outlet and value-retail destination in the U.S.); and Woodbury Common Premium Outlets in Central Valley, New York (a shopping destination with more than 250 well-known brands). (Source: “Malls, Mills & Premium Outlets,” Simon Property Group Inc, last accessed March 19, 2024.)
Its properties are anchored by more than 2,917 powerhouse brands, including “Apple,” “Giorgio Armani,” “Gucci,” “Hermes,” “Hugo Boss,” “Louis Vuitton,” and “Microsoft.” (Source: “Iconic Properties Infinite Opportunities,” Simon Property Group Inc, last accessed March 19, 2024.)
In addition to premium retail spaces, the company’s growing real estate portfolio includes offices and hotel/residential properties. Over the last several years, it has added more than 4,200 hotel and residential units to its portfolio. (Source: “2022 Annual Report,” Simon Property Group Inc, op. cit.)
As of the end of 2022, Simon Property Group Inc owned an 80% noncontrolling interest in The Taubman Realty Group, LLC, which has an interest in 24 regional, super-regional, and outlet malls in the U.S. and Asia. The REIT also owned a 22.4% equity stake in Paris, France-based Klépierre SA, which owns more than 130 properties in 14 European countries.
Excellent Q4 & Full-Year 2023 Results
For the fourth quarter of 2023, Simon Property Group announced that its net income increased by 11% year-over-year to $747.5 million, or $2.29 per diluted share. Its FFO climbed by 8.5% year-over-year to $1.38 billion, or $3.69 per diluted share. (Source: Simon Property Group Inc, February 5, 2024, op. cit.)
The company’s full-year net income grew by 6.7% to $2.28 billion, or $6.98 per diluted share. Its FFO advanced in 2023 by 4.6% to $4.69 billion, or $12.51 per diluted share.
“This was an excellent quarter and year for Simon Property Group, which was capped off by our 30th anniversary as a public company in December,” said Simon Property Group Inc’s chairman and CEO, David Simon. (Source: Ibid.)
The REIT’s outlook for 2024 is pretty solid, with management expecting to report net income in the range of $6.45 to $6.70 per diluted share and FFO in the range of $11.85 to $12.10 per diluted share.
Simon Property Group Stock Has Provided Enormous Returns
Note that, as a REIT, Simon Property Group Inc legally has to distribute at least 90% of its taxable income to investors—which it does in the form of growing, high-yield distributions and share repurchases.
In February, the company’s board declared a first-quarter dividend of $1.95 per share. This represents an increase of $0.15, or 8.3%, over the $1.80 it paid out in the first quarter of 2023. (Source: “Dividend History,” Simon Property Group Inc, last accessed March 19, 2024.)
As of this writing, SPG stock’s dividend translates to a yield of 5.13%.
Also in February, Simon Property Group announced a new two-year, $2.0-billion share repurchase program. (Source: “Simon Announces New $2.0 Billion Common Stock Repurchase Program,” Simon Property Group Inc, February 8, 2024.)
Simon Property Group Inc is also a powerhouse when it comes share-price gains. On March 20, Simon Property stock hit an all-time record intraday high of $155.81 and a record closing-price high of $155.40.
Since its initial public offering (IPO) in December 1993, SPG stock has delivered total returns to shareholders of 3,100%.
Chart courtesy of StockCharts.com
The Lowdown on Simon Property Group Inc
Thanks to macroeconomic tailwinds, REIT stocks are back in the spotlight, and Simon Property Group stock is one of the best.
The company’s management reported “excellent” fourth-quarter and full-year 2023 results and provided solid guidance for 2024.
Simon Property Group Inc has an industry-leading balance sheet, it recently raised its quarterly dividend, it announced a new $2.0-billion share repurchase program, and its share price is at record-high levels.