Simon Property Group (New York Stock Exchange code “SPG”) is the largest commercial real estate operator in the United States and the largest retail real estate listed company in North America. It is one of the constituent stocks of the standard & Poor’s 500 index, and has the largest commercial real estate REITs on sale in the world. The peak is a market capitalization of more than $70 billion, more than the other four of the top five retail real estate companies in the United States combined.
The stock has dropped more than 50% from its 52 week high and hasn’t been recovered yet, so that’s created an opportunity for us investors.
- About Simon Company
What is Simon’s position in the field of commercial real estate in the United States? If you have been shopping, you must have been to Simon.
In the shopping center industry, Simon real estate is own a variety of shopping centers, with a total of 232 retail properties and a leasable area of more than 190 million square meters (21 million square meters). Simon’s retail real estate business mainly includes 106 regional malls, 69 Premium Outlets and 14 metropolitan shopping centers Mills) and four community / lifestyle centers. Regional shopping centers usually contain at least one traditional department store or a combination of large retailers’ main stores and various small stores. The additional stores are usually located around the parking lot. There are more than 13200 settled stores, including more than 500 main stores, mainly domestic or international retailers. The company’s 106 regional shopping centers are generally closed centers with a leasable area (GLA) between 260000 square feet and 2.7 million square feet. Famous products direct sales discount shopping centers are usually open-air commercial centers, including many designer and manufacturer brand stores, factory direct sales and discount stores, and are generally located near large cities or tourist destinations. The company’s 69 direct discount malls range from 150000 square feet to 900000 square feet. Metropolitan shopping centers are located in major metropolitan areas, combining traditional shopping centers, wholesale centers, large retailers and entertainment facilities. The company’s 14 metropolitan shopping centers typically have between 1.2 million square feet and 2.3 million square feet. The company’s four community life centers range in gla from 160000 square feet to 900000 square feet. In addition, Simon real estate holds about 21.0% of klepierre’s shares; Simon holds a total of 29 properties overseas in Europe, Japan, South Korea, Malaysia, Mexico and other countries.
Simon’s income sources include minimum rent, excess rent, tenant compensation and management costs. In 2019, the average sales per foot (turf efficiency) will reach $693, with a year-on-year increase of 4.8%. In 2019, the sales of tenants will exceed $60 billion. Simon owns five of the top 10 stores in the U.S., including the Caesar Palace luxury mall in Las Vegas, which is more than $1600.
2. Simon Stock Evaluation
In the past five years, Simon’s per share FFO compound growth rate was 5.1%, the FFO payment ratio increased from 61% to 69%, and the compound growth rate of dividend per share was 10% (after considering repurchase). In the first quarter of 2020, the payment rate of FFO will be further increased to 71%, and there is still no dividend cut. Compared with the average proportion of other commercial REITs of 80% — 90%, the business recovered in the past, and there is still room for further improvement in dividend
The following figure shows Simon’s dividend situation in the past ten years. The green column is the total dividend, the red column is the total repurchase amount, and the black column is the amount of dividend per share. The compound growth of dividend in the past ten years is 12.3%. The essence of the repurchase is also dividend, and it is better because of tax exemption. Considering this growth is faster. In the last two years, the growth rate of FFO has slowed down because of the growth of measures such as property sales, optimization and reconstruction. 2019 is expected to be a slow growth year for the company, because a large number of transformation projects have not yet been launched. The judgment of the management before the epidemic is that it is expected to improve after 2020, and the management’s expectation of the average growth rate in the next five years is 6.3%. Business improvement will be delayed by 1–2 years after the outbreak (management expects that rental income will be fully recovered in one year).
Dividend yield is one of the most important anchors in REITs valuation of commercial real estate. Simon real estate’s dividend yield is relatively stable and considerable. From the following chart of Simon’s stock price trend and dividend yield trend chart up to January 2020, it can be seen that the dividend yield has been maintained in the range of 2.8% — 9.4% since 1993, with a median of 4.5%; since the dividend per share is relatively stable, the dividend yield tends to go higher when the stock price falls, while the stock interest rate will be diluted when the stock price goes up, so the dividend yield smoothes the overall yield wave of REITs to a certain extent move.
In the past five years, the dividend yield ranges from 3.1% to 5.6%. With the decline of stock price and the stable growth of dividend, the dividend yield has increased year by year. At present, the corresponding dividend yield of stock price in 2019 reaches 13.5%, and the highest dividend yield reaches 19.6% at the lowest point of the impact of the U.S. epidemic. Even if there is an increase from the bottom, the dividend yield still exceeds the 2008 financial crisis (the highest dividend yield in 2008 is about 11%) It also means that if Simon can survive the epidemic crisis, he will get a substantial stock price recovery, which will bring the dividend yield back to the average range of 4–5%.
In 2008, under the impact of the financial crisis, Simon cut the dividend for two quarters, but at present, the dividend payment ratio has increased from 67% to 71%, and the quarterly dividend is $2.1, an increase of 2.4% year-on-year. In the future, it is not ruled out that there will be individual quarterly dividend cuts or suspension, but this is the last resort to deal with the impact of reduced rental income, reduce cash expenditure, and better deal with the crisis. If there is a dividend cut, I think it would be a good thing. First, it will be safer; second, it may be that we intend to acquire other assets.
My average purchase price of $SPG is $68.2, and I plan to add more positions when the price drops further.
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