Stifel Upgrades Simon Property Group To Buy

Stifel has announced it is upgrading Simon Property Group Inc SPG from Hold to Buy and raising its target price from $125 to $132.

What Happened: The Indianapolis-headquartered Simon Property Group is a real estate investment trust (REIT) and the largest owner of U.S. shopping malls.

The company closed in 2020 with $4.6 billion in revenue, down from $5.7 billion in 2019, and Chairman, CEO and President David Simon stated that he felt confident “we have turned the corner, and we expect growth in earnings and cash flow in 2021.

In making its announcement, Simon Yarmak, Stifel’s managing director in the real estate sector, observed that Simon’s “shares have pulled back 14.8% vs the RMS -0.4% since June 8. Although we might not be at the bottom, we think shares pulling back today 5.8% vs the VNQ -1.9%, creates an attractive entry point.”

Yarmak also listed several factors playing to Simon’s favor including in-line tenant collections returning to pre-pandemic levels, weaker tenants have closed, existing tenants have shown they could withstand economic tumult, and the company’s recent bump-up of its quarterly dividend by 7.7% from $1.30 per share to $1.40. He also cited a preliminary initial public offering filing by Authentic Brands Group as being a plus for Simon.

“ABG generates much of its revenue through licensing of the brands that it owns,” Yarmak wrote. “Its largest licensee is SPARC Group, a 50/50 joint venture between ABG and SPG. The sale will allow SPG to monetize a portion of its investment.”

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What Happens Next: Yarmak added that Stifel was “adjusting our 2021E FFO to $9.89 (from $9.87), our 2022E FFO to $10.26 (from $10.21), and our 2023E FFO to $10.79 (from $10.70).”

Absent from Yarmak’s analysis was Simon’s special purpose acquisition company (SPAC), Simon Property Group Acquisition Holdings SPGS.

In its regulatory filing, the SPAC stated it “will seek to target an innovative business with the potential to disrupt various aspects of the retail industry and make a transformative impact on in-person and/or online experiences.” To date, however, the SPAC has kept a low profile.

Photo: The Westchester, a Simon Property Group mall in White Plains, New York. Photo courtesy Simon Property Group.