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1 Analyst Weighs In On Simon Property Group's Activity, Earnings & Guidance

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1 Analyst Weighs In On Simon Property Group's Activity, Earnings & Guidance

Argus on Monday published a note updating global mall REIT Simon Property Group Inc (NYSE: SPG) after the company reported Q1 earnings and updated 2015 guidance.

Simon's U.S. peer group includes:

  • General Growth Properties Inc (NYSE: GGP) - $24.7 billion cap, 2.44 percent yield.
  • Macerich Co (NYSE: MAC) - $14 billion cap, 3.15 percent yield.
  • Simon Property Group - $58 billion cap, 3.3 percent forward yield; based on recent dividend increase to $6.00 annually.

Early Q2 Mall Deal Flurry

On April 1, Simon Property Group withdrew its offer to purchase Macerich for $95.50 per share, though it still holds a 3.6% position in Macerich. On April 2, Simon announced a two-year $2 billion share buyback program.

Related Link: Buckle Up, Mall REIT Investors">

All three of these mall landlords have recently announced JV arrangements with Sears Holdings (NASDAQ: SHLD).

Subsequent to Q1 2015, Simon and Sears announced a JV for 10 stores located in Simon malls, generating $114 million in much needed cash for Sears. The JV can re-lease Sears store space to third-parties for higher rates, subject to certain restrictions. Additionally, Simon Property Group purchased a McAllen, TX mall location outright from Sears.

Tale Of The Tape - Past Year

spg_-_ychart_vs_peers_argus.jpg

Washington Prime Group Inc (NYSE: WPG) was spun out of Simon Property Group in May 2014, and subsequently acquired mall REIT WP Glimcher.

Simon's former open air centers and smaller malls based upon sales and sales per square foot, were assets contributed by Simon Property Group to form WPG. Some Simon Q1 2015 metrics are pro-forma, net of WPG assets in year-over-year comparisons.

During the past 52 weeks, Simon Property shares have traded in a range of $157.04-$204.83 per share.

Argus - Simon Property Group: Maintain Buy, $215 PT

The Argus $215 price target represents a potential ~16.7 percent upside for SPG from its previous close of $184.17 per share, or a total return of 20 percent including dividend yield.

Simon reported FFO of $2.38 per share vs $2.28 per share year-over-year, "beating $2.25 per share consensus estimate." Argus noted that FFO per share increased 6.5 percent year-over-year excluding the WPG spin.

On April 28, Simon increased its annual dividend to $6 per share, an increase of 7.1 percent quarter-over-quarter, and 15 percent year-over-year. Simon raised both ends of its guidance range a nickel per share to $9.65-$9.75 per share; Argus maintained its 2015E FFO at $9.76 per share, noting an SPG management history of conservative guidance.

The Argus target price of $215 per implies a multiple of 20.2x Argus' 2016E FFO of $10.65 per share. Argus' long-term growth rate forecast for SPG remains at 8 percent.

Simon Property - NOI Breakdown

spg_-_1q15_noi_pie_chart.jpg
Source: Simon 1Q15 - Supplemental

Argus - Simon Property: Rationale

  • Development pipeline: Argus noted that SPG "…has a solid development pipeline of $2.1 billion, which along with new joint venture investments, should drive FFO growth going forward."
  • Pricing: "Average rent per square foot rose 4.5% from the prior year to $47.59."
  • Sales/SF: "Total tenant sales per square foot, which include sales for mall stores less than 10,000 square feet and all premium outlet stores, came to $621 as of March 31, up from $612 a year earlier."
  • Re-leasing spreads: were up 18.9 percent, which Argus noted was "an indication of SPG's continued strong pricing power." However, re-leasing spreads were up 21.1 percent during the same period last year.
  • Joint Ventures: Simon entered into a 42 store JV agreement with Hudson's Bay Company during Q1 valued at $1.7 billion.
  • Acquisitions: In January, Simon closed on two Class-A malls valued just over $1 billion, acquired in conjunction with the WPG/Glimcher merger.

Simon Property - Credit Profile/Dividend

spg_-_1q15_credit_profile_slide.jpg
Source: Simon 1Q 2015 - Supplemental

Notably, even with the recent dividend raise, Simon's FFO payout ratio remains relatively low, in the 60 percent range.

Argus is raising its 2015 dividend estimate to $5.90 from $5.60 and our 2016 estimate to $6.15 from $6.00 per share, "to better reflect future cash flows."

Argus - Simon Property: Bottom Line

Argus noted that "core fundamentals at SPG remain strong, with the company reporting solid NOI growth, occupancy above 95%, and strong pricing trends." Argus "expect[s] the company to continue to grow through expansion projects and internal redevelopment."

Latest Ratings for SPG

DateFirmActionFromTo
Dec 2020Argus ResearchDowngradesBuyHold
Nov 2020Morgan StanleyMaintainsEqual-Weight
Oct 2020Truist SecuritiesMaintainsHold

View More Analyst Ratings for SPG
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