Morgan Stanley Upgrades Simon Property Group On Potential Earnings Recovery

While the retail REITs segment faces increasing secular challenges, Simon Property Group Inc SPG has multiple drivers of earnings growth, according to Morgan Stanley.

The Simon Property Group Analyst: Richard Hill upgraded Simon Property Group from Equal-Weight to Overweight, while raising the price target to $125.

The Simon Property Group Thesis: The company’s earnings seem to have bottomed out in 2020, with a majority of the earnings decline being driven by rent abatements, Hill said in the note. He mentioned four drivers for Simon Property Group’s earnings ahead:

• Potential recovery of abatements, estimated at a recovery of $410 million.
• The closing of the TCO acquisition and improved retailer negotiating leverage, estimated to contribute $360 million.
• Between $55 million and $75 million from retailer investments
• “$60mn from $800mn of re/development,” the analyst wrote.

“We model +6.1% FFO growth in '21e as total NOI growth (including TCO) rebounds to +9.5%. Importantly, we do not assume $410mn of abatements are recovered, which suggest significant potential upside,” Hill added.

SPG Price Action: Shares of Simon Property Group had risen by 3.31% to $109.75 on Thursday.

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