As a part of its portfolio strategy, Simon Property Group (SPG) has undertaken a slew of development and redevelopment projects in recent years. Its capitalization rate, which as shown an upward yield curve, has expanded during past few years—a suitable period to engage in speculative development, because these expansions improve the capital value of its assets.
Projects currently underway
Redevelopment and expansion projects, includingthe addition of more anchors and big box tenants, are currently underway at 25 properties across the US. Most of the redevelopment and development projects underway for Simon Property are happening across California—like as the Del Amo Fashion Center in Torrance and the Stanford Shopping Center in Palo Alto—but other notable projects elsewhere, like the Haywood Mall in Greenville, South Carolina. California is closely followed by Florida and Texas, which has development projects underway like The Shops at Clearfork in Fort Worth, an upscale retail component of mixed-use development.
There are other notable development projects underway in international properties as well—such as in Vancouver, Canada, where a 242,000 square feet outlet featuring 90 designer and name-brand stores is planning to open at the Vancouver International Airport.
During the heydays of the housing crash in 2008, Simon Property incurred capital expenditure on redevelopment and expansion projects of $759 million. However, in the subsequent years, the company had to curtail its capital expenditure due to less demand for lease space.
The company witnessed a spike in capital expenditures in 2013 and 2014, spending $509 million and $500 million in those years, respectively. The approximate cost of all Simon Property’s development and redevelopment projects currently under construction is $2.1 billion.
The company expects to fund these capital projects with cash flows from operations. The company’s estimated return on invested capital typically ranges between 8% and 12% for all new developments, expansions, and redevelopment projects. This rise in projects that focus on redevelopment and expansion bodes well for Simon Property, as it ensures future income stream.
Investors looking for exposure in commercial real estate can invest in REIT ETFs. Simon Property Group and Public Storage (PSA) make up 8.16% and 4.06% of the Vanguard REIT ETF (VNQ), respectively. Equity Residential (EQR) comprised 6.70% of the iShares Cohen & Steers REIT ETF (ICF).
In the next part of this series, we’ll discuss Simon Property’s funds from operations.