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Simon Property Group: Altering Strategies to Target Growth in 2018

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Macroeconomic factors

Simon Property Group (SPG) is growing continuously because of increased customer spending and the improved macroeconomy. Further, it is targeting expansion via outdoor shopping, eating, attractions, and combined eating and shopping centers compared to the traditional shopping center.

The construction of two new outlet centers in Edmonton, Canada, and the north side of Denver, Colorado, has begun. These centers are expected to open in the spring and fall of 2018, respectively.  

Development is proceeding on a few noteworthy redevelopments and extensions, including The Shops at Riverside, Aventura Mall, and Toronto Premium Outlets, which are expected to open over the next 12 months.

2018 expectations

Simon Property Group (SPG) is engaged in developing and managing retail real estate properties, which consist primarily of malls and premium outlets. SPG’s revenues are expected to grow ~3.1% in 2018. This growth can be attributed to the opening of new centers.

Simon Property Group is expected to pay a dividend of $7.15 per share in 2017, an increase of 10.0%, and is expected to increase it further in 2018. It expects net income to be $6.23–$6.28 per diluted share for the year ending December 31, 2017.

Productive 3Q17

Simon Property Group’s malls and outlets posted occupancy of 95.3% in 3Q17, an increase of 10 basis points from 2Q17. Base rents were $52.42, up 3.3% compared to last year, reflecting stronger retail demand and pricing power.

Total portfolio valuation increased 4.8% year-to-date (or $212.0 million) and 3.9% for 3Q17 on a year-over-year basis.

The company’s funds from operations (or FFO) for 3Q17 stood at $2.89 per share, an increase of 7.0% compared to 3Q16. General Growth Properties (GGP), Macerich (MAC), Kimco Realty (KIM), and Equity Residential (EQR) recorded FFO of $0.37, $0.96, $0.38, and $0.80, respectively.

Investors looking for exposure to commercial real estate can invest in REIT ETFs. Simon Property and its competitors comprise ~12.4% of the Vanguard REIT ETF (VNQ).

In this series, we’ll look into SPG’s growth outlook, the impact of external and internal factors, the company’s strengths, shareholder payouts, and valuations.

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