Pro Pick Simon Property Group
Simon Property Group (SPG) is an S& P 100 company and the largest Real Estate Investment Trust (REIT) by market capitalisation in the world. SPG became a publicly traded company in 1993 and was borne out of the majority of the shopping centre interests of Melvin Simon & Associates, a 30-year-old shopping centre development company. Today, SPG owns, develops and manages retail real estate properties including malls, outlets and community centres in North America, Asia and Europe.
The company’s primary market is the US where approximately 90% of its netoperating income is generated. SPG has a high-quality mall portfolio, with sales per square foot second only to Taubman among its listed peers. In addition to this, SPG is a very dominant player in the US outlet space, controlling about 50% of this market. The outlet market currently has great fundamentals with demand from both retailers and consumers driving rental growth, this puts SPG in an enviable position.
SPG has also started to grow its international platform, primarily through outlets and via their 28.9% ownership in Klepierre, a publicly traded, Paris-based real estate company, which owns shopping centres in 13 European countries.
Headed by CEO David Simon, SPG have a talented management team who have done very well managing the portfolio operationally, but more importantly they have a great capital allocation track record.
SPG’s full year results for 2013 were impressive, with funds from operations (FFO) growing by 10.9% versus 2012. One of the biggest drivers of earnings growth during the year and going forward is the embedded growth in SPG’s leases, which is a result of good tenant sales growth historically.
More recently (over the past si x months) tenant turnover growth has slowed, which has been a concern for investors. There are some headwinds for retail landlords. The most evident of which has come from online retailing, however high-quality portfolios should be more resilient as retailers are unlikely to close stores in busy locations with high footfall and high sales per square foot. This preference for quality space, coupled with the almost non-existent new supply of mall space in the US, should result in steady market rental growth for SPG going forward.
SPG looks attractively priced on most metrics; trading at a discount to NAV and with a current forward FFO yield of 6.2%. Medium-term growth outlook is attractive (initial 2014 guidance of 7.9% growth in FFO) and exposure to high-quality retail assets should mean that over the long term earnings growth should be above average versus other property types.
Portfolio: As at 31 December 2013, SPG owned or had an interest in 328 properties comprising 243m square feet in North America, Asia and Europe. Additionally, SPG owned 8.9% of Klépierre.