Pro Pick Si­mon Prop­erty Group

Finweek English Edition - - INSIDE -

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.

Jamie Boyes

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