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6 Reasons to Add Simon Property Group (SPG) Stock Right Now

Improving economy, widespread vaccination, boost in shopper confidence and strong consumer spending raise hopes for the Retail REIT industry constituents in the days to come.

The retail REIT behemoth — Simon Property Group SPG — is particularly well poised to ride this growth curve backed by its portfolio of premium retail assets in the United States and abroad, solid operating fundamentals, and strategic moves. Its second-quarter 2021 adjusted funds from operations (FFO) per share of $2.92 handily exceeded the Zacks Consensus Estimate of $2.37 on better-than-anticipated top-line growth.

Shares of Simon Property have gained 9.3% in the past month, outperforming its industry’s rally of 4.3%. Also, the recent trend in the 2021 FFO per share estimate revision indicates a favorable outlook for the company as the estimate moved nearly 5% north to $10.33 over the past month. This Zacks Rank #2 (Buy) stock is likely to rally further in the near term on a number of favorable factors.

Image Source: Zacks Investment Research

Let’s explore what makes it a solid choice:

Premium Asset Base: Simon Property enjoys a wide exposure to retail assets across the United States. Moreover, the company’s international presence fosters sustainable long-term growth as compared with its domestically-focused peers. The REIT’s ownership stake in Klépierre facilitates the expansion of its global footprint, which gives it access to premium retail assets in the high barrier-to-entry markets of Europe. We believe, diversification, with respect to both product and geography, will help it grow over the long term.

Omni-channel Strategy: Adoption of an omni-channel strategy and successful tie-ups with premium retailers have been aiding the company. Particularly, the company’s online retail platform, weaved with an omni-channel strategy, will likely be accretive to its long-term growth. It is also tapping growth opportunities by assisting digital brands to enhance their brick-and-mortar presence, as well as banking on buying recognized retail brands in bankruptcy. Additionally, Simon Property is exploring the mixed-use development option, which has gained immense popularity in recent years among those who prefer to live, work and play in the same area.

Acquisitions, Development and Redevelopment: The retail REIT has been restructuring its portfolio, aiming at premium acquisitions and transformative redevelopments. In fact, for the past years, the company has been investing in billions to transform its properties focused on creating value and drive footfall at the properties. After a temporary pause amid the pandemic, it is now active again in redevelopment and new developments. Late last December, Simon Property also completed the acquisition of Taubman Centers, Inc., adding a number of premier retail assets to the company’s portfolio.

Vaccination Drive, Consumer Spending to Aid Recovery: With the widespread vaccination, improving economy and solid consumer spending, the company is anticipated to see growth in both its earnings and cash flow during 2021. Leasing activity gained pace in the second quarter and the company signed nearly 1,400 leases for 5.2 million square feet and has a significant number of leases in its pipeline. In addition, collection from its U.S. retail portfolio improved.

Also, management raised the 2021 FFO per share guidance and now projects the same at $10.70-$10.80, up from the $9.70-$9.80 guided earlier, suggesting an increase of $1.00 per share at the mid-point.

Balance Sheet: Simon Property is steadily making efforts to bolster its financial flexibility. This enabled the company to exit the second quarter with more than $8.8 billion of liquidity. Simon Property’s total secured debt to total assets was 22%, while the fixed-charge coverage ratio was 4.2 as of Jun 30, 2021, well ahead of the required level. Moreover, the company enjoys a corporate investment-grade credit rating of A- from Standard and Poor's and a senior unsecured rating of A3 from Moody’s. With solid balance-sheet strength and available capital resources, it is well poised to navigate through the pandemic blues and bank on the opportunities generating from market turbulences.

Dividend: Solid dividend payouts are the biggest enticement for REIT investors, and Simon Property is committed to boosting shareholder wealth. In August, management announced a 7.1% hike in its third-quarter 2021 dividend. The company will now pay $1.50 per share compared with the $1.40 paid earlier. Besides, the company paid its second-quarter dividend of $1.40 per share, in cash, on Jul 23, which marked a 7.7% hike, sequentially, and year over year. The latest hike brings additional relief for investors and reaffirms confidence in this retail landlord.

Other Key Picks

Federal Realty Investment Trust’s FRT FFO per share estimate for the current year moved up 1.9% to $4.88 in the past week. The company carries a Zacks Rank of 2, currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Regency Centers Corporation REG holds a Zacks Rank of 2, at present. The Zacks Consensus Estimate for 2021 FFO per share has been revised 3.2% at $3.52 in a month’s time.

SITE Centers Corp.’s SITC Zacks Consensus Estimate for the ongoing-year FFO per share has moved 4% north to $1.05 over the past month. The company carries a Zacks Rank of 2, currently.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Simon Property Group, Inc. (SPG): Free Stock Analysis Report
Federal Realty Investment Trust (FRT): Free Stock Analysis Report
Regency Centers Corporation (REG): Free Stock Analysis Report
SITE CENTERS CORP. (SITC): Free Stock Analysis Report
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