Simon Property Group: An Optimistic Look Towards American Consumerism

Shifting to a fundamental approach to Simon Property Group Inc. What makes this company such a stalwart is its best of breed ability in the REIT industry. Within the mall and retail REITs SPG has the largest market cap of $16B and is as large as the next 4 peers combined. Out of the 4 peers 3 of them, REG FRT and BRX, are considered regional players with the 4th, KIM, specialized in shopping centers vice SPGs mall focus. All 4 have a lower revenue and dividend yield and a higher P/E than SPG. Profit margin, excluding FRT at 38.5%, are nearly half of SPGs 42.1% margin. SPGs debt leverage remains higher as a ratio and total debt than its peers. It’s ability to leverage the higher debt is benefited through a total revenue stream 3 to 5 times the amount of its peers.

The Largest REIT With The Lowest P/E ratios

With a P/E of 7.7 Simon Property Group Inc has been the hardest hit as the #1 player in the industry. SPG is one of the largest REITs in the Real Estate industry with one of the lowest P/E ratios in it. It’s dividend payout ratio stands at 7.7% and has consistently increased for 40 straight quarters. With the dividend sitting at $8.40 and 16% two things are likely to happen. A dramatic price rebound of roughly 100% to bring the dividend down to single digits or a reduction of the dividend payout. At this time I do not think It will be able to hold that level of payout and will most likely increase the dividend above the historical 10% once property cash flow has been stabilized.

David Simon is the current CEO of Simon Property Group Inc. A descendant of Melvin Simon he and his predecessors have kept control of the company in the Simon family. 3 other Simon family members occupy an executive or board member seat as well. Insider purchasing of the company has been extremely positive. Over 400K shares have been purchased since the beginning of March. David Simon alone purchased 150k shares bringing his personal ownership to almost 1 million shares. In a unanimous approval the executive leadership voted a 30% reduction in salary for all members and the CEO volunteered 100% of his pay to ensure SPG is able to operate through the current crisis. Their ability to keep the company operating is noticed with the company securing $6 billion in revolving credit bringing the total credit line up to $9.5 billion and reducing the cost of the credit from LIBOR+ 77 basis points to LIBOR+ 70 basis points.

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