In March 2020, Simon Property Group (NYSE: SPG) saw its stock drop by about 60% due to the impact of the pandemic. Despite this, the company maintained a strong credit rating and had enough liquidity to cover costs for a few years even if most malls were closed. Since then, SPG has shown strong performance, outperforming the overall REIT market and almost recovering its pre-pandemic dividend levels.
Currently, SPG trades at a P/FFO of 12.3x, which is higher than other retail-focused REITs. While the company’s business model and balance sheet structure help mitigate risks, the impact of higher interest rates could affect property valuations and FFO generation. SPG’s focus on high-income consumers and fixed-rate borrowings provide some stability, but the company still faces challenges in a higher interest rate environment.
Despite these factors, SPG remains a sound business with a strong capital structure. The company has been gradually reducing its overall level of indebtedness and has a solid debt maturity profile. The TTM FFO payout level of ~57% also provides a layer of safety for investors. However, given the current multiples and subdued FFO growth projections, it may not see significant price appreciation in the near future.
As a result, it is recommended to hold Simon Property Group in a portfolio as a predictable dividend stock, but not to assume a massive exposure. While the company has strengths, the current valuation and growth outlook suggest limited potential for significant returns in the short term. Investors should consider these factors when evaluating their investment decisions.
Analyst’s Disclosure: The analyst has a beneficial long position in SPG and has expressed their own opinions in this article. They are not receiving compensation for it other than from Seeking Alpha. There is no business relationship with any company mentioned in the article.
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