Simon Property REIT: A Safe Bet for Growth and Steady Dividends

September 29, 2024 at 07:00 AM EDT

Department store or shopping mall - Stock Editorial Photography

Investors now have one more item and trend to worry about in the stock market: how lower interest rates set by the Federal Reserve (the Fed) might affect the future growth prospects for different companies, especially those that rely on steady cash flows to pay out dividends. Historically, lower rates mean lower earnings and dividends for the financial sector, but just the opposite can be said about the real estate sector.

Not all housing stocks are made equal, though, as the trend of fundamental data definitely shows investors should stay away and even consider selling the homebuilding industry, particularly names like KB Home (NYSE: KBH) and Toll Brothers Inc. (NYSE: TOL) today. However, there are equally important reasons for investors to watch an income-generating real estate investment trust (REIT) like Simon Property Group Inc. (NYSE: SPG) as lower interest rates work their way through the market.

Since this REIT portfolio holds mall and shopping center properties, investors can be safe in knowing that Simon’s tenants will likely keep vacancy rates at historic lows and also afford higher rental rates set by Simon to keep up with inflation. This is a stable income play in real estate and a growth thesis growing out of the consumer discretionary sector.

What’s Been Happening With Simon Property Group Stock Lately?

Markets remain bullish on this REIT stock, a fact that investors can check for themselves by looking at the chart alone. A new 52-week high would suggest markets have a preference for this name over the broader S&P 500 index, as the market has seen increased volatility lately.

More than that, the company reported a positive quarterly earnings result, further building a potential bullish case for the coming quarters. The bottom line jump to $1.51 earnings per share (EPS) compared to $1.49 from a year prior was something the entire market looked at for reference, but here’s something they might have missed.

In the company’s quarterly earnings press release, Simon Property Group's main drivers stand out. Net operating income (NOI) increased by 5.2% over the year, a widely watched metric in the world of real estate. Over the past 12 months, it outpaced inflation to show pricing power and leadership in the Group’s portfolio.

Occupancy is another big driver in real estate, and Simon Property Group reported net occupancy rates of up to 95.6%, higher than the 94.7% reported for the same quarter last year.

Now, here’s what’s behind all the growth: base minimum rent per square foot increased by 3.0% over the year to $57.94.

The fact that both occupancy and rental rates went up together means that Simon’s tenants are not only of high quality but also happy with their leases and likely to continue to renew in the years to come, disqualifying any bearish theses regarding the importance of physical shopping real estate.

Now, for the part investors really want to know, the company announced a quarterly stock dividend of $2.05 a share, a $0.15 jump from last year, and a 7.9% growth rate.

On an annual basis, that would make today’s payout a yield of 4.9%, beating both inflation and the ‘risk-free’ rate of return in the U.S. treasury bond yields.

The Market’s Outlook on Simon Property Group Stock and Its Future Prospects

It’s all about future growth expectations, and Simon Property Group has enough Wall Street analysts on its side to give a bullish forecast for the next 12 months of EPS growth. Going to $2.99 in EPS from today’s $1.51 means a jump of nearly 100% in profits.

Faced with this growth and fundamental tailwinds built into the company’s real estate portfolio, bearish traders decided to stay away from this company, as judged by the stock’s low 1.8% short float today. But the bullishness for retail investors to consider doesn’t end there.

Analysts at Piper Sandler decided to boost their price targets for Simon Property Group stock up to $175 a share.

This directly calls for a net upside of 5.2% from where the stock trades today, which seems a bit conservative compared to the doubling in EPS Wall Street expects out of the company next year.

This sentiment made it out of Wall Street as well; investors can look at the $4.6 billion in institutional capital that made its way into the company over the past 12 months, reaching a 93% institutional ownership rate today.

Leading the way as of August 2024, those at HSBC Holdings decided to boost their holdings by 6.7% to net their investment up to $162.7 million today.

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Simon Property REIT: A Safe Bet for Growth and Steady Dividends

What’s Been Happening With Simon Property Group Stock Lately?

The Market’s Outlook on Simon Property Group Stock and Its Future Prospects

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