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Simon Property Aims Redevelopment, Buyouts: Will You Hold?

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We updated our research report on Simon Property Group Inc.SPG on Apr 11, 2016.

This retail real estate investment trust recently revealed its plan to add a luxury hotel and residential tower to The Galleria in Houston. The move is part of a multi-year transformation project of this iconic property that is not only the largest shopping center in Texas but also the fourth largest in the U.S. (Read: Simon's Galleria Transformation to Include Hotel, Residences )

Moreover, in March, a venture of Simon Property and Invesco Ltd. IVZ inked a definitive deal to acquire The Shops at Crystals for around $1.1 billion from CityCenter Holdings, LLC, a venture between MGM Resorts International MGM and Infinity World Development Corp. The move marks an opportunity for Simon Property and its venture partner to add a high-quality asset in a thriving marketplace. (Read: Simon, Invesco to Buy Las Vegas Mall from MGM, Infinity )

On the earnings front, Simon Property came up with fourth-quarter 2015 funds from operations ("FFO") of $2.40 per share, down by 7 cents from the figure in the year-ago quarter. Excluding debt extinguishment loss, adjusted FFO came in at $2.73 per share. The Zacks Consensus Estimate for the quarter was $2.44. Total revenue in the quarter increased 6.4% year over year to $1.38 billion. Further, the figure surpassed the Zacks Consensus Estimate of $1.35 billion.

Simon Property's diversified exposure to retail assets in the U.S. and abroad, efforts to support omni-channel retailing, portfolio-restructuring initiatives and a healthy balance sheet augur well for future growth. Further, the company remains focused on increasing its shareholders' value through dividend hikes. In 2015, the company paid a dividend of $6.05 per share, which marks a 5-year (2011-2015) compound annual growth rate of over 18%.

However, a large development pipeline increases this Zacks Rank #3 (Hold) stock's operational risks. Moreover, apart from competing with other retail properties, Simon Property faces competition from alternative retail channels such as catalogs and e-Commerce websites. While the company is striving to counter such pressure through various initiatives, we believe that the implementation of such measures require a decent upfront cost and therefore, would limit growth in its profit margins in the near term. And any hike in the interest rate will pose as a challenge before Simon Property.

Finally, Simon Property is slated to release its first-quarter 2016 results before the market opens on Apr 26. Currently, the first-quarter FFO per share estimate is pegged at $2.54, representing a year-over-year increase of 11.6%.

Investors interested in the retail REIT industry may consider a better-ranked stock like General Growth Properties, Inc GGP which carries a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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MGM RESORTS INT (MGM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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