Simon Property Group: Still In My Portfolio But Certainly Not Adding More

Core Viewpoint - Simon Property Group (SPG) has shown strong total return performance since the last analysis in March 2020, significantly outperforming the overall REIT market [1] - The company has nearly restored its pre-pandemic dividend level, with the current quarterly dividend at $2.0 per share, yielding 5.4% [2] - Despite the positive performance, there is caution regarding future return prospects due to SPG's share price divergence from the overall REIT index [2] Valuation Metrics - SPG currently trades at a P/FFO of 12.3x, which is relatively high compared to other retail-focused REITs, with Macerich Company (MAC) at 9.2x [3] - The P/FCF metrics indicate that SPG's valuation is in line with pre-pandemic levels, and the dividend yield is also similar to pre-pandemic figures [3] Interest Rate Impact - Higher interest rates are expected to create a discount for SPG compared to pre-pandemic valuations, affecting property valuations and FFO generation [5] - SPG's business model, focusing on high-income consumers and trophy-like malls, helps mitigate risks associated with rising borrowing costs [5] - Approximately 97% of SPG's borrowings are fixed, with a well-laddered maturity profile, reducing immediate refinancing risks [5] Financial Performance - SPG has achieved an ~11% CAGR in FFO over the past three years, but FFO is nearly flat when compared to 2019 levels [6] - Analyst consensus estimates indicate almost no growth in FFO for 2025-2026, suggesting potential challenges in shareholder wealth creation when adjusted for inflation [6] Business Model Strength - SPG's business model is robust, designed to de-risk cash flows from declining consumer spending in lower-income brackets [7] - The capital structure is strong, with a gradual reduction in overall indebtedness since 2020, and a TTM FFO payout level of ~57% provides additional safety [7] Investment Recommendation - While SPG is viewed as a predictable dividend stock, it is not recommended to assume a massive exposure due to current multiples being similar to pre-COVID levels and subdued FFO growth projections [8] - The recommendation is to hold Simon Property Group [8]