Simon Property Group (SPG) delivered disappointing Q4 earnings results after the market closed on February 8. The company reported earnings per share of 2.17, which was six cents below analysts’ estimates of $2.23. Additionally, SPG missed on revenue, delivering $1.13 billion. This reflects a miss of $20 million.
One of the bright spots for the company was that it has collected 90% of its net billed rents in the last three quarters of 2020. This was up from 85% in the prior quarter, and has to come as a relief to investors who are looking for confirmation that the retail economy is beginning to come back to life.
The miss on both the top and bottom lines is a reminder that the retail recovery is still in its early innings. That fact was acknowledged by CEO David Simon, who said that the company is still attempting to resolve rent issues for some large retailers.
One concern hanging over SPG is its debt level. However, Simon confidently put to bed any long-term concerns by noting there was “no chance” the company would have its rating downgraded.
There is reason to believe that the sector will post a strong recovery, particularly in the second half of 2021. And Simon said on the earnings call that high quality suburban areas will be where the action is.
Although the retail space hasn’t fully bounced back, Simon Property Group is still a buy because the stock has room to run as long as the recovery picks up steam.
SPG Stock Has Been a Strong Buy
SPG stock surged over 2% prior to the earnings report. However, rather than being a buy the rumor, sell the news event, the stock was still moving higher in after-hours trading. To investors in the stock, this is not a surprise, SPG has a habit of moving higher after earnings no matter how it performed during the quarter.
Simon Property Group,perhaps the most well-known real estate investment trust (REIT), had a year it would rather forget in 2020. But since Election Day, SPG stock is behaving as if the retail economy was enjoying a V-shaped recovery that it surely is not. The stock is up 25% over the last three months.
Perhaps one reason was SPG’s strategy of buying up bankrupt retailers. It was a bold move that helped keep tenants in its properties. And in its earnings report, it’s an investment that is paying off for the company.
A Retail SPAC?
Simon Property Group is one of the latest companies to jump on the special purpose acquisition company (SPAC) trend. The company announced it was forming an SPAC, and in its registration document sent to the SEC, Simon Property said the goal was “to identify innovative businesses with the potential to disrupt various aspects of the retail, hospitality, entertainment and real estate industries and make a transformative impact on in-person and/or online experiences.”
The SPAC will trade on the New York Stock Exchange (NYSE) under the ticker symbol (SPGS.U). Because the company is in the quiet period, there was no more information forthcoming in the earnings report. However, investors should pay close attention to the offering. In identifying a target, one has to imagine it will be looking for a company that would make a good tenant – and potentially help deliver foot traffic back to the company’s portfolio of malls.
Wall Street’s Take
As 1 Buy, 7 Holds and 1 Sell have been assigned in the past three months, SPG gets a Hold consensus rating. In addition, with the average analyst price target clocking in at $95.43, shares could dip 4% in the year ahead. (See Simon Property stock analysis on TipRanks)
SPG Stock Remains a Cautious Buy
Simon Property Group has an attractive P/E ratio of 22.49, as of this writing. With that said, SPG stock is still far off its pre-pandemic price of $144.30, with shares currently changing hands for $98.94 apiece. That means if the economy delivers strong growth in the second half, investors will be rewarded. And this name still offers a solid dividend that continues to look safe and has a yield currently sitting at 6.2%.
Disclosure: On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
