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An Optimistic Look Towards American Consumerism

Value investing during this extremely trying time can be a trap. Technicals and fundamentals scream buy! What comes down must go up in time. All we, as value investors, must do is sit and wait for the companies to rise again. The trap however is right underneath the storm. Macroeconomic data from unemployment to GDP changes are reaching all time levels. Q1 statements are posting showing the beginning of a monstrous cliff. While trailing twelve month earnings are strong the forward earnings are looking bleaker. How deep can this economic stoppage hit? Let’s take a dive, from the technical and fundamental perspective, at Simon Property Group Inc (NYSE:SPG) that is at the heart of American consumerism.

Simon Property Group Inc is a Real Estate Investment Trust aimed at owning and managing mall properties across the United States and abroad in select locations. It’s portfolio includes 85 properties nation wide and 35 internationally with a focus in the EU and Japan. I can count no less than a dozen SPG malls throughout the US and Japan that I have visited. Their features and design of the malls continue to be visually appealing and draw large crowds at each of the properties I’ve attended. It is because of the continual visitation to these properties that drew me into researching the company.

Q1 2020 hedge fund letters, conferences and more

Simon Property Group Inc Stock Performance

Let’s begin with their chart. Simon Property Group Inc is currently priced at $52.46 with a high of $180 and low of $42. 90 day chart shows the massive sell off. From $139 on Feb 21 to $44 on Mar 18 representing a 68% drop in value. Along the fall and continued slump through Apr 22 the 20, 50, and 100 day moving averages have fallen. Expect the 100 day to accelerate downwards as April and May progress. Between Mar 18 and Apr 22 SPG has been trading within a $20 window consolidating while briefly eclipsing its 10 day moving Average. The MACD still remains negative at -7.69 and well off it’s low of -22.48. A very upbeat note is the divergence has stayed in positive territory since the beginning of the month. Conclusion: A chartist would not be purchasing this stock yet. Too much consolidation is still occuring and until a breakout occurs with the MACD or SMA’s buyers are waiting on the sideline.

Shifting to a fundamental approach to Simon Property Group Inc. What makes this company such a stalwart is its best of breed ability in the REIT industry. Within the mall and retail REITs SPG has the largest market cap of $16B and is as large as the next 4 peers combined. Out of the 4 peers 3 of them, REG FRT and BRX, are considered regional players with the 4th, KIM, specialized in shopping centers vice SPGs mall focus. All 4 have a lower revenue and dividend yield and a higher P/E than SPG. Profit margin, excluding FRT at 38.5%, are nearly half of SPGs 42.1% margin. SPGs debt leverage remains higher as a ratio and total debt than its peers. It’s ability to leverage the higher debt is benefited through a total revenue stream 3 to 5 times the amount of its peers.

The Largest REIT With The Lowest P/E ratios

With a P/E of 7.7 Simon Property Group Inc has been the hardest hit as the #1 player in the industry. SPG is one of the largest REITs in the Real Estate industry with one of the lowest P/E ratios in it. It’s dividend payout ratio stands at 7.7% and has consistently increased for 40 straight quarters. With the dividend sitting at $8.40 and 16% two things are likely to happen. A dramatic price rebound of roughly 100% to bring the dividend down to single digits or a reduction of the dividend payout. At this time I do not think It will be able to hold that level of payout and will most likely increase the dividend above the historical 10% once property cash flow has been stabilized.

David Simon is the current CEO of Simon Property Group Inc. A descendant of Melvin Simon he and his predecessors have kept control of the company in the Simon’s family. 3 other Simon’s family members occupy an executive or board member seat as well. Insider purchasing of the company has been extremely positive. Over 400K shares have been purchased since the beginning of March. David Simon alone purchased 150k shares bringing his personal ownership to almost 1 million shares. In a unanimous approval the executive leadership voted a 30% reduction in salary for all members and the CEO volunteered 100% of his pay to ensure SPG is able to operate through the current crisis. Their ability to keep the company operating is noticed with the company securing $6 billion in revolving credit bringing the total credit line up to $9.5 billion and reducing the cost of the credit from LIBOR+ 77 basis points to LIBOR+ 70 basis points.

Simons Property Group’s Growth Rate

Simons Property Group does not represent an amazing company in a hot industry. There is no 30% or more growth rate in this industry. What Simon Property Group Inc does offer is the calm and calculated planning of American consumerism. It has been directly hit by the Coronavirus and will see fall out from it. The company’s ability to reorient value and bring business and consumers alike are unparalleled. SPG will bring its cash flow and growth back with a vengeance. While you wait for a stalwart and steady grower to come back enjoy the fat dividend this dependable REIT will provide. Because of the 10 year low SPG sits at I expect to see a double within 15 months and a triple over the next 36.

Disclaimer: I own a small stake of Simon Property Group Inc in my portfolio with plans to double down.

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