Healthy Trends For Retail REITs: Simon Property Group, Inc (SPG), General Growth Properties Inc (GGP)

The company has a vast global footprint, which diversifies its risks. If the occupancies and rents in the American markets are under pressure it can gain from other markets. This is a key competitive advantage of Simon Property over most of its other competitors.

Competitors

General Growth Properties Inc (NYSE:GGP) and Realty Income Corp (NYSE:O) are among the competitors of SPG. General Growth has a large concentration in the US real estate market, with a few properties in Brazil. The company reported strong fourth quarter earnings on Jan. 4, 2013. Higher occupancy and sales at its malls were reported to be the reasons for beating the Street’s estimates. Analysts were expecting FFO of $0.29, while the company posted an FFO of $0.31 per common share. The company reported that FFO rose to $312 million from $253 million a year ago.

On the other hand, Realty Income is exclusively invested in the US real estate market. Therefore, a downturn in the US real estate markets will hurt Realty Income and General Growth Properties more than Simon Property Group. Still, the company reported a record 20% hike in its dividend following the completion of the acquisition of American Realty Capital Trust. The stock is currently yielding 5%, while it distributes its dividends on a monthly basis. It expects normalized FFO in the range of $2.32 – $2.38 per share for 2013. In comparison, normalized FFO for 2012 is estimated to be within $2 – $2.04 per share. The new monthly dividend brings the FFO payout ratio to a range between 91% – 93%, which is high. This might limit future distribution growth for the next few years.

Valuations

Simon Property is currently trading at 33 times its earnings, while its closest competitor, Reality Income, is trading at 51 times their earnings. Since General Growth Properties produced negative earnings, its price to earnings ratio is not meaningful.

Conclusion

I am bullish on Simon Property Group due to its potential to grow the bottom line, its extensive global footprint, and attractive valuations. Simon, one of America’s largest equity REITs, has shown healthy trends in its fourth quarter earnings, which I believe will be seen when its peers report their performances.

The article Healthy Trends For Retail REITs originally appeared on Fool.com and is written by Adnan Khan.

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