Simon Property Group: Hunting For Bargains Again

  • Simon Property has a high dividend yield of 8%, seems to be extremely undervalued at this point, and is probably a bargain.
  • The company doesn’t have an economic moat but is nevertheless performing with rather high levels of consistency.
  • Despite headwinds in the next few quarters and e-commerce putting pressure on brick and mortar, the long-term growth story seems to be intact.

In July 2020, I started to look closer at banks for the first time and analyzed several companies from Sweden, Canada, and the United States. In this article, I will once again look at a type of company, which I didn’t really analyze before (I briefly mentioned the company here) – a real estate investment trust. At least on Seeking Alpha, Simon Property Group (SPG) seems to be one of the most prominent REITs and the company got my attention not only due to its prominence on Seeking Alpha but also due to the extremely steep decline in February and March 2020. At this point, Simon Property Group is still trading 70% below its former all-time highs and such a steep sell-off is sometimes creating great buying opportunities as the market is sometimes wrong about these companies and excessive fear is leading to very cheap prices.

Simon Property Group doesn’t fit all of my investment criteria and probably doesn’t have a wide economic moat around its business (we will get to that point). Hence, we have to take a very close look at the business to avoid potential mistakes before considering an investment. We will look at the dividend (which is presumably one of the most important reasons for many to invest in REITs) and try to answer the question if Simon Property Group has an economic moat. We will also look at risks the business is facing as well as the growth potential and provide an intrinsic value calculation. But we will start with a short business description.

Business Description

Simon Property Group, Inc. is a self-administered and self-managed real estate investment trust. It is the largest REIT as well as the largest shopping mall operator in the United States. As of June 30, 2020, the company owned or had an interest in 235 properties comprising 191 million square feet in different countries all over the world (mostly in the United States, in Europe and in Asia). In June 2020, it owned or held an interest in 204 income-producing properties in the United States – 99 malls, 69 premium outlets, 14 mills, four lifestyle centers, and 18 other retail properties. Internationally, Simon Property Group had ownership in 31 premium outlets and designer outlet properties, which were primarily located in Asia, Europe, and Canada. The company also has a 22.4% ownership interest in Klépierre (OTCPK:KLPEF), a publicly-traded, Paris-based real estate company, which owns shopping centers in 15 European countries. Klépierre is Europe’s second-biggest publicly-traded mall operator.