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Simon Property bucks the retail trend

The outlook for the US’s largest and highest-paying dividend stocks
April 11, 2019
  • Dividend policy: “To pay dividends to our stockholders equal to our taxable income.”
  • Forward yield: 4.48 per cent.
  • Payment: Quarterly, in cash.
  • Last cut: 2009.

With an interest in more than 200 properties across North America, Asia and Europe, shopping mall operator Simon Property (NYSE:SPG) is the largest real estate investment trust (REIT) in the US.

However, that doesn’t make it immune to the change in consumer trends towards online shopping. And that trend is proving brutal for high streets and malls alike. Across the US, more than 5,000 stores have closed their doors so far in 2019, which is already nearly as many as closed in the whole of 2018.

In response to the growing trend of shopping on-line, it is launching its Shop Premium Outlets this spring, which will feature 2,000 selected brands and more than 300,000 products. However, to kick start the launch some brands will be discounted by as much as 65 per cent of the normal retail price.

But despite the retail woes on the high street, Simon Property has so far managed to buck the trend, with earnings in 2018 up by a quarter from a year earlier, and occupancy remaining high at 96 per cent.

As a REIT, Simon Property is obliged to pay out at least 90 per cent of its taxable income in dividends, and for the year to December 2018 this delivered a yield of 4.5 per cent. It also means that to finance acquisitions and any other major outlays it has to either issue equity, which is earnings dilutive, or incur more debt. It could also crystallise gains on mature assets through disposals, although the appetite for retail assets suggests that there would be a greater risk of selling at a discount to book value. However, total debt stands at $23.3bn, and the company estimates that net debt already equates to 5.1 times net operating income, giving a loan-to-value ratio of 74 per cent.

The worry is that consensus forecasts for the next three years suggest that diluted earnings per share will not deliver any growth, while the shares, trading on 26 times forecast earnings per share (EPS) for the year to December 2019, are not cheap. 

Simon Property   
Ord Price: 18,445¢ Market Value: £57.0bn  
Touch: 18,438-18,448¢ 12-Month High: 9,149¢ Low: 14,578¢ 
Forward Dividend Yield: 4.7% P/Ffo **: 15   
Premium To NAV: 33% Net Debt/Net Operating Income: 5.1x 
Investment Properties: $24.2bn  
**Price to funds from operations  
Year to 31-DecNet Income ($bn)Pre-tax profit (£bn)Earnings per share (¢)Dividend per share (¢)
20161.892.2258765
20172.072.39624715
20182.152.58787790
2019*2.32.46679826
2020*2.412.57713861
% change5454
*Bloomberg consensus (adjusted) Matched bargain tradingBeta: 0.39