Simon Property Group SPG, the giant retail REIT, is well positioned to ride this growth curve, supported by its portfolio of premium retail properties in the U.S. and abroad, solid operating fundamentals and strategic actions.

In early August, Simon Property reported second quarter 2024 earnings per share (FFO) of $2.90, up from $2.88 in the prior year period. An increase in revenue, helped by an increase in base rent per square foot and occupancy rates, supported the results. SPG also raised its 2024 FFO per share forecast and increased its dividend. For 2024, Simon Property now forecasts FFO per share in the range of $12.80 to $12.90, up from the previously forecast range of $12.75 to $12.90.

David Simon, Chairman, CEO and President of Simon Property Group, stated, “We continue to invest in our retail real estate platforms with transformative redevelopments, including the addition of mixed-use components, and select new developments, including the opening of Tulsa Premium Outlets on August 15, 2024, which are 100% leased.”

SPG shares have risen 13.7% year-to-date against the industry’s gain of 9.1%. The trend in FFO per share forecast revisions for 2024 also points to a positive outlook for SPG as they have risen 1.7% to $12.85 in the past two months. This Zacks Rank #2 (Buy) stock is likely to continue rising in the near future due to several favorable factors.

Image source: Zacks Investment Research

Let’s examine what makes SPG stock a solid choice

Premium Asset Base: Simon Property has a broad retail presence throughout the United States. In addition, SPG’s international presence promotes sustainable long-term growth compared to its domestically focused competitors. The REIT’s investment in Klépierre facilitates the expansion of its global presence and gives it access to prime retail stores in European markets with high barriers to entry. Diversification in both products and geography will help SPG grow over the long term.

Simon Property’s adoption of an omnichannel strategy and successful collaborations with premium retailers have paid off. The online retail platform combined with an omnichannel strategy is expected to boost the company’s long-term growth. The company is also focused on helping digital brands improve their presence in brick-and-mortar stores.

Improving the leasing environment: In the first half of 2024, SPG signed 572 new leases and 1,251 renewals (excluding anchor and large-scale properties, new construction, redevelopments and leases of one year or less) with a fixed minimum rent for its U.S. portfolio of shopping centers and premium outlets. This comprised approximately 6.6 million square feet, of which 5.1 million square feet were consolidated properties. Given the favorable environment for retail real estate, this leasing momentum is expected to continue in the coming quarters.

As of June 30, 2024, the occupancy rate for the U.S. Malls and Premium Outlets portfolio was 95.6%, up 90 basis points from 94.7% as of June 30, 2023. The minimum base rent per square foot for the U.S. Malls and Premium Outlets portfolio was $57.94 as of June 30, 2024, an increase from $56.27 as of June 30, 2023, a 3% increase.

Acquisitions, development and restructuring: Simon Property has restructured its portfolio, focusing on best-in-class acquisitions and transformative redevelopments. Over the past several years, the company has invested billions in transforming its properties, with a focus on adding value and increasing footfall at properties. In addition, Simon Property is executing redevelopment and expansion projects, including adding anchor tenants, major tenants and restaurants to properties in North America and abroad.

Simon Property focuses on generating customer traffic to its retail properties through marketing efforts and strategic corporate alliances, including the creation of mixed-use destinations. The mixed-use development option has grown tremendously in popularity in recent years as it helps attract the attention of people who prefer to live, work, play, stay and shop in the same area.

Balance: Simon Property is making efforts to strengthen its financial flexibility, which enabled the company to close the second quarter of 2024 with liquidity of $11.2 billion. As of June 30, 2024, Simon Property’s total debt to total assets was 17%, while the fixed cost coverage ratio was 4.3, above the required level.

In addition, the company has a corporate investment grade credit rating of A- (stable outlook) from Standard and Poor’s and a senior unsecured rating of A3 (stable outlook) from Moody’s. With solid balance sheet strength and available capital resources, the company remains well positioned to weather any crisis and capitalize on growth opportunities.

Dividend: Solid dividend payouts are the biggest incentive for REIT investors, and Simon Property is committed to increasing shareholder wealth. At the same time as releasing its second-quarter results, Simon Property announced a quarterly dividend of $2.05 for the third quarter of 2024, up 2.5% quarter-over-quarter and 7.9% year-over-year.

This retail REIT has increased its dividend eleven times over the past five years. Given the company’s solid operating platform, growth opportunities, and strong financial position relative to the industry, this dividend rate is expected to be sustainable over the long term.

The story continues

Other stocks to consider

Some other highly valued stocks from the retail REIT sector are Regency Centers REG and Tangier Inc. SKT, all of which currently have a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Regency’s FFO per share in 2024 is $4.22, an increase of 1.7% from the prior year.

The Zacks Consensus Estimate for Tanger’s FFO per share in 2024 is $2.09, representing year-over-year growth of 6.6%.

Note: All earnings figures presented in this article represent funds from operations (FFO), a widely used metric to assess the performance of REITs.

Want the latest recommendations from Zacks Investment Research? Download the 7 best stocks for the next 30 days today. Click here to get this free report

Simon Property Group, Inc. (SPG): Free Stock Analysis Report

Regency Centers Corporation (REG): Free Stock Analysis Report

Tanger Inc. (SKT): Free Stock Analysis Report

To read this article on Zacks.com, click here.

Zacks Investment Research