The mall is not dead: buy Simon Property Group stock for its 7% yield

October 17, 2023 11:08 PM AEDT | By Invezz

The mall is not dead

The main theme in the market a few years ago was the death of the mall as Amazon took over. At the time, most mall REIT and retail stocks plunged as a sense of fear continued in the market. These fears were confirmed after the collapse of retailers like Bed Bath & Beyond, Forever 21, Toys r Us, Ascena Retail Group, Sears, and JCPenney.

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Recently, however, data has shown that the mall is not dead, which explains why many retail REIT stocks have outperformed their office peers. Data by CoreSight shows that retail sales grew by 11% in 2022 to over $819 billion.

Most importantly, the mall occupancy rate has jumped to 95.1%, which is always considered as full. Also, traffic to top-tier and non-top-tier malls has also risen by double-digits this year even as the cost of living remained at an elevated level.

Therefore, there is a likelihood that malls will continue thriving in the coming years as people move on from the COVID-19 lockdowns. Notably, many good malls are now left with quality tenants after the collapse of companies like Toys R Us and BBBY.

Simon Property Group is a good mall REIT

Simon Property Group, the biggest retail REIT in the US, is one of the best stock to buy as the sector recovers. The most recent results showed that the company had an occupancy rate of near 95%, which helped its funds from operations grow by 7% to $1.08 billion. The company’s CEO said the following in its most recent earnings call:

“Our real estate business is performing ahead of our plan and overcoming the headwinds from higher interest expense and we are also pleased with our OPI results in the quarter.”

Unlike other REITs, Simon Property Group’s balance sheet is in a good shape. It recently concluded its refinancing of nine property mortgages of $820 million. It also has $8.8 billion in liquidity, meaning it will be able to cover its maturities in 2024.

This view is confirmed by its strong credit rating. Its senior unsecured debt is rated A- by S&P and A3 by Moody’s. Its preferred stock is rated BBB and Baa1 by the two agencies.

Simon Property Group has an attractive dividend yield of over 7%, is increasing its payouts, and is also quite undervalued. It is trading at a forward price to FFO 9.12%, which has more upside.

The post The mall is not dead: buy Simon Property Group stock for its 7% yield appeared first on Invezz

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