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Simon Property Group Inc SPG

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Morningstar’s Analysis

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Economic Moat




Despite Falling Brick-and-Mortar Sales, Mall REITs Should Maintain Positive Cashflows

Kevin Brown Equity Analyst

Analyst Note

| Kevin Brown |

The coronavirus pandemic has had a massive impact on retail sales, which we believe will have significant repercussions for retailers and their mall-REIT landlords. As consumers were forced to stay home in the second quarter, sales shifted online with non-store sales growing 22.8% in April and 30.8% in May while we estimate that brick-and-mortar sales fell 29.9% and 16.9% in those months, respectively. A prolonged shutdown could lead to store closures and unpaid rent, which will impact revenue for mall REITs in the short term. However, we have observed a strong downward sloping trendline for e-commerce sales growth. We believe that the current crisis will end at some point in 2021 and e-commerce sales growth will return to this long-term trendline, which will lead to brick-and-mortar sales growth returning to low but positive growth. Given our new outlook, we have slightly changed our fair value estimates to $34 from $33 for Macerich and $152 from $154 for Simon Property Group and maintained our no-moat and negative trend ratings for both companies.

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Company Profile

Business Description

Simon Property Group is the second- largest real estate investment trust in the United States. Its portfolio includes an interest in 207 properties: 106 traditional malls, 69 premium outlets, 14 Mills centers (a combination of a traditional mall, outlet center, and big-box retailers), four lifestyle centers, and 14 other retail properties. Simon's portfolio averaged $693 in sales per square foot over the past 12 months. The company also owns a 21% interest in Klepierre, a European retail company with investments in shopping centers in 16 countries, and joint venture interests in 29 premium outlets across 11 countries.

225 West Washington Street
Indianapolis, IN, 46204
T +1 317 636-1600
Sector Real Estate
Industry REIT - Retail
Most Recent Earnings Mar 31, 2020
Fiscal Year End Dec 31, 2020
Stock Type Hard Assets
Employees 4,500