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  • Thoughts on Simon Property Group ($SPG)?

     Henry To updated 5 months, 1 week ago 2Members · 3 Posts
  • Hung Huynh

    June 24, 2020 at 8:13 pm

    This REIT has a nice balance sheet relative to other REITs operating in retail. Let me know what you all think.

  • Henry To

    July 2, 2020 at 10:33 pm

    I like the valuations, the operating team and the quality of the real estate. That said, here are my concerns (well-telegraphed already):

    * Partnering with Brookfield to buy JC Penney seems like a desperate strategy. I understand the Forever 21 acquisition has done pretty well but JC Penney is a bigger company to swallow (and its business model has been struggling for a much longer time relative to that of Forever 21). That said, SPG needs to prop up the stores and keep them running in order to support its general rent roll. If JC Penney liquidates, its general rent roll will decline because other rent contracts have their rents tied to the existence of the anchor stores

    * The US has about 1,100 retail malls and its over-retailed relative to other major developed countries (>30 square feet per capita). I think UK and Canada are far behind (<25 square feet per capita) at 2nd. Industry believes about 750 retail malls will eventually disappear. Not sure how this will impact SPG as it mostly holds Class A malls. I guess you can even say this should benefit SPG as some of the lingering traffic at Class B malls may have no choice but frequent Class A malls instead

    * I’m guessing SPG will need to spend a significant amount of CAPEX to re-purpose its stores and attract other tenants away from traditional retail. Maybe even turn their properties into more mixed-use properties with multi-family stacked on top.

    * SPG wouldn’t release their rent collection stats for April, May or June but I’m guessing it’s in the mid to high-20s. This stat is consistent with other Class A mall statistics I’v been following. This may not be a big deal in the long-run but the lack of leverage vs. that of Cheesecake Factory, Gap, and other big retail chains suggests a repricing of the real estate.

    Initially, I was a little more bullish in the *very long-run* as I had believed much of their parking spaces could be repurposed for other, more productive uses as our urban areas pivot to more self-driving cars / subscription model / ride-hailing in the future. Obviously, COVID-19 has changed the narrative and it now seems to me that private car ownership is here to say (i.e. private car ownership > ride-hailing > public transportation). For some areas such as SF or LA, the existing infrastructure / # of parking spaces aren’t sufficient to support more private car ownership. That is a bigger issue down the road as public health policy is now the center of focus for CA policy makers vs. traditional transportation / congestion policy.

    I’ve held SPG during parts of the rally from late March but I don’t consider it a long-term hold, for now. I am very open-minded and would love some feedback on this view.

  • Henry To

    August 5, 2020 at 11:19 pm

    Hi, I bought some SPG yesterday and are looking to hold it through this year and into the next. Company reports on Monday – I bet rent collections have improved substantially and I’m looking for overall rent collection to recover to as high as the 50s for August.

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