Catching the dip #4 – Simon Property Group (SPG)

Bought 10 shares of Simon Property Group (SPG) for 56$/share. Total cost – 524 EUR (570$) Annual post-tax dividend inome – 54 EUR. Yield on cost – 10,3% (!)

Yes, another REIT, and another one with huge double digit yield after tax. A largest retail REIT in US with approx. 22 million m2 of rental space in 325 properties. Most are prime location large shopping centres in urban areas. Y2019 saw rental income increase to 5.7 bn$ and EBITDA of 4.6 bn$. Very important ratio for REIT is their leverage level. My owned REIT’s have quite high leverage: Baltic horizon 11x, BPY 13x. Simon property with financial debts of 24 bn$ and cash of 0.7 bn$ has NetDebt/EBITDA 5.1x so company looks to be normally leveraged. Equity level however looks bit low with equity of 2.5 bn$ and total asset 31 bn$ and very high LTV of ~100% with RE value of 24 bn$. From this perspective company looks quite leveraged. On the other hand property that generates 4.6bn$ EBITDA should have value at least x10 that, so my guess that asset book value is not based on its market value.

Covid-19 & quarantine. Yes shops are closed and large supermarkets will be opened last, but price decrease from 140$ just 2 months ago place this on a spotlight. That -60%! I’m ready for dividend cut here. I’m not naive that 10% is sustainable, but lets look how company did in 2008-2009. Dividends were cut from 0.9$ to 0.6$ and now they are at 2.1$/quarter. I will be more then glad if I will be in a same situation in 2030 🙂

This purchase has hit the 1 kEUR mark of our forward annual dividend income lets see if the dividend cuts will not decline it back to below 1 kEUR. Only Q2 dividends will tell 🙂

2 comments

  1. I have been doubting whether I should also double down here. I bought my first 4 shares at the $140 mark so that’s a huge drop. I’m just wondering if they’ll drop further when the dividend is cut or rise line a superstar when the locations reopen… it’s a tough call, respect for your bold move!

    Like

    • Well had same situation with BPY and made a double bet. Looks like paid out 🙂 SPG looks like a more risky bet tough, but lets see how it goes. Anyway if any retail REIT should stay alive to my view it should be the biggest one 🙂

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.