BofA Upgrades Simon Property (SPG) to 'Buy' on Positive Inflection Points and Revival of Redevelopments

August 4, 2021 11:13 AM EDT
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Price: $131.27 -1.06%

Rating Summary:
    14 Buy, 13 Hold, 2 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 7 | Down: 15 | New: 24
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BofA analyst Craig Schmidt upgraded shares of Simon Property Group (NYSE: SPG) to “Buy” from “Neutral” on the revival of the key positive catalyst for future growth, redevelopments, as well as positive inflection points.

On Monday, the company noted that sales at its shopping malls and outlet centers bounce back to pre-pandemic levels in its latest fiscal quarter. Certain parts of the country witnessed higher sales levels compared to 2019.

“We continue to see demand for space across our portfolio, from healthy local, regional and national tenants, entrepreneurs, restaurateurs and mixed-use demand ... it’s increasing day by day,” David Simon said.

“We still have a hole to dig out of because of the bankruptcies that we had to confront during the pandemic. But I’m very pleased with the activity.”

Schmidt raised the price target to $150.00 per share from $141.00, citing positive same-store net operating income and occupancy involvement, as two key inflection points.

“Domestic property NOI was up +13.4%, marking the first positive NOI trend in the last 5 quarters. Occupancy also turned the corner, up +100bps to 91.8%. SPG raised guidance by $1.00 to a new midpoint of $10.75 (+99c above the Street), which represents roughly +18% FFO growth compared to 2020. We note the guidance midpoint of $10.75 assumes a quarterly FFO/share run rate of $2.51 in 3Q and 4Q,” the analyst said in a client note.

The market is also witnessing the revival of redevelopments.

“After a 12 month hiatus, SPG is becoming more aggressive on its mixed-use redevelopment pipeline given strong demand for mixed-use assets. Redevelopments were a key part of our Buy thesis on SPG prior to COVID. SPG restarted the permitting process on Brea Mall in Orange County, CA and Stoneridge in Northern CA. Both projects involve repositioning department store boxes. Positively, Taubman NOI increased +32.5% Y/Y and is operating at levels above underwriting. The strong performance of SPG’s Taubman assets shows dominant assets are performing best,” Schmidt added.

Shares of the company are up about 0.5% in Wednesday trading.

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