Simon Property Group (SPG), the largest U.S. shopping mall owner, may be the best in its class. It controls some of the country’s top malls. Tenants at its consolidated regional malls and premium outlets recently generated average annual sales of $502 per square foot, according to Morningstar research, a level that exceeds the peer average and allows Simon to charge premium rents.
Indeed, during the past six years, Simon’s rent income increased by an average annual rate of 3.2 percent, Morningstar calculates. As the biggest mall owner in the country, Simon can offer its clients one-stop shopping for their locations. Its size also creates marketing and operational efficiencies. Simon represents the nation’s largest real estate investment trust (REIT).
And Simon’s hefty balance sheet has allowed it to expand overseas. The company is now considering building outlet centers in China.
Of course, the slowing growth path of the U.S. economy won’t produce much expansion in the way of consumer purchases. But the upscale shoppers at some of Simon’s malls won’t be affected as much and outlet centers could see increased business.
In the second quarter, Simon’s funds from operations, a common measure of strength for REITs, jumped 20 percent to $583 million from $487.7 million a year earlier, beating analysts’ forecasts.
Standard & Poor’s analyst Robert MacMillan has a five-star buy rating on Simon Property Group shares. “We think SPG's position as one of the largest owners and managers of shopping centers in the U.S. and its established relationships with numerous retailers will allow it to continue to generate solid growth long term,” he writes.
“We also view the geographic, customer, and format diversity of SPG's portfolio and management's acquisition acumen as positive factors in our valuation.”
MacMillan expects the company’s revenue to increase 8.6 percent this year after a 4.8 percent gain in 2010. The company next reports around Oct. 25.
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