At first glance, Simon Property Group (NYSE:SPG) may not have delivered an earnings report worthy of my headline. Yet, SPG stock shot up 5% in the morning after releasing its earnings report after the market closed on Nov. 1, 2021. A closer look reveals that this is not the same company that entered the pandemic. And because of that, SPG stock should continue on its current trajectory.
The headline numbers for the real estate investment trust (REIT) showed earnings of $1.77 per share on revenue of $1.30 billion. The company missed on the bottom line number, but that’s been a narrative for SPG stock since before the pandemic. The top line number beat expectations and that’s also been a consistent theme, even during 2020 when many of its properties were essentially shut down.
Revenue returned to just below pre-pandemic level. In the quarter that ended in March 31, 2020 Simon Property Group posted $1.35 billion in revenue. In the quarter just passed, Simon delivered $1.30 billion in revenue. And perhaps more telling was the improvement in earnings. In the aforementioned quarter in 2020, the company generated $1.35 earnings per share. In this quarter, EPS came in at $1.77.
That may seem like an unusual comparison, but I believe it may be a more accurate look at where the company is. If you go back to the same quarter in 2019, Simon Property Group delivered the same $1.77 EPS on $1.42 billion in revenue. But that was in a very different retail environment. And Simon is a very different company.
More Than a Landlord
Simon Property Group raised some eyebrows when it started buying some distressed assets. The company purchased a significant stake in J.C. Penney after the retailer filed for bankruptcy. Simon also has a joint venture, SPARC that has licensing ventures in Forever 21, Lucky Brand and Brooks Brothers.
And those acquisitions are paying off. Of the $3.13 per share the company earned in funds from operation, Simon reported that 30 cents a share of that number was due to its interest in Forever 21 and Brooks Brothers as well as its equity ownership in Authentic Brands Group. In fact, Simon reported that it owns approximately 11 percent of Authentic Brands.
Fishing Where the Fish Are
That being said, Simon Property Group chairman, chief executive officer, and president David Simon was quick to note that the company still gets 80 percent of its cash flow from its domestic property business. And on that front, occupancy rates are increasing from 91.8 at the end of the quarter ending in June to 92.8 at the end of the recently ended quarter.
Skeptics will say that investing in the mall sector is a foolish gambit. However, when you invest in Simon Property Group you’re investing in a company that owns the most desirable properties in areas that should continue to generate foot traffic. Simply put, if you’re investing in the mall sector, you have to look for companies like Simon who own the properties that are still considered destination shopping venues.
The Time to Buy SPG Stock is Now
Heading into its earnings call, Simon Property Group was a consensus hold. However, since the earnings report was released after the market closed on Nov. 1, the company has already received two price target upgrades. And this is on top of Bank of America (NYSE:BAC) which upgraded SPG stock one week prior to earnings. Analyst upgrades are a bullish indicator and investors should expect that there will be more upgrades to follow.
These upgrades have already boosted the SPG stock consensus price target by approximately $4. The stock now has a price target of $143.65.
And you can’t forget about the dividend which is, after all, why most investors are attracted to a REIT in the first place. Simon increased its dividend by 10% to $1.65 per share. That makes it three consecutive quarters that the company has increased its dividend.