Simon Property Group Inc Valuation – January 2019 $SPG

Company Profile (excerpt from Reuters): Simon Property Group, Inc., incorporated on March 10, 1998, is a self-administered and self-managed real estate investment trust (REIT). The Company owns, develops and manages retail real estate properties, which consist primarily of malls, Premium Outlets and The Mills. Simon Property Group, L.P. (Operating Partnership), is the Company’s partnership subsidiary that owns all of its real estate properties and other assets. As of December 31, 2016, the Company owned or held an interest in 206 income-producing properties in the United States, which consisted of 108 malls, 67 Premium Outlets, 14 Mills, four lifestyle centers, and 13 other retail properties in 37 states and Puerto Rico. As of December 31, 2016, it had redevelopment and expansion projects, including the addition of anchors, big box tenants, and restaurants, underway at 27 properties in the United States and it had one outlet and one other retail project under development. Internationally, as of December 31, 2016, it had ownership interests in nine Premium Outlets in Japan, three Premium Outlets in South Korea, two Premium Outlets in Canada, one Premium Outlet in Mexico, and one Premium Outlet in Malaysia. As of December 31, 2016, it also owned an interest in six Designer Outlet properties in Europe and one Designer Outlet property in Canada. As of December 31, 2016, it also had four international outlet properties under development. As of December 31, 2016, it owned a 20.3% equity stake in Klepierre SA, or Klepierre, a real estate company, which owns, or has an interest in, shopping centers located in 16 countries in Europe.


Downloadable PDF version of this valuation:

ModernGraham Valuation of SPG – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $55,118,563,758 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.51 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 195.02% Pass
6. Moderate PEmg Ratio PEmg < 20 26.85 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 13.65 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.51 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -17.11 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $6.41
MG Growth Estimate 7.96%
MG Value $156.47
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $92.90
MG Value based on 0% Growth $54.46
Market Implied Growth Rate 9.17%
Current Price $172.00
% of Intrinsic Value 109.93%

Simon Property Group Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $4.19 in 2014 to an estimated $6.41 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 9.17% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Simon Property Group Inc revealed the company was trading above its Graham Number of $44.34. The company pays a dividend of $7.15 per share, for a yield of 4.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 26.85, which was below the industry average of 70.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-83.3.

Simon Property Group Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$83.30
Graham Number $44.34
PEmg 26.85
Current Ratio 0.51
PB Ratio 13.65
Current Dividend $7.15
Dividend Yield 4.16%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $1,418,448,000
Total Current Liabilities $2,802,649,000
Long-Term Debt $23,678,264,000
Total Assets $31,079,693,000
Intangible Assets $0
Total Liabilities $27,182,192,000
Shares Outstanding (Diluted Average) 309,294,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.45
Dec2017 $6.24
Dec2016 $5.87
Dec2015 $5.88
Dec2014 $4.52
Dec2013 $4.24
Dec2012 $4.72
Dec2011 $3.48
Dec2010 $2.10
Dec2009 $1.05
Dec2008 $1.87
Dec2007 $1.95
Dec2006 $2.19
Dec2005 $1.82
Dec2004 $1.44
Dec2003 $1.65
Dec2002 $1.99
Dec2001 $0.85
Dec2000 $1.08
Dec1999 $0.97
Dec1998 $1.06

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.41
Dec2017 $5.71
Dec2016 $5.31
Dec2015 $4.87
Dec2014 $4.19
Dec2013 $3.72
Dec2012 $3.19
Dec2011 $2.31
Dec2010 $1.76
Dec2009 $1.65
Dec2008 $1.92
Dec2007 $1.90
Dec2006 $1.86
Dec2005 $1.64
Dec2004 $1.50
Dec2003 $1.46
Dec2002 $1.31

Recommended Reading:

Other ModernGraham posts about the company

Simon Property Group Inc Valuation – March 2018 $SPG
Simon Property Group Inc Valuation – June 2016 $SPG
Simon Property Group Annual Valuation – 2015 $SPG
10 Companies in the Spotlight This Week – 12/28/13
ModernGraham Valuation: Simon Property Group (SPG)

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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