The Gift That Never Stops Giving

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a great way to gain a detailed and thorough perspective on a company and its future. As 2012 draws to a close, I would like to focus on a real estate investment trust that is the king of shopping malls: Simon Property Group ).

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  • Dividend: Currently, Simon pays out quarterly dividends of $1.10, which, when annualized, puts the dividend as yielding 2.79%
  • Solid Revenue Growth: In 2006, Simon reported revenue of $3.3 billion; in 2011, the company announced revenue of $4.3 billion, representing year over year annual growth of 5.44%, a trend that is widely anticipated to sustain into the future, with projections placing 2014 revenue at $5.3 billion. This growth has been fueled by increasing revenues due to reinvestment by the company into new properties 

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  • Effective & Lucrative Business Model: Simon is a real estate investment trust, which means the company purchases real estate and then leases it out, generating a profit over time. This effective and lucrative business model allows the company generate the free cash flow its then utilizes to pay out its dividends and reinvest into buying new properties
  • Diversified Nature: The company, including both United States and international properties, holds 244,623 thousand square feet of property, and with this comes a certain level of stability and predictably
  • Institutional Vote of Confidence: 97% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future  
  • Double Digit Margins: Currently, Simon Property Group possesses a net profit margin of 23.80%, representing a strong and profitable company; these margins are a result of Simons' relatively low operating costs and solid revenue streams
  • Cash & Equivalents: At the moment Simon holds about $452.7 million of cash or cash equivalents on its balance sheets, a major upside to the business

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  • Pricy Valuation: Simon currently possesses a price to earnings ratio of 31.80, a price to book ratio of 10.08, a price to sales ratio of 11.35, all of which point to a company trading with a pricy valuation; however, some of this valuation is explained in the extreme predictability that the company offers

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  • Occupancy Rate: In 2011, the company announced an occupancy rate of 93.9%, which while strong, still leaves the company with property that no one is using
  • Debt: At the moment Simon possesses about $22.6 billion of debt, a major downside to the business

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  • Increasing Occupancy Rate: The occupancy rate as of the end of 2011, 93.9%, leaves room for improvement, and if the occupancy rate was to increase, it would slightly boost revenue
  • Investing in New Properties: Simon is constantly purchasing new properties to provide the revenue growth of tomorrow. In addition to purchasing new properties Simon often builds shopping malls themselves to fuel growth
  • Dividend Growth: Since implementing their dividend program in 1992, Simon Property Group has consistently raised its dividend payouts, and should continue to do so into the future

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  • Competition: The REIT industry is highly competitive, and several other companies are attempting to lock businesses into lease agreements. This competition can lead to margin compression
  • Fiscal Cliff: If the United States was to fall off of the fiscal cliff, tax rates would be raised on all Americans, leading to consumers having less money to spend in malls, and in turn less revenue for the business, and less businesses leasing from Simon


Major publicly traded competitors of Simon Property Group include National Retail Properties ), Tanger Factory Outlet Centers ), Taubman Centers ), and Federal Realty Investment Trust ). All of these companies offer property that competes with Simon’s holdings for the hundreds of lease agreements in the market. National Retail is valued at $3.44 billion and pays out a dividend yielding 5.05%. Tanger is valued at $3.19 billion and pays out a dividend yielding 2.47%. Taubman is valued at $4.88 billion and pays out a dividend yielding 2.34%. Finally, Federal Realty is valued at $6.76 billion, and pays out a dividend yielding 2.79%.

The Foolish Bottom Line:

Simon is a cornerstone in many of the largest funds in the world because of the advantages of its business model and the predictability that comes with it. The company carries a decently sized dividend, which is growing. The revenue growth of the company is solid, and the company’s future is filled with reinvestment and growth, making Simon Property Group the gift that truly keeps on giving.      

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