Entire REIT Sector Slides Sharply: Simon Property Group Takes Advantage Of Low Rates

The $53 billion mall landlord Simon Property Group Inc SPG is considered to be a blue-chip REIT, which is due in no small part to its investment grade A rating.

Simon Properties, due to its huge market cap, is the largest component of the Vanguard REIT Index ETF VNQ which is a good proxy for the entire REIT sector.

Sector-Wide Decline

However, Simon Property Group's fortress balance sheet -- enabling it to take advantage of historically low long-term interest rates -- was not sufficient to protect it from a sector-wide REIT decline on September 12.
On September 11, Simon announced the results of its tender offer regarding five series of senior notes, which included a $128 million charge to funds from operations for the third quarter of 2014.

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"The total principal amount of notes tendered and accepted for purchase pursuant to the offers was approximately $1.32 billion, with a weighted average remaining duration of 1.7 years and a weighted average coupon rate of 5.60 percent. A charge of approximately $128 million, or $0.35 per share, to net income and funds from operations (FFO) is expected to be recorded in the third quarter of 2014 in connection with the offers and the redemption of the 7.875 percent notes due 2016."

Simon Property Group closed at $165.50, down $4.42, or 2.6 percent, on September 12, a difficult day for REIT shareholders.

Back on July 29, 2014 MLV & Co. reiterated its Hold rating on Simon Property Group, with a price target of $186, which represents a 14.2 percent upside after today's negative trading.