Why BofA Is Bullish On Simon Property Group

A strong second-quarter fueled by robust leasing activity and accelerating cash flow has turned Bank of America analysts bullish on Simon Property Group, Inc. SPG.

The Simon Property Analyst: Craig Schmidt upgraded Simon Property Group from Neutral to Buy and increased the price target from $141 to $150.

Related Link: Stifel Upgrades Simon Property Group To Buy

The Simon Property Takeaways: Simon Property Group exceeded the bank’s expectations with second-quarter results, posting its first positive same-store NOI and occupancy gains since the onset of the COVID-19 pandemic, said Schmidt in a Wednesday note.

The REIT posted FFO/share of $2.92, beating Street estimates by 23%.

Leasing volumes are rising, surpassing 2019 levels, with 1,400 tenants signing across 5.2 million square feet, according to the analyst note.

The company has filled 90% of its leases expiring in 2021; however, lease spreads are lower, said Schmidt.

While the lower spreads may seem like a bad sign, they are because the newer tenants tend to be larger and more established companies, said the analyst.

The leases helped Simon Property Group generate over $1 billion in cash, a $139-million increase from the first quarter of 2021, according to the note.

Following a yearlong pause, Simon Property Group is becoming more aggressive with its “mixed-use redevelopment pipeline,” starting with two California projects, said Schmidt.

The company’s “dominant assets” from its majority acquisition of Taubman Properties in 2020 have delivered 32.5% growth YoY and are “operating at levels above underwriting,” said the analyst.

Simon Property Group increased its quarterly distribution 7.1% to $1.50/share and is expected to continue increases alongside FCF growth- provided the COVID-19 Delta variant does not reintroduce lockdowns and international travel bans, said Schmidt.

Related Link: This High-Yield Shopping Center REIT Is Trading At A Huge Discount

SPG Price Action: Simon Property Group was down 0.64% to $128.70 at the close Wednesday.