Morgan Stanley Upgrades Simon Property Group On Potential Earnings Recovery

While the retail REITs segment faces increasing secular challenges, Simon Property Group Inc (NYSE: SPG) has multiple drivers of earnings growth, according to Morgan Stanley.

The Simon Property Group Analyst: Richard Hill upgraded Simon Property Group from Equal-Weight to Overweight, while raising the price target to $125.

The Simon Property Group Thesis: The company’s earnings seem to have bottomed out in 2020, with a majority of the earnings decline being driven by rent abatements, Hill said in the note. He mentioned four drivers for Simon Property Group’s earnings ahead:

• Potential recovery of abatements, estimated at a recovery of $410 million.
• The closing of the TCO acquisition and improved retailer negotiating leverage, estimated to contribute $360 million.
• Between $55 million and $75 million from retailer investments
• “$60mn from $800mn of re/development,” the analyst wrote.

“We model +6.1% FFO growth in '21e as total NOI growth (including TCO) rebounds to +9.5%. Importantly, we do not assume $410mn of abatements are recovered, which suggest significant potential upside,” Hill added.

SPG Price Action: Shares of Simon Property Group had risen by 3.31% to $109.75 on Thursday.

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