Author Topic: SPG- Simon Property Group  (Read 8680 times)

BG2008

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Re: SPG- Simon Property Group
« Reply #10 on: January 28, 2020, 02:14:58 PM »
OT, but relevant imo. I look at bricks and mortar's relationship to digital as morphing into a win/win rather than a zero sum game eventually...meaning that Warby Parker had to go retail because people want to see the glasses on their faces now!, not when they get them in mail.  AMZN selling books in actual stores!  bricks and mortar has to become more "entertainment" oriented...fun to get out of the house to shop, but it will.  the interesting dynamic I see is with AMC.  the one digital killer is streaming, and yet Netflix took over the old Paris theater on 57th st (NYC). I can see DIS/Netflix etc buying AMC (DOJ seeking to kill old settlement decree that prevents downstream movies/theaters consolidation).  whether we are in 3rd inning or 7th inning of mall disintegration, I think there are opportunities to find deep value in bricks and mortar.  unless we are all a simulation, in which case...

Warby Parker has 1,000-2,000 sqft locations Abercrombie was likely 8,000-10,000. Not enough to make up for the lost space.  CAC via Google and social media is the new rent.  When you value something at 4-5% cap rate, you are implying growth in rent into perpetuity.

SPG bought Aeropostale to prevent a mass closing of stores. If there was a "jump the shark" moment, this was it

https://www.wsj.com/articles/mall-owners-go-on-defensive-to-rescue-aeropostale-1474968602

Sorry for being an a-hole


BG2008

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Re: SPG- Simon Property Group
« Reply #11 on: January 28, 2020, 02:15:50 PM »
I wish I did software I Banking back in the days and not selling 3 regional malls. 

Gregmal

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Re: SPG- Simon Property Group
« Reply #12 on: January 28, 2020, 02:26:49 PM »
No worries Bill, we love unsolicited a-hole opinions. Disruptive music in the echo chamber is always appreciated.


A few points/comments.

As a real estate junkie, I would challenge anyone to thoroughly scroll through the Simon portfolio. It is stunning and just a truly spectacular collection of premier assets in largely prime location. Something to admire and certain not anything that would fall into the category of "I wouldn't own it at any price"...so theres that.

Balance sheet is robust. Name another RE company capable of raising cash at 2.6%?

There are major differences between Simon and others that came before it. There is also the fact that so many others have come before it and these guys are best in the biz management; surely they have taken note and learned from the Sears and the Macys of the world. But, for comparisons sake..

Sears/Seritage- Simon has better locations, better management, better balance sheet. Profitability is not in question. They also dont have to worry about running a retail business. As for redevelopment? Let me again say, 2.6%/ 15 years. Buffett and many others like Seritage, but for the life of me I can not find an argument to like SRG and not like Simon better.

Macy's- Same arguments as above. Simon doesnt have to worry about running retail. They dont have to worry about winding down and eliminating thousands of jobs. All the locations(generally speaking) with Simon are good, not so for Macy's.

Howard Hughes- HHC is definitely better positioned than the above two, but again, whats their cost of capital?

Regarding specific types of redevelopment? I think this is overblown. If Seritage can reposition old Sears stores into residential than so can Simon, but with more attractive locations and cheaper capital. Howard Hughes will have some reliance on retail, so if retail is a goner, it will hurt them too. They have better layout for office, but who says you cant take a prime location mall and add office? I am also probably more bearish on office than I am retail. Hughes IMO has an edge with residential. But you cant make the argument(after scouring the SPG portfolio) that you couldn't take most of those locations and sell 1/2/3 br condos. Almost all of Simons locations would support high end residential.

Stuff like this is truly exciting:

For example, at Northgate Mall in Seattle, Washington, we are re-imagining this 60-year-old center to include NHL Seattle’s Corporate Headquarters and practice facility, one million square feet of Class A office, over 1,000 residential units
and approximately 375 hotel rooms, all served by a new mass transit solution. This current retail-only shopping mall will be completely transformed upon our completion.


Nobody has better dirt than Simon, nobody has better overall locations, nobody has higher quality tenants and nobody is better managed. Thats the pitch. I mean look, even Brookfield, who has tried to build another Simon, basically ended up only buying Simons junk. Even if, as noted, tenant quality goes down, cash is still cash. Yes, in a market assigning multiples, you'll suffer short term in terms of how you're rated if the tenant quality dampens, but at the same time, you're getting paid(and paid exceptionally well) to wait and the mix of short term or less than 12m leases is like 2-3% of total revenue. Easy come, easy go.

Greg,

Agree with most of what you're saying.  I just think time may or may not be your friend and I think I can buy it cheaper when the economy hits the skids.  That's literally my playbook.  So interesting situation, just not tomorrow.

Agree on recession and its probably the main thing I am concerned with.This will get a lot cheaper if we hit the skids. A few dominos fall and yea it'll get cheaper, probably a decent bit. But isn't that what folks like us do? Buy cheap and then, often, a bunch cheaper lol

I'm certainly going to be early but I figure the $5-6 Corona discount(sadly not a beer special) is at least a reasonable starting point for a position. I just get excited about real estate like this and the contrarian nature of the investment. Say "malls" to people and look at the reactions. But malls dont have to be malls forever. And its rare to have the chance to buy companies and assets of this caliber at these kind of prices. It often takes an exceptional situation, and what is happening to malls and retail is certainly quite exceptional, even historic. So its a pain trade Im willing to make. Hopefully, Ive got a few decades.

Cigarbutt

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Re: SPG- Simon Property Group
« Reply #13 on: January 28, 2020, 05:35:39 PM »
^I would say committing capital to SPG now requires balls of steel and a true long-term outlook given the secular (slowly happening) and cyclical pressures (to come).  The long (very long?) thesis can be defended as SPG is selling at 11x 2020 FFO estimate.

SPG is a solid operator with a solid balance sheet (some margin of safety and capacity to redeploy free cash flows) and the thesis revolves around class-A malls which means more pain (to which degree who knows) but eventually a benefit related to repurposed malls. 

{Not too far from where I live, some years ago, there was a GM plant that closed over contaminated land and there was a feeling that the area would become desolate. It took a while but the whole area has been repurposed (stores, large and small, restaurants, real estate etc) and now the traffic is very favorable and the only people who remember the GM plant are people who used to work there. The location of the land was the key ingredient; it just took a while to happen.}

Within the next 10 years, interestingly, putting BPY and SPG side by side, on a weighted probability basis, I think that SPG is more likely to relatively outperform in a quiet new normal environment and more likely to outperform if things go south, which means that an interesting trade would involve a balanced long-short trade: shorting BPY and going long SPG. Today’s SPG dividend yield is at 5.8% and would almost compensate for the BPY dividend (for now) at 6.9%. In the event of a significant downturn and a true buy-and-hold perspective, one could cover the BPY position and transfer the funds into SPG.

CorpRaider

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Re: SPG- Simon Property Group
« Reply #14 on: January 28, 2020, 05:43:52 PM »
Interesting stuff.  Don't love their moves to try and bail out/prop up retailers...see reports they are going to bid for forever 21.  Maybe not as dumb as the VNO toys r us 1/3 deal.  I get the idea though, why not go with the strong horse if it is just as cheap, kinda' thought that about KIM versus SRG last year or so. 

It seems to me that malls blow more than other retail RE for omni-channel and one day delivery (like it takes ~50% of the time it takes for amazon to get me a TV from China to drive all around the parking decks and walk to the store you want), but like you said it is about the dirt really.  Also kind of hate the fake outlets in a world of the internet....maybe real outlets would work but ones where they make goods specifically for the outlet...I don't know.

David Simon said they would have made a bid for the GGP assets or some of them but BAM was already in control of the process.  Easy to say that when you didn't pull the trigger I suppose.  I've watched a number of his talks/appearances...well I suppose I've nothing to say about them. 

« Last Edit: January 28, 2020, 05:59:11 PM by CorpRaider »

Gregmal

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Re: SPG- Simon Property Group
« Reply #15 on: January 28, 2020, 06:01:49 PM »
Here's another angle Ive been grappling with, that may perhaps be a hidden area of safety. Anchor tenant rolloff.

Historically, right, your anchor has been the draw and everything else kind of flows through that. However I dont really think that is the case anymore, and if anything its probably the opposite. People tend to come for "everything else"(whatever that entails...ie restaurants, entertainment etc), not because of the large box anchors. Nevertheless, they've got these deadbeat, hanging on by a thread, anchor stores priced at like $5/sf and representing a negligible total percentage of revenues. Thesis kind of jumps off the Seritage page, but are these things going away really a headwind? I think it could be a tailwind. Replace them with a hotel, flex office, or residential, and boom, in those locations, you're probably getting a 10x increase in revenues. Heck, you can even take a page from Righteous Gemstones and open a mega church!

BG2008

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Re: SPG- Simon Property Group
« Reply #16 on: January 28, 2020, 07:06:22 PM »
Here's another angle Ive been grappling with, that may perhaps be a hidden area of safety. Anchor tenant rolloff.

Historically, right, your anchor has been the draw and everything else kind of flows through that. However I dont really think that is the case anymore, and if anything its probably the opposite. People tend to come for "everything else"(whatever that entails...ie restaurants, entertainment etc), not because of the large box anchors. Nevertheless, they've got these deadbeat, hanging on by a thread, anchor stores priced at like $5/sf and representing a negligible total percentage of revenues. Thesis kind of jumps off the Seritage page, but are these things going away really a headwind? I think it could be a tailwind. Replace them with a hotel, flex office, or residential, and boom, in those locations, you're probably getting a 10x increase in revenues. Heck, you can even take a page from Righteous Gemstones and open a mega church!

You know I am too snobby for a mega church in my high end Simon Mall!

Jurgis

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Re: SPG- Simon Property Group
« Reply #17 on: January 28, 2020, 09:45:16 PM »
"Human civilization? It might be a good idea." - Not Gandhi
"Before you can be rich, you must be poor." - Nef Anyo
"Money is an illusion" - Not Karl Marx
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Gregmal

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Re: SPG- Simon Property Group
« Reply #18 on: January 29, 2020, 08:54:28 AM »
I also really like the juice on the options here. A lot of different setups where you can collect some pretty fat premiums to own the stock at big discounts to current prices.

no_free_lunch

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Re: SPG- Simon Property Group
« Reply #19 on: February 01, 2020, 01:41:36 PM »
I am in on this one.  Bought a bit higher but it seems quite appealing now.

FCF is somewhere around $3B.  So p / fcf of 13-14x, cheap on that basis.  Debt to fcf is around 8x, not too bad for real estate.  It has been a few months but I believe they significantly decreased their leverage from 2007-08 era.

Yes, it is probably dead money for awhile but then it has a 6%+ yield.   I don't have confidence that the market will exceed that over the next 5 to 10 years, so this seems reasonable.

Even as the malls slowly die, I think they will be able to find new revenue streams.  They can convert to condo's, put in gyms / movie theatres, auto dealerships.  There are a lot of options if you have a good location.  They are leveraged low enough that they should survive the transition.

Gregmal, do you mean selling calls?