Is Simon Property Group Inc (SPG) Set to Underperform? Analyzing the Factors Limiting Growth

Understanding the Barriers to Outperformance for Simon Property Group Inc

Long-established in the REITs industry, Simon Property Group Inc (SPG, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 1.09%, juxtaposed with a three-month change of 15.68%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Simon Property Group Inc.

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What Is the GF Score?

The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.

Based on the above method, GuruFocus assigned Simon Property Group Inc the GF Score of 69 out of 100, which signals poor future outperformance potential.

Understanding Simon Property Group Inc's Business

Simon Property Group Inc, with a market cap of $43.13 billion and sales of $5.53 billion, is the second-largest real estate investment trust in the United States. Its portfolio includes an interest in 231 properties: 136 traditional malls, 70 premium outlets, 14 Mills centers, 6 lifestyle centers, and 5 other retail properties. Simon Property Group Inc's portfolio averaged $693 in sales per square foot over the 12 months prior to the pandemic. The company also owns a 21% interest in Klepierre, a European retail company with investments in shopping centers in 16 countries, and joint venture interests in 33 premium outlets across 11 countries.

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Financial Strength Breakdown

Simon Property Group Inc's financial strength indicators present some concerning insights about the company's balance sheet health. The company has an interest coverage ratio of 3.25, which positions it better than 51.69% of 650 companies in the REITs industry. However, the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five, indicating potential challenges in handling interest expenses on outstanding debt.

The company's Altman Z-Score is just 1.05, which is below the distress zone of 1.81, suggesting potential financial distress. The low cash-to-debt ratio at 0.03 indicates a struggle in handling existing debt levels. Furthermore, the debt-to-equity ratio is 8.61, which is worse than 98.21% of companies in the REITs industry, suggesting over-reliance on borrowing. The debt-to-Ebitda ratio is 5.31, above Joel Tillinghast's warning level of 4, although it is better than 67.76% of companies in the industry.

Growth Prospects

A lack of significant growth is another area where Simon Property Group Inc seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -4.8% per year over the past three years, which underperforms worse than 74.68% of 628 companies in the REITs industry. Over the past five years, there has been a decline in EBITDA, with a three-year growth rate of -2.4 and a five-year growth rate of -1.9. Lastly, Simon Property Group Inc's predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.

Next Steps

Considering Simon Property Group Inc's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. The company's challenges in financial health, declining revenue, and EBITDA growth rates, coupled with a low predictability rank, paint a picture of a company that may struggle to replicate its past success. Investors should weigh these factors carefully when considering their investment decisions.

GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen

This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure