• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Real Estate

A Yield-Chintzy REIT

Despite a recent insider buy, we wouldn't suggest this play for yield-hungry investors.
By MEENA KRISHNAMSETTY Mar 15, 2013 | 01:00 PM EDT
Stocks quotes in this article: SPG, MAC, WMT, TGT

Earlier this week, a board member at Simon Property Group (SPG) -- a real estate investment trust that owns a number of malls and other shopping centers -- purchased 1,500 shares at an average of $159.99 apiece, according to a Form 4 filed with the SEC. Director Larry Glasscock's total direct stake now comes to a little over 5,300 shares, meaning this purchase has significantly ramped up his holdings.

Here, as always, it's instructive to look at insider purchases, as it is theoretically irrational to build up company-specific risk unless one believes the company has bright enough prospects as to outweigh the benefits of diversification. Indeed, studies have generally shown a small outperformance effect for insider purchases.

Turning to the macroeconomic environment for Simon Property, last month U.S. retail sales rose vs. January after seasonal adjustments, and the numbers looked good even when excluding autos and spiking gas prices. This came on the heels of Simon's 22% year-over-year jump in funds from operations (the preferred bottom-line metric for REITs) in its fourth-quarter report. FFO came to $830 million for the quarter. For all of 2012, Simon recorded a 16% rise in FFO to $7.98 per share, and has guided 2013 to between $8.40 and $8.50 per share. This places the stock at 20x its trailing FFO, and about 19x the internal estimates for the current year.

In general, income investors often favor REITs, since this status allows companies to receive preferential tax status if they distribute a large share of its pretax income to shareholders. However, that's not quite the case with Simon: Its most recent dividend payment implies an annual yield of 2.9%. That's about even with yields on traditional income stocks, and in some cases lower than that.

Another retail REIT, Macerich (MAC), pays a yield of 3.7%, even though it's a significantly smaller company in terms of market capitalization. Very high yields are also possible in non-retail REITS, though often the firms are heavily exposed to mortgages or other less desirable industries.

In any case, we do like how Simon's business looks, and certainly the insider purchase should be taken as a good sign. But, in our view -- and despite its REIT status -- investors seeking high yields should clearly pass on this stock. The dividend, even if it rises a bit in the next year, simply isn't competitive with yields of more traditional income stocks.

Also, the stock's FFO multiple doesn't appear particularly attractive, and Simon isn't expecting much growth here, even despite healthy signs in the broader economy. It may be more effective to look at retailers directly -- such as big-box discount chains like Target (TGT) and Wal-Mart (WMT), whose earnings multiples are in the teens. Dollar stores trade at a slight premium to that level, but they've continued to record impressive growth rates, so they also may be worth a look.

-- Written by Matt Doiron

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Doiron and Krishnamsetty had no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | Real Estate | Consumer Discretionary

More from Real Estate

This Opendoor Trade Is in Move-In Condition

Timothy Collins
Apr 1, 2021 2:12 PM EDT

With this call spread opportunity, traders can maximize the push seen in the technicals.

Zillow Enters Greater Fool Territory

Ed Ponsi
Feb 11, 2021 10:45 AM EST

I can name this tune in three notes, and if you were a homeowner or real estate investor 15 years ago, you probably can as well.

Migration Trends the Pandemic Triggered Won't End Soon

Bret Jensen
Feb 3, 2021 8:42 AM EST

The exodus of residents from big cities and the reduced demand for office space are unlikely to reverse for some time.

Debt-Laden Chinese Electric Car Company Shares Soar

Alex Frew McMillan
Jan 25, 2021 7:00 AM EST

Property developer China Evergrande has seen shares in its electric car unit skyrocket before it enters commercial production.

Jim Cramer: You Just Won Powerball, Now What?

Jim Cramer
Jan 21, 2021 2:24 PM EST

Remember, you only need to get rich once.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 02:42 PM EDT PAUL PRICE

    Wednesday on Real Money Pro

    Make this stock a 'part' of your portfolio.
  • 04:44 PM EDT PAUL PRICE

    Pretty Incredible + Hard to Believe

  • 11:18 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 5 Pillars of Exceptional Trading
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login