Simon Property Group (SPG) had no less than six call options exhibiting unusual options activity in Wednesday trading. And I’m not talking about a little unusual activity.
The six call options had volume-to-open interest ratios yesterday between 13.31x and 20.76x. Five of the six were in Barchart’s top 10 with an average volume of 11,146. The real estate investment trust’s 30-day average volume is 5,177. On Wednesday, it was 14.2x higher than usual.
Something must be up. It’s a sign from the gods that SPG stock might be a buy.
Any News to Speak Of?
The mall owner didn't issue any press releases yesterday. The last information it gave investors was its Q2 2023 earnings report at the beginning of August.
It was mediocre, with revenue of $1.37 billion in the quarter, slightly ahead of the analyst estimate of $1.33 billion. At the same time, its funds from operations per share were $2.88, three cents less than the consensus. Year-over-year, revenues were 7% higher than last year, with a 1% decrease in EPS to $1.49.
Highlights of the quarter included an occupancy rate of 94.7%, higher than the 94.43% analyst estimate. Its revenues, divided into three buckets: Management Fees, Lease Income, and Other Income, were all positive over last year.
Not only did it have revenue growth across the board, but Simon upped its FFO guidance for 2023. Previously, it expected $11.88 a share at the midpoint of its guidance. On Aug. 2, it raised that to $11.90.
While a two-cent raise isn’t much to write home about, it’s an additional $7 million in cash flow. Every little bit helps.
The base minimum rent for square feet in the quarter was $56.27, 3.1% higher than a year earlier, with its tenants generating an average of $747 per square foot over the trailing 12 months ended June 30, down from $759 in Q1 2023.
It's a real mixed bag.
A Few Rays of Sunshine
If you’re unfamiliar with the mall owner’s business, you wouldn’t know that it has invested in some retailers that lease space in its malls. The REIT refers to that as its Other Platform Investments (OPI) group.
Its investments include J.C. Penney, SPARC - the group’s brands include Aéropostale, Brooks Brothers, Eddie Bauer, Forever 21, Lucky Brand, Nautica and Reebok -- ABG (Authentic Brands Group LLC), and RGG (Rue Gilt Groupe).
During its Q2 2023 conference call, CEO David Simon discussed OPI, stating that it felt the platform has a market value of $3.5 billion, or $10 a share. That’s approximately 10% of its current market cap.
Simon also pointed out that LVMH (LVMUY), the largest owner of luxury brands in the world, was now a top 10 tenant at its U.S. malls, with 105 stores, with 393,000 square feet, and accounting for 1.1% of Simon’s base minimum rent at its U.S. properties.
An analyst asked the CEO whether its luxury brands and tenants were a niche business for the mall owner. He answered unequivocally not.
“So this is not a niche business. This is a growing business. It's for exactly the affluent shopper, the established shopper, but also the affluent shopper. And the fact that we do so much business with them is something that we're extremely proud of,” Simon stated.
“ … So they are true partners and great generally across the board. We love doing business with them. And it's not a niche.”
The one thing I’ve found following the retail industry is that you tend to win at the high and bottom end but not in between. Getting more luxury will help Simon’s business, not hurt it.
To Buy or Not to Buy?
Of the 12 analysts covering SPG stock, five give it a Moderate Buy or Strong Buy (3.75 out of 5) with a mean target price of $127.69, 10% higher than its current share price. That should move higher if we only get a soft landing or no recession in 2024.
The analyst earnings estimate for 2023 and 2024 is $11.91 and $12.22, respectively. Based on its current price of $113.82, it’s trading at 9.6x 2023 EPS and 9.3x 2024. That’s a considerably lower multiple than at any time over the past decade.
It continues to be a contrarian value-play, down 37% over the past five years. If you’ve got a long-term investment horizon, I think a 6.2% yield pays you to wait for its share price to come around.
Americans might slow their discretionary spending, but they’ll never stop completely.
As for the six call options from Wednesday, the mid-range expiries make the most sense. There are three: Oct. 20 $90, Oct. 20 $95, and Oct. 20 $100. The ask prices from yesterday were $26.20, $21.30, and $16.30, respectively.
The best bet is the lowest amount paid out to gain the right to buy shares in the future. The right to buy 100 shares of SPG in 43 days at $100 could be had for $16.30, or 14% of its $115.75 closing price.
It’s time to go shopping.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
