EUR 850.00 For Business Accounts Only

Morningstar | SPG Report 2/19/19

Simon Property Group, the largest mall real estate investment trust and second-largest U.S. REIT, manages one of the top retail portfolios in the country. It owns and operates Class A traditional regional malls and premium outlets in markets with dense populations and high incomes; these malls frequently have domestic or international tourist appeal. The high-quality properties will continue to provide consumers with unique shopping experiences that are hard to replicate elsewhere, and as a result, we think Simon's portfolio will be sought after by retailers that are increasingly pursuing an omnichannel strategy.E-commerce continues to pressure brick-and-mortar retail as consumers increasingly move their shopping habits online. When excluding categories of retail sales that are generally found neither in malls nor online, like autos, gasoline, groceries, and building materials, e-commerce now accounts for approximately 20% of all retail sales. While we believe that online sales will continue to grow at a significant spread over brick and mortar, we also believe physical retail sales growth will still be positive over the next decade. Retailers will become more selective with their physical locations, opting to locate storefronts in the highest-quality assets that Simon owns while closing stores in lower-quality malls. Additionally, many e-tailers are beginning to open stores in Class A malls to take advantage of the high foot traffic, as a physical presence provides additional marketing, a showroom for products they want to highlight from their online store, and another source of sales. Occupancy remains in the mid-90s for Simon's portfolio, and the company is still achieving double-digit re-leasing spreads. Additionally, Simon continues to redevelop its assets and replace struggling tenants and anchors with new tenants that drive higher foot traffic. While e-commerce presents a serious challenge to brick and mortar, we believe there will be continued bifurcation in the mall space between the highest- and lowest-quality malls, which should lead to continued earnings growth from Simon's high-quality portfolio over the next decade.