Simon Property Group (SPG) 58% Gain $11,719 Profit

Business Description

Simon Property Group is a Real Estate Invest Trust (REIT) that own, develop, and manage malls and outlets.

In March 2020, the overall stock market sold-off on fears of Covid-19 related concerns. Simon's stock price dropped from $140 to $50, a 64% drop. Investors were afraid malls and outlets would close, leaving Simon with no revenue. My job was to figure out whether Simon would be able to cover it's current and future obligations with a decreased revenue base. If they could survive mall closures for 1-2 years, then once malls open up again, their earnings will reach pre-pandemic levels.

Simon's biggest expenses are it's operating expenses (cost of running its business ), interest payments on it's debt, and capital expenditures (building maintenance and upgrades). I projected that Simon would have a 40% drop in revenue while keeping Operating expenses, interest payments, and Depreciation costs at 100%. Capital expenditure is one of Simon's biggest real cash expense and also the one aspect they have the most control over. In a pandemic, they can choose to allocate less cash to maintaining and upgrading their malls and outlets. After these adjustments, I came to the conclusion that Simon had no problem handling their current and future obligations. I projected their 2020 EPS at $3.84.

Why I purchased

With a $3.84 EPS, I valued SPG to be worth at least $88. My average purchase price of $53.44 represented over 64% upside.

Why I sold

By November 2020, SPG had risen to my expected valuation of $88. In 8 months, my holdings in SPG had increased by 58%. I was happy with my gains, so I sold my position and moved on to the next stock.

Results

I ended up with $11,719 in profits or 58% gain on my investment.