The range of options in the Real Estate Investment Trust (REIT) space in North America is truly incredible. This wide number of options can be dangerous in the sense that some investors can get lazy and choose various REITs based on size only, or reputation, without really assessing what’s under the hood.
In this article, I’m going to discuss why Simon Property Group (TSX:SPG) is a REIT I’d avoid right now on a relative basis.
I’d say on a relative basis because there are other REITs out there with much better fundamentals and core holdings, in my opinion, compared to Simon.
This REIT operates primarily in the premium outlet and strip mall space in the U.S., and has struggled to entice tenants to pay more in rent to be in a specific location. The reality is this is a challenging niche sub-sector for landlords looking to grow NOI (Net Operating Income) over time.
Costs continue to climb, and convincing tenants to pay a higher rent each and every year is not a particularly simple task, especially in this current environment.
This is a REIT which may take years to recover following the recession we’re about to feel, and retail is often the hardest hit real estate sub-sector in such scenarios.
As such, I’d recommend investors looking for deals go shopping at a different mall, as this one may not be open if this outbreak carriers on and we get a truly devastating recession, as some think may happen.
Invest wisely, my friends.
