I'm Back... with a new Stock!
And a look at my updated portfolio... along with some finance info.
Retail is not dead!
Recently, I walked around a continuously growing area of Austin called The Domain, and it was booming. People everywhere. Shops full. Events occurring again. I’m old enough to remember the land as formerly bushes and trees, driving by it daily after dropping my dad off at IBM.
Today The Domain is a small, self-sustained city with residential apartments, food, shopping, events, bars, and the new Austin FC Q2 stadium opening up a short drive away. Amazon and Vrbo’s office buildings sprout up in the background with Top Golf poking out across the street to complete the small city skyline.
The Domain is the brainchild of my new investment Simon Property Group (Ticker: SPG). From their site “Simon is a real estate investment trust engaged in the ownership of premier shopping, dining, entertainment and mixed-use destinations. [Their] properties across North America, Europe and Asia provide community gathering places for millions of people every day.”
My thesis for investing in SPG is built upon four things: (1) Retail is not dead… it’s evolving, (2) Reopening will spur short term growth, (3) Redevelopment and smart acquisitions will spur long term growth, and (4) a strong balance sheet.
(1) Retail is evolving
This pandemic has shown that retail is still very strong. Home Depot/Lowes had banner years. Target took a ton of market share. Companies found ways to drive/sustain growth through omnichannel operations. This pandemic pulled forward years of online growth, but it also pulled forward retail’s transition to becoming more experiential in order to compete with online.
Some retail enterprises will be left behind (posing a distinct headwind for SPG), but others will take their place in the next wave. SPG even invested in revitalizing older, bankrupt brands by buying Brooks Brothers, JC Penney, Forever 21, and Lucky Brand for rock bottom prices. They have already proven they can transform a retail brand, rebuilding Aeropostale, and will look to do it again with these new acquisitions.
Amazon has even backed the idea of a physical store front with the Amazon Book Stores and Whole Foods acquisition. As much as some think everything will be done online, there is still a need for a physical presence.
(2) Catalyst for Short Term Growth - Reopening
Malls have been hit especially hard during the pandemic with closings. Internal areas where the air can stagnate and the surfaces cannot be cleaned quickly enough have been justifiably targeted for closures during the pandemic. With enough vaccinations and herd immunity beginning to play a role, this is no longer a huge concern, and I anticipate mid-summer looking a lot different at indoor malls than they have in the past year.
Consumers have also saved an inordinate amount of money during the pandemic (which the finance side of me says is amazing), but I’m guessing many of those consumers will be looking to spend some of the “excess” cash they have on hand. And if you work from home, you’re probably also looking for any excuse to get out of the house, and the mall could be an easy way.
As bullish as I am on real estate in the coming years because of the great suburban migration, a secondary effect of the movement to suburbia will be the increased foot traffic that could occur with SPG’s facilities, which are located largely in those areas. In response to the migration, CEO of SPG David Simon stated on the 4th quarter conference call, “I do feel very strongly about this, that the high-quality suburbs are going to be where the action is in the future.”
(3) Catalyst for Long Term Growth - Redevelopment
Regardless of my opinion, SPG will need to drive foot traffic to their properties. Some properties like The Domain have been fully reimagined as a mixed-use, mini-city. SPG will need to continue this trend moving forward, dispelling the 1980s notion of malls that you see in Stranger Things and redeveloping those older style indoor malls.
During the pandemic, SPG suspended their redevelopment projects, but have since restarted them. Their goal is to “densify” their centers with the opening of multifamily residential complexes, hotels, and event spaces. In their new Bangkok mall, Siam Premium Outlets Bangkok, SPG built it “with a modern contemporary architectural design.” It features “unique design water features, a serene and calming amphitheater environment, and a custom children's playground.”
And even as some anchor tenants stumble like JC Penney and Nordstrom, SPG has been looking to potentially fill those vacancies with data centers, last mile warehouses, and/or residences. Foot traffic and rent are the key, so I would be much happier with residences, but can understand SPG’s push to have the rent paid regardless of the tenant. And data center or warehouse employees also count as foot traffic.
(4) Strong Balance Sheet
Yes, the pandemic hit SPG hard. A 20% year over year drop in revenue. Only 90% of rents collected from Q2, Q3, and Q4. Along with abatements and write-offs throughout the year. It was certainly a tough year that could continue through most of 2021.
In spite of the challenges, their strong balance sheet prior to the pandemic put them in a position to withstand the onslaught, purchase four bankrupt retailers, acquire 80% of a competitor, Taubman, and also continue some international expansion with three new centers. They paid out over $2B in dividends for the year and have over $8B in liquidity (combined cash and credit facilities) to continue operating, acquiring, and building.
And like most companies during the pandemic, they cut costs that will never be brought back, creating efficiencies for the business moving forward. For 2021, the company is projecting 4%-7% growth, which I think they will easily outstrip with a full reopening. And these numbers don’t include the Taubman acquisition. They also have a huge runway for growth internationally, currently with 31 international properties versus the 203 US properties.
In the meantime, SPG currently pays out a $1.30/share in dividends, equaling a dividend yield of 4.45% as of 4/26/21. The stock price has also been stuck in a 2 month base ranging between $109 and $121, 15% less than its pre-Covid levels. The stock price peaked in 2016 at $227 and has been on a steady decline since, but I feel the tailwinds created from the pandemic have begun to tip the balance for SPG, allowing it to begin a path toward growth.
And if nothing else, the dividend for this company easily overcomes anything I could earn with a savings account or treasury bonds. Prior to the pandemic, SPG had a $2.05 dividend per share, 57% higher than current levels, so as SPG returns to pre-Covid levels, which I anticipate they will, then I could also see a drastic increase in my dividend returns.
CEO David Simon has this business positioned well for the next 5-10 years, and I look forward to enjoying the ride.
Current 20 Stock Portfolio
I switched up a lot of my portfolio recently, focusing on a smaller subset of stocks that I felt more confident in over the long term. Trying to manage 50+ stocks became too cumbersome, as much as I enjoyed the disruptive nature of them. And I still think all of my recent picks and previous portfolio holdings will do well over time. But for now my portfolio allows me peace of mind and to sleep like a…
Full Positions (meaning I’m not looking to buy more at the moment, unless a great opportunity arises)
PINS - Pinterest - Great social commerce and advertising play with a reopening kicker in the sense that travel/travel ideas will be on everyone’s mind.
RDFN - Redfin - The real estate platform of the future, helping everyone with every aspect of the homebuying or rental process, either in person or online.
SPG - Simon Property Group - See above
DOCU - DocuSign - eSignature, the Agreement Cloud, and soon contract creation and risk management.
3/4 Positions (will look to add another 1/4 position in the next year or allow it to grow to a full position)
ROKU - Roku - The connected TV platform of choice.
PD - PagerDuty - Efficient IT emergency management system that is beginning to have customer service use-cases. Stock was largely flat during the pandemic and I expect it to grow with reopening and great earnings in 2021.
GDRX - GoodRx - Reopening will get people back to the doctor’s and back to their prescriptions.
TDOC - Teladoc Health - Creating a virtual health platform, but the pull forward from Covid could make the growth numbers of this company a challenge in the next year. Watching this one closely to see how they perform with reopening.
1/2 Positions (will look to add another 1/2 position in the next year or so and hoping for many that their earnings catch up with their stock price rise)
DKNG - Draftkings - Massive addressable and growing market of online sports betting, but a lot of growth is already priced in. Will wait for their financials to catch up to their valuation.
MELI - MercadoLibre - The ecommerce, online payments, and logistics leader in Latam. Growing in the face of stiff competition.
CRWD - Crowdstrike - Cybersecurity company creating a network effect with their customers. When they solve a security problem for one customer, then all of CrowdStrike’s customers can get the benefit of that solution.
NVDA - Nvidia - There might not be a stronger case for the next $1T company than Nvidia. Top-of-the-line chips in video, gaming, AI, auto, and soon data centers. Looking to acquire Arm Holdings to open up even more avenues for revenue.
SQ - Square - CashApp ecosystem growth has been tremendous during the pandemic. Reopening will spur the SMB seller ecosystem, allowing both ecosystems to build off of each other.
SE - Sea Limited - Ecommerce, gaming, and payments giant of Southeast Asia. Also looking to compete in Latam.
PTON - Peloton Interactive - Connected fitness leader with bikes and treadmills. Acquired leading gym equipment producer Precor. Expanding internationally and with new equipment. Might see the stock struggle in 2021 as the reopening occurs, but still so many possibilities for growth. 1/4 of gyms closed, and many packed gyms will turn off some customers. Resale of equipment will also help increase their subscription numbers.
ABNB - AirBnB - The reopening should propel this one forward nicely. Their increased efficiencies coming out of the pandemic should also help, along with a boost from the Experiences aspect of their app.
ZM - Zoom Video - Zoom is a verb, but now its time for Zoom to create an ecosystem of apps and sell their Zoom phones. I will be watching their earnings reports very closely in 2021. Question is can they withstand Google Meet, Teams, Cisco Webex, etc.?
Small Bets as 1/4 positions (these are my small bets with disruptive technology and unproven track records, so additions will only occur if they prove out their stories)
CLPT - ClearPoint Neuro - Minimally invasive surgical procedures for the brain.
DMTK - Dermtech - A non-invasive sticker that lifts skins cells off of a mole to test for melanoma.
NNOX - Nano-X Imaging - A body imaging device, significantly reduced in cost versus MRIs, to drive early detection preventative healthcare. Close to cutting my losses and letting them prove out their revenue growth before jumping back in.
Finance Q&A
Q: Without the time or the interest to pick stocks, what do I do to grow my wealth?
A: Dollar cost average!
Transfer money to an investment account each month. Buy the same S&P 500 index fund or ETF. And keep doing that over and over and over, letting it compound for you.
Thank You!
If you’ve made it this far, then you are an amazing human. Let me know what you think by leaving a comment. Or drop me a question. Share it with others who you think might appreciate the information. Looking forward to sending out the next issue!
**I am not a financial advisor, so please don't buy/sell anything based solely on what you read here and do your own due diligence.