Environment and Real Estate & Retail

BEHIND THE NEWS: Consumer spending spree gives spark to Simon stock

February 13, 2006

It's becoming almost ho-hum for Simon Property Group Inc. Another year, another round of eye-popping returns for the company's shareholders.

The Indianapolis-based mall owner, by far the nation's biggest real estate investment trust, just closed the book on 2005, a year when funds from operations-a key measure of REIT performance-zipped up another 13 percent.

Simon shares last year rose 18 percent. Including reinvested dividends, the stock in 2005 returned 23 percent.

It was the fifth year in a row the stock price posted a double-digit percentage increase. Since the start of 2001, Simon shares are up 224 percent, or 333 percent with dividends reinvested. The stock market during that span was in a malaise, with the S&P 500 index down a hair but returning 6 percent with dividends reinvested.

And here's the kicker: Simon shares may have more room to run.

After Simon reported earnings Feb. 6, investment firms ratcheted up their price target for the company's shares, which now are fetching about $81 apiece. Morgan Stanley said the stock might hit $85; A.G. Edwards said it might reach $93.

"We believe that [Simon's] share price does not currently reflect the value of its world-leading scale and platform," David Fick, an analyst with Stifel Nicolaus & Co., said in a report. He has a price target of $88.

Indeed, Simon's gains until now have been largely in step with the overall regional mall industry, which is enjoying heady times thanks to the American consumer's seemingly unquenchable appetite for stuff.

But analysts say Simon has distinct advantages over rivals. For one, the company has a stronger balance sheet. That allows it to borrow money more cheaply and, if the right opportunity arises, to pounce on acquisitions.

"I think it's fair to say we have an awful lot of embedded firepower in the balance sheet," Simon Chief Financial Officer Stephen Sterrett said in a Feb. 6 conference call with analysts.

Then there's Simon's focus on owning the nation's best malls-high-end, market-dominant properties that, for the most part, aren't vulnerable to competition from new construction. Twenty-seven of Simon's 171 regional malls rank among the nation's top 100, according to the investment firm Friedman Billings Ramsey & Co. Among them: the company's posh Fashion Mall at Keystone at the Crossing.

"While we worry how long the U.S. consumer can maintain current spending patterns, in our view it is clear that mall owners, especially those with 'A' malls, have a product that is in heavy demand, with no near-term signs of a let-up," Fick's report said.

Simon shares already are up 5 percent this year. But even if debtdrenched consumers do rein in spending and the stock levels off, investors have something of a security blanket-a hefty dividend, which the company has a long history of increasing. At Simon's current stock price, the annual dividend yield is more than 3.7 percent.

Stock pops after IPO

The latest Indianapolis-based company to go public, oil refiner and lubricant maker Calumet Specialty Products Partners LP, is off to a smooth start on Wall Street.

The company in late January raised more than $137 million by selling 6.45 million partnership units at $21.50 apiece. Since then, the shares have drifted higher in NASDAQ trading, and on Feb. 9 were fetching $24.50-up 13 percent since the IPO.

Calumet had been part of the private business empire of the Fehsenfeld family, which 35 years ago founded Heritage Environmental Services, a wastemanagement firm that now has more than 500 North American employees.

The new public company has about 375 employees in Indianapolis, three refineries in northwest Louisiana, and a distribution terminal in Burnham, Ill.

Investors have taken a shine to Calumet despite a recent financial setback. In the nine months ended Sept. 30, the company posted a loss of $14 million on $858 million in revenue. Dragging down the performance were unrealized losses of $48 million on complex financial hedges intended to reduce the risks associated with fluctuations in the price of crude oil it buys from suppliers.

Brightpoint gets boost

Last year was spectacular for Brightpoint Inc. And this year is already off to a strong start.

After the market closed Feb. 7, the Plainfield-based wireless phone wholesaler reported fourth-quarter profit from continuing operations of $11.8 million, or 28 cents a share-6 cents a share higher than analysts had forecast.

Investors responded the next day by giving the stock a big boost. It rose $3.79, or 17 percent, to $25.13, and now is up nearly 35 percent in 2006. Last year, it was the best-performing stock in Indiana, rising nearly 113 percent.
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