When a caller mentioned that they are thinking about adding to their position in Simon Property Group, Inc. (NYSE:SPG) during the October 2 episode of Mad Money, Jim Cramer commented:
I think you’re absolutely right… I want you to add to the Simon Property Group… What a great man he (David Simon, previous CEO) was, and he built a fabulous company, and you should buy more of it.
A September 8 question about buying Simon Property Group led Cramer to bring another real estate stock into the conversation.
Higher Rents Support Growth Across the Portfolio
Simon Property Group, Inc. reported second-quarter real estate funds from operations of $3.29 per diluted share, up 7.9% year-over-year. Domestic property net operating income increased 8.5%. Occupancy at its U.S. malls and premium outlets remained at 96%, while base minimum rent increased 6.3% to $62.42 per square foot. Management raised its full-year real estate funds from operations outlook to $13.20 – $13.30 per share. These figures show rent and property-income growth without requiring an increase in occupancy. Leasing activity also remained substantial. During the earnings call, management reported signing approximately 1,200 leases covering more than 4.8 million square feet, with new-deal volume increasing more than 20%.
Retailer Failures Still Require Active Management
Stable occupancy does not mean every tenant is healthy. Simon Property Group, Inc. absorbed approximately one million square feet of space returned through retailer bankruptcies during the quarter. Management said it successfully re-leased the space, helping maintain occupancy. That shows leasing strength, but also a reminder of the work required to preserve rental income. Additional retailer failures could bring more vacancies and replacement costs, even when demand for the properties remains sound.
The shares also carry a modest premium to an outlet-property peer. Simon trades at approximately 15.3x expected real estate funds from operations, compared with approximately 14x expected core funds from operations for Tanger. These are calculated multiples, and the companies’ adjustments and property portfolios differ. Investors should also distinguish Simon’s operating measures. Its reported funds from operations were $3.12 per share, down from $3.15, whereas real estate funds from operations increased. The prior-year reported figure included a $0.21 non-cash investment gain, which complicates a simple year-over-year comparison.
Hedge Fund Participation Falls Despite the Operating Gains
Insider Monkey recorded 34 hedge funds holding Simon Property Group, Inc. in Q2, down from 48 in Q1. Among those hedge funds, Arrowstreet Capital became the largest shareholder, as the firm increased its position in the company by 256% in Q2. Short interest represented 3.44% of the public float. The decline in fund holders was meaningful, though it does not by itself establish how much capital those funds withdrew. Simon Property Group’s hedge fund following also offers context for the names featured in our Top 10 Real Estate and Realty Stocks to Invest In According to Hedge Funds, although SPG did not make the list, but several other notable names did.
Cramer’s confidence comes with higher rents, growing property income, and an improved outlook. The company has also shown it can replace tenants lost to bankruptcy. For someone adding shares, the consideration is whether that performance justifies paying a modest premium, rather than assuming a well-occupied property portfolio has no retail risk.
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