Simon Property Group, Inc. (NYSE:SPG) closed at $201.41 on October 12. The stock has largely remained flat over the last six months, compared to a 21.25% return for the Insider Monkey Billionaire Index and 14% for State Street SPDR S&P 500 ETF Trust.
Keeping more profit than the properties produce means the extra arrived from somewhere other than rent. Simon is not only a landlord. It is also a part owner of other landlords, and that second role is currently doing more for the income statement than the first.
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The Extra Twenty Points Come From Outside the Malls:
Net margin above operating margin always means income is arriving below the operating line, and for Simon it arrives from two places. The first is its share of profit from joint ventures it does not consolidate, including substantial international holdings. The second is gains booked when it sells or revalues an interest in a property or a partnership. Both land after operating income, which is exactly where the gap opens.
Underneath that, the operating business is performing. Revenue grew 19.50% in the most recent quarter at an operating margin of 46.02%, which describes genuinely strong property economics rather than financial engineering. Class A malls turned out to be far more durable than the market assumed a few years ago, and the owners of the best locations have pricing power with tenants who need the footfall. Rent and revaluation gains spend the same and repeat very differently, and only the first is the sort of income behind the blue chip dividends hedge funds buy most of. Their heaviest position is up 23% since.
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What the Forward Multiple Is Saying:
The forward multiple is 29.44 against a trailing 14.07, and a forward figure more than twice the trailing one is the market stating plainly that profit falls by more than half. The estimates agree. Trailing earnings are $14.17 a share against a forward estimate of $6.77. That is the joint venture income and the revaluation gains not repeating, which is the correct assumption, because these gains are by nature occasional.
Leverage is the second issue. A return on equity above a hundred percent next to a low single-digit return on assets tells you almost the entire equity return is borrowed. Debt stands at $29.44 billion against thin book value, and that figure describes the borrowing as much as the business. The same caution applies across the property names Goldman Sachs put on its top picks.
Free cash flow also came in below net income, which is what non-cash gains do to a cash flow statement and further evidence the reported profit overstates what the malls collect.
The Valuation Case:
The verdict is that Simon looks cheap on trailing earnings and roughly fairly valued on what the business actually earns. The trailing multiple of 14.07 is not the real one. The forward figure of 29.44 reflects the rent rather than the gains, and that is the number a buyer is really paying. The dividend at roughly 4.4% is the clearest part of the case. It consumes about three-fifths of earnings and is covered by property cash flow rather than by the items creating the margin distortion. This is a well-run portfolio at a full price rather than a bargain hiding behind an unusual income statement. Profit earned without leverage is both harder to produce and harder to lose, which is what sets the profitable undervalued names we ranked apart. Their leader is up 16% since.
Conclusion:
The headline margin belongs to the accountants rather than to the malls. The operating margin underneath it describes a genuinely strong property business, and revenue grew sharply. However, the extra net margin came from joint venture income and revaluation gains rather than rent. A forward multiple at more than twice the trailing one says earnings per share falls by more than half, and the debt load is substantial. Watch the operating margin. It strips out everything the malls did not earn.
Market Sentiment:
Simon Property Group, Inc. was held by 34 hedge funds with a combined stake value of about $0.74 billion at the end of Q2 2026 in the Insider Monkey database. This is down from 48 hedge fund holders with a cumulative investment value of around $0.90 billion in the previous quarter.
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This article is originally published at Insider Monkey.
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