Simon Property Group: A Stock Benjamin Graham Warned Us About

A breathless article from Reuters addresses renewed interest in Retail Mall REITs, especially Simon Property Group (SPG). Two different analysts: David AuBuchon of A.G. Edwards and Murat Sensoy of SSgA/Tuckerman contend that Simon Property is not overvalued but secretly and unfairly undervalued.

Well maybe, but probably not. Compared to bubbly specimens such as SL Green (SLG) or Alexandria Real Estate Equities (ARE) yielding 2.10% and 2.90% respectively, SPG at 3.5% is undervalued.

A long term perspective about the price and yield of REITs gives us no comfort, since we have no historical basis for talking about REIT investment at such frothy valuations.

It is a situation that Ben Graham observed and warned about in his books. Many times over the years, we see a very solid, desirable company trading at an overbought, speculative price. With such a high price, everything that is positive, and a little more, is already baked in.

It would be very hard to have a positive surprise and very easy to have a negative surprise at these prices.

SPG chart: