We recently published a list of 13 Most Profitable Real Estate Stocks Now. In this article, we are going to take a look at where Simon Property Group, Inc. (NYSE:SPG) stands against the other most profitable real estate stocks now.
Real Estate and the Aftermath of the Fed Rate Cut
As reported by Redfin, buying a home has gotten affordable for the first time since 2020 as homebuyers need to earn $115,000 to afford the typical home. While Senior Economist Elijah de la Campa thinks this could be a good time to buy a home with housing affordability improving for the first time in four years, he thinks the market won’t be cheaper in the near future. This is because the Fed’s recent rate cut and the following rate cut plans have already been priced into the mortgage rates since they were highly anticipated.
Another optimistic news for homebuyers on the sidelines was the housing payments witnessing the biggest decline in 4 years ahead of the Fed’s historic rate cut. These payments have gone down by almost $300 from April’s all-time high. The median housing payment was reported to be $2,534 during the four weeks ending September 15, down 2.7% year-over-year. With lower mortgage rates and less inventory, the housing market is still unaffordable for many but it is as good as it gets in the words of Orphe Divounguy, Zillow’s senior economist.
Regarding the aforementioned optimism for homebuyers, Robert Reffkin, Compass founder and CEO, stated that homebuyers are much more active than they were before. In his opinion, consumers react more to the change in mortgage rates rather than the absolute rate itself. He told CNBC that buyers now know not to take a relatively lower rate for granted after being through a period of elevated mortgage rates. Meanwhile, the major issue has been the lock-in effect during the preceding 2 years since 75% of the homeowners were locked into 4% mortgage rates or below, a percentage which is now approaching 50%. With declining mortgage rates, he expects the lock-in effect to drop and the housing inventory to grow.
With the declining mortgage rates, refinancings have surged. Mortgage applications hit the highest levels since July 2022 as the rates dropped. According to the Mortgage Bankers Association, applications to refinance or purchase a home in the week that ended September 20 increased 11% week-over-week while the refinancing applications climbed 20% during the period. This marks the 2nd consecutive week of double-digit gains in applications. Overall, the refinance activity is still modest with seasonally slow homebuying complemented with high home prices and a shortage of inventory.
Our Methodology:
In order to compile a list of the 13 most profitable real estate stocks, we created an initial list of 30 companies with the biggest market caps. Moving on, we screened out those companies that had a positive net income in the last twelve months and had grown their net income positively over the past 5 years. For the 5-year net income growth, we have considered the compound annual growth rates on a TTM basis. Finally, we ranked the shortlisted companies in ascending order of their hedge funds, as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A rooftop view of a bustling downtown area, emphasizing the company's investments in the real estate sector.
Simon Property Group, Inc. (NYSE:SPG) is a real estate investment trust that engages in the ownership of premier shopping, dining, entertainment, and mixed-use destinations, which primarily include malls, Premium Outlets, and The Mills. The company’s properties span North America, Europe, and Asia. The firm owned or held an interest in 195 income-producing properties in the US, which comprised 93 malls, 69 Premium Outlets, 14 Mills, six lifestyle centers, and 13 other retail properties in 37 states and Puerto Rico, as of December 31, 2023. Globally, Simon had ownership interests in 35 Premium Outlets and Designer Outlet properties located in Asia, Europe, and Canada.
With three decades in operation, Simon has demonstrated growth, resilience, and innovation by becoming the preeminent owner and operator of best-in-class retail real estate properties, with scale. The firm serves as one of the largest landlords to the world’s most important retailers. Simon’s portfolio remains differentiated by product type, geography, and tenant mix. This portfolio is irreplicable as it includes properties like shopping centers, many generating $100 million or more in annual NOI. Thus, no other real estate type can match the longevity, embedded future growth, and NOI generation of these centers.
The management was pleased with the firm’s second-quarter results. Net income attributable to common stockholders was $493.5 million as compared to $486.3 million in 2023. Funds From Operations (FFO) was $2.90 per diluted share relative to $2.88 per diluted share in the prior year period. The development activity also remained robust. While construction began on a new, 234-unit luxury residential development at Northgate Station, Tulsa Premium Outlets was planned to open with 338,000 square feet.
Based on 30 years of proven experience and performance, Simon Property Group, Inc. (NYSE:SPG) remains strong and poised for future growth. As of Q2, the stock is held by 38 hedge funds and ranks on our list of the most profitable real estate stocks now.
Overall SPG ranks 6th on our list of most profitable real estate stocks now. While we acknowledge the potential of SPG as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than SPG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
