Simon Properties Group (SPG) is the nation’s largest REIT mall operator. They sport a fat dividend of around 8%. They own full or partial stakes in hundreds of malls, some of the biggest and best.

I can almost see the allure, but in the current economy, SPG is a nightmare. Look at their balance sheet: debt/equity ratio is around 5.4, which is… leveraged to say the least. Total debt of $17.88 billion. Current market cap is $9.3 billion. And people want to buy this stock? It’s already down from around $120 in Feb of 2007. Maybe they think it has to be a bargain, since it’s down so much?

The most puzzling fundamental, though, is their trailing P/E of 23. What’s the justification? Will retail have a miraculous bounce in the foreseeable future? No. Is SPG a potential buyout candidate? Maybe, but I can’t imagine anyone wanting to take on their debt right now. With plummeting consumer spending, $17 billion in debt, and debt-laden tenants, the outlook is bleak.

Headwinds SPG faces include: Stores are going bankrupt due to the drop in consumer spending. Circuit City, for example, has 10 stores at Simon properties. KB Toys and other former retail juggernauts have shut down recently too. A lot more will follow. I don’t know about you, but my local mall has a few going-out-of-business sales running.

The effect on SPG could be catastrophic. This company is highly leveraged, and designed to operate in an easy-credit environment. They’ve built an impressive portfolio of properties, and part of me admires the scope of it all. But there’s too much debt, too little credit, and a consumer-frugality movement coming like we’ve never seen before.

I added to my short position in SPG last Friday, as I posted here. Haven’t covered any of that, and suspect SPG has much farther to fall. If you’re bullish on this stock, please post a rebuttal. I’m short, so need as much info as possible.

Disclosure: I am short SPG and JPM (puts).
Overall disclaimer: I’m an amateur investor, and may not know what I’m talking about. Do your own research.

More info:
Simon Properties Investor Relations
Circuit City collapse could hit real estate investors
Ghost Malls Will Be Appearing