Shares of Simon Property Group (SPG - Free Report) gained more than 5% in after hours-trading, after the company announced the second-quarter dividend of $1.30 as well as the reopening of majority of its retail properties in the United States.
At a time when a number of REITs have suspended dividend payments in light of the coronavirus pandemic that has disrupted the macro economy and affected rent collections, this dividend of $1.30, although denoting a 38.1% decline from the prior payment of $2.10, comes as a relief for investors. Simon has also noted that it expects to pay at least $6 per share in common stock dividend in cash for the current year, subject to approval from the board of directors.
Moreover, with respect to reopening of properties, the company noted that it has already reopened 199 of its 204 U.S. retail properties across 37 states. These properties denote more than 95% of the company’s property net operating income. The remaining five properties are also likely to reopen within the next week.
With more than 18,000 stores across the company's U.S. portfolio being reopened and many tenants witnessing higher-than-expected conversion rates and sales, the rent collection and deferral concerns will likely lessen.
Apart from these, 30 of Simon's Designer and international Premium Outlets properties are open. These include all of its international Premium Outlets located in Asia as well as Designer Outlets in Continental Europe, with almost all retail stores open. The company, also recently announced the inauguration of Siam Premium Outlets Bangkok.
Notably, over the recent years, mall traffic has continued to suffer with e-commerce gaining market share from the brick-and-mortar stores, and store closures and retailer bankruptcies becoming rampant. This has raised concerns over the fate of cash flows of physical stores and landlords, as the trend is considerably curtailing demand for the retail real estate space. This has affected Macerich (MAC - Free Report) , Taubman Centers (TCO - Free Report) , while the likes of Simon Property, Kimco (KIM - Free Report) and others have not been immune too.
Also, there is likely to be no respite in the near term as the tepid environment might prevail with dwindling footfall at retail properties amid social-distancing mandates and higher e-commerce adoption due to the coronavirus crisis.
This Zacks Rank #5 (Strong Sell) stock has depreciated 54.3% so far in the year compared with the industry’s decline of 27.6%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Nevertheless, the reopening of the retail sector in several parts of the nation has come as a relief. This is because, with more reopening of stores, tenants stand in a better position to generate revenues and meet their rent payments. Thus, the pressure on retail landlords is likely to reduce and their rent-collection figures are expected to improve.
For Simon too, the reopening of retail properties has raised hopes for better cash flows from its properties. Furthermore, the company has a solid liquidity position of $8.5 billion. This includes $5 billion of available capacity under its revolving credit facilities and term loan (net of outstanding U.S. and Euro commercial paper) as of May 31, 2020, together with $3.5 billion of cash on hand, including its share of joint-venture cash. With solid balance strength and available capital resources, the company remains well poised to brave the current blues and bank on opportunities stemming from market dislocations.
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