Simon Property Group
saw its stock surge at Tuesday’s open after the biggest U.S. mall owner sent out encouraging messages: It plans to reopen half of its properties within the next week thanks to eased lockdown restrictions in many parts of the country.
During its quarterly earnings conference call with analysts on Monday, Simon CEO David Simon said the company is leading the effort for local economies to get back to business. “We want to help these local communities…because frankly they depend on our sales taxes,” he said.
Simon (ticker: SPG), a real estate investment trust, owns roughly 200 malls and outlet centers in the U.S., and it closed all of them temporarily on March 18 amid the Covid-19 lockdowns. As some states started easing those restrictions, the company also began to reopen some of the properties since May 1 in states such as Georgia, Texas, Oklahoma, South Carolina, Tennessee, and Indiana.
As of Monday, the company said it had reopened 77 of its properties in the U.S. as well as a dozen designer and premium outlets. CEO Simon said the company is “encouraged by the consumer response thus far.”
Shares in Simon Property surged over 9% at Tuesday’s open before falling to trade around 4% higher at $57.26. The stock has tumbled more than 60% year to date, while the
has declined 9%.
More malls reopening is surely good news for retailers, many of which are struggling with plummeting revenue and eager to get shoppers back to stores. Thousands of stores have been shut down since March—some permanently—and employees have been furloughed. Department store chains including
(DDS), Neiman Marcus, and J.Crew filed for chapter 11 bankruptcy protection last week. Analysts say more bankruptcies are on the way.
Still, a lot needs to be done before retailers can open their doors again. Safety and health measures need to be put in place, furloughed workers need to be rehired, some merchandise needs to be restocked, and the opening hours and operating capacity of stores might need to be adjusted.
(JWN) have all laid out their own plans to reopen for business in phases. Most important, whether consumers are ready to pull out their wallets again facing a likely recession—or worse—remains to be seen.
“It’s not just consumers returning, but also tenant operating capacity levels, consumer confidence, and consumption/ spending levels,” wrote BMO Capital Markets analyst Jeremy Metz in a Tuesday note, “Simon may be better positioned than most; however, there will be tenant fallout and rents are ultimately a function of sales, and these are where the real risks lie.” He maintained a Hold rating on the stock with a $65 price target.
During Monday’s earnings report, Simon said its first-quarter net income dropped 20% from the year-period, to $437.6 million, or $1.43 per share. Funds from operations—a key metric to gauge the health of REITs—also fell nearly 9%, to $980.6 million, or $2.78 per share. Both numbers came in lower than analysts consensus, according to FactSet, which were at $1.56 and $2.90 per share, respectively. The mall owner has withdrawn its 2020 financial outlook amid elevated uncertainties.
Simon said some of its key retail tenants were unable to pay their monthly rent amid the lockdown, but didn’t disclose details. In an effort to save costs and stay liquid during the crisis, Simon said it has suspended or eliminated more than $1 billion of capital expenses on new projects, temporarily furloughed workers, and slashed executive pay.
Still, the company said it would commit to a quarterly dividend and fully expects its tenants to honor their lease commitments. The board will declare a second-quarter dividend before the end of June, CEO Simon said, and the dividend will be paid in cash. REITs are required to pay out at least 90% of their taxable income to shareholders.
“As a point of reference, there have been over 175 public companies who have either suspended or reduced their common stock dividend by 50% or more,” he added, “We will not be one of those companies.”
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