Friday, May 15, 2020

Simon Property Groups (SPG) is Ambiguous on Dividends

I read the latest press release for Simon Property Group (SPG). I was expecting them to announce their dividend announcement as part of that release, given the fact that they are about 2 weeks late to their usual dividend declaration.

They did mention the word dividend in their latest press release, but I found it to be very ambiguous.

Simon's Board of Directors will declare a common stock dividend for the second quarter before the end of June. Simon intends to maintain a common stock dividend paid in cash and expects to distribute at least 100% of its REIT taxable income.

This is a very carefully crafted message that probably took their investor relations team 10 days to come up with. It gives the company some time to defer the difficult decision on cutting the dividend. They remind me of a teen-ager who procrastinates on a difficult assignment, because they do not want to do it, and face the consequences.

On one hand they are announcing that they will pay a dividend, in order to maintain REIT status. But they leave open the possibility that there will be a dividend cut. The way this was worded, implies a dividend cut in my opinion. Some investors have misread this statement to say that they will keep the dividend unchanged. This is incorrect - they are keeping a dividend payment, which mostly likely will be lower than the last quarterly payment.

I will stick to my strategy for now, and not sell. I am pretty certain that they are cutting the dividend with this ambiguous message, but I will not sell until they state it firmly. That being said, I am dissapointed by corporate double-speak. I am perhaps sticking to this stock for educational purposes only, because owning a stock forces me to keep up on it, as I am fed press releases, 10-k and 10-q reports on it.

In my opinion, Simon's management is not frank and upfront with their investors. I also do not like the fact that they have not shared the percentage rent collected from tenants, which is a statistic that is now commonly shared by many REITs. It sounds to me like they are trying to hide something, when we all know and expect to hear that things are not rosy.

It also seems to me that the Taubman Centers acquisition may have to be re-negotiated. Back in February, Simon (SPG) decided to acquire Taubman (TCO) for $53/share in cash. Subsequently, we had all the lock-downs, the economy going into a tailspin, but this deal is still going as if it is going to happen at the original terms. This deal needs to be renegotiated, because those assets are impaired as of today. It is basically lighting shareholder funds on fire, if they really were to acquire Taubman at the original terms from February. However, Simon management is refusing to say anything about it. Hopefully they are doing something behind the scenes to renegotiate the deal and its terms ( or walk out). Otherwise...

When I reviewed Simon Property Group (SPG) in December, I concluded that it is a high yield and a high-risk investment. It did remind me at the time of Tanger Factory Outlets in 2017 however. Both Simon in late 2019 and Tanger in early 2017 we yielding about 5%, had low valuations, and FFO/share growth was grinding to a halt. Yet, Tanger kept deteriorating over the next 2 - 3 years. It is possible that Simon is deteriorating at a faster pace over the course of the past 2 - 3 quarters.

If I were to sell Simon Property Group, and keep the money in REITs, I would probably replace it with W.P. Carey (WPC) or Realty Income (O). The first one received a 95% collection rate on rent, while the second company collected on 83% of rent in the most recent month. Sadly, National Retail Properties (NNN) collected only 52% of rent last month. I believe NNN is at a high risk of a dividend cut. I will turn off the DRIP for this stock too.

This is an interesting chart I found on Twitter, which shows April rent collection rates. If you want to think about which dividend is at risk, think about this chart and collection rates. A low collection rate in 12%, such as Tanger Factory Outlets is basically telling you that the dividend is toast ( it was suspended yesterday).



Simon Property Group is not on this list, and very likely will not appear on it for some time.

Relevant Articles:

Simon Property Group (SPG): A High Yield and High Risk REIT
Tanger Factory Outlets (SKT) Suspends Dividends
Twelve Companies Raising Dividends To Their Investors
Five Things to Look For in a Real Estate Investment Trust (REIT)

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