Simon Property Group’s (SPG) decision to eliminate 90% of their cash dividend is the most vile of breaches between shareholder and management. They’ve used a small loophole that allows REITs to issue shares instead of cash and still retain their REIT status.

They claim it’s the prudent thing to do and reserve the right to “reinstate the cash dividend when it becomes less prudent.” What does that mean? When would one ever enter into a less prudent transaction? To add insult to their arrogance, they also claim that this is not in response to the current retail operating environment. On the conference call they also stated that their smaller tenants need them more than they need their tenants. Delusional is the word that comes to mind.

People keep asking me, “When is it going to be time to get back into homebuilders?” And the right answer is anytime you feel like gambling. Buying common shares of a public homebuilder is a lot like lending money to your deadbeat uncle so he can payoff his bar tab. You’re never going to see that money again unless you can convince his drunken buddies to buy his loan from you.

Homebuilders borrow money from you (in the form of common share offerings), to collateralize their debt, to subordinate your shares to future preferred offerings, to buy more property, to build more houses, to borrow more money…to increase SG&A. That’s their purpose. SG&A and stock options for upper management.

While the credit storm batters the worldwide markets, M/I Homes' common shares (MHO) have been a floating fortress.  An island of strength in a sea of uncertainty.  What makes this situation more bizarre is their sinking cash position.  As of their June filing, their cash on hand was $2M while long term debt stood at $274M. 

Year to date, the common is up 115%; while the preferred (MHO-A) is essentially flat and trading at about one-half its redemption value.  Their bonds (55305BAC5) are also trading at a 20% discount to par and 13% lower than their first print in January.