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Simon Property Group: The Big Reopening

May 07, 2020 8:45 AM ETSimon Property Group, Inc. (SPG)MAC, TCO93 Comments
Marel profile picture


  • As of May 5, Simon Property Group has reopened 59 properties and is planning to reopen another 18 properties within the next week.
  • The Taubman acquisition is expected to close as initially planned.
  • Taubman's earnings release provided useful information on its Asian business in terms of what to expect once a mall reopens.
  • Two months later, Taubman's Asia tenant sales and customer traffic are approaching 2019 levels. Can this be extrapolated to the US? If so, this is very bullish.
  • Simon Property Group notes that shopper response to reopenings has been very positive, and initial traffic has been better than expected.

My core investment in the mall space has traditionally been through Simon Property Group (NYSE:SPG). I am still very bullish over the long term and have a high degree of confidence that SPG will survive and, eventually, thrive. This is due to its strong balance sheet, high-quality properties (with increasing emphasis on mixed-use environments) and international diversification, among other things. That said, one has to be mindful of the challenges in customer-facing businesses over the next few quarters. In my previous article on SPG, dated March 13, 2020, I had mentioned the following:

SPG's success is ultimately a function of the success of its tenants, who need to be in a healthy situation to pay rent. I am not sure how retailer business interruption insurance enters the equation, but the more this situation drags on, the higher the pain. How will the market react if a city in the US goes into lockdown (like in Italy) or if stores, restaurants, bars, theaters, etc are forced to close for weeks as part of local or nationwide containment efforts?

My message back then was to take advantage of the sell-off, but with caution. Back then, the US was assessing various containment options, and we hadn't gone through a lockdown. Today, after many weeks of nationwide lockdowns, there are some encouraging signs as cities start to reopen. However, the same cautious message still holds. A medical problem ultimately requires a medical solution.

As of May 5, SPG has reopened 59 properties and is planning to reopen another 18 properties within the next week. It has created a dedicated web page with reopening updates, which I encourage readers to visit. According to the company:

Shopper response to our reopenings has been very positive. Initial traffic has been better than expected

Unfortunately, the situation is far

This article was written by

Marel profile picture
Value-oriented investor focusing on marketable securities, real estate as well as early-stage companies.

Analyst’s Disclosure: I am/we are long SPG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am also long MAC.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (93)

kingRIG2.0 profile picture
Buy this stock and sell around Xmas time for a quick profit
Marel profile picture
SPG's conference call is a good listen. The company seems to be committed not belonging to the club of companies that have slashed their cash dividends by a large amount (50% or more). They dividend announcement will be made in June, once the company collects more data and feels more comfortable about taxable income projections. Centers are reopening and the company mentioned that results thus far have exceeded retailer expectations in many instances
Biological profile picture
What is your call on TCO acquisition? Tks.
Marel profile picture
From the tone in the SPG call, there seems to be an issue. David Simon refused to answer any questions related to Taubman. My understanding is that today spg is holding its shareholder meeting. Perhaps thats the reason? But as far as i recall, the acquisition doesnt require spg shareholder consent. No clue, but i would feel a bit nervous if i owned TCO shares today, given David Simon’s silence on the matter.
"They dividend announcement will be made in June, once the company collects more data and feels more comfortable about taxable income projections."

That's still disturbing. They normally pay on a Feb, May, Aug, Nov cycle.
All real estate , retail, commercial and residential was overpriced before Covid-19. The virus has just accelerated the day of reckoning for the entire industry
Those properties most indebted will not survive.
Others like SPG will survive , but will be forced to offer discounts on rents.
Be patient and wait for lower prices on SPG before accumulating
James Hanshaw profile picture
Good article. It adds nicely to my own on MAC and SPG last week seekingalpha.com/...
I checked out the website, simon.com, as recommended. It looks beautiful, took me a bit to figure out how they are showing malls that are open or not, but once I did, the info seems okay for an omni-shopper, not as useful for an investor looking for data. I couldn't figure out how to buy anything. After playing around in the website, it doesn't make me want to buy SPG as much.
Marel profile picture
Simon is a great company and I have visited many of their centers (great assets). I agree that their website (especially investor relations part) could be improved.
James Hanshaw profile picture
@fun times! They should take a look at MAC’s website. SPG’s nearly put me off writing positively about them in the article I mention in a comment above on this excellent article
Marel profile picture
MAC's website is nice, easier to navigate in terms of investor relations
profits101 profile picture
ex pat in Philippines, so this may be only a little relevant - they will re-open malls here soon also, but many other tweaks that others might adopt, including, restrictions on restaurants in malls (social distance seating, from McDo, Chow King, Jollibee, Pizza Hut etc to anybody else), elimination of cafeteria style food serving, keeping temps higher (they think air recirculation gives off bad stuff), not to mention malls that have retail stores that will have gone belly up - e.g., Forever 21, limitations on # of people allowed to enter a grocery store in mall. This is the New Normal (and govt loves it... of course they just shut down the TV station that has 40% of the market too...).
Marel profile picture
No charm.
Marel profile picture
Thanks for reading
Volte-Face Investments profile picture
There is an astounding arbitrage on TCO if that deal is really happening.

Given how much banks will have to be involved in this situation now, I am really surprised if the deal is happening that has not leaked out and pushed it up.
Biological profile picture
@Volte-Face Investments Contract is super tight, excludes pandemic, and has a history. See p. 19 -33 of the recent TCO proxy. SPG already knocked down TCO initial offer price (from $60 in cash and securities) to $52.5 cash in a bad market with a bad retail situation (F21, etc.). All facts were known and parties were advised by best legal and financial advisors.

But you are right; market is offering up a huge deal spread.

I already made a sensational profit on TCO when it first jumped to >$52, then traded the TCO-K profitably and I am hoping for one last super trade on TCO to make up for my SPG loss. Cheers!
I hope MAC is the next takeover target. SPG will then be a true colossus of high quality properties.
Marel profile picture
I like MAC

"I hope MAC is the next takeover target. SPG will then be a true colossus of high quality properties."

More like a colossus of debt. But sure, why not? It's clearly Simon's ambition to own every closed, vacant, dying shopping mall in the world.

“It's clearly Simon's ambition to own every closed, vacant, dying shopping mall in the world.“

R. Paul Drake profile picture
Thanks, @Marel , for bringing those details about the Asian reopenings.
Marel profile picture
Thanks Paul. I hope they offer a good roadmap.
EliasMouawad profile picture
@Marel Remdesivir (intravenous) can help patients recover in 5 days. Isn't it enough to encourage people to visit malls ? and travel ?
Long SPG
I hope slg suspends dividends until next year at least
Gary Kime profile picture
Marel, you state before COVID SPG was hitting on all cylinders, it’s stock price has gone from 240 to 60. Can you square that circle for me?
Marel profile picture
Before covid, SPG was around $150. Also, the mall industry was facing substantial headwinds due to anchor replacements (mostly department stores) but SPG was delivering FFO growth, increasing the dividend, buying back shares, acquiring other companies (TCO), while maintaining a rock solid balance sheet. Also , SPG's tenants were recording substantial growth in sales in SPG centers . On this basis, SPG was firing on all cylinders, but not on the share price front .
Gary Kime profile picture
Isn’t it a little scary that the stock went from 240 to 150 while they were firing on all cylinders? Doesn’t that say something is happening in a huge way (Amazon and on-line)!
Marel profile picture
It is crazy, the market has been in the mode: long amazon, short malls. SPG was actually growing and operating metrics were resilient, including sales psf, traffic and occupancy rates. At the end of the day, its all about the cash flow. SPG’s cashflow has been going up over the past few years. My view is the future is omni-channel, both e-commerce and quality retail properties are required , including malls which are becoming more and more ‘town centers’ (mixed-use destinations/environments with entertainment, experiences, dine-in restaurants, even coworking spaces - i.e. not just shopping)
SPG won't have the income clarity to support a 90% REIT payment until 3 months after reopening. It's finance and accounting.
bo0bo0 profile picture
SPG has delayed the declaration of their May dividend far longer than their usual time (end of April). Every time i've seen that behavior from other companies, it meant a dividend cut was coming up. I think we'll see a cut or suspension from SPG soon.
Marel profile picture
I agree with this. Dividend delay announcements are never good
Great breakdown! Thanks
Marel profile picture
I imagine SPG and SKT will cut their dividends by 50% or more. Open air, grocery/Walmart center REITs will do well. I bought a ton near the lows of the selloff, I wish I had more money to put to use. People always slam outlets on SA, but I see them having more a future than enclosed traditional malls.
Marel profile picture
Thanks. I agree that open-air centers, in particular grocery-anchored, will do well.
bvandersall profile picture
A fair portion of SPG's properties are Premium Outlets (PO) which are open air facilities.
Marel profile picture
True. Personally, I don't like outlets that much. That's why I also like Macerich and their urban centers. TCO, which I liked, was acquired.
Author says, "... one must not be shocked if SPG decides to temporarily suspend the dividend ... ."

I, for one, will be shocked. Guess we'll know soon.
Well, maybe not "shocked," but somewhat surprised.
Marel profile picture
I really dislike the idea, but one has to be mindful of the situation. We have seen so many crazy things happen over the past few months
ChartGuru profile picture
Hmmmm....”Simon Property Group Inc. (NYSE:SPG) CEO, Chairman and President David Simon bought 150,000 shares on March 17 at a price of $60.83” I just bought at the close yesterday as I wanted $53 but wanted to starting chipping in. Last time I bought after CEO of a company was when the CEO of Weight Watchers jumped in when it had dropped to under $20 last year ....I doubled my investment within 4 months when I sold in October....I won’t bet against David Simon. Rgds
Marel profile picture
Thanks @ChartGuru , very positive that they invested sizeable amounts
Are you not long BRX and MAC?
Marel profile picture
@redwings924 I am long $BRX, $MAC and a few others including $O during the sell-off
Other Side Of Trade profile picture
Cutting the Simon dividend is an awful idea if the want the stock price to recover.
Marel profile picture
I agree, I hope they make it without cutting. Lets see what happens
Andrew Feazelle profile picture
It will be a chance to pick up shares on the cheap. For every 2k I own of Simon, I buy 1 share of Amazon to hedge.
The fact that it's already May 7th and they haven't made a declaration yet is very troubling - check the last 10 years - they have never been this late in declaring a dividend.

My hunch given that announcement delay is that a cut is inevitable - the question is how big?
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