Simon Property Group (NYSE: SPG), the largest mall operator in the United States, was hit hard by the COVID-19 pandemic. The company shut down all 204 of its U.S. retail properties in March as the outbreak worsened, and many tenants have either been unable or have refused to pay rent for the months of April, May, and even June.
With that in mind, as well as the general reluctance of many American consumers to venture out and shop, many investors had been expecting the worst from Simon. The company didn't declare its second-quarter dividend in its most recent earnings release, and investors probably wouldn't have been too surprised to see the company suspend dividends altogether.
But to the surprise of investors, Simon recently provided an update on its operations that was significantly more upbeat than many had been expecting. Not only did investors get some decent dividend-related news, but the early results related to the reopening of Simon's malls looks quite promising.
Simon cut its dividend -- but didn't eliminate it
Many retail real estate investment trusts, or REITs, have suspended their dividend because of the pandemic, but we already knew this wouldn't be the case with Simon. As the company said along with its first-quarter earnings release:
"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."
Even so, that's a pretty vague statement. After all, when it ran into trouble, General Electric (NYSE: GE) decided to "maintain a dividend" by slashing the payout to $0.01.
Well, Simon just announced that it will pay $1.30 per share for its second-quarter dividend, which is far better than many had expected. What's more, Simon anticipates paying at least $6.00 per share for 2020 -- considering the first-quarter dividend of $2.10 and the just-announced $1.30 second-quarter dividend, this implies that an additional $1.30 per share in both the third and fourth quarters is the least investors should expect to receive.
Most malls have reopened, and things are looking good
In addition to announcing its dividend plans for the second quarter, Simon also gave investors an update on its business.
As of the announcement (June 29), Simon had reopened 199 out of its 204 retail properties in the United States, as well as 30 of its international properties. More than 18,000 stores located in Simon properties have reopened, and Simon reports that "since reopening, many tenants have reported higher-than-expected conversion rates and sales."
The five domestic Simon properties that remained closed as of the update were expected to open within the next week, as is the company's one remaining international Premium Outlets property that was still closed. In other words, Simon expects its malls and outlets to be 100% reopen by July 6 (although some tenants may certainly choose to wait).
Finally, Simon reported liquidity of $8.5 billion, including $3.5 billion of cash on hand as of May 31. In a nutshell, Simon's properties are getting back to business, and Simon has enough money that it will be just fine even if rent collection takes a little while to get back to prior levels.
Still a long way to the finish line
This is certainly good news for Simon's shareholders, but it's important to keep in mind that the COVID-19 pandemic is still a fluid situation. Case numbers have been rising, and several state and local governments have rolled back reopening plans. So far it hasn't affected malls, but it certainly could if the outbreak continues to spike, and this is likely why Simon's stock has barely budged on the news.
That said, this is definitely a positive development and helps illustrate just how high-quality Simon's malls are and how financially sound the company is.