Friday, March 13, 2009

Yet More REITs Conserving Cash

REIT Simon Property Group announced results of its dividend election today, which for all practical purposes could be called anything but an "election." The final outcome is that shareholders will receive a dividend of $0.90/share consisting virtually entirely of stock (90%) and the balance in cash. The irony is that when queried, shareholders predominantly opted for a cash distribution (193.6 million shares, or 93%), versus those opting for shares (15.2 million, or 7%), while 22.5 million "shares" didn't care either way.

The REIT, which has roughly $773 million in cash and $18 billion in debt currently, has reason to conserve cash, as the deteriorating cash flow generation from its portfolio of regional malls and community shopping centers is likely being impacted very adversely as a result of the accelerating bankruptcies among its retailer tenant base. Surprisingly, the company has a market cap of $8 billion, which, based on a closing share price of $34.73 and representing a 20x multiple of its consensus 2010 earnings of $1.73 (a number which could be in threat of reduction if ongoing deteriorating within the commercial real estate community continues), seems somewhat rich based on its growth prospects. Without doubt the primary factor in determining its recent share price moves is its short interest which at 24.3 million is slightly more than 10% of the company's total stock float of 212.7 million shares. Sphere: Related Content
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Unknown said...

Dillards is one of SPG's major tenants and its debt levels suggest bankruptcy. Should be interesting.

Anonymous said...

Sorry Tyler, but you obviously don't know REITs, as they don't trade on EPS at all, they trade on FFO (funds flow from operations). Reason is EPS has depreciation, which just so happens to be massive for a Real Estate company. FFO is before depreciation. SPG is actually trading at 5.0x '09 FFO, which is very low. Never look at a REIT's EPS multiple as it will always be high because of depreciation. I know you tried to make it look like a short candidate, and it might be for other reasons, but ALL REITs trade at high P/Es because it is a misleading and useless metric for them.

Tyler Durden said...

actually if you look at the ggp posts they are based on ffo. you can easily reindex p/e to ev/ebitda, ev/ffo, cap ratio or any other multiple ratio. you bring you a good point: what will happen to ppe for the reit space as D&A continues at historic rates while capex goes to 0. on an absolute or relative basis all these companies that rely on a portfolio of rapidly amortizing assets which generate less and less cash (pain from both gaap and cash) are due for major pain... but probably i did not express myself correctly when dumbing it down to merely p/e

TheBoogieMan said...

I've known reits to be dividend plays as investment vehicles. If your not getting a cash dividend..does not really make any sense to me.As a matter of fact all of these Blue Chip companies cutting dividends is just telling you something between the lines about the times we live in.

Anonymous said...

SPG actually has $24billion in debt, not the $18b listed on their balance sheet. You can find it all in their filings. Look under "consolidated earnings".

They just filed a mixed shelf too, btw. I'm only seeing the PR on Etrade news. But even with the 90% dividend cut, they foresee the need for more cash soon.

The debt levels on these REITs is truly astounding, especially Simon.

disclosure - short SPG.

P.S. - congrats on the Clusterstock mention Tyler, good work!

chrispycrunch said...

Informative post and good writeup

Richard said...

Anonymous said: "Sorry Tyler, but you obviously don't know REITs, as they don't trade on EPS at all, they trade on FFO (funds flow from operations)."

Sorry got scammed. FFO is a bogus metric invented by the REITs. It is based on the assumption that real estate always goes up. Surprise! Surprise! It does not.