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Why Simon Property Group Plummeted 55% in March

By Anne Burdakin - Apr 5, 2020 at 6:02PM

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Simon's strong collection of market-dominant malls is bruised but not broken.

What happened

The largest U.S. mall owner, Simon Property Group (SPG 0.81%), saw its stock price fall an astonishing 55% in March, according to data from S&P Global Market Intelligence.

Malls were already suffering as shopping behaviors shifted away from malls in recent years, but when the coronavirus hit, malls experienced a new low. On March 18, Simon Property Group announced the closure of all properties. Reopening dates have not yet been set as the health crisis deepens across the country.

On March 31, Simon announced the furlough of 30% of its workforce and the permanent layoff of other employees. Salaries of upper-level managers are cut by up to 30% during the pandemic, and CEO David Simon will not receive a salary.

Mother and daughter window shopping in a mall.

Image source: Getty Images.

So what

Landlords everywhere are concerned about rents in April. Mall owners, with many tenants possibly already on the financial edge, wonder how they will ever recover.

National restaurant chain Cheesecake Factory, with locations in 29 Simon Property malls, informed landlords it would not be paying rent in April. Other mall tenants are watching developments closely to determine whether rent deferrals or restructured agreements are possible with Simon or other individual mall owners.

Simon Property Group has long been exploring other uses for its real estate that's more in tune with what consumers want, such as high-end health clubs and work-sharing spaces. If some of the retail and restaurant tenants don't survive, the company may have the opportunity to implement these ideas sooner than expected.

Now what

The company was on firm financial ground before the crisis, but market capitalization has dropped $31 billion since the beginning of 2020. On March 16, Simon Property Group said it secured additional liquidity by amending and extending its $6 billion revolving credit facility and term loan.

Insider stock purchases in March showed strong belief in the future of Simon Property Group. CEO David Simon bought $9.1 million in company stock, and Simon Property Group co-founder Herb Simon, the owner of the Indiana Pacers, bought $9.9 million. 

Six directors bought shares as well. Altogether, insiders purchased 372,358 shares for $20.8 million. 

It's tempting to jump on board and invest along with the insiders, but I think investors should wait until a bottom is truly in before committing hard-earned money to this stock. There's still a lot of uncertainty surrounding recovery after the health crisis. Keeping Simon on a watch list is the prudent thing to do at this point.

Anne Burdakin has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Simon Property Group, Inc. Stock Quote
Simon Property Group, Inc.
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