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Why Simon Property Group Fell Over 10% on June 24

By Reuben Gregg Brewer – Updated Jun 24, 2020 at 1:44PM

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The giant mall landlord is dealing with health headwinds, merger troubles, and a negative view of its retail investments.

What happened

Shares of mall-focused real estate investment trust (REIT) Simon Property Group (SPG 0.70%) fell 10% in morning trading on Wall Street. That drop seemingly coincides with a material decline in the S&P 500 index, but there's more going on at this giant retail landlord than just a one-day shift in investor sentiment. And most of it isn't pretty.

So what

The broader market sold off as states that had been early to reopen their economies following COVID-19-related shutdowns saw an uptick in coronavirus cases. That's bad news for Simon, which owns around 200 enclosed malls and outlet centers. If previous business and social restrictions are put back in place, the properties it owns will see foot traffic fall. That will make it even harder to collect rent from tenants, some of which have already chosen not to pay for the period that Simon's properties weren't open. The REIT, for example, is currently suing a key tenant over unpaid rent. So, it's understandable that Simon's stock fell as coronavirus concerns picked up.

Two people with shopping bags standing in a mall

Image source: Getty Images.

However, that's not the only thing on Simon's plate. It is also trying to scuttle a deal it had inked earlier in the year to acquire peer Taubman Centers. Taubman isn't keen on that idea, however, so that's likely to be another court case for Simon to work through. Then there's the deal, with partners, to acquire Forever 21. This followed on a fairly successful investment in Aeropostale a few years earlier. Although these two investments aren't a particular issue, there are now rumors that Simon and its partners are looking to buy bankrupt retailer J.C. Penney. Industry watchers, notably in a Wall Street Journal article today, are expressing skepticism about the approach's long-term viability. Effectively, there are concerns that Simon is desperately trying to soften the blow from the so-called "retail apocalypse," but that it won't be able to offset the impact forever.  

Now what

All in, there's a lot of moving parts in the Simon Property Group story right now. In fact, since most of the issues the REIT is facing aren't particularly positive, ongoing share price volatility should be expected. Only more aggressive investors should be looking at Simon today, as it looks to cope with the hit from COVID-19 and a host of other material issues.

Reuben Gregg Brewer owns shares of Simon Property Group. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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