To the U.S. government's credit, it started sending people checks when large swaths of the U.S. economy were, effectively, being shut down to help slow the spread of the coronavirus. While nothing is perfect, the extra cash helped to balance out the hit from lost income. Although the country is soundly on the reopening path at this point, some industries would benefit from additional government largess. Here are two real estate investment trusts (REIT) that would be particularly pleased to see even more cash.
1. The mall giant
Simon Property Group (SPG 1.99%), the largest mall and factory outlet landlord in the country, has been recovering pretty well in 2021. The best example of this is probably the fact that it has increased its dividend four times so far this year after trimming the payment in 2020 because its malls were basically shuttered. But, while the nearly 27% dividend increase in 2021 is huge, the $1.65 per share per quarter payment is still below the $2.10 per share prior to the pandemic. So there's more room to go here.
What Simon needs is consumers who are going out to spend money at the mall. That's clearly happening, but putting additional cash into people's hands would help juice its results even more.
What's notable here is that during 2020 Simon worked with tenants to adjust their leases, often reducing base rent while increasing the percentage of sales component. So higher sales at the company's malls doesn't just solidify the retailers' operations within them; it will also flow directly through to Simon itself because it gets a piece of that top-line improvement. In other words, if Uncle Sam offers up more support, Simon is in line for a double benefit.
To put a number on that, during Simon's third-quarter 2021 earnings conference call, CEO David Simon noted that percentage rent would have increased the company's base rent by $7. That equates to a huge 12% or so increase over the $53.91 base rent the REIT reported in the quarter. So more sales is "more better" for Simon.
2. Senior housing doldrums
While Simon would benefit from checks sent to individuals, there's another sector that could see a benefit from more direct assistance: nursing homes. While that's not exactly a stimulus check per se, it could be the difference between an operator muddling through or ceasing to pay rent.
Notably, during nursing home-focused Omega Healthcare Investors' (OHI 1.20%) third-quarter 2021 earnings conference call, senior vice president of operations Megan Krull closed her prepared remarks by saying:
All of this means that the continued support of both the federal and state government is critical to clearing the path to recovery for the long-term care industry as a whole. And while we applaud these most recent efforts, we also hope that they recognize the need to provide additional support in the future.
This is a big deal, noting that Omega currently has operators representing 12.5% of its rent roll that have stopped paying rent. So far, it has been able to use security deposits to make up the shortfall, helping to keep the payout ratio reasonable at 79% of funds from operations (FFO). But that can only last so long before there's no more backup money left.
As such, more government help, like the $100 million in nursing home support recently approved in Florida, would be a huge benefit to a company like Omega. Others in the industry would benefit too, like Sabra Healthcare and LTC Properties, among others. But with nearly 80% of its portfolio in the nursing home space, Omega would likely see the biggest assist from additional government largess.
Stepping in to help
In its effort to help deal with a medical crisis, the U.S. government upended the economy. The country is still working through the hit, though the blow was softened by Uncle Sam's efforts to provide financial help to individuals and businesses. On that front, Simon Property Group would likely see even larger percentage sales if more cash flows through to consumers, while Omega would be exceedingly pleased to see more help directed to the nursing home operators that it counts as tenants as it continues to deal with major pandemic headwinds.