Is it reasonable to believe that post-Covid, malls will still remain competitive in the new era of retail, which is gradually migrating online? We think so. The internet is merely another shopping option that should continue to grow in importance, but it seems highly unlikely that digital retail will completely replace brick-and-mortar retail. That said, Simon Property Group (NYSE: SPG), the largest mall real estate investment trust (REIT), has been badly affected by the mandatory shutdown of retail stores earlier in the pandemic. Consequently, the company’s stock lost 52% of its value so far this year, and currently stands at $70. And, we believe it is a good time to enter Simon’s stock. This is taking into account Simon’s stronger balance sheet, operating performance compared to its rivals, and considering the stock’s almost 90% rebound following the 2008 financial crisis. Our conclusion is based on our detailed comparison of Simon Group’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.
At the end of the Q2, Simon’s liquidity was approximately $8.5 billion, consisting of $4.9 billion of available credit facility, borrowing capacity, and $3.6 billion of cash, including its share of joint venture cash (all-in-all a huge amount of cash to lean on during difficult times). The company paid down a total of $2.5 billion under its credit facilities. Simon is buying retailers (J. Crew, Guess, Forever 21, J.C. Penny) out of bankruptcy with partners to take advantage of the industry turmoil and help keep its malls fully occupied. For the moment, Simon points out that the occupancy rate of its malls is currently 92.9%. In addition, Simon’s earnings declined only 29% year-over-year to $2.12 per share, considering the circumstances. It also reduced, but didn’t suspend its dividend, and still yields nearly 8% based on Q2 payout. As it turns out, it will take time for the industry shakeup to play out, but Simon looks prepared to weather the Covid storm.
2020 Coronavirus Crisis
Timeline of 2020 Crisis So Far:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid a Saudi-led price war
- Since 3/24/2020: S&P 500 recovers 49% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
Simon Property Group Performance During 2020 Coronavirus
SPG’s stock declined from levels of around $134 in mid-February (the pre-crisis peak) to roughly around $49 as of March 23 (as the markets bottomed out) – implying that the stock lost as much as 63% of its value from its approximate pre-crisis level. It then rallied to levels of close to $71, rising by 44% since March 23. However, it is still down 52% from levels of over $146 seen in early January.
S&P 500 Index Performance During 2020 Coronavirus/Oil Price War Crisis
The S&P 500 index declined from levels of around 3,386 in mid-Feb (pre-crisis peak) to levels of around 2,237 as of Mar 23 (as the markets bottomed out), implying the index lost 34% of its value from its approximate pre-crisis peak. It then rallied to levels of about 3,361 currently, rising by 50% since Mar 23. It is also up 4% from levels of 3,231 seen in early January.
2007-08 Financial Crisis
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)
Simon Property Stock Performance Over 2007-08 Financial Crisis
SPG stock witnessed something similar during the 2008 downturn. SPG’s stock declined from levels of around $62 in October 2007 (the pre-crisis peak) to roughly $22 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 65% of its value from its approximate pre-crisis peak. However, SPG’s stock recovered post the 2008 crisis, to levels of about $54 in early 2010, rising by 148% between March 2009 and January 2010.
S&P 500 Performance Over The 2007-08 Financial Crisis
S&P 500 Index fell 51% from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied to levels of 1,124 – rising by about 48% between March 2009 and January 2010.
How Do Simon Property Group’s Fundamentals Look In Recent Years?
Simon Property’s revenues grew 7% from $5.4 Bil in 2016 to $5.8 Bil in 2019. In addition, earnings growth, on a per-share basis, was higher by 16% between 2016 and 2019.
Phases of Covid-19 crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with the gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- July-October 2020: Poor Q2 results and lukewarm Q3 expectations, but continued improvement in demand, a decline in the number of new cases, and progress with vaccine development buoy market sentiment
The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.