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.