WPG - This Is Why Some REITs Cut Dividends and Others Don't
Before COVID-19 there was the so-called "retail apocalypse" that was destroying sales at brick and mortar stores. This has been a one-two punch for landlords who own retail properties, with enclosed malls taking a particularly big hit, and a number of mall-owning real estate investment trusts (REITs) have been forced to trim their dividends.
The most recent REIT slicing its dividend was Washington Prime Group (NYSE: WPG). But there's a big difference between this mall owner and former parent Simon Property Group (NYSE: SPG), which suggests that Simon's dividend is still on solid ground. Digging into the numbers will help you understand why some REITs cut dividends and others do not.
To address the elephant in the room right away, mall-focused real estate investment trust Simon Property Group did cut its dividend during the deep 2007-to-2009 recession. The company saw the downturn as an exogenous shock and chose to cut the dividend as a form of insurance against a worst-case scenario (which at the time included the fear of a complete collapse of the global economic system). Within a few years the dividend had been increased back to its previous levels, and at this point it is well more than double what it was before the temporary cut. It is entirely possible that Simon will view COVID-19 in a similar fashion.