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Sharp Decline in Elective Procedures Places Pressure on Stryker’s Payout

The outbreak of the novel coronavirus is coming head-to-head with Stryker's 28-year track record of paying uninterrupted dividends. Stryker (SYK) designs and manufactures devices and supplies used in a wide variety of medical procedures. 73% of Stryker's sales are generated in the U.S. In March, the Centers for Medicare and Medicaid Services (CMS) recommended that elective surgeries and other non-essential medical procedures be postponed in order for hospitals to preserve space and equipment for COVID-19 patients. Recently, many hospitals have begun resuming non-essential procedures. But it's possible, if not likely, that many people will continue to avoid hospitals to reduce their risk of exposure to the coronavirus. So far, the shock to sales of many medical supplies has been extraordinary.

April 28th, 2020|

Simon’s Dividend Risk Rises as More Tenants Become Distressed

On March 19, we wrote the following about Simon's (SPG) Dividend Safety Score:  The risk to Simon's dividend hinges largely on how long store closures persist and how optimistic management is about retail performance once stores reopen. A further downgrade to Unsafe could be issued quickly if closures appear they will last longer or if widespread rent defaults become likely. The outlook for extended store closures and rent collections has materially weakened since then. We expect this to pressure Simon's ability to cover its dividend, protect its balance sheet, and invest in its necessary redevelopment projects. As a result, we are downgrading Simon's Dividend Safety Score from Borderline Safe to Unsafe and believe it would be prudent for management to reduce the dividend substantially, perhaps as soon as [...]

April 25th, 2020|

Tanger’s Dividend Looks Increasingly Fragile as Retail Headwinds Mount

In May 2019, we downgraded Tanger's (SKT) Dividend Safety Score to Borderline Safe and wrote: With disruption (and rising store closures) looking more permanent, Tanger's occupancy level, rent rates, and cash flow could come under even greater pressure, and potentially for much longer than management and analysts currently expect...As conservative investors, we prefer to own businesses that have more in their control and are better aligned with secular themes working in their favor. The apparel retail space does not meet those objectives given its fast pace of change and the rise of online shopping. At the time, Tanger's dividend did not look at risk of an imminent cut. We stated that "outside of a wave of store closures or a potential desire to maintain [...]

April 25th, 2020|

STORE’s Cash Flow Not Expected to Cover Dividend for Foreseeable Future

Last week, we discussed how the coronavirus pandemic was impacting STORE Capital's (STOR) tenants significantly. Based on STORE's documented tenant mix, we estimated that between 40% and 60% of rent was at risk of deferral. Since then, STORE participated in a call with Morgan Staley to provide an update to investors on the firm's results. In the call, management revealed that only 64% of April rent had been collected so far. For context, normally 100% of rent is collected by mid-month. 90% of the remaining 36% of rent had been granted deferral status with repayment expected within the next year or so. No payments had been forgiven or reduced, but the other 10% of uncollected rent was still in negotiation. May will likely be [...]

April 24th, 2020|
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