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TJX to Evaluate Dividend Policy in Light of Retail’s Rapidly Changing Environment

The coronavirus outbreak has prompted a growing number of retailers to temporarily close their stores to help slow the spread of the virus. On March 19, TJX (TJX) announced actions it was taking in response to "the rapidly changing market uncertainty" caused by the global pandemic. The off-price retailer stated it was closing practically all of its stores for two weeks, as well as its online businesses, distribution centers, and offices. As expected from a well-respected operator like TJX, the firm plans to pay its impacted associates for two weeks during these closures. No one knows how quickly stores will ultimately reopen, but there's a very non-zero chance that closures last well beyond a couple of weeks as more dramatic social distancing actions are mandated across [...]

March 20th, 2020|

Extreme Drop in Fuel Demand, Oil Prices Clouds Magellan’s Outlook

The coronavirus pandemic and oil-price war have weighed on the short-term outlook for Magellan Midstream Partners' (MMP) business. The firm generates about 55% of its operating profits from transporting and storing refined petroleum products such as gasoline and diesel fuel. This has long been a nice cash cow business because demand trends are stable and growth is low, providing consistent throughput while discouraging others from constructing rival pipelines. Due to the predictability of fuel consumption, Magellan's refined products operations have never really been a contract-driven business.  Last year only about 40% of shipments on Magellan's pipeline system were subject to agreements with shippers dictating payment, volume, or term commitments. These deals only had an average remaining life of three years, [...]

March 20th, 2020|

Simon’s Situation Fragile as Malls are in the Crosshairs of the Coronavirus

In the crosshairs of America's response to the spread of the novel coronavirus, Simon (SPG) announced yesterday that all of its mall locations would close until at least March 29 (about two weeks). Simon is now in an unprecedented situation with a wide range of outcomes and a high level of uncertainty. It's anyone's guess how long stores will remain closed, though two weeks is likely optimistic. President Trump wouldn't offer a timeline today when asked by the media how long until Americans would be able to return to normal life. But already, AMC Theaters — not a tenant of Simon's, to be sure — has pledged to close its movie theaters for 6-12 weeks. Moreover, when stores do reopen, it's unclear how quickly [...]

March 20th, 2020|

NNN’s Financial Strength and Diversified Tenant Base Provide Some Flexibility in this Environment

National Retail Properties (NNN) is one of America's oldest triple net lease REITs and has grown its dividend each of the last thirty years. Triple net lease contracts shift most operating expenses (insurance, maintenance, utilities, and property taxes) to the tenant.  NNN simply collects rent and typically enjoys highly stable cash flow. However, the coronavirus outbreak has prompted a growing number of retailers to temporarily close their stores to help slow the spread of the virus, calling into question whether NNN's tenants will be able to meet their rent obligations in the near future. Moreover, it's unclear when stores will be able to reopen. Two weeks is when many governments and businesses plan to reevaluate the situation, and it would be unsurprising [...]

March 20th, 2020|
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