As the effects of the coronavirus continue to play out around the globe, businesses are scrambling to secure extra cash reserves.
On Monday, mall owner Simon Property Group extended an unsecured revolving credit facility, or loan, from $4 billion to $6 billion. The terms of the loan include $4 billion in multi-currency revolving credit set to mature in 2024 and another $2 billion in delayed withdrawal set to mature in 2022. But funds may be extended even further, up to $7 billion.
Also on Monday, the real estate investment trust Macerich slashed its quarterly dividend by one-third to 50 cents a share. The company said it will pay the dividend by way of a cash-company shares combo and added that the move will free up more than $98 million worth of incremental cash each quarter, or $400 million annually.
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But while Simon and Macerich applied different methods, both companies had the same goal in mind: to preserve cash amid the ongoing crisis.
“The strength of a company’s balance sheet matters a lot right now. And the ability to protect that, whether through credit or through cash,” Simeon Siegel, managing director and senior retail analyst at BMO Capital Markets, told WWD. “It’s definitely a conversation companies are having internally.”
In fact, the coronavirus pandemic has left consumers and investors in a frenzy. Consumers are panic shopping, buying up large quantities of household staples too fast for grocers to restock shelves. Meanwhile, investors are doing the opposite: panic selling in an effort to cut their losses.
The Dow Jones Industrial Average fell sharply Monday morning despite the Federal Reserve’s intervention Sunday evening. The index’s plunge was on top of steep losses the week before, which saw one of the worst days of trading since 1987’s Black Monday.
The Federal Reserve’s decision late Sunday to cut interest rates by 1 percentage point to a range of 0 to 0.25 percent was meant to strengthen confidence on the Street. Low interest rates tend to tame investor fears because they incentivize businesses and consumers to spend more.
But this time it seemed to have the opposite effect, with the S&P 500 and tech-heavy Nasdaq Composite also falling more than 9 percent during the day’s trading session. The global markets didn’t fare much better.
With lockdowns and citywide curfews in major cities around the world, retailers and other discretionary businesses, such as travel and dining out, will be disproportionately affected in the days, weeks or even months to come.
Over the weekend, a number of apparel and footwear retailers announced temporary store closures in North America to help contain the spread of COVID-19. Aside from a loss of sales from decreased foot traffic during the shutdown, almost all said they would continue to pay hourly workers while closed, causing further financial pressures. While some sales will naturally shift online, some won’t. And it will be hard for retailers to convince shoppers to spend money on things like apparel or luxury products while stuck at home.
But Siegel pointed out that company concerns aren’t so much an anxiety over missed sales in the short term.
“The bigger fear is about liquidity,” he said. Or, the company’s ability to prove its value to the market.
As a result, more retailers and mall owners will likely follow suit, looking for rent concessions and other ways to trim expenses, said Craig Johnson, founder of Consumer Growth Partners, a private equity investment and advisory firm.
“It’s what I would call a prudent course,” Johnson explained. “The retailers aren’t going to be able to pay that [rent] if their stores are closed. Even the ones that are open are operating fewer hours and with half the customers than they used to.
“So other landlords we anticipate will do this,” he continued of the moves by Simon and Macerich. “Because the same economic pressures are at play; they affect everybody. The smarter retailers, such as Simon, are readying themselves for those potential issues as they come down the road.”