There's really no way to put a positive spin on 2020 for Simon Property Group (SPG -0.23%) or its shareholders. But even a year filled with bad news can present an opportunity within your broader portfolio if you act before the end of the year.
Here's what smart investors are thinking about doing with their Simon Property Group stock today.
From bad to worse
Before the global pandemic, real estate investment trust (REIT) Simon Property Group was dealing with the so-called "retail apocalypse." While the shift toward online shopping garners most of the attention in this big picture trend, it is a much bigger issue than just that. Effectively, retailers with heavy debt loads lack the flexibility to adjust to changing consumer tastes (including an increasing desire to shop online). This has been depressing the shares of mall owners like Simon because faltering retailers have been going bankrupt, and even many that are likely to survive the "retail apocalypse" are choosing to close stores.
Image source: Getty Images.
Simon, however, has a well-located collection of around 200 enclosed malls and factory outlet centers, including a number of properties in foreign markets. It is also one of the strongest names, financially speaking, in the mall REIT niche. The "retail apocalypse" is real, but Simon is one of the best-positioned to handle it. It was even buying retailers out of bankruptcy with partners to take advantage of the industry turmoil and help keep its malls fully occupied.
And then the coronavirus pandemic hit, with economies around the world effectively shutting down in an attempt to slow the spread of the illness. Retailers were forced to close their stores and Simon's rent collection rates fell dramatically. The REIT is holding up as best it can, and now that the U.S. economy has largely reopened, shoppers are starting to come back to the mall. But a full recovery is likely a long way off. Investors have understandably punished Simon's stock, which is still down around 50% for the year. What do investors do now?
Three choices...
The first thing you can do is nothing. That's a viable choice and one that I always consider very strongly. Often the worst thing you can do is act rashly in the face of Wall Street adversity. Things tend to move in cycles, and what is out of favor today will frequently be back in favor at some point in the future. The truth is, Simon appears to be handling this downturn relatively well compared to its weaker peers. Sitting pat is not the worst plan.
The second option is to sell. If you think physical retail is going to be completely replaced by online shopping (which seems highly unlikely) then getting out makes sense here. Another good reason to jump ship is if you think that Simon lacks the financial strength to muddle through this industry rough patch (which is possible, even though Simon remains one of the strongest names in the space). And if you are finding it hard to sleep at night because you own Simon stock (which is completely understandable), you might want to sell just so you don't have to worry about it anymore.
However, if you are just looking to get out because the market is down on mall REITs, you might want to revisit the first option and reexamine Simon as a business. It really is one of the best-positioned names in the space.
The third option is something that smart investors do on a regular basis. If you are sitting on a loss in Simon stock, as many people likely are, you can sell the stock to capture the loss and then buy it back in 30 days (make it 31 or 32 if you want to ensure you don't get caught up by the wash sale rule). This is called tax loss harvesting, and it allows you to use the loss you have to offset capital gains you may have taken elsewhere in your portfolio. If you don't use all of the loss this year, it can be carried forward to future years. You just have to make sure you don't buy Simon back in before the wash sale rule's 30-day period or you will lose the ability to offset capital gains with the capital loss.
But what if you are worried about missing out on a potential stock price gain should positive news hit the market, like a vaccine? In that case, you can buy a similar retail-focused REIT. Financially strong options you might consider are Tanger Factory Outlet Centers and Federal Realty Investment Trust. Neither are perfect replacements, but both would likely benefit from the same type of news that would benefit Simon. After the 30 days (perhaps 31 or 32, just to be safe) you can sell the replacement REIT and buy Simon back -- or by that point maybe you decide to keep the new stock, too. Either way, you'll have a capital loss to help offset capital gains so you can reduce your tax bill come April 2021 and beyond, if you don't use it all up in one shot.
Now what
If the idea of tax loss harvesting sounds too good to be true, you should touch base with your tax accountant for a more in-depth explanation. Note that it's only possible to do this in a taxable account, so if you hold Simon in a tax-advantaged account you are out of luck. But if you are on board with the idea, now is the time to consider taking action because time will start running out for the 2020 tax year before you know it (we're already halfway through September, meaning there are just three months or so for you to take advantage of this opportunity). Regardless of what you decide, however, if you have material paper losses in Simon, it is worth reexamining your investment today. Maybe you decide to do nothing or maybe you choose to make a move, but a conscious choice is better than ignoring the issues Simon faces.
