UPDATE 4-Simon Property dividend 90 pct stock, shares sink

* Fourth-quarter FFO $1.86/share

* Board votes to pay dividend mostly in stock

* Sees full-year FFO $6.40-$6.60/share

* Stock falls up to 8.3 pct
(Replaces CEO quotes, updates stock price, adds byline)

By Ilaina Jonas

NEW YORK, Jan 30 (Reuters) - Simon Property Group Inc
(SPG.N), the largest U.S. mall owner and operator, said it
would pay out most of its dividend in stock, sending its shares
down as much as 8.3 percent.

Simon reported a 6.5 percent increase in funds from
operations (FFO), a performance measure for real estate
investment trusts (REITs), and said its board voted to pay a
quarterly dividend of 90 cents per share in 10 percent cash and
90 percent stock.

The dividend decision will allow Simon to retain $925
million in cash in 2009. The stock later recovered some ground
on word the decision would be reviewed quarterly.

"This decision is not made in response to the current
retail environment but it means -- we're being conservative
with our capital," Chief Executive David Simon said in a
conference call with analysts. "We intend to evaluate this
decision each quarter and we've also received the right to pay
the dividend entirely in cash if conditions warrant."

Simon shares traded as low as $40.76 but by Friday
afternoon had pared their losses, down 3.2 percent to $43.02.

REITs such as Simon traditionally have attracted investors
because they offer hefty dividends by distributing 90 percent
of their taxable income to shareholders in exchange for not
being taxed at the corporate level.

"From a cash management standpoint I think it's good for
companies to keep an eye on every piece of cash and be
shepherding capital as well as they can," said Joseph Betlej,
portfolio manager at Advantus Capital Management.

"But from the prospective of the REIT industry, there's a
lot of investors that care about that dividend," he added, "and
the idea that we're going to be paying these things now in
stock lessens the attractiveness of REITs to the investing
public, both retail and institutional investors."

At the end of the quarter, Simon had about $1.1 billion of
cash, including its share of joint ventures, and more than $2.4
billion of available capacity on its revolving credit
facility.

For the fourth quarter, Simon's FFO rose to $540.5
million, or $1.86 per share, from $507.7 million, or $1.76 per
share, a year earlier.

The latest results narrowly beat the average of analysts'
forecasts of $1.85, according to Reuters Estimates. The results
include an impairment charge of $21.2 million, or 7 cents per
share for the write-off of certain predevelopment projects that
have been abandoned as well as for a property in operation.

FFO removes from net earnings the profit-reducing effect of
depreciation, a noncash accounting item. Under Generally
Accepted Accounting Principles, Simon posted net income of
$145.2 million, or 64 cents per share.

For 2009, the Indianapolis-based company said it expected
FFO of $6.40 to $6.60 per share. Analysts have forecast $6.57,
according to Reuters Estimates.

Simon has a stake in 386 malls and high-end outlet centers
and shopping centers in the United States, Europe and Asia.

The consumer-led U.S. recession has rocked retailers, who
have closed more than 6,000 stores. The dismal holiday shopping
season failed to give a last-ditch boost, with sales in that
period falling 2.2. percent -- the worst result since the
International Council of Shopping Centers trade group began
compiling such data in 1970.
(Reporting by Ilaina Jonas; Editing by Matthew Lewis and Tim
Dobbyn)