Simon Property Group buys fellow mall operator Taubman Realty

Mall operator Simon Property Group has agreed to buy peer Taubman Realty for $3.6 billion.

Michelle Chapman and Anne D’Innocenzio had the news for the AP:

As mall-based retailers struggle to compete with the onslaught from online shopping, the companies that own and manage the malls are finding their own business models severely challenged.

For the second time in as many weeks, there is a major agreement involving mall operators.

The Simon Property Group will buy mall operator Taubman Realty in a deal valued at around $3.6 billion.

Simon Property Group Inc. is the nation’s largest mall operator. It said Monday that its operating partnership, Simon Property Group, LP, will buy all of Taubman stock for $52.50 per share. The Taubman family will sell about one-third of its ownership stake at the transaction price and remain a 20% partner in Taubman Realty Group LP.

T aubman Realty owns, manages or leases 26 shopping centers in the U.S. and Asia, including The Mall at Short Hills in New Jersey, and Waterside Shops in Naples, Florida. Simon owns or has a stake in 204 properties in the U.S., including premium outlets as of last year.

“By joining together, we will enhance the ability of (Taubman) to invest in innovative retail environments that create exciting shopping and entertainment experiences for consumers, immersive opportunities for retailers and substantial new job prospects for local communities,” said David Simon, Simon’s chairman, CEO and president in a statement.

Malls have struggled with retail bankruptcies and store closings after a vast shift in the way Americans shop.

Since 2015, only nine malls have been built, a dramatic fall from their peak construction in 1973 of 43, according to CoStar Group, a real estate research firm.

Forbes’s Phil Wahba reported:

Over the years, Simon built itself into a mall behemoth via a number of acquisitions, including its $6 billion 1998 blockbuster deal for Corporate Property Investors (CPI). Simon has 233 malls, outlets, and other properties in North America, Europe and Asia, valued by Green Street Advisors at about $100 billion.

The real estate investment trust has taken two previous runs at Taubman, a mall operator founded by a rival real estate family in 1950, with a heavier concentration in high-end malls, including Short Hills in New Jersey, home to a Nordstrom and a Neiman Marcus.

The Taubman acquisition underscores how much the high end—challenged as it is, too—is a safer haven in the mall industry, and for Simon, it offers a new source of growth amid a radical reshaping of retail.

Simon has been deft at navigating the turmoil in the mall world in the last decade: the implosion of the department store sector, the struggles of specialty apparel players like The Gap and Victoria’s Secret, and the rise of e-commerce that has hurt in-store visits.

Ciara Linnane from MarketWatch wrote:

Taubman’s assets include 24 upscale retail properties, 21 based in the U.S. and three in Asia. Under the terms of the deal, Simon will acquire an 80% interest in Taubman Realty Group Limited Partnership, which owns Taubman Centers. The Taubman family will sell about a third of its stake in the company at the transaction price and remain owner of the remaining 20% of shares.

RBC analysts said the deal makes sense.

“We view SPG as a logical buyer of TRG,” analyst Wes Golladay wrote in a note. “Simon is the best capitalized mall REIT and should be able to realize synergies via its large platform and access to capital markets.”

CFRA upgraded Taubman shares to hold from sell and raised its price target to reflect the deal offer price.

“We previously noted rumors of the deal last week and concede that we estimated the odds of the deal as too low and were particularly surprised by the very large premium offered even after shares had moved up on the rumors,” analyst Chris Kuiper wrote in commentary. “However, we did note that the deal would make sense and round out SPG’s mall portfolio with higher class and highly productive assets. TCO will maintain the dividend until the deal closes, which could be another one or two payments depending on timing.”