Liquid Alternatives: Simon-Taubman Deal for Malls Sparks Rally in REITs ETF

February 11, 2020 | Liquid Alternatives, News, Real Estate
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Simon Property Group will buy Taubman Centers in a $3.6 billion deal.

The Invesco KBW Premium Yield Equity REIT ETF (NYSEArca: KBWY) shot up 3.6% on Monday on news of the Simon Taubman deal. Taubman Centers (NYSE: TCO) constitutes 3.7% of the ETF’s portfolio. Simon Property Group (NYSE: SPG) will pay $ 52.50 in cash per share of Taubman. It is seeking to acquire a majority stake in TCO. (ETF TRENDS)

TCO surged 53.2% on news of the acquisition, which marked a 51% premium over TCO’s Friday closing price. Bloomfield Hills, Mich.-based TCO, controls 26 super-regional shopping centers across the US and Asia. These together comprise 25 million feet of gross leasable area.

Simon Taubman deal: reinventing physical retail

According to MarketWatch, Simon Property Group will purchase an 80% interest in Taubman Realty Group Limited Partnership (TRG), the owner of Taubman Centers.

The deal “will enhance TRG’s ability to invest in innovative retail environments for retailers and consumers, deliver exciting shopping and entertainment experiences to consumers, and create new job prospects for local communities,” Simon said in a statement.

The relentless rise of online shopping and e-commerce has taken a toll on the retail property market. Malls which used to house brick and mortar retail chains such as Sears are coping with their closure. These malls are now reconfiguring their tenancies by including health clubs, groceries, entertainment outlets, and even dentists.

The existing executive team of Taubman Centers will continue to manage the company. It will be led by Chairman, President, and Chief Executive Officer Robert S Taubman, in partnership with Simon.

Analysts weigh in positively on the Simon Taubman deal

“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,” wrote CFRA analyst Chris Kuiper. “However, we did note that the deal would make sense and round out SPG’s mall portfolio with higher class and highly productive assets.”

“We view SPG as a logical buyer of TRG,” RBC analyst Wes Golladay said 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.”

The Forever 21 Angle

Separately, Simon has acquired fast-fashion chain Forever 21 in bankruptcy proceedings for $ 80 million. Forever 21 is a major tenant of Taubman, occupying 17 stores with 51,300 ft² of space. Simon is partnering with Brookfield Property Partners and BlackRock controlled Authentic Brands in the acquisition of Forever 21.

Halo effect on REIT Macerich Co

Macerich Co (NYSE: MAC), a REIT which owns upscale malls such as Tysons Corner Centre outside Washington DC, Biltmore Fashion Park in Phoenix, and Santa Monica Place in Santa Monica, also benefited from the Simon Taubman deal. Investors are expecting that MAC could soon be in play as well in the acquisition game. They pushed the REIT up by 11.3% to $ 26.00 at close on Monday.

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