A Mall Landlord's Survival Guide: Buy Up All the Best
(Bloomberg Opinion) -- In the retail apocalypse, only the strongest can survive. It’s why the Taubman family, among the biggest mall landlords in the U.S., is throwing in the towel after 70 years and ceding control to its larger rival, Simon Property Group Inc.
The merger had long been seen as an inevitability, if a bitter reality for the Taubmans, who watched their company’s stock recently descend to a 2009 recession low. Mall operators are looking for ways to strengthen their portfolios, and these two in particular share similarities.
Both run higher-end shopping destinations, such as Taubman Centers Inc.’s The Mall at Short Hills in New Jersey and The Gardens Mall outside Palm Beach, Florida, as well as Simon’s Woodbury Common Premium Outlets in Central Valley, New York. Still, neither company has been shielded from the pain of retail bankruptcies and shuttered storefronts. When Forever 21 filed for bankruptcy last fall, it was Taubman’s biggest tenant. The timing of the family’s decision to sell reinforces the downcast mood in brick-and-mortar retail.
After on-and-off talks between the two longstanding mall dynasties — like Taubman, Simon is led by the son of its own founder — the deal finally came together on Monday. Simon agreed to acquire Taubman for $3.6 billion in cash, or $52.50 a share, 70% higher than the stock’s average closing price for the last 20 trading sessions. The substantial premium shows just how eager Simon was to do the deal and what it took to get Taubman on board. The family will retain a 20% interest in Taubman Realty Group LP, the entity that holds its real-estate interests.
For Simon, adding Taubman’s properties may help offset the sour outlook it gave investors during a recent earnings announcement. It had projected that funds from operations — a key cash-flow metric for real estate investment trusts (REITs) — will be $12.25 to $12.40 per diluted share in 2020, which was below some analysts’ expectations and signaled relatively weak growth for the year. Simon’s stock has rebounded 6% since Bloomberg News broke news of its negotiations with Taubman last week.
It's a harsh retail environment, and while U.S. malls aren’t yet being demolished on a grand scale, less than half of them may ultimately survive, according to Lindsay Dutch, an analyst for Bloomberg Intelligence. On the bright side, those left standing could get even stronger as tenants seek out the best remaining shopping locations, Dutch wrote in a Dec. 11 report.
Joining forces may ensure Simon and Taubman are in the latter camp. But selling now, with the stock in the dumps rather than on its way to a recovery, means the Taubmans didn’t see better days ahead.
Simon also happens to be part of a group trying to buy the fast-fashion retail chain.
To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.
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