Simon Property Group will acquire an 80% ownership interest in The Taubman Realty Group Limited Partnership, including all of Taubman common stock, for about $3.6 billion, the companies announced on Monday. Subject to customary closing conditions, the deal is expected to close in mid-2020.
TRG's portfolio includes 24 "high-quality retail assets," (21 in the U.S. and three in Asia), which amount to about 25 million feet of gross leasable space, and will continue to be managed by Taubman executives from their existing headquarters in Michigan, according to a Monday conference call with analysts and a press release from the companies.
Simon will pay $52.50 per share in cash, about a 51% premium, the companies said. The Taubman family will sell about a third of its interest at that price and remain a 20% partner in TRG.
This acquisition bolsters Simon's already strong position in a physical retail environment where many malls are faltering. Taubman CEO Robert Taubman in a statement on Monday said that Simon is an ideal partner, and that strength is likely why.
In the fourth quarter, the mall vacancy rate rose 0.3% from the prior quarter to 9.7%, with both asking and effective rent growth remaining flat, according to a report from commercial real estate firm Reis emailed to Retail Dive. In that report, Moody's Analytics Senior Economist Barbara Byrne Denham said that the trend to bring in more entertainment and other non-retail tenants into malls is set to continue.
Simon, however, is a standout in the sector, according to Wells Fargo Securities Senior Analyst Tamara Fique. "[W]e continue to favor SPG given the strength of its balance sheet, liquidity, and ability to invest appropriately in its assets to produce above-average long-term growth," she wrote in emailed comments before the Taubman announcement was official.
Simon CEO David Simon, in a conference call with analysts, said the firm will continue to add non-retail attractions like entertainment into the company's centers. He also said that the locations of Taubman's malls were a major selling point.
"Without question we think together we're going to be able to grow the [net operating income] of both portfolios and I think as I mentioned earlier, that to us is always gravy," he said. "Together we're just going to be a much stronger company … they're in major markets and that means a lot to that business."
The pressure on malls, especially traditional ones, only intensified last week with Macy's announcement that it will shutter 125 stores in the next three years in underperforming malls and set up shop in community-style strip centers instead.
Taubman himself came under fire last year from activist investor Land & Buildings, which in an open letter last June singled him out for what Land & Buildings called an "atrocious absolute and relative performance." Land & Buildings didn't immediately respond to Retail Dive's request for comment on Monday's news.
The deal has been unanimously recommended by a special committee of Taubman independent directors and by the boards of both companies, according to their release. Approvals from two-thirds of the outstanding Taubman voting stock and a majority of the outstanding Taubman voting stock not held by the Taubman family are still required.