Simon Property Group Inc. said Monday it has agreed to acquire mall real-estate investment trust Taubman Centers Inc. in an all-cash deal valued at about $3.6 billion, sending Taubman stock up 53%.
Indianapolis-based Simon SPG, +0.54% will pay $52.50 per Taubman share TCO, +53.23%, for a 51% premium over the stock’s closing price on Friday. The deal is expected to immediately boost Simon’s funds from operations and to be at least 3% accretive on an annualized basis after closing.
Taubman, which is based in Bloomfield Hills, Mich., owns, manages and/or leases 26 super-regional shopping centers in the U.S. and Asia, consisting of about 25 million feet of gross leasable area. The company will continue to be managed by its existing executive team, under the leadership of Taubman Chairman, President and Chief Executive Officer Robert S. Taubman, in partnership with Simon.
The deal is expected to close by mid-2020.
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.”
The move comes at a time when malls are facing steep pressure from e-commerce, which has caused foot traffic to decline sharply and many are looking at new ways to draw in shoppers — and tenants. As retailers shutter stores to save costs, malls are finding themselves without the anchor tenants of the past such as Sears, and are looking to add entertainment outlets, health clubs and grocers and even dentists.
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.
Separately, Taubman said it had a net loss of $32.8 million, or 54 cents a share, in the fourth quarter, after earnings of $3.087 million, or 6 cents a share, in the year-earlier period. Funds from operations came to 91 cents, while adjusted FFO came to 97 cents. The FactSet consensus was for FFO of 93 cents.
Revenue rose to $176.7 million from $167.5 million, ahead of the $169 million FactSet consensus.
Simon shares were last down 0.1%, but have fallen 23% in the past 12 months, while the S&P 500 index SPX, +0.30% has gained 23%.