02/10/2020 | by
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Simon Property Group, Inc. (NYSE: SPG) said Feb. 10 that it has agreed to take a controlling stake in fellow retail real estate REIT Taubman Centers, Inc. (NYSE: TCO) in a cash deal valued at approximately $3.6 billion.

Under the terms of the agreement, Simon will acquire all Taubman common stock for $52.50 per share. Simon will acquire an 80% ownership interest in The Taubman Realty Group Limited Partnership (TRG), the operating partnership through which Taubman Centers conducts operations, while the Taubman family will sell approximately one-third of its ownership interest at the transaction price and remain a 20% partner in TRG. The $52.50 per share price represents a 51% premium to Taubman Center’s closing price on Feb. 7 and a 19% premium to total enterprise value.

TRG owns 24 retail assets, three of which are in Asia. It will continue to be managed by its existing executive team, under the leadership of chairman, president and CEO Bobby Taubman, in partnership with Simon. Taubman described the 51% share price premium as “very significant,” and said the deal recognizes TRG’s track record since its founding 70 years ago. “The deal’s the right deal at the right time,” he said.

Simon chairman, president, and CEO David Simon said the transaction will enable TRG 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.” The deal is expected to be at least 3% accretive to Simon’s funds from operations (FFO) per share on an annualized basis upon completion of the deal.

Alexander Goldfarb, managing director at Piper Sandler & Co., said the deal “makes a lot of sense given the geographical line-up, and brings Simon’s financial firepower and operating abilities to the highest productivity mall portfolio.”

Goldfarb added that “these family-founded mall companies have long histories and any merger had to play to these sensibilities. We see the partnership whereby Taubman Centers’ management will run the legacy portfolio in concert with Simon as a positive as it combines the best of both teams.”

During a conference call, Simon stressed that the REIT has no intention to issue equity at current market levels and noted that it can finance the Taubman deal without accessing third-party financing. “Our balance sheet is very strong. We think we can accomplish all the goals we need to,” he said.

Meanwhile, Taubman said the company remains committed to its operations in Asia and is looking at expansion opportunities in China and Korea.