Retail REITs
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TCO
SPG |
Our Taubman Centers investment pays off as Simon Property Group finalizes its cash acquisition
(29 Dec 2020) Back on the 10th of June we wrote of Simon Property Group's (SPG $83) termination of a deal to buy much smaller competitor Taubman Centers (TCO $43). The rationale they gave in a subsequent lawsuit was ludicrous: Taubman hadn't taken appropriate steps to keep business humming along during the pandemic, giving them (Simon) the right to walk away from the deal. The silly argument might have carried a bit more weight had Simon's own malls not been closed over the time-frame in question. Of course, the real issue was Taubman's understandable drop in value due to the global health crisis. On the day that Simon balked, Taubman fell to an intraday low of $34.75 and we pounced, buying shares of the battered, ultra-high-end mall owner. Now, six months later, the deal has finally been inked: Simon Property Group will pay Taubman shareholders $43 per share in cash to take ownership. Not a bad return for a six-month investment. While we certainly expected Simon to ultimately acquire Taubman, we were prepared to own the small- to mid-cap REIT regardless. We knew its luxury retail properties, such as the Country Club Plaza in Kansas City, would come roaring back to life in 2021. As for Simon Property Group, we wouldn't touch the shares. |
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SPG
TCO |
Simon Property Group terminates merger deal with Taubman Centers
(10 Jun 2020) Although February is just four months behind us, it seems like an eternity ago. Retail REIT Taubman Centers (TCO $26-$34-$53) is no doubt thinking the same thing. Shares of the $2 billion real estate investment trust fell 25% Wednesday morning after much larger rival Simon Property Group (SPG $42-$80-$169) exercised its right to walk away from a $3.6 billion deal to acquire the firm. Simon, the biggest US mall owner, gave the ostensible excuse that Taubman did not take the proper steps to protect its properties from the pandemic, but that is a hard one to swallow. After all, were any of Simon's malls open in March or April? Simon is also suing its $4 billion tenant Gap (GAP $5-$11-$20) for failing to pay rent during the pandemic—while the mall was closed! There are plenty of unseemly characters in the landlord business; Simon is one we wouldn't want to do business with—or, quite frankly, invest in. In fact, with its 10 P/E ratio, 6% dividend yield, and positive free cash flow, TCO looks like a much better deal to us. SPG was trading down 8% on the news it had walked away from the deal. |
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Gen Z
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Move over millennials, Gen Z is rushing in, and they love to shop at the malls. (19 Dec 2019) When I was a kid growing up in the 80s, some of my favorite times were spent at the local mall. I worked there, shopped there, hung out with friends there. Over the past five years or so, however, many have tried to write the epitaph of the giant, enclosed, climate-controlled oasis. After all, they argued, millennials love shopping online (so do I, by the way), and foot traffic is perennially decreasing at the local brick-and-mortar stores. While online shopping will continue to gain ground, we never bought the thesis that it would mean the demise of the physical store. And now, new research seems to be supporting our argument. Backed by data from eMarketer, a professional market research company, real estate services firm CBRE has compiled some interesting statistics on Gen Z—kids, teens, and young adults roughly between the ages of seven and twenty. The group directly spends around $143 billion per year on discretionary goods, and influences another $450 billion or so in spending by others. And an overwhelming 76% of the members of this group say they prefer to do their shopping in nearby physical stores. Even though they often order clothing or other goods online, they want to pick up those goods at the local store ("click and collect")—meaning they are visiting the websites of brick-and-mortar companies like Nordstrom (JWN), Macy's (M), Victoria's Secret (LB), and Sephora (LVMUY), instead of Amazon (AMZN). In short, while they embrace technology, they want the social experience provided by a visit to the mall. And that fact is resonating with the likes of Simon Property Group (SPG) and Macerich (MAC), two higher-end (Class A) mall REITs which have been adding more experience-based components to their properties. In other words, Gen Z appears to be taking us back to the 80s, but with some cool new features added. We recently highlighted Macerich (MAC) as an interesting REIT play, but we also like Kimco (KIM), Simon (SPG), and Pennsylvania Real Estate (PEI) in the retail REIT space.
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SPG
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Simon Property Group's plan to battle online competition? Start an online site. (02 Oct 2019) Simon Property Group (SPG $145-$150-$191), the largest retail REIT and the second-largest REIT in the country, has joined forces with online shopping site Rue La La to create a new experience for shoppers built around its premium outlet malls. ShopPremiumOutlets.com is an effort to team up with mall tenants to sell their goods online, typically at the same deep discount found in their brick-and-mortar stores. Simon has already convinced such brands as Under Armour (UA), Nautica, Saks, and Aeropostale to join the venture, and the site already offers around 300,000 products. Simon will contribute $280 million to the project and plans an ongoing marketing strategy to raise awareness of the site. For what it's worth, the company said it does not believe the new online experience will reduce foot traffic at its outlet malls.
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