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Simon Property (SPG) Taps Equity Market to Finance Taubman Deal

Simon Property Group SPG recently priced an upsized public offering of 19.25 million shares of common stock, up from the 17.5 million disclosed earlier, at $72.50 per share for net proceeds of $1.35 billion. Moreover, the underwriters have been granted an overallotment option to purchase up to an additional 2.9 million shares of common stock.

This comes as part of the company’s move to finance the Taubman Centers, Inc. TCO transaction, wherein Simon Property will acquire an 80% interest in The Taubman Realty Group Limited Partnership, while the Taubman family will remain a 20% partner. The company also intends to use the proceeds for other general business needs, including repaying or repurchasing indebtedness, working capital and capital expenditures.

Particularly, after backing out of the merger deal with Taubman Centers this June, Simon Property recently negotiated the price for purchasing the majority stake in the former company. Both companies have reached a definitive agreement to change certain terms of the original merger agreement. Now, Simon Property will pay the purchase price of $43 per share in cash.The merger is anticipated to close in late 2020 or early 2021, conditional to Taubman Centers’ shareholder approval and customary closing norms.

Notably, the retail real estate market had already been battling dwindling traffic issues, store closures and retailer bankruptcies, and now the pandemic is only adding to its woes. Like other retail REITs, including Macerich MAC and Kimco Realty KIM, Simon Property too is not immune to move-outs, store closures and retailer bankruptcies. In addition, the coronavirus pandemic-induced headwinds translated to financial stress on retail tenants, impacting their ability to pay rent, affecting the company’s ability to recognize revenues in terms of rent collection and lease income.

However, amid the retail apocalypse narrative, adoption of an omni-channel strategy and successful tie-ups with premium retailers has been on the agenda for Simon Property. Recently, the company and Narvar tied up to facilitate easy drop-off returns for retail brands. Specifically, the service lets consumers make quick drop-off returns from roughly two dozen brands at a participating Simon location, per the company. Moreover, reliance on value-creating opportunities and the purchase of bankrupt retailers have been on the agenda for Simon Property in recent years and the mall owner is committed to the same.

Nevertheless, the retail real estate market fundamentals are likely to remain choppy until the current health crisis is resolved and the economy progresses. As such, Simon Property’s performance will likely remain stretched in the near term.

Shares of Simon Property have depreciated 48.6% so far in the year compared with the industry’s decline of 12.5%. It carries a Zacks Rank #5 (Strong Sell) at present.

Currently, Taubman Centers carries a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Kimco Realty Corporation (KIM) : Free Stock Analysis Report
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