Gail Kalinoski / Commercial Property Executive – Four months after announcing it had acquired 3.6 percent ownership position in rival mall competitor The Macerich Co., Simon Property Group may be looking to take over the whole retail REIT.
The Wall Street Journal is reporting that Simon has approached Macerich about combining the two companies to create one huge retail REIT. Simon, with 190 properties and a market value close to $60 billion, is currently the largest mall owner in the United States and Macerich, with a market value of about $13 billion and 51 shopping centers in California, Arizona, Chicago and the New York to Washington, D.C., corridor, is third. While it hasn’t made a formal offer, Macerich has been discussing the possible takeover with advisors, according to the WSJ.
The news surfaced just days after Indianapolis-based Simon announced it had amended and extended its $2 billion revolving credit facility to $2.75 billion. The borrowing capacity can be increased further to $3.5 billion. It also increased its global commercial paper note program from $500 million to $1 billion.
“These actions further enhance our already strong financial flexibility and provide greater liquidity to help support our growth,” David Simon, chairman & CEO, said in a news release about the REIT’s borrowing capacity changes. “This amended and extended supplement facility, combined with our existing $4 billion facility, provides the company with $6.75 billion of total revolving credit capacity.”
While neither REIT has publicly commented on the takeover reports, retail industry experts were not entirely surprised that Simon would be making overtures to Macerich, which has its headquarters in Santa Monica, Calif.
“Simon has been sniffing around every REIT,” Jeff Green, president & CEO of retail real estate consulting firm Jeff Green Partners, told Commercial Property Executive.
“All mall developers have been looking at consolidating,” Green added. “Simon is not the first one to look at Macerich. I’m sure General Growth Properties and Westfield both did also.”
“The most common play in the recovery is expansion and acquiring trophy assets,” said Michael Lagazo, senior advisor Retail, Sperry Van Ness|Finest City Commercial in San Diego. “The only way to do that really is buy projects from your competitors.”
While Lagazo said he wasn’t sure how receptive Macerich would be to a takeover by Simon, Green said it all comes down to the offer.
“What you don’t know are the deal points,” he said. “If it’s attractive enough, then perhaps (Macerich would consider it).”
Green said if the two combined, it would create a “number one plus” in the industry because the other top players, Westfield and General Growth Properties would “be very far behind.”
While consumers might not notice a difference if Simon were to acquire Macerich, retailers probably will and may not be too happy about it, he added.
“Simon will have a lot of negotiating strategy with the retailers. It’s probably going to put that relationship a little out of balance,” Green said.
Comparing it to a teeter totter, he added, “This is going to make the retailer down and the developer up.”
Lagazo agreed. “It raises the barrier of entry if you want to operate in a regional mall,” he said.
Last month, Simon paid $1.09 billion to acquire Jersey Gardens in Elizabeth, N.J., which it renamed The Mills at Jersey Gardens, and University Park Village in Fort Worth, Texas. These properties were acquired as part of the closing of Washington Prime Group’s $4.3 billion acquisition of Glimcher Realty Trust. Simon had previously spun off its strip retail centers and small regional malls into Washington Prime Group. In September, Washington Prime announced the acquisition that would create a retail REIT called WP Glimcher with 119 assets.
A week ago, Simon was part of a $1.8 billion joint venture announced by Canadian retailer Hudson’s Bay Co. that calls for HBC to contribute 42 owned or ground-leased properties totaling 5.4 million square feet.
In March 2012, Simon went on a $3.5 billion spending spree, acquiring a stake in Klepierre, a major European retail and office player, and buying out its joint venture partner in The Mills U.S. shopping center properties. It didn’t have as much success earlier, losing out on bids to take over Taubman Centers Inc. in 2002 and General Growth Properties in 2009.
Macerich built up its assets in November when it acquired the 49 percent stake of its joint venture partner – the Ontario Teachers’ Pension Plan Board – in five super regional malls, three in California and one each in Portland and Queens, NY., for $1.89 billion, including assumption of debt.