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Simon bid shakes up mall ownership

By   /   Friday, March 13th, 2015  /   Comments Off on Simon bid shakes up mall ownership

Indianapolis-based Simon Property Group isn’t satisfied with its 3.6 percent ownership stake in its real estate investment trust competitor Macerich Co.

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Pacific View Mall in Ventura is one of many Macerich Co.-operated shopping centers in the Tri-Counties that could change hands as part of a $16 billion takeover. (Nik Blaskovich / Business Times photo)

Pacific View Mall in Ventura is one of many Macerich Co.-operated shopping centers in the Tri-Counties that could change hands as part of a $16 billion takeover. (Nik Blaskovich / Business Times photo)

 

Retailers at area malls could face increased rents if the nation’s largest mall owner is successful in its hostile takeover bid for a Santa Monica-based competitor.

Indianapolis-based Simon Property Group isn’t satisfied with its 3.6 percent ownership stake in its real estate investment trust competitor Macerich Co.

After an unsuccessful offer to acquire Macerich through talks with its board of directors, Simon is appealing to shareholders, laying down a $16 billion hostile takeover bid.

If the deal moves forward, a number of tri-county properties would wind up under the Simon banner, including currently Macerich owned properties, The Oaks, Pacific View Mall and La Cumbre Plaza in Santa Barbara.

At $91 per share, which is where the REIT’s stock is currently trading thanks to the announcement, the board of Santa Monica-based Macerich said it would review the deal, but advised shareholders not to take any action.

The acquisition would create a retail property powerhouse, controlling more than 250 properties across the nation, with some international presence.

Simon already owns the Camarillo Premium Outlets and the outlet center in Pismo Beach. Chairman emeritus and co-founder Herb Simon is a Santa Barbara resident and a perennial member of the Forbes 400.

If a deal is struck, the outcome would give Simon almost complete control over the mall market in the region, said Austin Herlihy, senior vice president at Radius Commercial Real Estate & Investment in Santa Barbara.

“[The acquisition] would allow them to better negotiate with tenants when lease terms are up because there would be no competitor for tenants to leverage off of,” he said. “In the end, the tenants still need to make money though. It’s not as if [Simon] can just start jacking up the rents … but it would definitely ensure that they’re getting the most they can.”

Pacific View Mall sales per square foot were just under $400 in 2014. (Nik Blaskovich / Business Times photo)

Pacific View Mall sales per square foot were just under $400 in 2014. (Nik Blaskovich / Business Times photo)

In terms of performance, Herlihy said the overall health of the mall market has improved, but the increasing trend toward online commerce is still a nagging concern with uncertain long-term impacts on brick-and-mortar stores.

Reports continue to show that many malls in the country are languishing in an evolving retail market. Some sit abandoned while others are undergoing major redevelopments, transforming into entertainment-based destinations.

Still, while sales at lower-income malls are declining, centers located in higher income areas with big name tenants like Apple and hip, high-end grocery chains like Whole Foods Market are seeing sales figures tick upwards.

The changing store and restaurant landscape, including an increase in non-traditional tenants like gyms or supermarkets at high-end malls, has kept sales per square feet, a closely watched industry metric, growing, according to analysts.

According to recent U.S. Securities and Exchange Commission filings by Macerich, more than 85 percent of its net operating income comes from “super ZIP codes,” or the most affluent locales in the U.S. In these areas, the median household income is $120,000 and 70 percent of adults living there have college degrees, the company reported in December.

“A-Class” malls are a fortress because of the cost of building new centers, scarcity of land in desirable locations and their appeal as a destination, Ken Riggs, president of Situs RERC — which does valuations of commercial real estate — told Reuters of the deal.

However, the longevity of malls’ ability to prosper is tied to taxation of online purchases and free shipping offers are becoming more scarce.

Combining Macerich’s portfolio with Simon’s current building stock would be “a strong geographic fit,” the company said in statement, adding that the firm believes shareholders won’t turn the offer down.

Simon, which would finance the proposed deal half in cash and half in its own common stock, also plans to flip certain Macerich properties to Chicago-based REIT General Growth Properties if the takeover bid is approved.

Deutsche Bank Securities, Goldman, Sachs & Co. and JP Morgan Securities are acting as financial advisers to Macerich and Kirkland & Ellis LLP, Goodwin Procter LLP and Venable LLP are acting as legal counsel.
Bank of America Merrill Lynch is acting as financial adviser to Simon and Latham & Watkins LLP is acting as legal counsel in connection with the proposed transaction.

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