Are Malls Too Cheap to Ignore?
November 14 2017 - 9:43AM
Dow Jones News
By Esther Fung
Mall operators are in the bargain bin, and some big-time
investors are picking them over.
Brookfield Property Partners LP's $14.8 billion proposal to
acquire the shares of Chicago-based GGP Inc. that it doesn't
already own is fueling expectations that other operators of
so-called class-A malls are becoming acquisition targets -- or will
face pressure from their investors to carve up their best assets
for sale.
Shares of A-mall real-estate investment trusts Taubman Centers
Inc., Macerich Co. and GGP all have risen between 14% and 24% since
the start of November after having underperformed the broader REIT
market since August 2016.
"Two weeks ago everyone hated malls -- 'the mall is dead.' But
now the mall is alive," said Alexander Goldfarb, managing director
at investment bank Sandler O'Neill and Partners.
The takeout offer by Brookfield, which already owns 34.4% of
GGP, has been widely anticipated since another Brookfield affiliate
acquired mall owner Rouse Properties in 2016 and took it
private.
There also are widespread hopes that Brookfield will sweeten its
current $23 per share offer for GGP. Shares of GGP rose to as much
as $23.97 on Monday on news of the unsolicited bid. Shares of
Brookfield Property Partners fell 5% on Monday.
"We're pretty disappointed in the offer price," said Matthew
Werner, managing director at Chilton Capital Management LLC, whose
mutual fund has invested in shares of GGP and had been gradually
increasing its holdings of the mall REIT in the past year.
"Hopefully this is the beginning of the negotiations. If it is the
final offer this would be a negative for mall REITs."
As recently as Nov. 2, Brookfield Chief Financial Officer Bryan
Kenneth Davis said in an earnings call the company valued GGP at
about $30 per share, up from about $29 in the second quarter
because of a pickup in its earnings.
Shares of mall REIT Macerich Co. also have shot up in the past
week, on expectations of activism or a potential deal after its
board of directors on Nov. 3 approved an increase in severance pay
for senior executives if there is a change in control of the
company.
Those expectations were further fueled after hedge fund Third
Point, run by billionaire Dan Loeb, last Thursday disclosed it had
a stake of 1.73 million shares, or 1.2% of the Santa Monica-based
REIT as of Sept. 30. Macerich didn't respond to requests for
comment and Third Point declined to comment.
Land & Buildings Investment Management, run by activist
investor Jonathan Litt, continues to demand changes in Taubman
Center's management despite losing a proxy contest in June. The
push from Land & Buildings, which has a roughly 1.7% stake in
Taubman, has resulted in Taubman agreeing to make changes to its
board.
Since August 2016, when Macy's Inc. announced it planned to
close 100 stores, share prices of mall real-estate investment
trusts have tanked by as much as 55%, as more retailers started
filing for bankruptcy protection and closing stores at a faster
pace.
REIT investors were spooked at the prospect of higher vacancy
rates as more consumers migrate to online shopping from
bricks-and-mortar stores, worsening pressures for landlords in an
already oversupplied retail real-estate market in the U.S.
Short sellers, betting the pickup in retailer bankruptcies and
the rise of e-commerce will hurt landlords, also have targeted mall
REITs. Shares of so-called B-mall operators, which own malls in
secondary locations, have fallen more sharply, largely because
landlords have less bargaining power in tenant negotiations.
Owners of class-A malls have argued their share prices have
taken an unfair hit, because they own the top-quality malls in more
affluent markets around the U.S. and have been able to attract new
tenants and retain high occupancy levels.
Shares of mall operator Simon Property Group, the world's
largest REIT with a $58.6 billion market capitalization, have
bucked the November trend, rising by a more modest 3.2%. The main
reason: it isn't seen as an acquisition target but rather a
potential buyer.
Simon Property in 2015 offered to acquire Macerich for $95 per
share and in 2010 offered $20 per share for GGP, then known as
General Growth Properties. Both companies rebuffed Simon Property's
offers.
"If we get approached we'd certainly consider something, but
we're not actually looking at much externally," said David Simon,
Simon Property's chief executive officer during the latest earnings
call in late October.
Write to Esther Fung at esther.fung@wsj.com
(END) Dow Jones Newswires
November 14, 2017 09:28 ET (14:28 GMT)
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