At last a statement buy. I'm talking about Simon Property Group's (SPG) take out of Taubman Centers (TCO) , the premier shopping mall in the country, for $52.50 in cash per share, a 51% premium. That's a monster bid, one that's generous to a fault, one that gives the Taubman family a different kind of stake that allows them to participate in the upside but still allows for a partnership that eliminates the large public costs that weigh down any enterprise.
Rather incredibly, despite the generosity of the terms, Taubman's stock is trading nicely above this bountiful bid, for whatever reason, perhaps because there are shareholders who want even more -- perhaps, highly unlikely, there's another bidder lurking.
I have no idea of what's behind that premium to Simon's colossal premium to the standalone operation, but perhaps it's a recognition of just how cheap this group has become. It is staggering to think how cheap Taubman's equity has become, given that it is still trading at 5% yield even after the Simon merger.
Why do I call this a statement buy? Because when you listen to the conference call on the merger, you will hear the dean of real estate value, David Simon, talk about how he can fund the deal, as he says "without ever going to third party financing."
More importantly, he's not giving away his previous equity down here. "If you look at a multiple of earnings, EBITDA, Net Asset Value, any metrics you want, where we are undervalued and I have no desire to issue stock at this time," Simon said. That's a staggering indictment of the market's inability to judge how to value Simon's stock, coupled with a way of investment -- the REIT index -- that seems to equate the good with the bad, and Simon is definitely part of the good. What makes me say that? Because Simon has paid $33 billion in distributions as a public company and you can't do that unless you have a real good handle on your financials.
Taubman is largely a collection of the finest malls. I have one literally down the block from me that I can walk to, The Mall at Short Hills, and while there has been turnover at the mall and it has a Neiman Marcus as an anchor, a suspect tenant because of all the debt on the company, it's still a destination worth going to, with a fabulous set of high end foreign specialty stores and the best Apple (AAPL) retail outlet I have ever been to, and I have been to a dozen of them.
That said, I think these entities get valued by their lowest common denominator: four JC Penneys (JCP) , three Sears (SHLD) , three Lord & Taylors and four Macy's (M) -- and all of these are places that would be viewed as an opportunity to short one or both REITs. I think you do so at your own peril, as Simon says they will have replacements for these stores that are "really fantastic." It's pretty clear that Simon has something big up his sleeve because he was able to capture Forever 21 in bankruptcy along with Brookfield Property Partners and Authentic Brands for $81 million. Authentic likes brand value, and it must see it in Forever 21 -- and Simon and Brookfield could stand to make a lot of money if they can lease these spaces for much more than they would have gotten from Forever 21.
Now put these both together and you can see a picture of a determined, smart real estate deacon who thinks his stock is too low despite the perils of brick and mortar in an Amazon (AMZN) world and has an alternative to the stores that are closing that is more lucrative than current contracts and will allow for further boosts in distributions.
Why is this so important? Because there is another group that is rife for similar consolidation: oil and gas. While the multiple of these stocks has collapsed because of the ETFs that are easily shorted and the anti-fossil-fuel divestment movement, it is time for a David Simon of the oil patch to stand up and make a statement buy.
The longer we don't get one, the more likely that these are correct prices, so different from what Simon sees. It's this capacity in an era of a triumphal presidential reign of the most pro-fossil-fuel leader on earth, that has given this group one last breath. Will someone stand up and play Simple Simon? The clock is ticking, the bell is tolling, tolling for the entire oil and gas group. Now is anyone listening?
