Mall real estate investment trust Taubman Centers (NYSE:TCO) is soaring on Monday. As of noon EST, the company's stock price had risen by more than 50%. And that's on top of a 10% upward move last week.
The reason? Taubman, which owns 24 malls in the U.S. and Asia, is being acquired by a larger mall operator, and they are paying a major premium.
Massive mall REIT Simon Property Group (NYSE:SPG), one of the largest real estate investment trusts in the world, is acquiring 80% of Taubman. The Taubman family will retail 20% ownership, and the existing management structure of Taubman will remain in place.
Simon is paying $52.50 in cash for each share of Taubman's stock, about 51% more than the closing price the day before the announcement.
The deal is expected to close in mid-2020, and Simon claims it will provide an immediate boost to funds from operations (the REIT version of earnings).
To put it mildly, the premium of more than 50% above Taubman's previous stock price seems like a hefty price to pay.
Having said that, Simon Property Group is in the best financial position to maximize the value of any retail real estate assets, and Taubman's properties are some of the best mall assets in the business. Simon's general strategy is to add mixed-use elements to its properties, such as entertainment venues, hotels, apartments, and diverse dining options, in order to create destinations, as opposed to just malls.
If Simon can successfully add value to the portfolio and create synergies by integrating Taubman into its already massive organizational structure, this could end up being a smart strategic move in the long run.