How Much Bigger Can Simon Get?

Simon Property Group’s acquisition of Prime Outlets’ 22 centers for $2.33 billion was a surprise, not because the deal doesn’t make sense for the REIT, but because we assumed that we’d hear about them buying someone else first.

It’s no secret that the largest mall REIT, which now has more outlet centers than anyone at 63, is vying for some or all of General Growth Properties’ assets as well. How much bigger can Simon get?

The company is quickly becoming the retail real estate equivalent of Walmart. It’s already by far the largest mall owner with nearly 300 of those properties, and swallowing up all or part of GGP’s 200 malls would dwarf its largest competitors.

Will we see Simon continue to buy, and is the Prime deal evidence that the retail transaction market will start to heat up?

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13 Responses to “How Much Bigger Can Simon Get?”


  1. 1 William Eddy December 11, 2009 at 9:28 am

    Remember the popular board game called ‘Monopoly’?
    We’ve played it for years. You win the game by buying up as much real estate as you can. In fact, the game is as popular as ever.

    What does the winner do with all the buildings and real estate?
    He, or she are then all alone with all this real estate. The other players are “wiped out, broke, and out of the game.”

    Any local, regional or national retailer will tell you that have one landlord owning so many malls, outlet centers and retail real estate is not good for anyone. It eliminates competition.
    Rental rates go UP!..options for tenants go DOWN! Tenants desiring to lease space in an ‘A’ or”B’ mall are told that the only way to do that is to lease space in a ‘C’ or ‘D’ mall.

    This worked pretty well during good economic times, but lately tenants have had to close stores, dramatically reduce occupancy costs, fired people, cut back…You get the idea. It’s a LOSE.LOSE situation.

    None of us are served well by the ownership of too many properties in the hands of a few. Remember the golden rule..

    HE WHO HAS THE GOLD RULES!!

    • 2 John Aultman December 11, 2009 at 5:48 pm

      I think your analysis that Tenants are going to suffer because of Simon Property Group’s acquistion abilities will hurt their collective rent structure basis doesn’t make any logistical sense.

      If anything it should help the fiscal landscape because of Simon Property Group’s cash rich posture which as compared to the financially distressed companies that they are acquiring.

      They would be shooting themselves in the foot if they exert their collective stronghold in the market place by strangling their Tenants base rent structure. Your reasoning is inane.

      Best regards,

      -John

    • 3 James December 15, 2009 at 9:17 am

      This is very interesting, but do the gross sales at all of these malls combined even come close to Walmart’s $800 billion??
      Simon’s gross income from all rents combined would be but a tiny fraction of that number. (Lets not even mention the enormous financial risk) The landlord who owns too many malls comes under anti-trust scrutiny while the retailer with the lion’s share of gross sales gets a pass?? I can’t help but wonder where all that Gold is really going. If I was a retailer I wouldn’t worry about Simon, at the end of the day he relies on viable retail businesses, and there is only so far he can push his rents. Both Simon and his retail tenant need to worry far more about the elephant in the woods that everyone is pretending is not really there!

  2. 4 Alex December 11, 2009 at 10:25 am

    Well said. Anti-trust issues will surly arise if Simon makes an outright purchase. Brookfield might take some assets, but who knows. A simon purchase of GGP malls will surely increase rental rates for retailers, no questions about it. Thats the only way that they can justify their purchase price, if there is some hidden value higher than the NPV of future cashflows. Only problem, you have some huge GGP shareholders and they will never agree to a takeover!

  3. 5 dac December 11, 2009 at 1:12 pm

    Well said Mr Eddy. Surely this transaction should be more closely scrutinized by the FTC and other govt antitrust watchdog groups. And now retailers will be forced to more closely examine and pursue “off mall” sites like strip centers, big box power centers and grocery anchored centers. Paying unrealistic rents on top of unchecked NNN charges just can’t last!

    Also, a bit of hearsay I overheard at the NY-ICSC is that simon is buying up GGP debt which is convertible to an equity position. Don’t know the details but it sounds like Simon is quietly buying up GGP already. God save us all 🙂

  4. 6 Kin Powell December 11, 2009 at 4:35 pm

    Ian, Prime owned a bunch more Outlets thast are junk– with the exception of maybe 20 of Tanger’s centers, there is nothing else exting that is desirable & the US is built out, just as it is in the Mills type genre & malls. The ownership of malls after GGP/SPG would only be 25% that is not a monopoly. Furthur, GGP is & will continue to an independent company even after emerging from Ch.11 unless SPG can get 66% of the unsecured bonds to go with them. I don’t believe it will happen.

  5. 7 BiggerNotBetter December 15, 2009 at 2:47 am

    When you can’t grow revenue by raising the sales per square foot of each mall (Simon, and everyone else), then you try to make your stock go up by acquiring more properties. It’s a recipe for disaster. Just ask the banks.

  6. 8 TooBigToFail December 15, 2009 at 3:03 am

    Sounds like Simon is positioning themselves for a Too Big To Fail Government Handout. It’s done wonders for AIG, BofA, Citi, etc….

    Maybe their stategy (or strategerie) is to cross-collateralize all their existing properties with the new properties, or vice versa. Either way, it sounds like a shell game, just keep everyone’s eye on the whirlwind and they’ll fall for the trick everytime.

    On the other hand, perhaps Simon will turn themselves into a bank and lend money to consumers at the front door of the mall. They can rehire all the leasing directors, development team, marketing managers and property managers (and anyone over 50) they’ve laid off and have them hand out the money. If they’re legitimately called a bank, then they can go directly to the FED window for the do re mi ($$$$$$). Helicopter Ben & Company (Geithner, Mr. I can’t pay my taxes) can fly overhead and throw greenbacks out of the whirly bird as they sing “We’re In The Money.” Then, we can all witness and dedicate a song to the Weimar Republic as we watch the currency hit the wall.

  7. 9 Barbara December 15, 2009 at 7:05 pm

    Has anyone seen a statement or action from GGP mall tenants related to the antitrust concerns raised above?

  8. 10 TooBigToFail December 16, 2009 at 12:54 pm

    To Barbara: I haven’t seen anything, but call one of the lawyers (ambulance chasers), they’ve been laying off their associates in droves and they could stand to drum up some business

  9. 11 dac December 18, 2009 at 12:36 pm

    TO BARBARA,

    I’d like to see the National Retail Tenants Association step up with a statement. They are supposed to represent the Tenants’ interests and counterbalance (from what I hear) the Landlord dominated ICSC.

    Personally, I’ve written emails to the Federal Trade Commission and to the Department of Justice Antritrust Division with copies to my Congressional reps… you should do the same if you’re concerned.

  10. 12 btayet January 8, 2010 at 2:04 pm

    I think SIMON does a great job at developming and managing regional eclosed malls but it loses its competitive edge when it branches out into lifestyle and more neighborhood oriented (or locally flavored) retail assets.

    At what point does a monopoly on large enclosed or open-air malls (i.e. SIMON) start to “FEEL” like a monopoly to consumers and shoppers who make them profitable in the first place?

  11. 13 INTHEEND January 9, 2010 at 4:40 pm

    In the end, Simon is only as strong as its tenants.


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