(Bloomberg) -- Simon Property Group Inc.’s agreement to buy rival U.S. shopping-mall operator Taubman Centers Inc. should help reassure investors that Class A mall real estate investment trusts are undervalued, according to Morningstar.
The 51% premium Simon agreed to pay on Taubman’s Friday closing share price “shows that they are willing to pay significantly more for this portfolio from where it’s currently trading in the public market,” analyst Kevin Brown said.
“There are some Class A mall companies like Macerich that have traded off significantly that could be the target of a similar type of deal,” Brown said in a phone interview. “But whether or not those companies are willing to entertain offers, that will be the determining factor.”
However, with Simon unlikely to issue diluted equity to acquire any other companies, future deals will rely on alternative asset managers like BlackRock Inc. or Brookfield Asset Management Inc. as buyers, he said.
News of the deal comes as mall-oriented REITs have faced pressure to consolidate amid a wave of retail bankruptcies, such as Forever 21.
Still, Monday’s deal announcement doesn’t mark a huge change in the outlook for more deals in the space, Piper Sandler analyst Alexander Goldfarb said.
“There was really only one buyer in the space and that was Simon and there was really only one company they were going to buy and that was Taubman,” Goldfarb said.
Shares of Macerich Co. rose as high as 12% on Monday following news of the Taubman deal. Meanwhile, Tanger Factory Outlet Centers and Pennsylvania Real Estate Investment Trust gained as much as 3.4% and 6.2%, respectively.
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