Has the Well of Merrill REIT Offerings Suddenly Run Dry?

In a surprising development on the REIT scene, yesterday the Omaha World Herald announced that Merrill REIT group darling Simon Property Group (SPG) is selling the Crossroad Mall in Omaha on 72nd and Dodge Streets. With tenants such as Finish Line, LensCrafters, Old Navy, Victoria' Secret and near bankruptcy Claire's, it is not too hard to see why the mall has fallen on hard times.

What is mildly troubling is that Crossroads is located less than three miles away from the famous Borsheim's store at 120 Regency Parkway where the annual Berkshire (BRK.B) share circle jerk takes place, and where Becky Quicky has a lifetime 100% discount.



What should be much more troubling (especially to holders of REIT stocks), is that instead of simply doing a tactical drive by follow on offering (we are talking $$$ peanuts here), SPG is forced to stoop to the level of actually selling assets for cash. What's wrong - not enough ammo left to institute a little REIT short squeeze? Someone is slipping.

Back to the mall - Omaha Herald notes that the price will be "market value" and that in 2002 the mall was appraised for $57.1 million "according to a JP Morgan" report. Add this to the increasingly larger number of CRE market tests currently percolating in the market place: someone may be very unpleasantly surprised with the price this (and other) mall fetches. Also, whatever happened with the whole premise that SPG would be an acquirer for real estate? Uhm, doesn't this refute both the "logic" of both NAREIT and the most recent Merrill (BAC) upgrade, and I quote:

We are moving from Neutral to Buy on Simon given the company’s opportunity to boost external growth (and improve SPG’s core U.S. portfolio) as they prepare to become a major player in the emerging “M&A” market in U.S. retail real estate.

Sooo.... Schmidt was actually referring to the company being a divestor of assets, not acquirer....honest mistake - now it all makes sense.

Comments

[HotCarNut:]

This might just be the dumbest analysis I've ever seen, and that's saying something. Large real estate companies are CONSTANTLY evaluating their portfolios and looking to buy high quality assets and divest assets that aren't performing. A company like Simon that has grown through a lot of acquisitions has probably acquired a number of properties that it normally would never have bought but were owned by the acquisition target. In fact, I'd bet if you looked at the property table in their 10K and annual report, you could identify which assets SPG is likely to want to dispose of. In my view, this disposition activity doesn't signal that SPG isn't in the market to acquire assets or entire companies. It merely looks like normal course of business. I would only become concerned if high-quality assets in fundamentally strong areas were going on the block. Those "fortress assets" as companies like to call them are the true signal of intent or distress, not an underperforming property in Omaha.

Jun 16 09:08 AM

[Brett Cole:]

What is your outlook for SRS??

Jun 16 09:29 AM

[REITBull:]

Good call. This property is 54% occupied and Simon has over $1billion on their balance sheet--- doesn't sound like a distressed sale or a core asset to me. This guy is more concerned about conspiracy theories than real analyses.


On Jun 16 09:08 AM HotCarNut wrote:

> This might just be the dumbest analysis I've ever seen, and that's
> saying something. Large real estate companies are CONSTANTLY evaluating
> their portfolios and looking to buy high quality assets and divest
> assets that aren't performing. A company like Simon that has grown
> through a lot of acquisitions has probably acquired a number of properties
> that it normally would never have bought but were owned by the acquisition
> target. In fact, I'd bet if you looked at the property table in their
> 10K and annual report, you could identify which assets SPG is likely
> to want to dispose of. In my view, this disposition activity doesn't
> signal that SPG isn't in the market to acquire assets or entire companies.
> It merely looks like normal course of business. I would only become
> concerned if high-quality assets in fundamentally strong areas were
> going on the block. Those "fortress assets" as companies like to
> call them are the true signal of intent or distress, not an underperforming
> property in Omaha.

Jun 16 09:55 AM

[Emerald:]

Meaningless, non analysis.

Jun 16 12:03 PM

[dcb:]

I can always tell when you are onto something tyler. All the people come out of hiding to insult you.

Jun 16 05:49 PM

[Rollerball:]

Obviously, "the market" was unimpressed. SPG down 5.5% from yesterday's highest close. It's probably not so much a short-sale divestiture, as, perhaps, a "foreclosure between toxic friends".

Jun 16 07:26 PM

[conceptwizard:]

We will all get used to hearing about firesales in no tme Tyler was bringing to our attention these trades to keep people abreast of situations like this. Otherwise the critical dumbasses would not have a clue it even happened. The information is useful as it shows the commercial real estate trend is continuing to unwind, if the 54% occupancy rate is correct. This property was a dead horse.

Jun 16 08:16 PM

[JPPennypacker:]

Maybe if the Simon Property Group were to lower the asking price for Crossroads Mall they might be able to entice Berkshire into making a bid on the property. Maybe he could turn it into a super Pamida or a Mega Dairy Queen.

Jun 17 12:28 AM

[Joe Friday:]

thanks for pointing out that the sale has taken place. It appears that SPG did not consider this transaction to be material, and therefore worth disclosing. The important point, in my view, to come from this transaction is an indication as to current market valuations (ie where are cap rates and price per foot values today on these types of malls). Extrapolating current market cap rates to the remaining SPG portfolio will likely show, in my view, that the "equity" carried on the SPG balance sheet is not real.

Jun 19 09:15 AM

[mr. mann:]

one anecdotal example of one property sale out of simon's massive portfolio is not compelling. this single sale is not "a surprising development on the REIT scene." it is a best-of-breed mall REIT getting rid of an asset that does not come close to fitting their portfolio. they should get rid of this ill-fitting asset ASAP at what ever price the market will yield.

Jun 22 06:05 PM