Dealmakers Are Going Mall Shopping, Even If You Don’t: Gadfly

(Bloomberg Gadfly)—Struggling retailers may soon have fewer landlords. Two of the nation’s biggest mall owners — GGP Inc. and Macerich Co. — could feasibly be acquired in the near future.

Over the weekend, $21 billion GGP received a bid, albeit at a slim premium, from its biggest shareholder, Brookfield Asset Management Inc. And Macerich may be pushed into the arms of a suitor if Dan Loeb’s Third Point LLC, which last week disclosed a stake in the $9 billion mall-owner, can successfully agitate for change.

Percentage of U.S. Retail Shopping Done Online

< 10%

Despite the pain their tenants are enduring as consumers lean on e-commerce alternatives, these landlords are prime consolidation candidates because their portfolios are largely comprised of “Class A” malls, which have the best possible growth prospects and seem most likely to stay relevant.

And yes, e-commerce will no doubt continue to siphon traffic away from brick-and-mortar retailers. But it’s important to remember that the vast majority of shopping still takes place in the physical world.

So while many malls will undoubtedly shut their doors over the next several years, there is still plenty of customer demand for in-store shopping.

And malls are increasingly plugging vacancies with different kinds of businesses, such as fitness centers and kiddie entertainment parks. In theory, even if you’re doing more online shopping, such offerings will entice you to the mall anyway. GGP, for one, is well aware of this shift and has been repositioning itself by scaling back deals with struggling apparel chains and signing up more food and entertainment tenants.

The mall owners’ relatively subdued valuations may be one spurring potential takeovers. Brookfield reportedly last mulled an acquisition of GGP back in January 2016, when the company was valued at a forward price-to-funds-from-operations multiple of roughly 18.9, compared to about 14.3 based on its reported offer price of $23 per share. And Macerich fielded an unsolicited offer from larger rival Simon Property Group Inc. in early 2015, when its P/FFO multiple was roughly 21.4; now it’s just 15.7.

To be sure, some of the world’s largest real-estate investors have actively avoided U.S. malls partly due to the e-commerce threat. Blackstone Group LP’s head of real estate Jon Gray, who oversees $111 billion in assets under management, last year said: “There has to be a reason to go to the mall, other than just buying a good.”

And you can’t overlook the fact that even the best-positioned malls still rely on stores whose futures don’t look especially bright right now:

Foot Locker Inc.’s stock has fallen more than 50 percent this year, thanks to the grim business outlook it offered investors back in August. Gap Inc. hasn’t seen positive comparable-sales growth at its eponymous chain in any quarter since 2013. And Sears Holdings Corp. has been teetering on the edge of extinction for years. Malls have their wagons hitched to these retailers and must be creative and fiercely proactive to avoid getting dragged down by them.

Still, some malls have a chance to successfully remake themselves as must-visit destinations and outlast their lesser counterparts. Amassing such high-quality properties seems to be a sound strategy, especially if the price is right.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

To contact the authors of this story: Gillian Tan in New York at [email protected] Sarah Halzack in Washington at [email protected] To contact the editor responsible for this story: Mark Gongloff at [email protected]


© 2017 Bloomberg L.P

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