Moody’s has lowered its ratings of Simon Property Group following the Indianapolis, Ind.-based REIT’s unsuccessful bid yesterday to buy Taubman Centers Inc. for $1.5 billion in cash. Moody’s lowered Simon’s senior unsecured debt rating as well as its preferred stock rating to Baa3 from Baa2. Simon is the largest retail REIT in the U.S, with a market capitalization of $21 billion.
Simon’s bid for Taubman’s highly levered portfolio comes on the heels of its recent $5.3 billion venture to acquire Rodamco. Simon financed the Rodamco transaction on a leverage-neutral basis, but the REIT still emerged with high levels of overall and secured indebtedness according to Moody’s.
"Moody’s recognizes that the acquisition of Taubman would have clear strategic benefits to Simon, allowing it to take control of one of the most productive mall portfolios in the U.S., and deepen its already strong leadership position," said the Moody’s report issued today.
Moody’s rating outlook for Taubman (rated B1) was changed from stable to developing. According to Moody’s, there are several possible outcomes of the proposed transaction, which affects the ultimate credit quality of Taubman’s preferred stock.
Bloomfield, Mich.-based Taubman owns, operates and manages 20 regional retail malls in nine states. The firm’s book assets are roughly $2 billion, with book equity of roughly $382 million.
Taubman’s B1 preferred stock rating reflects the REIT’s ownership of one of the strongest producing regional mall portfolios in the U.S. and their experienced management team according to Moody’s.
Simon’s bid to purchase Taubman reinforced how the major retail owners are seeking to buy out rivals at an unprecedented rate. "We expected to see a consolidation and the ability to buy assets, and that’s exactly what’s happened over the last 10 years. There’s very limited development opportunity because most of those markets generally have what they need in terms of square footage," says John Bucksbaum, CEO of Chicago-based General Growth Properties, one of the nation’s biggest shopping center owners.