David Simon

The largest shopping center REIT in the U.S., Simon Property Group Inc., has held merger talks with smaller rival Taubman Centers Inc., according to sources.

Simon couldn’t be reached for comment on Tuesday. A Taubman spokeswoman said, “I have nothing to share as we don’t comment on rumor and speculation.”

News of the merger emerged Tuesday during Simon Properties’ fourth-quarter earnings conference call when chairman and chief executive officer David Simon was asked a question by a Wall Street analyst.

“Hey, David, earlier in the call you talked about buying real estate, and that bricks-and-mortar obviously still has a great future. You said you’re not going to deviate from that, and when buying makes sense, you would do it,” said Citigroup senior REIT analyst Michael Bilerman, paraphrasing a comment made by the ceo. “There was a headline that came across on Bloomberg during the call that you potentially had merger talks with Taubman and that [the talks] eventually broke off given the market volatility.”

Asked to comment on the reported discussions during the call, Simon demurred.

But Wall Street reacted to the news, sending Simon shares up 3.8 percent or $4.09, to $136.89, while Taubman shares rose 10.5 percent, or $2.84, to $31.09 in afternoon trading on the New York Stock Exchange. The REIT’s market caps are $42.10 billion and $1.90 billion, respectively.

The market sees an opportunity for growth at a time when the shopping center and retail industries are both deeply challenged. The two companies have opposite styles, although their centers overlap in some areas. Taubman has more uniformly upscale properties, while Simon operates malls, Mills and Premium Outlets and has owned or had interest in 233 locations in North America, Asia and Europe. Simon Properties has the muscle and financial wherewithal to invest in shopping centers, and has been diversifying its portfolio with partnerships, such as a recently revealed hookup for coworking space. Taubman has the fashion imprint. Both companies have exposure in Asia.

Simon Property’s net income fell 13 percent from a year earlier to $2.1 billion in 2019, according to its fourth quarter report Tuesday. Revenue rose 3.5 percent to $5.8 billion in the same time period.

Taubman Centers, based in Bloomfield Hills, Mich., operates 26 regional and outlet shopping centers in the U.S. and Asia. The company on Feb. 12 is scheduled to report earnings. The REIT has a long history in Asia. The company’s ground-up development properties in China include CityOn.Xi’an and CityOn.Zhengzhou, which opened in 2016 and 2017, respectively. Starfield Hanam in South Korea bowed in 2016, and the company provided leasing and management services for IFC Mall, also in South Korea.

Taubman said there hasn’t seen a major disruption in its Hong Kong-based Asia operations.

REIT analysts said a deal for Taubman may come down to price since the smaller mall owner may be averse to merging.

Simon Properties tried to purchase Taubman before. The Indianapolis Inc.-based REIT in November 2002 made its first offer to buy Taubman at $17.50 a share in a hostile takeover. The following month, Taubman’s board of directors unanimously rejected Simon’s sweetened offer of $18 a share, or $1.5 billion. Simon has also launched an unwanted takeover of another REIT, Macerich Co., which was also declined.

Robert Taubman, chairman and ceo of Taubman Centers, said at the time, “[The board] said now for the second time, unanimously, that the company is not for sale. This is not the time for a sale,” adding that the company has great growth prospects, is making money and continues to generate increases in year-over-year returns. He noted that the company’s assets, both scarce and rare, are getting more valuable every day.

But much has changed in 18 years.