Simon Bids for Capital Shopping - Analyst Blog

Simon Property Group Inc. (SPG), a leading real estate investment trust (REIT), has recently made a $3.6 billion acquisition offer for Capital Shopping Centers Group Plc (CSCG.L), the largest shopping center operator in the U.K. Following the offer, Capital Shopping share prices surged 13% on the London Stock Exchange – the highest since it began trading as a public company in 1992.

The offer was disclosed when Capital Shopping announced an agreement to buy the Trafford Centre shopping mall near Manchester in northwest England for $1.2 billion in shares and bonds. Capital Shopping would also assume approximately $1.4 billion of debt related to the purchase. The deal represents the highest price ever paid for a British retail property.

Spanning across 1.9 million square feet of space with over 35 million visitors a year, Trafford Centre is one of the 10 biggest malls in the U.K. The acquisition is part of the long-term strategy of Capital Shopping to establish itself as the leading developer, owner and operator of preeminent regional shopping centre destinations in the U.K. With the purchase, Capital Shopping will own 5 of the top 10 malls in the U.K.

Simon Property presently holds a 5.6% ownership interest in Capital Shopping. The company is currently mulling to gain a strategic foothold in the U.K. through the acquisition of a leading domestic shopping center owner. With the successful completion of the takeover bid, Simon Property would emerge as a retail real estate behemoth in the U.K.

Simon Property is the largest publicly traded retail real estate company in North America with assets in almost all retail distribution channels. The company generally enters into long-term leases with its tenants, which insulate it from short-term market swings that have weighed on other players in the industry.

Furthermore, the company's international presence gives it a more sustainable long-term growth story than its domestically focused peers. The geographic and product diversity of the company safeguards it from market volatility and provides a steady source of income.

We maintain our Neutral rating on Simon Property, which presently has a Zacks #3 Rank translating into a short-term Hold rating and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a Neutral rating and Zacks #3 Rank for Federal Realty Investment Trust (FRT), one of the peers of Simon Property.