Wednesday, November 18, 2009

Simon and GGP Marriage - With wedding photos and charts

What would this look like?

Something like the above, where the little rusty-red dots are GGP and the Blue dots are SPG. Note that I think the "CUBA" property is really in Italy and the GEO-Coder misinterpreted it - you can click here for an interactive map that includes all their properties, not just domestic.

GGP has substantially lower coupons on their mortgage debt, averaging 63 bps lower @ 5.29%, but the divide is even larger on loans maturing before the end of 2012, favoring GGP by an average of 125 bps. So, given everything else remains the same, Simon will be likely to assume GGP's mortgage loans. Add in factors such as the lack of available financing, higher coupons, stricter underwriting, etc. SPG's only roadblock to assuming the mortgage debt is getting rating-agency sign-off where its required.

GGP's mortgages on their malls actually perform slightly better than Simon's from a cash flow over debt service perspective. The majority of GGP's malls have a NCF DSCR greater than 2x. Simon's average DSCR is 1.83x.

GGP properties also have slightly lower leverage, with average original LTVs at 62.72% versus SPG's average orig. LTV of 66.53%.

Obviously GGP has a lot more overall debt (mortgage and corporate) due to the Rouse acquisition, and we all know about their huge refi hurdle - look below. This is the maturity schedule, in billions, for all GGP and SPG CMBS mortgages, extended out to their maximum ARD or Extension date.

The footprint overlap is probably of some concern that might lead Simon to cherry pick assets instead of taking the entire platform down. Some MSAs have multiple properties operated by each REIT.

Take Atlanta-proper, for instance. SPG has Phipps Plaza, Lenox Square, and Northlake, while GGP has Cumberland and Perimeter; if you expand to the Atlanta MSA, you end up with SPG malls Discover Mills, Gwinnett Place, Town Center at Cobb, Mall of Georgia, Mall of Georgia Crossing, North Georgia, and GGP has North Point and Southlake. Not only is there a high number of malls in the Atlanta MSA from both sponsors, but a quick look at the loans and the GGP Atlanta loans are higher leveraged then average (so are the SPG loans), and have lower DSCRs than average.

Tenant overlap is pretty consistent, just looking at the non-anchors, and focused on revenue, Simon has a slightly more diverse tenant base.

Top Retail Tenants by Rental Income Simon GGP
The Gap 2.20% 2.90%
Limited 2.00% 2.60%
Abercrombie & Fitch 1.80% 2.30%
Foot Locker 1.40% 2.30%
Zale 1.00% <1%
Luxottica Group 1.00% <1%
American Eagle 0.90% 1.50%
Express 0.90% 1.30%
Sterling Jewelry 0.90% <1%
Genesco 0.80% 1.10%

Not sure who wins the battle of increased tenant concentration - probably the tenants since they have more negotiating power, but could go to the landlords because the tenants have fewer location options.

Will be interesting to see if Simon cherry picks the performing assets and let's the others (especially in high-overlap areas) flounder, or if they go in and take it a substantial percentage of the total to increase their footprint and dominate the space (as if they don't already) blocking out any competitors.

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