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Is This Why Simon Property is Getting Into the SPAC Game?

Simon Property Group laid the groundwork to raise $300 million to acquire growth companies that can transform the future of commerce as it mulls post-Covid changes ahead.

Simon (SPG) formed Simon Property Group Acquisitions Holdings, a blank check company using the format of a “special purpose acquisition company,” or SPAC for short, according to a Securities and Exchange Commission filing.

A SPAC offers a way to pool funds to finance a merger or acquisition through an initial public offering, within a timeframe usually spanning 18 to 24 months that’s faster and easier than a traditional IPO. Simon can use the SPAC to acquire businesses complementary to its core expertise in managing real estate and operating shopping malls.

The new entity will be publicly traded under the stock symbol “SPGS” on the New York Stock Exchange, the filing stated. SPGS said it can execute a merger or acquisition through a number of different options with one or more companies, though it hasn’t yet set its sights on any targets. SPG will own 20 percent of the SPAC once it is publicly listed. David Simon, chairman, president and CEO of SPG, also will be chairman of SPGS. His son Eli Simon, senior vice president of corporate investments at SPG, will be CEO of the new entity.

SPGS platform

SPGS, in the filing, said it will support Simon’s “delivery of innovative solutions to elevate and reinvent shopping and transform retail” and complement the mall REIT’s “approach to investing in growing companies at the intersection of retail and technology that drive forward innovative consumer experiences.”

The SPAC is considering any “innovative” firm that could “disrupt” industries ranging from retail and hospitality to entertainment and real estate, especially those that transform on- and offline experiences. Ideal targets, it added, “will operate in an industry that will benefit from the experience, expertise and operating skills of our management team and SPG.”

The filing said SPGS intends to lean on the mall REIT’s relationships with brands, retailers and operating businesses, as well as its “broader network of connections in real estate, retail, finance, media, and entertainment.”

The possibilities are many. Health and wellness, food and beverage, distribution, restaurants, education, sustainability, co-working, hospitality, e-commerce, direct-to-consumer retail, traditional retail, retail licensing, as well as entertainment, gaming, sports and e-sports are all cited in the SEC document, and all play a role in the mall community. It’s likely, however, that any targets would benefit Simon’s mall tenants, potentially by helping them offer new consumer-facing services.

Logistics, speculated to be a potential area of interest for SPGS, has become a key area of focus for retailers managing through the Covid-19 pandemic and fits the bill for a real estate company that’s keenly focused on retail. Retailers quickly learned that contactless curbside pickup could cater to customers who wanted to buy, but didn’t feel comfortable shopping inside a store.

But how to evolve the delivery game is still very much in its infancy stages, according to one source, who requested anonymity. SPG has reportedly entertained the idea of allowing Amazon to convert some anchor tenant locations into fulfillment centers, and it might be considering how else new fulfillment strategies could factor into the mall’s next act.

Speedy delivery is now table stakes in retail, with the last mile a hotbed of discussion even before the Covid outbreak nearly a year ago. Target was an early proponent of giving customers an array delivery options, and its 2017 Shipt acquisition paved the way for same-day store-based fulfillment. Walmart followed in August an Instacart pilot its own same-day delivery option, helping it compete with Amazon’s notoriously quick delivery. But to date, no shopping mall has tried doing any kind of delivery aggregation or service other than setting aside locations in the mall for its tenants to provide order pickup.

“Technology is still very old fashion in retail in the way they buy, sell and pull merchandise,” said retail consultant Walter Loeb, who believe Simon could also be considering distribution strategies such as supply lines and programmed buying for replenishment programs. “Much of what is still being done is completed manually,” he added. “They can use AI to make some decisions on merchandise selection and distribution, which would be a big step for the retail industry.”

SPG investments

SPG has already shown a knack for pushing the envelope and taking innovative risks, all with an eye on retail and the consumer in mind. And as a real estate investment firm, it’s already moved beyond the traditional buying, selling and mall operation of many of its competitors.

SPG’s venture capital arm Simon Ventures has invested in DTC brands, including MeUndies and FabFitFun. In a November conference call on third-quarter earnings, the chairman said it was selling its interest in MeUndies “at a profit,” adding the REIT is unlikely to “do the little venture deals the way we did.”

Making bigger bets is something SPG has been doing for some time now. In 2016, SPG joined forces with brand management firm Authentic Brands Group and General Growth Properties, now owned by Brookfield Asset Management, to acquire bankrupt teen retailer Aéropostale. It was a move that raised eyebrows because mall operators typically lease space, not run operating companies. SPG, ABG and Brookfield have since followed up with similar deals, such as acquiring Forever 21. ABG typically acquires the intellectual property, while also focusing on product and licensing for the brands.

SPG went on to form a partnership with ABG called SPARC, which acquired bankrupt Lucky Brands and Brooks Brothers last year, joining the Aéropostale and Nautica brands already under the umbrella. In addition to SPG getting investment upside from the partnership, SPARC is also paying it rent for leased locations in its malls.

Clearly, Simon thinks the partnership is a good one for SPG, noting, “we’re going to make $1 billion-plus on that investment, without question.” Simon on the call also cited ABG as a “very good partner” that knows how to blow out the licensing aspect, which SPG is a partner in. “We buy the inventory at a discount. We rightsize the overhead. And…we operate with better business judgment, and lo and behold, you suddenly have a business that’s got… significant positive EBITDA and you haven’t paid much for it,” he told analysts.

Perhaps the more interesting deal was last year’s partnership with Brookfield for the operations of JCPenney. ABG has since joined in on that arrangement and discussions are underway for how to enhance JCP’s vendor matrix, Simon said.

The chairman also said in the November call that it sees more DTC brands, such as Warby Parker, looking to open physical stores, whether on a longer term leased basis or through popups. And in 2019, it started a multi-platform venture featuring a new online outlet marketplace called Shop Premium Outlets, a venture between SPG and Rue Gilt Groupe that also served as SPG’s first foray into e-commerce. The premise was to provide outlet tenants another selling option, allowing them to fulfill orders for incremental sales but at the same time drive traffic to physical centers. Simon said at the time that the digital value shopping venture could surpass $1 billion in online sales.

Even the SPGS registration statement last week notes the REIT’s penchant for thinking outside the box.

“Of the numerous acquisition opportunities that SPG evaluates in the course of its business, many attractive targets have business models that do not at first glance fit within SPG’s core business as an enterprise, but could nevertheless, benefit from the complementary knowledge, strategic advice and access to industry expertise and relationships that have enhanced SPG’s corporate partnerships, acquisitions and investments. We believe our company may be a vehicle to enable one of these business models to prosper and reach its full potential,” SPGS said.

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