February 20, 2007
EXTRAORDINARY POPULAR DELUSIONS and the MADNESS OF CROWDS
Analysis of:
Mills To Pursue Simon and Farallon Bid |
This analysis is solely the work of the author. It has not been edited or endorsed by GLG.
Implications: This latest bid by Simon and the markets reaction is, in my strong opinion, comparable in many ways to the "feeding frenzy" that characterized the tulip bulb mania of 1635.
The only possible explanation for this inflated bid (as well as the other likely even more inflated bids to follow) is the lack of supply of large portfolios of regional malls. When supply-demand characteristics get so far out of balance with such a huge amount of money looking to invest in shopping centers, conditions are ripe for ignoring the fundamentals of value and overpaying for troubled properties.
Analysis: The latest news reports the Simon-Farallon bid is now at $25.50 per share, up from a market value of $13.00+/- only a few short weeks ago. As an experienced and interested industry observer familiar with all 38 of the Mills properties, I believed the market reflected the fundamental underlying value of the portfolio much more closely than the recent bids.
The real problem with the Mills portfolio is the very high number of very bad centers that the industry believes to be beyond help of any kind such as Cincinnati Mills and Columbus Mills. These centers are beyond even the highly respected and powerful Simon Co. to find profitable tenants willing to take a chance on vacant space that everyone has properly shied away from like the plague. The package is confusing because among the cats and dogs accumulated at inflated prices by a hungry Mills management group given far too much money to spend, there are also quite a few very strong centers of real value.
I am convinced that Simon has a good grasp of "The Greater Fool Theory" and has already identified buyers for the bad centers that they can flip to at even more ridiculous prices.
The only possible explanation for this inflated bid (as well as the other likely even more inflated bids to follow) is the lack of supply of large portfolios of regional malls. When supply-demand characteristics get so far out of balance with such a huge amount of money looking to invest in shopping centers, conditions are ripe for ignoring the fundamentals of value and overpaying for troubled properties.
Analysis: The latest news reports the Simon-Farallon bid is now at $25.50 per share, up from a market value of $13.00+/- only a few short weeks ago. As an experienced and interested industry observer familiar with all 38 of the Mills properties, I believed the market reflected the fundamental underlying value of the portfolio much more closely than the recent bids.
The real problem with the Mills portfolio is the very high number of very bad centers that the industry believes to be beyond help of any kind such as Cincinnati Mills and Columbus Mills. These centers are beyond even the highly respected and powerful Simon Co. to find profitable tenants willing to take a chance on vacant space that everyone has properly shied away from like the plague. The package is confusing because among the cats and dogs accumulated at inflated prices by a hungry Mills management group given far too much money to spend, there are also quite a few very strong centers of real value.
I am convinced that Simon has a good grasp of "The Greater Fool Theory" and has already identified buyers for the bad centers that they can flip to at even more ridiculous prices.
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