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Simon buying Prime Outlets in $2.3B deal

December 8, 2009

Simon Property Group Inc. is doubling down on outlet malls with an agreement to buy Baltimore-based Prime Outlets, a privately held firm that owns 22 of the giant properties.

The deal, which Simon values at about $2.3 billion including the assumption of debt, gives the company a total of 63 outlet malls with more than 25 million square feet of space. Locally based Simon made its first foray into the outlet mall business with its 2004 acquisition of Chelsea Property Group Inc., a deal valued at $3.5 billion.

Simon said it will pay about $700 million for Prime Outlets in the form of cash and partnership units, and take on the company's existing debt load.

Analysts have expected Simon, the largest U.S. mall owner, to go shopping this year. The company has conserved cash by paying most of its dividend in stock, and has generated more capital by selling stock and debt at a time many real estate companies are begging for money. The result: Simon now has $6 billion in “dry powder” it can use for acquisitions, according to a report by J.P. Morgan.

The Prime Outlets portfolio includes properties in Ohio, Illinois and Michigan, but none in Indiana. The largest concentration of properties is in Florida, with a total of six outlets in cities including Orlando and Naples. As of June 30, the properties were 92 percent occupied and generated $370 in sales per square foot.

"Prime Outlets is an excellent opportunity for Simon as it represents a strong strategic fit for our existing Premium Outlet portfolio and enhances our leadership position in the outlet business,"  Simon CEO  David Simon said in a statement.

Simon's existing Chelsea Premium Outlets portfolio includes 12 outlets on the West Coast, while the Prime Outlets portfolio includes only two. Chelsea has two centers in Indiana, in Edinburgh and Michigan City.

The move comes as Simon maneuvers to take over its nearest mall rival, Chicago-based General Growth Properties Inc., which is going through bankruptcy reorganization. Simon has been buying the company's debt in anticipation for an eventual bid.

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