Commercial Real Estate and Shopping Centers and Retailers and Simon Property Group and Retail and Real Estate & Retail

Simon Property cooperating With FTC on Prime Outlets inquiry

April 30, 2010

Simon Property Group Inc., the largest U.S. mall owner, is cooperating with a Federal Trade Commission inquiry into its proposed purchase of Prime Outlets Acquisition Co., CEO David Simon said Friday.

“We expect to close this transaction,” he said during a conference call about earnings with analysts and investors. Simon said he doesn’t expect the FTC’s review to reveal any antitrust issues. “We are fully cooperating.”

Simon Property agreed in December to buy Prime Outlets from Lightstone Group for $2.33 billion including debt. The deal would give Indianapolis-based Simon an additional 22 retail outlets, increasing its total to more than 60. Gap Inc., which has stores in both Simon and Prime locations, said in February it was contacted by the FTC about the planned acquisition.

Simon doesn’t intend to sell any of Prime Outlets’s properties, David Simon said.

Some retail tenants of outlet malls are concerned about Simon gaining too much market power should its acquisition of Prime be approved, said Mallory Duncan, general counsel of the National Retail Federation, a Washington-based trade group.

“We have members of all sizes who have expressed concern,” Duncan said. He declined to name which retailers have told the group they are troubled. “Rents could go up. If the antitrust authorities make the wrong decisions, outlets could become less of bargain for consumers who go there to shop.”

Simon also is trying to buy or gain a stake in its biggest competitor, General Growth Properties Inc., which filed for Chapter 11 bankruptcy a year ago.

David Simon said that while his company has been focused on expanding by investing in General Growth, there’s a “distinct possibility” that it won’t win the bidding against Brookfield Asset Management Inc.

While Simon is interested in General Growth’s assets, the company’s balance sheet “scares me,” David Simon said.

“There’s still a lot of secured debt and a lot of highly leveraged assets,” he said during the conference call. “It’s still a highly levered company with not a lot of financial flexibility. Their balance sheet compared to ours is an apple and an orange.”

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