Overseas rules change could pave way for Simon deals

December 6, 2011

New rules proposed for real estate investment trusts in the United Kingdom could help Indianapolis-based Simon Property Group Inc. as it seeks to expand its shopping mall dominance outside the United States.

The changes would loosen restrictions on ownership and stock-exchange listings, allowing for the creation of up to 40 new REITs, Bloomberg reported. Properties or companies in the UK would be eligible for REIT status even if their owners' shares trade on overseas exchanges.

That could help pave the way for Simon to add to its holdings in the UK, a strategy it has been plotting for years, said Rich Moore, an analyst for RBC Capital Markets in Ohio.

"If there are changes that make it easier on REITs, that's a positive for Simon," Moore said Tuesday. "They're a big battleship with a lot of capacity to buy things. They're just waiting, biding their time."

Simon already owns a stake in Capital Shopping Centres Group and Capital & Countries Properties, two London-based firms that operated together as Liberty International prior to May 2010, according to Simon regulatory filings.

Simon controls less than 6 percent of each company's outstanding shares in order to avoid a tangle with British REIT regulations.

It's not the first time Simon has been "thwarted" by circumstances out of its control as it seeks to grow, Moore noted. Another recent example was Simon's unsuccessful attempt to acquire Chicago-based General Growth Properties out of bankruptcy.

The proposed changes in the UK “will allow more cross-border M&A activity,” Phil Nicklin, who heads Deloitte LLP’s unit focused on REITs, told Bloomberg. “Investment banks are already talking to me about this.”

REITs in the UK avoid corporation or capital gains taxes in return for paying investors 90 percent of the income generated by their property.

The new rules won’t allow the creation of private REITs, according to the UK Treasury. Closely held real estate companies can qualify for the tax exemptions if they seek to sell shares on a London exchange within three years.

Current rules require REITs to have 25 percent of their shares widely held by investors. Pension funds and life insurance companies may gain exemptions from the rule, the Treasury said, without being more specific.


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