Commercial Real Estate and Simon Property Group and Retail Development and Real Estate Investment Trust and Vacancy rates and Retail and Real Estate & Retail

Simon plans for spinoff get warm reception from Wall Street

December 13, 2013

Wall Street has embraced Simon Property Group Inc.’s decision to spin off 98 properties into a separate publicly traded company.

Shares of the Indianapolis-based mall developer jumped more than 3 percent in late-morning trading Friday, surpassing at times $153 per share.

Simon announced early Friday morning that 54 strip centers and 44 enclosed malls from its portfolio would become part of the yet-to-be-named publicly traded company. Those properties include 13 in Indiana, five of which are in the Indianapolis area—including Clay Terrace in Carmel.

The firm currently owns or has an interest in more than 325 retail real estate properties in North America and Asia, comprising approximately 242 million square feet.

In a Friday conference call with analysts, Simon executives said the spinoff should be completed early in the second quarter of 2014. The new firm will be headquartered within Simon's current corporate home base at 225 W. Washington St., a Simon spokesman confirmed to IBJ.

In general, Simon is shedding lower-profile assets that generate annual operating incomes of less than $10 million. Subtracting the spinoff's properties, sales for the remaining properties within Simon's portfolio are expected to jump from $570 per square foot to $616 per square.

Analysts tracking Simon hailed the decision.

“Simon will become a pure-play on high-quality malls and outlets, shedding its lower growth assets,” investment firm UBS said in a report. “The 10-percent effective dividend hike is also welcomed.”

Existing Simon shareholders will receive shares in the new company. Simon shares are expected to retain their hefty quarterly dividend that works out to $4.80 per year. The new company also will pay a dividend, expected to be at least 50 cents per year.

Rich Moore, an analyst at RBC Credit Markets, also approved of the move.

“I think it’s a positive for Simon,” Moore told IBJ. “Its stock has languished for most of the year, so I think it will give them a boost.”

Simon shares had fallen 6.2 percent this year through Thursday, hitting a 52-week high of $182.45 in May before dropping to $142.47 in early September.

The properties being spun off total 53 million square feet in 23 states. Occupancy of the strip centers and malls is 94.2 percent and 90.4 percent, respectively, as of Sept. 30.

Roughly $300 million in potential development and redevelopment projects already have been identified for the new company, Simon executives revealed in the conference call.

“The interest in assets like these was growth,” Simon CEO David Simon said. “But when we factored in the growth factor and where we think [the new company] will trade, without a question we think this is better from a financial point of view for our shareholders.”

Simon’s president and chief operating officer, Richard Sokolov, will be the company's chairman, and David Simon will be a member of the board of directors.

The announcement of the spinoff comes 20 years to the day after Simon went public.

Since that time in 1993, Simon has reported:

— Growth in funds from operations, a real estate investment trust’s key measure of profitability, from $150 million to more than $3 billion.

— Increase in revenue from $434 million to more than $5 billion.

— Growth in equity market capitalization of $1.8 billion to $54 billion.

— Total shareholder return of 1,855 percent, or compound annual growth rate of 16 percent.
 

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