We’re fortunate to have Simon Property Group Inc. headquartered here, a heavyweight in the global real estate industry with a downtown work force topping 1,000.
When the company announced in December that it was spinning off its strip centers and smaller malls into a new Indianapolis-based public company, it sounded like another big shot in the arm for the city.
That might prove to be the case, but the initial boost might not be particularly noticeable. A March 24 filing with the Securities and Exchange Commission said the new firm, dubbed Washington Prime Group, is starting with only about 40 employees. And a copy of the employment contract for the newly appointed CEO, Mark Ordan, said he will work out of an office in the Washington, D.C., area, where he lives with his family.
Indianapolis is no Podunk town, of course, but Ordan isn’t the first executive affiliated with the Simon empire opting to spend much of his time elsewhere.
Simon Property CEO David Simon has been more scarce in Indianapolis since buying a $25 million residence on Park Avenue in Manhattan in 2011. And the company’s president, Richard Sokolov, commutes here from Youngstown, Ohio.
Simon Property’s decision to name the new business Washington Prime—announced in the same press release as Ordan’s appointment—had fueled speculation the company would end up based in the D.C. area. However, that apparently is not the case, since SEC filings list the “principal executive office” of Washington Prime as 225 W. Washington St., Simon’s Indianapolis headquarters tower.
Simon officials wouldn’t elaborate on how they came up with the name—which, of course, could be a reference to Washington Street or Washington, D.C., or might just have sounded good to those making the decision. In a Jan. 31 analyst call, David Simon had lamented that “the hardest thing” about the spinoff “is coming up with the appropriate name.”
Washington Prime out of the gate will be a substantial company, with more than $620 million in revenue and ownership of 44 enclosed malls and 54 strip centers.
But at least early on, it will rely on Simon Property employees to do some of the heavy lifting. While Simon Property’s entire strip center team will join Washington Prime, the new company will rely on Simon personnel to handle mall management for at least two years.
Simon workers also will supply support services, such as accounting and IT, for up to two years. One of the risks of the spinoff is that Simon employees providing such services “will face competing demands on their time,” an SEC filing says.
Kite’s Inland-buying odyssey
A new SEC filing provides a blow-by-blow account of the negotiations that led to the Feb. 10 announcement that locally based Kite Realty Group Inc. was buying Illinois-based Inland Diversified Real Estate Trust Inc. for $1.2 billion in stock.
The 13-page description leaves two big takeaways: Kite brass exercised enormous patience during the sale process, which dragged out more than a year, and considerable restraint when dangling offers.
Inland’s board at one point late last year was so close to sealing a deal with another buyer—described only as Party A—that it entered exclusive negotiations, only to backtrack after the prospective buyer insisted on tying the deal’s closing to a favorable outcome of an unspecified, pending “due diligence matter.”
At one point, six firms submitted “non-binding indications of interest.” By early January, three remained in the running, with Kite’s offer valued at $10.50 per share, Party C’s valued at $10.75, and Party D’s at $10.80.
Even though Party D had the highest stated offer, Inland decided to end talks with the firm because of difficulty in valuing preferred stock that was part of its bid.
That would have left two suitors, but soon Party A was back in the fray with an offer that, like Party C’s, topped Kite’s.
Inland went with Kite’s, anyway, because of concern that Party C was offering a fixed price, wiping out the potential benefit from a run-up in Party C’s shares from announcement of a deal. In addition, its past dealings with Party A “created substantial uncertainty as to the speed with which Party A could complete due diligence and finalize a definitive agreement, if at all.”
Further, Inland worried that if a deal with Party A unraveled, Kite “would likely be unwilling to recommence negotiations.”
So Inland entered exclusive talks with Kite, paving the way for a deal that will swell Kite’s property count from 74 to 131.
On an analyst call after announcing the deal, CEO John Kite called the purchase “transformational.” He said “this is just a very, very unique opportunity for us to buy extremely high-quality real estate at a great price.”•