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Simon plans for spinoff get warm reception from Wall Street

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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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  • Truth Hurts more than helps at Times.
    The ugly truth is seldom viable in it's entirety. 1/2 a Billion dollars is not imaginary amount.I hope that all those wrongfully accused-Sin of False witness get relief and Retribution.It is sickening the way this was covered over But not covered up.
  • Unsure
    In general, it seems like Simon is splitting off the lower value malls and strip centers, perhaps as a way to "purify" the Simon brand. I think its probably in the best interest of Simon shareholders, but time will tell. Donnie, I'm not sure what massive lawsuits you're referring to, but maybe I'm just out of the loop. But if there are lawsuits brewing, I'm not sure that how moving properties to a new brand/company would protect Simon legally. Just not sure what you're talking about.
  • Sacrifical Lamb
    Interesting proposal to insure profits and maintain losses. Sad!
  • Last ditch effort!
    Pretty sad to see Simon pull this David Mctavish @ the church of Scientology technique of Split and sell of assets as a way of protection from Massive lawsuits coming his way. Hiding assets will not reduce the pain.After we the city and citizens have give his family so much of us.

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    1. If I were a developer I would be looking at the Fountain Square and Fletcher Place neighborhoods instead of Broad Ripple. I would avoid the dysfunctional BRVA with all of their headaches. It's like deciding between a Blackberry or an iPhone 5s smartphone. BR is greatly in need of updates. It has become stale and outdated. Whereas Fountain Square, Fletcher Place and Mass Ave have become the "new" Broad Ripples. Every time I see people on the strip in BR on the weekend I want to ask them, "How is it you are not familiar with Fountain Square or Mass Ave? You have choices and you choose BR?" Long vacant storefronts like the old Scholar's Inn Bake House and ZA, both on prominent corners, hurt the village's image. Many business on the strip could use updated facades. Cigarette butt covered sidewalks and graffiti covered walls don't help either. The whole strip just looks like it needs to be power washed. I know there is more to the BRV than the 700-1100 blocks of Broad Ripple Ave, but that is what people see when they think of BR. It will always be a nice place live, but is quickly becoming a not-so-nice place to visit.

    2. I sure hope so and would gladly join a law suit against them. They flat out rob people and their little punk scam artist telephone losers actually enjoy it. I would love to run into one of them some day!!

    3. Biggest scam ever!! Took 307 out of my bank ac count. Never received a single call! They prey on new small business and flat out rob them! Do not sign up with these thieves. I filed a complaint with the ftc. I suggest doing the same ic they robbed you too.

    4. Woohoo! We're #200!!! Absolutely disgusting. Bring on the congestion. Indianapolis NEEDS it.

    5. So Westfield invested about $30M in developing Grand Park and attendance to date is good enough that local hotel can't meet the demand. Carmel invested $180M in the Palladium - which generates zero hotel demand for its casino acts. Which Mayor made the better decision?

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