Simon Property Group goes on $3.5B mall spending spree

Back to TopCommentsE-mailPrintBookmark and Share

Simon Property Group Inc., the biggest mall owner in the United States, will become the largest shareholder of European shopping center operator Klepierre SA and buy stakes in 26 U.S. malls in deals with a combined value of $3.5 billion.

Simon agreed to buy 28.7 percent of Klepierre from BNP Paribas SA for $37.04 per share in a deal valued at about $2 billion, the Indianapolis-based company said in a statement early Thursday morning. That’s about 20 percent more than Paris-based Klepierre’s closing share price Wednesday.

“European property companies remain undervalued,” Harm Meijer, an analyst at JPMorgan Chase & Co., said in a note to investors. “M&A is needed to close this valuation gap.”

Simon has scaled back its European presence by selling stakes in ventures in France, Italy and Poland and said Thursday it doesn’t currently plan to buy any more Klepierre shares. The company abandoned a bid for Capital Shopping Centres Group Plc in January 2011 after the United Kingdom’s largest publicly traded mall owner resisted the approach.

Simon was “exiting Europe just to get back in a bigger way,” said Craig Guttenplan, an analyst at CreditSights Inc. in London. “This seems to be a longer-term investment platform for the future.”

The company sold its previous European investments because they weren’t in a core market or didn’t have the right property mix, according to Rich Moore, an analyst with RBC Capital Markets in Solon, Ohio.

“It’s a very big move,” Moore said. “It tells you Simon’s next big moves are really international.”

Simon said in a separate statement that it would issue 7 million shares of common stock and three new series of senior unsecured notes with an aggregate principle amount of $1.5 billion to help fund the two deals.

Klepierre, Europe’s second-largest publicly traded mall operator, gained as much as 7.5 percent in Paris stock trading, the most since Nov. 28. The company has a market value of about $6.2 billion. BNP Paribas stock rose as much as 4.8 percent.

Klepierre’s portfolio—what Simon called “a collection of unique retail assets in strong markets”—was valued at about $21 billion at the end of 2011. Half of its properties are in France and Belgium, a quarter in Scandinavia and the rest in central and southern Europe.

The price of the stake doesn’t reflect Klepierre’s fair value, according to Jean-Yves Devloo, an analyst at ING Groep NV who has a “buy” rating on the stock.

The transaction values Klepierre at about $6.9 billion, or 6 times earnings before interest, taxes, depreciation and amortization, though excluding the dividends Simon will get as part of the deal. That compares with an average of about 16 times EBITDA for European real estate acquisitions announced in the past 12 months, according to data compiled by Bloomberg.

Simon also agreed to buy out venture partner Farallon Capital Management LLC’s stakes in 26 malls across the U.S. for about $1.5 billion. The deal includes repayment of loans. Simon will continue to manage the properties, which include a dozen sprawling “Mills” outlet malls.

Both purchases announced Thursday will immediately add to Simon’s funds from operations, Chairman and CEO David Simon said in the statement. Funds from operations, or FFO, which adds such items as amortization and depreciation to net income, is a common performance measure for real estate investment trusts.

Simon FFO this year will be $7.35 to $7.50 a share, the company said, raising a February forecast of $7.20 to $7.30.

“We have long been admirers of Klepierre, its pan-European footprint and growth potential,” David Simon said in the statement. He will become the chairman of Klepierre’s nine-member supervisory board, and Simon will appoint two others.

“The consumer know-how in Simon Group may be a lot better” than that at Klepierre, Devloo said.

The deal will reduce BNP Paribas’s stake in Klepierre to 22 percent, France’s largest bank said in a separate statement. The lender said it will keep the remaining Klepierre shares for at least a year.

BNP Paribas, hurt by losses on its Greek sovereign-bond holdings, announced a plan in September to dispose of assets and loan portfolios, including corporate-lending funded in U.S. dollars. The bank is trying to reach a common equity Tier 1 capital ratio of 9 percent by the end of the year to comply with stricter rules.

The divestment will help BNP Paribas contribute to its plan to increase the ratio by 100 basis points by Jan. 1, 2013, the lender said in a statement.

Simon has announced seven acquisitions in the past five years with an average disclosed deal size of $1.94 billion, including net debt. The largest was its purchase of Prime Outlets Acquisition Co. for $2.33 billion in 2009, according to Bloomberg data.



  • To the Moon Alice
    It is all about the bottom line not the people who made them
  • Invest some $ in Circle Centre
    Hopefully Simon will now invest a little more time and money in luring some tenants to the growing list of vacancies at Circle Centre (Nordstrom, Hollister, Vera Bradley and Love Sac [granted, last two were pop-up stores for holiday season, but still])
  • Tax the poor..support the wealthy
    Amazing what Simon can do with our tax money

Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. I am not by any means judging whether this is a good or bad project. It's pretty simple, the developers are not showing a hardship or need for this economic incentive. It is a vacant field, the easiest for development, and the developer already has the money to invest $26 million for construction. If they can afford that, they can afford to pay property taxes just like the rest of the residents do. As well, an average of $15/hour is an absolute joke in terms of economic development. Get in high paying jobs and maybe there's a different story. But that's the problem with this ask, it is speculative and users are just not known.

  2. Shouldn't this be a museum

  3. I don't have a problem with higher taxes, since it is obvious that our city is not adequately funded. And Ballard doesn't want to admit it, but he has increased taxes indirectly by 1) selling assets and spending the money, 2) letting now private entities increase user fees which were previously capped, 3) by spending reserves, and 4) by heavy dependence on TIFs. At the end, these are all indirect tax increases since someone will eventually have to pay for them. It's mathematics. You put property tax caps ("tax cut"), but you don't cut expenditures (justifiably so), so you increase taxes indirectly.

  4. Marijuana is the safest natural drug grown. Addiction is never physical. Marijuana health benefits are far more reaching then synthesized drugs. Abbott, Lilly, and the thousands of others create poisons and label them as medication. There is no current manufactured drug on the market that does not pose immediate and long term threat to the human anatomy. Certainly the potency of marijuana has increased by hybrids and growing techniques. However, Alcohol has been proven to destroy more families, relationships, cause more deaths and injuries in addition to the damage done to the body. Many confrontations such as domestic violence and other crimes can be attributed to alcohol. The criminal activities and injustices that surround marijuana exists because it is illegal in much of the world. If legalized throughout the world you would see a dramatic decrease in such activities and a savings to many countries for legal prosecutions, incarceration etc in regards to marijuana. It indeed can create wealth for the government by collecting taxes, creating jobs, etc.... I personally do not partake. I do hope it is legalized throughout the world.

  5. Build the resevoir. If built this will provide jobs and a reason to visit Anderson. The city needs to do something to differentiate itself from other cities in the area. Kudos to people with vision that are backing this project.