Flush with cash, developer Simon revives hunt for acquisitions

  • Comments
  • Print

Simon Property Group Inc. has managed to grow revenue tenfold since going public 16 years ago. Not bad given that the malls
are a slow-growth industry.

The key has been well-timed acquisitions. When the price is right, the company drops
billions to scoop up competitors.

This looks like one of those times. Simon this year conserved cash by paying
most of its dividend in stock. At the same time, it’s used its clout to launch a capital-raising spree, rolling out
stock and debt offerings at a time many real estate companies are begging for money.

The result: Simon now has
$6 billion in “dry powder” it can use for acquisitions, according to a report by J.P. Morgan.

believe the opportunity remains large,” added Deutsche Bank, noting that the company plans to add to its “war
chest” by paying most of its dividend in stock through the rest of the year.

“We believe Simon is aggressively
pursuing multiple acquisitions,” Raymond James said in a report.

Simon, already the nation’s largest
mall company, isn’t commenting on specific acquisition plans. However, in a conference call last month, CEO David Simon
did nothing to quell the speculation. The company had been hoarding cash to get through the downturn, but he said he now feels
“better about deploying capital opportunistically.”

The company hasn’t been shy about pulling
the trigger on megadeals in the past. In 1996, it bought DeBartolo Realty Corp. for $1.5 billion. That was followed by the
acquisition of Retail Property Trust for $700 million in 1997 and Corporate Property Investors for $5.8 billion in 1998. This
decade, it snapped up Chelsea Property Group for $3.5 billion and teamed with a financial partner to buy Mills Corp. for $1.6

The most alluring target these days may be the properties owned by Chicago-based General Growth Properties
Inc., the No. 2 mall operator, which slid into bankruptcy in April. Its holdings include prized properties like Water Tower
Place in Chicago and Fashion Show in Chicago.

Simon favors high-end malls. But analysts say it also might find
opportunity buying distressed properties owned by firms unable to make their debt payments. On the conference call, Simon
repeatedly expressed interest in acquisitions but offered few specifics.

On a similar call early last year, before
the worst of the financial crisis set in, Simon was less cagey.

“When times are challenging is when we’ve
done some good work,” he said. “That’s where you can make some hay, and that’s where great wealth
has been created in our industry—either through development or buying at the right price. And you tend to be able to
buy at the right price when few can buy.”

Now, with signs proliferating that the recession is ebbing, Simon
is poised to return to that playbook.

KeyBank expanding

Forget all
that talk about bank branches becoming dinosaurs in the Internet age. KeyBank officials still see branches as a key part of
their growth strategy, even as customers do more transactions online.

The Cleveland-based banking company has opened
two branches this year, bringing its roster of central Indiana branches to 36. It plans to add two more—one in Beech
Grove and another in Zionsville—by the end of 2009, before adding another seven in 2010.

Additional branches
are on the drawing board for 2011, said Gary Hentschel, president of Key’s central Indiana district.

He said
most of the customers banking online still walk into branches for some services.

“Clients, like everyone
else, want choices,” Hentschel said.

Retail stocks surge

spending remains anemic, but that hasn’t stopped investors from fawning over Indiana-based chains.

of HHGregg Inc. have quadrupled since November, and shares of the Steak n Shake Co. have tripled in that span. Even the relative
laggards, Finish Line Inc. and Shoe Carnival Inc., have more than doubled.

Investors are betting the economic recovery
ushers in stronger sales, and opens the way for expansion. But so far that’s a leap of faith. The Commerce Department
reported that U.S. retail sales in July declined 0.1 percent, despite the boost that the Cash for Clunkers program gave the
ailing auto industry. Excluding autos, retail sales fell 0.6 percent.

HHGregg and Steak n Shake shares are up 90
percent for the year, while Finish Line and Shoe Carnival are up 55 percent. All have drastically outperformed the overall
market, as measured by the S&P 500. That index is up 14 percent in 2009.•

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.