Simon Property to buy 22 more outlet centers
* Simon to pay about $700 mln of cash and operating units
* Deal worth $2.33 bln including assumed debt, pfd stock
* Simon sees deal immediately accretive to FFO
* Simon shares close up 1 pct (Adds Simon's cash position, Moody's comments and information, stock close)
NEW YORK - Simon Property Group Inc, the largest U.S. mall owner, struck a deal to buy Prime Outlets Acquisition Co for more than $700 million, adding 22 outlet centers to its stable of high-end centers.
The acquisition would give Simon new centers that ring major metropolitan markets such as Washington, Baltimore, San Antonio and Orlando, the company said in announcing the deal on Tuesday.
The $713 million would consist of 80 percent cash and 20 percent in operating units, which are similar to stock. Simon will also assume Prime Outlets' debt and preferred stock, bringing the total value of the deal to $2.33 billion.
As of June 30, the centers were 92 percent occupied and generated annual sales per square foot of about $370. At the end of September, Simon's Premium Outlet Centers unit was 97.5 percent occupied and generated sales of $492 per square foot.
We believe this is a solid transaction for the company, which should provide greater upside into 2010 as Simon utilizes its strong retailer relationships to drive occupancy and vendor relationships to cut costs and improve margins, Oppenheimer & Co analyst Mark Biffert wrote in a research note.
Following completion of the deal for privately held Prime Outlets, Simon will have 63 centers comprising about 25 million square feet of space.
Simon, based in Indianapolis, currently owns or has an interest in 385 properties comprising 262 million square feet of gross leasable area in North America, Europe and Asia.
Simon has already said it is interested in acquiring all or part of mall owner General Growth Properties Inc (GGWPQ.PK), which filed for bankruptcy in April.
We do not believe this transaction precludes Simon from looking at other transactions, such as General Growth, Biffert wrote.
Simon expects the deal for Prime Outlets, based in Baltimore, to immediately add to its funds from operations, a common measure of performance of real estate companies. FFO factors out the profit-reducing effects of depreciation.
Simon expects to close on the deal by the end of the 2010 first quarter or the beginning of the second quarter.
UBS Investment Bank and JP Morgan advised Simon in the deal. It was represented by law firm Fried, Frank, Harris, Shriver & Jacobson LLP.
Also on Tuesday, Simon said it has increased its access to cash, entering into a new unsecured corporate credit facility. The new facility will provide Simon with an initial revolving borrowing capacity of $3.565 billion, up from its existing $3.5 billion revolver. The facility can expand to $4.0 billion and will mature on March 31, 2013. Simon also has about $4 billion of cash on its balance sheet.
There was very strong demand in our new credit facility, with lender commitments received from 34 financial institutions aggregating over $3.5 billion, David Simon, chairman and chief executive, said in a statement.
According to Moody's Investor Service, Simon will assume $1.2 billion of mortgage debt and $405 million of construction debt, to be funded by Simon's new credit facility and cash on its balance sheet.
The deal will not materially affect Simon's credit rating, Moody's said.
Shares of Simon closed up 78 cents to $74.68 on the New York Stock Exchange. (Additional reporting by Scott Malone in Boston; Editing by Steve Orlofsky and John Wallace)
© Copyright Thomson Reuters 2024. All rights reserved.