UPDATE 2-Simon Property to buy 22 more outlet centers
NEW YORK - Simon Property Group Inc, the largest U.S. mall owner, said on Tuesday it agreed to buy Prime Outlets Acquisition Co for $700 million plus assumed debt, to add 22 outlet centers to its stable of high-end outlet centers.
The acquisition would give Simon new centers that ring major metropolitan markets such as Washington, D.C., Baltimore, San Antonio and Orlando, Florida. The $700 million would consist of 80 percent cash and 20 percent in operating units, which are similar to stock.
The deal includes the assumption of Prime Outlets' existing debt and preferred stock, bringing the total value of the acquisition to $2.33 billion.
The centers were 92 percent occupied and generated annual sales per square foot of about $370. At the end of September, Simon's Premium Outlets 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 the 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, current 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 protecting 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 that factors out the profit-reducing effects of depreciation. It expects to close on the deal by the end of the first quarter or the beginning of the second quarter 2010.
UBS Investment Bank and JP Morgan advised Simon in the deal. It was represented by law firm Fried, Frank, Harris, Shriver & Jacobson LLP.
Shares of Simon were up 1.6 percent, or $1.18, at $75.08 in afternoon trade on the New York Stock Exchange. (Additional reporting by Scott Malone in Boston; Editing by Steve Orlofsky)