By Neil Callanan and Brian Louis
(c) 2013 Bloomberg News
Simon Property Group, the largest U.S. mall owner, plans to spin off its strip-center business and smaller enclosed malls into a new real estate investment trust.
The new company, referred to as SpinCo, will own all or part of 54 strip centers and 44 malls and is expected to generate net operating income of more than $400 million in its first year, Indianapolis-based Simon said in a statement Friday. SpinCo will operate 53 million square feet of retail space in 23 states.
Simon’s Texas properties include Grapevine Mills, Grapevine; Irving Mall, Irving; Allen Premium Outlets, Allen; Grand Prairie Premium Outlets, Grand Prairie; Firewheel Town Center, Garland; Richardson Square, Richardson; The Offices at Firewheel Town Center, Garland; and The Shops at North East Mall, Hurst.
Other Texas properties are Barton Creek Square, Austin; Broadway Square, Tyler; Gateway Shopping Center, Austin; Cielo Vista, El Paso; La Plaza, McAllen; Ingram Park Mall, San Antonio; Lakeline Plaza, Cedar Park; Lakeline Village, Cedar Park; Houston Premium Outlet, Cypress; Katy Mills, Katy; Lakeline Mall, Cedar Park; Longview Mall, Longview; Midland Park Mall, Midland; Rio Grande Valley Premium Outlets, Mercedes; Rolling Oaks Mall, San Antonio; San Marcos Premium Outlets, San Marcos; and Sunland Park, El Paso.
Rounding out the company’s Texas properties are Palms Crossing, McAllen; The Arboretum, Austin; The Domain, Austin; The Galleria, Houston; The Offices at The Domain, Austin; The Shops at Arbor Walk, Austin; Valle Vista Mall, Harlingen; and Wolf Ranch Town Center, Georgetown.
Simon is focused on redeveloping its top regional malls, opening outlet centers and investing overseas to boost growth. The company, whose strip-center business accounts for 3.3 percent of its net operating income, said the new REIT will be better able to pursue acquisitions and development.
The spinoff “will unlock the potential of the strip centers and malls to be owned by SpinCo,” Simon chairman and CEO David Simon said in the statement.
The spinoff, expected to be completed in the first half of 2014, will increase Simon’s sales per square foot, net operating income growth and occupancy rates, according to the statement. Simon’s current dividend of $4.80 a share will be maintained and is expected to grow in line with its funds from operations and taxable income, the company said. SpinCo’s initial dividend is expected to be at least 50 cents a share.
David Simon will be a director of the new REIT. Richard Sokolov, Simon’s president and chief operating officer, will become chairman of SpinCo.
Simon said in a presentation on its website that 70 percent of the new company’s net operating income would be from the malls, which had an occupancy rate of 90.4 percent. The strip centers being spun off have an occupancy rate of 94.2 percent.
The new company plans redevelopment projects totaling about $300 million. Simon expects SpinCo to have about $2 billion of debt and it intends to pursue an investment-grade rating.
Shopping-center REITs in the U.S. have performed better this year than mall owners, with Bloomberg’s shopping-center REIT index rising 1.5 percent this year through yesterday, compared with a 4.6 percent decline for the Bloomberg mall index. Simon has fallen 6.2 percent this year.
The largest U.S. shopping-center REIT is Kimco Realty Corp., based in New Hyde Park, New York. Kimco, with a market value of $8.3 billion, owned an interest in 855 shopping centers with 125 million square feet of leasable space as of Sept. 30.
Additional reporting by A. Lee Graham, Fort Worth Business Press.