Simon Announces SpinoffPosted: Updated:
Indianapolis-based Simon Property Group Inc. (NYSE:SPG) is planning to spin off its strip center and smaller enclosed mall businesses. The resulting publicly-traded REIT will feature a portfolio of nearly 100 properties in around two dozen states. Chief Executive Officer David Simon, who will also take on the role of chairman of the new company's board, says the move gives Simon Property Group more focus on larger global assets. December 13, 2013
INDIANAPOLIS, Ind. - Simon Property Group (NYSE:SPG) ("Simon" or the "Company"), a global leader in the retail real estate industry, today announced a plan to spin off all of its strip center business and smaller enclosed malls into an independent, publicly traded REIT ("SpinCo").
SpinCo's mission will be to own stable, quality strip centers and malls that effectively serve the communities in which they are located. SpinCo is expected to initially own or have an interest in 54 strip centers and 44 malls (each of the malls generating annual net operating income ("NOI") of approximately $10 million or less). SpinCo's initial year NOI is estimated to be in excess of $400 million and its initial year funds from operations ("FFO") is estimated to be approximately $300 million which is approximately $0.80 per share. SpinCo will operate one of the largest, most diversified portfolios of strip centers and malls in the U.S., having 53 million total square feet in 23 states. Occupancy of SpinCo's strip centers and malls is 94.2 percent and 90.4 percent, respectively, as of September 30, 2013, and substantial recent investment has been made in SpinCo's assets.
The new company, which will have an independent, dedicated executive management team and conservatively capitalized balance sheet, will be well-positioned to deliver internal growth through active asset management and re-developments and external growth through acquisitions and selective new developments. SpinCo intends to pursue an investment grade credit rating from the major credit rating agencies.
Key transaction highlights:
-Creates a Retail Real Estate Company Poised for Growth. With one of the largest, most diversified portfolios of strip centers and malls in the United States, SpinCo's significant scale and flexible balance sheet will provide a unique ability to act as a leading acquirer of these assets.
-Independent Company Benefits from Relationships with Simon. SpinCo will be led by a dedicated, independent management team and a board consisting of a majority of independent directors. SpinCo will also benefit from continued relationships with Simon. Richard Sokolov, Simon's President and Chief Operating Officer and member of its Board of Directors, will also become Chairman of the Board of Directors of SpinCo, and David Simon, Chairman and Chief Executive Officer of Simon, will also serve as a director of SpinCo. Simon's strip center management team and personnel will become employees of SpinCo, SpinCo's malls will continue to receive property management services from Simon, and SpinCo's support functions will be provided by Simon on a transitional basis.
-Simon to Focus on its Global Portfolio of Larger Malls, Mills and Premium Outlets. The spin-off will result in higher sales per square foot, NOI growth and occupancy for Simon, while maintaining Simon's scale and conservative leverage profile and its unrivalled portfolio of high-quality assets. No change to Simon's credit rating or related outlook is expected.
-Increases Total Dividend to Simon Shareholders. Simon's current annualized dividend of $4.80 per share will be maintained and is expected to continue to grow in-line with the growth in the Company's FFO and taxable income. SpinCo's initial year dividend is estimated to be at least $0.50 per share, which is approximately 100 percent of estimated taxable income.
-Tax Free Transaction to Simon Shareholders. The distribution is intended to qualify as tax-free to Simon shareholders and Simon's limited partnership unitholders for U.S. federal income tax purposes.
Mr. Simon commented, "Today, on the twentieth anniversary of Simon's initial public offering, we are pleased to announce this significant transaction which we believe will unlock the potential of the strip centers and malls to be owned by SpinCo. We believe we are creating a new company that has both a strong Simon heritage and all of the requisite tools to grow its business and succeed. At the same time, this transaction allows Simon to focus on our global portfolio of larger malls, Mills and Premium Outlets while maintaining our considerable scale and conservative leverage profile."
Mr. Sokolov commented, "I am excited about this transaction and look forward to serving as SpinCo's Chairman. There are many very attractive investment opportunities in SpinCo's targeted asset classes which it will have the ability to pursue. As future members of SpinCo's Board of Directors and significant shareholders in SpinCo, both David and I are dedicated to putting the right management team in place to successfully execute SpinCo's growth-oriented business strategy and deliver attractive total returns to shareholders."
The spin-off will be effected through a pro rata special distribution to Simon shareholders. Simon Property Group's limited partnership unitholders will receive units of SpinCo's operating partnership subsidiary. The initial Form 10 information statement relating to the spin-off is intended to be filed with the U.S. Securities and Exchange Commission ("SEC") before the end of 2013, and the distribution is expected to be completed in the second quarter of 2014.
Simon's Board of Directors has unanimously approved a plan to pursue the spin-off. The transaction is subject to certain conditions, including declaration by the SEC that SpinCo's registration statement is effective, filing and approval of SpinCo's listing application, customary third party consents, and formal approval and declaration of the distribution by Simon's Board of Directors. Simon may, at any time and for any reason until the proposed transaction is complete, abandon the separation or modify or change its terms.
BofA Merrill Lynch and Goldman, Sachs & Co. are serving as exclusive financial advisors and Wachtell, Lipton, Rosen & Katz is serving as legal advisor to Simon in connection with the proposed transaction.
Conference Call Details
Simon Property Group will hold a conference call to discuss the transaction at 9:00 a.m. Eastern Time today. The conference call can be accessed by dialing 1-800-237-9752 (toll free) or 1-617-847-8706 (international) and entering the passcode 58725446. Live streaming audio of the conference call will be accessible at investors.simon.com. An online replay will be available until December 27, 2013 at investors.simon.com.
About Simon Property Group
Simon Property Group, Inc. (NYSE: SPG) is an S&P 100 company and a global leader in the retail real estate industry. The Company currently owns or has an interest in more than 325 retail real estate properties in North America and Asia comprising approximately 242 million square feet. We are headquartered in Indianapolis, Indiana and employ approximately 5,500 people in the U.S. For more information, visit www.simon.com.
Source: Simon Property Group Inc.