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Simon Property Group spins strip center unit to a REIT

December 13
10:50 AM 2013

Indianapolis-based owner and operator of shopping malls Simon Property Group made an announcement on Friday that it has plans to spin off its smaller enclosed malls and strip centers into a REIT or real estate investment trust. A REIT, defined by Investopedia, is a security that sells like a stock on majority of trading exchanges and places bets specifically into real estate through mortgages or properties.

According to the New York Times' The DealBook, the new REIT of Simon Property will include 44 malls and 54 strip centers from 23 US states. They include Great Lakes Mall in Cleveland, Bowie Town Center in Bowie, Maryland, Brunswick Square in East Brunswick, New Jersey and Seminole Towne Center in Orlando, Florida. The report said Simon property's strip centers have a 94.2% occupancy rate, while its enclosed malls have a 90.4% rate. The report also added that over 3% of the business of Simon Property overall is composed of strip centers. Simon property is said to be the biggest mall owner in the US.

Simon property's REIT will be generating an estimated net operating income $400 million in its first year, The DealBook report stated. The new REIT will have an existing debt of $2 billion, which represents 5 to 1 net debt to EBITDA or earnings before interest, taxes, depreciation and amortization ratio.

Chairman and chief executive David Simon will serve as a director of the spun-off REIT, while Simon Property's president and chief operating officer Richard Sokolov will be chairman. The distribution of shares to holders of Simon property was said to be completed in the second quarter of next year.

Simon said in a statement, "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."

Simon Property has tapped Bank of America Merrill Lynch and Goldman Sachs as its financial advisers for the spin-off, while its legal adviser is Wachtell, Lipton, Rosen & Katz.

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