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Simon Property Group to spin off strip centers, small malls

Bloomberg News

December 13. 2013 10:44PM

Simon Property Group, the largest U.S. mall owner and owner of several major malls in New Hampshire, 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. The company owns the Mall of New Hampshire in Manchester, Pheasant Lane Mall in Nashua and regional and outlet malls in Newington, Salem, Merrimack and other Granite State locales.

SpinCo will operate 53 million square feet (4.9 million square meters) of retail space in 23 states.

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 Chief Executive Officer 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.

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