Mall Giant Simon Boosts Portfolio in $5.78-Billion Deal
The nation’s largest mall operator, Indianapolis-based Simon DeBartolo Group Inc., has agreed to purchase Corporate Property Investors Inc. of New York, the owner of 23 premier malls around the country, for about $5.78 billion in cash, stock and debt.
The deal would give Simon control of some of the country’s largest and best-performing malls, including Roosevelt Field Mall in Garden City, N.J., South Shore Plaza in Braintree, Mass., and Metrocenter in Phoenix.
It also would give Simon a much larger presence in such key markets as Atlanta, Boston and Southern California, where it would acquire Orange County’s Brea and Westminster malls. Simon already owns Mission Viejo Mall, Laguna Hills Mall and has a stake in the Ontario Mills outlet mall.
The acquisition would boost Simon’s portfolio to 222 retail properties and eight office buildings comprising 175 million square feet--more than all four of its closest competitors combined, said Richard S. Sokolov, Simon president.
“We believe in the benefits of scale,” Sokolov said, noting that the company’s profit margin has increased as the company has achieved economies in purchasing and staffing through major acquisitions.
The company has now bought or agreed to buy about $10 billion in malls since 1966, including the purchase of DeBartolo Realty Corp. almost two years ago and a joint venture formed last December with Santa Monica-based Macerich Co. to purchase 12 malls in smaller cities nationwide.
The $5.78-billion price for CPI was higher than most analysts had expected the company to fetch, but not unusual considering the stiff competition from several other bidders, including Columbia, Md.-based Rouse Co. and Vornado Realty Trust.
Privately held CPI garnered a lot of attention from buyers because of its unique “paired-share” structure of an operating company and ownership entity sharing the same management and shareholders.
This structure, which was banned in 1984 but grandfathered in a handful of companies, allows real estate investment trusts to manage their own properties and diversify into other businesses without losing their tax-exempt status.
Simon officials pooh-poohed the importance of CPI’s paired shares, saying they did not pay a premium to acquire the structure, which has come under fire lately for what some, including President Clinton, feel is an unfair tax advantage. Simon officials have discussed using CPI’s operating company to make investments in trendy new retail chains, said Greg Andrews, a senior analyst with Newport Beach-based Green Street Advisors.
“If the rules don’t change, they could incubate retail concepts,” Andrews said. “They could make investments and help them to grow.”
The sheer size of the acquisition would also allow Simon to set rental rates in certain areas, analysts say. It also is expected to make Simon Brand Ventures, a new marketing program launched last year, more attractive. That program links its malls’ 100 million customers to the advertising and products of PepsiCo Inc., Visa USA and Microsoft Corp.
“They are viewing these malls not only as real estate assets, but as marketing vehicles,” Andrews said.
Under the agreement, CPI shareholders, led by a pension fund of AT&T; Corp., would get about $2.41 billion in cash, or $90 a share; $1.88 billion of Simon’s common stock, and $510 million in 6.5% preferred convertible stock.
The purchase, expected to be completed in the third quarter, is subject to shareholder and regulatory approval. Simon’s stock fell $1.13 to close at $32.50 on the New York Stock Exchange.
