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Simon Property Group spins off smaller mall assets to shareholders

Brent Nyitray, CFA, MBA

Must-know takeaways from Simon Property Group's spinoff (Part 1 of 3)

Simon Property Group is one of the largest mall REITs in the U.S.

Simon Property Group (SPG) owns, develops, and manages real estate properties, which consist of malls, premium outlets, mills, and community or lifestyle centers. It currently owns or has an interest in over 325 properties, representing over 242 million square feet. Some of its properties include the King of Prussia mall in Pennsylvania, Woodbridge Commons in New York, and the Town Center in Boca Raton, Florida.

After a strategic review, SPG decides to split up the company

On Friday, December 13, SPG announced that the board had conducted a strategic review of alternatives and decided the best way to maximize shareholder value was to spin off its strip center business and smaller malls into a separate company and distribute it to shareholders. This will allow SPG to focus on its global portfolio of larger malls, mills, and premium outlets. Simon looked at a possible sale of the assets and decided to go the spinoff route.

The company cited several reasons for the spinoff.

  • Establishes a new company to focus and grow its business while allowing Simon’s remaining business to grow.
  • Creates a company with a strong balance sheet, equity currency, and its own access to capital
  • Enhances transparency for investors and better highlights the attributes of both companies

The company will have a dedicated and experienced management team to implement and execute on its growth strategy. The new company will be poised to be an acquirer, with the necessary capital, people, and focus.

Simon Property Group post-spinoff

Simon will focus on its portfolio of larger malls, mills, and premium outlets. It anticipates it will be able to maintain its current annualized dividend of $4.80 a share, which will grow in line with the growth in income. This will boost its sales per square foot from $579 to $616. It will also increase its net operating income growth from 5.2% to 5.5% and increase its occupancy percentage to 96.5% from 95.5%. The leverage will increase slightly, from 5.7x to 5.8x.

Reaction to the spinoff

The stock price of Simon didn’t really move all that much in reaction to the news—the stock rose $3, to 151.63, which was an increase of about 2%. The S&P 500 was unch’d on the day. Basically, Simon is spinning off its lower-growth businesses into a separate unit and focusing on its most productive assets. Spinning off the small mall and strip business was preferable to selling the assets for tax reasons.

Continue to Part 2

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