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Simon Property to spin off smaller malls into REIT

Dec 13 (Reuters) - Simon Property Group Inc, the largest owner of U.S. malls and outlet centers, will spin off its strip malls and smaller shopping centers into a publicly traded REIT to focus solely on its larger retail properties.

The company has been focusing on its larger malls, which provide higher returns. This has held back the expansion of its strip malls and smaller shopping centers.

"Over the years, we have seen a number of very attractive investment opportunities ... that we have not pursued given our primary focus on our global portfolio of larger retail assets," Chief Executive David Simon said on a conference call.

The real estate investment trust (REIT) is expected to initially own or have an interest in 54 strip malls as well as in 44 smaller enclosed malls with annual net operating income of up to $10 million each.

Analysts agreed that the smaller malls would be better off as a separate company.

"I think the company looked at it and said ... if we can have a dedicated team focused 100 percent on the B-malls and the shopping centers, that maybe one plus one equals three," Sandler O'Neill analyst Alex Goldfarb told Reuters.

Simon Property said the spinoff, through a distribution to shareholders, would boost its sales per square foot, net operating income and occupancy rates. The company said it would maintain its annualized dividend at $4.80 per share.

The spinoff will make it easier for Simon Property to pursue acquisitions without facing anti-trust hurdles, Jefferies analyst Omotayo Okusanya said.

General Growth Properties Inc spun off 30 malls into a new company, Rouse Properties Inc, in 2011 to focus on large retail assets. Rouse Properties shares have risen about 75 percent since it went public in December 2011.


Richard Sokolow, Simon Property's president and chief operating officer, will be the chairman of the new company's board. Chief Executive Simon will be a director.

The new company's funds from operations are expected to be about $300 million, or 80 cents per share, in the first year, Simon Property said.

The company said the REIT's dividend was estimated to be at least 50 cents per share in the first year, representing 100 percent of taxable income.

REITs, which must pay out at least 90 percent of their taxable income to shareholders as dividends, are subject to lower taxes and pay higher dividends than other companies.

The only real estate company in the Standard & Poor's 100 index, Simon Property owns or has an interest in 325 retail properties in North America and Asia.

The company's portfolio includes Roosevelt Field Mall and Woodbury Common Premium Outlets in New York, Forum Shops at Caesars Palace in Las Vegas and Lenox Square Mall in Atlanta.

The spinoff is expected to be completed by the second quarter of 2014, Simon Property said.

BofA Merrill Lynch and Goldman Sachs acted as financial advisers to the company.

Simon Property shares were up 2.3 percent at $151.72 on the New York Stock Exchange on Friday. The stock has fallen 6 percent this year to Thursday's close.