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Simon Plans Spin-off of Smaller Properties

New REIT, to be call SpinCo, will house strip centers and smaller malls.

Simon Property Group Inc. will spin off its strip centers and smaller malls into a new publicly traded real estate investment trust to be called SpinCo.

 

The new entity will initially include 54 strip centers and 44 of the smaller malls in which Simon has either complete or partial ownership. First-year funds from operations are expected to be more than $300 million. It will contain 53 million square feet of space across 23 states. As of Sept. 30, the strip centers that will be a part of SpinCo had an occupancy rate of 94.2 percent, while the malls stood at 90.4 percent.

Investors appeared to like the split idea, sending Simon’s shares up $3.26, or 2.2 percent, to $151.63 in New York Stock Exchange trading Friday.

Richard Sokolov, president and chief operating officer and a director of Simon, will become chairman of SpinCo, while David Simon, chairman and chief executive officer of Simon, will serve as a director of the REIT.

“Today, on the 20th anniversary of Simon’s initial public offering, we are pleased to announce this significant transaction which we believe will unlock the potential of the strip centers and malls to be owned by SpinCo,” Simon said Friday. “We believe we are creating a new company that has both a strong Simon heritage and all of the requisite tools to grow its business and succeed.”

He added that the spin-off will allow Simon “to focus on our global portfolio of larger malls, mills [or outlets] and premium outlets while maintaining our considerable scale and conservative leverage profile.”

Sokolov said he and Simon will be “significant shareholders” in SpinCo and “dedicated to putting the right management team in place to successfully execute SpinCo’s growth-oriented business strategy and deliver attractive total returns to shareholders.”

The spin-off will be effected through a pro rata special distribution to Simon shareholders expected to be completed in the second quarter of 2014.

Simon operates more than 325 retail properties in North America and Asia with about 242 million square feet of space.