With outlets tracking better than other store sectors, Simon Property Group Inc. has seized the moment.

This story first appeared in the December 9, 2009 issue of WWD. Subscribe Today.

The nation’s largest developer on Tuesday revealed a definitive agreement to buy Prime Outlets in a deal valued at about $2.33 billion, including the assumption of Prime’s debt and preferred stock. Under the agreement, Simon will pay $700 million for the owners’ interests in Prime Outlets, comprised of 80 percent cash and 20 percent in SPG common operating partnership units.

The acquisitive Simon Properties has also been said to be considering a bid for some assets of General Growth Properties Inc.

For major developers, growth through acquisitions is increasingly important considering the country’s already filled with too many shopping centers leaving little opportunity or reason to build new ones and funding new projects in the tough economy is also challenging.

Prime Outlets has 22 centers in major metropolitan markets such as Washington, Baltimore and San Antonio and in tourist destinations like Orlando and Williamsburg, Va.

Simon in 2004 bought Chelsea Property Group Inc., a deal valued at $3.5 billion, establishing the developer as a major outlet player with such properties as Woodbury Common in Central Valley, N.Y., and Wrentham Village in Wrentham, Mass. With the acquisition of Prime, Simon’s outlet business grows to 63 centers with 25 million square feet of space. The deal is expected to be finalized by the end of the first quarter.

“There are obvious synergies through Chelsea, which tends to offer premium, higher-end brands and designers,” said Laura Pomerantz, a principal at PBS Realty Advisors. “There might be opportunities to upgrade some of the Prime properties to reflect Chelsea’s orientation, but when combining both in its portfolio, Simon is going to have to strike a balance with national, aspirational and luxury brands.”

Simon, which, in 2007, also took control of the bankrupt Mills Corp., owns or has an interest in 385 properties comprising 263 million square feet in North America, Europe and Asia. Simon’s main business is in regional shopping centers.

“Prime Outlets is an excellent opportunity for Simon as it represents a strong strategic fit for our existing Premium Outlet portfolio and enhances our leadership position in the outlet business,” said David Simon, chairman and chief executive officer of Simon Properties.

Prime Outlets all bear the name of the city where they are located, such as Prime Outlets Orlando, which is the largest of the group with 773,368 square feet. The smallest is Prime Outlets Naples, in Naples, Fla., with 145,966 square feet.

Simon’s sales productivity and occupancy rates have declined somewhat over the past year, with regional malls faring worse than outlet centers.

Premium Outlets at the end of the third quarter of 2009 were 97.5 percent occupied and generated sales per square foot of $492. In the third quarter of 2008, they were 98.8 percent occupied and were generating $515 a foot.

Simon’s regional malls were 91.4 percent occupied and generated sales of $438 a square foot at the end of the third quarter of 2009, versus being 92.5 percent occupied and generating sales of $493 a square foot in the same period the year before.

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