Simon will spin strip center holdings off into a separate REIT
Simon Property Group has announced a plan to spin off all of its strip center business and smaller enclosed malls into an independent, publicly traded REIT, temporarily to be called SpinCo.
SpinCo is expected to initially own or have an interest in 54 strip centers and 44 malls (each of the malls generating annual net operating income of approximately $10 million or less.) SpinCo’s initial-year NOI is estimated to be in excess of $400 million and its initial-year funds from operations is estimated to be approximately $300 million, which is approximately $0.80 per share. SpinCo will operate 53 million total square feet of retail in 23 states. Occupancy of SpinCo's strip centers and malls is 94.2 percent and 90.4 percemt, respectively, as of September 30.
The new company will have an independent, dedicated executive management team. Richard Sokolov, Simon's president and COO and member of its board of directors, will also become chairman of the board of directors of SpinCo, and David Simon, chairman and CEO of Simon, will also serve as a director of SpinCo. Simon’s strip center management team and personnel will become employees of SpinCo, SpinCo's malls will continue to receive property management services from Simon, and SpinCo's support functions will be provided by Simon on a transitional basis.
The spin-off will result in higher sales per square foot, NOI growth and occupancy for Simon. “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,” said David Simon, in a press release. “At the same time, this transaction allows Simon to focus on our global portfolio of larger malls, Mills and Premium Outlets, while maintaining our considerable scale and conservative leverage profile."
The spin-off will be effected through a pro rata special distribution to Simon shareholders. Simon Property Group’s limited partnership unitholders will receive units of SpinCo’s operating partnership subsidiary. The initial Form 10 information statement relating to the spin-off is intended to be filed with the U.S. Securities and Exchange Commission before the end of 2013, and the distribution is expected to be completed in the second quarter of 2014.