Simon Property to acquire Prime Outlet malls, $2.3 billion deal includes assumption of debt

Simon Property to buy Prime Outlets

INDIANAPOLIS — Simon Property Group Inc. said Tuesday it will buy the outlet shopping centers owned by Prime Outlets Acquisition Co., solidifying its position as the nation’s largest public real estate company.

The $2.3 billion deal includes assumption of Prime Outlets’ debt and preferred stock.

Prime Outlets, based in Baltimore, owns, manages, operates and develops 22 outlet centers in major metropolitan areas including Washington and Orlando, Fla.

Once the deal is completed, Simon will have 63 outlet centers with about 25 million square feet.

Simon also owns regional malls and other assets. At the end of the third quarter, the company owned 387 properties with 262 million square feet, including sites in Europe and China.

Simon Property shares rose 93 cents to $74.83 in morning trading.

Under the terms of the agreement, Simon will pay about $700 million for the owners’ interests in Prime Outlets, comprising 80 percent of existing cash on hand and 20 percent in Simon common operating partnership units. The price will be based on a 10-day trading average of Simon common stock shortly before closing.

Simon expects the transaction to add immediately to its funds from operations, a widely used gauge of real estate operating performance.

In October, Simon reported funds from operations improved in the third quarter on lower expenses but occupancy at regional malls and premium outlets slipped about 1 percent.

The company tried to make up some of lost revenue by charging more rent per square foot.

Funds from operations grew to $473.1 million, or $1.38 per share, from $463.9 million, or $1.61 per share, during the same period a year ago. FFO adds depreciation and amortization expenses, as well as other non-operating items, back to net income. Analysts polled by Thomson Reuters had expected $1.32 per share.

Meanwhile, net income declined 7 percent to $105.5 million, or 38 cents per share.

Simon then boosted the low end of its full-year FFO forecast, to a range of $5.40 to $5.50 per share, up from earlier estimates of $5.35 to $5.50 per share. Analysts predict 2009 FFO of $5.43 per share.