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Simon says: Buy more malls
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February 19, 1998: 1:41 p.m. ET
Mall giant Simon DeBartolo Group buying Corporate Property for $5.8B
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NEW YORK (CNNfn) - The acquisitive mall developer Simon DeBartolo Group Inc. said Thursday it has agreed to buy privately-held Corporate Property Investors for $5.8 billion in cash, stock and assumed debt.
Indianapolis-based Simon DeBartolo is the nation's largest mall owner, with properties such as the Mall of America in Minnesota and Forum Shops in Las Vegas.
Simon DeBartolo, which said a majority of CPI shareholders already have approved the offer, expects to close the deal in the third quarter. Its shares (SPG) fell 5/8 to 33 after being halted pending the news.
"We are extremely excited to combine CPI with our company," said David Simon, chief executive officer at Simon. "It is the country's most productive aggregation of retail real estate assets." The purchase, expected to create one of the largest REITs in the country, is the latest in a recent wave of consolidation in real estate and is particularly attractive because of CPI's tax status.
The so-called "paired-share" structure allows the real estate investment trust, or REIT, to be taxed like a partnership but still branch out to other businesses.
The arrangement has drawn the scrutiny of government officials after one such company, Starwood Lodging, recently bought hotel and casino operator ITT Corp. for $10.2 billion.
In the agreement, Simon will receive CPI's Corporate Realty Consultants affiliate, while CPI shareholders will receive $179 per share, or $4.8 billion.
That consists of $90 in cash, $70 of common stock and $19 in convertible preferred stock.
The capitalization rate -- or the yield on an acquisition -- is low at 7 to 7 ½ percent, one analyst said.
"These are great assets, but I'm concerned about the pricing," said Jonathan Litt, a real estate analyst at PaineWebber. "That's a low cap rate."
However, Litt said Simon may be able to milk greater value out of the deal by rolling the CPI malls into its branding ventures, which include "branding" of the malls by large corporations.
CPI owns the General Motors Building in New York and about two dozen malls, five each in Atlanta and the New York-New Jersey areas.
Last December, Simon DeBartolo teamed up with the Macerich Co. to buy 12 U.S. malls from Australia's ERE Yarmouth in a $974.5 million deal, plus $485 million in debt.
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