Simon Property Group Goes on $3.5B Spending Spree

By Gail Kalinoski, Contributing Editor

Opry Mills in Nashville, among the properties in the transaction

Simon Property Group, the largest real estate company in the United States, went on a $3.5 billion shopping spree Thursday by acquiring a stake in Klepierre, a major European retail and office player, and buying out its joint venture partner in The Mills U.S. shopping center properties.

SPG agreed to buy a 28.7 percent equity stake in Klepierre, a Paris-based real estate company that owns, manages and develops retail and office properties in Europe, from BNP Paribas for approximately $2 billion, or 28 euros a share. The transaction is expected to close next week and SPG said it doesn’t have any current intentions to buy additional shares.

The Indianapolis-based company also announced a definitive agreement with its joint-venture partner, Farallon Capital Management L.L.C., to buy its stake in 26 assets of The Mills Limited Partnership for $1.5 billion. The transaction includes repayment of The Mills senior loan facility and mezzanine loan as well as the retirement of preferred stock. The deal comes nearly five years after SPG and Farallon bought the retail assets of The Mills, a troubled mall-and-shopping-center owner.

Soon after announcing the acquisitions, SPG said it would offer 7 million shares of common stock and three new series of senior unsecured notes with an aggregate principle amount of $1.5 billion to help pay for the deals.

“Both of these transactions represent attractive growth opportunities for SPG,” said David Simon, chairman & CEO. “They significantly bolster SPG’s footprint and advance the strategy of investing in high-quality retail real estate and increasing our presence in growing markets domestically and around the world.”

He said both transactions would immediately add to SPG’s funds from operations. As of Dec. 31, 2011, FFO was $2.4 billion or $6.89 per diluted share compared to $1.7 billion or $5.03 per diluted share at the end of 2010, according to SPG’s year-end filing with the U.S. Securities and Exchange Commission.

As part of the Klepierre deal, Simon will become the chairman of Klepierre’s nine-member board. Two other SPG representatives will also join the board.

The Klepierre portfolio includes 271 shopping centers in 13 countries with 50 percent in France and Belgium, 25 percent in Scandinavia and the rest in central and southern Europe. The acquisition marks SPG’s return to Europe but not the first time it wanted to invest there. It had recently sold 49 percent interest in Gallerie Commerciali Italia. In December 2010, Commercial Property Executive reported that the company was thwarted in its attempt to acquire Capital Shopping Centres Group PLC, the United Kingdom’s largest shopping center REIT, for approximately $4.6 billion. CSC’s board turned down the proposal.

“The investment in Klepierre represents an attractive opportunity for SPG as we seek to broaden our global footprint,” Simon said.

While the European assets will be new to SPG, the company is very familiar with The Mills properties because it has been managing them since the joint venture was finalized in April 2007. Properties include Potomac Mills in the Washington, D.C., metro area; Opry Mills in Nashville, Tenn.; Katy Mills outside Houston and Arizona Mills in Tempe, Ariz.

“The Mills transaction is a compelling opportunity for SPG to expand our investment in a portfolio of assets we know well and already manage, which are well-located in key metropolitan markets, have considerable consumer brand equity and large trade area and generate significant cash flow and total sales volumes,” Simon said.