Simon DeBartolo, Macerich to buy 12 malls Firms form joint venture for $974.5 million buy from IBM pension fund

Commercial real estate

December 30, 1997|By BLOOMBERG NEWS

INDIANAPOLIS -- Simon DeBartolo Group Inc. and Macerich Co. said yesterday that they agreed to buy 12 malls from an International Business Machine Corp. pension fund for $974.5 million, highlighting the mall industry's consolidation.

Indianapolis-based Simon DeBartolo, the nation's largest real estate company, and Santa Monica, Calif.-based Macerich formed a 50-50 joint venture to buy the properties, which are located in eight states from South Dakota to Florida. The purchase price includes the assumption of $485 million of debt.

The collection of malls is the second Simon DeBartolo has bought in three months and is likely to accelerate a trend that is putting the bulk of the nation's malls into the hands of a few of the biggest operators.

"In 1998, more malls will probably change hands than have ever changed hands before," said Jim Sullivan, a real estate analyst at Prudential Securities.

Simon DeBartolo is the industry's most active buyer of malls. This year, it has bought or agreed to buy about $1.9 billion worth of mall properties, including the $1.2 billion hostile takeover of closely held Retail Property Trust in September and its half stake in the IBM properties.

"This transaction adds still another solid collection of strong performing assets to the [Simon DeBartolo] portfolio and reinforces our role as the industry's leading consolidator," said Chief Executive David Simon.

Simon DeBartolo's shares closed up 25 cents at $31.875. Macerich's shares rose 25 cents to close at $28.0625.

The malls contain 10.7 million square feet of space. The largest are the Empire Mall in Sioux Falls, S.D.; Eastland Mall in Evansville, Ind.; and NorthPark Mall in Davenport, Iowa. The properties are 89 percent occupied and generate retail sales of more than $260 a square foot, above the industry average of about $200 per square foot.

The rest of the malls are Granite Run Mall in Media, Pa.; SouthPark Mall in Moline, Ill.; SouthRidge Mall in Des Moines, Iowa; Mesa Mall in Grand Junction, Colo.; Rushmore Mall in Rapid City, S.D.; Southern Hills Mall in Sioux City, Iowa; Lindale Mall in Cedar Rapids, Iowa; Lake Square Mall in Leesburg, Fla.; and Valley Mall in Harrisonburg, Va.

Simon DeBartolo will be responsible for managing the six malls located in the eastern and central states, and Macerich will take over management of the rest.

Simon DeBartolo owns or has a stake in 200 malls and shopping centers in 34 states. Macerich owns 26 malls and three shopping centers.

Pension fund real estate adviser ERE Yarmouth managed the investment for IBM, which decided to put the malls up for sale in June.

Many of the biggest sellers of mall properties are pension funds, who can't compete with publicly traded mall owners who have a lower cost of capital and the access to cash to reinvest in their properties and ride out the current wave of sluggish retail sales.

"The combination of Macerich, with its strength in the west, and [Simon DeBartolo], with its size and unique presence in the Midwest and East, creates a powerful partnership which we expect to gain operating synergies and maximize results from these already dominant properties," said Arthur Coppola, president and chief executive of Macerich.

The transaction has been approved by each company's board and is expected to close in February. The return from the investment in the first year of ownership is expected to be in excess of 9 percent, the companies said.

Pub Date: 12/30/97

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