Simon Property makes 2 real estate deals for $3.5B

03/08/2012 5:00 AM

03/08/2012 9:36 AM

Simon Property Group Inc. is buying a minority stake in Paris-based real estate company Klpierre from BNP Paribas for about $2 billion in a move to expand its geographic reach.

The largest mall operator in the U.S. is also purchasing joint venture partner Farallon Capital Management LLC’s interest in 26 U.S. shopping malls owned by The Mills LP for $1.5 billion.

Both deals announced Thursday are expected to immediately add to Simon Property’s funds from operations, a key measure of strength in the real estate industry.

Simon Property said that it will pay $37.04 per share for about 54.4 million shares of Klpierre, which will make it Klpierre’s biggest shareholder. Simon Property currently has no plans to buy additional shares of Klpierre.

Klpierre focuses on owning, managing and developing shopping centers, retail properties and offices in Europe.

Simon Property Chairman and CEO David Simon will become Klpierre’s chairman and two additional executives from the company will be added to Klpierre’s board.

The Klpierre deal is expected to close next week.

The deal with Farallon includes repayment of The Mills’ senior loan facility and mezzanine loan and the retirement of preferred stock.

“The Mills transaction is a compelling opportunity for Simon Property 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 areas, and generate significant cash flow and total sales volumes,” Simon said in a statement.

Taking both transactions into account, Simon Property is now raising its 2012 funds from operations outlook above Wall Street’s expectations. Funds from operations, or FFO, adds such items as amortization and depreciation to net income.

The Indianapolis company now expects FFO in a range of $7.35 to $7.50 per share, up from a previous forecast of $7.20 to $7.30 per share. Funds from operations, or FFO, adds such items as amortization and depreciation to net income.

Analysts surveyed by FactSet predict FFO of $7.31 per share.

Last month Simon Property reported that its fourth-quarter FFO climbed as higher rents helped revenue and occupancy rates improved.

Simon Property also announced on Thursday that it plans to offer 7 million shares of its common stock. It expects to give the underwriters an option to buy an additional 1.1 million shares to cover any excess demand. In addition, Simon Property Group LP, a majority-owned operating partnership subsidiary, plans to offer $1.5 billion of senior unsecured notes.

The company plans to use the offerings’ net proceeds to help pay for the Klpierre and Farallon transactions.

Simon Property currently has an interest in 337 retail real estate properties in North America and Asia. It owns Towne East and Towne West malls in Wichita.

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