Indianapolis, Indiana-based leading retail real estate investment trust (REIT), Simon Property Group, Inc. (SPG - Analyst Report) recently formed a joint venture (JV) with Institutional Mall Investors (IMI) to own and operate two properties – Woodfield Mall in Illinois and The Shops at Mission Viejo in California. IMI is an investment venture owned by an affiliate of Miller Capital Advisory Inc. (MCA) and The California Public Employees' Retirement System (CalPERS).
As per the deal, Simon Property and IMI each will hold 50% stake in Woodfield Mall and 51% and 49% in The Shops at Mission Viejo, respectively. Both the companies will manage and lease the two properties. As a matter of fact, Simon Property owned full ownership of Mission Viejo-based Mall and IMI has 100% stake in the Woodfield Mall.
The new JV is an expansion of a previous alliance between Simon and IMI. The companies also jointly own several posh shopping malls across the U.S. – The Galleria in Houston, The Fashion Centre at Pentagon City in Virginia and The Westchester in New York.
Woodfield Mall, a 2.2 million square feet shopping center, is positioned in the northwest Chicago suburb of Schaumburg. It is the largest shopping center in Illinois and one of the largest shopping malls in the United States. It also shelters around 300 stores and restaurants. The property is currently burdened with a mortgage loan worth $425 million, having a 4.5% interest rate.
The Shops at Mission Viejo, an upscale mall spanning 1.2 million square feet, is located in Mission Viejo, California. The mall anchors around 150 stores and restaurants and is South Orange County's main shopping destination. The property is currently mortgage free, but the JV plans to place a mortgage on the property in the coming weeks.
Both the malls boast a class of industry-leading tenants such as Apple Inc. (AAPL - Analyst Report) , J. C. Penney Company, Inc. (JCP - Analyst Report) , Macy's, Inc. (M - Analyst Report) and Nordstrom Inc. (JWN - Analyst Report) .
With the abovementioned acquisitions, Simon Property aims to capitalize on the strong growth opportunities in the Illinois and California markets. The upscale shopping malls are expected to bring high-quality retail options for consumers and positively impact the marketplace. Consequently, the company expects the transaction to be accretive to its earnings going forward.
Lately, Simon property has been riding on growth trajectory through acquisition of upscale properties in the key U.S. markets. Last month, the company acquired two upscale outlet centers in Grand Prairie, Texas and Livermore, California from an unnamed seller for an undisclosed amount. Prior to that, Simon property inked a JV with Tanger Factory Outlet Centers Inc, (SKT - Snapshot Report) to develop two upscale outlet centers in Charlotte, North Carolina and Columbus, Ohio. Both the parties would hold an equal stake in the properties, which are expected to open in 2014.
Simon Property has scheduled the release of its fourth-quarter 2012 results on February 4, 2013. The Zacks Consensus Estimate for the fourth quarter FFO (fund from operations) is currently pegged at $2.16 per share.
Simon Property currently has a Zacks #2 Rank (implying a short-term Buy rating). Also, we maintain our long-term ‘Outperform’ recommendation on the stock.
Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.