Outlet mall to get new owner

By Danielle Kost and Daniel Taub
Bloomberg News Service

Simon Property Group Inc., the world's largest manager of shopping malls, agreed to buy Chelsea Property Group Inc., the owner of Waikele Premium Outlets. Chelsea also owns 34 other factory outlet shopping centers in the United States and Japan. Advertiser library photo

Simon Property Group Inc., the world's largest manager of shopping malls, agreed to buy Chelsea Property Group Inc., the owner of 35 factory-outlet shopping centers in the United States and Japan, for about $3.5 billion in cash and stock.

Simon, based in Indianapolis, will pay $66 a share for Chelsea, a 13 percent premium to the closing stock price of $58.24 on Friday. Simon also will assume debt that totaled $1.3 billion as of March 31, the company said in a statement.

The purchase is Simon's second-largest ever and gives the company a toehold in Asia. Chelsea has four properties in Japan that generate average sales of more than $800 per square foot — almost double the rate of its U.S. locations. Simon plans to use Japan as a platform to expand in Asia, Chief Operating Officer Richard Sokolov, 54, said in an interview.

"The Pacific Rim holds a great deal of opportunity," he said. "There's a substantial amount of demand."

Simon plans to raise the rents at Chelsea's properties as leases come up for renewal, Sokolov said. Simon tenants typically pay 12 percent of sales toward rent, compared with 8 percent for Chelsea, he said.

Shares of Simon fell 32 cents to $51.98 on the New York Stock Exchange. The stock has gained 34 percent during the past 12 months, while shares of Chelsea have risen 59 percent. Chelsea of Roseland, N.J., increased $7.01, or 12 percent, to $65.25 today.

Simon owns or manages 247 malls and shopping centers in North America with 197 million square feet of space, including the Mall of America in Bloomington, Minn., the nation's largest shopping mall, and the Forum Shops at Caesars in Las Vegas. The company also has interests in 48 properties in European countries including France and Italy.

Chelsea's 31 U.S. outlets lease space to retailers including Coach Inc. and Brooks Brothers, in cities such as New York, Boston, Las Vegas and Los Angeles. Sokolov said there is little overlap in the companies' tenants, which at Chelsea's properties include Coach Inc., Polo Ralph Lauren Corp. and Prada Holding NV. Simon has been involved in joint ventures with Chelsea for five years for locations in Orlando, Fla.; Las Vegas; and a suburb near Chicago, he said.

The Waikele Premium Outlets mall has about 30 tenants, including Tommy Hilfiger, Brooks Brothers, Barneys and Banana Republic. The owner of Waikele Center, which is across the street from the Waikele Premium Outlets mall and includes Lowe's and Borders Books, is also looking for a buyer. Jamestown, a giant Atlanta-based real-estate investment and management firm, retained Mainland broker Eastdil Realty to market the complex.

Chelsea's real-estate assets include the Woodbury Common Premium Outlets, near New York City, and the Desert Hills Premium Outlets, near Palm Springs, Calif. The company's U.S. centers were 98 percent occupied and generated sales per square foot of $404 as of March 31. Last year, Japan contributed 6 percent of Chelsea's net operating income. Chelsea owns 40 percent stakes in the Japanese malls along with its Japanese venture partners.

The companies expect the purchase to close around the end of October. The purchase agreement includes a breakup fee clause. If Chelsea were to accept a takeover offer from another company before the transaction is completed, Chelsea would have to pay Simon $110 million, Simon spokesman Les Morris said.