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| David Simon, Chairman & CEO of Simon Property Group |
The country's largest retail REIT, Simon Property Group (NYSE:
SPG), is considering a bid for its bankrupt competitor, General Growth Properties.
Simon media representative, Les Morris, confirmed for CoStar Group this morning that Simon hired investment advisory firm, Lazard Ltd and Wachtell, Lipton, Rosen & Katz, a law firm that specializes in mergers and acquisitions. Indianapolis-based Simon declined to comment further. According to the Wall Street Journal (WSJ), the firms have been hired to help Simon explore its options in bidding on all or part of Chicago-based General Growth.
General Growth is currently working on a plan to reorganize and exit from bankruptcy. The REIT is reportedly close to reaching agreements with its lenders to restructure $11.5 billion in debt and intends to file a reorganization plan with the bankruptcy court by February.
Updated Nov. 19, 2009:
General Growth announced that it reached agreements in principle to restructure $8.9 billion of its secured mortgage loans. The troubled REIT negotiated maturity date extensions averaging 6.4 years from January 1, 2010, with no loan maturing earlier than January 2014. The weighted average contract interest rate for the 70 loans covered by these agreements is 5.35% and the all-in-interest rate, after amortization of fees paid in connection with these loans, is 5.54%.
General Growth president and COO, Thomas Nolan said these agreements "provide a basis for consensually completing a restructuring of the remaining $6 billion of secured mortgage loans." The company is hopes this announcement will set a precedent to help move forward to successful negotiations with its other lenders.
Simon's Chairman and CEO, David Simon, told financial analysts on August 4th that his company would not be likely to co-invest with another REIT, but "may buy another REIT." Later in the call, Simon described the possibility of buying a REIT, such as General Growth, as "interesting" and said any strategic decisions would be "evaluated appropriately," keeping in mind that the company wants to maintain the "strongest balance sheet" in the industry.
On October 30, Steve Sterrett, Simon's CFO, told analysts, "We’ve got $4 billion in cash that we’re sitting on today," but added the company does not have a "ready use for the proceeds."
In that same call, David Simon said the company was evaluating a number of domestic acquisition opportunities that wouldn't close until 2010. When asked to get specific on dollar volume of acquisitions Simon was considering, he declined to comment and simply said, "We are in a riskier world and would expect to achieve higher returns if we deploy capital."
On April 16, 2009, General Growth, announced that the company, as well as 158 of its 200 malls, filed for Chapter 11 bankruptcy protection. The company listed $29.6 billion in assets and $27.3 billion in liabilities in its filing.
Simon is no stranger to the challenge of integrating huge portfolios of malls into its own platform. On April 3, 2007, Simon, with partner Farallon Capital, acquired The Mills Corporation for $25.25 per share of common stock, or approximately $1.64 billion. The Mills portfolio included several underperforming malls, which Simon continues to work on bringing up to snuff.
The Mills acquisition involved 20 regional malls and 17 other shopping center assets -- a potential acquisition of General Growth would dwarf this transaction.
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