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Simon, Pa. REIT Plan Mall Buy

The companies are buying a suburban Philadelphia property anchored by Macy's.
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Pennsylvania Real Estate (PEI) - Get Pennsylvania Real Estate Investment Trust Report and Simon Property (SPG) - Get Simon Property Group Inc. Report agreed to jointly acquire Springfield Mall in Springfield, Pa., for $103.5 million.

Springfield Mall is a 590,000-square-foot regional mall 10 miles southwest of Philadelphia. The mall is anchored by Macy's and Strawbridge's and has more than 70 in-line tenants, including Ann Taylor Loft, Build-A-Bear, Carrabba's, Charlotte Russe, Gap/Gap Kids, Ruby Tuesday and Yankee Candle.

Macy's and Strawbridge's own their own buildings and associated parking. Federated Department Stores, Inc. has announced that it plans to close the Strawbridge's store in this mall. The Springfield Mall trade area is geographically compact but densely populated, and has an affluent nearby household base surrounded by predominantly middle income areas. There is a relatively low ratio of shopping center space per capita, and many specialty/lifestyle retailers are absent from the trade area, the real estate firms said.

The transaction is expected to be completed in the fourth quarter of 2005. The buyers expect to obtain a mortgage to finance up to approximately 75% of the costs of the acquisition. The buyers each expect to fund the rest of the purchase price using their unsecured revolving credit facilities.

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As of June 30, the mall's in-line occupancy was reported to be 95% and sales per square foot for the trailing 12 months were reported to be approximately $370. The buyers underwrote the acquisition to generate an unleveraged return of approximately 7.1% on the purchase price and estimated closing costs, based on anticipated 2006 operating income.

On Monday, Pennsylvania REIT fell 62 cents to $42.52, and Simon dropped 71 cents to $74.40.