The Deal: Simon Jumps on Spin-off of Small Malls to REIT

NEW YORK (TheStreet) -- Mall owner Simon Property Group  (SPG) was rising Friday following an announcement of plans to spin off a collection of strip malls and small malls into a new, publicly-traded real estate investment trust. Shares were jumping 3.1% to $152.05 in mid-day trading.

Indianapolis-based Simon said that the yet-to-be-named new company is expected to initially own or have an interest in 54 strip centers and 44 malls, with the malls to be included each generating no more than about $10 million in annual net operating income. The combination's total annual net operating income is expected to be more than $400 million in its first year.

The new company would boast 53 million total square feet spread over 23 states, with occupancy rates above 90%.

Simon said that the new company would have a dedicated management team and conservative balance sheet, leaving it well-positioned to make deals or consider new developments. Post-spin the parent, which currently owns or has an interest in more than 325 retail properties in North America and Asia, will focus on its portfolio of larger malls and outlets.

Simon chairman and CEO David Simon in a statement said that he believes the spinoff "will unlock the potential of the strip centers and malls" while boosting returns to shareholders. The company said it expects Simon to maintain its current annualized dividend of $4.80 per share, with the spinoff initially paying a dividend of at least $0.50 per share.

"We believe we are creating a new company that has both a strong Simon heritage and all of the requisite tools to grow its business and succeed," Simon said. "At the same time, this transaction allows Simon to focus on our global portfolio of larger malls, Mills and Premium Outlets while maintaining our considerable scale and conservative leverage profile."

Shares of Simon Property traded up nearly 4% in the premarket.

Post-split, both David Simon and Richard Sokolov, Simon Property's president and chief operating officer, will join the new company's board, with Sokolov serving as chairman. The spinoff will also continue to receive property management services from Simon and other transitional services. The spinoff is expected to occur in the first half of 2014.

Bank of America Merrill Lynch and Goldman, Sachs & Co. are serving as financial advisers to Simon Property on the split, with Wachtell, Lipton, Rosen & Katz providing legal advice.

--By Lou Whiteman in Atlanta.

More from Mergers and Acquisitions

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

AT&T-Time Warner Ruling Could Usher in More Healthcare Deals

AT&T-Time Warner Ruling Could Usher in More Healthcare Deals

Dropbox Soars in Third-Straight Record-Setting Session

Dropbox Soars in Third-Straight Record-Setting Session

Decision on AT&T's Merger With Time Warner Marks a Monumental Week for M&A

Decision on AT&T's Merger With Time Warner Marks a Monumental Week for M&A

JPM's Head of North America M&A Wants to Super-Charge M&A and Hire More Women

JPM's Head of North America M&A Wants to Super-Charge M&A and Hire More Women