![]() Says Green Street's Sullivan: "I think you'll see him buying assets in the next year or two at prices that we'll later look back at and call laughably low."įor Peter Slatin's column on REITs, see his column. What says Simon about making a bid? No comment on specific properties, but he emphasizes that he aims to buy "the highest-quality real estate that adds to our franchise value." These days they might go for two-thirds of that. With sales in excess of $1,000 per square foot, they were once thought to be worth almost $3 billion combined. Now that traditional shopping malls are trading for less than half the enterprise multiples that Simon shunned in 2004, General Growth is desperately seeking to sell three of its most valuable properties, which are all in Las Vegas. Outlet malls account for more than $600 million of Simon's Ebitda. In contrast, Simon's Chelsea buy looks like a master stroke. The debt General Growth incurred to swing its deal is partly what threatens to sink it. Weeks later General Growth paid 19 times Ebitda for shopping mall developer Rouse Co. That was just over half the enterprise multiple that big traditional shopping malls were fetching at the time. Simon's price (including debt assumed) was 12 times Chelsea's net operating income-essentially, earnings before interest, taxes, depreciation and amortization. Simon noted that Chelsea often managed to circumvent the problem by opening outlets in refurbished commercial spaces where nearby land was scarce and zoning restrictions onerous. The knock on outlets at the time was that no sooner would one open on the outskirts of some metropolis than a rival would build a few miles away and cannibalize its business. , an owner and developer of outlet malls, which were out of favor among real estate investors. Having unloaded the glitzy property for far more than his expected price, Simon went on to turn the two dozen shopping malls that came along with it into a highly profitable piece of his retail empire.īy 2004 Simon was growing wary of rising shopping mall prices, and shifted gears. ![]() He outbid a host of other prospective buyers, acquired Corporate Property Investors for $5 billion in 1998 and quickly flipped its most famous landmark, the gm Building on Manhattan's Fifth Avenue, for $800 million to Donald Trump and insurer Simon, 47, owes his good fortune not only to his conservative midwestern streak but also to skills honed as a relentless opportunist. "Simon appears to be among the best equipped to emerge unscathed." "This is an unfriendly credit market and what looks like a 100-year for consumer spending," says Green Street Advisors analyst James Sullivan. As General Growth and the other highly leveraged mall owners struggle to survive, Simon may thrive by picking up some of their assets on the cheap. At that level, bankers and bond investors are still willing to lend Simon money. Thus Simon's $24 billion debt load represents a loan-to-value ratio of just 58%. "Dealing with that environment created a certain level of prudence around here." "When I came to Indianapolis, the real estate business was a basket case," he recalls. Simon, who left a job with New York investment bank Wasserstein Perella in 1990 to go to work for his family's company, retains a healthy fear of how high leverage ruined commercial property owners during the last bust. Chairman John Bucksbaum is struggling to avert a bankruptcy filing. Its stock has tumbled from $65 two years ago to 52 cents recently. General Growth is desperate to roll over $3 billion in debt but has been able to get banks to extend it credit for only a few weeks at a time. Pennsylvania Real Estate Investment TrustĮach are laboring under debts equal to 80% to 90% of the value of their properties. What makes Simon a standout is not that its day-to-day operations are that much more profitable than those if its rivals. "We were up 8.8% last year, and that was after we took writedowns for developments we shut down." He expects earnings per share to reach at least the same level in 2009 as last year. "Look at the earnings power of this company," says Simon in his office across from the state capitol in downtown Indianapolis. The 12% of the namesake firm owned by David Simon, his father and his uncle, the company's founders, has lost $2.9 billion in value. The REIT's stock, at $36, is scarcely a third of what it was two years ago. This year Simon Properties' adjusted funds from operations (net income plus amortization and depreciation in excess of necessary fix-ups) are likely to only inch ahead from 2008's $5 a share. The value of Simon's 386 properties-large shopping malls plus a few dozen outlet centers-has fallen 30% over the past two years to a recent $42 billion. ![]() consumers to the endangered species list poses problems. ![]()
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