New York â€”Three of the biggest players in retail real estate plan to jointly acquire the North American assets of Netherlands-based real estate giant Rodamco for $5.3 billion. The deal, which caps a months-long power struggle for control of Rodamco North America, includes 35 shopping malls and other assets.
Officials at Westfield America, Simon Property Group and The Rouse Co. announced the mutual agreement Jan. 13. They said the boards of directors for all the companies had approved the plan, which is expected to close in 90 days pending shareholder and regulatory approvals. Westfield will get 43% of the assets, Simon approximately 30% and Rouse approximately 27%.
The mall assets of Rodamco North America generate industry-leading sales of more than $450 per sq. ft. and are 93% occupied. The portfolio contains prominent assets such as Century City Shopping Center in Los Angeles; Copley Place in Boston; The Galleria in Houston; Garden State Plaza in suburban New Jersey; Oakbrook Center in Chicago; and Perimeter Mall in Atlanta.
Under the plan, Simon, Rouse and Westfield will acquire the remaining ownership interests in their respective joint ventures with Rodamco. Simon and Rouse each own four of the portfolio assets in joint ventures with Rodamco. Westfield owns one.
Westfield will gain 14 centers, Simon will acquire 13 and Rouse will acquire eight. The balance of the regional mall portfolio was allocated based upon the market presence of the three companies and other strategic considerations, according to the companies.
The remaining assets in the portfolio, which include a third-party property management company, a New York office building and investments in three real estate operating companies, will be jointly owned by Rouse, Simon and Westfield.
The three companies will jointly operate that third-party management company, Urban Retail Properties Inc. "They have a leading market position in third-party management of shopping centers," Anthony W. Deering, chairman and CEO of Rouse, said. "I think they have a unique set of skills and a highly qualified organization to build a future for that company and its strategy."
Westfield's share of the gross value of the transaction is approximately $2.3 billion, including $936 million of existing Rodamco property debt and perpetual preferred stock. Simon's share of the deal is approximately $1.55 billion, including $570 million of debt and preferred stock. The Rouse Co.'s share is approximately $1.45 billion, including $675 million of debt and stock.
In a report examining the deal, Salomon Smith Barney analysts Jonathan Litt and Ross Nussbaum declare the transaction "a win-win for all parties." "We are not surprised to see a deal involving all three companies given that each already owned Rodamco assets or shares," Litt and Nussbaum wrote.
The analysts note that the move helps Simon protect its position while giving Westfield and Rouse the opportunity to strengthen their respective positions in California and Chicago. "Our initial reaction is that the distribution of the assets was equitable," Litt and Nussbaum report.
By acquiring three Rodamco properties in the Boston area â€” Copley Place, The Mall at Chestnut Hill and Pheasant Lane Mall â€” Simon significantly beefed-up its presence in that market. In terms of FFO contribution, Boston will likely become the No. 1 market for Simon. It represented the REIT's No. 3 market prior to the transaction, according to Litt and Nussbaum.
Westfield added several malls to its California portfolio, including Century City, Galleria at Roseville and Mainplace. Rouse added two dominant Chicago malls, Oakbrook Center and Water Tower Place, and also gained 100% ownership of Perimeter Mall in Atlanta and Willowbrook in New Jersey.
Background of the deal
Rodamco North America (RNA) formed two years ago after its parent company, the Dutch global investment firm Rodamco, split into several component parts.
The independently managed RNA entered into a number of joint ventures with American developers, including The Rouse Co. and Simon Property Group.
About 18 months ago, RNA acquired Urban Shopping Centers of Chicago. Then, in August 2001, Westfield America acquired a 25% stake in the public stock of RNN.
Over the following months there were several legal actions and counteractions between Rodamco and Westfield. Westfield sought to take control of 100% of Rodamco by buying a 25% to 30% shareholding, while Rodamco fought that strategy.
Rodamco "eventually hired advisors and entertained a number of parties that might be interested in acquiring the whole company," Deering explained. "The Rouse Company and the Simon company joined together early in that process and decided to work together and over the succeeding September, October and November negotiated a transaction with Rodamco and its advisors."
The companies had essentially made an agreement but soon "realized a deal couldn't be made without the cooperation of Westfield," because of Westfield's 25% stake in Rodamco.
The companies worked out a blueprint for the announced acquisition at a meeting in Indianapolis on December 21, Deering explained. He noted that Westfield and Rouse joined together three years ago to buy the shopping center portfolio of TrizecHahn. "That ended up being a good model to follow in this transaction," Deering said.
Below is a summary of the properties acquired by the three companies:
Properties to be acquired by Westfield America Trust:
Century City Shopping Center
Los Angeles, Calif.
Citrus Park Town Center
Fox Valley Center
Franklin Park Mall
Galleria at Roseville
Garden State Plaza
Great Northern Mall
North Olmsted, Ohio
Vernon Hills, Ill.
Santa Ana, Calif.
Old Orchard Center
San Francisco Shopping Centre
San Francisco, Calif.
Valencia Town Center
Properties to be acquired by Simon Property Group:
Coral Square Mall
Coral Springs, Fla.
Mall at Chestnut Hill
Miami International Mall
Penn Square Mall
Oklahoma City, Okla.
Pheasant Lane Mall
West Town Mall
Woodland Hills Mall
Properties to be acquired by The Rouse Co.:
Sterling Heights, Mich.
North Star Mall
San Antonio, Texas
The Streets at Southpoint
Water Tower Place