by Tom Taulli | December 13, 2013 2:23 pm
Shares of Simon Property Group (SPG) got a 2.7% boost today on news of a plan to spin off its strip malls into another entity, Spinco, which will be a real estate investment trust (REIT).
It’s a good end to a difficult year for SPG stock, which is off about 4% for 2013. Those struggles have actually been an industry-wide trend, as seen with other mall operators like General Growth Properties (GGP) and Kimco Realty (KIM).
So why is SPG doing the transaction? According to the company’s press release, the rationale is to allow for more focus — the company has been somewhat unwieldy, which has been a drag on performance.
Besides, Wall Street prefers to invest in pure plays. It makes it easier to construct a portfolio and get the full-benefit of a certain category in the market. And by structuring the deal as a spinoff, SPG should allow for a minimal tax impact on shareholders.
The spinoff entity will still be a solid operation, which will include 53 million square feet of retail space across 23 states. Some of the anchor stores involve Walmart (WMT) and Burlington Stores (BURL).
SPG, on the other hand, will mostly include the premium locations, including marquee malls like the King of Prussia Mall and Town Center at Boca Raton in Florida.
Investors will have a choice between those two options — both of which will maintain juicy dividends. For example, SPG plans to maintain its current $4.80 annual payout, which comes to a yield of 3.2%. Spinco will also have a minimum of a 50-cent-per-share distribution. However, the pricing has yet to be set, making it impossible to calculate an exact yield.
Look for Spinco hit the market sometime in the first half of next year.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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