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SIMON GOES TO ASIA VIA CHELSEA

BY IAN RITTER

Simon Property Group says its $4.8 billion acquisition of Chelsea Property Group will pave the way for entry into Asia and expansion in Europe as well as help to diversify its tenant base.

The deal, which the companies expect to close sometime in the fourth quarter, comes as U.S. retail developers are looking toward foreign shores. Last year, for instance, The Mills Corp. opened its first overseas retail-entertainment center, outside Madrid, Spain. And Simon itself has already bought 49 percent of a 38-mall portfolio in Italy, besides holding properties in France, Poland and Portugal. Chelsea, which operates four outlet centers in Japan, most recently opened the 185,000-square-foot Tosu Premium Outlets 20 miles south of Fukuoka, Japan’s fourth-largest city.

Simon says it will now be able to bring Chelsea outlet centers to Europe as well as build traditional centers in Asia. And the firms have sent representatives to China to scout out investment opportunities.

“We have been looking at the Pacific Rim for a while,” Richard S. Sokolov, Simon’s president and COO, told SCT. “This provides us with a very good vehicle through an established management team.”

Only two of Chelsea’s top 20 tenants overlap with the retailers in the Simon portfolio, Sokolov says. This enables Simon to bring Chelsea retailers into its own malls with traditional-price versions of their stores, while also introducing some of its own traditional mall tenants into the Chelsea lineups.

Simon is paying $66 per share for Chelsea, whose 16.6 million-square-foot portfolio comprises 60 outlet centers across the United States and in Japan. The deal bears a 7.2 percent capitalization rate.

Simon says it will operate Chelsea as a division, keeping its name and management team. David Bloom, currently Chelsea’s chairman and CEO, will continue to head Chelsea. He will also join Simon’s board.

Simon owns 247 properties in North America and 48 in Europe.