Simon's Surprising Prime Outlets Deal Makes it Even Bigger

Simon Property Group (SPG) isn't only the largest mall owner in the country, it now owns the most outlet centers. The company secured that title earlier this week after acquiring the 22-center Prime Outlets portfolio from the Lightstone Group for $2.33 billion.

Simon already amassed its own large collection of outlet centers when it bought Chelsea Property Group in 2004 for $3.5 billion. Before the Prime acquisition, Simon's U.S. Chelsea portfolio totaled 41 assets. Tanger Factory Outlets (SKT) is the the second-largest owners with 35 locations.

The Prime portfolio is a nice fit for Simon. There is some geographic overlap between its Chelsea holdings, but Prime gives it a beefed up presence in Florida, its first center in Puerto Rico, and provides further penetration in markets like Chicago, Washington D.C. and Atlanta.

Prime's high-end tenants are also similar to the Chelsea centers boasting names like Burberry, Fendi, Gucci and Neiman Marcus Last Call. Over the years Prime updated its portfolio, making its properties more high end than when Lightstone bought the portfolio in 2003.

Though Simon is mainly known as a mall owner, its outlet malls perform very well financially. Occupancy at its outlet malls came in at 97.5 percent at the end of the third quarter, higher than the 91.4 percent at its regional malls. Sales per square foot are also tops in the portfolio, at $492.

David Simon, chairman and chief executive of SPG, said that Prime's properties perform similarly, with 92 percent occupancy and sales per-square-foot of about $370. Simon's strength as the leading retail real estate owner will undoubtedly lead to some stronger tenants in those centers and improved sales and occupancy.

A Wall Street Journal articled surmised that Simon's Prime move isn't necessarily the best thing for retailers, saying that it could make retailers take space in poor locations as a condition to get space in centers with higher productivity. Commenters at this blog voiced similar concerns.

That picture could worsen if Simon gets bigger. The mall owner also is reportedly interested in acquiring some or all of General Growth Properties' 200 malls, a deal that would make this retail giant even bigger.