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Big Las Vegas Mall Owners Merging

21 June 2004

Las Vegas Sun

INDIANAPOLIS -- Simon Property Group Inc., the world's largest manager of shopping malls, said today it agreed to buy Chelsea Property Group Inc., the biggest U.S. owner of factory-outlet shopping centers, for about $3.5 billion in cash and stock.

Both companies are big players in the booming Las Vegas retail market. Simon owns the Forum Shops at Caesars on the Las Vegas Strip. The 500,000-square-foot high-end mall, one of the most successful in the nation in terms of spending per square foot, is being expanded by 175,000 square feet. Simon and Chelsea are partners in the 435,000-square-foot Las Vegas Premium Outlets, a new outlet mall credited with launching a revival of interest in downtown Las Vegas business. Chelsea owns the 477,000-square-foot Las Vegas Outlet Center, formerly called Belz Factory Outlet World.

And Simon announced earlier this year plans to partner with Las Vegas-based Olympia Group to develop a mall in the southern Las Vegas Valley with residential units above the shops.

The mall would be part of a mixed-use project at Las Vegas Boulevard between Starr and Cactus avenues that could include offices, a casino and residences, but is still in the research phase, Simon officials said.

Simon, based in Indianapolis, said it will pay $66 a share for the firm, a 13 percent premium to Chelsea's closing stock price of $58.24 on Friday. Simon also will assume debt and preferred stock that totaled $1.3 billion as of March 31, the company said in a statement.

The purchase is Simon's second-largest ever and the fifth by Chief Executive David Simon, 42, since October. Chelsea's 31 outlets lease space to retailers including Coach Inc. and Brooks Brothers, and will help Simon expand in not only Las Vegas but in New York, Boston and Los Angeles. Chelsea also has four centers in Japan, allowing Simon to enter Asia for the first time.

"This gives Simon a new dimension that enhances their ability to grow earnings," said Ritson Ferguson, who oversees $5 billion as chief investment officer of ING Clarion Real Estate Securities in Radnor, Pa. "Chelsea has clearly established itself as a leader in the development of high-end outlet centers."

ING Clarion held 2.4 million shares of Simon and 762,000 of Chelsea as of March 31, according to U.S. Securities and Exchange Commission filings.

Shares of Simon fell 70 cents to $51.60 as of 10:32 a.m. in New York Stock Exchange composite trading today. The stock has gained 33 percent during the past 12 months, while shares of Chelsea have risen 59 percent. Chelsea of Roseland, N.J., increased $7.12, or 12 percent, to $65.36.

Simon owns or manages 247 malls and shopping centers in North America with 197 million square feet of space, including the Mall of America in Bloomington, Minn., the nation's largest shopping mall. The company also has interests in 48 properties in European countries including France and Italy.

The company made its biggest purchase in 1998, when it bought closely held Corporate Property Investors Inc. for $5.9 billion in cash, securities and assumed debt.

Chelsea's real estate assets include the Woodbury Common Premium Outlets, near New York City, and the Desert Hills Premium Outlets, near Palm Springs, Calif. The company's U.S. centers were 98 percent occupied and generated sales per square foot of $404 as of March 31. Its properties in Japan, located near Tokyo, Osaka and Fukuoka, are fully leased and generated average sales of more than $800 per square foot.

"This is a very important provider of retail space," Simon Chief Operating Officer Richard Sokolov, 54, said in an interview. "We are acquiring a company that dominates (the premium outlet industry). This was an opportunity to substantially accelerate and expand their business."

Chelsea Chairman and Chief Executive David Bloom will continue in his current role, leading Chelsea as a division of Simon, and will join Simon's board as an advisory director, the company said.

"Our international presence in Asia and Simon's presence in Europe will result in a combined organization with a truly global platform from which to grow," Bloom said in the statement.

Simon said it will fund the cash portion of the transaction on an interim basis with a $1.8 billion facility. The company was advised on the acquisition by UBS Investment Bank and Morgan Stanley. Chelsea was advised by Merrill Lynch & Co.

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