MOODY'S CONFIRMS RATINGS OF SIMON PROPERTY GROUP, INC. AND CONFIRMS RATINGS OF CHELSEA PROPERTY GROUP, INC.; RATING OUTLOOKS ARE STABLE
New York, June 21, 2004 -- Moody's Investors Service has confirmed its Baa2 senior unsecured debt
rating of Simon Property Group, L.P., and its
Baa3 preferred stock rating of Simon Property Group, Inc.
At the same time, Moody's confirmed its senior debt rating (Baa2)
of CPG Partnership, L.P., and its preferred
stock rating (Baa3) of Chelsea Property Group, Inc. These
rating confirmations follow today's announcement by Simon Property Group
and Chelsea Property Group that the two retail property REITs have agreed
to merge in a transaction valued at approximately $5 billion.
The outlook on the ratings of Simon Property Group and Chelsea Property
Group, respectively, is stable.
Under the merger agreement, Simon Property will acquire all outstanding
common shares and partnership units of Chelsea for approximately $3.5
billion ($66 per share) and assume $1.3 billion in
debt and preferred stock of the outlet shopping center REIT. The
transaction will be funded with a combination of fixed rate and convertible
long-term debt, common equity and convertible preferred stock.
Simon will retain CPG Partnership L.P., the operating
partnership of Chelsea Property Group, Inc., as its
wholly-owned operating subsidiary. The senior notes of CPG
Partnership, L.P. will be guaranteed by Simon Property
Group, Inc. The closing of the transaction, expected
to occur in October 2004, is contingent upon approval by the shareholders
of Chelsea Property Group.
Moody's confirmation of Simon Property's ratings reflects several positive
strategic benefits of the transaction, counterbalanced by materially
higher pro forma leverage and weaker coverage measures over the short
term. Moody's believes that deterioration in credit statistics
is transitory; with neutral to slightly positive improvement in 2006
as Simon achieves increases in occupancy costs and realizes development
yields of the outlet center portfolio. Moody's said that the merger
further solidifies Simon Property's footprint in US retail real estate,
while broadening its market presence in international markets.
In addition, the merger should enhance Simon's earnings growth,
while extending the REIT's leadership position with leading upscale and
fashion-oriented retailers. In Moody's view, assets
in the Chelsea property portfolio are highly productive, generating
around $400 in sales per square foot, which is comparable
to Simon's existing mall portfolio. Integration risk should be
low, given the successful track record of joint ventures involving
the two REITs, and the retention of Chelsea's management team,
which will continue to operate the outlet business.
Simon Property expects to benefit both from growth opportunities embedded
in the ongoing domestic and international new premium outlet developments,
as well as from synergies that will likely result from the combining of
the operating platforms of the two REITs. Chelsea's relatively
low occupancy costs provide Simon with an opportunity to leverage its
strong tenant relationships to drive rents in the outlet portfolio.
We expect Simon's strong access to capital will, over time,
reduce the cost of funding for the outlet portfolio. The extension
of kiosk leasing business and Simon Brand Ventures to the outlet center
portfolio present additional growth opportunities for Simon Property.
The combination of the two platforms will also aid international expansion
of the mall and the outlet portfolios, given Simon's expertise in
Europe and Chelsea's in Asia.
Notwithstanding the positives, Simon's credit statistics will be
weakened, given the substantial debt component of this transaction.
In addition to assuming $1.3 billion in Chelsea's debt,
Simon Property Group will incur approximately $1.8 billion
in debt to fund the cash portion of the transaction. The REIT will
also issue about $900 million in new convertible preferred stock,
which will further pressure fixed charge coverage. That said,
the deterioration in near-term credit statistics should be modest,
and partially mitigated by the improvement in Simon's consolidated unencumbered
ratios with the addition of the largely unencumbered Chelsea portfolio.
Simon's pro forma credit measures for the transaction will continue to
be within the range appropriate at the Baa2 rating category for Simon
Moody's stable outlook on Simon Property's ratings reflects the REIT's
strong track record in integrating and realizing benefits from strategic
portfolio acquisitions, and the overall healthy retail environment
in which the firm operates. We anticipate that Simon's long-term
credit profile will improve from the positive effects of future earnings
Ratings improvement would result from substantial improvement in the REIT's
coverage and leverage statistics, and in secured debt measures in
particular. A downgrade would most likely result from additional
acquisition transactions that materially increase Simon's overall and
secured leverage beyond current levels.
The following ratings of Simon Property Group were confirmed:
Simon Property Group, L.P. -- Senior
notes at Baa2; senior unsecured debt shelf registration at (P)Baa2
Simon Property Group, Inc. -- Preferred stock
Shopping Center Associates (SCA) -- Senior notes at Baa2
Corporate Property Investors -- Senior notes at Baa2
The following ratings of Chelsea Property Group were confirmed:
CPG Partners, LP -- Senior debt at Baa2; senior
debt shelf at (P)Baa2
Chelsea Property Group, Inc. -- Preferred stock
at Baa3; preferred stock shelf at (P)Baa3
Chelsea Property Group [NYSE: CPG], headquartered in
Roseland, New Jersey, USA, is the largest owner and
operator of retail outlet centers in the USA, with a total market
capitalization of roughly $4.2 billion. Chelsea owns,
develops, leases and manages some 60 premium outlet and other centers
in the USA and Japan, comprising 16.6 million square feet
of gross leaseable area.
Simon Property Group, Inc. [NYSE: SPG] headquartered
in Indianapolis, Indiana, USA, is the largest retail
REIT in the USA, with a total market capitalization of approximately
$24 billion. Simon achieved its market leadership position
through large portfolio acquisitions and innovative property management
and tenant marketing, and now owns, manages, leases
and develops 247 properties, primarily regional and super-regional
retail malls, encompassing 192 million square feet of gross leaseable
Lesia Bates Moss
Senior Vice President
Financial Institutions Group
Moody's Investors Service
Merrie S. Frankel
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service