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Simon Property Group to Acquire Chelsea Property
INDIANAPOLIS -- Simon Property Group Inc. and Chelsea Property Group Inc. have signed a definitive merger agreement whereby Simon will acquire all of the outstanding common stock and operating partnership units of Chelsea in a transaction valued at approximately $3.5 billion. Simon will also assume Chelsea's existing indebtedness and preferred stock, which totaled $1.3 billion as of March 31.Under terms of the agreement, which has been unanimously approved by each company's board of directors, Simon will pay consideration of $66 per share for all of Chelsea's outstanding common stock and units. The consideration to Chelsea's common shareholders comprises $36 in cash, $15 of SPG common stock based on a fixed conversion ratio of 0.2936 per Chelsea common share, and $15 of a new issue of SPG convertible preferred stock. The new series of convertible preferred shares yield 6.0%, have a liquidation preference of $50 per share, and are convertible into SPG common stock at $63.86 per share, with a contingent conversion feature of an additional 25%.This will be a taxable transaction to Chelsea common shareholders. Chelsea unitholders will receive 100% of their consideration in equity, equally split between Simon common units and convertible preferred units. The Chelsea operating partnership, CPG Partners L.P., will become a wholly-owned subsidiary of the Simon operating partnership, Simon Property Group L.P.Chelsea Property Group is the owner, developer and manager of Premium Outlet centers in the United States and Asia. Its portfolio includes 35 premium outlet centers (31 in the U.S. and four in Japan) located in major metropolitan markets such as New York, Los Angeles and Boston, and tourist destinations such as Orlando, Las Vegas and Palm Springs. As of March 31, the 31 domestic centers were 98% occupied and generated sales per square foot of $404.Chelsea's four premium outlet centers in Japan, located near Tokyo, Osaka and Fukuoka, are fully leased and generated average sales of more than $800 per square foot during the 12 months ended March 31."Chelsea is a significant opportunity for Simon as it represents a great strategic fit and a strong driver of growth for us going forward," states David Simon, chief executive officer of Simon Property. Chelsea and Simon have pursued identical strategies over the past decade, each leading the consolidation in our respective sectors while focusing on highly-productive, high-quality retail real estate."Simon's ancillary revenue-generating programs can be applied to our premium outlet portfolio," adds David Bloom, chairman and CEO of Chelsea. "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 both the full-priced and premium outlet retail real estate businesses."Chelsea will be managed as a division of SPG and will continue to be headquartered in Roseland, N.J., with Bloom and the existing Chelsea management team continuing in their current roles. Bloom also will join the Simon Property Group Board as an advisory director.Simon expects an initial year unlevered yield of 7.2% from the transaction, and expects the transaction to be at least 9 cents per share accretive to 2005 Funds from Operations and 18 cents accretive to 2006 FFO. The transaction is subject to approval by Chelsea's shareholders as well as customary closing conditions and is expected to close during the fourth quarter.Simon expects to fund the cash portion of the transaction on an interim basis with a $1.8 billion acquisition facility. "