Simon to spin off strip centers and smaller malls
Indianapolis — Simon Property Group has announced a plan to spin off all of its strip center business along with its smaller enclosed malls into an independent publicly traded REIT called SpinCo.
SpinCo will own stable, quality strip centers and malls. The new company will initially own or have an interest in 54 strip centers and 44 malls. Each of the malls will generate annual net operating income of approximately $10 million or less. Simon estimates that SpinCo’s initial year NOI will exceed $400 million. The estimate for funds from operations in the new company’s initial year is approximately $300 million or $0.80 per share.
SpinCo will operate one of the largest, most diversified portfolios of strip centers and malls in the U.S., with 53 million sq. ft. in 23 states. As of September 30, 2013, the new REIT’s occupancy rate is 94.2% for strip centers and 90.4% for malls.
The new company, which will have an independent, dedicated executive management team and conservatively capitalized balance sheet, will be positioned to deliver internal growth through active asset management and re-developments and external growth through acquisitions and selective new developments. SpinCo intends to pursue an investment grade credit rating from the major credit rating agencies.
With one of the largest, most diversified portfolios of strip centers and malls in the United States, SpinCo’s scale and flexible balance sheet will provide the ability to acquire additional assets.
An independent management team and a board consisting of a majority of independent directors will lead SpinCo. Richard Sokolov, SPG’s president and COO and member of Simon’s Board of Directors, will become chairman of the board of directors, SpinCo.
David Simon, Chairman and CEO of SPG will also serve as a director of SpinCo. SPG’s strip center management team and personnel will become employees of SpinCo, and SpinCo malls will continue to receive property management services from Simon. SPG will provide support functions for SpinCo on a transitional basis.
The spin-off will producer higher sales per square foot, NOI growth and occupancy for SPG, while maintaining the company’s conservative leverage profile and a portfolio of high-quality assets. SPG does not expect any change to its credit rating or outlook.
Simon’s current annualized dividend of $4.80 per share will be maintained. The company expects the dividend to continue to grow in line with the company’s funds from operations and taxable income.
SpinCo’s initial year dividend is estimated to be at least $0.50 per share, which is approximately 100% of estimated taxable income.
A pro rata special distribution to Simon shareholders will create the spin-off. Simon Property Group’s limited partnership unit-holders will receive units of SpinCo’s operating partnership subsidiary. SPG will file the initial Form 10 information statement relating to the spin-off with the U.S. Securities and Exchange Commission ("SEC") before the end of 2013. The company expects the distribution to be completed in the second quarter of 2014.
The transaction is subject to certain conditions, including declaration by the SEC that SpinCo’s registration statement is effective, filing and approval of SpinCo’s listing application, customary third party consents, and formal approval and declaration of the distribution by Simon’s Board of Directors. SPG may, at any time and for any reason until the proposed transaction is complete, abandon the separation or modify or change its terms.
BofA Merrill Lynch and Goldman, Sachs & Co. are serving as exclusive financial advisors and Wachtell, Lipton, Rosen & Katz is serving as legal advisor to Simon in connection with the proposed transaction.
SPG held a conference call to discuss the transaction at 9 a.m. Eastern Time today. Live streaming audio of the conference call will be accessible at investors.simon.com. An online replay will be available until December 27, 2013 at Investors.simon.com.
Play to win and ‘not to lose’
By Rajashree R, Tata Consultancy Services
With the holiday shopping season in full swing, today’s consumer presents an array of new challenges to retailers. Shoppers are increasingly channel agnostic, technologically savvy, upwardly mobile and naturally tend to gravitate towards the retailer and channel that offers the most value with maximum convenience. In such a complex and rapidly evolving environment, pricing emerges as the biggest game-changer to draw consumers into a sale. With the proliferation of social media and mobility, price transparency becomes an inevitable phenomenon leading to newer trends like ‘showrooming,’ which occurs when a customer examines merchandise in a traditional brick-and-mortar store, but then shops online getting at a lower price for the same item. The new retail landscape has thus shifted from competition with the store next door to a “global mall” of players operating online. Retailers are faced with a decidedly reactive approach just to maintain status quo. In order to outperform the competition however, retailers must instead embrace a “play to win” mentality — rather than a “not to lose” mind set.
Market researchers and retailers expects showrooming and digital price comparison to play a very critical role this 2013 holiday season, with more than 90% of smartphone shoppers to compare prices while in-store. So majority of omni-channel and brick-and-mortar retailers implemented varied price match strategies as to bring in more traffic in their stores. A large general merchandise retailer, for example, offers price match guarantee with their online and bigger competitive rivals, whereas a specialty and an apparel retailers offering price match only on their in-store purchases. Going a step further, a large discount retailer extended price match guarantee even for purchases prior to thanksgiving (dates vary by category). A hi-tech retailer, which never offered big discounts in earlier seasons as well announced price match for up to 10% off on their products comparing against legitimate resellers. Another specialty retailer offers price match on specific categories and exclusive discounts for membership. However, the intimidating question being how many had their decisions supported by deep analytics to validate the impact their strategies could bring on their top and bottom line and their margins.
Pricing: The Changing Elements
Today’s on-demand consumer is looking for more options at minimum price, with a promise of top quality service levels regardless of where or how they are shopping. The marketplace at the same time is becoming extremely competitive in delivering the best price with great a deal of agility — essentially in real time. With different channels having different operating dynamics, retailers are struggling to shift focus from a product-centric approach to a customer-centric model in their pricing strategies across channels with a greater emphasis on perceived values like reliability, quality, experience and timeliness. As customers grow savvier, retailers need to provide the highest level of in-channel experience while dealing with issues of price consistency and fulfillment specific to each individual channel.
Challenges Retailers Face
While there is a pressing need for agility, traditional brick-and-mortar stores are carrying significant baggage in the way of legacy processes and applications that limit their ability to compete with online retailers. Retailers like Amazon.com invest about 6% of their revenue in technology and innovations, propelling them ahead of the competition. Some of the challenges faced by retailers in their pursuits to be agile include:
Cross Channel Consistency: Legacy architecture, ill-equipped point of sale (POS) technology and limited in-store labor bandwidth are potential bottlenecks.
Competitive Landscape: Insufficient competitive intelligence to track the increasing competition and derive meaningful insights to make smart pricing decisions.
Price Optimization: Inability of systems to analyze and consume new metrics like customer elasticity, shipping cost elasticity etc.
Managing Complexity: Inefficient technology to move beyond key value items and match items across and within channels in the absence of a robust item-master with rich attributes.
Data Availability and Integrity: Lack of knowledge about price point history, competitive intelligence data and procurement data to collectively aid in pricing decisions.
Organizational Challenges: Siloed methodology for store and online pricing needs rather than an integrated approach that leverages the unique benefits of each channel.
The core of the transformation lies in the key pillars of people, process and technology. Adoption of new models that treat every customer uniquely, apart from finding avenues to reduce costs while increasing consistency in common operations, will improve the process significantly. Managing organizational data along with increased assessment metrics and new data sources like customer demographics and loyalty is critical for a seamless flow of valuable information that leads to customer insights. Other key technological aids in achieving the desired results include innovations in downstream systems like an intelligent POS, enhanced intelligence through machine learning and leveraging digital labels. At an organizational level, sharing of key performance indicators (KPIs) across channels, utilizing an integrated planning based environment will eliminate conflict of interest within the ecosystem.
Pricing Capabilities Retailers to Adopt
In light of the shift from being product-centric to customer-centric, as we gear up for the transformation, we must now visit the individual point capabilities that a next generation pricing regime must have:
- Dynamic price changes
- Enhanced competitive intelligence
- Omni-channel price consistency and transparency
- Price localization
- Price personalization
In order to achieve these capabilities, retailers need to first reach other milestones like an intelligent POS for intraday refresh, agile shelf labelling, channel specific competitive shopping, and the ability to comprehend and react to channel specific customer price elasticity. Some of the changes can be attained easily, while others might require a lot of complex executions around multiple systems.
Retailers today are grappling with the issue of increasing complexity in their business operations that result from the advent of technology, the socio-economic environment and the global spread of supply chain. To be able to lead the competition, retailers require a pricing system and process transformation implementing the above point capabilities. Organizational synergies must be directed towards the newly emerging theme of deep customer-centricity to realize the full potential of the implementation. This requires investment in appropriate scalable technology apart from re-engineering some of the traditional processes and strategic re-alignment to accommodate the new rules of retailing.
Rajashree R, global head of retail solutions group, Tata Consultancy Services. She led the creation of the retail solutions group which has incubated innovative solutions in the areas of the POS, loyalty and big data-based merchandise optimization. She also conceptualized the retail innovation lab, which researches and experiments with new technology innovations in retail.
Information on TCS Retail Solutions can be found here.
A new chief for Walmart India
Walmart has appointed Krish Iyer president and CEO of Walmart India, effective Jan. 20, 2014. He will report to Scott Price, president of Walmart Asia.
Originally from Mumbai, India, Iyer joined Walmart International as a senior VP in 2012. Prior to coming to Walmart, he spent six years with A.S. Watson Group, a leading international health, beauty and lifestyle retailer, serving as managing director in Thailand, Taiwan and the Philippines, regional business development director and regional director over store design and development for Asia and Eastern Europe. Before that, Iyer was managing director and CEO at Piramyd Retail Limited.
Iyer received a bachelor’s of science (hons.) degree in commerce and economics from the University of Mumbai in India. He is an Associate Chartered Accountant and member of the Institute of Chartered Accountants of India. He is also an associate member of the Institute of Company Secretaries of India.
Iyer replaces Ramnik Narsey, who has served as interim head of Walmart India since June following Raj Jain’s departure. According to reports, Narsey has been appointed SVP of Walmart International, reporting to its newly appointed president and CEO David Cheesewright.