Two real estate investment trusts that own five malls in Utah are joining forces.
Chicago-based General Growth Properties Inc., which owns the Newgate Mall in Ogden, will acquire Salt Lake-based JP Realty, which has four Utah malls, in a $1.1 billion deal, the companies said Monday.
JP Realty owns the Cache Valley Mall, Logan; Cottonwood Mall, Salt Lake City; Provo Towne Centre; and Red Cliffs Mall, St. George.
Those centers are among 50 properties JP Realty owns or has an interest in, including 18 enclosed regional malls, 25 anchored community centers, one free-standing retail property and six mixed-use commercial/business properties in 10 Western states. It operates through majority-owned Price Development Co. LP.
With the JP Realty merger, General Growth, which has made four other acquisitions since it became a publicly traded real estate investment trust in April 1993, will have bought ownership interests in 120 regional malls with a value of about $10 billion.
The transaction is expected to close in the second quarter.
The total acquisition price will be approximately $1.1 billion, which includes about $440 million in cash, assumption of approximately $460 million of existing debt and $116 million of existing preferred operating units.
"In the past, I have often described the many reasons why General Growth acquires, develops and manages regional shopping centers. These reasons include the creation of value, earnings accretion and creating additional market share throughout the United States," said John Bucksbaum, chief executive officer of General Growth, said in a prepared statement.
"I am very pleased to announce that we have signed a merger agreement to acquire JP Realty, the dominant mid-market retail property development and management company in the Intermountain region of the United States. We look forward to adding these properties to our existing portfolio of 141 malls. By buying strategically, and buying smart, we have created value for today and for the future."
The agreement between the companies calls for JP Realty stockholders to receive $26.10 per share in cash for all outstanding shares. Each of the limited partners of Price Development will be offered the opportunity to receive either $26.10 in cash or convertible preferred units of GGP Limited Partnership, convertible into General Growth common stock based on a conversion price of $50 per share.
The JP Realty board has approved the merger, which is subject to several conditions, including approval by company shareholders.
JP Realty stock closed Friday at $24.43, but the price rose to $26.53 early Monday, its highest price in the past year. General Growth stock closed Friday at $42.20 but was up to $42.94 early Monday, also its highest price in the past year.
"Our shareholders will receive a favorable premium over the company's historical trading price and net asset value, and our tenants, employees and other capital providers will benefit from the strengths of a newly expanded General Growth, which is already one of the largest owners of shopping centers," said John Price, chairman and chief executive officer of JP Realty, in a prepared statement.
"We believe that the return of shareholders capital at a strong premium to our historical trading price and NAV at an opportune point in the real estate cycle represents a very favorable transaction for our shareholders."
General Growth said it expects the acquisition to generate a return of about 10 percent on cost during the first year of ownership.
Last month, General Growth estimated that funds from operations for 2002 would range from $5.31 to $5.56 a share. If the acquisition of JP Realty closes in the second quarter, General Growth said Monday that it will raise the low end of that range, but didn't specify a figure.
Analysts are looking for funds from operations of $5.39 a share for 2002, up from $4.96 a share reported for 2001. FFO, the REIT industry's measure of cash flow, represents net income plus real estate depreciation and amortization but excluding gains or losses from asset sales.
JP Realty reported 2001 funds from operations of $56.7 million, or $2.84 a share, on revenue of $144.4 million. Occupancy at JP Realty's malls is now at 83 percent, General Growth said.
E-MAIL: bwallace@desnews.com
Contributing: Dow Jones News Service