Southridge Mall has a new suitor

(Milwaukee Journal Sentinel photo)

Retail giant offers higher price for mall's owner

By TOM DAYKIN
tdaykin@journalsentinel.com

Posted: Feb. 5, 2007

One of the nation's largest owners of retail properties wants to buy Southridge Mall and dozens of other shopping centers, a move that would give Southridge more marketing muscle and deeper pockets to battle its Milwaukee-area competitors.

Simon Property Group Inc., which operates nearly 300 U.S. malls, said Monday it is offering to buy Mills Corp. for $24 per share. That news comes around three weeks after Mills, which bought Southridge just two years ago, announced it had agreed to be purchased by Toronto-based Brookfield Asset Management Inc. for $21 a share.

Mills, based in Chevy Chase, Md., announced that it would review the joint proposal from Simon and Farallon Capital Management LLC. Farallon, a San Francisco-based investment firm, is Mills' largest shareholder, with a 10.9% stake.

The statement from Mills said the agreement with Brookfield remains in effect "at this time." But the higher share price and more attractive terms provide Mills an opportunity to enter negotiations with Simon and Farallon, according to their joint press release.

There was no public response by Brookfield Asset Management, so investors were left guessing as to whether the Canadian company would respond with a sweetened bid. Brookfield's holdings include office buildings, power plants, timber tracts and investment funds, but the firm has a relatively small retail portfolio.

Indianapolis-based Simon owns or has an interest in 286 properties in 38 states, plus Puerto Rico. In Wisconsin, Simon owns Johnson Creek Premium Outlets, in Johnson Creek; Forest Mall, Fond du Lac, and Bay Park Square, Ashwaubenon.

Simon also owns or has interests in 53 European shopping centers, five outlet centers in Japan and one outlet center in Mexico.

Simon, because it operates so many properties, has the leverage to attract tenants that might otherwise overlook Southridge, said John Melaniphy, president of Chicago-based Melaniphy & Associates Inc., a retail consulting firm.

For example, a tenant that wants to enter some Simon-owned properties in northern Illinois might discover that leasing space at Southridge is a condition to get its stores into those other properties, said Melaniphy.

Also, Simon has immense financial resources, allowing it to make improvements or additions to Southridge, Melaniphy said

"They can do things that need to be done," he said.

Mills in 2005 bought Southridge Mall from New York-based Blackstone Real Estate Advisors. That sale occurred as Southridge's former Younkers department store building - empty for five years - was largely filled with three new tenants: Linens 'n Things, Cost Plus World Market, and Steve and Barry's University Sportswear.

Candidate for remodeling

Mills executives viewed Southridge as a productive mall, while still a candidate for additional expansion or remodeling. Southridge has just a few vacancies, including one empty spot within the former Younkers building.

But Mills' financial difficulties, exacerbated by a heavy debt load, prevented it from making major changes at Southridge.

Southridge faces strong competition from Mayfair Mall, in Wauwatosa, the Milwaukee area's premier shopping mall, and from Brookfield Square, which recently unveiled new remodeling and expansion plans.

And some Southridge customers have complained about the mall's lack of higher-end businesses, especially compared with Mayfair, which has landed several new restaurants and stores in recent years. Southridge is anchored by Boston Store, J.C. Penney, Kohl's and Sears.

Southridge has "stood very tall" in competing with Mayfair and Brookfield Square, Melaniphy said. But Mayfair and Brookfield Square tend to draw from a more affluent customer base, which affects the type of tenants those malls can attract, he said.

Still, Southridge is "a great asset," Melaniphy said. He said Simon would likely seek additional retail properties in southeastern Wisconsin if it is successful in acquiring Southridge.

One of Mills' largest shareholders, an investment fund operated by St. Francis-based Stark Investments, has already agreed to sell its 4.9% stake to Simon, according to the announcement from Simon and Farallon. That sale is contingent on Simon purchasing all of Mills' shares.

Mills has 38 U.S. properties, including Gurnee Mills outlet mall, in Gurnee, Ill., just south of the Wisconsin-Illinois border.

Link: JS Online: Southridge has a new suitor.