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Spinoff includes Orange Park Mall

By Mark Basch, Contributing Writer

Simon Property Group, the largest U.S. shopping mall operator, is planning to spin off some of its smaller enclosed malls and strip shopping centers into a separate public company, a real estate investment trust that will include the Orange Park Mall.

Indianapolis-based Simon Property, which owns all or part of 325 retail properties in North America and Asia, will put 44 enclosed malls and 54 strip centers into the new company, which is going by the name SpinCo for the time being.

SpinCo's strip mall properties include the 163,254-square-foot Westland Park Plaza in Orange Park, which is 32 percent owned by Simon Property.

Simon Property will keep its ownership stake in two major Jacksonville malls. It has a 25 percent interest in The Avenues mall and a 50 percent interest in the St. Johns Town Center.

Simon Property will also retain the St. Augustine Premium Outlets, as the company plans to keep its entire portfolio of 63 outlet malls.

Calls to the Orange Park Mall's office last week about the spinoff were referred to Simon Property's headquarters, but the company would not say specifically why it is putting the 959,529-square-foot facility into the spinoff company. The mall is 97.8 percent occupied.

Simon Property did not give individual financial data for any of the malls but did say the enclosed malls in SpinCo generate annual net operating income of $10 million or less.

The Avenues has 1.1 million square feet of space and the St. Johns Town Center has 1.2 million, not much bigger than the Orange Park Mall, but those two facilities are apparently generating higher income for Simon Property.

Simon Property Chairman and CEO David Simon said in a news release that the spinoff will "unlock the potential" of the 98 properties in 23 states that will make up SpinCo.

"We believe we are creating a new company that has both a strong Simon heritage and all of the requisite tools to grow its business and succeed. At the same time, this transaction allows Simon to focus on our global portfolio of larger malls, mills and premium outlets while maintaining our considerable scale and conservative leverage profile," he said.

Simon will serve on SpinCo's board of directors and Simon Property President Richard Sokolov will serve as chairman of SpinCo's board, but SpinCo will otherwise have a separate management team.

The company expects to name the management team in the first quarter of 2014 and hopes to complete the spinoff in the second quarter.

Shares of SpinCo will be distributed to Simon Property shareholders, but the company did not announce the details of that. Simon Property did say it intends to keep, and hopefully grow, its current $4.80-per-share annual dividend, while it expects SpinCo to pay a dividend of at least 50 cents a share in its first year.

Landstar trends looking up

Landstar System Inc.'s business has been trending up in December, and that has CEO Henry Gerkens optimistic about 2014.

In his mid-quarter conference call update for investors, Gerkens said the Jacksonville-based trucking company's revenue from continuing operations was down 3 percent in October, due to a decrease in revenue per load hauled by Landstar's drivers. That trend continued last month.

However, the revenue-per-load trend improved in December, he said. "We are very encouraged by the improved truck transportation comparative load count trends we have experienced throughout the 2013 fourth quarter and further encouraged by the more recent improvement in the comparative revenue-per-load trends experienced so far in December," Gerkens said.

"These improving trends and improving economic outlook, coupled with the number of quality productive agents added in the back half of 2013 and increased focus on growing our core agent business model without distraction, including strengthening our field and sales presence, only bodes well for 2014," he said.

Gerkens usually provides updated guidance on Landstar's expected earnings in his mid-quarter conference call. This time, the guidance was complicated by the company's agreement a few days prior to the call to sell its supply chain subsidiaries to XPO Logistics Inc.

That sale may or may not be completed before the end of the fourth quarter.

Landstar in October projected earnings of 62 cents to 70 cents a share for the fourth quarter, with a midpoint of 66 cents.

After analyzing Gerkens' mid-quarter comments, Wolfe Research analysts Scott Group and Edward Wolfe said that, excluding the impact of the sale, the midpoint of Landstar's projected earnings range is now down to 62.5 cents.

"It was a confusing call, so it's possible not everyone has interpreted Landstar's comments like we have," they said in a research report.

The average forecast of 22 analysts following Landstar fell from 66 cents before the call to 64 cents, according to Thomson Financial.

Group and Wolfe maintain a "peer perform" rating on Landstar.

Analyst cautious on Landstar and CSX

Deutsche Bank analyst Justin Yagerman is "constructive" on the transportation industry as a whole, he said in a report last week, but he is somewhat cautious about Landstar and another Jacksonville-based transportation company, CSX Corp.

Yagerman maintains a "hold" rating on both stocks, but he did increase his price target on Landstar from $56 to $58 and on CSX from $25 to $28.

"After a strong 2013, we expect the East Coast railroads' total returns to be more modest in 2014 as we still see a challenging environment for CSX and Norfolk Southern Corp. to drive accelerating earnings growth," he said in his report.

Yagerman classifies Landstar as a logistics company, because of the range of services it provides.

"While we see several advantages to the logistics business model, our sense is that the current slow-growth environment will constrain earnings improvement until the freight economy begins to strengthen, especially for more pure established brokers like CH Robinson Worldwide and Landstar," he said.

Yagerman has an overall positive outlook for the transportation sector.

"As a group the sector should see volumes build at a moderate pace in 2014 amidst growth in income, an improving manufacturing environment, and recent global economic improvement in both China and Europe," he said.

"While we currently expect transportation stocks to gain 16 percent on average this year (including dividends we see a 17 percent average total return for the sector), we remain selective with the group as our total return expectations diverge widely."

JPMorgan Chase seeks recovery from FDIC

After getting hit with billions of dollars in penalties by federal and state authorities this year, JPMorgan Chase & Co. is looking to get some back from the government.

The global banking giant last week filed a lawsuit against the Federal Deposit Insurance Corp., saying the agency did not live up to its obligations to indemnify JPMorgan Chase against losses related to its 2008 acquisition of the failed Washington Mutual Inc.

The suit filed in federal court in Washington, D.C., does not specify the amount of damages JPMorgan Chase is seeking from the FDIC, other than to say it is "substantially in excess of a billion dollars."

The Washington Mutual deal had a major impact on Jacksonville, as the company had a large mortgage banking operation that employed about 2,000 people. Seattle-based Washington Mutual acquired the business, formerly known as HomeSide Lending Inc., in 2002.

JPMorgan Chase had a substantial mortgage banking operation of its own in Jacksonville that employed about 750 at the time it acquired Washington Mutual. After combining with Washington Mutual, JPMorgan Chase increased its Jacksonville operations to about 3,800 people, and the company has recently begun expanding further in the area by opening Chase bank branches.

However, the acquisition of Washington Mutual led to some problems for JPMorgan Chase. The company last month agreed to pay $13 billion in penalties related to mortgage-backed securities issues, some of which could be traced back to Washington Mutual.

The lawsuit claims JPMorgan Chase was doing the government a favor by acquiring Washington Mutual.

"By entering into the P&A (purchase and assumption) Agreement and agreeing to assume WMB's enormous deposit liabilities, JPMC protected the FDIC from potentially unprecedented liability and helped ensure the stability of the country's banking system by enabling the former WMB branches to remain open for business as usual following the failure," it says.

JPMorgan Chase alleges it should have been better protected against losses related to Washington Mutual.

"The FDIC-Receiver has wrongly refused to acknowledge or honor its expansive indemnification obligations to JPMC under the P&A Agreement and in doing so has subjected JPMC to massive liability," the suit says.

The FDIC did not immediately respond to the lawsuit.

Regency forecast below expectations

Regency Centers Corp. last week announced 2014 earnings projections that were slightly below analysts' forecasts.

The Jacksonville-based shopping center developer projects funds from operations of $2.62 to $2.68 a share next year, up from $2.57 to $2.59 in 2013. The average analysts' forecast for 2014 had been $2.69, according to Thomson.

Funds from operations are basically earnings excluding depreciation and amortization expenses and are considered the key metric for evaluating real estate companies.

Regency also said it expects same property net operating income to grow by 2.5 percent to 3.5 percent next year.

mbasch@baileypub.com

(904) 356-2466

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