Taubman to Sell 7 Malls to Starwood, Reuse Capital - Analyst Blog

The retail real estate investment trust – Taubman Centers Inc. TCO – has agreed to sell 7 malls to Starwood Capital Group, through a controlled affiliate, in a transaction valued at $1.4 billion. The move comes as Taubman capitalizes on the rising interest of investors in premium region malls and focuses on capital recycling.

A definitive agreement has already been signed for these 7 malls, which comprise – MacArthur Center (Norfolk, VA), Stony Point Fashion Park (Richmond, VA), Northlake Mall (Charlotte, NC), The Mall at Wellington Green (Wellington, FL), The Shops at Willow Bend (Plano, TX), The Mall at Partridge Creek (Clinton Township, MI) and Fairlane Town Center (Dearborn, MI).

The deal already received the nod from Taubman Centers' board of directors and is conditioned upon normal closing norms. It is expected to close in the fourth quarter of this year.

The deal is a win-win situation for both Taubman and Starwood. On one hand, Taubman would recycle the capital and enhance its NOI growth rate. The company, which reported mall tenant sales per square foot of $721 in 2013, projects a rise in its mall tenant sales by over $100 per square foot following the deal closure. Moreover, its development and redevelopment pipeline are expected to get a boost and be a notable contributor to its growth.

On the other hand, it would enrich Starwood and its retail operating platform, Starwood Retail Partners (SRP). Particularly, it would enhance SRP's retail portfolio to 28 properties spanning 26.8 million square feet across 15 states.

Notably, this consideration of $1.405 billion (prior to transaction expenses) comprises $785 million in cash and $620 million in property-level debt, which the buyer would repay or assume at closing.  

Going forward, we believe that the asset dispositions are a strategic fit as they provide the dry powder to invest in Taubman's other growth initiatives. The company is well poised to ride on the growth trajectory with its solid development and redevelopment pipeline. However, Taubman's ongoing disposition spree weighs upon the near-term earnings.

Taubman currently has a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Spirit Realty Capital, Inc. SRC, Retail Properties of America, Inc. RPAI and Rouse Properties, Inc. RSE. While Spirit Realty has a Zacks Rank #1 (Strong Buy), Retail Properties and Rouse Properties carry a Zacks Rank #2 (Buy).
 

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