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Taubman (TCO) Sells 50% Stake in Starfield Hanam to Blackstone

Zacks Equity Research

Taubman Centers, Inc. TCO recently closed the sale of Taubman Asia’s 50% stake in Starfield Hanam, located in Hanam, South Korea, to real estate funds managed by The Blackstone Group Inc. BX, for $300 million.

Net cash proceeds to Taubman are projected at roughly $240 million, after transaction costs and the allocation to Blackstone of its share of third-party debt. Subsequent to the sale, Taubman will own a 17.15% beneficial interest in the property and be responsible for its joint management.

The shopping center, spanning around 1.7 million square feet of gross leasable area, is anchored by Shinsegae, PK Market and Traders. The property witnessed total sales of more than $825 million in 2018, making it among the most productive retail assets in the world.

This sale comes as part of Taubman’s agreement in February to sell 50% of its three Asia-based shopping centers — Starfield Hanam, CityOn.Xi’an (Xi’an, China) and CityOn.Zhengzhou (Zhengzhou, China) — to Blackstone, with closings anticipated throughout 2019. 

Per management, through this transaction, the company has made significant progress on the agreement, while adding Blackstone as a strategic partner. Further, management anticipates closing the remaining two deals in the upcoming months.

Notably, Blackstone’s investment will be made through its Asia Core+ real estate investment unit and the investment unit targets substantially stabilized office, logistics, residential and retail properties in high-quality Asian geographies and gateway cities.

The transactions will likely improve Taubman’s liquidity position, helping repay balances under its revolving credit line. Further, with improved access to capital, the company will be well poised to grow its Asia asset base with Blackstone as a potential partner.

Additionally, these capital-recycling efforts to self-fund its growth reduces the company’s leverage levels and minimizes need to raise capital from equity issuance.

However, the onslaught of e-commerce on physical retailers has made them rationalize their store fleet, while others unable to contend with online giants are filing bankruptcies.  Amid these store closures and retailer bankruptcies, retail real estate landlords, including Taubman, Kimco Realty Corp KIM, Macerich Company MAC, among others, are witnessing a turbulent environment.

Such an environment has led to tenants demanding substantial lease concessions. In fact, management anticipates lease cancellation revenues for 2019 to be at levels above the company’s five-year average.

Taubman currently carries a Zacks Rank #3 (Hold). In the year-to-date period, shares of the company have underperformed the industry. The stock has declined 8.5% as against the industry’s rally of 15.6% during this period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.




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Blackstone Group Inc/The (BX) : Free Stock Analysis Report
 
Taubman Centers, Inc. (TCO) : Free Stock Analysis Report
 
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