Taubman Centers Inc., reporting strong results for 2018, has agreed to sell a 50 percent stake in its ownership in three Asia-based shopping centers to The Blackstone Group LP.
Taubman said the deal will help reduce debt, increase liquidity, provide a better return on equity, and that the interests being sold are valued at $480 million.
The Bloomfield Hills, Mich.-based developer said it would remain the partner responsible for the management of the three shopping centers, Stafield Hanam in South Korea; CityOn.Xi’an in China and CityOn.Zhengzhou in Zhenghou, China. The deal leaves Taubman with a 17.15 percent in the South Korea property; a 25 percent stake in the Xi’an property and a 24.5 percent stake in the Zhengzhou property.
The company also said it will continue to pursue projects in Asia, though none are expected to be announced this year. Taubman is developing a project in Anseong, South Korea with Shinsegae.
The Blackstone deal is “consistent with Taubman’s history of recycling capital for growth once value is created from development projects,” said Robert S. Taubman, chairman, president and chief executive officer. “We think Blackstone will be a valuable strategic partner that can help us grow our platform in Asia.
“We are looking at a number of options for Asia, Anseung is scheduled to open in the latter portion of 2020,” Taubman added. “It remains our intent to bring a partner into Anseung at some point.”
“We’re excited to partner with a best-in-class developer and operator in Taubman and add these high-quality assets to Blackstone Property Partners’ recently launched Core Plus real estate investment unit in Asia,” said Chris Heady, chairman of Asia-Pacific and head of real estate Asia at Blackstone.
Net cash proceeds to Taubman are expected to be about $315 million, after transaction costs and the allocation to Blackstone of its share of third-party debt.
Regarding 2018, Taubman said, “We delivered very good results this year in a challenging retail environment. Our earnings growth was driven by better rents and recoveries, reduced operating expenses and positive contributions from our newest centers.”
For the year, comparable center NOI (net operating income) was up 4.4 percent, representing Taubman’s highest NOI growth in six years. Comparable center NOI, excluding lease cancellation income, was up 3.8 percent.
However, for the fourth quarter, comparable center NOI was down 2.6 percent (down 1.3 percent excluding lease cancellation income). “As expected, NOI growth was lower this quarter, due to the timing of net recoveries and the timing of two significant retail holidays in Asia, which shifted from the fourth quarter last year to the third quarter this year,” Taubman said.
Comparable center mall tenant sales per square foot were $824 for 2018, an increase of 8.6 percent from 2017. The fourth quarter of 2018 was up 10.1 percent.
Tenant sales per square foot in the company’s U.S. comparable centers were up 10.8 percent in the quarter, bringing 12-month trailing U.S. sales per square foot to a record high of $875, an increase of 8.2 percent.
“Sales per square foot growth was broad-based with nearly all centers and categories of merchandise up this year, including apparel which was up 8 percent,” said Taubman.
For the year, average rent per square foot in comparable centers was $57.51, up 3.9 percent from $55.36 last year. For the fourth quarter, average rent per square foot in comparable centers was $57.76, up 3.3 percent.
For the year, average rent per square foot in the company’s U.S. comparable centers reached an all-time high of $61.75, an increase of 2.4 percent over 2017. For the quarter, average rent per square foot in comparable U.S. centers was $61.92, up 2.2 percent.
Ending occupancy in comparable centers was 94.7 percent at year-end, down 1.0 percent from 95.7 percent on December 31, 2017. Ending occupancy in all centers was 94.6 percent, down 0.2 percent from last year.
Leased space in all centers was 96.2 percent, up 0.3 percent from last year. Leased space in comparable centers was 96.3 percent at year-end, down 0.3 percent compared to Dec. 31, 2017.
Since 2016, there have been several major retail bankruptcies and thousands of store closings, though Taubman said, “The retail landscape seems to be stabilizing for higher quality assets.”
He singled out several openings of digitally native brands, such as Untuckit and Casper, as good additions to Taubman properties. Also, a b8ta store opened in Taubman’s Short Hills, N.J. mall.
Taubman cited the continued bifurcation of the real estate industry, where “great assets will get the best retailers, grow their sales and build NOI.”
“We continue to believe that the demand for new retail supply in the U.S. is extremely limited,” Taubman said. “The retail supply will actually reduce pretty dramatically. We believe a lot of centers that are challenged will ultimately close.
He also spoke of the possibility of pursuing joint ventures in the U.S., similar to the Asia deal. “I don’t want to be specific, but we have certain assets that we would be happy to joint venture with. There is interest in high-quality assets. Debt and equity is flowing into the high-quality assets.”
Taubman suggested that the company had little exposure to retail bankruptcies, noting that with the Charlotte Russe and Things Remembered vacancies, Taubman had six Charlotte Russe closings and seven Things Remembered stores.