Blackstone Buys 50% Stake in Taubman Asia Mall Holdings in $480M Deal

Taubman Centers announced late last week that it has agreed to sell a 50 percent stake in the shopping centre assets of its Asian division to US alternative investment giant Blackstone in a deal valued at $480 million.

The transaction gives Blackstone significant holdings in three fully leased shopping centres – one each in the Chinese cities of Xi’an and Zhengzhou, and a third in the South Korean city of Hanam – as Stephen Schwarzman’s New York-based firm continues to buy up retail properties in Asia.

For Michigan-based Taubman, which began developing the first of the three properties through its Taubman Asia division in 2013, the investment from Blackstone allows the company to realise a capital gain on its Asian investments while allying with one of the world’s largest real estate investors for potential future expansion in the region.

Blackstone Adds Stake in Three Malls to Asia Portfolio

“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,” Chris Heady, Asia Pacific chairman and head of real estate for Asia at Blackstone said in a statement.

The deal gives Blackstone a 17.15 percent stake in Taubman’s Starfield Hanam project in Korea, a 25 percent interest in CityOn Xi’an in the capital of China’s Shaanxi province and a 24.5 percent holding in CityOn Zhengzhou, in the capital of China’s Henan province. The two mainland properties were developed as joint ventures with Beijing’s Wangfujing department store, while the Korean project was co-developed with Korean department store operator Shinsegae Group.

In mid-2018 Blackstone closed on $7.1 billion in investment for its Blackstone Real Estate Partners Asia II fund.

Mid-Range Properties Fully Leased

Starfield Hanam, which at 459,498 square metres (4,946,000 square feet) of total retail floor area (158,000 square metres of gross leasable space) is South Korea’s second-largest shopping mall, opened in September 2016, while the 93,000 square metre CityOn Xi’an debuted in April 2016 and CityOn Zhengzhou, which measures 85,000 square metres, held its opening ceremony in March of 2017.

All three facilities target mid-market consumers and are said to be 100 percent leased. The properties also benefited from having a high percent of restaurant and entertainment tenants among their retail offerings, which make them less susceptible to competition from e-commerce.

“In partnership with Wangfujing in China and Shinsegae in South Korea, Taubman has built an impressive platform of three world class and dominant shopping centers and we look forward to working closely together in the future,” Blackstone’s Heady added.

Taubman Expects Gain of $315M

For Taubman, the sale is expected to generate net cash proceeds of around $315 million, after transaction costs and the allocation to Blackstone of its share of third-party debt, according to the statement, with closings expected on an ongoing basis throughout 2019.

“This transaction not only confirms the success of our platform in Asia, it increases our liquidity and strengthens our balance sheet in an earnings-accretive manner,” said Simon J Leopold, executive vice president and chief financial officer at Taubman said in the statement.

The transaction, which values Taubman’s total holdings in the projects at $960 million, according to a presentation provided by the developer, is being conducted at a 4.1 percent cap rate, and provides for an additional $50 million bonus to the Michigan-based firm, which will continue to operate the assets following the transaction, based on 2019 results for the properties.

In its presentation last week, Taubman indicated that the deal realised value creation of around $325 million on its investment, and that it was recovering nearly all of its equity investment while retaining half of its ownership stake in the portfolio. JP Morgan acted as exclusive financial advisor to Taubman on the transaction.

The company’s figures show that the three projects involved a total investment of approximately $635 million, with $480 million of that as equity and the remainder as debt. Taubman’s development of the three properties, according to the percentage held in the projects, cost the company $148 million for CityOn Xian, $330 million for Starfield Hanam and $157 million for CityOn Zhengzhou.

Betting on the Future of Physical Retail in Asia

Despite the attention given to the rise of e-commerce in Asia, Blackstone’s investment in Taubman’s projects is the latest in series of bets that indicate that the firm, which has $136 billion in real estate assets under management according to its website, remains optimistic about the future of Asia’s shopping centres.

In late December Blackstone acquired the 120,000 square metre Vivocity Shanghai shopping mall from Singapore’s Mapletree Investments as part of a $1.25 billion deal for a mixed-use complex in the city’s Minhang district. Like the CityOn and Starfield Hanam projects, Vivocity Shanghai, which opened in May 2017, was fully leased.

Also in December, Mingtiandi reported that Blackstone had joined a consortium which also included Gaw Capital Partners and Goldman Sachs in purchasing a set of 12 Hong Kong shopping centres from Link REIT for HK$12.01 billion ($1.54 billion).

Several years earlier Blackstone had profited from its 2013 purchase of a 40 percent stake in Shenzhen-based mall developer SCP, forming a joint venture through which it developed a series of mainland shopping centres, before selling its holdings in the company to China Vanke for $1.9 billion in 2016.

Sources at Blackstone declined to comment on the potential for developing future retail centres in Asia with Taubman. However, in a statement, Robert S. Taubman, chairman and CEO of the firm that bears his family name said, “We think Blackstone will be a valuable strategic partner that can help us grow our platform in Asia.”