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Taubman's opportunistic sale

To help shoulder its expensive takeover fight, Taubman Centers is capitalizing on sky-high mall prices to sell Biltmore Fashion Park in Phoenix for $158.5 million. Santa Monica, Calif.-based Macerich, which already owns six Phoenix malls, is acquiring the 611,000-square-foot, open-air center at a cap rate of 7.1 percent. Scheduled for completion in the fourth quarter, the deal includes $51 million in cash, $30 million in Macerich stock and $77.5 million in assumed debt.

Biltmore Fashion Park, anchored by Saks Fifth Avenue and Macy's, generates more than $430 per square foot in annual sales and is 90 percent occupied. Its sale will allow Taubman to buy back more of its common shares to fend off the hostile takeover instigated by Simon Property Group and Westfield America. Such a move might prove unpopular with Taubman's non-insider shareholders, many of whom are in favor of the Simon/Westfield bid, says Morgan Stanley analyst Matthew Ostrower.

The transaction -- which Wall Street views as more favorable to Taubman than Macerich -- could further Taubman's assertions that its portfolio is worth more than the $20 per share that Simon and Westfield are offering. According to Ostrower, the Biltmore deal's cap rate is significantly lower than Simon's bid, which implies a 7.8 percent cap rate. Valued at a 7 percent cap rate, Taubman shares should be worth between $23 and $24.

While Ostrower says the deal's fixed-debt financing and the mall's powerful demographics are two perks for Macerich, he is also troubled by the increasingly low ROA the company and other large REITs including Simon and General Growth are settling for.

The Biltmore Fashion Park deal, which represents a 1.2 price-to-tenant sales ratio and $521 per square foot, is only the latest example of high-flying mall valuations. General Growth and Simon Property Group have also been paying top-dollar for A-class properties.

"Biltmore is a good strategic fit for Macerich since it can cross lease the center with its Scottsdale Fashion Square, also in Phoenix," says Prudential Financial analyst James Sullivan. "Macerich may also be able to lease spaces to retailers at Scottsdale that may have been previously precluded by radius clauses in their Biltmore leases."

More on Taubman Centers Takeover Fight:
REITs go shopping — for other REITs
Simon Claims Limited Victory in Taubman Takeover Lawsuit, But the Fight is Far From Over
Will A White Knight Save Taubman?
Home State Steps In To Defend Taubman From Takeover
The Taubman/Simon Family Feud Continues…

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