How Macerich Plans to Create Value Through Assets Sales
Macerich: Beats Funds From Operations Estimates in 3Q15
A peek into the deal
Before its 3Q15 results, Macerich (MAC) announced the sale of minority stakes in eight US mall assets to Singapore’s GIC Private and property investor Heitman. GIC will own 40% of five malls while Heitman will have a 49% stake in three. The transactions are scheduled to close in phases starting in October, concluding in early 2016. Macerich will gain $2.3 billion from the transactions, which includes $1.1 billion of excess financing proceeds on five assets.
Stock repurchase and special dividends
The proceeds will be used for share repurchases under the company’s recently authorized $1.2 billion share repurchase program, debt reduction, and general corporate purposes. The company also plans to issue special dividends in the range of $3.50 to $4.50 per share.
Rationale of the deal
After Macerich rejected the recent takeover offer from Simon Property Group, the company was under pressure to boost shareholder value. This transaction was mainly aimed in that direction. Share repurchase will reduce the number of shares outstanding. This would increase the company’s EPS (earnings per share), thereby boosting the market value of the remaining shares. The special dividend would also please many shareholders.
Management’s take on the deal
In a conference call, Thomas O’Hern, the company’s senior executive vice president and chief financial officer, said that “we’re very pleased to enter into these transactions with these very well regarded investment partners this is an expansion of a long-standing relationship with Heitman and the beginning of a new one with the GIC. These transactions provide us with significant capital to create additional shareholder value they also highlight the significant differential between the private and public market valuation of our assets.”
The iShares US Real Estate ETF (IYR) invests 1.3% of its portfolio in Macerich. Peers WP Glimcher (WPG), CBL & Associates Properties (CBL), and Taubman Centers (TCO) have weights of 0.3%, 0.1%, and 0.5%, respectively, in the same portfolio.
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