CBL & Associates Properties Inc., one of the nation's largest mall and shopping center developers, on Tuesday unveiled its biggest joint venture ever.
Chattanooga-based CBL and New York pension fund TIAA-CREF announced a $1.09 billion joint venture in which the retirement system will invest about $480 million in four of CBL's key retail sites.
The companies and analysts said the deal will cut CBL's debt load and position the joint venture to pursue other acquisitions.
"This transaction will not only further our de-leveraging efforts by reducing our total debt by approximately $480 million, it will also create a vehicle to pursue future growth opportunities," said Stephen Lebovitz, CBL's chief executive officer.
Shares of CBL, which is the developer of Hamilton Place mall, hit a 52-week high after the announcement of $19.35 before closing at $19.22, up 77 cents, or 4.17 percent on the New York Stock Exchange.
TIAA-CREF, or Teachers Insurance and Annuity Association - College Retirement Equities Fund, will assume about $268 million in debt on the properties, the companies said. CBL is expected to use the remainder of the pension fund's investment to cut other debt.
TIAA-CREF will acquire a 50 percent share in three malls: CoolSprings Galleria in Franklin, Tenn.; Oak Park Mall, outside Kansas City, and West County Center, outside St. Louis. Also, the giant pension fund will receive a 12 percent interest in Pearland Town Center, an open-air lifestyle center, outside Houston, according to CBL.
Analyst Nathan Isbee of Stifel Nicolaus said in a research note that properties in which TIAA-CREF is receiving half interest are among the top 10 assets in CBL's portfolio. CBL holds interest in or manages 85 regional malls or open-air shopping centers.
Fund favors quality sites
Philip McAndrews, the pension fund's head of global real estate transactions and joint ventures, said the deal underscores its strategy to invest in high-quality, well-leased retail properties with experienced partners such as CBL.
Lebovitz said CBL has been exploring joint venture opportunities and its persistence and patience paid off.
"We believe TIAA-CREF is the right partner for CBL," he said.
Isbee termed the joint venture "a positive step" by cutting CBL's debt and providing the company with a deep-pocketed partner with a significantly lower cost of capital to acquire other assets.
"We expect the joint venture will pursue other higher quality mall acquisitions," he said.
Analyst Michael Mueller of J.P. Morgan also said in a research note that the deal is a new vehicle for external growth for CBL. He said the transaction will be slightly dilutive of earnings over the near term, but "a marginal plus" over time.
James Sullivan, an analyst for Cowen & Co., said in a note that TIAA-CREF has been a lender to CBL, and former members of its senior management have served on the CBL board.
"Those relationships likely facilitated this transaction," he said.
Katie Reinsmidt, CBL's vice president of corporate communications and investor relations, said the joint venture is the biggest for CBL in its more than 30 years.
"We're excited," she said.
TIAA-CREF is a national financial services organization and a provider of retirement services in the academic, research, medical and cultural fields with $453 billion in assets under management.
CBL, like many in the retail industry, was hit hard by the recession. While the company achieved funds from operations growth of 3.9 percent for 2008, FFO shrank in 2007 and 2009.
CBL's stock price came under pressure in 2007 and experienced even more dramatic declines in 2008 and the first quarter of 2009. By the end of 2009, however, CBL raised $381.8 million in net proceeds through the issuance of additional common equity shares during the year and the stock has since recovered some of its lost ground.