In a move to pare down its debt, the embattled Mills Corp. said Monday that it was selling off nearly $1 billion in assets to Ivanhoe Cambridge, a Canadian real estate investor and developer.
The Maryland-based real estate investment trust, which owns more than 40 properties totaling 51 million square feet of retail and commercial space in the U.S., Canada and Europe, sold its 50 percent stake in both Vaughan Mills, in Ontario, and St. Enoch Centre, in Glasgow, to Ivanhoe, which was its joint venture partner on those projects. It also sold its wholly owned Madrid Xanadu project, in Madrid, to Ivanhoe.
The three projects, which are valued at $1.5 billion, will sell for $981 million. All three transactions are expected to close by the end of September and net roughly $500 million for The Mills. The company will use the proceeds to pay down part of a $2.23 billion financing facility from Goldman Sachs Mortgage Co. The goal is to boost the company’s liquidity and flexibility and help bring it out of financial distress.
Industry observers have long predicted a fire sale of Mills’ assets, which are primarily retail and entertainment centers. Though the company put itself on the auction block with a bidding contest in May, few REITs expressed interest in buying Mills in its entirety. With the company’s cloudy financial history and an ongoing Securities and Exchange Commission investigation into its financial reporting, REIT executives and analysts said it was near impossible to accurately value the company as a whole.
Vornado Realty Trust dipped its toe into the water with preliminary talks with Mills earlier in the year. Some other executives, such as David Simon, of Simon Property Group; John Bucksbaum, of General Growth Properties, and Frank Lowy, of The Westfield Group, expressed interest in the past several months in exploring one-off deals for assets that might fit with their own portfolios, given that individual assets can be more easily appraised and be acquired piecemeal. Still, little action has been taken by other U.S.-based real estate companies to move on Mills’ assets.
The announcement of this deal with Ivanhoe comes on the heels of last week’s announcement that its earnings restatements — prompted by the SEC investigation — would reduce Mills’ bottom line by $210 million.
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In a SEC filing the company said “as previously disclosed, we have been engaged in a comprehensive review of our accounting policies and practices to determine whether these policies and practices were consistent with [general accounting principals]. At this time, we have substantially completed our analysis and determination of whether the accounting issues we have identified pursuant to our review resulted in errors requiring restatement.”
The REIT’s stock has dropped more than 70 percent in the past 52-week period, according to Yahoo Finance.
Mills continues construction at Meadowlands Xanadu; in suburban New Jersey, and Block 37, at 108 North State Street in downtown Chicago. The development cost for the Meadowlands Xanadu project has skyrocketed from its original $1.3 billion estimate to $2 billion, according to a company statement.