Israeli Firm Gets Mills Stake

CHEVY CHASE, MD-Israeli real estate firm Gazit-Globe has acquired 9% of the outstanding common stock, or 5.1 million shares, of troubled retail REIT the Mills Corp., according to an SEC filing. Gazit-Globe executives say they are willing to spend $1.2 billion to recapitalize the mall owner, which has shot up in trading by nearly 16%, to close to $20 per share.

Mills' management is exploring strategic alternatives, including a sale of the company, after higher-than-expected development costs and accounting regularities that have led to an SEC investigation as well as the sale of its foreign malls. Gazit-Globe's chairman Chaim Katzman says that Mills should not sell. "We believe Mills can and should be rebuilt," he asserts in a statement.

Gazit's SEC filing says that it is willing to invest the $1.2 billion through preferred stock at a price per share of $24.50. Through existing funds, it has $700 million to invest in Mills. The Royal Bank of Canada will provide additional financing, the filing says.

Before entering a confidentiality agreement with Mills, Gazit's management is asking for the income, expense and sales per sf of assets on a property-by-property basis. It also wants more information on debt balances, liabilities, leases, joint ventures and litigation.

A Gazit spokesman tells GSR that "the next step is sort of up to Mills' board." Mills officials were not immediately available to comment for this article.

Gazit-Globe owns 41% of publicly traded grocery-center owner North Miami Beach, FL-based Equity One, among other real estate firms. Katzman is the chairman of both Gazit-Globe and Equity One.

Mills owns 39 malls and retail-entertainment centers throughout the US. Earlier this month its sold its foreign assets, a center each in Canada, Scotland and Spain, to Canadian mall owner Ivanhoe Cambridge for $988 million.