Michigan-based Taubman Centers, Inc. (TCO) is a real estate investment trust (REIT) which owns and operates regional shopping centers. TCO owns a smaller number of properties in fewer geographic areas than its competitors, but these properties are more valuable than those of competing companies. TCO's tenant sales of $555 a square foot are the highest in the mall industry, and its properties command, on average, the highest rents of any mall operator in the nation. As a result, TCO's revenues and market capitalization are in line with its competitors even though the company owns fewer properties.
Like other retail REITs, TCO's fortunes are connected to those of its retail tenants, who fare poorly when the U.S. economy is contracting, and face threats from discount and stand alone big box stores.
In 2007 TCO increased its line of revolving credit and refinanced mature debt to insulate itself from the growing credit crisis - financing being crucial to a company that aquires real estate. As a result, the company won't have to pay off any of its long-term debt until 2010.
The company's properties are in urban or suburban metropolitan areas throughout the United States, and its shopping centers are relatively large, ranging in size from between 242,000 and 1.6M square feet of Gross Leasable Area (area available to be leased), with the smallest center housing over 60 stores and the largest over 200.
TCO's primary source of revenue comes from leasing space in its properties. TCO receives revenues from its tenants in the form of base rent (a pre-specified amount per square foot stipulated in a tenant's lease), expense reimbursements the company receives from its tenants for the costs of maintaining a tenant's space, and pre-specified "percentage rents" (percentage of tenants sales paid towards the property owner). TCO also earns a small amount of revenue each year from providing leasing and management services to third parties, though this accounted for only 6% of revenues in 2007.
Unlike many industry peers Taubman does not use acquisition of properties as its primary driver of growth. TCO prefers to expand by expanding and developing its existing properties. To fund its expansion TCO uses debt and equity issuances, and it recycles capital by selling existing centers. The company is not as focused as its peers on expanding its portfolio; since TCO went public in 1992 it has developed 12 new centers, purchsaed 8 and sold 16. The company is also examining expansion options in Asia, where it expects to develop five new properties over the next ten years.
During 2007 revenues at TCO continued to grow, up approximately 8% from 2006. The vast majority of the increase was seen in minimum rents and expense recoveries, due to the consolidation of one new center, the opening of development in October and the expansion of an existing retail center. Operating income was also up for the year. Comparing operating income with revenues, it is encouraging that TCO's operating income as a percentage of revenues has been steadily increasing, reaching 12% in 2007. TCO's operating income (revenues TCO receives from operating its properties less its expenses from operating those properties) is a measure of TCO's ability to operate its core business profitably. The company is becoming more efficient in operating its centers, as the percentage of revenue it is able to convert to income increases each year.
TCO's Funds From Operations (FFO) has also been steadily increasing. FFO, a performance measure commonly used in the real estate industry, is obtained from a company's net income, excluding any gain/sale on real estate sold during the period and excluding any depreciation/amortization. This is contrasted with TCO's net income, which has increased and decreased sporadically in the past five years. This again suggests that the company has been realizing steady increases in cash flow from its centers, even though its income fluctuates because of accounting gains or losses due to depreciation of its buildings.
TCO's Funds From Operations (FFO) has also been steadily increasing. FFO, a performance measure commonly used in the real estate industry, is obtained from a company's net income, excluding any gain/sale on real estate sold during the period and excluding any depreciation/amortization. This is contrasted with TCO's net income, which has increased and decreased sporadically over the past five years. This again suggests that the company has had steady increases in income from operating its centers, though its accounting income is sporadic due to accounting gains or losses due to the depreciation of its buildings.
TCO’s ownership is concentrated in the Taubman Family. The Taubman Family controls approximately 32% of the company's voting stock (common and Series B preferred stock, considered as a single class of stock for voting purposes). The family controls 91% of Series B preferred stock, which carries with it special rights such as nominating 4 individuals for election to the board of directors every year. Members of the Taubman family also serve as Chairman of the Board, President, Chief Executive Officer and Chief Operating Officer of TCO. TCO's articles of incorporation impose a stock ownership limit on any outside parties and, because these articles can't be changed without a 2/3 vote of shareholders, it is unlikely TCO will undergo a change of control without the consent of the Taubman family.
TCO competes with numerous other firms to both acquire properties and lease tenants. Competing REITs include:
The table below provides competitive data comparing TCO with some of its close competitors.
|Company||Revenues (12/31/2007, Millions)||Market Cap(Billions, 04/17/08)||Operating Properties||Number of States With Operating Properties|
|Taubman Centers (TCO)||626.82 ||2.96 ||23 ||10 |
|Macerich Company (MAC)||896.37 ||5.35 ||94 ||19 |
|Simon Property Group (SPG)||3650.80 ||22.75 ||320 ||41 |
|General Growth Properties (GGP)||3261.80 ||9.92 ||200 ||45 |
|CBL & Associates Properties (CBL)||1040.63 ||1.62 ||159 ||27 |
In 2007 TCO's market share among global Retail REITs was just 3%. Market share is listed by Funds From Operations (FFO), a metric that takes into account earnings from existing properties but not cash from acquisitions or sales of assets. Globally there are 38 REITs focusing on retail properties producing an aggregate $10.0B in FFO.] Most of those were small companies, only 9 Retail REITs are listed in the Russell 1000.