Unlocking The Value In Taubman

Taubman Centers has been in business for over 60 years, and the company was founded by A. Alford Taubman in 1950. It converted to a REIT in 1992, and the Bloomfield Hills-based REIT has maintained a consistent cash payout history for over 25 years.

Summary

  • It’s not just the generalist REIT investors who are confused.
  • Some activist REIT investors are also confused.
  • “It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.” - Sherlock Holmes.

“Data! Data! Data!” he cried impatiently. “I can’t make bricks without clay.”

  • Sherlock Holmes

In the September edition of the Forbes Real Estate Investor, I decided to debunk some the myths surrounding the “malls are dead” thesis. I explained that:

‘A’ mall owners should be long-term winners, as highly productive bricks-and-mortar locations remain the cheapest form of distribution for retailers, and have been delivering solid fundamental growth due to sticky demand from both consumers and retailers, who increasingly include more previously pure-play e-commerce companies opening physical locations.

According to B&S Research, “the listed mall sector controls 80% of the top 109 malls with Taubman Centers (TCO) having the largest percentage of its portfolio rated ‘A++’ and ‘A+’ rated at 64% of value. Simon Property Group (SPG), General Growth (GGP), and Macerich (MAC) also have significant percentages of their value in the top echelons”.

A++ quality malls, which represent less than 3.5% of all malls, account for 22% of all value. B quality malls, which represent 37% of all malls, account for 19% of value. C quality malls, which represent 28% of all malls, account for 4% of value. D quality malls, which represent 7% of all malls, account for 0.2% of value.

It’s not just the generalist REIT investors who are confused over the difference between a lower-quality mall owner – like Washington Prime (WPG) – and an “A” mall owner – like Taubman; some activist REIT investors are also confused.

Charles Elson with Land & Buildings, an activist investor said (May 1, 2017):

“And I think this Board, given its structure and its practices, is not doing its job, in my view, effectively as the kind of oversight vehicle you want. Why? Number 1 – you have dual class voting. That is always a problem in any company because any time someone’s economic interests and voting interests are diverging, obviously the voting interest is greater than the economic interest, you have a problem of accountability and it creates all kinds of potential problems for the shareholders of the company vis-à-vis management accountability and all kinds of problematic things typically come out of the dual class structure and it raises problematic vis-à-vis the dual class structure. This is a dual class company – it went dual class after I believe it went public, which is interesting too…”

Elson’s “blatant misrepresentation of Taubman’s share structure reflects either an intentional attempt to mislead shareholders or a complete lack of understanding – either of which is very troubling”.

Also, throughout his tenure as an equity research analyst, Jonathan Litt (with Land & Buildings), has consistently under-estimated Taubman’s performance, demonstrating his fundamental lack of understanding of Taubman’s business model”.

It’s been a while since I have written a detailed research report on Taubman Centers, instead I have been watching some of the activist drama from the sidelines. However, it’s now time to get back in the game and provide my input on the blue-chip Mall REIT. Of course, I’m not an activist, I’m simply a “suggestivist” investor…

Taubman Centers: A Treasure Chest Unlocked

More to read in Blue Chip
false