Taubman Centers Inc. (TCO - Analyst Report), a real estate investment trust (REIT), has recently announced a secondary offering of 1.75 million common shares to raise cash and repay debt. The company will also grant The Goldman Sachs Group, Inc. (GS - Analyst Report) – the sole underwriter for the offering, an option to purchase an additional 262,500 shares to cover any over-allotments.
Taubman intends to utilize the proceeds from the equity offer to repay debt under its $615 million revolving credit facility. Earlier, during first quarter 2011, the company had completed the previously announced one-year extension of its $550 million line of credit with its existing 12-bank syndicate.
The strategic moves are aimed at increasing its liquidity, as the company has historically maintained one of the strongest balance sheets in the sector.
In order to further reduce its operating expenses, Taubman has simultaneously pruned its pre-development spending in the U.S. and Asia, as well as significantly reducing its overall workforce. This, in turn, has considerably improved the bottom line of the company.
Taubman has also increased its earlier FFO (funds from operations) guidance for full year 2011 in the range of $2.88 to $2.98 per share from $2.86 to $2.98.
Funds from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income, while adjusted FFO excludes the impairment and restructuring charges.
Taubman owns, develops, acquires and operates regional and super-regional shopping centers throughout the U.S. and Asia. Retail shopping centers spanning over 400,000 square feet of gross leaseable area (GLA) are generally referred to as regional shopping centers, while those with GLA in excess of 800,000 square feet are called super-regional shopping centers.
A large number of these shopping centers are strategically located in major metropolitan areas, including Los Angeles, San Francisco, Denver, Detroit, Phoenix, Miami, Dallas, Tampa, Orlando and Washington DC.
Taubman has a strong portfolio of the best-in-class retail malls that generate the highest average sales per square foot in the country. On a trailing 12-month basis, mall tenant sales were $581 per square foot during first quarter 2011.
Furthermore, the shopping centers are located in the most affluent regions of the country; thereby, enabling retailers to target high-end upscale customers and maximize their profitability.
We maintain our Neutral recommendation on Taubman Centers, which presently has a Zacks #3 Rank that translates into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #3 Rank for Equity One Inc. (EQY - Snapshot Report), one of the peers of Taubman.