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TCO Starts on The Mall of San Juan

JWN TCO

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Taubman Centers Inc. (TCO - Analyst Report), a real estate investment trust (REIT), recently announced the commencement of construction work at its first upscale shopping center  – The Mall of San Juan – in San Juan of Puerto Rico island. The project, worth $405 million worth, is slated to be completed in 2014.

San Juan, the capital and densely inhabited municipality of Puerto Rico, is the manufacturing, financial, tourism and cultural hub of the island. The first hotel by Hilton Corp. in San Juan in 1949 saw the emergence of Puerto Rico’s tourism industry. Since then, Puerto Rico has been regarded as the premier tourist destination in the Caribbean. It generates approximately $2 billion revenue annually, with San Juan as a major contributor.

The Mall of San Juan, formerly known as Plaza Internacional, is a 650,000 square foot property. It is situated closest to the San Jose Lagoon at the south end of the Teodoro Moscoso Bridge and is in close proximity to touristic spots Isla Verde and Condado. The shopping center will comprise roughly 100 stores and restaurants, about 60% of which will open their first outlet on the island. Among them, Saks Incorporated and Nordstrom Inc. (JWN - Analyst Report) will be the first stores of the upscale retail brands on the island.

The property is being constructed in collaboration with New Century Development of Puerto Rico. The collaborator company will also add a 225-room Crowne Plaza hotel and casino, built to adjoin the mall. Taubman expects the property to generate revenue of approximately $275 to $300 million with projected tax revenues of more than $26 million.

Taubman Centers has a strong portfolio of the best-in-class retail malls that generate the highest average sales per square foot in the country. The company is currently on an expansion spree with development and reconstruction of properties in major submarkets across the world. Recently, the company also entered into a joint venture with a Beijing based company to open its debut retail development property in Xi’an Saigao City Plaza in Xi’an.

Consequently, the company is relatively better placed than most of its peers to withstand the challenges of the macroeconomic environment. These factors have in turn enabled Taubman to pay steady dividends to its shareholders. Since its initial public offering in 1992, Taubman has never reduced its common dividend, and has increased dividend payment on 15 occasions. The current dividend affirms a yield of 2.39%.

Taubman Centers will likely release its third quarter 2012 earnings on October 24, 2012. The Zacks Consensus Estimate for third quarter 2012 FFO (fund from operations) is pegged at 76 cents per share. We have a long-term Neutral recommendation on the stock. However, it holds a Zacks #2 Rank (a short-term Buy rating).

Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.

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