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Taubman Centers Up on Buyout Deal With Simon, Tops Q4 Estimates

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Shares of Taubman Centers Inc. (TCO - Free Report) rallied more than 53% during Monday’s trading session, as retail REIT Simon Property Group (SPG - Free Report) agreed to acquire the former in a deal valued at $3.6 billion. Simultaneously, Taubman Centers also reported a better-than-expected performance for fourth-quarter 2019.

Simon Property will buy an 80% ownership stake in The Taubman Realty Group Limited Partnership ("TRG"). Simon Property will acquire all of Taubman common stock for $52.50 per share in cash. Moreover, the Taubman family will sell one-third of its ownership interest at the transaction price and remain a 20% partner in TRG.

Notably, TRG is engaged in the ownership, management and/or leasing of 26 super-regional shopping centers in the United States and Asia.  It will continue being managed by the current executive team, under the leadership of Taubman chairman, president and chief executive officer, Robert S. Taubman, in association with Simon, the company noted.

For Simon Property, which expects to fund the total cash consideration of $3.6 billion with existing liquidity, the deal is expected to be at least 3% accretive to its funds from operations (FFO) per share on an annualized basis, starting immediately upon consummation of the transaction.

For Taubman shareholders, this is a welcome move as the transaction price of $52.50 per share in cash denoted a 51% premium to Taubman Centers' closing price on Feb 7. Also, it represented a good 19% premium to total enterprise value, which includes debt and preferred equity. TRG’s capacity to invest in innovative retail environments for retailers and consumers will get a boost, helping in the delivery of attractive shopping and entertainment experiences to consumers.

Subject to a number of approvals, including two-thirds of the outstanding Taubman voting stock and a majority of the outstanding Taubman voting stock not held by the Taubman family as well as other customary closing conditions, this transaction is expected to close in mid-2020. Notably, the Taubman family, representing around 29% of the outstanding Taubman voting stock, has already decided to vote in favor of the transaction.

Earnings Announcement

Taubman Centers has also released its fourth-quarter and full-year 2019 earnings simultaneously. The company reported fourth-quarter 2019 adjusted FFO per share of 97 cents, beating the Zacks Consensus Estimate of 94 cents. The figure also compares favorably with the year-ago quarter’s reported tally of 91 cents.

Moreover, adjusted revenues, including rental revenues and overage rents for consolidated businesses, came in at around $159.7 million, surpassing the Zacks Consensus Estimate of $159.6 million.

For the full year, Taubman Centers reported adjusted FFO per share of $3.71, indicating a 3.1% year-over-year decline on revenues of $600.9 million.

Quarter in Detail

Comparable center NOI (excluding lease cancellation income) edged down 0.1% year over year. For the period ended Dec 31, 2019, the trailing 12-month releasing spread per square foot was down 1.1%. Results were impacted by a certain number of deals having an average lease term of less than two years. Excluding these leases, the releasing spread was 3.2%.

Comparable center tenant sales per square foot were up 3.1% in the fourth quarter, while average rent per square foot of $55.98 inched up 0.8%.

As of Dec 31, 2019, leased space in comparable centers was 95.7%, down 0.7% from Dec 31, 2018. Additionally, ending occupancy in comparable centers of 94.3% at the year-end marked a 0.6% decline from the prior-year end. Notably, occupancy and leased space performance was impacted by the Stamford Town Center, which is being marketed for sale, along with the Forever 21 store at The Mall at Short Hills (Short Hills, NJ) that closed in late December.

Portfolio Activity

Taubman Centers accomplished the sale of 50% of Taubman Asia’s interest in CityOn.Zhengzhou (Zhengzhou, China) in December to real estate funds managed by the Blackstone Group, Inc. for $89 million. The company, however, retained a 24.5% ownership stake in the center. Net proceeds of $47.5 million were received by the company, which were utilized for debt repayment.

Further, in line with Taubman’s strategy to sell 50% of its three Asia-based shopping centers to Blackstone, the former expects to complete the sale of Taubman Asia’s 50% interest in CityOn.Xi’an (Xi’an, China) to Blackstone in first-quarter 2020.

Liquidity

Taubman Centers exited fourth-quarter 2019 with cash and cash equivalents of nearly $102.8 million, up from the $48.4 million reported at the end of December 2018.

At present, Taubman Centers carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Taubman Centers, Inc. Price, Consensus and EPS Surprise
 

Taubman Centers, Inc. Price, Consensus and EPS Surprise

Taubman Centers, Inc. price-consensus-eps-surprise-chart | Taubman Centers, Inc. Quote

We, now, look forward to earnings announcement from REITs like Regency Centers Corporation (REG - Free Report) and SITE Centers Corp. (SITC - Free Report) releasing this week.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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