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The Taubman Properties Q4-2009 Earnings Opinion: The CRE Trend Continues as Expected [
Taubman Centers, Inc. 4Q09 results
TCO
reported weak 4Q09 results with sagging core revenues and operating
results. The rental income (minimum rents and percentage rents)
declined 5.8% (y-o-y) to $92.5 mn from $98.2 mn in 4Q08.
However, the decline in non-cash expenses like depreciation
helped reduce the impact on bottom line from an accounting perspective
with net income (excluding impairment charges and a litigation charge)
declining lower 1.8% (y-o-y). Adjusted FFO which excludes the
impact of non-cash items like deprecation declined 5.1% (y-o-y) to
$76.6 mn from $80.8 mn in 4Q08.
Minimum rents declined
5.0% (y-o-y) to $87.1 mn from $91.6 mn in 4Q08. Average occupancy
dipped to 89.5% from 90.5% in 4Q08 and average base rent declined 3.2%
(y-o-y) to $42.56 PSF (per sq ft) from $43.96 PSF in 4Q08. While
the tenant sales per square feet were reported to improve 3.8%
(y-o-y), the percentage rents declined 17.1% (y-o-y) to $5.5 mn from
$6.6 mn in 4Q08 largely owing to reduced occupancy and reduced
percentage rents as % of mall tenant sales. Other revenues
which include shopping centre related revenues and lease cancellation
revenues dropped nearly 50% (y-o-y) to $8.4 mn from $16.8 mn in 4Q08
largely owing to negligible lease cancellation revenues of 0.5 mn
against $7.5 mn in 4Q08. The decline in core revenues were
offset by increase in management fees from Macao Studio City
development fees as well as higher expense recoveries. Total
revenues were down 1.9% (y-o-y) to $186.3 mn from $189.9 mn in 4Q08.
The Company recorded $126.3 mn of impairment charges in 4Q08.
Excluding the one time impairment charges, total expenses declined 4.0%
(y-o-y) or $6.4 mn largely coming from lower depreciation and
amortization, reduction in shopping centre expenses, reversal of
provisions for doubtful debts and lower interest expense. Some of
decline in these expenses were offset by increase in general and
administrative expenses. Although the Company benefitted from improved
expense recovery rate (recoveries as percentage of property expenses)
of 114.3% in 4Q09 from 106.8% in 4Q08 adding nearly $4.8 mn to the
bottom line, the same was largely offset by decline in gains from land
sales by $0.8 mn and as well decline in equity income from
unconsolidated JVs (excluding impairment charge and litigation charge)
of $1.8 mn.
In aggregate, net income (excluding impairment charge
and litigation charge) declined 1.8% (y-o-y). The Company has
changed the accounting for minority interest from Jan 2009 owing to
which the distributions in excess of net income are no longer deducted
from the net income and the adjustment for the same is done through
minority interest in the balance sheet. Consequently, the reported
allocation of net income between the Company and the minority interest
is not comparable with the previous years.
Adjusted FFO
declined 5.1% (y-o-y) to $76.6 mn from $80.8 mn in 4Q08 while adjusted
FFO available to common shareholders declined 4.7% (y-o-y) to $51.4 mn
from $53.9 mn in 4Q08 owing to slight increase in ownership of TCO in
TRG from 66.7% to 67.0%. Adjusted FFO per diluted share declined 7.0%
to $0.93 from $1.0 in 4Q08. The Company maintained dividend of $0.415
which led to payout ratio increasing to 45% from 42% in 4Q08.
The
Company's guidance for FFO per share within the range of $2.55 to
$2.75 is in line with Boombustblog's estimates of $2.60 per share.
Reggie
Middleton's view
TCO's results are a reflection of
continued weakness in operating performance of retail REITs. While the
Company is citing the positive year-on-year sales growth in tenant
sales per square feet in 4Q09 as a sign of recovery, the year-on-year
declines in occupancy and average rents shows continued weakness in
demand for retail space. Also if we look at absolute level of TCO's TTM
tenant sales per square feet in 4Q09, the tenant sales per sq feet
continues to remain at low levels with only marginal uptick of 0.2%
from TTM tenant sales in 3Q09. Reference pages 3 through 5 of the
professional and retail versions of the TCO Forensic Analysis for our
forecast of the same:
TCO Report - Retail
2009-11-27 11:41:15 355.95 Kb- TCO Report -
Professional 2009-11-27 11:42:05 663.14 Kb
The occupancy and average rent continues the downward momentum in
4Q09 as accurately anticipated in page 4 of our subscriber forensic
analysis TCO Report -
Professional 2009-11-27 11:42:05 663.14 Kb.
In 4Q09, the occupancy further declined to 89.6% from 90.5% in 4Q08
and 91.1% in 4Q07. Average base rent in 4Q09 recorded year-on-year
decline of 3.2%. The decline in occupancy and average rents are
contributing to decline in minimum rents which declined 5.0% (y-o-y).
However, the percentage rents are hit even harder owing to declining
tenant sales and lower percentage rents as % of tenant sales owing to
increased competition from excess supply in the market. The percentage
rents declined 17.1% (y-o-y)
company did not report the opening rent for new leases signed in 4Q09.
However, the previous data reveals sharp decline in opening rent
reflecting substantial weakness in demand.
In regards to the impairment charges, I reference the post in which the
TCO Forensic Analysis was initially released (seeThe Taubman Properties Research is Now
Available):
The following table summarizes
the valuation of each property through NOI-based and CFAT-based
approaches. Individual property valuations will be discussed in detail
separately, and released to professional subscribers.Click
to enlarge...
The two deep underwater properties - The Piers Shops at
Caesars and Regency Square were written down to the fair value by
recording impairment charge in 3Q09. While the former is being handed
over to the lenders for auction proceedings, the latter still remains
with the Company and the Company continues to service its debt
obligations. Additionally, there are 5 more properties
with LTV of more than 80%, making them highly susceptible to reach the
negative equity territory in case of further declines in rentals or
increase in cap rates.It is noteworthy that properties
with high LTV include a) the new developments during 2005- 2008 phase
and b) the existing properties against which additional debt was
raised during 2005-2008. Among the properties with LTV of more than
80%, Northlake Mall was the new development in 2005, The Piers Shops
was acquired in 2007, while additional debt was raised against
International Plaza, The Mall at Short Hills, The Mall at Wellington
Green and Waterside Shops during 2005-2008.Additionally,
there are four properties - MacArthur Center, The Mall at Partridge
Creek, Stony Point and Westfarms - with LTVs in the "immediately at
risk" zone.So, I am sure many are wondering if these
properties are destined to be written off, or what??? Well, let's look
at the trend...
Sharply
rising cap rates combined with...
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proprietary research.Institutional and high net worth CRE
investors and consumers of Wall Street asset management services may
find my analysis of the returns of private real estate funds of extreme
interest. See "Wall Street is Back to Paying Big
Bonuses. Are You Sharing in this New Found Prosperity?".Anyone
who has an interest in the CRE space should download my free 47 page
outlook for the sector in 2010: see Reggie Middleton's CRE 2010 Outlook (42 pages).I
also have a long and rich history analyzing GGP, the largest real
estate bankruptcy in the history of the indsutry, after announcing their
problems and profitably shorting them a year in advance of their
failure. GGP has been in the news again after Hovde and Ackman decided
to wage a PR battle against each other. See my take on the exchanges and
GGP's valuation:1. It was bound to happen. Reggie
Middleton vs Ackman vs Hovde on GGP!
(Reggie
Middleton's Boom Bust Blog/MyBlog)...s who own
opposing positions on the stock. Ackman/Pershing square,
who are long the company's stock, and Hovde Capital
Advisors, who are short the stock, and Reggie Middleton, the original
player! ...Saturday, 26 December 2009
Hovde
has issued a reply to Ackman's second GGP presentation.
These hedge funds put out more analysis than the bank analysts that
follow GGP, SERIOUSLY! For those that need a recap: My responses toTuesday, 29 December 2009
BoomBustBlogger NDbadger commented in the "It was bound to
happen. Reggie Middleton vs Ackman vs Hovde on
GGP!" thread: I didn't find Hovde's analysis compelling.
Would have liked AcTuesday, 29 December 2009
Additional CRE opinion...5. Reggie Middleton on the Recent Ackman
Short - Realty Income "O"
(Reggie Middleton's Boom Bust
Blog/MyBlog)Note to readers: due to a formatting
error, a significant amount of this article was not published. If you
read the article before 7 am 10/23/09, I suggest you peruse through it
one more time.Wednesday, 21 October 2009
I
recently received this heads up via email: Reggie, I just got out of
the Great Investors Best Ideas conference in Dallas and thought you'd
like Bill Ackman's short. He actually said there'Thursday,
08 October 2009
7. A Granular Look Into a $6 Billion REIT:
Is This the Next GGP?
(Reggie Middleton's Boom Bust
Blog/MyBlog)This is a corrected and extended update
of my glance into the Macerich update. This post was delayed due to
material data input errors which have been rectified. I've decided to
offer a peak into thMonday, 07 December 2009
- advertisements -
The charts say it all. Thanks Reggie.
Thanks Reggie for the great work. What a breath of fresh air a little clarity and truth can be.
Remember Sotheby's price fixing? No doubt they know how to get one over on people. And Taubman has high overhead with his personal holdings which inlcudes a $30mm Hampton house and the parties are cheap...
The last thing to go is lifestyle, that is why all these bastards are trying to play backgammon at the checker board.
Thank you Reggie for the hard work you share, please keep it coming.
-Lunatic Fringe