(TCO) Taubman Centers Prices Equity Offer

Taubman Centers Inc. (TCO), a real estate investment trust (REIT), has priced its equity offer of 1.75 million common shares announced recently at $56.50 each. The secondary offering is part of its strategic initiative to raise cash and repay debt. Taubman has also decided to grant The Goldman Sachs Group, Inc. (GS) – 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 tactical 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. Fund 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.

The company 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.

A large number of these shopping centers are strategically located in the most affluent regions of the country; thereby, enabling retailers to target high-end upscale customers and maximize their profitability. These include major metropolitan areas such as Los Angeles, San Francisco, Denver, Detroit, Phoenix, Miami, Dallas, Tampa, Orlando and Washington DC.

We maintain our ‘Neutral’ recommendation on Taubman, which presently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.

GOLDMAN SACHS (GS): Free Stock Analysis Report

TAUBMAN CENTERS (TCO): Free Stock Analysis Report

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