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Taubman Lags Peers In Third Quarter

Last week kicked off a whirlwind of third-quarter earnings calls as retail REITs rushed to announce their numbers before next week's NAREIT conference. In general, leasing spreads were up across the board (20 percent on average), with landlords charging higher and higher rents as leases rolled over. But Taubman Centers lost steam during the period. Though senior-level management was likely distracted in the past year by Simon's hostile takeover attempt, Citigroup Smith Barney analyst Jonathan Litt says Taubman's underperformance in leasing, development and asset management indicates a personnel shift is needed to revive the REIT's internal growth.

For Taubman Centers, same-property NOI growth was up only 0.25 percent and management reported an "unexpected" occupancy decline to 87.1 percent. In a report, Citigroup Smith Barney's Litt calls Taubman's third-quarter occupancy number the lowest in the mall sector. Litt also says Taubman's disappointing double-digit leasing spread increases are due to high occupancy costs at its tony malls. Average base rents were $43.52 for the quarter, with year-to-date leasing spreads averaging only 11.6 percent.

On the company's conference call, CEO Robert Taubman admitted most of the malls it opened in 2001 (including The Shops at Willow Bend in Dallas, Dolphin Mall in Miami, International Plaza in Tampa and Wellington Green in Palm Beach, Fla.) are not meeting expectations. "Dolphin Mall and Willow Bend should never have been built, or at least built when they were," Litt says. "Dallas is overbuilt and Miami still hasn't recouped all of its lost tourist dollars after 9/11." Taubman also admitted that the REIT's planned Oyster Bay, Long Island, mall will likely produce below average initial returns given the $33 million the company has already invested in the mall, which is supposed to open in 2006.

The one bright spot for Taubman was that third-quarter comp-store sales grew a solid 4.1 percent, thanks to six consecutive months of increases.

At Simon Property Group, third-quarter mall occupancy was 91.9 percent, flat from 2002. Average base rents for Simon's regional mall portfolio rose 4.9 percent to $31.87 per square foot. Year-to-date, same-property net operating income (NOI) rose 3.2 percent. Simon's comparable store sales were up 1.8 percent over 2002 with $398 per square foot.

The Indianapolis-based company announced it will spend $200-$300 million annually on new developments, as well as an additional $100-$200 on redevelopments moving forward. It also says new developments that had originally been planned as traditional regional malls are being re-worked as open-air centers. Simon also announced it has upped its stake in Kravco Investments to 50 percent and in Kravco Co. to 50 percent. Simon also refinanced its Forum Shoppes property in Las Vegas to a value of $1 billion, $700 million more than the construction costs of the shopping center's first three phases. Simon is placing a $545 million, seven-year mortgage on the property that carries an interest rate of 4.794 percent. The REIT says it will pay down an existing $175 million mortgage, creating $370 million in excess proceeds.

Columbia, Md.-based The Rouse Co. reported that same-store NOI at its retail center portfolio rose 5 percent for the third quarter. Average base rents for Rouse's retail portfolio rose 16 percent to $43.92 per square foot. And the REIT's sales per square foot averaged $425. Rouse announced it has completed a buyback of the Lord & Taylor anchor space at Fashion Show Mall in Las Vegas and plans to convert the store into two levels of small-shop space.

At The Macerich Co. in Santa Monica, Calif., same-store NOI growth increased 1 percent for the quarter and 2.75 percent year-to-date. Rents on leases expiring in the third quarter were 18 percent above expiring levels. The REIT took significant steps to reduce its amount of floating debt, which had reached 35 percent after its recent acquisition of the Westcor portfolio. Macerich closed on a $200 million loan to refinance FlatIron Crossing in Denver, Colo. The 10-year loan bears interest at 5.23 percent and replaces an existing $180 million floating rate loan. It also announced plans to take out a fixed-rate loan on its recently acquired Northridge Mall in Salinas, Calif. JP Morgan analyst Michael Mueller estimates these activities, combined with a new $250 million, two-year swap will reduce Macerich's floating debt exposure to 18 percent by the first quarter of 2004.

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