Taubman (TCO) Completely Reopens All Operating Properties

Taubman Centers, Inc. TCO announced the reopening of all of its operating properties in the United States and Asia. In fact, per management, around 85% of stores at the company’s portfolio have reopened, while others continue to open every day.

Notably, in light of the COVID-19 pandemic, the company shut down the majority of its U.S. centers on Mar 19. In Asia, CityOn.Xi’an in Xi’an, China, was closed for nearly a month and reopened on Feb 29. CityOn.Zhengzhou in Zhengzhou, Henan, China, was closed for 10 days.

The closures significantly affected first-quarter 2020 mall-tenant sales and reduced customer traffic. This in turn is expected to have a significant adverse impact on the tenants’ ability to pay rent obligations. In fact, in March and April, the company received requests for rent relief or deferrals from its tenants. It also noted that a substantial portion of April rental revenue receivables was outstanding and under negotiation.

Nonetheless, as the pandemic eases its grip and the economy reopens, the company has gradually restarted operations at its shopping centers by complying with all local, state and federal laws, and adopting necessary enhanced safety protocols.

In addition to the 21 centers across the United States, Taubman’s three Asia shopping centers — CityOn.Xi’an, CityOn.Zhengzhouand Starfield Hanam (in Hanam, South Korea) — have been operating since the February end. In aggregate, around 95% of stores in Asia have reopened and this is driving comparable sales per square foot to match the 2019 level.

While a quick rebound in business will likely drive Taubman’s revenues in the near term, the company’s inability to reduce operating expenses and capital expenditure in response to the pandemic has likely resulted in its merger termination with Simon Property Group SPG in mid-June.

Taubman’s notable exposure to enclosed retail properties situated in densely-populated major metropolitan areas, high dependence on domestic and international tourism at numerous properties, and focus on high-end shopping exacerbated the impact.

In fact, with the termination of the deal, Simon filed a lawsuit against Taubman, alleging that the latter suffered a Material Adverse Event ("MAE") and breached covenants of the merger agreement.

Nonetheless, Taubman is of the opinion that the acquirer’s merger termination notice is invalid and without merit, and that Simon is bound to the transaction in all respects. In fact, the company plans to hold Simon to its obligations per the agreement, and will pursue to challenge Simon’s termination and legal claims.

Shares of this Zacks Rank #3 (Hold) company have lost 14.3% over the past three months as against the industry’s rally of 23.2%.

Stocks to Consider

City Office REIT, Inc.’s CIO funds from operations (FFO) per share estimate for the ongoing year have been unchanged at $1.11 over the past 30 days. The company currently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Washington Prime Group Inc.’s WPG Zacks Consensus Estimate for 2020 FFO per share has been revised marginally to 73 cents over the past week. The company currently carries a Zacks Rank of 2(Buy).

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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