Shopping For Income With A Taubman Centers Preferred

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 |  About: Taubman Centers, Inc. (TCO), Includes: EXL, KIM, KRG, VNO, WRI
by: Rubicon Associates

Joining the recent parade of REITs raising capital in the preferred stock market, Taubman Centers (NYSE:TCO) was in the market Thursday with a new $25 par cumulative redeemable preferred stock. The company is taking advantage of low rates and relatively cheap financing to redeem existing preferred stocks.

Details of the offering are:

Issuer Taubman Centers, Inc.
Issue Series J cumulative redeemable preferred
Rating Not rated
Size $75MM (3MM shares)
Coupon
Call Date August 2017
Dividends Quarterly in arrears on or about the last day of March, June, September and December
Use of Proceeds To redeem the outstanding Series G preferred stock and Series H preferred stock (aggregate amount $187 million).
Change of Control Redemption Yes
Convertible Yes, Upon occurrence of a change of control
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Prospectus

Issuer Description:

Taubman is a self-administered and self-managed REIT. Taubman Centers' ownership in the Operating Partnership as of August 1, 2012 consisted of a 69% managing general partnership interest, as well as Series G and H preferred equity interests. Taubman became the first publicly traded UPREIT in 1992.

Taubman is engaged in the ownership, management, leasing, acquisition, disposition, development and expansion of regional and super-regional retail shopping centers and interests therein. Its owned portfolio includes 24 urban and suburban shopping centers in 12 states. Taubman Properties Asia LLC and its subsidiaries, which is the platform for their expansion into China and South Korea, is headquartered in Hong Kong.

Footprint:

Although Taubman is not the largest REIT in the sector, it commands a $4.6B market capitalization and has a national property footprint.

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As well, Taubman commands some of the highest rents per square foot:

Both factors have combined to generate results:

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Which has created value for shareholders:

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While the REIT has produced favorable results for investors, they have done so while staying well within their debt covenants:

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Preferred Value:

To determine a valuation on the new Taubman preferred, the following peers have been priced:

  • Kimco Realty (NYSE:KIM),
  • Kite Realty (NYSE:KRG),
  • Excel Trust (NYSE:EXL),
  • Vornado Realty Trust (NYSE:VNO),
  • Weingarten Realty Investors (NYSE:WRI),
Issuer Ticker Coupon Price Yield Call Date
Taubman J TCOPrJ 7.625% $25.42 7.50% 9/15/12
KIMCO KIMPrJ 5.50% $24.69 5.56% 7/25/17
Kite Realty KRGPrA 8.25% $25.81 7.99% 12/7/15
Excel Trust EXLPrB 8.125% $26.30 7.72% 1/31/17
Vornado VNOPrK 5.70% $24.96 5.71% 7/18/17
Weingarten WRIPrF 6.50% $25.32 6.41% 9/15/12
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Bottom Line: Taubman has an enviable record of growth and performance. As the REIT is unrated, it will have to come cheap to recent issues. I have heard that price guidance is around 6.50%, which has value relative to similar sized peers, although tighter than small peers such as Kite and Excel.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: This article is for informational purposes only, it is not a recommendation to buy or sell any security and is strictly the opinion of Rubicon Associates LLC. Every investor is strongly encouraged to do their own research prior to investing.