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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
tco_ttm_sales.jpgtco_ttm_sales.jpg
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)
tco_ending_occupancy.pngtco_ending_occupancy.png
tco_rents.pngtco_rents.png
The 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.
tco_rent_change.pngtco_rent_change.png
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...
tco_ltvs.pngtco_ltvs.png
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...
cap_rate_trend.pngcap_rate_trend.png
Sharply rising
cap rates combined with...
mall_vacancies.pngmall_vacancies.png
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to subscribe to BoomBustBlog 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 2009Hovde 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 2009BoomBustBlogger 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 2009I 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
