Taubman Centers Inc. investors took the company to task for its underperformance in 2016 and pointed to the Taubman family’s “unchecked dominance” as cause for common shares remaining undervalued.
In an open letter to the mall operator’s board, which is led by two members of the Taubman family, Lands & Buildings Investment Management LLC founder Jonathan Litt didn’t hide his displeasure at the company’s fourth quarter and year-end 2016 financial outcome.
As the results included a 2017 guidance on funds from operations that was 4 percent below expectations, a 0.1 percent year-over-year decline in same-store net operating income, and plans for development and redevelopment spending to reach $400 million, Litt said 2016 was “a stark reminder” of why Taubman Centers’ stock is undervalued.
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In its Feb. 9 financial statement Taubman Centers posted $107.6 million in net income for 2016, down from $109.4 million the previous year, and ended with FFO per diluted common share of $3.91. The company said it expects 2017 FFO per diluted common share to be in the range of $3.67 to $3.82.
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But Litt said this is the third straight year of guidance misses from Taubman Centers and characterized the 2017 outlook as “dreadful…given the predictability of its business.”
He went on to say that “abysmal corporate governance, a bloated cost structure, inferior operating margins, and a lack of capital allocation discipline — despite industry leading sales growth, sales productivity and re-leasing spreads” has made it critical that independent board member “hold Bobby Taubman accountable for yet another disappointing quarter and earnings outlook.”
Robert Taubman is the president and chief executive officer and chairman of Taubman Centers, positions he has held since 1990 and 2001, respectively. He is the oldest son of A. Alfred Taubman, who founded Taubman Centers in 1950.
Litt questioned how the company can be seeing net operating income fall when overall retail sales at its malls increased over the fourth quarter by 5 percent and base rents increased by 2 percent, and answered saying the result is “squarely focused on decisions made by Bobby Taubman,” according to the letter.
“There appears to be a complete lack of focus on cost controls, a cultural issue at the company that emanates from the top,” Litt said.
General and administrative expenses within Taubman Centers are especially outsized, according to Litt, who added that this area of company cost equaled 6.1 percent of 2016 revenue — purportedly four times the expense of “high quality peers.”
A Taubman spokesman replied by noting, “Taubman Centers’ board and management team are committed to continue building on the company’s 25-year history of outstanding shareholder value creation and working collaboratively with, and in the best interests of, all shareholders.”
Upon the release of the 2016 financial results, Robert Taubman said he’s “pleased with our results” and that they are “in line with our expectations.”
“We are confident that through the continued execution of our strategy we will enhance our portfolio and drive value for our shareholders in 2017 and beyond.”