Taubman Centers (NYSE: TCO) is a self-managed real estate investment trust (REIT) with a focus on owning, developing and managing regional shopping centers.
On Wednesday, Land & Buildings Investment Management, a notable activist investor with a specialized focus in real estate related investments, sent a letter to Taubman’s independent directors of the board.
Land & Buildings Founder and CIO Jonathan Litt made no attempt to skirt around the issue. As a shareholder he is frustrated with the company’s “dismal” stock performance and the company needs to take immediate action to unlock the “substantial value” that is trapped.
Litt highlighted the company’s “drastic” discount to its net asset value, “inferior” margins to its peers, “poor” capital allocation and “horrible” corporate governance practices.
In fact, Litt stated that he has been following the company intensely dating back to its IPO roadshow in 1992 and as a long-term shareholder he attempted to share his concerns with the company which have gone ignored.
“After decades of voicing our concerns to management we are done listening to excuses from the Taubman family for the Company’s undervaluation and inferior operating performance,” Litt wrote.
Litt continued that Taubman Centers’ operating margins are 670 basis points below its peers due to a “culture of lavish spending at the corporate level.” Moreover, management’s capital allocation policy has delivered “disastrous returns on many new developments, persistently and consistently.”
Litt further suggested that REIT investors do not own shares of Taubman Centers specifically due to its “horrible” corporate governance.
According to Litt’s estimates, the company’s stock on a net asset value basis should be closer to $144 per share – approximately 100 percent higher than its current price. The activist investor believes these levels can be achieved through improved operations and margins, superior capital allocation and shareholder-friendly corporate government enhancements.
“ In 1992, I attended the Taubman IPO roadshow at the Plaza Hotel in New York, and my prior firm acquired shares at the IPO,” Litt concluded in his letter. “For 14 years I published investment opinions on Taubman, often times documenting the numerous missteps of this management team. For the past eight years, since I founded Land and Buildings, we have continued to meet with management and analyze the investment opportunity at Taubman. For the past five months, I have had an active engagement with Taubman Chairman and CEO Bobby Taubman and implored him to take action to address the deplorable state we find the Company in today.”