Taubman Jumps After Activist Asks Company to Consider a Sale

Updated on
  • Litt sees ‘tremendous opportunity’ to increase stock price
  • Mall owner says it’s ‘executing on a clear strategic plan’

Taubman Centers Inc. shares jumped after activist investor Jonathan Litt, known for targeting real estate companies, said the mall owner needs to cut costs or consider putting itself up for sale. 

The Bloomfield Hills, Michigan-based company needs to narrow what Litt sees as a gap between its share price and the value of its malls, he said in a letter to board members Wednesday. Litt’s firm, Land and Buildings Investment Management LLC, owned about 141,000 Taubman shares, or 0.2 percent of the company, as of June 30, according to data compiled by Bloomberg.

“There is a tremendous opportunity to reverse decades of poor stewardship, which could allow the stock to reach its net asset value of $106 per share, or approximately 50 percent upside from current levels,” Litt said in the letter. “We estimate fair value is closer to $144 per share, or approximately 100 percent upside from current levels, which is achievable through improved operations and margins, superior capital allocation and shareholder-friendly corporate governance enhancements.”

Taubman shares climbed 5.3 percent to $74.97 at 12:47 p.m. in New York. They rose as much as 11 percent earlier this morning, their biggest intraday increase since May 2009.

The company has 24 malls across the U.S., including high-end destinations such as the Mall at Short Hills in New Jersey and Beverly Center in Los Angeles. The stock had fallen 7.2 percent this year before today’s increase, the worst performance in a Bloomberg index of regional mall owners.

Taubman “welcomes open and constructive dialogue toward the goal of enhancing long-term value,” the landlord said in an e-mailed statement Tuesday following a Wall Street Journal report on Litt’s plans. The company “is successfully executing on a clear strategic plan to own, manage, develop and acquire high-quality retail properties.”

The discount in Taubman’s share price relative to the value of its assets is due to the company’s new projects, BTIG analysts Michael Gorman and James Sullivan said in a report Wednesday. The “risky development pipeline” includes new malls in Puerto Rico, China and South Korea, markets where the company “has no experience,” the analysts said. Projects in Asia are a distraction from Taubman’s prime U.S. properties and should be monetized through a sale or joint venture, Litt said on a conference call to discuss his plan.

Corporate Governance

Litt cited the company’s “dubious distinction” of having the worst corporate governance score among all real estate investment trusts as ranked by Green Street Advisors LLC, a REIT research firm. Litt recommended de-staggering the election of board members, reducing the tenure from 14 years to less than seven and separating the chairman and chief executive officer roles. He also recommended outsiders including Scot Sellers, former CEO of apartment landlord Archstone-Smith Trust, to replace a director who recently resigned.

“Whether it is a management-led privatization or a sale of the company to a third party, all options should be evaluated,” Litt wrote in the letter.

Litt has been involved in activist campaigns at MGM Resorts International and NorthStar Asset Management Group Inc. He last year sought changes to the board of mall owner Macerich Co., which later agreed to add independent directors and end a stockholder-rights plan.

(Updates with analyst comments in seventh paragraph.)
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