Tapping into Asian markets has started to produce development opportunities for Taubman Centers Inc.
Two years after forming an Asian subsidiary to take on projects in the region, the Bloomfield Hills-based mall developer is working on two major projects in China and South Korea and is looking to open a dozen more centers in Asia in the next 10 years.
Taubman (NYSE: TCO) said earlier this month it had signed tentative agreements with its first tenants for New Songdo City, a 1.2 million-square-foot retail and entertainment complex planned for Inchon, South Korea, Bloomberg reported.
The company also was selected in January to be the retail leasing partner for Macao Studio City, a casino resort planned for Macao, China. The project is being developed by Cyber One Agents Ltd., a joint venture of Hong Kong-based eSun Holdings and New Cotai L.L.C., a group of U.S.-based investors and investment firms.
The developments show Taubman is capable of taking on large projects in growing markets outside the U.S., said Steve Kieras, Taubman’s senior vice president of development.
“These are probably the two most high-profile projects in Asia,” he said.
Taubman pitched the Asian developments, along with its portfolio of 23 U.S. shopping centers, to retailers during the International Council of Shopping Centers spring convention last week in Las Vegas.
The company is conducting both projects through its Hong Kong-based Taubman Asia division formed in April 2005. Taubman will continue to look for other growth opportunities in China, Korea, Japan, India and other Asian markets, Kieras said.
Taubman Asia President Morgan Parker told Reuters last month the company plans to open 12 malls in the region by 2017 and will invest up to $150 million a year in Asia.
Moving into Asian markets makes sense for Taubman because the company has built a niche around luxury retail, said Howard Davidowitz, chairman of New York City-based retail-consulting and investment-banking firm Davidowitz & Associates Inc.
As Asian economies grow, people are accumulating wealth and demanding more luxury goods, Davidowitz said. That means Taubman will be well-positioned to open luxury-centered shopping centers in the region, Davidowitz said.
“The malls (Taubman) built in the United States were always geared to higher-end stores, and they were always large-scale centers that were like extravaganzas where luxury people fit very well,” he said. “(Taubman’s) perfect for Asia.”
Kieras echoed that sentiment, saying Taubman’s size and the reputation of its retail developments give it strong positioning for Asian growth.
“We have a place in the industry we believe is unique,” Kieras said.
While Taubman’s Asian venture could present big opportunities, Matthew Ostrower, an analyst with New York City-based Morgan Stanley & Co. Inc., cautioned in a May 11 report that Taubman Asia could still face some challenges in its early stages.
“While we were encouraged by TCO’s recent bidding success at the Macao Studio City, we remain cautious on TCO’s still dilutive investment in Asian operations and management’s ability to successfully execute its plans and establish a footprint without causing prolonged and incremental dilutions to earnings,” the report said.
Ostrower said Taubman has likely gotten through its biggest challenge of opening an Asian office and hiring staff, but future earnings could be diluted if the company decides to expand its Asian operations.
In the first quarter ended March 31, Taubman reported funds from operations of $35.5 million or 65 cents a share on revenue of $145 million. That compares with funds from operations of $31.6 million or 60 cents on revenue of $138 million during the first quarter last year.
In 2006, Taubman reported funds from operations of $136.7 million or $2.56 a share on revenue of $579.3 million. That compares with funds from operations of $110.6 million or $2.17 a share on revenue of $479.4 million in 2005.
Funds from operations is a key measure of profitability for real estate investment trusts such as Taubman. |
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