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Feature Article, May 2006
Breaking The Barrier
Taubman Centers closed 2005 by announcing its sales per square foot for the year were north of $500. With big plans for the future, SCB interviews Robert Taubman to find out what’s in store.
Randall Shearin
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Taubman will open The Mall at Partridge Creek in Clinton Township, Michigan, in 2007.
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Taubman Centers recently broke a record in the shopping center industry by announcing that its average sales per square foot in 2005 were $508 — the first time a mall REIT has broken the $500 barrier. Over the last 10 years, Taubman has transformed its portfolio by disposing of assets and recycling the capital to build new regional centers. 2005 saw the company open Northlake Mall in Charlotte, North Carolina, and in 2007 Taubman will open The Mall at Partridge Creek, an anchored, open-air regional mall in Clinton Township, Michigan.
Shopping Center Business recently spoke with Robert S. Taubman, chairman, president and CEO of Bloomfield Hills, Michigan-based Taubman Centers, to see what the company has in store.
SCB: In 2005, your average sales per square foot were $508. Taubman is the first company to break that barrier. What does this milestone mean for the company and for the industry?
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Robert S. Taubman, chairman, CEO and president of Taubman Centers.
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Taubman: At the end of the day, everything that the landlord does to a particular location to make it more shopper friendly transfers into sales per square foot. We’re talking about things like creating good parking, good access, keeping the center clean, having the right merchandise and maintaining a secure environment. All of that ends up in one number. At the end of the day, that’s what the retailer cares about. It shows them how much volume they can do. That will drive their profitability in the center. The more volume they do, the more money they make, the more rent we can charge as a landlord, the more we can reinvest and bring the best new merchants to the center. It becomes a cycle of success. Because you have the best merchants, you attract the most shoppers and you do the most business. More of the best and unique merchants then want to be at your center. This [sales per square foot] number is critical because it shows that our portfolio is a highly productive one where shoppers like to be, that we have malls where retailers make money and that the properties we own are extremely valuable. It also shows the consistency of our portfolio: we don’t just have one or two properties that are performing well.
SCB: Is it easy to maintain a portfolio with that high average of sales per square foot?
Taubman: We’ve had very few years with flat to no growth in our sales productivity. The last 3 years we’ve had enormous growth, including last year, when we had 9 percent sales per square foot growth, significantly outperforming the industry. If you look at all the publicly traded regional mall companies, the range in comparable center sales productivity was between 1.5 percent and 7 percent growth, with the average at around 4.7 percent. We came in at nearly double that. This shows that the cycle of success continues to feed on itself and create greater relative or disproportionate growth. The reasons for that include the high quality of the properties. The demographics and growth of the markets also translate into the dollar per square foot figure. It takes a lot of proactive management to create a good sales per square foot number.
SCB: What would you say are some of the factors leading to Taubman’s success today?
Taubman: One I would point to immediately would be Florida. About 25 percent of our assets today are in Florida. Florida is experiencing phenomenal growth. We are also focusing on the upper moderate to luxury customer base. Those tenants have generally performed better than the junior to moderate category across the board. Part of having highly productive centers is that we get those upper moderate and luxury tenants that won’t locate in every center.
SCB: Luxury is one of the fastest growing segments of the U.S. retail market. How has this impacted your niche in the market?
Taubman: It has been very synergistic. As the demand for luxury brand locations has grown, we have been in a position to help satisfy that demand. When you have a leading luxury retailer coming to a specific market, and they pick a location, that location tends to become the venue that all the luxury brands want to come to. They don’t want to separate; they want to be next to each other.
SCB: What is your leasing department doing to create high revenue generating tenants?
Taubman: We have a long history of seeking the most unique merchants. We like to call ourselves ‘the retailer of retailers.’ In the end, it’s like the food in a restaurant: a customer may come once for the décor, but if the food isn’t good, you’re not going to keep coming back. To us, the guts of our center are the merchandise we’re offering and the stores that are there. One of the most critical competencies of leasing at our company is to seek out and find that newest merchandise. We’re fortunate to have so many fine retailers in our centers. When they are successful with a single concept, they want to increase those successful locations with additional brands. We want to attract the first concepts from existing retailers. The first Gap store was in one of our shopping centers. Three out of the first four new Ruehl concept stores from Abercrombie rolled out in our centers. When Apple decided to open retail stores a few years ago, over half the initial 10 or 15 stores were in our centers. We want our shoppers to see new tenants that they won’t see in every shopping center.
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Taubman opened Northlake Mall in Charlotte, North Carolina, during 2005.
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SCB: Last year, Taubman opened Northlake Mall in Charlotte, North Carolina. What are some of the new intricacies you introduced in that center?
Taubman: We have a number of planning techniques that we employed in the center that are new. We invented the idea of the soft play area many years ago, and at Northlake, we created a themed soft play area with the cooperation of Warner Bros. It’s themed with the Looney Tunes characters. It is another way of creating a new partnership with an important company. We also created a sports court. It is a place, sponsored by Coca-Cola, where shoppers — or those accompanying a shopper — can go to watch a sporting event being televised. These are just a few of the things that we did differently. That whole north Charlotte area is expanding like mad, and we are very pleased with the early results of that center.
SCB: Can you give us a preview of your next two centers: The Pier at Caesars and The Mall at Partridge Creek?
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Taubman will co-own The Pier at Caesars in Atlantic City, New Jersey, when the project opens next month.
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Taubman: The Pier at Caesars is opening late spring. It is about 300,000 square feet of shops on three levels directly on the pier along the boardwalk at Atlantic City. It is an amazing project that our longtime partner Sheldon Gordon conceived and created. In our view, just as Sheldon brought better dining and shopping options to Las Vegas with The Forum Shops, he is doing the same thing in Atlantic City. This is the first time that Gucci, Louis Vuitton, Burberry and Tiffany & Co. are locating in Atlantic City. I am very excited about this development. The Mall at Partridge Creek is another unique project for us. It is a 640,000-square-foot one-level, open-air anchored regional mall in Clinton Township, Michigan. It’s internally oriented with double loaded retail down a traditional mall-like corridor. It will have over 300,000 square feet of mall shop space including 50,000 square feet of table-service, sit-down restaurants. We will have at least six restaurants. In addition to the restaurants serving as our anchors, we’ll have Nordstrom, Parisian and a 14-screen MJR Theatre. MJR is an outstanding local operator. The merchants we will have will be in that upper moderate to better price point that really isn’t represented at all within the market today. The center is located in the fastest growing marketplace in the Detroit metropolitan region. Over the last 6 years, it has created approximately 40 percent of the growth in the Detroit metropolitan area. The project will open in fall 2007, with Nordstrom following in spring 2008.
SCB: Taubman sold Woodland Mall in Grand Rapids earlier this year to PREIT. What are you doing with that capital?
Taubman: We’ve always sold assets from time to time for one reason or another. Recycling capital is a long part of our history. Ten years ago we started with 19 assets. Since then, we’ve built 11 centers, bought six, sold 15 and netted out to 21 centers in our portfolio, not including The Pier at Caesars. Along the way, we’ve increased our FFO per share by about 9 percent compounded. Over that same 10-year period of time, we’ve delivered a 21 percent return to our shareholders. We have a very different strategy that we have pursued compared to our competitors. While they acquire, they don’t sell as often. They are successful consolidators. They have also had great returns doing so. We have a unique strategy where we like the size of our platform and we are about building and owning very high-quality assets. We’ve been able to do that and remain competitive with our peers with regard to FFO and shareholder growth.
SCB: Two years ago, Taubman launched Taubman Asia with plans to develop projects overseas. How is that initiative coming?
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International Plaza, Tampa, Florida.
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Taubman: Our fundamental strategy is to grow 8 to 10 percent per year by virtue of our core growth, which is the growing of sales, as well as growth of rent by the roll-over of leases over time. That rent growth and sales growth is about 5 percent of our 8 to 10 percent growth. About 3 percent of our annualized growth is through our external growth program, which is through new development in the U.S. As long as we are able to invest between $100 million to $150 million per year, and receive north of 10 percent unleveraged returns in today’s marketplace, we can produce enough FFO per share growth to add about 3 percent. Adding it to the 5 percent in our core, we end up with an 8 percent-plus growth rate. That U.S. development model is based on working on 10 to 15 projects at any time. From that comes greater than $100 million worth of investment each year on average. That translates into about a project a year. Over the last 10 years we have developed 11 projects and bought six others. If we look at Asia, we are trying to replicate our U.S. development business model. We’re trying to find ways to invest $100 million-plus to create at least one project every year. We expect our first project to emerge between 2008 and 2010. In the U.S. it takes, on average, about 10 years from inception to opening, to develop a shopping center. It has taken us more than 20 years in some locations — it took us 21 years to develop International Plaza in Tampa, but we ended up with one of the greatest properties in the United States. We’re being patient in Asia; we’re prepared to wait for the right opportunity. If we can invest the same kind of capital in Asia as we do in the U.S., we may be able to achieve a greater than 10 percent growth rate on average over a rolling 5-year period of time. Given our smaller overall size as a $6 billion company, we believe that this may allow us to grow faster and have a better long term growth rate than our peers.
©2006 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.
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