Taubman Centers Inc. (TCO), a leading real estate investment trust (REIT), suffered a major setback recently as an unfavorable court ruling barred it from continuing construction of a proposed shopping mall in Oyster Bay, New York.
After 15 years of litigation, The New York State Court of Appeals – the highest court in the state – ruled against Taubman and upheld the plea of local activists on environmental grounds. In view of the court ruling, the company would probably have to write off over $150 million invested in the project.
The recent court order forbids Taubman to develop a high-end mall at the site and leaves it with three options – a) accepting defeat and selling the land; b) contemplating a mixed-use development; or c) re-appealing against the court order. A spokesperson said that the company is currently evaluating all options before taking a final call on the decision.
Taubman owns, develops, acquires and operates regional shopping centers throughout the US. A large number of these shopping centers are strategically located in major metropolitan areas, including Los Angeles, San Francisco, Denver, Detroit, Phoenix, Miami, Dallas, Tampa, Orlando and Washington DC.
The Oyster Bay project had been a continuous drag on the company’s earnings. During the fourth quarter of 2008, Taubman recorded $116 million as impairment charges for the project due to continued delay and uncertainty regarding completion of the project.
Taubman has a high quality roster of high-end and specialty retailers at its malls and commands some of the highest rents in its sector. High-end and specialty retailers have been the hit hardest in the current recession and this trend will continue through at least the end of this year.
The recent spate of unfavorable court rulings would also add to the woes of the company. However, we think Taubman is better positioned than many peers due to its clean balance sheet and minimal debt maturities. We reiterate our Hold rating of the company.
Read the full analyst report on “TCO”
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