- By PJ Pahygiannis
E-commerce has been giving shopping malls and their operators a run for their money. Traffic is down, impulse buying is down and many malls have gone extinct. But malls that are experience-based are thriving, such as malls that have restaurants, movie theaters and other forms of entertainment.
For example, Tanger's (SKT) revenue is up 3.3% year over year, while Taubman's (TCO) is up more than 20%. Between Tanger and Taubman, which will be the better buy for investors?
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The intrinsic value of TCO
It's a question of growth and profitability. We can look at these two mall operators three different ways to discover the one poised to thrive.
Keeping shareholders happy
REITs like Tanger and Taubman bring in regular cash flows since they get their revenue from rental payments under contractually-binding lease agreements that have specified time periods . Returning the required 90% of their taxable income to shareholders keeps shareholders happy, and keeping leftover cash on hand allows the companies to take advantage of opportunities. Cash also gives Taubman and Tanger opportunities to buy back shares, with Taubman raising their buyback by $250 million in 2015.
Here's how Tanger and Taubman go head to haed. Tanger has a $3.81 billion market cap, while Taubman has a $4.66 billion market cap.
| Tanger | $142.8 million | $1.56 billion | $211.2 million | $220.75 million |
| Taubman | $213 million | $2.64 billion | $134.12 million | $307.68 million |
Source: Yahoo! Finance
Taubman generates more free cash flow than Tanger, and Taubman has much more debt than Tanger when you compare debt to equity.
Given that Tanger is valued at a little more than 80% the size of Taubman, its debt position gives it the advantage over Taubman. A lower amount of debt tilts the scales in Tanger's favor.
Winner: Tanger.
Valuation
Finally, we come to the cold hard numbers: How cheap or expensive is each stock? Here are four different ratios to consider.
| Taubman | 40.61 | 56.21 | 7.93 | 4.75 |
| Tanger | 15.08 | 143.08 | 8.66 | 2.25 |
Source: Finviz
There is no cleae winner when you look at all four ratios; they both have their strengths and weaknesses -- though the market must think Taubman will struggle more in the years to come, looking at its extreme PEG ratio compared to Tanger's.
Also important to look at is each company's dividend. Taubman currently yields 3.08%. Tanger, likewise, yields 3.28%. As required, both pay out 90% of their earnings to shareholders.