Taubman Q1 FFO Beats, Revs Miss - Analyst Blog

Retail real estate investment trust (REIT) – Taubman Centers Inc. TCO – reported first-quarter 2014 FFO (funds from operations) per share of 90 cents, which beat the Zacks Consensus Estimate by a whisker and was in line with the year-ago figure.

The results were aided by increases in rents and a dip in interest expenses. However, the positives were dwarfed by one-time items occured in 2013 and the impact of recent divestitures.

Taubman's total revenue during the reported quarter stood at $174.8 million, down 4.6% year over year. It also came below the Zacks Consensus Estimate of $176 million. This was due to a decline across all revenue items, especially minimum rents and management, leasing, and development services revenues.

Quarter in Detail

Taubman's leased space in comparable centers increased to 92.6% as of Mar 31, 2014 from 92.2% at the prior-year end. However, ending occupancy at comparable centers remained flat at 90.3%. Average rent per square foot for the quarter was $50.21, increasing 3.6% on a year-over-year basis. For the 12 months trailing period, comparable mall tenant sales per square foot dropped 0.7% year over year to $712.

Net Operating Income (NOI), excluding lease cancellation income, rose 2.0% year over year to $160.4 million. Higher expenses resulting from bad weather conditions in the Midwest and Northeast regions offset the NOI growth.

During the said quarter, Taubman closed its several previously announced divestiture deals. This included the sale of 49.9% stake in the Tampa, Fla-based retail property – International Plaza; its 50% stake in a Tempe-based indoor outlet mall – Arizona Mills; and a Syosset, N.Y.-based land parcel. These dispositions helped Taubman reap a profit of $476 million (net of related income taxes).

Liquidity

As of Mar 31, 2014, Taubman's cash and cash equivalents stood at $178.1 million, up from $41.0 million at year-end 2013.

Dividend

In March, Taubman announced an 8% increase in its quarterly dividend rate to 54 cents per share from 50 cents paid in the prior quarter. The increased dividend was paid on Mar 31, 2014 to shareholders of record on Mar 17.

2014 Outlook Reaffirmed

Taubman has reiterated its FFO per share guidance in the range of $3.72 – $3.82 for full-year 2014. The Zacks Consensus Estimate of $3.79 for the same falls within the guided range.

This outlook incorporates the negative impact of 12 cents per share owing to the sale of the company's stake in Arizona Mills and International Plaza. The outlook also included the comparable center NOI growth expectation (excluding lease cancellation income) of around 3% for 2014.

Our Viewpoint

Although the revenue miss is discouraging, Taubman's solid portfolio of best-in-class retail malls bodes well for long-term growth. Also, the company's strong balance sheet position and rent escalations at its properties promise better growth prospects. Additionally, the dividend hike is noteworthy as its increases investors' confidence on the stock.

However, Taubman's ongoing disposition spree weighs upon the near-term earnings. Furthermore, tough competition and rising customer purchases through catalogs and the Internet remain headwinds for the demand of its properties.

Taubman currently has a Zacks Rank #3 (Hold). Investors interested in the retail REIT industry may consider stocks like Excel Trust, Inc. EXL, General Growth Properties, Inc. GGP and Simon Property Group Inc. SPG. All these stocks carry a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.