Buy Taubman's FFO Growth, Oppenheimer Says

• Taubman Centers, Inc. TCO Shares have declined 9.3 percent year to date and currently trade at 18 percent below the estimated NAV.
• Oppenheimer analyst Steve Manaker upgraded the rating on the company to Outperform, with a price target of $85.
• Manaker believes that Taubman’s stock offers an attractive combination of growth and value, with some of the key risks having reduced.

Analyst Steve Manaker noted that Taubman’s management had sold the company’s lower quality assets in 4Q14 and is replacing the lost NOI from developments.

Developments are risky and their execution and returns remain a concern area, Manaker said, while adding, “Given that some projects have opened and others are well along, we believe the chance of additional bad news from developments has decreased.”

Taubman’s development pipeline since 4Q14 is expected to generate $147 million of NOI once all the projects stabilize by 2018. The consequent strong NOI growth is expected to offset the NOI lost from sales.

The company’s current stock price implies “zero value for developments and an additional $757 million of value destruction,” the Oppenheimer report mentioned. “We view this as a more than ample margin of safety.”

Manaker believes that the wide gap between Taubman’s leased and occupied space is expected to narrow over the next 18 months, as tenants take occupancy and start paying rent.

Reduced developmental spending and increased rentals are likely to boost Taubman’s cash flows. “Our model assumes TCO raises the dividend/share by 10% in 1Q16 and buys back an additional 1 million shares in 3Q15 (@$73.50/share),” Manaker added.