Taubman Beats on Solid Revs

Zacks

Taubman Centers Inc.’s (TCO) fourth quarter 2012 adjusted FFO (funds from operations) of $1.00 per share came in 3 cents ahead of the Zacks Consensus Estimate of 97 cents and above the prior-year quarter figure of 93 cents. The better-than-expected results were primarily driven by increase in rents and robust occupancy levels.

For full year 2012, the company’s adjusted FFO reached $3.34 per share, exceeding the Zacks Consensus Estimate of $3.24 per share as well as the prior-year figure of $2.84 per share.

Including non-recurring items, reported FFO per share stood at 94 cents, compared with $2.95 in the prior-year quarter, while full year 2012 FFO per share came in at $3.21, down from $4.86 reported a year ago.

Taubman’s total revenue during the reported quarter stood at $209.7 million, up 11.9% from the year-ago quarter and well ahead of the Zacks Consensus Estimate of $189 million. For full year 2012, total revenue came in at $748.0 million, increasing 16.0% from a year ago and exceeded the Zacks Consensus Estimate of $680 million.
 
Behind the Headline Numbers

Taubman's leased space in the same-store portfolio increased to 93.2% as of Dec 31, 2012 from 92.3% as of the prior-year end. Ending same-store occupancy increased to 91.6% at year end 2012 from 90.6% reported a year ago.

Average rent in the overall portfolio was $47.30 per square foot during the quarter, up 5.2% from $44.96 reported in the year-ago quarter. Mall tenant sales per square foot improved 7.3% year over year, bringing the tally to $688 over the trailing 12-month period. Moreover, mall tenant sales per square foot escalated 3.5% during the reported quarter. Net Operating Income (:NOI), excluding lease cancellation income, increased 4.6% year over year.

Notable Activities

During the reported quarter, the company continued its multi-pronged growth strategy with steady development work across outlet centers and traditional shopping centers both on the domestic frontier and international territories.

The company broke ground on The Mall at University Town Center, in Sarasota, Fla., invested in a joint venture (:JV) with Shinsegae Group, South Korea's largest retailer, for a shopping mall in Hanam, Gyeonggi Province, South Korea, an eastern suburb of Seoul.

Moreover, it acquired an additional 49.9% interest in International Plaza (Tampa, Fla.) for $437 million, bringing the company's ownership in the center to 100%, as well as purchasing an additional 25% interest in Waterside Shops (Naples, Fla.) for $78 million, bringing the company's ownership in the center to 50%.

Subsequent to the quarter-end, the company confirmed its third Taubman Asia investment and its second JV with Wangfujing in China. The JV will own a majority interest in and manage an approximately one million square foot multi-level shopping center to be located in Zhengzhou. The center is slated to open in 2015.

Balance Sheet Position

During the fourth quarter, Taubman completed a 12-year, non-recourse financing worth $350 million on the company's 50% owned Mall at Millenia.

Consequently, the company’s debt to total market cap ratio improved to 33.6% at the end of the quarter from 38.5% in the prior year. As of Dec 31, 2013, cash and cash equivalents stood at $32.1, compared with $24.0 million at the prior-year end.

Subsequent to the quarter end, the company accomplished a 10-year, non-recourse financing worth $225 million on Great Lakes Crossing Outlets (Auburn Hills, Mich.). The loan bears a fixed-rated interest of 3.63%. The company got around $100 million of excess proceeds following the repayment of the prior outstanding $126 million, 5.25% fixed rate loan. The company used the excess proceeds to lessen its outstanding borrowings under the company's revolving lines of credit.

Outlook

Taubman has introduced guidance for 2013. The company expects its FFO in the range of $3.57 – $3.70 per share in 2013.

In Conclusion

Taubman has a solid portfolio of the best-in-class retail malls that generates robust mall tenant sales. Acquisitions of favorably situated assets are expected to be accretive to its top line going forward. Also, the company has a healthy balance sheet with minimal debt maturities and adequate liquidity.

Taubman currently retains a Zacks Rank #2 (Buy). A number of other REITs that are also performing well include AmREIT, Inc. (AMRE), Federal Realty Investment Trust (FRT) and Simon Property Group Inc. (SPG), all carrying a Zacks Rank #2.


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.
 

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