Taubman Centers, Inc. TCO has an impressive footprint of dominant retail malls, located in posh regions that have high average sales productivity in the United States. This will likely enable the company to tide through the challenges prevailing in the retail real estate space.
In fact, its tenant roster boasts some high-quality national retailers, ensuring a steady source of rental revenues for the retail landlord. This has also enabled the company to witness 10 consecutive quarters of positive sales growth in fourth-quarter 2018.
The company is making strategic attempts to drive organic growth. Specifically, in an effort to realize operational efficiencies, Taubman undertook a restructuring of its workforce and reorganization of several functions.
The company has also undertaken strategic moves to put into place a number of cost-saving initiatives and reduce its pre-development spending. These efforts are likely to reduce its expenses, while driving bottom-line growth.
Additionally, it has been focusing on several cross-sell initiatives, as well as merchandising and productivity improvements at its retail centers. As part of such initiatives, the company is replacing lower volume tenants with higher productive retailers. Such efforts are likely to support its net operating income (NOI) growth.
Moreover, Taubman remains committed toward boosting shareholder wealth. In fact, this March, the company announced a 3.1% hike in its quarterly dividends. It has an impressive track record of paying dividends and has hiked dividends 22 times since 1996. Such shareholder-friendly moves boost investors’ confidence in the stock.
Nevertheless, mall traffic continues to suffer amid rapid shift in customers’ shopping preferences and patterns, with online purchases growing by leaps and bounds. These have made retailers reconsider their footprint and eventually opt for store closures. In addition, retailers unable to cope with competition are filing bankruptcies. This has emerged as a pressing concern for retail REITs like Kimco Realty Corp. KIM, The Macerich Company MAC, SITE Centers Corp. SITC and Taubman, as the trend is bringing down demand for the retail real estate space considerably.
This has led to tenants demanding substantial lease concessions, impacting Taubman’s operating performance. It might drag the company’s bottom-line results, hindering its ability to pay high dividends.
In addition, given its international presence, unfavorable foreign-currency movements remain a concern for Taubman.
Additionally, the company anticipates its share of consolidated and unconsolidated interest expense to be up this year, on a year-over-year basis. The upswing indicates higher interest rates and greater borrowing. Hence, any rise in interest rate will be unfavorable for Taubman, restricting its ability to refinance debt and impact the company’s financial results.
Shares of this Zacks #3 (Hold) Ranked company have underperformed its industry over the past three months, gaining 12.7% compared to the industry’s growth of 14.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Nonetheless, the trend in 2019 funds from operations (FFO) per share is encouraging as it witnessed marginal upward revision, over the past month.
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