Taubman Centers (TCO) Shares Gain on Q1 FFO Beat, Occupancy Up
Shares of Taubman Centers Inc. TCO gained 2.6% during regular trading session on May 1, reflecting investors’ reaction toward its funds from operations (FFO) beat. The company reported first-quarter 2019 FFO per share of 93 cents, surpassing the Zacks Consensus Estimate of 90 cents. The figure compares favorably with the year-ago quarter’s reported tally of 88 cents. On an adjusted basis, FFO per share came in at 95 cents.
Results reflected growth in comparable center net operating income (NOI) and higher average rents. Further, percentage of leased space and occupancy in comparable centers grew during the quarter.
Moreover, adjusted revenues, including rental revenues, overage rents and revenues from management, leasing, and development services for the quarter, came in at $148.6 million, outpacing the Zacks Consensus Estimate of $148.1 million. The reported figure, however, came in lower than the prior-year quarter’s reported tally of $161.5 million.
Quarter in Detail
Comparable center NOI (excluding lease cancellation income) increased 2.3% in the first quarter. Further, average rent per square foot for the company’s comparable centers came in at $56.15, up 1.3% from the year-earlier quarter. For the period ended Mar 31, 2019, the trailing 12-month releasing spreads per square foot were 7.1%. Moreover, comparable center mall tenant sales per square foot were up 18.6% year over year in the reported quarter.
As of Mar 31, 2019, leased space in comparable centers was 95.9%, up 0.7% from the comparable period last year. Additionally, ending occupancy in comparable centers was 93.5% at end of the quarter, up 0.3% year over year.
During the first quarter, the company completed a 1.2-billion Chinese Yuan Renminbi (RMB) 10-year, fully-amortizing, non-recourse financing at its CityOn.Xi’an (Xi’an, China) joint venture. The loan bears interest at an all-in fixed rate of 6%. As of March 31, 2019, about $49 million had been drawn.
Liquidity
Taubman Centers exited first-quarter 2019 with cash and cash equivalents of $38.2 million, down from the $48.4 million reported at the end of December 2018.
Guidance
The company revised its projections for 2019 FFO per share to $3.60-$3.72, from $3.62-$3.74. This reflects net impact of 2 cents in the first quarter from restructuring charges, cost associated with shareholder activism and fluctuation in the fair value of equity securities. In addition, the outlook includes the adoption of the new lease accounting standard. However, the company’s expectation of adjusted FFO per share remains stable at $3.62-$3.74.
The Zacks Consensus Estimate for the same is pinned at $3.69, which is within the guided range.
The full-year FFO per share guidance is backed by assumption of comparable-center NOI growth, excluding lease cancellation income, of about 2%.
Our Viewpoint
Taubman Centers recorded the 11th consecutive quarter of positive sales growth in first-quarter 2019. The company’s solid retail real estate portfolios, high-quality retailers in tenant roster, and diligent restructuring measures have the capacity to support its long-term growth. Focus on implementing cost-saving initiatives also augurs well. Nonetheless, declining mall traffic, bankruptcies and store closures have emerged as pressing concerns for the company.
In April, the company acquired a 48.5% interest in The Gardens Mall, in an off-market, non-cash transaction for 1.5 million Taubman Realty Group Limited Partnership (TRG) units and the assumption of its pro-rata share of debt. The company expects the deal to be neutral to slightly accretive to FFO and adjusted FFO in 2019.
Taubman Centers, Inc. Price, Consensus and EPS Surprise
Taubman Centers, Inc. Price, Consensus and EPS Surprise | Taubman Centers, Inc. Quote
Currently, Taubman Centers has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other REITs
Simon Property Group, Inc.’s SPG first-quarter 2019 FFO per share of $3.04 per share exceeded the Zacks Consensus Estimate of $3.02. The FFO per share figure also surpassed the year-ago quarter’s reported tally of $2.87 by 5.9%.
Highwoods Properties Inc.’s HIW first-quarter FFO per share of 72 cents missed the Zacks Consensus Estimate of 84 cents. The figure also compared unfavorably with the year-ago quarter’s reported tally of 85 cents. Results were negatively impacted by the sudden closure of the company’s tenant Laser Spine Institute.
SITE Centers Corp. SITC posted first-quarter 2019 operating FFO per share of 32 cents, outpacing the Zacks Consensus Estimate of 29 cents. Results reflected growth in same-store net operating income.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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