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Taubman Q4 FFO Beats on Revs

Zacks Equity Research

Retail real estate investment trust (:REIT) – Taubman Centers Inc.’s (TCO) – adjusted FFO (funds from operations) per share of $1.11 rose 11.0% year over year. Also it came 3.7% ahead of the Zacks Consensus Estimate of $1.07.

The better-than-expected performance was driven by a rise in rents, lowered interest expense, and the purchase of an additional stake in International Plaza (Tampa, Fla.) and Waterside Shops (Naples, Fla.) in late 2012.

Taubman’s total revenue during the reported quarter stood at $211.8 million, up 1.0% from the year-ago quarter and 2.8% above the Zacks Consensus Estimate of $206 million. This was mainly driven by a rise in minimum rents and expense recoveries. On the other hand, total expenses decreased 4.1% year over year.

For full-year 2013, Taubman’s adjusted FFO stood at $3.65 per share on revenues of $767.2 million. This was higher than the prior-year adjusted FFO per share of $3.34 on revenues of around $748.0 million.

Quarter in Detail

Taubman's leased space in comparable centers increased to 93.6% as of Dec 31, 2013 from 93.3% at prior-year end. Moreover, as of Dec 31, 2013, ending occupancy at comparable centers moved north to 92.1% from 91.8% on Dec 31, 2012.

Average rent per square foot for the quarter was $48.90, increasing 3.7% from $47.14 in the year-ago quarter. Net Operating Income (:NOI), excluding lease cancellation income, rose 1.9% year over year.

Comparable mall tenant sales per square foot (excluding its interest in Arizona Mills that was sold in Jan 2014) climbed 1.8% year over year, leading the tally to $721 for 2013.

Notable Activities during Q3

Taubman disclosed its participation in The Mall at Miami Worldcenter (Miami, Fla.) in December. This reflects its third partnership with The Forbes Company. Miami Worldcenter, spanning over 25 acres, will provide a mix of retail, residential, office, hospitality, and entertainment zones. Development and management of the shopping center will be watched over by The Forbes Company. The retail center is expected to open in late 2016.

Taubman is making efforts to renovate, expand, and redevelop a number of centers and the company expects to get a weighted average return of 7.5% to 8% on its $265 million share of investment in these centers. These centers include The Mall at Green Hills (Nashville, Tenn., Cherry Creek Shopping Center (Denver, Colo)., Dolphin Mall (Miami, Fla., Beverly Center (Los Angeles, Calif.) and Sunvalley (Concord, Calif.).

On the other hand, in Jan 2014, Taubman disclosed the sale of a Syosset, N.Y.-based land parcel and the divestiture of stake in a Tempe-based indoor outlet mall – Arizona Mills – to Simon Property Group, Inc. (SPG).

This was made for $60 million in cash and 555,150 partnership units in Simon Property Group Limited Partnership from the divestiture. Moreover, with the disposition, Taubman was relieved of its share worth $84 million of the mortgage loan on Arizona Mills worth $167 million. This brought the deal’s total value to $230 million.

Moreover, last month, Taubman disclosed the sale of its 49.9% stake in the Tampa, Florida-based retail property – International Plaza. The $499 million deal price included a cash consideration of $337 million and beneficial interest in debt of about $162 million.

Balance Sheet Position

Taubman exited the year 2013 with cash and cash equivalents of around $41.0 million, up from $32.1 million at year-end 2012.

Share Repurchase

Taubman disclosed a $200 million share buyback program in Aug 2013. Around 473,763 shares of its common stock were repurchased for $65.65 per share during fourth-quarter 2013. The company had $148 million remaining under its share buyback authorization as of Dec 31.

2014 Outlook

Taubman expects FFO per share in the range of $3.72 – $3.82 for full-year 2014. This outlook incorporates the negative impact of 12 cents per share owing to the sale of the company's 50% stake in Arizona Mills and a 49.9% interest in International Plaza.

Our Take

We are encouraged with the decent results at Taubman. With its solid portfolio of best-in-class retail malls, Taubman is well poised to improve its results in the quarters ahead. Strategic constructions and redevelopments at high-end markets are expected to be accretive to its top line going forward.

However, Taubman’s huge development and redevelopment pipeline increases operational risks. 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) and Federal Realty Investment Trust (FRT). Both 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.

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