Taubman's Earnings Top on Rev
Taubman Centers Inc. (TCO) – a real estate investment trust (:REIT) – has come up with decent first-quarter 2013 results with FFO (funds from operations) of 90 cents per share. This comfortably surpassed the Zacks Consensus Estimate of 84 cents and came well ahead of year-ago FFO per share of 75 cents. The better-than-expected results were primarily driven by increase in rents and solid recoveries.
Taubman’s total revenue during the reported quarter stood at $183.3 million, up 8.3% from the year-ago quarter and beat the Zacks Consensus Estimate of $175 million.
Behind the Headline Numbers
Taubman's leased space in all centers increased to 92.4% as of Mar 31, 2013 from 91.9% at prior-year end. Ending occupancy in all centers increased to 90.3% at the first-quarter end from 89.5% reported a year ago.
Average rent per square foot for the quarter was $47.83, increasing 4.2% from $45.90 in the year-ago quarter. Mall tenant sales per square foot improved 5.6% year over year, bringing the tally to $698 over the trailing 12-month period. Net Operating Income (:NOI), excluding lease cancellation income, increased 5% 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.
This included – Taubman Prestige Outlets Chesterfield (Chesterfield, Mo.), which is slated to open on Aug 2, 2013, The Mall at University Town Center (Sarasota, Fla.) on Oct 16, 2014, The Mall of San Juan (San Juan, Puerto Rico) on Mar 26, 2015, Saigao City Plaza – retail component (Xi'an, China) in 2015, Zhengzhou Vancouver Times Square (Zhengzhou, China) in 2015 and Hanam Union Square (Hanam, Gyeonggi Province, South Korea) in 2016.
Balance Sheet Position
As of Mar 31, 2013, cash and cash equivalents stood at $73.7 million, compared with $32.1 million at the prior-quarter end.
In January, 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 received $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 reduce its outstanding borrowings under the company's revolving lines of credit.
Further in March, in order to enhance its financial flexibility, Taubman disclosed a new primary unsecured revolving line of credit. With this new line, the company increased its erstwhile $650 million borrowing capacity to $1.1 billion. Additionally, it includes a provision, which will enable the company to increase its borrowing capacity up to $1.5 billion, if fully exercised.
Moreover in March, Taubman issued $170 million (including the exercise of the underwriter's option) of perpetual 6.25% Series K Cumulative Preferred Stock at $25.00 per share. The move came as part of its efforts to raise capital for decreasing its outstanding borrowings under its revolving lines of credit.
Outlook
Taubman has slightly lowered the upper end of its guidance for 2013 FFO per share. The company now expects its FFO in the range of $3.57 – $3.67 per share in 2013, compared with the prior range of $3.57 – $3.70 per share.
The modification is a result of a negative impact of 6.5 cent of its Series K Preferred Stock offering in Mar 2013. The updated guidance is based on comparable center NOI growth (excluding lease cancellation income) of at least 3% for the year.
Dividend Raise
In March, Taubman announced an 8.1% hike in its quarterly cash dividend rate. The increased dividend stood at 50 cents per share, up from 46.25 cents paid in the prior quarter. It was paid on Mar 29, 2013 to stockholders of record on Mar 18. The company never slashed its common dividend since it went public in 1992 and in fact has hiked its dividend 16 times since then, thereby leading to a 4.2% compounded annual growth rate.
Our Take
We are encouraged with the decent results at Taubman. The company has a solid portfolio of the best-in-class retail malls that generate robust mall tenant sales. Also, the company has a healthy balance sheet with adequate liquidity. The dividend hike also augurs well. Therefore, given its solid fundamentals, the company is well poised to maintain its growth momentum and simultaneously benefit shareholders with steadily rising dividends.
Yet, the possibility of store closures at many Taubman centers due to lease terminations undermines its future growth potential. Also, consumer purchases through catalogs and the Internet could hurt demand for its properties.
Taubman currently carries a Zacks Rank #3 (Hold).
Other REITs
A number of other REITs have reported this week. Of them, Prologis Inc.’s (PLD) first quarter 2013 core FFO per share came in at 40 cents, in line with the Zacks Consensus Estimate as well as the year-ago figure.
Results reflected decent revenues in the reported quarter, and completion of the Japan-REIT IPO as well as the European joint venture. Moreover, its strategic measures have helped it lower its overall debt level.
Also, Liberty Property Trust (LRY) reported first-quarter 2013 FFO of 65 cents per share, beating the Zacks Consensus Estimate by 2 cents. The results were attributable to the consistent performance of the overall portfolio as well as strong leasing and development activities.
We look forward to the results of another REIT, Plum Creek Timber Co. Inc. (PCL), which is scheduled to release its first-quarter 2013 results on Monday (Apr 29), after the market closes.
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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