Retail real estate investment trust (REIT) – Taubman Centers Inc. (TCO) – reported a 4.6% year over year decrease in revenues in the second quarter. Also, future concerns over the impact of interest rate hikes on REITs loom large. Amid this, should you hold the stock?
As a matter of fact, despite the year over year decline, the company’s revenues managed to beat the Zacks Consensus Estimate. Moreover, backed by reduced operating costs as well as interest expenses, Taubman reported second-quarter 2014 FFO per share of 86 cents, beating the Zacks Consensus Estimate by a nickel and the year-ago quarter figure by 11 cents.
We believe that with a best-in-class retail portfolio and a strong tenant base, Taubman is well poised to improve its results in the quarters ahead. Strategic investments in high-end markets bode well for the company’s top-line growth. Further, its decent balance sheet and cost-saving measures are encouraging. The company also raised its stake in a South Korean project.
Nevertheless, though divestitures are a strategic fit for the long term, they lead to earnings dilution in the near term. At the same time, Taubman’s huge development and redevelopment pipeline increases the operational risks. Furthermore, stiff competition, growing online sales and an anticipated rise in interest rates remain our concerns.
Echoing similar sentiments, over the last 30 days, the Zacks Consensus Estimate for 2014 climbed 0.6% to $3.57 per share while that for 2015 remained unchanged at $3.66 per share. Taubman currently carries a Zacks Rank #3 (Hold).
To gain a deeper insight into Taubman, you can refer to our updated research report issued on Sep 25, 2014.
Other Stocks to Consider
Investors interested in the retail REIT industry may consider better-ranked stocks like Washington Prime Group Inc. (WPG), Cedar Realty Trust, Inc. (CDR) and Regency Centers Corporation (REG). While Washington Prime sports a Zacks Rank #1 (Strong Buy), both Cedar and Regency 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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