Retail real estate investment trust (REIT) – Taubman Centers Inc. (TCO) – reported second-quarter 2014 FFO (funds from operations) per share of 86 cents, beating the Zacks Consensus Estimate by a nickel and the year-ago quarter figure by 14.7%.
The solid performance was driven by increased rents and recoveries, along with reduced operating as well as interest expenses. However, share prices moved southward during yesterday’s regular trading session on broader market concerns.
Though Taubman’s total second-quarter revenue was down 4.6% year over year at roughly $170 million, yet it managed to beat the Zacks Consensus Estimate of $166 million.
Quarter in Detail
Comparable net operating income (NOI), excluding lease cancellation income, rose 4.5% year over year to $158.2 million. Average rent per square foot was $51.46, climbing 3.7% on a year-over-year basis. For the 12-months trailing period, comparable mall tenant sales per square foot inched down 0.9% year over year to $707.
Excluding temporary tenants, ending occupancy in comparable centers was 90.1% on Jun 30, 2014, reflecting a marginal dip of 0.5% year over year. Releasing spreads per square foot (trailing 12 month) for the period ended Jun 30, 2014, were 15.4%.
In June, Taubman Centers announced the sale of seven malls to Starwood Capital Group in a transaction valued at $1.4 billion. The move comes as part of the company’s effort to capitalize on rising investors’ interest in premium region malls and its focus on capital recycling. (Read: Taubman to Sell 7 Malls to Starwood, Reuse Capital). It is expected to close in the fourth quarter of this year.
Liquidity
As of Jun 30, 2014, Taubman’s cash and cash equivalents were $132.4 million, up from around $41 million at year-end 2013.
2014 Outlook Reaffirmed
Taubman has reiterated its adjusted FFO per share guidance in the range of $3.72 – $3.82 for full-year 2014. Notably, this guidance excludes the impact of the company's seven-asset sale anticipated to close in the fourth quarter. The Zacks Consensus Estimate of $3.77 lies within this guided range.
Our Viewpoint
While Taubman managed to beat estimates in the second quarter, a drop in ending occupancy levels as well as comparable mall tenant sales per square foot, add to our concerns. Moreover, though the disposition moves are a strategic fit, they will tend to dilute earnings in the near term.
Taubman currently has a Zacks Rank #4 (Sell). Investors interested in the retail REIT industry may consider stocks like Cedar Realty Trust, Inc. (CDR), DDR Corp. (DDR) and General Growth Properties, Inc. (GGP). All 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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