Retail real estate investment trust (REIT), Taubman Centers Inc.’s (TCO) third-quarter 2014 adjusted funds from operations (FFO) per share came in at 91 cents, beating the Zacks Consensus Estimate of 90 cents per share and improving from the year-ago quarter figure by 2.2%. Results reflect increased rents and recoveries, and lower predevelopment expenses.
Though Taubman’s total third-quarter revenue was down 9.2% year over year at roughly $176.0 million, it managed to beat the Zacks Consensus Estimate of $172 million.
Quarter in Detail
Comparable center net operating income (NOI), excluding lease cancellation income, rose 2.5% year over year while average rent per square foot was $51.54, climbing 4.5% from the year-ago quarter. For the trailing 12-month period, releasing spreads per square foot were 22.3%.
Notably in October, the company accomplished the previously disclosed sale of seven malls to Starwood for a total consideration, excluding transaction costs, of $1.4 billion. As a result of this, Taubman Centers has provided a number of its operating statistics excluding these assets that were sold to Starwood.
Excluding the company’s assets that were sold to Starwood, in the reported quarter, comparable center NOI excluding lease cancellation income moved up 2.8%, while average rent per square foot was $61.12, increasing 6.3%, all on a year-over-year basis. Ending occupancy in comparable centers was 94.1%, down 1.5% and includes temporary tenants of 2.7%.
Excluding the assets sold to Starwood, trailing 12-month spreads were 29.9% while mall tenant sales per square foot were up 0.2% from the year-ago quarter. However, the company's 12-month trailing mall tenant sales per square foot came in at $807, reflecting a 1% decrease from the 12 months ended Sep 30, 2013.
Liquidity
As of Sep 30, 2014, Taubman’s cash and cash equivalents were $45.7 million, up from around $41 million at year-end 2013.
2014 Outlook Lowered
Taubman has lowered its adjusted FFO per share guidance for full-year 2014 to the range of $3.58–$3.68 from the prior range of $3.72–$3.82. Notably, this cut reflects the impact of sale of seven centers to Starwood. The company estimates its impact to be 14 cents per share on adjusted FFO. The outlook is ahead of the Zacks Consensus Estimate of $3.55 per share.
Our Viewpoint
With best-in-class retail portfolio and a strong tenant base, Taubman is well poised to improve its results in the quarters ahead. Strategic investments at high-end markets bode well for top-line growth. However, though the disposition moves are a strategic fit, these will tend to dilute earnings in the near term.
Taubman currently has a Zacks Rank #3 (Hold). Investors interested in the retail REIT industry may consider stocks like DDR Corp. (DDR), The Macerich Co. (MAC) and Regency Centers Corp. (REG). All of these 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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