Taubman Centers' (TCO) Q4 FFO Surpasses Estimates, Stock Up

Shares of Taubman Centers Inc. (NYSE:O) gained 4.05% during regular trading session on Feb 14, likely reflecting investors’ reaction toward its funds from operations (FFO) beat. The company reported fourth-quarter 2018 adjusted funds from operations (FFO) per share of 91 cents, surpassing the Zacks Consensus Estimate of 89 cents. Results reflect better rents and reduced operating expenses.

For full-year 2018, the company reported adjusted FFO per share of $3.83, denoting a 3.5% increase from the prior year’s $3.70. Adjusted revenues for the year amounted to $575.4 million, up from $574.1 million a year ago. For the year, comparable center net operating income (NOI) was up 4.4%.

However, on a year-over-year basis, quarterly adjusted FFO per share came in below the year-ago tally of $1.03. Moreover, adjusted revenues, including minimum rents, overage rents and expense recoveries, for the quarter came in at $152.07 million, missing the Zacks Consensus Estimate of $155.7 million. Also, the figure came in lower than the prior-year tally of $156.8 million.

Quarter in Detail

Comparable center NOI (excluding lease cancellation income) edged down 1.3% in the quarter under review. Per management, “the timing of net recoveries and the timing of two significant retail holidays in Asia, which shifted from the fourth quarter last year to the third quarter this year” were responsible for lower NOI growth in the quarter.

Average rent per square foot for the company’s comparable centers came in at $57.76, up 3.3% from the year-ago quarter. For the period ended Dec 31, 2018, the trailing 12-month releasing spreads per square foot were 3.9%. Moreover, comparable center mall tenant sales per square foot were up 10.1% year over year in the reported quarter.

As of Dec 31, 2018, leased space in comparable centers was 96.3%, down 0.3% from the comparable period last year. Additionally, ending occupancy in comparable centers was 94.7% at year end, down 1% year over year.

Liquidity

Taubman Centers exited 2018 with cash and cash equivalents of $48.4 million, down from the $42.5 million reported at the end of the December 2017.

Guidance

The company projects 2019 FFO per share of $3.62-$3.74. In addition, the guided range includes the adoption of the new lease accounting standard that will lead to an additional $5 to $7 million of operating expenses. The Zacks Consensus Estimate for the same is pinned at $3.70, which is within the guided range.

The full-year FFO per share guidance is backed by assumption of comparable center NOI growth, excluding lease cancellation income, of about 2% for the year.

Our Viewpoint

Taubman recorded the 10th consecutive quarter of positive sales growth in fourth-quarter 2018. The company’s solid retail real estate portfolio, high-quality retailers in tenant roster and diligent restructuring measures have the capacity to support its long-term growth. Focus on implementing cost-saving initiatives also augurs well.

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However, declining mall traffic, bankruptcies and store closures have emerged as pressing concerns for the company. Also, hike in interest rates and unfavorable foreign currency movements escalate its risks.

Currently, Taubman Centers has a Zacks Rank #4 (Sell).

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Written By: Zacks Investment Research