Taubman Centers (TCO) Q3 FFO & Revenues Beat, Up Y/Y

Retail real estate investment trust (“REIT”) Taubman Centers Inc.’s (NYSE:TCO) third-quarter 2016 funds from operations (“FFO”) per share of 94 cents beat the Zacks Consensus Estimate of 89 cents.

Also, the figure was up 5.6% from 89 cents earned a year ago. Results were driven by higher rents and contributions from its new centers.

Revenues came in at $148.0 million, beating the Zacks Consensus Estimate of $146 million and improving from around $140 million in the year-ago quarter.

Quarter In Detail

Comparable center NOI, excluding lease cancellation income, rose 4.5% year over year; while average rent per square foot was $60.23, up 1.3% year over year. For the period ended Sep 30, 2016, trailing 12-month releasing spreads per square foot were 21.3%.

Comparable center mall tenant sales per square foot expanded 0.4% from a year ago. However, year to date, mall tenant sales per square foot were down 1.1%. As of Sep 30, 2016, the comparable centers’ portfolio was 96.7% leased, denoting a 0.6% year-over-year decline; while ending occupancy was 95%, up 1% year over year.

Liquidity

Taubman Centers exited third-quarter 2016 with cash and cash equivalents of $59.7 million, down from $206.6 million recorded at year-end 2015.

Guidance

Taubman Centers has revised its guidance for 2016. The company now projects 2016 FFO per share in the range of $3.78–$3.88 against the prior outlook of $3.75–$3.90. Further, adjusted FFO per share outlook, is revised to $3.53–$3.63 from the prior guided range of $3.50–$3.65. The Zacks Consensus Estimate is currently pegged at $3.84.

Note that, adjusted FFO excludes the one-time $21.7 million payment the company got in second-quarter 2016 for the termination of its leasing services agreement at The Shops at Crystals.

Further, for 2017, the company guided consolidated and unconsolidated interest expense, at 100%, to be $250–$255 million and at beneficial share, the same is anticipated to be $170–$175 million. Moreover, the company expects its share of net operating income from its three new centers (CityOn.Xian – Xi’an, China, International Market Place, and Starfield Hanam) and CityOn.Zhengzhou (slated to open on Mar 16, 2017) in the band of $40–$45 million.

Our Viewpoint

Taubman Centers is expected to grow on the back of a solid retail portfolio and a strong tenant base, going forward. Yet, stiff competition and growing online sales remain as concerns.

Currently, Taubman Centers has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the retail REIT industry may consider stocks like Realty Income Corp. (NYSE:O) , STORE Capital Corp. (NYSE:O) and Washington Prime Group Inc. (NYSE:WPG) . Each of these stocks carries a Zacks Rank #2 (Buy).

Note: All EPS numbers presented in this write-up represent funds from operations (“FFO”) per share. 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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