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Growth & Income

Taubman Centers Inc. (TCO - Analyst Report) has increased its dividend 15 times since it went public in 1992, and currently pays a regular quarterly dividend that yields 2.3% annually. Furthermore, this Zacks Rank #2 (Buy) REIT reported impressive third-quarter results in October, leading to positive FFO estimate revisions for 2013.

With its dividend return and an expected long-term FFO growth rate of around 7.2%, Taubman Centers appears to be a promising pick for investors seeking both growth and income.

Impressive Earnings Story

Taubman Centers is scheduled to release its fourth-quarter 2012 earnings on Feb 13. The Zacks Consensus Estimate is currently pegged at 98 cents per share.

On Oct 24, the company reported strong third-quarter FFO per share of 79 cents, topping the Zacks Consensus Estimate by 5.3% and the year-ago FFO by 25.4%. The better-than-expected performance was primarily driven by increased rents and robust occupancy levels.

Total revenue increased 19.5% year over year to $189.5 million. Same-store occupancy rose to 90.4% from 88.5%. The average rent in the overall portfolio was $46.85 per square foot during the quarter, up 3.5% from $45.28 a year earlier. Net Operating Income (NOI), excluding lease cancellation income, increased 7.4%.

With strong results in the third quarter, Taubman Centers increased its 2012 FFO guidance to between $3.18 and $3.23 per share from the previous expectation of $3.13 to $3.18. The guidance is based on same-store NOI growth (excluding lease cancellation income) of about 6% for the year, compared with the previously forecasted range of 5% to 6%.

However, in order to focus exclusively on its core business, Taubman Centers announced last month the sale of parts of its Taubman TCBL business to China Xintiandi, a subsidiary of Shui On Land, for $15.5 million. Taubman Centers expects to incur a tax liability of about $3.5 million to be recorded in its fourth-quarter 2012 results. The guidance issued with its third quarter earnings report in October does not include the impact of this amount.

FFO Estimates Moving Higher

The Zacks Consensus Estimate for 2012 is currently pegged at $3.24, while the Zacks Consensus Estimate for 2013 gained 1.1% in the past 60 days to $3.63. These estimates represent year-over-year growth of 14.1% for 2012 and 12.1% for 2013.

Dividend Payment

Taubman Centers has been paying dividends regularly and hiked its quarterly dividend rate by nearly 3% to 46.25 cents per share in the first quarter of 2012. Based on this rate, the annual yield comes to 2.3%.

Premium Valuation

Shares of Taubman Centers currently trade at 22.2x 12-month forward earnings, a 37.0% premium to the peer group average of 16.2x. Given its strong fundamentals, the premium valuation is justified.

The company has been continuously outperforming the S&P 500 since last year, and has also been outperforming its 200 days moving averages since the middle of November. The stock has gained 30.5% over the past year, compared with the S&P 500’s return of 13.8%.

Headquartered in Bloomfield Hills, Michigan, Taubman Centers is a real estate investment trust that owns, manages and/or leases 27 regional, super-regional and outlet shopping centers throughout the U.S. and Asia. With more than 60 years of experience in the shopping center industry, this REIT has a market cap of about $5.0 billion. The other Zacks Rank #1 (Strong Buy) stock in the industry includes PennyMac Mortgage Investment Trust (PMT).


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