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Retail real estate investment trust (REIT) – Taubman Centers Inc.’s (TCO - Analyst Report) – adjusted FFO (funds from operations) per share of 89 cents rose 3.5% year over year and 2.3% ahead of the Zacks Consensus Estimate of 87 cents. The results were backed by better-than-expected growth in revenues.

Taubman’s total revenue during the reported quarter stood at $193.9 million, up 2.3% from the year-ago quarter and 3.7% above the Zacks Consensus Estimate of $187 million. This was mainly driven by a rise in minimum rents. On the other hand, total expenses increased 2.9% year over year.

Quarter in Detail

Taubman's leased space in comparable centers increased to 93.1% as of Sep 30, 2013 from 92.5% at prior-year quarter end. Moreover, as of Sep 30, 2013, ending occupancy at comparable centers moved north to 91.3% from 90.5% on Sep 30, 2012.

Average rent per square foot for the quarter was $48.66, increasing 4.6% from $46.52 in the year-ago quarter. Net Operating Income (NOI), excluding lease cancellation income, increased 3.2% year over year.

Mall tenant sales per square foot climbed 0.4% year over year, leading the tally to $699 over the trailing 12-month period.

Notable Activities during Q3

Taubman Prestige Outlets Chesterfield opened on Aug 2 in Chesterfield, Mo. The center boasts several outlet stores including retailers like Ralph Lauren Corporation (RL - Analyst Report) and Abercrombie & Fitch Co. (ANF - Analyst Report).

Moreover, the company disclosed its intention to redevelop the International Market Place (Waikiki, Honolulu, Hawaii). It will include 360,000 square feet of space for retail, dining, and entertainment purposes and exhibit luxury-focused merchandising with the sole full-line Saks Fifth Avenue store chain owned by Saks Incorporated in Hawaii. For this project, which is schedule to open in spring 2016, the projected cost is approximately $400 million and the company would have a 93.5% ownership interest in the project.

Balance Sheet Position

As of Sep 30, 2013, Taubman’s cash and cash equivalents stood at $32.3 million, compared with $32.1 million at year-end 2012.

Share Repurchase

Taubman disclosed a $200 million share buyback program in August. Around 313,042 shares of its common stock were repurchased for $67.68 per share. Following this, the company had $179 million remaining under its share buyback authorization as of Sep 30.
 
Guides Same

Taubman has kept its guidance range for 2013 FFO per share unchanged at $3.57 – $3.67 and expects NOI growth of about 3% for the year.

Our Take

We are encouraged with the decent results at Taubman. Given its solid portfolio of best-in-class retail malls, Taubman is poised to improve its results in the years ahead. Strategic developments at high-end markets are expected to be accretive to its top line going forward.

Yet, the protracted economic recovery remains a concern for this Zacks Rank #4 (Sell) stock. Tenant bankruptcies, lease terminations as well as rising customer purchases through catalogs and the Internet could hurt the demand for its properties.  

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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