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Why Is Taubman (TCO) Down 11.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for Taubman Centers (TCO - Free Report) . Shares have lost about 11.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Taubman due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Taubman Centers' Q1 FFO Surpasses Estimates, Occupancy Up

Taubman reported first-quarter 2019 FFO per share of 93 cents, surpassing the Zacks Consensus Estimate of 90 cents. The figure compares favorably with the year-ago quarter’s reported tally of 88 cents. On an adjusted basis, FFO per share came in at 95 cents.

Results reflected growth in comparable center NOI and higher average rents. Further, percentage of leased space and occupancy in comparable centers grew during the quarter.

Moreover, adjusted revenues, including rental revenues, overage rents and revenues from management, leasing, and development services for the quarter, came in at $148.6 million, outpacing the Zacks Consensus Estimate of $148.1 million. The reported figure, however, came in lower than the prior-year quarter’s reported tally of $161.5 million.

Quarter in Detail

Comparable center NOI (excluding lease cancellation income) increased 2.3% in the first quarter. Further, average rent per square foot for the company’s comparable centers came in at $56.15, up 1.3% from the year-earlier quarter. For the period ended Mar 31, 2019, the trailing 12-month releasing spreads per square foot were 7.1%. Moreover, comparable center mall tenant sales per square foot were up 18.6% year over year in the reported quarter.

As of Mar 31, 2019, leased space in comparable centers was 95.9%, up 0.7% from the comparable period last year. Additionally, ending occupancy in comparable centers was 93.5% at end of the quarter, up 0.3% year over year.

During the first quarter, the company completed a 1.2-billion Chinese Yuan Renminbi (RMB) 10-year, fully-amortizing, non-recourse financing at its CityOn.Xi’an (Xi’an, China) joint venture. The loan bears interest at an all-in fixed rate of 6%. As of March 31, 2019, about $49 million had been drawn.

Liquidity

Taubman Centers exited first-quarter 2019 with cash and cash equivalents of $38.2 million, down from the $48.4 million reported at the end of December 2018.

Guidance

The company revised its projections for 2019 FFO per share to $3.60-$3.72, from $3.62-$3.74. This reflects net impact of 2 cents in the first quarter from restructuring charges, cost associated with shareholder activism and fluctuation in the fair value of equity securities. In addition, the outlook includes the adoption of the new lease accounting standard. However, the company’s expectation of adjusted FFO per share remains stable at $3.62-$3.74.

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

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Taubman has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. It's no surprise Taubman has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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