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Taubman Excels Estimates

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Taubman Centers Inc. (TCO - Free Report) , a real estate investment trust (REIT), reported strong third quarter 2012 results with a 30.2% year-over-year increase in FFO (funds from operations) to $49.1 million compared with $37.7 million in the year-earlier quarter. On a per share basis, FFO increased 25.4% to 79 cents from 63 cents in the year-ago period. The year-over-year increase in FFO was primarily driven by increase in rents and robust occupancy levels.

The reported FFO in third quarter 2012 exceeded the Zacks Consensus Estimate by 4 cents. Excluding non-recurring items, adjusted FFO in the reported quarter was 86 cents per share compared with 65 cents in the prior-year quarter, representing year-over-year growth of 32.3%.

Total revenues during the reported quarter stood at $189.5 million versus $158.6 million in the year-ago quarter. Same-store occupancy increased to 90.4% during the quarter from 88.5% in the year-ago period. Leased space in the same-store portfolio increased to 92.4% from 91.4% in the year-ago period.

Average rent in the overall portfolio was $46.85 per square foot during the quarter compared with $45.28 in the year-ago quarter. Mall tenant sales per square foot improved 10.7% year over year, bringing the tally to $681 over the trailing 12-month period. Net Operating Income (NOI), excluding lease cancellation income, increased 7.4% year over year.

During the reported quarter, the company continued its multi-pronged growth strategy with steady development works across outlet centers and traditional shopping centers both on the domestic frontier and international territories. These included Taubman Prestige Outlets Chesterfield in Chesterfield, Missouri; a 1.7 million square foot joint venture shopping mall in Hanam, South Korea; a joint venture shopping center in Xi'an, China; and The Mall of San Juan in San Juan, Puerto Rico. Subsequent to the quarter-end, Taubman also held an official groundbreaking ceremony on The Mall at University Town Center in Sarasota, Florida.

Taubman completed a 10-year, non-recourse financing worth $190 million collateralized by Sunvalley Shopping Center in Concord, California in which it owns 50% ownership stake. The loan bears fixed-rated interest of 4.47%. At the same time, the company issued approximately 2.9 million shares for net proceeds of $209 million, which were utilized to reduce debt under its $715 million revolving lines of credit.

Consequently, the company’s debt to total market cap ratio improved to 30.5% at the end of the quarter from 38.7% in the prior year. Cash and cash equivalents stood at $29.3 million, while total debt was approximately $4 billion.  

With strong results in the reported quarter, Taubman increased its 2012 FFO guidance from $3.13 - $3.18 to $3.18 - $3.23 per share. The guidance is based on a same-store NOI growth (excluding lease cancellation income) of about 6% for the year, up from the previously forecast range of 5% to 6%.

Taubman currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We also maintain our long-term Neutral recommendation on the stock. One of its competitors, Simon Property Group Inc. (SPG - Free Report) also holds a Zacks #2 Rank.

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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