Taubman Centers: Earnings Preview

| About: Taubman Centers, (TCO)

Taubman Centers Inc. (NYSE:TCO), a real estate investment trust is scheduled to report its fiscal 2011 first quarter earnings on April 20, 2011, after the closing bell. The current Zacks Consensus Estimate for the first quarter earnings is 58 cents per share, representing a year-over-year decline of about 3.8%.

Fourth Quarter Recap

Taubman reported fourth quarter 2010 FFO (fund from operations) of $59.6 million or $1.06 per share compared with $31.1 million or $0.56 in the year-ago quarter. Fund from operations, 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. The reported FFO beat the Zacks Consensus Estimate by 9 cents.

For full-year 2010, the company reported FFO of $160.1 million or $2.86 per share compared with $36.8 million or $0.68 in the previous year.

Total revenues were $193.7 million during the quarter compared with $186.3 million in the year-ago quarter. For full-year 2010, the company reported total revenues of $654.6 million compared with $666.1 million in 2009.

Average occupancy of the entire portfolio was 90.1% at quarter-end compared with 89.8% in the year-ago quarter. Leased space for the portfolio was 92.0 % during the quarter compared with 91.6% in the year-earlier quarter. Opening rents in the consolidated portfolio were $49.69 per square foot during the quarter – a 3.9% increase year over year. Mall tenant sales per square foot increased 12.9% year-over-year during the quarter and 12.4% for fiscal 2010.


The company expects FFO for full-year 2011 in the range of $2.86-$2.98 per share.

Agreement of Analysts

In the last 7 days, none of the analysts revised their earnings estimate for the first quarter and fiscal 2011. In the last 30 days, one out of the 11 analysts covering the stock has slashed his earnings estimates for the first quarter and one out of the12 analysts has reduced his fiscal 2011 estimates, while none went for any increment.

Magnitude of Estimate Revisions

Earnings estimates have remained stagnant for the last 30 days for the first quarter and fiscal 2011 at 58 cents and $2.73 per share, respectively, meaning that analysts were cautious about the performance of the company.

Our Take

We currently have a ‘Neutral’ recommendation on Taubman, which presently has a Zacks #3 Rank that translates into a short-term Hold rating and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1-3 months.

The company has a solid portfolio of best-in-class retail malls that generates the highest average sales per square foot in the U.S. Furthermore, the shopping centers are located in the most affluent regions of the country; thereby enabling retailers to target high-end upscale customers and maximize their profitability.

Taubman also has a healthy balance sheet with minimal debt maturities and adequate liquidity. In recognition of improved market conditions, the company increased its regular quarterly dividend by 5.4% in December 2010. Since its public offering in 1992 Taubman Centers' dividend has been increased 13 times, achieving a 3.9% compounded annual growth rate.

Consequently, the company is better placed than most of its peers to withstand the challenges of the macroeconomic environment. However, the possibility of store closings at many Taubman centers due to lease termination undermines its growth potential. Taubman’s business is also cyclical in nature due to seasonality in the regional shopping center industry and therefore, subject to volatility in revenues and operating margins.

One of its competitors, Simon Property Group Inc. (NYSE:SPG) will report its first quarter 2011 earnings on April 29, 2011.