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Taubman Centers Inc. (TCO), a real estate investment trust (REIT), is scheduled to report its third quarter 2011 earnings after the closing bell on October 20, 2011. The current Zacks Consensus Estimate for the third quarter is pegged at 63 cents per share, representing a year-over-year growth of 6.9%.

Second Quarter Recap

Taubman reported second quarter 2011 FFO (funds from operations) of 61 cents per share, which was in line with the year-earlier level. Funds 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, while adjusted FFO excludes the impairment and restructuring charges.

Reported FFO per share, however, missed the Zacks Consensus Estimate by a penny. The quarterly FFO per share included a non-cash charge of 6 cents relating to the ownership of The Pier Shops at Atlantic City, New Jersey. Excluding the non-recurring charges, adjusted FFO for the reported quarter was 67 cents per share compared with 64 cents in the year-ago period.

Total revenue during the reported quarter was $155.4 million compared with $154.1 million in the year-ago quarter. Total revenue also exceeded the Zacks Consensus Estimate of $146 million. Occupancy of the entire portfolio inched up to 88.2% at quarter end from 88.0% in the year-earlier period.

Agreement of Analysts

In the last 7 days, one analyst revised the earnings estimates upward for the third quarter while none moved in the opposite direction. For fiscal 2011, none of the analysts covering the stock revised their estimates over the last 7 days. In the last 30 days, one out of the 12 analysts covering the stock increased the earnings estimates for the third quarter while none moved in the opposite direction. For fiscal 2011, one analyst covering the stock trimmed the estimates over the last 30 days.

Magnitude of Estimate Revisions

Over the last 30 days, earnings estimates for the third quarter and fiscal 2011 have remained stagnant at 63 cents and $2.73 per share, respectively, implying that the analysts are cautious about the performance of the company.

Our Take

Taubman Centers owns, develops, acquires and operates regional and super-regional shopping centers throughout the U.S. and Asia. 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.

The company has one of the strongest balance sheets in the sector with adequate liquidity. Taubman has also taken prudent steps to reduce operating expenses by pruning its pre-development spending in the U.S. and Asia, as well as significantly reducing its overall workforce. This, in turn, has improved the bottom line of the company

However, the possibility of store closings at many Taubman centers due to lease terminations adds uncertainty to the earnings, and it might have to re-let large big box spaces at significantly lower rents in a very tough leasing environment.This affects the top-line growth of the company and puts considerable pressure on its sustainability

We currently have a ‘Neutral’ recommendation on Taubman, which presently has a Zacks #3 Rank that translates into a short-term Hold rating. One of its competitors, Macerich Co. (MAC) also holds a Zacks #3 Rank.

Source: Taubman Centers: Earnings Preview