Taubman Centers: Earnings Preview

| About: Taubman Centers, (TCO)
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Taubman Centers Inc (NYSE:TCO), a real estate investment trust (REIT), is scheduled to report its first quarter 2012 earnings on April 26, 2012, after the closing bell. The current Zacks Consensus Estimate for the first quarter is pegged at 70 cents per share, representing year-over-year growth of about 10.5%.

Fourth Quarter Recap

Taubman reported fourth quarter 2011 FFO (funds from operations) of $176.1 million or $2.95 per share, compared with $59.6 million or $1.06 in the year-earlier quarter. 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 impairment and restructuring charges.

The adjusted FFO for the reported quarter was 93 cents per share compared with $1.06 in the year-ago period. The fourth quarter 2011 adjusted FFO missed the Zacks Consensus Estimate by 12 cents.

Total revenue during the reported quarter was $187.3 million compared with $186.4 million in the year-ago quarter. Total revenue for fourth quarter 2011 was well ahead of the Zacks Consensus Estimate of $167 million.

Agreement of Analysts

In the last 7 days, none of the analysts revised their earnings estimate for the first quarter and fiscal 2012. This signifies that the analysts are cautious about both the short- and long-term earnings prospect of the company.

Magnitude of Estimate Revisions

Taking into account the analysts' earnings revision, the Zacks Consensus Estimate for the first quarter and fiscal 2012 remained constant over the last 7 days at 70 cents per share and $3.19 per share, respectively. For full-year 2012, the company expects FFO in the range of $3.14 - $3.24 per share.

Our Recommendation

Michigan-based Taubman owns, develops, acquires and operates regional and super-regional shopping centers across the U.S. and Asia.

Taubman focuses on dominant retail malls that command the highest average sales productivity 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 leases majority of its mall gross leaseable area (GLA) to national retail chains such as The Gap (NYSE:GPS), Forever 21 and Limited Brands (LTD). This high quality roster of national tenants should continue to generate a steady source of revenue for the company in the coming quarters as well.

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, thereby affecting the top-line growth of the company in the short-term.

Taubman currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Simon Property Group Inc (NYSE:SPG) holds a Zacks #2 Rank which translates into a short-term Buy rating.