Taubman Centers' (TCO) Q3 FFO Surpasses Estimates, Stock Up

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Post the third-quarter earnings release on Oct 29, shares of  Taubman Centers Inc.TCO gained 3.1% during regular trading session, likely reflecting investors' reaction toward a funds from operations (FFO) beat on higher net operating income (NOI) recorded at the end of the quarter.

Specifically, the company reported third-quarter 2018 adjusted FFO per share of $1.01, surpassing the Zacks Consensus Estimate of 86 cents. The figure also came in higher than the year-ago tally of 83 cents.

Adjusted revenues, including minimum rents, overage rents and expense recoveries, for the quarter came in at $142.37 million, missing the Zacks Consensus Estimate of $145 million. Nonetheless, the figure came in higher than the prior-year tally of $140 million.

The company experienced higher minimum rents due to higher average rent per square foot, greater lease cancellation income, and lower general and administrative expenses. This encouraged the company to raise its FFO guidance for 2018.

Quarter in Detail

Comparable center NOI (excluding lease cancellation income) increased 9.2% in the quarter under review. Average rent per square foot for the company's U.S. comparable centers came in at $61.63, up 3.6% from the year-ago quarter. For the period ended Sep 30, 2018, the trailing 12-month releasing spreads per square foot were 3.7%.

Moreover, comparable center tenant sales per square foot were up 5.8% year over year in the reported quarter. Further, the company's year-to-date tenant sales per square foot marked 8% growth.

As of Sep 30, 2018, leased space in comparable centers was 95.6%, down 1% from the comparable period last year. Additionally, ending occupancy in comparable centers was 92.9% at the end of the third quarter, down 1.4% year over year, but up 0.7% from the Jun-end quarter's tally.


Taubman Centers exited the Jul-Sep quarter with cash and cash equivalents of $38 million, down from the $42.5 million reported at the end of the December 2017.


The company projects 2018 adjusted FFO per share of $3.76-$3.84, revised upward from the previous outlook of $3.74-$3.84. The Zacks Consensus Estimate for the same is pinned at $3.79.

The full-year FFO per share guidance is backed by assumption of comparable center NOI growth of about 3.5-4.5%, up from the earlier forecast of 3-4%.

The company continues to expect occupancy to be nearly 95% the end of 2018.

For 2019, consolidated and unconsolidated interest expenses are estimated to be $297-$303 million, marking an escalation from $265-$268 million in the current year. The upswing indicates higher interest rates, greater borrowing and lower amount of interest capitalized. Furthermore, it anticipates to incur operating expenses of $5-$7 million in 2019 on account of the new lease accounting standard. 

Our Viewpoint

Taubman recorded the ninth consecutive quarter of positive sales growth in third-quarter 2018. Notably, the company's operating performance benefited from the new comparable centers during the Jul-Sep period. 

Nonetheless, amid increased dominance of e-retail, the company witnessed a decline in lease and occupancy rates as compared to the prior-year quarter.

Taubman Centers, Inc. Price, Consensus and EPS Surprise

Taubman Centers, Inc. Price, Consensus and EPS Surprise
| Taubman Centers, Inc. Quote

Currently, Taubman Centers has a Zacks Rank #3 (Hold). You can see  the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

We now look forward to the earnings releases of Host Hotels & Resorts, Inc.  HST , Equinix, Inc. EQIX and Outfront Media Inc. OUT . While Host Hotels is scheduled to report its quarterly numbers on Nov 2, Equinix and Outfront are slated to report their third-quarter earnings on Nov 1 and Nov 5, respectively.

Note:  Anything related to earnings presented in this write-up represent funds from operations (FFO) - a widely used metric to gauge the performance of REITs.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: EQIX , TCO , HST , OUT

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