Taubman Centers, Inc. ( TCO)

Q3 2011 Earnings Call

October 21, 2011 8:30 am ET

Executives

Robert Taubman – Chairman, President, Chief Executive Officer

Lisa Payne – Vice Chairman, Chief Financial Officer

Barbara Baker – Vice President, Investor Relations

Analysts

Christy McElroy – UBS

Todd Thomas – KeyBanc Capital Markets

Jordan Sadler – KeyBanc Capital Markets

Craig Schmidt – Bank of America

Jay Habermann – Goldman Sachs

Paul Morgan – Morgan Stanley

Alex Goldfarb – Sandler O’Neill

Michael Bilerman – Citi

Sumit Purik (phon) – ISI Capital

Michael Mueller – JP Morgan

Ben Yang – Keefe, Bruyette & Woods

Cedric Lachance – Green Street Advisors

Steve Sakwa – ISI Group

Presentation

Operator

Thank you for holding and welcome to the Taubman Centers’ Third Quarter Earnings conference call. The call will begin with prepared remarks and then we will open the line to questions. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad. If you would like to withdraw your questions, please press the pound key.

On the call today will be Robert Taubman, Taubman Centers’ Chairman, President and Chief Executive Officer; Lisa Payne, Vice Chairman and Chief Financial Officer; and Barbara Baker, Vice President of Investor Relations.

Now, I will turn the call over to Barbara for opening remarks.

Barbara Baker

Thank you, Operator, and good morning everyone. Welcome to our third quarter conference call. Yesterday we released our results for the quarter and our supplemental information package. Both are available on our website, www.taubman.com. If you would like to have them sent to you automatically each quarter, please sign up under Request Information on our website.

As you know, during this conference call we’ll be making forward-looking statements within the meaning of the federal securities laws. These statements reflect our current views with respect to future events and financial performance, although actual results may differ materially. Please see our SEC filings, including our latest 10-K and subsequent reports for a discussion of various risks and uncertainties underlying our forward-looking statements.

During this call, we’ll also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in our earnings release and in our supplemental information. In addition, a replay of the call is provided through a link on the Investor Relations section of our website.

For our agenda today – first, Bobby will be providing an overview of the quarter followed by a discussion of the Company’s operating statistics and external growth; then, Lisa will discuss our financial performance and our balance sheet. Bobby will return to discuss guidance and provide closing comments, and then we’ll be available for your questions. We ask that you limit your questions to two, and then if you have more, queue up again. That way, everyone has the opportunity to ask a question.

And with that, I will turn the call over to Bobby.

Robert Taubman

Thank you, Barbara, and welcome everyone to our call. This was another excellent quarter and an important one for Taubman Centers. Sales per square foot was up nearly 12%. NOI was up 8.6%. We made two strategic acquisitions in the U.S. and one in Asia, and we made good progress on our development programs in both places.

We’re delighted with the continued strength in our core, led by our tenant sales, now seven quarters in a row of double digit increases. We recognize trees don’t grow to the sky, and eventually sales growth will begin to moderate; but in the meantime, we’re enjoying it. The 11.7% sales per square foot increase for the quarter comes on top of a 13.2% increase in the third quarter of last year. Year-to-date sales are up 13.3% and our trailing 12-month sales per square foot is now $615. As sales have accelerated, total occupancy costs as a percentage have fallen. We’re now expecting occupancy costs in the range of 13% for 2011. This indicates significant built-in rent growth for the future.

All our centers are reporting growth with Florida, luxury and tourism centers leading. In the luxury category, all the LBMH concepts are performing well, as are Gucci, Coach, and Burberry. Victoria’s Secret continues to be hot. Abercrombie is leading the unisex category while American Eagle, PacSun, Express, H&M and Forever 21 are reporting very solid results. Phoebe, J. Jill, and White House Black Market are leaders in women’s apparel, and Brooks Brothers for men’s. The full offer concepts have been on fire all year and home is beginning to show increases. Great design is driving very strong results at Restoration Hardware and Z Gallerie is also doing well.

With this fantastic sales growth, we’re signing leases at attractive rates and at a faster pace – about 50% more leases than at this time last year. Occupancy at quarter-end was 88.5%. In addition, there was 4.6% in temporary tenants, a record for the third quarter. Combined, the total was 93.1%. Consistent with our last call, by year-end we’re expecting an increase in year-over-year occupancy of about 50 basis points.

Moving to rent, we’re very pleased by the 3.8% increase in our average rent per square foot compared to last year. Our opening rents have been particularly strong. We now expect to be up about 3.5% for the full year. That’s ahead of our original expectation.

NOI was up a strong 8.6%, excluding lease cancellation fees. Rents, percentage rents and recoveries were the primary drivers. We now expect NOI growth excluding lease cancellation to be about 3% for the full year. That’s up from 2% at the time of our last call. We’re still projecting negative year-over-year NOI during the fourth quarter. This is due to the accounting methodology change we’ve been talking about all year, and the impact of CAM capital.

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