SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: March 31, 2000
Commission File No. 1-11530
Taubman Centers, Inc.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-2033632
---------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Long Lake Road, Suite 300, P.O. Box 200, Bloomfield Hills,
Michigan 48303-0200
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(Address of principal executive offices) (Zip Code)
(248) 258-6800
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
------ ------
As of May 8, 2000, there were outstanding 52,616,843 shares of the
Company's common stock, par value $0.01 per share.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following consolidated financial statements of Taubman Centers, Inc. (the
Company) are provided pursuant to the requirements of this item.
Consolidated Balance Sheet as of March 31, 2000 and December 31, 1999........ 2
Consolidated Statement of Operations for the three months ended March 31, 2000
and 1999................................................................... 3
Consolidated Statement of Cash Flows for the three months ended March 31, 2000
and 1999................................................................... 4
Notes to Consolidated Financial Statements................................... 5
1
<PAGE>
TAUBMAN CENTERS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31 December 31
-------- -----------
2000 1999
---- ----
<S> <C> <C>
Assets:
Properties, net $ 1,368,011 $ 1,361,497
Investment in Unconsolidated Joint Ventures (Note 2) 112,771 125,245
Cash and cash equivalents 50,517 20,557
Accounts and notes receivable, less allowance
for doubtful accounts of $2,103 and $1,549 in
2000 and 1999 34,369 33,021
Accounts receivable from related parties 7,716 7,095
Deferred charges and other assets 48,897 49,496
------------- -------------
$ 1,622,281 $ 1,596,911
============= =============
Liabilities:
Mortgage notes payable $ 953,016 $ 866,742
Unsecured notes payable 2,195 19,819
Accounts payable and accrued liabilities 101,197 118,230
Dividends payable 12,922 13,054
------------- -------------
$ 1,069,330 $ 1,017,845
Commitments and Contingencies (Note 5)
Preferred Equity of TRG (Note 1) $ 97,275 $ 97,275
Partners' Equity of TRG allocable to minority partners (Note 1)
Shareowners' Equity:
Series A Cumulative Redeemable Preferred Stock,
$0.01 par value, 8,000,000 shares authorized,
$200 million liquidation preference,
8,000,000 shares issued and outstanding at
March 31, 2000 and December 31, 1999 $ 80 $ 80
Series B Non-Participating Convertible Preferred Stock,
$0.001 par and liquidation value, 40,000,000 shares
authorized and 31,835,066 shares issued and
outstanding at March 31, 2000 and December 31, 1999 32 32
Series C Cumulative Redeemable Preferred Stock,
$0.01 par value, 1,000,000 shares authorized, $75 million
liquidation preference, none issued
Series D Cumulative Redeemable Preferred Stock,
$0.01 par value, 250,000 shares authorized, $25 million
liquidation preference, none issued
Common Stock, $0.01 par value, 250,000,000 shares
authorized, 52,675,443 and 53,281,643 issued and
outstanding at March 31, 2000 and December 31, 1999 527 533
Additional paid-in capital 694,248 701,045
Dividends in excess of net income (239,211) (219,899)
------------- -------------
$ 455,676 $ 481,791
------------- -------------
$ 1,622,281 $ 1,596,911
============= =============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
2000 1999
---- ----
<S> <C> <C>
Income: (Note 1)
Minimum rents $ 36,988 $ 33,014
Percentage rents 957 717
Expense recoveries 20,921 17,585
Revenues from management, leasing and
development services 6,189 5,733
Other 7,718 3,114
------------ -------------
$ 72,773 $ 60,163
------------- -------------
Operating Expenses:
Recoverable expenses $ 18,329 $ 15,469
Other operating 9,254 8,205
Management, leasing and development services 4,748 4,391
General and administrative 4,889 4,728
Interest expense 13,166 10,865
Depreciation and amortization 14,155 12,203
------------- -------------
$ 64,541 $ 55,861
------------- -------------
Income before equity in income before extraordinary
item of Unconsolidated Joint Ventures,
extraordinary item, and minority and preferred interests $ 8,232 $ 4,302
Equity in income before extraordinary item of
Unconsolidated Joint Ventures 8,595 9,545
------------- -------------
Income before extraordinary item, minority and
preferred interests $ 16,827 $ 13,847
Extraordinary item (Note 2) (9,288)
Minority interest:
TRG income allocable to minority partners (1,199) (4,409)
Distributions in excess of earnings allocable to
minority partners (6,329) (3,098)
TRG Series C and D preferred distributions (Note 1) (2,250)
------------- -------------
Net income (loss) $ (2,239) $ 6,340
Series A preferred dividends (4,150) (4,150)
------------- -------------
Net income (loss) available to common shareowners $ (6,389) $ 2,190
============= =============
Basic and diluted earnings per common share (Note 7):
Income (loss) before extraordinary item $ (.01) $ .04
Extraordinary item (Note 2) (.11)
------------- -------------
Net income (loss) $ (.12) $ .04
============= =============
Cash dividends declared per common share $ .245 $ .24
============= =============
Weighted average number of common shares outstanding 53,229,918 53,016,661
============= =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31
----------------------------
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Income before extraordinary item, minority and
preferred interests $ 16,827 $ 13,847
Adjustments to reconcile income before
extraordinary item, minority and preferred interests to net
cash provided by operating activities:
Depreciation and amortization 14,155 12,203
Provision for losses on accounts receivable 909 623
Amortization of deferred financing costs 836 1,248
Other 56 84
Gains on sales of land (4,318) (475)
Increase (decrease) in cash attributable to changes
in assets and liabilities:
Receivables, deferred charges and other assets (8,631) (2,172)
Accounts payable and other liabilities (9,799) (9,259)
------------ ------------
Net Cash Provided By Operating Activities $ 10,035 $ 16,099
------------ ------------
Cash Flows from Investing Activities:
Additions to properties $ (24,034) $ (84,853)
Proceeds from sales of land 5,181 212
Contributions to Unconsolidated Joint Ventures (393) (7,453)
Distributions from Unconsolidated Joint Ventures
in excess of income before extraordinary item 3,579 3,823
------------ ------------
Net Cash Used in Investing Activities $ (15,667) $ (88,271)
------------- -------------
Cash Flows from Financing Activities:
Debt proceeds $ 68,650 $ 89,251
Repurchases of stock (6,076)
Distributions to minority and preferred interests (9,778) (7,507)
Issuance of stock pursuant to Continuing Offer 780
Cash dividends to common shareowners (13,054) (12,720)
Cash dividends to Series A preferred shareowners (4,150) (4,150)
------------ ------------
Net Cash Provided By Financing Activities $ 35,592 $ 65,654
------------ ------------
Net Increase (Decrease) In Cash $ 29,960 $ (6,518)
Cash and Cash Equivalents at Beginning of Period 20,557 19,045
------------ ------------
Cash and Cash Equivalents at End of Period $ 50,517 $ 12,527
============ ============
</TABLE>
Interest on mortgage notes and other loans paid during the three months
ended March 31, 2000 and 1999, net of amounts capitalized of $4,596 and $4,247,
was $11,501 and $10,116, respectively. During the three months ended March 31,
2000 and 1999, non-cash additions to properties of $6,092 and $42,186 were
recorded, respectively, representing accrued construction costs of new centers
and development projects.
See notes to consolidated financial statements.
4
<PAGE>
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 2000
Note 1 - Interim Financial Statements
Taubman Centers, Inc. (the Company or TCO), a real estate investment trust,
or REIT, is the managing general partner of The Taubman Realty Group Limited
Partnership (the Operating Partnership or TRG). The Operating Partnership is an
operating subsidiary that engages in the ownership, management, leasing,
acquisition, development, and expansion of regional retail shopping centers and
interests therein. The Operating Partnership's portfolio as of March 31, 2000
includes 17 urban and suburban shopping centers in seven states. Four additional
centers are under construction in Florida and Texas.
The consolidated financial statements of the Company include all accounts
of the Company, the Operating Partnership and its consolidated subsidiaries; all
intercompany balances have been eliminated. Investments in entities not
unilaterally controlled by ownership or contractual obligation (Unconsolidated
Joint Ventures) are accounted for under the equity method.
In September 1999 and November 1999, the Operating Partnership completed
private placements of $75 million 9% Cumulative Redeemable Preferred Partnership
Equity (Series C Preferred Equity) and $25 million 9% Cumulative Redeemable
Preferred Partnership Equity (Series D Preferred Equity), respectively. Both the
Series C and Series D Preferred Equity were purchased by institutional investors
and have a fixed 9% coupon rate, no stated maturity, sinking fund, or mandatory
redemption requirements. At March 31, 2000, the Operating Partnership's equity
included three classes of preferred equity (Series A, C, and D) and the net
equity of the partnership unitholders. Net income and distributions of the
Operating Partnership are allocable first to the preferred equity interests, and
the remaining amounts to the general and limited partners in the Operating
Partnership in accordance with their percentage ownership. The Series A
Preferred Equity is owned by the Company and is eliminated in consolidation.
Because the net equity of the unitholders is less than zero, the interest
of the noncontrolling unitholders is presented as a zero balance in the balance
sheet as of March 31, 2000 and December 31, 1999. The income allocated to the
noncontrolling unitholders is equal to their share of distributions. The net
equity of the Operating Partnership is less than zero because of accumulated
distributions in excess of net income and not as a result of operating losses.
Distributions to partners are usually greater than net income because net income
includes non-cash charges for depreciation and amortization.
The Company's ownership in the Operating Partnership at March 31, 2000
consisted of a 62.6% managing general partnership interest, as well as the
Series A Preferred Equity interest. The Company's average ownership percentage
in the Operating Partnership for both the three months ended March 31, 2000 and
1999 was 62.8%. During the three months ended March 31, 2000, the Company's
ownership in the Operating Partnership decreased to 62.6% due to the ongoing
share buyback and unit redemption program (Note 6). At March 31, the Operating
Partnership had 84,510,509 units of partnership outstanding, of which the
Company owned 52,675,443. Included in the total units outstanding are 348,118
units issued in connection with the 1999 acquisition of Lord Associates that
currently do not receive allocations of income or distributions.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 requires that a lessor defer recognition of percentage rents in
quarterly periods until the specified target (typically gross sales in excess of
a certain amount) that triggers this type of rental income is achieved. The
Company had previously accrued interim contingent rental income as lessees'
specified sales targets were met or achievement of the sales targets was
probable. The Company adopted the accounting method set forth in SAB 101 during
the fourth quarter of 1999. Although the adoption had no impact on annual net
income, the Company has restated the results of the first three quarters of
1999. The effect of the restatement was to reduce net income by $0.3 million
($0.01 per diluted common share), $1.2 million ($0.02 per diluted common share),
and $1.2 million ($0.02 per diluted common share) for the first, second, and
third quarters of 1999, respectively, and to increase fourth quarter income and
per share amounts by $2.7 million and $0.05 per share, respectively.
5
<PAGE>
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The unaudited interim financial statements should be read in conjunction
with the audited financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999. In
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial statements for
the interim periods have been made. The results of interim periods are not
necessarily indicative of the results for a full year.
Note 2 - Investments in Unconsolidated Joint Ventures
Following are the Company's investments in Unconsolidated Joint Ventures
which own regional retail shopping centers. The Operating Partnership is
generally the managing general partner of these Unconsolidated Joint Ventures.
The Operating Partnership's interest in each Unconsolidated Joint Venture is as
follows:
Ownership as of
Unconsolidated Joint Venture Shopping Center March 31, 2000
- ------------------------------ ---------------- ---------------
Arizona Mills, L.L.C. Arizona Mills 37%
Dolphin Mall Associates Dolphin Mall 50
Limited Partnership (under construction)
Fairfax Company of Virginia L.L.C. Fair Oaks 50
Lakeside Mall Limited Partnership Lakeside 50(see below)
Rich-Taubman Associates Stamford Town Center 50
Taubman-Cherry Creek
Limited Partnership Cherry Creek 50
Tampa Westshore Associates International Plaza 26
Limited Partnership (under construction)
Twelve Oaks Mall Limited Partnership Twelve Oaks Mall 50(see below)
West Farms Associates Westfarms 79
Woodland Woodland 50
In January 2000, the Company agreed to exchange property interests with its
current joint venture partner in two Unconsolidated Joint Ventures. Under the
terms of the agreement, expected to be completed in the second quarter of 2000,
the Operating Partnership will assume 100 percent ownership of Twelve Oaks Mall
and the current joint venture partner will become 100 percent owner of Lakeside.
Both properties will remain subject to the existing mortgage debt ($50 million
and $88 million at Twelve Oaks and Lakeside, respectively.) The Operating
Partnership will also pay the joint venture partner approximately $30 million in
cash. The transaction will be accounted for as a purchase. The Operating
Partnership will continue to manage Twelve Oaks, while the joint venture partner
will assume management responsibility for Lakeside at closing.
In January 2000, the 50% owned Unconsolidated Joint Venture that owns
Stamford Town Center completed a $76 million secured financing. The new
financing bears interest at a rate of one-month LIBOR plus 0.8% and matures in
2002. The loan may be extended until August 2004. The rate is capped at 8.2%
plus credit spread for the term of the loan. The proceeds were used to repay the
$54 million participating mortgage, the $18.3 million prepayment premium, and
accrued interest and transaction costs. The Unconsolidated Joint Venture
recognized an extraordinary charge of $18.6 million, which consisted primarily
of the prepayment premium. The Operating Partnership's share was $9.3 million.
The Company's carrying value of its Investment in Unconsolidated Joint
Ventures differs from its share of the deficiency in assets reported in the
combined balance sheet of the Unconsolidated Joint Ventures due to (i) the
Company's cost of its investment in excess of the historical net book values of
the Unconsolidated Joint Ventures and (ii) the Operating Partnership's
adjustments to the book basis, including intercompany profits on sales of
services that are capitalized by the Unconsolidated Joint Ventures. The
Company's additional basis allocated to depreciable assets is recognized on a
straight-line basis over 40 years. The Operating Partnership's differences in
bases are amortized over the useful lives of the related assets.
6
<PAGE>
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Combined balance sheet and results of operations information are presented
below (in thousands) for all Unconsolidated Joint Ventures, followed by the
Operating Partnership's beneficial interest in the combined information.
Beneficial interest is calculated based on the Operating Partnership's ownership
interest in each of the Unconsolidated Joint Ventures. Amounts for the three
months ended March 31, 1999 have been restated for the change in accounting
method for percentage rent (Note 1).
March 31 December 31
-------- -----------
2000 1999
---- ----
Assets:
Properties, net $ 759,229 $ 724,846
Other assets 69,046 91,820
------------ ------------
$ 828,275 $ 816,666
============ ============
Liabilities and partners' accumulated
deficiency in assets:
Debt $ 940,286 $ 895,163
Capital lease obligations 3,113 3,664
Other liabilities 46,417 53,825
TRG's accumulated deficiency in assets (88,638) (74,749)
Unconsolidated Joint Venture Partners'
accumulated deficiency in assets (72,903) (61,237)
------------ ------------
$ 828,275 $ 816,666
============ ============
TRG's accumulated deficiency in
assets (above) $ (88,638) $ (74,749)
TRG basis adjustments, including elimination
of intercompany profit 4,764 2,205
TCO's additional basis 196,645 197,789
------------ ------------
Investment in Unconsolidated Joint Ventures $ 112,771 $ 125,245
============ ============
Three Months Ended
March 31
--------------------------------
2000 1999
---- ----
Revenues $ 62,179 $ 60,148
------------ ------------
Recoverable and other operating expenses $ 22,242 $ 20,939
Interest expense 16,850 15,291
Depreciation and amortization 8,173 7,260
------------ ------------
Total operating costs $ 47,265 $ 43,490
------------ ------------
Income before extraordinary item $ 14,914 $ 16,658
Extraordinary item 18,576
------------ ------------
Net income (loss) $ (3,662) $ 16,658
============ ============
Net income (loss) allocable to TRG $ (1,566) $ 9,461
Extraordinary item allocable to TRG 9,288
Realized intercompany profit 2,017 1,266
Depreciation of TCO's additional basis (1,144) (1,182)
------------ -------------
Equity in income before extraordinary item
of Unconsolidated Joint Ventures $ 8,595 $ 9,545
============ ============
Beneficial interest in Unconsolidated
Joint Ventures' operations:
Revenues less recoverable and other
operating expenses $ 22,893 $ 22,773
Interest expense (9,038) (8,244)
Depreciation and amortization (5,260) (4,984)
------------ ------------
Income before extraordinary item $ 8,595 $ 9,545
============ ============
7
<PAGE>
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Note 3 - Beneficial Interest in Debt and Interest Expense
In January 2000, the 50% owned Unconsolidated Joint Venture that owns
Stamford Town Center completed a $76 million secured financing (Note 2). Also,
in January 2000, the Company finalized an agreement that securitized the $40
million bank line of credit and extended its maturity to August 2000.
In April 2000, the Operating Partnership's guaranty of principal and
interest on the MacArthur Center loan was reduced to 50%. The outstanding
balance on this loan was $116.1 million at March 31, 2000.
The Operating Partnership's beneficial interest in the debt, capital lease
obligations, capitalized interest, and interest expense of its consolidated
subsidiaries and its Unconsolidated Joint Ventures is summarized in the
following table. The Operating Partnership's beneficial interest excludes debt
and interest relating to the minority interest in Great Lakes Crossing (15% and
20% in 2000 and 1999, respectively) and the 30% minority interest in MacArthur
Center.
<TABLE>
<CAPTION>
Unconsolidated Share
Joint of Unconsolidated Consolidated Beneficial
Ventures Joint Ventures Subsidiaries Interest
-------------- ----------------- ------------ ----------
<S> <C> <C> <C> <C>
Debt as of:
March 31, 2000 $ 940,286 $ 496,398 $ 955,211 $ 1,391,273
December 31, 1999 895,163 473,726 886,561 1,300,224
Capital lease obligations:
March 31, 2000 $ 3,113 $ 1,723 $ 457 $ 2,111
December 31, 1999 3,664 2,018 469 2,418
Capitalized interest:
Three months ended March 31, 2000 $ 1,802 $ 818 $ 4,596 $ 5,414
Three months ended March 31, 1999 317 158 4,247 4,405
Interest expense
(Net of capitalized interest):
Three months ended March 31, 2000 $ 16,850 $ 9,038 $ 13,166 $ 21,010
Three months ended March 31, 1999 15,291 8,244 10,865 18,993
</TABLE>
Note 4 - Incentive Option Plan
The Operating Partnership has an incentive option plan for employees of the
Manager. Currently, options for 7.7 million Operating Partnership units may be
issued under the plan, including options outstanding for 7.4 million units.
Incentive options generally become exercisable to the extent of one-third of the
units on each of the third, fourth, and fifth anniversaries of the date of
grant. Options expire ten years from the date of grant. The Operating
Partnership's units issued in connection with the incentive option plan are
exchangeable for shares of the Company's common stock under the Continuing Offer
(Note 5). There were no units exercised during the three months ended March 31,
2000. During the three months ended March 31, 1999, 75,059 units were exercised
at weighted average exercise prices of $10.38 per unit. There were no units
granted or cancelled during the three months ended March 31, 2000. There were
1,000,000 units granted at $12.25 per unit and 61,890 units cancelled at an
average price of $12.58 per unit during the three months ended March 31, 1999.
As of March 31, 2000, there were vested options for 6.9 million units with a
weighted exercise price of $11.27 per unit and outstanding options (including
unvested options) for a total of 7.4 million units with a weighted average
exercise price of $11.36 per unit.
8
<PAGE>
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Note 5 - Commitments and Contingencies
At the time of the Company's initial public offering (IPO) and acquisition
of its partnership interest in the Operating Partnership, the Company entered
into an agreement (the Cash Tender Agreement) with A. Alfred Taubman, who is the
Company's chairman and owns an interest in the Operating Partnership, whereby he
has the annual right to tender to the Company units of partnership interest in
the Operating Partnership (provided that the aggregate value is at least $50
million) and cause the Company to purchase the tendered interests at a purchase
price based on a market valuation of the Company on the trading date immediately
preceding the date of the tender. The Company will have the option to pay for
these interests from available cash, borrowed funds, or from the proceeds of an
offering of the Company's common stock. Generally, the Company expects to
finance these purchases through the sale of new shares of its stock. The
tendering partner will bear all market risk if the market price at closing is
less than the purchase price and will bear the costs of sale. Any proceeds of
the offering in excess of the purchase price will be for the sole benefit of the
Company. At A. Alfred Taubman's election, his family and Robert C. Larson and
his family may participate in tenders.
Based on a market value at March 31, 2000 of $11.13 per common share, the
aggregate value of interests in the Operating Partnership that may be tendered
under the Cash Tender Agreement was approximately $268.4 million. The purchase
of these interests at March 31, 2000 would have resulted in the Company owning
an additional 29% interest in the Operating Partnership.
The Company has made a continuing, irrevocable offer to all present holders
(other than certain excluded holders, including A. Alfred Taubman), assignees of
all present holders, those future holders of partnership interests in the
Operating Partnership as the Company may, in its sole discretion, agree to
include in the continuing offer, and all existing and future optionees under the
Operating Partnership's incentive option plan to exchange shares of common stock
for partnership interests in the Operating Partnership (the Continuing Offer).
Under the Continuing Offer agreement, one unit of partnership interest is
exchangeable for one share of the Company's common stock.
Shares of common stock that were acquired by GMPT and the AT&T Master
Pension Trust in connection with the IPO may be sold through a registered
offering. Pursuant to a registration rights agreement with the Company, the
owners of each of these shares have the annual right to cause the Company to
register and publicly sell their shares of common stock (provided that the
shares have an aggregate value of at least $50 million and subject to certain
other restrictions). All expenses of such a registration are to be borne by the
Company, other than the underwriting discounts or selling commissions, which
will be borne by the exercising party.
The Company is currently involved in certain litigation arising in the
ordinary course of business. Management believes that this litigation will not
have a material adverse effect on the Company's financial statements.
Note 6 - Purchases of Common Stock
In March 2000, the Company's Board of Directors authorized the purchase of
up to $50 million of the Company's common stock in the open market. The stock
may be purchased from time to time as market conditions warrant. For each share
of the Company's stock repurchased, an equal number of the Company's Operating
Partnership units are redeemed. As of March 31, 2000, the Company had purchased
and the Operating Partnership had redeemed approximately 606 thousand shares and
units for approximately $6.8 million. Existing lines of credit provided funding
for the purchases. Approximately $0.7 million was accrued at March 31, 2000 for
the repurchases of 66,300 shares that settled in April 2000.
9
<PAGE>
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Note 7 - Earnings Per Share
Basic earnings per common share are calculated by dividing earnings
available to common shareowners by the average number of common shares
outstanding during each period. For diluted earnings per common share, the
Company's ownership interest in the Operating Partnership (and therefore
earnings) are adjusted assuming the exercise of all options for units of
partnership interest under the Operating Partnership's incentive option plan
having exercise prices less than the average market value of the units using the
treasury stock method. For the three months ended March 31, 2000 and 1999,
options for 2.0 million and 0.4 million units of partnership interest with
average exercise price of $12.46 and $13.58 per unit were excluded from the
computation of diluted earnings per unit because the exercise prices were
greater than the average market price for the period calculated.
Three Months
Ended March 31
--------------------------
2000 1999
---- ----
(in thousands, except share data)
Income (loss) before extraordinary item
allocable to common shareowners (Numerator):
Net income (loss) available to common
shareowners $ (6,389) $ 2,190
Common shareowners' share of extraordinary
item 5,836
---------- ----------
Basic income (loss) before extraordinary
item $ (553) $ 2,190
Effect of dilutive options (38) (67)
---------- -----------
Diluted income (loss) before extraordinary
item $ (591) $ 2,123
========== ==========
Shares (Denominator) - basic and diluted 53,229,918 53,016,661
========== ==========
Income (loss) before extraordinary item
per common share - basic and diluted $ (0.01) $ 0.04
========== ==========
10
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements of Taubman Centers, Inc. and the
Notes thereto.
General Background and Performance Measurement
The Company owns a managing general partner's interest in The Taubman
Realty Group Limited Partnership (Operating Partnership or TRG), through which
the Company conducts all of its operations. The Operating Partnership owns,
develops, acquires, and operates regional shopping centers nationally. The
Consolidated Businesses consist of shopping centers that are controlled by
ownership or contractual agreement, development projects for future regional
shopping centers, and The Taubman Company Limited Partnership (the Manager).
Shopping centers that are not controlled and that are owned through joint
ventures with third parties (Unconsolidated Joint Ventures) are accounted for
under the equity method.
The operations of the shopping centers are best understood by measuring
their performance as a whole, without regard to the Company's ownership
interest. Consequently, in addition to the discussion of the operations of the
Consolidated Businesses, the operations of the Unconsolidated Joint Ventures are
presented and discussed as a whole.
Seasonality
The regional shopping center industry is seasonal in nature, with mall
tenant sales highest in the fourth quarter due to the Christmas season, and with
lesser, though still significant, sales fluctuations associated with the Easter
holiday and back-to-school events. While minimum rents and recoveries are
generally not subject to seasonal factors, most leases are scheduled to expire
in the first quarter, and the majority of new stores open in the second half of
the year in anticipation of the Christmas selling season. Accordingly, revenues
and occupancy levels are generally highest in the fourth quarter.
The following table summarizes certain quarterly operating data for 1999
and the first quarter of 2000. Quarterly percentage rent information for 1999
has been restated for the change in accounting method for percentage rent.
<TABLE>
<CAPTION>
1st 2nd 3rd 4th 1st
Quarter Quarter Quarter Quarter Total Quarter
1999 1999 1999 1999 1999 2000
-----------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mall tenant sales $ 533,730 $ 598,956 $ 610,520 $ 952,439 $2,695,645 $ 589,996
Revenues 117,485 127,669 125,140 139,327 509,621 132,331
Occupancy:
Average 88.5% 88.1% 88.9% 90.3% 89.0% 88.8%
Ending 87.5% 88.0% 89.5% 90.4% 90.4% 88.5%
Leased Space 91.3% 91.7% 92.8% 92.1% 92.1% 91.4%
</TABLE>
11
<PAGE>
Because the seasonality of sales contrasts with the generally fixed nature
of minimum rents and recoveries, mall tenant occupancy costs (the sum of minimum
rents, percentage rents and expense recoveries) relative to sales are
considerably higher in the first three quarters than they are in the fourth
quarter. The following table summarizes occupancy costs, excluding utilities,
for mall tenants as a percentage of sales for 1999 and the first quarter of
2000:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th 1st
Quarter Quarter Quarter Quarter Total Quarter
1999 1999 1999 1999 1999 2000
--------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Minimum Rents 11.8% 10.8% 10.7% 7.2% 9.7% 11.3%
Percentage Rents 0.2 0.1 0.1 0.5 0.2 0.3
Expense Recoveries 4.6 4.9 4.5 3.4 4.3 4.8
---- ----- ---- ---- ---- ----
Mall tenant occupancy costs 16.6% 15.8% 15.3% 11.1% 14.2% 16.4%
==== ===== ==== ==== ==== ====
</TABLE>
Rental Rates
Average base rent per square foot for all mall tenants at the 10 centers
owned and open for at least five years was $43.82 for the twelve months ended
March 31, 2000, compared to $43.09 for the twelve months ended March 31, 1999.
As leases have expired in the shopping centers, the Company has generally been
able to rent the available space, either to the existing tenant or a new tenant,
at rental rates that are higher than those of the expired leases. In a period of
increasing sales, rents on new leases will tend to rise as tenants' expectations
of future growth become more optimistic. In periods of slower growth or
declining sales, rents on new leases will grow more slowly or will decline for
the opposite reason. However, center revenues, nevertheless, increase as older
leases roll over or are terminated early and replaced with new leases negotiated
at current rental rates that are usually higher than the average rates for
existing leases.
Results of Operations
The following represent significant debt, equity, and other transactions
which affect the operating results described under Comparison of Three Months
Ended March 31, 2000 to the Three Months Ended March 31, 1999.
Debt and Equity Transactions
In January 2000, the 50% owned Unconsolidated Joint Venture that owns
Stamford Town Center completed a $76 million secured financing. The new
financing bears interest at a rate of one-month LIBOR plus 0.8% and matures in
2002. The loan may be extended until August 2004. The rate is capped at 8.2%
plus credit spread for the term of the loan. The proceeds were used to repay the
$54 million participating mortgage, the $18.3 million prepayment premium, and
accrued interest and transaction costs. The Unconsolidated Joint Venture
recognized an extraordinary charge of $18.6 million, which consisted primarily
of the prepayment premium. The Operating Partnership's share was $9.3 million.
In September and November 1999, the Operating Partnership completed private
placements of its Series C and Series D preferred equity totaling $100 million,
with net proceeds used to pay down lines of credit. In August 1999, the $177
million refinancing of Cherry Creek was completed, with net proceeds of $45.2
million being distributed to the Operating Partnership and used to pay down
lines of credit. In April 1999 through June 1999, $520 million of refinancings
relating to The Mall at Short Hills, Biltmore Fashion Park, and Great Lakes
Crossing were completed.
In November 1999, the Operating Partnership acquired Lord Associates, a
retail leasing firm based in Alexandria, Virginia for $2.5 million in cash and
$5 million in partnership units, which are subject to certain contingencies. In
addition, $1.0 million of the purchase price is contingent upon profits achieved
on acquired leasing contracts.
12
<PAGE>
Other
In January 2000, the Company agreed to exchange property interests with its
current joint venture partner in two Unconsolidated Joint Ventures. Under the
terms of the agreement, expected to be completed in the second quarter 2000, the
Operating Partnership will assume 100 percent ownership of Twelve Oaks Mall and
the current joint venture partner will become 100 percent owner of Lakeside.
Both properties will remain subject to the existing mortgage debt ($50 million
and $88 million at Twelve Oaks and Lakeside, respectively.) The Operating
Partnership will also pay the joint venture partner $30 million in cash. The
transaction will be accounted for as a purchase. The Operating Partnership will
continue to manage Twelve Oaks, while the joint venture partner will assume
management responsibility for Lakeside at closing.
In March 1999, MacArthur Center, a 70% owned enclosed super-regional mall,
opened in Norfolk, Virginia. MacArthur Center is owned by a joint venture in
which the Operating Partnership has a controlling interest, and consequently the
results of this center are consolidated in the Company's financial statements.
In December 1999, the Operating Partnership acquired an additional 5%
interest in Great Lakes Crossing for $1.2 million in cash, increasing the
Operating Partnership's interest in the center to 85%.
Presentation of Operating Results
The following tables contain the combined operating results of the
Company's Consolidated Businesses and the Unconsolidated Joint Ventures. Income
allocated to the noncontrolling partners of the Operating Partnership and
preferred interests is deducted to arrive at the results allocable to the
Company's common shareowners. Because the net equity of the Operating
Partnership is less than zero, the income allocated to the noncontrolling
partners is equal to their share of distributions. The net equity of these
minority partners is less than zero due to accumulated distributions in excess
of net income and not as a result of operating losses. Distributions to partners
are usually greater than net income because net income includes non-cash charges
for depreciation and amortization. The Company's average ownership percentage of
the Operating Partnership was 62.8% for both the 2000 and 1999 periods.
13
<PAGE>
Comparison of the Three Months Ended March 31, 2000 to the Three Months Ended
March 31, 1999
The following table sets forth operating results for the three months ended
March 31, 2000 and March 31, 1999, showing the results of the Consolidated
Businesses and Unconsolidated Joint Ventures:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2000 Three Months Ended March 31, 1999 (1)
- ------------------------------------------------------------------------------------------------------------------------------------
UNCONSOLIDATED UNCONSOLIDATED
CONSOLIDATED JOINT CONSOLIDATED JOINT
BUSINESSES(2) VENTURES(3) TOTAL BUSINESSES(2) VENTURES(3) TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Minimum rents 35.1 39.3 74.4 31.0 38.5 69.6
Percentage rents 1.0 0.9 1.8 0.7 0.4 1.1
Expense recoveries 20.2 20.7 40.9 16.8 19.5 36.4
Management, leasing and
development 6.2 6.2 5.7 5.7
Other 7.7 1.3 9.0 3.0 1.7 4.7
----- ----- ----- ----- ----- -----
Total revenues 70.2 62.2 132.3 57.3 60.1 117.5
OPERATING COSTS:
Recoverable expenses 17.2 16.7 33.9 14.4 16.2 30.7
Other operating 7.3 3.9 11.2 6.1 3.2 9.3
Management, leasing and
development 4.7 4.7 4.4 4.4
General and administrative 4.9 4.9 4.7 4.7
Interest expense 13.2 16.9 30.1 10.9 15.4 26.2
Depreciation and amortization (4) 13.5 7.8 21.3 12.1 7.2 19.3
----- ----- ----- ----- ----- -----
Total operating costs 60.9 45.3 106.2 52.6 42.0 94.6
Net results of Memorial City (2) (1.1) (1.1) (0.4) (0.4)
----- ----- ----- ----- ----- -----
8.2 16.9 25.1 4.3 18.2 22.5
===== ===== ===== =====
Equity in income before
extraordinary item of
Unconsolidated Joint Ventures 8.6 9.5
----- -----
Income before extraordinary item
and minority and preferred interests 16.8 13.8
Extraordinary item (9.3)
TRG preferred distributions (2.3)
Minority share of income (1.2) (4.4)
Distributions in excess of minority
share of income (6.3) (3.1)
----- -----
Net income (loss) (2.2) 6.3
Series A preferred dividends (4.2) (4.2)
----- -----
Net income (loss) available to
common shareowners (6.4) 2.2
===== =====
SUPPLEMENTAL INFORMATION (5):
EBITDA contribution 33.3 22.9 56.2 27.3 22.8 50.0
Beneficial Interest Expense (12.0) (9.0) (21.0) (10.8) (8.2) (19.0)
Non-real estate depreciation (0.7) (0.7) (0.6) (0.6)
Preferred dividends and
distributions (6.4) (6.4) (4.2) (4.2)
----- ----- ----- ----- ----- -----
Funds from Operations contribution 14.2 13.9 28.0 11.7 14.5 26.2
===== ===== ===== ===== ===== =====
<FN>
(1) The results have been restated to reflect the adoption of Staff Accounting
Bulletin 101.
(2) The results of operations of Memorial City are presented net in this table.
The Operating Partnership ceased to lease and manage Memorial City on
April 30, 2000.
(3) With the exception of the Supplemental Information, amounts represent 100%
of the Unconsolidated Joint Ventures. Amounts are net of intercompany
profits.
(4) Amortization of the Company's additional basis in the Operating Partnership
included in equity in income before extraordinary item of Unconsolidated
Joint Ventures was $1.1 million and $1.2 million in 2000 and 1999,
respectively. Also, amortization of the additional basis included in
depreciation and amortization was $0.9 million and $1.0 million in 2000 and
1999, respectively.
(5) EBITDA represents earnings before interest and depreciation and
amortization. Funds from Operations is defined and discussed in Liquidity
and Capital Resources.
(6) Amounts in the table may not add due to rounding.
</FN>
</TABLE>
14
<PAGE>
Consolidated Businesses
Total revenues for the three months ended March 31, 2000 were $70.2
million, a $12.9 million, or 22.5%, increase over the comparable period in 1999.
Minimum rents increased $4.1 million of which $3.0 million was due to the
opening of MacArthur Center. Minimum rents also increased due to tenant
rollovers. Expense recoveries increased primarily due to the new center. Other
revenue increased primarily due to an increase in gains on sales of peripheral
land.
Total operating costs were $60.9 million, an $8.3 million, or 15.8%
increase over the comparable period in 1999. Recoverable and depreciation and
amortization expenses increased primarily due to MacArthur Center. Other
operating expense increased primarily due to the new center, the Lord Associates
transaction, and increases in professional fees and bad debt expense, partially
offset by a decrease in the charge to operations for costs of unsuccessful and
potentially unsuccessful pre-development activities. Interest expense increased
primarily due to the opening of MacArthur Center and an increase in interest
rates, offset by a reduction in interest expense on debt paid down with the
proceeds of the preferred equity offerings.
Unconsolidated Joint Ventures
Total revenues for the three months ended March 31, 2000 were $62.2
million, a $2.1 million, or 3.5%, increase from the comparable period of 1999.
Minimum rents primarily increased due to tenant rollovers. Recoveries increased
due to increases in recoverable expenses, primarily relating to maintenance
costs.
Total operating costs increased by $3.3 million to $45.3 million for the
three months ended March 31, 2000. Other operating expenses increased primarily
due to increases in bad debt expense. Interest expense increased primarily due
to the additional debt at Cherry Creek as well as increases in interest rates.
As a result of the foregoing, income before extraordinary item of the
Unconsolidated Joint Ventures decreased by $1.3 million, or 7.1%, to $16.9
million. The Company's equity in income before extraordinary item of the
Unconsolidated Joint Ventures was $8.6 million, a 9.5% decrease from the
comparable period in 1999.
Net Income
As a result of the foregoing, the Company's income before extraordinary
item and minority and preferred interests increased $3.0 million, or 21.7%, to
$16.8 million for the three months ended March 31, 2000. During 2000, an
extraordinary charge of $9.3 million was recognized related to the refinancing
of the debt on Stamford Town Center. Distributions of $2.3 million to the
Operating Partnership's Series C and D Preferred Equity owners were made in
2000. After payment of $4.2 million in Series A preferred dividends, net income
(loss) available to common shareowners for 2000 was $(6.4) million compared to
$2.2 million in 1999.
Liquidity and Capital Resources
In the following discussion, references to beneficial interest represent
the Operating Partnership's share of the results of its consolidated and
unconsolidated businesses. The Company does not have and has not had any parent
company indebtness; all debt discussed represents obligations of the Operating
Partnership or its subsidiaries and joint ventures.
The Company believes that its net cash provided by operating activities,
distributions from its joint ventures, the unutilized portion of its credit
facilities, and its ability to access the capital markets, assures adequate
liquidity to conduct its operations in accordance with its dividend and
financing policies.
As of March 31, 2000, the Company had a consolidated cash balance of $50.5
million. Additionally, the Company has a secured $200 million line of credit.
This line had $138.0 million of borrowings as of March 31, 2000 and expires in
September 2001. The Company also has available a second secured bank line of
credit of up to $40 million. The line had $10.4 million of borrowings as of
March 31, 2000 and expires in August 2000.
15
<PAGE>
Summary of Investing Activities
Net cash used in investing activities was $15.7 million in 2000 compared to
$88.3 million in 1999. Cash used in investing activities was impacted by the
timing of capital expenditures, with outflows in 2000 and 1999 for the
construction of MacArthur Center, Great Lakes Crossing, International Plaza, The
Mall at Wellington Green, The Shops at Willow Bend, as well as other development
activities and other capital items. Proceeds from sales of peripheral land were
$5.2 million, an increase of $5.0 million from 1999. Contributions to
Unconsolidated Joint Ventures were $0.4 million in 2000 and $7.5 million in
1999, primarily representing funding for expansion activities. Distributions
received from joint ventures were consistent in both periods.
Summary of Financing Activities
Financing activities contributed cash of $35.6 million, a decrease of $30.1
million from the $65.7 million in 1999. Borrowings decreased by $20.6 million to
$68.7 million due to lower levels of construction expenditures, partially offset
by approximately $30 million borrowed in anticipation of the payment to be made
in connection with the exchange of interests in Twelve Oaks and Lakeside. Stock
repurchases of $6.1 million were made in connection with the ongoing stock
repurchase program. Distributions to minority and preferred interests increased
by $2.3 million due to the September and November 1999 issuances of the Series C
and Series D preferred equity.
In March 2000, the Company's Board of Directors authorized the purchase of
up to $50 million of the Company's common stock in the open market. The stock
may be purchased from time to time as market conditions warrant.
Beneficial Interest in Debt
At March 31, 2000, the Operating Partnership's debt and its beneficial
interest in the debt of its Consolidated and Unconsolidated Joint Ventures
totaled $1,391.3 million. As shown in the following table, $42.8 million of this
debt was floating rate debt that remained unhedged at March 31, 2000. Interest
rates shown do not include amortization of debt issuance costs and interest rate
hedging costs. These items are reported as interest expense in the results of
operations. In the aggregate, these costs added 0.44% to the effective rate of
interest on beneficial interest in debt at March 31, 2000. Included in
beneficial interest in debt is debt used to fund development and expansion
costs. Beneficial interest in assets on which interest is being capitalized
totaled $291.2 million as of March 31, 2000. Beneficial interest in capitalized
interest was $5.4 million for the three months ended March 31, 2000.
<TABLE>
<CAPTION>
Beneficial Interest in Debt
-------------------------------------------------------------
Amount Interest LIBOR Frequency LIBOR
(in millions Rate at Cap of Rate at
of dollars) 3/31/00(1) Rate Resets 3/31/00
----------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Total beneficial interest in fixed rate debt $835.2 7.52%(2)
Floating rate debt hedged via interest rate caps:
Through August 2000 144.5 7.42 6.00% Monthly 6.13%
Through October 2000 84.0 7.25 (2) 6.50 Monthly 6.13
Through December 2000 100.0 6.96 (2) 7.00 Monthly 6.13
Through October 2001 25.0 6.45 8.55 Monthly 6.13
Through January 2002 53.4 7.21 (2) 9.50 Monthly 6.13
Through July 2002 43.4 7.23 6.50 Monthly 6.13
Through August 2002 38.0 6.80 8.20 Monthly 6.13
Through September 2002 25.0 7.94 (2)(3) 7.00 Monthly 6.13
Other floating rate debt 42.8 6.96 (2)
----
Total beneficial interest in debt $1,391.3 7.38 (1)
========
<FN>
(1) All floating rates are based on the one-month LIBOR rate at March 31, 2000.
(2) Denotes weighted average interest rate.
(3) This cap has an embedded swap with a rate of 5.15% when LIBOR is below 6%.
</FN>
</TABLE>
16
<PAGE>
Sensitivity Analysis
The Company has exposure to interest rate risk on its debt obligations and
interest rate instruments. Based on the Operating Partnership's beneficial
interest in debt and interest rates in effect at March 31, 2000, a one percent
increase in interest rates on floating rate debt would decrease cash flows by
approximately $3.6 million and, due to the effect of capitalized interest,
annual earnings by approximately $2.7 million. A one percent decrease in
interest rates on floating rate debt would increase cash flows and annual
earnings by approximately $5.5 million and $4.3 million, respectively. Based on
the Company's consolidated debt and interest rates in effect at March 31, 2000,
a one percent increase in interest rates would decrease the fair value of debt
by approximately $16.1 million, while a one percent decrease in interest rates
would increase the fair value of debt by approximately $31.7 million.
Covenants and Commitments
Certain loan agreements contain various restrictive covenants, including
limitations on net worth, minimum debt service and fixed charges coverage
ratios, a maximum payout ratio on distributions, and a minimum debt yield ratio,
the latter being the most restrictive. The Company is in compliance with all of
such covenants.
Payments of principal and interest on the loans in the following table are
guaranteed by the Operating Partnership as of March 31, 2000. All of the loan
agreements provide for a reduction of the amounts guaranteed as certain center
performance and valuation criteria are met.
<TABLE>
<CAPTION>
TRG's Amount of
beneficial loan balance
interest in guaranteed
Loan balance loan balance by TRG % of loan
as of 3/31/00 as of 3/31/00 as of 3/31/00 balance % of interest
(in millions (in millions (in millions guaranteed guaranteed
Center of dollars) of dollars) of dollars) by TRG by TRG
- ------- ----------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Arizona Mills 142.2 52.4 13.1 9% 9%
Dolphin Mall 44.7 22.3 22.3 50% 100%
Great Lakes Crossing 170.0 144.5 170.0 100% 100%
International Plaza 0.0 0.0 0.0 100% (1) 100%(1)
MacArthur Center 116.1 81.3 116.1 100% (2) 100%(2)
<FN>
(1) The new investor in the International Plaza venture has indemnified the
Operating Partnership to the extent of approximately 25% of the amounts
guaranteed.
(2) In April 2000, the Operating Partnership's guaranty of principal and
interest was reduced to 50%.
</FN>
</TABLE>
Funds from Operations
A principal factor that the Company considers in determining dividends to
shareowners is Funds from Operations (FFO), which is defined as income before
extraordinary and unusual items, real estate depreciation and amortization, and
the allocation to the minority interest in the Operating Partnership, less
preferred dividends and distributions.
Funds from Operations does not represent cash flows from operations, as
defined by generally accepted accounting principles, and should not be
considered to be an alternative to net income as an indicator of operating
performance or to cash flows from operations as a measure of liquidity. However,
the National Association of Real Estate Investment Trusts (NAREIT) suggests that
Funds from Operations is a useful supplemental measure of operating performance
for REITs.
In October 1999, NAREIT approved certain clarifications of the definition
of FFO, including that non-recurring items that are not defined as
"extraordinary" under generally accepted accounting principles should be
reflected in the calculation of FFO. The clarified definition is effective
January 1, 2000 and restatement of all periods presented is recommended. Under
the clarified definition, there would have been no changes to the amounts
reported for 1999.
17
<PAGE>
Reconciliation of Net Income to Funds from Operations
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
---------------------- ----------------------
(in millions of dollars)
<S> <C> <C>
Income before extraordinary item and
minority and preferred interests (1) 16.8 13.8
Depreciation and amortization (2) 14.2 12.2
Share of Unconsolidated Joint Ventures'
depreciation and amortization (3) 5.3 5.0
Non-real estate depreciation (0.7) (0.6)
Minority interest in consolidated joint ventures (1.1)
Preferred dividends and distributions (6.4) (4.2)
---- ----
Funds from Operations 28.0 26.2
==== ====
Funds from Operations allocable to the Company 17.6 16.5
==== ====
<FN>
(1) Includes gains on peripheral land sales of $3.8 million and $0.5 million
for the three months ended March 31, 2000 and March 31, 1999, respectively.
(2) Includes $0.6 million and $0.5 million of mall tenant allowance
amortization for the three months ended March 31, 2000 and March 31, 1999,
respectively.
(3) Includes $0.3 million of mall tenant allowance amortization for each of the
three month periods ended March 31, 2000 and March 31, 1999.
(4) Amounts in this table may not add due to rounding.
</FN>
</TABLE>
Dividends
The Company pays regular quarterly dividends to its common and Series A
preferred shareowners. Dividends to its common shareowners are at the discretion
of the Board of Directors and depend on the cash available to the Company, its
financial condition, capital and other requirements, and such other factors as
the Board of Directors deems relevant. Preferred dividends accrue regardless of
whether earnings, cash availability, or contractual obligations were to prohibit
the current payment of dividends.
On March 7, 2000, the Company declared a quarterly dividend of $0.245 per
common share payable April 20, 2000 to shareowners of record on March 31, 2000.
The Board of Directors also declared a quarterly dividend of $0.51875 per share
on the Company's 8.3% Series A Preferred Stock for the quarterly dividend period
ended March 31, 2000, which was paid on March 31, 2000 to shareowners of record
on March 17, 2000.
The tax status of total 2000 common dividends declared and to be declared,
assuming continuation of a $0.245 per common share quarterly dividend, is
estimated to be approximately 40% return of capital, and approximately 60% of
ordinary income. The tax status of total 2000 dividends to be paid on Series A
Preferred Stock is estimated to be 100% ordinary income. These are
forward-looking statements and certain significant factors could cause the
actual results to differ materially, including: 1) the amount of dividends
declared; 2) changes in the Company's share of anticipated taxable income of the
Operating Partnership due to the actual results of the Operating Partnership; 3)
changes in the number of the Company's outstanding shares; 4) property
acquisitions or dispositions; 5) financing transactions, including refinancing
of existing debt; and 6) changes in the Internal Revenue Code or its
application.
The annual determination of the Company's common dividends is based on
anticipated Funds from Operations available after preferred dividends and
distributions, as well as financing considerations and other appropriate
factors. Further, the Company has decided that the growth in common dividends
will be less than the growth in Funds from Operations for the immediate future.
Any inability of the Operating Partnership or its Joint Ventures to obtain
financing as required to fund maturing debts, capital expenditures and changes
in working capital, including development activities and expansions, may require
the utilization of cash to satisfy such obligations, thereby possibly reducing
distributions to partners of the Operating Partnership and funds available to
the Company for the payment of dividends.
18
<PAGE>
Capital Spending
Capital spending for routine maintenance of the shopping centers is
generally recovered from tenants. The following table summarizes planned capital
spending, which is not recovered from tenants and assumes no acquisitions
during 2000:
<TABLE>
<CAPTION>
2000
-----------------------------------------------------------
Beneficial Interest in
Unconsolidated Consolidated Businesses
Consolidated Joint and Unconsolidated
Businesses Ventures(1) Joint Ventures (1)(2)
-----------------------------------------------------------
(in millions of dollars)
<S> <C> <C> <C>
Development, renovation, and expansion 186.7(3) 239.5 (4) 279.7
Mall tenant allowances 7.9 4.8 10.1
Pre-construction development and other 11.9 0.9 12.3
------ ------ ------
Total 206.5 245.2 302.1
====== ====== ======
<FN>
(1) Costs are net of intercompany profits. Excludes costs related to the Mall
at Millenia (a 50% owned unconsolidated joint venture).
(2) Includes the Operating Partnership's share of construction costs for The
Mall at Wellington Green (a 90% owned consolidated joint venture),
International Plaza (a 26% owned unconsolidated joint venture), and Dolphin
Mall (a 50% owned unconsolidated joint venture).
(3) Includes costs related to The Shops at Willow Bend and The Mall at
Wellington Green.
(4) Includes costs related to Dolphin Mall and International Plaza.
</FN>
</TABLE>
The Shops at Willow Bend, a new 1.4 million square foot center under
construction in Plano, Texas, will be anchored by Neiman Marcus, Saks Fifth
Avenue, Lord & Taylor, Foley's and Dillard's. The center is scheduled to open in
August 2001; Saks Fifth Avenue will open in 2004. The Mall at Wellington Green,
a 1.3 million square foot center under construction in west Palm Beach County,
Florida, will be anchored by Nordstrom, Lord & Taylor, Burdine's, Dillard's and
JCPenney. The center, scheduled to open in October 2001, will be owned by a
joint venture in which the Operating Partnership has a 90% controlling interest.
In September 1999, the Company finalized a partnership agreement with Swerdlow
Real Estate Group to jointly develop Dolphin Mall, a 1.4 million square foot
value regional center located in Miami, Florida. The center is scheduled to open
in March 2001.
Additionally, the Company is developing International Plaza, a new 1.3
million square foot center under construction in Tampa, Florida. The center will
be anchored by Nordstrom, Lord & Taylor, Dillard's and Neiman Marcus, and is
scheduled to open in September 2001. The Company originally had a controlling
50.1% interest in the partnership (Tampa Westshore) that owns the project. The
Company was responsible for providing the funding for project costs in excess of
construction financing in exchange for a preferential return. In November 1999,
the Company entered into agreements with a new investor, which provided funding
for the project and thereby reduced the Company's ownership interest to
approximately 26%. It is anticipated that given the preferential return
arrangements, the original 49.9% owner in Tampa Westshore will not initially
receive cash distributions. The Company expects to be initially allocated
approximately 33% of the net operating income of the project, with an additional
7% representing return of capital.
The total cost of these four projects is anticipated to be approximately $1
billion. The Company's beneficial investment in the projects will be
approximately $700 million, as three of these projects are joint ventures. While
the Company intends to finance approximately 75 percent of each new center with
construction debt, the Company has a greater responsibility for the project
equity (approximately $230 million). All of the project equity has been funded
through the Operating Partnership's preferred equity offerings, contributions
from the new joint venture partner in the International Plaza project, and
borrowing under the Company's lines of credit. With respect to the construction
loan financing, the Company has closed on financing for Dolphin Mall and
International Plaza. The financings on the two remaining projects are expected
to be completed in 2000.
Additionally, a 21-screen theater will be added at Fairlane, in the Detroit
metropolitan area and is anticipated to open in the spring of 2000. At Fair Oaks
in the Washington, D.C. area, Hecht's expansion will open in the spring of 2000,
and a JCPenney expansion and a newly constructed Macy's store will open in the
fall of 2000. The Operating Partnership's share of the cost of these projects is
expected to be approximately $9.8 million.
The Operating Partnership and the Forbes Company have formed a joint
venture to develop the Mall at Millenia in Orlando, Florida. This project is
expected to begin construction in Fall 2000 and open in 2002. The Mall at
Millenia will be anchored by Bloomingdales, Macy's, and Neiman Marcus.
19
<PAGE>
The Operating Partnership and The Mills Corporation have formed an alliance
to develop value super-regional projects in major metropolitan markets. The
ten-year agreement calls for the two companies to jointly develop and own at
least seven of these centers, each representing approximately $200 million of
capital investment. A number of locations across the nation are targeted for
future initiatives.
The Operating Partnership anticipates that its share of costs for
development projects scheduled to be completed in 2001 will be as much as $220
million in 2001. Estimates of future capital spending include only projects
approved by the Company's Board of Directors and, consequently, estimates will
change as new projects are approved. Estimates regarding capital expenditures
presented above are forward-looking statements and certain significant factors
could cause the actual results to differ materially, including but not limited
to: 1) actual results of negotiations with anchors, tenants and contractors; 2)
changes in the scope and number of projects; 3) cost overruns; 4) timing of
expenditures; 5) financing considerations; and 6) actual time to complete
projects.
Cash Tender Agreement
A. Alfred Taubman has the annual right to tender to the Company units of
partnership interest in the Operating Partnership (provided that the aggregate
value is at least $50 million) and cause the Company to purchase the tendered
interests at a purchase price based on a market valuation of the Company on the
trading date immediately preceding the date of the tender (the Cash Tender
Agreement). At A. Alfred Taubman's election, his family, and Robert C. Larson
and his family may participate in tenders. The Company will have the option to
pay for these interests from available cash, borrowed funds, or from the
proceeds of an offering of the Company's common stock. Generally, the Company
expects to finance these purchases through the sale of new shares of its stock.
The tendering partner will bear all market risk if the market price at closing
is less than the purchase price and will bear the costs of sale. Any proceeds of
the offering in excess of the purchase price will be for the sole benefit of the
Company.
Based on a market value at March 31, 2000 of $11.13 per common share, the
aggregate value of interests in the Operating Partnership that may be tendered
under the Cash Tender Agreement was approximately $268 million. The purchase of
these interests at March 31, 2000 would have resulted in the Company owning an
additional 29% interest in the Operating Partnership.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivatives and whether it qualifies for hedge accounting. The Company is
still evaluating the impact of SFAS 133 on its consolidated financial
statements. SFAS 133 is effective for fiscal years beginning after June 15,
2000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is included in this report at Item 2
under the caption "Liquidity and Capital Resources - Sensitivity Analysis".
20
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
12 -- Statement Re: Computation of Taubman Centers, Inc.
Ratio of Earnings to Combined Fixed Charges and
Preferred Dividends and Distributions.
27 -- Financial Data Schedule.
b) Current Reports on Form 8-K.
None
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TAUBMAN CENTERS, INC.
Date: May 10, 2000 By: /s/ Lisa A. Payne
-----------------
Lisa A. Payne
Executive Vice President and
Chief Financial Officer
22
<PAGE>
EXHIBIT INDEX
Exhibit
Number
12 -- Statement Re: Computation of Taubman Centers, Inc.
Ratio of Earnings to Combined Fixed Charges and
Preferred Dividends and Distributions.
27 -- Financial Data Schedule.
23
<PAGE>
Exhibit 12
TAUBMAN CENTERS, INC.
Computation of Ratios of Earnings to Combined Fixed Charges and Preferred
Dividends and Distributions
(in thousands, except ratios)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
2000 1999
---- ----
<S> <C> <C>
Net Earnings from Continuing Operations $ 16,827 $ 13,847
Add back:
Fixed charges 28,663 24,811
Amortization of previously capitalized
interest (1) 550 504
Equity in net income in excess of distributions of
less than 50% owned Unconsolidated Joint
Ventures (341)
Deduct:
Capitalized interest (1) (5,414) (4,405)
------------- -------------
Earnings Available for Fixed Charges
and Preferred Dividends and Distributions $ 40,626 $ 34,416
============= =============
Fixed Charges
Interest expense $ 13,166 $ 10,865
Capitalized interest 4,596 4,247
Interest portion of rent expense 983 1,050
Proportionate share of Unconsolidated Joint
Ventures' fixed charges 9,918 8,649
------------- -------------
Total Fixed Charges $ 28,663 $ 24,811
------------- -------------
Preferred Dividends and Distributions 6,400 4,150
------------- -------------
Total Fixed Charges and Preferred
Dividends and Distributions $ 35,063 $ 28,961
============= =============
Ratio of Earnings to Fixed Charges and
Preferred Dividends and Distributions 1.2 1.2
<FN>
(1) Amounts include TRG's pro rata share of capitalized interest and
amortization of previously capitalized interest of the Unconsolidated Joint
Ventures.
</FN>
</TABLE>
24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TAUBMAN CENTERS, INC. (TCO) CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000 AND
THE TAUBMAN CENTERS, INC. STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000890319
<NAME> TAUBMAN CENTERS, INC.
<MULTIPLIER> 1,000 <F1>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 50,517
<SECURITIES> 0
<RECEIVABLES> 44,188
<ALLOWANCES> 2,103
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F2>
<PP&E> 1,590,474
<DEPRECIATION> 222,463
<TOTAL-ASSETS> 1,622,281
<CURRENT-LIABILITIES> 0 <F2>
<BONDS> 955,211
0
112
<COMMON> 527
<OTHER-SE> 455,037
<TOTAL-LIABILITY-AND-EQUITY> 1,622,281
<SALES> 0
<TOTAL-REVENUES> 72,773
<CGS> 0
<TOTAL-COSTS> 45,407
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,166
<INCOME-PRETAX> 16,827 <F3>
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,827 <F3>
<DISCONTINUED> 0
<EXTRAORDINARY> 9,288
<CHANGES> 0
<NET-INCOME> (2,239)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
<FN>
<F1> EXCEPT FOR PER SHARE DATA
<F2> TCO HAS AN UNCLASSIFIED BALANCE SHEET
<F3> REPRESENTS INCOME BEFORE EXTRAORDINARY ITEMS AND MINORITY INTEREST. THE
MINORITY INTEREST'S SHARE OF INCOME WAS $7.528 MILLION.
</FN>
</TABLE>
