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: September 30, 2000
Commission File No. 1-11530
Taubman Centers, Inc.
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(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 November 10, 2000, there were outstanding 51,434,997 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 September 30, 2000 and December 31, 1999.... 2
Consolidated Statement of Operations for the three months ended September 30,
2000 and 1999.............................................................. 3
Consolidated Statement of Operations for the nine months ended September 30,
2000 and 1999.............................................................. 4
Consolidated Statement of Cash Flows for the nine months ended September 30,
2000 and 1999.............................................................. 5
Notes to Consolidated Financial Statements................................... 6
1
<PAGE>
TAUBMAN CENTERS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30 December 31
------------ -----------
2000 1999
---- ----
<S> <C> <C>
Properties (Note 2) $ 1,919,393 $ 1,572,285
Accumulated depreciation and amortization (276,313) (210,788)
------------- -------------
$ 1,643,080 $ 1,361,497
Investment in Unconsolidated Joint Ventures (Notes 2 and 3) 97,973 125,245
Cash and cash equivalents 24,110 20,557
Accounts and notes receivable, less allowance
for doubtful accounts of $3,134 and $1,549 in
2000 and 1999 29,065 33,021
Accounts receivable from related parties 5,220 7,095
Deferred charges and other assets 59,337 49,496
------------- -------------
$ 1,858,785 $ 1,596,911
============= =============
Liabilities:
Mortgage notes payable $ 1,102,094 $ 866,742
Unsecured notes payable 2,194 19,819
Accounts payable and accrued liabilities 136,532 118,230
Dividends payable 12,723 13,054
------------- -------------
$ 1,253,543 $ 1,017,845
Commitments and contingencies (Note 6)
Preferred Equity of TRG (Notes 1 and 7) $ 97,275 $ 97,275
Partners' Equity of TRG allocable to minority partners (Note 1)
Shareowners' Equity (Note 7):
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
September 30, 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 September 30, 2000 and December 31, 1999 32 32
Series C Cumulative Redeemable Preferred Stock,
$0.01 par value, 2,000,000 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, 51,931,397
and 53,281,643 issued and outstanding at September 30, 2000 and
December 31, 1999 519 533
Additional paid-in capital 685,897 701,045
Dividends in excess of net income (178,561) (219,899)
------------- -------------
$ 507,967 $ 481,791
------------- -------------
$ 1,858,785 $ 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 September 30
-------------------------------
2000 1999
---- ----
(Note 1)
<S> <C> <C>
Income:
Minimum rents $ 38,686 $ 35,575
Percentage rents 634 651
Expense recoveries 22,434 19,329
Revenues from management, leasing and
development services 5,117 6,402
Other 7,918 4,038
Gain on disposition of interest in center (Note 2) 85,339
------------- -------------
$ 160,128 $ 65,995
------------- -------------
Operating Expenses:
Recoverable expenses $ 20,355 $ 17,689
Other operating 6,500 8,761
Management, leasing and development services 4,633 4,286
General and administrative 4,595 4,411
Interest expense 14,741 13,543
Depreciation and amortization 14,800 13,569
------------- -------------
$ 65,624 $ 62,259
------------- -------------
Income before equity in net income of Unconsolidated
Joint Ventures and minority and preferred interests $ 94,504 $ 3,736
Equity in net income of Unconsolidated Joint Ventures 5,089 8,887
------------- -------------
Income before minority and preferred interests $ 99,593 $ 12,623
Minority interest:
TRG income allocable to minority partners (47,326) (3,721)
Distributions less than (in excess of) earnings allocable to
minority partners 39,798 (3,787)
TRG Series C and D preferred distributions (Note 7) (2,250) (525)
------------- -------------
Net income $ 89,815 $ 4,590
Series A preferred dividends (4,150) (4,150)
------------- -------------
Net income available to common shareowners $ 85,665 $ 440
============= =============
Basic earnings per common share (Note 8)-
Net income $ 1.63 $ .01
============= =============
Diluted earnings per common share (Note 8)-
Net income $ 1.62 $ .01
============= =============
Cash dividends declared per common share $ .245 $ .24
============= =============
Weighted average number of common shares outstanding 52,545,001 53,277,693
============= =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
2000 1999
---- ----
(Note 1)
<S> <C> <C>
Income:
Minimum rents $ 111,108 $ 103,874
Percentage rents 2,406 2,326
Expense recoveries 65,496 58,306
Revenues from management, leasing and
development services 17,683 18,078
Other 21,267 12,345
Gain on disposition of interest in center (Note 2) 85,339
------------- -------------
$ 303,299 $ 194,929
------------- -------------
Operating Expenses:
Recoverable expenses $ 58,139 $ 52,115
Other operating 22,907 28,009
Management, leasing and development services 14,217 13,141
General and administrative 13,925 13,560
Interest expense 41,566 38,231
Depreciation and amortization 43,008 38,661
------------- -------------
$ 193,762 $ 183,717
------------- -------------
Income before equity in income before extraordinary items of
Unconsolidated Joint Ventures, extraordinary items,
and minority and preferred interests $ 109,537 $ 11,212
Equity in income before extraordinary items of Unconsolidated
Joint Ventures 21,412 28,199
------------- -------------
Income before extraordinary items, minority and
preferred interests $ 130,949 $ 39,411
Extraordinary items (Notes 3 and 4) (9,288) (301)
Minority interest:
TRG income allocable to minority partners (52,350) (12,083)
Distributions less than (in excess of) earnings allocable to
minority partners 29,765 (10,440)
TRG Series C and D preferred distributions (Note 7) (6,750) (525)
------------- -------------
Net income $ 92,326 $ 16,062
Series A preferred dividends (12,450) (12,450)
------------- -------------
Net income available to common shareowners $ 79,876 $ 3,612
============= =============
Basic earnings per common share (Note 8):
Income before extraordinary items $ 1.62 $ .07
Extraordinary items (0.11)
------------- -------------
Net income $ 1.51 $ .07
============= =============
Diluted earnings per common share (Note 8):
Income before extraordinary items $ 1.61 $ .07
Extraordinary items (0.11) (.01)
------------- -------------
Net income $ 1.50 $ .06
============= =============
Cash dividends declared per common share $ .735 $ .72
============= =============
Weighted average number of common shares outstanding 52,797,985 53,163,145
============= =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Income before extraordinary items, minority and
preferred interests $ 130,949 $ 39,411
Adjustments to reconcile income before
extraordinary items, minority and preferred interests to net
cash provided by operating activities:
Depreciation and amortization 43,008 38,661
Provision for losses on accounts receivable 2,708 2,337
Amortization of deferred financing costs 2,443 3,410
Gains on sales of land (7,692) (1,363)
Gain on disposition of interest in center (85,339)
Other 284 254
Increase (decrease) in cash attributable to changes in assets and
liabilities:
Receivables, deferred charges and other assets (187) (6,735)
Accounts payable and other liabilities 5,079 (9,453)
------------- -------------
Net Cash Provided By Operating Activities $ 91,253 $ 66,522
------------- -------------
Cash Flows From Investing Activities:
Additions to properties $ (126,721) $ (149,663)
Proceeds from sales of land 2,575 1,433
Purchase of interest in Fashionmall.com, Inc. (7,417)
Purchase of interest in MerchantWired, LLC (1,944)
Acquisition of additional interest in center (Note 2) (23,644)
Contributions to Unconsolidated Joint Ventures (6,448) (37,881)
Distributions from Unconsolidated Joint Ventures
in excess of income before extraordinary items 5,831 47,794
------------- -------------
Net Cash Used in Investing Activities $ (150,351) $ (145,734)
------------- -------------
Cash Flows From Financing Activities:
Debt proceeds $ 167,805 $ 607,123
Debt payments (93) (514,301)
Debt issuance costs (9,245) (10,325)
Repurchases of stock (15,279)
GMPT Exchange (9,737)
Distributions to minority and preferred interests (29,335) (23,048)
Issuance of stock pursuant to Continuing Offer 117 3,047
Issuance of TRG Series C Preferred Equity 72,900
Cash dividends to common shareowners (38,869) (38,247)
Cash dividends to Series A preferred shareowners (12,450) (12,450)
------------- -------------
Net Cash Provided By Financing Activities $ 62,651 $ 74,962
------------- -------------
Net Increase (Decrease) In Cash $ 3,553 $ (4,250)
Cash and Cash Equivalents at Beginning of Period 20,557 19,045
------------- -------------
Cash and Cash Equivalents at End of Period $ 24,110 $ 14,795
============= =============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 September 30,
2000 includes 16 urban and suburban shopping centers in seven states. Five
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.
At September 30, 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 September 30, 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. Distributions were
less than net income during 2000 due to a gain on the disposition of an interest
in a center (Note 2).
The Company's ownership in the Operating Partnership at September 30, 2000
consisted of a 62.3% managing general partnership interest, as well as the
Series A Preferred Equity interest. The Company's average ownership percentage
in the Operating Partnership for the three months ended September 30, 2000 and
1999 was 62.5% and 62.9%. During the nine months ended September 30, 2000, the
Company's ownership in the Operating Partnership decreased to 62.3% due to the
ongoing share buyback and unit redemption program. At September 30, 2000 the
Operating Partnership had 83,766,463 units of partnership outstanding, of which
the Company owned 51,931,397. 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.
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.
6
<PAGE>
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 2 - Twelve Oaks and Lakeside Transaction
In August 2000, the Company completed a transaction to acquire an additional
ownership in one of its Unconsolidated Joint Ventures. Under the terms of the
agreement, the Operating Partnership became the 100 percent owner of Twelve Oaks
and its joint venture partner became the 100 percent owner of Lakeside. Both
properties remained subject to the existing mortgage debt ($50 million and $88
million at Twelve Oaks and Lakeside, respectively.) The transaction resulted in
a net payment to the joint venture partner of approximately $25.5 million in
cash. The payment was funded by a new $100 million facility (Note 4). The
acquisition of the additional interest in Twelve Oaks was accounted for as a
purchase. The excess of the fair value over the net book basis of the interest
acquired in Twelve Oaks has been allocated to properties. The Operating
Partnership continues to manage Twelve Oaks, while the joint venture partner
assumed management responsibility for Lakeside. A gain of $85.3 million on the
transaction was recognized by the Company, representing the excess of the fair
value over the net book basis of the Company's interest in Lakeside, adjusted
for the $25.5 million paid and transaction costs.
Note 3 - Investments in Unconsolidated Joint Ventures
Following are the Company's investments in Unconsolidated Joint Ventures.
The Operating Partnership is the managing general partner in these
Unconsolidated Joint Ventures, except for those denoted with a (*).
Ownership as of
Unconsolidated Joint Venture Shopping Center September 30, 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
Forbes Taubman Orlando, L.L.C. * The Mall at Millenia 50
(under construction)
MerchantWired, LLC * 6.7
Rich-Taubman Associates Stamford Town Center 50
Tampa Westshore Associates International Plaza 26
Limited Partnership (under construction)
Taubman-Cherry Creek Cherry Creek 50
Limited Partnership
West Farms Associates Westfarms 79
Woodland Woodland 50
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 the credit spread for the term of the loan. The proceeds were used to repay
the remaining $54 million principal balance of the 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 April 2000, the Company entered into an agreement to develop The Mall at
Millenia in Orlando, Florida. This 1.2 million square foot center is expected to
open in 2002.
In May 2000, the Company entered into an agreement to acquire an
approximately 6.7% interest in MerchantWired, LLC, a service company providing
internet and network infrastructure to shopping centers and retailers. As of
September 30, 2000, the Company had invested approximately $2 million in the new
venture.
7
<PAGE>
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
8
<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 (excluding the
Company's investment in MerchantWired, LLC), 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. The accounts of Lakeside and
Twelve Oaks, formerly 50% Unconsolidated Joint Ventures, are included in these
results through the date of the transaction (Note 2). Amounts for the three and
nine months ended September 30, 1999 have been restated for the change in
accounting method for percentage rent (Note 1).
<TABLE>
<CAPTION>
September 30 December 31
------------ -----------
2000 1999
---- ----
<S> <C> <C>
Assets:
Properties $ 1,023,524 $ 942,248
Accumulated depreciation and amortization (207,771) (217,402)
------------- -------------
$ 815,753 $ 724,846
Other assets 53,320 91,820
------------- -------------
$ 869,073 $ 816,666
============= =============
Liabilities and partners' accumulated deficiency in assets:
Debt $ 892,822 $ 895,163
Capital lease obligations 770 3,664
Other liabilities 54,500 53,825
TRG's accumulated deficiency in assets (48,289) (74,749)
Unconsolidated Joint Venture Partners'
accumulated deficiency in assets (30,730) (61,237)
------------- -------------
$ 869,073 $ 816,666
============= =============
TRG's accumulated deficiency in assets (above) $ (48,289) $ (74,749)
TRG basis adjustments, including elimination of intercompany profit 15,376 2,205
TCO's additional basis 129,081 197,789
Investment in MerchantWired, LLC 1,805
------------- -------------
Investment in Unconsolidated Joint Ventures $ 97,973 $ 125,245
============= =============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 52,267 $ 61,908 $ 176,001 $ 183,743
----------- ----------- ----------- -----------
Recoverable and other operating expenses $ 18,626 $ 22,139 $ 62,516 $ 64,733
Interest expense 15,992 16,114 49,911 46,561
Depreciation and amortization 6,941 7,394 23,282 22,324
----------- ----------- ----------- -----------
Total operating costs $ 41,559 $ 45,647 $ 135,709 $ 133,618
----------- ----------- ----------- -----------
Income before extraordinary items $ 10,708 $ 16,261 $ 40,292 $ 50,125
Extraordinary items 18,576
----------- ----------- ----------- -----------
Net income $ 10,708 $ 16,261 $ 21,716 $ 50,125
=========== =========== =========== ===========
Net income allocable to TRG $ 5,507 $ 8,868 $ 11,389 $ 27,943
Extraordinary items allocable to TRG 9,288
Realized intercompany profit 480 1,162 3,921 3,763
Equity in MerchantWired, LLC net loss (139) (139)
Depreciation of TCO's additional basis (759) (1,143) (3,047) (3,507)
----------- ----------- ----------- -----------
Equity in income before extraordinary items
of Unconsolidated Joint Ventures $ 5,089 $ 8,887 $ 21,412 $ 28,199
=========== =========== =========== ===========
Beneficial interest in Unconsolidated
Joint Ventures' operations:
Revenues less recoverable and other
operating expenses $ 18,182 $ 22,677 $ 63,290 $ 68,558
Interest expense (8,564) (8,745) (26,728) (25,177)
Equity in MerchantWired, LLC net loss (139) (139)
Depreciation and amortization (4,390) (5,045) (15,011) (15,182)
----------- ----------- ----------- -----------
Income before extraordinary items $ 5,089 $ 8,887 $ 21,412 $ 28,199
=========== =========== =========== ===========
</TABLE>
9
<PAGE>
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 4 - 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 3). Also,
in January 2000, the Company finalized an agreement that securitized the $40
million bank line of credit. The line's maturity has been extended to August
2001.
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 $120.0 million at September 30, 2000. The MacArthur loan was refinanced
in October 2000 (Note 10).
In June 2000, the Company closed on a $220 million construction facility for
The Shops at Willow Bend which is guaranteed by the Operating Partnership. The
facility bears interest at LIBOR plus 1.85% and matures in June 2003, with two
one-year extension options. The rate and the amount guaranteed may be reduced
once certain center performance and valuation criteria are met. The balance
outstanding was $64.5 million at September 30, 2000. The loan is capped at 7.15%
plus credit spread on a notional amount of $56 million at September 30, 2000,
accreting $7 million a month up to $147 million. The cap expires in June 2003.
In August 2000, the Company closed on a $100 million facility secured by an
interest in Twelve Oaks and guaranteed by the Operating Partnership. The
facility bears interest at LIBOR plus 1.10% and matures in October 2001. The
outstanding balance on this loan was $100 million at September 30, 2000.
During the nine months ended September 30, 2000 and 1999, the Operating
Partnership recognized extraordinary charges related to the extinguishment of
debt.
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 (the
original 20% minority interest was reduced to 15% in December 1999) 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:
September 30, 2000 $ 892,822 $ 461,815 $ 1,104,288 $ 1,504,604
December 31, 1999 895,163 473,726 886,561 1,300,224
Capital lease obligations:
September 30, 2000 $ 770 $ 509 $ 1,882 $ 2,330
December 31, 1999 3,664 2,018 469 2,418
Capitalized interest:
Nine months ended September 30, 2000 $ 8,451 $ 3,757 $ 16,962 $ 20,719
Nine months ended September 30, 1999 1,110 555 10,570 11,125
Interest expense
(Net of capitalized interest):
Nine months ended September 30, 2000 $ 49,911 $ 26,728 $ 41,566 $ 64,523
Nine months ended September 30, 1999 46,561 25,177 38,231 60,998
</TABLE>
10
<PAGE>
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5 - 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, substantially all of which have been issued. 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. There were 11,854
options exercised during the nine months ended September 30, 2000 at a weighted
average price of $9.93 per unit. During the nine months ended September 30,
1999, options for 281,789 units were exercised at a weighted average exercise
price of $10.80 per unit. There were options for 250,000 units granted at $11.25
per unit and options for 65,180 units were cancelled during the nine months
ended September 30, 2000 at a weighted average exercise price of $12.45 per
unit. There were options for 1,000,000 units granted at $12.25 per unit and
89,544 units cancelled at a weighted average price of $12.88 per unit during the
nine months ended September 30, 1999. As of September 30, 2000, there were
vested options for 6.8 million units with a weighted average exercise price of
$11.26 per unit and outstanding options (including unvested options) for a total
of 7.6 million units with a weighted average exercise price of $11.35 per unit.
Note 6 - 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 certain others may
participate in tenders.
Based on a market value at September 30, 2000 of $11.56 per common share, the
aggregate value of interests in the Operating Partnership that may be tendered
under the Cash Tender Agreement was approximately $279.0 million. The purchase
of these interests at September 30, 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.
11
<PAGE>
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7 -Common and Preferred Stock and Equity
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.
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 September 30, 2000, the Company had
purchased and the Operating Partnership had redeemed 1,362,100 shares and units
for approximately $15.3 million. Existing lines of credit provided funding for
the purchases.
In May 2000, the Company's Restated Articles of Incorporation were amended to
increase the number of authorized preferred shares from 50 million to 250
million. The number of authorized shares of Series C Cumulative Redeemable
Preferred Stock was increased from one million to two million. The remainder of
the increase is available for future issuances of preferred stock.
Note 8 - 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 September 30, 2000 and 1999, options for 6.9 million and 0.4
million units of partnership interest with an average exercise price of $11.51
and $13.57 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. For the nine months ended September 30, 2000 and 1999,
options for 3.6 million and 0.3 million units of partnership interest with an
average exercise price of $12.14 and $13.68 per unit were excluded from the
computation of diluted earnings per unit because the exercise prices were
greater than average market price for the period calculated.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
-------------------------- ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands, except share data)
<S> <C> <C> <C> <C>
Income before extraordinary items allocable
to common shareowners (Numerator):
Net income available to common
shareowners $ 85,665 $ 440 $ 79,876 $ 3,612
Common shareowners' share of extraordinary items 5,823 189
------------ ------------ ------------ ------------
Basic income before extraordinary items $ 85,665 $ 440 $ 85,699 $ 3,801
Effect of dilutive options (349) (64) (451) (220)
------------ ------------ ------------ ------------
Diluted income before extraordinary items $ 85,316 $ 376 $ 85,248 $ 3,581
============ ============ ============ ============
Shares (Denominator) - basic and diluted 52,545,001 53,277,693 52,797,985 53,163,145
============ ============ ============ ============
Income before extraordinary items
per common share - basic $ 1.63 $ .01 $ 1.62 $ .07
============ ============ ============ ============
per common share - diluted $ 1.62 $ .01 $ 1.61 $ .07
============ ============ ============ ============
</TABLE>
12
<PAGE>
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 9 - Cash Flow Disclosures and Noncash Investing and Financing Activities
Interest on mortgage notes and other loans paid during the nine months ended
September 30, 2000 and 1999, net of amounts capitalized of $17.0 million and
$10.6 million, was $36.2 million and $34.1 million, respectively. During the
nine months ended September 30, 2000 and 1999, non-cash additions to properties
of $21.5 million and $11.5 million were recorded, respectively, representing
accrued construction costs of new centers and development projects.
Additionally, during the nine months ended September 30, 2000 non-cash
contributions to unconsolidated joint ventures of $2.8 million were made; this
amount primarily consists of project costs expended prior to the creation of the
joint ventures. In connection with the Twelve Oaks and Lakeside transaction
(Note 2), a $121.7 million step-up in the Company's basis in Twelve Oaks was
recorded. Also, during the nine months ended September 30, 2000, $7.3 million of
land contracts were entered into in connection with sales of peripheral land.
Note 10 - Subsequent Events
In October 2000, the 37% owned Unconsolidated Joint Venture that owns Arizona
Mills completed a $146 million secured financing. The financing has an all-in
rate of approximately 8.0% and matures in October 2010. The proceeds were
primarily used to repay the existing $142.2 million mortgage and to fund
transaction costs.
In October 2000, MacArthur Center completed a $145 million secured financing.
The financing has an all-in rate of approximately 7.8% and matures in October
2010. The proceeds were used to repay the existing $120 million construction
loan and transaction costs. The remaining net proceeds of approximately $23.9
million were distributed to the Operating Partnership, which contributed all of
the equity funding for the development of MacArthur Center. The Operating
Partnership used the distribution to pay down its line of credit.
In November 2000, the 50% owned Unconsolidated Joint Venture that is
developing The Mall at Millenia closed on a $160.4 million construction
facility. The rate on the facility is LIBOR plus 1.95% and matures in November
2003, with two one-year extension options. The Operating Partnership has
guaranteed the payment of 50% of the principal and interest. The rate and the
amount guaranteed may be reduced once certain performance and valuation criteria
are met.
13
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements represent the Company's expectations or beliefs concerning future
events, including the following: statements regarding future developments and
joint ventures, rents and returns, statements regarding the continuation of
historical trends and any statements regarding the sufficiency of the Company's
cash balances and cash generated from operating and financing activities for the
Company's future liquidity and capital resource needs. The Company cautions that
although forward-looking statements reflect the Company's good faith beliefs and
best judgment based upon current information, these statements are qualified by
important factors that could cause actual results to differ materially from
those in the forward-looking statements, including those risks, uncertainties,
and factors detailed from time to time in reports filed with the SEC, and in
particular those set forth under the headings "General Risks of the Company" and
"Environmental Matters" in the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1999. 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.
In August 2000, the Company completed a transaction to acquire an additional
interest in one of its Unconsolidated Joint Ventures; the Operating Partnership
became the 100 percent owner of Twelve Oaks and the joint venture partner became
the 100 percent owner of Lakeside. Statistics presented include Lakeside through
the date of the transaction.
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 three quarters of 2000. Quarterly revenues and percentage rent
information for 1999 have been restated for the change in accounting method for
percentage rent.
<TABLE>
<CAPTION>
1st 2nd 3rd 4th 1st 2nd 3rd
Quarter Quarter Quarter Quarter Total Quarter Quarter Quarter
1999 1999 1999 1999 1999 2000 2000 2000
------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mall tenant sales $ 533,730 $ 598,956 $ 610,520 $ 952,439 $ 2,695,645 $ 589,996 $ 628,999 $ 602,417
Revenues 117,485 127,669 125,140 139,327 509,621 132,331 130,923 127,034
Occupancy:
Average 88.5% 88.1% 88.9% 90.3% 89.0% 88.8% 88.1% 88.8%
Ending 87.5% 88.0% 89.5% 90.4% 90.4% 88.5% 88.1% 89.2%
Leased Space 91.3% 91.7% 92.8% 92.1% 92.1% 91.4% 90.5% 91.7%
</TABLE>
14
<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 three quarters
of 2000:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th 1st 2nd 3rd
Quarter Quarter Quarter Quarter Total Quarter Quarter Quarter
1999 1999 1999 1999 1999 2000 2000 2000
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Minimum Rents 11.8% 10.8% 10.7% 7.2% 9.7% 11.3% 10.6% 10.6%
Percentage Rents 0.2 0.1 0.1 0.5 0.2 0.3 0.1 0.1
Expense Recoveries 4.6 4.9 4.5 3.4 4.3 4.8 4.7 4.7
----- ----- ----- ----- ----- ----- ----- -----
Mall tenant occupancy costs 16.6% 15.8% 15.3% 11.1% 14.2% 16.4% 15.4% 15.4%
===== ===== ===== ===== ===== ===== ===== =====
</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 $44.46 for the twelve months ended
September 30, 2000, compared to $43.79 for the twelve months ended September 30,
1999. The 1999 amount has been restated to include the comparable centers. 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 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
Significant Debt, Equity, and Other Transactions
The following represent significant debt, equity, and other transactions
which affected the operating results described under Comparison of Three Months
Ended September 30, 2000 to the Three Months Ended September 30, 1999 and
Comparison of Nine Months Ended September 30, 2000 to the Nine Months Ended
September 30, 1999.
In August 2000, the Company completed a transaction to acquire an additional
ownership in one of its Unconsolidated Joint Ventures. Under the terms of the
agreement, the Operating Partnership became the 100 percent owner of Twelve Oaks
and the joint venture partner became the 100 percent owner of Lakeside. Both
properties remained subject to the existing mortgage debt ($50 million and $88
million at Twelve Oaks and Lakeside, respectively.) The transaction resulted in
a net payment to the joint venture partner of approximately $25.5 million in
cash. The payment was funded by a new $100 million facility, which is secured by
an interest in Twelve Oaks and guaranteed by the Operating Partnership. The
facility bears interest at LIBOR plus 1.10% and matures in October 2001. The
acquisition of the additional interest in Twelve Oaks was accounted for as a
purchase. The excess of the fair value over the net book basis of the acquired
interest has been allocated to properties. The results of Twelve Oaks have been
consolidated in the Company's results subsequent to the acquisition date (prior
to that date, Twelve Oaks was accounted for under the equity method as an
Unconsolidated Joint Venture). The Operating Partnership continues to manage
Twelve Oaks, while the former joint venture partner assumed management
responsibility for Lakeside. A gain of $85.3 million on the transaction was
recognized by the Company representing its share of the excess of the fair value
over the net book basis of the Company's interest in Lakeside, adjusted for the
$25.5 million paid and transaction costs.
The Company has acquired an approximately 6.7% interest in MerchantWired,
LLC, a service company providing internet and network infrastructure to shopping
centers and retailers. The Company's investment in MerchantWired is accounted
for under the equity method. Based on projections received from MerchantWired,
LLC, the Company's share of projected losses would reduce income per share by
approximately one cent per share in 2000 and 2001. The Company funded its
investment, which was approximately $2 million at September 30, 2000 and is
expected to increase to approximately $5 million by 2001, through existing lines
of credit. During the nine months ended September 30, 2000, the Operating
Partnership recognized its $0.1 million share of MerchantWired, LLC's net loss
for the period.
15
<PAGE>
In January 2000, the 50% owned Unconsolidated Joint Venture that owns
Stamford Town Center completed a $76 million secured financing. The 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 remaining
$54 million principal balance of the 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 of the extraordinary charge was $9.3 million.
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%.
In November 1999, the Operating Partnership acquired Lord Associates, a
retail leasing firm, 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.
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 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.
Comparable Center Operations
The performance of the Company's portfolio can be measured through
comparisons of comparable centers' operations. During the three months ended
September 30, 2000, revenues (excluding land sales) less operating costs
(operating and recoverable expenses) of those centers owned and open for the
entire period increased approximately two percent in comparison to the same
centers' results in the comparable period of 1999. The Company expects that
comparable center operations will increase annually by two to three percent.
This is a forward-looking statement and certain significant factors could cause
the actual results to differ materially; refer to the General Risks of the
Company in the Company's latest filing on Form 10-K.
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, although distributions were less than net income during 2000 due
to the gain on the disposition of Lakeside described above. The Company's
average ownership percentage of the Operating Partnership was approximately 63%
for all periods presented. The results of Twelve Oaks are included in the
Consolidated Businesses subsequent to the closing of the transaction, while both
Twelve Oaks and Lakeside are included as Unconsolidated Joint Ventures for
previous periods.
16
<PAGE>
Comparison of the Three Months Ended September 30, 2000 to the Three Months
Ended September 30, 1999
The following table sets forth operating results for the three months ended
September 30, 2000 and September 30, 1999, showing the results of the
Consolidated Businesses and Unconsolidated Joint Ventures:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 2000 Three Months Ended September 30, 1999 (1)
------------------------------------------------------------------------------------------------------------------------------------
UNCONSOLIDATED UNCONSOLIDATED
CONSOLIDATED JOINT CONSOLIDATED JOINT
BUSINESSES VENTURES(2) TOTAL BUSINESSES(3) VENTURES(2) TOTAL
------------------------------------------------------------------------------------------------------------------------------------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Minimum rents 38.7 33.7 72.4 33.6 39.3 72.9
Percentage rents 0.6 0.3 0.9 0.5 0.3 0.8
Expense recoveries 22.4 17.0 39.5 18.7 20.8 39.5
Management, leasing and
development 5.1 5.1 6.4 6.4
Other 7.9 1.2 9.1 4.0 1.6 5.5
--- --- --- --- --- ---
Total revenues 74.8 52.3 127.0 63.1 62.0 125.1
OPERATING COSTS:
Recoverable expenses 20.4 14.9 35.2 16.6 17.3 33.9
Other operating 6.5 2.9 9.4 6.8 3.5 10.3
Management, leasing and
development 4.6 4.6 4.3 4.3
General and administrative 4.6 4.6 4.4 4.4
Interest expense 14.7 16.0 30.8 13.5 16.4 29.9
Depreciation and amortization (4) 14.8 6.8 21.6 13.4 7.4 20.8
---- ---- ---- ---- ---- ----
Total operating costs 65.6 40.7 106.2 59.0 44.5 103.6
Net results of Memorial City (2) (0.4) (0.4)
---- ---- ---- ---- ---- ----
9.2 11.6 20.8 3.7 17.5 21.2
==== ==== ==== ====
Equity in net income of
Unconsolidated Joint Ventures (4) 5.1 8.9
--- ---
Income before gain on disposition and
minority and preferred interests 14.3 12.6
Gain on disposition of interest in
center 85.3
TRG preferred distributions (2.3) (0.5)
Minority share of income (47.3) (3.7)
Distributions less than (in excess of)
minority share of income 39.8 (3.8)
---- ----
Net income 89.8 4.6
Series A preferred dividends (4.2) (4.2)
---- ----
Net income available to
common shareowners 85.7 0.4
==== ====
SUPPLEMENTAL INFORMATION (5):
EBITDA - 100% 38.6 34.5 73.1 30.8 41.2 72.1
EBITDA - outside partners' share (1.5) (16.3) (17.8) (1.2) (18.5) (19.8)
---- ---- ---- ---- ---- ----
EBITDA contribution 37.0 18.2 55.2 29.6 22.7 52.3
Beneficial Interest Expense (13.4) (8.6) (22.0) (12.3) (8.7) (21.1)
Non-real estate depreciation (0.8) (0.8) (0.7) (0.7)
Preferred dividends and (6.4) (6.4) (4.7) (4.7)
distributions
---- ---- ---- ---- ---- ----
Funds from Operations contribution 16.4 9.6 26.0 12.0 13.9 25.9
==== ==== ==== ==== ==== ====
<FN>
(1) The results have been restated to reflect the adoption of Staff Accounting
Bulletin 101.
(2) With the exception of the Supplemental Information, amounts represent 100%
of the Unconsolidated Joint Ventures. Amounts are net of intercompany
profits.
(3) The results of operations of Memorial City are presented net in this table.
The Operating Partnership terminated its Memorial City lease on April 30,
2000.
(4) Amortization of the Company's additional basis in the Operating Partnership
included in equity in net income of Unconsolidated Joint Ventures was $0.8
million and $1.1 million in 2000 and 1999, respectively. Also, amortization
of the additional basis included in depreciation and amortization was $1.1
million and $0.9 million in 2000 and 1999, respectively.
(5) EBITDA represents earnings before interest and depreciation and
amortization. EBITDA excludes gains on dispositions of depreciated
operating properties. 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>
17
<PAGE>
Consolidated Businesses
Total revenues for the three months ended September 30, 2000 were $74.8
million, a 18.5% increase over the comparable period in 1999. Minimum rent
increased $5.1 million primarily due to the inclusion of Twelve Oaks, increased
occupancy at MacArthur Center, tenant rollovers, and other sources of rental
revenues including temporary tenants and advertising space arrangements. Expense
recoveries increased primarily due to Twelve Oaks. Management, leasing, and
development revenues decreased primarily due to a reduction in fees in certain
managed centers, and the timing and completion status of certain other contracts
and services. Other revenue increased primarily due to an increase in gains on
sales of peripheral land.
Total operating costs were $65.6 million, an 11.2% increase over the
comparable period in 1999. Recoverable expenses and depreciation and
amortization increased primarily due to Twelve Oaks. Interest expense increased
primarily due to an increase in interest rates and the debt assumed and incurred
relating to Twelve Oaks, partially 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 September 30, 2000 were $52.3
million, a 15.6% decrease from the comparable period of 1999. Total operating
costs decreased by $3.8 million to $40.7 million for the three months ended
September 30, 2000. Revenues and operating costs both decreased primarily
because the Twelve Oaks and Lakeside results were only included through the
transaction date. A decrease in interest expense of $1.3 million due to the
Twelve Oaks and Lakeside transaction was partially offset by increases in
interest rates.
As a result of the foregoing, net income of the Unconsolidated Joint Ventures
decreased by 33.7% to $11.6 million. The Company's equity in net income of the
Unconsolidated Joint Ventures was $5.1 million, a 42.7% decrease from the
comparable period in 1999.
Net Income
As a result of the foregoing, the Company's income before gain on disposition
and minority and preferred interests increased 13.5% to $14.3 million for the
three months ended September 30, 2000. During the third quarter of 2000, the
Company recognized a $85.3 million gain on the disposition of its interest in
Lakeside. 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 available to common shareowners for
2000 was $85.7 million compared to $0.4 million in 1999.
18
<PAGE>
Comparison of the Nine Months Ended September 30, 2000 to the Nine Months Ended
September 30, 1999
The following table sets forth operating results for the nine months ended
September 30, 2000 and September 30, 1999, showing the results of the
Consolidated Businesses and Unconsolidated Joint Ventures:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2000 Nine Months Ended September 30, 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 108.5 112.6 221.1 98.1 116.6 214.7
Percentage rents 2.4 1.3 3.8 2.0 1.2 3.2
Expense recoveries 64.5 58.1 122.6 56.2 61.1 117.3
Management, leasing and
development 17.7 17.7 18.1 18.1
Other 21.2 4.0 25.2 12.1 4.9 17.0
---- ---- ---- ---- ---- ----
Total revenues 214.3 176.0 390.3 186.5 183.8 370.3
OPERATING COSTS:
Recoverable expenses 56.6 48.6 105.2 48.9 50.4 99.3
Other operating 20.2 10.3 30.5 22.1 10.1 32.2
Management, leasing and
development 14.2 14.2 13.1 13.1
General and administrative 13.9 13.9 13.6 13.6
Interest expense 41.6 50.1 91.7 38.2 47.0 85.2
Depreciation and amortization (4) 42.0 22.6 64.6 38.4 22.1 60.4
---- ---- ---- ----- ---- ----
Total operating costs 188.5 131.6 320.1 174.3 129.5 303.8
Net results of Memorial City (2) (1.6) (1.6) (0.9) (0.9)
---- ---- ---- ---- ---- ----
24.2 44.4 68.6 11.2 54.3 65.5
==== ==== ==== ====
Equity in income before
extraordinary items of
Unconsolidated Joint Ventures (4) 21.4 28.2
---- ----
Income before gain on disposition,
extraordinary items, and minority
and preferred interests 45.6 39.4
Gain on disposition of interest in
center 85.3
Extraordinary items (9.3) (0.3)
TRG preferred distributions (6.8) (0.5)
Minority share of income (52.4) (13.1)
Distributions less than (in excess of)
minority share of income 29.8 (9.4)
---- ----
Net income 92.3 16.1
Series A preferred dividends (12.5) (12.5)
---- ----
Net income available to
common shareowners 79.9 3.6
==== ====
SUPPLEMENTAL INFORMATION (5):
EBITDA - 100% 108.6 117.1 225.7 88.1 123.3 211.4
EBITDA - outside partners' share (5.7) (53.8) (59.5) (2.4) (54.8) (57.2)
---- ---- ---- ---- ---- ----
EBITDA contribution 102.9 63.3 166.2 85.7 68.5 154.3
Beneficial Interest Expense (37.8) (26.7) (64.5) (35.8) (25.2) (61.0)
Non-real estate depreciation (2.3) (2.3) (1.9) (1.9)
Preferred dividends and
distributions (19.2) (19.2) (13.0) (13.0)
---- ---- ---- ---- ---- ----
Funds from Operations contribution 43.6 36.6 80.2 35.0 43.4 78.4
==== ==== ==== ==== ==== ====
<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 terminated its Memorial City lease 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 items of Unconsolidated
Joint Ventures was $3.0 million and $3.5 million in 2000 and 1999,
respectively. Also, amortization of the additional basis included in
depreciation and amortization was $3.0 million and $2.9 million in 2000 and
1999, respectively.
(5) EBITDA represents earnings before interest and depreciation and
amortization. EBITDA excludes gains on dispositions of depreciated
operating properties. 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>
19
<PAGE>
Consolidated Businesses
Total revenues for the nine months ended September 30, 2000 were $214.3
million, a 14.9% increase over the comparable period in 1999. Minimum rents
increased $10.4 million of which $4.2 million was due to the opening of
MacArthur Center. Minimum rents also increased due to the inclusion of Twelve
Oaks, tenant rollovers and new sources of rental income, including temporary
tenants and advertising space arrangements. Expense recoveries increased
primarily due to MacArthur Center and Twelve Oaks. Other revenue increased
primarily due to increases in gains on sales of peripheral land and interest
income, partially offset by a decrease in lease cancellation revenue.
Total operating costs increased $14.2 million to $188.5 million, an 8.1%
increase over the comparable period in 1999. Recoverable expenses and
depreciation and amortization increased primarily due to MacArthur Center and
Twelve Oaks. Other operating expense decreased primarily due to a decrease in
the charge to operations for costs of pre-development activities partially
offset by MacArthur Center, Twelve Oaks, the Lord Associates transaction, and
increases in bad debt expense. Interest expense increased primarily due to an
increase in interest rates and borrowings, in addition to a decrease in
capitalized interest upon opening of MacArthur Center and the debt assumed and
incurred related to Twelve Oaks. These increases were 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 nine months ended September 30, 2000 were $176.0
million, a 4.2% decrease from the comparable period of 1999. Minimum rents and
expense recoveries decreased primarily because the Twelve Oaks and Lakeside
results were only included through the transaction date. Other revenue decreased
primarily due to decreases in lease cancellation revenue.
Total operating costs increased by $2.1 million to $131.6 million for the
nine months ended September 30, 2000. Recoverable expenses decreased primarily
due to Twelve Oaks and Lakeside. Interest expense increased primarily due to the
additional debt at Cherry Creek as well as increases in interest rates,
partially offset by Twelve Oaks and Lakeside.
As a result of the foregoing, income before extraordinary items of the
Unconsolidated Joint Ventures decreased 18.2% to $44.4 million. The Company's
equity in income before extraordinary items of the Unconsolidated Joint Ventures
was $21.4 million, a 24.1% decrease from the comparable period in 1999.
Net Income
As a result of the foregoing, the Company's income before gain on
disposition, extraordinary items and minority and preferred interests increased
15.7% to $45.6 million for the nine months ended September 30, 2000. During
2000, extraordinary charges of $9.3 million were recognized related to the
refinancing of the debt on Stamford Town Center. During the nine months ended
September 30, 2000 the Company recognized an $85.3 million gain on the
disposition of its interest in Lakeside. Distributions of $6.8 million to the
Operating Partnership's Series C and D Preferred Equity owners were made in
2000. After payment of $12.5 million in Series A preferred dividends, net income
available to common shareowners for 2000 was $79.9 million compared to $3.6
million in 1999.
20
<PAGE>
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 indebtedness; 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 September 30, 2000, the Company had a consolidated cash balance of
$24.1 million. Additionally, the Company has a secured $200 million line of
credit. This line had $58.0 million of borrowings as of September 30, 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 $21.2 million of borrowings as
of September 30, 2000 and expires in August 2001.
Debt and Equity Transactions
Discussion of significant debt and equity transactions occurring in the nine
months ended September 30, 2000 which affected operations is contained in the
Results of Operations. In addition to the transactions described therein, in
June 2000, the Operating Partnership closed on a $220 million three-year
construction facility for The Shops at Willow Bend. The rate on the loan is
LIBOR plus 1.85 percent. The loan has two, one-year extension options.
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. As of September 30,
2000, the Company had purchased 1,362,100 shares for approximately $15.3
million.
Summary of Investing Activities
Net cash used in investing activities was $150.4 million in 2000 compared to
$145.7 million in 1999. Cash used in investing activities was impacted by the
timing of capital expenditures, with additions to properties 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 $2.6 million, an increase of $1.1 million from 1999. In
2000, the initial investment in MerchantWired was made, while in 1999, $7.4
million was invested in Fashionmall.com, Inc. In addition, $23.6 million in
costs were incurred (net of cash acquired) in connection with the exchange of
interests in centers in 2000. Contributions to Unconsolidated Joint Ventures
were $6.4 million in 2000 and $37.9 million in 1999, primarily representing
funding for construction and expansion activities. After considering $45.2
million in excess mortgage refinancing proceeds distributed in 1999,
distributions received from joint ventures were consistent in both periods.
Summary of Financing Activities
Financing activities contributed cash of $62.7 million, a decrease of $12.3
million from the $75.0 million in 1999. Borrowings net of repayments and
issuance costs increased by $76.0 million to $158.5 million in 2000 although an
additional $72.9 million was provided by the issuance of preferred equity in
1999. Stock repurchases of $15.3 million in 2000 were made in connection with
the ongoing stock repurchase program. Distributions to minority and preferred
interests increased by $6.3 million due to the September and November 1999
issuances of the Series C and Series D preferred equity.
21
<PAGE>
Beneficial Interest in Debt
At September 30, 2000, the Operating Partnership's debt and its beneficial
interest in the debt of its Consolidated and Unconsolidated Joint Ventures
totaled $1,504.6 million. As shown in the following table, there was no unhedged
floating rate debt at September 30, 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 0.50% to the effective rate of interest on beneficial interest
in debt at September 30, 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 $455.2 million as of September 30,
2000. Beneficial interest in capitalized interest was $8.5 million and $20.7
million for the three and nine months ended September 30, 2000.
<TABLE>
<CAPTION>
Beneficial Interest in Debt
-------------------------------------------------------------
Amount Interest LIBOR Frequency LIBOR
(in millions Rate at Cap of Rate at
of dollars) 9/30/00 Rate Resets 9/30/00
----------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Total beneficial interest in fixed rate debt $791.1 7.58%(1)
Floating rate debt hedged via interest rate caps:
Through October 2000 84.0 7.85 (2) 6.50 % Monthly 6.62 %
Through December 2000 100.0(3) 7.69 (1) 7.00 Monthly 6.62
Through October 2001 50.0 7.07 8.55 Monthly 6.62
Through January 2002 53.4 7.93 (1) 9.50 Monthly 6.62
Through March 2002 144.5 8.13 7.25 Monthly 6.62
Through July 2002 43.4 7.65 (2) 6.50 Monthly 6.62
Through August 2002 38.0 7.42 8.20 Monthly 6.62
Through September 2002 75.0(4) 8.22 (1)(5) 7.00 Monthly 6.62
Through October 2002 13.2(6) 8.47 (1) 7.10 Monthly 6.62
Through May 2003 56.0(7) 8.48 7.15 Monthly 6.62
Through September 2003 56.0(8) 7.69 (1) 7.00 Monthly 6.62
----
Total beneficial interest in debt $1,504.6 7.73 (1)
========
<FN>
(1) Denotes weighted average interest rate.
(2) Rate reflects impact of interest rate cap.
(3) This debt is additionally hedged via an interest rate cap for the period
December 2000 through March 2002 at a one-month LIBOR cap rate of 7.25%.
(4) This cap amount increases to $100 million in February 2001.
(5) This cap has an embedded swap with a rate of 6.14% when LIBOR is below 6.7%
effective October 2000.
(6) This construction debt is additionally hedged with a $50.0 million notional
amount interest rate cap of a 26.4% owned unconsolidated joint venture for
the period November 2000 through October 2002 at a one-month LIBOR cap rate
of 7.1%.
(7) The notional amount on the cap, which hedges a construction facility,
accretes $7 million a month until it reaches $147 million.
(8) Two caps were purchased by a 90% owned consolidated joint venture to hedge
an anticipated construction facility. One is a 7.0% cap with a notional
amount of $70 million for the period October 2000 through September 2003.
The second is a 7.25% cap beginning at a notional amount of $6 million in
January 2001 and accreting $6 million per month up to $70 million. This cap
also expires September 2003.
</FN>
</TABLE>
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 September 30, 2000, a one
percent increase in interest rates on floating rate debt would decrease annual
cash flows by approximately $3.8 million and, due to the effect of capitalized
interest, annual earnings by approximately $2.6 million. A one percent decrease
in interest rates on floating rate debt would increase annual cash flows and
earnings by approximately $7.0 million and $4.3 million, respectively. Based on
the Company's consolidated debt and interest rates in effect at September 30,
2000, a one percent increase in interest rates would decrease the fair value of
debt by approximately $21.8 million, while a one percent decrease in interest
rates would increase the fair value of debt by approximately $30.7 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.
22
<PAGE>
Payments of principal and interest on the loans in the following table are
guaranteed by the Operating Partnership as of September 30, 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 % of loan
interest in guaranteed balance % of interest
Loan balance loan balance by TRG guaranteed guaranteed
Center as of 9/30/00 as of 9/30/00 as of 9/30/00 by TRG by TRG
------ ------------- ------------- ------------- ------ ------
(in millions of dollars)
<S> <C> <C> <C> <C> <C>
Arizona Mills (1) 142.2 52.4 13.1 9% 9%
Dolphin Mall 86.3 43.2 43.2 50% 100%
Great Lakes Crossing 170.0 144.5 170.0 100% 100%
International Plaza 47.2 12.5 47.2 100% (2) 100%(2)
MacArthur Center (3) 120.0 84.0 60.0 50% 50%
The Shops at Willow Bend 64.5 64.5 64.5 100% 100%
<FN>
(1) In October 2000, the Unconsolidated Joint Venture that owns Arizona Mills
completed a $146 million secured financing which is not guaranteed by the
Operating Partnership.
(2) The new investor in the International Plaza venture has indemnified the
Operating Partnership to the extent of approximately 25% of the amounts
guaranteed.
(3) In October 2000, MacArthur Center completed a $145 million secured
financing which is not guaranteed by the Operating Partnership.
</FN>
</TABLE>
In addition, the Operating Partnership guarantees the $100 million facility
secured by an interest in Twelve Oaks that was obtained in August 2000 (See
"Results of Operations - Significant Debt, Equity, and Other Transactions").
Subsequent Events
In October 2000, the 37% owned Unconsolidated Joint Venture that owns Arizona
Mills completed a $146 million secured financing. The financing has an all-in
rate of approximately 8.0% and matures in October 2010. The proceeds were
primarily used to repay the existing $142.2 million mortgage and to fund
transaction costs.
In October 2000, MacArthur Center completed a $145 million secured financing.
The financing has an all-in rate of approximately 7.8% and matures in October
2010. The proceeds were used to repay the existing $120 million construction
loan and transaction costs. The remaining net proceeds of approximately $23.9
million were distributed to the Operating Partnership, which contributed all of
the equity funding for the development of MacArthur Center. The Operating
Partnership used the distribution to pay down its line of credit.
In November 2000, the 50% owned Unconsolidated Joint Venture that is
developing The Mall at Millenia closed on a $160.4 million construction
facility. The rate on the facility is LIBOR plus 1.95% and matures in November
2003, with two one-year extension options. The Operating Partnership has
guaranteed the payment of 50% of the principal and interest. The rate and the
amount guaranteed may be reduced once certain performance and valuation criteria
are met.
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 items, real estate depreciation and amortization, and the
allocation to the minority interest in the Operating Partnership, less preferred
dividends and distributions. Gains on dispositions of depreciated operating
properties are excluded from FFO.
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.
23
<PAGE>
Reconciliation of Net Income to Funds from Operations
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
-------------------- --------------------
(in millions of dollars)
<S> <C> <C>
Income before gain on disposition of center
and minority and preferred interests (1) 14.3 12.6
Depreciation and amortization (2) 14.8 13.6
Share of Unconsolidated Joint Ventures'
depreciation and amortization (3) 4.4 5.0
Non-real estate depreciation (0.8) (0.7)
Minority interest share of depreciation (0.2)
Preferred dividends and distributions (6.4) (4.7)
---- ----
Funds from Operations 26.0 25.9
==== ====
Funds from Operations allocable to the Company 16.3 16.3
==== ====
<FN>
(1) Includes gains on peripheral land sales of $3.2 million and $0.5 million
for the three months ended September 30, 2000 and September 30, 1999,
respectively. Excludes gain on disposition of interest in center of $85.3
million for the three months ended September 30, 2000.
(2) Includes $0.5 million of mall tenant allowance amortization for both the
three months ended September 30, 2000 and September 30, 1999.
(3) Includes $0.3 million and $0.4 million of mall tenant allowance
amortization for the three months ended September 30, 2000 and September
30, 1999, respectively.
(4) Amounts in this table may not add due to rounding.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------- -------------------
(in millions of dollars)
<S> <C> <C>
Income before gain on disposition of center,
extraordinary items and minority and
preferred interests (1) 45.6 39.4
Depreciation and amortization (2) 43.0 38.7
Share of Unconsolidated Joint Ventures'
depreciation and amortization (3) 15.0 15.2
Non-real estate depreciation (2.3) (1.9)
Minority interest share of depreciation (1.9)
Preferred dividends and distributions (19.2) (13.0)
----- -----
Funds from Operations 80.2 78.4
==== ====
Funds from Operations allocable to the Company 50.2 49.3
==== ====
<FN>
(1) Includes gains on peripheral land sales of $7.2 million and $1.4 million
for the nine months ended September 30, 2000 and September 30, 1999,
respectively. Excludes gain on disposition of interest in center of $85.3
million for the nine months ended September 30, 2000.
(2) Includes $1.6 million and $1.5 million of mall tenant allowance
amortization for the nine months ended September 30, 2000 and September 30,
1999, respectively.
(3) Includes $0.9 million of mall tenant allowance amortization for both the
nine months ended September 30, 2000 and September 30, 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 September 7, 2000, the Company declared a quarterly dividend of $0.245 per
common share payable October 20, 2000 to shareowners of record on September 29,
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 September 30, 2000, which was paid on September 29, 2000 to
shareowners of record on September 19, 2000.
24
<PAGE>
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.
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 187.2(3) 284.2(4) 302.7
Mall tenant allowances 9.3 3.8 10.9
Pre-construction development and other 12.5 0.3 12.6
---- ---- ----
Total 209.0 288.3 326.2
===== ===== =====
<FN>
(1) Costs are net of intercompany profits.
(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), Dolphin
Mall (a 50% owned unconsolidated joint venture), and The Mall at Millenia
(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, International Plaza, and The Mall
at Millenia.
</FN>
</TABLE>
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,
and expected, to open in March 2001, although certain permitting and certificate
of occupancy issues have limited the Company's ability to maximize occupancy at
opening. Approximately 150 tenants are expected to open initially with an
additional 50 tenants opening over a three to four month period. Dolphin is
presently anticipated to cost up to $20 million higher than originally projected
or approximately $290 million. The Company currently estimates an unleveraged
return of approximately 9 percent in 2001 on its share of average spending of
approximately $145 million. The returns for 2002 and 2003 are expected to be
approximately 10.5% and 11.0%, respectively.
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 initially be anchored by Lord & Taylor, Burdines, Dillard's and
JCPenney. A fifth anchor, Nordstrom, is obligated under the reciprocal easement
agreement to open within 24 months of the opening of the center and is presently
expected to open in the Spring of 2003. 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.
25
<PAGE>
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 Company expects returns on The Mall at Willow Bend, International Plaza,
and Wellington Green to average slightly under ten percent for the four months
on average that these centers will be open in 2001. The Company's share of costs
for the three centers is projected to be approximately $525 million during these
four months. For 2002, the Company expects returns to average above 10.5 percent
on approximately $565 million of costs and in 2003, expects returns of 11
percent. These returns exclude land sale gains upon which interest expense
savings on the gains will add approximately 0.25 percent to the projects'
returns, based on interest savings due to the reduction of debt.
The Operating Partnership has entered into a joint venture to develop The
Mall at Millenia currently under construction in Orlando, Florida. This project
is expected to open in October 2002. The Mall at Millenia will be anchored by
Bloomingdale's, Macy's, and Neiman Marcus.
The total cost, prior to anticipated recoveries, of these five projects is
anticipated to be approximately $1.3 billion. The Company's beneficial
investment in the projects will be approximately $810 million, as four 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 $259 million).
Substantially all of the project equity for the five projects currently under
construction has been funded through the Operating Partnership's preferred
equity offerings, contributions from the new joint venture partner in the
International Plaza project, and borrowings under the Company's lines of credit.
With respect to the construction loan financing, the Company has closed on
financing for Dolphin Mall, The Shops at Willow Bend, International Plaza, and
The Mall at Millenia. The financing on The Mall at Wellington Green is expected
to be completed in the first half of 2001.
Additionally, a 21-screen theater opened in May 2000 at Fairlane, in the
Detroit metropolitan area. At Fair Oaks in the Washington, D.C. area, Hecht's
expansion opened in February 2000, and a JCPenney expansion and a newly
constructed Macy's store opened in the fall of 2000. The Operating Partnership's
share of the cost of these projects is approximately $9.8 million.
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 and 2002 will be as much
as $264 million in 2001 and $46 million in 2002. 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 and returns 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; 6) actual time to complete projects; 7) changes in the economic
climate; 8) competition from others in attracting tenants and customers; and 9)
increases in operating costs.
26
<PAGE>
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 certain others 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 September 30, 2000 of $11.56 per common share, the
aggregate value of interests in the Operating Partnership that may be tendered
under the Cash Tender Agreement was approximately $279 million. The purchase of
these interests at September 30, 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. SFAS 133 is
effective for fiscal years beginning after June 15, 2000. The Company's
derivatives consist primarily of interest rate cap agreements which the Company
purchases to reduce its exposure to increases in rates on its floating rate
debt. The Company expects that the primary impact of its adoption of SFAS 133
will be the timing of the recognition in income of the costs of these
agreements. This may cause earnings volatility as the value of these agreements
may change from period to period. The amount recognized by the Company as a
transition adjustment will depend upon the value of these agreements as of
January 1, 2001, the Company's anticipated transition date. Changes in the value
of interest rate agreements that hedge construction facilities or debt that has
been used to fund capital additions eligible for interest capitalization will be
included in the amount of interest capitalized. As of September 30, 2000, the
net book value of the Company's share of consolidated and Joint Venture interest
rate agreements is $9.2 million, of which $5.9 million relates to construction
facilities.
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".
27
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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
28
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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: November 14, 2000 By: /s/ Lisa A. Payne
-------------------------------
Lisa A. Payne
Executive Vice President and
Chief Financial Officer
29
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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.
30
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