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, 1996
Commission File No. 33-73988
The Taubman Realty Group Limited Partnership
(Exact name of registrant as specified in its charter)
Delaware 38-3097317
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 300, 200 East Long Lake Road, Bloomfield Hills, Michigan 48304
(Address of principal executive offices) (Zip Code)
(810) 258-6800
(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 .
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following financial statements of The Taubman Realty Group Limited
Partnership are provided pursuant to the requirements of this item.
INDEX TO FINANCIAL STATEMENTS
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
Consolidated Balance Sheet as of December 31, 1995 and September 30, 1996......2
Consolidated Statement of Operations for the three months ended
September 30, 1995 and 1996..................................................3
Consolidated Statement of Operations for the nine months ended
September 30, 1995 and 1996..................................................4
Consolidated Statement of Cash Flows for the nine months ended
September 30, 1995 and 1996..................................................5
Notes to Consolidated Financial Statements.....................................6
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31 September 30
----------- ------------
1995 1996
---- ----
Assets:
Properties $ 926,207 $1,087,142
Accumulated depreciation and amortization 200,440 226,341
---------- ----------
$ 725,767 $ 860,801
Cash and cash equivalents 16,836 11,766
Accounts and notes receivable, less allowance
for doubtful accounts of $381 and $369
in 1995 and 1996 14,192 15,986
Accounts receivable from related parties 5,234 5,535
Deferred charges and other assets 42,327 46,182
---------- ----------
$ 804,356 $ 940,270
========== ==========
Liabilities:
Unsecured notes payable $ 632,575 $ 786,665
Mortgage notes payable 160,496 160,126
Other notes payable 162,178 94,119
Capital lease obligation 14,418 31,883
Accounts payable and other liabilities 82,603 90,109
Distributions in excess of net income of
unconsolidated Joint Ventures (Note 3) 154,933 143,773
---------- ----------
$1,207,203 $1,306,675
Commitments and Contingencies (Notes 6 and 7)
Accumulated deficiency in assets (402,847) (366,405)
---------- ----------
$ 804,356 $ 940,270
========== ==========
Allocation of accumulated deficiency in assets:
General Partners $ (322,346) $ (279,562)
Limited Partners (80,501) (86,843)
---------- ----------
$ (402,847) $ (366,405)
========== ==========
See notes to financial statements.
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except units data)
Three Months Ended September 30
-------------------------------
1995 1996
---- ----
Revenues:
Minimum rents $ 32,358 $ 38,893
Percentage rents 1,397 1,319
Expense recoveries 19,303 21,243
Other 3,556 2,816
Revenues from management, leasing
and development services 1,438 1,806
-------- --------
$ 58,052 $ 66,077
-------- --------
Operating Costs:
Recoverable expenses $ 16,571 $ 18,504
Other operating 4,947 6,247
Management, leasing and development
services 952 912
General and administrative 4,577 5,127
Interest expense 16,970 18,533
Depreciation and amortization 8,093 9,366
-------- --------
$ 52,110 $ 58,689
-------- --------
Income before equity in income of
unconsolidated Joint Ventures
and before extraordinary items $ 5,942 $ 7,388
Equity in income before extraordinary items
of unconsolidated Joint Ventures (Note 3) 11,867 13,552
-------- --------
Income before extraordinary items $ 17,809 $ 20,940
Extraordinary items (Note 4) (1,328)
-------- --------
Net Income $ 17,809 $ 19,612
======== ========
Allocation of net income:
General Partners $ 14,250 $ 15,098
Limited Partners 3,559 4,514
-------- --------
$ 17,809 $ 19,612
======== ========
Earnings per Unit of Partnership Interest:
Income before extraordinary items $ 280 $ 317
Extraordinary items (20)
-------- --------
Net Income $ 280 $ 297
======== ========
Weighted Average Number of Units of
Partnership Interest Outstanding 63,521 66,045
======== ========
See notes to financial statements.
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except units data)
Nine Months Ended September 30
------------------------------
1995 1996
---- ----
Revenues:
Minimum rents $ 95,557 $ 108,416
Percentage rents 3,674 3,771
Expense recoveries 55,246 59,503
Other 8,586 8,424
Revenues from management, leasing
and development services 4,076 5,512
--------- ---------
$ 167,139 $ 185,626
--------- ---------
Operating Costs:
Recoverable expenses $ 46,457 $ 49,520
Other operating 15,321 17,841
Management, leasing and development
services 2,598 3,281
General and administrative 14,928 15,400
Interest expense 48,039 52,873
Depreciation and amortization 23,852 26,066
--------- ---------
$ 151,195 $ 164,981
--------- ---------
Income before equity in income of
unconsolidated Joint Ventures and
before extraordinary items $ 15,944 $ 20,645
Equity in income before extraordinary items
of unconsolidated Joint Ventures (Note 3) 38,585 39,663
--------- ---------
Income before extraordinary items $ 54,529 $ 60,308
Extraordinary items (Note 4) (2,225) (1,328)
--------- ---------
Net Income $ 52,304 $ 58,980
========= =========
Allocation of net income:
General Partners $ 41,852 $ 46,599
Limited Partners 10,452 12,381
--------- ---------
$ 52,304 $ 58,980
========= =========
Earnings per Unit of Partnership Interest:
Income before extraordinary items $ 858 $ 937
Extraordinary items (35) (20)
--------- ---------
Net Income $ 823 $ 917
========= =========
Weighted Average Number of Units of
Partnership Interest Outstanding 63,521 64,369
========= =========
See notes to financial statements.
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Nine Months Ended September 30
------------------------------
1995 1996
---- ----
Cash Flows From Operating Activities:
Income before extraordinary items $ 54,529 $ 60,308
Adjustments to reconcile income before
extraordinary items to net cash provided
by operating activities:
Depreciation and amortization 23,852 26,066
Provision for losses on accounts receivable 712 998
Amortization of deferred financing costs 1,719 1,610
Other 2,191 495
Gain on sale of land (261) (315)
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Receivables, deferred charges and other assets (10,291) (5,456)
Accounts payable and other liabilities 10,304 4,451
-------- ---------
Net Cash Provided By Operating Activities $ 82,755 $ 88,157
-------- ---------
Cash Flows From Investing Activities:
Purchase of interests in Fairlane (Note 2) $ (66,375)
Purchase of Paseo Nuevo (Note 2) (37,195)
Additions to properties $(43,296) (14,991)
Proceeds from sale of land 841 686
Contributions to unconsolidated Joint Ventures (8,183)
Distributions from unconsolidated Joint Ventures
in excess of income before extraordinary items 2,082 6,618
-------- ---------
Net Cash Used In Investing Activities $(40,373) $(119,440)
-------- ---------
Cash Flows From Financing Activities:
Debt proceeds $167,708 $ 275,212
Debt payments (13,288) (189,667)
Extinguishment of debt (105,827) (35,964)
Debt issuance costs (1,530) (830)
Issuance of units of partnership interest (Note 2) 65,575
Cash distributions (87,169) (88,113)
-------- ---------
Net Cash Provided By (Used In) Financing Activities $(40,106) $ 26,213
-------- ---------
Net Increase (Decrease) In Cash $ 2,276 $ (5,070)
Cash and Cash Equivalents at Beginning of Period 10,709 16,836
-------- ---------
Cash and Cash Equivalents at End of Period $ 12,985 $ 11,766
======== =========
Interest on mortgage notes and other loans paid during the nine months ended
September 30, 1995 and 1996, net of amounts capitalized of $5,891 and $3,443,
was $36,261 and $41,282, respectively.
See notes to financial statements.
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 1996
Note 1 - Interim Financial Statements
The Taubman Realty Group Limited Partnership (TRG) engages in the ownership,
operation, management, leasing, acquisition, development, redevelopment,
expansion, financing and refinancing of regional retail shopping centers
(Taubman Shopping Centers) and interests therein. Taubman Centers, Inc. (TCI) is
the managing general partner of TRG. GMPTS Limited Partnership, TG Partners
Limited Partnership and Taub-Co Management, Inc. are also general partners.
The unaudited interim financial statements should be read in conjunction with
the audited financial statements and related notes included in TRG's Annual
Report on Form 10-K for the year ended December 31, 1995. 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 for interim periods are not necessarily
indicative of the results for a full year.
Note 2 - Acquisitions
In June 1996, TRG acquired the Paseo Nuevo shopping center (Paseo Nuevo)
located in Santa Barbara, California. Paseo Nuevo is a 463,000 square foot open
air center, with 137,000 square feet of mall tenant area. The Center is anchored
by Macy's and Nordstrom. TRG borrowed under its existing lines of credit to fund
the $37 million purchase price. The Center is owned subject to two participating
ground leases with remaining terms of approximately 70 years. The acquisition
was recorded at fair value. The operating results of Paseo Nuevo have been
consolidated in TRG's financial statements from the acquisition date. TRG
expects the acquisition to have an immaterial effect on net income in 1996. The
pro forma effect of the acquisition on 1995 net income is also immaterial.
In July 1996, TRG completed transactions that resulted in it acquiring the 75%
interest in Fairlane Town Center (Fairlane), previously held by a joint venture
partner. In connection with the transactions, TRG issued to the former joint
venture partner 3,096 units of partnership interest, economically equivalent to
approximately 6.1 million shares of TCI common stock, which had a closing price
of $10.75 per share on the day prior to the issuance date. The former joint
venture partner is obligated to hold the partnership units for at least one
year. TRG also assumed mortgage debt of approximately $26 million, representing
the former joint venture partner's beneficial interest in the $34.6 million
mortgage encumbering the property. TRG used unsecured debt to fund the repayment
of the 9.73% mortgage and the prepayment penalty of approximately $1.2 million.
The acquisition, which resulted in TRG owning 100% of Fairlane, was accounted
for at fair value. Prior to the acquisition date, TRG's interest in Fairlane was
accounted for under the equity method.
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Pro forma results of TRG's operations, assuming the Fairlane acquisition had
occurred on January 1, 1995, are as follows:
Pro Forma
-------------------------------------------
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1995 1996 1995 1996
---- ---- ---- ----
Revenues $65,158 $67,371 $188,148 $200,636
Income before extraordinary items 19,579 21,176 59,858 63,372
Net income 19,579 19,848 57,633 62,044
Earnings per unit of partnership interest:
Income before extraordinary item $294 $318 $899 $951
Net income 294 298 865 931
The pro forma results are not necessarily indicative of what actual results
would have been had the acquisition occurred on January 1, 1995, nor are they
necessarily indicative of future results.
Note 3 - Investments in Joint Ventures
Certain Taubman Shopping Centers are partially owned through joint ventures
(Joint Ventures). TRG is also the managing general partner of these Joint
Ventures. TRG's interest in each Joint Venture is as follows:
TRG's %
Ownership
as of
Joint Venture Taubman Shopping Center September 30, 1996
---------------------------------------------------------------------------
Arizona Mills, L.L.C. Arizona Mills 35%
(under construction)
Fairfax Associates Fair Oaks 50
Lakeside Mall Limited Partnership Lakeside 50
Rich-Taubman Associates Stamford Town Center 50
Taubman-Cherry Creek
Limited Partnership Cherry Creek 50
Taubman MacArthur Associates MacArthur Center
Limited Partnership (under construction) 70
Twelve Oaks Mall Limited
Partnership Twelve Oaks Mall 50
West Farms Associates Westfarms 79
Woodfield Associates Woodfield 50
Woodland Woodland 50
Arizona Mills, L.L.C., a joint venture in which TRG has a 35% interest, is
developing Arizona Mills in Tempe, Arizona, which is expected to open in the
fall of 1997. Taubman MacArthur Associates Limited Partnership, a joint venture
in which TRG has a 70% interest, is developing MacArthur Center in Norfolk,
Virginia. MacArthur Center is expected to open in the spring of 1999.
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
TRG reduces its investment in Joint Ventures to eliminate intercompany profits
on sales of services that are capitalized by the Joint Ventures. As a result,
the carrying value of TRG's investment in Joint Ventures is less than TRG's
share of the deficiency in assets reported in the combined balance sheet of the
Unconsolidated Joint Ventures by $4.8 million and $7.4 million at December 31,
1995 and at September 30, 1996, respectively. These differences are amortized
over the useful lives of the related assets.
Combined balance sheet and results of operations information are presented
below (in thousands) for all Joint Ventures, followed by TRG's beneficial
interest in the combined information. Beneficial interest is calculated based on
TRG's ownership interest in each of the Joint Ventures.
December 31 September 30
----------- ------------
1995 1996
---- ----
Assets:
Properties, net $ 373,803 $ 407,230
Other assets 109,668 69,248
--------- ---------
$ 483,471 $ 476,478
========= =========
Liabilities and partners' accumulated
deficiency in assets:
Debt $ 741,121 $ 714,458
Other liabilities 50,227 36,791
TRG accumulated deficiency in assets (150,117) (136,362)
Joint Venture Partners' accumulated
deficiency in assets (157,760) (138,409)
--------- ---------
$ 483,471 $ 476,478
========= =========
TRG accumulated deficiency in assets (above) $(150,117) $(136,362)
Elimination of intercompany profit (4,816) (7,411)
--------- ---------
Distributions in excess of net income
of unconsolidated Joint Ventures $(154,933) $(143,773)
========= =========
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1995 1996 1995 1996
---- ---- ---- ----
Revenues $71,137 $63,657 $210,096 $202,369
Recoverable and other operating expenses $28,113 $22,793 $ 80,778 $ 77,722
Interest expense 15,528 12,857 43,582 40,314
Depreciation and amortization 6,577 6,413 19,520 18,312
------- ------- -------- --------
Total operating costs $50,218 $42,063 $143,880 $136,348
------- ------- -------- --------
Income before extraordinary items $20,919 $21,594 $ 66,216 $ 66,021
Extraordinary items (624)
------- ------- -------- --------
Net income $20,919 $21,594 $ 65,592 $ 66,021
======= ======= ======== ========
Net income attributable to TRG $10,716 $12,007 $ 33,744 $ 35,121
Extraordinary items attributable to TRG 493
Realized intercompany profit 1,151 1,545 4,348 4,542
------- ------- -------- --------
Equity in income before extraordinary items
of unconsolidated Joint Ventures $11,867 $13,552 $ 38,585 $ 39,663
======= ======= ======== ========
-8-
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1995 1996 1995 1996
---- ---- ---- ----
TRG's beneficial interest
in unconsolidated Joint Ventures'
operations:
Revenues less recoverable and other
operating expenses $23,433 $23,298 $71,243 $69,049
Interest expense (8,237) (6,516) (22,796) (20,450)
Depreciation and amortization (3,329) (3,230) (9,862) (8,936)
------- ------- ------- -------
Income before extraordinary items $11,867 $13,552 $38,585 $39,663
======= ======= ======= =======
Note 4 - Debt Transactions
In the third quarter of 1996, TRG issued $154 million of unsecured notes under
its medium-term note program. The notes were used to pay down TRG's floating
rate bank lines bearing interest at approximately LIBOR plus 1.5% as well as to
pay off the $34.6 million, 9.73% mortgage on Fairlane Town Center and the
related prepayment penalty of approximately $1.2 million, leaving the wholly
owned property unencumbered. TRG recognized an extraordinary charge to income of
$1.3 million in the third quarter, consisting primarily of the prepayment
penalty. The issuance included $100 million of notes with a five year maturity,
including $70 million of fixed rate notes at 8% and $30 million of floating rate
notes bearing interest at three month LIBOR plus 105 basis points. The remaining
$54 million of notes have maturities of two and three years and bear interest at
three month LIBOR plus 77 to 90 basis points. TRG has issued a total of $287
million medium-term notes since the program's inception in 1995 under TRG's $500
million shelf registration statement.
In the second quarter of 1995, TRG recognized an extraordinary charge to
income of approximately $2.2 million relating to the extinguishment of debt of
TRG and a Joint Venture, consisting primarily of prepayment penalties.
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 5 - Beneficial Interest in Debt and Interest Expense
TRG's beneficial interest in the debt, capitalized interest, and interest
expense (net of capitalized interest) of TRG, its consolidated subsidiaries and
its unconsolidated Joint Ventures is summarized as follows:
TRG's Share TRG's TRG's
Joint of Joint Consolidated Beneficial
Ventures Ventures Subsidiaries Interest
-----------------------------------------------
Debt as of:
December 31, 1995 $741,121 $390,680 $ 955,249 $1,345,929
September 30, 1996 714,458 389,151 1,040,910 1,430,061
Capitalized interest:
Nine months ended
September 30, 1995 $ 2,315 $ 1,235 $ 5,891 $ 7,126
Nine months ended
September 30, 1996 3,775 2,669 3,443 6,112
Interest expense
(Net of capitalized interest):
Nine months ended
September 30, 1995 $ 43,582 $ 22,796 $ 48,039 $ 70,835
Nine months ended
September 30, 1996 40,314 20,450 52,873 73,323
Note 6 - Incentive Option Plan
TRG has an incentive option plan for employees of the Manager. Currently,
4,500 units of partnership interest may be issued under the plan. The exercise
price of all outstanding options is equal to fair market value on the date of
grant. 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. There were outstanding
options for 4,119 units and 4,110 units as of December 31, 1995 and September
30, 1996, respectively, with exercise prices ranging from $18 thousand to $27
thousand per unit. Options for nine units were canceled in the second quarter of
1996. As of December 31, 1995 and September 30, 1996, options for 1,195 and
1,336 units, respectively, were exercisable with an exercise price range of $22
thousand to $27 thousand per unit.
Note 7 - Subsequent Events
TRG has entered into an agreement to lease Memorial City shopping center
(Memorial City), a 1.4 million square foot shopping center located in Houston,
Texas. Memorial City is anchored by Sears, Foley's, Montgomery Ward and Mervyn's
and includes 579 thousand square feet of mall GLA. The lease of this
unencumbered property grants TRG the exclusive right to manage, lease and
operate the property beginning in early November 1996. The annual rent is
initially $7 million. TRG has the option to terminate the lease after the third
full lease year by paying $2 million to the lessor. TRG will use this option
period to evaluate the redevelopment opportunities of the center.
-10-
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
If TRG does not exercise its option to terminate the lease at the end of the
third full lease year, the lease continues for another 52 years and provides for
increases in rent every ten years based on 75% of the increase in the Consumer
Price index between 1996 and the then current year. Under the terms of the
lease, TRG has agreed to invest at least $25 million in property expenditures
not recoverable from tenants during the first 10 years of the lease term,
including a minimum investment of $3 million for the first three years.
Memorial City is expected to have an immaterial effect on net income.
TRG has also entered into an agreement to purchase for cash La Cumbre shopping
center, a 477 thousand square foot center located in Santa Barbara, California.
La Cumbre is anchored by Robinsons-May and Sears, and includes 178 thousand
square feet of mall GLA. The purchase agreement contains a provision prohibiting
disclosure of the purchase price until the closing date. The transaction, which
is expected to close in December 1996, is contingent on obtaining necessary
approvals. The acquisition is expected to have an immaterial effect on TRG's
assets and net income.
-11-
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements of The Taubman Realty Group Limited
Partnership and the Notes thereto.
General Background and Performance Measurement
The Taubman Realty Group Limited Partnership (TRG) is an operating partnership
that engages in the full range of activities of the regional shopping center
business. These activities include the ownership, operation, management,
leasing, expansion, acquisition, development, redevelopment, financing, and
refinancing of regional shopping centers. TRG's Managed Businesses include: (i)
wholly owned Taubman Shopping Centers, development projects for future regional
shopping centers (Development Projects) and The Taubman Company Limited
Partnership (the Manager), (collectively, the Consolidated Businesses); and (ii)
Taubman Shopping Centers partially owned through joint ventures (Joint
Ventures).
TRG consolidates the wholly owned Taubman Shopping Centers, the Development
Projects, and the Manager. The Joint Ventures are accounted for under the equity
method in TRG's Consolidated Financial Statements.
Certain aspects of the performance of the Managed Businesses are best
understood by measuring their performance as a whole, without regard to TRG's
ownership interest. For example, mall tenant sales and shopping center occupancy
trends fit this category and are so analyzed below. In addition, trends in
certain items of revenue and expense are often best understood in the same
fashion, and the discussions following take this approach when appropriate. When
relevant, these items are also discussed separately with regard to the
Consolidated Businesses and the Joint Ventures.
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 TRG's
Managed Businesses for 1995 and the first three quarters of 1996 (Bellevue
Center is included in the data below through October 1995):
<TABLE>
1st 2nd 3rd 4th 1st 2nd 3rd
Quarter Quarter Quarter Quarter Total Quarter Quarter Quarter
1995 1995 1995 1995 1995 1996 1996 1996
---------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mall tenant sales $541,627 $587,678 $611,606 $998,482 $2,739,393 $591,677 $617,821 $627,791
Revenues 123,719 124,364 129,187 134,450 511,720 129,764 128,497 129,730
Occupancy
Average Occupancy 87.8% 87.3% 87.7% 89.2% 88.0% 87.8% 87.3% 86.8%
Ending Occupancy 87.0% 87.5% 87.8% 89.4% 89.4% 87.7% 87.3% 86.8%
Leased Space 90.0% 90.3% 90.1% 90.6% 90.6% 89.5% 88.2% 87.6%
</TABLE>
-12-
<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 1995 and the first three quarters
of 1996:
<TABLE>
1st 2nd 3rd 4th 1st 2nd 3rd
Quarter Quarter Quarter Quarter Total Quarter Quarter Quarter
1995 1995 1995 1995 1995 1996 1996 1996
-------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Minimum rents 12.8% 11.8% 11.7% 7.5% 10.4% 12.3% 11.7% 11.7%
Percentage rents 0.3 0.3 0.3 0.2 0.3 0.3 0.3 0.3
Expense recoveries 5.3 5.2 4.9 3.1 4.4 5.6 5.0 4.6
---- ---- ---- ---- ---- ---- ---- ----
Mall tenant occupancy costs 18.4% 17.3% 16.9% 10.8% 15.1% 18.2% 17.0% 16.6%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
Rental Rates
As leases have expired in the Taubman Shopping Centers, TRG has generally been
able to rent the available space, either to the existing tenant or a new tenant,
at rental rates that are higher than those of the expired leases. In a period of
increasing sales, rents on new leases will tend to rise as tenants' expectations
of future growth become more optimistic. In periods of slower growth or
declining sales, rents on new leases will grow more slowly or will decline for
the opposite reason. However, Center revenues nevertheless increase as older
leases roll over or are terminated early and replaced with new leases negotiated
at current rental rates that are usually higher than the average rates for
existing leases. The following table contains certain information regarding per
square foot base rent at Taubman Shopping Centers that have been owned and open
for five years:
Store Store Difference
All Closings Openings Between
Mall During During Opening and
Tenants Period Period Closing Rents
------- -------- -------- -------------
Average Average Average Average
Base Annualized Annualized Annualized
Twelve Months Ended Rent Base Rent Base Rent Base Rent
- ------------------- -------- ---------- ---------- ----------
September 30, 1995 (1) $35.70 $34.16 $41.00 $6.84
September 30, 1996 (2) 37.59 32.31 41.13 8.82
(1) Includes 17 centers owned and open prior to January 1, 1990.
(2) Includes 18 centers owned and open prior to January 1, 1991.
Results of Operations
Occupancy and Mall Tenant Sales
Average occupancy rates in the Taubman Shopping Centers were 86.8% in the
three months ended September 30, 1996 versus 87.7% for the comparable period in
1995. For the nine months ended September 30, 1996, average occupancy was 87.3%
compared to 87.5% for the same period in 1995. Ending occupancy rates for the
Taubman Shopping Centers at September 30, 1996 were 86.8% versus 87.8% at the
same date in 1995. Leased space at September 30, 1996 was 87.6% compared to
90.1% at the same date in 1995. TRG currently expects that occupancy for the
remainder of 1996 will be somewhat less than the previous year's level. However,
TRG expects that average occupancy for the year will be comfortably within TRG's
historic range of average annual occupancy. TRG also expects that it will not
achieve year over year increases in average occupancy before the second half of
1997.
-13-
<PAGE>
Total sales for Taubman Shopping Center mall tenants increased in the three
months ended September 30, 1996 by 2.6% to $627.8 million from $611.6 million in
the three months ended September 30, 1995. Tenant sales increased 5.5% to $1.84
billion for the nine months ended September 30, 1996 from $1.74 billion in the
comparable period in 1995. Mall tenant sales per square foot increased 5.4% and
7.3% in the three and nine months ended September 30, 1996, over the comparable
periods in 1995. Excluding Bellevue Center (Bellevue) and Paseo Nuevo (see
Acquisitions), the increase in sales was 3.2% and 7.1% for the three and nine
month periods, respectively, and sales per square foot for mall tenants was up
3.2% and 5.1% for the three and nine months ended September 30, 1996.
Acquisitions
In June 1996, TRG acquired the Paseo Nuevo shopping center (Paseo), located in
Santa Barbara, California, for $37 million. TRG borrowed under its existing
lines of credit to fund the acquisition. The acquisition is expected to have an
immaterial effect on net income in 1996. The acquisition is also expected to
produce EBITDA in excess of 10% of the acquisition cost in its first twelve
months (EBITDA is defined and described in Liquidity and Capital Resources -
Distributions). See Note 2 to TRG's consolidated financial statements for
further discussion of the acquisition.
In July 1996, TRG completed transactions that resulted in it acquiring the 75%
interest in Fairlane Town Center (Fairlane) previously held by a joint venture
partner. In connection with the transactions, TRG issued to the former joint
venture partner 3,096 units of partnership interest, economically equivalent to
6.1 million shares of TCI common stock, which had a closing price of $10.75 per
share on the day prior to the issuance date. TRG also assumed mortgage debt of
approximately $26 million, representing the former joint venture partner's
beneficial interest in the $34.6 million mortgage encumbering the property. TRG
used unsecured debt to fund the repayment of the 9.73% mortgage and the
prepayment penalty of approximately $1.2 million. In addition, the acquisition
is expected to incrementally add over $11 million to EBITDA over the twelve
months following the acquisition (EBITDA is defined and discussed in Liquidity
and Capital Resources Distributions). See Note 2 to TRG's consolidated financial
statements for further discussion of the acquisition.
-14-
<PAGE>
Comparison of the Three Months Ended September 30, 1996 to the Three Months
Ended September 30, 1995
The following table sets forth operating results for TRG's Managed Businesses
for the three months ended September 30, 1995 and September 30, 1996, showing
the results of the Consolidated Businesses and Joint Ventures:
<TABLE>
Three Months Ended September 30, 1995 Three Months Ended September 30, 1996
----------------------------------------- -----------------------------------------
TRG TOTAL: TRG TOTAL:
CONSOLIDATED JOINT MANAGED CONSOLIDATED JOINT MANAGED
BUSINESSES VENTURES(1) BUSINESSES BUSINESSES VENTURES(1) BUSINESSES
------------- ------------- ----------- ------------- ------------- -----------
(in millions of dollars) (in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Minimum rents 32.4 41.8 74.2 38.9 37.4 76.3
Percentage rents 1.4 0.9 2.3 1.3 0.9 2.2
Expense recoveries 19.3 26.2 45.5 21.2 21.6 42.8
Other 5.0 2.2 7.2 4.6 3.7 8.3
----- ----- ----- ----- ----- -----
Total revenues 58.1 71.1 129.2 66.1 63.7 129.7
OPERATING COSTS:
Recoverable expenses 16.6 23.4 39.9 18.5 18.9 37.4
Other operating 4.9 3.0 8.0 6.2 2.3 8.6
Management, leasing
and development 0.9 0.9 0.9 0.9
General and
administrative 4.6 4.6 5.1 5.1
Interest expense 17.0 15.6 32.6 18.5 12.7 31.2
Depreciation and
amortization 8.1 6.4 14.5 9.4 6.2 15.6
----- ----- ----- ----- ----- -----
Total operating costs 52.1 48.4 100.5 58.7 40.2 98.8
----- ----- ----- ----- ----- -----
5.9 22.7 28.6 7.4 23.5 30.9
===== ===== ===== =====
Equity in income before
extraordinary items of
Joint Ventures 11.9 13.5
----- -----
Income before
extraordinary items 17.8 20.9
Extraordinary items (1.3)
----- -----
NET INCOME 17.8 19.6
===== =====
SUPPLEMENTAL
INFORMATION (2)
EBITDA contribution 31.0 23.4 54.4 35.3 23.3 58.6
TRG's Beneficial Interest
Expense (17.0) (8.2) (25.2) (18.5) (6.5) (25.0)
Non-real estate
depreciation (0.5) (0.5) (0.5) (0.5)
----- ----- ----- ----- ----- -----
Distributable Cash Flow
contribution 13.5 15.2 28.7 16.3 16.8 33.1
===== ===== ===== ===== ===== =====
(1) Costs are net of intercompany profits.
(2) EBITDA, TRG's Beneficial Interest Expense and Distributable Cash Flow are
defined and discussed in Liquidity and Capital Resources - Distributions.
(3) Amounts in this table may not add due to rounding.
</TABLE>
-15-
<PAGE>
TRG --Consolidated Businesses
Total revenues for the three months ended September 30, 1996 were $66.1
million, an $8.0 million or 13.8% increase over the comparable period in 1995.
Minimum rents increased $6.5 million, of which $4.1 million was caused by the
Fairlane and Paseo acquisitions. The results of Fairlane have been consolidated
in TRG's results subsequent to the acquisition date (prior to that date Fairlane
was accounted for under the equity method as a Joint Venture). Minimum rent also
increased due to the expansions at Short Hills and Meadowood and tenant
rollovers. The increase in expense recoveries was also primarily due to the
Fairlane and Paseo acquisitions.
Total operating costs increased $6.6 million, or 12.7%, to $58.7 million.
Recoverable expenses and other operating costs increased primarily due to
Fairlane and Paseo, offset by decreases in recoverable expenses, bad debt
expense and professional fees at other Centers. Interest expense increased $1.5
million due primarily to an increase in debt levels, including debt used to
finance the acquisition of Paseo and capital expenditures and the assumption of
debt relating to the Fairlane acquisition, and a decrease in capitalized
interest, partially offset by decreased interest rates. The increase in
depreciation and amortization was due primarily to the acquisitions of Fairlane
and Paseo and the expansions at Short Hills and Meadowood.
Joint Ventures
Total revenues for the three months ended September 30, 1996 were $63.7
million, a $7.4 million or 10.4% decrease from the comparable period of 1995, of
which $9.0 million of the decrease was caused by the change in Fairlane from a
Joint Venture to a Consolidated Business and by the November 1995 disposition of
Bellevue, offset by increases at other Centers. Minimum rent decreases due to
Fairlane and Bellevue were offset by increases due to the expansion at Woodfield
and tenant rollovers. Expense recoveries decreased primarily due to Fairlane and
Bellevue. Other income increased $1.5 million due to an increase in lease
cancellation revenue, offset by a decrease in interest income.
Total operating costs decreased by $8.2 million, or 16.9%, to $40.2 million
for the three months ended September 30, 1996, of which a $7.2 million decrease
was due to Fairlane and Bellevue. Recoverable expenses decreased $4.5 million
primarily due to Fairlane and Bellevue and a decrease in utilities expense.
Interest expense decreased $2.9 million due primarily to a decrease in debt
related to Fairlane and Bellevue and an increase in capitalized interest.
Operating costs as presented in the preceding table differ from the amounts
shown in the combined, summarized financial statements (Note 3 to TRG's
financial statements) of the Unconsolidated Joint Ventures by the amount of
intercompany profit.
As a result of the foregoing, income before extraordinary items of the Joint
Ventures increased by $0.8 million, or 3.5%, to $23.5 million. TRG's equity in
income before extraordinary items of the Joint Ventures increased $1.6 million,
or 13.4%, to $13.5 million for the three months ended September 30, 1996.
Net Income
As a result of the foregoing, TRG's income before extraordinary items
increased by $3.1 million, or 17.4%, to $20.9 million for the three months ended
September 30, 1996. In the third quarter of 1996, TRG recognized a $1.3 million
extraordinary charge related to the prepayment of Fairlane's debt. Net income
for the third quarter of 1996 was $19.6 million, compared to $17.8 million for
the third quarter of 1995.
-16-
<PAGE>
Comparison of the Nine Months Ended September 30, 1996 to the Nine Months Ended
September 30, 1995
The following table sets forth operating results for TRG's Managed Businesses
for the nine months ended September 30, 1995 and September 30, 1996, showing the
results of the Consolidated Businesses and Joint Ventures:
<TABLE>
Nine Months Ended September 30, 1995 Nine Months Ended September 30, 1996
----------------------------------------- -----------------------------------------
TRG TOTAL: TRG TOTAL:
CONSOLIDATED JOINT MANAGED CONSOLIDATED JOINT MANAGED
BUSINESSES VENTURES(1) BUSINESSES BUSINESSES VENTURES(1) BUSINESSES
------------- ------------- ----------- ------------- ------------- -----------
(in millions of dollars) (in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Minimum rents 95.6 123.2 218.8 108.4 119.0 227.4
Percentage rents 3.7 2.5 6.2 3.8 2.5 6.2
Expense recoveries 55.2 75.8 131.0 59.5 73.0 132.5
Other 12.7 8.6 21.3 13.9 7.9 21.9
----- ----- ----- ------ ----- -----
Total revenues 167.1 210.2 377.3 185.6 202.4 388.0
OPERATING COSTS:
Recoverable expenses 46.5 66.3 112.7 49.5 62.9 112.4
Other operating 15.3 9.4 24.7 17.8 10.1 28.0
Management, leasing
and development 2.6 2.6 3.3 3.3
General and
administrative 14.9 14.9 15.4 15.4
Interest expense 48.0 44.0 92.0 52.9 40.2 93.0
Depreciation and
amortization 23.9 19.0 42.8 26.1 17.6 43.7
----- ----- ----- ----- ----- -----
Total operating costs 151.2 138.6 289.8 165.0 130.8 295.8
----- ----- ----- ----- ----- -----
15.9 71.6 87.5 20.6 71.6 92.2
===== ===== ===== =====
Equity in income before
extraordinary items of
Joint Ventures 38.6 39.7
----- -----
Income before
extraordinary items 54.5 60.3
Extraordinary items (2.2) (1.3)
----- -----
NET INCOME 52.3 59.0
===== =====
SUPPLEMENTAL
INFORMATION (2)
EBITDA contribution 87.8 71.2 159.0 99.6 69.0 168.6
TRG's Beneficial Interest
Expense (48.0) (22.8) (70.8) (52.9) (20.5) (73.3)
Non-real estate
depreciation (1.6) (1.6) (1.4) (1.4)
----- ----- ----- ----- ----- -----
Distributable Cash Flow
contribution 38.2 48.4 86.7 45.3 48.6 93.9
===== ===== ===== ===== ===== =====
(1) Costs are net of intercompany profits.
(2) EBITDA, TRG's Beneficial Interest Expense and Distributable Cash Flow are
defined and discussed in Liquidity and Capital Resources - Distributions.
(3) Amounts in this table may not add due to rounding.
</TABLE>
-17-
<PAGE>
TRG --Consolidated Businesses
Total revenues for the nine months ended September 30, 1996 were $185.6
million, an $18.5 million or 11.1% increase over the comparable period in 1995.
Minimum rents increased $12.8 million, of which $4.1 million was caused by the
Fairlane and Paseo acquisitions. The results of Fairlane have been consolidated
in TRG's results subsequent to the acquisition date (prior to that date Fairlane
was accounted for under the equity method as a Joint Venture). Minimum rent also
increased due to the expansions at Short Hills and Meadowood and tenant
rollovers. The increase in expense recoveries was also primarily due to the
Fairlane and Paseo acquisitions. The increase in other revenues of $1.2 million
was primarily due to increases in revenue from management, leasing, and
development services, interest income and rental fees on exterior advertising
signs, offset by a decrease in lease cancellation revenue.
Total operating costs increased $13.8 million, or 9.1%, to $165.0 million. The
increase in recoverable expenses for the nine months ended September 30, 1996
was due to Fairlane and Paseo and to increases in maintenance costs and property
taxes, including those related to the expansions at Short Hills. Other operating
expenses increased due to Fairlane and Paseo, an increase in the charge to
operations for development pre-construction reserves and increases in various
other expenses. General and administrative expense in the first nine months of
1996 increased from the comparable period in 1995 due primarily to increases in
compensation, travel, and professional fees in 1996, offset by a decrease
resulting from a $0.8 million charge in the first quarter of 1995 for severance
and termination benefits. Interest expense increased $4.9 million due primarily
to an increase in debt levels, including debt used to finance the acquisition of
Paseo and capital expenditures and the assumption of debt relating to the
Fairlane acquisition, and a decrease in capitalized interest, partially offset
by decreased interest rates. The increase in depreciation and amortization was
due primarily to the acquisitions of Fairlane and Paseo and the expansions at
Short Hills and Meadowood.
Joint Ventures
Total revenues for the nine months ended September 30, 1996 were $202.4
million, a $7.8 million or 3.7% decrease from the comparable period of 1995,
representing a $15.3 million decrease caused by the change in Fairlane from a
Joint Venture to a Consolidated Business and by the November 1995 disposition of
Bellevue, offset by increases at other Centers. Minimum rent decreases due to
Fairlane and Bellevue were offset by increases due to the expansion at Woodfield
and tenant rollovers. Expense recoveries decreased primarily due to Fairlane and
Bellevue, offset by increases at other Centers. Other income decreased due to a
gain on the sale of peripheral land in 1995 and decreased interest income in
1996, offset by an increase in lease cancellation revenue in 1996.
Total operating costs decreased by $7.8 million, or 5.6%, to $130.8 million
for the nine months ended September 30, 1996, representing a $14.2 million
decrease due to Fairlane and Bellevue, offset by increases at other Centers.
Recoverable expenses decreased $3.4 million due to Fairlane and Bellevue and a
decrease in utilities expense, offset by increases in maintenance costs and
property taxes, including those related to the Woodfield expansion. Other
operating costs increased $0.7 million reflecting increases in bad debt expense,
promotion and advertising costs, and a nonrecurring $0.5 million payment to an
anchor at one of the Centers, offset by decreases due to Bellevue and Fairlane.
Interest expense decreased $3.8 million due to a decrease in debt related to
Fairlane and Bellevue and an increase in capitalized interest, partially offset
by increases due to an increase in debt used to finance capital expenditures and
to higher interest rates on certain debt refinanced in 1995. Operating costs as
presented in the preceding table differ from the amounts shown in the combined,
summarized financial statements (Note 3 to TRG's financial statements) of the
Unconsolidated Joint Ventures by the amount of intercompany profit.
-18-
<PAGE>
As a result of the foregoing, income before extraordinary items of the Joint
Ventures of $71.6 million was unchanged from the comparable period in 1995.
TRG's equity in income before extraordinary items of the Joint Ventures
increased $1.1 million, or 2.8%, to $39.7 million for the nine months ended
September 30, 1996.
Net Income
As a result of the foregoing, TRG's income before extraordinary items
increased by $5.8 million, or 10.6%, to $60.3 million for the nine months ended
September 30, 1996. In the third quarter of 1996, TRG recognized a $1.3 million
extraordinary charge related to the prepayment of Fairlane's debt. In the nine
months ended September 30, 1995, TRG recognized $2.2 million in extraordinary
charges related to the prepayment of debt at TRG and at one of its Joint
Ventures. Net income for the nine months ended September 30, 1996 was $59.0
million, compared to $52.3 million for the comparable period in 1995.
Recent and Anticipated Transactions
TRG has entered into an agreement to lease Memorial City shopping center
(Memorial City), a 1.4 million square foot shopping center located in Houston,
Texas. Memorial City is anchored by Sears, Foley's, Montgomery Ward and Mervyn's
and includes 579 thousand square feet of mall GLA. The lease of this
unencumbered property grants TRG the exclusive right to manage, lease and
operate the property beginning in early November 1996. The annual rent is
initially $7 million. TRG has the option to terminate the lease after the third
full lease year by paying $2 million to the lessor. TRG will use this option
period to evaluate the redevelopment opportunities of the center.
If TRG does not exercise its option to terminate the lease at the end of the
third full lease year, the lease continues for another 52 years and provides for
increases in rent every ten years based on 75% of the increase in the Consumer
Price index between 1996 and the then current year. Under the terms of the
lease, TRG has agreed to invest at least $25 million in property expenditures
not recoverable from tenants during the first 10 years of the lease term,
including a minimum investment of $3 million for the first three years.
Memorial City is expected to have an immaterial effect on EBITDA and net
income for the immediate future.
TRG has also entered into an agreement to purchase for cash La Cumbre shopping
center, a 477 thousand square foot center located in Santa Barbara, California.
La Cumbre is anchored by Robinsons-May and Sears, and includes 178 thousand
square feet of mall GLA. The purchase agreement contains a provision prohibiting
disclosure of the purchase price until the closing date. The transaction, which
is expected to close in December 1996, is contingent on obtaining necessary
approvals. The acquisition is expected to have an immaterial effect on TRG's
assets and net income, and to be moderately accretive to Distributable Cash Flow
in TRG's first twelve months of ownership.
-19-
<PAGE>
Liquidity and Capital Resources
As of September 30, 1996, TRG had a cash balance of $11.8 million. TRG has
available for general partnership purposes an unsecured revolving credit
facility of $200 million, which expires in May 1998. Borrowings under this
facility at September 30, 1996 were $7 million. TRG also has available an
unsecured bank line of credit of up to $30 million with borrowings of $13
million at September 30, 1996. This line expires in August 1997. TRG also has
available a secured commercial paper facility, supported by a line of credit
facility, of up to $75 million, all of which had been issued at September 30,
1996. Commercial paper is generally sold with a 30 day maturity. The underlying
credit facility is renewable quarterly for a twelve month period.
Proceeds from short term borrowings of $121.3 million provided funding for the
first nine months of 1996 compared to $48.6 million in 1995. The proceeds were
used primarily for the $37 million acquisition in June 1996 of the Paseo Nuevo
shopping center and for the $66.4 million acquisition in July 1996 of the 75%
interest in Fairlane Town Center previously held by TRG's joint venture partner.
Proceeds from the issuance of units of partnership interest to the former joint
venture partner in Fairlane were used to repay short term borrowings.
In the third quarter of 1996, TRG issued $154 million of unsecured notes under
its medium-term note program. The notes were used to pay down TRG's floating
rate bank lines bearing interest at approximately LIBOR plus 1.5% as well as to
pay off the $34.6 million, 9.73% mortgage on Fairlane Town Center and the
related prepayment penalty of approximately $1.2 million, leaving the wholly
owned property unencumbered. The issuance included $100 million of notes with a
five year maturity, including $70 million of fixed rate notes at 8% and $30
million of floating rate notes bearing interest at three month LIBOR plus 105
basis points. The remaining $54 million of notes have maturities of two and
three years and bear interest at three month LIBOR plus 77 to 90 basis points.
TRG has issued a total of $287 million medium-term notes since the program's
inception in 1995 under TRG's $500 million shelf registration statement.
In the second quarter of 1995, the net proceeds of issuances totaling $119.4
million under TRG's medium-term note program was used to pay down floating rate
debt under TRG's revolving credit facilities as well as to pay off the $22.6
million mortgage securing a wholly owned Center.
Scheduled principal payments on installment notes were $497 thousand and $370
thousand in the nine months ended September 30, 1995 and 1996, respectively.
At September 30, 1996, TRG's debt (excluding TRG's capital lease obligation)
and its beneficial interest in the debt of its Joint Ventures totaled $1,430.1
million. As shown in the following table there was no unhedged floating rate
debt at September 30, 1996. Interest rates shown do not include amortization of
debt issuance costs and interest rate hedging costs. These items are reported as
interest expense in TRG's results of operations. In the aggregate, these costs
accounted for 0.31% of the effective rate of interest on TRG's beneficial
interest in debt at September 30, 1996. Included in TRG's beneficial interest in
debt at September 30, 1996 is debt used to fund development and expansion costs.
TRG's beneficial interest in assets on which interest is being capitalized
totaled $126.8 million as of September 30, 1996. TRG's beneficial interest in
capitalized interest was $2.3 million and $6.1 million for the three and nine
months ended September 30, 1996, respectively.
-20-
<PAGE>
Beneficial Interest in Debt
------------------------------------------------
Amount Interest LIBOR Frequency LIBOR
(In millions Rate at Cap of Rate at
of dollars) 9/30/96 Rate Resets 9/30/96
------------------------------------------------
Total beneficial interest in
fixed rate debt 1,113.7(1) 7.55%(2)
Floating rate debt hedged
via interest rate caps:
Through December 1996 25.0(3) 5.95 7.50% Monthly 5.44%
Through January 1997 175.0(4) 6.06 (2) 6.00 Monthly 5.44
Through January 1997 12.1 6.65 (2) 9.60 Monthly 5.44
Through January 1998 65.0(5) 6.17 6.50 Monthly 5.44
Through October 1998 39.3 6.19 6.00 Three Months 5.66
-------
Total beneficial interest
in debt 1,430.1
=======
(1)Includes TRG's $100 million floating rate notes due in 1997, which were
swapped to a fixed rate of 6.15% until maturity. The interest rate on the
refinancing of this debt is hedged via an interest rate cap for the period
November 1997 to December 1998 at a three month LIBOR cap rate of 6.5%.
(2)Denotes weighted average interest rate.
(3)This debt is additionally hedged via an interest rate cap for the period
December 1996 to October 2001 at a one month LIBOR cap rate of 8.55%.
(4)$100 million of this debt is additionally hedged via an interest rate cap for
the period January 1997 to January 1998 at a one month LIBOR cap rate of
6.5%.
(5)This debt is additionally hedged via an interest rate cap for the period
February 1998 through July 1998 at a one month LIBOR rate cap of 8.35%.
TRG's loan agreements and indenture contain various restrictive covenants
including limitations on the amount of secured and unsecured debt and minimum
debt service coverage ratios, the latter being the most restrictive. TRG is in
compliance with all of such covenants.
Distributions
A principal factor considered by TRG in deciding upon distributions to
partners is an amount, which TRG defines as Distributable Cash Flow, equal to
EBITDA less TRG's Beneficial Interest Expense and non-real estate depreciation
and amortization. This measure of performance is influenced not only by
operations but also by capital structure. EBITDA is defined as TRG's beneficial
interest in revenues, less operating costs before interest, depreciation and
amortization, meaning TRG's pro rata share of this result for each of the
Managed Businesses, after recording appropriate intercompany eliminations. TRG's
Beneficial Interest Expense is defined as 100% of the interest expense of TRG's
Consolidated Businesses and TRG's pro rata share of the interest expense on the
debt of the Joint Ventures. EBITDA and Distributable Cash Flow do 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.
-21-
<PAGE>
The following table summarizes TRG's Distributable Cash Flow for the three
months ended September 30, 1995 and 1996:
<TABLE>
Three months ended Three months ended
September 30, 1995 September 30, 1996
---------------------------------- ----------------------------------
TRG TRG
Consolidated Joint Consolidated Joint
Businesses Ventures(1) Total Businesses Ventures(1) Total
---------------------------------- ----------------------------------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
TRG's Net Income(2) 17.8 19.6
Extraordinary Items 1.3
Depreciation and Amortization(3) 11.4 12.7
TRG's Beneficial Interest Expense(4) 25.2 25.0
----- -----
EBITDA 31.0 23.4 54.4 35.3 23.3 58.6
TRG's Beneficial Interest Expense(4) (17.0) (8.2) (25.2) (18.5) (6.5) (25.0)
Non-real estate depreciation (0.5) (0.5) (0.5) (0.5)
----- ----- ----- ----- ----- -----
Distributable Cash Flow 13.5 15.2 28.7 16.3 16.8 33.1
===== ===== ===== ===== ===== =====
</TABLE>
(1) Amounts represent TRG's beneficial interest in the operations of its Joint
Ventures.
(2) Net income for the third quarter of 1995 includes TRG's share of a gain on a
peripheral land sale of $0.3 million. There were no land sales in the third
quarter of 1996.
(3) Amounts represent TRG's and TRG's beneficial interest in the Joint Ventures'
depreciation and amortization. Includes $0.8 million of amortization of
mall tenant allowances in both of the third quarters of 1995 and 1996,
respectively.
(4) Amounts represent TRG's and TRG's beneficial interest in the Joint Ventures'
interest expense.
(5) Amounts may not add due to rounding.
<PAGE>
The following table summarizes TRG's Distributable Cash Flow for the nine
months ended September 30, 1995 and 1996:
<TABLE>
Nine months ended Nine months ended
September 30, 1995 September 30, 1996
---------------------------------- ----------------------------------
TRG TRG
Consolidated Joint Consolidated Joint
Businesses Ventures(1) Total Businesses Ventures(1) Total
---------------------------------- ----------------------------------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
TRG's Net Income(2) 52.3 59.0
Extraordinary Items 2.2 1.3
Depreciation and Amortization(3) 33.7 35.0
TRG's Beneficial Interest Expense(4) 70.8 73.3
----- -----
EBITDA 87.8 71.2 159.0 99.6 69.0 168.6
TRG's Beneficial Interest Expense(4) (48.0) (22.8) (70.8) (52.9) (20.5) (73.3)
Non-real estate depreciation (1.6) (1.6) (1.4) (1.4)
----- ----- ----- ----- ----- -----
Distributable Cash Flow 38.2 48.4 86.7 45.3 48.6 93.9
===== ===== ===== ===== ===== =====
</TABLE>
(1) Amounts represent TRG's beneficial interest in the operations of its Joint
Ventures.
(2) Net income includes TRG's share of gains on peripheral land sales of $1.1
million and $0.3 million for the nine months ended September 30, 1995 and
1996, respectively.
(3) Amounts represent TRG's and TRG's beneficial interest in the Joint Ventures'
depreciation and amortization. Includes $2.3 million and $2.4 million of
amortization of mall tenant allowances for the nine months ended September
30, 1995 and 1996, respectively.
(4) Amounts represent TRG's and TRG's beneficial interest in the Joint Ventures'
interest expense.
(5) Amounts may not add due to rounding.
-22-
<PAGE>
In March 1995, the National Association of Real Estate Investment Trusts
(NAREIT) issued a clarification of the definition of Funds from Operations.
Because Distributable Cash Flow is intended to be equivalent to Funds from
Operations, beginning in 1996, TRG modified its calculation of Distributable
Cash Flow to be consistent with NAREIT's clarified definition. As a result, TRG
adjusted the depreciation and amortization amount added back to net income to
include only depreciation and amortization of assets uniquely significant to the
real estate industry. Distributable Cash Flow for the first three quarters of
1995 has been restated in the tables above to reflect the clarified definition.
The following table presents a restatement of Distributable Cash Flow for the
year and each quarter of 1995.
<TABLE>
Three Months Ended Year Ended
------------------------------------------------------ ------------
3/31/95 6/30/95 9/30/95 12/31/95 12/31/95
----------- ----------- ----------- ------------ ------------
(in millions of dollars)
<S> <C> <C> <C> <C> <C>
Distributable Cash Flow as reported 30.8 28.2 29.2 31.6 119.9
Non-real estate depreciation (0.6) (0.5) (0.5) (0.5) (2.0)
---- ---- ---- ---- -----
Distributable Cash Flow as restated 30.2 27.7 28.7 31.2 117.8
==== ==== ==== ==== =====
(1) Amounts may not add due to rounding.
</TABLE>
During the third quarter of 1996, EBITDA and Distributable Cash Flow were
$58.6 million and $33.1 million, compared to $54.4 million and $28.7 million, as
restated, for the same period in 1995. TRG distributed $30.0 million and $29.1
million to its partners in the three months ended September 30, 1996 and 1995,
respectively.
During the first nine months of 1996, EBITDA and Distributable Cash Flow were
$168.6 million and $93.9 million, compared to $159.0 million and $86.7 million,
as restated, for the same period in 1995. TRG distributed $88.1 million and
$87.2 million to its partners in the nine months ended September 30, 1996 and
1995, respectively.
The Partnership Committee of TRG makes an annual determination of appropriate
distributions for each year. The determination is based on anticipated
Distributable Cash Flow, as well as financing considerations and such other
factors as the Partnership Committee considers appropriate. Further, the
Partnership Committee has decided that the growth in distributions will be less
than the growth in Distributable Cash Flow for the immediate future.
Except under unusual circumstances, TRG's practice is to distribute equal
monthly installments of the determined amount of distributions throughout the
year. Due to seasonality and the fact that cash available to TRG for
distributions may be more or less than net cash provided from operating
activities plus distributions from Joint Ventures during the year, TRG may
borrow from unused credit facilities (described above) to enable it to
distribute the amount decided upon by the Partnership Committee.
Distributions by each Joint Venture may be made only in accordance with the
terms of its partnership agreement. TRG acts as the managing partner in each
case and, in general, has the right to determine the amount of cash available
for distribution from the Joint Venture. In general, the provisions of these
agreements require the distribution of all available cash (as defined in each
partnership agreement), but most do not allow borrowing to finance distributions
without approval of the Joint Venture Partner.
As a result, distribution policies of many Joint Ventures will not parallel
those of TRG. While TRG may not, therefore, receive as much in distributions
from each Joint Venture as it intends to distribute with respect to that Joint
Venture, TRG does not believe this will impede its intended distribution policy
because of TRG's overall access to liquid resources, including borrowing
capacity.
-23-
<PAGE>
Any inability of TRG or its Joint Ventures to secure 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 TRG.
In addition, if the GM Trusts exercise their rights under the Cash Tender
Agreement (see below), TRG will be required to pay the GM Trusts $10.9 million
and may borrow to finance such expenditures.
Capital Spending
Capital spending for routine maintenance of the Taubman Shopping Centers is
generally recovered from tenants. Excluding acquisitions, 1996 planned capital
spending by the Managed Businesses not recovered from tenants is summarized in
the following table:
1996
---------------------------------------------
TRG's Share
Consolidated Joint of
Businesses Ventures(1) Joint Ventures(1)
---------------------------------------------
(in millions of dollars)
Development and expansion 14.1(2) 105.9(3) 58.4
Mall tenant allowances 2.5 3.6 1.8
Pre-construction development
and other 9.0(4) 2.3 1.2
---- ----- ----
Total 25.6 111.8 61.4
==== ===== ====
(1) Costs are net of intercompany profits.
(2) Includes costs related to expansion projects at Marley, Meadowood, and
Stoneridge. Also includes costs related to leasehold improvements at The
Mall at Tuttle Crossing; excludes capital lease assets.
(3) Includes costs related to expansion projects at Westfarms and Cherry Creek.
Also includes construction costs for MacArthur Center and Arizona Mills.
(4) Includes costs to explore the possibilities of building an enclosed 1.7
million square foot value super-regional mall in Auburn Hills, Michigan.
New Lord & Taylor stores, formerly Woodward & Lothrop stores, opened in August
1996 at Fair Oaks and Lakeforest. In addition, new Sears stores are scheduled to
open in November 1996 at Marley Station and Stoneridge. An expansion at
Westfarms, which is expected to open in the fall of 1997, will add approximately
135,000 square feet of mall GLA and Nordstrom as an anchor. An expansion at
Cherry Creek will include a newly constructed Lord & Taylor store, which is
expected to open in the fall of 1997, and the addition of 120,000 square feet of
mall GLA, which is expected to open in the fall of 1998.
Additionally, a project is now under construction to utilize for new mall
tenants 30,000 square feet of the space vacated when Saks Fifth Avenue moved to
the I. Magnin site at Biltmore. The new stores are presently expected to open
beginning in the spring of 1997.
-24-
<PAGE>
In 1995, construction began on The Mall at Tuttle Crossing, a 980,000 square
foot Center in northwest Columbus, Ohio, which will be anchored by Marshall
Field's, Lazarus, JCPenney and Sears. TRG has entered into an agreement to lease
the land and mall buildings from Tuttle Holding Co., which owns the land on
which the Center is being built. TRG will make ninety annual minimum lease
payments of $4.4 million beginning when the Center opens in July 1997.
Substantially all of each payment in the first ten years of operation will be
recognized as interest expense. TRG will also pay additional rent based on
achieved levels of net operating income, a measure of operating performance
before rent payments, as specified in the agreement (NOI); 100% of the portion
of NOI which is over $11.6 million but less than or equal to $14.4 million, 30%
of the portion of NOI between $14.4 million and $18.3 million, and 50% of the
portion of NOI over $18.3 million. TRG estimates this additional rent, which
will be recognized as other operating expense, will approximate $2 million to $3
million annually in the three years subsequent to the opening of the Center.
MacArthur Center, a new Center being developed by TRG in Norfolk, Virginia, is
expected to open in the spring of 1999. The Center is expected to total 1.1
million square feet and will initially be anchored by Nordstrom and Dillard's.
This Center will be owned by a joint venture in which TRG has a 70% interest.
TRG has entered into agreements with The Mills Corporation, Simon Property
Group and Grossman Company Properties to develop, own and operate Arizona Mills,
an enclosed value super-regional mall in Tempe, Arizona, which broke ground in
August 1996. TRG has a 35% ownership interest in the venture. The 1.2 million
square foot value-oriented mall is expected to open in the fall of 1997.
TRG's share of costs for development and expansion projects scheduled to be
completed in 1997 through 1999 is anticipated to be as much as $139 million in
1997 and $51 million in 1998.
In April 1996, Federated Department Stores, Inc. closed the Emporium store at
Hilltop. TRG is considering alternatives for the vacant anchor space.
Negotiations are in progress which may result in an amount of TRG capital
spending at Hilltop which cannot be presently determined.
TRG's estimates regarding capital expenditures presented above are
forward-looking statements and certain significant factors could cause the
actual results to differ materially, including but not limited to: 1) actual
results of negotiations with anchors, tenants and contractors; 2) changes in the
scope of projects; 3) cost overruns; 4) timing of expenditures; and 5) actual
time to complete projects.
Capital Resources
TRG believes that its net cash provided by operating activities, together with
distributions from the Joint Ventures, the unutilized portion of its credit
facilities and its ability to generate cash from issuance of medium-term notes
under TRG's shelf registration statement, other securities offerings or mortgage
financings, assure adequate liquidity to conduct its operations in accordance
with its distribution and financing policies.
The financing of TRG is intended to maintain an investment grade credit rating
for TRG and (i) minimize, to the extent practical, secured indebtedness
encumbering TRG's wholly owned properties, (ii) mitigate TRG's exposure to
increases in floating interest rates, (iii) assure that the amount of debt
maturing in any future year will not pose a significant refinancing risk, (iv)
provide for additional capital and liquidity resources, and (v) maintain average
maturities for TRG's debt obligations of between five and ten years. TRG's
intent to continue to minimize secured indebtedness is dependent on actions
taken by credit rating agencies and market conditions.
-25-
<PAGE>
TRG expects to finance its capital requirements, including development,
expansions and working capital, with available cash, borrowings under its lines
of credit and cash from future securities offerings under its medium-term note
program, other securities offerings, or mortgage financings. TRG's acquisition
activities are discretionary in nature, and will only be undertaken by TRG after
procuring adequate financing on terms that are consistent with TRG's financing
policies. TRG's Joint Ventures expect to finance development and expansion
spending with secured debt to the extent it is available.
Cash Tender Agreement
A. Alfred Taubman and the GM Trusts each have the annual right to tender to
Taubman Centers, Inc. (TRG's "Managing General Partner") Units of Partnership
Interest in TRG (provided that the aggregate value is at least $50 million) and
cause the Managing General Partner to purchase the tendered interests at a
purchase price based on a market valuation of the Managing General Partner on
the trading date immediately preceding the date of the tender (the Cash Tender
Agreement). At A. Alfred Taubman's election, his family, and Robert C. Larson
and his family may participate in tenders. The GM Trusts will be entitled to
receive from TRG an amount (not to exceed $10.9 million in the aggregate over
the term of the Partnership) equal to 5.5% of the amounts that the Managing
General Partner pays to the GM Trusts under the Cash Tender Agreement.
Although certain partners in TRG have pledged, and other partners may pledge,
their Units of Partnership Interest, TRG is not aware of any present intention
of any partner to sell its interest in TRG.
-26-
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
12 -- Statement Re: Computation of Ratio of Earnings to Fixed
Charges.
27 -- Financial Data Schedule.
b) Current Reports on Form 8-K.
TRG filed a current report on Form 8-K dated July 19, 1996, (the
"8-K"), to report the acquisition of interests in Fairlane Town
Center ("Fairlane"), a regional shopping center located in Dearborn,
Michigan. The 8-K included the following financial statements and
pro forma information regarding the acquisition of Fairlane:
Independent Auditors' Report.
Fairlane Town Center, Historical Summaries of Revenues and Direct
Operating Expenses for each of the Three Years in the Period Ended
December 31, 1995.
The Taubman Realty Group Limited Partnership, Pro Forma Condensed
Consolidated Balance Sheet, March 31, 1996 (unaudited).
The Taubman Realty Group Limited Partnership, Pro Forma Condensed
Consolidated Statement of Operations, Year Ended December 31, 1995
(unaudited).
The Taubman Realty Group Limited Partnership, Pro Forma Condensed
Consolidated Statement of Operations, Three Months Ended March 31,
1996 (unaudited).
The Taubman Realty Group Limited Partnership, Statement of Estimated
Taxable Operating Results of Fairlane Town Center and Estimated Cash
to be Made Available by Operations of Fairlane Town Center for a
Twelve-Month Period Ended March 31, 1996 (unaudited).
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
Date: November 14, 1996 By: /s/ Bernard Winograd
--------------------
Bernard Winograd
Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number
12 -- Statement Re: Computation of Ratio of Earnings to Fixed Charges.
27 -- Financial Data Schedule.
Exhibit 12
The Taubman Realty Group Limited Partnership
Computation of Ratios of Earnings to Fixed Charges
(in thousands, except ratios)
Nine Months Ended September 30
------------------------------
1995 1996
---- ----
Net Earnings from Continuing Operations $ 54,529 $ 60,308
Add back:
Fixed charges 82,095 84,133
Amortization of previously capitalized
interest (1) 1,598 1,472
Distributions in excess of equity in
net income of 25% owned Joint Venture (286) 122
Deduct:
Capitalized interest (1) (7,126) (6,112)
-------- --------
Earnings Available for Fixed Charges $130,810 $139,923
======== ========
Fixed Charges
Interest expense $ 48,039 $ 52,873
Capitalized interest 5,891 3,443
Interest portion of rent expense 3,477 3,746
Proportionate share of Joint Ventures'
fixed charges 24,688 24,071
-------- --------
Total Fixed Charges $ 82,095 $ 84,133
======== ========
Ratio of earnings to fixed charges 1.6 1.7
(1) Amounts include TRG's pro rata share of capitalized interest and
amortization of previously capitalized interest of the Joint Ventures.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TAUBMAN REALTY GROUP LIMITED PARTNERSHIP (TRG) CONSOLIDATED BALANCE SHEET AS OF
SEPTEMBER 30, 1996 (UNAUDITED) AND TRG'S CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000917473
<NAME> THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 11,766
<SECURITIES> 0
<RECEIVABLES> 21,890
<ALLOWANCES> 369
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,087,142
<DEPRECIATION> 226,341
<TOTAL-ASSETS> 940,270
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 1,072,793
0
0
<COMMON> 0
<OTHER-SE> (366,405)
<TOTAL-LIABILITY-AND-EQUITY> 940,270
<SALES> 0
<TOTAL-REVENUES> 185,626
<CGS> 0
<TOTAL-COSTS> 96,708
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,873
<INCOME-PRETAX> 60,308
<INCOME-TAX> 0
<INCOME-CONTINUING> 60,308
<DISCONTINUED> 0
<EXTRAORDINARY> (1,328)
<CHANGES> 0
<NET-INCOME> 58,980
<EPS-PRIMARY> 917<F2>
<EPS-DILUTED> 917<F2>
<FN>
<F1> TRG HAS AN UNCLASSIFIED BALANCE SHEET.
<F2> REPRESENTS EARNINGS DIVIDED BY WEIGHTED AVERAGE NUMBER OF UNITS OF
PARTNERSHIP INTEREST OUTSTANDING DURING THE PERIOD.
</FN>
</TABLE>
