SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
|x| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1996.
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to _________________
Commission File Number 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.)
200 East Long Lake Road
Suite 300, P.O. Box 200
Bloomfield Hills, Michigan 48303-0200
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (810) 258-6800
Securities registered pursuant to Section 12(b) of the Act: None
Name of each exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 periods that the
registrant was required to file such report(s)) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
|X| Indicate by a check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement of Taubman Centers, Inc. for the annual
meeting of shareholders to be held in 1997 (the "TCO Proxy Statement") are
incorporated by reference into Part III.
<PAGE>
PART I
Item 1. BUSINESS
The Taubman Realty Group Limited Partnership
The Taubman Realty Group Limited Partnership ("TRG"), which was organized in
1985, is an operating partnership that engages in the ownership, operation,
management, leasing, acquisition, development, redevelopment, expansion,
financing, and refinancing of regional shopping centers. TRG owns as its primary
assets interests in regional retail shopping centers (the "Taubman Shopping
Centers" or the "Centers"). TRG also owns development projects for future
regional shopping centers (the "Development Projects") and approximately 99% of
The Taubman Company Limited Partnership (the "Manager"), which manages the
Taubman Shopping Centers and provides services to TRG and its managing general
partner, Taubman Centers, Inc. ("TCO"). Certain Taubman Shopping Centers are
partially owned through joint ventures (the "Joint Ventures"). See the table on
pages 12 and 13 of this report for information regarding the Taubman Shopping
Centers and TRG's interests in them.
TCO is a real estate investment trust, or REIT, under the Internal Revenue
Code of 1986, as amended (the "Code"). In order to satisfy the provisions of the
Code applicable to REITs, TCO must distribute to its shareholders at least 95%
of its REIT taxable income and meet certain other requirements. TRG's
partnership agreement provides that TRG will distribute, at a minimum,
sufficient amounts to its partners such that TCO's pro rata share will enable
TCO to pay shareholder dividends (including capital gains dividends that may be
required upon TRG's sale of an asset) that will satisfy the REIT provisions of
the Code.
Recent Developments
For a discussion of business developments that occurred in 1996, see the
response to Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The Shopping Center Business
There are several types of retail shopping centers, varying primarily by size
and marketing strategy. Retail shopping centers range from neighborhood centers
of less than 100,000 square feet of GLA to regional and super-regional shopping
centers. Retail shopping centers in excess of 400,000 square feet of GLA are
generally referred to as "regional" shopping centers, while those centers having
in excess of 800,000 square feet of GLA are generally referred to as
"super-regional" shopping centers. In this annual report on Form 10-K, the term
"regional shopping centers" refers to both regional and super-regional shopping
centers. The term "GLA" refers to gross retail space, including anchors and mall
tenant areas, and the term "Mall GLA" refers to gross retail space, excluding
anchors. The term "anchor" refers to a department store or other large retail
store. The term "mall tenants" refers to stores (other than anchors) that are
typically specialty retailers and lease space in shopping centers.
Most regional shopping centers compete for consumer retail dollars by offering
fashion merchandise, hard goods, and services, generally in an enclosed, climate
controlled environment with convenient parking. Regional shopping centers have
differing strategies with regard to price levels of the merchants and
merchandise offered, from very high-end presentations, on the one extreme, to a
strategy of leasing exclusively to outlet stores, at the other.
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Regional shopping centers usually have two or more anchors. Anchors either own
their stores, the land under them, and adjacent parking areas, or they lease the
ground or buildings from shopping center owners for long periods at rates that
are substantially lower than the rents charged to mall tenants. In enclosed
regional shopping centers, anchors are usually located at the ends of enclosed
common area corridors. This layout is intended to maximize pedestrian traffic
for the mall tenant stores. Mall GLA is leased to a wide variety of smaller
stores. In a regional shopping center, substantially all revenues are derived
from Mall GLA.
The anchors and the owner of the shopping center typically enter into an
agreement among themselves, generally referred to as a reciprocal easement
agreement, covering, among other things, operational matters, initial
construction, and future expansions.
Mall tenants usually pay rent comprised of several elements. The first element
is a fixed base, or "minimum", rent, often subject to increases according to a
schedule agreed upon at the time of lease inception. In addition, this base rent
is often supplemented by increases based upon inflation, often tied to changes
in the Consumer Price Index. Finally, tenants generally are required to pay a
percentage of their sales in addition to these other elements of rent, to the
extent sales of the tenant exceed certain negotiated levels.
Both anchors and mall tenants generally contribute funds to pay for upkeep of
common areas, property taxes, advertising, and other expenditures (such as
security, utilities, and cleaning) that are related to the day-to-day operations
of the shopping center.
As lease terms expire, shopping center owners may have the opportunity to
change base rents, to revise lease terms and conditions, to relocate existing
tenants, to reconfigure or expand tenant spaces, and to introduce new retailers
and retail concepts to the shopping center.
The regional shopping center industry in the United States has significant
barriers to entry. In addition, new regional shopping center developments are
inhibited by several factors. Such barriers and inhibiting factors include the
following:
o most major markets are already served by regional retail centers;
o land for suitable sites has become more difficult and more expensive to
assemble;
o due to growing environmental concerns and demands from local governments and
citizen groups, zoning and environmental approvals have become increasingly
time consuming, expensive, and difficult to obtain;
o many of the strong national specialty retailers needed to occupy Mall GLA
are already well represented in existing regional shopping centers; and
o department stores are generally not willing to deal with non-established
developers.
While consumers make purchases through a variety of retail formats, TRG
believes that the Taubman Shopping Centers, and other dominant regional and
super-regional shopping centers, will continue in the future to be an
attractive shopping destination for significant numbers of consumers. By
providing a convenient shopping environment offering access to a broad
selection of retailers, services, and food establishments, these centers have
generated high levels of customer traffic and, as a consequence, high tenant
sales. The ability of tenants to achieve higher sales levels than are
generally achieved at smaller centers or stand-alone locations in turn
supports higher levels of rent than at less productive locations.
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Business of TRG
TRG is engaged in the ownership, operation, management, leasing, acquisition,
development, redevelopment, expansion, financing, and refinancing of regional
shopping centers and interests therein.
The Taubman Shopping Centers:
o are strategically located in major metropolitan areas, many in communities
that are among the most affluent in the country, including New York City,
Chicago, Los Angeles, San Francisco, Detroit, Phoenix, and Washington, D.C.;
o range in size between 438,000 and 2.3 million square feet of GLA and between
133,000 and 971,000 square feet of Mall GLA. The smallest Center has
approximately 50 stores, and the largest has approximately 250 stores. Of
the 21 Centers, 18 are super-regional shopping centers;
o have approximately 2,900 stores operated by its mall tenants under
approximately 1,000 trade names;
o have 77 anchors, operating under 18 trade names;
o lease approximately 79% of Mall GLA to national chains, including
subsidiaries or divisions of The Limited (The Limited, Limited Express,
Victoria's Secret, and others), The Gap (The Gap, Banana Republic, and
others), and Woolworth Corporation (Footlocker, Kinney Shoes, and others);
and
o are among the most productive (measured by mall tenants' average per square
foot sales) in the United States. In 1996, mall tenants in the Taubman
Shopping Centers portfolio as of December 31, 1996 had average per square
foot sales of $365, which is substantially greater than the average for all
regional shopping centers.
The most important factor affecting the revenues generated by the Taubman
Shopping Centers is leasing to mall tenants (primarily specialty retailers),
which represents over 90% of revenues. Anchors account for approximately 5% of
revenues because many own their stores and, in general, those that lease their
stores do so at rates substantially lower than those in effect for mall tenants.
TRG's ownership is concentrated in large and highly productive regional
shopping centers. Of its 21 Centers, 15 had annual rent rolls in 1996 of over
$10 million and 17 had sales-per-square-foot in excess of $300. TRG believes
that this level of productivity in the Taubman Shopping Centers is indicative of
their strong competitive position and is, in significant part, attributable to
TRG's business strategy and philosophy. TRG believes that large shopping centers
(including regional and especially super-regional shopping centers) are the
least susceptible to direct competition because (among other reasons) anchors
and large specialty retail stores do not find it economically attractive to open
additional stores in the immediate vicinity of an existing location for fear of
competing with themselves. In addition to the advantage of size, TRG believes
that the Centers' success can be attributed in part to their other physical
characteristics, such as design, layout, and amenities.
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Business Strategy And Philosophy
TRG believes that the regional shopping center business is not simply a real
estate development business, but rather an operating business in which a
retailing approach to the on-going management and leasing of the Taubman
Shopping Centers is essential. Thus TRG:
o offers a large, diverse selection of retail stores in each Center to give
customers a broad selection of consumer goods and variety of price ranges;
o endeavors to increase overall mall tenants' sales, and thereby increase
achievable rents, by leasing space to a constantly changing mix of tenants;
and
o seeks to anticipate trends in the retailing industry and emphasizes ongoing
introductions of new retail concepts into the Centers. Due in part to this
strategy, a number of successful retail trade names have opened their first
mall stores in the Taubman Shopping Centers. TRG believes that its execution
of this leasing strategy is unique in the industry and is an important
element in building and maintaining customer loyalty and increasing mall
productivity.
The Taubman Shopping Centers compete for retail consumer spending through
diverse, in-depth presentations of predominantly fashion merchandise in an
environment intended to facilitate customer shopping. While some Taubman
Shopping Centers include stores that target high-end, upscale customers, each
Center is individually merchandised in light of the demographics of its
potential customers within convenient driving distance.
TRG's leasing strategy involves assembling a diverse mix of mall tenants in
each of the Taubman Shopping Centers in order to attract customers, thereby
generating higher sales by mall tenants. High sales by mall tenants make the
Taubman Shopping Centers attractive to prospective tenants, thereby increasing
the rental rates that prospective tenants are willing to pay. TRG implements an
active leasing strategy to increase the Taubman Shopping Centers' productivity
and to set minimum rents at higher levels. Elements of this strategy include
terminating leases of under-performing tenants, renegotiating existing leases,
and not leasing space to prospective tenants that (though viable or attractive
in certain ways) would not enhance a Taubman Shopping Center's retail mix.
TRG's strategy is carried out by the Manager, which is more than 99%
beneficially owned by TRG and which has been engaged to provide property
management and leasing services for each Taubman Shopping Center (including
wholly and partially owned Centers) and to provide corporate, development,
administrative, and acquisition services for TRG and TCO. The Manager's
predecessor was a leading developer and manager in the regional shopping center
business for more than 25 years.
Potential For Growth
TRG's strategy is to increase the amount of cash flow. In addition to
increased cash flow through the growth in mall tenant sales and market rental
rates, TRG believes that its cash flow will increase over time due to expansions
of the Centers, acquisitions, and development of new centers.
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Expansions of the Taubman Shopping Centers
- ------------------------------------------
Most of the Taubman Shopping Centers have been designed to accommodate
expansions. Expansion projects can be as significant as new shopping center
construction in terms of scope and cost, requiring governmental and existing
anchor store approvals, design and engineering activities, including rerouting
utilities, providing additional parking areas or decking, acquiring additional
land, and relocating anchors and mall tenants (all of which must take place with
a minimum of disruption to existing tenants and customers). In 1996, for
example, Sears became the fourth anchor at Marley Station and the fifth anchor
at Stoneridge. Additionally, construction is in process on expansions of three
of the Taubman Shopping Centers:
o Westfarms -- the addition of approximately 135,000 square feet of Mall GLA
and Nordstrom as an anchor will open in the summer of 1997;
o Biltmore Fashion Park -- over 30,000 square feet of new Mall GLA is
scheduled to open beginning in the spring of 1997; and
o Cherry Creek -- a newly constructed Lord & Taylor will open in the fall of
1997. Additionally, a 132,000 square foot expansion of the Mall GLA will
open in the fall of 1998.
Consolidation of department stores has also strengthened TRG's portfolio, as
retailers continue to be attracted to TRG's dominant and highly productive
locations. Recent department store conversions include Macy's at both Biltmore
Fashion Park and Paseo Nuevo, and Lord & Taylor at both Lakeforest and Fair
Oaks. Also, Bloomingdale's at Beverly Center opened in March of 1997. When these
projects are completed, 13 of TRG's 21 properties will have benefited from
expansions or anchor conversions since 1995.
Acquisitions
- ------------
In 1996, TRG completed three acquisitions totaling over $150 million. TRG has
completed approximately $400 million of acquisitions in the four years since TCO
has been public.
In December 1996, TRG acquired La Cumbre Plaza (La Cumbre), a regional
shopping center located 3.5 miles north of downtown Santa Barbara, California.
The 478,000 square foot open-air Center is anchored by Robinsons-May and Sears.
In June 1996, TRG acquired Paseo Nuevo, a regional shopping center located in
downtown Santa Barbara. The 438,000 square foot open-air Center is anchored by
Macy's and Nordstrom. Together, La Cumbre and Paseo Nuevo dominate an affluent
market that stretches 60 miles along the California coastline.
Additionally, in July 1996, TRG completed transactions that resulted in the
acquisition of the 75% interest in Fairlane Town Center previously held by a
Joint Venture Partner. In connection with the transaction, TRG issued units of
partnership interest to the former Joint Venture Partner.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Results of Operations -- Acquisitions and Disposition" and Note
3 to the Consolidated Financial Statements of TRG for further discussion of
these acquisitions.
TRG believes it will have additional opportunities to acquire regional
shopping centers, or interests therein, and will have certain advantages in
doing so.
o First, the management expertise of the Manager will enhance the leasing and
operation of newly acquired regional shopping centers. If opportunities
exist to expand, remodel, or re-merchandise the center through new leasing,
the Manager's expertise will assist TRG in making an informed and timely
evaluation of the economic consequences of such activities prior to
acquisition, as well as facilitate implementation of such activities.
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o Second, a center can be acquired for any combination of cash or equity
interests in TRG or (subject to certain limitations) TCO, possibly creating
the opportunity for tax-advantaged transactions for the seller, thereby
reducing the price that might otherwise have to be paid in an all cash
transaction or making an opportunity available that would not otherwise
exist. TRG is able to offer partnership interests in itself in exchange for
shopping center interests, allowing sellers to diversify their interests,
attain liquidity not otherwise available, possibly defer taxes that might
otherwise be due if the interests were instead sold for cash, maintain an
investment in the regional shopping center business, and resolve concerns
sellers otherwise may have regarding future management of their properties.
For instance, Biltmore Fashion Park's selling group included private
investors who found it tax efficient to accept TRG partnership units as part
of the consideration when TRG acquired the Center in 1994.
Development of New Centers
- --------------------------
TRG believes that it has attractive development opportunities and intends to
continue to pursue an active program of regional shopping center development.
TRG believes that it has the expertise, through the Manager, to develop
economically attractive regional shopping centers through intensive analysis of
local retail opportunities, and that its expertise in this regard is more
important than macroeconomic conditions in determining the scope and number of
opportunities available to it.
Development of new Taubman Shopping Centers is expected to be an important
source of growth in revenues and operating income before interest, depreciation
and amortization. In 1996, two projects moved forward from the pre-development
phase. Construction began on Arizona Mills in Tempe, Arizona (20 miles southwest
of downtown Phoenix) with the August 1996 groundbreaking. Arizona Mills, a 1.2
million square foot value-oriented mall, will open in November 1997. The project
is a joint venture in which TRG has a 37% interest. In January 1996,
groundbreaking ceremonies were held for MacArthur Center, a new center being
developed by TRG in Norfolk, Virginia, which is expected to total 1.1 million
square feet. The three-level center, scheduled to open in the spring of 1999,
will initially be anchored by Nordstrom and Virginia's first Dillard's
Department Store. The project is a joint venture in which TRG has a 70%
interest. Construction also continued on The Mall at Tuttle Crossing (northwest
Columbus, Ohio), which will open in July 1997. Sears, JCPenney, Lazarus and
Marshall Field's will anchor this new 980,000 square foot center.
TRG's policies with respect to development activities are designed to limit
the risks otherwise associated with development. For instance, TRG entered into
an agreement to lease Memorial City Mall, a center adjacent to one of the most
affluent residential areas in Houston, Texas, while TRG investigates the
redevelopment opportunities of the center (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Capital Spending" for further discussion of the
transaction). Also, TRG generally does not intend to acquire land early in the
development process, but will instead generally acquire options on land or form
partnerships with landholders holding potentially attractive development sites,
typically exercising options only once it is prepared to begin construction. In
addition, TRG does not intend to begin construction until a sufficient number of
anchor stores have agreed to operate in the shopping center, such that TRG is
confident that the projected sales and rents from Mall GLA are sufficient to
earn a return on invested capital in excess of TRG's cost of capital. Having
historically followed these two principles, TRG's experience indicates that less
than 20% of the costs of the development of a regional shopping center will be
incurred prior to the construction period; however, no assurance can be given
that TRG will continue to be able to so minimize pre-construction costs.
While TRG anticipates that it will continue to evaluate development projects
using criteria, including financial criteria for rates of return, similar to
those employed in the past, no assurances can be given that the adherence to
these policies will produce comparable results in the future. In addition, the
costs of shopping center development opportunities that are explored but
ultimately abandoned will, to some extent, diminish the overall return on
development projects.
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Major Tenants
The combined operations of The Limited, Inc. accounted for approximately 11%
of leased Mall GLA as of December 31, 1996 and for approximately 10% of the 1996
base rent. The largest of these, in terms of square footage and rent, is The
Limited, which accounted for approximately 2.5% of leased Mall GLA and 1996 base
rent. No other single retail company accounted for more than 4% of leased Mall
GLA or more than 5% of the 1996 base rent.
Lease Expirations
The following table shows lease expirations (based on information available as
of December 31, 1996) for the next ten years for the Taubman Shopping Centers in
operation at that date:
<TABLE>
<CAPTION>
Percent of
Annualized Base Annualized Base Total Leased
Approximate Rent Under Rent Under Square Footage
Lease Expiration Number of Leases Leased Area Expiring Leases Expiring Leases Represented by
Year Expiring in Square Footage (in thousands) Per Square Foot Expiring Leases
---- -------- ----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1997 (1) 136 320,218 $ 10,452 $ 32.64 3.9%
1998 288 608,078 26,263 43.19 7.4%
1999 288 704,553 28,630 40.64 8.6%
2000 370 894,452 34,526 38.60 11.0%
2001 335 851,364 33,472 39.32 10.4%
2002 314 869,814 34,030 39.12 10.7%
2003 306 988,516 37,261 37.69 12.1%
2004 258 899,900 36,476 40.53 11.0%
2005 234 897,336 33,698 37.55 11.0%
2006 117 454,290 17,989 39.60 5.6%
(1) Excludes leases that expire in 1997 for which renewal leases or leases with
replacement tenants have been executed as of December 31, 1996.
</TABLE>
TRG believes that the information in the table is not indicative of what will
occur in the future because of several factors, but principally because TRG's
leasing policies and practices create a significant level of early lease
terminations at the Taubman Shopping Centers. For example, the average remaining
term of the leases that were terminated during the period 1991 to 1996 was
approximately 1.9 years. The average term of leases signed during 1995 and 1996
was approximately 7.4 years.
In addition, mall tenants at Taubman Shopping Centers may seek the protection
of the bankruptcy laws, which could result in the termination of such tenants'
leases and thus cause a reduction in the cash flow generated by the Taubman
Shopping Centers. Prior to 1992, such bankruptcies had not affected more than 3%
of leases in the Taubman Shopping Centers in any one calendar year. In 1996,
approximately 2.8% of leases were so affected compared to 3.2% in 1995, 3.1% in
1994, 4.0% in 1993 and 4.5% in 1992. Since 1991, the annual provision for losses
on accounts receivable has been less than 2% of TRG's annual revenues.
Occupancy
Average Mall GLA occupancy rates of the Taubman Shopping Centers for the last
five years are as follows:
Year Average Mall GLA Occupancy
---- --------------------------
1992 88.1%
1993 86.5%
1994 86.6%
1995 88.0%
1996 87.4%
Historically, average annual occupancy for TRG as a whole has been within a
narrow band. In the last ten years, average annual occupancy has ranged between
86.5% and 88.8%.
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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 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, excluding renewals, 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 Year Year Closing Rents
-------- ----------- ----------- ------------
Average Average Average Average
Base Annualized Annualized Annualized
Rent Base Rent Base Rent Base Rent
-------- ----------- ----------- ------------
1992 (1)................... $30.61 $27.91 $38.16 $10.25
1993 (1)................... $32.64 $29.56 $35.86 $ 6.30
1994 (2)................... $34.72 $30.46 $41.02 $10.56
1995 (3)................... $36.33 $32.96 $41.27 $ 8.31
1996 (3)................... $37.90 $33.39 $42.39 $ 9.00
(1) Includes 16 centers owned and open prior to January 1, 1989.
(2) Includes 17 centers owned and open prior to January 1, 1990.
(3) Includes 18 centers owned and open prior to January 1, 1991.
TRG anticipates that the spread between opening and closing rents will narrow
in 1997. This statistic is difficult to predict in part because TRG's leasing
policies and practices may result in early lease terminations with actual
average closing rents which may vary from the average rent per square foot of
scheduled lease expirations. In addition, the opening or closing of large tenant
spaces, which generally pay a lower rent per square foot, can significantly
change the spread in a given year. The spread between opening and closing store
rents narrowed in 1993, principally due to the timing of openings and closings
of certain large tenants.
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Anchors
The following table summarizes certain information regarding the anchors at
the Taubman Shopping Centers.
Number of 1996 GLA
Name Anchor Stores (Thousands) % of GLA
---- ------------- ----------- --------
Sears 13(1) 2,788 12.0%
Federated
Macy's 11 1,926
Lazarus 1(1) 480
Bloomingdale's 2 379
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Total 14 2,785 12.0%
JCPenney 13(1) 2,423 10.5%
May Company
Lord & Taylor 8 1,016
Hecht's 3 525
Filene's 2 379
Filene's Men's Store/
Furniture Gallery 1 80
Foley's 1 178
Robinsons-May 1 150
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Total 16 2,328 10.0%
Dayton Hudson
Hudson's 5 1,040
Marshall Field's 2(1) 508
--- -----
Total 7 1,548 6.7%
Nordstrom 4(1) 702 3.0%
Saks 5 450 1.9%
Jacobson's 2 221 1.0%
Neiman Marcus 2 216 0.9%
Crowley's 1 115 0.5%
--- ------ ----
Total 77 13,576 58.6%
=== ====== ====
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(1) One or more additional stores will be added in connection with an expansion
or development of a new Center. See "Business -- Business of TRG --
Potential for Growth -- Expansions of the Taubman Shopping Centers" and " --
Development of New Centers."
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Although during the past eight years department store companies owning 18
anchors at 11 Centers have filed for bankruptcy, none of the anchors at Taubman
Shopping Centers are now owned by companies in bankruptcy. Of those 18 anchors,
12 are now owned and operated by Federated Department Stores, Inc.
("Federated"). Federated closed the Emporium at Hilltop in 1996. TRG is
considering alternate uses of the anchor space. Two other anchor stores formerly
owned by Woodward & Lothrop Incorporated were acquired by the May Department
Stores Company ("May Company"). After remodeling, these stores, which closed in
November 1995, reopened in 1996 as Lord & Taylor stores (an existing Lord &
Taylor store at one of these Centers has closed, and May Company and TRG are
considering various options for the store). The former sites of two other
anchors, B. Altman and Bonwit Teller, are part of the completed expansion of The
Mall at Short Hills, which added approximately 100,000 square feet of Mall GLA
and three anchors: Nordstrom; Neiman Marcus; and Saks Fifth Avenue. The former
site of another anchor (Sage-Allen at Westfarms) opened as a Filene's Men's
Store/Furniture Gallery in 1995.
Environmental Matters
All of the Taubman Shopping Centers presently owned by TRG (not including
option interests in the Development Projects or any of the real estate managed
by the Manager but not included in TRG's portfolio) have been subject to
environmental assessments. TRG and the Manager are not aware of any
environmental liability relating to the Taubman Shopping Centers or any other
property in which they have or had an interest (whether as an owner or operator)
that TRG believes would have a material adverse effect on TRG's business,
assets, or results of operations. No assurances can be given, however, that all
environmental liabilities have been identified or that no prior owner, operator,
or current occupant has created an environmental condition not known to TRG or
the Manager. Moreover, no assurances can be given that (i) future laws,
ordinances, or regulations will not impose any material environmental liability
or that (ii) the current environmental condition of the Taubman Shopping Centers
will not be affected by tenants and occupants of the Taubman Shopping Centers,
by the condition of properties in the vicinity of the Taubman Shopping Centers
(such as the presence of underground storage tanks), or by third parties
unrelated to TRG or the Manager.
With respect to the matters described below, while there can be no assurances,
TRG believes that such matters will not have a material adverse effect on TRG's
business, assets, or results of operations.
Hilltop is located in a region in Richmond, California that has been used
extensively to store various petroleum products. Three petroleum storage tanks
were previously located on Hilltop's site. In connection with the construction
of Hilltop, numerous borings and drillings were conducted, and no evidence of
petroleum discharges was identified. In addition, extensive grading and
excavation were performed during such construction, and no material residual
contamination from the storage tanks was noted. TRG is not aware of any
environmental liability associated with the storage tanks that were formerly
located on the Hilltop site.
Beverly Center is located over an oil field and several abandoned oil wells,
and is adjacent to an active oil production facility that operates numerous oil
and gas wells. In the Los Angeles basin, where Beverly Center is located,
pockets of methane gas may be found in oil fields; however, elevated levels of
methane have not been detected at Beverly Center.
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<PAGE>
Cherry Creek is situated on land that was used as a landfill prior to 1950.
Because of the past use of the site as a landfill, the site is listed on the
United States Environmental Protection Agency's ("EPA") Comprehensive
Environmental Response, Compensation and Liability Information System list.
Various soil and groundwater samples have been taken on and near the Cherry
Creek site since 1979. In addition, in 1991 and 1992, as part of a review of all
former landfill sites in the Denver area, including the Cherry Creek site, the
EPA and the Colorado Department of Health completed a series of groundwater,
soil, and surface water tests around the border of the Cherry Creek property.
Although a single sample taken in 1988 found elevated levels of cadmium in the
groundwater at Cherry Creek, and groundwater samples taken in connection with a
former gasoline station on the property indicate elevated levels of benzene, no
other samples taken have indicated any levels of contamination that exceeded
applicable environmental standards. In addition, the results of the samples
taken by the EPA and the Colorado Department of Health indicate no evidence of
contamination.
Paseo Nuevo is located in an area of known groundwater contamination by
tetrachloroethylene ("PCE"). The groundwater under and around the site has been
monitored for six years before, during, and after construction of the center. No
on-site sources of PCE were identified during construction. The Regional Water
Quality Control Board has given approval to discontinue the monitoring program,
because the PCE levels remained relatively constant over the six-year period and
do not exceed the state standard for PCE in drinking water.
There are asbestos containing materials ("ACMs") at most of the Taubman
Shopping Centers, primarily in the form of floor tiles, roof coatings and
mastics. The floor tiles, roof coatings and mastics are generally in good
condition. Fire-proofing material containing asbestos is present at some of the
Taubman Shopping Centers in limited concentrations or in limited areas. The
Manager has developed and is implementing an operations and maintenance program
that details operating procedures with respect to ACMs prior to any renovation
and that requires periodic inspection for any change in condition of existing
ACMs.
Personnel
TRG has engaged the Manager to provide all real estate management,
acquisition, development, and administrative services required by (or of) TRG or
any of its properties.
As of December 31, 1996, the Manager had 410 full-time employees. The
following table provides a breakdown of employees by operational areas as of
December 31, 1996:
Number Of Employees
-------------------
Property Management............... 173
Leasing........................... 63
Development....................... 40
Financial Services................ 72
Other ............................ 62
----
Total....................... 410
====
The Manager considers its relations with its employees to be good.
Item 2. PROPERTIES
Taubman Shopping Centers
Ownership
The following table sets forth certain information about each of the Taubman
Shopping Centers. The table is in alphabetical order. The Joint Venture partners
have ongoing rights with regard to the disposition of TRG's interest in the
Joint Ventures, as well as the approval of major matters.
11
<PAGE>
<TABLE>
<CAPTION>
Sq. Ft of GLA/ Percent of Mall
Mall GLA Year Opened/ TRG's % Ownership GLA Occupied 1996 Rent (2)
Center (1) Anchors as of 12/31/96 Expanded as of 12/31/96 as of 12/31/96 (in Thousands)
---------- ------- ------------------ ------------ ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Beverly Center Bloomingdale's, 903,000/ 1982 70%(4) 91% $24,510
Los Angeles, CA Macy's (3) 595,000
Biltmore Fashion Park Macy's, Saks 518,000/ 1963/1992(6) 100% 97% 9,505
Phoenix, AZ Fifth Avenue 279,000 (5)
Briarwood Hudson's, JCPenney, 990,000/ 1973/1980 100% 94% 12,072
Ann Arbor, MI Jacobson's, Sears 369,000
Cherry Creek Foley's, Lord & Taylor, 884,000/ 1990 50% 97% 18,224
Denver, CO Neiman Marcus, Saks 430,000 (7)(8)
Fifth Avenue
Columbus City Center Jacobson's, Lazarus, 1,210,000/ 1989 100% 96% 16,264
Columbus, OH Marshall Field's 416,000
Fair Oaks Hecht's, JCPenney, 1,378,000/ 1980/1987/ 50%(9) 78% 18,572
Fairfax, VA Lord & Taylor, Sears 562,000 1988
(Washington, D.C.
Metropolitan Area)
Fairlane Town Center Hudson's, JCPenney, 1,519,000/ 1976/1978/ 100% 80% 14,738
Dearborn, MI Lord & Taylor, Saks 629,000 1980
(Detroit Fifth Avenue, Sears
Metropolitan Area)
Hilltop JCPenney, Macy's, Sears 1,116,000/ 1976/1991 100% 80% 6,836
Richmond, CA 387,000
(San Francisco
Metropolitan Area)
La Cumbre Plaza Robinsons-May, Sears 478,000/ 1967/1989(6) 100% 98% (6)
Santa Barbara, CA 178,000
Lakeforest Hecht's, JCPenney, 1,109,000/ 1978/1992 100% 84% 13,244
Gaithersburg, MD Lord & Taylor, Sears 439,000
(Washington, D.C.
Metropolitan Area)
- ----------------------------
(1) The table includes only centers in operation at December 31, 1996. Excluded
from this table are The Mall at Tuttle Crossing, which will open in July
1997, and Arizona Mills, which will open in November 1997. Also excluded is
Memorial City Mall, a development project. Centers are owned in fee other
than: Beverly Center, Cherry Creek, Columbus City Center, La Cumbre Plaza
and Paseo Nuevo, which are held under ground leases expiring between 2028
and 2083 (exclusive of three ten-year renewal options at Columbus City
Center), and a portion of the parking area at Hilltop (the ground lease of
which expires in 2073).
(2) Includes minimum and percentage rent for the year ended December 31, 1996.
Excludes rent from certain peripheral properties.
(3) Bloomingdale's, formerly The Broadway, opened in March 1997.
(4) TRG has an option to acquire the remaining 30%. The results of Beverly
Center are consolidated in TRG's financial statements.
(5) Construction is in process to utilize over 30,000 square feet of a former
anchor space for new mall tenants. The stores are expected to open
beginning in the spring of 1997.
(6) Biltmore Fashion Park was acquired in December 1994. La Cumbre Plaza was
acquired in December 1996.
(7) GLA excludes approximately 166,000 square feet for the renovated buildings
on adjacent peripheral land.
(8) A newly constructed Lord & Taylor store will open in the fall of 1997, and
an expansion of the Center of approximately 132,000 square feet of Mall GLA
will open in the fall of 1998.
(9) Includes a nominal interest of substantially less than 1% held by the
Company.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Sq. Ft of GLA/ Percent of Mall
Mall GLA Year Opened/ TRG's % Ownership GLA Occupied 1996 Rent (2)
Center (1) Anchors as of 12/31/96 Expanded as of 12/31/96 as of 12/31/96 (in Thousands)
---------- ------- ------------------ ------------ ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Lakeside Crowley's, Hudson's, 1,489,000/ 1976/1980 50% 86% $16,422
Sterling Heights, MI JCPenney, Lord & 528,000
(Detroit Taylor, Sears
Metropolitan Area)
Marley Station Hecht's, JCPenney, 1,088,000/ 1987/1994/ 100% 79% 9,780
Anne Arundel County, MD Macy's, Sears 375,000 1996
(Washington, D.C.
Metropolitan Area)
Meadowood Mall JCPenney, Macy's 898,000/ 1979/1995 100% 90% 9,362
Reno, NV (two locations), Sears 321,000
Paseo Nuevo Macy's, Nordstrom 438,000/ 1990(11) 100% 83% 2,246(11)
Santa Barbara, CA 133,000(10)
Stamford Town Center Filene's, Macy's, 875,000/ 1982 50%(12) 90% 16,429
Stamford, CT Saks Fifth Avenue 382,000
Stoneridge JCPenney, Macy's 1,293,000/ 1980/1990/ 100% 90% 14,653
Pleasanton, CA (two locations), 451,000 1996
(San Francisco Nordstrom, Sears
Metropolitan Area)
The Mall at Short Hills Bloomingdale's, Macy's, 1,373,000/ 1980/1994/ 100% 94% 29,770
Short Hills, NJ Neiman Marcus, 551,000 1995
Nordstrom, Saks Fifth
Avenue
Twelve Oaks Mall Hudson's, JCPenney, 1,224,000/ 1977/1980 50% 95% 18,587
Novi, MI Lord & Taylor, Sears 486,000
(Detroit
Metropolitan Area)
Westfarms Filene's, Filene's 992,000/ 1974 79% 86% 15,181
West Hartford, CT Men's Store/Furniture 397,000(13)
Gallery, JCPenney,
Lord & Taylor(13)
Woodfield JCPenney, Lord & Taylor, 2,296,000/ 1971/1972/ 50% 85% 34,274
Schaumburg, IL Marshall Field's, 971,000 1995
(Chicago Nordstrom, Sears
Metropolitan Area)
Woodland Hudson's, JCPenney, 1,096,000/ 1968/1974/ 50% 89% 12,877
Grand Rapids, MI Sears 371,000 1984/1989
---------
Total GLA/Total Mall GLA: 23,167,000/
9,250,000
Average GLA/Average Mall GLA: 1,103,000/
440,000
- ----------------------------
(10) GLA excludes approximately 23,000 square feet of second level commercial
office and performing arts area.
(11) Paseo Nuevo was acquired in June 1996.
(12) Includes a nominal interest of substantially less than 1% held by the
Company.
(13) An expansion of the Center of approximately 135,000 square feet of Mall
GLA and the addition of Nordstrom as an anchor will open in the summer of
1997.
</TABLE>
13
<PAGE>
Mortgage Debt
The following table sets forth certain information regarding the mortgages
encumbering the Taubman Shopping Centers as of December 31, 1996. All mortgage
debt in the table below is nonrecourse to TRG. Biltmore, Hilltop and Stoneridge
are also encumbered by assessment bonds totaling approximately $5.5 million,
which are not included in the table.
<TABLE>
<CAPTION>
Weighted Principal
Average Balance Annual Debt Balance Due Earliest
Centers Consolidated in Interest as of 12/31/96 Service Maturity on Maturity Prepayment
TRG's Financial Statements Rate (000's) (000's) Date (000's) Date
- -------------------------- ---- ------- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Beverly Center 8.36% $146,000 Interest Only 07/15/04 $146,000 30 Days' Notice(1)
Columbus City Center 7.00% 8,175 725 08/01/19 0 At Any Time(2)
Stoneridge Floating(3) 44,897(3) Interest Only (3) 45,000 (3)
Centers Owned by Joint
Ventures/TRG's % Ownership
- --------------------------
Cherry Creek (50%) Floating(4) 130,000 Interest Only 08/01/98 130,000 4 Days' Notice(2)
Fair Oaks (50%) 9.00% 39,865 4,304 12/01/16 0 12/01/97(5)
Lakeside (50%) 6.47% 88,000 Interest Only 12/15/00 88,000 30 Days' Notice(1)
Stamford Town Center (50%) 11.69%(6) 56,291 7,207 12/01/17 0 01/01/00(7)
Twelve Oaks Mall (50%) Floating(8) 49,924 Interest Only 10/15/01 50,000 30 Days' Notice(2)
Westfarms (79%) 7.85% 100,000 Interest Only 07/01/02 100,000 07/01/98(9)
Floating(10) 19,729(10) Interest Only 07/01/02 19,729 4 Days' Notice(2)
Woodfield (50%) Floating(11) 172,000 Interest Only 10/13/98 172,000 30 Days' Notice(2)
Woodland (50%) 8.20% 66,000 Interest Only 05/15/04 66,000 30 Days' Notice(1)
- ------------------------
(1) Debt may be prepaid with a yield maintenance prepayment penalty.
(2) Prepayment can be made without penalty.
(3) Commercial paper facility. The maximum availability under the facility is
$75 million. Commercial paper is generally sold with a 30 day maturity.
(4) The rate is capped at 7.25% through January 1998 and from February 1998 to
maturity at 9.1% including credit spread, based on one month LIBOR.
(5) The mortgage will be prepayable on 12/01/97 (the earliest prepayment date)
with a penalty of 5% of outstanding principal. This penalty declines by
one-half of 1% each year after the earliest prepayment date, reducing to a
minimum prepayment penalty of 1%.
(6) The lender is entitled to contingent interest equal to 20% of annual
applicable receipts in excess of approximately $9.0 million.
(7) The mortgage has a prepayment penalty of 6%, declining by one-half of 1%
for each year after the earliest prepayment date, reducing to a minimum
penalty of 1%, plus an amount equal to ten times the greater of (i)
contingent interest payable for the year immediately preceding prepayment
or (ii) the average amount of contingent interest for the three years
immediately prior to prepayment.
(8) The rate is capped at 9.0% until maturity, including credit spread, based
on one month LIBOR.
(9) If the loan is prepaid between 7/1/98 and 1/3/02 there is a yield
maintenance prepayment penalty.
(10) The loan is a construction facility with a maximum availability of $55
million. The rate on the construction facility is capped at 9.6% until
July 1997, and thereafter until maturity at 9.95%, plus credit spread.
(11) The interest rate on $93.5 million was swapped to maturity at an effective
annual rate of 5.4%. The rate on the balance of the financing, which has
been capped at a maximum annual rate, including credit spread, of 6.5% to
maturity by an interest rate agreement, floats at a rate of three month
LIBOR plus 0.5%.
</TABLE>
For additional information regarding the Taubman Shopping Centers and their
operation, see the responses to Item 1 of this report.
14
<PAGE>
Item 3. LEGAL PROCEEDINGS
Neither TRG, the Consolidated Businesses, nor any of the Joint Ventures is
presently involved in any material litigation nor, to TRG's knowledge, is any
material litigation threatened against TRG or any of their properties. Except
for routine litigation involving present or former tenants of Taubman Shopping
Centers (generally eviction or collection proceedings), substantially all
litigation is covered by TRG's and the Joint Ventures' liability insurance.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
None
15
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for TRG and should be
read in conjunction with the financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this report.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands of dollars, except as noted)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
I.TRG
Revenues:
Minimum rents 81,829 98,102 111,373 130,418 150,577
Percentage rents 4,712 4,323 3,788 5,617 6,073
Expense recoveries 48,881 60,497 68,075 75,293 85,502
Other 19,458 14,185 13,898 17,590 20,577
------- ------- ------- ------- -------
Total Revenues 154,880 177,107 197,134 228,918 262,729
Operating Costs:
Recoverable and other operating 77,854 91,194 100,809 108,908 124,626
Interest:
GM Loan (1) 81,613
Partner Loans interest income (1) (73,233)
Mortgage notes and other 36,041 45,337 47,732 65,858 70,454
Depreciation and amortization 21,317 25,403 27,653 32,393 35,770
------- ------- ------- ------- -------
Total Operating Costs 143,592 161,934 176,194 207,159 230,850
Equity in income before extraordinary
items of unconsolidated Joint Ventures 51,638 54,153 51,263 57,940 52,215
------- ------- ------- ------- -------
Income before extraordinary items 62,926 69,326 72,203 79,699 84,094
Extraordinary items (2) (9,454) (44,731) 16,627 (1,328)
------- ------- ------- ------- -------
Net Income 62,926 59,872 27,472 96,326 82,766
======= ======= ======= ======= =======
Income before extraordinary items per
unit of partnership interest 1,119 1,164 1,255 1,290
Net income per unit of partnership interest 966 443 1,516 1,270
Weighted average number of units of
partnership interest outstanding 61,981 62,028 63,521 65,109
Number of units of partnership interest
outstanding at end of period 61,981 61,981 63,521 63,521 69,998
Distributions paid to beneficiaries (3) 210,460 110,939 113,479 116,225 119,099
II. JOINT VENTURES
Revenues:
Minimum rents 162,148 156,180 157,374 166,244 157,212
Percentage rents 6,806 5,980 4,808 3,629 3,951
Expense recoveries 103,742 99,006 96,711 101,455 95,244
Other (4) 7,645 7,397 9,922 11,474 8,930
Gain on disposition of Bellevue (2)(4) 8,342
------- ------- ------- ------- -------
Total Revenues 280,341 268,563 268,815 291,144 265,337
Operating Costs: (4)
Recoverable and other operating 108,245 99,767 99,161 100,560 94,571
Interest 47,219 43,975 52,278 58,572 53,548
Depreciation and amortization 28,799 24,104 23,511 24,682 22,949
------- ------- ------- ------- -------
Total Operating Costs 184,263 167,846 174,950 183,814 171,068
------- ------- ------- ------- -------
Income before extraordinary items 96,078 100,717 93,865 107,330 94,269
======= ======= ======= ======= =======
TRG share of income before
extraordinary items 51,638 54,153 51,263 57,940 52,215
======= ======= ======= ======= =======
<PAGE>
<CAPTION>
As of December 31
----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands of dollars, except as noted)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
I.TRG
Real estate before accumulated
depreciation 485,208 665,978 843,960 926,207 1,126,873
Total assets 412,195 574,456 739,811 804,356 969,283
Total debt and capital lease
obligation (5) 523,830 695,517 872,158 969,667 1,041,254
16
<PAGE>
Year Ended December 31
----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands of dollars, except as noted)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL INFORMATION:
Consolidated Businesses' contribution 77,026 85,913 96,325 120,010 138,103
Joint Ventures' contribution 90,491 88,801 90,332 96,120 91,708
------- ------- ------- ------- -------
EBITDA (6) 167,517 174,714 186,657 216,130 229,811
Consolidated Businesses' contribution 44,421 45,337 47,732 65,858 70,454
Joint Ventures' contribution 24,025 22,070 26,590 30,396 27,738
------- ------- ------- ------- -------
TRG's Beneficial Interest Expense (6) 68,446 67,407 74,322 96,254 98,192
Consolidated Businesses' contribution 32,605 40,576 48,593 52,123 65,744
Joint Ventures' contribution 66,466 66,731 63,742 65,724 63,970
------- ------- ------- ------- -------
Distributable Cash Flow (6) 99,071 107,307 112,335 117,847 129,714
Consolidated Coverage Ratio (7) 2.5 2.6 2.5 2.2 2.3
Ratio of Earnings to Fixed Charges (8) 1.4 1.9 1.7 1.7 1.7
OPERATING DATA:
Mall tenant sales (9)(10) 2,434,590 2,483,342 2,561,555 2,739,393 2,827,245
Number of shopping centers at end
of period 19 19 20 19 21
Ending Mall GLA in thousands of
square feet (10) 8,827 8,823 9,088 8,996 9,250
Average occupancy (10) 88.1% 86.5% 86.6% 88.0% 87.4%
Ending occupancy (10) 88.6% 88.7% 89.3% 89.4% 88.0%
Leased space(10)(11) 90.6% 90.1% 90.9% 90.6% 89.0%
Average base rent per square foot: (12)
All mall tenants $ 30.61 $ 32.64 $ 34.72 $ 36.33 $ 37.90
Stores closing during year (13) $ 27.91 $ 29.56 $ 30.46 $ 32.96 $ 33.39
Stores opening during year (13) $ 38.16 $ 35.86 $ 41.02 $ 41.27 $ 42.39
Difference between opening and
closing rents $ 10.25 $ 6.30 $ 10.56 $ 8.31 $ 9.00
- ------------------
(1) The GM Loan was repaid and the Partner Loans were distributed in November
1992 as part of TRG's reconfiguration.
(2) In 1995, Bellevue Associates, an unconsolidated Joint Venture, recognized
extraordinary and ordinary gains related to the disposition of Bellevue
Center and the extinguishment of debt. TRG's share of the extraordinary and
ordinary gains were $18.9 million and $5.0 million, respectively. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A)-Results of Operations - Acquisitions and Disposition.
Also included in extraordinary items are extraordinary charges in 1993
through 1996 related to the extinguishment of debt.
(3) 1992 includes distributions totaling $95 million made to certain partners
in connection with TRG's reconfiguration.
(4) Amounts are reported net of intercompany profits.
(5) Includes a capital lease obligation of $14.4 million and $39.8 million at
December 31, 1995 and 1996, respectively. The sum of 100% of the
Consolidated Businesses' debt and TRG's pro rata share of the debt of its
unconsolidated Joint Ventures was $1.346 billion and $1.398 billion
(excluding capital lease obligations of $14.4 million and $42.3 million at
December 31, 1995 and 1996, respectively) at December 31, 1995 and December
31, 1996, respectively.
(6) EBITDA, Beneficial Interest Expense, and Distributable Cash Flow are
defined and discussed in MD& -Liquidity and Capital Resources-Distributions
beginning on page 30. Distributable Cash Flow was restated for 1995 from
the previously reported amount of $119.9 million, to reflect the deduction
of non-real estate depreciation and amortization, as specified in NAREIT's
definition of Funds from Operations. A reconciliation of TRG's net income
to Distributable Cash Flow is presented on page 31. EBITDA and
Distributable Cash Flow do not represent cash flow from operations, as
defined by generally accepted accounting principles, and should not be
considered to be an alternative to net income as a measure of operating
performance or to cash flows as a measure of liquidity.
(7) Defined as EBITDA divided by TRG's Beneficial Interest Expense.
<PAGE>
(8) The Ratio of Earnings to Fixed Charges is computed by dividing fixed
charges into income before extraordinary items, adjusted for Consolidated
Businesses' and TRG's pro rata share of the Joint Ventures' amortization of
interest costs previously capitalized and fixed charges other than
capitalized interest. Fixed charges include Consolidated Businesses' and
TRG's pro rata share of the Joint Ventures' interest costs, the estimated
interest component of rent expense, and certain other items.
(9) Based on reports of sales furnished by mall tenants.
(10) Except for 1994 ending Mall GLA, ending occupancy, and leased space,
statistics for 1994 and prior years do not include the effect of Biltmore
Fashion Park, which was acquired December 21, 1994. Statistics include
Bellevue Center through October 1995. Statistics for 1996 include Paseo
Nuevo for the second half of the year. Statistics for 1996, other than
ending Mall GLA, ending occupancy, and leased space, do not include La
Cumbre Plaza, which was acquired December 17, 1996. Statistics do not
include Memorial City Mall, a development project.
(11) Leased space comprises both occupied space and space that is leased but not
yet occupied.
(12) 1992 and 1993 amounts include 16 centers owned and open prior to January 1,
1989. 1994 amounts include 17 centers owned and open prior to January 1,
1990. 1995 and 1996 amounts include 18 centers owned and open prior to
January 1, 1991.
(13) Information represents average annualized base rents.
</TABLE>
17
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Selected Financial
Data and the Consolidated Financial Statements of The Taubman Realty Group
Limited Partnership (TRG) 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.
Mall Tenant Sales and Center Revenues
Over the long term, the level of mall tenant sales is the single most
important determinant of revenues of the Taubman Shopping Centers because mall
tenants provide over 90% of these revenues and because mall tenant sales
determine the amount of rent, percentage rent, and recoverable expenses
(together, total occupancy costs) that mall tenants can afford to pay. However,
levels of mall tenant sales can be considerably more volatile in the short run
than total occupancy costs.
TRG believes that the ability of tenants to pay occupancy costs and earn
profits over long periods of time increases as sales per square foot increase,
whether through inflation or real growth in customer spending. Because most mall
tenants have certain fixed expenses, the occupancy costs that they can afford to
pay and still be profitable are a higher percentage of sales at higher sales per
square foot.
The following table summarizes occupancy costs, excluding utilities, for mall
tenants as a percentage of mall tenant sales.
1994 1995 1996
---- ---- ----
Mall tenant sales (in thousands) $2,561,555 $2,739,393 $2,827,245
Sales per square foot 335 346 (1) 365
Minimum rents 10.2% 10.4% 10.4%
Percentage rents 0.3 0.3 0.3
Expense recoveries 4.3 4.4 4.5
---- ---- ----
Mall tenant occupancy costs 14.8% 15.1% 15.2%
==== ==== ====
(1) Sales per square foot was $352, excluding Bellevue Center.
18
<PAGE>
Occupancy
Historically, average annual occupancy for TRG as a whole has been within a
narrow band. In the last ten years, average annual occupancy has ranged between
86.5% and 88.8%.
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, excluding renewals, 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 Year Year Closing Rents
-------- ----------- ----------- ------------
Average Average Average Average
Base Annualized Annualized Annualized
Rent Base Rent Base Rent Base Rent
-------- ----------- ----------- ------------
1994 (1) $34.72 $30.46 $41.02 $10.56
1995 (2) $36.33 $32.96 $41.27 $ 8.31
1996 (2) $37.90 $33.39 $42.39 $ 9.00
(1) Includes 17 centers owned and open prior to January 1, 1990.
(2) Includes 18 centers owned and open prior to January 1, 1991.
TRG anticipates that the spread between opening and closing rents will narrow
in 1997. This statistic is difficult to predict in part because TRG's leasing
policies and practices may result in early lease terminations with actual
average closing rents which may vary from the average rent per square foot of
scheduled lease expirations. In addition, the opening or closing of large tenant
spaces, which generally pay a lower rent per square foot, can significantly
change the spread in a given year.
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.
19
<PAGE>
The following table summarizes certain quarterly operating data for TRG's
Managed Businesses for 1996:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
1996 1996 1996 1996 1996
--------------------------------------------------
(in thousands)
Mall tenant sales $591,677 $617,821 $627,791 $989,956 $2,827,245
Revenues 129,764 128,497 129,730 138,250 526,241
Occupancy
Average occupancy 87.8% 87.3% 86.8% 87.6% 87.4%
Ending occupancy 87.7% 87.3% 86.8% 88.0% 88.0%
Leased space 89.5% 88.2% 87.6% 89.0% 89.0%
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 each quarter of 1996:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
1996 1996 1996 1996 1996
--------------------------------------------------
Minimum rents 12.3% 11.7% 11.7% 7.6% 10.4%
Percentage rents 0.3 0.3 0.3 0.3 0.3
Expense recoveries 5.6 5.0 4.6 3.5 4.5
---- ---- ---- ---- ----
Mall tenant occupancy costs 18.2% 17.0% 16.6% 11.4% 15.2%
==== ==== ==== ==== ====
Results of Operations
Equity Transactions
In December 1996, TRG issued 3,048 units of partnership interest to its
managing general partner, Taubman Centers, Inc. (TCO), for the $75 million
proceeds from TCO's December 1996 offering of 5.97 million shares of common
stock. TRG bore all expenses of TCO's offering which have been accounted for as
a reduction of the proceeds from TRG's issuance of units. TRG used the net
proceeds to pay down short term floating rate debt and to acquire La Cumbre
Plaza (see below). Also in December 1996, TCO exchanged common shares for TRG
units of partnership interest newly issued under TRG's incentive option plan.
Additionally in 1996, TRG issued 3,096 units of partnership interest in
connection with the acquisition of the remaining interest in Fairlane Town
Center (see below). As a result of these transactions, at December 31, 1996 TRG
had 69,998 units of partnership interest outstanding.
Acquisitions and Disposition
The following discussion of TRG's acquisitions contains forward-looking
statements regarding the impact of these acquisitions on EBITDA (EBITDA is
defined and described in Liquidity and Capital Resources -- Distributions). The
actual impact may vary based on a variety of factors, including actual
occupancy, rents achieved and operating expenses of the Centers. See Note 3 to
TRG's consolidated financial statements for further discussion of the
acquisitions.
Acquisition of La Cumbre Plaza
- ------------------------------
In December 1996, TRG acquired a 100% leasehold interest in La Cumbre Plaza
(La Cumbre) located in Santa Barbara, California for $22.25 million in cash. The
acquisition was funded with proceeds from an issuance of TRG units of
partnership interest (see Equity Transactions above). The operating results of
La Cumbre have been consolidated in TRG's financial statements from the
acquisition date. The acquisition had an immaterial effect on net income in
1996. The acquisition is expected to add EBITDA in excess of $2.8 million in
1997.
20
<PAGE>
Acquisition of Remaining Interest in Fairlane Town Center
- ---------------------------------------------------------
In July 1996, TRG completed transactions that resulted in the acquisition of
the 75% interest in Fairlane Town Center (Fairlane) previously held by a Joint
Venture Partner. In connection with the transaction, TRG issued to the former
Joint Venture Partner 3,096 units of partnership interest, exchangeable for
approximately 6.1 million shares of TCO's 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. The
operating results of Fairlane have been consolidated in TRG's financial
statements from the acquisition date. Prior to the acquisition date, TRG's
interest in Fairlane was accounted for under the equity method as a Joint
Venture. The acquisition is expected to incrementally add approximately $11
million to EBITDA over the twelve months following the purchase date.
Acquisition of Paseo Nuevo
- --------------------------
In June 1996, TRG acquired a 100% leasehold interest in Paseo Nuevo, located
in Santa Barbara, California, for $37 million in cash. TRG borrowed under its
existing lines of credit to fund the acquisition. The operating results of Paseo
Nuevo have been consolidated in TRG's financial statements from the acquisition
date. The acquisition had an immaterial effect on net income in 1996. The
acquisition is expected to produce EBITDA of over $3.7 million in its first
twelve months following the purchase date.
Disposition of Bellevue Center
- ------------------------------
In December 1995, the bank group holding the $99.5 million nonrecourse
mortgage encumbering Bellevue Center acquired title to the Center through a
nonjudicial foreclosure sale. The mortgage matured on November 1, 1995. TRG
ceased to recognize the results of Bellevue Associates (Bellevue), TRG's 60%
owned Joint Venture that owned the Center, as of November 1, 1995. TRG's share
of Bellevue's net loss from operations for 1994 and the ten months ended October
31, 1995, was $1.1 million and $0.7 million, respectively.
In 1995, TRG recognized an extraordinary gain of $18.9 million on the
extinguishment of debt and an ordinary gain of $5.0 million on the disposition
of the Center, which was based on the carrying value of TRG's investment in
Bellevue.
Bellevue's operations, which included the effect of the below current market
mortgage interest rate of 5.91%, contributed in 1994 and the ten months ended
October 31, 1995, $1.4 million and $1.1 million, respectively, to Distributable
Cash Flow (Distributable Cash Flow is defined and discussed in Liquidity and
Capital Resources -- Distributions).
Memorial City Mall Lease
In November 1996, TRG entered into an agreement to lease Memorial City Mall
(Memorial City), a 1.4 million square foot shopping center located in Houston,
Texas. The lease of this unencumbered property grants TRG the exclusive right to
manage, lease and operate the property. 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. As a development project, Memorial City has been excluded from all
operating statistics in this report, and Memorial City's results of operations
have been presented as a net line item in the following tabular comparison of
TRG's 1996 results of operations to the prior year. Memorial City is expected to
have an immaterial effect on EBITDA and net income during the option period.
21
<PAGE>
Comparison of Fiscal Year 1996 to Fiscal Year 1995
Occupancy and Mall Tenant Sales
Average occupancy in the Taubman Shopping Centers was 87.4% in 1996 versus
88.0% in 1995. Ending occupancy for the Taubman Shopping Centers at December 31,
1996 was 88.0% versus 89.4% at December 31, 1995. Leased space at December 31,
1996 was 89.0% compared to 90.6% at the same date in 1995. Average occupancy for
1996 was somewhat less than the previous year's level but comfortably within
TRG's historic range of average annual occupancy. TRG expects that it will not
achieve year over year increases in average occupancy before the fourth quarter
of 1997.
Total sales for Taubman Shopping Center mall tenants increased in 1996 by 3.2%
to $2.83 billion from $2.74 billion in 1995. Tenant sales per square foot
increased by 5.2% to $365 in 1996 from $346 in 1995. Sales per square foot in
1995 was $352, excluding Bellevue. Mall tenant sales for Centers that were owned
and open for all of 1996 and 1995 (which excludes Paseo Nuevo and Bellevue) were
$2.81 billion, a 3.9% increase over 1995. Sales statistics for the fourth
quarter of 1996 were negatively affected by new competition near certain
Centers. TRG expects that the effect of the competition on sales will moderate
after the anniversary date of the opening of the competing centers.
Occupancy and mall tenant sales statistics for 1996, other than ending
occupancy and leased space, do not include La Cumbre.
22
<PAGE>
Comparison of Fiscal Year 1996 to Fiscal Year 1995
The following table sets forth operating results for TRG's Managed Businesses
for 1995 and 1996, showing the results of the Consolidated Businesses and Joint
Ventures:
<TABLE>
<CAPTION>
1995 1996
----------------------------------------- -----------------------------------------
TRG TOTAL: TRG TOTAL:
CONSOLIDATED JOINT MANAGED CONSOLIDATED JOINT MANAGED
BUSINESSES VENTURES(1) BUSINESSES BUSINESSES(2) VENTURES(1) BUSINESSES
----------------------------------------- -----------------------------------------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Minimum rents 130.4 166.2 296.6 149.2 157.2 306.4
Percentage rents 5.6 3.6 9.2 6.0 4.0 9.9
Expense recoveries 75.3 101.5 176.8 85.1 95.2 180.4
Other 17.6 11.5 29.1 20.6 8.9 29.5
Gain on disposition of Bellevue 8.3 8.3
----- ----- ----- ----- ----- -----
Total revenues 228.9 291.1 520.0 260.9 265.3 526.2
OPERATING COSTS:
Recoverable expenses 62.9 88.2 151.1 71.6 81.8 153.4
Other operating 22.5 12.3 34.8 25.4 12.8 38.2
Management, leasing and
development 3.7 3.7 4.2 4.2
General and administrative 19.8 19.8 21.8 21.8
Interest expense 65.8 58.6 124.4 70.5 53.5 124.0
Depreciation and amortization 32.4 24.7 57.1 35.7 22.9 58.7
----- ----- ----- ----- ----- -----
Total operating costs 207.1 183.8 390.9 229.2 171.1 400.3
Net results of Memorial City(2) 0.2 0.2
----- ----- ----- ----- ----- -----
21.8 107.3 129.1 31.9 94.3 126.2
===== ===== ===== =====
Equity in income before extraordinary
items of Joint Ventures (including
$5.0 million in 1995 related to the
disposition of Bellevue) 57.9 52.2
----- -----
Income before extraordinary items 79.7 84.1
Extraordinary items 16.6 (1.3)
----- -----
NET INCOME 96.3 82.8
===== =====
SUPPLEMENTAL INFORMATION(3)
EBITDA contribution 120.0 96.1 216.1 138.1 91.7 229.8
TRG's Beneficial Interest Expense (65.8) (30.4) (96.2) (70.5) (27.7) (98.2)
Non-real estate depreciation (2.0) (2.0) (1.9) (1.9)
----- ----- ----- ----- ----- -----
Distributable Cash Flow
contribution(4) 52.1 65.7 117.8 65.7 64.0 129.7
===== ===== ===== ===== ===== =====
(1) With the exception of the Supplemental Information, amounts represent 100%
of the Joint Ventures. Amounts are net of intercompany profits.
(2) The results of operations of Memorial City are presented net in this table.
Memorial City's partial year results are not indicative of future results.
TRG expects that Memorial City's net operating income will approximate the
ground rent payable under the lease for the immediate future. (See Results
of Operations -- Memorial City Mall Lease above).
(3) EBITDA, TRG's Beneficial Interest Expense and Distributable Cash Flow are
defined and discussed in Liquidity and Capital Resources -- Distributions.
EBITDA for 1995 does not include the gain related to the disposition of
Bellevue Center.
(4) Distributable Cash Flow contribution for 1995 has been restated to reflect
NAREIT's clarified definition of Funds from Operations (see Liquidity and
Capital Resources -- Distributions).
(5) Amounts in this table may not add due to rounding.
</TABLE>
23
<PAGE>
TRG --Consolidated Businesses
Total revenues for 1996 were $260.9 million, a $32.0 million or 14.0% increase
from 1995. Minimum rents for 1996 increased $18.8 million, of which $8.7 million
was caused by the Fairlane and Paseo Nuevo 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 Nuevo acquisitions and recoveries of
increased maintenance costs and property taxes. The increase in other revenues
of $3.0 million was primarily due to increases in revenue from management,
leasing, and development services, rental fees on exterior advertising signs and
gains on sales of peripheral land, partially offset by a decrease in lease
cancellation revenue.
Total operating costs increased $22.1 million, or 10.7%, to $229.2 million.
The increase in recoverable expenses for 1996 was due to Fairlane and Paseo
Nuevo and to increases in maintenance costs and property taxes, including those
related to the expansion at Short Hills. Other operating expenses increased due
to Fairlane and Paseo Nuevo, and an increase in the charge to operations for
development pre-construction reserves. General and administrative expenses
increased $2.0 million due primarily to increases in compensation, including
costs of the new long-term performance compensation plan and the allocation of
internal acquisition costs, travel, and professional fees in 1996, offset by a
decrease resulting from a $0.8 million charge in 1995 for severance and
termination benefits. Interest expense increased $4.7 million due primarily to
an increase in debt levels, including debt used to finance the acquisition of
Paseo Nuevo 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 Nuevo and the expansions
at Short Hills and Meadowood.
Revenues and expenses as presented in the preceding table differ from the
amounts shown in TRG's consolidated income statements by the amounts
representing Memorial City's revenues and expenses, which are presented in the
preceding table as a net amount.
Joint Ventures
Total revenues for 1996 were $265.3 million, a $25.8 million or 8.9% decrease
from 1995, primarily representing a $23.8 million decrease caused by the change
in Fairlane from a Joint Venture to a Consolidated Business and by the November
1995 disposition of Bellevue. 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 $12.7 million, or 6.9%, to $171.1 million
for 1996, representing a $19.9 million decrease due to Fairlane and Bellevue,
offset by increases at other Centers. Recoverable expenses decreased $6.4
million due to Fairlane and Bellevue, offset by increases in maintenance costs
and property taxes. Other operating costs increased $0.5 million reflecting
increases in property management costs, promotion and advertising costs, bad
debt expense 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 $5.1 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 of the unconsolidated Joint Ventures (Note 4 to TRG's
financial statements) by the amount of intercompany profit.
24
<PAGE>
As a result of the foregoing, income before extraordinary items of the Joint
Ventures was $94.3 million in 1996, a decrease of 12.1% from 1995. TRG's equity
in income before extraordinary items of the Joint Ventures decreased $5.7
million, or 9.8%, to $52.2 million for 1996.
Net Income
As a result of the foregoing, TRG's income before extraordinary items
increased by $4.4 million, or 5.5%, to $84.1 million for 1996. In 1996, TRG
recognized a $(1.3) million extraordinary charge related to the prepayment of
Fairlane's debt. In 1995, TRG recognized an $18.9 million extraordinary gain
related to the disposition of Bellevue and $(2.2) million in extraordinary
charges related to the prepayment of debt at TRG and at one of its Joint
Ventures. Net income for 1996 was $82.8 million, compared to $96.3 million in
1995.
Comparison of Fiscal Year 1995 to Fiscal Year 1994
Occupancy and Mall Tenant Sales
Average occupancy in the Taubman Shopping Centers was 88.0% in 1995 versus
86.6% in 1994. Ending occupancy for the Taubman Shopping Centers at December 31,
1995 was 89.4% versus 89.3% at December 31, 1994. Leased space at December 31,
1995 was 90.6% compared to 90.9% at the same date in 1994.
Occupancy rates increased in part due to a change in the method of calculating
occupancy statistics to be consistent with International Council of Shopping
Centers guidelines. The change increased reported average occupancy for the year
by approximately one percent. The acquisition of Biltmore also contributed to
the increases.
Total sales for Taubman Shopping Centers mall tenants increased in 1995 by
6.9% to $2.74 billion from $2.56 billion in 1994. Tenant sales per square foot
increased by 3.3% to $346 in 1995 from $335 in 1994. Tenant sales per square
foot reached $352 in 1995, excluding Bellevue. Mall tenant sales for Centers
that were owned and open for all of 1995 and 1994 (which excludes Bellevue and
Biltmore) were $2.61 billion, a 4.0% increase over 1994.
25
<PAGE>
Comparison of Fiscal Year 1995 to Fiscal Year 1994
The following table sets forth operating results for TRG's Managed Businesses
for 1994 and 1995, showing the results of the Consolidated Businesses and Joint
Ventures:
<TABLE>
<CAPTION>
1994 1995
----------------------------------------- -----------------------------------------
TRG TOTAL: TRG TOTAL:
CONSOLIDATED JOINT MANAGED CONSOLIDATED JOINT MANAGED
BUSINESSES VENTURES(1) BUSINESSES BUSINESSES VENTURES(1) BUSINESSES
----------------------------------------- -----------------------------------------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Minimum rents 111.3 157.4 268.7 130.4 166.2 296.6
Percentage rents 3.8 4.8 8.6 5.6 3.6 9.2
Expense recoveries 68.1 96.7 164.8 75.3 101.5 176.8
Other 13.9 9.9 23.8 17.6 11.5 29.1
Gain on disposition of Bellevue 8.3 8.3
----- ----- ----- ----- ----- -----
Total revenues 197.1 268.8 465.9 228.9 291.1 520.0
OPERATING COSTS:
Recoverable expenses 58.4 83.5 141.9 62.9 88.2 151.1
Other operating 21.0 15.6 36.6 22.5 12.3 34.8
Management, leasing and
development 3.5 3.5 3.7 3.7
General and administrative 17.9 17.9 19.8 19.8
Interest expense 47.7 52.3 100.0 65.8 58.6 124.4
Depreciation and amortization 27.7 23.5 51.2 32.4 24.7 57.1
----- ----- ----- ----- ----- -----
Total operating costs 176.2 174.9 351.1 207.1 183.8 390.9
20.9 93.9 114.8 21.8 107.3 129.1
===== ===== ===== =====
Equity in income before extraordinary
items of Joint Ventures (including
$5.0 million in 1995 related to the
disposition of Bellevue) 51.3 57.9
----- -----
Income before extraordinary items 72.2 79.7
Extraordinary items (44.7) 16.6
----- -----
NET INCOME 27.5 96.3
===== =====
SUPPLEMENTAL INFORMATION(2)
EBITDA contribution 96.3 90.3 186.6 120.0 96.1 216.1
TRG's Beneficial Interest Expense (47.7) (26.6) (74.3) (65.8) (30.4) (96.2)
Non-real estate depreciation (2.0) (2.0)
----- ----- ----- ----- ----- -----
Distributable Cash Flow
contribution(3) 48.6 63.7 112.3 52.1 65.7 117.8
===== ===== ===== ===== ===== =====
(1) With the exception of the Supplemental Information, amounts represent 100%
of the Joint Ventures. Amounts 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.
EBITDA for 1995 does not include the gain related to the disposition of
Bellevue Center.
(3) Distributable Cash Flow contribution for 1995 has been restated to reflect
NAREIT's clarified definition of Funds from Operations (see Liquidity and
Capital Resources -- Distributions).
(4) Amounts in this table may not add due to rounding.
</TABLE>
26
<PAGE>
TRG --Consolidated Businesses
- -----------------------------
In December 1994, TRG acquired Biltmore, a regional shopping center located in
Phoenix, Arizona, for $81.5 million in cash and 1,540 TRG units of partnership
interest (exchangeable for approximately three million shares of TCO's common
stock). TRG borrowed $81.5 million to fund the cash portion of the purchase
price. The operating results of Biltmore have been consolidated in TRG's
financial statements from the acquisition date. The acquisition had an
immaterial effect on net income in 1994 and 1995.
Total revenues for 1995 were $228.9 million, a $31.8 million or 16.1% increase
from 1994, of which $13.7 million was due to Biltmore. Minimum rents for 1995
increased $19.1 million, of which $7.8 million was due to Biltmore.
Additionally, minimum rents increased because of tenant rollovers and the
expansion at Short Hills. The increase in percentage rent was due primarily to
Biltmore. The increase in expense recoveries was caused by higher recoverable
expenses and Biltmore. Other income increased primarily due to lease
cancellation income, interest income, and insurance recoveries.
Total operating costs increased by $30.9 million or 17.5%, to $207.1 million
for 1995, of which $4.7 million was due to Biltmore's operating expenses,
excluding interest and depreciation and amortization. The $4.5 million increase
in recoverable expenses for 1995 was primarily due to Biltmore and increases in
property taxes and maintenance costs. General and administrative expenses
increased by $1.9 million, primarily due to a $0.8 million charge for severance
and termination benefits and increases in professional fees and office rent.
Interest expense for 1995 increased by $18.1 million primarily due to an
increase in debt levels, including debt used to finance the acquisition of
Biltmore and capital expenditures, and to increases in interest rates.
Depreciation and amortization also increased, primarily due to the acquisition
of Biltmore and the expansion at Short Hills.
Joint Ventures
- --------------
Total revenues for 1995 were $291.1 million, a $22.3 million or 8.3% increase
from 1994, of which $8.3 million was due to a gain on the disposition of
Bellevue. The increase in minimum rents was caused by tenant rollovers and the
expansions at Woodfield and Cherry Creek, offset by an approximately $1.4
million decrease due to Bellevue. The increase in expense recoveries was due to
the increase in recoverable expenses. Other income increased primarily due to
lease cancellation income and interest income. The $8.3 million gain related to
the disposition of Bellevue represents the difference between the fair value and
the carrying value of the Center (net of accumulated intercompany profit). As a
result, this amount differs from the amount included in revenues in the
combined, summarized financial statements of the unconsolidated Joint Ventures
(Note 4 to TRG's financial statements).
Total operating costs increased by $8.9 million, or 5.1%, to $183.8 million
for 1995. Recoverable expenses increased $4.7 million, primarily due to
increases in property taxes and maintenance costs. Interest expense increased
$6.3 million, primarily due to increased debt levels and interest rates.
Operating costs as presented in the preceding table differ from the amounts
shown in the combined, summarized financial statements of the unconsolidated
Joint Ventures (Note 4 to TRG's financial statements) by the amount of
intercompany profit.
As a result of the foregoing, income before extraordinary items of the Joint
Ventures was $107.3 million in 1995, an increase of 14.3% from 1994. TRG's
equity in income before extraordinary items of the Joint Ventures was $57.9
million in 1995, an increase of 12.9% from 1994.
27
<PAGE>
Net Income
- ----------
As a result of the foregoing, TRG's income before extraordinary items for 1995
increased by $7.5 million, or 10.4%, to $79.7 million. In 1995, TRG recognized
an $18.9 million extraordinary gain related to the extinguishment of debt at
Bellevue and $(2.2) million in extraordinary charges related to the prepayment
of debt at TRG and at one of its Joint Ventures. TRG also recognized $(44.7)
million in extraordinary charges in 1994, consisting primarily of prepayment
penalties, related to the extinguishment of debt. Net income in 1995 was $96.3
million, compared to $27.5 million in 1994.
28
<PAGE>
Liquidity and Capital Resources
As of December 31, 1996, TRG had a cash balance of $7.9 million. TRG had
available for general partnership purposes an unsecured revolving credit
facility of $200 million, which was scheduled to expire in May 1998. In March
1997, TRG completed the renegotiation of terms increasing the facility to $300
million, reducing the current contractual interest rate by 60 basis points to
LIBOR plus 90 basis points and extending the maturity until March 2000. Included
in the credit facility is a competitive bid option program which allows TRG to
hold auctions, among the banks participating in the facility, for short term
borrowings of up to $150 million. There were no borrowings under this facility
at December 31, 1996. TRG also has available an unsecured bank line of credit of
up to $30 million with borrowings of $10.1 million at December 31, 1996. This
line expires in August 1998. TRG also has available a secured commercial paper
facility of up to $75 million, with borrowings of $45 million at December 31,
1996. Commercial paper is generally sold with a 30 day maturity. This facility
is supported by a line of credit facility, which is renewable quarterly for a
twelve month period.
Proceeds from short term borrowings of $121.2 million provided funding for
1996 compared to $67.7 million in 1995. The proceeds in 1996 were used primarily
for the $37 million acquisition in June 1996 of Paseo Nuevo and the $65.6
million acquisition in July 1996 of the 75% interest in Fairlane previously held
by TRG's Joint Venture Partner, and related acquisition costs. Proceeds of $65.6
million from the issuance of TRG units of partnership interest to the former
Joint Venture Partner were used to repay short term borrowings. Also during
1996, proceeds of $81.4 million from the issuance of TRG units of partnership
interest were used to pay down short term floating rate debt and for the $22.3
million acquisition of La Cumbre (see Results of Operations - Equity
Transactions and Acquisitions and Disposition).
During 1996, TRG issued $154 million of unsecured notes under its medium-term
note program compared to $133.4 million in 1995. In 1996, the notes were used to
pay down TRG's floating rate bank lines as well as to pay off the $34.6 million
mortgage on Fairlane and the related prepayment penalty of approximately $1.2
million, leaving the wholly owned property unencumbered. In 1995, the notes were
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.
TRG has issued a total of $287 million of medium-term notes since the program's
inception in 1995 under TRG's $500 million shelf registration statement.
Scheduled principal payments on installment notes were $793 thousand and $897
thousand in 1996 and 1995, respectively.
At December 31, 1996, TRG's debt and its beneficial interest in the debt of
its Joint Ventures (excluding $42.3 million of capital lease obligations)
totaled $1,398.4 million. As shown in the following table, there was no unhedged
floating rate debt at December 31, 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 0.37% of the effective rate of interest on
TRG's beneficial interest in debt at December 31, 1996. Included in TRG's
beneficial interest in debt at December 31, 1996 is debt used to fund
development and expansion costs. TRG's beneficial interest in assets on which
interest is being capitalized totaled $157.0 million as of December 31, 1996.
TRG's beneficial interest in capitalized interest was $8.9 million for 1996.
29
<PAGE>
Beneficial Interest in Debt
------------------------------------------------
Amount Interest LIBOR Frequency LIBOR
(In millions Rate at Cap of Rate at
of dollars) 12/31/96 Rate Resets 12/31/96
---------- -------- ---- ------ ---------
Total beneficial interest
in fixed rate debt 1,113.2(1) 7.55%(2)
Floating rate debt hedged via
interest rate caps:
Through July 1997 31.6(3) 6.77 (2) 9.60% Monthly 5.53%
Through January 1998 100.0 6.17 (2) 6.50 Monthly 5.53
Through January 1998 65.0 6.31 6.50 Monthly 5.53
Through July 1998 24.3 6.17 (2) 8.35 Monthly 5.53
Through October 1998 39.3 6.06 6.00 Three Months 5.56
Through October 2001 25.0 6.06 8.55 Monthly 5.53
-------
Total beneficial interest
in debt 1,398.4 7.29 (2)
=======
(1) Includes TRG's $100 million floating rate notes due in November 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
July 1997 through July 2002 at a one month LIBOR cap rate of 9.95%.
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.
In January 1997, Arizona Mills, L.L.C. closed on a secured $145 million
construction facility maturing in 2002. The loan bears interest at one month
LIBOR plus 1.3%. The loan is hedged until maturity at a one month LIBOR cap rate
of 9.5%. The payment of the principal and interest is recourse to each of the
owners of Arizona Mills, L.L.C. to the extent of their ownership percentage. TRG
owns a 37% interest in Arizona Mills, L.L.C.
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.
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 1995 has been restated in the
table below to reflect the clarified definition.
30
<PAGE>
The following table summarizes TRG's Distributable Cash Flow for the years
ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1995 December 31, 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)(3) 96.3 82.8
Gain on disposition of Bellevue(3) (5.0)
Extraordinary items(3)(4) (16.6) 1.3
Depreciation and amortization(4)(5) 45.2 47.5
TRG's Beneficial Interest Expense(4) 96.2 98.2
----- -----
EBITDA 120.0 96.1 216.1 138.1 91.7 229.8
TRG's Beneficial Interest Expense(4) (65.8) (30.4) (96.2) (70.5) (27.7) (98.2)
Non-real estate depreciation (2.0) (2.0) (1.9) (1.9)
----- ----- ----- ----- ----- -----
Distributable Cash Flow(6) 52.1 65.7 117.8 65.7 64.0 129.7
===== ===== ===== ===== ===== =====
(1) Amounts represent TRG's beneficial interest in the operations of its Joint
Ventures.
(2) Includes TRG's share of gains on peripheral land sales of $1.7 million and
$1.0 million in 1995 and 1996, respectively.
(3) In 1995, TRG recognized an ordinary gain of $5.0 million and an
extraordinary gain of $18.9 million related to the disposition of Bellevue.
Extraordinary charges related to the extinguishment of debt, primarily
consisting of prepayment penalties, were recorded in 1995 and 1996.
(4) Amounts represent TRG's and TRG's beneficial interest in the Joint
Ventures' extraordinary items, depreciation and amortization, and interest
expense.
(5) Includes $3.2 million and $3.3 million of amortization of mall tenant
allowances in 1995 and 1996, respectively.
(6) Distributable Cash Flow and Funds from Operations have been restated from
the previously reported amounts for 1995 of $119.9 million and $41.5
million, respectively.
(7) Amounts may not add due to rounding.
</TABLE>
For 1996, EBITDA and Distributable Cash Flow were $229.8 million and $129.7
million, compared to $216.1 million and $117.8 million, as restated, in 1995.
TRG distributed $119.1 million to its partners in 1996, compared to $116.2
million in 1995.
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 TRG 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.
31
<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 Liquidity and Capital Resources -- Cash Tender Agreement 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. Capital spending by the Managed Businesses not
recovered from tenants is summarized in the following table:
1995
--------------------------------------------
Consolidated Joint TRG's Share of
Businesses Ventures(1) Joint Ventures(1)
--------------------------------------------
(in millions of dollars)
Development, renovation, and expansion:
Existing centers 33.2 41.7 25.4
New centers 15.0
Pre-construction development activities,
net of charge to operations 9.8
Mall tenant allowances 3.5 1.9 1.0
Corporate office improvements 1.5
Other 0.3 0.6 0.2
---- ---- ----
Total 63.3 44.2 26.6
==== ==== ====
1996
--------------------------------------------
Consolidated Joint TRG's Share of
Businesses Ventures(1) Joint Ventures(1)
--------------------------------------------
(in millions of dollars)
Development, renovation, and expansion:
Existing centers 5.2 40.3 30.5
New centers 6.6 66.7 27.2
Pre-construction development activities,
net of charge to operations 4.1
Mall tenant allowances 4.5 5.2 2.5
Corporate office improvements 1.5
Other 2.3 1.4 0.8
---- ----- ----
Total 24.2 113.6 61.0
==== ===== ====
(1) Costs are net of intercompany profits
In 1995 and 1996, TRG's share of mall tenant allowances per square foot leased
during the year, excluding expansion space and new developments, was $7.72 and
$9.96, respectively. In addition, TRG's share of its Consolidated Businesses'
and Joint Ventures' capitalized leasing costs, excluding new developments, was
$6.7 million, or $10.40 per square foot leased during the year in 1995, and $8.5
million or $10.47 per square foot leased during the year in 1996.
An expansion at Westfarms, which will open in the summer of 1997, will add
approximately 135,000 square feet of mall GLA and Nordstrom as an anchor.
Approximately 75% of this space has been leased or has leases out for
signatures. The expansion is expected to cost approximately $100 million. An
expansion at Cherry Creek will include a newly constructed Lord & Taylor store,
which will open in the fall of 1997, and the addition of 132,000 square feet of
mall GLA, which will open in the fall of 1998. The expansion is expected to cost
approximately $50 million. TRG has a 79% and 50% ownership interest in Westfarms
and Cherry Creek, respectively.
32
<PAGE>
Additionally, a project is now under construction to add over 30,000 square
feet of new mall tenant space in the building 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. The project is expected to cost between
$5 and $10 million.
The Mall at Tuttle Crossing, a 980,000 square foot Center in northwest
Columbus, Ohio, will be anchored by Marshall Field's, Lazarus, JCPenney and
Sears. TRG is leasing 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 beginning in 1999. Substantially all of the Center's mall GLA
has been leased. The Center is expected to cost approximately $115 million,
including capital lease assets of $55 million.
Arizona Mills, an enclosed value super-regional mall in Tempe, Arizona, is
opening in November 1997. TRG has a 37% ownership interest in Arizona Mills. The
1.2 million square foot value-oriented mall is expected to cost approximately
$180 million.
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 and
is projected to cost approximately $150 million.
In 1996, TRG entered into an agreement to lease Memorial City Mall, 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. TRG has the option to
terminate the lease after the third full year by paying $2 million to the
lessor. TRG is using this option period to evaluate the redevelopment
opportunities of the Center. Under the terms of the lease, TRG has agreed to
invest a minimum of $3 million during the three year option period. If the
redevelopment proceeds, TRG is required to invest an additional $22 million in
property expenditures not recoverable from tenants during the first 10 years of
the lease term.
Assuming no acquisitions, planned capital spending by the Managed Businesses
not recovered from tenants for 1997 is summarized in the following table:
1997
--------------------------------------------
Consolidated Joint TRG's Share of
Businesses Ventures(1) Joint Ventures(1)
--------------------------------------------
(in millions of dollars)
Development, renovation, and expansion 61.5 (2) 225.1 (3) 120.3
Mall tenant allowances 5.8 3.7 2.2
Pre-construction development and
other 10.7 (4) 1.0 0.6
---- ----- -----
Total 78.0 229.8 123.1
==== ===== =====
(1) Costs are net of intercompany profits.
(2) Includes costs related to leasehold improvements at The Mall at Tuttle
Crossing; excludes capital lease assets (see Note 9 to TRG's consolidated
financial statements).
(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.
Also includes the costs to evaluate the redevelopment of Memorial City and
required property expenditures under the terms of the lease.
33
<PAGE>
TRG's share of costs for development and expansion projects scheduled to be
completed in 1998 and 1999 is anticipated to be as much as $60 million in 1998
and $19 million in 1999.
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 the 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.
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
arranging 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
TCO units of partnership interest in TRG (provided that the aggregate value is
at least $50 million) and cause TCO to purchase the tendered interests at a
purchase price based on a market valuation of TCO 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 TCO 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.
34
<PAGE>
Item 8. FINANCIAL STATEMENTS
The Financial Statements of The Taubman Realty Group Limited Partnership, and
the Independent Auditors' Reports thereon are filed pursuant to this Item 8 and
are included in this report at Item 14.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The material appearing in the TCO Proxy Statement under the caption
"Management--Directors and Executive Officers" is incorporated by reference as
part of the information requested by this item. TRG is managed by a Partnership
Committee consisting of 13 members, 10 of whom also serve as Directors of TCO,
TRG's Managing General Partner. One additional member has been nominated to
serve as a Director. The following is information concerning members of TRG's
Partnership Committee that is not contained in the TCO Proxy Statement.
Joseph F. Azrack, 49, is a GM Trusts Designee and a member of the Executive
Committee. Mr. Azrack is President and Chief Executive Officer of AEW Capital
Management, L.P., a Boston based real estate investment advisory firm. He is
also a member of that firm's Board of Directors. Mr. Azrack is a Director of
LaQuinta Inns and; Evans Withycombe Residential, Inc., which is engaged in the
investment and development of apartments; and UDC Homes, Inc., a homebuilder
active in Arizona and California. He is past Chairman of the Pension Real Estate
Association. Mr. Azrack is also a member of the National Realty Committee, a
Trustee of the Urban Land Institute, and past adjunct professor of Real Estate
Finance at Columbia University's Graduate School of Business Administration.
Thomas H. Nolan, Jr., 39, is a GM Trusts Designee and a Director of AEW
Capital Management, L.P. He is a Director of Portfolio Management and is
responsible for overseeing the management of large, multi-asset investment
portfolios. Mr. Nolan joined AEW in 1984. Mr. Nolan is also a Director of
Bedford Property Investors, Inc. and UDC Homes, Inc., a homebuilder active in
Arizona and California. He is a Certified Public Accountant.
Item 11. EXECUTIVE COMPENSATION
The information required is hereby incorporated by reference to the material
appearing in the TCO Proxy Statement under the caption "Management--Compensation
of Executive Officers" and "--Compensation of Directors".
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference to
the material appearing in the table and related footnotes of the TCO Proxy
Statement under the caption "Security Ownership of Certain Beneficial Owners and
Management". TCO owns 25,676 Units of Partnership interest, representing 36.68%
of TRG. The members of the Partnership Committee not listed in the table
incorporated by reference do not own any interests in TRG.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information requested by this item is hereby incorporated by reference to
the material appearing in the TCO Proxy Statement under the caption
"Management--Certain Transactions" and "--Certain Employment Arrangements".
35
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
14(a)(1) The following financial statements of The Taubman Realty Group
Limited Partnership and the Independent Auditors' Report thereon are
filed with this report:
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
Independent Auditors' Report ..................................F-2
Consolidated Balance Sheet as of December 31, 1995 and 1996....F-3
Consolidated Statement of Operations for the years ended
December 31, 1994, 1995 and 1996.............................F-4
Consolidated Statement of Accumulated Deficiency in Assets for
the years ended December 31, 1994, 1995 and 1996.............F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1994, 1995 and 1996.............................F-6
Notes to Consolidated Financial Statements.....................F-7
14(a)(2) The following is a list of the financial statement schedules
required by Item 14(d).
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
Schedule II - Valuation and Qualifying Accounts...............F-25
Schedule III - Real Estate and Accumulated Depreciation.......F-26
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED
PARTNERSHIP
Independent Auditors' Report..................................F-29
Combined Balance Sheet as of December 31, 1995 and 1996.......F-30
Combined Statement of Operations for the years ended
December 31, 1994, 1995 and 1996............................F-31
Combined Statement of Accumulated Deficiency in Assets for the
three years ended December 31, 1994, 1995 and 1996..........F-32
Combined Statement of Cash Flows for the years ended
December 31, 1994, 1995 and 1996............................F-33
Notes to Combined Financial Statements........................F-34
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED
PARTNERSHIP
Schedule II - Valuation and Qualifying Accounts...............F-42
Schedule III - Real Estate and Accumulated Depreciation.......F-43
36
<PAGE>
14(a)(3)
* 2(a) -- Purchase and Sale Agreement By and Between The Pacific Telesis
Group Master Pension Trust and The Taubman Realty Group Limited
Partnership, dated July 17, 1996 (without exhibits or schedules,
which will be supplementally provided to the Securities and
Exchange Commission upon its request) (incorporated herein by
reference to Exhibit 2(a) filed with the Registrant's Current
Report on Form 8-K dated July 19, 1996).
* 2(b) -- Subscription Agreement By and Between The Pacific Telesis
Group Master Pension Trust and The Taubman Realty Group Limited
Partnership dated July 18, 1996 (without exhibits or schedules,
which will be supplementally provided to the Securities and
Exchange Commission upon its request) (incorporated herein by
reference to Exhibit 2(b) filed with the Registrant's Current
Report on Form 8-K dated July 19, 1996).
3(a) -- The Amended and Restated Agreement of Limited Partnership of The
Taubman Realty Group Limited Partnership (excluding exhibits
filed separately) (incorporated herein by reference to Exhibit
3(a) filed with the Registrant's Registration Statement on Form
S-4 (File No. 33-73988) (the "Registration Statement")).
4(a) -- Amended and Restated Indenture dated as of March 4, 1994 between
The Taubman Realty Group Limited Partnership and Chemical Bank,
as Trustee (incorporated herein by reference to Exhibit 4(a)
filed with Amendment No. 1 to the Registration Statement).
4(b) -- Officers' Certificate designating the terms of the 7% Notes due
2003 (incorporated herein by reference to Exhibit 4(b) filed with
Amendment No. 1 to the Registration Statement).
4(c) -- Officers' Certificate designating the terms of the 8% Notes
due 1999 (incorporated herein by reference to Exhibit 4(f) filed
with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 (the "1994 Second Quarter Form
10-Q")).
4(d) -- Indenture dated as of July 22, 1994 among Beverly Finance Corp.,
La Cienega Associates, the Borrower, and Morgan Guaranty Trust
Company of New York, as Trustee (incorporated herein by reference
to Exhibit 4(g) filed with the 1994 Second Quarter Form 10-Q).
4(e) -- Deed of Trust, with assignment of Rents, Security Agreement
and Fixture Filing, dated as of July 22, 1994, from La Cienega
Associates, Grantor, to Commonwealth Land Title Company, Trustee,
for the benefit of Morgan Guaranty Trust Company of New York, as
Trustee, Beneficiary (incorporated herein by reference to Exhibit
4(h) filed with the 1994 Second Quarter Form 10-Q).
37
<PAGE>
4(f) -- Revolving Loan Agreement dated as of April 29, 1994, among The
Taubman Realty Group Limited Partnership, as Borrower, Union Bank
of Switzerland, (New York Branch), as Bank and Union Bank of
Switzerland (New York Branch), as Administrative Agent (the
"Revolving Loan Agreement") (incorporated herein by reference to
Exhibit 4(i) filed with the 1994 Second Quarter Form 10-Q), as
amended by an Amendment to the Revolving Loan Agreement dated
August 10, 1994 (incorporated herein by reference to Exhibit 4(g)
filed with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994 (the "1994 Third Quarter Form
10-Q")) and as modified by a Letter Agreement modifying the
Revolving Loan Agreement dated June 20, 1995 (incorporated herein
by reference to exhibit 4(g) filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995
(the "1995 Second Quarter Form 10-Q")).
4(g) -- Officers' Certificate designating the terms of the Floating
Rate Notes due 1997 (incorporated herein by reference to Exhibit
4(h) filed with the 1994 Third Quarter Form 10-Q).
4(h) -- Medium-Term Notes due June 15, 2002 (incorporated herein by
reference to Exhibit 4(i) filed with the 1995 Second Quarter Form
10-Q).
** 10(a) -- The Taubman Realty Group Limited Partnership 1992 Incentive
Option Plan (incorporated herein by reference to Exhibit 10(a)
filed with the Registration Statement).
10(b) -- Corporate Services Agreement between Taubman Centers, Inc. and
The Taubman Company Limited Partnership (the "Manager")
(incorporated herein by reference to Exhibit 10(b) filed with the
Registration Statement).
10(c) -- Master Services Agreement between The Taubman Realty Group
Limited Partnership and the Manager (incorporated herein by
reference to Exhibit 10(c) filed with the Registration
Statement).
** 10(d) -- Financial Performance Incentive Plan (incorporated herein by
reference to Exhibit 10(d) filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 ("1994
Form 10-K")).
** 10(e) -- Supplemental Retirement Savings Plan (incorporated herein by
reference to Exhibit 10(e) filed with the 1994 Form 10-K).
** 10(f) -- The Taubman Company Long-Term Performance Compensation Plan
(incorporated herein by reference to Exhibit 10(g) filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
38
<PAGE>
12 -- Statement Re: Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of The Taubman Realty Group Limited Partnership.
23 -- Consent of Deloitte & Touche LLP.
24 -- Powers of Attorney.
27 -- Financial Data Schedule.
* Certain portions of this document have been omitted and separately filed
with the Securities and Exchange Commission with a request for confidential
treatment.
** A management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.
39
<PAGE>
14(b) Current Reports on Form 8-K.
TRG voluntarily filed a current report on Form 8-K dated May 14, 1996 to
report that TRG had signed an agreement to acquire Paseo Nuevo shopping
center, which is located in Santa Barbara, California.
TRG voluntarily filed a current report on Form 8-K dated June 27, 1996 to
report the completion of TRG's acquisition of Paseo Nuevo.
TRG filed a current report of 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).
14(c) The list of exhibits filed with this report is set forth in response to
Item 14(a)(3). The required exhibit index has been filed with the
exhibits.
14(d) The financial statement schedules of The Taubman Realty Group Limited
Partnership and the financial statements and the financial statement
schedules of the Unconsolidated Joint Ventures of The Taubman Realty Group
Limited Partnership listed at Item 14(a)(2) are filed pursuant to this
Item 14(d).
40
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1996 AND FOR
EACH OF THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners
The Taubman Realty Group Limited Partnership
We have audited the accompanying consolidated balance sheets of The Taubman
Realty Group Limited Partnership and subsidiaries as of December 31, 1995 and
1996, and the related consolidated statements of operations, accumulated
deficiency in assets, and cash flows for each of the three years in the period
ended December 31, 1996. Our audits also included the financial statement
schedules listed in the Index at Item 14. These financial statements and
financial statement schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Taubman Realty Group Limited
Partnership and subsidiaries as of December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan
February 17, 1997
F-2
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31
----------------------
1995 1996
---- ----
Assets:
Properties (Notes 5 and 8) $ 926,207 $1,126,873
Accumulated depreciation and amortization 200,440 234,030
---------- ----------
$ 725,767 $ 892,843
Cash and cash equivalents 16,836 7,902
Accounts and notes receivable, less allowance
for doubtful accounts of $381 and $393
in 1995 and 1996 14,192 20,751
Accounts receivable from related parties (Note 10) 5,234 6,293
Deferred charges and other assets (Notes 6 and 9) 42,327 41,494
---------- ----------
$ 804,356 $ 969,283
========== ==========
Liabilities:
Unsecured notes payable (Note 8) $ 632,575 $ 786,705
Mortgage notes payable (Note 8) 160,496 159,703
Other notes payable (Note 8) 162,178 54,997
Capital lease obligation (Note 9) 14,418 39,849
Accounts payable and other liabilities (Note 7) 82,603 84,505
Distributions in excess of net income of
unconsolidated Joint Ventures (Note 4) 154,933 135,662
---------- ----------
$1,207,203 $1,261,421
Commitments and Contingencies
(Notes 9, 11, 13 and 15)
Accumulated Deficiency in Assets (402,847) (292,138)
---------- ----------
$ 804,356 $ 969,283
========== ==========
See notes to financial statements.
F-3
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except unit data)
Year Ended December 31
-------------------------------
1994 1995 1996
---- ---- ----
Revenues:
Minimum rents $111,373 $130,418 $150,577
Percentage rents 3,788 5,617 6,073
Expense recoveries 68,075 75,293 85,502
Other 8,981 12,227 13,044
Revenue from management, leasing and
development services (Note 10) 4,917 5,363 7,533
-------- -------- --------
$197,134 $228,918 $262,729
-------- -------- --------
Operating Costs:
Recoverable expenses $ 58,355 $ 62,910 $ 72,093
Other operating 20,974 22,512 26,518
Management, leasing and
development services 3,538 3,696 4,212
General and administrative 17,942 19,790 21,803
Interest expense 47,732 65,858 70,454
Depreciation and amortization 27,653 32,393 35,770
-------- -------- --------
$176,194 $207,159 $230,850
-------- -------- --------
Income before equity in income
of unconsolidated Joint Ventures
and before extraordinary items $ 20,940 $ 21,759 $ 31,879
Equity in income before extraordinary
items of unconsolidated Joint Ventures
(including $5,005 in 1995, related to
the disposition of Bellevue) (Note 4) 51,263 57,940 52,215
-------- -------- --------
Income before extraordinary items $ 72,203 $ 79,699 $ 84,094
Extraordinary items (Notes 4 and 8) (44,731) 16,627 (1,328)
-------- -------- --------
Net Income $ 27,472 $ 96,326 $ 82,766
======== ======== ========
Allocation of net income:
General Partners $ 22,489 $ 77,077 $ 64,804
Limited Partners 4,983 19,249 17,962
-------- -------- --------
$ 27,472 $ 96,326 $ 82,766
======== ======== ========
Earnings per Unit of Partnership
Interest (Note 1):
Income before extraordinary items $ 1,164 $ 1,255 $ 1,290
Extraordinary items (721) 261 (20)
-------- -------- --------
Net Income $ 443 $ 1,516 $ 1,270
======== ======== ========
Weighted Average Number of Units of
Partnership Interest Outstanding 62,028 63,521 65,109
======== ======== ========
See notes to financial statements.
F-4
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF ACCUMULATED DEFICIENCY IN ASSETS
Years Ended December 31, 1994, 1995 and 1996
(in thousands)
General Limited
Partners Partners Total
---------- ---------- ----------
Balance, January 1, 1994 $(267,826) $(58,771) $(326,597)
Change of ownership (Notes 2 and 3) 31,973 (2,317) 29,656
Distributions (93,059) (20,420) (113,479)
Net income 22,489 4,983 27,472
--------- -------- ---------
Balance, December 31, 1994 $(306,423) $(76,525) $(382,948)
Distributions (93,000) (23,225) (116,225)
Net income 77,077 19,249 96,326
--------- -------- ---------
Balance, December 31, 1995 $(322,346) $(80,501) $(402,847)
Change of ownership (Notes 2 and 3) 124,813 22,229 147,042
Distributions (93,513) (25,586) (119,099)
Net income 64,804 17,962 82,766
--------- -------- ---------
Balance, December 31, 1996 $(226,242) $(65,896) $(292,138)
========= ======== =========
See notes to financial statements.
F-5
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31
-------------------------------
1994 1995 1996
---- ---- ----
Cash Flows From Operating Activities:
Income before extraordinary items $ 72,203 $ 79,699 $ 84,094
Adjustments to reconcile income before
extraordinary items to net cash
provided by operating activities:
Depreciation and amortization 27,653 32,393 35,770
Income before extraordinary items in
excess of distributions from
unconsolidated Joint Ventures (206)
Provision for losses on accounts
receivable 1,323 818 1,295
Amortization of deferred financing costs 1,900 2,250 2,024
Other 785 3,062 615
Gains on sales of land (891) (818) (1,041)
Increase (decrease) in cash attributable
to changes in assets and liabilities:
Receivables, deferred charges and
other assets (9,909) (11,254) (8,448)
Accounts payable and other liabilities 11,096 5,501 (1,275)
--------- --------- ---------
Net Cash Provided By Operating Activities $ 104,160 $ 111,445 $ 113,034
--------- --------- ---------
Cash Flows From Investing Activities:
Purchase of interests in Centers (Note 3) $ (82,096) $(125,904)
Additions to properties (67,752) $ (70,691) (25,472)
Proceeds from sales of land 1,767 1,966 1,936
Contributions to unconsolidated
Joint Ventures (21,397)
Distributions from unconsolidated Joint
Ventures in excess of income before
extraordinary items 32,020 11,720
--------- --------- ---------
Net Cash Used In Investing Activities $(116,061) $ (68,725) $(159,117)
--------- --------- ---------
Cash Flows From Financing Activities:
Debt proceeds $ 613,117 $ 200,747 $ 275,212
Debt payments (67,853) (13,689) (229,212)
Extinguishment of debt (415,010) (105,827) (35,964)
Debt issuance costs (5,408) (1,599) (830)
Issuance of units of partnership
interest (Notes 2 and 3) 147,042
Cash distributions (113,479) (116,225) (119,099)
--------- --------- ---------
Net Cash Provided By (Used In)
Financing Activities $ 11,367 $ (36,593) $ 37,149
--------- --------- ---------
Net Increase (Decrease) In Cash $ (534) $ 6,127 $ (8,934)
Cash and Cash Equivalents
at Beginning of Year 11,243 10,709 16,836
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 10,709 $ 16,836 $ 7,902
========= ========= =========
See notes to financial statements.
F-6
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 1996
Note 1 - Summary of Significant Accounting Policies
General
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. The Taubman Shopping Centers
are located primarily in major metropolitan areas in the United States including
New York City, Chicago, Los Angeles, San Francisco, Detroit, Washington, D.C.
and Phoenix. Taubman Centers, Inc. (TCO) is the managing general partner of TRG.
The GMPTS Limited Partnership (GMPTS), TG Partners Limited Partnership (TG) and
Taub-Co Management, Inc. are also general partners.
At December 31, 1996, TRG had 69,998 units of partnership interest
outstanding, of which 54,209 units represent general partnership interests. At
December 31, 1996, TRG was owned 36.68% by TCO, 36.18% by GMPTS, 20.23% by
certain present and former key executives (and certain of their family members)
of the predecessor to The Taubman Company Limited Partnership, the Manager
(collectively, the Taubman Group), and TG, and 6.91% by certain former joint
venture partners and certain of the former owners of Biltmore. The members of
the Taubman Group (other than TG and Taub-Co Management, Inc.), the former joint
venture partners and the former owners of Biltmore are limited partners of TRG.
At both December 31, 1994 and 1995, TRG had 63,521 units of partnership
interest outstanding (of which 50,828 units at December 31, 1994 and 1995
represented general partnership interests). At both December 31, 1994 and 1995,
TRG was owned 35.10% by TCO, 39.87% by GMPTS, 22.29% by the Taubman Group and
TG, and 2.74% by a former joint venture partner and certain of the former owners
of Biltmore.
Net income and losses and distributions of TRG are allocated to the general
and limited partners of TRG in accordance with their percentage ownership. The
financial statements include only those assets, liabilities, and results of
operations which relate to the business of TRG. No provision has been made for
income taxes since these taxes are the responsibility of the individual
partners.
Basis of Presentation
The consolidated financial statements include the accounts of TRG and its
consolidated subsidiaries. Investments in entities unilaterally controlled by
ownership or contractual agreements are consolidated; investments in entities
not unilaterally controlled (Joint Ventures) are accounted for under the equity
method.
The Manager, which is approximately 99% beneficially owned by TRG, provides
all property management and leasing services for all Taubman Shopping Centers
and provides corporate, development and acquisition services. Intercompany
balances and profits are eliminated in consolidation.
Dollar amounts presented in tables within the notes to the consolidated
financial statements are stated in thousands of dollars, except for unit data in
Notes 3, 11 and 14 or as otherwise noted.
F-7
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Revenue Recognition
Shopping center space is generally leased to specialty retail tenants under
short and intermediate term leases which are accounted for as operating leases.
Minimum rents are recognized on an accrual basis as earned, the result of which
does not differ materially from a straight-line method. Percentage rents are
recognized on an accrual basis as earned. Expense recoveries, which include an
administrative fee, are recognized as revenue in the period applicable costs are
chargeable to tenants.
Depreciation and Amortization
Buildings, improvements and equipment, stated at cost, are depreciated on
straight-line or double-declining balance bases over the estimated useful lives
of the assets, which range from 5 to 50 years. Tenant allowances and deferred
leasing costs are amortized on a straight-line basis over the lives of the
related leases.
Earnings Per Unit of Partnership Interest
The computation of net income per unit of partnership interest is based on net
income and the weighted average number of partnership units outstanding. The TRG
units of partnership interest issuable under TRG's incentive option plan (Note
11) have not been included in the computation because the number of units
issuable (using the treasury stock method) had a minimal effect on earnings per
partnership unit.
Capitalization
Costs related to the acquisition, development, construction and improvement of
properties are capitalized. Interest costs are capitalized until construction is
substantially complete. Properties are reviewed for impairment if events or
changes in circumstances indicate that the carrying amounts of the properties
may not be recoverable. Costs of potentially unsuccessful development
pre-construction activities are provided for by charges to operations and
written off if abandoned.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of 90
days or less at the date of purchase.
Deferred Charges
Direct financing and interest rate hedging costs are deferred and amortized
over the terms of the related agreements as a component of interest expense.
Direct costs related to leasing activities are capitalized and amortized on a
straight-line basis over the lives of the related leases. All other deferred
charges are amortized on a straight-line basis over the terms of the agreements
to which they relate.
Stock-based Compensation Plans
Stock-based compensation plans are accounted for under APB Opinion 25 and
related interpretations.
F-8
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Interest Rate Hedging Agreements
Premiums paid for interest rate caps are amortized to interest expense over
the terms of the cap agreements. Amounts received under the cap agreements are
accounted for on an accrual basis, and recognized as a reduction of interest
expense. The differential to be paid or received on swap agreements is accounted
for on an accrual basis and recognized as an adjustment to interest expense.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
financial instruments:
The carrying value of cash and cash equivalents, accounts and notes
receivable, and accounts payable approximates fair value due to the short
maturity of these instruments.
The fair value of TRG's debt is estimated based on quoted market prices if
available, or on the current rates available to TRG for debt of similar
terms and maturity and the assumption that debt will be prepaid at the
earliest possible date.
The fair value of interest rate hedging instruments is the amount that TRG
would receive or pay to terminate the agreement at the reporting date,
taking into account current interest rates.
Note 2 - Equity Transactions
In December 1996, TRG issued 3,048 units of partnership interest to TCO for
the $75 million proceeds from TCO's December 1996 equity offering. TRG bore all
expenses of TCO's offering, which have been accounted for as a reduction of the
proceeds from TRG's issuance of units. Also in December 1996, TRG issued 333
units of partnership interest in connection with the exercise of incentive
options (Note 11). Concurrently under TCO's continuing offer to exchange shares
of common stock for certain partnership interests in TRG, TCO exchanged 652
thousand shares of common stock for the newly issued 333 units of TRG
partnership interest. TRG used the net proceeds from the issuance of units to
pay down short term floating rate debt and to acquire La Cumbre Plaza (Note 3).
Additionally in 1996, TRG issued 3,096 units of partnership interest in
connection with the acquisition of the remaining interest in Fairlane Town
Center (Note 3).
In December 1994, TRG issued 1,540 units of partnership interest in connection
with the acquisition of Biltmore Fashion Park (Biltmore) (Note 3).
F-9
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 3 - Acquisitions
Acquisition of La Cumbre Plaza
In December 1996, TRG acquired La Cumbre Plaza (La Cumbre) in Santa Barbara,
California for $22.25 million in cash. The Center is subject to four ground
leases (three of which are participating). The leases expire in 2028. The
acquisition was accounted for at fair value. The operating results of La Cumbre
have been consolidated in TRG's financial statements from the acquisition date.
The pro forma effect of the acquisition on 1995 and 1996 operating results was
immaterial.
Acquisition of Remaining Interest in Fairlane Town Center
In July 1996, TRG completed transactions that resulted in the acquisition of
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, exchangeable for
approximately 6.1 million shares of TCO common stock, which had a closing price
of $10.75 per share on the day prior to the issuance date. The units issued
represent limited partnership units. 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 prepayment
penalty of approximately $1.2 million. The acquisition, which resulted in TRG
owning 100% of Fairlane, was accounted for at fair value. The operating results
of Fairlane have been consolidated in TRG's financial statements from the
acquisition date. Prior to the acquisition date, TRG's interest in Fairlane was
accounted for under the equity method as a Joint Venture.
Pro forma results of TRG's operations, assuming the Fairlane acquisition had
occurred on January 1, 1995, are as follows:
Pro Forma
---------------------
Year Ended
December 31
-----------
1995 1996
---- ----
Revenues $ 257,258 $ 277,739
Income before extraordinary items 87,029 87,158
Net income 103,656 85,830
Earnings per unit of partnership interest:
Income before extraordinary items $ 1,306 $ 1,304
Net income 1,556 1,284
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.
Acquisition of Paseo Nuevo
In June 1996, TRG acquired Paseo Nuevo located in Santa Barbara, California,
for $37 million in cash. 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. The pro
forma effect of the acquisition on 1995 and 1996 net income was immaterial.
F-10
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Acquisition of Biltmore Fashion Park
In December 1994, TRG acquired Biltmore Fashion Park (Biltmore), a regional
shopping center located in Phoenix, Arizona, for $81.5 million in cash and 1,540
TRG units of partnership interest (exchangeable for approximately three million
shares of TCO common stock, having a closing price of $9.875 on the day prior to
the purchase date). The units issued represent limited partnership interests.
TRG also assumed assessment bond obligations of approximately $3.6 million
encumbering the Center. The bond service costs are recovered from tenants. The
acquisition was accounted for at fair value. The operating results of Biltmore
have been consolidated in TRG's financial statements from the acquisition date.
The pro forma effect of the acquisition on 1994 operating results was
immaterial.
Note 4 - Investments in Joint Ventures
Following are TRG's investments in various real estate Joint Ventures which
own regional retail shopping centers. 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 December 31, 1996
--------------------- ----------------------- ------------------
Arizona Mills, L.L.C. Arizona Mills (under 35% (Note 15)
construction)
Fairfax Associates Fair Oaks 50
Lakeside Mall Limited Lakeside 50
Partnership
Rich-Taubman Associates Stamford Town Center 50
Taubman-Cherry Creek Cherry Creek 50
Limited Partnership
Taubman MacArthur MacArthur Center (under 70
Associates Limited construction)
Partnership
Twelve Oaks Mall Twelve Oaks Mall 50
Limited Partnership
West Farms Associates Westfarms 79
Woodfield Associates Woodfield 50
Woodland Woodland 50
Arizona Mills, L.L.C. is developing Arizona Mills, a value super-regional mall
in Tempe, Arizona, which will open in November 1997. Taubman MacArthur
Associates Limited Partnership is developing MacArthur Center in Norfolk,
Virginia. MacArthur Center is expected to open in the spring of 1999. TRG
transferred to these Joint Ventures its accumulated pre-construction costs
related to these projects (Note 5).
In December 1995, the bank group holding the $99.5 million nonrecourse
mortgage encumbering Bellevue Center acquired title to the Center through a
nonjudicial foreclosure sale. The mortgage matured on November 1, 1995. TRG
ceased to recognize the results of Bellevue Associates (Bellevue), TRG's 60%
owned Joint Venture that owned the Center, as of November 1, 1995. TRG's share
of Bellevue's net loss from operations for 1994 and the ten months ended October
31, 1995, was $1.1 million and $0.7 million, respectively.
F-11
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As a result of the foreclosure and debt extinguishment, Bellevue recognized an
extraordinary gain of approximately $31.4 million, representing the difference
between the carrying value of the debt and the fair value of the Center, net of
related transaction costs on the extinguishment of debt, and an ordinary gain of
approximately $4.4 million, representing the excess of the fair value of the
Center over its carrying value. TRG's share of the extraordinary gain and its
gain on the disposition of the Center, which was based on the carrying value of
TRG's investment in Bellevue, were $18.9 million and $5.0 million, respectively.
The carrying value of TRG's investment in Bellevue differed from TRG's 60% share
of Bellevue's net deficiency in assets due to the elimination of intercompany
profits on sales of services.
In May 1994, West Farms Associates (Westfarms) redeemed a portion of a
deceased Joint Venture Partner's interest for $12.7 million. As a result, TRG's
ownership of Westfarms increased to approximately 79%.
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 Balance Sheet of the
Unconsolidated Joint Ventures of the Taubman Realty Group Limited Partnership by
$4.8 million and $8.6 million in 1995 and 1996. These differences are amortized
over the useful lives of the related assets.
F-12
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Combined balance sheet and results of operations information is presented
below 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
----------------------
1995 1996
---- ----
Assets:
Properties $ 373,803 $ 461,658
Other assets 109,668 71,278
--------- ---------
$ 483,471 $ 532,936
========= =========
Liabilities and partners'
accumulated deficiency in assets:
Debt $ 741,121 $ 724,162
Capital lease obligation 5,000
Other liabilities 50,227 53,817
TRG accumulated deficiency in assets (150,117) (127,097)
Joint Venture Partners'
accumulated deficiency in assets (157,760) (122,946)
--------- ---------
$ 483,471 $ 532,936
========= =========
TRG accumulated deficiency in assets (above) $(150,117) $(127,097)
Elimination of intercompany profit (4,816) (8,565)
--------- ---------
Distributions in excess of net income
of unconsolidated Joint Ventures $(154,933) $(135,662)
========= =========
Year Ended December 31
------------------------------
1994 1995 1996
---- ---- ----
Revenues $268,815 $287,180 $265,337
-------- -------- --------
Recoverable and other operating expenses $103,784 $106,859 $100,164
Interest expense 51,836 57,857 52,994
Depreciation and amortization 24,177 25,471 23,837
-------- -------- --------
Total operating costs $179,797 $190,187 $176,995
-------- -------- --------
Income before extraordinary items $ 89,018 $ 96,993 $ 88,342
Extraordinary items (3,468) 30,761
-------- -------- --------
Net income $ 85,550 $127,754 $ 88,342
======== ======== ========
Net income attributable to TRG $ 43,266 $ 68,498 $ 47,413
Extraordinary items attributable to TRG 1,949 (18,327)
Realized intercompany profit 6,048 7,769 4,802
-------- -------- --------
Equity in income before extraordinary
items of unconsolidated Joint Ventures $ 51,263 $ 57,940 $ 52,215
======== ======== ========
Year Ended December 31
------------------------------
1994 1995 1996
---- ---- ----
TRG's beneficial interest in
unconsolidated Joint Ventures' operations:
Revenues less recoverable
and other operating expenses $ 90,332 $ 96,120 $ 91,708
Ordinary gain on disposition of Bellevue 5,005
Interest expense (26,590) (30,396) (27,738)
Depreciation and amortization (12,479) (12,789) (11,755)
-------- -------- --------
Income before extraordinary items $ 51,263 $ 57,940 $ 52,215
======== ======== ========
F-13
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5 - Properties
Properties, including peripheral land and development pre-construction costs,
at December 31, 1995 and 1996 are summarized as follows:
1995 1996
---- ----
Land $ 49,468 $ 65,127
Buildings, improvements and equipment 798,553 957,185
Construction in process 28,135 32,886
Assets under capital lease (Note 9) 14,418 39,849
Peripheral land 9,959 7,414
--------- ----------
$ 900,533 $1,102,461
Development pre-construction costs
(See below) 25,674 24,412
--------- ----------
$ 926,207 $1,126,873
========= ==========
Depreciation expense for 1994, 1995 and 1996 was $21.8 million, $26.6 million
and $29.6 million. Peripheral land consists primarily of undeveloped land
generally adjacent to the Taubman Shopping Centers. Construction in process
includes costs related to expansions and other improvements at various existing
centers and leasehold improvements for The Mall at Tuttle Crossing (Note 9).
TRG actively pursues opportunities for the development of new regional
shopping centers. Development pre-construction activities, including market
research, site location, environmental work, zoning permits and obtaining of
anchor commitments, may take years to accomplish and ultimately may be
abandoned. TRG provides a reserve for the cost of such potentially unsuccessful
pre-construction activities.
The activity in development pre-construction costs and the related reserve for
1995 and 1996 is summarized as follows:
Costs Reserve Net
----- ------- ---
Balance, January 1, 1995 $31,536 $ (8,348) $23,188
Costs incurred 16,595 16,595
Charged to operations (6,814) (6,814)
Transfers to construction in process (7,295) (7,295)
Costs of projects written off (4,964) 4,964
------- -------- -------
Balance, December 31, 1995 $35,872 $(10,198) $25,674
Costs incurred 12,556 12,556
Charged to operations (8,501) (8,501)
Transfers to investments in
Joint Ventures (5,317) (5,317)
Costs of projects written off (6,223) 6,223
------- -------- -------
Balance, December 31, 1996 $36,888 $(12,476) $24,412
======= ======== =======
F-14
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6 - Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 1995 and 1996 are summarized
as follows:
1995 1996
---- ----
Leasing $ 34,173 $ 38,353
Accumulated amortization (19,618) (21,284)
-------- --------
$ 14,555 $ 17,069
Prepaid ground rent (Note 9) 10,911 6,122
Deferred financing costs, net 9,494 9,343
Other, net 7,367 8,960
-------- --------
$ 42,327 $ 41,494
======== ========
Note 7 - Other Liabilities
In November 1992, the General Motors Hourly-Rate Employes Pension Trust and
the General Motors Salaried Employes Pension Trust (GM Trusts), which indirectly
own interests in TRG, entered into an agreement with TCO (the Cash Tender
Agreement) pursuant to which the GM Trusts have certain rights to cause TCO to
purchase their interests in TRG. TRG will pay the GM Trusts 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 TCO pays to the GM Trusts under the Cash Tender
Agreement.
Note 8 - Debt
Unsecured Notes Payable
Unsecured notes payable at December 31, 1995 and 1996 consists of the
following:
1995 1996
---- ----
7% Notes due 2003 $199,644 $199,679
8% Notes due 1999 199,933 199,950
Floating Rate Notes due 1997 99,900 99,955
Medium-Term Notes:
Floating rate notes:
Three month LIBOR plus 0.80% due 1998 $ 20,000
Three month LIBOR plus 0.77% due 1998 14,000
Three month LIBOR plus 0.90% due 1999 20,000
Three month LIBOR plus 1.05% due 2001 30,000
Fixed rate notes:
7.38% Notes due 2000 $ 13,000 13,000
7.31% Notes due 2000 2,000 2,000
7.19% Notes due 2000 5,000 5,000
7.22% Notes due 2001 8,400 8,400
8.00% Notes due 2001 69,976
7.40% Notes due 2002 5,000 5,000
7.50% Notes due 2002 99,698 99,745
-------- --------
Total Medium-Term Notes $133,098 $287,121
-------- --------
Total Unsecured Notes Payable $632,575 $786,705
======== ========
F-15
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In 1995, TRG entered into a swap agreement to effectively change the character
of its Floating Rate Notes due 1997 to a fixed rate obligation at a rate of
6.15% from three month LIBOR plus 0.5%.
TRG has issued $287 million of Medium-Term Notes since the program's inception
in 1995 under TRG's $500 million shelf registration statement.
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 covenants.
Mortgage Notes Payable
Mortgage notes payable at December 31, 1995 and 1996 consists of the
following:
1995 1996
---- ----
Fixed rate, amortizing $ 14,496 $ 13,703
Fixed rate, nonamortizing 146,000 146,000
-------- --------
$160,496 $159,703
======== ========
Mortgage debt is collateralized by properties with a net book value of $148.2
million as of December 31, 1996. Of the December 31, 1996 balance, $13.7 million
is due in monthly installments with maturities at various dates through 2019,
and fixed interest rates between 6.00% and 7.20% or a weighted average rate of
6.79%. The remainder of the balance represents an 8.36% note due in 2004.
The following table presents scheduled principal payments on mortgage debt as
of December 31, 1996.
1997 $ 838
1998 896
1999 738
2000 563
2001 602
Thereafter 156,066
--------
Total $159,703
========
F-16
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other Notes Payable
Other notes payable at December 31, 1995 and 1996 consists of the following:
1995 1996
---- ----
Commercial paper, face amount of $45 million,
supported by a line of credit facility up to
$75 million, secured by deed of trust on one
Taubman Shopping Center, 5.50% stated interest
rate at December 31, 1996 $ 74,878 $ 44,897
Notes payable to banks
Line of credit, unsecured, maximum borrowing
available of $200 million, interest at LIBOR
plus 1.50%, maturing May 1998 (see below) 76,500
Line of credit, unsecured, maximum borrowing
available of $30 million, interest based on a
variable bank borrowing rate, 6.50% at
December 31, 1996, maturing August 1998 10,800 10,100
-------- --------
$162,178 $ 54,997
======== ========
Commercial paper is generally sold with a 30 day maturity. The underlying
credit facility is renewable quarterly for a twelve month period.
As of December 31, 1996, TRG had available for general partnership purposes an
unsecured revolving credit facility of $200 million, which was scheduled to
expire in May 1998. In March 1997, TRG completed the renegotiation of terms
increasing the facility to $300 million, reducing the current contractual
interest rate by 60 basis points to LIBOR plus 90 basis points and extending the
maturity until March 2000. Included in the credit facility is a competitive bid
option program which allows TRG to hold auctions, among the banks participating
in the facility, for short term borrowings of up to $150 million. The facility
agreements 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 covenants.
Interest Expense
Interest paid in 1994, 1995 and 1996, net of amounts capitalized of $7.1
million, $6.9 million and $5.7 million in 1994, 1995 and 1996, approximated
$47.7 million, $62.2 million and $69.8 million.
Extraordinary Items
In 1996, TRG recognized an extraordinary charge to income of $1.3 million
primarily consisting of a prepayment penalty related to the extinguishment of
debt at a wholly owned Center. In 1995, TRG recognized an extraordinary gain of
approximately $18.9 million, related to the extinguishment of debt at Bellevue
(Note 4) and $2.2 million of extraordinary charges, consisting primarily of
prepayment penalties, related to the extinguishment of debt of TRG and a Joint
Venture. TRG recognized extraordinary charges to income in 1994, consisting of
prepayment penalties of approximately $44.7 million related to the
extinguishment of secured debt of TRG and certain of its Joint Ventures.
F-17
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Interest Rate Hedging Instruments
TRG enters into interest rate agreements to reduce its exposure to changes in
the cost of its floating rate debt. As of December 31, 1996, the following
interest rate cap agreements were outstanding:
Notional Frequency
Amount LIBOR of Rate
(in millions) Cap Rate Resets Term
------------- -------- -------- ------------------------------
$ 100 6.0% Monthly January 1996 to January 1997
75 6.0% Monthly January 1996 to January 1997
100 6.5% Monthly January 1997 to January 1998
100 6.5% Three Months November 1997 to December 1998
TRG also has a swap agreement which hedges TRG's Floating Rate Notes due 1997
(see Unsecured Notes Payable above).
TRG is exposed to credit risk in the event of nonperformance by the
counterparties to its interest rate cap and swap agreements, but has no
off-balance sheet risk of loss. TRG anticipates that its counterparties will
fully perform their obligations under the agreements.
Fair Value of Financial Instruments Related to Debt
The estimated fair values of TRG's financial instruments at December 31, 1995
and 1996 are as follows:
December 31
--------------------------------------------
1995 1996
-------------------- ---------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- --------
Unsecured notes payable $632,575 $651,200 $786,705 $794,828
Mortgage notes payable 160,496 175,018 159,703 168,229
Other notes payable 162,178 162,178 54,997 54,997
Interest rate instruments:
In a receivable position 294 33 964 412
In a payable position 19 (718) (17) (76)
F-18
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Beneficial Interest in Debt and Interest
TRG's beneficial interest in the debt (excluding capital lease obligations),
capitalized interest, and interest expense (net of capitalized interest) of TRG,
its consolidated subsidiaries and its unconsolidated Joint Ventures (Note 4) 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
December 31, 1996 724,162 396,962 1,001,405 1,398,367
Capitalized interest:
1994 $ 3,604 $ 1,801 $ 7,098 $ 8,899
1995 3,481 1,799 6,852 8,651
1996 4,790 3,187 5,682 8,869
Interest expense
(net of capitalized interest):
1994 $ 51,836 $ 26,590 $ 47,732 $ 74,322
1995 57,857 30,396 65,858 96,254
1996 52,994 27,738 70,454 98,192
Note 9 - Leases
Operating Leases
Shopping center space is leased to tenants and certain anchors pursuant to
lease agreements. Tenant leases typically provide for guaranteed minimum rent,
percentage rent and other charges to cover certain operating costs. Future
minimum rent under operating leases in effect at December 31, 1996 for operating
centers, assuming no new or renegotiated leases or option extensions on anchor
agreements, is summarized as follows:
1997 $ 169,067
1998 160,302
1999 146,228
2000 123,528
2001 106,405
Thereafter 338,880
Minimum rent received from former related parties was $2.1 million in 1994.
Revenues derived from the combined operations of The Limited provided
approximately 9.5%, 8.2% and 8.0% of total revenues in 1994, 1995 and 1996,
respectively. Amounts due from The Limited at December 31, 1995 were $134
thousand. There were no amounts due from The Limited at December 31, 1996.
F-19
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Certain Taubman Shopping Centers, as lessees, have ground leases expiring at
various dates through the year 2076. In addition, the Manager leases its office
facilities. Rental payments under ground and office leases were $7.1 million,
$7.3 million and $8.0 million in 1994, 1995 and 1996. Included in these amounts
are related party office rental payments of $2.3 million, $2.8 million and $3.0
million in 1994, 1995 and 1996.
The following is a schedule of future minimum rental payments required under
operating leases. These amounts exclude adjustments every five years based on
the Consumer Price Index or a factor defined in the lease for one property, a
10% participation in cash flow for years 2022 to 2076 and supplemental ground
rent under the lease of another property, and participation in cash flows over
amounts specified in leases of two other properties. Contingent rental expense
was $65 thousand in 1996. Future minimum rental payments are summarized as
follows:
1997 $ 9,205
1998 8,318
1999 8,388
2000 8,219
2001 7,890
Thereafter 199,970
The table above includes $2.6 million, $2.8 million, $2.9 million, $2.8
million, $2.5 million and $8.4 million of related party amounts in 1997, 1998,
1999, 2000, 2001 and thereafter.
Included in deferred charges is approximately $6.1 million representing
lump-sum payments for base rent on two parcels of adjacent land (a leasehold
interest in a third parcel was sold in 1996). These costs are being charged to
operations over the 87 and 99 year terms of the leases.
Memorial City Mall Lease
In November 1996, TRG entered into an agreement to lease Memorial City Mall,
located in Houston, Texas. The lease of this unencumbered property grants TRG
the exclusive right to manage, lease and operate the property. 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. Accordingly, the lease
will be accounted for as an operating lease during the option period. 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 a minimum of $3 million during the three year
option period. If the redevelopment proceeds, TRG is required to invest an
additional $22 million in property expenditures not recoverable from tenants
during the first 10 years of the lease term.
F-20
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Capital Lease Obligation
In November 1995, TRG completed an agreement with Tuttle Holding Co., which
owns the land on which The Mall at Tuttle Crossing is located, to lease the land
and mall buildings, which are currently under construction. The term of the
lease is from the date of signing the lease to 90 years from the date of the
opening of the Center. The Center will open in July 1997. Minimum lease payments
of $4.4 million will be due annually after the opening of the Center. TRG will
also pay additional rent based on achieved levels of net operating income 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.
As of December 31, 1996, future minimum lease payments for this capital lease
are as follows:
1997 $ 1,943
1998 4,430
1999 4,430
2000 4,430
2001 4,430
Remainder 379,037
---------
Total minimum obligation $ 398,700
Less interest (343,379)
---------
Net minimum obligation $ 55,321
Less amounts related to assets not
yet constructed (15,472)
---------
Capital lease obligation at December 31, 1996 $ 39,849
=========
Note 10 - Transactions with Affiliates
The revenue from management, leasing and development services is derived
primarily from transactions with affiliates. Accounts receivable from related
parties includes amounts related to reimbursement of third-party
(non-affiliated) costs.
Other related party transactions are described in Notes 9, 11 and 15.
Note 11 - The Manager
The Manager, The Taubman Company Limited Partnership, provides property
management, leasing and development services to the Taubman Shopping Centers and
affiliates.
The Manager has a voluntary retirement savings plan established in 1983 and
amended and restated effective January 1, 1994 (the Plan). The Plan is qualified
in accordance with Section 401(k) of the Internal Revenue Code (the Code). The
Manager contributes an amount equal to 2% of the qualified wages of all
qualified employees and matches employee contributions in excess of 2% up to 7%
of qualified wages. In addition, the Manager may make discretionary
contributions within the limits prescribed by the Plan and imposed in the Code.
Costs relating to the Plan were $1.5 million in each of the three years ended
December 31, 1994, 1995 and 1996.
F-21
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
TRG has an incentive option plan for employees of the Manager. Currently,
4,500 units of partnership interest may be issued under the plan. 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.
A summary of the status of the plan as of December 31, 1994, 1995, and 1996,
and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------ ----------------------- ----------------------
Weighted-Average Weighted-Average Weighted-Average
Exercise Price Exercise Price Exercise Price
Options Units Per Unit Units Per Unit Units Per Unit
--------- ----- -------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning
of year 3,249 $ 22,253 3,659 $ 22,460 4,119 $ 22,073
Granted 429 24,036 472 19,088
Exercised (333) 22,000
Cancelled (19) 22,429 (12) 22,541 (250) 21,850
--- --- -----
Outstanding at
end of year 3,659 22,460 4,119 22,073 3,536 22,095
===== ===== =====
Options vested
at year end 224 22,364 1,195 22,092 1,908 22,187
</TABLE>
The weighted average fair value per unit of options granted during 1995 was
$2.7 thousand. There were no grants in 1996. TRG used a binomial option price
model to determine the grant date fair values of the 1995 grants. The 1995
calculations of fair value are based on the following assumptions: a volatility
rate of 22%, a risk-free rate of return of approximately 8%, and a dividend
yield of approximately 9%. Options outstanding at December 31, 1996 have a
remaining weighted-average contractual life of 6.3 years and range in exercise
price from $18.5 thousand to $27.4 thousand.
TRG applies APB Opinion 25 and related Interpretations in accounting for the
plan. The exercise price of all outstanding options granted under the plan was
equal to market value on the date of grant. Accordingly, no compensation expense
has been recognized for the plan. Had compensation cost for the plan been
determined based on the fair value of the options at the grant dates for 1995
awards (there were no grants in 1996) under the plan consistent with the method
of FASB Statement 123, the pro forma effect on TRG's earnings and earnings per
unit of partnership interest would not have been material.
Effective January 1, 1996, the Manager adopted The Taubman Company Long-Term
Performance Compensation Plan. Annually, eligible employees will be granted
contingent notional TRG units of partnership interest, the ultimate number of
which will be based on the employee's performance. These awards, which will vest
on the third anniversary of the date of grant, will also accrue deemed
distributions in the form of additional notional units each time TRG makes a
distribution to its partners. Upon vesting, additional notional units may be
granted based on the performance of the employee and the Manager and/or TRG. The
awards will be paid to the employee in cash upon vesting, based on the value of
TRG's units of partnership interest, unless the employee elects to defer payment
as provided in the plan. The cost of this plan was approximately $2.0 million
for 1996.
F-22
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 12 - Supplemental Disclosures of Non-Cash Activities
Supplemental disclosures of non-cash investing and financing activities:
Year Ended December 31
----------------------------
1994 1995 1996
---- ---- ----
Issuance of units of partnership
interest in connection with
the purchase of Biltmore
Fashion Park $ 29,656
Capital lease obligation $ 14,418 $ 25,431
Note 13 - Contingencies
TRG 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 TRG's assets or results of operations.
Note 14 - Quarterly Financial Data (Unaudited)
The following is a summary of quarterly results of operations for 1995 and
1996.
1995
----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------
(in thousands, except unit data)
Revenues $53,485 $55,602 $58,052 $61,779
Equity in income of
unconsolidated Joint Ventures 14,028 12,690 11,867 19,355
Income before extraordinary items 19,460 17,260 17,809 25,170
Net Income 19,460 15,035 17,809 44,022
Per Unit of Partnership Interest:
Income before extraordinary items $306 $272 $280 $397
Net Income 306 237 280 693
1996
----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------
(in thousands, except unit data)
Revenues $59,732 $59,817 $66,077 $77,103
Equity in income of
unconsolidated Joint Ventures 13,363 12,748 13,552 12,552
Income before extraordinary item 20,868 18,500 20,940 23,786
Net Income 20,868 18,500 19,612 23,786
Per Unit of Partnership Interest:
Income before extraordinary item $329 $291 $317 $353
Net Income 329 291 297 353
F-23
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15 - Subsequent Event
TRG's ownership interest in Arizona Mills, L.L.C. increased in January 1997 to
37% as a result of Arizona Mills, L.L.C.'s redemption of a former owner's 5%
interest for $2.8 million (the former owner is an affiliate of a partner in
TRG). Also in January 1997, Arizona Mills, L.L.C. closed on a secured $145
million construction facility maturing in 2002. The loan bears interest at one
month LIBOR plus 1.3%. The loan is hedged until maturity at a one month LIBOR
cap rate of 9.5%. The payment of the principal and interest is recourse to each
of the owners of Arizona Mills to the extent of their ownership percentage.
F-24
<PAGE>
Schedule II
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
Valuation and Qualifying Accounts
For the years ended December 31, 1994, 1995 and 1996
(in thousands)
<TABLE>
<CAPTION>
Additions
--------------------------
Balance at Charged to Charged to Balance
beginning costs and other at end
of year expenses accounts Write-offs of year
--------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful receivables $ 647 1,323 0 (1,468) $ 502
======= ===== ===== ====== =======
Development pre-construction reserve $ 3,959 4,389 0 0 $ 8,348
======= ===== ===== ====== =======
Year Ended December 31, 1995:
Allowance for doubtful receivables $ 502 818 0 (939) $ 381
======= ====== ===== ====== =======
Development pre-construction reserve $ 8,348 6,814 0 (4,964) $10,198
======= ===== ===== ====== =======
Year ended December 31, 1996:
Allowance for doubtful receivables $ 381 1,295 42(1) (1,325) $ 393
======= ===== ===== ====== =======
Development pre-construction reserve $10,198 8,501 0 (6,223) $12,476
======= ===== ===== ====== =======
(1) Represents the balance of Fairlane's allowance for doubtful receivables as
of the date of TRG's acquisition of additional interests in Fairlane.
Subsequent to the acquisition date, the accounts of Fairlane have been
consolidated in TRG's financial statements.
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(in thousands)
Gross Amount at Which
Initial Cost Carried at Close of Period
to Company Cost ---------------------------------------
------------------- Capitalized Accumulated Total
Buildings and Subsequent Depreciation Cost Net
Land Improvements to Acquisition Land BI&E Total (A/D) of A/D
---- ------------ -------------- ---- ---- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Taubman Shopping Centers:
Beverly Center, Los Angeles, CA $ 0 $131,187 $ 16,162 $ 0 $ 147,349 $ 147,349 $ 43,832 $103,517
Biltmore, Phoenix, AZ 18,000 96,864 829 18,000 97,693 115,693 6,220 109,473
Briarwood, Ann Arbor, MI 4,027 47,761 6,111 4,027 53,872 57,899 26,209 31,690
Columbus City Center,
Columbus, OH 0 57,996 554 0 58,550 58,550 13,865 44,685
Fairlane Town Center,
Dearborn, MI 14,067 88,320 559 14,067 88,879 102,946 6,784 96,162
Hilltop, Richmond, CA 2,522 36,554 6,830 2,522 43,384 45,906 15,871 30,035
La Cumbre Plaza, Santa Barbara, CA 0 23,159 0 0 23,159 23,159 34 23,125
Lakeforest, Gaithersburg, MD 4,047 18,153 6,124 4,047 24,277 28,324 15,139 13,185
Marley Station, Glen Burnie, MD 3,692 45,538 10,966 3,692 56,504 60,196 25,121 35,075
Meadowood Mall, Reno, NV 1,890 14,116 13,508 1,890 27,624 29,514 11,795 17,719
Paseo Nuevo, Santa Barbara, CA 0 35,210 17 0 35,227 35,227 561 34,666
The Mall at Short Hills,
Short Hills, NJ 16,000 116,315 121,580 16,000 237,895 253,895 30,257 223,638
Stoneridge, Pleasanton, CA 882 25,265 15,777 882 41,042 41,924 22,465 19,459
Other:
Manager's Office Facilities 0 0 20,605 0 20,605 20,605 15,710 4,895
Peripheral Land 7,414 0 5 7,414 5 7,419 0 7,419
Construction in Process and
Development Pre-construction
Costs 0 52,147 5,151 0 57,298 57,298 0 57,298
Assets under Capital Lease 0 39,849 0 0 39,849 39,849 0 39,849
Other 0 1,120 0 0 1,120 1,120 167 953
------- -------- -------- ------- ---------- ---------- -------- --------
TOTAL $72,541 $829,554 $224,778 $72,541 $1,054,332 $1,126,873 $234,030 $892,843
======= ======== ======== ======= ========== ========== ======== ========
<CAPTION>
Date of
Completion of
Construction or Depreciable
Encumbrances Acquisition Life
------------ ----------- ----
<S> <C> <C> <C>
Taubman Shopping Centers:
Beverly Center, Los Angeles, CA $146,000 1982 40 Years
Biltmore, Phoenix, AZ 3,183(1) 1994 40 Years
Briarwood, Ann Arbor, MI 0 1973 33 Years
Columbus City Center,
Columbus, OH 8,175 1989 31 Years
Fairlane Town Center,
Dearborn, MI 0 1996 40 Years
Hilltop, Richmond, CA 982(1) 1976 50 Years
La Cumbre Plaza, Santa Barbara, CA 0 1996 40 Years
Lakeforest, Gaithersburg, MD 0 1978 31 Years
Marley Station, Glen Burnie, MD 0 1987 40 Years
Meadowood Mall, Reno, NV 0 1979 40 Years
Paseo Nuevo, Santa Barbara, CA 0 1996 40 Years
The Mall at Short Hills,
Short Hills, NJ 0 1980 40 Years
Stoneridge, Pleasanton, CA 46,260(1)(2) 1980 40 Years
Other:
Manager's Office Facilities 0
Peripheral Land 0
Construction in Process and
Development Pre-construction
Costs 0
Assets under Capital Lease 39,849
Other 0
--------
TOTAL $244,449
========
</TABLE>
<PAGE>
(Schedule III (cont.))
The changes in total real estate assets for the three years ended December 31,
1996 are as follows:
1994 1995 1996
---- ---- ----
Balance, beginning of year $665,978 $843,960 $ 926,207
Acquisitions 114,864 150,522
New development
and improvements 67,752 85,109 50,903
Disposals (4,634) (2,862) (3,808)
Transfers In, net (3) 3,049
-------- -------- ----------
Balance, end of year $843,960 $926,207 $1,126,873
======== ======== ==========
The changes in accumulated depreciation and amortization for the three years
ended December 31, 1996 are as follows:
1994 1995 1996
---- ---- ----
Balance, beginning of year $(156,524) $(175,358) $(200,440)
Depreciation for year (21,770) (26,574) (29,570)
Disposals 2,936 1,492 1,290
Transfers In (3) (5,310)
--------- --------- ---------
Balance, end of year $(175,358) $(200,440) $(234,030)
========= ========= =========
F-26
<PAGE>
(Schedule III (cont.))
(1) Includes assessment bonds payable encumbering the Centers of $3,183 at
Biltmore, $982 at Hilltop, and $1,363 at Stoneridge.
(2) Encumbrances include $44,897 of commercial paper, secured by a deed of trust
on Stoneridge, classified as "Other Notes Payable" in the December 31, 1996
Balance Sheet of The Taubman Realty Group Limited Partnership.
(3) Primarily represents consolidation in 1996 of TRG's original 25% interest in
Fairlane's assets (costs of acquiring the remaining 75% interest are
included in Acquisitions above), net of transfers of pre-construction costs
to construction in process of two Joint Ventures.
F-27
<PAGE>
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1996 AND
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
F - 28
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners
The Taubman Realty Group Limited Partnership
We have audited the accompanying combined balance sheets of Unconsolidated
Joint Ventures of The Taubman Realty Group Limited Partnership (the
"Partnership") as of December 31, 1995 and 1996, and the related combined
statements of operations, accumulated deficiency in assets, and cash flows for
each of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedules listed in the Index at Item 14. These
financial statements and financial statement schedules are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of Unconsolidated Joint Ventures of
The Taubman Realty Group Limited Partnership as of December 31, 1995 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic combined financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan
February 17, 1997
F - 29
<PAGE>
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED BALANCE SHEET
(in thousands)
December 31
---------------------
1995 1996
---- ----
Assets:
Properties (Notes 2, 4 and 6) $ 570,066 $ 650,149
Accumulated depreciation and
amortization 196,263 188,491
-------- -------
$ 373,803 $ 461,658
Cash and cash equivalents 51,344 25,924
Accounts and notes receivable, less
allowance for doubtful accounts of
$157 and $90 in 1995 and 1996 12,892 7,142
Note receivable from Joint Venture Partner
(Note 6) 1,900 1,600
Deferred charges and other assets
(Notes 3 and 6) 43,532 36,612
--------- ---------
$ 483,471 $ 532,936
========= =========
Liabilities:
Mortgage notes payable (Note 4) $ 738,468 $ 721,809
Other notes payable (Note 4) 2,653 2,353
Capital lease obligation (Note 5) 5,000
Accounts payable and other liabilities 50,227 53,817
--------- ---------
$ 791,348 $ 782,979
Commitments (Note 5)
Accumulated deficiency in assets:
TRG $(150,117) $(127,097)
Joint Venture Partners (157,760) (122,946)
--------- ---------
$(307,877) $(250,043)
--------- ---------
$ 483,471 $ 532,936
========= =========
See notes to financial statements.
F - 30
<PAGE>
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED STATEMENT OF OPERATIONS
(in thousands)
Year Ended December 31
------------------------------
1994 1995 1996
---- ---- ----
Revenues:
Minimum rents $157,374 $166,244 $157,212
Percentage rents 4,808 3,629 3,951
Expense recoveries 96,711 101,455 95,244
Other 9,922 11,444 8,930
Gain on disposition of Bellevue (Note 1) 4,408
-------- -------- --------
$268,815 $287,180 $265,337
-------- -------- --------
Operating Costs:
Recoverable expenses (Note 6) $ 83,531 $ 88,250 $ 81,799
Other operating (Note 6) 20,253 18,609 18,365
Interest expense (Note 4) 51,836 57,857 52,994
Depreciation and amortization 24,177 25,471 23,837
-------- -------- --------
$179,797 $190,187 $176,995
-------- -------- --------
Income before extraordinary items $ 89,018 $ 96,993 $ 88,342
Extraordinary items (Notes 1 and 4) (3,468) 30,761
-------- -------- --------
Net Income $ 85,550 $127,754 $ 88,342
======== ======== ========
Allocation of net income:
Attributable to TRG $ 43,266 $ 68,498 $ 47,413
Attributable to Joint Venture Partners 42,284 59,256 40,929
-------- -------- --------
$ 85,550 $127,754 $ 88,342
======== ======== ========
See notes to financial statements.
F - 31
<PAGE>
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED STATEMENT OF ACCUMULATED DEFICIENCY IN ASSETS
Years ended December 31, 1994, 1995 and 1996
(in thousands)
Joint Venture
TRG Partners Total
--- ------------- -----
Balance, January 1, 1994 $(132,488) $(138,321) $(270,809)
Cash contributions 1,132 1,166 2,298
Cash distributions (77,238) (75,363) (152,601)
Redemption of Joint Venture
Partner's interest (Note 1) 2,631 2,631
Net income 43,266 42,284 85,550
--------- --------- ---------
Balance, December 31, 1994 $(165,328) $(167,603) $(332,931)
Cash distributions (53,287) (49,413) (102,700)
Net income 68,498 59,256 127,754
--------- --------- ---------
Balance, December 31, 1995 $(150,117) $(157,760) $(307,877)
Cash contributions 21,201 24,958 46,159
Non-cash contributions (Note 1) 5,942 9,750 15,692
Cash distributions (55,146) (51,654) (106,800)
TRG purchase of Fairlane interest
(Note 1) 3,610 10,831 14,441
Net income 47,413 40,929 88,342
--------- --------- ---------
Balance, December 31, 1996 $(127,097) $(122,946) $(250,043)
========= ========= =========
See notes to financial statements.
F - 32
<PAGE>
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31
----------------------------------
1994 1995 1996
---- ---- ----
Cash Flows From Operating Activities:
Income before extraordinary items $ 89,018 $ 96,993 $ 88,342
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 24,177 25,471 23,837
Provision for losses on accounts
receivable 1,274 974 1,303
Gains on sales of land (815) (1,303)
Gain on disposition of Bellevue
(Note 1) (4,408)
Other 1,755 2,493 2,922
Increase (decrease) in cash attributable
to changes in assets and liabilities:
Receivables, deferred
charges and other assets (10,233) (10,128) (1,811)
Accounts payable and other liabilities 1,913 4,258 6,491
--------- --------- ---------
Net Cash Provided By Operating Activities $ 107,089 $ 114,350 $ 121,084
--------- --------- ---------
Cash Flows From Investing Activities:
Additions to properties $ (46,128) $ (48,320) $(105,031)
Restricted cash for expansion (Note 4) 25,954 40,879 1,309
Proceeds from sales of land 869 1,390
Redemption of Joint Venture Partner's
Interest (Note 1) (12,743)
--------- --------- ---------
Net Cash Used In Investing Activities $ (32,048) $ (6,051) $(103,722)
--------- --------- ---------
Cash Flows From Financing Activities:
Debt proceeds $ 180,768 $ 235,030 $ 20,529
Debt payments (3,379) (6,665) (2,670)
Extinguishment of debt (94,616) (189,705)
Debt issuance costs (6,828) (6,198)
Cash contributions from partners 2,298 46,159
Cash distributions to partners (152,601) (102,700) (106,800)
--------- --------- ---------
Net Cash Used In Financing Activities $ (74,358) $ (70,238) $ (42,782)
--------- --------- ---------
Net Increase (Decrease) In Cash $ 683 $ 38,061 $ (25,420)
Cash and Cash Equivalents at Beginning
of Year 12,600 13,283 51,344
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 13,283 $ 51,344 $ 25,924
========= ========= =========
See notes to financial statements.
F - 33
<PAGE>
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
Three Years Ended December 31, 1996
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The Taubman Realty Group Limited Partnership (TRG) owns interests in joint
ventures (Joint Ventures) which in turn own regional retail shopping centers
(Taubman Shopping Centers). TRG has engaged the Manager (The Taubman Company
Limited Partnership, which is approximately 99% beneficially owned by TRG) to
provide all property management and leasing services for all of the Taubman
Shopping Centers and to provide corporate, development, and acquisition
services. For financial statement reporting purposes, the accounts of the Joint
Ventures have been combined in these financial statements. Generally, net
profits and losses of the Joint Ventures are allocated to TRG and the outside
partners (Joint Venture Partners) in accordance with their ownership
percentages.
Dollar amounts presented in tables within the notes to the combined financial
statements are stated in thousands.
Investments in Joint Ventures
TRG's interest in each of the Joint Ventures at December 31, 1996, is as
follows:
TRG's %
Joint Venture Taubman Shopping Center Ownership
--------------------- ----------------------- ---------
Arizona Mills, L.L.C. Arizona Mills (under 35% (Note 7)
construction)
Fairfax Associates Fair Oaks 50
Lakeside Mall Limited Lakeside 50
Partnership
Rich-Taubman Associates Stamford Town Center 50
Taubman-Cherry Creek Cherry Creek 50
Limited Partnership
Taubman MacArthur MacArthur Center (under 70
Associates Limited construction)
Partnership
Twelve Oaks Mall Twelve Oaks Mall 50
Limited Partnership
West Farms Associates Westfarms 79
Woodfield Associates Woodfield 50
Woodland Woodland 50
Arizona Mills, L.L.C. is developing Arizona Mills, a value super-regional mall
in Tempe, Arizona, which will open in November 1997. In 1996, Arizona Mills,
L.L.C. purchased for $24.8 million approximately 116 acres of land on which the
Center is being constructed from an affiliate of a partner in TRG and of a
former owner in Arizona Mills (Note 7). Taubman MacArthur Associates Limited
Partnership (MacArthur) is developing MacArthur Center in Norfolk, Virginia.
MacArthur Center is expected to open in the spring of 1999. Also in 1996, TRG
and the other owners of Arizona Mills and MacArthur contributed non-cash
pre-construction costs related to these projects totaling $15.7 million.
F - 34
<PAGE>
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
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. 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. The accounts of Fairlane are included
in these combined financial statements until the acquisition date. On the
acquisition date, the book values of Fairlane's assets and liabilities were
approximately $25 million and $39 million, respectively.
In December 1995, the bank group holding the $99.5 million nonrecourse
mortgage encumbering Bellevue Center acquired title to the Center through a
nonjudicial foreclosure sale. The mortgage matured on November 1, 1995. TRG
ceased to recognize the results of Bellevue Associates (Bellevue), TRG's 60%
owned Joint Venture that owned the Center, as of November 1, 1995, and,
accordingly, the accounts of Bellevue Associates are not included in these
combined financial statements from that date.
As a result of the foreclosure and debt extinguishment, Bellevue recognized in
1995 an extraordinary gain of approximately $31.4 million, representing the
difference between the carrying value of the debt and the fair value of the
Center, net of related transaction costs, and an ordinary gain of approximately
$4.4 million, representing the excess of the fair value of the Center over its
carrying value. The extinguishment of the debt and write off of the Center's
carrying value represent non-cash transactions.
In May 1994, West Farms Associates redeemed a portion of a deceased Joint
Venture Partner's interest for $12.7 million. As a result, TRG's ownership
increased to approximately 79%, up from 68%. The excess of the redemption price
over the book value of the interests was allocated to properties.
Revenue Recognition
Shopping center space is generally leased to specialty retail tenants under
short and intermediate term leases which are accounted for as operating leases.
Minimum rents are recognized on an accrual basis as earned, the result of which
does not differ materially from a straight-line method. Percentage rents are
recognized on an accrual basis as earned. Expense recoveries, which include an
administrative fee, are recognized as revenue in the period applicable costs are
chargeable to tenants.
Depreciation and Amortization
Buildings, improvements and equipment, stated at cost, are depreciated on
straight-line or double-declining balance bases over the estimated useful lives
of the assets which range from 3 to 55 years. Tenant allowances and deferred
leasing costs are amortized on a straight-line basis over the lives of the
related leases.
Capitalization
Costs related to the acquisition, development, construction, and improvement
of properties are capitalized. Interest costs are capitalized until construction
is substantially complete. Properties are reviewed for impairment if events or
changes in circumstances indicate that the carrying amounts of the properties
may not be recoverable.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of 90
days or less at the date of purchase.
F - 35
<PAGE>
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
Deferred Charges
Direct financing and interest rate hedging costs are deferred and amortized
over the terms of the related agreements as a component of interest expense.
Direct costs related to leasing activities are capitalized and amortized on a
straight-line basis over the lives of the related leases. All other deferred
charges are amortized on a straight-line basis over the terms of the agreements
to which they relate.
Interest Rate Hedging Agreements
Premiums paid for interest rate caps are amortized to interest expense over
the terms of the cap agreements. Amounts received under the cap agreements are
accounted for on an accrual basis, and recognized as a reduction of interest
expense. The differential to be paid or received on swap agreements is accounted
for on an accrual basis and recognized as an adjustment to interest expense.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
financial instruments:
The carrying value of cash and cash equivalents, accounts and notes
receivable, and accounts payable approximates fair value due to the short
maturity of these instruments.
The fair value of mortgage notes and other notes payable is estimated based
on quoted market prices if available, or on the current rates available
to the Joint Ventures for debt of similar terms and maturity and the
assumption that debt will be prepaid at the earliest possible date.
The fair value of interest rate hedging instruments is the amount the Joint
Venture would pay or receive to terminate the agreement at the reporting
date, taking into account current interest rates.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Note 2 - Properties
Properties, at December 31, 1995 and 1996, are summarized as follows:
1995 1996
------- ---------
Land $ 25,773 $ 23,287
Buildings, improvements and equipment 503,124 476,283
Construction in process 40,502 149,912
Peripheral land 667 667
-------- --------
$570,066 $650,149
======== ========
F - 36
<PAGE>
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
Depreciation expense for 1994, 1995 and 1996 was $17.1 million, $18.4 million
and $18.0 million. Peripheral land primarily consists of undeveloped land
generally adjacent to the Taubman Shopping Centers. Construction in process
includes costs related to expansions and other improvements at various centers.
Assets under capital lease of $5.0 million are included in the table above in
buildings, improvements and equipment.
Note 3 - Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 1995 and 1996 are summarized
as follows:
1995 1996
---- ----
Leasing $42,582 $39,924
Accumulated amortization (19,133) (19,298)
------- -------
$23,449 $20,626
Deferred financing, net 14,544 11,810
Other, net 5,539 4,176
------- -------
$43,532 $36,612
======= =======
Note 4 - Debt
Mortgage Notes Payable
Mortgage notes payable at December 31, 1995 and 1996 consists of the
following:
1995 1996
---- ----
Fixed rate, amortizing $132,560 $ 96,156
Fixed rate, nonamortizing 254,000 254,000
Fixed rate by swap agreement 93,500 93,500
Floating rate, swapped to fixed to
August 1996 130,000
Floating rate, capped to maturity 128,408 278,153
-------- --------
$738,468 $721,809
======== ========
Mortgage debt is collateralized by substantially all real estate. The December
31, 1996 balance includes two fixed rate, amortizing notes totaling $96.2
million. One of these notes has a fixed rate of 9.0% and matures in 2016. The
second note, which matures in 2017, has a fixed rate of 11.69% and also requires
payment of additional interest ($1.3 million, $1.4 million and $1.6 million in
1994, 1995, and 1996) based on operating results. The December 31, 1996 fixed
rate, nonamortizing balance includes a 6.47%, $88 million note due in 2000, an
8.2%, $66 million note due in 2004, and a 7.85%, $100 million note due in 2002.
In addition to the $100 million note due in 2002, a Joint Venture has a $55
million construction facility to be used to finance expansion costs. At December
31, 1996, $19.7 million was outstanding under this facility which matures in
2002 and floats at a rate of one month LIBOR plus 1.5%. The construction
facility was capped at 9.6% until July 1997, and thereafter until maturity at
9.95%, plus credit spread.
F - 37
<PAGE>
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
The December 31, 1996 balance also includes a $172 million note due in 1998.
The interest rate on $93.5 million of this note was swapped to maturity at an
effective annual rate of 5.4%. The rate on the balance of the financing, which
was capped to maturity at a maximum annual rate of 6.5%, including credit
spread, floats at a rate of three month LIBOR plus 0.5%. A portion of the
proceeds of this financing was restricted to fund expansion costs.
An additional floating rate financing of $50 million is due in 2001. The rate
on the financing floats at LIBOR plus 0.45%. The Joint Venture purchased a cap
instrument with a notional amount of $50 million and a seven year term. The cap
rate, including credit spread, from December 1996 until maturity is 9.00%. Up to
$50 million in additional notes may be issued in the future.
A $130 million secured bank financing maturing in 1998 has options to extend
the loan up to an additional three years. The facility has an interest rate of
LIBOR plus 0.75%. The rate has been capped at 7.25% from November 1996 to
February 1998 and then at 9.1% until maturity, including credit spread.
Scheduled principal payments on mortgage debt are as follows as of December
31, 1996:
1997 $ 1,407
1998 303,559
1999 1,727
2000 89,914
2001 52,121
Thereafter 273,081
--------
Total $721,809
========
Other Notes Payable
Other notes payable at December 31, 1995 and 1996 consists of the following:
1995 1996
---- ----
Notes payable to banks, line of credit,
interest generally at prime (8.25% at
December 31, 1996), maximum borrowings
available up to $7.5 million to fund
tenant loans, allowances and buyouts
and working capital. $2,584 $2,293
Other 69 60
------ ------
$2,653 $2,353
====== ======
Interest Expense
Interest paid on mortgages and other notes payable in 1994, 1995 and 1996, net
of amounts capitalized of $3.6 million, $3.5 million and $4.8 million,
approximated $49.6 million, $55.6 million and $49.9 million.
Extraordinary Items
In 1995, Bellevue Associates recognized an extraordinary gain of approximately
$31.4 million (Note 1). Other extraordinary charges to income totaling $3.5
million in 1994 and $0.6 million in 1995 primarily represent prepayment
penalties relating to the extinguishment of mortgage debt.
F - 38
<PAGE>
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
Interest Rate Hedging Instruments
Certain of the Joint Ventures have entered into interest rate swap and cap
agreements to reduce their exposure to changes in the cost of floating rate
debt. These Joint Ventures are exposed to credit risk in the event of
nonperformance by their counterparties to the agreements, but have no
off-balance sheet risk of loss. These Joint Ventures anticipate that their
counterparties will be able to fully perform their obligations under the
agreements.
Fair Value of Debt Instruments
The estimated fair values of financial instruments at December 31, 1995 and
1996 are as follows:
December 31
-----------------------------------------------
1995 1996
----------------------- ---------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------- -------- --------- --------
Mortgage notes payable $738,468 $789,960 $721,809 $757,438
Other notes payable 2,653 2,653 2,353 2,353
Interest rate instruments:
In a receivable position 4,765 3,331 4,065 3,263
In a payable position 23 (247) 0 0
Note 5 - Leases
Shopping center space is leased to tenants and certain anchors pursuant to
lease agreements. Tenant leases typically provide for guaranteed minimum rent,
percentage rent and other charges to cover certain operating costs. Future
minimum rent under operating leases in effect at December 31, 1996 for operating
centers, assuming no new or renegotiated leases or option extensions on anchor
agreements, is summarized as follows:
1997 $151,705
1998 146,381
1999 135,721
2000 120,401
2001 103,685
Thereafter 290,246
Minimum rent received from former related parties was $2.1 million and $0.9
million in 1994 and 1995. There are no related party amounts in the table above.
One Joint Venture, as lessee, has a ground lease expiring in 2083. Rental
payments under the lease were $1.7 million in each of 1994, 1995 and 1996. All
of the ground lease rental payments and scheduled future payments represent
minimum rental expense payable to its Joint Venture Partner.
F - 39
<PAGE>
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
The following is a schedule of future minimum rental payments required under
the lease.
1997 $ 1,790
1998 1,984
1999 1,984
2000 1,984
2001 1,984
Thereafter 658,475
Capital Lease Obligation
A joint venture has entered into a lease agreement for property improvements
with a five year term ending December 2001. As of December 31, 1996, future
minimum lease payments for this capital lease are as follows:
1997 $ 1,246
1998 1,245
1999 1,246
2000 1,245
2001 1,246
-------
Total minimum lease payments $ 6,228
Less amount representing interest (1,228)
-------
Capital lease obligation $ 5,000
=======
Note 6 - Transactions with Affiliates
Charges from the Manager and affiliates under various written agreements were
as follows for the years ended December 31:
1994 1995 1996
---- ---- ----
Management and leasing services $18,156 $18,668 $16,720
Security and maintenance services 15,635 15,468 11,608
Development services 5,335 5,708 8,782
------- ------- -------
$39,126 $39,844 $37,110
======= ======= =======
In 1994, Westfarms loaned $2.4 million to one of its Joint Venture Partners
to purchase a portion of a deceased Joint Venture Partner's interest. The note
bears interest at Westfarms' average borrowing rate and requires monthly
principal payments of $25 thousand, plus accrued interest. The balance at
December 31, 1995 and 1996 was $1.9 million and $1.6 million, respectively.
Interest income related to the loan was approximately $0.1 million in 1994, 1995
and 1996.
Other related party transactions are described in Notes 1, 5, and 7.
F - 40
<PAGE>
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
Note 7 - Subsequent Events
TRG's ownership interest in Arizona Mills, L.L.C. increased in January 1997
to 37% as a result of Arizona Mills, L.L.C. redemption of a former owner's 5%
interest for $2.8 million. The former owner is an affiliate of a partner in TRG.
Also in January 1997, Arizona Mills, L.L.C. closed on a secured $145 million
construction facility maturing in 2002. The loan bears interest at LIBOR plus
1.3%. The facility is hedged until maturity at a one month LIBOR cap rate of
9.5%. The payment of principal and interest is recourse to each of the owners of
Arizona Mills to the extent of their ownership percentage.
F - 41
<PAGE>
<TABLE>
<CAPTION>
Schedule II
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
Valuation and Qualifying Accounts
For the years ended December 31, 1994, 1995 and 1996
(in thousands)
Additions
--------------------------
Balance at Charged to Charged to Balance
beginning costs and other at end
of year expenses accounts Write-offs of year
------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful receivables $ 502 1,274 0 (1,374) $ 402
====== ===== ====== ====== ======
Year ended December 31, 1995:
Allowance for doubtful receivables $ 402 974 0 (1,219) (1) $ 157
====== ===== ====== ====== ======
Year ended December 31, 1996:
Allowance for doubtful receivables $ 157 1,303 0 (1,370) (2) $ 90
====== ===== ====== ====== ======
(1)Included in this amount is $17 which represents the balance of Bellevue's allowance for doubtful receivables as of
October 31, 1995, the date on which TRG ceased recognition of Bellevue's operations.
(2)Included in this amount is $42 which represents the balance of Fairlane's allowance for doubtful receivables as of the
date of TRG's acquisition of the remaining interests in Fairlane. As of this date, the accounts of Fairlane have been
consolidated in TRG's financial statements.
</TABLE>
F - 42
<PAGE>
<TABLE>
<CAPTION>
Schedule III
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(in thousands)
Gross Amount at Which
Initial Cost Carried at Close of Period
to Company Cost ------------------------------------------
------------------- Capitalized Accumulated Total
Buildings and Subsequent Depreciation Cost Net
Land Improvements to Acquisition Land BI&E Total (A/D) of A/D
---- ------------- -------------- ---- ---- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Taubman Shopping Centers:
Cherry Creek, Denver, CO $ 0 $104,222 $ 11,076 $ 0 $115,298 $115,298 $ 29,932 $ 85,366
Fair Oaks, Fairfax, VA 5,167 36,191 9,991 5,167 46,182 51,349 26,651 24,698
Lakeside, Sterling Heights, MI 2,638 21,182 4,957 2,638 26,139 28,777 20,962 7,815
Stamford Town Center, Stamford, CT 1,977 43,584 11,173 1,977 54,757 56,734 25,742 30,992
Twelve Oaks Mall, Novi, MI 803 28,877 15,559 803 44,436 45,239 22,388 22,851
Westfarms, Farmington, CT 5,071 38,657 10,406 5,071 49,063 54,134 18,765 35,369
Woodfield, Schaumburg, IL 5,264 18,515 93,775 5,264 112,290 117,554 27,071 90,483
Woodland, Grand Rapids, MI 2,367 19,078 9,040 2,367 28,118 30,485 16,980 13,505
Other Properties:
Peripheral land 667 0 0 667 0 667 0 667
Construction in Process 22,770 45,243 81,899 0 149,912 149,912 0 149,912
------- -------- -------- ------- ------- ------- ------- --------
TOTAL $46,724 $355,549 $247,876 $23,954 $626,195 $650,149 $188,491 $461,658
======= ======== ======== ======= ======== ======== ======== ========
<CAPTION>
Date of
Completion of Depreciable
Encumbrances Construction Life
------------ ---------------- ------------
<S> <C> <C> <C>
Taubman Shopping Centers:
Cherry Creek, Denver, CO $130,000 1990 40 Years
Fair Oaks, Fairfax, VA 39,865 1980 55 Years
Lakeside, Sterling Heights, MI 88,000 1976 40 Years
Stamford Town Center,
Stamford, CT 56,291 1982 40 Years
Twelve Oaks Mall, Novi, MI 49,924 1977 50 Years
Westfarms, Farmington, CT 119,729 1974 34 Years
Woodfield, Schaumburg, IL 172,000 1971 33 Years
Woodland, Grand Rapids, MI 66,000 1968 33 Years
Other Properties:
Peripheral land 0
Construction in Process 0
--------
TOTAL $721,809
========
</TABLE>
<PAGE>
The changes in total real estate assets for the three years ended December 31,
1996 are as follows:
1994 1995 1996
---- ---- ----
Balance, beginning of year $544,743 $600,877 $570,066
Acquisitions 17,446
Improvements 46,128 48,320 119,781 (2)
Disposals (7,440) (79,131)(1) (4,775)
Transfers Out (34,923)(3)
-------- -------- --------
Balance, end of year $600,877 $570,066 $650,149
======== ======== ========
The changes in accumulated depreciation and amortization for the three years
ended December 31, 1996 are as follows:
1994 1995 1996
---- ---- ----
Balance, beginning of year $(184,913) $(198,103) $(196,263)
Depreciation for year (17,118) (18,378) (17,976)
Disposals 3,928 20,218 (1) 4,564
Transfers Out 21,184(3)
--------- --------- ---------
Balance, end of year $(198,103) $(196,263) $(188,491)
========= ========= =========
(1)Includes amounts related to the disposition of Bellevue Center. Subsequent to
October 31, 1995, TRG ceased recognition of Bellevue's operations,
consequently, the accounts of Bellevue are no longer included in these
combined financial statements.
(2)Includes TRG's transfer to Arizona Mills and MacArthur Center of TRG's
accumulated pre-construction costs related to these projects.
(3)Subsequent to TRG's purchase of the Joint Venture Partner's interest, the
accounts of Fairlane are no longer included in these combined financial
statements.
F-43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
By: THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
By: Taubman Centers, Inc.,
its Managing General Partner
Date: March 27, 1997 By: /s/ ROBERT S. TAUBMAN
---------------------------------------------
Robert S. Taubman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman of the Board March 27, 1997
- ---------------------- --------------
A. Alfred Taubman
* Vice Chairman of the Board March 27, 1997
- ---------------------- --------------
Robert C. Larson
/s/ ROBERT S. TAUBMAN President, Chief Executive March 27, 1997
- ---------------------- Officer, and Director --------------
Robert S. Taubman
/s/ LISA A. PAYNE Chief Financial Officer March 27, 1997
- ---------------------- and Director --------------
Lisa A. Payne
/s/ RICHARD B. MCGLINN Chief Accounting Officer March 27, 1997
- ---------------------- --------------
Richard B. McGlinn
* Director March 27, 1997
- ---------------------- --------------
Graham Allison
* Director March 27, 1997
- ---------------------- --------------
Claude M. Ballard
* Director March 27, 1997
- ---------------------- --------------
Allan J. Bloostein
* Director March 27, 1997
- ---------------------- --------------
Jerome A. Chazen
* Director March 27, 1997
- ---------------------- --------------
S. Parker Gilbert
* Director March 27, 1997
- ---------------------- --------------
W. Allen Reed
*By: /s/ LISA A. PAYNE
-----------------
Lisa A. Payne, as
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit
Number
* 2(a) -- Purchase and Sale Agreement By and Between The Pacific Telesis
Group Master Pension Trust and The Taubman Realty Group Limited
Partnership, dated July 17, 1996 (without exhibits or schedules,
which will be supplementally provided to the Securities and
Exchange Commission upon its request) (incorporated herein by
reference to Exhibit 2(a) filed with the Registrant's Current
Report on Form 8-K dated July 19, 1996).
* 2(b) -- Subscription Agreement By and Between The Pacific Telesis Group
Master Pension Trust and The Taubman Realty Group Limited
Partnership dated July 18, 1996 (without exhibits or schedules,
which will be supplementally provided to the Securities and
Exchange Commission upon its request) (incorporated herein by
reference to Exhibit 2(b) filed with the Registrant's Current
Report on Form 8-K dated July 19, 1996).
3(a) -- The Amended and Restated Agreement of Limited Partnership of The
Taubman Realty Group Limited Partnership (excluding exhibits
filed separately) (incorporated herein by reference to Exhibit
3(a) filed with the Registrant's Registration Statement on Form
S-4 (File No. 33- 73988) (the "Registration Statement")).
4(a) -- Amended and Restated Indenture dated as of March 4, 1994
between The Taubman Realty Group Limited Partnership and Chemical
Bank, as Trustee (incorporated herein by reference to Exhibit
4(a) filed with Amendment No. 1 to the Registration Statement).
4(b) -- Officers' Certificate designating the terms of the 7% Notes due
2003 (incorporated herein by reference to Exhibit 4(b) filed with
Amendment No. 1 to the Registration Statement).
4(c) -- Officers' Certificate designating the terms of the 8% Notes due
1999 (incorporated herein by reference to Exhibit 4(f) filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994 (the "1994 Second Quarter Form 10-Q")).
4(d) -- Indenture dated as of July 22, 1994 among Beverly Finance Corp.,
La Cienega Associates, the Borrower, and Morgan Guaranty Trust
Company of New York, as Trustee (incorporated herein by reference
to Exhibit 4(g) filed with the 1994 Second Quarter Form 10-Q).
<PAGE>
EXHIBIT INDEX
Exhibit
Number
4(e) -- Deed of Trust, with assignment of Rents, Security Agreement and
Fixture Filing, dated as of July 22, 1994, from La Cienega
Associates, Grantor, to Commonwealth Land Title Company, Trustee,
for the benefit of Morgan Guaranty Trust Company of New York, as
Trustee, Beneficiary (incorporated herein by reference to Exhibit
4(h) filed with the 1994 Second Quarter Form 10-Q).
4(f) -- Revolving Loan Agreement dated as of April 29, 1994, among The
Taubman Realty Group Limited Partnership, as Borrower, Union Bank
of Switzerland, (New York Branch), as Bank and Union Bank of
Switzerland (New York Branch), as Administrative Agent (the
"Revolving Loan Agreement") (incorporated herein by reference to
Exhibit 4(i) filed with the 1994 Second Quarter Form 10-Q), as
amended by an Amendment to the Revolving Loan Agreement dated
August 10, 1994 (incorporated herein by reference to Exhibit 4(g)
filed with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994 (the "1994 Third Quarter Form
10-Q")) and as modified by a Letter Agreement modifying the
Revolving Loan Agreement dated June 20, 1995 (incorporated herein
by reference to exhibit 4(g) filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995
(the "1995 Second Quarter Form 10-Q")).
4(g) -- Officers' Certificate designating the terms of the Floating Rate
Notes due 1997 (incorporated herein by reference to Exhibit 4(h)
filed with the 1994 Third Quarter Form 10-Q).
4(h) -- Medium-Term Notes due June 15, 2002 (incorporated herein by
reference to Exhibit 4(i) filed with the 1995 Second Quarter Form
10-Q).
**10(a) -- The Taubman Realty Group Limited Partnership 1992 Incentive
Option Plan (incorporated herein by reference to Exhibit 10(a)
filed with the Registration Statement).
10(b) -- Corporate Services Agreement between Taubman Centers, Inc. and
The Taubman Company Limited Partnership (the "Manager")
(incorporated herein by reference to Exhibit 10(b) filed with the
Registration Statement).
10(c) -- Master Services Agreement between The Taubman Realty Group
Limited Partnership and the Manager (incorporated herein by
reference to Exhibit 10(c) filed with the Registration
Statement).
<PAGE>
EXHIBIT INDEX
Exhibit
Number
**10(d) -- Financial Performance Incentive Plan (incorporated herein by
reference to Exhibit 10(d) filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 ("1994
Form 10-K")).
**10(e) -- Supplemental Retirement Savings Plan (incorporated herein by
reference to Exhibit 10(e) filed with the 1994 Form 10-K).
**10(f) -- The Taubman Company Long-Term Performance Compensation Plan
(incorporated herein by reference to Exhibit 10(g) filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
12 -- Statement Re: Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of The Taubman Realty Group Limited Partnership.
23 -- Consent of Deloitte & Touche LLP.
24 -- Powers of Attorney.
27 -- Financial Data Schedule.
- --------------------
* Certain portions of this document have been omitted and separately filed with
the Securities and Exchange Commission with a request for confidential
treatment.
** A management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.
Exhibit 12
<TABLE>
<CAPTION>
The Taubman Realty Group Limited Partnership
Computation of Ratios of Earnings to Fixed Charges
(in thousands of dollars, except ratios)
Year Ended December 31
---------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Earnings from Continuing Operations $ 62,926 $ 69,326 $ 72,203 $ 79,699 $ 84,094
Add back:
Fixed charges 149,449 77,230 88,198 110,541 113,480
Amortization of previously capitalized
interest (1) 1,798 1,818 2,035 2,185 1,969
Distributions in excess of equity in net
income of 25% owned Joint Venture 316 298 (100) (344) 122
Deduct:
Capitalized interest (1) (1,719) (4,316) (8,899) (8,651) (8,869)
-------- -------- -------- -------- --------
Earnings Available for Fixed Charges $212,770 $144,356 $153,437 $183,430 $190,796
======== ======== ======== ======== ========
Fixed Charges
Interest expense GM Loan $ 81,613
Mortgage notes and other 36,041 $ 45,337 $ 47,732 $ 65,858 $ 70,454
Capitalized interest 297 2,640 7,098 6,852 5,682
Interest portion of rent expense 4,465 4,276 4,101 4,762 5,556
Proportionate share of Joint Ventures' fixed
charges 27,033 24,977 29,267 33,069 31,788
-------- -------- -------- ------- --------
Total Fixed Charges $149,449 $ 77,230 $ 88,198 $110,541 $113,480
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 1.4 1.9 1.7 1.7 1.7
(1)Amounts include TRG's pro rata share of capitalized interest and amortization
of previously capitalized interest of the Joint Ventures.
</TABLE>
Exhibit 21
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
LIST OF SUBSIDIARIES
JURISDICTION
NAME OF FORMATION DOING BUSINESS AS
- ---- ------------ -----------------
Biltmore Shopping Center Partners Arizona Biltmore Fashion Park
La Cienega Associates California Beverly Center
Briarwood Michigan Briarwood
TL-Columbus Associates Michigan Columbus City Center
Fairlane Town Center Michigan Fairlane Town Center
Richmond Associates Michigan Hilltop
La Cumbre Shopping Center Associates California La Cumbre Plaza
Lakeforest Associates Maryland Lakeforest
Short Hills Associates New Jersey The Mall at Short Hills
TKL-East Michigan Marley Station
Taubman Western Associates No. 2 Michigan Meadowood Mall
Katy-Gessner Associates Limited
Partnership Delaware Memorial City Mall (Leased)
Paseo Nuevo Associates California Paseo Nuevo
Stoneridge Properties California Stoneridge Mall
Taub-Co Management, Inc. Michigan N/A
The Taubman Company Limited
Partnership Delaware The Taubman Company
Tuttle Crossing Associates Ohio The Mall at Tuttle Crossing
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment No. 2 to Form S-3
Registration Statement No. 33-90818 and in Form S-8 Registration Statement No.
33-80650 of The Taubman Realty Group Limited Partnership of our reports dated
February 17, 1997, on the consolidated financial statements and the financial
statement schedules of The Taubman Realty Group Limited Partnership and the
combined financial statements and the financial statement schedules of
Unconsolidated Joint Ventures of The Taubman Realty Group Limited Partnership
appearing in this Annual Report on Form 10-K of The Taubman Realty Group Limited
Partnership for the year ended December 31, 1996.7
Deloitte & Touche LLP
Detroit, Michigan
March 26, 1997
Exhibit 24
POWER OF ATTORNEY
The undersigned, a Director of Taubman Centers, Inc., a Michigan
corporation (the "Company"), Managing General Partner of The Taubman Realty
Group Limited Partnership ("TRG"), does hereby constitute and appoint Robert S.
Taubman and Lisa A. Payne and each of them, with full power of substitution, as
his true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, TRG's Annual Report on Form 10-K for the year
ended December 31, 1995, and any and all amendments thereto, to be filed with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Act"), and any and all
instruments that such attorneys and agents, or either of them, may deem
necessary or advisable to enable TRG and the Company to comply with the Act, the
rules, regulations, and requirements of the Commission in respect thereof, and
the undersigned does hereby ratify and confirm as his own act and deed all that
such attorneys and agents, and each of them, shall do or cause to be done by
virtue hereof. Each such attorney or agent shall have, and may exercise, all of
the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his signature
this 3rd day of February, 1997.
/S/GRAHAM ALLISON
--------------------------
Graham Allison
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Taubman Centers, Inc., a Michigan
corporation (the "Company"), Managing General Partner of The Taubman Realty
Group Limited Partnership ("TRG"), does hereby constitute and appoint Robert S.
Taubman and Lisa A. Payne and each of them, with full power of substitution, as
his true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, TRG's Annual Report on Form 10-K for the year
ended December 31, 1995, and any and all amendments thereto, to be filed with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Act"), and any and all
instruments that such attorneys and agents, or either of them, may deem
necessary or advisable to enable TRG and the Company to comply with the Act, the
rules, regulations, and requirements of the Commission in respect thereof, and
the undersigned does hereby ratify and confirm as his own act and deed all that
such attorneys and agents, and each of them, shall do or cause to be done by
virtue hereof. Each such attorney or agent shall have, and may exercise, all of
the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his signature
this 10th day of February, 1997.
/S/CLAUDE M. BALLARD
-------------------------
Claude M. Ballard
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Taubman Centers, Inc., a Michigan
corporation (the "Company"), Managing General Partner of The Taubman Realty
Group Limited Partnership ("TRG"), does hereby constitute and appoint Robert S.
Taubman and Lisa A. Payne and each of them, with full power of substitution, as
his true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, TRG's Annual Report on Form 10-K for the year
ended December 31, 1995, and any and all amendments thereto, to be filed with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Act"), and any and all
instruments that such attorneys and agents, or either of them, may deem
necessary or advisable to enable TRG and the Company to comply with the Act, the
rules, regulations, and requirements of the Commission in respect thereof, and
the undersigned does hereby ratify and confirm as his own act and deed all that
such attorneys and agents, and each of them, shall do or cause to be done by
virtue hereof. Each such attorney or agent shall have, and may exercise, all of
the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his signature
this 3rd day of February, 1997.
/S/ALLAN J. BLOOSTEIN
--------------------------
Allan J. Bloostein
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Taubman Centers, Inc., a Michigan
corporation (the "Company"), Managing General Partner of The Taubman Realty
Group Limited Partnership ("TRG"), does hereby constitute and appoint Robert S.
Taubman and Lisa A. Payne and each of them, with full power of substitution, as
his true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, TRG's Annual Report on Form 10-K for the year
ended December 31, 1995, and any and all amendments thereto, to be filed with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Act"), and any and all
instruments that such attorneys and agents, or either of them, may deem
necessary or advisable to enable TRG and the Company to comply with the Act, the
rules, regulations, and requirements of the Commission in respect thereof, and
the undersigned does hereby ratify and confirm as his own act and deed all that
such attorneys and agents, and each of them, shall do or cause to be done by
virtue hereof. Each such attorney or agent shall have, and may exercise, all of
the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his signature
this 4th day of February, 1997.
/S/JEROME A. CHAZEN
--------------------------
Jerome A. Chazen
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Taubman Centers, Inc., a Michigan
corporation (the "Company"), Managing General Partner of The Taubman Realty
Group Limited Partnership ("TRG"), does hereby constitute and appoint Robert S.
Taubman and Lisa A. Payne and each of them, with full power of substitution, as
his true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, TRG's Annual Report on Form 10-K for the year
ended December 31, 1995, and any and all amendments thereto, to be filed with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Act"), and any and all
instruments that such attorneys and agents, or either of them, may deem
necessary or advisable to enable TRG and the Company to comply with the Act, the
rules, regulations, and requirements of the Commission in respect thereof, and
the undersigned does hereby ratify and confirm as his own act and deed all that
such attorneys and agents, and each of them, shall do or cause to be done by
virtue hereof. Each such attorney or agent shall have, and may exercise, all of
the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his signature
this 4th day of February, 1997.
/S/S. PARKER GILBERT
--------------------------
S. Parker Gilbert
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Taubman Centers, Inc., a Michigan
corporation (the "Company"), Managing General Partner of The Taubman Realty
Group Limited Partnership ("TRG"), does hereby constitute and appoint Robert S.
Taubman and Lisa A. Payne and each of them, with full power of substitution, as
his true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, TRG's Annual Report on Form 10-K for the year
ended December 31, 1995, and any and all amendments thereto, to be filed with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Act"), and any and all
instruments that such attorneys and agents, or either of them, may deem
necessary or advisable to enable TRG and the Company to comply with the Act, the
rules, regulations, and requirements of the Commission in respect thereof, and
the undersigned does hereby ratify and confirm as his own act and deed all that
such attorneys and agents, and each of them, shall do or cause to be done by
virtue hereof. Each such attorney or agent shall have, and may exercise, all of
the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his signature
this 3rd day of February, 1997.
/S/ROBERT C. LARSON
--------------------------
Robert C. Larson
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Taubman Centers, Inc., a Michigan
corporation (the "Company"), Managing General Partner of The Taubman Realty
Group Limited Partnership ("TRG"), does hereby constitute and appoint Robert S.
Taubman and Lisa A. Payne and each of them, with full power of substitution, as
his true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, TRG's Annual Report on Form 10-K for the year
ended December 31, 1995, and any and all amendments thereto, to be filed with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Act"), and any and all
instruments that such attorneys and agents, or either of them, may deem
necessary or advisable to enable TRG and the Company to comply with the Act, the
rules, regulations, and requirements of the Commission in respect thereof, and
the undersigned does hereby ratify and confirm as his own act and deed all that
such attorneys and agents, and each of them, shall do or cause to be done by
virtue hereof. Each such attorney or agent shall have, and may exercise, all of
the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his signature
this 7th day of February, 1997.
/S/W. ALLEN REED
--------------------------
W. Allen Reed
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Taubman Centers, Inc., a Michigan
corporation (the "Company"), Managing General Partner of The Taubman Realty
Group Limited Partnership ("TRG"), does hereby constitute and appoint Robert S.
Taubman and Lisa A. Payne and each of them, with full power of substitution, as
his true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, TRG's Annual Report on Form 10-K for the year
ended December 31, 1995, and any and all amendments thereto, to be filed with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Act"), and any and all
instruments that such attorneys and agents, or either of them, may deem
necessary or advisable to enable TRG and the Company to comply with the Act, the
rules, regulations, and requirements of the Commission in respect thereof, and
the undersigned does hereby ratify and confirm as his own act and deed all that
such attorneys and agents, and each of them, shall do or cause to be done by
virtue hereof. Each such attorney or agent shall have, and may exercise, all of
the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his signature
this 3rd day of February, 1997.
/S/A. ALFRED TAUBMAN
--------------------------
A. Alfred Taubman
<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
DECEMBER 31, 1996 AND TRG'S CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1996 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> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 7,902
<SECURITIES> 0
<RECEIVABLES> 27,437
<ALLOWANCES> 393
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 1,126,873
<DEPRECIATION> 234,030
<TOTAL-ASSETS> 969,283
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 1,041,254
0
0
<COMMON> 0
<OTHER-SE> (292,138)
<TOTAL-LIABILITY-AND-EQUITY> 969,283
<SALES> 0
<TOTAL-REVENUES> 262,729
<CGS> 0
<TOTAL-COSTS> 138,593
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,454
<INCOME-PRETAX> 84,094
<INCOME-TAX> 0
<INCOME-CONTINUING> 84,094
<DISCONTINUED> 0
<EXTRAORDINARY> (1,328)
<CHANGES> 0
<NET-INCOME> 82,766
<EPS-PRIMARY> 1,270<F2>
<EPS-DILUTED> 1,270<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>
