SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: June 30, 1997
Commission File No. 33-73988
The Taubman Realty Group Limited Partnership
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3097317
---------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Long Lake Road, Suite 300, P.O. Box 200, Bloomfield Hills, Michigan
----------------------------------------------------------------------------
(Address of principal executive offices) 48303-0200
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(Zip Code)
(248) 258-6800
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
------- -------
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following financial statements of The Taubman Realty Group Limited
Partnership (TRG) are provided pursuant to the requirements of this item.
INDEX TO FINANCIAL STATEMENTS
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
- --------------------------------------------
Consolidated Balance Sheet as of December 31, 1996 and June 30, 1997 .....2
Consolidated Statement of Operations for the three months ended
June 30, 1996 and 1997.......................................................3
Consolidated Statement of Operations for the six months ended
June 30, 1996 and 1997.......................................................4
Consolidated Statement of Cash Flows for the six months ended
June 30, 1996 and 1997.......................................................5
Notes to Consolidated Financial Statements.....................................6
- 1 -
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31 June 30
----------- -------
1996 1997
---- ----
Assets:
Properties $1,126,873 $1,181,476
Accumulated depreciation and amortization 234,030 249,258
---------- ----------
$ 892,843 $ 932,218
Cash and cash equivalents 7,902 1,702
Accounts and notes receivable, less
allowance for doubtful accounts of $393
and $256 in 1996 and 1997 20,751 18,320
Accounts receivable from related parties 6,293 5,869
Deferred charges and other assets 41,494 40,117
---------- ----------
$ 969,283 $ 998,226
========== ==========
Liabilities:
Unsecured notes payable $ 786,705 $ 786,786
Mortgage notes payable 159,703 159,472
Other notes payable 54,997 104,249
Capital lease obligation 39,849 49,642
Accounts payable and other liabilities 84,505 85,227
Distributions in excess of net income of
unconsolidated Joint Ventures (Note 3) 135,662 123,097
---------- ----------
$1,261,421 $1,308,473
Commitments and Contingencies (Note 5)
Accumulated deficiency in assets (292,138) (310,247)
---------- ----------
$ 969,283 $ 998,226
========== ==========
Allocation of accumulated deficiency
in assets:
General Partners $ (226,242) $ (240,274)
Limited Partners (65,896) (69,973)
---------- ----------
$ (292,138) $ (310,247)
=========== ==========
See notes to financial statements.
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except units data)
Three Months Ended June 30
--------------------------
1996 1997
---- ----
Revenues:
Minimum rents $34,760 $42,416
Percentage rents 1,425 1,709
Expense recoveries 18,653 23,480
Other 3,074 3,081
Revenues from management, leasing
and development services 1,905 2,014
------- -------
$59,817 $72,700
------- -------
Operating Costs:
Recoverable expenses $15,430 $20,293
Other operating 6,375 9,746
Management, leasing and development
services 1,124 1,005
General and administrative 5,520 6,414
Interest expense 17,238 17,330
Depreciation and amortization 8,378 10,232
------- -------
$54,065 $65,020
------- -------
Income before equity in net income of
unconsolidated Joint Ventures $ 5,752 $ 7,680
Equity in net income of unconsolidated
Joint Ventures (Note 3) 12,748 14,490
------- -------
Net Income $18,500 $22,170
======= =======
Allocation of Net Income:
General Partners $14,803 $17,169
Limited Partners 3,697 5,001
------- -------
$18,500 $22,170
======= =======
Net Income per Unit of Partnership Interest $ 291 $ 317
======= =======
Weighted Average Number of Units of
Partnership Interest Outstanding 63,521 70,000
======= =======
See notes to financial statements.
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except units data)
Six Months Ended June 30
------------------------
1996 1997
---- ----
Revenues:
Minimum rents $ 69,523 $ 85,266
Percentage rents 2,452 3,163
Expense recoveries 38,260 46,185
Other 5,608 7,005
Revenues from management, leasing
and development services 3,706 3,623
-------- --------
$119,549 $145,242
-------- --------
Operating Costs:
Recoverable expenses $ 31,016 $ 39,291
Other operating 11,594 18,238
Management, leasing and development
services 2,369 1,928
General and administrative 10,273 12,070
Interest expense 34,340 34,614
Depreciation and amortization 16,700 20,334
-------- --------
$106,292 $126,475
-------- --------
Income before equity in net income
of unconsolidated Joint Ventures $ 13,257 $ 18,767
Equity in net income of unconsolidated
Joint Ventures (Note 3) 26,111 26,987
-------- --------
Net Income $ 39,368 $ 45,754
======== ========
Allocation of Net Income:
General Partners $ 31,501 $ 35,434
Limited Partners 7,867 10,320
-------- --------
$ 39,368 $ 45,754
======== ========
Net Income per Unit of Partnership Interest $ 620 $ 654
======== ========
Weighted Average Number of Units of
Partnership Interest Outstanding 63,521 69,999
======== ========
See notes to financial statements.
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Six Months Ended June 30
------------------------
1996 1997
---- ----
Cash Flows From Operating Activities:
Net Income $ 39,368 $ 45,754
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 16,700 20,334
Provision for losses on accounts receivable 1,025 474
Amortization of deferred financing costs 1,141 1,181
Other 371 294
Gain on sale of land (322) (316)
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Receivables, deferred charges and other assets (1,360) (1,206)
Accounts payable and other liabilities (10,095) 722
-------- --------
Net Cash Provided By Operating Activities $ 46,828 $ 67,237
-------- --------
Cash Flows From Investing Activities:
Purchase of interest in Center $(37,196)
Additions to properties (10,609) $(46,860)
Proceeds from sale of land 686 830
Contributions to unconsolidated Joint Ventures (4,187) (16,254)
Distributions from unconsolidated Joint Ventures
in excess of net income 5,613 3,689
-------- --------
Net Cash Used In Investing Activities $(45,693) $(58,595)
-------- --------
Cash Flows From Financing Activities:
Debt proceeds $ 55,663 $ 49,252
Debt payments (227) (231)
Issuance of units of partnership interest (Note 5) 176
Cash distributions (58,113) (64,039)
-------- --------
Net Cash Used In Financing Activities $ (2,677) $(14,842)
-------- --------
Net Decrease In Cash $ (1,542) $ (6,200)
Cash and Cash Equivalents at Beginning of Period 16,836 7,902
-------- --------
Cash and Cash Equivalents at End of Period $ 15,294 $ 1,702
======== ========
Interest on mortgage notes and other loans paid during the six months ended June
30, 1996 and 1997, net of amounts capitalized of $2,294 and $4,337, was $32,506
and $32,811, respectively.
See notes to financial statements.
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six months ended June 30, 1997
Note 1 - Interim Financial Statements
The Taubman Realty Group Limited Partnership (TRG) engages in the ownership,
operation, management, leasing, acquisition, development, redevelopment,
expansion, financing and refinancing of regional retail shopping centers
(Taubman Shopping Centers) and interests therein. Taubman Centers, Inc. is the
managing general partner of TRG. GMPTS Limited Partnership, TG Partners Limited
Partnership and Taub-Co Management, Inc. are also general partners.
The unaudited interim financial statements should be read in conjunction with
the audited financial statements and related notes included in TRG's Annual
Report on Form 10-K for the year ended December 31, 1996. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial statements for the interim
periods have been made. The results for interim periods are not necessarily
indicative of the results for a full year.
Note 2 - Great Lakes Crossing
In the second quarter of 1997, TRG entered into a partnership agreement to
develop, own and operate Great Lakes Crossing, a value super-regional mall
presently under construction in Auburn Hills, Michigan. The accounts of the
partnership are consolidated in these financial statements since TRG, the
managing and sole general partner, has a controlling 80% interest in the
venture. The Center is expected to open in the fall of 1998.
Note 3 - Investments in Joint Ventures
Certain Taubman Shopping Centers are partially owned through joint ventures
that are not controlled by TRG (Joint Ventures). TRG is generally 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 June 30, 1997
--------------------------------------------------------------------------
Arizona Mills, L.L.C. Arizona Mills
(under construction) 37%
Fairfax Associates Fair Oaks 50
Lakeside Mall Limited
Partnership Lakeside 50
Rich-Taubman Associates Stamford Town Center 50
Taubman-Cherry Creek
Limited Partnership Cherry Creek 50
Taubman MacArthur Associates MacArthur Center
Limited Partnership (under construction) 70
Twelve Oaks Mall Limited
Partnership Twelve Oaks Mall 50
West Farms Associates Westfarms 79
Woodfield Associates Woodfield 50
Woodland Woodland 50
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<PAGE>
TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (Continued)
TRG reduces its investment in Joint Ventures to eliminate intercompany profits
on sales of services that are capitalized by the Joint Ventures. As a result,
the carrying value of TRG's investment in Joint Ventures is less than TRG's
share of the deficiency in assets reported in the combined balance sheet of the
Joint Ventures by $8.6 million and $8.8 million at December 31, 1996 and at June
30, 1997, respectively. These differences are amortized over the useful lives of
the related assets.
Combined balance sheet and results of operations information are presented
below (in thousands) for the 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 June 30
----------- -------
1996 1997
---- ----
Assets:
Properties, net $ 461,658 $ 517,051
Other assets 71,278 69,471
--------- ---------
$ 532,936 $ 586,522
========= =========
Liabilities and partners' accumulated
deficiency in assets:
Debt $ 724,162 $ 781,280
Capital lease obligations 5,000 6,699
Other liabilities 53,817 41,658
TRG accumulated deficiency in assets (127,097) (114,319)
Joint Venture Partners' accumulated
deficiency in assets (122,946) (128,796)
--------- ---------
$ 532,936 $ 586,522
========= =========
TRG accumulated deficiency in assets (above) $(127,097) $(114,319)
Elimination of intercompany profit (8,565) (8,778)
--------- ---------
Distributions in excess of net income
of unconsolidated Joint Ventures $(135,662) $(123,097)
========= =========
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1996 1997 1996 1997
---- ---- ---- ----
Revenues $68,680 $64,452 $138,712 $125,133
------- ------- -------- --------
Recoverable and other
operating expenses $27,444 $23,233 $ 54,929 $ 45,590
Interest expense 13,607 12,505 27,457 24,872
Depreciation and amortization 6,226 5,333 11,899 10,617
------- ------- -------- --------
Total operating costs $47,277 $41,071 $ 94,285 $ 81,079
------- ------- -------- --------
Net Income $21,403 $23,381 $ 44,427 $ 44,054
======= ======= ======== ========
Net income attributable to TRG $11,073 $12,394 $ 23,114 $ 23,800
Realized intercompany profit 1,675 2,096 2,997 3,187
------- ------- -------- --------
Equity in net income of
unconsolidated Joint Ventures $12,748 $14,490 $ 26,111 $ 26,987
======= ======= ======== ========
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<PAGE>
TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1996 1997 1996 1997
---- ---- ---- ----
TRG's beneficial interest in
unconsolidated Joint Ventures'
operations:
Revenues less recoverable and
other operating expenses $22,434 $23,838 $ 45,751 $ 45,637
Interest expense (6,762) (6,640) (13,934) (13,229)
Depreciation and amortization (2,924) (2,708) (5,706) (5,421)
------- ------- -------- --------
Net Income $12,748 $14,490 $ 26,111 $ 26,987
======= ======= ======== ========
Note 4 - Beneficial Interest in Debt and Interest Expense
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 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, 1996 $724,162 $396,962 $1,001,405 $1,398,367
June 30, 1997 781,280 423,268 1,050,506 1,473,774
Capitalized interest:
Six months ended
June 30, 1996 $ 2,222 $ 1,545 $ 2,294 $ 3,839
Six months ended
June 30, 1997 4,547 2,830 4,337 7,167
Interest expense
(Net of capitalized interest):
Six months ended
June 30, 1996 $ 27,457 $ 13,934 $ 34,340 $ 48,274
Six months ended
June 30, 1997 24,872 13,229 34,614 47,843
Note 5 - Incentive Option Plan
TRG has an incentive option plan for employees of the Manager. Currently,
4,500 units of partnership interest may be issued under the plan. The exercise
price of all outstanding options is equal to market value on the date of grant.
Incentive options generally become vested 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.
During the first six months of 1997, options for 51 units were issued at an
exercise price of $26.0 thousand per unit, options for eight units were
exercised with a weighted average exercise price of $22.0 thousand per unit, and
options for six units were canceled with a weighted average exercise price of
$21.2 thousand per unit. As of June 30, 1997 there were outstanding options for
3,573 units with a weighted average exercise price of $22.2 thousand. As of June
30, 1997, options for 2,054 units were vested with a weighted average exercise
price of $22.4 thousand.
- 8 -
<PAGE>
TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Note 6 - Subsequent Event
In July 1997, TRG entered in an agreement to acquire for cash Regency Square
shopping center located in Richmond, Virginia. The transaction is contingent
upon completion of due diligence and receipt of necessary consents and
approvals. TRG has agreed with the seller not to disclose the purchase price
until after closing, which is expected to be completed before year end. TRG
intends to use existing lines of credit to pay for the acquisition, which is
expected to have an immaterial effect on net income in 1997.
Also in July 1997, TRG issued $55 million of unsecured 10-year notes under its
medium-term note program at a coupon rate of seven percent. The net proceeds
were used to pay down floating rate debt under its revolving credit facilities.
- 9 -
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements of The Taubman Realty Group Limited
Partnership and the Notes thereto.
General Background and Performance Measurement
The Taubman Realty Group Limited Partnership (TRG) is an operating partnership
that engages in the full range of activities of the regional shopping center
business. These activities include the ownership, operation, management,
leasing, expansion, acquisition, development, redevelopment, financing and
refinancing of regional shopping centers. TRG's Managed Businesses include: (i)
Taubman Shopping Centers that TRG controls by ownership or contractual
agreement, 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 that are not controlled (Joint
Ventures). The Joint Ventures are accounted for under the equity method in TRG's
Consolidated Financial Statements.
Certain aspects of the performance of the Managed Businesses are best
understood by measuring their performance as a whole, without regard to TRG's
ownership interest. For example, mall tenant sales and shopping center occupancy
trends fit this category and are so analyzed below. In addition, trends in
certain items of revenue and expense are often best understood in the same
fashion and the discussions following take this approach when appropriate. When
relevant, these items are also discussed separately with regard to the
Consolidated Businesses and the Joint Ventures.
Seasonality
The regional shopping center industry is seasonal in nature, with mall tenant
sales highest in the fourth quarter due to the Christmas season, and with
lesser, though still significant, sales fluctuations associated with the Easter
holiday and back-to-school events. While minimum rents and recoveries are
generally not subject to seasonal factors, most leases are scheduled to expire
in the first quarter, and the majority of new stores open in the second half of
the year in anticipation of the Christmas selling season. Accordingly, revenues
and occupancy levels are generally highest in the fourth quarter.
The following table summarizes certain quarterly operating data for TRG's
Managed Businesses for 1996 and the first and second quarters of 1997:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th 1st 2nd
Quarter Quarter Quarter Quarter Total Quarter Quarter
1996 1996 1996 1996 1996 1997 1997
-----------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mall tenant sales $591,677 $617,821 $627,791 $989,956 $2,827,245 $600,709 $629,906
Revenues 129,764 128,497 129,730 138,250 526,241 130,322 134,429
Occupancy
Average Occupancy 87.8% 87.3% 86.8% 87.6% 87.4% 86.5% 86.8%
Ending Occupancy 87.7% 87.3% 86.8% 88.0% 88.0% 86.4% 87.1%
Leased Space 89.5% 88.2% 87.6% 89.0% 89.0% 88.7% 89.5%
</TABLE>
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<PAGE>
Because the seasonality of sales contrasts with the generally fixed nature of
minimum rents and recoveries, mall tenant occupancy costs (the sum of minimum
rents, percentage rents and expense recoveries) relative to sales are
considerably higher in the first three quarters than they are in the fourth
quarter. The following table summarizes occupancy costs, excluding utilities,
for mall tenants as a percentage of sales for 1996 and the first and second
quarters of 1997:
1st 2nd 3rd 4th 1st 2nd
Quarter Quarter Quarter Quarter Total Quarter Quarter
1996 1996 1996 1996 1996 1997 1997
-------------------------------------------------------------
Minimum rents 12.3% 11.7% 11.7% 7.6% 10.4% 12.6% 11.8%
Percentage rents 0.3 0.3 0.3 0.3 0.3 0.2 0.3
Expense recoveries 5.6 5.0 4.6 3.5 4.5 5.2 5.1
---- ---- ---- ---- ---- ---- ----
Mall tenant
occupancy costs 18.2% 17.0% 16.6% 11.4% 15.2% 18.0% 17.2%
==== ==== ==== ==== ==== ==== ====
Rental Rates
Average base rent per square foot for all mall tenants at the 18 Centers owned
and open for at least five years was $38.49 for the twelve months ended June 30,
1997, compared to $37.12 for the twelve months ended June 30, 1996.
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 annual spread between average annualized base rent of stores opening and
closing, excluding renewals, has ranged between six and eleven dollars per
square foot during the past five years. TRG anticipates that the spread between
opening and closing rents for the 1997 fiscal year will narrow from the nine
dollars per square foot achieved in 1996. 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.
Results of Operations
Comparison of the Three and Six Months Ended June 30, 1997 to the Three and Six
Months Ended June 30, 1996
1996 Transactions
During 1996, TRG completed the following acquisitions: Paseo Nuevo in June,
the remaining 75% interest in Fairlane Town Center (Fairlane) previously held by
a Joint Venture Partner in July, and La Cumbre Plaza (La Cumbre) in December.
Also during 1996, TRG issued new units of partnership interest to the former
Joint Venture Partner of Fairlane in connection with TRG's acquisition of
Fairlane, and to TRG's managing general partner, Taubman Centers, Inc. (TCO), in
connection with an offering of TCO's common stock and the exercise of incentive
options. The net proceeds from the issuances were used to repay short term
borrowings and to acquire La Cumbre.
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<PAGE>
In November 1996, TRG entered into an agreement to lease Memorial City Mall
(Memorial City) while TRG investigates the redevelopment opportunities of the
center (See Liquidity and Capital Resources -- Capital Spending). 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 presentations of TRG's
results of operations for the second quarter and first six months of 1997
compared to 1996.
Occupancy and Mall Tenant Sales
The average occupancy rate in the Taubman Shopping Centers was 86.8% for the
three months ended June 30, 1997 compared to 87.3% for the comparable period in
1996. For the six months ended June 30, 1997 average occupancy was 86.7%
compared to 87.6% for the same period in 1996. TRG expects that it will not
achieve year over year increases in average occupancy before the fourth quarter
of 1997. The ending occupancy rate for the Taubman Shopping Centers at June 30,
1997 was 87.1% versus 87.3% at the same date in 1996. Leased space at June 30,
1997 was 89.5% compared to 88.2% at the same date in 1996.
Total sales for Taubman Shopping Center mall tenants in the three months ended
June 30, 1997 were $629.9 million, a 2.0% increase from $617.8 million in the
second quarter of 1996. Tenant sales increased 1.7% to $1.23 billion for the six
months ended June 30, 1997 from $1.21 billion for the comparable period in 1996.
Mall tenant sales per square foot increased 0.4% in both the three and six
months ended June 30, 1997 over the compared periods in 1996. Mall tenant sales
for centers owned and open for all of the first six months of 1997 and 1996
(which excludes Paseo Nuevo and La Cumbre) were $605.1 million and $1,183.4
million in the second quarter and the first six months of 1997, a 2.1% decrease
and a 2.2% decrease, respectively, from the comparable periods of 1996. Sales
statistics for the first half of 1997 were negatively affected by new
competition near certain centers. TRG expects that the effect of the competition
on sales will moderate late in 1997 after the anniversary date of the opening of
the competing centers. In addition, sales in the first quarter of 1996 were
favorably impacted as most retailers reported five weeks of sales for January
(this extra week occurs every five to six years). The compound annual growth
rate on sales per square foot for the two year period ending June 30, 1997 was
3.2%.
- 12 -
<PAGE>
Comparison of the Three Months Ended June 30, 1997 to the Three Months Ended
June 30, 1996
The following table sets forth operating results for TRG's Managed Businesses
for the three months ended June 30, 1996 and June 30, 1997, showing the results
of the Consolidated Businesses and Joint Ventures:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1996 Three Months Ended June 30, 1997
----------------------------------------- ------------------------------------------
TRG TOTAL: TRG TOTAL:
CONSOLIDATED JOINT MANAGED CONSOLIDATED JOINT MANAGED
BUSINESSES VENTURES(1) BUSINESSES BUSINESSES(2) VENTURES(1) BUSINESSES
----------------------------------------- ------------------------------------------
(in millions of dollars) (in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Minimum rents 34.8 40.5 75.3 40.5 37.0 77.5
Percentage rents 1.4 0.8 2.2 1.6 0.8 2.4
Expense recoveries 18.6 25.0 43.7 22.8 21.3 44.0
Other 5.0 2.3 7.3 5.0 5.5 10.5
----- ----- ----- ----- ----- -----
Total revenues 59.8 68.7 128.5 69.8 64.6 134.4
OPERATING COSTS:
Recoverable expenses 15.4 21.5 36.9 19.4 18.2 37.5
Other operating 6.4 4.6 11.0 7.8 3.4 11.2
Management, leasing and
development 1.1 1.1 1.0 1.0
General and administrative 5.5 5.5 6.4 6.4
Interest expense 17.2 13.5 30.7 17.3 12.6 30.0
Depreciation and amortization 8.4 5.9 14.3 10.2 5.1 15.3
----- ----- ----- ----- ----- -----
Total operating costs 54.1 45.5 99.5 62.0 39.4 101.4
Net results of Memorial City (2) (0.1) (0.1)
----- ----- ----- ----- ----- -----
5.8 23.3 29.0 7.7 25.2 32.9
===== ===== ===== =====
Equity in net income of Joint Ventures 12.7 14.5
----- -----
NET INCOME 18.5 22.2
===== =====
SUPPLEMENTAL INFORMATION (3)
EBITDA contribution 31.4 22.4 53.8 35.2 23.8 59.1
TRG's Beneficial Interest Expense (17.2) (6.8) (24.0) (17.3) (6.6) (24.0)
Non-real estate depreciation (0.5) (0.5) (0.5) (0.5)
----- ----- ----- ----- ----- -----
Distributable Cash Flow contribution 13.7 15.7 29.3 17.4 17.2 34.6
===== ===== ===== ===== ===== =====
(1) With the exception of the Supplemental Information, amounts represent 100%
of Joint Ventures. Amounts are net of intercompany profits.
(2) The results of operations of Memorial City are presented net in this table.
TRG expects that Memorial City's net operating income will approximate the
ground rent payable under the lease for the immediate future.
(3) EBITDA, TRG's Beneficial Interest Expense and Distributable Cash Flow are
defined and discussed in Liquidity and Capital Resources - Distributions.
(4) Amounts in the table may not add due to rounding.
</TABLE>
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<PAGE>
TRG --Consolidated Businesses
- -----------------------------
Total revenues for the three months ended June 30, 1997 were $69.8 million, a
$10.0 million or 16.7% increase over the comparable period in 1996. Minimum
rents increased $5.7 million, of which $5.1 million was caused by the Fairlane,
Paseo Nuevo, and La Cumbre acquisitions. The results of Fairlane have been
consolidated in TRG's results subsequent to the acquisition date in July 1996
(prior to that date Fairlane was accounted for under the equity method as a
Joint Venture). The increase in expense recoveries was primarily due to
Fairlane, Paseo Nuevo, and La Cumbre.
Total operating costs increased $7.9 million, or 14.6%, to $62.0 million.
Recoverable, other operating, and depreciation and amortization expenses
increased primarily due to the Fairlane, Paseo Nuevo, and La Cumbre
acquisitions. General and administrative expense increased by $0.9 million
primarily due to increases in compensation (including the continuing phase-in of
the long-term compensation plan), recruiter fees and relocation charges, travel,
and training.
Revenues and expenses as presented in the preceding table differ from the
amounts shown in TRG's consolidated statement of operations 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 the three months ended June 30, 1997 were $64.6 million, a
$4.1 million, or 6.0%, decrease from the comparable period of 1996, of which
$6.7 million was caused by the change of Fairlane from a Joint Venture to a
Consolidated Business offset by increases at other Centers. The decrease in
minimum rents was primarily due to Fairlane, offset by increases at other
Centers. The decrease in expense recoveries was due to Fairlane and a decrease
in recoverable expenses. Other income increased by $3.2 million primarily due to
gains on peripheral land sales.
Total operating costs decreased by $6.1 million, or 13.4%, to $39.4 million
for the three months ended June 30, 1997 including a $4.7 million decrease due
to Fairlane. Recoverable expenses decreased $3.3 million primarily due to
Fairlane and decreases in utilities and property taxes. Other operating costs
decreased primarily due to Fairlane and a decrease in bad debt expense. Interest
expense decreased $0.9 million primarily due to a decrease in debt related to
Fairlane and an increase in capitalized interest, partially offset by an
increase in debt used to finance capital expenditures. 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 3 to
TRG's financial statements) by the amount of intercompany profit.
As a result of the foregoing, net income of the Joint Ventures increased by
$1.9 million, or 8.2%, to $25.2 million. TRG's equity in net income of the Joint
Ventures was $14.5 million, a 14.2% increase from the comparable period in 1996.
Net Income
- ----------
As a result of the foregoing, net income for the second quarter of 1997 was
$22.2 million, a 20.0% increase from the comparable period in 1996.
- 14 -
<PAGE>
Comparison of the Six Months Ended June 30, 1997 to the Six Months Ended June
30, 1996
The following table sets forth operating results for TRG's Managed Businesses
for the six months ended June 30, 1996 and June 30, 1997, showing the results of
the Consolidated Businesses and Joint Ventures:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996 Six Months Ended June 30, 1997
----------------------------------------- ------------------------------------------
TRG TOTAL: TRG TOTAL:
CONSOLIDATED JOINT MANAGED CONSOLIDATED JOINT MANAGED
BUSINESSES VENTURES(1) BUSINESSES BUSINESSES(2) VENTURES(1) BUSINESSES
----------------------------------------- ------------------------------------------
(in millions of dollars) (in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Minimum rents 69.5 81.5 151.1 81.3 74.7 156.0
Percentage rents 2.4 1.6 4.0 2.9 1.2 4.1
Expense recoveries 38.3 51.4 89.6 44.7 42.8 87.5
Other 9.3 4.2 13.5 10.5 6.7 17.2
----- ----- ----- ----- ----- -----
Total revenues 119.5 138.7 258.3 139.5 125.3 264.8
OPERATING COSTS:
Recoverable expenses 31.0 44.0 75.0 37.4 36.4 73.8
Other operating 11.6 7.8 19.4 14.3 6.1 20.4
Management, leasing and
development 2.4 2.4 1.9 1.9
General and administrative 10.3 10.3 12.1 12.1
Interest expense 34.3 27.5 61.8 34.6 25.2 59.8
Depreciation and amortization 16.7 11.4 28.1 20.2 10.2 30.4
----- ----- ----- ----- ----- -----
Total operating costs 106.3 90.6 197.0 120.5 77.9 198.4
Net results of Memorial City (2) (0.3) (0.3)
----- ----- ----- ----- ----- -----
13.3 48.1 61.4 18.8 47.3 66.1
===== ===== ===== =====
Equity in net income of Joint Ventures 26.1 27.0
----- -----
NET INCOME 39.4 45.8
===== =====
SUPPLEMENTAL INFORMATION (3)
EBITDA contribution 64.3 45.7 110.0 73.7 45.6 119.4
TRG's Beneficial Interest Expense (34.3) (13.9) (48.3) (34.6) (13.2) (47.8)
Non-real estate depreciation (0.9) (0.9) (1.1) (1.1)
----- ----- ----- ----- ----- -----
Distributable Cash Flow contribution 29.0 31.8 60.8 38.0 32.4 70.5
===== ===== ===== ===== ===== =====
(1) With the exception of the Supplemental Information, amounts represent 100%
of Joint Ventures. Amounts are net of intercompany profits.
(2) The results of operations of Memorial City are presented net in this table.
TRG expects that Memorial City's net operating income will approximate the
ground rent payable under the lease for the immediate future.
(3) EBITDA, TRG's Beneficial Interest Expense and Distributable Cash Flow are
defined and discussed in Liquidity and Capital Resources - Distributions.
(4) Amounts in the table may not add due to rounding.
</TABLE>
- 15 -
<PAGE>
TRG --Consolidated Businesses
- -----------------------------
Total revenues for the six months ended June 30, 1997 were $139.5 million, a
$20.0 million or 16.7% increase over the comparable period in 1996. Minimum
rents increased $11.8 million, of which $10.6 million was caused by the
Fairlane, Paseo Nuevo, and La Cumbre acquisitions. The results of Fairlane have
been consolidated in TRG's results subsequent to the acquisition date in July
1996 (prior to that date Fairlane was accounted for under the equity method as a
Joint Venture). The increase in expense recoveries was primarily due to
Fairlane, Paseo Nuevo, and La Cumbre, offset by decreases at certain other
Centers. Other revenue increased $1.2 million primarily due to an insurance
recovery and a litigation settlement, partially offset by a decrease in lease
cancellation revenue.
Total operating costs increased $14.2 million, or 13.4%, to $120.5 million.
Recoverable, other operating, and depreciation and amortization expenses
increased primarily due to the Fairlane, Paseo Nuevo, and La Cumbre
acquisitions. General and administrative expense increased by $1.8 million
primarily due to increases in compensation (including the continuing phase-in of
the long-term compensation plan), recruiter fees and relocation charges, travel,
and training.
Revenues and expenses as presented in the preceding table differ from the
amounts shown in TRG's consolidated statement of operations 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 the six months ended June 30, 1997 were $125.3 million, a
$13.4 million, or 9.7%, decrease from the comparable period of 1996, of which
$13.7 million was caused by the change of Fairlane from a Joint Venture to a
Consolidated Business, offset by increases at other Centers. The decrease in
minimum rents was primarily due to Fairlane, offset by increases at other
Centers. The decrease in expense recoveries was due to Fairlane and a decrease
in recoverable expenses. Other income increased by $2.5 million primarily due to
gains on peripheral land sales, partially offset by a decrease in interest
income.
Total operating costs decreased by $12.7 million, or 14.0%, to $77.9 million
for the six months ended June 30, 1997 including a $9.3 million decrease due to
Fairlane. Recoverable expenses decreased $7.6 million primarily due to Fairlane
and decreases in utilities and maintenance costs. Other operating costs
decreased primarily due to Fairlane and a decrease in bad debt expense. Interest
expense decreased $2.3 million primarily due to a decrease in debt related to
Fairlane and an increase in capitalized interest, partially offset by an
increase in debt used to finance capital expenditures. 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 3 to
TRG's financial statements) by the amount of intercompany profit.
As a result of the foregoing, net income of the Joint Ventures decreased by
$0.8 million, or 1.7%, to $47.3 million. TRG's equity in net income of the Joint
Ventures was $27.0 million, a 3.4% increase from the comparable period in 1996.
Net Income
- ----------
As a result of the foregoing, net income for the six months ended June 30,
1997 was $45.8 million, a 16.2% increase from the comparable period in 1996.
- 16 -
<PAGE>
Liquidity and Capital Resources
As of June 30, 1997, TRG had a cash balance of $1.7 million. In March 1997,
TRG completed the renegotiation of the terms of its unsecured revolving credit
facility available for general partnership purposes. The new terms increased the
facility to $300 million from $200 million, reduced the current contractual
interest rate by 60 basis points to LIBOR plus 90 basis points and extended 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. Borrowings
under this facility at June 30, 1997 were $15 million. TRG also has available an
unsecured bank line of credit of up to $30 million with borrowings of $14.4
million at June 30, 1997. This line expires in August 1998. TRG also has
available a secured commercial paper facility of up to $75 million, all of which
had been issued at June 30, 1997. 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 provided $49.3 million of funding for the
first half of 1997 compared to $55.7 million in 1996 (including $37 million for
the acquisition in June 1996 of the Paseo Nuevo shopping center). Proceeds in
both 1997 and 1996 were also used to fund capital expenditures for the
Consolidated Businesses and contributions to Joint Ventures for construction
costs of new centers.
TRG has a medium-term note program under TRG's $500 million shelf registration
statement. There were no medium-term note issuances in the first six months of
1997 and 1996. During July 1997, TRG issued $55 million of unsecured 10-year
notes at a coupon rate of 7 percent. The net proceeds were used to pay down
floating rate debt under TRG's revolving credit facilities. Including the
issuance in July 1997, TRG has issued a total of $342 million of notes since the
program's inception in 1995.
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 guaranteed by each of the
owners of Arizona Mills, L.L.C. to the extent of its respective ownership
percentage. The loan agreement provides for the reduction of the amount
guaranteed as certain center performance and valuation criteria are met.
Proceeds totaling $13.1 million were distributed to the owners as reimbursement
for amounts previously expended on construction costs, of which TRG's share was
$4.8 million. Borrowings on the facility at June 30, 1997 were $45.3 million.
TRG owns a 37% interest in Arizona Mills, L.L.C.
At June 30, 1997, TRG's debt and its beneficial interest in the debt of its
Joint Ventures (excluding $53.4 million of capital lease obligations) totaled
$1,473.8 million. As shown in the following table, there was no unhedged
floating rate debt at June 30, 1997. 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 added 0.4% to the effective rate of interest on TRG's
beneficial interest in debt at June 30, 1997. Included in TRG's beneficial
interest in debt at June 30, 1997 is debt used to fund development and expansion
costs. TRG's beneficial interest in assets on which interest is being
capitalized totaled $234.9 million as of June 30, 1997. TRG's beneficial
interest in capitalized interest was $3.9 million and $7.2 million for the three
and six months ended June 30, 1997, respectively.
- 17 -
<PAGE>
Beneficial Interest in Debt
------------------------------------------------
Amount Interest LIBOR Frequency LIBOR
(In millions Rate at Cap of Rate at
of dollars) 6/30/97 Rate Resets 6/30/97
---------- -------- ---- ------ --------
Total beneficial interest
in fixed rate debt 1,112.7(1) 7.55%(2)
Floating rate debt hedged
via interest rate caps:
Through January 1998 100.0 6.26(2) 6.50 Monthly 5.72
Through January 1998 65.0 6.44 6.50 Monthly 5.72
Through July 1998 65.0 6.26(2) 8.35 Monthly 5.72
Through October 1998 39.3 6.32 6.00 Three Months 5.81
Through October 2001 25.0 6.14 8.55 Monthly 5.72
Through January 2002 23.4 6.78(2) 9.50 Monthly 5.72
Through July 2002 43.4 6.66(2) 6.50 Monthly 5.72
-------
Total beneficial interest
in debt 1,473.8 7.26(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.
TRG's loan agreements and indenture contain various restrictive covenants,
including limitations on the amount of secured and unsecured debt and minimum
debt service coverage ratios, the latter being the most restrictive. TRG is in
compliance with all of such covenants.
Distributions
A principal factor considered by TRG in deciding upon distributions to
partners is an amount, which TRG defines as Distributable Cash Flow, equal to
EBITDA less TRG's Beneficial Interest Expense and non-real estate depreciation
and amortization. This measure of performance is influenced not only by
operations but also by capital structure. EBITDA is defined as TRG's beneficial
interest in revenues, less operating costs before interest, depreciation and
amortization, meaning TRG's pro rata share of this result for each of the
Managed Businesses, after recording appropriate intercompany eliminations. TRG's
Beneficial Interest Expense is defined as 100% of the interest expense of TRG's
Consolidated Businesses and TRG's pro rata share of the interest expense on the
debt of the Joint Ventures. EBITDA and Distributable Cash Flow do not represent
cash flows from operations, as defined by generally accepted accounting
principles, and should not be considered to be an alternative to net income as
an indicator of operating performance or to cash flows from operations as a
measure of liquidity.
- 18 -
<PAGE>
The following table summarizes TRG's Distributable Cash Flow for the three
months ended June 30, 1996 and 1997:
<TABLE>
<CAPTION>
Three months ended Three months ended
June 30, 1996 June 30, 1997
------------------------------------- ------------------------------------
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) 18.5 22.2
Depreciation and Amortization(3)(4) 11.3 12.9
TRG's Beneficial Interest Expense(3) 24.0 24.0
----- -----
EBITDA 31.4 22.4 53.8 35.2 23.8 59.1
TRG's Beneficial Interest Expense(3) (17.2) (6.8) (24.0) (17.3) (6.6) (24.0)
Non-real estate depreciation (0.5) (0.5) (0.5) (0.5)
----- ----- ----- ----- ----- -----
Distributable Cash Flow 13.7 15.7 29.3 17.4 17.2 34.6
===== ===== ===== ===== ===== =====
(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 $0.3 million and
$1.8 million for the three months ended June 30, 1996 and 1997,
respectively.
(3) Amounts represent TRG's and TRG's beneficial interest in the Joint
Ventures' depreciation and amortization and interest expense.
(4) Includes $0.8 million and $0.9 million of mall tenant allowance
amortization in the second quarter of 1996 and 1997, respectively.
(5) Amounts may not add due to rounding.
</TABLE>
The following table summarizes TRG's Distributable Cash Flow for the six
months ended June 30, 1996 and 1997:
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1996 June 30, 1997
------------------------------------- ------------------------------------
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) 39.4 45.8
Depreciation and Amortization(3)(4) 22.4 25.8
TRG's Beneficial Interest Expense(3) 48.3 47.8
----- ----
EBITDA 64.3 45.7 110.0 73.7 45.6 119.4
TRG's Beneficial Interest Expense(3) (34.3) (13.9) (48.3) (34.6) (13.2) (47.8)
Non-real estate depreciation (0.9) (0.9) (1.1) (1.1)
----- ----- ----- ----- ----- -----
Distributable Cash Flow 29.0 31.8 60.8 38.0 32.4 70.5
===== ===== ===== ===== ===== =====
(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 $0.3 million and
$1.9 million for the six months ended June 30, 1996 and 1997, respectively.
(3) Amounts represent TRG's and TRG's beneficial interest in the Joint
Ventures' depreciation and amortization and interest expense.
(4) Includes $1.6 million and $1.8 million of mall tenant allowance
amortization for the six months ended June 30, 1996 and 1997, respectively.
(5) Amounts may not add due to rounding.
</TABLE>
During the second quarter of 1997, EBITDA and Distributable Cash Flow were
$59.1 million and $34.6 million, compared to $53.8 million and $29.3 million for
the same period in 1996. TRG distributed $32.0 million to its partners in the
second quarter of 1997, compared to $29.1 million in the same period of 1996.
During the first half of 1997, EBITDA and Distributable Cash Flow were $119.4
million and $70.5 million, compared to $110.0 million and $60.8 million for the
same period in 1996. TRG distributed $64.0 million and $58.1 million to its
partners in the six month periods ended June 30, 1997 and 1996, respectively.
- 19 -
<PAGE>
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 TRG's 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.
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. Excluding 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 126.5(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 143.0 229.8 123.1
===== ===== =====
(1) Costs are net of intercompany profits.
(2) Includes costs related to leasehold improvements at The Mall at Tuttle
Crossing; excludes capital lease assets. Also includes TRG's share of
construction costs for Great Lakes Crossing.
(3) Includes costs related to expansion projects at Westfarms and Cherry Creek.
Also includes construction costs for MacArthur Center and Arizona Mills.
(4) Includes the costs to evaluate the redevelopment of Memorial City and
required property expenditures under the terms of the lease.
- 20 -
<PAGE>
An expansion at Westfarms includes approximately 135 thousand square feet of
mall GLA, which opened approximately 85% leased in August 1997, and Nordstrom as
an anchor which will open in early September 1997. The expansion cost
approximately $100 million. An expansion at Cherry Creek will include a newly
constructed Lord & Taylor store, which will open in November of 1997, and the
addition of 132 thousand 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.
A project is now under construction to add approximately 48 thousand 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 space is completely leased and
will be fully open in the fall of 1997. The project is expected to cost
approximately $8 million.
The Mall at Tuttle Crossing, a 980 thousand square foot Center in northwest
Columbus, Ohio, opened in July 1997, 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 located. TRG will make
ninety annual minimum lease payments of $4.4 million beginning 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 defined 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, will
open in November 1997. Leases on approximately 88% of the in-line tenant space
are signed or out for signature. The 1.2 million square foot value-oriented mall
is expected to cost approximately $180 million. TRG has a 37% ownership interest
in Arizona Mills.
In May 1997, TRG began construction on Great Lakes Crossing, an enclosed value
super-regional mall in Auburn Hills, Michigan, owned by a partnership in which
TRG has an 80% controlling interest. The 1.7 million square foot Center is
expected to have approximately 1.4 million square feet of GLA and is scheduled
to open in the fall of 1998. The cost of building this Center will approximate
$210 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 open with 930
thousand square feet and will initially be anchored by Nordstrom and Dillard's.
This Center is 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.
TRG's share of costs for development and expansion projects currently under
construction and scheduled to be completed in 1998 and 1999 is anticipated to be
as much as $165 million in 1998 and $19 million in 1999. TRG generally does not
provide estimates of capital expenditures on individual projects until the total
project cost has been approved and construction is underway or imminent.
- 21 -
<PAGE>
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.
Planned Acquisition
In July 1997, TRG entered into an agreement to acquire for cash the Regency
Square shopping center in Richmond, Virginia. The transaction is contingent upon
the completion of due diligence and receipt of necessary consents and approvals.
TRG has agreed with the seller not to disclose the purchase price until after
closing, which is expected to be completed before year end. TRG plans to use
existing lines of credit to pay for the acquisition, which is expected to be
modestly accretive to Distributable Cash Flow and immaterial to net income in
1997. The Center is anchored by Hecht's, JCPenney and Sears.
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.
- 22 -
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
12 -- Statement Re: Computation of Ratios of Earnings to Fixed
Charges.
27 -- Financial Data Schedule.
b) Current Reports on Form 8-K.
None.
- 23 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
Date: August 13, 1997 By: /s/ Lisa A. Payne
----------------------------
Lisa A. Payne
Executive Vice President and
Chief Financial Officer
- 24 -
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- ------
12 -- Statement Re: Computation of Ratios of Earnings to Fixed Charges.
27 -- Financial Data Schedule.
Exhibit 12
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
Computation of Ratios of Earnings to Fixed Charges
(in thousands, except ratios)
Six Months Ended June 30
------------------------
1996 1997
---- ----
Net Earnings from Continuing Operations $39,368 $45,754
Add back:
Fixed charges 55,052 59,255
Amortization of previously
capitalized interest (1) 981 953
Distributions in excess of equity in
net income of 25% owned Joint Venture (250) 0
Deduct:
Capitalized interest (1) (3,839) (7,167)
------- -------
Earnings Available for Fixed Charges $91,312 $98,795
======= =======
Fixed Charges
Mortgage notes and other $34,340 $34,614
Capitalized interest 2,294 4,337
Interest portion of rent expense 2,508 3,749
Proportionate share of Joint Ventures'
fixed charges 15,910 16,555
------- -------
Total Fixed Charges $55,052 $59,255
======= =======
Ratio of earnings to fixed charges 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> <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
JUNE 30, 1997 (UNAUDITED) AND TRG'S CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000917473
<NAME> THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
<MULTIPLIER> 1,000 <F1>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,702
<SECURITIES> 0
<RECEIVABLES> 24,445
<ALLOWANCES> 256
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F2>
<PP&E> 1,181,476
<DEPRECIATION> 249,258
<TOTAL-ASSETS> 998,226
<CURRENT-LIABILITIES> 0 <F2>
<BONDS> 1,100,149
0
0
<COMMON> 0
<OTHER-SE> (310,247)
<TOTAL-LIABILITY-AND-EQUITY> 998,226
<SALES> 0
<TOTAL-REVENUES> 145,242
<CGS> 0
<TOTAL-COSTS> 79,791
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,614
<INCOME-PRETAX> 45,754
<INCOME-TAX> 0
<INCOME-CONTINUING> 45,754
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,754
<EPS-PRIMARY> 654 <F3>
<EPS-DILUTED> 0 <F3>
<FN>
<F1> EXCEPT FOR SHARE DATA.
<F2> TRG HAS AN UNCLASSIFIED BALANCE SHEET.
<F3> REPRESENTS EARNINGS DIVIDED BY WEIGHTED AVERAGE NUMBER OF UNITS OF
PARTNERSHIP INTEREST OUTSTANDING DURING THE PERIOD. EPS - DILUTED IS
NOT DISCLOSED AS THE DIFFERENCE FROM EPS - PRIMARY IS LESS THAN 3%.
</FN>
</TABLE>
