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, 1998
Commission File No. 33-73988
The Taubman Realty Group Limited Partnership
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3097317
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(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
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(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 June 30, 1998 and December 31, 1997 .....2
Consolidated Statement of Operations for the three months ended
June 30, 1998 and 1997.......................................................3
Consolidated Statement of Operations for the six months ended
June 30, 1998 and 1997.......................................................4
Consolidated Statement of Cash Flows for the six months ended
June 30, 1998 and 1997.......................................................5
Notes to Consolidated Financial Statements.....................................6
- 1 -
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands)
June 30 December 31
------- -----------
1998 1997
---- ----
Assets:
Properties $1,709,101 $1,593,350
Accumulated depreciation and amortization 292,466 268,658
---------- ----------
$1,416,635 $1,324,692
Cash and cash equivalents 707 3,250
Accounts and notes receivable, less
allowance for doubtful accounts of
$565 and $414 in 1998 and 1997 13,319 17,803
Accounts receivable from related parties 7,418 7,400
Deferred charges and other assets 42,642 43,681
---------- ----------
$1,480,721 $1,396,826
========== ==========
Liabilities:
Unsecured notes payable $1,106,594 $1,008,459
Mortgage notes payable 307,839 275,868
Accounts payable and other liabilities 110,217 106,404
Distributions in excess of net income of
Unconsolidated Joint Ventures (Note 3) 169,714 141,815
---------- ----------
$1,694,364 $1,532,546
Commitments and Contingencies (Note 5)
Accumulated Deficiency in Assets:
Series A Preferred Equity 192,840 192,840
Partners' Accumulated Deficit (406,483) (328,560)
---------- ----------
(213,643) (135,720)
---------- ----------
$1,480,721 $1,396,826
========== ==========
Allocation of Partners' Accumulated Deficit:
General Partners $ (330,607) $ (254,474)
Limited Partners (75,876) (74,086)
---------- ----------
$ (406,483) $ (328,560)
========== ==========
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
--------------------------
1998 1997
---- ----
Revenues:
Minimum rents $ 52,034 $ 42,416
Percentage rents 1,880 1,709
Expense recoveries 29,511 23,480
Other 6,577 3,081
Revenues from management, leasing
and development services 2,063 2,341
-------- --------
$ 92,065 $ 73,027
-------- --------
Operating Costs:
Recoverable expenses $ 25,424 $ 20,293
Other operating 11,061 9,746
Management, leasing and development
services 1,330 1,181
General and administrative 7,045 6,414
Interest expense 21,949 17,330
Depreciation and amortization 14,207 10,233
-------- --------
$ 81,016 $ 65,197
-------- --------
Income before equity in net income of
Unconsolidated Joint Ventures $ 11,049 $ 7,830
Equity in net income of Unconsolidated
Joint Ventures (Note 3) 11,928 14,340
-------- --------
Net income $ 22,977 $ 22,170
Preferred distributions to TCO (4,150)
-------- --------
Net income available to unitholders $ 18,827 $ 22,170
======== ========
Allocation of net income to unitholders:
General Partners $ 15,313 $ 17,169
Limited Partners 3,514 5,001
-------- --------
$ 18,827 $ 22,170
======== ========
Basic and diluted net income per
Unit of Partnership Interest (Note 6) $ .14 $ .16
======== ========
Weighted Average Number of Units of
Partnership Interest Outstanding 133,666,391 138,256,248
=========== ===========
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
------------------------
1998 1997
---- ----
Revenues:
Minimum rents $103,839 $ 85,266
Percentage rents 3,211 3,163
Expense recoveries 56,448 46,185
Other 11,834 7,005
Revenues from management, leasing
and development services 3,902 4,305
-------- --------
$179,234 $145,924
-------- --------
Operating Costs:
Recoverable expenses $ 48,422 $ 39,291
Other operating 20,365 18,238
Management, leasing and development
services 2,425 2,289
General and administrative 13,605 12,070
Interest expense 44,586 34,614
Depreciation and amortization 28,080 20,336
-------- --------
$157,483 $126,838
-------- --------
Income before equity in income before
extraordinary item of Unconsolidated
Joint Ventures $ 21,751 $ 19,086
Equity in income before extraordinary item of
Unconsolidated Joint Ventures (Note 3) 24,531 26,668
-------- --------
Income before extraordinary item 46,282 45,754
Extraordinary item (957)
-------- --------
Net Income $ 45,325 $ 45,754
Preferred distributions to TCO (8,300)
-------- --------
Net income available to unitholders $ 37,025 $ 45,754
======== ========
Allocation of net income available
to unitholders:
General Partners $ 30,061 $ 35,434
Limited Partners 6,964 10,320
-------- --------
$ 37,025 $ 45,754
======== ========
Basic earnings per Unit of Partnership
Interest (Note 6):
Income before extraordinary item $ .29 $ .33
======== ========
Net income $ .28 $ .33
======== ========
Diluted earnings per Unit of Partnership
Interest (Note 6):
Income before extraordinary item $ .28 $ .33
======== ========
Net income $ .28 $ .33
======== ========
Weighted Average Number of Units of
Partnership Interest Outstanding 133,140,814 138,254,089
=========== ===========
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
------------------------
1998 1997
---- ----
Cash Flows From Operating Activities:
Income before extraordinary item $ 46,282 $ 45,754
Adjustments to reconcile income before
extraordinary item to net cash provided
by operating activities:
Depreciation and amortization 28,080 20,336
Provision for losses on accounts receivable 817 474
Amortization of deferred financing costs 1,422 1,181
Other 415 294
Gain on sale of land (316)
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Receivables, deferred charges and other assets (743) (1,033)
Accounts payable and other liabilities 4,813 (1,970)
--------- ---------
Net Cash Provided By Operating Activities $ 81,086 $ 64,720
--------- ---------
Cash Flows From Investing Activities:
Additions to properties $(116,349) $ (58,440)
Proceeds from sale of land 830
Contributions to Unconsolidated Joint Ventures (18,839) (1,975)
Distributions from Unconsolidated Joint Ventures
in excess of income before extraordinary item 45,781 3,491
--------- ---------
Net Cash Used In Investing Activities $ (89,407) $ (56,094)
--------- ---------
Cash Flows From Financing Activities:
Debt proceeds $ 178,594 $ 49,252
Debt payments (49,568) (231)
Redemption of partnership units (77,698)
Issuance of units of partnership interest
(Notes 2 and 5) 26,308 176
Cash distributions to partnership unitholders (63,558) (64,039)
Cash distributions to TCO for Series A
Preferred Equity interest (8,300)
--------- ---------
Net Cash Provided By (Used In) Financing Activities $ 5,778 $ (14,842)
--------- ---------
Net Decrease In Cash $ (2,543) $ (6,216)
Cash and Cash Equivalents at Beginning of Period 3,250 7,912
--------- ---------
Cash and Cash Equivalents at End of Period $ 707 $ 1,696
========= =========
Interest on mortgage notes and other loans paid during the six months ended June
30, 1998 and 1997, net of amounts capitalized of $7,456 and $4,337, was $41,918
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, 1998
Note 1 - Interim Financial Statements
The Taubman Realty Group Limited Partnership (TRG) engages in the ownership,
management, leasing, acquisition, development, and expansion of regional retail
shopping centers (Taubman Shopping Centers) and interests therein. Taubman
Centers, Inc. (TCO) 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, 1997. 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.
Effective September 30, 1997, TRG amended its partnership agreement to split
existing units of partnership interest at a ratio of 1,975.08 to one. The split
did not alter the ownership percentage of any of TRG's partners. All unit and
per unit amounts have been adjusted to reflect the unit split on a retroactive
basis.
Certain prior year amounts have been reclassified to conform to 1998
classifications.
Note 2 - Equity transactions
In January 1998, TRG redeemed a partner's 6.1 million units of partnership
interest for approximately $77.7 million (including costs). The redemption was
funded through the use of an existing revolving credit facility.
In April 1998, TCO sold approximately 2.0 million shares of its common stock
at $13.1875 per share, before deducting the underwriting commission and expenses
of the offering, under TCO's shelf registration statement. TCO used the proceeds
to acquire an additional equity interest in TRG. TRG paid all costs of the
offering. Net proceeds of approximately $25 million were used by TRG for general
partnership purposes.
- 6 -
<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 3 - Investments in Unconsolidated Joint Ventures
Following are TRG's investments in various real estate Unconsolidated Joint
Ventures which own regional retail shopping centers. TRG is generally the
managing general partner of these Unconsolidated Joint Ventures. TRG's interest
in each Unconsolidated Joint Venture is as follows:
TRG's %
Ownership
as of
Unconsolidated Joint Venture Taubman Shopping Center June 30, 1998
---------------------------- ----------------------- -------------
Arizona Mills, L.L.C. Arizona Mills 37%
Fairfax Company of Virginia L.L.C. Fair Oaks 50
Lakeside Mall Limited Partnership Lakeside 50
Rich-Taubman Associates Stamford Town Center 50
Taubman-Cherry Creek
Limited Partnership Cherry Creek 50
Twelve Oaks Mall Limited Partnership Twelve Oaks Mall 50
West Farms Associates Westfarms 79
Woodfield Associates Woodfield 50
Woodland Woodland 50
In March 1998, Fairfax Company of Virginia L.L.C. completed a $140 million,
6.60%, secured financing maturing in 2008. The net proceeds were used to
extinguish an existing mortgage on Fair Oaks of approximately $39 million and
pay a prepayment penalty of approximately $1.8 million. In addition, proceeds of
$5.6 million were used to close out a treasury lock agreement entered into in
1997, which resulted in an effective rate on the financing of approximately 7%.
The remaining proceeds were distributed to the owners. TRG used its 50% share of
the distributions to pay down its revolving credit facilities. TRG recognized an
extraordinary charge of approximately $1.0 million on the extinguishment of the
Fair Oaks mortgage.
TRG reduces its investment in Unconsolidated Joint Ventures to eliminate
intercompany profits on sales of services that are capitalized by the
Unconsolidated Joint Ventures. As a result, the carrying value of TRG's
investment in Unconsolidated Joint Ventures is less than TRG's share of the
deficiency in assets reported in the combined balance sheet of the
Unconsolidated Joint Ventures by approximately $8.1 million at both June 30,
1998 and December 31, 1997. These differences are amortized over the useful
lives of the related assets.
Combined balance sheet and results of operations information are presented
below (in thousands) for all Unconsolidated 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 Unconsolidated Joint
Ventures.
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
June 30 December 31
------- -----------
1998 1997
---- ----
Assets:
Properties, net $ 637,422 $ 623,981
Other assets 82,806 84,397
--------- ---------
$ 720,228 $ 708,378
========= =========
Liabilities and partners'
accumulated deficiency in assets:
Debt $ 997,029 $ 875,356
Capital lease obligations 5,787 6,509
Other liabilities 55,930 94,801
TRG accumulated deficiency in assets (161,645) (133,680)
Unconsolidated Joint Venture Partners'
accumulated deficiency in assets (176,873) (134,608)
--------- ---------
$ 720,228 $ 708,378
========= =========
TRG accumulated deficiency in assets (above) $(161,645) $(133,680)
Elimination of intercompany profit (8,069) (8,135)
--------- ---------
Distributions in excess of net income
of Unconsolidated Joint Ventures $(169,714) $(141,815)
========= =========
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues $72,337 $64,452 $144,458 $125,133
------- ------- -------- --------
Recoverable and other
operating expenses $26,279 $23,233 $ 51,247 $ 45,590
Interest expense 18,224 12,505 35,357 24,872
Depreciation and amortization 8,215 5,332 16,660 10,615
------- ------- -------- --------
Total operating costs $52,718 $41,070 $103,264 $ 81,077
------- ------- -------- --------
Income before extraordinary item $19,619 $23,382 $ 41,194 $ 44,056
Extraordinary item (1,913)
------- ------- -------- --------
Net Income $19,619 $23,382 $ 39,281 $ 44,056
======= ======= ======== ========
Net income attributable to TRG $10,308 $12,396 $ 20,481 $ 23,802
Extraordinary item attributable to TRG 957
Realized intercompany profit 1,620 1,944 3,093 2,866
------- ------- -------- --------
Equity in income before extraordinary
item of Unconsolidated Joint Ventures $11,928 $14,340 $ 24,531 $ 26,668
======= ======= ======== ========
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
TRG's beneficial interest
in Unconsolidated Joint Ventures'
operations:
Revenues less recoverable and
other operating expenses $25,814 $23,687 $ 51,866 $ 45,316
Interest expense (9,706) (6,640) (18,911) (13,229)
Depreciation and amortization (4,180) (2,707) (8,424) (5,419)
------- ------- -------- ---------
Income before extraordinary item $11,928 $14,340 $ 24,531 $ 26,668
======= ======= ======== =========
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 in the following table. TRG's beneficial interest for 1998 and 1997
excludes the 30% minority interest in the debt outstanding on the MacArthur
Center construction facility.
<TABLE>
<CAPTION>
Unconsolidated TRG's Share of TRG's TRG's
Joint Unconsolidated Consolidated Beneficial
Ventures Joint Ventures Subsidiaries Interest
-------- -------------- ------------ --------
<S> <C> <C> <C> <C>
Debt as of:
June 30, 1998 $997,029 $524,949 $1,414,433 $1,917,074
December 31, 1997 875,356 465,556 1,284,327 1,737,211
Capitalized interest:
Six months ended June 30, 1998 $1,130 $ 558 $7,456 $7,345
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, 1998 $35,357 $18,911 $44,586 $63,497
Six months ended June 30, 1997 24,872 13,229 34,614 47,843
</TABLE>
Note 5 - Incentive Option Plan
TRG has an incentive option plan for employees of the Manager. Currently,
options for 8.1 million units of partnership interest may be issued under the
plan, of which options for 6.9 million units are outstanding. The exercise price
of all options outstanding was equal to market value on the date of grant.
Incentive options generally vest 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 six months ended June 30,
1998, options for 0.1 million units were exercised at a weighted average price
of $11.11 per unit. There were no grants during the six months ended June 30,
1998. As of June 30, 1998, there were options outstanding for 6.9 million units
with a weighted average exercise price of $11.22 per unit, of which options for
6.1 million units were vested with a weighted average exercise price of $11.29
per unit.
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<PAGE>
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 - Earnings Per Unit of Partnership Interest
Basic earnings per unit of partnership interest are based on the average
number of units of partnership interest outstanding during each period. Diluted
earnings per unit of partnership interest are based on the average number of
units of partnership interest outstanding during each period, assuming exercise
of all options for units of partnership interest having exercise prices less
than the average market value of the units using the treasury stock method. For
the three months ended June 30, 1998 and 1997, options for 0.2 million and 0.4
million units of partnership interest with average exercise prices of $13.89 and
$13.58 per unit, respectively, were excluded from the computation of diluted
earnings per unit because the exercise prices were greater than the average
market price for the period calculated. For each of the six months ended June
30, 1998 and 1997, options for 0.3 million units of partnership interest with
average exercise prices of $13.74 were excluded from the computation of diluted
earnings per unit because the exercise prices were greater than the average
market price for the period calculated.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands, except share data)
<S> <C> <C> <C> <C>
Income before extraordinary item
allocable to unitholders (Numerator) $18,827 $22,170 $37,982 $45,754
======= ======= ======= =======
Partnership units (Denominator):
Basic 133,666,391 138,256,248 133,140,814 138,254,089
Effect of dilutive options 1,228,281 1,027,160 1,093,919 1,112,355
----------- ----------- ----------- -----------
Diluted 134,894,672 139,283,408 134,234,733 139,366,444
=========== =========== =========== ===========
Per unit:
Basic $ .14 $ .16 $ .29 $ .33
===== ===== ===== =====
Diluted $ .14 $ .16 $ .28 $ .33
===== ===== ===== =====
</TABLE>
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<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, management, leasing,
expansion, acquisition and development of regional shopping centers (Taubman
Shopping Centers). TRG's Managed Businesses consist of: (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 with third parties that are not controlled
(Unconsolidated Joint Ventures). The Unconsolidated 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 consequently, in addition to the discussion of the operations of
the Consolidated Businesses, the operations of the Unconsolidated Joint Ventures
are presented and discussed as a whole.
Seasonality
The regional shopping center industry is seasonal in nature, with mall tenant
sales highest in the fourth quarter due to the Christmas season, and with
lesser, though still significant, sales fluctuations associated with the Easter
holiday and back-to-school events. While minimum rents and recoveries are
generally not subject to seasonal factors, most leases are scheduled to expire
in the first quarter, and the majority of new stores open in the second half of
the year in anticipation of the Christmas selling season. Accordingly, revenues
and occupancy levels are generally highest in the fourth quarter.
The following table summarizes certain quarterly operating data for TRG's
Managed Businesses for 1997 and the first and second quarters of 1998:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th 1st 2nd
Quarter Quarter Quarter Quarter Total Quarter Quarter
1997 1997 1997 1997 1997 1998 1998
-----------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mall tenant sales $600,709 $629,906 $692,487 $1,163,157 $3,086,259 $740,104 $796,862
Revenues 130,677 134,756 137,728 157,192 560,353 156,415 $161,598
Occupancy:
Average Occupancy 86.5% 86.8% 87.0% 89.5% 87.6% 88.5% 88.3%
Ending Occupancy 86.4% 87.1% 87.2% 90.3% 90.3% 88.2% 88.4%
Leased Space 88.7% 89.5% 90.8% 92.3% 92.3% 91.3% 91.6%
</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 1997 and the first and second
quarters of 1998:
1st 2nd 3rd 4th 1st 2nd
Quarter Quarter Quarter Quarter Total Quarter Quarter
1997 1997 1997 1997 1997 1998 1998
-------------------------------------------------------------
Minimum rents 12.6% 11.8% 11.3% 7.3% 10.1% 12.0% 11.2%
Percentage rents 0.2 0.3 0.3 0.2 0.3 0.2 0.3
Expense recoveries 5.2 5.1 4.7 3.5 4.4 4.8 4.9
---- ---- ---- ---- ---- ---- ----
Mall tenant
occupancy costs 18.0% 17.2% 16.3% 11.0% 14.8% 17.0% 16.4%
==== ==== ==== ==== ==== ==== ====
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 $39.19 for the twelve months ended June 30,
1998, compared to $38.49 for the twelve months ended June 30, 1997.
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 four and eleven dollars per
square foot during the past five years. TRG anticipates that the spread between
opening and closing rents for the 1998 fiscal year will be around the low end of
TRG's historical range. 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
1998 Transactions
In January 1998, TRG redeemed a partner's 6.1 million units of partnership
interest for approximately $77.7 million (including costs). The redemption was
funded through the use of an existing revolving credit facility.
In March 1998, a 50% owned Unconsolidated Joint Venture completed a $140
million, 6.60%, secured financing maturing in 2008. The net proceeds were used
to extinguish an existing mortgage of approximately $39 million and pay a
prepayment penalty of approximately $1.8 million. In addition, proceeds of $5.6
million were used to close out a treasury lock agreement entered into in 1997,
which resulted in an effective rate on the financing of approximately 7%. The
remaining proceeds were distributed to the owners. TRG used its share of the
distribution to pay down its revolving credit facilities.
In April 1998, TRG's managing general partner, Taubman Centers, Inc. (TCO)
sold approximately 2.0 million shares of its common stock at $13.1875 per share,
before deducting the underwriting commission and expenses of the offering, under
TCO's shelf registration statement. TCO used the proceeds to acquire an
additional equity interest in TRG. TRG paid all costs of the offering. Net
proceeds of approximately $25 million were used by TRG for general partnership
purposes.
- 12 -
<PAGE>
1997 Transactions
During 1997, TRG completed the following acquisitions: Regency Square in
September, The Falls in December, and the leasehold interest in The Mall at
Tuttle Crossing (Tuttle Crossing), also in December. In addition, TRG opened the
following new centers and expansions: Tuttle Crossing in July, Arizona Mills in
November, Westfarms' expansion in August, and Biltmore's expansion throughout
the last half of the year.
Comparison of the Three and Six Months Ended June 30, 1998 to the Three and Six
Months Ended June 30, 1997
Occupancy and Mall Tenant Sales
The average occupancy rate in the Taubman Shopping Centers was 88.3% for the
three months ended June 30, 1998 compared to 86.8% for the comparable period in
1997. For the six months ended June 30, 1998 average occupancy was 88.4%
compared to 86.7% in the same period in 1997. The increase in average occupancy
was primarily due to increases in occupancy at Centers owned and open prior to
1997. The ending occupancy rate for the Taubman Shopping Centers at June 30,
1998 was 88.4% versus 87.1% at the same date in 1997. Leased space at June 30,
1998 was 91.6% compared to 89.5% at the same date in 1997.
Total sales for Taubman Shopping Center mall tenants in the three months ended
June 30, 1998 were $796.9 million, a 26.5% increase from $629.9 million in the
same period in 1997. Tenant sales increased 24.9% to $1.5 billion for the six
months ended June 30, 1998 from $1.2 billion in the comparable period in 1997.
Mall tenant sales per square foot, excluding Arizona Mills, increased 5.9% and
4.3% for the three and six months ended June 30, 1998 over the same periods in
1997. Mall tenant sales for Centers owned and open for all of the first six
months of 1998 and 1997 were $684.6 million and $1,320.7 million in the second
quarter and first six months of 1998, an 8.7% increase and a 7.3% increase,
respectively, from the same periods in 1997.
- 13 -
<PAGE>
Comparison of the Three Months Ended June 30, 1998 to the Three Months Ended
June 30, 1997
The following table sets forth operating results for TRG's Managed Businesses
for the three months ended June 30, 1998 and June 30, 1997, showing the results
of the Consolidated Businesses and Unconsolidated Joint Ventures:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 Three Months Ended June 30, 1997
------------------------------------------- -------------------------------------------
TRG UNCONSOLIDATED TOTAL TRG UNCONSOLIDATED TOTAL
CONSOLIDATED JOINT MANAGED CONSOLIDATED JOINT MANAGED
BUSINESSES(1) VENTURES(2) BUSINESSES BUSINESSES(1) VENTURES(2) BUSINESSES
------------------------------------------- -------------------------------------------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Minimum rents 50.1 44.7 94.8 40.5 37.0 77.5
Percentage rents 1.8 0.9 2.7 1.6 0.8 2.4
Expense recoveries 28.8 25.3 54.0 22.8 21.3 44.0
Management, leasing and
development 2.1 2.1 2.3 2.3
Other 6.5 1.5 8.0 3.0 5.5 8.5
----- ----- ----- ----- ----- -----
Total revenues 89.3 72.3 161.6 70.2 64.6 134.8
OPERATING COSTS:
Recoverable expenses 24.4 21.0 45.4 19.4 18.2 37.5
Other operating 9.0 3.8 12.9 7.8 3.4 11.2
Management, leasing and
development 1.3 1.3 1.2 1.2
General and administrative 7.0 7.0 6.4 6.4
Interest expense 21.9 18.3 40.2 17.3 12.6 30.0
Depreciation and amortization 14.1 8.0 22.1 10.2 5.1 15.3
----- ----- ----- ----- ----- -----
Total operating costs 77.9 51.0 128.9 62.2 39.4 101.6
Net results of Memorial City (1) (0.3) (0.3) (0.1) (0.1)
----- ----- ----- ----- ----- -----
11.0 21.3 32.3 7.8 25.2 33.1
===== ===== ===== =====
Equity in net income of
Unconsolidated Joint Ventures 11.9 14.3
----- -----
Net income 23.0 22.2
Preferred distributions to TCO (4.2)
----- -----
Net income available to unitholders 18.8 22.2
===== =====
SUPPLEMENTAL INFORMATION (3):
EBITDA contribution 47.2 25.8 73.0 35.4 23.7 59.1
TRG's Beneficial Interest Expense (21.9) (9.7) (31.7) (17.3) (6.6) (24.0)
Non-real estate depreciation (0.5) (0.5) (0.5) (0.5)
Preferred distributions to TCO (4.2) (4.2)
----- ----- ----- ----- ----- -----
Distributable Cash Flow contribution 20.6 16.1 36.7 17.5 17.0 34.6
===== ===== ===== ===== ===== =====
(1) 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.
(2) With the exception of the Supplemental Information, amounts represent 100%
of the Unconsolidated Joint Ventures. Amounts are net of intercompany
profits. The Unconsolidated Joint Ventures are accounted for under the
equity method in TRG's Consolidated Financial Statements.
(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.
(5) Certain 1997 amounts have been reclassified to conform to 1998
classifications.
</TABLE>
- 14 -
<PAGE>
TRG --Consolidated Businesses
- -----------------------------
Total revenues for the three months ended June 30, 1998 were $89.3 million, a
$19.1 million, or 27.2%, increase over the comparable period in 1997. Minimum
rents increased $9.6 million, of which $8.2 million was caused by Tuttle
Crossing and the 1997 acquisitions. Minimum rents also increased due to the
expansion at Biltmore and tenant rollovers. Expense recoveries increased
primarily due to Tuttle Crossing and the acquired Centers. Other revenue
increased primarily due to an increase in lease cancellation revenue.
Total operating costs increased $15.7 million, or 25.2%, to $77.9 million.
Recoverable, other operating, and depreciation and amortization expenses
increased primarily due to Tuttle Crossing and the acquisitions. Other operating
expense also increased due to professional fees and management expenses,
partially offset by a decrease in the charge to operations for development
pre-construction reserves. Interest expense increased due to an increase in debt
used to finance Tuttle Crossing, the acquisition of The Falls and the redemption
of a partner's interest in TRG, partially offset by a decrease in debt paid down
with the proceeds of the October 1997 and April 1998 equity offerings. In
addition, interest expense increased due to an increase in debt used to fund
capital expenditures, offset by the related capitalized interest.
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.
Unconsolidated Joint Ventures
- -----------------------------
Total revenues for the three months ended June 30, 1998 were $72.3 million, a
$7.7 million, or 11.9%, increase from the comparable period of 1997. The
increase in minimum rents and expense recoveries was primarily due to Arizona
Mills and the expansion at Westfarms. Minimum rents also increased due to tenant
rollovers. Other revenue decreased by $4.0 million primarily due to decreases in
gains on peripheral land sales and lease cancellation revenue.
Total operating costs increased by $11.6 million, or 29.4%, to $51.0 million
for the three months ended June 30, 1998. Recoverable and depreciation and
amortization expenses increased primarily due to Arizona Mills and Westfarms.
Other operating expense increased primarily due to Arizona Mills. Interest
expense increased primarily due to an increase in debt used to finance Arizona
Mills and the Westfarms expansion, and a decrease in capitalized interest
related to these two projects. 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 Unconsolidated Joint Ventures
decreased by $3.9 million, or 15.5%, to $21.3 million. TRG's equity in net
income of the Unconsolidated Joint Ventures was $11.9 million, a 16.8% decrease
from the comparable period in 1997.
Net Income
- ----------
As a result of the foregoing, TRG's net income increased $0.8 million, or
3.6%, to $23.0 million for the three months ended June 30, 1998. After payment
of $4.2 million in preferred distributions to the Company, net income available
to partnership unitholders for the second quarter of 1998 was $18.8 million
compared to $22.2 million in 1997.
- 15 -
<PAGE>
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June
30, 1997
The following table sets forth operating results for TRG's Managed Businesses
for the six months ended June 30, 1998 and June 30, 1997, showing the results of
the Consolidated Businesses and Unconsolidated Joint Ventures:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 Six Months Ended June 30, 1997
------------------------------------------- -------------------------------------------
TRG UNCONSOLIDATED TOTAL TRG UNCONSOLIDATED TOTAL
CONSOLIDATED JOINT MANAGED CONSOLIDATED JOINT MANAGED
BUSINESSES(1) VENTURES(2) BUSINESSES BUSINESSES(1) VENTURES(2) BUSINESSES
------------------------------------------- -------------------------------------------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Minimum rents 100.0 88.8 188.9 81.3 74.7 156.0
Percentage rents 3.0 1.6 4.6 2.9 1.2 4.1
Expense recoveries 55.0 49.1 104.2 44.7 42.8 87.5
Management, leasing and
development 3.9 3.9 4.3 4.3
Other 11.6 4.9 16.4 6.9 6.7 13.6
----- ----- ----- ----- ----- -----
Total revenues 173.6 144.5 318.0 140.2 125.3 265.5
OPERATING COSTS:
Recoverable expenses 46.5 41.3 87.7 37.4 36.4 73.8
Other operating 16.3 7.1 23.4 14.3 6.1 20.4
Management, leasing and
development 2.4 2.4 2.3 2.3
General and administrative 13.6 13.6 12.1 12.1
Interest expense 44.6 35.5 80.1 34.6 25.2 59.8
Depreciation and amortization 27.9 16.0 43.9 20.2 10.2 30.4
----- ----- ----- ----- ----- -----
Total operating costs 151.3 99.9 251.2 120.8 77.9 198.7
Net results of Memorial City (1) (0.5) (0.5) (0.3) (0.3)
----- ----- ----- ----- ----- -----
21.7 44.6 66.3 19.1 47.3 66.4
===== ===== ===== =====
Equity in income before
extraordinary item of
Unconsolidated Joint Ventures 24.5 26.7
----- -----
Income before extraordinary item 46.3 45.8
Extraordinary item (1.0)
----- -----
Net income 45.3 45.8
Preferred distributions to TCO (8.3)
----- -----
Net income available to unitholders 37.0 45.8
===== =====
SUPPLEMENTAL INFORMATION (3):
EBITDA contribution 94.4 51.9 146.3 74.0 45.3 119.4
TRG's Beneficial Interest Expense (44.6) (18.9) (63.5) (34.6) (13.2) (47.8)
Non-real estate depreciation (1.0) (1.0) (1.1) (1.1)
Preferred distributions to TCO (8.3) (8.3)
----- ----- ----- ----- ----- -----
Distributable Cash Flow contribution 40.5 33.0 73.4 38.4 32.1 70.5
===== ===== ===== ===== ===== =====
(1) 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.
(2) With the exception of the Supplemental Information, amounts represent 100%
of the Unconsolidated Joint Ventures. Amounts are net of intercompany
profits. The Unconsolidated Joint Ventures are accounted for under the
equity method in TRG's Consolidated Financial Statements.
(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.
(5) Certain 1997 amounts have been reclassified to conform to 1998
classifications.
</TABLE>
- 16 -
<PAGE>
TRG --Consolidated Businesses
- -----------------------------
Total revenues for the six months ended June 30, 1998 were $173.6 million, a
$33.4 million, or 23.8%, increase over the comparable period in 1997. Minimum
rents increased $18.7 million, of which $16.4 million was caused by Tuttle
Crossing and the 1997 acquisitions. Minimum rents also increased due to the
expansion at Biltmore and tenant rollovers. Expense recoveries increased
primarily due to Tuttle Crossing and the acquired Centers. Other revenue
increased primarily due to an increase in lease cancellation revenue.
Total operating costs increased $30.5 million, or 25.2%, to $151.3 million.
Recoverable, other operating, and depreciation and amortization expenses
increased primarily due to Tuttle Crossing and the acquisitions. Other operating
expense also increased due to professional fees and management expense,
partially offset by a decrease in the charge to operations for development
pre-construction reserves. General and administrative expense increased
primarily due to increases in compensation (including the continuing phase-in of
the long-term compensation plan). Interest expense increased due to an increase
in debt used to finance Tuttle Crossing, the acquisition of The Falls and the
redemption of a partner's interest in TRG, partially offset by a decrease in
debt paid down with the proceeds of the October 1997 and April 1998 equity
offerings. In addition, interest expense increased due to an increase in debt
used to fund capital expenditures, offset by the related capitalized interest.
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.
Unconsolidated Joint Ventures
- -----------------------------
Total revenues for the six months ended June 30, 1998 were $144.5 million, a
$19.2 million, or 15.3%, increase from the comparable period of 1997. The
increase in minimum rents and expense recoveries was primarily due to Arizona
Mills and the expansion at Westfarms. Minimum rents also increased due to tenant
rollovers. Other revenue decreased by $1.8 million primarily due to decreases in
gains on peripheral land sales.
Total operating costs increased by $22.0 million, or 28.2%, to $99.9 million
for the six months ended June 30, 1998. Recoverable and depreciation and
amortization expenses increased primarily due to Arizona Mills and Westfarms.
Other operating expense increased primarily due to Arizona Mills. Interest
expense increased primarily due to an increase in debt used to finance Arizona
Mills and the Westfarms expansion, and a decrease in capitalized interest
related to these two projects. 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, income before extraordinary item of the
Unconsolidated Joint Ventures decreased by $2.7 million, or 5.7%, to $44.6
million. TRG's equity in income before extraordinary item of the Unconsolidated
Joint Ventures was $24.5 million, an 8.2% decrease from the comparable period in
1997.
Net Income
- ----------
As a result of the foregoing, TRG's income before extraordinary item increased
$0.5 million, or 1.1%, to $46.3 million for the six months ended June 30, 1998.
In the first quarter of 1998, TRG recognized a $1.0 million extraordinary charge
related to the prepayment of Fair Oaks' debt. After payment of $8.3 million in
preferred distributions to the Company, net income available to partnership
unitholders for the six months ended June 30, 1998 was $37.0 million compared to
$45.8 million for the comparable period in 1997.
- 17 -
<PAGE>
Liquidity and Capital Resources
As of June 30, 1998, TRG had a cash balance of $0.7 million. TRG has available
for general partnership purposes an unsecured revolving credit facility of $300
million, which expires in March 2000. Borrowings under this facility at June 30,
1998 were $261.2 million. TRG also has available an unsecured bank line of
credit of up to $30 million with borrowings of $14.0 million at June 30, 1998.
The availability under the line was increased to $40 million in July 1998. The
line expires in August 1999. TRG also has available a secured commercial paper
facility of up to $75 million, with borrowings of $75 million at June 30, 1998.
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 and equity issuances of $204.9 million
provided funding for the first six months of 1998 (including $77.7 million for
the redemption of 6.1 million units of partnership interest in January 1998)
compared to $49.4 million in the comparable period of 1997. Additionally, the
proceeds were used to fund capital expenditures for the Consolidated Businesses
and contributions to Unconsolidated Joint Ventures for construction costs.
TRG has issued a total of $342 million of notes since the inception of TRG's
medium-term note program in 1995 under TRG's $500 million shelf registration
statement. TRG did not issue any medium-term notes in the first half of either
1998 or 1997.
In March 1998, a 50% owned Unconsolidated Joint Venture completed a $140
million, 6.60% secured financing maturing in 2008. The net proceeds were used to
extinguish an existing mortgage of approximately $39 million and pay a
prepayment penalty of approximately $1.8 million. In addition, proceeds of $5.6
million were used to close out a treasury lock agreement entered into in 1997,
which resulted in a effective rate on the financing of approximately 7%. The
remaining proceeds were distributed to the owners. TRG used its 50% share of the
distribution to pay down its revolving credit facilities.
At June 30, 1998, TRG's debt and its beneficial interest in the debt of its
Consolidated and Unconsolidated Joint Ventures totaled $1,917.1 million. As
shown in the following table, $273.7 million of this debt was floating rate debt
that remained unhedged at June 30, 1998. 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 0.35% to the effective rate of interest on TRG's
beneficial interest in debt at June 30, 1998. Included in TRG's beneficial
interest in debt is debt used to fund development and expansion costs. TRG's
beneficial interest in assets on which interest is being capitalized totaled
$249.4 million as of June 30, 1998. TRG's beneficial interest in capitalized
interest was $4.1 million and $7.3 million for the three and six months ended
June 30, 1998, respectively.
- 18 -
<PAGE>
Beneficial Interest in Debt
----------------------------------------------------
Amount Interest LIBOR Frequency LIBOR
(In millions Rate at Cap of Rate at
of dollars) 6/30/98 Rate Resets 6/30/98
---------- ------- ---- ------ -------
Total beneficial interest
in fixed rate debt 1,117.3 7.59%(1)
Floating rate debt hedged
via interest rate caps:
Through October 1998 39.3 6.16 6.00% Three Months 5.72%
Through December 1998 100.0 6.45(1) 6.50 Three Months 5.72
Through July 1999 65.0 6.40 7.00 Monthly 5.66
Through December 1999 200.0 6.45(1) 9.50(2) Monthly 5.66
Through October 2001 25.0 6.11 8.55 Monthly 5.66
Through January 2002 53.4 6.94(1) 9.50 Monthly 5.66
Through July 2002 43.4 6.92 6.50 Monthly 5.66
Other floating rate debt 273.7 6.45(1)
-------
Total beneficial interest
in debt 1,917.1 7.12(1)
=======
(1) Denotes weighted average interest rate.
(2) Rate reduces to 7.0% in December 1998.
In July 1998, TRG closed on an unsecured credit facility of $100 million,
which will expire in January 1999. Loans obtained under this facility will bear
interest at one month LIBOR plus 0.90%. Proceeds will be used for general
partnership purposes.
TRG's loan and facility 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 that TRG considers in determining distributions to partners
is TRG's Distributable Cash Flow, which is defined as EBITDA less TRG's
Beneficial Interest Expense, non-real estate depreciation and amortization, and
preferred distributions. Capital structure, in addition to operations,
influences this measure of performance. TRG defines EBITDA as TRG's beneficial
interest in (or pro rata share of ) the revenues, less operating costs before
interest, depreciation and amortization of the Managed Businesses. 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.
- 19 -
<PAGE>
The following table summarizes TRG's Distributable Cash Flow for the three
months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three months ended Three months ended
June 30, 1998 June 30, 1997
----------------------------------------- ----------------------------------------
TRG Unconsolidated TRG Unconsolidated
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) 23.0 22.2
Depreciation and Amortization(3) 18.4 12.9
TRG's Beneficial Interest Expense 31.7 24.0
----- -----
EBITDA 47.2 25.8 73.0 35.4 23.7 59.1
TRG's Beneficial Interest Expense (21.9) (9.7) (31.7) (17.3) (6.6) (24.0)
Non-real estate depreciation (0.5) (0.5) (0.5) (0.5)
Preferred distributions to TCO (4.2) (4.2)
----- ----- ----- ----- ----- -----
Distributable Cash Flow 20.6 16.1 36.7 17.5 17.0 34.6
===== ===== ===== ===== ===== =====
(1) Amounts represent TRG's beneficial interest in the operations of its
Unconsolidated Joint Ventures.
(2) Includes TRG's share of gains on peripheral land sales of $1.8 million for
the three months ended June 30, 1997. There were no land sales during the
three months ended June 30, 1998.
(3) Includes $1.1 million and $0.9 million of mall tenant allowance
amortization in the second quarter of 1998 and 1997, respectively.
(4) Amounts may not add due to rounding.
</TABLE>
The following table summarizes TRG's Distributable Cash Flow for the six
months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1998 June 30, 1997
----------------------------------------- ----------------------------------------
TRG Unconsolidated TRG Unconsolidated
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) 45.3 45.8
Extraordinary item(3) 1.0
Depreciation and Amortization(4) 36.5 25.8
TRG's Beneficial Interest Expense 63.5 47.8
----- -----
EBITDA 94.4 51.9 146.3 74.0 45.3 119.4
TRG's Beneficial Interest Expense (44.6) (18.9) (63.5) (34.6) (13.2) (47.8)
Non-real estate depreciation (1.0) (1.0) (1.1) (1.1)
Preferred distributions to TCO (8.3) (8.3)
----- ----- ----- ----- ----- -----
Distributable Cash Flow 40.5 33.0 73.4 38.4 32.1 70.5
===== ===== ===== ===== ===== =====
(1) Amounts represent TRG's beneficial interest in the operations of its
Unconsolidated Joint Ventures.
(2) Includes TRG's share of gains on peripheral land sales of $0.4 million and
$1.9 million for the six months ended June 30, 1998 and 1997, respectively.
(3) Extraordinary charge related to the extinguishment of debt, primarily
consisting of a prepayment penalty.
(4) Includes $2.2 million and $1.8 million of mall tenant allowance
amortization for the six months ended June 30, 1998 and 1997, respectively.
(5) Amounts may not add due to rounding.
</TABLE>
- 20 -
<PAGE>
For the second quarter of 1998, EBITDA and Distributable Cash Flow were $73.0
million and $36.7 million, compared to $59.1 million and $34.6 million for the
same period in 1997. In addition to $4.2 million representing preferred
distributions to TCO on TRG's Series A Preferred Equity, TRG distributed $31.9
million to its partners in the second quarter of 1998, compared to $32.0 million
in the same period of 1997.
During the first half of 1998, EBITDA and Distributable Cash Flow were $146.3
million and $73.4 million, compared to $119.4 million and $70.5 million for the
same period in 1997. In addition to $8.3 million in preferred distributions to
TCO, TRG distributed $63.6 million and $64.0 million to its partners in the six
month periods ended June 30, 1998 and 1997, respectively.
The Partnership Committee of TRG makes an annual determination of appropriate
distributions for each year. The determination is based on anticipated
Distributable Cash Flow available after preferred distributions to TCO on TRG's
Series A Preferred Equity, as well as financing considerations and such other
factors as the Partnership Committee deems 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.
Each Joint Venture may make distributions only in accordance with the terms of
its partnership agreement. TRG, in general, acts as the managing partner and 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.
- 21 -
<PAGE>
Capital Spending
Capital spending for routine maintenance of the Taubman Shopping Centers is
generally recovered from tenants. The following table summarizes planned capital
spending by the Managed Businesses, which is not recovered from tenants and
assuming no acquisitions during 1998:
<TABLE>
<CAPTION>
1998
------------------------------------------------------------
TRG's Share of
Unconsolidated Consolidated Businesses
Consolidated Joint and Unconsolidated
Businesses Ventures(1) Joint Ventures(1)(2)
------------------------------------------------------------
(in millions of dollars)
<S> <C> <C> <C>
Development, renovation,
and expansion 240.9(3) 39.0(4) 208.4
Mall tenant allowances 4.6 9.0 9.6
Pre-construction development
and other 22.1 1.4 22.8
----- ---- -----
Total 267.6 49.4 240.8
===== ==== =====
(1) Costs are net of intercompany profits.
(2) Includes TRG's share of construction costs for Great Lakes Crossing (an 80%
owned consolidated joint venture) and MacArthur Center (a 70% owned
consolidated joint venture).
(3) Includes costs related to MacArthur Center and Great Lakes Crossing.
(4) Includes costs related to the expansion project at Cherry Creek.
</TABLE>
At Cherry Creek, an ongoing expansion includes a newly constructed Lord &
Taylor store, which opened in November 1997, and the addition of 132 thousand
square feet of mall GLA, which will open in stages beginning in August and
continuing throughout the fall of 1998. The expansion is expected to cost
approximately $50 million. TRG has a 50% ownership interest in Cherry Creek.
Great Lakes Crossing, an enclosed value super-regional mall being developed by
TRG in Auburn Hills, Michigan, will open in November 1998. The Center will be
1.4 million square feet and its 17 anchors will include Bass Pro Shops Outdoor
World, Neiman Marcus Last Call Clearance Center, Off 5th-Saks Fifth Avenue
Outlet, JCPenney Outlet Store, Oshman's Supersports USA, Rainforest Cafe, and a
25-screen 100,000 square foot Star Theatre megaplex. This Center is presently
owned by a joint venture in which TRG has a controlling 80% interest and is
projected to cost approximately $210 million.
MacArthur Center, a new Center under construction in Norfolk, Virginia, is
expected to open in March 1999. The Center is expected to open with 930 thousand
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% controlling
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 and The Mills Corporation have formed an alliance to develop value
super-regional projects in major metropolitan markets. The ten-year agreement
calls for the two companies to jointly develop and own at least seven of these
centers, each representing approximately $200 million of capital investment. The
initial scope of the arrangement will include joint ventures in projects
currently under development by TRG in Detroit (Great Lakes Crossing) and Mills
in Houston as well as proposed projects in Philadelphia and Boston. A number of
other locations across the nation are targeted for future initiatives.
- 22 -
<PAGE>
TRG anticipates that its share of costs for development projects scheduled to
be completed in 1999 will be as much as $58 million in 1999. TRG's estimates of
1998 and 1999 capital spending include only projects approved by TRG's
Partnership Committee and, consequently, TRG's estimates will change as new
projects are approved. Currently, TRG expects to open on average one $175
million to $200 million shopping center each year. 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 and number of projects; 3) cost
overruns; 4) timing of expenditures; 5) financing considerations; and 6) actual
time to complete projects.
Cash Tender Agreement
A. Alfred Taubman 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.
TRG is not aware of any present intention of any partner to exercise its
rights under the Cash Tender Agreement.
Capital Resources
TRG believes that its net cash provided by operating activities, distributions
from the Joint Ventures, the unutilized portion of its credit facilities, and
its ability to access the credit markets, assure adequate liquidity to conduct
its operations in accordance with its distribution and financing policies.
- 23 -
<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 and Preferred Distributions.
27 -- Financial Data Schedule.
b) Current Reports on Form 8-K.
None
- 24 -
<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 10, 1998 By: /s/ Lisa A. Payne
----------------------------
Lisa A. Payne
Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number
------
12 -- Statement Re: Computation of Ratios of Earnings to Fixed Charges
and Preferred Distributions.
27 -- Financial Data Schedule.
Exhibit 12
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
Computation of Ratios of Earnings to Fixed Charges and Preferred Distributions
(in thousands, except ratios)
Six Months Ended June 30
------------------------
1998 1997
---- ----
Net Earnings from Continuing Operations $ 46,282 $ 45,754
Add back:
Fixed charges 75,525 59,255
Amortization of previously
capitalized interest (1) 1,238 953
Equity in net income in excess of
distributions of less than 50% owned
Unconsolidated Joint Ventures (957) 0
Deduct:
Capitalized interest (1) (8,014) (7,167)
-------- --------
Earnings Available for Fixed Charges
and Preferred Distributions $114,074 $ 98,795
======== ========
Fixed Charges
Mortgage notes and other $ 44,586 $ 34,614
Capitalized interest 7,456 4,337
Interest portion of rent expense 3,518 3,749
Proportionate share of Unconsolidated
Joint Ventures' fixed charges 19,965 16,555
-------- --------
Total Fixed Charges $ 75,525 $ 59,255
======== ========
Preferred Distributions 8,300
-------- --------
Total Fixed Charges and Preferred
Distributions $ 83,825 $ 59,255
======== ========
Ratio of Earnings to Fixed Charges
and Preferred Distributions 1.4 1.7
- -----------------
(1) Amounts include TRG's pro rata share of capitalized interest and
amortization of previously capitalized interest of the Unconsolidated 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, 1998 AND TRG'S CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 707
<SECURITIES> 0
<RECEIVABLES> 21,302
<ALLOWANCES> 565
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F2>
<PP&E> 1,709,101
<DEPRECIATION> 292,466
<TOTAL-ASSETS> 1,480,721
<CURRENT-LIABILITIES> 0 <F2>
<BONDS> 1,414,433
0
192,840
<COMMON> 0
<OTHER-SE> (406,483)
<TOTAL-LIABILITY-AND-EQUITY> 1,480,721
<SALES> 0
<TOTAL-REVENUES> 179,234
<CGS> 0
<TOTAL-COSTS> 99,292
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,586
<INCOME-PRETAX> 46,282
<INCOME-TAX> 0
<INCOME-CONTINUING> 46,282
<DISCONTINUED> 0
<EXTRAORDINARY> (957)
<CHANGES> 0
<NET-INCOME> 45,325
<EPS-PRIMARY> .28 <F3>
<EPS-DILUTED> .28
<FN>
<F1> EXCEPT FOR UNIT DATA.
<F2> TRG HAS AN UNCLASSIFIED BALANCE SHEET.
<F3> EFFECTIVE SEPTEMBER 30, 1997, TRG AMENDED ITS PARTNERSHIP AGREEMENT TO
SPLIT EXISTING UNITS OF PARTNERSHIP INTEREST AS A RATIO OF 1975.08 T0
ONE.
</FN>
</TABLE>
