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: March 31, 1996
Commission File No. 1-11530
Taubman Centers, Inc.
(Exact name of registrant as specified in its charter)
Michigan 38-2033632
- - ------------------------------------------ --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Long Lake Road, Bloomfield Hills, Michigan 48304
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(810) 258-6800
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
------ --------
As of May 6, 1996, there were outstanding 44,098,113 shares of the
Company's common stock, par value $0.01 per share.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following financial statements of Taubman Centers, Inc. (the Company)
are provided pursuant to the requirements of this item. The financial statements
of The Taubman Realty Group Limited Partnership (TRG) are also provided.
INDEX TO FINANCIAL STATEMENTS
TAUBMAN CENTERS, INC.
Balance Sheet as of December 31, 1995 and March 31, 1996.................... 2
Statement of Operations for the three months ended March 31,
1995 and 1996.............................................................. 3
Statement of Cash Flows for the three months ended March 31,
1995 and 1996.............................................................. 4
Notes to Financial Statements............................................... 5
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
Consolidated Balance Sheet as of December 31, 1995 and March 31, 1996.........9
Consolidated Statement of Operations for the three months ended
March 31, 1995 and 1996...................................................10
Consolidated Statement of Cash Flows for the three months ended
March 31, 1995 and 1996...................................................11
Notes to Consolidated Financial Statements...................................12
-1-
TAUBMAN CENTERS, INC.
BALANCE SHEET
(in thousands, except share data)
December 31 March 31
----------- --------
1995 1996
---- ----
Assets:
Investment in TRG (Note 2) $307,190 $302,406
Cash and cash equivalents 7,886 7,916
Other assets 30
-------- --------
$315,076 $310,352
======== ========
Liabilities:
Accounts payable and accrued
liabilities $ 348 $ 437
Dividends payable 9,710 9,702
-------- --------
$ 10,058 $ 10,139
Commitments and Contingencies (Note 4)
Shareowners' Equity (Note 3)
Common Stock $ 441 $ 441
$0.01 par value, 250,000,000 shares
authorized, 44,134,913 and 44,098,113
issued and outstanding at December 31,
1995 and March 31, 1996
Additional paid-in capital 386,680 386,333
Dividends in excess of net income (82,103) (86,561)
-------- --------
$305,018 $300,213
-------- --------
$315,076 $310,352
======== ========
See notes to financial statements.
-2-
TAUBMAN CENTERS, INC.
STATEMENT OF OPERATIONS
(in thousands, except share data)
Three Months Ended March 31
---------------------------
1995 1996
---- ----
Income:
Equity in TRG's income (Note 2) $4,589 $5,414
Interest and other 107 68
------ ------
$4,696 $5,482
------ ------
Operating Expenses:
General and administrative $ 181 $ 175
Management fee 63 63
------ ------
$ 244 $ 238
------ ------
Net Income $4,452 $5,244
====== ======
Net Income per common share $ .10 $ .12
====== ======
Cash dividends declared per common
share $ .22 $ .22
====== ======
Weighted average number of common
shares outstanding 44,464,074 44,111,232
========== ==========
See notes to financial statements.
-3-
TAUBMAN CENTERS, INC.
STATEMENT OF CASH FLOWS
(in thousands)
Three Months Ended March 31
---------------------------
1995 1996
---- ----
Cash Flows From Operating Activities:
Net Income $ 4,452 $ 5,244
Adjustments to reconcile net income
to net cash provided by operating
activities:
Increase in other assets (94) (30)
Increase in accounts payable and
other liabilities 465 89
-------- -------
Net Cash Provided By Operating Activities $ 4,823 $ 5,303
-------- -------
Cash Flows Provided by Investing
Activities - Distributions from TRG
in excess of net income $ 5,610 $ 4,784
-------- -------
Cash Flows From Financing Activities:
Cash dividends $ (9,810) $ (9,710)
Purchases of stock (Note 3) (2,302) (347)
-------- --------
Net Cash Used in Financing Activities $(12,112) $(10,057)
-------- --------
Net Increase (Decrease) In Cash $ (1,679) $ 30
Cash and Cash Equivalents at Beginning
of Period 11,000 7,886
-------- --------
Cash and Cash Equivalents at End of Period $ 9,321 $ 7,916
======== ========
See notes to financial statements.
-4-
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
Three months ended March 31, 1996
Note 1 - Interim Financial Statements
The unaudited interim financial statements should be read in conjunction
with the audited financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995. In
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial statements for
the interim periods have been made. The results for interim periods are not
necessarily indicative of the results for a full year.
Note 2 - Investment in TRG
The Company's investment in TRG at December 31, 1995 and March 31, 1996
consists of a 35.10% managing general partnership interest (representing 22,295
of the 63,521 TRG units of partnership interest outstanding as of December 31,
1995 and March 31, 1996). Net income and distributions are allocable to the
general and limited TRG partners in accordance with their percentage ownership.
The excess of the Company's cost of its investment in TRG over its
proportionate share of TRG's accumulated deficiency in assets at December 31,
1995 and March 31, 1996 was $448.6 million and $446.7 million, respectively. The
Company's proportionate share of TRG's net income for the three months ended
March 31, 1995 and 1996 was $6.8 million and $7.3 million, respectively, reduced
by $2.2 million and $1.9 million, respectively, representing adjustments arising
from the Company's additional basis in TRG's net assets.
TRG's summarized balance sheet and results of operations information (in
thousands) are presented below, followed by information about TRG's beneficial
interest in the operations of its unconsolidated joint ventures. Beneficial
interest is calculated based on TRG's ownership interest in each of the joint
ventures.
December 31 March 31
----------- --------
1995 1996
---- ----
Assets:
Properties $ 926,207 $ 931,979
Accumulated depreciation and
amortization 200,440 207,185
---------- ----------
$ 725,767 $ 724,794
Other assets 78,589 81,430
---------- ----------
$ 804,356 $ 806,224
========== ==========
Liabilities:
Unsecured notes payable $ 632,575 $ 632,613
Mortgage notes payable 160,496 160,487
Other notes payable 162,178 171,720
Capital lease obligation 14,418 17,277
Accounts payable and other
liabilities 82,603 80,533
Distributions in excess of net
income of unconsolidated joint
ventures 154,933 154,629
---------- ----------
$1,207,203 $1,217,259
Accumulated deficiency in assets (402,847) (411,035)
---------- ----------
$ 804,356 $ 806,224
========== ==========
-5-
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS-- (Continued)
Three Months Ended March 31
---------------------------
1995 1996
---- ----
Revenues $53,485 $59,732
Operating costs other than interest
and depreciation and amortization $25,031 $26,803
Interest expense 15,032 17,102
Depreciation and amortization 7,990 8,322
------- -------
$48,053 $52,227
------- -------
Equity in net income of unconsolidated
joint ventures 14,028 13,363
------- -------
Net Income $19,460 $20,868
======= =======
Three Months Ended March 31
---------------------------
1995 1996
---- ----
TRG's beneficial interest
in unconsolidated joint ventures'
operations:
Revenues less recoverable and other
operating expenses $24,482 $23,317
Interest expense (7,129) (7,172)
Depreciation and amortization (3,325) (2,782)
------- -------
Net Income $14,028 $13,363
======= =======
-6-
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS-- (Continued)
Note 3 - Purchases of Common Stock
The Company's Board of Directors has authorized the purchase of up to 750
thousand shares of the Company's common stock in the open market. The stock may
be purchased from time to time as market conditions warrant. In the first three
months of 1996, the Company purchased 36.8 thousand shares for approximately
$0.3 million. As of March 31, 1996, the Company had purchased a cumulative total
of 491.8 thousand shares of its common stock for approximately $4.7 million.
Funding for the purchases was provided by excess cash that otherwise would have
been invested in cash equivalents.
Note 4 - Commitments and Contingencies
At the time of the Company's initial public offering (IPO) and acquisition
of its interest in TRG, the Company entered into an agreement with A. Alfred
Taubman and The General Motors Hourly-Rate Employes Pension Trust and the
General Motors Salaried Employes Pension Trust (the GM Trusts), each of whom
indirectly owns an interest in TRG, whereby each has the annual right to tender
to the Company units of partnership interest in TRG (provided that the aggregate
value is at least $50 million) and cause the Company to purchase the tendered
interests at a purchase price based on a market valuation of the Company on the
trading date immediately preceding the date of the tender (the Cash Tender
Agreement). The Company will have the option to pay for these interests from
available cash, borrowed funds or from the proceeds of an offering of the
Company's common stock. Generally, the Company expects to finance these
purchases through the sale of new shares of its stock. The tendering partners
will bear the costs of sale. Any proceeds of the offering in excess of the
purchase price will be for the sole benefit of the Company. At A. Alfred
Taubman's election, his family and Robert C. Larson and his family may
participate in tenders. The GM Trusts will be entitled to receive from TRG an
amount (not to exceed $10.9 million in the aggregate over the term of the
Partnership) equal to 5.5% of the amounts that the Company pays to the GM Trusts
under the Cash Tender Agreement.
Based on a market value at December 31, 1995 and March 31, 1996 of $10.00
and $9.875 per common share, the aggregate value of interests in TRG which may
be tendered under the Cash Tender Agreement was approximately $743 million and
$733 million, respectively. Purchase of these interests would result in the
Company owning an additional 59% interest in TRG.
The Company has made a continuing, irrevocable offer to all present holders
(other than certain excluded holders, including A. Alfred Taubman and the GM
Trusts), assignees of all present holders, those future holders of partnership
interests in TRG as the Company may, in its sole direction, agree to include in
the continuing offer, and all existing and future optionees under TRG's
incentive option plan (described below) to exchange shares of common stock for
partnership interests in TRG (the Continuing Offer). The number of shares of
common stock to be exchanged is based on a market valuation of the Company on
the trading date immediately preceding the date of exchange. The offer is
subject to certain restrictions relating to the minimum value of interest
exchanged and ownership limitations.
-7-
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS-- (Continued)
The GM Trusts and the AT&T Master Pension Trust are able to sell shares of
common stock that they acquired in connection with the IPO through a registered
offering. Pursuant to a registration rights agreement with the Company, each of
the Trusts has the annual right to cause the Company to register and publicly
sell their shares of common stock (provided that the shares have an aggregate
value of at least $50 million and subject to certain other restrictions). The
annual right is deemed to be exercised if they initiate or participate in a sale
pursuant to the Cash Tender Agreement, as described above. All expenses of such
a registration are to be borne by the Company, other than the underwriting
discounts or selling commissions, which will be borne by the exercising party.
Currently, 4,500 units of partnership interest may be issued under TRG's
incentive option plan for employees of The Taubman Company Limited Partnership
(the Manager). The Manager, which is approximately 99% beneficially owned by
TRG, provides various administrative, management, accounting, shareowner
relations, and other services to the Company and TRG. The exercise price of all
outstanding options is equal to fair market value on the date of grant.
Incentive options generally become exercisable to the extent of one-third of the
units on each of the third, fourth and fifth anniversaries of the date of grant.
Options expire ten years from the date of grant. Under the Continuing Offer, one
unit of partnership interest would be exchangeable for approximately 2,000
shares of the Company's common stock at March 31, 1996. Unchanged from December
31, 1995, there were outstanding options for 4,119 units as of March 31, 1996,
with exercise prices ranging from $18 thousand to $27 thousand. As of December
31, 1995 and March 31, 1996, options for 1,195 and 1,232 units, respectively,
were exercisable with an exercise price range of $22 thousand to $26 thousand.
-8-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31 March 31
----------- --------
1995 1996
---- ----
Assets:
Properties $ 926,207 $ 931,979
Accumulated depreciation and
amortization 200,440 207,185
--------- ----------
$ 725,767 $ 724,794
Cash and cash equivalents 16,836 18,393
Accounts and notes receivable,
less allowance for doubtful
accounts of $381 and $285
in 1995 and 1996 14,192 14,674
Accounts receivable from related
parties 5,234 6,100
Deferred charges and other assets 42,327 42,263
---------- ----------
$ 804,356 $ 806,224
========== ==========
Liabilities:
Unsecured notes payable $ 632,575 $ 632,613
Mortgage notes payable 160,496 160,487
Other notes payable 162,178 171,720
Capital lease obligation 14,418 17,277
Accounts payable and other
liabilities 82,603 80,533
Distributions in excess of net
income of unconsolidated Joint
Ventures (Note 2) 154,933 154,629
---------- ----------
$1,207,203 $1,217,259
Commitments and Contingencies
(Note 4)
Accumulated deficiency in assets (402,847) (411,035)
---------- ----------
$ 804,356 $ 806,224
========== ==========
Allocation of accumulated deficiency
in assets:
General Partners $ (322,346) $ (328,897)
Limited Partners (80,501) (82,138)
---------- ----------
$ (402,847) $ (411,035)
========== ==========
See notes to financial statements.
-9-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except units data)
Three Months Ended March 31
---------------------------
1995 1996
---- ----
Revenues:
Minimum rents $31,396 $34,763
Percentage rents 1,166 1,027
Expense recoveries 17,301 19,607
Other 2,318 2,534
Revenue from management, leasing
and development services 1,304 1,801
------- -------
$53,485 $59,732
------- -------
Operating Costs:
Recoverable expenses $14,202 $15,586
Other operating 5,026 5,219
Management, leasing and development
services 781 1,245
General and administrative 5,022 4,753
Interest expense 15,032 17,102
Depreciation and amortization 7,990 8,322
------- -------
$48,053 $52,227
------- -------
Income before equity in net income of
unconsolidated Joint Ventures $ 5,432 $ 7,505
Equity in net income of unconsolidated
Joint Ventures (Note 2) 14,028 13,363
------- -------
Net Income $19,460 $20,868
======= =======
Allocation of Net Income:
General Partners $15,571 $16,698
Limited Partners 3,889 4,170
------- -------
$19,460 $20,868
======= =======
Net Income per Unit of Partnership
Interest $ 306 $ 329
======= =======
Weighted Average Number of Units of
Partnership Interest Outstanding 63,521 63,521
======= =======
See notes to financial statements.
-10-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Three Months Ended March 31
---------------------------
1995 1996
---- ----
Cash Flows From Operating Activities:
Net Income $ 19,460 $ 20,868
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 7,990 8,322
Net Income in excess of distributions
from unconsolidated Joint Ventures (2,475)
Provision for losses on accounts
receivable 265 387
Amortization of deferred financing
costs 563 565
Other 462 248
Decrease in cash attributable to
changes in assets and liabilities:
Receivables, deferred charges and
other assets (6,543) (3,648)
Accounts payable and other liabilities (851) (1,816)
------- -------
Net Cash Provided By Operating Activities $18,871 $24,926
------- -------
Cash Flows From Investing Activities:
Additions to properties $ (9,908) $ (4,292)
Distributions from unconsolidated Joint
Ventures in excess of net income 1,107
Contributions to unconsolidated Joint
Venture (Note 2) (661)
-------- --------
Net Cash Used In Investing Activities $ (9,908) $ (3,846)
-------- --------
Cash Flows From Financing Activities:
Debt proceeds $ 16,901 $ 9,542
Debt payments (72) (9)
Cash distributions (29,056) (29,056)
-------- --------
Net Cash Used In Financing Activities $(12,227) $(19,523)
-------- --------
Net Increase (Decrease) In Cash $ (3,264) $ 1,557
Cash and Cash Equivalents at Beginning
of Period 10,709 16,836
-------- --------
Cash and Cash Equivalents at End
of Period $ 7,445 $ 18,393
======== ========
Interest on mortgage notes and other loans paid during the three months ended
March 31, 1995 and 1996, net of amounts capitalized of $2,265 and $1,212, was
$6,351 and $6,401, respectively.
See notes to financial statements.
-11-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31,1996
Note 1 - Interim Financial Statements
The Taubman Realty Group Limited Partnership (TRG) engages in the
ownership, operation, management, leasing, acquisition, development,
redevelopment, expansion, financing and refinancing of regional retail shopping
centers (Taubman Shopping Centers) and interests therein. Taubman Centers, Inc.
(TCI) is the managing general partner of TRG. GMPTS Limited Partnership, TG
Partners Limited Partnership and Taub- Co Management, Inc. are also general
partners.
The unaudited interim financial statements should be read in conjunction
with the audited financial statements and related notes included in TRG's Annual
Report on Form 10-K for the year ended December 31, 1995. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial statements for the interim
periods have been made. The results for interim periods are not necessarily
indicative of the results for a full year.
Note 2 - Investments in Joint Ventures
Certain Taubman Shopping Centers are partially owned through joint ventures
(Joint Ventures). TRG is also the managing general partner of these Joint
Ventures. TRG's interest in each Joint Venture is as follows:
TRG's %
Ownership
as of
Joint Venture Taubman Shopping Center March 31, 1996
- - -------------------------------------------------------------------------------
Fairfax Associates Fair Oaks 50%
Fairlane Town Center Fairlane Town Center 25
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
Taubman MacArthur Associates Limited Partnership, a joint venture in which
TRG has a 70% interest, is developing MacArthur Center in Norfolk, Virginia. The
Center is expected to open in 1998.
-12-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
TRG reduces its investment in Joint Ventures to eliminate intercompany
profits on sales of services that are capitalized by the Joint Ventures. As a
result, the carrying value of TRG's investment in Joint Ventures is less than
TRG's share of the deficiency in assets reported in the combined balance sheet
of the unconsolidated Joint Ventures by $4.8 million and $5.9 million at
December 31, 1995 and at March 31, 1996, respectively. These differences are
amortized over the useful lives of the related assets.
Combined balance sheet and results of operations information are presented
below (in thousands) for all Joint Ventures, followed by TRG's beneficial
interest in the combined information. Beneficial interest is calculated based on
TRG's ownership interest in each of the Joint Ventures.
December 31 March 31
----------- --------
1995 1996
---- ----
Assets:
Properties, net $ 373,803 $ 380,962
Other assets 109,668 93,432
--------- ---------
$ 483,471 $ 474,394
========= =========
Liabilities and partners' accumulated
deficiency in assets:
Debt $ 741,121 $ 740,366
Other liabilities 50,227 41,335
TRG accumulated deficiency in assets (150,117) (148,767)
Joint Venture Partners' accumulated
deficiency in assets (157,760) (158,540)
--------- ---------
$ 483,471 $ 474,394
========= =========
TRG accumulated deficiency in assets
(above) $(150,117) $(148,767)
Elimination of intercompany profit (4,816) (5,862)
--------- ---------
Distributions in excess of net income
of unconsolidated Joint Ventures $(154,933) $(154,629)
========= =========
Three Months Ended March 31
---------------------------
1995 1996
---- ----
Revenues $ 70,189 $ 70,032
Recoverable and other operating expenses $ 26,251 $ 27,485
Interest expense 13,715 13,850
Depreciation and amortization 6,558 5,673
--------- ---------
Total operating costs $ 46,524 $ 47,008
--------- ---------
Net income $ 23,665 $ 23,024
========= =========
Net income attributable to TRG $ 12,295 $ 12,041
Realized intercompany profit 1,733 1,322
--------- ---------
Equity in net income of unconsolidated
Joint Ventures $ 14,028 $ 13,363
========= =========
-13-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Three Months Ended March 31
---------------------------
1995 1996
---- ----
TRG's beneficial interest
in unconsolidated Joint Ventures'
operations:
Revenues less recoverable and other
operating expenses $24,482 $23,317
Interest expense (7,129) (7,172)
Depreciation and amortization (3,325) (2,782)
------- -------
Net Income $14,028 $13,363
======= =======
Note 3 - Beneficial Interest in Debt and Interest Expense
TRG's beneficial interest in the debt, capitalized interest, and interest
expense (net of capitalized interest) of TRG, its consolidated subsidiaries and
its unconsolidated Joint Ventures is summarized as follows:
TRG's Share TRG's TRG's
Joint of Joint Consolidated Beneficial
Ventures Ventures Subsidiaries Interest
-------- -------- ------------ --------
Debt as of:
December 31, 1995 $741,121 $390,680 $955,249 $1,345,929
March 31, 1996 740,366 390,352 964,820 1,355,172
Capitalized interest:
Three months ended March 31, 1995 $ 1,073 $ 541 $ 2,265 $ 2,806
Three months ended March 31, 1996 871 561 1,212 1,773
Interest expense
(Net of capitalized interest):
Three months ended March 31, 1995 $ 13,715 $ 7,129 $ 15,032 $ 22,161
Three months ended March 31, 1996 13,850 7,172 17,102 24,274
-14-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 4 - Incentive Option Plan
TRG has an incentive option plan for employees of the Manager. Currently,
4,500 units of partnership interest may be issued under the plan. The exercise
price of all outstanding options is equal to fair market value on the date of
grant. Incentive options generally become exercisable to the extent of one-third
of the units on each of the third, fourth and fifth anniversaries of the date of
grant. Options expire ten years from the date of grant. Unchanged from December
31, 1995, there were outstanding options for 4,119 units as of March 31, 1996,
with exercise prices ranging from $18 thousand to $27 thousand. As of December
31, 1995 and March 31, 1996, options for 1,195 and 1,232 units, respectively,
were exercisable with an exercise price range of $22 thousand to $26 thousand.
-15-
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 Financial Statements of Taubman Centers, Inc. and the Notes thereto
and the Consolidated Financial Statements of The Taubman Realty Group Limited
Partnership and the Notes thereto.
General Background and Performance Measurement
The Company, through its interest in and as managing general partner of
TRG, participates in TRG's Managed Businesses. TRG's Managed Businesses include:
(i) wholly owned Taubman Shopping Centers, development projects for future
regional shopping centers (Development Projects) and The Taubman Company Limited
Partnership (the Manager), (collectively, the Consolidated Businesses); and (ii)
Taubman Shopping Centers partially owned through joint ventures (Joint
Ventures).
TRG consolidates the wholly owned Taubman Shopping Centers, the Development
Projects, and the Manager. The Joint Ventures are accounted for under the equity
method in TRG's Consolidated Financial Statements.
Certain aspects of the performance of the Managed Businesses are best
understood by measuring their performance as a whole, without regard to TRG's
ownership interest. For example, mall tenant sales and shopping center occupancy
trends fit this category and are so analyzed below. In addition, trends in
certain items of revenue and expense are often best understood in the same
fashion and the discussions following take this approach when appropriate. When
relevant, these items are also discussed separately with regard to the
Consolidated Businesses and the Joint Ventures.
Seasonality
The regional shopping center industry is seasonal in nature, with mall
tenant sales highest in the fourth quarter due to the Christmas season, and with
lesser, though still significant, sales fluctuations associated with the Easter
holiday and back-to-school events. While minimum rents and recoveries are
generally not subject to seasonal factors, most leases are scheduled to expire
in the first quarter, and the majority of new stores open in the second half of
the year in anticipation of the Christmas selling season. Accordingly, revenues
and occupancy levels are generally highest in the fourth quarter and the
difference between ending occupancy and leased space narrows at year end.
The following table summarizes certain quarterly operating data for TRG's
Managed Businesses for 1995 and the first quarter of 1996 (Bellevue Center is
included in the data below through October 1995):
1st 2nd 3rd 4th 1st
Quarter Quarter Quarter Quarter Total Quarter
1995 1995 1995 1995 1995 1996
----------------------------------------------------------------------
(in thousands)
Mall tenant sales $541,627 $587,678 $611,606 $998,482 $2,739,393 $591,677
Revenues 123,719 124,364 129,187 134,450 511,720 129,764
Occupancy
Average Occupancy 87.8% 87.3% 87.7% 89.2% 88.0% 87.8%
Ending Occupancy 87.0% 87.5% 87.8% 89.4% 89.4% 87.7%
Leased Space 90.0% 90.3% 90.1% 90.6% 90.6% 89.5%
-16-
Because the seasonality of sales contrasts with the generally fixed nature
of minimum rents and recoveries, mall tenant occupancy costs (the sum of minimum
rents, percentage rents and expense recoveries) relative to sales are
considerably higher in the first three quarters than they are in the fourth
quarter. The following table summarizes occupancy costs, excluding utilities,
for mall tenants as a percentage of sales for 1995 and the first quarter of
1996:
1st 2nd 3rd 4th 1st
Quarter Quarter Quarter Quarter Total Quarter
1995 1995 1995 1995 1995 1996
---------------------------------------------------------------------
Minimum rents 12.8% 11.8% 11.7% 7.5% 10.4% 12.3%
Percentage rents 0.3 0.3 0.3 0.2 0.3 0.3
Expense recoveries 5.3 5.2 4.9 3.1 4.4 5.6
---- ---- ---- ---- ---- ----
Mall tenant occupancy costs 18.4% 17.3% 16.9% 10.8% 15.1% 18.2%
==== ==== ==== ==== ==== ====
Rental Rates
As leases have expired in the Taubman Shopping Centers, TRG has generally
been able to rent the available space, either to the existing tenant or a new
tenant, at rental rates that are higher than those of the expired leases. In a
period of increasing sales, rents on new leases will tend to rise as tenants'
expectations of future growth become more optimistic. In periods of slower
growth or declining sales, rents on new leases will grow more slowly or will
decline for the opposite reason. However, Center revenues nevertheless increase
as older leases roll over or are terminated early and replaced with new leases
negotiated at current rental rates that are usually higher than the average
rates for existing leases. The following table contains certain information
regarding per square foot base rent at Taubman Shopping Centers that have been
owned and open for five years.
Store Store Difference
All Closings Openings Between
Mall During During Opening and
Tenants Period Period Closing Rents
------- ---------- ---------- -------------
Average Average Average Average
Base Annualized Annualized Annualized
Twelve Months Ended Rent Base Rent Base Rent Base Rent
- - ------------------- ------- ---------- ---------- ------------
March 31, 1995 (1) $35.21 $30.52 $39.79 $9.27
March 31, 1996 (2) $36.73 $34.56 $41.33 $6.77
(1) Includes 17 centers owned and open prior to January 1, 1990.
(2) Includes 18 centers owned and open prior to January 1, 1991.
The spread between opening and closing rents narrowed in the twelve months
ended March 31, 1996 since rents on stores closing are higher relative to
today's market rents, because the stores closing include a higher proportion of
stores that have been open during a five to six year period of relatively slow
sales growth. TRG expects the difference between opening and closing rents for
1996 will be consistent with the current spread.
Results of Operations
Comparison of the Three Months Ended March 31, 1996 to the Three Months
Ended March 31, 1995
Taubman Centers, Inc.
The Company is the managing general partner of TRG and shares in TRG's
financial performance to the extent of its 35.10% ownership percentage. As of
March 31, 1996, the Company had 44.1 million shares outstanding, down from 44.3
million at March 31, 1995, as the result of the Company's repurchase of shares.
Equity in income of TRG consists of the Company's $7.3 million
proportionate share of TRG's net income for the three months ended March 31,
1996 and $6.8 million for the same period in 1995. These amounts were reduced by
$1.9 million and $2.2 million, respectively, representing adjustments arising
from the Company's additional basis in TRG's net assets. Net income for the
three months ended March 31, 1996 was $5.2 million, or $0.12 per share, compared
to $4.5 million, or $0.10 per share, for the first quarter of 1995.
-17-
TRG
Occupancy and Mall Tenant Sales
Average occupancy rates in the Taubman Shopping Centers were 87.8% in each
of the three months ended March 31, 1996 and 1995. Ending occupancy rates for
the Taubman Shopping Centers at March 31, 1996 were 87.7% versus 87.0% at the
same date in 1995. Leased space at March 31, 1996 was 89.5% compared to 90.0% at
the same date in 1995.
Total sales for Taubman Shopping Center mall tenants in the three months
ended March 31, 1996 were $591.7 million, a 9.2% increase from $541.6 million in
the first quarter of 1995, or an 11.5% increase over mall tenant sales for the
first quarter of 1995, excluding Bellevue Center (Bellevue). Mall tenant sales
per square foot increased 10.4% over the first quarter of 1995, or an 8.2%
increase from the same period in 1995, excluding Bellevue.
The following table sets forth operating results for TRG's Managed
Businesses for the three months ended March 31, 1995 and 1996, showing the
results of the Consolidated Businesses and Joint Ventures:
Three Months Ended March 31,1995 Three Months Ended March 31,1996
--------------------------------------------- ---------------------------------------------
TRG TOTAL: TRG TOTAL:
CONSOLIDATED JOINT MANAGED CONSOLIDATED JOINT MANAGED
BUSINESSES VENTURES (1) BUSINESSES BUSINESSES VENTURES (1) BUSINESSES
---------------------------- ---------------- ---------------------------------------------
(in millions of dollars) (in millions of dollars)
REVENUES:
Minimum rents 31.4 40.6 72.0 34.8 41.0 75.8
Percentage rents 1.2 0.8 2.0 1.0 0.8 1.8
Expense recoveries 17.3 24.8 42.1 19.6 26.3 45.9
Other 3.6 4.0 7.6 4.3 1.9 6.2
---- ---- ----- ---- ---- -----
Total revenues 53.5 70.2 123.7 59.7 70.0 129.7
OPERATING COSTS:
Recoverable expenses 14.2 21.3 35.5 15.6 22.5 38.1
Other operating 5.0 3.2 8.2 5.2 3.2 8.4
Management, leasing and
development 0.8 0.8 1.2 1.2
General and administrative 5.0 5.0 4.8 4.8
Interest expense 15.0 13.8 28.8 17.1 14.0 31.1
Depreciation and amortization 8.0 6.4 14.4 8.3 5.5 13.8
---- ---- ---- ---- ---- ----
Total operating costs 48.0 44.7 92.7 52.2 45.2 97.4
---- ---- ---- ---- ---- ----
5.5 25.5 31.0 7.5 24.8 32.3
==== ==== ==== ====
Equity in net income of Joint Ventures 14.0 13.4
---- ----
NET INCOME 19.5 20.9
==== ====
SUPPLEMENTAL INFORMATION(2)
EBITDA contribution 28.4 24.5 52.9 32.9 23.3 56.2
TRG's Beneficial Interest Expense (15.0) (7.1) (22.2) (17.1) (7.2) (24.3)
Non-real estate depreciation (0.6) (0.6) (0.5) (0.5)
----- ---- ----- ----- ---- -----
Distributable Cash Flow 12.8 17.4 30.2 15.4 16.1 31.5
contribution ===== ==== ===== ===== ==== =====
(1) Amounts are net of intercompany profits.
(2) EBITDA, TRG's Beneficial Interest Expense and Distributable Cash Flow are
defined and discussed in Liquidity and Capital Resources - Distributions.
(3) Amounts in the table may not add due to rounding.
-18-
TRG --Consolidated Businesses
Total revenues for the three months ended March 31, 1996 were $59.7
million, a $6.2 million or 11.6% increase over the comparable period in 1995.
Minimum rents increased $3.4 million due to the expansions at Short Hills and
Meadowood and the replacement of expiring mall tenant leases with renewal leases
or new leases with replacement tenants. The increase in expense recoveries was
due to increases in recoverable expenses.
Total operating costs increased $4.2 million, or 8.8%, to $52.2 million.
Recoverable expenses increased $1.4 million due to increases in property taxes
and maintenance costs, including those related to the expansion at Short Hills.
General and administrative expense decreased by $0.2 million, primarily due to a
$0.8 million charge in the first quarter of 1995 for severance and termination
benefits, offset by 1996 increases in occupancy and other costs. Interest
expense increased $2.1 million due to an increase in debt levels, including debt
used to finance capital expenditures, and decreased capitalized interest,
partially offset by decreases in interest rates.
Joint Ventures
Total revenues for the three months ended March 31, 1996 were $70.0
million, a $0.2 million, or 0.3%, decrease from the comparable period of 1995,
of which a $3.2 million decrease was caused by the November 1995 disposition of
Bellevue largely offset by increases at other Centers. The increase in minimum
rents was caused by the expansion at Woodfield and the replacement of expiring
mall tenant leases with renewal leases or new leases with replacement tenants,
offset by the decrease due to Bellevue. The increase in expense recoveries is
due to the increase in recoverable expenses. Other income decreased by $2.1
million primarily because of a gain on the sale of peripheral land in the first
quarter of 1995, and decreases in lease cancellation and interest income in
1996.
Total operating costs increased by $0.5 million, or 1.1%, to $45.2 million
for the three months ended March 31, 1996, representing a $3.5 million decrease
due to Bellevue, offset by increases at other Centers. Recoverable expenses
increased $1.2 million primarily due to increases in property taxes and
maintenance costs, including those related to the expansion at Woodfield, offset
by the decrease due to Bellevue. Interest expense increased $0.2 million
primarily due to an increase in debt used to finance capital expenditures,
increased interest rates, and decreased capitalized interest, offset by a
decrease in debt due to the disposition of Bellevue. Operating costs as
presented in the preceding table differ from the amounts shown in the combined,
summarized financial statements (Note 2 to TRG's financial statements) of the
Unconsolidated Joint Ventures by the amount of intercompany profit.
As a result of the foregoing, net income of the Joint Ventures decreased by
$0.7 million, or 2.7%, to $24.8 million. TRG's equity in net income of the
Joint Ventures was $13.4 million, a 4.3% decrease from the comparable period in
1995.
Net Income
As a result of the foregoing, net income for the first quarter of 1996 was
$20.9 million, a 7.2% increase from the comparable period in 1995.
-19-
Liquidity and Capital Resources
Taubman Centers, Inc.
During the first three months of 1996 and 1995, the Company received
distributions of $10.2 million from TRG. Dividends declared totalled $0.22 per
common share in both of the first quarters of 1996 and 1995. On March 13, 1996,
the Company declared a quarterly dividend of $0.22 per common share payable
April 19, 1996 to shareholders of record March 29, 1996.
The Company pays regular quarterly dividends to its shareowners. The
Company's ability to pay dividends is affected by several factors, most
importantly, the receipt of distributions from TRG (see Distributions below).
Dividends by the Company are at the discretion of the Board of Directors and
depend on the cash available to the Company, its financial condition, capital
and other requirements, and such other factors as the Board of Directors deems
relevant.
As of March 31, 1996, the Company had a cash balance of $7.9 million, the
source of which was primarily TRG's distributions, and had incurred no
indebtedness.
The Company's Board of Directors has authorized the purchase of up to 750
thousand shares of the Company's common stock in the open market. The stock may
be purchased from time to time as market conditions warrant. In the first
quarter of 1996, the Company purchased 36.8 thousand shares for approximately
$0.3 million. As of March 31, 1996, the Company had purchased a cumulative total
of 491.8 thousand shares of its common stock for approximately $4.7 million.
Funding for the purchases was provided by excess cash that otherwise would have
been invested in cash equivalents.
TRG
As of March 31, 1996, TRG had a cash balance of $18.4 million. TRG has
available for general partnership purposes an unsecured revolving credit
facility of $200 million, which expires in May 1998. Borrowings under this
facility at March 31, 1996 were $76.5 million. TRG also has available a secured
commercial paper facility, supported by a line of credit facility, of up to $75
million, all of which had been issued at March 31, 1996. Commercial paper is
generally sold with a 30 day maturity. The underlying credit facility is
renewable quarterly for a twelve month period. TRG also has available an
unsecured bank line of credit of up to $30 million with borrowings of $20.4
million at March 31, 1996. This line expires in August 1996.
Proceeds from short-term borrowings provided $9.5 million of funding for
the first quarter of 1996 compared to $16.9 million in 1995. Scheduled principal
payments on installment notes were $72 thousand and $9 thousand in 1995 and
1996, respectively.
-20-
At March 31, 1996, TRG's debt (excluding TRG's capital lease obligation)
and its beneficial interest in the debt of its Joint Ventures totalled $1,355.2
million. As shown in the following table, there was no unhedged floating rate
debt at March 31, 1996. Interest rates shown do not include amortization of debt
issuance costs and interest rate hedging costs. These items are reported as
interest expense in TRG's results of operations. In the aggregate, these costs
accounted for 0.32% of the effective rate of interest on TRG's beneficial
interest in debt at March 31, 1996.
Beneficial Interest in Debt
-------------------------------------------------------------
Amount Interest LIBOR Frequency LIBOR
(in millions Rate at Cap of Rate at
of dollars) 3/31/96 Rate Resets 3/31/96
------------- -------- ----- ---------- -------
Total beneficial interest in fixed rate debt 1,053.1<F1> 7.52%<F2>
Floating rate debt swapped to fixed for period
less than maturity -
To August 1, 1996 65.0<F3> 6.52
Floating rate debt hedged
via interest rate caps:
Through December 1996 25.0<F4> 5.83 7.50% Monthly 5.47%
Through January 1997 172.8 6.21<F2> 6.00 Monthly 5.47
Through October 1998 39.3 6.10 6.00 Three Months 5.47
-------
Total beneficial interest in debt 1,355.2
=======
<FN>
<F1> Includes TRG's $100 million floating rate notes due in 1997, which were
swapped to a fixed rate of 6.15% until maturity.
<F2> Denotes weighted average interest rate.
<F3> This debt is additionally hedged via an interest rate cap for the period
August 1996 to August 1998 at a one month LIBOR cap rate of 8.5%.
<F4> This debt is additionally hedged via an interest rate cap for the period
December 1996 to October 2001 at a one month LIBOR cap rate of 8.55%.
</FN>
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. Funds from Operations is calculated by adding the
Company's beneficial interest in TRG's Distributable Cash Flow to the Company's
other income, less the Company's operating expenses. EBITDA, Distributable Cash
Flow and Funds from Operations 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. However,
the National Association of Real Estate Investment Trusts (NAREIT) suggests that
Funds from Operations is a useful supplemental measure of operating performance
for REITs.
-21-
The following table summarizes TRG's Distributable Cash Flow and the
Company's Funds from Operations for the three months ended March 31, 1995 and
1996:
Three months ended Three months ended
March 31, 1995 March 31,1996
-------------------------------------- --------------------------------------
TRG TRG
Consolidated Joint Consolidated Joint
Businesses Ventures(1) Total Businesses Ventures(1) Total
-------------------------------------- --------------------------------------
(in millions of dollars)
TRG's Net Income (2) 19.5 20.9
Depreciation and Amortization (3) 11.3 11.1
TRG's Beneficial Interest Expense (4) 22.2 24.3
----- -----
EBITDA 28.4 24.5 52.9 32.9 23.3 56.2
TRG's Beneficial Interest Expense (4) (15.0) (7.1) (22.2) (17.1) (7.2) (24.3)
Non-Real Estate Depreciation (0.6) (0.6) (0.5) (0.5)
----- ---- ----- ----- ---- -----
Distributable Cash Flow 12.8 17.4 30.2 15.4 16.1 31.5
===== ==== ===== ===== ==== =====
TCI's share of Distributable Cash
Flow 10.6 11.1
Other income/expense, net (0.1) (0.2)
---- ----
Funds from Operations 10.5 10.9
==== ====
(1) Amounts represent TRG's beneficial interest in the operations of its Joint
Ventures.
(2) Net income for the first quarter of 1995 includes TRG's share of a gain on
a peripheral land sale of $0.8 million. There were no land sales in the
first quarter of 1996.
(3) Amounts represent TRG's and TRG's beneficial interest in the Joint
Ventures' depreciation and amortization. Includes $0.7 million and $0.9
million of amortization of mall tenant allowances in the first quarter of
1995 and 1996, respectively.
(4) Amounts represent TRG's and TRG's beneficial interest in the Joint
Ventures' interest expense.
(5) Amounts may not add due to rounding.
In March 1995, NAREIT issued a clarification of the definition of Funds
from Operations. Beginning in 1996, the Company modified its calculation of
Funds from Operations and TRG's calculation of Distributable Cash Flow to be
consistent with NAREIT's clarified definition. As a result, TRG adjusted the
depreciation and amortization amount added back to net income to include only
depreciation and amortization of assets uniquely significant to the real estate
industry. Distributable Cash Flow and Funds from Operations for the first
quarter of 1995 have been restated in the table above to reflect the clarified
definition. The following table presents a restatement of TRG's Distributable
Cash Flow and the Company's Funds from Operations for the year and each quarter
of 1995.
Three Months Ended Year Ended
------------------------------------------------------------- ----------
3/31/95 6/30/95 9/30/95 12/31/95 12/31/95
------- ------- ------- -------- ----------
(in millions of dollars)
Distributable Cash Flow as reported 30.8 28.2 29.2 31.6 119.9
Non-real estate depreciation (0.6) (0.5) (0.5) (0.5) (2.0)
---- ---- ---- ---- -----
Distributable Cash Flow as restated 30.2 27.7 28.7 31.2 117.8
==== ==== ==== ==== =====
Funds from Operations as reported 10.7 9.7 10.1 11.0 41.5
Funds from Operations as restated 10.5 9.6 9.9 10.8 40.8
(1) Amounts may not add due to rounding.
-22-
During the first quarter of 1996, EBITDA and Distributable Cash Flow were
$56.2 million and $31.5 million, compared to $52.9 million and $30.2 million for
the same period in 1995, as restated. TRG distributed $29.1 million to its
partners in both of the first quarters of 1996 and 1995. The Company's Funds
from Operations for 1996 was $10.9 million, compared to $10.5 million, as
restated, for the same period in 1995.
The Partnership Committee of TRG makes an annual determination of
appropriate distributions for each year. The determination is based on
anticipated Distributable Cash Flow, as well as financing considerations and
such other factors as the Partnership Committee considers appropriate. Further,
the Partnership Committee has decided, for the immediate future, that the growth
in distributions will be less than the growth in Distributable Cash Flow. Except
under unusual circumstances, TRG's practice is to distribute equal monthly
installments of that amount 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 in Liquidity and Capital
Resources -- TRG above) to enable it to distribute the amount decided upon by
the TRG Partnership Committee.
Distributions by each Joint Venture may be made only in accordance with the
terms of its partnership agreement. TRG acts as the managing partner in each
case and, in general, has the right to determine the amount of cash available
for distribution from the Joint Venture. In general, the provisions of these
agreements require the distribution of all available cash (as defined in each
partnership agreement), but most do not allow borrowing to finance distributions
without approval of the Joint Venture Partner.
As a result, distribution policies of many Joint Ventures will not parallel
those of TRG. While TRG may not, therefore, receive as much in distributions
from each Joint Venture as it intends to distribute with respect to that Joint
Venture, the Company does not believe this will impede TRG's 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 and funds available to the Company for the payment of dividends.
In addition, if the GM Trusts exercise their rights under the Cash Tender
Agreement (see below), TRG will be required to pay the GM Trusts $10.9 million
and may borrow to finance such expenditures.
-23-
Capital Spending
Capital spending for routine maintenance of the Taubman Shopping Centers is
generally recovered from tenants. Assuming no acquisitions, 1996 planned capital
spending by the Managed Businesses not recovered from tenants is summarized in
the following table:
1996
-------------------------------------------------------
TRG's Share
Consolidated Joint of
Businesses Ventures<F1> Joint Ventures<F1>
-------------------------------------------------------
(in millions of dollars)
Development and expansion 17.1 <F2> 58.4<F3><F4> 42.7
Mall tenant allowances 5.2 3.8 1.9
Pre-construction development and
other 8.0 2.0 1.0
---- ---- ----
Total 30.3 64.2 45.6
==== ==== ====
<FN>
<F1> Costs are net of intercompany profits.
<F2> Includes costs related to expansion projects at Marley, Meadowood, and
Stoneridge. Also includes costs related to leasehold improvements at
The Mall at Tuttle Crossing; excludes capital lease assets.
<F3> Excludes TRG's share of costs to develop Arizona Mills, which have not
yet been determined.
<F4> Includes costs related to expansion projects at Westfarms and Cherry
Creek. Also includes construction costs on MacArthur Center.
</FN>
New Sears stores are expected to open in the fall of 1996 at Marley Station
and Stoneridge. An expansion at Westfarms, which is expected to open in the fall
of 1997, will add approximately 135,000 square feet of mall GLA and Nordstrom as
an anchor. Additionally, an expansion at Cherry Creek is currently in the
planning stage. The expansion, which will add 120,000 square feet of mall GLA,
is expected to open in the fall of 1998.
TRG continues to evaluate possible uses of the space vacated when Saks
Fifth Avenue moved to the I. Magnin site at Biltmore. In the planning stage is a
project to utilize 30,000 square feet of this space for new mall tenants, which
is presently expected to open in 1997.
In 1995, construction began on The Mall at Tuttle Crossing, a 980,000
square foot Center in Northwest Columbus, Ohio, which will be anchored by
Marshall Field's, Lazarus, JCPenney and Sears. TRG has entered into an agreement
to lease the land and mall buildings from Tuttle Holding Co., which owns the
land on which the Center is being built. TRG will make ninety annual minimum
lease payments of $4.4 million beginning when the Center opens in the fall of
1997. Substantially all of each payment in the first ten years of operation will
be recognized as interest expense. TRG will also pay additional rent based on
achieved levels of net operating income, a measure of operating performance
before rent payments, as specified in the agreement (NOI); 100% of the portion
of NOI which is over $11.6 million but less than or equal to $14.4 million, 30%
of the portion of NOI between $14.4 million and $18.3 million, and 50% of the
portion of NOI over $18.3 million. TRG estimates this additional rent, which
will be recognized as other operating expense, will approximate $2 million to $3
million annually in the three years subsequent to the opening of the Center.
MacArthur Center, a new Center being developed by TRG in Norfolk, Virginia,
is expected to open in the fall of 1998. The Center is expected to total 1.1
million square feet and will initially be anchored by Nordstrom and Dillard's.
This Center will be owned by a joint venture in which TRG has a 70% interest.
TRG is currently finalizing agreements with The Mills Corporation, Simon
Property Group and Grossman Company Properties to develop, own and operate
Arizona Mills, an enclosed value super-regional mall in Tempe, Arizona. TRG will
have a 35% ownership interest in the venture. The 1.2 million square foot value-
oriented mall is expected to open in 1997.
-24-
TRG's share of costs for development and expansion projects scheduled to be
completed in 1997 and 1998, excluding Arizona Mills, is anticipated to be as
much as $97 million in 1997 and $51 million in 1998.
Woodward & Lothrop Incorporated (W & L), a former affiliate of A. Alfred
Taubman, operated one anchor and a Home Store in the mall GLA at Fair Oaks and
one anchor at Lakeforest. These stores closed in November 1995. In August 1995,
W & L accepted The May Department Stores Company's (May Company) offer to
acquire the two anchor store locations, and the bankruptcy court entered an
order to that effect. After the May Company completes significant remodelling at
its own expense, the two anchor stores will become Lord & Taylor stores. These
stores are expected to open in August 1996. The May Company currently operates
and has an existing obligation to operate a Lord & Taylor store at Fair Oaks,
the future of which is expected to be the subject of negotiations. Although the
closing of the Home Store at Fair Oaks will adversely affect occupancy until it
is released and reopened, these changes are not expected to have a material
effect on the financial results of TRG or the Company.
In April 1996, Federated Department Stores, Inc. (Federated) closed the
Emporium store at Hilltop. TRG is considering alternatives for the vacant anchor
space. In addition, Federated has announced that the Broadway store at Beverly
Center will be converted to a Bloomingdale's. Negotiations are in progress with
Federated which may result in an amount of TRG capital spending at each location
which cannot be presently determined.
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 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 or mortgage financings.
TRG's acquisition activities are discretionary in nature, and will only be
undertaken by TRG after procuring adequate financing on terms that are
consistent with TRG's financing policies. TRG's Joint Ventures expect to finance
development and expansion spending with secured debt to the extent it is
available.
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.
TRG's borrowings are not and will not be recourse to the Company without
its consent.
Based on current market conditions and applicable law, the Company believes
that the provisions in TRG's partnership agreement restricting TRG's ability to
enter into transactions giving rise to taxable income to TRG that would be
unrelated business taxable income to the GM Trusts or certain of their
transferees will not materially and adversely affect the ability of TRG and the
Company to finance their operations.
Cash Tender Agreement
A. Alfred Taubman and the GM Trusts each have the annual right to tender to
the Company Units of Partnership Interest in TRG (provided that the aggregate
value is at least $50 million) and cause the Company to purchase the tendered
-25-
interests at a purchase price based on a market valuation of the Company on
the trading date immediately preceding the date of the tender (the Cash Tender
Agreement). The Company will have the option to pay for these interests from
available cash, borrowed funds, or from the proceeds of an offering of the
Company's common stock. Generally, the Company expects to finance these
purchases through the sale of new shares of its stock. The tendering partners
will bear all market risk if the market price at closing is less than the
purchase price. Any proceeds of the offering in excess of the purchase price
will be for the sole benefit of the Company. At A. Alfred Taubman's election,
his family, and Robert C. Larson and his family may participate in tenders. The
GM Trusts will be entitled to receive from TRG an amount (not to exceed $10.9
million in the aggregate over the term of the Partnership) equal to 5.5% of the
amounts that the Company pays to the GM Trusts under the Cash Tender Agreement.
Based on a market value at December 31, 1995 and March 31, 1996 of $10.00
and $9.875 per common share, the aggregate value of interests in TRG that may be
tendered under the Cash Tender Agreement was approximately $743 million and $733
million, respectively. Purchase of these interests at March 31, 1996 would have
resulted in the Company owning an additional 59% interest in TRG.
Although certain partners in TRG have pledged, and other partners may
pledge, their Units of Partnership Interest, the Company is not aware of any
present intention of any partner to sell its interest in TRG.
-26-
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None of the Company, TRG, any of the Joint Ventures, or
the Manager is presently involved in any material litigation nor,
to the Company's knowledge, is any material litigation threatened
against the Company or TRG or any of their properties. Except for
routine litigation brought by present or former employees of the
Manager and routine litigation involving present or former
tenants of Taubman Shopping Centers (generally eviction or
collection proceedings), substantially all of the litigation is
covered by the Joint Ventures' and TRG's liability insurance.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3(a) -- Amended and Restated Articles of Incorporation
of Taubman Centers, Inc., as amended (incorporated
herein by reference to Exhibit 3(a) filed with the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992 ("1992 Form 10-K")).
3(b) -- Amended and Restated By-Laws of Taubman Centers,
Inc. (incorporated herein by reference to Exhibit
3(b) filed with the 1992 Form 10-K).
4(a) -- Amended and Restated Indenture dated as of March
4, 1994 between The Taubman Realty Group Limited
Partnership and Chemical Bank, as Trustee
(incorporated herein by reference to Exhibit 4(a)
filed with the Registrant's Annual Report On Form
10-K for the year ended December 31, 1993 ("1993
Form 10-K")).
4(b) -- Officers' Certificate designating the terms of
TRG's 7% Notes due 2003 (incorporated herein by
reference to Exhibit 4(d) filed with the 1993 Form
10-K).
4(c) -- Officers' Certificate designating the terms of
TRG's 8% Notes due 1999 (incorporated herein by
reference to Exhibit 4(g) filed with the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 (the "1994 Second
Quarter Form 10-Q")).
-27-
4(d) -- Indenture dated as of July 22, 1994 among Beverly
Finance Corp., La Cienega Associates, the
Borrower, and Morgan Guaranty Trust Company of New
York, as Trustee (incorporated herein by reference
to Exhibit 4(h) filed with the 1994 Second Quarter
Form 10-Q).
4(e) -- Deed of Trust, with assignment of Rents, Security
Agreement and Fixture Filing, dated as of July 22,
1994, from La Cienega Associates, Grantor, to
Commonwealth Land Title Company, Trustee, for the
benefit of Morgan Guaranty Trust Company of New
York, as Trustee, Beneficiary (incorporated
Herein by reference to Exhibit 4(i) filed with the
1994 Second Quarter Form 10-Q).
4(f) -- Revolving Loan Agreement dated as of April 29,
1994, among The Taubman Realty Group Limited
Partnership, as Borrower, Union Bank of
Switzerland, (New York Branch), as Bank and Union
Bank of Switzerland (New York Branch), as
Administrative Agent (the "Revolving Loan
Agreement") (incorporated herein by reference to
Exhibit 4(j) filed with the 1994 Second Quarter
Form 10-Q), as amended by an Amendment to the
Revolving Loan Agreement dated August 10, 1994
(incorporated herein by reference to Exhibit 4(h)
filed with the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994
(the "1994 Third Quarter Form 10-Q")) and as
modified by a Letter Agreement modifying the
Revolving Loan Agreement dated June 20, 1995
(incorporated herein by reference to Exhibit 4(h)
filed with the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995 (the
"1995 Second Quarter Form 10-Q")).
4(g) -- Officers' Certificate designating the terms of
TRG's Floating Rate Notes due 1997 (incorporated
herein by reference to Exhibit 4(i) filed with the
1994 Third Quarter Form 10-Q).
4(h) -- TRG's Medium-Term Notes due June 15, 2002
(incorporated herein by reference to Exhibit 4(j)
filed with the 1995 Second Quarter Form 10-Q).
10(a) -- The Amended and Restated Agreement of Limited
Partnership of The Taubman Realty Group Limited
Partnership (excluding exhibits filed separately)
(incorporated herein by reference to Exhibit 10(a)
filed with the 1992 Form 10-K).
10(b) -- The Taubman Realty Group Limited Partnership 1992
Incentive Option Plan (incorporated herein by
reference to Exhibit 10(b) filed with the 1992
Form 10-K).
10(c) -- Corporate Services Agreement between Taubman
Centers, Inc. and The Taubman Company Limited
Partnership (the "Manager") (incorporated
herein by reference to Exhibit 10(c) filed with
the 1992 Form 10-K).
10(d) -- Continuing Offer by Taubman Centers, Inc. to the
Existing Partners of The Taubman Realty Group
Limited Partnership and others (incorporated
herein by reference to Exhibit 10(d) filed with
the 1992 Form 10-K).
10(e) -- Registration Rights Agreement among Taubman
Centers, Inc., General Motors Hourly-Rate
Employees Pension Trust, General Motors Retirement
Program for Salaried Employees Trust, and State
Street Bank & Trust Company, as trustee of the
AT&T Master Pension Trust (incorporated herein by
reference to Exhibit 10(e) filed with the 1992
Form 10-K).
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10(f) -- Master Services Agreement between The Taubman
Realty Group Limited Partnership and the Manager
(incorporated herein by reference to Exhibit
10(f) filed with the 1992 Form 10-K).
10(g) -- Cash Tender Agreement among Taubman Centers, Inc.,
A. Alfred Taubman, acting not individually but as
Trustee of The A. Alfred Taubman Restated
Revocable Trust, as amended and restated in its
entirety by Instrument dated January 10, 1989 (as
the same has been and may hereafter be amended
from time to time), TRA Partners, and GMPTS
Limited Partnership (incorporated herein by
reference to Exhibit 10(g) filed with the 1992
Form 10-K).
10(h) -- Financial Performance Incentive Plan (incorporated
herein by reference to Exhibit 10(h) filed with
the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994 ("1994 Form
10-K")).
10(i) -- Supplemental Retirement Savings Plan (incorporated
herein by reference to Exhibit 10(i) filed with
the 1994 Form 10-K).
10(j) -- Acquisition and Contribution Agreement dated as of
December 21, 1994, among Biltmore Fashion Park
Associates, Aetna Life Insurance Company,
Grossman Associates, Southwest Associates,
Grossman/Southwest Associates Limited Partnership,
El Camino Associates, Charles Carlise, The Taubman
Realty Group Limited Partnership, and Biltmore
Shopping Center Partners (without exhibits and
schedules) (incorporated herein by reference to
Exhibit 2 to the Registrant's Current Report on
Form 8-K dated December 21, 1994).
10(k) -- The Taubman Company Long-Term Performance
Compensation Plan (incorporated herein by
reference to Exhibit 10(k) filed with the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
11 -- Statement Re: Computation of Per Share Earnings.
12 -- Statement Re: Computation of Ratio of Earnings to
Fixed Charges.
27 -- Financial Data Schedule.
b) Current Reports on Form 8-K.
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TAUBMAN CENTERS, INC.
Date: May 7, 1996 By: /s/ Bernard Winograd
--------------------------
Bernard Winograd
Executive Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit
No.
- - ------
11 -- Statement re - Computation of Per Share Earnings.
12 -- Statement re - Computation of Ratio of Earnings to Fixed Charges.
27 -- Financial Data Schedule for Taubman Centers, Inc.