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, 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 August 12, 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 June 30, 1996................. 2
Statement of Operations for the three months ended June 30, 1995 and 1996 3
Statement of Operations for the six months ended June 30, 1995 and 1996. 4
Statement of Cash Flows for the six months ended June 30, 1995 and 1996. 5
Notes to Financial Statements........................................... 6
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
Consolidated Balance Sheet as of December 31, 1995 and June 30, 1996.... 10
Consolidated Statement of Operations for the three months ended
June 30, 1995 and 1996................................................ 11
Consolidated Statement of Operations for the six months ended
June 30, 1995 and 1996................................................ 12
Consolidated Statement of Cash Flows for the six months ended
June 30, 1995 and 1996................................................ 13
Notes to Consolidated Financial Statements.............................. 14
-1-
TAUBMAN CENTERS, INC.
BALANCE SHEET
(in thousands, except share data)
December 31 June 30
----------- -------
1995 1996
---- ----
Assets:
Investment in TRG (Note 2) $307,190 $296,790
Cash and cash equivalents 7,886 8,077
Other assets 162
-------- --------
$315,076 $305,029
======== ========
Liabilities:
Accounts payable and accrued liabilities $ 348 $ 417
Dividends payable 9,710 9,702
-------- --------
$ 10,058 $ 10,119
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 June 30, 1996
Additional paid-in capital 386,680 386,332
Dividends in excess of net income (82,103) (91,863)
-------- --------
$305,018 $294,910
-------- --------
$315,076 $305,029
======== ========
See notes to financial statements.
-2-
TAUBMAN CENTERS, INC.
STATEMENT OF OPERATIONS
(in thousands, except share data)
Three Months Ended June 30
--------------------------
1995 1996
---- ----
Income:
Equity in TRG's income before
extraordinary items (Note 2) $4,148 $4,583
Interest and other 78 65
------ ------
$4,226 $4,648
------ ------
Operating Expenses:
General and administrative $ 191 $ 188
Management fee 62 62
------ ------
$ 253 $ 250
------ ------
Income before extraordinary items $3,973 $4,398
Equity in TRG's extraordinary items (Note 2) (781)
------ ------
Net Income $3,192 $4,398
====== ======
Earnings per common share:
Income before extraordinary items $ .09 $ .10
Extraordinary items (.02)
------ ------
Net Income $ .07 $ .10
====== ======
Cash dividends declared per common share $ .22 $ .22
====== ======
Weighted average number of common
shares outstanding 44,213,128 44,098,113
========== ==========
See notes to financial statements.
-3-
TAUBMAN CENTERS, INC.
STATEMENT OF OPERATIONS
(in thousands, except share data)
Six Months Ended June 30
------------------------
1995 1996
---- ----
Income:
Equity in TRG's income before
extraordinary items (Note 2) $ 8,737 $ 9,997
Interest and other 185 133
------- -------
$ 8,922 $10,130
------- -------
Operating Expenses:
General and administrative $ 372 $ 363
Management fee 125 125
------- -------
$ 497 $ 488
------- -------
Income before extraordinary items $ 8,425 $ 9,642
Equity in TRG's extraordinary items (Note 2) (781)
------- -------
Net Income $ 7,644 $ 9,642
======= =======
Earnings per common share:
Income before extraordinary items $ .19 $ .22
Extraordinary items (.02)
------- -------
Net Income $ .17 $ .22
======= =======
Cash dividends declared per common share $ .44 $ .44
======= =======
Weighted average number of common
shares outstanding 44,337,908 44,104,672
========== ==========
See notes to financial statements.
-4-
TAUBMAN CENTERS, INC.
STATEMENT OF CASH FLOWS
(in thousands)
Six Months Ended June 30
------------------------
1995 1996
---- ----
Cash Flows From Operating Activities:
Income before extraordinary items $ 8,425 $ 9,642
Adjustments to reconcile income before extraordinary
items to net cash provided by operating activities:
Increase (decrease) in accounts payable and
other liabilities (83) 69
Increase in other assets (80) (162)
------- -------
Net Cash Provided By Operating Activities $ 8,262 $ 9,549
------- -------
Cash Flows Provided by Investing Activities
Distributions from TRG in excess of income before
extraordinary items $11,660 $10,400
------- -------
Cash Flows From Financing Activities:
Cash dividends $(19,568) $(19,411)
Purchases of stock (Note 3) (3,851) (347)
-------- --------
Net Cash Used in Financing Activities $(23,419) $(19,758)
-------- --------
Net Increase (Decrease) In Cash $ (3,497) $ 191
Cash and Cash Equivalents at Beginning of Period 11,000 7,886
-------- --------
Cash and Cash Equivalents at End of Period $ 7,503 $ 8,077
======== ========
See notes to financial statements.
-5-
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
Six months ended June 30, 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 June 30, 1996
consists of a 35.10% managing general partnership interest (see Note 5). 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 June 30, 1996 was $448.6 million and $444.8 million, respectively. The
Company's proportionate share of TRG's income before extraordinary items for the
three months ended June 30, 1995 and 1996 was $6.1 million and $6.5 million,
respectively, reduced by $1.9 million in both periods representing adjustments
arising from the Company's additional basis in TRG's net assets. The Company's
proportionate share of TRG's income before extraordinary items for the six
months ended June 30, 1995 and 1996 was $12.9 million and $13.8 million,
respectively, reduced by $4.2 million and $3.8 million, respectively in both
periods representing adjustments arising from the Company's additional basis in
TRG's net assets. In the second quarter of 1995, the Company recognized
extraordinary charges to income related to TRG's prepayment of debt.
-6-
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
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 June 30
----------- -------
1995 1996
Assets:
Properties $ 926,207 $ 972,006
Accumulated depreciation and amortization 200,440 212,784
---------- ----------
$ 725,767 $ 759,222
Other assets 78,589 75,621
---------- ----------
$ 804,356 $ 834,843
========== ==========
Liabilities:
Unsecured notes payable $ 632,575 $ 632,651
Mortgage notes payable 160,496 160,269
Other notes payable 162,178 217,841
Capital lease obligation 14,418 23,287
Accounts payable and other liabilities 82,603 72,106
Distributions in excess of net income of
unconsolidated joint ventures 154,933 150,281
---------- ----------
$1,207,203 $1,256,435
Accumulated deficiency in assets (402,847) (421,592)
---------- ----------
$ 804,356 $ 834,843
========== ==========
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1995 1996 1995 1996
---- ---- ---- ----
Revenues $55,602 $59,817 $109,087 $119,549
Operating costs other than interest
and depreciation and amortization $27,226 $28,449 $ 52,257 $ 55,252
Interest expense 16,037 17,238 31,069 34,340
Depreciation and amortization 7,769 8,378 15,759 16,700
------- ------- -------- --------
$51,032 $54,065 $ 99,085 $106,292
------- ------- -------- --------
Equity in income before extraordinary
items of unconsolidated joint ventures 12,690 12,748 26,718 26,111
------- ------- -------- --------
Income before extraordinary items $17,260 $18,500 $ 36,720 $ 39,368
Extraordinary items (2,225) (2,225)
------- ------- -------- --------
Net Income $15,035 $18,500 $ 34,495 $ 39,368
======= ======= ======== ========
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1995 1996 1995 1996
---- ---- ---- ----
TRG's beneficial interest in
unconsolidated joint ventures' operations:
Revenues less recoverable and
other operating expenses $23,328 $22,434 $47,810 $45,751
Interest expense (7,430) (6,762) (14,559) (13,934)
Depreciation and amortization (3,208) (2,924) (6,533) (5,706)
------- ------- ------- -------
Income before extraordinary items $12,690 $12,748 $26,718 $26,111
======= ======= ======= =======
-7-
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 six
months of 1996, the Company purchased 36.8 thousand shares for approximately
$0.3 million. As of June 30, 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 June 30, 1996 of $10.00 and
$11.125 per common share, the aggregate value of interests in TRG which may be
tendered under the Cash Tender Agreement was approximately $743 million and $825
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.
-8-
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 June 30, 1996. There were outstanding
options for 4,119 units and 4,110 units as of December 31, 1995 and June 30,
1996, respectively, with exercise prices ranging from $18 thousand to $27
thousand per unit. Options for nine units were canceled in the second quarter of
1996. As of December 31, 1995 and June 30, 1996, options for 1,195 and 1,336
units, respectively, were exercisable with an exercise price range of $22
thousand to $27 thousand per unit.
Note 5 - Subsequent Events
In July 1996, TRG completed transactions that resulted in it acquiring the 75%
interest in Fairlane Town Center, previously held by a joint venture
partner. In connection with the transactions, TRG issued 3,096 units of
partnership interest to the joint venture partner. The units are exchangeable,
after one year, for approximately 6.1 million shares of TCI common stock. As a
result, the Company's ownership of TRG decreased from 35.10% to 33.47%. The
Company expects that the acquisition will have an immaterial effect on the
Company's net income in 1996, and would have had an immaterial effect in 1995.
-9-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31 June 30
----------- -------
1995 1996
---- ----
Assets:
Properties $ 926,207 $ 972,006
Accumulated depreciation and amortization 200,440 212,784
---------- ----------
$ 725,767 $ 759,222
Cash and cash equivalents 16,836 15,294
Accounts and notes receivable, less allowance
for doubtful accounts of $381 and $566
in 1995 and 1996 14,192 15,115
Accounts receivable from related parties 5,234 4,869
Deferred charges and other assets 42,327 40,343
---------- ----------
$ 804,356 $ 834,843
========== ==========
Liabilities:
Unsecured notes payable $ 632,575 $ 632,651
Mortgage notes payable 160,496 160,269
Other notes payable 162,178 217,841
Capital lease obligation 14,418 23,287
Accounts payable and other liabilities 82,603 72,106
Distributions in excess of net income of
unconsolidated Joint Ventures (Note 3) 154,933 150,281
---------- ----------
$1,207,203 $1,256,435
Commitments and Contingencies (Note 5)
Accumulated deficiency in assets (402,847) (421,592)
---------- ----------
$ 804,356 $ 834,843
========== ==========
Allocation of accumulated deficiency in assets:
General Partners $ (322,346) $ (337,345)
Limited Partners (80,501) (84,247)
---------- ----------
$ (402,847) $ (421,592)
=========== ==========
See notes to financial statements.
-10-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except units data)
Three Months Ended June 30
--------------------------
1995 1996
---- ----
Revenues:
Minimum rents $31,803 $34,760
Percentage rents 1,111 1,425
Expense recoveries 18,642 18,653
Other 2,712 3,074
Revenues from management, leasing
and development services 1,334 1,905
------- ------
$55,602 $59,817
------- -------
Operating Costs:
Recoverable expenses $15,684 $15,430
Other operating 5,348 6,375
Management, leasing and development
services 865 1,124
General and administrative 5,329 5,520
Interest expense 16,037 17,238
Depreciation and amortization 7,769 8,378
------- -------
$51,032 $54,065
------- -------
Income before equity in income of unconsolidated
Joint Ventures and before extraordinary
items $ 4,570 $ 5,752
Equity in income before extraordinary items
of unconsolidated Joint Ventures (Note 3) 12,690 12,748
------- -------
Income before extraordinary items $17,260 $18,500
Extraordinary items (Note 6) (2,225)
------- -------
Net Income $15,035 $18,500
======= =======
Allocation of net income:
General Partners $12,031 $14,803
Limited Partners 3,004 3,697
------- -------
$15,035 $18,500
======= =======
Earnings per Unit of Partnership Interest:
Income before extraordinary items $ 272 $ 291
Extraordinary items (35)
------- -------
Net Income $ 237 $ 291
======= =======
Weighted Average Number of Units of
Partnership Interest Outstanding 63,521 63,521
======= =======
See notes to financial statements.
-11-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except units data)
Six Months Ended June 30
------------------------
1995 1996
---- ----
Revenues:
Minimum rents $ 63,199 $ 69,523
Percentage rents 2,277 2,452
Expense recoveries 35,943 38,260
Other 5,030 5,608
Revenues from management, leasing
and development services 2,638 3,706
-------- --------
$109,087 $119,549
-------- --------
Operating Costs:
Recoverable expenses $ 29,886 $ 31,016
Other operating 10,374 11,594
Management, leasing and development
services 1,646 2,369
General and administrative 10,351 10,273
Interest expense 31,069 34,340
Depreciation and amortization 15,759 16,700
-------- --------
$ 99,085 $106,292
-------- --------
Income before equity in income of unconsolidated
Joint Ventures and before extraordinary
items $ 10,002 $ 13,257
Equity in income before extraordinary items
of unconsolidated Joint Ventures (Note 3) 26,718 26,111
-------- --------
Income before extraordinary items $ 36,720 $ 39,368
Extraordinary items (Note 6) (2,225)
-------- --------
Net Income $ 34,495 $ 39,368
======== ========
Allocation of net income:
General Partners $ 27,602 $ 31,501
Limited Partners 6,893 7,867
-------- --------
$ 34,495 $ 39,368
======== ========
Earnings per Unit of Partnership Interest:
Income before extraordinary items $ 578 $ 620
Extraordinary items (35)
-------- --------
Net Income $ 543 $ 620
======== ========
Weighted Average Number of Units of
Partnership Interest Outstanding 63,521 63,521
======== ========
See notes to financial statements.
-12-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Six Months Ended June 30
------------------------
1995 1996
---- ----
Cash Flows From Operating Activities:
Income before extraordinary items $ 36,720 $ 39,368
Adjustments to reconcile income before extraordinary
items to net cash provided by operating activities:
Depreciation and amortization 15,759 16,700
Income before extraordinary items in excess of
distributions from unconsolidated Joint Ventures (1,371)
Provision for losses on accounts receivable 552 1,025
Amortization of deferred financing costs 1,173 1,141
Other 1,321 371
Gain on sale of land (322)
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Receivables, deferred charges and other assets (4,037) (1,360)
Accounts payable and other liabilities (5,991) (10,095)
-------- --------
Net Cash Provided By Operating Activities $ 44,126 $ 46,828
-------- --------
Cash Flows From Investing Activities:
Purchase of Paseo Nuevo (Note 2) $(37,196)
Additions to properties $(25,873) (10,609)
Proceeds from sale of land 686
Contributions to unconsolidated Joint Ventures (4,187)
Distributions from unconsolidated Joint Ventures
in excess of income before extraordinary items 5,613
-------- --------
Net Cash Used In Investing Activities $(25,873) $(45,693)
-------- --------
Cash Flows From Financing Activities:
Debt proceeds $155,386 $ 55,663
Debt payments (13,154) (227)
Extinguishment of debt (105,827)
Debt issuance costs (1,200)
Cash distributions (58,113) (58,113)
-------- --------
Net Cash Used In Financing Activities $(22,908) $ (2,677)
-------- --------
Net Decrease In Cash $ (4,655) $ (1,542)
Cash and Cash Equivalents at Beginning of Period 10,709 16,836
-------- --------
Cash and Cash Equivalents at End of Period $ 6,054 $ 15,294
======== ========
Interest on mortgage notes and other loans paid during the six months ended June
30, 1995 and 1996, net of amounts capitalized of $4,491 and $2,294, was $29,708
and $32,506, respectively.
See notes to financial statements.
-13-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six months ended June 30, 1996
Note 1 - Interim Financial Statements
The Taubman Realty Group Limited Partnership (TRG) engages in the ownership,
operation, management, leasing, acquisition, development, redevelopment,
expansion, financing and refinancing of regional retail shopping centers
(Taubman Shopping Centers) and interests therein. Taubman Centers, Inc. (TCI) is
the managing general partner of TRG. GMPTS Limited Partnership, TG Partners
Limited Partnership and Taub-Co Management, Inc. are also general partners.
The unaudited interim financial statements should be read in conjunction with
the audited financial statements and related notes included in TRG's Annual
Report on Form 10-K for the year ended December 31, 1995. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial statements for the interim
periods have been made. The results for interim periods are not necessarily
indicative of the results for a full year.
Note 2 - Acquisition
In June 1996, TRG acquired the Paseo Nuevo shopping center (Paseo Nuevo)
located in Santa Barbara, California. Paseo Nuevo is a 463,000 square foot open
air center, with 137,000 square feet of mall tenant area. The Center is anchored
by Macy's and Nordstrom. TRG borrowed under its existing lines of credit to fund
the $37 million purchase price. The Center is owned subject to two participating
ground leases with remaining terms of approximately 70 years. The acquisition
was recorded at fair value. The operating results of Paseo Nuevo have been
consolidated in TRG's financial statements from the acquisition date. TRG
expects the acquisition to have an immaterial effect on net income in 1996. The
pro forma effect of the acquisition on 1995 net income is also immaterial.
-14-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 3 - Investments in Joint Ventures
Certain Taubman Shopping Centers are partially owned through joint ventures
(Joint Ventures). TRG is also the managing general partner of these Joint
Ventures. TRG's interest in each Joint Venture is as follows:
TRG's %
Ownership
as of
Joint Venture Taubman Shopping Center June 30, 1996
-----------------------------------------------------------------------------
Arizona Mills, L.L.C. Arizona Mills 35%
(under construction)
Fairfax Associates Fair Oaks 50
Fairlane Town Center Fairlane Town Center 25 (Note 7)
Lakeside Mall Limited Partnership Lakeside 50
Rich-Taubman Associates Stamford Town Center 50
Taubman-Cherry Creek
Limited Partnership Cherry Creek 50
Taubman MacArthur Associates MacArthur Center
Limited Partnership (under construction) 70
Twelve Oaks Mall Limited Partnership Twelve Oaks Mall 50
West Farms Associates Westfarms 79
Woodfield Associates Woodfield 50
Woodland Woodland 50
Arizona Mills, L.L.C., a joint venture in which TRG has a 35% interest, is
developing Arizona Mills in Tempe, Arizona. The value super regional center is
expected to open in 1997. Taubman MacArthur Associates Limited Partnership, a
joint venture in which TRG has a 70% interest , is developing MacArthur Center
in Norfolk, Virginia. MacArthur Center is expected to open in 1998.
-15-
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 $6.6 million at December 31,
1995 and at June 30, 1996, respectively. These differences are amortized over
the useful lives of the related assets.
Combined balance sheet and results of operations information are presented
below (in thousands) for all Joint Ventures, followed by TRG's beneficial
interest in the combined information. Beneficial interest is calculated based on
TRG's ownership interest in each of the Joint Ventures.
December 31 June 30
----------- -------
1995 1996
---- ----
Assets:
Properties, net $ 373,803 $ 411,043
Other assets 109,668 81,413
--------- ---------
$ 483,471 $ 492,456
========= =========
Liabilities and partners' accumulated
deficiency in assets:
Debt $ 741,121 $ 739,601
Other liabilities 50,227 45,734
TRG accumulated deficiency in assets (150,117) (143,713)
Joint Venture Partners' accumulated
deficiency in assets (157,760) (149,166)
--------- ---------
$ 483,471 $ 492,456
========= =========
TRG accumulated deficiency in assets (above) $(150,117) $(143,713)
Elimination of intercompany profit (4,816) (6,568)
--------- ---------
Distributions in excess of net income
of unconsolidated Joint Ventures $(154,933) $(150,281)
========= =========
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1995 1996 1995 1996
---- ---- ---- ----
Revenues $68,770 $68,680 $138,959 $138,712
Recoverable and other operating expenses $26,414 $27,444 $ 52,665 $ 54,929
Interest expense 14,339 13,607 28,054 27,457
Depreciation and amortization 6,385 6,226 12,943 11,899
------- ------- -------- --------
Total operating costs $47,138 $47,277 $ 93,662 $ 94,285
------- ------- -------- --------
Income before extraordinary items $21,632 $21,403 $ 45,297 $ 44,427
Extraordinary items (624) (624)
------- ------- -------- --------
Net income $21,008 $21,403 $ 44,673 $ 44,427
======= ======= ======== ========
Net income attributable to TRG $10,733 $11,073 $ 23,028 $ 23,114
Extraordinary items attributable to TRG 493 493
Realized intercompany profit 1,464 1,675 3,197 2,997
------- ------- -------- --------
Equity in income before extraordinary items
of unconsolidated Joint Ventures $12,690 $12,748 $ 26,718 $ 26,111
======= ======= ======== ========
-16-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1995 1996 1995 1996
---- ---- ---- ----
TRG's beneficial interest
in unconsolidated Joint Ventures' operations:
Revenues less recoverable and other
operating expenses $23,328 $ 22,434 $47,810 $ 45,751
Interest expense (7,430) (6,762) (14,559) (13,934)
Depreciation and amortization (3,208) (2,924) (6,533) (5,706)
------- -------- ------- --------
Income before extraordinary items $12,690 $ 12,748 $26,718 $ 26,111
======= ======== ======= ========
Note 4 - 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
June 30, 1996 739,601 390,021 1,010,761 1,400,782
Capitalized interest:
Six months ended June 30, 1995 $ 1,676 $ 869 $ 4,491 $ 5,360
Six months ended June 30, 1996 2,222 1,545 2,294 3,839
Interest expense
(Net of capitalized interest):
Six months ended June 30, 1995 $ 28,054 $ 14,559 $ 31,069 $ 45,628
Six months ended June 30, 1996 27,457 13,934 34,340 48,274
Note 5 - Incentive Option Plan
TRG has an incentive option plan for employees of the Manager. Currently,
4,500 units of partnership interest may be issued under the plan. The exercise
price of all outstanding options is equal to fair market value on the date of
grant. Incentive options generally become exercisable to the extent of one-third
of the units on each of the third, fourth and fifth anniversaries of the date of
grant. Options expire ten years from the date of grant. There were outstanding
options for 4,119 units and 4,110 units as of December 31, 1995 and June 30,
1996, respectively, with exercise prices ranging from $18 thousand to $27
thousand per unit. Options for nine units were canceled in the second quarter of
1996. As of December 31, 1995 and June 30, 1996, options for 1,195 and 1,336
units, respectively, were exercisable with an exercise price range of $22
thousand to $27 thousand per unit.
Note 6 - Extinguishment of debt
In the second quarter of 1995, TRG recognized an extraordinary charge to
income of approximately $2.2 million relating to the extinguishment of debt of
TRG and a Joint Venture, consisting primarily of prepayment penalties.
-17-
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 7 - Subsequent Events
In July 1996, TRG completed transactions that resulted in it acquiring the 75%
interest in Fairlane Town Center (Fairlane), previously held by a joint venture
partner. In connection with the transactions, TRG issued to the former joint
venture partner 3,096 units of partnership interest, economically equivalent to
approximately 6.1 million shares of TCI common stock, which had a closing price
of $10.75 per share on the day prior to the issuance date. The former joint
venture partner is obligated to hold the partnership units for at least one
year. TRG also assumed mortgage debt of approximately $26 million, representing
the former joint venture partner's beneficial interest in the $34.6 million
mortgage encumbering the property. TRG used unsecured debt to fund the repayment
of the 9.73% mortgage and the prepayment penalty of approximately $1.2 million
(see below). The acquisition, which resulted in TRG owning 100% of Fairlane, was
accounted for at fair value. Prior to the acquisition date, TRG's interest in
Fairlane was accounted for under the equity method. Pro forma results of TRG's
operations, assuming the acquisition had occurred on January 1, 1995, are as
follows:
Pro Forma
------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1995 1996 1995 1996
---- ---- ---- ----
Revenues $62,717 $66,556 $122,990 $133,265
Income before extraordinary items 19,050 19,829 40,279 42,196
Net income 16,825 19,829 38,054 42,196
Earnings per unit of partnership interest:
Income before extraordinary item $286 $ 298 $ 605 $633
Net income 253 298 571 633
The pro forma results are not necessarily indicative of what actual results
would have been had the acquisition occurred on January 1, 1995, nor are they
necessarily indicative of future results.
In late July 1996, TRG issued $154 million of unsecured notes using its
medium-term note program. The notes were used to pay down TRG's floating rate
bank lines bearing interest at approximately LIBOR plus 1.5 percent as well as
to pay off the $34.6 million, 9.73 percent mortgage on Fairlane Town Center and
the related prepayment penalty of approximately $1.2 million, leaving the wholly
owned property unencumbered. The issuance included $100 million of notes with a
five year maturity, including $70 million of fixed rate notes at 8 percent and
$30 million of floating rate notes bearing interest at 3-month LIBOR plus 105
basis points. The remaining $54 million of notes have maturities of two and
three years and bear interest at 3-month LIBOR plus 77 to 90 basis points. TRG
has issued a total of $287 million medium-term notes since the program's
inception in 1995 under TRG's $500 million shelf registration statement.
-18-
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 is generally lowest at year
end.
The following table summarizes certain quarterly operating data for TRG's
Managed Businesses for 1995 and the first and second quarters of 1996 (Bellevue
Center is included in the data below through October 1995):
1st 2nd 3rd 4th 1st 2nd
Quarter Quarter Quarter Quarter Total Quarter Quarter
1995 1995 1995 1995 1995 1996 1996
----------------------------------------------------------------------------
(in thousands)
Mall tenant sales $541,627 $587,678 $611,606 $998,482 $2,739,393 $591,677 $617,821
Revenues 123,719 124,364 129,187 134,450 511,720 129,764 128,497
Occupancy
Average Occupancy 87.8% 87.3% 87.7% 89.2% 88.0% 87.8% 87.3%
Ending Occupancy 87.0% 87.5% 87.8% 89.4% 89.4% 87.7% 87.3%
Leased Space 90.0% 90.3% 90.1% 90.6% 90.6% 89.5% 88.2%
-19-
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 and second
quarters of 1996:
1st 2nd 3rd 4th 1st 2nd
Quarter Quarter Quarter Quarter Total Quarter Quarter
1995 1995 1995 1995 1995 1996 1996
-----------------------------------------------------------
Minimum rents 12.8% 11.8% 11.7% 7.5% 10.4% 12.3% 11.7%
Percentage rents 0.3 0.3 0.3 0.2 0.3 0.3 0.3
Expense recoveries 5.3 5.2 4.9 3.1 4.4 5.6 5.0
---- ---- ---- ---- ---- ---- ----
Mall tenant occupancy costs 18.4% 17.3% 16.9% 10.8% 15.1% 18.2% 17.0%
==== ==== ==== ==== ==== ==== ====
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
- ------------------- -------- ---------- ---------- ------------
June 30, 1995 (1) $35.40 $32.06 $39.32 $7.26
June 30, 1996 (2) $37.12 $32.84 $40.81 $7.97
(1) Includes 17 centers owned and open prior to January 1, 1990.
(2) Includes 18 centers owned and open prior to January 1, 1991.
Results of Operations
Comparison of the Three and Six Months Ended June 30, 1996 to the Three and Six
Months Ended June 30, 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 ownership percentage. The Company's
ownership percentage for all periods presented was 35.10%. In July 1996, the
Company's ownership changed from 35.10% to 33.47% as a result of TRG's
acquisition of additional interests in Fairlane Town Center, and the related
issuance of TRG units of partnership interest (see TRG - Recent Acquisitions).
As of June 30, 1996 the Company had 44.1 million shares outstanding, down from
44.2 million at June 30, 1995, as the result of the Company's repurchase of
shares.
-20-
In the three months ended June 30, 1996, equity in income of TRG consisted of
the Company's $6.5 million proportionate share of TRG's income before
extraordinary items, compared to $6.1 million for the same period in 1995. In
both periods, these amounts were reduced by $1.9 million representing
adjustments arising from the Company's additional basis in TRG's net assets.
Income before extraordinary items for the three months ended June 30, 1996 was
$4.4 million, or $0.10 per share, compared to $4.0 million, or $0.09 per share,
for the same period in 1995. The Company recognized extraordinary charges to
income of $0.8 million for the three months ended June 30, 1995, consisting of
its share of TRG's extraordinary charges to income related to the prepayment of
debt. Net income for the three months ended June 30, 1996 was $4.4 million, or
$0.10 per share, compared to $3.2 million, or $0.07 per share for the comparable
period in 1995.
In the six months ended June 30, 1996, equity in income of TRG consisted of
the Company's $13.8 million proportionate share of TRG's income before
extraordinary items, compared to $12.9 million for the same period in 1995.
These amounts were reduced by $3.8 million and $4.2 million for the six months
ended June 30, 1996 and 1995, respectively, representing adjustments arising
from the Company's additional basis in TRG's net assets. Income before
extraordinary items for the six months ended June 30, 1996 was $9.6 million, or
$0.22 per share, compared to $8.4 million, or $0.19 per share, for the same
period in 1995. The Company recognized extraordinary charges to income of $0.8
million for the six months ended June 30, 1995, consisting of its share of TRG's
extraordinary charges to income related to the prepayment of debt. Net income
for the six months ended June 30, 1996 was $9.6 million, or $0.22 per share,
compared to $7.6 million, or $0.17 per share for the same period in 1995.
TRG
Occupancy and Mall Tenant Sales
Average occupancy rates in the Taubman Shopping Centers were 87.3% in both the
three months ended June 30, 1996 and the comparable period in 1995. For the six
months ended June 30, 1996, average occupancy was 87.6% compared to 87.5% for
the same period in 1995. Ending occupancy rates for the Taubman Shopping Centers
at June 30, 1996 were 87.3% versus 87.5% at the same date in 1995. Leased space
at June 30, 1996 was 88.2% compared to 90.3% at the same date in 1995. Given the
level of leased space at June 30, 1996, TRG currently expects that occupancy for
the remainder of 1996 will be modestly less than the previous year's levels.
However, TRG expects that average occupancy for the year will be comfortably
within TRG's historic range of average annual occupancy.
Total sales for Taubman Shopping Center mall tenants increased in the three
months ended June 30, 1996 by 5.1% to $617.8 million from $587.7 million in the
three months ended June 30, 1995. Tenant sales increased 7.1% to $1.21 billion
for the six months ended June 30, 1996 from $1.13 billion in the comparable
period in 1995. Mall tenant sales per square foot increased 6.5% and 8.4% in the
three and six months ended June 30, 1996, over the comparable periods in 1995.
Excluding Bellevue Center (Bellevue), the increase in sales was 7.2% and 9.2%
for the three and six month periods, respectively, and sales per square foot for
mall tenants was up 4.3% and 6.2% for the three and six months ended June 30,
1996.
-21-
Comparison of the Three Months Ended June 30, 1996 to the Three Months Ended
June 30, 1995
The following table sets forth operating results for TRG's Managed Businesses
for the three months ended June 30, 1995 and June 30, 1996, showing the results
of the Consolidated Businesses and Joint Ventures:
Three Months Ended June 30, 1995 Three Months Ended June 30, 1996
----------------------------------------- ----------------------------------------
TRG TOTAL: TRG TOTAL:
CONSOLIDATED JOINT MANAGED CONSOLIDATED JOINT MANAGED
BUSINESSES VENTURES(1) BUSINESSES BUSINESSES VENTURES(1) BUSINESSES
--------------- ------------ ------------ -------------- ------------ ------------
(in millions of dollars) (in millions of dollars)
REVENUES:
Minimum rents 31.8 40.8 72.6 34.8 40.5 75.3
Percentage rents 1.1 0.8 1.9 1.4 0.8 2.2
Expense recoveries 18.6 24.8 43.4 18.6 25.0 43.7
Other 4.1 2.4 6.5 5.0 2.3 7.3
----- ---- ----- ----- ----- -----
Total revenues 55.6 68.8 124.4 59.8 68.7 128.5
OPERATING COSTS:
Recoverable expenses 15.7 21.6 37.3 15.4 21.5 36.9
Other operating 5.3 3.1 8.5 6.4 4.6 11.0
Management, leasing
and development 0.9 0.9 1.1 1.1
General and
administrative 5.3 5.3 5.5 5.5
Interest expense 16.0 14.6 30.6 17.2 13.5 30.7
Depreciation and
amortization 7.8 6.1 13.9 8.4 5.9 14.3
----- ----- ----- ----- ----- -----
Total operating costs 51.0 45.4 96.4 54.1 45.5 99.5
----- ----- ----- ----- ----- -----
4.6 23.4 28.0 5.8 23.3 29.0
===== ===== ===== =====
Equity in income before
extraordinary items of
Joint Ventures 12.7 12.7
----- -----
Income before
extraordinary items 17.3 18.5
Extraordinary items (2.2)
----- -----
NET INCOME 15.0 18.5
===== =====
SUPPLEMENTAL
INFORMATION (2)
EBITDA contribution 28.4 23.3 51.7 31.4 22.4 53.8
TRG's Beneficial Interest
Expense (16.0) (7.4) (23.5) (17.2) (6.8) (24.0)
Non-real estate
depreciation (0.5) (0.5) (0.5) (0.5)
----- ----- ----- ----- ----- -----
Distributable Cash Flow
contribution 11.8 15.9 27.7 13.7 15.7 29.3
===== ===== ===== ===== ===== =====
(1) Costs are net of intercompany profits.
(2) EBITDA, TRG's Beneficial Interest Expense and Distributable Cash Flow are
defined and discussed in Liquidity and Capital Resources - Distributions.
(3) Amounts in this table may not add due to rounding.
-22-
TRG --Consolidated Businesses
Total revenues for the three months ended June 30, 1996 were $59.8 million, a
$4.2 million or 7.6% increase over the comparable period in 1995. Minimum rents
increased $3.0 million due to the expansions at Short Hills and Meadowood and
tenant rollovers. The increase in other revenues of $0.9 million was primarily
due to increases in management, leasing, and development services and a gain on
the sale of peripheral land, offset by a decrease in lease cancellation revenue.
Total operating costs increased $3.1 million, or 6.1%, to $54.1 million. Other
operating costs increased $1.1 million due to increases in bad debt expense and
various other expenses. Interest expense increased $1.2 million due primarily to
an increase in debt levels, including debt used to finance capital expenditures,
and a decrease in capitalized interest, partially offset by decreased interest
rates. The increase in depreciation and amortization was due primarily to the
expansions at Short Hills and Meadowood.
Joint Ventures
Total revenues for the three months ended June 30, 1996 were $68.7 million, a
$0.1 million or 0.1% decrease from the comparable period of 1995, of which a
$3.1 million decrease was caused by the November 1995 disposition of Bellevue,
largely offset by increases at other Centers. Minimum rents increased due to the
expansion at Woodfield and tenant rollovers, offset by the decrease due to
Bellevue. Expense recoveries increased due to the increase in recoverable
expenses, offset by the decrease due to Bellevue.
Total operating costs increased by $0.1 million, or 0.2%, to $45.5 million for
the three months ended June 30, 1996, representing a $3.6 million decrease due
to Bellevue, offset by increases at other Centers. Recoverable expenses
decreased $0.1 million primarily due to Bellevue and a decrease in utilities
expense, largely offset by increases in maintenance costs and property taxes,
including those related to the expansion at Woodfield. Other operating costs
increased $1.5 million primarily due to increases in bad debt expense and to a
nonrecurring $0.5 million payment to an anchor at one Center. Interest expense
decreased $1.1 million due to a decrease in debt due to the disposition of
Bellevue and an increase in capitalized interest, partially offset by increases
due to higher debt levels, including debt used to finance capital expenditures,
and higher interest rates on certain debt refinanced in 1995. Operating costs as
presented in the preceding table differ from the amounts shown in the combined,
summarized financial statements (Note 3 to TRG's financial statements) of the
Unconsolidated Joint Ventures by the amount of intercompany profit.
As a result of the foregoing, income before extraordinary items of the Joint
Ventures decreased by $0.1 million, or 0.4 %, to $23.3 million. TRG's equity in
income before extraordinary items of the Joint Ventures was $12.7 million for
the three months ended June 30, 1996 and 1995, respectively.
Net Income
As a result of the foregoing, TRG's income before extraordinary items
increased by $1.2 million, or 6.9%, to $18.5 million for the three months ended
June 30, 1996. In the second quarter of 1995, TRG recognized $2.2 million in
extraordinary charges related to the prepayment of debt at TRG and at one of its
Joint Ventures. Net income for the second quarter of 1996 was $18.5 million,
compared to $15.0 million for the second quarter of 1995.
-23-
Comparison of the Six Months Ended June 30, 1996 to the Six Months Ended
June 30, 1995
The following table sets forth operating results for TRG's Managed Businesses
for the six months ended June 30, 1995 and June 30, 1996, showing the results of
the Consolidated Businesses and Joint Ventures:
Six Months Ended June 30, 1995 Six Months Ended June 30, 1996
----------------------------------------- ----------------------------------------
TRG TOTAL: TRG TOTAL:
CONSOLIDATED JOINT MANAGED CONSOLIDATED JOINT MANAGED
BUSINESSES VENTURES(1) BUSINESSES BUSINESSES VENTURES(1) BUSINESSES
--------------- ------------ ------------ -------------- ------------ ------------
(in millions of dollars) (in millions of dollars)
REVENUES:
Minimum rents 63.2 81.4 144.6 69.5 81.5 151.1
Percentage rents 2.3 1.6 3.9 2.4 1.6 4.0
Expense recoveries 35.9 49.6 85.5 38.3 51.4 89.6
Other 7.7 6.4 14.1 9.3 4.2 13.5
----- ----- ----- ----- ----- -----
Total revenues 109.1 139.0 248.1 119.5 138.7 258.3
OPERATING COSTS:
Recoverable expenses 29.9 42.9 72.8 31.0 44.0 75.0
Other operating 10.4 6.3 16.7 11.6 7.8 19.4
Management, leasing
and development 1.6 1.6 2.4 2.4
General and
administrative 10.3 10.3 10.3 10.3
Interest expense 31.1 28.3 59.4 34.3 27.5 61.8
Depreciation and
amortization 15.8 12.5 28.3 16.7 11.4 28.1
----- ----- ----- ----- ----- -----
Total operating costs 99.1 90.1 189.2 106.3 90.6 197.0
----- ----- ----- ----- ----- -----
10.0 48.9 58.9 13.3 48.1 61.4
===== ===== ===== =====
Equity in income before
extraordinary items of
Joint Ventures 26.7 26.1
----- -----
Income before
extraordinary items 36.7 39.4
Extraordinary items (2.2)
----- -----
NET INCOME 34.5 39.4
===== =====
SUPPLEMENTAL
INFORMATION (2)
EBITDA contribution 56.8 47.8 104.6 64.3 45.7 110.0
TRG's Beneficial Interest
Expense (31.1) (14.6) (45.6) (34.3) (13.9) (48.3)
Non-real estate
depreciation (1.1) (1.1) (0.9) (0.9)
----- ----- ----- ----- ----- -----
Distributable Cash Flow
contribution 24.7 33.2 57.9 29.0 31.8 60.8
===== ===== ===== ===== ===== =====
(1) Costs are net of intercompany profits.
(2) EBITDA, TRG's Beneficial Interest Expense and Distributable Cash Flow are
defined and discussed in Liquidity and Capital Resources - Distributions.
(3) Amounts in this table may not add due to rounding.
-24-
TRG --Consolidated Businesses
Total revenues for the six months ended June 30, 1996 were $119.5 million, a
$10.4 million or 9.5% increase from the comparable period in 1995. Minimum rents
for the six months ended June 30, 1996 increased $6.3 million because of the
expansion at Short Hills and Meadowood and tenant rollovers. The increase in
expense recoveries was caused by higher recoverable expenses. Other income
increased primarily due to increases in management, leasing, and development
services, a gain on the sale of peripheral land and increases in interest income
and rental fees on exterior advertising signs, offset by a decrease in lease
cancellation income.
Total operating costs increased by $7.2 million, or 7.3%, to $106.3 million
for the six months ended June 30, 1996. The $1.1 million increase in recoverable
expenses for the six months ended June 30, 1996 was due primarily to increases
in maintenance costs and property taxes, including those related to the
expansion at Short Hills. General and administrative expense in the first six
months of 1996 was unchanged from the comparable period in 1995, resulting from
a $0.8 million charge in the first quarter of 1995 for severance and termination
benefits, offset by increases in occupancy and other costs in 1996. Interest
expense for the six months ended June 30, 1996 increased by $3.2 million
primarily due to an increase in debt levels, including debt used to finance
capital expenditures, and decreases in capitalized interest, partially offset by
decreases in interest rates. Depreciation and amortization also increased
primarily due to the expansions at Short Hills and Meadowood.
Joint Ventures
Total revenues for the six months ended June 30, 1996 were $138.7 million, a
$0.3 million or 0.2% decrease from the comparable period of 1995, of which a
$6.3 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 expansions at Woodfield and Cherry Creek and tenant rollovers,
offset by the decrease due to Bellevue. The increase in recoveries from tenants
was due to the increase in recoverable expenses. Other income decreased due to a
gain on the sale of peripheral land in 1995, and decreased interest income and
lease cancellation income in 1996.
Total operating costs increased by $0.5 million, or 0.6%, to $90.6 million for
the six months ended June 30, 1996, representing a $7.1 million decrease due to
Bellevue, offset by increases at other Centers. Recoverable expenses increased
$1.1 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. Other operating costs increased by $1.5 million, reflecting
increases in bad debt expense, promotion and advertising costs, and a
nonrecurring $0.5 million payment to an anchor at one of the Centers, offset by
the decrease due to Bellevue. Interest expense decreased $0.8 million primarily
due to the decrease in debt due to the disposition of Bellevue and an increase
in capitalized interest, partially offset by increases due to higher debt
levels, including debt used to finance capital expenditures, and increased
interest rates on certain debt refinanced in 1995. Operating costs as presented
in the preceding table differ from the amounts shown in the combined, summarized
financial statements (Note 3 to TRG's financial statements) of the
unconsolidated Joint Ventures by the amount of intercompany profit.
As a result of the foregoing, income before extraordinary items of the Joint
Ventures was $48.1 million in the six months ended June 30, 1996, a decrease of
1.6% from the comparable period in 1995. TRG's equity in income before
extraordinary items of the Joint Ventures was $26.1 million in the six months
ended June 30, 1996, a decrease of 2.2% from the comparable period in 1995.
-25-
Net Income
As a result of the foregoing, TRG's income before extraordinary items for the
six months ended June 30, 1996 increased by $2.7 million, or 7.4%, to $39.4
million. In the six months ended June 30, 1995, TRG recognized $2.2 million in
extraordinary charges related to the prepayment of debt at TRG and at one of its
Joint Ventures. Net income for the six months ended June 30, 1996 was $39.4
million, a 14.2% increase from the comparable period in 1995.
Recent Acquisitions
In June 1996, TRG acquired the Paseo Nuevo shopping center, located in Santa
Barbara, California, for $37 million. TRG borrowed under its existing lines of
credit to fund the acquisition. The acquisition is expected to have an
immaterial effect on net income in 1996. The acquisition is also expected to
produce EBITDA in excess of 10% of the acquisition cost in its first twelve
months (EBITDA is defined and described in Liquidity and Capital Resources -
Distributions). See Note 2 to TRG's consolidated financial statements for
further discussion of the acquisition.
In July 1996, TRG completed transactions hat resulted in it acquiring the 75%
interest in Fairlane Town Center previously held by a joint venture partner. In
connection with the transactions, TRG issued to the former joint venture partner
3,096 units of partnership interest, economically equivalent to 6.1 million
shares of TCI common stock, which had a closing price of $10.75 per share on the
day prior to the issuance date. TRG also assumed mortgage debt of approximately
$26 million, representing the former joint venture partner's beneficial interest
in the $34.6 million mortgage encumbering the property. TRG used unsecured debt
to fund the repayment of the 9.73% mortgage and the prepayment penalty of
approximately $1.2 million. In addition, the acquisition is expected to
incrementally add over $11 million to EBITDA over the twelve months following
the acquisition (EBITDA is defined and discussed in Liquidity and Capital
Resources - Distributions). See Note 7 to TRG's consolidated financial
statements for further discussion of the acquisition.
-26-
Liquidity and Capital Resources
Taubman Centers, Inc.
During the first six months of 1996 and 1995, the Company received
distributions of $20.4 million from TRG. On June 10, 1996, the Company declared
a quarterly dividend of $0.22 per common share payable July 19, 1996 to
shareholders of record June 28, 1996. The dividends declared in the first
quarter of 1996 and in the first and second quarters of 1995 were also $0.22 per
common share.
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.
The tax status of total 1996 dividends declared and to be declared, assuming
continuation of current quarterly dividend amounts, is estimated to be
approximately 45% return of capital, and approximately 55% of ordinary income.
This is a forward-looking statement and certain significant factors could cause
the actual results to differ materially, including: 1) the amount of dividends
declared; 2) changes in the Company's share of the anticipated taxable income of
TRG due to the actual results of TRG; 3) changes in the number of the Company's
outstanding shares; 4) property acquisitions or dispositions; 5) financing
transactions, including refinancings of existing debt; and 6) changes in the
Internal Revenue Code or its application.
As of June 30, 1996, the Company had a cash balance of $8.1 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 half
of 1996, the Company purchased 36.8 thousand shares for approximately $0.3
million. As of June 30, 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 June 30, 1996, TRG had a cash balance of $15.3 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 June 30, 1996 were $121 million. TRG also has available an unsecured
bank line of credit of up to $30 million with borrowings of $22 million at June
30, 1996. This line expires in August 1997. A substantial portion of the
proceeds from the issuance of medium-term notes was used to pay down borrowings
under these facilities in July 1996 (see below). 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 June 30, 1996. Commercial paper
is generally sold with a 30 day maturity. The underlying credit facility is
renewable quarterly for a twelve month period.
-27-
Proceeds from short-term borrowings provided $55.7 million of funding
(including $37 million for the acquisition in June 1996 of the Paseo Nuevo
shopping center) for the first half of 1996 compared to $36.3 million in 1995.
In the second quarter of 1995, the net proceeds of issuances totaling $119.4
million under TRG's medium-term note program were used to pay down floating rate
debt under TRG's revolving credit facilities as well as to pay off the $22.6
million mortgage securing a wholly owned Center. Scheduled principal payments on
installment notes and repayments on other borrowings were $13.2 million and $227
thousand in 1995 and 1996, respectively.
At June 30, 1996, TRG's debt (excluding TRG's capital lease obligation) and
its beneficial interest in the debt of its Joint Ventures totaled $1,400.8
million. As shown in the following table, $43.8 million of this debt was
floating rate debt that remained unhedged at June 30, 1996, but was
substantially paid down in July (see below). Interest rates shown do not include
amortization of debt issuance costs and interest rate hedging costs. These items
are reported as interest expense in TRG's results of operations. In the
aggregate, these costs accounted for 0.31% of the effective rate of interest on
TRG's beneficial interest in debt at June 30, 1996. Included in TRG's beneficial
interest in debt at June 30, 1996 is debt used to fund development and expansion
costs. TRG's beneficial interest in assets on which interest is being
capitalized totaled $107.7 million as of June 30, 1996. TRG's beneficial
interest in capitalized interest was $2.1 million and $3.8 million for the three
and six months ended June 30, 1996, respectively.
Beneficial Interest in Debt
----------------------------------------------
Amount Interest LIBOR Frequency LIBOR
(in millions Rate at Cap of Rate at
of dollars) 6/30/96 Rate Resets 6/30/96
------------ -------- ------ --------- -------
Total beneficial interest in
fixed rate debt 1,052.7(1) 7.54%(2)
Floating rate debt swapped to
fixed for period less than
maturity -
To August 1, 1996 65.0(3) 6.52
Floating rate debt hedged
via interest rate caps:
Through December 1996 25.0(4) 5.95 7.50% Monthly 5.50%
Through January 1997 175.0(5) 6.43(2) 6.00 Monthly 5.50
Through October 1998 39.3 6.04 6.00 Three Months 5.59
Other floating rate debt 43.8 6.43(2)
-------
Total beneficial interest
in debt 1,400.8
=======
(1)Includes TRG's $100 million floating rate notes due in 1997, which were
swapped to a fixed rate of 6.15% until maturity. The interest rate on the
refinancing of this debt is hedged via an interest rate cap for the period
November 1997 to December 1998 at a three month LIBOR cap rate of 6.5%.
(2)Denotes weighted average interest rate.
(3)This debt is additionally hedged via an interest rate cap for the period
August 1996 to August 1998 at a one month LIBOR cap rate of 8.55%
(4)This debt is additionally hedged via an interest cap rate for the period
December 1996 to October 2001 at a one month LIBOR cap rate of 8.55%.
(5)$100 million of this debt is additionally hedged via an interest rate cap for
the period January 1997 to January 1998 at a one month LIBOR cap rate of
6.5%.
-28-
In late July, TRG issued $154 million of unsecured notes under its medium-term
note program. The notes were used to pay down TRG's floating rate bank lines
bearing interest at approximately LIBOR plus 1.5 percent as well as to pay off
the $34.6 million, 9.73 percent mortgage on Fairlane Town Center and the related
prepayment penalty of approximately $1.2 million, leaving the wholly owned
property unencumbered. The pay down of TRG's bank lines resulted in
approximately $190 million of availability under these lines as of the end of
July 1996. The issuance included $100 million of notes with a five year
maturity, including $70 million of fixed rate notes at 8 percent and $30 million
of floating rate notes bearing interest at 3-month LIBOR plus 105 basis points.
The remaining $54 million of notes have maturities of two and three years and
bear interest at 3-month LIBOR plus 77 to 90 basis points. TRG has issued a
total of $287 million medium-term notes since the program's inception in 1995
under TRG's $500 million shelf registration statement.
TRG's loan agreements and indenture contain various restrictive covenants
including limitations on the amount of secured and unsecured debt and minimum
debt services coverage ratios, the latter being the most restrictive. TRG is in
compliance with all of such covenants.
Distributions
A principal factor considered by TRG in deciding upon distributions to
partners is an amount, which TRG defines as Distributable Cash Flow, equal to
EBITDA less TRG's Beneficial Interest Expense and non-real estate depreciation
and amortization. This measure of performance is influenced not only by
operations but also by capital structure. EBITDA is defined as TRG's beneficial
interest in revenues, less operating costs before interest, depreciation and
amortization, meaning TRG's pro rata share of this result for each of the
Managed Businesses, after recording appropriate intercompany eliminations. TRG's
Beneficial Interest Expense is defined as 100% of the interest expense of TRG's
Consolidated Businesses and TRG's pro rata share of the interest expense on the
debt of the Joint Ventures. 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.
-29-
The following table summarizes TRG's Distributable Cash Flow and the Company's
Funds from Operations for the three months ended June 30, 1995 and 1996:
Three months ended Three months ended
June 30, 1995 June 30, 1996
------------------------------- -------------------------------
TRG TRG
Consolidated Joint Consolidated Joint
Businesses Ventures(1) Total Businesses Ventures(1) Total
------------------------------- -------------------------------
(In millions of dollars)
TRG's Net Income(2) 15.0 18.5
Extraordinary Items 2.2
Depreciation and Amortization(3) 11.0 11.3
TRG's Beneficial Interest Expense(4) 23.5 24.0
----- -----
EBITDA 28.4 23.3 51.7 31.4 22.4 53.8
TRG's Beneficial Interest Expense(4) (16.0) (7.4) (23.5) (17.2) (6.8) (24.0)
Non-real estate depreciation (0.5) (0.5) (0.5) (0.5)
----- ----- ----- ----- ----- -----
Distributable Cash Flow 11.8 15.9 27.7 13.7 15.7 29.3
===== ===== ===== ===== ===== =====
TCI's share of Distributable Cash Flow 9.7 10.3
Other income/ expense, net (0.2) (0.2)
----- -----
Funds from Operations 9.6 10.1
===== =====
(1) Amounts represent TRG's beneficial interest in the operations of its Joint
Ventures.
(2) Net income for the second quarter of 1996 includes TRG's share of a gain on
a peripheral land sale of $0.3 million. There were no land sales in the
second quarter of 1995.
(3) Amounts represent TRG's and TRG's beneficial interest in the Joint Ventures'
depreciation and amortization. Includes $0.8 million of mall tenant
allowances in both of the second quarters of 1995 and 1996, respectively.
(4) Amounts represent TRG's and TRG's beneficial interest in the Joint Ventures'
interest expense.
(5) Amounts may not add due to rounding.
The following table summarizes TRG's Distributable Cash Flow and the
Company's Funds from Operations for the six months ended June 30, 1995 and 1996:
Six months ended Six months ended
June 30, 1995 June 30, 1996
------------------------------- -------------------------------
TRG TRG
Consolidated Joint Consolidated Joint
Businesses Ventures(1) Total Businesses Ventures(1) Total
------------------------------- -------------------------------
(In millions of dollars)
TRG's Net Income(2) 34.5 39.4
Extraordinary Items 2.2
Depreciation and Amortization(3) 22.3 22.4
TRG's Beneficial Interest Expense(4) 45.6 48.3
----- -----
EBITDA 56.8 47.8 104.6 64.3 45.7 110.0
TRG's Beneficial Interest Expense(4) (31.1) (14.6) (45.6) (34.3) (13.9) (48.3)
Non-real estate depreciation (1.1) (1.1) (0.9) (0.9)
----- ----- ----- ----- ----- -----
Distributable Cash Flow 24.7 33.2 57.9 29.0 31.8 60.8
===== ===== ===== ===== ===== =====
TCI's share of Distributable Cash Flow 20.3 21.4
Other income/ expense, net (0.3) (0.4)
----- -----
Funds from Operations 20.0 21.0
===== =====
(1) Amounts represent TRG's beneficial interest in the operations of its Joint
Ventures.
(2) Net income includes TRG's share of gains on peripheral land sales of $0.8
million and $0.3 million for the six months ended June 30, 1995 and 1996,
respectively.
(3) Amounts represent TRG's and TRG's beneficial interest in the Joint Ventures'
depreciation and amortization. Includes $1.5 million and $1.6 million of
amortization of mall tenant allowances for the six months ended June 30,
1995 and 1996, respectively.
(4) Amounts represent TRG's and TRG's beneficial interest in the Joint Ventures'
interest expense.
(5) Amounts may not add due to rounding.
-30-
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 and
second quarters of 1995 have been restated in the tables 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.
During the second quarter of 1996, EBITDA and Distributable Cash Flow were
$53.8 million and $29.3 million, compared to $51.7 million and $27.7 million, as
restated, for the same period in 1995. TRG distributed $29.1 million to its
partners in both of the second quarters of 1996 and 1995. The Company's Funds
from Operations for 1996 was $10.1 million, compared to $9.6 million, as
restated, for the same period in 1995.
During the first half of 1996, EBITDA and Distributable Cash Flow were $110.0
million and $60.8 million, compared to $104.6 million and $57.9 million, as
restated, for the same period in 1995. TRG distributed $58.1 million to its
partners in each of the six month periods ended June 30, 1996 and 1995. The
Company's Funds from Operations for 1996 was $21.0 million, compared to $20.0
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 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 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.
-31-
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.
Capital Spending
Capital spending for routine maintenance of the Taubman Shopping Centers is
generally recovered from tenants. Excluding acquisitions, 1996 planned capital
spending by the Managed Businesses not recovered from tenants is summarized in
the following table:
1996
------------------------------------------------
TRG's Share
Consolidated Joint of
Businesses Ventures(1) Joint Ventures(1)
------------------------------------------------
(in millions of dollars)
Development and expansion 17.1(2) 117.8(3) 63.5
Mall tenant allowances 5.2 3.8 1.9
Pre-construction development
and other 8.0(4) 2.0 1.0
----- ----- -----
Total 30.3 123.6 66.4
===== ===== =====
(1) Costs are net of intercompany profits.
(2) Includes costs related to expansion projects at Marley, Meadowood, and
Stoneridge. Also includes costs related to leasehold improvements at The
Mall at Tuttle Crossing; excludes capital lease assets.
(3) Includes costs related to expansion projects at Westfarms and Cherry Creek.
Also includes construction costs for MacArthur Center and Arizona Mills.
(4) Includes costs to explore the possibilities of building an enclosed 1.7
million square foot value super-regional mall in Auburn Hills, Michigan.
New Sears stores are scheduled to open in the fall of 1996 at Marley Station
and Stoneridge. In addition, new Lord & Taylor stores, formerly Woodward &
Lothrop stores, will open in August 1996 at Fair Oaks and Lakeforest. 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. A project to utilize 30,000
square feet of this space for new mall tenants, which is presently expected to
open in 1997, is in the planning stage.
-32-
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 has entered into agreements with The Mills Corporation, Simon Property
Group and Grossman Company Properties to develop, own and operate Arizona Mills,
an enclosed value super-regional mall in Tempe, Arizona, which broke ground in
August 1996. TRG has a 35% ownership interest in the venture. The 1.2 million
square foot value-oriented mall is expected to open in the fall of 1997.
TRG's share of costs for development and expansion projects scheduled to be
completed in 1997 and 1998 is anticipated to be as much as $139 million in 1997
and $51 million in 1998.
In April 1996, Federated Department Stores, Inc. closed the Emporium store at
Hilltop. TRG is considering alternatives for the vacant anchor space.
Negotiations are in progress which may result in an amount of TRG capital
spending at Hilltop which cannot be presently determined.
TRG's estimates regarding capital expenditures presented above are
forward-looking statements and certain significant factors could cause the
actual results to differ materially, including but not limited to: 1) actual
results of negotiations with anchors, tenants and contractors; 2) changes in the
scope of projects; 3) cost overruns; 4) timing of expenditures; and 5) actual
time to complete projects.
Capital Resources
TRG believes that its net cash provided by operating activities, together with
distributions from the Joint Ventures, the unutilized portion of its credit
facilities and its ability to generate cash from issuance of medium-term notes
under TRG's shelf registration statement, other securities offerings or mortgage
financings, assure adequate liquidity to conduct its operations in accordance
with its distribution and financing policies.
The financing of TRG is intended to maintain an investment grade credit rating
for TRG and (i) minimize, to the extent practical, secured indebtedness
encumbering TRG's wholly owned properties, (ii) mitigate TRG's exposure to
increases in floating interest rates, (iii) assure that the amount of debt
maturing in any future year will not pose a significant refinancing risk, (iv)
provide for additional capital and liquidity resources, and (v) maintain average
maturities for TRG's debt obligations of between five and ten years. TRG's
intent to continue to minimize secured indebtedness is dependent on actions
taken by credit rating agencies and market conditions.
-33-
TRG expects to finance its capital requirements, including development,
expansions and working capital, with available cash, borrowings under its lines
of credit and cash from future securities offerings under its medium-term note
program, other securities offerings, or mortgage financings. TRG's acquisition
activities are discretionary in nature, and will only be undertaken by TRG after
procuring adequate financing on terms that are consistent with TRG's financing
policies. TRG's Joint Ventures expect to finance development and expansion
spending with secured debt to the extent it is available.
TRG's borrowings are not and will not be recourse to the Company without its
consent.
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
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 June 30, 1996 of $10.00 and
$11.125 per common share, the aggregate value of interests in TRG that may be
tendered under the Cash Tender Agreement was approximately $743 million and $825
million, respectively. Purchase of these interests at June 30, 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.
-34-
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On May 15, 1996, the Company held its annual meeting of shareholders.
The matters on which shareholders voted were: the election of four
directors to serve a three year term; amendments to the Company's
Restated Articles of Incorporation to increase the number of
authorized shares of capital stock to 300 million, including 250
million shares of common stock and 50 million shares of "blank check"
preferred stock, to create a status known as Excess Stock, and to
change the number of shares of stock of the Company that the GM Trusts
and the AT&T trusts may own; and the ratification of the Board's
selection of Deloitte & Touche LLP as the Company's independent
auditors for the year ended December 31, 1996. A. Alfred Taubman,
Robert C. Larson, Robert S. Taubman, and Bernard Winograd were
re-elected at the meeting, and the six remaining incumbent directors
continued to hold office after the meeting. The amendments to the
Company's Restated Articles of Incorporation were approved, and the
shareholders ratified the selection of the independent auditors. The
results of the voting are shown below:
ELECTION OF DIRECTORS
NOMINEES VOTES FOR VOTES WITHHELD
A. Alfred Taubman 39,808,407 129,032
Robert C. Larson 39,808,407 129,032
Robert S. Taubman 39,808,407 129,032
Bernard Winograd 39,808,407 129,032
INCREASE AND CHANGES IN AUTHORIZED CAPITAL STOCK
32,932,053 Votes were cast for;
1,057,379 Votes were cast against; and
5,941,007 Votes abstained (including broker non-votes).
EXCESS STOCK
39,773,892 Votes were cast for;
126,260 Votes were cast against; and
37,287 Votes abstained (including broker non-votes).
-35-
RATIFICATION OF AUDITORS
39,905,790 Votes were cast for ratification;
9,493 Votes were cast against ratification; and
22,156 Votes abstained (including broker non-votes).
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3 -- Second Amended and Restated Articles of Incorporation of
Taubman Centers, Inc.
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.
The Company filed a current report on Form 8-K dated May 14, 1996 to
report TRG's agreement to acquire Paseo Nuevo shopping center, which
is located in Santa Barbara, California.
-36-
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: August 13, 1996 By: /s/ Bernard Winograd
----------------------------
Bernard Winograd
Executive Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number
3 -- Second Amended and Restated Articles of Incorporation of Taubman Centers,
Inc.
11 -- Statement Re: Computation of Per Share Earnings.
12 -- Statement Re: Computation of Ratio of Earnings to Fixed Charges.
27 -- Financial Data Schedule.