SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Reporting Pursuant
to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of report (earliest event reported): September 30, 1998
TAUBMAN CENTERS, INC.
(Exact Name of Registrant as Specified in its Charter)
MICHIGAN 1-11530 38-2033632
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification Number)
200 East Long Lake Road, Suite 300, Bloomfield Hills, Michigan 48303-0200
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code: (248) 258-6800
None
(Former Name or Former Address, if Changed Since Last Report)
Item 1. Changes in Control of Registrant
The information required by this item is given in response to Item 2.
Item 2. Acquisition or Disposition of Assets
Taubman Centers, Inc. (TCO) is the managing general partner of The Taubman
Realty Group Limited Partnership (TRG). On September 30, 1998, TCO obtained a
majority and controlling interest in TRG as a result of a transaction in which
TRG exchanged interests in 10 shopping centers, together with $990 million of
its debt, for all of the partnership units owned by General Motors Pension
Trusts (GMPT), representing approximately 37% of TRG's equity (the GMPT
Exchange). The approximately 50 million GMPT partnership units had a fair value
of approximately $675 million based on the average share price of TCO common
stock for the two week period prior to the closing of the transaction. As a
result of the GMPT Exchange, TCO's ownership of TRG increased to 62.7%.
TRG no longer has a Partnership Committee overseeing its operations and the
GMPT-affiliated members of TCO's Board of Directors resigned, resulting in TCO
having a nine-member board with a majority of independent directors.
Additionally, TCO became obligated to issue to the partners in TRG other than
TCO (Minority Partners), upon subscription, one share of Series B Non-
Participating Convertible Preferred Stock (Series B Preferred Stock) for each
TRG unit held by the Minority Partners. Each of the Minority Partners is
entitled to subscribe for one share of Series B Preferred Stock for each TRG
unit of partnership interest that the Minority Partner holds. The subscription
price is equal to the per share liquidation preference of 1/10th of one cent.
TCO expects to have completed the initial issuance of Series B Preferred Stock
to the Minority Partners before the end of 1998. If TRG issues additional units
to one or more Minority Partners (including new partners in TRG), each new Unit
will carry the right to subscribe for one share of series B Preferred Stock for
1/10th of one cent per share. TCO may not issue additional shares of Series B
Preferred Stock except as described above, other than to reflect stock
dividends, splits, or similar matters that would otherwise adversely affect the
relative voting power of the Series B Preferred Stock. Each share of Series B
Preferred Stock entitles the holder to one vote on all matters submitted to
TCO's shareholders. The holders of Series B Preferred Stock, voting as a class,
have the right to designate up to four nominees for election as directors of
TCO. On all other matters, including the election of directors, the holders of
Series B Preferred Stock will vote with the holders of common stock. The holders
of Series B Preferred Stock are not entitled to dividends or earnings. Under
certain circumstances, the Series B Preferred Stock is convertible into common
stock (at a ratio of 14,000 shares of Series B Preferred Stock for one share of
common stock), but TCO will redeem for cash any fractional shares of common
stock resulting from a conversion.
Item 7. Financial Statements and Exhibits
b. The following pro forma information is included in this filing on Form 8-K:
Taubman Centers, Inc. Pro Forma Condensed Consolidated Balance Sheet as of
June 30, 1998 (unaudited)
Taubman Centers, Inc. Pro Forma Condensed Consolidated Statement of
Operations, Year Ended December 31, 1997 (unaudited)
Taubman Centers, Inc. Pro Forma Condensed Consolidated Statement of
Operations, Six Months Ended June 30, 1998 (unaudited)
1
The Taubman Realty Group Limited Partnership Pro Forma Condensed Consolidated
Balance Sheet as of June 30, 1998 (unaudited)
The Taubman Realty Group Limited Partnership Pro Forma Condensed Consolidated
Statement of Operations, Year Ended December 31, 1997 (unaudited)
The Taubman Realty Group Limited Partnership Pro Forma Condensed Consolidated
Statement of Operations, Six Months Ended June 30, 1998 (unaudited)
c. Exhibits
Separation and Relative Value Adjustment Agreement between The Taubman Realty
Group Limited Partnership and GMPTS Limited Partnership (without exhibits or
schedules, which will be supplementally provided to the Securities and
Exchange Commission upon its request.)
2
TAUBMAN CENTERS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of June 30, 1998
(unaudited)
(in thousands)
This unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as if
TCO had obtained a majority and controlling interest in TRG due to the GMPT
Exchange on June 30, 1998. Prior to obtaining a controlling interest in TRG, TCO
had accounted for its interest in TRG under the equity method. In management's
opinion, all adjustments necessary to reflect the effects of this transaction
have been made. The unaudited Pro Forma Condensed Consolidated Balance Sheet is
not necessarily indicative of what the actual financial position would have been
at June 30, 1998, nor does it purport to represent the future financial position
of TCO.
Historical Adjustments (A) Pro Forma
---------- ----------- ---------
Assets:
Investment in TRG $ 561,020 $(561,020)
Properties, net 940,200
164,002 $1,104,202
Investment in Unconsolidated
Joint Ventures (121,171)
198,599 77,428
Other assets 9,469 36,355 45,824
--------- --------- ----------
$ 570,489 $ 656,965 $1,227,454
========= ========= ==========
Liabilities:
Debt $ 603,536 $ 603,536
Accounts payable and accrued
liabilities $ 12,791 79,020 91,811
--------- --------- ----------
$ 12,791 $ 682,556 $ 695,347
Minority Interest
Shareowners' Equity:
Preferred Stock $ 80 $ 80
Common Stock 529 529
Additional paid-in capital 696,738 696,738
Dividends in excess of net income (139,649) $ (25,591) (165,240)
--------- --------- ----------
$ 557,698 $ (25,591) $ 532,107
--------- --------- ----------
$ 570,489 $ 656,965 $1,227,454
========= ========= ==========
See Accompanying Notes and Significant Assumptions
3
TAUBMAN CENTERS, INC.
NOTES AND SIGNIFICANT ASSUMPTIONS
As of June 30, 1998
(A) Effective September 30, 1998, TRG completed the GMPT Exchange, which
resulted in TCO's ownership of TRG increasing from 39.4% to 62.7%, providing TCO
with both a majority and a controlling interest in TRG. Previously, TCO had
accounted for its investment in TRG under the equity method. Due to this change
in control, TCO will consolidate the results of operations and financial
position of TRG. The pro forma adjustments eliminate TCO's investment in TRG and
replace it with the underlying assets and liabilities of TRG. These pro forma
adjustments are derived from TRG's pro forma condensed consolidated balance
sheet as of June 30, 1998, contained in this report, and include the effects of
the GMPT Exchange and certain related refinancing and restructuring
transactions. TCO's estimated share of charges related to these refinancing and
restructuring transactions is approximately $25.6 million. Of the excess of
TCO's cost of its investment in TRG over TCO's share of TRG's accumulated
partners' deficit of $362.6 million, $164.0 million and $198.6 million have been
allocated to TCO's bases in TRG's properties and investment in Unconsolidated
Joint Ventures, respectively. Because the pro forma net equity of TRG as of June
30, 1998 is less than zero, the ownership interest of the noncontrolling TRG
partners (the Minority Interest) is presented as a zero balance. TRG's net
equity is less than zero due to accumulated distributions in excess of
accumulated net income and not as a result of operating losses.
No adjustment has been made to reflect the future issuance of Series B Preferred
Stock. As of the date of this filing, no shares of Series B Preferred Stock have
been issued.
4
TAUBMAN CENTERS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1997
(unaudited)
(in thousands, except share data)
This unaudited Pro Forma Condensed Consolidated Statement of Operations is
presented as if TCO had obtained a majority and controlling interest in TRG due
to the GMPT Exchange, and as if certain other significant debt and equity
transactions (see the accompanying Notes and Significant Assumptions) had
occurred, on January 1, 1997. Prior to obtaining a controlling interest in TRG,
TCO had accounted for its investment in TRG under the equity method. In
management's opinion, all adjustments necessary to reflect the effects of these
transactions have been made. This unaudited Pro Forma Condensed Consolidated
Statement of Operations is not necessarily indicative of what actual results of
operations would have been had these transactions been completed as of January
1, 1997, nor does it purport to represent the results of operations for future
periods.
Historical Adjustments (A) Pro Forma
---------- ----------- ---------
Income:
Income from investment in TRG $ 29,349 $(29,349)
Rents and other revenues 322 198,209 $198,531
-------- -------- --------
$ 29,671 $168,860 $198,531
Operating Expenses:
Recoverable expenses $ 51,574 $ 51,574
Other operating 25,453 25,453
Management, leasing and
development services 17,278 17,278
General and administrative $ 1,009 25,715 26,724
Interest 26,791 26,791
Depreciation and amortization 29,004
3,997 33,001
-------- -------- --------
$ 1,009 $179,812 $180,821
-------- -------- --------
Income before equity in income
of Unconsolidated Joint
Ventures, extraordinary items,
and minority interest $ 28,662 $(10,952) $ 17,710
Equity in income before
extraordinary items of
Unconsolidated Joint Ventures 40,019
(4,841) 35,178
-------- -------- --------
Income before extraordinary
items and minority interest $ 28,662 $ 24,226 $ 52,888
Minority interest:
Minority share of income (17,515) (17,515)
Distributions in excess of
earnings (11,574) (11,574)
Preferred dividends (4,058) (12,542) (B) (16,600)
-------- -------- --------
Income before extraordinary
items allocable to common
shareowners $ 24,604 $(17,405) $ 7,199
======== ======== ========
Income before extraordinary
items per common share:
Basic $ .48 $ (.34) $ .14
======== ======== ========
Diluted $ .48 $ (.35) $ .13
======== ======== ========
Weighted average number of
common shares outstanding 50,737,333 2,021,611 (B) 52,758,944
========== ========= ==========
See Accompanying Notes and Significant Assumptions
5
TAUBMAN CENTERS, INC.
NOTES AND SIGNIFICANT ASSUMPTIONS
For the Year Ended December 31, 1997
(A) GMPT Exchange
-------------
Effective September 30, 1998, TRG completed the GMPT Exchange, increasing TCO's
ownership of TRG from 39.4% to 62.7% and providing TCO with a controlling
interest in TRG. Due to this change in control, TCO will consolidate the results
of operations and financial position of TRG. Previously, TCO had accounted for
its investment in TRG under the equity method. The pro forma adjustments
eliminate TCO's equity income from TRG and present TRG's underlying results of
operations. Depreciation and amortization and equity in income of Unconsolidated
Joint Ventures also include additional charges of $4.0 million and $4.8 million,
respectively, due to TCO's additional bases in the assets of TRG. The minority
interest represents the income allocable to the noncontrolling partners of TRG.
Because TRG's pro forma net equity is less than zero, the total amount allocated
to the minority interest is equal to the minority interest's share of
distributions. TRG's net equity is less than zero due to accumulated
distributions in excess of accumulated net income and not as a result of
operating losses.
The results of operations of TRG contained in the pro forma adjustments are
derived from TRG's pro forma condensed consolidated statement of operations for
the year ended December 31, 1997, contained in this report, after elimination of
the management fee which TCO pays to TRG. TRG's pro forma results of operations
reflect the impact of the GMPT Exchange and the related refinancing, the
September 1997 acquisition of Regency Square, the October 1997 and April 1998
paydowns of debt with the proceeds of equity issuances, and the January 1998
redemption of units of partnership interest.
(B) Equity Transactions
-------------------
In October 1997, TCO completed a $200 million public offering of eight million
shares of 8.3% Series A Preferred Stock. Dividends are paid quarterly. In April
1998, TCO sold approximately 2.0 million shares of its common stock at $13.1875
per share, before deducting the underwriting commission and expenses of the
offering, under TCO's shelf registration statement. TRG paid the costs of these
equity transactions. See Note C to TRG's Pro Forma Condensed Consolidated
Statement of Operations for the year ended December 31, 1997.
6
TAUBMAN CENTERS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1998
(unaudited)
(in thousands, except share data)
This unaudited Pro Forma Condensed Consolidated Statement of Operations is
presented as if TCO had obtained a majority and controlling interest in TRG due
to the GMPT Exchange, and as if certain other significant debt and equity
transactions of TRG (see the accompanying Notes and Significant Assumptions) had
occurred, on January 1, 1997. Prior to obtaining a controlling interest in TRG,
TCO had accounted for its investment in TRG under the equity method. In
management's opinion, all adjustments necessary to reflect the effects of these
transactions have been made. This unaudited Pro Forma Condensed Consolidated
Statement of Operations is not necessarily indicative of what actual results of
operations would have been had these transactions been completed as of January
1, 1997, nor does it purport to represent the results of operations for future
periods.
Historical Adjustments (A) Pro Forma
---------- ----------- ---------
Income:
Income from investment in TRG $ 18,642 $(18,642)
Rents and other revenues 195 99,857 $100,052
-------- -------- --------
$ 18,837 $ 81,215 $100,052
Operating Expenses:
Recoverable expenses $ 25,315 $ 25,315
Other operating 13,843 13,843
Management, leasing and
development services 10,368 10,368
General and administrative $ 525 13,605 14,130
Interest 15,951 15,951
Depreciation and amortization 15,149
1,999 17,148
-------- -------- --------
$ 525 $ 96,230 $ 96,755
-------- -------- --------
Income before equity in income
of Unconsolidated Joint
Ventures, extraordinary items,
and minority interest $ 18,312 $(15,015) $ 3,297
Equity in income before
extraordinary items of
Unconsolidated Joint Ventures 18,492
(2,420) 16,072
-------- -------- --------
Income before extraordinary
items and minority interest $ 18,312 $ 1,057 $ 19,369
Minority interest:
Minority share of income (5,991) (5,991)
Distributions in excess of
earnings (9,024) (9,024)
Preferred dividends (8,300) (8,300)
-------- -------- --------
Income (loss) before extraordinary
items allocable to common
shareowners $ 10,012 $(13,958) $ (3,946)
======== ======== ========
Income (loss) before extraordinary
items per common share:
Basic $ .19 $ (.26) $ (.07)
======== ======== ========
Diluted $ .19 $ (.27) $ (.08)
======== ======== ========
Weighted average number of
common shares outstanding 51,512,514 1,317,956 (B) 52,830,470
========== ========= ==========
See Accompanying Notes and Significant Assumptions
7
TAUBMAN CENTERS, INC.
NOTES AND SIGNIFICANT ASSUMPTIONS
For the Six Months Ended June 30, 1998
(A) GMPT Exchange
-------------
Effective September 30, 1998, TRG completed the GMPT Exchange, increasing TCO's
ownership of TRG from 39.4% to 62.7% and providing TCO with a controlling
interest in TRG. Due to this change in control, TCO will consolidate the results
of operations and financial position of TRG. Previously, TCO had accounted for
its investment in TRG under the equity method. The pro forma adjustments
eliminate TCO's equity income from TRG and present TRG's underlying results of
operations. Depreciation and amortization and equity in income of Unconsolidated
Joint Ventures also include additional charges of $2.0 million and $2.4 million,
respectively, due to TCO's additional bases in the assets of TRG. The minority
interest represents the income allocable to the noncontrolling partners of TRG.
Because TRG's pro forma net equity is less than zero, the total amount allocated
to the minority interest is equal to the minority interest's share of
distributions. TRG's net equity is less than zero due to accumulated
distributions in excess of accumulated net income and not as a result of
operating losses.
The results of operations of TRG contained in the pro forma adjustments are
derived from TRG's pro forma condensed consolidated statement of operations for
the six months ended June 30, 1998, contained in this report, after elimination
of the management fee which TCO pays to TRG. TRG's pro forma results of
operations reflect the impact of the GMPT Exchange and the related refinancing,
the April 1998 paydown of debt with the proceeds of an equity issuance, and the
January 1998 redemption of units of partnership interest.
(B) Equity Transaction
------------------
In April 1998, TCO sold approximately 2.0 million shares of its common stock at
$13.1875 per share, before deducting the underwriting commission and expenses of
the offering, under TCO's shelf registration statement. TRG paid the costs of
this equity transaction. See Note B to TRG's Pro Forma Condensed Consolidated
Statement of Operations for the six months ended June 30, 1998.
8
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of June 30, 1998
(unaudited)
(in thousands)
This unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as if
the GMPT Exchange and certain related transactions (see accompanying Notes and
Significant Assumptions) had occurred on June 30, 1998. In management's opinion,
all adjustments necessary to reflect the effects of these transactions have been
made. The unaudited Pro Forma Condensed Consolidated Balance Sheet is not
necessarily indicative of what the actual financial position would have been at
June 30, 1998, nor does it purport to represent the future financial position of
TRG.
Historical Adjustments (A) Pro Forma
---------- ----------- ---------
Assets:
Properties, net $1,416,635 $(476,435) $940,200
Other assets 64,086 (27,731) 36,355
---------- --------- --------
$1,480,721 $(504,166) $976,555
========== ========== ========
Liabilities:
Debt $1,414,433 $(810,897) $603,536
Accounts payable and
accrued liabilities 110,217 (31,197) 79,020
Distributions in excess of
net income of Unconsolidated
Joint Ventures 169,714 (48,543) 121,171
---------- --------- --------
$1,694,364 $(890,637) $803,727
Accumulated Deficiency in Assets:
Series A Preferred Equity 192,840 192,840
Partners' Accumulated Deficit (406,483) 386,471 (20,012)
---------- --------- --------
(213,643) 386,471 172,828
---------- --------- --------
$1,480,721 $(504,166) $976,555
========== ========= ========
See Accompanying Notes and Significant Assumptions
9
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES AND SIGNIFICANT ASSUMPTIONS
As of June 30, 1998
(A) On September 30, 1998, TRG exchanged interests in 10 shopping centers (nine
wholly owned and one Unconsolidated Joint Venture), together with $990 million
of debt, for all of GMPT's partnership units (approximately 50 million units
with a fair value of $675 million, based on the average stock price of TCO
shares of $13.50 for the two week period prior to the closing). The amount of
debt allocated to GMPT is subject to a working capital adjustment calculated as
of September 30, 1998; this adjustment would have decreased the amount of debt
allocated to GMPT by approximately $12 million if the GMPT Exchange had occurred
on June 30, 1998. The pro forma adjustments reflect the impact to TRG of the
exchange of the 10 centers. On a pro forma basis, a gain of $1.1 billion on the
exchange would have been realized as of June 30, 1998, representing the
difference between the fair value of the GMPT units and the sum of the net book
values of the 10 shopping centers, the debt assumed by GMPT, and estimated
transaction costs.
In anticipation of the GMPT Exchange, TRG used the $1.2 billion proceeds from
two bridge loans bearing interest at one-month LIBOR plus 1.30% to extinguish
approximately $1.1 billion of debt, including substantially all of TRG's public
unsecured debt, its outstanding commercial paper, and borrowings on its existing
lines of credit. The remaining proceeds were used primarily to pay prepayment
premiums and transaction costs. An extraordinary charge of approximately $49
million, consisting primarily of prepayment premiums, was recognized in
connection with the extinguishment of the debt.
The balance on the first bridge loan of $902 million was assumed by GMPT at the
time of the GMPT Exchange. The second loan has a balance of $310 million and
expires in June 1999. TRG has begun the process of obtaining permanent secured
financing to replace the bridge loan. Additionally, TRG has obtained a $200
million line of credit, replacing TRG's previous revolving credit and commercial
paper facilities. TRG has also entered into treasury lock agreements with a
notional amount of $200 million at approximately 5%, plus credit spread.
GMPT's share of debt totaling $990 million includes the $902 million bridge
loan, $86 million representing 50% of the debt on the Joint Venture owned
shopping center, and $1.6 million of assessment bond obligations. The adjustment
to debt in the pro forma balance sheet includes the reduction for GMPT's share
of debt (excluding the $86 million of Joint Venture debt, which is included in
the adjustment to Distributions in excess of net income of Unconsolidated Joint
Ventures), net of expected transaction costs, prepayment premiums and
restructuring charges totaling $93 million. The estimated restructuring charges
include costs related to involuntary termination of personnel and renegotiated
contracts with certain of TRG's outside consultants. GMPT's share of debt
includes its share of the $93 million of expected costs.
10
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1997
(unaudited)
(in thousands, except unit data)
This unaudited Pro Forma Condensed Consolidated Statement of Operations is
presented as if the GMPT Exchange and certain other significant debt and equity
transactions (see the accompanying Notes and Significant Assumptions) had
occurred on January 1, 1997. In management's opinion, all adjustments necessary
to reflect the effects of these transactions have been made. This unaudited Pro
Forma Condensed Consolidated Statement of Operations is not necessarily
indicative of what actual results of operations would have been had these
transactions been completed as of January 1, 1997, nor does it purport to
represent the results of operations for future periods.
Historical GMPT Exchange(A) Pro Forma Other Pro Forma
---------- ------------- --------- ----- ---------
Revenues $313,426 $(123,777) $189,649 $ 8,810(B) $198,459
Operating Expenses:
Recoverable expenses $ 85,750 $ (36,437) $ 49,313 $ 2,261(B) $ 51,574
Other operating 35,904 (10,972) 24,932 521(B) 25,453
Management, leasing and
development services 4,675 12,853 17,528 17,528
General and administrative 25,715 25,715 25,715
Interest 73,639 (45,605) 28,034 (1,243)(B)(C) 26,791
Depreciation and amortization 44,719 (18,081) 26,638 2,366(B) 29,004
-------- --------- -------- ------- --------
$270,402 $ (98,242) $172,160 $ 3,905 $176,065
-------- --------- -------- ------- --------
Income before equity in
income of Unconsolidated
Joint Ventures $ 43,024 $ (25,535) $ 17,489 $ 4,905 $ 22,394
Equity in income before
extraordinary items of
Unconsolidated Joint
Ventures 52,270 (12,251) 40,019 40,019
-------- --------- -------- ------- --------
Income before extraordinary
items $ 95,294 $ (37,786) $ 57,508 $ 4,905 $ 62,413
Preferred distributions to TCO (4,058) (4,058) (12,542)(C) (16,600)
-------- --------- -------- ------- --------
Income before extraordinary
items allocable to unitholders $ 91,236 $ (37,786) $ 53,450 $(7,637) $ 45,813
======== ========= ======== ======= ========
Income before extraordinary
items per Unit of
Partnership Interest:
Basic $ .66 $ (.05) $ .61 $ (.07) $ .54
======== ========= ======== ======= ========
Diluted $ .66 $ (.06) $ .60 $ (.06) $ .54
======== ========= ======== ======= ========
Weighted average number
of Units of Partnership
Interest outstanding 138,271,014 (50,025,713) 88,245,301 (4,092,416)(C) 84,152,885
=========== =========== ========== ========== ==========
See Accompanying Notes and Significant Assumptions
11
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES AND SIGNIFICANT ASSUMPTIONS
For the Year Ended December 31, 1997
(A) GMPT Exchange
-------------
On September 30, 1998, TRG exchanged interests in 10 shopping centers (nine
wholly owned and one Unconsolidated Joint Venture), together with $990 million
of debt, for all of GMPT's approximately 50 million partnership units. TRG will
continue to manage the centers exchanged under a management agreement with GMPT
that expires December 31, 1999. The management agreement is cancelable with 90
days notice. The estimated gain on the exchange of approximately $1.1 billion,
representing the difference between the fair value of the GMPT units of $675
million, based on the average stock price of $13.50 for the two week period
prior to the closing, and the sum of the net book values of the 10 shopping
centers, the debt assumed by GMPT, and the transaction costs, has been excluded
from TRG's pro forma operations for the year ended December 31, 1997. Included
as pro forma adjustments are the results of operations of the exchanged centers,
interest on debt assumed by GMPT, and the incremental effect of the new
management agreement with GMPT on management, leasing, and development revenues
and expenses.
In anticipation of the GMPT Exchange, TRG used the $1.2 billion proceeds from
two bridge loans bearing interest at one-month LIBOR plus 1.30% to extinguish
approximately $1.1 billion of debt, including substantially all of TRG's public
unsecured debt, its outstanding commercial paper, and borrowings on its existing
lines of credit. The remaining proceeds were used primarily to pay prepayment
premiums and transaction costs. An extraordinary charge of approximately $49
million, consisting primarily of prepayment premiums, was recognized in
connection with the extinguishment of the debt.
The balance on the first bridge loan of $902 million was assumed by GMPT at the
time of the GMPT Exchange. The second loan has a balance of $310 million and
expires in June 1999. TRG has begun the process of obtaining permanent secured
financing to replace the bridge loan. Additionally, TRG has obtained a $200
million line of credit, replacing TRG's previous revolving credit and commercial
paper facilities. TRG has also entered into treasury lock agreements with a
notional amount of $200 million at approximately 5%, plus credit spread.
GMPT's share of debt totaling $990 million includes the $902 million bridge
loan, $86 million representing 50% of the debt on the Joint Venture owned
shopping center, and $1.6 million of assessment bond obligations. The adjustment
to interest expense in the pro forma balance sheet includes the reduction for
interest expense on GMPT's share of debt (excluding the adjustment for interest
expense on the $86 million of Joint Venture debt, which is included in the
adjustment to Equity in income before extraordinary items of Unconsolidated
Joint Ventures), net of additional interest on borrowings for expected
transaction costs, prepayment premiums and restructuring charges totaling $93
million. GMPT's share of debt includes its share of the $93 million of expected
costs.
The average interest rates on both the extinguished debt and the new bridge loan
debt are approximately 7%. A 50 basis point change in the rates assumed would
increase or decrease the pro forma interest expense adjustment by approximately
$0.5 million. The pro forma adjustment to interest expense is not indicative of
future periods as the amount of average debt outstanding in the period is not
equal to debt outstanding on the day of the transaction.
12
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES AND SIGNIFICANT ASSUMPTIONS - continued
For the Year Ended December 31, 1997
Concurrent with the GMPT Exchange, TRG committed to a restructuring of its
operations, including involuntary termination of personnel. TRG also
renegotiated contracts with certain of its outside consultants. The pro forma
income statement excludes any adjustment to general and administrative expense
related to these and future restructuring initiatives, however, TRG expects to
reduce its annual general and administrative expense by approxmiately $10
million by 1999. This is a forward looking statement, and certain significant
factors could cause the actual reductions in TRG's general and administrative
expense to differ materially, including but not limited to: 1) actual payroll
reductions achieved; 2) actual results of negotiations; 3) use of outside
consultants; and, 4) changes in TRG's owned or managed portfolio.
(B) Acquisition of Interest in Regency Square
-----------------------------------------
In September 1997, TRG acquired Regency Square shopping center for approximately
$123.9 million. TRG used floating rate debt to fund the acquisition (average
rate of 7% for the year ended December 31, 1997). The purchase price was
allocated primarily to land and to buildings and site improvements, which are
being depreciated over 40 years and 15 years, respectively. Pro forma revenues
and expenses for the period prior to the acquisition date, other than interest
and depreciation, are based on unaudited information provided by the seller of
the property.
(C) Other Equity Transactions
-------------------------
In October 1997, TCO completed a $200 million public offering of eight million
shares of Series A Preferred Stock. TCO used the proceeds to acquire a Series A
Preferred Equity interest in TRG that entitles TCO to distributions (in the form
of guaranteed payments) in amounts equal to the dividends payable on TCO's
Series A Preferred Stock. The costs of the offering were paid by TRG. TRG used
the net proceeds to pay down short term floating rate debt (average rate of 7%
for the year ended December 31, 1997), which was used to fund the acquisition of
Regency Square in September 1997.
In January 1998, TRG redeemed a partner's 6.1 million units of partnership
interest for approximately $77.7 million (including costs). The redemption was
funded through the use of floating rate debt (average rate of 7% for the year
ended December 31, 1997).
In April 1998, TCO sold approximately 2.0 million shares of its common stock at
$13.1875 per share, before deducting the underwriting commission and expenses of
the offering. TCO used the proceeds to acquire an additional equity interest in
TRG. TRG paid all costs of the offering. Net proceeds of approximately $25
million were used by TRG to pay down short term floating rate debt (average rate
of 7% for the year ended December 31, 1997).
13
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1998
(unaudited)
(in thousands, except unit data)
This unaudited Pro Forma Condensed Consolidated Statement of Operations is
presented as if the GMPT Exchange and certain other significant equity
transactions (see the accompanying Notes and Significant Assumptions) had
occurred on January 1, 1997. In management's opinion, all adjustments necessary
to reflect the effects of these transactions have been made. This unaudited Pro
Forma Condensed Consolidated Statement of Operations is not necessarily
indicative of what actual results of operations would have been had these
transactions been completed as of January 1, 1997, nor does it purport to
represent the results of operations for future periods.
Historical GMPT Exchange(A) Pro Forma Other(B) Pro Forma
---------- ------------- --------- ----- ---------
Revenues $179,234 $(79,252) $ 99,982 $99,982
Operating Expenses:
Recoverable expenses $ 48,422 $(23,107) $ 25,315 $25,315
Other operating 20,365 (6,522) 13,843 13,843
Management, leasing and
development services 2,425 8,068 10,493 10,493
General and administrative 13,605 13,605 13,605
Interest 44,586 (27,881) 16,705 $ (754) 15,951
Depreciation and amortization 28,080 (12,931) 15,149 15,149
-------- -------- -------- ------ -------
$157,483 $(62,373) $ 95,110 $ (754) $94,356
-------- -------- -------- ------ -------
Income before equity in income
of Unconsolidated Joint
Ventures $ 21,751 $(16,879) $ 4,872 $ 754 $ 5,626
Equity in income before
extraordinary items of
Unconsolidated Joint Ventures 24,531 (6,039) 18,492 18,492
-------- -------- -------- ------ -------
Income before extraordinary
items $ 46,282 $(22,918) $ 23,364 $ 754 $24,118
Preferred distributions to TCO (8,300) (8,300) (8,300)
-------- -------- -------- ------ -------
Income before extraordinary
items allocable to unitholders $ 37,982 $(22,918) $ 15,064 $ 754 $15,818
======== ======== ======== ====== =======
Income before extraordinary
items per Unit of
Partnership Interest:
Basic $ .29 $ (.11) $ .18 $ .01 $ .19
======== ======== ======== ====== =======
Diluted $ .28 $ (.10) $ .18 $ .01 $ .19
======== ======== ======== ====== =======
Weighted average number of
Units of Partnership
Interest outstanding 133,140,814 (50,025,713) 83,115,101 1,115,282(B) 84,230,383
=========== =========== ========== ========= ==========
See Accompanying Notes and Significant Assumptions
14
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES AND SIGNIFICANT ASSUMPTIONS
For the Six Months Ended June 30, 1998
(A) GMPT Exchange
-------------
On September 30, 1998, TRG exchanged interests in 10 shopping centers (nine
wholly owned and one Unconsolidated Joint Venture), together with $990 million
of debt, for all of GMPT's approximately 50 million partnership units. TRG will
continue to manage the centers exchanged under a management agreement with GMPT
that expires December 31, 1999. The management agreement is cancelable with 90
days notice. The estimated gain on the exchange of approximately $1.1 billion,
representing the difference between the fair value of the GMPT units of $675
million, based on the average stock price of $13.50 for the two week period
prior to the closing, and the sum of the net book values of the 10 shopping
centers, the debt assumed by GMPT, and the transaction costs, has been excluded
from TRG's pro forma operations for the six months ended June 30, 1998. Included
as pro forma adjustments are the results of operations of the exchanged centers,
including interest on debt assumed by GMPT, and the incremental effect of the
new management agreement with GMPT on management, leasing, and development
revenues and expenses.
In anticipation of the GMPT Exchange, TRG used the $1.2 billion proceeds from
two bridge loans bearing interest at one-month LIBOR plus 1.30% to extinguish
approximately $1.1 billion of debt, including substantially all of TRG's public
unsecured debt, its outstanding commercial paper, and borrowings on its existing
lines of credit. The remaining proceeds were used primarily to pay prepayment
premiums and transaction costs. An extraordinary charge of approximately $49
million, consisting primarily of prepayment premiums, was recognized in
connection with the extinguishment of the debt.
The balance on the first bridge loan of $902 million was assumed by GMPT at the
time of the GMPT Exchange. The second loan has a balance of $310 million and
expires in June 1999. TRG has begun the process of obtaining permanent secured
financing to replace the bridge loan. Additionally, TRG has obtained a $200
million line of credit, replacing TRG's previous revolving credit and commercial
paper facilities. TRG has also entered into treasury lock agreements with a
notional amount of $200 million at approximately 5%, plus credit spread.
GMPT's share of debt totaling $990 million includes the $902 million bridge
loan, $86 million representing 50% of the debt on the Joint Venture owned
shopping center, and $1.6 million of assessment bond obligations. The adjustment
to interest expense in the pro forma balance sheet includes the reduction for
interest expense on GMPT's share of debt (excluding the adjustment for interest
expense on the $86 million of Joint Venture debt, which is included in the
adjustment to Equity in income before extraordinary items of Unconsolidated
Joint Ventures), net of additional interest on borrowings for expected
transaction costs, prepayment premiums and restructuring charges totaling $93
million. GMPT's share of debt includes its share of the $93 million of expected
costs.
The average interest rates on both the extinguished debt and the new bridge loan
debt are approximately 7%. A 50 basis point change in the rates assumed would
increase or decrease the pro forma interest expense adjustment by approximately
$0.5 million. The pro forma adjustment to interest expense is not indicative of
future periods as the amount of average debt outstanding in the period is not
equal to debt outstanding on the day of the transaction.
15
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES AND SIGNIFICANT ASSUMPTIONS - continued
For the Six Months Ended June 30, 1998
Concurrent with the GMPT Exchange, TRG committed to a restructuring of its
operations, including involuntary termination of personnel. TRG also
renegotiated contracts with certain of its outside consultants. The pro forma
income statement excludes any adjustment to general and administrative expense
related to these and future restructuring initiatives, however, TRG expects to
reduce its annual general and administrative expense by approximately $10
million by 1999. This is a forward looking statement, and certain significant
factors could cause the actual reductions in TRG's general and administrative
expense to differ materially, including but not limited to: 1) actual payroll
reductions achieved; 2) actual results of negotiations; 3) use of outside
consultants; and 4) changes in TRG's owned or managed portfolio.
(B) Other Equity Transactions
-------------------------
In January 1998, TRG redeemed a partner's 6.1 million units of partnership
interest for approximately $77.7 million (including costs). The redemption was
funded through the use of floating rate debt (average rate of 7% for the six
months ended June 30, 1998). In April 1998, TCO sold approximately 2.0 million
shares of its common stock at $13.1875 per share, before deducting the
underwriting commission and expenses of the offering. TCO used the proceeds to
acquire an additional equity interest in TRG. TRG paid all costs of the
offering. Net proceeds of approximately $25 million were used by TRG to pay down
short term floating rate debt (average rate of 7% for the six months ended June
30, 1998).
16
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: October 15, 1998 By: /s/ Lisa A. Payne
-----------------------
Lisa A. Payne
Executive Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit Number Description
2 Separation and Relative Value Adjustment
Agreement between The Taubman Realty Group
Limited Partnership and GMPTS Limited
Partnership (without exhibits or schedules,
which will be supplementally provided to the
Securities and Exchange Commission upon its
request.)
17