SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: June 30, 1998
Commission File No. 1-11530
Taubman Centers, Inc.
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(Exact name of registrant as specified in its charter)
Michigan 38-2033632
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Long Lake Road, Suite 300, P.O. Box 200, Bloomfield Hills, Michigan
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(Address of principal executive offices) 48303-0200
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(Zip Code)
(248) 258-6800
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
------- ------
As of November 12, 1998, there were outstanding 52,922,823 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 September 30, 1998 and December 31, 1997................. 2
Statement of Operations for the three months ended
September 30, 1998 and 1997................................................. 3
Statement of Operations for the nine months ended
September 30, 1998 and 1997................................................. 4
Statement of Cash Flows for the nine months ended
September 30, 1998 and 1997................................................. 5
Notes to Financial Statements................................................ 6
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
- --------------------------------------------
Consolidated Balance Sheet as of September 30, 1998 and December 31, 1997.... 12
Consolidated Statement of Operations for the three months ended
September 30, 1998 and 1997................................................. 13
Consolidated Statement of Operations for the nine months ended
September 30, 1998 and 1997................................................. 14
Consolidated Statement of Cash Flows for the nine months ended
September 30, 1998 and 1997................................................. 15
Notes to Consolidated Financial Statements................................... 16
- 1 -
TAUBMAN CENTERS, INC.
BALANCE SHEET
(in thousands, except share data)
September 30 December 31
------------ -----------
1998 1997
---- ----
Assets:
Investment in TRG (Notes 1 and 2):
Partnership interest $ 347,859
Series A Preferred Equity interest 200,000
---------
$ 547,859
Properties, net of accumulated
depreciation and amortization of $167,259 $1,204,531
Investment in Unconsolidated Joint Ventures 96,067
Cash and cash equivalents 33,804 8,965
Accounts and notes receivable, less
allowance for doubtful accounts of $386 14,249
Accounts receivable from related parties 8,428
Deferred charges and other assets 21,302
---------- ---------
$1,378,381 $ 556,824
========== =========
Liabilities:
Unsecured notes payable $ 441,496
Mortgage notes payable 241,969
Accounts payable and accrued liabilities 155,144 $ 277
Dividends payable 12,435 11,929
---------- ---------
$ 851,044 $ 12,206
Commitments and Contingencies (Note 3)
Minority Interests (Note 1)
Shareowners' Equity (Notes 3 and 4):
Series A Cumulative Redeemable Preferred
Stock, $0.01 par value, 50,000,000 shares
authorized, $200 million liquidation
preference, 8,000,000 shares issued and
outstanding at September 30, 1998
and December 31, 1997 $ 80 $ 80
Series B Non-Participating Convertible
Preferred Stock, $0.001 par and liquidation
value, 40,000,000 shares authorized at
September 30, 1998, none issued
Common Stock, $0.01 par value, 250,000,000
shares authorized, 52,916,896 and 50,759,657
issued and outstanding at September 30, 1998
and December 31, 1997 529 508
Additional paid-in capital 697,088 668,951
Dividends in excess of net income (170,360) (124,921)
---------- ---------
$ 527,337 $ 544,618
---------- ---------
$1,378,381 $ 556,824
========== =========
See notes to financial statements.
- 2 -
TAUBMAN CENTERS, INC.
STATEMENT OF OPERATIONS
(in thousands, except share data)
Three Months Ended September 30
-------------------------------
1998 1997
---- ----
Income:
Income before extraordinary item from
investment in TRG (Note 2):
Equity in TRG's income before extraordinary
item allocable to partnership unitholders $ 1,567 $ 6,408
Series A Preferred Equity interest in TRG 4,150
Interest and other 100 78
-------- -------
$ 5,817 $ 6,486
-------- -------
Operating Expenses:
General and administrative $ 182 $ 210
Management fee 62 62
-------- -------
$ 244 $ 272
-------- -------
Income before extraordinary item $ 5,573 $ 6,214
Equity in TRG's extraordinary item (Note 2) (19,699)
-------- -------
Net income (loss) $(14,126) $ 6,214
Preferred dividends (4,150)
-------- -------
Net income (loss) available to common
shareowners $(18,276) $ 6,214
======== =======
Basic earnings per common share:
Income before extraordinary item $ .03 $ .12
======== =======
Net income (loss) $ (.35) $ .12
======== =======
Diluted earnings per common share:
Income before extraordinary item $ .03 $ .12
======== =======
Net income (loss) $ (.34) $ .12
======== =======
Cash dividends declared per common share $ .235 $ .23
======== =======
Weighted average number of common
shares outstanding 52,899,013 50,745,241
========== ==========
See notes to financial statements.
- 3 -
TAUBMAN CENTERS, INC.
STATEMENT OF OPERATIONS
(in thousands, except share data)
Nine Months Ended September 30
------------------------------
1998 1997
---- ----
Income:
Income before extraordinary items
from investment in TRG (Note 2):
Equity in TRG's income before extraordinary
items allocable to partnership unitholders $ 11,910 $ 19,102
Series A Preferred Equity interest in TRG 12,450
Interest and other 295 229
-------- --------
$ 24,655 $ 19,331
Operating Expenses:
General and administrative $ 582 $ 591
Management fee 187 187
-------- --------
$ 769 $ 778
-------- --------
Income before extraordinary items $ 23,886 $ 18,553
Equity in TRG's extraordinary items (Note 2) (20,066)
-------- --------
Net income $ 3,820 $ 18,553
Preferred dividends (12,450)
-------- --------
Net income (loss) available to common shareowners $ (8,630) $ 18,553
======== ========
Basic earnings per common share:
Income before extraordinary items $ .22 $ .37
======== ========
Net income (loss) $ (.17) $ .37
======== ========
Diluted earnings per common share:
Income before extraordinary items $ .22 $ .36
======== ========
Net income (loss) $ (.17) $ .36
======== ========
Cash dividends declared per common share $ .705 $ .69
======== ========
Weighted average number of common
shares outstanding 51,949,256 50,730,179
========== ==========
See notes to financial statements.
- 4 -
TAUBMAN CENTERS, INC.
STATEMENT OF CASH FLOWS
(in thousands)
Nine Months Ended September 30
------------------------------
1998 1997
---- ----
Cash Flows From Operating Activities:
Income before extraordinary items $ 23,886 $ 18,553
Adjustments to reconcile income before
extraordinary items to net cash provided
by operating activities:
Increase in accounts payable
and other liabilities 136 26
Increase in other assets (49) (37)
-------- --------
Net Cash From Operating Activities $ 23,973 $ 18,542
-------- --------
Cash Flows Provided by Investing Activities:
Purchase of additional interest in TRG $(26,660)
Distributions from TRG in excess of income
before extraordinary items 25,360 $ 16,147
-------- --------
Net Cash Provided By (Used In)
Investing Activities $ (1,300) $ 16,147
-------- --------
Cash Flows From Financing Activities:
Cash dividends to common shareowners $(36,303) $(35,001)
Cash dividends to preferred shareowners (12,450)
Proceeds from stock issuance 26,660
-------- --------
Net Cash Used in Financing Activities $(22,093) $(35,001)
-------- --------
Net Increase (Decrease) In Cash $ 580 $ (312)
Cash and Cash Equivalents at Beginning of Period 8,965 9,388
Effect of consolidating TRG in connection
with the GMPT Exchange (see below) 24,259
-------- --------
Cash and Cash Equivalents at End of Period $ 33,804 $ 9,076
======== ========
On September 30, 1998, the Company obtained a majority and controlling
interest in TRG as a result of the GMPT Exchange (Note 1). Upon obtaining this
controlling interest, the Company consolidated the financial position of TRG,
its investment in which the Company had previously presented under the equity
method. In replacing the Company's investment in TRG with its underlying assets
and liabilities, the Company's consolidated cash position increased by TRG's
September 30, 1998 cash balance of $24.3 million. This amount is presented above
in the reconciliation between beginning and ending cash balances.
See notes to financial statements.
- 5 -
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
Nine months ended September 30, 1998
Note 1 -Organization and Basis of Presentation
Taubman Centers, Inc. (the Company) is the managing general partner of The
Taubman Realty Group Limited Partnership (TRG), which engages in the ownership,
management, leasing, acquisition, development, and expansion of regional retail
shopping centers and interests therein. On September 30, 1998, the Company
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) (Note 2). As a result of the GMPT Exchange, the Company's general
partnership interest in TRG increased to 62.8%.
The consolidated balance sheet of the Company as of September 30, 1998
includes all accounts of TRG and its consolidated subsidiaries; all intercompany
balances have been eliminated. Investments in entities not unilaterally
controlled by ownership or contractual obligation (Unconsolidated Joint
Ventures) are accounted for under the equity method. As the net equity of TRG as
of September 30, 1998 is less than zero, the ownership interest of the
noncontrolling TRG partners (the Minority Interest) is presented as a zero
balance. As the Company's obtaining of a controlling ownership interest did not
occur until September 30, 1998, the balance sheet as of December 31, 1997 and
the statements of operations and cash flows of the Company reflect the financial
position and results of operations of TRG under the equity method.
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, 1997. In the opinion
of management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial statements for the interim
periods have been made. The results of interim periods are not necessarily
indicative of the results for a full year.
Note 2 - Investment in TRG
The Company's ownership in TRG at September 30, 1998 and December 31, 1997
consisted of a 62.8% and 36.70% managing general partnership interest, as well
as a preferred equity interest. Net income and distributions are allocable first
to the preferred equity interest, and the remaining amounts to the general and
limited TRG partners generally in accordance with their percentage ownership.
The Company's average ownership percentage in TRG for the three months ended
September 30, 1998 and 1997 was 39.54% and 36.69%, respectively. The Company's
average ownership percentage in TRG for the nine months ended September 30, 1998
and 1997 was 38.96% and 36.69%, respectively.
At September 30, 1998, the excess of the Company's cost of its investment in
TRG over the Company's share of TRG's accumulated partners' deficit was $390.4
million, of which $176.6 million and $213.8 million has been allocated to the
Company's bases in TRG's properties and investment in Unconsolidated Joint
Ventures, respectively. The excess of the Company's cost of its investment in
TRG partnership units over its proportionate share of TRG's accumulated
partners' deficit at December 31, 1997 was $468.4 million.
- 6 -
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS-- (Continued)
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 the
Company's shares of $13.50 for the two week period prior to the closing). 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 amount of debt allocated to GMPT is subject to a working
capital adjustment, which is expected to be settled in the fourth quarter. A
gain of $1.1 billion on the exchange was recognized by TRG, 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, the estimated
working capital adjustment, and transaction costs. The Company did not recognize
a share of this gain because the transaction was an exchange between the owners
of TRG.
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 $49.8
million, consisting primarily of prepayment premiums, was incurred in connection
with the extinguishment of the debt.
The balance on the first bridge loan of $902 million was assumed by GMPT in
connection with the GMPT Exchange. The second loan had a balance of $310 million
as of September 30, 1998. This loan has a maximum borrowing capacity of $430
million and expires in June 1999. TRG expects to refinance the balance on the
bridge loan during the first half of 1999. Additionally, TRG has obtained a $200
million line of credit, replacing TRG's previous revolving credit and commercial
paper facilities. The line of credit expires in September 2001.
During the nine months ended September 30, 1998, the Company's ownership of
TRG also increased due to the following transactions. In January 1998, TRG
redeemed 6.1 million units of partnership interest from a partner. In April
1998, the Company 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 the Company's shelf registration statement. The Company used
the proceeds to acquire an additional equity interest in TRG. TRG paid all costs
of the offering. Net proceeds of approximately $25 million were used by TRG for
general partnership purposes. Also, the Company exchanged 0.1 million shares of
common stock for an equal number of TRG partnership units issued in connection
with the exercise of incentive options, pursuant to the Company's Continuing
Offer (Note 3).
The Company's income from its investment in TRG included $4.2 million and
$12.5 million for the three and nine months ended September 30, 1998,
respectively, from its Series A Preferred Equity interest in TRG. The Company's
share of TRG's income before extraordinary item available to partnership
unitholders for the three months ended September 30, 1998 and 1997 was $3.9
million and $8.5 million, respectively, reduced by $2.3 million and $2.0
million, respectively, representing adjustments arising from the Company's
additional basis in TRG's net assets. The Company's share of TRG's income before
extraordinary items available to partnership unitholders for the nine months
ended September 30, 1998 and 1997 was $18.6 million and $25.2 million,
respectively, reduced by $6.7 million and $6.1 million, respectively,
representing adjustments arising form the Company's additional basis in TRG's
net assets. For the 1998 periods, the Company's share of TRG's income before
extraordinary items includes $4.2 million related to the loss on TRG's
restructuring which occurred concurrently with the GMPT Exchange.
- 7 -
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS-- (Continued)
During the first quarter of 1998, TRG recognized an extraordinary charge of
$1.0 million relating to the extinguishment of debt by one of its joint
ventures. The Company's share of TRG's extraordinary item was $0.4 million.
During the third quarter of 1998, TRG recognized an extraordinary charge of
$49.8 million relating to debt extinguished in anticipation of the GMPT
Exchange, of which the Company's share was $19.7 million.
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
Unconsolidated Joint Ventures. The Company's balances of Properties and
Investment in Unconsolidated Joint Ventures differ from the corresponding
amounts presented in TRG's summarized balance sheet due to the Company's
additional basis in these assets.
September 30 December 31
------------ -----------
1998 1997
---- ----
Assets:
Properties $1,173,232 $1,593,350
Accumulated depreciation
and amortization 145,256 268,658
---------- ----------
$1,027,976 $1,324,692
Other assets 68,189 72,134
---------- ----------
$1,096,165 $1,396,826
========== ==========
Liabilities:
Unsecured notes payable $ 441,496 $1,008,459
Mortgage notes payable 241,969 275,868
Accounts payable and other liabilities 154,731 106,404
Distributions in excess of net income of
Unconsolidated Joint Ventures 117,736 141,815
---------- ----------
$ 955,932 $1,532,546
Partnership Equity:
Series A Preferred Equity 192,840 192,840
Partners' Accumulated Deficit (52,607) (328,560)
---------- ----------
$1,096,165 $1,396,826
========== ==========
- 8 -
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS-- (Continued)
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues excluding GMPT
Exchange gain $ 90,932 $ 78,037 $ 270,166 $223,961
Gain on GMPT Exchange 1,090,159 1,090,159
---------- -------- ---------- --------
$1,181,091 $ 78,037 $1,360,325 $223,961
---------- -------- ---------- --------
Operating costs other than
interest and depreciation
and amortization $ 53,942 $ 36,763 $ 138,759 $108,651
Interest expense 22,076 19,388 66,662 54,002
Depreciation and amortization 14,788 11,050 42,868 31,386
---------- -------- ---------- --------
$ 90,806 $ 67,201 $ 248,289 $194,039
---------- -------- ---------- --------
Equity in income before
extraordinary item of
Unconsolidated Joint Ventures 13,818 12,205 38,349 38,873
---------- -------- ---------- --------
Income before extraordinary items $1,104,103 $ 23,041 $1,150,385 $ 68,795
Extraordinary items (49,817) (50,774)
---------- -------- ---------- --------
Net income $1,054,286 $ 23,041 $1,099,611 $ 68,795
Preferred distributions (4,150) (12,450)
---------- -------- ---------- --------
Net income available to
unitholders $1,050,136 $ 23,041 $1,087,161 $ 68,795
========== ======== ========== ========
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
TRG's beneficial interest
in Unconsolidated Joint
Ventures' operations:
Revenues less recoverable
and other operating expenses $ 28,036 $ 23,187 $ 79,902 $ 68,503
Interest expense (9,820) (7,491) (28,731) (20,720)
Depreciation and amortization (4,398) (3,491) (12,822) (8,910)
-------- -------- --------- --------
Income before extraordinary item $ 13,818 $ 12,205 $ 38,349 $ 38,873
======== ======== ======== ========
Note 3 - Commitments and Contingencies
At the time of the Company's initial public offering (IPO) and acquisition of
its partnership interest in TRG, the Company entered into an agreement with A.
Alfred Taubman, who owns an interest in TRG, whereby he 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 partner will bear all market risk if the market price at closing is
less than the purchase price and 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.
- 9 -
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS-- (Continued)
Based on a market value at September 30, 1998 of $14.00 per common share, the
aggregate value of interests in TRG which may be tendered under the Cash Tender
Agreement was approximately $333 million. The purchase of these interests at
September 30, 1998 would have resulted in the Company owning an additional 28%
interest in TRG.
The Company has made a continuing, irrevocable offer to all present holders
(other than certain excluded holders, including A. Alfred Taubman), assignees of
all present holders, those future holders of partnership interests in TRG as the
Company may, in its sole discretion, 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). Under the Continuing Offer agreement, one unit of
TRG partnership interest is exchangeable for one share of the Company's common
stock.
Shares of common stock that were acquired by GMPT and the AT&T Master Pension
Trust in connection with the IPO may be sold through a registered offering.
Pursuant to a registration rights agreement with the Company, the owners of each
of these shares have 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). 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, options for 8.1 million units of partnership interest may be issued
under TRG's incentive option plan for employees of The Taubman Company Limited
Partnership (the Manager), of which options for 6.9 million units are
outstanding. 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 options
outstanding was equal to market value on the date of the grant. Incentive
options generally vest to the extent of one-third of the units on each of the
third, fourth and fifth anniversaries of the date of grant. Options expire ten
years from the date of grant. During the nine months ended September 30, 1998,
options for 0.1 million units were exercised at a weighted average price of
$11.04 per unit. There were no grants during the nine months ended September 30,
1998. As of September 30, 1998, there were options outstanding for 6.9 million
units with a weighted average exercise price of $11.22 per unit, of which
options for 6.1 million units were vested with a weighted average exercise price
of $11.29 per unit.
Note 4 - Series B Preferred Stock
In connection with the GMPT Exchange, the Company became obligated to issue to
the partners in TRG other than the Company (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. The Company expects to have completed the initial issuance of Series B
Preferred Stock to the Minority Partners before the end of 1998. Each share of
Series B Preferred Stock entitles the holder to one vote on all matters
submitted to the Company'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 the Company. 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.
- 10 -
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS-- (Continued)
Note 5 - Earnings Per Share
Basic earnings per common share are calculated by dividing earnings available
to common shareowners by the average number of common shares outstanding during
each period. For diluted earnings per common share, the Company's ownership
interest in TRG (and therefore earnings) is adjusted assuming the exercise of
all options for units of partnership interest under TRG's incentive option plan
having exercise prices less than the average market value of the units using the
treasury stock method. For the three months ended September 30, 1998 and 1997,
options for 0.2 million and 0.4 million units of partnership interest with
average exercise prices of $13.89 and $13.58, respectively, were excluded from
the computation of diluted earnings per share because the exercise prices were
greater than the average market price for the period calculated. For the nine
months ended September 30, 1998 and 1997, options for 0.3 million and 0.4
million units of partnership interest with average exercise prices of $13.79 and
13.68, respectively, were excluded from the computation of diluted earnings per
share because the exercise prices were greater than the average market price for
the period calculated.
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands, except share data)
Income before extraordinary
items allocable to common
shareowners (Numerator):
Basic income before
extraordinary items $ 1,423 $ 6,214 $ 11,436 $ 18,553
Effect of dilutive options (35) (58) (157) (194)
-------- -------- -------- --------
Diluted income before
extraordinary items $ 1,388 $ 6,156 $ 11,279 $ 18,359
======== ======== ======== ========
Shares (Denominator) -
basic and diluted 52,899,013 50,745,241 51,949,256 50,730,179
Income before extraordinary
items per common share:
Basic $ .03 $ .12 $ .22 $ .37
===== ===== ===== =====
Diluted $ .03 $ .12 $ .22 $ .36
===== ===== ===== =====
- 11 -
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands)
September 30 December 31
------------ -----------
1998 1997
---- ----
Assets:
Properties $1,173,232 $1,593,350
Accumulated depreciation
and amortization 145,256 268,658
---------- ----------
$1,027,976 $1,324,692
Cash and cash equivalents 24,259 3,250
Accounts and notes receivable, less
allowance for doubtful accounts of
$386 and $414 in 1998 and 1997 14,249 17,803
Accounts receivable from related parties 8,428 7,400
Deferred charges and other assets 21,253 43,681
---------- ----------
$1,096,165 $1,396,826
========== ==========
Liabilities:
Unsecured notes payable $ 441,496 $1,008,459
Mortgage notes payable 241,969 275,868
Accounts payable and other liabilities 154,731 106,404
Distributions in excess of net income of
Unconsolidated Joint Ventures (Note 4) 117,736 141,815
---------- ----------
$ 955,932 $1,532,546
Commitments and Contingencies (Note 6)
Partnership Equity:
Series A Preferred Equity 192,840 192,840
Partners' Accumulated Deficit (52,607) (328,560)
---------- ----------
140,233 (135,720)
---------- ----------
$1,096,165 $1,396,826
========== ==========
Allocation of Partners' Accumulated Deficit:
General Partners $ (36,965) $ (254,474)
Limited Partners (15,642) (74,086)
---------- ----------
$ (52,607) $ (328,560)
========== ==========
See notes to financial statements.
- 12 -
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except units data)
Three Months Ended September 30
-------------------------------
1998 1997
---- ----
Revenues:
Minimum rents $ 52,021 $ 45,140
Percentage rents 2,008 1,867
Expense recoveries 28,339 24,476
Other 6,676 4,379
Revenues from management, leasing
and development services 1,888 2,175
Gain on GMPT Exchange (Note 2) 1,090,159
---------- ---------
$1,181,091 $ 78,037
---------- ---------
Operating Costs:
Recoverable expenses $ 25,994 $ 20,932
Other operating 11,027 7,980
Management, leasing and
development services 1,111 1,264
General and administrative 5,112 6,587
Restructuring (Note 2) 10,698
Interest expense 22,076 19,388
Depreciation and amortization 14,788 11,050
---------- ---------
$ 90,806 $ 67,201
---------- ---------
Income before equity in net income
of Unconsolidated Joint Ventures
and extraordinary item $1,090,285 $ 10,836
Equity in net income of Unconsolidated
Joint Ventures (Note 4) 13,818 12,205
---------- ---------
Income before extraordinary item $1,104,103 $ 23,041
Extraordinary item (Note 2) (49,817)
---------- ---------
Net income $1,054,286 $ 23,041
Preferred distributions to TCO (4,150)
---------- ---------
Net income available to unitholders $1,050,136 $ 23,041
========== =========
Allocation of net income to unitholders:
General Partners $ 985,981 $ 17,845
Limited Partners 64,155 5,196
---------- ---------
$1,050,136 $ 23,041
========== =========
Basic earnings per Unit of Partnership
Interest (Note 7):
Income before extraordinary item $ 8.22 $ .17
========== =========
Net income $ 7.85 $ .17
========== =========
Diluted earnings per Unit of Partnership
Interest (Note 7):
Income before extraordinary item $ 8.15 $ .17
========== =========
Net income $ 7.78 $ .17
========== =========
Weighted Average Number of Units of
Partnership Interest Outstanding 133,775,064 138,277,110
=========== ===========
See notes to financial statements.
- 13 -
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except units data)
Nine Months Ended September 30
------------------------------
1998 1997
---- ----
Revenues:
Minimum rents $ 155,860 $ 130,406
Percentage rents 5,219 5,030
Expense recoveries 84,787 70,661
Other 18,510 11,384
Revenues from management, leasing
and development services 5,790 6,480
Gain on GMPT Exchange (Note 2) 1,090,159
---------- ---------
$1,360,325 $ 223,961
---------- ---------
Operating Costs:
Recoverable expenses $ 74,416 $ 60,223
Other operating 31,392 26,218
Management, leasing and
development services 3,536 3,553
General and administrative 18,717 18,657
Restructuring (Note 2) 10,698
Interest expense 66,662 54,002
Depreciation and amortization 42,868 31,386
---------- ---------
$ 248,289 $ 194,039
---------- ---------
Income before equity in income before
extraordinary item of Unconsolidated
Joint Ventures and extraordinary items $1,112,036 $ 29,922
Equity in income before extraordinary item
of Unconsolidated Joint Ventures (Note 4) 38,349 38,873
---------- ---------
Income before extraordinary items $1,150,385 $ 68,795
Extraordinary items (Note 2) (50,774)
---------- ---------
Net Income $1,099,611 $ 68,795
Preferred distributions to TCO (12,450)
---------- ---------
Net income available to unitholders $1,087,161 $ 68,795
========== =========
Allocation of net income available
to unitholders:
General Partners $1,016,042 $ 53,278
Limited Partners 71,119 15,517
---------- ---------
$1,087,161 $ 68,795
========== =========
Basic earnings per Unit of Partnership
Interest (Note 7):
Income before extraordinary items $ 8.53 $ .50
========== =========
Net income $ 8.15 $ .50
========== =========
Diluted earnings per Unit of Partnership
Interest (Note 7):
Income before extraordinary items $ 8.46 $ .49
========== =========
Net income $ 8.08 $ .49
========== =========
Weighted Average Number of Units of
Partnership Interest Outstanding 133,354,554 138,261,847
=========== ===========
See notes to financial statements.
- 14 -
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Nine Months Ended September 30
------------------------------
1998 1997
---- ----
Cash Flows From Operating Activities:
Income before extraordinary items $ 1,150,385 $ 68,795
Adjustments to reconcile income before
extraordinary items to net cash
provided by operating activities:
Depreciation and amortization 42,868 31,386
Provision for losses on accounts receivable 1,077 828
Amortization of deferred financing costs 2,129 1,740
Other 621 468
Gains on sales of land (2,905) (880)
Gain on GMPT Exchange (1,090,159)
Increase (decrease) in cash attributable
to changes in assets and liabilities:
Receivables, deferred charges and
other assets (8,602) (6,129)
Accounts payable and other liabilities 43,447 30,375
----------- ---------
Net Cash Provided By Operating Activities $ 138,861 $ 126,583
----------- ---------
Cash Flows From Investing Activities:
Purchase of interests in Centers $(124,783)
Additions to properties $ (228,015) (105,947)
Proceeds from sales of land 4,302 1,795
Contributions to Unconsolidated Joint Ventures (29,140) (12,573)
Distributions from Unconsolidated Joint Ventures
in excess of income before extraordinary item 52,076 14,777
----------- ---------
Net Cash Used In Investing Activities $ (200,777) $(226,731)
=========== =========
Cash Flows From Financing Activities:
Debt proceeds $ 1,558,716 $ 243,991
Debt payments (130,913) (54,544)
Early extinguishment of debt (1,167,746)
Debt issuance costs (2,790) (382)
Redemption of partnership units (77,698)
GMPT Exchange costs (15,177)
Equity offering 25,160
Issuance of units of partnership interest 1,498 414
Cash distributions to partnership unitholders (95,675) (96,065)
Cash distributions to TCO for Series A
Preferred Equity interest (12,450)
----------- ---------
Net Cash Provided By Financing Activities $ 82,925 $ 93,414
----------- ---------
Net Increase (Decrease) In Cash $ 21,009 $ (6,734)
Cash and Cash Equivalents at Beginning of Period 3,250 7,912
----------- ---------
Cash and Cash Equivalents at End of Period $ 24,259 $ 1,178
=========== =========
Interest on mortgage notes and other loans paid during the nine months ended
September 30, 1998 and 1997, net of amounts capitalized of $12,830 and $6,798,
was $69,077 and $39,149, respectively.
See notes to financial statements.
- 15 -
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 1998
Note 1 - Interim Financial Statements
The Taubman Realty Group Limited Partnership (TRG) engages in the ownership,
management, leasing, acquisition, development, and expansion of regional retail
shopping centers (Taubman Shopping Centers) and interests therein. Taubman
Centers, Inc. (TCO) is the managing general partner of TRG. Other general
partners include TG Partners Limited Partnership, Taub-Co Management, Inc., and,
prior to September 30, 1998, General Motors Pension Trusts (GMPT).
The unaudited interim financial statements should be read in conjunction with
the audited financial statements and related notes included in TRG's Annual
Report on Form 10-K for the year ended December 31, 1997. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial statements for the interim
periods have been made. The results for interim periods are not necessarily
indicative of the results for a full year.
Certain prior year amounts have been reclassified to conform to 1998
classifications.
Note 2 - The GMPT Exchange and Related Transactions
On September 30, 1998, TRG exchanged interests in 10 shopping centers (nine
wholly owned (Briarwood, Columbus City Center, The Falls, Hilltop, Lakeforest,
Marley Station, Meadowood Mall, Stoneridge, and The Mall at Tuttle Crossing) and
one Unconsolidated Joint Venture (Woodfield)), together with $990 million of
debt, for all of the partnership units of GMPT (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 GMPT
Exchange). 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 amount of debt allocated to GMPT is subject
to a working capital adjustment, which is expected to be settled in the fourth
quarter. A gain of $1.1 billion on the exchange was recognized, 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, the estimated
working capital adjustment, and transaction costs.
During the three and nine months ended September 30, 1998, the exchanged
centers contributed $25.8 million and $75.1 million to TRG's net income,
respectively. During the three and nine months ended September 30, 1997, the
exchanged centers contributed $20.6 million and $57.8 million to TRG's net
income, respectively.
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 $49.8
million, consisting primarily of prepayment premiums, was incurred in connection
with the extinguishment of the debt.
- 16 -
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The balance on the first bridge loan of $902 million was assumed by GMPT in
connection with the GMPT Exchange. The second loan had a balance of $310 million
as of September 30, 1998. This loan has a maximum capacity of $430 million and
expires in June 1999. TRG expects to refinance the balance on the bridge loan
during the first half of 1999. Additionally, TRG has obtained a $200 million
line of credit, replacing TRG's previous revolving credit and commercial paper
facilities. The line of credit expires in September 2001. TRG entered into
treasury lock agreements with a notional amount of $200 million at approximately
5%, plus credit spread. In October 1998, TRG effectively closed out its position
in the treasury locks at a cost of approximately $4 million, which will be
deferred and amortized over the term of the anticipated new debt.
Concurrent with the GMPT Exchange, TRG committed to a restructuring of its
operations. TRG recognized a restructuring charge of $10.7 million, primarily
representing the cost of certain involuntary terminations of personnel.
Note 3 - 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 an existing revolving credit facility.
In April 1998, TCO sold approximately 2.0 million shares of its common stock
at $13.1875 per share, before deducting the underwriting commission and expenses
of the offering, under TCO's shelf registration statement. TCO used the proceeds
to acquire an additional equity interest in TRG. TRG paid all costs of the
offering. Net proceeds of approximately $25 million were used by TRG for general
partnership purposes.
Note 4 - Investments in Unconsolidated Joint Ventures
Following are TRG's investments in various real estate Unconsolidated Joint
Ventures which own regional retail shopping centers. TRG is generally the
managing general partner of these Unconsolidated Joint Ventures. TRG's interest
in each Unconsolidated Joint Venture is as follows:
TRG's %
Ownership
as of
Unconsolidated Joint Venture Taubman Shopping Center September 30, 1998
---------------------------- ----------------------- ------------------
Arizona Mills, L.L.C. Arizona Mills 37%
Fairfax Company of Virginia L.L.C. Fair Oaks 50
Lakeside Mall Limited Partnership Lakeside 50
Rich-Taubman Associates Stamford Town Center 50
Taubman-Cherry Creek
Limited Partnership Cherry Creek 50
Twelve Oaks Mall Limited Partnership Twelve Oaks Mall 50
West Farms Associates Westfarms 79
Woodland Woodland 50
- 17 -
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In March 1998, Fairfax Company of Virginia L.L.C. completed a $140 million,
6.60%, secured financing maturing in 2008. The net proceeds were used to
extinguish an existing mortgage on Fair Oaks of approximately $39 million and
pay a prepayment penalty of approximately $1.8 million. In addition, proceeds of
$5.6 million were used to close out a treasury lock agreement entered into in
1997, which resulted in an effective rate on the financing of approximately 7%.
The remaining proceeds were distributed to the owners. TRG used its 50% share of
the distributions to pay down its revolving credit facilities. TRG recognized an
extraordinary charge of approximately $1.0 million on the extinguishment of the
Fair Oaks mortgage.
TRG reduces its investment in Unconsolidated Joint Ventures to eliminate
intercompany profits on sales of services that are capitalized by the
Unconsolidated Joint Ventures. As a result, the carrying value of TRG's
investment in Unconsolidated Joint Ventures is less than TRG's share of the
deficiency in assets reported in the combined balance sheet of the
Unconsolidated Joint Ventures by approximately $5.7 million and $8.1 million at
September 30, 1998 and December 31, 1997, respectively. These differences are
amortized over the useful lives of the related assets.
Combined balance sheet and results of operations information are presented
below (in thousands) for all Unconsolidated Joint Ventures, followed by TRG's
beneficial interest in the combined information. Beneficial interest is
calculated based on TRG's ownership interest in each of the Unconsolidated Joint
Ventures.
September 30 December 31
------------ -----------
1998 1997
---- ----
Assets:
Properties, net $ 564,064 $ 623,981
Other assets 62,209 84,397
--------- ---------
$ 626,273 $ 708,378
========= =========
Liabilities and partners'
accumulated deficiency in assets:
Debt $ 825,311 $ 875,356
Capital lease obligations 5,574 6,509
Other liabilities 43,156 94,801
TRG accumulated deficiency in assets (112,018) (133,680)
Unconsolidated Joint Venture Partners'
accumulated deficiency in assets (135,750) (134,608)
--------- ---------
$ 626,273 $ 708,378
========= =========
TRG accumulated deficiency in assets (above) $(112,018) $(133,680)
Elimination of intercompany profit (5,718) (8,135)
--------- ---------
Distributions in excess of net income
of Unconsolidated Joint Ventures $(117,736) $(141,815)
========= =========
- 18 -
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues $ 76,193 $ 62,541 $220,651 $187,574
-------- -------- -------- --------
Recoverable and other
operating expenses $ 26,831 $ 22,827 $ 78,078 $ 68,417
Interest expense 18,431 13,588 53,788 38,459
Depreciation and amortization 8,508 6,112 25,168 16,728
-------- -------- -------- --------
Total operating costs $ 53,770 $ 42,527 $157,034 $123,604
-------- -------- -------- --------
Income before extraordinary item $ 22,423 $ 20,014 $ 63,617 $ 63,970
Extraordinary item (1,913)
-------- -------- -------- --------
Net Income $ 22,423 $ 20,014 $ 61,704 $ 63,970
======== ======== ======== ========
Net income attributable to TRG $ 11,917 $ 11,234 $ 32,398 $ 35,035
Extraordinary item attributable
to TRG 957
Realized intercompany profit 1,901 971 4,994 3,838
-------- -------- -------- --------
Equity in income before
extraordinary item of
Unconsolidated Joint Ventures $ 13,818 $ 12,205 $ 38,349 $ 38,873
======== ======== ======== ========
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
TRG's beneficial interest
in Unconsolidated Joint
Ventures' operations:
Revenues less recoverable and
other operating expenses $ 28,036 $ 23,187 $ 79,902 $ 68,503
Interest expense (9,820) (7,491) (28,731) (20,720)
Depreciation and amortization (4,398) (3,491) (12,822) (8,910)
-------- -------- -------- --------
Income before extraordinary item $ 13,818 $ 12,205 $ 38,349 $ 38,873
======== ======== ======== ========
Note 5 - Beneficial Interest in Debt and Interest Expense
TRG's beneficial interest in the debt (excluding capital lease obligations),
capitalized interest, and interest expense (net of capitalized interest) of TRG,
its consolidated subsidiaries and its Unconsolidated Joint Ventures is
summarized in the following table. TRG's beneficial interest for 1998 and 1997
excludes the 30% minority interest in the debt outstanding on the MacArthur
Center construction facility.
- 19 -
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Unconsolidated TRG's Share of TRG's TRG's
Joint Unconsolidated Consolidated Beneficial
Ventures Joint Ventures Subsidiaries Interest
-------- -------------- ------------ --------
Debt as of:
September 30, 1998 $ 825,311 $ 439,086 $ 683,465 $1,094,655
December 31, 1997 875,356 465,556 1,284,327 1,737,211
Capitalized interest:
Nine months ended September 30, 1998 $ 1,748 $ 869 $ 12,830 $ 12,575
Nine months ended September 30, 1997 6,683 3,851 6,798 10,649
Interest expense
(Net of capitalized interest):
Nine months ended September 30, 1998 $ 53,788 $ 28,731 $ 66,662 $ 95,393
Nine months ended September 30, 1997 38,459 20,720 54,002 74,722
Note 6 - Incentive Option Plan
TRG has an incentive option plan for employees of the Manager. Currently,
options for 8.1 million units of partnership interest may be issued under the
plan, of which options for 6.9 million units are outstanding. The exercise price
of all options outstanding was equal to market value on the date of grant.
Incentive options generally vest to the extent of one-third of the units on each
of the third, fourth and fifth anniversaries of the date of grant. Options
expire ten years from the date of grant. During the nine months ended September
30, 1998, options for 0.1 million units were exercised at a weighted average
price of $11.04 per unit. There were no grants during the nine months ended
September 30, 1998. As of September 30, 1998, there were options outstanding for
6.9 million units with a weighted average exercise price of $11.22 per unit, of
which options for 6.1 million units were vested with a weighted average exercise
price of $11.29 per unit.
Note 7 - Earnings Per Unit of Partnership Interest
Basic earnings per unit of partnership interest are based on the average
number of units of partnership interest outstanding during each period. Diluted
earnings per unit of partnership interest are based on the average number of
units of partnership interest outstanding during each period, assuming exercise
of all options for units of partnership interest having exercise prices less
than the average market value of the units using the treasury stock method. For
the three months ended September 30, 1998 and 1997, options for 0.2 million and
0.4 million units of partnership interest with average exercise prices of $13.89
and $13.58 per unit, respectively, were excluded from the computation of diluted
earnings per unit because the exercise prices were greater than the average
market price for the period calculated. For the nine months ended September 30,
1998 and 1997, options for 0.3 million and 0.4 million units of partnership
interest with average exercise prices of $13.79 and $13.68, respectively, were
excluded from the computation of diluted earnings per unit because the exercise
prices were greater than the average market price for the period calculated.
- 20 -
THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands, except unit data)
Income before extraordinary items
allocable to unitholders (Numerator) $ 1,099,953 $ 23,041 $ 1,137,935 $ 68,795
=========== =========== =========== ===========
Partnership units (Denominator):
Basic 133,775,064 138,277,110 133,354,554 138,261,847
Effect of dilutive options 1,221,332 980,773 1,136,390 1,068,494
----------- ----------- ----------- -----------
Diluted 134,996,396 139,257,883 134,490,944 139,330,341
=========== =========== =========== ===========
Per unit:
Basic $ 8.22 $ .17 $ 8.53 $ .50
====== ===== ====== =====
Diluted $ 8.15 $ .17 $ 8.46 $ .49
====== ===== ====== =====
- 21 -
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 Owned Businesses. TRG's Owned Businesses consist of: (i)
Taubman Shopping Centers that TRG controls by ownership or contractual
agreement, development projects for future regional shopping centers
(Development Projects) and The Taubman Company Limited Partnership (the
Manager), (collectively, the Consolidated Businesses); and (ii) Taubman Shopping
Centers partially owned through joint ventures with third parties that are not
controlled (Unconsolidated Joint Ventures). The Unconsolidated Joint Ventures
are accounted for under the equity method in TRG's Consolidated Financial
Statements.
Certain aspects of the performance of the Owned Businesses are best understood
by measuring their performance as a whole, without regard to TRG's ownership
interest. For example, mall tenant sales and shopping center occupancy trends
fit this category and are so analyzed below. In addition, trends in certain
items of revenue and expense are often best understood in the same fashion, and
consequently, in addition to the discussion of the operations of the
Consolidated Businesses, the operations of the Unconsolidated Joint Ventures are
presented and discussed as a whole.
On September 30, 1998, TRG exchanged interests in 10 shopping centers (nine
Consolidated Businesses (Briarwood, Columbus City Center, The Falls, Hilltop,
Lakeforest, Marley Station, Meadowood Mall, Stoneridge, and The Mall at Tuttle
Crossing) and one Unconsolidated Joint Venture (Woodfield)) and a share of TRG's
debt for all of the partnership units owned by General Motors Pension Trusts
(GMPT) (the GMPT Exchange - see TRG - 1998 Transactions -- GMPT Exchange and
Related Transactions). Performance statistics for periods presented below
include these ten centers (the GMPT Centers) through the completion of the GMPT
Exchange, while information presented as of September 30, 1998, such as ending
occupancy, excludes the GMPT Centers. In future periods, the GMPT Exchange will
impact the presentation of the Company's results of operations and changes in
its financial condition, as the Company obtained a controlling interest in TRG
as a result of the transaction and will consolidate TRG's results. However, as
the exchange did not occur until September 30, 1998, the Company's results of
operations and changes in its financial condition for periods presented continue
to be best understood through separate analysis of the Company and TRG, and are
so discussed below.
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.
- 22 -
The following table summarizes certain quarterly operating data for TRG's
Owned Businesses for 1997 and the first three quarters of 1998:
1st 2nd 3rd 4th 1st 2nd 3rd
Quarter Quarter Quarter Quarter Total Quarter Quarter Quarter
1997 1997 1997 1997 1997 1998 1998 1998
---------------------------------------------------------------------------------
(in thousands)
Mall tenant sales $600,709 $629,906 $692,487 $1,163,157 $3,086,259 $740,104 $796,862 $809,802 (1)
Revenues 130,677 134,756 137,728 157,192 560,353 156,415 161,598 164,044
Occupancy:
Average Occupancy 86.5% 86.8% 87.0% 89.5% 87.6% 88.5% 88.3% 89.2% (2)
Ending Occupancy 86.4% 87.1% 87.2% 90.3% 90.3% 88.2% 88.4% 89.8% (3)
Leased Space 88.7% 89.5% 90.8% 92.3% 92.3% 91.3% 91.6% 92.4% (3)
(1) Mall tenant sales excluding the GMPT Centers were $507.1 million and $1.5
billion for the three and nine months ended September 30, 1998,
respectively.
(2) Average occupancy excluding the GMPT Centers was 89.5% and 89.1% for the
three and nine months ended September 30, 1998, respectively.
(3) Excludes GMPT Centers as of September 30, 1998.
Because the seasonality of sales contrasts with the generally fixed nature of
minimum rents and recoveries, mall tenant occupancy costs (the sum of minimum
rents, percentage rents and expense recoveries) relative to sales are
considerably higher in the first three quarters than they are in the fourth
quarter. The following table summarizes occupancy costs, excluding utilities,
for mall tenants as a percentage of sales for 1997 and the first three quarters
of 1998:
1st 2nd 3rd 4th 1st 2nd 3rd
Quarter Quarter Quarter Quarter Total Quarter Quarter Quarter
1997 1997 1997 1997 1997 1998 1998 1998 (1)
-----------------------------------------------------------------------------
Minimum rents 12.6% 11.8% 11.3% 7.3% 10.1% 12.0% 11.2% 11.2%
Percentage rents 0.2 0.3 0.3 0.2 0.3 0.2 0.3 0.3
Expense recoveries 5.2 5.1 4.7 3.5 4.4 4.8 4.9 4.7
---- ---- ---- ---- ---- ---- ---- ----
Mall tenant
occupancy costs 18.0% 17.2% 16.3% 11.0% 14.8% 17.0% 16.4% 16.2%
==== ==== ==== ==== ==== ==== ==== ====
(1) Mall tenant occupancy costs as a percentage of sales excluding the GMPT
Centers were 15.9% for both the three and nine months ended September 30,
1998.
Rental Rates
Average base rent per square foot for all mall tenants at the 18 Centers owned
and open for at least five years was $39.44 for the twelve months ended
September 30, 1998, compared to $38.62 for the twelve months ended September 30,
1997. Excluding the GMPT Centers, the average base rent per square foot for all
mall tenants at the remaining centers owned and open for at least five years (10
of the 15 remaining centers) was $41.98 for the twelve months ended September
30, 1998.
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.
- 23 -
The annual spread between average annualized base rent of stores opening and
closing, excluding renewals, has ranged between four and eleven dollars per
square foot during the past five years. TRG anticipates that the spread between
opening and closing rents for the 1998 fiscal year will be at or below the low
end of TRG's historical range. This statistic is difficult to predict in part
because TRG's leasing policies and practices may result in early lease
terminations with actual average closing rents which may vary from the average
rent per square foot of scheduled lease expirations. In addition, the opening or
closing of large tenant spaces, which generally pay a lower rent per square
foot, can significantly change the spread in a given year.
Results of Operations
Comparison of the Three and Nine Months Ended September 30, 1998 to the Three
and Nine Months Ended September 30, 1997
Taubman Centers, Inc.
The Company's average ownership of TRG was 39.54% and 38.96% for the three and
nine months ended September 30, 1998, respectively, and 36.69% for both the
three and nine months ended September 30, 1997. Since the first quarter of 1997,
the Company's ownership in TRG has changed as a result of the following
transactions.
The GMPT Exchange and Related Transactions
On September 30, 1998, the Company obtained a majority and controlling
interest in TRG as a result of the GMPT Exchange (TRG - 1998 Transactions --
GMPT Exchange and Related Transactions), which increased the Company's ownership
of TRG to 62.8%. Concurrent with the GMPT Exchange, TRG committed to a
restructuring of its operations, consisting primarily of involuntary termination
of personnel. Also, in anticipation of the GMPT Exchange, TRG used the proceeds
from bridge loans to extinguish substantially all of TRG's public unsecured
debt, its outstanding commercial paper, and borrowings on its existing lines of
credit.
Upon obtaining the controlling interest in TRG, the Company consolidated the
financial position of TRG. In future periods, the Company's results will include
the results of TRG on a consolidated basis and will reflect the effects of TRG's
revised portfolio, its restructured operations, and its new debt structure.
Other Transactions
In October 1997, the Company used the proceeds from its $200 million public
offering of eight million shares of 8.3% Series A Cumulative Redeemable
Preferred Stock to acquire a Series A Preferred Equity interest in TRG that
entitles the Company to income and distributions (in the form of guaranteed
payments) in amounts equal to the dividends payable on the Company's Series A
Preferred Stock. In January 1998, TRG redeemed 6.1 million units of partnership
interest from a partner, increasing the Company's ownership of TRG. In April
1998, the Company 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. The Company used the proceeds to acquire an additional equity
interest in TRG. TRG paid all costs of the offering. Also, during 1997 and 1998
the Company exchanged common stock for TRG units of partnership interest newly
issued in connection with the exercise of incentive options.
- 24 -
Comparison of Operating Results
The Company's income from TRG for the three months ended September 30, 1998
consisted of $4.2 million from its preferred equity interest in TRG and the
Company's $3.9 million share of TRG's net income before extraordinary item,
which includes the Company's $4.2 million share of TRG's restructuring loss. For
the three months ended September 30, 1997, the Company's income from TRG
consisted of its $8.5 million share of TRG's net income. The Company's share of
1998 and 1997 income was reduced by $2.3 million and $2.0 million, respectively,
representing adjustments arising from the Company's additional basis in TRG's
net assets. During the third quarter of 1998, the Company recognized an
extraordinary item of $19.7 million, consisting of its share of TRG's
extraordinary charge relating to debt extinguished in anticipation of the GMPT
Exchange. Net income (loss) available to common shareowners for the three months
ended September 30, 1998 was $(18.3) million, compared to $6.2 million for the
third quarter of 1997.
The Company's income from TRG for the nine months ended September 30, 1998
consisted of $12.5 million from its preferred equity interest in TRG and the
Company's $18.6 million share of TRG's income before extraordinary items, which
includes the Company's $4.2 share of TRG's restructuring loss. For the nine
months ended September 30, 1997, the Company's income from TRG consisted of its
$25.2 million share of TRG's net income. The Company's share of 1998 and 1997
income was reduced by $6.7 million and $6.1 million, respectively, representing
adjustments arising from the Company's additional basis in TRG's net assets.
During the first nine months of 1998, Company recognized extraordinary items of
$20.1 million, consisting of its share of TRG's extraordinary charges relating
primarily to debt extinguished in anticipation of the GMPT Exchange. Net income
(loss) available to common shareowners for the nine months ended September 30,
1998 was $(8.6) million, compared to $18.6 million for the same period in 1997.
In the third quarter of 1998, TRG recognized a gain on the GMPT Exchange,
representing the difference between the fair value and book value of the
interests exchanged. The Company did not recognize a share of the gain because
the transaction was an exchange between the owners of TRG.
TRG
1998 Transactions - GMPT Exchange and Related Transactions
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 the
Company's shares of $13.50 for the two week period prior to the closing). 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 amount of debt allocated to GMPT is subject to a working
capital adjustment, which is expected to be settled in the fourth quarter. A
gain of $1.1 billion on the exchange was recognized, 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, the estimated working capital
adjustment, and transaction costs. During the three and nine months ended
September 30, 1998, the exchanged centers contributed $32.3 million and $100.8
million to TRG's EBITDA, respectively (EBITDA is defined and described in
Liquidity and Capital Resources -- Distributions).
- 25 -
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
$1.1 billion of debt, including substantially all of TRG's public unsecured
debt, its outstanding commercial paper, and borrowings on its existing line of
credit. The remaining proceeds were used primarily to pay prepayment premiums
and transaction costs. An extraordinary charge of approximately $49.8 million,
consisting primarily of prepayment premiums, was recognized in connection with
the extinguishment of the debt. GMPT's share of debt received in the exchange
included the $902 million balance on the first bridge loan, $86 million
representing 50% of the debt on the Joint Venture owned shopping center, and
$1.6 million of assessment bond obligations. After the GMPT Exchange, TRG's debt
and its beneficial interest in its joint ventures totaled $1.1 billion
(Liquidity and Capital Resources - TRG).
Concurrent with the GMPT Exchange, TRG committed to a restructuring of its
operations. A restructuring charge of approximately $10.7 million was incurred,
consisting primarily of costs related to involuntary termination of personnel.
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.
1998 Transactions - Other
In January 1998, TRG redeemed a partner's 6.1 million units of partnership
interest for approximately $77.7 million (including costs). The redemption was
funded through the use of an existing revolving credit facility.
In March 1998, a 50% owned Unconsolidated Joint Venture completed a $140
million, 6.60%, secured financing maturing in 2008. The net proceeds were used
to extinguish an existing mortgage of approximately $39 million and pay a
prepayment penalty of approximately $1.8 million. In addition, proceeds of $5.6
million were used to close out a treasury lock agreement entered into in 1997,
which resulted in an effective rate on the financing of approximately 7%. The
remaining proceeds were distributed to the owners. TRG used its share of the
distribution to pay down its revolving credit facilities.
1997 Transactions
During 1997, TRG completed the following acquisitions: Regency Square in
September, The Falls in December, and the leasehold interest in The Mall at
Tuttle Crossing (Tuttle Crossing), also in December. In addition, TRG opened the
following new centers and expansions: Tuttle Crossing in July, Arizona Mills in
November, Westfarms' expansion in August, and Biltmore's expansion throughout
the last half of the year.
Occupancy and Mall Tenant Sales
The average occupancy rate in the Taubman Shopping Centers was 89.2% for the
three months ended September 30, 1998 compared to 87.0% for the comparable
period in 1997. For the nine months ended September 30, 1998 average occupancy
was 88.7% compared to 86.8% in the same period in 1997. The increase in average
occupancy was primarily due to increases in occupancy at Centers owned and open
prior to 1997. The ending occupancy rate for the Taubman Shopping Centers at
September 30, 1998 was 89.8% versus 87.2% at the same date in 1997. Leased space
at September 30, 1998 was 92.4% compared to 90.8% at the same date in 1997.
Statistics as of September 30, 1998 exclude the GMPT Centers.
- 26 -
Total sales for Taubman Shopping Center mall tenants in the three months ended
September 30, 1998 were $809.8 million, a 16.9% increase from $692.5 million in
the same period in 1997. Tenant sales increased 22.0% to $2.3 billion for the
nine months ended September 30, 1998 from $1.9 billion in the comparable period
in 1997. Mall tenant sales per square foot, excluding Arizona Mills, increased
3.0% and 3.9% for the three and nine months ended September 30, 1998 over the
same periods in 1997. Mall tenant sales for Centers owned and open for all of
the first nine months of 1998 and 1997 were $698.1 million and $2.0 billion in
the third quarter and first nine months of 1998, a 5.7% increase and a 6.7%
increase, respectively, from the same periods in 1997.
- 27 -
Comparison of the Three Months Ended September 30, 1998 to the Three Months
Ended September 30, 1997
The following table sets forth operating results for TRG's Owned Businesses
for the three months ended September 30, 1998 and September 30, 1997, showing
the results of the Consolidated Businesses and Unconsolidated Joint Ventures:
Three Months Ended September 30, 1998 Three Months Ended September 30, 1997
------------------------------------------- -------------------------------------------
TRG UNCONSOLIDATED TOTAL TRG UNCONSOLIDATED TOTAL
CONSOLIDATED JOINT OWNED CONSOLIDATED JOINT OWNED
BUSINESSES(1) VENTURES(2) BUSINESSES BUSINESSES(1) VENTURES(2) BUSINESSES
------------------------------------------- -------------------------------------------
(in millions of dollars)
REVENUES:
Minimum rents 50.1 46.3 96.4 43.2 38.2 81.4
Percentage rents 1.7 1.0 2.8 1.8 0.9 2.6
Expense recoveries 27.7 26.0 53.8 23.8 21.8 45.6
Management, leasing and
development 1.9 1.9 2.2 2.2
Other 6.6 2.5 9.2 4.3 1.7 6.0
----- ----- ----- ----- ----- -----
Total revenues 88.1 75.9 164.0 75.2 62.5 137.7
OPERATING COSTS:
Recoverable expenses 25.0 22.4 47.4 20.1 18.8 38.9
Other operating 9.0 2.7 11.7 6.0 2.4 8.5
Management, leasing and
development 1.1 1.1 1.3 1.3
General and administrative 5.1 5.1 6.6 6.6
Interest expense 22.1 18.5 40.6 19.4 13.7 33.1
Depreciation and amortization 14.7 8.4 23.1 11.0 6.0 17.0
----- ----- ----- ----- ----- -----
Total operating costs 77.0 52.0 129.0 64.3 41.0 105.3
Net results of Memorial City (1) (0.3) (0.3) (0.1) (0.1)
----- ----- ----- ----- ----- -----
10.8 23.9 34.7 10.8 21.5 32.4
===== ===== ===== =====
Equity in net income of
Unconsolidated Joint Ventures 13.8 12.2
----- -----
Income before extraordinary
and unusual items 24.6 23.0
Gain on GMPT Exchange 1,090.2
Restructuring loss (10.7)
------- -----
Income before extraordinary item 1,104.1 23.0
Extraordinary item (49.8)
------- -----
Net income 1,054.3 23.0
Preferred distributions to TCO (4.2)
------- -----
Net income available to unitholders 1,050.1 23.0
======= =====
SUPPLEMENTAL INFORMATION (3):
EBITDA contribution 47.7 28.0 75.7 41.3 23.2 64.5
TRG's Beneficial Interest Expense (22.1) (9.8) (31.9) (19.4) (7.5) (26.9)
Non-real estate depreciation (0.5) (0.5) (0.5) (0.5)
Preferred distributions to TCO (4.2) (4.2)
----- ----- ----- ----- ----- -----
Distributable Cash Flow contribution 20.9 18.2 39.1 21.4 15.7 37.1
===== ===== ===== ===== ===== =====
(1) The results of operations of Memorial City are presented net in this table.
TRG expects that Memorial City's net operating income will approximate the
ground rent payable under the lease for the immediate future.
(2) With the exception of the Supplemental Information, amounts represent 100%
of the Unconsolidated Joint Ventures. Amounts are net of intercompany
profits. The Unconsolidated Joint Ventures are accounted for under the
equity method in TRG's Consolidated Financial Statements.
(3) EBITDA, TRG's Beneficial Interest Expense and Distributable Cash Flow are
defined and discussed in Liquidity and Capital Resources - Distributions.
(4) Amounts in the table may not add due to rounding.
(5) Certain 1997 amounts have been reclassified to conform to 1998
classifications.
- 28 -
TRG --Consolidated Businesses
- -----------------------------
Total revenues for the three months ended September 30, 1998 were $88.1
million, a $12.9 million, or 17.2%, increase over the comparable period in 1997.
Minimum rents increased $6.9 million, of which $5.1 million was caused by Tuttle
Crossing and the 1997 acquisitions. Minimum rents also increased due to the
expansion at Biltmore and tenant rollovers. Expense recoveries increased
primarily due to Tuttle Crossing and the acquired Centers. Other revenue
increased primarily due to gains on sales of peripheral land.
Total operating costs increased $12.7 million, or 19.8%, to $77.0 million.
Recoverable and depreciation and amortization expenses increased primarily due
to Tuttle Crossing and the acquisitions. Other operating expense increased due
to the acquisitions, management expenses, and professional fees. General and
administrative expense decreased primarily due to decreases in compensation,
employee relocation, and recruiter costs. Interest expense increased due to an
increase in debt used to finance Tuttle Crossing, the acquisition of The Falls
and the redemption of a partner's interest in TRG, partially offset by a
decrease in debt paid down with the proceeds of the October 1997 and April 1998
equity offerings. In addition, interest expense increased due to an increase in
debt used to fund capital expenditures, offset by the related capitalized
interest.
Revenues and expenses as presented in the preceding table differ from the
amounts shown in TRG's consolidated statement of operations by the amounts
representing Memorial City's revenues and expenses, which are presented in the
preceding table as a net amount.
Unconsolidated Joint Ventures
- -----------------------------
Total revenues for the three months ended September 30, 1998 were $75.9
million, a $13.4 million, or 21.4%, increase from the comparable period of 1997.
The increase in minimum rents and expense recoveries was primarily due to
Arizona Mills and the expansion at Westfarms. Minimum rents also increased due
to tenant rollovers. Other revenue increased by $0.8 million primarily due to
increases in lease cancellation revenue.
Total operating costs increased by $11.0 million, or 26.8%, to $52.0 million
for the three months ended September 30, 1998. Recoverable and depreciation and
amortization expenses increased primarily due to Arizona Mills and Westfarms.
Other operating expense increased primarily due to Arizona Mills. Interest
expense increased primarily due to an increase in debt used to finance Arizona
Mills and the Westfarms expansion, and a decrease in capitalized interest
related to these two projects. Operating costs as presented in the preceding
table differ from the amounts shown in the combined, summarized financial
statements of the Unconsolidated Joint Ventures (Note 4 to TRG's financial
statements) by the amount of intercompany profit.
As a result of the foregoing, net income of the Unconsolidated Joint Ventures
increased by $2.4 million, or 11.2%, to $23.9 million. TRG's equity in net
income of the Unconsolidated Joint Ventures was $13.8 million, a 13.1% increase
from the comparable period in 1997.
Net Income
- ----------
As a result of the foregoing, TRG's income before extraordinary and unusual
items increased $1.6 million, or 7.0%, to $24.6 million for the three months
ended September 30, 1998. During the third quarter of 1998, TRG recognized a
$1.1 billion gain on the GMPT Exchange and a $10.7 million loss on the related
restructuring, which primarily represented the cost of certain involuntary
terminations of personnel. Also, TRG recognized an extraordinary charge of $49.8
million, related to debt extinguished in anticipation of the GMPT Exchange,
consisting primarily of prepayment premiums. After payment of $4.2 million in
preferred distributions to the Company, net income available to partnership
unitholders for the third quarter of 1998 was $1.1 billion compared to $23.0
million in 1997.
- 29 -
Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended
September 30, 1997
The following table sets forth operating results for TRG's Owned Businesses
for the nine months ended September 30, 1998 and September 30, 1997, showing the
results of the Consolidated Businesses and Unconsolidated Joint Ventures:
Nine Months Ended September 30, 1998 Nine Months Ended September 30, 1997
------------------------------------------- -------------------------------------------
TRG UNCONSOLIDATED TOTAL TRG UNCONSOLIDATED TOTAL
CONSOLIDATED JOINT OWNED CONSOLIDATED JOINT OWNED
BUSINESSES(1) VENTURES(2) BUSINESSES BUSINESSES(1) VENTURES(2) BUSINESSES
------------------------------------------- -------------------------------------------
(in millions of dollars)
REVENUES:
Minimum rents 150.1 135.2 285.3 124.5 112.9 237.3
Percentage rents 4.8 2.7 7.4 4.7 2.0 6.7
Expense recoveries 82.8 75.1 157.9 68.5 64.6 133.0
Management, leasing and
development 5.8 5.8 6.5 6.5
Other 18.2 7.4 25.6 11.2 8.3 19.6
----- ----- ----- ----- ----- -----
Total revenues 261.7 220.4 482.1 215.3 187.8 403.2
OPERATING COSTS:
Recoverable expenses 71.5 63.7 135.2 57.4 55.3 112.7
Other operating 25.3 9.9 35.2 20.3 8.5 28.8
Management, leasing and
development 3.5 3.5 3.6 3.6
General and administrative 18.7 18.7 18.7 18.7
Interest expense 66.7 54.0 120.7 54.0 38.9 92.9
Depreciation and amortization 42.6 24.3 66.9 31.2 16.3 47.5
----- ----- ----- ----- ----- -----
Total operating costs 228.3 151.9 380.2 185.1 118.9 304.1
Net results of Memorial City (1) (0.8) (0.8) (0.3) (0.3)
----- ----- ----- ----- ----- -----
32.6 68.5 101.1 29.9 68.9 98.8
===== ===== ===== =====
Equity in income before
extraordinary item of
Unconsolidated Joint Ventures 38.3 38.9
----- -----
Income before extraordinary
and unusual items 70.9 68.8
Gain on GMPT Exchange 1,090.2
Restructuring loss (10.7)
------- -----
Income before extraordinary items 1,150.4 68.8
Extraordinary items (50.8)
------- -----
Net income 1,099.6 68.8
Preferred distributions to TCO (12.5)
------- -----
Net income available to unitholders 1,087.2 68.8
======= =====
SUPPLEMENTAL INFORMATION (3):
EBITDA contribution 142.1 79.9 222.0 115.3 68.5 183.8
TRG's Beneficial Interest Expense (66.7) (28.7) (95.4) (54.0) (20.7) (74.7)
Non-real estate depreciation (1.6) (1.6) (1.6) (1.6)
Preferred distributions to TCO (12.5) (12.5)
----- ----- ----- ----- ----- -----
Distributable Cash Flow contribution 61.4 51.2 112.6 59.7 47.8 107.5
===== ===== ===== ===== ===== =====
(1) The results of operations of Memorial City are presented net in this table.
TRG expects that Memorial City's net operating income will approximate the
ground rent payable under the lease for the immediate future.
(2) With the exception of the Supplemental Information, amounts represent 100%
of the Unconsolidated Joint Ventures. Amounts are net of intercompany
profits. The Unconsolidated Joint Ventures are accounted for under the
equity method in TRG's Consolidated Financial Statements.
(3) EBITDA, TRG's Beneficial Interest Expense and Distributable Cash Flow are
defined and discussed in Liquidity and Capital Resources - Distributions.
(4) Amounts in the table may not add due to rounding.
(5) Certain 1997 amounts have been reclassified to conform to 1998
classifications.
- 30 -
TRG --Consolidated Businesses
- -----------------------------
Total revenues for the nine months ended September 30, 1998 were $261.7
million, a $46.4 million, or 21.6%, increase over the comparable period in 1997.
Minimum rents increased $25.6 million, of which $21.5 million was caused by
Tuttle Crossing and the 1997 acquisitions. Minimum rents also increased due to
the expansion at Biltmore and tenant rollovers. Expense recoveries increased
primarily due to Tuttle Crossing and the acquired Centers. Other revenue
increased primarily due to an increase in lease cancellation revenue and gains
on sales of peripheral land.
Total operating costs increased $43.2 million, or 23.3%, to $228.3 million.
Recoverable, other operating, and depreciation and amortization expenses
increased primarily due to Tuttle Crossing and the acquisitions. Other operating
expense also increased due to professional fees and management expense. General
and administrative expense remained consistent between periods, with increases
in compensation attributable to the phase-in of the long-term compensation plan
being offset by decreases in employee relocation and recruiter costs. Interest
expense increased due to an increase in debt used to finance Tuttle Crossing,
the acquisition of The Falls and the redemption of a partner's interest in TRG,
partially offset by a decrease in debt paid down with the proceeds of the
October 1997 and April 1998 equity offerings. In addition, interest expense
increased due to an increase in debt used to fund capital expenditures, offset
by the related capitalized interest.
Revenues and expenses as presented in the preceding table differ from the
amounts shown in TRG's consolidated statement of operations by the amounts
representing Memorial City's revenues and expenses, which are presented in the
preceding table as a net amount.
Unconsolidated Joint Ventures
- -----------------------------
Total revenues for the nine months ended September 30, 1998 were $220.4
million, a $32.6 million, or 17.4%, increase from the comparable period of 1997.
The increase in minimum rents and expense recoveries was primarily due to
Arizona Mills and the expansion at Westfarms. Minimum rents also increased due
to tenant rollovers. Other revenue decreased by $0.9 million primarily due to a
decrease in gains on peripheral land sales, partially offset by an increase in
lease cancellation revenue.
Total operating costs increased by $33.0 million, or 27.8%, to $151.9 million
for the nine months ended September 30, 1998. Recoverable and depreciation and
amortization expenses increased primarily due to Arizona Mills and Westfarms.
Other operating expense increased primarily due to Arizona Mills. Interest
expense increased primarily due to an increase in debt used to finance Arizona
Mills and the Westfarms expansion, and a decrease in capitalized interest
related to these two projects. Operating costs as presented in the preceding
table differ from the amounts shown in the combined, summarized financial
statements of the Unconsolidated Joint Ventures (Note 4 to TRG's financial
statements) by the amount of intercompany profit.
As a result of the foregoing, income before extraordinary item of the
Unconsolidated Joint Ventures decreased by $0.4 million, or 0.6%, to $68.5
million. TRG's equity in income before extraordinary item of the Unconsolidated
Joint Ventures was $38.3 million, a 1.5% decrease from the comparable period in
1997.
- 31 -
Net Income
- ----------
As a result of the foregoing, TRG's income before extraordinary and unusual
items increased $2.1 million, or 3.1%, to $70.9 million for the nine months
ended September 30, 1998. During the first nine months of 1998, TRG recognized a
$1.1 billion gain on the GMPT Exchange and a $10.7 million loss on the related
restructuring, which primarily represented the cost of certain involuntary
terminations of personnel. Also, TRG recognized $50.8 million in extraordinary
charges related to the extinguishment of debt, including debt extinguished in
anticipation of the GMPT Exchange, primarily consisting of prepayment premiums.
After payment of $12.5 million in preferred distributions to the Company, net
income available to partnership unitholders for the nine months ended September
30, 1998 was $1.1 billion compared to $68.8 million for the comparable period in
1997.
- 32 -
Liquidity and Capital Resources
Taubman Centers, Inc.
On September 30, 1998, the Company obtained a majority and controlling
interest in TRG as a result of the GMPT Exchange (Results of Operations
- --TRG--1998 Transactions above). As of that date the Company consolidated the
accounts of TRG in the Company's financial statements. Prior to that date the
Company accounted for its investment in TRG under the equity method.
Consequently, the Company's and TRG's cash flows for the three and nine months
ended September 30, 1998 are discussed separately.
In April 1998, the Company 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 the Company's shelf registration statement. The
Company used the proceeds to acquire an additional equity interest in TRG. TRG
paid all costs of the offering. TRG used the net proceeds of approximately $25
million for general partnership purposes.
In October 1997, the Company issued eight million shares of 8.3% Series A
Preferred Stock under its equity shelf registration statement. Dividends are
payable in arrears on or before the last day of each calendar quarter. The
Company used the proceeds to acquire a Series A Preferred Equity interest in TRG
that entitles the Company to distributions (in the form of guaranteed payments)
in amounts equal to the dividends payable on the Company's Series A Preferred
Stock.
As of September 30, 1998, the Company had a consolidated cash balance of $33.8
million. As of September 30, 1998, the Company had 52.9 million outstanding
shares of common stock compared to 50.8 million at September 30, 1997.
During the first nine months of 1998 and 1997, the Company received
distributions from its partnership interest in TRG of $37.3 million and $35.2
million, respectively. Additionally, the Company received preferred
distributions from TRG of $12.5 million in 1998.
The Company pays regular quarterly dividends to its common and preferred
shareowners. The principal factor affecting the Company's ability to pay
dividends is the receipt of distributions from TRG. The Company's dividends to
its common shareowners 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. Preferred dividends accrue regardless of whether earnings, cash
availability, or contractual obligations were to prohibit the current payment of
dividends. Because of the Company's controlling interest in TRG, the Company now
has control over TRG's distribution policies; however the Company does not
currently anticipate a material change in TRG's distribution policies or the
Company's corresponding dividend policy (TRG -- Distributions).
On September 8, 1998, the Company declared a quarterly dividend of $0.235 per
common share payable October 20, 1998 to shareowners of record on September 30,
1998. The Board of Directors also declared a quarterly dividend of $0.51875 per
share on the Company's 8.3% Series A Preferred Stock for the quarterly dividend
period ended September 30, 1998, which was paid on September 30, 1998 to
shareowners of record on September 18, 1998.
The Company is presently determining the effect of the GMPT Exchange and the
related refinancing and restructuring on the tax status of its common and
preferred dividends.
- 33 -
TRG
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.
The balance of the first bridge loan of $902 million was assumed by GMPT at
the time of the GMPT Exchange. The second loan had a balance of $310 million at
September 30, 1998. This loan has a maximum borrowing capacity of $430 million
and expires in June 1999. TRG expects to refinance the balance on the bridge
loan during the first half of 1999. Additionally, TRG has obtained a $200
million line of credit, replacing TRG's previous revolving credit and commercial
paper facilities. The line of credit expires in September 2001.
TRG also has available an unsecured bank line of credit of up to $40 million.
The line had no outstanding borrowings as of September 30, 1998 and expires in
August 1999.
Proceeds from other borrowings and equity issuances of $373.4 million provided
funding for the first nine months of 1998 (including $77.7 million for the
redemption of 6.1 million units of partnership interest in January 1998)
compared to $244.4 million in the comparable period of 1997 (including $123.9
million for the acquisition of Regency Square in September 1997). Additionally,
the proceeds were used to fund capital expenditures for the Consolidated
Businesses and contributions to Unconsolidated Joint Ventures for construction
costs.
In March 1998, a 50% owned Unconsolidated Joint Venture completed a $140
million, 6.60% secured financing maturing in 2008. The net proceeds were used to
extinguish an existing mortgage of approximately $39 million and pay a
prepayment penalty of approximately $1.8 million. In addition, proceeds of $5.6
million were used to close out a treasury lock agreement entered into in 1997,
which resulted in an effective rate on the financing of approximately 7%. The
remaining proceeds were distributed to the owners. TRG used its 50% share of the
distribution to pay down its revolving credit facilities.
At September 30, 1998, TRG's debt and its beneficial interest in the debt of
its Consolidated and Unconsolidated Joint Ventures totaled $1,094.7 million. As
shown in the following table, $299.0 million of this debt was floating rate debt
that remained unhedged at September 30, 1998. Interest rates shown do not
include amortization of debt issuance costs and interest rate hedging costs.
These items are reported as interest expense in TRG's results of operations. In
the aggregate, these costs added 0.49% to the effective rate of interest on
TRG's beneficial interest in debt at September 30, 1998. Included in TRG's
beneficial interest in debt is debt used to fund development and expansion
costs. TRG's beneficial interest in assets on which interest is being
capitalized totaled $334.5 million as of September 30, 1998. TRG's beneficial
interest in capitalized interest was $5.2 million and $12.6 million for the
three and nine months ended September 30, 1998, respectively.
- 34 -
Beneficial Interest in Debt
-------------------------------------------------------
Amount Interest LIBOR Frequency LIBOR
(In millions Rate at Cap of Rate at
of dollars) 9/30/98 Rate Resets 9/30/98
---------- ------- ---- ------ -------
Total beneficial interest
in fixed rate debt 408.9 8.01%(1)
Floating rate debt hedged
via interest rate caps:
Through July 1999 65.0 6.41 7.00 Monthly 5.38
Through December 1999 200.0 6.79(1) 9.50(2) Monthly 5.38
Through October 2001 25.0 6.04 8.55 Monthly 5.38
Through January 2002 53.4 6.88(1) 9.50 Monthly 5.38
Through July 2002 43.4 7.07 6.50 Monthly 5.38
Other floating rate debt 299.0 6.79(1)
-------
Total beneficial interest in debt 1,094.7 7.22(1)
=======
(1) Denotes weighted average interest rate.
(2) Rate reduces to 7.0% in December 1998.
In September 1998, TRG entered into treasury lock agreements with a notional
amount of $200 million at approximately 5%, plus credit spread. In October 1998,
TRG effectively closed out its position in the treasury locks at a cost of
approximately $4 million.
TRG's loan and facility agreements contain various restrictive covenants,
including minimum debt service and fixed charges coverage ratios, a maximum
payout ratio on distributions, and a minimum debt yield ratio, the latter being
the most restrictive. TRG is in compliance with all of such covenants.
Distributions
A principal factor that TRG considers in determining distributions to partners
is TRG's Distributable Cash Flow, which is defined as EBITDA less TRG's
Beneficial Interest Expense, non-real estate depreciation and amortization, and
preferred distributions. Capital structure, in addition to operations,
influences this measure of performance. TRG defines EBITDA as TRG's beneficial
interest in (or pro rata share of ) the revenues, less operating costs before
interest, depreciation and amortization, and unusual items of the Owned
Businesses. The Company calculates its Funds from Operations 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.
- 35 -
The following table summarizes TRG's Distributable Cash Flow and the Company's
Funds from Operations for the three months ended September 30, 1998 and 1997:
Three months ended Three months ended
September 30, 1998 September 30, 1997
----------------------------------------- ----------------------------------------
TRG Unconsolidated TRG Unconsolidated
Consolidated Joint Consolidated Joint
Businesses Ventures(1) Total Businesses Ventures(1) Total
----------------------------------------- ----------------------------------------
(in millions of dollars)
TRG's Net Income(2) 1,054.3 23.0
Extraordinary item (3) 49.8
Net gain on GMPT Exchange and
restructuring charge (1,079.5)
Depreciation and Amortization(4) 19.2 14.5
TRG's Beneficial Interest Expense 31.9 26.9
----- -----
EBITDA 47.7 28.0 75.7 41.3 23.2 64.5
TRG's Beneficial Interest Expense (22.1) (9.8) (31.9) (19.4) (7.5) (26.9)
Non-real estate depreciation (0.5) (0.5) (0.5) (0.5)
Preferred distributions to TCO (4.2) (4.2)
----- ----- ----- ----- ----- -----
Distributable Cash Flow 20.9 18.2 39.1 21.4 15.7 37.1
===== ===== ===== ===== ===== =====
The Company's share of
Distributable Cash Flow 15.5 13.6
Other income/ expenses, net (0.1) (0.2)
----- -----
Funds from Operations 15.3 13.4
===== =====
(1) Amounts represent TRG's beneficial interest in the operations of its
Unconsolidated Joint Ventures.
(2) Includes TRG's share of gains on peripheral land sales of $2.9 and $0.6
million for the three months ended September 30, 1998 and 1997.
(3) Extraordinary charge related to the extinguishment of debt, primarily
consisting of prepayment premiums.
(4) Includes $1.1 million and $1.0 million of mall tenant allowance
amortization in the third quarter of 1998 and 1997, respectively.
(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 nine months ended September 30, 1998 and 1997:
Nine months ended Nine months ended
September 30, 1998 September 30, 1997
----------------------------------------- ----------------------------------------
TRG Unconsolidated TRG Unconsolidated
Consolidated Joint Consolidated Joint
Businesses Ventures(1) Total Businesses Ventures(1) Total
----------------------------------------- ----------------------------------------
(in millions of dollars)
TRG's Net Income(2) 1,099.6 68.8
Extraordinary items(3) 50.8
Net gain on GMPT Exchange and
restructuring charge (1,079.5)
Depreciation and Amortization(4) 55.7 40.3
TRG's Beneficial Interest Expense 95.4 74.7
----- -----
EBITDA 142.1 79.9 222.0 115.3 68.5 183.8
TRG's Beneficial Interest Expense (66.7) (28.7) (95.4) (54.0) (20.7) (74.7)
Non-real estate depreciation (1.6) (1.6) (1.6) (1.6)
Preferred distributions to TCO (12.5) (12.5)
----- ----- ----- ----- ----- -----
Distributable Cash Flow 61.4 51.2 112.6 59.7 47.8 107.5
===== ===== ===== ===== ===== =====
The Company's share of
Distributable Cash Flow 43.9 39.4
Other income/ expenses, net (0.5) (0.6)
----- -----
Funds from Operations 43.4 38.9
===== =====
(1) Amounts represent TRG's beneficial interest in the operations of its
Unconsolidated Joint Ventures.
(2) Includes TRG's share of gains on peripheral land sales of $3.3 million and
$2.5 million for the nine months ended September 30, 1998 and 1997,
respectively.
(3) Extraordinary charges related to the extinguishment of debt, primarily
consisting of prepayment premiums.
(4) Includes $3.3 million and $2.8 million of mall tenant allowance
amortization for the nine months ended September 30, 1998 and 1997,
respectively.
(5) Amounts may not add due to rounding.
- 36 -
For the third quarter of 1998, EBITDA and Distributable Cash Flow were $75.7
million and $39.1 million, compared to $64.5 million and $37.1 million for the
same period in 1997. In addition to $4.2 million representing preferred
distributions to the Company on TRG's Series A Preferred Equity, TRG distributed
$32.1 million to its partners in both the third quarter of 1998 and 1997. The
Company's Funds from Operations for the third quarter of 1998 was $15.3 million,
compared to $13.4 million for the same period in 1997.
During the first nine months of 1998, EBITDA and Distributable Cash Flow were
$222.0 million and $112.6 million, compared to $183.8 million and $107.5 million
for the same period in 1997. In addition to $12.5 million in preferred
distributions to the Company, TRG distributed $95.7 million and $96.1 million to
its partners in the nine month periods ended September 30, 1998 and 1997,
respectively. The Company's Funds from Operations for 1998 was $43.4 million,
compared to $38.9 million for the same period in 1997.
The annual determination of TRG's distributions is based on anticipated
Distributable Cash Flow available after preferred distributions to the Company
on TRG's Series A Preferred Equity, as well as financing considerations and
other appropriate factors. Further, the Company 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).
Each Joint Venture may make distributions only in accordance with the terms of
its partnership agreement. TRG, in general, acts as the managing partner and has
the right to determine the amount of cash available for distribution from the
Joint Venture. In general, the provisions of these agreements require the
distribution of all available cash (as defined in each partnership agreement),
but most do not allow borrowing to finance distributions without approval of the
Joint Venture Partner.
As a result, distribution policies of many Joint Ventures will not parallel
those of TRG. While TRG may not, therefore, receive as much in distributions
from each Joint Venture as it intends to distribute with respect to that Joint
Venture, 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.
- 37 -
Capital Spending
Capital spending for routine maintenance of the Taubman Shopping Centers is
generally recovered from tenants. The following table summarizes planned capital
spending, which is not recovered from tenants and assuming no acquisitions
during 1998:
1998
--------------------------------------------------------------
TRG's Share of
Unconsolidated Consolidated Businesses
Consolidated Joint and Unconsolidated
Businesses Ventures(1) Joint Ventures(1)(2)
--------------------------------------------------------------
(in millions of dollars)
Development, renovation,
and expansion 285.7(3) 98.9(4) 259.2
Mall tenant allowances 7.9 7.3 11.7
Pre-construction development
and other 54.5 2.6 55.7
----- ----- -----
Total 348.1 108.8 326.6
===== ===== =====
(1) Costs are net of intercompany profits.
(2) Includes TRG's share of construction costs for Great Lakes Crossing (an 80%
owned consolidated joint venture), MacArthur Center (a 70% owned
consolidated joint venture), and Tampa International (a 50.1% owned
consolidated joint venture).
(3) Includes costs related to MacArthur Center, Great Lakes Crossing and Tampa
International.
(4) Includes costs related to the expansion project at Cherry Creek.
At Cherry Creek, an ongoing expansion includes a newly constructed Lord &
Taylor store, which opened in November 1997, and the addition of 132 thousand
square feet of mall GLA, which began opening in stages in August and continuing
throughout the fall of 1998. The expansion is expected to cost approximately $50
million. TRG has a 50% ownership interest in Cherry Creek.
Great Lakes Crossing, an enclosed value super-regional mall being developed by
TRG in Auburn Hills, Michigan, will open in November 1998. The Center will be
1.4 million square feet and its 11 anchors will include Bass Pro Shops Outdoor
World, Neiman Marcus Last Call Clearance Center, JCPenney Outlet Store, Oshman's
SuperSports USA, and a 25-screen 100,000 square foot Star Theatre megaplex. This
Center is presently owned by a joint venture in which TRG has a controlling 80%
interest and is projected to cost approximately $215 million.
MacArthur Center, a new Center under construction in Norfolk, Virginia, is
expected to open in March 1999. The 930 thousand square foot Center will
initially be anchored by Nordstrom and Dillard's. This Center will be owned by a
joint venture in which TRG has a 70% controlling interest and is projected to
cost approximately $150 million.
Tampa International, a new Center located in Tampa, Florida, is expected to
begin construction in the fourth quarter of 1998 and open in the fall of 2001.
The Center is expected to open with 1.2 million square feet and will be anchored
by Nordstrom, Lord & Taylor and Neiman Marcus. This Center will be owned by a
joint venture in which TRG will have a controlling 50.1% interest and is
projected to cost approximately $265 million.
In 1996, TRG entered into an agreement to lease Memorial City Mall, a 1.4
million square foot shopping center located in Houston, Texas. Memorial City is
anchored by Sears, Foley's, Montgomery Ward and Mervyn's. TRG has the option to
terminate the lease after the third full year by paying $2 million to the
lessor. TRG is using this option period to evaluate the redevelopment
opportunities of the Center. Under the terms of the lease, TRG has agreed to
invest a minimum of $3 million during the three year option period. If the
redevelopment proceeds, TRG is required to invest an additional $22 million in
property expenditures not recoverable from tenants during the first 10 years of
the lease term.
- 38 -
TRG and The Mills Corporation have formed an alliance to develop value
super-regional projects in major metropolitan markets. The ten-year agreement
calls for the two companies to jointly develop and own at least seven of these
centers, each representing approximately $200 million of capital investment. The
initial scope of the arrangement will include joint ventures in projects
currently under development by TRG in Detroit (Great Lakes Crossing) and Mills
in Houston as well as proposed projects in Philadelphia and Boston. A number of
other locations across the nation are targeted for future initiatives.
TRG anticipates that its share of costs for development projects scheduled to
be completed in 1999 will be as much as $71 million in 1999. TRG's estimates of
1998 and 1999 capital spending include only projects approved by the Company's
board of directors and, consequently, TRG's estimates will change as new
projects are approved. Currently, TRG expects to open on average one $175
million to $200 million shopping center each year. TRG's estimates regarding
capital expenditures presented above are forward-looking statements and certain
significant factors could cause the actual results to differ materially,
including but not limited to: 1) actual results of negotiations with anchors,
tenants and contractors; 2) changes in the scope and number of projects; 3) cost
overruns; 4) timing of expenditures; 5) financing considerations; and 6) actual
time to complete projects.
Year 2000 Matters
The approach of the calendar year 2000 (Year 2000) presents issues for many
financial, information, and operational systems that may not properly recognize
the Year 2000. The Company has developed a high-level plan to address the risks
posed by the Year 2000 issue, covering affected application and infrastructure
systems. Affected systems include both informational (such as accounting and
payroll) and operational (such as elevators, security and lighting). The
Company's plan also addresses the effect of third parties with which it conducts
business, including tenants, vendors, contractors, creditors, and others. The
Company has completed the assessment, inventory and planning phases of its plan
and has determined that the majority of the Company's internal systems and all
of its mission critical systems are already Year 2000 compliant. The Company has
requested information and is obtaining commitments from tenants, vendors,
suppliers and business partners and is developing alternative solutions to
minimize the impact on the Company in the event they do not meet their Year 2000
commitments.
The Company expects to remediate any remaining issues encountered with
application and infrastructure systems through repair and/or replacement by
early 1999; the estimated costs of addressing this issue are not expected to be
material to 1998 or 1999 operations. The Company will also continue monitoring
the progress of material third parties' responses to the Year 2000 issue. The
Company believes that its most likely exposure will be the failure of third
parties in comprehensively addressing the issue. For example, failure of
tenants' information systems could delay the payment of rents. The Company is
developing contingency plans in response to such exposure, as appropriate.
Failure by the Company or those with which it conducts business to successfully
respond to the Year 2000 issue may have a material adverse effect on the
Company.
Cash Tender Agreement
A. Alfred Taubman 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). At A. Alfred
Taubman's election, his family, and Robert C. Larson and his family may
participate in tenders. 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 partner will bear all market risk if the market price at closing is
less than the purchase price and 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.
- 39 -
Based on a market value at September 30, 1998 of $14.00 per common share, the
aggregate value of interests in TRG that may be tendered under the Cash Tender
Agreement was approximately $333 million. The purchase of these interests at
September 30, 1998 would have resulted in the Company owning an additional 28%
interest in TRG.
Capital Resources
The Company believes that its net cash provided by operating activities,
distributions from the Joint Ventures, the unutilized portion of its credit
facilities, and its ability to access the credit markets, assure adequate
liquidity to conduct its operations in accordance with its distribution and
financing policies. TRG's borrowings are not and will not be recourse to the
Company without its consent.
- 40 -
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3 (a) -- Restated Articles of Incorporation of Taubman Centers, Inc.
3 (b) -- Restated By-Laws of Taubman Centers, Inc.
4 -- Revolving Credit Agreement dated as of September 21, 1998
among The Taubman Realty Group Limited Partnership, as
Borrower, UBS AG, New York Branch, as a Bank and UBS AG,
New York Branch, as Administrative Agent.
10 -- The Second Amendment and Restatement of Agreement of
Limited Partnership of the Taubman Realty Group Limited
Partnership dated September 30, 1998.
12 (a) -- Statement Re: Computation of Taubman Centers, Inc. Ratio of
Earnings to Preferred Stock Dividends.
12 (b) -- Statement Re: Computation of TRG's Ratios of Earnings to
Fixed Charges and Preferred Distributions.
27 -- Financial Data Schedule.
b) Current Reports on Form 8-K.
The Company voluntarily filed a current report on Form 8-K dated
September 30, 1998 to report a press release announcing TRG's
completion of the redemption of the General Motors Pension Trusts'
holding in TRG.
The Company voluntarily filed a current report on Form 8-K dated
August 20, 1998 to make available information regarding certain
current developments in the form of a press release and investor
supplements.
- 41 -
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: November 16, 1998 By: /s/ Lisa A. Payne
----------------------------
Lisa A. Payne
Executive Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number
------
3 (a) -- Restated Articles of Incorporation of Taubman Centers, Inc.
3 (b) -- Restated By-Laws of Taubman Centers, Inc.
4 -- Revolving Credit Agreement dated as of September 21, 1998
among The Taubman Realty Group Limited Partnership, as
Borrower, UBS AG, New York Branch, as a Bank and UBS AG,
New York Branch, as Administrative Agent.
10 -- The Second Amendment and Restatement of Agreement of
Limited Partnership of the Taubman Realty Group Limited
Partnership dated September 30, 1998.
12 (a) -- Statement Re: Computation of Taubman Centers, Inc. Ratio of
Earnings to Preferred Stock Dividends.
12 (b) -- Statement Re: Computation of TRG's Ratios of Earnings to
Fixed Charges and Preferred Distributions.
27 -- Financial Data Schedule.