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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1999.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to _________________
Commission File Number 1-11530
TAUBMAN CENTERS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Michigan 38-2033632
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Long Lake Road
Suite 300, P.O. Box 200
Bloomfield Hills, Michigan 48303-0200
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (248) 258-6800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Common Stock, New York Stock Exchange
$0.01 Par Value
8.3% Series A Cumulative New York Stock Exchange
Redeemable Preferred Stock,
$0.01 Par Value
Securities registered pursuant to Section 12(g) of the Act: None
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 periods that the registrant was
required to file such report(s)) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
X Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
As of March 21, 2000, the aggregate market value of the 52,679,418 shares of
Common Stock held by non-affiliates of the registrant was $603 million, based
upon the closing price ($11 7/16) on the New York Stock Exchange composite tape
on such date. (For this computation, the registrant has excluded the market
value of all shares of its Common Stock reported as beneficially owned by
executive officers and directors of the registrant and certain other
shareholders; such exclusion shall not be deemed to constitute an admission that
any such person is an "affiliate" of the registrant.) As of March 21, 2000,
there were outstanding 53,046,243 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be
held in 2000 are incorporated by reference into Part III.
PART I
Item 1. BUSINESS
The Company
Taubman Centers, Inc. (the "Company" or "TCO") was incorporated in Michigan
in 1973 and had its initial public offering ("IPO") in 1992. Upon completion of
the IPO, the Company became the managing general partner of The Taubman Realty
Group Limited Partnership (the "Operating Partnership" or "TRG"). The Company
has a 63% partnership interest in the Operating Partnership, through which the
Company conducts all its operations. The Company owns, develops, acquires, and
operates regional shopping centers ("Centers") and interests therein. The
Company's portfolio, as of December 31, 1999, includes 17 urban and suburban
Centers located in seven states. Four additional Centers are under construction
and are expected to open in 2001. Fourteen of the Centers are "super-regional"
centers because they have more than 800,000 square feet of gross leasable area.
The Operating Partnership also owns certain regional retail shopping center
development projects and more than 99% of The Taubman Company Limited
Partnership (the "Manager"), which manages the shopping centers, and provides
other services to the Operating Partnership and the Company. See the table on
pages 12 and 13 of this report for information regarding the Centers.
The Company is a real estate investment trust, or REIT, under the Internal
Revenue Code of 1986, as amended (the "Code"). In order to satisfy the
provisions of the Code applicable to REITs, the Company must distribute to its
shareholders at least 95% of its REIT taxable income and meet certain other
requirements. TRG's partnership agreement provides that the Operating
Partnership will distribute, at a minimum, sufficient amounts to its partners
such that the Company's pro rata share will enable the Company to pay
shareholder dividends (including capital gains dividends that may be required
upon the Operating Partnership's sale of an asset) that will satisfy the REIT
provisions of the Code.
Recent Developments
For a discussion of business developments that occurred in 1999, see the
response to Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" (MD&A).
The Shopping Center Business
There are several types of retail shopping centers, varying primarily by
size and marketing strategy. Retail shopping centers range from neighborhood
centers of less than 100,000 square feet of GLA to regional and super-regional
shopping centers. Retail shopping centers in excess of 400,000 square feet of
GLA are generally referred to as "regional" shopping centers, while those
centers having in excess of 800,000 square feet of GLA are generally referred to
as "super-regional" shopping centers. In this annual report on Form 10-K, the
term "regional shopping centers" refers to both regional and super-regional
shopping centers. The term "GLA" refers to gross retail space, including anchors
and mall tenant areas, and the term "Mall GLA" refers to gross retail space,
excluding anchors. The term "anchor" refers to a department store or other large
retail store. The term "mall tenants" refers to stores (other than anchors) that
are typically specialty retailers and lease space in shopping centers.
1
Business of the Company
The Company, as managing general partner of the Operating Partnership, is
engaged in the ownership, management, leasing, acquisition, development and
expansion of regional shopping centers.
The Centers:
o are strategically located in major metropolitan areas, many in communities
that are among the most affluent in the country, including New York City,
Los Angeles, Denver, Detroit, Phoenix, and Washington, D.C.;
o range in size between 438,000 and 1.5 million square feet of GLA and
between 133,000 and 594,000 square feet of Mall GLA. The smallest Center
has approximately 50 stores, and the largest has approximately 200 stores.
Of the 17 Centers, 14 are super-regional shopping centers;
o have approximately 2,340 stores operated by its mall tenants under
approximately 990 trade names;
o have 52 anchors, operating under 17 trade names;
o lease approximately 76% of Mall GLA to national chains, including
subsidiaries or divisions of The Limited (The Limited, Limited Express,
Victoria's Secret, and others), The Gap (The Gap, Banana Republic, and
others), and Venator Group, Inc. (Foot Locker, Kinney Shoes, and others);
and
o are among the most productive (measured by mall tenants' average per
square foot sales) in the United States. In 1999, mall tenants had average
per square foot sales of $453, which is substantially greater than the
average for all regional shopping centers owned by public companies.
The most important factor affecting the revenues generated by the Centers
is leasing to mall tenants (primarily specialty retailers), which represents
approximately 90% of revenues. Anchors account for less than 10% of revenues
because many own their stores and, in general, those that lease their stores do
so at rates substantially lower than those in effect for mall tenants.
The Company's portfolio is concentrated in highly productive super-regional
shopping centers. Of the 17 Centers, 14 had annual rent rolls at December 31,
1999 of over $10 million. The Company believes that this level of productivity
is indicative of the Centers' strong competitive position and is, in significant
part, attributable to the Company's business strategy and philosophy. The
Company believes that large shopping centers (including regional and especially
super-regional shopping centers) are the least susceptible to direct competition
because (among other reasons) anchors and large specialty retail stores do not
find it economically attractive to open additional stores in the immediate
vicinity of an existing location for fear of competing with themselves. In
addition to the advantage of size, the Company believes that the Centers'
success can be attributed in part to their other physical characteristics, such
as design, layout, and amenities.
2
Business Strategy And Philosophy
The Company believes that the regional shopping center business is not
simply a real estate development business, but rather an operating business in
which a retailing approach to the on-going management and leasing of the Centers
is essential. Thus the Company:
o Offers a large, diverse selection of retail stores in each Center to give
customers a broad selection of consumer goods and variety of price ranges.
o Endeavors to increase overall mall tenants' sales, and thereby increase
achievable rents, by leasing space to a constantly changing mix of
tenants.
o Seeks to anticipate trends in the retailing industry and emphasizes ongoing
introductions of new retail concepts into the Centers. Due in part to this
strategy, a number of successful retail trade names have opened their first
mall stores in the Centers. The Company believes that its execution of this
leasing strategy is unique in the industry and is an important element in
building and maintaining customer loyalty and increasing mall productivity.
o Provides innovative initiatives that utilize technology and the Internet
to heighten the shopping experience for customers, build customer loyalty
and increase tenant sales. One such initiative is the Company's ShopTaubman
on-to-one marketing program, which connects shoppers and retailers through
interactive in-center computer kiosks and on-line web-sites.
The Centers compete for retail consumer spending through diverse, in-depth
presentations of predominantly fashion merchandise in an environment intended to
facilitate customer shopping. While some Centers include stores that target
high-end, upscale customers, each Center is individually merchandised in light
of the demographics of its potential customers within convenient driving
distance.
The Company's leasing strategy involves assembling a diverse mix of mall
tenants in each of the Centers in order to attract customers, thereby generating
higher sales by mall tenants. High sales by mall tenants make the Centers
attractive to prospective tenants, thereby increasing the rental rates that
prospective tenants are willing to pay. The Company implements an active leasing
strategy to increase the Centers' productivity and to set minimum rents at
higher levels. Elements of this strategy include terminating leases of
under-performing tenants, renegotiating existing leases, and not leasing space
to prospective tenants that (though viable or attractive in certain ways) would
not enhance a Center's retail mix.
Potential For Growth
The Company's principal objective is to enhance shareholder value. The
Company seeks to maximize the financial results of its assets, while pursuing a
growth strategy that concentrates primarily on an active new center development
program.
Development of New Centers
The Company is pursuing an active program of regional shopping center
development. The Company believes that it has the expertise to develop
economically attractive regional shopping centers through intensive analysis of
local retail opportunities. The Company believes that the development of new
centers is the best use of its capital and an area in which the Company excels.
At any time, the Company has numerous potential development projects in various
stages.
During March 1999, the Company opened MacArthur Center, an enclosed
super-regional mall in Norfolk, Virginia. Additionally, four new centers are
currently under construction: International Plaza, an enclosed 1.3 million
square foot regional mall in Tampa, Florida; The Shops at Willow Bend, a 1.4
million square foot regional shopping center in the metropolitan Dallas area;
The Mall at Wellington Green, a 1.3 million square foot regional shopping center
located in west Palm Beach County, Florida; and Dolphin Mall, a 1.4 million
square foot value regional center in Miami, Florida. All four of these Centers
are expected to open in 2001.
3
The Company's policies with respect to development activities are designed
to reduce the risks associated with development. For instance, the Company
previously entered into an agreement to lease a center, while the Company
investigated the redevelopment opportunities of the center. Also, the Company
generally does not intend to acquire land early in the development process.
Instead, the Company generally acquires options on land or forms partnerships
with landholders holding potentially attractive development sites. The Company
typically exercises the options only once it is prepared to begin construction.
In addition, the Company does not intend to begin construction until a
sufficient number of anchor stores have agreed to operate in the shopping
center, such that the Company is confident that the projected sales and rents
from Mall GLA are sufficient to earn a return on invested capital in excess of
the Company's cost of capital. Having historically followed these principles,
the Company's experience indicates that less than 10% of the costs of the
development of a regional shopping center will be incurred prior to the
construction period; however, no assurance can be given that the Company will
continue to be able to so limit pre-construction costs.
While the Company will continue to evaluate development projects using
criteria, including financial criteria for rates of return, similar to those
employed in the past, no assurances can be given that the adherence to these
policies will produce comparable results in the future. In addition, the costs
of shopping center development opportunities that are explored but ultimately
abandoned will, to some extent, diminish the overall return on development
projects (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Capital Spending"
for further discussion of the Company's development activities).
Strategic Acquisitions
The Company's objective is to acquire existing centers only when they are
compatible with the quality of the Company's portfolio (or can be redeveloped to
that level) and that satisfy the Company's strategic plans and pricing
requirements.
The Company believes it will have additional opportunities to acquire
regional shopping centers, or interests therein, and will have certain
advantages in doing so.
o First, the management expertise of the Manager will enhance the leasing
and operation of newly acquired regional shopping centers. If
opportunities exist to expand, remodel, or re-merchandise the center
through new leasing, the Company's expertise will assist in making an
informed and timely evaluation of the economic consequences of such
activities prior to acquisition, as well as facilitate implementation of
such activities.
o Second, a center can be acquired for any combination of cash or equity
interests in the Operating Partnership or (subject to certain limitations)
the Company, possibly creating the opportunity for tax-advantaged
transactions for the seller, thereby reducing the price that might
otherwise have to be paid in an all cash transaction or making an
opportunity available that would not otherwise exist. The Operating
Partnership is able to offer partnership interests in itself in exchange
for shopping center interests, allowing sellers to diversify their
interests, attain liquidity not otherwise available, possibly defer taxes
that might otherwise be due if the interests were instead sold for cash,
maintain an investment in the regional shopping center business, and
resolve concerns sellers otherwise may have regarding future management of
their properties.
In addition, the Company may make other investments to enhance the value of
its business, for example, in April 1999, the Company made a strategic
investment in fashionmall.com, an online landlord. Visitors to the fashionmall
website find many of the same retailers in Taubman centers, including Sephora,
Gap, Esprit and Banana Republic. Understanding this developing shopping venue
will help the Company identify ways to maximize the opportunities of the
internet. Also, in November 1999, the Company acquired the retail leasing firm
Lord Associates, which will provide additional resources for the leasing of the
four new centers scheduled to open in 2001. Lord Associates has extensive
experience with value and entertainment specialty centers and had worked with
the Company on the leasing of Great Lakes Crossing.
4
Expansions of the Centers
Another potential element of growth is the strategic expansion of existing
properties to update and enhance their market positions, by replacing or adding
new anchor stores or increasing mall tenant space. Most of the Centers have been
designed to accommodate expansions. Expansion projects can be as significant as
new shopping center construction in terms of scope and cost, requiring
governmental and existing anchor store approvals, design and engineering
activities, including rerouting utilities, providing additional parking areas or
decking, acquiring additional land, and relocating anchors and mall tenants (all
of which must take place with a minimum of disruption to existing tenants and
customers). For example, a 21-screen theater will be added at Fairlane, in the
Detroit metropolitan area and is anticipated to open in the spring of 2000. At
Fair Oaks in the Washington, D.C. area, Hecht's expansion will open in the
spring of 2000, and a JCPenney expansion and a newly constructed Macy's store
will open in the fall of 2000.
The following table includes information regarding recent development,
acquisition, and expansion activities.
Developments:
Completion Date Center Location
July 1997 Tuttle Crossing (1) Columbus, Ohio
November 1997 Arizona Mills Tempe, Arizona
November 1998 Great Lakes Crossing Auburn Hills, Michigan
March 1999 MacArthur Center Norfolk, Virginia
Acquisitions:
Completion Date Center Location
September 1997 Regency Square Richmond, Virginia
December 1997 Tuttle Leasehold (1) Columbus, Ohio
December 1997 The Falls (1) (2) Miami, Florida
December 1999 Great Lakes Crossing - Auburn Hills, Michigan
additional interest (3)
Expansions, Renovations and Anchor Conversions:
Completion Date Center Location
March 1997 Beverly Center (4) Los Angeles, California
August 1997 Westfarms (5) West Hartford, Connecticut
November 1997 -
August 1998 Cherry Creek (6) Denver, Colorado
December 1997 Biltmore (7) Phoenix, Arizona
November 1998 Woodland Grand Rapids, Michigan
September 1999 Lakeside (8) Sterling Heights, Michigan
November 1999 Fairlane (8) Dearborn, Michigan
November 1999 Biltmore (9) Phoenix, Arizona
- ------------------
(1) Centers transferred to GMPT in connection with the GMPT Exchange (see
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations-GMPT Exchange and Related Transactions).
(2) Completely redeveloped and expanded in 1996 before the acquisition of The
Falls.
(3) In December 1999, an additional 5% interest in the center was acquired.
(4) Broadway converted to Bloomingdale's.
(5) 135,000 square foot expansion followed by the opening of a new Nordstrom in
September 1997.
(6) Lord & Taylor opened a new and expanded store in 1997. Additional 132,000
square foot expansion of mall tenant space opened in August of 1998.
(7) 50,000 square foot expansion of mall tenant space completed
(8) New food courts opened.
(9) Macy's expansion completed.
5
Internal Growth
The Centers are among the most productive in the nation, when measured by
mall tenant's average sales per square foot. Higher sales per square foot enable
mall tenants to remain profitable while paying occupancy costs that are a
greater percentage of total sales. As leases expire at the Centers, the Company
has consistently been able, on a portfolio basis, to lease the available space
to an existing or new tenant at higher rates.
Augmenting this growth, the Company is pursuing a number of new sources of
revenue from the Centers. For example, the Company has entered into a 15 year
lease agreement with JCDecaux, the world's largest street furniture and
outdoor advertising company. The agreement will create an in-mall advertising
program in the Company's portfolio of owned properties, creating new
point-of-sale opportunities for retailers and manufacturers as well as
heightening in-mall experience for shoppers. In addition, the Company expects
increased revenue from its specialty leasing efforts. In recent years a new
industry -- beyond traditional carts and kiosks -- has evolved, with more and
better quality specialty tenants. The Company has put in place a company-wide
program to maximize this opportunity.
Rental Rates
As leases have expired in the Centers, the Company has generally been able
to rent the available space, either to the existing tenant or a new tenant, at
rental rates that are higher than those of the expired leases. In a period of
increasing sales, rents on new leases will tend to rise as tenants' expectations
of future growth become more optimistic. In periods of slower growth or
declining sales, rents on new leases will grow more slowly or will decline for
the opposite reason. However, Center revenues nevertheless increase as older
leases roll over or are terminated early and replaced with new leases negotiated
at current rental rates that are usually higher than the average rates for
existing leases. The following table contains certain information regarding per
square foot base rent at Centers that have been owned and open for five years.
Year Ended December 31
---------------------------------------------
1999 1998(1) 1997 1996 1995
---- ---- ---- ---- ----
Average base rent per square foot:
All mall tenants $43.58 $41.93 $38.79 $37.90 $36.33
Stores closing during year $41.14 $44.27 $37.62 $33.39 $32.96
Stores opening during year $52.64 $47.92 $41.67 $42.39 $41.27
(1) Excludes centers transferred to GMPT.
6
Lease Expirations
The following table shows lease expirations based on information available
as of December 31, 1999 for the next ten years for the Centers in operation at
that date:
Percent of
Annualized Annualized Total Leased
Base Rent Base Rent Square Footage
Lease Number Leased Area Under Expiring Under Expiring Represented
Expiration of Leases in Square Leases Leases by Expiring
Year Expiring Footage (in thousands) Per Square Foot Leases
---- -------- ------- -------------- --------------- ------
2000 (1) 116 237,438 $ 9,918 $ 41.77 2.8%
2001 193 502,237 20,554 40.92 6.0%
2002 243 693,848 24,769 35.70 8.3%
2003 276 878,877 31,645 36.01 10.5%
2004 243 693,340 29,688 42.82 8.3%
2005 255 682,853 31,895 46.71 8.2%
2006 172 469,931 21,248 45.21 5.6%
2007 209 751,694 28,100 37.38 9.0%
2008 205 899,300 30,789 34.24 10.8%
2009 228 911,602 34,618 37.97 10.9%
(1) Excludes leases that expire in 2000 for which renewal leases or leases with
replacement tenants have been executed as of December 31, 1999.
The Company believes that the information in the table is not necessarily
indicative of what will occur in the future because of several factors, but
principally because its leasing policies and practices create a significant
level of early lease terminations at the Centers. For example, the average
remaining term of the leases that were terminated during the period 1994 to 1999
was approximately 1.9 years. The average term of leases signed during 1999 and
1998 was approximately 7.9 years.
In addition, mall tenants at the Centers may seek the protection of the
bankruptcy laws, which could result in the termination of such tenants' leases
and thus cause a reduction in cash flow. In 1999, approximately 3.1% of leases
were so affected compared to 1.2% in 1998, 1.5% in 1997, 2.8% in 1996, and 3.2%
in 1995. Since 1991, the annual provision for losses on accounts receivable has
been less than 2% of annual revenues.
Occupancy
Mall tenant average occupancy, ending occupancy, and leased space rates of
the Centers are as follows:
Year Ended December 31
1999 1998 (1) 1997 1996 1995
----- ---- ---- ---- ----
Average Occupancy 89.0% 89.4% 87.6% 87.4% 88.0%
Ending Occupancy 90.4% 90.2% 90.3% 88.0% 89.4%
Leased Space 92.1% 92.3% 92.3% 89.0% 90.6%
(1) Excludes centers transferred to GMPT.
Major Tenants
No single retail company represents 10% or more of the Company's revenues.
The combined operations of The Limited, Inc. accounted for approximately 8.3% of
leased Mall GLA as of December 31, 1999 and for approximately 7.1% of the 1999
base rent. The largest of these, in terms of square footage and rent, is The
Limited, which accounted for approximately 1.2% of leased Mall GLA and 1.2% of
1999 base rent. No other single retail company accounted for more than 4% of
leased Mall GLA or 1999 base rent.
7
General Risks of the Company
Economic Performance and Value of Shopping Centers Dependent on Many Factors
The economic performance and value of the Company's shopping centers are
dependent on various factors. Additionally, these same factors will influence
the Company's decision whether to go forward on the development of new centers
and may affect the ultimate economic performance and value of projects under
construction (see other risks associated with the development of new centers
under "Business of the Company--Development of New Centers"). Such factors
include:
o changes in the national, regional, and/or local economic climates,
o competition from other shopping centers, discount stores, outlet malls,
discount shopping clubs, direct mail and the Internet in attracting
customers and tenants,
o increases in operating costs,
o the public perception of the safety of customers at the shopping centers,
o environmental or legal liabilities,
o availability and cost of financing, and
o uninsured losses, resulting from wars, riots, or civil disturbances or
losses from earthquakes or floods in excess of policy specifications and
insured limits.
In addition, the value of shopping centers may be adversely affected by:
o changes in government regulations, and
o changes in real estate zoning and tax laws.
Adverse changes in the economic performance and value of shopping centers would
adversely affect the Company's income and cash available to pay dividends.
Third Party Interests in the Centers
Some of the shopping centers which the Company develops and leases are
partially owned by other non-affiliated partners through joint venture
arrangements. As a result, the Company may not be able to control all decisions
regarding those shopping centers and may be required to take actions that are in
the interest of the joint venture partners but not the Company's best interests.
Bankruptcy of Mall Tenants or Joint Venture Partners
The Company could be adversely affected by the bankruptcy of third parties.
The bankruptcy of a mall tenant could result in the termination of its lease
which would lower the amount of cash generated by that mall. In addition, if a
department store operating an anchor at one of our shopping centers were to go
into bankruptcy and cease operating, its closing may lead to reduced customer
traffic and lower mall tenant sales which would, in turn, affect the amount of
rent our tenants pay us. The profitability of shopping centers held in a joint
venture could also be adversely affected by the bankruptcy of one of the joint
venture partners if, because of certain provisions of the bankruptcy laws, the
Company was unable to make important decisions in a timely fashion or became
subject to additional liabilities.
8
Third Party Contracts
The Company provides property management, leasing, development and other
administrative services to centers transferred to GMPT, other third parties and
to certain Taubman affiliates. The contracts under which these services are
provided may be canceled or not renewed or may be renegotiated on terms less
favorable to the Company. Certain costs of providing services under these
contracts would not necessarily be eliminated if the contracts were to be
canceled or not renewed.
Inability to Maintain Status as a REIT
o The Company may not be able to maintain its status as a real estate
investment trust, or REIT, for Federal income tax purposes with the result
that the income distributed to shareholders will not be deductible in
computing taxable income and instead would be subject to tax at regular
corporate rates. Although the Company believes it is organized and operates
in a manner to maintain its REIT qualification, many of the REIT
requirements of the Internal Revenue Code are very complex and have limited
judicial or administrative interpretations. Changes in tax laws or
regulations or new administrative interpretations and court decisions may
also affect the Company's ability to maintain REIT status in the future. If
the Company fails to qualify as a REIT, its income may also be subject to
the alternative minimum tax. If the Company does not maintain its REIT
status in any year, it may be unable to elect to be treated as a REIT for
the next four taxable years. In addition, if the Company fails to meet the
Internal Revenue Code's requirement that it distribute to shareholders at
least 95% of our otherwise taxable income, it will be subject to a
nondeductible 4% excise tax on a portion of its income.
o Although the Company currently intends to maintain its status as a REIT,
future economic, market, legal, tax or other considerations may cause it to
determine that it would be in the Company's and its shareholders' best
interests to revoke its REIT election. As noted above, if the Company
revokes its REIT election, it will not be able to elect REIT status for the
next four taxable years.
9
Environmental Matters
All of the Centers presently owned by the Company (not including option
interests in the Development Projects or any of the real estate managed but not
included in the Company's portfolio) have been subject to environmental
assessments. The Company is not aware of any environmental liability relating to
the Centers or any other property, in which they have or had an interest
(whether as an owner or operator) that the Company believes, would have a
material adverse effect on the Company's business, assets, or results of
operations. No assurances can be given, however, that all environmental
liabilities have been identified or that no prior owner, operator, or current
occupant has created an environmental condition not known to the Company.
Moreover, no assurances can be given that (i) future laws, ordinances, or
regulations will not impose any material environmental liability or that (ii)
the current environmental condition of the Centers will not be affected by
tenants and occupants of the Centers, by the condition of properties in the
vicinity of the Centers (such as the presence of underground storage tanks), or
by third parties unrelated to the Company.
With respect to the matters described below, while there can be no
assurances, the Company believes that such matters will not have a material
adverse effect on the Company's business, assets, or results of operations.
Beverly Center is located over an oil field and several abandoned oil
wells, and is adjacent to an active oil production facility that operates
numerous oil and gas wells. In the Los Angeles basin, where Beverly Center is
located, pockets of methane gas may be found in oil fields; however, elevated
levels of methane have not been detected at Beverly Center.
Cherry Creek is situated on land that was used as a landfill prior to 1950.
Because of the past use of the site as a landfill, the site is listed on the
United States Environmental Protection Agency's Comprehensive Environmental
Response, Compensation and Liability Information System list.
In the summer of 1997, geotechnical drilling activities were undertaken in
the former gasoline station area as part of a parking lot expansion at the
southeastern corner of the Cherry Creek site. The geotechnical soil samples were
observed to have petroleum odors and staining. A subsurface environmental
investigation subsequently revealed a limited zone of hydrocarbon contaminated
soils, with no significant impacts to groundwater. Discussions with the Colorado
Department of Labor and Employment, Oil Inspection Section, held in September
1997, resulted in a "passive retardation" remedial approach that relies on
natural processes to degrade the hydrocarbon contamination. A Corrective Action
Plan was submitted and accepted in 1998 that provided for monitoring the soil
and groundwater. The monitoring procedures required under this plan have been
completed.
Paseo Nuevo is located in an area of known groundwater contamination by
tetrachloroethylene ("PCE"). The groundwater under and around the site was
monitored for six years before, during, and after construction of the center. No
on-site sources of PCE were identified during construction. The Regional Water
Quality Control Board has given approval to discontinue the monitoring program
because the PCE levels remained relatively constant over the six-year period and
do not exceed the state standard for PCE in drinking water.
There are asbestos containing materials ("ACMs") at most of the Centers,
primarily in the form of floor tiles, roof coatings and mastics. The floor
tiles, roof coatings and mastics are generally in good condition. The Manager
has developed and is implementing an operations and maintenance program that
details operating procedures with respect to ACMs prior to any renovation and
that requires periodic inspection for any change in condition of existing ACMs.
10
Personnel
The Company has engaged the Manager to provide real estate management,
acquisition, development, and administrative services required by the Company
and its properties.
As of December 31, 1999, the Manager had 447 full-time employees. The
following table provides a breakdown of employees by operational areas as of
December 31, 1999:
Number Of Employees
Property Management............................... 203
Leasing .......................................... 71
Development....................................... 52
Financial Services................................ 70
Other .......................................... 51
--
Total..................................... 447
===
The Manager considers its relations with its employees to be good.
Item 2. PROPERTIES
Ownership
The following table sets forth certain information about each of the
Centers. The table includes only Centers in operation at December 31, 1999.
Excluded from this table are Tampa International, The Shops at Willow Bend,
Dolphin Mall and the Mall at Wellington Green, all of which will open in 2001.
Centers are owned in fee other than Beverly Center, Cherry Creek, La Cumbre
Plaza, MacArthur Center and Paseo Nuevo, which are held under ground leases
expiring between 2028 and 2083.
Certain of the Centers are partially owned through joint ventures.
Generally, the Operating Partnership's joint venture partners have ongoing
rights with regard to the disposition of the Operating Partnership's interest in
the joint ventures, as well as the approval of certain major matters.
11
Sq. Ft. of GLA/ Year Ownership Percent of Mall
Mall GLA Opened/ Year % as of GLA Occupied 1999 Rent (1)
Owned Centers Anchors as of 12/31/99 Expanded Acquired 12/31/99 as of 12/31/99 (in Thousands)
- ------------- ------- --------------- -------- -------- --------- -------------- ----------------
Beverly Center Bloomingdale's, 902,000/ 1982 70%(2) 95% $ 27,388
Los Angeles, CA Macy's 594,000
Biltmore Fashion Park Macy's, Saks Fifth 620,000/ 1963/1992/ 1994 100% 91% 10,949
Phoenix, AZ Avenue 313,000 1997/1999
Cherry Creek Foley's, Lord & Taylor, 1,035,000/ 1990/1998 50% 94% 22,916
Denver, CO Neiman Marcus, Saks 562,000 (3)
Fifth Avenue
Fair Oaks Hecht's, JCPenney, 1,389,000/ 1980/1987/ 50% 86% 19,590
Fairfax, VA Lord & Taylor, 573,000 1988
(Washington, D.C. Sears (4)
Metropolitan Area)
Fairlane Town Center Hudson's, JCPenney, 1,400,000/(5) 1976/1978/ 100% 72% 13,417
Dearborn, MI Lord & Taylor, Saks 511,000 1980
(Detroit Metropolitan Fifth Avenue, Sears
Area)
La Cumbre Plaza Robinsons-May, Sears 479,000/ 1967/1989 1996 100% 94% 4,343
Santa Barbara, CA 179,000
Lakeside Hudson's, Hudson's Men's 1,478,000/ 1976/1978 50%(6) 88% 18,497
Sterling Heights, MI and Home, 516,000
(Detroit Metropolitan JCPenney, Lord & Taylor,
Area) Sears
MacArthur Center Dillard's, Nordstrom 945,000/ 1999 70% 88% 11,983
Norfolk, VA 531,000
Paseo Nuevo Macy's, Nordstrom 438,000/ 1990 1996 100% 96% 4,833
Santa Barbara, CA 133,000
Regency Square Hecht's (two locations), 826,000/ 1975/1987 1997 100% 97% 9,310
Richmond, VA JCPenney, Sears 239,000
The Mall at Short Hills Bloomingdale's, Macy's, 1,350,000/ 1980/1994/ 100% 97% 33,260
Short Hills, NJ Neiman Marcus, Nordstrom, 528,000 1995
Saks Fifth Avenue
Stamford Town Center Filene's, Macy's, Saks 868,000/ 1982 50% 88% 16,223
Stamford, CT Fifth Avenue 375,000
Twelve Oaks Mall Hudson's, JCPenney, 1,220,000/ 1977/1978 50%(6) 93% 20,601
Novi, MI Lord & Taylor, Sears 482,000
(Detroit Metropolitan
Area)
12
Sq. Ft. of GLA/ Year Ownership Percent of Mall
Mall GLA Opened/ Year % as of GLA Occupied 1999 Rent (1)
Owned Centers Anchors as of 12/31/99 Expanded Acquired 12/31/99 as of 12/31/99 (in Thousands)
- ------------- ------- --------------- -------- -------- --------- -------------- ----------------
Westfarms Filene's, Filene's 1,295,000/ 1974/1983/ 79% 94% $ 23,503
West Hartford, CT Men's Store/Furniture 525,000 1997
Gallery, JCPenney,
Lord & Taylor,Nordstrom
Woodland Hudson's, JCPenney, 1,095,000/ 1968/1974/ 50% 92% 15,721
Grand Rapids, MI Sears 370,000 1984/1989
Value Centers:
Arizona Mills GameWorks, Harkins 1,193,000/ 1997 37% 94% 22,840
Tempe, AZ Cinemas,JCPenney 533,000
(Phoenix Metropolitan Outlet, Neiman Marcus-
Area) Last Call, Off 5th Saks,
Rainforest Cafe
Great Lakes Crossing Bass Pro, GameWorks, 1,385,000/ 1998 85% 90% 22,556
Auburn Hills, MI JCPenney Outlet, 576,000
(Detroit Metropolitan Neiman Marcus-Last Call, ---------
Area) Off 5th Saks, Rainforest
Cafe, Star Theatres
Total GLA/Total
Mall GLA: 17,918,000/
7,540,000
Average GLA/Average
Mall GLA: 1,054,000/
444,000
- ------------------------
(1) Includes minimum and percentage rent for the year ended December 31, 1999.
Excludes rent from certain peripheral properties. For MacArthur Center,
which opened in March, the amounts reflect rents for the period subsequent
to opening date.
(2) The Company has an option to acquire the remaining 30%. The results of
Beverly Center are consolidated in the Company's financial statements.
(3) GLA excludes approximately 166,000 square feet for the renovated buildings
on adjacent peripheral land.
(4) A newly constructed Macy's store will open in the fall of 2000.
(5) A 21-screen theater will be added and is anticipated to open in the spring
of 2000.
(6) Under terms of an agreement expected to be completed in March 2000, the
Operating Partnership will exchange its 50% interest in Lakeside to obtain
a 100% interest in Twelve Oaks Mall.
13
Anchors
The following table summarizes certain information regarding the anchors at
the operating Centers (excluding the value centers) as of December 31, 1999.
Number of 12/31/99 GLA
Name Anchor Stores (in thousands) % of GLA
--- ------------- -------------- --------
May Company
Lord & Taylor 6 760
Hecht's 3 417
Filene's 2 379
Filene's Men's Store/
Furniture Gallery 1 80
Foley's 1 178
Robinsons-May 1 150
---- ------
Total 14 1,964 12.8%
Sears 7 1,582 10.3%
JCPenney 7 1,327 8.6%
Federated
Macy's 5 (1) 947
Bloomingdale's 2 379
---- -------
Total 7 1,326 8.6%
Dayton Hudson
Hudson's 4 853
Hudson's Men's & Home 1 115
---- -------
Total 5 968 6.3%
Nordstrom 4 677 4.4%
Saks 5 452 2.9%
Neiman Marcus 2 216 1.4%
Dillard's 1 254 1.7%
---- ------- -----
Total 52 8,766 57.1%
== ===== ====
(1) A new Macy's store will open at Fair Oaks in 2000.
14
Mortgage Debt
The following table sets forth certain information regarding the mortgages
encumbering the Centers as of December 31,1999. All mortgage debt in the table
below is nonrecourse to the Operating Partnership, except for debt encumbering
Arizona Mills, Great Lakes Crossing, Dolphin Mall, MacArthur Center, and
International Plaza. The Operating Partnership has guaranteed the payment of
principal and interest on the mortgage debt of these Centers. The loan
agreements provide for the reduction of the amounts guaranteed as certain center
performance and valuation criteria are met. The Operating Partnership's guaranty
of the Arizona Mills' principal is $13.1 million at December 31, 1999. The
guarantees on the Great Lakes Crossing and MacArthur Center mortgages are
currently for 100% of the outstanding balances. The guarantee on the Dolphin
Mall mortgage is currently for 50% of the outstanding balance and 100% of
accrued unpaid interest. The Operating Partnership has guaranteed the payment of
100% of the principal and interest on the International Plaza construction loan.
An investor in the International Plaza project has indemnified the Operating
Partnership to the extent of 25% of the amounts guaranteed on the International
Plaza loan. Assessment bonds totaling approximately $2.5 million, which are not
included in the table, also encumber Biltmore.
15
Principal
Balance Annual Debt Balance Due Earliest
Centers Consolidated in Interest as of 12/31/99 Service Maturity on Maturity Prepayment
TCO's Financial Statements Rate (000's) (000's) Date (000's) Date
- -------------------------- -------- -------------- ----------- -------- ----------- ----------------
Beverly Center 8.36% $146,000 Interest Only 07/15/04 $146,000 30 Days' Notice (1)
Biltmore 7.68% 80,000 Interest Only (2) 07/10/09 71,391 09/14/01 (3)
Great Lakes Crossing (85%) Floating (4) 170,000 Interest Only (5) 04/01/02 (6) 167,925 2 Days' Notice (7)
MacArthur Center (70%) Floating (8) 115,212 (9) Interest Only 10/27/00 (6) 115,212 4 Days' Notice (7)
Short Hills 6.70% 270,000 Interest Only (10) 04/01/09 245,301 05/01/04 (11)
Other Consolidated Secured Debt
TRG Credit Facility Floating (12) 63,000 Interest Only 09/21/01 63,000 2 Days' Notice (7)
Other 13.00% (13) 20,000 Interest Only 11/22/09 20,000 11/22/04 (14)
Centers Owned by Unconsolidated
Joint Ventures/TRG's % Ownership
Arizona Mills (37%) Floating (15) 142,214 Interest Only 02/01/02 142,214 5 Days' Notice (7)
Cherry Creek (50%) 7.68% 177,000 Interest Only (16) 08/11/06 171,933 08/02/02 (17)
Dolphin (50%) Floating (18) 22,267 Interest Only 10/06/02 (6) 22,267 3 Days' Notice (7)
Fair Oaks (50%) 6.60% 140,000 Interest Only 04/01/08 140,000 04/01/00 (1)
International Plaza (26%) Floating 0 Interest Only 11/10/02 (6) 0 3 Days' Notice (7)
Lakeside (50%) 6.47% 88,000 Interest Only 12/15/00 88,000 30 Days' Notice (1)
Stamford Town Center (50%) 11.69% (19) 54,053 (20) 7,207 12/01/17 0 30 Days' Notice (20)
Twelve Oaks Mall (50%) Floating (21) 49,971 Interest Only 10/15/01 50,000 30 Days' Notice (7)
Westfarms (79%) 7.85% 100,000 Interest Only 07/01/02 100,000 60 Days' Notice (1)
Westfarms (79%) Floating (22) 55,000 Interest Only 07/01/02 55,000 4 Days' Notice (7)
Woodland (50%) 8.20% 66,000 Interest Only 05/15/04 66,000 30 Days' Notice (1)
- ------------------------
(1) Debt may be prepaid with a yield maintenance prepayment penalty. No
prepayment penalty is due if prepaid within six months of maturity date.
(2) Interest only through 7/10/00.Thereafter, principal will be amortized based
on 30 years. Annual debt service will be $6.9 million.
(3) No defeasance deposit required if paid within three months of maturity
date.
(4) The rate is capped at 6.0% until 9/1/00, plus credit spread, based on
one-month LIBOR.
(5) Interest only until 4/1/01.Thereafter principal will be amortized based on
25 years.
(6) The maturity date may be extended one year. The MacArthur loan may be
extended an additional year.
(7) Prepayment can be made without penalty.
(8) The rate on the Operating Partnership's beneficial interest in the loan is
capped at 6.50% until 10/27/00, plus credit spread, based on one-month
LIBOR.
(9) The loan is a construction facility with a current maximum availability of
$120 million.
(10) Interest only until 4/1/02. Thereafter, principal will be amortized based
on 30 years. Annual debt service will be $20.9 million.
(11) Debt may be prepaid with a prepayment penalty equal to greater of yield
maintenance or 1% of principal prepaid. No prepayment penalty is due if
prepaid within three months of maturity date. 30 days notice required.
(12) The facility is a $200 million line of credit and is secured by mortgages
on Fairlane, LaCumbre, Paseo Nuevo, and Regency Square.
(13) Currently payable at 9%. Deferred interest is due at maturity. The loan is
secured by TRG's indirect interests in International Plaza.
(14) Debt may be prepaid with a yield maintenance prepayment penalty. 60 days
notice required.
(15) The rate is capped at 9.5% until maturity, plus credit spread, based on
one-month LIBOR.
(16) Interest only until 7/11/04. Thereafter, principal will be amortized based
on 25 years. Annual debt service will be $15.9 million.
(17) May prepay with a yield maintenance penalty on the earlier of 8/2/02 or 2
years from securitization. No prepayment penalty is due if redeemed within
three months of maturity date. 30-60 day notice required.
(18) The rate is capped at 7.0% until maturity, plus credit spread, based on
one-month LIBOR. The cap has an embedded swap with a rate of 5.15% when
LIBOR is below 6.0%.
(19) The lender was entitled to contingent interest equal to 20% of annual
applicable receipts in excess of $9.0 million.
(20) Debt was prepaid in January 2000. Property is now encumbered by a $76
million mortgage with a floating rate of one-month LIBOR + 0.80%.
(21) The rate is capped at 8.55% until maturity, plus credit spread, based on
one-month LIBOR.
(22) The rate is capped until maturity at 6.5%, plus credit spread, based on
one-month LIBOR.
For additional information regarding the Centers and their operation, see
the responses to Item 1 of this report.
16
Item 3. LEGAL PROCEEDINGS
Neither the Company, its subsidiaries, nor any of the joint ventures is
presently involved in any material litigation nor, to the Company's knowledge,
is any material litigation threatened against the Company, its subsidiaries or
any of the properties. Except for routine litigation involving present or former
tenants (generally eviction or collection proceedings), substantially all
litigation is covered by liability insurance.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Taubman Centers, Inc. is listed and traded on the New
York Stock Exchange (Symbol: TCO). As of March 21, 2000, the 53,046,243
outstanding shares of Common Stock were held by 715 holders of record.
The following table presents the dividends declared and range of share
prices for each quarter of 1999 and 1998.
Market Quotations
--------------------------------------
1999 Quarter Ended High Low Dividends
------------------ ---- --- ---------
March 31 $ 13 7/8 $ 11 5/8 $ 0.24
June 30 14 11 15/16 0.24
September 30 13 11/16 11 3/16 0.24
December 31 11 11/16 10 1/2 0.245
Market Quotations
--------------------------------------
1998 Quarter Ended High Low Dividends
------------------ ---- --- ---------
March 31 $ 13 11/16 $ 12 1/8 $ 0.235
June 30 14 3/8 12 3/4 0.235
September 30 14 3/4 12 1/4 0.235
December 31 14 3/16 12 5/16 0.24
17
During the fourth quarter of 1998, the Company offered and sold a total of
31,399,913 shares of Series B Non-Participating Convertible Preferred Stock (the
"Series B Stock") to the partners (other than the Company) in TRG, which is the
Company's subsidiary Operating Partnership, in an offering exempt from
registration under the Securities Act of 1933 (the "Securities Act"). Under the
Company's articles of incorporation, as amended on September 30, 1998, the
Company was required to offer each partner in the Operating Partnership (other
than the Company) the right to subscribe for Series B Stock on the basis of one
share of Series B Stock for each Unit of Partnership Interest in the Operating
Partnership owned by the subscribing partner. The aggregate offering price was
$38,400, which was equal to the Series B Stock's per share liquidation
preference of $0.001 multiplied by the number of shares sold. The Company sold
all of the offered shares. The Company offered and sold all shares directly and
did not pay any commissions or discounts.
In connection with its November 1999 acquisition of Lord Associates, the
Company issued 435,153 shares of Series B Stock as part of the consideration
paid to the owner. These shares will be released over a five-year period (5
shares had been released as of December 31 ,1999). The former owner, presently
an officer of the Company, has granted an irrevocable proxy to a subsidiary of
the Operating Partnership for the unreleased shares, and therefore has no voting
or dispositive power for these shares until release.
Each share of Series B Stock is entitled to one vote. The Series B Stock
and the Company's Common Stock vote as a single class on all matters submitted
to a vote of the Company's shareholders. The Series B Stock is not entitled to
dividends or other distributions, except upon liquidation as indicated above.
The Series B Stock is convertible under certain circumstances into Common
Stock at the ratio of one share of Common Stock for each 14,000 shares of Series
B Stock (with any resulting fractional shares of Common Stock being redeemed for
cash). Generally, a partner desiring to sell (by exchange or otherwise) Units in
the Operating Partnership to the Company must surrender for conversion shares of
Series B Stock equal in number to the Units being sold. In addition, if a
transfer of Series B Stock results in the transferee holding more shares of
Series B Stock than is permitted under the Company's articles of incorporation,
then the shares of Series B Stock in excess of the permitted number will
automatically convert into Common Stock (or will be redeemed for cash, as
indicated above).
The offerings of Series B Stock described above were exempt from
registration under the Securities Act pursuant to Section 4(2) of the Securities
Act. Under the Company's articles of incorporation, the Company may issue shares
of Series B Stock only to partners in the Operating Partnership. Offers were
limited to partners in the Operating Partnership, who constitute a limited
number of sophisticated investors (all of whom are "accredited investors," as
defined in Rule 501 under the Securities Act) fully familiar with the business
and operations of the Company, and did not involve any general solicitation or
advertising. Under the Company's articles of incorporation, resales of the
Series B Stock are permitted only if registered (or exempt from registration)
under the Securities Act, and each certificate evidencing Series B Stock carries
a restrictive legend.
In September and November 1999, the Operating Partnership offered and sold
a total of $100 million of 9% Cumulative Redeemable Preferred Partnership Equity
to institutional investors, in an offering exempt from registration pursuant to
Section 4(2) of the Securities Act. In connection with this private placement,
the Operating Partnership paid $2.5 million in total commissions to the
placement agent who facilitated both transactions. After 10 years (an in certain
circumstances, earlier), the holders of such preferred partnership equity have
the right to exchange their interests for shares of the Company's newly
authorized Series C and Series D Cumulative Redeemable Preferred Stock. Each
such series of the Company's preferred stock has substantially similar terms as
the preferred partnership equity being exchanged therefor and does not entitle
its holders to vote. No shares of Series C or Series D Cumulative Redeemable
Preferred Stock are currently outstanding.
18
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company and
should be read in conjunction with the financial statements and notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this report.
Year Ended December 31
------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands of dollars, except as noted)
STATEMENT OF OPERATIONS DATA:
Income before extraordinary items from investment in TRG (1) 29,349 21,368 19,831
Rents, recoveries and other shopping center revenues (1) 268,692 333,953
Income before extraordinary items, minority
and preferred interests 58,445 70,403 28,662 20,730 19,267
Extraordinary items (2) (468) (50,774) (444) 5,836
Minority interest (1) (30,031) (6,009)
TRG preferred distributions (3) (2,444)
Net income 25,502 13,620 28,662 20,286 25,103
Series A preferred dividends (4) (16,600) (16,600) (4,058)
Net income (loss) available to common shareowners 8,902 (2,980) 24,604 20,286 25,103
Income before extraordinary items per
common share - diluted 0.17 0.32 0.48 0.47 0.44
Net income (loss) per common share - diluted 0.16 (0.06) 0.48 0.46 0.57
Dividends per common share declared 0.965 0.945 0.925 0.89 0.88
Weighted average number of common shares outstanding 53,192,364 52,223,399 50,737,333 44,444,833 44,249,617
Number of common shares outstanding at end of period 53,281,643 52,995,904 50,759,657 50,720,358 44,134,913
Ownership percentage of TRG at end of period (1) 63% 63% 37% 37% 35%
BALANCE SHEET DATA (1) :
Investment in TRG 547,859 369,131 307,190
Real estate before accumulated depreciation 1,572,285 1,473,440
Total assets 1,596,911 1,480,863 556,824 378,527 315,076
Total debt 886,561 775,298
SUPPLEMENTAL INFORMATION (5) :
Funds from Operations allocable to TCO (6) 68,506 61,131 53,137 44,104 40,798
Mall tenant sales (7) 2,695,645 2,332,726 3,086,259 2,827,245 2,739,393
Sales per square foot (7) 453 426 384 377 364
Number of shopping centers at end of period 17 16 25 21 19
Ending Mall GLA in thousands of square feet 7,540 7,038 10,850 9,250 8,996
Average occupancy 89.0% 89.4% 87.6% 87.4% 88.0%
Ending occupancy 90.4% 90.2% 90.3% 88.0% 89.4%
Leased space (8) 92.1% 92.3% 92.3% 89.0% 90.6%
Average base rent per square foot (9) :
All mall tenants $43.58 $41.93 $38.79 $ 37.90 $ 36.33
Stores closing during year $41.14 $44.27 $37.62 $ 33.39 $ 32.96
Stores opening during year $52.64 $47.92 $41.67 $ 42.39 $ 41.27
- --------------------------
(1) On September 30, 1998 the Company obtained a majority and controlling
interest in The Taubman Realty Group Limited Partnership (TRG or the
Operating Partnership) as a result of the GMPT Exchange (see Management's
Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) - GMPT Exchange and Related Transactions). As a result of this
transaction, the Company's ownership of the Operating Partnership increased
to a majority and the Company began consolidating the Operating
Partnership. For years prior to 1998, amounts reflect the Company's
interest in the Operating Partnership under the equity method.
(2) Extraordinary items for 1995 through 1999 include charges related to the
extinguishment of debt, primarily consisting of prepayment premiums. Also,
in 1995, the Company recognized its $6.6 million share of an extraordinary
gain related to the disposition of Bellevue Center and the related
extinguishment of debt.
(3) In 1999, the Operating Partnership completed $100 million in private
placements of 9% Cumulative Redeemable Preferred Partnership Equity.
(4) In October 1997, the Company issued 8.3% Series A Preferred Stock.
(5) Operating statistics prior to 1998 include centers transferred to GMPT as
part of the GMPT Exchange.
(6) Funds from Operations is defined and discussed in MD&A - Liquidity and
Capital Resources - Funds from Operations. Funds from Operations does not
represent cash flow from operations, as defined by generally accepted
accounting principles, and should not be considered to be an alternative to
net income as a measure of operating performance or to cash flows as a
measure of liquidity.
(7) Based on reports of sales furnished by mall tenants.
(8) Leased space comprises both occupied space and space that is leased but not
yet occupied.
(9) Amounts include centers owned and open for at least five years.
19
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Selected
Financial Data and the Financial Statements of Taubman Centers, Inc. and the
Notes thereto.
General Background and Performance Measurement
The Company owns a managing general partner's interest in The Taubman
Realty Group Limited Partnership (the Operating Partnership or TRG), through
which the Company conducts all of its operations. The Operating Partnership
owns, develops, acquires, and operates regional shopping centers nationally. The
Consolidated Businesses consist of shopping centers that are controlled by
ownership or contractual agreement, development projects for future regional
shopping centers and The Taubman Company Limited Partnership (the Manager).
Shopping centers that are not controlled and that are owned through joint
ventures with third parties (Unconsolidated Joint Ventures) are accounted for
under the equity method.
The operations of the shopping centers are best understood by measuring
their performance as a whole, without regard to the Company's ownership
interest. 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, the Operating Partnership exchanged interests in 10
shopping centers (nine Consolidated Businesses and one Unconsolidated Joint
Venture) and a share of the Operating Partnership's debt for all of the
partnership units owned by two General Motors pension trusts (GMPT) (the GMPT
Exchange). See Results of Operations -GMPT Exchange and Related Transactions
below. Performance statistics presented below exclude these 10 centers
(transferred centers).
Mall Tenant Sales and Center Revenues
Over the long term, the level of mall tenant sales is the single most
important determinant of revenues of the shopping centers because mall tenants
provide approximately 90% of these revenues and because mall tenant sales
determine the amount of rent, percentage rent, and recoverable expenses
(together, total occupancy costs) that mall tenants can afford to pay. However,
levels of mall tenant sales can be considerably more volatile in the short run
than total occupancy costs.
The Company believes that the ability of tenants to pay occupancy costs and
earn profits over long periods of time increases as sales per square foot
increase, whether through inflation or real growth in customer spending. Because
most mall tenants have certain fixed expenses, the occupancy costs that they can
afford to pay and still be profitable are a higher percentage of sales at higher
sales per square foot.
20
The following table summarizes occupancy costs, excluding utilities, for
mall tenants as a percentage of mall tenant sales.
1999 1998 1997
---- ---- ----
Mall tenant sales (in thousands) $2,695,645 $2,332,726 $1,965,905
Sales per square foot 453 426 410
Minimum rents 9.7% 9.7% 10.0%
Percentage rents 0.2 0.3 0.3
Expense recoveries 4.3 4.1 4.2
----- ----- -----
Mall tenant occupancy costs 14.2% 14.1% 14.5%
===== ===== =====
Occupancy
Historically, average annual occupancy has been within a narrow band. In
the last ten years, average annual occupancy has ranged between 86.5% and 89.4%.
Mall tenant average occupancy, ending occupancy and leased space rates are as
follows:
1999 1998 1997
---- ---- ----
Mall Tenant Average Occupancy 89.0% 89.4% 88.0%
Ending Occupancy 90.4 90.2 90.7
Leased Space 92.1 92.3 92.7
Rental Rates
As leases have expired in the shopping centers, the Company has generally
been able to rent the available space, either to the existing tenant or a new
tenant, at rental rates that are higher than those of the expired leases. In a
period of increasing sales, rents on new leases will tend to rise as tenants'
expectations of future growth become more optimistic. In periods of slower
growth or declining sales, rents on new leases will grow more slowly or will
decline for the opposite reason. However, Center revenues nevertheless increase
as older leases roll over or are terminated early and replaced with new leases
negotiated at current rental rates that are usually higher than the average
rates for existing leases. The following table contains certain information
regarding per square foot base rent at the shopping centers that have been owned
and open for five years.
1999 1998 1997
---- ---- ----
Average Base Rent per square foot:
All mall tenants $43.58 $41.93 $41.37
Stores closing during the year $41.14 $44.27 $39.07
Stores opening during the year $52.64 $47.92 $41.08
In 1999, average base rent per square foot for stores opening during the
year was somewhat weighted by the leasing of smaller than average spaces at
several of the Company's most productive centers. The Company expects the rent
spread between opening and closing stores in 2000 to be in the Company's
historic range of $5.00 to $10.00 per square foot. However, this statistic is
difficult to predict in part because the Company's leasing policies and
practices may result in early lease terminations with actual average closing
rents per square foot which may vary from the average rent per square foot of
scheduled lease expirations.
21
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.
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
1999 1999 1999 1999 1999
------------------------------------------------------------------------------
(in thousands)
Mall Tenant Sales $533,730 $598,956 $ 610,520 $952,439 $2,695,645
Revenues 117,485 127,669 125,140 139,327 509,621
Occupancy:
Average 88.5% 88.1% 88.9% 90.3% 89.0%
Ending 87.5% 88.0% 89.5% 90.4% 90.4%
Leased Space 91.3% 91.7% 92.8% 92.1% 92.1%
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.
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
1999 1999 1999 1999 1999
--------------- -------------- --------------- --------------- ---------------
Minimum Rents 11.8% 10.8% 10.7% 7.2% 9.7%
Percentage Rents 0.2 0.1 0.1 0.5 0.2
Expense Recoveries 4.6 4.9 4.5 3.4 4.3
----- ----- ----- ----- -----
Mall Tenant Occupancy Costs 16.6% 15.8% 15.3% 11.1% 14.2%
----- ----- ----- ----- -----
Results of Operations
The following represent significant debt and equity transactions, new
center openings, expansions, and acquisitions which affect the operating results
described under Comparison of 1999 to 1998.
GMPT Exchange and Related Transactions
On September 30, 1998, the Operating Partnership 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 common shares of $13.50 for the two week
period prior to the closing), providing the Company with a majority and
controlling interest in the Operating Partnership. The Operating Partnership
continues to manage the centers exchanged under management agreements with GMPT.
The management agreements are cancelable with 90 days notice. Certain costs of
providing services under these agreements, including administrative and certain
other fixed costs, would not necessarily be eliminated if the contracts were to
be canceled or not renewed. The actual reduction of costs would be affected by
whether all or a portion of the contracts were canceled or not renewed, timing
of the cancellation or non-renewal, and actual or anticipated changes in the
Operating Partnership's owned or managed portfolio.
In anticipation of the GMPT Exchange, the Operating Partnership used the
$1.2 billion proceeds from two bridge loans to extinguish $1.1 billion of debt
in September 1998. The remaining proceeds were used primarily to pay prepayment
premiums and transaction costs. 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. The $340 million balance on the
second bridge loan was refinanced during the first half of 1999.
22
Concurrently with the GMPT Exchange the Operating Partnership, expecting to
reduce its annual general and administrative expense, committed to a
restructuring of its operations and recognized a $10.7 million charge related to
this restructuring. During the fourth quarter of 1998, general and
administrative expense decreased $2.2 million from the comparable period in
1997. During 1999, general and administrative expense decreased $6.5 million
from 1998. Substantially all of the decrease in 1999 expense occurred in the
first three quarters of 1999.
Because the Company's portfolio changed significantly as a result of the
GMPT Exchange, the results of operations of the transferred centers have been
separately classified within the Consolidated Businesses and Unconsolidated
Joint Ventures for purposes of analyzing and understanding the historical
results of the current portfolio.
Since the Company's interest in the Operating Partnership has been its sole
material asset throughout all periods presented, references in the following
discussion to "the Company" include the Operating Partnership, except where
intercompany transactions are discussed or as otherwise noted, even though the
Operating Partnership did not become a consolidated subsidiary until September
30, 1998.
Other Debt and Equity Transactions
In September and November 1999, the Operating Partnership completed private
placements totaling $100 million of 9% Cumulative Redeemable Preferred
Partnership Equity (Series C Preferred Equity and Series D Preferred Equity,
respectively), which were purchased by institutional investors. The net proceeds
were used to pay down lines of credit.
In August 1999, a seven-year secured financing of $177 million with an
all-in rate of 7.8% was completed by the 50% owned Unconsolidated Joint Venture
that owns Cherry Creek. The proceeds were used to repay the existing $130
million mortgage and transaction costs. The remaining net proceeds of
approximately $45.2 million were distributed to the Operating Partnership, which
had contributed all the funding for the 1998 expansion of Cherry Creek. The
Operating Partnership used the distribution to pay down lines of credit.
In June 1999, the Operating Partnership's $200 million line of credit
facility was securitized, with interests in Fairlane, LaCumbre, Paseo Nuevo, and
Regency Square serving as collateral. The rate on the line was decreased to
LIBOR plus 0.90%.
In April 1999, a ten-year financing of $270 million with an all-in rate of
approximately 6.9% secured by The Mall at Short Hills was completed. Also, in
June 1999, a ten-year financing of $80 million with an all-in rate of
approximately 7.8% secured by Biltmore Fashion Park was completed. The net
proceeds of these financings were used to pay off the entire $340 million
balance on the bridge loan.
In April 1999, a three-year $170 million loan secured by Great Lakes
Crossing was finalized, with proceeds used to repay the balance of the existing
construction facility. The loan bears interest at one-month LIBOR plus 1.50%. In
addition, the Company finalized an amendment to the MacArthur Center
construction facility, with total availability under the facility of $120
million at an interest rate of one-month LIBOR plus 1.35%.
In January 1998, the Operating Partnership 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.
23
Openings, Expansions, Acquisitions, and Other
In March 1999, MacArthur Center, a 70% owned enclosed super-regional mall,
opened in Norfolk, Virginia. In November 1998, Great Lakes Crossing, an 85% (an
increase from 80%-see below) owned enclosed value super-regional mall, opened in
Auburn Hills, Michigan. Both Great Lakes Crossing and MacArthur Center are owned
by joint ventures in which the Operating Partnership has a controlling interest,
and consequently the results of these centers are consolidated in the Company's
financial statements. The Operating Partnership is entitled to a preferred
return on its equity contributions to these centers. The contributed capital was
used to fund construction costs. The income effect of the cumulative preferred
return net of the interest on the Operating Partnership's associated borrowings
was approximately $2.0 million for 1999. The net effect in 2000 of any recurring
preference is expected to be minimal. At Cherry Creek, a 132,000 square foot
expansion opened in stages throughout the fall of 1998.
In November 1999, the Operating Partnership acquired Lord Associates, a
retail leasing firm based in Alexandria, Virginia for $2.5 million in cash and
$5 million in partnership units, which are subject to certain contingencies. In
addition, $1.0 million of the purchase price is contingent upon profits achieved
on acquired leasing contracts. Of the cash purchase price, approximately $1.0
million was paid at closing and $1.5 million will be paid over five years.
In 1996, the Operating Partnership entered into an agreement to lease
Memorial City Mall, a 1.4 million square foot shopping center located in
Houston, Texas. The lease was subject to certain provisions that enabled the
Operating Partnership to explore significant redevelopment opportunities and
terminate the lease obligations in the event such redevelopment opportunities
were not deemed to be sufficient. In November 1999, the Operating Partnership
exercised its option to terminate the lease. Under the terms of the lease, the
Operating Partnership will continue to manage the center until May 2000.
In December 1999, the Operating Partnership acquired an additional 5%
interest in Great Lakes Crossing for $1.2 million in cash, increasing the
Operating Partnership's interest in the center to 85%.
Subsequent Events
In January 2000, the Company agreed to exchange property interests with its
current joint venture partner in two Unconsolidated Joint Ventures. Under the
terms of the agreement, expected to be completed in first quarter 2000, the
Operating Partnership will assume 100 percent ownership of Twelve Oaks Mall and
the current joint venture partner will become 100 percent owner of Lakeside.
Both properties will remain subject to the existing mortgages ($50 million and
$88 million at Twelve Oaks and Lakeside, respectively.) The Operating
Partnership will also pay the joint venture partner $30 million in cash. The
Operating Partnership will continue to manage Twelve Oaks, while the joint
venture partner will assume management responsibility of Lakeside at closing.
Upon completion of the transaction, the Company expects to recognize a gain on
the exchange, representing the excess of the fair value over the net book basis
of the Company's interest in Lakeside Mall, adjusted for the $30 million paid
and transaction costs. Aside from this book gain, the Company does not expect
the transaction to have a material effect on the Company's results of
operations.
In January 2000, the 50% owned Unconsolidated Joint Venture that owns
Stamford Town Center completed a $76 million secured financing. The new
financing bears interest at a rate of one-month LIBOR plus 0.8% and matures in
2002 with a two-year extension option. The rate is capped at 8.2% plus credit
spread for the term of the loan. The proceeds were used to repay the $54 million
participating mortgage, the $18.3 million prepayment premium, and accrued
interest and transaction costs.
24
Presentation of Operating Results
In order to facilitate the analysis of the ongoing business for periods
prior to the GMPT Exchange, the following tables contain the combined operating
results of the Company and the Operating Partnership and also present separately
the revenues and expenses, other than interest, depreciation and amortization,
of the transferred centers. Income allocated to the noncontrolling partners and
preferred interests is deducted to arrive at the results allocable to the
Company's common shareowners. Because the net equity of the Operating
Partnership's unitholders is less than zero, for periods subsequent to the GMPT
Exchange, the income allocated to the noncontrolling partners is equal to their
share of distributions. The net equity of these minority partners is less than
zero due to accumulated distributions in excess of net income and not as a
result of operating losses. Distributions to partners are usually greater than
net income because net income includes non-cash charges for depreciation and
amortization. The Company's average ownership percentage of the Operating
Partnership was 63% for 1999 and 43% for 1998 (including averages of 39% for the
period through the GMPT Exchange and 63% thereafter.)
25
Comparison of 1999 to 1998
The following table sets forth operating results for 1999 and 1998, showing
the results of the Consolidated Businesses and Unconsolidated Joint Ventures:
1999 1998
--------------------------------------------- ----------------------------------------------
UNCONSOLIDATED UNCONSOLIDATED
CONSOLIDATED JOINT CONSOLIDATED JOINT
BUSINESSES(1) VENTURES(2) TOTAL BUSINESSES(1) VENTURES(2) TOTAL
--------------------------------------------- ----------------------------------------------
(in millions of dollars)
REVENUES:
Minimum rents 133.9 158.1 292.1 99.8 149.3 249.1
Percentage rents 4.6 3.9 8.6 5.2 3.7 8.9
Expense recoveries 78.9 83.6 162.4 57.9 79.2 137.1
Management, leasing and
development 23.9 23.9 12.3 12.3
Other 16.3 6.4 22.7 17.4 6.8 24.2
Revenues - transferred centers 129.7 47.2 177.0
------- ------- ------- ------- ------- -------
Total revenues 257.6 252.0 509.6 322.3 286.3 608.6
OPERATING COSTS:
Recoverable expenses 69.5 69.4 138.9 51.4 66.0 117.4
Other operating 28.9 13.0 41.9 25.7 11.7 37.4
Management, leasing and
development 17.2 17.2 8.0 8.0
Expenses other than interest,
depreciation and amortization
- transferred centers 44.3 17.7 62.0
General and administrative 18.1 18.1 24.6 24.6
Interest expense 51.3 64.4 115.8 75.8 69.7 145.5
Depreciation and amortization(3) 51.9 29.7 81.6 57.0 31.5 88.5
------- ------- ------- ------- ------- -------
Total operating costs 237.0 176.5 413.5 286.8 196.7 483.5
Net results of Memorial City (1) (1.4) (1.4) (0.8) (0.8)
------- ------- ------- ------- ------- -------
19.2 75.6 94.7 34.7 89.7 124.4
======= ======= ======= =======
Equity in income before
extraordinary items of
Unconsolidated Joint Ventures(3) 39.3 46.4
Restructuring loss (10.7)
------- -------
Income before extraordinary items,
minority and preferred interests 58.4 70.4
Extraordinary items (0.5) (50.8)
TRG preferred distributions (2.4)
Minority share of income (17.6) (4.2)
Distributions in excess of minority
share of income (12.4) (1.8)
------- -------
Net income 25.5 13.6
Series A preferred dividends (16.6) (16.6)
------- -------
Net income (loss) available to
common shareowners 8.9 (3.0)
======= =======
SUPPLEMENTAL INFORMATION(4):
EBITDA contribution 118.6 94.1 212.7 168.3 104.3 272.6
Beneficial Interest Expense (47.6) (34.5) (82.1) (75.8) (37.1) (112.9)
Non-real estate depreciation (2.7) (2.7) (2.3) (2.3)
Preferred dividends and distributions (19.0) (19.0) (16.6) (16.6)
------- ------- ------- ------- ------- -------
Funds from Operations contribution 49.3 59.7 108.9 73.7 67.1 140.8
======= ======= ======= ======= ======= =======
(1) The results of operations of Memorial City are presented net in this table.
(2) With the exception of the Supplemental Information, amounts represent 100%
of the Unconsolidated Joint Ventures. Amounts are net of intercompany
profits.
(3) Included in 1999 (a) Equity in income before extraordinary item of
Unconsolidated Joint Ventures and (b) Depreciation and amortization are
charges of $4.7 million and $3.8 million, respectively, representing
amortization of the Company's additional basis in the Operating
Partnership.
(4) EBITDA represents earnings before interest and depreciation and
amortization. Funds from Operations is defined and discussed in Liquidity
and Capital Resources.
(5) Amounts in this table may not add due to rounding.
(6) Certain 1998 amounts have been reclassified to conform to 1999
classifications.
26
Consolidated Businesses
Total revenues for the year ended December 31, 1999 were $257.6 million, a
$65.0 million, or 33.7%, increase over the comparable period in 1998, excluding
revenues of the transferred centers. Minimum rents increased $34.1 million of
which $30.6 million was caused by the opening of MacArthur Center and Great
Lakes Crossing. Minimum rents also increased due to tenant rollovers. Expense
recoveries increased primarily due to the new centers. Revenues from management,
leasing, and development services increased primarily due to the management
agreements with GMPT. Other revenue decreased primarily due to a decrease in
gains on sales of peripheral land, partially offset by increases in garage and
trash removal services and lease cancellation fees.
Total operating costs were $237.0 million, a $5.5 million, or 2.3% decrease
from the comparable period in 1998, excluding expenses other than depreciation,
amortization and interest of the transferred centers. Recoverable expenses
increased primarily due to Great Lakes Crossing and MacArthur Center. Other
operating expense increased due to an increase in the charge to operations for
costs of unsuccessful and potentially unsuccessful pre-development activities,
the new centers, and bad debt expense. Costs of management, leasing and
development services increased primarily due to the management agreements with
GMPT. General and administrative expense decreased $6.5 million primarily due to
decreases in payroll costs, travel and professional fees. Interest expense
decreased primarily due to the assumption of debt by GMPT as part of the GMPT
Exchange and debt paid down with the proceeds of the Series C and Series D
Preferred Equity offerings, partially offset by an increase in debt used to
finance Great Lakes Crossing and MacArthur Center and a decrease in capitalized
interest related to these centers. Depreciation and amortization expenses
decreased due to the transferred centers, partially offset by an increase due to
the new centers.
During 1998, a $10.7 million loss on the restructuring was recognized,
which primarily represented the cost of certain involuntary terminations of
personnel.
Unconsolidated Joint Ventures
Total revenues for the year ended December 31, 1999 were $252.0 million, a
$12.9 million, or 5.4%, increase from the comparable period of 1998, excluding
revenues of the transferred center. Minimum rents increased due to the expansion
at Cherry Creek and tenant rollovers. Expense recoveries also increased because
of the Cherry Creek expansion and an increase in property taxes recoverable from
tenants at certain centers.
Total operating costs decreased by $20.2 million (of which $17.7 million
represented the expenses other than interest, depreciation, and amortization of
the transferred center) to $176.5 million for the year ended December 31, 1999.
Recoverable expenses increased primarily due to the Cherry Creek expansion and
an increase in property taxes at certain centers. Other operating expense
increased primarily due to increases in bad debt expense. Interest expense
decreased primarily due to the assumption of debt by GMPT as part of the GMPT
Exchange. Depreciation and amortization decreased due to the transferred center,
offset by an increase due to the Cherry Creek expansion.
Income before extraordinary items of the Unconsolidated Joint Ventures
decreased by $14.1 million, or 15.7%, to $75.6 million. The Company's equity in
income before extraordinary items of the Unconsolidated Joint Ventures was $39.3
million, a 15.3% decrease from the comparable period in 1998.
Net Income
As a result of the foregoing, the Company's income before extraordinary
items, minority and preferred interests decreased $12.0 million, or 17.0%, to
$58.4 million for the year ended December 31, 1999. The Company recognized $0.5
million in extraordinary losses related to the extinguishment of debt during
1999, while an extraordinary charge of $50.8 million for the extinguishment of
debt, primarily related to the GMPT Exchange, was recognized in 1998. The income
of the Operating Partnership allocable to minority partners increased to a total
of $30.0 million, from $6.0 million in 1998, primarily due to the minority
partners' $30.7 million share of the extraordinary charges in 1998.
Distributions of $2.4 million to the Operating Partnership's Series C and Series
D Preferred Equity owners were made in 1999. After payment of $16.6 million in
Series A preferred dividends, net income (loss) available to common shareowners
for 1999 was $8.9 million compared to $(3.0) million in 1998.
27
Comparison of 1998 to 1997
Discussion of significant debt and equity transactions, acquisitions, and
openings occurring in 1998 is included in the Comparison of 1999 to 1998.
Significant 1997 items are described below.
In October 1997, the Company used the $200 million public offering of eight
million shares of 8.3% Series A Cumulative Redeemable Preferred Stock to acquire
a preferred equity interest in the Operating Partnership. The Operating
Partnership used the net proceeds to pay down debt under existing revolving
credit and commercial paper facilities, which were used to fund the acquisition
of Regency Square in September 1997. In September 1997, the Operating
Partnership acquired Regency Square (Regency) shopping center for $123.9 million
in cash. Additionally, in November 1997, the Operating Partnership opened
Arizona Mills, a 37% owned value super-regional shopping center. In December
1997, the Operating Partnership acquired The Falls shopping center for $156
million in cash and the leasehold interest in The Mall at Tuttle Crossing, which
opened in July 1997. These two centers were transferred to GMPT.
A 135,000 square foot expansion opened at Westfarms in August 1997. In
addition, approximately 50,000 square feet of new mall stores opened at Biltmore
in 1997.
The Company's average ownership percentage of the Operating Partnership was
43% for 1998 (including averages of 39% for the period through the GMPT Exchange
and 63% thereafter) and 37% for 1997.
28
Comparison of 1998 to 1997
The following table sets forth operating results for 1998 and 1997, showing
the results of the Consolidated Businesses and Unconsolidated Joint Ventures:
1998 1997
--------------------------------------------- ----------------------------------------------
UNCONSOLIDATED UNCONSOLIDATED
CONSOLIDATED JOINT CONSOLIDATED JOINT
BUSINESSES(1) VENTURES(2) TOTAL BUSINESSES(1) VENTURES(2) TOTAL
--------------------------------------------- ----------------------------------------------
(in millions of dollars)
REVENUES:
Minimum rents 99.8 149.3 249.1 86.4 121.1 207.5
Percentage rents 5.2 3.7 8.9 5.0 2.6 7.5
Expense recoveries 57.9 79.2 137.1 51.6 64.4 115.9
Management, leasing and
development 12.3 12.3 8.5 8.5
Other 17.4 6.8 24.2 11.4 8.0 19.4
Revenues - transferred centers 129.7 47.2 177.0 138.9 62.7 201.6
------- ------- ------ ------- ------- -------
Total revenues 322.3 286.3 608.6 301.6 258.8 560.4
OPERATING COSTS:
Recoverable expenses 51.4 66.0 117.4 45.6 53.7 99.2
Other operating 25.7 11.7 37.4 16.8 10.7 27.5
Management, leasing
and development 8.0 8.0 4.4 4.4
Expenses other than interest,
depreciation and amortization
- transferred centers 44.3 17.7 62.0 47.7 23.9 71.5
General and administrative 24.6 24.6 26.7 26.7
Interest expense 75.8 69.7 145.5 73.6 54.5 128.2
Depreciation and amortization 57.0 31.5 88.5 49.2 23.7 72.8
------- ------- ------ ------- ------- -------
Total operating costs 286.8 196.7 483.5 264.0 166.4 430.4
Net results of Memorial City (1) (0.8) (0.8) 0.0 0.0
------- ------- ------ ------- ------- -------
34.7 89.7 124.4 37.6 92.4 130.0
======= ====== ======= =======
Equity in income before
extraordinary item of
Unconsolidated Joint Ventures 46.4 48.8
Restructuring loss (10.7)
------- -------
Income before extraordinary items,
minority and preferred interests 70.4 86.4
Extraordinary items (50.8)
Minority share of income (4.2) (57.8)
Distributions in excess of minority
share of income (1.8) -------
-------
Net income 13.6 28.7
Series A preferred dividends (16.6) (4.1)
------- -------
Net income (loss) available to
common shareowners (3.0) 24.6
======== =======
SUPPLEMENTAL INFORMATION (3):
EBITDA contribution 168.3 104.3 272.6 161.4 94.4 255.7
Beneficial Interest Expense (75.8) (37.1) (112.9) (73.6) (29.3) (102.9)
Non-real estate depreciation (2.3) (2.3) (2.1) (2.1)
Preferred dividends and distributions (16.6) (16.6) (4.1) (4.1)
------ ------- ------ ------ ------- ------
Funds from Operations contribution 73.7 67.1 140.8 81.6 65.1 146.7
====== ======= ====== ====== ======= ======
(1) The results of operations of Memorial City are presented net in this table.
(2) With the exception of the Supplemental Information, amounts represent 100%
of the Unconsolidated Joint Ventures. Amounts are net of intercompany
profits.
(3) EBITDA represents earnings before interest and depreciation and
amortization. Funds from Operations is defined and discussed in Liquidity
and Capital Resources.
(4) Amounts in this table may not add due to rounding.
(5) Certain 1998 and 1997 amounts have been reclassified to conform to 1999
classifications.
29
Consolidated Businesses
Total revenues for 1998 were $322.3 million, a $20.7 million, or 6.9%,
increase over 1997. Minimum rents increased $13.4 million, of which $8.9 million
was due to the opening of Great Lakes Crossing and the acquisition of Regency.
Minimum rents also increased because of the expansion at Biltmore and tenant
rollovers. Expense recoveries increased primarily due to Great Lakes Crossing
and Regency. Revenues from management, leasing and development services
increased primarily due to the new management agreements with GMPT. Other
revenue increased primarily due to an increase in gains on sales of peripheral
land and lease cancellation revenue.
Total operating costs increased $22.8 million, or 8.6%, to $286.8 million.
Recoverable and other operating expenses increased due to Great Lakes Crossing
and Regency. Other operating expense also increased due to professional fees,
management expense and an increase in the charge to operations for costs of
unsuccessful and potentially unsuccessful pre-development activities. General
and administrative expense decreased $2.1 million between periods due to
decreases in payroll and reduced employee relocation and recruiter costs,
partially offset by increases attributable to the phase-in of the long term
compensation plan.
Interest expense increased due to an increase in debt used to finance
Tuttle Crossing, the acquisition of The Falls and the redemption of a partner's
interest in the Operating Partnership, partially offset by a decrease in debt
paid down with the proceeds of the October 1997 and April 1998 equity offerings
and the assumption of debt by GMPT as part of the GMPT Exchange. Depreciation
and amortization expense increased due to Great Lakes Crossing, Tuttle Crossing,
Regency and The Falls, partially offset by the decrease in expense due to the
transferred centers only being included in 1998 through the date of the GMPT
Exchange.
Revenues and expenses other than interest and depreciation for the
transferred centers for 1998 represent operations through the date of the GMPT
Exchange. The resulting decreases from 1997 were partially offset by increases
in revenues and expenses due to the acquisition of The Falls and the opening of
Tuttle Crossing.
During 1998, a $10.7 million loss on the restructuring was recognized,
which primarily represented the cost of certain involuntary terminations of
personnel.
Unconsolidated Joint Ventures
Total revenues for 1998 were $286.3 million, a $27.5 million, or 10.6%,
increase from 1997. The increase in minimum rents and expense recoveries was
primarily due to Arizona Mills and the expansions at Westfarms and Cherry Creek.
Minimum rents also increased due to tenant rollovers. Other revenue decreased by
$1.2 million primarily due to a decrease in gains on peripheral land sales.
Total operating costs increased by $30.3 million, or 18.2%, to $196.7
million for 1998. Recoverable and depreciation and amortization expenses
increased primarily due to Arizona Mills and the expansions. 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.
Revenues and expenses other than interest and depreciation for the
transferred centers for 1998 represent the operations of Woodfield through the
date of the GMPT Exchange, resulting in decreases from the prior year.
As a result of the foregoing, income before extraordinary item of the
Unconsolidated Joint Ventures decreased by $2.7 million, or 2.9%, to $89.7
million. The Company's equity in income before extraordinary item of the
Unconsolidated Joint Ventures was $46.4 million, a 4.9% decrease from the
comparable period in 1997.
30
Net Income
As a result of the foregoing, the Company's income before extraordinary
items, minority and preferred interest decreased to $70.4 million for 1998. The
income allocable to minority partners decreased to $6.0 million, from $57.8
million, reflecting the Company's increased ownership in the Operating
Partnership due to the GMPT Exchange and other equity transactions, as well as
the minority partners' $30.7 million share of the 1998 extraordinary items.
Also, the Company recognized its $20.1 million share of $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 $16.6 million in Series A preferred
dividends, net income (loss) available to common shareowners for 1998 was $(3.0)
million compared to $24.6 million for 1997.
31
Liquidity and Capital Resources
In the following discussion, references to beneficial interest represent
the Operating Partnership's share of the results of its consolidated and
unconsolidated businesses. The Company does not have, and has not had, any
parent company indebtedness; all debt discussed represents obligations of the
Operating Partnership or its subsidiaries and joint ventures.
The Company believes that its net cash provided by operating activities,
distributions from its joint ventures, the unutilized portion of its credit
facilities, and its ability to access the capital markets, assures adequate
liquidity to conduct its operations in accordance with its dividend and
financing policies.
As of December 31, 1999, the Company had a consolidated cash balance of
$20.6 million. Additionally, the Company has a secured $200 million line of
credit. The line had $63.0 million of borrowings as of December 31, 1999 and
expires in September 2001. The Company also has available a second bank line of
credit of up to $40 million. The line had $17.6 million of borrowings as of
December 31, 1999.
Debt and Equity Transactions
Discussion of significant debt and equity transactions occurring in the
three years ended December 31, 1999 is contained in Results of Operations. In
addition to the transactions described therein, the following transactions have
occurred which will affect the Company's liquidity and capital resources in
future periods.
In October 1999, the 50% owned Unconsolidated Joint Venture that is
developing Dolphin Mall closed on a $200 million, three-year construction
facility. The rate on the facility is LIBOR plus 2%, decreasing to LIBOR plus
1.75% when a certain coverage ratio is met. The rate on the loan is capped at 7%
plus credit spread until maturity. Under the interest rate agreement, the rate
is swapped to a fixed rate of 5.15% when LIBOR is less than 6%. The maturity
date may be extended one year. The balance at December 31, 1999 was $22.3
million.
In November 1999, the 26% owned Unconsolidated Joint Venture that is
developing International Plaza closed on a $193.5 million, three-year
construction financing, with a one-year extension option. The rate on the
facility is LIBOR plus 1.90%. There were no borrowings as of December 31, 1999.
In January 2000, the Company finalized an agreement that securitized the
$40 million bank line of credit and extended its maturity to August 2000.
In March 2000, the Company's Board of Directors authorized the purchase of
up to $50 million of the Company's common stock in the open market. The stock
may be purchased from time to time as market conditions warrant.
Summary of Investing Activities
Net cash used in investing activities was $197.4 million in 1999 compared
to $269.9 million in 1998. Cash used in investing activities was impacted by the
timing of capital expenditures, with outflows in 1999 and 1998 for the
construction of MacArthur Center, Great Lakes Crossing, International Plaza, The
Mall at Wellington Green, The Shops at Willow Bend, as well as other development
activities and other capital items (see Capital Spending below). During 1999,
$18.5 million was used in purchasing investments in Fashionmall.com, Inc.,
Swerdlow Real Estate Group, and Lord Associates. Proceeds from sales of
peripheral land decreased in 1999 by $4.9 million, to $1.8 million.
Contributions to Unconsolidated Joint Ventures are impacted primarily by the
timing of construction and expansion activities, which in 1999 and 1998 included
projects at Dolphin Mall, International Plaza, Cherry Creek, Woodland and
Lakeside. Distributions from Unconsolidated Joint Ventures in 1999 and 1998
included distributions from centers comprised of excess mortgage refinancing
proceeds ($45.2 million from Cherry Creek in 1999 and $45.9 million from Fair
Oaks in 1998), while the loss of distributions from Woodfield after the GMPT
Exchange was offset by increases at other centers.
32
Net cash used in investing activities in 1998 was $269.9 million compared
to $178.3 million in 1997. As the Company's interest in the Operating
Partnership changed significantly as a result of the GMPT Exchange (see Results
of Operations - GMPT Exchange and Related Transactions), investing activities of
periods prior to this transaction are not comparable. In 1997, the Company
acquired its $200 million preferred equity interest in the Operating
Partnership, and received $21.7 million of distributions from its equity
investment in the Operating Partnership in excess of its share of the Operating
Partnership's income.
Summary of Financing Activities
Financing activities contributed cash of $91.3 million, a decrease of $40.0
million from the $131.3 million in 1998. Borrowings net of debt repayments and
issuance costs decreased by $244.5 million to $100.9 million, while net proceeds
from equity offerings increased by $71.3 million to $100.4 million. The net
decrease in the debt and equity sources of $173.2 million was offset by
decreases in cash used in 1999 compared to 1998 in connection with (i) the $77.7
million partner redemption in January 1998, (ii) the greater amount of partner
distributions made in 1998 due the Company's larger pre-GMPT Exchange equity
base, and (iii) transaction costs incurred in connection with the GMPT Exchange.
Net cash provided by financing activities in 1998 was $131.3 million
compared to $149.3 million in 1997. Financing activities for 1998 and 1997 are
not comparable due to the GMPT Exchange. In 1997, the Company issued $200
million of 8.3% preferred stock, for which 1998 reflects a complete year of
dividends.
Beneficial Interest in Debt
At December 31, 1999, the Operating Partnership's debt and its beneficial
interest in the debt of its Consolidated and Unconsolidated Joint Ventures
totaled $1,300.2 million. As shown in the following table, there was no unhedged
floating rate debt at December 31, 1999. Interest rates shown do not include
amortization of debt issuance costs and interest rate hedging costs. These items
are reported as interest expense in the results of operations. In the aggregate,
these costs added 0.42% to the effective rate of interest on beneficial interest
in debt at December 31, 1999. Included in beneficial interest in debt is debt
used to fund development and expansion costs. Beneficial interest in assets on
which interest is being capitalized totaled $257.1 million as of December 31,
1999. Beneficial interest in capitalized interest was $15.2 million for the year
ended December 31, 1999.
Beneficial Interest in Debt
---------------------------------------------------
Amount Interest LIBOR Frequency LIBOR
(in millions Rate at Cap of Rate at
of dollars) 12/31/99(1) Rate Resets 12/31/99
----------- ---------- ----- ------- --------
Total beneficial interest in
fixed rate debt 862.2 7.65%(2)
Floating rate debt hedged via
interest rate caps:
Through August 2000 144.5 7.32 6.00% Monthly 5.82%
Through October 2000 80.6 7.17 6.50 Monthly 5.82
Through December 2000 81.0 6.74(2) 7.00 Monthly 5.82
Through October 2001 25.0 6.27 8.55 Monthly 5.82
Through January 2002 52.4 7.12 9.50 Monthly 5.82
Through July 2002 43.4 6.95 6.50 Monthly 5.82
Through September 2002 11.1 7.15(3) 7.00 Monthly 5.82
----
Total beneficial interest
in debt 1,300.2 7.45(1)
=======
(1) All floating rates are based on the one-month LIBOR rate on December 31,
1999.
(2) Denotes weighted average interest rate.
(3) This cap has an embedded swap with a rate of 5.15% when LIBOR is below 6%.
33
Sensitivity Analysis
The Company has exposure to interest rate risk on its debt obligations and
interest rate instruments. Based on the Operating Partnership's beneficial
interest in debt and interest rates in effect at December 31, 1999, a one
percent increase in interest rates on floating rate debt would decrease cash
flows by approximately $2.9 million and, due to the effect of capitalized
interest, annual earnings by approximately $2.2 million. A one percent decrease
in interest rates on floating rate debt would increase cash flows and annual
earnings by approximately $4.3 million and $3.3 million, respectively. Based on
the Company's consolidated debt and interest rates in effect at December 31,
1999, a one percent increase in interest rates would decrease the fair value of
debt by approximately $13 million, while a one percent decrease in interest
rates would increase the fair value of debt by approximately $32 million.
34
Covenants and Commitments
Certain loan agreements contain various restrictive covenants including
limitations on net worth, 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. The Operating Partnership is in
compliance with all of such covenants.
Payment of principal and interest on the Great Lakes Crossing, MacArthur
Center, and International Plaza loans is guaranteed by the Operating
Partnership. The total amount outstanding on these loans was $285.2 million at
December 31, 1999. The new investor in the International Plaza venture has
indemnified the Operating Partnership to the extent of approximately 25% of the
amounts guaranteed on the International Plaza loan. In addition, the payment of
principal and interest on the Arizona Mills' debt is guaranteed by each of the
owners of Arizona Mills to the extent of its ownership. The Operating
Partnership's guaranty of principal on the Arizona Mills loan was $13.1 million
at December 31, 1999. The Operating Partnership has also guaranteed the payment
of 50% of principal and interest on the Dolphin Mall loan. The balance on the
Dolphin Mall loan was $22.3 million at December 31, 1999. All of the loan
agreements provide for a reduction of the amount guaranteed as certain center
performance and valuation criteria are met.
Funds from Operations
A principal factor that the Company considers in determining dividends to
shareowners is Funds from Operations (FFO), which is defined as income before
extraordinary and unusual items, real estate depreciation and amortization, and
the allocation to the minority interest in the Operating Partnership, less
preferred dividends and distributions.
Funds from Operations does 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 suggests that Funds
from Operations is a useful supplemental measure of operating performance for
REITs.
In October 1999, NAREIT approved certain clarifications of the definition
of FFO, including that non-recurring items that are not defined as
"extraordinary" under generally accepted accounting principles should be
reflected in the calculation of FFO. The clarified definition is effective
January 1, 2000 and restatement of all periods presented is recommended. Under
the clarified definition, the Company would have included in FFO, for the year
ended December 31, 1998, the $10.7 million restructuring charge (Results of
Operations - GMPT Exchange and Related Transactions), resulting in an
approximate $0.09 decrease to the Company's FFO per share reported for that
period. There would have been no change to the amounts reported for 1999.
35
Reconciliation of Net Income to Funds from Operations
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
(in millions of dollars)
Income before extraordinary items,
minority and preferred interests (1) 58.4 70.4
Restructuring loss 10.7
Depreciation and amortization (2) 52.5 57.4
Share of Unconsolidated Joint Ventures
depreciation and amortization (3) 20.4 20.7
Other income/expenses, net 0.5
Non-real estate depreciation (2.7) (2.3)
Preferred dividends and distributions (19.0) (16.6)
Minority interest in consolidated joint ventures (0.7)
----- -----
Funds from Operations 108.9 140.8
===== =====
Funds from Operations allocable to the Company 68.5 61.1
===== =====
(1) Includes gains on peripheral land sales of $1.7 million and $6.0 million
for the years ended December 31, 1999 and 1998, respectively.
(2) Includes $2.1 million and $2.7 million of mall tenant allowance
amortization for the years ended December 31, 1999 and 1998, respectively.
(3) Includes $1.2 million and $1.3 million of mall tenant allowance
amortization for the years ended December 31, 1999 and 1998, respectively.
(4) Amounts in the tables may not add due to rounding.
Dividends
The Company pays regular quarterly dividends to its common and Series A
preferred shareowners. 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.
On December 9, 1999, the Company declared a quarterly dividend of $0.245
per common share payable January 20, 2000 to shareowners of record on December
31, 1999. The Board of Directors also declared a quarterly dividend of $0.51875
per share on the Company's 8.3% Series A Preferred Stock, paid December 31, 1999
to shareowners of record on December 21, 1999.
Common dividends declared totaled $0.965 per common share in 1999, of which
$0.4534 represented return of capital and $0.5116 represented ordinary income,
compared to dividends declared in 1998 of $0.945 per common share, of which
$0.854 represented return of capital and $0.091 represented ordinary income. The
tax status of total 2000 common dividends declared and to be declared, assuming
continuation of a $0.245 per common share quarterly dividend, is estimated to be
approximately 40% return of capital, and approximately 60% ordinary income.
Series A preferred dividends declared were $2.075 per preferred share in 1999
and 1998, all of which represented ordinary income. The tax status of total 2000
dividends to be paid on Series A Preferred Stock is estimated to be 100%
ordinary income. These are forward-looking statements and certain significant
factors could cause the actual results to differ materially, including: 1) the
amount of dividends declared; 2) changes in the Company's share of anticipated
taxable income of the Operating Partnership due to the actual results of the
Operating Partnership; 3) changes in the number of the Company's outstanding
shares; 4) property acquisitions or dispositions; 5) financing transactions,
including refinancing of existing debt; and 6) changes in the Internal Revenue
Code or its application.
The annual determination of the Company's common dividends is based on
anticipated Funds from Operations available after preferred dividends, as well
as financing considerations and other appropriate factors. Further, the Company
has decided that the growth in common dividends will be less than the growth in
Funds from Operations for the immediate future.
36
Any inability of the Operating Partnership 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 the Operating Partnership and funds available to
the Company for the payment of dividends.
Capital Spending
Capital spending for routine maintenance of the shopping centers is
generally recovered from tenants. Capital spending not recovered from tenants is
summarized in the following tables:
1999
--------------------------------------------------
Beneficial Interest
in Consolidated
Unconsolidated Businesses and
Consolidated Joint Unconsolidated
Businesses Ventures(1) Joint Ventures(1)(2)
--------------------------------------------------
(in millions of dollars)
Development, renovation,
and expansion:
Existing centers 12.4 24.9 24.8
New centers 124.4 (3) 112.9 (4) 160.5
Pre-construction development
activities, net of charge
to operations 2.0 2.0
Mall tenant allowances 3.8 6.2 7.0
Corporate office improvements
and equipment 3.0 3.0
Other 0.8 2.4 2.2
--- --- ---
Total 146.4 146.4 199.5
===== ===== =====
(1) Costs are net of intercompany profits.
(2) Includes the Operating Partnership's share of construction costs for
MacArthur Center (a 70% owned consolidated joint venture), The Mall at
Wellington Green (a 90% owned consolidated joint venture), International
Plaza (a 26% owned unconsolidated joint venture), and Dolphin Mall (a 50%
owned unconsolidated joint venture).
(3) Includes costs related to MacArthur Center, The Shops at Willow Bend and
The Mall at Wellington Green.
(4) Includes costs related to Dolphin Mall and International Plaza.
1998 (1)
--------------------------------------------------
Beneficial Interest
in Consolidated
Unconsolidated Businesses and
Consolidated Joint Unconsolidated
Businesses Ventures(2) Joint Ventures(2)(3)
--------------------------------------------------
(in millions of dollars)
Development, renovation,
and expansion:
Existing centers 27.0 34.5 43.9
New centers 291.6 (4) 4.5 226.9
Pre-construction development
activities, net of charge to
operations 20.8 20.8
Mall tenant allowances 8.2 7.4 12.3
Corporate office improvements
and equipment 3.4 3.4
Other 0.3 2.2 1.3
--- --- ---
Total 351.3 48.6 308.6
===== ==== =====
(1) Includes capital spending on the transferred centers through September 30,
1998.
(2) Costs are net of intercompany profits.
(3) Includes the Operating Partnership's share of construction costs for Great
Lakes Crossing (an 80% owned consolidated joint venture), MacArthur Center
(a 70% owned consolidated joint venture), The Mall at Wellington Green (a
90% owned consolidated joint venture) and International Plaza (a 50.1%
owned consolidated joint venture in 1998).
(4) Includes costs related to Great Lakes Crossing, MacArthur Center, The Shops
at Willow Bend and International Plaza.
The Operating Partnership's share of mall tenant allowances per square foot
leased during the year, excluding expansion space and new developments, was
$12.76 in 1999, and $11.80 in 1998. In addition, the Operating Partnership's
share of capitalized leasing costs in 1999, excluding new developments, was $6.2
million, or $10.82 per square foot leased and $7.0 million or $7.95 per square
foot leased during the year in 1998. The 1998 amounts exclude costs related to
the transferred centers.
37
The Shops at Willow Bend, a new 1.4 million square foot center under
construction in Plano, Texas, will be anchored by Neiman Marcus, Saks Fifth
Avenue, Lord & Taylor, Foley's and Dillard's. The center is scheduled to open in
August 2001; Saks Fifth Avenue will open in 2004. The Mall at Wellington Green,
a 1.3 million square foot center under construction in west Palm Beach County,
Florida, will be anchored by Nordstrom, Lord & Taylor, Burdine's, Dillard's and
JCPenney. The center, scheduled to open in October 2001, will be owned by a
joint venture in which the Operating Partnership has a 90% controlling interest.
In September 1999, the Company finalized a partnership agreement with Swerdlow
Real Estate Group to jointly develop Dolphin Mall, a 1.4 million square foot
value regional center located in Miami, Florida. The center is scheduled to open
in March 2001.
Additionally, the Company is developing International Plaza, a new 1.3
million square foot center under construction in Tampa, Florida. The center will
be anchored by Nordstrom, Lord & Taylor, Dillard's and Neiman Marcus, and is
scheduled to open in September 2001. The Company originally had a controlling
50.1% interest in the partnership (Tampa Westshore) that owns the project. The
Company was responsible for providing the funding for project costs in excess of
construction financing in exchange for a preferential return. In November 1999,
the Company entered into agreements with a new investor, which provided funding
for the project and thereby reduced the Company's ownership interest to
approximately 26%. It is anticipated that given the preferential return
arrangements, the original 49.9% owner in Tampa Westshore will not initially
receive cash distributions. The Company expects to be initially allocated
approximately 33% of the net operating income of the project, with an additional
7% representing return of capital.
The total cost of these four projects is anticipated to be approximately $1
billion. The Company's beneficial investment in the projects will be
approximately $700 million, as three of these projects are joint ventures. While
the Company intends to finance approximately 75 percent of each new center with
construction debt, the Company has a greater responsibility for the project
equity (approximately $230 million). Approximately $215 million of this amount
has been funded through the Operating Partnership's preferred equity offerings,
contributions from the new joint venture partner in the International Plaza
project, and borrowing under the Company's lines of credit. With respect to the
construction loan financing, the Company has closed on financing for Dolphin
Mall and International Plaza. The financings on the two remaining projects are
expected to be completed in 2000.
Additionally, a 21-screen theater will be added at Fairlane, in the Detroit
metropolitan area and is anticipated to open in the spring of 2000. At Fair Oaks
in the Washington, D.C. area, Hecht's expansion will open in the spring of 2000,
and a JCPenney expansion and a newly constructed Macy's store will open in the
fall of 2000. The Operating Partnership's share of the cost of these projects is
expected to be approximately $9.8 million.
The Operating Partnership 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. A number of locations across the nation are targeted for
future initiatives.
38
The following table summarizes planned capital spending, which is not
recovered from tenants and assumes no acquisitions during 2000:
2000
--------------------------------------------------
Beneficial Interest
in Consolidated
Unconsolidated Businesses and
Consolidated Joint Unconsolidated
Businesses Ventures(1) Joint Ventures(1)(2)
--------------------------------------------------
(in millions of dollars)
Development, renovation,
and expansion 186.7 (3) 239.5 (4) 279.7
Mall tenant allowances 7.9 4.8 10.1
Pre-construction development
and other 11.9 0.9 12.3
----- ----- -----
Total 206.5 245.2 302.1
===== ===== =====
(1) Costs are net of intercompany profits.
(2) Includes the Operating Partnership's share of construction costs for The
Mall at Wellington Green (a 90% owned consolidated joint venture),
International Plaza (a 26% owned unconsolidated joint venture), and Dolphin
Mall (a 50% owned unconsolidated joint venture).
(3) Includes costs related to The Shops at Willow Bend and The Mall at
Wellington Green.
(4) Includes costs related to Dolphin Mall and International Plaza.
The Operating Partnership anticipates that its share of costs in 2001 for
development projects scheduled to be completed in 2001 will be as much as $220
million. Estimates of future capital spending include only projects approved by
the Company's Board of Directors and, consequently, estimates will change as new
projects are approved. 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
All of the Company's financial, information and operational systems
performed and continue to perform satisfactorily with the onset of calendar year
2000. The Company had developed a detailed plan to address the risks posed by
the year 2000 issue, as such issue was likely to impact both its own systems and
those of third parties with which the Company conducts business. The costs of
addressing year 2000 issues were not material to 1998 or 1999 operations.
Cash Tender Agreement
A. Alfred Taubman has the annual right to tender to the Company units of
partnership interest in the Operating Partnership (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.
Based on a market value at December 31, 1999 of $10.75 per common share,
the aggregate value of interests in the Operating Partnership that may be
tendered under the Cash Tender Agreement was approximately $259 million. The
purchase of these interests at December 31, 1999 would have resulted in the
Company owning an additional 28% interest in the Operating Partnership.
39
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 requires that a lessor defer recognition of percentage rents in
quarterly periods until the specified target (typically gross sales in excess of
a certain amount) that triggers this type of rental income is achieved. The
Company had previously accrued interim contingent rental income as lessees'
specified sales targets were met or achievement of the sales targets was
probable. The Company adopted the accounting method set forth in SAB 101 during
the fourth quarter of 1999. Although the adoption had no impact on annual net
income, the Company restated the results of the first three quarters of 1999.
The effect of the restatement was to reduce net income by $0.3 million ($0.01
per diluted common share), $1.2 million ($0.02 per diluted common share), and
$1.2 million ($0.02 per diluted common share) for the first, second, and third
quarters of 1999, respectively, and to increase fourth quarter income and per
share amounts by $2.7 million and $0.05 per share, respectively.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivatives and whether it qualifies for hedge accounting. The Company is
still evaluating the impact of SFAS 133 on its consolidated financial
statements. SFAS 133 is effective for fiscal years beginning after June 15,
2000.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is included in this report at Item 7
under the caption "Liquidity and Capital Resources".
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of Taubman Centers, Inc. and the Independent
Auditors' Report thereon are filed pursuant to this Item 8 and are included in
this report at Item 14.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
40
PART III*
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is hereby incorporated by reference
to the material appearing in the Company's definitive proxy statement for the
annual meeting of shareholders to be held in 2000 (the "Proxy Statement") under
the captions "Management--Directors, Nominees and Executive Officers" and
"Security Ownership of Certain Beneficial Owners and Management -- Section 16(a)
Beneficial Ownership Reporting Compliance."
Item 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference
to the material appearing in the Proxy Statement under the captions "Executive
Compensation" and "Management -- Compensation of Directors."
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference
to the table and related footnotes appearing in the Proxy Statement under the
caption "Security Ownership of Certain Beneficial Owners and Management."
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference
to the material appearing in the Proxy Statement under the caption
"Management--Certain Transactions." and "Executive Compensation-- Certain
Employment Arrangements."
- --------------------------------------------
* The Compensation Committee Report on Executive Compensation and the
Shareholder Return Performance Graph appearing in the Proxy Statement are not
incorporated by reference in this Annual Report on Form 10-K or in any other
report, registration statement, or prospectus of the Registrant.
41
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
14(a)(1) The following financial statements of Taubman Centers, Inc. and the
Independent Auditors' Report thereon are filed with this report:
TAUBMAN CENTERS, INC. Page
Independent Auditors' Report........................................F-2
Balance Sheet as of December 31, 1999 and 1998 .....................F-3
Statement of Operations for the years ended
December 31, 1999, 1998 and 1997..................................F-4
Statement of Shareowners' Equity for the years ended
December 31, 1999, 1998 and 1997..................................F-5
Statement of Cash Flows for the years ended
December 31, 1999, 1998 and 1997..................................F-6
Notes to Financial Statements.......................................F-7
14(a)(2) The following is a list of the financial statement schedules required
by Item 14(d).
TAUBMAN CENTERS, INC.
Schedule II - Valuation and Qualifying Accounts....................F-28
Schedule III - Real Estate and Accumulated Depreciation............F-29
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED
PARTNERSHIP (a consolidated subsidiary of Taubman Centers, Inc.)
Independent Auditors' Report.......................................F-31
Combined Balance Sheet as of December 31, 1999 and 1998............F-32
Combined Statement of Operations for the years ended
December 31, 1999, 1998 and 1997.................................F-33
Combined Statement of Accumulated Deficiency in Assets for the three
years ended December 31, 1999, 1998 and 1997.....................F-34
Combined Statement of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.................................F-35
Notes to Combined Financial Statements.............................F-36
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED
PARTNERSHIP (a consolidated subsidiary of Taubman Centers, Inc.)
Schedule II - Valuation and Qualifying Accounts....................F-44
Schedule III - Real Estate and Accumulated Depreciation............F-45
42
14(a)(3)
2 -- Separation and Relative Value Adjustment Agreement between
The Taubman Realty Group Limited Partnership and GMPTS
Limited Partnership (without exhibits or schedules, which
will be supplementally provided to the Securities and
Exchange Commission upon its request) (incorporated herein
by reference to Exhibit 2 filed with the Registrant's
Current Report on Form 8-K dated September 30, 1998).
3(a) -- Restated By-Laws of Taubman Centers, Inc., (incorporated
herein by reference to Exhibit 3 (b) filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998).
3(b) -- Composite copy of Articles of Incorporation of Taubman
Centers, Inc., including all amendments to date.
4(a) -- Indenture dated as of July 22, 1994 among Beverly Finance
Corp., La Cienega Associates, the Borrower, and Morgan
Guaranty Trust Company of New York, as Trustee (incorporated
herein by reference to Exhibit 4(h) filed with the 1994
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994 ("1994 Second Quarter Form 10-Q")).
4(b) -- Deed of Trust, with assignment of Rents, Security Agreement
and Fixture Filing, dated as of July 22, 1994, from La
Cienega Associates, Grantor, to Commonwealth Land Title
Company, Trustee, for the benefit of Morgan Guaranty Trust
Company of New York, as Trustee, Beneficiary (incorporated
herein by reference to Exhibit 4(i) filed with the 1994
Second Quarter Form 10-Q).
4(c) -- Loan Agreement dated as of March 29, 1999 among Taubman
Auburn Hills Associates Limited Partnership, as Borrower,
Fleet National Bank, as a Bank, PNC Bank, National
Association, as a Bank, the other Banks signatory hereto,
each as a Bank, and PNC Bank, National Association, as
Administrative Agent (incorporated herein by reference to
exhibit 4(a) filed with the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 ("1999 Second
Quarter Form 10- Q")).
4(d) -- Mortgage, Assignment of Leases and Rents and Security
Agreement from Taubman Auburn Hills Associates Limited
Partnership, a Delaware limited partnership ("Mortgagor") to
PNC Bank, National Association, as Administrative Agent for
the Banks, dated as of March 29, 1999 (incorporated herein
by reference to Exhibit 4(b) filed with the 1999 Second
Quarter Form 10-Q).
4(e) -- First Amendment to Construction Loan Agreement dated as of
April 23, 1999 among Taubman MacArthur Associates Limited
Partnership, a Delaware limited partnership, as Borrower,
Bayerische Hypo - Und Vereinsbank AG, a New York Branch
(successor in interest to Bayerische Hypotheken - Und
Weschel - Bank Aktiengesellschaft, New York Branch), the New
York branch of a German banking corporation, as
administrative agent (incorporated herein by reference to
Exhibit 4 (c) filed with the 1999 Second Quarter Form 10-Q).
43
4(f) -- Mortgage, Security Agreement and Fixture Filing by Short
Hills Associates, as Mortgagor, to Metropolitan Life
Insurance Company, as Mortgagee, dated April 15, 1999
(incorporated herein by reference to Exhibit 4(d) filed with
the 1999 Second Quarter Form 10-Q).
4(g) -- Assignment of Leases, Short Hills, Associates (Assignor) and
Metropolitan Life Insurance Company (Assignee) dated as of
April 15, 1999 (incorporated herein by reference to Exhibit
4(e) filed with the 1999 Second Quarter Form 10-Q).
4(h) -- Secured Revolving Credit Agreement dated as of June 24, 1999
among the Taubman Realty Group Limited Partnership, as
Borrower, The Banks Signatory Hereto, each as a bank and UBS
AG, Stamford Branch, as Administrative Agent (incorporated
herein by reference to Exhibit 4(f) filed with the 1999
Second Quarter Form 10-Q).
* 10(a) -- The Taubman Realty Group Limited Partnership 1992 Incentive
Option Plan, as Amended and Restated Effective as of
September 30, 1997 (incorporated herein by reference to
Exhibit 10(b) filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997).
10(b) -- Registration Rights Agreement among Taubman Centers, Inc.,
General Motors Hourly-Rate Employees Pension Trust, General
Motors Retirement Program for Salaried Employees Trust, and
State Street Bank & Trust Company, as trustee of the AT&T
Master Pension Trust (incorporated herein by reference to
Exhibit 10(e) filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 ("1992 Form
10-K")).
10(c) -- Master Services Agreement between The Taubman Realty Group
Limited Partnership and the Manager (incorporated herein by
reference to Exhibit 10(f) filed with the 1992 Form 10-K).
10(d) -- Cash Tender Agreement among Taubman Centers, Inc., A. Alfred
Taubman, acting not individually but as Trustee of The A.
Alfred Taubman Restated Revocable Trust, as amended and
restated in its entirety by Instrument dated January 10,
1989 (as the same has been and may hereafter be amended from
time to time), TRA Partners, and GMPTS Limited Partnership
(incorporated herein by reference to Exhibit 10(g) filed
with the 1992 Form 10-K).
* 10(e) -- Supplemental Retirement Savings Plan (incorporated herein by
reference to Exhibit 10(i) filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1994).
* 10(f) -- Employment agreement between The Taubman Company Limited
Partnership and Lisa A. Payne (incorporated herein by
reference to Exhibit 10 filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1997).
* 10(g) -- Amended and Restated Continuing Offer, dated as of September
30, 1997 (incorporated herein by reference to Exhibit 10
filed with the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997).
10(h) -- Consolidated Agreement: Notice of Retirement and Release and
Covenant Not to Compete, between Robert C. Larson and The
Taubman Company Limited Partnership (incorporated herein by
reference to Exhibit 10 filed with the Registrant's 1999
Second Quarter Form 10-Q).
44
10(i) -- Second Amendment to the Second Amendment and Restatement of
Agreement of Limited Partnership of The Taubman Realty Group
Limited Partnership effective as of September 3, 1999
(incorporated herein by reference to Exhibit 10(a) filed
with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 ("1999 Third Quarter Form
10-Q")).
10(j) -- Private Placement Purchase Agreement dated as of September
3, 1999 among The Taubman Realty Group Limited Partnership,
Taubman Centers, Inc. and Goldman Sachs 1999 Exchange Place
Fund, L.P. (incorporated herein by reference to Exhibit
10(b) filed with the Registrant's 1999 Third Quarter Form
10-Q).
10(k) -- Registration Rights Agreement entered into as of September
3, 1999 by and between Taubman Centers, Inc. and Goldman
Sachs 1999 Exchange Place Fund, L.P. (incorporated herein by
reference to Exhibit 10(c) filed with the Registrant's 1999
Third Quarter Form 10-Q).
10(l) -- Private Placement Purchase Agreement dated as of November
24, 1999 among The Taubman Realty Group Limited Partnership,
Taubman Centers, Inc. and GS-MSD Select Sponsors, L.P.
10(m) -- Registration Rights Agreement entered into as of November
24, 1999 by and between Taubman Centers, Inc and GS-MSD
Select Sponsors, L.P.
* 10(n) -- Employment agreement between The Taubman Company Limited
Partnership and Courtney Lord.
* 10(o) -- The Taubman Company Long-Term Compensation Plan (as amended
and restated effective January 1, 1999) (incorporated herein
by reference to Exhibit 10 filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March
31,1999.)
10(p) -- Annex II to Second Amendment to the Second Amendment and
Restatement of Agreement of Limited Partnership of The
Taubman Realty Group Limited Partnership.
12 -- Statement Re: Computation of Taubman Centers, Inc. Ratio of
Earnings to Combined Fixed Charges and Preferred Dividends
and Distributions.
21 -- Subsidiaries of Taubman Centers, Inc.
23 -- Consent of Deloitte & Touche LLP.
24 -- Powers of Attorney.
27(a) -- Financial Data Schedule.
27(b) -- Restated Financial Data Schedule for three months ended
March 31, 1999.
27(c) -- Restated Financial Data Schedule for six months ended June
30, 1999.
27(d) -- Restated Financial Data Schedule for nine months ended
September 30, 1999.
45
* A management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.
14(b) Current Reports on Form 8-K.
None
14(c) The list of exhibits filed with this report is set forth in response
to Item 14(a)(3). The required exhibit index has been filed with the
exhibits.
14(d) The financial statements and the financial statement schedules of the
Unconsolidated Joint Ventures of The Taubman Realty Group Limited
Partnership listed at Item 14(a)(2) are filed pursuant to this Item
14(d).
46
TAUBMAN CENTERS, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
AND FOR EACH OF THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareowners
Taubman Centers, Inc.
We have audited the accompanying balance sheets of Taubman Centers, Inc.
(the "Company") as of December 31, 1999 and 1998, and the related statements of
operations, shareowners' equity, and cash flows for each of the three years in
the period ended December 31, 1999. Our audits also included the financial
statement schedules listed in the Index at Item 14. These financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Taubman Centers, Inc. as of December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan
February 9, 2000
F-2
TAUBMAN CENTERS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
December 31
------------------------------
1999 1998
---- ----
Assets:
Properties, net (Note 5) $ 1,361,497 $ 1,308,642
Investment in Unconsolidated
Joint Ventures (Note 4) 125,245 98,350
Cash and cash equivalents 20,557 19,045
Accounts and notes receivable,
less allowance for doubtful accounts
of $1,549 and $333 in 1999 and 1998 33,021 20,595
Accounts receivable from related
parties (Note 9) 7,095 7,092
Deferred charges and other
assets (Note 6) 49,496 27,139
------------- ------------
$ 1,596,911 $ 1,480,863
============= ============
Liabilities:
Mortgage notes payable (Note 7) $ 866,742 $ 243,352
Unsecured notes payable (Note 7) 19,819 531,946
Accounts payable and accrued liabilities 118,230 171,669
Dividends payable 13,054 12,719
------------- ------------
$ 1,017,845 $ 959,686
Commitments and Contingencies
(Notes 4, 7 and 12)
Preferred Equity of TRG (Note 11) $ 97,275
Partners' Equity of TRG allocable to minority
partners (Note 1)
Shareowners' Equity (Notes 2 and 11):
Series A Cumulative Redeemable Preferred
Stock, $0.01 par value, 8,000,000 shares
authorized, $200 million liquidation
preference, 8,000,000 shares issued and
outstanding at December 31, 1999 and 1998 $ 80 $ 80
Series B Non-Participating Convertible
Preferred Stock, $0.001 par and liquidation
value, 40,000,000 shares authorized,
31,835,066 and 31,399,913 shares issued and
outstanding at December 31, 1999 and 1998 32 28
Series C Cumulative Redeemable Preferred
Stock, $0.01 par value, 1,000,000 shares
authorized, $75 million liquidation
preference, none issued
Series D Cumulative Redeemable Preferred
Stock, $0.01 par value, 250,000 shares
authorized, $25 million liquidation
preference, none issued
Common Stock, $0.01 par value, 250,000,000
shares authorized, 53,281,643 and
52,995,904 issued and outstanding
at December 31, 1999 and 1998 533 530
Additional paid-in capital 701,045 697,965
Dividends in excess of net income (219,899) (177,426)
------------- ------------
$ 481,791 $ 521,177
------------- ------------
$ 1,596,911 $ 1,480,863
============= ============
See notes to financial statements.
F-3
TAUBMAN CENTERS, INC.
STATEMENT OF OPERATIONS
(in thousands, except share data)
Year Ended December 31
---------------------------------------
1999 1998 1997
---- ---- ----
(Consolidated) (Consolidated)
Income:
Minimum rents $ 141,885 $ 107,657
Percentage rents 4,881 5,881
Expense recoveries 81,453 60,650
Revenues from management, leasing
and development services 23,909 12,282
Other 16,564 17,769 $ 322
Revenues - transferred centers
(Note 2) 129,714
Income before extraordinary item
from investment in TRG (Note 3) 29,349
----------- ----------- -----------
$ 268,692 $ 333,953 $ 29,671
----------- ----------- -----------
Operating Expenses:
Recoverable expenses $ 73,711 $ 55,351
Other operating 36,685 33,842
Management, leasing and
development services 17,215 8,025
General and administrative 18,129 24,616 $ 1,009
Restructuring (Note 2) 10,698
Expenses other than interest,
depreciation and amortization -
transferred centers (Note 2) 44,260
Interest expense 51,327 75,809
Depreciation and amortization
(including $22.8 million in 1998
relating to the transferred
centers) 52,475 57,376
----------- ----------- -----------
$ 249,542 $ 309,977 $ 1,009
----------- ----------- -----------
Income before equity in income
before extraordinary items
of Unconsolidated Joint Ventures,
extraordinary items, and minority
and preferred interests $ 19,150 $ 23,976 $ 28,662
Equity in income before
extraordinary items
of Unconsolidated Joint
Ventures (Note 4) 39,295 46,427
----------- ----------- -----------
Income before extraordinary
items, minority and
preferred interests $ 58,445 $ 70,403 $ 28,662
Extraordinary items
(Notes 2, 4 and 7) (468) (50,774)
Minority interest:
TRG income allocable to minority
partners (17,600) (4,230)
Distributions in excess of earnings
allocable to minority partners (12,431) (1,779)
TRG Series C and D preferred
distributions (Note 11) (2,444)
----------- ----------- -----------
Net income $ 25,502 $ 13,620 $ 28,662
Series A preferred dividends
(Note 11) (16,600) (16,600) (4,058)
----------- ----------- -----------
Net income (loss) available to
common shareowners $ 8,902 $ (2,980) $ 24,604
=========== =========== ===========
Basic earnings per common share
(Note 13):
Income before extraordinary items $ .17 $ .33 $ .48
=========== =========== ===========
Net income (loss) $ .17 $ (.06) $ .48
=========== =========== ===========
Diluted earnings per common share
(Note 13):
Income before extraordinary items $ .17 $ .32 $ .48
=========== =========== ===========
Net income (loss) $ .16 $ (.06) $ .48
=========== =========== ===========
Cash dividends declared per
common share $ .965 $ .945 $ .925
=========== =========== ===========
Weighted average number of
common shares outstanding 53,192,364 52,223,399 50,737,333
========== ========== ==========
See notes to financial statements.
F-4
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(in thousands, except share data)
Preferred Stock Common Stock Dividends in
--------------- ------------ Additional excess of
Shares Amount Shares Amount Paid-in Capital Net Income Total
------ ------ ------ ------ --------------- ---------- -----
Balance, January 1, 1997 50,720,358 $ 507 $ 468,590 $ (102,587) $ 366,510
Proceeds from preferred stock
offering (Note 11) 8,000,000 $ 80 199,920 200,000
Issuance of stock pursuant
to Continuing Offer (Note 12) 39,299 1 441 442
Cash dividends declared (50,996) (50,996)
Net income 28,662 28,662
---------- ------- ----------- ------- ----------- ----------- -----------
Balance, December 31, 1997 8,000,000 $ 80 50,759,657 $ 508 $ 668,951 $ (124,921) $ 544,618
Proceeds from common stock
offering 2,021,611 20 26,640 26,660
Proceeds from preferred stock
offering (Note 11) 31,399,913 28 28
Issuance of stock pursuant
to Continuing Offer (Note 12) 214,636 2 2,374 2,376
Cash dividends declared (66,125) (66,125)
Net income 13,620 13,620
---------- ------- ----------- ------- ----------- ----------- -----------
Balance, December 31, 1998 39,399,913 $ 108 52,995,904 $ 530 $ 697,965 $ (177,426) $ 521,177
Issuance of stock pursuant to
acquisition (Note 6) 435,153 4 4
Issuance of stock pursuant to
Continuing Offer (Note 12) 285,739 3 3,080 3,083
Cash dividends declared (67,975) (67,975)
Net income 25,502 25,502
---------- ------- ----------- ------- ----------- ----------- -----------
Balance, December 31, 1999 39,835,066 $ 112 53,281,643 $ 533 $ 701,045 $ (219,899) $ 481,791
========== ======= ========== ======= =========== =========== ===========
See notes to financial statements.
F-5
TAUBMAN CENTERS, INC.
STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31
------------------------------------------------
1999 1998 1997
---- ---- ----
(Consolidated) (Consolidated)
Cash Flows From Operating Activities:
Income before extraordinary items, minority and
preferred interests $ 58,445 $ 70,403 $ 28,662
Adjustments to reconcile income before
extraordinary items, minority and preferred interests to net
cash provided by operating activities:
Depreciation and amortization 52,475 57,376
Provision for losses on accounts receivable 2,238 1,207
Amortization of deferred financing costs 4,452 3,318
Other 359 2,264
Gains on sales of land (1,667) (5,637)
Increase (decrease) in cash attributable to changes
in assets and liabilities:
Receivables, deferred charges and other assets (17,183) (14,632)
Accounts payable and other liabilities 8,440 31,121 (66)
------------ ------------ ------------
Net Cash Provided By Operating Activities $ 107,559 $ 145,420 $ 28,596
------------ ------------ ------------
Cash Flows From Investing Activities:
Purchase of additional interests in TRG $ (200,000)
Additions to properties $ (208,142) $ (294,336)
Proceeds from sales of land 1,834 6,750
Purchases of equity securities (Note 6) (18,462)
Contributions to Unconsolidated Joint Ventures (36,799) (33,322)
Distributions from Unconsolidated Joint Ventures
in excess of income before extraordinary items 64,215 50,970 21,714
------------ ------------ ------------
Net Cash Used In Investing Activities $ (197,354) $ (269,938) $ (178,286)
------------ ------------ ------------
Cash Flows From Financing Activities:
Debt proceeds $ 625,797 $ 1,695,235
Debt payments (514,534) (175,599)
Early extinguishment of debt (1,169,769)
Debt issuance costs (10,335) (4,458)
Issuance of stock 3,087 29,037 $ 200,000
Issuance of TRG Preferred Equity (Note 11) 97,275
Distributions to minority and preferred interests (32,474) (65,914)
Cash dividends to common shareowners (51,040) (48,735) (46,675)
Cash dividends to Series A preferred shareowners (16,600) (16,600) (4,058)
Redemption of partnership units (77,698)
GMPT Exchange (9,869) (32,651)
Other (1,500)
------------ ------------ ------------
Net Cash Provided By Financing Activities $ 91,307 $ 131,348 $ 149,267
------------ ------------ ------------
Net Increase (Decrease) In Cash $ 1,512 $ 6,830 $ (423)
Cash and Cash Equivalents at Beginning of Year 19,045 8,965 9,388
Effect of consolidating TRG in connection with the
GMPT Exchange (TRG's cash balance at Beginning
of Year) (Note 2) 3,250
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $ 20,557 $ 19,045 $ 8,965
============ ============ ============
See notes to financial statements.
F-6
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
Three Years Ended December 31, 1999
Note 1 - Summary of Significant Accounting Policies
Organization and Basis of Presentation
Taubman Centers, Inc. (the Company or TCO), a real estate investment trust,
or REIT, is the managing general partner of The Taubman Realty Group Limited
Partnership (the Operating Partnership or TRG). The Operating Partnership is an
operating subsidiary that engages in the ownership, management, leasing,
acquisition, development, and expansion of regional retail shopping centers and
interests therein. The Operating Partnership's portfolio as of December 31, 1999
includes 17 urban and suburban shopping centers in seven states. Four additional
centers are under construction in Florida and Texas.
On September 30, 1998, the Company obtained a majority and controlling
interest in the Operating Partnership as a result of a transaction in which the
Operating Partnership exchanged interests in 10 shopping centers, together with
$990 million of its debt, for all of the partnership units owned by two General
Motors pension trusts (GMPT), representing approximately 37% of the Operating
Partnership's equity (the GMPT Exchange) (Note 2).
The consolidated balance sheet of the Company includes all accounts of the
Company, the Operating Partnership and its consolidated subsidiaries; all
intercompany balances have been eliminated. Investments in joint ventures not
unilaterally controlled by ownership or contractual obligation (Unconsolidated
Joint Ventures) are accounted for under the equity method. The statements of
operations and cash flows for the years ended December 31, 1999 and 1998 include
the Operating Partnership as a consolidated subsidiary for the entire year. The
statements of operations and cash flows for the year ended December 31, 1997
reflect the financial position and results of operations of the Operating
Partnership under the equity method.
Since the Company's interest in the Operating Partnership has been its sole
material asset throughout all periods presented, references in the following
notes to "the Company" include the Operating Partnership, except where
intercompany transactions are discussed or as otherwise noted, even though the
Operating Partnership did not become a consolidated subsidiary until September
30, 1998.
Dollar amounts presented in tables within the notes to the financial
statements are stated in thousands of dollars, except share data or as otherwise
noted.
F-7
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Income Taxes
Federal income taxes are not provided because the Company operates in such
a manner as to qualify as a REIT under the provisions of the Internal Revenue
Code; therefore, applicable taxable income is included in the taxable income of
its shareowners, to the extent distributed by the Company. As a REIT, the
Company must distribute at least 95% of its REIT taxable income to its
shareowners and meet certain other requirements. Additionally, no provision for
income taxes for consolidated partnerships has been made, as such taxes are the
responsibility of the individual partners.
Dividends per common share declared in 1999 were $0.965, of which $0.453
represented return of capital and $0.512 represented ordinary income. Dividends
per common share declared in 1998 were $0.945, of which $0.854 represented
return of capital and $0.091 represented ordinary income. Dividends per common
share declared in 1997 were $0.925, of which $0.324 represented return of
capital and $0.601 represented ordinary income. The tax status of the Company's
common dividends in 1999, 1998 and 1997 may not be indicative of future periods.
Dividends per Series A preferred share declared in both 1999 and 1998 were
$2.075, all of which represented ordinary income. The difference between net
income for financial reporting purposes and taxable income results primarily
from differences in depreciation expense.
Revenue Recognition
Shopping center space is generally leased to specialty retail tenants under
short and intermediate term leases which are accounted for as operating leases.
Minimum rents are recognized on the straight-line method. Percentage rent is
accrued when lessees' specified sales targets have been met (Note 14). Expense
recoveries, which include an administrative fee, are recognized as revenue in
the period applicable costs are chargeable to tenants. Management, leasing and
development revenue is recognized as services are rendered.
Depreciation and Amortization
Buildings, improvements and equipment are depreciated on straight-line or
double-declining balance bases over the estimated useful lives of the assets,
which range from 3 to 50 years. Tenant allowances and deferred leasing costs are
amortized on a straight-line basis over the lives of the related leases.
Capitalization
Costs related to the acquisition, development, construction and improvement
of properties are capitalized. Interest costs are capitalized until construction
is substantially complete. Assets are reviewed for impairment if events or
changes in circumstances indicate that the carrying amounts may not be
recoverable.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of 90
days or less at the date of purchase.
Deferred Charges
Direct financing and interest rate hedging costs are deferred and amortized
over the terms of the related agreements as a component of interest expense.
Direct costs related to leasing activities are capitalized and amortized on a
straight-line basis over the lives of the related leases. All other deferred
charges are amortized on a straight-line basis over the terms of the agreements
to which they relate.
F-8
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Stock-Based Compensation Plans
Stock-based compensation plans are accounted for under APB Opinion 25,
"Accounting for Stock Issued to Employees" and related interpretations, as
permitted under FAS 123, "Accounting for Stock-Based Compensation."
Interest Rate Hedging Agreements
Premiums paid for interest rate caps are amortized to interest expense over
the terms of the cap agreements. Amounts received under the cap agreements are
accounted for on an accrual basis, and recognized as a reduction of interest
expense.
Partners' Equity of TRG Allocable to Minority Partners
Because the net equity of the partnership unitholders is less than zero,
the interest of the noncontrolling unitholders is presented as a zero balance in
the balance sheet as of December 31, 1999 and December 31, 1998. Also, for
periods subsequent to the GMPT Exchange, the income allocated to the
noncontrolling unitholders is equal to their share of distributions. The net
equity of the Operating Partnership unitholders is less than zero because of
accumulated distributions in excess of net income and not as a result of
operating losses. Distributions to partners are usually greater than net income
because net income includes non-cash charges for depreciation and amortization.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of financial instruments:
The carrying value of cash and cash equivalents, accounts and notes
receivable, and accounts payable approximates fair value due to the short
maturity of these instruments.
The fair value of debt is estimated based on quoted market prices if
available, or on the current rates available to the Company for debt of
similar terms and maturity and the assumption that debt will be prepaid at
the earliest possible date.
The fair value of interest rate hedging instruments is the amount that the
Company would receive or pay to terminate the agreement at the reporting
date, taking into account current interest rates.
Operating Segment
The Company has one reportable operating segment; it owns, develops and
manages regional shopping centers. The shopping centers are located in major
metropolitan areas, have similar tenants (most of which are national chains),
and share common economic characteristics. No single retail company represents
10% or more of the Company's revenues.
Reclassifications
Certain prior year amounts have been reclassified to conform to 1999
classifications.
F-9
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 2 - The GMPT Exchange and Related Transactions
On September 30, 1998, the Company obtained a controlling interest in the
Operating Partnership due to the following transaction. The Operating
Partnership transferred 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 the Company's
common shares of $13.50 for the two week period prior to the closing) (the GMPT
Exchange). The Operating Partnership continues to manage the transferred centers
under agreements with GMPT (Note 10).
As of the date of the GMPT Exchange, the excess of the Company's cost of
its investment in the Operating Partnership over the Company's share of the
Operating Partnership's accumulated deficit was $390.4 million, of which $176.6
million and $213.8 million were allocated to the Company's bases in the
Operating Partnership's properties and investment in Unconsolidated Joint
Ventures, respectively.
In September 1998, in anticipation of the GMPT Exchange, the Operating
Partnership used the $1.2 billion proceeds from two bridge loans to extinguish
approximately $1.1 billion of debt. 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 $340 million
as of December 31, 1998 and was refinanced during the first half of 1999 (Note
7).
Concurrently with the GMPT Exchange, the Operating Partnership committed to
a restructuring of its operations. A restructuring charge of approximately $10.7
million was incurred, primarily representing the cost of certain involuntary
terminations of personnel. Pursuant to the restructuring plan, approximately 40
employees were terminated across various administrative functions. During 1998,
termination benefits of $6.1 million were paid. Substantially all remaining
benefits were paid by the end of the first quarter of 1999.
F-10
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 3 - Investment in the Operating Partnership
The partnership equity of the Operating Partnership and the Company's
ownership therein are shown below.
TRG Units TRG Units TCO's % Interest TCO's
outstanding at Owned by TCO at in TRG at Average
December 31 December 31 December 31 Interest in TRG
---------------- -------------- ----------- ------------------
1999 85,116,709 53,281,643 63% 63%
1998 84,395,817 52,995,904 63% 43%
1997 138,299,310 50,759,657 37% 37%
Net income and distributions of the Operating Partnership are allocable
first to the preferred equity interests (Note 11), and the remaining amounts to
the general and limited Operating Partnership partners in accordance with their
percentage ownership. Prior to 1998, when the Company obtained a controlling
interest in the Operating Partnership (Note 2), the Company accounted for its
investment in the Operating Partnership under the equity method.
The Company's income from its investment in the Operating Partnership
included $4.1 million for the year ended December 31, 1997 from its Series A
Preferred Equity interest in the Operating Partnership (Note 11). Additionally,
the Company's share of the Operating Partnership's income before extraordinary
items available to partnership unitholders for 1997 was $33.5 million, reduced
by $8.2 million, representing adjustments arising from the Company's additional
basis in the Operating Partnership's net assets.
The Operating Partnership's summarized results of operations information is
presented below for 1997, during which the Company accounted for the Operating
Partnership under the equity method.
Revenues $ 313,426
-----------
Operating costs other than interest and
depreciation and amortization $ 152,044
Interest expense 73,639
Depreciation and amortization 44,719
-----------
$ 270,402
Equity in net income of
Unconsolidated Joint Ventures 52,270
-----------
Net income $ 95,294
Preferred distributions (4,058)
-----------
Net income available to unitholders $ 91,236
===========
Net income allocable to TCO $ 37,532
Depreciation of TCO's additional basis (8,183)
-----------
Income from investment in TRG $ 29,349
===========
F-11
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 4 - Investments in Unconsolidated Joint Ventures
Following are the Company's investments in Unconsolidated Joint Ventures
which own regional retail shopping centers. The Operating Partnership is
generally the managing general partner of these Unconsolidated Joint Ventures.
The Operating Partnership's interest in each Unconsolidated Joint Venture is as
follows:
Ownership as of
Unconsolidated Joint Venture Shopping Center December 31, 1999
- ------------------------------ ---------------- ------------------
Arizona Mills, L.L.C. Arizona Mills 37%
Dolphin Mall Associates Dolphin Mall 50
Limited Partnership (under construction)
Fairfax Company of Virginia L.L.C. Fair Oaks 50
Lakeside Mall Limited Partnership Lakeside 50 (Note 16)
Rich-Taubman Associates Stamford Town Center 50
Taubman-Cherry Creek
Limited Partnership Cherry Creek 50
Tampa Westshore Associates International Plaza 26
Limited Partnership (under construction)
Twelve Oaks Mall Limited Partnership Twelve Oaks Mall 50 (Note 16)
West Farms Associates Westfarms 79
Woodland Woodland 50
The Company is developing International Plaza, a 1.3 million square foot
regional center under construction in Tampa, Florida, which is expected to open
September 2001. The Company originally had a controlling 50.1% interest in the
partnership (Tampa Westshore) that owns the project. The Company was responsible
for providing funding for project costs in excess of the construction financing
in exchange for a preferential return. In November 1999, the Operating
Partnership entered into agreements with a new investor, which provided funding
for the project and thereby reduced the Company's ownership to approximately
26%. Also, in November 1999, Tampa Westshore closed on a $193.5 million,
three-year construction financing, with a one-year extension option. The rate on
the facility is LIBOR plus 1.90%. The Operating Partnership has guaranteed the
payment of 100% of the principal and interest. The new investor in the Tampa
venture has indemnified the Operating Partnership to the extent of 25% of the
amounts guaranteed. The loan agreement provides for reductions of the rate and
the amount guaranteed as certain center performance criteria are met. There was
no balance outstanding at December 31, 1999.
In September 1999, the Company entered into a partnership agreement with
Swerdlow Real Estate Group to jointly develop Dolphin Mall, a 1.4 million square
foot value regional center under construction in Miami, Florida, expected to
open March 2001. In October 1999, the joint venture that is developing Dolphin
Mall closed on a $200 million, three-year construction facility. The rate on the
facility is LIBOR plus 2%, decreasing to LIBOR plus 1.75% when a certain
coverage ratio is met. The Operating Partnership has guaranteed the payment of
50% of any outstanding principal balance and 100% of all accrued and unpaid
interest. The guaranty will be reduced as certain performance conditions are
met. The maturity date on the loan may be extended one year. The balance
outstanding was $22.3 million at December 31, 1999.
During 1999, noncash investing activities included a total of $58.7 million
contributed to the Unconsolidated Joint Ventures developing International Plaza
and Dolphin Mall. This amount primarily consists of project costs expended prior
to the creation of the joint ventures.
F-12
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Arizona Mills, L.L.C. has a construction facility with a maximum
availability of $142 million, all of which was outstanding as of December 31,
1999. The payment of principal and interest is guaranteed by each of the owners
of Arizona Mills to the extent of their ownership, with reduction in amounts
guaranteed being provided as certain center performance and valuation criteria
are met. The Operating Partnership's guaranty of principal was $13.1 million at
December 31, 1999.
During 1999 and 1998, the Unconsolidated Joint Ventures incurred
extraordinary charges related to the extinguishment of debt, primarily
consisting of prepayment premiums.
The Company's carrying value of its Investment in Unconsolidated Joint
Ventures differs from its share of the deficiency in assets reported in the
combined balance sheet of the Unconsolidated Joint Ventures due to (i) the
Company's cost of its investment in excess of the historical net book values of
the Unconsolidated Joint Ventures and (ii) the Operating Partnership's
adjustments to the book basis, including intercompany profits on sales of
services that are capitalized by the Unconsolidated Joint Ventures. The
Company's additional basis allocated to depreciable assets is recognized on a
straight-line basis over 40 years. The Operating Partnership's differences in
bases 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 the
Operating Partnership's beneficial interest in the combined information.
Beneficial interest is calculated based on the Operating Partnership's ownership
interest in each of the Unconsolidated Joint Ventures. The accounts of Woodfield
Associates, formerly a 50% Unconsolidated Joint Venture transferred to GMPT
(Note 2), are included in these results through September 30, 1998, the date of
the GMPT Exchange.
F-13
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31 December 31
----------- -----------
1999 1998
---- ----
Assets:
Properties, net $ 724,846 $ 572,149
Other assets 91,820 73,046
------------- -------------
$ 816,666 $ 645,195
============= =============
Liabilities and partners'
accumulated deficiency in assets:
Debt $ 895,163 $ 825,927
Capital lease obligations 3,664 5,187
Other liabilities 53,825 47,622
TRG's accumulated deficiency in assets (74,749) (103,545)
Unconsolidated Joint Venture Partners'
accumulated deficiency in assets (61,237) (129,996)
------------- -------------
$ 816,666 $ 645,195
============= =============
TRG's accumulated deficiency in
assets (above) $ (74,749) $ (103,545)
TRG basis adjustments, including
elimination of intercompany profit 2,205 (4,846)
TCO's additional basis 197,789 206,741
------------- -------------
Investment in Unconsolidated
Joint Ventures $ 125,245 $ 98,350
============= =============
Year Ended
-------------
December 31
-------------
1999 1998
---- ----
Revenues $ 252,009 $ 286,287
------------- -------------
Recoverable and other operating expenses $ 87,755 $ 101,277
Interest expense 64,152 69,389
Depreciation and amortization 29,983 32,466
------------- -------------
Total operating costs $ 181,890 $ 203,132
------------- -------------
Income before extraordinary items $ 70,119 $ 83,155
Extraordinary items (333) (1,913)
------------- -------------
Net income $ 69,786 $ 81,242
============= =============
Net income allocable to TRG $ 38,346 $ 42,322
Extraordinary items allocable to TRG 167 957
Realized intercompany profit 5,434 7,205
Depreciation of TCO's additional basis (4,652) (4,057)
------------- -------------
Equity in income before extraordinary items
of Unconsolidated Joint Ventures $ 39,295 $ 46,427
============= =============
Beneficial interest in Unconsolidated
Joint Ventures' operations:
Revenues less recoverable and other
operating expenses $ 94,136 $ 104,257
Interest expense (34,470) (37,118)
Depreciation and amortization (20,371) (20,712)
------------- -------------
Income before extraordinary items $ 39,295 $ 46,427
============= =============
F-14
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 5 - Properties
Properties at December 31, 1999 and December 31, 1998 are summarized as
follows:
1999 1998
----- ----
Land $ 106,268 $ 102,901
Buildings, improvements and equipment 1,308,365 1,142,466
Construction in process 127,168 199,561
Development pre-construction costs 30,484 28,512
------------- -------------
$ 1,572,285 $ 1,473,440
Accumulated depreciation and amortization (210,788) (164,798)
-------------- -------------
$ 1,361,497 $ 1,308,642
============= =============
Depreciation expense for 1999 and 1998 was $47.9 million and $50.8 million,
respectively. Construction in process includes costs related to the construction
of new centers, and expansions and other improvements at various existing
centers. The charge to operations in 1999 and 1998 for costs of unsuccessful and
potentially unsuccessful pre-development activities was $10.1 million and $7.3
million, respectively. During 1999 and 1998, non-cash additions to properties of
$13.6 million and $54.9 million, respectively, were recorded, representing
accrued costs of new centers, expansions and development projects.
In December 1999, the Operating Partnership acquired an additional 5%
interest in Great Lakes Crossing for $1.2 million in cash, increasing the
Operating Partnership's interest in the center to 85%. The acquisition was
accounted for as a purchase.
Note 6 - Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 1999 and December 31,
1998 are summarized as follows:
1999 1998
---- ----
Leasing $ 25,223 $ 21,164
Accumulated amortization (14,050) (10,349)
-------------- ------------
$ 11,173 $ 10,815
Deferred financing costs, net 10,061 10,248
Investments 22,878 2,497
Other, net 5,384 3,579
------------- -------------
$ 49,496 $ 27,139
============= =============
In April 1999, the Company invested in an e-commerce company that markets,
promotes, advertises, and sells fashion apparel and related accessories and
products over the Internet. The Company obtained 824,084 convertible preferred
shares of Fashionmall.com, Inc., a 9.9% interest in the company, for $7.4
million. In connection with this investment, the Company received an option,
exercisable during a 60-day period commencing March 2000, to purchase an
additional 924,898 shares of common stock at the initial public offering price
of $13.00 per share. The investment in Fashionmall.com, Inc. is accounted for
under the cost method.
In September 1999, the Company acquired an approximately 5% interest in
Swerdlow Real Estate Group, a privately held real estate investment trust, for
approximately $10 million. The investment in Swerdlow is accounted for under the
cost method.
F-15
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
In November 1999, the Operating Partnership acquired Lord Associates, a
retail leasing firm based in Alexandria, Virginia, for approximately $7.5
million, representing $2.5 million in cash and 435,153 partnership units (and an
equal number of the Company's Series B Non-Participating Convertible Preferred
Stock.) The units and stock will be released over a five-year period. The owner
of the partnership units is not entitled to distributions or income allocations,
and an affiliate of the Operating Partnership will have voting rights to the
stock, until release of the units. Of the cash purchase price, approximately
$1.0 million was paid at closing and $1.5 million will be paid over five years;
$1.0 million of the purchase price is contingent upon profits achieved on
acquired leasing contracts. The final 65,271 partnership units are collateral if
the profit contingency is not met. The acquisition of Lord Associates was
accounted for as a purchase (cost amortized over five years), with the results
of operations of Lord Associates being included in the income statement of the
Company subsequent to the acquisition date.
Note 7 - Debt
Mortgage Notes Payable
Mortgage notes payable at December 31, 1999 and December 31, 1998 consist
of the following:
Interest Balance Due
1999 1998 Rate Maturity Date on Maturity
---- ---- --------- ------------- -----------
Beverly Center $ 146,000 $ 146,000 8.36% 07/15/04 $146,000
Biltmore 80,000 7.68% 07/10/09 71,391
Great Lakes Crossing 170,000 LIBOR + 1.50% 04/01/02 167,925
MacArthur Center 115,212 94,589 LIBOR + 1.35% 10/27/00 115,212
The Mall at Short Hills 270,000 6.70% 04/01/09 245,301
Line of Credit 63,000 LIBOR + 0.90% 09/21/01 63,000
Other 22,530 2,763 Various Various 20,000
--------- --------
$ 866,742 $ 243,352
========= =========
Mortgage debt is collateralized by properties with a net book value of $1.2
billion and $289.5 million as of December 31, 1999 and December 31, 1998,
respectively.
The Great Lakes Crossing and MacArthur Center loan agreements provide for
an option to extend the maturity date one and two years, respectively. Payment
of principal and interest are guaranteed by the Operating Partnership. The loan
agreements provide for a reduction of the amount guaranteed (the Great Lakes
Crossing agreement also provides for a reduction of the interest rate) as
certain center performance and valuation criteria are met. The MacArthur Center
construction facility has total availability of $120 million.
F-16
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
In June 1999, the Operating Partnership's $200 million line of credit
facility was securitized with interests in Fairlane, LaCumbre, Paseo Nuevo, and
Regency Square serving as collateral.
The other mortgage notes payable are due at various dates through 2009, and
have fixed interest rates between 5.4% and 13%.
The following table presents scheduled principal payments on mortgage debt,
as of December 31, 1999.
2000 $ 115,727
2001 65,670
2002 171,292
2003 4,179
2004 150,457
Thereafter 359,417
Unsecured Notes Payable
Unsecured notes payable at December 31, 1999 and December 31, 1998 consist
of the following:
1999 1998
---- ----
Bridge loan, interest at
LIBOR plus 1.30% $ 340,000
Construction facility, interest at
LIBOR plus 0.90% 170,100
Line of credit, maximum borrowing
available of $40 million, interest
based on a variable bank borrowing
rate, 6.75% at December 31, 1999,
maturing August 2000 (Note 16) $ 17,624 15,450
Other 2,195 6,396
---------- -----------
$ 19,819 $ 531,946
========== ===========
Debt Covenants
Certain loan and facility agreements contain various restrictive covenants
including limitations on net worth, 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. The Company is in compliance
with all covenants.
Interest Expense
Interest paid in 1999 and 1998, net of amounts capitalized of $14.5 million
and $18.2 million, respectively, approximated $45.8 million and $76.1 million,
respectively.
F-17
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Extraordinary Items
During the year ended December 31, 1999, extraordinary charges to income of
$0.5 million were recognized in connection with the extinguishment of debt.
During 1998, extraordinary charges of $50.8 million were recognized related to
the extinguishment of debt, primarily in connection with the GMPT Exchange.
Interest Rate Hedging Instruments
The Company enters into interest rate agreements to reduce its exposure to
changes in the cost of its floating rate debt. The derivative agreements
generally match the notional amounts, reset dates and rate bases of the hedged
debt to assure the effectiveness of the derivatives in reducing interest rate
risk. As of December 31, 1999, the following interest rate cap agreements were
outstanding:
Frequency
Notional LIBOR of Rate
Amount Cap Rate Resets Term
-------- -------- --------- ------------------------------------
$100,000 7.0% Monthly December 1999 through December 2000
170,000 6.0% Monthly September 1999 through August 2000
84,000 6.5% Monthly September 1999 through October 2000
The Company is exposed to credit risk in the event of nonperformance by the
counterparties to its interest rate cap agreements, but has no off-balance sheet
risk of loss. The Company anticipates that its counterparties will fully perform
their obligations under the agreements.
Fair Value of Financial Instruments Related to Debt
The estimated fair values of financial instruments at December 31, 1999 and
December 31, 1998 are as follows:
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------- --------- --------- ---------
Mortgage notes payable $ 866,742 $ 885,741 $ 243,352 $ 254,156
Unsecured notes payable 19,819 19,819 531,946 532,043
Interest rate instruments -
in a receivable position 632 410 319 5
Beneficial Interest in Debt and Interest Expense
The Operating Partnership's beneficial interest in the debt, capital lease
obligations, capitalized interest, and interest expense of its consolidated
subsidiaries and its Unconsolidated Joint Ventures is summarized in the
following table. The Operating Partnership's beneficial interest excludes debt
and interest relating to the minority interest in Great Lakes Crossing (15% at
December 31, 1999-see Note 5) and the 30% minority interest in MacArthur Center.
F-18
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Unconsolidated Share
Joint of Unconsolidated Consolidated Beneficial
Ventures Joint Ventures Subsidiaries Interest
-------------- ----------------- ------------- -----------
Debt as of:
December 31, 1999 $ 895,163 $ 473,726 $ 886,561 $ 1,300,224
December 31, 1998 825,927 439,271 775,298 1,186,192
Capital lease obligations:
December 31, 1999 $ 3,664 $ 2,018 $ 469 $ 2,418
December 31, 1998 5,187 2,858 -- 2,858
Capitalized interest:
Year ended December 31,1999 $ 2,528 $ 1,085 $ 14,489 $ 15,188
Year ended December 31,1998 2,466 1,062 18,192 17,610
Interest expense
(Net of capitalized interest):
Year ended December 31,1999 $ 64,152 $ 34,470 $ 51,327 $ 82,062
Year ended December 31,1998 69,389 37,118 75,809 112,927
Note 8 - Leases
Operating Leases
Shopping center space is leased to tenants and certain anchors pursuant to
lease agreements. Tenant leases typically provide for guaranteed minimum rent,
percentage rent, and other charges to cover certain operating costs. Future
minimum rent under operating leases in effect at December 31, 1999 for operating
centers, assuming no new or renegotiated leases or option extensions on anchor
agreements, is summarized as follows:
2000 $ 137,065
2001 132,046
2002 125,614
2003 114,567
2004 98,968
Thereafter 349,017
Certain shopping centers, as lessees, have ground leases expiring at
various dates through the year 2065. In addition, the Company leases its office
facilities. Rental payments under ground and office leases were $7.0 million in
1999 and $8.9 million in 1998. Included in this amount are related party office
rental payments of $2.7 million and $2.8 million, respectively.
F-19
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
The following is a schedule of future minimum rental payments required
under operating leases.
2000 $ 6,505
2001 6,324
2002 6,262
2003 6,253
2004 6,251
Thereafter 171,861
The table above includes $2.6 million, $2.7 million, $2.8 million, $2.8
million, $2.8 million and $0.9 million of related party amounts in 2000, 2001,
2002, 2003, 2004, and thereafter.
Memorial City Mall Lease
In 1996, the Operating Partnership entered into an agreement to lease
Memorial City Mall, a 1.4 million square foot shopping center located in
Houston, Texas. The lease was subject to certain provisions that enabled the
Operating Partnership to explore significant redevelopment opportunities and
terminate the lease obligations in the event such redevelopment opportunities
were not deemed to be sufficient. In November 1999, the Operating Partnership
exercised its option to terminate the lease. Under the terms of the lease, the
Operating Partnership will continue to manage the center until May 2000.
Note 9 - Transactions with Affiliates
The revenue from management, leasing and development services includes $2.5
million and $3.2 million from transactions with affiliates for the years ended
December 31, 1999 and 1998, respectively. Accounts receivable from related
parties includes amounts related to reimbursement of third-party
(non-affiliated) costs.
During 1997, the Operating Partnership acquired an option from a related
party to purchase certain real estate on which the Operating Partnership may
develop a shopping center. The option agreement requires option payments of
$150,000 during each of the first five years, $400,000 in the sixth year, and
$500,000 in the seventh year. If the Operating Partnership exercises the option,
the purchase price for the property will be between $5 million and $10 million,
depending upon the year of purchase. While the optionor will have no interest in
the shopping center itself, the optionor may, under certain circumstances,
participate in the proceeds from the Operating Partnership's future sales, if
any, of the peripheral land contiguous to the shopping center.
Other related party transactions are described in Notes 8 and 10.
Note 10 - The Manager
The Taubman Company Limited Partnership (the Manager), which is 99%
beneficially owned by the Operating Partnership, provides property management,
leasing, development and other administrative services to the Company, the
shopping centers, and Taubman affiliates. In addition, the Manager provides
services to centers transferred to GMPT under management agreements. The
management agreements are cancelable with 90 days notice.
The Manager has a voluntary retirement saving plan established in 1983 and
amended and restated effective January 1, 1994 (the Plan). The Plan is qualified
in accordance with Section 401(k) of the Internal Revenue Code (the Code). The
Manager contributes an amount equal to 2% of the qualified wages of all
qualified employees and matches employee contributions in excess of 2% up to 7%
of qualified wages. In addition, the Manager may make discretionary
contributions within the limits prescribed by the Plan and imposed in the Code.
Costs relating to the Plan were $1.6 million in 1999 and $1.7 million in 1998.
F-20
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
The Operating Partnership has an incentive option plan for employees of the
Manager. Currently, options for 7.7 million Operating Partnership units may be
issued under the plan, including options outstanding for 7.4 million units.
Incentive options generally become exercisable to the extent of one-third of the
units on each of the third, fourth, and fifth anniversaries of the date of
grant. Options expire ten years from the date of grant. The Operating
Partnership's units issued in connection with the incentive option plan are
exchangeable for shares of the Company's common stock under the Continuing Offer
(Note 12).
A summary of the status of the plan as of December 31, 1999 and 1998 and
changes during the years ending on those dates are presented below:
1999 1998
--------------------------- --------------------------
Weighted-Average Weighted-Average
Exercise Price Exercise Price
Options Units Per Unit Units Per Unit
------- ----- ------- ----- --------
Outstanding at
beginning of year 6,805,018 $11.22 7,023,605 $11.22
Exercised (285,739) 10.79 (214,636) 11.07
Granted 1,000,000 12.25
Cancelled (93,494) 12.90 (3,951) 10.52
Forfeited (1,976) 9.69
---------- ----------
Outstanding at
end of year 7,423,809 11.36 6,805,018 11.22
========= ==========
Options vested
at year end 6,601,090 11.32 6,022,730 11.28
========= =========
Options outstanding at December 31, 1999 have a remaining weighted-average
contractual life of 4.2 years and range in exercise price from $9.39 to $13.89.
The weighted average fair value per unit of options granted during 1999 was
$1.24. The Company used a binomial option pricing model to determine the grant
date fair value based on the following assumptions: volatility rate of 20.43%,
risk-free rate of return of approximately 5.26%, and dividend yield of
approximately 7.8%.
The Company applies APB Opinion 25 and related interpretations in
accounting for the plan. The exercise price of all options outstanding granted
under the plan was equal to market value on the date of grant. Accordingly, no
compensation expense has been recognized for the plan. Had compensation cost for
the plan been determined based on the fair value of the options at the grant
dates, consistent with the method of FAS Statement 123, the pro forma effect on
the Company's earnings and earnings per share would have been approximately $0.7
million, or $0.01 per share in 1999, and approximately $0.1 million, or $0.002
per share, in 1998.
Effective January 1, 1996 and amended January 1, 1999, the Manager adopted
The Taubman Company Long-Term Performance Compensation Plan. Annually, eligible
employees will be granted notional shares, the ultimate number of which will be
based on the employee's performance. These awards, which will vest on the third
anniversary of the date of grant, will also accrue dividend equivalents in the
form of additional notional shares. The awards will be paid to the employee in
cash upon vesting, based on the value of the Company's common shares, unless the
employee elects to defer payment as provided in the plan. The cost of this plan
was approximately $3.8 million for 1999 and $6.6 million for 1998.
F-21
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 11 - Preferred Stock and Preferred Equity of TRG
In October 1997, the Company used the proceeds from a $200 million public
offering of eight million shares of 8.3% Series A Cumulative Redeemable
Preferred Stock (Series A Preferred Stock) to acquire a Series A Preferred
Equity interest in the Operating Partnership 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.
The Series A Preferred Stock has no stated maturity, sinking fund or
mandatory redemption and is not convertible into any other securities of the
Company. The Series A Preferred Stock has a liquidation preference of $200
million ($25 per share). Dividends are cumulative and accrue at an annual rate
of 8.3% from the date of the original issuance, October 3, 1997, and are payable
in arrears on or before the last day of each calendar quarter. All accrued
dividends have been paid. The Series A Preferred Stock can be redeemed by the
Company beginning in October 2002 at $25 per share plus any accrued dividends.
The redemption price can be paid solely out of the sale of capital stock of the
Company.
In connection with the GMPT Exchange, the Company became obligated to issue
to the minority interest, upon subscription, one share of Series B
Non-Participating Convertible Preferred Stock (Series B Preferred Stock) for
each of the Operating Partnership units held by the minority interest. 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.
In September 1999 and November 1999, the Operating Partnership completed
private placements of $75 million 9% Cumulative Redeemable Preferred Partnership
Equity (Series C Preferred Equity) and $25 million 9% Cumulative Redeemable
Preferred Partnership Equity (Series D Preferred Equity), respectively. Both the
Series C and Series D Preferred Equity were purchased by institutional
investors, and have a fixed 9% coupon rate, no stated maturity, sinking fund or
mandatory redemption requirements.
The holders of Series C Preferred Equity have the right, beginning in 2009,
to exchange $75 in liquidation value of such equity for one share of Series C
Preferred Stock. The holders of the Series D Preferred Equity have the right,
beginning in 2009, to exchange $100 in liquidation value of such equity for one
share of Series D Preferred Stock. The terms of the Series C Preferred Stock and
Series D Preferred Stock are substantially similar to those of the Series C
Preferred Equity and Series D Preferred Equity. Like the Series A Preferred
Stock, the Series C Preferred Stock and Series D Preferred Stock are non-voting.
In connection with each private placement, the Company covenanted to amend its
Restated Articles of Incorporation to increase the total number of authorized
shares of Preferred Stock and to increase the total number of shares designated
as Series C Preferred Stock and Series D Preferred Stock, to a minimum of
2,000,000 shares and 250,000 shares, respectively. The Company has further
covenanted, once additional shares of Series C Preferred Stock and Series D
Preferred Stock are available for issuance, to in each case lower the applicable
exchange ratio and to issue more shares with each share having a lower
liquidation value. The aggregate amount in liquidation value of each of the
Series C Preferred Stock and Series D Preferred Stock will remain $75 million
and $25 million, respectively.
F-22
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 12 - Commitments and Contingencies
At the time of the Company's initial public offering (IPO) and acquisition
of its partnership interest in the Operating Partnership, the Company entered
into an agreement with A. Alfred Taubman, who owns an interest in the Operating
Partnership, whereby he has the annual right to tender to the Company Operating
Partnership units (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.
Based on a market value at December 31, 1999 of $10.75 per common share,
the aggregate value of interests in the Operating Partnership that may be
tendered under the Cash Tender Agreement was approximately $259 million. The
purchase of these interests at December 31, 1999 would have resulted in the
Company owning an additional 28% interest in the Operating Partnership.
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 the
Operating Partnership as the Company may, in its sole discretion, agree to
include in the continuing offer, and all existing and future optionees under the
Operating Partnership's incentive option plan (Note 10) to exchange shares of
common stock for partnership interests in the Operating Partnership (the
Continuing Offer). Under the Continuing Offer agreement, one unit of the
Operating 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.
The Company is currently involved in certain litigation arising in the
ordinary course of business. Management believes that this litigation will not
have a material adverse effect on the Company's financial statements.
F-23
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 13 - 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 the Operating Partnership (and therefore
earnings) are adjusted assuming the exercise of all options for units of
partnership interest under the Operating Partnership's incentive option plan
having exercise prices less than the average market value of the units using the
treasury stock method. For the years ended December 31, 1999, 1998 and 1997,
options for 0.7 million, 0.3 million and 0.4 million units of partnership
interest with average exercise prices of $13.38, $13.81 and $13.58,
respectively, were excluded from the computation of diluted earnings per share
because the options' exercise prices were greater than the average market price
for the period calculated.
Year Ended December 31
----------------------------------------
1999 1998 1997
----------------------------------------
(in thousands, except share data)
Income before extraordinary items
allocable to common shareowners
(Numerator):
Net income (loss) available to
common shareowners $ 8,902 $ (2,980) $ 24,604
Common shareowners' share of
extraordinary items 294 20,066
-------- -------- --------
Basic income before extraordinary
items $ 9,196 $ 17,086 $ 24,604
Effect of dilutive options (270) (256) (241)
-------- -------- --------
Diluted income before extraordinary
items $ 8,926 $ 16,830 $ 24,363
======== ======== ========
Shares (Denominator) - basic
and diluted 53,192,364 52,223,399 50,737,333
========== ========== ==========
Income before extraordinary items
per common share:
Basic $ 0.17 $ 0.33 $ 0.48
======== ======== ========
Diluted $ 0.17 $ 0.32 $ 0.48
======== ======== ========
Extraordinary items per common
share - basic and diluted $ (0.01) $ (0.38)
======== ========
F-24
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 14 - New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 requires that a lessor defer recognition of percentage rents in
quarterly periods until the specified target (typically gross sales in excess of
a certain amount) that triggers this type of rental income is achieved. The
Company had previously accrued interim contingent rental income as lessees'
specified sales targets were met or achievement of the sales targets was
probable. The Company adopted the accounting method set forth in SAB 101 during
the fourth quarter of 1999. Although the adoption had no impact on annual net
income, the Company has restated the results of the first three quarters of 1999
(Note 15). The effect of the restatement was to reduce net income by $0.3
million ($0.01 per diluted common share), $1.2 million ($0.02 per diluted common
share), and $1.2 million ($0.02 per diluted common share) for the first, second,
and third quarters of 1999, respectively, and to increase fourth quarter income
and per share amounts by $2.7 million and $0.05 per share, respectively. Had SAB
101 been in effect during 1998, 11%, 7%, 10%, and 72% of annual percentage rent
would have been recognized in the first, second, third, and fourth quarters of
1998, on a pro forma basis.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the uses of
the derivatives and whether they qualify for hedge accounting. The Company is
currently evaluating the impact of SFAS 133 on the Company's consolidated
financial statements. SFAS 133 is effective for fiscal years beginning after
June 15, 2000.
F-25
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 15 - Quarterly Financial Data (Unaudited)
The following is a summary of quarterly results of operations for 1999 and
1998. Amounts for the first three quarters of 1999 have been restated for the
change in accounting method for percentage rent (Note 14).
1999
-----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------------------------------------
(in thousands, except share data)
Revenues $ 60,163 $ 68,771 $ 65,995 $ 73,763
Equity in income of Unconsolidated Joint Ventures 9,545 9,767 8,887 11,096
Income before extraordinary items, minority and preferred
interests 13,847 12,941 12,623 19,034
Net income 6,340 5,132 4,590 9,440
Net income available to common shareowners 2,190 982 440 5,290
Basic earnings per common share:
Income before extraordinary items $ 0.04 $ 0.02 $ 0.01 $ 0.10
Net income 0.04 0.02 0.01 0.10
Diluted earnings per common share:
Income before extraordinary items $ 0.04 $ 0.02 $ 0.01 $ 0.10
Net income 0.04 0.02 0.01 0.10
1998
------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------------------------------------
(in thousands, except share data)
Revenues $ 87,202 $ 92,103 $ 90,968 $ 63,680
Equity in income of Unconsolidated Joint Ventures 11,730 10,946 12,836 10,915
Income before extraordinary items, minority and preferred
interests 21,087 20,514 11,494 17,308
Net income (loss) 8,900 9,046 (14,126) 9,800
Net income (loss) available to common shareowners 4,750 4,896 (18,276) 5,650
Basic earnings per common share:
Income before extraordinary items $ 0.10 $ 0.09 $ 0.03 $ 0.11
Net income (loss) 0.09 0.09 (0.35) 0.11
Diluted earnings per common share:
Income before extraordinary items $ 0.10 $ 0.09 $ 0.03 $ 0.10
Net income (loss) 0.09 0.09 (0.34) 0.10
F-26
TAUBMAN CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 16 - Subsequent Events
In January 2000, the Company agreed to exchange property interests with its
current joint venture partner in two Unconsolidated Joint Ventures. Under the
terms of the agreement, expected to be completed in the first quarter 2000, the
Operating Partnership will assume 100 percent ownership of Twelve Oaks Mall and
the current joint venture partner will become 100 percent owner of Lakeside.
Both properties will remain subject to the existing mortgage debt ($50 million
and $88 million at Twelve Oaks and Lakeside, respectively.) The Operating
Partnership will also pay the joint venture partner $30 million in cash. The
transaction will be accounted for as a purchase. The Operating Partnership will
continue to manage Twelve Oaks, while the joint venture partner will assume
management responsibility for Lakeside at closing.
In January 2000, the 50% owned Unconsolidated Joint Venture that owns
Stamford Town Center completed a $76 million secured financing. The new
financing bears interest at a rate of one-month LIBOR plus 0.8% and matures in
2002 with a two-year extension option. The rate is capped at 8.2% plus credit
spread for the term of the loan. The proceeds were used to repay the $54 million
participating mortgage, the $18.3 million prepayment premium, and accrued
interest and transaction costs.
In January 2000, the Company finalized an agreement that securitized the
$40 million bank line of credit and extended its maturity to August 2000.
F-27
Schedule II
TAUBMAN CENTERS, INC.
Valuation and Qualifying Accounts
For the years ended December 31, 1999 and 1998
(in thousands)
Additions
-------------------------
Balance at Charged to Charged to Balance
beginning costs and other at end
of year expenses accounts Write-offs Transfers, net of year
--------- ---------- ---------- ------------ -------------- --------
Year ended December 31, 1999:
Allowance for doubtful receivables $333 2,238 (1,022) $ 1,549
==== ===== ======= =======
Year ended December 31, 1998:
Allowance for doubtful receivables $1,207 (1,221) 347(1) $ 333
====== ======= ======= =======
(1) On September 30, 1998, the Company obtained a majority and controlling
interest in TRG as a result of the GMPT Exchange. Upon obtaining this
controlling interest, the Company consolidated the financial position of
TRG. The Company previously accounted for its investment in TRG under the
equity method.
F-28
TAUBMAN CENTERS, INC. Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
Initial Cost Gross Amount at Which
to Company Cost Carried at Close of Period
------------------ Capitalized --------------------------- Accumulated Total
Buildings and Subsequent Depreciation Cost Net
Land Improvements to Acquisition Land BI&E Total (A/D) of A/D
---- ------------ -------------- ---- ---- ----- ------------- --------
Shopping Centers:
Beverly Center, Los Angeles, CA $ 0 $ 209,348 $ 23,290 $ 0 $ 232,638 $ 232,638 $ 63,040 $ 169,598
Biltmore Fashion Park, Phoenix, AZ 19,097 103,257 15,988 19,097 119,245 138,342 17,348 120,994
Fairlane Town Center, Dearborn, MI 16,830 104,812 11,053 16,830 115,865 132,695 17,642 115,053
Great Lakes Crossing, Auburn Hills, MI 12,798 196,398 7,542 12,798 203,940 216,738 12,346 204,392
La Cumbre Plaza, Santa Barbara, CA 0 27,762 188 0 27,950 27,950 2,841 25,109
MacArthur Center, Norfolk, VA 4,000 144,480 0 4,000 144,480 148,480 4,913 143,567
Paseo Nuevo, Santa Barbara, CA 0 39,086 1,028 0 40,114 40,114 4,666 35,448
Regency Square, Richmond, VA 18,635 103,062 418 18,635 103,480 122,115 9,344 112,771
The Mall at Short Hills, Short Hills, NJ 25,114 171,443 118,041 25,114 289,484 314,598 55,857 258,741
Other:
Manager's Office Facilities 0 0 30,044 0 30,044 30,044 22,526 7,518
Peripheral Land 9,794 0 5 9,794 5 9,799 0 9,799
Construction in Process and
Development Pre-construction Costs 0 151,879 5,773 0 157,652 157,652 0 157,652
Other 0 1,120 0 0 1,120 1,120 265 855
------- --------- --------- --------- ---------- ---------- --------- ---------
TOTAL $106,268 $1,252,647 $ 213,370 $ 106,268 $1,466,017 $1,572,285 $ 210,788 $1,361,497
======== ========== ========= ========= ========== ========== ========= ==========
Date of
Completion of
Construction or Depreciable
Encumbrances Acquisition Life
------------ ------------- ----------
Shopping Centers:
Beverly Center, Los Angeles, CA $ 146,000 1982 40 Years
Biltmore Fashion Park, Phoenix, AZ 80,000 1994 40 Years
Fairlane Town Center, Dearborn, MI Note (1) 1996 40 Years
Great Lakes Crossing, Auburn Hills, MI 170,000 1998 50 Years
La Cumbre Plaza, Santa Barbara, CA Note (1) 1996 40 Years
MacArthur Center, Norfolk, VA 115,212 1999 50 Years
Paseo Nuevo, Santa Barbara, CA Note (1) 1996 40 Years
Regency Square, Richmond, VA Note (1) 1997 40 Years
The Mall at Short Hills, Short Hills, NJ 270,000 1980 40 Years
Other:
Manager's Office Facilities 0
Peripheral Land 0
Construction in Process and
Development Pre-construction Costs 0
Other 22,530
The changes in total real estate assets and accumulated depreciation for the
years ended December 31, 1999 and 1998 are as follows:
Total Total
Real Estate Real Estate Accumulated Accumulated
Assets Assets Depreciation Depreciation
------ ------ ------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
Balance, beginning of year $ 1,473,440 $ 0 Balance, beginning of year $ (164,798) $ 0
New development and
improvements 160,746 349,234 Depreciation for year (47,965) (57,376)
Disposals (3,181) (3,527) Disposals 1,975 1,263
Transfers In/(Out) (58,720)(2) 1,127,733 Transfers In 0 (108,685)
---------- --------- ----------- -----------
Balance, end of year $ 1,572,285 $1,473,440 (3) Balance, end of year $ (210,788) $ (164,798) (3)
=========== ========== =========== ===========
(1) These centers are collateral for the Company's line of credit, which had a
balance of $63 million at December 31, 1999.
(2) Includes costs transferred relating to International Plaza and Dolphin
Mall, which became Unconsolidated Joint Ventures in 1999.
(3) On September 30, 1998, the Company obtained a majority and controlling
interest in the Operating Partnership as a result of the GMPT Exchange.
Upon obtaining this controlling interest, the Company consolidated the
accounts of the Operating Partnership. The Company previously accounted for
its investment in the Operating Partnership under the equity method.
F-29
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP (a consolidated subsidiary of Taubman Centers, Inc.)
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998 AND
FOR EACH OF THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
F-30
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareowners
Taubman Centers, Inc.
We have audited the accompanying combined balance sheets of Unconsolidated
Joint Ventures of The Taubman Realty Group Limited Partnership (the
"Partnership") (a consolidated subsidiary of Taubman Centers, Inc.) as of
December 31, 1999 and 1998, and the related combined statements of operations,
accumulated deficiency in assets, and cash flows for each of the three years in
the period ended December 31, 1999. Our audits also included the financial
statement schedules listed in the Index at Item 14. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of Unconsolidated Joint
Ventures of The Taubman Realty Group Limited Partnership as of December 31, 1999
and 1998, and the combined results of their operations and their combined cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
combined financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan
February 9, 2000
F-31
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED BALANCE SHEET
(in thousands)
December 31
---------------------------
1999 1998
---- ----
Assets:
Properties (Notes 2, 4 and 6) $ 942,248 $ 769,665
Accumulated depreciation and amortization 217,402 197,516
----------- ----------
$ 724,846 $ 572,149
Cash and cash equivalents 36,823 29,828
Accounts and notes receivable, less allowance
for doubtful accounts of $1,588 and $255
in 1999 and 1998 9,916 7,521
Note receivable from Joint Venture Partner (Note 6) 607 964
Deferred charges and other assets (Notes 3 and 6) 44,474 34,733
----------- ----------
$ 816,666 $ 645,195
=========== ==========
Liabilities:
Mortgage notes payable (Note 4) $ 894,505 $ 824,826
Other notes payable (Note 4) 658 1,101
Capital lease obligations (Note 5) 3,664 5,187
Accounts payable to related parties (Note 6) 3,924 2,749
Accounts payable and other liabilities 49,901 44,873
----------- ----------
$ 952,652 $ 878,736
Commitments (Note 5)
Accumulated deficiency in assets:
TRG $ (74,749) $ (103,545)
Joint Venture Partners (61,237) (129,996)
------------ -----------
$ (135,986) $ (233,541)
----------- -----------
$ 816,666 $ 645,195
=========== ===========
See notes to financial statements.
F-32
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED STATEMENT OF OPERATIONS
(in thousands)
Year Ended December 31
-----------------------------------------
1999 1998 1997
---- ---- ----
Revenues:
Minimum rents $ 158,126 $ 175,674 $ 155,912
Percentage rents 3,921 4,171 3,057
Expense recoveries 83,557 97,994 89,653
Other 6,405 8,448 10,013
---------- ---------- ----------
$ 252,009 $ 286,287 $ 258,635
----------- ---------- ----------
Operating costs:
Recoverable expenses (Note 6) $ 69,367 $ 82,595 $ 76,493
Other operating (Note 6) 18,388 18,682 17,638
Interest expense (Note 4) 64,152 69,389 54,018
Depreciation and amortization 29,983 32,466 24,180
----------- ----------- ----------
$ 181,890 $ 203,132 $ 172,329
----------- ---------- ----------
Income before extraordinary items $ 70,119 $ 83,155 $ 86,306
Extraordinary items (Note 4) (333) (1,913)
----------- ---------- ----------
Net income $ 69,786 $ 81,242 $ 86,306
=========== ========== ==========
Allocation of net income:
Attributable to TRG $ 38,346 $ 42,322 $ 46,857
Attributable to Joint Venture
Partners 31,440 38,920 39,449
----------- ---------- ----------
$ 69,786 $ 81,242 $ 86,306
=========== ========== ==========
See notes to financial statements.
F-33
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED STATEMENT OF ACCUMULATED DEFICIENCY IN ASSETS
(in thousands)
Joint Venture
TRG Partners Total
--- ---------- ------
Balance, January 1, 1997 $ (134,986) $ (124,146) $ (259,132)
Cash contributions 18,822 9,800 28,622
Cash distributions (64,373) (59,711) (124,084)
Net income 46,857 39,449 86,306
---------- ---------- -----------
Balance, December 31, 1997 $ (133,680) $ (134,608) $ (268,288)
Cash contributions 33,322 4,900 38,222
Cash distributions (90,263) (83,934) (174,197)
Transferred center (Note 1) 44,754 44,726 89,480
Net income 42,322 38,920 81,242
---------- ---------- -----------
Balance, December 31, 1998 $ (103,545) $ (129,996) $ (233,541)
Non-cash contributions (Note 1) 52,110 31,247 83,357
Cash contributions 36,799 34,747 71,546
Cash distributions (98,459) (28,675) (127,134)
Net income 38,346 31,440 69,786
---------- ---------- -----------
Balance, December 31, 1999 $ (74,749) $ (61,237) $ (135,986)
=========== =========== ===========
See notes to financial statements.
F-34
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31
----------------------------------
1999 1998 1997
---- ---- ----
Cash Flows From Operating Activities:
Income before extraordinary items $ 70,119 $ 83,155 $ 86,306
Adjustments to reconcile income before
extraordinary items to net cash provided
by operating activities:
Depreciation and amortization 29,983 32,466 24,180
Provision for losses on accounts receivable 1,822 1,119 697
Gains on sales of land (1,090) (2,748)
Other 3,908 3,806
Increase (decrease) in cash attributable
to changes in assets and liabilities:
Receivables, deferred
charges and other assets (6,413) (7,109) (7,760)
Accounts payable and other liabilities (1,952) (22,042) 43,110
--------- --------- ---------
Net Cash Provided By Operating Activities $ 93,559 $ 90,407 $ 147,591
--------- --------- ---------
Cash Flows From Investing Activities:
Additions to properties $ (79,298) $ (64,455) $(190,188)
Restricted cash for expansion (30) (224)
Proceeds from sales of land 105 1,590 3,452
--------- --------- ---------
Net Cash Used In Investing Activities $ (79,223) $ (63,089) $(186,736)
--------- --------- ---------
Cash Flows From Financing Activities:
Debt proceeds $ 201,152 $ 164,710 $ 158,255
Debt payments (3,439) (4,489) (8,267)
Extinguishment of debt (141,459) (40,741)
Debt issuance costs (8,007) (7,619) (4,420)
Cash contributions from partners 71,546 38,222 28,622
Cash distributions to partners (127,134) (174,197) (124,084)
--------- --------- ---------
Net Cash Provided By (Used In)
Financing Activities $ (7,341) $ (24,114) $ 50,106
--------- --------- ---------
Net increase in cash $ 6,995 $ 3,204 $ 10,961
Cash and Cash Equivalents at Beginning of Year 29,828 36,875 25,914
Effect of transferred center in connection
with the GMPT Exchange (Note 1) (10,251)
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 36,823 $ 29,828 $ 36,875
========= ========= =========
See notes to financial statements.
F-35
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The Taubman Realty Group Limited Partnership (TRG), a consolidated
subsidiary of Taubman Centers, Inc., engages in the ownership, management,
leasing, acquisition, development and expansion of regional retail shopping
centers and interests therein. TRG has engaged the Manager (The Taubman Company
Limited Partnership, which is approximately 99% beneficially owned by TRG) to
provide property management and leasing services for the shopping centers and to
provide corporate, development, and acquisition services. For financial
statement reporting purposes, the accounts of shopping centers that are not
controlled and that are owned through joint ventures with third parties
(Unconsolidated Joint Ventures) have been combined in these financial
statements. Generally, net profits and losses of the Unconsolidated Joint
Ventures are allocated to TRG and the outside partners (Joint Venture Partners)
in accordance with their ownership percentages.
Dollar amounts presented in tables within the notes to the combined
financial statements are stated in thousands.
Investments in Unconsolidated Joint Ventures
TRG's interest in each of the Unconsolidated Joint Ventures at December 31,
1999, is as follows:
TRG's %
Unconsolidated Joint Venture Shopping Center Ownership
Arizona Mills, L.L.C. Arizona Mills 37%
Dolphin Mall Associates Dolphin Mall 50
Limited Partnership (under construction)
Fairfax Company of Virginia L.L.C. Fair Oaks 50
Lakeside Mall Limited Partnership Lakeside 50 (Note 7)
Rich-Taubman Associates Stamford Town Center 50
Taubman-Cherry Creek
Limited Partnership Cherry Creek 50
Taubman Westshore Associates International Plaza 26
Limited Partnership (under construction)
Twelve Oaks Mall
Limited Partnership Twelve Oaks Mall 50 (Note 7)
West Farms Associates Westfarms 79
Woodland Woodland 50
TRG is developing International Plaza, a 1.3 million square foot regional
center under construction in Tampa, Florida, expected to open September 2001.
TRG originally had a controlling 50.1% interest in the partnership (Tampa
Westshore) that owns the project. TRG was responsible for providing funding for
project costs in excess of the construction financing in exchange for a
preferential return. In November 1999, TRG entered into agreements with a new
investor, who contributed funding for the project and thereby reduced TRG's
ownership interest in Tampa Westshore to approximately 26%.
In September 1999, TRG entered into a partnership agreement with Swerdlow
Real Estate Group to jointly develop Dolphin Mall, a 1.4 million square foot
value regional center under construction in Miami, Florida, expected to open
March 2001.
F-36
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
During 1999, noncash investing activities included a total of $83.4 million
contributed to the Unconsolidated Joint Ventures developing International Plaza
and Dolphin Mall. This amount primarily consists of the net book value of
project costs expended prior to the creation of the joint ventures.
On September 30, 1998, TRG completed a transaction that included the
transfer of interests in nine consolidated shopping centers and one
Unconsolidated Joint Venture (the GMPT Exchange). The accounts of Woodfield
Associates (Woodfield), a 50% owned Unconsolidated Joint Venture that was
transferred, are included in these combined financial statements through
September 30, 1998. On the date of the GMPT Exchange, the book values of
Woodfield's assets and liabilities were approximately $107.4 million and $196.9
million, respectively.
Revenue Recognition
Shopping center space is generally leased to specialty retail tenants under
short and intermediate term leases which are accounted for as operating leases.
Minimum rents are recognized on the straight-line method. Percentage rent is
accrued when lessees' specified sales targets have been met. Expense recoveries,
which include an administrative fee, are recognized as revenue in the period
applicable costs are chargeable to tenants.
Depreciation and Amortization
Buildings, improvements and equipment, stated at cost, are depreciated on
straight-line or double-declining balance bases over the estimated useful lives
of the assets that range from 3 to 55 years. Tenant allowances and deferred
leasing costs are amortized on a straight-line basis over the lives of the
related leases.
Capitalization
Costs related to the acquisition, development, construction, and
improvement of properties are capitalized. Interest costs are capitalized until
construction is substantially complete. Properties are reviewed for impairment
if events or changes in circumstances indicate that the carrying amounts of the
properties may not be recoverable.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of 90
days or less at the date of purchase.
Deferred Charges
Direct financing and interest rate hedging costs are deferred and amortized
over the terms of the related agreements as a component of interest expense.
Direct costs related to leasing activities are capitalized and amortized on a
straight-line basis over the lives of the related leases. All other deferred
charges are amortized on a straight-line basis over the terms of the agreements
to which they relate.
F-37
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Interest Rate Hedging Agreements
Premiums paid for interest rate cap instruments are amortized to interest
expense over the terms of the agreements. Amounts received under the cap
agreements are accounted for on an accrual basis, and recognized as a reduction
of interest expense. The differential to be paid or received on swap agreements
is accounted for on an accrual basis and recognized as an adjustment to interest
expense.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of financial instruments:
The carrying value of cash and cash equivalents, accounts and notes
receivable, and accounts payable approximates fair value due to the
short maturity of these instruments.
The fair value of mortgage notes and other notes payable is estimated
based on quoted market prices if available, or on the current rates
available to the Unconsolidated Joint Ventures for debt of similar
terms and maturity and the assumption that debt will be prepaid at the
earliest possible date.
The fair value of interest rate hedging instruments is the amount the
Unconsolidated Joint Venture would pay or receive to terminate the
agreement at the reporting date, taking into account current interest
rates.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the uses of
the derivatives and whether they qualify for hedge accounting. The impact of
SFAS 133 on the financial statements of the Unconsolidated Joint Ventures is
currently being evaluated. SFAS 133 is effective for fiscal years beginning
after June 15, 2000.
Reclassifications
Certain prior year amounts have been reclassified to conform to 1999
classifications.
F-38
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Note 2 - Properties
Properties at December 31, 1999 and 1998, are summarized as follows:
1999 1998
---- ----
Land $ 42,339 $ 42,444
Buildings, improvements and equipment 725,182 705,529
Construction in process 174,727 21,692
---------- ----------
$ 942,248 $ 769,665
=========== ===========
Depreciation expense for 1999, 1998 and 1997 was $26.0 million, $26.7
million and $18.7 million. Construction in process includes costs related to the
construction of Dolphin Mall and International Plaza, as well as expansions and
other improvements at various centers. Assets under capital lease of $3.7
million and $5.2 million at December 31, 1999 and 1998, respectively, are
included in the table above in buildings, improvements and equipment.
Note 3 - Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 1999 and 1998 are
summarized as follows:
1999 1998
---- ----
Leasing $ 35,579 $ 30,248
Accumulated amortization (14,466) (12,814)
---------- --------
$ 21,113 $ 17,434
Deferred financing, net 21,829 15,734
Other, net 1,532 1,565
---------- ----------
$ 44,474 $ 34,733
========== =========
F-39
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Note 4 - Debt
Mortgage Notes Payable
Mortgage notes payable at December 31, 1999 and 1998 consists of the
following:
Balance Due
Center 1999 1998 Interest Rate Maturity Date on Maturity
- ------ ---- ---- ------------- ------------- -----------
Arizona Mills $ 142,214 $ 140,984 LIBOR + 1.30% 02/01/02 $ 142,214
Cherry Creek 177,000 0 7.68% 08/11/06 171,933
Cherry Creek 0 130,000 LIBOR + 0.75% 08/01/99 130,000
Dolphin Mall 22,267 0 LIBOR + 2.00% 10/06/02 22,267
Fair Oaks 140,000 140,000 6.60% 04/01/08 140,000
Lakeside 88,000 88,000 6.47% 12/15/00 88,000
Stamford Town Center 54,053 54,887 11.69% 12/01/17 0
Twelve Oaks Mall 49,971 49,955 LIBOR + 0.45% 10/15/01 50,000
Westfarms 100,000 100,000 7.85% 07/01/02 100,000
Westfarms 55,000 55,000 LIBOR + 1.125% 07/01/02 55,000
Woodland 66,000 66,000 8.20% 05/15/04 66,000
----------- -----------
$ 894,505 $ 824,826
=========== ===========
In October 1999, the Unconsolidated Joint Venture that is developing
Dolphin Mall (Note 1) closed on a $200 million, three-year construction
facility. The rate on the facility is LIBOR plus 2%, decreasing to LIBOR plus
1.75% when a certain coverage ratio is met. The rate on the loan is capped at 7%
until maturity, plus credit spread. Under the interest rate agreement, the rate
is swapped to a fixed rate of 5.15% when LIBOR is less than 6%. TRG has
guaranteed the payment of 50% of any outstanding principal balance and 100% of
all accrued and unpaid interest. The guaranty will be reduced as certain
performance conditions are met. The maturity date may be extended one year.
In November 1999, the joint venture that is developing International Plaza
in Tampa, Florida closed on a $193.5 million, three-year construction financing,
with a one-year extension option. The rate on the facility is LIBOR plus 1.90%.
TRG has guaranteed the payment of 100% of the principal and interest; however,
the new investor in the venture (Note 1) has indemnified TRG to the extent of
25% of the amounts guaranteed. The loan agreement provides for reductions of the
rate and the amount guaranteed as certain center performance criteria are met.
The rate on the Arizona Mills loan is capped at 9.5% until maturity, plus
credit spread. The payment of principal and interest is guaranteed by each of
the owners of Arizona Mills to the extent of their ownership percentage. The
loan agreement provides for the reduction of the amount guaranteed as certain
center performance and valuation criteria are met. TRG's guaranty of the
principal was $13.1 million at December 31, 1999.
The other Unconsolidated Joint Ventures with floating rate debt have
entered into interest rate agreements to reduce their exposure to increases in
interest rates. The rate on the Twelve Oaks loan is capped at 8.55% until
maturity, plus credit spread. The rate on the $55 million Westfarms loan is
capped until maturity at 6.5%, plus credit spread.
F-40
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The Stamford note required payment of additional interest ($1.5 million,
$1.5 million, and $1.3 million, in 1999, 1998, and 1997) based on operating
results (Note 7).
Scheduled principal payments on mortgage debt are as follows as of December
31, 1999:
2000 $ 88,936
2001 51,052
2002 320,663
2003 1,328
2004 68,485
Thereafter 364,041
--------
Total $894,505
========
Other Notes Payable
Other notes payable at December 31, 1999 and 1998 consists of the
following:
1999 1998
---- ----
Notes payable to banks, line of credit,
interest at prime (8.5% at December 31,
1999), maximum borrowings available up
to $5.5 million to fund tenant loans,
allowances and buyouts and working capital. $ 623 $ 1,058
Other 35 43
--------- ---------
$ 658 $ 1,101
========= =========
Interest Expense
Interest paid on mortgages and other notes payable in 1999, 1998 and 1997,
net of amounts capitalized of $2.5 million, $2.5 million, and $9.4 million,
approximated $59.7 million, $64.0 million, and $48.7 million, respectively.
Extraordinary Items
In 1999 and 1998, joint ventures recognized extraordinary charges related
to the extinguishment of debt, primarily consisting of prepayment premiums.
Interest Rate Hedging Instruments
Certain of the Unconsolidated Joint Ventures have entered into interest
rate agreements to reduce their exposure to changes in the cost of floating rate
debt. The terms of the derivative agreements are generally equivalent to the
notional amounts, reset dates and rate bases of the underlying hedged debt to
assure the effectiveness of the derivatives in reducing interest rate risk.
These Unconsolidated Joint Ventures are exposed to credit risk in the event of
nonperformance by their counterparties to the agreements. These Unconsolidated
Joint Ventures anticipate that their counterparties will be able to fully
perform their obligations under the agreements.
F-41
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Fair Value of Debt Instruments
The estimated fair values of financial instruments at December 31, 1999 and
1998 are as follows:
December 31
--------------------------------------------------
1999 1998
--------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------------------- -----------------------
Mortgage notes payable $894,505 $928,205 $824,826 $861,141
Other notes payable 658 658 1,101 1,101
Interest rate instruments:
In a receivable position 4,178 3,134 3,450 288
Note 5 - Leases
Shopping center space is leased to tenants and certain anchors pursuant to
lease agreements. Tenant leases typically provide for guaranteed minimum rent,
percentage rent, and other charges to cover certain operating costs. Future
minimum rent under operating leases in effect at December 31, 1999 for operating
centers, assuming no new or renegotiated leases or option extensions on anchor
agreements, is summarized as follows:
2000 $ 152,174
2001 144,389
2002 132,771
2003 113,940
2004 100,667
Thereafter 319,045
Revenues derived from the combined operations of The Limited provided
approximately 10.1% of total revenues in 1999. Revenues derived from the
combined operations of The Limited were approximately 10.5% of total revenues in
1998 and less than 10% in 1997. Amounts due from The Limited at December 31,
1999 were $100 thousand.
One Unconsolidated Joint Venture, as lessee, has a ground lease expiring in
2083 with its Joint Venture Partner. Rental payments under the lease were $2.0
million, $2.0 million and $1.8 million in 1999, 1998 and 1997. TRG is entitled
to receive preferential distributions equal to 75% of each payment.
Approximately 25% of the ground lease payments over the term of the lease, on a
straight-line basis, are recognized as ground rent expense, with 75% of the
current payment accounted for as a distribution to the Joint Venture Partner.
The Unconsolidated Joint Venture that owns International Plaza is the
lessee under a ground lease agreement that expires in 2080. The lease requires
annual payments of approximately $0.1 million and when the center opens will
require additional rentals, based on the leasable area of the center as defined
in the agreement.
The following is a schedule of future minimum rental payments required
under operating leases:
2000 $ 2,111
2001 2,111
2002 2,185
2003 2,408
2004 2,408
Thereafter 663,610
F-42
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Capital Lease Obligations
Certain Unconsolidated Joint Ventures have entered into lease agreements
for property improvements with three to five year terms. As of December 31,
1999, future minimum lease payments for these capital leases are as follows:
2000 $ 2,014
2001 1,878
2002 98
2003 34
2004 3
---------
Total minimum lease payments $ 4,027
Less amount representing interest (363)
---------
Capital lease obligations $ 3,664
=========
Note 6 - Transactions with Affiliates
Charges from the Manager under various written agreements were as follows
for the years ended December 31:
1999 1998 1997
---- ---- ----
Management and leasing services $16,721 $17,849 $17,352
Security and maintenance services 7,653 9,481 9,468
Development services 5,935 3,941 4,661
----- ------ -----
$30,309 $31,271 $31,481
======= ======= =======
TRG is one-third owner of an entity providing management, leasing, and
development services to Arizona Mills, L.L.C. Charges from this entity were $1.4
million and $2.5 million in 1999 and 1998, respectively. In addition, $2.8
million and $1.8 million were paid in 1999 and 1998, respectively, to one of the
Arizona Mills Joint Venture Partners for leasing and development services.
Westfarms previously loaned $2.4 million to one of its Joint Venture
Partners to purchase a portion of a deceased Joint Venture Partner's interest.
The note bears interest at approximately 7.9% and requires monthly principal
payments of $25 thousand, plus accrued interest, with the final payment due in
2001. The balance at December 31, 1999 and 1998 was $0.6 million and $1.0
million, respectively. Interest income related to the loan was approximately
$0.1 million in 1999, 1998, and 1997.
Other related party transactions are described in Notes 1 and 5.
Note 7 - Subsequent Events
In January 2000, TRG agreed to exchange property interests with its current
joint venture partner in two Unconsolidated Joint Ventures. Under the terms of
the agreement, expected to be completed in the first quarter 2000, TRG will
assume 100 percent ownership of Twelve Oaks Mall and the current joint venture
partner will become 100 percent owner of Lakeside. Both properties will remain
subject to the existing mortgage debt ($50 million and $88 million at Twelve
Oaks and Lakeside, respectively.) TRG will also pay the joint venture partner
$30 million in cash.
In January 2000, the 50% owned Unconsolidated Joint Venture that owns
Stamford Town Center completed a $76 million secured financing. The new
financing bears interest at a rate of one-month LIBOR plus 0.8% and matures in
2002 with a two-year extension option. The rate is capped at 8.2% plus credit
spread for the term of the loan. The proceeds were used to repay the $54 million
participating mortgage, the $18.3 million prepayment premium, and accrued
interest and transaction costs.
F-43
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
Valuation and Qualifying Accounts
For the years ended December 31, 1998, 1997 and 1996
(in thousands)
Additions
--------------------------
Balance at Charged to Charged to Balance
beginning costs and other at end
of year expenses accounts Write-offs Transfers of year
--------- ---------- ----------- ---------- --------- -------
Year ended December 31, 1997:
Allowance for doubtful receivables $ 90 697 0 (473) 0 $ 314
========= ========= ========= ========= ========= =========
Year ended December 31, 1998:
Allowance for doubtful receivables $ 314 1,119 0 (1,148) (30)(1) $ 255
========= ========= ========= ========= ========= =========
Year ended December 31, 1999:
Allowance for doubtful receivables $ 255 1,822 0 (489) 0 $ 1,588
========= ========= ========= ========= ========= =========
(1) Subsequent to September 30, 1998, the date of the GMPT Exchange, the
accounts of Woodfield are no longer included in these combined financial
statements.
F-44
Schedule III
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
Gross Amount at Which
Carried at Close of Period
Initial Cost ------------------------------------------
to Company Cost
---------------------------- Capitalized Accumulated Total
Buildings and Subsequent Depreciation Cost Net
Land Improvements to Acquisition Land BI&E Total (A/D) of A/D
---- ------------ -------------- ---- ---- ----- ------------ ------
Taubman Shopping Centers:
Arizona Mills, Tempe, AZ $ 22,017 $163,618 $ 6,242 $ 22,017 $ 169,860 $191,877 $ 15,000 $ 176,877
Cherry Creek, Denver, CO 55 100,414 62,760 55 163,174 163,229 42,186 121,043
Fair Oaks, Fairfax, VA 5,167 36,182 11,224 5,167 47,406 52,573 29,968 22,605
Lakeside, Sterling Heights, MI 2,667 21,182 21,887 2,667 43,069 45,736 23,068 22,668
Stamford Town Center,
Stamford, CT 1,977 43,176 12,534 1,977 55,710 57,687 29,165 28,522
Twelve Oaks Mall, Novi, MI 803 28,640 22,063 803 50,703 51,506 25,262 26,244
Westfarms, Farmington, CT 5,287 38,638 110,354 5,287 148,992 154,279 33,075 121,204
Woodland, Grand Rapids, MI 2,367 19,078 27,190 2,367 46,268 48,635 19,678 28,957
Other Properties:
Peripheral land 1,999 0 0 1,999 0 1,999 0 1,999
Construction in Process 64,342 0 110,385 64,342 110,385 174,727 0 174,727
---------- -------------- --------- -------- -------- -------- --------- ---------
TOTAL $106,681 $450,928 $384,639 $106,681 $835,567 $942,248 $217,402 $724,846
======== ======== ======== ======== ======== ======== ======== ========
Date of
Completion of Depreciable
Encumbrances Construction Life
------------ ------------ ----
Taubman Shopping Centers:
Arizona Mills, Tempe, AZ $142,214 1997 50 Years
Cherry Creek, Denver, CO 177,000 1990 40 Years
Fair Oaks, Fairfax, VA 140,000 1980 55 Years
Lakeside, Sterling Heights, MI 88,000 1976 40 Years
Stamford Town Center,
Stamford, CT 54,053 1982 40 Years
Twelve Oaks Mall, Novi, MI 49,971 1977 50 Years
Westfarms, Farmington, CT 155,000 1974 34 Years
Woodland, Grand Rapids, MI 66,000 1968 33 Years
Other Properties:
Peripheral land 0
Construction in Process 22,267
--------
TOTAL $894,505
========
The changes in total real estate assets for the three years ended December 31,
1999 are as follows:
1999 1998 1997
---- ---- ----
Balance, beginning of year $769,665 $829,640 $638,960
Improvements 79,298 64,455 192,888
Disposals (6,162) (2,715) (2,208)
Transfers In 99,447 (2)
Transfers Out (121,715) (1)
-------- ---------- --------
Balance, end of year $942,248 $769,665 $829,640
======== ========= ========
The changes in accumulated depreciation and amortization for the three years
ended December 31, 1999 are as follows:
1999 1998 1997
---- ---- ----
Balance, beginning of year $(197,516) $(205,659) $(188,491)
Depreciation for year (25,958) (26,707) (18,669)
Disposals 6,072 1,685 1,501
Transfers Out 33,165(1)
-------- --------- ---------
Balance, end of year $(217,402) $(197,516) $(205,659)
========= ========= =========
(1) Subsequent to September 30, 1998, the date of the GMPT Exchange, the
accounts of Woodfield are no longer included in these combined financial
statements.
(2) Includes costs transferred relating to International Plaza and Dolphin
Mall, which became Unconsolidated Joint Ventures in 1999.
F-45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
TAUBMAN CENTERS, INC.
Date: March 24, 2000 By:/s/ Robert S. Taubman
------------------------------------------
Robert S. Taubman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
* Chairman of the Board March 24, 2000
- -------------------------- ----------------
A. Alfred Taubman
* Vice Chairman of the Board March 24, 2000
- -------------------------- ----------------
Robert C. Larson
/s/ Robert S. Taubman President, Chief Executive March 24, 2000
- --------------------------- Officer, and Director ----------------
Robert S. Taubman
/s/ Lisa A. Payne Executive Vice President, March 24, 2000
- -------------------------- Chief Financial Officer, and ----------------
Lisa A. Payne Director
/s/ Esther R. Blum Senior Vice President, Controller March 24, 2000
- -------------------------- and Chief Acconting Officer ----------------
Esther R. Blum
* Director March 24, 2000
- -------------------------- ----------------
Graham Allison
* Director March 24, 2000
- -------------------------- ----------------
Allan J. Bloostein
* Director March 24, 2000
- -------------------------- ----------------
Jerome A. Chazen
* Director March 24, 2000
- -------------------------- ----------------
S. Parker Gilbert
/s/ Lisa A. Payne
*By: ---------------------------------------
Lisa A. Payne, as
Attorney-in-Fact
EXHIBIT INDEX
Exhibit
Number
- -------
2 -- Separation and Relative Value Adjustment Agreement between
The Taubman Realty Group Limited Partnership and GMPTS
Limited Partnership (without exhibits or schedules, which
will be supplementally provided to the Securities and
Exchange Commission upon its request) (incorporated herein
by reference to Exhibit 2 filed with the Registrant's
Current Report on Form 8-K dated September 30, 1998).
3(a) -- Restated By-Laws of Taubman Centers, Inc., (incorporated
herein by reference to Exhibit 3 (b) filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998).
3(b) -- Composite copy of Articles of Incorporation of Taubman
Centers, Inc., including all amendments to date.
4(a) -- Indenture dated as of July 22, 1994 among Beverly Finance
Corp., La Cienega Associates, the Borrower, and Morgan
Guaranty Trust Company of New York, as Trustee (incorporated
herein by reference to Exhibit 4(h) filed with the 1994
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994 ("1994 Second Quarter Form 10-Q")).
4(b) -- Deed of Trust, with assignment of Rents, Security Agreement
and Fixture Filing, dated as of July 22, 1994, from La
Cienega Associates, Grantor, to Commonwealth Land Title
Company, Trustee, for the benefit of Morgan Guaranty Trust
Company of New York, as Trustee, Beneficiary (incorporated
herein by reference to Exhibit 4(i) filed with the 1994
Second Quarter Form 10-Q).
4(c) -- Loan Agreement dated as of March 29, 1999 among Taubman
Auburn Hills Associates Limited Partnership, as Borrower,
Fleet National Bank, as a Bank, PNC Bank, National
Association, as a Bank, the other Banks signatory hereto,
each as a Bank, and PNC Bank, National Association, as
Administrative Agent (incorporated herein by reference to
exhibit 4(a) filed with the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 ("1999 Second
Quarter Form 10- Q")).
4(d) -- Mortgage, Assignment of Leases and Rents and Security
Agreement from Taubman Auburn Hills Associates Limited
Partnership, a Delaware limited partnership ("Mortgagor") to
PNC Bank, National Association, as Administrative Agent for
the Banks, dated as of March 29, 1999 (incorporated herein
by reference to Exhibit 4(b) filed with the 1999 Second
Quarter Form 10-Q).
4(e) -- First Amendment to Construction Loan Agreement dated as of
April 23, 1999 among Taubman MacArthur Associates Limited
Partnership, a Delaware limited partnership, as Borrower,
Bayerische Hypo - Und Vereinsbank AG, a New York Branch
(successor in interest to Bayerische Hypotheken - Und
Weschel - Bank Aktiengesellschaft, New York Branch), the New
York branch of a German banking corporation, as
administrative agent (incorporated herein by reference to
Exhibit 4 (c) filed with the 1999 Second Quarter Form 10-Q).
4(f) -- Mortgage, Security Agreement and Fixture Filing by Short
Hills Associates, as Mortgagor, to Metropolitan Life
Insurance Company, as Mortgagee, dated April 15, 1999
(incorporated herein by reference to Exhibit 4(d) filed with
the 1999 Second Quarter Form 10-Q).
4(g) -- Assignment of Leases, Short Hills, Associates (Assignor) and
Metropolitan Life Insurance Company (Assignee) dated as of
April 15, 1999 (incorporated herein by reference to Exhibit
4(e) filed with the 1999 Second Quarter Form 10-Q).
4(h) -- Secured Revolving Credit Agreement dated as of June 24, 1999
among the Taubman Realty Group Limited Partnership, as
Borrower, The Banks Signatory Hereto, each as a bank and UBS
AG, Stamford Branch, as Administrative Agent (incorporated
herein by reference to Exhibit 4(f) filed with the 1999
Second Quarter Form 10-Q).
* 10(a) -- The Taubman Realty Group Limited Partnership 1992 Incentive
Option Plan, as Amended and Restated Effective as of
September 30, 1997 (incorporated herein by reference to
Exhibit 10(b) filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997).
10(b) -- Registration Rights Agreement among Taubman Centers, Inc.,
General Motors Hourly-Rate Employees Pension Trust, General
Motors Retirement Program for Salaried Employees Trust, and
State Street Bank & Trust Company, as trustee of the AT&T
Master Pension Trust (incorporated herein by reference to
Exhibit 10(e) filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 ("1992 Form
10-K")).
10(c) -- Master Services Agreement between The Taubman Realty Group
Limited Partnership and the Manager (incorporated herein by
reference to Exhibit 10(f) filed with the 1992 Form 10-K).
10(d) -- Cash Tender Agreement among Taubman Centers, Inc., A. Alfred
Taubman, acting not individually but as Trustee of The A.
Alfred Taubman Restated Revocable Trust, as amended and
restated in its entirety by Instrument dated January 10,
1989 (as the same has been and may hereafter be amended from
time to time), TRA Partners, and GMPTS Limited Partnership
(incorporated herein by reference to Exhibit 10(g) filed
with the 1992 Form 10-K).
* 10(e) -- Supplemental Retirement Savings Plan (incorporated herein by
reference to Exhibit 10(i) filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1994).
* 10(f) -- Employment agreement between The Taubman Company Limited
Partnership and Lisa A. Payne (incorporated herein by
reference to Exhibit 10 filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1997).
* 10(g) -- Amended and Restated Continuing Offer, dated as of September
30, 1997 (incorporated herein by reference to Exhibit 10
filed with the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997).
10(h) -- Consolidated Agreement: Notice of Retirement and Release and
Covenant Not to Compete, between Robert C. Larson and The
Taubman Company Limited Partnership (incorporated herein by
reference to Exhibit 10 filed with the Registrant's 1999
Second Quarter Form 10-Q).
10(i) -- Second Amendment to the Second Amendment and Restatement of
Agreement of Limited Partnership of The Taubman Realty Group
Limited Partnership effective as of September 3, 1999
(incorporated herein by reference to Exhibit 10(a) filed
with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 ("1999 Third Quarter Form
10-Q")).
10(j) -- Private Placement Purchase Agreement dated as of September
3, 1999 among The Taubman Realty Group Limited Partnership,
Taubman Centers, Inc. and Goldman Sachs 1999 Exchange Place
Fund, L.P. (incorporated herein by reference to Exhibit
10(b) filed with the Registrant's 1999 Third Quarter Form
10-Q).
10(k) -- Registration Rights Agreement entered into as of September
3, 1999 by and between Taubman Centers, Inc. and Goldman
Sachs 1999 Exchange Place Fund, L.P. (incorporated herein by
reference to Exhibit 10(c) filed with the Registrant's 1999
Third Quarter Form 10-Q).
10(l) -- Private Placement Purchase Agreement dated as of November
24, 1999 among The Taubman Realty Group Limited Partnership,
Taubman Centers, Inc. and GS-MSD Select Sponsors, L.P.
10(m) -- Registration Rights Agreement entered into as of November
24, 1999 by and between Taubman Centers, Inc and GS-MSD
Select Sponsors, L.P.
* 10(n) -- Employment agreement between The Taubman Company Limited
Partnership and Courtney Lord.
* 10(o) -- The Taubman Company Long-Term Compensation Plan (as amended
and restated effective January 1, 1999) (incorporated herein
by reference to Exhibit 10 filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March
31,1999.)
10(p) -- Annex II to Second Amendment to the Second Amendment and
Restatement of Agreement of Limited Partnership of The
Taubman Realty Group Limited Partnership.
12 -- Statement Re: Computation of Taubman Centers, Inc. Ratio of
Earnings to Combined Fixed Charges and Preferred Dividends
and Distributions.
21 -- Subsidiaries of Taubman Centers, Inc.
23 -- Consent of Deloitte & Touche LLP.
24 -- Powers of Attorney.
27(a) -- Financial Data Schedule.
27(b) -- Restated Financial Data Schedule for three months ended
March 31, 1999.
27(c) -- Restated Financial Data Schedule for six months ended June
30, 1999.
27(d) -- Restated Financial Data Schedule for nine months ended
September 30, 1999
* A management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.