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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000.
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 .
___ 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 22, 2001, the aggregate market value of the 49,644,031 shares of
Common Stock held by non-affiliates of the registrant was $598 million, based
upon the closing price $12.05 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 22, 2001, there were outstanding
50,038,272 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held
in 2001 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 62% 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, 2000, included 16 urban and suburban
Centers located in seven states. One additional Center opened in March 2001 and
four other Centers are under construction and are expected to open in 2001 and
2002. 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 90% 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 2000, see 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. Thirteen of the Centers are
"super-regional" 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, Miami, and
Washington, D.C.;
o range in size between 438,000 and 1.6 million square feet of GLA and
between 133,000 and 614,000 square feet of Mall GLA. The smallest
Center has approximately 50 stores, and the largest has approximately
200 stores. Of the 16 Centers, 13 are super-regional shopping centers;
o have approximately 2,200 stores operated by its mall tenants under
approximately 975 trade names;
o have 48 anchors, operating under 15 trade names;
o lease approximately 78% 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, Champs
Sports, and others); and
o are among the most productive (measured by mall tenants' average per
square foot sales) in the United States. In 2000, mall tenants had
average per square foot sales of $479, 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 16 Centers, 14 had annual rent rolls at December 31,
2000 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 by leasing space to
a constantly changing mix of tenants, thereby increasing achievable
rents.
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. In addition, the
Company has brought to the Centers "new to the market" retailers. 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 one-to-one marketing program, which connects
shoppers and retailers through online websites.
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.
3
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.
The following table includes the new centers scheduled for opening in 2001
and 2002:
Center Opening Date Size (sq. ft.) Anchors
- ------ ------------ ------------- -------
Dolphin Mall March 1, 2001 1.4 million Off 5th Saks, Dave & Busters, Cobb
(Miami, Florida) Theatres, Burlington Coat Factory,
Marshall's, Oshman's, and more
The Shops at Willow Bend August 3, 2001 1.5 million Neiman Marcus, Lord & Taylor, Foley's,
(Plano, Texas) Dillard's, Saks Fifth Avenue (2004)
International Plaza September 14, 2001 1.3 million Neiman Marcus, Nordstrom, Lord &
(Tampa, Florida) Taylor, Dillard's
The Mall at Wellington Green October 5, 2001 1.3 million Burdines, Dillard's, JCPenney, Lord &
(Palm Beach County, Florida) Taylor, Nordstrom (2003)
The Mall at Millenia October 18, 2002 1.2 million Neiman Marcus, Bloomingdales, Macy's
(Orlando, Florida)
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).
4
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.
In addition, the Company may make other investments to enhance the value of
its business. For example, in May 2000, the Company entered into an agreement to
acquire an approximately 6.7% interest in MerchantWired, LLC, a service company
providing internet and network infrastructure to shopping centers and retailers.
Additionally, 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 found in Taubman centers, including Gap and Banana
Republic. 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.
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, food courts are under construction at Twelve Oaks in
the suburban Detroit area and at Woodland in Grand Rapids, Michigan. Both food
courts are scheduled to open in the fall of 2001.
5
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
March 2001 Dolphin Mall Miami, Florida
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)
August 2000 Twelve Oaks - Novi, Michigan
additional interest
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 (8) Grand Rapids, Michigan
November 1999 Fairlane (9) Dearborn, Michigan
November 1999 Biltmore (10) Phoenix, Arizona
February 2000 -
September 2000 Fair Oaks (11) Fairfax, Virginia
May 2000 Fairlane (12) Dearborn, Michigan
December 2000 Beverly Center (8) Los Angeles, California
- ------------------
(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) Mall renovation completed.
(9) New food court opened.
(10) Macy's expansion completed.
(11) Hecht's opened an expansion in February. Additionally, a JCPenney expansion
and newly constructed Macy's opened in the fall.
(12) A 21-screen theater opened.
6
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 existing or new tenants 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 created 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 the 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 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.
Since 1992, the Company has disclosed average rents for mature centers,
those centers owned and operated for five years. In the fourth quarter of 2000,
the Company began reporting average rent per square foot for centers owned and
opened for two years, so that the statistic will be more consistent with other
reported statistics. The following table contains certain information regarding
per square foot minimum rent at Centers that have been owned and open for at
least two years.
2000 1999
---- ----
Average minimum rent per square foot:
All mall tenants $40.25 $39.58
Stores closing during year $39.99 $39.49
Stores opening during year $47.04 $48.01
The following table contains the information for centers owned and open
five years.
Year Ended December 31
----------------------------------------
2000 1999(1) 1998(2) 1997 1996
---- ---- ---- ---- ----
Average minimum rent per square foot:
All mall tenants $44.53 $44.07 $41.93 $38.79 $37.90
Stores closing during year $42.03 $41.26 $44.27 $37.62 $33.39
Stores opening during year $49.90 $52.04 $47.92 $41.67 $42.39
(1) Amounts have been restated to include centers comparable to the 2000
statistic.
(2) Excludes centers transferred to GMPT.
7
Lease Expirations
The following table shows lease expirations based on information available
as of December 31, 2000 for the next ten years for the Centers in operation at
that date:
Percent of
Annualized Base Annualized Base Total Leased
Lease Number of Leased Area Rent Under Rent Under Square Footage
Expiration Leases in Expiring Leases Expiring Leases Represented by
Year Expiring Square Footage (in thousands) Per Square Foot Expiring Leases
---- -------- -------------- -------------- --------------- ---------------
2001 (1) 80 180,885 $ 7,705 $ 42.59 2.2%
2002 215 642,254 22,702 35.35 (2) 7.9%
2003 237 762,364 27,808 36.48 (2) 9.3%
2004 220 608,126 26,874 44.19 7.4%
2005 262 689,665 31,640 45.88 8.4%
2006 167 459,557 21,143 46.01 5.6%
2007 201 700,157 26,228 37.46 (2) 8.6%
2008 213 1,032,472 31,818 30.82 (2) 12.6%
2009 218 883,837 32,100 38.50 (2) 10.2%
2010 122 450,380 19,556 43.42 5.5%
(1) Excludes leases that expire in 2001 for which renewal leases or leases with
replacement tenants have been executed as of December 31, 2000.
(2) In these years, a higher percentage of space rented to major and mall
tenants at value centers, which typically have lower rents than the
portfolio average, is scheduled to close. Excluding the effect of these
tenants, average rents per square foot expiring in 2002, 2003, 2007, 2008,
and 2009 would be $40.57, $42.97, $44.70, $46.63, and $41.89, respectively.
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 1995 to 2000
was approximately two years. The average term of leases signed during 2000 and
1999 was approximately eight 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 2000, approximately 2.3% of leases
were so affected compared to 3.1% in 1999, 1.2% in 1998, 1.5% in 1997, and 2.8%
in 1996. 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
----------------------------------------------------
2000 1999 1998 (1) 1997 1996
---- ----- ---- ---- ----
Average Occupancy 89.1% 89.0% 89.4% 87.6% 87.4%
Ending Occupancy 90.5% 90.4% 90.2% 90.3% 88.0%
Leased Space 93.8% 92.1% 92.3% 92.3% 89.0%
(1) Excludes centers transferred to GMPT.
8
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 6.6% of
Mall GLA as of December 31, 2000 and for approximately 5.5% of the 2000 minimum
rent. The largest of these, in terms of square footage and rent, is Express,
which accounted for approximately 1.9% of Mall GLA and 1.5% of 2000 minimum
rent. No other single retail company accounted for more than 4% of Mall GLA or
2000 minimum rent. The following table shows the ten largest tenants and their
square footage as of December 31, 2000.
# of Square % of
Tenant Stores Footage Mall GLA
- ------ ------ ------- --------
Limited (The Limited, Express, Victoria's Secret) 65 466,813 6.6%
Gap (Gap, Gap Kids, Banana Republic) 35 222,916 3.1%
Venator Group (Foot Locker, Lady Foot Locker, Champs) 36 182,266 2.6%
Williams-Sonoma (Williams Sonoma, Pottery Barn, Hold Everything) 25 162,151 2.3%
Spiegel (Eddie Bauer) 15 122,497 1.7%
Borders Group (Borders, Waldenbooks) 11 98,726 1.4%
Abercrombie & Fitch 10 88,481 1.3%
Ann Taylor 14 71,943 1.0%
Talbots 10 71,083 1.0%
Restoration Hardware 6 62,613 0.9%
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.
9
Third Party Interests in the Centers
Some of the shopping centers which the Company develops and leases are
partially owned by 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.
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 90% of otherwise taxable income, the Company 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.
10
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.
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.
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, 2000, the Manager had 478 full-time employees. The
following table provides a breakdown of employees by operational areas as of
December 31, 2000:
Number Of Employees
-------------------
Property Management............................... 217
Leasing .......................................... 80
Development....................................... 55
Financial Services................................ 71
Other .......................................... 55
---
Total..................................... 478
===
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, 2000.
Excluded from this table are Dolphin Mall which opened in March 2001, and
International Plaza, The Shops at Willow Bend, The Mall at Wellington Green, and
The Mall at Millenia, which will open in 2001 and 2002. 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
Percent of
Sq. Ft. of GLA/ Year Ownership Mall GLA 2000
Mall GLA Opened/ Year % as of Occupied as Rent(1)(in
Owned Centers Anchors as of 12/31/00 Expanded Acquired 12/31/00 of 12/31/00 Thousands)
- ------------- ------- ------------------- --------- ---------- ---------- ----------- ----------
Arizona Mills GameWorks, Harkins Cinemas, 1,201,000/ 1997 37% 95% $23,827
Tempe, AZ JCPenney Outlet, Neiman 521,000
(Phoenix Metropolitan Area) Marcus-Last Call, Off
5th Saks
Beverly Center Bloomingdale's, Macy's 900,000/ 1982 70% (2) 93% 27,995
Los Angeles, CA 592,000
Biltmore Fashion Park Macy's, Saks Fifth Avenue 620,000/ 1963/1992/ 1994 100% 95% 11,402
Phoenix, AZ 313,000 1997/1999
Cherry Creek Foley's, Lord & Taylor, 1,033,000/ 1990/1998 50% 94% 24,300
Denver, CO Neiman Marcus, Saks Fifth 560,000 (3)
Avenue
Fair Oaks Hecht's, JCPenney, Lord & 1,585,000/ 1980/1987/ 50% 85% 20,476
Fairfax, VA Taylor, Sears, Macy's 569,000 1988/2000
(Washington, DC
Metropolitan Area)
Fairlane Town Center Hudson's, JCPenney, Lord & 1,504,000/ 1976/1978/ 100% 75% 13,973
Dearborn, MI Taylor, Saks Fifth Avenue, 614,000 1980/2000
(Detroit Metropolitan Area) Sears
Great Lakes Crossing Bass Pro, GameWorks, 1,385,000/ 1998 85% 87% 23,472
Auburn Hills, MI JCPenney Outlet, Neiman 576,000
(Detroit Metropolitan Area) Marcus-Last Call, Off 5th
Saks, Star Theatres
La Cumbre Plaza Robinsons-May, Sears 478,000/ 1967/1989 1996 100% 93% 4,290
Santa Barbara, CA 178,000
MacArthur Center Dillard's, Nordstrom 943,000/ 1999 70% 92% 16,419
Norfolk, VA 529,000
Paseo Nuevo Macy's, Nordstrom 438,000/ 1990 1996 100% 84% 5,086
Santa Barbara, CA 133,000
Regency Square Hecht's (two locations), 826,000/ 1975/1987 1997 100% 97% 10,211
Richmond, VA JCPenney, Sears 239,000
The Mall at Short Hills Bloomingdale's, Macy's, 1,350,000/ 1980/1994/ 100% 97% 35,245
Short Hills, NJ Neiman Marcus, Nordstrom, 528,000 1995
Saks Fifth Avenue
Stamford Town Center Filene's, Macy's, 867,000/ 1982 50% 91% 16,669
Stamford, CT Saks Fifth Avenue 374,000
12
Twelve Oaks Mall Hudson's, JCPenney, 1,198,000/ (4) 1977/1978 100% (5) 91% 21,228
Novi, MI Lord & Taylor, Sears 460,000
(Detroit Metropolitan Area)
Westfarms Filene's, Filene's Men's 1,297,000/ 1974/1983/1997 79% 95% 24,327
West Hartford, CT Store/Furniture Gallery, 527,000
JCPenney, Lord & Taylor,
Nordstrom
Woodland Hudson's, JCPenney, Sears 1,077,000/ (4) 1968/1974/ 50% 91% 14,902
Grand Rapids, MI 352,000 1984/1989
----------
Total GLA/Total Mall GLA: 16,702,000/
7,065,000
Average GLA/Average Mall GLA: 1,044,000/
442,000
- ------------------------
(1) Includes minimum and percentage rent for the year ended December 31, 2000.
Excludes rent from certain peripheral properties.
(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 food court will open in the fall of 2001.
(5) In August 2000, the Operating Partnership became the 100% owner of Twelve
Oaks and its joint venture partner became the 100% owner of Lakeside.
13
Anchors
The following table summarizes certain information regarding the anchors at
the operating Centers (excluding the value centers) as of December 31, 2000.
Number of 12/31/00 GLA
Name Anchor Stores (in thousands) % of GLA
---- ------------- -------------- --------
May Company
Lord & Taylor 5 638
Hecht's 3 453
Filene's 2 379
Filene's Men's Store/
Furniture Gallery 1 80
Foley's 1 178
Robinsons-May 1 150
---- ------
Total 13 1,878 13.3%
Sears 6 1,279 9.1%
JCPenney 6 1,156 8.2%
Federated
Macy's 6 1,162
Bloomingdale's 2 379
---- -------
Total 8 1,541 10.9%
Target Corporation
Hudson's (1) 3 647 4.6%
Nordstrom 4 677 4.8%
Saks Fifth Avenue 5 452 3.2%
Neiman Marcus 2 216 1.5%
Dillard's 1 254 1.8%
---- ------- -----
Total 48 8,100 57.4%
==== ======= ====
(1) The Hudson's stores were changed to Marshall Fields & Company in early
2001.
Mortgage Debt
The following table sets forth certain information regarding the mortgages
encumbering the Centers as of December 31,2000. All mortgage debt in the table
below is nonrecourse to the Operating Partnership, except for debt encumbering
Great Lakes Crossing, Dolphin Mall, International Plaza, The Mall at Millenia,
and The Shops at Willow Bend. 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. (See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Covenants and Commitments"). Assessment bonds totaling
approximately $2.3 million, which are not included in the table, also encumber
Biltmore.
14
Principal
Balance as Annual Debt Balance Due Earliest
Centers Consolidated in Interest of 12/31/00 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% 79,730 6,906 (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) 167,441 2 Days Notice (7)
MacArthur Center (70%) 7.59% 144,884 12,400 (2) 10/01/10 126,884 12/15/02 (3)
Short Hills 6.70% 270,000 Interest Only (8) 04/01/09 245,301 05/02/04 (9)
Twelve Oaks Floating (10) 49,987 Interest Only 10/15/01 50,000 30 Days Notice (7)
The Shops at Willow Bend Floating (11) 99,672 Interest Only (12) 07/01/03 (13) 99,672 10 Days Notice (7)
Other Consolidated Secured Debt
- -------------------------------
TRG Credit Facility Floating (14) 26,325 Interest Only 08/31/01 26,325 At Any Time (7)
TRG Credit Facility Floating (15) 63,000 Interest Only 09/21/01 63,000 2 Days Notice (7)
Other Floating (16) 100,000 Interest Only 10/15/01 100,000 3 Days Notice (7)
Other 13.00% (17) 20,000 Interest Only 11/22/09 20,000 11/22/04 (18)
Centers Owned by Unconsolidated
Joint Ventures/TRG's % Ownership
- --------------------------------
Arizona Mills (37%) 7.90% 145,762 12,728 (2) 10/05/10 130,419 12/15/02 (3)
Cherry Creek (50%) 7.68% 177,000 Interest Only (19) 08/11/06 171,933 05/19/02 (20)
Dolphin (50%) Floating (21) 116,900 Interest Only 10/06/02 (6) 116,900 3 Days Notice (7)
Fair Oaks (50%) 6.60% 140,000 Interest Only 04/01/08 140,000 30 Days Notice (1)
International Plaza (26%) Floating (22) 67,493 Interest Only 11/10/02 (6) 67,493 3 Days Notice (7)
The Mall at Millenia (50%) Floating 0 Interest Only (12) 11/01/03 (13) 0 10 Days Notice (7)
Stamford Town Center (50%) Floating (23) 76,000 Interest Only 08/10/02 (24) 76,0000 2/11/02 (7)
Westfarms (79%) 7.85% 100,000 Interest Only 07/01/02 100,000 60 Days Notice (1)
Westfarms (79%) Floating (25) 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) Amortizing principal based on 30 years.
(3) No defeasance deposit required if paid within three months of maturity
date.
(4) The rate is capped at 7.25%, plus credit spread of 1.50%, 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.
(7) Prepayment can be made without penalty.
(8) Interest only until 4/1/02. Thereafter, principal will be amortized based
on 30 years. Annual debt service will be $20.9 million.
(9) 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.
(10) The rate is capped at 8.55% until maturity, plus credit spread of 0.45%,
based on one-month LIBOR.
(11) As of December 31, 2000, $77 million is capped at 7.15%, plus credit spread
of 1.85%, based on one-month LIBOR. The capped amount accretes $7 million a
month until it reaches $147 million. The cap matrures 6/09/03.
(12) Interest only unless maturity date is extended. In the first year of
extension, principal will be amortized based on 25 years.
(13) Maturity date may be extended for 2 one-year periods.
(14) The facility is a $40 million line of credit and is secured by TRG's
interest in Westfarms.
(15) The facility is a $200 million line of credit and is secured by mortgages
on Fairlane, LaCumbre, Paseo Nuevo, and Regency Square. Floating rate is
based on one-month LIBOR plus credit spread of 0.90%.
(16) Debt is secured by the Company's interest in Twelve Oaks and is guaranteed
by TRG.
(17) Currently payable at 9%. Deferred interest is due at maturity. The loan is
secured by TRG's indirect interests in International Plaza.
(18) Debt can be prepaid without penalty. 60 days notice required.
(19) Interest only until 7/11/04. Thereafter, principal will be amortized based
on 25 years. Annual debt service will be $15.9 million.
(20) Debt may be prepaid with a yield maintenance prepayment penalty. No
prepayment penalty is due if redeemed within three months of maturity date.
30-60 day notice required.
(21) The rate is capped at 7.0% until maturity, plus credit spread of 2.00%,
based on one-month LIBOR. The rate is also swapped to a rate of 6.14%, plus
credit spread, when LIBOR is below 6.7%.
(22) The rate is capped at 7.10% until 11/10/02, plus credit spread of 1.90%,
based on one-month LIBOR.
(23) The rate is capped at 8.20% until 8/15/02, plus credit spread of 0.80%,
based on one-month LIBOR.
(24) Maturity date may be extended twice to no later than 8/10/04.
(25) The rate is capped until maturity at 6.5%, plus credit spread of 1.125%,
based on one-month LIBOR.
For additional information regarding the Centers and their operations, see
the responses to Item 1 of this report.
15
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 22, 2001, the 50,038,272
outstanding shares of Common Stock were held by 730 holders of record.
The following table presents the dividends declared and range of share
prices for each quarter of 2000 and 1999.
Market Quotations
----------------------------------------
2000 Quarter Ended High Low Dividends
------------------ ---- --- ---------
March 31 $ 12 5/8 $ 9 3/4 $ 0.245
June 30 12 3/16 10 1/4 0.245
September 30 11 15/16 10 9/16 0.245
December 31 11 5/8 10 3/8 0.25
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
16
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
-------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands of dollars, except as noted)
STATEMENT OF OPERATIONS DATA:
Income before extraordinary items from investment in TRG (1) 29,349 21,368
Rents, recoveries and other shopping center revenues (1) 305,600 268,692 333,953
Gain on disposition of interest in center (2) 85,339
Income before extraordinary items, minority
and preferred interests 151,826 58,445 70,403 28,662 20,730
Extraordinary items (3) (9,506) (468) (50,774) (444)
Minority interest (1) (30,300) (30,031) (6,009)
TRG preferred distributions (4) (9,000) (2,444)
Net income 103,020 25,502 13,620 28,662 20,286
Series A preferred dividends (5) (16,600) (16,600) (16,600) (4,058)
Net income (loss) available to common shareowners 86,420 8,902 (2,980) 24,604 20,286
Income before extraordinary items per
common share - diluted 1.75 0.17 0.32 0.48 0.47
Net income (loss) per common share - diluted 1.64 0.16 (0.06) 0.48 0.46
Dividends per common share declared 0.985 0.965 0.945 0.925 0.89
Weighted average number of common shares outstanding 52,463,598 53,192,364 52,223,399 50,737,333 44,444,833
Number of common shares outstanding at end of period 50,984,397 53,281,643 52,995,904 50,759,657 50,720,358
Ownership percentage of TRG at end of period (1) 62% 63% 63% 37% 37%
BALANCE SHEET DATA (1):
Investment in TRG 547,859 369,131
Real estate before accumulated depreciation 1,959,128 1,572,285 1,473,440
Total assets 1,907,563 1,596,911 1,480,863 556,824 378,527
Total debt 1,173,973 886,561 775,298
SUPPLEMENTAL INFORMATION (6):
Funds from Operations allocable to TCO (7) 70,419 68,506 61,131 53,137 44,104
Mall tenant sales (8) 2,717,195 2,695,645 2,332,726 3,086,259 2,827,245
Sales per square foot (8) 479 453 426 384 377
Number of shopping centers at end of period 16 17 16 25 21
Ending Mall GLA in thousands of square feet 7,065 7,540 7,038 10,850 9,250
Average occupancy 89.1% 89.0% 89.4% 87.6% 87.4%
Ending occupancy 90.5% 90.4% 90.2% 90.3% 88.0%
Leased space (9) 93.8% 92.1% 92.3% 92.3% 89.0%
Average base rent per square foot (10):
All mall tenants $40.25 $39.58
Stores closing during year $39.99 $39.49
Stores opening during year $47.04 $48.01
- --------------------------
(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) In August 2000, the Company completed a transaction to acquire an
additional interest in one of its Unconsolidated Joint Ventures; TRG became
the 100% owner of Twelve Oaks and the joint venture partner became the 100%
owner of Lakeside. A gain on the transaction was recognized by the Company
representing the excess of the fair value over the net book basis of the
Company's interest in Lakeside Mall (see MD&A - Significant Debt, Equity,
and Other Transactions).
(3) Extraordinary items for 1996 through 2000 include charges related to the
extinguishment of debt, primarily consisting of prepayment premiums and the
writeoff of deferred financing costs.
(4) In 1999, the Operating Partnership completed $100 million in private
placements of 9% Cumulative Redeemable Preferred Partnership Equity.
(5) In October 1997, the Company issued 8.3% Series A Preferred Stock.
(6) Operating statistics prior to 1998 include centers transferred to GMPT as
part of the GMPT Exchange.
(7) 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.
(8) Based on reports of sales furnished by mall tenants.
(9) Leased space comprises both occupied space and space that is leased but not
yet occupied.
(10) Amounts include centers owned and operated for two years. Presentation of
statistic in prior years was for mature centers owned and opened for five
years. All mall tenants average base rent per square foot for centers owned
and open for five years, for 2000, 1999, 1998, 1997, and 1996 were $44.53,
$44.07, $41.93, $38.79, and $37.90, respectively. The Company changed its
methodology in order to be more consistent with other reported statistics.
17
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 Management's Discussion and Analysis of Financial Condition
and Results of Operations contains various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements represent the Company's expectations or beliefs
concerning future events, including the following: statements regarding future
developments and joint ventures, rents and returns, statements regarding the
continuation of historical trends and any statements regarding the sufficiency
of the Company's cash balances and cash generated from operating and financing
activities for the Company's future liquidity and capital resource needs. The
Company cautions that although forward-looking statements reflect the Company's
good faith beliefs and best judgment based upon current information, these
statements are qualified by important factors that could cause actual results to
differ materially from those in the forward-looking statements, including those
risks, uncertainties, and factors detailed from time to time in reports filed
with the SEC, and in particular those set forth under the headings "General
Risks of the Company" and "Environmental Matters" in the Company's Annual Report
on Form 10-K. The following discussion should be read in conjunction with the
accompanying Consolidated 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.
In August 2000, the Company completed a transaction to acquire an
additional interest in one of its Unconsolidated Joint Ventures; the Operating
Partnership became the 100% owner of Twelve Oaks and the joint venture partner
became the 100% owner of Lakeside. Performance statistics presented include
Lakeside through the date of the transaction.
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). Performance statistics presented exclude these 10 centers
(transferred centers).
18
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.
The following table summarizes occupancy costs, excluding utilities, for
mall tenants as a percentage of mall tenant sales.
2000 1999 1998
---- ---- ----
Mall tenant sales (in thousands) $2,717,195 $2,695,645 $2,332,726
Sales per square foot 479 453 426
Minimum rents 9.7% 9.7% 9.7%
Percentage rents 0.3 0.2 0.3
Expense recoveries 4.4 4.3 4.1
--- --- ---
Mall tenant occupancy costs 14.4% 14.2% 14.1%
==== ==== ====
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:
2000 1999 1998
---- ---- ----
Mall tenant average occupancy 89.1% 89.0% 89.4%
Ending occupancy 90.5 90.4 90.2
Leased space 93.8 92.1 92.3
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 minimum rent at the shopping centers that have been
owned and open for at least two years.
2000 1999
---- ----
Average minimum rent per square foot
All mall tenants $40.25 $39.58
Stores closing during year 39.99 39.49
Stores opening during year 47.04 48.01
19
In 1999, average minimum rent per square foot for stores opening during the
year was higher because of the leasing of smaller than average spaces at several
of the Company's most productive centers. Generally, the rent spread between
opening and closing stores is in the Company's historic range of $5.00 to $10.00
per square foot. 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.
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. Additionally, most
percentage rents are recorded in the fourth quarter. Accordingly, revenues and
occupancy levels are generally highest in the fourth quarter.
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
2000 2000 2000 2000 2000
----------- --------- ---------- --------- ----------
(in thousands)
Mall tenant sales $589,996 $628,999 $602,417 $895,783 $2,717,195
Revenues 132,331 130,923 127,034 142,318 532,606
Occupancy:
Average 88.8% 88.1% 88.8% 90.3% 89.1%
Ending 88.5% 88.1% 89.2% 90.5% 90.5%
Leased space 91.4% 90.5% 91.7% 93.8% 93.8%
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
2000 2000 2000 2000 2000
----------- --------- ---------- --------- ----------
Minimum rents 11.3% 10.6% 10.6% 7.2% 9.7%
Percentage rents 0.3 0.1 0.1 0.6 0.3
Expense recoveries 4.8 4.7 4.7 3.7 4.4
----- ----- ----- ----- -----
Mall tenant
occupancy costs 16.4% 15.4% 15.4% 11.5% 14.4%
==== ==== ==== ==== ====
Results of Operations
The following represent significant debt, equity, and other transactions
which affected the operating results described under Comparison of 2000 to 1999.
Refer to Liquidity and Capital Resources for discussion of new center openings
and other transactions which will affect operating results of future periods.
Also, the impact of new accounting guidance on results of operations is
discussed under Liquidity and Capital Resources - New Accounting Pronouncement.
20
Significant Debt, Equity and Other Transactions
In October 2000, the 37% owned Unconsolidated Joint Venture that owns
Arizona Mills completed a $146 million secured financing. The financing has an
all-in rate of approximately 8.0% and matures in October 2010. The proceeds were
primarily used to repay the existing $142.2 million mortgage and to fund
transaction costs. The Operating Partnership recognized its $0.2 million share
of an extraordinary charge, consisting of the write-off of deferred financing
costs.
Also in October 2000, MacArthur Center completed a $145 million secured
financing. The financing has an all-in rate of approximately 7.8% and matures in
October 2010. The proceeds were used to repay the existing $120 million
construction loan and transaction costs. The remaining net proceeds of
approximately $23.9 million were distributed to the Operating Partnership, which
contributed all of the equity funding for the development of MacArthur Center.
The Operating Partnership used the distribution to pay down its line of credit.
In August 2000, the Company completed a transaction to acquire an
additional ownership in one of its Unconsolidated Joint Ventures. Under the
terms of the agreement, the Operating Partnership became the 100% owner of
Twelve Oaks and the joint venture partner became the 100% owner of Lakeside.
Both properties remained subject to the existing mortgage debt ($50 million and
$88 million at Twelve Oaks and Lakeside, respectively.) The transaction resulted
in a net payment to the joint venture partner of approximately $25.5 million in
cash. The payment was funded by a new $100 million facility, which is secured by
an interest in Twelve Oaks and guaranteed by the Operating Partnership. The
acquisition of the additional interest in Twelve Oaks was accounted for as a
purchase. The excess of the fair value over the net book basis of the acquired
interest has been allocated to properties. The results of Twelve Oaks have been
consolidated in the Company's results subsequent to the acquisition date (prior
to that date, Twelve Oaks was accounted for under the equity method as an
Unconsolidated Joint Venture). The Operating Partnership continues to manage
Twelve Oaks, while the former joint venture partner assumed management
responsibility for Lakeside. A gain of $85.3 million on the transaction was
recognized by the Company representing its share of the excess of the fair value
over the net book basis of the Company's interest in Lakeside, adjusted for the
$25.5 million paid and transaction costs.
The Company has acquired an approximately 6.7% interest in MerchantWired,
LLC, a service company providing internet and network infrastructure to shopping
centers and retailers. The Company's investment in MerchantWired is accounted
for under the equity method. Based on projections received from MerchantWired,
LLC, the Company's share of projected losses would reduce income per share by
approximately one cent per share in 2001. The Company funded its investment,
which was approximately $3 million at December 31, 2000 and is expected to
increase to approximately $5 million in 2001, through existing lines of credit.
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. The loan may be extended until August 2004. 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. The Unconsolidated Joint Venture
recognized an extraordinary charge of $18.6 million, which consisted primarily
of the prepayment premium. The Operating Partnership's share of the
extraordinary charge was $9.3 million.
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%.
In November 1999, the Operating Partnership acquired Lord Associates, a
retail leasing firm, for $2.5 million in cash and $5 million in partnership
units, which are subject to certain contingencies. In addition, $1.0 million of
this purchase price is contingent upon profits achieved on acquired leasing
contracts.
21
In September and November 1999, the Operating Partnership completed private
placements of its Series C and Series D preferred equity totaling $100 million,
with net proceeds used to pay down lines of credit. In August 1999, the $177
million refinancing of Cherry Creek was completed, with net proceeds of $45.2
million being distributed to the Operating Partnership and used to pay down
lines of credit. In April 1999 through June 1999, $520 million of refinancings
relating to The Mall at Short Hills, Biltmore Fashion Park, and Great Lakes
Crossing were completed.
In March 1999, MacArthur Center, a 70% owned enclosed super-regional mall,
opened in Norfolk, Virginia. MacArthur Center is owned by a joint venture in
which the Operating Partnership has a controlling interest, and consequently the
results of this center are consolidated in the Company's financial statements.
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. The Operating Partnership terminated its
Memorial City lease on April 30, 2000.
Comparable Center Operations
The performance of the Company's portfolio can be measured through
comparisons of comparable centers' operations. During 2000, revenues (excluding
land sales) less operating costs (operating and recoverable expenses) of those
centers owned and open for the entire period increased approximately two percent
in comparison to the same centers' results in the comparable period of 1999. The
Company expects that comparable center operations will increase annually by two
to three percent. This is a forward-looking statement and certain significant
factors could cause the actual results to differ materially; refer to the
General Risks of the Company in the Company's Annual Report on Form 10-K.
Presentation of Operating Results
The following tables contain the combined operating results of the
Company's Consolidated Businesses and the Unconsolidated Joint Ventures. 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 is less than zero, 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, although
distributions were less than net income during 2000 due to the gain on the
disposition of Lakeside described above. The Company's average ownership
percentage of the Operating Partnership was 63% for both 2000 and 1999. The
results of Twelve Oaks are included in the Consolidated Businesses subsequent to
the closing of the transaction, while both Twelve Oaks and Lakeside are included
as Unconsolidated Joint Ventures for previous periods.
22
Comparison of 2000 to 1999
The following table sets forth operating results for 2000 and 1999, showing
the results of the Consolidated Businesses and Unconsolidated Joint Ventures:
2000 1999
------------------------------------------ ------------------------------------------------
UNCONSOLIDATED UNCONSOLIDATED
CONSOLIDATED JOINT CONSOLIDATED JOINT
BUSINESSES(1) VENTURES(2) TOTAL BUSINESSES(1) VENTURES(2) TOTAL
------------------------------------------ ------------------------------------------------
(in millions of dollars)
REVENUES:
Minimum rents 151.9 145.5 297.4 133.9 158.1 292.1
Percentage rents 6.4 3.8 10.1 4.6 3.9 8.6
Expense recoveries 91.3 75.7 166.9 78.9 83.6 162.4
Management, leasing and
development 25.0 25.0 23.9 23.9
Other 27.5 5.7 33.2 16.3 6.4 22.7
----- ----- ----- ----- ----- -----
Total revenues 301.9 230.7 532.6 257.6 252.0 509.6
OPERATING COSTS:
Recoverable expenses 79.7 63.6 143.3 69.5 69.4 138.9
Other operating 30.0 13.4 43.4 28.9 13.0 41.9
Management, leasing
and development 19.5 19.5 17.2 17.2
General and administrative 19.0 19.0 18.1 18.1
Interest expense 57.3 65.5 122.8 51.3 64.4 115.8
Depreciation and amortization(3) 56.8 29.5 86.3 51.9 29.7 81.6
----- ----- ----- ----- ----- -----
Total operating costs 262.3 172.0 434.4 237.0 176.5 413.5
Net results of Memorial City (1) (1.6) (1.6) (1.4) (1.4)
----- ----- ----- ----- ----- -----
38.0 58.6 96.6 19.2 75.6 94.7
===== ===== ===== =====
Equity in income before
extraordinary items of
Unconsolidated Joint Ventures(3) 28.5 39.3
----- -----
Income before gain on
disposition, extraordinary items,
and minority and preferred interests 66.5 58.4
Gain on disposition of interest in center 85.3
Extraordinary items (9.5) (0.5)
TRG preferred distributions (9.0) (2.4)
Minority share of income (58.5) (17.6)
Distributions less than (in excess of)
minority share of income 28.2 (12.4)
----- -----
Net income 103.0 25.5
Series A preferred dividends (16.6) (16.6)
----- -----
Net income available to common
shareowners 86.4 8.9
===== =====
SUPPLEMENTAL INFORMATION(4):
EBITDA - 100% 153.1 153.7 306.8 123.0 169.7 292.6
EBITDA - outside partners' share (7.6) (70.8) (78.4) (4.4) (75.5) (79.9)
----- ----- ----- ----- ----- -----
EBITDA contribution 145.6 82.9 228.4 118.6 94.1 212.7
Beneficial Interest Expense (52.2) (34.9) (87.1) (47.6) (34.5) (82.1)
Non-real estate depreciation (3.0) (3.0) (2.7) (2.7)
Preferred dividends and distributions (25.6) (25.6) (19.0) (19.0)
----- ----- ----- ----- ----- -----
Funds from Operations contribution 64.8 47.9 112.7 49.3 59.7 108.9
===== ===== ===== ===== ===== =====
(1) The results of operations of Memorial City are presented net in this table.
The Operating Partnership terminated its Memorial City lease on April 30,
2000.
(2) With the exception of the Supplemental Information, amounts represent 100%
of the Unconsolidated Joint Ventures. Amounts are net of intercompany
profits.
(3) Amortization of the Company's additional basis in the Operating Partnership
included in equity in income before extraordinary items of Unconsolidated
Joint Ventures was $3.8 million and $4.7 million in 2000 and 1999,
respectively. Also, amortization of the additional basis included in
depreciation and amortization was $4.2 million and $3.8 million in 2000 and
1999, respectively.
(4) EBITDA represents earnings before interest and depreciation and
amortization. EBITDA excludes gains on dispositions of depreciated
operating properties. Funds from Operations is defined and discussed in
Liquidity and Capital Resources.
(5) Amounts in this table may not add due to rounding.
23
Consolidated Businesses
Total revenues for the year ended December 31, 2000 were $301.9 million, a
$44.3 million or 17.2% increase over 1999. Minimum rents increased $18.0 million
of which $4.3 million was due to the opening of MacArthur Center. Minimum rents
also increased due to the inclusion of Twelve Oaks, tenant rollovers, and new
sources of rental income, including temporary tenants and advertising space
arrangements. Percentage rents increased due to increases in tenant sales and
the inclusion of Twelve Oaks. Expense recoveries increased primarily due to
MacArthur Center and Twelve Oaks. Management, leasing, and development revenues
increased primarily due to contracts acquired as part of the Lord Associates
transaction, partially offset by decreases due to a reduction in fees in certain
managed centers, and the timing and completion status of certain other contracts
and services. Other revenue increased primarily due to an increase in gains on
sales of peripheral land and interest income, partially offset by a decrease in
lease cancellation revenue.
Total operating costs were $262.3 million, a $25.3 million or 10.7%
increase from 1999. Recoverable expenses and depreciation and amortization
increased primarily due to MacArthur Center and Twelve Oaks. Other operating
expense increased due to MacArthur Center, Twelve Oaks, the Lord Associates
transaction, and an increase in bad debt expense, offset by a decrease in the
charge to operations for costs of pre-development activities. Management,
leasing, and development costs increased primarily due to the Lord Associates
contracts. Interest expense increased primarily due to an increase in interest
rates and borrowings, including debt assumed and incurred related to Twelve
Oaks. In addition, interest expense increased because of a decrease in
capitalized interest upon opening MacArthur Center. These increases were offset
by a reduction in interest expense on debt paid down with proceeds of the
preferred equity offerings.
Unconsolidated Joint Ventures
Total revenues for the year ended December 31, 2000 were $230.7 million, a
$21.3 million or 8.5% decrease from the comparable period of 1999. Minimum rents
and expense recoveries decreased primarily because the Twelve Oaks and Lakeside
results were only included through the transaction date. Other revenue decreased
primarily due to a decrease in lease cancellation revenue, partially offset by
an increase in gains on sales of peripheral land.
Total operating costs decreased by $4.5 million to $172.0 million for the
year ended December 31, 2000. Recoverable expenses decreased primarily due to
Twelve Oaks and Lakeside. Interest expense increased primarily due to the
additional debt at Cherry Creek as well as increases in interest rates,
partially offset by Twelve Oaks and Lakeside.
As a result of the foregoing, income before extraordinary items of the
Unconsolidated Joint Ventures decreased by $17.0 million, or 22.5%, to $58.6
million. The Company's equity in income before extraordinary items of the
Unconsolidated Joint Ventures was $28.5 million, a 27.5% decrease from the
comparable period in 1999.
Net Income
As a result of the foregoing, the Company's income before gain on
disposition, extraordinary items, and minority and preferred interests increased
$8.1 million, or 13.9%, to $66.5 million for the year ended December 31, 2000.
The Company recognized $9.5 million and $0.5 million in extraordinary charges
related to the extinguishment of debt during 2000 and 1999, respectively. During
2000, the Company recognized an $85.3 million gain on the disposition of its
interest in Lakeside. Distributions of $9.0 million to the Operating
Partnership's Series C and Series D Preferred Equity owners were made in 2000,
compared to $2.4 million in 1999. After payment of $16.6 million in Series A
preferred dividends, net income available to common shareowners for 2000 was
$86.4 million compared to $8.9 million in 1999.
24
Comparison of 1999 to 1998
Discussion of significant debt, equity, and other transactions,
acquisitions, and openings occurring in 1999 is included in Comparison of 2000
to 1999. Significant 1998 items are described below.
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.
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.
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 1999, general and administrative expense decreased
$6.5 million from 1998.
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.
Other Transactions
In November 1998, Great Lakes Crossing, an enclosed super-regional mall,
opened in Auburn Hills, Michigan. As Great Lakes Crossing is owned by a joint
venture in which the Operating Partnership has a controlling interest, its
results are consolidated in the Company's financial statements.
At Cherry Creek, a 137,000 square foot expansion opened in stages
throughout the fall of 1998.
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.
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) Amortization of the Company's additional basis in the Operating Partnership
included in equity in income before extraordinary items of Unconsolidated
Joint Ventures was $4.7 million and $4.5 million in 1999 and 1998,
respectively. Also, amortization of the additional basis included in
depreciation and amortization was $3.8 million and $5.1 million in 1999 and
1998, respectively.
(4) EBITDA represents earnings before interest and depreciation and
amortization. EBITDA excludes gains on dispositions of depreciated
operating properties. Funds from Operations is defined and discussed in
Liquidity and Capital Resources.
(5) Amounts in this table may not add due to rounding.
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 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 revenue.
Total operating costs were $237.0 million, a $5.5 million or 2.3% decrease
from 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 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
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 assure adequate
liquidity to conduct its operations in accordance with its dividend and
financing policies.
As of December 31, 2000, the Company had a consolidated cash balance of
$18.8 million. Additionally, the Company has a secured $200 million line of
credit. This line had $63.0 million of borrowings as of December 31, 2000 and
expires in September 2001. The Company also has available a second secured bank
line of credit of up to $40 million. The line had $26.3 million of borrowings as
of December 31, 2000 and expires in August 2001.
Debt and Equity Transactions
Discussion of significant debt and equity transactions occurring in the
three years ended December 31, 2000 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 November 2000, the 50% owned Unconsolidated Joint Venture that is
developing The Mall at Millenia closed on a $160.4 million construction
facility. The rate on the facility is LIBOR plus 1.95% and the facility matures
in November 2003, with two one-year extension options. The Operating Partnership
has guaranteed the payment of 50% of the principal and interest. The rate and
the amount guaranteed may be reduced once certain performance and valuation
criteria are met. There was no balance outstanding at December 31, 2000.
In June 2000, the Operating Partnership closed on a $220 million three-year
construction facility for The Shops at Willow Bend. The rate on the loan is
LIBOR plus 1.85%. The loan has two one-year extension options. The balance at
December 31, 2000 was $99.7 million.
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. As of December
31, 2000, the Company had purchased 2.3 million shares for approximately $25.8
million.
In June 2000, the Company finalized an agreement that securitized the $40
million bank line of credit and extended its maturity to August 2001.
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%. The balance at December 31, 2000 was $67.5
million.
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 6.14%, plus credit spread, when LIBOR is less than
6.7%. The maturity date may be extended one year. The balance at December 31,
2000 was $116.9 million.
28
Summary of Investing Activities
Net cash used in investing activities was $219.7 million in 2000 compared
to $197.4 million in 1999 and $270.0 million in 1998. Cash used in investing
activities was impacted by the timing of capital expenditures, with additions to
properties in 2000, 1999, and 1998 for the construction of MacArthur Center,
Great Lakes Crossing, 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 2000, $3.0 million was invested in MerchantWired, while
in 1999, $18.5 million was used to purchase investments in Fashionmall.com,
Inc., Swerdlow Real Estate Group, and Lord Associates. In addition, during 2000,
$23.6 million in costs were incurred (net of cash acquired) in connection with
the exchange of interests in centers. Proceeds from sales of peripheral land
increased in 2000 by $6.4 million, to $8.2 million. Contributions to
Unconsolidated Joint Ventures are impacted primarily by the timing of
construction and expansion activities, which in 2000, 1999, and 1998 included
significant projects at Dolphin Mall, International Plaza, The Mall at Millenia,
Fair Oaks, Lakeside, Twelve Oaks, Cherry Creek, and Woodland. Distributions from
Unconsolidated Joint Ventures decreased in 2000 due to the transfers of Twelve
Oaks and Lakeside. Also, distributions from Unconsolidated Joint Ventures
included excess mortgage refinancing proceeds of $45.2 million in 1999 from
Cherry Creek and $45.9 million in 1998 from Fair Oaks. In 1998, the loss of
distributions from Woodfield after the GMPT Exchange were offset by increases in
distributions at other centers.
Summary of Financing Activities
Financing activities contributed cash of $99.7 million in 2000, $91.3
million in 1999, and $131.3 million in 1998. Borrowings net of repayments and
issuance costs increased by $130.3 million to $231.2 million in 2000. In 1999,
borrowings net of debt repayments and issuance costs decreased by $244.5 million
from 1998 to $100.9 million. In 1999, $97.3 million was provided by the issuance
of preferred equity.
Distributions and dividends were $107.5 million, $100.1 million, and $131.2
million in 2000, 1999, and 1998, respectively. Distributions were higher in 1998
due to the Company's larger pre-GMPT Exchange equity base. Approximately $24.2
million was used in 2000 to repurchase common shares under the stock repurchase
program initiated in 2000. In 1998, cash was used for the $77.7 million partner
redemption and transaction costs incurred in connection with the GMPT Exchange.
29
Beneficial Interest in Debt
At December 31, 2000, the Operating Partnership's debt and its beneficial
interest in the debt of its Consolidated and Unconsolidated Joint Ventures
totaled $1,588.7 million. As shown in the following table, there was no unhedged
floating rate debt at December 31, 2000. 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 0.45% to the effective rate of interest on beneficial interest
in debt at December 31, 2000. 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 $499.8 million as of December 31,
2000. Beneficial interest in capitalized interest was $30.7 million for the year
ended December 31, 2000.
Beneficial Interest in Debt
-------------------------------------------------------------
Amount Interest LIBOR Frequency LIBOR
(in millions Rate at Cap of Rate at
of dollars) 12/31/00 Rate Resets 12/31/00
----------- -------- ------ ------- --------
Total beneficial interest in fixed rate debt $945.7 7.57%(1)
Floating rate debt hedged via interest rate caps:
Through October 2001 50.0 7.16 8.55% Monthly 6.56%
Through March 2002 100.0 7.83 (1) 7.25 Monthly 6.56
Through March 2002 144.5 8.33 7.25 Monthly 6.56
Through July 2002 43.4 7.64 (2) 6.50 Monthly 6.56
Through August 2002 38.0 7.51 8.20 Monthly 6.56
Through September 2002 75.0(3) 8.07 (1)(2) 7.00 Monthly 6.56
Through October 2002 26.5 8.39 (1) 7.10 Monthly 6.56
Through November 2002 25.6(4) 7.83 (1) 8.75 Monthly 6.56
Through May 2003 77.0(5) 8.63 7.15 Monthly 6.56
Through September 2003 63.0(6) 7.83 (1) 7.00 Monthly 6.56
----
Total beneficial interest in debt $1,588.7 7.75 (1)
========
(1) Denotes weighted average interest rate.
(2) Rate reflects impact of interest rate instrument.
(3) This construction debt of a 50% owned unconsolidated joint venture is
swapped at a rate of 6.14% when LIBOR is below 6.7%. In addition the debt
is capped at 7%. The notional amounts on both the cap and the swap increase
from $150 million to $200 million in February 2001.
(4) This cap which was purchased to hedge a construction facility of a 50%
owned joint venture has a notional amount of $80.2 million.
(5) The notional amount on the cap, which hedges a construction facility,
accretes $7 million a month until it reaches $147 million.
(6) An additional cap was purchased by the 90% owned consolidated joint venture
to hedge an anticipated construction facility. The 7.25% cap begins at a
notional amount of $6 million in January 2001 and accretes $6 million per
month up to $70 million. This cap also expires in September 2003.
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, 2000, a one
percent increase in interest rates on floating rate debt would decrease cash
flows by approximately $3.2 million and, due to the effect of capitalized
interest, annual earnings by approximately $1.8 million. A one percent decrease
in interest rates on floating rate debt would increase cash flows and annual
earnings by approximately $6.0 million and $3.7 million, respectively. Based on
the Company's consolidated debt and interest rates in effect at December 31,
2000, a one percent increase in interest rates would decrease the fair value of
debt by approximately $40.9 million, while a one percent decrease in interest
rates would increase the fair value of debt by approximately $44.0 million.
30
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.
Payments of principal and interest on the loans in the following table are
guaranteed by the Operating Partnership as of December 31, 2000. All of the loan
agreements provide for a reduction of the amounts guaranteed as certain center
performance and valuation criteria are met.
TRG's Amount of
beneficial loan balance % of loan
interest in guaranteed balance % of interest
Loan balance loan balance by TRG guaranteed guaranteed
Center as of 12/31/00 as of 12/31/00 as of 12/31/00 by TRG by TRG
- ------ -------------- -------------- -------------- ------ ------
(in millions of dollars)
Dolphin Mall 116.9 58.5 58.5 50% 100%
Great Lakes Crossing 170.0 144.5 170.0 100% 100%
International Plaza 67.5 17.9 67.5 100% (1) 100%(1)
The Mall at Millenia 0 0 0 50% 50%
The Shops at Willow Bend 99.7 99.7 99.7 100% 100%
(1) The new investor in the International Plaza venture has indemnified the
Operating Partnership to the extent of approximately 25% of the amounts
guaranteed.
In addition, the Operating Partnership guarantees the $100 million facility
secured by an interest in Twelve Oaks that was obtained in August 2000 (See
Results of Operations - Significant Debt, Equity, and Other Transactions).
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 items, real estate depreciation and amortization, and the
allocation to the minority interest in the Operating Partnership, less preferred
dividends and distributions. Gains on dispositions of depreciated operating
properties are excluded from FFO.
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, there would have been no change to the amounts
reported for 1999.
31
Reconciliation of Net Income to Funds from Operations
2000 1999
---- ----
(in millions of dollars)
Income before gain on disposition of center,
extraordinary items, and minority and preferred interests (1) (2) 66.5 58.4
Depreciation and amortization (3) 57.8 52.5
Share of Unconsolidated Joint Ventures'
depreciation and amortization (4) 19.4 20.4
Non-real estate depreciation (3.0) (2.7)
Preferred dividends and distributions (25.6) (19.0)
Minority interest share of depreciation (2.4) (0.7)
---- -----
Funds from Operations 112.7 108.9
===== =====
Funds from Operations allocable to the Company 70.4 68.5
==== ======
(1) Includes gains on peripheral land sales of $9.1 million and $1.5 million
for the years ended December 31, 2000 and 1999, respectively. Excludes gain
on disposition of interest in a center of $85.3 million for the year ended
December 31, 2000.
(2) Includes net non-cash straightline adjustments to minimum rent revenue and
ground rent expense of $(0.1) million and $(0.3) million for the years
ended December 31, 2000 and 1999, respectively.
(3) Includes $2.4 million and $2.1 million of mall tenant allowance
amortization for the years ended December 31, 2000 and 1999, respectively.
(4) Includes $2.2 million of mall tenant allowance amortization for both of the
years ended December 31, 2000 and 1999.
(5) Amounts in the tables may not add due to rounding.
Components of Other Income
2000 1999
---- ----
(Operating Partnership's share in millions of dollars)
Shopping center related revenues 13.6 10.8
Land sales 9.1 1.5
Lease cancellation revenue 1.6 4.2
Interest income 4.3 2.2
--- ---
28.6 18.7
==== ====
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 12, 2000, the Company declared a quarterly dividend of $0.25
per common share payable January 22, 2001 to shareowners of record on December
29, 2000. 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 29, 2000
to shareowners of record on December 19, 2000.
32
Common dividends declared totaled $0.985 per common share in 2000, of which
$0.4402 represented return of capital, $0.4799 represented ordinary income, and
$0.0649 represented capital gain, compared to dividends declared in 1999 of
$0.965 per common share, of which $0.4534 represented return of capital and
$0.5116 represented ordinary income. The tax status of total 2001 common
dividends declared and to be declared, assuming continuation of a $0.25 per
common share quarterly dividend, is estimated to be approximately 30% return of
capital, and approximately 70% ordinary income. Series A preferred dividends
declared were $2.075 per preferred share in 2000 and 1999, of which $1.9382
represented ordinary income and $0.1368 represented capital gains in 2000, while
the entire dividend represented ordinary income in 1999. The tax status of total
2001 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.
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:
2000
-------------------------------------------------------------
Beneficial Interest in
Unconsolidated Consolidated Businesses
Consolidated Joint and Unconsolidated
Businesses Ventures (1) Joint Ventures (1)(2)
--------------------------------------------------------------
(in millions of dollars)
Development, renovation, and expansion:
Existing centers 14.3 19.5 23.2
New centers 149.2(3) 226.3(4) 241.7
Pre-construction development activities,
net of charge to operations 6.1 6.1
Mall tenant allowances 10.2 4.3 11.8
Corporate office improvements, equipment,
and software 3.1 3.1
Other 0.2 2.2 1.4
----- ----- -----
Total 183.1 252.3 287.3
===== ===== =====
(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), Dolphin
Mall (a 50% owned unconsolidated joint venture), and The Mall at Millenia
(a 50% owned unconsolidated joint venture).
(3) Includes costs related to The Mall at Wellington Green and The Shops at
Willow Bend.
(4) Includes costs related to International Plaza, Dolphin Mall, and The Mall
at Millenia.
33
1999
-------------------------------------------------------------
Beneficial Interest in
Unconsolidated Consolidated Businesses
Consolidated Joint and 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, equipment,
and software 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.
The Operating Partnership's share of mall tenant allowances per square foot
leased during the year, excluding expansion space and new developments, was
$16.39 in 2000 and $12.76 in 1999. In addition, the Operating Partnership's
share of capitalized leasing costs in 2000, excluding new developments, was $7.6
million, or $10.54 per square foot leased and $6.2 million or $10.82 per square
foot leased during the year in 1999.
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 opened in March
2001. Although certain permitting and certificate of occupancy issues limited
the Company's ability to maximize occupancy at opening, approximately 150
retailers opened initially with an additional 50 tenants opening over a two to
three month period. Dolphin is presently anticipated to cost up to $20 million
higher than originally projected or approximately $290 million. The Company
currently estimates an unleveraged return of approximately 9% in 2001 on its
share of average spending of approximately $145 million. The returns for 2002
and 2003 are expected to be approximately 10.5% and 11.0%, respectively.
The Shops at Willow Bend, a 1.5 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 initially be anchored by Lord & Taylor, Burdines, Dillard's and
JCPenney. A fifth anchor, Nordstrom, is obligated under the reciprocal easement
agreement to open within 24 months of the opening of the center and is presently
expected to open in 2003. 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.
Additionally, the Company is developing International Plaza, a 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.
34
The Company expects returns on The Mall at Willow Bend, International
Plaza, and The Mall at Wellington Green to average slightly under 10% for the
four months on average that these centers will be open in 2001. The Company's
share of costs for the three centers is projected to be approximately $525
million during these four months. For 2002, the Company expects returns to
average above 10.5% on approximately $565 million of costs and in 2003, expects
returns of 11%. These returns exclude land sale gains upon which interest
expense savings on the gains will add approximately 0.25% to the projects'
returns, based on interest savings due to the reduction of debt.
The Operating Partnership has entered into a joint venture to develop The
Mall at Millenia currently under construction in Orlando, Florida. This project
is expected to open in October 2002. The Mall at Millenia will be anchored by
Bloomingdale's, Macy's, and Neiman Marcus.
The total cost, prior to anticipated recoveries, of these five projects is
anticipated to be approximately $1.3 billion. The Company's beneficial
investment in the projects will be approximately $810 million, as four of these
projects are joint ventures. While the Company intends to finance approximately
75% of each new center with construction debt, the Company is responsible for
more than its proportionate share of the project equity (approximately $259
million). Substantially all of the project equity for the five projects
currently under construction has been funded through the Operating Partnership's
preferred equity offerings, contributions from the new joint venture partner in
the International Plaza project, and borrowings under the Company's lines of
credit. With respect to the construction loan financing, the Company completed
financings for Dolphin Mall, The Shops at Willow Bend, International Plaza, and
The Mall at Millenia. The financing of The Mall at Wellington Green is expected
to be completed in the first half of 2001.
Additionally, food courts at Twelve Oaks, in the suburban Detroit area, and
Woodland in Grand Rapids, Michigan are scheduled to open in the fall of 2001.
The Operating Partnership's share of the cost of these projects is expected to
be approximately $12.5 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.
The following table summarizes planned capital spending, which is not
recovered from tenants and assumes no acquisitions during 2001:
2001
-----------------------------------------------------------------
Beneficial Interest in
Unconsolidated Consolidated Businesses
Consolidated Joint and Unconsolidated
Businesses Ventures (1) Joint Ventures (1)(2)
-----------------------------------------------------------------
(in millions of dollars)
Development, renovation, and expansion 194.2(3) 305.8(4) 313.5
Mall tenant allowances 9.5 6.4 12.4
Pre-construction development and other 15.5 0.5 15.7
----- ----- -----
Total 219.2 312.7 341.6
===== ===== =====
(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), Dolphin
Mall (a 50% owned unconsolidated joint venture), and The Mall at Millenia
(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, International Plaza, and The Mall
at Millenia.
35
The Operating Partnership anticipates that its share of costs for
development projects scheduled to be completed in 2002 will be as much as $46
million in 2002. 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; 6) actual time to complete projects;
7) changes in economic climate; 8) competition from others attracting tenants
and customers; and 9) increases in operating costs.
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 certain others 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, 2000 of $10.94 per common share,
the aggregate value of interests in the Operating Partnership that may be
tendered under the Cash Tender Agreement was approximately $264 million. The
purchase of these interests at December 31, 2000 would have resulted in the
Company owning an additional 29% interest in the Operating Partnership.
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 use of
the derivatives and whether they qualify for hedge accounting. SFAS 133, as
amended and interpreted, is effective for fiscal years beginning after June 15,
2000. The Company's derivatives consist primarily of interest rate cap
agreements which the Company purchases to reduce its exposure to increases in
rates on its floating rate debt. The Company expects that the primary impact of
its adoption of SFAS 133 will be the timing of the recognition in income of the
costs of these agreements. This may cause earnings volatility as the value of
these agreements may change from period to period. In addition, the swap
agreement on the Dolphin Mall construction loan does not qualify for hedge
accounting under SFAS 133. As a result, the Company will recognize its share of
losses and income related to this agreement in earnings as the value of the
agreement changes. The Company expects to recognize an unrealized loss on this
agreement of approximately $1 million in the first quarter because of the
decline in interest rates since year end.
The Company will recognize a loss of approximately $8.8 million as a
transition adjustment to mark its share of interest rate agreements to fair
value as of January 1, 2001, the Company's transition date. Of this amount, a
$0.8 million loss will be charged to other comprehensive income with the
remainder representing the cumulative effect of a change in accounting
principle.
36
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.
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 2001 (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.
37
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
Consolidated Balance Sheet as of December 31, 2000 and 1999 ..F-3
Consolidated Statement of Operations for the years ended
December 31, 2000, 1999 and 1998.............................F-4
Consolidated Statement of Shareowners' Equity for the years ended
December 31, 2000, 1999 and 1998.............................F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.............................F-6
Notes to Consolidated 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-25
Schedule III - Real Estate and Accumulated Depreciation......F-26
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED
PARTNERSHIP (a consolidated subsidiary of Taubman Centers, Inc.)
Independent Auditors' Report.................................F-28
Combined Balance Sheet as of December 31, 2000 and 1999......F-29
Combined Statement of Operations for the years ended
December 31, 2000, 1999 and 1998............................F-30
Combined Statement of Accumulated Deficiency in Assets for the
three years ended December 31, 2000, 1999 and 1998..........F-31
Combined Statement of Cash Flows for the years ended
December 31, 2000, 1999 and 1998............................F-32
Notes to Combined Financial Statements.......................F-33
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED
PARTNERSHIP (a consolidated subsidiary of Taubman Centers, Inc.)
Schedule II - Valuation and Qualifying Accounts..............F-41
Schedule III - Real Estate and Accumulated Depreciation......F-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 Restated Articles of Incorporation of
Taubman Centers, Inc., including all amendments to date
(incorporated herein by reference to Exhibit 3 filed with
the Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000 ("2000 Second Quarter Form
10-Q")).
38
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) -- 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(f) -- 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(g) -- 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).
4(h) -- Building Loan Agreement dated as of June 21, 2000 among
Willow Bend Associates Limited Partnership, as Borrower, PNC
Bank, National Association, as Lender, Co-Lead Agent and
Lead Bookrunner, Fleet National Bank, as Lender, Co- Lead
Agent, Joint Bookrunner and Syndication Agent, Commerzbank
AG, New York Branch, as Lender, Managing Agent and
Co-Documentation Agent, Bayerische Hypo-Und Vereinsbank AG,
New York Branch, as Lender, Managing Agent and
Co-Documentation Agent, and PNC Bank, National Association,
as Administrative Agent. (incorporated herein by reference
to Exhibit 4 (a) filed with the 2000 Second Quarter Form
10-Q.)
39
4(i) -- Building Loan Deed of Trust, Assignment of Leases and Rents
and Security Agreement ("this Deed") from Willow Bend
Associates Limited Partnership, a Delaware limited
partnership ("Grantor"), to David M. Parnell ("Trustee"),
for the benefit of PNC Bank, National Association, as
Administrative Agent for Lenders (as hereinafter defined)
(together with its successors in such capacity,
"Beneficiary"). (incorporated herein by reference to Exhibit
4 (b) filed with the 2000 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) -- Amended and Restated Cash Tender Agreement among Taubman
Centers, Inc., a Michigan Corporation (the "Company"), The
Taubman Realty Group Limited Partnership, a Delaware Limited
Partnership ("TRG"), and A. Alfred Taubman, 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 and subsequently by Instrument dated June 25, 1997, (as
the same may hereafter be amended from time to time), and
TRA Partners, a Michigan Partnership. (incorporated herein
by reference to Exhibit 10 (a) filed with the 2000 Second
Quarter Form 10-Q.)
*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) -- Second Amended and Restated Continuing Offer, dated as of
May 16, 2000. (incorporated herein by reference to Exhibit
10 (b) filed with the 2000 Second Quarter Form 10-Q.)
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")).
40
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.
(incorporated herein by reference to Exhibit 10(l) filed
with the Annual Report of Form 10-K for the year ended
December 31, 1999 ("1999 Form 10-K")).
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. (incorporated herein by reference to
Exhibit 10(m) filed with the 1999 Form 10-K).
*10(n) -- Employment agreement between The Taubman Company Limited
Partnership and Courtney Lord. (incorporated herein by
reference to Exhibit 10(n) filed with the 1999 Form 10-K).
*10(o) -- The Taubman Company Long-Term Compensation Plan (as amended
and restated effective January 1, 2000). (incorporated
herein by reference to Exhibit 10 (c) filed with the 2000
Second Quarter Form 10-Q.)
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. (incorporated
herein by reference to Exhibit 10(p) filed with the 1999
Form 10-K).
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 -- Financial Data Schedule.
99 -- Debt Maturity Schedule.
- ------------------
* 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).
41
TAUBMAN CENTERS, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999
AND FOR EACH OF THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareowners
Taubman Centers, Inc.
We have audited the accompanying consolidated balance sheets of Taubman
Centers, Inc. (the "Company") as of December 31, 2000 and 1999, and the related
consolidated statements of operations, shareowners' equity, and cash flows for
each of the three years in the period ended December 31, 2000. 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 auditing standards generally
accepted in the United States of America. 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 consolidated financial statements present fairly, in
all material respects, the financial position of Taubman Centers, Inc. as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000 in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan
February 13, 2001
F-2
TAUBMAN CENTERS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
December 31
-------------------------------------
2000 1999
---- ----
Assets:
Properties (Note 6) $ 1,959,128 $ 1,572,285
Accumulated depreciation and amortization (285,406) (210,788)
-------------- -------------
$ 1,673,722 $ 1,361,497
Investment in Unconsolidated Joint Ventures (Note 5) 109,018 125,245
Cash and cash equivalents 18,842 20,557
Accounts and notes receivable, less allowance for doubtful
accounts of $3,796 and $1,549 in 2000 and 1999 (Note 7) 32,155 33,021
Accounts and notes receivable from related parties (Notes 7 and 11) 10,454 7,095
Deferred charges and other assets (Note 8) 63,372 49,496
-------------- -------------
$ 1,907,563 $ 1,596,911
============== =============
Liabilities:
Mortgage notes payable (Note 9) $ 1,171,909 $ 866,742
Unsecured notes payable (Note 9) 2,064 19,819
Accounts payable and accrued liabilities 131,161 118,230
Dividends payable 12,784 13,054
-------------- -------------
$ 1,317,918 $ 1,017,845
Commitments and Contingencies (Notes 9 and 14)
Preferred Equity of TRG (Note 13) $ 97,275 $ 97,275
Partners' Equity of TRG allocable to minority partners (Note 1)
Shareowners' Equity (Note 13):
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, 2000 and 1999 $ 80 $ 80
Series B Non-Participating Convertible Preferred Stock, $0.001 par
and liquidation value, 40,000,000 shares authorized,
31,835,066 shares issued and outstanding at December 31, 2000
and 1999 32 32
Series C Cumulative Redeemable Preferred Stock, $0.01 par
value, 2,000,000 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,
50,984,397 and 53,281,643 issued and outstanding at
December 31, 2000 and 1999 510 533
Additional paid-in capital 676,544 701,045
Dividends in excess of net income (184,796) (219,899)
-------------- -------------
$ 492,370 $ 481,791
-------------- -------------
$ 1,907,563 $ 1,596,911
============== =============
See notes to financial statements.
F-3
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share data)
Year Ended December 31
--------------------------------------------------
2000 1999 1998
---- ---- ----
Income:
Minimum rents $ 154,497 $ 141,885 $ 107,657
Percentage rents 6,356 4,881 5,881
Expense recoveries 92,203 81,453 60,650
Revenues from management, leasing, and
development services 24,964 23,909 12,282
Other 27,580 16,564 17,769
Gain on disposition of interest in center (Note 2) 85,339
Revenues - transferred centers (Note 3) 129,714
------------ ------------ ------------
$ 390,939 $ 268,692 $ 333,953
------------ ------------ ------------
Operating Expenses:
Recoverable expenses $ 81,276 $ 73,711 $ 55,351
Other operating 32,687 36,685 33,842
Management, leasing, and development services 19,543 17,215 8,025
General and administrative 18,977 18,129 24,616
Restructuring (Note 3) 10,698
Expenses other than interest, depreciation and
amortization - transferred centers (Note 3) 44,260
Interest expense 57,329 51,327 75,809
Depreciation and amortization (including $22.8
million in 1998 relating to the transferred centers) 57,780 52,475 57,376
------------ ------------ ------------
$ 267,592 $ 249,542 $ 309,977
------------ ------------ ------------
Income before equity in income before extraordinary
items of Unconsolidated Joint Ventures, extraordinary
items, and minority and preferred interests $ 123,347 $ 19,150 $ 23,976
Equity in income before extraordinary items of
Unconsolidated Joint Ventures (Note 5) 28,479 39,295 46,427
------------ ------------ ------------
Income before extraordinary items, minority and
preferred interests $ 151,826 $ 58,445 $ 70,403
Extraordinary items (Notes 3, 5, and 9) (9,506) (468) (50,774)
Minority interest:
TRG income allocable to minority partners (58,488) (17,600) (4,230)
Distributions less than (in excess of) earnings
allocable to minority partners 28,188 (12,431) (1,779)
TRG Series C and D preferred distributions (Note 13) (9,000) (2,444)
------------ ------------ ------------
Net income $ 103,020 $ 25,502 $ 13,620
Series A preferred dividends (Note 13) (16,600) (16,600) (16,600)
------------ ------------ ------------
Net income (loss) available to common shareowners $ 86,420 $ 8,902 $ (2,980)
============ ============ ============
Basic earnings per common share (Note 15):
Income before extraordinary items $ 1.76 $ .17 $ .33
============ ============ ============
Net income (loss) $ 1.65 $ .17 $ (.06)
============ ============ ============
Diluted earnings per common share (Note 15):
Income before extraordinary items $ 1.75 $ .17 $ .32
============ ============ ============
Net income (loss) $ 1.64 $ .16 $ (.06)
============ ============ ============
Cash dividends declared per common share $ .985 $ .965 $ .945
============ ============ ============
Weighted average number of common shares
outstanding 52,463,598 53,192,364 52,223,399
============ ============ ============
See notes to financial statements.
F-4
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(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, 1998 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 13) 31,399,913 28 28
Issuance of stock pursuant
to Continuing Offer (Note 14) 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 8) 435,153 4 4
Issuance of stock pursuant to
Continuing Offer (Note 14) 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
Issuance of stock pursuant to
Continuing Offer (Note 14) 12,854 127 127
Release of units in connection
with Lord Associates
acquisition (Note 8) 1,130 1,130
Purchases of stock (Note 13) (2,310,100) (23) (25,758) (25,781)
Cash dividends declared (67,917) (67,917)
Net income 103,020 103,020
---------- --------- ---------- ------- ------------ ----------- ----------
Balance, December 31, 2000 39,835,066 $ 112 50,984,397 $ 510 $ 676,544 $ (184,796) $ 492,370
========== ========= ========== ======= ============ =========== ==========
See notes to financial statements.
F-5
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31
--------------------------------------------------
2000 1999 1998
---- ---- ----
Cash Flows From Operating Activities:
Income before extraordinary items, minority and preferred
interests $ 151,826 $ 58,445 $ 70,403
Adjustments to reconcile income before extraordinary
items, minority and preferred interests to net cash
provided by operating activities:
Depreciation and amortization 57,780 52,475 57,376
Provision for losses on accounts receivable 3,558 2,238 1,207
Other 3,587 4,811 5,582
Gains on sales of land (9,444) (1,667) (5,637)
Gain on disposition of interest in center (85,339)
Increase (decrease) in cash attributable to changes
in assets and liabilities:
Receivables, deferred charges and other assets (10,790) (17,183) (14,632)
Accounts payable and other liabilities 7,115 8,440 31,121
------------ ------------ -------------
Net Cash Provided by Operating Activities $ 118,293 $ 107,559 $ 145,420
------------ ------------ --------------
Cash Flows From Investing Activities:
Additions to properties $ (187,454) $ (208,142) $ (294,336)
Proceeds from sales of land 8,239 1,834 6,750
Acquisition of additional interest in center (Note 2) (23,644)
Purchase of equity securities (Note 8) (3,000) (18,462)
Contributions to Unconsolidated Joint Ventures (18,830) (36,799) (33,322)
Distributions from Unconsolidated Joint Ventures in
excess of income before extraordinary items 5,006 64,215 50,970
------------ ------------ -------------
Net Cash Used In Investing Activities $ (219,683) $ (197,354) $ (269,938)
------------ ------------ -------------
Cash Flows From Financing Activities:
Debt proceeds $ 358,153 $ 625,797 $ 1,695,235
Debt payments (120,756) (514,534) (175,599)
Early extinguishment of debt (1,169,769)
Debt issuance costs (6,202) (10,335) (4,458)
Repurchase of common stock (Note 13) (24,160)
Issuance of common stock 127 3,087 29,037
Issuance of TRG Preferred Equity (Note 13) 97,275
Distributions to minority and preferred interests (39,300) (32,474) (65,914)
Cash dividends to common shareowners (51,587) (51,040) (48,735)
Cash dividends to Series A preferred shareowners (16,600) (16,600) (16,600)
Redemption of partnership units (77,698)
GMPT Exchange (9,869) (32,651)
Other (1,500)
------------ ------------- -------------
Net Cash Provided By Financing Activities $ 99,675 $ 91,307 $ 131,348
------------ ------------ -------------
Net Increase (Decrease) In Cash $ (1,715) $ 1,512 $ 6,830
Cash and Cash Equivalents at Beginning of Year 20,557 19,045 8,965
Effect of consolidating TRG in connection with the GMPT
Exchange (TRG's cash balance at beginning of year)
(Note 3) 3,250
------------ ------------ -------------
Cash and Cash Equivalents at End of Year $ 18,842 $ 20,557 $ 19,045
============ ============ =============
See notes to financial statements.
F-6
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2000
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, 2000
included 16 urban and suburban shopping centers in seven states. Four additional
centers are under construction in Florida and Texas; another opened in Miami,
Florida in March 2001.
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 3).
The consolidated financial statements of the Company include all accounts
of the Company, the Operating Partnership and its consolidated subsidiaries; all
intercompany balances have been eliminated. Shopping centers owned through joint
ventures with third parties not unilaterally controlled by ownership or
contractual obligation (Unconsolidated Joint Ventures) are accounted for 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.
Income Taxes
Federal income taxes are not provided by the Company because it 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 90% 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 2000 were $0.985, of which $0.4402
represented return of capital, $0.4799 represented ordinary income, and $0.0649
represented capital gains. 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. The tax status of the Company's common dividends in 2000, 1999 and 1998
may not be indicative of future periods. Dividends per Series A preferred share
declared in both 2000 and 1999 were $2.075, of which $1.9382 represented
ordinary income and $0.1368 represented capital gains in 2000, while the entire
dividend represented ordinary income in 1999. The difference between net income
for financial reporting purposes and taxable income results primarily from
differences in depreciation expense and the 2000 gain on the disposition of a
center (Note 2).
F-7
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. 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.
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, 2000 and December 31, 1999. Also, for
periods subsequent to the GMPT Exchange, the income allocated to the
noncontrolling unitholders in the Company's financial statements 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. Distributions were less than net income
during 2000 due to a gain on the disposition of an interest in a center (Note
2).
F-8
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 mortgage notes and other notes payable is estimated
based on quoted market prices if available, or the amount the Company
would pay to terminate the debt, with prepayment penalties, if any, on
the reporting 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 2000
classifications.
Note 2 - Twelve Oaks and Lakeside Transaction
In August 2000, the Company completed a transaction to acquire an
additional ownership in one of its Unconsolidated Joint Ventures. Under the
terms of the agreement, the Operating Partnership became the 100% owner of
Twelve Oaks and its joint venture partner became the 100% owner of Lakeside
subject to the existing mortgage debt ($50 million and $88 million at Twelve
Oaks and Lakeside, respectively.) The transaction resulted in a net payment to
the joint venture partner of approximately $25.5 million in cash. The
acquisition of the additional interest in Twelve Oaks was accounted for as a
purchase. The excess of the fair value over the net book basis of the interest
acquired in Twelve Oaks has been allocated to properties. The Operating
Partnership continues to manage Twelve Oaks, while the joint venture partner
assumed management responsibility for Lakeside. A gain of $85.3 million on the
transaction was recognized by the Company, representing the excess of the fair
value over the net book basis of the Company's interest in Lakeside, adjusted
for the $25.5 million paid and transaction costs.
F-9
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 3 - 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 12).
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.
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.
Note 4 - 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
---------------- -------------- ----------- ---------------
2000 82,819,463 50,984,397 62% 63%
1999 85,116,709 53,281,643 63% 63%
1998 84,395,817 52,995,904 63% 43%
Net income and distributions of the Operating Partnership are allocable
first to the preferred equity interests (Note 13), and the remaining amounts to
the general and limited Operating Partnership partners in accordance with their
percentage ownership. The number of TRG units outstanding decreased in 2000 due
to redemptions made in connection with the Company's ongoing share repurchase
program (Note 13). Included in the total units outstanding at December 31, 2000
and 1999 are 348,118 units and 435,148 units, respectively, issued in connection
with the 1999 acquisition of Lord Associates that do not receive allocations of
income or distributions.
F-10
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5 - Investments in Unconsolidated Joint Ventures
Following are the Company's investments in Unconsolidated Joint Ventures
that own regional retail shopping centers. The Operating Partnership is the
managing general partner in these Unconsolidated Joint Ventures, except for
those denoted with an (*).
Ownership as of
Unconsolidated Joint Venture Shopping Center December 31, 2000
------------------------------ ---------------- -------------------
Arizona Mills, L.L.C. * Arizona Mills 37%
Dolphin Mall Associates Dolphin Mall 50
Limited Partnership
Fairfax Company of Virginia, L.L.C. Fair Oaks 50
Forbes Taubman Orlando, L.L.C. * The Mall at Millenia 50
(under construction)
Rich-Taubman Associates Stamford Town Center 50
Tampa Westshore Associates International Plaza 26
Limited Partnership (under construction)
Taubman-Cherry Creek
Limited Partnership Cherry Creek 50
West Farms Associates Westfarms 79
Woodland Woodland 50
In April 2000, the Company entered into an agreement to develop The Mall at
Millenia in Orlando, Florida. This 1.2 million square foot center is expected to
open in October 2002.
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%.
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 in Miami, Florida, which opened in March 2001.
During 2000, 1999, and 1998, the Unconsolidated Joint Ventures incurred
extraordinary charges related to the extinguishment of debt, primarily
consisting of prepayment premiums and the writeoff of deferred financing costs.
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 Lakeside
and Twelve Oaks, formerly 50% Unconsolidated Joint Ventures, are included in
these results through the date of the transaction (Note 2). Also, the accounts
of Woodfield Associates, formerly a 50% Unconsolidated Joint Venture transferred
to GMPT (Note 3) are included in these results through September 30, 1998, the
date of the GMPT Exchange.
F-11
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31 December 31
----------- -----------
2000 1999
---- ----
Assets:
Properties $ 1,073,818 $ 942,248
Accumulated depreciation and amortization (189,644) (217,402)
------------- -------------
$ 884,174 $ 724,846
Other assets 60,807 91,820
------------- -------------
$ 944,981 $ 816,666
============= =============
Liabilities and partners' accumulated deficiency in assets:
Debt $ 950,847 $ 895,163
Capital lease obligations 630 3,664
Other liabilities 48,439 53,825
TRG's accumulated deficiency in assets (36,570) (74,749)
Unconsolidated Joint Venture Partners'
accumulated deficiency in assets (18,365) (61,237)
------------- -------------
$ 944,981 $ 816,666
============= =============
TRG's accumulated deficiency in assets (above) $ (36,570) $ (74,749)
TRG basis adjustments, including
elimination of intercompany profit 17,266 2,205
TCO's additional basis 128,322 197,789
------------- -------------
Investment in Unconsolidated Joint Ventures $ 109,018 $ 125,245
============= =============
Year Ended December 31
-------------------------------------------------------
2000 1999 1998
---- ---- ----
Revenues $ 230,679 $ 252,009 $ 286,287
-------------- ------------- -------------
Recoverable and other operating expenses $ 81,530 $ 87,755 $ 101,277
Interest expense 65,266 64,152 69,389
Depreciation and amortization 30,263 29,983 32,466
-------------- ------------- -------------
Total operating costs $ 177,059 $ 181,890 $ 203,132
-------------- ------------- -------------
Income before extraordinary items $ 53,620 $ 70,119 $ 83,155
Extraordinary items (19,169) (333) (1,913)
-------------- ------------- -------------
Net income $ 34,451 $ 69,786 $ 81,242
============== ============= =============
Net income allocable to TRG $ 18,099 $ 38,346 $ 42,322
Extraordinary items allocable to TRG 9,506 167 957
Realized intercompany profit 4,680 5,434 7,205
Depreciation of TCO's additional basis (3,806) (4,652) (4,057)
-------------- ------------- -------------
Equity in income before extraordinary items
of Unconsolidated Joint Ventures $ 28,479 $ 39,295 $ 46,427
============== ============= =============
Beneficial interest in Unconsolidated
Joint Ventures' operations:
Revenues less recoverable and other
operating expenses $ 82,858 $ 94,136 $ 104,257
Interest expense (34,933) (34,470) (37,118)
Depreciation and amortization (19,446) (20,371) (20,712)
-------------- ------------- -------------
Income before extraordinary items $ 28,479 $ 39,295 $ 46,427
============== ============= =============
F-12
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6 - Properties
Properties at December 31, 2000 and December 31, 1999 are summarized as
follows:
2000 1999
---- ----
Land $ 129,198 $ 106,268
Buildings, improvements and equipment 1,526,672 1,308,365
Construction in process 275,125 127,168
Development pre-construction costs 28,133 30,484
------------- -------------
$ 1,959,128 $ 1,572,285
Accumulated depreciation and amortization (285,406) (210,788)
------------- -------------
$ 1,673,722 $ 1,361,497
============= =============
Depreciation expense for 2000, 1999, and 1998 was $52.5 million, $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 2000,
1999, and 1998 for costs of unsuccessful and potentially unsuccessful
pre-development activities was $7.5 million, $10.1 million, and $7.3 million,
respectively.
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 7 - Accounts and Notes Receivable
Accounts and notes receivable are summarized as follows:
2000 1999
---- ----
Accounts and notes receivable:
Trade $ 17,284 $ 18,643
Notes 17,145 14,707
Other 1,522 1,220
------------- -------------
$ 35,951 $ 34,570
Less: allowance for doubtful accounts (3,796) (1,549)
-------------- --------------
$ 32,155 $ 33,021
============= =============
Accounts and notes receivable from related parties:
Trade $ 6,578 $ 7,095
Notes 3,778
Other 98
------------- -------------
$ 10,454 $ 7,095
============= =============
Notes receivable as of December 31, 2000 provide interest at a range of
interest rates from 7% to 16% (with a weighted average interest rate of 9.8% at
December 31, 2000) and mature at various dates. As of December 31, 2000, $3.8
million of notes receivable relating to certain land sales with original
maturities of September 2000 were delinquent. The purchasers are currently
negotiating with third parties to sell their interest in the properties. The
Operating Partnership expects to fully recover the amounts due under the land
contracts. The delinquent notes bear interest at an annual rate of 9% and are
secured by the related land parcels.
F-13
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8 - Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 2000 and December 31,
1999 are summarized as follows:
2000 1999
---- ----
Leasing $ 31,751 $ 25,223
Accumulated amortization (18,601) (14,050)
------------- --------------
$ 13,150 $ 11,173
Interest rate agreements (Note 16) 7,249 632
Deferred financing costs, net 10,492 9,429
Investments 25,106 22,878
Other, net 7,375 5,384
------------- -------------
$ 63,372 $ 49,496
============= =============
In May 2000, the Company entered into an agreement to acquire an
approximately 6.7% interest in MerchantWired, LLC, a service company providing
internet and network infrastructure to shopping centers and retailers. As of
December 31, 2000, the Company had invested approximately $3 million in the new
venture. The investment in MerchantWired is accounted for under the equity
method.
In November 1999, the Operating Partnership acquired Lord Associates, a
retail leasing firm, 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 are
being released over a five-year period, with $1.1 million of units having been
released in 2000. The owner of the partnership units is not entitled to
distributions or income allocations, and an affiliate of the Operating
Partnership has 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.
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.
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 preferred shares of
Fashionmall.com, Inc., a 9.9% interest in the company, for $7.4 million. The
Company's option to convert the preferred shares to an equal number of common
shares expires in May 2001. The investment in Fashionmall.com, Inc. is accounted
for under the cost method.
F-14
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 9 - Debt
Mortgage Notes Payable
Mortgage notes payable at December 31, 2000 and December 31, 1999 consist
of the following:
Balance Due
2000 1999 Interest Rate Maturity Date on Maturity
---- ---- ------------- ------------- -----------
Beverly Center $ 146,000 $ 146,000 8.36% 07/15/04 $ 146,000
Biltmore Fashion Park 79,730 80,000 7.68% 07/10/09 71,391
Great Lakes Crossing 170,000 170,000 LIBOR + 1.50% 04/01/02 167,441
MacArthur Center 144,884 7.59% 10/01/10 126,884
MacArthur Center 115,212 LIBOR + 1.35% 10/27/00
The Mall at Short Hills 270,000 270,000 6.70% 04/01/09 245,301
The Shops at Willow Bend 99,672 LIBOR + 1.85% 07/01/03 99,672
Twelve Oaks 49,987 LIBOR + 0.45% 10/15/01 50,000
Line of Credit 63,000 63,000 LIBOR + 0.90% 09/21/01 63,000
Line of Credit 26,325 Variable Bank Rate 08/31/01 26,325
Other 122,311 22,530 Various Various 120,000
------------- -----------
$ 1,171,909 $ 866,742
============= ===========
Mortgage debt is collateralized by properties with a net book value of $1.5
billion and $1.2 billion as of December 31, 2000 and December 31, 1999,
respectively.
The $220 million construction facility for The Shops at Willow Bend has two
one-year extension options. The Great Lakes Crossing loan agreement provides for
an option to extend the maturity date one year. The maximum borrowings available
under the two lines of credit are $200 million and $40 million, respectively.
The other mortgage notes payable balance at December 31, 2000 includes a $100
million note payable, which is due in October 2001 and which bears interest at
LIBOR plus 1.10%. The remaining balance includes notes which 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, 2000.
2001 $ 243,517
2002 172,483
2003 105,371
2004 152,058
2005 6,553
Thereafter 491,927
F-15
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Unsecured Notes Payable
Unsecured notes payable at December 31, 2000 and December 31, 1999 consist
of the following:
2000 1999
---- ----
Line of credit, maximum borrowing available of
$40 million, interest based on a variable bank
borrowing rate, securitized January, 2000 $ 17,624
Other $ 2,064 2,195
----------- -----------
$ 2,064 $ 19,819
=========== ===========
Debt Covenants and Guarantees
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.
Payments of principal and interest on the loans in the following table
(including those of certain Unconsolidated Joint Ventures) are guaranteed by the
Operating Partnership as of December 31, 2000. All of the loan agreements
provide for a reduction of the amounts guaranteed as certain center performance
and valuation criteria are met.
TRG's Amount of
beneficial loan balance % of loan
interest in guaranteed balance % of interest
Loan balance loan balance by TRG guaranteed guaranteed
Center as of 12/31/00 as of 12/31/00 as of 12/31/00 by TRG by TRG
- ------ -------------- -------------- -------------- ------ ------
(in millions of dollars)
Dolphin Mall 116.9 58.5 58.5 50% 100%
Great Lakes Crossing 170.0 144.5 170.0 100% 100%
International Plaza 67.5 17.9 67.5 100% (1) 100%(1)
The Mall at Millenia 0 0 0 50% 50%
The Shops at Willow Bend 99.7 99.7 99.7 100% 100%
(1) The new investor in the International Plaza venture has indemnified the
Operating Partnership to the extent of approximately 25% of the amounts
guaranteed.
In addition, the Operating Partnership guarantees the $100 million facility
secured by an interest in Twelve Oaks that was obtained in August 2000.
F-16
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Extraordinary Items
During the years ended December 31, 2000 and 1999, extraordinary charges to
income of $9.5 million and $0.5 million, respectively, were recognized in
connection with the extinguishment of debt at consolidated entities and the
Unconsolidated Joint Ventures. 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, 2000, the following interest rate cap agreements were
outstanding:
Frequency
Notional LIBOR of Rate
Amount Cap Rate Resets Term
-------- -------- --------- -------------------------------------
$100,000 7.25% Monthly December 2000 through March 2002
170,000 7.25% Monthly September 2000 through March 2002
50,000 8.55% Monthly December 1996 through October 2001
70,000 7.00% Monthly October 2000 through September 2003
77,000(1) 7.15% Monthly June 2000 through May 2003
(1) The notional amount on the cap, which hedges a construction facility,
accretes $7 million a month until it reaches $147 million.
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, 2000 and
December 31, 1999 are as follows (Note 16):
2000 1999
---------------------------------- -------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------------- ------------- ----------- -----------
Mortgage notes payable $ 1,171,909 $ 1,253,421 $ 866,742 $ 885,741
Unsecured notes payable 2,064 2,064 19,819 19,819
Interest rate instruments -
in a receivable position 7,249 505 632 410
F-17
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 related to the 15% minority interest in Great Lakes Crossing and
the 30% minority interest in MacArthur Center.
Unconsolidated Share
Joint of Unconsolidated Consolidated Beneficial
Ventures Joint Ventures Subsidiaries Interest
------------ ------------------ ---------------- ------------
Debt as of:
December 31, 2000 $ 950,847 $ 483,683 $ 1,173,973 $ 1,588,691
December 31, 1999 895,163 473,726 886,561 1,300,224
Capital lease obligations:
December 31, 2000 $ 630 $ 416 $ 1,581 $ 1,938
December 31, 1999 3,664 2,018 469 2,418
Capitalized interest:
Year ended December 31, 2000 $ 13,263 $ 5,678 $ 25,052 $ 30,730
Year ended December 31, 1999 2,528 1,085 14,489 15,188
Interest expense:
(Net of capitalized interest)
Year ended December 31, 2000 $ 65,266 $ 34,933 $ 57,329 $ 87,099
Year ended December 31, 1999 64,152 34,470 51,327 82,062
Note 10 - 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, 2000 for operating
centers, assuming no new or renegotiated leases or option extensions on anchor
agreements, is summarized as follows:
2001 $ 163,326
2002 161,321
2003 151,884
2004 135,391
2005 116,739
Thereafter 460,378
F-18
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 $7.5 million in
2000 and $7.0 million in both 1999 and 1998. Included in these amounts are
related party office rental payments of $2.7 million in each year.
The following is a schedule of future minimum rental payments required
under operating leases:
2001 $ 7,045
2002 6,891
2003 6,870
2004 6,868
2005 4,917
Thereafter 167,467
The table above includes $2.7 million, $2.8 million, $2.8 million, $2.8
million, and $0.9 million of related party amounts in 2001, 2002, 2003, 2004,
and 2005.
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 April 2000, the Operating Partnership
terminated the lease.
Note 11 - Transactions with Affiliates
The revenue from management, leasing and development services includes $4.2
million, $2.5 million, and $3.2 million from transactions with affiliates for
the years ended December 31, 2000, 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 was
exploring the possibility of developing a shopping center. The option agreement
required option payments of $150 thousand during each of the first five years,
$400 thousand in the sixth year, and $500 thousand in the seventh year. Through
December 31, 2000, the Operating Partnership had made payments of $450 thousand.
In 2000, the Operating Partnership decided not to go forward with the project
and reached an agreement with the optionor to be reimbursed, at the time of the
sale or lease of the real estate, for an amount equal to the lesser of 50% of
the project costs to date or $350 thousand. Under the agreement, the Operating
Partnership's obligation to make further option payments was suspended. The
Operating Partnership expects to receive $350 thousand in total reimbursements
and after receipt of such amount, the option will be terminated.
Other related party transactions are described in Notes 7, 10, and 12.
Note 12 - 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 cancelable
with 90 days notice, and services to other third parties.
F-19
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 $1.9 million in 2000, $1.6 million in 1999, and
$1.7 million in 1998.
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, substantially all of which have been issued. 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 14).
A summary of the status of the plan for each of the three years in the
period ended December 31, 2000 is presented below:
2000 1999 1998
----------------------------- ----------------------------- ---------------------------
Weighted-Average Weighted-Average Weighted-Average
Exercise Price Exercise Price Exercise Price
Options Units Per Unit Units Per Unit Units Per Unit
- ------- ----- -------- ----- -------- ----- --------
Outstanding at
beginning of year 7,423,809 $11.36 6,805,018 $11.22 7,023,605 $11.22
Exercised (12,854) 9.91 (285,739) 10.79 (214,636) 11.07
Granted 250,000 11.25 1,000,000 12.25
Cancelled (66,497) 12.45 (93,494) 12.90 (3,951) 10.52
Forfeited (1,976) 9.69
-------- --------- --------
Outstanding at
end of year 7,594,458 11.35 7,423,809 11.36 6,805,018 11.22
========= ========= =========
Options vested
at year end 6,777,239 11.26 6,601,090 11.32 6,022,730 11.28
========= ========= =========
Options outstanding at December 31, 2000 have a remaining weighted-average
contractual life of 3.4 years and range in exercise price from $9.39 to $13.89.
The weighted average fair value per unit of options granted during 2000 and 1999
was $1.40 and $1.24, respectively. The Company used a binomial option pricing
model to determine the grant date fair values based on the following assumptions
for 2000 and 1999, respectively: volatility rates of 21.0% and 20.4%, risk-free
rates of return of approximately 6.4% and 5.3%, and dividend yields of
approximately 8.6% and 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 $0.2
million, or less than $0.01 per share in 2000, approximately $0.7 million, or
$0.01 per share, in 1999 and approximately $0.1 million, or less than $0.01 per
share in 1998.
F-20
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 13 - Common and Preferred Stock and Equity of TRG
The 8.3% Series A Cumulative Redeemable Preferred Stock (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% 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. The
Company owns a corresponding 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.
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 $37.50 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 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. For each share
of the Company's stock repurchased, an equal number of the Company's Operating
Partnership units are redeemed. As of December 31, 2000, the Company had
purchased and the Operating Partnership had redeemed 2.3 million shares and
units for approximately $25.8 million. Existing lines of credit provided funding
for the purchases. Approximately $1.6 million was accrued at December 31, 2000
for the repurchase of 150 thousand shares that settled in January 2001.
F-21
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 14 - 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 certain
others may participate in tenders.
Based on a market value at December 31, 2000 of $10.94 per common share,
the aggregate value of interests in the Operating Partnership that may be
tendered under the Cash Tender Agreement was approximately $264 million. The
purchase of these interests at December 31, 2000 would have resulted in the
Company owning an additional 29% 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 12) 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-22
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15 - 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, 2000, 1999 and 1998,
options for 4.5 million, 0.7 million and 0.3 million units of partnership
interest with average exercise prices of $11.99, $13.38 and $13.81,
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
----------------------------------------------------------
2000 1999 1998
----------------------------------------------------------
(in thousands, except share data)
Income before extraordinary items allocable to
common shareowners (Numerator):
Net income (loss) available to common
shareowners $ 86,420 $ 8,902 $ (2,980)
Common shareowners' share of extraordinary
items 5,958 294 20,066
---------- ---------- ----------
Basic income before extraordinary items $ 92,378 $ 9,196 $ 17,086
Effect of dilutive options (490) (270) (256)
---------- ---------- ----------
Diluted income before extraordinary items $ 91,888 $ 8,926 $ 16,830
========== ========== ==========
Shares (Denominator) - basic and diluted 52,463,598 53,192,364 52,223,399
========== ========== ==========
Income before extraordinary items per common share:
Basic $ 1.76 $ 0.17 $ 0.33
========== ========== ==========
Diluted $ 1.75 $ 0.17 $ 0.32
========== ========== ==========
Extraordinary items per common share - basic
and diluted $ (0.11) $ (0.01) $ (0.38)
========= ========== ==========
Note 16 - 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. SFAS 133, as
amended and interpreted, is effective for fiscal years beginning after June 15,
2000. The Company's derivatives consist primarily of interest rate cap
agreements which the Company purchases to reduce its exposure to increases in
rates on its floating rate debt. The Company expects that the primary impact of
its adoption of SFAS 133 will be the timing of the recognition in income of the
costs of these agreements. This may cause earnings volatility as the value of
these agreements may change from period to period. In addition, the swap
agreement on the Dolphin Mall construction loan does not qualify for hedge
accounting under SFAS 133. As a result, the Company will recognize its share of
losses and income related to this agreement in earnings as the value of the
agreement changes.
The Company will recognize a loss of approximately $8.8 million as a
transition adjustment to mark its share of interest rate agreements to fair
value as of January 1, 2001, the Company's transition date. Of this amount, a
$0.8 million loss will be charged to other comprehensive income with the
remainder representing the cumulative effect of a change in accounting
principle.
F-23
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 17 - Cash Flow Disclosures and Non-Cash Investing and Financing Activities
Interest paid in 2000, 1999, and 1998, net of amounts capitalized of $25.1
million, $14.5 million, and $18.2 million, respectively, approximated $50.4
million, $45.8 million, and $76.1 million, respectively. The following non-cash
investing and financing activities occurred during 2000, 1999, and 1998:
2000 1999 1998
---- ---- ----
Non-cash additions to properties $13,568 $13,550 $54,900
Non-cash contributions to Unconsolidated Joint Ventures 2,762 58,720
Step-up in Company's basis in Twelve Oaks (Note 2) 121,654
Land contracts 7,341 843
Partnership units released (Note 8) 1,130
Debt assumed with Twelve Oaks transaction 50,015
Non-cash additions to properties represent accrued construction costs of
new centers and development projects. Non-cash contributions to Unconsolidated
Joint Ventures primarily consist of project costs expended prior to the creation
of the joint ventures. Land contracts were entered into in connection with sales
of peripheral land. The partnership units were released in connection with the
1999 acquisition of Lord Associates. Refer to Note 3 regarding non-cash
activities which occurred in connection with the GMPT Exchange in 1998.
Note 18 - Quarterly Financial Data (Unaudited)
The following is a summary of quarterly results of operations for 2000 and
1999:
2000
------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------------------------------------
(in thousands, except share data)
Revenues $ 72,773 $ 70,398 $ 160,128 $ 87,640
Equity in income of Unconsolidated Joint Ventures 8,595 7,728 5,089 7,067
Income before extraordinary items, minority and preferred
interests 16,827 14,529 99,593 20,877
Net income (loss) (2,239) 4,750 89,815 10,694
Net income (loss) available to common shareowners (6,389) 600 85,665 6,544
Basic earnings per common share:
Income (loss) before extraordinary items $ (0.01) $ 0.01 $ 1.63 $ 0.13
Net income (loss) (0.12) 0.01 1.63 0.13
Diluted earnings per common share:
Income (loss) before extraordinary items $ (0.01) $ 0.01 $ 1.62 $ 0.13
Net income (loss) (0.12) 0.01 1.62 0.13
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
F-24
Schedule II
TAUBMAN CENTERS, INC.
Valuation and Qualifying Accounts
For the years ended December 31, 2000, 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, 2000:
Allowance for doubtful receivables $1,549 3,558 (1,704) 393(1) $3,796
====== ===== ====== === ======
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(2) $333
====== ====== === ====
(1) Represents the transfer in of Twelve Oaks. Prior to August 2000, the
Company accounted for its interest in Twelve Oaks under the equity method.
(2) 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. Prior to September 30, 1998, the Company accounted for its investment
in TRG under the equity method.
F-25
Schedule III
TAUBMAN CENTERS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
(in thousands)
Initial Cost Gross Amount at Which
to Company Carried at Close of Period
----------------- Cost --------------------------
Buildings Capitalized Accumulated Total
and Subsequent Depreciation Cost Net
Land Improvements to Acquisition Land BI&E Total (A/D) of A/D Encumbrances
---- ------------ -------------- ---- ---- ----- --------- ------- ------------
Shopping Centers:
Beverly Center,
Los Angeles, CA $ 0 $ 209,348 $ 40,228 $ 0 $ 249,576 $ 249,576 $ 69,106 $ 180,470 $146,000
Biltmore Fashion Park
Phoenix, AZ 19,097 103,257 16,910 19,097 120,167 139,264 21,331 117,933 79,730
Fairlane Town Center,
Dearborn, MI 16,830 104,812 18,990 16,830 123,802 140,632 21,353 119,279 Note(1)
Great Lakes Crossing,
Auburn Hills, MI 12,349 196,398 8,183 12,349 204,581 216,930 22,574 194,356 170,000
La Cumbre Plaza,
Santa Barbara, CA 0 27,762 1,156 0 28,918 28,918 3,706 25,212 Note(1)
MacArthur Center,
Norfolk, VA 4,000 144,176 3,642 4,000 147,818 151,818 11,536 140,282 144,884
Paseo Nuevo,
Santa Barbara, CA 0 39,086 1,374 0 40,460 40,460 6,009 34,451 Note(1)
Regency Square,
Richmond, VA 18,635 103,062 376 18,635 103,438 122,073 13,209 108,864 Note(1)
The Mall at Short Hills,
Short Hills, NJ 25,114 171,151 116,249 25,114 287,400 312,514 63,777 248,737 270,000
Twelve Oaks,
Novi, MI 25,410 191,185 0 25,410 191,185 216,595 31,753 184,842 149,987
Other:
Manager's Office
Facilities 0 0 28,207 0 28,207 28,207 20,754 7,453 0
Peripheral Land 7,763 0 0 7,763 0 7,763 0 7,763 0
Construction in Process
and Development Pre-
construction Costs 73,644 227,456 2,158 73,644 229,614 303,258 0 303,258 99,672
Other 0 1,120 0 0 1,120 1,120 298 822 22,311
------- ---------- -------- -------- --------- ---------- -------- ----------
TOTAL $202,842 $1,518,813 $237,473 $202,842 $1,756,286 $1,959,128(2)$285,406 $1,673,722
======== ========== ======== ======== ========== ========== ======== ==========
Date of
Completion of
Construction or Depreciable
Acquisition Life
-------------- -----------
Shopping Centers:
Beverly Center,
Los Angeles, CA 1982 40 Years
Biltmore Fashion Park,
Phoenix, AZ 1994 40 Years
Fairlane Town Center,
Dearborn, MI 1996 40 Years
Great Lakes Crossing,
Auburn Hills, MI 1998 50 Years
La Cumbre Plaza,
Santa Barbara, CA 1996 40 Years
MacArthur Center,
Norfolk, VA 1999 50 Years
Paseo Nuevo,
Santa Barbara, CA 1996 40 Years
Regency Square,
Richmond, VA 1997 40 Years
The Mall at Short Hills,
Short Hills, NJ 1980 40 Years
Twelve Oaks,
Novi, MI 1977 50 Years
The changes in total real estate assets and accumulated depreciation for the
years ended December 31, 2000 and 1999 are as follows:
Total Total
Real Estate Real Estate Accumulated Accumulated
Assets Assets Depreciation Depreciation
------ ------ ------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
Balance, beginning of year $ 1,572,285 $1,473,440 Balance, beginning of year $ (210,788) $ (164,798)
New development and improvements 184,205 160,746 Depreciation for year (52,506) (47,965)
Disposals (13,403) (3,181) Disposals 7,421 1,975
Transfers In/(Out) 216,041(3) (58,720)(4) Transfers In (29,533)(3) 0
----------- ---------- ---------- ---------
Balance, end of year $ 1,959,128 $1,572,285 Balance, end of year $ (285,406) $ (210,788)
=========== ========== ========== ==========
(1) These centers are collateral for the Company's line of credit, which had a
balance of $63 million at December 31, 2000.
(2) The unaudited aggregate cost for federal income tax purposes as of December
31, 2000 was $1.679 billion.
(3) Includes costs transferred relating to Twelve Oaks, which became wholly
owned in 2000.
(4) Includes costs transferred relating to International Plaza and Dolphin
Mall, which became Unconsolidated Joint Ventures in 1999.
F-26
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP (a consolidated subsidiary of Taubman Centers, Inc.)
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND
FOR EACH OF THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
F-27
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, 2000 and 1999, 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, 2000. 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 auditing standards generally
accepted in the United States of America. 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, 2000
and 1999, and the combined results of their operations and their combined cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America. 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 13, 2001
F-28
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED BALANCE SHEET
(in thousands)
December 31
---------------------------------
2000 1999
---- ----
Assets:
Properties (Notes 2, 4 and 6) $ 1,073,818 $ 942,248
Accumulated depreciation and amortization (189,644) (217,402)
------------- -------------
$ 884,174 $ 724,846
Cash and cash equivalents 19,793 36,823
Accounts receivable, less allowance
for doubtful accounts of $1,628 and $1,588
in 2000 and 1999 6,096 9,916
Note receivable from Joint Venture Partner (Note 6) 221 607
Deferred charges and other assets (Notes 3 and 6) 34,697 44,474
------------- -------------
$ 944,981 $ 816,666
============= =============
Liabilities:
Mortgage notes payable (Note 4) $ 944,155 $ 894,505
Note payable to related party (Note 4) 3,778
Other notes payable (Note 4) 2,914 658
Capital lease obligations (Note 5) 630 3,664
Accounts payable to related parties (Note 6) 3,801 3,924
Accounts payable and other liabilities 44,638 49,901
------------- -------------
$ 999,916 $ 952,652
Commitments (Note 5)
Accumulated deficiency in assets:
TRG $ (36,570) $ (74,749)
Joint Venture Partners (18,365) (61,237)
------------- -------------
$ (54,935) $ (135,986)
------------- -------------
$ 944,981 $ 816,666
============= =============
See notes to financial statements.
F-29
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED STATEMENT OF OPERATIONS
(in thousands)
Year Ended December 31
--------------------------------------------
2000 1999 1998
---- ---- ----
Revenues:
Minimum rents $ 145,487 $ 158,126 $ 175,674
Percentage rents 3,772 3,921 4,171
Expense recoveries 75,691 83,557 97,994
Other 5,729 6,405 8,448
------------ ----------- -----------
$ 230,679 $ 252,009 $ 286,287
------------ ----------- -----------
Operating costs:
Recoverable expenses (Note 6) $ 63,587 $ 69,367 $ 82,595
Other operating (Note 6) 17,943 18,388 18,682
Interest expense 65,266 64,152 69,389
Depreciation and amortization 30,263 29,983 32,466
------------ ----------- -----------
$ 177,059 $ 181,890 $ 203,132
------------ ----------- -----------
Income before extraordinary items $ 53,620 $ 70,119 $ 83,155
Extraordinary items (Note 4) (19,169) (333) (1,913)
------------ ----------- -----------
Net income $ 34,451 $ 69,786 $ 81,242
============ =========== ===========
Allocation of net income:
Attributable to TRG $ 18,099 $ 38,346 $ 42,322
Attributable to Joint Venture Partners 16,352 31,440 38,920
------------ ----------- -----------
$ 34,451 $ 69,786 $ 81,242
============ =========== ===========
See notes to financial statements.
F-30
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, 1998 $ (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 2) 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)
Non-cash contributions (Note 2) 659 659 1,318
Cash contributions 18,830 18,830 37,660
Cash distributions (39,512) (33,072) (72,584)
Transferred centers (Note 1) 40,103 40,103 80,206
Net income 18,099 16,352 34,451
------------ ------------ -------------
Balance, December 31, 2000 $ (36,570) $ (18,365) $ (54,935)
============ ============ =============
See notes to financial statements.
F-31
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31
---------------------------------------
2000 1999 1998
---- ---- ----
Cash Flows From Operating Activities:
Income before extraordinary items $ 53,620 $ 70,119 $ 83,155
Adjustments to reconcile income before extraordinary items
to net cash provided by operating activities:
Depreciation and amortization 30,263 29,983 32,466
Provision for losses on accounts receivable 2,644 1,822 1,119
Gains on sales of land (501) (1,090)
Other 3,908
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Receivables, deferred
charges and other assets (530) (6,443) (7,333)
Accounts payable and other liabilities (2,376) (1,952) (22,042)
----------- ----------- -----------
Net Cash Provided By Operating Activities $ 83,120 $ 93,529 $ 90,183
----------- ----------- -----------
Cash Flows From Investing Activities:
Additions to properties $ (231,125) $ (79,298) $ (64,455)
Proceeds from sales of land 640 105 1,590
----------- ----------- -----------
Net Cash Used In Investing Activities $ (230,485) $ (79,193) $ (62,865)
----------- ----------- -----------
Cash Flows From Financing Activities:
Debt proceeds $ 390,721 $ 201,152 $ 164,710
Debt payments (1,976) (3,439) (4,489)
Extinguishment of debt (214,754) (141,459) (40,741)
Debt issuance costs (2,704) (8,007) (7,619)
Cash contributions from partners 37,660 71,546 38,222
Cash distributions to partners (72,584) (127,134) (174,197)
----------- ----------- -----------
Net Cash Provided By (Used In) Financing Activities $ 136,363 $ (7,341) $ (24,114)
----------- ----------- -----------
Net increase (decrease) in cash $ (11,002) $ 6,995 $ 3,204
Cash and Cash Equivalents at Beginning of Year 36,823 29,828 36,875
Effect of transferred centers in connection
with Twelve Oaks/Lakeside transaction (Note 1) (6,028)
Effect of transferred center in connection
with GMPT Exchange (Note 1) (10,251)
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 19,793 $ 36,823 $ 29,828
=========== =========== ===========
See notes to financial statements.
F-32
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 most 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,
2000, 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
Fairfax Company of Virginia L.L.C. Fair Oaks 50
Forbes Taubman Orlando, L.L.C. The Mall at Millenia 50
(under construction)
Rich-Taubman Associates Stamford Town Center 50
Tampa Westshore Associates International Plaza 26
Limited Partnership (under construction)
Taubman-Cherry Creek
Limited Partnership Cherry Creek 50
West Farms Associates Westfarms 79
Woodland Woodland 50
In April 2000, TRG entered into an agreement to develop The Mall at
Millenia in Orlando, Florida. This 1.2 million square foot center is expected to
open in October 2002.
In August 2000, TRG completed a transaction to acquire an additional
interest in one of its Unconsolidated Joint Ventures. Under the terms of the
agreement, TRG became the 100% owner of Twelve Oaks and its joint venture
partner became the 100% owner of Lakeside, subject to the existing mortgage debt
($50 million and $88 million at Twelve Oaks and Lakeside, respectively.) The
results of the transferred centers are included in these statements through the
date of the transaction. At the date of the transaction, the combined book
values of these centers' assets and liabilities were $66.6 million and $146.8
million, respectively.
F-33
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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, which opened in
March 2001.
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 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-34
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 the amount the Unconsolidated
Joint Ventures would pay to terminate the debt, with prepayment
penalties, if any, on the reporting 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.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
Reclassifications
Certain prior year amounts have been reclassified to conform to 2000
classifications.
Note 2 - Properties
Properties at December 31, 2000 and 1999, are summarized as follows:
2000 1999
---- ----
Land $ 41,230 $ 42,339
Buildings, improvements and equipment 663,864 725,182
Construction in process 368,724 174,727
------------ -----------
$ 1,073,818 $ 942,248
============ ===========
Depreciation expense for 2000, 1999 and 1998 was $26.2 million, $26.0
million and $26.7 million. Construction in process includes costs related to the
construction of Dolphin Mall, The Mall at Millenia, and International Plaza, as
well as expansions and other improvements at various centers. Assets under
capital lease of $0.6 million and $3.7 million at December 31, 2000 and 1999,
respectively, are included in the table above in buildings, improvements and
equipment.
During 2000 and 1999, non-cash investing activities included $1.3 million
and $83.4 million, respectively, contributed to the Unconsolidated Joint
Ventures developing International Plaza, Dolphin Mall, and The Mall at Millenia.
This amount primarily consists of the net book value of project costs expended
prior to the creation of the joint ventures. Additionally, during 2000 and 1999,
non-cash additions to properties of $15.5 million and $11.0 million,
respectively, were recorded, representing accrued construction costs of new
centers and expansions.
F-35
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Note 3 - Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 2000 and 1999 are
summarized as follows:
2000 1999
---- ----
Leasing $ 25,252 $ 35,579
Accumulated amortization (10,040) (14,466)
---------- ----------
$ 15,212 $ 21,113
Interest rate instruments 3,351 4,178
Deferred financing, net 14,161 17,651
Other, net 1,973 1,532
---------- ----------
$ 34,697 $ 44,474
========== ==========
Note 4 - Debt
Mortgage Notes Payable
Mortgage notes payable at December 31, 2000 and 1999 consists of the
following:
Balance Due
Center 2000 1999 Interest Rate Maturity Date on Maturity
- ------ ---- ---- ------------- ------------- -----------
Arizona Mills $ 145,762 7.90% 10/05/10 $ 130,419
Arizona Mills $ 142,214 LIBOR + 1.30% 02/01/02
Cherry Creek 177,000 177,000 7.68% 08/11/06 171,933
Dolphin Mall 116,900 22,267 LIBOR + 2.00% 10/06/02 116,900
Fair Oaks 140,000 140,000 6.60% 04/01/08 140,000
International Plaza 67,493 LIBOR + 1.90% 11/10/02 67,493
Lakeside 88,000 6.47% 12/15/00
Stamford Town Center 54,053 11.69% 12/01/17
Stamford Town Center 76,000 LIBOR + 0.8% 08/10/02 76,000
Twelve Oaks 49,971 LIBOR + 0.45% 10/15/01
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
----------- -----------
$ 944,155 $ 894,505
=========== ===========
Mortgage debt is collateralized by substantially all of the net book value
of properties as of December 31, 2000 and 1999.
F-36
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
In November 2000, the 50% owned Unconsolidated Joint Venture that is
developing The Mall at Millenia closed on a $160.4 million construction
facility. The rate on the facility is LIBOR plus 1.95% and the facility matures
in November 2003, with two one-year extension options. TRG has guaranteed the
payment of 50% of the principal and interest. The rate and the amount guaranteed
may be reduced once certain performance and valuation criteria are met. There
was no outstanding balance at December 31, 2000.
In November 1999, the Unconsolidated Joint Venture that is developing
International Plaza closed on a $193.5 million, three-year construction
financing, with a one-year extension option. 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 maximum availability on the Dolphin Mall construction facility is $200
million and its rate decreases to LIBOR plus 1.75% when a certain coverage ratio
is met. 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.
Scheduled principal payments on mortgage debt are as follows as of December
31, 2000:
2001 $ 1,025
2002 416,578
2003 1,284
2004 68,350
2005 4,019
Thereafter 452,899
--------
Total $944,155
========
Note Payable to Related Party
During 2000, the Unconsolidated Joint Venture that is developing Dolphin
Mall borrowed $3.8 million from TRG. The note payable bears interest at 16%
annually and has no stated maturity. The loan will be repaid through the joint
venture's available cash flow; accrued interest and the loan balance will be
repaid prior to making any other distributions to partners.
Other Notes Payable
Other notes payable at December 31, 2000 and 1999 consists of the
following:
2000 1999
---- ----
Notes payable to banks, line of credit, interest
at prime (9.5% at December 31, 2000), maximum
borrowings available up to $5.5 million
to fund tenant loans, allowances and buyouts
and working capital, due various dates through 2005 $ 2,914 $ 623
Other 35
-------- -------
$ 2,914 $ 658
======== =======
Interest Expense
Interest paid on mortgages and other notes payable in 2000, 1999 and 1998,
net of amounts capitalized of $13.3 million, $2.5 million, and $2.5 million,
approximated $58.8 million, $59.7 million, and $64.0 million, respectively.
F-37
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Extraordinary Items
In 2000, 1999, and 1998, joint ventures recognized extraordinary charges
related to the extinguishment of debt, primarily consisting of prepayment
premiums and the writeoff of deferred financing costs.
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.
As of December 31, 2000, the following interest rate cap agreements were
outstanding (Note 7):
Notional LIBOR Frequency of
Amount Cap Rate Rate Resets Term
-------- -------- ------------ -----------------------------------
Dolphin Mall $150,000 (1) 7.00% Monthly November 1999 through November 2002
The Mall at Millenia 80,200 8.75% Monthly December 2000 through November 2002
Stamford Town Center 76,000 8.20% Monthly January 2000 though August 2002
International Plaza 50,000 7.10% Monthly April 2000 through October 2002
International Plaza 50,000 7.10% Monthly October 2000 through October 2002
Westfarms 55,000 6.50% Monthly August 1997 through July 2002
(1) Under the interest rate agreement, the rate is swapped to a fixed rate of
6.14% when LIBOR is less than 6.7%. The notional amounts on both the cap
and swap increase to $200 million in February 2001.
The 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.
Fair Value of Debt Instruments
The estimated fair values of financial instruments at December 31, 2000 and
1999 are as follows (Note 7):
December 31
-------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------------------------- -----------------------------
Mortgage notes payable $944,155 $1,007,650 $894,505 $928,205
Other notes payable 6,692 6,692 658 658
Interest rate instruments:
In a receivable position 3,351 217 4,178 3,134
In a payable position 1,807
F-38
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Note 5 - Leases and Other Commitments
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, 2000 for operating
centers, assuming no new or renegotiated leases or option extensions on anchor
agreements, is summarized as follows:
2001 $ 121,050
2002 116,775
2003 104,138
2004 93,792
2005 81,118
Thereafter 286,972
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 in 2000, 1999 and 1998. 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:
2001 $ 2,111
2002 2,185
2003 2,408
2004 2,408
2005 2,408
Thereafter 661,202
Capital Lease Obligations
Certain Unconsolidated Joint Ventures have entered into lease agreements
for property improvements with remaining lease terms through 2002; substantially
all of the capital lease obligation at December 31, 2000 will be settled in
2001.
Special Tax Assessment
Dolphin Mall will be subject to annual special tax assessments for certain
infrastructure improvements related to the property. The annual assessments will
be based on allocations of the cost of the infrastructure between the properties
that benefit. Presently, the total allocation of cost to Dolphin Mall is
estimated to be approximately $55.7 million with a first annual assessment of
approximately $3.4 million. A portion of these assessments is expected to be
recovered from tenants.
F-39
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Note 6 - Transactions with Affiliates
Charges from the Manager under various written agreements were as follows
for the years ended December 31:
2000 1999 1998
---- ---- ----
Management and leasing services $14,759 $16,721 $17,849
Security and maintenance services 6,702 7,653 9,481
Development services 11,298 5,935 3,941
------ ----- ------
$32,759 $30,309 $31,271
======= ======= =======
Certain entities related to TRG or its joint venture partners are providing
management, leasing and development services to Arizona Mills, L.L.C. and Forbes
Taubman Orlando L.L.C. Charges from these entities were $4.0 million, $4.2
million, and $4.3 million in 2000, 1999, and 1998, respectively.
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, 2000 and 1999 was $0.2 million and $0.6
million, respectively. Interest income related to the loan was approximately
$0.1 million in 2000, 1999, and 1998.
Other related party transactions are described in Note 4.
Note 7 - 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. SFAS 133, as
amended and interpreted, is effective for fiscal years beginning after June 15,
2000. The Unconsolidated Joint Ventures' derivatives consist primarily of
interest rate cap agreements which were purchased to reduce exposure to
increases in rates on floating rate debt. The Unconsolidated Joint Ventures
expect that the primary impact of their adoption of SFAS 133 will be the timing
of the recognition in income of the costs of these agreements. This may cause
earnings volatility as the value of these agreements may change from period to
period. In addition, the swap agreement on the Dolphin Mall construction loan
does not qualify for hedge accounting under SFAS 133. As a result, losses and
income related to this agreement will be recognized in earnings as the value of
the agreement changes. The combined Unconsolidated Joint Ventures will recognize
a loss of approximately $4.9 million as a transition adjustment to mark the
interest rate agreements to fair value as of January 1, 2001, the transition
date. Of this amount, a loss of $1.6 million will be charged to other
comprehensive income with the remainder representing the cumulative effect of a
change in accounting principle.
F-40
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
Valuation and Qualifying Accounts
For the years ended December 31, 2000, 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 of year
---------- ---------- ---------- ---------- --------- -------
Year ended December 31, 2000:
Allowance for doubtful receivables $ 1,588 2,644 0 (1,892) (712) (1) $ 1,628
========= ========= ========= ========= ======== ========
Year ended December 31, 1999:
Allowance for doubtful receivables $ 255 1,822 0 (489) 0 $ 1,588
========= ========= ========= ========= ======== ========
Year ended December 31, 1998:
Allowance for doubtful receivables $ 314 1,119 0 (1,148) (30) (2) $ 255
========= ========= ========= ========= ======== ========
(1) Subsequent to July 31, 2000, the accounts of Lakeside and Twelve Oaks are
no longer included in these combined financial statements.
(2) 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-41
Schedule III
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
(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 Encumbrances
---- ------------ -------------- ---- ---- ----- ------------ ------ ------------
Taubman Shopping Centers:
Arizona Mills, Tempe, AZ $ 22,017 $163,618 $ 9,324 $ 22,017 $172,942 $194,959 $ 21,817 $173,142 $ 145,762
Cherry Creek, Denver, CO 55 99,625 62,121 55 161,746 161,801 47,112 114,689 177,000
Fair Oaks, Fairfax, VA 7,667 36,043 46,420 7,667 82,463 90,130 31,340 58,790 140,000
Stamford Town Center,
Stamford, CT 1,977 43,176 12,054 1,977 55,230 57,207 30,127 27,080 76,000
Westfarms, Farmington, CT 5,287 38,638 109,853 5,287 148,491 153,778 38,900 114,878 155,000
Woodland, Grand Rapids, MI 2,367 19,078 23,914 2,367 42,992 45,359 20,348 25,011 66,000
Other Properties:
Peripheral land 1,860 0 0 1,860 0 1,860 0 1,860 0
Construction in Process 69,566 292,135 7,023 69,566 299,158 368,724 0 368,724 184,393
-------- --------- -------- -------- -------- -------- -------- ------- -------
TOTAL $110,796 $692,313 $270,709 $110,796 $963,022 $1,073,818(1)$189,644 $884,174 $944,155
======== ======== ======== ======== ======== ========== ======== ======== ========
Date of
Completion of Depreciable
Construction Life
--------------- -----------
Taubman Shopping Centers:
Arizona Mills, Tempe, AZ 1997 50 Years
Cherry Creek, Denver, CO 1990 40 Years
Fair Oaks, Fairfax, VA 1980 55 Years
Stamford Town Center,
Stamford, CT 1982 40 Years
Westfarms, Farmington, CT 1974 34 Years
Woodland, Grand Rapids, MI 1968 33 Years
The changes in total real estate assets for the three years ended December 31,
2000 are as follows:
2000 1999 1998
---- ---- ----
Balance, beginning of year $ 942,248 $ 769,665 $ 829,640
Improvements 239,191 79,298 64,455
Disposals (4,472) (6,162) (2,715)
Transfers In 1,318 (2) 99,447 (4)
Transfers Out (104,467)(3) (121,715) (5)
--------- ---------- ---------
Balance, end of year $1,073,818 $ 942,248 $ 769,665
========== ========== ==========
The changes in accumulated depreciation and amortization for the three years
ended December 31, 2000 are as follows:
2000 1999 1998
---- ---- ----
Balance, beginning of year $(217,402) $ (197,516) $ (205,659)
Depreciation for year (26,156) (25,958) (26,707)
Disposals 4,472 6,072 1,685
Transfers Out 49,442 (3) 33,165 (5)
--------- ---------- ----------
Balance, end of year $(189,644) $ (217,402) $ (197,516)
========= ========== ==========
(1) The unaudited aggregate cost for federal income tax purposes as of December
31, 2000 was $1.308 billion.
(2) Includes costs transferred relating to The Mall at Millenia, which became
an Unconsolidated Joint Venture in 2000.
(3) Subsequent to July 31, 2000, the accounts of Lakeside and Twelve Oaks are
no longer included in these combined financial statements.
(4) Includes costs transferred relating to International Plaza and Dolphin
Mall, which became Unconsolidated Joint Ventures in 1999.
(5) 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-42
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 26, 2001 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 26, 2001
- -------------------------- --------------
A. Alfred Taubman
/s/ Robert S. Taubman President, Chief Executive Officer, March 26, 2001
- --------------------------- and Director --------------
Robert S. Taubman
/s/ Lisa A. Payne Executive Vice President, March 26, 2001
- -------------------------- Chief Financial Officer, and Director --------------
Lisa A. Payne
/s/ William S. Taubman Executive Vice President, March 26, 2001
- -------------------------- and Director --------------
William S. Taubman
/s/ Esther R. Blum Senior Vice President, Controller and March 26, 2001
- -------------------------- Chief Accounting Officer --------------
Esther R. Blum
* Director March 26, 2001
- -------------------------- --------------
Graham Allison
* Director March 26, 2001
- -------------------------- --------------
Allan J. Bloostein
* Director March 26, 2001
- -------------------------- --------------
Jerome A. Chazen
* Director March 26, 2001
- -------------------------- --------------
S. Parker Gilbert
* Director March 26, 2001
- -------------------------- --------------
Peter Karmanos, Jr.
*By: /s/ Lisa A. Payne
----------------------------
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 Restated Articles of Incorporation of
Taubman Centers, Inc., including all amendments to date
(incorporated herein by reference to Exhibit 3 filed with
the Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000 ("2000 Second Quarter Form
10-Q")).
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) -- 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(f) -- 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(g) -- 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).
4(h) -- Building Loan Agreement dated as of June 21, 2000 among
Willow Bend Associates Limited Partnership, as Borrower, PNC
Bank, National Association, as Lender, Co-Lead Agent and
Lead Bookrunner, Fleet National Bank, as Lender, Co- Lead
Agent, Joint Bookrunner and Syndication Agent, Commerzbank
AG, New York Branch, as Lender, Managing Agent and
Co-Documentation Agent, Bayerische Hypo-Und Vereinsbank AG,
New York Branch, as Lender, Managing Agent and
Co-Documentation Agent, and PNC Bank, National Association,
as Administrative Agent. (incorporated herein by reference
to Exhibit 4 (a) filed with the 2000 Second Quarter Form
10-Q.)
4(i) -- Building Loan Deed of Trust, Assignment of Leases and Rents
and Security Agreement ("this Deed") from Willow Bend
Associates Limited Partnership, a Delaware limited
partnership ("Grantor"), to David M. Parnell ("Trustee"),
for the benefit of PNC Bank, National Association, as
Administrative Agent for Lenders (as hereinafter defined)
(together with its successors in such capacity,
"Beneficiary"). (incorporated herein by reference to Exhibit
4 (b) filed with the 2000 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) -- Amended and Restated Cash Tender Agreement among Taubman
Centers, Inc., a Michigan Corporation (the "Company"), The
Taubman Realty Group Limited Partnership, a Delaware Limited
Partnership ("TRG"), and A. Alfred Taubman, 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 and subsequently by Instrument dated June 25, 1997, (as
the same may hereafter be amended from time to time), and
TRA Partners, a Michigan Partnership. (incorporated herein
by reference to Exhibit 10 (a) filed with the 2000 Second
Quarter Form 10-Q.)
*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) -- Second Amended and Restated Continuing Offer, dated as of
May 16, 2000. (incorporated herein by reference to Exhibit
10 (b) filed with the 2000 Second Quarter Form 10-Q.)
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.
(incorporated herein by reference to Exhibit 10(l) filed
with the Annual Report of Form 10-K for the year ended
December 31, 1999 ("1999 Form 10-K")).
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. (incorporated herein by reference to
Exhibit 10(m) filed with the 1999 Form 10-K).
*10(n) -- Employment agreement between The Taubman Company Limited
Partnership and Courtney Lord. (incorporated herein by
reference to Exhibit 10(n) filed with the 1999 Form 10-K).
*10(o) -- The Taubman Company Long-Term Compensation Plan (as amended
and restated effective January 1, 2000). (incorporated
herein by reference to Exhibit 10 (c) filed with the 2000
Second Quarter Form 10-Q.)
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. (incorporated
herein by reference to Exhibit 10(p) filed with the 1999
Form 10-K).
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 -- Financial Data Schedule.
99 -- Debt Maturity Schedule.
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* A management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.