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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, 2001.
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 25, 2002, the aggregate market value of the 50,607,645 shares of Common Stock held by
non-affiliates of the registrant was $754 million, based upon the closing price $14.90 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 25, 2002, there were outstanding 51,017,431 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held in 2002 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, 2001, included
20 urban and suburban Centers located in nine states. Two additional centers are under construction and will open in
October 2002 and September 2003. The Operating Partnership also owns certain regional retail shopping center development
projects and more than 99% of The Taubman Company LLC (the "Manager"), which manages the shopping centers and provides
other services to the Operating Partnership and the Company. See the table on pages 11 and 12 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. The Operating Partnership'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 2001, 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. Seventeen 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, Dallas, Tampa, and Washington,
D.C.;
o range in size between 438,000 and 1.6 million square feet of GLA and between 133,000 and 636,000 square feet of
Mall GLA. The smallest Center has approximately 50 stores, and the largest has over 200 stores. Of the 20 Centers,
17 are super-regional shopping centers;
o have approximately 2,800 stores operated by its mall tenants under approximately 1,200 trade names;
o have 60 anchors, operating under 17 trade names;
o lease approximately 78% of Mall GLA to national chains, including subsidiaries or divisions of The Limited (The
Limited, Express, Victoria's Secret, and others), The Gap (The Gap, Gap Kids, Banana Republic, and others), and
Foot Locker, Inc. (Foot Locker, Lady 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 2001, mall tenants had average per square foot sales of $456, which is significantly 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 20 Centers, 17
had annual rent rolls at December 31, 2001 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. Approximately 99% of
the managed centers' tenants participate in the center websites and at the end of 2001, these sites had
approximately 350,000 registered users.
The Centers compete for retail consumer spending through diverse, in-depth presentations of predominantly fashion
merchandise in an environment intended to facilitate customer shopping. While some Centers include stores that target
high-end, upscale customers, each Center is individually merchandised in light of the demographics of its potential
customers within convenient driving distance.
The Company's leasing strategy involves assembling a diverse mix of mall tenants in each of the Centers in order to
attract customers, thereby generating higher sales by mall tenants. High sales by mall tenants make the Centers
attractive to prospective tenants, thereby increasing the rental rates that prospective tenants are willing to pay. The
Company implements an active leasing strategy to increase the Centers' productivity and to set minimum rents at higher
levels. Elements of this strategy include terminating leases of under-performing tenants, renegotiating existing leases,
and not leasing space to prospective tenants that (though viable or attractive in certain ways) would not enhance a
Center's retail mix.
Potential For Growth
The Company's principal objective is to enhance shareholder value. The Company seeks to maximize the financial results
of its assets, while pursuing a growth strategy that concentrates primarily on an active new center development program.
Development of New Centers
The Company is pursuing an active program of regional shopping center development. The Company believes that it has
the expertise to develop economically attractive regional shopping centers through intensive analysis of local retail
opportunities. The Company believes that the development of new centers is the best use of its capital and an area in
which the Company excels. At any time, the Company has numerous potential development projects in various stages.
3
The following table includes the new centers that opened in 2001:
Center Opening Date Size (sq. ft.) Anchors
- ------ ------------ -------------- -------
Dolphin Mall March 1, 2001 1.3 million Off 5th Saks, Dave & Busters, Cobb
(Miami, Florida) Theatres, Burlington Coat Factory,
Marshall's, Oshman's Supersports USA,
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 1.25 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 &
(Wellington, Florida) Taylor, Nordstrom (2003)
Additionally, two new centers are currently under construction; The Mall at Millenia, a 1.2 million square foot
regional shopping center in Orlando, Florida is scheduled to open in October 2002, and Stony Point Fashion Park, a 690
thousand square foot center in Richmond, Virginia, is scheduled to open in September 2003.
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. The pre-construction phase for a regional center typically extends over several years and
the time to obtain anchor commitments, zoning and regulatory approvals, and public financing arrangements can vary
significantly from project to project. 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. Unexpected costs
due to extended zoning and regulatory processes may cause the Company's investment in a project to exceed this historic
experience.
While the Company will continue to evaluate development projects using criteria, including financial criteria for rates
of return, similar to those employed in the past, no assurances can be given that the adherence to these policies will
produce comparable results in the future. In addition, the costs of shopping center development opportunities that are
explored but ultimately abandoned will, to some extent, diminish the overall return on development projects (see
"Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources
- -- Capital Spending" for further discussion of the Company's development activities).
Strategic Acquisitions
The Company's objective is to acquire existing centers only when they are compatible with the quality of the Company's
portfolio (or can be redeveloped to that level) and that satisfy the Company's strategic plans and pricing requirements.
In early 2002, the Company entered into an agreement to acquire a 50% general partnership interest in Sunvalley
Shopping Center in Concord, California. The Manager has managed this center since its development.
4
Expansions of the Centers
Another potential element of growth is the strategic expansion of existing properties to update and enhance their
market positions, by replacing or adding new anchor stores or increasing mall tenant space. Most of the Centers have
been designed to accommodate expansions. Expansion projects can be as significant as new shopping center construction in
terms of scope and cost, requiring governmental and existing anchor store approvals, design and engineering activities,
including rerouting utilities, providing additional parking areas or decking, acquiring additional land, and relocating
anchors and mall tenants (all of which must take place with a minimum of disruption to existing tenants and customers).
The following table includes information regarding recent development, acquisition, and expansion activities.
Developments:
Completion Date Center Location
--------------- ------ --------
November 1998 Great Lakes Crossing Auburn Hills, Michigan
March 1999 MacArthur Center Norfolk, Virginia
March 2001 Dolphin Mall Miami, Florida
August 2001 The Shops at Willow Bend Plano, Texas
September 2001 International Plaza Tampa, Florida
October 2001 The Mall at Wellington Green Wellington, Florida
Acquisitions:
Completion Date Center Location
--------------- ------ --------
December 1999 Great Lakes Crossing - Auburn Hills, Michigan
additional interest (1)
August 2000 Twelve Oaks Mall - Novi, Michigan
additional interest (2)
Expansions and Renovations:
Completion Date Center Location
--------------- ------ --------
August 1998 Cherry Creek (3) Denver, Colorado
November 1998 Woodland (4) Grand Rapids, Michigan
November 1999 Fairlane (5) Dearborn, Michigan
November 1999 Biltmore (6) Phoenix, Arizona
February 2000 - September 2000 Fair Oaks (7) Fairfax, Virginia
May 2000 Fairlane (8) Dearborn, Michigan
December 2000-2001 Beverly Center (4) Los Angeles, California
November 2001 Twelve Oaks Mall (5) Novi, Michigan
November 2001 Woodland (5) Grand Rapids, Michigan
(1) In December 1999, an additional 5% interest in the center was acquired.
(2) In August 2000, the joint venture partner's 50% interest in the center was acquired.
(3) Additional 132,000 square foot expansion of mall tenant space opened in August of 1998.
(4) Mall renovation continued in 2001.
(5) New food court opened.
(6) Macy's expansion completed.
(7) Hecht's opened an expansion in February. Additionally, a JCPenney expansion and newly constructed Macy's opened
in September.
(8) A 21-screen theater opened.
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.
5
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.
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.
2001 2000 (1) 1999
---- ---- ----
Average minimum rent per square foot:
All mall tenants $40.97 $39.77 $39.58
Stores closing during year $40.76 $40.06 $39.49
Stores opening during year $49.58 $46.21 $48.01
(1) Amounts have been restated to include centers comparable to the 2001 statistic.
Lease Expirations
The following table shows lease expirations based on information available as of December 31, 2001 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 (1) Expiring Leases
---- -------- -------------- -------------- --------------- ---------------
2002 (2) 127 348,672 $11,723 $33.62 3.4%
2003 223 709,854 25,234 35.55 7.0
2004 205 518,555 24,044 46.37 5.1
2005 248 630,740 30,297 48.03 6.2
2006 228 597,559 26,451 44.27 5.9
2007 212 689,404 26,893 39.01 6.8
2008 282 954,212 36,371 38.12 9.4
2009 278 902,923 37,761 41.82 8.9
2010 135 456,217 20,199 44.28 4.5
2011 468 1,609,402 63,921 39.72 15.9
(1) A higher percentage of space at value centers is typically rented to major and mall tenants at lower rents than
the portfolio average. Excluding value centers, the annualized base rent under expiring leases is greater by a range
of $2.78 to $12.89 or an average of $6.63 for the periods presented within this table.
(2) Excludes leases that expire in 2002 for which renewal leases or leases with replacement tenants have been
executed as of December 31, 2001.
6
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 1996 to 2001 was approximately two years. The average term of leases signed during 2001 and 2000 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 2001, approximately 4.5% of leases were
so affected compared to 2.3% in 2000. This statistic has ranged from 1.2% to 4.5% since the Company went public in
1992. 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
----------------------------------------------------
2001 (1) 2000 1999 1998 (2) 1997
---- ---- ----- ---- ----
Average Occupancy 84.9% 89.1% 89.0% 89.4% 87.6%
Ending Occupancy 84.0% 90.5% 90.4% 90.2% 90.3%
Leased Space 87.7% 93.8% 92.1% 92.3% 92.3%
(1) Excluding centers opened during 2001, average occupancy, ending occupancy, and leased space were 88.1%, 88.8%,
and 91.8%, respectively.
(2) Excludes centers transferred to General Motors pension trusts.
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 5.7% of Mall GLA as of December 31, 2001 and of 2001 minimum rent. The largest of
these, in terms of square footage and rent, is Express, which accounted for approximately 1.7% of Mall GLA and 1.6% of
2001 minimum rent. No other single retail company accounted for more than 3% of Mall GLA or 4% of 2001 minimum rent.
The following table shows the ten largest tenants and their square footage as of December 31, 2001.
# of Square % of
Tenant Stores Footage Mall GLA
- ------ ------ ------- --------
Limited (The Limited, Express, Victoria's Secret) 73 527,112 5.7%
Gap (Gap, Gap Kids, Banana Republic) 36 258,209 2.8%
Foot Locker, Inc. (Foot Locker, Lady Foot Locker, Champs Sports) 39 193,591 2.1%
Williams-Sonoma (Williams-Sonoma, Pottery Barn, Hold Everything) 25 164,498 1.8%
Abercrombie & Fitch 19 143,648 1.6%
Spiegel (Eddie Bauer) 14 115,929 1.3%
Talbots 17 113,683 1.2%
Forever 21 7 110,078 1.2%
Borders Group (Borders, Waldenbooks) 15 108,694 1.2%
Ann Taylor 17 86,074 0.9%
7
General Risks of the Company
Economic Performance and Value of Shopping Centers Dependent on Many Factors
The economic performance and value of the Company's shopping centers are dependent on various factors. Additionally,
these same factors will influence the Company's decision whether to go forward on the development of new centers and may
affect the ultimate economic performance and value of projects under construction (see other risks associated with the
development of new centers under "Business of the Company--Development of New Centers"). Such factors include:
o changes in the national, regional, and/or local economic climates,
o competition from other shopping centers, discount stores, outlet malls, discount shopping clubs, direct mail, and
the internet in attracting customers and tenants,
o increases in operating costs,
o the public perception of the safety of customers at the shopping centers,
o environmental or legal liabilities,
o availability and cost of financing, and
o uninsured losses, whether because of unavailability of coverage or in excess of policy specifications and insured
limits, including those resulting from wars, acts of terrorism, riots or civil disturbances, or losses from
earthquakes or floods.
In addition, the value of shopping centers may be adversely affected by:
o changes in government regulations, and
o changes in real estate zoning and tax laws.
Adverse changes in the economic performance and value of shopping centers would adversely affect the Company's income and
cash available to pay dividends.
Third Party Interests in the Centers
Some of the shopping centers which the Company develops and leases are partially owned by non-affiliated partners
through joint venture arrangements. As a result, the Company may not be able to control all decisions regarding those
shopping centers and may be required to take actions that are in the interest of the joint venture partners but not the
Company's best interests.
Bankruptcy of Mall Tenants or Joint Venture Partners
The Company could be adversely affected by the bankruptcy of third parties. The bankruptcy of a mall tenant could
result in the termination of its lease which would lower the amount of cash generated by that mall. In addition, if a
department store operating an anchor at one of our shopping centers were to go into bankruptcy and cease operating, its
closing may lead to reduced customer traffic and lower mall tenant sales which would, in turn, affect the amount of rent
our tenants pay us. The profitability of shopping centers held in a joint venture could also be adversely affected by
the bankruptcy of one of the joint venture partners if, because of certain provisions of the bankruptcy laws, the Company
was unable to make important decisions in a timely fashion or became subject to additional liabilities.
8
Investments in and Loans to Third Parties
The Company has occasionally made investments in technology industry companies to augment the services the Company can
provide to its tenants, enhance the overall value of its shopping centers, and earn financial returns. The Company also
occasionally extends credit to third parties in connection with the sales of land or other transactions. The Company is
exposed to risk in the event the values of its investments and/or its loans decrease due to overall market conditions,
business failure, and/or other nonperformance by the investees or counterparties.
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 overhead
costs allocated to these contracts would not 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.
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 some of the older 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
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.
9
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, 2001, the Manager had 451 full-time employees. The following table provides a breakdown of employees
by operational areas as of December 31, 2001:
Number Of Employees
-------------------
Property Management............................... 218
Leasing .......................................... 71
Development....................................... 35
Financial Services................................ 70
Other............................................. 57
--
Total..................................... 451
===
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, 2001. Excluded from this table are The Mall at Millenia, which will open in 2002 and Stony
Point Fashion Park, which will open in 2003. Centers are owned in fee other than Beverly Center, Cherry Creek,
International Plaza, 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.
10
Sq. Ft. of GLA/
Mall GLA Year Opened/ Year Ownership % Leased Space (1) 2001 Rent (2)
Owned Centers Anchors as of 12/31/01 Expanded Acquired as of 12/31/01 as of 12/31/01 (in Thousands)
------------- ------- -------------------- -------------- ----------- ------------------- -------------- --------------
Arizona Mills GameWorks, Harkins Cinemas, 1,227,000/ 1997 37% 97% $24,592
Tempe, AZ JCPenney Outlet, Neiman Marcus- 521,000
(Phoenix Metropolitan Area) Last Call, Off 5th Saks
Beverly Center Bloomingdale's, Macy's 876,000/ 1982 70%(3) 98% $27,897
Los Angeles, CA 568,000
Biltmore Fashion Park Macy's, Saks Fifth Avenue 600,000/ 1963/1992/ 1994 100% 95% $11,481
Phoenix, AZ 293,000 1997/1999
Cherry Creek Foley's, Lord & Taylor, Neiman 1,023,000/ 1990/1998 50% 90% $27,691
Denver, CO Marcus, Saks Fifth Avenue 550,000 (4)
Dolphin Mall Burlington Coat Factory, 1,300,000/
Miami, FL Cobb Theatres, Dave & Busters, 636,000 2001 50% 80% (5)
Oshman's Supersports USA,
Off 5th Saks, Marshalls
Fair Oaks Hecht's, JCPenney, Lord & Taylor, 1,584,000/ 1980/1987/ 50% 90% $21,625
Fairfax, VA Sears, Macy's 568,000 1988/2000
(Washington, DC Metropolitan Area)
Fairlane Town Center Marshall Field's, JCPenney, Lord & 1,494,000/ 1976/1978/ 100% 78% $14,723
Dearborn, MI Taylor, Off 5th Saks, Sears 604,000 1980/2000
(Detroit Metropolitan Area)
Great Lakes Crossing Bass Pro Shops Outdoor World, 1,376,000/ 1998 85% 93% $22,496
Auburn Hills, MI GameWorks, Neiman Marcus- 567,000
(Detroit Metropolitan Area) Last Call, Off 5th Saks, Star Theatres
International Plaza Dillard's, Lord & Taylor, Neiman 1,253,000/ 2001 26% 80% (5)
Tampa, FL Marcus, Nordstrom 611,000
La Cumbre Plaza Robinsons-May, Sears 474,000/ 1967/1989 1996 100%(6) 95% $4,444
Santa Barbara, CA 174,000
MacArthur Center Dillard's, Nordstrom 937,000/ 1999 70% 91% $15,929
Norfolk, VA 523,000
Paseo Nuevo Macy's, Nordstrom 438,000/ 1990 1996 100%(6) 98% $4,890
Santa Barbara, CA 133,000
Regency Square Hecht's (two locations), JCPenney, 826,000/ 1975/1987 1997 100% 95% $10,420
Richmond, VA Sears 239,000
The Mall at Short Hills Bloomingdale's, Macy's, Neiman 1,341,000/ 1980/1994/ 100% 99% $36,358
Short Hills, NJ Marcus, Nordstrom, Saks Fifth Avenue 519,000 1995
Stamford Town Center Filene's, Macy's, Saks Fifth Avenue 861,000/ 1982 50% 91% $16,986
Stamford, CT 368,000
11
Sq. Ft. of GLA/
Mall GLA Year Opened/ Year Ownership % Leased Space (1) 2001 Rent (2)
Owned Centers Anchors as of 12/31/01 Expanded Acquired as of 12/31/01 as of 12/31/01 (in Thousands)
------------- ------- -------------------- ------------- ----------- ----------------- -------------- --------------
Twelve Oaks Mall Marshall Field's, JCPenney, Lord & 1,193,000/ 1977/1978 100% 97% $21,983
Novi, MI Taylor, Sears 455,000
(Detroit Metropolitan Area)
The Mall at Wellington Green Burdines, Dillard's, JCPenney, 1,111,000/ 2001 90% 75% (5)
Wellington, FL Lord & Taylor 419,000 (7)
(Palm Beach County)
Westfarms Filene's, Filene's Men's Store/ 1,295,000/ 1974/1983/1997 79% 96% $25,067
West Hartford, CT Furniture Gallery, JCPenney, Lord & 525,000
Taylor, Nordstrom
The Shops at Willow Bend Dillard's, Foley's, Lord & Taylor, 1,341,000/ 2001 100% 75% (5)
Plano, TX Neiman Marcus 558,000 (8)
(Dallas Metropolitan Area)
Woodland Marshall Field's, JCPenney, Sears 1,080,000/ 1968/1974/ 50% 93% $15,005
Grand Rapids, MI 355,000 1984/1989
----------
Total GLA/Total Mall GLA: 21,630,000/
9,186,000
Average GLA/Average Mall GLA: 1,082,000/
459,000
(1) Leased space comprises both occupied space and space that is leased but not yet occupied. Leased space for value
centers (Arizona Mills, Dolphin Mall, and Great Lakes Crossing) includes anchors.
(2) Includes minimum and percentage rent for the year ended December 31, 2001. Excludes rent from certain peripheral
properties.
(3) The Company has an option to acquire the remaining 30%. The results of Beverly Center are consolidated in the
Company's financial statements.
(4) GLA excludes approximately 166,000 square feet for the renovated buildings on adjacent peripheral land.
(5) Center was open for only a portion of the year.
(6) In early 2002, the Company entered into an agreement to sell its interests in LaCumbre Plaza and Paseo Nuevo. In
addition, the Company entered into an agreement to acquire a 50% general partnership interest in Sunvalley Shopping
Center located in Concord, California (see Management's Discussion and Analysis of Financial Condition and Results of
Operations-Results of Operations- Subsequent Events).
(7) GLA excludes Nordstrom and additional mall GLA, which will open in 2003.
(8) GLA excludes Saks Fifth Avenue, which will open in 2004.
12
Anchors
The following table summarizes certain information regarding the anchors at the operating Centers (excluding the
value centers) as of December 31, 2001.
Number of 12/31/01 GLA
Name Anchor Stores (in thousands) % of GLA
---- ------------- -------------- --------
Dillard's 4 947 5.3%
Federated
Macy's 6 1,162
Burdines 1 200
Bloomingdale's 2 379
---- -------
Total 9 1,741 9.8%
JCPenney 7 1,304 7.4%
May Company
Lord & Taylor 8 1,058
Hecht's 3 453
Filene's 2 379
Filene's Men's Store/
Furniture Gallery 1 80
Foley's 2 418
Robinsons-May 1 150
---- ------
Total 17 2,538 14.3%
Neiman Marcus 4 466 2.6%
Nordstrom (1) 5 843 4.8%
Saks
Saks Fifth Avenue (2) 4 359
Off 5th Saks 1 93
---- -------
5 452 2.5%
Sears 6 1,279 7.2%
Target Corporation
Marshall Field's 3 647 3.7%
---- ------- -----
Total 60 10,217 57.6%
==== ======= ====
(1) A Nordstrom will open at The Mall at Wellington Green in 2003.
(2) A Saks will open at The Shops at Willow Bend in 2004.
Mortgage Debt
The following table sets forth certain information regarding the mortgages encumbering the Centers as of December 31,
2001. 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, The Mall at Wellington Green, 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 $2.0
million, which are not included in the table, also encumber Biltmore and Twelve Oaks Mall.
13
Principal
Balance Annual Debt Balance Due Earliest
Centers Consolidated in Interest as of 12/31/01 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 Fashion Park 7.68% 79,007 6,906 (2) 07/10/09 71,391 09/14/01 (3)
Great Lakes Crossing (85%) Floating (4) 150,958 Varies (5) 04/01/02 (6) 150,323 2 Days Notice (7)
MacArthur Center (70%) 7.59% 143,588 12,400 (2) 10/01/10 126,884 12/15/02 (3)
Regency Square 6.75% 82,373 6,421 (2) 11/01/11 71,569 04/20/05 (8)
The Mall at Short Hills 6.70% 270,000 Interest Only (9) 04/01/09 245,301 05/02/04 (10)
The Mall at Wellington
Green (90%) Floating (11) 124,344 Interest Only (12) 05/01/04 (13) 124,344 10 Days Notice (7)
The Shops at Willow Bend Floating (14) 186,482 Interest Only (12) 07/01/03 (13) 186,482 10 Days Notice (7)
Other Consolidated Secured Debt
- -------------------------------
TRG Credit Facility Floating (15) 11,955 Interest Only 06/30/02 11,955 At Any Time (7)
TRG Credit Facility Floating (16) 205,000 Interest Only 11/01/04 (6) 205,000 2 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% 144,737 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 Mall (50%) Floating (21) 164,648 Interest Only (22) 10/06/02 (6) 164,648 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 (23) 171,555 Interest Only 11/10/02 (6) 171,555 3 Days Notice (7)
The Mall at Millenia (50%) Floating (24) 56,545 Interest Only (12) 11/01/03 (13) 56,545 10 Days Notice (7)
Stamford Town Center (50%) Floating (25) 76,000 Interest Only 08/10/02 (26) 76,000 02/11/02 (7)
Westfarms (79%) 7.85% 100,000 Interest Only 07/01/02 100,000 60 Days Notice (1)
Westfarms (79%) Floating (27) 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 locked to March 2002 at 4.04% including credit spread.
(5) Began amortizing principal on 5/1/01 based on 25 years. Payment will recalculate if loan is extended.
(6) The maturity date may be extended one year.
(7) Prepayment can be made without penalty.
(8) No defeasance deposit required if paid within six months of maturity date.
(9) Interest only until 4/1/02. Thereafter, principal will be amortized based on 30 years. Annual debt service will be $20.9
million.
(10) 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.
(11) The rate is locked to October 2002 at 4.47% including credit spread. $70 million of the debt is capped at 7% and another $70
million is capped at 7.25% plus credit spread of 1.85% until 10/01/2003 based on one-month LIBOR.
(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 rate is locked to November 2002 at 4.15% including credit spread on $182.4 million. $147.0 million of the debt is capped
at 7.15%, plus credit spread of 1.85%, based on one-month LIBOR. The cap matures 6/09/03.
(15) The facility is a $40 million line of credit and is secured by TRG's interest in Westfarms.
(16) The facility is a $275 million line of credit and is secured by mortgages on Fairlane Town Center and Twelve Oaks Mall.
Floating rate is based on one-month LIBOR plus credit spread of 0.90%. The rate is locked to November 2002 at 3.17%
including credit spread on $75.0 million. In March 2002, the Company swapped the rate on $100 million of the line of credit
to 4.3% for November 2002 through October 2003.
(17) Currently payable at 9%. Deferred interest is due at maturity. The loan is secured by TRG's indirect interest 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 locked to maturity at 4.53% including credit spread. 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) Interest only unless maturity date is extended. During extension period, principal is amortized at $190,000 per month.
(23) The rate is locked to October 2002 at 4.40% including credit spread on $160.4 million. $100 million of the debt is capped at
7.10%, plus credit spread of 1.90%, until maturity based on one-month LIBOR.
(24) The rate is locked to May 2002 at 4.06% including credit spread on $48.3 million. The rate is capped at 8.75%, plus credit
spread of 1.95%, until 12/1/02 based on one-month LIBOR.
(25) The rate is capped at 8.20%, plus credit spread of 0.80%, until maturity based on one-month LIBOR.
(26) Maturity date may be extended twice to no later than 8/10/04.
(27) The rate is locked until maturity at 5.2%, including credit spread.
For additional information regarding the Centers and their operations, see the responses to Item 1 of this report.
14
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 25, 2002, the 51,017,431 outstanding shares of Common Stock were held by 739 holders of record.
The following table presents the dividends declared and range of share prices for each quarter of 2001 and 2000.
Market Quotations
-----------------------------------------
2001 Quarter Ended High Low Dividends
------------------ ---- --- ---------
March 31 $ 12.26 $ 10.75 $ 0.25
June 30 14.00 12.02 0.25
September 30 14.13 11.63 0.25
December 31 15.80 12.80 0.255
Market Quotations
-----------------------------------------
2000 Quarter Ended High Low Dividends
------------------ ---- --- ---------
March 31 $ 12.63 $ 9.75 $ 0.245
June 30 12.19 10.25 0.245
September 30 11.94 10.56 0.245
December 31 11.63 10.38 0.25
15
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
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(in thousands of dollars, except as noted)
STATEMENT OF OPERATIONS DATA:
Rents, recoveries, and other shopping center revenues (1) 341,428 305,600 268,692 333,953
Income from investment in TRG (1) 29,349
Income before gain on disposition of interest in center,
extraordinary items, cumulative effect of change in
accounting principle, and minority and preferred interests 55,664 66,487 58,445 70,403 28,662
Gain on disposition of interest in center (2) 85,339
Extraordinary items (3) (9,506) (468) (50,774)
Cumulative effect of change in accounting principle (4) (8,404)
Minority interest (1) (31,673) (30,300) (30,031) (6,009)
TRG preferred distributions (9,000) (9,000) (2,444)
Net income 7,657 103,020 25,502 13,620 28,662
Series A preferred dividends (16,600) (16,600) (16,600) (16,600) (4,058)
Net income (loss) allocable to common shareowners (8,943) 86,420 8,902 (2,980) 24,604
Income (loss) before extraordinary items and cumulative
effect of change in accounting principle per
common share - diluted (0.09) 1.75 0.17 0.32 0.48
Net income (loss) per common share - diluted (0.18) 1.64 0.16 (0.06) 0.48
Dividends per common share declared 1.005 0.985 0.965 0.945 0.925
Weighted average number of common shares outstanding 50,500,058 52,463,598 53,192,364 52,223,399 50,737,333
Number of common shares outstanding at end of period 50,734,984 50,984,397 53,281,643 52,995,904 50,759,657
Ownership percentage of TRG at end of period (1) 62% 62% 63% 63% 37%
BALANCE SHEET DATA (1) :
Real estate before accumulated depreciation 2,194,717 1,959,128 1,572,285 1,473,440
Investment in TRG 547,859
Total assets 2,141,439 1,907,563 1,596,911 1,480,863 556,824
Total debt 1,423,241 1,173,973 886,561 775,298
SUPPLEMENTAL INFORMATION (5) :
Funds from Operations allocable to TCO (6) 73,527 70,419 68,506 61,131 53,137
Mall tenant sales (7) 2,797,867 2,717,195 2,695,645 2,332,726 3,086,259
Sales per square foot (8) 456 466 453 426 384
Number of shopping centers at end of period 20 16 17 16 25
Ending Mall GLA in thousands of square feet 9,186 7,065 7,540 7,038 10,850
Average occupancy 84.9%(9) 89.1% 89.0% 89.4% 87.6%
Ending occupancy 84.0%(9) 90.5% 90.4% 90.2% 90.3%
Leased space (10) 87.7%(9) 93.8% 92.1% 92.3% 92.3%
Average base rent per square foot (8) (11) :
All mall tenants $40.97 $39.77 $39.58
Stores closing during year $40.76 $40.06 $39.49
Stores opening during year $49.58 $46.21 $48.01
(1) In 1998, the Company obtained a majority and controlling interest in The Taubman Realty Group Limited Partnership (TRG or the
Operating Partnership). As a result, the Company began consolidating the Operating Partnership. For 1997, 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 Mall 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 (see MD&A - Other Transactions).
(3) Extraordinary items for 1998 through 2000 include charges related to the extinguishment of debt, primarily consisting
of prepayment premiums and the writeoff of deferred financing costs.
(4) In January 2001, the Company adopted Statement of Financial Accounting Standard No. 133 "Accounting for Derivative
Instruments and Hedging Activities" and its amendments and interpretations. The Company recognized a loss as a transition
adjustment to mark its share of interest rate agreements to fair value as of January 1, 2001.
(5) Operating statistics for 1997 include centers transferred to General Motors pension trusts in exchange for their interests
in TRG.
(6) Funds from Operations is defined and discussed in MD&A - Liquidity and Capital Resources - Funds from Operations.
Funds from Operations does not represent cash flow from operations, as defined by generally accepted accounting principles,
and should not be considered to be an alternative to net income as a measure of operating performance or to cash
flows as a measure of liquidity.
(7) Based on reports of sales furnished by mall tenants.
(8) 2000 statistics have been restated to include MacArthur Center, which opened in March 1999.
(9) 2001 average occupancy, ending occupancy, and leased space for centers owned and open for all of 2001 and 2000 were 88.1%,
88.8%, and 91.8%, respectively.
(10) Leased space comprises both occupied space and space that is leased but not yet occupied.
(11) Amounts include centers owned and operated for two years.
16
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 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 LLC (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.
During 2001, the Company opened four new shopping centers (Results of Operations-New Center Openings). Also, 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 Mall and the joint venture partner became the 100% owner
of Lakeside. Additional 2001 and 2000 statistics that exclude the new centers and Lakeside are provided to present the
performance of comparable centers.
Current Operating Trends
In 2001, the regional shopping center industry has been affected by the softening of the national economic cycle.
Economic pressures that affect consumer confidence, job growth, energy costs, and income gains can affect retail sales
growth and impact the Company's ability to lease vacancies and negotiate rents at advantageous rates. A number of regional
and national retailers have announced store closings or filed for bankruptcy. During 2001, 4.5% of the Company's tenants
sought the protection of the bankruptcy laws, compared to 2.3% in 2000. The impact of a softening economy on the Company's
current results of operations is moderated by lease cancellation income, which tends to increase in down-cycles of the
economy.
In addition to overall economic pressures, the events of September 11 had a negative impact on tenant sales subsequent
to September. Tenant sales per square foot in the fourth quarter of 2001 decreased by 3.8% compared to the same period
in 2000. Although this was an improvement from the 9.8% decrease in sales per square foot in the month of September, the
fourth quarter decrease was significantly greater than the 0.3% decrease in sales per square foot that the Company had
experienced through August 2001. In addition, fourth quarter comparable center average occupancy declined by 1.7% from
the prior year.
17
The tragic events of September 11 will also have an impact on the Company's future insurance coverage. The Company
presently has coverage for terrorist acts in its policies that expire in April 2002. The Company expects that such
coverage will be excluded from its standard property policies at the Company's renewal. Based on preliminary discussions
with its insurance agency, such coverage will be available as a separate policy with lower limits than the present
coverage, see "Liquidity and Capital Resources-Covenants and Commitments".
Given the state of the insurance industry prior to September 11, and the impact of September 11, the Company believes
its premiums, including the cost of a separate terrorist policy, could increase by over 100% for property coverage and
over 25% for liability coverage. These increases would impact the Company's annual common area maintenance rates paid by
the Company's tenants by about 55 cents per square foot. Total occupancy costs paid by tenants signing leases in the
Company's traditional centers are on average about $70 per square foot.
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.
2001 2000 1999
---- ---- ----
Mall tenant sales (in thousands) $2,797,867 $2,717,195 $2,695,645
Sales per square foot 456 466(1) 453
Minimum rents 10.0% 9.7% 9.7%
Percentage rents 0.2 0.3 0.2
Expense recoveries 4.5 4.4 4.3
--- --- ---
Mall tenant occupancy costs 14.7% 14.4% 14.2%
==== ==== ====
(1) 2000 sales per square foot has been restated to include MacArthur Center, which opened in March 1999.
For the year ended December 31, 2001, for the first time in the Company's history as a public company, sales per square
foot decreased in comparison to the prior year, reflecting the current difficult retail environment as well as the
direct impact of the events of September 11. The negative sales trend directly impacts the amount of percentage rents
certain tenants and anchors pay. The effects of declines in sales experienced during 2001 on the Company's operations
are moderated by the relatively minor share of total rents (approximately three percent) percentage rents represent.
However, if lower levels of sales were to continue, the Company's ability to lease vacancies and negotiate rents at
advantageous rates could be adversely affected.
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, such as the Company is currently experiencing, 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.
18
2001 2000(1) 1999
---- ---- ----
Average minimum rent per square foot:
All mall tenants $40.97 $39.77 $39.58
Stores closing during year 40.76 40.06 39.49
Stores opening during year 49.58 46.21 48.01
(1) 2000 rent per square foot information has been restated to include MacArthur Center, which opened in March 1999.
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.
Occupancy
Historically, annual average occupancy has been within a narrow band. In the last ten years, annual average occupancy
has ranged between 84.9% and 89.4%. Mall tenant average occupancy, ending occupancy, and leased space rates are as
follows:
2001 2000 1999
---- ---- ----
All Centers
-----------
Average occupancy 84.9% 89.1% 89.0%
Ending occupancy 84.0 90.5 90.4
Leased space 87.7 93.8 92.1
Comparable Centers
------------------
Average occupancy 88.1% 89.3%
Ending occupancy 88.8 90.5
Leased space 91.8 93.8
The lower occupancy and leased space in 2001 reflect the opening of the four new centers at occupancy levels lower than
the average of the existing portfolio. A number of unanticipated early lease terminations accounted for the majority of
the decline in comparable center occupancy.
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
2001 2001 2001 2001 2001
---------------------------------------------------------------------------
(in thousands)
Mall tenant sales $570,223 $605,945 $617,805 $1,003,894 $2,797,867
Revenues 132,903 137,964 139,640 169,330 579,837
Occupancy:
Average 87.0% 85.5% 84.0% 83.7% 84.9%
Ending 85.1 85.6 83.0 84.0 84.0
Average-comparable (1) 88.1 87.9 87.6 88.6 88.1
Ending-comparable (1) 88.4 87.7 87.7 88.8 88.8
Leased space:
All centers 90.8 90.0 88.0 87.7 87.7
Comparable (1) 92.4 91.8 91.5 91.8 91.8
(1) Excludes centers that opened in 2001-see Results of Operations-New Center Openings.
19
Because the seasonality of sales contrasts with the generally fixed nature of minimum rents and recoveries, mall
tenant occupancy costs (the sum of minimum rents, percentage rents, and expense recoveries) relative to sales are
considerably higher in the first three quarters than they are in the fourth quarter.
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
2001 2001 2001 2001 2001
-------------------------------------------------------------------------
Minimum rents 11.2% 10.5% 11.2% 8.3% 10.0%
Percentage rents 0.3 0.1 0.1 0.4 0.2
Expense recoveries 5.0 5.1 4.8 3.6 4.5
--- --- --- --- ---
Mall tenant occupancy costs 16.5% 15.7% 16.1% 12.3% 14.7%
==== ==== ==== ==== ====
Results of Operations
New Center Openings
In March 2001, Dolphin Mall, a 1.3 million square foot value regional center, opened in Miami, Florida. Dolphin Mall is
a 50% owned Unconsolidated Joint Venture and is accounted for under the equity method. The Operating Partnership will be
entitled to a preferred return on approximately $30 million of equity contributions as of December 2001, which were used
to fund construction costs.
The Shops at Willow Bend, a wholly owned regional center, opened August 3, 2001 in Plano, Texas. The 1.5 million
square foot center is anchored by Neiman Marcus, Saks Fifth Avenue, Lord & Taylor, Foley's, and Dillard's. Saks Fifth
Avenue will open in 2004.
International Plaza, a 1.25 million square foot regional center, opened September 14, 2001 in Tampa, Florida.
International Plaza is anchored by Nordstrom, Lord & Taylor, Dillard's, and Neiman Marcus. The Company has an
approximately 26% ownership interest in the center. However, because the Company provided approximately 53% of the
equity funding for the project, the Company will receive a preferential return. The Company expects to be initially
allocated approximately 33% of the net operating income of the project, with an additional 7% representing return of
capital. The Operating Partnership will be entitled to a preferred return on approximately $19 million of equity
contributions as of December 2001, which were used to fund construction costs.
The Mall at Wellington Green, a 1.3 million square foot regional center, opened October 5, 2001 in Wellington, Florida
and is initially 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 is owned by a joint venture in which the Operating Partnership has a 90% controlling
interest.
Although Dolphin Mall opened on schedule, the center encountered significant levels of tenant and landlord-related
issues arising from the construction process, far exceeding those historically experienced by the Company. The difficult
opening resulted in lower than expected occupancy in 2001. In addition, lower than anticipated sales, in part due to the
effect of September 11 on major tourist areas, have caused significant tenant issues resulting in early terminations,
lower recoveries, and higher levels of uncollectible receivables.
In addition, general economic conditions have also affected the performance of Willow Bend and to a lesser extent the
other two new centers. Leased space as of December 31, 2001 at the four new centers was 75 to 80%, lower than the
Company would have previously expected. As a result, the Company presently expects that the return on the four centers
will be under 9% in 2002. Over 100 additional stores remain to be leased at these centers in order to achieve
stabilization. Estimates regarding returns on projects 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
tenants, 2) timing of tenant openings, and 3) early lease terminations and bankruptcies.
20
Other Transactions
In October 2001, the Operating Partnership committed to a restructuring of its development operations. A restructuring
charge of $2.0 million was recorded primarily representing the cost of certain involuntary terminations of personnel.
Pursuant to the restructuring plan, 17 positions were eliminated within the development department.
In April 2001, the Operating Partnership's $10 million investment in Swerdlow was converted into a loan which bore
interest at 12% and matured in December 2001. This loan is currently delinquent and is accruing interest at 18%. All
interest due through the December maturity date was received. Although the Operating Partnership expects to fully recover
the amount due under this note receivable, the Company is currently in negotiations with Swerdlow regarding the
repayment. An affiliate of Swerdlow is a partner in the Dolphin Mall joint venture.
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 Mall
and the joint venture partner became the 100% owner of Lakeside, subject to the existing mortgage debt. The transaction
resulted in a net payment to the joint venture partner of approximately $25.5 million in cash. 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). 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.
During 2000, the Operating Partnership recognized its $9.5 million share of extraordinary charges relating to the
Arizona Mills and Stamford Town Center refinancings, which consisted of a prepayment premium and the write-off of
deferred financing costs.
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 obligation in the event such
redevelopment opportunities were not deemed to be sufficient. The Operating Partnership terminated its Memorial City
lease on April 30, 2000.
During October and November 2001, the Operating Partnership completed an $82.5 million financing secured by Regency
Square and closed on a new $275 million line of credit. The net proceeds of these financings were used to pay off $150
million outstanding under loans previously secured by Twelve Oaks Mall and the balance under the expiring revolving
credit facility. In May 2001, the Company closed on a $168 million construction loan for The Mall at Wellington Green.
During October 2000, Arizona Mills completed a $146 million secured refinancing of its existing mortgage. Also in
October 2000, MacArthur Center completed a $145 million secured financing, repaying the existing $120 million
construction loan. 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 the center. In January 2000, Stamford
Town Center completed a $76 million secured refinancing. During 2000, construction facilities for $160 million and $220
million were obtained for The Mall at Millenia and The Shops at Willow Bend, respectively.
Investments in Technology Businesses
During 2001, the Company committed to invest approximately $2 million in Constellation Real Technologies LLC, a company
that forms and sponsors real estate related internet, e-commerce, and telecommunications enterprises. The Company's
investment was $0.5 million at December 31, 2001.
In May 2000, the Company acquired an approximately 6.8% interest in MerchantWired, LLC, a service company providing
internet and network infrastructure to shopping centers and retailers. As of December 31, 2001, the Company had an
investment of approximately $3.6 million in this venture and has guaranteed obligations of approximately $3.8 million.
The principal shareholder of MerchantWired has disclosed that the future profitability of MerchantWired is dependent on
it obtaining outside capital and other management expertise; there is no assurance as to its success in doing so.
During 2001 and 2000, the Company recognized its $2.4 million (including $0.6 million of real estate-related
depreciation) and $0.5 million share of MerchantWired losses, respectively.
21
In April 1999, the Company obtained a $7.4 million preferred investment in fashionmall.com, Inc., an e-commerce
company originally organized to market, promote, advertise, and sell fashion apparel and related accessories and products
over the internet. In 2001, fashionmall.com significantly scaled back its operations and experienced significant
decreases in operating revenues. Fashionmall.com management has disclosed that they have more cash than is needed to
fund current operations and are considering how best to use such cash, including making acquisitions, issuing special
dividends, or finding other options to provide opportunities for liquidity to its shareholders at some time in the
future. While the Company's right to a preference in the event of a liquidation is not disputed, and while there is more
than sufficient cash in fashionmall.com to fund the Company's liquidation preference, the Company has been in settlement
discussions with fashionmall.com's management to return the Company's preferred investment at a discount, in order to
facilitate these potential uses of the cash. There is no assurance that the settlement discussions will achieve a
resolution and/or what their ultimate outcome will be. During 2001, the Company recorded a charge of $1.9 million
relating to its investment in fashionmall.com; the Company's investment was $5.5 million at December 31, 2001.
New Accounting Pronouncements
Effective January 1, 2001, the Company adopted SFAS 133 and its related amendments and interpretations, which establish
accounting and reporting standards for derivative instruments. All derivatives, whether designated in hedging
relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as
a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other
comprehensive income (OCI) and are recognized in the income statement when the hedged item affects earnings. Ineffective
portions of changes in the fair value of cash flow hedges are recognized in the Company's earnings as interest expense.
The Company uses derivative instruments primarily to manage exposure to interest rate risks inherent in variable rate
debt and refinancings. The Company routinely uses cap, swap, and treasury lock agreements to meet these objectives. For
interest rate cap instruments designated as cash flow hedges, changes in the time value were excluded from the assessment
of hedge effectiveness. The swap agreement on the Dolphin construction facility does not qualify for hedge accounting
although its use is consistent with the Company's overall risk management objectives. As a result, the Company recognizes
its share of losses and income related to this agreement in earnings as the value of the agreement changes.
The initial adoption of SFAS 133 on January 1, 2001 resulted in a reduction to income of approximately $8.4 million as
the cumulative effect of a change in accounting principle and a reduction to OCI of $0.8 million. These amounts represent
the transition adjustments necessary to mark the Company's share of interest rate agreements to fair value as of January
1, 2001.
In addition to the transition adjustments, the Company recognized a $3.3 million reduction of earnings during the year
ended December 31, 2001, representing unrealized losses due to the decline in interest rates and the resulting decrease
in value of the Company's and its Unconsolidated Joint Ventures' interest rate agreements. Of these amounts,
approximately $2.8 million represents the change in value of the Dolphin swap agreement and the remainder represents the
changes in time value of other instruments.
As of December 31, 2001, the Company has $3.1 million of derivative losses included in Accumulated OCI. Of this amount,
$2.8 million relates to a realized loss on a hedge of the October 2001 Regency Square financing. This loss will be
recognized as additional interest expense over the ten-year term of the debt. The remaining $0.3 million of derivative
losses included in Accumulated OCI at December 31, 2001 relates to a hedge of the Dolphin Mall construction facility that
will be recognized as a reduction of earnings through its 2002 maturity date. The Company expects that approximately
$0.6 million will be reclassified from Accumulated OCI and recognized as a reduction of earnings during the next twelve
months.
In October 2001, the Financial Accounting Standards Board issued Statement No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which replaced FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". Statement 144 broadens the reporting of discontinued operations to
include disposals of operating components; each of the Company's investments in an operating center is such a component.
The provisions of Statement 144 are effective for financial statements issued for fiscal years beginning after December
15, 2001 and generally are to be applied prospectively. The Statement is not expected to have a material effect on the
financial condition or results of operations of the Company; however, if the Company were to dispose of a center, the
center's results of operations would have to be separately disclosed as discontinued operations in the Company's
financial statements.
22
Comparable Center Operations
The performance of the Company's portfolio can be measured through comparisons of comparable centers' operations.
During 2001, 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
2000. This growth was primarily due to increases in minimum rents, revenue from advertising space arrangements, and
lease cancellation income, partially offset by a decrease in percentage rent and an increase in expenses. 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 for the year ended December 31, 2001.
Other Income
The Company has certain additional sources of income beyond its rental revenues, recoveries from tenants, and revenues
from management, leasing, and development services, as summarized in the following table. The Company expects that the
shopping center-related revenues, such as income from parking garages or sponsorship agreements, will grow at a rate
slightly higher than the rate of inflation. During 2001, gains on peripheral land sales were less than the approximately
$6 million average of the preceding three years; the Company expects that 2002 gains on land sales will return to a
range of $6 million to $7 million. Interest income in 2001 and 2000 exceeded historical averages; the Company expects
that 2002 interest income will range between $2 million and $3 million. Lease cancellation income is dependent on the
overall economy and performance of particular retailers in specific locations and is difficult to predict; 2001 lease
cancellation income significantly exceeded historical averages. Estimates regarding anticipated 2002 other income 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 tenants, counterparties, and potential purchasers of
peripheral land, and 2) timing of transactions.
2001 2000
---- ----
(Operating Partnership's share in millions of dollars)
Shopping center related revenues 13.8 13.6
Gains on peripheral land sales 4.6 9.1
Lease cancellation revenue 10.3 1.6
Interest income 4.9 4.3
--- ---
33.6 28.6
==== ====
Subsequent Events
In early 2002, the Operating Partnership entered into a definitive purchase and sale agreement to acquire for $88
million a 50% general partnership interest in SunValley Associates, a California general partnership that owns the
Sunvalley Shopping Center located in Concord, California. The $88 million purchase price consists of $28 million of cash
and $60 million of existing debt that encumbers the property. The Company's interest in the secured debt consists of a
$55 million primary note bearing interest at LIBOR plus 0.92% and a $5 million note bearing interest at LIBOR plus 3.0%.
The notes mature in September 2003 and have two one-year extension options. The center is also subject to a ground lease
that expires in 2061. The Manager has managed the property since its development and will continue to do so after the
acquisition. The other 50% partner in the property is an entity owned and controlled by Mr. A. Alfred Taubman, the
Company's largest shareholder and recently retired Chairman of the Board of Directors.
Also in early 2002, the Company entered into agreements to sell its interests in LaCumbre Plaza and Paseo Nuevo,
subject to satisfying closing conditions, for $77 million. The centers are subject to ground leases and are unencumbered
by debt. The centers were purchased in 1996 for $59 million.
These transactions are expected to close during the first half of 2002, and the Company expects to use the net proceeds
from the sale of the two centers to fund the acquisition of Sunvalley and pay down borrowings under the Company's lines
of credit. Assuming the operations of these two centers are included in Funds from Operations for the period owned in
2002, the Company expects that these transactions will have a neutral effect on Funds from Operations in 2002. This is a
forward-looking statement and certain significant factors could cause the actual effect to differ materially, including
but not limited to 1) the occurrence and timing of the transactions, 2) actual operations of the centers, 3) actual use
of proceeds, 4) actual transaction costs, and 5) resolution of closing conditions.
23
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 minority partners in the Operating Partnership 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 minority 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. Also, losses allocable to minority
partners in certain consolidated joint ventures are added back to arrive at the net results of the Company. The Company's
average ownership percentage of the Operating Partnership was 62% and 63% for 2001 and 2000, respectively. The results
of Twelve Oaks Mall are included in the Consolidated Businesses subsequent to the closing of the transaction, while both
Twelve Oaks Mall and Lakeside are included as Unconsolidated Joint Ventures for previous periods.
24
Comparison of 2001 to 2000
The following table sets forth operating results for 2001 and 2000, showing the results of the Consolidated Businesses
and Unconsolidated Joint Ventures:
2001 2000
---------------------------------------------------- -----------------------------------------------------
TOTAL OF TOTAL OF
CONSOLIDATED CONSOLIDATED
CONSOLIDATED UNCONSOLIDATED BUSINESSES CONSOLIDATED UNCONSOLIDATED BUSINESSES
BUSINESSES JOINT VENTURES AND BUSINESSES (2) JOINT VENTURES AND
AT 100%(1) UNCONSOLIDATED AT 100%(1) UNCONSOLIDATED
JOINT JOINT
VENTURES VENTURES AT
AT 100% 100%
---------------------------------------------------- -----------------------------------------------------
(in millions of dollars)
REVENUES:
Minimum rents 176.2 149.3 325.5 151.9 145.5 297.4
Percentage rents 5.5 3.2 8.7 6.4 3.8 10.1
Expense recoveries 104.5 73.6 178.1 91.3 75.7 166.9
Management, leasing and
development 26.0 26.0 25.0 25.0
Other 29.2 12.3 41.5 27.5 5.7 33.2
---- ---- ---- ----- ----- -----
Total revenues 341.4 238.4 579.8 301.9 230.7 532.6
OPERATING COSTS:
Recoverable expenses 91.2 67.3 158.4 79.7 63.6 143.3
Other operating 36.4 15.1 51.5 30.0 13.4 43.4
Restructuring loss 2.0 2.0
Charge related to technology
investment 1.9 1.9
Management, leasing
and development 19.0 19.0 19.5 19.5
General and administrative 20.1 20.1 19.0 19.0
Interest expense 68.2 75.0 143.1 57.3 65.5 122.8
Depreciation and amortization(3) 68.9 39.3 108.3 56.8 29.5 86.3
---- ---- ---- ----- ----- -----
Total operating costs 307.6 196.7 504.3 262.3 172.0 434.4
Net results of Memorial City (2) (1.6) (1.6)
---- ---- ---- ----- ----- -----
33.8 41.8 75.6 38.0 58.6 96.6
==== ==== ==== ====
Equity in income before
extraordinary items of
Unconsolidated Joint Ventures(3) (4) 21.9 28.5
---- ----
Income before gain on
disposition, extraordinary items,
cumulative effect of change in
accounting principle, and
minority and preferred interests 55.7 66.5
Gain on disposition of interest in center 85.3
Extraordinary items (9.5)
Cumulative effect of change in
accounting principle (8.4)
TRG preferred distributions (9.0) (9.0)
Minority share of consolidated joint
ventures 1.1
Minority share of income of TRG (11.7) (58.5)
Distributions less than (in excess
of) minority share of income (20.0) 28.2
----- -----
Net income 7.7 103.0
Series A preferred dividends (16.6) (16.6)
----- -----
Net income (loss) allocable to
common shareowners (8.9) 86.4
===== =====
SUPPLEMENTAL INFORMATION(5):
EBITDA - 100% 172.8 156.0 328.8 153.1 153.7 306.8
EBITDA - outside partners' share (7.5) (71.6) (79.2) (7.6) (70.8) (78.4)
---- ---- ---- ----- ----- -----
EBITDA contribution 165.3 84.4 249.7 145.6 82.9 228.4
Beneficial interest expense (63.2) (38.7) (101.8) (52.2) (34.9) (87.1)
Non-real estate depreciation (2.7) (2.7) (3.0) (3.0)
Preferred dividends and distributions (25.6) (25.6) (25.6) (25.6)
---- ---- ---- ----- ----- -----
Funds from Operations contribution 73.8 45.7 119.5 64.8 47.9 112.7
==== ==== ===== ===== ==== =====
(1) With the exception of the Supplemental Information, amounts include 100% of the Unconsolidated Joint Ventures. Amounts are
net of intercompany profits. The Unconsolidated Joint Ventures are presented at 100% in order to allow for measurement of
their performance as a whole, without regard to the Company's ownership interest. In its consolidated financial statements,
the Company accounts for its investments in the Unconsolidated Joint Ventures under the equity method.
(2) 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.
(3) Amortization of the Company's additional basis in the Operating Partnership included in equity in income of Unconsolidated
Joint Ventures was $3.0 million and $3.8 million in 2001 and 2000, respectively. Also, amortization of the additional basis
included in depreciation and amortization was $4.6 million and $4.2 million in 2001 and 2000, respectively.
(4) Equity in income before extraordinary items of Unconsolidated Joint Ventures excludes the cumulative effect of the change in
accounting principle incurred in connection with the Company's adoption of SFAS 133. The Company's share of the Unconsolidated
Joint Ventures' cumulative effect was approximately $1.6 million.
(5) EBITDA represents earnings before interest and depreciation and amortization, excluding gains on dispositions of depreciated
operating properties. In 2001, the $1.9 million charge related to a technology investment was also excluded. Funds from
Operations is defined and discussed in Liquidity and Capital Resources.
(6) Amounts in this table may not add due to rounding.
25
Consolidated Businesses
Total revenues for the year ended December 31, 2001 were $341.4 million, a $39.5 million or 13.1% increase over 2000.
Minimum rents increased $24.3 million of which $23.1 million was due to the openings of The Shops at Willow Bend and The
Mall at Wellington Green, as well as the inclusion of Twelve Oaks Mall. Minimum rents also increased due to tenant
rollovers and new sources of rental income, including temporary tenants and advertising space arrangements, offsetting
decreases in rent caused by lower occupancy. Percentage rents decreased due to decreases in tenant sales. Expense
recoveries increased primarily due to Willow Bend, Wellington Green, and Twelve Oaks. Management, leasing, and
development revenues increased primarily due to leasing commissions, including those relating to two short-term leasing
contracts. Other revenue increased primarily due to an increase in lease cancellation revenue and interest income,
partially offset by a decrease in gains on sales of peripheral land.
Total operating costs were $307.6 million, a $45.3 million or 17.3% increase from 2000. Recoverable expenses increased
primarily due to Willow Bend, Wellington Green, and Twelve Oaks. Other operating expense increased due to Willow Bend,
Wellington Green, and Twelve Oaks, as well as increases in bad debt expense, marketing expense, professional fees
relating to process improvement projects, and losses relating to the investment in MerchantWired, partially offset by a
decrease in the charge to operations for costs of pre-development activities. During 2001, a $2.0 million restructuring
loss was recognized, which primarily represented the cost of certain involuntary terminations of personnel; substantially
all restructuring costs had been paid by year-end. The Company also recognized a $1.9 million charge relating to its
investment in fashionmall.com, Inc. General and administrative expense increased primarily due to increases in payroll
costs. Interest expense increased primarily due to debt assumed and incurred relating to Twelve Oaks and a decrease in
capitalized interest upon opening of the new centers, offset by decreases due to declines in interest rates.
Depreciation expense increased primarily due to Willow Bend, Wellington Green, and Twelve Oaks.
Unconsolidated Joint Ventures
Total revenues for the year ended December 31, 2001 were $238.4 million, a $7.7 million or 3.3% increase from the
comparable period of 2000. Minimum rents increased primarily due to tenant rollovers and new sources of rental income,
including temporary tenants and advertising space arrangements, which offset decreases in rent caused by lower
occupancy. Increases in minimum rent due to Dolphin Mall and International Plaza were offset by Twelve Oaks and
Lakeside. Expense recoveries decreased primarily due to Twelve Oaks and Lakeside, partially offset by Dolphin Mall and
International Plaza. Other revenue increased primarily due to an increase in lease cancellation revenue.
Total operating costs increased by $24.7 million to $196.7 million for the year ended December 31, 2001. Recoverable
expenses and depreciation expense increased primarily due to Dolphin Mall and International Plaza, partially offset by
Twelve Oaks and Lakeside. Other operating expense increased primarily due to the openings of Dolphin Mall and
International Plaza, including greater levels of bad debt expense at Dolphin Mall, partially offset by Twelve Oaks and
Lakeside. Interest expense increased due to a decrease in capitalized interest upon opening of Dolphin Mall and
International Plaza and changes in the value of Dolphin Mall's swap agreement, partially offset by decreases due to
Twelve Oaks and Lakeside and declines in interest rates.
As a result of the foregoing, income before extraordinary items and cumulative effect of change in accounting principle
of the Unconsolidated Joint Ventures decreased by $16.8 million, or 28.7%, to $41.8 million. The Company's equity in
income before extraordinary items and cumulative effect of change in accounting principle of the Unconsolidated Joint
Ventures was $21.9 million, a 23.2% decrease from 2000.
Net Income
As a result of the foregoing, the Company's income before gain on disposition of interest in center, extraordinary
items, cumulative effect of change in accounting principle, and minority and preferred interests decreased $10.8 million,
or 16.2%, to $55.7 million for the year ended December 31, 2001. During 2001, a cumulative effect of a change in
accounting principle of $8.4 million was recognized in connection with the Company's adoption of SFAS 133. During 2000,
the Company recognized an $85.3 million gain on the disposition of its interest in Lakeside, and an extraordinary charge
of $9.5 million related to the extinguishment of debt. After allocation of income to minority and preferred interests,
net income (loss) allocable to common shareowners for 2001 was $(8.9) million compared to $86.4 million in 2000.
26
Comparison of 2000 to 1999
Discussion of significant transactions and openings occurring in 2000 precedes the Comparison of 2001 to 2000.
Significant 1999 items are described below.
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.
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 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, a $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. During 1999,
construction facilities for $194 million and $200 million were obtained for International Plaza and Dolphin Mall,
respectively.
27
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
---------------------------------------------------- -----------------------------------------------------
TOTAL OF TOTAL OF
CONSOLIDATED CONSOLIDATED
CONSOLIDATED UNCONSOLIDATED BUSINESSES CONSOLIDATED UNCONSOLIDATED BUSINESSES
BUSINESSES (1) JOINT VENTURES AND BUSINESSES (1) JOINT VENTURES AND
AT 100%(2) UNCONSOLIDATED AT 100%(2) UNCONSOLIDATED
JOINT JOINT
VENTURES VENTURES AT
AT 100% 100%
---------------------------------------------------- -----------------------------------------------------
(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 allocable 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 include 100% of the Unconsolidated Joint Ventures. Amounts are
net of intercompany profits. The Unconsolidated Joint Ventures are presented at 100% in order to allow for measurement of
their performance as a whole, without regard to the Company's ownership interest. In its consolidated financial statements, the
Company accounts for its investments in the Unconsolidated Joint Ventures under the equity method.
(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, excluding 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.
28
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 Mall, 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. After allocation of income to minority and preferred interests, net income allocable to common shareowners for
2000 was $86.4 million compared to $8.9 million in 1999.
29
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, acquisition, and financing policies.
As of December 31, 2001, the Company had a consolidated cash balance of $27.8 million. Additionally, the Company has a
secured $275 million line of credit. This line had $205 million of borrowings as of December 31, 2001 and expires in
November 2004 with a one-year extension option. The Company also has available a second secured bank line of credit of
up to $40 million. The line had $12.0 million of borrowings as of December 31, 2001 and expires in June 2002.
Summary of Investing Activities
Net cash used in investing activities was $240.7 million in 2001 compared to $219.7 million in 2000 and $197.4 million
in 1999. Cash used in investing activities was impacted by the timing of capital expenditures, with additions to
properties in 2001, 2000, and 1999 for the construction of MacArthur Center, The Mall at Wellington Green, The Shops at
Willow Bend, as well as other development activities and other capital items. During 2001, 2000, and 1999, $4.0 million,
$3.0 million, and $7.4 million were invested in technology-related ventures, respectively. During 1999, $11.1 million
was invested in Swerdlow Real Estate Group and Lord Associates. During 2000, net acquisition costs of $23.6 million
were incurred in connection with the Lakeside and Twelve Oaks transaction. Net proceeds from sales of peripheral land
were $8.6 million, $8.2 million, and $1.8 million in 2001, 2000, and 1999, respectively. Although 2001 gains on land
sales were less than the comparable period in 2000, net proceeds were higher in 2001 because certain 2000 sales involved
larger land contracts. Contributions to Unconsolidated Joint Ventures were $55.9 million in 2001, $18.8 million in 2000,
and $36.8 million in 1999, primarily representing funding for construction activities at Dolphin Mall, International
Plaza, and The Mall at Millenia. Distributions from Unconsolidated Joint Ventures were primarily consistent with 2000,
while 2000 decreased from 1999 due to the transfers of Lakeside and Twelve Oaks and excess mortgage refinancing proceeds
received in 1999.
Summary of Financing Activities
Financing activities contributed cash of $128.8 million in 2001, $99.7 million in 2000, and $91.3 million in 1999.
Debt proceeds, net of repayments and issuance costs, provided $242.7 million, $231.2 million, and $100.9 million in 2001,
2000, and 1999, respectively. In 1999, the Operating Partnership received $97.3 million from the issuance of preferred
equity. Stock repurchases of $22.9 million were made in connection with the Company's stock repurchase program in 2001,
a decrease of $1.3 million from 2000. The Company has repurchased $47.1 million of its common stock since it received
authorization from the Company's Board of Directors in March 2000 for purchases up to $50 million. Issuance of stock
pursuant to the Continuing Offer related to the exercise of employee options contributed $16.9 million in 2001, $0.1
million in 2000, and $3.1 million in 1999. Total dividends and distributions paid were $107.9 million, $107.5 million,
and $100.1 million in 2001, 2000, and 1999, respectively.
30
Beneficial Interest in Debt
At December 31, 2001, the Operating Partnership's debt and its beneficial interest in the debt of its Consolidated and
Unconsolidated Joint Ventures totaled $1,907.9 million with an average interest rate of 5.86% excluding amortization of
debt issuance costs and interest rate hedging costs. Debt issuance costs and interest rate hedging costs are reported as
interest expense in the results of operations. Amortization of debt issuance costs added 0.37% to TRG's effective
interest rate during 2001. 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 $121.4 million as of December 31,
2001. Beneficial interest in capitalized interest was $29.5 million for 2001. The following table presents information
about the Company's beneficial interest in debt as of December 31, 2001.
Beneficial Interest in Debt
--------------------------------------------------------------
Amount Interest LIBOR Frequency LIBOR
(in millions Rate at Cap of Rate at
of dollars) 12/31/01 Rate Resets 12/31/01
----------- -------- ------ ------- --------
Total beneficial interest in fixed rate debt $1,025.2 7.50% (1)
Floating rate debt hedged via interest rate caps:
Through March 2002 100.0 3.21 (1) 7.25% Monthly 1.87%
Through March 2002 144.5 3.95 (1) 7.25 Monthly 1.87
Through July 2002 43.4 5.16 6.50 Monthly 1.87
Through August 2002 38.0 2.70 8.20 Monthly 1.87
Through September 2002 100.0 (2) 4.30 (1) 7.00 Monthly 1.87
Through October 2002 26.5 4.37 7.10 Monthly 1.87
Through November 2002 80.2 3.50 (1) 8.75 Monthly 1.87
Through May 2003 147.0 4.15 7.15 Monthly 1.87
Through September 2003 63.0 4.47 7.00 Monthly 1.87
Through September 2003 63.0 4.19 (1) 7.25 Monthly 1.87
Other floating rate debt 77.1 3.21 (1)
--------
Total beneficial interest in debt $1,907.9 5.86 (1)(3)
========
(1) Denotes weighted average interest rate before amortization of financing costs.
(2) This construction debt at a 50% owned unconsolidated joint venture is swapped at a rate of 6.14% when LIBOR is
below 6.7%.
(3) As provided for by certain debt agreements, the Company has currently locked in an average all in rate of 4.7% on
approximately $490 million of floating rate debt into the fourth quarter of 2002 and an additional $247 million that
expires throughout the first three quarters of 2002.
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, 2001, excluding debt
fixed under long-term LIBOR rate contracts, a one percent increase or decrease in interest rates on this floating rate
debt would decrease or increase annual cash flows by approximately $4.0 million and, due to the effect of capitalized
interest, annual earnings by approximately $3.7 million. Based on the Company's consolidated debt and interest rates in
effect at December 31, 2001, a one percent increase in interest rates would decrease the fair value of debt by
approximately $43.2 million, while a one percent decrease in interest rates would increase the fair value of debt by
approximately $46.4 million.
In March 2002, the Company entered into a one year 4.3% swap agreement based on a notional amount of $100 million to
begin November 1, 2002, as a hedge of the Company's $275 million line of credit.
31
Covenants and Commitments
Certain loan agreements contain various restrictive covenants including minimum net worth requirements, 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 its covenants.
The Company's secured credit facilities contain customary covenants requiring the maintenance of comprehensive all-risk
insurance on property securing each facility. As a result of expected exclusions or coverage reductions in its insurance
policies upon renewal, the Company expects to purchase supplemental coverage for terrorist acts at significant additional
cost. Although, based on preliminary discussions with its insurance agency and certain of its lenders, the Company
believes it will be able to purchase satisfactory additional coverage at increased, though not prohibitive, costs. No
assurances can be given that such coverage will be adequate or that mortgagees will not require coverage beyond that
which is commercially available at reasonable rates. The Company's inability to obtain such coverage or to do so only at
greatly increased costs may also negatively impact the availability and cost of future financing.
Certain debt agreements contain performance and valuation criteria that must be met for the loans to be extended at the
full principal amounts; these agreements provide for partial prepayments of debt to facilitate compliance with extension
provisions.
Payments of principal and interest on the loans in the following table are guaranteed by the Operating Partnership as
of December 31, 2001. 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 12/31/01 as of 12/31/01 as of 12/31/01 by TRG by TRG
- ------ -------------- -------------- -------------- ------ ------
(in millions of dollars)
Dolphin Mall 164.6 82.3 82.3 50% 100%
Great Lakes Crossing 151.0 128.3 151.0 100% 100%
International Plaza 171.6 45.4 171.6 100% (1) 100% (1)
The Mall at Millenia 56.5 28.3 28.3 50% 50%
The Mall at Wellington Green 124.3 111.9 124.3 100% 100%
The Shops at Willow Bend 186.5 186.5 186.5 100% 100%
(1) An investor in the International Plaza venture has indemnified the Operating Partnership to the extent of
approximately 25% of the amounts guaranteed. Effective February 2002, the guarantee on the International Plaza loan
was reduced to 50%.
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. In 2001, a $1.9 million charge related to a technology
investment was also excluded.
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. Funds
from Operations as presented by the Company may not be comparable to similarly titled measures of other companies.
32
Reconciliation of Income to Funds from Operations
2001 2000
---- ----
(in millions of dollars)
Income before gain on disposition of interest in center,
extraordinary items, cumulative effect of change in
accounting principle, and minority and preferred interests (1) (2) 55.7 66.5
Depreciation and amortization (3) 68.9 57.8
Share of Unconsolidated Joint Ventures'
depreciation and amortization (4) 23.9 19.4
Charge related to technology investment 1.9
Non-real estate depreciation (2.7) (3.0)
Minority partners in consolidated joint ventures share
of funds from operations (2.5) (2.4)
Preferred dividends and distributions (25.6) (25.6)
----- -----
Funds from Operations - TRG 119.5 112.7
===== =====
Funds from Operations allocable to TCO 73.5 70.4
===== =====
(1) Includes gains on peripheral land sales of $4.6 million and $9.1 million for the years ended December 31, 2001
and 2000, respectively.
(2) Includes net non-cash straightline adjustments to minimum rent revenue and ground rent expense of $1.1 million
and $(0.1) million for the years ended December 31, 2001 and 2000, respectively.
(3) Includes $2.7 million and $2.4 million of mall tenant allowance amortization for the years ended December 31,
2001 and 2000, respectively.
(4) Includes $2.4 million and $2.2 million of mall tenant allowance amortization for the years ended December 31,
2001 and 2000, respectively.
(5) Amounts in the tables may not add due to rounding.
Reconciliation of Funds from Operations to Income
2001 2000
---- ----
(in millions of dollars)
Funds from Operations-TRG 119.5 112.7
Exclusions from FFO:
Charge related to technology investment (1.9)
Gain on disposition of interest in center 116.5
Depreciation adjustments:
Consolidated Businesses' depreciation and amortization (68.9) (57.8)
Minority partners in consolidated joint ventures share of
depreciation and amortization 3.2 2.4
Depreciation of TCO's additional basis 7.6 8.0
Non-real estate depreciation 2.7 3.0
Share of Unconsolidated Joint Ventures' depreciation and
amortization (23.9) (19.4)
----- -----
Income before extraordinary items and cumulative effect
of change in accounting principle - TRG 38.4 165.4
==== =====
TCO's ownership share of income of TRG (1) 23.6 103.4
TCO's additional basis in TRG gain (31.2)
Depreciation of TCO's additional basis (7.6) (8.0)
---- ----
Income before distributions in excess of earnings allocable to
minority interest - TCO 16.0 64.2
Distributions less than (in excess of) earnings allocable to minority
interest (20.0) 28.2
----- ----
Income (loss) before extraordinary items and cumulative effect
of change in accounting principle allocable to common
shareowners-TCO (4.0) 92.4
==== ====
(1) TCO's average ownership of TRG was approximately 62% and 63% during 2001 and 2000, respectively.
(2) Amounts in this table may not add due to rounding.
33
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. To
qualify as a REIT, the Company must distribute at least 90% of its REIT taxable income to its shareowners, as well as
meet certain other requirements. Preferred dividends accrue regardless of whether earnings, cash availability, or
contractual obligations were to prohibit the current payment of dividends. The preferred stock is callable in October
2002. The Company has no present intention to redeem the preferred equity.
On December 11, 2001, the Company declared a quarterly dividend of $0.255 per common share payable January 22, 2002 to
shareowners of record on December 31, 2001. The Board of Directors also declared a quarterly dividend of $0.51875 per
share on the Company's 8.3% Series A Preferred Stock, paid December 31, 2001 to shareowners of record on December 21,
2001.
Common dividends declared totaled $1.005 per common share in 2001, of which $0.3075 represented return of capital,
$0.6878 represented ordinary income, and $0.0097 represented capital gain, compared to dividends declared in 2000 of
$0.985 per common share, of which $0.4402 represented return of capital and $0.4799 represented ordinary income and
$0.0649 represented capital gain. The tax status of total 2002 common dividends declared and to be declared, assuming
continuation of a $0.255 per common share quarterly dividend, is estimated to be approximately 28% return of capital, and
approximately 72% ordinary income. Series A preferred dividends declared were $2.075 per preferred share in 2001 and
2000, of which $2.0549 represented ordinary income and $0.0201 represented capital gains in 2001 and $1.9382 represented
ordinary income and $0.1368 represented capital gains in 2000. The tax status of total 2002 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, 6) changes in interest rates, 7) amount
and nature of development activities, and 8) changes in the tax laws or their 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. Based on current tax laws and earnings projections, the Company expects that the growth in common dividends will
be less than the growth in Funds from Operations for at least three more years.
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.
34
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:
2001(1)
----------------------------------------------------------------------
Beneficial Interest in
Unconsolidated Consolidated Businesses
Consolidated Joint and Unconsolidated
Businesses Ventures Joint Ventures (2)
----------------------------------------------------------------------
(in millions of dollars)
Development, renovation, and expansion:
Existing centers 9.8 11.5 15.4
New centers 238.6(3) 295.5(4) 347.3
Pre-construction development activities,
net of charge to operations 6.8 6.8
Mall tenant allowances 11.3 3.7 12.7
Corporate office improvements, equipment,
and software 2.4 2.4
Other 1.0 1.0 1.5
----- ----- -----
Total 269.9 311.7 386.1
===== ===== =====
(1) Costs are net of intercompany profits and are computed on an accrual basis.
(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, The Shops at Willow Bend, and Stony Point Fashion Park.
(4) Includes costs related to International Plaza, Dolphin Mall, and The Mall at Millenia.
2000 (1)
----------------------------------------------------------------------
Beneficial Interest in
Unconsolidated Consolidated Businesses
Consolidated Joint and Unconsolidated
Businesses Ventures Joint Ventures (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 and are computed on an accrual basis.
(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.
The Operating Partnership's share of mall tenant allowances per square foot leased during the year, excluding expansion
space and new developments, was $15.26 in 2001 and $16.39 in 2000. In addition, the Operating Partnership's share of
capitalized leasing costs in 2001, excluding new developments, was $8.7 million, or $10.32 per square foot leased and
$7.6 million or $10.54 per square foot leased during the year in 2000.
The Operating Partnership has entered into a 50% owned joint venture to develop The Mall at Millenia currently under
construction in Orlando, Florida. This project is expected to cost approximately $200 million and open in October 2002.
The Mall at Millenia will be anchored by Bloomingdale's, Macy's, and Neiman Marcus.
35
Stony Point Fashion Park, a new 690,000 square foot open-air center under construction in Richmond, Virginia, will be
anchored by Dillard's and Saks. The center is scheduled to open in September 2003.
The Company's approximately $22 million balance of development pre-construction costs as of December 31, 2001 consists
primarily of costs relating to a project in Syosset, New York. Both Neiman Marcus and Lord & Taylor have made
announcements committing to the project. The Company is currently involved in a lawsuit to obtain the necessary zoning
approvals to move forward with the project. Although the Company expects to be successful in this effort, the process
may not be resolved in the near future. In addition, if the litigation is unsuccessful, the Company would expect to
recover substantially less than its cost in this project under possible alternative uses for the site.
The Operating Partnership and The Mills Corporation have formed an alliance to develop value super-regional projects in
major metropolitan markets. The amended agreement, which expires in May 2008, calls for the two companies to jointly
develop and own at least four 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 2002:
2002
----------------------------------------------------------------------
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 49.6(3) 99.3(4) 99.3
Mall tenant allowances 9.5 4.0 11.0
Pre-construction development and other 8.0 0.3 8.1
----- ----- -----
Total 67.1 103.6 118.4
===== ===== =====
(1) Costs are net of intercompany profits.
(2) Includes the Operating Partnership's share of construction costs for The Mall at Millenia (a 50% owned
unconsolidated joint venture).
(3) Includes costs related to Stony Point Fashion Park.
(4) Includes costs related to The Mall at Millenia.
The Operating Partnership anticipates that its share of costs for development projects scheduled to be completed in
2003 will be as much as $80 million in 2003. 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, 2001 of $14.85 per common share, the aggregate value of interests in the
Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $366 million. The purchase
of these interests at December 31, 2001 would have resulted in the Company owning an additional 30% interest in the
Operating Partnership.
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 2002 (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, the Audit Committee Report, 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, 2001 and 2000 ..................................F-3
Consolidated Statement of Operations for the years ended
December 31, 2001, 2000 and 1999............................................................F-4
Consolidated Statement of Shareowners' Equity for the years ended
December 31, 2001, 2000 and 1999............................................................F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 2001, 2000 and 1999............................................................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-26
Schedule III - Real Estate and Accumulated Depreciation......................................F-27
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP (a consolidated subsidiary
of Taubman Centers, Inc.)
Independent Auditors' Report.................................................................F-29
Combined Balance Sheet as of December 31, 2001 and 2000......................................F-30
Combined Statement of Operations for the years ended
December 31, 2001, 2000 and 1999...........................................................F-31
Combined Statement of Accumulated Deficiency in Assets for the three
years ended December 31, 2001, 2000 and 1999...............................................F-32
Combined Statement of Cash Flows for the years ended
December 31, 2001, 2000 and 1999...........................................................F-33
Notes to Combined Financial Statements.......................................................F-34
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)
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 November 1, 2001 among the
Taubman Realty Group Limited Partnership, as Borrower, The Lenders Signatory
Hereto, each as a bank and Bank of America, N.A., as Administrative Agent.
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).
39
*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) -- First Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive
Plan as Amended and Restated Effective as of September 30, 1997, effective
January 1, 2002.
10(c) -- 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(d) -- 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(e) -- 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(f) -- 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(g) -- 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(h) -- 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(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).
40
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).
10(q) -- Amended and Restated Shareholders' Agreement dated as of October 30, 2001
among Taub-Co Managament, Inc., The Taubman Realty Group Limited Partnership,
The A. Alfred Taubman Restated Revocable Trust, as amended in its entirety by
instrument dated January 10, 1989 and subsequently by instrument dated June 25,
1997, and Taub-Co Holdings LLC.
*10(r) -- The Taubman Realty Group Limited Partnership and The Taubman Company LLC
Election and Option Deferral Agreement.
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.
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, 2001 AND 2000
AND FOR EACH OF THE YEARS
ENDED DECEMBER 31, 2001, 2000 AND 1999
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, 2001 and 2000, and the related consolidated statements of operations, shareowners' equity, and cash
flows for each of the three years in the period ended December 31, 2001. 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 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 consolidated financial statements present fairly, in all material respects, the financial
position of Taubman Centers, Inc. as of December 31, 2001 and 2000, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2001 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.
As discussed in Note 2 to the consolidated financial statements, in 2001 the Company changed its method of
accounting for derivative instruments to conform to Statement of Financial Accounting Standards No. 133, as
amended and interpreted.
DELOITTE & TOUCHE LLP
Detroit, Michigan
February 12, 2002
F-2
TAUBMAN CENTERS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
December 31
----------------------------------------
2001 2000
---- ----
Assets:
Properties (Notes 8 and 11) $ 2,194,717 $ 1,959,128
Accumulated depreciation and amortization (337,567) (285,406)
----------------- ----------------
$ 1,857,150 $ 1,673,722
Investment in Unconsolidated Joint Ventures (Note 7) 148,801 109,018
Cash and cash equivalents 27,789 18,842
Accounts and notes receivable, less allowance for doubtful
accounts of $5,345 and $3,796 in 2001 and 2000 (Note 9) 35,734 32,155
Accounts and notes receivable from related parties (Notes 9 and 13) 20,645 10,454
Deferred charges and other assets (Note 10) 51,320 63,372
----------------- ----------------
$ 2,141,439 $ 1,907,563
================= ================
Liabilities:
Notes payable (Note 11) $ 1,423,241 $ 1,173,973
Accounts payable and accrued liabilities 181,912 131,161
Dividends payable 12,937 12,784
----------------- ----------------
$ 1,618,090 $ 1,317,918
Commitments and Contingencies (Notes 8, 9, 10, 11, 12, and 16)
Preferred Equity of TRG (Note 15) $ 97,275 $ 97,275
Partners' Equity of TRG allocable to minority partners (Note 1)
Shareowners' Equity (Note 15):
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, 2001 and 2000 $ 80 $ 80
Series B Non-Participating Convertible Preferred Stock, $0.001 par
and liquidation value, 40,000,000 shares authorized, 31,767,066
and 31,835,066 shares issued and outstanding at December 31,
2001 and 2000 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,
50,734,984 and 50,984,397 issued and outstanding at
December 31, 2001 and 2000 507 510
Additional paid-in capital 673,043 676,544
Accumulated other comprehensive income (Note 2) (3,119)
Dividends in excess of net income (244,469) (184,796)
----------------- ----------------
$ 426,074 $ 492,370
----------------- ----------------
$ 2,141,439 $ 1,907,563
================= ================
See notes to financial statements.
F-3
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share data)
Year Ended December 31
------------------------------------------------
2001 2000 1999
---- ---- ----
Income:
Minimum rents $ 176,156 $ 154,497 $ 141,885
Percentage rents 5,484 6,356 4,881
Expense recoveries 104,547 92,203 81,453
Revenues from management, leasing, and
development services 26,015 24,964 23,909
Other 29,226 27,580 16,564
-------------- --------------- --------------
$ 341,428 $ 305,600 $ 268,692
-------------- --------------- --------------
Operating Expenses:
Recoverable expenses $ 91,153 $ 81,276 $ 73,711
Other operating 36,386 32,687 36,685
Restructuring (Note 4) 1,968
Charge related to technology investment (Note 10) 1,923
Management, leasing, and development services 19,023 19,543 17,215
General and administrative 20,092 18,977 18,129
Interest expense 68,150 57,329 51,327
Depreciation and amortization 68,930 57,780 52,475
-------------- --------------- --------------
$ 307,625 $ 267,592 $ 249,542
-------------- --------------- --------------
Income before equity in income before extraordinary items
of Unconsolidated Joint Ventures, gain on disposition of
interest in center, extraordinary items, cumulative
effect of change in accounting principle, and minority
and preferred interests $ 33,803 $ 38,008 $ 19,150
Equity in income before extraordinary items and
cumulative effect of change in accounting principle of
Unconsolidated Joint Ventures (Note 7) 21,861 28,479 39,295
-------------- --------------- --------------
Income before gain on disposition of interest in center,
extraordinary items, cumulative effect of change in
accounting principle, and minority and preferred interests $ 55,664 $ 66,487 $ 58,445
Gain on disposition of interest in center (Note 3) 85,339
-------------- --------------- --------------
Income before extraordinary items, cumulative effect of
change in accounting principle, and minority and
preferred interests $ 55,664 $ 151,826 $ 58,445
Extraordinary items (Notes 7 and 11) (9,506) (468)
Cumulative effect of change in accounting principle (Note 2) (8,404)
-------------- --------------- --------------
Income before minority and preferred interests $ 47,260 $ 142,320 $ 57,977
Minority interest in consolidated joint ventures 1,070
Minority interest in TRG:
TRG income allocable to minority partners (11,677) (58,488) (17,600)
Distributions less than (in excess of) earnings
allocable to minority partners (19,996) 28,188 (12,431)
TRG Series C and D preferred distributions (Note 15) (9,000) (9,000) (2,444)
-------------- --------------- --------------
Net income $ 7,657 $ 103,020 $ 25,502
Series A preferred dividends (Note 15) (16,600) (16,600) (16,600)
-------------- --------------- --------------
Net income (loss) allocable to common shareowners $ (8,943) $ 86,420 $ 8,902
============== =============== ==============
Basic earnings per common share (Note 17):
Income (loss) before extraordinary items and cumulative
effect of change in accounting principle $ (.08) $ 1.76 $ .17
============== =============== ==============
Net income (loss) $ (.18) $ 1.65 $ .17
============== =============== ==============
Diluted earnings per common share (Note 17):
Income (loss) before extraordinary items and cumulative
effect of change in accounting principle $ (.09) $ 1.75 $ .17
============== =============== ==============
Net income (loss) $ (.18) $ 1.64 $ .16
============== =============== ==============
Cash dividends declared per common share $ 1.005 $ .985 $ .965
============== =============== ==============
Weighted average number of common shares outstanding 50,500,058 52,463,598 53,192,364
============== =============== ==============
See notes to financial statements.
F-4
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(in thousands, except share data)
Preferred Stock Common Stock Accumulated Other Dividends in
--------------- ------------ Additional Comprehensive Excess of
Shares Amount Shares Amount Paid-in Capital Income Net Income Total
------ ------ ------ ------ --------------- ----------------- ---------- -----
Balance, January 1, 1999 39,399,913 $ 108 52,995,904 $ 530 $ 697,965 $ (177,426) $ 521,177
Issuance of stock pursuant to
acquisition (Note 10) 435,153 4 4
Issuance of stock pursuant to
Continuing Offer (Note 16) 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 16) 12,854 127 127
Release of units in connection
with Lord Associates
acquisition (Note 10) 1,130 1,130
Purchases of stock (Note 15) (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
Issuance of stock pursuant to
Continuing Offer
(Notes 10 and 16) (68,000) 1,579,287 16 16,880 16,896
Release of units in connection
with Lord Associates
acquisition (Note 10) 878 878
Purchases of stock (Note 15) (1,828,700) (19) (21,259) (21,278)
Cash dividends declared (67,330) (67,330)
Net income 7,657 $ 7,657
Other comprehensive income:
Cumulative effect of change in
accounting principle (Note 2) $ (779) (779)
Realized loss on interest rate
instruments (2,805) (2,805)
Reclassification adjustment for
amounts recognized in net
income 465 465
-----------
Total comprehensive income $ 4,538
------------ ------- ----------- ------- ----------- ------------ ------------ -----------
Balance, December 31, 2001 39,767,066 $ 112 50,734,984 $ 507 $ 673,043 $ (3,119) $ (244,469) $ 426,074
============= ======= =========== ======= =========== ============ ============ ===========
See notes to financial statements.
F-5
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31
-----------------------------------------------------
2001 2000 1999
---- ---- ----
Cash Flows From Operating Activities:
Income before extraordinary items, cumulative effect
of change in accounting principle, and minority and
preferred interests $ 55,664 $ 151,826 $ 58,445
Adjustments to reconcile income before extraordinary
items, cumulative effect of change in accounting
principle, and minority and preferred interests to
net cash provided by operating activities:
Depreciation and amortization 68,930 57,780 52,475
Provision for losses on accounts receivable 3,427 3,558 2,238
Gains on sales of land (4,579) (9,444) (1,667)
Gain on disposition of interest in center (85,339)
Other 5,176 3,587 4,811
Increase (decrease) in cash attributable to changes
in assets and liabilities:
Receivables, deferred charges and other assets (12,638) (10,790) (17,183)
Accounts payable and other liabilities 4,847 7,115 8,440
-------------- -------------- ----------------
Net Cash Provided by Operating Activities $ 120,827 $ 118,293 $ 107,559
-------------- -------------- ----------------
Cash Flows From Investing Activities:
Additions to properties $ (207,676) $ (187,454) $ (208,142)
Proceeds from sales of land 8,608 8,239 1,834
Acquisition of additional interest in center (Note 3) (23,644)
Purchase of equity securities (Note 10) (4,040) (3,000) (18,462)
Contributions to Unconsolidated Joint Ventures (55,940) (18,830) (36,799)
Distributions from Unconsolidated Joint Ventures in
excess of income before extraordinary items 18,323 5,006 64,215
-------------- -------------- ----------------
Net Cash Used In Investing Activities $ (240,725) $ (219,683) $ (197,354)
-------------- -------------- ----------------
Cash Flows From Financing Activities:
Debt proceeds $ 421,281 $ 358,153 $ 625,797
Debt payments (172,013) (120,756) (514,534)
Debt issuance costs (6,570) (6,202) (10,335)
Repurchase of common stock (Note 15) (22,899) (24,160)
Issuance of common stock pursuant to Continuing
Offer (Note 16) 16,896 127 3,087
Issuance of TRG Preferred Equity (Note 15) 97,275
Distributions to minority and preferred interests (40,673) (39,300) (32,474)
Cash dividends to common shareowners (50,577) (51,587) (51,040)
Cash dividends to Series A preferred shareowners (16,600) (16,600) (16,600)
Other (9,869)
-------------- -------------- ----------------
Net Cash Provided By Financing Activities $ 128,845 $ 99,675 $ 91,307
-------------- -------------- ----------------
Net Increase (Decrease) In Cash and Cash Equivalents $ 8,947 $ (1,715) $ 1,512
Cash and Cash Equivalents at Beginning of Year 18,842 20,557 19,045
-------------- -------------- ----------------
Cash and Cash Equivalents at End of Year $ 27,789 $ 18,842 $ 20,557
============== ============== ================
See notes to financial statements.
F-6
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2001
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, 2001 included 20 urban and suburban shopping centers in nine states.
Two additional centers are under construction in Florida and Virginia.
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.
The Company owns 99% of the voting stock of Taub-Co (which holds an approximately 98% interest in The Taubman
Company LLC (the Manager)) and an approximately 2% direct interest in the Manager. Prior to October 2001, the
Company's interest in Taub-Co was non-voting. Through these ownership interests, the Company has the perpetual
rights to receive over 99% of the economic benefits and cash flows generated by the Manager's operations. The
remaining interest in the Manager is indirectly owned by individuals who are members of the Board of Directors or
major stockholders of the Company, and who have contributed nominal amounts of equity for their interests in the
Manager. These individuals' interests are aligned with the interests of the Company's management. The Manager
cannot perform any services to entities in which the Company is not a significant investor without the approval
of the Company. The Company or its affiliates have provided all of the operating capital to the Manager. All of
these factors resulted in the Company having a controlling financial interest in Taub-Co and the Manager under
both the current and prior ownership structures and, therefore, the operations of the Manager have been
consolidated in the Company's financial statements.
References in the following notes to "the Company" include the Operating Partnership, except where
intercompany transactions are discussed or as otherwise noted.
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.
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, when fees due are
determinable, and collectibility is reasonably assured. Fees for management, leasing, and development services
are established under contracts and are generally based on negotiated rates, percentages of cash receipts, and/or
actual compensation costs incurred.
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.
F-7
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Capitalization
Costs related to the acquisition, development, construction, and improvement of properties are capitalized.
Interest costs are capitalized until construction is substantially complete. All properties, including those
under construction or development and/or owned by Unconsolidated Joint Ventures, are reviewed for impairment on
an individual basis whenever events or changes in circumstances indicate that their carrying value may not be
recoverable. Impairment is recognized when the sum of expected cash flows (undiscounted and without interest
charges) is less than the carrying value of the property. To the extent impairment has occurred, the excess
carrying value of the property over its estimated fair value is charged to income.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of 90 days or less at the date of
purchase.
Investments in Equity Securities
The Operating Partnership holds nonmarketable investments in equity securities in certain technology
businesses (Note 10). These investments are reviewed for other-than-temporary declines in value when events or
circumstances indicate that their carrying amounts are not recoverable.
Deferred Charges
Direct financing 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
Effective January 1, 2001, the Company adopted SFAS 133 "Accounting for Derivative Instruments and Hedging
Activities" and its related amendments and interpretations, which establish accounting and reporting standards
for derivative instruments (Note 2). All derivatives, whether designated in hedging relationships or not, are
recorded on the balance sheet at fair value. If a derivative is designated as a cash flow hedge, the effective
portions of changes in the fair value of the derivative are recorded in other comprehensive income (OCI) and are
recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the
fair value of a cash flow hedge are recognized in the Company's earnings as interest expense. For interest rate
cap instruments designated as cash flow hedges, changes in the time value are excluded from the assessment of
hedge effectiveness.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its
risk management objectives and strategies for undertaking various hedge transactions. The Company assesses, both
at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in the cash flows of the hedged items.
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, 2001 and December 31, 2000.
Also, 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 non-cash gain on the disposition of
an interest in a center (Note 3).
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.
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 2001 classifications.
Note 2 - Change in Accounting Principle
The Company uses derivative instruments to manage exposure to interest rate risks inherent in variable rate
debt and refinancings. The Company routinely uses cap, swap, and treasury lock agreements to meet these
objectives.
The initial adoption of SFAS 133 on January 1, 2001 resulted in a reduction to income of approximately $8.4
million as the cumulative effect of a change in accounting principle and a reduction to accumulated OCI of $0.8
million. These amounts represent the transition adjustments necessary to mark the Company's share of interest
rate agreements to fair value as of January 1, 2001.
In addition to the transition adjustments, the Company recognized a $3.3 million reduction of earnings during
the year ended December 31, 2001, representing unrealized losses primarily due to the decline in interest rates
and the resulting decrease in value of the Company's and its Unconsolidated Joint Ventures' interest rate
agreements. Of this amount, approximately $2.8 million represents the change in value of the Dolphin swap
agreement and the remainder represents the changes in time value of cap instruments.
As of December 31, 2001, the Company has $3.1 million of derivative losses included in Accumulated OCI. Of
this amount, $2.8 million relates to a realized loss on a hedge of the October 2001 Regency Square financing.
This loss will be recognized as additional interest expense over the ten-year term of the debt. The remaining
$0.3 million of derivative losses included in Accumulated OCI at December 31, 2001 relates to a hedge of the
Dolphin Mall construction facility that will be recognized as a reduction of earnings through its 2002 maturity
date. The Company expects that approximately $0.6 million will be reclassified from Accumulated OCI and
recognized as a reduction of earnings during the next twelve months.
F-9
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The swap agreement on the Dolphin construction facility does not qualify for hedge accounting although its use
is consistent with the Company's overall risk management objectives. As a result, the Company recognizes its
share of losses and income related to this agreement in earnings as the value of the agreement changes.
Note 3 - 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
percent owner of Twelve Oaks Mall, and its joint venture partner became the 100 percent owner of Lakeside,
subject to the existing mortgage debt. 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. 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. The Company's gain on the transaction differed from the $116.5 million gain
recognized by the Operating Partnership due to the Company's $31.2 million additional basis in Lakeside.
Note 4 - Restructuring
In October 2001, the Operating Partnership committed to a restructuring of its development operations. A
restructuring charge of approximately $2.0 million was recorded during the year ended December 31, 2001,
primarily representing the cost of certain involuntary terminations of personnel. Pursuant to the restructuring
plan, 17 positions were eliminated within the development department. Substantially all of the restructuring
costs were paid during 2001.
Note 5 - Income Taxes
The Company operates in such a manner as to qualify as a REIT under the provisions of the Internal Revenue
Code; therefore, applicable taxable income is included in the taxable income of its shareowners, to the extent
distributed by the Company. To qualify 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.
In connection with the Tax Relief Extension Act of 1999, the Company made Taxable REIT Subsidiary elections
for all of its corporate subsidiaries. The elections, effective for January 1, 2001, were made pursuant to
section 856(I) of the Internal Revenue Code. The Company's Taxable REIT Subsidiaries are subject to corporate
level income taxes which are provided for in the Company's financial statements.
Deferred tax assets and liabilities reflect the impact of temporary differences between the amounts of assets
and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax
laws. Deferred tax assets are reduced by a valuation allowance to the amount where realization is more likely
than not assured after considering all available evidence. The Company's temporary differences primarily relate
to deferred compensation and depreciation. During the year ended December 31, 2001, utilization of a deferred tax
asset reduced the Company's federal income tax expense from its taxable REIT subsidiaries to $0.1 million. For
the year ended December 31, 2001, state income tax expense from the Company's taxable REIT subsidiaries was $0.5
million. As of December 31, 2001, the Company had a net deferred tax asset of $4.4 million, after a valuation
allowance of $7.1 million.
F-10
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Dividends declared on the Company's common and preferred stocks and their tax status are presented in the
following tables. The tax status of the Company's dividends in 2001, 2000, and 1999 may not be indicative of
future periods.
Dividends
per common Return of Ordinary Capital
share declared capital income gains
--------------------- --------- ----------- ---------
2001 $1.005 $0.3075 $0.6878 $0.0097
2000 0.985 0.4402 0.4799 0.0649
1999 0.965 0.4534 0.5116 -----
Dividends per
Series A preferred Ordinary Capital
share declared income gains
--------------------- ----------- ---------
2001 $2.075 $2.0549 $0.0201
2000 2.075 1.9382 0.1368
1999 2.075 2.0750 -----
Note 6 - 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
---------------- -------------- ----------- ----------------
2001 82,502,050 50,734,984 62% 62%
2000 82,819,463 50,984,397 62% 63%
1999 85,116,709 53,281,643 63% 63%
Net income and distributions of the Operating Partnership are allocable first to the preferred equity
interests (Note 15), and the remaining amounts to the general and limited Operating Partnership partners in
accordance with their percentage ownership. The number of TRG units outstanding and the number of TRG units
owned by the Company decreased in 2001 and 2000 due to redemptions made in connection with the Company's share
repurchase program (Note 15), partially offset by units issued under the incentive option plan (Note 14).
Included in the total units outstanding at December 31, 2001 and 2000 are 261,088 units and 348,118 units,
respectively, issued in connection with the 1999 acquisition of Lord Associates that do not receive allocations
of income or distributions.
F-11
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7 - Investments in Unconsolidated Joint Ventures
Following are the Company's investments in Unconsolidated Joint Ventures. The Operating Partnership is the
managing general partner or managing member in these Unconsolidated Joint Ventures, except for those denoted with
an (*).
Ownership as of
Unconsolidated Joint Venture Shopping Center December 31, 2001
------------------------------ ---------------- -------------------
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
Taubman-Cherry Creek Cherry Creek 50
Limited Partnership
West Farms Associates Westfarms 79
Woodland Woodland 50
In September 2001, International Plaza, a 1.25 million square foot center opened in Tampa, Florida. As of
December 31, 2001, the Operating Partnership has a preferred investment in International Plaza of $19.1 million,
on which an annual preferential return of 8.25% will accrue.
In March 2001, Dolphin Mall, a 1.3 million square foot regional center opened in Miami, Florida. As of
December 31, 2001, the Operating Partnership has a preferred investment in Dolphin Mall of $29.6 million on which
an annual preferential return of 16.0% will accrue.
In addition to the preferred return on its investments in International Plaza and Dolphin Mall, the Operating
Partnership will receive a return of its preferred investments before any available cash will be utilized for
distributions to non-preferred partners.
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.
During 2001, the Unconsolidated Joint Ventures recognized a cumulative effect of a change in accounting
principle in connection with their adoption of SFAS 133 (Note 2). This cumulative effect represents the
transition adjustment necessary to mark interest rate agreements to fair value as of January 1, 2001. During
2000 and 1999, 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
partnership equity 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 in the following table (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 Mall, formerly
50% Unconsolidated Joint Ventures, are included in these results through the date of the transaction (Note 3).
F-12
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31 December 31
----------- -----------
2001 2000
---- ----
Assets:
Properties $ 1,367,082 $ 1,073,818
Accumulated depreciation and amortization (220,201) (189,644)
------------- -------------
$ 1,146,881 $ 884,174
Other assets 80,256 60,807
------------- -------------
$ 1,227,137 $ 944,981
============= =============
Liabilities and partnership equity:
Notes payable $ 1,154,141 $ 950,847
Other liabilities 109,247 49,069
TRG's partnership equity (accumulated
deficiency in assets) 903 (36,570)
Unconsolidated Joint Venture Partners'
accumulated deficiency in assets (37,154) (18,365)
------------- -------------
$ 1,227,137 $ 944,981
============= =============
TRG's partnership equity (accumulated deficiency
in assets) (above) $ 903 $ (36,570)
TRG basis adjustments, including
elimination of intercompany profit 22,612 17,266
TCO's additional basis 125,286 128,322
------------- -------------
Investment in Unconsolidated Joint Ventures $ 148,801 $ 109,018
============= =============
Year Ended December 31
-------------------------------------------------------
2001 2000 1999
---- ---- ----
Revenues $ 238,409 $ 230,679 $ 252,009
-------------- ------------- -------------
Recoverable and other operating expenses $ 87,446 $ 81,530 $ 87,755
Interest expense 74,895 65,266 64,152
Depreciation and amortization 39,695 30,263 29,983
-------------- ------------- -------------
Total operating costs $ 202,036 $ 177,059 $ 181,890
-------------- ------------- -------------
Income before extraordinary items and
cumulative effect of change in accounting
principle $ 36,373 $ 53,620 $ 70,119
Extraordinary items (19,169) (333)
Cumulative effect of change in accounting
principle (3,304)
-------------- ------------- -------------
Net income $ 33,069 $ 34,451 $ 69,786
============== ============= =============
Net income allocable to TRG $ 17,533 $ 18,099 $ 38,346
Cumulative effect of change in accounting
principle allocable to TRG 1,612
Extraordinary items allocable to TRG 9,506 167
Realized intercompany profit 5,752 4,680 5,434
Depreciation of TCO's additional basis (3,036) (3,806) (4,652)
-------------- ------------- -------------
Equity in income before extraordinary items
and cumulative effect of change in accounting
principle of Unconsolidated Joint Ventures $ 21,861 $ 28,479 $ 39,295
============== ============= =============
Beneficial interest in Unconsolidated
Joint Ventures' operations:
Revenues less recoverable and other
operating expenses $ 84,402 $ 82,858 $ 94,136
Interest expense (38,683) (34,933) (34,470)
Depreciation and amortization (23,858) (19,446) (20,371)
-------------- -------------- -------------
Income before extraordinary items and
cumulative effect of change in accounting
principle $ 21,861 $ 28,479 $ 39,295
============== ============= =============
F-13
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8 - Properties
Properties at December 31, 2001 and December 31, 2000 are summarized as follows:
2001 2000
---- ----
Land $ 199,098 $ 129,198
Buildings, improvements, and equipment 1,913,629 1,526,672
Construction in process 60,157 275,125
Development pre-construction costs 21,833 28,133
------------- -------------
$ 2,194,717 $ 1,959,128
Accumulated depreciation and amortization (337,567) (285,406)
------------- -------------
$ 1,857,150 $ 1,673,722
============= =============
The properties balances as of December 31, 2001 above reflect the 2001 openings of The Shops at Willow Bend, a
1.5 million square foot center in Plano, Texas, and The Mall at Wellington Green, a 1.3 million square foot
center in Wellington, Florida. Construction in process includes costs related to the construction of Stony Point
Fashion Park, additional phases of construction at The Shops at Willow Bend and The Mall at Wellington Green, and
expansions and improvements at various other centers.
Depreciation expense for 2001, 2000, and 1999 was $63.0 million, $52.5 million, and $47.9 million,
respectively. The charge to operations in 2001, 2000, and 1999 for costs of unsuccessful and potentially
unsuccessful pre-development activities was $6.6 million, $7.5 million, and $10.1 million, respectively.
The balance of development pre-construction costs as of December 31, 2001 consists primarily of costs relating
to a project in Syosset, New York. Both Neiman Marcus and Lord & Taylor have made announcements committing to
the project. The Company is currently involved in a lawsuit to obtain the necessary zoning approvals to move
forward with the project. Although the Company expects to be successful in this effort, the process may not be
resolved in the near future. In addition, if the litigation is unsuccessful, the Company would expect to
recover substantially less than its cost in this project under possible alternative uses for the site.
Note 9 - Accounts and Notes Receivable
Accounts and notes receivable at December 31, 2001 and December 31, 2000 are summarized as follows:
2001 2000
---- ----
Trade $ 26,222 $ 17,284
Notes 13,188 17,145
Other 1,669 1,522
------------- -------------
$ 41,079 $ 35,951
Less: allowance for doubtful accounts (5,345) (3,796)
------------- --------------
$ 35,734 $ 32,155
============= =============
Notes receivable as of December 31, 2001 provide interest at a range of interest rates from 7% to 10% (with a
weighted average interest rate of 7.9% at December 31, 2001) and mature at various dates.
Accounts and notes receivable from related parties at December 31, 2001 and December 31, 2000 are summarized
as follows:
2001 2000
------------------------
Trade $ 10,645 $ 6,578
Notes 10,000 3,778
Other 98
------------- -------------
$ 20,645 $ 10,454
============= =============
In April 2001, the $10 million investment in Swerdlow (Note 10) was converted into a note receivable which
bore interest at 12% and matured in December 2001. This loan is currently delinquent and is accruing interest at
18%. All interest due through the December maturity date was received. Although the Operating Partnership
expects to fully recover the amount due under this note receivable, the Company is currently in negotiations with
Swerdlow regarding the repayment. An affiliate of Swerdlow is a partner in the Dolphin Mall joint venture.
F-14
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 10 - Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 2001 and December 31, 2000 are summarized as follows:
2001 2000
---- ----
Leasing $ 37,380 $ 31,751
Accumulated amortization (22,348) (18,601)
------------- -------------
$ 15,032 $ 13,150
Interest rate agreements (Notes 2 and 11) 161 7,249
Deferred financing costs, net 12,817 10,492
Investments 15,406 25,106
Other, net 7,904 7,375
------------- -------------
$ 51,320 $ 63,372
============= =============
During 2001, the Company committed to funding approximately $2 million in Constellation Real Technologies,
LLC, a company that forms and sponsors real estate-related internet, e-commerce, and telecommunications
enterprises. The Company's investment was $0.5 million at December 31, 2001.
In May 2000, the Company acquired an approximately 6.8% interest in MerchantWired, LLC, a service company
providing internet and network infrastructure to shopping centers and retailers. As of December 31, 2001, the
Company had an investment of approximately $3.6 million in this venture and has guaranteed obligations of
approximately $3.8 million. The principal shareholder of MerchantWired has disclosed that the future
profitability of MerchantWired is dependent on it obtaining outside capital and other management expertise; there
is no assurance as to its success in doing so. The Company accounts for its investment in MerchantWired on the
equity method. During 2001 and 2000, the Company recognized its $2.4 million and $0.5 million share of
MerchantWired losses, respectively.
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 $0.9 million and $1.1 million of units having been released in 2001 and 2000,
respectively. 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. During 2001,
68,000 partnership units were exchanged by the owner for common stock under the Continuing Offer (Note 16).
Also, an equal number of Series B preferred shares were converted to shares of the Company's common stock at the
Series B conversion ratio (Note 15).
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. In April 2001, the $10 million
investment in Swerdlow was converted into a note receivable (Note 9).
In April 1999, the Company obtained a $7.4 million preferred investment in fashionmall.com, Inc., an
e-commerce company originally organized to market, promote, advertise, and sell fashion apparel and related
accessories and products over the internet. In 2001, fashionmall.com significantly scaled back its operations
and experienced significant decreases in operating revenues. Fashionmall.com management has disclosed that they
have more cash than is needed to fund current operations and are considering how best to use such cash, including
making acquisitions, issuing special dividends, or finding other options to provide opportunities for liquidity
to its shareholders at some time in the future. While the Company's right to a preference in the event of a
liquidation is not disputed, and while there is more than sufficient cash in fashionmall.com to fund the
Company's liquidation preference, the Company has been in settlement discussions with fashionmall.com's
management to return the Company's preferred investment at a discount, in order to facilitate these potential
uses of the cash. There is no assurance that the settlement discussions will achieve a resolution and/or what
their ultimate outcome will be. The Company accounts for its investment in fashionmall.com on the cost method.
During 2001, the Company recorded a charge of $1.9 million relating to its investment in fashionmall.com; the
Company's investment was $5.5 million at December 31, 2001.
F-15
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company assesses the valuation of its investments in these entities in accordance with its established
policies for such investments (Note 1).
Note 11 - Debt
Mortgage Notes Payable
Mortgage notes payable at December 31, 2001 and December 31, 2000 consist of the following:
Balance Due
2001 2000 Interest Rate Maturity Date on Maturity
---- ---- ------------- ------------- -----------
Beverly Center $ 146,000 $ 146,000 8.36% 07/15/04 $146,000
Biltmore Fashion Park 79,007 79,730 7.68% 07/10/09 71,391
Great Lakes Crossing 150,958 170,000 LIBOR + 1.50% 04/01/02 150,323
MacArthur Center 143,588 144,884 7.59% 10/01/10 126,884
Regency Square 82,373 6.75% 11/01/11 71,569
The Mall at Short Hills 270,000 270,000 6.70% 04/01/09 245,301
The Mall at Wellington Green 124,344 LIBOR + 1.85% 05/01/04 124,344
The Shops at Willow Bend 186,482 99,672 LIBOR + 1.85% 07/01/03 186,482
Twelve Oaks Mall 49,987 LIBOR + 0.45% 10/15/01
Line of Credit 205,000 63,000 LIBOR + 0.90% 11/01/04 205,000
Line of Credit 11,955 26,325 Variable Bank Rate 06/30/02 11,955
Other 22,039 122,311 Various Various 20,000
------------- -----------
$ 1,421,746 $ 1,171,909
============= ==============
Mortgage debt is collateralized by properties with a net book value of $1.8 billion and $1.5 billion as of
December 31, 2001 and December 31, 2000, respectively.
The $220 million construction facility for The Shops at Willow Bend and the $168 million construction
facility for The Mall at Wellington Green each have two one-year extension options. Both loans provide for rate
decreases when certain performance criteria are met. The Great Lakes Crossing loan and the $275 million line of
credit each provide for an option to extend the maturity dates one year. The Company has notified the lender on
the Great Lakes Crossing loan of the Company's intention to extend the loan. The maximum borrowings available
under the two lines of credit are $275 million and $40 million, respectively. The other mortgage notes payable
balance includes notes which are due at various dates through 2009, and have fixed interest rates between 6.3%
and 13%. Certain debt agreements contain performance and valuation criteria that must be met for the loans to be
extended at the full principal amounts; these agreements provide for partial prepayments of debt to facilitate
compliance with extension provisions.
The following table presents scheduled principal payments on mortgage debt as of December 31, 2001.
2002 $168,102
2003 193,043
2004 482,308
2005 7,540
2006 8,087
Thereafter 562,666
Unsecured Notes Payable
Unsecured notes payable at December 31, 2001 and December 31, 2000 were $1.5 million and $2.1 million,
respectively.
Debt Covenants and Guarantees
Certain loan and facility agreements contain various restrictive covenants including minimum net worth
requirements, 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.
F-16
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Payments of principal and interest on the loans in the following table are guaranteed by the Operating
Partnership as of December 31, 2001, including those of certain Unconsolidated Joint Ventures. 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 12/31/01 as of 12/31/01 as of 12/31/01 by TRG by TRG
- ------ -------------- -------------- -------------- ------ ------
(in millions of dollars)
Dolphin Mall 164.6 82.3 82.3 50% 100%
Great Lakes Crossing 151.0 128.3 151.0 100% 100%
International Plaza 171.6 45.4 171.6 100%(1) 100%(1)
The Mall at Millenia 56.5 28.3 28.3 50% 50%
The Mall at Wellington Green 124.3 111.9 124.3 100% 100%
The Shops at Willow Bend 186.5 186.5 186.5 100% 100%
(1) An investor in the International Plaza venture has indemnified the Operating Partnership to the extent
of approximately 25% of the amounts guaranteed. Effective February 2002, the guarantee on the International
Plaza loan was reduced to 50%.
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 Unconsolidated Joint
Ventures.
Fair Value of Financial Instruments Related to Debt
The estimated fair values of financial instruments at December 31, 2001 and December 31, 2000 are as follows:
2001 2000
-------------------------------- ------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------- ----------- ----------- ------------
Mortgage notes payable $ 1,421,746 $ 1,520,384 $ 1,171,909 $ 1,253,421
Unsecured notes payable 1,495 1,495 2,064 2,064
Interest rate instruments -
in a receivable position 161 161 7,249 505
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 minority
interests in Great Lakes Crossing, MacArthur Center, and The Mall at Wellington Green.
At 100% At Beneficial Interest
-------------------------------- ----------------------------------------------
Unconsolidated Unconsolidated
Consolidated Joint Consolidated Joint
Subsidiaries Ventures Subsidiaries Ventures Total
-------------- ----------------- -------------- ----------------- -------------
(in thousands of dollars)
Debt as of:
December 31, 2001 1,423,241 1,154,141 1,345,086 562,811 1,907,897
December 31, 2000 1,173,973 950,847 1,105,008 483,683 1,588,691
Capital Lease Obligations:
December 31, 2001 304 64 259 40 299
December 31, 2000 1,581 630 1,522 416 1,938
Capitalized Interest:
Year ended December 31, 2001 23,748 14,730 23,456 6,058 29,514
Year ended December 31, 2000 25,052 13,263 25,052 5,678 30,730
Interest Expense:
Year ended December 31, 2001 68,150 74,895 63,154 38,683 101,837
Year ended December 31, 2000 57,329 65,266 52,166 34,933 87,099
Note 12 - 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, 2001 for operating centers, assuming
no new or renegotiated leases or option extensions on anchor agreements, is summarized as follows:
2002 $197,445
2003 195,295
2004 182,273
2005 165,190
2006 150,824
Thereafter 588,362
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 $7.9
million in 2001, $7.5 million in 2000, and $7.0 million in 1999. Included in these amounts are related party
office rental payments of $2.7 million in each year.
F-18
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following is a schedule of future minimum rental payments required under operating leases:
2002 $7,160
2003 7,137
2004 7,140
2005 5,174
2006 3,624
Thereafter 165,850
The table above includes $2.8 million, $2.8 million, $2.8 million, and $0.9 million of related party amounts
in 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 13 - Transactions with Affiliates
The revenue from management, leasing, and development services includes $4.1 million, $4.2 million, and $2.5
million from transactions with affiliates for the years ended December 31, 2001, 2000, and 1999, respectively.
Accounts receivable from related parties include amounts due from Unconsolidated Joint Ventures or other
affiliates of the Company, primarily relating to services performed by the Manager (Note 14). These receivables
include certain amounts due to the Manager 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. A sale of the property is not anticipated to take place before 2003.
Other related party transactions are described in Notes 9, 12, and 14.
Note 14 - The Manager
The Taubman Company LLC (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.
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 $1.7 million in 2001, $1.9 million in 2000, and $1.6 million in 1999.
F-19
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Operating Partnership has an incentive option plan for employees of the Manager. 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 16).
In December 2001, the Company amended the plan to allow vested unit options to be exercised by tendering
mature units with a market value equal to the exercise price of the unit options. In December 2001, the
Company's chief executive officer executed a unit option deferral election with regard to options for
approximately three million units at an exercise price of $11.14 per unit due to expire in November 2002. This
election will allow him to defer the receipt of the net units he would receive upon exercise. These deferred
option units will remain in a deferred compensation account until Mr. Taubman's retirement or ten years from the
date of exercise. Beginning with the ten year anniversary of the date of exercise, the deferred partnership
units will be paid in ten annual installments.
As the Company declares distributions, the deferred option units will receive their proportionate share of the
distributions in the form of cash payments. The deferred option units will ultimately be settled by the delivery
of a fixed number of units to the chief executive officer. The balance in the deferred compensation account will
be classified as a component of shareholders' equity in the consolidated balance sheet.
A summary of the status of the plan for each of the three years in the period ended December 31, 2001 is
presented below:
2001 2000 1999
----------------------------- ----------------------------- --------------------------
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 7,594,458 $11.35 7,423,809 $11.36 6,805,018 $11.22
Exercised (1,511,283) 11.18 (12,854) 9.91 (285,739) 10.79
Granted 250,000 11.25 1,000,000 12.25
Cancelled (66,497) 12.45 (93,494) 12.90
Forfeited (1,976) 9.69
--------- --------- ---------
Outstanding at
end of year 6,083,175 11.39 7,594,458 11.35 7,423,809 11.36
========= ========= =========
Options vested
at year end 5,399,565 11.32 6,777,239 11.26 6,601,090 11.32
========= ========= =========
Options outstanding at December 31, 2001 have a remaining weighted-average contractual life of 2.7 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. There were no options granted in 2001. 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 2001, approximately $0.2 million, or less than $0.01 per share in 2000, and approximately
$0.7 million, or $0.01 per share in 1999.
Currently, options for 6.2 million Operating Partnership units may be issued under the plan, substantially all
of which have been issued. However, if the holder of an option elects to pay the exercise price by surrendering
partnership units, only those units issued to the holder in excess of the number of units surrendered are counted
for purposes of determining the remaining number of units available for future grants under the plan.
F-20
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In January 2002, options for 500,000 units vested upon the achievement of certain stock price performance
criteria.
Note 15 - 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.
The Company is 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, 2001, the Company had purchased, and the Operating Partnership had redeemed,
approximately 4.1 million shares and units for approximately $47.1 million. Existing lines of credit provided
funding for the purchases.
F-21
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 16 - 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 (the Cash Tender Agreement) with A. Alfred Taubman,
who owns an interest in the Operating Partnership, whereby he 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 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, 2001 of $14.85 per common share, the aggregate value of interests in
the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $366 million.
The purchase of these interests at December 31, 2001 would have resulted in the Company owning an additional 30%
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
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 General Motors pension trusts in connection with the IPO may be
sold through a registered offering. Pursuant to a registration rights agreement with the Company, the owners 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.
Refer to Note 10 for commitments relating to certain investments in technology businesses. Refer to Note 11
for the Operating Partnership's guarantees of certain debt.
Note 17 - 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, 2001, 2000, and 1999, options for 0.6 million, 4.5 million, and 0.7 million units of
partnership interest with average exercise prices of $13.30, $11.99, and $13.38, 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.
F-22
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Year Ended December 31
----------------------------------------------------
2001 2000 1999
----------------------------------------------------
(in thousands, except share data)
Income (loss) before extraordinary items and
cumulative effect of change in accounting principle
allocable to common shareowners (Numerator):
Net income (loss) allocable to common
shareowners $ (8,943) $ 86,420 $ 8,902
Common shareowners' share of cumulative
effect of change in accounting principle 4,924
Common shareowners' share of extraordinary
items 5,958 294
---------- ---------- ----------
Basic income (loss) before extraordinary items
and cumulative effect of change in accounting
principle $ (4,019) $ 92,378 $ 9,196
Effect of dilutive options (424) (490) (270)
---------- ---------- ----------
Diluted income (loss) before extraordinary items
and cumulative effect of change in accounting
principle $ (4,443) $ 91,888 $ 8,926
========== ========== ==========
Shares (Denominator) - basic and diluted 50,500,058 52,463,598 53,192,364
========== ========== ==========
Income (loss) before extraordinary items and
cumulative effect of change in accounting
principle per common share:
Basic $ (0.08) $ 1.76 $ 0.17
========= ========== ==========
Diluted $ (0.09) $ 1.75 $ 0.17
========= ========== ==========
Cumulative effect of change in accounting principle
per common share - basic and diluted $ (0.10)
=========
Extraordinary items per common share - basic
and diluted $ (0.11) $ (0.01)
========== =========
Note 18 - Cash Flow Disclosures and Non-Cash Investing and Financing Activities
Interest paid in 2001, 2000, and 1999, net of amounts capitalized of $23.7 million, $25.1 million, and $14.5
million, respectively, approximated $63.5 million, $50.4 million, and $45.8 million, respectively. The following
non-cash investing and financing activities occurred during 2001, 2000, and 1999:
2001 2000 1999
---- ---- ----
Non-cash additions to properties $59,622 $13,568 $13,550
Non-cash contributions to Unconsolidated Joint Ventures 3,778 2,762 58,720
Step-up in Company's basis in Twelve Oaks Mall (Note 3) 121,654
Land contracts 800 7,341 843
Partnership units released (Note 10) 878 1,130
Debt assumed with Twelve Oaks transaction (Note 3) 50,015
Accrual for stock repurchases settled in January 2001 1,621
Non-cash additions to properties primarily represent accrued construction and tenant allowance costs of new
centers and development projects.
F-23
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 19 - Quarterly Financial Data (Unaudited)
The following is a summary of quarterly results of operations for 2001 and 2000:
2001
------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------------------------------------
(in thousands, except share data)
Revenues $ 78,848 $ 83,589 $ 82,185 $ 96,806
Equity in income of Unconsolidated Joint Ventures 4,856 5,215 4,788 7,002
Income before extraordinary items, cumulative effect of
change in accounting principle, and minority and
preferred interests 13,736 15,723 12,295 13,910
Net income (loss) (4,499) 5,760 2,796 3,600
Net income (loss) allocable to common shareowners (8,649) 1,610 (1,354) (550)
Basic earnings per common share:
Income (loss) before extraordinary items and cumulative
effect of change in accounting principle $ (0.07) $ 0.03 $ (0.03) $ (0.01)
Net income (loss) (0.17) 0.03 (0.03) (0.01)
Diluted earnings per common share:
Income (loss) before extraordinary items and cumulative
effect of change in accounting principle $ (0.07) $ 0.03 $ (0.03) $ (0.01)
Net income (loss) (0.17) 0.03 (0.03) (0.01)
2000
------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------------------------------------
(in thousands, except share data)
Revenues $ 72,773 $ 70,398 $ 74,789 $ 87,640
Equity in income of Unconsolidated Joint Ventures 8,595 7,728 5,089 7,067
Income before gain on disposition of interest in center,
extraordinary items, and minority and preferred
interests 16,827 14,529 14,254 20,877
Net income (loss) (2,239) 4,750 89,815 10,694
Net income (loss) allocable 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
Note 20 - New Accounting Principle
In October 2001, the Financial Accounting Standards Board issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which replaced FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Statement 144 broadens the reporting of
discontinued operations to include disposals of operating components; each of the Company's investments in an
operating center is such a component. The provisions of Statement 144 are effective for financial statements
issued for fiscal years beginning after December 15, 2001 and generally are to be applied prospectively. The
Statement is not expected to have a material effect on the financial condition or results of operations of the
Company; however, if the Company were to dispose of a center, the center's results of operations would have to be
separately disclosed as discontinued operations in the Company's financial statements.
F-24
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 21 - Subsequent Events
In early 2002, the Operating Partnership entered into a definitive purchase and sale agreement to acquire for
$88 million a 50% general partnership interest in SunValley Associates, a California general partnership that
owns the Sunvalley Shopping Center located in Concord, California. The $88 million purchase price consists of $28
million of cash and $60 million of existing debt that encumbers the property. The Company's interest in the
secured debt consists of a $55 million primary note bearing interest at LIBOR plus 0.92% and a $5 million note
bearing interest at LIBOR plus 3.0%. The notes mature in September 2003 and have two one-year extension options.
The center is also subject to a ground lease that expires in 2061. The Manager has managed the property since its
development and will continue to do so after the acquisition. Although the Operating Partnership is purchasing
its interest in Sunvalley from an unrelated third party, the other partner is an entity owned and controlled by
Mr. A. Alfred Taubman, the Company's largest shareholder and recently retired Chairman of the Board of Directors.
Also in early 2002, the Company entered into agreements to sell its interests in LaCumbre Plaza and Paseo
Nuevo, subject to satisfying closing conditions, for $77 million. The centers are subject to ground leases and
are unencumbered by debt. The centers were purchased in 1996 for $59 million.
These transactions are expected to close during the first half of 2002, and the Company expects to use the net
proceeds from the sale of the two centers to fund the acquisition of Sunvalley and pay down borrowings under the
Company's lines of credit.
In March 2002, the Company entered into a one-year 4.3% swap agreement based on a notional amount of $100
million to begin November 1, 2002, as a hedge of the Company's $275 million line of credit.
F-25
Schedule II
TAUBMAN CENTERS, INC.
Valuation and Qualifying Accounts
For the years ended December 31, 2001, 2000, and 1999
(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, 2001:
Allowance for doubtful receivables $3,796 3,427 (1,602) (276) $5,345
====== ===== ======= ==== ======
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
==== ===== ======= ======
(1) Represents the transfer in of Twelve Oaks Mall. Prior to August 2000, the Company accounted for its interest
in Twelve Oaks under the equity method.
F-26
TAUBMAN CENTERS, INC. Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(in thousands)
Initial Cost Gross Amount at Which
to Company Cost Carried at Close of Period Date of
------------------- Capitalized ------------------------------ Accumulated Total Completion of
Buildings and Subsequent Depreciation Cost Net Construction or Depreciable
Land Improvements to Acquisition Land BI&E Total (A/D) of A/D Encumbrances Acquisition Life
---- ------------ -------------- ---- ---- ----- ------------- -------- ------------ --------------- -----------
Shopping Centers:
Beverly Center, Los Angeles, CA $ 0 $ 209,348 $ 34,702 $ 0 $ 244,050 $ 244,050 $ 74,310 $ 169,740 $ 146,000 1982 40 Years
Biltmore Fashion Park, Phoenix, AZ 19,097 103,257 16,166 19,097 119,423 138,520 25,008 113,512 79,007 1994 40 Years
Fairlane Town Center, Dearborn, MI 16,830 104,812 22,047 16,830 126,859 143,689 24,655 119,034 Note (1) 1996 40 Years
Great Lakes Crossing, Auburn Hills, MI 12,349 196,398 9,679 12,349 206,077 218,426 32,108 186,318 150,958 1998 50 Years
La Cumbre Plaza, Santa Barbara, CA 0 27,762 1,161 0 28,923 28,923 4,633 24,290 1996 40 Years
MacArthur Center, Norfolk, VA 4,000 144,176 1,862 4,000 146,038 150,038 17,209 132,829 143,588 1999 50 Years
Paseo Nuevo, Santa Barbara, CA 0 39,086 1,084 0 40,170 40,170 7,148 33,022 1996 40 Years
Regency Square, Richmond, VA 18,635 103,062 1,247 18,635 104,309 122,944 16,869 106,075 82,373 1997 40 Years
The Mall at Short Hills, Short Hills, NJ 25,114 171,151 114,062 25,114 285,213 310,327 71,216 239,111 270,000 1980 40 Years
Twelve Oaks Mall, Novi, MI 25,410 191,185 6,237 25,410 197,422 222,832 37,779 185,053 Note(1) 1977 50 Years
The Mall at Wellington Green,
Wellington, FL 23,824 155,642 0 23,824 155,642 179,466 1,446 178,020 124,344 2001 50 Years
The Shops at Willow Bend, Plano, TX 27,221 229,614 0 27,221 229,614 256,835 3,262 253,573 186,482 2001 50 Years
Other:
Manager's Office Facilities 0 0 28,769 0 28,769 28,769 21,598 7,171 0
Peripheral Land 26,618 0 0 26,618 0 26,618 0 26,618 0
Construction in Process and
Development Pre-construction Costs 0 79,238 2,752 0 81,990 81,990 0 81,990 0
Other 0 1,120 0 0 1,120 1,120 326 794 22,039
-------- -------- --------- --------- ---------- ---------- --------- ----------
TOTAL $199,098 $1,755,851 $ 239,768 $ 199,098 $1,995,619 $2,194,717(2) $ 337,567 $1,857,150
======== ========== ========= ========= ========== ========== ========= ==========
The changes in total real estate assets and accumulated depreciation for the years ended December 31, 2001, 2000, and 1999 are as follows:
Total Total Total
Real Estate Real Estate Real Estate Accumulated Accumulated Accumulated
Assets Assets Assets Depreciation Depreciation Depreciation
------ -------- ------ ------------ ------------ ------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
Balance, beginning of year $ 1,959,128 $ 1,572,285 $ 1,473,440 Balance, beginning of year $ (285,406) $ (210,788) $ (164,798)
New development and improvements 250,111 184,205 160,746 Depreciation for year (63,007) (52,506) (47,965)
Disposals (16,428) (13,403) (3,181) Disposals 10,846 7,421 1,975
Transfers In/(Out) 1,906 216,041(3) (58,720)(4) Transfers In (29,533)(3)
----------- ----------- ----------- ----------- ----------- -----------
Balance, end of year $ 2,194,717 $ 1,959,128 $ 1,572,285 Balance, end of year $ (337,567) $ (285,406) $ (210,788)
=========== =========== =========== =========== =========== ===========
(1) These centers are collateral for the Company's line of credit, which had a balance of $205 million at December 31, 2001.
(2) The unaudited aggregate cost for federal income tax purposes as of December 31, 2001 was $2.069 billion.
(3) Includes costs transferred relating to Twelve Oaks Mall, 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-27
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP (a consolidated subsidiary of Taubman Centers, Inc.)
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 AND 2000 AND
FOR EACH OF THE YEARS
ENDED DECEMBER 31, 2001, 2000, AND 1999
F-28
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, 2001 and 2000, and the related combined statements of operations, partnership equity (accumulated
deficiency in assets), and cash flows for each of the three years in the period ended December 31, 2001. 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, 2001 and 2000, and the combined results of their operations and their combined cash flows for each
of the three years in the period ended December 31, 2001 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.
As discussed in Note 2 to the combined financial statements, in 2001 the Unconsolidated Joint Ventures of The
Taubman Realty Group Limited Partnership changed their method of accounting for derivative instruments to conform
to Statement of Financial Accounting Standards No. 133, as amended and interpreted.
DELOITTE & TOUCHE LLP
Detroit, Michigan
February 12, 2002
F-29
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED BALANCE SHEET
(in thousands)
December 31
----------------------------------
2001 2000
---- ----
Assets:
Properties (Notes 3, 5 and 7) $ 1,367,082 $ 1,073,818
Accumulated depreciation and amortization (220,201) (189,644)
------------- -------------
$ 1,146,881 $ 884,174
Cash and cash equivalents 30,664 19,793
Accounts receivable, less allowance
for doubtful accounts of $3,356 and $1,628
in 2001 and 2000 20,302 6,096
Note receivable from Joint Venture Partner (Note 7) 221
Deferred charges and other assets (Notes 4 and 7) 29,290 34,697
------------- -------------
$ 1,227,137 $ 944,981
============= =============
Liabilities:
Mortgage notes payable (Note 5) $ 1,151,485 $ 944,155
Note payable to related party (Note 5) 3,778
Other notes payable (Note 5) 2,656 2,914
Capital lease obligations (Note 6) 64 630
Accounts payable to related parties (Note 7) 3,102 3,801
Accounts payable and other liabilities 106,081 44,638
------------- -------------
$ 1,263,388 $ 999,916
Commitments (Note 6)
Accumulated deficiency in assets:
Partnership equity -TRG $ 1,264 $ (36,570)
Accumulated deficiency in assets-Joint Venture Partners (36,793) (18,365)
Accumulated other comprehensive income-TRG (361)
Accumulated other comprehensive income-
Joint Venture Partners (361)
------------- -------------
$ (36,251) $ (54,935)
------------- -------------
$ 1,227,137 $ 944,981
============= =============
See notes to financial statements.
F-30
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED STATEMENT OF OPERATIONS
(in thousands)
Year Ended December 31
--------------------------------------------
2001 2000 1999
---- ---- ----
Revenues:
Minimum rents $ 149,320 $ 145,487 $ 158,126
Percentage rents 3,189 3,772 3,921
Expense recoveries 73,594 75,691 83,557
Other 12,306 5,729 6,405
------------ ----------- -----------
$ 238,409 $ 230,679 $ 252,009
------------ ----------- -----------
Operating costs:
Recoverable expenses (Note 7) $ 67,330 $ 63,587 $ 69,367
Other operating (Note 7) 20,116 17,943 18,388
Interest expense 74,895 65,266 64,152
Depreciation and amortization 39,695 30,263 29,983
------------ ----------- -----------
$ 202,036 $ 177,059 $ 181,890
------------ ----------- -----------
Income before extraordinary items and cumulative
effect of change in accounting principle $ 36,373 $ 53,620 $ 70,119
Extraordinary items (Note 5) (19,169) (333)
Cumulative effect of change in accounting principle (Note 2) (3,304)
------------ ----------- -----------
Net income $ 33,069 $ 34,451 $ 69,786
============ =========== ===========
Net income $ 33,069 $ 34,451 $ 69,786
Other comprehensive income (Note 2):
Cumulative effect of change in accounting principle (1,558)
Reclassification adjustment for amounts recognized
in net income 836
------------ ----------- -----------
Comprehensive income $ 32,347 $ 34,451 $ 69,786
============ =========== ===========
Allocation of net income:
Attributable to TRG $ 17,533 $ 18,099 $ 38,346
Attributable to Joint Venture Partners 15,536 16,352 31,440
------------ ----------- -----------
$ 33,069 $ 34,451 $ 69,786
============ =========== ===========
See notes to financial statements.
F-31
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED STATEMENT OF PARTNERSHIP EQUITY (ACCUMULATED DEFICIENCY IN ASSETS)
(in thousands)
Joint Venture
TRG Partners Total
--- ----------------- -----
Balance, January 1, 1999 $ (103,545) $ (129,996) $ (233,541)
Non-cash contributions (Note 3) 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 3) 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)
Non-cash contributions (Note 5) 3,778 3,778
Cash contributions 55,940 18 55,958
Cash distributions (39,417) (33,982) (73,399)
Other comprehensive income:
Cumulative effect of change in accounting
principle (Note 2) (779) (779) (1,558)
Reclassification adjustment for amounts
recognized in net income (Note 2) 418 418 836
Net income 17,533 15,536 33,069
------------ ------------ -------------
Balance, December 31, 2001 $ 903 $ (37,154) $ (36,251)
============ ============ =============
See notes to financial statements.
F-32
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
COMBINED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31
------------------------------------------
2001 2000 1999
---- ---- ----
Cash Flows From Operating Activities:
Income before extraordinary items and cumulative effect
of change in accounting principle $ 36,373 $ 53,620 $ 70,119
Adjustments to reconcile income before extraordinary items
and cumulative effect of change in accounting principle
to net cash provided by operating activities:
Depreciation and amortization 39,695 30,263 29,983
Provision for losses on accounts receivable 3,803 2,644 1,822
Gains on sales of land (501)
Unrealized losses on interest rate instruments 5,914
Other
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Receivables, deferred
charges and other assets (18,193) (530) (6,443)
Accounts payable and other liabilities 15,390 (2,376) (1,952)
----------- ----------- -----------
Net Cash Provided By Operating Activities $ 82,982 $ 83,120 $ 93,529
----------- ----------- -----------
Cash Flows From Investing Activities:
Additions to properties $ (258,335) $ (231,125) $ (79,298)
Proceeds from sales of land 640 105
----------- ----------- -----------
Net Cash Used In Investing Activities $ (258,335) $ (230,485) $ (79,193)
----------- ----------- -----------
Cash Flows From Financing Activities:
Debt proceeds $ 208,805 $ 390,721 $ 201,152
Debt payments (2,299) (1,976) (3,439)
Extinguishment of debt (214,754) (141,459)
Debt issuance costs (2,841) (2,704) (8,007)
Cash contributions from partners 55,958 37,660 71,546
Cash distributions to partners (73,399) (72,584) (127,134)
----------- ----------- -----------
Net Cash Provided By (Used In) Financing Activities $ 186,224 $ 136,363 $ (7,341)
----------- ----------- -----------
Net increase (decrease) in Cash and Cash Equivalents $ 10,871 $ (11,002) $ 6,995
Cash and Cash Equivalents at Beginning of Year 19,793 36,823 29,828
Effect of transferred centers in connection
with Twelve Oaks/Lakeside transaction (Note 1) (6,028)
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 30,664 $ 19,793 $ 36,823
=========== =========== ===========
See notes to financial statements.
F-33
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 LLC, 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, 2001, 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
Taubman-Cherry Creek Cherry Creek 50
Limited Partnership
West Farms Associates Westfarms 79
Woodland Woodland 50
In September 2001, International Plaza, a 1.25 million square foot center, opened in Tampa, Florida. As of
December 31, 2001, TRG has a preferential investment in International Plaza of $19.1 million, on which an annual
preferential return of 8.25% will accrue.
In March 2001, Dolphin Mall, a 1.3 million square foot regional center, opened in Miami, Florida. As of
December 31, 2001, TRG has a preferred investment in Dolphin Mall of $29.6 million, on which an annual
preferential return of 16.0% will accrue.
In addition to the preferred returns on its investments in International Plaza and Dolphin Mall, TRG will
receive a return of its preferred investments before any available cash will be utilized for distributions to
non-preferred partners.
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 Mall 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.
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.
F-34
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED 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.
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. All properties, including those
under construction or development, are reviewed for impairment on an individual basis whenever events or changes
in circumstances indicate that their carrying value may not be recoverable. Impairment is recognized when the
sum of expected cash flows (undiscounted and without interest charges) is less than the carrying value of the
property. To the extent impairment has occurred, the excess carrying value of the property over its estimated
fair value is charged to income.
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 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.
Interest Rate Hedging Agreements
Effective January 1, 2001, the Unconsolidated Joint Ventures adopted SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" and its related amendments and interpretations, which establish accounting
and reporting standards for derivative instruments (Note 2). All derivatives, whether designated in hedging
relationships or not, are recorded on the balance sheet at fair value. If a derivative is designated as a cash
flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other
comprehensive income (OCI) and are recognized in the income statement when the hedged item affects earnings.
Ineffective portions of changes in the fair value of a cash flow hedge are recognized in earnings as interest
expense. For interest rate cap instruments designated as cash flow hedges, changes in the time value are
excluded from the assessment of hedge effectiveness.
TRG formally documents all relationships between hedging instruments and hedged items, as well as its risk
management objectives and strategies for undertaking various hedge transactions. TRG assesses, both at the
inception of the hedge and on an ongoing basis, whether the derivatives are used in hedging transactions are
highly effective in offsetting changes in the cash flows of the hedged items.
F-35
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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.
Note 2 - Change in Accounting Principle
The Unconsolidated Joint Ventures use derivative instruments to manage exposure to interest rate risks
inherent in variable rate debt and refinancings. Cap, swap, and treasury lock agreements are routinely used to
meet these objectives. The swap agreement on the Dolphin construction facility does not qualify for hedge
accounting although its use is consistent with overall risk management objectives. As a result, Dolphin Mall
recognizes its share of losses and income related to this agreement in earnings as the value of the agreement
changes.
The initial adoption of SFAS 133 on January 1, 2001 resulted in a reduction to income of approximately $3.3
million as the cumulative effect of a change in accounting principle and a reduction to accumulated OCI of $1.6
million. These amounts represent the transition adjustments necessary to mark interest rate agreements to fair
value as of January 1, 2001.
In addition to the transition adjustments, unrealized losses of $5.9 million were recognized as a reduction of
earnings during the year ended December 31, 2001, primarily due to the decline in interest rates and the
resulting decrease in value of interest rate agreements. Of this amount, approximately $5.6 million represents
the change in value of the Dolphin swap agreement and the remainder represents the changes in time value of cap
instruments.
As of December 31, 2001, $0.7 million of derivative losses are included in Accumulated OCI. This amount
relates to a hedge of the Dolphin Mall construction facility that will be recognized as a reduction of earnings
through its 2002 maturity date.
Note 3 - Properties
Properties at December 31, 2001 and 2000, are summarized as follows:
2001 2000
---- ----
Land $ 82,798 $ 41,230
Buildings, improvements and equipment 1,185,044 663,864
Construction in process 99,240 368,724
-------------- -------------
$ 1,367,082 $ 1,073,818
============== =============
F-36
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Depreciation expense for 2001, 2000 and 1999 was $36.5 million, $26.2 million and $26.0 million. Construction
in process includes costs related to the construction of The Mall at Millenia as well as expansions and other
improvements at various centers. Assets under capital lease of $0.1 million and $0.6 million at December 31, 2001
and 2000, respectively, are included in the table above in buildings, improvements and equipment.
During 2000, non-cash investing activities included $1.3 million 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
2001 and 2000, non-cash additions to properties of $54.4 million and $15.5 million, respectively, were recorded,
representing accrued construction costs of new centers and expansions.
Note 4 - Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 2001 and 2000 are summarized as follows:
2001 2000
---- ----
Leasing $ 26,568 $ 25,252
Accumulated amortization (11,000) (10,040)
---------- ----------
$ 15,568 $ 15,212
Interest rate instruments 3,351
Deferred financing, net 11,101 14,161
Other, net 2,621 1,973
---------- ---------
$ 29,290 $ 34,697
========== ==========
Note 5 - Debt
Mortgage Notes Payable
Mortgage notes payable at December 31, 2001 and 2000 consists of the following:
Balance Due
Center 2001 2000 Interest Rate Maturity Date on Maturity
- ------ ---- ---- ------------- ------------- -----------
Arizona Mills $ 144,737 $ 145,762 7.90% 10/05/10 $ 130,419
Cherry Creek 177,000 177,000 7.68% 08/11/06 171,933
Dolphin Mall 164,648 116,900 LIBOR + 2.00% 10/06/02 164,648
Fair Oaks 140,000 140,000 6.60% 04/01/08 140,000
International Plaza 171,555 67,493 LIBOR + 1.90% 11/10/02 171,555
The Mall at Millenia 56,545 LIBOR + 1.95% 11/01/03 56,545
Stamford Town Center 76,000 76,000 LIBOR + 0.8% 08/10/02 76,000
Westfarms 100,000 100,000 7.85% 07/01/02 100,000
Westfarms 55,000 55,000 LIBOR + 1.125% 07/01/02 55,000
Woodland 66,000 66,000 8.20% 05/15/04 66,000
----------- -----------
$ 1,151,485 $ 944,155
=========== ===========
Mortgage debt is collateralized by properties with a net book value of $1.1 billion and $0.9 billion as of
December 31, 2001 and 2000.
The maximum availability on The Mall at Millenia construction facility is $160.4 million. 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. The loan provides for two one-year extension options.
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.
F-37
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The maximum availability on the International Plaza construction facility is $193.5 million. The loan has a
one-year extension option. TRG has guaranteed the payment 100% of the principal and interest; however, another
investor in the venture 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.
This guarantee was reduced to 50% in February 2002.
The Stamford mortgage may be extended twice to August 2004. The Westfarms mortgages due in 2002 are expected
to be refinanced at maturity.
Certain debt agreements contain performance and valuation criteria that must be met for the loans to be
extended at the full principal amounts; these agreements provide for partial prepayments of debt to facilitate
compliance with extension provisions.
Scheduled principal payments on mortgage debt are as follows as of December 31, 2000:
2002 568,388
2003 57,829
2004 68,350
2005 4,019
2006 175,120
Thereafter 277,779
----------
Total $1,151,485
==========
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 bore interest at 16% annually and had no stated maturity. In 2001, the note was converted
to equity with a preferred return of 16%.
Other Notes Payable
Other notes payable at December 31, 2001 and 2000 consists of the following:
2001 2000
---- ----
Notes payable to banks, line of credit,
interest at prime (4.75% at December 31, 2001),
maximum borrowings available up to $5.5 million
to fund tenant loans, allowances and buyouts
and working capital, due various dates through 2006 $ 2,656 $ 2,914
========= =========
Interest Expense
Interest paid on mortgages and other notes payable in 2001, 2000 and 1999, net of amounts capitalized of $14.7
million, $13.3 million, and $2.5 million, approximated $61.0 million, $58.8 million, and $59.7 million,
respectively.
Extraordinary Items
During the years ended December 31, 2000 and 1999, joint ventures recognized extraordinary charges related to
the extinguishment of debt, primarily consisting of prepayment premiums and the writeoff of deferred financing
costs.
F-38
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Fair Value of Debt Instruments
The estimated fair values of financial instruments at December 31, 2001 and 2000 are as follows:
December 31
----------------------------------------------------------------------
2001 2000
----------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------------------------------- -----------------------------
Mortgage notes payable $1,151,485 $1,220,018 $944,155 $1,007,650
Other notes payable 2,656 2,656 6,692 6,692
Interest rate instruments:
In a receivable position 3,351 217
In a payable position 6,668 6,668 1,807
Note 6 - 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, 2001 for operating centers, assuming
no new or renegotiated leases or option extensions on anchor agreements, is summarized as follows:
2002 $ 161,398
2003 153,625
2004 145,270
2005 133,769
2006 122,925
Thereafter 482,456
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 2001, 2000 and 1999. 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 additional rentals
based on the leasable area of the center as defined in the agreement; such additional rentals were $49,000 in
2001.
The following is a schedule of future minimum rental payments required under operating leases:
2002 $ 2,392
2003 2,783
2004 2,884
2005 2,884
2006 2,884
Thereafter 694,442
Capital Lease Obligations
Certain Unconsolidated Joint Ventures have entered into lease agreements for property improvements with
remaining lease terms through 2002; all of the capital lease obligation at December 31, 2001 will be paid off in
2002.
F-39
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Special Tax Assessment
Dolphin Mall is 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 $65.3 million with a first annual assessment of approximately $2.4 million. A portion of these
assessments is expected to be recovered from tenants.
Note 7 - Transactions with Affiliates
Charges from the Manager under various agreements were as follows for the years ended December 31:
2001 2000 1999
---- ---- ----
Management and leasing services $16,770 $14,759 $16,721
Security and maintenance services 6,442 6,702 7,653
Development services 6,458 11,298 5,935
----- ------ -----
$29,670 $32,759 $30,309
======= ======= =======
Certain entities related to TRG or its joint venture partners provided management, leasing and
development services to Arizona Mills, L.L.C., Dolphin Mall Associates Limited Partnership, and Forbes Taubman
Orlando L.L.C. Charges from these entities were $5.6 million, $4.0 million, and $4.2 million in 2001, 2000, and
1999, 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 bore interest at approximately 7.9% and required monthly
principal payments of $25 thousand, plus accrued interest. The balance was paid off in 2001. Interest income
related to the loan was approximately $0.1 million in 2000 and 1999.
Another related party transaction is described in Note 5.
Note 8 - New Accounting Principle
In October 2001, the Financial Accounting Standards Board issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which replaced FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Statement 144 broadens the
reporting of discontinued operations to include disposals of operating components; each of TRG's investments in
an operating center is such a component. The provisions of Statement 144 are effective for financial statements
issued for fiscal years beginning after December 15, 2001 and generally are to be applied prospectively. The
Statement is not expected to have a material effect on the financial condition or results of operations of the
Unconsolidated Joint Ventures; however, if TRG were to dispose of a center, the center's results of operations
would have to be separately disclosed as discontinued operations in the financial statements.
F-40
Schedule II
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP
LIMITED PARTNERSHIP
Valuation and Qualifying Accounts
For the years ended December 31, 2001, 2000, and 1999
(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, 2001:
Allowance for doubtful receivables $1,628 3,803 0 (1,850) (225) $3,356
====== ===== ==== ====== ==== ======
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
====== ===== ==== ====== ==== ======
(1) Subsequent to July 31, 2000, the accounts of Lakeside and Twelve Oaks Mall 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, 2001
(in thousands)
Initial Cost Gross Amount at Which
to Company Cost Carried at Close of Period
---------------------- Capitalized ---------------------------- Accumulated Total Date of
Buildings and Subsequent Depreciation Cost Net Completion of Depreciable
Land Improvements to Acquisition Land BI&E Total (A/D) of A/D Encumbrances Construction Life
---- ------------ -------------- ---- ---- ----- ------------- -------- ------------ --------------- -----------
Taubman Shopping Centers:
Arizona Mills, Tempe, AZ $ 22,017 $163,618 $10,013 $22,017 $173,631 $195,648 $28,944 $166,704 $144,737 1997 50 Years
Cherry Creek, Denver, CO 55 99,625 58,807 55 158,432 158,487 51,595 106,892 177,000 1990 40 Years
Dolphin Mall, Miami, FL 35,942 261,725 35,942 261,725 297,667 6,580 291,087 164,648 2001 50 Years
Fair Oaks, Fairfax, VA 7,667 36,043 46,903 7,667 82,946 90,613 33,725 56,888 140,000 1980 55 Years
International Plaza, Tampa, FL 0 252,633 0 252,633 252,633 2,836 249,797 171,555 2001 50 Years
Stamford Town Center,
Stamford, CT 1,977 43,176 18,390 1,977 61,566 63,543 31,469 32,074 76,000 1982 40 Years
Westfarms, Farmington, CT 5,287 38,638 108,623 5,287 147,261 152,548 43,528 109,020 155,000 1974 34 Years
Woodland, Grand Rapids, MI 2,367 19,078 28,636 3,231 46,850 50,081 21,524 28,557 66,000 1968 33 Years
Other Properties:
Peripheral land 6,622 0 0 6,622 0 6,622 0 6,622 0
Construction in Process 5,318 88,033 5,889 5,318 93,922 99,240 0 99,240 56,545
------- ---------- -------- ------- ---------- ---------- -------- ---------- ----------
TOTAL $87,252 $1,002,569 $277,261 $88,116 $1,278,966 $1,367,082(1) $220,201 $1,146,881 $1,151,485
======= ========== ======== ======= ========== ========== ======== ========== ==========
The changes in total real estate assets for the years ended December 31, 2001, 2000, and 1999 are as follows:
2001 2000 1999
---- ---- ----
Balance, beginning of year $1,073,818 $ 942,248 $ 769,665
Improvements 299,541 239,191 79,298
Disposals (6,277) (4,472) (6,162)
Transfers In 1,318 (2) 99,447 (4)
Transfers Out (104,467)(3)
---------- ----------- --------
Balance, end of year $1,367,082 $1,073,818 $942,248
========== ========== ========
The changes in accumulated depreciation and amortization for the years ended December 31, 2001, 2000, and 1999
are as follows:
2001 2000 1999
---- ---- ----
Balance, beginning of year $(189,644) $ (217,402) $(197,516)
Depreciation for year (36,515) (26,156) (25,958)
Disposals 5,958 4,472 6,072
Transfers Out 49,442 (3)
--------- ---------- ---------
Balance, end of year $(220,201) $ (189,644) $(217,402)
========= ========== =========
(1) The unaudited aggregate cost for federal income tax purposes as of December 31, 2001 was $1.513 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 Mall 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.
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 29, 2002 By: /s/ Robert S. Taubman
----------------------------------------------------------------------
Robert S. Taubman, Chairman of the Board, 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
--------- ----- ----
/s/ Robert S. Taubman Chairman of the Board, President, March 29, 2002
- --------------------------- --------------
Robert S. Taubman Chief Executive Officer, and Director
/s/ Lisa A. Payne Executive Vice President, March 29, 2002
- --------------------------- --------------
Lisa A. Payne Chief Financial and Administrative Officer, and Director
/s/ William S. Taubman Executive Vice President, March 29, 2002
- --------------------------- --------------
William S. Taubman and Director
/s/ Esther R. Blum Senior Vice President, Controller and March 29, 2002
- --------------------------- --------------
Esther R. Blum Chief Accounting Officer
* Director March 29, 2002
- --------------------------- --------------
Graham Allison
* Director March 29, 2002
- --------------------------- --------------
Allan J. Bloostein
* Director March 29, 2002
- --------------------------- --------------
Jerome A. Chazen
* Director March 29, 2002
- --------------------------- --------------
S. Parker Gilbert
* Director March 29, 2002
- --------------------------- --------------
Peter Karmanos, Jr.
*By: /s/ Lisa A. Payne
---------------------------------------------------------
Lisa A. Payne, as
Attorney-in-Fact