Taubman Centers, Inc., Issues Strong Third Quarter Results and Raises Guidance

10/26/2015
  • Comparable Center Net Operating Income (NOI) Up
  • Mall Tenant Sales Per Square Foot, Average Rent Per Square Foot, Comparable Center Occupancy and Leased Space All Up
  • Short Hills $1 Billion Financing and International Market Place Construction Facility Complete

BLOOMFIELD HILLS, Mich.--(BUSINESS WIRE)-- Taubman Centers, Inc. (NYSE: TCO) today reported financial results for the third quarter of 2015.

                 
    September 30,   September 30,   September 30,   September 30,
2015 2014 2015 2014
Three Months Three Months Nine Months Nine Months
   

Ended (1)

  Ended  

Ended (1)

  Ended
Net income attributable to common
shareholders (EPS) per diluted common

$0.50

$0.53

$1.34

$6.60 (3)

share  

 

 

 

 

 

 

 

Funds from Operations (FFO) per diluted

common share $0.89

$0.87

$2.46

$2.57

Growth rate

  2.3%  

 

  (4.3)%  

 

Adjusted Funds from Operations (Adjusted
FFO) per diluted common share

$0.86 (2)

$0.91 (4)

$2.44 (2)

$2.67 (4)

Growth rate

  (5.5)%  

 

  (8.6)%  

 

(1)

Excludes the operations of the seven centers sold to Starwood Capital Group in October 2014 and Arizona Mills (Tempe, Ariz.), which was sold in January 2014. Includes the operations of The Mall at University Town Center (Sarasota, Fla.), which opened in October 2014, and The Mall of San Juan (San Juan, Puerto Rico), which opened in March 2015.

 

(2)

Adjusted FFO for the three and nine months ended September 30, 2015 excludes the reversal of certain prior period executive share-based compensation expense due to the announcement of an executive management transition.

 

(3)

Includes a net gain of $477 million ($5.30 per share) on the sale of a 49.9 percent interest in the entity that owns International Plaza (Tampa, Fla.), as well as investments in Arizona Mills and land in Syosset, New York (Oyster Bay).

 

(4)

Adjusted FFO for the three and nine months ended September 30, 2014 excludes charges related to the sale of seven centers to Starwood.

 

“This quarter our strong results were driven by lower operating expenses and increased rents and occupancy,” said Robert S. Taubman, chairman, president and chief executive officer of Taubman Centers. “Results were also positively impacted by the progress we’ve made on our share repurchase program.”

The October 2014 sale of seven centers to Starwood reduced FFO by 13.5 cents during the third quarter in comparison to the prior year.

Operating Statistics

Comparable center NOI, including lease cancellation income, was up 3.4 percent for the quarter, bringing year-to-date growth to 2.8 percent. Excluding lease cancellation income, comparable center NOI was up 2.8 percent for the quarter, bringing year-to-date growth to 3 percent.

Comparable center mall tenant sales per square foot rose 2.4 percent from the third quarter of 2014. This brings the company's 12-month trailing mall tenant sales per square foot to $805, an increase of 1.9 percent from the 12-months ended September 30, 2014. Year-to-date, sales per square foot were up 2.5 percent.

Average rent per square foot for the quarter was $60.53, up 1.4 percent from $59.68 in the comparable period last year. Year-to-date, average rent per square foot was up 2.3 percent.

Trailing 12-month releasing spreads per square foot for the period ended September 30, 2015 were a robust 21.4 percent.

Ending occupancy in comparable centers was 93.8 percent on September 30, 2015, up 0.7 percent from 93.1 percent on September 30, 2014. Leased space in comparable centers was 97.1 percent on September 30, 2015, up 1.3 percent from 95.8 percent on September 30, 2014.

“Our portfolio of high quality centers continue to produce solid increases in all of our key operating metrics,” added Mr. Taubman.

CFO Transition Announced

In September, the company announced that Lisa A. Payne, vice chairman and chief financial officer, will transition the CFO role to current Treasurer and Executive Vice President, Capital Markets, Simon J. Leopold. Mr. Leopold joined Taubman in 2012 and has since been responsible for Taubman’s capital markets and financing activities, corporate tax and treasury, and real estate acquisitions and dispositions. Ms. Payne will retain her role as vice chairman of the Board until leaving the company in March 2016. Concurrent with the announcement, certain prior period share-based compensation expense for Ms. Payne was reversed. The company has adjusted FFO for this reversal. See Taubman’s Lisa A. Payne to Transition CFO Role to Treasurer and Executive Vice President, Capital Markets, Simon J. Leopold, Effective January 1, 2016Sept. 15, 2015

Financing Activity

In August, the previously announced construction loan financing for International Market Place (Waikiki, Honolulu, Hawaii) closed. The $330.9 million loan has a three-year term with two one-year extension options and bears interest at LIBOR plus 1.75 percent. The loan is interest-only during the initial three-year term.

In September, the company completed the previously announced $1 billion, 12-year, non-recourse financing on The Mall at Short Hills (Short Hills, N.J.). The loan is interest-only for the entire term and bears interest at an all-in fixed rate of 3.56 percent. Proceeds were used to repay the previous $540 million, 5.47 percent fixed rate loan and to pay off the company’s revolving lines of credit. The remaining proceeds are reflected in the company’s cash balance and are being used for general corporate purposes.

Share Repurchase Program

During the quarter ended September 30, 2015, the company purchased 631,282 shares of its common stock at an average price of $68.63 per share. Since the program’s inception in August 2013, the company has purchased 4,221,774 shares of its common stock for $303 million, an average price of $71.80 per share. At September 30, 2015, the company had approximately $147 million available under its share repurchase authorization.

2015 Guidance Increased

The company is increasing its guidance for 2015 FFO per diluted common share to $3.38 to $3.46, up from the previous range of $3.28 to $3.36. The company’s guidance for 2015 Adjusted FFO per diluted share is $3.36 to $3.44. 2015 Adjusted FFO guidance excludes the reversal of certain prior period executive share-based compensation expense due to the announcement of an executive management change. The impact of share repurchases through September 30, 2015 are included in the company’s FFO and Adjusted FFO guidance, but assumptions for future repurchases are excluded.

The company is also increasing its guidance for 2015 EPS to $1.76 to $1.89, up from $1.65 to $1.78.

Supplemental Investor Information Available

The company provides supplemental investor information along with its earnings announcements, available online at www.taubman.com under “Investors.” This includes the following:

  • Company Information
  • Income Statements
  • Earnings Reconciliations
  • Changes in Funds from Operations and Earnings Per Common Share
  • Components of Other Income, Other Operating Expense, and Nonoperating Income (Expense)
  • Recoveries Ratio Analysis
  • Balance Sheets
  • Debt Summary
  • Other Debt, Equity and Certain Balance Sheet Information
  • Construction and Redevelopment
  • Capital Spending
  • Operational Statistics
  • Summary of Key Guidance Measures
  • Owned Centers
  • Major Tenants in Owned Portfolio
  • Anchors in Owned Portfolio
  • Operating Statistics Glossary

Investor Conference Call

The company will host a conference call at 10:00 a.m. EDT on Tuesday, October 27 to discuss its results, business conditions and the company’s outlook for the remainder of 2015. The conference call will be simulcast at www.taubman.com. An online replay will be available shortly after the call and will continue for approximately 90 days.

About Taubman

Taubman Centers is an S&P MidCap 400 Real Estate Investment Trust engaged in the ownership, management and/or leasing of 22 regional, super-regional and outlet shopping centers in the U.S. and Asia. Taubman’s U.S.-owned properties are the most productive in the publicly held U.S. regional mall industry. Taubman is currently developing four properties in the U.S. and Asia totaling 4.1 million square feet. Founded in 1950, Taubman is headquartered in Bloomfield Hills, Mich. Taubman Asia, founded in 2005, is headquartered in Hong Kong. www.taubman.com.

For ease of use, references in this press release to “Taubman Centers,” “company,” “Taubman” or an operating platform mean Taubman Centers, Inc. and/or one or more of a number of separate, affiliated entities. Business is actually conducted by an affiliated entity rather than Taubman Centers, Inc. itself or the named operating platform.

This press release may contain 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 statements reflect management's current views with respect to future events and financial performance. The forward-looking statements included in this release are made as of the date hereof. Except as required by law, we assume no obligation to update these forward-looking statements, even if new information becomes available in the future. Actual results may differ materially from those expected because of various risks and uncertainties. You should review the company's filings with the Securities and Exchange Commission, including “Risk Factors” in its most recent Annual Report on Form 10-K and subsequent quarterly reports, for a discussion of such risks and uncertainties.

TAUBMAN CENTERS, INC.
Table 1 - Summary of Results
For the Periods Ended September 30, 2015 and 2014
(in thousands of dollars, except as indicated)
       
Three Months Ended Year to Date
2015 2014 2015 2014
 
Net income (1) 52,629 56,637 145,962 621,848
Noncontrolling share of income of consolidated joint ventures (2,780 ) (2,643 ) (8,043 ) (8,013 )
Noncontrolling share of income of TRG (13,151 ) (14,057 ) (35,815 ) (170,922 )
Distributions to participating securities of TRG (492 ) (471 ) (1,477 ) (1,409 )
Preferred stock dividends (5,784 ) (5,784 ) (17,353 ) (17,353 )
Net income attributable to Taubman Centers, Inc. common shareowners (1) 30,422 33,682 83,274 424,151
Net income per common share - basic (1) 0.50 0.53 1.35 6.71
Net income per common share - diluted (1) 0.50 0.53 1.34 6.60
Beneficial interest in EBITDA - Combined (2) 110,715 116,972 313,355 838,015
Adjusted Beneficial interest in EBITDA - Combined (2) 108,047 120,354 311,366 360,613
Funds from Operations attributable to partnership unitholders and participating securities of TRG (1)(2) 77,614 78,450 218,126 231,537
Funds from Operations attributable to TCO's common shareowners (1)(2) 55,120 56,045 155,029 165,418
Funds from Operations per common share - basic (1)(2) 0.91 0.89 2.51 2.62
Funds from Operations per common share - diluted (1)(2) 0.89 0.87 2.46 2.57

Adjusted Funds from Operations attributable to partnership unitholders and participating securities of TRG (1)(2)

74,946 81,832 216,137 240,755
Adjusted Funds from Operations attributable to TCO's common shareowners (1)(2) 53,232 58,466 153,614 172,015
Adjusted Funds from Operations per common share - basic (1)(2) 0.88 0.92 2.49 2.72
Adjusted Funds from Operations per common share - diluted (1)(2) 0.86 0.91 2.44 2.67
Weighted average number of common shares outstanding - basic 60,713,379 63,317,680 61,778,051 63,249,400
Weighted average number of common shares outstanding - diluted 61,426,115 64,087,742 62,573,957 64,876,051
Common shares outstanding at end of period 60,258,750 63,319,539
Weighted average units - Operating Partnership - basic 85,776,728 88,453,782 86,854,852 88,392,327
Weighted average units - Operating Partnership - diluted 87,360,726 90,095,106 88,522,020 90,018,978
Units outstanding at end of period - Operating Partnership 85,320,909 88,454,989
Ownership percentage of the Operating Partnership at end of period 70.6 % 71.6 %
Number of owned shopping centers at end of period 19 24
 
Operating Statistics:
Net Operating Income excluding lease cancellation income - growth % (2)(3) 2.8 % 2.8 % 3.0 % 3.1 %
Net Operating Income including lease cancellation income - growth % (2)(3) 3.4 % 3.0 % 2.8 % 4.1 %
Mall tenant sales - all centers (4) 1,197,976 1,121,619 3,577,249 3,368,300
Mall tenant sales - comparable (3)(4) 1,139,106 1,121,619 3,405,080 3,368,300
Ending occupancy - all centers 92.2 % 93.0 % 92.2 % 93.0 %
Ending occupancy - comparable (3) 93.8 % 93.1 % 93.8 % 93.1 %
Leased space - all centers 96.3 % 95.3 % 96.3 % 95.3 %
Leased space - comparable (3) 97.1 % 95.8 % 97.1 % 95.8 %
Average rent per square foot - Consolidated Businesses (3) 62.04 60.75 61.42 58.35
Average rent per square foot - Unconsolidated Joint Ventures (3) 58.43 58.20 58.76 59.90
Average rent per square foot - Combined (3) 60.53 59.68 60.31 58.96
 
Twelve Months Trailing
2015 2014
 
Operating Statistics:
Mall tenant sales - all centers (4) 5,178,411 4,923,444
Mall tenant sales - comparable (3)(4) 4,944,808 4,923,444
Sales per square foot (3)(4) 805 790
All centers (4):
Mall tenant occupancy costs as a percentage of tenant sales - Consolidated Businesses 14.1 % 13.7 %
Mall tenant occupancy costs as a percentage of tenant sales - Unconsolidated Joint Ventures 13.3 % 13.3 %
Mall tenant occupancy costs as a percentage of tenant sales - Combined 13.7 % 13.6 %
Comparable centers (3)(4):
Mall tenant occupancy costs as a percentage of tenant sales - Consolidated Businesses 14.1 % 13.7 %
Mall tenant occupancy costs as a percentage of tenant sales - Unconsolidated Joint Ventures 13.4 % 13.3 %
Mall tenant occupancy costs as a percentage of tenant sales - Combined 13.8 % 13.6 %
 
(1) Earnings no longer reflect the results of the centers sold to the Starwood Capital Group (Starwood) for periods after the October 2014 disposition date. During the nine month period ended September 30, 2014, the Company recognized a gain (net of tax) of $476.9 million from dispositions of interests in International Plaza, Arizona Mills, and land in Syosset, New York related to the former Oyster Bay project. The effect of the gain on dispositions from the International Plaza, Arizona Mills, and Oyster Bay dispositions on diluted earnings per common share (EPS) was $5.30 per share.
 
(2) Beneficial interest in EBITDA represents the Operating Partnership’s share of the earnings before interest, income taxes, and depreciation and amortization of its consolidated and unconsolidated businesses. The Company believes Beneficial interest in EBITDA provides a useful indicator of operating performance, as it is customary in the real estate and shopping center business to evaluate the performance of properties on a basis unaffected by capital structure.
 
The Company uses Net Operating Income (NOI) as an alternative measure to evaluate the operating performance of centers, both on individual and stabilized portfolio bases. The Company defines NOI as property-level operating revenues (includes rental income excluding straight-line adjustments of minimum rent) less maintenance, taxes, utilities, promotion, ground rent (including straight-line adjustments), and other property operating expenses. Since NOI excludes general and administrative expenses, pre-development charges, interest income and expense, depreciation and amortization, impairment charges, restructuring charges, and gains from peripheral land and property dispositions, it provides a performance measure that, when compared period over period, reflects the revenues and expenses most directly associated with owning and operating rental properties, as well as the impact on their operations from trends in tenant sales, occupancy and rental rates, and operating costs. The Company also uses NOI excluding lease cancellation income as an alternative measure because this income may vary significantly from period to period, which can affect comparability and trend analysis. The Company generally provides separate projections for expected comparable center NOI growth and lease cancellation income. Comparable centers are generally defined as centers that were owned and open for the entire current and preceding period presented.
 
The National Association of Real Estate Investment Trusts (NAREIT) defines Funds from Operations (FFO) as net income (computed in accordance with Generally Accepted Accounting Principles (GAAP)), excluding gains (or losses) from extraordinary items and sales of properties and impairment write-downs of depreciable real estate, plus real estate related depreciation and after adjustments for unconsolidated partnerships and joint ventures. The Company believes that FFO is a useful supplemental measure of operating performance for REITs. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, the Company and most industry investors and analysts have considered presentations of operating results that exclude historical cost depreciation to be useful in evaluating the operating performance of REITs. The Company primarily uses FFO in measuring performance and in formulating corporate goals and compensation.
 
The Company may also present adjusted versions of NOI, Beneficial interest in EBITDA, and FFO when used by management to evaluate operating performance when certain significant items have impacted results that affect comparability with prior or future periods due to the nature or amounts of these items. The Company believes the disclosure of the adjusted items is similarly useful to investors and others to understand management's view on comparability of such measures between periods. During the three and nine month periods ended September 30, 2015, upon the announcement of an executive management transition, the Company reversed certain prior period share-based compensation expense, for which the Company adjusted FFO and EBITDA. For the three and nine month periods ended September 30, 2014, FFO and EBITDA were adjusted for expenses related to the sale of centers to Starwood Capital Group (Starwood). Specifically, these measures were adjusted for charges related to the discontinuation of hedge accounting on the interest rate swap previously designated to hedge the MacArthur Center (MacArthur) note payable, a restructuring charge, and disposition costs incurred related to the sale. In addition, for the nine month period ended September 30, 2014, EBITDA was adjusted for the gain on dispositions of interests in International Plaza, Arizona Mills, and land in Syosset, New York related to the former Oyster Bay project.
 
These non-GAAP measures as presented by the Company are not necessarily comparable to similarly titled measures used by other REITs due to the fact that not all REITs use the same definitions. These measures should not be considered alternatives to net income or as an indicator of the Company's operating performance. Additionally, these measures do not represent cash flows from operating, investing, or financing activities as defined by GAAP.
 
(3) Statistics exclude non-comparable centers for all periods presented. The September 30, 2014 statistics have been restated to include comparable centers to 2015. Sales per square foot exclude spaces greater than or equal to 10,000 square feet.
 
(4) Based on reports of sales furnished by mall tenants.
       
TAUBMAN CENTERS, INC.
Table 2 - Income Statement
For the Three Months Ended September 30, 2015 and 2014
(in thousands of dollars)
 
2015 2014
CONSOLIDATED UNCONSOLIDATED JOINT CONSOLIDATED UNCONSOLIDATED JOINT
BUSINESSES   VENTURES (1) BUSINESSES (1)   VENTURES (1)
 
REVENUES:
Minimum rents 77,484 53,633 96,691 48,226
Percentage rents 5,032 2,060 5,263 2,270
Expense recoveries 47,206 32,908 63,527 28,517
Management, leasing, and development services 3,367 3,135
Other 6,894   2,399   7,428   1,658  
Total revenues 139,983 91,000 176,044 80,671
 
EXPENSES:
Maintenance, taxes, utilities, and promotion 37,230 22,960 52,184 20,457
Other operating 12,732 4,704 18,036 3,611
Management, leasing, and development services 1,558 1,539
General and administrative (2) 8,615 11,369
Restructuring charge 3,031
Interest expense 16,145 21,126 23,382 18,255
Depreciation and amortization 27,156   14,667   24,553   11,939  
Total expenses 103,436 63,457 134,094 54,262
 
Nonoperating income (expense) 1,010   (1 ) 891   (22 )
37,557 27,542   42,841 26,387  
Income tax expense (584 ) (683 )
Equity in income of Unconsolidated Joint Ventures 15,219   14,479  
52,192 56,637
Gain on dispositions, net of tax (3) 437    
Net income 52,629 56,637
Net income attributable to noncontrolling interests:
Noncontrolling share of income of consolidated joint ventures (2,780 ) (2,643 )
Noncontrolling share of income of TRG (13,151 ) (14,057 )
Distributions to participating securities of TRG (492 ) (471 )
Preferred stock dividends (5,784 ) (5,784 )
Net income attributable to Taubman Centers, Inc. common shareowners 30,422   33,682  
 
 
SUPPLEMENTAL INFORMATION:
EBITDA - 100% 80,858 63,335 90,776 56,581
EBITDA - outside partners' share (5,451 ) (28,027 ) (5,566 ) (24,819 )
Beneficial interest in EBITDA 75,407 35,308 85,210 31,762
Beneficial interest expense (14,439 ) (11,431 ) (21,273 ) (10,006 )
Beneficial income tax expense - TRG and TCO (584 ) (683 )
Beneficial income tax expense (benefit) - TCO (184 ) 112
Non-real estate depreciation (679 ) (888 )
Preferred dividends and distributions (5,784 )   (5,784 )  
Funds from Operations attributable to partnership unitholders and participating securities of TRG 53,737   23,877   56,694   21,756  
 
STRAIGHTLINE AND PURCHASE ACCOUNTING ADJUSTMENTS:
Net straight-line adjustments to rental revenue, recoveries,
and ground rent expense at TRG % 452 533 399 310
The Mall at Green Hills purchase accounting adjustments - minimum rents increase 91 229
El Paseo Village and The Gardens on El Paseo purchase accounting
adjustments - interest expense reduction 306 306
Waterside Shops purchase accounting adjustments - interest expense reduction 263 263
U.S. headquarters purchase accounting adjustment - interest expense reduction 183
 
 
(1) With the exception of the Supplemental Information, amounts include 100% of the Unconsolidated Joint Ventures. Amounts are net of intercompany transactions. 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. International Plaza's operations were consolidated through the January 2014 disposition date. Subsequent to the disposition, the Company's remaining 50.1% interest is accounted for under the equity method within Unconsolidated Joint Ventures. In addition, Arizona Mills' operations were accounted for under the equity method through the disposition in January 2014. The results of the centers sold to Starwood were consolidated through the October 2014 disposition.
 
(2) During the three months ended September 30, 2015, a reversal of $2.7 million of prior period share-based compensation expenses was recognized upon the announcement of an executive management transition.
 
(3) During the three months ended September 30, 2015, an adjustment to the tax on the gain on the disposition of interests in International Plaza was recognized, reducing the amount of the tax by $0.4 million.
 
TAUBMAN CENTERS, INC.
Table 3 - Income Statement
For the Nine Months Ended September 30, 2015 and 2014
(in thousands of dollars)
         
2015 2014
CONSOLIDATED UNCONSOLIDATED JOINT CONSOLIDATED UNCONSOLIDATED JOINT
BUSINESSES   VENTURES (1) BUSINESSES (1)   VENTURES (1)
 
REVENUES:
Minimum rents 228,920 159,207 291,113 143,098
Percentage rents 9,039 5,510 11,019 5,427
Expense recoveries 137,138 96,159 187,439 83,144
Management, leasing, and development services 9,665 8,605
Other 16,183   9,912   22,631   6,521  
Total revenues 400,945 270,788 520,807 238,190
 
EXPENSES:
Maintenance, taxes, utilities, and promotion 103,970 67,231 148,955 60,449
Other operating 40,630 14,781 49,582 13,035
Management, leasing, and development services 4,099 4,520
General and administrative (2) 32,595 34,493
Restructuring charge 3,031
Interest expense 44,451 63,148 74,946 54,284
Depreciation and amortization 77,575   42,536   96,521   34,731  
Total expenses 303,320 187,696 412,048 162,499
 
Nonoperating income (expense) (3) 3,712   4   (3,327 ) (25 )
101,337 83,096   105,432 75,666  
Income tax expense (2,110 ) (1,693 )
Equity in income of Unconsolidated Joint Ventures 46,298   41,222  
145,525 144,961
Gain on dispositions, net of tax (4) 437   476,887  
Net income 145,962 621,848
Net income attributable to noncontrolling interests:
Noncontrolling share of income of consolidated joint ventures (8,043 ) (8,013 )
Noncontrolling share of income of TRG (35,815 ) (170,922 )
Distributions to participating securities of TRG (1,477 ) (1,409 )
Preferred stock dividends (17,353 ) (17,353 )
Net income attributable to Taubman Centers, Inc. common shareowners 83,274   424,151  
 
 
SUPPLEMENTAL INFORMATION:
EBITDA - 100% (5) 223,363 188,780 763,519 164,681
EBITDA - outside partners' share (15,733 ) (83,055 ) (17,840 ) (72,345 )
Beneficial interest in EBITDA (5) 207,630 105,725 745,679 92,336
Gain on dispositions (486,620 )
Beneficial interest expense (39,357 ) (34,199 ) (68,687 ) (29,805 )
Beneficial income tax expense - TRG and TCO (2,110 ) (1,693 )
Beneficial income tax expense - TCO 104 258
Non-real estate depreciation (2,314 ) (2,578 )
Preferred dividends and distributions (17,353 )   (17,353 )  
Funds from Operations attributable to partnership unitholders and participating securities of TRG 146,600   71,526   169,006   62,531  
 
STRAIGHTLINE AND PURCHASE ACCOUNTING ADJUSTMENTS:
Net straight-line adjustments to rental revenue, recoveries,
and ground rent expense at TRG % 79 1,422 1,206 866
The Mall at Green Hills purchase accounting adjustments - minimum rents increase 271 620
El Paseo Village and The Gardens on El Paseo purchase accounting
adjustments - interest expense reduction 917 917
Waterside Shops purchase accounting adjustments - interest expense reduction 788 788
U.S. headquarters purchase accounting adjustment - interest expense reduction 182 425
 
 
(1) With the exception of the Supplemental Information, amounts include 100% of the Unconsolidated Joint Ventures. Amounts are net of intercompany transactions. 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. International Plaza's operations were consolidated through the January 2014 disposition date. Subsequent to the disposition, the Company's remaining 50.1% interest is accounted for under the equity method within Unconsolidated Joint Ventures. In addition, Arizona Mills' operations were accounted for under the equity method through the disposition in January 2014. The results of the centers sold to Starwood were consolidated through the October 2014 disposition.
 
(2) During the nine months ended September 30, 2015, a net reversal of $2.0 million of prior period share-based compensation expenses was recognized upon the announcement of an executive management transition.
 
(3) Nonoperating expense for the nine months ended September 30, 2014 includes $5.5 million in connection with the discontinuation of hedge accounting related to the MacArthur interest rate swap and $1 million of disposition costs related to the sale of centers to Starwood.
 
(4) During the nine months ended September 30, 2014, the gain on dispositions of interests in International Plaza, Arizona Mills, and land in Syosset, New York related to the former Oyster Bay project is net of income tax expense of $9.7 million. During the nine months ended September 30, 2015, an adjustment to the tax on the gain on the disposition of interests in International Plaza was recognized, reducing the amount of the tax by $0.4 million.
 
(5) For the nine months ended September 30, 2014, EBITDA includes the Company's $486.6 million (before tax) gain from the dispositions of interests in International Plaza, Arizona Mills, and land in Syosset, New York related to the former Oyster Bay project.
           
TAUBMAN CENTERS, INC.
Table 4 - Reconciliation of Net Income Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations
and Adjusted Funds from Operations
For the Three Months Ended September 30, 2015 and 2014
(in thousands of dollars except as noted; may not add or recalculate due to rounding)
 
 
2015 2014
Shares Per Share Shares Per Share
Dollars /Units /Unit Dollars /Units /Unit
 
Net income attributable to TCO common shareowners - Basic 30,422 60,713,379 0.50 33,682 63,317,680 0.53
 
Add impact of share-based compensation 109   712,736   121   770,062  
 
Net income attributable to TCO common shareowners - Diluted 30,531 61,426,115 0.50 33,803 64,087,742 0.53
 
Add depreciation of TCO's additional basis 1,617 0.03 1,617 0.03
Add (less) TCO's additional income tax expense (benefit) (184 )   (0.00 ) 112     0.00  
 
Net income attributable to TCO common shareowners,
excluding step-up depreciation and additional income tax expense (benefit) 31,964 61,426,115 0.52 35,532 64,087,742 0.55
 
Add noncontrolling share of income of TRG 13,151 25,063,349 14,057 25,136,102
Add distributions to participating securities of TRG 492   871,262   471   871,262  
 
Net income attributable to partnership unitholders
and participating securities 45,607 87,360,726 0.52 50,060 90,095,106 0.56
 
Add (less) depreciation and amortization:
Consolidated businesses at 100% 27,156 0.31 24,553 0.27
Depreciation of TCO's additional basis (1,617 ) (0.02 ) (1,617 ) (0.02 )
Noncontrolling partners in consolidated joint ventures (965 ) (0.01 ) (814 ) (0.01 )
Share of Unconsolidated Joint Ventures 8,658 0.10 7,277 0.08
Non-real estate depreciation (679 ) (0.01 ) (888 ) (0.01 )
 
Less gain on dispositions, net of tax (437 ) (0.01 )
Less impact of share-based compensation (109 )   (0.00 ) (121 )   (0.00 )
 
Funds from Operations attributable to partnership unitholders
and participating securities of TRG 77,614 87,360,726 0.89 78,450 90,095,106 0.87
 
TCO's average ownership percentage of TRG - basic (1) 70.8 % 71.6 %
 
Funds from Operations attributable to TCO's common shareowners,
excluding additional income tax benefit (expense) (1) 54,936 0.89 56,157 0.87
 
Add (less) TCO's additional income tax benefit (expense) 184   0.00   (112 ) (0.00 )
 
Funds from Operations attributable to TCO's common shareowners (1) 55,120   0.89   56,045   0.87  
 
Funds from Operations attributable to partnership unitholders
and participating securities of TRG 77,614 87,360,726 0.89 78,450 90,095,106 0.87
 
Reversal of executive share-based compensation expense (2,668 ) (0.03 )
Beneficial share of disposition costs related to the Starwood sale 513 0.01
Restructuring charge 3,031 0.03
Beneficial share of discontinuation of hedge accounting - MacArthur       (162 )   (0.00 )
 
Adjusted Funds from Operations attributable to partnership unitholders
and participating securities of TRG 74,946 87,360,726 0.86 81,832 90,095,106 0.91
 
TCO's average ownership percentage of TRG - basic (2) 70.8 % 71.6 %
 
Adjusted Funds from Operations attributable to TCO's common shareowners,
excluding additional income tax benefit (expense) (2) 53,048 0.86 58,578 0.91
 
Add (less) TCO's additional income tax benefit (expense) 184   0.00   (112 ) (0.00 )
 
Adjusted Funds from Operations attributable to TCO's common shareowners (2) 53,232   0.86   58,466   0.91  
 
 
(1) For the three months ended September 30, 2015, Funds from Operations attributable to TCO's common shareowners was $54,124 using TCO's diluted average ownership percentage of TRG of 69.5%. For the three months ended September 30, 2014, Funds from Operations attributable to TCO's common shareowners was $55,022 using TCO's diluted average ownership percentage of TRG of 70.3%.
 
(2) For the three months ended September 30, 2015, Adjusted Funds from Operations attributable to TCO's common shareowners was $52,270 using TCO's diluted average ownership percentage of TRG of 69.5%. For the three months ended September 30, 2014, Adjusted Funds from Operations attributable to TCO's common shareowners was $57,398 using TCO's diluted average ownership percentage of TRG of 70.3%.
 
TAUBMAN CENTERS, INC.
Table 5 - Reconciliation of Net Income Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations
and Adjusted Funds from Operations
For the Nine Months Ended September 30, 2015 and 2014
(in thousands of dollars except as noted; may not add or recalculate due to rounding)
           
 
2015 2014
Shares Per Share Shares Per Share
Dollars /Units /Unit Dollars /Units /Unit
 
Net income attributable to TCO common shareowners - Basic 83,274 61,778,051 1.35 424,151 63,249,400 6.71
 
Add distributions to participating securities of TRG 1,409 871,262
Add impact of share-based compensation 305   795,906   2,742   755,389  
 
Net income attributable to TCO common shareowners - Diluted 83,579 62,573,957 1.34 428,302 64,876,051 6.60
 
Add depreciation of TCO's additional basis 4,851 0.08 5,057 0.08
Add TCO's additional income tax expense 104     0.00   258     0.00  
 
Net income attributable to TCO common shareowners,
excluding step-up depreciation and additional income tax expense 88,534 62,573,957 1.41 433,617 64,876,051 6.68
 
Add noncontrolling share of income of TRG 35,815 25,076,801 170,922 25,142,927
Add distributions to participating securities of TRG 1,477   871,262        
 
Net income attributable to partnership unitholders
and participating securities 125,826 88,522,020 1.42 604,539 90,018,978 6.72
 
Add (less) depreciation and amortization:
Consolidated businesses at 100% 77,575 0.88 96,521 1.07
Depreciation of TCO's additional basis (4,851 ) (0.05 ) (5,057 ) (0.06 )
Noncontrolling partners in consolidated joint ventures (2,596 ) (0.03 ) (3,568 ) (0.04 )
Share of Unconsolidated Joint Ventures 25,228 0.28 21,309 0.24
Non-real estate depreciation (2,314 ) (0.03 ) (2,578 ) (0.03 )
 
Less gain on dispositions, net of tax (437 ) (0.00 ) (476,887 ) (5.30 )
Less impact of share-based compensation (305 )   (0.00 ) (2,742 )   (0.03 )
 
Funds from Operations attributable to partnership unitholders
and participating securities of TRG 218,126 88,522,020 2.46 231,537 90,018,978 2.57
 
TCO's average ownership percentage of TRG - basic (1) 71.1 % 71.6 %
 
Funds from Operations attributable to TCO's common shareowners,
excluding additional income tax expense (1) 155,133 2.46 165,676 2.57
 
Less TCO's additional income tax expense (104 ) (0.00 ) (258 ) (0.00 )
 
Funds from Operations attributable to TCO's common shareowners (1) 155,029   2.46   165,418   2.57  
 
Funds from Operations attributable to partnership unitholders
and participating securities of TRG 218,126 88,522,020 2.46 231,537 90,018,978 2.57
 
Reversal of executive share-based compensation expense (1,989 ) (0.02 )
Beneficial share of disposition costs related to the Starwood sale 954 0.01
Restructuring charge 3,031 0.03
Beneficial share of discontinuation of hedge accounting - MacArthur       5,233     0.06  
 
Adjusted Funds from Operations attributable to partnership unitholders
and participating securities of TRG 216,137 88,522,020 2.44 240,755 90,018,978 2.67
 
TCO's average ownership percentage of TRG - basic (2) 71.1 % 71.6 %
 
Adjusted Funds from Operations attributable to TCO's common shareowners,
excluding additional income tax expense (2) 153,718 2.44 172,273 2.67
 
Less TCO's additional income tax expense (104 ) (0.00 ) (258 ) (0.00 )
 
Adjusted Funds from Operations attributable to TCO's common shareowners (2) 153,614   2.44   172,015   2.67  
 
 
(1) For the nine months ended September 30, 2015, Funds from Operations attributable to TCO's common shareowners was $152,110 using TCO's diluted average ownership percentage of TRG of 69.8%. For the nine months ended September 30, 2014, Funds from Operations attributable to TCO's common shareowners was $162,421 using TCO's diluted average ownership percentage of TRG of 70.3%.
 
(2) For the nine months ended September 30, 2015, Adjusted Funds from Operations attributable to TCO's common shareowners was $150,722 using TCO's diluted average ownership percentage of TRG of 69.8%. For the nine months ended September 30, 2014, Adjusted Funds from Operations attributable to TCO's common shareowners was $168,900 using TCO's diluted average ownership percentage of TRG of 70.3%.
       
TAUBMAN CENTERS, INC.
Table 6 - Reconciliation of Net Income to Beneficial Interest in EBITDA and Adjusted Beneficial Interest in EBITDA
For the Periods Ended September 30, 2015 and 2014
(in thousands of dollars; amounts attributable to TCO may not recalculate due to rounding)
   
Three Months Ended Year to Date
2015 2014 2015 2014
 
Net income 52,629 56,637 145,962 621,848
 
Add (less) depreciation and amortization:
Consolidated businesses at 100% 27,156 24,553 77,575 96,521
Noncontrolling partners in consolidated joint ventures (965 ) (814 ) (2,596 ) (3,568 )
Share of Unconsolidated Joint Ventures 8,658 7,277 25,228 21,309
 
Add (less) interest expense and income tax expense (benefit):
Interest expense:
Consolidated businesses at 100% 16,145 23,382 44,451 74,946
Noncontrolling partners in consolidated joint ventures (1,706 ) (2,109 ) (5,094 ) (6,259 )
Share of Unconsolidated Joint Ventures 11,431 10,006 34,199 29,805
Income tax expense (benefit):
Income tax expense (benefit) on dispositions of International Plaza, Arizona Mills, and Oyster Bay (437 ) (437 ) 9,733
Other income tax expense 584 683 2,110 1,693
 
Less noncontrolling share of income of consolidated joint ventures (2,780 ) (2,643 ) (8,043 ) (8,013 )
 
Beneficial interest in EBITDA 110,715 116,972 313,355 838,015
 
TCO's average ownership percentage of TRG 70.8 % 71.6 % 71.1 % 71.6 %
 
Beneficial interest in EBITDA attributable to TCO 78,365   83,732   222,858   599,493  
 
 
 
Beneficial interest in EBITDA 110,715 116,972 313,355 838,015
 
Add (less):
Reversal of executive share-based compensation expense (2,668 ) (1,989 )
Gain on dispositions (486,620 )
Restructuring charge 3,031 3,031
Beneficial share of disposition costs related to the Starwood sale 513 954
Beneficial share of discontinuation of hedge accounting - MacArthur   (162 )   5,233  
 
Adjusted Beneficial interest in EBITDA 108,047 120,354 311,366 360,613
 
TCO's average ownership percentage of TRG 70.8 % 71.6 % 71.1 % 71.6 %
 
Adjusted Beneficial interest in EBITDA attributable to TCO 76,476   86,153   221,468   258,036  
 
TAUBMAN CENTERS, INC.
Table 7 - Reconciliation of Net Income to Net Operating Income (NOI)
For the Periods Ended September 30, 2015, 2014, and 2013
(in thousands of dollars)
                 
Three Months Ended Three Months Ended Year to Date Year to Date
2015 2014 2014 2013 2015 2014 2014 2013
 
Net income 52,629 56,637 56,637 43,243 145,962 621,848 621,848 123,202
 
Add (less) depreciation and amortization:
Consolidated businesses at 100% 27,156 24,553 24,553 40,982 77,575 96,521 96,521 116,262
Noncontrolling partners in consolidated joint ventures (965 ) (814 ) (814 ) (1,292 ) (2,596 ) (3,568 ) (3,568 ) (3,776 )
Share of Unconsolidated Joint Ventures 8,658 7,277 7,277 6,365 25,228 21,309 21,309 18,538
 
Add (less) interest expense and income tax expense (benefit):
Interest expense:
Consolidated businesses at 100% 16,145 23,382 23,382 32,515 44,451 74,946 74,946 99,589
Noncontrolling partners in consolidated joint ventures (1,706 ) (2,109 ) (2,109 ) (2,163 ) (5,094 ) (6,259 ) (6,259 ) (6,540 )
Share of Unconsolidated Joint Ventures 11,431 10,006 10,006 9,415 34,199 29,805 29,805 28,192
Income tax expense (benefit):
Income tax expense (benefit) on dispositions of International Plaza, Arizona Mills, and Oyster Bay (437 ) (437 ) 9,733 9,733
Other income tax expense 584 683 683 1,453 2,110 1,693 1,693 2,715
 
Less noncontrolling share of income of consolidated joint ventures (2,780 ) (2,643 ) (2,643 ) (2,198 ) (8,043 ) (8,013 ) (8,013 ) (6,752 )
 
Add EBITDA attributable to outside partners:
EBITDA attributable to noncontrolling partners in consolidated joint ventures 5,451 5,566 5,566 5,653 15,733 17,840 17,840 17,068
EBITDA attributable to outside partners in Unconsolidated Joint Ventures 28,027   24,819   24,819   21,679   83,055   72,345   72,345   62,770  
 
EBITDA at 100% 144,193 147,357 147,357 155,652 412,143 928,200 928,200 451,268
 
Add (less) items excluded from shopping center NOI:
General and administrative expenses 8,615 11,369 11,369 11,812 32,595 34,493 34,493 36,676
Management, leasing, and development services, net (1,809 ) (1,596 ) (1,596 ) (7,726 ) (5,566 ) (4,085 ) (4,085 ) (9,782 )
Straight-line of rents (1,696 ) (1,195 ) (1,195 ) (1,706 ) (3,794 ) (3,482 ) (3,482 ) (4,320 )
Gain on dispositions (486,620 ) (486,620 )
Disposition costs related to the Starwood sale 519 519 960 960
Restructuring charge 3,031 3,031 3,031 3,031
Discontinuation of hedge accounting - MacArthur (171 ) (171 ) 5,507 5,507
Gain on sale of peripheral land (863 )
Gain on sale of marketable securities (1,323 )
Dividend income (915 ) (761 ) (761 ) (2,626 ) (1,597 ) (1,597 )
Interest income (377 ) (456 ) (456 ) (43 ) (1,596 ) (764 ) (764 ) (144 )
Other nonoperating expense (income) 283 500 506 (754 ) (754 ) 500
Non-center specific operating expenses and other 3,934   5,628   5,628   7,987   14,243   14,587   14,587   18,503  
 
NOI - all centers at 100% 152,228 163,725 163,725 166,476 445,905 489,476 489,476 490,515
 
Less - NOI of non-comparable centers (5,931 ) (1) (22,206 ) (2) (20,608 ) (3) (27,571 ) (4) (17,083 ) (1) (72,182 ) (5) (67,589 ) (6) (85,353 ) (4)
 
NOI at 100% - comparable centers 146,297   141,519   143,117   138,905   428,822   417,294   421,887   405,162  
 
NOI - growth % 3.4 % 3.0 % 2.8 % 4.1 %
 
NOI at 100% - comparable centers 146,297 141,519 143,117 138,905 428,822 417,294 421,887 405,162
 
Lease cancellation income (1,954 ) (1,056 ) (1,056 ) (704 ) (6,357 ) (7,055 ) (7,055 ) (2,704 )
 
NOI at 100% - comparable centers excluding lease cancellation income 144,343   140,463   142,061   138,201   422,465   410,239   414,832   402,458  
 
NOI at 100% excluding lease cancellation income - growth % 2.8 % 2.8 % 3.0 % 3.1 %
 
(1) Includes The Mall of San Juan and The Mall at University Town Center.
(2) Includes the portfolio of centers sold to Starwood and an adjustment to reflect the allocation of costs to Starwood centers that are now being allocated to the remainder of the portfolio.
(3) Includes the portfolio of centers sold to Starwood and Taubman Prestige Outlets Chesterfield.
(4) Includes the portfolio of centers sold to Starwood, Taubman Prestige Outlets Chesterfield, and Arizona Mills.
(5) Includes the portfolio of centers sold to Starwood and Arizona Mills for the approximately one-month period prior to its disposition. Includes an adjustment to reflect the allocation of costs to Starwood centers that are now being allocated to the remainder of the portfolio.
(6) Includes the portfolio of centers sold to Starwood, Taubman Prestige Outlets Chesterfield, and Arizona Mills for the approximately one-month period prior to its disposition.
   
TAUBMAN CENTERS, INC.
Table 8 - Balance Sheets
As of September 30, 2015 and December 31, 2014
(in thousands of dollars)
  As of
September 30, 2015 December 31, 2014
Consolidated Balance Sheet of Taubman Centers, Inc.:
 
Assets:
Properties 3,585,896 3,262,505
Accumulated depreciation and amortization (1,033,056 ) (970,045 )
2,552,840 2,292,460
Investment in Unconsolidated Joint Ventures 420,889 370,004
Cash and cash equivalents 263,911 276,423
Restricted cash 10,798 37,502
Accounts and notes receivable, net 44,364 49,245
Accounts receivable from related parties 3,161 832
Deferred charges and other assets 198,561   188,435  
3,494,524   3,214,901  
 
Liabilities:
Notes payable 2,594,073 2,025,505
Accounts payable and accrued liabilities 306,892 292,802
Distributions in excess of investments in and net income of
Unconsolidated Joint Ventures 471,129   476,651  
3,372,094 2,794,958
Equity:
Taubman Centers, Inc. Shareowners' Equity:
Series B Non-Participating Convertible Preferred Stock 25 25
Series J Cumulative Redeemable Preferred Stock
Series K Cumulative Redeemable Preferred Stock
Common Stock 603 633
Additional paid-in capital 649,550 815,961
Accumulated other comprehensive income (loss) (32,837 ) (15,068 )
Dividends in excess of net income (504,163 ) (483,188 )
113,178 318,363
Noncontrolling interests:
Noncontrolling interests in consolidated joint ventures (23,277 ) (14,796 )
Noncontrolling interests in partnership equity of TRG 32,529   116,376  
9,252   101,580  
122,430   419,943  
3,494,524   3,214,901  
 
 
Combined Balance Sheet of Unconsolidated Joint Ventures (1):
 
Assets:
Properties 1,619,256 1,580,926
Accumulated depreciation and amortization (581,144 ) (548,646 )
1,038,112 1,032,280
Cash and cash equivalents 33,738 49,765
Accounts and notes receivable, net 33,616 38,788
Deferred charges and other assets 38,462   33,200  
1,143,928   1,154,033  
 
Liabilities:
Notes payable (2) 2,004,712 1,989,546
Accounts payable and other liabilities 73,789   103,161  
2,078,501 2,092,707
 
Accumulated Deficiency in Assets:
Accumulated deficiency in assets - TRG (515,231 ) (520,714 )
Accumulated deficiency in assets - Joint Venture Partners (404,557 ) (407,870 )
Accumulated other comprehensive loss - TRG (7,396 ) (5,045 )
Accumulated other comprehensive loss - Joint Venture Partners (7,389 ) (5,045 )
(934,573 ) (938,674 )
1,143,928   1,154,033  
 
(1) Unconsolidated Joint Venture amounts exclude the balances of entities that own interests in projects that are currently under development.
(2) As the balances presented exclude those of centers under development, the Notes Payable amount excludes the construction loan outstanding for Hanam Union Square of $52.1 million ($17.9 million at TRG's share) at September 30, 2015.
   
TAUBMAN CENTERS, INC.
Table 9 - Annual Guidance
(all dollar amounts per common share on a diluted basis; amounts may not add due to rounding)
 
     
Range for Year Ended
December 31, 2015
 
Adjusted Funds from Operations per common share 3.36 3.44
 
Reversal of executive share-based compensation expense 0.02 0.02
   
Funds from Operations per common share 3.38 3.46
 
Real estate depreciation - TRG (1.50 ) (1.45 )
 
Distributions to participating securities of TRG (0.02 ) (0.02 )
 
Depreciation of TCO's additional basis in TRG (0.10 ) (0.10 )
 
Net income attributable to common shareowners, per common share (EPS) 1.76   1.89  

Source: Taubman Centers, Inc.

Ryan Hurren, Taubman, Director, Investor Relations, 248-258-7232

rhurren@taubman.com

Maria Mainville, Taubman, Director, Strategic Communications, 248-258-7469

mmainville@taubman.com

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TCO 42.99
Change+0.00(+0%) Volume: December 28, 2020