Taubman Centers, Inc. Issues Solid Second Quarter Results

07/25/2019
  • Net Income and Earnings Per Diluted Common Share (EPS) Down
  • Adjusted Funds from Operations (AFFO) Up 8 Percent
  • Pro Rata Total Portfolio NOI, Excluding Lease Cancellation Income, Up 4.6 Percent for the Quarter, Up 5.1 Percent Year-to-Date
  • Comparable Center NOI, Excluding Lease Cancellation Income and FX impact, Up 1.4 Percent for the Quarter and 2.2 Percent Year-to-Date
  • Trailing 12-Month Tenant Sales Per Square Foot $848 , Up 10.8 Percent
  • Sales Per Square Foot Up 8.8 Percent, 12 th Consecutive Quarter of Positive Growth
  • Apparel Sales Up for 7 th Consecutive Quarter

BLOOMFIELD HILLS, Mich. --(BUSINESS WIRE)-- Taubman Centers, Inc. (NYSE: TCO) today reported financial results for the second quarter of 2019.

June 30, 2019

June 30, 2018

June 30, 2019

June 30, 2018

Three Months

Three Months

Six Months

Six Months

Ended

Ended

Ended

Ended

Net income attributable to common shareowners, diluted (in thousands)

$6,266

$15,324

$21,384

$33,943

Growth rate

(59.1)%

(37.0)%

Net income attributable to common shareowners (EPS) per diluted common share

$0.10

$0.25

$0.35

$0.55

Growth rate

(60.0)%

(36.4)%

Funds from Operations (FFO) per diluted common share

$0.78

$0.92

$1.71

$1.80

Growth rate

(15.2)%

(5.0)%

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

$0.94 (1)

$0.87 (2)

$1.88 (1)

$1.91 (2)

Growth rate

8.0%

(1.6)%

(1)

Adjusted FFO for the three and six month periods ended June 30, 2019 excludes a restructuring charge, costs incurred related to the pending Blackstone transactions and costs associated with shareholder activism. Adjusted FFO for the six month period ended June 30, 2019 also excludes the fluctuation in the fair value of equity securities.

(2)

Adjusted FFO for the three and six month periods ended June 30, 2018 excludes a reduction of a previously expensed restructuring charge, costs associated with shareholder activism and the fluctuation in the fair value of equity securities. Adjusted FFO for the six month period ended June 30, 2018 also excludes a charge recognized in connection with the write-off of deferred financing costs related to the early payoff of the company’s $475 million unsecured term loan.

“We again delivered solid results, with AFFO up eight percent this quarter,” said Robert S. Taubman , chairman, president and chief executive officer of Taubman Centers . “Higher rents, recoveries and lease cancellation income, combined with additional business interruption proceeds related to The Mall of San Juan, drove our results.”

Operating Statistics

For the quarter, comparable center NOI growth, excluding lease cancellation income, was 1.4 percent and 2.2 percent year-to-date using constant currency exchange rates. Comparable center NOI, excluding lease cancellation income, was up 0.3 percent, bringing year-to-date growth to 1.3 percent. “Despite the unfavorable impact of foreign exchange rates, NOI growth this quarter was in line with our expectations,” said Simon J. Leopold , executive vice president, chief financial officer of Taubman Centers .

Total portfolio NOI growth at our beneficial interest, excluding lease cancellation income, was up 4.6 percent for the quarter, bringing year-to-date growth to 5.1 percent.

Tenant sales per square foot in U.S. comparable centers were up 10.6 percent in the quarter, bringing 12-month trailing U.S. sales per square foot to $940 , an increase of 12.2 percent over the 12-months ended June 30, 2018 . Year-to-date, U.S. sales per square foot were up 16.2 percent.

Including Asia , comparable tenant sales per square foot increased 8.8 percent from the second quarter of 2018. This brings the company’s 12-month trailing sales per square foot to $848 , up 10.8 percent over the 12-months ended June 30, 2018 . Year-to-date, tenant sales per square foot were up 13.7 percent.

“Our tenants produced steady sales growth this quarter. Tesla once again impacted the results very favorably,” said Mr. Taubman . “Our key categories of merchandise were also up nicely in the quarter, including apparel sales that were up for the seventh consecutive quarter.”

Average rent per square foot for the quarter was $56.79 , up 2.1 percent from $55.64 in the comparable period last year. Year-to-date, average rent per square foot was up 1.5 percent.

Trailing 12-month releasing spread per square foot for the period ended June 30, 2019 was 3.3 percent. The spread was impacted by a small number of deals that have an average lease term of less than one-and-a-half years. These represent three percent of all openings in the trailing twelve months. Without these leases, the spread was 8.3 percent.

Ending occupancy in comparable centers was 92.2 percent on June 30, 2019 , down 0.4 percent from June 30, 2018 .

Leased space in comparable centers was 95.1 percent on June 30, 2019 , unchanged from June 30, 2018 .

“As the transition in retail continues, our portfolio is maintaining healthy occupancy levels and generating solid NOI growth,” said Mr. Taubman .

The Mall of San Juan Insurance Proceeds

In June, the company received a final payment for claims related to extensive damage and business interruption at The Mall of San Juan resulting from Hurricane Maria in September 2017 . The payment included $4.5 million of business interruption proceeds and $0.2 million for reimbursement of operating expenses, both of which were included in FFO. The $4.5 million of business interruption proceeds included $1.2 million for rental revenues recognized in prior periods that were credited back to tenants in the current period. This results in a net FFO contribution of $3.5 million in the quarter, including the $0.2 million reimbursement.

This final payment was in addition to the $4 million of business interruption insurance proceeds received in the first quarter of 2019. Year-to-date, insurance proceeds of $7.5 million was included in FFO.

2019 Guidance

Taubman is updating certain guidance measures for 2019.

EPS is now expected to be in the range of $0.60 to $0.80 per diluted share, revised from the previous range of $0.68 to $0.92 , primarily due to costs associated with shareholder activism recognized in the second quarter.

Adjusted FFO, which excludes $0.17 per diluted common share of year-to-date adjustments, is now expected to be in the range of $3.64 to $3.74 per diluted common share, revised from the previous range of $3.62 to $3.74 .

FFO is now expected to be in the range of $3.47 to $3.57 per diluted common share, revised from the previous range of $3.60 to $3.72 .

All other guidance measures remain unchanged, including expected comparable center NOI growth of about 2 percent for the year.

This guidance does not include the impact of the agreement to sell 50 percent of Taubman Asia’s interests in three Asia shopping centers to Blackstone . We continue to anticipate these transactions to close throughout the second half of 2019. The guidance also does not include an assumption for future costs associated with shareholder activism.

Supplemental Investor Information Available

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

  • Earnings Press Release
  • Company Overview
  • Operational Statistics
  • Summary of Key Guidance Measures
  • Income Statements
  • Changes in Funds from Operations and Earnings Per Common Share
  • Balance Sheets
  • Debt Summary
  • Capital Spending and Certain Balance Sheet Information
  • Owned Centers
  • New Development & Acquisition
  • Anchors & Major Tenants in Owned Portfolio
  • Components of Rental Revenues
  • Components of Other Income, Other Operating Expense, and Nonoperating Income, Net
  • Earnings Reconciliations
  • Glossary

Investor Conference Call

Taubman will host a conference call at 11:00 a.m. EDT on Friday July 26, 2019 to discuss these results, business conditions and the outlook for the remainder of 2019. The conference call will be simulcast at www.taubman.com . An online replay will follow shortly after the call and 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 26 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. 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,”, “we”, “us”, “our”, “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. Forward-looking statements can be identified by words such as “will”, “may”, “could”, “expect”, “anticipate”, “believes”, “intends”, “should”, “plans”, “estimates”, “approximate”, “guidance” and similar expressions in this press release that predict or indicate future events and trends and that do not report historical matters. The forward-looking statements included in this release are made as of the date hereof. Except as required by law, the company assumes 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, including that the conditions to one or more transaction closings may not be satisfied, the potential impact on the company due to the announcement of the disposition of ownership interests, the occurrence of any event, change or other circumstances that could give rise to the delay or termination of the transactions, general economic conditions, and other factors. Such factors include, but are not limited to: changes in market rental rates; unscheduled closings or bankruptcies of tenants; relationships with anchor tenants; trends in the retail industry; challenges with department stores; changes in consumer shopping behavior; the liquidity of real estate investments; the company’s ability to comply with debt covenants; the availability and terms of financings; changes in market rates of interest and foreign exchange rates for foreign currencies; changes in value of investments in foreign entities; the ability to hedge interest rate and currency risk; risks related to acquiring, developing, expanding, leasing and managing properties; competitors gaining economies of scale through M&A and consolidation activity; changes in value of investments in foreign entities; risks related to joint venture properties; insurance costs and coverage; security breaches that could impact the company’s information technology, infrastructure or personal data; costs associated with response to technology breaches; the loss of key management personnel; shareholder activism costs and related diversion of management time; terrorist activities; maintaining the company’s status as a real estate investment trust; changes in the laws of states, localities, and foreign jurisdictions that may increase taxes on the company’s operations; and changes in global, national, regional and/or local economic and geopolitical climates.

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 - Income Statement

For the Three Months Ended June 30, 2019 and 2018

(in thousands of dollars)

2019

2018

CONSOLIDATED

UNCONSOLIDATED

CONSOLIDATED

UNCONSOLIDATED

BUSINESSES

JOINT VENTURES (1)

BUSINESSES

JOINT VENTURES (1)

REVENUES:

Rental revenues (2)

147,006

142,097

Minimum rents (2)

87,580

87,734

Overage rents

1,713

5,164

1,565

5,789

Expense recoveries (2)

50,553

43,526

Management, leasing, and development services

892

826

Other (2)

11,993

6,660

12,245

6,742

Total revenues

161,604

153,921

152,769

143,791

EXPENSES:

Maintenance, taxes, utilities, and promotion

39,182

46,179

38,085

43,757

Other operating (2)

21,232

6,853

21,034

5,125

Management, leasing, and development services

491

408

General and administrative

8,554

8,522

Restructuring charge

84

(77

)

Costs associated with shareholder activism

12,000

5,000

Interest expense

38,010

35,685

33,023

33,650

Depreciation and amortization

44,259

35,622

42,996

33,949

Total expenses

163,812

124,339

148,991

116,481

Nonoperating income, net

6,627

923

12,301

581

4,419

30,505

16,079

27,891

Income tax expense

(2,364

)

(2,461

)

(28

)

(1,527

)

28,044

26,364

Equity in income of Unconsolidated Joint Ventures

14,822

14,042

Net income

16,877

30,093

Net income attributable to noncontrolling interests:

Noncontrolling share of income of consolidated joint ventures

(832

)

(1,480

)

Noncontrolling share of income of TRG

(3,408

)

(6,922

)

Distributions to participating securities of TRG

(593

)

(599

)

Preferred stock dividends

(5,785

)

(5,785

)

Net income attributable to Taubman Centers, Inc. common shareholders

6,259

15,307

SUPPLEMENTAL INFORMATION:

EBITDA - 100%

86,688

101,812

92,098

95,490

EBITDA - outside partners' share

(6,113

)

(49,119

)

(6,258

)

(46,206

)

Beneficial interest in EBITDA

80,575

52,693

85,840

49,284

Gain on insurance recoveries - The Mall of San Juan

(1,418

)

Beneficial interest expense

(34,981

)

(18,005

)

(29,995

)

(17,263

)

Beneficial income tax expense - TRG and TCO

(2,225

)

(912

)

5

(654

)

Beneficial income tax expense - TCO

Non-real estate depreciation

(1,152

)

(1,128

)

Preferred dividends and distributions

(5,785

)

(5,785

)

Funds from Operations attributable to partnership unitholders and participating securities of TRG

35,014

33,776

48,937

31,367

STRAIGHTLINE AND PURCHASE ACCOUNTING ADJUSTMENTS:

Net straight-line adjustments to rental revenues, recoveries, and ground rent expense at TRG%

917

437

699

441

Country Club Plaza purchase accounting adjustments - rental revenues at TRG%

84

(100

)

The Mall at Green Hills purchase accounting adjustments - rental revenues

13

27

The Gardens Mall purchase accounting adjustments - rental revenues at TRG%

(177

)

The Gardens Mall purchase accounting adjustments - interest expense at TRG%

(528

)

(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 our ownership interest.

(2) Upon adoption of ASC Topic 842, minimum rents and expense recoveries are now presented within a single revenue line item, Rental Revenues; the presentation of lease cancellation income has changed from Other income to Rental Revenues; the presentation of uncollectible tenant revenues has changed from Other Operating expense to Rental Revenues as a contra-revenue; and Other Operating expense includes certain indirect leasing costs, which were capitalizable under the previous lease accounting standard. As a result of the accounting change, an additional $1.5 million of leasing costs were expensed during the three months ended June 30, 2019 . Comparative periods presented were not adjusted to reflect the change in accounting.

TAUBMAN CENTERS, INC.

Table 2 - Income Statement

For the Six Months Ended June 30, 2019 and 2018

(in thousands of dollars)

2019

2018

CONSOLIDATED

UNCONSOLIDATED

CONSOLIDATED

UNCONSOLIDATED

BUSINESSES

JOINT VENTURES (1)

BUSINESSES

JOINT VENTURES (1)

REVENUES:

Rental revenues (2)

291,295

271,653

Minimum rents (2)

174,405

179,775

Overage rents

4,854

11,543

4,190

11,670

Expense recoveries (2)

102,081

89,396

Management, leasing, and development services

2,108

1,620

Other (2)

23,555

13,366

31,965

18,238

Total revenues

321,812

296,562

314,261

299,079

EXPENSES:

Maintenance, taxes, utilities, and promotion

77,720

87,139

75,722

84,135

Other operating (2)

40,457

12,374

44,900

15,111

Management, leasing, and development services

1,022

710

General and administrative

17,130

17,015

Restructuring charge

709

(423

)

Costs associated with shareholder activism

16,000

8,500

Interest expense

74,895

68,183

63,846

66,117

Depreciation and amortization

89,215

69,312

78,018

67,418

Total expenses

317,148

237,008

288,288

232,781

Nonoperating income, net

15,360

1,324

5,158

928

20,024

60,878

31,131

67,226

Income tax expense

(2,903

)

(4,369

)

(212

)

(3,264

)

56,509

63,962

Equity in income of Unconsolidated Joint Ventures

29,494

33,770

Net income

46,615

64,689

Net income attributable to noncontrolling interests:

Noncontrolling share of income of consolidated joint ventures

(2,261

)

(2,824

)

Noncontrolling share of income of TRG

(10,209

)

(15,201

)

Distributions to participating securities of TRG

(1,220

)

(1,198

)

Preferred stock dividends

(11,569

)

(11,569

)

Net income attributable to Taubman Centers, Inc. common shareholders

21,356

33,897

SUPPLEMENTAL INFORMATION:

EBITDA - 100%

184,134

198,373

172,995

200,761

EBITDA - outside partners' share

(12,852

)

(96,263

)

(12,515

)

(97,233

)

Beneficial interest in EBITDA

171,282

102,110

160,480

103,528

Gain on insurance recoveries - The Mall of San Juan

(1,418

)

Beneficial interest expense

(68,841

)

(34,781

)

(57,807

)

(34,014

)

Beneficial income tax expense - TRG and TCO

(2,714

)

(1,689

)

(129

)

(1,364

)

Beneficial income tax expense - TCO

3

Non-real estate depreciation

(2,297

)

(2,264

)

Preferred dividends and distributions

(11,569

)

(11,569

)

Funds from Operations attributable to partnership unitholders and participating securities of TRG

84,443

65,640

88,714

68,150

STRAIGHTLINE AND PURCHASE ACCOUNTING ADJUSTMENTS:

Net straight-line adjustments to rental revenues, recoveries, and ground rent expense at TRG%

2,715

603

1,355

1,152

Country Club Plaza purchase accounting adjustments - rental revenues at TRG%

196

1,387

The Mall at Green Hills purchase accounting adjustments - rental revenues

48

58

The Gardens Mall purchase accounting adjustments - rental revenues at TRG%

(177

)

The Gardens Mall purchase accounting adjustments - interest expense at TRG%

(528

)

(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 our ownership interest.

(2) Upon adoption of ASC Topic 842, minimum rents and expense recoveries are now presented within a single revenue line item, Rental Revenues; the presentation of lease cancellation income has changed from Other income to Rental Revenues; the presentation of uncollectible tenant revenues has changed from Other Operating expense to Rental Revenues as a contra-revenue; and Other Operating expense includes certain indirect leasing costs, which were capitalizable under the previous lease accounting standard. As a result of the accounting change, an additional $2.9 million of leasing costs were expensed during the six months ended June 30, 2019 . Comparative periods presented were not adjusted to reflect the change in accounting.

TAUBMAN CENTERS, INC.

Use of Non-GAAP Financial Measures

In this press release, the terms "we", "us", and "our" refer to Taubman Centers, Inc. (TCO), The Taubman Realty Group Limited Partnership (TRG), and/or TRG's subsidiaries as the context may require.

We use certain non-GAAP operating measures, including EBITDA, beneficial interest in EBITDA, Net Operating Income, and Funds from Operations. These measures are reconciled to the most comparable GAAP measures. Additional information as to the use of these measures are as follows.

EBITDA represents earnings before interest, income taxes, and depreciation and amortization of our consolidated and unconsolidated businesses. Beneficial interest in EBITDA represents our share of the earnings before interest, income taxes, and depreciation and amortization of our consolidated and unconsolidated businesses. We believe EBITDA and beneficial interest in EBITDA provide useful indicators 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.

We use Net Operating Income (NOI) as an alternative measure to evaluate the operating performance of centers, both on individual and stabilized portfolio bases, and in formulating corporate goals and compensation. We define NOI as property-level operating revenues (includes rental income excluding straight-line adjustments of minimum rent) less maintenance, property taxes, utilities, promotion, ground rent (including straight-line adjustments), and other property operating expenses. Beneficial interest in NOI represents our share of NOI (as previously defined) of our consolidated and unconsolidated businesses. 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. We also use 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. We generally provide 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, excluding centers impacted by significant redevelopment activity. In addition, The Mall of San Juan has been excluded from comparable center statistics as a result of Hurricane Maria given that the center's performance has been and is expected to continue to be materially impacted for the foreseeable future. We also use NOI excluding lease cancellation income using constant currency exchange rates as an alternative measure because exchange rates may vary significantly from period to period, which can affect comparability and trend analysis.

The National Association of Real Estate Investment Trusts (NAREIT) defines Funds from Operations (FFO) as net income (calculated in accordance with Generally Accepted Accounting Principles (GAAP)), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. We believe 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, we 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. We primarily use FFO in measuring performance and in formulating corporate goals and compensation.

We 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. We believe 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. For the three and six months ended June 30, 2019 FFO and EBITDA were adjusted to exclude a restructuring charge, costs incurred related to the pending Blackstone transactions, and costs incurred associated with shareholder activism. For the three and six months ended June 30, 2019 , EBITDA was also adjusted to exclude a gain on insurance recoveries for The Mall of San Juan. In addition, for the six months ended June 30, 2019 , FFO and EBITDA were adjusted to exclude the fluctuation in the fair value of equity securities. For the three and six months ended June 30, 2018 , FFO and EBITDA were adjusted to exclude a reduction of a previously expensed restructuring charge, costs incurred associated with shareholder activism, and the fluctuation in the fair value of equity securities. For the six months ended June 30, 2018 , FFO was also adjusted for a charge recognized in connection with the write-off of deferred financing costs related to the early payoff of our $475 million unsecured term loan.

These non-GAAP measures as presented by us 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 our operating performance. Additionally, these measures do not represent cash flows from operating, investing, or financing activities as defined by GAAP.

We also provide our beneficial interest in certain financial information of our Unconsolidated Joint Ventures . This beneficial information is derived as our ownership interest in the investee multiplied by the specific financial statement item being presented. Investors are cautioned that deriving our beneficial interest in this manner may not accurately depict the legal and economic implications of holding a noncontrolling interest in the investee.

TAUBMAN CENTERS, INC.

Table 3 - Reconciliation of Net Income Attributable to Taubman Centers, Inc. Common Shareholders to Funds From Operations and Adjusted Funds From Operations

For the Three Months Ended June 30, 2019 and 2018

(in thousands of dollars except as noted; may not add or recalculate due to rounding)

2019

2018

Shares

Per Share

Shares

Per Share

Dollars

/Units

/Unit

Dollars

/Units

/Unit

Net income attributable to TCO common shareholders - basic

6,259

61,171,614

0.10

15,307

60,992,200

0.25

Add impact of share-based compensation

7

168,311

17

240,333

Net income attributable to TCO common shareholders - diluted

6,266

61,339,925

0.10

15,324

61,232,533

0.25

Add depreciation of TCO's additional basis

1,617

0.03

1,617

0.03

Net income attributable to TCO common shareholders,
excluding step-up depreciation

7,883

61,339,925

0.13

16,941

61,232,533

0.28

Add noncontrolling share of income of TRG

3,408

26,461,580

6,922

24,951,981

Add distributions to participating securities of TRG

593

871,262

599

871,262

Net income attributable to partnership unitholders

and participating securities of TRG

11,884

88,672,767

0.13

24,462

87,055,776

0.28

Add (less) depreciation and amortization:

Consolidated businesses at 100%

44,259

0.50

42,996

0.49

Depreciation of TCO's additional basis

(1,617

)

(0.02

)

(1,617

)

(0.02

)

Noncontrolling partners in consolidated joint ventures

(2,113

)

(0.02

)

(1,717

)

(0.02

)

Share of Unconsolidated Joint Ventures

18,954

0.21

17,325

0.20

Non-real estate depreciation

(1,152

)

(0.01

)

(1,128

)

(0.01

)

Less gain on insurance recoveries - The Mall of San Juan

(1,418

)

(0.02

)

Less impact of share-based compensation

(7

)

(0.00

)

(17

)

(0.00

)

Funds from Operations attributable to partnership unitholders

and participating securities of TRG

68,790

88,672,767

0.78

80,304

87,055,776

0.92

TCO's average ownership percentage of TRG - basic (1)

69.8

%

71.0

%

Funds from Operations attributable to TCO's common shareholders (1)

48,018

0.78

56,990

0.92

Funds from Operations attributable to partnership unitholders

and participating securities of TRG

68,790

88,672,767

0.78

80,304

87,055,776

0.92

Restructuring charge

84

(77

)

(0.00

)

Costs related to pending Blackstone transactions (2)

2,066

0.02

Costs associated with shareholder activism

12,000

0.14

5,000

0.06

Fluctuation in fair value of equity securities

(9,348

)

(0.11

)

Adjusted Funds from Operations attributable to partnership unitholders

and participating securities of TRG

82,940

88,672,767

0.94

75,879

87,055,776

0.87

TCO's average ownership percentage of TRG - basic (3)

69.8

%

71.0

%

Adjusted Funds from Operations attributable to TCO's common shareholders (3)

57,896

0.94

53,849

0.87

(1) For the three months ended June 30, 2019 , Funds from Operations attributable to TCO's common shareholders was $47,455 using TCO's diluted average ownership percentage of TRG of 69.0%. For the three months ended June 30, 2018 , Funds from Operations attributable to TCO's common shareholders was $56,262 using TCO's diluted average ownership percentage of TRG of 70.1%.

(2) Includes $0.5 million of disposition costs and $1.6 million of income tax expense related to the pending Blackstone transactions, which have been recorded within Nonoperating Income, Net and Income Tax Expense, respectively, in our Statement of Operations and Comprehensive Income (Loss).

(3) For the three months ended June 30, 2019 , Adjusted Funds from Operations attributable to TCO's common shareholders was $57,217 using TCO's diluted average ownership percentage of TRG of 69.0%. For the three months ended June 30, 2018 , Adjusted Funds from Operations attributable to TCO's common shareholders was $53,162 using TCO's diluted average ownership percentage of TRG of 70.1%.

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 Six Months Ended June 30, 2019 and 2018

(in thousands of dollars except as noted; may not add or recalculate due to rounding)

2019

2018

Shares

Per Share

Shares

Per Share

Dollars

/Units

/Unit

Dollars

/Units

/Unit

Net income attributable to TCO common shareowners - basic

21,356

61,147,947

0.35

33,897

60,954,924

0.56

Add impact of share-based compensation

28

206,481

46

264,738

Net income attributable to TCO common shareowners - diluted

21,384

61,354,428

0.35

33,943

61,219,662

0.55

Add depreciation of TCO's additional basis

3,234

0.05

3,234

0.05

Add TCO's additional income tax expense

3

0.00

Net income attributable to TCO common shareholders,
excluding step-up depreciation and additional income tax expense

24,618

61,354,428

0.40

37,180

61,219,662

0.60

Add noncontrolling share of income of TRG

10,209

25,672,953

15,201

24,953,313

Add distributions to participating securities of TRG

1,220

871,262

1,198

871,262

Net income attributable to partnership unitholders

and participating securities of TRG

36,047

87,898,643

0.41

53,579

87,044,237

0.60

Add (less) depreciation and amortization:

Consolidated businesses at 100%

89,215

1.01

78,018

0.90

Depreciation of TCO's additional basis

(3,234

)

(0.04

)

(3,234

)

(0.04

)

Noncontrolling partners in consolidated joint ventures

(4,348

)

(0.05

)

(3,569

)

(0.04

)

Share of Unconsolidated Joint Ventures

36,146

0.41

34,380

0.39

Non-real estate depreciation

(2,297

)

(0.03

)

(2,264

)

(0.03

)

Less gain on insurance recoveries - The Mall of San Juan

(1,418

)

(0.02

)

Less impact of share-based compensation

(28

)

(0.00

)

(46

)

(0.00

)

Funds from Operations attributable to partnership unitholders

and participating securities of TRG

150,083

87,898,643

1.71

156,864

87,044,237

1.80

TCO's average ownership percentage of TRG - basic (1)

70.4

%

71.0

%

Funds from Operations attributable to TCO's common shareholders,
excluding additional income tax expense (1)

105,797

1.71

111,301

1.80

Less TCO's additional income tax expense

(3

)

(0.00

)

Funds from Operations attributable to TCO's common shareowners (1)

105,797

1.71

111,298

1.80

Funds from Operations attributable to partnership unitholders

and participating securities of TRG

150,083

87,898,643

1.71

156,864

87,044,237

1.80

Restructuring charge

709

0.01

(423

)

(0.00

)

Costs related to pending Blackstone transactions (2)

2,066

0.02

Costs associated with shareholder activism

16,000

0.18

8,500

0.10

Fluctuation in fair value of equity securities

(3,346

)

(0.04

)

914

0.01

Partial write-off of deferred financing costs

382

0.00

Adjusted Funds from Operations attributable to partnership unitholders

and participating securities of TRG

165,512

87,898,643

1.88

166,237

87,044,237

1.91

TCO's average ownership percentage of TRG - basic (3)

70.4

%

71.0

%

Adjusted Funds from Operations attributable to TCO's common shareowners (3)

116,584

1.88

117,949

1.91

(1) For the six months ended June 30, 2019 , Funds from Operations attributable to TCO's common shareholders was $104,474 using TCO's diluted average ownership percentage of TRG of 69.6%. For the six months ended June 30, 2018 , Funds from Operations attributable to TCO's common shareholders was $109,847 using TCO's diluted average ownership percentage of TRG of 70.0%.

(2) Includes $0.5 million of disposition costs and $1.6 million of income tax expense related to the pending Blackstone transactions, which have been recorded within Nonoperating Income, Net and Income Tax Expense, respectively, in our Statement of Operations and Comprehensive Income (Loss).

(3) For the six months ended June 30, 2019 , Adjusted Funds from Operations attributable to TCO's common shareholders was $115,133 using TCO's diluted average ownership percentage of TRG of 69.6%. For the six months ended June 30, 2018 , Adjusted Funds from Operations attributable to TCO's common shareholders was $116,407 using TCO's diluted average ownership percentage of TRG of 70.0%.

TAUBMAN CENTERS, INC.

Table 5 - Reconciliation of Net Income to Beneficial Interest in EBITDA and Adjusted Beneficial Interest in EBITDA

For the Periods Ended June 30, 2019 and 2018

(in thousands of dollars; amounts attributable to TCO may not recalculate due to rounding)

Three Months Ended

Year to Date

2019

2018

2019

2018

Net income

16,877

30,093

46,615

64,689

Add (less) depreciation and amortization:

Consolidated businesses at 100%

44,259

42,996

89,215

78,018

Noncontrolling partners in consolidated joint ventures

(2,113

)

(1,717

)

(4,348

)

(3,569

)

Share of Unconsolidated Joint Ventures

18,954

17,325

36,146

34,380

Add (less) interest expense and income tax expense:

Interest expense:

Consolidated businesses at 100%

38,010

33,023

74,895

63,846

Noncontrolling partners in consolidated joint ventures

(3,029

)

(3,028

)

(6,054

)

(6,039

)

Share of Unconsolidated Joint Ventures

18,005

17,263

34,781

34,014

Income tax expense:

Consolidated businesses at 100%

2,364

28

2,903

212

Noncontrolling partners in consolidated joint ventures

(139

)

(33

)

(189

)

(83

)

Share of Unconsolidated Joint Ventures

912

654

1,689

1,364

Less noncontrolling share of income of consolidated joint ventures

(832

)

(1,480

)

(2,261

)

(2,824

)

Beneficial interest in EBITDA

133,268

135,124

273,392

264,008

TCO's average ownership percentage of TRG - basic

69.8

%

71.0

%

70.4

%

71.0

%

Beneficial interest in EBITDA attributable to TCO

93,027

95,894

192,620

187,324

Beneficial interest in EBITDA

133,268

135,124

273,392

264,008

Add (less):

Restructuring charge

84

(77

)

709

(423

)

Disposition costs related to pending Blackstone transactions

487

487

Costs associated with shareholder activism

12,000

5,000

16,000

8,500

Gain on insurance recoveries - The Mall of San Juan

(1,418

)

(1,418

)

Fluctuation in fair value of equity securities

(9,348

)

(3,346

)

914

Adjusted Beneficial interest in EBITDA

144,421

130,699

285,824

272,999

TCO's average ownership percentage of TRG - basic

69.8

%

71.0

%

70.4

%

71.0

%

Adjusted Beneficial interest in EBITDA attributable to TCO

100,812

92,753

201,314

193,700

TAUBMAN CENTERS, INC.

Table 6 - Reconciliation of Net Income to Net Operating Income (NOI)

For the Three Months Ended June 30, 2019 , 2018, and 2017

(in thousands of dollars)

Three Months Ended

Three Months Ended

2019

2018

2018

2017

Net income

16,877

30,093

30,093

27,663

Add (less) depreciation and amortization:

Consolidated businesses at 100%

44,259

42,996

42,996

39,442

Noncontrolling partners in consolidated joint ventures

(2,113

)

(1,717

)

(1,717

)

(1,811

)

Share of Unconsolidated Joint Ventures

18,954

17,325

17,325

17,521

Add (less) interest expense and income tax expense:

Interest expense:

Consolidated businesses at 100%

38,010

33,023

33,023

26,746

Noncontrolling partners in consolidated joint ventures

(3,029

)

(3,028

)

(3,028

)

(2,997

)

Share of Unconsolidated Joint Ventures

18,005

17,263

17,263

17,849

Income tax expense:

Consolidated businesses at 100%

2,364

28

28

113

Noncontrolling partners in consolidated joint ventures

(139

)

(33

)

(33

)

(43

)

Share of Unconsolidated Joint Ventures

912

654

654

518

Less noncontrolling share of income of consolidated joint ventures

(832

)

(1,480

)

(1,480

)

(1,605

)

Add EBITDA attributable to outside partners:

EBITDA attributable to noncontrolling partners in consolidated joint ventures

6,113

6,258

6,258

6,456

EBITDA attributable to outside partners in Unconsolidated Joint Ventures

49,119

46,206

46,206

45,041

EBITDA at 100%

188,500

187,588

187,588

174,893

Add (less) items excluded from shopping center NOI:

General and administrative expenses

8,554

8,522

8,522

9,416

Management, leasing, and development services, net

(401

)

(418

)

(418

)

(780

)

Restructuring charge

84

(77

)

(77

)

416

Costs associated with shareholder activism

12,000

5,000

5,000

5,000

Straight-line of rents

(2,277

)

(1,927

)

(1,927

)

(2,869

)

Nonoperating income, net

(7,550

)

(12,882

)

(12,882

)

(3,434

)

Unallocated operating expenses and other (1)

8,382

8,402

8,402

9,054

NOI at 100% - total portfolio

207,292

194,208

194,208

191,696

Less NOI of non-comparable centers

(18,193

)

(2)

(9,567

)

(3)

(13,799

)

(4)

(14,315

)

(4)

NOI at 100% - comparable centers

189,099

184,641

180,409

177,381

NOI at 100% - comparable centers growth %

2.4

%

1.7

%

NOI at 100% - comparable centers

189,099

184,641

180,409

177,381

Less lease cancellation income - comparable centers

(5,946

)

(2,060

)

(2,060

)

(5,139

)

NOI at 100% - comparable centers excluding lease cancellation income

183,153

182,581

178,349

172,242

NOI at 100% - comparable centers excluding lease cancellation income growth %

0.3

%

3.5

%

NOI at 100% - comparable centers excluding lease cancellation income

183,153

182,581

Foreign currency exchange rate fluctuation adjustment

2,017

NOI at 100% - comparable centers excluding lease cancellation income using constant currency exchange rates

185,170

182,581

NOI at 100% - comparable centers excluding lease cancellation income using constant currency exchange rates growth %

1.4

%

NOI at 100% - total portfolio

207,292

194,208

194,208

191,696

Less lease cancellation income - total portfolio

(7,431

)

(2,060

)

(2,060

)

(6,893

)

Less NOI attributable to noncontrolling partners in consolidated joint ventures and outside partners in Unconsolidated Joint Ventures excluding lease cancellation income - total portfolio

(54,341

)

(52,962

)

(52,962

)

(50,575

)

Beneficial interest in NOI - total portfolio excluding lease cancellation income

145,520

139,186

139,186

134,228

Beneficial interest in NOI - total portfolio excluding lease cancellation income growth %

4.6

%

3.7

%

(1)

Upon adoption of ASC Topic 842, Other Operating expense includes certain indirect leasing costs, which were capitalizable under the previous lease accounting standard. As a result of the accounting change, an additional $1.5 million of leasing costs were expensed during the three months ended June 30, 2019 . Comparative periods presented were not adjusted to reflect the change in accounting.

(2)

Includes Beverly Center, The Gardens Mall , The Mall of San Juan, and Taubman Prestige Outlets Chesterfield.

(3)

Includes Beverly Center, The Mall of San Juan, and Taubman Prestige Outlets Chesterfield.

(4)

Includes Beverly Center, CityOn.Zhengzhou, The Mall of San Juan, and Taubman Prestige Outlets Chesterfield.

TAUBMAN CENTERS, INC.

Table 7 - Reconciliation of Net Income to Net Operating Income (NOI)

For the Six Months Ended June 30, 2019 , 2018, and 2017

(in thousands of dollars)

Year to Date

Year to Date

2019

2018

2018

2017

Net income

46,615

64,689

64,689

60,422

Add (less) depreciation and amortization:

Consolidated businesses at 100%

89,215

78,018

78,018

77,153

Noncontrolling partners in consolidated joint ventures

(4,348

)

(3,569

)

(3,569

)

(3,607

)

Share of Unconsolidated Joint Ventures

36,146

34,380

34,380

33,173

Add (less) interest expense and income tax expense:

Interest expense:

Consolidated businesses at 100%

74,895

63,846

63,846

52,292

Noncontrolling partners in consolidated joint ventures

(6,054

)

(6,039

)

(6,039

)

(5,972

)

Share of Unconsolidated Joint Ventures

34,781

34,014

34,014

33,630

Income tax expense:

Consolidated businesses at 100%

2,903

212

212

321

Noncontrolling partners in consolidated joint ventures

(189

)

(83

)

(83

)

(74

)

Share of Unconsolidated Joint Ventures

1,689

1,364

1,364

2,151

Share of income tax expense on disposition

731

Less noncontrolling share of income of consolidated joint ventures

(2,261

)

(2,824

)

(2,824

)

(3,049

)

Add EBITDA attributable to outside partners:

EBITDA attributable to noncontrolling partners in consolidated joint ventures

12,852

12,515

12,515

12,702

EBITDA attributable to outside partners in Unconsolidated Joint Ventures

96,263

97,233

97,233

92,904

EBITDA at 100%

382,507

373,756

373,756

352,777

Add (less) items excluded from shopping center NOI:

General and administrative expenses

17,130

17,015

17,015

20,167

Management, leasing, and development services, net

(1,086

)

(910

)

(910

)

(1,118

)

Restructuring charge

709

(423

)

(423

)

2,312

Costs associated with shareholder activism

16,000

8,500

8,500

8,500

Straight-line of rents

(5,184

)

(7,414

)

(7,414

)

(4,725

)

Nonoperating income, net

(16,684

)

(6,086

)

(6,086

)

(8,064

)

Gain on disposition

(4,445

)

Unallocated operating expenses and other (1)

16,122

16,523

16,523

16,376

NOI at 100% - total portfolio

409,514

400,961

400,961

381,780

Less NOI of non-comparable centers

(29,931

)

(2)

(18,828

)

(3)

(26,602

)

(4)

(26,725

)

(4)

NOI at 100% - comparable centers

379,583

382,133

374,359

355,055

NOI at 100% - comparable centers growth %

-0.7

%

5.4

%

NOI at 100% - comparable centers

379,583

382,133

374,359

355,055

Less lease cancellation income - comparable centers

(6,435

)

(13,744

)

(13,744

)

(8,746

)

NOI at 100% - comparable centers excluding lease cancellation income

373,148

368,389

360,615

346,309

NOI at 100% - comparable centers excluding lease cancellation income growth %

1.3

%

4.1

%

NOI at 100% - comparable centers excluding lease cancellation income

373,148

368,389

Foreign currency exchange rate fluctuation adjustment

3,370

NOI at 100% - comparable centers excluding lease cancellation income using constant currency exchange rates

376,518

368,389

NOI at 100% - comparable centers excluding lease cancellation income using constant currency exchange rates growth %

2.2

%

NOI at 100% - total portfolio

409,514

400,961

400,961

381,780

Less lease cancellation income - total portfolio

(8,000

)

(15,845

)

(15,845

)

(10,599

)

Less NOI attributable to noncontrolling partners in consolidated joint ventures and outside partners in Unconsolidated Joint Ventures excluding lease cancellation income - total portfolio

(108,914

)

(106,839

)

(106,839

)

(101,805

)

Beneficial interest in NOI - total portfolio excluding lease cancellation income

292,600

278,277

278,277

269,376

Beneficial interest in NOI - total portfolio excluding lease cancellation income growth %

5.1

%

3.3

%

(1)

Upon adoption of ASC Topic 842, Other Operating expense includes certain indirect leasing costs, which were capitalizable under the previous lease accounting standard. As a result of the accounting change, an additional $2.9 million of leasing costs were expensed during the six months ended June 30, 2019 . Comparative periods presented were not adjusted to reflect the change in accounting.

(2)

Includes Beverly Center, The Gardens Mall , The Mall of San Juan, and Taubman Prestige Outlets Chesterfield.

(3)

Includes Beverly Center, The Mall of San Juan, and Taubman Prestige Outlets Chesterfield.

(4)

Includes Beverly Center, CityOn.Zhengzhou, The Mall of San Juan, and Taubman Prestige Outlets Chesterfield.

TAUBMAN CENTERS, INC.

Table 8 - 2019 Annual Guidance

(all dollar amounts per common share on a diluted basis; amounts may not add due to rounding)

Range for the Year Ended

December 31, 2019 (1)

Adjusted Funds from Operations per common share

3.64

3.74

Restructuring charge

(0.010

)

(0.010

)

Costs related to pending Blackstone transactions (2)

(0.025

)

(0.025

)

Costs associated with shareholder activism

(0.180

)

(0.180

)

Fluctuation in fair value of equity securities

0.040

0.040

Funds from Operations per common share

$

3.47

$

3.57

Gain on insurance recoveries - The Mall of San Juan

0.02

0.02

Real estate depreciation - TRG

(2.75

)

(2.65

)

Distributions to participating securities of TRG

(0.03

)

(0.03

)

Depreciation of TCO's additional basis in TRG

(0.11

)

(0.11

)

Net income attributable to common shareholders, per common share (EPS)

$

0.60

$

0.80

(1) Guidance is current as of July 25, 2019 , see " Taubman Centers, Inc. Issues Solid Second Quarter Results." On February 14, 2019 , we announced agreements to sell 50 percent of our ownership interests in Starfield Hanam, CityOn.Xi’an, and CityOn.Zhengzhou to funds managed by The Blackstone Group L.P. ( Blackstone ). The transactions are subject to customary closing conditions and are expected to close throughout 2019. The 2019 annual guidance and related guidance assumptions exclude the impact of the Blackstone transactions. The adjustments for the restructuring charge, costs incurred associated with shareholder activism, costs related to pending Blackstone transactions, and the fluctuation in fair value of equity securities represent actual amounts recognized through the second quarter of 2019, but does not include future assumptions of amounts to be incurred during the remainder of 2019.

(2) Includes $0.5 million of disposition costs and $1.6 million of income tax expense related to the pending Blackstone transactions, which have been recorded within Nonoperating Income, Net and Income Tax Expense, respectively, in our Statement of Operations and Comprehensive Income (Loss) during the six months ended June 30, 2019 .

Erik Wright , Taubman, Manager, Investor Relations, 248-258-7390
ewright@taubman.com

Maria Mainville , Taubman, Director, Strategic Communications , 248-258-7469
mmainville@taubman.com

Source: Taubman Centers, Inc.

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TCO 39.61
Change-0.75(-1.86%) Volume: 393,381 August 20, 2019