form10q1q08.htm
UNITED
STATES
|
SECURITIES
AND EXCHANGE COMMISSION
|
WASHINGTON,
D.C. 20549
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|
|
Form
10-Q
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|
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
|
OF THE
SECURITIES EXCHANGE ACT OF 1934
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|
|
For the
Quarterly Period Ended: March 31, 2008
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Commission
File No. 1-11530
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Taubman Centers,
Inc.
|
(Exact name
of registrant as specified in its charter)
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Michigan
|
|
38-2033632
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(State or
other jurisdiction of
incorporation
or organization)
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|
(I.R.S.
Employer Identification No.)
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200 East Long
Lake Road, Suite 300, Bloomfield Hills, Michigan
|
|
48304-2324
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(Address of
principal executive offices)
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|
(Zip
Code)
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(248)
258-6800
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(Registrant's
telephone number, including area code)
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Indicate by
check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
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|
x Yes o
No
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Indicate by a
check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer,” “accelerated
filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
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|
Large
Accelerated Filer x Accelerated
Filer o
Non-Accelerated Filer o Smaller Reporting
Company o
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(Do not check
if a smaller reporting company)
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|
Indicate by a
check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
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o Yes x
No
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As of April
29, 2008, there were outstanding 52,812,061 shares of the Company's
common stock, par value $0.01 per
share.
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TAUBMAN CENTERS,
INC.
CONTENTS
PART
I – FINANCIAL INFORMATION
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Item
1.
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Financial
Statements (Unaudited):
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Item
2.
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Item
3.
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Item
4.
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PART
II – OTHER INFORMATION
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Item
1.
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Item
1A.
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Item
6.
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TAUBMAN CENTERS,
INC.
(in thousands,
except share data)
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|
March
31
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December
31
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|
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2008
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2007
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|
Assets:
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|
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Properties
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$ |
3,778,947 |
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|
$ |
3,781,136 |
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Accumulated depreciation and
amortization
|
|
|
(957,526 |
) |
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|
(933,275 |
) |
|
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$ |
2,821,421 |
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|
$ |
2,847,861 |
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Investment in Unconsolidated Joint
Ventures (Note 4)
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|
|
90,014 |
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|
92,117 |
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Cash and cash equivalents
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|
40,768 |
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47,166 |
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Accounts and notes receivable, less
provision for bad debts of $7,733
and $6,694 in 2008 and
2007
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|
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48,995 |
|
|
|
52,161 |
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Accounts receivable from related
parties
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|
1,956 |
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2,283 |
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Deferred charges and other assets (Notes 1
and 3)
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215,575 |
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109,719 |
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$ |
3,218,729 |
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$ |
3,151,307 |
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Liabilities:
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Notes payable (Note 5)
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$ |
2,840,951 |
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$ |
2,700,980 |
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Accounts payable and accrued
liabilities
|
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248,982 |
|
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296,385 |
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Dividends and distributions
payable
|
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21,915 |
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21,839 |
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Distributions in excess of investments in
and net income of Unconsolidated
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|
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Joint Ventures (Note 4)
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101,313 |
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100,234 |
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$ |
3,213,161 |
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$ |
3,119,438 |
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Commitments
and contingencies (Notes 1, 3, 5, 7, and 8)
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Preferred
Equity of TRG
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|
$ |
29,217 |
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$ |
29,217 |
|
|
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Minority
interest in TRG and consolidated joint ventures (Notes 1 and
3)
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$ |
17,351 |
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$ |
18,494 |
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Shareowners'
Equity:
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Series B Non-Participating Convertible
Preferred Stock, $0.001 par and
liquidation value, 40,000,000 shares
authorized, 26,524,235 shares issued
and outstanding at March 31, 2008 and
December 31, 2007
|
|
$ |
27 |
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$ |
27 |
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Series G Cumulative Redeemable Preferred
Stock, 4,000,000 shares
authorized, no par, $100 million
liquidation preference, 4,000,000 shares
issued and outstanding at March 31, 2008
and December 31, 2007
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Series H Cumulative Redeemable Preferred
Stock, 3,480,000 shares
authorized, no par, $87 million
liquidation preference, 3,480,000 shares
issued and outstanding at March 31, 2008
and December 31, 2007
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Common Stock, $0.01 par value, 250,000,000
shares authorized, 52,808,293
and 52,624,013 shares issued and
outstanding at March 31, 2008 and
December 31, 2007
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|
|
528 |
|
|
|
526 |
|
Additional paid-in capital
|
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|
546,788 |
|
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|
543,333 |
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Accumulated other comprehensive income
(loss)
|
|
|
(19,806 |
) |
|
|
(8,639 |
) |
Dividends in excess of net income (Note
1)
|
|
|
(568,537 |
) |
|
|
(551,089 |
) |
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$ |
(41,000 |
) |
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$ |
(15,842 |
) |
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$ |
3,218,729 |
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$ |
3,151,307 |
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See notes to
consolidated financial statements.
TAUBMAN CENTERS,
INC.
(in thousands,
except share data)
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|
Three Months
Ended March 31
|
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2008
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2007
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Revenues:
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Minimum rents
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$ |
86,570 |
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$ |
78,655 |
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Percentage rents
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2,575 |
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|
2,308 |
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Expense recoveries
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57,464 |
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50,623 |
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Management, leasing, and development
services
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3,694 |
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4,890 |
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Other
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7,114 |
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|
8,550 |
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$ |
157,417 |
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$ |
145,026 |
|
Expenses:
|
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Maintenance, taxes, and
utilities
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$ |
43,540 |
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$ |
37,919 |
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Other operating
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|
18,301 |
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16,796 |
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Management, leasing, and development
services
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|
2,257 |
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2,790 |
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General and administrative
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|
8,333 |
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|
7,321 |
|
Interest expense (Note 5)
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36,982 |
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29,694 |
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Depreciation and
amortization
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|
35,335 |
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32,533 |
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$ |
144,748 |
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$ |
127,053 |
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Gains on land
sales and other nonoperating income
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$ |
1,803 |
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$ |
391 |
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Income before
income tax expense, equity in income of Unconsolidated
Joint Ventures and minority and preferred
interests
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$ |
14,472 |
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$ |
18,364 |
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Income tax
expense (Note 2)
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(190 |
) |
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Equity in
income of Unconsolidated Joint Ventures (Note 4)
|
|
|
9,234 |
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|
8,186 |
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Income before
minority and preferred interests
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$ |
23,516 |
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|
$ |
26,550 |
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Minority
share of consolidated joint ventures (Note 1):
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Minority share of income of consolidated
joint ventures
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|
(1,176 |
) |
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(1,913 |
) |
Distributions less than (in excess of)
minority share of income of
consolidated joint
ventures
|
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|
(2,137 |
) |
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|
608 |
|
Minority
interest in TRG (Note 1):
|
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Minority share of income of
TRG
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|
(5,916 |
) |
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(7,741 |
) |
Distributions in excess of minority share
of income
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|
(5,467 |
) |
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(2,833 |
) |
TRG Series F
preferred distributions
|
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|
(615 |
) |
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|
(615 |
) |
Net
income
|
|
$ |
8,205 |
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$ |
14,056 |
|
Series G and
H preferred stock dividends
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(3,658 |
) |
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|
(3,658 |
) |
Net income
allocable to common shareowners
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|
$ |
4,547 |
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|
$ |
10,398 |
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Net
income
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$ |
8,205 |
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$ |
14,056 |
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Other
comprehensive income:
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Unrealized gain (loss) on interest rate
instruments and other
|
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(11,482 |
) |
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|
25 |
|
Reclassification adjustment for amounts
recognized in net income
|
|
|
315 |
|
|
|
315 |
|
Comprehensive
income (loss)
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|
$ |
(2,962 |
) |
|
$ |
14,396 |
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Basic and
diluted earnings per common share (Note 9) -
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Net income
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$ |
0.09 |
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$ |
0.19 |
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Cash
dividends declared per common share
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$ |
0.415 |
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$ |
0.375 |
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Weighted
average number of common shares outstanding - basic
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52,675,207 |
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53,423,628 |
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See notes to
consolidated financial statements.
TAUBMAN CENTERS,
INC.
(in
thousands)
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|
Three Months
Ended March 31
|
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|
2008
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|
2007
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|
Cash Flows
From Operating Activities:
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Net income
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|
$ |
8,205 |
|
|
$ |
14,056 |
|
Adjustments to reconcile net income to net
cash provided by operating activities:
|
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|
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Minority and preferred
interests
|
|
|
15,311 |
|
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|
12,494 |
|
Depreciation and
amortization
|
|
|
35,335 |
|
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|
32,533 |
|
Provision for bad debts
|
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|
1,541 |
|
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|
2,069 |
|
Gains on sales of land
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|
(1,240 |
) |
|
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Other
|
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|
1,680 |
|
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|
2,144 |
|
Increase (decrease) in cash attributable
to changes in assets and liabilities:
|
|
|
|
|
|
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|
Receivables, deferred charges, and other
assets
|
|
|
3,515 |
|
|
|
(1,854 |
) |
Accounts payable and other
liabilities
|
|
|
(31,168 |
) |
|
|
(26,201 |
) |
Net Cash
Provided By Operating Activities
|
|
$ |
33,179 |
|
|
$ |
35,241 |
|
|
|
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|
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|
Cash Flows
From Investing Activities:
|
|
|
|
|
|
|
|
|
Additions to properties
|
|
$ |
(34,708 |
) |
|
$ |
(44,770 |
) |
Acquisition of marketable equity
securities and other assets
|
|
|
(561 |
) |
|
|
(2,290 |
) |
Funding of The Mall at Studio City escrow
(Note 3)
|
|
|
(54,334 |
) |
|
|
|
|
Proceeds from sales of
land
|
|
|
4,322 |
|
|
|
|
|
Contributions to Unconsolidated Joint
Ventures
|
|
|
(2,415 |
) |
|
|
(611 |
) |
Distributions from Unconsolidated Joint
Ventures in excess of income
|
|
|
4,417 |
|
|
|
2,726 |
|
Net Cash Used
In Investing Activities
|
|
$ |
(83,279 |
) |
|
$ |
(44,945 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows
From Financing Activities:
|
|
|
|
|
|
|
|
|
Debt proceeds
|
|
$ |
331,387 |
|
|
$ |
50,092 |
|
Debt payments
|
|
|
(191,228 |
) |
|
|
(5,152 |
) |
Debt issuance costs
|
|
|
(3,386 |
) |
|
|
|
|
Issuance of common stock and/or
partnership units in connection
with incentive plans
|
|
|
610 |
|
|
|
|
|
Distributions to minority and preferred
interests (Note 1)
|
|
|
(67,479 |
) |
|
|
(12,494 |
) |
Cash dividends to preferred
shareowners
|
|
|
(3,658 |
) |
|
|
(3,658 |
) |
Cash dividends to common
shareowners
|
|
|
(21,839 |
) |
|
|
(19,849 |
) |
Other
|
|
|
(705 |
) |
|
|
|
|
Net Cash
Provided By Financing Activities
|
|
$ |
43,702 |
|
|
$ |
8,939 |
|
|
|
|
|
|
|
|
|
|
Net Decrease
In Cash and Cash Equivalents
|
|
$ |
(6,398 |
) |
|
$ |
(765 |
) |
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents at Beginning of Period
|
|
|
47,166 |
|
|
|
26,282 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents at End of Period
|
|
$ |
40,768 |
|
|
$ |
25,517 |
|
See notes to
consolidated financial statements.
TAUBMAN CENTERS,
INC.
Note
1 – Interim Financial Statements
General
Taubman Centers,
Inc. (the Company or TCO) is a Michigan corporation that operates as a
self-administered and self-managed real estate investment trust (REIT). The
Taubman Realty Group Limited Partnership (Operating Partnership or TRG) is a
majority-owned partnership subsidiary of TCO that owns direct or indirect
interests in all of its real estate properties. In this report, the term
“Company" refers to TCO, the Operating Partnership, and/or the Operating
Partnership's subsidiaries as the context may require. The Company engages in
the ownership, management, leasing, acquisition, disposition, development, and
expansion of regional and super-regional retail shopping centers and interests
therein. The Company’s owned portfolio as of March 31, 2008 included 23 urban
and suburban shopping centers in ten states.
Taubman Properties
Asia LLC and its subsidiaries (Taubman Asia), which is the platform for the
Company’s expansion into the Asia-Pacific region, is headquartered in Hong
Kong.
Consolidation
The consolidated
financial statements of the Company include all accounts of the Company, the
Operating Partnership, and its consolidated subsidiaries, including The Taubman
Company LLC (the Manager) and Taubman Asia. The Company consolidates the
accounts of the owner of The Mall at Partridge Creek (Partridge Creek) (Note 3),
which qualifies as a variable interest entity under Financial Accounting
Standards Board (FASB) Interpretation No. 46 “Consolidation of Variable Interest
Entities” (FIN 46R) for which the Operating Partnership is considered to be the
primary beneficiary. In April 2007, the Company increased its ownership in The
Pier Shops at Caesars (The Pier Shops) to a 77.5% controlling interest and began
consolidating the entity that owns The Pier Shops (Note 3). Prior to the
acquisition date, the Company accounted for The Pier Shops under the equity
method. All intercompany transactions have been eliminated.
Investments in
entities not controlled but over which the Company may exercise significant
influence (Unconsolidated Joint Ventures) are accounted for under the equity
method. The Company has evaluated its investments in the Unconsolidated Joint
Ventures and has concluded that the ventures are not variable interest entities
as defined in FIN 46R. Accordingly, the Company accounts for its interests in
these ventures under the guidance in Statement of Position 78-9 "Accounting for
Investments in Real Estate Ventures" (SOP 78-9), as amended by FASB Staff
Position 78-9-1, and Emerging Issues Task Force Issue No. 04-5 "Determining
Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have Certain
Rights" (EITF 04-5). The Company’s partners or other owners in these
Unconsolidated Joint Ventures have substantive participating rights, as
contemplated by paragraphs 16 through 18 of EITF 04-5, including approval rights
over annual operating budgets, capital spending, financing, admission of new
partners/members, or sale of the properties and the Company has concluded that
the equity method of accounting is appropriate for these interests.
Specifically, the Company’s 79% investment in Westfarms is through a general
partnership in which the other general partners have approval rights over annual
operating budgets, capital spending, refinancing, or sale of the
property.
Ownership
In addition to the
Company’s common stock, there are three classes of preferred stock (Series B, G,
and H) outstanding as of March 31, 2008. Dividends on the 8% Series G and 7.625%
Series H Preferred Stock are cumulative and are payable in arrears on or about
the last day of each calendar quarter. The Company owns corresponding Series G
and Series H Preferred Equity interests in the Operating Partnership that
entitle the Company to income and distributions (in the form of guaranteed
payments) in amounts equal to the dividends payable on the Company’s Series G
and Series H Preferred Stock.
The Company also is
obligated to issue to partners in the Operating Partnership other than the
Company, upon subscription, one share of nonparticipating Series B Preferred
Stock per each Operating Partnership unit. The Series B Preferred Stock entitles
its holders to one vote per share on all matters submitted to the Company’s
shareowners and votes together with the common stock on all matters as a single
class. The holders of Series B Preferred Stock are not entitled to dividends or
earnings. The Series B Preferred Stock is convertible into the Company’s common
stock at a ratio of 14,000 shares of Series B Preferred Stock for one share of
common stock.
TAUBMAN CENTERS,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
The Operating
Partnership
At March 31, 2008,
the Operating Partnership’s equity included three classes of preferred equity
(Series F, G, and H) and the net equity of the partnership unitholders. Net
income and distributions of the Operating Partnership are allocable first to the
preferred equity interests, and the remaining amounts to the general and limited
partners in the Operating Partnership in accordance with their percentage
ownership. The Series G and Series H Preferred Equity are owned by the Company
and are eliminated in consolidation. The Series F Preferred Equity is owned by
an institutional investor.
The Company's
ownership in the Operating Partnership at March 31, 2008 consisted of a 67%
managing general partnership interest, as well as the Series G and H Preferred
Equity interests. The Company's average ownership percentage in the Operating
Partnership for the three months ended March 31, 2008 and 2007 was 66%. At March
31, 2008, the Operating Partnership had 79,365,737 units of partnership interest
outstanding, of which the Company owned 52,808,293 units.
Minority
Interests
As of March 31,
2008 and December 31, 2007, minority interests in the Company are comprised of
the ownership interests of (1) noncontrolling unitholders of the Operating
Partnership and (2) the noncontrolling interests in joint ventures controlled by
the Company through ownership or contractual arrangements.
The net equity of
the Operating Partnership noncontrolling unitholders is less than zero. The net
equity balances of the noncontrolling partners in certain of the consolidated
joint ventures are also less than zero. Therefore, the interests of the
noncontrolling unitholders of the Operating Partnership and outside partners
with net equity balances in the consolidated joint ventures of less than zero
are recognized as zero balances within the consolidated balance sheet. The
interests of the noncontrolling partners with positive equity balances in
consolidated joint ventures represent the minority interests presented on the
Company’s consolidated balance sheet of $17.4 million and $18.5 million at March
31, 2008 and December 31, 2007, respectively.
The income
allocated to the Operating Partnership noncontrolling unitholders is equal to
their share of distributions as long as the net equity of the Operating
Partnership is less than zero. Similarly, the income allocated to the
noncontrolling partners with net equity balances in consolidated joint ventures
of less than zero is equal to their share of operating
distributions.
The net equity
balances of the Operating Partnership and certain of the consolidated joint
ventures are less than zero because of accumulated distributions in excess of
net income and not as a result of operating losses. Distributions to partners
are usually greater than net income because net income includes non-cash charges
for depreciation and amortization.
In January 2008,
International Plaza refinanced its debt and distributed a portion of the excess
proceeds to its partner (Note 5). The joint venture partner’s $51.3 million
share of the distributed excess proceeds is classified as minority interest and
included in Deferred Charges and Other Assets in the Company’s consolidated
balance sheet. As of March 31, 2008, the total of excess proceeds distributed to
partners for this and the Cherry Creek consolidated joint venture included in
Deferred Charges and Other Assets was $96.8 million. The Company accounts for
distributions to minority partners that result from such financing transactions
as a debit balance minority interest upon determination that (1) the
distribution was the result of appreciation in the fair value of the property
above the book value, (2) the financing was provided at a loan to value ratio
commensurate with non-recourse real estate lending, and (3) the excess of the
property value over the financing provides support for the eventual recovery of
the debit balance minority interest upon sale or disposal of the property. Debit
balance minority interests are considered as part of the carrying value of a
property for purposes of evaluating impairment, should events or circumstances
indicate that the carrying value may not be recoverable.
TAUBMAN CENTERS,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
In January 2008, the Company's president
of Taubman Asia (the Asia President) obtained an ownership interest in Taubman
Asia, a consolidated subsidiary. The Asia President is entitled to 10% of
Taubman Asia's dividends, with 85% of his dividends being withheld as
contributions to capital. These withholdings will continue until he contributes
and maintains his capital consistent with a 10% ownership interest, including
all capital funded by the Operating Partnership for Taubman Asia's operating and
investment activities prior and subsequent to the Asia President obtaining his
ownership interest. The Asia President's ownership interest will be reduced to
5% upon his cumulatively receiving a specified amount in dividends. The
Operating Partnership will have a preferred investment in Taubman Asia to the
extent the Asia President has not yet contributed capital commensurate with his
ownership interest. This preferred investment will accrue an annual preferential
return equal to the Operating Partnership's average borrowing rate (with the
preferred investment and accrued return together being referred to herein as the
preferred interest). Taubman Asia has the ability to call at any time the Asia
President's ownership at fair value, less the amount required to return the
Operating Partnership's preferred interest. The Asia President similarly has the
ability to put his ownership interest to Taubman Asia at 85% (increasing to 100%
in 2013) of fair value, less the amount required to return the Operating
Partnership's preferred interest. In the event of a liquidation of Taubman Asia,
the Operating Partnership's preferred interest would be returned in advance of
any other ownership interest or income. The Asia President's noncontrolling
interest in Taubman Asia is accounted for as a minority interest in the
Company's financial statements, currently at a zero balance.
See Note 11 – “New
Accounting Pronouncements” regarding future changes to the accounting for
minority interests.
Finite Life
Entities
Statement of
Financial Accounting Standards (SFAS) No. 150, “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity” establishes
standards for classifying and measuring as liabilities certain financial
instruments that embody obligations of the issuer and have characteristics of
both liabilities and equity. At March 31, 2008, the Company held controlling
majority interests in consolidated entities with specified termination dates
between 2080 and 2083. The minority owners’ interests in these entities are to
be settled upon termination by distribution or transfer of either cash or
specific assets of the underlying entity. The estimated fair value of these
minority interests were approximately $186.7 million at March 31, 2008, compared
to a book value of $(86.9) million, of which $(96.8) million was classified as
Deferred Charges and Other Assets and $9.9 million was classified as Minority
Interest in the Company’s consolidated balance sheet.
Other
The unaudited
interim financial statements should be read in conjunction with the audited
financial statements and related notes included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2007. In the opinion of management,
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the financial statements for the interim periods have
been made. The results of interim periods are not necessarily indicative of the
results for a full year.
Dollar amounts
presented in tables within the notes to the financial statements are stated in
thousands, except share data or as otherwise noted.
Note
2 – Income and Other Taxes
The Company is
subject to corporate level federal and state income taxes in its taxable REIT
subsidiaries and state income taxes in certain partnership subsidiaries, which
are provided for in the Company’s financial statements. The Company's deferred
tax assets and liabilities reflect the impact of temporary differences between
the amounts of assets and liabilities for financial reporting purposes and the
bases of such assets and liabilities as measured by tax laws. Deferred tax
assets are reduced, if necessary, by a valuation allowance to the amount where
realization is more likely than not assured after considering all available
evidence. The Company’s temporary differences primarily relate to deferred
compensation and depreciation. In July 2007, the State of Michigan signed into
law the Michigan Business Tax Act (MBT), replacing the Michigan single business
tax with a business income tax and modified gross receipts tax. These new taxes
became effective on January 1, 2008, and are subject to the provisions of SFAS
No. 109 “Accounting for Income Taxes.” As of March 31, 2008, the Company had a
net deferred tax asset of $3.4 million, after a valuation allowance of $6.9
million. As of December 31, 2007, the net deferred tax asset was $3.3 million,
after a valuation allowance of $6.6 million.
TAUBMAN CENTERS,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
The Company had no
unrecognized tax benefits as defined by FASB Interpretation No. 48 “Accounting
for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109” as
of March 31, 2008. The Company expects no significant increases or decreases in
unrecognized tax benefits due to changes in tax positions within one year of
March 31, 2008. The Company has no interest or penalties relating to income
taxes recognized in the statement of operations for the three months ended March
31, 2008 or in the balance sheet as of March 31, 2008. As of March 31, 2008,
returns for the calendar years 2004 through 2007 remain subject to examination
by U.S. and various state and foreign tax jurisdictions.
Note
3 – Acquisition, New Development, and Services
The Mall at Studio
City
In February 2008,
the Company announced that Taubman Asia is acquiring a 25% interest in The Mall
at Studio City, the retail component of Macao Studio City, a major mixed-use
project, which has begun construction on the Cotai Strip in Macao, China. In
addition, Taubman Asia entered into long-term agreements to perform development,
management and leasing services for the shopping center. The Company’s total
investment in the project (including the initial payment, allocation of
construction debt and additional payments anticipated in years two and five
after opening) is expected to be approximately $200 million. Taubman Asia’s
investment is in a joint venture with Cyber One Agents Limited (Cyber One) and
will be accounted for under the equity method. Macao Studio City is being
developed by Cyber One, a joint venture between New Cotai, LLC and East Asia
Satellite Television Holdings, a subsidiary of eSun Holdings (eSun). The
Company’s $54 million initial investment has been placed into escrow until
financing for the overall project is completed, which is expected to occur in
summer 2008. No interest is being capitalized on this payment until the escrow
is released. The $54 million escrowed payment is classified within Deferred
Charges and Other Assets on the consolidated balance sheet. The Company’s
services agreements were conditional upon eSun shareholder approval, which was
received in March 2008, however, any payments due under the development services
agreement can be delayed until financing is completed. While it does not control
the construction schedule, the Company believes the project is likely to open in
spring 2010.
The Pier Shops at
Caesars
The Pier Shops,
located in Atlantic City, New Jersey, began opening in phases in June 2006.
Gordon Group Holdings LLC (Gordon) developed the center, and in January 2007,
the Company assumed full management and leasing responsibility for the center.
In April 2007, the Company increased its ownership in The Pier Shops to a 77.5%
controlling interest. The remaining 22.5% interest continues to be held by an
affiliate of Gordon. The Company began consolidating The Pier Shops as of the
April 2007 purchase date. At closing, the Company made a $24.5 million equity
investment in the center, bringing its total equity investment to $28.5 million.
At the purchase date, the book values of the center’s assets and liabilities
were $229.7 million and $171.3 million, respectively. The excess of the book
value of the net assets acquired over the purchase price was approximately $17
million, which was allocated principally to building and improvements. The
Company is entitled to a 7% cumulative preferred return on its $133.1 million
total investment, including its $104.6 million share of debt. In April 2007, The
Pier Shops completed a refinancing of its existing construction loan with a $135
million 10 year, non-recourse, interest-only loan with an all-in rate of 6.1%.
The Company will be responsible for any additional capital requirements,
estimated to be in the range of $15 million over the next two years, on which it
will receive a preferred return at a minimum of 8%.
The Mall at Partridge
Creek
Partridge Creek, a
0.6 million square foot center, opened in October 2007 in Clinton Township,
Michigan. The center is anchored by Nordstrom, which opened in April 2008,
Parisian, and MJR Theatres. In May 2006, the Company engaged the services of a
third party investor to acquire certain property associated with the project, in
order to facilitate a Section 1031 like-kind exchange to provide flexibility for
disposing of assets in the future. The third-party investor became the owner of
the project and leases the land from a subsidiary of the Company. In turn, the
owner leases the project back to the Company.
Funding for the
project was provided by the following sources. The Company provided
approximately 45% of the project funding under a junior subordinated financing.
The owner provided $9 million in equity. Funding for the remaining project costs
was provided by the owner’s third party construction loan. The owner's equity
contribution, representing minority interest, is included within Minority
Interests in TRG and Consolidated Joint Ventures in the Company's consolidated
balance sheet.
TAUBMAN CENTERS,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
The Company intends
to exercise its option to purchase the property and assume the ground lease from
the owner during the exchange period ending October 2008. The option, if
exercised, will provide the owner a 12% cumulative return on its equity. In the
event the Company does not exercise its right to purchase the property from the
owner, the owner will have the right to sell all of its interest in the
property, provided that the purchaser shall assume all of the obligations and be
assigned all of the owner's rights under the ground lease, the operating lease,
and any remaining obligations under the loans.
The Company has
guaranteed the lease payments on the operating lease (excluding monthly
supplemental rent equal to 1.67% of the owner's outstanding equity balance,
commencing after the exchange period). The lease payments are structured to
cover debt service, ground rent payments, and other expenses of the lessor. The
Company consolidates the accounts of the owner. The junior loan and other
intercompany transactions are eliminated in consolidation.
The Mall at Oyster
Bay
In June 2007, the
Supreme Court of the State of New York (Suffolk County) affirmed that the Town
of Oyster Bay had not provided a basis to deny the Company’s application to
build The Mall at Oyster Bay (Oyster Bay) in Syosset, Long Island, New York. In
September 2007, the Oyster Bay town board adopted a resolution citing its
reasons for denying the application for a special use permit and submitted it to
the Court. The Company responded with a motion asking the Court to order the
town to issue the permit. The Company continues to be confident that it is
probable it will prevail and build the mall, which has over 60% of the space
committed and will be anchored by Neiman Marcus, Nordstrom, and Barneys New
York. However, if the Company is ultimately unsuccessful it is anticipated that
the recovery on this asset would be significantly less than its current
investment. The Company’s investment in Oyster Bay was $146 million as of March
31, 2008.
Songdo International
Business District
In 2007, the
Company entered into an agreement to provide development services for a 1.1
million square foot retail and entertainment complex in Songdo International
Business District (Songdo), Incheon, South Korea. The Company also finalized an
agreement to provide management and leasing services for the retail component.
The shopping complex is expected to open in late 2010, assuming construction
begins in the middle of 2008. The Company is negotiating an investment in the
project. The Company anticipates finalizing its decision on this investment in
2008.
Note
4 - Investments in Unconsolidated Joint Ventures
General
Information
The Company owns
beneficial interests in joint ventures that own shopping centers. The Operating
Partnership is the direct or indirect managing general partner or managing
member of these Unconsolidated Joint Ventures, except for the ventures that own
Arizona Mills, The Mall at Millenia, and Waterside Shops at Pelican Bay
(Waterside). The Company, which formerly accounted for The Pier Shops as an
Unconsolidated Joint Venture, began consolidating it after acquiring a
controlling interest in April 2007 (Note 3).
Shopping
Center
|
Ownership as
of
March 31,
2008 and
December 31,
2007
|
Arizona
Mills
|
50%
|
Fair
Oaks
|
50
|
The Mall at
Millenia
|
50
|
Stamford Town
Center
|
50
|
Sunvalley
|
50
|
Waterside
Shops at Pelican Bay
|
25
|
Westfarms
|
79
|
The Company's
carrying value of its Investment in Unconsolidated Joint Ventures differs from
its share of the partnership or members equity reported in the combined balance
sheet of the Unconsolidated Joint Ventures due to (i) the Company's cost of its
investment in excess of the historical net book values of the Unconsolidated
Joint Ventures and (ii) the Operating Partnership’s adjustments to the book
basis, including intercompany profits on sales of services that are capitalized
by the Unconsolidated Joint Ventures. The Company's additional basis allocated
to depreciable assets is recognized on a straight-line basis over 40 years. The
Operating Partnership’s differences in bases are amortized over the useful lives
of the related assets.
TAUBMAN CENTERS,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
In its consolidated
balance sheet, the Company separately reports its investment in joint ventures
for which accumulated distributions have exceeded investments in and net income
of the joint ventures. The net equity of certain joint ventures is less than
zero because distributions are usually greater than net income, as net income
includes non-cash charges for depreciation and amortization.
Other
The Company
received audited financial statements for Arizona Mills as of and for the year
ended December 31, 2007 from Simon Property Group, Inc. There were no material
adjustments recognized relating to the Company’s investment in Arizona Mills as
a result of the finalization of these financial statements.
Combined Financial
Information
Combined balance
sheet and results of operations information is presented in the following table
for the Unconsolidated Joint Ventures, followed by the Operating Partnership's
beneficial interest in the combined information. Beneficial interest is
calculated based on the Operating Partnership's ownership interest in each of
the Unconsolidated Joint Ventures. Amounts related to The Pier Shops are
included in the combined information of the Unconsolidated Joint Ventures
through the date of the Company’s acquisition of a controlling interest in April
2007 (Note 3). The Operating Partnership’s investment in The Pier Shops
represented an effective 6% interest based on relative equity contributions,
prior to the Company acquiring a controlling interest.
|
|
March
31
|
|
|
December
31
|
|
|
|
2008
|
|
|
2007
|
|
Assets:
|
|
|
|
|
|
|
Properties
|
|
$ |
1,056,816 |
|
|
$ |
1,056,380 |
|
Accumulated depreciation and
amortization
|
|
|
(343,641 |
) |
|
|
(347,459 |
) |
|
|
$ |
713,175 |
|
|
$ |
708,921 |
|
Cash and cash equivalents
|
|
|
24,232 |
|
|
|
40,097 |
|
Accounts and notes receivable, less
provision for bad debts of
$1,546 and $1,799 in 2008 and
2007
|
|
|
22,802 |
|
|
|
26,271 |
|
Deferred charges and other
assets
|
|
|
17,238 |
|
|
|
18,229 |
|
|
|
$ |
777,447 |
|
|
$ |
793,518 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and accumulated deficiency in assets:
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$ |
1,001,483 |
|
|
$ |
1,003,463 |
|
Accounts payable and other
liabilities
|
|
|
45,237 |
|
|
|
55,242 |
|
TRG's accumulated deficiency in
assets
|
|
|
(153,762 |
) |
|
|
(151,363 |
) |
Unconsolidated Joint Venture Partners'
accumulated deficiency
in assets
|
|
|
(115,511 |
) |
|
|
(113,824 |
) |
|
|
$ |
777,447 |
|
|
$ |
793,518 |
|
|
|
|
|
|
|
|
|
|
TRG's
accumulated deficiency in assets (above)
|
|
$ |
(153,762 |
) |
|
$ |
(151,363 |
) |
TRG basis
adjustments, including elimination of intercompany profit
|
|
|
74,364 |
|
|
|
74,660 |
|
TCO's
additional basis
|
|
|
68,099 |
|
|
|
68,586 |
|
Net
Investment in Unconsolidated Joint Ventures
|
|
$ |
(11,299 |
) |
|
$ |
(8,117 |
) |
Distributions
in excess of investments in and net income of
Unconsolidated Joint
Ventures
|
|
|
101,313 |
|
|
|
100,234 |
|
Investment in
Unconsolidated Joint Ventures
|
|
$ |
90,014 |
|
|
$ |
92,117 |
|
TAUBMAN CENTERS,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
|
|
Three Months
Ended March 31
|
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
$ |
64,074 |
|
|
$ |
63,822 |
|
Maintenance,
taxes, utilities, and other operating expenses
|
|
$ |
22,660 |
|
|
$ |
24,557 |
|
Interest
expense
|
|
|
15,872 |
|
|
|
17,804 |
|
Depreciation
and amortization
|
|
|
9,317 |
|
|
|
9,728 |
|
Total
operating costs
|
|
$ |
47,849 |
|
|
$ |
52,089 |
|
Nonoperating
income
|
|
|
319 |
|
|
|
447 |
|
Net
income
|
|
$ |
16,544 |
|
|
$ |
12,180 |
|
|
|
|
|
|
|
|
|
|
Net income
allocable to TRG
|
|
$ |
9,258 |
|
|
$ |
8,571 |
|
Realized
intercompany profit, net of depreciation on TRG's
basis adjustments
|
|
|
463 |
|
|
|
101 |
|
Depreciation
of TCO's additional basis
|
|
|
(487 |
) |
|
|
(486 |
) |
Equity in
income of Unconsolidated Joint Ventures
|
|
$ |
9,234 |
|
|
$ |
8,186 |
|
|
|
|
|
|
|
|
|
|
Beneficial
interest in Unconsolidated Joint Ventures'operations:
|
|
|
|
|
|
|
|
|
Revenues less maintenance, taxes,
utilities, and other
operating expenses
|
|
$ |
23,114 |
|
|
$ |
21,884 |
|
Interest expense
|
|
|
(8,262 |
) |
|
|
(8,302 |
) |
Depreciation and
amortization
|
|
|
(5,618 |
) |
|
|
(5,396 |
) |
Equity in income of Unconsolidated Joint
Ventures
|
|
$ |
9,234 |
|
|
$ |
8,186 |
|
Note 5 – Beneficial Interest in Debt
and Interest Expense
In January 2008,
the Company completed a $325 million non-recourse refinancing at International
Plaza that bears interest at LIBOR plus 1.15%. The loan agreement has a
three-year term, with two one-year extension options. The loan is interest-only
for the entire term, except during the second one-year extension period, if
elected. The Company also entered into an agreement to swap the floating rate
for an all-in fixed rate of 5.375% for the initial three-year term of the loan
agreement. The swap agreement
has been designated, and is expected to be effective, as a cash flow
hedge of the interest payments on the new debt. Changes in the fair value of the
swap agreement at each balance sheet date during the term of the
agreement are recorded in OCI.
Proceeds from the
refinancing were used to pay off the existing $175.2 million 4.37% (effective
rate) loan, accrued interest, and the Company’s $33.5 million preferential
equity, with the remaining amount distributed based upon ownership percentages
of the Company and its 49.9% joint venture partner.
The Operating
Partnership's beneficial interest in the debt, capital lease obligations,
capitalized interest, and interest expense of its consolidated subsidiaries and
its Unconsolidated Joint Ventures is summarized in the following table. The
Operating Partnership's beneficial interest in the consolidated subsidiaries
excludes debt and interest related to the minority interests in Cherry Creek
Shopping Center (50%), International Plaza (49.9%), The Pier Shops (22.5% as of
April 2007, Note 3), The Mall at Wellington Green (10%), and MacArthur Center
(5%). The Operating Partnership’s beneficial interest in the Unconsolidated
Joint Ventures, prior to April 2007, excludes The Pier Shops.
|
|
At
100%
|
|
|
At Beneficial
Interest
|
|
|
|
Consolidated
Subsidiaries
|
|
|
Unconsolidated
Joint
Ventures
|
|
|
Consolidated
Subsidiaries
|
|
|
Unconsolidated
Joint
Ventures
|
|
Debt as
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
$ |
2,840,951 |
|
|
$ |
1,001,483 |
|
|
$ |
2,481,546 |
|
|
$ |
515,980 |
|
December 31, 2007
|
|
|
2,700,980 |
|
|
|
1,003,463 |
|
|
|
2,416,292 |
|
|
|
517,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease
obligations as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
$ |
4,816 |
|
|
$ |
435 |
|
|
$ |
4,803 |
|
|
$ |
217 |
|
December 31, 2007
|
|
|
5,521 |
|
|
|
504 |
|
|
|
5,507 |
|
|
|
252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
2008
|
|
$ |
2,424 |
|
|
$ |
12 |
|
|
$ |
2,391 |
|
|
$ |
9 |
|
Three months ended March 31,
2007
|
|
|
3,480 |
|
|
|
|
|
|
|
3,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
2008
|
|
$ |
36,982 |
|
|
$ |
15,872 |
|
|
$ |
32,154 |
|
|
$ |
8,262 |
|
Three months ended March 31,
2007
|
|
|
29,694 |
|
|
|
17,804 |
|
|
|
26,492 |
|
|
|
8,302 |
|
TAUBMAN CENTERS,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
In April 2007, Fair
Oaks, a 50% owned Unconsolidated Joint Venture, closed on a $250 million
non-recourse financing. See Note 12 – “Subsequent Event”.
Debt Covenants and
Guarantees
Certain loan
agreements contain various restrictive covenants, including a minimum net worth
requirement, minimum interest coverage ratios, a maximum payout ratio on
distributions, a minimum debt yield ratio, a minimum fixed charges coverage
ratio, and a maximum leverage ratio, the latter being the most restrictive. The
Operating Partnership is in compliance with all of its covenants as of March 31,
2008. The maximum payout ratio on distributions covenant limits the payment of
distributions generally to 95% of funds from operations, as defined in the loan
agreements, except as required to maintain the Company's tax status, pay
preferred distributions, and for distributions related to the sale of certain
assets.
Payments of
principal and interest on the loans in the following table are guaranteed by the
Operating Partnership as of March 31, 2008.
Center
|
|
Loan balance
as of 3/31/08
|
|
|
TRG's
beneficial
interest
in loan
balance as
of 3/31/08
|
|
|
Amount of
loan balance guaranteed by TRG as of
3/31/08
|
|
|
% of
loan
balance
guaranteed
by TRG
|
|
|
% of interest
guaranteed by TRG
|
|
|
|
(in millions
of dollars)
|
|
|
|
|
|
|
|
Dolphin
Mall
|
|
|
124.0
|
|
|
|
124.0
|
|
|
|
124.0
|
|
|
|
100%
|
|
|
|
100%
|
|
Fairlane Town
Center
|
|
|
80.0
|
|
|
|
80.0
|
|
|
|
80.0
|
|
|
|
100%
|
|
|
|
100%
|
|
Twelve Oaks
Mall
|
|
|
60.0
|
|
|
|
60.0
|
|
|
|
60.0
|
|
|
|
100%
|
|
|
|
100%
|
|
The Operating
Partnership has also guaranteed certain obligations of Partridge Creek (Note
3).
The Company is
required to escrow cash balances for specific uses stipulated by certain of its
lenders. As of March 31, 2008 and December 31, 2007, the Company’s cash balances
restricted for these uses were $1.8 million and $1.0 million, respectively. Such
amounts are included within cash and cash equivalents in the Company’s
consolidated balance sheet.
Note
6 - Equity Transactions
Common Stock and
Equity
In July 2007, the
Company’s Board of Directors authorized the repurchase of $100 million of the
Company’s common stock on the open market or in privately negotiated
transactions. During 2007, the Company repurchased 987,180 shares of its common
stock for a total of $50 million under this authorization. In addition, in 2007
the Company repurchased an additional 923,364 shares for $50 million,
representing the remaining amount under a previous program approved by the
Company’s Board of Directors in December 2005. All shares repurchased have been
cancelled. For each share of stock repurchased, an equal number of Operating
Partnership units owned by the Company were redeemed. Repurchases of common
stock were financed through general corporate funds, including borrowings under
existing lines of credit. As of March 31, 2008, $50 million remained of the 2007
authorization.
During the three
months ended March 31, 2007, 669,809 shares of Series B Preferred Stock were
converted to 43 shares of the Company's common stock as a result of tenders of
units under the Continuing Offer (Note 8). No shares were converted during the
three months ended March 31, 2008. See Note 7 for equity issuances under
share-based compensation plans.
Note
7 – Share-Based Compensation
The Company
provides certain share-based compensation through an incentive option plan, a
long-term incentive plan, and non-employee directors' stock grant and deferred
compensation plans.
The compensation
cost charged to income for these share-based compensation plans was $2.1 million
and $1.6 million for the three months ended March 31, 2008 and 2007,
respectively. Compensation cost capitalized as part of properties and deferred
leasing costs was $0.3 million and $0.2 million for the three months ended March
31, 2008 and 2007, respectively.
Further information
regarding activities relating to the incentive option plan and long-term
incentive plan during the three months ended March 31, 2008 is provided
below.
TAUBMAN CENTERS,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
Incentive
Options
The Company’s
incentive option plan (the Option Plan), which is shareowner approved, permits
the grant of options to employees. The Operating Partnership's units issued in
connection with the Option Plan are exchangeable for new shares of the Company's
common stock under the Continuing Offer (Note 8). Options for 1.5 million
partnership units have been granted and are outstanding at March 31, 2008. Of
the 1.5 million options outstanding, 0.9 million have vesting schedules with
one-third vesting at each of the first, second, and third years of the grant
anniversary, if continuous service has been provided or upon retirement or
certain other events if earlier. All of the other 0.6 million options
outstanding have vesting schedules with one-third vesting at each of the third,
fifth, and seventh years of the grant anniversary, if continuous service has
been provided and certain conditions dependent on the Company’s market
performance in comparison to its competitors have been met or upon retirement or
certain other events if earlier. The options have ten-year contractual terms. As
of March 31, 2008, options for 0.7 million Operating Partnership units remain
available for grant under the Option Plan.
The Company
estimated the value of the options issued during the three months ended March
31, 2008 using a Black-Scholes valuation model based on the following
assumptions and resulting in the weighted average grant date fair value shown
below:
|
|
2008
|
|
Expected
volatility
|
|
|
24.33 |
% |
Expected
dividend yield
|
|
|
3.50 |
% |
Expected term
(in years)
|
|
|
6 |
|
Risk-free
interest rate
|
|
|
3.08 |
% |
Weighted
average grant-date fair value
|
|
|
$9.31 |
|
Expected volatility
and dividend yields are based on historical volatility and yields of the
Company’s common stock, respectively, as well as other factors. In developing
the assumption of expected term, the Company has considered the vesting and
contractual terms as required by the simplified method of developing expected
term assumptions. The risk-free interest rates used are based on the U.S.
Treasury yield curves in effect at the times of grants. The Company assumes no
forfeitures under the Option Plan due to the small number of participants and
low turnover rate.
A summary of option
activity under the Option Plan for the three months ended March 31, 2008 is
presented below:
|
|
Number
of Options
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted
Average Remaining
Contractual
Term
(in years)
|
|
|
Range of
Exercise
Prices
|
|
Outstanding
at January 1, 2008
|
|
|
1,330,646 |
|
|
$ |
36.54 |
|
|
|
7.8 |
|
|
|
$29.38 -
$55.90
|
|
Granted
|
|
|
230,567 |
|
|
|
50.65 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(99,888 |
) |
|
|
33.50 |
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2008
|
|
|
1,461,325 |
|
|
$ |
38.98 |
|
|
|
7.9 |
|
|
|
$29.38 -
$55.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully vested
options at March 31, 2008
|
|
|
494,265 |
|
|
$ |
36.67 |
|
|
|
7.5 |
|
|
|
|
|
Long-Term Incentive
Plan
The Company
established The Taubman Company 2005 Long-Term Incentive Plan (LTIP) in 2005,
which is shareowner approved. The LTIP allows the Company to make grants of
restricted stock units (RSU) to employees. An aggregate of 1.1 million shares of
the Company’s common stock remain available for issuance under the LTIP. There
were RSU for 0.3 million shares outstanding at March 31, 2008. Each RSU
represents the right to receive upon vesting one share of the Company’s common
stock plus a cash payment equal to the aggregate cash dividends that would have
been paid on such share of common stock from the date of grant of the award to
the vesting date. Each RSU is valued at the closing price of the Company’s
common stock on the grant date.
A summary of
activity for the three months ended March 31, 2008 under the LTIP is presented
below:
|
|
Restricted
Stock Units
|
|
|
Weighted
Average
Grant Date Fair Value
|
|
Outstanding
at January 1, 2008
|
|
|
358,297 |
|
|
$ |
41.63 |
|
Granted
|
|
|
121,037 |
|
|
|
50.65 |
|
Redeemed
|
|
|
(130,355 |
) |
|
|
31.31 |
|
Forfeited
|
|
|
(587 |
) |
|
|
50.65 |
|
Outstanding
at March 31, 2008
|
|
|
348,392 |
|
|
|
48.61 |
|
TAUBMAN CENTERS,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
RSU vest on the
third year anniversary of the grant if continuous service has been provided for
that period, or upon retirement or certain other events if earlier. Based on an
analysis of historical employee turnover, the Company has made an annual
forfeiture assumption of 2.4% of grants when recognizing compensation costs
relating to the RSU. None of the RSU outstanding at March 31, 2008 were
vested.
Note
8 - Commitments and Contingencies
At the time of the
Company's initial public offering and acquisition of its partnership interest in
the Operating Partnership in 1992, the Company entered into an agreement (the
Cash Tender Agreement) with A. Alfred Taubman, who owns an interest in the
Operating Partnership, whereby he has the annual right to tender to the Company
units of partnership interest in the Operating Partnership (provided that the
aggregate value is at least $50 million) and cause the Company to purchase the
tendered interests at a purchase price based on a market valuation of the
Company on the trading date immediately preceding the date of the tender. At A.
Alfred Taubman's election, his family and certain others may participate in
tenders. The Company will have the option to pay for these interests from
available cash, borrowed funds, or from the proceeds of an offering of the
Company's common stock. Generally, the Company expects to finance these
purchases through the sale of new shares of its stock. The tendering partner
will bear all market risk if the market price at closing is less than the
purchase price and will bear the costs of sale. Any proceeds of the offering in
excess of the purchase price will be for the sole benefit of the Company. The
Company accounts for the Cash Tender Agreement between the Company and Mr.
Taubman as a freestanding written put option. As the option put price is defined
by the current market price of the Company's stock at the time of tender, the
fair value of the written option defined by the Cash Tender Agreement is
considered to be zero.
Based on a market
value at March 31, 2008 of $52.10 per common share, the aggregate value of
interests in the Operating Partnership that may be tendered under the Cash
Tender Agreement was approximately $1.3 billion. The purchase of these interests
at March 31, 2008 would have resulted in the Company owning an additional 32%
interest in the Operating Partnership.
The Company has
made a continuing, irrevocable offer to all present holders (other than certain
excluded holders, including A. Alfred Taubman), assignees of all present
holders, those future holders of partnership interests in the Operating
Partnership as the Company may, in its sole discretion, agree to include in the
continuing offer, and all existing and future optionees under the Option Plan to
exchange shares of common stock for partnership interests in the Operating
Partnership (the Continuing Offer). Under the Continuing Offer agreement, one
unit of the Operating Partnership interest is exchangeable for one share of the
Company's common stock. Upon a tender of Operating Partnership units, the
corresponding shares of Series B Preferred Stock will automatically be converted
into the Company’s common stock at a rate of 14,000 shares of Series B Preferred
Stock for one common share.
In November 2007,
three developers of a project called Blue Back Square (BBS) in West Hartford,
Connecticut, filed a lawsuit in the Connecticut Superior Court, Judicial
District of Hartford at Hartford (Case No. CV-07-5014613-S) against the Company,
the Westfarms Unconsolidated Joint Venture, and its partners and its subsidiary,
alleging that the defendants (i) filed or sponsored vexatious legal proceedings
and abused legal process in an attempt to thwart the development of the
competing BBS project, (ii) interfered with contractual relationships with
certain tenants of BBS, and (iii) violated Connecticut fair trade law. The
lawsuit alleges damages in excess of $30 million and seeks double and treble
damages and punitive damages. Also in early November 2007, the Town of West
Hartford and the West Hartford Town Council filed a substantially similar
lawsuit against the same entities in the same court (Case No. CV-07-5014596-S).
The second lawsuit did not specify any particular amount of damages but
similarly requests double and treble damages and punitive damages. The lawsuits
are in their early legal stages and the Company is vigorously defending both.
The outcome of these lawsuits cannot be predicted with any certainty and
management is currently unable to estimate an amount or range of potential loss
that could result if an unfavorable outcome occurs. While management does not
believe that an adverse outcome in either lawsuit would have a material adverse
effect on the Company’s financial condition, there can be no assurance that an
adverse outcome would not have a material effect on the Company’s results of
operations for any particular period.
See Note 1
regarding the put option held by the noncontrolling member in Taubman Asia, Note
3 regarding obligations and commitments related to Partridge Creek and
contingencies related to Oyster Bay, Note 5 for the Operating Partnership's
guarantees of certain notes payable and other obligations, and Note 7 for
obligations under existing share-based compensation plans.
TAUBMAN CENTERS,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
Note
9 - Earnings Per Share
Basic earnings per
share amounts are based on the weighted average of common shares outstanding for
the respective periods. Diluted earnings per share amounts are based on the
weighted average of common shares outstanding plus the dilutive effect of common
stock equivalents. Common stock equivalents include outstanding partnership
units exchangeable for common shares under the Continuing Offer (Note 8),
outstanding options for units of partnership interest under the Option Plan, RSU
under the LTIP and Non-Employee Directors’ Deferred Compensation Plan (Note 7)
and unissued partnership units under a unit option deferral election. In
computing the potentially dilutive effect of these common stock equivalents,
partnership units are assumed to be exchanged for common shares under the
Continuing Offer, increasing the weighted average number of shares outstanding.
The potentially dilutive effects of partnership units outstanding and/or
issuable under the unit option deferral elections are calculated using the
if-converted method, while the effects of other common stock equivalents are
calculated using the treasury stock method.
As of March 31,
2008, there were 8.8 million partnership units outstanding and 0.9 million
unissued partnership units under unit option deferral elections that may be
exchanged for common shares of the Company under the Continuing Offer. These
outstanding partnership units and unissued units were excluded from the
computation of diluted earnings per share as they were anti-dilutive in all
periods presented. These outstanding units and unissued units could only be
dilutive to earnings per share if the minority interests' ownership share of the
Operating Partnership's income was greater than their share of
distributions.
|
|
Three Months Ended March
31
|
|
|
|
2008
|
|
|
2007
|
|
Net income allocable to
common
shareowners
(Numerator)
|
|
$ |
4,547 |
|
|
$ |
10,398 |
|
|
|
|
|
|
|
|
|
|
Shares (Denominator) –
basic
|
|
|
52,675,207 |
|
|
|
53,423,628 |
|
Effect of dilutive
securities
|
|
|
589,282 |
|
|
|
652,631 |
|
Shares (Denominator) –
diluted
|
|
|
53,264,489 |
|
|
|
54,076,259 |
|
|
|
|
|
|
|
|
|
|
Earnings per common
share-
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
$ |
0.09 |
|
|
$ |
0.19 |
|
Note
10 – Fair Value Disclosures
The Company's valuation of marketable
securities, which are considered to be available-for-sale, utilize
unadjusted quoted prices determined by active markets for the specific
securities the Company has invested in, and therefore fall into Level 1 of the
fair value hierarchy. The Company's valuation of its derivative instruments are
determined using widely accepted valuation techniques, including discounted cash
flow analysis on the expected cash flows of each derivative. This analysis
reflects the contractual terms of the derivatives, including the period to
maturity, and uses observable market-based inputs, including forward
curves.
For assets and liabilities measured at
fair value on a recurring basis, quantitative disclosure of the fair value for
each major category of assets and liabilities is presented
below:
|
|
Fair Value Measurements at March
31, 2008 Using
|
|
Description
|
|
Quoted Prices
in
Active Markets for
Identical
Assets
(Level 1)
|
|
|
Significant Other Observable
Inputs
(Level 2)
|
|
Available-for-sale
securities
|
|
$ |
2,410 |
|
|
|
|
Derivative
assets
|
|
|
|
|
|
$ |
1,100 |
|
Total
assets
|
|
$ |
2,410 |
|
|
$ |
1,100 |
|
|
|
|
|
|
|
|
|
|
Derivative interest rate
instruments liabilities (Note 5)
|
|
|
|
|
|
$ |
(11,360 |
) |
Total
liabilities
|
|
|
|
|
|
$ |
(11,360 |
) |
TAUBMAN CENTERS,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
Note
11 - New Accounting Pronouncements
In March 2008, the FASB issued Statement
No. 161 “Disclosures about Derivative Instruments and Hedging Activities – an
amendment of FASB Statement No. 133.” This Statement amends Statement No. 133
to provide additional information about how derivative and hedging activities
affect an entity’s financial position, financial performance, and cash flows.
The Statement requires enhanced disclosures about an entity’s derivatives and
hedging activities. Statement No. 161 is effective for
financial statements issued for fiscal years beginning after November 15, 2008. The Company is currently evaluating the
application of this Statement and anticipates the Statement will not have an
effect on its results of operations or financial position as the Statement only
provides for new disclosure requirements.
In December 2007, the FASB issued
Statement No. 160 "Noncontrolling Interests in Consolidated Financial Statements
– an amendment of ARB No. 51.” This Statement amends Accounting Research
Bulletin (ARB) 51 to establish accounting and reporting standards for the
noncontrolling interest (previously referred to as a minority interest) in a
subsidiary and for the deconsolidation of a subsidiary. The Statement also
amends certain of ARB 51’s consolidation procedures for consistency with
the requirements of FASB Statement No. 141 (Revised) “Business Combinations.”
Statement No. 160 will require noncontrolling interests to be treated as a
separate component of equity, not as a liability or other item outside of
permanent equity. Statement No. 160 is effective for financial statements issued
for fiscal years beginning after December 15, 2008. In March 2008, the SEC
announced revisions to Topic No. D-98 "Classification and Measurement of
Redeemable Securities" that provide interpretive guidance on the interaction
between Topic No. D-98 and Statement No. 160.
The Company
anticipates that upon adoption of Statement No. 160 in 2009, the noncontrolling
interests in the Operating Partnership and certain consolidated joint ventures
will no longer need to be carried at zero balances in the Company’s balance
sheet. As a result, the income allocated to these noncontrolling interests would
no longer be required to be equal to the share of distributions. See Note 1
regarding current accounting for minority interests. The Company is continuing
to evaluate other effects this Statement and its interpretations, including
those in Topic No. D-98, would have on the Company’s financial position and
results of operations.
Also in December 2007, the FASB issued
Statement No. 141 (Revised) "Business Combinations.” This Statement establishes
principles and requirements for how the acquirer in a business combination
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest in the acquiree,
and any goodwill acquired in the business combination or a gain from a bargain
purchase. This Statement requires most identifiable assets, liabilities,
noncontrolling interests, and goodwill acquired in a business combination to be
recorded at “full fair value.” Statement No. 141 (Revised) must be applied
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. Early application is prohibited. The Company is currently
evaluating the application of this Statement and its effect on the Company's
financial position and results of operations.
In September 2006, the FASB issued
Statement No. 157 “Fair Value Measurements.” This Statement defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
This Statement applies to accounting pronouncements that require or permit fair
value measurements, except for share-based payments transactions under FASB
Statement No. 123 (Revised) “Share-Based Payment.” This Statement was effective
for financial statements issued for fiscal years beginning after November 15, 2007, except for non-financial assets and
liabilities, for which this Statement will be effective for years beginning
after November 15,
2008. The Company is
evaluating the effect of implementing the Statement relating to such
non-financial assets and liabilities, although the
Statement does not require any new fair value measurements or remeasurements of
previously reported fair values.
TAUBMAN CENTERS,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
Note
12 – Subsequent Events
In April 2008, Fair Oaks, a 50% owned
Unconsolidated Joint Venture, completed a $250 million non-recourse refinancing that bears interest at LIBOR plus
1.40%. The loan agreement
has a three-year term, with two one-year extension options. The loan is interest-only for the
entire term, except during the second one-year extension period, if elected.
Fair Oaks also entered into an agreement to swap
the floating rate for an all-in fixed rate of 4.56% for the initial three-year
term of the loan agreement. Proceeds from the refinancing were used to pay
off the existing $140
million 6.6% loan, plus accrued interest and fees. Excess
proceeds were distributed
to the partners, and the Company’s share was used to pay down its revolving
credit facilities.
In April 2008, the Company announced
that Stamford Town Center (Stamford), a 50% owned Unconsolidated Joint
Venture, is being marketed for sale. The primary impetus for the sale is from
the Company’s joint venture partner, as part of the normal execution of its
portfolio strategy. The sale of assets is consistent with the Company’s strategy
to recycle capital when appropriate. The Company can not currently estimate any
impact for the possible sale of Stamford due to the uncertainty as to the price,
timing, and use of proceeds or whether in fact the center will be
sold.
The following
Management’s Discussion and Analysis of Financial Condition and Results of
Operations contains various “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
represent our expectations or beliefs concerning future events, including the
following: statements regarding future developments and joint ventures, rents,
returns, and earnings; statements regarding the continuation of trends; and any
statements regarding the sufficiency of our cash balances and cash generated
from operating and financing activities for our future liquidity and capital
resource needs. We caution that although forward-looking statements reflect our
good faith beliefs and best judgment based upon current information, these
statements are qualified by important factors that could cause actual results to
differ materially from those in the forward-looking statements, including those
risks, uncertainties, and factors detailed from time to time in reports filed
with the SEC, and in particular those set forth under “Risk Factors” in our
Annual Report on Form 10-K. The following discussion should be read in
conjunction with the accompanying consolidated financial statements of Taubman
Centers, Inc. and the notes thereto.
General
Background and Performance Measurement
Taubman Centers, Inc. (TCO) is a Michigan corporation that operates as a
self-administered and self-managed real estate investment trust (REIT). The
Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is a
majority-owned partnership subsidiary of TCO, which owns direct or indirect
interests in all of our real estate properties. In this report, the terms "we",
"us" and "our" refer to TCO, the Operating Partnership and/or the
Operating Partnership's subsidiaries as the context may require. We own,
develop, acquire, dispose of, and operate regional and super-regional shopping
centers. The Consolidated Businesses consist of shopping centers that are
controlled by ownership or contractual agreements, development projects for
future regional shopping centers, variable interest entities for which we are
the primary beneficiary, The Taubman Company LLC (Manager), and Taubman
Properties Asia LLC and its subsidiaries (Taubman Asia). Shopping centers owned
through joint ventures that are not controlled by us but over which we have
significant influence (Unconsolidated Joint Ventures) are accounted for under
the equity method.
References in this
discussion to “beneficial interest” refer to our ownership or pro-rata share of
the item being discussed. Also, the operations of the shopping centers are often
best understood by measuring their performance as a whole, without regard to our
ownership interest. Consequently, in addition to the discussion of the
operations of the Consolidated Businesses, the operations of the Unconsolidated
Joint Ventures are presented and discussed as a whole.
The comparability of information used in
measuring performance is affected by the opening of The Mall at Partridge Creek
(Partridge Creek) in October 2007 and The Pier Shops at Caesars (The Pier
Shops), which began opening in phases in June 2006. In April 2007, we increased our
ownership in The Pier Shops to 77.5% (see “Results of Operations -
Acquisition”). The Pier Shops’ results of operations are included within the
Consolidated Businesses for periods beginning April 13, 2007 and within the Unconsolidated Joint
Ventures prior to the acquisition date. Our investment in The Pier Shops
represented an effective 6% interest prior to the acquisition
date, based on relative
equity contributions. Additional “comparable center”
statistics that exclude Partridge Creek and The Pier Shops are provided to
present the performance of comparable centers in our continuing
operations.
Current
Operating Trends
Amid the recent softening of the
U.S. economy, a number of regional and
national retailers have announced store closings or filed for bankruptcy. During
the three months ended March 31, 2008, 0.9% of our tenants sought the
protection of the bankruptcy laws, the highest first quarter level since 2004.
However, our occupancy and rents were modestly up compared to the prior
year.
Tenant sales and
sales per square foot information are operating statistics used in measuring the
productivity of the portfolio and are based on reports of sales furnished by
mall tenants. Our tenant sales statistics also showed modest growth for the
first quarter of 2008, with sales per square foot increasing 3.0% over the first
quarter of 2007. Tenant sales have increased every quarter for five years;
however, beginning in the fourth quarter of 2007, the rate of growth has slowed.
Sales directly impact the amount of percentage rents certain tenants and anchors
pay. The effects of increases or declines in sales on our operations are
moderated by the relatively minor share of total rents that percentage rents
represent. While sales are critical over the long term, the diverse structure of
leases in a strong regional mall portfolio results in steady, predictable,
almost bond-like earnings streams that are generally resistant to economic
cycles. Consequently, even if the
economy continues to weaken, we continue to feel very comfortable with the
performance of our centers. However, a sustained trend in sales does
impact, either negatively or positively, our ability to lease vacancies and
negotiate rents at advantageous rates.
In the first
quarter of 2008, ending occupancy increased to 89.8% compared to 89.7% in the
first quarter of 2007. For our comparable centers, ending occupancy increased to
90.0% compared to 89.7% in the first quarter of 2007. We expect occupancy to be flat to slightly
down in the second quarter over the prior year and then slightly up for the
second half of the year. See “Seasonality” for occupancy and leased space
statistics. Temporary tenants, defined as those with lease terms less than 12
months, are not included in occupancy or leased space statistics. As of March
31, 2008, approximately 1.3% of mall tenant space was occupied by temporary
tenants.
As leases have
expired in the shopping centers, we have generally been able to rent the
available space, either to the existing tenant or a new tenant, at rental rates
that are higher than those of the expired leases. In a period of increasing
sales, rents on new leases will tend to rise as tenants' expectations of future
growth become more optimistic. In periods of slower growth or declining sales,
rents on new leases will grow more slowly or may decline for the opposite
reason. However, center revenues nevertheless increase as older leases roll over
or are terminated early and replaced with new leases negotiated at current
rental rates that are usually higher than the average rates for existing leases.
Rent per square foot information for comparable centers in our Consolidated
Businesses and Unconsolidated Joint Ventures follows:
|
|
Three
Months
Ended March
31
|
|
|
|
2008
|
|
|
2007
|
|
Average rent
per square foot:
|
|
|
|
|
|
|
Consolidated Businesses
|
|
$ |
44.56 |
|
|
$ |
43.88 |
|
Unconsolidated Joint
Ventures
|
|
|
44.24 |
|
|
|
41.76 |
|
Opening base
rent per square foot:
|
|
|
|
|
|
|
|
|
Consolidated Businesses
|
|
$ |
53.87 |
|
|
$ |
55.99 |
|
Unconsolidated Joint
Ventures
|
|
|
59.74 |
|
|
|
47.59 |
|
Square feet
of GLA opened:
|
|
|
|
|
|
|
|
|
Consolidated Businesses
|
|
|
290,144 |
|
|
|
216,190 |
|
Unconsolidated Joint
Ventures
|
|
|
151,590 |
|
|
|
105,024 |
|
Closing base
rent per square foot:
|
|
|
|
|
|
|
|
|
Consolidated Businesses
|
|
$ |
45.68 |
|
|
$ |
40.78 |
|
Unconsolidated Joint
Ventures
|
|
|
46.22 |
|
|
|
44.84 |
|
Square feet
of GLA closed:
|
|
|
|
|
|
|
|
|
Consolidated Businesses
|
|
|
403,707 |
|
|
|
399,647 |
|
Unconsolidated Joint
Ventures
|
|
|
231,450 |
|
|
|
137,792 |
|
Releasing
spread per square foot:
|
|
|
|
|
|
|
|
|
Consolidated Businesses
|
|
$ |
8.19 |
|
|
$ |
15.21 |
|
Unconsolidated Joint
Ventures
|
|
|
13.52 |
|
|
|
2.75 |
|
The spread between
opening and closing rents may not be indicative of future periods, as this
statistic is not computed on comparable tenant spaces, and can vary
significantly from period to period depending on the total amount, location, and
average size of tenant space opening and closing in the period. In the three months ended March 31, 2007, average rent per square foot for the
Unconsolidated Joint Ventures was adversely impacted by a $0.6 million cumulative prior year adjustment related
to The Mills Corporation’s accounting for lease incentives at Arizona Mills, a
50% owned joint venture.
Seasonality
The regional
shopping center industry is seasonal in nature, with mall tenant sales highest
in the fourth quarter due to the Christmas season, and with lesser, though still
significant, sales fluctuations associated with the Easter holiday and
back-to-school events. While minimum rents and recoveries are generally not
subject to seasonal factors, most leases are scheduled to expire in the first
quarter, and the majority of new stores open in the second half of the year in
anticipation of the Christmas selling season. Additionally, most percentage
rents are recorded in the fourth quarter. Accordingly, revenues and occupancy
levels are generally highest in the fourth quarter. Gains on sales of peripheral
land and lease cancellation income may vary significantly from quarter to
quarter.
|
|
1st
Quarter
2008
|
|
|
Total
2007
|
|
|
4th
Quarter
2007
|
|
|
3rd
Quarter
2007
|
|
|
2nd
Quarter
2007
|
|
|
1st
Quarter
2007
|
|
|
|
(in thousands
of dollars, except occupancy and leased space data)
|
|
Mall tenant
sales (1)
|
|
|
1,083,608 |
|
|
|
4,734,940 |
|
|
|
1,555,011 |
|
|
|
1,075,465 |
|
|
|
1,061,767 |
|
|
|
1,042,697 |
|
Revenues and
gains on land sales
and other nonoperating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Businesses
|
|
|
159,220 |
|
|
|
630,417 |
|
|
|
180,212 |
|
|
|
151,791 |
|
|
|
152,997 |
|
|
|
145,417 |
|
Unconsolidated Joint
Ventures
|
|
|
64,393 |
|
|
|
264,174 |
|
|
|
70,926 |
|
|
|
64,740 |
|
|
|
64,233 |
|
|
|
64,275 |
|
Occupancy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending-comparable
|
|
|
90.0 |
% |
|
|
91.5 |
% |
|
|
91.5 |
% |
|
|
90.1 |
% |
|
|
90.1 |
% |
|
|
89.7 |
% |
Average-comparable
|
|
|
90.2 |
|
|
|
90.3 |
|
|
|
91.1 |
|
|
|
90.0 |
|
|
|
90.0 |
|
|
|
89.8 |
|
Ending
|
|
|
89.8 |
|
|
|
91.1 |
|
|
|
91.1 |
|
|
|
89.9 |
|
|
|
89.9 |
|
|
|
89.7 |
|
Average
|
|
|
89.9 |
|
|
|
90.0 |
|
|
|
90.7 |
|
|
|
89.8 |
|
|
|
89.7 |
|
|
|
89.8 |
|
Leased
space:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable
|
|
|
93.0 |
% |
|
|
93.8 |
% |
|
|
93.8 |
% |
|
|
93.4 |
% |
|
|
92.6 |
% |
|
|
92.1 |
% |
All centers
|
|
|
93.0 |
|
|
|
93.8 |
|
|
|
93.8 |
|
|
|
93.3 |
|
|
|
92.4 |
|
|
|
92.1 |
|
(1)
|
Based on
reports of sales furnished by mall
tenants.
|
Because the
seasonality of sales contrasts with the generally fixed nature of minimum rents
and recoveries, mall tenant occupancy costs (the sum of minimum rents,
percentage rents, and expense recoveries) as a percentage of sales are
considerably higher in the first three quarters than they are in the fourth
quarter.
|
|
1st
Quarter
2008
|
|
|
Total
2007
|
|
|
4th
Quarter
2007
|
|
|
3rd
Quarter
2007
|
|
|
2nd
Quarter
2007
|
|
|
1st
Quarter
2007
|
|
Consolidated
Businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
|
10.2 |
% |
|
|
8.9 |
% |
|
|
7.1 |
% |
|
|
9.5 |
% |
|
|
9.7 |
% |
|
|
10.0 |
% |
Percentage rents
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
0.7 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.3 |
|
Expense recoveries
|
|
|
5.3 |
|
|
|
4.9 |
|
|
|
4.2 |
|
|
|
5.0 |
|
|
|
5.8 |
|
|
|
5.1 |
|
Mall tenant occupancy
costs
|
|
|
15.8 |
% |
|
|
14.2 |
% |
|
|
12.0 |
% |
|
|
14.8 |
% |
|
|
15.6 |
% |
|
|
15.4 |
% |
Unconsolidated
Joint Ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
|
9.2 |
% |
|
|
8.0 |
% |
|
|
6.1 |
% |
|
|
9.1 |
% |
|
|
8.8 |
% |
|
|
8.8 |
% |
Percentage rents
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.7 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.2 |
|
Expense recoveries
|
|
|
4.2 |
|
|
|
4.2 |
|
|
|
3.6 |
|
|
|
4.7 |
|
|
|
4.5 |
|
|
|
4.0 |
|
Mall tenant occupancy
costs
|
|
|
13.8 |
% |
|
|
12.6 |
% |
|
|
10.4 |
% |
|
|
14.1 |
% |
|
|
13.6 |
% |
|
|
13.0 |
% |
Results
of Operations
The following sections discuss certain
2008 and 2007 transactions that affected operations in the three month
periods ended March 31, 2008 and 2007, or are expected to impact
operations in the future.
New
Development
Partridge Creek opened on October 18, 2007 in Clinton Township, Michigan. The 0.6 million square foot center is anchored by Nordstrom, which
opened on April 18,
2008, Parisian, and MJR
Theatres. See “Liquidity
and Capital Resources – Contractual Obligations – The Mall at Partridge Creek
Contractual Obligations” regarding this center.
In September 2007, a 165,000 square foot
Nordstrom opened at Twelve Oaks Mall (Twelve Oaks) along with approximately
97,000 square feet of additional new store space. In addition, Macy’s has renovated its
store and added 60,000 square feet of store space.
In November 2007, Stamford Town Center (Stamford) opened a new lifestyle wing,
including a mix of
signature retail and
restaurant offerings. In
addition, we renovated the
seventh level, adding a
450-seat food court and interactive children’s play area. The food court
opened in early 2008.
See also “Taubman
Asia” and “Third-Party Management, Leasing, and Development Services” for other
development and service arrangements.
Acquisition
The Pier Shops, located in Atlantic City, New Jersey, began opening in phases in June 2006.
Gordon Group Holdings LLC (Gordon) developed the center, and in January 2007, we
assumed full management and leasing responsibility for the center. In April
2007, we increased our ownership in The Pier Shops to a 77.5% controlling
interest. The remaining 22.5% interest continues to be held by an affiliate of
Gordon. We began consolidating The Pier Shops as of the April 2007 purchase date. At closing, we made a
$24.5 million equity investment in the center, bringing our total equity
investment to $28.5 million. We are entitled to a 7% cumulative preferred return
on our $133.1 million total investment, including our $104.6 million share of
debt (see “Debt and Equity
Transactions”). We will be
responsible for any additional capital requirements, estimated to be in the
range of $15 million over the next two years, on which we will receive a
preferred return at a minimum of 8%. While sales at the center continue to be
good, the timing of final lease up is at a slower pace than we previously
anticipated. A major factor is the lease up of the few remaining large spaces on
the third and fourth levels of the center which are intended to be restaurants,
night clubs, and entertainment uses. Consequently, we expect to see modest improvement in
The Pier Shops’ operations in 2008. We continue to believe as the asset
stabilizes we will see significant growth in net operating
income.
Taubman
Asia
In February 2008, we announced that
Taubman Asia is acquiring a 25% interest in The Mall at Studio City, the retail component of Macao Studio City, a major mixed-use project, which has
begun construction on the Cotai Strip in Macao, China. In addition, Taubman Asia entered into
long-term agreements to perform development, management and leasing services for
the shopping center. Our total investment in the project (including the initial
payment, allocation of construction debt and additional payments anticipated in
years two and five after opening) is expected to be approximately $200 million,
with an anticipated after-tax return of about 10%. Taubman Asia’s investment is
in a joint venture with Cyber One Agents Limited (Cyber One) and will be
accounted for under the equity method. Macao Studio City is being developed by Cyber One, a
joint venture between New Cotai, LLC and East Asia Satellite Television
Holdings, a subsidiary of eSun Holdings (eSun). Our $54 million initial cash
payment has been placed into escrow until financing for the overall project is
completed, which is expected to occur in summer 2008. No interest is being capitalized on this
payment until the escrow is released. Our services agreements were conditional upon eSun shareholder
approval, which was
received in March 2008, however, any payments due under the development services
agreement can be delayed until financing is completed. While we do not control the construction
schedule, we believe the project is likely to open in spring 2010.
In 2007, we entered into an agreement to
provide development services for a 1.1 million square foot retail and
entertainment complex in Songdo International Business District
(Songdo), Incheon, South Korea. We also finalized an agreement to
provide management and leasing services for the retail component. The shopping
complex is expected to open in late 2010, assuming construction
begins in the middle of
2008. We are negotiating an investment in the project. We anticipate
finalizing our decision on this investment in 2008.
Third-Party
Management, Leasing, and Development Services
In addition to the services described in
“Taubman Asia”, we have several projects that are expected to contribute
significant amounts of third-party revenue to our results in the
future.
We are finalizing an agreement to
provide initial leasing services for a lifestyle center in the city of
North Las Vegas, Nevada. This is a mixed-use project that will
include retail, dining, and entertainment of up to 1.3 million square feet and a
residential component consisting of approximately 800 units. The shopping center
is expected to open in 2010. The developer of the residential component is a
joint venture which includes an affiliate of the Taubman family. The Taubman
family affiliate also participates in the project’s non-residential
component.
We are also finalizing a development
agreement regarding City Creek Center, a mixed-use project in Salt Lake City, Utah. In April 2008, we received approval for
the important pedestrian bridge that links the retail component and encourages
circulation throughout the project. This was a big step toward final design
approval, and the project is now expected to open in spring 2012. We are also finalizing agreements to
be an investor in this project under a participating lease structure. See “Liquidity and
Capital Resources - Planned Capital Spending” regarding this center and other
projects.
In addition, we currently have an
agreement for retail leasing and development and design advisory services for CityCenter, a mixed-use urban
development project scheduled to open in 2009 on the Strip in Las Vegas, Nevada. The term of this fixed-fee contract is
approximately 25 years, effective June 2005, and is generally cancelable for
cause and by the project owner upon payment to us of a cancellation
fee.
We also have a management
agreement for Woodfield Mall, which is owned by a third-party. This contract is
renewable year-to-year and is cancelable by the owner with 90 days written
notice.
Subject to many assumptions, our best
estimate is that during the 2008 to 2010 timeframe, and possibly into 2011 depending on
opening dates, we will earn
in the range of $35 million to $40 million of net margin from management,
leasing, and development fees. Net margin for these projects means total revenue
less related expenses and taxes. The timing of revenue recognition is very
difficult to predict due to a number of factors. For development, revenue is
recognized when the work is performed. For leasing, it is recognized when the
leases are signed or when stores open, depending on the agreement. Of the $35
million to $40 million, we expect this third-party margin will peak in 2010 when the level of activity will be the
greatest. Although this activity is highly profitable, it is very volatile and a
substantial portion of this increased activity represents non-recurring income.
Once the significant development and initial leasing effort is complete for
these projects, fees will be much more modest. As we have discussed in the past,
we would generally prefer to own as much equity in a project as possible.
However, each of these projects met a series of criteria – including
profitability and synergy with our ongoing activities – that made them
attractive for us to pursue. We would expect that some level of this activity
will always be present in our business.
Debt and Equity
Transactions
In January 2008, we completed a $325
million non-recourse refinancing at International Plaza that bears interest at LIBOR plus
1.15%. The loan agreement has a three-year term, with two one-year extension
options. The loan is interest-only for the entire term, except during the second
one-year extension period, if elected. We also entered into an
agreement to swap the floating rate for an all-in fixed rate of 5.375% for the
initial three-year term of the loan agreement. Proceeds from the refinancing
were used to pay off the existing $175.2 million 4.37% (effective rate) loan, accrued interest, and our $33.5 million
preferential equity, with
the remaining amount distributed on ownership percentages with our 49.9%
joint venture
partner.
In 2007, we completed financings of
approximately $335 million relating to a $200 million increase in our revolving
line of credit and the refinancing of The Pier Shops.
In 2007, our Board
of Directors authorized the repurchase of $100 million of our common stock on
the open market or in privately negotiated transactions. During 2007, we
repurchased 987,180 shares of our common stock for a total of $50 million under
this authorization. In addition, we repurchased an additional 923,364 shares for
$50 million, representing the remaining amount under a previous program approved
by our Board of Directors in December 2005. All shares repurchased have been
cancelled. For each share of stock repurchased, an equal number of Operating
Partnership units owned by TCO were redeemed. Repurchases of common stock were
financed through general corporate funds, including borrowings under existing
lines of credit. As of March 31, 2008, $50 million remained of the 2007
authorization.
Subsequent
Events
In April 2008, Fair Oaks, a 50% owned
Unconsolidated Joint Venture, completed a $250 million non-recourse refinancing
that bears interest at LIBOR plus 1.40%. The loan agreement has a three-year term,
with two one-year extension options. The loan is interest-only for the entire
term, except during the second one-year extension period, if elected.
Fair Oaks also entered into an agreement to swap
the floating rate for an all-in fixed rate of 4.56% for the initial three-year
term of the loan agreement. Proceeds from the refinancing were used to pay off
the existing $140 million 6.6% loan, plus accrued interest and fees. Excess
proceeds were distributed to the partners, and our share was used to pay down
our revolving credit facilities.
In April 2008, we announced that
Stamford Town Center (Stamford), a 50% owned Unconsolidated Joint
Venture, is being marketed for sale. The primary impetus for the sale is from
our joint venture partner, as part of the normal execution of their portfolio
strategy. We both agree that this is a good time to capitalize on the value that
has been added to this asset with its recent renovation. The sale of assets is
consistent with our strategy to recycle capital when appropriate. We can not
currently estimate any impact for the possible sale of Stamford due to the uncertainty as to the price,
timing, and use of proceeds or whether in fact the center will be
sold.
New Accounting
Pronouncements
See “Note 11 – New
Accounting Pronouncements” to our consolidated financial statements regarding
certain new accounting pronouncements that we expect to adopt in
2009.
Presentation of Operating
Results
Income
Allocation
The following table
contains the operating results of our Consolidated Businesses and the
Unconsolidated Joint Ventures. Income allocated to the minority partners in the
Operating Partnership and preferred interests is deducted to arrive at the
results allocable to our common shareowners. Because the net equity balances of
the Operating Partnership and the outside partners in certain consolidated joint
ventures are less than zero, the income allocated to these minority and outside
partners is equal to their share of operating distributions. The net equity of
these minority and outside partners is less than zero due to accumulated
distributions in excess of net income and not as a result of operating losses.
Distributions to partners are usually greater than net income because net income
includes non-cash charges for depreciation and amortization. Our average
ownership percentage of the Operating Partnership was 66% during both the three
month periods ended March 31, 2008 and 2007.
The results of The
Pier Shops are presented within the Consolidated Businesses beginning April 13,
2007, as a result of our acquisition of a controlling interest in the center.
The results of The Pier Shops prior to the acquisition date are included within
the Unconsolidated Joint Ventures.
Use
of Non-GAAP Measures
The operating
results in the following table include the supplemental earnings measures of
Beneficial Interest in EBITDA and Funds from Operations (FFO). 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 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 National
Association of Real Estate Investment Trusts (NAREIT) defines FFO as net income
(loss) (computed in accordance with Generally Accepted Accounting Principles
(GAAP)), excluding gains (or losses) from extraordinary items and sales of
properties, plus real estate related depreciation and after adjustments for
unconsolidated partnerships and joint ventures. 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.
Our presentations
of Beneficial Interest in EBITDA and FFO are not necessarily comparable to the
similarly titled measures of other REITs due to the fact that not all REITs use
the same definitions. These measures should not be considered alternatives to
net income (loss) or as an indicator of our operating performance. Additionally,
neither represents cash flows from operating, investing or financing activities
as defined by GAAP. Reconciliations of Net Income Allocable to Common
Shareowners to Funds from Operations and Net Income to Beneficial Interest in
EBITDA are presented following the Comparison of the Three Months Ended March
31, 2008 to the Three Months Ended March 31, 2007.
Comparison
of the Three Months Ended March 31, 2008 to the Three Months Ended March 31,
2007
The following table
sets forth operating results for the three months ended March 31, 2008 and March
31, 2007, showing the results of the Consolidated Businesses and Unconsolidated
Joint Ventures:
|
Three Months
Ended
March 31,
2008
|
Three Months
Ended
March 31,
2007
|
|
CONSOLIDATED
BUSINESSES
|
UNCONSOLIDATED
JOINT
VENTURES
AT 100%(1)
|
CONSOLIDATED
BUSINESSES
|
UNCONSOLIDATED
JOINT
VENTURES
AT 100%(1)
|
|
|
(in millions
of dollars) |
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
|
86.6 |
|
|
|
38.4 |
|
|
|
78.7 |
|
|
|
38.4 |
|
Percentage rents
|
|
|
2.6 |
|
|
|
1.5 |
|
|
|
2.3 |
|
|
|
1.0 |
|
Expense recoveries
|
|
|
57.5 |
|
|
|
22.4 |
|
|
|
50.6 |
|
|
|
22.6 |
|
Management, leasing and development
services
|
|
|
3.7 |
|
|
|
|
|
|
|
4.9 |
|
|
|
|
|
Other
|
|
|
7.1 |
|
|
|
1.8 |
|
|
|
8.6 |
|
|
|
1.8 |
|
Total
revenues
|
|
|
157.4 |
|
|
|
64.1 |
|
|
|
145.0 |
|
|
|
63.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance, taxes, and
utilities
|
|
|
43.5 |
|
|
|
15.3 |
|
|
|
37.9 |
|
|
|
17.7 |
|
Other operating
|
|
|
18.3 |
|
|
|
6.5 |
|
|
|
16.8 |
|
|
|
6.4 |
|
Management, leasing and development
services
|
|
|
2.3 |
|
|
|
|
|
|
|
2.8 |
|
|
|
|
|
General and
administrative
|
|
|
8.3 |
|
|
|
|
|
|
|
7.3 |
|
|
|
|
|
Interest expense
|
|
|
37.0 |
|
|
|
15.9 |
|
|
|
29.7 |
|
|
|
17.8 |
|
Depreciation and amortization (2)
|
|
|
35.3 |
|
|
|
9.6 |
|
|
|
32.5 |
|
|
|
10.2 |
|
Total
expenses
|
|
|
144.7 |
|
|
|
47.4 |
|
|
|
127.1 |
|
|
|
52.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on land
sales and other nonoperating income
|
|
|
1.8 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
|
14.5 |
|
|
|
17.0 |
|
|
|
18.4 |
|
|
|
12.2 |
|
Income tax
expense
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in
income of Unconsolidated Joint Ventures (2)
|
|
|
9.2 |
|
|
|
|
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before
minority and preferred interests
|
|
|
23.5 |
|
|
|
|
|
|
|
26.6 |
|
|
|
|
|
Minority and
preferred interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRG preferred
distributions
|
|
|
(0.6 |
) |
|
|
|
|
|
|
(0.6 |
) |
|
|
|
|
Minority share of income of
consolidated joint
ventures
|
|
|
(1.2 |
) |
|
|
|
|
|
|
(1.9 |
) |
|
|
|
|
Distributions less than (in excess of)
minority share of income of consolidated joint ventures
|
|
|
(2.1 |
) |
|
|
|
|
|
|
0.6 |
|
|
|
|
|
Minority share of income of
TRG
|
|
|
(5.9 |
) |
|
|
|
|
|
|
(7.7 |
) |
|
|
|
|
Distributions in excess of minority
share of income
of TRG
|
|
|
(5.5 |
) |
|
|
|
|
|
|
(2.8 |
) |
|
|
|
|
Net
income
|
|
|
8.2 |
|
|
|
|
|
|
|
14.1 |
|
|
|
|
|
Preferred
dividends
|
|
|
(3.7 |
) |
|
|
|
|
|
|
(3.7 |
) |
|
|
|
|
Net income
allocable to common shareowners
|
|
|
4.5 |
|
|
|
|
|
|
|
10.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA - 100%
|
|
|
86.8 |
|
|
|
42.5 |
|
|
|
80.6 |
|
|
|
40.1 |
|
EBITDA - outside partners'
share
|
|
|
(9.6 |
) |
|
|
(19.4 |
) |
|
|
(8.8 |
) |
|
|
(18.2 |
) |
Beneficial interest in
EBITDA
|
|
|
77.2 |
|
|
|
23.1 |
|
|
|
71.8 |
|
|
|
21.9 |
|
Beneficial interest
expense
|
|
|
(32.2 |
) |
|
|
(8.3 |
) |
|
|
(26.5 |
) |
|
|
(8.3 |
) |
Beneficial income tax
expense
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Non-real estate
depreciation
|
|
|
(0.7 |
) |
|
|
|
|
|
|
(0.7 |
) |
|
|
|
|
Preferred dividends and
distributions
|
|
|
(4.3 |
) |
|
|
|
|
|
|
(4.3 |
) |
|
|
|
|
Funds from Operations
contribution
|
|
|
39.9 |
|
|
|
14.9 |
|
|
|
40.3 |
|
|
|
13.6 |
|
(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. In our consolidated financial
statements, we account for investments in the Unconsolidated Joint
Ventures under the equity method.
|
(2)
|
Amortization
of our additional basis in the Operating Partnership included in
depreciation and amortization was $1.2 million in both 2008 and 2007.
Also, amortization of our additional basis included in equity in income of
Unconsolidated Joint Ventures was $0.5 million in both 2008 and
2007.
|
(3)
|
Amounts in
this table may not add due to
rounding.
|
Consolidated
Businesses
Total revenues for
the quarter ended March 31, 2008 were $157.4 million, a $12.4 million or 8.6%
increase over the comparable period in 2007. Minimum rents increased $7.9
million, primarily due to The Pier Shops, which we began consolidating in April
2007 upon the acquisition of a controlling interest in the center. Minimum rents
also increased due to the October 2007 opening of Partridge Creek and the
September 2007 expansion at Twelve Oaks, as well as increases in occupancy and
tenant rollovers. Expense recoveries increased primarily due to Partridge Creek,
The Pier Shops, and Twelve Oaks, as well as increases in recoverable costs at
certain centers. Management, leasing, and development revenue decreased
primarily due to lower revenue on the Songdo development contract, which
included revenue related to 2006 services in the first quarter of 2007. We
expect that management, leasing, and development revenues, less taxes and other
related expenses, will be between $6 million and $7 million in 2008. Other
income decreased primarily due to a decrease in lease cancellation revenue,
which was partially offset by increases in parking-related revenue and
sponsorship income. During the first quarter of 2008, we recognized our
approximately $0.7 million and $0.3 million share of the Consolidated
Businesses’ and Unconsolidated Joint Ventures’ lease cancellation revenue. For
2008, we are estimating that our share of lease cancellation revenue will be
approximately $7 million to $8 million.
Total expenses were
$144.7 million, a $17.6 million or 13.8% increase over the comparable period in
2007. Maintenance, taxes, and utilities expense increased primarily due to The
Pier Shops, Partridge Creek, and Twelve Oaks, as well as increases in
maintenance costs at certain centers. These increases were partially offset by a
decrease in utilities expense. Other operating expense increased due to The Pier
Shops, increased property management and pre-development costs, and Partridge
Creek. These increases were partially offset by a decrease in the provision for
bad debts. We expect that pre-development costs for both our domestic and Asia
projects will be about $13 million in 2008. General and administrative expense
increased primarily due to increased professional fees. We expect that general
and administrative expense will be approximately $8 million on average for each
quarter of 2008. Interest expense increased primarily due to The Pier Shops,
Partridge Creek, and the January 2008 refinancing at International Plaza.
Interest expense also increased due to the repurchase of common stock in 2007,
the expansion at Twelve Oaks, and the escrowed Macao payment. Depreciation
expense increased due to Partridge Creek, The Pier Shops, and Twelve Oaks, which
were partially offset by changes in depreciable lives of tenant allowances and
other assets in connection with early terminations in 2007.
Gains on land sales
and other nonoperating income increased primarily due to $1.2 million of gains
on land sales in the first quarter of 2008. There were no land sales in the
first quarter of 2007. We expect gains on land sales to be $3 million to $4
million in 2008.
Unconsolidated Joint
Ventures
Total revenues for
the three months ended March 31, 2008 were $64.1 million, a $0.3 million or 0.5%
increase from the comparable period in 2007. Minimum rents remained flat, with
increases due to tenant rollovers, prior year adjustments at Arizona Mills in
2007, and the November 2007 expansion at Stamford, being offset primarily by the
reduction due to the consolidation of The Pier Shops. Expense recoveries also
were relatively flat, with the decrease due to The Pier Shops being
substantially offset by increased recoverable costs at certain
centers.
Total expenses
decreased by $4.7 million or 9.0%, to $47.4 million for the three months ended
March 31, 2008. Maintenance, taxes, and utilities expense decreased due to The
Pier Shops, which was partially offset by increases in maintenance costs at
certain centers. Other operating expense remained relatively flat, with
increases in the provision for bad debts and professional fees being offset by
The Pier Shops. Interest expense decreased due to The Pier Shops. Depreciation
expense decreased due to The Pier Shops, which was partially offset by Stamford
and prior year adjustments at Arizona Mills.
As a result of the
foregoing, income of the Unconsolidated Joint Ventures increased by $4.8 million
to $17.0 million for the three months ended March 31, 2008. We had an effective
6% interest in The Pier Shops based on relative equity contributions, prior to
our acquisition of a controlling interest in April 2007 (see “Results of
Operations – Acquisition”). Our equity in income of the Unconsolidated Joint
Ventures was $9.2 million, a $1.0 million increase from the comparable period in
2007.
Net
Income
Our income before
minority and preferred interests was $23.5 million for the three months ended
March 31, 2008, compared to $26.6 million for the three months ended March 31,
2007. After allocation of income to minority and preferred interests, net income
allocable to common shareowners for 2008 was $4.5 million compared to $10.4
million in the comparable period in 2007.
Reconciliation
of Net Income Allocable to Common Shareowners to Funds from
Operations
|
|
Three Months Ended March 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions
of dollars)
|
|
Net income
allocable to common shareowners
|
|
|
4.5 |
|
|
|
10.4 |
|
|
|
|
|
|
|
|
|
|
Add (less)
depreciation and amortization: (1)
|
|
|
|
|
|
|
|
|
Consolidated businesses at
100%
|
|
|
35.3 |
|
|
|
32.5 |
|
Minority partners in consolidated joint
ventures
|
|
|
(3.6 |
) |
|
|
(3.7 |
) |
Share of unconsolidated joint
ventures
|
|
|
5.6 |
|
|
|
5.4 |
|
Non-real estate
depreciation
|
|
|
(0.7 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
Add minority
interests:
|
|
|
|
|
|
|
|
|
Minority share of income of
TRG
|
|
|
5.9 |
|
|
|
7.7 |
|
Distributions in excess of minority
share of income of TRG
|
|
|
5.5 |
|
|
|
2.8 |
|
Distributions (less than) in excess of
minority share of
income of consolidated joint
ventures
|
|
|
2.1 |
|
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
Funds from
Operations
|
|
|
54.8 |
|
|
|
53.9 |
|
|
|
|
|
|
|
|
|
|
TCO's average
ownership percentage of TRG
|
|
|
66.5 |
% |
|
|
65.9 |
% |
|
|
|
|
|
|
|
|
|
Funds from
Operations allocable to TCO
|
|
|
36.4 |
|
|
|
35.5 |
|
(1)
|
Depreciation
and amortization includes $3.2 million and $2.6 million of mall tenant
allowance amortization for the three months ended March 31, 2008 and 2007,
respectively.
|
(2)
|
Amounts in
this table may not recalculate due to
rounding.
|
Reconciliation
of Net Income to Beneficial Interest in EBITDA
|
|
Three Months Ended March 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions
of dollars)
|
|
Net
income
|
|
|
8.2 |
|
|
|
14.1 |
|
|
|
|
|
|
|
|
|
|
Add (less)
depreciation and amortization:
|
|
|
|
|
|
|
|
|
Consolidated businesses at
100%
|
|
|
35.3 |
|
|
|
32.5 |
|
Minority partners in consolidated joint
ventures
|
|
|
(3.6 |
) |
|
|
(3.7 |
) |
Share of unconsolidated joint
ventures
|
|
|
5.6 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
Add (less)
preferred interests and interest expense:
|
|
|
|
|
|
|
|
|
Preferred distributions
|
|
|
0.6 |
|
|
|
0.6 |
|
Interest expense:
|
|
|
|
|
|
|
|
|
Consolidated businesses at
100%
|
|
|
37.0 |
|
|
|
29.7 |
|
Minority partners in consolidated joint
ventures
|
|
|
(4.8 |
) |
|
|
(3.2 |
) |
Share of unconsolidated joint
ventures
|
|
|
8.3 |
|
|
|
8.3 |
|
Income tax expense
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add minority
interests:
|
|
|
|
|
|
|
|
|
Minority share of income of
TRG
|
|
|
5.9 |
|
|
|
7.7 |
|
Distributions in excess of minority
share of income of TRG
|
|
|
5.5 |
|
|
|
2.8 |
|
Distributions (less than) in excess of
minority share of income of consolidated joint ventures
|
|
|
2.1 |
|
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
Beneficial
interest in EBITDA
|
|
|
100.3 |
|
|
|
93.6 |
|
|
|
|
|
|
|
|
|
|
TCO's average
ownership percentage of TRG
|
|
|
66.5 |
% |
|
|
65.9 |
% |
|
|
|
|
|
|
|
|
|
Beneficial
interest in EBITDA allocable to TCO
|
|
|
66.7 |
|
|
|
61.7 |
|
(1)
|
Amounts in
this table may not recalculate due to
rounding.
|
Liquidity
and Capital Resources
In the following
discussion, references to beneficial interest represent the Operating
Partnership’s ownership share of the results of its consolidated and
unconsolidated businesses. We do not have, and have not had, any parent company
indebtedness; all debt discussed represents obligations of the Operating
Partnership or its subsidiaries and joint ventures.
Capital resources
are required to maintain our current operations, pay dividends, and fund planned
capital spending, future developments, and other commitments and contingencies.
We believe that our net cash provided by operating activities, distributions
from our joint ventures, the unutilized portions of our credit facilities, and
our ability to access the capital markets assure adequate liquidity to meet
current and future cash requirements and will allow us to conduct our operations
in accordance with our dividend and financing policies. The following sections
contain information regarding our recent capital transactions and sources and
uses of cash; beneficial interest in debt and sensitivity to interest rate risk;
contractual obligations; covenants, commitments, and contingencies; and
historical capital spending. We then provide information regarding our
anticipated future capital spending and our dividend policies.
As of March 31,
2008, we had a consolidated cash balance of $40.8 million, of which $1.8 million
is restricted to specific uses stipulated by our lenders. We also have secured
lines of credit of $550 million and $40 million. As of March 31, 2008, the total
amounts borrowed on the $550 million and $40 million lines of credit were $264.0
million and $14.1 million, respectively. Our $550 million line of credit matures
in February 2011 and has a one-year extension option. Our $40 million line of
credit matures in February 2009. With over $300 million available under
our lines of credit, and our share of net proceeds from the refinancing of Fair
Oaks in April 2008 (see “Results of Operations – Subsequent Events”), we have a
significant amount of liquidity. In addition, we have no significant maturities
on our debt until 2010.
Operating
Activities
Our net cash
provided by operating activities was $33.2 million in 2008, compared to $35.2
million in 2007. See also "Results of Operations" for descriptions of 2008 and
2007 transactions affecting operating cash flows.
Investing
Activities
Net cash used in
investing activities was $83.3 million in 2008 compared to $44.9 million in
2007. Cash used in investing activities was impacted by the timing of capital
expenditures, with additions to properties in 2008 and 2007 for the construction
of Partridge Creek, the expansion and renovation at Twelve Oaks, the acquisition
of land for future development, and our Oyster Bay project, as well as other
development activities and capital items. A tabular presentation of 2008 capital
spending is shown in “Capital Spending.” In 2008 and 2007, $0.6 million and $2.3
million, respectively, were used to acquire marketable equity securities and
other assets. In 2008, a $54.3 million contribution was made related to our
acquisition of a 25% interest in The Mall at Studio City. The contribution will
be held in escrow until financing for the project is complete (see “Results of
Operations – Taubman Asia”). Contributions to Unconsolidated Joint Ventures of
$2.4 million and $0.6 million in 2008 and 2007, respectively, were made
primarily to fund the expansions at Stamford and Waterside.
Sources of cash
used in funding these investing activities, other than cash flow from operating
activities, included distributions from Unconsolidated Joint Ventures as well as
transactions described under “Financing Activities.” Distributions in excess of
earnings from Unconsolidated Joint Ventures provided $4.4 million in 2008 and
$2.7 million in 2007. Net proceeds from the sale of peripheral land were $4.3
million in 2008. There were no land sales in the first quarter of 2007. The
timing of land sales is variable and proceeds from land sales can vary
significantly from period to period.
Financing
Activities
Net cash provided
by financing activities was $43.7 million in 2008, compared to $8.9 million in
2007. Proceeds from the issuance of debt, net of payments and issuance costs,
were $136.8 million in 2008, compared to $44.9 million in 2007. In 2008, a net
$0.6 million was received in connection with incentive plans. Total dividends
and other distributions paid were $93.0 million and $36.0 million in 2008 and
2007, respectively. Distributions to minority and preferred interests in 2008
include $51.3 million of excess proceeds from the refinancing of International
Plaza.
Beneficial Interest in
Debt
At March 31, 2008,
the Operating Partnership's debt and its beneficial interest in the debt of its
Consolidated and Unconsolidated Joint Ventures totaled $2,997.5 million with an
average interest rate of 5.47% excluding amortization of debt issuance costs and
the effects of interest rate cap premiums, and losses on settlement of
derivatives used to hedge the refinancing of certain fixed rate debt. These
costs are reported as interest expense in the results of operations. Interest
expense for the three months ended March 31, 2008 includes $0.2 million of
non-cash amortization relating to acquisitions, or 0.03% of the average all-in
rate. Beneficial interest in debt includes debt used to fund development and
expansion costs. Beneficial interest in construction work in process totaled
$191.5 million as of March 31, 2008, which includes $174.6 million of assets on
which interest is being capitalized. Beneficial interest in capitalized interest
was $2.4 million for the three months ended March 31, 2008. The following table
presents information about our beneficial interest in debt as of March 31,
2008:
|
|
Amount
|
|
|
Interest
Rate
Including
Spread
|
|
|
|
(in millions
of dollars)
|
|
|
|
|
Fixed rate
debt
|
|
|
2,472.3 |
|
|
|
5.72 |
% (1) |
|
|
|
|
|
|
|
|
|
Floating rate
debt:
|
|
|
|
|
|
|
|
|
Swapped through December
2010
|
|
|
162.8 |
|
|
|
5.01 |
% |
Swapped through October
2012
|
|
|
15.0 |
|
|
|
5.95 |
% |
|
|
|
177.8 |
|
|
|
|
|
Floating month to month
|
|
|
347.4 |
|
|
|
3.83 |
% (1) |
Total floating rate
debt
|
|
|
525.3 |
|
|
|
4.26 |
% (1) |
|
|
|
|
|
|
|
|
|
Total
beneficial interest in debt
|
|
|
2,997.5 |
|
|
|
5.47 |
% (1) |
|
|
|
|
|
|
|
|
|
Amortization
of financing costs (2)
|
|
|
|
|
|
|
0.18 |
% |
Average
all-in rate
|
|
|
|
|
|
|
5.65 |
% |
(1)
|
Represents
weighted average interest rate before amortization of financing
costs.
|
(2)
|
Financing
costs include financing fees, interest rate cap premiums, and losses on
settlement of derivatives used to hedge the refinancing of certain fixed
rate debt.
|
(3)
|
Amounts in
table may not add due to rounding.
|
Subsequent
Event
See “Results of Operations - Subsequent
Events” regarding the April 2008 refinancing of Fair Oaks.
Sensitivity
Analysis
We have exposure to
interest rate risk on our debt obligations and interest rate instruments. We use
derivative instruments primarily to manage exposure to interest rate risks
inherent in variable rate debt and refinancings. We routinely use cap, swap,
treasury lock, and rate lock agreements to meet these objectives. Based on the
Operating Partnership's beneficial interest in debt subject to floating rates in
effect at March 31, 2008 and 2007, a one percent increase or decrease in
interest rates on this floating rate debt would decrease or increase cash flows
by approximately $3.5 million and $1.4 million, respectively, and, due to the
effect of capitalized interest, annual earnings by approximately $3.2 million
and $1.2 million, respectively. Based on our consolidated debt and interest
rates in effect at March 31, 2008 and 2007, a one percent increase in interest
rates would decrease the fair value of debt by approximately $128.5 million and
$121.1 million, respectively, while a one percent decrease in interest rates
would increase the fair value of debt by approximately $137.6 million and $129.3
million, respectively.
Contractual
Obligations
In conducting our business, we enter
into various contractual obligations, including those for debt, capital leases
for property improvements, operating leases for land and office space, purchase
obligations (primarily for construction), and other long-term commitments.
Disclosure of these items is contained in our Annual Report on Form 10-K.
Updates of the 10-K disclosures for debt obligations and planned capital
spending, which can vary significantly from period to period, as of March 31,
2008 are provided in the table below:
|
|
Payments Due
by Period
|
|
|
|
Total
|
|
|
Less
than
1 year (2008)
|
|
|
1-3
years
(2009-2010)
|
|
|
3-5
years (2011-2012)
|
|
|
More than
5 years (2013+)
|
|
|
|
(in millions
of dollars)
|
|
Debt (1)
|
|
|
2,841.0 |
|
|
|
10.1 |
|
|
|
238.1 |
|
|
|
684.1 |
|
|
|
1,908.6 |
|
Interest
payments
|
|
|
909.0 |
|
|
|
116.1 |
|
|
|
302.4 |
|
|
|
218.1 |
|
|
|
272.5 |
|
Purchase
obligations -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Planned
capital spending (2)
|
|
|
95.9 |
|
|
|
95.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The settlement
periods for debt do not consider extension options. Amounts relating to
interest on floating rate debt are calculated based on the debt balances
and interest rates as of March 31,
2008.
|
(2)
|
As of March
31, 2008, we were contractually liable for $21.9 million of this planned
spending. See "Planned Capital Spending" for detail regarding planned
funding.
|
(3)
|
Amounts in
this table may not add due to
rounding.
|
The
Mall at Partridge Creek Contractual Obligations
In May 2006, we
engaged the services of a third-party investor to acquire certain property
associated with Partridge Creek, in order to facilitate a Section 1031 like-kind
exchange to provide flexibility for disposing of assets in the future. The
third-party investor became the owner of the project and leases the land from
one of our subsidiaries. In turn, the owner leases the project back to
us.
Funding for the project was provided by the following sources. We
provided approximately 45% of the project
funding under a junior subordinated financing. The owner provided $9 million in
equity. Funding for the remaining project costs was provided by the owner’s
third-party construction loan, which has a balance of $68.5 million as of March 31, 2008.
We intend to
exercise our option to purchase the property and assume the ground lease from
the owner during the exchange period ending October 2008. The option, if exercised, will provide
the owner a 12% cumulative return on its equity. In the event that we do not
exercise our right to purchase the property from the owner, the owner will have
the right to sell all of its interest in the property, provided that the
purchaser shall assume all of the obligations and be assigned all of the owner's
rights under the ground lease, the operating lease, and any remaining
obligations under the loans.
We have guaranteed
the lease payments on the operating lease (excluding monthly supplemental rent
equal to 1.67% of the owner's outstanding equity balance, commencing after the
exchange period). The lease payments are structured to cover debt service,
ground rent payments, and other expenses of the lessor. We consolidate the
accounts of the owner. The junior loans and other intercompany transactions are
eliminated in consolidation.
Loan Commitments and
Guarantees
Certain loan
agreements contain various restrictive covenants, including a minimum net worth
requirement, minimum interest coverage ratios, a maximum payout ratio on
distributions, a minimum debt yield ratio, a minimum fixed charges coverage
ratio, and a maximum leverage ratio, the latter being the most restrictive. We
are in compliance with all of our covenants as of March 31, 2008. The maximum
payout ratio on distributions covenant limits the payment of distributions
generally to 95% of funds from operations, as defined in the loan agreements,
except as required to maintain our tax status, pay preferred distributions, and
for distributions related to the sale of certain assets.
See “Note 5 –
Beneficial Interest in Debt and Interest Expense – Debt Covenants and
Guarantees” to the consolidated financial statements for more
details.
Cash Tender
Agreement
A. Alfred Taubman
has the annual right to tender units of partnership interest in the Operating
Partnership and cause us to purchase the tendered interests at a purchase price
based on a market valuation of TCO on the trading date immediately preceding the
date of the tender. See “Note 8 – Commitments and Contingencies” to the
consolidated financial statements for more details.
Capital
Spending
Capital spending
for routine maintenance of the shopping centers is generally recovered from
tenants. Capital spending through March 31, 2008 is summarized in the following
table:
|
|
2008 (1)
|
|
|
|
Consolidated
Businesses
|
|
|
Beneficial
Interest
in
Consolidated Businesses
|
|
|
Unconsolidated
Joint Ventures
|
|
|
Beneficial
Interest in Unconsolidated
Joint
Ventures
|
|
|
|
(in millions
of dollars)
|
|
New
Development Projects:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-construction development activities
(2)
|
|
|
4.2 |
|
|
|
4.2 |
|
|
|
|
|
|
|
New centers (3)
|
|
|
2.3 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing
Centers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renovation projects with incremental
GLA
and/or anchor
replacement
|
|
|
1.3 |
|
|
|
1.1 |
|
|
|
11.0 |
|
|
|
4.7 |
|
Renovations with no incremental GLA
effect
and other
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
1.1 |
|
|
|
0.8 |
|
Mall tenant allowances (4)
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
0.4 |
|
Asset replacement costs reimbursable by
tenants
|
|
|
0.6 |
|
|
|
0.6 |
|
|
|
0.9 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
office improvements and equipment
|
|
|
0.6 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to
properties
|
|
|
9.5 |
|
|
|
9.3 |
|
|
|
13.3 |
|
|
|
6.3 |
|
(1)
|
Costs are net
of intercompany profits and are computed on an accrual
basis.
|
(2)
|
Primarily
includes costs related to Oyster Bay. Excludes $54 million escrow deposit
paid in 2008 relating to the Macao
project.
|
(3)
|
Includes costs
related to Partridge Creek.
|
(4)
|
Excludes
initial lease-up costs.
|
(5)
|
Amounts in
this table may not add due to
rounding.
|
For the three
months ended March 31, 2008, in addition to the costs above, we incurred our
$1.5 million share of Consolidated Businesses’ and $0.3 million share of
Unconsolidated Joint Ventures’ capitalized leasing costs.
The following table
presents a reconciliation of the Consolidated Businesses’ capital spending shown
above (on an accrual basis) to additions to properties (on a cash basis) as
presented in our Consolidated Statement of Cash Flows for the three months ended
March 31, 2008:
|
|
(in millions
of dollars)
|
|
|
|
|
|
Consolidated
Businesses’ capital spending
|
|
|
9.5 |
|
Differences
between cash and accrual basis
|
|
|
25.2 |
|
Additions to
properties
|
|
|
34.7 |
|
Planned Capital
Spending
The following table
summarizes planned capital spending for 2008, excluding acquisitions as well as
costs related to City Creek Center, Taubman Asia projects, and other projects or
expansions for which budgets have not yet been approved by the Board of
Directors:
|
|
2008 (1)
|
|
|
Consolidated
Businesses
|
|
Beneficial
Interest in Consolidated Businesses
|
|
Unconsolidated
Joint Ventures
|
|
Beneficial
Interest in Unconsolidated Joint Ventures
|
|
|
(in millions
of dollars)
|
New
development projects (2)
|
|
|
24.2 |
|
|
|
24.2 |
|
|
|
|
|
|
|
Existing
centers (3)
|
|
|
79.4 |
|
|
|
70.6 |
|
|
|
23.8 |
|
|
|
14.8 |
|
Corporate
office improvements and
equipment
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
Total
|
|
|
105.4 |
|
|
|
96.6 |
|
|
|
23.8 |
|
|
|
14.8 |
|
(1)
|
Costs are net
of intercompany profits.
|
(2)
|
Primarily
includes costs related to Oyster Bay. Excludes $54 million escrow deposit
paid in 2008 relating to the Macao
project.
|
(3)
|
Primarily
includes costs related to the renovation at Fairlane, mall tenant
allowances, and asset replacement costs reimbursable by
tenants.
|
(4)
|
Amounts in
this table may not add due to
rounding.
|
Estimates of future
capital spending include only projects approved by our Board of Directors and,
consequently, estimates will change as new projects are approved. Costs of
potential development projects, including our exploration of development
possibilities in Asia, are expensed until we conclude that it is probable that
the project will reach a successful conclusion. Given the high probability of
our moving forward on projects in Salt Lake City and Macao, we are capitalizing
our costs. As of March 31, 2008, the combined capitalized costs of
these projects were $2.8 million. Both projects are under
construction, although it may be some time before the contingency of completing
the financing on the Macao project is met and the final agreements
on the City Creek Center project are executed because of their
complexity. Until then, costs of these projects, excluding the $54 million initial Macao payment, will continue to be relatively
modest.
Disclosures
regarding planned capital spending, including estimates regarding capital
expenditures, occupancy, and returns on new developments presented below are
forward-looking statements and certain significant factors could cause the
actual results to differ materially, including but not limited to (1) actual
results of negotiations with anchors, tenants, and contractors, (2) timing and
outcome of litigation and entitlement processes, (3) changes in the scope,
number, and valuation of projects, (4) cost overruns, (5) timing of
expenditures, (6) financing considerations, (7) actual time to complete
projects, (8) changes in economic climate, (9) competition from others
attracting tenants and customers, (10) increases in operating costs, (11) timing
of tenant openings, and (12) early lease terminations and
bankruptcies.
New
Centers
We are finalizing a
development agreement regarding City Creek Center, a mixed-use project in Salt
Lake City, Utah. In April 2008, we
received approval for the important pedestrian bridge that links the retail
component and encourages circulation throughout the project. This was a big step
toward final design approval, and the project is now expected to open in spring
2012. The 0.7 million square foot retail component of the project will include
Macy’s and Nordstrom as anchors. We have been a consultant throughout the
planning process for this project and are finalizing agreements to develop,
manage, lease, and own the retail space under a participating lease. When we
have finalized these complex agreements, we will provide the anticipated costs
and returns.
In January 2007, we
acquired land for future development in North Atlanta, Georgia. We are making
progress on the development of this land and an adjoining parcel, which is
currently under our option, as a significant mixed use project. The project
would include about 1.4 million square feet of retail, 900,000 square feet of
office, 875 residential units and 500 hotel rooms. We are working closely with
the department stores in hope of achieving a 2011 opening.
In June 2007, the Supreme Court of the
State of New
York (Suffolk County) affirmed that the Town of Oyster Bay had not provided a basis to deny our
application to build our Oyster Bay project in Syosset, Long Island, New York. In September 2007, the Oyster Bay Town
Board adopted a resolution citing its reasons for denying our application for a
special use permit and submitted it to the Court. We responded with a motion
asking the Court to order the town to issue the permit. We continue to be
confident that it is probable we will prevail and build the mall, which has over
60% of the space committed and will be anchored by Neiman Marcus, Nordstrom, and
Barney’s New
York. Once the litigation
is fully resolved and permits are issued, we are ready to begin construction.
However, if we are ultimately unsuccessful, it is anticipated that the recovery
on this asset would be significantly less than our current investment. Depending
on the timing of the construction and opening of the center, we anticipate
spending as much as $500 million on the project and receiving a 7% minimum
return. Our investment in this project as of March 31, 2008 was $146 million. With
capitalized interest, storage costs, leasing, and other ongoing expenditures, we
expect our investment to increase $4 million to $5 million each quarter. If we were to determine for any period
that sufficient development activities were not underway to permit
capitalization of interest and other carrying costs, these costs, which comprise
the majority of the quarterly spending, would be expensed as
incurred.
See “Results of Operations – Taubman
Asia” regarding the status of our involvement in The Mall at Studio City and Songdo.
Dividends
We pay regular
quarterly dividends to our common and Series G and Series H preferred
shareowners. Dividends to our common shareowners are at the discretion of the
Board of Directors and depend on the cash available to us, our financial
condition, capital and other requirements, and such other factors as the Board
of Directors deems relevant. To qualify as a REIT, we must distribute at least
90% of our REIT taxable income prior to net capital gains to our shareowners, as
well as meet certain other requirements. We must pay these distributions in the
taxable year the income is recognized or in the following taxable year if they
are declared during the last three months of the taxable year, payable to
shareowners of record on a specified date during such period and paid during
January of the following year. Such distributions are treated as paid by us and
received by our shareowners on December 31 of the year in which they are
declared. In addition, at our election, a distribution for a taxable year may be
declared in the following taxable year if it is declared before we timely file
our tax return for such year and if paid on or before the first regular dividend
payment after such declaration. These distributions qualify as dividends paid
for the 90% REIT distribution test for the previous year and are taxable to
holders of our capital stock in the year in which paid. Preferred
dividends accrue regardless of whether earnings, cash availability, or
contractual obligations were to prohibit the current payment of
dividends.
The annual
determination of our common dividends is based on anticipated Funds from
Operations available after preferred dividends and our REIT taxable income, as
well as assessments of annual capital spending, financing considerations, and
other appropriate factors.
Any inability of
the Operating Partnership or its joint ventures to secure financing as required
to fund maturing debts, capital expenditures and changes in working capital,
including development activities and expansions, may require the utilization of
cash to satisfy such obligations, thereby possibly reducing distributions to
partners of the Operating Partnership and funds available to us for the payment
of dividends.
On February 27,
2008 we declared a quarterly dividend of $0.415 per common share that was paid
on April 21, 2008 to shareowners of record on March 31, 2008. The Board of
Directors also declared a quarterly dividend of $0.50 per share on our 8% Series
G Cumulative Redeemable Preferred Stock and a quarterly dividend of $0.4765625
per share on our 7.625% Series H Cumulative Redeemable Preferred Stock, each
paid on March 31, 2008 to shareowners of record on March 20, 2008.
Additional
Information
We provide
supplemental investor information coincident with our earning announcements that
can be found online at www.taubman.com under "Investor
Relations."
The information
required by this item is included in this report at Item 2 under the caption
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources – Sensitivity
Analysis.”
As of the end of
the period covered by this quarterly report, we carried out an evaluation, under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that, as of March 31, 2008, our disclosure controls and procedures were
effective to ensure the information required to be disclosed by us in reports
that we file or submit under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized, and reported within the time periods prescribed
by the SEC, and that such information is accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosure.
There were no
changes in our internal control over financial reporting that occurred during
the quarter ended March 31, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART II
OTHER INFORMATION
Refer to “Note 8 – Commitments and
Contingencies” to our consolidated financial statements relating to the Blue Back Square project. There were no material
developments regarding this litigation during the quarter ended March 31, 2008.
There were no
material changes in our risk factors previously disclosed in Part I, Item 1A. of
our Form 10-K for the year ended December 31, 2007.
4(a)
|
--
|
Loan
Agreement dated January 8, 2008, by and between Tampa Westshore Associates
Limited Partnership and Eurohypo AG, New York Branch, as Administrative
Agent, Joint Lead Arranger and Joint Book Runner and the various lenders
and agents on the signature pages thereto (incorporated herein by
reference to Exhibit 4.1 filed with the Registrant’s Current Report on
Form 8-K dated January 8, 2008).
|
4(b)
|
--
|
Amended and
Restated Leasehold Mortgage, Security Agreement and Financing Statement
dated January 8, 2008, by Tampa Westshore Associates Limited Partnership,
in favor of Eurohypo AG, New York Branch, as Administrative Agent
(incorporated herein by reference to Exhibit 4.2 filed with the
Registrant’s Current Report on Form 8-K dated January 8,
2008).
|
4(c)
|
--
|
Assignment of
Leases and Rents dated January 8, 2008, by Tampa Westshore Associates
Limited Partnership, in favor of Eurohypo AG, New York Branch, as
Administrative Agent (incorporated herein by reference to Exhibit 4.3
filed with the Registrant’s Current Report on Form 8-K dated January 8,
2008).
|
4(d)
|
--
|
Carveout
Guaranty dated January 8, 2008, by The Taubman Realty Group Limited
Partnership to and for the benefit of Eurohypo AG, New York Branch,
as Administrative Agent (incorporated herein by reference to Exhibit 4.4
filed with the Registrant's Current Report on Form 8-K dated January 8,
2008). |
12
|
--
|
Statement Re:
Computation of Taubman Centers, Inc. Ratio of Earnings to Combined Fixed
Charges and Preferred Dividends
|
31(a)
|
--
|
Certification
of Chief Executive Officer pursuant to 15 U.S.C. Section 10A, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
31(b)
|
--
|
Certification
of Chief Financial Officer pursuant to 15 U.S.C. Section 10A, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
32(a)
|
--
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
32(b)
|
--
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
99
|
--
|
Debt Maturity
Schedule
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
TAUBMAN
CENTERS, INC.
|
Date: April
30, 2008
|
By: /s/ Lisa A. Payne
|
|
Lisa A.
Payne
|
|
Vice
Chairman, Chief Financial Officer, and Director (Principal Financial
Officer)
|