form10k08.htm
UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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WASHINGTON,
D.C. 20549
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FORM
10-K
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2008.
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from ___________________ to
_________________
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Commission
File Number 1-11530
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TAUBMAN
CENTERS, INC.
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(Exact
Name of Registrant as Specified in Its Charter)
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Michigan
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38-2033632
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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200
East Long Lake Road, Suite 300
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Bloomfield
Hills, Michigan
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48304-2324
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(Address
of principal executive office)
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(Zip
Code)
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Registrant's
telephone number, including area code:
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(248)
258-6800
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Securities
registered pursuant to Section 12(b) of the Act:
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Name
of each exchange
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Title of each
class
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on which
registered
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Common
Stock,
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New
York Stock Exchange
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$0.01
Par Value
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8%
Series G Cumulative
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New
York Stock Exchange
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Redeemable
Preferred Stock,
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No
Par Value
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7.625%
Series H Cumulative
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New
York Stock Exchange
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Redeemable
Preferred Stock,
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No
Par Value
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Securities
registered pursuant to Section 12(g) of the
Act: None
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. x Yes o No
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Indicate
by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act. o Yes x No
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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. x Yes o No
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Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o
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Indicate
by 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):
Large
Accelerated Filer x Accelerated
Filer o Non-Accelerated
Filer o Smaller
reporting company o
(Do
not check if a smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). o Yes x No
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The
aggregate market value of the 51,850,290 shares of Common Stock held by
non-affiliates of the registrant as of June 30, 2008 was $2.5 billion,
based upon the closing price $48.65 per share on the New York Stock
Exchange composite tape on June 30, 2008. (For this computation, the
registrant has excluded the market value of all shares of its Common Stock
held by directors of the registrant and certain other shareholders; such
exclusion shall not be deemed to constitute an admission that any such
person is an "affiliate" of the registrant.) As of February 23,
2009, there were outstanding 53,044,236 shares of Common
Stock.
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DOCUMENTS
INCORPORATED BY REFERENCE
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Portions
of the proxy statement for the annual shareholders meeting to be held in
2009 are incorporated by reference into Part
III.
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TAUBMAN
CENTERS, INC.
PART
I
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PART
II
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PART
III
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PART
IV
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PART
I
The
following discussion of our business 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. 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 this Annual Report on Form 10-K.
The
Company
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,
lease, develop, acquire, dispose of, and operate regional and super-regional
shopping centers. Our portfolio as of December 31, 2008 included 23 urban and
suburban shopping centers in ten states. The Consolidated Businesses consist of
shopping centers and entities that are controlled by ownership or contractual
agreements, The Taubman Company LLC (Manager), and Taubman Properties Asia LLC
and its subsidiaries (Taubman Asia). See the table on pages 16 and 17 of this
report for information regarding the centers.
Taubman
Asia, which is the platform for our expansion into the Asia-Pacific region, is
headquartered in Hong Kong.
We operate
as a REIT under the Internal Revenue Code of 1986, as amended (the Code).
In order to satisfy the provisions of the Code applicable to REITs, we must
distribute to our shareowners at least 90% of our REIT taxable income prior to
net capital gains and meet certain other requirements. The Operating
Partnership's partnership agreement provides that the Operating Partnership will
distribute, at a minimum, sufficient amounts to its partners such that our pro
rata share will enable us to pay shareowner dividends (including capital gains
dividends that may be required upon the Operating Partnership's sale of an
asset) that will satisfy the REIT provisions of the Code.
Recent
Developments
For a
discussion of business developments that occurred in 2008, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations
(MD&A)."
The
Shopping Center Business
There are
several types of retail shopping centers, varying primarily by size and
marketing strategy. Retail shopping centers range from neighborhood centers of
less than 100,000 square feet of GLA to regional and super-regional shopping
centers. Retail shopping centers in excess of 400,000 square feet of GLA are
generally referred to as "regional" shopping centers, while those centers having
in excess of 800,000 square feet of GLA are generally referred to as
"super-regional" shopping centers. In this annual report on Form 10-K, the term
"regional shopping centers" refers to both regional and super-regional shopping
centers. The term "GLA" refers to gross retail space, including anchors and mall
tenant areas, and the term "Mall GLA" refers to gross retail space, excluding
anchors. The term "anchor" refers to a department store or other large retail
store. The term "mall tenants" refers to stores (other than anchors) that lease
space in shopping centers.
Business
of the Company
We are
engaged in the ownership, management, leasing, acquisition, disposition,
development, and expansion of regional shopping centers.
The
centers:
·
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are
strategically located in major metropolitan areas, many in communities
that are among the most affluent in the country, including Atlantic City,
Charlotte, Dallas, Denver, Detroit, Los Angeles, Miami, New York City,
Orlando, Phoenix, San Francisco, Tampa, and Washington,
D.C.;
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·
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range
in size between 282,000 and 1.6 million square feet of GLA and between
197,000 and 636,000 square feet of Mall GLA. The smallest center has
approximately 60 stores, and the largest has over 200 stores. Of the
23 centers, 18 are super-regional shopping
centers;
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·
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have
approximately 3,000 stores operated by their mall tenants under
approximately 900 trade names;
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·
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have
68 anchors, operating under 15 trade
names;
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·
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lease
over 90% of Mall GLA to national chains, including subsidiaries or
divisions of The Gap (Gap, Gap Kids/Baby Gap, Banana Republic, Old Navy,
and others), Forever 21 (Forever 21, For Love 21, XXI Forever, and
others), and Limited Brands (Bath & Body Works/White Barn Candle,
Pink, Victoria's Secret, and others);
and
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·
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are
among the most productive (measured by mall tenants' average sales per
square foot) in the United States. In 2008, mall tenants reported average
sales per square foot of $539, which is higher than the average for all
regional shopping centers owned by public
companies.
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The most
important factor affecting the revenues generated by the centers is leasing to
mall tenants (including temporary tenants and specialty retailers), which
represents approximately 90% of revenues. Anchors account for less than 10% of
revenues because many own their stores and, in general, those that lease their
stores do so at rates substantially lower than those in effect for mall
tenants.
Our
portfolio is concentrated in highly productive super-regional shopping centers.
Of our 23 centers, 21 had annual rent rolls at December 31, 2008 of over $10
million. We believe that this level of productivity is indicative of the
centers' strong competitive positions and is, in significant part, attributable
to our business strategy and philosophy. We believe that large shopping centers
(including regional and especially super-regional shopping centers) are the
least susceptible to direct competition because (among other reasons) anchors
and large specialty retail stores do not find it economically attractive to open
additional stores in the immediate vicinity of an existing location for fear of
competing with themselves. In addition to the advantage of size, we believe that
the centers' success can be attributed in part to their other physical
characteristics, such as design, layout, and amenities.
Business Strategy And
Philosophy
We
believe that the regional shopping center business is not simply a real estate
development business, but rather an operating business in which a retailing
approach to the on-going management and leasing of the centers is essential.
Thus we:
·
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offer
retailers a location where they can maximize their
profitability;
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·
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offer
a large, diverse selection of retail stores in each center to give
customers a broad selection of consumer goods and variety of price
ranges;
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·
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endeavor
to increase overall mall tenants' sales by leasing space to a constantly
changing mix of tenants, thereby increasing achievable
rents;
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·
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seek
to anticipate trends in the retailing industry and emphasize ongoing
introductions of new retail concepts into our centers. Due in part to this
strategy, a number of successful retail trade names have opened their
first mall stores in the centers. In addition, we have brought to the
centers "new to the market" retailers. We believe that the execution of
this leasing strategy is an important element in building and maintaining
customer loyalty and increasing mall productivity;
and
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·
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provide
innovative initiatives that utilize technology and the Internet to
heighten the shopping experience, build customer loyalty and increase
tenant sales. Our Taubman center website program connects shoppers and
retailers through an interactive content-driven website. We also offer our
shoppers a robust direct email program, which allows them to receive, each
week, information featuring what’s on sale and what’s new at the stores
they select.
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The
centers compete for retail consumer spending through diverse, in-depth
presentations of predominantly fashion merchandise in an environment intended to
facilitate customer shopping. While the majority of our centers include stores
that target high-end, upscale customers, each center is individually
merchandised in light of the demographics of its potential customers within
convenient driving distance.
Our
leasing strategy involves assembling a diverse mix of mall tenants in each of
the centers in order to attract customers, thereby generating higher sales by
mall tenants. High sales by mall tenants make the centers attractive to
prospective tenants, thereby increasing the rental rates that prospective
tenants are willing to pay. We implement an active leasing strategy to increase
the centers' productivity and to set minimum rents at higher levels. Elements of
this strategy include renegotiating existing leases and not leasing space to
prospective tenants that (though viable or attractive in certain ways) would not
enhance a center's retail mix.
In 2005,
we began a new leasing strategy to have our tenants pay a fixed charge rather
than pay their share of common area maintenance (CAM) costs, allowing the
retailer greater predictability for a modest premium. From a financial
perspective, our analysis shows the premium will balance our additional risk.
Over time there will be significantly less matching of CAM income with CAM
expenditures, which can vary considerably from period to period. Approximately
32% of leases in our portfolio as of December 31, 2008 have fixed CAM
provisions.
Potential For
Growth
Our
principal objective is to enhance shareowner value. We seek to maximize the
financial results of our core assets, while also pursuing a growth strategy that
primarily has included an active new center development program. However, the
current recession and difficult capital markets have severely impacted certain
of our planned development projects and the potential, in the short term, for
new projects. We have reduced and or eliminated spending on development projects
by slowing down or by putting projects on hold both in the U.S. and Asia.
Consistent with this reduction, in January 2009, we went through the process of
downsizing our organization, reducing our overall workforce by about 40
positions. See “MD&A – Results of Operations – Subsequent Event” for further
information. This primarily impacted the areas that directly or indirectly
support these development initiatives. We believe the company is now right sized
to efficiently pursue targeted growth opportunities in this environment, while
ensuring we have sufficient support within all of our teams to maintain the
strength of our core assets. Although we expect lower revenues and occupancy in
2009, we have a strong balance sheet and no debt maturities until fall 2010. We
do not know when the economic downturn will end, but we believe the regional
mall business will continue to prove its resiliency and its unique value
proposition to the customer. See “MD&A – Results of Operations – Overall
Summary of Management’s Discussion and Analysis of Financial Condition and
Results of Operations” for more details.
Internal
Growth
We expect
that over time the majority of our future growth will come from our existing
core portfolio and business. We have always had a culture of intensively
managing our assets and maximizing the rents from tenants.
As noted
in “Business Strategy and Philosophy” above in detail, our core business
strategy is to maintain a portfolio of properties that deliver above-market
profitable growth by providing targeted retailers with the best opportunity to
do business in each market and targeted shoppers with the best local shopping
experience for their needs.
New
Centers
We have
finalized the majority of the agreements, subject to certain conditions,
regarding City Creek Center, a mixed-use project in Salt Lake City, Utah and
continue to work toward a 2012 opening. In January 2009, we received an
unfavorable ruling from the Appellate Division of the Supreme Court of the State
of New York (Suffolk County) in relation to our Oyster Bay project in Syosset,
Long Island, New York, which we expect will significantly delay the project. Due
to the current economic and retail environment, in December 2008 we announced
that our University Town Center project in Sarasota, Florida has been put on
hold. Although we continue to believe it should be a very attractive opportunity
longer term, we do not know if or when we will acquire an interest in the land
and move forward with the project. In 2008, we recognized impairment charges
related to the Oyster Bay and Sarasota projects. Although we have reduced our
planned predevelopment activities for 2009, we continue to work on and evaluate
various development possibilities for new centers both in the United States and
Asia.
See “MD&A – Results of Operations – Taubman Asia” regarding information on
the Songdo and Macao projects, “MD&A – Liquidity and Capital Resources –
Capital Spending” regarding additional information on City Creek Center, and
“MD&A – Results of Operations – Impairment Charges” regarding additional
information on the impairment charges related to the Oyster Bay and Sarasota
projects.
We
generally do not intend to acquire land early in the development process.
Instead, we generally acquire options on land or form partnerships with
landowners holding potentially attractive development sites. We typically
exercise the options only once we are prepared to begin construction. The
pre-construction phase for a regional center typically extends over several
years and the time to obtain anchor commitments, zoning and regulatory
approvals, and public financing arrangements can vary significantly from project
to project. In addition, we do not intend to begin construction until a
sufficient number of anchor stores have agreed to operate in the shopping
center, such that we are confident that the projected tenant sales and rents
from Mall GLA are sufficient to earn a return on invested capital in excess of
our cost of capital. Having historically followed these principles, our
experience indicates that, on average, less than 10% of the costs of the
development of a regional shopping center will be incurred prior to the
construction period. However, no assurance can be given that we will continue to
be able to so limit pre-construction costs.
While we
will continue to evaluate development projects using criteria, including
financial criteria for rates of return, similar to those employed in the past,
no assurances can be given that the adherence to these criteria will produce
comparable results in the future. In addition, the costs of shopping center
development opportunities that are explored but ultimately abandoned will, to
some extent, diminish the overall return on development projects taken as a
whole. See "MD&A – Liquidity and Capital Resources – Capital Spending" for
further discussion of our development activities.
Strategic
Acquisitions
Given the
current economic conditions there may be opportunities to acquire existing
centers, or interests in existing centers, from other companies at attractive
prices. Our objective is to acquire existing centers only when they are
compatible with the quality of our portfolio (or can be redeveloped to that
level). We also may acquire additional interests in centers currently in our
portfolio. We plan to carefully evaluate our future capital needs along with our
strategic plans and pricing requirements.
Expansions
of the Centers
Another
potential element of growth over time is the strategic expansion of existing
properties to update and enhance their market positions, by replacing or adding
new anchor stores or increasing mall tenant space. Most of the centers have been
designed to accommodate expansions. Expansion projects can be as significant as
new shopping center construction in terms of scope and cost, requiring
governmental and existing anchor store approvals, design and engineering
activities, including rerouting utilities, providing additional parking areas or
decking, acquiring additional land, and relocating anchors and mall tenants (all
of which must take place with a minimum of disruption to existing tenants and
customers).
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 2008, Macy’s renovated its store and added 60,000 square
feet of store space.
A
lifestyle component addition to Stamford Town Center (Stamford), on the site
once occupied by Filene’s Department store, opened in November 2007. The project
consists of a mix of signature retail and restaurant offerings, creating
significantly greater visibility to the city and much needed pedestrian access
to the center. In addition, we renovated the seventh level in 2007, adding a
450-seat food court and interactive children’s play area. The food court tenants
opened in early 2008.
Construction
was completed on an expansion and renovation of tenant space at Waterside Shops
(Waterside) in 2006. In addition, Nordstrom joined the center as an anchor in
November 2008 and an expansion and full renovation of the current anchor, Saks
Fifth Avenue, was completed in the second half of 2008.
See
“MD&A – Results of Operations – Openings, Expansions and Renovations, and
Acquisitions” for information regarding recent development, acquisition, and
expansion and renovation activities that have been completed.
Third-Party Management,
Leasing, and Development Services
We have
several current and potential projects in the United States and Asia that
contribute or may contribute in the future to our third-party revenue
results.
We 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. We also have an agreement for retail leasing and
development and design advisory services for CityCenter, a mixed use urban
development project scheduled to open in late 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 have
also entered into agreements to provide services related to projects in Asia.
See “MD&A – Results of Operations – Taubman Asia” for more information. Also
see “Risk Factors” regarding risks related to our international
activities.
In
addition, we have finalized the majority of agreements, subject to certain
conditions, regarding City Creek Center, a mixed-use project in Salt Lake City,
Utah. Under the agreements, we would provide development, leasing, and
management services and be an investor in this project under a participating
lease structure. The center is expected to open in 2012.
The
actual amounts of revenue in any future period are difficult to predict because
of many factors, including the timing of completion of contractual arrangements
and the actual timing of construction starts and opening dates of the various
projects. In light of the current capital markets, the timing of construction
starts may be delayed until the completion of financing. In addition, the amount
of revenue we recognize is reduced by any ownership interest we may have in a
project. Also, there are various factors that determine the timing of
recognition of revenue. 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.
Rental
Rates
As leases
have expired in the 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. Generally, center revenues have
increased as older leases rolled over or were terminated early and replaced with
new leases negotiated at current rental rates that were usually higher than the
average rates for existing leases. In periods of increasing sales, rents on new
leases will generally tend to rise. In periods of slower growth or declining
sales, as we are experiencing now, rents on new leases will grow more slowly or
will decline for the opposite reason, as tenants' expectations of future growth
become less optimistic.
The
following tables contain certain information regarding per square foot minimum
rent in our Consolidated Businesses and Unconsolidated Joint Ventures at the
comparable centers (centers that had been owned and open for the current and
preceding year):
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2008
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2007
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2006
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2005
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2004
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Average
rent per square foot:
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Consolidated
Businesses
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$ |
44.58 |
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$ |
43.39 |
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$ |
42.77 |
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$ |
41.41 |
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$ |
40.98 |
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Unconsolidated Joint
Ventures
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44.60 |
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41.89 |
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41.03 |
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42.28 |
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42.09 |
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Opening
base rent per square foot:
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Consolidated
Businesses
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$ |
53.74 |
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$ |
53.35 |
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$ |
41.25 |
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$ |
42.38 |
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$ |
44.35 |
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Unconsolidated Joint
Ventures
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55.26 |
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|
48.05 |
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|
42.98 |
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44.90 |
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44.67 |
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Square
feet of GLA opened:
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Consolidated
Businesses
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659,681 |
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885,982 |
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1,007,419 |
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682,305 |
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688,020 |
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Unconsolidated Joint
Ventures
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439,820 |
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394,316 |
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306,461 |
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400,477 |
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337,679 |
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Closing
base rent per square foot:
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Consolidated
Businesses
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$ |
46.22 |
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$ |
45.39 |
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$ |
39.57 |
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$ |
40.59 |
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$ |
44.54 |
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Unconsolidated Joint
Ventures
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47.99 |
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48.63 |
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42.49 |
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44.26 |
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51.40 |
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Square
feet of GLA closed:
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|
|
|
|
|
|
|
|
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|
|
|
|
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|
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Consolidated
Businesses
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735,550 |
|
|
|
807,899 |
|
|
|
911,986 |
|
|
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650,701 |
|
|
|
499,098 |
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Unconsolidated Joint
Ventures
|
|
|
434,432 |
|
|
|
345,122 |
|
|
|
246,704 |
|
|
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366,932 |
|
|
|
280,393 |
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Releasing
spread per square foot:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Consolidated
Businesses
|
|
$ |
7.52 |
|
|
$ |
7.96 |
|
|
$ |
1.68 |
|
|
$ |
1.79 |
|
|
$ |
(0.19 |
) |
Unconsolidated Joint
Ventures
|
|
|
7.27 |
|
|
|
(0.58 |
) |
|
|
0.49 |
|
|
|
0.64 |
|
|
|
(6.73 |
) |
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.
Openings in 2008 and 2007 were generally negotiated in a rising sales
environment. Although the releasing spread per square foot of the Unconsolidated
Joint Ventures in 2007 was adversely impacted by the opening of large tenant
spaces. Rents on stores opening in 2004 were generally negotiated in a
decreasing sales environment.
Lease
Expirations
The
following table shows scheduled lease expirations for mall tenants based on
information available as of December 31, 2008 for the next ten years for all
owned centers in operation at that date:
Lease
Expiration Year
|
|
Number
of
Leases Expiring
|
Leased
Area in
Square
Footage
|
Annualized
Base Rent Under Expiring Leases
(in thousands of
dollars)
|
Annualized
Base Rent Under
Expiring
Leases
Per Square
Foot
|
Percent
of
Total
Leased Square Footage Represented by
Expiring
Leases
|
2009
|
(1) |
161
|
412,955
|
15,037
|
$36.41
|
3.5
|
%
|
2010
|
|
242
|
653,961
|
26,501
|
40.52
|
5.5
|
|
2011
|
|
428
|
1,362,876
|
51,948
|
38.12
|
11.5
|
|
2012
|
|
325
|
1,312,034
|
52,457
|
39.98
|
11.1
|
|
2013
|
|
324
|
1,381,436
|
49,797
|
36.05
|
11.7
|
|
2014
|
|
246
|
925,887
|
34,998
|
37.80
|
7.8
|
|
2015
|
|
269
|
1,002,619
|
38,658
|
38.56
|
8.5
|
|
2016
|
|
297
|
1,052,897
|
41,275
|
39.20
|
8.9
|
|
2017
|
|
338
|
1,357,747
|
59,403
|
43.75
|
11.5
|
|
2018
|
|
226
|
1,014,672
|
46,427
|
45.76
|
8.6
|
|
(1)
|
Excludes
leases that expire in 2009 for which renewal leases or leases with
replacement tenants have been executed as of December 31, 2008, except for
Arizona Mills, which is not managed by
us.
|
We
believe that the information in the table is not necessarily indicative of what
will occur in the future because of several factors, but principally because of
early lease terminations at the centers. For example, the average remaining term
of the leases that were terminated during the period 2003 to 2008 was
approximately two years. The average term of leases signed during 2008 and 2007
was approximately seven years.
In
addition, mall tenants at the centers may seek the protection of the bankruptcy
laws, which could result in the termination of such tenants' leases and thus
cause a reduction in cash flow. In 2008, tenants representing 2.5% of leases
filed for bankruptcy during this period compared to 0.5% in 2007. In 2009,
indicators point toward a higher level of bankruptcies due to the current
economic environment. This statistic has ranged from 0.4% to 4.5% since we went
public in 1992. Since 1991, the annual provision for losses on accounts
receivable has been less than 2% of annual revenues.
Occupancy
Occupancy
statistics include value center anchors. The 2008 and 2007 statistics for
comparable centers exclude The Mall at Partridge Creek (Partridge Creek), which
opened in October 2007, and The Pier Shops at Caesars (The Pier Shops) which
began opening in phases in June 2006. Additionally, 2006, 2005, and 2004 also
exclude Waterside, which was renovated and expanded in 2006, Northlake Mall,
which opened in 2005 and Woodland, which was sold in 2005.
|
2008
|
2007
|
2006
|
2005
|
2004
|
All
Centers:
|
|
|
|
|
|
Leased space
|
91.7%
|
93.8%
|
92.5%
|
91.7%
|
90.7%
|
Ending occupancy
|
90.3
|
91.2
|
91.3
|
90.0
|
89.6
|
Average occupancy
|
90.3
|
90.0
|
89.2
|
88.9
|
87.4
|
|
|
|
|
|
|
Comparable
Centers:
|
|
|
|
|
|
Leased space
|
91.8%
|
93.8%
|
92.4%
|
91.5%
|
90.7%
|
Ending occupancy
|
90.3
|
91.5
|
91.3
|
90.2
|
89.6
|
Average occupancy
|
90.4
|
90.3
|
89.1
|
89.1
|
87.4
|
Major
Tenants
No single
retail company represents 10% or more of our Mall GLA or revenues. The combined
operations of The Gap, Inc. accounted for less than 4% of Mall GLA as of
December 31, 2008 and less than 4% of 2008 minimum rent. No other single retail
company accounted for more than 3.5% of Mall GLA as of December 31, 2008 or 3%
of 2008 minimum rent.
The
following table shows the ten mall tenants who occupy the most space at
our centers and their square footage as of December 31,
2008:
Tenant
|
#
of
Stores
|
Square
Footage
|
%
of
Mall
GLA
|
The
Gap (Gap, Gap Kids/Baby Gap, Banana Republic, Old Navy, and
others)
|
46
|
387,628
|
3.5%
|
Forever
21 (Forever 21, For Love 21, XXI Forever, and others)
|
31
|
351,443
|
3.2
|
Limited
Brands (Bath & Body Works/White Barn Candle, Pink, Victoria's Secret,
and others)
|
43
|
278,190
|
2.5
|
Abercrombie
& Fitch (Abercrombie, Abercrombie & Fitch, Hollister, Ruehl and
others)
|
38
|
277,963
|
2.5
|
Foot
Locker (Foot Locker, Lady Foot Locker, Champs Sports, Foot Action USA, and
others)
|
46
|
208,572
|
1.9
|
Ann
Taylor (Ann Taylor, Ann Taylor Loft)
|
34
|
196,249
|
1.8
|
Williams-Sonoma
(Williams-Sonoma, Pottery Barn, Pottery Barn Kids)
|
25
|
190,081
|
1.7
|
Talbots
(Talbots, J. Jill, Talbots Woman, Talbots Petites)
|
31
|
178,725
|
1.6
|
H&M
|
10
|
175,351
|
1.6
|
Express
(Express, Express Men)
|
19
|
171,230
|
1.6
|
Competition
There are
numerous shopping facilities that compete with our properties in attracting
retailers to lease space. We
compete with other major real estate investors with significant capital for
attractive investment opportunities. See “Risk Factors” for further
details of our competitive business.
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 period. See “MD&A– Seasonality”
for further discussion.
Environmental
Matters
See “Risk
Factors” regarding discussion of environmental matters.
Personnel
We have
engaged the Manager to provide real estate management, acquisition, development,
leasing, and administrative services required by us and our properties in the
United States. Taubman Asia Management Limited (TAM) provides similar services
for Taubman Asia.
As of
December 31, 2008, the Manager and TAM had 611 full-time employees. The
following table provides a breakdown of employees by operational areas as of
December 31, 2008:
|
Number of Employees
|
Center
Operations
|
228
|
Property
Management
|
154
|
Financial
Services
|
69
|
Leasing
and Tenant Coordination
|
62
|
Development
|
31
|
Other
|
67
|
Total
|
611
|
In
January 2009, in response to a decreased level of active projects due to the
downturn in the economy, we reduced our workforce by about 40 positions,
primarily in areas that directly or indirectly affect our development
initiatives in the U.S. and Asia. See “MD&A – Results of
Operations –
Subsequent Event” for further information.
The
Company makes available free of charge through its website at www.taubman.com all
reports it electronically files with, or furnishes to, the Securities Exchange
Commission (the “SEC”), including its Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any amendments
to those reports, as soon as reasonably practicable after those documents are
filed with, or furnished to, the SEC. These filings are also accessible on the
SEC’s website at www.sec.gov.
The
economic performance and value of our shopping centers are dependent on many
factors.
The
economic performance and value of our shopping centers are dependent on various
factors. Additionally, these same factors will influence our decision whether to
go forward on the development of new centers and may affect the ultimate
economic performance and value of projects under construction. Adverse changes
in the economic performance and value of our shopping centers would adversely
affect our income and cash available to pay dividends.
Such
factors include:
·
|
changes
in the national, regional, and/or local economic and geopolitical
climates, which as in the current severe economic environment, may
significantly impact our anchors, tenants and prospective customers of our
shopping centers;
|
·
|
changes
in sales performance of our centers, which over the long term, are the
single most important determinant of revenues of the shopping centers
because mall tenants provide approximately 90% of these revenues and
because mall tenant sales determine the amount of rent, percentage rent,
and recoverable expenses that mall tenants can afford to
pay;
|
·
|
availability
and cost of financing, which may significantly reduce our ability to
obtain financing or refinance existing debt at current amounts or rates or
may affect our ability to finance improvements to a
property;
|
·
|
decreases
in other operating income, including sponsorship, garage and other
income;
|
·
|
increases
in operating costs;
|
·
|
the
public perception of the safety of customers at our shopping
centers;
|
·
|
changes
in government regulations; and
|
·
|
changes
in real estate zoning and tax laws.
|
In
addition, the value and performance of our shopping centers may be adversely
affected by certain other factors discussed below including the recent global
economic and financial market crisis, the current state of the capital markets,
unscheduled closings or bankruptcies of our tenants, competition, uninsured
losses, and environmental liabilities.
The
recent global economic and financial market crisis has had and may continue to
have a negative effect on our business and operations.
The
recent global economic and financial market crisis has caused, among other
things, a significant tightening in the credit markets, lower levels of
liquidity, increases in the rates of default and bankruptcy, lower consumer and
business spending, and lower consumer confidence and net worth, all of which has
had and may continue to have a negative effect on our business, results of
operations, financial condition and liquidity. Many of our tenants have been
affected by the current economic turmoil. We expect that the economy will
continue to strain the resources of our tenants and their customers. The timing
and nature of any recovery in the credit and financial markets remains
uncertain, and there can be no assurance that market conditions will improve in
the near future or that our results will not continue to be adversely affected.
Such conditions make it very difficult to forecast operating results, make
business decisions and identify and address material business risks. The
foregoing conditions may also impact the valuation of certain long-lived or
intangible assets that are subject to impairment testing, potentially resulting
in impairment charges, which may be material to our financial condition or
results of operations. In 2008, we recognized an impairment charge of
$8.3 million related to our Sarasota project, which was put on hold due to
the current economic and retail environment (see “MD&A – Results of
Operations – Impairment Charges”).
Capital
markets are currently experiencing a period of disruption and instability, which
has had and could continue to have a negative impact on the availability and
cost of capital.
The
general disruption in the U.S. capital markets has impacted the broader
worldwide financial and credit markets and reduced the availability of debt and
equity capital for the market as a whole. These global conditions could persist
for a prolonged period of time or worsen in the future. Our ability to access
the capital markets may be restricted at a time when we would like, or need, to
access those markets, which could have an impact on our flexibility to react to
changing economic and business conditions. The resulting lack of available
credit, lack of confidence in the financial sector, increased volatility in the
financial markets and reduced business activity could materially and adversely
affect our business, financial condition, results of operations and our ability
to obtain and manage our liquidity. In addition, the cost of debt financing and
the proceeds of equity financing may be materially adversely impacted by these
market conditions.
Credit
market developments may reduce availability under our credit
agreements.
Due to
the current volatile state of the credit markets, there is risk that lenders,
even those with strong balance sheets and sound lending practices, could fail or
refuse to honor their legal commitments and obligations under existing credit
commitments, including but not limited to: extending credit up to the maximum
permitted by a credit facility and/or honoring loan commitments. Twelve banks
participate in our $550 million line of credit and the failure of one bank to
fund a draw on our line does not negate the obligation of the other banks to
fund their pro-rata share. In October 2008 we borrowed $35 million on this
credit facility, which was funded by all participating banks. However, if our
lenders fail to honor their legal commitments under our credit facilities, it
could be difficult in the current environment to replace our credit facilities
on similar terms. Although we believe that our operating cash flow, access to
capital markets, two unencumbered center properties and existing credit
facilities will give us the ability to satisfy our liquidity needs at least
until fall 2010, when our $264 million beneficial share of three loans mature,
the failure of the lenders under our credit facilities may impact our ability to
finance our operating or investing activities.
We
are in a competitive business.
There are
numerous shopping facilities that compete with our properties in attracting
retailers to lease space. In addition, retailers at our properties face
continued competition from discount shopping centers, lifestyle centers, outlet
malls, wholesale and discount shopping clubs, direct mail, telemarketing,
television shopping networks and shopping via the Internet. Competition of this
type could adversely affect our revenues and cash available for distribution to
shareowners.
We
compete with other major real estate investors with significant capital for
attractive investment opportunities. These competitors include other REITs,
investment banking firms and private institutional investors. This competition
may impair our ability to make suitable property acquisitions on favorable terms
in the future.
The
bankruptcy or early termination of our tenants and anchors could adversely
affect us.
We could
be adversely affected by the bankruptcy or early termination of tenants and
anchors. The bankruptcy of a mall tenant could result in the termination of its
lease, which would lower the amount of cash generated by that mall. In addition,
if a department store operating as an anchor at one of our shopping centers were
to go into bankruptcy and cease operating, we may experience difficulty and
delay in replacing the anchor. In addition, the anchor’s closing may lead to
reduced customer traffic and lower mall tenant sales. As a result, we may also
experience difficulty or delay in leasing spaces in areas adjacent to the vacant
anchor space. The early termination of mall tenants or anchors for reasons other
than bankruptcy could have a similar impact on the operations of our
centers.
The
bankruptcy of our joint venture partners could adversely affect us.
The
profitability of shopping centers held in a joint venture could also be
adversely affected by the bankruptcy of one of the joint venture partners if,
because of certain provisions of the bankruptcy laws, we were unable to make
important decisions in a timely fashion or became subject to additional
liabilities.
Our
investments are subject to credit and market risk.
We
occasionally extend credit to third parties in connection with the sale of land
or other transactions. We have occasionally made investments in marketable and
other equity securities. We are exposed to risk in the event the values of our
investments and/or our loans decrease due to overall market conditions, business
failure, and/or other nonperformance by the investees or
counterparties.
Our
real estate investments are relatively illiquid.
We may be
limited in our ability to vary our portfolio in response to changes in economic,
market, or other conditions by restrictions on transfer imposed by our partners
or lenders. In addition, under TRG’s partnership agreement, upon the sale of a
center or TRG’s interest in a center, TRG may be required to distribute to its
partners all of the cash proceeds received by TRG from such sale. If TRG made
such a distribution, the sale proceeds would not be available to finance TRG’s
activities, and the sale of a center may result in a decrease in funds generated
by continuing operations and in distributions to TRG’s partners, including
us.
We
may acquire or develop new properties, and these activities are subject to
various risks.
We
actively pursue development and acquisition activities as opportunities arise,
and these activities are subject to the following risks:
·
|
the
pre-construction phase for a regional center typically extends over
several years, and the time to obtain anchor commitments, zoning and
regulatory approvals, and public financing can vary significantly from
project to project;
|
·
|
we
may not be able to obtain the necessary zoning or other governmental
approvals for a project, or we may determine that the expected return on a
project is not sufficient; if we abandon our development activities with
respect to a particular project, we may incur a loss on our
investment;
|
·
|
construction
and other project costs may exceed our original estimates because of
increases in material and labor costs, delays and costs to obtain anchor
and tenant commitments;
|
·
|
we
may not be able to obtain financing or to refinance construction loans,
which are generally recourse to TRG;
and
|
·
|
occupancy
rates and rents, as well as occupancy costs and expenses, at a completed
project may not meet our projections, and the costs of development
activities that we explore but ultimately abandon will, to some extent,
diminish the overall return on our completed development
projects.
|
We are
engaged in development and service activities in Macao and South Korea and are
evaluating other investment opportunities in international markets. These
activities are subject to risks that may reduce our financial return. In
addition to the general risks related to development and acquisition activities
described in the preceding section, our international activities are subject to
unique risks, including:
·
|
adverse
effects of changes in exchange rates for foreign
currencies;
|
·
|
changes
in foreign political environments;
|
·
|
difficulties
of complying with a wide variety of foreign laws including laws affecting
corporate governance, operations, taxes, and
litigation;
|
·
|
changes
in and/or difficulties in complying with applicable laws and regulations
in the United States that affect foreign operations, including the Foreign
Corrupt Practices Act;
|
·
|
difficulties
in managing international operations, including difficulties that arise
from ambiguities in contracts written in foreign languages;
and
|
·
|
obstacles
to the repatriation of earnings and
cash.
|
Although
our international activities are currently limited in their scope, to the extent
that we expand them, these risks could increase in significance and adversely
affect our financial returns on international projects and services and overall
financial condition. We have put in place policies, practices, and systems for
mitigating some of these international risks, although we cannot provide
assurance that we will be entirely successful in doing so.
Some
of our potential losses may not be covered by insurance.
We carry
liability, fire, flood, earthquake, extended coverage and rental loss insurance
on each of our properties. We believe the policy specifications and insured
limits of these policies are adequate and appropriate. There are, however, some
types of losses, including lease and other contract claims, that generally are
not insured. If an uninsured loss or a loss in excess of insured limits occurs,
we could lose all or a portion of the capital we have invested in a property, as
well as the anticipated future revenue from the property. If this happens, we
might nevertheless remain obligated for any mortgage debt or other financial
obligations related to the property.
In
November 2002, Congress passed the “Terrorism Risk Insurance Act of 2002”
(TRIA), which required insurance companies to offer terrorism coverage to all
existing insured companies for an additional cost. As a result, our property
insurance policies are currently provided without a sub-limit for terrorism,
eliminating the need for separate terrorism insurance policies.
In 2007,
Congress extended the expiration date of TRIA by seven years to December 31,
2014. There are specific provisions in our loans that address terrorism
insurance. Simply stated, in most loans, we are obligated to maintain terrorism
insurance, but there are limits on the amounts we are required to spend to
obtain such coverage. If a terrorist event occurs, the cost of terrorism
insurance coverage would be likely to increase, which could result in our having
less coverage than we have currently. Our inability to obtain such coverage or
to do so only at greatly increased costs may also negatively impact the
availability and cost of future financings.
We
may be subject to liabilities for environmental matters.
All of
the centers presently owned by us (not including option interests in certain
pre-development projects) have been subject to environmental assessments. We are
not aware of any environmental liability relating to the centers or any other
property in which we have or had an interest (whether as an owner or operator)
that we believe would have a material adverse effect on our business, assets, or
results of operations. No assurances can be given, however, that all
environmental liabilities have been identified by us or that no prior owner or
operator, or any occupant of our properties has created an environmental
condition not known to us. Moreover, no assurances can be given that (1) future
laws, ordinances, or regulations will not impose any material environmental
liability or that (2) the current environmental condition of the centers will
not be affected by tenants and occupants of the centers, by the condition of
properties in the vicinity of the centers (such as the presence of underground
storage tanks), or by third parties unrelated to us.
We
hold investments in joint ventures in which we do not control all decisions, and
we may have conflicts of interest with our joint venture partners.
Some of
our shopping centers are partially owned by non-affiliated partners through
joint venture arrangements. As a result, we do not control all decisions
regarding those shopping centers and may be required to take actions that are in
the interest of the joint venture partners but not our best interests.
Accordingly, we may not be able to favorably resolve any issues that arise with
respect to such decisions, or we may have to provide financial or other
inducements to our joint venture partners to obtain such
resolution.
For joint
ventures that we do not manage, we do not control decisions as to the design or
operation of internal controls over accounting and financial reporting,
including those relating to maintenance of accounting records, authorization of
receipts and disbursements, selection and application of accounting policies,
reviews of period-end financial reporting, and safeguarding of assets.
Therefore, we are exposed to increased risk that such controls may not be
designed or operating effectively, which could ultimately affect the accuracy of
financial information related to these joint ventures as prepared by our joint
venture partners.
Various
restrictive provisions and rights govern sales or transfers of interests in our
joint ventures. These may work to our disadvantage because, among other things,
we may be required to make decisions as to the purchase or sale of interests in
our joint ventures at a time that is disadvantageous to us.
We
may not be able to maintain our status as a REIT.
We may
not be able to maintain our status as a REIT for federal income tax purposes
with the result that the income distributed to shareowners would not be
deductible in computing taxable income and instead would be subject to tax at
regular corporate rates. We may also be subject to the alternative minimum tax
if we fail to maintain our status as a REIT. Any such corporate tax liability
would be substantial and would reduce the amount of cash available for
distribution to our shareowners which, in turn, could have a material adverse
impact on the value of, or trading price for, our shares. Although we believe we
are organized and operate in a manner to maintain our REIT qualification, many
of the REIT requirements of the Internal Revenue Code of 1986, as amended (the
Code), are very complex and have limited judicial or administrative
interpretations. Changes in tax laws or regulations or new administrative
interpretations and court decisions may also affect our ability to maintain REIT
status in the future. If we do not maintain our REIT status in any year, we may
be unable to elect to be treated as a REIT for the next four taxable
years.
Although
we currently intend to maintain our status as a REIT, future economic, market,
legal, tax, or other considerations may cause us to determine that it would be
in our and our shareowners’ best interests to revoke our REIT election. If we
revoke our REIT election, we will not be able to elect REIT status for the next
four taxable years.
We
may be subject to taxes even if we qualify as a REIT.
Even if
we qualify as a REIT for federal income tax purposes, we will be required to pay
certain federal, state, local and foreign taxes on our income and property. For
example, we will be subject to income tax to the extent we distribute less than
100% of our REIT taxable income, including capital gains. Moreover, if we have
net income from “prohibited transactions,” that income will be subject to a 100%
penalty tax. In general, prohibited transactions are sales or other dispositions
of property held primarily for sale to customers in the ordinary course of
business. The determination as to whether a particular sale is a prohibited
transaction depends on the facts and circumstances related to that sale. We
cannot guarantee that sales of our properties would not be prohibited
transactions unless we comply with certain statutory safe-harbor provisions. The
need to avoid prohibited transactions could cause us to forego or defer sales of
facilities that non-REITs otherwise would have sold or that might otherwise be
in our best interest to sell.
In
addition, any net taxable income earned directly by our taxable REIT
subsidiaries will be subject to federal, foreign, and state corporate income
tax. In this regard, several provisions of the laws applicable to REITs and
their subsidiaries ensure that a taxable REIT subsidiary will be subject to an
appropriate level of federal income taxation. For example, a taxable REIT
subsidiary is limited in its ability to deduct certain interest payments made to
an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some
payments that it receives or on some deductions taken by the taxable REIT
subsidiaries if the economic arrangements between the REIT, the REIT’s tenants,
and the taxable REIT subsidiary are not comparable to similar arrangements
between unrelated parties. Finally, some state and local jurisdictions may tax
some of our income even though as a REIT we are not subject to federal income
tax on that income, because not all states and localities follow the federal
income tax treatment of REITs. To the extent that we and our affiliates are
required to pay federal, state and local taxes, we will have less cash available
for distributions to our shareowners.
The
lower tax rate on certain dividends from non-REIT “C” corporations may cause
investors to prefer to hold stock in non-REIT “C” corporations.
Whereas
corporate dividends have traditionally been taxed at ordinary income rates, the
maximum tax rate on certain corporate dividends received by individuals through
December 31, 2010, has been reduced from 35% to 15%. This change has reduced
substantially the so-called “double taxation” (that is, taxation at both the
corporate and shareowner levels) that had generally applied to non-REIT “C”
corporations but did not apply to REITs. Generally, dividends from REITs do not
qualify for the dividend tax reduction because REITs generally do not pay
corporate-level tax on income that they distribute currently to shareowners.
REIT dividends are only eligible for the lower capital gains rates in limited
circumstances in which the dividends are attributable to income, such as
dividends from a taxable REIT subsidiary, that has been subject to
corporate-level tax. The application of capital gains rates to non-REIT “C”
corporation dividends could cause individual investors to view stock in non-REIT
“C” corporations as more attractive than shares in REITs, which may negatively
affect the value of our shares.
Our
ownership limitations and other provisions of our articles of incorporation and
bylaws generally prohibit the acquisition of more than 8.23% of the value of our
capital stock and may otherwise hinder any attempt to acquire us.
Various
provisions of our articles of incorporation and bylaws could have the effect of
discouraging a third party from accumulating a large block of our stock and
making offers to acquire us, and of inhibiting a change in control, all of which
could adversely affect our shareowners’ ability to receive a premium for their
shares in connection with such a transaction. In addition to customary
anti-takeover provisions, as detailed below, our articles of incorporation
contain REIT-specific restrictions on the ownership and transfer of our capital
stock which also serve similar anti-takeover purposes.
Under
our Restated Articles of Incorporation, in general, no shareowner may own
more than 8.23% (the “General Ownership Limit”) in value of our "Capital
Stock" (which term refers to the common stock, preferred stock and Excess Stock,
as defined below). Our Board of Directors has the authority to allow a “look
through entity” to own up to 9.9% in value of the Capital Stock (Look Through
Entity Limit), provided that after application of certain constructive ownership
rules under the Internal Revenue Code and rules regarding beneficial ownership
under the Michigan Business Corporation Act, no individual would constructively
or beneficially own more than the General Ownership Limit. A look through entity
is an entity (other than a qualified trust under Section 401(a) of the Internal
Revenue Code, certain other tax-exempt entities described in the Articles, or an
entity that owns 10% or more of the equity of any tenant from which we or TRG
receives or accrues rent from real property) whose beneficial owners, rather
than the entity, would be treated as owning the capital stock owned by such
entity.
The
Articles provide that if the transfer of any shares of Capital Stock or a change
in our capital structure would cause any person (Purported Transferee) to own
Capital Stock in excess of the General Ownership Limit or the Look Through
Entity Limit, then the transfer is to be treated as invalid from the
outset, and the shares in excess of the applicable ownership limit automatically
acquire the status of “Excess Stock.” A Purported Transferee of Excess Stock
acquires no rights to shares of Excess Stock. Rather, all rights associated with
the ownership of those shares (with the exception of the right to be reimbursed
for the original purchase price of those shares) immediately vest in one or more
charitable organizations designated from time to time by our Board of Directors
(each, a “Designated Charity”). An agent designated from time to time by the
Board (each, a “Designated Agent”) will act as attorney-in-fact for the
Designated Charity to vote the shares of Excess Stock, take delivery of the
certificates evidencing the shares that have become Excess Stock, and receive
any distributions paid to the Purported Transferee with respect to those shares.
The Designated Agent will sell the Excess Stock, and any increase in value of
the Excess Stock between the date it became Excess Stock and the date of sale
will inure to the benefit of the Designated Charity. A Purported Transferee must
notify us of any transfer resulting in shares converting into Excess Stock, as
well as such other information regarding such person’s ownership of the capital
stock we request.
These
ownership limitations will not be automatically removed even if the REIT
requirements are changed so as to no longer contain any ownership concentration
limitation or if the concentration limitation is increased because, in addition
to preserving our status as a REIT, the effect of such ownership limit is to
prevent any person from acquiring unilateral control of us. Changes in the
ownership limits can not be made by our Board of Directors and would require an
amendment to our articles. Currently, amendments to our articles require the
affirmative vote of holders owning not less than two-thirds of the outstanding
capital stock entitled to vote.
Although
Mr. A. Alfred Taubman beneficially owns 29% of our stock, which is entitled to
vote on shareowner matters (Voting Stock), most of his Voting Stock consists of
Series B Preferred Stock. The Series B Preferred Stock is convertible into
shares of common stock at a ratio of 14,000 shares of Series B Preferred Stock
to one share of common stock, and therefore one share of Series B Preferred
Stock has a value of 1/14,000ths of the value of one share of common stock.
Accordingly, Mr. A. Alfred Taubman’s significant ownership of Voting Stock does
not violate the ownership limitations set forth in our charter.
Members
of the Taubman family have the power to vote a significant number of the shares
of our capital stock entitled to vote.
Based on
information contained in filings made with the SEC, as of December 31, 2008, A.
Alfred Taubman and the members of his family have the power to vote
approximately 32% of the outstanding shares of our common stock and our
Series B preferred stock, considered together as a single class, and
approximately 91% of our outstanding Series B preferred stock. Our shares
of common stock and our Series B preferred stock vote together as a single
class on all matters generally submitted to a vote of our shareowners, and the
holders of the Series B preferred stock have certain rights to nominate up
to four individuals for election to our board of directors and other class
voting rights. Mr. Taubman’s sons, Robert S. Taubman and
William S. Taubman, serve as our Chairman of the Board, President and Chief
Executive Officer, and our Chief Operating Officer, respectively. These
individuals occupy the same positions with the Manager. As a result, Mr. A.
Alfred Taubman and the members of his family may exercise significant influence
with respect to the election of our board of directors, the outcome of any
corporate transaction or other matter submitted to our shareowners for approval,
including any merger, consolidation or sale of all or substantially all of our
assets. In addition, because our articles of incorporation impose a limitation
on the ownership of our outstanding capital stock by any person and such
ownership limitation may not be changed without the affirmative vote of holders
owning not less than two-thirds of the outstanding shares of capital stock
entitled to vote on such matter, Mr. A. Alfred Taubman and the members
of his family, as a practical matter, have the power to prevent a change in
control of our company.
Our
ability to pay dividends on our stock may be limited.
Because
we conduct all of our operations through TRG or its subsidiaries, our ability to
pay dividends on our stock will depend almost entirely on payments and dividends
received on our interests in TRG. Additionally, the terms of some of the debt to
which TRG is a party limits its ability to make some types of payments and other
dividends to us. This in turn limits our ability to make some types of payments,
including payment of dividends on our stock, unless we meet certain financial
tests or such payments or dividends are required to maintain our qualification
as a REIT. As a result, if we are unable to meet the applicable financial tests,
we may not be able to pay dividends on our stock in one or more periods beyond
what is required for REIT purposes.
Our
ability to pay dividends is further limited by the requirements of Michigan
law.
Our
ability to pay dividends on our stock is further limited by the laws of
Michigan. Under the Michigan Business Corporation Act, a Michigan corporation
may not make a distribution if, after giving effect to the distribution, the
corporation would not be able to pay its debts as the debts become due in the
usual course of business, or the corporation’s total assets would be less than
the sum of its total liabilities plus the amount that would be needed, if the
corporation were dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareowners whose preferential rights
are superior to those receiving the distribution. Accordingly, we may not make a
distribution on our stock if, after giving effect to the distribution, we would
not be able to pay our debts as they become due in the usual course of business
or our total assets would be less than the sum of our total liabilities plus the
amount that would be needed to satisfy the preferential rights upon dissolution
of the holders of any shares of our preferred stock then
outstanding.
We
may incur additional indebtedness, which may harm our financial position and
cash flow and potentially impact our ability to pay dividends on our
stock.
Our
governing documents do not limit us from incurring additional indebtedness and
other liabilities. As of December 31, 2008, we had approximately
$2.8 billion of consolidated indebtedness outstanding, and our beneficial
interest in both our consolidated debt and the debt of our unconsolidated joint
ventures was $3.0 billion. We may incur additional indebtedness and become
more highly leveraged, which could harm our financial position and potentially
limit our cash available to pay dividends.
We
cannot assure that we will be able to pay dividends regularly, although we have
done so in the past.
Our
ability to pay dividends in the future is dependent on our ability to operate
profitably and to generate cash from our operations. Although we have done so in
the past, we cannot guarantee that we will be able to pay dividends on a regular
quarterly basis or at the same level in the future. In addition, we may choose
to pay a portion in stock dividends. Furthermore, any new shares of common stock
issued will increase the cash required to continue to pay cash dividends at
current levels. Any common stock or preferred stock that may in the future be
issued to finance acquisitions, upon exercise of stock options or otherwise,
would have a similar effect.
None.
Ownership
The
following table sets forth certain information about each of the centers. The
table includes only centers in operation at December 31, 2008. Centers are owned
in fee other than Beverly Center (Beverly), Cherry Creek Shopping Center (Cherry
Creek), International Plaza, MacArthur Center, and The Pier Shops, which are
held under ground leases expiring between 2049 and 2083.
Certain
of the centers are partially owned through joint ventures. Generally, our joint
venture partners have ongoing rights with regard to the disposition of our
interest in the joint ventures, as well as the approval of certain major
matters.
|
Anchors
|
Sq.
Ft of GLA/Mall GLA as of
12/31/08
|
|
Year
Opened/
Expanded
|
Year
Acquired
|
Ownership
%
as of 12/31/08
|
Consolidated
Businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverly
Center
|
Bloomingdales,
Macy’s
|
880,000
|
|
1982
|
|
100%
|
Los
Angeles, CA
|
|
572,000
|
|
|
|
|
|
|
|
|
|
|
|
Cherry
Creek Shopping Center
|
Macy’s,
Neiman Marcus, Nordstrom, Saks Fifth Avenue
|
1,037,000
|
|
1990/1998
|
|
50%
|
Denver,
CO
|
|
546,000
|
|
|
|
|
|
|
|
|
|
|
|
Dolphin
Mall
|
Bass
Pro Shops Outdoor World, Burlington Coat Factory,
|
1,400,000
|
|
2001/2007
|
|
100%
|
Miami,
FL
|
Cobb
Theatres, Dave & Busters, Marshalls, Neiman
|
636,000
|
|
|
|
|
|
Marcus-Last
Call, Off 5th
Saks, The Sports Authority
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairlane
Town Center
|
JCPenney,
Macy’s, Sears
|
1,386,000
|
(1) |
1976/1978/
|
|
100%
|
Dearborn,
MI
|
|
589,000
|
|
1980/2000
|
|
|
(Detroit
Metropolitan Area)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great
Lakes Crossing
|
AMC
Theaters, Bass Pro Shops Outdoor World,
|
1,353,000
|
|
1998
|
|
100%
|
Auburn
Hills, MI
|
GameWorks,
Neiman Marcus-Last Call, Off 5th
Saks
|
536,000
|
|
|
|
|
(Detroit
Metropolitan Area)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
Plaza
|
Dillard’s,
Neiman Marcus, Nordstrom, Robb & Stucky
|
1,197,000
|
|
2001
|
|
50%
|
Tampa,
FL
|
|
576,000
|
|
|
|
|
|
|
|
|
|
|
|
MacArthur
Center
|
Dillard’s,
Nordstrom
|
936,000
|
|
1999
|
|
95%
|
Norfolk,
VA
|
|
522,000
|
|
|
|
|
|
|
|
|
|
|
|
Northlake
Mall
|
Belk,
Dick’s Sporting Goods, Dillard’s, Macy’s
|
1,071,000
|
|
2005
|
|
100%
|
Charlotte,
NC
|
|
465,000
|
|
|
|
|
|
|
|
|
|
|
|
The
Mall at Partridge Creek
|
Nordstrom,
Parisian
|
600,000
|
|
2007/2008
|
|
100%
|
Clinton
Township, MI
|
|
366,000
|
|
|
|
|
(Detroit
Metropolitan Area)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Pier Shops at Caesars (2)
|
|
282,000
|
|
2006
|
|
78%
|
Atlantic
City, NJ
|
|
282,000
|
|
|
|
|
|
|
|
|
|
|
|
Regency
Square
|
JCPenney,
Macy’s (two locations), Sears
|
820,000
|
|
1975/1987
|
1997
|
100%
|
Richmond,
VA
|
|
233,000
|
|
|
|
|
|
|
|
|
|
|
|
The
Mall at Short Hills
|
Bloomingdale’s,
Macy’s, Neiman Marcus, Nordstrom,
|
1,342,000
|
|
1980/1994/
|
|
100%
|
Short
Hills, NJ
|
Saks
Fifth Avenue
|
520,000
|
|
1995
|
|
|
|
|
|
|
|
|
|
Stony
Point Fashion Park
|
Dillard’s,
Dick’s Sporting Goods, Saks Fifth Avenue
|
662,000
|
|
2003
|
|
100%
|
Richmond,
VA
|
|
296,000
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
Oaks Mall
|
JCPenney,
Lord & Taylor, Macy’s, Nordstrom, Sears
|
1,513,000
|
(3) |
1977/1978/
|
|
100%
|
Novi,
MI
|
|
548,000
|
|
2007/2008
|
|
|
(Detroit
Metropolitan Area)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Mall at Wellington Green
|
City
Furniture and Ashley Furniture Home Store,
|
1,273,000
|
|
2001/2003
|
|
90%
|
Wellington,
FL
|
Dillard’s,
JCPenney, Macy’s, Nordstrom
|
460,000
|
|
|
|
|
(Palm
Beach County)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Shops at Willow Bend
|
Dillard’s,
Macy’s, Neiman Marcus, Saks Fifth Avenue
|
1,381,000
|
(4) |
2001/2004
|
|
100%
|
Plano,
TX
|
|
523,000
|
|
|
|
|
(Dallas
Metropolitan Area)
|
|
|
|
|
|
|
|
Total
GLA
|
17,133,000
|
|
|
|
|
|
Total
Mall GLA
|
7,670,000
|
|
|
|
|
|
TRG%
of Total GLA
|
15,780,000
|
|
|
|
|
|
TRG%
of Total Mall GLA
|
6,975,000
|
|
|
|
|
Center
|
Anchors
|
Sq.
Ft of GLA/Mall GLA as of
12/31/08
|
|
Year
Opened/
Expanded
|
Year
Acquired
|
Ownership
%
as of
12/31/08
|
Unconsolidated
Joint Ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona
Mills
|
GameWorks,
Harkins Cinemas, JCPenney Outlet, Neiman
|
1,222,000
|
|
1997
|
|
50%
|
Tempe,
AZ
|
Marcus-Last
Call, Off 5th
Saks
|
535,000
|
|
|
|
|
(Phoenix
Metropolitan Area)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Oaks
|
JCPenney,
Lord & Taylor, Macy’s (two locations), Sears
|
1,569,000
|
|
1980/1987/
|
|
50%
|
Fairfax,
VA
|
|
564,000
|
|
1988/2000
|
|
|
(Washington,
DC Metropolitan Area)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Mall at Millenia
|
Bloomingdale’s,
Macy’s, Neiman Marcus
|
1,116,000
|
|
2002
|
|
50%
|
Orlando,
FL
|
|
516,000
|
|
|
|
|
|
|
|
|
|
|
|
Stamford
Town Center
|
Macy’s,
Saks Fifth Avenue
|
775,000
|
|
1982/2007
|
|
50%
|
Stamford,
CT
|
|
452,000
|
|
|
|
|
|
|
|
|
|
|
|
Sunvalley
|
JCPenney,
Macy’s (two locations), Sears
|
1,325,000
|
|
1967/1981
|
2002
|
50%
|
Concord,
CA
|
|
485,000
|
|
|
|
|
(San
Francisco Metropolitan Area)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waterside
Shops
|
Nordstrom,
Saks Fifth Avenue
|
337,000
|
(5) |
1992/2006/
|
2003
|
25%
|
Naples,
FL
|
|
197,000
|
|
2008
|
|
|
|
|
|
|
|
|
|
Westfarms
|
JCPenney,
Lord & Taylor, Macy’s, Macy’s Men’s Store/
|
1,288,000
|
|
1974/1983/
|
|
79%
|
West
Hartford, CT
|
Furniture
Gallery, Nordstrom
|
518,000
|
|
1997
|
|
|
|
|
|
|
|
|
|
|
Total
GLA
|
7,632,000
|
|
|
|
|
|
Total
Mall GLA
|
3,267,000
|
|
|
|
|
|
TRG%
of Total GLA
|
4,105,000
|
|
|
|
|
|
TRG%
of Total Mall GLA
|
1,734,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand
Total GLA
|
24,765,000
|
|
|
|
|
|
Grand
Total Mall GLA
|
10,937,000
|
|
|
|
|
|
TRG%
of Total GLA
|
19,885,000
|
|
|
|
|
|
TRG%
of Total Mall GLA
|
8,709,000
|
|
|
|
|
(1)
|
GLA
includes the former Lord & Taylor store, which closed on June 24,
2006. Additionally, the former Off 5th Saks store, which closed December
31, 2007, was replaced with a 25,000 square foot dining/entertainment wing
that opened in November 2008.
|
(2)
|
The
center is attached to Caesars casino integrated
resort.
|
(3)
|
A
60,000 square foot expansion and renovation of Macy's was completed in
October 2008.
|
(4)
|
GLA
includes the former Lord & Taylor store, which closed on April 30,
2005.
|
(5)
|
In
November 2008, Nordstrom and an expansion and full renovation of Saks
Fifth Avenue opened.
|
Anchors
The
following table summarizes certain information regarding the anchors at the
operating centers (excluding the value centers) as of December 31,
2008:
Name
|
|
Number
of
Anchor
Stores
|
|
|
12/31/08
GLA
(in
thousands
of square
feet)
|
|
|
% of
GLA
|
|
Belk
|
|
|
1 |
|
|
|
180 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
City
Furniture and Ashley Furniture Home Store
|
|
|
1 |
|
|
|
140 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dick’s
Sporting Goods
|
|
|
2 |
|
|
|
159 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dillard’s
|
|
|
6 |
|
|
|
1,335 |
|
|
|
6.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
JCPenney
|
|
|
7 |
|
|
|
1,266 |
|
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lord
& Taylor
|
|
|
3 |
|
|
|
397 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Macy’s
|
|
|
|
|
|
|
|
|
|
|
|
|
Bloomingdale’s
|
|
|
3 |
|
|
|
614 |
|
|
|
|
|
Macy’s
|
|
|
17 |
|
|
|
3,454 |
|
|
|
|
|
Macy’s Men’s Store/Furniture
Gallery
|
|
|
1 |
|
|
|
80 |
|
|
|
|
|
Total
|
|
|
21 |
|
|
|
4,148 |
|
|
|
20.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Neiman
Marcus (1)
|
|
|
5 |
|
|
|
556 |
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nordstrom
(2)
|
|
|
9 |
|
|
|
1,294 |
|
|
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Parisian
|
|
|
1 |
|
|
|
116 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Robb
& Stucky
|
|
|
1 |
|
|
|
119 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Saks
(3)
|
|
|
6 |
|
|
|
487 |
(4) |
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sears
|
|
|
5 |
|
|
|
1,104 |
|
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
68 |
|
|
|
11,301 |
|
|
|
54.4 |
%
(5) |
(1)
|
Excludes
three Neiman Marcus-Last Call stores at value
centers.
|
(2)
|
Nordstrom
opened at The Mall at Partridge Creek in April 2008 and Waterside Shops in
November 2008.
|
(3)
|
Excludes
three Off 5th
Saks stores at value centers.
|
(4)
|
In
November 2008 a full expansion and renovation of Saks Fifth Avenue opened
at Waterside Shops.
|
(5)
|
Percentages
in table may not add due to
rounding.
|
Mortgage
Debt
The
following table sets forth certain information regarding the mortgages
encumbering the centers as of December 31, 2008. All mortgage debt in the table
below is nonrecourse to the Operating Partnership except for debt encumbering
Dolphin Mall (Dolphin), Fairlane Town Center (Fairlane), and Twelve Oaks. The
Operating Partnership has guaranteed the payment of all or a portion of the
principal and interest on the mortgage debt of these centers, all of which are
wholly owned. See "MD&A – Liquidity and Capital Resources – Loan Commitments
and Guarantees" for more information on guarantees and covenants.
Centers
Consolidated in
TCO’s Financial
Statements
|
Stated
Interest
Rate
|
|
Principal
Balance as of
12/31/08
(thousands
of
dollars)
|
|
Annual
Debt
Service
(thousands
of dollars)
|
|
Maturity Date
|
|
Balance
Due on Maturity (thousands
of
dollars)
|
Earliest
Prepayment Date
|
|
Beverly
Center
|
5.28%
|
|
333,736
|
|
23,101
|
(1)
|
02/11/14
|
|
303,277
|
30
Days Notice
|
(2)
|
Cherry
Creek Shopping Center (50%)
|
5.24%
|
|
280,000
|
|
Interest
Only
|
|
06/08/16
|
|
280,000
|
30
Days Notice
|
(2)
|
Dolphin
Mall
|
LIBOR+0.70%
|
|
139,000
|
(3) |
Interest
Only
|
|
02/14/11
|
(4)
|
139,000
|
2
Days Notice
|
(5)
|
Fairlane
Town Center
|
LIBOR+0.70%
|
|
80,000
|
(3) |
Interest
Only
|
|
02/14/11
|
(4)
|
80,000
|
2
Days Notice
|
(5)
|
Great
Lakes Crossing
|
5.25%
|
|
137,877
|
|
10,006
|
(1)
|
03/11/13
|
|
125,507
|
30
Days Notice
|
(2)
|
International
Plaza (50.1%)
|
LIBOR+1.15%
|
(6)
|
325,000
|
|
Interest
Only
|
(6)
|
01/08/11
|
(6)
|
325,000
|
3
Days Notice
|
(5)
|
MacArthur
Center (95%)
|
7.59%
|
(7)
|
132,500
|
(7) |
12,400
|
(1)
|
10/01/10
|
|
126,884
|
30
Days Notice
|
(2)
|
Northlake
Mall
|
5.41%
|
|
215,500
|
|
Interest
Only
|
|
02/06/16
|
|
215,500
|
30
Days Notice
|
(8)
|
The
Mall at Partridge Creek
|
LIBOR+1.15%
|
|
72,791
|
|
Interest
Only
|
|
09/07/10
|
|
72,791
|
3
Days Notice
|
(5)
|
The
Pier Shops at Caesars (77.5%)
|
6.01%
|
|
135,000
|
|
Interest
Only
|
|
05/11/17
|
|
135,000
|
12/28/2009
|
(9)
|
Regency
Square
|
6.75%
|
|
75,388
|
|
6,421
|
(1)
|
11/01/11
|
|
71,569
|
60
Days Notice
|
(9)
|
The
Mall at Short Hills
|
5.47%
|
|
540,000
|
|
Interest
Only
|
|
12/14/15
|
|
540,000
|
01/01/11
|
(10)
|
Stony
Point Fashion Park
|
6.24%
|
|
108,884
|
|
8,488
|
(1)
|
06/01/14
|
|
98,585
|
30
Days Notice
|
(8)
|
Twelve
Oaks Mall
|
LIBOR+0.70%
|
|
10,000
|
(3) |
Interest
Only
|
|
02/14/11
|
(4)
|
10,000
|
2
Days Notice
|
(5)
|
The
Mall at Wellington Green (90%)
|
5.44%
|
|
200,000
|
|
Interest
Only
|
|
05/06/15
|
|
200,000
|
30
Days Notice
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Consolidated
Secured Debt
|
|
|
|
|
|
|
|
|
|
|
|
TRG
Credit Facility
|
Variable
Bank
Rate
|
(11)
|
10,900
|
|
Interest
Only
|
|
02/14/11
|
|
10,900
|
At
Any Time
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
Centers
Owned by Unconsolidated
Joint Ventures/TRG’s %
Ownership
|
|
|
|
|
|
|
|
|
|
|
|
Arizona
Mills (50%)
|
7.90%
|
|
134,139
|
|
12,728
|
(1)
|
10/05/10
|
|
130,419
|
30
Days Notice
|
(2)
|
Fair
Oaks (50%)
|
LIBOR+1.40%
|
(12)
|
250,000
|
|
Interest
Only
|
(12)
|
04/01/11
|
(12)
|
250,000
|
3
Days Notice
|
(5)
|
The
Mall at Millenia (50%)
|
5.46%
|
|
208,246
|
|
14,245
|
(1)
|
04/09/13
|
|
195,255
|
30
Days Notice
|
(2)
|
Sunvalley
(50%)
|
5.67%
|
|
123,708
|
|
9,372
|
(1)
|
11/01/12
|
|
114,056
|
30
Days Notice
|
(2)
|
Taubman
Land Associates (50%)
|
LIBOR+0.90%
|
(13)
|
30,000
|
|
Interest
Only
|
|
11/01/12
|
|
30,000
|
At
Any Time
|
(5)
|
Waterside
Shops (25%)
|
5.54%
|
|
165,000
|
|
Interest
Only
|
|
10/07/16
|
|
165,000
|
30
Days Notice
|
(9)
|
Westfarms
(79%)
|
6.10%
|
|
192,200
|
|
15,272
|
(1)
|
07/11/12
|
|
179,028
|
30
Days Notice
|
(2)
|
(1)
|
Amortizing
principal based on 30 years.
|
(2)
|
No
defeasance deposit required if paid within three months of maturity
date.
|
(3)
|
Subfacility
in $550 million revolving line of credit. Facility may be increased to
$650 million subject to available lender commitments and additional
secured collateral.
|
(4)
|
The
maturity date may be extended one
year.
|
(5)
|
Prepayment
can be made without penalty.
|
(6)
|
The
debt is swapped at 3.86% + 1.15% credit spread to the maturity date. The
debt has 2 one year extension options and is interest only except during
the second one year extension (if
elected).
|
(7)
|
Debt
includes $1.3 million of purchase accounting premium from acquisition,
which reduces the stated rate on the debt of 7.59% to an effective rate of
6.93%.
|
(8)
|
No
defeasance deposit required if paid within four months of maturity
date.
|
(9)
|
No
defeasance deposit required if paid within six months of maturity
date.
|
(10)
|
Debt
may be prepaid with a prepayment penalty equal to greater of yield
maintenance or 1% of principal prepaid. No prepayment penalty is due if
prepaid within three months of maturity date. 30 days notice
required.
|
(11)
|
The
facility is a $40 million line of credit and is secured by an indirect
interest in 40% of Short Hills.
|
(12)
|
The
debt is swapped at 2.82% + 1.40% credit spread to the maturity date. The
debt has 2 one year extension options and is interest only except during
the second one year extension (if elected).
|
(13)
|
Debt
is swapped at 5.05% + 0.90% credit spread to the maturity
date. |
For
additional information regarding the centers and their operations, see the
responses to Item 1 of this report.
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 us,
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 we are 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 our
financial condition, there can be no assurance that an adverse outcome would not
have a material effect on our results of operations for any particular
period.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
Not
applicable.
PART
II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
The
common stock of Taubman Centers, Inc. is listed and traded on the New York Stock
Exchange (Symbol: TCO). As of February 23, 2009, the 53,044,236 outstanding
shares of Common Stock were held by 565 holders of record. A substantially
greater number of holders are beneficial owners whose shares are held of record
by banks, brokers, and other financial institutions. The closing price per share
of the Common Stock on the New York Stock Exchange on February 23, 2009 was
$15.81.
The
following table presents the dividends declared on our Common Stock and the
range of closing share prices of our Common Stock for each quarter of 2008 and
2007:
|
Market
Quotations
|
|
2008 Quarter
Ended
|
High
|
Low
|
Dividends
|
|
March
31
|
$55.70
|
$43.93
|
$0.415
|
|
|
|
|
|
|
June
30
|
58.05
|
48.65
|
0.415
|
|
|
|
|
|
|
September
30
|
55.40
|
43.35
|
0.415
|
|
|
|
|
|
|
December
31
|
48.19
|
18.69
|
0.415
|
|
|
Market
Quotations
|
|
2007 Quarter
Ended
|
High
|
Low
|
Dividends
|
|
March
31
|
$63.22
|
$50.33
|
$0.375
|
|
|
|
|
|
|
June
30
|
59.82
|
48.18
|
0.375
|
|
|
|
|
|
|
September
30
|
56.34
|
47.07
|
0.375
|
|
|
|
|
|
|
December
31
|
60.37
|
48.77
|
0.415
|
|
The
restrictions on our ability to pay dividends on our Common Stock are set forth
in “Managements Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources – Dividends.”
Beginning
with the first quarter of 2009, in order to have more flexibility under Section
858 of the Internal Revenue Code (IRC), the declaration and payment dates of our
common dividends will be accelerated so that they coincide with those of the
preferred dividends. The IRC allows a REIT to avoid the income tax consequences
of not meeting its distribution requirement by allocating to the prior year,
dividends paid in the current year, to cover the excess of REIT taxable income
of the prior year over dividends paid in such year. Currently, because of
certain timing limitations imposed by the IRC, only our preferred dividends can
be allocated to a prior year. By changing the declaration and payment dates of
the common dividends to coincide with those of the preferred dividends, we will
have the ability to allocate both common and preferred dividends to a prior year
should the need arise. Since the preferred dividends are required to be paid at
the end of each quarter according to our Articles of Incorporation, the effect
of this change is to accelerate the common distributions of TRG by moving them
from the date that is 20 days after quarter-end to the last day of the
quarter.
Shareowner
Return Performance Graph
The
following line graph sets forth the cumulative total returns on a $100
investment in each of our Common Stock, the MSCI US REIT Index, the NAREIT
Equity Retail REIT Index, and the S&P Composite – 500 Stock Index for the
period December 31, 2003 through December 31, 2008 (assuming in all cases, the
reinvestment of dividends):
|
12/31/03
|
12/31/04
|
12/31/05
|
12/31/06
|
12/31/07
|
12/31/08
|
Taubman
Centers Inc.
|
$100.00
|
$151.71
|
$182.61
|
$275.30
|
$274.29
|
$147.98
|
|
MSCI
US REIT Index
|
100.00
|
131.49
|
147.44
|
200.40
|
166.70
|
103.40
|
|
NAREIT
Equity Retail REIT Index
|
100.00
|
140.23
|
156.78
|
202.26
|
170.36
|
87.97
|
|
S&P
500 Index
|
100.00
|
110.88
|
116.32
|
134.69
|
142.09
|
89.52
|
|
Note: The
stock performance shown on the graph above is not necessarily indicative of
future price performance.
Equity
Purchases
We did
not purchase any equity securities in the fourth quarter of
2008.
The
following table sets forth selected financial data and should be read in
conjunction with the financial statements and notes thereto and MD&A
included in this report:
|
|
Year
Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in
thousands of dollars, except as noted)
|
|
STATEMENT
OF OPERATIONS DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents, recoveries, and other
shopping center revenues
|
|
|
671,498 |
|
|
|
626,822 |
|
|
|
579,284 |
|
|
|
479,405 |
|
|
|
436,815 |
|
Income (loss) before gain on disposition of
interest in center, discontinued operations, and
minority and
preferred
interests (1)
|
|
|
(8,052 |
) |
|
|
116,236 |
|
|
|
95,140 |
|
|
|
57,432 |
|
|
|
59,970 |
|
Gain on disposition of interest
in center (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,799 |
|
|
|
|
|
Discontinued operations (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328 |
|
Minority interest in
TRG
|
|
|
(45,478 |
) |
|
|
(42,614 |
) |
|
|
(36,870 |
) |
|
|
(35,869 |
) |
|
|
(35,694 |
) |
TRG preferred
distributions
|
|
|
(2,460 |
) |
|
|
(2,460 |
) |
|
|
(2,460 |
) |
|
|
(2,460 |
) |
|
|
(12,244 |
) |
Net income (loss) (1)
|
|
|
(72,025 |
) |
|
|
63,124 |
|
|
|
45,117 |
|
|
|
71,735 |
|
|
|
12,378 |
|
Preferred
dividends
|
|
|
(14,634 |
) |
|
|
(14,634 |
) |
|
|
(23,723 |
) |
|
|
(27,622 |
) |
|
|
(17,444 |
) |
Net income (loss) allocable to
common shareowners
|
|
|
(86,659 |
) |
|
|
48,490 |
|
|
|
21,394 |
|
|
|
44,113 |
|
|
|
(5,066 |
) |
Income (loss) from continuing
operations per common
share – diluted
|
|
|
(1.64 |
) |
|
|
0.90 |
|
|
|
0.40 |
|
|
|
0.87 |
|
|
|
(0.11 |
) |
Net income (loss) per common
share – diluted
|
|
|
(1.64 |
) |
|
|
0.90 |
|
|
|
0.40 |
|
|
|
0.87 |
|
|
|
(0.10 |
) |
Dividends declared per common
share
|
|
|
1.660 |
|
|
|
1.540 |
|
|
|
1.290 |
|
|
|
1.160 |
|
|
|
1.095 |
|
Weighted average number of
common shares
outstanding
–basic
|
|
|
52,866,050 |
|
|
|
52,969,067 |
|
|
|
52,661,024 |
|
|
|
50,459,314 |
|
|
|
49,021,843 |
|
Weighted average number of
common sharesoutstanding – diluted
|
|
|
52,866,050 |
|
|
|
53,622,017 |
|
|
|
52,979,453 |
|
|
|
50,530,139 |
|
|
|
49,021,843 |
|
Number of common shares
outstanding at end of period
|
|
|
53,018,987 |
|
|
|
52,624,013 |
|
|
|
52,931,594 |
|
|
|
51,866,184 |
|
|
|
48,745,625 |
|
Ownership percentage of TRG at
end of period
|
|
|
67 |
% |
|
|
66 |
% |
|
|
65 |
% |
|
|
64 |
% |
|
|
61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate before accumulated
depreciation
|
|
|
3,699,480 |
|
|
|
3,781,136 |
|
|
|
3,398,122 |
|
|
|
3,081,324 |
|
|
|
2,936,964 |
|
Total assets
|
|
|
3,071,792 |
|
|
|
3,151,307 |
|
|
|
2,826,622 |
|
|
|
2,797,580 |
|
|
|
2,632,434 |
|
Total debt
|
|
|
2,796,821 |
|
|
|
2,700,980 |
|
|
|
2,319,538 |
|
|
|
2,089,948 |
|
|
|
1,930,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from Operations allocable
to TCO (1)(4)
|
|
|
81,274 |
|
|
|
155,376 |
|
|
|
136,736 |
|
|
|
110,578 |
|
|
|
103,070 |
|
Mall tenant sales (5)
|
|
|
4,654,885 |
|
|
|
4,734,940 |
|
|
|
4,344,565 |
|
|
|
4,124,534 |
|
|
|
3,728,010 |
|
Sales per square foot (5)(6)
|
|
|
539 |
|
|
|
555 |
|
|
|
529 |
|
|
|
508 |
|
|
|
466 |
|
Number of shopping centers at
end of period
|
|
|
23 |
|
|
|
23 |
|
|
|
22 |
|
|
|
21 |
|
|
|
21 |
|
Ending Mall GLA in thousands of
square feet
|
|
|
10,937 |
|
|
|
10,879 |
|
|
|
10,448 |
|
|
|
10,029 |
|
|
|
9,982 |
|
Leased space (7)
|
|
|
91.7 |
% |
|
|
93.8 |
% |
|
|
92.5 |
% |
|
|
91.7 |
% |
|
|
90.7 |
% |
Ending
occupancy
|
|
|
90.3 |
% |
|
|
91.2 |
% |
|
|
91.3 |
% |
|
|
90.0 |
% |
|
|
89.6 |
% |
Average
occupancy
|
|
|
90.3 |
% |
|
|
90.0 |
% |
|
|
89.2 |
% |
|
|
88.9 |
% |
|
|
87.4 |
% |
Average base rent per square
foot (6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All mall
tenants
|
|
$ |
44.58 |
|
|
$ |
43.39 |
|
|
$ |
42.77 |
|
|
$ |
41.41 |
|
|
$ |
40.98 |
|
Stores opening during
year
|
|
|
53.74 |
|
|
|
53.35 |
|
|
|
41.25 |
|
|
|
42.38 |
|
|
|
44.35 |
|
Stores closing during
year
|
|
|
46.22 |
|
|
|
45.39 |
|
|
|
39.57 |
|
|
|
40.59 |
|
|
|
44.54 |
|
Unconsolidated Joint
Ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All mall
tenants
|
|
$ |
44.60 |
|
|
$ |
41.89 |
|
|
$ |
41.03 |
|
|
$ |
42.28 |
|
|
$ |
42.09 |
|
Stores opening during
year
|
|
|
55.26 |
|
|
|
48.05 |
|
|
|
42.98 |
|
|
|
44.90 |
|
|
|
44.67 |
|
Stores closing during
year
|
|
|
47.99 |
|
|
|
48.63 |
|
|
|
42.49 |
|
|
|
44.26 |
|
|
|
51.40 |
|
(1)
|
Funds
from Operations (FFO) is defined and discussed in MD&A – Presentation
of Operating Results. Net loss and FFO in 2008 includes the impairment
charges of $117.9 million and $8.3 million related to investments in our
Oyster Bay and Sarasota projects, respectively. Net income and FFO in 2006
includes $3.1 million in connection with the write-off of financing costs
related to the respective pay-off and refinancing of the loans on The
Shops at Willow Bend and Dolphin Mall. In addition to these charges, FFO
in 2006 includes a $4.7 million charge incurred in connection with the
redemption of $113 million of the Series A Preferred Stock and $113
million of the Series I Preferred
Stock.
|
(2)
|
In
December 2005, a 50% owned unconsolidated joint venture sold its interest
in Woodland for $177.4 million.
|
(3)
|
Discontinued
operations of $0.3 million in 2004 include gains on disposition of
interests in a center that was sold in
2003.
|
(4)
|
Reconciliations
of net income (loss) allocable to common shareowners to FFO for 2008,
2007, and 2006 are provided in MD&A – Presentation of Operating
Results. For 2005, net income of $44.1 million, less the gain on
dispositions of interests in centers of $52.8 million, adding back
depreciation and amortization of $150.5 million and minority interests in
TRG of $35.9 million, arrives at TRG’s FFO of $177.7 million, of which
TCO’s share was $110.6 million. For 2004, net loss of $5.1 million, less
the gain on dispositions of interests in centers of $0.3 million, adding
back depreciation and amortization of $139.8 million and minority
interests in TRG of $35.7 million, arrives at TRG’s FFO of $170.1 million,
of which TCO’s share was $103.1
million.
|
(5)
|
Based
on reports of sales furnished by mall
tenants.
|
(6)
|
See
MD&A for information regarding this
statistic.
|
(7)
|
Leased
space comprises both occupied space and space that is leased but not yet
occupied.
|
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The
following MD&A 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, investing, 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, because of risks, uncertainties, and factors
including, but not limited, to the ongoing U.S. recession, the existing global
credit and financial crisis and other changes in general economic and real
estate conditions, changes in the interest rate environment and the availability
of financing, and adverse changes in the retail industry. Other risks and
uncertainties are detailed from time to time in reports filed with the SEC, and
in particular those set forth under “Risk Factors” of this 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, lease, develop,
acquire, dispose of, and operate regional and super-regional shopping centers.
The Consolidated Businesses consist of shopping centers and entities that are
controlled by ownership or contractual agreements, The Taubman Company LLC
(Manager), and Taubman Properties Asia LLC and its subsidiaries (Taubman Asia).
In September 2008, we acquired the interests of the owner of Partridge
Creek (see “Note 2 – Acquisitions” to our consolidated financial
statements). Prior to the acquisition, we consolidated the accounts of the owner
of Partridge Creek, which qualified as a variable interest entity under
Financial Accounting Standards Board Interpretation No. 46R “Consolidation
of Variable Interest Entities” for which the Operating Partnership was
considered to be the primary beneficiary. 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 Partridge Creek in October 2007 and 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 – Openings, Expansions
and Renovations, and Acquisitions”). The Pier Shops’ results of operations are
included within the Consolidated Businesses beginning April 13, 2007
and within the Unconsolidated Joint Ventures prior to the acquisition date. The
2006 results of operations for the Unconsolidated Joint Ventures include results
of The Pier Shops. The Pier Shops was excluded from all operating statistics in
2006. 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 for 2008 and 2007 to present the performance of
comparable centers in our continuing operations. Comparable centers are
generally defined as centers that were owned and open for two
years.
Overall
Summary of Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Our
primary source of revenue is from the leasing of space in our shopping centers.
Generally these leases are long term, with our average lease term at
approximately seven years, excluding temporary leases. Therefore general
economic trends most directly impact our tenants’ sales and consequently their
ability to perform under their existing lease agreements and expand into new
locations as well as our ability to find new tenants for our shopping
centers.
The real
estate industry is facing very difficult times due to the current recession and
tough retail environment. The global credit and financial crisis has worsened in
the fourth quarter and there is considerable uncertainty as to how severe the
current downturn may be and how long it may continue. We clearly expect a
negative impact on our business in 2009, and we expect that the economy will
continue to strain the resources of our tenants and their customers. Retailers
have had a tough fourth quarter and are looking at an uncertain 2009. In this
environment, retailer capital spending has significantly decreased, and we
expect that retailers will want to delay any openings into either 2010 or 2011
whenever possible. In addition, a number of regional and national retailers have
announced store closings or filed for bankruptcy. During 2008, 2.5% of our
tenants sought the protection of the bankruptcy laws, compared to 0.5% in 2007.
It is difficult to predict when the environment will improve.
We also
saw the impact of the current financial crisis on our tenants’ sales. Our
tenants reported a 13.7% decrease in sales per square foot in the quarter over
the same period in 2007. Annual sales per square foot declined by 2.9% to a
level of $539 per square foot for our comparable centers, which is higher than
the average in 2008 for all regional shopping centers owned by public companies,
and exceeded our 2006 results. See "Mall Tenant Sales and Center
Revenues".
Average
occupancy remained relatively flat during 2008, however, we anticipate occupancy
will decrease by approximately 2% by year end 2009, although it is likely the
impact on income will be somewhat offset by a higher level of temporary tenant
leasing in 2009. For all of 2008, rents showed solid increases compared to the
prior year. In 2009, we expect that average rents per square foot will be
relatively flat in comparison to 2008. The rents we are able to achieve are
affected by economic trends and tenants’ expectations thereof, as described
under “Rental Rates and Occupancy”. The spread between rents on openings and
closings may not be indicative of future periods, as this statistic is not
computed on comparable tenant spaces, and can vary significantly from quarter to
quarter depending on the total amount, location, and average size of tenant
space opening and closing in the period. Mall tenant sales, occupancy levels and
our resulting revenues are seasonal in nature (see “Seasonality").
Our
analysis of our financial results begins under “Results of Operations”. We
describe the most recent center openings under “Results of Operations –
Openings, Expansions and Renovations, and Acquisitions.” In 2007, we acquired an
additional interest in The Pier Shops. We also describe the current status of
our efforts to broaden our growth in Asia (see “Results of Operations – Taubman
Asia”).
We
similarly have been very active in managing our balance sheet, completing
refinancings of Fair Oaks and International Plaza in early 2008, as outlined
under “Results of Operations – Debt Transactions”.
An
unfavorable court decision and the difficult economy drove our decisions to
record impairment charges in the fourth quarter of 2008 of $117.9 million
and $8.3 million related to our Oyster Bay project in the Town of Oyster
Bay, New York (Oyster Bay project or Oyster Bay) and our Sarasota project,
respectively (see “Results of Operations – Impairment Charges”).
We have
certain additional sources of income beyond our rental revenues, recoveries from
tenants, and revenue from management, leasing, and development services. We
disclose our share of these sources of income under “Results of Operations –
Other Income” and provide certain guidance for 2009. Included in other revenue
are lease cancellation income, as well as other sources of revenue derived from
our shopping centers, such as parking garage and sponsorship income. Other
sources of income include interest income, gains on peripheral land sales, and
in 2007, gains related to discontinued hedges.
We then
provide a discussion of our critical accounting policies, and the expected
impact in 2009 of recently issued accounting pronouncements.
With all
the preceding information as background, we then provide insight and
explanations for variances in our financial results for 2008, 2007, and 2006
under “Comparison of 2008 to 2007” and “Comparison of 2007 to 2006”. As
information useful to understanding our results, we have described the
presentation of our minority interest, the presentation of certain interests in
centers, and the reasons for our use of non-GAAP measures such as Beneficial
Interest in EBITDA and Funds from Operations (FFO) under “Results of Operations
– Presentation of Operating Results”. Reconciliations from net income (loss) and
net income (loss) allocable to common shareowners to these measures follow the
annual comparisons.
Our
discussion of sources and uses of capital resources under “Liquidity and Capital
Resources” begins with a brief overview of current market conditions and our
financial position. We have no maturities on our current debt until fall 2010,
when three loans mature with principal amounts of $338 million at 100% and
$264 million at our beneficial share. We then discuss our capital
activities and transactions that occurred in 2008. Analysis of specific
operating, investing, and financing activities is then provided in more
detail.
Specific
analysis of our fixed and floating rates and periods of interest rate risk
exposure is provided under “Liquidity and Capital Resources – Beneficial
Interest in Debt”. Completing our analysis of our exposure to rates are the
effects of changes in interest rates on our cash flows and fair values of debt
contained under “Liquidity and Capital Resources – Sensitivity Analysis”. Also
see “Liquidity and Capital Resources – Loan Commitments and Guarantees” for
discussion of compliance with debt covenants.
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, and other long-term
commitments. Detail of these obligations, including expected settlement periods,
is contained under “Liquidity and Capital Resources – Contractual Obligations”.
Property-level debt represents the largest single class of obligations.
Described under “Liquidity and Capital Resources – Loan Commitments and
Guarantees” and “Liquidity and Capital Resources – Cash Tender Agreement” are
our significant guarantees and commitments.
Development
of new malls and renovation and expansion of existing malls has been a
significant use of our capital, as described in “Liquidity and Capital Resources
– Capital Spending” and “Liquidity and Capital Resources – Capital Spending –
Planned Capital Spending”. Spending in the last two years includes construction
of Partridge Creek and The Pier Shops, the expansion and renovation of Twelve
Oaks, the expansion at Stamford, our Oyster Bay project, and other development
activities and capital items. However, with our Sarasota project on hold and the
continued delays on our Oyster Bay and Asia projects, we expect capital spending
in 2009 to consist primarily of tenant allowances and other capital expenditures
on our operating centers.
Dividends
and distributions are also significant uses of our capital resources. The
factors considered when determining the amount of our dividends, including
requirements arising because of our status as a REIT, are described under
“Liquidity and Capital Resources – Dividends”.
Mall
Tenant Sales and Center Revenues
Sales per
square foot growth was positive during the first, second, and third quarters of
2008, at 3.0%, 3.3%, and 0.5%, respectively. Sales began to decline in
September, and the decline steepened during the fourth quarter, with the luxury
and tourism centers experiencing the most negative impact from the slowdown.
During a time of such economic uncertainty, the consumer clearly moderated
spending as the fourth quarter of 2008 progressed, and we reported our first
quarterly decrease in tenant sales in over five years. For 2008 our sales
decreased 2.9% to a level of $539 per square foot. Sales per square foot
decreased by 13.7% in the fourth quarter.
Over the
long term, the level of mall tenant sales is the single most important
determinant of revenues of the shopping centers because mall tenants provide
approximately 90% of these revenues and because mall tenant sales determine the
amount of rent, percentage rent, and recoverable expenses (together, total
occupancy costs) that mall tenants can afford to pay. However, levels of mall
tenant sales can be considerably more volatile in the short run than total
occupancy costs, and may be impacted significantly, either positively or
negatively, by the success or lack of success of a small number of tenants or
even a single tenant.
We
believe that the ability of tenants to pay occupancy costs and earn profits over
long periods of time increases as sales per square foot increase, whether
through inflation or real growth in customer spending. Because most mall tenants
have certain fixed expenses, the occupancy costs that they can afford to pay and
still be profitable are a higher percentage of sales at higher sales per square
foot.
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 of
total rents (approximately 4% in 2008).
While
sales are critical over the long term, the high quality regional mall business
has been a very stable business model with its diversity of income from
thousands of tenants, its staggered lease maturities, and high proportion of
fixed rent. 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 current environment, we are finding that negotiations
are tougher. While retailers continue to recognize the need to position
themselves for the future, on the other end of the spectrum there is an increase
in bankruptcies (see “Rental Rates and Occupancy”).
The
following table summarizes occupancy costs, excluding utilities, for mall
tenants as a percentage of mall tenant sales:
Mall
tenant sales (in thousands of dollars)
|
|
|
4,654,885 |
|
|
|
4,734,940 |
|
|
|
4,344,565 |
|
Sales
per square foot (1)
|
|
|
539 |
|
|
|
555 |
|
|
|
529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
|
9.6 |
% |
|
|
8.9 |
% |
|
|
9.1 |
% |
Percentage
rents
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.4 |
|
Expense
recoveries
|
|
|
5.4 |
|
|
|
4.9 |
|
|
|
4.9 |
|
Mall tenant occupancy costs as
a percentage of mall tenant sales
|
|
|
15.4 |
% |
|
|
14.2 |
% |
|
|
14.4 |
% |
Unconsolidated
Joint Ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
|
8.9 |
% |
|
|
8.0 |
% |
|
|
8.3 |
% |
Percentage
rents
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.4 |
|
Expense
recoveries
|
|
|
4.6 |
|
|
|
4.2 |
|
|
|
3.9 |
|
Mall tenant occupancy costs as
a percentage of mall tenant sales
|
|
|
13.9 |
% |
|
|
12.6 |
% |
|
|
12.6 |
% |
(1)
|
Sales
per square foot is presented for the comparable centers, including value
centers.
|
In 2008,
mall tenant occupancy costs as a percentage of mall tenant sales increased due
to the decline in sales during the year, as well as due to increases in minimum
rents and expense recoveries.
Rental
Rates and Occupancy
As leases
have expired in the 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. Generally, center revenues have
increased as older leases rolled over or were terminated early and replaced with
new leases negotiated at current rental rates that were usually higher than the
average rates for existing leases. In periods of increasing sales, rents on new
leases will generally tend to rise. In periods of slower growth or declining
sales, as we are experiencing now, rents on new leases will grow more slowly or
will decline for the opposite reason, as tenants' expectations of future growth
become less optimistic. Rent per square foot information for comparable centers
in our Consolidated Businesses and Unconsolidated Joint Ventures
follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Average
rent per square foot:
|
|
|
|
|
|
|
|
|
|
Consolidated
Businesses
|
|
$ |
44.58 |
|
|
$ |
43.39 |
|
|
$ |
42.77 |
|
Unconsolidated Joint
Ventures
|
|
|
44.60 |
|
|
|
41.89 |
|
|
|
41.03 |
|
Opening
base rent per square foot:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Businesses
|
|
$ |
53.74 |
|
|
$ |
53.35 |
|
|
$ |
41.25 |
|
Unconsolidated Joint
Ventures
|
|
|
55.26 |
|
|
|
48.05 |
|
|
|
42.98 |
|
Square
feet of GLA opened:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Businesses
|
|
|
659,681 |
|
|
|
885,982 |
|
|
|
1,007,419 |
|
Unconsolidated Joint
Ventures
|
|
|
439,820 |
|
|
|
394,316 |
|
|
|
306,461 |
|
Closing
base rent per square foot:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Businesses
|
|
$ |
46.22 |
|
|
$ |
45.39 |
|
|
$ |
39.57 |
|
Unconsolidated Joint
Ventures
|
|
|
47.99 |
|
|
|
48.63 |
|
|
|
42.49 |
|
Square
feet of GLA closed:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Businesses
|
|
|
735,550 |
|
|
|
807,899 |
|
|
|
911,986 |
|
Unconsolidated Joint
Ventures
|
|
|
434,432 |
|
|
|
345,122 |
|
|
|
246,704 |
|
Releasing
spread per square foot:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Businesses
|
|
$ |
7.52 |
|
|
$ |
7.96 |
|
|
$ |
1.68 |
|
Unconsolidated Joint
Ventures
|
|
|
7.27 |
|
|
|
(0.58 |
) |
|
|
0.49 |
|
Average
rents per square foot of the Unconsolidated Joint Ventures in 2007 were impacted
by prior year adjustments totaling $3.0 million (at
100%) in 2007, related to The Mills Corporation’s accounting for lease
incentives at Arizona Mills, a 50% owned joint venture. Excluding these
adjustments, average rents per square foot of the Unconsolidated Joint Ventures
would have been $42.93 in 2007.
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
2007, the releasing spread per square foot of the Unconsolidated Joint Ventures
was impacted by the opening of large tenant spaces at a certain center. In 2006,
the releasing spread per square foot of the Unconsolidated Joint Ventures was
impacted by the opening of large tenant spaces at certain centers.
Mall
tenant leased space, ending occupancy, and average occupancy rates are as
follows:
All
Centers:
|
|
|
|
|
|
|
|
Leased space
|
91.7
|
% |
93.8
|
% |
92.5
|
% |
|
Ending
occupancy
|
90.3
|
|
91.2
|
|
91.3
|
|
|
Average
occupancy
|
90.3
|
|
90.0
|
|
89.2
|
|
|
|
|
|
|
|
|
|
|
Comparable
Centers:
|
|
|
|
|
|
|
|
Leased space
|
91.8
|
% |
93.8
|
% |
92.4
|
% |
|
Ending
occupancy
|
90.3
|
|
91.5
|
|
91.3
|
|
|
Average
occupancy
|
90.4
|
|
90.3
|
|
89.1
|
|
|
Ending
occupancy was 90.3%, a 0.9% decrease from 91.2% in 2007. This decline is largely
due to three big box anchor store locations, which are part of national
bankruptcies, that closed late in 2008 at our value centers. At 91.7%, leased
space is 1.4% over the year end occupancy level, indicating a backlog of tenants
who have committed to opening stores in the future. We expect occupancy to be
down about 2% by year end 2009. In this environment, capital spending is down
and retailers are expected to delay openings into 2010 and 2011. We have
executed 80% of our leasing plan for 2009, which is in line with our history.
However, we are concerned it will be difficult to execute new leases and open
additional stores. In addition, we expect unscheduled terminations, including
bankruptcies, to increase in 2009. It is likely the impact on income will be
somewhat offset by a higher level of temporary tenant leasing in 2009. Temporary
tenants, defined as those with lease terms less than 12 months, are not included
in occupancy or leased space statistics. As of December 31, 2008,
approximately 2.7% of space was occupied by temporary tenants. Tenant bankruptcy
filings as a percentage of the total number of tenant leases 2.5% in 2008,
compared to 0.5% in 2007, and 1.0% in 2006.
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 period. 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.
|
|
Total
2008
|
|
|
4th
Quarter
2008
|
|
|
3rd
Quarter
2008
|
|
|
2nd
Quarter
2008
|
|
|
1st
Quarter
2008
|
|
|
|
(in
thousands of dollars, except occupancy and leased space
data)
|
|
Mall
tenant sales (1)
|
|
|
4,654,885 |
|
|
|
1,342,748 |
|
|
|
1,112,502 |
|
|
|
1,116,027 |
|
|
|
1,083,608 |
|
Revenues
and gains on land sales
and other nonoperating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Businesses
|
|
|
676,067 |
|
|
|
190,855 |
|
|
|
164,124 |
|
|
|
161,868 |
|
|
|
159,220 |
|
Unconsolidated Joint
Ventures
|
|
|
272,496 |
|
|
|
77,277 |
|
|
|
67,169 |
|
|
|
63,657 |
|
|
|
64,393 |
|
Occupancy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending-comparable
|
|
|
90.3 |
% |
|
|
90.3 |
% |
|
|
90.6 |
% |
|
|
90.2 |
% |
|
|
90.1 |
% |
Average-comparable
|
|
|
90.4 |
|
|
|
90.7 |
|
|
|
90.5 |
|
|
|
90.1 |
|
|
|
90.2 |
|
Ending
|
|
|
90.3 |
|
|
|
90.3 |
|
|
|
90.5 |
|
|
|
90.0 |
|
|
|
89.9 |
|
Average
|
|
|
90.3 |
|
|
|
90.7 |
|
|
|
90.4 |
|
|
|
90.0 |
|
|
|
90.0 |
|
Leased
space:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable
|
|
|
91.8 |
% |
|
|
91.8 |
% |
|
|
92.5 |
% |
|
|
92.7 |
% |
|
|
93.0 |
% |
All centers
|
|
|
91.7 |
|
|
|
91.7 |
|
|
|
92.4 |
|
|
|
92.7 |
|
|
|
93.1 |
|
(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.
|
|
Total
2008
|
|
|
4th
Quarter
2008
|
|
|
3rd
Quarter
2008
|
|
|
2nd
Quarter
2008
|
|
|
1st
Quarter
2008
|
|
Consolidated
Businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
|
9.6 |
% |
|
|
8.8 |
% |
|
|
9.9 |
% |
|
|
9.9 |
% |
|
|
10.2 |
% |
Percentage
rents
|
|
|
0.4 |
|
|
|
0.6 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.3 |
|
Expense
recoveries
|
|
|
5.4 |
|
|
|
5.4 |
|
|
|
5.4 |
|
|
|
5.3 |
|
|
|
5.3 |
|
Mall tenant occupancy
costs
|
|
|
15.4 |
% |
|
|
14.8 |
% |
|
|
15.6 |
% |
|
|
15.4 |
% |
|
|
15.8 |
% |
Unconsolidated
Joint Ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
|
8.9 |
|
|
|
7.9 |
% |
|
|
9.5 |
% |
|
|
9.3 |
% |
|
|
9.2 |
% |
Percentage
rents
|
|
|
0.4 |
|
|
|
0.6 |
|
|
|
0.4 |
|
|
|
0.0 |
|
|
|
0.4 |
|
Expense
recoveries
|
|
|
4.6 |
|
|
|
4.9 |
|
|
|
4.8 |
|
|
|
4.4 |
|
|
|
4.2 |
|
Mall tenant occupancy
costs
|
|
|
13.9 |
% |
|
|
13.4 |
% |
|
|
14.7 |
% |
|
|
13.7 |
% |
|
|
13.8 |
% |
Results
of Operations
Openings, Expansions and
Renovations, and Acquisitions
During
the three year period ended December 31, 2008, we completed the
following shopping center openings, expansions and renovations, and
acquisitions:
Openings
Shopping Center
|
Date
|
Location
|
Ownership
|
The
Mall at Partridge Creek
|
October
2007
|
Clinton
Township, Michigan
|
Wholly-owned
|
The
Pier Shops at Caesars
|
June
2006
|
Atlantic
City, New Jersey
|
(See
below)
|
Expansions
and Renovations
Shopping Center
|
Date
|
Location
|
Ownership
|
Stamford
Town Center
|
November
2007
|
Stamford,
Connecticut
|
50%
owned Unconsolidated Joint Venture
|
Twelve
Oaks Mall
|
September
2007
|
Novi,
Michigan
|
Wholly-owned
|
Waterside
Shops
|
September
2006
|
Naples,
Florida
|
25%
owned Unconsolidated Joint Venture
|
Acquisitions
Shopping Center
|
Date
|
Acquisition
|
Resulting Ownership
|
The
Pier Shops at Caesars
|
April
2007
|
(See
below)
|
77.5%
owned consolidated joint venture
|
Land
under Sunvalley
|
October
2006
|
50%
interest
|
50%
owned unconsolidated joint venture
|
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 Transactions”). We will be responsible for any additional
capital requirements, on which we will receive a preferred return at a minimum
of 8%. As of December 31, 2008, we had provided $4.3 million of
additional capital.
Taubman
Asia
In
February 2008, Taubman Asia entered into agreements to acquire a 25%
interest in The Mall at Studio City, the retail component of Macao Studio City,
a major mixed-use project 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. Macao is a project
that has been clearly impacted by the financial crisis. It is on hold until
financing can be arranged, the timing of which is very uncertain. There
continues to be retailer interest in Macao, but the project is unlikely to move
forward in 2009.
In August
2009, our Macao agreements will terminate and our $54 million initial cash
payment, which is in escrow, will be returned to us if the financing for the
project is not completed. No interest is being capitalized on this
payment. Excluding the $54 million initial refundable deposit, we had
capitalized costs of $2.5 million on the Macao project as of
December 31, 2008. Offsetting these costs, we received a
$2.5 million non-refundable development fee payment in October 2008
from the owner of the Macao project, which was recorded as deferred revenue. We
began expensing costs relating to the project in the third quarter of
2008.
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, and we continue to provide services as the regional mall progresses.
The shopping center will be anchored by Lotte Department Store, Tesco Homeplus,
and a nine-screen Megabox multiplex. Progress has been made on the mall
infrastructure and parking. We will not make a final determination about an
investment in this center until full financing is completed.
Debt
Transactions
We
completed a series of debt financings in the three year period ended
December 31, 2008, as follows:
|
Date
|
Initial Loan
Balance/Facility
|
Stated
Interest
Rate
|
Maturity
Date (1)
|
|
(in
millions of dollars)
|
|
Fair
Oaks
|
April
2008
|
250
|
LIBOR+1.40%
(2)
|
April
2011
|
International
Plaza
|
January
2008
|
325
|
LIBOR+1.15%
(3)
|
January
2011
|
TRG
revolving credit facility (4)
|
November
2007
|
550
|
LIBOR+0.70%
|
February
2011
|
The
Pier Shops at Caesars
|
April
2007
|
135
|
6.01%
|
May
2017
|
Taubman
Land Associates (Sunvalley)
|
December
2006
|
30
|
LIBOR+0.90%
(5)
|
November
2012
|
Waterside
Shops
|
September
2006
|
165
|
5.54%
|
October
2016
|
The
Mall at Partridge Creek
construction
facility
|
September
2006
|
81
|
LIBOR+1.15%
|
September
2010
|
TRG
revolving credit facility (6)
|
August
2006
|
350
|
LIBOR+0.70%
|
February
2009
|
Cherry
Creek Shopping Center
|
May
2006
|
280
|
5.24%
|
June
2016
|
Northlake
Mall
|
February
2006
|
216
|
5.41%
|
February
2016
|
(1)
|
Excludes
any options to extend the maturities (see the footnotes to our financial
statements regarding extension
options).
|
(2)
|
The
loan is swapped at 4.22% for the initial three-year term of the loan
agreement.
|
(3)
|
The
loan is swapped at 5.01% for the initial three-year term of the loan
agreement.
|
(4)
|
In
November 2007, we increased the borrowing limit on the TRG revolving
credit facility by $200 million and extended the maturity date by two
years, with a one-year extension
option.
|
(5)
|
The
loan is swapped at 5.95% (5.05% swap rate plus 0.90% credit spread) from
January 2, 2007 through the term of the
loan.
|
(6)
|
TRG
revolving credit facility was amended in
November 2007.
|
Borrowings
under TRG’s revolving credit facility are primary obligations of the entities
owning Dolphin, Fairlane, and Twelve Oaks, which are collateral for the line of
credit. The Operating Partnership and the entities owning Fairlane and Twelve
Oaks are guarantors under the credit agreement.
Equity
Transactions
We also
completed a series of equity transactions in the three year period ended
December 31, 2008, as follows:
|
#
of shares
|
Amount
|
Price
per
share
|
Date
|
|
(in
millions of dollars)
|
|
Redemptions and
Repurchases:
|
|
|
|
|
|
Stock repurchases (1)
|
987,180
|
50.0
|
$50.65
|
|
August
2007
|
Stock repurchases (1)
|
923,364
|
50.0
|
54.15
|
|
May
- June 2007
|
Redemption of Series I
Cumulative
Redeemable Preferred Stock
(2)
|
4,520,000
|
113.0
|
25.00
|
|
June
2006
|
Redemption of Series A
Cumulative
Redeemable Preferred Stock
(3)
|
4,520,000
|
113.0
|
25.00
|
|
May
2006
|
|
|
|
|
|
|
Issuances:
|
|
|
|
|
|
Issuance of Series I
Cumulative
Redeemable Preferred Stock
(4)
|
4,520,000
|
113.0
|
25.00
|
|
May
2006
|
(1)
|
For
each common share repurchased, a unit of TRG partnership interest is
similarly redeemed. See “Note 14 – Common and Preferred Stock and
Equity of TRG” to our consolidated financial statements regarding the
repurchase of our common stock.
|
(2)
|
A
$0.6 million charge was recognized upon redemption of this preferred
stock, comprised of the difference between the redemption price
($113.0 million) and its book value
($112.4 million).
|
(3)
|
A
$4.0 million charge was recognized upon redemption of this preferred
stock, comprised of the difference between the redemption price
($113.0 million) and its book value
($109.0 million).
|
(4)
|
Proceeds
were used to redeem $113 million of our remaining 8.30% Series A
Cumulative Redeemable Preferred
Stock.
|
Impairment
Charges
In
January 2009, the Appellate Division of the Supreme Court of the State of
New York reversed the favorable order that we had been issued in June 2008
directing the Town of Oyster Bay to immediately issue a special use permit for
The Mall at Oyster Bay. The court also upheld the Town Board’s request for a
supplemental environmental impact statement. Although we intend to immediately
seek an appeal of the decision, we determined in February 2009 that we
would recognize in the fourth quarter of 2008 a charge to income of
$117.9 million relating to the Oyster Bay project, including
$4.6 million in costs for future expenditures associated with obligations
under existing contracts related to the project. This determination was reached
after an overall assessment of the probability of the development of the mall as
designed and a review of our previously capitalized project costs. The charge
includes the costs of previous development activities as well as holding and
other costs that management believes will likely not benefit the development if
and when we obtain the rights to build the center. We also expect to expense any
additional costs relating to Oyster Bay until it is probable that we will be
able to successfully move forward with a project. We began expensing carrying
costs as incurred beginning in the fourth quarter of 2008. Our remaining
capitalized investment in the project as of December 31, 2008 is
$39.8 million, consisting of land and site improvements. If we are ultimately
unsuccessful in obtaining the right to build the center, it is
uncertain whether we would be able to recover the full amount of this
capitalized investment through alternate uses of the land.
In
May 2008, we entered into agreements to jointly develop University Town
Center, a regional mall in Sarasota, Florida. Under the agreements, we would own
a noncontrolling 25% interest in the project. Due to the current economic and
retail environment, in December 2008 we announced that the project has been
put on hold. Although we continue to believe it should be a very attractive
opportunity longer term, we do not know if or when we will acquire an interest
in the land and move forward with the project. Due to this uncertainty, we
recognized an $8.3 million charge to income in the fourth quarter of 2008.
The charge to income represents our share of total project costs. We have no
asset remaining and expect to expense any additional costs related to the
monitoring of the project until a definitive agreement is reached by the parties
on going forward with the project.
Other
Income
We have
certain additional sources of income beyond our rental revenues, recoveries from
tenants, and revenues from management, leasing, and development services, as
summarized in the following table. Lease cancellation revenue is dependent on
the overall economy and performance of particular retailers in specific
locations and can vary significantly. Gains on peripheral land sales can also
vary significantly from year-to-year, depending on the results of negotiations
with tenants, counterparties, and potential purchasers of land, as well as the
timing of the transactions. In 2009, we estimate our share of lease cancellation
income to be approximately $7 million to $8 million. In addition, due
to current economic conditions, we would expect that certain shopping center
related revenues that are based on month to month or shorter term contracts,
primarily sponsorship and retail marketing units income, may decrease
substantially in 2009.
|
2008
|
|
2007
|
|
2006
|
|
Consolidated
Businesses
|
|
Unconsolidated
Joint
Ventures
|
|
Consolidated
Businesses
|
|
Unconsolidated
Joint
Ventures
|
|
Consolidated
Businesses
|
|
Unconsolidated
Joint
Ventures
|
|
(Operating
Partnership’s share in millions of dollars)
|
Other
income:
|
|
|
|
|
|
|
|
|
|
|
|
Shopping center related
revenues
|
26.9
|
|
3.0
|
|
23.1
|
|
2.5
|
|
21.9
|
|
2.6
|
Lease cancellation
revenue
|
9.7
|
|
2.5
|
|
10.9
|
|
2.0
|
|
10.5
|
|
2.8
|
|
36.6
|
|
5.5
|
|
33.9
|
|
4.6
|
|
32.4
|
|
5.4
|
Gains
on land sales and other nonoperating
income:
|
|
|
|
|
|
|
|
|
|
|
|
Gains on sales of peripheral
land
|
2.8
|
|
|
|
0.7
|
|
|
|
4.1
|
|
|
Interest
income
|
1.5
|
|
0.4
|
|
2.2
|
|
0.8
|
|
5.2
|
|
0.6
|
Gains on discontinued
hedges
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
4.3
|
|
0.4
|
|
3.1
|
|
0.8
|
|
9.3
|
|
0.6
|
(1)
|
Amounts
in this table may not add due to
rounding.
|
Subsequent
Event
In
January 2009, in response to a decreased level of active projects due to the
downturn in the economy, we reduced our workforce by about 40 positions,
primarily in areas that directly or indirectly affect our development
initiatives in the U.S. and Asia. A restructuring charge of approximately
$2.6 million will be recorded in the first quarter of 2009, which primarily
represents the cost of terminations of personnel. The majority of the
restructuring costs will be paid during the first quarter of 2009.
Application of Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the financial statements and disclosures.
Some of these estimates and assumptions require application of difficult,
subjective, and/or complex judgment, often about the effect of matters that are
inherently uncertain and that may change in subsequent periods. We are required
to make such estimates and assumptions when applying the following accounting
policies.
Valuation
of Shopping Centers
The
viability of all projects under construction or development, including those
owned by Unconsolidated Joint Ventures, are regularly evaluated under applicable
accounting requirements, including requirements relating to abandonment of
assets or changes in use. To the extent a project, or individual components of
the project, are no longer considered to have value, the related capitalized
costs are charged against operations. Additionally, all properties are reviewed
for impairment on an individual basis whenever events or changes in
circumstances indicate that their carrying value may not be recoverable.
Impairment of a shopping center owned by consolidated entities is recognized
when the sum of expected cash flows (undiscounted and without interest charges)
is less than the carrying value of the property. Other than temporary impairment
of an investment in an Unconsolidated Joint Venture is recognized when the
carrying value is not considered recoverable based on evaluation of the severity
and duration of the decline in value, including the results of discounted cash
flow and other valuation techniques. The expected cash flows of a shopping
center are dependent on estimates and other factors subject to change, including
(1) changes in the national, regional, and/or local economic climates, (2)
competition from other shopping centers, stores, clubs, mailings, and the
internet, (3) increases in operating costs, (4) bankruptcy and/or other changes
in the condition of third parties, including anchors and tenants, (5) expected
holding period, and (6) availability of credit. These factors could cause our
expected future cash flows from a shopping center to change, and, as a result,
an impairment could be considered to have occurred. To the extent impairment has
occurred, the excess carrying value of the asset over its estimated fair value
is charged to income.
In 2008,
we recognized impairment charges of $117.9 million and $8.3 million
related to our Oyster Bay and Sarasota projects, respectively (see “Impairment
Charges”). There were no impairment charges recognized in 2007 or 2006. As of
December 31, 2008, the consolidated net book value of our properties
was $2.6 billion, representing over 85% of our consolidated assets. We also
have varying ownership percentages in the properties of Unconsolidated Joint
Ventures with a total combined net book value of $0.7 billion. These
amounts include certain development costs that are described in the policy that
follows.
Capitalization
of Development Costs
In
developing shopping centers, we typically obtain land or land options, zoning
and regulatory approvals, anchor commitments, and financing arrangements during
a process that may take several years and during which we may incur significant
costs. We capitalize all development costs once it is considered probable that a
project will reach a successful conclusion. Prior to this time, we expense all
costs relating to a potential development, including payroll, and include these
costs in Funds from Operations (see "Presentation of Operating
Results").
On an
ongoing basis, we continue to assess the probability of a project going forward
and whether the asset is impaired. In addition, we also assess whether there are
sufficient substantive development activities in a given period to support the
capitalization of carrying costs, including interest capitalization, in that
period.
Many
factors in the development of a shopping center are beyond our control,
including (1) changes in the national, regional, and/or local economic climates,
(2) competition from other shopping centers, stores, clubs, mailings, and the
internet, (3) availability and cost of financing, (4) changes in regulations,
laws, and zoning, and (5) decisions made by third parties, including anchors.
These factors could cause our assessment of the probability of a development
project reaching a successful conclusion to change. If a project subsequently
was considered less than probable of reaching a successful conclusion, a charge
against operations for previously capitalized development costs would
occur.
Our
$64.9 million balance of development pre-construction costs as of
December 31, 2008 consists
primarily of approximately $40 million of costs relating to our Oyster Bay
project, as described above. The balance also includes approximately
$22 million of land and improvement costs for a parcel in North Atlanta,
Georgia, which was acquired for future development. A portion of this land is
expected to be sold for various uses. See “Impairment Charges” regarding the
status of the Oyster Bay project and others.
Valuation
of Accounts and Notes Receivable
Rents and
expense recoveries from tenants are our principal source of income; they
represent over 90% of our revenues. In generating this income, we will routinely
have accounts receivable due from tenants. The collectibility of tenant
receivables is affected by bankruptcies, changes in the economy, and the ability
of the tenants to perform under the terms of their lease agreements. While we
estimate potentially uncollectible receivables and provide for them through
charges against income, actual experience may differ from those estimates. Also,
if a tenant were not able to perform under the terms of its lease agreement,
receivable balances not previously provided for may be required to be charged
against operations. Bad debt expense was less than 1% of total revenues in 2008,
while bankruptcy filings affected 2.5% of tenant leases during the year. Since
1991, the annual provision for losses on accounts receivable has been less than
2% of annual revenues.
Notes
receivable at December 31, 2008 totaled $7.5 million, of which
$2.0 million relates to notes receivable from three tenants with common
ownership that became delinquent during the third quarter 2008. The notes are
guaranteed by affiliates of the tenants, and we expect to recover the remaining
$0.6 million net book value. In addition, $1.0 million of the total
notes receivable balance related to the sale of residual land. This land
contract receivable is currently in default. The fair value of the land
that serves as collateral is at least equal to the book value of the receivable.
Valuation of delinquent notes receivable are dependent on management’s estimates
of the collectibility of contractual principal and interest payments, which are
inherently judgmental.
Valuation
of Deferred Tax Assets
Our
taxable REIT subsidiaries (TRSs) currently have deferred tax assets, reflecting
net operating loss carryforwards and 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. Our temporary
differences primarily relate to deferred compensation and depreciation. We
reduce our deferred tax assets through valuation allowances to the amount where
realization is more likely than not assured, considering all available evidence,
including expected future taxable earnings and potential tax planning
strategies. Expected future taxable earnings and the implementation of tax
planning strategies require certain significant judgments and estimates,
including those relating to our management company's profitability, the timing
and amounts of gains on land sales, the profitability of our Asian operations,
and other factors affecting the results of operations of our TRSs. Changes in
any of these factors could cause our estimates of the realization of deferred
tax assets to change materially. In July 2007, the State of Michigan signed
into law the Michigan Business Tax Act, 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
December 31, 2008, we had a net federal and foreign deferred tax asset
of $3.2 million, after a valuation allowance of
$6.6 million.
Valuations
for Acquired Property and Intangibles
Upon
acquisition of an investment property, including that of an additional interest
in an asset already partially owned, we make an assessment of the valuation and
composition of assets and liabilities acquired. These assessments consider fair
values of the respective assets and liabilities and are determined based on
estimated future cash flows using appropriate discount and capitalization rates
and other commonly accepted valuation techniques. The estimated future cash
flows that are used for this analysis reflect the historical operations of the
property, known trends and changes expected in current market and economic
conditions which would impact the property’s operations, and our plans for such
property. These estimates of cash flows and valuations are particularly
important given the application of FASB Statement Nos. 141 and 142 for the
allocation of purchase price between land, building and improvements, and other
identifiable intangibles.
New Accounting
Pronouncements
In
December 2007, the FASB issued Statement No. 160 "Noncontrolling
Interests in Consolidated Financial Statements – an amendment of Accounting
Research Bulletin (ARB) No. 51.” This Statement amends 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. Statement No. 160 generally requires
noncontrolling interests to be treated as a separate component of equity (not as
a liability or other item outside of permanent equity) and consolidated net
income and comprehensive income to include the noncontrolling interest’s share.
The calculation of earnings per share will continue to be based on income
amounts attributable to the parent. Statement No. 160 also establishes a
single method of accounting for transactions that change a parent's ownership
interest in a subsidiary by requiring that all such transactions be accounted
for as equity transactions if the parent retains its controlling financial
interest in the 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" and eliminates the requirement to
apply purchase accounting to a parent’s acquisition of noncontrolling ownership
interests in a subsidiary. Statement No. 160 is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after
December 15, 2008. Except for certain presentation and disclosure
requirements, Statement No. 160 will be applied on a prospective basis. In
March 2008, the SEC announced revisions to EITF 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.
Upon our
adoption of Statement No. 160 on January 1, 2009, the
noncontrolling interests in the Operating Partnership and certain consolidated
joint ventures will no longer need to be carried at zero balances in our balance
sheet. As a result, the income allocated to these noncontrolling interests will
no longer be required to be equal to their share of distributions, which will
result in a material increase to TCO's net income. See “Note 1 – Summary of
Significant Accounting Policies” to our consolidated financial statements
regarding current accounting for minority interests.
See
“Note 20 – New Accounting Pronouncements” to our consolidated financial
statements regarding Statement 160, as well as other new accounting
pronouncements that will be adopted in 2009.
Presentation of Operating
Results
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 (see “New
Accounting Pronouncements” regarding changes to the accounting for minority
interests). 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
67% in 2008, 66% in 2007, and 65% in 2006.
The
results of The Pier Shops are presented within the Consolidated Businesses for
periods beginning April 13, 2007, as a result of our acquisition of a
controlling interest in the center. Prior to the acquisition date, the results
of The Pier Shops 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 (Loss) Allocable to Common Shareowners to Funds from Operations and Net
Income (Loss) to Beneficial Interest in EBITDA are presented following the
Comparison of 2007 to 2006.
Comparison
of 2008 to 2007
The
following table sets forth operating results for 2008 and 2007, showing the
results of the Consolidated Businesses and Unconsolidated Joint
Ventures:
|
2008
|
2007
|
|
CONSOLIDATED
BUSINESSES
|
UNCONSOLIDATED
JOINT
VENTURES
AT
100%(1)
|
CONSOLIDATED
BUSINESSES
|
UNCONSOLIDATED
JOINT
VENTURES
AT
100%(1)
|
(in millions of
dollars)
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
|
353.2 |
|
|
|
157.1 |
|
|
|
329.4 |
|
|
|
150.9 |
|
Percentage rents
|
|
|
13.8 |
|
|
|
6.6 |
|
|
|
14.8 |
|
|
|
8.4 |
|
Expense
recoveries
|
|
|
248.6 |
|
|
|
98.5 |
|
|
|
228.4 |
|
|
|
94.9 |
|
Management, leasing, and
development services
|
|
|
15.9 |
|
|
|
|
|
|
|
16.5 |
|
|
|
|
|
Other
|
|
|
40.1 |
|
|
|
9.6 |
|
|
|
37.7 |
|
|
|
8.4 |
|
Total
revenues
|
|
|
671.5 |
|
|
|
271.8 |
|
|
|
626.8 |
|
|
|
262.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance, taxes, and
utilities
|
|
|
189.2 |
|
|
|
66.8 |
|
|
|
175.9 |
|
|
|
66.6 |
|
Other operating
|
|
|
79.6 |
|
|
|
22.5 |
|
|
|
69.6 |
|
|
|
20.7 |
|
Management, leasing, and
development services
|
|
|
8.7 |
|
|
|
|
|
|
|
9.1 |
|
|
|
|
|
General and
administrative
|
|
|
28.1 |
|
|
|
|
|
|
|
30.4 |
|
|
|
|
|
Impairment charge (2)
|
|
|
117.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
147.4 |
|
|
|
65.0 |
|
|
|
131.7 |
|
|
|
66.2 |
|
Depreciation and amortization
(3)
|
|
|
147.4 |
|
|
|
40.7 |
|
|
|
137.9 |
|
|
|
39.4 |
|
Total
expenses
|
|
|
718.4 |
|
|
|
195.0 |
|
|
|
554.7 |
|
|
|
193.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
on land sales and other nonoperating income
|
|
|
4.6 |
|
|
|
0.7 |
|
|
|
3.6 |
|
|
|
1.6 |
|
|
|
|
(42.3 |
) |
|
|
77.5 |
|
|
|
75.7 |
|
|
|
71.2 |
|
Income
tax expense
|
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in income of Unconsolidated Joint Ventures (3)(4)
|
|
|
35.4 |
|
|
|
|
|
|
|
40.5 |
|
|
|
|
|
Income
(loss) before minority and preferred interests
|
|
|
(8.1 |
) |
|
|
|
|
|
|
116.2 |
|
|
|
|
|
Minority
and preferred interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRG preferred
distributions
|
|
|
(2.5 |
) |
|
|
|
|
|
|
(2.5 |
) |
|
|
|
|
Minority share of income of
consolidated joint
ventures
|
|
|
(7.4 |
) |
|
|
|
|
|
|
(5.0 |
) |
|
|
|
|
Distributions in excess of
minority share of income
of consolidated joint
ventures
|
|
|
(8.6 |
) |
|
|
|
|
|
|
(3.0 |
) |
|
|
|
|
Minority share of (income) loss
of TRG
|
|
|
11.3 |
|
|
|
|
|
|
|
(33.2 |
) |
|
|
|
|
Distributions in excess of
minority share of income
(loss) of TRG
|
|
|
(56.8 |
) |
|
|
|
|
|
|
(9.4 |
) |
|
|
|
|
Net
income (loss)
|
|
|
(72.0 |
) |
|
|
|
|
|
|
63.1 |
|
|
|
|
|
Preferred
dividends
|
|
|
(14.6 |
) |
|
|
|
|
|
|
(14.6 |
) |
|
|
|
|
Net
income (loss) allocable to common shareowners
|
|
|
(86.7 |
) |
|
|
|
|
|
|
48.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA - 100%
|
|
|
244.2 |
|
|
|
183.2 |
|
|
|
345.3 |
|
|
|
176.8 |
|
EBITDA - outside partners'
share
|
|
|
(40.0 |
) |
|
|
(82.2 |
) |
|
|
(36.6 |
) |
|
|
(80.0 |
) |
Beneficial interest in
EBITDA
|
|
|
204.2 |
|
|
|
101.1 |
|
|
|
308.7 |
|
|
|
96.8 |
|
Beneficial interest
expense
|
|
|
(127.8 |
) |
|
|
(33.8 |
) |
|
|
(117.4 |
) |
|
|
(33.3 |
) |
Beneficial income tax
expense
|
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Non-real estate
depreciation
|
|
|
(3.3 |
) |
|
|
|
|
|
|
(2.7 |
) |
|
|
|
|
Preferred dividends and
distributions
|
|
|
(17.1 |
) |
|
|
|
|
|
|
(17.1 |
) |
|
|
|
|
Funds from Operations
contribution
|
|
|
54.9 |
|
|
|
67.3 |
|
|
|
171.6 |
|
|
|
63.5 |
|
(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)
|
In
2008, we recognized an impairment charge on our Oyster Bay
project.
|
(3)
|
Amortization
of our additional basis in the Operating Partnership included in
depreciation and amortization was $4.9 million in both 2008 and 2007.
Also, amortization of our additional basis included in equity in income of
Unconsolidated Joint Ventures was $1.9 million in both 2008 and
2007.
|
(4)
|
Equity
in income of Unconsolidated Joint Ventures in 2008 includes an $8.3
million charge recognized in connection with the impairment of our
Sarasota joint venture.
|
(5)
|
Amounts
in this table may not add due to
rounding.
|
Consolidated
Businesses
Total
revenues for the year ended December 31, 2008 were
$671.5 million, a $44.7 million or 7.1% increase over 2007. Minimum
rents increased $23.8 million, primarily due to the October 2007
opening of Partridge Creek, the September 2007 expansion at Twelve Oaks,
and 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 tenant rollovers and increases in average occupancy. Percentage
rents decreased due to lower tenant sales. Expense recoveries increased
primarily due to Partridge Creek, Twelve Oaks, and The Pier Shops, as well as
increased CAM capital expenditures and recoverable costs at certain centers.
Management, leasing, and development revenue decreased primarily due to lower
revenue on the Songdo development contract, which in the first quarter of 2007
included revenue related to 2006 services, and was partially offset by increased
revenue from our Salt Lake City project. In 2009, we expect our margin on
management, leasing, and development revenue to be comparable to 2008. Other
income increased primarily due to increases in parking-related and sponsorship
revenue, which were partially offset by a decrease in lease cancellation
revenue.
Total
expenses were $718.4 million, a $163.7 million or 29.5% increase from
2007. Maintenance, taxes, and utilities expense increased primarily due to
Partridge Creek, The Pier Shops, and Twelve Oaks, as well as increases in
maintenance costs and property taxes at certain centers. Other operating expense
increased due to increased pre-development costs and bad debt expense, The Pier
Shops, and Partridge Creek. Given the overall retail environment and capital
market status, we expect to reduce our pre-development spending in both the U.S.
and in Asia in 2009. In 2008, we incurred $18.5 million on pre-development
activities. We expect to incur about $13 million in 2009, of which about
$2 million relates to our ongoing Oyster Bay efforts, which we began
expensing in the fourth quarter of 2008. General and administrative expense
decreased primarily due to a significant decrease in bonus expense. In addition
to a significant reduction in annual bonus plan expense due to financial
performance, our deferred long-term compensation grants are marked to market
quarterly based on our stock price. Due to the payout of most of these deferred
grants early in 2009, we no longer expect a significant impact of marking to
market beyond 2008. In 2009, we expect general and administrative expense to be
comparable to 2008. In 2008, we recognized a $117.9 million impairment
charge on our Oyster Bay project (see “Results of Operations – Impairment
Charges”). Interest expense increased primarily due to the January 2008
refinancing at International Plaza, Partridge Creek, and The Pier Shops.
Interest expense also increased due to the termination of interest
capitalization on our Oyster Bay project in the fourth quarter of 2008, the
repurchase of common stock in 2007, the escrowed Macao payment, and the
expansion at Twelve Oaks. These increases were partially offset by decreases in
floating interest rates. Depreciation expense increased due to Partridge Creek,
The Pier Shops, and Twelve Oaks.
Gains on
land sales and other nonoperating income increased primarily due to
$2.8 million of gains on land sales and land-related rights in 2008,
compared to $0.7 million of gains in 2007. This increase was partially
offset by decreased interest income. In 2009, gains on land sales are expected
to be under $2 million, and we may not be able to complete any
transactions.
Income
tax expense in 2008 consists of taxes related to the Michigan Business Tax Act,
which became effective January 1, 2008 (see “Results of Operations –
Application of Critical Accounting Policies – Valuation of Deferred Tax
Assets”). The new tax replaced the Michigan Single Business Tax, which was
previously classified within Other operating expense on our Statement of
Operations.
Unconsolidated
Joint Ventures
Total
revenues for the year ended December 31, 2008 were
$271.8 million, a $9.2 million or 3.5% increase from 2007. Minimum
rents increased by $6.2 million, primarily due to tenant rollovers, the
November 2007 expansion at Stamford, increased income from specialty
retailers, and prior year adjustments at Arizona Mills in 2007. These increases
were partially offset by the reduction due to the consolidation of The Pier
Shops and decreases due to frictional vacancy on spaces that opened in the
second half of the year. Percentage rents decreased due to lower tenant sales.
Expense recoveries increased primarily due to increased maintenance costs at
certain centers, Stamford, and an increase in revenue from marketing and
promotion services, which were partially offset by The Pier Shops and decreases
due to adjustments in 2007 to prior estimated recoveries at certain centers.
Other income increased primarily due to Stamford and increases in lease
cancellation revenue.
Total
expenses increased by $2.0 million or 1.0%, to $195.0 million for the
year ended December 31, 2008. Maintenance, taxes, and utilities
expense remained relatively flat, with increases due to Stamford and increased
maintenance costs at certain centers being offset by The Pier Shops. Other
operating expense increased primarily due to Stamford and increased professional
fees, which were partially offset by The Pier Shops. Interest expense decreased
due to The Pier Shops, which was partially offset by the refinancing at Fair
Oaks. Depreciation expense increased due to the expansion at Stamford and higher
depreciation on CAM assets, which were partially offset by The Pier
Shops.
As a
result of the foregoing, income of the Unconsolidated Joint Ventures increased
by $6.3 million to $77.5 million. 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 –
Openings, Expansions and Renovations, and Acquisitions”). Our equity in income
of the Unconsolidated Joint Ventures was $35.4 million, a $5.1 million
decrease from 2007. In 2008, we recognized an impairment charge of
$8.3 million related to our investment in University Town Center (see
“Results of Operations – Impairment Charges”). The charge to income represents
our share of our Sarasota joint venture project costs.
Net
Income (Loss)
Our
income (loss) before minority and preferred interests decreased by
$124.3 million to a $8.1 million loss for 2008, due to the impairment
charges. After allocation of income to minority and preferred interests, the net
income (loss) allocable to common shareowners for 2008 was a loss of
$86.7 million compared to $48.5 million of income in
2007.
Comparison
of 2007 to 2006
The
following table sets forth operating results for 2007 and 2006, showing the
results of the Consolidated Businesses and Unconsolidated Joint
Ventures:
|
2007
|
2006
|
|
CONSOLIDATED
BUSINESSES
|
UNCONSOLIDATED
JOINT
VENTURES
AT
100%(1)
|
CONSOLIDATED
BUSINESSES
|
UNCONSOLIDATED
JOINT
VENTURES
AT
100%(1)
|
(in millions of
dollars)
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
|
329.4 |
|
|
|
150.9 |
|
|
|
311.2 |
|
|
|
148.8 |
|
Percentage rents
|
|
|
14.8 |
|
|
|
8.4 |
|
|
|
14.7 |
|
|
|
8.0 |
|
Expense
recoveries
|
|
|
228.4 |
|
|
|
94.9 |
|
|
|
206.2 |
|
|
|
85.6 |
|
Management, leasing and
development services
|
|
|
16.5 |
|
|
|
|
|
|
|
11.8 |
|
|
|
|
|
Other
|
|
|
37.7 |
|
|
|
8.4 |
|
|
|
35.4 |
|
|
|
9.7 |
|
Total
revenues
|
|
|
626.8 |
|
|
|
262.6 |
|
|
|
579.3 |
|
|
|
252.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance, taxes, and
utilities
|
|
|
175.9 |
|
|
|
66.6 |
|
|
|
152.9 |
|
|
|
64.3 |
|
Other operating
|
|
|
69.6 |
|
|
|
20.7 |
|
|
|
71.6 |
|
|
|
26.3 |
|
Management, leasing and
development services
|
|
|
9.1 |
|
|
|
|
|
|
|
5.7 |
|
|
|
|
|
General and
administrative
|
|
|
30.4 |
|
|
|
|
|
|
|
30.3 |
|
|
|
|
|
Interest expense (2)
|
|
|
131.7 |
|
|
|
66.2 |
|
|
|
128.6 |
|
|
|
57.6 |
|
Depreciation and amortization
(3)
|
|
|
137.9 |
|
|
|
39.4 |
|
|
|
138.0 |
|
|
|
45.8 |
|
Total
expenses
|
|
|
554.7 |
|
|
|
193.0 |
|
|
|
527.1 |
|
|
|
193.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
on land sales and other nonoperating income
|
|
|
3.6 |
|
|
|
1.6 |
|
|
|
9.5 |
|
|
|
1.3 |
|
|
|
|
75.7 |
|
|
|
71.2 |
|
|
|
61.6 |
|
|
|
59.6 |
|
Equity
in income of Unconsolidated Joint Ventures (3)
|
|
|
40.5 |
|
|
|
|
|
|
|
33.5 |
|
|
|
|
|
Income
before minority and preferred interests
|
|
|
116.2 |
|
|
|
|
|
|
|
95.1 |
|
|
|
|
|
Minority
and preferred interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRG preferred
distributions
|
|
|
(2.5 |
) |
|
|
|
|
|
|
(2.5 |
) |
|
|
|
|
Minority share of income of
consolidated joint
ventures
|
|
|
(5.0 |
) |
|
|
|
|
|
|
(5.8 |
) |
|
|
|
|
Distributions in excess of
minority share of income
of consolidated joint
ventures
|
|
|
(3.0 |
) |
|
|
|
|
|
|
(4.9 |
) |
|
|
|
|
Minority share of income of
TRG
|
|
|
(33.2 |
) |
|
|
|
|
|
|
(22.8 |
) |
|
|
|
|
Distributions in excess of
minority share of income
of TRG
|
|
|
(9.4 |
) |
|
|
|
|
|
|
(14.1 |
) |
|
|
|
|
Net
income
|
|
|
63.1 |
|
|
|
|
|
|
|
45.1 |
|
|
|
|
|
Preferred
dividends (4)
|
|
|
(14.6 |
) |
|
|
|
|
|
|
(23.7 |
) |
|
|
|
|
Net
income allocable to common shareowners
|
|
|
48.5 |
|
|
|
|
|
|
|
21.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA - 100%
|
|
|
345.3 |
|
|
|
176.8 |
|
|
|
328.2 |
|
|
|
162.9 |
|
EBITDA - outside partners'
share
|
|
|
(36.6 |
) |
|
|
(80.0 |
) |
|
|
(33.2 |
) |
|
|
(71.4 |
) |
Beneficial interest in
EBITDA
|
|
|
308.7 |
|
|
|
96.8 |
|
|
|
295.0 |
|
|
|
91.6 |
|
Beneficial interest
expense
|
|
|
(117.4 |
) |
|
|
(33.3 |
) |
|
|
(115.8 |
) |
|
|
(31.2 |
) |
Non-real estate
depreciation
|
|
|
(2.7 |
) |
|
|
|
|
|
|
(2.9 |
) |
|
|
|
|
Preferred dividends and
distributions
|
|
|
(17.1 |
) |
|
|
|
|
|
|
(26.2 |
) |
|
|
|
|
Funds from Operations
contribution
|
|
|
171.6 |
|
|
|
63.5 |
|
|
|
150.0 |
|
|
|
60.4 |
|
(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)
|
Interest
expense for 2006 includes charges of $3.1 million in connection with the
write-off of financing costs related to the respective pay off and
refinancing of the loans on Willow Bend and Dolphin when the loans became
prepayable without penalty, in the first and third quarters of 2006,
respectively.
|
(3)
|
Amortization
of our additional basis in the Operating Partnership included in
depreciation and amortization was $4.9 million in both 2007 and 2006.
Also, amortization of our additional basis included in equity in income of
Unconsolidated Joint Ventures was $1.9 million in both 2007 and
2006.
|
(4)
|
Preferred
dividends for 2006 include $4.7 million of charges recognized in
connection with the redemption of the remaining Series A and Series I
Preferred Stock.
|
(5)
|
Amounts
in this table may not add due to
rounding.
|
Consolidated
Businesses
Total
revenues for the year ended December 31, 2007 were
$626.8 million, a $47.5 million or 8.2% increase over 2006. Minimum
rents increased $18.2 million, primarily due to The Pier Shops, which we
began consolidating upon the acquisition of a controlling interest in the
center, tenant rollovers, and increases in occupancy. Minimum rents also
increased due to the October 2007 opening of Partridge Creek and the
September 2007 expansion at Twelve Oaks. Expense recoveries increased
primarily due to The Pier Shops, increases in recoverable costs at certain
centers, Partridge Creek, and Twelve Oaks. Management, leasing, and development
revenue increased primarily due to revenue on the Songdo development contract,
which was executed in January 2007 and includes revenue related to 2006
services. Other income increased primarily due to increases in sponsorship
income, The Pier Shops, and parking-related revenue.
Total
expenses were $554.7 million, a $27.6 million or 5.2% increase from
2006. Maintenance, taxes, and utilities expense increased primarily due to The
Pier Shops, increases in maintenance costs and property taxes at certain
centers, Partridge Creek, and Twelve Oaks. Other operating expense decreased due
to decreases in the provision for bad debts, costs related to marketing and
promotion, and professional fees, which were partially offset by increases due
to The Pier Shops, pre-development costs, and property management costs.
Management, leasing, and development expense increased primarily due to
activities related to the Songdo development contract. General and
administrative expense remained relatively flat, with increases in compensation
expenses and travel costs, offset in part by decreased bonus expense due to the
mark-to-market of long term grants that fluctuate with our stock price. Interest
expense increased due to The Pier Shops, interest on new debt used to fund the
redemption of preferred stock in June 2006, the repurchase of common stock
in 2007, Partridge Creek, and Twelve Oaks. These increases were partially offset
by reduced rates on the refinancings of Dolphin and Cherry Creek, the pay off of
Willow Bend, and the write-off in 2006 of financing costs related to the
refinancing of Dolphin and the pay-off of the Willow Bend and Oyster Bay loans.
In addition, excess proceeds received from the financing of Waterside in 2006
were used to pay down our lines of credit. Depreciation expense remained
relatively flat, with decreases due to fully depreciated assets at certain
centers and lower depreciation on CAM assets being offset by increases due to
The Pier Shops, Partridge Creek, and changes in depreciable lives of tenant
allowances and other assets in connection with early terminations.
Gains on
land sales and other nonoperating income was down $5.9 million in 2007 due
to a decrease in interest income due to overall lower average cash balances in
2007 and a decrease in gains on peripheral land sales. There were
$0.7 million of gains on land sales in 2007, compared to $4.1 million
of gains in 2006.
Unconsolidated
Joint Ventures
Total
revenues for the year ended December 31, 2007 were
$262.6 million, a $10.4 million or 4.1% increase from 2006. Minimum
rents increased by $2.1 million due to tenant rollovers and the expansion
at Stamford, which were partially offset by The Pier Shops and prior year
adjustments at Arizona Mills. Expense recoveries increased primarily due to
increases in recoverable costs at certain centers. Other income decreased
primarily due to decreases in lease cancellation revenue.
Total
expenses decreased by $0.9 million to $193.0 million for the year
ended December 31, 2007. Maintenance, taxes, and utilities expenses
increased due to increased maintenance costs, which were partially offset by The
Pier Shops. Other operating expense decreased due to The Pier Shops, decreases
in ground rent and costs related to marketing and promotion services, and
professional fees. Interest expense increased primarily due to the new financing
on Waterside in 2006 and the financing related to the land purchase at
Sunvalley. Depreciation expense decreased due to prior year adjustments at
Arizona Mills, a decrease in depreciation on CAM assets and changes in
depreciable lives of tenant allowances in connection with early terminations,
which were partially offset by increases due to Waterside.
As a
result of the foregoing, income of the Unconsolidated Joint Ventures increased
by $11.6 million to $71.2 million. 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 –
Openings, Expansions and Renovations, and Acquisitions”). Our equity in income
of the Unconsolidated Joint Ventures was $40.5 million, a $7.0 million
increase from 2006.
Net
Income
Our
income before minority and preferred interests increased by $21.1 million
to $116.2 million for 2007. Preferred dividends decreased due to the
redemption of preferred stock in 2006. Preferred dividends in 2006 also included
$4.7 million of charges recognized in connection with the redemption of the
preferred stock (see “Results of Operations – Equity Transactions”). After
allocation of income to minority and preferred interests, the net income
allocable to common shareowners for 2007 was $48.5 million compared to
$21.4 million in 2006.
Reconciliation
of Net Income (Loss) Allocable to Common Shareowners to Funds from
Operations
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
(in
millions of dollars, except as indicated)
|
|
Net
income (loss) allocable to common shareowners
|
|
|
(86.7 |
) |
|
|
48.5 |
|
|
|
21.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add
(less) depreciation and amortization (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated businesses at
100%
|
|
|
147.4 |
|
|
|
137.9 |
|
|
|
138.0 |
|
Minority partners in
consolidated joint ventures
|
|
|
(13.0 |
) |
|
|
(17.3 |
) |
|
|
(14.6 |
) |
Share of unconsolidated joint
ventures
|
|
|
23.6 |
|
|
|
23.0 |
|
|
|
26.9 |
|
Non-real estate
depreciation
|
|
|
(3.3 |
) |
|
|
(2.7 |
) |
|
|
(2.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Add
minority interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority share of income (loss)
in TRG
|
|
|
(11.3 |
) |
|
|
33.2 |
|
|
|
22.8 |
|
Distributions in excess of
minority share of income of TRG
|
|
|
56.8 |
|
|
|
9.4 |
|
|
|
14.1 |
|
Distributions in excess of
minority share of income of consolidated
joint ventures
|
|
|
8.6 |
|
|
|
3.0 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
from Operations
|
|
|
122.2 |
|
|
|
235.1 |
|
|
|
210.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TCO’s
average ownership percentage of TRG
|
|
|
66.6 |
% |
|
|
66.1 |
% |
|
|
65.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
from Operations allocable to TCO
|
|
|
81.3 |
|
|
|
155.4 |
|
|
|
136.7 |
|
(1)
|
Depreciation
and amortization includes $14.1 million, $11.3 million, and
$10.2 million of mall tenant allowance amortization for the years
ended December 31, 2008, 2007, and 2006,
respectively.
|
(2)
|
Amounts
in this table may not add due to
rounding.
|
Reconciliation
of Net Income (Loss) to Beneficial Interest in EBITDA
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
(in
millions of dollars, except as indicated)
|
|
Net
income (loss)
|
|
|
(72.0 |
) |
|
|
63.1 |
|
|
|
45.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add
(less) depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated businesses at
100%
|
|
|
147.4 |
|
|
|
137.9 |
|
|
|
138.0 |
|
Minority partners in
consolidated joint ventures
|
|
|
(13.0 |
) |
|
|
(17.3 |
) |
|
|
(14.6 |
) |
Share of unconsolidated joint
ventures
|
|
|
23.6 |
|
|
|
23.0 |
|
|
|
26.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add
(less) preferred interests, interest expense, and
income tax
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
distributions
|
|
|
2.5 |
|
|
|
2.5 |
|
|
|
2.5 |
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated businesses at
100%
|
|
|
147.4 |
|
|
|
131.7 |
|
|
|
128.6 |
|
Minority partners in
consolidated joint ventures
|
|
|
(19.6 |
) |
|
|
(14.3 |
) |
|
|
(12.9 |
) |
Share of unconsolidated joint
ventures
|
|
|
33.8 |
|
|
|
33.3 |
|
|
|
31.2 |
|
Income tax
expense
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add
minority interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority share of income (loss)
in TRG
|
|
|
(11.3 |
) |
|
|
33.2 |
|
|
|
22.8 |
|
Distributions in excess of
minority share of income of TRG
|
|
|
56.8 |
|
|
|
9.4 |
|
|
|
14.1 |
|
Distributions in excess of
minority share of income of consolidated
joint ventures
|
|
|
8.6 |
|
|
|
3.0 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
interest in EBITDA
|
|
|
305.3 |
|
|
|
405.6 |
|
|
|
386.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TCO’s
average ownership percentage of TRG
|
|
|
66.6 |
% |
|
|
66.1 |
% |
|
|
65.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
interest in EBITDA allocable to TCO
|
|
|
203.2 |
|
|
|
268.0 |
|
|
|
251.1 |
|
(1)
|
Amounts
in this table may not add due to
rounding.
|
Liquidity
and Capital Resources
Capital
resources are required to maintain our current operations, pay dividends, and
fund planned capital spending, future developments, and other commitments and
contingencies. Current market conditions have severely limited the availability
of new sources of financing and capital, which will clearly have an impact on
our ability and the ability of our partners to obtain construction financing for
planned new development projects in the near term. However, we are financed with
property-specific secured debt, we have two unencumbered center properties
(Willow Bend and Stamford, a 50% owned unconsolidated joint venture property),
and we have no maturities on our current debt until fall 2010, when
$338 million at 100% and $264 million at our beneficial share of three
loans mature. In addition, the three loans maturing in 2010 are financed at
historically conservative loan to value ratios averaging five to six times
current net operating income for the properties. Further, of the $650 million at
100% and $363 million at our beneficial share of additional debt that matures in
2011(excluding our lines of credit, which are discussed below), $575 million at
100% and $288 million at our beneficial share can be extended at our option to
2013, subject to certain covenants.
Summaries of 2008 Capital
Activities and Transactions
As of
December 31, 2008, we had a consolidated cash balance of $62.1 million, of which
$2.9 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 December 31,
2008, the total amount utilized of the $550 million and $40 million lines of
credit was $240 million. Both lines of credit mature in February 2011. The $550
million line of credit has a one-year extension option. Twelve banks participate
in these facilities. Given the lack of debt maturities until fall 2010, we
believe we have sufficient liquidity from our lines of credit and cash flows
from both our consolidated and unconsolidated properties to meet our planned
operating, financing and capital needs and commitments during this period. See
“MD&A – Liquidity and Capital Resources – Capital Spending” for more
details.
Operating
Activities
Our net
cash provided by operating activities was $253.4 million in 2008, compared to
$257.8 million in 2007 and $223.5 million in 2006. See also “Results of
Operations” for descriptions of 2008 and 2007 transactions affecting operating
cash flow. All of the impairment charge on the Oyster Bay project, other than
$16.9 million, represented previous years’ expenditures. See “MD&A – Results
of Operations – Impairment Charges” for more details.
Investing
Activities
Net cash
used in investing activities was $111.1 million in 2008 compared to $227.7
million in 2007 and $131.5 million in 2006. Cash used in investing
activities was impacted by the timing of capital expenditures, with additions to
properties in 2008, 2007, and 2006 for the construction of Partridge Creek and
Northlake, 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 other capital items. Additions to properties in 2007 also
included costs to complete construction at The Pier Shops, paid subsequent to
our acquisition of a controlling interest. A tabular presentation of 2008 and
2007 capital spending is shown in “Capital Spending”. In 2008, we exercised our
option to purchase interests in Partridge Creek from the third-party owner for
$11.8 million (see “Note 2 – Acquisitions – The Mall at Partridge Creek” in
our consolidated financial statements). During April 2007, we purchased a
controlling interest in The Pier Shops for $24.5 million in cash and upon its
consolidation we included its $33.4 million balance of cash on our balance
sheet. 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 is currently held
in escrow (see “Results of Operations – Taubman Asia”). In 2008 and 2007, $2.7
million and $3.4 million, respectively, were used to acquire marketable equity
securities and other assets. During 2007, we issued $2.2 million in notes
receivable in connection with the construction of certain tenant leasehold
improvements and in 2008 we received $0.2 million in payments on the notes.
Contributions to Unconsolidated Joint Ventures of $12.1 million in 2008
included $7.2 million of funding and costs related to our Sarasota joint
venture. Contributions to Unconsolidated Joint Ventures of $15.2 million in 2007
were made primarily to fund the expansions at Stamford and Waterside.
Contributions to Unconsolidated Joint Ventures of $25.3 million in 2006 were
made primarily to purchase land that Sunvalley is located on and to fund the
expansion at Waterside.
Sources
of cash used in funding these investing activities, other than cash flows from
operating activities, included distributions from Unconsolidated Joint Ventures,
as well as the transactions described under Financing Activities. Distributions
in excess of earnings from Unconsolidated Joint Ventures provided $63.3 million
in 2008, which included excess proceeds from the Fair Oaks refinancing.
Distributions in excess of earnings from Unconsolidated Joint Ventures provided
$3.0 million and $57.6 million in 2007 and 2006, respectively. The amounts in
2006 included proceeds from the Waterside financing. Net proceeds from sales of
peripheral land were $6.3 million, $1.1 million and $5.4 million in 2008, 2007,
and 2006, respectively. The timing of land sales is variable and proceeds from
land sales can vary significantly from period to period. A $9.0 million note
received in connection with the 2005 sale of a center was collected in
2006.
Financing
Activities
Net cash
used in financing activities was $127.3 million in 2008 compared to $9.3 million
in 2007 and $231.6 million in 2006. Net cash used in financing activities was
primarily impacted by cash requirements of the investing activities described in
the preceding section. Proceeds from the issuance of debt, net of payments and
issuance costs, were $93.2 million in 2008, compared to $244.2 million in 2007
and $51.6 million in 2006. Repurchases of common stock totaled $100.0 million in
2007. In 2006 we used the proceeds from the issuance of the $113 million Series
I Preferred Stock to redeem the remaining outstanding Series A Preferred Stock.
The Series I Preferred Stock was subsequently redeemed in 2006. Equity issuance
costs were $0.6 million in 2006. In 2008 and 2007, $3.8 million and $0.4 million
was received, respectively, in connection with incentive plans. The prior
third-party owner of Partridge Creek contributed $9.0 million in 2006 to fund
the project (see "Note 2–Acquisitions–The Mall at
Partridge Creek" regarding the ownership structure of this project). Total
dividends and distributions paid were $221.3 million, $149.7 million, and $178.6
million in 2008, 2007, and 2006, respectively. Distributions to minority
interests in 2008 and 2006 include $51.3 million and $45.3 million of excess
proceeds from the refinancings of International Plaza and Cherry Creek,
respectively.
Beneficial Interest in
Debt
At
December 31, 2008, the Operating Partnership's debt and its beneficial interest
in the debt of its Consolidated and Unconsolidated Joint Ventures totaled
$3,004.0 million, with an average interest rate of 5.26% excluding amortization
of debt issuance costs and the effects of interest rate hedging instruments.
These costs are reported as interest expense in the results of operations.
Interest expense for the year ended December 31, 2008 includes $0.8 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 progress totaled
$69.5 million as of December 31, 2008, which includes $29.1 million of
assets on which interest is being capitalized. Beneficial interest in
capitalized interest was $7.9 million for 2008. The following table presents
information about our beneficial interest in debt as of December 31,
2008:
|
Amount
|
|
Interest
Rate
Including
Spread
|
|
|
(in
millions of dollars)
|
|
|
|
Fixed
rate debt
|
2,388.0
|
|
5.70%
|
(1)
|
|
|
|
|
|
Floating
rate debt:
|
|
|
|
|
Swapped through December
2010
|
162.8
|
|
5.01%
|
|
Swapped
through March 2011
|
125.0
|
|
4.22%
|
|
Swapped through October
2012
|
15.0
|
|
5.95%
|
|
|
302.8
|
|
4.73%
|
(1)
|
Floating month to
month
|
313.2
|
|
2.47%
|
(1)
|
Total floating rate
debt
|
616.0
|
|
3.58%
|
(1)
|
|
|
|
|
|
Total
beneficial interest in debt
|
3,004.0
|
|
5.26%
|
(1)
|
|
|
|
|
|
Amortization
of financing costs (2)
|
|
|
0.18%
|
|
Average
all-in rate
|
|
|
5.44%
|
|
(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.
|
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, and treasury lock agreements to meet these objectives.
Based on the Operating Partnership's beneficial interest in floating rate debt
in effect at December 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 $3.1 million and $3.5 million, respectively, and, due to
the effect of capitalized interest, annual earnings by approximately $3.1
million and $3.3 million, respectively. Based on our consolidated debt and
interest rates in effect at December 31, 2008 and 2007, a one percent increase
in interest rates would decrease the fair value of debt by approximately $111.7
million and $126.1 million, respectively, while a one percent decrease in
interest rates would increase the fair value of debt by approximately $118.8
million and $135.2 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. Detail of these obligations as
of December 31, 2008 for our consolidated businesses, including expected
settlement periods, is contained below:
|
|
Payments
due by period
|
|
|
Total
|
|
|
Less
than 1
year
(2009)
|
|
|
1-3
years
(2010-2011)
|
|
|
3-5
years
(2012-2013)
|
|
|
More
than 5
years
(2014+)
|
|
|
(in
millions of dollars)
|
Debt
(1)
|
|
|
2,796.8 |
|
|
|
14.4 |
|
|
|
862.3 |
|
|
|
146.2 |
|
|
|
1,773.8 |
|
Interest
payments (1)
|
|
|
782.8 |
|
|
|
147.9 |
|
|
|
256.8 |
|
|
|
205.7 |
|
|
|
172.5 |
|
Capital
lease obligations
|
|
|
2.6 |
|
|
|
1.9 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
|
440.1 |
|
|
|
10.5 |
|
|
|
18.6 |
|
|
|
15.1 |
|
|
|
395.9 |
|
Purchase
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Planned capital
spending
|
|
|
40.6 |
|
|
|
40.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other purchase obligations
(2)
|
|
|
20.4 |
|
|
|
6.9 |
|
|
|
5.8 |
|
|
|
4.7 |
|
|
|
2.9 |
|
Other
long-term liabilities (3)
|
|
|
64.6 |
|
|
|
0.7 |
|
|
|
1.7 |
|
|
|
2.4 |
|
|
|
59.7 |
|
Total
|
|
|
4,147.9 |
|
|
|
222.9 |
|
|
|
1,146.0 |
|
|
|
374.1 |
|
|
|
2,404.8 |
|
(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 December 31,
2008.
|
(2)
|
Excludes
purchase agreements with cancellation provisions of 90 days or
less.
|
(3)
|
Other
long-term liabilities consist of various accrued liabilities, most
significantly assessment bond obligations and long-term incentive
compensation.
|
(4)
|
Amounts
in this table may not add due to
rounding.
|
Loan Commitments and
Guarantees
Certain
loan agreements contain various restrictive covenants, including a minimum net
worth requirement, a maximum payout ratio on distributions, a minimum debt yield
ratio, a maximum leverage ratio, minimum interest coverage ratios and a minimum
fixed charges coverage ratio, the latter being the most restrictive. We are
in compliance with all of our covenants as of December 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 9 –
Notes Payable – 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 15 – Commitments
and Contingencies” to the consolidated financial statements for more
details.
Capital
Spending
New
Centers
Our
remaining investment in the Oyster Bay project as of December 31, 2008
is $39.8 million, consisting of land and site improvements. We also expect
to expense any additional costs relating to Oyster Bay until it is probable that
we will be able to successfully move forward with a project. We began expensing
carrying costs as incurred beginning in the fourth quarter of 2008. Also, we
have no remaining asset related to our Sarasota project and expect to expense
any additional costs related to the monitoring of the project until a definitive
agreement is reached by the parties on going forward with the project. See
“MD&A – Results of Operations – Impairment Charges” for more
details.
We have
finalized the majority of agreements, subject to certain conditions, regarding
City Creek Center, a mixed-use project in Salt Lake City, Utah. 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 the conditions are satisfied we
will provide the anticipated costs and returns. Meanwhile, construction is
progressing and we are leasing space for a 2012 opening. The lessor will provide
all of the construction financing.
In
January 2007, we acquired land for future development in North Atlanta, Georgia.
This land and two adjoining parcels, which are currently under our option, are
being considered for 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.
See
“MD&A – Results of Operations – Taubman Asia” regarding the status of our
involvement in The Mall at Studio City and Songdo.
2008
and 2007 Capital Spending
Capital
spending for routine maintenance of the shopping centers is generally recovered
from tenants. Capital spending during 2008, excluding acquisitions, 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)
|
|
|
16.4 |
|
|
|
16.4 |
|
|
|
6.5 |
|
|
|
4.0 |
|
New centers (3)
|
|
|
1.7 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing
Centers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renovation projects with
incremental GLA
and/or anchor
replacement
|
|
|
12.3 |
|
|
|
10.7 |
|
|
|
18.8 |
|
|
|
6.7 |
|
Renovations with no incremental
GLA effect
and other
|
|
|
1.3 |
|
|
|
1.1 |
|
|
|
4.8 |
|
|
|
2.9 |
|
Mall tenant allowances (4)
|
|
|
9.4 |
|
|
|
8.9 |
|
|
|
11.7 |
|
|
|
7.3 |
|
Asset replacement costs
reimbursable by tenants
|
|
|
11.0 |
|
|
|
9.6 |
|
|
|
12.2 |
|
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
office improvements, technology, and
equipment (5)
|
|
|
4.2 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
to properties
|
|
|
56.3 |
|
|
|
52.6 |
|
|
|
54.1 |
|
|
|
28.9 |
|
(1)
|
Costs
are net of intercompany profits and are computed on an accrual
basis.
|
(2)
|
Primarily
includes costs related to Oyster Bay and Sarasota projects through
September 30, 2008, all of which were written off as part of the fourth
quarter impairment charge. Excludes $54.3 million escrow deposit paid in
2008 relating to the Macao project.
|
(3)
|
Includes
costs related to The Mall at Partridge
Creek.
|
(4)
|
Excludes
initial lease-up costs.
|
(5)
|
Includes
U.S. and Asia offices.
|
(6)
|
Amounts
in this table may not add due to
rounding.
|
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 year ended December 31, 2008:
Consolidated
Businesses’ capital spending
|
56.3
|
Differences
between cash and accrual basis
|
43.7
|
Additions
to properties
|
100.0
|
Capital
spending during 2007, excluding acquisitions, is summarized in the following
table:
|
|
2007
(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)
|
|
|
30.6 |
|
|
|
30.1 |
|
|
|
|
|
|
|
New centers (3)
|
|
|
87.7 |
|
|
|
87.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing
Centers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renovation projects with
incremental GLA
and/or anchor replacement (4)
|
|
|
53.7 |
|
|
|
51.0 |
|
|
|
68.0 |
|
|
|
27.6 |
|
Renovations with no incremental
GLA effect
and other
|
|
|
3.0 |
|
|
|
2.9 |
|
|
|
4.0 |
|
|
|
2.3 |
|
Mall tenant allowances (5)
|
|
|
18.5 |
|
|
|
17.1 |
|
|
|
1.8 |
|
|
|
1.0 |
|
Asset replacement costs
reimbursable by tenants
|
|
|
34.0 |
|
|
|
32.6 |
|
|
|
4.7 |
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
office improvements, technology, and
equipment
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
to properties
|
|
|
229.2 |
|
|
|
222.6 |
|
|
|
78.6 |
|
|
|
33.5 |
|
(1)
|
Costs
are net of intercompany profits and are computed on an accrual
basis.
|
(2)
|
Primarily
includes costs to acquire and improve land for future development in North
Atlanta, Georgia, and project costs of Oyster
Bay.
|
(3)
|
Includes
costs related to The Mall at Partridge Creek and The Pier Shops at Caesars
(subsequent to the acquisition).
|
(4)
|
Includes
costs related to the renovation at Stamford Town Center and the expansion
at Twelve Oaks Mall.
|
(5)
|
Excludes
initial lease-up costs.
|
(6)
|
Amounts
in this table may not add due to
rounding.
|
The
Operating Partnership's share of mall tenant allowances per square foot leased,
committed under contracts during the year, excluding expansion space and new
developments, was $18.09 in 2008 and $18.47 in 2007. In addition, the Operating
Partnership's share of capitalized leasing and tenant coordination costs
excluding new developments, was $7.6 million and $7.7 million in 2008 and 2007,
respectively, or $7.76 and $7.52, in 2008 and 2007, respectively, per square
foot leased.
Planned
Capital Spending
The
following table summarizes planned capital spending for 2009:
|
|
2009
(1)
|
|
|
Consolidated
Businesses
|
|
Beneficial
Interest
in Consolidated Businesses
|
Unconsolidated
Joint Ventures
|
Beneficial
Interest
in Unconsolidated Joint Ventures
|
|
|
(in
millions of dollars)
|
Site
improvements(2)
|
|
|
1.9 |
|
|
|
1.9 |
|
|
|
|
|
|
|
Existing
centers(3)
|
|
|
37.0 |
|
|
|
29.8 |
|
|
|
12.1 |
|
|
|
6.6 |
|
Corporate
office improvements, technology, and equipment
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
Total
|
|
|
40.6 |
|
|
|
33.4 |
|
|
|
12.1 |
|
|
|
6.6 |
|
(1)
|
Costs
are net of intercompany profits.
|
(2)
|
Includes costs to improve land
for future development in North Atlanta,
Georgia.
|
(3)
|
Primarily
includes costs related to 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. We are currently
capitalizing costs on our project in Salt Lake City. As of December 31, 2008,
the capitalized cost of this project was $1.2 million.
Disclosures
regarding planned capital spending, including estimates regarding timing of
openings, capital expenditures, occupancy, and returns on new developments 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) availability of and cost of financing and other financing
considerations, (7) actual time to start construction and 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.
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
December 10, 2008, we declared a quarterly dividend of $0.415 per common share
that was paid on January 20, 2009 to shareowners of record on December 31, 2008.
We declared a quarterly dividend of $0.50 per share on our 8% Series G Preferred
Stock, paid December 31, 2008 to shareowners of record on December 19, 2008. We
also declared a quarterly dividend of $0.4765625 per share on our 7.625% Series
H Preferred Stock, paid on December 31, 2008 to shareowners of record on
December 19, 2008.
The
information required by this Item is included in this report at Item 7 under the
caption “Liquidity and Capital Resources”.
Item 8. FINANCIAL
STATEMENTS AND
SUPPLEMENTARY DATA.
The
Financial Statements of Taubman Centers, Inc. and the Reports of Independent
Registered Public Accounting Firm thereon are filed pursuant to this Item 8 and
are included in this report at Item 15.
Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Evaluation
of Disclosure Controls and Procedures
As of the
end of the period covered by this annual 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 December 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.
Management’s
Annual Report on Internal Control over Financial Reporting
Management’s
Annual Report on Internal Control over Financial Reporting accompanies the
Company’s financial statements included in Item 15 of this annual
report.
Report
of the Independent Registered Public Accounting Firm
The
report issued by the Company’s independent registered public accounting firm,
KPMG LLP, accompanies the Company’s financial statements included in Item 15 of
this annual report.
Changes
in Internal Control over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting
identified in connection with the Company’s fourth quarter 2008 evaluation of
such internal control that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
Not
applicable.
PART
III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE.
The
information required by this item is hereby incorporated by reference to the
material appearing in the Proxy Statement under the captions “Proposal
1-Election of Directors—Directors and Executive Officers,” “Proposal 1-Election
of Directors—Committees of the Board,” "Proposal 1-Election of
Directors—Corporate Governance,” and “Additional Information—Section 16(a)
Beneficial Ownership Reporting Compliance.”
The
information required by this item is hereby incorporated by reference to the
material appearing in the Proxy Statement under the captions "Proposal
1-Election of Directors—Director Compensation,” “Compensation Committee
Interlocks and Insider Participation,” “Compensation Discussion and Analysis,”
“Compensation Committee Report,” and “Executive Compensation
Tables.”
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The
following table sets forth certain information regarding the Company’s current
and prior equity compensation plans as of December 31, 2008:
|
Number
of
Securities
to be
Issued
Upon
Exercise
of
Outstanding
Options, Warrants, and Rights
|
|
Weighted-
Average Exercise Price of Outstanding Options, Warrants,
and
Rights
|
|
Number
of Securities Remaining Available for Future Issuances Under Equity
Compensation Plans (Excluding Securities Reflected in Column
(a))
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation plans approved by security holders:
|
|
|
|
|
|
|
The Taubman Company 2008
Omnibus Long-Term
Incentive Plan (1)
|
|
|
|
|
6,098,558
|
|
1992 Incentive Option Plan
(2)
|
1,350,477
|
|
$39.73
|
|
|
|
The Taubman Company 2005
Long-Term Incentive Plan (3)
|
334,878
|
|
|
(4) |
|
|
|
1,685,355
|
|
39.73
|
|
6,098,558
|
|
Equity
compensation plan not approved by security holders -
|
|
|
|
|
|
|
Non-Employee Directors’
Deferred Compensation Plan (5)
|
24,296
|
|
|
(6) |
|
(7) |
|
1,709,651
|
|
$39.73
|
|
6,098,558
|
|
(1)
|
Under
The Taubman Company 2008 Omnibus Long-Term Incentive Plan, directors,
officers, employees, and other service providers of the Company receive
restricted shares, restricted share units, restricted units of limited
partnership in TRG (“TRG Units”), restricted TRG Units, options to
purchase common stock or TRG Units, share appreciation rights,
unrestricted shares of common stock or TRG Units, and other awards to
acquire up to an aggregate of 6,100,000 shares of common stock or TRG
Units. No further awards will be made under the 1992 Incentive Option
Plan, The Taubman Company 2005 Long-Term Incentive Plan, or the
Non-Employee Directors' Stock Grant
Plan.
|
(2)
|
Under
the 1992 Incentive Option Plan, employees receive TRG Units upon the
exercise of their vested options, and each TRG Unit can be converted into
one share of common stock under the Continuing Offer. Excludes 871,262
deferred units, the receipt of which were deferred by Robert S. Taubman at
the time he exercised options in 2002; the options were initially granted
under TRG's 1992 Incentive Option Plan (See Note 13 to our
consolidated financial statements included at Item 15 (a)
(1)).
|
(3)
|
Under
The Taubman Company 2005 Long-Term Incentive Plan, employees receive
restricted stock units, which represent the right to one share of common
stock upon vesting.
|
(4)
|
Excludes
restricted stock units issued under The Taubman Company 2005 Long-Term
Incentive Plan because they are converted into common stock on a
one-for-one basis at no additional
cost.
|
(5)
|
The
Deferred Compensation Plan, which was approved by the Board in May 2005,
gives each non-employee director of the Company the right to defer the
receipt of all or a portion of his or her annual director retainer until
the termination of such director's service on the Board and for such
deferred compensation to be denominated in restricted stock units. The
number of restricted stock units received equals the deferred retainer fee
divided by the fair market value of the common stock on the business day
immediately before the date the director would otherwise have been
entitled to receive the retainer fee. The restricted stock units represent
the right to receive equivalent shares of common stock at the end of the
deferral period. During the deferral period, when the Company pays cash
dividends on the common stock, the directors' deferral accounts are
credited with dividend equivalents on their deferred restricted stock
units, payable in additional restricted stock units based on the then-fair
market value of the common stock. Each Director's account is 100% vested
at all times.
|
(6)
|
The
restricted stock units are excluded because they are converted into common
stock on a one-for-one basis at no additional
cost.
|
(7)
|
The
number of securities available for future issuance is unlimited and will
reflect whether non-employee directors elect to defer all or a portion of
their annual retainers.
|
Additional
information required by this item is hereby incorporated by reference to the
table and related footnotes appearing in the Proxy Statement under the caption
“Security Ownership of Certain Beneficial Owners and Management.”
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.
The
information required by this item is hereby incorporated by reference to the
material appearing in the Proxy Statement under the caption “Related Person
Transactions,” and "Proposal 1-Election of Directors—Committees of the
Board.”
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The
information required by this item is hereby incorporated by reference to the
material appearing in the Proxy Statement under the caption “Audit Committee
Disclosure.”
PART
IV
15(a)(1)
|
The
following financial statements of Taubman Centers, Inc. and the Reports of
Independent Registered Public Accounting Firm thereon are filed with this
report:
|
TAUBMAN
CENTERS, INC.
|
Page
|
Management's
Annual Report on Internal Control Over Financial Reporting
|
F-2
|
Reports
of Independent Registered Public Accounting Firm
|
F-3
|
Consolidated
Balance Sheet as of December 31, 2008 and 2007
|
F-5
|
Consolidated
Statement of Operations for the years ended December 31, 2008,
2007,
and 2006
|
F-6
|
Consolidated
Statement of Shareowners' Equity for the years ended December 31,
2008,
2007, and 2006
|
F-7
|
Consolidated
Statement of Cash Flows for the years ended December 31, 2008,
2007,
and 2006
|
F-8
|
Notes
to Consolidated Financial Statements
|
F-9
|
15(a)(2)
|
The
following is a list of the financial statement schedules required by Item
15(d):
|
TAUBMAN
CENTERS, INC.
|
|
Schedule
II - Valuation and Qualifying Accounts for the years ended December 31,
2008,
2007, and 2006
|
F-37
|
Schedule
III - Real Estate and Accumulated Depreciation as of December 31,
2008
|
F-38
|
3(a)
|
--
|
Restated
By-Laws of Taubman Centers, Inc. (incorporated herein by reference to
Exhibit 3 filed with the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2005).
|
|
|
|
3(b)
|
--
|
Restated
Articles of Incorporation of Taubman Centers, Inc. (incorporated herein by
reference to Exhibit 3 filed with the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2006).
|
|
|
|
4(a)
|
--
|
Loan
Agreement dated as of January 15, 2004 among La Cienega Associates, as
Borrower, Column Financial, Inc., as Lender (incorporated herein by
reference to Exhibit 4 filed with the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2004 ("2004 First Quarter Form
10-Q")).
|
|
|
|
4(b)
|
--
|
Assignment
of Leases and Rents, La Cienega Associates, Assignor, and Column
Financial, Inc., Assignee, dated as of January 15, 2004 (incorporated
herein by reference to Exhibit 4 filed with the 2004 First Quarter Form
10-Q).
|
|
|
|
4(c)
|
--
|
Leasehold
Deed of Trust, with Assignment of Leases and Rents, Fixture Filing, and
Security Agreement, dated as of January 15, 2004, from La Cienega
Associates, Borrower, to Commonwealth Land Title Company, Trustee, for the
benefit of Column Financial, Inc., Lender (incorporated herein by
reference to Exhibit 4 filed with the 2004 First Quarter Form
10-Q).
|
|
|
|
4(d)
|
--
|
Amended
and Restated Promissory Note A-1, dated December 14, 2005, by Short Hills
Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 4.1 filed with the Registrant’s Current Report on
Form 8-K dated December 16, 2005).
|
|
|
|
4(e)
|
--
|
Amended
and Restated Promissory Note A-2, dated December 14, 2005, by Short Hills
Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 4.2 filed with the Registrant’s Current Report on
Form 8-K dated December 16, 2005).
|
|
|
|
4(f)
|
--
|
Amended
and Restated Promissory Note A-3, dated December 14, 2005, by Short Hills
Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 4.3 filed with the Registrant’s Current Report on
Form 8-K dated December 16,
2005).
|
4(g)
|
--
|
Amended
and Restated Mortgage, Security Agreement and Fixture Filings, dated
December 14, 2005 by Short Hills Associates L.L.C. to Metropolitan Life
Insurance Company (incorporated by reference to Exhibit 4.4 filed with the
Registrant’s Current Report on Form 8-K dated December 16,
2005).
|
|
|
|
4(h)
|
--
|
Amended
and Restated Assignment of Leases, dated December 14, 2005, by Short Hills
Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 4.5 filed with the Registrant’s Current Report on
Form 8-K dated December 16, 2005).
|
|
|
|
4(i)
|
--
|
Second
Amended and Restated Secured Revolving Credit Agreement, dated as of
November 1, 2007, by and among Dolphin Mall Associates Limited
Partnership, Fairlane Town Center LLC and Twelve Oaks Mall, LLC, as
Borrowers, Eurohypo AG, New York Branch, as Administrative Agent and Lead
Arranger, 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 November 1,
2007).
|
|
|
|
4(j)
|
--
|
Third
Amended and Restated Mortgage, Assignment of Leases and Rents and Security
Agreement, dated as of November 1, 2007, by and between Dolphin Mall
Associates Limited Partnership and Eurohypo AG, New York Branch, as
Administrative Agent (incorporated herein by reference to Exhibit 4.5
filed with the Registrant’s Current Report on Form 8-K dated November 1,
2007).
|
|
|
|
4(k)
|
--
|
Second
Amended and Restated Mortgage, dated as of November 1, 2007, by and
between Fairlane Town Center LLC and 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 November 1,
2007).
|
|
|
|
4(l)
|
--
|
Second
Amended and Restated Mortgage, dated as of November 1, 2007, by and
between Twelve Oaks Mall, LLC and 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 November 1,
2007).
|
|
|
|
4(m)
|
--
|
Guaranty
of Payment, dated as of November 1, 2007, by and among The Taubman Realty
Group Limited Partnership, Fairlane Town Center LLC and Twelve Oaks Mall,
LLC (incorporated herein by reference to Exhibit 4.2 filed with the
Registrant’s Current Report on Form 8-K dated November 1,
2007).
|
|
|
|
4(n)
|
--
|
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(o)
|
--
|
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(p)
|
--
|
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(q)
|
--
|
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).
|
|
|
|
*10(a)
|
--
|
The
Taubman Realty Group Limited Partnership 1992 Incentive Option Plan, as
Amended and Restated Effective as of September 30, 1997 (incorporated
herein by reference to Exhibit 10(b) filed with the Registrant’s Annual
Report on Form 10-K for the year ended December 31,
1997).
|
*10(b)
|
--
|
First
Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive
Option Plan as Amended and Restated Effective as of September 30, 1997,
effective January 1, 2002 (incorporated herein by reference to Exhibit
10(b) filed with the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2001 (“2001 Form 10-K”)).
|
|
|
|
*10(c)
|
--
|
Second
Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive
Plan as Amended and Restated Effective as of September 30, 1997
(incorporated herein by reference to Exhibit 10(c) filed with the
Registrant’s Annual Report on Form 10-K for the year ended December 31,
2004 (“2004 Form 10-K”)).
|
|
|
|
*10(d)
|
--
|
Third
Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive
Plan as Amended and Restated Effective as of September 30, 1997
(incorporated herein by reference to Exhibit 10(d) filed with the 2004
Form 10-K).
|
|
|
|
*10(e)
|
--
|
Fourth
Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive
Plan as Amended and Restated Effective as of September 30, 1997
(incorporated herein by reference to Exhibit 10(a) filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2007).
|
|
|
|
*10(f)
|
--
|
The
Form of The Taubman Realty Group Limited Partnership 1992 Incentive Option
Plan Option Agreement (incorporated herein by reference to Exhibit 10(e)
filed with the 2004 Form 10-K).
|
|
|
|
10(g)
|
--
|
Master
Services Agreement between The Taubman Realty Group Limited Partnership
and the Manager (incorporated herein by reference to Exhibit 10(f) filed
with the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 1992).
|
|
|
|
10(h)
|
--
|
Amended
and Restated Cash Tender Agreement among Taubman Centers, Inc., The
Taubman Realty Group Limited Partnership, and A. Alfred Taubman, A. Alfred
Taubman, acting not individually but as Trustee of the A. Alfred Taubman
Restated Revocable Trust, and TRA Partners, (incorporated herein by
reference to Exhibit 10 (a) filed with the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2000 (“2000 Second Quarter
Form 10-Q”)).
|
|
|
|
*10(i)
|
--
|
Supplemental
Retirement Savings Plan (incorporated herein by reference to Exhibit 10(i)
filed with the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
|
|
|
|
*10(j)
|
--
|
The
Taubman Company Long-Term Compensation Plan (as amended and restated
effective January 1, 2000) (incorporated herein by reference to Exhibit 10
(c) filed with the 2000 Second Quarter Form 10-Q).
|
|
|
|
*10(k)
|
--
|
First
Amendment to the Taubman Company Long-Term Compensation Plan (as amended
and restated effective January 1, 2000)(incorporated herein by reference
to Exhibit 10(m) filed with the 2004 Form 10-K).
|
|
|
|
*10(l)
|
--
|
Second
Amendment to the Taubman Company Long-Term Performance Compensation Plan
(as amended and restated effective January 1, 2000)(incorporated herein by
reference to Exhibit 10(n) filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 2005).
|
|
|
|
*10(m)
|
--
|
The
Taubman Company 2005 Long-Term Incentive Plan (incorporated herein by
reference to the Form DEF14A filed with the Securities and Exchange
Commission on April 5, 2005).
|
|
|
|
*10(n)
|
--
|
Employment
Agreement between The Taubman Company Limited Partnership and Lisa A.
Payne (incorporated herein by reference to Exhibit 10 filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,
1997).
|
|
|
|
*10(o)
|
--
|
Amended
and Restated Change of Control Employment Agreement, dated December
18, 2008, by and among the Company, Taubman Realty Group Limited
Partnership, and Lisa A. Payne (revised for Code Section 409A
compliance).
|
*10(p)
|
--
|
Form
of Amended and Restated Change of Control Employment Agreement,
dated December 18, 2008 (revised for Code Section 409A
compliance).
|
|
|
|
|
|
10(q)
|
--
|
Second
Amended and Restated Continuing Offer, dated as of May 16, 2000.
(incorporated herein by reference to Exhibit 10 (b) filed with the 2000
Second Quarter Form 10-Q).
|
|
|
|
|
|
10(r)
|
--
|
The
Second Amendment and Restatement of Agreement of Limited Partnership of
the Taubman Realty Group Limited Partnership dated September 30, 1998
(incorporated herein by reference to Exhibit 10 filed with the
Registrant’s Quarterly Report on Form 10-Q dated September 30,
1998).
|
|
|
|
|
|
10(s)
|
--
|
Annex
II to Second Amendment to the Second Amendment and Restatement of
Agreement of Limited Partnership of The Taubman Realty Group Limited
Partnership (incorporated herein by reference to Exhibit 10(p) filed with
Registrant’s Annual Report on Form 10-K for the year ended December 31,
1999).
|
|
|
|
|
|
10(t)
|
--
|
Annex
III to The Second Amendment and Restatement of Agreement of Limited
Partnership of The Taubman Realty Group Limited Partnership, dated as of
May 27, 2004 (incorporated by reference to Exhibit 10(c) filed with the
2004 Second Quarter Form 10-Q).
|
|
|
|
|
|
10(u)
|
--
|
Second
Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of The Taubman Realty Group Limited Partnership effective as
of September 3, 1999 (incorporated herein by reference to Exhibit 10(a)
filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999).
|
|
|
|
|
|
10(v)
|
--
|
Third
Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of the Taubman Realty Group Limited Partnership, dated May 2,
2003 (incorporated herein by reference to Exhibit 10(a) filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2003).
|
|
|
|
10(w)
|
--
|
Fourth
Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of the Taubman Realty Group Limited Partnership, dated
December 31, 2003 (incorporated herein by reference to Exhibit 10(x) filed
with the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2003).
|
|
|
|
10(x)
|
--
|
Fifth
Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of the Taubman Realty Group Limited Partnership, dated
February 1, 2005 (incorporated herein by reference to Exhibit 10.1 filed
with the Registrant’s Current Report on Form 8-K filed on February 7,
2005).
|
|
|
|
10(y)
|
--
|
Sixth
Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of the Taubman Realty Group Limited Partnership, dated March
29, 2006 (incorporated herein by reference to Exhibit 10 filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2006).
|
|
|
|
10(z)
|
--
|
Seventh
Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of the Taubman Realty Group Limited Partnership, dated
December 14, 2007 (incorporated herein by reference to Exhibit 10(z) filed
with the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2007).
|
|
|
|
10(aa)
|
--
|
Amended
and Restated Shareholders' Agreement dated as of October 30, 2001 among
Taub-Co Management, Inc., The Taubman Realty Group Limited Partnership,
The A. Alfred Taubman Restated Revocable Trust, and Taub-Co Holdings LLC
(incorporated herein by reference to Exhibit 10(q) filed with the 2001
Form 10-K).
|
|
|
|
*10(ab)
|
--
|
The
Taubman Realty Group Limited Partnership and The Taubman Company LLC
Election and Option Deferral Agreement (incorporated herein by reference
to Exhibit 10(r) filed with the 2001 Form 10-K).
|
|
|
|
|
|
10(ac)
|
--
|
Operating
Agreement of Taubman Land Associates, a Delaware Limited Liability
Company, dated October 20, 2006 (incorporated herein by reference to
Exhibit 10(ab) filed with the Registrant's Annual Report on Form 10-K for
the year ended December 31, 2006 (“2006 Form 10-K”)).
|
|
10(ad)
|
--
|
Amended
and Restated Agreement of Partnership of Sunvalley Associates, a
California general partnership (incorporated herein by reference to
Exhibit 10(a) filed with the Registrant’s Amended Quarterly Report on Form
10-Q/A for the quarter ended June 30, 2002).
|
|
|
|
*10(ae)
|
--
|
Summary
of Compensation for the Board of Directors of Taubman Centers, Inc.
(incorporated herein by reference to Exhibit 10(ae) filed with the 2006
Form 10-K).
|
|
|
|
*10(af)
|
--
|
The
Form of The Taubman Company Restricted Stock Unit Award Agreement
(incorporated by reference to Exhibit 10 filed with the Registrant’s
Current Report on Form 8-K dated May 18, 2005).
|
|
|
|
*10(ag)
|
--
|
The
Taubman Centers, Inc. Non-Employee Directors' Deferred Compensation Plan
(incorporated by reference to Exhibit 10 filed with the Registrant’s
Current Report on Form 8-K dated May 18, 2005).
|
|
|
|
*10(ah)
|
--
|
The
Form of The Taubman Centers, Inc. Non-Employee Directors' Deferred
Compensation Plan (incorporated by reference to Exhibit 10 filed with the
Registrant’s Current Report on Form 8-K dated May 18,
2005).
|
|
|
|
*10(ai)
|
--
|
Amended
and Restated Limited Liability Company Agreement of Taubman Properties
Asia LLC, a Delaware Limited Liability Company (incorporated herein by
reference to Exhibit 10(a) filed with the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2008).
|
|
|
|
*10(aj)
|
--
|
Employment
Agreement between The Taubman Company Asia Limited and Morgan Parker
(incorporated herein by reference to Exhibit 10(b) filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2008).
|
|
|
|
*10(ak)
|
--
|
First
Amendment to the Taubman Centers, Inc. Non-Employee Directors’ Deferred
Compensation Plan (incorporated herein by reference to Exhibit 10(c) filed
with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2008).
|
|
|
|
*10(al)
|
--
|
The
Taubman Company 2008 Omnibus Long-Term Incentive Plan (incorporated herein
by reference to Appendix A to the Registrant’s Proxy Statement on Schedule
14A, filed with the Commission on April 15, 2008).
|
|
|
|
*10(am)
|
--
|
Letter
Agreement regarding the Amended and Restated Limited Liability Company
Agreement of Taubman Properties Asia LLC, a Delaware Limited Liability
Company, dated November 25, 2008.
|
|
|
|
*10(an)
|
--
|
Second
Amendment to the Master Services Agreement between The Taubman Realty
Group Limited Partnership and the Manager, dated December 23,
2008.
|
|
|
|
*10(ao)
|
--
|
Summary
of modification to the Employment Agreement between The Taubman Company
Asia Limited and Morgan Parker.
|
|
|
|
*10(ap)
|
--
|
Form
of Taubman Centers, Inc. Non-Employee Directors’ Deferred Compensation
Plan Amendment Agreement (revised for Code Section 409A
compliance).
|
|
|
|
*10(aq)
|
--
|
First
Amendment to The Taubman Company Supplemental Retirement Savings Plan,
dated December 12, 2008 (revised for Code Section 409A
compliance).
|
|
|
|
*10(ar)
|
--
|
Amendment
to The Taubman Centers, Inc. Change of Control Severance Program, dated
December 12, 2008 (revised for Code Section 409A
compliance).
|
|
|
|
*10(as)
|
--
|
Form
of The Taubman Company Long-Term Performance Compensation Plan Amendment
Agreement (revised for Code Section 409A compliance).
|
|
|
|
*10(at)
|
--
|
Amendment
to Employment Agreement, dated December 22, 2008, for Lisa A. Payne
(revised for Code Section 409A compliance).
|
|
|
|
*10(au)
|
-- |
First
Amendment to the Master Services Agreement between The Taubman Realty
Group Limited Partnership and the Manager, dated September 30,
1998. |
|
|
|
12
|
--
|
Statement
Re: Computation of Taubman Centers, Inc. Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends.
|
|
|
|
21
|
--
|
Subsidiaries
of Taubman Centers, Inc.
|
23
|
--
|
Consent
of Independent Registered Public Accounting Firm.
|
|
|
|
24
|
--
|
Powers
of Attorney.
|
|
|
|
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(a)
|
--
|
Debt
Maturity Schedule.
|
|
|
|
99(b)
|
--
|
Real
Estate and Accumulated Depreciation Schedule of the Unconsolidated Joint
Ventures of The Taubman Realty Group Limited
Partnership.
|
*
|
A
management contract or compensatory plan or arrangement required to be
filed.
|
15(b)
|
The
list of exhibits filed with this report is set forth in response to Item
15(a)(3). The required exhibit index has been filed with the
exhibits.
|
|
|
15(c)
|
The
financial statement schedules of the Company listed at Item 15(a)(2) are
filed pursuant to this Item
15(c).
|
TAUBMAN
CENTERS, INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED
FINANCIAL STATEMENT SCHEDULES
The
following consolidated financial statements and consolidated financial statement
schedules are included in Item 8 of this Annual Report on
Form 10-K:
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
The
management of Taubman Centers, Inc. is responsible for the preparation and
integrity of the financial statements and financial information reported herein.
This responsibility includes the establishment and maintenance of adequate
internal control over financial reporting. The Company’s internal control over
financial reporting is designed to provide reasonable assurance that assets are
safeguarded, transactions are properly authorized and recorded, and that the
financial records and accounting policies applied provide a reliable basis for
the preparation of financial statements and financial information that are free
of material misstatement.
The
management of Taubman Centers, Inc. is required to assess the effectiveness of
the Company’s internal control over financial reporting as of December 31, 2008.
Management bases this assessment of the effectiveness of its internal control on
recognized control criteria, the Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management has completed its assessment as of December 31, 2008.
Based on
its assessment, management believes that Taubman Centers, Inc. maintained
effective internal control over financial reporting as of December 31, 2008. The
independent registered public accounting firm, KPMG LLP, that audited the 2008
financial statements included in this annual report have issued an audit report
on the Company’s system of internal controls over financial reporting, also
included herein.
The Board
of Directors and Shareowners
Taubman
Centers, Inc.:
We have
audited the accompanying consolidated balance sheet of Taubman Centers, Inc.
(the Company) as of December 31, 2008 and 2007, and the related
consolidated statements of operations, shareowners’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2008. In
connection with our audits of the consolidated financial statements, we also
have audited financial statement schedules listed in the Index at Item 15(a)(2).
These consolidated financial statements and financial statement schedules are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Taubman Centers, Inc. as of
December 31, 2008 and 2007, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31,
2008, in conformity with U.S. generally accepted accounting principles.
Also in our opinion, the related financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth
therein.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated February 23, 2009 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
KPMG
LLP
Chicago,
Illinois
February
23, 2009
Report of Independent Registered Public Accounting
Firm
The Board
of Directors and Shareowners
Taubman
Centers, Inc.:
We have
audited Taubman Centers, Inc.’s (the Company) internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on criteria
established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of the Company
as of December 31, 2008 and 2007, and the related consolidated statements
of operations, shareowners’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2008, and our report dated February
23, 2009 expressed an unqualified opinion on those consolidated financial
statements.
KPMG
LLP
Chicago,
Illinois
February
23, 2009
CONSOLIDATED
BALANCE SHEET
(in
thousands, except share data)
|
|
December
31
|
|
|
|
2008
|
|
|
2007
|
|
Assets:
|
|
|
|
|
|
|
Properties (Notes 5 and
9)
|
|
$ |
3,699,480 |
|
|
$ |
3,781,136 |
|
Accumulated depreciation and
amortization (Note 5)
|
|
|
(1,049,626 |
) |
|
|
(933,275 |
) |
|
|
$ |
2,649,854 |
|
|
$ |
2,847,861 |
|
Investment in Unconsolidated Joint
Ventures (Note 6)
|
|
|
89,933 |
|
|
|
92,117 |
|
Cash and cash
equivalents
|
|
|
62,126 |
|
|
|
47,166 |
|
Accounts and notes receivable,
less allowance for doubtful accounts of $9,895
and $6,694 in 2008 and 2007 (Note
7)
|
|
|
46,732 |
|
|
|
52,161 |
|
Accounts receivable from related
parties (Note 12)
|
|
|
1,850 |
|
|
|
2,283 |
|
Deferred charges and other assets
(Notes 1 and 8)
|
|
|
221,297 |
|
|
|
109,719 |
|
|
|
$ |
3,071,792 |
|
|
$ |
3,151,307 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
Notes payable (Note
9)
|
|
$ |
2,796,821 |
|
|
$ |
2,700,980 |
|
Accounts payable and accrued
liabilities
|
|
|
262,226 |
|
|
|
296,385 |
|
Dividends and distributions
payable
|
|
|
22,002 |
|
|
|
21,839 |
|
Distributions in excess of
investments in and net income of Unconsolidated
|
|
|
|
|
|
|
|
|
Joint Ventures (Note
6)
|
|
|
154,141 |
|
|
|
100,234 |
|
|
|
$ |
3,235,190 |
|
|
$ |
3,119,438 |
|
Commitments
and contingencies (Notes 1, 9, 11, 13, and 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Equity of TRG (Note 14)
|
|
$ |
29,217 |
|
|
$ |
29,217 |
|
|
|
|
|
|
|
|
|
|
Minority
interest in TRG and consolidated joint ventures (Notes 1, 2, and
20)
|
|
$ |
6,559 |
|
|
$ |
18,494 |
|
|
|
|
|
|
|
|
|
|
Shareowners'
Equity (Note 14):
|
|
|
|
|
|
|
|
|
Series B Non-Participating
Convertible Preferred Stock, $0.001 par and
liquidation value, 40,000,000
shares authorized, 26,429,235 and
26,524,235 shares issued and
outstanding at December 31, 2008 and 2007
|
|
$ |
26 |
|
|
$ |
27 |
|
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
December 31, 2008 and 2007
|
|
|
|
|
|
|
|
|
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
December 31, 2008 and 2007
|
|
|
|
|
|
|
|
|
Common Stock, $0.01 par value,
250,000,000 shares authorized, 53,018,987
and 52,624,013 shares issued and
outstanding at December 31, 2008 and 2007
|
|
|
530 |
|
|
|
526 |
|
Additional paid-in
capital
|
|
|
556,145 |
|
|
|
543,333 |
|
Accumulated other comprehensive
income (loss) (Note 10)
|
|
|
(29,778 |
) |
|
|
(8,639 |
) |
Dividends in excess of net income
(Note 1)
|
|
|
(726,097 |
) |
|
|
(551,089 |
) |
|
|
$ |
(199,174 |
) |
|
$ |
(15,842 |
) |
|
|
$ |
3,071,792 |
|
|
$ |
3,151,307 |
|
|
|
|
|
|
|
|
|
|
See notes
to consolidated financial statements.
CONSOLIDATED
STATEMENT OF OPERATIONS
(in
thousands, except share data)
|
|
Year Ended December
31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
$ |
353,200 |
|
|
$ |
329,420 |
|
|
$ |
311,187 |
|
Percentage rents
|
|
|
13,764 |
|
|
|
14,817 |
|
|
|
14,700 |
|
Expense recoveries
|
|
|
248,555 |
|
|
|
228,418 |
|
|
|
206,190 |
|
Management, leasing, and
development services
|
|
|
15,911 |
|
|
|
16,514 |
|
|
|
11,777 |
|
Other
|
|
|
40,068 |
|
|
|
37,653 |
|
|
|
35,430 |
|
|
|
$ |
671,498 |
|
|
$ |
626,822 |
|
|
$ |
579,284 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance, taxes, and
utilities
|
|
$ |
189,162 |
|
|
$ |
175,948 |
|
|
$ |
152,885 |
|
Other operating
|
|
|
79,595 |
|
|
|
69,638 |
|
|
|
71,643 |
|
Management, leasing, and
development services
|
|
|
8,710 |
|
|
|
9,080 |
|
|
|
5,730 |
|
General and
administrative
|
|
|
28,110 |
|
|
|
30,403 |
|
|
|
30,290 |
|
Impairment charge (Note
5)
|
|
|
117,943 |
|
|
|
|
|
|
|
|
|
Interest expense (Note
9)
|
|
|
147,397 |
|
|
|
131,700 |
|
|
|
128,643 |
|
Depreciation and
amortization
|
|
|
147,441 |
|
|
|
137,910 |
|
|
|
137,957 |
|
|
|
$ |
718,358 |
|
|
$ |
554,679 |
|
|
$ |
527,148 |
|
Gains
on land sales and other nonoperating income
|
|
$ |
4,569 |
|
|
$ |
3,595 |
|
|
$ |
9,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income tax expense, equity in income of
Unconsolidated Joint Ventures, and
minority and preferred interests
|
|
$ |
(42,291 |
) |
|
$ |
75,738 |
|
|
$ |
61,596 |
|
Income
tax expense (Note 3)
|
|
|
(1,117 |
) |
|
|
|
|
|
|
|
|
Equity
in income of Unconsolidated Joint Ventures (Note 6)
|
|
|
35,356 |
|
|
|
40,498 |
|
|
|
33,544 |
|
Income
(loss) before minority and preferred interests
|
|
$ |
(8,052 |
) |
|
$ |
116,236 |
|
|
$ |
95,140 |
|
Minority
share of consolidated joint ventures (Note 1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority share of income of
consolidated joint ventures
|
|
|
(7,441 |
) |
|
|
(5,031 |
) |
|
|
(5,789 |
) |
Distributions in excess of
minority share of income of consolidated joint
ventures
|
|
|
(8,594 |
) |
|
|
(3,007 |
) |
|
|
(4,904 |
) |
Minority
interest in TRG (Note 1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority share of (income) loss of
TRG
|
|
|
11,338 |
|
|
|
(33,210 |
) |
|
|
(22,816 |
) |
Distributions in excess of
minority share of income
|
|
|
(56,816 |
) |
|
|
(9,404 |
) |
|
|
(14,054 |
) |
TRG
Series F preferred distributions (Note 14)
|
|
|
(2,460 |
) |
|
|
(2,460 |
) |
|
|
(2,460 |
) |
Net
income (loss)
|
|
$ |
(72,025 |
) |
|
$ |
63,124 |
|
|
$ |
45,117 |
|
Series
A, G, H, and I preferred stock dividends (Note 14)
|
|
|
(14,634 |
) |
|
|
(14,634 |
) |
|
|
(23,723 |
) |
Net
income (loss) allocable to common shareowners
|
|
$ |
(86,659 |
) |
|
$ |
48,490 |
|
|
$ |
21,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
- Net income
(loss)
|
|
$ |
(1.64 |
) |
|
$ |
.92 |
|
|
$ |
.41 |
|
Diluted
earnings per common share (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
- Net income
(loss)
|
|
$ |
(1.64 |
) |
|
$ |
.90 |
|
|
$ |
.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per common share
|
|
$ |
1.660 |
|
|
$ |
1.540 |
|
|
$ |
1.290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-basic
|
|
|
52,866,050 |
|
|
|
52,969,067 |
|
|
|
52,661,024 |
|
See notes
to consolidated
financial statements.
CONSOLIDATED
STATEMENT OF SHAREOWNERS' EQUITY
YEARS
ENDED DECEMBER 31, 2008, 2007, AND 2006
(in
thousands, except share data)
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated
Other
|
|
|
Dividends
in
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Excess
of
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Net Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2006
|
|
|
41,175,240 |
|
|
$ |
74 |
|
|
|
51,866,184 |
|
|
$ |
519 |
|
|
$ |
739,090 |
|
|
$ |
(9,051 |
) |
|
$ |
(404,474 |
) |
|
$ |
326,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of adopting EITF 04-5 (Note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,226 |
) |
|
|
(60,226 |
) |
Cumulative
effect of adopting SAB 108 (Note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,876 |
) |
|
|
(5,876 |
) |
Issuance
of stock pursuant to Continuing Offer
(Notes 13, 14, and
15)
|
|
|
(1,061,343 |
) |
|
|
(1 |
) |
|
|
1,061,414 |
|
|
|
10 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series I Preferred Stock, net of
issuance costs (Note
14)
|
|
|
4,520,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,229 |
|
|
|
|
|
|
|
|
|
|
|
109,229 |
|
Redemption
of Series A Preferred Stock (Note 14)
|
|
|
(4,520,000 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
(108,910 |
) |
|
|
|
|
|
|
|
|
|
|
(108,955 |
) |
Redemption
of Series I Preferred Stock (Note 14)
|
|
|
(4,520,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109,229 |
) |
|
|
|
|
|
|
|
|
|
|
(109,229 |
) |
Share-based
compensation under employee
and director benefit plans (Note
13)
|
|
|
|
|
|
|
|
|
|
|
3,996 |
|
|
|
|
|
|
|
5,133 |
|
|
|
|
|
|
|
|
|
|
|
5,133 |
|
Dividend
equivalents (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(297 |
) |
|
|
(297 |
) |
Cash
dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91,903 |
) |
|
|
(91,903 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,117 |
|
|
|
45,117 |
|
Other
comprehensive income (Note 10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate
instruments
and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,900 |
) |
|
|
|
|
|
|
(1,900 |
) |
Reclassification adjustment for
amounts
recognized in net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,391 |
|
|
|
|
|
|
|
1,391 |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
44,608 |
|
Balance,
December 31, 2006
|
|
|
35,593,897 |
|
|
$ |
28 |
|
|
|
52,931,594 |
|
|
$ |
529 |
|
|
$ |
635,304 |
|
|
$ |
(9,560 |
) |
|
$ |
(517,659 |
) |
|
$ |
108,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock pursuant to Continuing Offer
(Notes 13, 14, and
15)
|
|
|
(1,589,662 |
) |
|
|
(1 |
) |
|
|
1,601,371 |
|
|
|
16 |
|
|
|
348 |
|
|
|
|
|
|
|
|
|
|
|
363 |
|
Repurchase
of common stock (Note 14)
|
|
|
|
|
|
|
|
|
|
|
(1,910,544 |
) |
|
|
(19 |
) |
|
|
(99,981 |
) |
|
|
|
|
|
|
|
|
|
|
(100,000 |
) |
Share-based
compensation under employee
and director benefit plans (Note
13)
|
|
|
|
|
|
|
|
|
|
|
1,592 |
|
|
|
|
|
|
|
7,662 |
|
|
|
|
|
|
|
|
|
|
|
7,662 |
|
Dividend
equivalents (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(562 |
) |
|
|
(562 |
) |
Cash
dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95,992 |
) |
|
|
(95,992 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,124 |
|
|
|
63,124 |
|
Other
comprehensive income (Note 10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on interest rate
instruments
and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(340 |
) |
|
|
|
|
|
|
(340 |
) |
Reclassification adjustment for
amounts
recognized in net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,261 |
|
|
|
|
|
|
|
1,261 |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
64,045 |
|
Balance,
December 31, 2007
|
|
|
34,004,235 |
|
|
$ |
27 |
|
|
|
52,624,013 |
|
|
$ |
526 |
|
|
$ |
543,333 |
|
|
$ |
(8,639 |
) |
|
$ |
(551,089 |
) |
|
$ |
(15,842 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock pursuant to Continuing Offer
(Notes 13, 14, and
15)
|
|
|
(95,000 |
) |
|
|
(1 |
) |
|
|
95,004 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation under employee
and director benefit plans (Note
13)
|
|
|
|
|
|
|
|
|
|
|
299,970 |
|
|
|
3 |
|
|
|
12,812 |
|
|
|
|
|
|
|
|
|
|
|
12,815 |
|
Dividend
equivalents (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(560 |
) |
|
|
(560 |
) |
Cash
dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102,423 |
) |
|
|
(102,423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72,025 |
) |
|
|
(72,025 |
) |
Other
comprehensive income (Note 10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on interest rate
instruments
and
other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,399 |
) |
|
|
|
|
|
|
(22,399 |
) |
Reclassification adjustment for
amounts recognized in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,260 |
|
|
|
|
|
|
|
1,260 |
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(93,164 |
) |
Balance,
December 31, 2008
|
|
|
33,909,235 |
|
|
$ |
26 |
|
|
|
53,018,987 |
|
|
$ |
530 |
|
|
$ |
556,145 |
|
|
$ |
(29,778 |
) |
|
$ |
(726,097 |
) |
|
$ |
(199,174 |
) |
See notes
to consolidated financial statements.
CONSOLIDATED
STATEMENT OF CASH FLOWS
(in
thousands)
|
|
Year
Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(72,025 |
) |
|
$ |
63,124 |
|
|
$ |
45,117 |
|
Adjustments to reconcile net
income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority and preferred
interests
|
|
|
63,973 |
|
|
|
53,112 |
|
|
|
50,023 |
|
Depreciation and
amortization
|
|
|
147,441 |
|
|
|
137,910 |
|
|
|
137,957 |
|
Impairment charge (Note
5)
|
|
|
117,943 |
|
|
|
|
|
|
|
|
|
Provision for bad
debts
|
|
|
6,088 |
|
|
|
1,830 |
|
|
|
5,110 |
|
Gains on sales of land and
land-related rights
|
|
|
(2,816 |
) |
|
|
(668 |
) |
|
|
(4,084 |
) |
Other
|
|
|
10,770 |
|
|
|
9,592 |
|
|
|
7,037 |
|
Increase (decrease) in cash
attributable to changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, deferred charges,
and other assets
|
|
|
(5,596 |
) |
|
|
(22,652 |
) |
|
|
(7,610 |
) |
Accounts payable and other
liabilities
|
|
|
(12,358 |
) |
|
|
15,588 |
|
|
|
(10,070 |
) |
Net
Cash Provided by Operating Activities
|
|
$ |
253,420 |
|
|
$ |
257,836 |
|
|
$ |
223,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to
properties
|
|
$ |
(99,964 |
) |
|
$ |
(219,847 |
) |
|
$ |
(178,304 |
) |
Acquisition of interests in The
Mall at Partridge Creek (Note 2)
|
|
|
(11,838 |
) |
|
|
|
|
|
|
|
|
Acquisition of additional interest
in The Pier Shops (Note 2)
|
|
|
|
|
|
|
(24,504 |
) |
|
|
|
|
Cash transferred in upon
consolidation of The Pier Shops (Note 2)
|
|
|
|
|
|
|
33,388 |
|
|
|
|
|
Funding of The Mall at Studio City
escrow (Note 2)
|
|
|
(54,334 |
) |
|
|
|
|
|
|
|
|
Net proceeds from disposition of
interest in center
|
|
|
|
|
|
|
|
|
|
|
9,000 |
|
Proceeds from sales of land and
land-related rights
|
|
|
6,268 |
|
|
|
1,138 |
|
|
|
5,423 |
|
Acquisition of marketable equity
securities and other assets
|
|
|
(2,655 |
) |
|
|
(3,435 |
) |
|
|
|
|
Issuances and repayments of notes
receivable
|
|
|
223 |
|
|
|
(2,228 |
) |
|
|
|
|
Contributions to Unconsolidated
Joint Ventures
|
|
|
(12,111 |
) |
|
|
(15,162 |
) |
|
|
(25,251 |
) |
Distributions from Unconsolidated
Joint Ventures in excess of income
|
|
|
63,269 |
|
|
|
2,990 |
|
|
|
57,583 |
|
Net
Cash Used In Investing Activities
|
|
$ |
(111,142 |
) |
|
$ |
(227,660 |
) |
|
$ |
(131,549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt proceeds
|
|
$ |
335,665 |
|
|
$ |
263,086 |
|
|
$ |
585,584 |
|
Debt payments
|
|
|
(239,072 |
) |
|
|
(16,044 |
) |
|
|
(530,522 |
) |
Debt issuance
costs
|
|
|
(3,419 |
) |
|
|
(2,892 |
) |
|
|
(3,475 |
) |
Repurchase of common stock (Note
14)
|
|
|
|
|
|
|
(100,000 |
) |
|
|
|
|
Redemption of preferred stock and
repurchase of preferred equity
in TRG (Note 14)
|
|
|
|
|
|
|
|
|
|
|
(226,000 |
) |
Issuance of preferred stock and
equity in TRG (Note 14)
|
|
|
|
|
|
|
|
|
|
|
113,000 |
|
Equity issuance
costs
|
|
|
|
|
|
|
|
|
|
|
(607 |
) |
Issuance of common stock and/or
partnership units in connection with
Incentive Option Plan (Notes 13
and 15)
|
|
|
3,809 |
|
|
|
363 |
|
|
|
|
|
Contribution from minority
interest (Note 2)
|
|
|
|
|
|
|
|
|
|
|
9,000 |
|
Distributions to minority and
preferred interests
|
|
|
(118,941 |
) |
|
|
(55,669 |
) |
|
|
(95,359 |
) |
Cash dividends to preferred
shareowners
|
|
|
(14,634 |
) |
|
|
(14,634 |
) |
|
|
(19,071 |
) |
Cash dividends to common
shareowners
|
|
|
(87,679 |
) |
|
|
(79,384 |
) |
|
|
(64,130 |
) |
Other
|
|
|
(3,047 |
) |
|
|
(4,118 |
) |
|
|
|
|
Net
Cash Used In Financing Activities
|
|
$ |
(127,318 |
) |
|
$ |
(9,292 |
) |
|
$ |
(231,580 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) In Cash and Cash Equivalents
|
|
$ |
14,960 |
|
|
$ |
20,884 |
|
|
$ |
(139,649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents at Beginning of Year
|
|
|
47,166 |
|
|
|
26,282 |
|
|
|
163,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of consolidating Cherry Creek Shopping Center (Note 1)
(Cherry Creek Shopping Center's
cash balance at beginning of year)
|
|
|
|
|
|
|
|
|
|
|
2,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents at End of Year
|
|
$ |
62,126 |
|
|
$ |
47,166 |
|
|
$ |
26,282 |
|
See notes
to consolidated financial statements.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
1 - Summary of Significant Accounting Policies
Organization
and Basis of Presentation
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 December 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. In September 2008, the
Company acquired the interests of the owner of The Mall at Partridge Creek
(Partridge Creek) (Note 2). Prior to the acquisition, the Company consolidated
the accounts of the owner of Partridge Creek, which qualified 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 was 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 2). 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.
With the
issuance of EITF 04-5 and the amendment of SOP 78-9, the Company began
consolidating, as of January 1, 2006, the entity that owns Cherry Creek Shopping
Center (Cherry Creek), a 50% owned joint venture, pursuant to the transition
methodology provided in EITF 04-5. The impact to the Consolidated Balance Sheet
was an increase in assets of approximately $136 million and liabilities of
approximately $199 million, and a $63 million reduction of beginning equity
representing the cumulative effects of changes in accounting principles related
to Cherry Creek (see also “Adoption of Staff Accounting Bulletin No. 108”). The
reduction in beginning equity was the result of the Company's venture partner's
$52 million deficit capital account as of December 31, 2005 and the adoption of
Staff Accounting Bulletin No. 108 (SAB 108), which increased the venture
partner’s deficit capital account to $60 million. The venture partner’s deficit
account was recorded at zero in the Consolidated Balance Sheet as of January 1,
2006. The Company’s $3.5 million cumulative impact of adopting SAB 108 that
is attributable to Cherry Creek is included in the total cumulative effect of
adopting SAB 108 in the Company’s Consolidated Statement of Shareowners’
Equity.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Operating
Partnership
At
December 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.
Minority
Interests
As of
December 31, 2008 and 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. 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 $6.6 million and $18.5 million at
December 31, 2008 and 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 9). 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 December 31, 2008, the total of excess
proceeds distributed to partners for this financing and the May 2006 financing
at the Cherry Creek consolidated joint venture, which are 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
20 – New Accounting Pronouncements” regarding changes in 2009 to the accounting
for minority interests.
Revenue
Recognition
Shopping
center space is generally leased to tenants under short and intermediate term
leases that are accounted for as operating leases. Minimum rents are recognized
on the straight-line method. Percentage rent is accrued when lessees' specified
sales targets have been met. Most expense recoveries, which include an
administrative fee, are recognized as revenue in the period applicable costs are
chargeable to tenants. Management, leasing, and development revenue is
recognized as services are rendered, when fees due are determinable, and
collectibility is reasonably assured. Fees for management, leasing, and
development services are established under contracts and are generally based on
negotiated rates, percentages of cash receipts, and/or actual costs incurred.
Fixed-fee development services contracts are generally accounted for under the
percentage-of-completion method, using cost to cost measurements of progress.
Profits on real estate sales are recognized whenever (1) a sale is consummated,
(2) the buyer has demonstrated an adequate commitment to pay for the property,
(3) the Company’s receivable is not subject to future subordination, and (4) the
Company has transferred to the buyer the risks and rewards of ownership. Other
revenues, including fees paid by tenants to terminate their leases, are
recognized when fees due are determinable, no further actions or services are
required to be performed by the Company, and collectibility is reasonably
assured. Taxes assessed by government authorities on revenue-producing
transactions, such as sales, use, and value-added taxes are primarily accounted
for on a net basis on the Company’s income statement.
Allowance for Doubtful
Accounts
The
Company records a provision for losses on accounts receivable to reduce them to
the amount estimated to be collectible. The Company records a provision for
losses on notes receivable to reduce them to the present value of expected
future cash flows discounted at the loans effective interest rates or the fair
value of the collateral if the loans are collateral dependent.
Depreciation and
Amortization
Buildings,
improvements and equipment are depreciated on straight-line or double-declining
balance bases over the estimated useful lives of the assets, which generally
range from 3 to 50 years. Capital expenditures that are recoverable from tenants
are depreciated over the estimated recovery period. Intangible assets are
amortized on a straight-line basis over the estimated useful lives of the
assets. Tenant allowances are depreciated over the shorter of the useful life of
the leasehold improvements or the lease term. Deferred leasing costs are
amortized on a straight-line basis over the lives of the related leases. In the
event of early termination of such leases, the unrecoverable net book values of
the assets are recognized as depreciation and amortization expense in the period
of termination.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Capitalization
Direct
and indirect costs that are clearly related to the acquisition, development,
construction and improvement of properties are capitalized under guidelines of
SFAS No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate
Projects.” Compensation costs are allocated based on actual time spent on a
project. Costs incurred on real estate for ground leases, property taxes and
insurance are capitalized during periods in which activities necessary to get
the property ready for its intended use are in progress. Interest costs
determined under guidelines of SFAS No. 34, “Capitalization of Interest Cost”
and SFAS No. 58 “Capitalization of Interest Costs in Financial Statements that
Include Investments Accounted for by the Equity Method” are capitalized during
periods in which activities necessary to get the property ready for its intended
use are in progress.
The
viability of all projects under construction or development, including those
owned by Unconsolidated Joint Ventures, are regularly evaluated under the
requirements of SFAS No. 67, including requirements relating to abandonment of
assets or changes in use. To the extent a project, or individual components of
the project, are no longer considered to have value, the related capitalized
costs are charged against operations. Additionally, all properties are reviewed
for impairment on an individual basis whenever events or changes in
circumstances indicate that their carrying value may not be recoverable.
Impairment of a shopping center owned by consolidated entities is recognized
when the sum of expected cash flows (undiscounted and without interest charges)
is less than the carrying value of the property. Other than temporary impairment
of an investment in an Unconsolidated Joint Venture is recognized when the
carrying value of the investment is not considered recoverable based on
evaluation of the severity and duration of the decline in value, including the
results of discounted cash flow and other valuation techniques. To the extent
impairment has occurred, the excess carrying value of the asset over its
estimated fair value is charged to income.
In the
fourth quarter of 2008, the Company recognized impairment charges on its Oyster
Bay project (Note 5) and its Sarasota joint venture project (Note
6).
In
leasing a shopping center space, the Company may provide funding to the lessee
through a tenant allowance. In accounting for a tenant allowance, the Company
determines whether the allowance represents funding for the construction of
leasehold improvements and evaluates the ownership, for accounting purposes, of
such improvements. If the Company is considered the owner of the leasehold
improvements for accounting purposes, the Company capitalizes the amount of the
tenant allowance and depreciates it over the shorter of the useful life of the
leasehold improvements or the lease term. If the tenant allowance represents a
payment for a purpose other than funding leasehold improvements, or in the event
the Company is not considered the owner of the improvements for accounting
purposes, the allowance is considered to be a lease incentive and is recognized
over the lease term as a reduction of rental revenue. Factors considered during
this evaluation usually include (1) who holds legal title to the improvements,
(2) evidentiary requirements concerning the spending of the tenant allowance,
and (3) other controlling rights provided by the lease agreement (e.g.
unilateral control of the tenant space during the build-out process).
Determination of the accounting for a tenant allowance is made on a case-by-case
basis, considering the facts and circumstances of the individual tenant lease.
Substantially all of the Company’s tenant allowances have been determined to be
leasehold improvements.
Cash and Cash
Equivalents
Substantially
all cash deposits are invested in accounts insured by the Federal Deposit
Insurance Corporation (FDIC) Temporary Liquidity Guarantee Program, the FDIC
deposit insurance, money market funds that participate in the U.S. Treasury
Department Temporary Guarantee Program for Money Market Funds, or in a money
market fund that invests solely in U.S. Treasury securities. Cash equivalents
consist of highly liquid investments with a maturity of 90 days or less at the
date of purchase.
Acquisition of Interests in
Centers
The cost
of acquiring an ownership interest or an additional ownership interest in a
center is allocated to the tangible assets acquired (such as land and building)
and to any identifiable intangible assets based on their estimated fair values
at the date of acquisition. The fair value of the property is determined on an
“as-if-vacant” basis. Management considers various factors in estimating the
"as-if-vacant" value including an estimated lease up period, lost rents and
carrying costs. The identifiable intangible assets would include the estimated
value of “in-place” leases, above and below market “in-place” leases, and tenant
relationships. The portion of the purchase price that management determines
should be allocated to identifiable intangible assets is amortized in
depreciation and amortization over the estimated life of the associated
intangible asset (for instance, the remaining life of the associated tenant
lease).
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred Charges and Other
Assets
Direct
financing costs are deferred and amortized on a straight-line basis, which
approximates the effective interest method, over the terms of the related
agreements as a component of interest expense. Direct costs related to
successful leasing activities are capitalized and amortized on a straight-line
basis over the lives of the related leases. All other deferred charges are
amortized on a straight-line basis over the terms of the agreements to which
they relate.
Share-Based Compensation
Plans
In
accordance with Statement No. 123 (Revised) “Share-Based Payment,” the cost of
share-based compensation is measured at the grant date, based on the calculated
fair value of the award, and is recognized over the requisite employee service
period which is generally the vesting period of the grant. The Company
recognizes compensation costs for awards with graded vesting schedules on a
straight-line basis over the requisite service period for each separately
vesting portion of the award as if the award was, in-substance, multiple
awards.
Interest Rate Hedging
Agreements
All
derivatives, whether designated in hedging relationships or not, are recorded on
the balance sheet at fair value. If a derivative is designated as a cash flow
hedge, the effective portions of changes in the fair value of the derivative are
recorded in other comprehensive income (OCI) and are recognized in the income
statement when the hedged item affects income. Ineffective portions of changes
in the fair value of a cash flow hedge are recognized in the Company’s income as
interest expense.
The
Company formally documents all relationships between hedging instruments and
hedged items, as well as its risk management objectives and strategies for
undertaking various hedge transactions. The Company assesses, both at the
inception of the hedge and on an ongoing basis, whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes in the
cash flows of the hedged items.
Income
Taxes
The
Company operates in such a manner as to qualify as a REIT under the applicable
provisions of the Internal Revenue Code; therefore, REIT taxable income is
included in the taxable income of its shareowners, to the extent distributed by
the Company. To qualify as a REIT, the Company must distribute at least 90% of
its REIT taxable income prior to net capital gains to its shareowners and meet
certain other requirements. Additionally, no provision for income taxes for
consolidated partnerships has been made, as such taxes are the responsibility of
the individual partners.
In
connection with the Tax Relief Extension Act of 1999, the Company made Taxable
REIT Subsidiary elections for all of its corporate subsidiaries pursuant to
section 856(I) of the Internal Revenue Code. The Company’s Taxable REIT
Subsidiaries are subject to corporate level income taxes which are provided for
in the Company’s financial statements.
Deferred
tax assets and liabilities reflect the impact of temporary differences between
the amounts of assets and liabilities for financial reporting purposes and the
bases of such assets and liabilities as measured by tax laws. Deferred tax
assets are reduced by a valuation allowance to the amount where realization is
more likely than not assured after considering all available evidence, including
expected taxable earnings and potential tax planning strategies. The Company’s
temporary differences primarily relate to deferred compensation, depreciation
and net operating loss carryforwards.
Finite Life
Entities
Statement
of Financial Accounting Standards 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 December 31, 2008, the Company held controlling
majority interests in consolidated entities with specified termination dates in
2081 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 $104.3 million at December 31, 2008, compared to a
book value of $(96.8) million, which was classified as Deferred Charges and
Other Assets in the Company’s Consolidated Balance Sheet.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. See Note 5 regarding the balance of costs relating to the
Company's Oyster Bay project.
Segments and Related
Disclosures
The
Company has one reportable operating segment: it owns, develops, and manages
regional shopping centers. The Company has aggregated its shopping centers into
this one reportable segment, as the shopping centers share similar economic
characteristics and other similarities. The shopping centers are located in
major metropolitan areas, have similar tenants (most of which are national
chains), are operated using consistent business strategies, and are expected to
exhibit similar long-term financial performance. Earnings before interest,
income taxes, depreciation, and amortization (EBITDA) is often used by the
Company's chief operating decision makers in assessing segment performance.
EBITDA is believed to be 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.
No single
retail company represents 10% or more of the Company's revenues. Although the
Company operates a subsidiary headquartered in Hong Kong, there are not yet any
material revenues from customers or long-lived assets attributable to a country
other than the United States of America.
Adoption of Staff Accounting
Bulletin No. 108
In
September 2006, the Securities and Exchange Commission (SEC) published Staff
Accounting Bulletin (SAB) No. 108 “Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements.” The interpretations in SAB 108 express the SEC’s staff’s views
regarding the process of quantifying financial statement misstatements. The
staff’s interpretations resulted from their awareness of a diversity in practice
as to how the effect of prior year errors were considered in relation to current
year financial statements. Through SAB 108, the staff communicated its belief
that allowing prior year errors to remain unadjusted on the balance sheet is not
in the best interest of the users of financial statements. SAB 108 became
effective for the Company for the year ended December 31, 2006.
In
adopting SAB 108, the Company changed its methods of evaluating financial
statement misstatements from a “rollover” (income statement-oriented) approach
to SAB 108’s “dual-method” (both an income statement and balance sheet-oriented)
approach. In doing so, the Company identified three misstatements previously
considered immaterial to all previous periods under the rollover method but
material when evaluated together under the dual-method, as described below.
These misstatements were corrected upon adoption of SAB 108.
Accounting
for Cherry Creek Ground Rent Prior to 1999
Prior to
1999, Cherry Creek, a venture previously accounted for under the equity method,
recognized ground rentals under its 99 year ground lease on a cash basis instead
of the straight-line method required by Statement of Financial Accounting
Standards No. 13, “Accounting for Leases”. This error resulted in the Company
overstating its cumulative equity in the net income of Cherry Creek by a total
of $3.5 million from the Company’s 1992 acquisition of an interest in the
Operating Partnership through December 31, 2005. The maximum misstatement of the
Company’s equity in the net income of Cherry Creek in any individual year in
this period under the rollover method was $0.3 million.
The
Company began consolidating Cherry Creek on January 1, 2006 as a result of
adopting EITF 04-5. As a result of the correction of the above error, the
cumulative effect of a change in accounting principle upon adoption of EITF
04-5, assets, and liabilities recognized by the Company upon the consolidation
of Cherry Creek were increased by $7.9 million, $8.3 million and $19.7
million, respectively. Prior to 2006, the Company accounted for its investment
in Cherry Creek under the equity method.
Recognition
of Payroll Costs
The
Company previously recognized its payroll costs in a manner that corresponded to
its biweekly pay periods, which do not necessarily end on the last day of the
calendar year. Differences caused by not strictly recognizing payroll on a
calendar year basis, while previously adjusted on a periodic basis, have
resulted in overstatements of net income by a total of $1.0 million over the
decade prior to adoption of SAB 108, with the maximum misstatement in any
individual year computed under the rollover method being $0.1
million.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Arizona
Mills
In 2006,
The Mills Corporation (Mills), which managed (prior to April 2007) the 50%
Unconsolidated Joint Venture, Arizona Mills, advised the Company that Mills had
identified errors in prior year financial statements, primarily relating to the
timing of writeoffs of tenant allowances, that relate to years prior to 2006.
Based on information received from Mills, the Company determined that the
cumulative impact of its share of prior years’ errors identified by Mills is an
overstatement of the Company’s equity by $1.3 million as of December 31, 2006.
See Note 6 for adjustments relating to Arizona Mills that had not been
identified at the time of adoption of SAB 108.
Cumulative
Effect of Adopting SAB 108
As a
result of applying the guidance in SAB 108, during the year ended December 31,
2006, the Company recorded a $5.9 million reduction to its shareowners’ equity
account (dividends in excess of net income) in its opening balance sheet to
correct for the effect of the errors associated with the accounting for Cherry
Creek’s ground rent prior to 1999, the recognition of payroll costs, and its
share of Arizona Mills errors identified by Mills, described above.
Other
Dollar
amounts presented in tables within the notes to the consolidated financial
statements are stated in thousands, except share data or as otherwise
noted.
Note
2 – Acquisitions
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 and Parisian. 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 was the owner of the project and leased the
land from a subsidiary of the Company. In turn, the owner leased 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,
which was repaid in September 2008. The owner provided $9 million in
equity. Funding for the remaining project costs was provided by the owner’s
third-party recourse construction loan.
In
September 2008, the Company exercised its option to purchase the third-party
owner’s interests in Partridge Creek. The purchase price of $11.8 million
included the original owner's equity contribution of $9 million plus a 12%
cumulative return. The acquisition of the interests was accounted for under the
purchase method. The excess of the purchase price over the book value of the
interests acquired was approximately $3.8 million and was allocated principally
to building and improvements. The Company assumed all of the obligations and was
assigned all of the owner's rights under the ground lease, the operating lease,
and any remaining obligations under the loans.
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. The
Company will be responsible for any additional capital requirements, on which it
will receive a preferred return at a minimum of 8%. As of December 31, 2008, the
Company had provided $4.3 million of additional capital.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note
3 - Income Taxes
Federal, State and Foreign
Income Taxes
During
the years ended December 31, 2008, 2007, and 2006, the Company's federal and
foreign income tax expense was zero. The federal and foreign income tax was zero
as a result of net operating losses incurred by the Company’s Taxable REIT
Subsidiaries. The Company has a federal net operating loss carryforward of $14.7
million ($0.1 million from 2002 that will expire in 2022, $0.3 million from 2003
that will expire in 2023, $3.3 million from 2004 that will expire in 2024, $1.6
million from 2005 that will expire in 2025, $0.2 million from 2006 that will
expire in 2026, $3.3 million from 2007 that will expire in 2027 and $5.9 million
from 2008 that will expire in 2028). The Company has a foreign net operating
loss carryforward of $5.8 million, $0.3 million of which has an indefinite
carryforward period, $4.6 million expires in 2011, and $0.9 million expires in
2013.
In July
2007, the State of Michigan signed into law the Michigan Business Tax Act,
replacing the Michigan single business tax with a business income tax and
modified gross receipts tax. These new taxes became effective January 1, 2008,
and, because they are based on or derived from income-based measures, the
provisions of SFAS No. 109 “Accounting for Income Taxes,” apply as of the
enactment date. In September 2007, an amendment to the Michigan Business Tax Act
was also signed into law establishing a deduction to the business income tax
base if temporary differences associated with certain assets result in a net
deferred tax liability as of September 30, 2007. The tax effect of this
deduction, which was equal to the amount of the aggregate deferred tax liability
as of September 30, 2008, has an indefinite carryforward period. The enactment
of the Michigan Business Tax Act and the related amendment resulted in both a
deferred tax liability and deferred tax asset, balances of which are $3.7
million and $3.4 million respectively, as of December 31, 2008. During 2008, the
Company’s deferred Michigan business tax expense was $0.3 million. During the
year ended December 31, 2008, the Company's current Michigan business tax
expense was $0.8 million. There was no current or deferred Michigan business tax
expense for years ended December 31, 2007 and 2006.
As of
December 31, 2008 and 2007 the Company had net federal and foreign deferred tax
assets of $3.2 million and $3.3 million, after valuation allowances of $6.6
million and $6.6 million, respectively. The Company believes that it is more
likely than not the results of future operations will generate sufficient
taxable income to recognize the net deferred tax asset. These future operations
are dependent upon the Manager’s profitability, the timing and amounts of gains
on land sales, the profitability of the Company’s Asian operations, and other
factors affecting the results of operations of the Taxable REIT
Subsidiaries.
Tax Status of
Dividends
Dividends
declared on the Company’s common and preferred stock and their tax status are
presented in the following tables. The tax status of the Company’s dividends in
2008, 2007, and 2006 may not be indicative of future periods. The portion of
dividends paid in 2008 shown below as capital gains are designated as capital
gain dividends for tax purposes.
Year
|
|
Dividends
per
common
share declared
|
|
|
Return
of capital
|
|
|
Ordinary
income
|
|
|
15%
Rate
long
term
capital gain
|
|
|
Unrecaptured
Sec.
1250
capital gain
|
|
2008
|
|
$ |
1.660 |
|
|
$ |
0.0000 |
|
|
$ |
1.3324 |
|
|
$ |
0.3011 |
|
|
$ |
0.0265 |
|
2007
|
|
|
1.540 |
|
|
|
0.0000 |
|
|
|
1.5385 |
|
|
|
0.0015 |
|
|
|
0.0000 |
|
2006
|
|
|
1.290 |
|
|
|
0.0687 |
|
|
|
1.2006 |
|
|
|
0.0207 |
|
|
|
0.0000 |
|
Year
|
|
Dividends
per
Series
A Preferred
share declared
|
|
|
Ordinary
income
|
|
|
15%
Rate
long
term
capital gain
|
|
|
Unrecaptured
Sec.
1250
capital gain
|
|
2006
|
|
$ |
0.790 |
|
|
$ |
0.7770 |
|
|
$ |
0.0130 |
|
|
$ |
0.0000 |
|
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Year
|
|
Dividends
per
Series
G Preferred
share declared
|
|
|
Ordinary
income
|
|
|
15%
Rate
long
term
capital gain
|
|
|
Unrecaptured
Sec.
1250
capital gain
|
|
2008
|
|
$ |
2.000 |
|
|
$ |
1.6053 |
|
|
$ |
0.3628 |
|
|
$ |
0.0319 |
|
2007
|
|
|
2.000 |
|
|
|
1.9981 |
|
|
|
0.0019 |
|
|
|
0.0000 |
|
2006
|
|
|
2.000 |
|
|
|
1.9679 |
|
|
|
0.0321 |
|
|
|
0.0000 |
|
Year
|
|
Dividends
per
Series
H Preferred
share declared
|
|
|
Ordinary
income
|
|
|
15%
Rate
long
term
capital gain
|
|
|
Unrecaptured
Sec.
1250
capital gain
|
|
2008
|
|
$ |
1.906 |
|
|
$ |
1.5300 |
|
|
$ |
0.3457 |
|
|
$ |
0.0303 |
|
2007
|
|
|
1.906 |
|
|
|
1.9042 |
|
|
|
0.0018 |
|
|
|
0.0000 |
|
2006
|
|
|
1.906 |
|
|
|
1.8757 |
|
|
|
0.0303 |
|
|
|
0.0000 |
|
The
Company redeemed the remaining 4,520,000 shares of its outstanding Series A
Preferred Stock in May 2006 for $25 per share and paid all holders, of the
Series A Preferred Stock, $0.27 per share in accrued dividends, which are
included above as a 2006 dividend payment.
Uncertain Tax
Positions
The
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109” (FIN
48) on January 1, 2007. FIN 48 defines a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The Interpretation also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. Adoption of FIN 48
did not have a material effect on the Company’s results of operations or
financial position.
The
Company had no unrecognized tax benefits as of the January 1, 2007 adoption date
or as of December 31, 2008. The Company expects no significant increases or
decreases in unrecognized tax benefits due to changes in tax positions within
one year of December 31, 2008. The Company has no interest or penalties relating
to income taxes recognized in the Consolidated Statement of Operations for the
year ended December 31, 2008 or in the balance sheet as of December 31, 2008. As
of December 31, 2008, returns for the calendar years 2005 through 2008 remain
subject to examination by U.S. and various state and foreign tax
jurisdictions.
Note
4 - Investment in the Operating Partnership
The
partnership equity of the Operating Partnership and the Company's ownership
therein are shown below:
Year
|
|
TRG
units
outstanding
at
December 31
|
|
|
TRG
units
owned
by TCO at
December 31 (1)
|
|
|
TRG
Units owned by minority interests at December 31
|
|
|
TCO's
% interest
in
TRG at
December 31
|
|
|
TCO's
average
interest in TRG
|
|
2008
|
|
|
79,481,431 |
|
|
|
53,018,987 |
|
|
|
26,462,444 |
|
|
|
67
|
% |
|
|
67
|
% |
2007
|
|
|
79,181,457 |
|
|
|
52,624,013 |
|
|
|
26,557,444 |
|
|
|
66
|
|
|
|
66
|
|
2006
|
|
|
81,078,700 |
|
|
|
52,931,594 |
|
|
|
28,147,106 |
|
|
|
65
|
|
|
|
65
|
|
(1)
|
There
is a one-for-one relationship between TRG units owned by TCO and TCO
common shares outstanding; amounts in this column are equal to TCO’s
common shares outstanding as of the specified
dates.
|
Net
income and distributions of the Operating Partnership are allocable first to the
preferred equity interests (Note 14), and the remaining amounts to the general
and limited Operating Partnership partners in accordance with their percentage
ownership.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note
5 - Properties
Properties
at December 31, 2008 and December 31, 2007 are summarized as
follows:
|
|
2008
|
|
|
2007
|
|
Land
|
|
$ |
263,619 |
|
|
$ |
266,480 |
|
Buildings,
improvements, and equipment
|
|
|
3,363,638 |
|
|
|
3,337,745 |
|
Construction
in process
|
|
|
10,650 |
|
|
|
17,064 |
|
Development
pre-construction costs
|
|
|
61,573 |
|
|
|
159,847 |
|
|
|
$ |
3,699,480 |
|
|
$ |
3,781,136 |
|
Accumulated
depreciation and amortization
|
|
|
(1,049,626 |
) |
|
|
(933,275 |
) |
|
|
$ |
2,649,854 |
|
|
$ |
2,847,861 |
|
Buildings,
improvements, and equipment under capital leases were $2.5 million and $5.5
million at December 31, 2008 and 2007, respectively. Amortization of assets
under capital leases is included within depreciation expense.
Depreciation
expense for 2008, 2007, and 2006 was $138.7 million, $128.4 million, and $128.5
million, respectively.
The
charge to operations in 2008, 2007, and 2006 for domestic and non-U.S.
pre-development activities was $18.5 million, $11.9 million, and $10.1
million, respectively.
In
January 2009, the Appellate Division of the Supreme Court of the State of
New York reversed the favorable order that the Company had been issued in June
2008 directing the Town of Oyster Bay to immediately issue a special use permit
for The Mall at Oyster Bay. The court also upheld the Town Board’s request for a
supplemental environmental impact statement. Although the Company intends to
immediately seek an appeal of the decision, the Company determined in
February 2009 that it would recognize in the fourth quarter of 2008 a
charge to income of $117.9 million relating to the Oyster Bay project,
including $4.6 million in costs for future expenditures associated with
obligations under existing contracts related to the project. This determination
was reached after an overall assessment of the probability of the development of
the mall as designed and a review of the Company’s previously capitalized
project costs. The charge includes the costs of previous development activities
as well as holding and other costs that management believes will likely not
benefit the development if and when the Company obtains the rights to build the
center. The Company also expects to expense any additional costs relating to
Oyster Bay until it is probable that the Company will be able to successfully
move forward with a project. The Company began expensing carrying costs as
incurred beginning in the fourth quarter of 2008. The Company’s remaining
capitalized investment in the project as of December 31, 2008 is
$39.8 million, consisting of land and site improvements. If the Company is
ultimately unsuccessful in obtaining the right to build the center, it is
uncertain whether the Company would be able to recover the full amount of this
capitalized investment through alternate uses of the land.
One
shopping center pays annual special assessment levies of a Community Development
District (CDD), which provided certain infrastructure assets and improvements.
As the amount and period of the special assessments were determinable, the
Company capitalized the infrastructure assets and improvements and recognized an
obligation for the future special assessments to be levied. At December 31,
2008, the book value of the infrastructure assets and improvements, net of
depreciation, was $48.1 million. The related obligation is classified as an
accrued liability and had a balance of $63.9 million at December 31, 2008. The
fair value of this obligation, derived from quoted market prices, was $51.2
million at December 31, 2008.
In
January 2007, the Company acquired land for future development in North Atlanta,
Georgia for $15.5 million. A portion of this land is expected to be sold for
various uses.
Note
6 - 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 (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 2).
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Shopping
Center
|
Ownership
as of
December 31, 2008 and
2007
|
Arizona
Mills
|
50%
|
Fair
Oaks
|
50
|
The
Mall at Millenia
|
50
|
Stamford
Town Center
|
50
|
Sunvalley
|
50
|
Waterside
Shops
|
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.
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.
In May
2008, the Company entered into agreements to jointly develop University Town
Center, a regional mall in Sarasota, Florida. Under the agreements, the Company
would own a noncontrolling 25% interest in the project. Due to the current
economic and retail environment, in December 2008 the Company announced that the
project has been put on hold. The Company does not know if or when it will
acquire an interest in the land and move forward with the project. Due to this
uncertainty, the Company recognized an $8.3 million charge to income in the
fourth quarter of 2008. This charge is included in Equity in Income of
Unconsolidated Joint Ventures on the Consolidated Statement of Operations and
represents the Company’s share of project costs and its total investment in the
project. The contribution payable to the University Town Center joint venture
represents the Company’s share of unpaid costs, which were funded subsequent to
December 31, 2008.
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 2). 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.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
|
|
December
31
|
|
|
|
2008
|
|
|
2007
|
|
Assets:
|
|
|
|
|
|
|
Properties
|
|
$ |
1,087,341 |
|
|
$ |
1,056,380 |
|
Accumulated depreciation and
amortization
|
|
|
(366,168 |
) |
|
|
(347,459 |
) |
|
|
$ |
721,173 |
|
|
$ |
708,921 |
|
Cash and cash
equivalents
|
|
|
28,946 |
|
|
|
40,097 |
|
Accounts and notes receivable,
less allowance for doubtful accounts
of $1,419 and $1,799 in 2008
and 2007
|
|
|
26,603 |
|
|
|
26,271 |
|
Deferred charges and other
assets
|
|
|
20,098 |
|
|
|
18,229 |
|
|
|
$ |
796,820 |
|
|
$ |
793,518 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and accumulated deficiency in assets:
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$ |
1,103,903 |
|
|
$ |
1,003,463 |
|
Accounts payable and other
liabilities
|
|
|
61,570 |
|
|
|
55,242 |
|
TRG's accumulated deficiency in
assets
|
|
|
(201,466 |
) |
|
|
(151,363 |
) |
Unconsolidated Joint Venture
Partners' accumulated deficiency
in assets
|
|
|
(167,187 |
) |
|
|
(113,824 |
) |
|
|
$ |
796,820 |
|
|
$ |
793,518 |
|
|
|
|
|
|
|
|
|
|
TRG's
accumulated deficiency in assets (above)
|
|
$ |
(201,466 |
) |
|
$ |
(151,363 |
) |
Contribution
payable
|
|
|
(1,005 |
) |
|
|
|
|
TRG
basis adjustments, including elimination of intercompany
profit
|
|
|
71,623 |
|
|
|
74,660 |
|
TCO's
additional basis
|
|
|
66,640 |
|
|
|
68,586 |
|
Net
Investment in Unconsolidated Joint Ventures
|
|
$ |
(64,208 |
) |
|
$ |
(8,117 |
) |
Distributions
in excess of investments in and net income of
Unconsolidated Joint
Ventures
|
|
|
154,141 |
|
|
|
100,234 |
|
Investment
in Unconsolidated Joint Ventures
|
|
$ |
89,933 |
|
|
$ |
92,117 |
|
|
|
Year
Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Revenues
|
|
$ |
271,813 |
|
|
$ |
262,587 |
|
|
$ |
252,129 |
|
Maintenance,
taxes, utilities, and other operating expenses
|
|
$ |
93,218 |
|
|
$ |
90,782 |
|
|
$ |
93,452 |
|
Interest
expense
|
|
|
65,002 |
|
|
|
66,232 |
|
|
|
57,563 |
|
Depreciation
and amortization
|
|
|
39,756 |
|
|
|
37,355 |
|
|
|
43,124 |
|
Total
operating costs
|
|
$ |
197,976 |
|
|
$ |
194,369 |
|
|
$ |
194,139 |
|
Nonoperating
income
|
|
|
683 |
|
|
|
1,587 |
|
|
|
1,289 |
|
Net
income
|
|
$ |
74,520 |
|
|
$ |
69,805 |
|
|
$ |
59,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income allocable to TRG
|
|
$ |
41,857 |
|
|
$ |
40,518 |
|
|
$ |
34,101 |
|
Realized
intercompany profit, net of depreciation on TRG’s
basis adjustments
|
|
|
3,770 |
|
|
|
1,924 |
|
|
|
1,387 |
|
Depreciation
of TCO's additional basis
|
|
|
(1,948 |
) |
|
|
(1,944 |
) |
|
|
(1,944 |
) |
Impairment
charge
|
|
|
(8,323 |
) |
|
|
|
|
|
|
|
|
Equity
in income of Unconsolidated Joint Ventures
|
|
$ |
35,356 |
|
|
$ |
40,498 |
|
|
$ |
33,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
interest in Unconsolidated Joint Ventures' operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues less maintenance,
taxes, utilities, and other
operating
expenses
|
|
$ |
101,089 |
|
|
$ |
96,844 |
|
|
$ |
91,559 |
|
Interest expense
|
|
|
(33,777 |
) |
|
|
(33,311 |
) |
|
|
(31,151 |
) |
Depreciation and
amortization
|
|
|
(23,633 |
) |
|
|
(23,035 |
) |
|
|
(26,864 |
) |
Impairment
charge
|
|
|
(8,323 |
) |
|
|
|
|
|
|
|
|
Equity in income of
Unconsolidated Joint Ventures
|
|
$ |
35,356 |
|
|
$ |
40,498 |
|
|
$ |
33,544 |
|
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Other
The
provision for losses on accounts receivable of the Unconsolidated Joint Ventures
was $1.0 million, $1.2 million, and $1.2 million for the years ended December
31, 2008, 2007, and 2006, respectively.
Deferred
charges and other assets of $20.1 million at December 31, 2008 were comprised of
leasing costs of $27.4 million, before accumulated amortization of $(13.5)
million, net deferred financing costs of $3.9 million, and other net charges of
$2.3 million. Deferred charges and other assets of $18.2 million at December 31,
2007 were comprised of leasing costs of $25.0 million, before accumulated
amortization of $(12.4) million, net deferred financing costs of $2.6 million,
and other net charges of $3.0 million.
The
estimated fair value of the Unconsolidated Joint Ventures’ notes payable was
$1.1 billion and $1.0 billion at December 31, 2008 and 2007,
respectively.
Depreciation
expense on properties for 2008, 2007, and 2006 was $36.1 million, $33.2 million,
and $40.2 million.
In
January 2008 and the first quarter of 2007, the Company received adjustments
relating to accounting policies and procedures of Mills for years prior to 2007.
These prior period adjustments, including $3.0 million of reductions to minimum
rent related to tenant inducements, $0.8 million reduction to depreciation and
amortization, and other adjustments, totaled to a net $2.0 million reduction in
income. The Company’s share was a $1.0 million reduction to income for the year
ended December 31, 2007. 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.
Refer to
“Note 1 – Significant Accounting Policies” regarding prior period adjustments to
Arizona Mills recognized upon adoption of SAB 108.
In
October 2006, Taubman Land Associates LLC, a 50% Unconsolidated Joint Venture
owned by the Company and an affiliate of the Taubman family, acquired for $42.5
million the land on which Sunvalley is situated. Sunvalley is owned by SunValley
Associates, a 50% joint venture with a Taubman family affiliate.
Note
7 - Accounts and Notes Receivable
Accounts
and notes receivable at December 31, 2008 and December 31, 2007 are summarized
as follows:
|
|
2008
|
|
|
2007
|
|
Trade
|
|
$ |
36,149 |
|
|
$ |
37,183 |
|
Notes
|
|
|
7,471 |
|
|
|
8,272 |
|
Straight-line
rent
|
|
|
12,904 |
|
|
|
12,930 |
|
Other
|
|
|
103 |
|
|
|
470 |
|
|
|
$ |
56,627 |
|
|
$ |
58,855 |
|
Less:
Allowance for doubtful accounts
|
|
|
(9,895 |
) |
|
|
(6,694 |
) |
|
|
$ |
46,732 |
|
|
$ |
52,161 |
|
Notes
receivable as of December 31, 2008 provide interest at a range of interest rates
from 6.5% to 10.0% (with a weighted average interest rate of 8.3%) and mature at
various dates through June 2009. The Company has one delinquent land contract
receivable with a book value of $1.0 million as of December 31, 2008. The
original maturity of this note was July 2007. The fair value of the land, which
serves as collateral, is at least equal to the book value of the receivable. In
addition, $2.0 million of notes receivable from three tenants with common
ownership became delinquent during the third quarter of 2008. The notes are
guaranteed by affiliates of the tenants. As of December 31, 2008, the Company
has recorded a provision of $1.4 million against these notes, which was charged
to income in 2008. After receipt of partial repayment, the Company is
negotiating the repayment terms and expects to recover the remaining net book
value of $0.6 million.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note
8 - Deferred Charges and Other Assets
Deferred
charges and other assets at December 31, 2008 and December 31, 2007 are
summarized as follows:
Leasing
costs
|
|
$ |
38,700 |
|
|
$ |
39,801 |
|
Accumulated
amortization
|
|
|
(19,872 |
) |
|
|
(20,878 |
) |
|
|
$ |
18,828 |
|
|
$ |
18,923 |
|
Minority
interest (Note 1)
|
|
|
96,810 |
|
|
|
45,332 |
|
The
Mall at Studio City escrow
|
|
|
54,334 |
|
|
|
|
|
Deferred
financing costs, net
|
|
|
9,739 |
|
|
|
9,597 |
|
Intangibles,
net
|
|
|
2,241 |
|
|
|
3,882 |
|
Insurance
deposit (Note 17)
|
|
|
8,957 |
|
|
|
|
|
Investments
|
|
|
4,351 |
|
|
|
5,924 |
|
Deferred
tax asset, net
|
|
|
6,652 |
|
|
|
7,197 |
|
Prepaid
expenses
|
|
|
3,387 |
|
|
|
5,557 |
|
Other,
net
|
|
|
15,998 |
|
|
|
13,307 |
|
|
|
$ |
221,297 |
|
|
$ |
109,719 |
|
Intangible
assets are primarily comprised of the fair value of in-place leases recognized
in connection with acquisitions (Note 2).
In
February 2008, Taubman Asia entered into agreements to acquire a 25% interest in
The Mall at Studio City, the retail component of Macao Studio City, a major
mixed-use project on the Cotai Strip in Macao, China. In August 2009, the
Company’s Macao agreements will terminate and its $54 million initial cash
payment, which is in escrow, will be returned to the Company if the financing
for the project is not completed.
Note
9 – Notes Payable
Notes
payable at December 31, 2008 and December 31, 2007 consist of the
following:
|
2008
|
|
2007
|
Stated
Interest
Rate
|
Maturity
Date
|
Balance
Due
on
Maturity
|
Facility
Amount
|
Beverly
Center
|
$333,736
|
|
$
338,779
|
|
5.28%
|
|
02/11/14
|
|
$303,277
|
|
Cherry
Creek Shopping Center
|
280,000
|
|
280,000
|
|
5.24%
|
|
06/08/16
|
|
280,000
|
|
Cherry
Creek Shopping Center
|
245
|
|
490
|
|
Prime
|
|
12/20/09
|
|
20
|
$2,000
|
Dolphin
Mall
|
139,000
|
|
139,000
|
|
LIBOR
+ 0.70%
|
|
02/14/11
|
(1) |
139,000
|
(1)
|
Fairlane
Town Center
|
80,000
|
|
80,000
|
|
LIBOR
+ 0.70%
|
|
02/14/11
|
(1) |
80,000
|
(1)
|
Great
Lakes Crossing
|
137,877
|
|
140,449
|
|
5.25%
|
|
03/11/13
|
|
125,507
|
|
International
Plaza
|
325,000
|
|
|
|
LIBOR
+1.15%
|
(2) |
01/08/11
|
(2) |
325,000
|
|
International
Plaza
|
|
|
175,150
|
|
4.21%
|
|
01/08/08
|
|
175,150
|
|
MacArthur
Center
|
132,500
|
|
135,439
|
|
7.59%
|
|
10/01/10
|
|
126,884
|
|
Northlake
Mall
|
215,500
|
|
215,500
|
|
5.41%
|
|
02/06/16
|
|
215,500
|
|
The
Mall at Partridge Creek
|
72,791
|
|
62,126
|
|
LIBOR
+ 1.15%
|
|
09/07/10
|
|
72,791
|
81,000
|
The
Pier Shops at Caesars
|
135,000
|
|
135,000
|
|
6.01%
|
|
05/11/17
|
|
135,000
|
|
Regency
Square
|
75,388
|
|
76,591
|
|
6.75%
|
|
11/01/11
|
|
71,569
|
|
The
Mall at Short Hills
|
540,000
|
|
540,000
|
|
5.47%
|
|
12/14/15
|
|
540,000
|
|
Stony
Point Fashion Park
|
108,884
|
|
110,411
|
|
6.24%
|
|
06/01/14
|
|
98,585
|
|
Twelve
Oaks Mall
|
10,000
|
|
60,000
|
|
LIBOR
+ 0.70%
|
|
02/14/11
|
(1) |
10,000
|
(1)
|
The
Mall at Wellington Green
|
200,000
|
|
200,000
|
|
5.44%
|
|
05/06/15
|
|
200,000
|
|
Line
of Credit
|
10,900
|
|
12,045
|
|
Variable
Bank Rate
|
|
02/14/11
|
|
10,900
|
40,000
|
|
$2,796,821
|
|
$2,700,980
|
|
|
|
|
|
|
|
(1)
|
Dolphin,
Fairlane, and Twelve Oaks are the borrowers and collateral for the $550
million revolving credit facility. The unused borrowing capacity at
December 31, 2008 was $321 million. Sublimits may be reallocated quarterly
but not more often than twice a year. The facility has a one year
extension option.
|
(2)
|
Stated
interest rate is swapped to an effective rate of 5.01%. The loan has two
one-year extension options.
|
Notes
payable are collateralized by properties with a net book value of $2.5 billion
at December 31, 2008 and $2.3 billion at December 31,
2007.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Interest
expense for the year ended December 31, 2006 includes a $1.0 million charge for
the write-off of financing costs related to the refinancing of the loan on
Dolphin Mall (Dolphin) prior to maturity and a $2.1 million charge from the
write-off of financing costs related to the pay-off of the loans on The Shops at
Willow Bend (Willow Bend) prior to their maturity date.
The
following table presents scheduled principal payments on notes payable as of
December 31, 2008:
2009
|
|
$ |
14,433 |
|
2010
|
|
|
213,838 |
|
2011
|
|
|
648,489 |
(1) |
2012
|
|
|
11,413 |
|
2013
|
|
|
134,802 |
|
Thereafter
|
|
|
1,773,846 |
|
|
|
$ |
2,796,821 |
|
(1)
Includes $229 million with a one year extension option and $325 million with two
one-year extension options.
Debt Covenants and
Guarantees
Certain
loan agreements contain various restrictive covenants, including a minimum net
worth requirement, a maximum payout ratio on distributions, a minimum debt yield
ratio, a maximum leverage ratio, minimum interest coverage ratios and a minimum
fixed charges coverage ratio, the latter being the most restrictive. The
Operating Partnership is in compliance with all of its covenants as of December
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 December 31, 2008.
Center
|
|
Loan
balance as of
12/31/08
|
|
|
TRG's
beneficial
interest in loan balance as
of 12/31/08
|
|
|
Amount
of loan balance guaranteed by TRG as of
12/31/08
|
|
|
%
of loan
balance
guaranteed
by TRG
|
|
|
%
of interest guaranteed by
TRG
|
|
(in
millions of dollars) |
Dolphin
Mall
|
|
|
139.0 |
|
|
|
139.0 |
|
|
|
139.0 |
|
|
|
100 |
% |
|
|
100 |
% |
Fairlane
Town Center
|
|
|
80.0 |
|
|
|
80.0 |
|
|
|
80.0 |
|
|
|
100 |
% |
|
|
100 |
% |
Twelve
Oaks Mall
|
|
|
10.0 |
|
|
|
10.0 |
|
|
|
10.0 |
|
|
|
100 |
% |
|
|
100 |
% |
The
Operating Partnership has also guaranteed certain obligations of Partridge
Creek, which is encumbered by a $72.8 million recourse construction loan (Note
2).
The
Company is required to escrow cash balances for specific uses stipulated by its
lenders. As of December 31, 2008 and December 31, 2007, the Company’s cash
balances restricted for these uses were $2.9 million and $1.0 million,
respectively. Such amounts are included within cash and cash equivalents in the
Company’s Consolidated Balance Sheet.
Beneficial Interest in Debt
and Interest Expense
The
Operating Partnership's beneficial interest in the debt, capital lease
obligations, capitalized interest, and interest expense of its consolidated
subsidiaries and its Unconsolidated Joint Ventures is summarized in the
following table. The Operating Partnership's beneficial interest in the
consolidated subsidiaries excludes debt and interest related to the minority
interests in Cherry Creek (50%), International Plaza (49.9%), The Pier Shops
(22.5% as of April 2007, Note 2), 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.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
|
At
100%
|
|
At
Beneficial Interest
|
|
|
|
Consolidated
Subsidiaries
|
|
Unconsolidated
Joint
Ventures
|
|
Consolidated
Subsidiaries
|
|
Unconsolidated
Joint
Ventures
|
|
|
Debt
as of:
|
|
|
|
|
|
|
|
|
|
December 31,
2008
|
$2,796,821
|
|
$1,103,903
|
|
$2,437,590
|
|
$566,437
|
|
|
December 31,
2007
|
2,700,980
|
|
1,003,463
|
|
2,416,292
|
|
517,228
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations as of:
|
|
|
|
|
|
|
|
|
|
December 31,
2008
|
$2,474
|
|
$167
|
|
$2,467
|
|
$84
|
|
|
December 31,
2007
|
5,521
|
|
504
|
|
5,507
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
interest:
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
2008
|
$7,972
|
|
$139
|
|
$7,819
|
|
$101
|
|
|
Year ended December 31,
2007
|
14,613
|
|
496
|
|
14,518
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
2008
|
$147,397
|
|
$65,002
|
|
$127,769
|
|
$33,777
|
|
|
Year ended December 31,
2007
|
131,700
|
|
66,232
|
|
$117,385
|
|
$33,311
|
|
|
Note
10 - Derivatives
The
Company uses derivative instruments primarily to manage exposure to interest
rate risks inherent in variable rate debt and refinancings. The Company
routinely uses cap, swap, and treasury lock agreements to meet these objectives.
None of the Company’s derivatives are designated as fair value hedges.
Derivatives not designated as hedges are not speculative and were entered into
to manage the Company’s exposure to interest rate movements and other identified
risks, but do not meet the strict hedge accounting requirements of FASB
Statement No. 133 “Accounting for Derivative Instruments and Hedging
Activities.”
In March
2008, Fair Oaks, a 50% owned unconsolidated joint venture, entered into a $250
million forward starting swap to hedge interest rate risk associated with a $250
million financing in April 2008. The rate on this financing is swapped at an
all-in rate, which includes credit spread, of 4.56% for the initial three-year
term of the debt. 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 fair value of the swap agreement at each balance sheet date during
the term of the agreement are recorded in Other Comprehensive
Income.
In
December 2007, the Company entered into a $325 million forward starting swap to
hedge interest rate risk associated with a $325 million financing at
International Plaza in January 2008. The rate on this financing is swapped at an
all-in rate, which includes credit spread, of 5.375% for the initial three-year
term of the debt. 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 fair value of the swap agreement at each balance sheet date during
the term of the agreement are recorded in Other Comprehensive
Income.
In 2006,
the Operating Partnership entered into three forward starting swaps for $150
million to partially hedge interest rate risk associated with a planned
long-term refinancing of International Plaza in January 2008. The Operating
Partnership terminated the swaps in September 2007. As the swaps were no longer
effective as hedges of the planned refinancing, the Operating Partnership
recognized its $0.2 million share of the $0.4 million gain on the termination,
included in “Gains on land sales and other nonoperating income” within results
of operations.
The
following table presents the effect that derivative instruments had on interest
expense and equity in income of Unconsolidated Joint Ventures during the three
years ended December 31, 2008:
Receipts
under swap and cap agreements
|
|
$ |
(482 |
) |
|
$ |
(69 |
) |
|
$ |
(121 |
) |
Payments
under swap agreements
|
|
|
3,785 |
|
|
|
|
|
|
|
|
|
Adjustment
of accumulated other comprehensive income for amounts
recognized in net
income
|
|
|
1,260 |
|
|
|
1,261 |
|
|
|
1,391 |
|
Change
in fair value of cap agreements not designated as hedges
|
|
|
|
|
|
|
8 |
|
|
|
59 |
|
Net
reduction to income
|
|
$ |
4,563 |
|
|
$ |
1,200 |
|
|
$ |
1,329 |
|
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As of
December 31, 2008, the Company had $5.1 million of net realized losses included
in Accumulated OCI, related to terminated derivative instruments, that are being
recognized as interest expense over the term of the hedged debt, as
follows:
Hedged
Items
|
OCI
Amounts
|
|
Recognition Period
|
Beverly
Center refinancing
|
$3,027
|
|
January
2004 through December 2013
|
Regency
Square financing
|
795
|
|
November
2001 through October 2011
|
Westfarms
refinancing
|
1,314
|
|
July
2002 through July 2012
|
|
$5,136
|
|
|
As of
December 31, 2008, the Company had $23.2 million of net unrealized losses
included in Accumulated OCI that will be recognized as interest expense over the
effective periods of the derivative agreements, as follows:
Hedged
Items
|
OCI Amounts
|
|
Effective
Period
|
Fair
Oaks refinancing
|
$4,236
|
|
April
2008 through March 2011
|
International
Plaza refinancing
|
17,188
|
|
January
2008 through December 2010
|
Taubman
Land Associates financing
|
1,738
|
|
January
2007 through October 2012
|
|
$23,162
|
|
|
The
Company expects that approximately $8.8 million of the $29.8 million in
Accumulated OCI at December 31, 2008 will be reclassified from Accumulated OCI
and recognized as a reduction of income during 2009.
Note
11 - Leases
Shopping
center space is leased to tenants and certain anchors pursuant to lease
agreements. Tenant leases typically provide for minimum rent, percentage rent,
and other charges to cover certain operating costs. Future minimum rent under
operating leases in effect at December 31, 2008 for operating centers, assuming
no new or renegotiated leases or option extensions on anchor agreements, is
summarized as follows:
2009
|
$ 331,270
|
2010
|
316,961
|
2011
|
283,714
|
2012
|
248,010
|
2013
|
223,779
|
Thereafter
|
775,041
|
Certain
shopping centers, as lessees, have ground leases expiring at various dates
through the year 2107. In addition, two centers have the option to extend the
lease terms, one for five 10 year periods, and the other for one 25 year
period. Ground rent expense is recognized on a straight-line basis over the
lease terms. The Company also leases its office facilities and certain
equipment. Office facility leases expire at various dates through the year 2015.
Additionally, two of the leases have 5 year extension options and one lease has
a 3 year extension option. The Company’s U.S. headquarters is rented from an
affiliate of the Taubman family under a 10 year lease, with a 5 year extension
option. Rental expense on a straight-line basis under operating leases was $10.8
million in 2008, $9.5 million in 2007, and $8.3 million in 2006. Included in
these amounts are related party office rental expense of $2.3 million in 2008,
$2.2 million in 2007 and $2.3 million in 2006. Payables representing
straightline rent adjustments under lease agreements were $32.7 million and
$31.5 million as of December 31, 2008 and 2007, respectively.
The
following is a schedule of future minimum rental payments required under
operating leases:
2009
|
$ 10,532
|
2010
|
10,443
|
2011
|
8,116
|
2012
|
7,542
|
2013
|
7,587
|
Thereafter
|
395,896
|
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The table
above includes $2.4 million in 2009, $2.5 million in 2010 and $2.6 million in
each year from 2011 through 2014 of related party amounts.
Certain
shopping centers have entered into lease agreements for property improvements
that qualify as capital leases. As of December 31, 2008, future minimum lease
payments for these capital leases are as follows:
2009
|
|
$ |
1,855 |
|
2010
|
|
|
620 |
|
2011
|
|
|
155 |
|
Total
minimum lease payments
|
|
$ |
2,630 |
|
Less
amount representing interest
|
|
|
(156 |
) |
Capital
lease obligations
|
|
$ |
2,474 |
|
Note
12 - Transactions with Affiliates
The
Taubman Company LLC (the Manager), which is 99% beneficially owned by the
Operating Partnership, provides property management, leasing, development, and
other administrative services to the Company, the shopping centers, Taubman
affiliates, and other third parties. Accounts receivable from related parties
include amounts due from Unconsolidated Joint Ventures or other affiliates of
the Company, primarily relating to services performed by the Manager. These
receivables include certain amounts due to the Manager related to reimbursement
of third party (non-affiliated) costs.
A. Alfred
Taubman and certain of his affiliates receive various management services from
the Manager. For such services, Mr. Taubman and affiliates paid the Manager
approximately $2.2 million, $2.1 million, and $1.9 million in 2008, 2007, and
2006, respectively.
Other
related party transactions are described in Notes 1, 6, 11, 13, and
15.
Note
13 – Share-Based Compensation and Other Employee Plans
In May
2008, the Company’s shareowners approved The Taubman Company 2008 Omnibus
Long-Term Incentive Plan (2008 Omnibus Plan). The 2008 Omnibus Plan provides for
the award to directors, officers, employees, and other service providers of the
Company of restricted shares, restricted units of limited partnership in the
Operating Partnership, options to purchase shares or Operating Partnership
units, unrestricted Shares or Operating Partnership units, and other awards to
acquire up to an aggregate of 6,100,000 Company common shares or Operating
Partnership units, of which 6,098,558 were available as of December 31, 2008.
The Company anticipates that all future grants of share-based compensation will
be made under the 2008 Omnibus Plan. In addition, non-employee directors have
the option to defer their compensation, other than their meeting fees, under a
deferred compensation plan.
Prior to
the adoption of the 2008 Omnibus Plan, the Company provided 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 its share-based compensation plans was
$7.6 million, $6.8 million, and $4.6 million for the years ended December 31,
2008, 2007, and 2006, respectively. Compensation cost capitalized as part of
properties and deferred leasing costs was $0.9 million, $0.8 million, and $0.6
million for the years ended December 31, 2008, 2007, and 2006,
respectively.
The
Company currently recognizes no tax benefits from the recognition of
compensation cost or tax deductions incurred upon the exercise or vesting of
share-based awards. Any allocations of compensation cost or deduction to the
Company’s corporate taxable REIT subsidiaries from the Company's Manager, which
is treated as a partnership for federal income tax purposes, have resulted in a
valuation allowance being recorded against its net deferred tax asset associated
with the temporary differences related to share-based compensation. This is
primarily due to prior year cumulative tax net operating losses incurred through
the year ended December 31, 2008.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Incentive
Options
The
Company’s incentive option plan (the Option Plan), which was shareowner
approved, permitted 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
15). Options for 1.4 million partnership units have been granted and are
outstanding at December 31, 2008. Of the 1.4 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. Substantially
all of the other 0.5 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 events if earlier. The options have
ten-year contractual terms.
The
Company has estimated the value of the options issued during the years ended
December 31, 2008, 2007, and 2006 using a Black-Scholes valuation model based on
the following assumptions:
Expected
volatility
|
|
|
24.33 |
% |
|
|
20.76 |
% |
|
|
20.87%-21.14 |
% |
Expected
dividend yield
|
|
|
3.50 |
% |
|
|
3.00 |
% |
|
|
3.50 |
% |
Expected
term (in years)
|
|
|
6 |
|
|
|
7 |
|
|
|
7 |
|
Risk-free
interest rate
|
|
|
3.08 |
% |
|
|
4.45 |
% |
|
|
4.74%-5.08 |
% |
Weighted
average grant-date fair value
|
|
|
$9.31 |
|
|
|
$11.77 |
|
|
|
$8.11 |
|
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 years ended December 31, 2008,
2007, and 2006 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, 2006
|
|
|
852,139 |
|
|
|
$30.13 |
|
|
|
9.2
|
|
|
|
$29.38
- $31.31 |
|
Granted
|
|
|
263,237 |
|
|
|
40.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
1,115,376 |
|
|
|
$32.55 |
|
|
|
8.5
|
|
|
|
$29.38
- $40.39 |
|
Granted
|
|
|
226,875 |
|
|
|
55.90 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(11,605 |
) |
|
|
31.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
1,330,646 |
|
|
|
$36.54 |
|
|
|
7.8
|
|
|
|
$29.38
- $55.90 |
|
Granted
|
|
|
230,567 |
|
|
|
50.65 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(210,736 |
) |
|
|
31.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
1,350,477 |
|
|
|
$39.73 |
|
|
|
7.2
|
|
|
|
$29.38
- $55.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully
vested options at December 31, 2008
|
|
|
490,927 |
|
|
|
$37.05 |
|
|
|
6.8
|
|
|
|
|
|
There
were 434,220 options that vested during the year ended December 31,
2008.
The
aggregate intrinsic value (the difference between the period end stock price and
the option exercise price) of options outstanding and options fully vested as of
December 31, 2008 were both zero due to the stock price being lower than the
options’ exercise prices.
The total
intrinsic value of options exercised during the years ended December 31, 2008
and 2007 was $4.1 million, $0.3 million, respectively. Cash received from option
exercises under the Option Plan for the years ended December 31, 2008 and 2007
was $6.6 million and $0.4 million, respectively. No options were exercised in
2006.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As of
December 31, 2008 there were 0.9 million nonvested options outstanding, and $2.1
million of total unrecognized compensation cost related to nonvested share-based
compensation arrangements granted under the Plan. That cost is expected to be
recognized over a weighted average period of 1.7 years.
Under the
Option Plan, vested unit options can be exercised by tendering mature units with
a market value equal to the exercise price of the unit options. In 2002, Robert
S. Taubman, the Company’s chief executive officer, exercised options for 3.0
million units by tendering 2.1 million mature units and deferring receipt of 0.9
million units under the unit option deferral election. As the Company declares
distributions, the deferred option units receive their proportionate share of
the distributions in the form of cash payments. These deferred option units will
remain in a deferred compensation account until Mr. Taubman's retirement or ten
years from the date of exercise. Beginning with the ten year anniversary of the
date of exercise, the deferred partnership units will be paid in ten annual
installments.
Long-Term Incentive
Plan
The
Taubman Company 2005 Long-Term Incentive Plan (LTIP) was shareowner approved.
The LTIP allowed the Company to make grants of restricted stock units (RSU) to
employees. There were RSU for 0.3 million shares outstanding at December 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 under the LTIP is presented below:
|
|
Restricted Stock Units
|
|
|
Weighted
average
Grant Date Fair Value
|
|
Outstanding
at January 1, 2006
|
|
|
138,904 |
|
|
|
31.31 |
|
Granted
|
|
|
131,698 |
|
|
|
40.38 |
|
Forfeited
|
|
|
(4,999 |
) |
|
|
33.84 |
|
Redeemed
|
|
|
(3,918 |
) |
|
|
33.53 |
|
Outstanding
at December 31, 2006
|
|
|
261,685 |
|
|
|
35.79 |
|
Granted
|
|
|
102,905 |
|
|
|
56.54 |
|
Forfeited
|
|
|
(5,621 |
) |
|
|
43.71 |
|
Redeemed
|
|
|
(672 |
) |
|
|
34.93 |
|
Outstanding
at December 31, 2007
|
|
|
358,297 |
|
|
|
41.63 |
|
Granted
|
|
|
121,037 |
|
|
|
50.65 |
|
Forfeited
|
|
|
(8,256 |
) |
|
|
48.69 |
|
Redeemed
|
|
|
(136,200 |
) |
|
|
32.15 |
|
Outstanding
at December 31, 2008
|
|
|
334,878 |
|
|
|
48.57 |
|
These 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.
All of
the RSU outstanding at December 31, 2008 were nonvested. As of December 31,
2008, there was $6.2 million of total unrecognized compensation cost related to
nonvested RSU outstanding under the LTIP. This cost is expected to be recognized
over an average period of 1.8 years.
Non-Employee Directors’
Stock Grant and Deferred Compensation Plans
The
Non-Employee Directors’ Stock Grant Plan (SGP), which was shareowner approved,
provided for the annual grant to each non-employee director of the Company
shares of the Company’s common stock based on the fair value of the Company's
common stock on the last business day of the preceding quarter. Quarterly grants
beginning in July of 2008 were made under the 2008 Omnibus Plan. The annual fair
market value of the grant was $50,000 in 2008 and 2007, and $15,000 in 2006. As
of December 31, 2008, 2,875 shares have been issued under the SGP and 506 shares
have been issued under the 2008 Omnibus Plan. Certain directors have elected to
defer receipt of their shares as described below.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The
Non-Employee Directors’ Deferred Compensation Plan (DCP), which was approved by
the Company’s Board of Directors, allows each non-employee director of the
Company the right to defer the receipt of all or a portion of his or her annual
director retainer until the termination of his or her service on the Company’s
Board of Directors and for such deferred compensation to be denominated in
restricted stock units, representing the right to receive shares of the
Company’s common stock at the end of the deferral period. During the deferral
period, when the Company pays cash dividends on its common stock, the directors’
deferral accounts will be credited with dividend equivalents on their deferred
restricted stock units, payable in additional restricted stock units based on
the then-fair market value of the Company’s common stock. There were 24,296
restricted stock units outstanding under the DCP at December 31,
2008.
Other Employee
Plans
As of
December 31, 2008 and 2007 the Company had fully vested awards outstanding for
82,718 and 79,760 notional shares of stock, respectively, under a previous
long-term performance compensation plan. These awards will be settled in cash
based on a twenty day average of the market value of the Company's common stock.
The liability for the eventual payout of these awards is marked to market
quarterly based on the twenty day average of the Company's stock price. The
Company recorded compensation costs of $(1.9) million, $0.2 million, and $1.1
million relating to these awards for the years ended December 31, 2008, 2007,
and 2006, respectively. The Company paid $0.5 million of this deferred liability
in 2006. No payments were made in 2007 and 2008. The majority of the awards were
paid out in early 2009, leaving awards for 16,392 notional shares of stock
remaining.
The
Company has a voluntary retirement savings plan established in 1983 and amended
and restated effective January 1, 2001 (the Plan). The Plan is qualified in
accordance with Section 401(k) of the Internal Revenue Code (the Code). The
Company contributes an amount equal to 2% of the qualified wages of all
qualified employees and matches employee contributions in excess of 2% up to 7%
of qualified wages. In addition, the Company may make discretionary
contributions within the limits prescribed by the Plan and imposed in the Code.
The Company’s contributions and costs relating to the Plan were $2.0 million in
2008, $1.9 million in 2007, and $1.7 million in 2006.
Note
14 - Common and Preferred Stock and Equity of TRG
Outstanding Preferred Stock
and Equity
The
Company is obligated to issue to the minority interest, upon subscription, one
share of Series B Non-Participating Convertible Preferred Stock (Series B
Preferred Stock) for each of the Operating Partnership units held by the
minority interest. Each share of Series B Preferred Stock entitles the holder to
one vote on all matters submitted to the Company's shareowners. The holders of
Series B Preferred Stock, voting as a class, have the right to designate up to
four nominees for election as directors of the Company. On all other matters,
including the election of directors, the holders of Series B Preferred Stock
will vote with the holders of common stock. The holders of Series B Preferred
Stock are not entitled to dividends or earnings of the Company. The Series B
Preferred Stock is convertible into common stock at a ratio of 14,000 shares of
Series B Preferred Stock for one share of common stock. During the years ended
December 31, 2008, 2007, and 2006, 95,000 shares, 1,589,662 shares, and
1,061,343 shares of Series B Preferred Stock, respectively, were converted to 4
shares, 104 shares, and 71 shares of the Company’s common stock, respectively,
as a result of tenders of units under the Continuing Offer (Note
15).
The
Operating Partnership’s $30 million 8.2% Cumulative Redeemable Preferred
Partnership Equity (Series F Preferred Equity) is owned by institutional
investors, and has no stated maturity, sinking fund, or mandatory redemption
requirements. The Company, beginning in May 2009 can redeem the Series F
Preferred Equity. The holders of Series F Preferred Equity have the right,
beginning in 2014, to exchange $100 in liquidation value of such equity for one
share of Series F Preferred Stock. The terms of the Series F Preferred Stock are
substantially similar to those of the Series F Preferred Equity. The Series F
Preferred Stock is non-voting.
The 8.0%
Series G Cumulative Redeemable Preferred Stock (Series G Preferred Stock), which
was issued in 2004, has no stated maturity, sinking fund, or mandatory
redemption requirements and is not convertible into any other security of the
Company. The Series G Preferred Stock has liquidation preferences of $100
million ($25 per share). Dividends are cumulative and are payable in arrears on
or before the last day of each calendar quarter. All accrued dividends have been
paid. The Series G Preferred Stock will be redeemable by the Company at $25 per
share, plus accrued dividends, beginning in November 2009. The Company owns
corresponding Series G 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
Preferred Stock. The Series G Preferred Stock is non-voting.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The $87
million 7.625% Series H Cumulative Redeemable Preferred Stock (Series H
Preferred Stock), which was issued in 2005, has no stated maturity, sinking
fund, or mandatory redemption requirements and are not convertible into any
other security of the Company. Dividends are cumulative and are payable in
arrears on or before the last day of each calendar quarter. All accrued
dividends have been paid. The Series H Preferred Stock will be redeemable by the
Company at $25 per share (par), plus accrued dividends, beginning in July 2010.
The Company owns corresponding 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 H Preferred Stock. The Series H Preferred Stock is
non-voting.
Redemption of Preferred
Stock and Equity
In May
2006, the Company redeemed the remaining $113 million of its 8.3% Series A
Preferred Stock (Series A Preferred Stock). Emerging Issues Task Force Topic
D-42, “The Effect on the Calculation of Earnings Per Share for the Redemption or
Induced Conversion of Preferred Stock,” provides that any excess of the fair
value of the consideration transferred to the holders of preferred stock
redeemed over the carrying amount of the preferred stock should be subtracted
from net earnings to determine net earnings available to common shareowners. As
a result of application of Topic D-42, the Company recognized a charge of $4.0
million in the second quarter of 2006, representing the difference between the
carrying value and the redemption price of the Series A Preferred
Stock.
This
Series A Preferred Stock was redeemed with the proceeds of a $113 million
private preferred stock issuance, the Series I Cumulative Redeemable Preferred
Stock (Series I Preferred Stock). The Series I Preferred Stock paid
dividends at a floating rate equal to 3-month LIBOR plus 1.25%, an effective
rate of 6.4225% for the period the shares were outstanding. The Company
redeemed the Series I Preferred Stock on June 30, 2006, using available cash.
The Company recognized a charge of $0.6 million at that time, representing the
difference between the carrying value, which includes original issuance costs,
and the redemption price of the Series I Preferred Stock.
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 August 2007, the Company repurchased 987,180 shares of its
common stock at an average price of $50.65 per share, for a total of $50 million
under the authorization. During May and June 2007, the Company repurchased
923,364 shares of its common stock on the open market at an average price of
$54.15 per share, for a total of $50 million, the maximum amount permitted under
the program approved by the 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 December 31, 2008,
$50 million remained of the July 2007 authorization.
Note
15 - 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.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Based on
a market value at December 31, 2008 of $25.46 per common share, the aggregate
value of interests in the Operating Partnership that may be tendered under the
Cash Tender Agreement was approximately $647 million. The purchase of these
interests at December 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 optionees under the Option Plan all existing
and future optionees under the 2008 Omnibus 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, if any, 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.
The
disposition of Woodland in 2005 by one of the Company's Unconsolidated Joint
Ventures was structured in a tax efficient manner to facilitate the investment
of the Company's share of the sales proceeds in a like-kind exchange in
accordance with Section 1031 of the Internal Revenue Code and the regulations
thereunder. The structuring of the disposition has included the continued
existence and operation of the partnership that previously owned the shopping
center. In connection with the disposition, the Company entered into a tax
indemnification agreement with the Woodland joint venture partner, a life
insurance company. Under this tax indemnification agreement, the Company has
agreed to indemnify the joint venture partner in the event an unfavorable tax
determination is received as a result of the structuring of the sale in the tax
efficient manner described. The maximum amount that the Company could be
required to pay under the indemnification is equal to the taxes incurred by the
joint venture partner as a result of the unfavorable tax determination by the
IRS or the state of Michigan within their respective three and four year
statutory assessment limitation periods, in excess of those that would have
otherwise been due if the Unconsolidated Joint Venture had sold Woodland,
distributed the cash sales proceeds, and liquidated the owning entities. The
Company cannot reasonably estimate the maximum amount of the indemnity, as the
Company is not privy to or does not have knowledge of its joint venture
partner's tax basis or tax attributes in the Woodland entities or its life
insurance-related assets. However, the Company believes that the probability of
having to perform under the tax indemnification agreement is remote. The Company
and the Woodland joint venture partner have also indemnified each other for
their shares of costs or revenues of operating or selling the shopping center in
the event additional costs or revenues are subsequently identified.
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 5 regarding the Company's Oyster Bay project, Note 9 for the Operating
Partnership's guarantees of certain notes payable and other obligations, and
Note 13 for obligations under existing share-based compensation
plans.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note
16 - 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 potential common stock. Potential common stock includes outstanding
partnership units exchangeable for common shares under the Continuing Offer
(Note 15), outstanding options for units of partnership interest under the
Option Plan, RSU under the LTIP and Non-Employee Directors’ Deferred
Compensation Plan (Note 13), and unissued partnership units under unit option
deferral election. In computing the potentially dilutive effect of potential
common stock, 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 potential common stock are
calculated using the treasury stock method.
As of
December 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
(Note 15). 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.
Potentially dilutive securities under share based compensation plans (Note 13)
were excluded from the computation of diluted EPS for the year ended December
31, 2008 because they were anti-dilutive due to the net loss in
2008.
|
|
Year
Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net
income (loss) allocable to common shareowners (Numerator)
|
|
$ |
(86,659 |
) |
|
$ |
48,490 |
|
|
$ |
21,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(Denominator) – basic
|
|
|
52,866,050 |
|
|
|
52,969,067 |
|
|
|
52,661,024 |
|
Effect
of dilutive securities
|
|
|
|
|
|
|
652,950 |
|
|
|
318,429 |
|
Shares
(Denominator) – diluted
|
|
|
52,866,050 |
|
|
|
53,622,017 |
|
|
|
52,979,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(1.64 |
) |
|
$ |
0.92 |
|
|
$ |
0.41 |
|
Diluted
|
|
$ |
(1.64 |
) |
|
$ |
0.90 |
|
|
$ |
0.40 |
|
Note
17 – Fair Value Disclosures
The
following methods and assumptions were used to estimate the fair value of
financial instruments:
The
carrying value of cash and cash equivalents, accounts and notes receivable, and
accounts payable and accrued liabilities approximates fair value due to the
short maturity of these instruments.
The fair
value of mortgage notes and other notes payable is estimated based on quoted
market prices, if available. If no quoted market prices are available, the fair
value of mortgages and other notes payable are estimated using cash flows
discounted at current market rates. When selecting discount rates for purposes
of estimating the fair value of mortgage and other notes, in 2007 the Company
employed the credit spreads at which the debt was originally issued. The
December 31, 2008 fair value includes an additional 2% credit spread to account
for current market conditions. This additional spread is an estimate and is not
necessarily indicative of what the Company could obtain in the market at the
reporting date. The Company does not believe that the use of different interest
rate assumptions would have resulted in a materially different fair value of
mortgage and other notes payable as of December 31, 2008 or 2007. To further
assist financial statement users, the Company has included with its fair value
disclosures an analysis of interest rate sensitivity.
See (Note
5) regarding the fair value of CDD assessment bonds.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The fair
value of interest rate hedging instruments is the amount that the Company would
receive to sell an asset or pay to transfer a liability in an orderly
transaction between market participants at the reporting date. 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 and therefore fall into level 2 of the fair value
hierarchy. The valuation reflects the contractual terms of the derivatives,
including the period to maturity, and uses observable market-based inputs,
including forward curves. To comply with the provisions of SFAS 157 in the
December 31, 2008 fair value measurement of interest rate hedging instruments,
the Company incorporates credit valuation adjustments to appropriately reflect
both its own nonperformance risk and the respective counterparty’s
nonperformance risk.
The
Company's valuation of marketable securities, which are considered to be
available-for-sale, and an insurance deposit 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
estimated fair values of notes payable at December 31, 2008 and December 31,
2007 are as follows:
|
2008
|
|
2007
|
|
Carrying
Value
|
Fair Value
|
|
Carrying Value
|
Fair
Value
|
Notes
payable
|
$2,796,821
|
$2,871,252
|
|
$2,700,980
|
$2,791,341
|
The fair
value of the notes payable are dependent on the interest rates employed used in
estimating the value (Note 1). An overall 1% increase in rates employed in
making these estimates would have decreased the fair value of the debt shown
above by $112 million, or 3.9%.
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
December
31, 2008 Using
|
|
Description
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
Available-for-sale
securities
|
|
$ |
4,351 |
|
|
|
|
Insurance
deposit
|
|
|
8,957 |
|
|
|
|
Derivative
assets
|
|
|
|
|
|
$ |
217 |
|
Total assets
|
|
$ |
13,308 |
|
|
$ |
217 |
|
|
|
|
|
|
|
|
|
|
Derivative
interest rate instruments liabilities (Note 10)
|
|
|
|
|
|
$ |
(17,188) |
|
Total
liabilities
|
|
|
|
|
|
$ |
(16,971) |
|
The
insurance deposit shown above represents an escrow account maintained in
connection with a property and casualty insurance arrangement for the
Company’s shopping centers, and is classified within Deferred Charges and Other
Assets. A corresponding deferred revenue relating to amounts billed to tenants
for this arrangement has been classified within Accounts Payable and Other
Liabilities.
The
Company has one delinquent land contract receivable with a book value of $1.0
million as of December 31, 2008. The original maturity of this note was July
2007. The fair value of the land, which was determined by using observable
market data including comparable parcels of land in similar locations, serves as
collateral and is at least equal to the book value of the
receivable.
The
carrying and fair values of derivative interest rate instruments were both $1.1
million at December 31, 2007.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note
18 - Cash Flow Disclosures and Non-Cash Investing and Financing
Activities
Interest
paid in 2008, 2007, and 2006, net of amounts capitalized of $8.0 million, $14.6
million, and $9.8 million, respectively, approximated $144.3 million, $126.0
million, and $119.8 million, respectively. The following non-cash investing and
financing activities occurred during 2008, 2007, and 2006:
Non-cash
additions to properties
|
$14,820
|
$61,131
|
|
$24,051
|
|
Additions
to capital lease obligations
|
|
2,138
|
|
|
|
Non-cash
additions to properties primarily represent accrued construction and tenant
allowance costs of new centers and development projects. Additionally,
consolidated assets and liabilities increased upon consolidation of the accounts
of The Pier Shops in 2007 (Note 2) and Cherry Creek in 2006 (Note
1).
Note
19 - Quarterly Financial Data (Unaudited)
The
following is a summary of quarterly results of operations for 2008 and
2007:
|
2008
(1)
|
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
Revenues
|
$157,417
|
$160,412
|
$163,713
|
$189,956
|
|
Equity
in income of Unconsolidated Joint Ventures
|
9,234
|
8,491
|
11,289
|
6,342
|
|
Income
(loss) before minority and preferred interests
|
23,516
|
21,414
|
27,836
|
(80,818
|
) |
Net
income (loss)
|
8,205
|
4,032
|
12,855
|
(97,117
|
) |
Net
income (loss) allocable to common shareowners
|
4,547
|
373
|
9,197
|
(100,776
|
) |
Basic
and Diluted earnings per common share -
|
|
|
|
|
|
Net income
(loss)
|
$ 0.09
|
$ 0.01
|
$ 0.17
|
$ (1.90
|
) |
|
2007
|
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
Revenues
|
$145,026
|
$152,274
|
$150,653
|
$178,869
|
Equity
in income of Unconsolidated Joint Ventures
|
8,186
|
9,239
|
11,275
|
11,798
|
Income
before minority and preferred interests
|
26,550
|
26,002
|
25,461
|
38,223
|
Net
income
|
14,056
|
12,493
|
11,507
|
25,068
|
Net
income allocable to common shareowners
|
10,398
|
8,834
|
7,849
|
21,409
|
Basic
earnings per common share -
|
|
|
|
|
Net income
|
$ 0.19
|
$ 0.17
|
$ 0.15
|
$ 0.41
|
Diluted
earnings per common share -
|
|
|
|
|
Net income
|
$ 0.19
|
$ 0.16
|
$ 0.15
|
$
0.40
|
|
(1)
|
Amounts
include the impairment charges recognized in the fourth quarter of 2008 of
$117.9 million and $8.3 million related to the Company’s investment in its
Oyster Bay and Sarasota projects, respectively (Notes 5 and
6).
|
Note
20 - New Accounting Pronouncements
In
November 2008, the FASB ratified Emerging Issue Task Force Issue No. 08-6,
"Equity Method Investment Accounting Considerations." EITF 08-6 addresses
certain issues that arise from a company's application of the equity method
under Opinion 18 due to a change in accounting for business combinations and
consolidated subsidiaries resulting from the issuance of Statement 141(R) and
Statement 160. EITF 08-6 addresses issues regarding the initial carrying value
of an equity method investment, tests of impairment performed by the investor
over an investee's underlying assets, changes in ownership resulting from the
issuance of shares by an investee, and changes in an investment from the equity
method to the cost method. This Issue is effective and will be applied on a
prospective basis in fiscal years beginning on or after December 15, 2008, and
interim periods within those fiscal years, consistent with the effective dates
of Statement 141(R) and Statement 160.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 and interim periods beginning after November 15, 2008. The
Company 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 Accounting Research Bulletin
(ARB) No. 51.” This Statement amends 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.
Statement No. 160 generally requires noncontrolling interests to be treated as a
separate component of equity (not as a liability or other item outside of
permanent equity) and consolidated net income and comprehensive income to
include the noncontrolling interest’s share. The calculation of earnings per
share will continue to be based on income amounts attributable to the parent.
Statement No. 160 also establishes a single method of accounting for
transactions that change a parent's ownership interest in a subsidiary by
requiring that all such transactions be accounted for as equity transactions if
the parent retains its controlling financial interest in the 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" and eliminates the requirement to apply purchase accounting to a
parent’s acquisition of noncontrolling ownership interests in a subsidiary.
Statement No. 160 is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008. Except for certain
presentation and disclosure requirements, Statement No. 160 will be applied on a
prospective basis. In March 2008, the SEC announced revisions to EITF 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.
Upon the
Company's adoption of Statement No. 160 on January 1, 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 will
no longer be required to be equal, at a minimum, to the share of
distributions, which will result in a material increase to the Company’s net
income. See Note 1 regarding current accounting for minority
interests.
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) also requires most acquisition related costs to be
separately identified and expensed.
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.
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 fiscal years
beginning after November 15, 2008, and interim periods within those fiscal
years. The deferral to this Statement applies to all nonfinancial assets and
nonfinancial liabilities including but not limited to initial measurements of
fair value of: nonfinancial assets and nonfinancial liabilities in a business
combination or other new basis event, asset retirement obligations, and
nonfinancial liabilities for exit or disposal activities, as well as impairment
assessments of nonfinancial long lived assets and goodwill. This Statement does
not require any new fair value measurements or remeasurements of previously
reported fair values. The Company will account for nonfinancial assets and
nonfinancial liabilities under this Standard beginning on January 1,
2009.
TAUBMAN
CENTERS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note
21 - Subsequent Events
In
January 2009, in response to the decreased level of active projects due to the
downturn in the economy, the Company reduced its workforce by about 40
positions, primarily in areas that directly or indirectly affect its development
initiatives in the U.S. and Asia. A restructuring charge of approximately $2.6
million will be recorded in the first quarter of 2009, which primarily
represents the cost of terminations of personnel. The majority of the
restructuring costs will be paid during the first quarter of
2009.
Schedule
II
VALUATION
AND QUALIFYING ACCOUNTS
For the
years ended December 31, 2008, 2007, and 2006
(in
thousands)
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
beginning of
year
|
|
|
Charged
to costs
and
expenses
|
|
Charged
to
other
accounts
|
|
Write-offs
|
|
|
Transfers,
net
|
|
|
Balance
at
end of
year
|
|
Year
ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful
receivables
|
|
$ |
6,694 |
|
|
$ |
6,088 |
|
|
|
$ |
(2,887 |
) |
|
|
|
|
$ |
9,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful
receivables
|
|
$ |
7,581 |
|
|
$ |
1,830 |
|
|
|
$ |
(3,423 |
) |
|
$ |
706 |
(1) |
|
$ |
6,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful
receivables
|
|
$ |
5,497 |
|
|
$ |
5,110 |
|
|
|
$ |
(3,055 |
) |
|
$ |
29 |
(2) |
|
$ |
7,581 |
|
(1)
|
Represents
the transfer in of The Pier Shops. Prior to April 13, 2007, the Company
accounted for its interest in The Pier Shops under the equity
method.
|
(2)
|
Represents
the transfer in of Cherry Creek. Prior to January 1, 2006, the Company
accounted for its interest in Cherry Creek under the equity
method.
|
See
accompanying report of independent registered public accounting
firm.
REAL ESTATE AND ACCUMULATED
DEPRECIATION
December 31,
2008
(in thousands)
|
Initial
Cost
to
Company
|
|
|
|
Gross
Amount at Which
Carried
at Close of Period
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
Buildings,
Improvements, and
Equipment
|
|
Cost
Capitalized Subsequent to Acquisition
|
|
Land
|
|
BI&E
|
|
Total
|
|
Accumulated
Depreciation (A/D)
|
|
Total
Cost Net of A/D
|
|
Encumbrances
|
|
Date
of Completion of Construction
or Acquisition
|
Depreciable
Life
|
Shopping
Centers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverly Center, Los Angeles,
CA
|
|
|
$209,093
|
|
$ 56,430
|
|
|
|
$265,523
|
|
$265,523
|
|
$119,914
|
|
$145,609
|
|
$333,736
|
|
1982
|
40
Years
|
Cherry Creek Shopping
Center,
Denver, CO
|
|
|
99,260
|
|
110,371
|
|
|
|
209,631
|
|
209,631
|
|
100,424
|
|
109,207
|
|
280,000
|
|
1990
|
40
Years
|
Dolphin Mall, Miami,
FL
|
$34,881
|
|
238,252
|
|
43,545
|
|
$34,881
|
|
281,797
|
|
316,678
|
|
63,877
|
|
252,801
|
|
139,000
(1)
|
|
2001
|
50
Years
|
Fairlane Town Center, Dearborn,
MI
|
17,330
|
|
104,668
|
|
45,857
|
|
17,330
|
|
150,525
|
|
167,855
|
|
54,306
|
|
113,549
|
|
80,000
(1)
|
|
1996
|
40
Years
|
Great Lakes Crossing, Auburn
Hills, MI
|
15,506
|
|
194,093
|
|
24,870
|
|
15,506
|
|
218,963
|
|
234,469
|
|
87,561
|
|
146,908
|
|
137,877
|
|
1998
|
50
Years
|
International Plaza, Tampa,
FL
|
|
|
308,648
|
|
11,962
|
|
|
|
320,610
|
|
320,610
|
|
79,144
|
|
241,466
|
|
325,000
|
|
2001
|
50
Years
|
MacArthur Center, Norfolk,
VA
|
|
|
145,768
|
|
13,946
|
|
|
|
159,714
|
|
159,714
|
|
46,055
|
|
113,659
|
|
132,500
|
|
1999
|
50
Years
|
Northlake Mall, Charlotte,
NC
|
22,540
|
|
147,756
|
|
2,291
|
|
22,540
|
|
150,047
|
|
172,587
|
|
32,111
|
|
140,476
|
|
215,500
|
|
2005
|
50
Years
|
The Mall at Partridge
Creek,
Clinton Township,
MI
|
14,098
|
|
122,974
|
|
12,766
|
|
14,098
|
|
135,740
|
|
149,838
|
|
11,176
|
|
138,662
|
|
72,791
|
|
2007
|
50
Years
|
The Pier Shops at
Caesars,
Atlantic City,
NJ
|
|
|
176,835
|
|
|
|
|
|
176,835
|
|
176,835
|
|
15,806
|
|
161,029
|
|
135,000
|
|
2006
|
50
Years
|
Regency Square, Richmond,
VA
|
18,635
|
|
101,600
|
|
10,148
|
|
18,635
|
|
111,748
|
|
130,383
|
|
41,711
|
|
88,672
|
|
75,388
|
|
1997
|
40
Years
|
The Mall at Short Hills, Short
Hills, NJ
|
25,114
|
|
168,004
|
|
119,982
|
|
25,114
|
|
287,986
|
|
313,100
|
|
122,562
|
|
190,538
|
|
540,000
|
|
1980
|
40
Years
|
Stony Point Fashion Park,
Richmond, VA
|
10,677
|
|
98,365
|
|
890
|
|
10,677
|
|
99,255
|
|
109,932
|
|
30,834
|
|
79,098
|
|
108,884
|
|
2003
|
50
Years
|
Twelve Oaks Mall, Novi,
MI
|
25,410
|
|
191,185
|
|
74,780
|
|
25,410
|
|
265,965
|
|
291,375
|
|
88,235
|
|
203,140
|
|
10,000
|
(1) |
1977
|
50
Years
|
The Mall at Wellington
Green,
Wellington, FL
|
18,967
|
|
191,698
|
|
9,452
|
|
21,439
|
|
198,678
|
|
220,117
|
|
62,496
|
|
157,621
|
|
200,000
|
|
2001
|
50
Years
|
The Shops at Willow Bend, Plano,
TX
|
26,192
|
|
229,058
|
|
9,262
|
|
26,192
|
|
238,320
|
|
264,512
|
|
60,642
|
|
203,870
|
|
|
|
2001
|
50
Years
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
Facilities
|
|
|
|
|
28,180
|
|
|
|
28,180
|
|
28,180
|
|
14,522
|
|
13,658
|
|
|
|
|
|
Peripheral Land
|
27,633
|
|
|
|
|
|
27,633
|
|
|
|
27,633
|
|
|
|
27,633
|
|
|
|
|
|
Construction in Process
and
Development Pre-Construction
Costs
|
|
|
61,573
|
(3) |
10,650
|
|
|
|
72,223
|
|
72,223
|
|
|
|
72,223
|
|
|
|
|
|
Assets under CDD
obligations
|
4,164
|
|
61,411
|
|
|
|
4,164
|
|
61,411
|
|
65,575
|
|
17,518
|
|
48,057
|
|
|
|
|
|
Other
|
|
|
2,710
|
|
|
|
|
|
2,710
|
|
2,710
|
|
732
|
|
1,978
|
|
|
|
|
|
Total
|
$261,147
|
|
$2,852,951
|
|
$585,382
|
|
$263,619
|
|
$3,435,861
|
|
$3,699,480
|
(2) |
$1,049,626
|
|
$2,649,854
|
|
|
|
|
|
The
changes in total real estate assets and accumulated depreciation for the years
ended December 31, 2008, 2007, and 2006 are as follows:
|
|
Total
Real
Estate Assets
|
|
|
Total
Real
Estate Assets
|
|
|
Total
Real Estate Assets
|
|
|
|
Accumulated
Depreciation
|
|
|
Accumulated
Depreciation
|
|
|
Accumulated
Depreciation (6)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Balance,
beginning of year
|
|
$ |
3,781,136 |
|
|
$ |
3,398,122 |
|
|
$ |
3,081,324 |
|
Balance,
beginning of year
|
|
$ |
(933,275 |
) |
|
$ |
(821,384 |
) |
|
$ |
(651,665 |
) |
New
development and improvements
|
|
|
58,259 |
|
|
|
229,199 |
|
|
|
151,428 |
|
Depreciation
for year
|
|
|
(138,741 |
) |
|
|
(128,358 |
) |
|
|
(128,488 |
) |
Disposals/Write-offs
|
|
|
(136,579 |
)
(3) |
|
|
(23,179 |
) |
|
|
(39,672 |
) |
Disposals/Write-offs
|
|
|
22,425 |
|
|
|
23,179 |
|
|
|
39,195 |
|
Transfers
In/(Out)
|
|
|
(3,336 |
) |
|
|
176,994 |
(4) |
|
|
205,042 |
(5) |
Transfers
In/(Out)
|
|
|
(35 |
) |
|
|
(6,712 |
)
(4) |
|
|
(80,426 |
)
(5) |
Balance,
end of year
|
|
$ |
3,699,480 |
|
|
$ |
3,781,136 |
|
|
$ |
3,398,122 |
|
Balance,
end of year
|
|
$ |
(1,049,626 |
) |
|
$ |
(933,275 |
) |
|
$ |
(821,384 |
) |
(1)
|
These
centers are collateral for the Company’s $550 million line of credit.
Borrowings under the line of credit are primary obligations of the
entities owning these centers.
|
(2)
|
The
unaudited aggregate costs for federal income tax purposes as of December
31, 2008 was $3.664 billion.
|
(3)
|
Primarily
includes the write-off of certain Oyster Bay costs. In 2008, the
Company recognized a $117.9 million impairment charge on the Oyster Bay
project. The remaining balance of $39.8 million as of
December 31, 2008 is included in development pre-construction
costs.
|
(4)
|
Includes
costs related to The Pier Shops at Caesars, which became a consolidated
center in 2007.
|
(5)
|
Includes
costs related to Cherry Creek Shopping Center, which became a consolidated
center in 2006.
|
(6)
|
Does
not include depreciation of assets recoverable from
tenants.
|
See
accompanying report of independent registered public accounting
firm.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
TAUBMAN
CENTERS, INC.
|
|
|
|
Date:
February 24, 2009
|
By:
|
/s/ Robert
S.
Taubman
|
|
|
Robert
S. Taubman, Chairman of the Board, President,
and
Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
|
Title
|
Date
|
|
|
|
/s/
Robert S. Taubman
|
Chairman
of the Board, President,
|
February
24, 2009
|
Robert
S. Taubman
|
Chief
Executive Officer, and Director
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
/s/
Lisa A. Payne
|
Vice
Chairman, Chief Financial
|
February 24,
2009
|
Lisa
A. Payne
|
Officer,
and Director (Principal Financial Officer)
|
|
|
|
|
/s/
William S. Taubman
|
Chief
Operating Officer,
|
February
24, 2009
|
William
S. Taubman
|
and
Director
|
|
|
|
|
/s/
Esther R. Blum
|
Senior
Vice President, Controller, and
|
February 24,
2009
|
Esther
R. Blum
|
Chief
Accounting Officer
|
|
|
|
|
*
|
Director
|
February 24,
2009
|
Graham
Allison
|
|
|
|
|
|
*
|
Director
|
February 24,
2009
|
Jerome
A. Chazen
|
|
|
|
|
|
*
|
Director
|
February 24,
2009
|
Craig
M. Hatkoff
|
|
|
|
|
|
*
|
Director
|
February 24,
2009
|
Peter
Karmanos, Jr.
|
|
|
|
|
|
*
|
Director
|
February 24,
2009
|
William
U. Parfet
|
|
|
|
|
|
*
|
Director
|
February 24,
2009
|
Ronald
W. Tysoe
|
|
|
*By:
|
/s/
Lisa A.
Payne
|
|
Lisa
A. Payne,
as
Attorney-in-Fact
|
EXHIBIT
INDEX
Exhibit
Number
3(a)
|
--
|
Restated
By-Laws of Taubman Centers, Inc. (incorporated herein by reference to
Exhibit 3 filed with the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2005).
|
|
|
|
|
|
3(b)
|
--
|
Restated
Articles of Incorporation of Taubman Centers, Inc. (incorporated herein by
reference to Exhibit 3 filed with the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2006).
|
|
|
|
|
|
4(a)
|
--
|
Loan
Agreement dated as of January 15, 2004 among La Cienega Associates, as
Borrower, Column Financial, Inc., as Lender (incorporated herein by
reference to Exhibit 4 filed with the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2004 ("2004 First Quarter Form
10-Q")).
|
|
|
|
|
|
4(b)
|
--
|
Assignment
of Leases and Rents, La Cienega Associates, Assignor, and Column
Financial, Inc., Assignee, dated as of January 15, 2004 (incorporated
herein by reference to Exhibit 4 filed with the 2004 First Quarter Form
10-Q).
|
|
|
|
|
|
4(c)
|
--
|
Leasehold
Deed of Trust, with Assignment of Leases and Rents, Fixture Filing, and
Security Agreement, dated as of January 15, 2004, from La Cienega
Associates, Borrower, to Commonwealth Land Title Company, Trustee, for the
benefit of Column Financial, Inc., Lender (incorporated herein by
reference to Exhibit 4 filed with the 2004 First Quarter Form
10-Q).
|
|
|
|
|
|
4(d)
|
--
|
Amended
and Restated Promissory Note A-1, dated December 14, 2005, by Short Hills
Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 4.1 filed with the Registrant’s Current Report on
Form 8-K dated December 16, 2005).
|
|
|
|
|
|
4(e)
|
--
|
Amended
and Restated Promissory Note A-2, dated December 14, 2005, by Short Hills
Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 4.2 filed with the Registrant’s Current Report on
Form 8-K dated December 16, 2005).
|
|
|
|
|
|
4(f)
|
--
|
Amended
and Restated Promissory Note A-3, dated December 14, 2005, by Short Hills
Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 4.3 filed with the Registrant’s Current Report on
Form 8-K dated December 16, 2005).
|
|
|
|
|
4(g)
|
--
|
Amended
and Restated Mortgage, Security Agreement and Fixture Filings, dated
December 14, 2005 by Short Hills Associates L.L.C. to Metropolitan Life
Insurance Company (incorporated by reference to Exhibit 4.4 filed with the
Registrant’s Current Report on Form 8-K dated December 16,
2005).
|
|
|
|
4(h)
|
--
|
Amended
and Restated Assignment of Leases, dated December 14, 2005, by Short Hills
Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by
reference to Exhibit 4.5 filed with the Registrant’s Current Report on
Form 8-K dated December 16, 2005).
|
|
|
|
4(i)
|
--
|
Second
Amended and Restated Secured Revolving Credit Agreement, dated as of
November 1, 2007, by and among Dolphin Mall Associates Limited
Partnership, Fairlane Town Center LLC and Twelve Oaks Mall, LLC, as
Borrowers, Eurohypo AG, New York Branch, as Administrative Agent and Lead
Arranger, 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 November 1,
2007).
|
|
|
|
4(j)
|
--
|
Third
Amended and Restated Mortgage, Assignment of Leases and Rents and Security
Agreement, dated as of November 1, 2007, by and between Dolphin Mall
Associates Limited Partnership and Eurohypo AG, New York Branch, as
Administrative Agent (incorporated herein by reference to Exhibit 4.5
filed with the Registrant’s Current Report on Form 8-K dated November 1,
2007).
|
4(k)
|
--
|
Second
Amended and Restated Mortgage, dated as of November 1, 2007, by and
between Fairlane Town Center LLC and 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 November 1,
2007).
|
|
|
|
4(l)
|
--
|
Second
Amended and Restated Mortgage, dated as of November 1, 2007, by and
between Twelve Oaks Mall, LLC and 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 November 1,
2007).
|
|
|
|
4(m)
|
--
|
Guaranty
of Payment, dated as of November 1, 2007, by and among The Taubman Realty
Group Limited Partnership, Fairlane Town Center LLC and Twelve Oaks Mall,
LLC (incorporated herein by reference to Exhibit 4.2 filed with the
Registrant’s Current Report on Form 8-K dated November 1,
2007).
|
|
|
|
|
|
4(n)
|
--
|
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(o)
|
--
|
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(p)
|
--
|
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(q)
|
--
|
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).
|
|
|
|
|
|
*10(a)
|
--
|
The
Taubman Realty Group Limited Partnership 1992 Incentive Option Plan, as
Amended and Restated Effective as of September 30, 1997 (incorporated
herein by reference to Exhibit 10(b) filed with the Registrant’s Annual
Report on Form 10-K for the year ended December 31, 1997).
|
|
|
|
|
|
*10(b)
|
--
|
First
Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive
Option Plan as Amended and Restated Effective as of September 30, 1997,
effective January 1, 2002 (incorporated herein by reference to Exhibit
10(b) filed with the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2001 (“2001 Form 10-K”)).
|
|
|
|
|
|
*10(c)
|
--
|
Second
Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive
Plan as Amended and Restated Effective as of September 30, 1997
(incorporated herein by reference to Exhibit 10(c) filed with the
Registrant’s Annual Report on Form 10-K for the year ended December 31,
2004 (“2004 Form 10-K”)).
|
|
|
|
|
|
*10(d)
|
--
|
Third
Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive
Plan as Amended and Restated Effective as of September 30, 1997
(incorporated herein by reference to Exhibit 10(d) filed with the 2004
Form 10-K).
|
|
|
|
|
|
*10(e)
|
--
|
Fourth
Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive
Plan as Amended and Restated Effective as of September 30, 1997
(incorporated herein by reference to Exhibit 10(a) filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2007).
|
|
*10(f)
|
--
|
The
Form of The Taubman Realty Group Limited Partnership 1992 Incentive Option
Plan Option Agreement (incorporated herein by reference to Exhibit 10(e)
filed with the 2004 Form 10-K).
|
|
|
|
10(g)
|
--
|
Master
Services Agreement between The Taubman Realty Group Limited Partnership
and the Manager (incorporated herein by reference to Exhibit 10(f) filed
with the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 1992).
|
|
|
|
10(h)
|
--
|
Amended
and Restated Cash Tender Agreement among Taubman Centers, Inc., The
Taubman Realty Group Limited Partnership, and A. Alfred Taubman, A. Alfred
Taubman, acting not individually but as Trustee of the A. Alfred Taubman
Restated Revocable Trust, and TRA Partners, (incorporated herein by
reference to Exhibit 10 (a) filed with the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2000 (“2000 Second Quarter
Form 10-Q”)).
|
|
|
|
*10(i)
|
--
|
Supplemental
Retirement Savings Plan (incorporated herein by reference to Exhibit 10(i)
filed with the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
|
|
|
|
*10(j)
|
--
|
The
Taubman Company Long-Term Compensation Plan (as amended and restated
effective January 1, 2000) (incorporated herein by reference to Exhibit 10
(c) filed with the 2000 Second Quarter Form 10-Q).
|
|
|
|
*10(k)
|
--
|
First
Amendment to the Taubman Company Long-Term Compensation Plan (as amended
and restated effective January 1, 2000)(incorporated herein by reference
to Exhibit 10(m) filed with the 2004 Form 10-K).
|
|
|
|
*10(l)
|
--
|
Second
Amendment to the Taubman Company Long-Term Performance Compensation Plan
(as amended and restated effective January 1, 2000)(incorporated herein by
reference to Exhibit 10(n) filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 2005).
|
|
|
|
*10(m)
|
--
|
The
Taubman Company 2005 Long-Term Incentive Plan (incorporated herein by
reference to the Form DEF14A filed with the Securities and Exchange
Commission on April 5, 2005).
|
|
|
|
*10(n)
|
--
|
Employment
Agreement between The Taubman Company Limited Partnership and Lisa A.
Payne (incorporated herein by reference to Exhibit 10 filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,
1997).
|
|
|
|
*10(o)
|
--
|
Amended
and Restated Change of Control Employment Agreement, dated December 18,
2008, by and among the Company, Taubman Realty Group Limited Partnership,
and Lisa A. Payne (revised for Code Section 409A
compliance).
|
|
|
|
*10(p)
|
--
|
Form
of Amended and Restated Change of Control Employment Agreement, dated
December 18, 2008 (revised for Code Section 409A
compliance).
|
|
|
|
10(q)
|
--
|
Second
Amended and Restated Continuing Offer, dated as of May 16, 2000.
(incorporated herein by reference to Exhibit 10 (b) filed with the 2000
Second Quarter Form 10-Q).
|
|
|
|
10(r)
|
--
|
The
Second Amendment and Restatement of Agreement of Limited Partnership of
the Taubman Realty Group Limited Partnership dated September 30, 1998
(incorporated herein by reference to Exhibit 10 filed with the
Registrant’s Quarterly Report on Form 10-Q dated September 30,
1998).
|
|
|
|
10(s)
|
--
|
Annex
II to Second Amendment to the Second Amendment and Restatement of
Agreement of Limited Partnership of The Taubman Realty Group Limited
Partnership (incorporated herein by reference to Exhibit 10(p) filed with
Registrant’s Annual Report on Form 10-K for the year ended December 31,
1999).
|
10(t)
|
--
|
Annex
III to The Second Amendment and Restatement of Agreement of Limited
Partnership of The Taubman Realty Group Limited Partnership, dated as of
May 27, 2004 (incorporated by reference to Exhibit 10(c) filed with the
2004 Second Quarter Form 10-Q).
|
|
|
|
|
10(u)
|
--
|
Second
Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of The Taubman Realty Group Limited Partnership effective as
of September 3, 1999 (incorporated herein by reference to Exhibit 10(a)
filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999).
|
|
|
|
10(v)
|
--
|
Third
Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of the Taubman Realty Group Limited Partnership, dated May 2,
2003 (incorporated herein by reference to Exhibit 10(a) filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2003).
|
|
|
|
10(w)
|
--
|
Fourth
Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of the Taubman Realty Group Limited Partnership, dated
December 31, 2003 (incorporated herein by reference to Exhibit 10(x) filed
with the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2003).
|
|
|
|
10(x)
|
--
|
Fifth
Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of the Taubman Realty Group Limited Partnership, dated
February 1, 2005 (incorporated herein by reference to Exhibit 10.1 filed
with the Registrant’s Current Report on Form 8-K filed on February 7,
2005).
|
|
|
|
10(y)
|
--
|
Sixth
Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of the Taubman Realty Group Limited Partnership, dated March
29, 2006 (incorporated herein by reference to Exhibit 10 filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2006).
|
|
|
|
10(z)
|
--
|
Seventh
Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of the Taubman Realty Group Limited Partnership, dated
December 14, 2007 (incorporated herein by reference to Exhibit 10(z) filed
with the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2007).
|
|
|
|
10(aa)
|
--
|
Amended
and Restated Shareholders' Agreement dated as of October 30, 2001 among
Taub-Co Management, Inc., The Taubman Realty Group Limited Partnership,
The A. Alfred Taubman Restated Revocable Trust, and Taub-Co Holdings LLC
(incorporated herein by reference to Exhibit 10(q) filed with the 2001
Form 10-K).
|
|
|
|
*10(ab)
|
--
|
The
Taubman Realty Group Limited Partnership and The Taubman Company LLC
Election and Option Deferral Agreement (incorporated herein by reference
to Exhibit 10(r) filed with the 2001 Form 10-K).
|
|
|
|
|
10(ac)
|
--
|
Operating
Agreement of Taubman Land Associates, a Delaware Limited Liability
Company, dated October 20, 2006 (incorporated herein by reference to
Exhibit 10(ab) filed with the Registrant's Annual Report on Form 10-K for
the year ended December 31, 2006 (“2006 Form 10-K”)).
|
|
|
|
|
|
10(ad)
|
--
|
Amended
and Restated Agreement of Partnership of Sunvalley Associates, a
California general partnership (incorporated herein by reference to
Exhibit 10(a) filed with the Registrant’s Amended Quarterly Report on Form
10-Q/A for the quarter ended June 30, 2002).
|
|
|
|
|
|
*10(ae)
|
--
|
Summary
of Compensation for the Board of Directors of Taubman Centers, Inc.
(incorporated herein by reference to Exhibit 10(ae) filed with the 2006
Form 10-K).
|
|
|
|
|
|
*10(af)
|
--
|
The
Form of The Taubman Company Restricted Stock Unit Award Agreement
(incorporated by reference to Exhibit 10 filed with the Registrant’s
Current Report on Form 8-K dated May 18, 2005).
|
|
|
|
|
|
*10(ag)
|
--
|
The
Taubman Centers, Inc. Non-Employee Directors' Deferred Compensation Plan
(incorporated by reference to Exhibit 10 filed with the Registrant’s
Current Report on Form 8-K dated May 18, 2005).
|
|
*10(ah)
|
--
|
The
Form of The Taubman Centers, Inc. Non-Employee Directors' Deferred
Compensation Plan (incorporated by reference to Exhibit 10 filed with the
Registrant’s Current Report on Form 8-K dated May 18,
2005).
|
|
|
|
*10(ai)
|
--
|
Amended
and Restated Limited Liability Company Agreement of Taubman Properties
Asia LLC, a Delaware Limited Liability Company (incorporated herein by
reference to Exhibit 10(a) filed with the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2008).
|
|
|
|
*10(aj)
|
--
|
Employment
Agreement between The Taubman Company Asia Limited and Morgan Parker
(incorporated herein by reference to Exhibit 10(b) filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2008).
|
|
|
|
*10(ak)
|
--
|
First
Amendment to the Taubman Centers, Inc. Non-Employee Directors’ Deferred
Compensation Plan (incorporated herein by reference to Exhibit 10(c) filed
with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2008).
|
|
|
|
*10(al)
|
--
|
The
Taubman Company 2008 Omnibus Long-Term Incentive Plan (incorporated herein
by reference to Appendix A to the Registrant’s Proxy Statement on Schedule
14A, filed with the Commission on April 15, 2008).
|
|
|
|
*10(am)
|
--
|
Letter
Agreement regarding the Amended and Restated Limited Liability Company
Agreement of Taubman Properties Asia LLC, a Delaware Limited Liability
Company, dated November 25, 2008.
|
|
|
|
*10(an)
|
--
|
Second
Amendment to the Master Services Agreement between The Taubman Realty
Group Limited Partnership and the Manager, dated December 23,
2008.
|
|
|
|
*10(ao)
|
--
|
Summary
of modification to the Employment Agreement between The Taubman Company
Asia Limited and Morgan Parker.
|
|
|
|
*10(ap)
|
--
|
Form
of Taubman Centers, Inc. Non-Employee Directors’ Deferred Compensation
Plan Amendment Agreement (revised for Code Section 409A
compliance).
|
|
|
|
*10(aq)
|
--
|
First
Amendment to The Taubman Company Supplemental Retirement Savings Plan,
dated December 12, 2008 (revised for Code Section 409A
compliance).
|
|
|
|
*10(ar)
|
--
|
Amendment
to The Taubman Centers, Inc. Change of Control Severance Program, dated
December 12, 2008 (revised for Code Section 409A
compliance).
|
|
|
|
*10(as)
|
--
|
Form
of The Taubman Company Long-Term Performance Compensation Plan Amendment
Agreement (revised for Code Section 409A compliance).
|
|
|
|
*10(at)
|
--
|
Amendment
to Employment Agreement, dated December 22, 2008, for Lisa A. Payne
(revised for Code Section 409A compliance).
|
|
|
|
*10(au) |
-- |
First
Amendment to the Master Service Agreement between The Taubman Realty Group
Limited Partnership and the Manager, dated September 30,
1998. |
|
|
|
12
|
--
|
Statement
Re: Computation of Taubman Centers, Inc. Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends.
|
|
|
|
21
|
--
|
Subsidiaries
of Taubman Centers, Inc.
|
|
|
|
23
|
--
|
Consent
of Independent Registered Public Accounting Firm.
|
|
|
|
24
|
--
|
Powers
of Attorney.
|
|
|
|
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(a)
|
--
|
Debt
Maturity Schedule.
|
|
|
|
99(b)
|
--
|
Real
Estate and Accumulated Depreciation Schedule of the Unconsolidated Joint
Ventures of The Taubman Realty Group Limited
Partnership.
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*
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A
management contract or compensatory plan or arrangement required to be
filed.
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