Item 1. BUSINESS
The Company
Taubman Centers, Inc. (the "Company" or "TCO") was incorporated in Michigan in 1973 and had its initial public offering ("IPO") in 1992. Upon completion of the IPO, the Company became the managing general partner of The Taubman Realty Group Limited Partnership (the "Operating Partnership" or "TRG"). The Company has a 62% partnership interest in the Operating Partnership, through which the Company conducts all its operations. The Company owns, develops, acquires, and operates regional shopping centers ("Centers") and interests therein. The Company's portfolio, as of December 31, 2000, included 16 urban and suburban Centers located in seven states. One additional Center opened in March 2001 and four other Centers are under construction and are expected to open in 2001 and 2002. The Operating Partnership also owns certain regional retail shopping center development projects and more than 99% of The Taubman Company Limited Partnership (the "Manager"), which manages the shopping centers, and provides other services to the Operating Partnership and the Company. See the table on pages 12 and 13 of this report for information regarding the Centers.
The Company is a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended (the "Code"). In order to satisfy the provisions of the Code applicable to REITs, the Company must distribute to its shareholders at least 90% of its REIT taxable income and meet certain other requirements. TRG's partnership agreement provides that the Operating Partnership will distribute, at a minimum, sufficient amounts to its partners such that the Company's pro rata share will enable the Company to pay shareholder dividends (including capital gains dividends that may be required upon the Operating Partnership's sale of an asset) that will satisfy the REIT provisions of the Code.
Recent Developments
For a discussion of business developments that occurred in 2000, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A).
The Shopping Center Business
There are several types of retail shopping centers, varying primarily by size and marketing strategy. Retail shopping centers range from neighborhood centers of less than 100,000 square feet of GLA to regional and super-regional shopping centers. Retail shopping centers in excess of 400,000 square feet of GLA are generally referred to as "regional" shopping centers, while those centers having in excess of 800,000 square feet of GLA are generally referred to as "super-regional" shopping centers. Thirteen of the Centers are "super-regional" centers. In this annual report on Form 10-K, the term "regional shopping centers" refers to both regional and super-regional shopping centers. The term "GLA" refers to gross retail space, including anchors and mall tenant areas, and the term "Mall GLA" refers to gross retail space, excluding anchors. The term "anchor" refers to a department store or other large retail store. The term "mall tenants" refers to stores (other than anchors) that are typically specialty retailers and lease space in shopping centers.
Business of the Company
The Company, as managing general partner of the Operating Partnership, is engaged in the ownership, management, leasing, acquisition, development and expansion of regional shopping centers.
The Centers:
o are strategically located in major metropolitan areas, many in communities that are among the most affluent in the country, including New York City, Los Angeles, Denver, Detroit, Phoenix, Miami, and Washington, D.C.;
o range in size between 438,000 and 1.6 million square feet of GLA and between 133,000 and 614,000 square feet of Mall GLA. The smallest Center has approximately 50 stores, and the largest has approximately 200 stores. Of the 16 Centers, 13 are super-regional shopping centers;
o have approximately 2,200 stores operated by its mall tenants under approximately 975 trade names;
o have 48 anchors, operating under 15 trade names;
o lease approximately 78% of Mall GLA to national chains, including subsidiaries or divisions of The Limited (The Limited, Limited Express, Victoria's Secret, and others), The Gap (The Gap, Banana Republic, and others), and Venator Group, Inc. (Foot Locker, Champs Sports, and others); and
o are among the most productive (measured by mall tenants' average per square foot sales) in the United States. In 2000, mall tenants had average per square foot sales of $479, which is substantially greater than the average for all regional shopping centers owned by public companies.
The most important factor affecting the revenues generated by the Centers is leasing to mall tenants (primarily specialty retailers), which represents approximately 90% of revenues. Anchors account for less than 10% of revenues because many own their stores and, in general, those that lease their stores do so at rates substantially lower than those in effect for mall tenants.
The Company's portfolio is concentrated in highly productive super-regional shopping centers. Of the 16 Centers, 14 had annual rent rolls at December 31, 2000 of over $10 million. The Company believes that this level of productivity is indicative of the Centers' strong competitive position and is, in significant part, attributable to the Company's business strategy and philosophy. The Company believes that large shopping centers (including regional and especially super-regional shopping centers) are the least susceptible to direct competition because (among other reasons) anchors and large specialty retail stores do not find it economically attractive to open additional stores in the immediate vicinity of an existing location for fear of competing with themselves. In addition to the advantage of size, the Company believes that the Centers' success can be attributed in part to their other physical characteristics, such as design, layout, and amenities.
Business Strategy And Philosophy
The Company believes that the regional shopping center business is not simply a real estate development business, but rather an operating business in which a retailing approach to the on-going management and leasing of the Centers is essential. Thus the Company:
o Offers a large, diverse selection of retail stores in each Center to give customers a broad selection of consumer goods and variety of price ranges.
o Endeavors to increase overall mall tenants' sales by leasing space to a constantly changing mix of tenants, thereby increasing achievable rents.
o Seeks to anticipate trends in the retailing industry and emphasizes ongoing introductions of new retail concepts into the Centers. Due in part to this strategy, a number of successful retail trade names have opened their first mall stores in the Centers. In addition, the Company has brought to the Centers "new to the market" retailers. The Company believes that its execution of this leasing strategy is unique in the industry and is an important element in building and maintaining customer loyalty and increasing mall productivity.
o Provides innovative initiatives that utilize technology and the Internet to heighten the shopping experience for customers, build customer loyalty and increase tenant sales. One such initiative is the Company's ShopTaubman one-to-one marketing program, which connects shoppers and retailers through online websites.
The Centers compete for retail consumer spending through diverse, in-depth presentations of predominantly fashion merchandise in an environment intended to facilitate customer shopping. While some Centers include stores that target high-end, upscale customers, each Center is individually merchandised in light of the demographics of its potential customers within convenient driving distance.
The Company's leasing strategy involves assembling a diverse mix of mall tenants in each of the Centers in order to attract customers, thereby generating higher sales by mall tenants. High sales by mall tenants make the Centers attractive to prospective tenants, thereby increasing the rental rates that prospective tenants are willing to pay. The Company implements an active leasing strategy to increase the Centers' productivity and to set minimum rents at higher levels. Elements of this strategy include terminating leases of under-performing tenants, renegotiating existing leases, and not leasing space to prospective tenants that (though viable or attractive in certain ways) would not enhance a Center's retail mix.
Potential For Growth
The Company's principal objective is to enhance shareholder value. The Company seeks to maximize the financial results of its assets, while pursuing a growth strategy that concentrates primarily on an active new center development program.
Development of New Centers
The Company is pursuing an active program of regional shopping center development. The Company believes that it has the expertise to develop economically attractive regional shopping centers through intensive analysis of local retail opportunities. The Company believes that the development of new centers is the best use of its capital and an area in which the Company excels. At any time, the Company has numerous potential development projects in various stages.
The following table includes the new centers scheduled for opening in 2001 and 2002:
The Company's policies with respect to development activities are designed to reduce the risks associated with development. For instance, the Company previously entered into an agreement to lease a center, while the Company investigated the redevelopment opportunities of the center. Also, the Company generally does not intend to acquire land early in the development process. Instead, the Company generally acquires options on land or forms partnerships with landholders holding potentially attractive development sites. The Company typically exercises the options only once it is prepared to begin construction. In addition, the Company does not intend to begin construction until a sufficient number of anchor stores have agreed to operate in the shopping center, such that the Company is confident that the projected sales and rents from Mall GLA are sufficient to earn a return on invested capital in excess of the Company's cost of capital. Having historically followed these principles, the Company's experience indicates that less than 10% of the costs of the development of a regional shopping center will be incurred prior to the construction period; however, no assurance can be given that the Company will continue to be able to so limit pre-construction costs.
While the Company will continue to evaluate development projects using criteria, including financial criteria for rates of return, similar to those employed in the past, no assurances can be given that the adherence to these policies will produce comparable results in the future. In addition, the costs of shopping center development opportunities that are explored but ultimately abandoned will, to some extent, diminish the overall return on development projects (see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Capital Spending" for further discussion of the Company's development activities).
Strategic Acquisitions
The Company's objective is to acquire existing centers only when they are compatible with the quality of the Company's portfolio (or can be redeveloped to that level) and that satisfy the Company's strategic plans and pricing requirements.
In addition, the Company may make other investments to enhance the value of its business. For example, in May 2000, the Company entered into an agreement to acquire an approximately 6.7% interest in MerchantWired, LLC, a service company providing internet and network infrastructure to shopping centers and retailers. Additionally, in April 1999, the Company made a strategic investment in fashionmall.com, an online landlord. Visitors to the fashionmall website find many of the same retailers found in Taubman centers, including Gap and Banana Republic. Also, in November 1999, the Company acquired the retail leasing firm Lord Associates, which will provide additional resources for the leasing of the four new centers scheduled to open in 2001. Lord Associates has extensive experience with value and entertainment specialty centers and had worked with the Company on the leasing of Great Lakes Crossing.
Expansions of the Centers
Another potential element of growth is the strategic expansion of existing properties to update and enhance their market positions, by replacing or adding new anchor stores or increasing mall tenant space. Most of the Centers have been designed to accommodate expansions. Expansion projects can be as significant as new shopping center construction in terms of scope and cost, requiring governmental and existing anchor store approvals, design and engineering activities, including rerouting utilities, providing additional parking areas or decking, acquiring additional land, and relocating anchors and mall tenants (all of which must take place with a minimum of disruption to existing tenants and customers). For example, food courts are under construction at Twelve Oaks in the suburban Detroit area and at Woodland in Grand Rapids, Michigan. Both food courts are scheduled to open in the fall of 2001.
The following table includes information regarding recent development, acquisition, and expansion activities.
Developments:
Completion Date Center Location --------------- ------ -------- July 1997 Tuttle Crossing (1) Columbus, Ohio November 1997 Arizona Mills Tempe, Arizona November 1998 Great Lakes Crossing Auburn Hills, Michigan March 1999 MacArthur Center Norfolk, Virginia March 2001 Dolphin Mall Miami, Florida
Acquisitions:
Completion Date Center Location --------------- ------ -------- September 1997 Regency Square Richmond, Virginia December 1997 Tuttle Leasehold (1) Columbus, Ohio December 1997 The Falls (1) (2) Miami, Florida December 1999 Great Lakes Crossing - Auburn Hills, Michigan additional interest (3) August 2000 Twelve Oaks - Novi, Michigan additional interest
Expansions, Renovations and Anchor Conversions:
Completion Date Center Location --------------- ------ -------- March 1997 Beverly Center (4) Los Angeles, California August 1997 Westfarms (5) West Hartford, Connecticut November 1997 - August 1998 Cherry Creek (6) Denver, Colorado December 1997 Biltmore (7) Phoenix, Arizona November 1998 Woodland (8) Grand Rapids, Michigan November 1999 Fairlane (9) Dearborn, Michigan November 1999 Biltmore (10) Phoenix, Arizona February 2000 - September 2000 Fair Oaks (11) Fairfax, Virginia May 2000 Fairlane (12) Dearborn, Michigan December 2000 Beverly Center (8) Los Angeles, California - ------------------
(1) Centers transferred to GMPT in connection with the GMPT Exchange (see Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations-GMPT Exchange and Related Transactions). (2) Completely redeveloped and expanded in 1996 before the acquisition of The Falls. (3) In December 1999, an additional 5% interest in the center was acquired. (4) Broadway converted to Bloomingdale's. (5) 135,000 square foot expansion followed by the opening of a new Nordstrom in September 1997. (6) Lord & Taylor opened a new and expanded store in 1997. Additional 132,000 square foot expansion of mall tenant space opened in August of 1998. (7) 50,000 square foot expansion of mall tenant space completed. (8) Mall renovation completed. (9) New food court opened. (10) Macy's expansion completed. (11) Hecht's opened an expansion in February. Additionally, a JCPenney expansion and newly constructed Macy's opened in the fall. (12) A 21-screen theater opened.
Internal Growth
The Centers are among the most productive in the nation when measured by mall tenant's average sales per square foot. Higher sales per square foot enable mall tenants to remain profitable while paying occupancy costs that are a greater percentage of total sales. As leases expire at the Centers, the Company has consistently been able, on a portfolio basis, to lease the available space to existing or new tenants at higher rates.
Augmenting this growth, the Company is pursuing a number of new sources of revenue from the Centers. For example, the Company has entered into a 15-year lease agreement with JCDecaux, the world's largest street furniture and outdoor advertising company. The agreement created an in-mall advertising program in the Company's portfolio of owned properties, creating new point-of-sale opportunities for retailers and manufacturers as well as heightening the in-mall experience for shoppers. In addition, the Company expects increased revenue from its specialty leasing efforts. In recent years a new industry -- beyond traditional carts and kiosks -- has evolved, with more and better quality specialty tenants. The Company has in place a company-wide program to maximize this opportunity.
Rental Rates
As leases have expired in the Centers, the Company has generally been able to rent the available space, either to the existing tenant or a new tenant, at rental rates that are higher than those of the expired leases. In a period of increasing sales, rents on new leases will tend to rise as tenants' expectations of future growth become more optimistic. In periods of slower growth or declining sales, rents on new leases will grow more slowly or will decline for the opposite reason. However, Center revenues nevertheless increase as older leases roll over or are terminated early and replaced with new leases negotiated at current rental rates that are usually higher than the average rates for existing leases.
Since 1992, the Company has disclosed average rents for mature centers, those centers owned and operated for five years. In the fourth quarter of 2000, the Company began reporting average rent per square foot for centers owned and opened for two years, so that the statistic will be more consistent with other reported statistics. The following table contains certain information regarding per square foot minimum rent at Centers that have been owned and open for at least two years.
2000 1999 ---- ---- Average minimum rent per square foot:
All mall tenants $40.25 $39.58 Stores closing during year $39.99 $39.49 Stores opening during year $47.04 $48.01
The following table contains the information for centers owned and open five years.
Year Ended December 31 ----------------------------------------
2000 1999(1) 1998(2) 1997 1996 ---- ---- ---- ---- ---- Average minimum rent per square foot:
All mall tenants $44.53 $44.07 $41.93 $38.79 $37.90 Stores closing during year $42.03 $41.26 $44.27 $37.62 $33.39 Stores opening during year $49.90 $52.04 $47.92 $41.67 $42.39
(1) Amounts have been restated to include centers comparable to the 2000 statistic. (2) Excludes centers transferred to GMPT.
Lease Expirations
The following table shows lease expirations based on information available as of December 31, 2000 for the next ten years for the Centers in operation at that date:
The Company believes that the information in the table is not necessarily indicative of what will occur in the future because of several factors, but principally because its leasing policies and practices create a significant level of early lease terminations at the Centers. For example, the average remaining term of the leases that were terminated during the period 1995 to 2000 was approximately two years. The average term of leases signed during 2000 and 1999 was approximately eight years.
In addition, mall tenants at the Centers may seek the protection of the bankruptcy laws, which could result in the termination of such tenants' leases and thus cause a reduction in cash flow. In 2000, approximately 2.3% of leases were so affected compared to 3.1% in 1999, 1.2% in 1998, 1.5% in 1997, and 2.8% in 1996. Since 1991, the annual provision for losses on accounts receivable has been less than 2% of annual revenues.
Occupancy
Mall tenant average occupancy, ending occupancy, and leased space rates of the Centers are as follows:
Year Ended December 31 ---------------------------------------------------- 2000 1999 1998 (1) 1997 1996 ---- ----- ---- ---- ----
Average Occupancy 89.1% 89.0% 89.4% 87.6% 87.4% Ending Occupancy 90.5% 90.4% 90.2% 90.3% 88.0% Leased Space 93.8% 92.1% 92.3% 92.3% 89.0%
(1) Excludes centers transferred to GMPT.
Major Tenants
No single retail company represents 10% or more of the Company's revenues. The combined operations of The Limited, Inc. accounted for approximately 6.6% of Mall GLA as of December 31, 2000 and for approximately 5.5% of the 2000 minimum rent. The largest of these, in terms of square footage and rent, is Express, which accounted for approximately 1.9% of Mall GLA and 1.5% of 2000 minimum rent. No other single retail company accounted for more than 4% of Mall GLA or 2000 minimum rent. The following table shows the ten largest tenants and their square footage as of December 31, 2000.
General Risks of the Company
Economic Performance and Value of Shopping Centers Dependent on Many Factors
The economic performance and value of the Company's shopping centers are dependent on various factors. Additionally, these same factors will influence the Company's decision whether to go forward on the development of new centers and may affect the ultimate economic performance and value of projects under construction (see other risks associated with the development of new centers under "Business of the Company--Development of New Centers"). Such factors include:
o changes in the national, regional, and/or local economic climates,
o competition from other shopping centers, discount stores, outlet malls, discount shopping clubs, direct mail and the Internet in attracting customers and tenants,
o increases in operating costs,
o the public perception of the safety of customers at the shopping centers,
o environmental or legal liabilities,
o availability and cost of financing, and
o uninsured losses, resulting from wars, riots, or civil disturbances or losses from earthquakes or floods in excess of policy specifications and insured limits.
In addition, the value of shopping centers may be adversely affected by:
o changes in government regulations, and
o changes in real estate zoning and tax laws.
Adverse changes in the economic performance and value of shopping centers would adversely affect the Company's income and cash available to pay dividends.
Third Party Interests in the Centers
Some of the shopping centers which the Company develops and leases are partially owned by non-affiliated partners through joint venture arrangements. As a result, the Company may not be able to control all decisions regarding those shopping centers and may be required to take actions that are in the interest of the joint venture partners but not the Company's best interests.
Bankruptcy of Mall Tenants or Joint Venture Partners
The Company could be adversely affected by the bankruptcy of third parties. The bankruptcy of a mall tenant could result in the termination of its lease which would lower the amount of cash generated by that mall. In addition, if a department store operating an anchor at one of our shopping centers were to go into bankruptcy and cease operating, its closing may lead to reduced customer traffic and lower mall tenant sales which would, in turn, affect the amount of rent our tenants pay us. The profitability of shopping centers held in a joint venture could also be adversely affected by the bankruptcy of one of the joint venture partners if, because of certain provisions of the bankruptcy laws, the Company was unable to make important decisions in a timely fashion or became subject to additional liabilities.
Third Party Contracts
The Company provides property management, leasing, development and other administrative services to centers transferred to GMPT, other third parties and to certain Taubman affiliates. The contracts under which these services are provided may be canceled or not renewed or may be renegotiated on terms less favorable to the Company. Certain costs of providing services under these contracts would not necessarily be eliminated if the contracts were to be canceled or not renewed.
Inability to Maintain Status as a REIT
o The Company may not be able to maintain its status as a real estate investment trust, or REIT, for Federal income tax purposes with the result that the income distributed to shareholders will not be deductible in computing taxable income and instead would be subject to tax at regular corporate rates. Although the Company believes it is organized and operates in a manner to maintain its REIT qualification, many of the REIT requirements of the Internal Revenue Code are very complex and have limited judicial or administrative interpretations. Changes in tax laws or regulations or new administrative interpretations and court decisions may also affect the Company's ability to maintain REIT status in the future. If the Company fails to qualify as a REIT, its income may also be subject to the alternative minimum tax. If the Company does not maintain its REIT status in any year, it may be unable to elect to be treated as a REIT for the next four taxable years. In addition, if the Company fails to meet the Internal Revenue Code's requirement that it distribute to shareholders at least 90% of otherwise taxable income, the Company will be subject to a nondeductible 4% excise tax on a portion of its income.
o Although the Company currently intends to maintain its status as a REIT, future economic, market, legal, tax or other considerations may cause it to determine that it would be in the Company's and its shareholders' best interests to revoke its REIT election. As noted above, if the Company revokes its REIT election, it will not be able to elect REIT status for the next four taxable years.
Environmental Matters
All of the Centers presently owned by the Company (not including option interests in the Development Projects or any of the real estate managed but not included in the Company's portfolio) have been subject to environmental assessments. The Company is not aware of any environmental liability relating to the Centers or any other property, in which they have or had an interest (whether as an owner or operator) that the Company believes, would have a material adverse effect on the Company's business, assets, or results of operations. No assurances can be given, however, that all environmental liabilities have been identified or that no prior owner, operator, or current occupant has created an environmental condition not known to the Company. Moreover, no assurances can be given that (i) future laws, ordinances, or regulations will not impose any material environmental liability or that (ii) the current environmental condition of the Centers will not be affected by tenants and occupants of the Centers, by the condition of properties in the vicinity of the Centers (such as the presence of underground storage tanks), or by third parties unrelated to the Company.
There are asbestos containing materials ("ACMs") at most of the Centers, primarily in the form of floor tiles, roof coatings and mastics. The floor tiles, roof coatings and mastics are generally in good condition. The Manager has developed and is implementing an operations and maintenance program that details operating procedures with respect to ACMs prior to any renovation and that requires periodic inspection for any change in condition of existing ACMs.
Personnel
The Company has engaged the Manager to provide real estate management, acquisition, development, and administrative services required by the Company and its properties.
As of December 31, 2000, the Manager had 478 full-time employees. The following table provides a breakdown of employees by operational areas as of December 31, 2000:
Number Of Employees ------------------- Property Management............................... 217 Leasing .......................................... 80 Development....................................... 55 Financial Services................................ 71 Other .......................................... 55 --- Total..................................... 478 ===
The Manager considers its relations with its employees to be good.
Item 2.
Item 2. PROPERTIES
Ownership
The following table sets forth certain information about each of the Centers. The table includes only Centers in operation at December 31, 2000. Excluded from this table are Dolphin Mall which opened in March 2001, and International Plaza, The Shops at Willow Bend, The Mall at Wellington Green, and The Mall at Millenia, which will open in 2001 and 2002. Centers are owned in fee other than Beverly Center, Cherry Creek, La Cumbre Plaza, MacArthur Center and Paseo Nuevo, which are held under ground leases expiring between 2028 and 2083.
Certain of the Centers are partially owned through joint ventures. Generally, the Operating Partnership's joint venture partners have ongoing rights with regard to the disposition of the Operating Partnership's interest in the joint ventures, as well as the approval of certain major matters.
Anchors
The following table summarizes certain information regarding the anchors at the operating Centers (excluding the value centers) as of December 31, 2000.
Mortgage Debt
The following table sets forth certain information regarding the mortgages encumbering the Centers as of December 31,2000. All mortgage debt in the table below is nonrecourse to the Operating Partnership, except for debt encumbering Great Lakes Crossing, Dolphin Mall, International Plaza, The Mall at Millenia, and The Shops at Willow Bend. The Operating Partnership has guaranteed the payment of principal and interest on the mortgage debt of these Centers. The loan agreements provide for the reduction of the amounts guaranteed as certain center performance and valuation criteria are met. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Covenants and Commitments"). Assessment bonds totaling approximately $2.3 million, which are not included in the table, also encumber Biltmore.
For additional information regarding the Centers and their operations, see the responses to Item 1 of this report.
Item 3.
Item 3. LEGAL PROCEEDINGS
Neither the Company, its subsidiaries, nor any of the joint ventures is presently involved in any material litigation nor, to the Company's knowledge, is any material litigation threatened against the Company, its subsidiaries or any of the properties. Except for routine litigation involving present or former tenants (generally eviction or collection proceedings), substantially all litigation is covered by liability insurance.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Taubman Centers, Inc. is listed and traded on the New York Stock Exchange (Symbol: TCO). As of March 22, 2001, the 50,038,272 outstanding shares of Common Stock were held by 730 holders of record.
The following table presents the dividends declared and range of share prices for each quarter of 2000 and 1999.
Market Quotations ---------------------------------------- 2000 Quarter Ended High Low Dividends ------------------ ---- --- ---------
March 31 $ 12 5/8 $ 9 3/4 $ 0.245
June 30 12 3/16 10 1/4 0.245
September 30 11 15/16 10 9/16 0.245
December 31 11 5/8 10 3/8 0.25
Market Quotations ---------------------------------------- 1999 Quarter Ended High Low Dividends ------------------ ---- --- ---------
March 31 $ 13 7/8 $ 11 5/8 $ 0.24
June 30 14 11 15/16 0.24
September 30 13 11/16 11 3/16 0.24
December 31 11 11/16 10 1/2 0.245
Item 6.
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company and should be read in conjunction with the financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company's expectations or beliefs concerning future events, including the following: statements regarding future developments and joint ventures, rents and returns, statements regarding the continuation of historical trends and any statements regarding the sufficiency of the Company's cash balances and cash generated from operating and financing activities for the Company's future liquidity and capital resource needs. The Company cautions that although forward-looking statements reflect the Company's good faith beliefs and best judgment based upon current information, these statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including those risks, uncertainties, and factors detailed from time to time in reports filed with the SEC, and in particular those set forth under the headings "General Risks of the Company" and "Environmental Matters" in the Company's Annual Report on Form 10-K. The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements of Taubman Centers, Inc. and the Notes thereto.
General Background and Performance Measurement
The Company owns a managing general partner's interest in The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG), through which the Company conducts all of its operations. The Operating Partnership owns, develops, acquires, and operates regional shopping centers nationally. The Consolidated Businesses consist of shopping centers that are controlled by ownership or contractual agreement, development projects for future regional shopping centers and The Taubman Company Limited Partnership (the Manager). Shopping centers that are not controlled and that are owned through joint ventures with third parties (Unconsolidated Joint Ventures) are accounted for under the equity method.
The operations of the shopping centers are best understood by measuring their performance as a whole, without regard to the Company's ownership interest. Consequently, in addition to the discussion of the operations of the Consolidated Businesses, the operations of the Unconsolidated Joint Ventures are presented and discussed as a whole.
In August 2000, the Company completed a transaction to acquire an additional interest in one of its Unconsolidated Joint Ventures; the Operating Partnership became the 100% owner of Twelve Oaks and the joint venture partner became the 100% owner of Lakeside. Performance statistics presented include Lakeside through the date of the transaction.
On September 30, 1998, the Operating Partnership exchanged interests in 10 shopping centers (nine Consolidated Businesses and one Unconsolidated Joint Venture) and a share of the Operating Partnership's debt for all of the partnership units owned by two General Motors pension trusts (GMPT) (the GMPT Exchange). Performance statistics presented exclude these 10 centers (transferred centers).
Mall Tenant Sales and Center Revenues
Over the long term, the level of mall tenant sales is the single most important determinant of revenues of the shopping centers because mall tenants provide approximately 90% of these revenues and because mall tenant sales determine the amount of rent, percentage rent, and recoverable expenses (together, total occupancy costs) that mall tenants can afford to pay. However, levels of mall tenant sales can be considerably more volatile in the short run than total occupancy costs.
The Company believes that the ability of tenants to pay occupancy costs and earn profits over long periods of time increases as sales per square foot increase, whether through inflation or real growth in customer spending. Because most mall tenants have certain fixed expenses, the occupancy costs that they can afford to pay and still be profitable are a higher percentage of sales at higher sales per square foot.
The following table summarizes occupancy costs, excluding utilities, for mall tenants as a percentage of mall tenant sales.
2000 1999 1998 ---- ---- ----
Mall tenant sales (in thousands) $2,717,195 $2,695,645 $2,332,726 Sales per square foot 479 453 426
Minimum rents 9.7% 9.7% 9.7% Percentage rents 0.3 0.2 0.3 Expense recoveries 4.4 4.3 4.1 --- --- --- Mall tenant occupancy costs 14.4% 14.2% 14.1% ==== ==== ====
Occupancy
Historically, average annual occupancy has been within a narrow band. In the last ten years, average annual occupancy has ranged between 86.5% and 89.4%. Mall tenant average occupancy, ending occupancy and leased space rates are as follows:
2000 1999 1998 ---- ---- ----
Mall tenant average occupancy 89.1% 89.0% 89.4% Ending occupancy 90.5 90.4 90.2 Leased space 93.8 92.1 92.3
Rental Rates
As leases have expired in the shopping centers, the Company has generally been able to rent the available space, either to the existing tenant or a new tenant, at rental rates that are higher than those of the expired leases. In a period of increasing sales, rents on new leases will tend to rise as tenants' expectations of future growth become more optimistic. In periods of slower growth or declining sales, rents on new leases will grow more slowly or will decline for the opposite reason. However, center revenues nevertheless increase as older leases roll over or are terminated early and replaced with new leases negotiated at current rental rates that are usually higher than the average rates for existing leases. The following table contains certain information regarding per square foot minimum rent at the shopping centers that have been owned and open for at least two years.
2000 1999 ---- ----
Average minimum rent per square foot All mall tenants $40.25 $39.58 Stores closing during year 39.99 39.49 Stores opening during year 47.04 48.01
In 1999, average minimum rent per square foot for stores opening during the year was higher because of the leasing of smaller than average spaces at several of the Company's most productive centers. Generally, the rent spread between opening and closing stores is in the Company's historic range of $5.00 to $10.00 per square foot. This statistic is difficult to predict in part because the Company's leasing policies and practices may result in early lease terminations with actual average closing rents per square foot which may vary from the average rent per square foot of scheduled lease expirations.
Seasonality
The regional shopping center industry is seasonal in nature, with mall tenant sales highest in the fourth quarter due to the Christmas season, and with lesser, though still significant, sales fluctuations associated with the Easter holiday and back-to-school events. While minimum rents and recoveries are generally not subject to seasonal factors, most leases are scheduled to expire in the first quarter, and the majority of new stores open in the second half of the year in anticipation of the Christmas selling season. Additionally, most percentage rents are recorded in the fourth quarter. Accordingly, revenues and occupancy levels are generally highest in the fourth quarter.
1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Total 2000 2000 2000 2000 2000 ----------- --------- ---------- --------- ---------- (in thousands) Mall tenant sales $589,996 $628,999 $602,417 $895,783 $2,717,195 Revenues 132,331 130,923 127,034 142,318 532,606 Occupancy: Average 88.8% 88.1% 88.8% 90.3% 89.1% Ending 88.5% 88.1% 89.2% 90.5% 90.5% Leased space 91.4% 90.5% 91.7% 93.8% 93.8%
Because the seasonality of sales contrasts with the generally fixed nature of minimum rents and recoveries, mall tenant occupancy costs (the sum of minimum rents, percentage rents and expense recoveries) relative to sales are considerably higher in the first three quarters than they are in the fourth quarter.
1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Total 2000 2000 2000 2000 2000 ----------- --------- ---------- --------- ----------
Minimum rents 11.3% 10.6% 10.6% 7.2% 9.7% Percentage rents 0.3 0.1 0.1 0.6 0.3 Expense recoveries 4.8 4.7 4.7 3.7 4.4 ----- ----- ----- ----- ----- Mall tenant occupancy costs 16.4% 15.4% 15.4% 11.5% 14.4% ==== ==== ==== ==== ====
Results of Operations
The following represent significant debt, equity, and other transactions which affected the operating results described under Comparison of 2000 to 1999. Refer to Liquidity and Capital Resources for discussion of new center openings and other transactions which will affect operating results of future periods. Also, the impact of new accounting guidance on results of operations is discussed under Liquidity and Capital Resources - New Accounting Pronouncement.
Significant Debt, Equity and Other Transactions
In October 2000, the 37% owned Unconsolidated Joint Venture that owns Arizona Mills completed a $146 million secured financing. The financing has an all-in rate of approximately 8.0% and matures in October 2010. The proceeds were primarily used to repay the existing $142.2 million mortgage and to fund transaction costs. The Operating Partnership recognized its $0.2 million share of an extraordinary charge, consisting of the write-off of deferred financing costs.
Also in October 2000, MacArthur Center completed a $145 million secured financing. The financing has an all-in rate of approximately 7.8% and matures in October 2010. The proceeds were used to repay the existing $120 million construction loan and transaction costs. The remaining net proceeds of approximately $23.9 million were distributed to the Operating Partnership, which contributed all of the equity funding for the development of MacArthur Center. The Operating Partnership used the distribution to pay down its line of credit.
In August 2000, the Company completed a transaction to acquire an additional ownership in one of its Unconsolidated Joint Ventures. Under the terms of the agreement, the Operating Partnership became the 100% owner of Twelve Oaks and the joint venture partner became the 100% owner of Lakeside. Both properties remained subject to the existing mortgage debt ($50 million and $88 million at Twelve Oaks and Lakeside, respectively.) The transaction resulted in a net payment to the joint venture partner of approximately $25.5 million in cash. The payment was funded by a new $100 million facility, which is secured by an interest in Twelve Oaks and guaranteed by the Operating Partnership. The acquisition of the additional interest in Twelve Oaks was accounted for as a purchase. The excess of the fair value over the net book basis of the acquired interest has been allocated to properties. The results of Twelve Oaks have been consolidated in the Company's results subsequent to the acquisition date (prior to that date, Twelve Oaks was accounted for under the equity method as an Unconsolidated Joint Venture). The Operating Partnership continues to manage Twelve Oaks, while the former joint venture partner assumed management responsibility for Lakeside. A gain of $85.3 million on the transaction was recognized by the Company representing its share of the excess of the fair value over the net book basis of the Company's interest in Lakeside, adjusted for the $25.5 million paid and transaction costs.
The Company has acquired an approximately 6.7% interest in MerchantWired, LLC, a service company providing internet and network infrastructure to shopping centers and retailers. The Company's investment in MerchantWired is accounted for under the equity method. Based on projections received from MerchantWired, LLC, the Company's share of projected losses would reduce income per share by approximately one cent per share in 2001. The Company funded its investment, which was approximately $3 million at December 31, 2000 and is expected to increase to approximately $5 million in 2001, through existing lines of credit.
In January 2000, the 50% owned Unconsolidated Joint Venture that owns Stamford Town Center completed a $76 million secured financing. The new financing bears interest at a rate of one-month LIBOR plus 0.8% and matures in 2002. The loan may be extended until August 2004. The rate is capped at 8.2% plus credit spread for the term of the loan. The proceeds were used to repay the $54 million participating mortgage, the $18.3 million prepayment premium, and accrued interest and transaction costs. The Unconsolidated Joint Venture recognized an extraordinary charge of $18.6 million, which consisted primarily of the prepayment premium. The Operating Partnership's share of the extraordinary charge was $9.3 million.
In December 1999, the Operating Partnership acquired an additional 5% interest in Great Lakes Crossing for $1.2 million in cash, increasing the Operating Partnership's interest in the center to 85%.
In November 1999, the Operating Partnership acquired Lord Associates, a retail leasing firm, for $2.5 million in cash and $5 million in partnership units, which are subject to certain contingencies. In addition, $1.0 million of this purchase price is contingent upon profits achieved on acquired leasing contracts.
In September and November 1999, the Operating Partnership completed private placements of its Series C and Series D preferred equity totaling $100 million, with net proceeds used to pay down lines of credit. In August 1999, the $177 million refinancing of Cherry Creek was completed, with net proceeds of $45.2 million being distributed to the Operating Partnership and used to pay down lines of credit. In April 1999 through June 1999, $520 million of refinancings relating to The Mall at Short Hills, Biltmore Fashion Park, and Great Lakes Crossing were completed.
In March 1999, MacArthur Center, a 70% owned enclosed super-regional mall, opened in Norfolk, Virginia. MacArthur Center is owned by a joint venture in which the Operating Partnership has a controlling interest, and consequently the results of this center are consolidated in the Company's financial statements.
In 1996, the Operating Partnership entered into an agreement to lease Memorial City Mall, a 1.4 million square foot shopping center located in Houston, Texas. The lease was subject to certain provisions that enabled the Operating Partnership to explore significant redevelopment opportunities and terminate the lease obligations in the event such redevelopment opportunities were not deemed to be sufficient. The Operating Partnership terminated its Memorial City lease on April 30, 2000.
Comparable Center Operations
The performance of the Company's portfolio can be measured through comparisons of comparable centers' operations. During 2000, revenues (excluding land sales) less operating costs (operating and recoverable expenses) of those centers owned and open for the entire period increased approximately two percent in comparison to the same centers' results in the comparable period of 1999. The Company expects that comparable center operations will increase annually by two to three percent. This is a forward-looking statement and certain significant factors could cause the actual results to differ materially; refer to the General Risks of the Company in the Company's Annual Report on Form 10-K.
Presentation of Operating Results
The following tables contain the combined operating results of the Company's Consolidated Businesses and the Unconsolidated Joint Ventures. Income allocated to the noncontrolling partners and preferred interests is deducted to arrive at the results allocable to the Company's common shareowners. Because the net equity of the Operating Partnership is less than zero, the income allocated to the noncontrolling partners is equal to their share of distributions. The net equity of these minority partners is less than zero due to accumulated distributions in excess of net income and not as a result of operating losses. Distributions to partners are usually greater than net income because net income includes non-cash charges for depreciation and amortization, although distributions were less than net income during 2000 due to the gain on the disposition of Lakeside described above. The Company's average ownership percentage of the Operating Partnership was 63% for both 2000 and 1999. The results of Twelve Oaks are included in the Consolidated Businesses subsequent to the closing of the transaction, while both Twelve Oaks and Lakeside are included as Unconsolidated Joint Ventures for previous periods.
Comparison of 2000 to 1999
The following table sets forth operating results for 2000 and 1999, showing the results of the Consolidated Businesses and Unconsolidated Joint Ventures:
Consolidated Businesses
Total revenues for the year ended December 31, 2000 were $301.9 million, a $44.3 million or 17.2% increase over 1999. Minimum rents increased $18.0 million of which $4.3 million was due to the opening of MacArthur Center. Minimum rents also increased due to the inclusion of Twelve Oaks, tenant rollovers, and new sources of rental income, including temporary tenants and advertising space arrangements. Percentage rents increased due to increases in tenant sales and the inclusion of Twelve Oaks. Expense recoveries increased primarily due to MacArthur Center and Twelve Oaks. Management, leasing, and development revenues increased primarily due to contracts acquired as part of the Lord Associates transaction, partially offset by decreases due to a reduction in fees in certain managed centers, and the timing and completion status of certain other contracts and services. Other revenue increased primarily due to an increase in gains on sales of peripheral land and interest income, partially offset by a decrease in lease cancellation revenue.
Total operating costs were $262.3 million, a $25.3 million or 10.7% increase from 1999. Recoverable expenses and depreciation and amortization increased primarily due to MacArthur Center and Twelve Oaks. Other operating expense increased due to MacArthur Center, Twelve Oaks, the Lord Associates transaction, and an increase in bad debt expense, offset by a decrease in the charge to operations for costs of pre-development activities. Management, leasing, and development costs increased primarily due to the Lord Associates contracts. Interest expense increased primarily due to an increase in interest rates and borrowings, including debt assumed and incurred related to Twelve Oaks. In addition, interest expense increased because of a decrease in capitalized interest upon opening MacArthur Center. These increases were offset by a reduction in interest expense on debt paid down with proceeds of the preferred equity offerings.
Unconsolidated Joint Ventures
Total revenues for the year ended December 31, 2000 were $230.7 million, a $21.3 million or 8.5% decrease from the comparable period of 1999. Minimum rents and expense recoveries decreased primarily because the Twelve Oaks and Lakeside results were only included through the transaction date. Other revenue decreased primarily due to a decrease in lease cancellation revenue, partially offset by an increase in gains on sales of peripheral land.
Total operating costs decreased by $4.5 million to $172.0 million for the year ended December 31, 2000. Recoverable expenses decreased primarily due to Twelve Oaks and Lakeside. Interest expense increased primarily due to the additional debt at Cherry Creek as well as increases in interest rates, partially offset by Twelve Oaks and Lakeside.
As a result of the foregoing, income before extraordinary items of the Unconsolidated Joint Ventures decreased by $17.0 million, or 22.5%, to $58.6 million. The Company's equity in income before extraordinary items of the Unconsolidated Joint Ventures was $28.5 million, a 27.5% decrease from the comparable period in 1999.
Net Income
As a result of the foregoing, the Company's income before gain on disposition, extraordinary items, and minority and preferred interests increased $8.1 million, or 13.9%, to $66.5 million for the year ended December 31, 2000. The Company recognized $9.5 million and $0.5 million in extraordinary charges related to the extinguishment of debt during 2000 and 1999, respectively. During 2000, the Company recognized an $85.3 million gain on the disposition of its interest in Lakeside. Distributions of $9.0 million to the Operating Partnership's Series C and Series D Preferred Equity owners were made in 2000, compared to $2.4 million in 1999. After payment of $16.6 million in Series A preferred dividends, net income available to common shareowners for 2000 was $86.4 million compared to $8.9 million in 1999.
Comparison of 1999 to 1998
Discussion of significant debt, equity, and other transactions, acquisitions, and openings occurring in 1999 is included in Comparison of 2000 to 1999. Significant 1998 items are described below.
GMPT Exchange and Related Transactions
On September 30, 1998, the Operating Partnership exchanged interests in 10 shopping centers (nine wholly owned and one Unconsolidated Joint Venture), together with $990 million of debt, for all of GMPT's partnership units (approximately 50 million units with a fair value of $675 million, based on the average stock price of the Company's common shares of $13.50 for the two week period prior to the closing), providing the Company with a majority and controlling interest in the Operating Partnership. The Operating Partnership continues to manage the centers exchanged under management agreements with GMPT. The management agreements are cancelable with 90 days notice.
In anticipation of the GMPT Exchange, the Operating Partnership used the $1.2 billion proceeds from two bridge loans to extinguish $1.1 billion of debt in September 1998. The remaining proceeds were used primarily to pay prepayment premiums and transaction costs. GMPT's share of debt received in the exchange included the $902 million balance on the first bridge loan, $86 million representing 50% of the debt on the Joint Venture owned shopping center, and $1.6 million of assessment bond obligations. The $340 million balance on the second bridge loan was refinanced during the first half of 1999.
Concurrently with the GMPT Exchange the Operating Partnership, expecting to reduce its annual general and administrative expense, committed to a restructuring of its operations and recognized a $10.7 million charge related to this restructuring. During 1999, general and administrative expense decreased $6.5 million from 1998.
Because the Company's portfolio changed significantly as a result of the GMPT Exchange, the results of operations of the transferred centers have been separately classified within the Consolidated Businesses and Unconsolidated Joint Ventures for purposes of analyzing and understanding the historical results of the current portfolio.
Other Transactions
In November 1998, Great Lakes Crossing, an enclosed super-regional mall, opened in Auburn Hills, Michigan. As Great Lakes Crossing is owned by a joint venture in which the Operating Partnership has a controlling interest, its results are consolidated in the Company's financial statements.
At Cherry Creek, a 137,000 square foot expansion opened in stages throughout the fall of 1998.
In January 1998, the Operating Partnership redeemed a partner's 6.1 million units of partnership interest for approximately $77.7 million (including costs). The redemption was funded through the use of an existing revolving credit facility.
The Company's average ownership percentage of the Operating Partnership was 63% for 1999 and 43% for 1998 (including averages of 39% for the period through the GMPT Exchange and 63% thereafter).
Comparison of 1999 to 1998
The following table sets forth operating results for 1999 and 1998, showing the results of the Consolidated Businesses and Unconsolidated Joint Ventures:
Consolidated Businesses
Total revenues for the year ended December 31, 1999 were $257.6 million, a $65.0 million or 33.7% increase over 1998, excluding revenues of the transferred centers. Minimum rents increased $34.1 million of which $30.6 million was caused by the opening of MacArthur Center and Great Lakes Crossing. Minimum rents also increased due to tenant rollovers. Expense recoveries increased primarily due to the new centers. Revenues from management, leasing, and development services increased primarily due to the management agreements with GMPT. Other revenue decreased primarily due to a decrease in gains on sales of peripheral land, partially offset by increases in garage and trash removal services and lease cancellation revenue.
Total operating costs were $237.0 million, a $5.5 million or 2.3% decrease from 1998, excluding expenses other than depreciation, amortization and interest of the transferred centers. Recoverable expenses increased primarily due to Great Lakes Crossing and MacArthur Center. Other operating expense increased due to an increase in the charge to operations for costs of pre-development activities, the new centers, and bad debt expense. Costs of management, leasing and development services increased primarily due to the management agreements with GMPT. General and administrative expense decreased $6.5 million primarily due to decreases in payroll costs, travel and professional fees. Interest expense decreased primarily due to the assumption of debt by GMPT as part of the GMPT Exchange and debt paid down with the proceeds of the Series C and Series D Preferred Equity offerings, partially offset by an increase in debt used to finance Great Lakes Crossing and MacArthur Center and a decrease in capitalized interest related to these centers. Depreciation and amortization expenses decreased due to the transferred centers, partially offset by an increase due to the new centers.
During 1998, a $10.7 million loss on the restructuring was recognized, which primarily represented the cost of certain involuntary terminations of personnel.
Unconsolidated Joint Ventures
Total revenues for the year ended December 31, 1999 were $252.0 million, a $12.9 million or 5.4% increase from the comparable period of 1998, excluding revenues of the transferred center. Minimum rents increased due to the expansion at Cherry Creek and tenant rollovers. Expense recoveries also increased because of the Cherry Creek expansion and an increase in property taxes recoverable from tenants at certain centers.
Total operating costs decreased by $20.2 million (of which $17.7 million represented the expenses other than interest, depreciation, and amortization of the transferred center) to $176.5 million for the year ended December 31, 1999. Recoverable expenses increased primarily due to the Cherry Creek expansion and an increase in property taxes at certain centers. Other operating expense increased primarily due to increases in bad debt expense. Interest expense decreased primarily due to the assumption of debt by GMPT as part of the GMPT Exchange. Depreciation and amortization decreased due to the transferred center, offset by an increase due to the Cherry Creek expansion.
Income before extraordinary items of the Unconsolidated Joint Ventures decreased by $14.1 million, or 15.7%, to $75.6 million. The Company's equity in income before extraordinary items of the Unconsolidated Joint Ventures was $39.3 million, a 15.3% decrease from the comparable period in 1998.
Net Income
As a result of the foregoing, the Company's income before extraordinary items, minority and preferred interests decreased $12.0 million, or 17.0%, to $58.4 million for the year ended December 31, 1999. The Company recognized $0.5 million in extraordinary losses related to the extinguishment of debt during 1999, while an extraordinary charge of $50.8 million for the extinguishment of debt, primarily related to the GMPT Exchange, was recognized in 1998. The income of the Operating Partnership allocable to minority partners increased to a total of $30.0 million, from $6.0 million in 1998, primarily due to the minority partners' $30.7 million share of the extraordinary charges in 1998. Distributions of $2.4 million to the Operating Partnership's Series C and Series D Preferred Equity owners were made in 1999. After payment of $16.6 million in Series A preferred dividends, net income (loss) available to common shareowners for 1999 was $8.9 million compared to $(3.0) million in 1998.
Liquidity and Capital Resources
In the following discussion, references to beneficial interest represent the Operating Partnership's share of the results of its consolidated and unconsolidated businesses. The Company does not have, and has not had, any parent company indebtedness; all debt discussed represents obligations of the Operating Partnership or its subsidiaries and joint ventures.
The Company believes that its net cash provided by operating activities, distributions from its joint ventures, the unutilized portion of its credit facilities, and its ability to access the capital markets assure adequate liquidity to conduct its operations in accordance with its dividend and financing policies.
As of December 31, 2000, the Company had a consolidated cash balance of $18.8 million. Additionally, the Company has a secured $200 million line of credit. This line had $63.0 million of borrowings as of December 31, 2000 and expires in September 2001. The Company also has available a second secured bank line of credit of up to $40 million. The line had $26.3 million of borrowings as of December 31, 2000 and expires in August 2001.
Debt and Equity Transactions
Discussion of significant debt and equity transactions occurring in the three years ended December 31, 2000 is contained in Results of Operations. In addition to the transactions described therein, the following transactions have occurred which will affect the Company's liquidity and capital resources in future periods.
In November 2000, the 50% owned Unconsolidated Joint Venture that is developing The Mall at Millenia closed on a $160.4 million construction facility. The rate on the facility is LIBOR plus 1.95% and the facility matures in November 2003, with two one-year extension options. The Operating Partnership has guaranteed the payment of 50% of the principal and interest. The rate and the amount guaranteed may be reduced once certain performance and valuation criteria are met. There was no balance outstanding at December 31, 2000.
In June 2000, the Operating Partnership closed on a $220 million three-year construction facility for The Shops at Willow Bend. The rate on the loan is LIBOR plus 1.85%. The loan has two one-year extension options. The balance at December 31, 2000 was $99.7 million.
In March 2000, the Company's Board of Directors authorized the purchase of up to $50 million of the Company's common stock in the open market. The stock may be purchased from time to time as market conditions warrant. As of December 31, 2000, the Company had purchased 2.3 million shares for approximately $25.8 million.
In June 2000, the Company finalized an agreement that securitized the $40 million bank line of credit and extended its maturity to August 2001.
In November 1999, the 26% owned Unconsolidated Joint Venture that is developing International Plaza closed on a $193.5 million, three-year construction financing, with a one-year extension option. The rate on the facility is LIBOR plus 1.90%. The balance at December 31, 2000 was $67.5 million.
In October 1999, the 50% owned Unconsolidated Joint Venture that is developing Dolphin Mall closed on a $200 million, three-year construction facility. The rate on the facility is LIBOR plus 2%, decreasing to LIBOR plus 1.75% when a certain coverage ratio is met. The rate on the loan is capped at 7% plus credit spread until maturity. Under the interest rate agreement, the rate is swapped to a fixed rate of 6.14%, plus credit spread, when LIBOR is less than 6.7%. The maturity date may be extended one year. The balance at December 31, 2000 was $116.9 million.
Summary of Investing Activities
Net cash used in investing activities was $219.7 million in 2000 compared to $197.4 million in 1999 and $270.0 million in 1998. Cash used in investing activities was impacted by the timing of capital expenditures, with additions to properties in 2000, 1999, and 1998 for the construction of MacArthur Center, Great Lakes Crossing, The Mall at Wellington Green, The Shops at Willow Bend, as well as other development activities and other capital items (see Capital Spending below). During 2000, $3.0 million was invested in MerchantWired, while in 1999, $18.5 million was used to purchase investments in Fashionmall.com, Inc., Swerdlow Real Estate Group, and Lord Associates. In addition, during 2000, $23.6 million in costs were incurred (net of cash acquired) in connection with the exchange of interests in centers. Proceeds from sales of peripheral land increased in 2000 by $6.4 million, to $8.2 million. Contributions to Unconsolidated Joint Ventures are impacted primarily by the timing of construction and expansion activities, which in 2000, 1999, and 1998 included significant projects at Dolphin Mall, International Plaza, The Mall at Millenia, Fair Oaks, Lakeside, Twelve Oaks, Cherry Creek, and Woodland. Distributions from Unconsolidated Joint Ventures decreased in 2000 due to the transfers of Twelve Oaks and Lakeside. Also, distributions from Unconsolidated Joint Ventures included excess mortgage refinancing proceeds of $45.2 million in 1999 from Cherry Creek and $45.9 million in 1998 from Fair Oaks. In 1998, the loss of distributions from Woodfield after the GMPT Exchange were offset by increases in distributions at other centers.
Summary of Financing Activities
Financing activities contributed cash of $99.7 million in 2000, $91.3 million in 1999, and $131.3 million in 1998. Borrowings net of repayments and issuance costs increased by $130.3 million to $231.2 million in 2000. In 1999, borrowings net of debt repayments and issuance costs decreased by $244.5 million from 1998 to $100.9 million. In 1999, $97.3 million was provided by the issuance of preferred equity.
Distributions and dividends were $107.5 million, $100.1 million, and $131.2 million in 2000, 1999, and 1998, respectively. Distributions were higher in 1998 due to the Company's larger pre-GMPT Exchange equity base. Approximately $24.2 million was used in 2000 to repurchase common shares under the stock repurchase program initiated in 2000. In 1998, cash was used for the $77.7 million partner redemption and transaction costs incurred in connection with the GMPT Exchange.
Beneficial Interest in Debt
At December 31, 2000, the Operating Partnership's debt and its beneficial interest in the debt of its Consolidated and Unconsolidated Joint Ventures totaled $1,588.7 million. As shown in the following table, there was no unhedged floating rate debt at December 31, 2000. Interest rates shown do not include amortization of debt issuance costs and interest rate hedging costs. These items are reported as interest expense in the results of operations. In the aggregate, these costs added 0.45% to the effective rate of interest on beneficial interest in debt at December 31, 2000. Included in beneficial interest in debt is debt used to fund development and expansion costs. Beneficial interest in assets on which interest is being capitalized totaled $499.8 million as of December 31, 2000. Beneficial interest in capitalized interest was $30.7 million for the year ended December 31, 2000.
Sensitivity Analysis
The Company has exposure to interest rate risk on its debt obligations and interest rate instruments. Based on the Operating Partnership's beneficial interest in debt and interest rates in effect at December 31, 2000, a one percent increase in interest rates on floating rate debt would decrease cash flows by approximately $3.2 million and, due to the effect of capitalized interest, annual earnings by approximately $1.8 million. A one percent decrease in interest rates on floating rate debt would increase cash flows and annual earnings by approximately $6.0 million and $3.7 million, respectively. Based on the Company's consolidated debt and interest rates in effect at December 31, 2000, a one percent increase in interest rates would decrease the fair value of debt by approximately $40.9 million, while a one percent decrease in interest rates would increase the fair value of debt by approximately $44.0 million.
Covenants and Commitments
Certain loan agreements contain various restrictive covenants including limitations on net worth, minimum debt service and fixed charges coverage ratios, a maximum payout ratio on distributions, and a minimum debt yield ratio, the latter being the most restrictive. The Operating Partnership is in compliance with all of such covenants.
Payments of principal and interest on the loans in the following table are guaranteed by the Operating Partnership as of December 31, 2000. All of the loan agreements provide for a reduction of the amounts guaranteed as certain center performance and valuation criteria are met.
In addition, the Operating Partnership guarantees the $100 million facility secured by an interest in Twelve Oaks that was obtained in August 2000 (See Results of Operations - Significant Debt, Equity, and Other Transactions).
Funds from Operations
A principal factor that the Company considers in determining dividends to shareowners is Funds from Operations (FFO), which is defined as income before extraordinary items, real estate depreciation and amortization, and the allocation to the minority interest in the Operating Partnership, less preferred dividends and distributions. Gains on dispositions of depreciated operating properties are excluded from FFO.
Funds from Operations does not represent cash flows from operations, as defined by generally accepted accounting principles, and should not be considered to be an alternative to net income as an indicator of operating performance or to cash flows from operations as a measure of liquidity. However, the National Association of Real Estate Investment Trusts suggests that Funds from Operations is a useful supplemental measure of operating performance for REITs.
In October 1999, NAREIT approved certain clarifications of the definition of FFO, including that non-recurring items that are not defined as "extraordinary" under generally accepted accounting principles should be reflected in the calculation of FFO. The clarified definition is effective January 1, 2000 and restatement of all periods presented is recommended. Under the clarified definition, there would have been no change to the amounts reported for 1999.
Reconciliation of Net Income to Funds from Operations
Components of Other Income
2000 1999 ---- ---- (Operating Partnership's share in millions of dollars)
Shopping center related revenues 13.6 10.8 Land sales 9.1 1.5 Lease cancellation revenue 1.6 4.2 Interest income 4.3 2.2 --- --- 28.6 18.7 ==== ====
Dividends
The Company pays regular quarterly dividends to its common and Series A preferred shareowners. Dividends to its common shareowners are at the discretion of the Board of Directors and depend on the cash available to the Company, its financial condition, capital and other requirements, and such other factors as the Board of Directors deems relevant. Preferred dividends accrue regardless of whether earnings, cash availability, or contractual obligations were to prohibit the current payment of dividends.
On December 12, 2000, the Company declared a quarterly dividend of $0.25 per common share payable January 22, 2001 to shareowners of record on December 29, 2000. The Board of Directors also declared a quarterly dividend of $0.51875 per share on the Company's 8.3% Series A Preferred Stock, paid December 29, 2000 to shareowners of record on December 19, 2000.
Common dividends declared totaled $0.985 per common share in 2000, of which $0.4402 represented return of capital, $0.4799 represented ordinary income, and $0.0649 represented capital gain, compared to dividends declared in 1999 of $0.965 per common share, of which $0.4534 represented return of capital and $0.5116 represented ordinary income. The tax status of total 2001 common dividends declared and to be declared, assuming continuation of a $0.25 per common share quarterly dividend, is estimated to be approximately 30% return of capital, and approximately 70% ordinary income. Series A preferred dividends declared were $2.075 per preferred share in 2000 and 1999, of which $1.9382 represented ordinary income and $0.1368 represented capital gains in 2000, while the entire dividend represented ordinary income in 1999. The tax status of total 2001 dividends to be paid on Series A Preferred Stock is estimated to be 100% ordinary income. These are forward-looking statements and certain significant factors could cause the actual results to differ materially, including: 1) the amount of dividends declared; 2) changes in the Company's share of anticipated taxable income of the Operating Partnership due to the actual results of the Operating Partnership; 3) changes in the number of the Company's outstanding shares; 4) property acquisitions or dispositions; 5) financing transactions, including refinancing of existing debt; and 6) changes in the Internal Revenue Code or its application.
The annual determination of the Company's common dividends is based on anticipated Funds from Operations available after preferred dividends, as well as financing considerations and other appropriate factors. Further, the Company has decided that the growth in common dividends will be less than the growth in Funds from Operations for the immediate future.
Any inability of the Operating Partnership or its Joint Ventures to secure financing as required to fund maturing debts, capital expenditures and changes in working capital, including development activities and expansions, may require the utilization of cash to satisfy such obligations, thereby possibly reducing distributions to partners of the Operating Partnership and funds available to the Company for the payment of dividends.
Capital Spending
Capital spending for routine maintenance of the shopping centers is generally recovered from tenants. Capital spending not recovered from tenants is summarized in the following tables:
The Operating Partnership's share of mall tenant allowances per square foot leased during the year, excluding expansion space and new developments, was $16.39 in 2000 and $12.76 in 1999. In addition, the Operating Partnership's share of capitalized leasing costs in 2000, excluding new developments, was $7.6 million, or $10.54 per square foot leased and $6.2 million or $10.82 per square foot leased during the year in 1999.
In September 1999, the Company finalized a partnership agreement with Swerdlow Real Estate Group to jointly develop Dolphin Mall, a 1.4 million square foot value regional center located in Miami, Florida. The center opened in March 2001. Although certain permitting and certificate of occupancy issues limited the Company's ability to maximize occupancy at opening, approximately 150 retailers opened initially with an additional 50 tenants opening over a two to three month period. Dolphin is presently anticipated to cost up to $20 million higher than originally projected or approximately $290 million. The Company currently estimates an unleveraged return of approximately 9% in 2001 on its share of average spending of approximately $145 million. The returns for 2002 and 2003 are expected to be approximately 10.5% and 11.0%, respectively.
The Shops at Willow Bend, a 1.5 million square foot center under construction in Plano, Texas, will be anchored by Neiman Marcus, Saks Fifth Avenue, Lord & Taylor, Foley's and Dillard's. The center is scheduled to open in August 2001; Saks Fifth Avenue will open in 2004. The Mall at Wellington Green, a 1.3 million square foot center under construction in west Palm Beach County, Florida, will initially be anchored by Lord & Taylor, Burdines, Dillard's and JCPenney. A fifth anchor, Nordstrom, is obligated under the reciprocal easement agreement to open within 24 months of the opening of the center and is presently expected to open in 2003. The center, scheduled to open in October 2001, will be owned by a joint venture in which the Operating Partnership has a 90% controlling interest.
Additionally, the Company is developing International Plaza, a 1.3 million square foot center under construction in Tampa, Florida. The center will be anchored by Nordstrom, Lord & Taylor, Dillard's and Neiman Marcus, and is scheduled to open in September 2001. The Company originally had a controlling 50.1% interest in the partnership (Tampa Westshore) that owns the project. The Company was responsible for providing the funding for project costs in excess of construction financing in exchange for a preferential return. In November 1999, the Company entered into agreements with a new investor, which provided funding for the project and thereby reduced the Company's ownership interest to approximately 26%. It is anticipated that given the preferential return arrangements, the original 49.9% owner in Tampa Westshore will not initially receive cash distributions. The Company expects to be initially allocated approximately 33% of the net operating income of the project, with an additional 7% representing return of capital.
The Company expects returns on The Mall at Willow Bend, International Plaza, and The Mall at Wellington Green to average slightly under 10% for the four months on average that these centers will be open in 2001. The Company's share of costs for the three centers is projected to be approximately $525 million during these four months. For 2002, the Company expects returns to average above 10.5% on approximately $565 million of costs and in 2003, expects returns of 11%. These returns exclude land sale gains upon which interest expense savings on the gains will add approximately 0.25% to the projects' returns, based on interest savings due to the reduction of debt.
The Operating Partnership has entered into a joint venture to develop The Mall at Millenia currently under construction in Orlando, Florida. This project is expected to open in October 2002. The Mall at Millenia will be anchored by Bloomingdale's, Macy's, and Neiman Marcus.
The total cost, prior to anticipated recoveries, of these five projects is anticipated to be approximately $1.3 billion. The Company's beneficial investment in the projects will be approximately $810 million, as four of these projects are joint ventures. While the Company intends to finance approximately 75% of each new center with construction debt, the Company is responsible for more than its proportionate share of the project equity (approximately $259 million). Substantially all of the project equity for the five projects currently under construction has been funded through the Operating Partnership's preferred equity offerings, contributions from the new joint venture partner in the International Plaza project, and borrowings under the Company's lines of credit. With respect to the construction loan financing, the Company completed financings for Dolphin Mall, The Shops at Willow Bend, International Plaza, and The Mall at Millenia. The financing of The Mall at Wellington Green is expected to be completed in the first half of 2001.
Additionally, food courts at Twelve Oaks, in the suburban Detroit area, and Woodland in Grand Rapids, Michigan are scheduled to open in the fall of 2001. The Operating Partnership's share of the cost of these projects is expected to be approximately $12.5 million.
The Operating Partnership and The Mills Corporation have formed an alliance to develop value super-regional projects in major metropolitan markets. The ten-year agreement calls for the two companies to jointly develop and own at least seven of these centers, each representing approximately $200 million of capital investment. A number of locations across the nation are targeted for future initiatives.
The following table summarizes planned capital spending, which is not recovered from tenants and assumes no acquisitions during 2001:
The Operating Partnership anticipates that its share of costs for development projects scheduled to be completed in 2002 will be as much as $46 million in 2002. Estimates of future capital spending include only projects approved by the Company's Board of Directors and, consequently, estimates will change as new projects are approved. Estimates regarding capital expenditures presented above are forward-looking statements and certain significant factors could cause the actual results to differ materially, including but not limited to: 1) actual results of negotiations with anchors, tenants and contractors; 2) changes in the scope and number of projects; 3) cost overruns; 4) timing of expenditures; 5) financing considerations; 6) actual time to complete projects; 7) changes in economic climate; 8) competition from others attracting tenants and customers; and 9) increases in operating costs.
Cash Tender Agreement
A. Alfred Taubman has the annual right to tender to the Company units of partnership interest in the Operating Partnership (provided that the aggregate value is at least $50 million) and cause the Company to purchase the tendered interests at a purchase price based on a market valuation of the Company on the trading date immediately preceding the date of the tender (the Cash Tender Agreement). At A. Alfred Taubman's election, his family, and certain others may participate in tenders. The Company will have the option to pay for these interests from available cash, borrowed funds, or from the proceeds of an offering of the Company's common stock. Generally, the Company expects to finance these purchases through the sale of new shares of its stock. The tendering partner will bear all market risk if the market price at closing is less than the purchase price and will bear the costs of sale. Any proceeds of the offering in excess of the purchase price will be for the sole benefit of the Company.
Based on a market value at December 31, 2000 of $10.94 per common share, the aggregate value of interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $264 million. The purchase of these interests at December 31, 2000 would have resulted in the Company owning an additional 29% interest in the Operating Partnership.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivatives and whether they qualify for hedge accounting. SFAS 133, as amended and interpreted, is effective for fiscal years beginning after June 15, 2000. The Company's derivatives consist primarily of interest rate cap agreements which the Company purchases to reduce its exposure to increases in rates on its floating rate debt. The Company expects that the primary impact of its adoption of SFAS 133 will be the timing of the recognition in income of the costs of these agreements. This may cause earnings volatility as the value of these agreements may change from period to period. In addition, the swap agreement on the Dolphin Mall construction loan does not qualify for hedge accounting under SFAS 133. As a result, the Company will recognize its share of losses and income related to this agreement in earnings as the value of the agreement changes. The Company expects to recognize an unrealized loss on this agreement of approximately $1 million in the first quarter because of the decline in interest rates since year end.
The Company will recognize a loss of approximately $8.8 million as a transition adjustment to mark its share of interest rate agreements to fair value as of January 1, 2001, the Company's transition date. Of this amount, a $0.8 million loss will be charged to other comprehensive income with the remainder representing the cumulative effect of a change in accounting principle.
Item 7A.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is included in this report at Item 7 under the caption "Liquidity and Capital Resources".
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of Taubman Centers, Inc. and the Independent Auditors' Report thereon are filed pursuant to this Item 8 and are included in this report at Item 14.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III*
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is hereby incorporated by reference to the material appearing in the Company's definitive proxy statement for the annual meeting of shareholders to be held in 2001 (the "Proxy Statement") under the captions "Management--Directors, Nominees and Executive Officers" and "Security Ownership of Certain Beneficial Owners and Management -- Section 16(a) Beneficial Ownership Reporting Compliance."
Item 11.
Item 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the captions "Executive Compensation" and "Management -- Compensation of Directors."
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference to the table and related footnotes appearing in the Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management."
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the caption "Management--Certain Transactions" and "Executive Compensation-- Certain Employment Arrangements".
- -------------------------------------------- * The Compensation Committee Report on Executive Compensation and the Shareholder Return Performance Graph appearing in the Proxy Statement are not incorporated by reference in this Annual Report on Form 10-K or in any other report, registration statement, or prospectus of the Registrant.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
14(a)(1) The following financial statements of Taubman Centers, Inc. and the Independent Auditors' Report thereon are filed with this report:
TAUBMAN CENTERS, INC. Page ---- Independent Auditors' Report..................................F-2 Consolidated Balance Sheet as of December 31, 2000 and 1999 ..F-3 Consolidated Statement of Operations for the years ended December 31, 2000, 1999 and 1998.............................F-4 Consolidated Statement of Shareowners' Equity for the years ended December 31, 2000, 1999 and 1998.............................F-5 Consolidated Statement of Cash Flows for the years ended December 31, 2000, 1999 and 1998.............................F-6 Notes to Consolidated Financial Statements....................F-7
14(a)(2) The following is a list of the financial statement schedules required by Item 14(d).
TAUBMAN CENTERS, INC. Schedule II - Valuation and Qualifying Accounts..............F-25 Schedule III - Real Estate and Accumulated Depreciation......F-26
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP (a consolidated subsidiary of Taubman Centers, Inc.) Independent Auditors' Report.................................F-28 Combined Balance Sheet as of December 31, 2000 and 1999......F-29 Combined Statement of Operations for the years ended December 31, 2000, 1999 and 1998............................F-30 Combined Statement of Accumulated Deficiency in Assets for the three years ended December 31, 2000, 1999 and 1998..........F-31 Combined Statement of Cash Flows for the years ended December 31, 2000, 1999 and 1998............................F-32 Notes to Combined Financial Statements.......................F-33
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP (a consolidated subsidiary of Taubman Centers, Inc.) Schedule II - Valuation and Qualifying Accounts..............F-41 Schedule III - Real Estate and Accumulated Depreciation......F-42
14(a)(3)
2 -- Separation and Relative Value Adjustment Agreement between The Taubman Realty Group Limited Partnership and GMPTS Limited Partnership (without exhibits or schedules, which will be supplementally provided to the Securities and Exchange Commission upon its request) (incorporated herein by reference to Exhibit 2 filed with the Registrant's Current Report on Form 8-K dated September 30, 1998).
3(a) -- Restated By-Laws of Taubman Centers, Inc., (incorporated herein by reference to Exhibit 3 (b) filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
3(b) -- Composite copy of Restated Articles of Incorporation of Taubman Centers, Inc., including all amendments to date (incorporated herein by reference to Exhibit 3 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 ("2000 Second Quarter Form 10-Q")).
4(a) -- Indenture dated as of July 22, 1994 among Beverly Finance Corp., La Cienega Associates, the Borrower, and Morgan Guaranty Trust Company of New York, as Trustee (incorporated herein by reference to Exhibit 4(h) filed with the 1994 Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 ("1994 Second Quarter Form 10-Q")).
4(b) -- Deed of Trust, with assignment of Rents, Security Agreement and Fixture Filing, dated as of July 22, 1994, from La Cienega Associates, Grantor, to Commonwealth Land Title Company, Trustee, for the benefit of Morgan Guaranty Trust Company of New York, as Trustee, Beneficiary (incorporated herein by reference to Exhibit 4(i) filed with the 1994 Second Quarter Form 10-Q).
4(c) -- Loan Agreement dated as of March 29, 1999 among Taubman Auburn Hills Associates Limited Partnership, as Borrower, Fleet National Bank, as a Bank, PNC Bank, National Association, as a Bank, the other Banks signatory hereto, each as a Bank, and PNC Bank, National Association, as Administrative Agent (incorporated herein by reference to exhibit 4(a) filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 ("1999 Second Quarter Form 10- Q")).
4(d) -- Mortgage, Assignment of Leases and Rents and Security Agreement from Taubman Auburn Hills Associates Limited Partnership, a Delaware limited partnership ("Mortgagor") to PNC Bank, National Association, as Administrative Agent for the Banks, dated as of March 29, 1999 (incorporated herein by reference to Exhibit 4(b) filed with the 1999 Second Quarter Form 10-Q).
4(e) -- Mortgage, Security Agreement and Fixture Filing by Short Hills Associates, as Mortgagor, to Metropolitan Life Insurance Company, as Mortgagee, dated April 15, 1999 (incorporated herein by reference to Exhibit 4(d) filed with the 1999 Second Quarter Form 10-Q).
4(f) -- Assignment of Leases, Short Hills, Associates (Assignor) and Metropolitan Life Insurance Company (Assignee) dated as of April 15, 1999 (incorporated herein by reference to Exhibit 4(e) filed with the 1999 Second Quarter Form 10-Q).
4(g) -- Secured Revolving Credit Agreement dated as of June 24, 1999 among the Taubman Realty Group Limited Partnership, as Borrower, The Banks Signatory Hereto, each as a bank and UBS AG, Stamford Branch, as Administrative Agent (incorporated herein by reference to Exhibit 4(f) filed with the 1999 Second Quarter Form 10-Q).
4(h) -- Building Loan Agreement dated as of June 21, 2000 among Willow Bend Associates Limited Partnership, as Borrower, PNC Bank, National Association, as Lender, Co-Lead Agent and Lead Bookrunner, Fleet National Bank, as Lender, Co- Lead Agent, Joint Bookrunner and Syndication Agent, Commerzbank AG, New York Branch, as Lender, Managing Agent and Co-Documentation Agent, Bayerische Hypo-Und Vereinsbank AG, New York Branch, as Lender, Managing Agent and Co-Documentation Agent, and PNC Bank, National Association, as Administrative Agent. (incorporated herein by reference to Exhibit 4 (a) filed with the 2000 Second Quarter Form 10-Q.)
4(i) -- Building Loan Deed of Trust, Assignment of Leases and Rents and Security Agreement ("this Deed") from Willow Bend Associates Limited Partnership, a Delaware limited partnership ("Grantor"), to David M. Parnell ("Trustee"), for the benefit of PNC Bank, National Association, as Administrative Agent for Lenders (as hereinafter defined) (together with its successors in such capacity, "Beneficiary"). (incorporated herein by reference to Exhibit 4 (b) filed with the 2000 Second Quarter Form 10-Q.)
*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) -- Registration Rights Agreement among Taubman Centers, Inc., General Motors Hourly-Rate Employees Pension Trust, General Motors Retirement Program for Salaried Employees Trust, and State Street Bank & Trust Company, as trustee of the AT&T Master Pension Trust (incorporated herein by reference to Exhibit 10(e) filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 ("1992 Form 10-K")).
10(c) -- Master Services Agreement between The Taubman Realty Group Limited Partnership and the Manager (incorporated herein by reference to Exhibit 10(f) filed with the 1992 Form 10-K).
10(d) -- Amended and Restated Cash Tender Agreement among Taubman Centers, Inc., a Michigan Corporation (the "Company"), The Taubman Realty Group Limited Partnership, a Delaware Limited Partnership ("TRG"), and A. Alfred Taubman, A. Alfred Taubman, acting not individually but as Trustee of the A. Alfred Taubman Restated Revocable Trust, as amended and restated in its entirety by Instrument dated January 10, 1989 and subsequently by Instrument dated June 25, 1997, (as the same may hereafter be amended from time to time), and TRA Partners, a Michigan Partnership. (incorporated herein by reference to Exhibit 10 (a) filed with the 2000 Second Quarter Form 10-Q.)
*10(e) -- 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(f) -- 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(g) -- 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(h) -- Consolidated Agreement: Notice of Retirement and Release and Covenant Not to Compete, between Robert C. Larson and The Taubman Company Limited Partnership (incorporated herein by reference to Exhibit 10 filed with the Registrant's 1999 Second Quarter Form 10-Q).
10(i) -- Second Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of The Taubman Realty Group Limited Partnership effective as of September 3, 1999 (incorporated herein by reference to Exhibit 10(a) filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 ("1999 Third Quarter Form 10-Q")).
10(j) -- Private Placement Purchase Agreement dated as of September 3, 1999 among The Taubman Realty Group Limited Partnership, Taubman Centers, Inc. and Goldman Sachs 1999 Exchange Place Fund, L.P. (incorporated herein by reference to Exhibit 10(b) filed with the Registrant's 1999 Third Quarter Form 10-Q).
10(k) -- Registration Rights Agreement entered into as of September 3, 1999 by and between Taubman Centers, Inc. and Goldman Sachs 1999 Exchange Place Fund, L.P. (incorporated herein by reference to Exhibit 10(c) filed with the Registrant's 1999 Third Quarter Form 10-Q).
10(l) -- Private Placement Purchase Agreement dated as of November 24, 1999 among The Taubman Realty Group Limited Partnership, Taubman Centers, Inc. and GS-MSD Select Sponsors, L.P. (incorporated herein by reference to Exhibit 10(l) filed with the Annual Report of Form 10-K for the year ended December 31, 1999 ("1999 Form 10-K")).
10(m) -- Registration Rights Agreement entered into as of November 24, 1999 by and between Taubman Centers, Inc and GS-MSD Select Sponsors, L.P. (incorporated herein by reference to Exhibit 10(m) filed with the 1999 Form 10-K).
*10(n) -- Employment agreement between The Taubman Company Limited Partnership and Courtney Lord. (incorporated herein by reference to Exhibit 10(n) filed with the 1999 Form 10-K).
*10(o) -- The Taubman Company Long-Term Compensation Plan (as amended and restated effective January 1, 2000). (incorporated herein by reference to Exhibit 10 (c) filed with the 2000 Second Quarter Form 10-Q.)
10(p) -- Annex II to Second Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of The Taubman Realty Group Limited Partnership. (incorporated herein by reference to Exhibit 10(p) filed with the 1999 Form 10-K).
12 -- Statement Re: Computation of Taubman Centers, Inc. Ratio of Earnings to Combined Fixed Charges and Preferred Dividends and Distributions.
21 -- Subsidiaries of Taubman Centers, Inc.
23 -- Consent of Deloitte & Touche LLP.
24 -- Powers of Attorney.
27 -- Financial Data Schedule.
99 -- Debt Maturity Schedule.
- ------------------ * A management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-K.
14(b) Current Reports on Form 8-K.
None
14(c) The list of exhibits filed with this report is set forth in response to Item 14(a)(3).The required exhibit index has been filed with the exhibits.
14(d) The financial statements and the financial statement schedules of the Unconsolidated Joint Ventures of The Taubman Realty Group Limited Partnership listed at Item 14(a)(2) are filed pursuant to this Item 14(d).
TAUBMAN CENTERS, INC.
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2000 AND 1999 AND FOR EACH OF THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareowners Taubman Centers, Inc.
We have audited the accompanying consolidated balance sheets of Taubman Centers, Inc. (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareowners' equity, and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedules listed in the Index at Item 14. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Taubman Centers, Inc. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan February 13, 2001
TAUBMAN CENTERS, INC.
CONSOLIDATED BALANCE SHEET (in thousands, except share data)
See notes to financial statements.
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except share data)
See notes to financial statements.
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (in thousands, except share data)
See notes to financial statements.
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
See notes to financial statements.
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three Years Ended December 31, 2000
Note 1 - Summary of Significant Accounting Policies
Organization and Basis of Presentation
Taubman Centers, Inc. (the Company or TCO), a real estate investment trust, or REIT, is the managing general partner of The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG). The Operating Partnership is an operating subsidiary that engages in the ownership, management, leasing, acquisition, development, and expansion of regional retail shopping centers and interests therein. The Operating Partnership's portfolio as of December 31, 2000 included 16 urban and suburban shopping centers in seven states. Four additional centers are under construction in Florida and Texas; another opened in Miami, Florida in March 2001.
On September 30, 1998, the Company obtained a majority and controlling interest in the Operating Partnership as a result of a transaction in which the Operating Partnership exchanged interests in 10 shopping centers, together with $990 million of its debt, for all of the partnership units owned by two General Motors pension trusts (GMPT), representing approximately 37% of the Operating Partnership's equity (the GMPT Exchange) (Note 3).
The consolidated financial statements of the Company include all accounts of the Company, the Operating Partnership and its consolidated subsidiaries; all intercompany balances have been eliminated. Shopping centers owned through joint ventures with third parties not unilaterally controlled by ownership or contractual obligation (Unconsolidated Joint Ventures) are accounted for under the equity method.
Since the Company's interest in the Operating Partnership has been its sole material asset throughout all periods presented, references in the following notes to "the Company" include the Operating Partnership, except where intercompany transactions are discussed or as otherwise noted, even though the Operating Partnership did not become a consolidated subsidiary until September 30, 1998.
Dollar amounts presented in tables within the notes to the financial statements are stated in thousands of dollars, except share data or as otherwise noted.
Income Taxes
Federal income taxes are not provided by the Company because it operates in such a manner as to qualify as a REIT under the provisions of the Internal Revenue Code; therefore, applicable taxable income is included in the taxable income of its shareowners, to the extent distributed by the Company. As a REIT, the Company must distribute at least 90% of its REIT taxable income to its shareowners and meet certain other requirements. Additionally, no provision for income taxes for consolidated partnerships has been made, as such taxes are the responsibility of the individual partners.
Dividends per common share declared in 2000 were $0.985, of which $0.4402 represented return of capital, $0.4799 represented ordinary income, and $0.0649 represented capital gains. Dividends per common share declared in 1999 were $0.965, of which $0.453 represented return of capital and $0.512 represented ordinary income. Dividends per common share declared in 1998 were $0.945, of which $0.854 represented return of capital and $0.091 represented ordinary income. The tax status of the Company's common dividends in 2000, 1999 and 1998 may not be indicative of future periods. Dividends per Series A preferred share declared in both 2000 and 1999 were $2.075, of which $1.9382 represented ordinary income and $0.1368 represented capital gains in 2000, while the entire dividend represented ordinary income in 1999. The difference between net income for financial reporting purposes and taxable income results primarily from differences in depreciation expense and the 2000 gain on the disposition of a center (Note 2).
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Revenue Recognition
Shopping center space is generally leased to specialty retail tenants under short and intermediate term leases which are accounted for as operating leases. Minimum rents are recognized on the straight-line method. Percentage rent is accrued when lessees' specified sales targets have been met. Expense recoveries, which include an administrative fee, are recognized as revenue in the period applicable costs are chargeable to tenants. Management, leasing and development revenue is recognized as services are rendered.
Depreciation and Amortization
Buildings, improvements and equipment are depreciated on straight-line or double-declining balance bases over the estimated useful lives of the assets, which range from 3 to 50 years. Tenant allowances and deferred leasing costs are amortized on a straight-line basis over the lives of the related leases.
Capitalization
Costs related to the acquisition, development, construction and improvement of properties are capitalized. Interest costs are capitalized until construction is substantially complete. Assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amounts may not be recoverable.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of 90 days or less at the date of purchase.
Deferred Charges
Direct financing and interest rate hedging costs are deferred and amortized over the terms of the related agreements as a component of interest expense. Direct costs related to leasing activities are capitalized and amortized on a straight-line basis over the lives of the related leases. All other deferred charges are amortized on a straight-line basis over the terms of the agreements to which they relate.
Stock-Based Compensation Plans
Stock-based compensation plans are accounted for under APB Opinion 25, "Accounting for Stock Issued to Employees" and related interpretations, as permitted under FAS 123, "Accounting for Stock-Based Compensation."
Interest Rate Hedging Agreements
Premiums paid for interest rate caps are amortized to interest expense over the terms of the cap agreements. Amounts received under the cap agreements are accounted for on an accrual basis, and recognized as a reduction of interest expense.
Partners' Equity of TRG Allocable to Minority Partners
Because the net equity of the partnership unitholders is less than zero, the interest of the noncontrolling unitholders is presented as a zero balance in the balance sheet as of December 31, 2000 and December 31, 1999. Also, for periods subsequent to the GMPT Exchange, the income allocated to the noncontrolling unitholders in the Company's financial statements is equal to their share of distributions. The net equity of the Operating Partnership unitholders is less than zero because of accumulated distributions in excess of net income and not as a result of operating losses. Distributions to partners are usually greater than net income because net income includes non-cash charges for depreciation and amortization. Distributions were less than net income during 2000 due to a gain on the disposition of an interest in a center (Note 2).
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of financial instruments:
The carrying value of cash and cash equivalents, accounts and notes receivable, and accounts payable approximates fair value due to the short maturity of these instruments.
The fair value of mortgage notes and other notes payable is estimated based on quoted market prices if available, or the amount the Company would pay to terminate the debt, with prepayment penalties, if any, on the reporting date.
The fair value of interest rate hedging instruments is the amount that the Company would receive or pay to terminate the agreement at the reporting date, taking into account current interest rates.
Operating Segment
The Company has one reportable operating segment; it owns, develops and manages regional shopping centers. The shopping centers are located in major metropolitan areas, have similar tenants (most of which are national chains), and share common economic characteristics. No single retail company represents 10% or more of the Company's revenues.
Reclassifications
Certain prior year amounts have been reclassified to conform to 2000 classifications.
Note 2 - Twelve Oaks and Lakeside Transaction
In August 2000, the Company completed a transaction to acquire an additional ownership in one of its Unconsolidated Joint Ventures. Under the terms of the agreement, the Operating Partnership became the 100% owner of Twelve Oaks and its joint venture partner became the 100% owner of Lakeside subject to the existing mortgage debt ($50 million and $88 million at Twelve Oaks and Lakeside, respectively.) The transaction resulted in a net payment to the joint venture partner of approximately $25.5 million in cash. The acquisition of the additional interest in Twelve Oaks was accounted for as a purchase. The excess of the fair value over the net book basis of the interest acquired in Twelve Oaks has been allocated to properties. The Operating Partnership continues to manage Twelve Oaks, while the joint venture partner assumed management responsibility for Lakeside. A gain of $85.3 million on the transaction was recognized by the Company, representing the excess of the fair value over the net book basis of the Company's interest in Lakeside, adjusted for the $25.5 million paid and transaction costs.
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 3 - The GMPT Exchange and Related Transactions
On September 30, 1998, the Company obtained a controlling interest in the Operating Partnership due to the following transaction. The Operating Partnership transferred interests in 10 shopping centers (nine wholly owned (Briarwood, Columbus City Center, The Falls, Hilltop, Lakeforest, Marley Station, Meadowood Mall, Stoneridge, and The Mall at Tuttle Crossing) and one Unconsolidated Joint Venture (Woodfield)), together with $990 million of debt, for all of the partnership units of GMPT (approximately 50 million units with a fair value of $675 million, based on the average stock price of the Company's common shares of $13.50 for the two week period prior to the closing) (the GMPT Exchange). The Operating Partnership continues to manage the transferred centers under agreements with GMPT (Note 12).
As of the date of the GMPT Exchange, the excess of the Company's cost of its investment in the Operating Partnership over the Company's share of the Operating Partnership's accumulated deficit was $390.4 million, of which $176.6 million and $213.8 million were allocated to the Company's bases in the Operating Partnership's properties and investment in Unconsolidated Joint Ventures, respectively.
In September 1998, in anticipation of the GMPT Exchange, the Operating Partnership used the $1.2 billion proceeds from two bridge loans to extinguish approximately $1.1 billion of debt. The remaining proceeds were used primarily to pay prepayment premiums and transaction costs. An extraordinary charge of approximately $49.8 million, consisting primarily of prepayment premiums, was incurred in connection with the extinguishment of the debt.
The balance on the first bridge loan of $902 million was assumed by GMPT in connection with the GMPT Exchange. The second loan had a balance of $340 million as of December 31, 1998 and was refinanced during the first half of 1999.
Concurrently with the GMPT Exchange, the Operating Partnership committed to a restructuring of its operations. A restructuring charge of approximately $10.7 million was incurred, primarily representing the cost of certain involuntary terminations of personnel. Pursuant to the restructuring plan, approximately 40 employees were terminated across various administrative functions. During 1998, termination benefits of $6.1 million were paid. Substantially all remaining benefits were paid by the end of the first quarter of 1999.
Note 4 - Investment in the Operating Partnership
The partnership equity of the Operating Partnership and the Company's ownership therein are shown below:
TRG Units TRG Units TCO's % Interest TCO's outstanding at Owned by TCO at in TRG at Average December 31 December 31 December 31 Interest in TRG ---------------- -------------- ----------- ---------------
2000 82,819,463 50,984,397 62% 63% 1999 85,116,709 53,281,643 63% 63% 1998 84,395,817 52,995,904 63% 43%
Net income and distributions of the Operating Partnership are allocable first to the preferred equity interests (Note 13), and the remaining amounts to the general and limited Operating Partnership partners in accordance with their percentage ownership. The number of TRG units outstanding decreased in 2000 due to redemptions made in connection with the Company's ongoing share repurchase program (Note 13). Included in the total units outstanding at December 31, 2000 and 1999 are 348,118 units and 435,148 units, respectively, issued in connection with the 1999 acquisition of Lord Associates that do not receive allocations of income or distributions.
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5 - Investments in Unconsolidated Joint Ventures
Following are the Company's investments in Unconsolidated Joint Ventures that own regional retail shopping centers. The Operating Partnership is the managing general partner in these Unconsolidated Joint Ventures, except for those denoted with an (*).
In April 2000, the Company entered into an agreement to develop The Mall at Millenia in Orlando, Florida. This 1.2 million square foot center is expected to open in October 2002.
The Company is developing International Plaza, a 1.3 million square foot regional center under construction in Tampa, Florida, which is expected to open September 2001. The Company originally had a controlling 50.1% interest in the partnership (Tampa Westshore) that owns the project. The Company was responsible for providing funding for project costs in excess of the construction financing in exchange for a preferential return. In November 1999, the Operating Partnership entered into agreements with a new investor, which provided funding for the project and thereby reduced the Company's ownership to approximately 26%.
In September 1999, the Company entered into a partnership agreement with Swerdlow Real Estate Group to jointly develop Dolphin Mall, a 1.4 million square foot value regional center in Miami, Florida, which opened in March 2001.
During 2000, 1999, and 1998, the Unconsolidated Joint Ventures incurred extraordinary charges related to the extinguishment of debt, primarily consisting of prepayment premiums and the writeoff of deferred financing costs.
The Company's carrying value of its Investment in Unconsolidated Joint Ventures differs from its share of the deficiency in assets reported in the combined balance sheet of the Unconsolidated Joint Ventures due to (i) the Company's cost of its investment in excess of the historical net book values of the Unconsolidated Joint Ventures and (ii) the Operating Partnership's adjustments to the book basis, including intercompany profits on sales of services that are capitalized by the Unconsolidated Joint Ventures. The Company's additional basis allocated to depreciable assets is recognized on a straight-line basis over 40 years. The Operating Partnership's differences in bases are amortized over the useful lives of the related assets.
Combined balance sheet and results of operations information are presented below (in thousands) for all Unconsolidated Joint Ventures, followed by the Operating Partnership's beneficial interest in the combined information. Beneficial interest is calculated based on the Operating Partnership's ownership interest in each of the Unconsolidated Joint Ventures. The accounts of Lakeside and Twelve Oaks, formerly 50% Unconsolidated Joint Ventures, are included in these results through the date of the transaction (Note 2). Also, the accounts of Woodfield Associates, formerly a 50% Unconsolidated Joint Venture transferred to GMPT (Note 3) are included in these results through September 30, 1998, the date of the GMPT Exchange.
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6 - Properties
Properties at December 31, 2000 and December 31, 1999 are summarized as follows:
2000 1999 ---- ---- Land $ 129,198 $ 106,268 Buildings, improvements and equipment 1,526,672 1,308,365 Construction in process 275,125 127,168 Development pre-construction costs 28,133 30,484 ------------- ------------- $ 1,959,128 $ 1,572,285 Accumulated depreciation and amortization (285,406) (210,788) ------------- ------------- $ 1,673,722 $ 1,361,497 ============= =============
Depreciation expense for 2000, 1999, and 1998 was $52.5 million, $47.9 million, and $50.8 million, respectively. Construction in process includes costs related to the construction of new centers, and expansions and other improvements at various existing centers. The charge to operations in 2000, 1999, and 1998 for costs of unsuccessful and potentially unsuccessful pre-development activities was $7.5 million, $10.1 million, and $7.3 million, respectively.
In December 1999, the Operating Partnership acquired an additional 5% interest in Great Lakes Crossing for $1.2 million in cash, increasing the Operating Partnership's interest in the center to 85%. The acquisition was accounted for as a purchase.
Note 7 - Accounts and Notes Receivable
Accounts and notes receivable are summarized as follows:
2000 1999 ---- ---- Accounts and notes receivable: Trade $ 17,284 $ 18,643 Notes 17,145 14,707 Other 1,522 1,220 ------------- ------------- $ 35,951 $ 34,570 Less: allowance for doubtful accounts (3,796) (1,549) -------------- -------------- $ 32,155 $ 33,021 ============= =============
Accounts and notes receivable from related parties:
Trade $ 6,578 $ 7,095 Notes 3,778 Other 98 ------------- ------------- $ 10,454 $ 7,095 ============= =============
Notes receivable as of December 31, 2000 provide interest at a range of interest rates from 7% to 16% (with a weighted average interest rate of 9.8% at December 31, 2000) and mature at various dates. As of December 31, 2000, $3.8 million of notes receivable relating to certain land sales with original maturities of September 2000 were delinquent. The purchasers are currently negotiating with third parties to sell their interest in the properties. The Operating Partnership expects to fully recover the amounts due under the land contracts. The delinquent notes bear interest at an annual rate of 9% and are secured by the related land parcels.
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8 - Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 2000 and December 31, 1999 are summarized as follows:
2000 1999 ---- ---- Leasing $ 31,751 $ 25,223 Accumulated amortization (18,601) (14,050) ------------- -------------- $ 13,150 $ 11,173 Interest rate agreements (Note 16) 7,249 632 Deferred financing costs, net 10,492 9,429 Investments 25,106 22,878 Other, net 7,375 5,384 ------------- ------------- $ 63,372 $ 49,496 ============= =============
In May 2000, the Company entered into an agreement to acquire an approximately 6.7% interest in MerchantWired, LLC, a service company providing internet and network infrastructure to shopping centers and retailers. As of December 31, 2000, the Company had invested approximately $3 million in the new venture. The investment in MerchantWired is accounted for under the equity method.
In November 1999, the Operating Partnership acquired Lord Associates, a retail leasing firm, for approximately $7.5 million, representing $2.5 million in cash and 435,153 partnership units (and an equal number of the Company's Series B Non-Participating Convertible Preferred Stock.) The units and stock are being released over a five-year period, with $1.1 million of units having been released in 2000. The owner of the partnership units is not entitled to distributions or income allocations, and an affiliate of the Operating Partnership has voting rights to the stock, until release of the units. Of the cash purchase price, approximately $1.0 million was paid at closing and $1.5 million will be paid over five years; $1.0 million of the purchase price is contingent upon profits achieved on acquired leasing contracts. The final 65,271 partnership units are collateral if the profit contingency is not met. The acquisition of Lord Associates was accounted for as a purchase (cost amortized over five years), with the results of operations of Lord Associates being included in the income statement of the Company subsequent to the acquisition date.
In September 1999, the Company acquired an approximately 5% interest in Swerdlow Real Estate Group, a privately held real estate investment trust, for approximately $10 million. The investment in Swerdlow is accounted for under the cost method.
In April 1999, the Company invested in an e-commerce company that markets, promotes, advertises, and sells fashion apparel and related accessories and products over the Internet. The Company obtained 824,084 preferred shares of Fashionmall.com, Inc., a 9.9% interest in the company, for $7.4 million. The Company's option to convert the preferred shares to an equal number of common shares expires in May 2001. The investment in Fashionmall.com, Inc. is accounted for under the cost method.
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 9 - Debt
Mortgage Notes Payable
Mortgage notes payable at December 31, 2000 and December 31, 1999 consist of the following:
Mortgage debt is collateralized by properties with a net book value of $1.5 billion and $1.2 billion as of December 31, 2000 and December 31, 1999, respectively.
The $220 million construction facility for The Shops at Willow Bend has two one-year extension options. The Great Lakes Crossing loan agreement provides for an option to extend the maturity date one year. The maximum borrowings available under the two lines of credit are $200 million and $40 million, respectively. The other mortgage notes payable balance at December 31, 2000 includes a $100 million note payable, which is due in October 2001 and which bears interest at LIBOR plus 1.10%. The remaining balance includes notes which are due at various dates through 2009, and have fixed interest rates between 5.4% and 13%.
The following table presents scheduled principal payments on mortgage debt as of December 31, 2000.
2001 $ 243,517 2002 172,483 2003 105,371 2004 152,058 2005 6,553 Thereafter 491,927
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Unsecured Notes Payable
Unsecured notes payable at December 31, 2000 and December 31, 1999 consist of the following:
2000 1999 ---- ---- Line of credit, maximum borrowing available of $40 million, interest based on a variable bank borrowing rate, securitized January, 2000 $ 17,624 Other $ 2,064 2,195 ----------- ----------- $ 2,064 $ 19,819 =========== ===========
Debt Covenants and Guarantees
Certain loan and facility agreements contain various restrictive covenants including limitations on net worth, minimum debt service and fixed charges coverage ratios, a maximum payout ratio on distributions, and a minimum debt yield ratio, the latter being the most restrictive. The Company is in compliance with all covenants.
Payments of principal and interest on the loans in the following table (including those of certain Unconsolidated Joint Ventures) are guaranteed by the Operating Partnership as of December 31, 2000. All of the loan agreements provide for a reduction of the amounts guaranteed as certain center performance and valuation criteria are met.
In addition, the Operating Partnership guarantees the $100 million facility secured by an interest in Twelve Oaks that was obtained in August 2000.
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Extraordinary Items
During the years ended December 31, 2000 and 1999, extraordinary charges to income of $9.5 million and $0.5 million, respectively, were recognized in connection with the extinguishment of debt at consolidated entities and the Unconsolidated Joint Ventures. During 1998, extraordinary charges of $50.8 million were recognized related to the extinguishment of debt, primarily in connection with the GMPT Exchange.
Interest Rate Hedging Instruments
The Company enters into interest rate agreements to reduce its exposure to changes in the cost of its floating rate debt. The derivative agreements generally match the notional amounts, reset dates and rate bases of the hedged debt to assure the effectiveness of the derivatives in reducing interest rate risk. As of December 31, 2000, the following interest rate cap agreements were outstanding:
Frequency Notional LIBOR of Rate Amount Cap Rate Resets Term -------- -------- --------- ------------------------------------- $100,000 7.25% Monthly December 2000 through March 2002 170,000 7.25% Monthly September 2000 through March 2002 50,000 8.55% Monthly December 1996 through October 2001 70,000 7.00% Monthly October 2000 through September 2003 77,000(1) 7.15% Monthly June 2000 through May 2003
(1) The notional amount on the cap, which hedges a construction facility, accretes $7 million a month until it reaches $147 million.
The Company is exposed to credit risk in the event of nonperformance by the counterparties to its interest rate cap agreements, but has no off-balance sheet risk of loss. The Company anticipates that its counterparties will fully perform their obligations under the agreements.
Fair Value of Financial Instruments Related to Debt
The estimated fair values of financial instruments at December 31, 2000 and December 31, 1999 are as follows (Note 16):
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Beneficial Interest in Debt and Interest Expense
The Operating Partnership's beneficial interest in the debt, capital lease obligations, capitalized interest, and interest expense of its consolidated subsidiaries and its Unconsolidated Joint Ventures is summarized in the following table. The Operating Partnership's beneficial interest excludes debt and interest related to the 15% minority interest in Great Lakes Crossing and the 30% minority interest in MacArthur Center.
Note 10 - Leases
Operating Leases
Shopping center space is leased to tenants and certain anchors pursuant to lease agreements. Tenant leases typically provide for guaranteed minimum rent, percentage rent, and other charges to cover certain operating costs. Future minimum rent under operating leases in effect at December 31, 2000 for operating centers, assuming no new or renegotiated leases or option extensions on anchor agreements, is summarized as follows:
2001 $ 163,326 2002 161,321 2003 151,884 2004 135,391 2005 116,739 Thereafter 460,378
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Certain shopping centers, as lessees, have ground leases expiring at various dates through the year 2065. In addition, the Company leases its office facilities. Rental payments under ground and office leases were $7.5 million in 2000 and $7.0 million in both 1999 and 1998. Included in these amounts are related party office rental payments of $2.7 million in each year.
The following is a schedule of future minimum rental payments required under operating leases:
2001 $ 7,045 2002 6,891 2003 6,870 2004 6,868 2005 4,917 Thereafter 167,467
The table above includes $2.7 million, $2.8 million, $2.8 million, $2.8 million, and $0.9 million of related party amounts in 2001, 2002, 2003, 2004, and 2005.
Memorial City Mall Lease
In 1996, the Operating Partnership entered into an agreement to lease Memorial City Mall, a 1.4 million square foot shopping center located in Houston, Texas. The lease was subject to certain provisions that enabled the Operating Partnership to explore significant redevelopment opportunities and terminate the lease obligations in the event such redevelopment opportunities were not deemed to be sufficient. In April 2000, the Operating Partnership terminated the lease.
Note 11 - Transactions with Affiliates
The revenue from management, leasing and development services includes $4.2 million, $2.5 million, and $3.2 million from transactions with affiliates for the years ended December 31, 2000, 1999, and 1998, respectively. Accounts receivable from related parties includes amounts related to reimbursement of third-party (non-affiliated) costs.
During 1997, the Operating Partnership acquired an option from a related party to purchase certain real estate on which the Operating Partnership was exploring the possibility of developing a shopping center. The option agreement required option payments of $150 thousand during each of the first five years, $400 thousand in the sixth year, and $500 thousand in the seventh year. Through December 31, 2000, the Operating Partnership had made payments of $450 thousand. In 2000, the Operating Partnership decided not to go forward with the project and reached an agreement with the optionor to be reimbursed, at the time of the sale or lease of the real estate, for an amount equal to the lesser of 50% of the project costs to date or $350 thousand. Under the agreement, the Operating Partnership's obligation to make further option payments was suspended. The Operating Partnership expects to receive $350 thousand in total reimbursements and after receipt of such amount, the option will be terminated.
Other related party transactions are described in Notes 7, 10, and 12.
Note 12 - The Manager
The Taubman Company Limited Partnership (the Manager), which is 99% beneficially owned by the Operating Partnership, provides property management, leasing, development and other administrative services to the Company, the shopping centers, and Taubman affiliates. In addition, the Manager provides services to centers transferred to GMPT under management agreements cancelable with 90 days notice, and services to other third parties.
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Manager has a voluntary retirement saving plan established in 1983 and amended and restated effective January 1, 1994 (the Plan). The Plan is qualified in accordance with Section 401(k) of the Internal Revenue Code (the Code). The Manager contributes an amount equal to 2% of the qualified wages of all qualified employees and matches employee contributions in excess of 2% up to 7% of qualified wages. In addition, the Manager may make discretionary contributions within the limits prescribed by the Plan and imposed in the Code. Costs relating to the Plan were $1.9 million in 2000, $1.6 million in 1999, and $1.7 million in 1998.
The Operating Partnership has an incentive option plan for employees of the Manager. Currently, options for 7.7 million Operating Partnership units may be issued under the plan, substantially all of which have been issued. Incentive options generally become exercisable to the extent of one-third of the units on each of the third, fourth, and fifth anniversaries of the date of grant. Options expire ten years from the date of grant. The Operating Partnership's units issued in connection with the incentive option plan are exchangeable for shares of the Company's common stock under the Continuing Offer (Note 14).
A summary of the status of the plan for each of the three years in the period ended December 31, 2000 is presented below:
Options outstanding at December 31, 2000 have a remaining weighted-average contractual life of 3.4 years and range in exercise price from $9.39 to $13.89. The weighted average fair value per unit of options granted during 2000 and 1999 was $1.40 and $1.24, respectively. The Company used a binomial option pricing model to determine the grant date fair values based on the following assumptions for 2000 and 1999, respectively: volatility rates of 21.0% and 20.4%, risk-free rates of return of approximately 6.4% and 5.3%, and dividend yields of approximately 8.6% and 7.8%.
The Company applies APB Opinion 25 and related interpretations in accounting for the plan. The exercise price of all options outstanding granted under the plan was equal to market value on the date of grant. Accordingly, no compensation expense has been recognized for the plan. Had compensation cost for the plan been determined based on the fair value of the options at the grant dates, consistent with the method of FAS Statement 123, the pro forma effect on the Company's earnings and earnings per share would have been approximately $0.2 million, or less than $0.01 per share in 2000, approximately $0.7 million, or $0.01 per share, in 1999 and approximately $0.1 million, or less than $0.01 per share in 1998.
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 13 - Common and Preferred Stock and Equity of TRG
The 8.3% Series A Cumulative Redeemable Preferred Stock (Series A Preferred Stock) has no stated maturity, sinking fund or mandatory redemption and is not convertible into any other securities of the Company. The Series A Preferred Stock has a liquidation preference of $200 million ($25 per share). Dividends are cumulative and accrue at an annual rate of 8.3% and are payable in arrears on or before the last day of each calendar quarter. All accrued dividends have been paid. The Series A Preferred Stock can be redeemed by the Company beginning in October 2002 at $25 per share plus any accrued dividends. The redemption price can be paid solely out of the sale of capital stock of the Company. The Company owns a corresponding Series A Preferred Equity interest in the Operating Partnership that entitles the Company to income and distributions (in the form of guaranteed payments) in amounts equal to the dividends payable on the Company's Series A Preferred Stock.
In connection with the GMPT Exchange, the Company became obligated to issue to the minority interest, upon subscription, one share of Series B Non-Participating Convertible Preferred Stock (Series B Preferred Stock) for each of the Operating Partnership units held by the minority interest. Each share of Series B Preferred Stock entitles the holder to one vote on all matters submitted to the Company's shareholders. The holders of Series B Preferred Stock, voting as a class, have the right to designate up to four nominees for election as directors of the Company. On all other matters, including the election of directors, the holders of Series B Preferred Stock will vote with the holders of common stock. The holders of Series B Preferred Stock are not entitled to dividends or earnings. Under certain circumstances, the Series B Preferred Stock is convertible into common stock at a ratio of 14,000 shares of Series B Preferred Stock for one share of common stock.
In September 1999 and November 1999, the Operating Partnership completed private placements of $75 million 9% Cumulative Redeemable Preferred Partnership Equity (Series C Preferred Equity) and $25 million 9% Cumulative Redeemable Preferred Partnership Equity (Series D Preferred Equity), respectively. Both the Series C and Series D Preferred Equity were purchased by institutional investors, and have a fixed 9% coupon rate, no stated maturity, sinking fund or mandatory redemption requirements.
The holders of Series C Preferred Equity have the right, beginning in 2009, to exchange $37.50 in liquidation value of such equity for one share of Series C Preferred Stock. The holders of the Series D Preferred Equity have the right, beginning in 2009, to exchange $100 in liquidation value of such equity for one share of Series D Preferred Stock. The terms of the Series C Preferred Stock and Series D Preferred Stock are substantially similar to those of the Series C Preferred Equity and Series D Preferred Equity. Like the Series A Preferred Stock, the Series C Preferred Stock and Series D Preferred Stock are non-voting.
In March 2000, the Company's Board of Directors authorized the purchase of up to $50 million of the Company's common stock in the open market. The stock may be purchased from time to time as market conditions warrant. For each share of the Company's stock repurchased, an equal number of the Company's Operating Partnership units are redeemed. As of December 31, 2000, the Company had purchased and the Operating Partnership had redeemed 2.3 million shares and units for approximately $25.8 million. Existing lines of credit provided funding for the purchases. Approximately $1.6 million was accrued at December 31, 2000 for the repurchase of 150 thousand shares that settled in January 2001.
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 14 - Commitments and Contingencies
At the time of the Company's initial public offering (IPO) and acquisition of its partnership interest in the Operating Partnership, the Company entered into an agreement with A. Alfred Taubman, who owns an interest in the Operating Partnership, whereby he has the annual right to tender to the Company Operating Partnership units (provided that the aggregate value is at least $50 million) and cause the Company to purchase the tendered interests at a purchase price based on a market valuation of the Company on the trading date immediately preceding the date of the tender (the Cash Tender Agreement). The Company will have the option to pay for these interests from available cash, borrowed funds or from the proceeds of an offering of the Company's common stock. Generally, the Company expects to finance these purchases through the sale of new shares of its stock. The tendering partner will bear all market risk if the market price at closing is less than the purchase price and will bear the costs of sale. Any proceeds of the offering in excess of the purchase price will be for the sole benefit of the Company. At A. Alfred Taubman's election, his family and certain others may participate in tenders.
Based on a market value at December 31, 2000 of $10.94 per common share, the aggregate value of interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $264 million. The purchase of these interests at December 31, 2000 would have resulted in the Company owning an additional 29% interest in the Operating Partnership.
The Company has made a continuing, irrevocable offer to all present holders (other than certain excluded holders, including A. Alfred Taubman), assignees of all present holders, those future holders of partnership interests in the Operating Partnership as the Company may, in its sole discretion, agree to include in the continuing offer, and all existing and future optionees under the Operating Partnership's incentive option plan (Note 12) to exchange shares of common stock for partnership interests in the Operating Partnership (the Continuing Offer). Under the Continuing Offer agreement, one unit of the Operating Partnership interest is exchangeable for one share of the Company's common stock.
Shares of common stock that were acquired by GMPT and the AT&T Master Pension Trust in connection with the IPO may be sold through a registered offering. Pursuant to a registration rights agreement with the Company, the owners of each of these shares have the annual right to cause the Company to register and publicly sell their shares of common stock (provided that the shares have an aggregate value of at least $50 million and subject to certain other restrictions). All expenses of such a registration are to be borne by the Company, other than the underwriting discounts or selling commissions, which will be borne by the exercising party.
The Company is currently involved in certain litigation arising in the ordinary course of business. Management believes that this litigation will not have a material adverse effect on the Company's financial statements.
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15 - Earnings Per Share
Basic earnings per common share are calculated by dividing earnings available to common shareowners by the average number of common shares outstanding during each period. For diluted earnings per common share, the Company's ownership interest in the Operating Partnership (and therefore earnings) are adjusted assuming the exercise of all options for units of partnership interest under the Operating Partnership's incentive option plan having exercise prices less than the average market value of the units using the treasury stock method. For the years ended December 31, 2000, 1999 and 1998, options for 4.5 million, 0.7 million and 0.3 million units of partnership interest with average exercise prices of $11.99, $13.38 and $13.81, respectively, were excluded from the computation of diluted earnings per share because the options' exercise prices were greater than the average market price for the period calculated.
Note 16 - New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the uses of the derivatives and whether they qualify for hedge accounting. SFAS 133, as amended and interpreted, is effective for fiscal years beginning after June 15, 2000. The Company's derivatives consist primarily of interest rate cap agreements which the Company purchases to reduce its exposure to increases in rates on its floating rate debt. The Company expects that the primary impact of its adoption of SFAS 133 will be the timing of the recognition in income of the costs of these agreements. This may cause earnings volatility as the value of these agreements may change from period to period. In addition, the swap agreement on the Dolphin Mall construction loan does not qualify for hedge accounting under SFAS 133. As a result, the Company will recognize its share of losses and income related to this agreement in earnings as the value of the agreement changes.
The Company will recognize a loss of approximately $8.8 million as a transition adjustment to mark its share of interest rate agreements to fair value as of January 1, 2001, the Company's transition date. Of this amount, a $0.8 million loss will be charged to other comprehensive income with the remainder representing the cumulative effect of a change in accounting principle.
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 17 - Cash Flow Disclosures and Non-Cash Investing and Financing Activities
Interest paid in 2000, 1999, and 1998, net of amounts capitalized of $25.1 million, $14.5 million, and $18.2 million, respectively, approximated $50.4 million, $45.8 million, and $76.1 million, respectively. The following non-cash investing and financing activities occurred during 2000, 1999, and 1998:
Non-cash additions to properties represent accrued construction costs of new centers and development projects. Non-cash contributions to Unconsolidated Joint Ventures primarily consist of project costs expended prior to the creation of the joint ventures. Land contracts were entered into in connection with sales of peripheral land. The partnership units were released in connection with the 1999 acquisition of Lord Associates. Refer to Note 3 regarding non-cash activities which occurred in connection with the GMPT Exchange in 1998.
Note 18 - Quarterly Financial Data (Unaudited)
The following is a summary of quarterly results of operations for 2000 and 1999:
Schedule II
TAUBMAN CENTERS, INC. Valuation and Qualifying Accounts For the years ended December 31, 2000, 1999, and 1998 (in thousands)
Schedule III TAUBMAN CENTERS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2000 (in thousands)
The changes in total real estate assets and accumulated depreciation for the years ended December 31, 2000 and 1999 are as follows:
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP (a consolidated subsidiary of Taubman Centers, Inc.)
COMBINED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2000 AND 1999 AND FOR EACH OF THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareowners Taubman Centers, Inc.
We have audited the accompanying combined balance sheets of Unconsolidated Joint Ventures of The Taubman Realty Group Limited Partnership (the "Partnership") (a consolidated subsidiary of Taubman Centers, Inc.) as of December 31, 2000 and 1999, and the related combined statements of operations, accumulated deficiency in assets, and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedules listed in the Index at Item 14. These financial statements and financial statement schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all material respects, the combined financial position of Unconsolidated Joint Ventures of The Taubman Realty Group Limited Partnership as of December 31, 2000 and 1999, and the combined results of their operations and their combined cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic combined financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan February 13, 2001
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
COMBINED BALANCE SHEET (in thousands)
See notes to financial statements.
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
COMBINED STATEMENT OF OPERATIONS (in thousands)
See notes to financial statements.
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
COMBINED STATEMENT OF ACCUMULATED DEFICIENCY IN ASSETS (in thousands)
See notes to financial statements.
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
COMBINED STATEMENT OF CASH FLOWS (in thousands)
See notes to financial statements.
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The Taubman Realty Group Limited Partnership (TRG), a consolidated subsidiary of Taubman Centers, Inc., engages in the ownership, management, leasing, acquisition, development and expansion of regional retail shopping centers and interests therein. TRG has engaged the Manager (The Taubman Company Limited Partnership, which is approximately 99% beneficially owned by TRG) to provide most property management and leasing services for the shopping centers and to provide corporate, development, and acquisition services. For financial statement reporting purposes, the accounts of shopping centers that are not controlled and that are owned through joint ventures with third parties (Unconsolidated Joint Ventures) have been combined in these financial statements. Generally, net profits and losses of the Unconsolidated Joint Ventures are allocated to TRG and the outside partners (Joint Venture Partners) in accordance with their ownership percentages.
Dollar amounts presented in tables within the notes to the combined financial statements are stated in thousands.
Investments in Unconsolidated Joint Ventures
TRG's interest in each of the Unconsolidated Joint Ventures at December 31, 2000, is as follows:
TRG's % Unconsolidated Joint Venture Shopping Center Ownership --------------------------- -------------- ---------
Arizona Mills, L.L.C. Arizona Mills 37% Dolphin Mall Associates Dolphin Mall 50 Limited Partnership Fairfax Company of Virginia L.L.C. Fair Oaks 50 Forbes Taubman Orlando, L.L.C. The Mall at Millenia 50 (under construction) Rich-Taubman Associates Stamford Town Center 50 Tampa Westshore Associates International Plaza 26 Limited Partnership (under construction) Taubman-Cherry Creek Limited Partnership Cherry Creek 50 West Farms Associates Westfarms 79 Woodland Woodland 50
In April 2000, TRG entered into an agreement to develop The Mall at Millenia in Orlando, Florida. This 1.2 million square foot center is expected to open in October 2002.
In August 2000, TRG completed a transaction to acquire an additional interest in one of its Unconsolidated Joint Ventures. Under the terms of the agreement, TRG became the 100% owner of Twelve Oaks and its joint venture partner became the 100% owner of Lakeside, subject to the existing mortgage debt ($50 million and $88 million at Twelve Oaks and Lakeside, respectively.) The results of the transferred centers are included in these statements through the date of the transaction. At the date of the transaction, the combined book values of these centers' assets and liabilities were $66.6 million and $146.8 million, respectively.
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
TRG is developing International Plaza, a 1.3 million square foot regional center under construction in Tampa, Florida, expected to open September 2001. TRG originally had a controlling 50.1% interest in the partnership (Tampa Westshore) that owns the project. TRG was responsible for providing funding for project costs in excess of the construction financing in exchange for a preferential return. In November 1999, TRG entered into agreements with a new investor, who contributed funding for the project and thereby reduced TRG's ownership interest in Tampa Westshore to approximately 26%.
In September 1999, TRG entered into a partnership agreement with Swerdlow Real Estate Group to jointly develop Dolphin Mall, a 1.4 million square foot value regional center under construction in Miami, Florida, which opened in March 2001.
On September 30, 1998, TRG completed a transaction that included the transfer of interests in nine consolidated shopping centers and one Unconsolidated Joint Venture (the GMPT Exchange). The accounts of Woodfield Associates (Woodfield), a 50% owned Unconsolidated Joint Venture that was transferred, are included in these combined financial statements through September 1998. On the date of the GMPT Exchange, the book values of Woodfield's assets and liabilities were approximately $107.4 million and $196.9 million, respectively.
Revenue Recognition
Shopping center space is generally leased to specialty retail tenants under short and intermediate term leases which are accounted for as operating leases. Minimum rents are recognized on the straight-line method. Percentage rent is accrued when lessees' specified sales targets have been met. Expense recoveries, which include an administrative fee, are recognized as revenue in the period applicable costs are chargeable to tenants.
Depreciation and Amortization
Buildings, improvements and equipment, stated at cost, are depreciated on straight-line or double-declining balance bases over the estimated useful lives of the assets that range from 3 to 55 years. Tenant allowances and deferred leasing costs are amortized on a straight-line basis over the lives of the related leases.
Capitalization
Costs related to the acquisition, development, construction, and improvement of properties are capitalized. Interest costs are capitalized until construction is substantially complete. Properties are reviewed for impairment if events or changes in circumstances indicate that the carrying amounts of the properties may not be recoverable.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of 90 days or less at the date of purchase.
Deferred Charges
Direct financing and interest rate hedging costs are deferred and amortized over the terms of the related agreements as a component of interest expense. Direct costs related to leasing activities are capitalized and amortized on a straight-line basis over the lives of the related leases. All other deferred charges are amortized on a straight-line basis over the terms of the agreements to which they relate.
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Interest Rate Hedging Agreements
Premiums paid for interest rate cap instruments are amortized to interest expense over the terms of the agreements. Amounts received under the cap agreements are accounted for on an accrual basis, and recognized as a reduction of interest expense. The differential to be paid or received on swap agreements is accounted for on an accrual basis and recognized as an adjustment to interest expense.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of financial instruments:
The carrying value of cash and cash equivalents, accounts and notes receivable, and accounts payable approximates fair value due to the short maturity of these instruments.
The fair value of mortgage notes and other notes payable is estimated based on quoted market prices if available, or the amount the Unconsolidated Joint Ventures would pay to terminate the debt, with prepayment penalties, if any, on the reporting date.
The fair value of interest rate hedging instruments is the amount the Unconsolidated Joint Venture would pay or receive to terminate the agreement at the reporting date.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to 2000 classifications.
Note 2 - Properties
Properties at December 31, 2000 and 1999, are summarized as follows:
2000 1999 ---- ----
Land $ 41,230 $ 42,339 Buildings, improvements and equipment 663,864 725,182 Construction in process 368,724 174,727 ------------ ----------- $ 1,073,818 $ 942,248 ============ ===========
Depreciation expense for 2000, 1999 and 1998 was $26.2 million, $26.0 million and $26.7 million. Construction in process includes costs related to the construction of Dolphin Mall, The Mall at Millenia, and International Plaza, as well as expansions and other improvements at various centers. Assets under capital lease of $0.6 million and $3.7 million at December 31, 2000 and 1999, respectively, are included in the table above in buildings, improvements and equipment.
During 2000 and 1999, non-cash investing activities included $1.3 million and $83.4 million, respectively, contributed to the Unconsolidated Joint Ventures developing International Plaza, Dolphin Mall, and The Mall at Millenia. This amount primarily consists of the net book value of project costs expended prior to the creation of the joint ventures. Additionally, during 2000 and 1999, non-cash additions to properties of $15.5 million and $11.0 million, respectively, were recorded, representing accrued construction costs of new centers and expansions.
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Note 3 - Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 2000 and 1999 are summarized as follows:
2000 1999 ---- ----
Leasing $ 25,252 $ 35,579 Accumulated amortization (10,040) (14,466) ---------- ---------- $ 15,212 $ 21,113 Interest rate instruments 3,351 4,178 Deferred financing, net 14,161 17,651 Other, net 1,973 1,532 ---------- ---------- $ 34,697 $ 44,474 ========== ==========
Note 4 - Debt
Mortgage Notes Payable
Mortgage notes payable at December 31, 2000 and 1999 consists of the following:
Mortgage debt is collateralized by substantially all of the net book value of properties as of December 31, 2000 and 1999.
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
In November 2000, the 50% owned Unconsolidated Joint Venture that is developing The Mall at Millenia closed on a $160.4 million construction facility. The rate on the facility is LIBOR plus 1.95% and the facility matures in November 2003, with two one-year extension options. TRG has guaranteed the payment of 50% of the principal and interest. The rate and the amount guaranteed may be reduced once certain performance and valuation criteria are met. There was no outstanding balance at December 31, 2000.
In November 1999, the Unconsolidated Joint Venture that is developing International Plaza closed on a $193.5 million, three-year construction financing, with a one-year extension option. TRG has guaranteed the payment of 100% of the principal and interest; however, the new investor in the venture (Note 1) has indemnified TRG to the extent of 25% of the amounts guaranteed. The loan agreement provides for reductions of the rate and the amount guaranteed as certain center performance criteria are met.
The maximum availability on the Dolphin Mall construction facility is $200 million and its rate decreases to LIBOR plus 1.75% when a certain coverage ratio is met. TRG has guaranteed the payment of 50% of any outstanding principal balance and 100% of all accrued and unpaid interest. The guaranty will be reduced as certain performance conditions are met. The maturity date may be extended one year.
Scheduled principal payments on mortgage debt are as follows as of December 31, 2000:
2001 $ 1,025 2002 416,578 2003 1,284 2004 68,350 2005 4,019 Thereafter 452,899 -------- Total $944,155 ========
Note Payable to Related Party
During 2000, the Unconsolidated Joint Venture that is developing Dolphin Mall borrowed $3.8 million from TRG. The note payable bears interest at 16% annually and has no stated maturity. The loan will be repaid through the joint venture's available cash flow; accrued interest and the loan balance will be repaid prior to making any other distributions to partners.
Other Notes Payable
Other notes payable at December 31, 2000 and 1999 consists of the following:
2000 1999 ---- ---- Notes payable to banks, line of credit, interest at prime (9.5% at December 31, 2000), maximum borrowings available up to $5.5 million to fund tenant loans, allowances and buyouts and working capital, due various dates through 2005 $ 2,914 $ 623 Other 35 -------- ------- $ 2,914 $ 658 ======== =======
Interest Expense
Interest paid on mortgages and other notes payable in 2000, 1999 and 1998, net of amounts capitalized of $13.3 million, $2.5 million, and $2.5 million, approximated $58.8 million, $59.7 million, and $64.0 million, respectively.
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Extraordinary Items
In 2000, 1999, and 1998, joint ventures recognized extraordinary charges related to the extinguishment of debt, primarily consisting of prepayment premiums and the writeoff of deferred financing costs.
Interest Rate Hedging Instruments
Certain of the Unconsolidated Joint Ventures have entered into interest rate agreements to reduce their exposure to changes in the cost of floating rate debt. The terms of the derivative agreements are generally equivalent to the notional amounts, reset dates and rate bases of the underlying hedged debt to assure the effectiveness of the derivatives in reducing interest rate risk.
As of December 31, 2000, the following interest rate cap agreements were outstanding (Note 7):
The Unconsolidated Joint Ventures are exposed to credit risk in the event of nonperformance by their counterparties to the agreements. These Unconsolidated Joint Ventures anticipate that their counterparties will be able to fully perform their obligations under the agreements.
Fair Value of Debt Instruments
The estimated fair values of financial instruments at December 31, 2000 and 1999 are as follows (Note 7):
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Note 5 - Leases and Other Commitments
Shopping center space is leased to tenants and certain anchors pursuant to lease agreements. Tenant leases typically provide for guaranteed minimum rent, percentage rent, and other charges to cover certain operating costs. Future minimum rent under operating leases in effect at December 31, 2000 for operating centers, assuming no new or renegotiated leases or option extensions on anchor agreements, is summarized as follows:
2001 $ 121,050 2002 116,775 2003 104,138 2004 93,792 2005 81,118 Thereafter 286,972
One Unconsolidated Joint Venture, as lessee, has a ground lease expiring in 2083 with its Joint Venture Partner. Rental payments under the lease were $2.0 million in 2000, 1999 and 1998. TRG is entitled to receive preferential distributions equal to 75% of each payment. Approximately 25% of the ground lease payments over the term of the lease, on a straight-line basis, are recognized as ground rent expense, with 75% of the current payment accounted for as a distribution to the Joint Venture Partner.
The Unconsolidated Joint Venture that owns International Plaza is the lessee under a ground lease agreement that expires in 2080. The lease requires annual payments of approximately $0.1 million and when the center opens will require additional rentals, based on the leasable area of the center as defined in the agreement.
The following is a schedule of future minimum rental payments required under operating leases:
2001 $ 2,111 2002 2,185 2003 2,408 2004 2,408 2005 2,408 Thereafter 661,202
Capital Lease Obligations
Certain Unconsolidated Joint Ventures have entered into lease agreements for property improvements with remaining lease terms through 2002; substantially all of the capital lease obligation at December 31, 2000 will be settled in 2001.
Special Tax Assessment
Dolphin Mall will be subject to annual special tax assessments for certain infrastructure improvements related to the property. The annual assessments will be based on allocations of the cost of the infrastructure between the properties that benefit. Presently, the total allocation of cost to Dolphin Mall is estimated to be approximately $55.7 million with a first annual assessment of approximately $3.4 million. A portion of these assessments is expected to be recovered from tenants.
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Note 6 - Transactions with Affiliates
Charges from the Manager under various written agreements were as follows for the years ended December 31:
2000 1999 1998 ---- ---- ----
Management and leasing services $14,759 $16,721 $17,849 Security and maintenance services 6,702 7,653 9,481 Development services 11,298 5,935 3,941 ------ ----- ------ $32,759 $30,309 $31,271 ======= ======= =======
Certain entities related to TRG or its joint venture partners are providing management, leasing and development services to Arizona Mills, L.L.C. and Forbes Taubman Orlando L.L.C. Charges from these entities were $4.0 million, $4.2 million, and $4.3 million in 2000, 1999, and 1998, respectively.
Westfarms previously loaned $2.4 million to one of its Joint Venture Partners to purchase a portion of a deceased Joint Venture Partner's interest. The note bears interest at approximately 7.9% and requires monthly principal payments of $25 thousand, plus accrued interest, with the final payment due in 2001. The balance at December 31, 2000 and 1999 was $0.2 million and $0.6 million, respectively. Interest income related to the loan was approximately $0.1 million in 2000, 1999, and 1998.
Other related party transactions are described in Note 4.
Note 7 - New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the uses of the derivatives and whether they qualify for hedge accounting. SFAS 133, as amended and interpreted, is effective for fiscal years beginning after June 15, 2000. The Unconsolidated Joint Ventures' derivatives consist primarily of interest rate cap agreements which were purchased to reduce exposure to increases in rates on floating rate debt. The Unconsolidated Joint Ventures expect that the primary impact of their adoption of SFAS 133 will be the timing of the recognition in income of the costs of these agreements. This may cause earnings volatility as the value of these agreements may change from period to period. In addition, the swap agreement on the Dolphin Mall construction loan does not qualify for hedge accounting under SFAS 133. As a result, losses and income related to this agreement will be recognized in earnings as the value of the agreement changes. The combined Unconsolidated Joint Ventures will recognize a loss of approximately $4.9 million as a transition adjustment to mark the interest rate agreements to fair value as of January 1, 2001, the transition date. Of this amount, a loss of $1.6 million will be charged to other comprehensive income with the remainder representing the cumulative effect of a change in accounting principle.
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
Valuation and Qualifying Accounts For the years ended December 31, 2000, 1999 and 1998 (in thousands)
Schedule III
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2000 (in thousands)
The changes in total real estate assets for the three years ended December 31, 2000 are as follows:
2000 1999 1998 ---- ---- ----
Balance, beginning of year $ 942,248 $ 769,665 $ 829,640 Improvements 239,191 79,298 64,455 Disposals (4,472) (6,162) (2,715) Transfers In 1,318 (2) 99,447 (4) Transfers Out (104,467)(3) (121,715) (5) --------- ---------- --------- Balance, end of year $1,073,818 $ 942,248 $ 769,665 ========== ========== ==========
The changes in accumulated depreciation and amortization for the three years ended December 31, 2000 are as follows:
2000 1999 1998 ---- ---- ----
Balance, beginning of year $(217,402) $ (197,516) $ (205,659) Depreciation for year (26,156) (25,958) (26,707) Disposals 4,472 6,072 1,685 Transfers Out 49,442 (3) 33,165 (5) --------- ---------- ---------- Balance, end of year $(189,644) $ (217,402) $ (197,516) ========= ========== ==========
(1) The unaudited aggregate cost for federal income tax purposes as of December 31, 2000 was $1.308 billion. (2) Includes costs transferred relating to The Mall at Millenia, which became an Unconsolidated Joint Venture in 2000. (3) Subsequent to July 31, 2000, the accounts of Lakeside and Twelve Oaks are no longer included in these combined financial statements. (4) Includes costs transferred relating to International Plaza and Dolphin Mall, which became Unconsolidated Joint Ventures in 1999. (5) Subsequent to September 30, 1998, the date of the GMPT Exchange, the accounts of Woodfield are no longer included in these combined financial statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TAUBMAN CENTERS, INC.
Date: March 26, 2001 By:/s/ Robert S. Taubman ------------------------------ Robert S. Taubman, 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 --------- ----- ----
* Chairman of the Board March 26, 2001 - -------------------------- -------------- A. Alfred Taubman
/s/ Robert S. Taubman President, Chief Executive Officer, March 26, 2001 - --------------------------- and Director -------------- Robert S. Taubman
/s/ Lisa A. Payne Executive Vice President, March 26, 2001 - -------------------------- Chief Financial Officer, and Director -------------- Lisa A. Payne
/s/ William S. Taubman Executive Vice President, March 26, 2001 - -------------------------- and Director -------------- William S. Taubman
/s/ Esther R. Blum Senior Vice President, Controller and March 26, 2001 - -------------------------- Chief Accounting Officer -------------- Esther R. Blum
* Director March 26, 2001 - -------------------------- -------------- Graham Allison
* Director March 26, 2001 - -------------------------- -------------- Allan J. Bloostein
* Director March 26, 2001 - -------------------------- -------------- Jerome A. Chazen
* Director March 26, 2001 - -------------------------- -------------- S. Parker Gilbert
* Director March 26, 2001 - -------------------------- -------------- Peter Karmanos, Jr.
*By: /s/ Lisa A. Payne ---------------------------- Lisa A. Payne, as Attorney-in-Fact
EXHIBIT INDEX
Exhibit Number - -------
2 -- Separation and Relative Value Adjustment Agreement between The Taubman Realty Group Limited Partnership and GMPTS Limited Partnership (without exhibits or schedules, which will be supplementally provided to the Securities and Exchange Commission upon its request) (incorporated herein by reference to Exhibit 2 filed with the Registrant's Current Report on Form 8-K dated September 30, 1998).
3(a) -- Restated By-Laws of Taubman Centers, Inc., (incorporated herein by reference to Exhibit 3 (b) filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
3(b) -- Composite copy of Restated Articles of Incorporation of Taubman Centers, Inc., including all amendments to date (incorporated herein by reference to Exhibit 3 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 ("2000 Second Quarter Form 10-Q")).
4(a) -- Indenture dated as of July 22, 1994 among Beverly Finance Corp., La Cienega Associates, the Borrower, and Morgan Guaranty Trust Company of New York, as Trustee (incorporated herein by reference to Exhibit 4(h) filed with the 1994 Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 ("1994 Second Quarter Form 10-Q")).
4(b) -- Deed of Trust, with assignment of Rents, Security Agreement and Fixture Filing, dated as of July 22, 1994, from La Cienega Associates, Grantor, to Commonwealth Land Title Company, Trustee, for the benefit of Morgan Guaranty Trust Company of New York, as Trustee, Beneficiary (incorporated herein by reference to Exhibit 4(i) filed with the 1994 Second Quarter Form 10-Q).
4(c) -- Loan Agreement dated as of March 29, 1999 among Taubman Auburn Hills Associates Limited Partnership, as Borrower, Fleet National Bank, as a Bank, PNC Bank, National Association, as a Bank, the other Banks signatory hereto, each as a Bank, and PNC Bank, National Association, as Administrative Agent (incorporated herein by reference to exhibit 4(a) filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 ("1999 Second Quarter Form 10- Q")).
4(d) -- Mortgage, Assignment of Leases and Rents and Security Agreement from Taubman Auburn Hills Associates Limited Partnership, a Delaware limited partnership ("Mortgagor") to PNC Bank, National Association, as Administrative Agent for the Banks, dated as of March 29, 1999 (incorporated herein by reference to Exhibit 4(b) filed with the 1999 Second Quarter Form 10-Q).
4(e) -- Mortgage, Security Agreement and Fixture Filing by Short Hills Associates, as Mortgagor, to Metropolitan Life Insurance Company, as Mortgagee, dated April 15, 1999 (incorporated herein by reference to Exhibit 4(d) filed with the 1999 Second Quarter Form 10-Q).
4(f) -- Assignment of Leases, Short Hills, Associates (Assignor) and Metropolitan Life Insurance Company (Assignee) dated as of April 15, 1999 (incorporated herein by reference to Exhibit 4(e) filed with the 1999 Second Quarter Form 10-Q).
4(g) -- Secured Revolving Credit Agreement dated as of June 24, 1999 among the Taubman Realty Group Limited Partnership, as Borrower, The Banks Signatory Hereto, each as a bank and UBS AG, Stamford Branch, as Administrative Agent (incorporated herein by reference to Exhibit 4(f) filed with the 1999 Second Quarter Form 10-Q).
4(h) -- Building Loan Agreement dated as of June 21, 2000 among Willow Bend Associates Limited Partnership, as Borrower, PNC Bank, National Association, as Lender, Co-Lead Agent and Lead Bookrunner, Fleet National Bank, as Lender, Co- Lead Agent, Joint Bookrunner and Syndication Agent, Commerzbank AG, New York Branch, as Lender, Managing Agent and Co-Documentation Agent, Bayerische Hypo-Und Vereinsbank AG, New York Branch, as Lender, Managing Agent and Co-Documentation Agent, and PNC Bank, National Association, as Administrative Agent. (incorporated herein by reference to Exhibit 4 (a) filed with the 2000 Second Quarter Form 10-Q.)
4(i) -- Building Loan Deed of Trust, Assignment of Leases and Rents and Security Agreement ("this Deed") from Willow Bend Associates Limited Partnership, a Delaware limited partnership ("Grantor"), to David M. Parnell ("Trustee"), for the benefit of PNC Bank, National Association, as Administrative Agent for Lenders (as hereinafter defined) (together with its successors in such capacity, "Beneficiary"). (incorporated herein by reference to Exhibit 4 (b) filed with the 2000 Second Quarter Form 10-Q.)
*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) -- Registration Rights Agreement among Taubman Centers, Inc., General Motors Hourly-Rate Employees Pension Trust, General Motors Retirement Program for Salaried Employees Trust, and State Street Bank & Trust Company, as trustee of the AT&T Master Pension Trust (incorporated herein by reference to Exhibit 10(e) filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 ("1992 Form 10-K")).
10(c) -- Master Services Agreement between The Taubman Realty Group Limited Partnership and the Manager (incorporated herein by reference to Exhibit 10(f) filed with the 1992 Form 10-K).
10(d) -- Amended and Restated Cash Tender Agreement among Taubman Centers, Inc., a Michigan Corporation (the "Company"), The Taubman Realty Group Limited Partnership, a Delaware Limited Partnership ("TRG"), and A. Alfred Taubman, A. Alfred Taubman, acting not individually but as Trustee of the A. Alfred Taubman Restated Revocable Trust, as amended and restated in its entirety by Instrument dated January 10, 1989 and subsequently by Instrument dated June 25, 1997, (as the same may hereafter be amended from time to time), and TRA Partners, a Michigan Partnership. (incorporated herein by reference to Exhibit 10 (a) filed with the 2000 Second Quarter Form 10-Q.)
*10(e) -- 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(f) -- 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(g) -- 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(h) -- Consolidated Agreement: Notice of Retirement and Release and Covenant Not to Compete, between Robert C. Larson and The Taubman Company Limited Partnership (incorporated herein by reference to Exhibit 10 filed with the Registrant's 1999 Second Quarter Form 10-Q).
10(i) -- Second Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of The Taubman Realty Group Limited Partnership effective as of September 3, 1999 (incorporated herein by reference to Exhibit 10(a) filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 ("1999 Third Quarter Form 10-Q")).
10(j) -- Private Placement Purchase Agreement dated as of September 3, 1999 among The Taubman Realty Group Limited Partnership, Taubman Centers, Inc. and Goldman Sachs 1999 Exchange Place Fund, L.P. (incorporated herein by reference to Exhibit 10(b) filed with the Registrant's 1999 Third Quarter Form 10-Q).
10(k) -- Registration Rights Agreement entered into as of September 3, 1999 by and between Taubman Centers, Inc. and Goldman Sachs 1999 Exchange Place Fund, L.P. (incorporated herein by reference to Exhibit 10(c) filed with the Registrant's 1999 Third Quarter Form 10-Q).
10(l) -- Private Placement Purchase Agreement dated as of November 24, 1999 among The Taubman Realty Group Limited Partnership, Taubman Centers, Inc. and GS-MSD Select Sponsors, L.P. (incorporated herein by reference to Exhibit 10(l) filed with the Annual Report of Form 10-K for the year ended December 31, 1999 ("1999 Form 10-K")).
10(m) -- Registration Rights Agreement entered into as of November 24, 1999 by and between Taubman Centers, Inc and GS-MSD Select Sponsors, L.P. (incorporated herein by reference to Exhibit 10(m) filed with the 1999 Form 10-K).
*10(n) -- Employment agreement between The Taubman Company Limited Partnership and Courtney Lord. (incorporated herein by reference to Exhibit 10(n) filed with the 1999 Form 10-K).
*10(o) -- The Taubman Company Long-Term Compensation Plan (as amended and restated effective January 1, 2000). (incorporated herein by reference to Exhibit 10 (c) filed with the 2000 Second Quarter Form 10-Q.)
10(p) -- Annex II to Second Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of The Taubman Realty Group Limited Partnership. (incorporated herein by reference to Exhibit 10(p) filed with the 1999 Form 10-K).
12 -- Statement Re: Computation of Taubman Centers, Inc. Ratio of Earnings to Combined Fixed Charges and Preferred Dividends and Distributions.
21 -- Subsidiaries of Taubman Centers, Inc.
23 -- Consent of Deloitte & Touche LLP.
24 -- Powers of Attorney.
27 -- Financial Data Schedule.
99 -- Debt Maturity Schedule.
- ------------------------ * A management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-K.