Taubman Centers, Inc. (NYSE: TCO) today reported financial results for the second quarter of 2017.

  June 30, 2017   June 30, 2016   June 30, 2017   June 30, 2016
Three Months Three Months Six Months Six Months
   

Ended (1)

  

Ended (2)

  

Ended (1)

  

Ended (2)

Net income attributable to common
shareowners, diluted (in thousands) $13,505 $34,779 $30,720 $59,460

Growth rate

  

(61.2)%

      

(48.3)%

    
Net income attributable to common
shareowners (EPS) per diluted common share $0.22 $0.57 $0.50 $0.98

Growth rate

  

(61.4)%

      

(49.0)%

    
Funds from Operations (FFO) per diluted
common share $0.86 $1.04 $1.71 $1.88

Growth rate

  

(17.3)%

      

(9.0)%

    
Adjusted Funds from Operations (Adjusted
FFO) per diluted common share $0.92 $0.79 $1.85 $1.63

Growth rate

  

16.5%

      

13.5%

    

(1) Adjusted FFO for the three and six month periods ended June 30, 2017 exclude a restructuring charge and costs associated with shareowner activism. In addition, Adjusted FFO for the six months ended June 30, 2017 excludes a charge recognized in connection with the partial write-off of deferred financing costs related to an amendment of the company’s primary line of credit in February 2017.

 

(2) Adjusted FFO for the three and six month periods ended June 30, 2016 exclude a $21.7 million ($0.25 per share) lump sum termination payment the company received in the second quarter for the termination of the company’s leasing services agreement at The Shops at Crystals (Las Vegas, Nev.).

“We are pleased with our financial results this quarter, which were in line with our expectations, as we delivered strong earnings growth with Adjusted FFO per share up more than 16 percent,” said Robert S. Taubman, chairman, president and chief executive officer of Taubman Centers. “Significant lease cancellation income and higher rents, combined with lower operating and general and administrative expenses, drove our results.”

Operating Statistics

For the quarter, comparable center NOI, including lease cancellation income, was up 6.5 percent, bringing year-to-date growth to 5.2 percent. Excluding lease cancellation income, comparable center NOI growth was 2.8 percent for both the quarter and year-to-date.

Comparable center mall tenant sales per square foot increased 2.9 percent from the second quarter of 2016. This brings the company's 12-month trailing mall tenant sales per square foot to $782, an increase of 2.2 percent from the 12-months ended June 30, 2016. Year-to-date, mall tenant sales per square foot were up 2.1 percent.

“We were very pleased to see positive sales per square foot growth for the fourth consecutive quarter,” said Mr. Taubman. “Our Florida assets were strongest in the quarter, and have performed particularly well this year.”

Average rent per square foot was $62.08, up 1.6 percent from $61.13 in the comparable period last year. Year-to-date, average rent per square foot was up 1.3 percent, consistent with the company’s expectation of rent per square foot growth of about 1 percent for the year.

Trailing 12-month releasing spreads per square foot for the period ended June 30, 2017 were 9.1 percent.

Ending occupancy in comparable centers was 92.2 percent on June 30, 2017, down 1 percent from June 30, 2016. Leased space in comparable centers was 94.6 percent on June 30, 2017, down 1.1 percent from June 30, 2016, but up 0.7 percent from March 31, 2017, consistent with the company’s expectation of around 95 percent occupancy in comparable centers at December 31, 2017.

2017 Guidance

Taubman Executive Vice President and Chief Financial Officer, Simon J. Leopold said, “While our year-to-date results have been strong, challenges within the retail environment increased throughout the quarter. Where appropriate, we are making the decision to preserve occupancy and some income as we retenant space. In the interim there will be impacts to our FFO and NOI growth. As a result, we believe it is prudent to adjust our outlook for the year.”

The company is updating its guidance. 2017 EPS is now expected to be in the range of $1.03 to $1.23 per diluted common share, revised from the previous range of $1.16 to $1.41.

2017 FFO, which includes $0.14 per diluted common share of year-to-date adjustments, is now expected to be in the range of $3.53 to $3.63 per diluted common share, revised from the previous range of $3.60 to $3.75.

2017 Adjusted FFO, which excludes $0.14 per diluted common share of year-to-date adjustments, is expected to be in the range of $3.67 to $3.77 per diluted common share, revised from the previous range of $3.67 to $3.82.

The revision to the company’s Adjusted FFO guidance is primarily attributable to reduced comparable center NOI growth expectations. The company now assumes comparable center NOI growth, including lease cancellation income, will be in the range of 1 to 3 percent for the year. The company’s previous comparable center NOI growth guidance, including lease cancellation income, was about 3 ½ percent. Excluding lease cancellation income, comparable center NOI growth is expected to be in the range of flat to 2 percent. The revised NOI outlook is primarily a result of lower average occupancy for the year, lower net recoveries, and increased bad debt expense.

The company’s guidance does not reflect any future costs that may be incurred related to shareowner activism.

“Despite the significant headwinds our industry continues to face, there is good demand for space in our centers. We believe our high quality portfolio is well-positioned to weather this storm and will gain market share over time,” added Mr. Taubman.

Supplemental Investor Information Available

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

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

Investor Conference Call

The company will host a conference call at 11:00 a.m. EDT on Friday, July 28 to discuss these results, business conditions and the company’s outlook for the remainder of 2017. The conference call will be simulcast at www.taubman.com. An online replay will follow shortly after the call and continue for approximately 90 days.

About Taubman

Taubman Centers is an S&P MidCap 400 Real Estate Investment Trust engaged in the ownership, management and/or leasing of 27 regional, super-regional and outlet shopping centers in the U.S. and Asia. Taubman’s U.S.-owned properties are the most productive in the publicly held U.S. regional mall industry. Founded in 1950, Taubman is headquartered in Bloomfield Hills, Mich. Taubman Asia, founded in 2005, is headquartered in Hong Kong. www.taubman.com.

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

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements reflect management's current views with respect to future events and financial performance. Forward-looking statements can be identified by words such as “will”, “may”, “could”, “expect”, “anticipate”, “believes”, “intends”, “should”, “plans”, “estimates”, “approximate”, “guidance” and similar expressions in this press release that predict or indicate future events and trends and that do not report historical matters. The forward-looking statements included in this release are made as of the date hereof. Except as required by law, the company assumes no obligation to update these forward-looking statements, even if new information becomes available in the future. Actual results may differ materially from those expected because of various risks, uncertainties and other factors. Such factors include, but are not limited to: changes in market rental rates; unscheduled closings or bankruptcies of tenants; relationships with anchor tenants; trends in the retail industry; the liquidity of real estate investments; the company’s ability to comply with debt covenants; the availability and terms of financings; changes in market rates of interest and foreign exchange rates for foreign currencies; changes in value of investments in foreign entities; the ability to hedge interest rate and currency risk; risks related to acquiring, developing, expanding, leasing and managing properties; changes in value of investments in foreign entities; risks related to joint venture properties; insurance costs and coverage; security breaches that could impact the company’s information technology, infrastructure or personal data; the loss of key management personnel; shareholder activism costs and related diversion of management time; terrorist activities; maintaining the company’s status as a real estate investment trust; changes in the laws of states, localities, and foreign jurisdictions that may increase taxes on the company’s operations; and changes in global, national, regional and/or local economic and geopolitical climates. You should review the company's filings with the Securities and Exchange Commission, including “Risk Factors” in its most recent Annual Report on Form 10-K and subsequent quarterly reports, for a discussion of such risks and uncertainties.

       
 
TAUBMAN CENTERS, INC.
Table 1 - Summary of Results
For the Periods Ended June 30, 2017 and 2016                
(in thousands of dollars, except as indicated)
Three Months Ended Year to Date
2017 2016 2017 2016
Net income 27,663 57,744 60,422 102,073
Noncontrolling share of income of consolidated joint ventures (1,605 ) (1,630 ) (3,049 ) (4,151 )
Noncontrolling share of income of TRG (6,214 ) (15,087 ) (14,004 ) (25,986 )
Distributions to participating securities of TRG (576 ) (524 ) (1,147 ) (1,036 )
Preferred stock dividends (5,785 ) (5,785 ) (11,569 ) (11,569 )
Net income attributable to Taubman Centers, Inc. common shareowners 13,483 34,718 30,653 59,331
Net income per common share - basic 0.22 0.58 0.51 0.98
Net income per common share - diluted 0.22 0.57 0.50 0.98
Beneficial interest in EBITDA - Combined (1) 123,396 127,895 247,171 236,371
Adjusted Beneficial interest in EBITDA - Combined (1) 128,812 106,193 255,169 214,669
Funds from Operations attributable to partnership unitholders and participating securities of TRG (1) 74,682 89,816 149,108 162,840
Funds from Operations attributable to TCO's common shareowners (1) 52,911 63,464 105,503 115,061
Funds from Operations per common share - basic (1) 0.87 1.05 1.74 1.91
Funds from Operations per common share - diluted (1) 0.86 1.04 1.71 1.88
Adjusted Funds from Operations attributable to partnership unitholders and participating securities of TRG (1) 80,098 68,114 160,333 141,138
Adjusted Funds from Operations attributable to TCO's common shareowners (1) 56,750 48,129 113,555 99,726
Adjusted Funds from Operations per common share - basic (1) 0.94 0.80 1.87 1.65
Adjusted Funds from Operations per common share - diluted (1) 0.92 0.79 1.85 1.63
Weighted average number of common shares outstanding - basic 60,694,727 60,353,080

60,625,481

 60,314,042
Weighted average number of common shares outstanding - diluted 61,001,588 60,701,702

61,028,241

 60,746,351
Common shares outstanding at end of period 60,706,101 60,390,149
Weighted average units - Operating Partnership - basic 85,665,078 85,413,911

85,599,609

 85,375,537
Weighted average units - Operating Partnership - diluted 86,843,201 86,633,794

86,873,631

 86,679,108
Units outstanding at end of period - Operating Partnership 85,665,976 85,449,499
Ownership percentage of the Operating Partnership at end of period 70.9 % 70.7 %
Number of owned shopping centers at end of period 24 21
 
Operating Statistics:
Net Operating Income excluding lease cancellation income - growth % (1)(2) 2.8 % 6.2 % 2.8 % 6.0 %
Net Operating Income including lease cancellation income - growth % (1)(2) 6.5 % 6.2 % 5.2 % 5.2 %
Average rent per square foot - Consolidated Businesses (3) 64.26 63.00 63.44 62.38
Average rent per square foot - Unconsolidated Joint Ventures (3) 59.57 58.95 58.90 58.36
Average rent per square foot - Combined (3) 62.08 61.13 61.33 60.52
Average rent per square foot growth (3) 1.6 % 1.3 %
Ending occupancy - all centers 92.7 % 92.5 % 92.7 % 92.5 %
Ending occupancy - comparable (3) 92.2 % 93.2 % 92.2 % 93.2 %
Leased space - all centers 94.9 % 95.6 % 94.9 % 95.6 %
Leased space - comparable (3) 94.6 % 95.7 % 94.6 % 95.7 %
Mall tenant sales - all centers (4) 1,485,116 1,293,120 2,873,793 2,495,388
Mall tenant sales - comparable (3)(4) 1,174,724 1,147,011 2,306,969 2,263,340
 
 
 
12-Months Trailing
2017 2016
Operating Statistics:
Mall tenant sales - all centers (4) 6,152,019 5,294,103
Mall tenant sales - comparable (3)(4) 5,065,121 4,903,327
Sales per square foot (3)(4) 782 765
All centers (4):
Mall tenant occupancy costs as a percentage of tenant sales - Consolidated Businesses 14.8 % 14.6 %
Mall tenant occupancy costs as a percentage of tenant sales - Unconsolidated Joint Ventures 14.5 % 14.1 %
Mall tenant occupancy costs as a percentage of tenant sales - Combined 14.6 % 14.4 %
Comparable centers (3)(4):
Mall tenant occupancy costs as a percentage of tenant sales - Consolidated Businesses 14.2 % 14.1 %
Mall tenant occupancy costs as a percentage of tenant sales - Unconsolidated Joint Ventures 13.9 % 14.2 %
Mall tenant occupancy costs as a percentage of tenant sales - Combined 14.1 % 14.2 %
 
(1) EBITDA represents earnings before interest, income taxes, and depreciation and amortization of the Operating Partnership's consolidated and unconsolidated businesses. Beneficial interest in EBITDA represents the Operating Partnership’s share of the earnings before interest, income taxes, and depreciation and amortization of its consolidated and unconsolidated businesses. The Company believes EBITDA and beneficial interest in EBITDA provide useful indicators of operating performance, as it is customary in the real estate and shopping center business to evaluate the performance of properties on a basis unaffected by capital structure.
 
The Company uses Net Operating Income (NOI) as an alternative measure to evaluate the operating performance of centers, both on individual and stabilized portfolio bases. The Company defines NOI as property-level operating revenues (includes rental income excluding straight-line adjustments of minimum rent) less maintenance, taxes, utilities, promotion, ground rent (including straight-line adjustments), and other property operating expenses. Since NOI excludes general and administrative expenses, pre-development charges, interest income and expense, depreciation and amortization, impairment charges, restructuring charges, and gains from peripheral land and property dispositions, it provides a performance measure that, when compared period over period, reflects the revenues and expenses most directly associated with owning and operating rental properties, as well as the impact on their operations from trends in tenant sales, occupancy and rental rates, and operating costs. The Company also uses NOI excluding lease cancellation income as an alternative measure because this income may vary significantly from period to period, which can affect comparability and trend analysis. The Company generally provides separate projections for expected comparable center NOI growth and lease cancellation income. Comparable centers are generally defined as centers that were owned and open for the entire current and preceding period presented, excluding centers impacted by significant redevelopment activity.
 
The National Association of Real Estate Investment Trusts (NAREIT) defines Funds from Operations (FFO) as net income (computed in accordance with Generally Accepted Accounting Principles (GAAP)), excluding gains (or losses) from extraordinary items and sales of properties and impairment write-downs of depreciable real estate, plus real estate related depreciation and after adjustments for unconsolidated partnerships and joint ventures. The Company believes that FFO is a useful supplemental measure of operating performance for REITs. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, the Company and most industry investors and analysts have considered presentations of operating results that exclude historical cost depreciation to be useful in evaluating the operating performance of REITs. The Company primarily uses FFO in measuring performance and in formulating corporate goals and compensation.
 
The Company may also present adjusted versions of NOI, beneficial interest in EBITDA, and FFO when used by management to evaluate operating performance when certain significant items have impacted results that affect comparability with prior or future periods due to the nature or amounts of these items. The Company believes the disclosure of the adjusted items is similarly useful to investors and others to understand management's view on comparability of such measures between periods. For the three and six month periods ended June 30, 2017, FFO and EBITDA were adjusted to exclude a restructuring charge and costs incurred associated with shareowner activism. For the six months ended June 30, 2017, FFO was also adjusted for a charge recognized in connection with the partial write-off of deferred financing costs related to an amendment of the Company's primary unsecured revolving line of credit in February 2017. For the six months ended June 30, 2017, EBITDA was also adjusted to exclude a gain recognized in connection with the sale of the Valencia Place office tower at Country Club Plaza. For the three and six month periods ended June 30, 2016, FFO and EBITDA were adjusted to exclude the lump sum payment received in May 2016 for the termination of the Company's third party leasing agreement at The Shops at Crystals (Crystals) due to a change in ownership of the center.
 
These non-GAAP measures as presented by the Company are not necessarily comparable to similarly titled measures used by other REITs due to the fact that not all REITs use the same definitions. These measures should not be considered alternatives to net income or as an indicator of the Company's operating performance. Additionally, these measures do not represent cash flows from operating, investing, or financing activities as defined by GAAP.
 
The Company provides its beneficial interest in certain financial information of its Unconsolidated Joint Ventures. This beneficial information is derived as the Company’s ownership interest in the investee multiplied by the specific financial statement item being presented. Investors are cautioned that deriving the Company’s beneficial interest in this manner may not accurately depict the legal and economic implications of holding a non-controlling interest in the investee.
 
(2) Statistics exclude non-comparable centers as defined in the respective periods and have not been subsequently restated for changes in the pools of comparable centers.
 
(3) Statistics exclude non-comparable centers for all periods presented. The June 30, 2016 statistics have been restated to include comparable centers to 2017.
 
(4) Based on reports of sales furnished by mall tenants. Sales per square foot exclude spaces greater than or equal to 10,000 square feet.
       
 
TAUBMAN CENTERS, INC.
Table 2 - Income Statement
For the Three Months Ended June 30, 2017 and 2016    
(in thousands of dollars)
  2017 2016
CONSOLIDATED UNCONSOLIDATED CONSOLIDATED UNCONSOLIDATED
BUSINESSES   JOINT VENTURES (1) BUSINESSES   JOINT VENTURES (1)
REVENUES:
Minimum rents 86,787 84,957 82,694 66,452
Percentage rents 1,179 5,215 924 1,188
Expense recoveries 49,413 43,692 47,380 38,340
Management, leasing, and development services (2) 1,375 23,196
Other 15,922   8,349   4,696   2,668  
Total revenues 154,676 142,213 158,890 108,648
 
EXPENSES:
Maintenance, taxes, utilities, and promotion 39,519 36,890 35,917 31,429
Other operating 22,098 11,496 20,482 5,424
Management, leasing, and development services 595 894
General and administrative 9,416 11,693
Restructuring charge 416
Costs associated with shareowner activism 5,000
Interest expense 26,746 34,721 20,588 24,965
Depreciation and amortization 39,442   34,146   29,716   20,612  
Total expenses 143,232 117,253 119,290 82,430
 
Nonoperating income, net 3,074   360   2,676   860  
14,518 25,320 42,276 27,078
Income tax expense (113 ) (1,220 ) (442 )  
24,100   27,078  
Equity in income of Unconsolidated Joint Ventures 13,258   15,910  
 
Net income 27,663 57,744
Net income attributable to noncontrolling interests:
Noncontrolling share of income of consolidated joint ventures (1,605 ) (1,630 )
Noncontrolling share of income of TRG (6,214 ) (15,087 )
Distributions to participating securities of TRG (576 ) (524 )
Preferred stock dividends (5,785 ) (5,785 )
Net income attributable to Taubman Centers, Inc. common shareowners 13,483   34,718  
 
SUPPLEMENTAL INFORMATION:
EBITDA - 100% 80,706 94,187 92,580 72,655
EBITDA - outside partners' share (6,456 ) (45,041 ) (5,471 ) (31,869 )
Beneficial interest in EBITDA 74,250 49,146 87,109 40,786
Beneficial interest expense (23,749 ) (17,849 ) (18,022 ) (13,207 )
Beneficial income tax expense - TRG and TCO (70 ) (518 ) (434 )
Beneficial income tax expense - TCO 2
Non-real estate depreciation (745 ) (631 )
Preferred dividends and distributions (5,785 )   (5,785 )  
Funds from Operations attributable to partnership unitholders and participating securities of TRG 43,903   30,779   62,237   27,579  
 
STRAIGHTLINE AND PURCHASE ACCOUNTING ADJUSTMENTS:
Net straight-line adjustments to rental revenue, recoveries, and ground rent expense at TRG% 483 248 440 707
Country Club Plaza purchase accounting adjustments - minimum rents increase at TRG% 2
The Mall at Green Hills purchase accounting adjustments - minimum rents increase 33 56
 
(1) With the exception of the Supplemental Information, amounts include 100% of the Unconsolidated Joint Ventures. Amounts are net of intercompany transactions. The Unconsolidated Joint Ventures are presented at 100% in order to allow for measurement of their performance as a whole, without regard to the Company's ownership interest.
(2) The 2016 amount includes the $21.7 million lump sum payment received in May 2016 for the termination of the Company's third party leasing agreement at Crystals due to a change in ownership in the center.
     
 
TAUBMAN CENTERS, INC.
Table 3 - Income Statement
For the Six Months Ended June 30, 2017 and 2016    
(in thousands of dollars)
    2017 2016
CONSOLIDATED BUSINESSES   UNCONSOLIDATED JOINT VENTURES (1) CONSOLIDATED BUSINESSES   UNCONSOLIDATED JOINT VENTURES (1)
REVENUES:
Minimum rents 171,090 168,482 164,671 124,015
Percentage rents 3,754 10,277 3,696 3,220
Expense recoveries 102,425 89,440 95,140 72,712
Management, leasing, and development services (2) 2,292 24,924
Other 24,198   14,614   9,914   5,464  
Total revenues 303,759 282,813 298,345 205,411
 
EXPENSES:
Maintenance, taxes, utilities, and promotion 79,230 70,604 70,855 54,785
Other operating 41,417 22,899 39,190 8,828
Management, leasing, and development services 1,174 1,766
General and administrative 20,167 23,073
Restructuring charge 2,312
Costs associated with shareowner activism 8,500
Interest expense 52,292 65,090 39,716 46,298
Depreciation and amortization 77,153   64,654   59,462   36,618  
Total expenses 282,245 223,247 234,062 146,529
 
Nonoperating income, net 5,853   2,211   4,146   1,106  
27,367 61,777 68,429 59,988
Income tax expense (321 ) (4,163 ) (744 )
57,614
Gain on disposition, net of tax (3) 3,713    
61,327   59,988  
Equity in income of Unconsolidated Joint Ventures 33,376   34,388  
 
Net income 60,422 102,073
Net income attributable to noncontrolling interests:
Noncontrolling share of income of consolidated joint ventures (3,049 ) (4,151 )
Noncontrolling share of income of TRG (14,004 ) (25,986 )
Distributions to participating securities of TRG (1,147 ) (1,036 )
Preferred stock dividends (11,569 ) (11,569 )
Net income attributable to Taubman Centers, Inc. common shareowners 30,653   59,331  
 
SUPPLEMENTAL INFORMATION:
EBITDA - 100% 156,812 195,965 167,607 142,904
EBITDA - outside partners' share (12,702 ) (92,904 ) (11,363 ) (62,777 )
Beneficial interest in EBITDA 144,110 103,061 156,244 80,127
Beneficial share of gain on disposition (3) (2,814 )
Beneficial interest expense (46,320 ) (33,630 ) (35,198 ) (24,735 )
Beneficial income tax expense - TRG and TCO (247 ) (2,151 ) (736 )
Beneficial income tax expense (benefit) - TCO 102 (19 )
Non-real estate depreciation (1,434 ) (1,274 )
Preferred dividends and distributions (11,569 )   (11,569 )  
Funds from Operations attributable to partnership unitholders and participating securities of TRG 84,642   64,466   107,448   55,392  
 
STRAIGHTLINE AND PURCHASE ACCOUNTING ADJUSTMENTS:
Net straight-line adjustments to rental revenue, recoveries, and ground rent expense at TRG% 435 701 453 1,164
Country Club Plaza purchase accounting adjustments - minimum rents increase at TRG % 54
The Mall at Green Hills purchase accounting adjustments - minimum rents increase 82 116
 
(1) With the exception of the Supplemental Information, amounts include 100% of the Unconsolidated Joint Ventures. Amounts are net of intercompany transactions. The Unconsolidated Joint Ventures are presented at 100% in order to allow for measurement of their performance as a whole, without regard to the Company's ownership interest.
(2) The 2016 amount includes the $21.7 million lump sum payment received in May 2016 for the termination of the Company's third party leasing agreement at Crystals due to a change in ownership in the center.
(3) During the six months ended June 30, 2017, the joint venture that owns the Valencia Place office tower at Country Club Plaza recognized a $4.4 million gain ($2.8 million at TRG's share) and $0.7 million of income tax expense ($0.7 million at TRG's share) in connection with the sale of the office tower.
           
 
TAUBMAN CENTERS, INC.
Table 4 - Reconciliation of Net Income Attributable to Taubman Centers, Inc. Common Shareowners to Funds From Operations and Adjusted Funds From Operations
For the Three Months Ended June 30, 2017 and 2016
(in thousands of dollars except as noted; may not add or recalculate due to rounding)
 
2017 2016
Shares Per Share Shares Per Share
Dollars /Units /Unit Dollars /Units /Unit
Net income attributable to TCO common shareowners - basic 13,483 60,694,727 0.22 34,718 60,353,080 0.58
 
Add impact of share-based compensation 22   306,861     61   348,622    
 
Net income attributable to TCO common shareowners - diluted 13,505 61,001,588 0.22 34,779 60,701,702 0.57
 
Add depreciation of TCO's additional basis 1,617 0.03 1,617 0.03
Add TCO's additional income tax expense 2     0.00        
 
Net income attributable to TCO common shareowners,
excluding step-up depreciation and additional income tax expense 15,124 61,001,588 0.25 36,396 60,701,702 0.60
 
Add noncontrolling share of income of TRG 6,214 24,970,351 15,087 25,060,830
Add distributions to participating securities of TRG 576   871,262     524   871,262    
 
Net income attributable to partnership unitholders
and participating securities of TRG 21,914 86,843,201 0.25 52,007 86,633,794 0.60
 
Add (less) depreciation and amortization:
Consolidated businesses at 100% 39,442 0.45 29,716 0.34
Depreciation of TCO's additional basis (1,617 ) (0.02 ) (1,617 ) (0.02 )
Noncontrolling partners in consolidated joint ventures (1,811 ) (0.02 ) (1,267 ) (0.01 )
Share of Unconsolidated Joint Ventures 17,521 0.20 11,669 0.13
Non-real estate depreciation (745 ) (0.01 ) (631 ) (0.01 )
 
Less impact of share-based compensation (22 )   (0.00 ) (61 )   (0.00 )
 
Funds from Operations attributable to partnership unitholders
and participating securities of TRG 74,682 86,843,201 0.86 89,816 86,633,794 1.04
 
TCO's average ownership percentage of TRG - basic (1) 70.9 % 70.7 %
 
Funds from Operations attributable to TCO's common shareowners,
excluding additional income tax expense (1) 52,913 0.86 63,464 1.04
 
Less TCO's additional income tax expense (2 ) (0.00 )    
 
Funds from Operations attributable to TCO's common shareowners (1) 52,911   0.86   63,464   1.04  
 
Funds from Operations attributable to partnership unitholders
and participating securities of TRG 74,682 86,843,201 0.86 89,816 86,633,794 1.04
 
Restructuring charge 416 0.00
Costs associated with shareowner activism 5,000 0.06
Crystals lump sum payment received for termination of leasing agreement       (21,702 )   (0.25 )
 
Adjusted Funds from Operations attributable to partnership unitholders
and participating securities of TRG 80,098 86,843,201 0.92 68,114 86,633,794 0.79
 
TCO's average ownership percentage of TRG - basic (2) 70.9 % 70.7 %
 
Adjusted Funds from Operations attributable to TCO's common shareowners (2) 56,750   0.92   48,129   0.79  
 

(1)

 

For the three months ended June 30, 2017, Funds from Operations attributable to TCO's common shareowners was $52,193 using TCO's diluted average ownership percentage of TRG of 69.9%. For the three months ended June 30, 2016, Funds from Operations attributable to TCO's common shareowners was $62,570 using TCO's diluted average ownership percentage of TRG of 69.7%.

(2)

 

For the three months ended June 30, 2017, Adjusted Funds from Operations attributable to TCO's common shareowners was $55,981 using TCO's diluted average ownership percentage of TRG of 69.9%. For the three months ended June 30, 2016, Adjusted Funds from Operations attributable to TCO's common shareowners was $47,451 using TCO's diluted average ownership percentage of TRG of 69.7%.
           
 
TAUBMAN CENTERS, INC.
Table 5 - Reconciliation of Net Income Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations and Adjusted Funds from Operations
For the Six Months Ended June 30, 2017 and 2016
(in thousands of dollars except as noted; may not add or recalculate due to rounding)
 
2017 2016
Shares Per Share Shares Per Share
Dollars /Units /Unit Dollars /Units /Unit
Net income attributable to TCO common shareowners - basic 30,653

60,625,481

0.51 59,331 60,314,042 0.98
 
Add impact of share-based compensation 67   402,760     129   432,309    
 
Net income attributable to TCO common shareowners - diluted 30,720 61,028,241 0.50 59,460 60,746,351 0.98
 
Add depreciation of TCO's additional basis 3,234 0.05 3,234 0.05
Add (less) TCO's additional income tax expense (benefit) 102     0.00   (19 )   (0.00 )
 
Net income attributable to TCO common shareowners,
excluding step-up depreciation and additional income tax expense (benefit) 34,056 61,028,241 0.56 62,675 60,746,351 1.03
 
Add noncontrolling share of income of TRG 14,004 24,974,128 25,986 25,061,495
Add distributions to participating securities of TRG 1,147   871,262     1,036   871,262    
 
Net income attributable to partnership unitholders
and participating securities of TRG 49,207 86,873,631 0.57 89,697 86,679,108 1.03
 
Add (less) depreciation and amortization:
Consolidated businesses at 100% 77,153 0.89 59,462 0.69
Depreciation of TCO's additional basis (3,234 ) (0.04 ) (3,234 ) (0.04 )
Noncontrolling partners in consolidated joint ventures (3,607 ) (0.04 ) (2,686 ) (0.03 )
Share of Unconsolidated Joint Ventures 33,173 0.38 21,004 0.24
Non-real estate depreciation (1,434 ) (0.02 ) (1,274 ) (0.01 )
 
Less beneficial gain on disposition, net of tax (2,083 ) (0.00 )
Less impact of share-based compensation (67 )   (0.00 ) (129 )   (0.00 )
 
Funds from Operations attributable to partnership unitholders
and participating securities of TRG 149,108 86,873,631 1.72 162,840 86,679,108 1.88
 
TCO's average ownership percentage of TRG - basic (1) 70.8 % 70.6 %
 
Funds from Operations attributable to TCO's common shareowners,
excluding additional income tax benefit (expense) (1) 105,605 1.72 115,042 1.88
 
Add (less) TCO's additional income tax benefit (expense) (102 ) (0.00 ) 19   0.00  
 
Funds from Operations attributable to TCO's common shareowners (1) 105,503   1.71   115,061   1.88  
 
Funds from Operations attributable to partnership unitholders
and participating securities of TRG 149,108 86,873,631 1.72 162,840 86,679,108 1.88
 
Restructuring charge 2,312 0.03
Costs associated with shareowner activism 8,500 0.10
Partial write-off of deferred financing costs 413 0.00
Crystals lump sum payment for termination of leasing agreement       (21,702 )   (0.25 )
 
Adjusted Funds from Operations attributable to partnership unitholders
and participating securities of TRG 160,333 86,873,631 1.85 141,138 86,679,108 1.63
 
TCO's average ownership percentage of TRG - basic (2) 70.8 % 70.6 %
 
Adjusted Funds from Operations attributable to TCO's common shareowners,
excluding additional income tax benefit (2) 113,555 1.85 99,707 1.63
 
Add TCO's additional income tax benefit     19   0.00  
 
Adjusted Funds from Operations attributable to TCO's common shareowners (2) 113,555   1.85   99,726   1.63  
 

(1)

 

For the six months ended June 30, 2017, Funds from Operations attributable to TCO's common shareowners was $103,954 using TCO's diluted average ownership percentage of TRG of 69.8%. For the six months ended June 30, 2016, Funds from Operations attributable to TCO's common shareowners was $113,342 using TCO's diluted average ownership percentage of TRG of 69.6%.

(2)

 

For the six months ended June 30, 2017, Adjusted Funds from Operations attributable to TCO's common shareowners was $111,890 using TCO's diluted average ownership percentage of TRG of 69.8%. For the six months ended June 30, 2016, Adjusted Funds from Operations attributable to TCO's common shareowners was $98,223 using TCO's diluted average ownership percentage of TRG of 69.6%.
     
 
TAUBMAN CENTERS, INC.
Table 6 - Reconciliation of Net Income to Beneficial Interest in EBITDA and Adjusted Beneficial Interest in EBITDA
For the Periods Ended June 30, 2017 and 2016          
(in thousands of dollars; amounts attributable to TCO may not recalculate due to rounding)
   
Three Months Ended Year to Date
2017 2016 2017 2016
Net income 27,663 57,744 60,422 102,073
 
Add (less) depreciation and amortization:
Consolidated businesses at 100% 39,442 29,716 77,153 59,462
Noncontrolling partners in consolidated joint ventures (1,811 ) (1,267 ) (3,607 ) (2,686 )
Share of Unconsolidated Joint Ventures 17,521 11,669 33,173 21,004
 
Add (less) interest expense and income tax expense:
Interest expense:
Consolidated businesses at 100% 26,746 20,588 52,292 39,716
Noncontrolling partners in consolidated joint ventures (2,997 ) (2,566 ) (5,972 ) (4,518 )
Share of Unconsolidated Joint Ventures 17,849 13,207 33,630 24,735
Income tax expense:
Consolidated businesses at 100% 113 434 321 736
Noncontrolling partners in consolidated joint ventures (43 ) (74 )
Share of Unconsolidated Joint Ventures 518 2,151
Share of income tax expense on disposition 731
 
Less noncontrolling share of income of consolidated joint ventures (1,605 ) (1,630 ) (3,049 ) (4,151 )
 
Beneficial interest in EBITDA 123,396 127,895 247,171 236,371
 
TCO's average ownership percentage of TRG - basic 70.9 % 70.7 % 70.8 % 70.6 %
 
Beneficial interest in EBITDA attributable to TCO 87,428   90,368   175,058   166,986  
 
Beneficial interest in EBITDA 123,396 127,895 247,171 236,371
 
Add (less):
Restructuring charge 416 2,312
Costs associated with shareowner activism 5,000 8,500
Beneficial share of gain on disposition (2,814 )
Crystals lump sum payment for termination of leasing agreement   (21,702 )   (21,702 )
 
Adjusted Beneficial interest in EBITDA 128,812 106,193 255,169 214,669
 
TCO's average ownership percentage of TRG - basic 70.9 % 70.7 % 70.8 % 70.6 %
 
Adjusted Beneficial interest in EBITDA attributable to TCO 91,265   75,035   180,723   151,653  
 
 
TAUBMAN CENTERS, INC.
Table 7 - Reconciliation of Net Income to Net Operating Income (NOI)
For the Periods Ended June 30, 2017, 2016, and 2015
(in thousands of dollars)
    Three Months Ended Three Months Ended Year to Date Year to Date
2017 2016 2016 2015 2017 2016 2016 2015
Net income 27,663 57,744 57,744 42,333 60,422 102,073 102,073 93,333
 
Add (less) depreciation and amortization:
Consolidated businesses at 100% 39,442 29,716 29,716 26,378 77,153 59,462 59,462 50,419
Noncontrolling partners in consolidated joint ventures (1,811 ) (1,267 ) (1,267 ) (547 ) (3,607 ) (2,686 ) (2,686 ) (1,631 )
Share of Unconsolidated Joint Ventures 17,521 11,669 11,669 8,502 33,173 21,004 21,004 16,570
 
Add (less) interest expense and income tax expense:
Interest expense:
Consolidated businesses at 100% 26,746 20,588 20,588 14,781 52,292 39,716 39,716 28,306
Noncontrolling partners in consolidated joint ventures (2,997 ) (2,566 ) (2,566 ) (1,734 ) (5,972 ) (4,518 ) (4,518 ) (3,388 )
Share of Unconsolidated Joint Ventures 17,849 13,207 13,207 11,405 33,630 24,735 24,735 22,768
Share of income tax expense:
Consolidated businesses at 100% 113 434 434 688 321 736 736 1,526
Noncontrolling partners in consolidated joint ventures (43 ) (74 )
Share of Unconsolidated Joint Ventures 518 2,151
Share of income tax expense on disposition 731
 
Less noncontrolling share of income of consolidated joint ventures (1,605 ) (1,630 ) (1,630 ) (2,672 ) (3,049 ) (4,151 ) (4,151 ) (5,263 )
 
Add EBITDA attributable to outside partners:
EBITDA attributable to noncontrolling partners in consolidated joint ventures 6,456 5,471 5,471 4,953 12,702 11,363 11,363 10,282
EBITDA attributable to outside partners in Unconsolidated Joint Ventures 45,041   31,869   31,869   26,541   92,904   62,777   62,777   55,028  
 
EBITDA at 100% 174,893 165,235 165,235 130,628 352,777 310,511 310,511 267,950
 
Add (less) items excluded from shopping center NOI:
General and administrative expenses 9,416 11,693 11,693 12,055 20,167 23,073 23,073 23,980
Management, leasing, and development services, net (780 ) (22,302 ) (1) (22,302 ) (1) (1,930 ) (1,118 ) (23,158 ) (1) (23,158 ) (1) (3,757 )
Restructuring charge 416 2,312
Costs associated with shareowner activism 5,000 8,500
Straight-line of rents (1,698 ) (2,024 ) (2,024 ) (1,378 ) (3,168 ) (3,138 ) (3,138 ) (2,098 )
Gain on disposition (4,445 )
Gains on sales of peripheral land (1,668 ) (403 ) (403 )
Dividend income (1,033 ) (944 ) (944 ) (885 ) (2,066 ) (1,888 ) (1,888 ) (1,711 )
Interest income (2,245 ) (1,760 ) (1,760 ) (553 ) (4,277 ) (2,272 ) (2,272 ) (1,219 )
Other nonoperating expense (income) (156 ) (832 ) (832 ) (15 ) (53 ) (689 ) (689 ) 223
Unallocated operating expenses and other 9,054   12,148   12,148   8,505   16,376   22,176   22,176   17,063  
 
NOI - all centers at 100% 192,867 161,214 161,214 146,427 383,337 324,212 324,212 300,431
 
Less NOI of non-comparable centers (38,014 ) (2) (15,841 ) (3) (16,371 ) (4) (10,026 ) (5) (72,324 ) (2) (28,491 ) (3) (30,252 ) (4) (20,955 ) (5)
 
NOI at 100% - comparable centers 154,853   145,373   144,843   136,401   311,013   295,721   293,960   279,476  
 
NOI - growth % 6.5 % 6.2 % 5.2 % 5.2 %
 
NOI at 100% - comparable centers 154,853 145,373 144,843 136,401 311,013 295,721 293,960 279,476
 
Lease cancellation income (5,671 ) (251 ) (251 ) (310 ) (9,279 ) (2,226 ) (2,226 ) (4,255 )
 
NOI at 100% - comparable centers excluding lease cancellation income 149,182   145,122   144,592   136,091   301,734   293,495   291,734   275,221  
 
NOI at 100% excluding lease cancellation income - growth % 2.8 % 6.2 % 2.8 % 6.0 %
 
(1) Amount includes the lump sum payment of $21.7 million received in May 2016 in connection with the termination of the Company's third party leasing agreement for Crystals due to a change in ownership of the center.
(2) Includes Beverly Center, CityOn.Xi'an, CityOn.Zhengzhou, Country Club Plaza, International Market Place, and Starfield Hanam.
(3) Includes Beverly Center, CityOn.Xi'an, and Country Club Plaza.
(4)

Includes Beverly Center, CityOn.Xi'an, Country Club Plaza, and The Mall of San Juan.

(5) Includes Beverly Center and The Mall of San Juan.
 
 
TAUBMAN CENTERS, INC.
Table 8 - Balance Sheets
As of June 30, 2017 and December 31, 2016
(in thousands of dollars)
    As of
June 30, 2017 December 31, 2016
Consolidated Balance Sheet of Taubman Centers, Inc.:
 
Assets:
Properties 4,304,273 4,173,954
Accumulated depreciation and amortization (1,211,672 ) (1,147,390 )
3,092,601 3,026,564
Investment in Unconsolidated Joint Ventures 564,496 604,808
Cash and cash equivalents 42,260 40,603
Restricted cash 7,968 932
Accounts and notes receivable, net 61,088 60,174
Accounts receivable from related parties 2,504 2,103
Deferred charges and other assets 290,821   275,728  
4,061,738   4,010,912  
Liabilities:
Notes payable, net 3,351,212 3,255,512
Accounts payable and accrued liabilities 316,086 336,536
Distributions in excess of investments in and net income of
Unconsolidated Joint Ventures 506,165   480,863  
4,173,463 4,072,911
 
Redeemable noncontrolling interest 9,150 8,704
 
Equity (Deficit):
Taubman Centers, Inc. Shareowners' Equity:
Series B Non-Participating Convertible Preferred Stock 25 25
Series J Cumulative Redeemable Preferred Stock
Series K Cumulative Redeemable Preferred Stock
Common Stock 607 604
Additional paid-in capital 664,182 657,281
Accumulated other comprehensive income (loss) (30,998 ) (35,916 )
Dividends in excess of net income (595,264 ) (549,914 )
38,552 72,080
Noncontrolling interests:
Noncontrolling interests in consolidated joint ventures (157,052 ) (155,919 )
Noncontrolling interests in partnership equity of TRG (2,375 ) 13,136  
(159,427 ) (142,783 )
(120,875 ) (70,703 )
4,061,738   4,010,912  
 
 
 
Combined Balance Sheet of Unconsolidated Joint Ventures (1):
Assets:
Properties 3,660,407 3,371,216
Accumulated depreciation and amortization (706,521 ) (661,611 )
2,953,886 2,709,605
Cash and cash equivalents 112,965 83,882
Accounts and notes receivable, net 107,962 87,612
Deferred charges and other assets 122,982   67,167  
3,297,795   2,948,266  
Liabilities:
Notes payable, net (2) 2,832,586 2,706,628
Accounts payable and other liabilities 516,230   359,814  
3,348,816 3,066,442
Accumulated deficiency in assets:
Accumulated deficiency in assets - TRG (83,293 ) (145,679 )
Accumulated deficiency in assets - Joint Venture Partners 74,150 81,217
Accumulated other comprehensive loss - TRG (16,597 ) (20,547 )
Accumulated other comprehensive loss - Joint Venture Partners (25,281 ) (33,167 )
(51,021 ) (118,176 )
3,297,795   2,948,266  
 
(1) As of December 31, 2016, Unconsolidated Joint Venture amounts exclude the balances of CityOn.Zhengzhou, which opened in March 2017.
(2) The December 31, 2016 balance excludes the construction financing outstanding for CityOn.Zhengzhou of $70.5 million ($34.5 million at TRG's share).
 
 
TAUBMAN CENTERS, INC.

Table 9 - Annual Guidance

(all dollar amounts per common share on a diluted basis; amounts may not add due to rounding)
   
 
Range for the Year Ended
December 31, 2017
 
Adjusted Funds from Operations per common share 3.67 3.77
 
Restructuring charge (0.03 ) (0.03 )
 
Costs associated with shareowner activism (1) (0.10 ) (0.10 )
 
Partial write-off of deferred financing costs (0.00 ) (0.00 )
   
Funds from Operations per common share 3.53 3.63
 
Gain on disposition, net of tax 0.02 0.02
 
Real estate depreciation - TRG (2.40 ) (2.28 )
 
Distributions to participating securities of TRG (0.03 ) (0.03 )
 
Depreciation of TCO's additional basis in TRG (0.11 ) (0.11 )
 
Net income attributable to common shareowners, per common share (EPS) 1.03   1.23  
 

(1) Amount represents actual expense recognized through the second quarter of 2017. Amount does not include future assumptions of costs to be incurred.