Taubman Centers Issues First Quarter Results

March 31, 2014

Three Months Ended

March 31, 2013

Three Months Ended

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

$5.74 ⁽¹⁾

$0.43

$0.90

$0.90

(1) Includes a net gain of $476 million ($5.30 per share) on the sale of a 49.9% interest in the entity that owns International Plaza (Tampa, Fla.), as well as investments in Arizona Mills (Tempe, Ariz.) and land in Syosset, New York (Oyster Bay).

TAUBMAN CENTERS, INC.

Table 1 - Summary of Results

For the Periods Ended March 31, 2014 and 2013

(in thousands of dollars, except as indicated)

Three Months Ended 

2014

2013

Net income

526,157

46,356

Noncontrolling share of income of consolidated joint ventures

(3,118)

(2,781)

Noncontrolling share of income of TRG 

(147,662)

(11,789)

Preferred stock dividends 

(5,784)

(3,600)

Distributions to participating securities of TRG

(468)

(442)

Net income attributable to Taubman Centers, Inc. common shareowners

369,125

27,744

Net income per common share - basic 

5.84

0.44

Net income per common share - diluted

5.74

0.43

Beneficial interest in EBITDA - Combined (1)

608,989

128,483

Adjusted Beneficial interest in EBITDA- Combined (1)

122,369

128,483

Funds from Operations(1)

81,223

81,513

Funds from Operations attributable to TCO (1)

58,036

58,205

Funds from Operations per common share - basic(1)

0.92

0.92

Funds from Operations per common share - diluted (1)

0.90

0.90

Weighted average number of common shares outstanding - basic

63,165,611

63,415,922

Weighted average number of common shares outstanding - diluted

64,821,603

64,570,812

Common shares outstanding at end of period

63,262,045

63,677,971

Weighted average units - Operating Partnership - basic

88,312,842

88,760,871

Weighted average units - Operating Partnership - diluted

89,968,834

90,787,023

Units outstanding at end of period - Operating Partnership

88,407,745

89,013,319

Ownership percentage of the Operating Partnership at end of period

71.6%

71.5%

Number of owned shopping centers at end of period

24

24

Operating Statistics:

Net Operating Income excluding lease cancellation income - growth % (1)(2)

2.0%

Mall tenant sales - all centers (3)

1,335,294

1,454,788

Mall tenant sales - comparable (2)(3)

1,329,450

1,412,398

Ending occupancy - all centers

89.6%

90.3%

Ending occupancy - comparable(2)

90.3%

90.3%

Average occupancy - all centers 

90.2%

90.4%

Average occupancy - comparable (2)

90.8%

90.5%

Leased space - all centers

92.1%

92.4%

Leased space - comparable(2)

92.6%

92.2%

All centers:

Mall tenant occupancy costs as a percentage of tenant sales - Consolidated Businesses (3)

14.9%

13.7%

Mall tenant occupancy costs as a percentage of tenant sales - Unconsolidated Joint Ventures (3)

13.6%

12.0%

Mall tenant occupancy costs as a percentage of tenant sales - Combined (3)

14.5%

13.2%

Comparable centers:

Mall tenant occupancy costs as a percentage of tenant sales - Consolidated Businesses (2)(3)

14.9%

13.7%

Mall tenant occupancy costs as a percentage of tenant sales - Unconsolidated Joint Ventures (2)(3)

13.6%

11.8%

Mall tenant occupancy costs as a percentage of tenant sales - Combined (2)(3)

14.5%

13.2%

Average rent per square foot - Consolidated Businesses (2)

47.93

47.68

Average rent per square foot - Unconsolidated Joint Ventures (2)

55.81

50.78

Average rent per square foot - Combined (2)

50.21

48.46

(1)

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 Beneficial Interest in EBITDA provides a useful indicator of operating performance, as it is customary in the real estate and shopping center business to evaluate the performance of properties on a basis unaffected by capital structure.

The 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.

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 month period ended March 31, 2014, EBITDA was adjusted for the gain on dispositions of interests in International Plaza, Arizona Mills, and land in Syosset, New York related to the former Oyster Bay project.

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.

(2)

Statistics exclude non-comparable centers. In 2014 and 2013, non-comparable centers are Taubman Prestige Outlets Chesterfield and Arizona Mills. 

(3)

Based on reports of sales furnished by mall tenants. 

 TAUBMAN CENTERS, INC. 

 Table 2 - Income Statement 

 For the Three Months Ended March 31, 2014 and 2013 

 (in thousands of dollars) 

2014

2013

CONSOLIDATED

BUSINESSES

 UNCONSOLIDATED JOINT

VENTURES (1) 

CONSOLIDATED

BUSINESSES

 UNCONSOLIDATED JOINT

VENTURES (1) 

REVENUES:

Minimum rents

97,890

46,508

102,309

40,071

Percentage rents

4,662

2,054

5,628

2,197

Expense recoveries

62,709

27,036

64,037

23,584

Management, leasing, and development services

2,505

3,382

Other

7,012

1,627

7,901

1,699

Total revenues

174,778

77,225

183,257

67,551

EXPENSES:

Maintenance, taxes, utilities, and promotion

47,941

20,003

46,557

17,211

Other operating

15,496

4,927

16,163

4,103

Management, leasing, and development services

1,285

2,026

General and administrative

11,537

12,236

Interest expense

26,130

17,892

34,452

16,934

Depreciation and amortization 

35,118

11,700

37,022

10,071

Total expenses

137,507

54,522

148,456

48,319

Nonoperating income 

1,103

2

2,237

8

38,374

22,705

37,038

19,240

Income tax expense 

(699)

(1,028)

Equity in income of Unconsolidated Joint Ventures

12,068

10,346

49,743

Gain on dispositions, net of tax (2)

476,414

Net income 

526,157

46,356

Net income attributable to noncontrolling interests:

Noncontrolling share of income of consolidated joint ventures 

(3,118)

(2,781)

Noncontrolling share of income of TRG

(147,662)

(11,789)

Distributions to participating securities of TRG

(468)

(442)

Preferred stock dividends 

(5,784)

(3,600)

Net income attributable to Taubman Centers, Inc. common shareowners 

369,125

SUPPLEMENTAL INFORMATION:

EBITDA - 100% (3)

586,242

52,297

108,512

46,245

EBITDA - outside partners' share 

(6,343)

(23,207)

(6,060)

(20,214)

Beneficial interest in EBITDA

579,899

29,090

102,452

26,031

Gain on dispositions

(486,620)

Beneficial interest expense

(24,066)

(9,844)

(32,289)

(9,376)

Beneficial income tax expense - TRG and TCO

(699)

(1,028)

Beneficial income tax expense - TCO

59

33

Non-real estate depreciation

(812)

(710)

Preferred dividends and distributions 

(5,784)

(3,600)

Funds from Operations contribution 

61,977

19,246

64,858

16,655

STRAIGHTLINE AND PURCHASE ACCOUNTING ADJUSTMENTS:

Net straight-line adjustments to rental revenue, recoveries,

and ground rent expense at TRG % 

421

146

1,023

103

Green Hills purchase accounting adjustments - minimum rents increase

192

204

Green Hills, El Paseo Village, and Gardens on El Paseo purchase accounting 

adjustments - interest expense reduction

306

858

Waterside Shops purchase accounting adjustments - interest expense reduction

263

263

Taubman BHO headquarters purchase accounting adjustment - 

interest expense reduction

61

(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. In its consolidated financial statements, the Company accounts for its investments in the Unconsolidated Joint Ventures under the equity method. International Plaza's operations were consolidated through the disposition date. Subsequent to the disposition, the Company's remaining 50.1% interest is accounted for under the equity method of accounting within Unconsolidated Joint Ventures. In addition, Arizona Mills' operations were accounted for under equity method accounting through the disposition in January 2014.

(2)

During the three months ended March 31, 2014, the gain on dispositions of interests in International Plaza, Arizona Mills, and land in Syosset, New York related to the former Oyster Bay project is net of income tax expense of $10.2 million recognized.

(3)

For the three months ended March 31, 2014, EBITDA includes the Company's $486.6 million (before tax) gain from the dispositions of interests in International Plaza, Arizona Mills, and land in Syosset, New York related to the former Oyster Bay project.

TAUBMAN CENTERS, INC.

For the Three Months Ended March 31, 2014 and 2013

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

2014

2013

Shares 

Per Share

Shares 

Per Share 

Dollars

/Units

/Unit

Dollars

/Units

/Unit

Net income attributable to TCO common shareowners - Basic

369,125

63,165,611

5.84

27,744

63,415,922

0.44

Add distributions of participating securities of TRG

468

871,262

Add impact of share-based compensation

2,587

784,730

152

1,154,890

Net income attributable to TCO common shareowners - Diluted

372,180

64,821,603

5.74

27,896

64,570,812

0.43

Add depreciation of TCO's additional basis

1,720

0.03

1,720

0.03

Add TCO's additional income tax expense

59

0.00

33

0.00

Net income attributable to TCO common shareowners,

excluding step-up depreciation and additional income tax expense

373,959

64,821,603

5.77

29,649

64,570,812

0.46

Add:

Noncontrolling share of income of TRG 

147,662

25,147,231

11,789

25,344,949

Distributions to participating securities of TRG

442

871,262

Net income attributable to partnership unitholders 

and participating securities

521,621

89,968,834

5.80

41,880

90,787,023

0.46

Add (less) depreciation and amortization:

Consolidated businesses at 100%

35,118

0.39

37,022

0.41

Depreciation of TCO's additional basis

(1,720)

(0.02)

(1,720)

(0.02)

Noncontrolling partners in consolidated joint ventures

(1,161)

(0.01)

(1,116)

(0.01)

Share of Unconsolidated Joint Ventures

7,178

0.08

6,309

0.07

Non-real estate depreciation

(812)

(0.01)

(710)

(0.01)

Less gain on dispositions, net of tax

(476,414)

(5.30)

Less impact of share-based compensation

(2,587)

(0.03)

(152)

(0.00)

Funds from Operations

81,223

89,968,834

0.90

81,513

90,787,023

0.90

TCO's average ownership percentage of TRG

71.5%

71.4%

Funds from Operations attributable to TCO,

excluding additional income tax expense

58,095

0.90

58,238

0.90

Less TCO's additional income tax expense

(59)

(0.00)

(33)

(0.00)

Funds from Operations attributable to TCO 

58,036

0.90

58,205

0.90

TAUBMAN CENTERS, INC.

Table 4 - Reconciliation of Net Income to Beneficial Interest in EBITDA and Adjusted Beneficial Interest in EBITDA

For the Periods Ended March 31, 2014 and 2013

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

Three Months Ended

2014

2013

Net income

526,157

46,356

Add (less) depreciation and amortization:

Consolidated businesses at 100%

35,118

37,022

Noncontrolling partners in consolidated joint ventures

(1,161)

(1,116)

Share of Unconsolidated Joint Ventures

7,178

6,309

Add (less) interest expense and income tax expense:

Interest expense:

Consolidated businesses at 100% 

26,130

34,452

Noncontrolling partners in consolidated joint ventures

(2,064)

(2,163)

Share of Unconsolidated Joint Ventures

9,844

9,376

Income tax expense:

Income tax expense on dispositions

10,206

Other income tax expense

699

1,028

Less noncontrolling share of income of consolidated joint ventures

(3,118)

(2,781)

Beneficial Interest in EBITDA

608,989

128,483

TCO's average ownership percentage of TRG

71.5%

71.4%

Beneficial Interest in EBITDA attributable to TCO

435,578

91,796

Beneficial Interest in EBITDA 

608,989

128,483

Gain on dispositions

(486,620)

Adjusted Beneficial Interest in EBITDA

122,369

128,483

TCO's average ownership percentage of TRG

71.5%

71.4%

Adjusted Beneficial Interest in EBITDA attributable to TCO

87,524

91,796

TAUBMAN CENTERS, INC.

Table 5 - Reconciliation of Net Income to Net Operating Income (NOI)

For the Periods Ended March 31, 2014, 2013, and 2012

(in thousands of dollars)

Three Months Ended

Three Months Ended

2014

2013

2013

2012

Net income

526,157

46,356

46,356

32,177

Add (less) depreciation and amortization:

Consolidated businesses at 100%

35,118

37,022

37,022

36,434

Noncontrolling partners in consolidated joint ventures

(1,161)

(1,116)

(1,116)

(2,424)

Share of Unconsolidated Joint Ventures

7,178

6,309

6,309

5,111

Add (less) interest expense and income tax expense:

Interest expense:

Consolidated businesses at 100%

26,130

34,452

34,452

37,527

Noncontrolling partners in consolidated joint ventures

(2,064)

(2,163)

(2,163)

(4,206)

Share of Unconsolidated Joint Ventures

9,844

9,376

9,376

8,094

Share of income tax expense:

Income tax expense on dispositions

10,206

Other income tax expense

699

1,028

1,028

211

Less noncontrolling share of income of consolidated joint ventures

(3,118)

(2,781)

(2,781)

(1,834)

Add EBITDA attributable to outside partners:

EBITDA attributable to noncontrolling partners in consolidated joint ventures

6,343

6,060

6,060

8,467

EBITDA attributable to outside partners in Unconsolidated Joint Ventures

23,207

20,214

20,214

20,481

EBITDA at 100%

638,539

154,757

154,757

140,038

Add (less) items excluded from shopping center NOI:

General and administrative expenses

11,537

12,236

12,236

8,407

Management, leasing, and development services, net

(1,220)

(1,356)

(1,356)

(126)

Gain on dispositions

(486,620)

Straight-line of rents

(1,044)

(1,456)

(1,456)

(649)

Gain on sale of peripheral land

(863)

(863)

Gain on sale of marketable securities

(1,323)

(1,323)

Dividend income

(224)

Interest income

(127)

(59)

(59)

(132)

Other nonoperating income

(754)

Non-center specific operating expenses and other

3,748

3,592

3,851

6,896

NOI - all centers at 100%

163,835

165,528

165,787

154,434

Less - NOI of non-comparable centers

(1,432)

(1)

(6,332)

(2)

(3,126)

(3)

(349)

(3)

NOI at 100% - comparable centers

162,403

159,196

162,661

154,085

NOI - growth %

2.0%

5.6%

NOI at 100% - comparable centers

162,403

159,196

162,661

154,085

Lease cancellation income

(1,958)

(1,836)

(1,836)

(989)

NOI at 100% - comparable centers excluding lease cancellation income

160,445

157,360

160,825

153,096

NOI at 100% excluding lease cancellation income - growth %

2.0%

5.0%

(1)

Includes Taubman Prestige Outlets Chesterfield and Arizona Mills for the approximately one-month period prior to its disposition.

(2)

Includes Arizona Mills.

(3)

Includes City Creek Center.

TAUBMAN CENTERS, INC.

Table 6 - Balance Sheets

As of March 31, 2014 and December 31, 2013

 (in thousands of dollars)

As of

March 31, 2014

December 31, 2013

Consolidated Balance Sheet of Taubman Centers, Inc. (1):

Assets:

Properties

4,191,823

4,485,090

Accumulated depreciation and amortization

(1,420,745)

(1,516,982)

2,771,078

2,968,108

Investment in Unconsolidated Joint Ventures

326,905

327,692

Cash and cash equivalents

178,138

40,993

Restricted cash

48,083

5,046

Accounts and notes receivable, net

57,064

73,193

Accounts receivable from related parties

2,967

1,804

Deferred charges and other assets

161,865

89,386

3,546,100

3,506,222

Liabilities:

Notes payable

2,580,033

3,058,053

Accounts payable and accrued liabilities

283,718

292,280

Distributions in excess of investments in and net income of

Unconsolidated Joint Ventures

408,602

371,549

3,272,353

3,721,882

Equity:

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

633

631

Additional paid-in capital

798,705

796,787

Accumulated other comprehensive income (loss)

(12,719)

(8,914)

Dividends in excess of net income

(573,755)

(908,656)

212,889

(120,127)

Noncontrolling interests:

Noncontrolling interests in consolidated joint ventures

(13,424)

(37,191)

Noncontrolling interests in partnership equity of TRG

74,282

(58,342)

60,858

(95,533)

273,747

(215,660)

3,546,100

3,506,222

Combined Balance Sheet of Unconsolidated Joint Ventures (1)(2):

Assets:

Properties

1,435,623

1,305,658

Accumulated depreciation and amortization

(525,829)

(478,820)

909,794

826,838

Cash and cash equivalents

17,297

28,782

Accounts and notes receivable, net

33,770

33,626

Deferred charges and other assets 

32,102

28,095

992,963

917,341

Liabilities:

Notes payable

1,732,021

1,551,161

Accounts payable and other liabilities

65,022

70,226

1,797,043

1,621,387

Accumulated Deficiency in Assets:

Accumulated deficiency in assets - TRG

(455,581)

(406,266)

Accumulated deficiency in assets - Joint Venture Partners

(337,109)

(285,904)

Accumulated other comprehensive income (loss) - TRG

(5,695)

(5,938)

Accumulated other comprehensive income (loss) - Joint Venture Partners

(5,695)

(5,938)

(804,080)

(704,046)

992,963

917,341

(1)

International Plaza was consolidated in the Company's balance sheet as of December 31, 2013 but is an Unconsolidated Joint Venture as of March 31, 2014 as a result of the disposition.

(2)

Unconsolidated Joint Venture amounts exclude the balances of entities that own interests in Asia projects that are currently under development.