Taubman Centers, Inc. Issues Solid Third Quarter Results

Taubman Centers, Inc. (NYSE: TCO) today reported financial results for the third quarter of 2016.
                 
  September 30, 2016   September 30, 2015   September 30, 2016   September 30, 2015
    Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended
Net income attributable to common
shareowners (EPS) per diluted common share $0.31 $0.50 $1.29 $1.34

Growth rate
  (38.0)%       (3.7)%    
Funds from Operations (FFO) per diluted
common share $0.94 $0.89 $2.82 $2.46

Growth rate
  5.6%       14.6%    
Adjusted Funds from Operations (Adjusted
FFO) per diluted common share $0.94

$0.86 (1)

$2.57 (2)

$2.44 (1)

Growth rate
  9.3%       5.3%    
(1) Adjusted FFO for the three and nine months ended September 30, 2015 excludes the reversal of certain prior period executive share-based compensation expense due to the announcement of an executive management transition.

(2) Adjusted FFO for the nine months ended September 30, 2016 excludes a one-time $21.7 million payment the company received in the second quarter due to the termination of the company's leasing services agreement at The Shops at Crystals (Las Vegas, Nev.).

 

"We had another solid quarter with improvements across nearly all of our key metrics," said Robert S. Taubman, chairman, president and chief executive officer of Taubman Centers. "Adjusted FFO per share increased 9.3 percent during the quarter driven by higher rents and contributions from our newest centers. We're pleased with the success of our recently opened centers and are confident that these properties will continue to differentiate our business and generate significant value for shareholders."

Operating Statistics

Diluted net income attributable to common shareowners decreased 38.4 percent for the quarter, primarily due to higher depreciation expense. Year-to-date, diluted net income attributable to common shareowners was lower by 6.4 percent.

Comparable center NOI, excluding lease cancellation income, was up 4.5 percent for the quarter, bringing year-to-date growth to 5.5 percent.

"We saw strong comp center NOI growth again this quarter," said Mr. Taubman. "Rent growth in our recently redeveloped centers contributed meaningfully to our strong result. Favorable net recoveries were also positive."

Average rent per square foot for the quarter was $60.23, up 1.3 percent from $59.44 in the comparable period last year. A single short-term lease modification preserved some revenue and additional occupancy in anticipation of a new tenant next year, but reduced average rent growth. Year-to-date, average rent per square foot was up 3.1 percent.

Ending occupancy in comparable centers was 95 percent on September 30, 2016, up 1 percent from September 30, 2015. Leased space in comparable centers was 96.7 percent on September 30, 2016, down 0.6 percent from September 30, 2015.

Comparable center mall tenant sales per square foot increased 0.4 percent from the third quarter of 2015. "We were pleased to have positive sales growth in our centers this quarter," said Mr. Taubman. "A strong September helped our results."

Year-to-date, mall tenant sales per square foot were down 1.1 percent. The company's 12-month trailing mall tenant sales per square foot were $790.

Trailing 12-month releasing spreads per square foot for the period ended September 30, 2016 were 21.3 percent. This is the ninth consecutive quarter that trailing 12-month releasing spreads have been greater than 20 percent.

Reimagined International Market Place Opened August 25, 2016

On August 25, 2016, the company opened the iconic International Market Place in Waikiki, Honolulu, Hawaii, on August 25, 2016. The 345,000 square foot, open-air shopping center features a world-class lineup of restaurants and retailers - nearly 50 percent of which will be unique to O'ahu. The storied destination is located in the heart of Waikiki, on Kalakaua Avenue, which is the fifth most productive shopping street in North America. See International Market Place Celebrates Grand Opening Today in Waikiki - Aug. 25, 2016.

Taubman Asia Celebrates the Opening of Starfield Hanam in South Korea

On September 9, 2016, the company held the grand opening of Starfield Hanam (Hanam, Gyeonggi Province, South Korea). The company's newest center opened nearly 100 percent occupied with almost 300 retailers. The 1.7 million square foot center is the nation's largest western-style mall and offers international retailers, luxury flagship stores, restaurants, entertainment and more. It is anchored by Shinsegae, one of South Korea's largest department store brands and the company's joint venture partner. See Taubman Asia and Shinsegae Group Celebrate the Opening of Starfield Hanam Shopping Center Today - Sept. 9, 2016.

Financing Activity

In October, The Mall at University Town Center (Sarasota, Fla.), the company's 50 percent owned joint venture, completed a $280 million, 10-year, non-recourse refinancing. The loan is interest-only for the first six years and bears interest at an all-in fixed rate of 3.45 percent. Proceeds were used to pay off the previous $225 million, floating rate construction facility. The company's share of excess proceeds of nearly $30 million was used to pay down the company's lines of credit.

2016 and 2017 Guidance

The company is updating its guidance for 2016. EPS is now expected to be in the range of $1.61 to $1.76 per diluted common share, revised from the previous range of $1.73 to $1.93. FFO is now expected to be in the range of $3.78 to $3.88 per diluted common share, revised from the previous range of $3.75 to $3.90. Adjusted FFO, which excludes the one-time $21.7 million payment the company received in the second quarter of 2016 due to the termination of the company's leasing services agreement at The Shops at Crystals, is now expected to be in the range of $3.53 to $3.63 per diluted common share, revised from the previous range of $3.50 to $3.65.

The changes in the company's guidance are primarily due to lower interest expense as a result of the revised timing of the CityOn.Zhengzhou (Zhengzhou, China) opening, and expectation of comparable center NOI growth (excluding lease cancellation income) for the year of 4.5 to 5 percent (previous guidance was approximately 5 percent).

The company is introducing certain key guidance measures for 2017. The company expects consolidated and unconsolidated interest expense, at 100 percent, to be $250 to $255 million. At beneficial share, consolidated and unconsolidated interest expense is expected to be $170 to $175 million. In addition, the company expects its share of net operating income from its three newest centers (CityOn.Xian - Xi'an, China, International Market Place, and Starfield Hanam) and CityOn.Zhengzhou (opening March 16, 2017) to be $40 to $45 million.

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 (Expense)
  • Balance Sheets
  • Debt Summary
  • Other Debt, Equity and Certain Balance Sheet Information
  • Construction and Redevelopments
  • 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 Wednesday, November 2, 2016 to discuss its results, business conditions, the company's outlook for the remainder of 2016 and certain key guidance measures for 2017. The conference call will be simulcast at www.taubman.com. An online replay will be available shortly after the call and will 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 26 regional, super-regional and outlet shopping centers in the U.S. and Asia and one under development. 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; 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 September 30, 2016 and 2015                
(in thousands of dollars, except as indicated)
Three Months Ended Year to Date
2016 2015 2016 2015
Net income 35,184 52,629 137,257 145,962
Noncontrolling share of income of consolidated joint ventures (1,662 ) (2,780 ) (5,813 ) (8,043 )
Noncontrolling share of income of TRG (8,449 ) (13,151 ) (34,435 ) (35,815 )
Distributions to participating securities of TRG (537 ) (492 ) (1,573 ) (1,477 )
Preferred stock dividends (5,784 ) (5,784 ) (17,353 ) (17,353 )
Net income attributable to Taubman Centers, Inc. common shareowners 18,752 30,422 78,083 83,274
Net income per common share - basic 0.31 0.50 1.29 1.35
Net income per common share - diluted 0.31 0.50 1.29 1.34
Beneficial interest in EBITDA - Combined (1) 121,201 110,715 357,572 313,355
Adjusted Beneficial interest in EBITDA - Combined (1) 121,201 108,047 335,870 311,366
Funds from Operations attributable to partnership unitholders and participating securities of TRG (1) 81,431 77,614 244,271 218,126
Funds from Operations attributable to TCO's common shareowners (1) 57,556 55,120 172,617 155,029
Funds from Operations per common share - basic (1) 0.95 0.91 2.86 2.51
Funds from Operations per common share - diluted (1) 0.94 0.89 2.82 2.46
Adjusted Funds from Operations attributable to partnership unitholders and participating securities of TRG (1) 81,431 74,946 222,569 216,137
Adjusted Funds from Operations attributable to TCO's common shareowners (1) 57,556 53,232 157,282 153,614
Adjusted Funds from Operations per common share - basic (1) 0.95 0.88 2.61 2.49
Adjusted Funds from Operations per common share - diluted (1) 0.94 0.86 2.57 2.44
Weighted average number of common shares outstanding - basic 60,396,902 60,713,379 60,341,863 61,778,051
Weighted average number of common shares outstanding - diluted 60,831,063 61,426,115 60,774,789 62,573,957
Common shares outstanding at end of period 60,405,097 60,258,750
Weighted average units - Operating Partnership - basic 85,450,379 85,776,728 85,400,667 86,854,852
Weighted average units - Operating Partnership - diluted 86,755,801 87,360,726 86,704,855 88,522,020
Units outstanding at end of period - Operating Partnership 85,451,376 85,320,909
Ownership percentage of the Operating Partnership at end of period 70.7 % 70.6 %
Number of owned shopping centers at end of period 23 19
 
Operating Statistics:
Net Operating Income excluding lease cancellation income - growth % (1)(2) 4.5 % 2.8 % 5.5 % 3.0 %
Net Operating Income including lease cancellation income - growth % (1)(2) 3.6 % 3.4 % 4.6 % 2.8 %
Average rent per square foot - Consolidated Businesses (2) 62.83 61.78 64.07 61.17
Average rent per square foot - Unconsolidated Joint Ventures (2) 57.46 56.92 58.02 57.34
Average rent per square foot - Combined (2) 60.23 59.44 61.16 59.34
Average rent per square foot growth (2) 1.3 % 3.1 %
Ending occupancy - all centers 93.6 % 92.2 % 93.6 % 92.2 %
Ending occupancy - comparable (2) 95.0 % 94.0 % 95.0 % 94.0 %
Leased space - all centers 95.9 % 96.3 % 95.9 % 96.3 %
Leased space - comparable (2) 96.7 % 97.3 % 96.7 % 97.3 %
Mall tenant sales - all centers (3) 1,319,794 1,197,976 3,815,182 3,577,249
Mall tenant sales - comparable (2)(3) 1,132,953 1,112,374 3,352,811 3,330,693
 
12-Months Trailing
2016 2015
Operating Statistics:
Mall tenant sales - all centers (3) 5,415,921 5,178,411
Mall tenant sales - comparable (2)(3) 4,623,838 4,634,223
Sales per square foot (2)(3) 790 802
All centers (3):
Mall tenant occupancy costs as a percentage of tenant sales - Consolidated Businesses 14.6 % 14.1 %
Mall tenant occupancy costs as a percentage of tenant sales - Unconsolidated Joint Ventures 14.1 % 13.3 %
Mall tenant occupancy costs as a percentage of tenant sales - Combined 14.4 % 13.7 %
Comparable centers (2)(3):
Mall tenant occupancy costs as a percentage of tenant sales - Consolidated Businesses 14.1 % 13.6 %
Mall tenant occupancy costs as a percentage of tenant sales - Unconsolidated Joint Ventures 14.4 % 13.4 %
Mall tenant occupancy costs as a percentage of tenant sales - Combined 14.3 % 13.5 %
 
(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, 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 nine month period ended September 30, 2016, FFO and EBITDA were adjusted to exclude 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 at The Shops at Crystals (Crystals) due to a change in ownership of the center. During the three and nine month periods ended September 30, 2015, upon the announcement of an executive management transition, the Company reversed certain prior period share-based compensation expense, for which the Company adjusted FFO and EBITDA.
 
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 for all periods presented. The September 30, 2015 statistics have been restated to include comparable centers to 2016. The Mall at University Town Center has been excluded from comparable 12-month trailing statistics reported for 2016 and 2015 as the center was not open for the entire 12 months ended September 30, 2015. Sales per square foot exclude spaces greater than or equal to 10,000 square feet.
 
(3) Based on reports of sales furnished by mall tenants.
 
TAUBMAN CENTERS, INC.      
Table 2 - Income Statement
For the Three Months Ended September 30, 2016 and 2015            
(in thousands of dollars)
      2016 2015
CONSOLIDATED

UNCONSOLIDATED
CONSOLIDATED

UNCONSOLIDATED
BUSINESSES  

JOINT VENTURES (1)
BUSINESSES  

JOINT VENTURES (1)
REVENUES:
Minimum rents 81,402 67,297 77,484 53,633
Percentage rents 6,264 2,807 5,032 2,060
Expense recoveries 52,151 39,547 47,206 32,908
Management, leasing, and development services 1,399 3,367
Other 6,805   4,283   6,894   2,399  
Total revenues 148,021 113,934 139,983 91,000
 
EXPENSES:
Maintenance, taxes, utilities, and promotion 39,053 31,974 37,230 22,960
Other operating (2) 18,592 6,098 12,732 4,704
Management, leasing, and development services 1,268 1,558
General and administrative (3) 11,578 8,615
Interest expense 22,129 26,583 16,145 21,126
Depreciation and amortization 40,637   27,219   27,156   14,667  
Total expenses 133,257 91,874 103,436 63,457
 
Nonoperating income (expense) 4,569   (594 ) 1,010   (1 )
19,333 21,466 37,557 27,542
Income tax benefit (expense) 460 (315 ) (584 )  
21,151   27,542  
Equity in income of Unconsolidated Joint Ventures 15,391   15,219  
35,184 52,192
Gain on dispositions, net of tax (4)   437  
Net income 35,184 52,629
Net income attributable to noncontrolling interests:
Noncontrolling share of income of consolidated joint ventures (1,662 ) (2,780 )
Noncontrolling share of income of TRG (8,449 ) (13,151 )
Distributions to participating securities of TRG (537 ) (492 )
Preferred stock dividends (5,784 ) (5,784 )
Net income attributable to Taubman Centers, Inc. common shareowners 18,752   30,422  
 
SUPPLEMENTAL INFORMATION:
EBITDA - 100% 82,099 75,268 80,858 63,335
EBITDA - outside partners' share (5,873 ) (30,293 ) (5,451 ) (28,027 )
Beneficial interest in EBITDA 76,226 44,975 75,407 35,308
Beneficial interest expense (19,261 ) (14,274 ) (14,439 ) (11,431 )
Beneficial income tax benefit (expense) - TRG and TCO 471 (315 ) (584 )
Beneficial income tax benefit - TCO (184 )
Non-real estate depreciation (607 ) (679 )
Preferred dividends and distributions (5,784 )   (5,784 )  
Funds from Operations attributable to partnership unitholders and participating securities of TRG 51,045   30,386   53,737   23,877  
 
STRAIGHTLINE AND PURCHASE ACCOUNTING ADJUSTMENTS:
Net straight-line adjustments to rental revenue, recoveries, and ground rent expense at TRG% 438 849 452 533
Country Club Plaza purchase accounting adjustments - minimum rents increase 163
The Mall at Green Hills purchase accounting adjustments - minimum rents increase 51 91
El Paseo Village and The Gardens on El Paseo purchase accounting
adjustments - interest expense reduction 306
Waterside Shops purchase accounting adjustments - interest expense reduction 263
 
(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) In 2016, the Company stopped allocating certain corporate-level operating expenses to the centers to better reflect the performance of the centers without regard to corporate infrastructure. These expenses, which were previously recognized in both the Other Operating Expenses for the Company's Consolidated Businesses and the Unconsolidated Joint Ventures, are now recognized entirely in the Other Operating Expenses for the Company's Consolidated Businesses in 2016. The comparative amount of Other Operating Expenses allocated to Unconsolidated Joint Ventures was $1.1 million for the three months ended September 30, 2015.
 
(3) During the three months ended September 30, 2015, a reversal of $2.7 million of prior period share-based compensation expenses was recognized upon the announcement of an executive management transition.
 
(4) During the three months ended September 30, 2015, an adjustment to the tax on the gain on the disposition of interests in International Plaza was recognized, reducing the amount of the tax by $0.4 million.
 
TAUBMAN CENTERS, INC.      
Table 3 - Income Statement
For the Nine Months Ended September 30, 2016 and 2015            
(in thousands of dollars)
      2016 2015
CONSOLIDATED UNCONSOLIDATED CONSOLIDATED UNCONSOLIDATED
BUSINESSES   JOINT VENTURES (1) BUSINESSES   JOINT VENTURES (1)
REVENUES:
Minimum rents 246,073 191,312 228,920 159,207
Percentage rents 9,960 6,027 9,039 5,510
Expense recoveries 147,291 112,259 137,138 96,159
Management, leasing, and development services (2) 26,323 9,665
Other 16,719   9,747   16,183   9,912  
Total revenues 446,366 319,345 400,945 270,788
 
EXPENSES:
Maintenance, taxes, utilities, and promotion 109,908 86,759 103,970 67,231
Other operating (3) 57,782 14,926 40,630 14,781
Management, leasing, and development services 3,034 4,099
General and administrative (4) 34,651 32,595
Interest expense 61,845 72,881 44,451 63,148
Depreciation and amortization 100,099   63,837   77,575   42,536  
Total expenses 367,319 238,403 303,320 187,696
 
Nonoperating income (expense) 8,715   512   3,712   4  
87,762 81,454 101,337 83,096
Income tax expense (284 ) (315 ) (2,110 )  
81,139   83,096  
Equity in income of Unconsolidated Joint Ventures 49,779   46,298  
137,257 145,525
Gain on dispositions, net of tax (5)   437  
Net income 137,257 145,962
Net income attributable to noncontrolling interests:
Noncontrolling share of income of consolidated joint ventures (5,813 ) (8,043 )
Noncontrolling share of income of TRG (34,435 ) (35,815 )
Distributions to participating securities of TRG (1,573 ) (1,477 )
Preferred stock dividends (17,353 ) (17,353 )
Net income attributable to Taubman Centers, Inc. common shareowners 78,083   83,274  
 
SUPPLEMENTAL INFORMATION:
EBITDA - 100% 249,706 218,172 223,363 188,780
EBITDA - outside partners' share (17,236 ) (93,070 ) (15,733 ) (83,055 )
Beneficial interest in EBITDA 232,470 125,102 207,630 105,725
Beneficial interest expense (54,459 ) (39,009 ) (39,357 ) (34,199 )
Beneficial income tax expense - TRG and TCO (265 ) (315 ) (2,110 )
Beneficial income tax expense (benefit) - TCO (19 ) 104
Non-real estate depreciation (1,881 ) (2,314 )
Preferred dividends and distributions (17,353 )   (17,353 )  
Funds from Operations attributable to partnership unitholders and participating securities of TRG 158,493   85,778   146,600   71,526  
 
STRAIGHTLINE AND PURCHASE ACCOUNTING ADJUSTMENTS:
Net straight-line adjustments to rental revenue, recoveries, and ground rent expense at TRG% 891 2,013 79 1,422
Country Club Plaza purchase accounting adjustments - minimum rents increase 163
The Mall at Green Hills purchase accounting adjustments - minimum rents increase 167 271
El Paseo Village and The Gardens on El Paseo purchase accounting
adjustments - interest expense reduction 440 917
Waterside Shops purchase accounting adjustments - interest expense reduction 788 788
 
(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) 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) In 2016, the Company stopped allocating certain corporate-level operating expenses to the centers to better reflect the performance of the centers without regard to corporate infrastructure. These expenses, which were previously recognized in both the Other Operating Expenses for the Company's Consolidated Businesses and the Unconsolidated Joint Ventures, are now recognized entirely in the Other Operating Expenses for the Company's Consolidated Businesses in 2016. The comparative amount of Other Operating Expenses allocated to Unconsolidated Joint Ventures was $3.6 million for the nine months ended September 30, 2015.
 
(4) During the nine months ended September 30, 2015, a net reversal of $2.0 million of prior period share-based compensation expenses was recognized upon the announcement of an executive management transition.
 
(5) During the nine months ended September 30, 2015, an adjustment to the tax on the gain on the disposition of interests in International Plaza was recognized, reducing the amount of the tax by $0.4 million.
 
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 September 30, 2016 and 2015
(in thousands of dollars except as noted; may not add or recalculate due to rounding)
 
2016 2015
Shares Per Share Shares Per Share
Dollars /Units /Unit Dollars /Units /Unit
Net income attributable to TCO common shareowners - basic 18,752 60,396,902 0.31 30,422 60,713,379 0.50
 
Add impact of share-based compensation 42   434,161     109   712,736    
 
Net income attributable to TCO common shareowners - diluted 18,794 60,831,063 0.31 30,531 61,426,115 0.50
 
Add depreciation of TCO's additional basis 1,617 0.03 1,617 0.03
Less TCO's additional income tax benefit       (184 )   (0.00 )
 
Net income attributable to TCO common shareowners,
excluding step-up depreciation and additional income tax benefit 20,411 60,831,063 0.34 31,964 61,426,115 0.52
 
Add noncontrolling share of income of TRG 8,449 25,053,476 13,151 25,063,349
Add distributions to participating securities of TRG 537   871,262     492   871,262    
 
Net income attributable to partnership unitholders
and participating securities of TRG 29,397 86,755,801 0.34 45,607 87,360,726 0.52
 
Add (less) depreciation and amortization:
Consolidated businesses at 100% 40,637 0.47 27,156 0.31
Depreciation of TCO's additional basis (1,617 ) (0.02 ) (1,617 ) (0.02 )
Noncontrolling partners in consolidated joint ventures (1,332 ) (0.02 ) (965 ) (0.01 )
Share of Unconsolidated Joint Ventures 14,995 0.17 8,658 0.10
Non-real estate depreciation (607 ) (0.01 ) (679 ) (0.01 )
 
Less gain on dispositions, net of tax (437 ) (0.01 )
Less impact of share-based compensation (42 )   (0.00 ) (109 )   (0.00 )
 
Funds from Operations attributable to partnership unitholders
and participating securities of TRG 81,431 86,755,801 0.94 77,614 87,360,726 0.89
 
TCO's average ownership percentage of TRG - basic (1) 70.7 %   70.8 %
 
Funds from Operations attributable to TCO's common shareowners,
excluding additional income tax benefit (1) 57,556 0.94 54,936 0.89
 
Add TCO's additional income tax benefit     184   0.00  
 
Funds from Operations attributable to TCO's common shareowners (1) 57,556   0.94   55,120   0.89  
 
Funds from Operations attributable to partnership unitholders
and participating securities of TRG 81,431 86,755,801 0.94 77,614 87,360,726 0.89
 
Reversal of executive share-based compensation expense       (2,668 )   (0.03 )
 
Adjusted Funds from Operations attributable to partnership unitholders
and participating securities of TRG 81,431 86,755,801 0.94 74,946 87,360,726 0.86
 
TCO's average ownership percentage of TRG - basic (2) 70.7 % 70.8 %
 
Adjusted Funds from Operations attributable to TCO's common shareowners,
excluding additional income tax benefit (2) 57,556 0.94 53,048 0.86
 
Add TCO's additional income tax benefit     184   0.00  
 
Adjusted Funds from Operations attributable to TCO's common shareowners (2) 57,556   0.94   53,232   0.86  
 
(1 ) For the three months ended September 30, 2016, Funds from Operations attributable to TCO's common shareowners was $56,690 using TCO's diluted average ownership percentage of TRG of 69.6%. For the three months ended September 30, 2015, Funds from Operations attributable to TCO's common shareowners was $54,124 using TCO's diluted average ownership percentage of TRG of 69.5%.
 
(2 ) For the three months ended September 30, 2016, Adjusted Funds from Operations attributable to TCO's common shareowners was $56,690 using TCO's diluted average ownership percentage of TRG of 69.6%. For the three months ended September 30, 2015, Adjusted Funds from Operations attributable to TCO's common shareowners was $52,270 using TCO's diluted average ownership percentage of TRG of 69.5%.
 
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 Nine Months Ended September 30, 2016 and 2015
(in thousands of dollars except as noted; may not add or recalculate due to rounding)
 
2016 2015
Shares Per Share Shares Per Share
Dollars /Units /Unit Dollars /Units /Unit
Net income attributable to TCO common shareowners - basic 78,083 60,341,863 1.29 83,274 61,778,051 1.35
 
Add impact of share-based compensation 171   432,926     305   795,906    
 
Net income attributable to TCO common shareowners - diluted 78,254 60,774,789 1.29 83,579 62,573,957 1.34
 
Add depreciation of TCO's additional basis 4,851 0.08 4,851 0.08
Add (less) TCO's additional income tax expense (benefit) (19 )   (0.00 ) 104     0.00  
 
Net income attributable to TCO common shareowners,
excluding step-up depreciation and additional income tax expense (benefit) 83,086 60,774,789 1.37 88,534 62,573,957 1.41
 
Add noncontrolling share of income of TRG 34,435 25,058,804 35,815 25,076,801
Add distributions to participating securities of TRG 1,573   871,262     1,477   871,262    
 
Net income attributable to partnership unitholders
and participating securities of TRG 119,094 86,704,855 1.37 125,826 88,522,020 1.42
 
Add (less) depreciation and amortization:
Consolidated businesses at 100% 100,099 1.15 77,575 0.88
Depreciation of TCO's additional basis (4,851 ) (0.06 ) (4,851 ) (0.05 )
Noncontrolling partners in consolidated joint ventures (4,018 ) (0.05 ) (2,596 ) (0.03 )
Share of Unconsolidated Joint Ventures 35,999 0.42 25,228 0.28
Non-real estate depreciation (1,881 ) (0.02 ) (2,314 ) (0.03 )
 
Less gain on dispositions, net of tax (437 ) (0.00 )
Less impact of share-based compensation (171 )   (0.00 ) (305 )   (0.00 )
 
Funds from Operations attributable to partnership unitholders
and participating securities of TRG 244,271 86,704,855 2.82 218,126 88,522,020 2.46
 
TCO's average ownership percentage of TRG - basic (1) 70.7

%
71.1 %
 
Funds from Operations attributable to TCO's common shareowners,
excluding additional income tax benefit (expense) (1) 172,598 2.82 155,133 2.46
 
Add (less) TCO's additional income tax benefit (expense) 19   0.00   (104 ) (0.00 )
 
Funds from Operations attributable to TCO's common shareowners (1) 172,617   2.82   155,029   2.46  
 
Funds from Operations attributable to partnership unitholders
and participating securities of TRG 244,271 86,704,855 2.82 218,126 88,522,020 2.46
 
Crystals lump sum payment received for termination of leasing agreement (21,702 ) (0.25 )
Reversal of executive share-based compensation expense       (1,989 )   (0.02 )
 
Adjusted Funds from Operations attributable to partnership unitholders
and participating securities of TRG 222,569 86,704,855 2.57 216,137 88,522,020 2.44
 
TCO's average ownership percentage of TRG - basic (2) 70.7 % 71.1 %
 
Adjusted Funds from Operations attributable to TCO's common shareowners,
excluding additional income tax benefit (expense) (2) 157,263 2.57 153,718 2.44
 
Add (less) TCO's additional income tax benefit (expense) 19   0.00   (104 ) (0.00 )
 
Adjusted Funds from Operations attributable to TCO's common shareowners (2) 157,282   2.57   153,614   2.44  
 
(1 ) For the nine months ended September 30, 2016, Funds from Operations attributable to TCO's common shareowners was $170,032 using TCO's diluted average ownership percentage of TRG of 69.6%. For the nine months ended September 30, 2015, Funds from Operations attributable to TCO's common shareowners was $152,110 using TCO's diluted average ownership percentage of TRG of 69.8%.
 
(2 ) For the nine months ended September 30, 2016, Adjusted Funds from Operations attributable to TCO's common shareowners was $154,913 using TCO's diluted average ownership percentage of TRG of 69.6%. For the nine months ended September 30, 2015, Adjusted Funds from Operations attributable to TCO's common shareowners was $150,722 using TCO's diluted average ownership percentage of TRG of 69.8%.
 
TAUBMAN CENTERS, INC.        
Table 6 - Reconciliation of Net Income to Beneficial Interest in EBITDA and Adjusted Beneficial Interest in EBITDA
For the Periods Ended September 30, 2016 and 2015
(in thousands of dollars; amounts attributable to TCO may not recalculate due to rounding)
   
Three Months Ended Year to Date
2016 2015 2016 2015
Net income 35,184 52,629 137,257 145,962
 
Add (less) depreciation and amortization:
Consolidated businesses at 100% 40,637 27,156 100,099 77,575
Noncontrolling partners in consolidated joint ventures (1,332 ) (965 ) (4,018 ) (2,596 )
Share of Unconsolidated Joint Ventures 14,995 8,658 35,999 25,228
 
Add (less) interest expense and income tax expense (benefit):
Interest expense:
Consolidated businesses at 100% 22,129 16,145 61,845 44,451
Noncontrolling partners in consolidated joint ventures (2,868 ) (1,706 ) (7,386 ) (5,094 )
Share of Unconsolidated Joint Ventures 14,274 11,431 39,009 34,199
Income tax expense (benefit):
Income tax benefit on disposition of International Plaza (437 ) (437 )
Consolidated businesses at 100% (471 ) 584 265 2,110
Share of Unconsolidated Joint Ventures 315 315
 
Less noncontrolling share of income of consolidated joint ventures (1,662 ) (2,780 ) (5,813 ) (8,043 )
 
Beneficial interest in EBITDA 121,201 110,715 357,572 313,355
 
TCO's average ownership percentage of TRG - basic 70.7 % 70.8 % 70.7 % 71.1 %
 
Beneficial interest in EBITDA attributable to TCO 85,665   78,365   252,651   222,858  
 
Beneficial interest in EBITDA 121,201 110,715 357,572 313,355
 
Less:
Crystals lump sum payment received for termination of leasing agreement (21,702 )
Reversal of executive share-based compensation expense   (2,668 )   (1,989 )
 
Adjusted Beneficial interest in EBITDA 121,201 108,047 335,870 311,366
 
TCO's average ownership percentage of TRG - basic 70.7 % 70.8 % 70.7 % 71.1 %
 
Adjusted Beneficial interest in EBITDA attributable to TCO 85,665   76,476   237,318   221,468  
 
TAUBMAN CENTERS, INC.
Table 7 - Reconciliation of Net Income to Net Operating Income (NOI)
For the Periods Ended September 30, 2016, 2015, and 2014
(in thousands of dollars)  
    Three Months Ended Three Months Ended Year to Date Year to Date
2016 2015 2015 2014 2016 2015 2015 2014
Net income 35,184 52,629 52,629 56,637 137,257 145,962 145,962 621,848
 
Add (less) depreciation and amortization:
Consolidated businesses at 100% 40,637 27,156 27,156 24,553 100,099 77,575 77,575 96,521
Noncontrolling partners in consolidated joint ventures (1,332 ) (965 ) (965 ) (814 ) (4,018 ) (2,596 ) (2,596 ) (3,568 )
Share of Unconsolidated Joint Ventures 14,995 8,658 8,658 7,277 35,999 25,228 25,228 21,309
 
Add (less) interest expense and income tax expense (benefit):
Interest expense:
Consolidated businesses at 100% 22,129 16,145 16,145 23,382 61,845 44,451 44,451 74,946
Noncontrolling partners in consolidated joint ventures (2,868 ) (1,706 ) (1,706 ) (2,109 ) (7,386 ) (5,094 ) (5,094 ) (6,259 )
Share of Unconsolidated Joint Ventures 14,274 11,431 11,431 10,006 39,009 34,199 34,199 29,805
Share of income tax expense (benefit):
Income tax expense (benefit) on dispositions of International Plaza, Arizona Mills, and Oyster Bay (437 ) (437 ) (437 ) (437 ) 9,733
Consolidated businesses at 100% (471 ) 584 584 683 265 2,110 2,110 1,693
Share of Unconsolidated Joint Ventures 315 315
 
Less noncontrolling share of income of consolidated joint ventures (1,662 ) (2,780 ) (2,780 ) (2,643 ) (5,813 ) (8,043 ) (8,043 ) (8,013 )
 
Add EBITDA attributable to outside partners:
EBITDA attributable to noncontrolling partners in consolidated joint ventures 5,873 5,451 5,451 5,566 17,236 15,733 15,733 17,840
EBITDA attributable to outside partners in Unconsolidated Joint Ventures 30,293   28,027   28,027   24,819   93,070   83,055   83,055   72,345  
 
EBITDA at 100% 157,367 144,193 144,193 147,357 467,878 412,143 412,143 928,200
 
Add (less) items excluded from shopping center NOI:
General and administrative expenses 11,578 8,615 8,615 11,369 34,651 32,595 32,595 34,493
Management, leasing, and development services, net (131 ) (1,809 ) (1,809 ) (1,596 ) (23,289 ) (1) (5,566 ) (5,566 ) (4,085 )
Straight-line of rents (2,574 ) (1,696 ) (1,696 ) (1,195 ) (5,712 ) (3,794 ) (3,794 ) (3,482 )
Gain on dispositions (486,620 )
Disposition costs related to the Starwood sale 519 960
Discontinuation of hedge accounting - MacArthur Center (171 ) 5,507
Restructuring charge 3,031 3,031
Gain on sales of peripheral land (1,425 ) (1,828 )
Dividend income (974 ) (915 ) (915 ) (761 ) (2,862 ) (2,626 ) (2,626 ) (1,597 )
Interest income (1,907 ) (377 ) (377 ) (456 ) (4,179 ) (1,596 ) (1,596 ) (764 )
Other nonoperating expense (income) 331 283 283 (358 ) 506 506 (754 )
Unallocated operating expenses and other 9,826   7,269   (2) 3,934   5,628   32,002   24,332   (2) 14,243   14,587  
 
NOI - all centers at 100% 172,091 155,563 152,228 163,725 496,303 455,994 445,905 489,476
 
Less - NOI of non-comparable centers (21,993 ) (3) (10,669 ) (4) (5,931 ) (5) (22,206 ) (6) (52,245 ) (3) (31,624 ) (4) (17,083 ) (5) (72,182 ) (7)
 
NOI at 100% - comparable centers 150,098   144,894   146,297   141,519   444,058   424,370   428,822   417,294  
 
NOI - growth % 3.6 % 3.4 % 4.6 % 2.8 %
 
NOI at 100% - comparable centers 150,098 144,894 146,297 141,519 444,058 424,370 428,822 417,294
 
Lease cancellation income (649 ) (1,943 ) (1,954 ) (1,056 ) (2,875 ) (6,198 ) (6,357 ) (7,055 )
 
NOI at 100% - comparable centers excluding lease cancellation income 149,449   142,951   144,343   140,463   441,183   418,172   422,465   410,239  
 
NOI at 100% excluding lease cancellation income - growth % 4.5 % 2.8 % 5.5 % 3.0 %
 
(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) In 2016, the Company stopped allocating certain corporate-level operating expenses to the centers to better reflect the performance of the centers without regard to corporate infrastructure. These expenses, which were previously recognized in other operating expenses of the centers, are now recognized in unallocated operating expenses. For the three and nine month periods ended September 30, 2015, the comparative amount of other operating expenses allocated to the centers was $3.3 million and $10.1 million, respectively at 100%.
 
(3) Includes Beverly Center, CityOn.Xi'an, Country Club Plaza, International Market Place, The Mall of San Juan, Starfield Hanam, and certain post-closing adjustments relating to the portfolio of centers sold to Starwood.
 
(4) Includes Beverly Center and The Mall of San Juan.
 
(5) Includes The Mall of San Juan and The Mall at University Town Center.
 
(6) Includes the portfolio of centers sold to Starwood and an adjustment to reflect the allocation of costs to Starwood centers that are now being allocated to the remainder of the portfolio.
 
(7) Includes the portfolio of centers sold to Starwood and Arizona Mills for the approximately one-month period prior to its disposition. Includes an adjustment to reflect the allocation of costs to Starwood centers that are now being allocated to the remainder of the portfolio.
 
TAUBMAN CENTERS, INC.
Table 8 - Balance Sheets
As of September 30, 2016 and December 31, 2015
(in thousands of dollars)
        As of
September 30, 2016 December 31, 2015
Consolidated Balance Sheet of Taubman Centers, Inc.:
 
Assets:
Properties 4,102,661 3,713,215
Accumulated depreciation and amortization (1,124,324 ) (1,052,027 )
2,978,337 2,661,188
Investment in Unconsolidated Joint Ventures 621,489 433,911
Cash and cash equivalents 59,707 206,635
Restricted cash 1,002 6,447
Accounts and notes receivable, net 52,543 54,547
Accounts receivable from related parties 1,899 2,478
Deferred charges and other assets (1) 296,187   181,304  
4,011,164   3,546,510  
Liabilities:
Notes payable, net (1) 3,203,697 2,627,088
Accounts payable and accrued liabilities 387,107 334,525
Distributions in excess of investments in and net income of
Unconsolidated Joint Ventures 465,118   464,086  
4,055,922 3,425,699
 
Redeemable noncontrolling interest 8,432
 
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 604 602
Additional paid-in capital 653,839 652,146
Accumulated other comprehensive income (loss) (26,430 ) (27,220 )
Dividends in excess of net income (543,137 ) (512,746 )
84,901 112,807
Noncontrolling interests:
Noncontrolling interests in consolidated joint ventures (157,373 ) (23,569 )
Noncontrolling interests in partnership equity of TRG 19,282   31,573  
(138,091 ) 8,004  
(53,190 ) 120,811  
4,011,164   3,546,510  
 
(1) The December 31, 2015 balance has been restated in connection with the Company's adoption of Accounting Standards Update (ASU) No. 2015-03 "Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs" which changed the presentation of debt issuance costs on the Consolidated Balance Sheet. In connection with the adoption of ASU No. 2015-03 on January 1, 2016, the Company retrospectively reclassified the December 31, 2015 Consolidated Balance Sheet to move $16.9 million of debt issuance costs out of Deferred Charges and Other Assets and into Notes Payable, Net as a direct deduction of the related debt liabilities.
 
Combined Balance Sheet of Unconsolidated Joint Ventures (1):
Assets:
Properties 2,558,697 1,628,492
Accumulated depreciation and amortization (637,141 ) (589,145 )
1,921,556 1,039,347
Cash and cash equivalents 38,990 36,047
Accounts and notes receivable, net 59,700 42,361
Deferred charges and other assets (2) 76,407   32,660  
2,096,653   1,150,415  
Liabilities:
Notes payable, net (2)(3) 2,298,698 1,994,298
Accounts payable and other liabilities 304,212   70,539  
2,602,910 2,064,837
Accumulated Deficiency in Assets:
Accumulated deficiency in assets - TRG (290,009 ) (507,282 )
Accumulated deficiency in assets - Joint Venture Partners (197,307 ) (397,196 )
Accumulated other comprehensive loss - TRG (9,477 ) (4,974 )
Accumulated other comprehensive loss - Joint Venture Partners (9,464 ) (4,970 )
(506,257 ) (914,422 )
2,096,653   1,150,415  
 
(1) Unconsolidated Joint Venture amounts exclude the balances of CityOn.Zhengzhou and Starfield Hanam as of September 30, 2016 and December 31, 2015. In addition, the amounts exclude the balances of CityOn.Xi'an as of December 31, 2015.
 
(2) The December 31, 2015 balance has been adjusted in connection with the Company's adoption of ASU No. 2015-03 "Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs."
 
(3) The balances presented exclude the construction financings outstanding for Starfield Hanam of $335.2 million ($115.0 million at TRG's share) and $52.9 million ($18.1 million at TRG's share) as of September 30, 2016 and December 31, 2015, respectively, and CityOn.Zhengzhou of $73.5 million ($36.0 million at TRG's share) and $44.7 million ($14.2 million at TRG's share) as of September 30, 2016 and December 31, 2015, respectively, and the related debt issuance costs.
 
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, 2016
 
Adjusted Funds from Operations per common share 3.53 3.63
 
Crystals lump sum fee for termination of leasing agreement 0.25 0.25
   
Funds from Operations per common share 3.78 3.88
 
Real estate depreciation - TRG (2.05 ) (2.00 )
 
Distributions to participating securities of TRG (0.02 ) (0.02 )
 
Depreciation of TCO's additional basis in TRG (0.11 ) (0.11 )
 
Net income attributable to common shareowners, per common share (EPS) 1.61   1.76  
 

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