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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to _________________
Commission File Number 1-11530
TAUBMAN CENTERS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Michigan 38-2033632
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Long Lake Road
Suite 300, P.O. Box 200
Bloomfield Hills, Michigan 48303-0200
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (248) 258-6800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------------
Common Stock, New York Stock Exchange
$0.01 Par Value
8.3% Series A Cumulative New York Stock Exchange
Redeemable Preferred Stock,
$0.01 Par Value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such report(s)) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
___ Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
As of March 22, 2001, the aggregate market value of the 49,644,031 shares of
Common Stock held by non-affiliates of the registrant was $598 million, based
upon the closing price $12.05 on the New York Stock Exchange composite tape on
such date. (For this computation, the registrant has excluded the market value
of all shares of its Common Stock reported as beneficially owned by executive
officers and directors of the registrant and certain other shareholders; such
exclusion shall not be deemed to constitute an admission that any such person is
an "affiliate" of the registrant.) As of March 22, 2001, there were outstanding
50,038,272 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held
in 2001 are incorporated by reference into Part III.
PART I
Item 1. BUSINESS
The Company
Taubman Centers, Inc. (the "Company" or "TCO") was incorporated in Michigan
in 1973 and had its initial public offering ("IPO") in 1992. Upon completion of
the IPO, the Company became the managing general partner of The Taubman Realty
Group Limited Partnership (the "Operating Partnership" or "TRG"). The Company
has a 62% partnership interest in the Operating Partnership, through which the
Company conducts all its operations. The Company owns, develops, acquires, and
operates regional shopping centers ("Centers") and interests therein. The
Company's portfolio, as of December 31, 2000, included 16 urban and suburban
Centers located in seven states. One additional Center opened in March 2001 and
four other Centers are under construction and are expected to open in 2001 and
2002. The Operating Partnership also owns certain regional retail shopping
center development projects and more than 99% of The Taubman Company Limited
Partnership (the "Manager"), which manages the shopping centers, and provides
other services to the Operating Partnership and the Company. See the table on
pages 12 and 13 of this report for information regarding the Centers.
The Company is a real estate investment trust, or REIT, under the Internal
Revenue Code of 1986, as amended (the "Code"). In order to satisfy the
provisions of the Code applicable to REITs, the Company must distribute to its
shareholders at least 90% of its REIT taxable income and meet certain other
requirements. TRG's partnership agreement provides that the Operating
Partnership will distribute, at a minimum, sufficient amounts to its partners
such that the Company's pro rata share will enable the Company to pay
shareholder dividends (including capital gains dividends that may be required
upon the Operating Partnership's sale of an asset) that will satisfy the REIT
provisions of the Code.
Recent Developments
For a discussion of business developments that occurred in 2000, see Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" (MD&A).
The Shopping Center Business
There are several types of retail shopping centers, varying primarily by
size and marketing strategy. Retail shopping centers range from neighborhood
centers of less than 100,000 square feet of GLA to regional and super-regional
shopping centers. Retail shopping centers in excess of 400,000 square feet of
GLA are generally referred to as "regional" shopping centers, while those
centers having in excess of 800,000 square feet of GLA are generally referred to
as "super-regional" shopping centers. Thirteen of the Centers are
"super-regional" centers. In this annual report on Form 10-K, the term "regional
shopping centers" refers to both regional and super-regional shopping centers.
The term "GLA" refers to gross retail space, including anchors and mall tenant
areas, and the term "Mall GLA" refers to gross retail space, excluding anchors.
The term "anchor" refers to a department store or other large retail store. The
term "mall tenants" refers to stores (other than anchors) that are typically
specialty retailers and lease space in shopping centers.
1
Business of the Company
The Company, as managing general partner of the Operating Partnership, is
engaged in the ownership, management, leasing, acquisition, development and
expansion of regional shopping centers.
The Centers:
o are strategically located in major metropolitan areas, many in
communities that are among the most affluent in the country, including
New York City, Los Angeles, Denver, Detroit, Phoenix, Miami, and
Washington, D.C.;
o range in size between 438,000 and 1.6 million square feet of GLA and
between 133,000 and 614,000 square feet of Mall GLA. The smallest
Center has approximately 50 stores, and the largest has approximately
200 stores. Of the 16 Centers, 13 are super-regional shopping centers;
o have approximately 2,200 stores operated by its mall tenants under
approximately 975 trade names;
o have 48 anchors, operating under 15 trade names;
o lease approximately 78% of Mall GLA to national chains, including
subsidiaries or divisions of The Limited (The Limited, Limited
Express, Victoria's Secret, and others), The Gap (The Gap, Banana
Republic, and others), and Venator Group, Inc. (Foot Locker, Champs
Sports, and others); and
o are among the most productive (measured by mall tenants' average per
square foot sales) in the United States. In 2000, mall tenants had
average per square foot sales of $479, which is substantially greater
than the average for all regional shopping centers owned by public
companies.
The most important factor affecting the revenues generated by the Centers
is leasing to mall tenants (primarily specialty retailers), which represents
approximately 90% of revenues. Anchors account for less than 10% of revenues
because many own their stores and, in general, those that lease their stores do
so at rates substantially lower than those in effect for mall tenants.
The Company's portfolio is concentrated in highly productive super-regional
shopping centers. Of the 16 Centers, 14 had annual rent rolls at December 31,
2000 of over $10 million. The Company believes that this level of productivity
is indicative of the Centers' strong competitive position and is, in significant
part, attributable to the Company's business strategy and philosophy. The
Company believes that large shopping centers (including regional and especially
super-regional shopping centers) are the least susceptible to direct competition
because (among other reasons) anchors and large specialty retail stores do not
find it economically attractive to open additional stores in the immediate
vicinity of an existing location for fear of competing with themselves. In
addition to the advantage of size, the Company believes that the Centers'
success can be attributed in part to their other physical characteristics, such
as design, layout, and amenities.
2
Business Strategy And Philosophy
The Company believes that the regional shopping center business is not
simply a real estate development business, but rather an operating business in
which a retailing approach to the on-going management and leasing of the Centers
is essential. Thus the Company:
o Offers a large, diverse selection of retail stores in each Center to
give customers a broad selection of consumer goods and variety of
price ranges.
o Endeavors to increase overall mall tenants' sales by leasing space to
a constantly changing mix of tenants, thereby increasing achievable
rents.
o Seeks to anticipate trends in the retailing industry and emphasizes
ongoing introductions of new retail concepts into the Centers. Due in
part to this strategy, a number of successful retail trade names have
opened their first mall stores in the Centers. In addition, the
Company has brought to the Centers "new to the market" retailers. The
Company believes that its execution of this leasing strategy is unique
in the industry and is an important element in building and
maintaining customer loyalty and increasing mall productivity.
o Provides innovative initiatives that utilize technology and the
Internet to heighten the shopping experience for customers, build
customer loyalty and increase tenant sales. One such initiative is the
Company's ShopTaubman one-to-one marketing program, which connects
shoppers and retailers through online websites.
The Centers compete for retail consumer spending through diverse, in-depth
presentations of predominantly fashion merchandise in an environment intended to
facilitate customer shopping. While some Centers include stores that target
high-end, upscale customers, each Center is individually merchandised in light
of the demographics of its potential customers within convenient driving
distance.
The Company's leasing strategy involves assembling a diverse mix of mall
tenants in each of the Centers in order to attract customers, thereby generating
higher sales by mall tenants. High sales by mall tenants make the Centers
attractive to prospective tenants, thereby increasing the rental rates that
prospective tenants are willing to pay. The Company implements an active leasing
strategy to increase the Centers' productivity and to set minimum rents at
higher levels. Elements of this strategy include terminating leases of
under-performing tenants, renegotiating existing leases, and not leasing space
to prospective tenants that (though viable or attractive in certain ways) would
not enhance a Center's retail mix.
Potential For Growth
The Company's principal objective is to enhance shareholder value. The
Company seeks to maximize the financial results of its assets, while pursuing a
growth strategy that concentrates primarily on an active new center development
program.
3
Development of New Centers
The Company is pursuing an active program of regional shopping center
development. The Company believes that it has the expertise to develop
economically attractive regional shopping centers through intensive analysis of
local retail opportunities. The Company believes that the development of new
centers is the best use of its capital and an area in which the Company excels.
At any time, the Company has numerous potential development projects in various
stages.
The following table includes the new centers scheduled for opening in 2001
and 2002:
Center Opening Date Size (sq. ft.) Anchors
- ------ ------------ ------------- -------
Dolphin Mall March 1, 2001 1.4 million Off 5th Saks, Dave & Busters, Cobb
(Miami, Florida) Theatres, Burlington Coat Factory,
Marshall's, Oshman's, and more
The Shops at Willow Bend August 3, 2001 1.5 million Neiman Marcus, Lord & Taylor, Foley's,
(Plano, Texas) Dillard's, Saks Fifth Avenue (2004)
International Plaza September 14, 2001 1.3 million Neiman Marcus, Nordstrom, Lord &
(Tampa, Florida) Taylor, Dillard's
The Mall at Wellington Green October 5, 2001 1.3 million Burdines, Dillard's, JCPenney, Lord &
(Palm Beach County, Florida) Taylor, Nordstrom (2003)
The Mall at Millenia October 18, 2002 1.2 million Neiman Marcus, Bloomingdales, Macy's
(Orlando, Florida)
The Company's policies with respect to development activities are designed
to reduce the risks associated with development. For instance, the Company
previously entered into an agreement to lease a center, while the Company
investigated the redevelopment opportunities of the center. Also, the Company
generally does not intend to acquire land early in the development process.
Instead, the Company generally acquires options on land or forms partnerships
with landholders holding potentially attractive development sites. The Company
typically exercises the options only once it is prepared to begin construction.
In addition, the Company does not intend to begin construction until a
sufficient number of anchor stores have agreed to operate in the shopping
center, such that the Company is confident that the projected sales and rents
from Mall GLA are sufficient to earn a return on invested capital in excess of
the Company's cost of capital. Having historically followed these principles,
the Company's experience indicates that less than 10% of the costs of the
development of a regional shopping center will be incurred prior to the
construction period; however, no assurance can be given that the Company will
continue to be able to so limit pre-construction costs.
While the Company will continue to evaluate development projects using
criteria, including financial criteria for rates of return, similar to those
employed in the past, no assurances can be given that the adherence to these
policies will produce comparable results in the future. In addition, the costs
of shopping center development opportunities that are explored but ultimately
abandoned will, to some extent, diminish the overall return on development
projects (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Capital Spending"
for further discussion of the Company's development activities).
4
Strategic Acquisitions
The Company's objective is to acquire existing centers only when they are
compatible with the quality of the Company's portfolio (or can be redeveloped to
that level) and that satisfy the Company's strategic plans and pricing
requirements.
In addition, the Company may make other investments to enhance the value of
its business. For example, in May 2000, the Company entered into an agreement to
acquire an approximately 6.7% interest in MerchantWired, LLC, a service company
providing internet and network infrastructure to shopping centers and retailers.
Additionally, in April 1999, the Company made a strategic investment in
fashionmall.com, an online landlord. Visitors to the fashionmall website find
many of the same retailers found in Taubman centers, including Gap and Banana
Republic. Also, in November 1999, the Company acquired the retail leasing firm
Lord Associates, which will provide additional resources for the leasing of the
four new centers scheduled to open in 2001. Lord Associates has extensive
experience with value and entertainment specialty centers and had worked with
the Company on the leasing of Great Lakes Crossing.
Expansions of the Centers
Another potential element of growth is the strategic expansion of existing
properties to update and enhance their market positions, by replacing or adding
new anchor stores or increasing mall tenant space. Most of the Centers have been
designed to accommodate expansions. Expansion projects can be as significant as
new shopping center construction in terms of scope and cost, requiring
governmental and existing anchor store approvals, design and engineering
activities, including rerouting utilities, providing additional parking areas or
decking, acquiring additional land, and relocating anchors and mall tenants (all
of which must take place with a minimum of disruption to existing tenants and
customers). For example, food courts are under construction at Twelve Oaks in
the suburban Detroit area and at Woodland in Grand Rapids, Michigan. Both food
courts are scheduled to open in the fall of 2001.
5
The following table includes information regarding recent development,
acquisition, and expansion activities.
Developments:
Completion Date Center Location
--------------- ------ --------
July 1997 Tuttle Crossing (1) Columbus, Ohio
November 1997 Arizona Mills Tempe, Arizona
November 1998 Great Lakes Crossing Auburn Hills, Michigan
March 1999 MacArthur Center Norfolk, Virginia
March 2001 Dolphin Mall Miami, Florida
Acquisitions:
Completion Date Center Location
--------------- ------ --------
September 1997 Regency Square Richmond, Virginia
December 1997 Tuttle Leasehold (1) Columbus, Ohio
December 1997 The Falls (1) (2) Miami, Florida
December 1999 Great Lakes Crossing - Auburn Hills, Michigan
additional interest (3)
August 2000 Twelve Oaks - Novi, Michigan
additional interest
Expansions, Renovations and Anchor Conversions:
Completion Date Center Location
--------------- ------ --------
March 1997 Beverly Center (4) Los Angeles, California
August 1997 Westfarms (5) West Hartford, Connecticut
November 1997 -
August 1998 Cherry Creek (6) Denver, Colorado
December 1997 Biltmore (7) Phoenix, Arizona
November 1998 Woodland (8) Grand Rapids, Michigan
November 1999 Fairlane (9) Dearborn, Michigan
November 1999 Biltmore (10) Phoenix, Arizona
February 2000 -
September 2000 Fair Oaks (11) Fairfax, Virginia
May 2000 Fairlane (12) Dearborn, Michigan
December 2000 Beverly Center (8) Los Angeles, California
- ------------------
(1) Centers transferred to GMPT in connection with the GMPT Exchange (see
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations-GMPT Exchange and Related Transactions).
(2) Completely redeveloped and expanded in 1996 before the acquisition of The
Falls.
(3) In December 1999, an additional 5% interest in the center was acquired.
(4) Broadway converted to Bloomingdale's.
(5) 135,000 square foot expansion followed by the opening of a new Nordstrom in
September 1997.
(6) Lord & Taylor opened a new and expanded store in 1997. Additional 132,000
square foot expansion of mall tenant space opened in August of 1998.
(7) 50,000 square foot expansion of mall tenant space completed.
(8) Mall renovation completed.
(9) New food court opened.
(10) Macy's expansion completed.
(11) Hecht's opened an expansion in February. Additionally, a JCPenney expansion
and newly constructed Macy's opened in the fall.
(12) A 21-screen theater opened.
6
Internal Growth
The Centers are among the most productive in the nation when measured by
mall tenant's average sales per square foot. Higher sales per square foot enable
mall tenants to remain profitable while paying occupancy costs that are a
greater percentage of total sales. As leases expire at the Centers, the Company
has consistently been able, on a portfolio basis, to lease the available space
to existing or new tenants at higher rates.
Augmenting this growth, the Company is pursuing a number of new sources of
revenue from the Centers. For example, the Company has entered into a 15-year
lease agreement with JCDecaux, the world's largest street furniture and outdoor
advertising company. The agreement created an in-mall advertising program in the
Company's portfolio of owned properties, creating new point-of-sale
opportunities for retailers and manufacturers as well as heightening the in-mall
experience for shoppers. In addition, the Company expects increased revenue from
its specialty leasing efforts. In recent years a new industry -- beyond
traditional carts and kiosks -- has evolved, with more and better quality
specialty tenants. The Company has in place a company-wide program to maximize
this opportunity.
Rental Rates
As leases have expired in the Centers, the Company has generally been able
to rent the available space, either to the existing tenant or a new tenant, at
rental rates that are higher than those of the expired leases. In a period of
increasing sales, rents on new leases will tend to rise as tenants' expectations
of future growth become more optimistic. In periods of slower growth or
declining sales, rents on new leases will grow more slowly or will decline for
the opposite reason. However, Center revenues nevertheless increase as older
leases roll over or are terminated early and replaced with new leases negotiated
at current rental rates that are usually higher than the average rates for
existing leases.
Since 1992, the Company has disclosed average rents for mature centers,
those centers owned and operated for five years. In the fourth quarter of 2000,
the Company began reporting average rent per square foot for centers owned and
opened for two years, so that the statistic will be more consistent with other
reported statistics. The following table contains certain information regarding
per square foot minimum rent at Centers that have been owned and open for at
least two years.
2000 1999
---- ----
Average minimum rent per square foot:
All mall tenants $40.25 $39.58
Stores closing during year $39.99 $39.49
Stores opening during year $47.04 $48.01
The following table contains the information for centers owned and open
five years.
Year Ended December 31
----------------------------------------
2000 1999(1) 1998(2) 1997 1996
---- ---- ---- ---- ----
Average minimum rent per square foot:
All mall tenants $44.53 $44.07 $41.93 $38.79 $37.90
Stores closing during year $42.03 $41.26 $44.27 $37.62 $33.39
Stores opening during year $49.90 $52.04 $47.92 $41.67 $42.39
(1) Amounts have been restated to include centers comparable to the 2000
statistic.
(2) Excludes centers transferred to GMPT.
7
Lease Expirations
The following table shows lease expirations based on information available
as of December 31, 2000 for the next ten years for the Centers in operation at
that date:
Percent of
Annualized Base Annualized Base Total Leased
Lease Number of Leased Area Rent Under Rent Under Square Footage
Expiration Leases in Expiring Leases Expiring Leases Represented by
Year Expiring Square Footage (in thousands) Per Square Foot Expiring Leases
---- -------- -------------- -------------- --------------- ---------------
2001 (1) 80 180,885 $ 7,705 $ 42.59 2.2%
2002 215 642,254 22,702 35.35 (2) 7.9%
2003 237 762,364 27,808 36.48 (2) 9.3%
2004 220 608,126 26,874 44.19 7.4%
2005 262 689,665 31,640 45.88 8.4%
2006 167 459,557 21,143 46.01 5.6%
2007 201 700,157 26,228 37.46 (2) 8.6%
2008 213 1,032,472 31,818 30.82 (2) 12.6%
2009 218 883,837 32,100 38.50 (2) 10.2%
2010 122 450,380 19,556 43.42 5.5%
(1) Excludes leases that expire in 2001 for which renewal leases or leases with
replacement tenants have been executed as of December 31, 2000.
(2) In these years, a higher percentage of space rented to major and mall
tenants at value centers, which typically have lower rents than the
portfolio average, is scheduled to close. Excluding the effect of these
tenants, average rents per square foot expiring in 2002, 2003, 2007, 2008,
and 2009 would be $40.57, $42.97, $44.70, $46.63, and $41.89, respectively.
The Company believes that the information in the table is not necessarily
indicative of what will occur in the future because of several factors, but
principally because its leasing policies and practices create a significant
level of early lease terminations at the Centers. For example, the average
remaining term of the leases that were terminated during the period 1995 to 2000
was approximately two years. The average term of leases signed during 2000 and
1999 was approximately eight years.
In addition, mall tenants at the Centers may seek the protection of the
bankruptcy laws, which could result in the termination of such tenants' leases
and thus cause a reduction in cash flow. In 2000, approximately 2.3% of leases
were so affected compared to 3.1% in 1999, 1.2% in 1998, 1.5% in 1997, and 2.8%
in 1996. Since 1991, the annual provision for losses on accounts receivable has
been less than 2% of annual revenues.
Occupancy
Mall tenant average occupancy, ending occupancy, and leased space rates of
the Centers are as follows:
Year Ended December 31
----------------------------------------------------
2000 1999 1998 (1) 1997 1996
---- ----- ---- ---- ----
Average Occupancy 89.1% 89.0% 89.4% 87.6% 87.4%
Ending Occupancy 90.5% 90.4% 90.2% 90.3% 88.0%
Leased Space 93.8% 92.1% 92.3% 92.3% 89.0%
(1) Excludes centers transferred to GMPT.
8
Major Tenants
No single retail company represents 10% or more of the Company's revenues.
The combined operations of The Limited, Inc. accounted for approximately 6.6% of
Mall GLA as of December 31, 2000 and for approximately 5.5% of the 2000 minimum
rent. The largest of these, in terms of square footage and rent, is Express,
which accounted for approximately 1.9% of Mall GLA and 1.5% of 2000 minimum
rent. No other single retail company accounted for more than 4% of Mall GLA or
2000 minimum rent. The following table shows the ten largest tenants and their
square footage as of December 31, 2000.
# of Square % of
Tenant Stores Footage Mall GLA
- ------ ------ ------- --------
Limited (The Limited, Express, Victoria's Secret) 65 466,813 6.6%
Gap (Gap, Gap Kids, Banana Republic) 35 222,916 3.1%
Venator Group (Foot Locker, Lady Foot Locker, Champs) 36 182,266 2.6%
Williams-Sonoma (Williams Sonoma, Pottery Barn, Hold Everything) 25 162,151 2.3%
Spiegel (Eddie Bauer) 15 122,497 1.7%
Borders Group (Borders, Waldenbooks) 11 98,726 1.4%
Abercrombie & Fitch 10 88,481 1.3%
Ann Taylor 14 71,943 1.0%
Talbots 10 71,083 1.0%
Restoration Hardware 6 62,613 0.9%
General Risks of the Company
Economic Performance and Value of Shopping Centers Dependent on Many Factors
The economic performance and value of the Company's shopping centers are
dependent on various factors. Additionally, these same factors will influence
the Company's decision whether to go forward on the development of new centers
and may affect the ultimate economic performance and value of projects under
construction (see other risks associated with the development of new centers
under "Business of the Company--Development of New Centers"). Such factors
include:
o changes in the national, regional, and/or local economic climates,
o competition from other shopping centers, discount stores, outlet malls,
discount shopping clubs, direct mail and the Internet in attracting
customers and tenants,
o increases in operating costs,
o the public perception of the safety of customers at the shopping centers,
o environmental or legal liabilities,
o availability and cost of financing, and
o uninsured losses, resulting from wars, riots, or civil disturbances or
losses from earthquakes or floods in excess of policy specifications and
insured limits.
In addition, the value of shopping centers may be adversely affected by:
o changes in government regulations, and
o changes in real estate zoning and tax laws.
Adverse changes in the economic performance and value of shopping centers would
adversely affect the Company's income and cash available to pay dividends.
9
Third Party Interests in the Centers
Some of the shopping centers which the Company develops and leases are
partially owned by non-affiliated partners through joint venture arrangements.
As a result, the Company may not be able to control all decisions regarding
those shopping centers and may be required to take actions that are in the
interest of the joint venture partners but not the Company's best interests.
Bankruptcy of Mall Tenants or Joint Venture Partners
The Company could be adversely affected by the bankruptcy of third parties.
The bankruptcy of a mall tenant could result in the termination of its lease
which would lower the amount of cash generated by that mall. In addition, if a
department store operating an anchor at one of our shopping centers were to go
into bankruptcy and cease operating, its closing may lead to reduced customer
traffic and lower mall tenant sales which would, in turn, affect the amount of
rent our tenants pay us. The profitability of shopping centers held in a joint
venture could also be adversely affected by the bankruptcy of one of the joint
venture partners if, because of certain provisions of the bankruptcy laws, the
Company was unable to make important decisions in a timely fashion or became
subject to additional liabilities.
Third Party Contracts
The Company provides property management, leasing, development and other
administrative services to centers transferred to GMPT, other third parties and
to certain Taubman affiliates. The contracts under which these services are
provided may be canceled or not renewed or may be renegotiated on terms less
favorable to the Company. Certain costs of providing services under these
contracts would not necessarily be eliminated if the contracts were to be
canceled or not renewed.
Inability to Maintain Status as a REIT
o The Company may not be able to maintain its status as a real estate
investment trust, or REIT, for Federal income tax purposes with the result
that the income distributed to shareholders will not be deductible in
computing taxable income and instead would be subject to tax at regular
corporate rates. Although the Company believes it is organized and operates
in a manner to maintain its REIT qualification, many of the REIT
requirements of the Internal Revenue Code are very complex and have limited
judicial or administrative interpretations. Changes in tax laws or
regulations or new administrative interpretations and court decisions may
also affect the Company's ability to maintain REIT status in the future. If
the Company fails to qualify as a REIT, its income may also be subject to
the alternative minimum tax. If the Company does not maintain its REIT
status in any year, it may be unable to elect to be treated as a REIT for
the next four taxable years. In addition, if the Company fails to meet the
Internal Revenue Code's requirement that it distribute to shareholders at
least 90% of otherwise taxable income, the Company will be subject to a
nondeductible 4% excise tax on a portion of its income.
o Although the Company currently intends to maintain its status as a REIT,
future economic, market, legal, tax or other considerations may cause it to
determine that it would be in the Company's and its shareholders' best
interests to revoke its REIT election. As noted above, if the Company
revokes its REIT election, it will not be able to elect REIT status for the
next four taxable years.
10
Environmental Matters
All of the Centers presently owned by the Company (not including option
interests in the Development Projects or any of the real estate managed but not
included in the Company's portfolio) have been subject to environmental
assessments. The Company is not aware of any environmental liability relating to
the Centers or any other property, in which they have or had an interest
(whether as an owner or operator) that the Company believes, would have a
material adverse effect on the Company's business, assets, or results of
operations. No assurances can be given, however, that all environmental
liabilities have been identified or that no prior owner, operator, or current
occupant has created an environmental condition not known to the Company.
Moreover, no assurances can be given that (i) future laws, ordinances, or
regulations will not impose any material environmental liability or that (ii)
the current environmental condition of the Centers will not be affected by
tenants and occupants of the Centers, by the condition of properties in the
vicinity of the Centers (such as the presence of underground storage tanks), or
by third parties unrelated to the Company.
There are asbestos containing materials ("ACMs") at most of the Centers,
primarily in the form of floor tiles, roof coatings and mastics. The floor
tiles, roof coatings and mastics are generally in good condition. The Manager
has developed and is implementing an operations and maintenance program that
details operating procedures with respect to ACMs prior to any renovation and
that requires periodic inspection for any change in condition of existing ACMs.
Personnel
The Company has engaged the Manager to provide real estate management,
acquisition, development, and administrative services required by the Company
and its properties.
As of December 31, 2000, the Manager had 478 full-time employees. The
following table provides a breakdown of employees by operational areas as of
December 31, 2000:
Number Of Employees
-------------------
Property Management............................... 217
Leasing .......................................... 80
Development....................................... 55
Financial Services................................ 71
Other .......................................... 55
---
Total..................................... 478
===
The Manager considers its relations with its employees to be good.
Item 2. PROPERTIES
Ownership
The following table sets forth certain information about each of the
Centers. The table includes only Centers in operation at December 31, 2000.
Excluded from this table are Dolphin Mall which opened in March 2001, and
International Plaza, The Shops at Willow Bend, The Mall at Wellington Green, and
The Mall at Millenia, which will open in 2001 and 2002. Centers are owned in fee
other than Beverly Center, Cherry Creek, La Cumbre Plaza, MacArthur Center and
Paseo Nuevo, which are held under ground leases expiring between 2028 and 2083.
Certain of the Centers are partially owned through joint ventures.
Generally, the Operating Partnership's joint venture partners have ongoing
rights with regard to the disposition of the Operating Partnership's interest in
the joint ventures, as well as the approval of certain major matters.
11
Percent of
Sq. Ft. of GLA/ Year Ownership Mall GLA 2000
Mall GLA Opened/ Year % as of Occupied as Rent(1)(in
Owned Centers Anchors as of 12/31/00 Expanded Acquired 12/31/00 of 12/31/00 Thousands)
- ------------- ------- ------------------- --------- ---------- ---------- ----------- ----------
Arizona Mills GameWorks, Harkins Cinemas, 1,201,000/ 1997 37% 95% $23,827
Tempe, AZ JCPenney Outlet, Neiman 521,000
(Phoenix Metropolitan Area) Marcus-Last Call, Off
5th Saks
Beverly Center Bloomingdale's, Macy's 900,000/ 1982 70% (2) 93% 27,995
Los Angeles, CA 592,000
Biltmore Fashion Park Macy's, Saks Fifth Avenue 620,000/ 1963/1992/ 1994 100% 95% 11,402
Phoenix, AZ 313,000 1997/1999
Cherry Creek Foley's, Lord & Taylor, 1,033,000/ 1990/1998 50% 94% 24,300
Denver, CO Neiman Marcus, Saks Fifth 560,000 (3)
Avenue
Fair Oaks Hecht's, JCPenney, Lord & 1,585,000/ 1980/1987/ 50% 85% 20,476
Fairfax, VA Taylor, Sears, Macy's 569,000 1988/2000
(Washington, DC
Metropolitan Area)
Fairlane Town Center Hudson's, JCPenney, Lord & 1,504,000/ 1976/1978/ 100% 75% 13,973
Dearborn, MI Taylor, Saks Fifth Avenue, 614,000 1980/2000
(Detroit Metropolitan Area) Sears
Great Lakes Crossing Bass Pro, GameWorks, 1,385,000/ 1998 85% 87% 23,472
Auburn Hills, MI JCPenney Outlet, Neiman 576,000
(Detroit Metropolitan Area) Marcus-Last Call, Off 5th
Saks, Star Theatres
La Cumbre Plaza Robinsons-May, Sears 478,000/ 1967/1989 1996 100% 93% 4,290
Santa Barbara, CA 178,000
MacArthur Center Dillard's, Nordstrom 943,000/ 1999 70% 92% 16,419
Norfolk, VA 529,000
Paseo Nuevo Macy's, Nordstrom 438,000/ 1990 1996 100% 84% 5,086
Santa Barbara, CA 133,000
Regency Square Hecht's (two locations), 826,000/ 1975/1987 1997 100% 97% 10,211
Richmond, VA JCPenney, Sears 239,000
The Mall at Short Hills Bloomingdale's, Macy's, 1,350,000/ 1980/1994/ 100% 97% 35,245
Short Hills, NJ Neiman Marcus, Nordstrom, 528,000 1995
Saks Fifth Avenue
Stamford Town Center Filene's, Macy's, 867,000/ 1982 50% 91% 16,669
Stamford, CT Saks Fifth Avenue 374,000
12
Twelve Oaks Mall Hudson's, JCPenney, 1,198,000/ (4) 1977/1978 100% (5) 91% 21,228
Novi, MI Lord & Taylor, Sears 460,000
(Detroit Metropolitan Area)
Westfarms Filene's, Filene's Men's 1,297,000/ 1974/1983/1997 79% 95% 24,327
West Hartford, CT Store/Furniture Gallery, 527,000
JCPenney, Lord & Taylor,
Nordstrom
Woodland Hudson's, JCPenney, Sears 1,077,000/ (4) 1968/1974/ 50% 91% 14,902
Grand Rapids, MI 352,000 1984/1989
----------
Total GLA/Total Mall GLA: 16,702,000/
7,065,000
Average GLA/Average Mall GLA: 1,044,000/
442,000
- ------------------------
(1) Includes minimum and percentage rent for the year ended December 31, 2000.
Excludes rent from certain peripheral properties.
(2) The Company has an option to acquire the remaining 30%. The results of
Beverly Center are consolidated in the Company's financial statements.
(3) GLA excludes approximately 166,000 square feet for the renovated buildings
on adjacent peripheral land.
(4) A food court will open in the fall of 2001.
(5) In August 2000, the Operating Partnership became the 100% owner of Twelve
Oaks and its joint venture partner became the 100% owner of Lakeside.
13
Anchors
The following table summarizes certain information regarding the anchors at
the operating Centers (excluding the value centers) as of December 31, 2000.
Number of 12/31/00 GLA
Name Anchor Stores (in thousands) % of GLA
---- ------------- -------------- --------
May Company
Lord & Taylor 5 638
Hecht's 3 453
Filene's 2 379
Filene's Men's Store/
Furniture Gallery 1 80
Foley's 1 178
Robinsons-May 1 150
---- ------
Total 13 1,878 13.3%
Sears 6 1,279 9.1%
JCPenney 6 1,156 8.2%
Federated
Macy's 6 1,162
Bloomingdale's 2 379
---- -------
Total 8 1,541 10.9%
Target Corporation
Hudson's (1) 3 647 4.6%
Nordstrom 4 677 4.8%
Saks Fifth Avenue 5 452 3.2%
Neiman Marcus 2 216 1.5%
Dillard's 1 254 1.8%
---- ------- -----
Total 48 8,100 57.4%
==== ======= ====
(1) The Hudson's stores were changed to Marshall Fields & Company in early
2001.
Mortgage Debt
The following table sets forth certain information regarding the mortgages
encumbering the Centers as of December 31,2000. All mortgage debt in the table
below is nonrecourse to the Operating Partnership, except for debt encumbering
Great Lakes Crossing, Dolphin Mall, International Plaza, The Mall at Millenia,
and The Shops at Willow Bend. The Operating Partnership has guaranteed the
payment of principal and interest on the mortgage debt of these Centers. The
loan agreements provide for the reduction of the amounts guaranteed as certain
center performance and valuation criteria are met. (See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Covenants and Commitments"). Assessment bonds totaling
approximately $2.3 million, which are not included in the table, also encumber
Biltmore.
14
Principal
Balance as Annual Debt Balance Due Earliest
Centers Consolidated in Interest of 12/31/00 Service Maturity on Maturity Prepayment
TCO's Financial Statements Rate (000's) (000's) Date (000's) Date
- -------------------------- --------- ------------ ------------ -------- ------------ -----------
Beverly Center 8.36% $146,000 Interest Only 07/15/04 $146,000 30 Days Notice (1)
Biltmore 7.68% 79,730 6,906 (2) 07/10/09 71,391 09/14/01 (3)
Great Lakes Crossing (85%) Floating (4) 170,000 Interest Only (5) 04/01/02 (6) 167,441 2 Days Notice (7)
MacArthur Center (70%) 7.59% 144,884 12,400 (2) 10/01/10 126,884 12/15/02 (3)
Short Hills 6.70% 270,000 Interest Only (8) 04/01/09 245,301 05/02/04 (9)
Twelve Oaks Floating (10) 49,987 Interest Only 10/15/01 50,000 30 Days Notice (7)
The Shops at Willow Bend Floating (11) 99,672 Interest Only (12) 07/01/03 (13) 99,672 10 Days Notice (7)
Other Consolidated Secured Debt
- -------------------------------
TRG Credit Facility Floating (14) 26,325 Interest Only 08/31/01 26,325 At Any Time (7)
TRG Credit Facility Floating (15) 63,000 Interest Only 09/21/01 63,000 2 Days Notice (7)
Other Floating (16) 100,000 Interest Only 10/15/01 100,000 3 Days Notice (7)
Other 13.00% (17) 20,000 Interest Only 11/22/09 20,000 11/22/04 (18)
Centers Owned by Unconsolidated
Joint Ventures/TRG's % Ownership
- --------------------------------
Arizona Mills (37%) 7.90% 145,762 12,728 (2) 10/05/10 130,419 12/15/02 (3)
Cherry Creek (50%) 7.68% 177,000 Interest Only (19) 08/11/06 171,933 05/19/02 (20)
Dolphin (50%) Floating (21) 116,900 Interest Only 10/06/02 (6) 116,900 3 Days Notice (7)
Fair Oaks (50%) 6.60% 140,000 Interest Only 04/01/08 140,000 30 Days Notice (1)
International Plaza (26%) Floating (22) 67,493 Interest Only 11/10/02 (6) 67,493 3 Days Notice (7)
The Mall at Millenia (50%) Floating 0 Interest Only (12) 11/01/03 (13) 0 10 Days Notice (7)
Stamford Town Center (50%) Floating (23) 76,000 Interest Only 08/10/02 (24) 76,0000 2/11/02 (7)
Westfarms (79%) 7.85% 100,000 Interest Only 07/01/02 100,000 60 Days Notice (1)
Westfarms (79%) Floating (25) 55,000 Interest Only 07/01/02 55,000 4 Days Notice (7)
Woodland (50%) 8.20% 66,000 Interest Only 05/15/04 66,000 30 Days Notice (1)
- ------------------------
(1) Debt may be prepaid with a yield maintenance prepayment penalty. No
prepayment penalty is due if prepaid within six months of maturity date.
(2) Amortizing principal based on 30 years.
(3) No defeasance deposit required if paid within three months of maturity
date.
(4) The rate is capped at 7.25%, plus credit spread of 1.50%, based on
one-month LIBOR.
(5) Interest only until 4/1/01. Thereafter principal will be amortized based on
25 years.
(6) The maturity date may be extended one year.
(7) Prepayment can be made without penalty.
(8) Interest only until 4/1/02. Thereafter, principal will be amortized based
on 30 years. Annual debt service will be $20.9 million.
(9) Debt may be prepaid with a prepayment penalty equal to greater of yield
maintenance or 1% of principal prepaid. No prepayment penalty is due if
prepaid within three months of maturity date. 30 days notice required.
(10) The rate is capped at 8.55% until maturity, plus credit spread of 0.45%,
based on one-month LIBOR.
(11) As of December 31, 2000, $77 million is capped at 7.15%, plus credit spread
of 1.85%, based on one-month LIBOR. The capped amount accretes $7 million a
month until it reaches $147 million. The cap matrures 6/09/03.
(12) Interest only unless maturity date is extended. In the first year of
extension, principal will be amortized based on 25 years.
(13) Maturity date may be extended for 2 one-year periods.
(14) The facility is a $40 million line of credit and is secured by TRG's
interest in Westfarms.
(15) The facility is a $200 million line of credit and is secured by mortgages
on Fairlane, LaCumbre, Paseo Nuevo, and Regency Square. Floating rate is
based on one-month LIBOR plus credit spread of 0.90%.
(16) Debt is secured by the Company's interest in Twelve Oaks and is guaranteed
by TRG.
(17) Currently payable at 9%. Deferred interest is due at maturity. The loan is
secured by TRG's indirect interests in International Plaza.
(18) Debt can be prepaid without penalty. 60 days notice required.
(19) Interest only until 7/11/04. Thereafter, principal will be amortized based
on 25 years. Annual debt service will be $15.9 million.
(20) Debt may be prepaid with a yield maintenance prepayment penalty. No
prepayment penalty is due if redeemed within three months of maturity date.
30-60 day notice required.
(21) The rate is capped at 7.0% until maturity, plus credit spread of 2.00%,
based on one-month LIBOR. The rate is also swapped to a rate of 6.14%, plus
credit spread, when LIBOR is below 6.7%.
(22) The rate is capped at 7.10% until 11/10/02, plus credit spread of 1.90%,
based on one-month LIBOR.
(23) The rate is capped at 8.20% until 8/15/02, plus credit spread of 0.80%,
based on one-month LIBOR.
(24) Maturity date may be extended twice to no later than 8/10/04.
(25) The rate is capped until maturity at 6.5%, plus credit spread of 1.125%,
based on one-month LIBOR.
For additional information regarding the Centers and their operations, see
the responses to Item 1 of this report.
15
Item 3. LEGAL PROCEEDINGS
Neither the Company, its subsidiaries, nor any of the joint ventures is
presently involved in any material litigation nor, to the Company's knowledge,
is any material litigation threatened against the Company, its subsidiaries or
any of the properties. Except for routine litigation involving present or former
tenants (generally eviction or collection proceedings), substantially all
litigation is covered by liability insurance.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Taubman Centers, Inc. is listed and traded on the New
York Stock Exchange (Symbol: TCO). As of March 22, 2001, the 50,038,272
outstanding shares of Common Stock were held by 730 holders of record.
The following table presents the dividends declared and range of share
prices for each quarter of 2000 and 1999.
Market Quotations
----------------------------------------
2000 Quarter Ended High Low Dividends
------------------ ---- --- ---------
March 31 $ 12 5/8 $ 9 3/4 $ 0.245
June 30 12 3/16 10 1/4 0.245
September 30 11 15/16 10 9/16 0.245
December 31 11 5/8 10 3/8 0.25
Market Quotations
----------------------------------------
1999 Quarter Ended High Low Dividends
------------------ ---- --- ---------
March 31 $ 13 7/8 $ 11 5/8 $ 0.24
June 30 14 11 15/16 0.24
September 30 13 11/16 11 3/16 0.24
December 31 11 11/16 10 1/2 0.245
16
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company and
should be read in conjunction with the financial statements and notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this report.
Year Ended December 31
-------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands of dollars, except as noted)
STATEMENT OF OPERATIONS DATA:
Income before extraordinary items from investment in TRG (1) 29,349 21,368
Rents, recoveries and other shopping center revenues (1) 305,600 268,692 333,953
Gain on disposition of interest in center (2) 85,339
Income before extraordinary items, minority
and preferred interests 151,826 58,445 70,403 28,662 20,730
Extraordinary items (3) (9,506) (468) (50,774) (444)
Minority interest (1) (30,300) (30,031) (6,009)
TRG preferred distributions (4) (9,000) (2,444)
Net income 103,020 25,502 13,620 28,662 20,286
Series A preferred dividends (5) (16,600) (16,600) (16,600) (4,058)
Net income (loss) available to common shareowners 86,420 8,902 (2,980) 24,604 20,286
Income before extraordinary items per
common share - diluted 1.75 0.17 0.32 0.48 0.47
Net income (loss) per common share - diluted 1.64 0.16 (0.06) 0.48 0.46
Dividends per common share declared 0.985 0.965 0.945 0.925 0.89
Weighted average number of common shares outstanding 52,463,598 53,192,364 52,223,399 50,737,333 44,444,833
Number of common shares outstanding at end of period 50,984,397 53,281,643 52,995,904 50,759,657 50,720,358
Ownership percentage of TRG at end of period (1) 62% 63% 63% 37% 37%
BALANCE SHEET DATA (1):
Investment in TRG 547,859 369,131
Real estate before accumulated depreciation 1,959,128 1,572,285 1,473,440
Total assets 1,907,563 1,596,911 1,480,863 556,824 378,527
Total debt 1,173,973 886,561 775,298
SUPPLEMENTAL INFORMATION (6):
Funds from Operations allocable to TCO (7) 70,419 68,506 61,131 53,137 44,104
Mall tenant sales (8) 2,717,195 2,695,645 2,332,726 3,086,259 2,827,245
Sales per square foot (8) 479 453 426 384 377
Number of shopping centers at end of period 16 17 16 25 21
Ending Mall GLA in thousands of square feet 7,065 7,540 7,038 10,850 9,250
Average occupancy 89.1% 89.0% 89.4% 87.6% 87.4%
Ending occupancy 90.5% 90.4% 90.2% 90.3% 88.0%
Leased space (9) 93.8% 92.1% 92.3% 92.3% 89.0%
Average base rent per square foot (10):
All mall tenants $40.25 $39.58
Stores closing during year $39.99 $39.49
Stores opening during year $47.04 $48.01
- --------------------------
(1) On September 30, 1998 the Company obtained a majority and controlling
interest in The Taubman Realty Group Limited Partnership (TRG or the
Operating Partnership) as a result of the GMPT Exchange (see Management's
Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) - GMPT Exchange and Related Transactions). As a result of this
transaction, the Company's ownership of the Operating Partnership increased
to a majority and the Company began consolidating the Operating
Partnership. For years prior to 1998, amounts reflect the Company's
interest in the Operating Partnership under the equity method.
(2) In August 2000, the Company completed a transaction to acquire an
additional interest in one of its Unconsolidated Joint Ventures; TRG became
the 100% owner of Twelve Oaks and the joint venture partner became the 100%
owner of Lakeside. A gain on the transaction was recognized by the Company
representing the excess of the fair value over the net book basis of the
Company's interest in Lakeside Mall (see MD&A - Significant Debt, Equity,
and Other Transactions).
(3) Extraordinary items for 1996 through 2000 include charges related to the
extinguishment of debt, primarily consisting of prepayment premiums and the
writeoff of deferred financing costs.
(4) In 1999, the Operating Partnership completed $100 million in private
placements of 9% Cumulative Redeemable Preferred Partnership Equity.
(5) In October 1997, the Company issued 8.3% Series A Preferred Stock.
(6) Operating statistics prior to 1998 include centers transferred to GMPT as
part of the GMPT Exchange.
(7) Funds from Operations is defined and discussed in MD&A - Liquidity and
Capital Resources - Funds from Operations. Funds from Operations does not
represent cash flow from operations, as defined by generally accepted
accounting principles, and should not be considered to be an alternative to
net income as a measure of operating performance or to cash flows as a
measure of liquidity.
(8) Based on reports of sales furnished by mall tenants.
(9) Leased space comprises both occupied space and space that is leased but not
yet occupied.
(10) Amounts include centers owned and operated for two years. Presentation of
statistic in prior years was for mature centers owned and opened for five
years. All mall tenants average base rent per square foot for centers owned
and open for five years, for 2000, 1999, 1998, 1997, and 1996 were $44.53,
$44.07, $41.93, $38.79, and $37.90, respectively. The Company changed its
methodology in order to be more consistent with other reported statistics.
17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements represent the Company's expectations or beliefs
concerning future events, including the following: statements regarding future
developments and joint ventures, rents and returns, statements regarding the
continuation of historical trends and any statements regarding the sufficiency
of the Company's cash balances and cash generated from operating and financing
activities for the Company's future liquidity and capital resource needs. The
Company cautions that although forward-looking statements reflect the Company's
good faith beliefs and best judgment based upon current information, these
statements are qualified by important factors that could cause actual results to
differ materially from those in the forward-looking statements, including those
risks, uncertainties, and factors detailed from time to time in reports filed
with the SEC, and in particular those set forth under the headings "General
Risks of the Company" and "Environmental Matters" in the Company's Annual Report
on Form 10-K. The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements of Taubman Centers, Inc. and the
Notes thereto.
General Background and Performance Measurement
The Company owns a managing general partner's interest in The Taubman
Realty Group Limited Partnership (the Operating Partnership or TRG), through
which the Company conducts all of its operations. The Operating Partnership
owns, develops, acquires, and operates regional shopping centers nationally. The
Consolidated Businesses consist of shopping centers that are controlled by
ownership or contractual agreement, development projects for future regional
shopping centers and The Taubman Company Limited Partnership (the Manager).
Shopping centers that are not controlled and that are owned through joint
ventures with third parties (Unconsolidated Joint Ventures) are accounted for
under the equity method.
The operations of the shopping centers are best understood by measuring
their performance as a whole, without regard to the Company's ownership
interest. Consequently, in addition to the discussion of the operations of the
Consolidated Businesses, the operations of the Unconsolidated Joint Ventures are
presented and discussed as a whole.
In August 2000, the Company completed a transaction to acquire an
additional interest in one of its Unconsolidated Joint Ventures; the Operating
Partnership became the 100% owner of Twelve Oaks and the joint venture partner
became the 100% owner of Lakeside. Performance statistics presented include
Lakeside through the date of the transaction.
On September 30, 1998, the Operating Partnership exchanged interests in 10
shopping centers (nine Consolidated Businesses and one Unconsolidated Joint
Venture) and a share of the Operating Partnership's debt for all of the
partnership units owned by two General Motors pension trusts (GMPT) (the GMPT
Exchange). Performance statistics presented exclude these 10 centers
(transferred centers).
18
Mall Tenant Sales and Center Revenues
Over the long term, the level of mall tenant sales is the single most
important determinant of revenues of the shopping centers because mall tenants
provide approximately 90% of these revenues and because mall tenant sales
determine the amount of rent, percentage rent, and recoverable expenses
(together, total occupancy costs) that mall tenants can afford to pay. However,
levels of mall tenant sales can be considerably more volatile in the short run
than total occupancy costs.
The Company believes that the ability of tenants to pay occupancy costs and
earn profits over long periods of time increases as sales per square foot
increase, whether through inflation or real growth in customer spending. Because
most mall tenants have certain fixed expenses, the occupancy costs that they can
afford to pay and still be profitable are a higher percentage of sales at higher
sales per square foot.
The following table summarizes occupancy costs, excluding utilities, for
mall tenants as a percentage of mall tenant sales.
2000 1999 1998
---- ---- ----
Mall tenant sales (in thousands) $2,717,195 $2,695,645 $2,332,726
Sales per square foot 479 453 426
Minimum rents 9.7% 9.7% 9.7%
Percentage rents 0.3 0.2 0.3
Expense recoveries 4.4 4.3 4.1
--- --- ---
Mall tenant occupancy costs 14.4% 14.2% 14.1%
==== ==== ====
Occupancy
Historically, average annual occupancy has been within a narrow band. In
the last ten years, average annual occupancy has ranged between 86.5% and 89.4%.
Mall tenant average occupancy, ending occupancy and leased space rates are as
follows:
2000 1999 1998
---- ---- ----
Mall tenant average occupancy 89.1% 89.0% 89.4%
Ending occupancy 90.5 90.4 90.2
Leased space 93.8 92.1 92.3
Rental Rates
As leases have expired in the shopping centers, the Company has generally
been able to rent the available space, either to the existing tenant or a new
tenant, at rental rates that are higher than those of the expired leases. In a
period of increasing sales, rents on new leases will tend to rise as tenants'
expectations of future growth become more optimistic. In periods of slower
growth or declining sales, rents on new leases will grow more slowly or will
decline for the opposite reason. However, center revenues nevertheless increase
as older leases roll over or are terminated early and replaced with new leases
negotiated at current rental rates that are usually higher than the average
rates for existing leases. The following table contains certain information
regarding per square foot minimum rent at the shopping centers that have been
owned and open for at least two years.
2000 1999
---- ----
Average minimum rent per square foot
All mall tenants $40.25 $39.58
Stores closing during year 39.99 39.49
Stores opening during year 47.04 48.01
19
In 1999, average minimum rent per square foot for stores opening during the
year was higher because of the leasing of smaller than average spaces at several
of the Company's most productive centers. Generally, the rent spread between
opening and closing stores is in the Company's historic range of $5.00 to $10.00
per square foot. This statistic is difficult to predict in part because the
Company's leasing policies and practices may result in early lease terminations
with actual average closing rents per square foot which may vary from the
average rent per square foot of scheduled lease expirations.
Seasonality
The regional shopping center industry is seasonal in nature, with mall
tenant sales highest in the fourth quarter due to the Christmas season, and with
lesser, though still significant, sales fluctuations associated with the Easter
holiday and back-to-school events. While minimum rents and recoveries are
generally not subject to seasonal factors, most leases are scheduled to expire
in the first quarter, and the majority of new stores open in the second half of
the year in anticipation of the Christmas selling season. Additionally, most
percentage rents are recorded in the fourth quarter. Accordingly, revenues and
occupancy levels are generally highest in the fourth quarter.
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
2000 2000 2000 2000 2000
----------- --------- ---------- --------- ----------
(in thousands)
Mall tenant sales $589,996 $628,999 $602,417 $895,783 $2,717,195
Revenues 132,331 130,923 127,034 142,318 532,606
Occupancy:
Average 88.8% 88.1% 88.8% 90.3% 89.1%
Ending 88.5% 88.1% 89.2% 90.5% 90.5%
Leased space 91.4% 90.5% 91.7% 93.8% 93.8%
Because the seasonality of sales contrasts with the generally fixed nature
of minimum rents and recoveries, mall tenant occupancy costs (the sum of minimum
rents, percentage rents and expense recoveries) relative to sales are
considerably higher in the first three quarters than they are in the fourth
quarter.
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
2000 2000 2000 2000 2000
----------- --------- ---------- --------- ----------
Minimum rents 11.3% 10.6% 10.6% 7.2% 9.7%
Percentage rents 0.3 0.1 0.1 0.6 0.3
Expense recoveries 4.8 4.7 4.7 3.7 4.4
----- ----- ----- ----- -----
Mall tenant
occupancy costs 16.4% 15.4% 15.4% 11.5% 14.4%
==== ==== ==== ==== ====
Results of Operations
The following represent significant debt, equity, and other transactions
which affected the operating results described under Comparison of 2000 to 1999.
Refer to Liquidity and Capital Resources for discussion of new center openings
and other transactions which will affect operating results of future periods.
Also, the impact of new accounting guidance on results of operations is
discussed under Liquidity and Capital Resources - New Accounting Pronouncement.
20
Significant Debt, Equity and Other Transactions
In October 2000, the 37% owned Unconsolidated Joint Venture that owns
Arizona Mills completed a $146 million secured financing. The financing has an
all-in rate of approximately 8.0% and matures in October 2010. The proceeds were
primarily used to repay the existing $142.2 million mortgage and to fund
transaction costs. The Operating Partnership recognized its $0.2 million share
of an extraordinary charge, consisting of the write-off of deferred financing
costs.
Also in October 2000, MacArthur Center completed a $145 million secured
financing. The financing has an all-in rate of approximately 7.8% and matures in
October 2010. The proceeds were used to repay the existing $120 million
construction loan and transaction costs. The remaining net proceeds of
approximately $23.9 million were distributed to the Operating Partnership, which
contributed all of the equity funding for the development of MacArthur Center.
The Operating Partnership used the distribution to pay down its line of credit.
In August 2000, the Company completed a transaction to acquire an
additional ownership in one of its Unconsolidated Joint Ventures. Under the
terms of the agreement, the Operating Partnership became the 100% owner of
Twelve Oaks and the joint venture partner became the 100% owner of Lakeside.
Both properties remained subject to the existing mortgage debt ($50 million and
$88 million at Twelve Oaks and Lakeside, respectively.) The transaction resulted
in a net payment to the joint venture partner of approximately $25.5 million in
cash. The payment was funded by a new $100 million facility, which is secured by
an interest in Twelve Oaks and guaranteed by the Operating Partnership. The
acquisition of the additional interest in Twelve Oaks was accounted for as a
purchase. The excess of the fair value over the net book basis of the acquired
interest has been allocated to properties. The results of Twelve Oaks have been
consolidated in the Company's results subsequent to the acquisition date (prior
to that date, Twelve Oaks was accounted for under the equity method as an
Unconsolidated Joint Venture). The Operating Partnership continues to manage
Twelve Oaks, while the former joint venture partner assumed management
responsibility for Lakeside. A gain of $85.3 million on the transaction was
recognized by the Company representing its share of the excess of the fair value
over the net book basis of the Company's interest in Lakeside, adjusted for the
$25.5 million paid and transaction costs.
The Company has acquired an approximately 6.7% interest in MerchantWired,
LLC, a service company providing internet and network infrastructure to shopping
centers and retailers. The Company's investment in MerchantWired is accounted
for under the equity method. Based on projections received from MerchantWired,
LLC, the Company's share of projected losses would reduce income per share by
approximately one cent per share in 2001. The Company funded its investment,
which was approximately $3 million at December 31, 2000 and is expected to
increase to approximately $5 million in 2001, through existing lines of credit.
In January 2000, the 50% owned Unconsolidated Joint Venture that owns
Stamford Town Center completed a $76 million secured financing. The new
financing bears interest at a rate of one-month LIBOR plus 0.8% and matures in
2002. The loan may be extended until August 2004. The rate is capped at 8.2%
plus credit spread for the term of the loan. The proceeds were used to repay the
$54 million participating mortgage, the $18.3 million prepayment premium, and
accrued interest and transaction costs. The Unconsolidated Joint Venture
recognized an extraordinary charge of $18.6 million, which consisted primarily
of the prepayment premium. The Operating Partnership's share of the
extraordinary charge was $9.3 million.
In December 1999, the Operating Partnership acquired an additional 5%
interest in Great Lakes Crossing for $1.2 million in cash, increasing the
Operating Partnership's interest in the center to 85%.
In November 1999, the Operating Partnership acquired Lord Associates, a
retail leasing firm, for $2.5 million in cash and $5 million in partnership
units, which are subject to certain contingencies. In addition, $1.0 million of
this purchase price is contingent upon profits achieved on acquired leasing
contracts.
21
In September and November 1999, the Operating Partnership completed private
placements of its Series C and Series D preferred equity totaling $100 million,
with net proceeds used to pay down lines of credit. In August 1999, the $177
million refinancing of Cherry Creek was completed, with net proceeds of $45.2
million being distributed to the Operating Partnership and used to pay down
lines of credit. In April 1999 through June 1999, $520 million of refinancings
relating to The Mall at Short Hills, Biltmore Fashion Park, and Great Lakes
Crossing were completed.
In March 1999, MacArthur Center, a 70% owned enclosed super-regional mall,
opened in Norfolk, Virginia. MacArthur Center is owned by a joint venture in
which the Operating Partnership has a controlling interest, and consequently the
results of this center are consolidated in the Company's financial statements.
In 1996, the Operating Partnership entered into an agreement to lease
Memorial City Mall, a 1.4 million square foot shopping center located in
Houston, Texas. The lease was subject to certain provisions that enabled the
Operating Partnership to explore significant redevelopment opportunities and
terminate the lease obligations in the event such redevelopment opportunities
were not deemed to be sufficient. The Operating Partnership terminated its
Memorial City lease on April 30, 2000.
Comparable Center Operations
The performance of the Company's portfolio can be measured through
comparisons of comparable centers' operations. During 2000, revenues (excluding
land sales) less operating costs (operating and recoverable expenses) of those
centers owned and open for the entire period increased approximately two percent
in comparison to the same centers' results in the comparable period of 1999. The
Company expects that comparable center operations will increase annually by two
to three percent. This is a forward-looking statement and certain significant
factors could cause the actual results to differ materially; refer to the
General Risks of the Company in the Company's Annual Report on Form 10-K.
Presentation of Operating Results
The following tables contain the combined operating results of the
Company's Consolidated Businesses and the Unconsolidated Joint Ventures. Income
allocated to the noncontrolling partners and preferred interests is deducted to
arrive at the results allocable to the Company's common shareowners. Because the
net equity of the Operating Partnership is less than zero, the income allocated
to the noncontrolling partners is equal to their share of distributions. The net
equity of these minority partners is less than zero due to accumulated
distributions in excess of net income and not as a result of operating losses.
Distributions to partners are usually greater than net income because net income
includes non-cash charges for depreciation and amortization, although
distributions were less than net income during 2000 due to the gain on the
disposition of Lakeside described above. The Company's average ownership
percentage of the Operating Partnership was 63% for both 2000 and 1999. The
results of Twelve Oaks are included in the Consolidated Businesses subsequent to
the closing of the transaction, while both Twelve Oaks and Lakeside are included
as Unconsolidated Joint Ventures for previous periods.
22
Comparison of 2000 to 1999
The following table sets forth operating results for 2000 and 1999, showing
the results of the Consolidated Businesses and Unconsolidated Joint Ventures:
2000 1999
------------------------------------------ ------------------------------------------------
UNCONSOLIDATED UNCONSOLIDATED
CONSOLIDATED JOINT CONSOLIDATED JOINT
BUSINESSES(1) VENTURES(2) TOTAL BUSINESSES(1) VENTURES(2) TOTAL
------------------------------------------ ------------------------------------------------
(in millions of dollars)
REVENUES:
Minimum rents 151.9 145.5 297.4 133.9 158.1 292.1
Percentage rents 6.4 3.8 10.1 4.6 3.9 8.6
Expense recoveries 91.3 75.7 166.9 78.9 83.6 162.4
Management, leasing and
development 25.0 25.0 23.9 23.9
Other 27.5 5.7 33.2 16.3 6.4 22.7
----- ----- ----- ----- ----- -----
Total revenues 301.9 230.7 532.6 257.6 252.0 509.6
OPERATING COSTS:
Recoverable expenses 79.7 63.6 143.3 69.5 69.4 138.9
Other operating 30.0 13.4 43.4 28.9 13.0 41.9
Management, leasing
and development 19.5 19.5 17.2 17.2
General and administrative 19.0 19.0 18.1 18.1
Interest expense 57.3 65.5 122.8 51.3 64.4 115.8
Depreciation and amortization(3) 56.8 29.5 86.3 51.9 29.7 81.6
----- ----- ----- ----- ----- -----
Total operating costs 262.3 172.0 434.4 237.0 176.5 413.5
Net results of Memorial City (1) (1.6) (1.6) (1.4) (1.4)
----- ----- ----- ----- ----- -----
38.0 58.6 96.6 19.2 75.6 94.7
===== ===== ===== =====
Equity in income before
extraordinary items of
Unconsolidated Joint Ventures(3) 28.5 39.3
----- -----
Income before gain on
disposition, extraordinary items,
and minority and preferred interests 66.5 58.4
Gain on disposition of interest in center 85.3
Extraordinary items (9.5) (0.5)
TRG preferred distributions (9.0) (2.4)
Minority share of income (58.5) (17.6)
Distributions less than (in excess of)
minority share of income 28.2 (12.4)
----- -----
Net income 103.0 25.5
Series A preferred dividends (16.6) (16.6)
----- -----
Net income available to common
shareowners 86.4 8.9
===== =====
SUPPLEMENTAL INFORMATION(4):
EBITDA - 100% 153.1 153.7 306.8 123.0 169.7 292.6
EBITDA - outside partners' share (7.6) (70.8) (78.4) (4.4) (75.5) (79.9)
----- ----- ----- ----- ----- -----
EBITDA contribution 145.6 82.9 228.4 118.6 94.1 212.7
Beneficial Interest Expense (52.2) (34.9) (87.1) (47.6) (34.5) (82.1)
Non-real estate depreciation (3.0) (3.0) (2.7) (2.7)
Preferred dividends and distributions (25.6) (25.6) (19.0) (19.0)
----- ----- ----- ----- ----- -----
Funds from Operations contribution 64.8 47.9 112.7 49.3 59.7 108.9
===== ===== ===== ===== ===== =====
(1) The results of operations of Memorial City are presented net in this table.
The Operating Partnership terminated its Memorial City lease on April 30,
2000.
(2) With the exception of the Supplemental Information, amounts represent 100%
of the Unconsolidated Joint Ventures. Amounts are net of intercompany
profits.
(3) Amortization of the Company's additional basis in the Operating Partnership
included in equity in income before extraordinary items of Unconsolidated
Joint Ventures was $3.8 million and $4.7 million in 2000 and 1999,
respectively. Also, amortization of the additional basis included in
depreciation and amortization was $4.2 million and $3.8 million in 2000 and
1999, respectively.
(4) EBITDA represents earnings before interest and depreciation and
amortization. EBITDA excludes gains on dispositions of depreciated
operating properties. Funds from Operations is defined and discussed in
Liquidity and Capital Resources.
(5) Amounts in this table may not add due to rounding.
23
Consolidated Businesses
Total revenues for the year ended December 31, 2000 were $301.9 million, a
$44.3 million or 17.2% increase over 1999. Minimum rents increased $18.0 million
of which $4.3 million was due to the opening of MacArthur Center. Minimum rents
also increased due to the inclusion of Twelve Oaks, tenant rollovers, and new
sources of rental income, including temporary tenants and advertising space
arrangements. Percentage rents increased due to increases in tenant sales and
the inclusion of Twelve Oaks. Expense recoveries increased primarily due to
MacArthur Center and Twelve Oaks. Management, leasing, and development revenues
increased primarily due to contracts acquired as part of the Lord Associates
transaction, partially offset by decreases due to a reduction in fees in certain
managed centers, and the timing and completion status of certain other contracts
and services. Other revenue increased primarily due to an increase in gains on
sales of peripheral land and interest income, partially offset by a decrease in
lease cancellation revenue.
Total operating costs were $262.3 million, a $25.3 million or 10.7%
increase from 1999. Recoverable expenses and depreciation and amortization
increased primarily due to MacArthur Center and Twelve Oaks. Other operating
expense increased due to MacArthur Center, Twelve Oaks, the Lord Associates
transaction, and an increase in bad debt expense, offset by a decrease in the
charge to operations for costs of pre-development activities. Management,
leasing, and development costs increased primarily due to the Lord Associates
contracts. Interest expense increased primarily due to an increase in interest
rates and borrowings, including debt assumed and incurred related to Twelve
Oaks. In addition, interest expense increased because of a decrease in
capitalized interest upon opening MacArthur Center. These increases were offset
by a reduction in interest expense on debt paid down with proceeds of the
preferred equity offerings.
Unconsolidated Joint Ventures
Total revenues for the year ended December 31, 2000 were $230.7 million, a
$21.3 million or 8.5% decrease from the comparable period of 1999. Minimum rents
and expense recoveries decreased primarily because the Twelve Oaks and Lakeside
results were only included through the transaction date. Other revenue decreased
primarily due to a decrease in lease cancellation revenue, partially offset by
an increase in gains on sales of peripheral land.
Total operating costs decreased by $4.5 million to $172.0 million for the
year ended December 31, 2000. Recoverable expenses decreased primarily due to
Twelve Oaks and Lakeside. Interest expense increased primarily due to the
additional debt at Cherry Creek as well as increases in interest rates,
partially offset by Twelve Oaks and Lakeside.
As a result of the foregoing, income before extraordinary items of the
Unconsolidated Joint Ventures decreased by $17.0 million, or 22.5%, to $58.6
million. The Company's equity in income before extraordinary items of the
Unconsolidated Joint Ventures was $28.5 million, a 27.5% decrease from the
comparable period in 1999.
Net Income
As a result of the foregoing, the Company's income before gain on
disposition, extraordinary items, and minority and preferred interests increased
$8.1 million, or 13.9%, to $66.5 million for the year ended December 31, 2000.
The Company recognized $9.5 million and $0.5 million in extraordinary charges
related to the extinguishment of debt during 2000 and 1999, respectively. During
2000, the Company recognized an $85.3 million gain on the disposition of its
interest in Lakeside. Distributions of $9.0 million to the Operating
Partnership's Series C and Series D Preferred Equity owners were made in 2000,
compared to $2.4 million in 1999. After payment of $16.6 million in Series A
preferred dividends, net income available to common shareowners for 2000 was
$86.4 million compared to $8.9 million in 1999.
24
Comparison of 1999 to 1998
Discussion of significant debt, equity, and other transactions,
acquisitions, and openings occurring in 1999 is included in Comparison of 2000
to 1999. Significant 1998 items are described below.
GMPT Exchange and Related Transactions
On September 30, 1998, the Operating Partnership exchanged interests in 10
shopping centers (nine wholly owned and one Unconsolidated Joint Venture),
together with $990 million of debt, for all of GMPT's partnership units
(approximately 50 million units with a fair value of $675 million, based on the
average stock price of the Company's common shares of $13.50 for the two week
period prior to the closing), providing the Company with a majority and
controlling interest in the Operating Partnership. The Operating Partnership
continues to manage the centers exchanged under management agreements with GMPT.
The management agreements are cancelable with 90 days notice.
In anticipation of the GMPT Exchange, the Operating Partnership used the
$1.2 billion proceeds from two bridge loans to extinguish $1.1 billion of debt
in September 1998. The remaining proceeds were used primarily to pay prepayment
premiums and transaction costs. GMPT's share of debt received in the exchange
included the $902 million balance on the first bridge loan, $86 million
representing 50% of the debt on the Joint Venture owned shopping center, and
$1.6 million of assessment bond obligations. The $340 million balance on the
second bridge loan was refinanced during the first half of 1999.
Concurrently with the GMPT Exchange the Operating Partnership, expecting to
reduce its annual general and administrative expense, committed to a
restructuring of its operations and recognized a $10.7 million charge related to
this restructuring. During 1999, general and administrative expense decreased
$6.5 million from 1998.
Because the Company's portfolio changed significantly as a result of the
GMPT Exchange, the results of operations of the transferred centers have been
separately classified within the Consolidated Businesses and Unconsolidated
Joint Ventures for purposes of analyzing and understanding the historical
results of the current portfolio.
Other Transactions
In November 1998, Great Lakes Crossing, an enclosed super-regional mall,
opened in Auburn Hills, Michigan. As Great Lakes Crossing is owned by a joint
venture in which the Operating Partnership has a controlling interest, its
results are consolidated in the Company's financial statements.
At Cherry Creek, a 137,000 square foot expansion opened in stages
throughout the fall of 1998.
In January 1998, the Operating Partnership redeemed a partner's 6.1 million
units of partnership interest for approximately $77.7 million (including costs).
The redemption was funded through the use of an existing revolving credit
facility.
The Company's average ownership percentage of the Operating Partnership was
63% for 1999 and 43% for 1998 (including averages of 39% for the period through
the GMPT Exchange and 63% thereafter).
25
Comparison of 1999 to 1998
The following table sets forth operating results for 1999 and 1998, showing
the results of the Consolidated Businesses and Unconsolidated Joint Ventures:
1999 1998
------------------------------------------ ------------------------------------------------
UNCONSOLIDATED UNCONSOLIDATED
CONSOLIDATED JOINT CONSOLIDATED JOINT
BUSINESSES(1) VENTURES(2) TOTAL BUSINESSES(1) VENTURES(2) TOTAL
------------------------------------------ ------------------------------------------------
(in millions of dollars)
REVENUES:
Minimum rents 133.9 158.1 292.1 99.8 149.3 249.1
Percentage rents 4.6 3.9 8.6 5.2 3.7 8.9
Expense recoveries 78.9 83.6 162.4 57.9 79.2 137.1
Management, leasing and
development 23.9 23.9 12.3 12.3
Other 16.3 6.4 22.7 17.4 6.8 24.2
Revenues-transferred centers 129.7 47.2 177.0
----- ----- ----- ----- ----- -----
Total revenues 257.6 252.0 509.6 322.3 286.3 608.6
OPERATING COSTS:
Recoverable expenses 69.5 69.4 138.9 51.4 66.0 117.4
Other operating 28.9 13.0 41.9 25.7 11.7 37.4
Management, leasing
and development 17.2 17.2 8.0 8.0
Expenses other than interest,
depreciation and amortization
- transferred centers 44.3 17.7 62.0
General and administrative 18.1 18.1 24.6 24.6
Interest expense 51.3 64.4 115.8 75.8 69.7 145.5
Depreciation and amortization(3) 51.9 29.7 81.6 57.0 31.5 88.5
----- ----- ----- ----- ----- -----
Total operating costs 237.0 176.5 413.5 286.8 196.7 483.5
Net results of Memorial City (1) (1.4) (1.4) (0.8) (0.8)
----- ----- ----- ----- ----- -----
19.2 75.6 94.7 34.7 89.7 124.4
===== ===== ===== =====
Equity in income before
extraordinary items of
Unconsolidated Joint Ventures(3) 39.3 46.4
Restructuring loss (10.7)
----- -----
Income before extraordinary items,
minority and preferred interests 58.4 70.4
Extraordinary items (0.5) (50.8)
TRG preferred distributions (2.4)
Minority share of income (17.6) (4.2)
Distributions in excess of
minority share of income (12.4) (1.8)
----- -----
Net income 25.5 13.6
Series A preferred dividends (16.6) (16.6)
----- -----
Net income (loss) available to common
shareowners 8.9 3.0
===== =====
SUPPLEMENTAL INFORMATION(4):
EBITDA contribution 118.6 94.1 212.7 168.3 104.3 272.6
Beneficial Interest Expense (47.6) (34.5) (82.1) (75.8) (37.1) (112.9)
Non-real estate depreciation (2.7) (2.7) (2.3) (2.3)
Preferred dividends and distributions (19.0) (19.0) (16.6) (16.6)
----- ----- ----- ----- ----- -----
Funds from Operations contribution 49.3 59.7 108.9 73.7 67.1 140.8
===== ===== ===== ===== ===== =====
(1) The results of operations of Memorial City are presented net in this table.
(2) With the exception of the Supplemental Information, amounts represent 100%
of the Unconsolidated Joint Ventures. Amounts are net of intercompany
profits.
(3) Amortization of the Company's additional basis in the Operating Partnership
included in equity in income before extraordinary items of Unconsolidated
Joint Ventures was $4.7 million and $4.5 million in 1999 and 1998,
respectively. Also, amortization of the additional basis included in
depreciation and amortization was $3.8 million and $5.1 million in 1999 and
1998, respectively.
(4) EBITDA represents earnings before interest and depreciation and
amortization. EBITDA excludes gains on dispositions of depreciated
operating properties. Funds from Operations is defined and discussed in
Liquidity and Capital Resources.
(5) Amounts in this table may not add due to rounding.
26
Consolidated Businesses
Total revenues for the year ended December 31, 1999 were $257.6 million, a
$65.0 million or 33.7% increase over 1998, excluding revenues of the transferred
centers. Minimum rents increased $34.1 million of which $30.6 million was caused
by the opening of MacArthur Center and Great Lakes Crossing. Minimum rents also
increased due to tenant rollovers. Expense recoveries increased primarily due to
the new centers. Revenues from management, leasing, and development services
increased primarily due to the management agreements with GMPT. Other revenue
decreased primarily due to a decrease in gains on sales of peripheral land,
partially offset by increases in garage and trash removal services and lease
cancellation revenue.
Total operating costs were $237.0 million, a $5.5 million or 2.3% decrease
from 1998, excluding expenses other than depreciation, amortization and interest
of the transferred centers. Recoverable expenses increased primarily due to
Great Lakes Crossing and MacArthur Center. Other operating expense increased due
to an increase in the charge to operations for costs of pre-development
activities, the new centers, and bad debt expense. Costs of management, leasing
and development services increased primarily due to the management agreements
with GMPT. General and administrative expense decreased $6.5 million primarily
due to decreases in payroll costs, travel and professional fees. Interest
expense decreased primarily due to the assumption of debt by GMPT as part of the
GMPT Exchange and debt paid down with the proceeds of the Series C and Series D
Preferred Equity offerings, partially offset by an increase in debt used to
finance Great Lakes Crossing and MacArthur Center and a decrease in capitalized
interest related to these centers. Depreciation and amortization expenses
decreased due to the transferred centers, partially offset by an increase due to
the new centers.
During 1998, a $10.7 million loss on the restructuring was recognized,
which primarily represented the cost of certain involuntary terminations of
personnel.
Unconsolidated Joint Ventures
Total revenues for the year ended December 31, 1999 were $252.0 million, a
$12.9 million or 5.4% increase from the comparable period of 1998, excluding
revenues of the transferred center. Minimum rents increased due to the expansion
at Cherry Creek and tenant rollovers. Expense recoveries also increased because
of the Cherry Creek expansion and an increase in property taxes recoverable from
tenants at certain centers.
Total operating costs decreased by $20.2 million (of which $17.7 million
represented the expenses other than interest, depreciation, and amortization of
the transferred center) to $176.5 million for the year ended December 31, 1999.
Recoverable expenses increased primarily due to the Cherry Creek expansion and
an increase in property taxes at certain centers. Other operating expense
increased primarily due to increases in bad debt expense. Interest expense
decreased primarily due to the assumption of debt by GMPT as part of the GMPT
Exchange. Depreciation and amortization decreased due to the transferred center,
offset by an increase due to the Cherry Creek expansion.
Income before extraordinary items of the Unconsolidated Joint Ventures
decreased by $14.1 million, or 15.7%, to $75.6 million. The Company's equity in
income before extraordinary items of the Unconsolidated Joint Ventures was $39.3
million, a 15.3% decrease from the comparable period in 1998.
Net Income
As a result of the foregoing, the Company's income before extraordinary
items, minority and preferred interests decreased $12.0 million, or 17.0%, to
$58.4 million for the year ended December 31, 1999. The Company recognized $0.5
million in extraordinary losses related to the extinguishment of debt during
1999, while an extraordinary charge of $50.8 million for the extinguishment of
debt, primarily related to the GMPT Exchange, was recognized in 1998. The income
of the Operating Partnership allocable to minority partners increased to a total
of $30.0 million, from $6.0 million in 1998, primarily due to the minority
partners' $30.7 million share of the extraordinary charges in 1998.
Distributions of $2.4 million to the Operating Partnership's Series C and Series
D Preferred Equity owners were made in 1999. After payment of $16.6 million in
Series A preferred dividends, net income (loss) available to common shareowners
for 1999 was $8.9 million compared to $(3.0) million in 1998.
27
Liquidity and Capital Resources
In the following discussion, references to beneficial interest represent
the Operating Partnership's share of the results of its consolidated and
unconsolidated businesses. The Company does not have, and has not had, any
parent company indebtedness; all debt discussed represents obligations of the
Operating Partnership or its subsidiaries and joint ventures.
The Company believes that its net cash provided by operating activities,
distributions from its joint ventures, the unutilized portion of its credit
facilities, and its ability to access the capital markets assure adequate
liquidity to conduct its operations in accordance with its dividend and
financing policies.
As of December 31, 2000, the Company had a consolidated cash balance of
$18.8 million. Additionally, the Company has a secured $200 million line of
credit. This line had $63.0 million of borrowings as of December 31, 2000 and
expires in September 2001. The Company also has available a second secured bank
line of credit of up to $40 million. The line had $26.3 million of borrowings as
of December 31, 2000 and expires in August 2001.
Debt and Equity Transactions
Discussion of significant debt and equity transactions occurring in the
three years ended December 31, 2000 is contained in Results of Operations. In
addition to the transactions described therein, the following transactions have
occurred which will affect the Company's liquidity and capital resources in
future periods.
In November 2000, the 50% owned Unconsolidated Joint Venture that is
developing The Mall at Millenia closed on a $160.4 million construction
facility. The rate on the facility is LIBOR plus 1.95% and the facility matures
in November 2003, with two one-year extension options. The Operating Partnership
has guaranteed the payment of 50% of the principal and interest. The rate and
the amount guaranteed may be reduced once certain performance and valuation
criteria are met. There was no balance outstanding at December 31, 2000.
In June 2000, the Operating Partnership closed on a $220 million three-year
construction facility for The Shops at Willow Bend. The rate on the loan is
LIBOR plus 1.85%. The loan has two one-year extension options. The balance at
December 31, 2000 was $99.7 million.
In March 2000, the Company's Board of Directors authorized the purchase of
up to $50 million of the Company's common stock in the open market. The stock
may be purchased from time to time as market conditions warrant. As of December
31, 2000, the Company had purchased 2.3 million shares for approximately $25.8
million.
In June 2000, the Company finalized an agreement that securitized the $40
million bank line of credit and extended its maturity to August 2001.
In November 1999, the 26% owned Unconsolidated Joint Venture that is
developing International Plaza closed on a $193.5 million, three-year
construction financing, with a one-year extension option. The rate on the
facility is LIBOR plus 1.90%. The balance at December 31, 2000 was $67.5
million.
In October 1999, the 50% owned Unconsolidated Joint Venture that is
developing Dolphin Mall closed on a $200 million, three-year construction
facility. The rate on the facility is LIBOR plus 2%, decreasing to LIBOR plus
1.75% when a certain coverage ratio is met. The rate on the loan is capped at 7%
plus credit spread until maturity. Under the interest rate agreement, the rate
is swapped to a fixed rate of 6.14%, plus credit spread, when LIBOR is less than
6.7%. The maturity date may be extended one year. The balance at December 31,
2000 was $116.9 million.
28
Summary of Investing Activities
Net cash used in investing activities was $219.7 million in 2000 compared
to $197.4 million in 1999 and $270.0 million in 1998. Cash used in investing
activities was impacted by the timing of capital expenditures, with additions to
properties in 2000, 1999, and 1998 for the construction of MacArthur Center,
Great Lakes Crossing, The Mall at Wellington Green, The Shops at Willow Bend, as
well as other development activities and other capital items (see Capital
Spending below). During 2000, $3.0 million was invested in MerchantWired, while
in 1999, $18.5 million was used to purchase investments in Fashionmall.com,
Inc., Swerdlow Real Estate Group, and Lord Associates. In addition, during 2000,