UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period
Ended: September 30, 2004
Commission File No.
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 offices) | (Zip Code) |
| (248) 258-6800 | |
| (Registrant’s telephone number, including area code) |
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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| Yes X. | No . |
Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
| Yes X. | No . |
As of October 29, 2004, there were outstanding 48,600,865 shares of the Company’s common stock, par value $0.01 per share.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following consolidated financial statements of Taubman Centers, Inc. (the Company) are provided pursuant to the requirements of this item.
| Consolidated Balance Sheet as of September 30, 2004 and December 31, 2003 | 2 | ||
| Consolidated Statement of Operations and Comprehensive Income for the three months ended September 30, 2004 and 2003 | 3 | ||
| Consolidated Statement of Operations and Comprehensive Income for the nine months ended September 30, 2004 and 2003 | 4 | ||
| Consolidated Statement of Cash Flows for the nine months ended September 30, 2004 and 2003 | 5 | ||
| Notes to Consolidated Financial Statements | 6 | ||
TAUBMAN CENTERS, INC.
CONSOLIDATED
BALANCE SHEET
(in thousands, except share data)
| September 30 2004 |
December 31 2003 | |||||||
| Assets: | ||||||||
| Properties | $ | 2,906,363 | $ | 2,519,922 | ||||
| Accumulated depreciation and amortization | (539,720 | ) | (450,515 | ) | ||||
| $ | 2,366,643 | $ | 2,069,407 | |||||
| Investment in Unconsolidated Joint Ventures (Note 5) | 22,629 | 6,093 | ||||||
| Cash and cash equivalents (Note 6) | 27,288 | 30,403 | ||||||
| Accounts and notes receivable, less allowance for doubtful accounts of | ||||||||
| $9,122 and $7,403 in 2004 and December 31, 2003 | 29,979 | 32,592 | ||||||
| Accounts and notes receivable from related parties | 1,784 | 1,679 | ||||||
| Deferred charges and other assets | 55,513 | 46,796 | ||||||
| $ | 2,503,836 | $ | 2,186,970 | |||||
| Liabilities: | ||||||||
| Notes payable (Note 6) | $ | 1,892,925 | $ | 1,495,777 | ||||
| Accounts payable and accrued liabilities | 224,246 | 258,938 | ||||||
| Dividends and distributions payable | 13,105 | 13,481 | ||||||
| $ | 2,130,276 | $ | 1,768,196 | |||||
| Commitments and Contingencies (Notes 6 and 9) | ||||||||
| Preferred Equity of TRG (Notes 1 and 7) | $ | 126,492 | $ | 97,275 | ||||
| Partners' Equity of TRG allocable to minority partners (Note 1) | ||||||||
| Shareowners' Equity: | ||||||||
| Series A Cumulative Redeemable Preferred Stock, $0.01 par value, | ||||||||
| 8,000,000 shares authorized, $200 million liquidation preference, | ||||||||
| 8,000,000 shares issued and outstanding at September 30, 2004 | ||||||||
| and December 31, 2003 | $ | 80 | $ | 80 | ||||
| Series B Non-Participating Convertible Preferred Stock, $0.001 par | ||||||||
| and liquidation value, 40,000,000 shares authorized, 29,855,737 | ||||||||
| and 29,819,738 shares issued and outstanding at September 30, | ||||||||
| 2004 and December 31, 2003 | 30 | 30 | ||||||
| Series C Cumulative Redeemable Preferred Stock, $0.01 par | ||||||||
| value, 2,000,000 shares authorized, $75 million liquidation preference, | ||||||||
| none issued | ||||||||
| Series D Cumulative Redeemable Preferred Stock, $0.01 par value, | ||||||||
| 250,000 shares authorized, $25 million liquidation preference, none issued | ||||||||
| Series F Cumulative Redeemable Preferred Stock, $0.01 par value, | ||||||||
| 300,000 shares authorized, $30 million liquidation preference, none issued | ||||||||
| Common Stock, $0.01 par value, 250,000,000 shares authorized, | ||||||||
| 48,538,366 and 49,936,786 shares issued and outstanding at | ||||||||
| September 30, 2004 and December 31, 2003 | 485 | 499 | ||||||
| Additional paid-in capital | 632,716 | 664,362 | ||||||
| Accumulated other comprehensive income (loss) | (12,648 | ) | (12,593 | ) | ||||
| Dividends in excess of net income | (373,595 | ) | (330,879 | ) | ||||
| $ | 247,068 | $ | 321,499 | |||||
| $ | 2,503,836 | $ | 2,186,970 | |||||
See notes to consolidated financial statements.
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT
OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except share data)
| Three Months Ended September 30 | ||||||||
| 2004 | 2003 | |||||||
| Revenues: | ||||||||
| Minimum rents | $ | 61,865 | $ | 51,371 | ||||
| Percentage rents | 1,179 | 951 | ||||||
| Expense recoveries | 35,006 | 29,939 | ||||||
| Revenues from management, leasing, and development services | 6,110 | 5,087 | ||||||
| Other | 6,741 | 5,318 | ||||||
| $ | 110,901 | $ | 92,666 | |||||
| Operating Expenses: | ||||||||
| Recoverable expenses | $ | 32,845 | $ | 28,409 | ||||
| Other operating | 9,509 | 8,231 | ||||||
| Costs related to unsolicited tender offer, net of recoveries (Note 4) | 6,046 | |||||||
| Management, leasing, and development services | 4,890 | 4,326 | ||||||
| General and administrative | 7,604 | 5,837 | ||||||
| Interest expense | 24,652 | 20,562 | ||||||
| Depreciation and amortization | 27,069 | 22,251 | ||||||
| $ | 106,569 | $ | 95,662 | |||||
| Income (loss) before equity in income of Unconsolidated Joint Ventures, | ||||||||
| discontinued operations, and minority and preferred interests | $ | 4,332 | $ | (2,996 | ) | |||
| Equity in income of Unconsolidated Joint Ventures (Note 5) | 8,291 | 8,144 | ||||||
| Income before discontinued operations and minority and preferred interests | $ | 12,623 | $ | 5,148 | ||||
| Discontinued operations: | ||||||||
| Net gain on disposition of interest in center | 136 | |||||||
| Income from operations (Note 1) | 55 | |||||||
| Income before minority and preferred interests | $ | 12,759 | $ | 5,203 | ||||
| Minority interest in consolidated joint ventures | 221 | 53 | ||||||
| Minority interest in TRG: | ||||||||
| TRG income allocable to minority partners | (3,103 | ) | (287 | ) | ||||
| Distributions in excess of income allocable to minority partners | (5,752 | ) | (8,773 | ) | ||||
| TRG Series C, D, and F preferred distributions (Note 1) | (2,865 | ) | (2,250 | ) | ||||
| Net income (loss) | $ | 1,260 | $ | (6,054 | ) | |||
| Series A preferred stock dividends | (4,150 | ) | (4,150 | ) | ||||
| Net income (loss) allocable to common shareowners | $ | (2,890 | ) | $ | (10,204 | ) | ||
| Net income (loss) | $ | 1,260 | $ | (6,054 | ) | |||
| Other comprehensive income (loss): | ||||||||
| Change in fair value of available-for-sale securities | (247 | ) | ||||||
| Unrealized gain on interest rate instruments | 366 | 911 | ||||||
| Reclassification adjustment for amounts recognized in net income | 315 | 164 | ||||||
| Comprehensive income (loss) | $ | 1,941 | $ | (5,226 | ) | |||
| Basic and diluted earnings per common share (Note 10): | ||||||||
| Income (loss) from continuing operations | $ | (0.06 | ) | $ | (0.21 | ) | ||
| Net income (loss) | $ | (0.06 | ) | $ | (0.21 | ) | ||
| Cash dividends declared per common share | $ | 0.27 | $ | 0.26 | ||||
| Weighted average number of common shares outstanding | 48,159,799 | 49,348,000 | ||||||
See notes to consolidated financial statements.
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT
OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except share data)
| Nine Months Ended September 30 | ||||||||
| 2004 | 2003 | |||||||
| Revenues: | ||||||||
| Minimum rents | $ | 169,511 | $ | 150,764 | ||||
| Percentage rents | 2,282 | 2,440 | ||||||
| Expense recoveries | 98,996 | 93,440 | ||||||
| Revenues from management, leasing, and development services | 16,339 | 15,450 | ||||||
| Other | 24,042 | 21,792 | ||||||
| $ | 311,170 | $ | 283,886 | |||||
| Operating Expenses: | ||||||||
| Recoverable expenses | $ | 91,304 | $ | 84,114 | ||||
| Other operating | 26,344 | 26,616 | ||||||
| Costs related to unsolicited tender offer, net of recoveries (Note 4) | (1,044 | ) | 25,058 | |||||
| Management, leasing, and development services | 14,671 | 14,387 | ||||||
| General and administrative | 19,384 | 18,074 | ||||||
| Interest expense | 70,377 | 62,083 | ||||||
| Depreciation and amortization | 73,540 | 65,596 | ||||||
| $ | 294,576 | $ | 295,928 | |||||
| Income (loss) before equity in income of Unconsolidated Joint Ventures, | ||||||||
| discontinued operations, and minority and preferred interests | $ | 16,594 | $ | (12,042 | ) | |||
| Equity in income of Unconsolidated Joint Ventures (Note 5) | 26,663 | 26,829 | ||||||
| Income before discontinued operations and minority and preferred interests | $ | 43,257 | $ | 14,787 | ||||
| Discontinued operations: | ||||||||
| Net gain on disposition of interest in center | 289 | |||||||
| Income from operations (Note 1) | 173 | |||||||
| Income before minority and preferred interests | $ | 43,546 | $ | 14,960 | ||||
| Minority interest in consolidated joint ventures | 36 | 143 | ||||||
| Minority interest in TRG: | ||||||||
| TRG income allocable to minority partners | (11,386 | ) | (529 | ) | ||||
| Distributions in excess of income allocable to minority partners | (15,168 | ) | (25,827 | ) | ||||
| TRG Series C, D, and F preferred distributions (Note 1) | (7,604 | ) | (6,750 | ) | ||||
| Net income (loss) | $ | 9,424 | $ | (18,003 | ) | |||
| Series A preferred stock dividends | (12,450 | ) | (12,450 | ) | ||||
| Net income (loss) allocable to common shareowners | $ | (3,026 | ) | $ | (30,453 | ) | ||
| Net income (loss) | $ | 9,424 | $ | (18,003 | ) | |||
| Other comprehensive income (loss): | ||||||||
| Change in fair value of available-for-sale securities | (297 | ) | ||||||
| Realized loss on interest rate instruments | (6,054 | ) | ||||||
| Unrealized gain on interest rate instruments | 5,054 | 1,556 | ||||||
| Reclassification adjustment for amounts recognized in net income | 945 | 492 | ||||||
| Comprehensive income (loss) | $ | 9,369 | $ | (16,252 | ) | |||
| Basic and diluted earnings per common share (Note 10): | ||||||||
| Income (loss) from continuing operations | $ | (0.07 | ) | $ | (0.60 | ) | ||
| Net income (loss) | $ | (0.06 | ) | $ | (0.60 | ) | ||
| Cash dividends declared per common share | $ | 0.81 | $ | 0.78 | ||||
| Weighted average number of common shares outstanding | 49,145,132 | 50,562,963 | ||||||
See notes to consolidated financial statements.
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
(in thousands)
| Nine Months Ended September 30 | ||||||||
| 2004 | 2003 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Income before minority and preferred interests | $ | 43,546 | $ | 14,960 | ||||
| Adjustments to reconcile income before minority and preferred interests | ||||||||
| to net cash provided by operating activities: | ||||||||
| Depreciation and amortization of continuing operations | 73,540 | 65,596 | ||||||
| Depreciation and amortization of discontinued operations | 3,227 | |||||||
| Provision for losses on accounts receivable | 2,978 | 3,633 | ||||||
| Gains on sales of land | (5,752 | ) | (1,361 | ) | ||||
| Settlement of swap agreement (Note 6) | (6,054 | ) | ||||||
| Other | 2,448 | 3,167 | ||||||
| Increase (decrease) in cash attributable to changes in assets and liabilities: | ||||||||
| Receivables, deferred charges and other assets | (2,079 | ) | (4,231 | ) | ||||
| Accounts payable and other liabilities | (27,469 | ) | 2,548 | |||||
| Net Cash Provided by Operating Activities | $ | 81,158 | $ | 87,539 | ||||
| Cash Flows From Investing Activities: | ||||||||
| Additions to properties | $ | (83,137 | ) | $ | (109,015 | ) | ||
| Proceeds from sales of land | 7,827 | 1,344 | ||||||
| Acquisition of interests in centers, net of cash transferred in (Note 3) | (61,837 | ) | (8,126 | ) | ||||
| Dividend received from technology investment | 305 | |||||||
| Contributions to Unconsolidated Joint Ventures (Note 6) | (71,253 | ) | ||||||
| Distributions from Unconsolidated Joint Ventures in excess of income | 19,952 | 44,994 | ||||||
| Net Cash Used In Investing Activities | $ | (188,448 | ) | $ | (70,498 | ) | ||
| Cash Flows From Financing Activities: | ||||||||
| Debt proceeds | $ | 786,393 | $ | 397,412 | ||||
| Debt payments | (575,686 | ) | (333,009 | ) | ||||
| Debt issuance costs | (9,229 | ) | (3,285 | ) | ||||
| Issuance of common stock pursuant to Continuing Offer (Note 8) | 7,690 | 1,645 | ||||||
| Issuance of partnership units (Note 8) | 2,644 | 49,985 | ||||||
| Issuance of preferred equity (Note 7) | 29,217 | |||||||
| Repurchase of common stock (Note 7) | (50,178 | ) | (52,762 | ) | ||||
| Distributions to minority and preferred interests | (34,158 | ) | (33,106 | ) | ||||
| Cash dividends to Series A preferred shareowners | (12,450 | ) | (12,450 | ) | ||||
| Cash dividends to common shareowners | (40,068 | ) | (39,994 | ) | ||||
| Net Cash Provided By (Used In) Financing Activities | $ | 104,175 | $ | (25,564 | ) | |||
| Net Decrease In Cash and Cash Equivalents | $ | (3,115 | ) | $ | (8,523 | ) | ||
| Cash and Cash Equivalents at Beginning of Period | 30,403 | 32,470 | ||||||
| Cash and Cash Equivalents at End of Period | $ | 27,288 | $ | 23,947 | ||||
See notes to consolidated financial statements.
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Interim Financial Statements
Taubman Centers, Inc. (the Company or TCO), a real estate investment trust, or REIT, is the managing general partner of The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG). The Operating Partnership is an operating subsidiary that engages in the ownership, management, leasing, acquisition, development, and expansion of regional retail shopping centers and interests therein. The Operating Partnership’s owned portfolio as of September 30, 2004 included 21 urban and suburban shopping centers in nine states. Another center is currently under construction in North Carolina.
The consolidated financial statements of the Company include all accounts of the Company, TRG, and its consolidated subsidiaries, including The Taubman Company LLC (the Manager). The Company also consolidates the accounts of the owner of the Oyster Bay project (Note 6), which qualifies as a variable interest entity under FASB Interpretation No. 46 “Consolidation of Variable Interest Entities” (FIN 46R) and in which the Operating Partnership holds the majority variable interest. All intercompany transactions have been eliminated. Investments in entities not controlled but over which the Company has significant influence (Unconsolidated Joint Ventures) are accounted for under the equity method. The Company has evaluated its investments in the Unconsolidated Joint Ventures and has concluded that the ventures are not variable interest entities as defined in FIN 46R. Accordingly, the Company continues to account for its interests in these ventures under the guidance in Statement of Position 78-9 (SOP 78-9). The Company’s partners or other owners in these Unconsolidated Joint Ventures have important rights, as contemplated by paragraphs .09 and .10 of SOP 78-9, including approval rights over annual operating budgets, capital spending, financing, admission of new partners/members, or sale of the properties and the Company has concluded that the equity method of accounting is appropriate for these interests. Specifically, the Company’s 79% investment in Westfarms is through a general partnership in which the other general partners have approval rights over annual operating budgets, capital spending, refinancing, or sale of the property. Under the equity method of accounting, the investments in Joint Ventures are initially recorded at cost, and subsequently increased for additional contributions and allocations of income and reduced for distributions received.
At September 30, 2004, the Operating Partnership’s equity included four classes of preferred equity (Series A, C, D, and F) and the net equity of the partnership unitholders. Net income and distributions of the Operating Partnership are allocable first to the preferred equity interests, and the remaining amounts to the general and limited partners in the Operating Partnership in accordance with their percentage ownership. The Series A Preferred Equity is owned by the Company and is eliminated in consolidation. The Series C, D, and F Preferred Equity are owned by institutional investors and have no stated maturity, sinking fund, or mandatory redemption requirements. The Series C and D Preferred Equity have a fixed 9% coupon rate and the Series F Preferred Equity has a fixed 8.2% coupon rate. The Company can redeem the Series C, D, and F Preferred Equity beginning in September 2004, November 2004, and May 2009, respectively. The Series C, D, and F Preferred Equity are convertible into Taubman Centers Preferred Stock beginning 10 years from the initial dates of issuance, having substantially similar terms as the related classes of preferred equity. The Series B Preferred Stock is currently held by partners in TRG other than the Company. The Series B Preferred Stock entitles its holders to one vote per share on all matters submitted to the Company’s shareholders and votes together with the common stock on all matters as a single class.
Because the net equity of the Operating Partnership unitholders is less than zero, the interest of the noncontrolling unitholders is presented as a zero balance in the consolidated balance sheet as of September 30, 2004 and December 31, 2003. The income allocated to the noncontrolling unitholders is equal to their share of distributions. The net equity of the Operating Partnership is less than zero because of accumulated distributions in excess of net income and not as a result of operating losses. Distributions to partners are usually greater than net income because net income includes non-cash charges for depreciation and amortization.
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
The Company’s ownership in the Operating Partnership at September 30, 2004 consisted of a 60% managing general partnership interest, as well as the Series A Preferred Equity interest. The Company’s average ownership percentage in the Operating Partnership for both the nine months ended September 30, 2004 and 2003 was 61%. At September 30, 2004, the Operating Partnership had 80,510,645 units of partnership interest outstanding, of which the Company owned 48,538,366. Included in the total units outstanding are 43,514 units issued in connection with the 1999 acquisition of Lord Associates that currently do not receive allocations of income or distributions, and 2,083,333 non-voting units issued in May 2003.
Biltmore Fashion Park was sold in December 2003. The Company has separately presented the results of Biltmore Fashion Park as discontinued operations through the date of the sale. In 2004, the Company recognized a $0.3 million adjustment to the gain on the disposition of the center.
The unaudited interim financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results of interim periods are not necessarily indicative of the results for a full year.