“ Good retail design
is all about overcoming
threshold resistance,
bringing the customer
into the store.”
A. Alfred Taubman
Taubman Centers, Inc.
2015 Annual Report
Early in his career our founder A. Alfred Taubman coined
In April 2015 at age 91 Mr. Taubman passed away. But his
the phrase “threshold resistance(1)” to describe the physical
extraordinary vision, wisdom and timeless insight live on in
and psychological barriers that keep a shopper from walking
all we do at Taubman Centers. This annual report is dedicated
into a store. He believed these forces could be overcome
with love and appreciation to the man bestselling author
through a combination of great design, merchandising
Malcolm Gladwell(2) credited with “perfecting” the modern
and convenience.
shopping mall, the man who set for this company uncompro-
mising standards of excellence, innovation and performance.
(1) All quotes attributed to A. Alfred Taubman in this report are from his memoir,
Threshold Resistance – The Extraordinary Career of a Luxury Retailing Pioneer, Harper Collins, 2007
(2) “The Terazzo Jungle,” Malcolm Gladwell, The New Yorker, March 15, 2004
page 1
page 1
“Planning is everything.
Screw that up and a
retail development will
never realize its fullest
potential. Get it right
and everybody wins.”
– A. Alfred Taubman
A passionate commitment to good planning
and design is one of Alfred Taubman’s most
important legacies and is a hallmark of today’s
Taubman Centers. Getting it right contributes to
the productivity of our centers.
555
2007
533
2008
529
2006
564
2010
502
2009
819
2013
792
2014
800
2015
708
2012
641
2011
Taubman Centers, Inc. page 2
page 3
Taubman’s centers are the most
productive in the publicly held
U.S. regional mall industry
Tenant Sales per Square Foot (1) ($)
Tenant sales per square foot is the most important measure of the quality of retail assets. The higher
the retailers’ sales, the higher the rents those retailers can pay, which translates to greater rewards to
the landlord and its shareholders. Over the last decade, the compounded annual growth of our tenant
sales per square foot has been 4.7%, nearly two and a half times greater than the 1.9% compounded
annual growth of the core Consumer Price Index.
(1) See Notes and Reconciliations page at the end of this report for properties included and excluded.
“Every success involved
placing opportunities
in front of customers,
offering value and
providing an enriching,
entertaining experience.”
– A. Alfred Taubman
Recognizing the importance of impulse
buying to retail sales, Alfred Taubman created
welcoming retail environments in which
customers are exposed to more merchandise and
purchasing opportunities. That drives higher
sales, rents and investor returns.
3.08
2008
3.06
2009
2.86
2010
2.84
2011
2.88
2007
2.65
2006
1.66
1.66
2008
2009
1.76
2011
1.68 (2)
2010
1.54
2007
1.29
2006
3.65
2013
3.67(1)
2014
3.42
2015
3.34
2012
2.26(4)
2015
2.16 (3)
2014
2.00
2013
1.85
2012
Over the last 10 years, the company’s Adjusted Funds
from Operations per share has grown 29%, and Dividends
per share grew at a compounded annual growth rate of 6.4%
Adjusted Funds from Operations per Share / Dividends per Share (5) ($)
Because of consistent earnings growth, Taubman Centers has regularly rewarded shareholders with
a growing dividend. Over the last 10 years, dividends per share have grown 75%. In March 2016
we again increased our regular quarterly dividend by 5.3%. We have never reduced our common
dividend and have increased it 19 times in the last 20 years.
(1) Includes the portfolio of seven centers sold to Starwood Capital Group in October 2014, which contributed $0.48 to Adjusted Funds
from Operations per share in 2014.
(2) Excludes special dividend of $0.1834 per share paid in December 2010.
(3) Excludes special dividend of $4.75 per share paid in December 2014.
(4) The annualized amount of the first quarter 2016 regular dividend is $2.38 per share.
(5) See Notes and Reconciliations page at the end of this report for a reconciliation of net income to Adjusted Funds from Operations.
Taubman Centers, Inc. page 4
page 5
“The little company that
I started with my father,
some big dreams and a
$5,000 loan, has grown
into a large enterprise.
We’re still developing,
still creating exciting
new retail environments,
and still breaking down
threshold resistance.”
– A. Alfred Taubman
With our strong balance sheet, we continue to
grow through development of new properties,
redevelopment of our existing centers, and the
acquisition of signature assets that complement
our portfolio.
2.7
2007
2.2
2007
2.7
2008
2.2
2008
2.7
2009
2.2
2009
2.6
2010
2.1
2010
2.6
2011
2.1
2011
2.6
2006
2.0
2006
4.2
2015
3.9
2014
3.0
2014
3.0
2015
3.3
2013
2.6
2013
2.9
2012
2.3
2012
Over the last decade, the company has
significantly increased both its Interest Only
and Fixed Charges Coverage Ratios
Interest Only Coverage Ratio / Fixed Charges Coverage Ratio(1)
The company remains absolutely committed to maintaining a strong balance sheet and believes it
provides a significant competitive advantage. These ratios will moderate over the next couple of years
as our new developments come on line and income grows.
(1) See Notes and Reconciliations page at the end of this report for a description of the calculations.
Taubman Centers, Inc. page 6
page 7
“Adding a tenant to a
shopping center is like
mixing a new element
into a chemical formula.
The addition changes
the experience for the
shopper and the merchants.”
– A. Alfred Taubman
We merchandise our centers to meet the needs,
tastes and desires of the markets we serve.
Our tenant-mix always features important
components of unique-to-market and
point-of-difference stores.
92.5
91.3
93.8
91.2
2006
2007
92.0
90.5
2008
91.6
89.8
2009
92.0
90.1
2010
92.4
90.7
2011
93.4
91.8
93.1
91.7
2012
2013
96.0
94.1
2014
96.1
94.2
2015
Taubman Centers, Inc. page 8
page 9
Leased space and ending occupancy
percentages reflect strong tenant demand
Leased Space / Ending Occupancy (1) (%)
The world’s best retailers, as well as emerging concepts, want to do business in the highest quality
centers. Our current leased space and ending occupancy percentages reflect strong tenant demand
to operate in our centers, while providing investors an indication of future cash flows. We have
created an attractive environment for our tenants to thrive, as evidenced by these two key metrics.
(1) Beginning in 2014, leased space and ending occupancy statistics were updated to include temporary in-line tenants to be consistent with
our peer reporting group. Values prior to 2014 have not been restated.
“From the outset
I believed that building
shopping centers
wasn’t a real estate or
development business,
it was a retail business.”
– A. Alfred Taubman
Approaching our business as retailers has given
us a competitive advantage since our founding in
1950. This mindset has helped make our properties
productive and contributed to the sustained
growth of Taubman Centers’ enterprise value.
10.80
2012
10.51
2015
10.06
2014
9.77
2013
8.83
2011
7.18
2010
6.93
2006
7.05
2007
6.01
2009
5.24
2008
Over the 10-year period ended
December 31, 2015, the compounded
annual growth of our Total Market
Capitalization has been 4.7%
Total Market Capitalization ($ billions)
Since 2006, the company has significantly increased its market capitalization – from $6.9 billion to
$10.5 billion. The company’s market capitalization increased $450 million in 2015, despite the sale
of seven centers in the fourth quarter of 2014. Since our 1992 IPO, our compounded annual growth
in total shareholder return through 2015 was more than 15%.
Taubman Centers, Inc. page 10
page 11
333
321
From our company’s founding in 1950, my father
A. Alfred Taubman set out to make shopping in
America better, not just different. In his memoir,
“Threshold Resistance,” he wrote, “I wanted to
create places where customers would want to shop and
retailers would want to do business – more business
than they had ever done before.”
246
Letter to Shareholders
Over the next 65 years he more than fulfilled that dream,
building our company and introducing scores of design and
business innovations that are standard today throughout
the shopping mall industry.
My father passed away on April 17, 2015, at age 91. This
219
203
202
184
2015
2014
annual report is dedicated to him. We miss him very much. But in so many ways he will always
be with us. The timeless insights that informed his extraordinary creativity continue to inspire
us and define our culture.
Productivity Through Insight, Innovation and Inspiration
In 2015, our average tenant sales per square foot of $800 led all others in the U.S. publicly traded
regional mall industry by more than 25 percent. Of all the performance metrics by which we
are judged, the sales productivity of the retailers doing business in our properties is the surest
measure of our portfolio’s strength and our company’s success.
2013
2012
It is also a testament to the insights, innovations and inspiration of my father.
Over the 10-year period ended December 31, 2015,
Taubman Centers’ compounded annual total
shareholder return was 12.7%
This graph sets forth the cumulative total returns on
a $100 investment in each of our Common Stock, the
MSCI US REIT Index, the FTSE NAREIT Equity Retail
Index, the S&P 500 Index and the S&P 400 MidCap
Index for the period December 31, 2005 through
December 31, 2015 (assuming in all cases, the reinvest-
ment of dividends). During 2015, Taubman Centers
produced a 3.5% total shareholder return. This compares
to MSCI US REIT Index total return of 2.5% and the
S&P 500 Index total return of 1.4%.
The company’s 10-year total shareholder return was
the 17th highest of the 101 U.S. REITs that have
operated during this period.
295
227
179
2011
2010
151
150
2006
100
2005
2007
122
2009
81
2008
Comparison of Cumulative Total Return
Taubman Centers, Inc.
S&P 500 Index
S&P 400 MidCap Index
MSCI US REIT Index
FTSE NAREIT Equity Retail Index
Taubman Centers, Inc. page 12
page 13
“Good retail design,” he wrote, “is all about overcoming threshold resistance, bringing the customer
into the store.” Driven by that simple but profound insight, he emphasized the importance of
planning and design, which remain hallmarks of our company today. This focus on what he called
the “science” of shopping center development can be seen in the industry-changing innovations
he introduced in our centers, inside and out. Here’s just a sampling:
Understanding the importance of convenience to shoppers driving to a center, he created “ring
roads,” which encircled the entire property, and “magazine roads,” which fed cars safely onto the
ring roads from major offsite thoroughfares adjacent to the center. This road system allowed easy
access to wherever the customer wanted to go and helped distribute cars evenly to multiple
mall entrances.
He created two-level centers to provide customers with the best comparative shopping oppor-
tunity and a huge critical mass of different stores. This compact layout allowed him to pack more
“ Our objective is to give every retailer
a good chance of attracting the
shopper into the store, to make every
location a 100-percent location.”
– A. Alfred Taubman
retailers into the mall, while maintaining a manageable
walking distance of about three city blocks on each level
between the department stores. Vertical transportation
systems (escalators and elevators) at each end of the mall
corridors allowed customers to easily shop the entire center,
down and back, and end up where they parked their car.
To distribute traffic evenly within his two-level malls –
and make every location a 100-percent location – he
graded the land around the centers in such a way to create
upper and lower parking areas. Because all parking was on-grade, customers parking in the upper
lots did not perceive that they were flowing into the center on the second level. Observing that
people, like water, flow downhill much easier than uphill, he always provided more parking on
the upper level, again equalizing shopper traffic.
In the interiors of our centers he created column-free mall corridors and was the first to install clear
glass handrails on the upper level. By minimizing all architectural obstructions, he improved sightlines
throughout the mall.
He punched openings in the upper floor in such a way to allow customers to see the stores on both
levels and shop both sides of the corridors. This encouraged what he called “shopper oscillation.”
To encourage shoppers to keep walking by more stores, he designed skylight systems that
spilled pools of light into the space and onto the floors along the corridors. These streams of
light had the effect of subliminally foreshortening the perception of distance, making it seem
easier to walk the entire center, even with tired feet.
Merchandising was at the heart of my father’s vision for our centers. He always believed he
was a retailer of retailers. He built relationships with the best merchants and created synergies
among them by focusing on the most effective adjacencies for their stores within the centers.
Believing in the ever-increasing value of our properties and recognizing that retail concepts come
in and out of fashion, he introduced the shortest lease terms in the industry. This assured that
the centers, which he designed as “flexible envelopes” for whatever happens next in retailing,
would stay fresh and relevant to consumers.
And he saw early on the importance of food to the shopper. In 1964 he developed the first mall
food court. “World’s Fare” in Hayward, California’s Southland Mall featured eight kitchens
operated by local entrepreneurs offering a variety of food choices far better than the standard
buffet concept featured in other malls at the time. Each family member could enjoy his or her
food preference in a comfortable common sit-down environment and quickly resume shopping,
relaxed and refreshed.
Alfred Taubman’s unique understanding of consumers, merchandising and design is in our DNA,
continuing to drive productivity in our centers, differentiate us within our industry and inspire
meaningful innovation.
For example, our much-imitated ring-road system, cutting edge technology when it was introduced,
still adds convenience. Today in a similar way to make the trip to the shopping center even easier,
we’re tapping technology with a mobile app that provides real-time navigation and displays special
offers based on the shopper’s favorite stores. Studies suggest as many as 87 percent of consumers
research their buying options before walking into a store.(1)
Our newest skylight systems, dramatically executed in our most recent centers and renovations,
fill our centers with light and continue to encourage movement through the space. Today they
also feature high-tech, energy-saving glass that contributes to the sustainability of our centers.
And my father was right about food. Today, we merchandise our food offerings like any other
category within our centers and our restaurants, from quick serve to elegant dining venues,
function much like additional anchors. A great example of this is at International Market Place in
“ A shopping center’s food offerings are
very important. Attractive sit-down or
‘tablecloth’ restaurants hold the customer
longer in the mall and increase the
number of monthly visits.”
– A. Alfred Taubman
Waikiki, where we’ll be opening later this year with a
unique mix of restaurants in the center’s third floor Grand
Lanai. Offerings announced so far include STRIPSTEAK by
Michael Mina; Eating House 1849 by Roy Yamaguchi; a
Hakkasan dim sum concept called Yauatcha; Flour &
Barley, a high-end pizza and Italian restaurant; Goma Tei,
a Japanese ramen noodle concept; and Kona Grill, featuring
award-winning sushi and modern American cuisine.
Taubman Centers, Inc. page 14
page 15
(1) Digital impact on in-store shopping, October 2014, https://www.thinkwithgoogle.com/research-studies/digital-impact-on-in-store-shopping.html
Growth Through Development, Redevelopment and Acquisition
On March 26, 2015, we were delighted that my father was on hand to help us celebrate the
grand opening of The Mall of San Juan. Anchored by the first Saks Fifth Avenue and Nordstrom
stores in the Caribbean, the center has been embraced by both the visitors and residents of
Puerto Rico’s capital city. This would be my father’s last ribbon cutting, and he remarked that
the center was the most beautiful we had ever developed.
As for beauty, International Market Place, opening on August 25, 2016, will give The Mall of San
Juan some stiff competition. We’re assembling a great mix of tenants, anchored by Hawaii’s only
Saks Fifth Avenue. In addition to the mix of restaurants I mentioned earlier, we are also introducing
“THE STREET, A Michael Mina Food Hall” on the first floor. There are 30,000 hotel rooms
within one mile of the center. Every day 50,000 to 80,000 pedestrians pass by the site between
Kuhio Avenue and Kalakaua Avenue – Hawaii’s most important retail street. The center will be
its own unique destination in the heart of the market.
We also are making excellent development progress in Asia, with three ground-up centers
scheduled to open in 2016.
Both of our projects in China remain on budget. As this report is going to print, we are opening
CityOn.Xi’an on April 28. Our Taubman Asia team has assembled a strong group of tenants
including Coach, Forever 21, GAP, H&M, Zara, Starbucks and an outstanding group of Chinese
“ Like a department store, we considered
the most effective adjacencies for the
stores. What combination of
merchants made the most sense?”
– A. Alfred Taubman
national retailers, including our anchor Wangfujing
department store. Tenant demand has been excellent,
and we are well over 90 percent leased at opening.
CityOn.Zhengzhou, also anchored by Wangfujing, is
scheduled to open about six months later in October.
Here too, the leasing momentum is strong. We expect to
open with a merchandising and tenant roster much like
the one at Xi’an.
Starfield First Hanam (formerly Hanam Union Square) in South Korea will open in September
2016. Located on the edge of Seoul, the center will feature a substantial luxury component,
represented by a strong mix of international brands and significant Korean national merchants.
We’re anticipating a similar level of leasing at opening as our projects in China. Shinsegae, one
of South Korea’s leading retailers, is our partner and will be anchoring the center.
We continually invest in our core properties to delight shoppers and strengthen the dominant
positions our centers enjoy in their markets. During 2015 we completed redevelopment projects
at Cherry Creek Shopping Center in Denver, Dolphin Mall in Miami, Sunvalley in the San
Francisco Bay Area, and International Plaza in Tampa, adding more than 160,000 square feet of
space to our portfolio. The company’s share of investment in the four projects totaled $60 million.
We believe these investments in many of our best assets will deliver strong returns of about 10
percent at stabilization.
We have two other major redevelopment projects underway. First, at The Mall at Green Hills in
Nashville, scheduled to be completed in 2019, we are adding 170,000 square feet of in-line
space and a new relocated Dillard’s store of 180,000 square feet.
And then, at Beverly Center in Los Angeles, we are re-imagining the entire center. Beverly Center
is a key asset in our portfolio and one of the most productive centers in the country. It anchors
one of the most creative and diverse communities in the world. Underway is a $500 million
comprehensive renovation designed by renowned architect Massimiliano Fuksas that will touch
every aspect of the center, inside and out. New street-level restaurants, shimmering new exterior
surfaces, a continuous ribbon of new skylighting, and a state-of-the-art smart parking system
are a few of the features that will re-create L.A.’s signature shopping and dining experience. It
is scheduled for completion in three phases by holiday 2018.
In addition to development and redevelopment, we have grown through the selective acquisition of
high-quality, dominant assets in solid markets. That is a perfect description of Country Club Plaza
in Kansas City. Together with Macerich we purchased the iconic center for $660 million on
March 1, 2016, with each of us owning a 50 percent interest in the center.
Taubman Centers, Inc. page 16
page 17
The 1.3 million square foot property is composed of about 800,000 square feet of retail and
restaurant space and about 500,000 square feet of office space. It is located in the heart of the
market’s most attractive residential areas and is considered one of the best office addresses in
Kansas City. We believe the in-place retail rents present a significant growth opportunity over the
next few years, and we see multiple ways to create additional value through medium to longer-
term redevelopment and expansion. We look forward to partnering with Macerich, using our
collective relationships and leveraging our operational expertise to create even greater value.
We believe this current cycle of substantial investment in our new centers, redevelopments and
acquisitions will create significant net asset value for shareholders over the coming years, as it
has throughout our history.
Solid Performance
Our financial results were solid for the year. Comparable center Net Operating Income, excluding
lease cancellation income, was up 3.1 percent. Adjusted Funds from Operations (AFFO) of $3.42
per share was down, however our 2015 results excluded the portfolio of seven centers sold to
Starwood Capital Group in October 2014, which contributed $0.48 to Adjusted FFO in 2014.
Demand for space in our centers continues to be very strong. As of December 31, 2015, our
ending occupancy was 94.2 percent and our leased space was 96.1 percent. Average rent per square
foot was up 2.1 percent for the year to $60.38, despite the fact that we had no increase from our
CPI escalators. Our trailing 12-month releasing spreads per square foot, the difference in rent
between terminating and new leases, continued to be very strong at more than 23 percent.
Our balance sheet remains in great shape. In total we completed nearly $2 billion dollars of
financings during the year at a weighted average rate significantly lower than our portfolio average,
while extending our average debt maturity considerably. On December 31, 2015, the average
maturity of all our debt was 7 years. On December 31, 2014, the average maturity of all our
debt was 5 years.
In a very difficult year for the stock market and REITs, we produced a 3.5 percent total return to
shareholders. This compares favorably to the MSCI US REIT Index return of 2.5 percent and the
S&P 500 Index return of 1.4 percent. Over the last decade, our total shareholder return has been
12.7 percent, which is 17th highest of the 101 U.S. REITs that have operated during the period.
It is also substantially better than the MSCI and S&P 500 returns of 7.3 percent. Our 20-year
total return was fourth highest of the 67 U.S. REITs that have operated during the period. Since
our 1992 IPO, our compounded annual growth in total shareholder return through 2015 was
more than 15 percent.
During the year, believing our shares were significantly undervalued, the company repurchased
3,460,796 shares of its common stock at an average price of $73 per share. Since the program’s
inception in August 2013, the company has cumulatively repurchased a total of 4,247,867 shares
at an average price of $71.79 per share. At December 31, 2015, the company had approximately
$145 million available under its authorization.
In March 2016 we increased our regular quarterly dividend by 5.3 percent. We have never reduced
our common dividend and have increased it 19 times in the last 20 years.
A Year of Transitions
For the last two decades, Taubman Centers has benefited from the extraordinary knowledge,
judgment and leadership of Lisa Payne. Serving as our Chief Financial Officer since she joined us
in 1997 from Goldman Sachs’ Investment Banking Division, Lisa has been a wonderful partner to
me, our leadership team and the Board of Directors during some of the most dynamic and success-
ful years in our company’s history. She stepped down from her position on January 1, 2016,
transitioning CFO responsibilities to Simon Leopold, who has been working closely with Lisa
as Treasurer and Executive Vice President, Capital Markets, since 2012. We thank Lisa and
welcome Simon to his new role.
In addition, we are honored that Myron (Mike) Ullman, Executive Chairman of J.C. Penney
Company, Inc. has returned to the Board of Directors to serve the remaining year of Lisa’s term.
Mike brings a wealth of experience in the retail industry to the Board, and we are pleased to
have him back.
Taubman Centers, Inc. page 18
page 19
My father knew that the only thing certain in retailing is change. Perhaps more than in any other
business, retailers must stay ahead of ever-changing tastes, trends and technologies. The same
can be said of retail landlords, who strive through good planning, design, merchandising and
management to create environments in which shoppers feel comfortable and merchants can thrive,
today and tomorrow. That’s what my father founded our company to do more than 65 years
ago. Along the way, he changed an industry and instilled in us the insights and standards that
continue to inspire us every day.
My brother Billy and I loved working with our dad.
We grew up taking picnics with him on construction
sites. It was a rare privilege to be able to share in
the passion of his life’s work. He was an amazing
father and teacher, and we will forever be grateful
for the extraordinary lessons he gave us, up to the
last moments of his life.
Thanks, Pops.
As always, I would like to express my appreciation
to our shareholders for their continuing trust in us,
and thank the women and men of Taubman Centers,
along with our Board of Directors for their continu-
ing dedication, creativity and performance.
Sincerely,
Robert S. Taubman
Chairman of the Board,
President & Chief Executive Officer
Taubman Centers, Inc. page 20
The Mall of San Juan opened March 26, 2015, in
the heart of Puerto Rico’s capital city. The center
features the Caribbean’s first Nordstrom and Saks
Fifth Avenue, along with a collection of world-class
retailers and restaurants, 70 percent of which are
unique-to-the-market. The island’s residents and
visitors enjoy an eclectic mix of fine, casual and
quick dining options at The Mall of San Juan.
Thousands of residents and tourists, along with
local dignitaries and Taubman Centers’ Founder
A. Alfred Taubman, took part in the festive grand
opening celebration of The Mall of San Juan in
Puerto Rico.
upper-left: Fresh flowers punctuate the Neiman Marcus
court at The Mall at Short Hills in New Jersey.
upper-right: The Mall of San Juan’s interactive
touchscreen directories add shopper convenience.
lower-right: Shoppers relax in the Nordstrom court
at The Mall at Green Hills in Nashville.
lower-left: The Gardens on El Paseo in Palm Desert,
California, features unique-to-the-market retailers
Louis Vuitton, Eileen Fisher, Tiffany & Co. and
Saks Fifth Avenue.
A. Alfred Taubman, recognized as a leading pioneer in the shopping center industry, founded
The Taubman Company in 1950 with his father and a $5,000 loan from Manufacturers National Bank
of Detroit. He began one of the earliest “design-build” general contracting firms, and the company
grew quickly, building homes, freestanding shops, and soon department stores and strip centers. By the
1960s, Mr. Taubman was developing some of the largest and most productive enclosed regional malls
ever built. With urban and suburban properties in major markets from coast to coast, The Taubman
Company set the standard for retail design throughout a period of explosive growth in the 1970s and
1980s. In 1992 Taubman Centers, Inc. debuted on the New York Stock Exchange, introducing the
UPREIT structure that would unleash the securitization of America’s commercial real estate industry.
Mr. Taubman stepped down as chairman in 2001, but remained an important advisor to the company
until his passing in April 2015.
page 25
Portfolio of Assets
U.S.
Corporate Headquarters
Bloomfield Hills, MI
Corporate Office
New York, NY
The Shops at Belmond
Charleston Place
Charleston, SC
(Leasing services)
belmond.com/charleston-place/
Beverly Center
Los Angeles, CA
beverlycenter.com
Cherry Creek Shopping Center
Denver, CO
shopcherrycreek.com
City Creek Center
Salt Lake City, UT
shopcitycreekcenter.com
Country Club Plaza
Kansas City, MO
countryclubplaza.com
The Shops at Crystals
Las Vegas, NV
(Leasing services)
theshopsatcrystals.com
Dolphin Mall
Miami, FL
shopdolphinmall.com
Fair Oaks
Fairfax, VA
shopfairoaksmall.com
The Gardens on El Paseo
and El Paseo Village
Palm Desert, CA
thegardensonelpaseo.com
Great Lakes Crossing Outlets
Auburn Hills, MI
greatlakescrossingoutlets.com
The Mall at Green Hills
Nashville, TN
shopgreenhills.com
International Market Place
Waikiki, Honolulu, HI
shopinternationalmarketplace.com
Sunvalley
Concord, CA
shopsunvalley.com
International Plaza
Tampa, FL
shopinternationalplaza.com
The Mall at Millenia
Orlando, FL
mallatmillenia.com
The Mall of San Juan
San Juan, Puerto Rico
themallofsanjuan.com
The Mall at Short Hills
Short Hills, NJ
shopshorthills.com
Stamford Town Center
Stamford, CT
shopstamfordtowncenter.com
Taubman Prestige Outlets
Chesterfield
Chesterfield, MO
taubmanprestigeoutlets.com
Twelve Oaks Mall
Novi, MI
shoptwelveoaks.com
The Mall at University
Town Center
Sarasota, FL
mallatutc.com
Waterside Shops
Naples, FL
watersideshops.com
Westfarms
West Hartford, CT
shopwestfarms.com
ASIA
Taubman Asia Regional
Headquarters
Hong Kong
Corporate Offices
Beijing, China
Shanghai, China
Seoul, South Korea
The Boulevard at Studio City
Macau, China
(Leasing and management
services)
studiocity-macau.com
CityOn.Xi’an
Xi’an, China
cityoncenter.com
CityOn.Zhengzhou
Zhengzhou, China
cityoncenter.com
IFC Mall
Yeouido, Seoul, South Korea
(Leasing and management
services)
ifcmallseoul.com
Starfield First Hanam
Hanam, South Korea
MAP LEGEND
Owned centers
Unconsolidated Joint Ventures
Projects under construction
Leasing and/or management services
Corporate Offices
Taubman Centers, Inc. page 26
page 27
2015
Taubman
Centers, Inc.
Form 10-K
Taubman Centers, Inc. Taubman Centers, Inc. UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
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 No. 1-11530
TAUBMAN CENTERS, INC.
(Exact name of registrant as specified in its charter)
Michigan
(State or other jurisdiction of
incorporation or organization)
200 East Long Lake Road, Suite 300,
Bloomfield Hills, Michigan
(Address of principal executive offices)
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock,
$0.01 Par Value
6.5% Series J Cumulative
Redeemable Preferred Stock,
No Par Value
6.25% Series K Cumulative
Redeemable Preferred Stock,
No Par Value
38-2033632
(I.R.S. Employer Identification No.)
48304-2324
(Zip code)
(248) 258-6800
Name of each exchange
on which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
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
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).
Yes
No
Indicate by 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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of "large accelerated filer", “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Smaller reporting company
Non-Accelerated Filer
Accelerated Filer
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
The aggregate market value of the 59,011,101 shares of Common Stock held by non-affiliates of the registrant as of June 30, 2015 was $4.1 billion, based upon the
closing price of $69.50 per share on the New York Stock Exchange composite tape on June 30, 2015. (For this computation, the registrant has excluded the market value
of all shares of its Common Stock held by 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 February 22, 2016, there were outstanding 60,236,681 shares of Common Stock.
Portions of the proxy statement for the annual shareholders meeting to be held in 2016 are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
TAUBMAN CENTERS, INC.
CONTENTS
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
PART I
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits and Financial Statement Schedules
PART IV
2
11
23
23
27
27
28
31
33
61
61
61
61
61
62
62
63
64
64
65
1
Item 1. BUSINESS.
PART I
The following discussion of our business 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 our expectations or beliefs concerning future events. We caution that although forward-looking
statements reflect our good faith beliefs and reasonable 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 Securities and Exchange Commission
(SEC), and in particular those set forth under “Risk Factors” in this Annual Report on Form 10-K. The forward-looking statements
included in this report are made as of the date hereof. Except as required by law, we assume no obligation to update these forward-
looking statements, even if new information becomes available in the future.
The Company
Taubman Centers, Inc. (TCO or the Company) is a Michigan corporation (incorporated in 1973) that operates as a self-
administered and self-managed real estate investment trust (REIT). The Taubman Realty Group Limited Partnership (the Operating
Partnership or TRG) is a majority-owned partnership subsidiary of TCO that owns direct or indirect interests in all of our real
estate properties. In this report, the terms "we", "us" and "our" refer to TCO, the Operating Partnership, and/or the Operating
Partnership's subsidiaries as the context may require.
We own, lease, acquire, dispose of, develop, expand, and manage regional and super-regional shopping centers and interests
therein. Our owned portfolio of operating centers as of December 31, 2015 consisted of 19 urban and suburban shopping centers
operating in 10 states and Puerto Rico. The Consolidated Businesses consist of shopping centers and entities that are controlled
by ownership or contractual agreements, The Taubman Company LLC (Manager), and Taubman Properties Asia LLC and its
subsidiaries (Taubman Asia). Shopping centers owned through joint ventures that are not controlled by us but over which we have
significant influence (Unconsolidated Joint Ventures) are accounted for under the equity method. See "Item 2. Properties" for
information regarding the centers.
Taubman Asia, which is the platform for our operations and developments in China and South Korea, is headquartered in Hong
Kong.
We operate as a REIT under the Internal Revenue Code of 1986, as amended (the Code). In order to satisfy the provisions of
the Code applicable to REITs, we must distribute to our shareowners at least 90% of our REIT taxable income prior to net capital
gains and meet certain other requirements. The Operating Partnership's partnership agreement provides that the Operating
Partnership will distribute, at a minimum, sufficient amounts to its partners such that our pro rata share will enable us to pay
shareowner 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.
We have one reportable segment, which owns, develops, and manages regional shopping centers. We have aggregated our
shopping centers into this one reportable segment, as the shopping centers share similar economic characteristics and other
similarities. See "Note 1 - Summary of Significant Accounting Policies" to our consolidated financial statements for more
information.
Recent Developments
For a discussion of business developments that occurred in 2015, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations (MD&A)."
2
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 gross leasable area (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. 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 lease space in shopping centers.
Business of the Company
We are engaged in the ownership, leasing, acquisition, disposition, development, expansion, and management of regional
shopping centers and interests therein. We owned interests in 19 operating centers as of December 31, 2015.
As of December 31, 2015, the centers:
•
•
•
•
•
•
are strategically located in major metropolitan areas, many in communities that are among the most affluent in the country,
including Denver, Detroit, Los Angeles, Miami, Nashville, New York City, Orlando, Salt Lake City, San Francisco, San
Juan, Sarasota, St. Louis, Tampa, and Washington, D.C.;
range in size between 236,000 and 1.6 million square feet of GLA and between 186,000 and 690,000 square feet of Mall
GLA with an average of 1.0 million and 0.5 million square feet, respectively. The smallest center has approximately
60 stores, and the largest has over 200 stores with an average of 143 stores per center. Of the 19 centers, 13 are super-
regional shopping centers;
have approximately 2,400 stores operated by their mall tenants under approximately 1,000 trade names;
have 51 anchors, operating under 12 trade names;
lease approximately 94% of Mall GLA to national chains, including subsidiaries or divisions of Forever 21 (Forever 21,
For Love 21, and XXI Forever), The Gap (Gap, Gap Kids, Baby Gap, Banana Republic, Old Navy, Athleta, and others),
and Limited Brands (Bath & Body Works/White Barn Candle, Pink, Victoria's Secret, and others); and
are among the highest quality centers in the United States public regional mall industry as measured by our high portfolio
average of mall tenants' sales per square foot. In 2015, our mall tenants at comparable centers reported average sales per
square foot of $800.
The most important factor affecting the revenues generated by the centers is leasing to mall tenants (including temporary tenants
and 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.
Our portfolio is concentrated in highly productive super-regional shopping centers. Of our 19 owned centers, 16 have annualized
rent rolls at December 31, 2015 of over $10 million. We believe that this level of productivity is indicative of the centers' strong
competitive positions and is, in significant part, attributable to our business strategy and philosophy. We believe 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, we
believe that the centers' success can be attributed in part to their other physical characteristics, such as design, layout, and amenities.
3
Business Strategy And Philosophy
We believe 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 we:
•
•
•
•
offer retailers a location where they can maximize their profitability;
offer a large, diverse selection of retail stores and dining in each center to give customers a broad selection of consumer
goods, food, and entertainment and a variety of price ranges;
endeavor to increase overall mall tenants' sales by leasing space to a constantly changing mix of tenants, thereby increasing
rents;
seek to anticipate trends in the retailing industry and emphasize ongoing introductions of new retail concepts into our
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, we have brought to the centers "new to the market" retailers. We believe that the execution of this
leasing strategy is an important element in building and maintaining customer loyalty and increasing mall productivity;
and
•
provide innovative initiatives, including those that utilize technology and the Internet, to increase revenues, enhance the
shopping experience, build customer loyalty, and increase tenant sales, with the following as examples:
•
our Taubman website program connects shoppers to each of our individual center brands through the Internet,
including mobile devices;
• we have a robust email program reaching our most loyal customers weekly and our social media sites offer
retailers and customers an immediate geo-targeted communication vehicle;
• we have pioneered an indoor navigation technology that has the potential to significantly change a shopper's
experience and connect them to retailers in new ways. Since its pilot in 2014, we have rolled out the indoor
navigation technology at 11 centers in our portfolio; and
• we are also investing in other synergistic digital capabilities in our centers with an overall strategy of creating
a "Smart Mall", which includes shopper Wi-Fi, navigation and directory technology, advanced energy
management, and high-speed networking options for our tenants. Bringing all of these efforts together, The Mall
of San Juan has been fully equipped with the entire Smart Mall technology, including the indoor navigation
technology and the latest digital directory technology, limiting the need for printed collateral, and enhancing the
guest experience for a highly mobile and technologically savvy audience.
The impact of e-commerce on shopping center retail has been steadily increasing but is difficult to quantify. While challenging
traditional retail in the shorter-term, e-commerce is also making high quality brick-and-mortar assets more valuable, as retailers
focus their real estate investments on the strongest assets. We strive to position our assets to be desirable platforms for omni-
channel retailers, believing technology improves the customer experience and will continue to do so, from the front of the house,
logistics, efficiency, pricing, customer acquisition, customer knowledge and service.
The centers compete for retail consumer spending through diverse, in-depth presentations of predominantly fashion merchandise
in an environment intended to facilitate customer shopping. Many of our centers include stores that target high-end customers,
and such stores may also attract other retailers to come to the center. However, each center is individually merchandised in light
of the demographics of its potential customers within convenient driving distance. When necessary, we consider rebranding existing
centers in order to maximize customer loyalty, maintain and increase tenant sales, and achieve greater profitability.
Our 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. We implement an active leasing strategy to increase the
centers' productivity and to set minimum rents at higher levels. Elements of this strategy include renegotiating existing leases and
leasing space to prospective tenants that would enhance a center's retail mix.
4
An increased number of our tenants are paying a fixed Common Area Maintenance (CAM) charge, with typically a fixed increase
over the term of the lease, rather than the traditional net lease structure where a tenant pays their share of CAM. This allows the
retailer greater predictability of their costs. While some pricing risk has shifted to the landlord, cost savings can have a positive
impact on our profitability. Approximately 75% of our tenants in 2015 (including those with gross leases or paying a percentage
of their sales) effectively pay a fixed charge for CAM. As a result there is significantly less matching of our CAM income with
our CAM expenditures, which can vary considerably from period to period.
Potential For Growth
Our principal objective is to enhance shareowner value. We seek to maximize the financial results of our core assets, while also
pursuing a growth strategy that includes an active new center development and redevelopment program. Our internally generated
funds and distributions from operating centers and other investing activities (including strategic dispositions), augmented by use
of our existing revolving lines of credit, provide resources to maintain our current operations and assets, pay dividends, and fund
a portion of our major capital investments. Generally, our need to access the capital markets is limited to refinancing debt obligations
at or near maturity and, in certain cases, funding major capital investments. From time to time, we also may access the equity
markets or sell interests in shopping centers to raise additional funds or refinance existing obligations on a strategic basis, including
using excess proceeds therefrom.
Internal Growth
As noted in “Business Strategy and Philosophy” above in detail, our core business strategy is to maintain a portfolio of properties
that deliver above-market profitable growth by providing targeted retailers with the best opportunity to do business in each market
and targeted shoppers with the best local shopping experience for their needs.
We continue to expect that over time a significant portion of our future growth will come from our existing core portfolio and
business. We have always had and will continue to have a culture of intensively managing our assets and maximizing the rents
from tenants as this is a key growth driver going forward.
While the sale of seven centers to Starwood Capital Group (Starwood) in 2014 reduced the size of our core portfolio, the more
consistent, smaller base has allowed us to focus where the greatest net asset value can be created: our most highly productive
centers, our redevelopments, and development pipeline.
Another potential element of growth over time is the strategic expansion and redevelopment of existing properties to update
and enhance their market positions by replacing or adding new anchor stores, increasing mall tenant space, or rebranding centers.
Most of the centers have been designed to accommodate expansions. Expansion projects can be as significant as new shopping
center construction, such as current projects at The Mall at Green Hills and Beverly Center, 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).
We have an ongoing redevelopment project at The Mall at Green Hills that will add approximately 170,000 square feet of
incremental GLA that we expect to be completed in 2019.
We also recently completed redevelopment projects at Cherry Creek Shopping Center, Dolphin Mall, International Plaza, and
Sunvalley. In total, these completed projects added approximately 160,000 square feet of incremental GLA to our portfolio and
resulted in exciting additions to many of our best assets. We expect these redevelopment assets to provide a weighted average
return of approximately 10% at stabilization.
We also look to monetize our common areas through robust specialty leasing and sponsorship programs. About 9% of our 2015
comparable center Net Operating Income (NOI) was generated from such programs. In the past five years, comparable center NOI
from leasing and sponsorship programs has ranged from 9% to 11%. Examples found in our centers include destination holiday
experiences, customer service programs, sponsored children's play areas, and turnkey attractions.
5
External Growth
We pursue various areas of external growth, primarily traditional center development in the U.S., new opportunities in Asia,
and acquisitions. Additionally, we also consider other forms of retail, such as outlet centers and street retail, which may be part of
significant mixed-use projects, as we believe they are a natural extension of our existing capabilities. With growth in population,
we expect that there will be demand for new high quality centers over the next ten years. We opened a new center in Puerto Rico
in March 2015 and construction is underway on four shopping centers in the U.S. and Asia, all of which are scheduled to open in
2016, and we continue to work on and evaluate various development possibilities for additional new centers.
• Development of New U.S. Centers
We have developed 13 U.S. properties since 1998, or an average about one every 18 months. We are currently under construction
on one center opening in 2016. In the long run, we expect to maintain, on average, at a pace of one project every 24 months.
Over the past three years, we have opened three new centers:
• The Mall of San Juan opened in San Juan, Puerto Rico in March 2015. We have 95% ownership interest in the 0.6 million
square foot center.
• The Mall at University Town Center in Sarasota, Florida opened in October 2014. We have a 50% ownership interest in
the 0.9 million square foot center.
• Taubman Prestige Outlets Chesterfield, a new outlet center, opened in the western-St. Louis, Missouri suburb of
Chesterfield in August 2013. We have a 100% ownership interest in the 0.3 million square foot outlet center.
International Market Place, a 0.4 million square foot center, is under construction in Waikiki, Honolulu, Hawaii. The center will
be anchored by the only full-line Saks Fifth Avenue in Hawaii and is scheduled to open in August 2016. We have a 93.5% interest
in the project, which is subject to a participating ground lease.
In 2015, we made a decision not to move forward with an enclosed regional mall that was intended to be part of the Miami
Worldcenter mixed-use, urban development in Miami, Florida. Instead, along with The Forbes Company and Miami Worldcenter's
master developer, Miami Worldcenter Associates, we are now pursuing a high street retail plan. Specifically, we have agreed with
Miami Worldcenter Associates on preliminary terms to co-lease the retail portion of the street level project with The Forbes
Company, with an option to purchase the retail component at a favorable price. As a result of this decision, an impairment charge
of $11.8 million was recognized in the fourth quarter of 2015, which represents previously capitalized costs related to the pre-
development of the enclosed mall plan.
While we attempt to maximize external growth through the development of new centers, we also prudently manage the risks
associated with development. We generally do not acquire land early in the development process. Instead, we generally acquire
options on land or form partnerships with landowners holding potentially attractive development sites. We typically exercise the
options only once we are prepared to begin construction. The pre-construction phase for a regional center typically extends over
several years and the time to obtain anchor commitments, zoning and regulatory approvals, and public financing arrangements
can vary significantly from project to project. In addition, we generally do not begin construction until a sufficient number of
anchor stores or significant tenants have agreed to operate in the shopping center, such that we are confident that the projected
tenant sales and rents from Mall GLA are sufficient to earn a stabilized return on invested capital in excess of our cost of capital.
Having historically followed these principles, our experience indicates that, on average, 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 we will continue to be able to so limit pre-construction costs.
While we 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 criteria will produce comparable or projected
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 taken as a whole. See "MD&A – Liquidity and Capital
Resources – Capital Spending" for further discussion of our development activities.
6
• Asia
Taubman Asia is responsible for our operations and development in the Asia-Pacific region, focusing on China and South Korea.
We have pursued a strategy of seeking strategic partners to jointly develop high quality malls in our areas of focus. Taubman Asia
is engaged in projects that leverage our strong retail planning, design, and operational capabilities with our strategic partners being
responsible for acquiring and entitling the land and leading construction.
We currently have two joint ventures with Wangfujing Group Co., Ltd (Wangfujing), one of China's largest department store
chains. The first joint venture will own a 60% controlling interest in and manage a shopping center, CityOn.Xi'an, an approximately
1.0 million square foot shopping center to be located at Xi'an Saigao City Plaza, a large-scale mixed-use development in Xi'an,
China. We will beneficially own a 30% interest in CityOn.Xi'an, which is scheduled to open in April 2016. The second joint venture
with Wangfujing owns a 65% majority interest in and will manage a shopping center, CityOn.Zhengzhou, to be located in
Zhengzhou, China. We will beneficially own a 32% interest in the approximately 1.0 million square foot shopping center which
is scheduled to open in fall 2016.
We also have a joint venture with Shinsegae Group, South Korea's largest retailer, that is developing an approximately 1.7
million square foot shopping center, Hanam Union Square, in Hanam, Gyeonggi Province, South Korea. The center is scheduled
to open in early fall 2016. We have partnered with a major institution in Asia for a 49% ownership interest in Hanam Union Square.
The institutional partner owns 14.7% of the project, bringing our effective ownership to 34.3%.
As part of our Asia strategy, we look to mitigate our operating costs through third-party service contracts when possible. We
provide leasing and management services for IFC Mall in Yeouido, Seoul, South Korea and for the retail portion of Studio City,
a cinematically-themed integrated entertainment, retail and gaming resort developed by Melco Crown Entertainment Limited in
the Cotai region of Macau, China.
We attempt to manage risks for our Asia developments through similar means as those mentioned previously under "Development
of New U.S. Centers", as well as pursuing initial projects that are already fully entitled with partners having appropriate expertise
in land acquisition and local regulatory issues. However, in Asia, our projects are expected to have lower initial rates of return at
stabilization than those expected in the U.S. With the high sales growth rates in that region, we generally expect that returns on
our investments are forecasted to equal those earned in the U.S. by the seventh or eighth year.
See "MD&A - Results of Operations - Taubman Asia" for further details regarding our activities in Asia.
•
Strategic Acquisitions
We expect attractive opportunities to acquire existing centers, or interests in existing centers, from other companies to continue
to be scarce and expensive. However, we continue to look for assets where we can add significant value or that would be strategic
to the rest of our portfolio, and we have capital available for selective opportunities. Our objective is to acquire existing centers
only when they are compatible with the quality of our portfolio, or can be redeveloped to that level. We also may acquire additional
interests in centers currently in our portfolio.
In January 2016, a joint venture we formed with The Macerich Company announced an agreement to acquire Country Club
Plaza, a mixed-use retail and office property in Kansas City, Missouri, from Highwood Properties for $660 million ($330 million
at TRG’s beneficial share) in cash, excluding transaction costs. We expect the transaction to close in March 2016. This purchase
is consistent with our strategy to own high quality, dominant assets in great markets. See "MD&A - Results of Operations -
Acquisition - Country Club Plaza" for additional information regarding the acquisition.
7
Rental Rates
As leases have expired in the centers, we have 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. Generally, center revenues have increased as older leases
rolled over or were terminated early and replaced with new leases negotiated at current rental rates that were usually higher than
the average rates for existing leases. Average rent per square foot statistics reflect the contractual rental terms of the lease currently
in effect and include the impact of rental concessions. In periods of increasing sales, rents on new leases will generally tend to
rise. In periods of slower growth or declining sales, rents on new leases will grow more slowly or will decline for the opposite
reason, as tenants' expectations of future growth become less optimistic. See “Risk Factors” for further information.
The following table contains certain information regarding average mall tenant minimum rent per square foot of our Consolidated
Businesses and Unconsolidated Joint Ventures at the comparable centers (centers that had been owned and open for the current
and preceding year). Comparable center statistics for 2015 and 2014 exclude The Mall of San Juan, The Mall at University Town
Center, Arizona Mills, and the centers sold to Starwood in 2014. Subsequent to the sale of a total of 49.9% of our interests in the
entity that owns International Plaza in January 2014, we began accounting for our remaining interest in International Plaza under
the equity method of accounting. This affects the comparability of operating results for Consolidated Businesses and Unconsolidated
Joint Ventures period over period.
Average rent per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
2015
2014
2013
2012
2011
$
61.58
$
59.48
$
59.88
$
46.86
$
58.69
60.38
58.65
59.14
52.68
57.33
45.44
46.42
45.53
44.58
45.22
See “MD&A – Rental Rates and Occupancy” for information regarding opening and closing rents per square foot for our centers.
Lease Expirations
The following table shows scheduled lease expirations for mall tenants based on information available as of December 31, 2015
for the next ten years for all owned centers in operation at that date.
Tenants 10,000 square feet or less (1)
Total (1)(2)
Annualized
Base
Rent Under
Expiring
Leases
Per Square
Foot (3)
Percent of
Total Leased
Square
Footage
Represented
by Expiring
Leases
Leased
Area in
Square
Footage
401
$
656
526
474
488
505
572
537
582
753
58.49
58.25
64.27
68.78
66.42
80.88
76.53
70.33
69.20
66.05
6.8%
11.1
8.9
8.1
8.3
8.6
9.7
9.1
9.9
12.8
Annualized
Base
Rent Under
Expiring
Leases
Per Square
Foot (3)
Percent of
Total Leased
Square
Footage
Represented
by Expiring
Leases
Leased
Area in
Square
Footage
$
488
927
854
904
715
976
1,065
635
776
1,096
49.77
47.37
48.99
48.83
56.30
55.31
55.95
64.81
62.38
60.61
5.1%
9.6
8.8
9.4
7.4
10.1
11.0
6.6
8.0
11.3
Number of
Leases
Expiring
174
259
216
237
207
212
249
193
215
237
Lease
Expiration
Year
2016 (4)
Number of
Leases
Expiring
170
2017
2018
2019
2020
2021
2022
2023
2024
2025
246
200
220
195
195
228
187
203
218
(1) Excludes rents from temporary in-line tenants and centers not open and operating at December 31, 2015.
(2)
In addition to tenants with spaces 10,000 square feet or less, includes tenants with spaces over 10,000 square feet and value and outlet center
anchors. Excludes rents from regional mall anchors and temporary in-line tenants.
(3) Weighted average of the annualized contractual rent per square foot as of the end of the reporting period.
(4) Excludes leases that expire in 2016 for which renewal leases or leases with replacement tenants have been executed as of December 31, 2015.
8
We believe that the information in the table is not necessarily indicative of what will occur in the future because of several
factors, but principally because of early lease terminations at the centers. For example, the average remaining term of the leases
that were terminated during the period 2010 to 2015 was approximately one year. The average term of leases signed was
approximately eight and seven years during 2015 and 2014, respectively.
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 2015, tenants representing 1.0% of leases filed for bankruptcy
during the year compared to 1.6% in 2014. This statistic has ranged from 0.3% to 1.6% of leases per year over the last five years.
The annual provision for losses on accounts receivable represents 0.4% of total revenues in 2015 and has ranged from 0.1% to
0.4% over the last five years.
Occupancy
Occupancy and leased space statistics include temporary in-line tenants (TILs) and value and outlet center anchors (Arizona
Mills, Dolphin Mall, Great Lakes Crossing Outlets, and Taubman Prestige Outlets Chesterfield). The following table shows ending
occupancy and leased space for the past five years:
All Centers:
Ending occupancy
Leased space
Comparable Centers:
Ending occupancy
Leased space
Major Tenants
2015
2014
2013
2012
2011
95.8%
96.7
96.6%
97.5
95.5%
96.8
94.2%
96.1
95.3%
97.0
94.1%
96.0
94.7%
96.2
No single retail company represents 10% or more of our Mall GLA or revenues. The combined operations of Forever 21 accounted
for about 5% of Mall GLA as of December 31, 2015 and less than 5% of 2015 minimum rent. No other single retail company
accounted for more than 5% of Mall GLA as of December 31, 2015 or 4% of 2015 minimum rent.
The following table shows the ten mall tenants who occupy the most Mall GLA at our centers and their square footage as of
December 31, 2015:
Tenant
Forever 21 (Forever 21, For Love 21, XXI Forever)
The Gap (Gap, Gap Kids, Baby Gap, Banana Republic, Old Navy, Athleta, and others)
H&M
Limited Brands (Bath & Body Works/White Barn Candle, Pink, Victoria's Secret, and others)
Williams-Sonoma (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, and others)
Abercrombie & Fitch (Abercrombie & Fitch, Hollister, and others)
Urban Outfitters (Anthropologie, Anthropologie Accessories, Free People, Urban Outfitters)
Foot Locker (Foot Locker, Lady Foot Locker, Champs Sports, Foot Action USA, and others)
Ann Taylor (Ann Taylor, Ann Taylor Loft, and others)
Restoration Hardware
# of
Stores
15
45
15
38
28
23
21
35
31
6
Square
Footage
447,022
391,706
300,086
251,371
221,430
174,036
164,504
161,427
160,318
150,800
% of
Mall GLA
5.1%
4.4
3.4
2.9
2.5
2.0
1.9
1.8
1.8
1.7
9
Competition
There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. We compete with
other major real estate investors with significant capital for attractive investment opportunities. See “Risk Factors” for further
details of our competitive business.
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
period. See “MD&A – Seasonality” for further discussion.
Environmental Matters
See “Risk Factors” regarding discussion of environmental matters.
Financial Information about Geographic Areas
We have not had material revenues attributable to foreign countries in the last three years. We also do not have material long-
lived assets located in foreign countries, as our investments in Asia are accounted for as equity method investments.
Personnel
We have engaged the Manager to provide real estate management, acquisition, development, leasing, and administrative services
required by us and our properties in the United States. Taubman Asia Management Limited (TAM) and certain other affiliates
provide similar services for third parties in China and South Korea as well as Taubman Asia.
As of December 31, 2015, the Manager, TAM, and certain other affiliates had 615 full-time employees.
Available Information
The Company makes available free of charge through its website at www.taubman.com all reports it electronically files with,
or furnishes to, the SEC, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on
Form 8-K, as well as any amendments to those reports, as soon as reasonably practicable after those documents are filed with, or
furnished to, the SEC. These filings are also accessible on the SEC’s website at www.sec.gov.
10
Item 1A. RISK FACTORS.
The following factors and other factors discussed in this Annual Report on Form 10-K could cause our actual results to differ
materially from those contained in forward-looking statements made in this Annual Report on Form 10-K or presented elsewhere
in future SEC reports or statements made by our management from time to time. These factors may have a material adverse effect
on our business, financial condition, operating results and cash flows, and should be carefully considered. We may update these
factors in our future periodic reports.
The economic performance and value of our shopping centers are dependent on many factors.
The economic performance and value of our shopping centers are dependent on various factors. Additionally, these same factors
will influence our decision whether to go forward on the development of new centers, acquisitions and dispositions, and may also
affect the ultimate economic performance and value of projects under construction and acquired shopping centers. Adverse changes
in the economic performance and value of our shopping centers would also adversely affect our income and cash available to pay
dividends.
Such factors include:
•
•
•
•
•
•
•
•
•
•
changes in the global, national, regional, and/or local economic and geopolitical climates. Changes such as the global
economic and financial market downturn similar to the one experienced a few years ago may cause, among other things,
a significant tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy,
lower consumer and business spending, and lower consumer confidence and net worth;
changes in specific local economies and/or real estate conditions. These changes may have a more significant impact on
our financial performance due to the geographic concentration of some of our centers;
changes in mall tenant sales performance of our centers, which over the long term are 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 that mall tenants can afford to pay;
changes in business strategies of anchors. Anchors may adopt new or modify existing strategies in order to adapt to new
challenges and shifts in the economic environment. Such strategies could include closing, consolidation, or contraction;
changes in consumer shopping behavior;
availability and cost of financing. While current interest rates continue to be historically low, it is uncertain how long
such rates will continue;
the public perception of the safety, convenience, and attractiveness of our shopping centers;
legal liabilities;
changes in government regulations; and
changes in real estate zoning and tax laws.
These factors may ultimately impact the valuation of certain long-lived or intangible assets that are subject to impairment testing,
potentially resulting in impairment charges, which may be material to our financial condition or results of operations. See “MD&A
- Application of Critical Accounting Policies and New Accounting Pronouncements - Valuation of Shopping Centers" for additional
information regarding impairment testing.
In addition, the value and performance of our shopping centers may be adversely affected by certain other factors discussed
below including the state of the capital markets, expansion into Asia, unscheduled closings or bankruptcies of our tenants,
competition, uninsured losses, and environmental liabilities.
11
We are in a competitive business.
There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. Our ability to
attract tenants to our shopping centers and lease space is important to our success, and difficulties in doing so can materially impact
our centers' performance. The existence of competing shopping centers could have a material adverse impact on our ability to
develop or operate shopping centers, lease space, and on the level of rents that can be achieved. In addition, retailers at our properties
face continued competition from shopping through various means and channels, including via the Internet, lifestyle centers, value
and outlet malls, wholesale and discount shopping clubs, and television shopping networks. Competition of this type could adversely
affect our revenues and cash available for distribution to shareowners. Further, as new technologies emerge, the relationship among
customers, retailers, and shopping centers are evolving on a rapid basis and we may not be able to adapt to such new technologies
and relationships on a timely basis. For example, a small but increasing number of tenants utilize our shopping centers as showrooms
or as part of an omni-channel strategy (allowing customers to shop seamlessly through various sales channels). As a result, customers
may make purchases through other sales channels during or immediately after visiting our shopping centers, with such sales not
being captured currently in our tenant sales figures or monetized in our minimum or percentage rents.
We compete with other major real estate investors with significant capital for attractive investment opportunities. These
competitors include other REITs, investment banking firms, and private and institutional investors, some of whom have greater
financial resources or have different investment criteria than we do. In particular, there is intense competition to acquire or develop
highly productive super-regional shopping centers, which is the focus of our core business. This competition may impair our ability
to acquire or develop suitable properties on favorable terms in the future.
Our real estate investments are relatively illiquid.
We may be limited in our ability to vary our portfolio in response to changes in economic, market, or other conditions by
restrictions on transfer imposed by our partners or lenders. If we were unable to refinance our debt at a center, we may be required
to contribute capital to repay debt, fund capital spending, or other cash requirements. In addition, under TRG’s partnership
agreement, upon the sale of a center or TRG’s interest in a center, TRG may be required to distribute to its partners all or a portion
of the cash proceeds received by TRG from such sale (a special distribution). If TRG made such a distribution, the sale proceeds
would not be available to finance TRG’s activities, and the sale of a center may result in a decrease in funds generated by continuing
operations and in distributions to TRG’s partners, including us. In December 2014, a special distribution was paid as a result of
the disposition of a portfolio of seven centers to Starwood. See “MD&A – Liquidity and Capital Resources – Dividends" for further
discussion of the special distribution. Further, pursuant to TRG’s partnership agreement, TRG may not dispose or encumber certain
of its centers or its interest in such centers without the consent of a majority-in-interest of its partners other than us, currently the
Taubman Family (as defined herein).
Dispositions may not achieve anticipated results.
We actively maintain a strategy of recycling capital to achieve growth over time. At times this strategy may include strategically
disposing of assets to improve the overall performance of our core mall portfolio, measured by: achieving improved portfolio
metrics, demographics, and operating statistics, such as higher sales productivity and occupancy rates; accelerating future growth
targets in our operating results and funds from operations; strengthening of our balance sheet; and creating increased net asset
value for our shareholders over time. However, we may not achieve some or all of the targeted results we originally anticipated
at the time of disposition. If we are not successful at achieving the anticipated results from any disposition, there is a potential for
a significant adverse impact on our returns and our overall profitability. We may be unable to dispose of one or more centers at
desirable cap rates or at all, due to general economic reasons or, in cases of lower productivity malls, the perception of over-
capacity of such malls in the United States.
12
We may acquire or develop new properties and/or redevelop and expand our existing properties, and these activities are subject
to various risks.
We actively pursue development, redevelopment, expansion, and acquisition activities as opportunities arise, and these activities
are subject to the following risks:
•
the pre-construction phase for a new project often extends over several years, and the time to obtain landowner, anchor, and
tenant commitments, zoning and regulatory approvals, and public financing can vary significantly from project to project;
• we may not be able to obtain the necessary zoning, governmental and other approvals, or anchor or tenant commitments
for a project, or we may determine that the expected return on a project is not sufficient; if we abandon our development
activities with respect to a particular project, we may incur a loss on our investment;
•
construction and other project costs may exceed our original estimates because of increases in material and labor costs,
delays, nonperformance of services by our contractors, increases in tenant allowances, costs to obtain anchor and tenant
commitments, and other reasons;
• we may not be able to obtain financing or to refinance construction loans at desired loan-to-value ratios or at all, which
are generally recourse to TRG;
• we may be obligated to contribute funding for development, redevelopment, or expansion projects in excess of our
ownership requirements if our partners are unable or are not required to fund their ownership share;
•
•
equity issuances as a source of funds, directly as consideration for acquisitions or indirectly through capital market
transactions, may become less financially favorable as affected by our stock price as well as general market conditions;
occupancy rates and rents, as well as occupancy costs and expenses, at a completed project or an acquired property may
not meet our projections at opening or stabilization, and the costs of development activities that we explore but ultimately
abandon will, to some extent, diminish the overall return on our completed development projects; and
•
competitive pressures in our targeted markets may negatively impact our ability to meet our leasing objectives.
We currently have multiple projects under development in the U.S. and Asia for which we will be providing development,
leasing, and certain other services. We also recently entered into an agreement to acquire an operating center for which we will
be providing services. Although we believe we have adequate resources and the ability to perform all responsibilities, certain risks
described above may be magnified due to the higher level of activity.
Certain of our projects represent the retail portion of larger mixed-use projects. As a result, there may be certain additional risks
associated with such projects, including:
•
•
•
increased time to obtain necessary permits and approvals;
increased uncertainty regarding shared infrastructure and common area costs; and
impact on sales and performance of the retail center from delays in opening of other uses and or/the performance of such
uses, or the inability to open or finance such other uses.
In addition, global economic and market conditions may reduce viable development and acquisition opportunities that meet our
unlevered return requirements.
Clauses in leases with certain tenants of our development or redevelopment properties include inducements, such as reduced
rent and tenant allowance payments, that can reduce our rents, Funds from Operations (FFO), and/or returns achieved. The leases
for a number of the tenants that have opened stores at properties we have developed or redeveloped have reduced rent from co-
tenancy clauses that allow those tenants to pay reduced rent until occupancy at the respective property reaches certain thresholds
and/or certain named co-tenants open stores at the respective property. Additionally, some tenants may have rent abatement clauses
that delay rent commencement for a prolonged period of time after initial occupancy. The effect of these clauses reduces our rents
and FFO while they are applicable. We expect to continue to offer co-tenancy and rent abatement clauses in the future to attract
tenants to our development and redevelopment properties. As a result, our current and future development and redevelopment
properties are more likely to achieve lower returns during their stabilization periods than other projects of this nature historically
have, which may adversely impact our investment in such developments, as well as our financial condition and results of operations.
13
We hold investments in joint ventures in which we do not control all decisions, and we may have conflicts of interest with our joint
venture partners.
Some of our shopping centers and shopping center projects are partially owned by non-affiliated partners through joint venture
arrangements. As a result, we do not 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 our best interests. Accordingly, we may not be able to favorably resolve
any issues that arise with respect to such decisions, or we may have to provide financial or other inducements to our joint venture
partners to obtain such resolution.
For joint ventures that we do not manage, we do not control decisions as to the design or operation of internal controls over
accounting and financial reporting, including those relating to maintenance of accounting records, authorization of receipts and
disbursements, selection and application of accounting policies, reviews of period-end financial reporting, and safeguarding of
assets. Therefore, we are exposed to increased risk that such controls may not be designed or operating effectively, which could
ultimately affect the accuracy of financial information related to these joint ventures as prepared by our joint venture partners.
Various restrictive provisions and rights govern sales or transfers of interests in our joint ventures. These may work to our
disadvantage because, among other things, we may be required to make decisions as to the purchase or sale of interests in our
joint ventures at a time that is disadvantageous to us.
In our joint ventures, we may partner with entities with whom we do not have a historical business relationship and therefore
there is additional risk in working through operational, financial, and other issues.
Our business activities and pursuit of new opportunities in Asia may pose risks.
We have offices in Hong Kong, Seoul, Beijing, and Shanghai and we are pursuing and evaluating investment opportunities in
various South Korea and China markets. We have invested in three joint ventures to develop shopping centers in Asia and may
invest in other shopping centers in the future. We are also currently providing leasing and management services for retail projects
in Seoul, South Korea and Macau, China. In addition to the general risks described in this report, our international activities are
subject to unique risks, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
adverse effects of changes in exchange rates for foreign currencies and the risks of hedging related thereto;
changes in and/or difficulties in operating in foreign political environments;
difficulties in operating with foreign vendors and joint venture and business partners;
difficulties of complying with a wide variety of foreign laws including laws affecting funding and use of cash, corporate
governance, property ownership restrictions, development activities, operations, anti-corruption, taxes, and litigation;
changes in and/or requirements of complying with applicable laws and regulations in the United States that affect foreign
operations, including the Foreign Corrupt Practices Act;
difficulties in managing international operations, including difficulties that arise from ambiguities in contracts written in
foreign languages and difficulties that arise in enforcing such contracts;
differing lending practices, including lower loan-to-value ratios and increased difficulty in obtaining construction loans
or timing thereof;
differing employment and labor issues;
economic downturn in foreign countries or geographic regions where we have significant operations, such as China;
economic tensions between governments and changes in international trade and investment policies, especially between
the U.S. and China;
obstacles to the repatriation of earnings and cash;
obstacles to various government approval processes and other hurdles in funding our Chinese projects;
lower initial investment returns than those generally experienced in the U.S.;
obstacles to hiring and maintaining appropriately trained staff; and
differences in cultures including adapting practices and strategies that have been successful in the U.S. regional mall
business to retail needs and expectations in new markets.
14
In addition, any significant or prolonged deterioration in U.S.-China relations could adversely affect our China business. Certain
risks and uncertainties of doing business in China are solely within the control of the Chinese government, and Chinese law
regulates the scope of our foreign investments and business conducted within China.
In regards to foreign currency, our projects in China and South Korea require investments and have, and may in the future
require, debt financing denominated in foreign currencies, with the possibility that such investments will be greater than anticipated
depending on changes in exchange rates. These projects could also generate returns on or of capital in foreign currencies that could
ultimately be less than anticipated as a result of exchange rates. As part of investing in these projects, we are implementing
appropriate risk management policies and practices, including the hedging of foreign currency risks. However, developing an
effective foreign currency risk strategy is complex and may be costly, and no strategy can completely insulate us from risk associated
with foreign currency fluctuations. Further, we cannot provide assurance that such policies and practices will be successful and/
or that the applicable accounting for foreign currency hedges will be favorable to any particular period's results of operations.
Foreign currency hedges could be economically beneficial to us, but could have unfavorable accounting impacts, depending on
the qualification of the hedges for hedge accounting treatment.
As we expand our international activities and levels of investment, these risks could increase in significance and adversely affect
our financial returns on international projects and services and overall financial condition. We have put in place policies, practices,
and systems for mitigating some of these international risks, although we cannot provide assurance that we will be entirely successful
in doing so.
We could be subject to liability, penalties and other sanctions and other adverse consequences arising out of non-compliance with
the United States Foreign Corrupt Practices Act (FCPA) or foreign anti-corruption laws.
We are subject to the FCPA, which generally prohibits United States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining business, and which requires proper record keeping and
characterization of payments we make in our reports filed with the SEC. Although we have policies and procedures designed to
promote compliance with the FCPA and other anti-corruption laws, we cannot provide assurance that we will continue to be found
to be operating in compliance with, or be able to detect violations of, any such laws or regulations. We cannot provide assurance
that these policies and procedures will protect us from intentional, reckless or negligent acts committed by our employees, agents,
partners or others acting on our behalf. If our employees, agents, partners, or others acting on our behalf are found to have engaged
in such practices, severe penalties and other consequences could be imposed. Those penalties and consequences that may be
imposed against us or individuals in appropriate circumstances include, but are not limited to, injunctive relief, disgorgement,
significant fines and penalties, and modifications to business practices and compliance programs. In addition, we cannot predict
the nature, scope, or effect of future regulatory requirements or investigations to which our international operations might be
subject, the manner in which existing laws might be administered or interpreted, or the potential that we may face regulatory
sanctions. Any of these violations or remedial measures, if applicable to us, could have a material adverse impact on our business,
reputation, results of operations, cash flow, financial condition, liquidity, ability to make distributions to our shareholders, or the
value of our investments.
Foreign companies, including some that may compete with us, may not be subject to the FCPA or other anti-corruption laws.
Accordingly, such companies may be more likely to engage in activities prohibited by the FCPA or other anti-corruption laws,
which could have a significant adverse impact on our returns or our ability to compete for business in such countries.
The bankruptcy, early termination, sales performance, or closing of our tenants and anchors could adversely affect us.
We could be adversely affected by the bankruptcy, early termination, sales performance, or closing of tenants and anchors.
Certain of our lease agreements include co-tenancy and/or sales-based kick-out provisions which allow a tenant to pay a reduced
rent amount and, in certain instances, terminate the lease, if we fail to maintain certain occupancy levels or if the tenant does not
achieve certain specified sales targets. If occupancy or tenant sales do not meet or fall below certain thresholds, rents we are
entitled to receive from our retail tenants could be reduced. 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 as an anchor at
one of our shopping centers were to go into bankruptcy and cease operating, we may experience difficulty and delay and incur
significant expense in replacing the anchor. In addition, the anchor’s closing may lead to reduced customer traffic and lower mall
tenant sales. As a result, we may also experience difficulty or delay in leasing spaces in areas adjacent to the vacant anchor space.
The early termination or closing of mall tenants or anchors for reasons other than bankruptcy could have a similar impact on the
operations of our centers, although in the case of early terminations we may benefit in the short-term from lease cancellation
income (See “MD&A – Rental Rates and Occupancy”).
15
Our investments are subject to credit and market risk.
We occasionally extend credit to third parties in connection with the sale of land or other transactions. We also have occasionally
made investments in marketable and other equity securities. We are exposed to risk in the event the values of our investments and/
or our loans decrease due to overall market conditions, business failure, and/or other nonperformance by the investees or
counterparties.
Capital markets may limit our sources of funds for financing activities.
Our ability to access the capital markets may be restricted at a time when we would like, or need, to access those markets. This
could have an impact on our flexibility to react to changing economic and business conditions. A lack of available credit, lack of
confidence in the financial sector, increased volatility in the financial markets and reduced business activity could materially and
adversely affect our business, financial condition, results of operations and our ability to obtain and manage our liquidity. In
addition, the cost of debt financing and the proceeds may be materially adversely impacted by such market conditions. Also, our
ability to access equity markets as a source of funds may be affected by our stock price as well as general market conditions.
We are obligated to comply with financial and other covenants that could affect our operating activities.
Certain loan agreements contain various restrictive covenants, including the following corporate covenants on our unsecured
primary revolving line of credit, unsecured term loan, and the construction facilities on The Mall at University Town Center, The
Mall of San Juan, and International Market Place: a minimum net worth requirement, a maximum total leverage ratio, a maximum
secured leverage ratio, a minimum fixed charge coverage ratio, a maximum recourse secured debt ratio, and a maximum payout
ratio. In addition, our primary revolving line of credit and term loan have unencumbered pool covenants, which currently apply
to Beverly Center, Dolphin Mall, and Twelve Oaks Mall on a combined basis. These covenants include a minimum number and
minimum value of eligible unencumbered assets, a maximum unencumbered leverage ratio, a minimum unencumbered interest
coverage ratio, and a minimum unencumbered asset occupancy ratio. As of December 31, 2015, the corporate total leverage ratio
was the most restrictive covenant. These covenants may restrict our ability to pursue certain business initiatives or certain
transactions that might otherwise be advantageous. In addition, failure to meet certain of these financial covenants could cause
an event of default under and/or accelerate some or all of such indebtedness which could have a material effect on us.
The Operating Partnership guarantees debt or otherwise provides support for a number of joint venture properties.
Joint venture debt is the liability of the joint venture and the joint venture property is typically encumbered by a mortgage or
construction financing. A default by a joint venture under its debt obligations may expose us to liability under a guaranty (see
"Note 8 - Notes Payable - Debt Covenants and Guarantees" to our consolidated financial statements for more details on loan
guarantees). We may elect to fund cash needs of a joint venture through equity contributions (generally on a basis proportionate
to our ownership interests), advances, or partner loans, although such fundings are not typically required contractually or otherwise.
Our hedging interest rate protection arrangements may not effectively limit our interest rate risk exposure.
We manage our exposure to interest rate risk through a combination of interest rate protection agreements to effectively fix or
cap a portion of our variable rate debt. Our use of interest rate hedging arrangements to manage risk associated with interest rate
volatility may expose us to additional risks, including that a counterparty to a hedging arrangement may fail to honor its obligations.
We enter into swaps that are exempt from the requirements of central clearing and/or trading on a designated contract market or
swap execution facility pursuant to the applicable regulations and rules, and thus there may be more counterparty risk relative to
others who do not utilize such exemption. Developing an effective interest rate risk strategy is complex and no strategy can
completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities
will have the desired beneficial impact on our results of operations or financial condition. We might be subject to additional costs,
such as transaction fees or breakage costs, if we terminate these arrangements.
16
Inflation may adversely affect our financial condition and results of operations.
Inflationary price increases could have an adverse effect on consumer spending, which could impact our tenants' sales and, in
turn, our tenants' business operations. This could affect the amount of rent these tenants pay, including if their leases provide for
percentage rent or percentage of sales rent, and their ability to pay rent. Also, inflation could cause increases in operating expenses,
which could increase occupancy costs for tenants and, to the extent that we are unable to recover operating expenses from tenants,
could increase operating expenses for us. In addition, if the rate of inflation exceeds the scheduled rent increases included in our
leases, then our net operating income and our profitability would decrease. As of December 31, 2015, approximately 57% of our
gross leasable and occupied area included clauses in leases for rent increases based on changes in the Consumer Price Index.
The occurrence of cyber incidents, a deficiency in our cyber security, or a data breach could negatively impact our business by
causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business
relationships, all of which could negatively impact our financial results.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information
resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized
access to systems to disrupt operations, corrupting data, or stealing confidential information. We rely upon information technology
networks and systems, some of which are managed by third-parties, to process, transmit, and store electronic information, and to
manage or support a variety of business processes and activities. As our reliance on technology has increased, so have the risks
posed to our systems, both internal and those we have outsourced. Primary risks that could directly result from the occurrence of
a cyber incident include, but are not limited to, operational interruption, damage to our relationship with our tenants, and private
data exposure (including personally identifiable information, or proprietary and confidential information, of ours and our
employees, as well as third parties). Any such incidents could result in legal claims or proceedings, liability or regulatory penalties
under laws protecting the privacy of personal information, and reduce the benefits of our advanced technologies. We carry cyber
liability insurance; however a loss could exceed the limits of the policy. We have implemented processes, procedures and controls
to help mitigate these risks, but these measures, our increased awareness of a risk of a cyber incident, and our insurance coverage,
do not guarantee that our financial results will not be negatively impacted by such an incident.
Some of our potential losses may not be covered by insurance.
We carry liability, fire, flood, earthquake, extended coverage, and rental loss insurance on each of our properties. We believe
the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, some types of
losses, including information technology system failures, punitive damages (in certain states), and lease and other contract claims,
which generally are not insured. If an uninsured liability claim or a liability claim in excess of insured limits is made, we may
have to make a payment to satisfy such claim. In addition, if an uninsured property loss or a property loss in excess of insured
limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue
from the property. If this happens, we might nevertheless remain obligated for any mortgage debt or other financial obligations
related to the property.
In November 2002, Congress passed the “Terrorism Risk Insurance Act of 2002” (TRIA), which required insurance companies
to offer terrorism coverage to all existing insured companies for an additional cost. As a result, our property insurance policies
are currently provided without a sub-limit for terrorism, eliminating the need for separate terrorism insurance policies.
In January 2015, Congress passed the "Terrorism Risk Insurance Program Authorization Act of 2015", which extended the
termination date of the Terrorism Insurance Program established under the TRIA through December 31, 2020. There are specific
provisions in our loans that address terrorism insurance. Simply stated, in most loans, we are obligated to maintain terrorism
insurance, but there are limits on the amounts we are required to spend to obtain such coverage. If a terrorist event occurs, the cost
of terrorism insurance coverage would be likely to increase, which could result in our having less coverage than we have currently.
Our inability to obtain such coverage or to do so only at greatly increased costs may also negatively impact the availability and
cost of future financings.
17
Some of our properties are subject to potential natural or other disasters.
A number of our properties are located in Florida, California, Puerto Rico, and Hawaii or in other areas with a higher risk of
natural disasters such as earthquakes, hurricanes, or tsunamis. The occurrence of natural disasters can adversely impact operations,
redevelopment, or development at our centers and projects, increase investment costs to repair or replace damaged properties,
increase future property insurance costs, and negatively impact the tenant demand for lease space. In addition, many of our
properties are located in coastal regions, and would therefore be affected by any future increases in sea levels. If insurance is
unavailable to us or is unavailable on acceptable terms, or our insurance is not adequate to cover losses from these events, our
financial condition and results of operations could be adversely affected.
We may be subject to liabilities for environmental matters.
All of the centers presently owned by us (not including option interests in certain pre-development projects) have been subject
to environmental assessments. We are not aware of any environmental liability relating to the centers or any other property in
which we have or had an interest (whether as an owner or operator) that we believe would have a material adverse effect on our
business, assets, or results of operations. No assurances can be given, however, that all environmental liabilities have been identified
by us or that no prior owner or operator, or any occupant of our properties has created an environmental condition not known to
us. Moreover, no assurances can be given that (1) future laws, ordinances, or regulations will not impose any material environmental
liability or that (2) 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 us. Environmental liability may be imposed without regard to fault, and under certain circumstances, can be joint and
several, resulting in one party being held responsible for the entire obligation. In addition, the presence of, or failure to remediate,
hazardous substances or waste may adversely affect our ability to sell or rent any property or to use it as collateral for a loan.
The bankruptcy or financial difficulties of our joint venture partners could adversely affect 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, we were unable to make important decisions in a
timely fashion or became subject to additional liabilities. In addition, if our joint venture partners are not able to fund required
contributions, it may be necessary for us to contribute equity in excess of our ownership share to fund initial development, capital,
and/or operating costs.
We may not be able to maintain our status as a REIT.
We may not be able to maintain our status as a REIT for federal income tax purposes with the result that the income distributed
to shareowners would not be deductible in computing taxable income and instead would be subject to tax at regular corporate
rates. We may also be subject to the alternative minimum tax if we fail to maintain our status as a REIT. Any such corporate tax
liability would be substantial and would reduce the amount of cash available for distribution to our shareowners which, in turn,
could have a material adverse impact on the value of, or trading price for, our shares. Although we believe we are organized and
operate in a manner to maintain our REIT qualification, many of the REIT requirements of the 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 our ability to maintain REIT status in the future. If we do not maintain our REIT status in any year,
we may be unable to elect to be treated as a REIT for the next four taxable years.
Although we currently intend to maintain our status as a REIT, future economic, market, legal, tax, or other considerations may
cause us to determine that it would be in our and our shareowners’ best interests to revoke our REIT election. If we revoke our
REIT election, we will not be able to elect REIT status for the next four taxable years.
18
We may be subject to taxes even if we qualify as a REIT.
Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain federal, state, local, and foreign
taxes on our income and property. For example, we will be subject to federal income tax to the extent we distribute less than 100%
of our REIT taxable income, including capital gains. Moreover, if we have net income from “prohibited transactions,” that income
will be subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property held primarily
for sale to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction
depends on the facts and circumstances related to that sale. We cannot guarantee that sales of our properties would not be prohibited
transactions unless we comply with certain statutory safe-harbor provisions. The need to avoid prohibited transactions could cause
us to forego or defer sales of assets that non-REITs otherwise would have sold or that might otherwise be in our best interest to
sell.
In addition, any net taxable income earned directly by our taxable REIT subsidiaries will be subject to federal, and state corporate
income tax, and to the extent there are foreign operations certain foreign taxes. In this regard, several provisions of the laws
applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal
income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct certain interest payments made to an
affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions
taken by the taxable REIT subsidiaries if the economic arrangements among the REIT, the REIT’s tenants, and the taxable REIT
subsidiary are not comparable to similar arrangements among unrelated parties. Also, some state, local, and foreign jurisdictions
may tax some of our income even though as a REIT we are not subject to federal income tax on that income, because not all states,
localities, and foreign jurisdictions follow the federal income tax treatment of REITs. Finally, there may be changes in the laws
of states, localities, and foreign jurisdictions that may increase the taxes we pay. To the extent that we and our affiliates are required
to pay federal, state, local, and/or foreign taxes, we will have less cash available for distributions to our shareowners.
The lower tax rate on certain dividends from non-REIT “C” corporations may cause investors to prefer to hold stock in non-REIT
“C” corporations.
The maximum tax rate (including the net investment income tax of 3.8%) on certain corporate dividends received by individuals
is 23.8%, which is less than the maximum income tax rate of 39.6% applicable to ordinary income. This rate differential continues
to substantially reduce the so-called "double taxation" (that is, taxation at both the corporate and shareowner levels) that applies
to non-REIT "C" corporations but does not generally apply to REITs. Dividends from a REIT do not qualify for the favorable tax
rate applicable to dividends from non-REIT "C" corporations unless the dividends are attributable to income that has already been
subjected to the corporate income tax, such as income from a prior year that the REIT did not distribute and dividend income
received by the REIT from a taxable REIT subsidiary or other fully taxable "C" corporation. Although REITs, unlike non-REIT
“C” corporations, have the ability to designate certain dividends as capital gain dividends subject to the favorable rates applicable
to capital gain, the application of reduced dividend rates to non-REIT “C” corporation dividends may still cause individual investors
to view stock in non-REIT “C” corporations as more attractive than shares in REITs, which may negatively affect the value of our
shares.
Our ownership limitations and other provisions of our Restated Articles of Incorporation and bylaws generally prohibit the
acquisition of more than 8.23% of the value of our capital stock and may otherwise hinder any attempt to acquire us.
Various provisions of our Restated Articles of Incorporation (Articles) and bylaws could have the effect of discouraging a third
party from accumulating a large block of our stock and making offers to acquire us, and of inhibiting a change in control, all of
which could adversely affect our shareowners’ ability to receive a premium for their shares in connection with such a transaction.
In addition to customary anti-takeover provisions, as detailed below, our Articles contain REIT-specific restrictions on the ownership
and transfer of our capital stock which also serve similar anti-takeover purposes.
Under our Articles, in general, no shareowner may own more than 8.23% (the General Ownership Limit) in value of our "Capital
Stock" (which term refers to the common stock, preferred stock and Excess Stock, as defined below). Our Board of Directors has
the authority to allow a “look through entity” to own up to 9.9% in value of the Capital Stock (Look Through Entity Limit),
provided that after application of certain constructive ownership rules under the Code and rules regarding beneficial ownership
under the Michigan Business Corporation Act, no individual would constructively or beneficially own more than the General
Ownership Limit. A look through entity is an entity (other than a qualified trust under Section 401(a) of the Code, certain other
tax-exempt entities described in the Articles, or an entity that actually or constructively owns 10% or more of the equity of any
tenant from which we or TRG directly or indirectly receives or accrues rent from real property) whose beneficial owners, rather
than the entity, would be treated as owning the capital stock owned by such entity.
19
The Articles provide that if the transfer of any shares of Capital Stock or a change in our capital structure would cause any
person (Purported Transferee) to own Capital Stock in excess of the General Ownership Limit or the Look Through Entity Limit,
then the transfer is to be treated as invalid from the outset, and the shares in excess of the applicable ownership limit automatically
acquire the status of “Excess Stock.” A Purported Transferee of Excess Stock acquires no rights to shares of Excess Stock. Rather,
all rights associated with the ownership of those shares (with the exception of the right to be reimbursed for the original purchase
price of those shares) immediately vest in one or more charitable organizations designated from time to time by our Board of
Directors (each, a Designated Charity). An agent designated from time to time by the Board of Directors (each, a Designated
Agent) will act as attorney-in-fact for the Designated Charity to vote the shares of Excess Stock, take delivery of the certificates
evidencing the shares that have become Excess Stock, and receive any distributions paid to the Purported Transferee with respect
to those shares. The Designated Agent will sell the Excess Stock, and any increase in value of the Excess Stock between the date
it became Excess Stock and the date of sale will inure to the benefit of the Designated Charity. A Purported Transferee must notify
us of any transfer resulting in shares converting into Excess Stock, as well as such other information regarding such person’s
ownership of the capital stock we request.
These ownership limitations will not be automatically removed even if the REIT requirements are changed so as to no longer
contain any ownership concentration limitation or if the concentration limitation is increased because, in addition to preserving
our status as a REIT, the effect of such ownership limit is to prevent any person from acquiring unilateral control of us. Changes
in the ownership limits cannot be made by our Board of Directors and would require an amendment to our articles. Currently,
amendments to our articles require the affirmative vote of holders owning not less than two-thirds of the outstanding capital stock
entitled to vote.
Robert Taubman, William Taubman, Gayle Taubman Kalisman, and the A. Alfred Taubman Restated Revocable Trust (Taubman
Family) may be deemed under SEC rules of attribution, which includes conversion of options that have vested and shares subject
to issuance under an option deferral agreement, to beneficially own 30%, 29%, 26%, and 27%, respectively, of our stock that is
entitled to vote on shareowner matters (Voting Stock) as of December 31, 2015. However, the combined Taubman Family ownership
of Voting Stock includes 24,129,019 shares of the 25,044,939 shares of Series B Preferred Stock outstanding or 96% of the total
outstanding and 1,689,101 shares of the 60,233,561 shares of common stock outstanding or 3% of the total outstanding as of
December 31, 2015. The Series B Preferred Stock is convertible into shares of common stock at a ratio of 14,000 shares of Series
B Preferred Stock to one share of common stock, and therefore one share of Series B Preferred Stock has a value of 1/14,000ths
of the value of one share of common stock. Accordingly, the foregoing ownership of Voting Stock does not violate the ownership
limitations set forth in our charter.
The Taubman Family has the power to vote a significant number of the shares of our capital stock entitled to vote.
Based on information contained in filings made with the SEC, as of December 31, 2015, the Taubman Family has the power to
vote approximately 30% of the outstanding shares of our common stock and our Series B Preferred Stock, considered together as
a single class, including approximately 96% of our outstanding Series B preferred stock. Our shares of common stock and our
Series B Preferred Stock vote together as a single class on all matters generally submitted to a vote of our shareowners, and the
holders of the Series B preferred stock have certain rights to nominate up to four individuals for election to our Board of Directors
and other class voting rights. Robert S. Taubman, serves as our Chairman of the Board, President and Chief Executive Officer.
William S. Taubman, serves as our Chief Operating Officer and one of our directors. These individuals occupy the same positions
with the Manager. As a result, the Taubman Family may exercise significant influence with respect to the election of our Board
of Directors, the outcome of any corporate transaction or other matter submitted to our shareowners for approval, including any
merger, consolidation or sale of all or substantially all of our assets. In addition, because our Articles impose a limitation on the
ownership of our outstanding capital stock by any person and such ownership limitation may not be changed without the affirmative
vote of holders owning not less than two-thirds of the outstanding shares of capital stock entitled to vote on such matter, the
Taubman Family, as a practical matter, has the power to prevent a change in control of our Company.
Our success depends, in part, on our ability to attract and retain talented employees, and the loss of any one of our key personnel
could adversely impact our business.
The success of our business depends, in part, on the leadership and performance of our executive management team and key
employees, and our ability to attract, retain, and motivate talented employees could significantly impact our future performance.
Competition for these individuals is intense, and we cannot assure you that we will retain our executive management team and
key employees or that we will be able to attract and retain other highly qualified individuals for these positions in the future. Losing
any one or more of these persons could have a material adverse effect on our results of operations, financial condition, and cash
flows.
20
The market price of our common stock may fluctuate significantly.
The market price of our common stock may fluctuate significantly in response to many factors, including:
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general market and economic conditions;
actual or anticipated variations in our operating results, funds from operations, cash flows, liquidity or distributions
(including special distributions);
changes in our earnings estimates or those of analysts;
publication of research reports about us, the real estate industry generally or the regional mall industry, and
recommendations by financial analysts with respect to us or other REITs;
the amount of our outstanding debt at any time, the amount of our maturing debt in the near and medium term and our
ability to refinance such debt and the terms thereof or our plans to incur additional debt in the future;
the ability of our tenants to pay rent to us and meet their other obligations to us under current lease terms and our ability
to re-lease space as leases expire;
increases in market interest rates that lead purchasers of our common stock to demand a higher dividend yield;
changes in market valuations of similar companies;
any securities we may issue or additional debt we incur in the future;
additions or departures of key management personnel;
actions by institutional shareholders;
perceived risks in connection with our international development strategy;
risks we are taking in relation to, and the public announcement of, proposed acquisitions and dispositions, developments
and re-developments and the consummation thereof, including related capital uses;
speculation in the press or investment community;
continuing high levels of volatility in the capital and credit markets; and
the occurrence of any of the other risk factors included in, or incorporated by reference in, this report.
Many of the factors listed above are beyond our control. These factors may cause the market price of our common stock to
decline, regardless of our financial performance and condition and prospects. It is impossible to provide any assurance that the
market price of our common stock will not fall in the future, and it may be difficult for holders to resell shares of our common
stock at prices they find attractive, or at all.
Our shareholders will experience dilution as a result of equity offerings and they may experience further dilution if we issue
additional common stock.
We have previously issued common equity, both common shares and TRG partnership units, which had a dilutive effect on our
earnings per diluted share and funds from operations per diluted share. In addition, we have previously issued additional shares
of preferred stock which adversely affected the earnings per share available to our common shareholders. We are not restricted
from issuing additional shares of our common stock or preferred stock, including any securities that are convertible into or
exchangeable for, or that represent the right to receive, common stock or preferred stock or any substantially similar securities.
Any additional future issuances of common stock will reduce the percentage of our common stock owned by investors who do
not participate in future issuances. In most circumstances, shareholders will not be entitled to vote on whether or not we issue
additional common stock. In addition, depending on the terms and pricing of an additional offering of our common stock and the
value of our properties, our shareholders may experience dilution in both the book value and fair value of their shares. The market
price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after
an offering or the perception that such sales could occur, and this could materially and adversely affect our ability to raise capital
through future offerings of equity or equity-related securities.
21
Our ability to pay dividends on our stock may be limited.
Because we conduct all of our operations through TRG or its subsidiaries, our ability to pay dividends on our stock will depend
almost entirely on payments and distributions received on our interests in TRG. Additionally, the terms of some of the debt to
which TRG is a party limits its ability to make some types of payments and other distributions to us. This in turn limits our ability
to make some types of payments, including payment of dividends on our stock, unless we meet certain financial tests or such
payments or dividends are required to maintain our qualification as a REIT. As a result, if we are unable to meet the applicable
financial tests, we may not be able to pay dividends on our stock in one or more periods beyond what is required for REIT purposes.
Our ability to pay dividends is further limited by the requirements of Michigan law.
Our ability to pay dividends on our stock is further limited by the laws of Michigan. Under the Michigan Business Corporation
Act, a Michigan corporation may not make a distribution if, after giving effect to the distribution, the corporation would not be
able to pay its debts as the debts become due in the usual course of business, or the corporation’s total assets would be less than
the sum of its total liabilities plus the amount that would be needed, if the corporation were dissolved at the time of the distribution,
to satisfy the preferential rights upon dissolution of shareowners whose preferential rights are superior to those receiving the
distribution. Accordingly, we may not make a distribution on our stock if, after giving effect to the distribution, we would not be
able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total
liabilities plus the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of any shares of
our preferred stock then outstanding.
We may incur additional indebtedness, which may harm our financial position and cash flow and potentially impact our ability
to pay dividends on our stock.
Our governing documents do not limit us from incurring additional indebtedness and other liabilities; however, certain loan
covenants include certain restrictions regarding future indebtedness. As of December 31, 2015, we had $2.6 billion of consolidated
indebtedness outstanding, and our beneficial interest in both our consolidated debt and the debt of our unconsolidated joint ventures
was $3.6 billion. We may incur additional indebtedness and become more highly leveraged, which could harm our financial position
and potentially limit our cash available to pay dividends.
We may change the distribution policy for our common stock in the future.
The decision to declare and pay dividends on our common stock in the future, as well as the timing, amount, and composition
of any such future dividends, will be at the sole discretion of our Board of Directors and will depend on our earnings, funds from
operations, liquidity, financial condition, capital requirements, contractual prohibitions, or other limitations under our indebtedness
and preferred shares, the annual dividend requirements under the REIT provisions of the Code, state law and such other factors
as our Board of Directors deems relevant. Further, we have regularly issued new shares of common stock as compensation to our
employees, and we have periodically issued new shares of capital stock pursuant to public offerings or acquisitions. Any future
issuances may substantially increase the cash required to pay dividends at current or higher levels. Our actual dividend payable
will be determined by our Board of Directors based upon the circumstances at the time of declaration. Although we have regularly
paid dividends on a quarterly basis on our common and preferred stock in the past, and since we went public in 1992 we have
never reduced our regular common dividend and have increased it 18 times, we do not guarantee we will continue to do so in the
future. Any change in our dividend policy could have a material adverse effect on the market price of our common stock.
22
Item 1B. UNRESOLVED STAFF COMMENTS.
None.
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, 2015. Centers are owned in fee other than Beverly Center, Cherry Creek Shopping Center, City Creek Center, and
International Plaza, which are held under ground leases expiring between 2042 and 2104.
Certain of the centers are partially owned through joint ventures. Generally, our joint venture partners have ongoing rights
with regard to the disposition of our interest in the joint ventures, as well as the approval of certain major matters.
Sq. Ft of GLA/
Mall GLA as of
12/31/15
Year
Opened/
Expanded
Year
Acquired
Ownership
% as of
12/31/15
Center
Consolidated Businesses:
Beverly Center
Los Angeles, CA
Anchors
Bloomingdale’s, Macy’s
Cherry Creek Shopping Center
Macy’s, Neiman Marcus, Nordstrom
Macy's, Nordstrom
Denver, CO
City Creek Center
Salt Lake City, UT
Dolphin Mall
Miami, FL
855,000
531,000
1,017,000
614,000
621,000
341,000
1982
1990/1998/
2015
2012
236,000
186,000
1,353,000
534,000
861,000
349,000
634,000
396,000
Bass Pro Shops Outdoor World,
Bloomingdale's Outlet, Burlington Coat Factory
1,415,000
690,000
2001/2007/
2015
Cobb Theatres, Dave & Buster's,
Marshalls, Neiman Marcus-Last Call,
Saks Off 5th, Polo Ralph Lauren Factory Store,
The Sports Authority
The Gardens on El Paseo/ El Paseo Village
Saks Fifth Avenue
Palm Desert, CA
Great Lakes Crossing Outlets
AMC Theatres, Bass Pro Shops Outdoor World,
Auburn Hills, MI
Lord & Taylor Outlet, Neiman Marcus-Last Call,
(Detroit Metropolitan Area)
Saks Off 5th, Sea Life
The Mall at Green Hills
Dillard's, Macy's, Nordstrom
1998/2010
2011
100%
1998
100%
1955/2011
2011
100%
Nordstrom, Saks Fifth Avenue
2015
Bloomingdale’s, Macy’s, Neiman Marcus,
Nordstrom, Saks Fifth Avenue
1,453,000
546,000
1980/1994/
1995/2011
Taubman Prestige Outlets Chesterfield
Polo Ralph Lauren Factory Store,
Restoration Hardware
302,000
302,000
2013
Nashville, TN
The Mall of San Juan
San Juan, PR
The Mall at Short Hills
Short Hills, NJ
Chesterfield, MO
(St. Louis Metropolitan Area)
Twelve Oaks Mall
Novi, MI
(Detroit Metropolitan Area)
JCPenney, Lord & Taylor, Macy's,
Nordstrom, Sears
1,519,000
550,000
1977/1978/
2007/2008
Total GLA
Total Mall GLA
TRG% of Total GLA
TRG% of Total Mall GLA
10,266,000
5,039,000
9,726,000
4,712,000
23
100%
50%
100%
100%
95%
100%
100%
100%
Center
Anchors
Sq. Ft of GLA/
Mall GLA as o4
12/31/15
Year
Opened/
Expanded
Year
Acquired
Ownership
% as of
12/31/15
JCPenney, Lord & Taylor,
Macy’s (two locations), Sears
1,558,000
562,000
1980/1987/
1988/2000
50%
50%
50%
50%
2001/2015
2002
1982/2007
1967/1981
2002
50%
2014
50%
1992/2006/
2003
50%
2008
1974/1983/
1997
79%
1,251,000
615,000
1,119,000
519,000
763,000
440,000
1,334,000
494,000
862,000
440,000
334,000
194,000
1,271,000
501,000
8,492,000
3,765,000
4,615,000
2,028,000
18,758,000
8,804,000
14,341,000
6,740,000
Unconsolidated Joint Ventures:
Fair Oaks
Fairfax, VA
(Washington, DC Metropolitan Area)
International Plaza
Tampa, FL
The Mall at Millenia
Orlando, FL
Stamford Town Center
Stamford, CT
Sunvalley
Concord, CA
Dillard’s, Lifetime Athletic, Neiman Marcus,
Nordstrom
Bloomingdale’s, Macy’s, Neiman Marcus
Macy’s, Saks Off 5th
JCPenney, Macy’s (two locations), Sears
(San Francisco Metropolitan Area)
The Mall at University Town Center
Dillard's, Macy's, Saks Fifth Avenue
Sarasota, FL
Waterside Shops
Naples, FL
Westfarms
West Hartford, CT
Nordstrom, Saks Fifth Avenue
JCPenney, Lord & Taylor,
Macy’s (two locations), Nordstrom
Total GLA
Total Mall GLA
TRG% of Total GLA
TRG% of Total Mall GLA
Grand Total GLA
Grand Total Mall GLA
TRG% of Total GLA
TRG% of Total Mall GLA
24
Anchors
The following table summarizes certain information regarding the anchors at the operating centers (excluding the value and
outlet centers) as of December 31, 2015:
Name
Macy’s
Bloomingdale’s (1)
Macy’s
Macy’s Men’s Store/Furniture Gallery
Total
Nordstrom
JCPenney
Sears
Dillard's
Saks Fifth Avenue (2)
Saks Fifth Avenue
Saks Off 5th
Neiman Marcus (3)
Lord & Taylor (4)
Lifetime Athletic
Total
Number of
Anchor Stores
GLA
(in thousands
of square feet)
% of GLA
3
12
3
18
9
4
3
3
5
1
6
4
3
1
641
2,539
489
3,669
1,302
745
679
607
402
78
480
402
392
56
23.4%
8.3%
4.7%
4.3%
3.9%
3.1%
2.6%
2.5%
0.4%
51
8,332
53.1% (5)
(1) Excludes one Bloomingdale's Outlet store at a value center.
(2) Excludes two Saks Off 5th stores at value and outlet centers.
(3) Excludes two Neiman Marcus-Last Call stores at value and outlet centers.
(4) Excludes one Lord & Taylor Outlet store at an outlet center.
(5) Percentages in table may not add due to rounding.
25
Mortgage Debt and Construction Financings
The following table sets forth certain information regarding the mortgages and construction financings encumbering the centers
as of December 31, 2015. All mortgage debt and construction financings in the table below are nonrecourse to the Operating
Partnership except for the TRG $65 million revolving credit facility and the debt encumbering The Mall of San Juan. The
Operating Partnership has provided limited guarantees regarding the mortgage debt encumbering City Creek Center, International
Market Place, and The Mall at University Town Center. In addition, the entities that own Beverly Center, Dolphin Mall, and
Twelve Oaks Mall are guarantors under our $475 million corporate unsecured term loan and $1.1 billion unsecured primary
revolving line of credit. See "Note 8 - Notes Payable - Debt Covenants and Guarantees" to our consolidated financial statements
for more details on loan guarantees.
Centers Consolidated in
TCO’s Financial Statements/ TRG's %
Ownership if less than 100%
Cherry Creek Shopping Center (50%)
City Creek Center
The Gardens on El Paseo
Great Lakes Crossing Outlets
Stated
Interest
Rate
5.24%
4.37%
6.10%
3.60%
The Mall at Green Hills
LIBOR+1.60%
Principal
Balance as
of 12/31/15
(thousands)
Annual
Debt
Service
(thousands)
Maturity
Date
Balance
Due on
Maturity
(thousands)
Earliest
Prepayment
Date Without
Penalty
$
280,000
Interest Only
6/8/2016
$
280,000
81,756
5,090 (2)
8/1/2023
(3)
(5)
81,920 (5)
Interest Only
6/11/2016
212,863
150,000
12,277 (2)
1/6/2023
Interest Only
12/1/2018
68,575
81,480
177,038
150,000
92,169
258,250
(6)
(8)
(9)
(1)
(4)
3/8/2016
5/1/2023
3/11/2016
9/6/2022
12/1/2017
(7)
At Any Time
At Any Time
International Market Place (93.5%)
LIBOR+1.75% (8)
92,169 (8)
Interest Only
8/14/2018
The Mall of San Juan (95%)
LIBOR+2.00% (9)
258,250 (9)
Interest Only
4/2/2017
The Mall at Short Hills
3.48%
1,000,000
Interest Only
10/1/2027
1,000,000
4/1/2027
(10) (11)
Other Consolidated Secured Debt
TRG $65M Revolving Credit Facility
LIBOR+1.40% (12)
—
Interest Only
4/30/2016
—
At Any Time
U.S. Headquarters
LIBOR+1.40% (13)
12,000
Interest Only
3/1/2024
12,000
At Any Time
Centers Owned by Unconsolidated Joint Ventures/TRG’s % Ownership
(14)
44,660 (15)
Interest Only
12/1/2026
LIBOR+1.70% (16)
269,396
15,307 (16)
7/13/2018
44,660
257,516
At Any Time
At Any Time
850 (17)
Interest Only
11/25/2020
850
5/25/2020
(18)
CityOn.Zhengzhou (32%)
Fair Oaks (50%)
Hanam Union Square (34.3%)
Hanam Union Square (34.3%)
International Plaza (50.1%)
International Plaza (50.1%)
The Mall at Millenia (50%)
Sunvalley (50%)
Taubman Land Associates (50%)
(17)
(19)
3.19%
3 Mo LIBOR
+1.60%
4.85%
LIBOR+1.75% (20)
4.00%
4.44%
3.84%
52,065
Interest Only
11/8/2020
320,074
172,180
350,000
179,800
22,644
20,580 (2)
12/1/2021
8,710 (20)
12/1/2021
Interest Only (22)
10/15/2024
11,471 (2)
9/1/2022
1,349 (2)
11/1/2022
52,065
285,503
151,267
293,748
153,642
19,001
220,744
165,000
256,944
9/8/2020
9/2/2021
12/1/2019
7/17/2024
6/1/2022
6/1/2022
At Any Time
4/7/2016
4/2/2022
(11)
(21)
(11)
(11)
The Mall at University Town Center (50%)
LIBOR+1.70% (23)
220,744 (23)
Interest Only (23)
10/28/2016
(23)
Waterside Shops (50%)
Westfarms (79%)
5.54%
4.50%
165,000
301,362
Interest Only
10/7/2016
19,457 (2)
7/1/2022
26
(1) All loans may be prepaid with penalty or defeased as of December 31, 2015 unless otherwise indicated.
(2) Amortizing principal based on 30-years.
(3)
If the loan is not repaid on or before August 1, 2023, the loan may continue until April 1, 2024. If this occurs, the interest rate becomes the greater of (i) the stated 4.37% interest
rate plus 5% and (ii) the then current 10-year treasury rate plus 5%.
(4) Debt may be prepaid with a prepayment penalty equal to greater of yield maintenance or 0.5% of principal prepaid until the date indicated.
(5) Debt includes $0.4 million of purchase accounting premium from December 2011 acquisition, which reduces the stated rate on the debt of 6.10% to an effective rate of 4.71%.
(6) A one-year extension option is available.
(7) Through November 2016, debt may be prepaid with a prepayment penalty of 0.5% of principal prepaid. From December 2016 through November 2017, the prepayment penalty
decreases to 0.25% of principal prepaid. There is no prepayment fee thereafter.
$330.9 million construction facility. Rate decreases to LIBOR + 1.60% upon achieving certain performance measures. The loan has two, one-year extension options available.
$320 million construction facility. Rate decreases to LIBOR + 1.75% upon achieving certain performance measures. The loan has two, one-year extension options available.
(8)
(9)
(10) Debt may not be prepaid until October 2017.
(11) Debt may be prepaid with a prepayment penalty equal to greater of yield maintenance or 1% of principal prepaid until the date indicated.
(12) The facility is a $65 million revolving line of credit and is secured by an indirect interest in 40% of Short Hills.
(13) Debt is swapped to an effective rate of 3.49% until maturity.
(14) Interest rate is 130% of the Renminbi (RMB) People's Bank of China base lending rate for a loan term greater than five years. Rate resets annually.
(15) 834.2 million RMB ($128.5 million USD equivalent at December 31, 2015) non-recourse construction facility. May borrow up to full facility amount subject to the satisfaction
of the conditions precedent per the loan agreement.
(16) The debt is swapped to an effective rate of 4.10% through April 2018. Principal payments are based on a 7.5% interest rate and 25-year amortization.
(17) 520 billion Korean Won (KRW) ($442.0 million USD equivalent at December 31, 2015) non-recourse construction facility. Loan bears interest at the Korea Development Bank
Five-Year Bond Yield plus 1.06% and is fixed upon each draw.
(18) Through November 2018, debt may be prepaid with a prepayment penalty of 1.5% of principal prepaid. From December 2018 through November 2019, the prepayment penalty
decreases to 1% of principal repaid and in December 2019 it changes to 0.5% of the principal repaid until May 25, 2020 when it can be repaid without penalty.
(19) $52.1 million USD construction facility. The interest rate is swapped to an effective interest rate of 3.12% to September 9, 2020.
(20) The debt is swapped to an effective rate of 3.58% until maturity. Principal payments are based on a 4.0% interest rate and 30-year amortization.
(21) Through mid-December 2016, debt may be prepaid with a prepayment penalty of 2.0% of principal prepaid. From mid-December 2016 through mid-December 2017, the
prepayment penalty decreases to 1% of principal repaid and in mid-December 2017 it changes to 0.5% of the principal repaid until December 1, 2019 when it can be repaid
without penalty.
(22) The loan is interest only until November 2016 at which time monthly principal payments are due based on a 30-year amortization. At our option on or before April 30, 2016,
provided that The Mall at Millenia meets a required NOI for calendar year 2015, the interest only period may be extended until maturity.
(23) $225 million construction facility. Rate decreases to LIBOR + 1.60% upon achieving certain performance measures. The loan has four, one-year extension options. During each
extension period, debt service payments also include principal payments based on a 6.0% interest rate and a 30-year amortization.
For additional information regarding the centers and their operations, see the responses to Item 1 of this report.
Item 3. LEGAL PROCEEDINGS.
See “Note 15 – Commitments and Contingencies – Litigation” to our consolidated financial statements for information regarding
outstanding litigation.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
27
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES.
The common stock of Taubman Centers, Inc. is listed and traded on the New York Stock Exchange (Symbol: TCO). As of
February 22, 2016, the 60,236,681 outstanding shares of common stock were held by 429 holders of record. A substantially greater
number of holders are beneficial owners whose shares are held of record by banks, brokers, and other financial institutions. The
closing price per share of the common stock on the New York Stock Exchange on February 22, 2016 was $68.85.
The following table presents the dividends declared on our common stock and the range of closing share prices of our common
stock for each quarter of 2015 and 2014:
2015 Quarter Ended
March 31
June 30
September 30
December 31
2014 Quarter Ended
March 31
June 30
September 30
December 31
Market Quotations
High
Low
Dividends
$
84.70
$
72.05
$
0.565
77.25
75.97
78.75
69.50
67.14
70.26
0.565
0.565
0.565
Market Quotations
High
Low
Dividends
$
71.02
$
63.34
$
0.54
76.80
76.98
80.06
70.40
72.27
72.75
0.54
0.54
0.54 (1)
(1) Amount excludes a special dividend of $4.75 per share, which was declared as a result of the sale of centers to Starwood in October 2014.
The restrictions on our ability to pay dividends on our common stock are set forth in “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Liquidity and Capital Resources – Dividends.”
28
Shareowner Return Performance Graph
The following line graph sets forth the cumulative total returns on a $100 investment in each of our common stock, the MSCI
US REIT Index, the FTSE NAREIT Equity Retail Index, the S&P 500 Index, and the S&P 400 MidCap Index for the period
December 31, 2010 through December 31, 2015 (assuming in all cases, the reinvestment of dividends):
Taubman Centers Inc.
MSCI US REIT Index
FTSE NAREIT Equity Retail Index
S&P 500 Index
S&P 400 MidCap Index
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
$
100.00
$
126.91
$
164.88
$
137.67
$
179.92
$
186.29
100.00
100.00
100.00
100.00
108.69
112.20
102.11
98.27
128.00
142.20
118.45
115.84
131.17
144.85
156.80
154.59
171.01
184.85
178.25
169.64
175.32
193.28
180.72
165.95
Note: The stock performance shown on the graph above is not necessarily indicative of future price performance.
29
Equity Purchases
The following table presents information with respect to repurchases of common stock made by us during the three months
ended December 31, 2015:
Period
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Dollar Value of
Shares that May Yet Be
Purchased Under the Plans or
Programs
October 2015
26,093
$
69.95
26,093
$
November 2015
December 2015
—
—
—
—
Total
26,093
$
69.95
26,093
$
145,062,973
145,062,973
145,062,973
145,062,973
In August 2013, our Board of Directors authorized a share repurchase program under which we may repurchase up to $200
million of our outstanding common stock. In March 2015, our Board of Directors increased the authorization by $250 million,
bringing the total authorization to $450 million. We plan to repurchase shares from time to time on the open market or in privately
negotiated transactions or otherwise, depending on market prices and other conditions. Repurchases of common stock were financed
through general corporate funds, including borrowings under existing revolving lines of credit. As of December 31, 2015, we
cumulatively repurchased 4,247,867 shares of our common stock at an average price of $71.79 per share for a total of $304.9
million under the authorization. All shares repurchased have been cancelled. For each share of our stock repurchased, one of our
Operating Partnership units was redeemed. As of December 31, 2015, $145.1 million remained available under the repurchase
program.
The restrictions on our ability to pay dividends on our common stock are set forth in "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital Resources - Dividends."
30
Item 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data and should be read in conjunction with the financial statements and notes
thereto and MD&A included in this report.
141,399
145,999
287,398
(94,527)
(1,536)
(14,634)
176,701
3.03
1.76
STATEMENT OF OPERATIONS DATA:
Rents, recoveries, and other shopping center revenues
Income from continuing operations (1)
Discontinued operations (2)
Net income (1) (3)
Year Ended December 31
2015
2014
2013
2012
2011
(in thousands, except per share and per square foot data)
$
557,172
$
679,129
$
767,154
$
747,974
$
644,918
192,557
1,278,122
189,368
157,817
192,557
1,278,122
189,368
157,817
Net income attributable to noncontrolling interests
(58,430)
(385,109)
Distributions to participating securities of TRG
Preferred dividends
Net income attributable to Taubman Centers, Inc. common shareowners
Net income per common share – diluted (1)
Dividends declared per common share (4)
(1,969)
(23,138)
109,020
1.76
2.26
(6,018)
(23,138)
863,857
13.47
2.16
(56,778)
(1,749)
(20,933)
109,908
1.71
2.00
(51,643)
(1,612)
(21,051)
83,511
1.37
1.85
Weighted average number of common shares outstanding –basic
61,389,113
63,267,800
63,591,523
59,884,455
56,899,966
Weighted average number of common shares outstanding – diluted
62,161,334
64,921,064
64,575,412
61,376,444
58,529,089
Number of common shares outstanding at end of period
60,233,561
63,324,409
63,101,614
63,310,148
58,022,475
Ownership percentage of TRG at end of period
71%
72%
71%
71%
69%
BALANCE SHEET DATA:
Real estate before accumulated depreciation
3,713,215
3,262,505
4,485,090
Total assets
Total debt
3,563,380
2,643,958
3,214,901
3,506,222
2,025,505
3,058,053
2,952,030
3,145,602
4,246,000
3,268,495
4,020,954
3,336,792
SUPPLEMENTAL INFORMATION:
Funds from Operations attributable to TCO's common shareowners (1)(3)(5)
Mall tenant sales - all centers (6)(7)(8)
Sales per square foot (6)(7)(8)(9)
Number of shopping centers at end of period
Ending Mall GLA in thousands of square feet
Leased space - all centers (7)(8)(10)(11)
Ending occupancy - all centers (7)(8)(10)
Average base rent per square foot (10):
Consolidated businesses (7)(8)(12)
Unconsolidated Joint Ventures (12)
Combined (7)(8)(12)
207,084
200,356
236,662
197,671
285,400
5,177,988
4,969,462
6,180,095
6,008,265
5,164,916
800
19
8,804
96.1%
94.2%
792
18
8,332
96.0%
94.1%
819
25
708
24
641
23
11,677
11,360
11,009
96.7%
95.8%
97.5%
96.6%
96.8%
95.5%
$
$
61.58
58.69
60.38
$
59.48
58.65
59.14
$
59.88
52.68
57.33
46.86
45.44
46.42
$
45.53
44.58
45.22
31
(1)
In 2015, net income and Funds from Operations (FFO) include an impairment charge of $11.8 million related to the pre-development of The Mall at Miami
Worldcenter and the net reversal of $2.0 million of prior period share-based compensation expenses recognized upon the announcement of an executive
management transition. In 2014, income from continuing operations and net income include a $629.7 million gain on the dispositions of the seven centers
to Starwood and a $476.9 million gain, net of tax, from the dispositions of interests in International Plaza, Arizona Mills, and land in Syosset, New York
related to the former Oyster Bay project. In 2014, net income and FFO include expenses related to the sale of seven centers to Starwood completed in October
2014. Specifically, these measures reflect charges of $36.4 million ($36.0 million at our beneficial share) related to the loss on extinguishment of debt certain
of these centers; charges of $7.8 million ($7.4 million at our beneficial share) related to the discontinuation of hedge accounting on the interest rate swap
previously designated to hedge the MacArthur Center note payable; and a restructuring charge of $3.7 million and disposition costs of $3.3 million incurred
related to the sale. FFO is defined and discussed in “MD&A – Non-GAAP Measures - Use of Non-GAAP Measures."
(2) Discontinued operations includes the operations of Regency Square and The Pier Shops at Caesars (The Pier Shops). In 2011, discontinued operations
includes the gains on extinguishment of debt of $174.2 million related to the dispositions of The Pier Shops and Regency Square. In 2014, we early adopted
Accounting Standards Update (ASU) No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." The
operations of the centers sold to Starwood and the gain on disposition are included in continuing operations pursuant to the application of ASU Update
2014-08.
In 2012, net income and FFO include $6.4 million of charges upon redemption of Series G and H Cumulative Redeemable Preferred Stock, the $1.6 million
loss on extinguishment of debt at The Mall at Millenia, and the $3.2 million PRC tax on sale of Taubman TCBL assets. In 2011, net income and FFO include
the gains on extinguishment of debt of $174.2 million related to the dispositions of The Pier Shops and Regency Square and $5.3 million of acquisition costs
related to the acquisitions of The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village, and Taubman TCBL.
(3)
(4) Amount excludes a special dividend of $4.75 per share in 2014, which was declared as a result of the sale of seven centers to Starwood.
(5) Reconciliations of net income attributable to TCO common shareowners to FFO for 2015, 2014, and 2013 are provided in “MD&A - Non-GAAP Measures.”
For 2012, net income attributable to TCO common shareowners of $83.5 million, adding back depreciation and amortization of $159.9 million, noncontrolling
interests of $39.7 million, and distributions to participating securities of $1.6 million arrives at TRG’s FFO of $284.7 million, of which TCO’s share was
$197.7 million. For 2011, net income attributable to TCO common shareowners of $176.7 million, adding back depreciation and amortization of
$152.3 million, noncontrolling interests of $80.5 million, and distributions to participating securities of $1.5 million arrives at TRG’s FFO of $411.1 million,
of which TCO’s share was $285.4 million.
(6) Based on reports of sales furnished by mall tenants.
(7) Amounts in 2014 have been adjusted to exclude the mall tenant sales of the centers sold to Starwood in October 2014. "All centers" statistics for 2013 and
prior include sales for the Starwood sale portfolio.
(8) Amounts in 2011 exclude The Pier Shops and Regency Square.
(9) For all periods presented, this amount represents sales per square foot of comparable centers, which are defined as all centers that were owned and opened
for the entire current and preceding period. This statistic for 2014 was restated for 2015 comparable centers.
(10) See “MD&A – Rental Rates and Occupancy” for information regarding this statistic.
(11) Leased space comprises both occupied space and space that is leased but not yet occupied.
(12) Amounts exclude spaces greater than 10,000 square feet.
32
Item 7. 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 our expectations or beliefs
concerning future events and performance. Actual results may differ materially from those expected because of various risks and
uncertainties. The forward-looking statements included in this report are made as of the date hereof. Except as required by law,
we assume no obligation to update these forward looking statements, even if new information becomes available in the future.
The following discussion should be read in conjunction with the accompanying consolidated financial statements of Taubman
Centers, Inc. and the notes thereto, as well as "Risk Factors" elsewhere in this report.
General Background and Performance Measurement
Taubman Centers, Inc. (TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate
investment trust (REIT). The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is a majority-owned
partnership subsidiary of TCO that owns direct or indirect interests in all of our real estate properties. In this report, the terms
"we", "us", and "our" refer to TCO, the Operating Partnership, and/or the Operating Partnership's subsidiaries as the context may
require. We own, manage, lease, acquire, dispose of, develop, and expand regional and super-regional shopping centers and interests
therein. The Consolidated Businesses consist of shopping centers and entities that are controlled by ownership or contractual
agreements, The Taubman Company LLC (Manager), and Taubman Properties Asia LLC and its subsidiaries (Taubman Asia).
Shopping centers owned through joint ventures that are not controlled by us but over which we have significant influence
(Unconsolidated Joint Ventures) are accounted for under the equity method.
References in this discussion to “beneficial interest” refer to our ownership or pro-rata share of the item being discussed.
The comparability of information used in measuring performance is affected by the opening of The Mall of San Juan in March
2015 and the opening of The Mall at University Town Center in October 2014 (See "Results of Operations - U.S. Development"),
the disposition of our interest in Arizona Mills in January 2014 (see "Results of Operations - Dispositions - Arizona Mills/Oyster
Bay"), and the sale of seven centers to an affiliate of Starwood Capital Group (Starwood) in October 2014 (see "Results of
Operations - Dispositions - Sale of Centers to Starwood"). Additional "comparable center" statistics that exclude the centers noted
above are provided to present the performance of comparable centers. Comparable centers are generally defined as centers that
were owned and open for the entire current and preceding period. Comparable center statistics for 2014 have been restated to
include comparable centers to 2015. Subsequent to the sale of a total of 49.9% of our interests in the entity that owns International
Plaza in January 2014, we began accounting for our remaining interest in International Plaza under the equity method of accounting.
This affects the comparability of our operating results period over period.
33
Overall Summary of Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our primary source of revenue is from the leasing of space in our shopping centers. Generally these leases are long term, with
our average lease term of new leases at approximately eight and seven years during 2015 and 2014, respectively, excluding temporary
leases. Therefore general economic trends most directly impact our mall tenants’ sales and consequently their ability to perform
under their existing lease agreements and expand into new locations as well as our ability to find new tenants for our shopping
centers and increase rent per square foot.
For the fourth quarter of 2015, comparable mall tenant sales per square foot decreased 2.2% from the corresponding period in
the prior year. For all of 2015, comparable mall tenant sales per square foot were $800, a 1.0% increase from 2014.
Ending occupancy was 95.3% for comparable centers at December 31, 2015, up 0.6% from 2014. The rents we are able to achieve
are affected by economic trends and tenants’ expectations thereof, as described under “Rental Rates and Occupancy.” The spread
between rents on openings and closings may not be indicative of future periods, as this statistic is not computed on comparable
tenant spaces, and can vary significantly from period to period depending on the total amount, location, and average size of tenant
space opening and closing in the period. Mall tenant sales, occupancy levels, and our resulting revenues are seasonal in nature (see
“Seasonality").
Our analysis of our financial results begins under “Results of Operations” and we provide information about transactions that
affected the periods presented or will affect operations in the future.
In January 2016, a joint venture we formed with The Macerich Company announced an agreement to acquire Country Club Plaza,
a mixed-use retail and office property in Kansas City, Missouri (see "Results of Operations - Acquisition - Country Club Plaza").
In December 2015, we recognized an impairment charge for the write-off of previously capitalized costs related to the pre-
development of The Mall at Miami Worldcenter (Miami Worldcenter), a former development project in Miami, Florida (see "Results
of Operations - Impairment Charge").
In October 2014, we disposed of a portfolio of seven centers (see "Note 2 - Dispositions, Acquisition, and Developments -
Dispositions - Sale of Centers to Starwood" to our consolidated financial statements and "Results of Operations - Dispositions -
Sale of Centers to Starwood").
In January 2014, we sold a total of 49.9% of our interests in the entity that owns International Plaza, which we had 100% ownership
of as the result of acquiring a 49.9% ownership interest in 2012 (see "Results of Operations - Dispositions - International Plaza").
Also in January 2014, we sold our 50% interest in Arizona Mills and land in Syosset, New York related to our former Oyster Bay
project (see "Results of Operations - Dispositions - Arizona Mills/Oyster Bay").
We have been active in developing our U.S. shopping center portfolio, including the openings of The Mall of San Juan in March
2015, The Mall at University Town Center in October 2014, and Taubman Prestige Outlets Chesterfield in 2013. Our U.S.
development includes one project, International Market Place, which is scheduled to open in August 2016 (see "Results of Operations
- U.S. Development" and "Liquidity and Capital Resources - Capital Spending - New Developments").
We also describe our growth activities in Asia with updates on our investments in new development projects, including
CityOn.Xi'an, CityOn.Zhengzhou, and Hanam Union Square, which are all scheduled to open in 2016, as well as service agreements
for the Studio City retail project in the Cotai region of Macau, China, which opened in the fourth quarter of 2015, and for IFC Mall
in Yeouido, Seoul, South Korea (see “Results of Operations – Taubman Asia”).
We provide a discussion of results of center operations (see "Results of Operations - Center Operations").
We have certain additional sources of income beyond our rental revenues, recoveries from tenants, and revenue from management,
leasing, and development services. We disclose our share of these sources of income under “Results of Operations – Other Income.”
We have been very active in managing our balance sheet and beneficial interest in debt, completing multiple construction loans
and other financings during 2015 (see “Results of Operations – Debt Transactions”).
During 2015 and 2013, we repurchased $252.6 million and $52.3 million, respectively, of common stock under a share repurchase
program. An immaterial amount of shares were repurchased in 2014. Also in 2013, we completed a preferred stock offering of $170
million of 6.25% Series K Cumulative Redeemable Preferred Stock (Series K Preferred Stock) (see "Results of Operations - Other
Equity Transactions").
34
With all the preceding information as background, we then provide insight and explanations for variances in our financial results
for 2015, 2014, and 2013 under "Comparison of the Year Ended December 31, 2015 to the Year Ended December 31, 2014" and
"Comparison of the Year Ended December 31, 2014 to the Year Ended December 31, 2013."
Our discussion of sources and uses of capital resources under “Liquidity and Capital Resources” begins with a brief overview of
our financial position as of December 31, 2015. After that, analysis of specific operating, investing, and financing activities is
provided in more detail.
Analysis of our fixed and floating rates and periods of interest rate risk exposure is provided under “Liquidity and Capital
Resources – Beneficial Interest in Debt.” Completing our analysis of our exposure to rates are the effects of changes in interest
rates on our cash flows and fair values of debt contained under “Liquidity and Capital Resources – Sensitivity Analysis.” Also see
“Liquidity and Capital Resources – Loan Commitments and Guarantees” for a discussion of compliance with debt covenants.
In conducting our business, we enter into various contractual obligations, including those for debt, operating leases for land and
office space, purchase obligations, and other long-term commitments. Detail of these obligations, including expected settlement
periods, is contained under “Liquidity and Capital Resources – Contractual Obligations.” Property-level debt represents the largest
single class of obligations. Described under “Liquidity and Capital Resources – Loan Commitments and Guarantees” and “Liquidity
and Capital Resources – Cash Tender Agreement” are our significant guarantees and commitments.
We have development projects including International Market Place, CityOn.Xi'an, CityOn.Zhengzhou, and Hanam Union Square,
all of which are scheduled to open in 2016. We also provide information on our capital spending in 2015 and 2014, as well as
planned capital spending for 2016 (see "Liquidity and Capital Resources - Capital Spending").
Dividends and distributions are also significant uses of our capital resources. The factors considered when determining the amount
of our dividends, including requirements arising because of our status as a REIT, are described under “Liquidity and Capital
Resources – Dividends.” As a result of the sale of centers to Starwood, we paid a special dividend of $4.75 per share in 2014 (see
"Liquidity and Capital Resources - Dividends").
We then discuss our application of critical accounting policies and consideration of new accounting pronouncements.
Finally, we describe the reasons for our use of non-GAAP measures, Net Operating Income (NOI) and Funds from Operations
(FFO), and provide reconciliations from net income and net income allocable to common shareowners to such measures in "Non-
GAAP Measures" following "Liquidity and Capital Resources."
35
Mall Tenant Sales and Center Revenues
Our comparable mall tenants reported a 2.2% decrease in sales per square foot in the fourth quarter of 2015 compared to the
corresponding period in the prior year. For all of 2015, our comparable mall tenant sales increased 1.0% over 2014 to $800 per
square foot.
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 mall tenant sales determine the amount of rent, percentage
rent, and recoverable expenses, excluding utilities (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, and may be impacted
significantly, either positively or negatively, by the success or lack of success of a small number of tenants or even a single tenant.
We believe that the ability of tenants to pay occupancy costs and earn profits over long periods of time increases as tenant 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 tenant sales at
higher sales per square foot.
Tenant sales directly impact the amount of percentage rents certain tenants and anchors pay. The effects of increases or declines
in tenant sales on our operations are moderated by the relatively minor share of total rents that percentage rents represent. Over
the last five years, percentage rent as a share of total rent has been approximately 6%.
In negotiating lease renewals, we generally intend to maximize the minimum rentals we achieve. As a result, a tenant will
generally pay a higher amount of minimum rent and an initially lower amount of percentage rent upon renewal.
While tenant sales are critical over the long term, the high quality regional mall business has been a very stable business model
with its diversity of income from thousands of tenants, its staggered lease maturities, and high proportion of fixed rent. However,
a sustained trend in sales does impact, either negatively or positively, our ability to lease vacancies and negotiate rents at
advantageous rates.
The following table summarizes occupancy costs, excluding utilities, for mall tenants as a percentage of mall tenant sales:
Mall tenant sales - all centers (in thousands)
Mall tenant sales - comparable (in thousands)
Sales per square foot (3)
Consolidated Businesses: (4)
Minimum rents
Percentage rents
Expense recoveries
Mall tenant occupancy costs as a percentage of mall tenant sales
Unconsolidated Joint Ventures: (4)
Minimum rents
Percentage rents
Expense recoveries
Mall tenant occupancy costs as a percentage of mall tenant sales
Combined: (4)
Minimum rents
Percentage rents
Expense recoveries
Mall tenant occupancy costs as a percentage of mall tenant sales
2015 (1)
$ 5,177,988
4,915,730
800
2014 (1) (2)
$ 4,969,462
4,908,028
792
9.1%
0.5
4.6
14.2%
8.8%
0.4
4.5
13.8%
9.0%
0.5
4.6
14.0%
8.9%
0.6
4.5
14.0%
8.5%
0.5
4.1
13.1%
8.8%
0.5
4.3
13.6%
2013 (1)
$ 6,180,095
819
8.3%
0.6
4.3
13.2%
8.1%
0.5
4.0
12.6%
8.2%
0.5
4.3
13.0%
(1) Based on reports of sales furnished by mall tenants.
(2) Due to the closing of the Starwood sale in October 2014, mall tenant sales data for the sale portfolio was excluded from the analysis of occupancy costs as
a percentage of sales.
(3) Sales per square foot excludes non-comparable centers and spaces greater than or equal to 10,000 square feet for all periods presented. The December 31,
2014 statistics have been restated to include comparable centers to 2015. Comparable center statistics for 2013 exclude the centers sold to Starwood, Arizona
Mills, and Taubman Prestige Outlets Chesterfield.
(4) Occupancy costs as a percentage of sales statistics are based on mall tenants sales of all centers reported during that period.
(5) Amounts in this table may not add due to rounding.
36
Rental Rates and Occupancy
As leases have expired in the centers, we have 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. Generally, center revenues have increased as older leases
rolled over or were terminated early and replaced with new leases negotiated at current rental rates that were usually higher than
the average rates for existing leases. Average rent per square foot statistics reflect the contractual rental terms of the lease currently
in effect and include the impact of rental concessions. In periods of increasing sales, rents on new leases will generally tend to
rise. In periods of slower growth or declining sales, rents on new leases will grow more slowly or will decline for the opposite
reason, as tenants' expectations of future growth become less optimistic. Rent per square foot information for centers in our
Consolidated Businesses and Unconsolidated Joint Ventures follows:
Average rent per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
Opening base rent per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
Square feet of GLA opened:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
Closing base rent per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
Square feet of GLA closed:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
Releasing spread per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
Releasing spread per square foot growth:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
2015 (1) (2)
2014 (1) (2)
2013 (1) (2)
$
$
$
$
$
$
61.58
58.69
60.38
70.38
60.93
66.76
587,294
363,875
951,169
55.50
51.81
54.14
642,439
375,214
1,017,653
$
14.88
$
9.12
12.62
26.8%
17.6%
23.3%
59.48
58.65
59.14
65.78
63.19
64.76
486,060
313,575
799,635
51.09
46.84
49.32
521,690
371,391
893,081
14.69
16.35
15.44
$
$
$
$
59.88
52.68
57.33
62.41
62.07
62.27
489,165
346,134
835,299
55.11
48.98
52.67
497,011
327,608
824,619
7.30
13.09
9.60
28.8%
34.9%
31.3%
13.2%
26.7%
18.2%
(1) Statistics exclude non-comparable centers. Comparable center statistics for 2015 and 2014 exclude The Mall of San Juan, The Mall at University Town
Center, Arizona Mills, and the centers sold to Starwood. Comparable center statistics for 2013 exclude the centers sold to Starwood, Arizona Mills, and
Taubman Prestige Outlets Chesterfield.
(2) Opening and closing statistics exclude spaces greater than or equal to 10,000 square feet.
The spread between opening and closing rents may not be indicative of future periods, as this statistic is not computed on
comparable tenant spaces, and can vary significantly from period to period depending on the total amount, location, and average
size of tenant space opening and closing in the period.
37
Mall tenant ending occupancy and leased space rates are as follows:
Ending occupancy - all centers
Ending occupancy - comparable centers
Leased space - all centers
Leased space - comparable centers
2015 (1)
2014 (1)
2013 (1)
94.2%
95.3
96.1
97.0
94.1%
94.7
96.0
96.2
95.8%
96.7
(1) Occupancy statistics include temporary in-line tenants (TILs) and anchor spaces at value and outlet centers (Arizona Mills, Dolphin Mall, Great Lakes
Crossing Outlets, and Taubman Prestige Outlets Chesterfield). "All centers" statistics as of December 31, 2013 include the centers sold to Starwood in 2014
and Arizona Mills.
See "Seasonality" for further information on occupancy and leased space statistics. Tenant bankruptcy filings as a percentage
of the total number of tenant leases were 1.0% in 2015, compared to 1.6% in 2014, and 0.3% in 2013.
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
period. 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. Gains on sales of peripheral land and lease cancellation income may vary significantly from quarter
to quarter.
Mall tenant sales: (1)
Comparable
All Centers
Revenues and nonoperating income (expense)-
2015
Total
4th quarter
3rd quarter
2nd quarter
1st quarter
(in thousands, except occupancy and leased space data)
$ 4,915,730
5,177,988
$ 1,510,650
1,600,739
$ 1,139,106
1,197,976
$ 1,142,136
1,203,516
$ 1,123,838
1,175,757
Consolidated Businesses
562,428
157,771
140,993
133,429
130,235
Ending occupancy:
Comparable
All Centers
Leased Space:
Comparable
All centers
(1) Based on reports of sales furnished by mall tenants.
95.3%
94.2
97.0%
96.1
95.3%
94.2
97.0%
96.1
93.8%
92.2
97.1%
96.3
93.0%
90.6
96.9%
95.7
92.7%
89.8
95.5%
93.7
38
Results of Operations
In addition to the results and trends in our operations discussed in the preceding sections, the following sections discuss certain
transactions that affected operations in 2015, 2014, and 2013, or are expected to affect operations in the future.
Acquisition - Country Club Plaza
In January 2016, a joint venture we formed with The Macerich Company announced an agreement to acquire Country Club
Plaza, a mixed-use retail and office property in Kansas City, Missouri, from Highwood Properties for $660 million ($330 million
at TRG’s beneficial share) in cash, excluding transaction costs. We expect the transaction to close in March 2016. Concurrent with
or shortly after closing, a long-term, fixed-rate loan for approximately 50% of the purchase price is expected to be placed on the
asset. Upon closing, we will have a 50% ownership interest in the center, which will be jointly managed by both companies. Our
ownership interest in the center will be accounted for as an Unconsolidated Joint Venture under the equity method.
Impairment Charge
In 2015, we made a decision not to move forward with an enclosed regional mall that was intended to be part of the Miami
Worldcenter mixed-use, urban development in Miami, Florida. Instead, along with The Forbes Company and Miami Worldcenter's
master developer, Miami Worldcenter Associates, we are now pursuing a high street retail plan. Specifically, we have agreed with
Miami Worldcenter Associates on preliminary terms to co-lease the retail portion of the street level project with The Forbes
Company, with an option to purchase the retail component at a favorable price.
As a result of this decision, an impairment charge of $11.8 million was recognized in the fourth quarter of 2015, which represents
previously capitalized costs related to the pre-development of the enclosed mall plan. The impairment charge was recorded within
Equity in Income of Unconsolidated Joint Ventures on the Consolidated Statement of Operations and Comprehensive Income.
Dispositions
Sale of Centers to Starwood
In October 2014, we completed the disposition of a portfolio of seven centers to Starwood, recognizing a gain on the sale. As
part of the sale, we defeased or prepaid loans including accrued interest totaling $623 million secured by Northlake Mall, The
Mall at Wellington Green, MacArthur Center (MacArthur), and The Mall at Partridge Creek. During the year ended December
31, 2014, we incurred expenses related to a loss on the early extinguishment of debt, the discontinuation of hedge accounting on
the swap previously designated to hedge the MacArthur note payable, a restructuring charge, and disposition costs related to the
sale. As a result of the sale, we paid a special dividend of $4.75 per share on December 31, 2014 (see "Liquidity and Capital
Resources - Dividends").
See "Note 2 - Dispositions, Acquisition, and Developments - Dispositions - Sale of Centers to Starwood" to our consolidated
financial statements for further information.
In 2014, we early adopted Accounting Standards Update (ASU) No. 2014-08, "Reporting Discontinued Operations and
Disclosures of Disposals of Components of an Entity." The operations of the centers sold to Starwood are included in continuing
operations for periods prior to the sale pursuant to the application of ASU No. 2014-08.
International Plaza
In January 2014, we sold a total of 49.9% of our interests in the entity that owns International Plaza, including certain governance
rights. See "Note 2 - Dispositions, Acquisition, and Developments - Dispositions - International Plaza" to our consolidated financial
statements for further information on the sale, including the gain recorded on the transaction. The disposition decreased our
ownership in the center to a noncontrolling 50.1% interest. We now account for our remaining interest in International Plaza under
the equity method of accounting.
Arizona Mills/Oyster Bay
Also in January 2014, we completed the sale of our 50% interest in Arizona Mills, an Unconsolidated Joint Venture, and land
in Syosset, New York related to the former Oyster Bay project, to Simon Property Group (SPG). See "Note 2 - Dispositions,
Acquisition, and Developments - Dispositions - Arizona Mills/Oyster Bay" to our consolidated financial statements for further
information on the sale, including the gain recognized on the transaction.
39
U.S. Development
In March 2015, The Mall of San Juan opened in San Juan, Puerto Rico. In April 2015, we acquired an additional 15% interest
in The Mall of San Juan, bringing our ownership in the center to 95% (see "Liquidity and Capital Resources - Capital Spending
- New Developments").
In October 2014, The Mall at University Town Center, which is owned by a 50% Unconsolidated Joint Venture, opened in
Sarasota, Florida.
In August 2013, an outlet center, Taubman Prestige Outlets Chesterfield, opened in the western St. Louis suburb of Chesterfield,
Missouri. In September 2013, we redeemed our outlet joint venture partner's 10% interest in this business, increasing our ownership
to 100%.
Our U.S development includes one project, International Market Place, which is currently under construction in Waikiki,
Honolulu, Hawaii, and is scheduled to open in August 2016. See "Liquidity and Capital Resources - Capital Spending - New
Developments" for more information.
Taubman Asia
We have formed a joint venture with Wangfujing Group Co., Ltd (Wangfujing), one of China's largest department store chains,
to own an interest in a shopping center, CityOn.Xi'an, to be located at Xi'an Saigao City Plaza in Xi'an, China, and is scheduled
to open in April 2016. We have also formed a joint venture with Wangfujing to develop a shopping center, CityOn.Zhengzhou, in
Zhengzhou, China, which is scheduled to open in fall 2016. See "Liquidity and Capital Resources - Capital Spending - New
Developments" for more information on these developments.
Also, we have invested in a shopping center project, Hanam Union Square, in Hanam, Gyeonggi Province, South Korea in
which we have formed a joint venture with Shinsegae Group (Shinsegae), South Korea's largest retailer. The center is scheduled
to open in early fall 2016. See "Liquidity and Capital Resources - Capital Spending - New Developments" for more information.
We are providing management and leasing services for the retail portion of Studio City, a cinematically-themed integrated
entertainment, retail and gaming resort developed by Melco Crown Entertainment Limited in the Cotai region of Macau, China,
which opened in the fourth quarter of 2015. In addition, we provide management and leasing services for IFC Mall in Yeouido,
Seoul, South Korea. We have no ownership interests in these centers.
Center Operations
For the year ended December 31, 2015, comparable center NOI excluding lease cancellation income was up 3.1% from 2014.
See “Non-GAAP Measures” for the definition and discussion of NOI and for the reconciliation of Net Income to Net Operating
Income.
40
Other Income
We have certain additional sources of income beyond our rental revenues, recoveries from tenants, and revenues from
management, leasing, and development services, as summarized in the following table. Shopping center related revenues include
parking, sponsorship, and other income. Lease cancellation revenue is primarily dependent on the overall economy and performance
of particular retailers in specific locations and can vary significantly from year-to-year. In 2015, our share of lease cancellation
income was $7.7 million, a decrease of $3.2 million from 2014. Our share of lease cancellation income over the last five years
ranged from 2011's $2.6 million to 2014's $10.9 million.
Gains on peripheral land sales can also vary significantly from year-to-year, depending on the results of negotiations with
potential purchasers of land, as well as the economy and the timing of the transactions. In February 2013, we closed on a peripheral
land sale with a $0.9 million gain. There were no sales of peripheral land in 2015 or 2014.
The following table provides a summary of the significant components of our consolidated other income and nonoperating
income (expense):
Other income:
Shopping center related revenues
Lease cancellation revenue
Nonoperating income (expense):
Early extinguishment of debt charge (1)
Disposition costs related to the Starwood sale (1)
Discontinuation of hedge accounting - MacArthur (1)
Gain on sale of marketable securities
Gains on sales of peripheral land
Dividend income
Interest income
Other nonoperating income (expense)
2013
2014
2015
(Operating Partnership’s share in millions)
$
$
$
$
18.8
4.6
23.4
3.6
2.0
(0.3)
5.3
$
$
$
$
22.3
8.6
30.8
(36.0)
(3.3)
(7.4)
$
$
$
2.4
1.4
0.8
(42.1) $
26.6
4.2
30.8
1.3
0.9
0.2
(1.0)
1.3
(1) See "Note 2 - Dispositions, Acquisition, and Developments - Dispositions - Sale of Centers to Starwood" to our consolidated financial statements for further
information.
(2) Amounts in this table may not add due to rounding.
41
Debt Transactions
A series of debt financings were completed in the three-year period ended December 31, 2015 as follows:
CityOn.Zhengzhou
The Mall at Short Hills
International Market Place
Hanam Union Square
Hanam Union Square
U.S. Headquarters
International Plaza
TRG primary revolving credit facility (8)
November 2014
The Mall of San Juan
TRG secondary revolving credit facility
TRG term loan (10)
The Mall at Green Hills
April 2014
March 2014
November 2013
November 2013
The Mall at University Town Center
October 2013
City Creek Center
July 2013
TRG primary revolving credit facility
February 2013
Great Lakes Crossing Outlets
January 2013
Date
Initial Loan
Balance/Facility
Amount
(in millions)
December 2015
$129 (2)
September 2015
August 2015
July 2015
July 2015
March 2015
December 2014
Stated
Interest Rate
Maturity Date (1)
(2)
3.48%
December 2026
October 2027
LIBOR + 1.75% (3)
August 2018
(4)
November 2020
3 Mo LIBOR +
1.60% (5)
LIBOR + 1.40% (6)
November 2020
March 2024
LIBOR + 1.75% (7)
December 2021
LIBOR + 1.25% (8)
February 2019
LIBOR + 2.00% (9)
April 2017
LIBOR + 1.40%
LIBOR + 1.35% (10)
April 2016
February 2019
LIBOR + 1.60%
December 2018
LIBOR + 1.70% (11)
October 2016
4.37%
LIBOR + 1.45%
3.60%
August 2023
March 2017
January 2023
1,000
331
442 (4)
52
12
175
1,100
320
65
475
150
225
85
1,100
225
(1) Excludes any options to extend the maturities (see the footnotes to our financial statements regarding extension options).
(2) The facility is denominated in Chinese Yuan Renminbi (RMB) and has a total availability of up to 834 million RMB. The amount shown is the U.S. dollar equivalent using the
December 31, 2015 exchange rate. The facility bears interest at 130% of the RMB People's Bank of China base lending rate for a loan term greater than five years, which resets
annually.
(3) The interest rate may decrease to LIBOR plus 1.60% upon achieving certain performance measures.
(4) The facility is denominated in Korean Won (KRW) and has a total availability of up to 520 billion KRW. The amount shown is the U.S. dollar equivalent using the December 31,
2015 exchange rate. The facility bears interest at the Korea Development Bank Five-Year Bond Yield plus 1.06% and is fixed upon each draw.
(5) The LIBOR rate plus spread have been swapped until two months prior to maturity to a fixed rate of 3.12%.
(6) The loan has been swapped to an effective rate of 3.49% until maturity.
(7) The loan has been swapped to an effective rate of 3.58% until maturity.
(8) The facility includes an accordion feature that would increase the borrowing capacity to as much as $1.5 billion, if fully exercised, subject to obtaining additional lender commitments,
customary closing conditions, and covenant compliance for the unencumbered asset pool. As of December 31, 2015, we could not fully utilize the accordion feature unless additional
assets were added to our unencumbered asset pool. The loan bears interest at a range of LIBOR plus 1.15% to LIBOR plus 1.70% based on our total leverage ratio.
(9) The interest rate may decrease to LIBOR plus 1.75% upon achieving certain performance measures.
(10) The $475 million unsecured term loan includes an accordion feature that would increase the borrowing capacity up to $600 million, if fully exercised, subject to obtaining additional
lender commitments, customary closing conditions, and covenant compliance for the unencumbered asset pool. As of December 31, 2015, we could not fully utilize the accordion
feature unless additional assets were added to our unencumbered asset pool. The loan bears interest at a range of LIBOR plus 1.35% to LIBOR plus 1.90% based on our total
leverage ratio. The LIBOR interest rate is swapped to 1.65% until maturity.
(11) The interest rate decreases to LIBOR + 1.60% upon the achievement of certain performance measures.
In October 2015, we paid off the $15.6 million, 4.42% fixed rate loan on El Paseo Village, which was scheduled to mature in
December 2015.
In October 2014, as part of the sale of centers to Starwood, we prepaid or defeased our then outstanding loans on the centers
sold (see "Sale of Centers to Starwood" above).
As a result of the sale of 49.9% of our interests in the entity that owns International Plaza in January 2014, we were relieved of
$162 million of our beneficial interest in debt. In January 2014, we used funds from the sale of a total of 49.9% of our interests
in the entity that owns International Plaza to pay down the $99.5 million loan on Stony Point Fashion Park.
In January 2014, we were relieved of our $84 million share of the $167 million mortgage loan outstanding on Arizona Mills at
the time of the sale. Also, in November 2013, we used proceeds from the unsecured term loan to pay off the $305 million mortgage
payable on Beverly Center.
42
Interest Expense
Interest expense is impacted by the capitalization of interest on the costs of our U.S. and Asia development projects. We capitalize
interest on our consolidated project costs and our equity contributions to Unconsolidated Joint Ventures under development using
our average consolidated borrowing rate, which does not reflect the specific source of funds for the costs and is generally greater
than our incremental borrowing rate. Any excess of the capitalization rate over our incremental borrowing rate positively impacts
our results of operations during the construction phase of our development projects. This positive impact will affect our results
until the overall level of construction spending decreases. In 2016, we expect a significant increase in interest expense primarily
due to the opening of four ground-up development projects. As these projects open, interest capitalization will end and we will
begin recognizing interest expense.
Other Equity Transactions
In August 2013, our Board of Directors authorized a share repurchase program under which we may repurchase up to $200
million of our outstanding common stock. In March 2015, our Board of Directors increased the authorization by $250 million,
bringing the total authorization to $450 million. We plan to repurchase shares from time to time on the open market or in privately
negotiated transactions or otherwise, depending on market prices and other conditions. Repurchases of common stock are financed
with general corporate funds, including borrowings under our existing revolving lines of credit. As of December 31, 2015, we
cumulatively repurchased 4,247,867 shares of our common stock at an average price of $71.79 per share, for a total of $304.9
million under the authorization. All shares repurchased have been cancelled. For each share of our stock repurchased, one of our
Operating Partnership units was redeemed. As of December 31, 2015, $145.1 million remained available under the repurchase
program.
In March 2013, we issued 6,800,000 shares or $170 million of 6.25% Series K Preferred Stock. Offering costs of $5.6 million
were incurred in connection with this issuance. Net proceeds after offering costs of $164.4 million were used to reduce outstanding
borrowings under our revolving lines of credit.
43
Comparison of the Year Ended December 31, 2015 to the Year Ended December 31, 2014
The following is a comparison of our results for the years ended December 31, 2015 and 2014 as disclosed in our Consolidated
Statement of Operations and Comprehensive Income.
Total revenues for the year ended December 31, 2015 were $557.2 million, a $122.0 million or 18.0% decrease from 2014.
Minimum rents, percentage rents, expense recoveries, and other income all decreased primarily due to the October 2014 Starwood
sale and the reclassification of International Plaza into an Unconsolidated Joint Venture.
In addition to the transactions noted in the paragraph above, the following also impacted total revenues:
•
•
•
the decrease in minimum rents was partially offset by an increase in average rent per square foot and occupancy as well
as the opening of The Mall of San Juan in March 2015;
the decrease in expense recoveries was partially offset by the opening of The Mall of San Juan; and
the decrease in other income was further attributable to a decrease in lease cancellation income, partially offset by the
opening of The Mall of San Juan.
Total expenses for the year ended December 31, 2015 were $424.3 million, a $100.2 million or 19.1% decrease from 2014.
Maintenance, taxes, utilities, and promotion expense, other operating expense, interest expense, and depreciation and amortization
expense all decreased primarily due to the Starwood sale and the reclassification of International Plaza into an Unconsolidated
Joint Venture, partially offset by the opening of The Mall of San Juan.
In addition to the transactions noted in the paragraph above, the following also impacted total expenses:
•
•
•
•
the decrease in other operating expense was partially offset by a charge in the fourth quarter of 2015 for a center legal
matter;
the decrease in general and administrative expense was primarily due to the reversal of share-based compensation expense
related to the announcement in 2015 of a transition in executive management;
the restructuring charge incurred in 2014 was related to a reduction in our workforce as a result of the sale of centers to
Starwood; and
the decrease in interest expense was partially offset by our refinancing of The Mall at Short Hills with an increased loan
balance and reduced interest capitalization on our development projects.
Nonoperating income (expense) in 2014 primarily consisted of expenses due to the early extinguishment of debt related to the
Starwood sale, discontinuation of hedge accounting on the interest rate swap previously designated to hedge the MacArthur note
payable, and disposition costs incurred related to the Starwood sale. In addition, nonoperating income (expense) in both periods
included interest and dividend income.
Equity in Income of the Unconsolidated Joint Ventures decreased by $5.8 million to $56.2 million from 2014. The decrease was
primarily attributable to an impairment charge recognized in the fourth quarter of 2015 for the write-off of previously capitalized
costs related to the pre-development of Miami Worldcenter, partially offset by the opening of The Mall at University Town Center
in October 2014.
In 2014, we recognized a $629.7 million gain on the disposition of the sale centers to Starwood. Also in 2014, we recognized
a $476.9 million gain, net of tax, on the dispositions of a total of 49.9% of our interest in the entity that owns International Plaza
as well as our investments in Arizona Mills and the Oyster Bay land. During 2015, an adjustment to the tax on the gain on the
disposition of interests in International Plaza was recognized, reducing the amount of the tax by $0.4 million.
In 2015, the consolidated non-comparable centers contributed total operating revenues of $12.1 million, and incurred operating
expenses, excluding interest expense and depreciation and amortization of $11.1 million. In 2014, the consolidated non-comparable
centers contributed total operating revenues of $133.1 million, and incurred operating expenses, excluding interest expense and
depreciation and amortization, of $64.1 million.
44
Net Income
Net income was $192.6 million for the year ended December 31, 2015 compared to $1.3 billion for the year ended December
31, 2014. After allocation of income to noncontrolling, preferred, and participating interests, the net income attributable to Taubman
Centers, Inc. common shareowners for the year ended December 31, 2015 was $109.0 million compared to $863.9 million in
2014.
FFO and FFO per Common Share
Our FFO attributable to partnership unitholders and participating securities of TRG was $291.9 million for the year ended
December 31, 2015 compared to $280.5 million for the year ended December 31, 2014. FFO per diluted common share was $3.31
for the year ended December 31 2015 and $3.11 per common share for the year ended December 31, 2014. Adjusted FFO attributable
to partnership unitholders and participating securities of TRG for the year ended December 31, 2015, which excluded an impairment
charge recognized for the write-off of previously capitalized costs related to the pre-development of Miami Worldcenter and the
reversal of certain executive share-based compensation expense, was $301.6 million. Adjusted FFO attributable to partnership
unitholders and participating securities of TRG for the year ended December 31, 2014, which excluded charges related to the
Starwood sale, including a loss on the early extinguishment of debt, the discontinuation of hedge accounting on the MacArthur
interest rate swap, a restructuring charge, and disposition costs, was $330.8 million. See “Non-GAAP Measures - Use of Non-
GAAP Measures” for the definition of FFO and “Non-GAAP Measures - Reconciliation of Non-GAAP Measures” for the
reconciliation of Net Income Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations and Adjusted
Funds from Operations.
Comparison of the Year Ended December 31, 2014 to the Year Ended December 31, 2013
The following is a comparison of our results for the years ended December 31, 2014 and 2013 as disclosed in our Consolidated
Statement of Operations and Comprehensive Income.
Total revenues for the year ended December 31, 2014 were $679.1 million, a $88.1 million or 11.5% decrease from 2013.
Minimum rents, percentage rents, and expense recoveries all decreased due to the reclassification of International Plaza into
Unconsolidated Joint Ventures and the Starwood sale.
In addition to the transactions noted in the paragraph above, the following also impacted total revenues:
•
•
•
the decrease in minimum rents was further attributable to a decrease in occupancy, partially offset by an increase in
average rent per square foot, and the full year's operations of Taubman Prestige Outlets Chesterfield, which opened in
August 2013;
the decrease in percentage rents was further attributable to decreases in tenant sales at various centers;
the decrease in expense recoveries was partially offset by the opening of Taubman Prestige Outlets Chesterfield and an
increase in recoveries for property taxes and other recoverable expenses; and
• Management, leasing, and development income decreased primarily due to an incentive fee in 2013 for our leasing of
IFC Mall in Seoul, South Korea, as well as decreases in reimbursable costs, partially offset by increases in fees for the
Studio City contract.
45
Total expenses for the year ended December 31, 2014 were $524.5 million, a $103.7 million or 16.5% decrease from 2013.
Maintenance, taxes, utilities, and promotion expense, other operating expense, interest expense, and depreciation and amortization
expense all decreased primarily due to the reclassification of International Plaza and the Starwood sale, partially offset by the
opening of Taubman Prestige Outlets Chesterfield in August 2013.
In addition to the transactions noted in the paragraph above, the following also impacted total expenses:
•
•
•
•
•
the decrease in maintenance, taxes, utilities, and promotion expense was partially offset by increased snow removal and
other maintenance costs at certain centers in 2014;
the decrease in other operating expense was further attributable to a reduction of pre-development expense, partially
offset by increased professional fees and an increase in bad debt expense;
the decrease in general and administrative expense was primarily due to reduced rental expense as a result of the acquisition
of our U.S. headquarters building, as well as reductions of certain Asia administrative expenses;
the restructuring charge incurred in 2014 was related to a reduction in our workforce as a result of the sale of centers to
Starwood; and
the decrease in interest expense was further attributable to the payoffs of our loans on Beverly Center and Stony Point
with lower cost debt, interest capitalization on U.S. development projects, and the refinancing of the loan at The Mall at
Green Hills.
Nonoperating income (expense) in 2014 primarily consisted of expenses due to the early extinguishment of debt related to the
Starwood sale, discontinuation of hedge accounting on the interest rate swap previously designated to hedge the MacArthur note
payable, and disposition costs related to the Starwood sale, offset by income from the distributions on the SPG partnership units
received as a result of the Arizona Mills/Oyster Bay sale. In 2013, nonoperating income included a gain on sale of marketable
securities and the gain on sale of peripheral land.
Equity in Income of the Unconsolidated Joint Ventures increased by $9.5 million to $62.0 million from 2013. The increase was
primarily attributable to the reclassification of International Plaza, an increase in rental revenue of the joint ventures, and the
opening of The Mall at University Town Center in October 2014, partially offset by the sale of Arizona Mills.
In 2014, we recognized a $629.7 million gain on the disposition of the sale of centers to Starwood. Also in 2014, we recognized
a $476.9 million gain on the dispositions of a total of 49.9% of our interest in the entity that owns International Plaza as well as
our investments in Arizona Mills and the Oyster Bay land.
In 2014, consolidated non-comparable centers contributed total operating revenues of $136.8 million, and incurred operating
expenses, excluding interest expense and depreciation and amortization of $70.4 million. In 2013, consolidated non-comparable
centers contributed total operating revenues of $173.7 million, and incurred operating expenses, excluding interest expense and
depreciation and amortization, of $82.2 million.
Net Income
Net income was $1.3 billion for the year ended December 31, 2014 compared to $189.4 million for the year ended December
31, 2013. After allocation of income to noncontrolling, preferred, and participating interests, the net income attributable to Taubman
Centers, Inc. common shareowners for the year ended December 31, 2015 was $863.9 million compared to $109.9 million in the
comparable period in 2013.
FFO and FFO per Common Share
Our FFO attributable to partnership unitholders and participating securities of TRG was $280.5 million for 2014 compared to
$330.8 million for the year ended December 31, 2013. FFO per diluted common share was $3.11 for the year ended December
31, 2014 and $3.65 per common share for the year ended December 31, 2013. Adjusted FFO attributable to partnership unitholders
and participating securities of TRG for the year ended December 31, 2014, which excluded charges related to the Starwood sale,
including a loss on early extinguishment of debt, the discontinuation of hedge accounting on the MacArthur interest rate swap, a
restructuring charge, and disposition costs, was $330.8 million. FFO was not adjusted for the year ended December 31, 2013. See
“Non-GAAP Measures” for the definition of FFO and the reconciliation of Net Income Attributable to Taubman Centers, Inc.
Common Shareowners to Funds from Operations and Adjusted Funds from Operations.
46
Liquidity and Capital Resources
General
Our internally generated funds and distributions from operating centers and other investing activities, augmented by use of our
existing revolving lines of credit, provide resources to maintain our current operations and assets, pay dividends, and fund a portion
of our major capital investments. Generally, our need to access the capital markets is limited to refinancing debt obligations at or
near maturity and, in certain cases, funding major capital investments. From time to time, we also may access the equity markets
or sell interests in operating properties to raise additional funds or refinance existing obligations on a strategic basis, including
using excess proceeds therefrom.
Property Encumbrances
We are primarily financed with property-specific secured debt and currently have five unencumbered center properties. The
entities that own Beverly Center, Dolphin Mall, and Twelve Oaks Mall are guarantors under our unsecured primary revolving
credit facility and unsecured term loan and are unencumbered assets under such facility and term loan. Under the related debt
agreements, we are required to have a minimum of three eligible unencumbered assets with a minimum unencumbered asset value.
Therefore, while any of the assets may be removed from the unencumbered asset pool and encumbered upon notice to lender,
provided that there is no default and the required covenant calculations are met on a pro forma basis, a replacement eligible
unencumbered asset would need to be added to the unencumbered asset pool. Besides the three centers previously noted, Taubman
Prestige Outlets Chesterfield and Stamford Town Center, a 50% owned Unconsolidated Joint Venture property, are unencumbered.
Cash and Revolving Lines of Credit
As of December 31, 2015, we had a consolidated cash balance of $206.6 million. In September 2015, we received excess cash
proceeds related to the refinancing of The Mall at Short Hills (see "Results of Operations - Debt Transactions"). We also have an
unsecured revolving line of credit of $1.1 billion and a secured revolving line of credit of $65 million. The availability under these
facilities as of December 31, 2015, after considering the outstanding letters of credit, was $1.159 billion. Seventeen banks participate
in our $1.1 billion revolving line of credit and the failure of one bank to fund a draw on our line does not negate the obligation of
the other banks to fund their pro-rata shares. The unsecured line includes an accordion feature that would increase the borrowing
capacity to as much as $1.5 billion if fully exercised, subject to obtaining additional lender commitments, customary closing
conditions, and covenant compliance for the unencumbered asset pool. As of December 31, 2015, we could not fully utilize the
accordion feature unless additional assets were added to our unencumbered asset pool. The $1.1 billion revolving line of credit
matures in February 2019, with a one-year extension option. The facility bears interest at a range based on our total leverage ratio.
As of December 31, 2015, the leverage ratio resulted in a rate of LIBOR plus 1.25%.
Our mortgages on Cherry Creek Shopping Center, Waterside Shops, and The Gardens on El Paseo are all maturing at various
dates in 2016. We currently expect to refinance the Cherry Creek Shopping Center loan during the second quarter of 2016 with
our share of excess proceeds to be over $100 million. Also in the second quarter of 2016, we plan on refinancing the mortgage on
Waterside Shops for the same amount as the December 31, 2015 loan balance of $165 million. In addition, we expect to pay off
our $82 million loan on The Gardens on El Paseo during the second quarter of 2016. Also in 2016, we expect to utilize at least the
initial one-year extension option to extend the construction facility on The Mall at University Town Center, which is currently
scheduled to mature in October 2016.
Construction Financings
In addition to the revolving lines of credit described above, we have construction facilities outstanding for several centers recently
opened or under construction, as described in the following paragraphs.
We have a $225 million construction facility for The Mall at University Town Center, an Unconsolidated Joint Venture. As of
December 31, 2015, $4.3 million was available under the construction facility. The construction facility is interest-only during the
initial three-year term at LIBOR plus 1.70%, which decreases to LIBOR plus 1.60% upon the achievement of certain performance
measures. The facility matures in October 2016 and has four, one-year extension options. During the extension period, debt service
payments also include principal payments based on an assumed interest rate of 6.0% and a 30-year amortization. No draws on the
facility are permitted after the first extension maturity date.
47
We have a $320 million construction facility for The Mall of San Juan, a consolidated joint venture. As of December 31, 2015,
$61.8 million was available under the construction facility. The facility, which matures in April 2017 and has two, one-year
extension options, is interest-only for the entire term and bears interest at LIBOR plus 2.00%, which may decrease to LIBOR plus
1.75% upon achieving certain performance measures. No draws on the facility are permitted after the first extension maturity date.
We have a $330.9 million construction facility for International Market Place, a consolidated joint venture. As of December 31,
2015, $238.7 million was available under the construction facility. The facility, which matures in August 2018, has two, one-year
extension options, and bears interest at LIBOR plus 1.75%, which may be reduced to LIBOR plus 1.60% upon the achievement
of certain performance measures. The loan is interest-only during the initial three-year term and no draws on the loan are permitted
after the original maturity date. During the extension period, debt service payments also include principal payments based on an
assumed interest rate of 6.0% and a 30-year amortization.
Our joint venture has closed on a non-recourse construction facility for Hanam Union Square. We have an effective 34.3%
interest in the Unconsolidated Joint Venture. The financing consists of a five-year, 520 billion KRW denominated construction
facility (approximately $442 million U.S. dollars using the December 31, 2015 exchange rate) and a five-year U.S. dollar financing
of $52.1 million. The U.S. dollar denominated portion of the financing is secured by an approximately $53 million standby letter
of credit, which was drawn from the KRW denominated portion of the construction facility, thereby reducing the availability under
the KRW denominated construction facility to approximately $389 million U.S. dollars as of December 31, 2015, before considering
the amount drawn on the facility. The KRW denominated portion of the financing bears interest at the Korea Development Bank
Five-Year Bond Yield plus 1.06% and is fixed upon each draw. Using bond yields as of December 31, 2015, the rate would be
approximately 3.19%. The U.S. dollar denominated floating rate facility bears interest at three-month LIBOR plus 1.60%. A cross-
currency interest rate swap was executed to fix the interest rate on the U.S. dollar portion of the financing and swap the U.S. dollar
denomination from U.S. dollars to KRW. As a result of the swap, the effective interest rate of the U.S. dollar portion of the financing
is 3.12%. As of December 31, 2015, the U.S. dollar denominated portion of the financing was fully drawn, while $0.9 million
U.S. dollars (using the December 31, 2015 exchange rate) were drawn on the KRW denominated portion of the facility, bringing
the total remaining availability of the facility to approximately $388 million U.S. dollars.
Our joint venture that owns CityOn.Zhengzhou has a construction facility on which we can borrow up to 834 million Chinese
Yuan Renminbi (RMB) (approximately $129 million U.S. dollars using the December 31, 2015 exchange rate). We have an effective
32% interest in the Unconsolidated Joint Venture. The 11-year financing bears interest at 130% of the RMB People's Bank of
China base lending rate for a loan term greater than five years, which resets annually. Using the base lending rate as of December 31,
2015, the rate would be approximately 6.37%. As of December 31, 2015, approximately $84 million U.S. dollars were available
under the construction facility using the December 31, 2015 exchange rate.
As a foreign investor, we are subject to various government approval processes and other hurdles in funding the construction
of our Chinese projects. These hurdles have required our Xi'an and Zhengzhou ventures to obtain short-term financing, in the form
of loans from our joint venture partner or fully cash collateralized bank loans, to meet certain construction funding commitments
in local currency. As of December 31, 2015, our share of such loans was approximately $60 million.
Refer to "Note 8 - Notes Payable" to our consolidated financial statements for further details of our construction financings and
related guarantees.
Term Loan
Our $475 million unsecured term loan matures in February 2019. The loan includes an accordion feature that increases the
borrowing capacity to as much as $600 million if fully exercised, subject to obtaining additional lender commitments, customary
closing conditions, and covenant compliance for the unencumbered asset pool. As of December 31, 2015, we could not fully utilize
the accordion feature unless additional assets were added to our unencumbered asset pool. As of December 31, 2015, the loan
leverage ratio resulted in a rate of LIBOR plus 1.35%.
Acquisition
In January 2016, a joint venture we formed with The Macerich Company announced an agreement to acquire Country Club
Plaza, a mixed-use retail and office property in Kansas City, Missouri, from Highwood Properties for $660 million ($330 million
at TRG’s beneficial share) in cash, excluding transaction costs. We expect the transaction to close in March 2016. Concurrent with
or shortly after closing, a long-term, fixed-rate loan for approximately 50% of the purchase price is expected to be placed on the
asset.
48
Dispositions
In October 2014, we disposed of a portfolio of seven centers to Starwood (see "Results of Operations - Dispositions - Sale of
Centers to Starwood"). As a result of the Starwood sale, we used the excess proceeds from the sale to pay down borrowings on
our primary revolving line of credit and pay a special dividend of $4.75 per common share (see "Dividends" below). The remaining
net proceeds were included in Cash and Cash Equivalents on our Consolidated Balance Sheet as of December 31, 2014.
Share Repurchase Program
In August 2013, our Board of Directors authorized a share repurchase program under which we may repurchase up to $200
million of our outstanding common stock. In March 2015, our Board of Directors increased the authorization by $250 million,
bringing the total authorization to $450 million. We plan to repurchase shares from time to time on the open market or in privately
negotiated transactions or otherwise, depending on market prices and other conditions. Repurchases of common stock are financed
with general corporate funds, including borrowings under our existing revolving lines of credit. As of December 31, 2015, $145.1
million remained available under the repurchase program. See "Results of Operations - Other Equity Transactions" for more
information on our share repurchase program.
Summaries of 2015 Capital, Debt, and Equity Activities and Transactions
See "Results of Operations - Debt Transactions" for a summary of debt financings in 2015. Also see our Consolidated Statement
of Cash Flows for additional capital, debt, and equity transactions.
Operating Activities
Our net cash provided by operating activities was $307.7 million in 2015, compared to $363.7 million in 2014, and $371.4
million in 2013. See “Results of Operations” for descriptions of 2015, 2014, and 2013 transactions affecting operating cash flow.
Investing Activities
Net cash used in investing activities was $505.1 million in 2015, compared to $1.3 billion provided by investing activities in
2014, and $371.4 million used in investing activities in 2013. Additions to properties in 2015, 2014, and 2013 related primarily
to the costs of new centers under development as well as capital and tenant improvements at existing centers. In 2014, additions
also included the acquisition of our headquarters building. A tabular presentation of 2015 and 2014 capital spending is shown in
“Capital Spending.” In 2015, $28.9 million of escrowed cash was used to fund a redevelopment project. Cash placed in escrow
to fund certain construction projects was $70.6 million in 2014. Proceeds from the Starwood and January 2014 dispositions, net
of transaction costs, were $1.8 billion in 2014.
Contributions to Unconsolidated Joint Ventures in 2015, 2014, and 2013 of $97.3 million, $46.0 million, and $108.9 million
respectively, primarily related to the funding of Taubman Asia project costs. Contributions to Unconsolidated Joint Ventures in
2013 also consisted of funding related to the development of The Mall at University Town Center. Distributions in excess of income
from Unconsolidated Joint Ventures were $5.8 million in 2015 and $68.4 million in 2014.
Financing Activities
Net cash provided by financing activities was $127.6 million in 2015 compared to $1.4 billion used in financing activities in
2014 (with significant uses of cash in 2014 related to the Starwood transaction, as further described in the following paragraphs)
and $9.0 million provided by financing activities in 2013. Proceeds from the issuance of debt, net of payments and issuance costs
in 2015 and 2013 were $607.1 million and $102.9 million, respectively. In 2014, $658.1 million was paid to extinguish debt in
connection with the Starwood transaction. Other payments of debt and issuance costs, net of proceeds from the issuance of debt
were $109.3 million in 2014.
In 2015 and 2013, $252.6 million and $52.3 million, respectively, were paid to repurchase common stock. An immaterial amount
of common stock was repurchased in 2014. In 2015, $4.5 million was received in connection with incentive plans compared to
$0.9 million and $1.6 million paid in 2014 and 2013, respectively. In 2013, net proceeds of $164.4 million, after offering costs,
were received from the issuance of the Series K Preferred Stock.
49
Total dividends and distributions paid were $231.4 million, $674.8 million, and $208.0 million in 2015, 2014, and 2013,
respectively. Included in 2014 dividends and distributions was a special dividend of $4.75 per common share and a corresponding
distribution to partnership unitholders (see "Dividends" below). Contributions from noncontrolling interests were $22.3 million
in 2014 and $4.7 million in 2013. Contributions from noncontrolling interests of $22.3 million were used in 2014 for funding an
escrow required for a redevelopment project at Cherry Creek Shopping Center.
Beneficial Interest in Debt
At December 31, 2015, the Operating Partnership's debt and its beneficial interest in the debt of its Consolidated Businesses
and Unconsolidated Joint Ventures totaled $3,606.5 million, with an average interest rate of 3.54% excluding amortization of debt
issuance costs and interest rate hedging costs. These costs are reported as interest expense in the results of operations. Interest
expense includes non-cash amortization of premiums relating to acquisitions. On an annualized basis, this amortization of
acquisition premiums is equal to 0.06% of the average all-in rate. Beneficial interest in debt includes debt used to fund development
and expansion costs. Beneficial interest in construction work in progress totaled $720.5 million as of December 31, 2015, which
includes $704.9 million of assets on which interest is being capitalized. The following table presents information about our beneficial
interest in debt as of December 31, 2015:
Fixed rate debt
Floating rate debt swapped to fixed rate:
Swap maturing in April 2018
Swap maturing in February 2019
Swap maturing in September 2020
Swap maturing in December 2021
Swap maturing in March 2024
Floating month to month
Total floating rate debt
Total beneficial interest in debt
Amortization of financing costs (3)
Average all-in rate
Amount
(in millions)
2,274.6
$
Interest Rate
Including
Spread
3.99% (1) (2)
134.7
475.0
17.9
86.3
12.0
725.8
606.1
1,331.9
3,606.5
$
$
$
4.10%
3.00%
3.12%
3.58%
3.49%
3.28% (1)
2.19% (1)
2.78% (1)
3.54% (1)
0.29%
3.83%
Includes non-cash amortization of premiums related to acquisitions.
(1) Represents weighted average interest rate before amortization of financing costs.
(2)
(3) Financing costs include debt issuance costs and costs related to interest rate agreements of certain fixed rate debt.
(4) Amounts in table may not add due to rounding.
Sensitivity Analysis
We have exposure to interest rate risk on our debt obligations and interest rate instruments. We use derivative instruments
primarily to manage exposure to interest rate risks inherent in variable rate debt and refinancings. We routinely use cap, swap, and
treasury lock agreements to meet these objectives. Based on the Operating Partnership's beneficial interest in floating rate debt in
effect at December 31, 2015, a one percent increase in interest rates on this floating rate debt would decrease cash flows by
approximately $6.1 million, and due to the effect of capitalized interest, decrease annual earnings by approximately $3.9 million.
A one percent decrease in interest rates (or to zero percent for LIBOR rates that are below one percent) would increase cash flows
by approximately $1.8 million, and due to the effect of capitalized interest, increase annual earnings by approximately $1.2 million.
Based on our consolidated debt and interest rates in effect at December 31, 2015, a one percent increase in interest rates would
decrease the fair value of debt by approximately $106.1 million, while a one percent decrease in interest rates would increase the
fair value of debt by approximately $117.6 million.
50
Contractual Obligations
In conducting our business, we enter into various contractual obligations, including those for debt, operating leases for land and
office space, purchase obligations (primarily for construction), and other long-term commitments. Detail of these obligations as
of December 31, 2015 for our consolidated businesses, including expected settlement periods, is contained below:
Debt (1)
Interest payments (1)
Operating leases
Purchase obligations:
Planned capital spending (2)
Other purchase obligations (3)
Other long-term liabilities and
commitments (4)
Total
Payments due by period
Total
Less than 1
year (2016)
1-3 years
(2017-2018)
(in millions)
3-5 years
(2019-2020)
More than 5
years (2021+)
$
2,643.5
$
367.5
$
513.3
$
488.9
$
1,273.8
577.1
809.2
437.3
3.9
84.7
11.7
437.3
2.5
136.9
26.5
1.4
94.1
24.8
261.5
746.2
51.4
4,522.4
$
$
2.9
906.7
$
10.0
688.0
$
12.0
619.7
$
26.5
2,308.0
(1) The settlement periods for debt do not consider extension options. Amounts relating to interest on floating rate debt are calculated based on the debt balances
and interest rates as of December 31, 2015. Debt excludes $0.4 million in unamortized debt premiums related to the acquisitions of The Gardens on El Paseo.
(2) This disclosure includes planned capital spending related to our consolidated businesses only. We have investments in Unconsolidated Joint Ventures through
which material construction activities will be occurring. Refer to "Capital Spending - New Developments" for discussion of those projects.
(3) Excludes purchase agreements with cancellation provisions of 90 days or less.
(4) Other long-term liabilities consist of various accrued liabilities, most significantly assessment bond obligations and long-term incentive compensation, as
well as energy contracts at certain centers.
(5) Amounts in this table may not add due to rounding.
Loan Commitments and Guarantees
Certain loan agreements contain various restrictive covenants, including the following corporate covenants on our unsecured
primary revolving line of credit, unsecured term loan, and the construction facilities on The Mall at University Town Center, The
Mall of San Juan, and International Market Place: a minimum net worth requirement, a maximum total leverage ratio, a maximum
secured leverage ratio, a minimum fixed charge coverage ratio, a maximum recourse secured debt ratio, and a maximum payout
ratio. In addition, our primary revolving line of credit and term loan have unencumbered pool covenants, which currently apply
to Beverly Center, Dolphin Mall, and Twelve Oaks Mall on a combined basis. These covenants include a minimum number and
minimum value of eligible unencumbered assets, a maximum unencumbered leverage ratio, a minimum unencumbered interest
coverage ratio and a minimum unencumbered asset occupancy ratio. As of December 31, 2015, the corporate total leverage ratio
was the most restrictive covenant. We are in compliance with all of our loan covenants and obligations as of December 31, 2015.
The maximum payout ratio covenant limits the payment of distributions generally to 95% of funds from operations, as defined in
the loan agreements, except as required to maintain our tax status, pay preferred distributions, and for distributions related to the
sale of certain assets. See "Note 8 - Notes Payable - Debt Covenants and Guarantees" to our consolidated financial statements for
more details on loan guarantees.
Cash Tender Agreement
The A. Alfred Taubman Restated Revocable Trust and Taubman Ventures Group LLC have the right to tender partnership units
in the Operating Partnership and cause us to purchase the tendered interests at a purchase price based on a market valuation of
TCO on the trading date immediately preceding the date of the tender. See “Note 15 – Commitments and Contingencies – Cash
Tender” to our consolidated financial statements for more details.
51
Capital Spending
Acquisition
In January 2016, a joint venture we formed with The Macerich Company announced an agreement to acquire Country Club
Plaza, a mixed-use retail and office property in Kansas City, Missouri from Highwood Properties for $660 million ($330 million
at TRG’s beneficial share) in cash, excluding transaction costs. We expect the transaction to close in March 2016. Concurrent with
or shortly after closing, a long-term, fixed-rate loan for approximately 50% of the purchase price is expected to be placed on the
asset. See "Results of Operations - Acquisition - Country Club Plaza" for additional information regarding the acquisition.
New Developments
In March 2015, The Mall of San Juan opened in San Juan, Puerto Rico. The 0.6 million square foot of retail is anchored by the
Caribbean's first Nordstrom and Saks Fifth Avenue. Capital spending at the center continued subsequent to opening as construction
continues on tenant spaces that opened throughout 2015. In April 2015, we acquired an additional 15% interest in The Mall of
San Juan, bringing our ownership in the center to 95%. The additional interest was acquired at cost.
International Market Place, a 0.4 million square foot center, in Waikiki, Honolulu, Hawaii, is under construction. We are
responsible for management, leasing, and development of the center. The center will be anchored by the only full-line Saks Fifth
Avenue in Hawaii, and is scheduled to open in August 2016. We have a 93.5% interest in the project and are funding all construction
costs. We had capitalized costs of $282.5 million in the project as of December 31, 2015. We are expecting an after-tax unlevered
stabilized return of 7% on our share of the approximately $465 million total project cost. This project is subject to a participating
ground lease. The remaining spending on the project is expected to be funded using our $330.9 million construction facility (see
"Liquidity and Capital Resources - Construction Financings" above).
Our joint venture with Wangfujing will own a 60% controlling interest in and manage a shopping center, CityOn.Xi'an, to be
located at Xi'an Saigao City Plaza, a large-scale mixed-use development in Xi'an, China. It is scheduled to open in April 2016 and
is part of a 5.9 million square foot mixed-use project. We are investing in the retail portion only, which will be about 1.0 million
square feet with over half of that in mall specialty stores. As of December 31, 2015, our share of total project costs was $107.3
million, as decreased by $3.3 million for the change in exchange rates. Our total anticipated investment, including capitalized
interest, will be approximately $115 million for a 30% equity interest. We are expecting a 6% to 6.5% unlevered return at
stabilization.
Our second joint venture with Wangfujing owns a majority interest in and will manage a shopping center to be located in
Zhengzhou, China. Currently under construction, the approximately 1.0 million square foot shopping mall, CityOn.Zhengzhou,
is scheduled to open in fall 2016. As of December 31, 2015, our share of total project costs was $72.3 million, as decreased by
$2.5 million for the change in exchange rates. Our total anticipated investment, including capitalized interest, will be approximately
$115 million for a 32% equity interest. We are expecting a 6% to 6.5% unlevered return at stabilization. Remaining spending on
the project may be funded using the joint venture's construction facility (see "Liquidity and Capital Resources - Construction
Financings" above).
Our joint venture with Shinsegae is developing an approximately 1.7 million square foot shopping center, Hanam Union Square,
in Hanam, Gyeonggi Province, South Korea. The center is scheduled to open in early fall 2016. We have partnered with a major
institution in Asia for a 49% ownership interest in Hanam Union Square. The institutional partner owns 14.7% of the project,
bringing our effective ownership to 34.3%. As of December 31, 2015, our share of total project costs was $207.2 million, as
decreased by $12.5 million for the change in exchange rates. Our total anticipated investment, including capitalized interest, will
be about $380 million for our effective 34.3% equity interest in the retail portion of the project. We are expecting a 7% to 7.5%
unlevered return at stabilization. Remaining spending on the project may be funded using the joint venture's construction facility
(see "Liquidity and Capital Resources - Construction Financings" above).
Estimates of total project costs through completion in Asia exclude fluctuations in foreign currency exchange rates.
Internally generated funds and excess proceeds from refinancings of maturing debt obligations, as well as borrowings under our
revolving lines of credit would be sufficient to finance the anticipated remaining costs of these projects, but we also expect additional
construction loan financings (see "Liquidity and Capital Resources - Construction Financings" above).
52
2015 and 2014 Capital Spending
Capital spending for routine maintenance of the shopping centers is generally recovered from tenants. Capital spending during
2015 is summarized in the following table:
2015 (1)
Consolidated
Businesses
Beneficial
Interest in
Consolidated
Businesses
Unconsolidated
Joint Ventures
Beneficial
Interest in
Unconsolidated
Joint Ventures
$
320.0
$
302.0
$
9.8
$
(in millions)
New development projects - U.S. (2)
New development projects - Asia (3) (4)
Existing centers:
Projects with incremental GLA or anchor replacement
Projects with no incremental GLA and other
Mall tenant allowances
Asset replacement costs recoverable from tenants
Corporate office improvements, technology,
equipment, and other
65.1
52.3
10.2
17.3
3.1
50.0
51.8
9.6
15.8
3.1
156.1
29.3
3.7
11.5
6.5
7.5
156.1
14.7
2.0
6.0
3.3
Total
$
467.9
$
432.4
$
216.9
$
189.7
(1) Costs are net of intercompany profits and are computed on an accrual basis.
(2)
(3)
Includes costs related to The Mall of San Juan, International Market Place, and The Mall at University Town Center.
Includes costs related to CityOn.Xi'an, CityOn.Zhengzhou, and Hanam Union Square. Asia spending is included at our beneficial interest in both the
Unconsolidated Joint Ventures and Beneficial Interest in Unconsolidated Joint Ventures columns.
(4) Asia balances exclude $17.8 million in net reductions of total project costs due to changes in exchange rates during the period.
(5) Amounts in this table may not add due to rounding.
The following table presents a reconciliation of the Consolidated Businesses’ capital spending shown above (on an accrual basis)
to additions to properties (on a cash basis) as presented in our Consolidated Statement of Cash Flows for the year ended December 31,
2015:
Consolidated Businesses’ capital spending
Other differences between cash and accrual basis
Additions to properties
(in millions)
$
$
467.9
(27.2)
440.7
53
Capital spending during 2014 is summarized in the following table:
2014 (1)
Consolidated
Businesses
Beneficial
Interest in
Consolidated
Businesses
Unconsolidated
Joint Ventures
Beneficial
Interest in
Unconsolidated
Joint Ventures
New development projects - U.S. (2)
New development projects - Asia (3) (4)
Existing Centers:
Projects with incremental GLA or anchor
replacement
Projects with no incremental GLA and other
Mall tenant allowances
Asset replacement costs recoverable from tenants
Corporate office building and improvements,
technology, equipment, and other (5)
$
320.8
$
271.4
$
(in millions)
46.8
21.6
9.9
29.1
22.6
38.9
21.5
9.9
27.7
22.6
$
144.9
62.6
8.8
3.7
7.3
31.1
76.1
62.6
4.4
1.8
3.9
18.3
Total
$
450.7
$
391.9
$
258.3
$
167.1
(1) Costs are net of intercompany profits and are computed on an accrual basis.
(2)
(3)
Includes costs related to The Mall of San Juan, International Market Place, and The Mall at University Town Center.
Includes costs related to CityOn.Xi'an, CityOn.Zhengzhou, and Hanam Union Square. Asia spending is included at our beneficial interest in both the
Unconsolidated Joint Ventures and Beneficial Interest in Unconsolidated Joint Ventures columns.
(4) Asia costs exclude $7.2 million in net reductions of total project costs due to changes in exchange rates during the period.
(5)
Includes acquisition of U.S. headquarters building.
(6) Amounts in this table may not add due to rounding.
Our share of mall tenant allowances per square foot leased, committed under contracts during the year, excluding new
developments and expansion space, was $16.93 in 2015 and $10.74 in 2014. In the past five years, average tenant allowances per
square foot have ranged from a low of $10.74 in 2014 and a high of $23.80 in 2011. Average tenant allowances per square foot
can vary significantly from year to year due to the type, size, and location of tenants signed. Our share of capitalized leasing and
tenant coordination costs excluding new developments was $6.7 million in 2015 and $7.6 million in 2014, or $6.85 and $6.24, in
2015 and 2014, respectively, per square foot leased.
54
Planned Capital Spending
The following table summarizes planned capital spending for 2016:
2016 (1)
Consolidated
Businesses
Beneficial
Interest in
Consolidated
Businesses
Unconsolidated
Joint Ventures
Beneficial
Interest in
Unconsolidated
Joint Ventures
$
241.6
$
228.2
(in millions)
$
264.5
$
264.5
New development projects - U.S. (2)
New development projects - Asia (3) (4)
Existing centers:
Projects with incremental GLA or anchor replacement
Projects with no incremental GLA and other (5)
Mall tenant allowances
Asset replacement costs recoverable from tenants
Corporate office improvements, technology,
equipment, and other
52.9
99.0
11.2
15.3
17.4
52.9
99.0
9.4
14.7
17.4
0.4
4.8
14.2
0.2
2.7
7.7
Total
$
437.3
$
421.5
$
283.9
$
275.1
(1) Costs are net of intercompany profits and are computed on an accrual basis.
(2)
(3)
Includes costs related to The Mall of San Juan and International Market Place.
Includes costs related to CityOn.Xi'an, CityOn.Zhengzhou, and Hanam Union Square. Asia spending is included at our beneficial interest in both the
Unconsolidated Joint Ventures and Beneficial Interest in Unconsolidated Joint Ventures columns.
(4) Asia costs exclude currency translation adjustments.
(5)
(6) Amounts in this table may not add due to rounding.
Includes costs related to the Beverly Center renovation.
We have an ongoing redevelopment project at The Mall at Green Hills that will add approximately 170,000 square feet of
incremental GLA that we expect to be completed in 2019. The project will cost approximately $200 million, and we expect a
weighted average return of 6.5% to 7.5%. As of December 31, 2015, we had capitalized costs of $39.1 million related to this
redevelopment project.
Disclosures regarding planned capital spending, including estimates regarding timing of openings, capital expenditures,
occupancy, and returns on new developments are forward-looking statements and certain significant factors could cause the actual
results to differ materially, including but not limited to (1) actual results of negotiations with anchors, tenants, and contractors,
(2) timing and outcome of litigation and entitlement processes, (3) changes in the scope, number, and valuation of projects, (4) cost
overruns, (5) timing of expenditures, (6) availability of and cost of financing and other financing considerations, (7) actual time
to start construction and complete projects, (8) changes in economic climate, (9) competition from others attracting tenants and
customers, (10) increases in operating costs, (11) timing of tenant openings, (12) early lease terminations and bankruptcies, and
(13) fluctuations in foreign currency exchange rates. In addition, estimates of capital spending will change as new projects are
approved by our Board of Directors.
55
Dividends
We pay regular quarterly dividends to our common and preferred shareowners. Dividends to our common shareowners are at
the discretion of the Board of Directors and depend on the cash available to us, our financial condition, capital and other requirements,
and such other factors as the Board of Directors deems relevant. To qualify as a REIT, we must distribute at least 90% of our REIT
taxable income prior to net capital gains to our shareowners, as well as meet certain other requirements. We must pay these
distributions in the taxable year the income is recognized, or in the following taxable year if they are declared during the last three
months of the taxable year, payable to shareowners of record on a specified date during such period and paid during January of
the following year. Such distributions are treated as paid by us and received by our shareowners on December 31 of the year in
which they are declared. In addition, at our election, a distribution for a taxable year may be declared in the following taxable year
if it is declared before we timely file our tax return for such year and if paid on or before the first regular dividend payment after
such declaration. These distributions qualify as dividends paid for the 90% REIT distribution test for the previous year and are
taxable to holders of our capital stock in the year in which paid. Preferred dividends accrue regardless of whether earnings, cash
availability, or contractual obligations were to prohibit the current payment of dividends.
The annual determination of our common dividends is based on anticipated Funds from Operations available after preferred
dividends and our REIT taxable income, as well as assessments of annual capital spending, financing considerations, and other
appropriate factors.
Any inability of the Operating Partnership or its Joint Ventures to secure financing as required to fund maturing debts, capital
expenditures and changes in working capital, including development activities and expansions, may require the utilization of cash
to satisfy such obligations, thereby possibly reducing distributions to partners of the Operating Partnership and funds available to
us for the payment of dividends.
On December 3, 2015, we declared a quarterly dividend of $0.565 per common share, $0.40625 per share on our 6.5% Series
J Preferred Stock, and $0.390625 per share on our 6.25% Series K Preferred Stock, all of which were paid on December 31, 2015
to shareowners of record on December 15, 2015.
As no synergistic assets for a Section 1031 exchange were identified for the centers sold in October 2014 (see "Results of
Operations - Dispositions - Sale of Centers to Starwood"), a special dividend of $4.75 per share was declared on December 2,
2014, which was paid on December 31, 2014 to shareowners of record on December 15, 2014. A corresponding distribution was
also made to Operating Partnership unitholders.
Application of Critical Accounting Policies and New Accounting Pronouncements
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the financial statements and disclosures. Some of these estimates and assumptions require application of difficult,
subjective, and/or complex judgment, often about the effect of matters that are inherently uncertain and that may change in
subsequent periods. We are required to make such estimates and assumptions when applying the following accounting policies.
Valuation of Shopping Centers
The viability of all projects under construction or development, including those owned by Unconsolidated Joint Ventures, are
regularly evaluated under applicable accounting requirements, including requirements relating to abandonment of assets or changes
in use. To the extent a project, or individual components of the project, are no longer considered to have value, the related capitalized
costs are charged against operations. Additionally, all properties are reviewed for impairment on an individual basis whenever
events or changes in circumstances indicate that their carrying value may not be recoverable. Impairment of a shopping center
owned by consolidated entities is recognized when the sum of expected cash flows (undiscounted and without interest charges)
is less than the carrying value of the property. Other than temporary impairment of an investment in an Unconsolidated Joint
Venture is recognized when the carrying value is not considered recoverable based on evaluation of the severity and duration of
the decline in value, including the results of discounted cash flow and other valuation techniques. The expected cash flows of a
shopping center are dependent on estimates and other factors subject to change, including (1) changes in the national, regional,
global, and/or local economic climates, (2) competition from other shopping centers, stores, clubs, mailings, and the Internet,
(3) increases in operating costs, (4) bankruptcy and/or other changes in the condition of third parties, including anchors and tenants,
(5) expected holding period, and (6) availability of and cost of financing. These factors could cause our expected future cash flows
from a shopping center to change, and, as a result, an impairment could be considered to have occurred. To the extent impairment
has occurred, the excess carrying value of the asset over its estimated fair value is charged to income.
56
In 2015, we recognized an impairment charge of $11.8 million related to the pre-development of Miami Worldcenter (see "Results
of Operations - Impairment Charge"). No impairment charges were recognized in 2014 or 2013. As of December 31, 2015, the
consolidated net book value of our properties was $2.7 billion, representing approximately 75% of our consolidated assets. We
also have varying ownership percentages in the properties of Unconsolidated Joint Ventures with a total combined net book value
of $1.0 billion. These amounts include certain development costs that are described in the policy that follows.
Capitalization of Development Costs
In developing shopping centers, we typically obtain land or land options, zoning and regulatory approvals, anchor commitments,
and financing arrangements during a process that may take several years and during which we may incur significant costs. We
capitalize all development costs once it is considered probable that a project will reach a successful conclusion. Prior to this time,
we expense all costs relating to a potential development, including payroll, and include these costs in FFO (see "Non-GAAP
Measures").
On an ongoing basis, we continue to assess the probability of a project going forward and whether the asset is impaired. In
addition, we also assess whether there are sufficient substantive development activities in a given period to support the capitalization
of carrying costs, including interest capitalization.
Direct and indirect costs that are clearly related to the acquisition, development, construction, and improvement of properties
are capitalized. Compensation costs are allocated based on actual time spent on a project. Costs incurred on real estate for ground
leases, property taxes, insurance, and interest costs for qualifying assets are capitalized during periods in which activities necessary
to get the property ready for its intended use are in progress.
Many factors in the development of a shopping center are beyond our control, including (1) changes in the national, regional,
global, and/or local economic climates, (2) competition from other shopping centers, stores, clubs, mailings, and the Internet,
(3) availability and cost of financing, (4) changes in regulations, laws, and zoning, and (5) decisions made by third parties, including
anchors. These factors could cause our assessment of the probability of a development project reaching a successful conclusion
to change. If a project subsequently was considered less than probable of reaching a successful conclusion, a charge against
operations for previously capitalized development costs would occur.
As of December 31, 2015, our beneficial interest in construction work in process was $720.5 million, primarily representing
our share of capitalized project costs for our current U.S. and Asia development projects and ongoing redevelopments at certain
operating centers (see "Liquidity and Capital Resources - Capital Spending").
Pre-development charges in 2015, 2014, and 2013 were $4.3 million, $4.2 million, and $10.6 million, respectively. Of these
amounts, $0.8 million, $0.7 million, and $1.0 million related to projects with land under option in each of the respective periods.
We capitalized payroll costs of $13.9 million in connection with construction and development projects in 2015, $14.0 million
in 2014, and $13.8 million in 2013.
New Accounting Pronouncements
Refer to "Note 21 - New Accounting Pronouncements" in the consolidated financial statements, regarding our ongoing evaluation
of ASU No. 2014-09 and ASU No. 2015-14, addressing revenue recognition, and ASU No. 2016-01, addressing the measurement
of financial assets and financial liabilities, as well as our final evaluation of ASU No. 2015-02, “Amendments to the Consolidation
Analysis.”
57
Non-GAAP Measures
Use of Non-GAAP Measures
We use NOI as an alternative measure to evaluate the operating performance of centers, both on individual and stabilized portfolio
bases. We define NOI as property-level operating revenues (includes rental income excluding straight-line adjustments of minimum
rent) less maintenance, taxes, utilities, promotion, ground rent (including straight-line adjustments), and other property operating
expenses. Since NOI excludes general and administrative expenses, pre-development charges, interest income and expense,
depreciation and amortization, impairment charges, restructuring charges, and gains from land and property dispositions, it provides
a performance measure that, when compared period over period, reflects the revenues and expenses most directly associated with
owning and operating rental properties, as well as the impact on their operations from trends in mall tenant sales, occupancy and
rental rates, and operating costs. We also use NOI excluding lease cancellation income as an alternative measure because this
income may vary significantly from period to period, which can affect comparability and trend analysis. We generally provide
separate projections for expected NOI growth and our lease cancellation income.
The National Association of Real Estate Investment Trusts (NAREIT) defines FFO as net income (computed in accordance with
Generally Accepted Accounting Principles (GAAP), excluding gains (or losses) from extraordinary items, sales of properties, and
impairment write-downs of depreciable real estate, plus real estate related depreciation and after adjustments for unconsolidated
partnerships and joint ventures. We believe that FFO is a useful supplemental measure of operating performance for REITs.
Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over
time. Since real estate values instead have historically risen or fallen with market conditions, we and most industry investors and
analysts have considered presentations of operating results that exclude historical cost depreciation to be useful in evaluating the
operating performance of REITs. We primarily use FFO in measuring performance and in formulating corporate goals and
compensation.
We may also present adjusted versions of NOI and FFO when used by management to evaluate our operating performance when
certain significant items have impacted our results that affect comparability with prior or future periods due to the nature or amounts
of these items. In addition to the reasons noted above for each measure, we believe the disclosure of the adjusted items is similarly
useful to investors and others to understand management's view on comparability of such measures between periods. In 2015,
FFO was adjusted for an impairment charge for the write-off of previously capitalized costs related to the pre-development of
Miami Worldcenter, a former development project in Miami, Florida and for the reversal of certain prior period share-based
compensation expense recognized upon the announcement of an executive management transition. In 2014, FFO was adjusted for
expenses related to the sale of centers to Starwood. Specifically, these measures were adjusted for the loss on extinguishment of
debt at certain centers sold to Starwood, charges related to the discontinuation of hedge accounting on the interest rate swap
previously designated to hedge the MacArthur note payable, a restructuring charge, and disposition costs incurred related to the
sale. FFO was not adjusted in 2013.
Our presentations of NOI and FFO, and adjusted versions of these measures, if any, are not necessarily comparable to the
similarly titled measures of other REITs due to the fact that not all REITs use the same definitions. These measures should not be
considered alternatives to net income or as an indicator of our operating performance. Additionally, these measures do not represent
cash flows from operating, investing, or financing activities as defined by GAAP. Reconciliations of Net Income Attributable to
Taubman Centers, Inc. Common Shareowners to Funds from Operations and Adjusted Funds from Operations and Net Income to
Net Operating Income are presented in the following section.
Reconciliation of Non-GAAP Measures
The following includes reconciliations of our non-GAAP financial measures: Net Income Attributable to Taubman Centers, Inc.
Common Shareowners to Funds from Operations and Adjusted Funds from Operations and Net Income to Net Operating Income.
58
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Reconciliation of Net Income to Net Operating Income
Net income
Add (less) depreciation and amortization:
Consolidated businesses at 100%
Noncontrolling partners in consolidated joint ventures
Share of Unconsolidated Joint Ventures
Add (less) interest expense and income tax expense (benefit):
Interest expense:
Consolidated businesses at 100%
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Share of Unconsolidated Joint Ventures
Share of income tax expense (benefit):
Income tax expense (benefit) on dispositions of International Plaza, Arizona Mills, and
Oyster Bay
Other income tax expense
2015
$
192.6
2014
(in millions)
1,278.1
$
2013
$
189.4
106.4
(3.7)
34.4
120.2
(4.4)
30.2
63.0
(7.0)
45.6
(0.4)
2.2
90.8
(8.1)
40.4
9.7
2.3
155.8
(5.1)
24.9
130.0
(8.7)
37.6
3.4
Less noncontrolling share of income of consolidated joint ventures
(11.2)
(34.2)
(10.3)
Add EBITDA attributable to outside partners:
EBITDA attributable to noncontrolling partners in consolidated joint ventures
EBITDA attributable to outside partners in Unconsolidated Joint Ventures
Add beneficial interest in UJV impairment charge - Miami Worldcenter
46.8
102.2
24.1
89.4
21.9
116.0
11.8
EBITDA at 100%
$
571.5
$
1,674.0
$
630.4
Add (less) items excluded from shopping center Net Operating Income:
General and administrative expenses
Management, leasing, and development services, net
Straight-line of rents
Gain on dispositions
Early extinguishment of debt charge
Disposition costs related to the Starwood sale
Discontinuation of hedge accounting - MacArthur
Restructuring charge
Gain on sale of peripheral land
Gain on sale of marketable securities
Dividend income
Interest income
Other nonoperating expense (income)
Non-center specific operating expenses and other
Net Operating Income at 100% - all centers
Less - Net Operating Income of non-comparable centers (1)
Net Operating Income at 100% - comparable centers
Lease cancellation income
Net Operating Income at 100% - comparable centers excluding lease cancellation income (2)
45.7
(7.3)
(5.2)
48.3
(6.1)
(5.4)
(1,116.3)
36.4
3.3
7.8
3.7
(3.6)
(2.0)
0.3
22.4
621.8
(25.1)
596.7
(8.5)
588.3
$
$
$
(2.4)
(1.4)
(0.8)
19.9
660.9
(77.7)
583.2
(12.6)
570.6
$
$
$
$
$
$
50.0
(10.8)
(7.3)
(0.9)
(1.3)
(0.2)
1.0
24.4
685.3
(119.3)
566.0
(5.3)
560.7
(1)
Includes The Mall of San Juan and The Mall at University Town Center for 2015. Includes Arizona Mills, The Mall at University Town Center, the portfolio
of centers sold to Starwood, and an adjustment to reflect the allocation of costs to Starwood centers that are now being allocated to the remainder of the
portfolio for 2014. Includes the portfolio of centers sold to Starwood in 2014, Arizona Mills, and Taubman Prestige Outlets Chesterfield for 2013.
(2) See "Non-GAAP Measures - Use of Non-GAAP Measures" above for a discussion of the use and utility of Net Operating Income excluding lease cancellation
income as a performance measure.
(3) Amounts in this table may not add due to rounding.
60
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is included in this report at Item 7 under the caption “Liquidity and Capital Resources.”
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements of Taubman Centers, Inc. and the Reports of Independent Registered Public Accounting Firm thereon
are filed pursuant to this Item 8 and are included in this report at Item 15.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this annual report, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, as of December 31, 2015, our disclosure controls and procedures were effective to ensure the
information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized, and reported within the time periods prescribed by the SEC, and that such information is
accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Management’s Annual Report on Internal Control over Financial Reporting accompanies the Company’s financial statements
included in Item 15 of this annual report.
Report of the Independent Registered Public Accounting Firm
The report issued by the Company’s independent registered public accounting firm, KPMG LLP, accompanies the Company’s
financial statements included in Item 15 of this annual report.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting identified in connection with the Company’s
fourth quarter 2015 evaluation of such internal control that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.
Item 9B. OTHER INFORMATION.
Not applicable.
61
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
The information required by this item is hereby incorporated by reference to the material appearing in the 2016 Proxy Statement
under the captions “Proposal 1 – Election of Directors,” “Board Matters – Committees of the Board,” "Board Matters – Corporate
Governance,” “Executive Officers,” and “Additional Information – Section 16(a) Beneficial Ownership Reporting Compliance.”
Item 11. EXECUTIVE COMPENSATION.
The information required by this item is hereby incorporated by reference to the material appearing in the 2016 Proxy Statement
under the captions "Board Matters – Director Compensation,” “Compensation Committee Interlocks and Insider Participation,”
“Compensation Discussion and Analysis,” “Compensation Committee Report,” and “Named Executive Officer Compensation
Tables.”
62
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The following table sets forth certain information regarding the Company’s current and prior equity compensation plans as of
December 31, 2015:
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants, and Rights
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants,
and Rights
Number of Securities
Remaining Available for
Future Issuances Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
(a)
(b)
(c)
Equity compensation plans approved by security
holders:
The Taubman Company 2008 Omnibus Long-Term
Incentive Plan: (1)
Performance Share Units (2) (3)
Restricted Share Units (3)
1992 Incentive Option Plan (3) (5)
874,501
283,353
292,543
$
46.60
1,450,397
Equity compensation plan not approved by security
holders -
Non-Employee Directors’ Deferred Compensation
Plan (6)
128,696
(4)
(4)
(7)
1,338,126 (1)
1,338,126
(8)
1,579,093
$
46.60
1,338,126
(1) Under The Taubman Company 2008 Omnibus Long-Term Incentive Plan (as amended), directors, officers, employees, and other service providers of the
Company may receive restricted shares, restricted share units, restricted units of limited partnership in TRG (“TRG Units”), restricted TRG Units, options
to purchase common stock or TRG Units, share appreciation rights, unrestricted shares of common stock or TRG Units, and other awards to acquire up to
an aggregate of 8,500,000 shares of common stock or TRG Units. No further awards will be made under the 1992 Incentive Option Plan.
(2) Amount represents 147,411 and 108,067 performance share units (PSU) at their maximum payout ratio of 300% and 400%, respectively. This amount may
overstate dilution to the extent actual performance is different than such assumption. The actual number of PSU that may ultimately vest will range from 0-
300% and 0-400% based on the Company’s total shareholder return relative to that of a peer group.
(3) See "Note 13 - Share-Based Compensation and Other Employee Plans" to our consolidated financial statements for further details related to the modification
of grants in 2014 as a result of the payment of the $4.75 special dividend per share of common stock.
(4) Excludes restricted stock units and performance share units issued under the Omnibus Plan because they are converted into common stock on a one-for-one
basis at no additional cost.
(5) Under the 1992 Incentive Option Plan, employees received TRG Units upon the exercise of their vested options, and each TRG Unit generally will be
converted into one share of common stock under the Continuing Offer. Excludes 871,262 deferred units, the receipt of which were deferred by Robert S.
Taubman at the time he exercised options in 2002; the options were initially granted under TRG's 1992 Incentive Option Plan (see “Note 13 – Share Based
Compensation and Other Employee Plans” to our consolidated financial statements included at Item 15 (a) (1)).
(6) The Deferred Compensation Plan, which was approved by the Board of Directors in May 2005, gives each non-employee director of the Company the right
to defer the receipt of all or a portion of his or her annual director retainer until the termination of such director's service on the Board of Directors and for
such deferred compensation to be denominated in restricted stock units. The number of restricted stock units received equals the deferred retainer fee divided
by the fair market value of the common stock on the business day immediately before the date the director would otherwise have been entitled to receive
the retainer fee. The restricted stock units represent the right to receive equivalent shares of common stock at the end of the deferral period. During the
deferral period, when the Company pays cash dividends on the common stock, the directors' deferral accounts are credited with dividend equivalents on
their deferred restricted stock units, payable in additional restricted stock units based on the fair market value of the common stock on the business day
immediately before the record date of the applicable dividend payment. Each Director's account is 100% vested at all times.
(7) The restricted stock units are excluded because they are converted into common stock on a one-for-one basis at no additional cost.
(8) The number of securities available for future issuance is unlimited and will reflect whether non-employee directors elect to defer all or a portion of their
annual retainers.
Additional information required by this item is hereby incorporated by reference to the information appearing in the Proxy
Statement under the caption “Security Ownership of Certain Beneficial Owners and Management – Ownership Table.”
63
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item is hereby incorporated by reference to the information appearing in the 2016 Proxy
Statement under the caption “Related Person Transactions” and "Proposal 1 – Election of Directors – Director Independence.”
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item is hereby incorporated by reference to the material appearing in the 2016 Proxy Statement
under the caption “Audit Committee Matters.”
64
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
15(a)(1)
The following financial statements of Taubman Centers, Inc. and the Reports of Independent Registered
Public Accounting Firm thereon are filed with this report:
PART IV
TAUBMAN CENTERS, INC.
Management's Annual Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheet as of December 31, 2015 and 2014
Consolidated Statement of Operations and Comprehensive Income for the years ended December
31, 2015, 2014, and 2013
Consolidated Statement of Changes in Equity for the years ended December 31, 2015, 2014, and
2013
Consolidated Statement of Cash Flows for the years ended December 31, 2015, 2014, and 2013
Notes to Consolidated Financial Statements
15(a)(2)
The following is a list of the financial statement schedules required by Item 15(d):
TAUBMAN CENTERS, INC.
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2015, 2014,
and 2013
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2015
Page
F-2
F-3
F-5
F-6
F-7
F-9
F-10
F-48
F-49
15(a)(3)
Exhibit
Number
2.1
2.2
2.3
2.4
3.1
3.2
4.1
4.2
4.3
4.4
Incorporated by Reference
Exhibit Description
Purchase and Sale Agreement dated as of
January 29, 2014 between Woodland
Shopping Center Limited Partnership and T-C
International Plaza Investor LP LLC.**
Purchase and Sale Agreement dated as of
January 29, 2014 between International Plaza
Holding Company and T-C International Plaza
Investor GP LLC.**
Purchase and Sale Agreement, dated June 17,
2014, by and among the Parties listed in
Exhibit A (Sellers) and SRP TM Holdings, L.P.
(Purchaser).
Purchase and Sale Agreement, dated June 17,
2014, by and among Partridge Creek Fashion
Park LLC and Purchaser.
Restated By-Laws of Taubman Centers, Inc.
Form
Period Ending
8-K
8-K
8-K
8-K
8-K
Amended
and Restated Articles
Incorporation of Taubman Centers, Inc.
of
8-K
in
Mortgage, Security Agreement and Fixture
Filing, dated September 15, 2015, by Short
Hills Associates L.L.C.
favor of
Metropolitan Life Insurance Company, New
York Life Insurance Company, and Pacific Life
Insurance Company.
Promissory Note A-1, dated September 15,
2015, by Short Hills Associates L.L.C. to
Metropolitan Life Insurance Company.
Promissory Note A-2, dated September 15,
2015, by Short Hills Associates L.L.C. to New
York Life Insurance Company.
Promissory Note A-3, dated September 15,
2015, by Short Hills Associates L.L.C. to
Pacific Life Insurance Company.
8-K
8-K
8-K
8-K
65
Exhibit
10.1
Filing Date
January 30, 2014
Filed
Herewith
10.2
January 30, 2014
2.1
June 18, 2014
2.2
3.1
3.1
4.1
4.2
4.3
4.4
June 18, 2014
December 16, 2009
March 15, 2013
September 17, 2015
September 17, 2015
September 17, 2015
September 17, 2015
Incorporated by Reference
Form
Period Ending
8-K
8.K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
Exhibit
4.5
Filing Date
September 17, 2015
Filed
Herewith
4.6
September 17, 2015
4.1
March 1, 2013
4.3
November 13, 2013
4.1
November 25, 2014
4.2
March 1, 2013
4.1
October 20, 2014
4.1
November 13, 2013
4.2
November 25, 2014
4.2
November 13, 2013
Exhibit
Number
4.5
4.6
4.7
4.7.1
4.7.2
4.8
4.8.1
4.9
4.9.1
4.10
Exhibit Description
Assignment of Leases, dated September 15,
2015, by Short Hills Associates L.L.C. in favor
of Metropolitan Life Insurance Company, New
York Life Insurance Company, and Pacific Life
Insurance Company.
Guaranty Agreement, dated September 15,
2015, by Short Hills Associates L.L.C. in favor
of Metropolitan Life Insurance Company, New
York Life Insurance Company, and Pacific Life
Insurance Company.
Revolving Credit Agreement, dated as of
February 28, 2013, by and among The
Taubman Realty Group Limited Partnership
and JPMorgan Chase Bank N.A., as
Administrative, and the various lenders and
agents on the signature pages thereto.
Amendment No. 1 to Revolving Credit
Agreement, dated as of November 12, 2013,
by and among The Taubman Realty Group
Limited Partnership and JP Morgan Chase
Bank N.A., as an Administrative Agent, and
the various lenders and agents on the signatures
pages thereto.
Amendment No. 2 to the Revolving Credit
Agreement, dated as of November 20, 2014,
by and among The Taubman Realty Group
Limited Partnership and JPMorgan Chase
Bank N.A., as Administrative Agent, and the
various lenders on the signatures pages thereto.
Guaranty, dated as of February 28, 2013, by
and among Dolphin Mall Associates LLC,
Fairlane Town Center LLC, Twelve Oaks Mall,
LLC, and Willow Bend Shopping Center
Limited Partnership in favor of JPMorgan
Chase Bank, N.A.,
its capacity as
Administrative Agent for the Lenders under
the Revolving Credit Agreement.
in
Release of Guaranty, dated October 16, 2014,
by and among Fairlane Town Center LLC,
Willow Bend Shopping Center Limited
Partnership, and JPMorgan Chase Bank, N.A.,
in its capacity as Administrative Agent for the
Lenders under
the Revolving Credit
Agreement.
Term Loan Agreement, dated as of November
12, 2013, by and among The Taubman Realty
Group Limited Partnership and JPMorgan
Chase Bank N.A., as Administrative Agent,
and the various lenders and agents on the
signatures pages thereto.
the Term Loan
Amendment No. 1
Agreement, dated as of November 20, 2014,
by and among The Taubman Realty Group
Limited Partnership and JPMorgan Chase
Bank N.A., as Administrative Agent, and the
various lenders on the signatures pages thereto.
to
Guaranty, dated as of November 12, 2013, by
and among Dolphin Mall Associates LLC,
Fairlane Town Center LLC, Twelve Oaks Mall,
LLC, Willow Bend Shopping Center Limited
Partnership, and La Cienega Partners Limited
Partnership, in favor of JPMorgan Chase Bank,
N.A., in its capacity as Administrative Agent
for
the Term Loan
Agreement.
the Lenders under
Exhibit
Number
4.10.1
4.11
4.11.1
4.11.2
4.12
4.13
4.14
4.15
4.16
4.17
4.18
*10.1
*10.1.1
*10.1.2
Incorporated by Reference
Exhibit Description
Release of Guaranty, dated October 16, 2014,
by and among Fairlane Town Center LLC,
Willow Bend Shopping Center Limited
Partnership, and JPMorgan Chase Bank, N.A.,
in its capacity as Administrative Agent for the
Lenders under the Term Loan Agreement.
Amended and Restated Mortgage, Security
Agreement and Fixture Filing, dated as of
November 4, 2011, by Tampa Westshore
Associates Limited Partnership, in favor of
Metropolitan Life Insurance Company.
Assignment of Leases, dated as of November
4, 2011, by Tampa Westshore Associates
Limited Partnership (Assignor), a Delaware
limited partnership, in favor of Metropolitan
Life Insurance Company.
Guaranty Agreement, dated as of November 4,
2011, by The Taubman Realty Group Limited
Partnership, in favor of Metropolitan Life
Insurance Company.
Form of certificate evidencing 6.500% Series
J Cumulative Redeemable Preferred Stock,
Liquidation Preference $25.00 Per Share.
Form of certificate evidencing 6.25% Series K
Cumulative Redeemable Preferred Stock,
Liquidation Preference $25.00 Per Share.
Building Loan Agreement, dated August 14,
2015, between TRG IMP LLC and PNC Bank,
National Association,
as Administrative
Agent, and the various lenders on the signature
pages thereto.
Leasehold Mortgage, Assignment of Leases
and Rents, Security Agreement and Fixture
Filing Agreement, dated August 14, 2015, by
TRG IMP LLC, for the benefit of PNC Bank,
National Association,
as Administrative
Agent, and the various lenders.
Completion Guaranty, dated August 14, 2015,
by The Taubman Realty Group Limited
Partnership in favor of PNC Bank, National
Association, as Administrative Agent, and the
various lenders.
Partial Repayment and Limited Guaranty,
dated August 14, 2015, by The Taubman
Realty Group Limited Partnership in favor of
PNC Bank, National Association,
as
Administrative Agent, and the various lenders.
Form
Period Ending
8-K
8-K
8-K
8-K
8-A12B
8-A12B
8-K
8-K
8-K
8-K
Exhibit
4.2
Filing Date
October 20, 2014
Filed
Herewith
4.1
November 9, 2011
4.2
November 9, 2011
4.3
November 9, 2011
4.1
4.1
4.1
August 13, 2012
March 14, 2013
August 20, 2015
4.2
August 20, 2015
4.3
August 20, 2015
4.4
August 20, 2015
Form of Promissory Note Secured by
Mortgage, dated August 14, 2015, by TRG
IMP LLC to various lenders.
8-K
4.5
August 20, 2015
The Taubman Realty Group Limited
Partnership 1992 Incentive Option Plan, as
Amended and Restated Effective as of
September 30, 1997.
First Amendment to The Taubman Realty
Group Limited Partnership 1992 Incentive
Option Plan as Amended and Restated
Effective as of September 30, 1997.
Second Amendment to The Taubman Realty
Group Limited Partnership 1992 Incentive
Plan as Amended and Restated Effective as of
September 30, 1997.
10-K
December 31,
1997
10(b)
10-K
December 31,
2001
10(b)
10-K
December 31,
2004
10(c)
Exhibit
Number
*10.1.3
*10.1.4
*10.1.5
*10.1.6
10.2
10.2.1
10.2.2
10.3
Exhibit Description
Third Amendment to The Taubman Realty
Group Limited Partnership 1992 Incentive
Plan as Amended and Restated Effective as of
September 30, 1997.
Fourth Amendment to The Taubman Realty
Group Limited Partnership 1992 Incentive
Plan as Amended and Restated Effective as of
September 30, 1997.
Fifth Amendment to The Taubman Realty
Group Limited Partnership 1992 Incentive
Plan as Amended and Restated Effective as of
September 30, 1997.
The Form of The Taubman Realty Group
Limited Partnership 1992 Incentive Option
Plan Option Agreement.
Master Services Agreement between The
Taubman Realty Group Limited Partnership
and the Manager.
First Amendment to the Master Services
Agreement between The Taubman Realty
Group Limited Partnership and the Manager,
dated September 30, 1998.
Second Amendment to the Master Services
Agreement between The Taubman Realty
Group Limited Partnership and the Manager,
dated December 23, 2008.
Amended
and Restated Cash Tender
Agreement among Taubman Centers, Inc., The
Taubman Realty Group Limited Partnership,
and A. Alfred Taubman, A. Alfred Taubman,
acting not individually but as Trustee of the A.
Alfred Taubman Restated Revocable Trust,
and TRA Partners.
*10.4
Supplemental Retirement Savings Plan.
First Amendment to The Taubman Company
Supplemental Retirement Savings Plan, dated
December 12, 2008 (revised for Code Section
409A compliance).
Employment Agreement
between The
Taubman Company Limited Partnership and
Lisa A. Payne.
Amendment to Employment Agreement, dated
December 22, 2008, for Lisa A. Payne (revised
for Code Section 409A compliance).
Amended and Restated Change of Control
Employment Agreement, dated December 18,
2008, by and among the Company, Taubman
Realty Group Limited Partnership, and Lisa A.
Payne (revised for Code Section 409A
compliance).
Form of Amended and Restated Change of
Control Employment Agreement, dated
December 18, 2008 (revised for Code Section
409A compliance).
Amendment to The Taubman Centers, Inc.
Change of Control Severance Program, dated
December 12, 2008 (revised for Code Section
409A compliance).
*10.4.1
*10.5
*10.5.1
*10.6
*10.6.1
*10.6.2
*10.6.3
10.7
Incorporated by Reference
Form
10-K
Period Ending
December 31,
2004
Exhibit
10(d)
10-Q
March 31, 2007
10(a)
Filing Date
Filed
Herewith
10-K
December 31,
2014
10.1.5
10-K
10-K
10-K
December 31,
2004
December 31,
1992
10(e)
10(f)
December 31,
2008
10(au)
10-K
December 31,
2008
10(an)
10-Q
June 30, 2000
10(a)
10-K
10-K
December 31,
1994
December 31,
2008
10(i)
10(aq)
10-Q
March 31, 1997
10
10-K
10-K
December 31,
2008
10(at)
December 31,
2008
10(o)
10-K
December 31,
2008
10(p)
10-K
December 31,
2008
10(ar)
Form of Amendment to Change of Control
Employment Agreement.
8-K
10.1
May 8, 2014
Second Amended and Restated Continuing
Offer, dated as of May 16, 2000.
10-Q
June 30, 2000
10(b)
Exhibit
Number
10.8
*10.9
10.10
10.10.1
10.11
10.11.1
*10.12
*10.13
*10.13.1
*10.13.2
*10.13.3
*10.14
*10.15
*10.15.1
*10.15.2
*10.15.3
*10.15.4
Incorporated by Reference
Form
Period Ending
S-3
Exhibit
10.3
Filing Date
December 27, 2012
Filed
Herewith
10-Q
March 31, 2011
10(b)
Exhibit Description
The Third Amendment and Restatement of
Agreement of Limited Partnership of The
Taubman Realty Group Limited Partnership
dated December 12, 2012.
The Taubman Realty Group Limited
Partnership and The Taubman Company LLC
Election and Option Deferral Agreement, as
Amended and Restated Effective as of January
27, 2011.
Operating Agreement of Taubman Land
Associates, a Delaware Limited Liability
Company, dated October 20, 2006.
10-K
December 31,
2006
10(ab)
First Amendment to Operating Agreement of
Taubman Land Associates, a Delaware
Limited Liability Company, dated October 20,
2006.
Amended and Restated Agreement of
Partnership of Sunvalley Associates, a
California general partnership.
First Amendment to Amended and Restated
Agreement of Partnership of Sunvalley
Associates, a California general partnership.
Summary of Compensation for the Board of
Directors of Taubman Centers, Inc., effective
January 1, 2015.
The Taubman Centers, Inc. Non-Employee
Directors' Deferred Compensation Plan.
The Form of The Taubman Centers, Inc. Non-
Employee Directors' Deferred Compensation
Plan.
First Amendment to the Taubman Centers, Inc.
Non-Employee
Deferred
Compensation Plan.
Directors'
Inc. Non-
Form of Taubman Centers,
Employee Directors' Deferred Compensation
Plan Amendment Agreement (revised for
Code Section 409A compliance).
Fourth Amended and Restated Limited
Liability Company Agreement of Taubman
Properties Asia LLC dated April 30, 2014 by,
between,
among Taubman Asia
Management II LLC, René Tremblay, and
Taubman Properties Asia LLC.
and
10-Q
March 31, 2013
10
10-Q/A June 30, 2002
10(a)
10-K
10-K
8-K
8-K
December 31,
2012
10.11.1
December 31,
2014
10.12.1
10
10
May 18, 2005
May 18, 2005
10-Q
June 30, 2008
10(c)
10-K
December 31,
2008
10(ap)
8-K
10.1
May 5, 2014
The Taubman Company 2008 Omnibus Long-
Term Incentive Plan, as amended and restated
as of May 21, 2010.
DEF 14
Form of The Taubman Company LLC 2008
Omnibus
Plan
Restricted Share Unit Award Agreement.
Long-Term
Incentive
Form of The Taubman Company LLC 2008
Omnibus Long-Term Incentive Plan Option
Award Agreement.
Form of The Taubman Company LLC 2008
Omnibus
Plan
Restricted and Performance Share Unit Award
Agreement.
Long-Term
Incentive
8-K
8-K
8-K
A
March 31, 2010
10(a)
March 10, 2009
10(b)
March 10, 2009
10(c)
March 10, 2009
Form of The Taubman Company LLC 2008
Plan
Omnibus
Performance Share Unit Award Agreement
(Five-Year Vesting).
Long-Term
Incentive
10-Q
March 31, 2012
10
*10.15.5
2015 Form of The Taubman Company LLC
2008 Omnibus Long-Term Incentive Plan
Restricted Share Unit Award Agreement.
10-K
December 31,
2014
10.15.5
Exhibit
Number
*10.15.6
*10.16
*10.17
*10.17.1
12
21
23
31.1
31.2
32.1
32.2
99.1
99.2
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
*
**
Exhibit Description
2015 Form of The Taubman Company LLC
2008 Omnibus Long-Term Incentive Plan
Performance Share Unit Award Agreement.
Form
Period Ending
10-K
December 31,
2014
Exhibit
10.15.6
Filing Date
Filed
Herewith
Incorporated by Reference
and Restated Employment
Amended
Agreement dated April 30, 2014 between
Taubman Asia Management Limited and René
Tremblay.
8-K
10.2
May 5, 2014
10-K
December 31,
2013
10.21
8-K
10.1
March 20, 2014
Change of Control Employment Agreement,
dated April 29, 2013, by and among the
Company, Taubman Centers Inc., and David
Joseph.
Amendment
of Control
to Change
Employment Agreement, dated March 17,
2014, by and among Taubman Centers Inc.,
The Taubman Realty Group Limited
Partnership, and David Joseph.
Statement Re: Computation of Taubman
Centers, Inc. Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends.
Subsidiaries of Taubman Centers, Inc.
Consent of Independent Registered Public
Accounting Firm.
Certification of Chief Executive Officer
pursuant to 15 U.S.C. Section 10A, as adopted
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of Chief Financial Officer
pursuant to 15 U.S.C. Section 10A, as adopted
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Certification of Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Debt Maturity Schedule.
Real Estate and Accumulated Depreciation
Schedule of the Unconsolidated Joint Ventures
of The Taubman Realty Group Limited
Partnership.
101.INS
XBRL Instance Document.
XBRL Taxonomy Extension
Document.
Schema
XBRL Taxonomy Extension Calculation
Linkbase Document.
XBRL Taxonomy Extension Label Linkbase
Document.
XBRL Taxonomy Extension Presentation
Linkbase Document.
XBRL Taxonomy Extension Definition
Linkbase Document.
A management contract or compensatory plan or arrangement required to be filed.
Certain exhibits and schedules to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A
copy of any omitted exhibits or schedules will be furnished to the Securities and Exchange Commission upon request.
Note: The Company has not filed certain instruments with respect to long-term debt that did not exceed 10% of the Company’s total assets on
a consolidated basis. A copy of such instruments will be furnished to the Securities and Exchange Commission upon request.
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
TAUBMAN CENTERS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and consolidated financial statement schedules are included in Item 8 of this
Annual Report on Form 10-K:
CONSOLIDATED FINANCIAL STATEMENTS
Management’s Annual Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheet as of December 31, 2015 and 2014
Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2015,
2014, and 2013
Consolidated Statement of Changes in Equity for the years ended December 31, 2015, 2014, and 2013
Consolidated Statement of Cash Flows for the years ended December 31, 2015, 2014, and 2013
Notes to Consolidated Financial Statements
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2015, 2014, and 2013
Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2015
F-2
F-3
F-5
F-6
F-7
F-9
F-10
F-48
F-49
F-1
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Taubman Centers, Inc. is responsible for the preparation and integrity of the financial statements and
financial information reported herein. This responsibility includes the establishment and maintenance of adequate internal control
over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance that
assets are safeguarded, transactions are properly authorized and recorded, and that the financial records and accounting policies
applied provide a reliable basis for the preparation of financial statements and financial information that are free of material
misstatement.
The management of Taubman Centers, Inc. is required to assess the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2015. Management bases this assessment of the effectiveness of its internal control on
recognized control criteria, the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Management has completed its assessment as of December 31, 2015.
Based on its assessment, management believes that Taubman Centers, Inc. maintained effective internal control over financial
reporting as of December 31, 2015. The independent registered public accounting firm, KPMG LLP, that audited the financial
statements included in this annual report has issued their report on the Company’s system of internal control over financial reporting,
also included herein.
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareowners
Taubman Centers, Inc.:
We have audited the accompanying consolidated balance sheet of Taubman Centers, Inc. (the Company) as of December 31, 2015
and 2014, and the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows for
each of the years in the three-year period ended December 31, 2015. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedules listed in the Index at Item 15(a)(2). These consolidated financial
statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Taubman Centers, Inc. as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2015 in conformity with U.S. generally accepted accounting principles.
Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Taubman Centers, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated February 23, 2016 expressed an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting.
/s/ KPMG LLP
Chicago, Illinois
February 23, 2016
F-3
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareowners
Taubman Centers, Inc.:
We have audited Taubman Centers, Inc.’s (the Company) internal control over financial reporting as of December 31, 2015, based
on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Taubman Centers, Inc.’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Taubman Centers, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of Taubman Centers, Inc. as of December 31, 2015 and 2014, and the related consolidated statements
of operations and comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended
December 31, 2015, and our report dated February 23, 2016 expressed an unqualified opinion on those consolidated financial
statements.
/s/ KPMG LLP
Chicago, Illinois
February 23, 2016
F-4
TAUBMAN CENTERS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
Assets:
Properties (Notes 4 and 8)
Accumulated depreciation and amortization
Investment in Unconsolidated Joint Ventures (Notes 2 and 5)
Cash and cash equivalents
Restricted cash (Note 8)
Accounts and notes receivable, less allowance for doubtful accounts of $2,974 and $2,927
in 2015 and 2014 (Note 6)
Accounts receivable from related parties (Note 12)
Deferred charges and other assets (Note 7)
Total Assets
Liabilities:
Notes payable (Note 8)
Accounts payable and accrued liabilities
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures
(Note 5)
Commitments and contingencies (Notes 8, 9, 10, 11, 13, and 15)
Equity:
Taubman Centers, Inc. Shareowners’ Equity (Note 14):
Series B Non-Participating Convertible Preferred Stock, $0.001 par and liquidation
value, 40,000,000 shares authorized, 25,044,939 and 25,117,000 shares issued and
outstanding at December 31, 2015 and 2014
Series J Cumulative Redeemable Preferred Stock, 7,700,000 shares authorized, no
par, $192.5 million liquidation preference, 7,700,000 shares issued and outstanding at
December 31, 2015 and 2014
Series K Cumulative Redeemable Preferred Stock, 6,800,000 shares authorized, no
par, $170.0 million liquidation preference, 6,800,000 shares issued and outstanding at
December 31, 2015 and 2014
Common Stock, $0.01 par value, 250,000,000 shares authorized, 60,233,561 and
63,324,409 shares issued and outstanding at December 31, 2015 and 2014
Additional paid-in capital
Accumulated other comprehensive income (loss) (Note 19)
Dividends in excess of net income
Noncontrolling interests (Note 9)
Total Liabilities and Equity
See notes to consolidated financial statements.
December 31
2015
December 31
2014
$
$
$
$
$
$
$
$
$
3,713,215
(1,052,027)
2,661,188
433,911
206,635
6,447
54,547
2,478
198,174
3,563,380
2,643,958
334,525
464,086
3,442,569
$
$
$
$
$
3,262,505
(970,045)
2,292,460
370,004
276,423
37,502
49,245
832
188,435
3,214,901
2,025,505
292,802
476,651
2,794,958
25
$
25
602
652,146
(27,220)
(512,746)
112,807
8,004
120,811
3,563,380
$
$
$
633
815,961
(15,068)
(483,188)
318,363
101,580
419,943
3,214,901
F-5
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except share data)
Year Ended December 31
2014
2013
2015
Revenues:
Minimum rents
Percentage rents
Expense recoveries
Management, leasing, and development services
Other
Expenses:
Maintenance, taxes, utilities, and promotion
Other operating
Management, leasing, and development services
General and administrative (Note 13)
Restructuring charge (Note 2)
Interest expense
Depreciation and amortization
Nonoperating income (expense) (Notes 2 and 10)
Income before income tax expense, equity in income of Unconsolidated Joint Ventures, and gain
on dispositions, net of tax
Income tax expense (Note 3)
Equity in income of Unconsolidated Joint Ventures (Note 5)
Income before gain on dispositions, net of tax
Gain on dispositions, net of tax (Note 2)
Net income
Net income attributable to noncontrolling interests (Note 9)
Net income attributable to Taubman Centers, Inc.
Distributions to participating securities of TRG (Note 13)
Preferred stock dividends (Note 14)
Net income attributable to Taubman Centers, Inc. common shareowners
Net income
Other comprehensive income (Note 19):
Unrealized gain (loss) on interest rate instruments and other
Cumulative translation adjustment
Reclassification adjustment for amounts recognized in net income
Comprehensive income
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Taubman Centers, Inc.
Basic earnings per common share (Note 16)
Diluted earnings per common share (Note 16)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
310,831
20,233
188,023
13,177
24,908
557,172
145,118
58,131
5,914
45,727
63,041
106,355
424,286
5,256
138,142
(2,248)
56,226
192,120
437
192,557
(58,430)
134,127
(1,969)
(23,138)
109,020
192,557
$
$
$
$
$
$
$
$
$
$
(13,668)
(15,279)
12,021
(16,926) $
175,631
$
(53,458)
122,173
$
371,454
22,929
239,782
12,349
32,615
679,129
190,119
65,142
6,220
48,292
3,706
90,803
120,207
524,489
(42,807)
111,833
(2,267)
62,002
171,568
1,106,554
1,278,122
(385,109)
893,013
(6,018)
(23,138)
863,857
1,278,122
$
$
$
$
$
$
$
$
$
$
(18,004)
(7,193)
16,729
(8,468) $
$
1,269,654
(382,825)
886,829
$
$
$
1.78
1.76
$
$
13.65
13.47
417,729
28,512
272,494
16,142
32,277
767,154
215,825
71,235
5,321
50,014
130,023
155,772
628,190
1,348
140,312
(3,409)
52,465
189,368
189,368
(56,778)
132,590
(1,749)
(20,933)
109,908
189,368
8,817
4,407
5,583
18,807
208,175
(62,443)
145,732
1.73
1.71
Weighted average number of common shares outstanding – basic
61,389,113
63,267,800
63,591,523
See notes to consolidated financial statements.
F-6
F
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8
-
F
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Provision for bad debts
Gain on dispositions (Note 2)
Debt extinguishment costs (Note 2)
Discontinuation of hedge accounting (Note 10)
Income from Unconsolidated Joint Ventures in excess of distributions
Other
Increase (decrease) in cash attributable to changes in assets and liabilities:
Receivables, restricted cash, deferred charges, and other assets
Accounts payable and other liabilities
Net Cash Provided By Operating Activities
Cash Flows From Investing Activities:
Additions to properties
Cash drawn from (provided to) escrow related to center construction projects (Notes 7 and 8)
Proceeds from dispositions, net of transaction costs (Note 2)
Contributions to Unconsolidated Joint Ventures (Note 2)
Distributions from Unconsolidated Joint Ventures in excess of income
Other
Net Cash Provided By (Used In) Investing Activities
Cash Flows From Financing Activities:
Payments to revolving lines of credit, net
Debt proceeds
Extinguishment of debt (Note 2)
Other debt payments
Debt issuance costs
Repurchase of common stock
Issuance of common stock and/or partnership units in connection with incentive plans
Issuance of Series K Preferred Stock, net of offering costs
Distributions to noncontrolling interests
Distributions to participating securities of TRG (Note 2)
Contributions from noncontrolling interests
Cash dividends to preferred shareowners
Cash dividends to common shareowners (Note 2)
Other
Net Cash Provided By (Used In) Financing Activities
Net Increase (Decrease) In Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
Year Ended December 31
2014
2013
2015
$
192,557
$
1,278,122
$
189,368
106,355
1,994
120,207
2,900
(1,116,287)
36,372
7,763
15,799
18,728
(15,636)
6,616
307,685
$
(595)
16,476
363,686
$
(440,678) $
28,857
(97,293)
5,755
(1,762)
(505,121) $
$
1,198,640
(578,790)
(12,743)
(252,633)
4,526
(68,415)
(1,969)
(23,138)
(137,830)
(442,991) $
(70,607)
1,776,394
(45,974)
68,388
7,329
1,292,539
$
(158,040) $
163,779
(658,092)
(106,844)
(8,208)
(17)
(943)
(207,954)
(6,018)
22,345
(23,138)
(437,665)
127,648
$
(1,420,795) $
(69,788) $
235,430
$
276,423
40,993
206,635
$
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$
$
$
$
$
$
$
$
155,772
489
(3,076)
11,315
(12,053)
29,557
371,372
(283,864)
(108,918)
21,349
(371,433)
(274,235)
703,980
(317,365)
(9,479)
(52,287)
(1,644)
164,395
(58,260)
(1,749)
4,729
(20,933)
(127,105)
(1,050)
8,997
8,936
32,057
40,993
See notes to consolidated financial statements.
F-9
Note 1 - Summary of Significant Accounting Policies
Organization and Basis of Presentation
General
Taubman Centers, Inc. (the Company or TCO) is a Michigan corporation that operates as a self-administered and self-managed
real estate investment trust (REIT). The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is a
majority-owned partnership subsidiary of TCO that owns direct or indirect interests in all of the Company’s real estate properties.
In this report, the term “Company" refers to TCO, the Operating Partnership, and/or the Operating Partnership's subsidiaries as
the context may require. The Company engages in the ownership, management, leasing, acquisition, disposition, development,
and expansion of regional and super-regional retail shopping centers and interests therein. The Company’s owned portfolio as of
December 31, 2015 included 19 urban and suburban shopping centers operating in 10 states and Puerto Rico.
Taubman Properties Asia LLC and its subsidiaries (Taubman Asia), which is the platform for the Company’s operations and
developments in China and South Korea, is headquartered in Hong Kong.
Dollar amounts presented in tables within the notes to the financial statements are stated in thousands, except share data or as
otherwise noted.
Consolidation
The consolidated financial statements of the Company include all accounts of the Company, the Operating Partnership, and its
consolidated subsidiaries, including The Taubman Company LLC (the Manager) and Taubman Asia. All intercompany transactions
have been eliminated. The entities included in these consolidated financial statements are separate legal entities and maintain
records and books of account separate from any other entity. However, inclusion of these separate entities in the consolidated
financial statements does not mean that the assets and credit of each of these legal entities are available to satisfy the debts or other
obligations of any other such legal entity included in the consolidated financial statements.
Investments in entities not controlled but over which the Company may exercise significant influence (Unconsolidated Joint
Ventures or UJVs) are accounted for under the equity method. The Company has evaluated its investments in the Unconsolidated
Joint Ventures under guidance for determining whether an entity is a variable interest entity and has concluded that the ventures
are not variable interest entities. Accordingly, the Company accounts for its interests in these entities under general accounting
standards for investments in real estate ventures (including guidance for determining effective control of a limited partnership or
similar entity). The Company’s partners or other owners in these Unconsolidated Joint Ventures have substantive participating
rights 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% and 50.1% investments in Westfarms and International Plaza, respectively, are through general
partnerships in which the other general partners have participating rights over annual operating budgets, capital spending,
refinancing, or sale of the property.
The Operating Partnership
At December 31, 2015 and December 31, 2014, the Operating Partnership’s equity included two classes of preferred equity
(Series J and K Preferred Equity) and the net equity of the partnership unitholders (Note 14). 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 J and K Preferred Equity are
owned by the Company and are eliminated in consolidation.
F-10
The partnership equity of the Operating Partnership and the Company's ownership therein are shown below:
TRG units
outstanding at
December 31
TRG units owned
by TCO at
December 31(1)
85,295,720
88,459,859
88,271,133
60,233,561
63,324,409
63,101,614
TRG units owned
by noncontrolling
interests at
December 31
25,062,159
25,135,450
25,169,519
TCO's %
interest in TRG
at December 31
71%
72
71
TCO's average
interest % in
TRG
71%
72
72
Year
2015
2014
2013
(1) There is a one-for-one relationship between TRG units owned by TCO and TCO common shares outstanding; amounts in this column are equal to
TCO’s common shares outstanding as of the specified dates.
Outstanding voting securities of the Company at December 31, 2015 consisted of 25,044,939 shares of Series B Preferred Stock
(Note 14) and 60,233,561 shares of common stock.
Revenue Recognition
Shopping center space is generally leased to tenants under short and intermediate term leases that are accounted for as operating
leases. Minimum rents are recognized on the straight-line method. Percentage rent is accrued when lessees' specified sales targets
have been met. For traditional net leases, where tenants reimburse the landlord for an allocation of reimbursable costs incurred,
the Company recognizes revenue in the period the applicable costs are chargeable to tenants. For tenants paying a fixed common
area maintenance charge (which typically includes fixed increases over the lease term), the Company recognizes revenue on a
straight-line basis over the lease terms. Management, leasing, and development revenue is recognized as services are rendered,
when fees due are determinable, and collectibility is reasonably assured. Fees for management, leasing, and development services
are established under contracts and are generally based on negotiated rates, percentages of cash receipts, and/or actual costs
incurred. Fixed-fee development services contracts are generally accounted for under the percentage-of-completion method, using
cost to cost measurements of progress. Profits on real estate sales are recognized whenever (1) a sale is consummated, (2) the
buyer has demonstrated an adequate commitment to pay for the property, (3) the Company’s receivable is not subject to future
subordination, and (4) the Company has transferred to the buyer the risks and rewards of ownership. Other revenues, including
fees paid by tenants to terminate their leases, are recognized when fees due are determinable, no further actions or services are
required to be performed by the Company, and collectibility is reasonably assured. Taxes assessed by government authorities on
revenue-producing transactions, such as sales, use, and value-added taxes, are primarily accounted for on a net basis on the
Company’s income statement.
Allowance for Doubtful Accounts and Notes
The Company records a provision for losses on accounts receivable to reduce them to the amount estimated to be collectible.
The Company records a provision for losses on notes receivable to reduce them to the present value of expected future cash flows
discounted at the loans’ effective interest rates or the fair value of the collateral if the loans are collateral dependent.
Depreciation and Amortization
Buildings, improvements, and equipment are primarily depreciated on straight-line bases over the estimated useful lives of the
assets, which generally range from 3 to 50 years. Capital expenditures that are recoverable from tenants are generally depreciated
over the estimated recovery period. Intangible assets are amortized on a straight-line basis over the estimated useful lives of the
assets. Tenant allowances are depreciated on a straight-line basis over the shorter of the useful life of the leasehold improvements
or the lease term. Deferred leasing costs are amortized on a straight-line basis over the lives of the related leases. In the event of
early termination of such leases, the unrecoverable net book values of the assets are recognized as depreciation and amortization
expense in the period of termination.
Capitalization
Direct and indirect costs that are clearly related to the acquisition, development, construction, and improvement of properties
are capitalized. Compensation costs are allocated based on actual time spent on a project. Costs incurred on real estate for ground
leases, property taxes, insurance, and interest costs for qualifying assets are capitalized during periods in which activities necessary
to get the property ready for its intended use are in progress.
F-11
The viability of all projects under construction or development, including those owned by Unconsolidated Joint Ventures, are
regularly evaluated on an individual basis under the accounting for abandonment of assets or changes in use. To the extent a project,
or individual components of the project, are no longer considered to have value, the related capitalized costs are charged against
operations. Additionally, all properties are reviewed for impairment on an individual basis whenever events or changes in
circumstances indicate that their carrying value may not be recoverable. Impairment of a shopping center owned by consolidated
entities is recognized when the sum of expected cash flows (undiscounted and without interest charges) is less than the carrying
value of the property. Other than temporary impairment of an investment in an Unconsolidated Joint Venture is recognized when
the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline
in value, including the results of discounted cash flow and other valuation techniques. To the extent impairment has occurred, the
excess carrying value of the asset over its estimated fair value is charged to income.
In the fourth quarter of 2015, the Company recognized an impairment charge on previously capitalized pre-development costs
related to its enclosed regional mall project that was intended to be part of the Miami Worldcenter mixed-use, urban development
in Miami, Florida (Note 5).
In leasing a shopping center space, the Company may provide funding to the lessee through a tenant allowance. In accounting
for a tenant allowance, the Company determines whether the allowance represents funding for the construction of leasehold
improvements and evaluates the ownership, for accounting purposes, of such improvements. If the Company is considered the
owner of the leasehold improvements for accounting purposes, the Company capitalizes the amount of the tenant allowance and
depreciates it over the shorter of the useful life of the leasehold improvements or the lease term. If the tenant allowance represents
a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of
the improvements for accounting purposes, the allowance is considered to be a lease incentive and is recognized over the lease
term as a reduction of rental revenue. Factors considered during this evaluation usually include (1) who holds legal title to the
improvements, (2) evidentiary requirements concerning the spending of the tenant allowance, and (3) other controlling rights
provided by the lease agreement (e.g. unilateral control of the tenant space during the build-out process). Determination of the
accounting for a tenant allowance is made on a case-by-case basis, considering the facts and circumstances of the individual tenant
lease. Substantially all of the Company’s tenant allowances have been determined to be leasehold improvements.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of 90 days or less at the date of purchase. The Company
deposits cash and cash equivalents with institutions with high credit quality. From time to time, cash and cash equivalents may
be in excess of FDIC insurance limits. Substantially all cash equivalents at December 31, 2015 were not insured or guaranteed by
the FDIC or any other government agency and were invested across four separate financial institutions as of December 31, 2015.
The Company is required to escrow cash balances for specific uses stipulated by certain of its lenders and other various agreements.
As of December 31, 2015 and December 31, 2014, the Company’s cash balances restricted for these uses were $6.4 million and
$37.5 million, respectively. As of December 31, 2015, $4.8 million of the $6.4 million of restricted cash was required under certain
debt agreements to be in escrow for a major construction project. Included in restricted cash is $5.5 million at December 31, 2015
on deposit in excess of the FDIC insured limit.
Acquisitions
The Company recognizes the assets acquired, the liabilities assumed, and any noncontrolling interests in the acquiree at their
fair values as of the acquisition date. The cost of acquiring a controlling ownership interest or an additional ownership interest (if
not already consolidated) is allocated to the tangible assets acquired (such as land and building) and to any identifiable intangible
assets based on their estimated fair values at the date of acquisition. The fair value of a property is determined on an “as-if-vacant”
basis. Management considers various factors in estimating the "as-if-vacant" value including an estimated lease up period, lost
rents, and carrying costs. The identifiable intangible assets would include the estimated value of “in-place” leases, above and
below market “in-place” leases, and tenant relationships. The portion of the purchase price that management determines should
be allocated to identifiable intangible assets is amortized in depreciation and amortization or as an adjustment to rental revenue,
as appropriate, over the estimated life of the associated intangible asset (for instance, the remaining life of the associated tenant
lease). The Company records goodwill when the cost of an acquired entity exceeds the net of the amounts assigned to assets
acquired and liabilities assumed. Costs related to the acquisition of a controlling interest, including due diligence costs, professional
fees, and other costs to effect an acquisition, are expensed as incurred.
F-12
Deferred Charges and Other Assets
Direct financing costs are deferred and amortized on a straight-line basis, which approximates the effective interest method,
over the terms of the related agreements as a component of interest expense. Direct costs related to successful leasing activities
are capitalized and amortized on a straight-line basis over the lives of the related leases. Cash expenditures for leasing costs are
recognized in the Consolidated Statement of Cash Flows as operating activities. All other deferred charges are amortized on a
straight-line basis over the terms of the agreements to which they relate.
Share-Based Compensation Plans
The cost of share-based compensation is measured at the grant date, based on the calculated fair value of the award, and is
recognized over the requisite employee service period which is generally the vesting period of the grant. The Company recognizes
compensation costs for awards with graded vesting schedules on a straight-line basis over the requisite service period for each
separately vesting portion of the award as if the award was, in-substance, multiple awards.
Interest Rate Hedging Agreements
All derivatives, whether designated in hedging relationships or not, are recorded on the balance sheet at fair value. If a derivative
is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other
comprehensive income (OCI) and are recognized in the income statement when the hedged item affects income. Ineffective portions
of changes in the fair value of a cash flow hedge are recognized in the Company’s income generally as interest expense (Note 10).
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk
management objectives and strategies for undertaking various hedge transactions. The Company assesses, both at the inception
of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting
changes in the cash flows of the hedged items.
Income Taxes
The Company operates in such a manner as to qualify as a REIT under the applicable provisions of the Internal Revenue Code.
To qualify as a REIT, the Company must distribute at least 90% of its REIT taxable income, determined without regard to the
dividends paid deduction and excluding net capital gains, to its shareowners and meet certain other requirements. As a REIT, the
Company is entitled to a dividends paid deduction for the dividends it pays to its shareowners. Therefore, the Company will
generally not be subject to federal income taxes as long as it currently distributes to its shareowners an amount equal to or in
excess of its taxable income. REIT qualification reduces but does not eliminate the amount of state and local taxes paid by the
Company. In addition, a REIT may be subject to certain excise taxes if it engages in certain activities.
No provision for federal income taxes for consolidated partnerships has been made; as such taxes are the responsibility of the
individual partners. There are certain state income taxes incurred which are provided for in the Company’s financial statements.
The Company has made Taxable REIT Subsidiary (TRS) elections for all of its corporate subsidiaries pursuant to section 856
(I) of the Internal Revenue Code. The TRSs are subject to corporate level income taxes, including federal, state, and certain foreign
income taxes for foreign operations, which are provided for in the Company’s financial statements.
Deferred tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities for
financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. Deferred tax assets are reduced
by a valuation allowance to the amount where realization is more likely than not assured after considering all available evidence,
including expected taxable earnings. The Company’s temporary differences primarily relate to deferred compensation, depreciation,
and net operating loss carryforwards.
F-13
Noncontrolling Interests
Noncontrolling interests in the Company are comprised of the ownership interests of (1) noncontrolling interests in the Operating
Partnership and (2) the noncontrolling interests in joint ventures controlled by the Company through ownership or contractual
arrangements. Consolidated net income and comprehensive income includes amounts attributable to the Company and the
noncontrolling interests. Transactions that change the Company's ownership interest in a subsidiary are accounted for as equity
transactions if the Company retains its controlling financial interest in the subsidiary.
The Company evaluates whether noncontrolling interests are subject to any redemption features outside of the Company's control
that would result in presentation outside of permanent equity pursuant to general accounting standards regarding the classification
and measurement of redeemable equity instruments. Certain noncontrolling interests in the Operating Partnership and consolidated
ventures of the Company qualify as redeemable noncontrolling interests (Note 9). To the extent such noncontrolling interests are
currently redeemable or it is probable that they will eventually become redeemable, these interests are adjusted to the greater of
their redemption value or their carrying value at each balance sheet date.
Foreign Currency Translation
The Company has certain entities in Asia for which the functional currency is the local currency. The assets and liabilities of
the entities are translated from their functional currency into U.S. Dollars at the rate of exchange in effect on the balance sheet
date. Income statement accounts are generally translated using the average exchange rate for the period. Income statement amounts
of significant transactions are translated at the rate in effect as of the date of the transaction. The Company's share of unrealized
gains and losses resulting from the translation of the entities' financial statements are reflected in shareholders' equity as a component
of Accumulated Other Comprehensive Income (Loss) in the Company's Consolidated Balance Sheet (Note 19).
Discontinued Operations
Prior to 2014, the Company reclassified to discontinued operations any material operations and gains or losses on disposal
related to properties that are held for sale or disposed of during the period in accordance with the applicable accounting standards.
In 2014 the Company early adopted Accounting Standards Update (ASU) No. 2014-08, "Reporting Discontinued Operations and
Disclosures of Disposals of Components of an Entity" issued by the Financial Accounting Standards Board (FASB). ASU No.
2014-08 changes the definition of a discontinued operation to include only those disposals of components of an entity that represent
a strategic shift that has (or will have) a major effect on an entity's operations and financial results. The Company applied the
revised definition to all disposals on a prospective basis beginning January 1, 2014.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Segments and Related Disclosures
The Company has one reportable operating segment: it owns, develops, and manages regional shopping centers. The Company
has aggregated its shopping centers into this one reportable segment, as the shopping centers share similar economic characteristics
and other similarities. The shopping centers are located in major metropolitan areas, have similar tenants (most of which are
national chains), are operated using consistent business strategies, and are expected to exhibit similar long-term financial
performance. Net Operating Income (NOI) is often used by the Company's chief operating decision makers in assessing segment
operating performance. NOI is believed to be a useful indicator of operating performance as it is customary in the real estate and
shopping center business to evaluate the performance of properties on a basis unaffected by capital structure.
No single retail company represents 10% or more of the Company's revenues. Although the Company does business in China
and South Korea, there are not yet any material revenues from customers or long-lived assets attributable to a country other than
the United States of America. At December 31, 2015, the Company's investments in Asia are in Unconsolidated Joint Ventures
and accounted for under the equity method.
F-14
Note 2 - Dispositions, Acquisition, and Developments
Dispositions
Sale of Centers to Starwood
In October 2014, the Company completed the disposition of a portfolio of seven centers to an affiliate of the Starwood Capital
Group (Starwood). The following centers (Sale Centers) were sold: MacArthur Center in Norfolk, Virginia, Stony Point Fashion
Park in Richmond, Virginia, Northlake Mall in Charlotte, North Carolina, The Mall at Wellington Green in Wellington, Florida,
The Shops at Willow Bend in Plano, Texas, The Mall at Partridge Creek in Clinton Township, Michigan, and Fairlane Town Center
in Dearborn, Michigan. The results of the seven centers are in the Company's continuing operations for all periods prior to the
October 2014 sale, pursuant to the Company's previous adoption of Accounting Standards Update (ASU) No. 2014-08, "Reporting
Discontinued Operations and Disclosures of Disposals of Components of an Entity" beginning January 1, 2014.
In connection with the sale, the Company received consideration of $1.4 billion. The proceeds were used to prepay or defease
$623 million of property-level debt and accrued interest and to pay $51.2 million of transaction and debt extinguishment costs.
The net cash proceeds were used to pay $424.3 million to shareholders and unitholders as a special dividend (Note 3). The debt
extinguished consisted of four loans secured by Northlake Mall, The Mall at Wellington Green, MacArthur Center, and The Mall
at Partridge Creek (Note 8).
The Company recognized a gain of $629.7 million ($606.2 million at TRG's beneficial share) as a result of the disposition of
the Sale Centers. In addition, the Company recorded debt extinguishment costs of $36.4 million, ($36.0 million at TRG's beneficial
share) which were classified as Nonoperating Income (Expense) on the Consolidated Statement of Operations and Comprehensive
Income.
In 2014, the Company incurred $7.8 million of expenses ($7.4 million at TRG's beneficial share) related to the discontinuation
of hedge accounting on the swap previously designated to hedge the MacArthur Center note payable. In addition, the Company
incurred $3.3 million of disposition costs related to the Sale Centers. These expenses were included in Nonoperating Income
(Expense) on the Consolidated Statement of Operations and Comprehensive Income.
As a result of the sale, the Company underwent a restructuring plan to reduce its workforce across various areas of the organization.
In 2014, the Company incurred $3.7 million of expenses related to the reduction in workforce. These expenses were classified as
Restructuring Charge on the Consolidated Statement of Operations and Comprehensive Income. As of December 31, 2015,
substantially all of the restructuring costs have been paid.
International Plaza
In January 2014, the Company sold a total of 49.9% of the Company's interests in the entity that owns International Plaza,
including certain governance rights, for $499 million (excluding transaction costs), which consisted of $337 million of cash and
approximately $162 million of beneficial interest in debt. The Company's ownership in the center decreased to a noncontrolling
50.1% interest, which is accounted for under the equity method subsequent to the disposition. During 2014, a gain of $368 million
(net of tax of $9.7 million) was recognized as a result of the sale. In September 2015, an adjustment of $0.4 million was made,
reducing the tax recognized as a result of the sale.
Arizona Mills/Oyster Bay
In January 2014, the Company completed the sale of its 50% interest in Arizona Mills, an Unconsolidated Joint Venture, and
land in Syosset, New York related to the former Oyster Bay project, to Simon Property Group (SPG). The consideration, excluding
transaction costs, consisted of $60 million of cash and 555,150 partnership units in Simon Property Group Limited Partnership.
The number of partnership units received was determined based on a value of $154.91 per unit. The fair value of the partnership
units recognized for accounting purposes was $77.7 million, after considering the one-year restriction on the sale of these partnership
units (Note 17). The number of partnership units subsequently increased to 590,124, in lieu of the Company's participation in a
distribution of certain partnership units of another entity by SPG and Simon Property Group Limited Partnership. The increase in
the number of partnership units was neutral to the market value of the Company's holdings as of the transaction date. The Company's
investment in the partnership units is classified within Deferred Charges and Other Assets on the Consolidated Balance Sheet. As
a result of the sale, the Company was relieved of its $84 million share of the $167 million mortgage loan outstanding on Arizona
Mills at the time of the sale. A gain of $109 million was recognized as a result of the transaction.
F-15
Acquisition
Purchase of U.S. Headquarters Building
In February 2014, the Company purchased the U.S. headquarters building located in Bloomfield Hills, Michigan for
approximately $16.1 million from an affiliate of the Taubman family. In exchange for the building, the Company assumed the
$17.4 million, 5.90% fixed rate loan on the building, issued 1,431 Operating Partnership units (and a corresponding number of
shares of Series B Preferred Stock), and received $1.4 million in escrowed and other cash from the affiliate. In March 2015, the
Company refinanced the loan on the building (Note 8).
U.S. Development
International Market Place
International Market Place, a 0.4 million square foot center, is under construction in Waikiki, Honolulu, Hawaii. The center will
be anchored by Saks Fifth Avenue and is scheduled to open in August 2016. The Company owns a 93.5% interest in the project,
which is subject to a participating ground lease. As of December 31, 2015, the Company's capitalized costs for the project were
$282.5 million ($264.7 million at TRG's share).
The Mall of San Juan
The Mall of San Juan, a 0.6 million square foot center in San Juan, Puerto Rico, opened in March 2015. The center is anchored
by Nordstrom and Saks Fifth Avenue. As of December 31, 2015, the Company owned a 95% interest in the center subsequent to
the acquisition of an additional 15% interest in April 2015. The additional interest was acquired at cost. In connection with the
acquisition, the noncontrolling owner used $9.3 million of previously contributed capital to fund its obligation to reimburse the
Company for certain shared infrastructure costs, which was classified as a reduction of the Noncontrolling interests and an offsetting
reduction of Properties on the Consolidated Balance Sheet (Note 18).
Asia Development
CityOn.Xi'an
The Company has a joint venture with Wangfujing Group Co., Ltd (Wangfujing), one of China's largest department store chains,
which will own a 60% controlling interest in and manage an approximately 1.0 million square foot shopping center, CityOn.Xi'an,
to be located at Xi'an Saigao City Plaza, a large-scale mixed-use development under construction in Xi'an, China. Through this
joint venture, the Company will beneficially own a 30% interest in the shopping center, which is scheduled to open in April 2016.
As of December 31, 2015, the Company's share of total project costs were $107.3 million, as decreased by $3.3 million for the
change in exchange rates. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated
Balance Sheet.
CityOn.Zhengzhou
The Company also has a second joint venture with Wangfujing which owns a majority interest in and will manage an approximately
1.0 million square foot multi-level shopping center, CityOn.Zhengzhou, under construction in Zhengzhou, China. Through this
joint venture, the Company beneficially owns a 32% interest in the shopping center, which is scheduled to open in fall 2016. As
of December 31, 2015, the Company's share of total project costs were $72.3 million, as decreased by $2.5 million for the change
in exchange rates. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance
Sheet.
Hanam Union Square
The Company's joint venture with Shinsegae Group, South Korea's largest retailer, is developing an approximately 1.7 million
square foot shopping center, Hanam Union Square, under construction in Hanam, Gyeonggi Province, South Korea, which is
scheduled to open in early fall 2016. The Company has partnered with a major institution in Asia for a 49% ownership interest in
Hanam Union Square. The institutional partner owns 14.7% of the project, bringing the Company's effective ownership to 34.3%.
As of December 31, 2015, the Company's share of total project costs were $207.2 million, as decreased by $12.5 million for the
change in exchange rates. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated
Balance Sheet.
F-16
Note 3 - Income Taxes
Income Tax Expense
The Company’s income tax expense (benefit) for the years ended December 31, 2015, 2014, and 2013 consisted of the following:
Federal current
Federal deferred
Foreign current
Foreign deferred
State current
State deferred
Total income tax expense
Less income tax (expense) benefit allocated to Gain on Dispositions (1)
Income tax expense as reported on the Consolidated Statement
of Operations and Comprehensive Income
2015
2014
2013
1,931
(34)
628
(114)
(528)
(72)
1,811
437
$
8,036
$
1,354
1,300
(48)
1,361
(3)
12,000
(9,733)
$
$
547
632
2,193
(116)
230
(77)
3,409
2,248
$
2,267
$
3,409
$
$
$
(1) Amount represents the income taxes incurred as part of the Company's sale of interests in International Plaza in January 2014. The tax on
the sale is classified within Gain on Dispositions, Net of Tax on the Consolidated Statement of Operations and Comprehensive Income. In
September 2015, an adjustment of $0.4 million was made to reduce the tax recognized as a result of the sale.
Net Operating Loss Carryforwards
As of December 31, 2015, the Company had a foreign net operating loss carryforward of $4.2 million. Of the $4.2 million, $0.2
million had a carryforward period of 10 years and the remaining had an indefinite carryforward period.
Deferred Taxes
Deferred tax assets and liabilities as of December 31, 2015 and 2014 were as follows:
Deferred tax assets:
Federal
Foreign
State
Total deferred tax assets
Valuation allowances
Net deferred tax assets
Deferred tax liabilities:
Federal
Foreign
State
Total deferred tax liabilities
2015
2014
$
$
$
$
$
1,427
1,676
944
4,047
(1,913)
2,134
602
501
70
1,173
$
$
$
$
$
1,382
1,806
471
3,659
(1,703)
1,956
592
473
89
1,154
The Company believes that it is more likely than not the results of future operations will generate sufficient taxable income to
recognize the net deferred tax assets. These future operations are primarily dependent upon the Manager's profitability, the timing
and amounts of gains on peripheral land sales, the profitability of Taubman Asia's operations, and other factors affecting the results
of operations of the Taxable REIT Subsidiaries. The valuation allowances relate to net operating loss carryforwards and tax basis
differences where there is uncertainty regarding their realizability.
F-17
International Plaza
In November 2013, substantially all of the interest in International Plaza acquired by the Company in 2012 was transferred to
a Taxable REIT Subsidiary of the Company. Prior to the transfer in November 2013, substantially all of the interest was held by
a nontaxable subsidiary of the Company. No deferred taxes were recorded related to any book-tax basis differences related to this
transaction because of its intercompany nature.
Tax Status of Dividends
Dividends declared on the Company’s common and preferred stock and their tax status are presented in the following tables.
The tax status of the Company’s dividends in 2015, 2014, and 2013 may not be indicative of future periods.
Dividends per
common
share declared
Return of
capital
Ordinary
income
Long term
capital gain
Unrecaptured
Sec. 1250
capital gain
$
2.2600
$
0.0972
$
2.1621
$
0.0004
$
0.0003
4.7500 (1)
2.1600
2.0000
0.7057
0.3208
0.2636
0.0000
1.7773
1.7364
1.8748 (2)
0.0287 (2)
0.0000
2.1695 (2)
0.0332 (2)
0.0000
Year
2015
2014
2014
2013
(1)
Includes a special dividend of $4.75 per share of common stock declared and paid during December 2014, which was declared
as a result of the Company's disposition of a portfolio of seven centers to Starwood in October 2014 (Note 2).
(2) The portion of the per share common dividends paid on December 31, 2014 designated as capital gain (long term and unrecaptured
Sec. 1250) dividends for tax purposes is $0.0619 per share of the $0.54 dividend and $4.0443 per share of the $4.75 dividend).
Dividends per
Series J
Preferred
share declared
1.6250
$
1.6250
1.6250
Ordinary
income
Long term
capital gain
Unrecaptured
Sec. 1250
capital gain
$
$
1.6245
0.49072
1.6250
$
0.0003
0.52580 (1)
0.0000
0.0002
0.60848 (1)
0.0000
Year
2015
2014
2013
(1) The portion of the per share Series J preferred dividends designated as capital gain (long term and unrecaptured Sec.
1250) for tax purposes is as follows; $0.32178 per share of the $0.40625 paid on June 30, 2014, $0.40625 per share of the
$0.40625 paid on September 30, 2014, and $0.40625 per share of the $0.40625 paid on December 31, 2014.
Dividends per
Series K
Preferred
share declared
1.56250
$
1.56250
1.24132
Ordinary
income
Long term
capital gain
Unrecaptured
Sec. 1250
capital gain
$
$
1.5620
0.47185
1.24132
$
0.0003
0.50558 (1)
0.0000
0.0002
0.58507 (1)
0.0000
Year
2015
2014
2013
(1) The portion of the per share Series K preferred dividends designated as capital gain (long term and unrecaptured Sec.
1250) for tax purposes is as follows; $0.30939 per share of the $0.39063 paid on June 30, 2014, $0.39063 per share of the
$0.39063 paid on September 30, 2014, and $0.39063 per share of the $0.39063 paid on December 31, 2014.
Uncertain Tax Positions
The Company expects no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within
one year of December 31, 2015. The Company has no material interest or penalties relating to income taxes recognized in the
Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2015, 2014, and 2013 or in
the Consolidated Balance Sheet as of December 31, 2015 and 2014. As of December 31, 2015, returns for the calendar years 2012
through 2015 remain subject to examination by U.S. and various state and foreign tax jurisdictions.
F-18
Note 4 - Properties
Properties at December 31, 2015 and December 31, 2014 are summarized as follows:
Land
Buildings, improvements, and equipment
Construction in process and pre-development costs
Accumulated depreciation and amortization
2015
2014
243,870
$
226,252
3,107,338
362,007
3,713,215
(1,052,027)
2,661,188
$
$
2,457,660
578,593
3,262,505
(970,045)
2,292,460
$
$
$
Depreciation expense for 2015, 2014, and 2013 was $98.8 million, $110.1 million, and $142.5 million, respectively.
The charge to operations in 2015, 2014, and 2013 for domestic and non-U.S. pre-development activities was $4.3 million, $4.2
million, and $10.6 million, respectively.
Note 5 - Investments in Unconsolidated Joint Ventures
General Information
The Company owns beneficial interests in joint ventures that own shopping centers. The Operating Partnership is the sole direct
or indirect managing general partner or managing member of Fair Oaks, International Plaza, Stamford Town Center, Sunvalley,
The Mall at University Town Center, and Westfarms. The Operating Partnership also provides certain management, leasing, and/
or development services to the other shopping centers noted below.
Shopping Center
CityOn.Xi'an (under construction)
CityOn.Zhengzhou (under construction)
Fair Oaks
Hanam Union Square (under construction)
International Plaza
The Mall at Millenia
Stamford Town Center
Sunvalley
The Mall at University Town Center
Waterside Shops
Westfarms
Ownership as of
December 31, 2015 and 2014
Note 2
Note 2
50%
Note 2
50.1
50
50
50
50
50
79
The Company's carrying value of its Investment in Unconsolidated Joint Ventures differs from its share of the partnership or
members’ equity reported in the combined balance sheet of the Unconsolidated Joint Ventures due to (i) the Company's cost of its
investment in excess of the historical net book values of the Unconsolidated Joint Ventures and (ii) the Operating Partnership’s
adjustments to the book basis, including intercompany profits on sales of services that are capitalized by the Unconsolidated Joint
Ventures. The Company's additional basis allocated to depreciable assets is recognized on a straight-line basis over 40 years. The
Operating Partnership’s differences in bases are amortized over the useful lives or terms of the related assets and liabilities.
In its Consolidated Balance Sheet, the Company separately reports its investment in Unconsolidated Joint Ventures for which
accumulated distributions have exceeded investments in and net income of the Unconsolidated Joint Ventures. The net equity of
certain joint ventures is less than zero because distributions are usually greater than net income, as net income includes non-cash
charges for depreciation and amortization. In addition, any distributions related to refinancing of the centers further decrease the
net equity of the centers.
F-19
The Mall at Miami Worldcenter
In 2015, the Company made a decision not to move forward with an enclosed regional mall that was intended to be part of the
Miami Worldcenter mixed-use, urban development in Miami, Florida. As a result of this decision, an impairment charge of $11.8
million was recognized in the fourth quarter of 2015, which represents previously capitalized costs related to the pre-development
of the enclosed mall plan. The impairment charge was recorded within Equity in Income of Unconsolidated Joint Ventures on the
Consolidated Statement of Operations and Comprehensive Income.
Combined Financial Information
Combined balance sheet and results of operations information is presented in the following table for the Unconsolidated Joint
Ventures, followed by the Operating Partnership's beneficial interest in the combined operations information. The combined
information of the Unconsolidated Joint Ventures as of December 31, 2015 and December 31, 2014 excludes the balances of
CityOn.Xi'an, CityOn.Zhengzhou, and Hanam Union Square which are currently under construction (Note 2). Beneficial interest
is calculated based on the Operating Partnership's ownership interest in each of the Unconsolidated Joint Ventures.
Assets:
Properties
Accumulated depreciation and amortization
Cash and cash equivalents
Accounts and notes receivable, less allowance for doubtful accounts of $1,602 and $1,590
in 2015 and 2014
Deferred charges and other assets
Liabilities and accumulated deficiency in assets:
Notes payable (1)
Accounts payable and other liabilities
TRG's accumulated deficiency in assets
Unconsolidated Joint Venture Partners' accumulated deficiency in assets
TRG's accumulated deficiency in assets (above)
TRG's investment in properties under construction (Note 2)
TRG basis adjustments, including elimination of intercompany profit
TCO's additional basis
Net Investment in Unconsolidated Joint Ventures
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures
Investment in Unconsolidated Joint Ventures
December 31
2015
December 31
2014
$
$
1,628,492
(589,145)
1,039,347
$
$
36,047
42,361
39,562
1,580,926
(548,646)
1,032,280
49,765
38,788
33,200
$
1,157,317
$
1,154,033
$
2,001,200
$
1,989,546
70,539
(512,256)
(402,166)
1,157,317
$
103,161
(525,759)
(412,915)
1,154,033
(512,256) $
296,847
132,218
53,016
(30,175) $
464,086
(525,759)
232,091
132,058
54,963
(106,647)
476,651
433,911
$
370,004
$
$
$
$
(1) As the balances presented exclude those of centers under construction, the Notes Payable amount excludes the construction loans outstanding for
Hanam Union Square of $52.9 million ($18.1 million at TRG's share) and CityOn.Zhengzhou of $44.7 million ($14.2 million at TRG's share) at
December 31, 2015.
F-20
Revenues
Year Ended December 31
2015
2014
2013
$ 378,280
$ 338,017
$ 294,720
Maintenance, taxes, utilities, promotion, and other operating expenses
$ 118,909
$ 106,249
$
92,901
Interest expense
Depreciation and amortization
Total operating costs
Nonoperating expense
Net income
Net income attributable to TRG
85,198
55,318
74,806
47,377
$ 259,425
(1)
$ 118,854
$ 228,432
(22)
$ 109,563
$
65,384
$
60,690
Realized intercompany profit, net of depreciation on TRG’s basis adjustments
Depreciation of TCO's additional basis
Beneficial interest in UJV impairment charge - Miami Worldcenter
Equity in income of Unconsolidated Joint Ventures
4,542
(1,946)
(11,754)
56,226
$
Beneficial interest in Unconsolidated Joint Ventures’ operations:
Interest expense
Revenues less maintenance, taxes, utilities, promotion, and other operating expenses $ 147,905
(45,564)
(34,361)
(11,754)
56,226
Beneficial interest in UJV impairment charge - Miami Worldcenter
Equity in income of Unconsolidated Joint Ventures
Depreciation and amortization
$
3,258
(1,946)
$
62,002
$
52,465
$ 132,652
(40,416)
(30,234)
$ 114,939
(37,554)
(24,920)
$
62,002
$
52,465
68,998
36,644
$ 198,543
$
$
96,177
53,166
1,245
(1,946)
Related Party
TRG owns a 50% general partnership interest in Sunvalley, while the other 50% is controlled by the A. Alfred Taubman Restated
Revocable Trust. A. Alfred Taubman was the former Chairman of the Board and the father of Robert S. and William S. Taubman.
Sunvalley is subject to a ground lease on the land, which is 50% owned through an affiliate of TRG and 50% by an entity owned
and controlled by Robert S. Taubman, William S. Taubman, and Gayle Taubman Kalisman. The Manager is the manager of the
Sunvalley shopping center.
Other
The provision for losses on accounts receivable of the Unconsolidated Joint Ventures was $0.9 million, $1.7 million, and $0.6
million for the years ended December 31, 2015, 2014, and 2013, respectively.
Deferred charges and other assets of $39.6 million at December 31, 2015 were comprised of leasing costs of $39.7 million,
before accumulated amortization of $(17.8) million, net deferred financing costs of $7.0 million, and other net charges of $10.6
million. Deferred charges and other assets of $33.2 million at December 31, 2014 were comprised of leasing costs of $37.2 million,
before accumulated amortization of $(16.6) million, net deferred financing costs of $9.6 million, and other net charges of $3.0
million.
Depreciation expense on properties for 2015, 2014, and 2013 was $50.0 million, $40.9 million, and $35.6 million, respectively.
F-21
Note 6 - Accounts and Notes Receivable
Accounts and notes receivable at December 31, 2015 and December 31, 2014 are summarized as follows:
Trade
Notes
Straight-line rent and recoveries
Less: Allowance for doubtful accounts
2015
2014
29,559
$
1,297
26,665
57,521
(2,974)
54,547
$
$
24,757
2,037
25,378
52,172
(2,927)
49,245
$
$
$
Note 7 - Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 2015 and December 31, 2014 are summarized as follows:
Leasing costs
Accumulated amortization
In-place leases, net
Investment in SPG partnership units (Notes 2 and 17)
Deferred financing costs, net
Insurance deposit (Note 17)
Deposits
Prepaid expenses
Deferred tax asset, net
Other, net
2015
2014
$
$
29,097
(10,702)
18,395
$
$
27,454
(10,659)
16,795
8,525
77,711
22,693
14,346
40,424
6,622
2,134
7,324
11,765
77,711
15,815
13,059
40,257
5,496
1,956
5,581
$
198,174
$
188,435
As of both December 31, 2015 and December 31, 2014, the Company had $37.0 million in restricted deposits related to its Asia
investments.
F-22
Note 8 - Notes Payable
Notes payable at December 31, 2015 and December 31, 2014 consist of the following:
2015
2014
Stated Interest
Rate
Cherry Creek Shopping Center
$
City Creek Center
El Paseo Village
The Gardens on El Paseo
Great Lakes Crossing Outlets
The Mall at Green Hills
International Market Place
The Mall of San Juan
The Mall at Short Hills
The Mall at Short Hills
280,000
81,756 (1)
$
81,920 (3)
212,863
150,000
92,169 (5)
258,250 (6)
1,000,000
280,000
83,189 (1)
15,932 (2)
83,059 (3)
217,281
150,000
163,779 (6)
540,000
5.24%
4.37%
4.42%
6.10%
3.60%
LIBOR+1.60%
LIBOR + 1.75%
LIBOR + 2.00%
3.48%
5.47%
Maturity
Date
06/08/16
08/01/23
06/11/16
01/06/23
12/01/18
08/14/18
04/02/17
10/01/27
Balance
Due on
Maturity
Facility
Amount
$
280,000
68,575
(4)
(5)
(6)
81,480
177,038
150,000
92,169
$ 330,890
258,250
320,000
1,000,000
U.S. Headquarters Building
12,000
LIBOR + 1.40% (7)
03/01/24
12,000
U.S. Headquarters Building
$65M Revolving Credit Facility
$1.1B Revolving Credit Facility
(9)
(10) (11)
17,265 (8)
(9)
(10) (11)
$475M Unsecured Term Loan
475,000 (11) (12)
475,000 (11) (12)
$
2,643,958
$ 2,025,505
5.90%
LIBOR + 1.40%
LIBOR + 1.25% (10)
LIBOR + 1.35% (12)
04/30/16
02/28/19
02/28/19
(10)
475,000
65,000 (9)
1,100,000 (10)
(1) The Operating Partnership has provided a limited guarantee of the repayment of the City Creek Center loan, which could be triggered only upon a
decline in center occupancy to a level that the Company believes is remote.
(2) Balance includes purchase accounting premium adjustment of $0.1 million in 2014 for an above market interest rate upon acquisition of the center in
December 2011. In October 2015, the Company paid off the mortgage note payable on El Paseo Village.
(3) Balance includes purchase accounting premium adjustment of $0.4 million and $1.6 million in 2015 and 2014, respectively, for an above market interest
rate upon acquisition of the center in December 2011.
(4) Loan has a one-year extension option.
(5) The Operating Partnership has provided an unconditional guaranty of 50% of the principal balance and all accrued but unpaid interest during the term
of the loan. The principal guarantee may be reduced to 25% of the outstanding principal balance or terminated upon achievement of certain performance
measures. Loan has two, one-year extension options.
(6) The Operating Partnership has provided an unconditional guaranty of the principal balance and all accrued but unpaid interest during the term of the
loan. Loan has two, one-year extension options.
(7) Debt is swapped via a hedge at 2.09% plus a 1.40% credit spread for an effective rate of 3.49% until maturity.
(8) Balance includes purchase accounting premium adjustment of $0.2 million for an above market interest rate upon acquisition of the building in February
2014 (Note 2).
(9) The unused borrowing capacity at December 31, 2015 was $58.8 million, after considering $6.2 million of letters of credit outstanding on the facility.
(10) TRG is the borrower under the $1.1 billion unsecured revolving credit facility with an accordion feature to increase the borrowing capacity to $1.5
billion, subject to certain conditions including having the borrowing capacity based on the unencumbered asset pool EBITDA and obtaining lender
commitments. As of December 31, 2015, the Company cannot fully utilize the accordion feature unless additional assets are added to the unencumbered
asset pool. The facility bears interest at a range of LIBOR plus 1.15% to LIBOR plus 1.70% and a facility fee of 0.20% to 0.30% based on the Company's
total leverage ratio. The facility has a one-year extension option. The unused borrowing capacity at December 31, 2015 was $1.1 billion.
(11) As of December 31, 2015, the entities that own Beverly Center, Dolphin Mall, and Twelve Oaks Mall are guarantors under the $475 million unsecured
term loan and the $1.1 billion unsecured revolving credit facility.
(12) TRG is the borrower under the $475 million unsecured term loan with an accordion feature to increase the borrowing capacity to $600 million, subject
to certain conditions including having the borrowing capacity based on the unencumbered asset pool EBITDA and obtaining lender commitments. As
of December 31, 2015, the Company cannot fully utilize the accordion feature unless additional assets are added to the unencumbered asset pool. The
loan bears interest at a range of LIBOR plus 1.35% to LIBOR plus 1.90% based on the Company's total leverage ratio. From January 2014 until maturity,
the LIBOR rate is swapped to a fixed rate of 1.65%, resulting in an effective rate in the range of 3.00% to 3.55% (Note 10).
Notes payable are collateralized by properties with a net book value of $1.8 billion at December 31, 2015.
F-23
The following table presents scheduled principal payments on notes payable as of December 31, 2015:
2016
2017
2018
2019
2020
Thereafter
Total principal maturities
Net unamortized debt premiums
Total notes payable
$
$
$
367,527
264,566 (1)
248,731 (2)
481,820
7,058
1,273,816
2,643,518
440
2,643,958
(1)
(2)
Includes $258.3 million with two, one-year extension options.
Includes $92.2 million with two, one-year extension options and $150.0 million with a one-year extension option.
2016 Maturities
The $65.0 million revolving credit facility is scheduled to mature in April 2016. The Company intends to extend the line of
credit for one year upon maturity.
In the second quarter of 2016, the Company expects to complete a refinancing of the loan at Cherry Creek Shopping Center
prior to or upon maturity. The existing $280.0 million, 5.24% fixed rate loan is scheduled to mature in June 2016. Also, in the
second quarter of 2016, the Company expects to pay off the loan on The Gardens on El Paseo at the earliest prepayment date
without penalty. The existing $81.9 million, 6.10% fixed rate loan on The Gardens on El Paseo is scheduled to mature in June
2016.
Debt Covenants and Guarantees
Certain loan agreements contain various restrictive covenants, including the following corporate covenants on the Company’s
unsecured primary revolving line of credit, unsecured term loan, and the construction facilities on The Mall at University Town
Center, The Mall of San Juan, and International Market Place: a minimum net worth requirement, a maximum total leverage ratio,
a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum recourse secured debt ratio, and a maximum
payout ratio. In addition, the Company’s primary revolving line of credit and term loan have unencumbered pool covenants, which
currently apply to Beverly Center, Dolphin Mall, and Twelve Oaks Mall on a combined basis. These covenants include a minimum
number and minimum value of eligible unencumbered assets, a maximum unencumbered leverage ratio, a minimum unencumbered
interest coverage ratio, and a minimum unencumbered asset occupancy ratio. As of December 31, 2015, the corporate total leverage
ratio was the most restrictive covenant. The Company was in compliance with all of its covenants and loan obligations as of
December 31, 2015. The maximum payout ratio covenant limits the payment of distributions generally to 95% of funds from
operations, as defined in the loan agreements, except as required to maintain the Company’s tax status, pay preferred distributions,
and for distributions related to the sale of certain assets.
In connection with the financing of the construction facility at International Market Place, the Operating Partnership has provided
an unconditional guarantee of 50% of the construction loan principal balance and all accrued but unpaid interest during the term
of the loan. The Operating Partnership has also provided a guarantee as to the completion of construction of the center. The
maximum amount of the construction facility is $330.9 million. The outstanding balance of the International Market Place
construction financing facility as of December 31, 2015 was $92.2 million. Accrued but unpaid interest as of December 31, 2015
was $0.1 million. The principal guaranty may be reduced to 25% of the outstanding principal balance upon stabilization and
achievement of certain performance measures. The principal guaranty may be released upon achievement of further restrictive
performance measures. The Company believes the likelihood of a payment under the guarantees to be remote.
F-24
In connection with the financing of the construction facility at The Mall at University Town Center, which is owned by an
Unconsolidated Joint Venture, the Operating Partnership provided an unconditional guarantee of 25% of the construction loan
principal balance and 50% of all accrued but unpaid interest during the term of the loan. The maximum amount of the construction
facility is $225 million. The outstanding balance of the Mall at University Town Center construction financing facility as of
December 31, 2015 was $220.7 million. Accrued but unpaid interest as of December 31, 2015 was $0.4 million. The principal
guaranty may be reduced to 12.5% of the outstanding principal balance upon achievement of certain performance measures. Upon
stabilization, the unconditional guaranty may be released. The Company believes the likelihood of a payment under the guarantee
to be remote.
In connection with the financing of the construction facility at The Mall of San Juan, the Operating Partnership has provided
an unconditional guarantee of the construction loan principal balance and all accrued but unpaid interest during the term of the
loan. In addition, the Operating Partnership has provided a guarantee as to the completion of the center. The maximum amount
of the construction facility is $320 million. The outstanding balance of The Mall of San Juan construction financing facility as of
December 31, 2015 was $258.3 million. Accrued but unpaid interest as of December 31, 2015 was $0.3 million. The Company
believes the likelihood of a payment under the guarantees to be remote.
In connection with the $175 million additional financing at International Plaza, which is owned by an Unconsolidated Joint
Venture, the Operating Partnership provided an unconditional and several guarantee of 50.1% of all obligations and liabilities
related to an interest rate swap that was required on the debt for the term of the loan. As of December 31, 2015, the interest rate
swap was in a liability position of $1.8 million and had unpaid interest of $0.2 million. The Company believes the likelihood of
a payment under the guarantee to be remote.
Other
The Company is required to escrow cash balances for specific uses stipulated by certain of its lenders and other various agreements.
As of December 31, 2015 and December 31, 2014, the Company's cash balances restricted for these uses were $6.4 million and
$37.5 million, respectively. As of December 31, 2015, $4.8 million of the $6.4 million of restricted cash was required under a
certain debt agreement to be in escrow for a major construction project.
F-25
Beneficial Interest in Debt and Interest Expense
The Operating Partnership's beneficial interest in the debt, capitalized interest, and interest expense of its consolidated subsidiaries
and its Unconsolidated Joint Ventures is summarized in the following table. The Operating Partnership's beneficial interest in the
consolidated subsidiaries excludes debt and interest related to the noncontrolling interests in Cherry Creek Shopping Center (50%),
International Market Place (6.5%), and The Mall of San Juan (20% prior to April 2015, and subsequently 5%), as well as the
noncontrolling interests in The Mall at Wellington Green (10%) and MacArthur Center (5%) through the disposition of the centers
in October 2014 (Note 2).
Debt as of:
December 31, 2015
December 31, 2014
Capitalized interest:
Year Ended December 31, 2015
Year Ended December 31, 2014
Interest expense:
Year Ended December 31, 2015
Year Ended December 31, 2014
At 100%
At Beneficial Interest
Consolidated
Subsidiaries
Unconsolidated
Joint Ventures
Consolidated
Subsidiaries
Unconsolidated
Joint Ventures
$
2,643,958
$
2,098,776
$
2,485,055
$
1,121,469
2,025,505
1,989,546
1,852,749
1,085,991
$
$
31,112 (1) $
27,255 (1)
792 (2) $
3,121
30,130
26,227
63,041
90,803
$
85,198
74,806
$
56,076
82,702
$
$
543 (2)
1,578
45,564
40,416
(1) The Company capitalizes interest costs incurred in funding its equity contributions to development projects accounted for as Unconsolidated Joint
Ventures. The capitalized interest cost is included in the Company's basis in its investment in Unconsolidated Joint Ventures. Such capitalized interest
reduces interest expense in the Company's Consolidated Statement of Operations and Comprehensive Income and in the table above is included within
Consolidated Subsidiaries.
(2) Capitalized interest on the Asia Unconsolidated Joint Venture construction loans is presented at the Company's beneficial interest in both the
Unconsolidated Joint Ventures (at 100%) and Unconsolidated Joint Ventures (at Beneficial Interest) columns.
F-26
Note 9 - Noncontrolling Interests
Redeemable Noncontrolling Interests
The Company's president of Taubman Asia (the Asia President) has an ownership interest in Taubman Asia, a consolidated
subsidiary. The Asia President is entitled to 10% of Taubman Asia's dividends, with 85% of his dividends being withheld as
contributions to capital. These withholdings will continue until he contributes and maintains his capital consistent with a 10%
ownership interest, including all capital funded by the Operating Partnership for Taubman Asia's operating and investment activities
subsequent to the Asia President obtaining his ownership interest. The Operating Partnership will have a preferred investment in
Taubman Asia to the extent the Asia President has not yet contributed capital commensurate with his ownership interest. This
preferred investment will accrue an annual preferential return equal to the Operating Partnership's average borrowing rate (with
the preferred investment and accrued return together being referred to herein as the preferred interest). The Taubman Asia operating
agreement provides that so long as the Taubman Asia President is employed by Taubman Asia on April 1, 2016, then during the
month ended April 30, 2016, he will have the right to exercise an option to put up to 40% of his ownership interest for cash in
December 2016 at a valuation determined as of October 31, 2016. In addition, Taubman Asia has the ability to call, and the Asia
President has the ability to put, the Asia President’s ownership interest upon specified terminations of the Asia President’s
employment, although such put or call right may not be exercised for specified time periods after certain termination events. The
redemption price for the ownership interest is 50% (increasing to 100% as early as June 2017) of the fair value of the ownership
interest less the amount required to return the Operating Partnership's preferred interest. The Company has determined that the
Asia President's ownership interest in Taubman Asia qualifies as an equity award, considering its specific redemption provisions,
and accounts for it as a contingently redeemable noncontrolling interest, with a carrying value of zero at both December 31, 2015
and December 31, 2014. Any adjustments to the redemption value are recorded through equity.
The Company owns a 93.5% controlling interest in a joint venture that is redeveloping International Market Place in Waikiki,
Honolulu, Hawaii. The 6.5% joint venture partner has no obligation nor the right to contribute capital. The Company is entitled
to a preferential return on its capital contributions. The Company has the right to purchase the joint venture partner's interest and
the joint venture partner has the right to require the Company to purchase the joint venture partner's interest after the third anniversary
of the opening of the center, and annually thereafter. The purchase price of the joint venture partner's interest will be based on fair
value. Considering the redemption provisions, the Company accounts for the joint venture partner's interest as a contingently
redeemable noncontrolling interest with a carrying value of zero at both December 31, 2015 and December 31, 2014. Any
adjustments to the redemption value are recorded through equity.
Equity Balances of Nonredeemable Noncontrolling Interests
The net equity balance of the nonredeemable noncontrolling interests as of December 31, 2015 and December 31, 2014 included
the following:
Non-redeemable noncontrolling interests:
Noncontrolling interests in consolidated joint ventures
Noncontrolling interests in partnership equity of TRG
2015
2014
$
$
(23,569) $
31,573
8,004
$
(14,796)
116,376
101,580
F-27
Income Allocable to Noncontrolling Interests
Net income attributable to the noncontrolling interests for the years ended December 31, 2015, 2014, and 2013 included the
following:
Net income attributable to non-redeemable noncontrolling interests:
Noncontrolling share of income of consolidated joint ventures
Noncontrolling share of income of TRG
2015
2014
2013
$
$
11,222
47,208
58,430
$
$
34,239
350,870
385,109
$
$
10,344
46,434
56,778
Equity Transactions
The following schedule presents the effects of changes in Taubman Centers, Inc.’s ownership interest in consolidated subsidiaries
on Taubman Centers, Inc.’s equity for the years ended December 31, 2015, 2014, and 2013:
Net income attributable to Taubman Centers, Inc. common shareowners
Transfers (to) from the noncontrolling interest:
Increase in Taubman Centers, Inc.’s paid-in capital for the adjustments of
noncontrolling interest (1)
Decrease in Taubman Centers, Inc.’s paid-in capital related to the acquisition
of additional ownership interest in an outlet joint venture
Net transfers (to) from noncontrolling interests
Change from net income attributable to Taubman Centers, Inc. and transfers from
noncontrolling interests
2015
$ 109,020
2014
$ 863,857
2013
$ 109,908
69,521
69,521
83
83
15,129
(1,050)
14,079
$ 178,541
$ 863,940
$ 123,987
(1)
In 2015, 2014, and 2013, adjustments of the noncontrolling interest were made as a result of changes in the Company's ownership of the Operating
Partnership in connection with the Company's share-based compensation under employee and director benefit plans (Note 13), issuances of stock
pursuant to the continuing offer (Note 15), redemption of the outlet joint venture partner's interest in 2013, and stock repurchases (Note 14).
Finite Life Entities
Accounting Standards Codification Topic 480, “Distinguishing Liabilities from Equity” establishes standards for classifying
and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both
liabilities and equity. At December 31, 2015, the Company held a controlling interest in a consolidated entity with a specified
termination date in 2083. The noncontrolling owners’ interest in this entity is to be settled upon termination by distribution or
transfer of either cash or specific assets of the underlying entity. The estimated fair value of this noncontrolling interest was
approximately $530 million at December 31, 2015, compared to a book value of $(23.6) million that is classified in Noncontrolling
Interests in the Company’s Consolidated Balance Sheet. The fair value of the noncontrolling interest was calculated as the
noncontrolling interest's ownership shares of the underlying property's fair value. The property's fair value was estimated by
considering its in-place net operating income, current market capitalization rate, and mortgage debt outstanding.
F-28
Note 10 - Derivative and Hedging Activities
Risk Management Objective and Strategies for Using Derivatives
The Company uses derivative instruments, such as interest rate swaps and interest rate caps, primarily to manage exposure to
interest rate risks inherent in variable rate debt and refinancings. The Company may also enter into forward starting swaps or
treasury lock agreements to set the effective interest rate on a planned fixed-rate financing. The Company’s interest rate swaps
involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over
the life of the agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable-
rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.
In a forward starting swap or treasury lock agreement that the Company cash settles in anticipation of a fixed rate financing or
refinancing, the Company will receive or pay an amount equal to the present value of future cash flow payments based on the
difference between the contract rate and market rate on the settlement date.
The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are
not designated as hedging instruments under the accounting requirements for derivatives and hedging.
As of December 31, 2015, the Company had the following outstanding derivatives that were designated and are expected to be
effective as cash flow hedges of the interest payments and/or the currency exchange rate on the associated debt.
Instrument Type
Ownership
Notional
Amount
Swap Rate
Credit
Spread on
Loan
Total
Swapped
Rate on
Loan
Maturity Date
Consolidated Subsidiaries:
Receive variable (LIBOR) /
pay-fixed swap (1)
Receive variable (LIBOR) /
pay-fixed swap (1)
Receive variable (LIBOR) /
pay-fixed swap (1)
Receive variable (LIBOR) /
pay-fixed swap (2)
Unconsolidated Joint Ventures:
Receive variable (LIBOR) /
pay-fixed swap (3)
Receive variable (LIBOR) /
pay-fixed swap (3)
Receive variable (LIBOR) /
pay-fixed swap (4)
100% $
200,000
1.64%
1.35% (1)
2.99% (1)
February 2019
100%
175,000
1.65%
1.35% (1)
3.00% (1)
February 2019
100%
100,000
1.64%
1.35% (1)
2.99% (1)
February 2019
100%
12,000
2.09%
1.40%
3.49%
March 2024
50%
50%
134,698
2.40%
1.70%
4.10%
April 2018
134,698
2.40%
1.70%
4.10%
April 2018
50.1%
172,180
1.83%
1.75%
3.58%
December 2021
Receive variable (LIBOR)
USD/pay-fixed KRW cross-
currency interest rate swap (5)
52,065 USD /
60,500,000
KRW
34.3%
1.52%
1.60%
3.12%
September 2020
(1) The hedged forecasted transaction for each of these swaps is the first previously unhedged one-month LIBOR-indexed interest payments accrued and
made each month on a debt principal amount equal to the swap notional amount, regardless of the specific debt agreement from which they may flow.
The Company is currently using these swaps to manage interest rate risk on the $475 million TRG Term Loan. The credit spread on this loan can also
vary within a range of 1.35% to 1.90%, depending on the Company's leverage ratio at the measurement date.
(2) The notional amount on this swap is equal to the outstanding principal balance of the floating rate loan on the U.S. headquarters building.
(3) The notional amount on each of these swaps is equal to 50% of the outstanding principal balance of the loan on Fair Oaks.
(4) The notional amount on this swap is equal to the outstanding principal balance of the floating rate loan on International Plaza.
(5) The notional amount on this swap is equal to the outstanding principal balance of the U.S. dollar construction loan for Hanam Union Square. There is
a cross-currency interest rate swap to fix the interest rate on the loan and swap the related principal and interest payments from U.S. dollars to Korean
Won in order to reduce the impact of fluctuations in interest rates and exchange rates on the cash flows of the joint venture. The currency swap exchange
rate is 1,162.0.
F-29
Cash Flow Hedges
For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the unrealized gain or
loss on the derivative is reported as a component of Other Comprehensive Income (OCI). The ineffective portion of the change
in fair value, if any, is recognized directly in earnings. Net realized gains or losses resulting from derivatives that were settled in
conjunction with planned fixed-rate financings or refinancings continue to be included in AOCI during the term of the hedged
debt transaction.
Amounts reported in AOCI related to currently outstanding interest rate derivatives are recognized as an adjustment to income
as interest payments are made on the Company’s variable-rate debt. Realized gains or losses on settled derivative instruments
included in AOCI are recognized as an adjustment to income over the term of the hedged debt transaction. Amounts reported in
AOCI related to the cross-currency interest rate swap are recognized as an adjustment to income as transaction gains or losses
arising from the remeasurement of foreign currency denominated loans are recognized and as actual interest and principal
obligations are repaid.
The Company expects that approximately $7.9 million of the AOCI of Taubman Centers, Inc. and the noncontrolling interests
will be reclassified from AOCI and recognized as a reduction of income in the following 12 months.
The following tables present the effect of derivative instruments on the Company’s Consolidated Statement of Operations and
Comprehensive Income for the years ended December 31, 2015, 2014, and 2013. The tables include the amount of gains or losses
on outstanding derivative instruments recognized in OCI in cash flow hedging relationships and the location and amount of gains
or losses reclassified from AOCI into income resulting from outstanding derivative instruments and settled derivative instruments
associated with hedged debt.
F-30
During the year ended December 31, 2015, the Company had $0.3 million of hedge ineffectiveness expense related to the swaps
used to hedge the TRG term loan which was recorded in Nonoperating Income (Expense) on the Consolidated Statement of
Operations and Comprehensive Income. In addition, during the year ended December 31, 2015, the Company recorded a loss of
$0.2 million in Equity in Income of Unconsolidated Joint Ventures on the Consolidated Statement of Operations and Comprehensive
Income related to the Hanam Union Square swap prior to its hedge inception in September 2015 and an immaterial amount of
hedge ineffectiveness after hedge inception. During the year ended December 31, 2014, the Company had an immaterial amount
of hedge ineffectiveness related to the swap on MacArthur Center (prior to discontinuation of hedge accounting (Note 2)) recorded
as Nonoperating Income (Expense) on the Consolidated Statement of Operations and Comprehensive Income. For the year ended
December 31, 2013, the Company did not have any hedge ineffectiveness or amounts that were excluded from the assessment of
hedge effectiveness recorded in earnings.
Amount of Gain or (Loss)
Recognized in OCI on
Derivative (Effective Portion)
2015
2014
2013
Location of Gain or
(Loss) Reclassified from
AOCI into Income
(Effective Portion)
Amount of Gain or (Loss)
Reclassified from AOCI into
Income (Effective Portion)
2015
2014
2013
Nonoperating Income
(Expense) (1)
$ (4,880)
$ (1,730) $ (7,362) $ 9,990
Interest Expense (1)
$ (7,211)
(8,663) $ (3,221)
71
12
893
5,083 Equity in Income of UJVs
(4,489)
(3,186)
(3,080)
Equity in Income of UJVs
(321)
$ (1,647) $ (6,469) $ 15,073
$(12,021) $(16,729) $ (6,301)
Interest Expense
$
(605)
$
— $
— $
(605)
Derivatives in cash flow
hedging relationships:
Interest rate contracts –
consolidated subsidiary (1)
Interest rate contracts –
consolidated subsidiaries (1)
Interest rate contracts –
UJVs
Cross-currency interest rate
swap – UJV
Total derivatives in
cash flow hedging
relationships
Realized losses on settled
cash flow hedges:
Interest rate contracts –
consolidated subsidiary
Total realized losses on
settled cash flow
hedges
(1) Includes the MacArthur Center swap for the period that it was effective as a hedge until June 2014, when hedge accounting was discontinued.
F-31
The Company records all derivative instruments at fair value in the Consolidated Balance Sheet. The following table presents
the location and fair value of the Company’s derivative financial instruments as reported in the Consolidated Balance Sheet as of
December 31, 2015 and 2014.
Consolidated Balance Sheet Location
Fair Value
December 31
2015
December 31
2014
Derivatives designated as hedging instruments:
Asset derivative:
Interest rate contract - UJV
Investment in UJVs
Total assets designated as hedging instruments
$
$
— $
109
109
Liability derivatives:
Interest rate contracts – consolidated
subsidiaries
Accounts Payable and Accrued Liabilities
$
Interest rate contracts – UJVs
Investment in UJVs
Cross-currency and interest rate swap - UJV Investment in UJVs
(6,077) $
(4,974)
(11)
(4,044)
(5,154)
Total liabilities designated as hedging
instruments
Contingent Features
$
(11,062) $
(9,198)
All of the Company's outstanding derivatives contain provisions that state if the hedged entity defaults on its indebtedness above
a certain threshold, then the derivative obligation could also be declared in default. The cross default thresholds vary for each
agreement, ranging from $0.1 million of any indebtedness to $50 million of recourse indebtedness on the Company or the Operating
Partnership's indebtedness. As of December 31, 2015, the Company is not in default on any indebtedness that would trigger a
credit-risk-related default on its current outstanding derivatives.
As of December 31, 2015 and 2014, the fair value of derivative instruments with credit-risk-related contingent features that are
in a liability position was $11.1 million and $9.2 million, respectively. As of December 31, 2015 and 2014, the Company was not
required to post any collateral related to these agreements. If the Company breached any of these provisions it would be required
to settle its obligations under the agreements at their fair value. See Note 8 regarding guarantees and Note 17 for fair value
information on derivatives.
MacArthur Center Swap in Connection with Starwood Disposition
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate
movements and other identified risks but do not meet the strict hedge accounting requirements. Changes in the fair value of
derivatives not designated in hedging relationships are recorded directly in earnings.
In June 2014, in connection with entering into the Starwood Purchase and Sale Agreement, the Company discontinued hedge
accounting on the MacArthur Center swap and accelerated the reclassification of amounts in Accumulated Other Comprehensive
Income (Loss) (AOCI) to earnings as a result of it becoming probable that the center's debt would be early extinguished and the
hedged interest payments would not occur. The accelerated amount was a loss of $4.9 million recorded as a component of
Nonoperating Expense on the Consolidated Statement of Operations and Comprehensive Income. The Company also recorded a
loss of $2.9 million to Nonoperating Income (Expense) for the year ended December 31, 2014 for changes in the fair value of this
swap subsequent to the June 2014 discontinuation of hedge accounting. In October 2014, this swap was terminated and the debt
was paid off with the proceeds from the sale to Starwood (Note 2). As of December 31, 2015 and December 31, 2014, the Company
does not have any derivatives not designated as hedging instruments.
F-32
Note 11 - Leases
Shopping center space is leased to tenants and certain anchors pursuant to lease agreements. Tenant leases typically provide for
minimum rent, percentage rent, and other charges to cover certain operating costs. Future minimum rent under operating leases
in effect at December 31, 2015 for operating centers assuming no new or renegotiated leases or option extensions on anchor
agreements, is summarized as follows:
2016
2017
2018
2019
2020
Thereafter
$
310,376
284,829
261,734
235,118
202,877
599,205
Certain shopping centers, as lessees, have ground and building leases expiring at various dates through the year 2104. In addition,
one center has an option to extend the term for three 10-year periods and another center has the option to extend the lease term
for one additional 10-year period. Ground rent expense is recognized on a straight-line basis over the lease terms.
The Company also leases certain of its office facilities and certain equipment. Office facility and equipment leases expire at
various dates through the year 2020.
Rental expense on a straight-line basis under operating leases was $15.4 million in 2015, $12.6 million in 2014, and $13.4
million in 2013. Included in these amounts are related party office rental expense of $0.2 million in 2014 and $2.5 million in 2013.
The amounts were incurred prior to the Company's purchase of the U.S. headquarters building in February 2014 (Note 2), which
was previously rented from an affiliate of the Taubman family. Contingent rent expense under operating leases was $1.7 million
in 2014 and $1.4 million in 2013. There was no contingent rent expense under operating leases in 2015. Payables representing
straight-line rent adjustments under lease agreements were $52.6 million and $44.8 million, as of December 31, 2015, and 2014,
respectively.
The following is a schedule of future minimum rental payments required under operating leases:
2016
2017
2018
2019
2020
Thereafter
$
11,716
13,253
13,215
12,752
12,036
746,235
The Company owns the retail space subject to a long-term participating lease at City Creek Center, a mixed-use project in Salt
Lake City, Utah. City Creek Reserve, Inc. (CCRI), an affiliate of the LDS Church is the participating lessor. The Company owns
100% of the leasehold interest in the retail buildings and property. CCRI has an option to purchase the Company’s interest at fair
value at various points in time over the term of the lease. In addition to the minimum rent included in the table above, the Company
pays contingent rent based on the performance of the center.
International Market Place, a regional mall redevelopment project located in Waikiki, Honolulu, Hawaii, is scheduled to open
in August 2016. The project is subject to a long-term participating ground lease. In addition to minimum rent included in the table
above, the Company will pay contingent rent based on the performance of the center.
F-33
Note 12 - The Manager
The Taubman Company LLC (the Manager), which is 99% beneficially owned by the Operating Partnership, provides property
management, leasing, development, and other administrative services to the Company, the shopping centers, Taubman affiliates,
and other third parties. Accounts receivable from related parties include amounts due from Unconsolidated Joint Ventures or other
affiliates of the Company, primarily relating to services performed by the Manager. These receivables include certain amounts
due to the Manager related to reimbursement of third party (non-affiliated) costs.
The A. Alfred Taubman Restated Revocable Trust (the Revocable Trust) and certain of the Revocable Trust's affiliates receive
various management services from the Manager. For such services, the Revocable Trust and affiliates paid the Manager
approximately $2.9 million in both 2015 and 2014, and $3.1 million in 2013. These amounts are classified in Management, Leasing,
and Development Services revenues within the Consolidated Statement of Operations and Comprehensive Income.
Other related party transactions are described in Notes 5, 13, and 15.
Note 13 - Share-Based Compensation and Other Employee Plans
The Taubman Company 2008 Omnibus Long-Term Incentive Plan (2008 Omnibus Plan), as amended, which is shareowner
approved, provides for the award to directors, officers, employees, and other service providers of the Company of restricted shares,
restricted units of limited partnership in the Operating Partnership, options to purchase shares or Operating Partnership units,
unrestricted shares or Operating Partnership units, and other awards to acquire up to an aggregate of 8.5 million Company common
shares or Operating Partnership units. In addition, non-employee directors have the option to defer their compensation under a
deferred compensation plan.
Non-option awards granted after an amendment of the 2008 Omnibus Plan in 2010 are deducted at a ratio of 1.85 Company
common shares or Operating Partnership units, while non-option awards granted prior to the amendment are deducted at a ratio
of 2.85. Options are deducted on a one-for-one basis. The amount available for future grants is adjusted when the number of
contingently issuable shares or units are settled, for grants that are forfeited, and for options that expire without being exercised.
Prior to the adoption of the 2008 Omnibus Plan, the Company provided share-based compensation through an incentive option
plan and non-employee directors' stock grant and deferred compensation plans.
The compensation cost charged to income for the Company’s share-based compensation plans was $12.1 million, $17.1 million,
and $12.9 million for the years ended December 31, 2015, 2014, and 2013, respectively. During the year ended December 31,
2015, a reversal of $2.0 million of prior period share-based compensation expense was recognized upon the announcement of an
executive management transition as a reduction of General and Administrative expense on the Company’s Consolidated Statement
of Operations and Comprehensive Income. Compensation cost capitalized as part of properties and deferred leasing costs was
$2.3 million, $2.0 million, and $1.6 million for the years ended December 31, 2015, 2014, and 2013, respectively.
The Company estimated the grant-date fair values of options, performance share units, and restricted share units using the
methods discussed in the separate sections below for each type of grant. Expected volatility and dividend yields are based on
historical volatility and yields of the Company’s common stock, respectively, as well as other factors. The risk-free interest rates
used are based on the U.S. Treasury yield curves in effect at the times of grants. The Company assumes no forfeitures of options
or performance share units due to the small number of participants and low turnover rate.
F-34
Modification of Grants for Special Dividend
In December 2014, the Company paid a special dividend of $4.75 per share of common stock to all shareholders of record as
of the close of business on December 15, 2014. In connection with this special dividend, the Board of Directors approved award
adjustments to all outstanding Performance Share Units (PSU) and Restricted Share Units (RSU) grants and to options that had
not been exercised prior to the ex-dividend date for the special dividend to ensure that the holders were in a neutral economic
position after giving effect to the payment of the special dividend.
The number of units subject to each such PSU and RSU grant was increased and for option holders, the exercise price was
decreased, so that each grant or option had the same intrinsic value to the holder before and after giving effect to the payment of
the special dividend.
The total additional compensation related to the award adjustments was approximately $4.5 million, which is being recognized
over the remaining vesting periods, if any, of the grants. Amounts relating to vested options were recognized immediately.
Options
Options are granted to purchase units of limited partnership interest in the Operating Partnership, which are exchangeable for
new shares of the Company’s stock under the Continuing Offer (Note 15). The options have ten-year contractual terms.
A summary of option activity for the years ended December 31, 2015, 2014, and 2013 is presented below:
Outstanding at January 1, 2013
Exercised
Outstanding at December 31, 2013
Exercised
Outstanding at December 31, 2014
Exercised
Outstanding at December 31, 2015
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (in years)
Range of Exercise
Prices
42.50
36.67
43.81
42.16
39.20
29.72
46.60
3.8
$ 24.74 - $ 55.90
2.6
$ 31.31 - $ 55.90
1.6
$ 26.56 - $ 51.15 (1)
1.4
$ 35.50 - $ 51.15
Number of
Options
689,802
$
(126,366)
563,436
$
(42,143)
521,293
$
(228,750)
292,543
$
Fully vested options at December 31, 2015
292,543
$
46.60
1.4
(1) Range of exercise prices as of December 31, 2014 reflects adjustments to the exercise price as a result of the grant modification in December 2014.
As of December 31, 2015 and 2014, all options outstanding were fully vested and there was no unrecognized compensation
cost related to options.
The aggregate intrinsic value (the difference between the period end stock price and the option exercise price) of in-the-money
options outstanding was $8.8 million as of December 31, 2015.
The total intrinsic value of options exercised during the years ended December 31, 2015, 2014, and 2013 was $10.0 million,
$1.4 million, and $4.8 million, respectively. Cash received from option exercises for the years ended December 31, 2015, 2014,
and 2013 was $6.8 million, $1.8 million, and $4.6 million, respectively.
Under both the prior option plan and the 2008 Omnibus Plan, vested unit options can be exercised by tendering mature units
with a market value equal to the exercise price of the unit options. In 2002, Robert S. Taubman, the Company’s chief executive
officer, exercised options for 3.0 million units by tendering 2.1 million mature units and deferring receipt of 0.9 million units under
the unit option deferral election. As the Operating Partnership pays distributions, the deferred option units receive their proportionate
share of the distributions, including the special distribution, in the form of cash payments. Under an amendment executed in
January 2011, beginning in December 2017 (unless Mr. Taubman retires earlier), the deferred partnership units will be issued in
ten annual installments. The deferred units are accounted for as participating securities of the Operating Partnership.
F-35
In December 2014, the Company modified all outstanding option awards to ensure that holders were in a neutral economic
position after giving effect to the payment of the special dividend by decreasing the exercise price of each award by $4.75. With
the exception of the decrease to the exercise price, all terms of the modified awards remained the same as the original awards.
The Company estimated the incremental fair values of the modification as of the modification date using a Black-Scholes valuation
model considering: the Company’s common stock price at the modification date; before and after modification exercise prices
ranging from $31.31 to $55.90 and $26.56 to $51.15, respectively; expected volatility of 13.62% to 19.14%, expected dividend
yield of 2.70%, remaining contractual term (in years) of 0.46 to 3.24, and a risk-free interest rate of 0.07% to 0.98%. Expected
volatility and dividend yields are based on historical volatility and yields of the Company’s common stock, respectively. The risk-
free interest rates used are based on the U.S. Treasury yield curves in effect on the modification date.
Performance Share Units
In 2015, 2014, and 2013 the Company granted PSU under the 2008 Omnibus Plan. Each PSU represents the right to receive,
upon vesting, shares of the Company’s common stock ranging from 0-300% of the PSU based on the Company’s market performance
relative to that of a peer group. The 2015 PSU grant includes a cash payment upon vesting equal to the aggregate cash dividends
that would have been paid on such shares of common stock from the date of grant of the award to the vesting date. No dividends
accumulate during the vesting period for the 2014 and 2013 grants. The vesting date is March 2018, March 2017, and March 2016,
for the 2015, 2014, and 2013 grants, respectively, if continuous service has been provided, or upon retirement or certain other
events (such as death or disability) if earlier.
The Company estimated the value of the PSU granted in 2015, 2014, and 2013 using a Monte Carlo simulation, considering
the Company’s common stock price at the grant date (less the present value of the expected dividends during the vesting periods
for 2013 and 2014 grants), historical returns of the Company and the peer group of companies, and risk-free interest rates and
measurement periods existing at the grant dates. Specific assumptions and the valuation results are shown below.
Risk-free interest rate
Measurement period
Weighted average grant-date fair value
2015
1.12%
3 years
$112.30
PSU Grant Dates
2014
0.70%
3 years
$93.07
2013
0.30% to 0.40%
3 years
$103.37
In 2013 and 2012, the Company also granted additional PSU under the 2008 Omnibus Plan that represent the right to receive,
upon vesting, shares of the Company’s common stock ranging from 0-400% of the PSU based on the Company’s market performance
relative to that of a peer group. The units vest in March 2017, if continuous service has been provided, or upon certain other events
(such as death or disability) if earlier. No dividends accumulate during the vesting period.
The Company estimated the value of the additional PSU granted in 2013 and 2012 using a Monte Carlo simulation, considering
the Company’s common stock price at the grant date less the present value of the expected dividends during the vesting periods,
historical returns of the Company and the peer group of companies, and risk-free interest rates and measurement periods existing
at the grant dates. Specific assumptions and the valuation results are shown below.
Additional PSU Grant Dates
2013
2012
Risk-free interest rate
Measurement period
Weighted average grant-date fair value
0.46% to 0.62%
0.70% to 0.90%
4 years
$171.05
5 years
$189.23
In December 2014, the Company modified all outstanding PSU grants to ensure that holders were in a neutral economic position
after giving effect to the payment of the special dividend by increasing the number of PSU granted in each award. With the
exception of the number of PSU granted, all terms of the modified awards remained the same as the original awards. The Company
estimated the incremental fair values of the modification as of the modification date using a Monte Carlo simulation, considering
the Company’s common stock price at the modification date less the special dividend and the present value of the expected dividends
during the remaining vesting periods, historical returns of the Company and the peer group of companies, a risk-free interest rate
of 0.03% to 0.65%, and a measurement period of 0.24 to 2.25 years.
F-36
A summary of PSU activity for the years ended December 31, 2015, 2014, and 2013 is presented below:
Outstanding at January 1, 2013
Granted (three-year vesting)
Granted (four-year vesting)
Forfeited
Vested
Outstanding at December 31, 2013
Granted
Forfeited
Vested
Special dividend adjustment (2)
Outstanding at December 31, 2014
Granted
Forfeited
Vested
Outstanding at December 31, 2015
Number of
Performance
Stock Units
Weighted Average
Grant Date Fair
Value
262,740
$
42,178
15,444
(12,240)
(73,259) (1)
234,863
49,157
(771)
(43,858) (1)
15,260
$
254,651
$
50,256
(5,854)
(43,575) (1)
255,478
$
122.52
103.37
171.05
140.49
65.29
139.18
93.07
160.09
85.40
57.00
132.86
112.30
174.95
97.44
134.52
(1) Based on the Company's market performance relative to that of a peer group, the actual number of shares of common stock
issued upon vesting during the year ended December 31, 2015, 2014, and 2013 equaled 0%, 172%, and 300%, respectively,
of the number of PSU awards vested in the table above.
(2) Represents an adjustment made to the PSU as a result of the grant modification in December 2014.
The total intrinsic value of PSU vested during the years ended December 31, 2015, 2014, and 2013 was zero, $5.3 million, and
$16.9 million, respectively.
None of the PSU outstanding at December 31, 2015 were vested. As of December 31, 2015, there was $8.4 million of total
unrecognized compensation cost related to nonvested PSU outstanding. This cost is expected to be recognized over an average
period of 1.54 years.
Restricted Share Units
In 2015, 2014, and 2013, RSU were issued under the 2008 Omnibus Plan and represent the right to receive upon vesting one
share of the Company’s common stock. The 2015 grants also receive a cash payment upon vesting equal to the aggregate cash
dividends that would have been paid on such shares of common stock from the date of grant of the award to the vesting date, while
no dividends accumulate during the vesting period for the 2014 and 2013 grants. The vesting date is March 2018, March 2017,
and March 2016 for the 2015, 2014, and 2013 grants, respectively, if continuous service has been provided through that period,
or upon retirement or certain other events (such as death or disability) if earlier.
The Company estimated the values of the RSU granted in 2015 using the Company’s common stock price at the grant date. The
Company’s valuation was a grant-date fair value of $74.36 per RSU granted during 2015. The Company estimated the value of
the RSU granted in 2014 and 2013 using the Company’s common stock at the grant dates deducting the present value of expected
dividends during the vesting period using a risk-free rate of 0.70% and 0.30% to 0.49% for the 2014 and 2013 grants, respectively.
The result of the Company’s valuations was a weighted average grant-date fair value of $63.95 per RSU granted during 2014 and
$71.67 per RSU granted during 2013.
F-37
In 2014, the Company also granted a limited number of additional RSU that represent the right to receive upon vesting one
share of the Company’s common stock. The units have staggered vesting dates from March 2015 to March 2017, if continuous
service has been provided through those periods, or upon retirement or certain other events (such as death or disability) if earlier.
No dividends accumulate during the vesting periods. The Company estimated the value of these additional RSU using the Company's
common stock price at the grant date deducting the present value of expected dividends during the vesting periods using a risk-
free interest rate of 0.13% to 0.71%. The result of the Company's valuation was a weighted average grant-date fair value of $66.19
per RSU.
In 2013, the Company also granted a limited number of additional RSU that represent the right to receive upon vesting one
share of the Company’s common stock. The units had staggered vesting dates from March 2014 to March 2015, if continuous
service had been provided through those periods, or upon retirement or certain other events (such as death or disability) if earlier.
No dividends accumulated during the vesting periods. The Company estimated the value of these additional RSU using the
Company's common stock price at the grant date deducting the present value of expected dividends during the vesting periods
using a risk-free interest rate of 0.10% to 0.19%. The result of the Company's valuation was a weighted average grant-date fair
value of $81.38 per RSU.
In December 2014, the Company modified all outstanding RSU grants to ensure that holders were in a neutral economic position
after giving effect to the payment of the special dividend by increasing the number of RSU granted in each award. With the
exception of the number of RSU granted, all terms of the modified awards remained the same as the original awards. The Company
estimated the incremental fair values of the modification as of the modification date using the Company’s common stock price at
the modification date less the special dividend and the present value of the expected dividends during the remaining vesting periods
using a risk free interest rate of 0.03% to 0.65% and a measurement period of 0.24 to 2.25 years.
A summary of RSU activity for the years ended December 31, 2015, 2014, and 2013 is presented below:
Outstanding at January 1, 2013
Granted (three-year vesting)
Granted (staggered vesting)
Forfeited
Vested
Outstanding at December 31, 2013
Granted (three-year vesting)
Granted (staggered vesting)
Forfeited
Vested
Special dividend adjustment (1)
Outstanding at December 31, 2014
Granted
Forfeited
Vested
Outstanding at December 31, 2015
Number of
Restricted Stock
Units
Weighted average
Grant Date Fair
Value
322,305
$
92,103
5,197
(11,678)
(138,028)
269,899
106,540
8,505
(4,843)
(104,302)
17,852
$
293,651
$
100,682
(14,542)
(96,438)
283,353
$
48.19
71.67
81.38
57.60
37.03
62.00
63.95
66.19
65.44
51.96
72.27
67.00
74.36
69.87
65.60
69.93 .
(1) Represents an adjustment made to the RSU as a result of the grant modification in December 2014.
Based on an analysis of historical employee turnover, the Company has made an annual forfeiture assumption of 2.00% of grants
when recognizing compensation costs relating to the RSU.
The total intrinsic value of RSU vested during the years ended December 31, 2015, 2014, and 2013 was $7.0 million, $7.4
million, and $10.6 million, respectively.
F-38
None of the RSU outstanding at December 31, 2015 were vested. As of December 31, 2015, there was $6.3 million of total
unrecognized compensation cost related to nonvested RSU outstanding. This cost is expected to be recognized over an average
period of 1.80 years.
Non-Employee Directors’ Stock Grant and Deferred Compensation
The 2008 Omnibus Plan provides a quarterly grant to each non-employee director of the Company shares of the Company's
common stock based on the fair value of the Company's common stock on the last business day of the preceding quarter. The
annual fair market value of the grant was $125,000 in 2015 and $120,000 in 2014 and 2013. As of December 31, 2015, 14,502 shares
have been issued under the 2008 Omnibus Plan. Certain directors have elected to defer receipt of their shares as described below.
The Non-Employee Directors’ Deferred Compensation Plan (DCP), which was approved by the Company’s Board of Directors,
allows each non-employee director of the Company the right to defer the receipt of all or a portion of his or her annual director
retainer until the termination of his or her service on the Company’s Board of Directors and for such deferred compensation to be
denominated in restricted stock units. The number of restricted stock units received equals the deferred retainer fee divided by the
fair market value of the common stock on the business day immediately before the date the director would otherwise have been
entitled to receive the retainer fee. The restricted stock units represent the right to receive equivalent shares of common stock at
the end of the deferral period. During the deferral period, when the Company pays cash dividends on its common stock, including
special dividends, the directors’ deferral accounts will be credited with dividend equivalents on their deferred restricted stock
units, payable in additional restricted stock units based on the fair market value of the Company’s common stock on the business
day immediately before the record date of the applicable dividend payment. There were 128,696 restricted stock units outstanding
under the DCP at December 31, 2015.
Other Employee Plan
The Company has a voluntary retirement savings plan established in 1983 and amended and restated effective January 1, 2012
(the Plan). The Company believes the Plan is qualified in accordance with Section 401(k) of the Internal Revenue Code (the Code).
The Company contributes an amount equal to 2% of the qualified wages of all qualified employees and matches employee
contributions in excess of 2% up to 7% of qualified wages. In addition, the Company may make discretionary contributions within
the limits prescribed by the Plan and imposed in the Code. The Company’s contributions and costs relating to the Plan were $2.9
million in 2015, $3.3 million in 2014, and $3.2 million in 2013.
F-39
Note 14 - Common and Preferred Stock and Equity of TRG
Common Stock
In August 2013, the Company’s Board of Directors authorized a share repurchase program under which the Company may
repurchase up to $200 million of its outstanding common stock. In March 2015, the Company's Board of Directors increased the
authorization by $250 million, bringing the total authorization to $450 million. The Company plans to repurchase shares from
time to time on the open market or in privately negotiated transactions or otherwise, depending on market prices and other
conditions. As of December 31, 2015, the Company cumulatively repurchased 4,247,867 shares of its common stock at an average
price of $71.79 per share for a total of $304.9 million under the authorization. As of December 31, 2015, $145.1 million remained
available under the repurchase program. All shares repurchased have been cancelled. For each share of the Company’s stock
repurchased, one of the Company’s Operating Partnership units was redeemed. Repurchases of common stock were financed
through general corporate funds, including borrowings under existing revolving lines of credit.
Preferred Stock
The Company is obligated to issue to the noncontrolling partners of TRG, upon subscription, one share of Series B Non-
Participating Convertible Preferred Stock (Series B Preferred Stock) for each of the Operating Partnership units held by the
noncontrolling partners. Each share of Series B Preferred Stock entitles the holder to one vote on all matters submitted to the
Company's shareowners. The holders of Series B Preferred Stock, voting as a class, have the right to designate up to four nominees
for election as directors of the Company. On all other matters, including the election of directors, the holders of Series B Preferred
Stock will vote with the holders of common stock. The holders of Series B Preferred Stock are not entitled to dividends or earnings
of the Company. The Series B Preferred Stock is convertible into common stock at a ratio of 14,000 shares of Series B Preferred
Stock for one share of common stock. During the years ended December 31, 2015, 2014, and 2013, 72,061 shares, 35,500 shares,
and 176,630 shares of Series B Preferred Stock, respectively, were converted to four shares, one share, and 10 shares of the
Company’s common stock, respectively, as a result of tenders of units under the Continuing Offer (Note 15).
In March 2013, the Company issued 6,800,000 shares of 6.25% Series K Preferred Stock. Net proceeds from the offering were
$164.4 million, net of offering costs of $5.6 million. The Series K Preferred Stock has no stated maturity, sinking fund, or mandatory
redemption requirements and generally is not convertible into any other security of the Company. The Series K Preferred Stock
has a liquidation preference of $170.0 million ($25 per share). Dividends are cumulative and are paid in arrears on the last day of
each calendar quarter. The Series K Preferred Stock will be redeemable by the Company at par, $25 per share, plus accrued
dividends, generally beginning in March 2018. The Company owns corresponding Series K Preferred Equity interests in the
Operating Partnership that entitle the Company to income and distributions (in the form of guaranteed payments) in amounts equal
to the dividends payable on the Company's Series K Preferred Stock. The Series K Preferred Stock is generally non-voting. The
Company's Series K Preferred Stock ranks on parity with its Series J Preferred Stock with respect to the payment of dividends
and distributions of assets upon liquidation, dissolution or winding up of its affairs.
F-40
Note 15 - Commitments and Contingencies
Cash Tender
At the time of the Company's initial public offering and acquisition of its partnership interest in the Operating Partnership in
1992, the Company entered into an agreement (as later amended and restated, the Cash Tender Agreement) with A. Alfred Taubman,
as trustee of the A. Alfred Taubman Restated Revocable Trust (the Revocable Trust) and TRA Partners (now Taubman Ventures
Group LLC or TVG), each of whom owned an interest in the Operating Partnership, whereby each of the revocable trust and TVG
has the right to tender to the Company partnership units in the Operating Partnership (provided that the aggregate value is at least
$50 million) and cause the Company to purchase the tendered interests at a purchase price based on a market valuation of the
Company on the trading date immediately preceding the date of the tender. TVG is controlled by a majority-in-interest among the
Revocable Trust and entities affiliated with the children of A. Alfred Taubman (Robert S. Taubman, William S. Taubman, and
Gayle Taubman Kalisman). At the election of the person making a tender, partnership units in the Operating Partnership held by
members of A. Alfred Taubman’s family and partnership units held by entities in which his family members hold interests may
be included in such a tender. Upon the death of A. Alfred Taubman in April 2015, the successor trustees of the trust (Robert S.
Taubman, William S. Taubman and Gayle Taubman Kalisman) act on behalf of the trust.
The Company will have the option to pay for these interests from available cash, borrowed funds, or from the proceeds of an
offering of the Company's common stock. Generally, the Company expects to finance these purchases through the sale of new
shares of its stock. The tendering partner will bear all market risk if the market price at closing is less than the purchase price and
will bear the costs of sale. Any proceeds of the offering in excess of the purchase price will be for the sole benefit of the Company.
The Company accounts for the Cash Tender Agreement as a freestanding written put option. As the option put price is defined by
the current market price of the Company's stock at the time of tender, the fair value of the written option defined by the Cash
Tender Agreement is considered to be zero.
Based on a market value at December 31, 2015 of $76.72 per share for the Company's common stock, the aggregate value of
interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was $1.9 billion. The purchase of
these interests at December 31, 2015 would have resulted in the Company owning an additional 28% interest in the Operating
Partnership.
Continuing Offer
The Company has made a continuing, irrevocable offer to all present holders (other than certain excluded holders, currently
TVG and the Revocable Trust), permitted assignees of all present holders, those future holders of partnership interests in the
Operating Partnership as the Company may, in its sole discretion, agree to include in the continuing offer, all existing optionees
under the previous option plan, and all existing and future optionees under the 2008 Omnibus Plan to exchange shares of common
stock for partnership interests in the Operating Partnership (the Continuing Offer). Under the Continuing Offer agreement, one
unit of the Operating Partnership interest is exchangeable for one share of the Company's common stock. Upon a tender of Operating
Partnership units, the corresponding shares of Series B Preferred Stock, if any, will automatically be converted into the Company’s
common stock at a ratio of 14,000 shares of Series B Preferred Stock for one share of common stock.
Litigation
The Company carries liability insurance to mitigate its exposure to certain losses, including those relating to personal injury
claims. We believe the Company's insurance policy terms and conditions and limits are appropriate and adequate given the relative
risk of loss and industry practice. However, there are certain types of losses, such as punitive damage awards, that may not be
covered by insurance, and not all potential losses are insured against.
Other
See Note 8 for the Operating Partnership's guarantees of certain notes payable, including guarantees relating to Unconsolidated
Joint Ventures, Note 9 for contingent features relating to certain joint venture agreements, Note 10 for contingent features relating
to derivative instruments, and Note 13 for obligations under existing share-based compensation plans.
F-41
Note 16 - Earnings Per Share
Basic earnings per share amounts are based on the weighted average of common shares outstanding for the respective periods.
Diluted earnings per share amounts are based on the weighted average of common shares outstanding plus the dilutive effect of
potential common stock. Potential common stock includes outstanding partnership units exchangeable for common shares under
the Continuing Offer (Note 15), outstanding options for partnership units, PSU, RSU, deferred shares under the Non-Employee
Directors’ Deferred Compensation Plan, and unissued partnership units under a unit option deferral election (Note 13). In computing
the potentially dilutive effect of potential common stock, partnership units are assumed to be exchanged for common shares under
the Continuing Offer, increasing the weighted average number of shares outstanding. The potentially dilutive effects of partnership
units outstanding and/or issuable under the unit option deferral elections are calculated using the if-converted method, while the
effects of other potential common stock are calculated using the treasury method. Contingently issuable shares are included in
diluted EPS based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the
contingency period.
Net income attributable to Taubman Centers, Inc. common
shareowners (Numerator):
Basic
Impact of additional ownership of TRG
Diluted
Shares (Denominator) – basic
Effect of dilutive securities
Shares (Denominator) – diluted
Earnings per common share - basic
Earnings per common share - diluted
Year Ended December 31
2015
2014
2013
$
$
$
$
109,020
398
109,418
$
$
863,857
10,933
874,790
$
$
109,908
497
110,405
61,389,113
63,267,800
63,591,523
772,221
1,653,264
983,889
62,161,334
64,921,064
64,575,412
1.78
1.76
$
$
13.65
13.47
$
$
1.73
1.71
The calculation of diluted earnings per share in certain periods excluded certain potential common stock including outstanding
partnership units and unissued partnership units under a unit option deferral election, both of which may be exchanged for common
shares of the Company under the Continuing Offer. The table below presents the potential common stock excluded from the
calculation of diluted earnings per share as they were anti-dilutive in the period presented.
Weighted average noncontrolling partnership units outstanding
4,029,934
4,351,727
4,428,624
Unissued partnership units under unit option deferral elections
871,262
871,262
Year Ended December 31
2015
2014
2013
F-42
Note 17 - Fair Value Disclosures
This note contains required fair value disclosures for assets and liabilities remeasured at fair value on a recurring basis and
financial instruments carried at other than fair value, as well as assumptions employed in deriving these fair values.
Recurring Valuations
Derivative Instruments
The fair value of interest rate hedging instruments is the amount that the Company would receive to sell an asset or pay to
transfer a liability in an orderly transaction between market participants at the reporting date. The Company’s valuations of its
derivative instruments are determined using widely accepted valuation techniques, including discounted cash flow analysis on the
expected cash flows of each derivative, and therefore fall into Level 2 of the fair value hierarchy. The valuations reflect the
contractual terms of the derivatives, including the period to maturity, and use observable market-based inputs, including forward
curves. The fair values of interest rate hedging instruments also incorporate credit valuation adjustments to appropriately reflect
both the Company’s own nonperformance risk and the respective counterparty's nonperformance risk.
Other
The Company's valuation of an insurance deposit utilizes unadjusted quoted prices determined by active markets for the specific
securities the Company has invested in, and therefore falls into Level 1 of the fair value hierarchy.
For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each major
category of assets and liabilities is presented below:
Description
Insurance deposit
Total assets
Fair Value Measurements as of
December 31, 2015 Using
Fair Value Measurements as of
December 31, 2014 Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
$
$
14,346
14,346
$
$
— $
13,059
13,059
$
—
Derivative interest rate contracts (Note 10)
Total liabilities
$
$
(6,077)
(6,077)
$
$
(4,044)
(4,044)
The insurance deposit shown above represents an escrow account maintained in connection with a property and casualty insurance
arrangement for the Company’s shopping centers, and is classified within Deferred Charges and Other Assets on the Consolidated
Balance Sheet. Corresponding deferred revenue relating to amounts billed to tenants for this arrangement has been classified
within Accounts Payable and Accrued Liabilities on the Consolidated Balance Sheet.
Financial Instruments Carried at Other Than Fair Values
Simon Property Group Limited Partnership Units
As of December 31, 2015, the Company owned 590,124 partnership units in Simon Property Group Limited Partnership (Note
2). The fair value of the partnership units, which is derived from SPG's common stock price and therefore falls into Level 2 of the
fair value hierarchy, was $114.7 million at December 31, 2015 and $105.2 million at December 31, 2014. The partnership units
were classified as Deferred Charges and Other Assets on the Consolidated Balance Sheet and had a book value of $77.7 million
at both December 31, 2015 and December 31, 2014.
F-43
Notes Payable
The fair value of notes payable is estimated using cash flows discounted at current market rates and therefore falls into Level
2 of the fair value hierarchy. When selecting discount rates for purposes of estimating the fair value of notes payable at December 31,
2015 and 2014, the Company employed the credit spreads at which the debt was originally issued. For debt refinanced prior to
2010, excluding debt assumed from acquisitions, an additional 1.00% and 0.75% credit spread was added to the discount rate at
December 31, 2015 and December 31, 2014, respectively, to attempt to account for current market conditions. This additional
spread is an estimate and is not necessarily indicative of what the Company could obtain in the market at the reporting date. The
Company does not believe that the use of different interest rate assumptions would have resulted in a materially different fair value
of notes payable as of December 31, 2015 or 2014. To further assist financial statement users, the Company has included with its
fair value disclosures an analysis of interest rate sensitivity.
The estimated fair values of notes payable at December 31, 2015 and 2014 were as follows:
Notes payable
$
2,643,958
$
2,609,582
$
2,025,505
$
2,056,474
2015
2014
Carrying Value
Fair Value
Carrying Value
Fair Value
The fair values of the notes payable are dependent on the interest rates used in estimating the values. An overall 1% increase in
rates employed in making these estimates would have decreased the fair values of the debt shown above at December 31, 2015
by $106.1 million or 4.1%.
Cash Equivalents and Notes Receivable
The fair value of cash equivalents and notes receivable approximates their carrying value due to their short maturity. The fair
value of cash equivalents is derived from quoted market prices and therefore falls into Level 1 of the fair value hierarchy. The fair
value of notes receivable are estimated using cash flows discounted at current market rates and therefore fall into Level 2 of the
fair value hierarchy.
See Note 10 regarding additional information on derivatives.
Note 18 - Cash Flow Disclosures and Non-Cash Investing and Financing Activities
Interest paid in 2015, 2014, and 2013, net of amounts capitalized of $31.1 million, $27.3 million, and $16.4 million, respectively,
was $57.6 million, $88.5 million, and $128.2 million, respectively. In 2015 and 2014, $2.6 million and $11.9 million of income
taxes were paid, respectively. Income tax payments in 2013 were immaterial. The following non-cash investing and financing
activities occurred during 2015, 2014, and 2013.
2015
2014
2013
Recapitalization of The Mall of San Juan joint venture (Note 2)
$
9,296
Receipt of Simon Property Group Limited Partnership units in connection with the
sale of Arizona Mills (Note 2)
Issuance of TRG partnership units in connection with the purchase of the U.S.
headquarters building (Note 2)
Assumption of debt in connection with the purchase of the U.S. headquarters
building (Note 2)
Issuance of a note receivable in connection with the sale of peripheral land
Other non-cash additions to properties
$
77,711
91
18,215
104,494
24,315
$
7,411
14,030
Other non-cash additions to properties primarily represent accrued construction and tenant allowance costs. Various assets and
liabilities were also adjusted upon the disposition of interests in International Plaza and the deconsolidation of the Company's
remaining interest (Note 2).
F-44
Note 19 - Accumulated Other Comprehensive Income
Changes in the balance of each component of Accumulated Other Comprehensive Income (AOCI) for the years ended
December 31, 2015, 2014, and 2013 were as follows:
Taubman Centers, Inc. AOCI
Noncontrolling Interests AOCI
Cumulative
translation
adjustment
Unrealized gains
(losses) on interest
rate instruments
and other
Total
Cumulative
translation
adjustment
Unrealized gains
(losses) on interest
rate instruments
and other
Total
January 1, 2013
$
1,888
$
(23,952) $
(22,064)
$
756
$
1,739
$
2,495
Other comprehensive income
before reclassifications
Amounts reclassified from
AOCI
Net current period other
comprehensive income
Adjustments due to changes in
ownership
3,150
3,150
2
6,117
3,875
9,267
3,875
1,257
2,700
3,957
1,708
1,708
9,992
13,142
1,257
4,408
5,665
6
8
(2)
(6)
(8)
December 31, 2013
$
5,040
$
(13,954)
$ (8,914)
$
2,011
$
6,141
$ 8,152
Other comprehensive income
(loss) before reclassifications
Amounts reclassified from
AOCI
Net current period other
comprehensive income (loss)
Adjustments due to changes in
ownership
(5,148)
(12,783)
(17,931)
(2,045)
(5,221)
(7,266)
11,747
11,747
4,982
4,982
(5,148)
(1,036)
(6,184)
(2,045)
(239)
(2,284)
December 31, 2014
$
(101)
$
(14,967)
$ (15,068)
$
7
23
30
(7)
(41)
(23)
(30)
$
5,879
$ 5,838
Other comprehensive income
(loss) before reclassifications
Amounts reclassified from
AOCI
Net current period other
comprehensive income (loss)
Adjustments due to changes in
ownership
(10,790)
(9,653)
(20,443)
(4,489)
(4,015)
(8,504)
8,489
8,489
3,532
3,532
(10,790)
(1,164)
(11,954)
(4,489)
(483)
(4,972)
1
(199)
(198)
(1)
199
198
December 31, 2015
$ (10,890)
$
(16,330)
$ (27,220)
$
(4,531)
$
5,595
$ 1,064
The following table presents reclassifications out of AOCI for the year ended December 31, 2015:
Details about AOCI Components
Amounts reclassified from AOCI
Affected line item in Consolidated Statement of
Operations and Comprehensive Income
Losses on interest rate instruments and other:
Realized loss on interest rate contracts -
consolidated subsidiaries
Realized loss on interest rate contracts -
UJVs
Realized loss on cross-currency interest rate
contract - UJV
Total reclassifications for the period
$
$
7,211
Interest Expense
4,489 Equity in Income in UJVs
321 Equity in Income in UJVs
12,021
F-45
The following table presents reclassifications out of AOCI for the year ended December 31, 2014:
Details about AOCI Components
Amounts reclassified from AOCI
Affected line item in Consolidated Statement of
Operations and Comprehensive Income
Losses on interest rate instruments and other:
Discontinuation of hedge accounting -
consolidated subsidiary
Realized loss on interest rate contracts -
consolidated subsidiaries
Realized loss on interest rate contracts -
UJVs
Total reclassifications for the period
$
$
4,880 Nonoperating Income (Expense)
8,663
Interest Expense
3,186 Equity in Income of UJVs
16,729
The following table presents reclassifications out of AOCI for the year ended December 31, 2013:
Details about AOCI Components
Amounts reclassified from AOCI
Affected line item in Consolidated Statement of
Operations and Comprehensive Income
(Gains)/losses on interest rate instruments
and other:
Realized loss on interest rate contracts -
consolidated subsidiaries
Realized loss on interest rate contracts -
UJVs
Realized gain on sale of securities
Total reclassifications for the period
$
$
3,826
Interest Expense
3,080 Equity in Income of UJVs
(1,323) Nonoperating Income (Expense)
5,583
Note 20 - Quarterly Financial Data (Unaudited)
The following is a summary of quarterly results of operations for 2015 and 2014:
Revenues
Equity in income of Unconsolidated Joint Ventures
Net income
Net income attributable to TCO common shareowners
Earnings per common share – basic
Earnings per common share – diluted
Revenues
Equity in income of Unconsolidated Joint Ventures
Net income
Net income attributable to TCO common shareowners
Earnings per common share – basic
Earnings per common share – diluted
2015
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
128,989
17,075
51,000
29,622
0.47
0.47
$
$
$
131,973
14,004
42,333
23,230
0.38
0.37
$
$
$
139,983
15,219
52,629
30,422
0.50
0.50
$
$
$
156,227
9,928
46,595
25,746
0.43
0.42
2014
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
174,778
$
169,985
$
176,044
$
158,322
12,068
526,157
369,125
14,675
39,054
21,344
14,479
56,637
33,682
$
$
5.84
5.74
$
$
0.34
0.33
$
$
0.53
0.53
$
$
20,780
656,274
439,706
6.94
6.86
During the fourth quarter of 2015, an impairment charge of $11.8 million was recognized, which represents previously capitalized
costs related to the pre-development of the Miami Worldcenter enclosed mall project. The impairment charge was recorded within
Equity in Income of Unconsolidated Joint Ventures on the Consolidated Statement of Operations and Comprehensive Income.
F-46
During the first quarter of 2014, the Company recognized a $476.9 million gain, net of tax, from the dispositions of interests in
International Plaza, Arizona Mills, and land in Syosset, New York related to the former Oyster Bay project. Subsequent to the
disposition, International Plaza was accounted for as an Unconsolidated Joint Venture and included in Equity in income of
Unconsolidated Joint Ventures.
During the fourth quarter of 2014, the Company recognized a $629.7 million gain on the dispositions of the seven centers to
Starwood. Also in the fourth quarter as a result of the Starwood disposition, the Company recognized an expense charge of $36.4
million related to the loss on extinguishment of debt at MacArthur Center, Northlake Mall, The Mall at Partridge Creek, and The
Mall at Wellington Green.
Note 21 - New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, "Revenue from Contracts with
Customers." This standard provides a single comprehensive model to use in accounting for revenue arising from contracts with
customers and gains and losses arising from transfers of non-financial assets including sales of property, plant, and equipment,
real estate, and intangible assets. ASU No. 2014-09 supersedes most current revenue recognition guidance, including industry-
specific guidance. In August 2015, the Financial Accounting Standards Board issued ASU No. 2015-14, which deferred the effective
date of ASU No. 2014-09 one year to annual reporting periods beginning after December 15, 2017 for public entities. ASU No.
2015-14 permits public entities to adopt ASU No. 2014-09 early, but not before the original effective date of annual periods
beginning after December 15, 2016. ASU No. 2014-09 may be applied either retrospectively or as a cumulative effect adjustment
as of the date of adoption. The Company is currently evaluating the application of this ASU and its effect on the Company's
financial position and results of operations.
In February 2015, the FASB issued ASU No. 2015-02, “Amendments to the Consolidation Analysis.” This standard amends
certain guidance applicable to the consolidation of various legal entities, including variable interest entities. The Company has
evaluated the application of this ASU and concluded that the effect of the ASU on the Company's consolidated financial statements
will not be material upon its adoption on January 1, 2016.
In January 2016, the FASB issued ASU No. 2016-01,”Recognition and Measurement of Financial Assets and Financial
Liabilities,” which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.
Amongst its changes, ASU No. 2016-01 requires an entity to measure equity investments at fair value through net income, except
for those that result in consolidation or are accounted for under the equity method of accounting. ASU No. 2016-01 is effective
for financial statements issued for fiscal years and interim periods beginning after December 15, 2017. The Company is currently
evaluating application of this ASU and its effect on the Company’s financial position and results of operations.
F-47
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 2015, 2014, and 2013
(in thousands)
Additions
Schedule II
Balance at
beginning
of year
Charged to
costs and
expenses
Charged to
other
accounts Write-offs
Transfers,
net
Balance at
end of
year
Year Ended December 31, 2015
Allowance for doubtful receivables
Year Ended December 31, 2014
Allowance for doubtful receivables
Year Ended December 31, 2013
Allowance for doubtful receivables
$
$
$
2,927
1,934
3,424
$
$
$
1,994
2,900
489
$
$
$
(1,947)
$
2,974
(1,145) $
(762) (1) $
2,927
(1,979)
$
1,934
(1) Amount represents balances associated with portfolio of seven centers sold to Starwood that were sold in the fourth quarter of 2014.
See accompanying report of independent registered public accounting firm.
F-48
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F
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 23, 2016
By:
TAUBMAN CENTERS, INC.
/s/ Robert S. Taubman
Robert S. Taubman, Chairman of the Board, President, and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Robert S. Taubman
Robert S. Taubman
/s/ Lisa A. Payne
Lisa A. Payne
/s/ Simon J. Leopold
Simon J. Leopold
/s/ William S. Taubman
William S. Taubman
/s/ David A. Wolff
David A. Wolff
/s/ Graham Allison
Graham Allison
/s/ Jerome A. Chazen
Jerome A. Chazen
/s/ Craig M. Hatkoff
Craig M. Hatkoff
/s/ Peter Karmanos, Jr.
Peter Karmanos, Jr.
/s/ William U. Parfet
William U. Parfet
/s/ Ronald W. Tysoe
Ronald W. Tysoe
Chairman of the Board, President,
Chief Executive Officer, and Director
(Principal Executive Officer)
Vice Chairman,
and Director
Chief Financial Officer
(Principal Financial Officer)
Chief Operating Officer,
and Director
Vice President, and
Chief Accounting Officer
Director
Director
Director
Director
Director
Director
February 23, 2016
February 23, 2016
February 23, 2016
February 23, 2016
February 23, 2016
February 23, 2016
February 23, 2016
February 23, 2016
February 23, 2016
February 23, 2016
February 23, 2016
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Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to 15 U.S.C. Section 10A, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Robert S. Taubman, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Taubman Centers, Inc.;
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize,
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: February 23, 2016
/s/ Robert S. Taubman
Robert S. Taubman
Chairman of the Board of Directors, President, and Chief
Executive Officer
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to 15 U.S.C. Section 10A, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Simon J. Leopold, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Taubman Centers, Inc.;
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize,
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: February 23, 2016
/s/ Simon J. Leopold
Simon J. Leopold
Chief Financial Officer
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
I, Robert S. Taubman, Chief Executive Officer of Taubman Centers, Inc. (the "Registrant"), certify that based upon a review of
the Annual Report on Form 10-K for the year ended December 31, 2015 (the "Report"):
(i)
(ii)
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant.
/s/ Robert S. Taubman
Robert S. Taubman
Chairman of the Board of Directors, President, and Chief
Executive Officer
Date: February 23, 2016
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
I, Simon J. Leopold Chief Financial Officer of Taubman Centers, Inc. (the "Registrant"), certify that based upon a review of the
Annual Report on Form 10-K for the year ended December 31, 2015 (the "Report"):
(i)
(ii)
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant.
/s/ Simon J. Leopold
Simon J. Leopold
Chief Financial Officer (Principal Financial Officer)
Date: February 23, 2016
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Notes and Reconciliations for Graphs (pages 3, 5 and 7)
Funds from Operations (FFO) and Adjusted FFO Per Share: Reconciliation of Net Income (Loss) Attributable to TCO Common Shareowners to FFO and
Adjusted FFO per share(1)
Beneficial Interest in EBITDA and Adjusted Beneficial Interest in EBITDA: Reconciliation of Net Income (Loss) to Beneficial Interest in EBITDA and
Adjusted Beneficial Interest in EBITDA(1)
(in millions of dollars, except per share data; amounts may not add due to rounding)
Year Ended
Net income (loss) attributable to TCO common shareowners
Depreciation and amortization (excluding non-real estate depreciation)
Noncontrolling interests and distributions to participating securities of TRG
Gain on dispositions of property and other
Impairment charges of depreciable real estate
Funds from Operations
Funds from Operations attributable to TCO
Funds from Operations per share
Funds from Operations
Early extinguishment of debt
Restructuring charge
Litigation charges
Impairment charges of non-depreciable real estate
Redemption of preferred stock/equity
Adjusted Funds from Operations
Adjusted Funds from Operations attributable to TCO
Adjusted Funds from Operations per share
Net income (loss)
Depreciation and amortization
Interest expense
Income taxes
Noncontrolling share of income of consolidated joint ventures
Beneficial interest in EBITDA
Restructuring charge
Litigation charge
Impairment charges
2006
21.4
147.3
41.8
2007
48.5
141.0
45.6
2008
(86.7)
154.8
54.1
2009
(69.7)
154.4
(29.7)
160.8
2010
47.6
161.8
27.9
210.4
235.1
122.2
215.8
237.3
136.7
155.4
81.3
144.2
160.1
$ 2.56
$ 2.88
$ 1.51
$ 2.66
$ 2.86
210.4
3.1
4.7
235.1
122.2
215.8
237.3
2.5
30.4
126.3
218.2
235.1
248.5
248.7
237.3
141.7
155.4
165.5
166.3
160.1
$ 2.65
$ 2.88
$ 3.08
$ 3.06
$ 2.86
95.1
150.2
146.9
116.2
143.7
150.7
(5.8)
(5.0)
(8.1)
158.1
161.5
1.1
(7.4)
(79.2)
157.8
159.3
1.7
(3.1)
102.3
165.5
164.6
0.7
(9.8)
386.5
405.6
305.3
236.5
423.4
2.5
30.4
160.8
126.3
Adjusted beneficial interest in EBITDA
386.5
405.6
431.5
430.2
423.4
(1) Refer to the Q4 2015 Supplemental Information for a definition of FFO and EBITDA and the company’s uses of these measures. The company presents adjusted
versions of FFO and EBITDA when used by management to evaluate operating performance when certain significant items have impacted results that affect
comparability with prior or future periods due to the nature or amounts of these items. The company believes the disclosure of the adjusted items is similarly
useful to investors and others to understand management’s view on comparability of such measures between periods.
Tenant Sales per Square Foot
Excludes non-comparable centers. 2013 and 2014 exclude the portfolio of seven centers sold to Starwood Capital Group in October 2014. Excludes
Arizona Mills in 2013 and 2012. Excludes The Pier Shops and Regency Square in 2011, 2010, and 2009. 2008 excludes The Pier Shops.
Interest Only/Fixed Charges Coverage Ratios
Interest coverage ratio is calculated by dividing beneficial interest in EBITDA or adjusted beneficial interest in EBITDA by beneficial interest expense.
Fixed charges coverage ratio is calculated by dividing beneficial interest in EBITDA or adjusted beneficial interest in EBITDA by beneficial interest
expense and the sum of preferred dividends, distributions, and debt payments. For all years presented, adjustments to EBITDA have been made for
certain significant items that impact results and affect comparability with prior or future periods due to the nature or amounts of these items.
Taubman Centers, Inc.
Notes and Reconciliations for Graphs (pages 3, 5 and 7)
Funds from Operations (FFO) and Adjusted FFO Per Share: Reconciliation of Net Income (Loss) Attributable to TCO Common Shareowners to FFO and
Adjusted FFO per share(1)
Beneficial Interest in EBITDA and Adjusted Beneficial Interest in EBITDA: Reconciliation of Net Income (Loss) to Beneficial Interest in EBITDA and
Adjusted Beneficial Interest in EBITDA(1)
(in millions of dollars, except per share data; amounts may not add due to rounding)
Year Ended
Net income attributable to TCO common shareowners
Depreciation and amortization (excluding non-real estate depreciation)
Income taxes
Noncontrolling interests and distributions to participating securities of TRG
Gain on dispositions of property and other
Funds from Operations
Funds from Operations attributable to TCO
Funds from Operations per share
Funds from Operations
Beneficial Interest in UJV Impairment
Reversal of executive share-based compensation
Early extinguishment of debt
Disposition and related costs
Acquisition costs
Redemption of preferred stock/equity
PRC taxes on sale of Taubman TCBL assets
Adjusted Funds from Operations
Adjusted Funds from Operations attributable to TCO
Adjusted Funds from Operations per share
Net income
Depreciation and amortization
Interest expense
Income taxes
Noncontrolling share of income of consolidated joint ventures
Beneficial interest in EBITDA
Gain on dispositions
Early extinguishment of debt
Disposition and related costs
Reversal of executive share-based compensation
Beneficial Interest in UJV Impairment
Acquisition costs
Adjusted beneficial interest in EBITDA
2011
176.7
152.3
2012
83.5
159.8
82.1
41.3
2013
109.9
172.6
0.2
48.2
2014
863.9
142.5
0.4
356.9
(1,083.1)
2015
109.0
134.0
0.1
49.2
(0.4)
411.1
284.7
330.8
280.5
291.9
285.4
197.7
236.7
200.4
207.1
$ 4.86
$ 3.21
$ 3.65
$ 3.11
$ 3.31
411.1
284.7
330.8
280.5
291.9
11.8
(2.0)
(174.2)
1.6
5.3
(2.2)
6.4
3.2
36.0
14.3
240.0
295.8
330.8
330.8
301.6
166.9
205.4
236.7
236.4
214.0
$ 2.84
$ 3.34
$ 3.65
$ 3.67
$ 3.42
287.4
155.0
163.2
0.6
(14.4)
157.8
162.5
161.9
4.9
(11.9)
189.4
175.6
158.9
3.4
(10.3)
1,278.1
146.0
123.1
12.0
(34.2)
192.6
137.0
101.6
1.8
(11.2)
591.8
475.2
516.9
1,525.0
421.8
(174.2)
5.3
(1,092.9)
36.0
14.3
(2.0)
11.8
422.9
475.2
516.9
482.5
431.6
(1) Refer to the Q4 2015 Supplemental Information for a definition of FFO and EBITDA and the company’s uses of these measures. The company presents adjusted
versions of FFO and EBITDA when used by management to evaluate operating performance when certain significant items have impacted results that affect
comparability with prior or future periods due to the nature or amounts of these items. The company believes the disclosure of the adjusted items is similarly
useful to investors and others to understand management’s view on comparability of such measures between periods.
Officers and Directors
TAUBMAN CENTERS, INC.
BOARD OF DIRECTORS
Graham T. Allison (3,4)
Professor
Harvard University
Jerome A. Chazen (1,2)
Chairman
Chazen Capital Partners
Chairman Emeritus
Liz Claiborne, Inc.
Craig M. Hatkoff (2,3)
Co-founder
Tribeca Film Festival
Peter Karmanos, Jr. (2)
Chairman and Co-founder of
MadDog Technology
William U. Parfet (1,3)
Retired Chairman and
Chief Executive Officer
MPI Research
Robert S. Taubman (4)
Chairman of the Board
President and Chief Executive Officer
Taubman Centers, Inc.
William S. Taubman
Chief Operating Officer
Taubman Centers, Inc.
Ronald W. Tysoe (1,2,4)
Former Vice Chairman
Finance and Real Estate
Federated Department Stores
(Now Macy’s, Inc.)
Myron E. Ullman, III (1,3)
Executive Chairman
J.C. Penney Company, Inc.
THE TAUBMAN COMPANY LLC
OPERATING COMMITTEE
Denise Anton
Executive Vice President
Center Operations
Jong W. Chow
Senior Vice President
Chief Strategy Officer
Chris B. Heaphy (5)
Executive Vice President
General Counsel and Secretary
David S. Joseph II
Executive Vice President
Leasing
Stephen J. Kieras
Executive Vice President
Development
Holly A. Kinnear
Senior Vice President
Chief Human Resources Officer
Simon J. Leopold (6)
Executive Vice President
Chief Financial Officer and Treasurer
Michael L. Osment
Senior Vice President
Chief Technology Officer
Robert S. Taubman
Chairman of the Board
President and Chief Executive Officer
William S. Taubman
Chief Operating Officer
René Tremblay
President
Taubman Asia Management Limited
ADDITIONAL EXECUTIVE
David A. Wolff
Vice President
Chief Accounting Officer
FOUNDER
A. Alfred Taubman
1924 – 2015
(1) Audit Committee Member
(2) Compensation Committee Member
(3) Nominating and Corporate
Governance Committee Member
(4) Executive Committee Member
(5) Also serves as Assistant
Secretary of Taubman Centers, Inc.
(6) Also serves as Treasurer of
Taubman Centers, Inc.
Taubman Centers, Inc. PUBLICATIONS
Taubman Centers’ annual report on
Form 10-K and quarterly reports on
Form 10-Q are available free of charge
from our Investor Relations Department
or can be viewed and downloaded online
at www.taubman.com/investors. A Notice
of 2016 Annual Meeting of Shareholders
and Proxy Statement is furnished in advance
of the annual meeting to all shareowners
entitled to vote at the annual meeting.
ANNUAL MEETING
The 2016 Taubman Centers, Inc. Annual
Meeting will be held on Wednesday, June 1
at The Townsend Hotel in Birmingham,
Michigan. The meeting will begin at
11:00 a.m. Eastern Time.
TRANSFER AGENT AND REGISTRAR
Shareholder correspondence can be
mailed to:
Computershare
P.O. Box 30170
College Station, TX 77842
www-us.computershare.com/investor/contact
Overnight correspondence can be mailed to:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
VISIT
http://annualreport2015.taubman.com
Shareowner Information
CORPORATE HEADQUARTERS
Taubman Centers, Inc.
200 East Long Lake Road
Bloomfield Hills, MI 48304-2324
248.258.6800
TAUBMAN ASIA
Taubman Asia Management Limited
Suite 1308, 13/F, Two Pacific Place
88 Queensway, Admiralty, Hong Kong
852.3607.1333
USE OF TAUBMAN
For ease of use, references in this report to
“Taubman Centers,” “company,” “Taubman”
or an operating platform mean Taubman
Centers, Inc. and/or one or more of a number
of separate, affiliated entities. Business is
actually conducted by an affiliated entity
rather than Taubman Centers, Inc. itself or
the named operating platform.
QUARTERLY SHARE PRICE AND
DIVIDEND INFORMATION
The common stock of Taubman Centers,
Inc. is listed and traded on the New York
Stock Exchange (Symbol TCO). The
following table represents the dividends
and range of share prices for each quarter
of 2015:
MARKET QUOTATIONS
2015 Quarter Ended
High
Low
Dividends
March 31
June 30
September 30
December 31
$ 84.70 $ 72.05 $ 0.565
0.565
69.50
0.565
67.14
0.565
70.26
77.25
75.97
78.75
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
KPMG LLP
Chicago, Illinois
SHAREHOLDER INQUIRIES
Ryan Hurren
Director, Investor Relations
Taubman
200 East Long Lake Road
Bloomfield Hills, Michigan 48304-2324
248.258.7232
rhurren@taubman.com
OUR WEBSITE
www.taubman.com
Investor information on our website includes
press releases, supplemental investor
information, corporate governance
information, our Code of Business Conduct
and Ethics, SEC filings, and webcasts of
quarterly earnings conference calls.
CONFIDENTIAL HOTLINES AND WEBSITE
U.S.: 888.773.2513
Hong Kong: 800.96.4633
South Korea: 00798.1.1.002.5877
North China: 10.800.711.1152
South China: 10.800.110.1076
All Languages:
https://taubman.tnwreports.com/
Independently operated, confidential hot-
lines and website can be used to report
concerns regarding possible accounting,
internal accounting control or auditing
matters, or fraudulent acts and/or illegal
activities involving our company which
may compromise our ethical standards.
Other means of reporting concerns are
identified in our Code of Business Conduct
and Ethics located in the Investors/
Corporate Governance section of our
company’s website.
DIVIDEND REINVESTMENT AND
DIRECT STOCK PURCHASE PLAN
The Dividend Reinvestment and Direct
Stock Purchase Plan – sponsored and
administered by Computershare – provides
owners of common stock a convenient
way to reinvest dividends and purchase
additional shares. In addition, investors
who do not currently own any Taubman
Centers’ stock can make an initial
investment through this program.
A plan description can be viewed online
on the Computershare website:
www.computershare.com/investor (Once
on the website click “Buy stock direct”
and follow the subsequent instructions).
For questions about this plan or your
account, or for a brochure and enrollment
form, call: 1.888.877.2889
design: MULTIPLE INC. editorial: CHRISTOPHER TENNYSON printing: COLORTECH GRAPHICS
“ In everything you
do, try to make
things better,
not just different.”
A. Alfred Taubman
Taubman Centers, Inc.
200 East Long Lake Road, Bloomfield Hills, Michigan 48304-2324
www.taubman.com