Taubman Centers Issues Second Quarter Results

June 30, 2013

Three Months
Ended

June 30, 2012

Three Months
Ended

June 30, 2013

Six Months
Ended

June 30, 2012

Six Months
Ended

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

$0.28

$0.27

$0.71

$0.57

Funds from Operations (FFO) per diluted share

$0.75

$0.73

$1.65

$1.47

2.7%

12.2%

TAUBMAN CENTERS, INC.

Table 1 - Summary of Results

For the Periods Ended June 30, 2013 and 2012

(in thousands of dollars, except as indicated)

Three Months Ended 

Year to Date

2013

2012

2013

2012

Net income

33,603

31,448

79,959

63,625

Noncontrolling share of income of consolidated joint ventures

(1,773)

(2,875)

(4,554)

(4,709)

Noncontrolling share of income of TRG 

(7,788)

(8,138)

(19,577)

(16,889)

Preferred stock dividends 

(5,764)

(3,659)

(9,364)

(7,317)

Distributions to participating securities of TRG

(436)

(403)

(878)

(806)

Net income attributable to Taubman Centers, Inc. common shareowners

17,842

16,373

45,586

33,904

Net income per common share - basic 

0.28

0.28

0.72

0.58

Net income per common share - diluted

0.28

0.27

0.71

0.57

Beneficial interest in EBITDA - Combined (1)

114,627

109,047

243,110

220,137

Funds from Operations (1)

68,209

63,520

149,722

128,672

Funds from Operations attributable to TCO (1)

48,750

43,815

106,954

88,605

Funds from Operations per common share - basic (1)

0.76

0.75

1.68

1.51

Funds from Operations per common share - diluted (1)

0.75

0.73

1.65

1.47

Weighted average number of common shares outstanding - basic

63,786,083

58,789,737

63,602,025

58,518,442

Weighted average number of common shares outstanding - diluted

64,842,511

60,201,385

64,707,684

60,054,622

Common shares outstanding at end of period

63,816,192

58,812,588

Weighted average units - Operating Partnership - basic

89,013,712

85,229,124

88,887,990

84,978,006

Weighted average units - Operating Partnership - diluted

90,941,402

87,512,034

90,864,911

87,385,448

Units outstanding at end of period - Operating Partnership

89,013,714

85,244,196

Ownership percentage of the Operating Partnership at end of period

71.7%

69.0%

Number of owned shopping centers at end of period

24

24

24

24

Operating Statistics:

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

3.9%

4.5%

Mall tenant sales - all centers (3)

1,406,196

1,396,440

2,860,984

2,750,258

Mall tenant sales - comparable (2)(3)

1,371,556

1,366,654

2,792,601

2,714,285

Ending occupancy - all centers

90.7%

90.1%

90.7%

90.1%

Ending occupancy - comparable (2)

90.6%

90.3%

90.6%

90.3%

Average occupancy - all centers 

90.7%

89.9%

90.6%

89.8%

Average occupancy - comparable (2)

90.6%

90.1%

90.5%

90.0%

Leased space - all centers

92.6%

92.3%

92.6%

92.3%

Leased space - comparable (2)

92.5%

92.3%

92.5%

92.3%

All centers:

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

13.7%

13.1%

13.7%

13.2%

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

13.6%

12.8%

12.7%

12.4%

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

13.6%

13.0%

13.4%

12.9%

Comparable centers:

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

13.6%

13.1%

13.7%

13.0%

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

13.6%

12.6%

12.7%

12.4%

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

13.6%

13.0%

13.4%

12.9%

Average rent per square foot - Consolidated Businesses (2)

48.89

47.07

48.49

46.71

Average rent per square foot - Unconsolidated Joint Ventures 

49.20

45.94

48.08

45.13

Average rent per square foot - Combined (2)

48.98

46.73

48.37

46.23

(1)

Beneficial Interest in EBITDA represents the Operating Partnership's share of the earnings before interest, income taxes, and depreciation and amortization of its consolidated and unconsolidated businesses. The Company believes Beneficial Interest in EBITDA provides a useful indicator of operating performance, as it is customary in the real estate and shopping center business to evaluate the performance of properties on a basis unaffected by capital structure.

The Company uses Net Operating Income (NOI) as an alternative measure to evaluate the operating performance of centers, both on individual and stabilized portfolio bases. The Company defines NOI as property-level operating revenues (includes rental income excluding straight-line adjustments of minimum rent) less maintenance, taxes, utilities, promotion, ground rent (including straight-line adjustments), and other property operating expenses. Since NOI excludes general and administrative expenses, pre-development charges, interest income and expense, depreciation and amortization, impairment charges, restructuring charges, and gains from peripheral land and property dispositions, it provides a performance measure that, when compared period over period, reflects the revenues and expenses most directly associated with owning and operating rental properties, as well as the impact on their operations from trends in tenant sales, occupancy and rental rates, and operating costs. The Company also uses NOI excluding lease cancellation income as an alternative measure because this income may vary significantly from period to period, which can affect comparability and trend analysis. The Company generally provides separate projections for expected comparable center NOI growth and lease cancellation income.  Comparable centers are generally defined as centers that were owned and open for the entire current and preceding period presented.

The National Association of Real Estate Investment Trusts (NAREIT) defines Funds from Operations (FFO) as net income (computed in accordance with Generally Accepted Accounting Principles (GAAP)), excluding gains (or losses) from extraordinary items and sales of properties and impairment write-downs of depreciable real estate, plus real estate related depreciation and after adjustments for unconsolidated partnerships and joint ventures. The Company believes that FFO is a useful supplemental measure of operating performance for REITs. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, the Company and most industry investors and analysts have considered presentations of operating results that exclude historical cost depreciation to be useful in evaluating the operating performance of REITs.  The Company primarily uses FFO in measuring performance and in formulating corporate goals and compensation. 

The Company may also present adjusted versions of NOI, Beneficial Interest in EBITDA, and FFO when used by management to evaluate operating performance when certain significant items have impacted results that affect comparability with prior or future periods due to the nature or amounts of these items.  The Company believes the disclosure of the adjusted items is similarly useful to investors and others to understand management's view on comparability of such measures between periods. 

These non-GAAP measures as presented by the Company are not necessarily comparable to similarly titled measures used by other REITs due to the fact that not all REITs use the same definitions. These measures should not be considered alternatives to net income or as an indicator of the Company's operating performance. Additionally, these measures do not represent cash flows from operating, investing or financing activities as defined by GAAP.

(2)

Statistics exclude non-comparable centers.  The 2012 statistics, other than sales per square foot growth, have been restated to include comparable centers to 2013.

(3)

Based on reports of sales furnished by mall tenants. 

 TAUBMAN CENTERS, INC. 

 Table 2 - Income Statement 

 For the Three Months Ended June 30, 2013 and 2012 

 (in thousands of dollars) 

2013

2012

CONSOLIDATED BUSINESSES

 UNCONSOLIDATED JOINT
VENTURES (1) 

CONSOLIDATED BUSINESSES

 UNCONSOLIDATED JOINT
VENTURES (1) 

REVENUES:

Minimum rents

103,233

42,076

98,940

40,570

Percentage rents

1,083

1,429

2,049

1,228

Expense recoveries

65,569

24,600

62,215

23,573

Management, leasing, and development services

1,819

8,559

Other

6,483

1,669

7,702

1,400

Total revenues

178,187

69,774

179,465

66,771

EXPENSES:

Maintenance, taxes, utilities, and promotion

52,762

17,975

48,903

17,505

Other operating

18,492

4,168

19,922

4,258

Management, leasing, and development services

1,119

6,987

General and administrative

12,628

10,043

Interest expense 

32,622

16,994

36,676

15,823

Depreciation and amortization 

38,258

9,187

36,235

9,019

Total expenses

155,881

48,324

158,766

46,605

Nonoperating income

50

(8)

71

(7)

22,356

21,442

20,770

20,159

Income tax expense

(234)

(492)

Equity in income of Unconsolidated Joint Ventures

11,481

11,170

Net income 

33,603

31,448

Net income attributable to noncontrolling interests:

Noncontrolling share of income of consolidated joint ventures 

(1,773)

(2,875)

Noncontrolling share of income of TRG

(7,788)

(8,138)

Distributions to participating securities of TRG

(436)

(403)

Preferred stock dividends

(5,764)

(3,659)

Net income attributable to Taubman Centers, Inc. common shareowners

17,842

16,373

SUPPLEMENTAL INFORMATION:

EBITDA - 100% 

93,236

47,623

93,681

45,001

EBITDA - outside partners' share 

(5,355)

(20,877)

(9,393)

(20,242)

Beneficial interest in EBITDA

87,881

26,746

84,288

24,759

Beneficial interest expense 

(30,408)

(9,401)

(32,473)

(8,225)

Beneficial income tax expense - TRG and TCO

(234)

(515)

Beneficial income tax expense - TCO

128

Non-real estate depreciation

(739)

(655)

Preferred dividends and distributions 

(5,764)

(3,659)

Funds from Operations contribution

50,864

17,345

46,986

16,534

Net straight-line adjustments to rental revenue, recoveries,

  and ground rent expense at TRG % 

777

122

1,014

115

Green Hills purchase accounting adjustments - minimum rents increase

200

186

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

adjustments - interest expense reduction

858

858

Waterside Shops purchase accounting adjustments - interest expense reduction

263

(1)

With the exception of the Supplemental Information, amounts include 100% of the Unconsolidated Joint Ventures. Amounts are net of intercompany transactions. The Unconsolidated Joint Ventures are presented at 100% in order to allow for measurement of their performance as a whole, without regard to the Company's ownership interest. In its consolidated financial statements, the Company accounts for its investments in the Unconsolidated Joint Ventures under the equity method. 

 TAUBMAN CENTERS, INC. 

 Table 3 - Income Statement 

 For the Six Months Ended June 30, 2013 and 2012 

 (in thousands of dollars) 

2013

2012

CONSOLIDATED BUSINESSES

 UNCONSOLIDATED JOINT
VENTURES (1) 

CONSOLIDATED BUSINESSES

 UNCONSOLIDATED JOINT
VENTURES (1) 

REVENUES:

Minimum rents

205,542

82,147

192,684

79,197

Percentage rents

6,711

3,626

6,452

3,431

Expense recoveries

129,606

48,184

118,692

46,337

Management, leasing, and development services

5,201

17,207

Other

14,384

3,368

13,694

3,116

Total revenues

361,444

137,325

348,729

132,081

EXPENSES:

Maintenance, taxes, utilities, and promotion

99,319

35,186

90,601

33,614

Other operating

34,655

8,271

36,232

7,880

Management, leasing, and development services

3,145

15,509

General and administrative

24,864

18,450

Interest expense 

67,074

33,928

74,203

31,490

Depreciation and amortization 

75,280

19,258

72,669

17,595

Total expenses

304,337

96,643

307,664

90,579

Nonoperating Income

2,287

195

1

59,394

40,682

41,260

41,503

Income tax expense 

(1,262)

(706)

Equity in income of Unconsolidated Joint Ventures 

21,827

23,071

Net income

79,959

63,625

Net income attributable to noncontrolling interests:

Noncontrolling share of income of consolidated joint ventures 

(4,554)

(4,709)

Noncontrolling share of income of TRG

(19,577)

(16,889)

Distributions to participating securities of TRG

(878)

(806)

Preferred stock dividends 

(9,364)

(7,317)

Net income attributable to Taubman Centers, Inc. common shareowners

45,586

33,904

SUPPLEMENTAL INFORMATION:

EBITDA - 100% 

201,748

93,868

188,132

90,588

EBITDA - outside partners' share 

(11,415)

(41,091)

(17,860)

(40,723)

Beneficial interest in EBITDA

190,333

52,777

170,272

49,865

Beneficial interest expense 

(62,697)

(18,777)

(65,794)

(16,319)

Beneficial income tax expense - TRG and TCO

(1,262)

(726)

Beneficial income tax expense - TCO

161

Non-real estate depreciation

(1,449)

(1,309)

Preferred dividends and distributions

(9,364)

(7,317)

Funds from Operations contribution

115,722

34,000

95,126

33,546

Net straight-line adjustments to rental revenue, recoveries,

  and ground rent expense at TRG % 

1,800

225

1,266

173

Green Hills purchase accounting adjustments - minimum rents increase

404

399

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

adjustments - interest expense reduction

1,715

1,715

Waterside Shops purchase accounting adjustments - interest expense reduction

525

(1)

With the exception of the Supplemental Information, amounts include 100% of the Unconsolidated Joint Ventures. Amounts are net of intercompany transactions. The Unconsolidated Joint Ventures are presented at 100% in order to allow for measurement of their performance as a whole, without regard to the Company's ownership interest. In its consolidated financial statements, the Company accounts for its investments in the Unconsolidated Joint Ventures under the equity method. 

TAUBMAN CENTERS, INC.

Table 4 - Reconciliation of Net Income Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations

 For the Three Months Ended June 30, 2013 and 2012 

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

2013

2012

Shares 

Per Share

Shares 

Per Share 

Dollars

/Units

/Unit

Dollars

/Units

/Unit

Net income attributable to TCO common shareowners - Basic

17,842

63,786,083

0.28

16,373

58,789,737

0.28

Add impact of share-based compensation

92

1,056,428

134

1,411,648

Net income attributable to TCO common shareowners - Diluted

17,934

64,842,511

0.28

16,507

60,201,385

0.27

Add depreciation of TCO's additional basis

1,720

0.03

1,721

0.03

Add TCO's additional income tax expense

128

0.00

Net income attributable to TCO common shareowners,

excluding step-up depreciation and additional income tax expense

19,782

64,842,511

0.31

18,228

60,201,385

0.30

Add:

Noncontrolling share of income of TRG 

7,788

25,227,629

8,138

26,439,387

Distributions to participating securities of TRG

436

871,262

403

871,262

Net income attributable to partnership unitholders 

and participating securities

28,006

90,941,402

0.31

26,769

87,512,034

0.31

Add (less) depreciation and amortization:

Consolidated businesses at 100%

38,258

0.42

36,235

0.41

Depreciation of TCO's additional basis

(1,720)

(0.02)

(1,721)

(0.02)

Noncontrolling partners in consolidated joint ventures

(1,368)

(0.02)

(2,338)

(0.03)

Share of Unconsolidated Joint Ventures

5,864

0.06

5,364

0.06

Non-real estate depreciation

(739)

(0.01)

(655)

(0.01)

Less impact of share-based compensation

(92)

(0.00)

(134)

(0.00)

Funds from Operations

68,209

90,941,402

0.75

63,520

87,512,034

0.73

TCO's average ownership percentage of TRG

71.7%

69.0%

Funds from Operations attributable to TCO,

excluding additional income tax expense

48,878

0.75

43,815

0.73

Less TCO's additional income tax expense

(128)

(0.00)

Funds from Operations attributable to TCO

48,750

0.75

43,815

0.73

TAUBMAN CENTERS, INC.

Table 5 - Reconciliation of Net Income Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations

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

2013

2012

Shares 

Per Share

Shares 

Per Share 

Dollars

/Units

/Unit

Dollars

/Units 

/Unit

Net income attributable to TCO common shareowners - Basic

45,586

63,602,025

0.72

33,904

58,518,442

0.58

Add impact of share-based compensation

245

1,105,659

302

1,536,180

Net income attributable to TCO common shareowners - Diluted

45,831

64,707,684

0.71

34,206

60,054,622

0.57

Add depreciation of TCO's additional basis

3,440

0.05

3,440

0.06

Add TCO's additional income tax expense

161

Net income attributable to TCO common shareowners,

excluding step-up depreciation and additional income tax expense

49,432

64,707,684

0.76

37,646

60,054,622

0.63