Taubman Centers, Inc. Issues Solid First Quarter Results

Net Income Down 18.8 Percent, Primarily Due to Higher Depreciation
Expense


Comparable Center Net Operating Income (NOI), Excluding Lease
Cancellation Income, Up 2.3 Percent


Beneficial Interest in Total Portfolio NOI, Excluding Lease
Cancellation Income Up 5.7 Percent


Sales per Square Foot, Occupancy, Leased Space and Average Rents
All Up in Comparable Centers


Acquired 48.5 Percent Interest in The Gardens Mall, Palm Beach
Gardens, Florida


BLOOMFIELD HILLS, Mich.–(BUSINESS WIRE)–Taubman Centers, Inc. (NYSE: TCO) today reported financial results for
the first quarter of 2019.


 


 


 


 


 




 


March 31, 2019


 


March 31, 2018






Three Months




Three Months


 


 


Ended


 


Ended


Net income attributable to common shareowners, diluted (in
thousands)




$15,118




$18,618


Growth rate


 


(18.8)%


 


 


Net income attributable to common shareowners (EPS) per diluted
common share




$0.25




$0.30


Growth rate


 


(16.7)%


 


 


Funds from Operations (FFO) per diluted common share




$0.93




$0.88


Growth rate


 


5.7%


 


 


Adjusted FFO per diluted common share




$0.95(1)



$1.04(2)

Growth rate


 


(8.7)%


 


 


 


(1)


 


Adjusted FFO for the three months ended March 31, 2019 excludes a
restructuring charge, costs associated with shareholder activism and
the fluctuation in the fair value of equity securities.




 




(2)




Adjusted FFO for the three months ended March 31, 2018 excludes a
reduction of a previously expensed restructuring charge, costs
associated with shareholder activism, the fluctuation in the fair
value of equity securities, and a charge recognized in connection
with the write-off of deferred financing costs related to the early
payoff of our $475 million unsecured term loan.


“Our portfolio of high-quality assets achieved solid NOI growth again
this quarter, driven by better rents and lower expenses. Adjusted FFO
was in line with our expectations, but year-over-year was impacted by
significant lease termination income received in the first quarter of
last year,” said Robert S. Taubman, chairman, president and chief
executive officer of Taubman Centers.


“We were delighted to strengthen our portfolio by completing the
acquisition of a 48.5 percent interest in The Gardens Mall at an
excellent value in an off-market, non-cash transaction.”


Operating Statistics


For the quarter, comparable center NOI, excluding lease cancellation
income, was up 2.3 percent. “Our comparable centers grew as expected in
the U.S. We also produced very strong growth in Asia, despite
unfavorable foreign currency rates,” said Mr. Taubman. Comparable center
NOI growth, excluding lease cancellation income, would have been 3
percent without the negative currency impact.


Total portfolio NOI growth at our beneficial interest was up 5.7 percent
for the quarter, excluding lease cancellation income.


“This is our first quarter reporting our share of NOI growth. The
combination of better post-hurricane operations at The Mall of San Juan
and outsized growth from our best assets, many of which are
wholly-owned, were the primary factors,” said Simon J. Leopold,
executive vice president and chief financial officer.


Comparable center tenant sales per square foot increased 18.6 percent
from the first quarter of 2018. This brings the company’s 12-month
trailing sales per square foot to $832, an increase of 10.3 percent over
the 12-months ended March 31, 2018.


Tenant sales per square foot in U.S. comparable centers were up 21.7
percent in the quarter, bringing 12-month trailing U.S. sales per square
foot to $919, an increase of 10.9 percent over the 12-months ended March
31, 2018.


“There were several factors that impacted the significant sales
increases this quarter. First, deliveries of Tesla’s Model 3
substantially benefitted the quarter’s results. Offsetting, was a late
Easter, unfavorable exchange rates and a very tough comp, as sales were
up over 12 percent a year ago.” said Mr. Taubman. “Many of our most
important categories including apparel, shoes and electronics were up
this quarter.”


Average rent per square foot for the quarter was $56.15, up 1.3 percent
from $55.42 in the comparable period last year.


Trailing 12-month releasing spread per square foot for the period ended
March 31, 2019 was 7.1 percent.


Ending occupancy in comparable centers was 93.5 percent on March 31,
2019, up 0.3 percent from March 31, 2018. Leased space in comparable
centers was 95.9 percent on March 31, 2019, up 0.7 percent from March
31, 2018.


“Notwithstanding the continued significant volatility in the retail
landscape, demand for space in our centers remains solid,” said Mr.
Taubman.


The Gardens Mall Acquisition


In April, Taubman acquired a 48.5 percent interest in The Gardens Mall
(Palm Beach Gardens, Fla.) from members of the Cohen Family, who
together with members of the Forbes family have jointly owned the center
since its opening in 1988.


“The Gardens Mall is the premier retail asset in the affluent and
growing Palm Beach market. We believe the quality of the center is above
the median of our portfolio. Opportunities to acquire assets like this,
one of the very best in the country, are extremely rare.” said Mr.
Taubman. “This acquisition is consistent with our strategy of owning
superior assets in the strongest markets.”


The 48.5 percent interest was acquired in an off-market, non-cash
transaction for 1.5 million Taubman Realty Group Limited Partnership
(TRG) units and the assumption of its pro rata share of debt. This
transaction is expected to be neutral to slightly accretive to FFO and
Adjusted FFO in 2019.


This represents Taubman’s third investment in partnership with The
Forbes Company, following The Mall of Millennia in Orlando and Waterside
Shops in Naples. “Forbes is a valuable partner and a best-in-class
retail operator. They will continue to lease and manage the center.
Forbes was instrumental in presenting this opportunity to us and we look
forward to another productive partnership,” said Mr. Taubman.


Financing Activity


In March, we completed a 1.2 billion Chinese Yuan Renminbi (RMB)
(approximately $179 million using the March 31, 2019 exchange rate)
10-year, fully-amortizing, non-recourse financing at our CityOn.Xi’an (Xi’an,
China) joint venture. The loan bears interest at an all-in fixed
rate of 6 percent. As of March 31, 2019, about $49 million had been
drawn.


Dividend Increased


In March, we declared a regular quarterly dividend of $0.675 per share
of common stock, an increase of 3.1 percent. Since going public in 1992,
Taubman has never reduced its dividend and has increased its dividend 22
times. See Taubman
Centers Increases Quarterly Common Dividend 3.1 Percent to $0.675 Per
Share – March 4, 2019.


2019 Guidance


Taubman is updating certain guidance measures for 2019. Our guidance now
includes the impact of The Gardens Mall acquisition that closed in April.


2019 EPS is now expected to be in the range of $0.68 to $0.92 per
diluted share, revised from the previous range of $0.84 to $1.08.


2019 FFO is now expected to be in the range of $3.60 to $3.72 per
diluted common share, revised from the previous range of $3.62 to $3.74.
This change represents the $0.02 net impact of the first quarter
restructuring charge, costs associated with shareholder activism and
fluctuation in the fair value of equity securities.


2019 Adjusted FFO, which excludes $0.02 per diluted common share of
first quarter adjustments, remains unchanged and is expected to be in
the range of $3.62 to $3.74 per diluted common share.


We continue to expect comparable center NOI growth of about 2 percent
for the year.


This guidance range includes the adoption of the new lease accounting
standard, resulting in an additional $5 to $7 million of operating
expenses. This guidance does not include the impact of the agreement to
sell 50 percent of Taubman Asia’s interests in three Asia-based shopping
centers to Blackstone or assumptions for future costs associated with
shareowner activism.


Supplemental Investor Information Available


Taubman provides supplemental investor information along with its
earnings announcements, available online at www.taubman.com
under “Investors.” This includes the following:


Earnings Press Release


Company Overview


Operational Statistics


Summary of Key Guidance Measures


Income Statements


Changes in Funds from Operations and Earnings Per Common Share


Balance Sheets


Debt Summary


Capital Spending and Balance Sheet Information


Owned Centers


Redevelopment, New Development, & Acquisition


Anchors & Major Tenants in Owned Portfolio


Components of Rental Revenues


Components of Other Income, Other Operating Expense, and Nonoperating
Income (Expense)


Earnings Reconciliations


Operating Statistics Glossary


Investor Conference Call


Taubman will host a conference call at 10:00 a.m. EDT on Wednesday May
1, 2019 to discuss these results, business conditions and the outlook
for the remainder of 2019. The conference call will be simulcast at www.taubman.com.
An online replay will follow shortly after the call and continue for
approximately 90 days.


About The Gardens Mall


The Gardens Mall was originally developed by Forbes-Cohen Properties and
opened in 1988. It is considered the top regional mall in Northern Palm
Beach County and is home to more than 150 tenants, many of which are
among the world’s most iconic brands including Apple, Chanel, Louis
Vuitton, David Yurman, Jimmy Choo, Tiffany & Co., lululemon athletica,
Salvatore Ferragamo and many others. The 1,400,000 square foot property
is anchored by Bloomingdale’s, Macy’s, Nordstrom, Saks and Sears and
features 460,000 square feet of mall tenant space.


About Taubman


Taubman Centers is an S&P MidCap 400 Real Estate Investment Trust
engaged in the ownership, management and/or leasing of 27 regional,
super-regional and outlet shopping centers in the U.S. and Asia.
Taubman’s U.S.-owned properties are the most productive in the publicly
held U.S. regional mall industry. Founded in 1950, Taubman is
headquartered in Bloomfield Hills, Mich. Taubman Asia, founded in 2005,
is headquartered in Hong Kong. www.taubman.com.


About The Forbes Company


Based in Southfield, Michigan, The Forbes Company is a nationally
recognized owner, developer and manager of iconic regional shopping
centers, recognized throughout their respective markets for their retail
innovation, fashion leadership, distinctive architecture and luxury
appointments. In addition to The Gardens Mall, these properties include:
The Mall at Millenia in Orlando, Florida; Somerset Collection in Troy,
Michigan; and Waterside Shops in Naples, Florida. www.theforbescompany.com


For ease of use, references in this press release to “Taubman
Centers,”, “we”, “us”, “our”, “company,” “Taubman” or an operating
platform mean Taubman Centers, Inc. and/or one or more of a number of
separate, affiliated entities. Business is actually conducted by an
affiliated entity rather than Taubman Centers, Inc. itself or the named
operating platform.


This press release may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
statements reflect management’s current views with respect to future
events and financial performance. Forward-looking statements can be
identified by words such as “will”, “may”, “could”, “expect”,
“anticipate”, “believes”, “intends”, “should”, “plans”, “estimates”,
“approximate”, “guidance” and similar expressions in this press release
that predict or indicate future events and trends and that do not report
historical matters. The forward-looking statements included in this
release are made as of the date hereof. Except as required by law, the
company assumes no obligation to update these forward-looking
statements, even if new information becomes available in the future.
Actual results may differ materially from those expected because of
various risks and uncertainties, including that the conditions to one or
more transaction closings may not be satisfied, the potential impact on
the company due to the announcement of the disposition of ownership
interests, the occurrence of any event, change or other circumstances
that could give rise to the termination of the transactions, general
economic conditions, and other factors. Such factors include, but are
not limited to: changes in market rental rates; unscheduled closings or
bankruptcies of tenants; relationships with anchor tenants; trends in
the retail industry; challenges with department stores; changes in
consumer shopping behavior; the liquidity of real estate investments;
the company’s ability to comply with debt covenants; the availability
and terms of financings; changes in market rates of interest and foreign
exchange rates for foreign currencies; changes in value of investments
in foreign entities; the ability to hedge interest rate and currency
risk; risks related to acquiring, developing, expanding, leasing and
managing properties; competitors gaining economies of scale through M&A
and consolidation activity; changes in value of investments in foreign
entities; risks related to joint venture properties; insurance costs and
coverage; security breaches that could impact the company’s information
technology, infrastructure or personal data; costs associated with
response to technology breaches; the loss of key management personnel;
shareholder activism costs and related diversion of management time;
terrorist activities; maintaining the company’s status as a real estate
investment trust; changes in the laws of states, localities, and foreign
jurisdictions that may increase taxes on the company’s operations; and
changes in global, national, regional and/or local economic and
geopolitical climates.


You should review the company’s filings with the Securities and
Exchange Commission, including “Risk Factors” in its most recent Annual
Report on Form 10-K and subsequent quarterly reports, for a discussion
of such risks and uncertainties.


TAUBMAN CENTERS, INC.


 




 




 




 




Table 1 – Income Statement


















For the Three Months Ended March 31, 2019 and 2018


 


 


 


 


 


 


 


 


(in thousands of dollars)






















2019




2018






CONSOLIDATED




UNCONSOLIDATED




CONSOLIDATED




UNCONSOLIDATED






BUSINESSES


 


JOINT VENTURES (1)




BUSINESSES


 


JOINT VENTURES (1)


REVENUES:


















Rental revenues (2)




144,289






129,556












Minimum rents (2)












86,825






92,041




Overage rents




3,141






6,379






2,625






5,881




Expense recoveries (2)












51,528






45,870




Management, leasing, and development services




1,216










794








Other (2)




11,562


 




6,706


 




19,720


 




11,496


 


Total revenues




160,208






142,641






161,492






155,288




















 


EXPENSES:


















Maintenance, taxes, utilities, and promotion




38,538






40,960






37,637






40,378




Other operating (2)




19,225






5,521






23,866






9,986




Management, leasing, and development services




531










302








General and administrative




8,576










8,493








Restructuring charge




625










(346


)






Costs associated with shareholder activism




4,000










3,500








Interest expense




36,885






32,498






30,823






32,467




Depreciation and amortization




44,956


 




33,690


 




35,022


 




33,469


 


Total expenses




153,336






112,669






139,297






116,300




















 


Nonoperating income (expense)




8,733


 




401


 




(7,143


)




347


 






15,605






30,373






15,052






39,335




Income tax expense




(539


)




(1,908


)




(184


)




(1,737


)










28,465


 








37,598


 


Equity in income of Unconsolidated Joint Ventures




14,672


 








19,728


 






Net income




29,738










34,596








Net income attributable to noncontrolling interests:


















Noncontrolling share of income of consolidated joint ventures




(1,429


)








(1,344


)






Noncontrolling share of income of TRG




(6,801


)








(8,279


)






Distributions to participating securities of TRG




(627


)








(599


)






Preferred stock dividends




(5,784


)








(5,784


)






Net income attributable to Taubman Centers, Inc. common shareholders




15,097


 








18,590


 






















 


SUPPLEMENTAL INFORMATION:


















EBITDA – 100%




97,446






96,561






80,897






105,271




EBITDA – outside partners’ share




(6,739


)




(47,144


)




(6,257


)




(51,027


)


Beneficial interest in EBITDA




90,707






49,417






74,640






54,244




Beneficial interest expense




(33,860


)




(16,776


)




(27,812


)




(16,751


)


Beneficial income tax expense – TRG and TCO




(489


)




(777


)




(134


)




(710


)


Beneficial income tax expense – TCO












3








Non-real estate depreciation




(1,145


)








(1,136


)






Preferred dividends and distributions




(5,784


)




 




(5,784


)




 


Funds from Operations attributable to partnership unitholders and
participating securities of TRG




49,429


 




31,864


 




39,777


 




36,783


 


















 


STRAIGHTLINE AND PURCHASE ACCOUNTING ADJUSTMENTS:


















Net straight-line adjustments to rental revenues, recoveries, and
ground rent expense at TRG%




1,798






166






656






711




Country Club Plaza purchase accounting adjustments – rental revenues
increase at TRG%








112










1,487




The Mall at Green Hills purchase accounting adjustments – rental
revenues increase




35










31








(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 our ownership interest.


 


(2) Upon adoption of ASC Topic 842, minimum rents and expense
recoveries are now presented within a single revenue line item,
Rental Revenues; the presentation of lease cancellation income has
changed from Other income to Rental Revenues; the presentation of
uncollectible tenant revenues has changed from Other Operating
expense to Rental Revenues as a contra-revenue; and Other Operating
expense includes certain indirect leasing costs, which were
capitalizable under the previous lease accounting standard. As a
result of the accounting change, an additional $1.4 million of
leasing costs were expensed during the three months ended March 31,
2019. Comparative periods presented were not adjusted to reflect the
change in accounting.


TAUBMAN CENTERS, INC.


Use of Non-GAAP Financial Measures


In this press release, the terms “we”, “us”, and “our” refer to Taubman
Centers, Inc. (TCO), The Taubman Realty Group Limited Partnership (TRG),
and/or TRG’s subsidiaries as the context may require.


We use certain non-GAAP operating measures, including EBITDA, beneficial
interest in EBITDA, Net Operating Income, and Funds from Operations.
These measures are reconciled to the most comparable GAAP measures.
Additional information as to the use of these measures are as follows.


EBITDA represents earnings before interest, income taxes, and
depreciation and amortization of our consolidated and unconsolidated
businesses. Beneficial interest in EBITDA represents our share of the
earnings before interest, income taxes, and depreciation and
amortization of our consolidated and unconsolidated businesses. We
believe EBITDA and beneficial interest in EBITDA provide useful
indicators 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.


We use Net Operating Income (NOI) as an alternative measure to evaluate
the operating performance of centers, both on individual and stabilized
portfolio bases, and in formulating corporate goals and compensation. We
define NOI as property-level operating revenues (includes rental income
excluding straight-line adjustments of minimum rent) less maintenance,
property taxes, utilities, promotion, ground rent (including
straight-line adjustments), and other property operating expenses.
Beneficial interest in NOI represents our share of NOI (as previously
defined) of our consolidated and unconsolidated businesses. 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. 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 comparable center NOI growth and lease cancellation income.
Comparable centers are generally defined as centers that were owned and
open for the entire current and preceding period presented, excluding
centers impacted by significant redevelopment activity. In addition, The
Mall of San Juan has been excluded from comparable center statistics as
a result of Hurricane Maria and the expectation that the center’s
performance will be materially impacted for the foreseeable future.


The National Association of Real Estate Investment Trusts (NAREIT)
defines Funds from Operations (FFO) as net income (calculated in
accordance with Generally Accepted Accounting Principles (GAAP)),
excluding depreciation and amortization related to real estate, gains
and losses from the sale of certain real estate assets, gains and losses
from change in control, and impairment write-downs of certain real
estate assets and investments in entities when the impairment is
directly attributable to decreases in the value of depreciable real
estate held by the entity. 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, 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. 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. For the three
months ended March 31, 2019, FFO and EBITDA were adjusted to exclude a
restructuring charge, costs incurred associated with shareholder
activism, and the fluctuation in the fair value of equity securities.
For the three months ended March 31, 2018, FFO and EBITDA were adjusted
to exclude a reduction of a previously expensed restructuring charge,
costs incurred associated with shareholder activism, and the fluctuation
in the fair value of equity securities. For the three months ended March
31, 2018, FFO was also adjusted for a charge recognized in connection
with the write-off of deferred financing costs related to the early
payoff of our $475 million unsecured term loan.


These non-GAAP measures as presented by us 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 our
operating performance. Additionally, these measures do not represent
cash flows from operating, investing, or financing activities as defined
by GAAP.


We also provide our beneficial interest in certain financial information
of our Unconsolidated Joint Ventures.
Contacts

Erik Wright, Taubman, Manager, Investor Relations, 248-258-7390ewright@taubman.com


Maria Mainville, Taubman, Director, Strategic Communications,
248-258-7469mmainville@taubman.com


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