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Taubman Centers, Inc. Issues Solid Second Quarter Results

  • Net Income and Earnings Per Diluted Common Share (EPS) Down
  • Adjusted Funds from Operations (AFFO) Up 8 Percent
  • Pro Rata Total Portfolio NOI, Excluding Lease Cancellation Income, Up 4.6 Percent for the Quarter, Up 5.1 Percent Year-to-Date
  • Comparable Center NOI, Excluding Lease Cancellation Income and FX impact, Up 1.4 Percent for the Quarter and 2.2 Percent Year-to-Date
  • Trailing 12-Month Tenant Sales Per Square Foot $848, Up 10.8 Percent
  • Sales Per Square Foot Up 8.8 Percent, 12th Consecutive Quarter of Positive Growth
  • Apparel Sales Up for 7th Consecutive Quarter

 

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

 

June 30, 2019

June 30, 2018

June 30, 2019

June 30, 2018

Three Months

Three Months

Six Months

Six Months

Ended

Ended

Ended

Ended

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

$6,266

$15,324

$21,384

$33,943

Growth rate

(59.1)%

 

(37.0)%

 

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

$0.10

$0.25

$0.35

$0.55

Growth rate

(60.0)%

 

(36.4)%

 

Funds from Operations (FFO) per diluted common share

$0.78

$0.92

$1.71

$1.80

Growth rate

(15.2)%

 

(5.0)%

 

Adjusted Funds from Operations (Adjusted FFO) per diluted common share

$0.94(1)

$0.87(2)

$1.88(1)

$1.91(2)

Growth rate

8.0%

 

(1.6)%

 

(1)

Adjusted FFO for the three and six month periods ended June 30, 2019 excludes a restructuring charge, costs incurred related to the pending Blackstone transactions and costs associated with shareholder activism. Adjusted FFO for the six month period ended June 30, 2019 also excludes the fluctuation in the fair value of equity securities.

(2)

Adjusted FFO for the three and six month periods ended June 30, 2018 excludes a reduction of a previously expensed restructuring charge, costs associated with shareholder activism and the fluctuation in the fair value of equity securities. Adjusted FFO for the six month period ended June 30, 2018 also excludes a charge recognized in connection with the write-off of deferred financing costs related to the early payoff of the company’s $475 million unsecured term loan.

“We again delivered solid results, with AFFO up eight percent this quarter,” said Robert S. Taubman, chairman, president and chief executive officer of Taubman Centers. “Higher rents, recoveries and lease cancellation income, combined with additional business interruption proceeds related to The Mall of San Juan, drove our results.”

Operating Statistics

For the quarter, comparable center NOI growth, excluding lease cancellation income, was 1.4 percent and 2.2 percent year-to-date using constant currency exchange rates. Comparable center NOI, excluding lease cancellation income, was up 0.3 percent, bringing year-to-date growth to 1.3 percent. “Despite the unfavorable impact of foreign exchange rates, NOI growth this quarter was in line with our expectations,” said Simon J. Leopold, executive vice president, chief financial officer of Taubman Centers.

Total portfolio NOI growth at our beneficial interest, excluding lease cancellation income, was up 4.6 percent for the quarter, bringing year-to-date growth to 5.1 percent.

Tenant sales per square foot in U.S. comparable centers were up 10.6 percent in the quarter, bringing 12-month trailing U.S. sales per square foot to $940, an increase of 12.2 percent over the 12-months ended June 30, 2018. Year-to-date, U.S. sales per square foot were up 16.2 percent.

Including Asia, comparable tenant sales per square foot increased 8.8 percent from the second quarter of 2018. This brings the company’s 12-month trailing sales per square foot to $848, up 10.8 percent over the 12-months ended June 30, 2018. Year-to-date, tenant sales per square foot were up 13.7 percent.

“Our tenants produced steady sales growth this quarter. Tesla once again impacted the results very favorably,” said Mr. Taubman. “Our key categories of merchandise were also up nicely in the quarter, including apparel sales that were up for the seventh consecutive quarter.”

Average rent per square foot for the quarter was $56.79, up 2.1 percent from $55.64 in the comparable period last year. Year-to-date, average rent per square foot was up 1.5 percent.

Trailing 12-month releasing spread per square foot for the period ended June 30, 2019 was 3.3 percent. The spread was impacted by a small number of deals that have an average lease term of less than one-and-a-half years. These represent three percent of all openings in the trailing twelve months. Without these leases, the spread was 8.3 percent.

Ending occupancy in comparable centers was 92.2 percent on June 30, 2019, down 0.4 percent from June 30, 2018.

Leased space in comparable centers was 95.1 percent on June 30, 2019, unchanged from June 30, 2018.

“As the transition in retail continues, our portfolio is maintaining healthy occupancy levels and generating solid NOI growth,” said Mr. Taubman.

The Mall of San Juan Insurance Proceeds

In June, the company received a final payment for claims related to extensive damage and business interruption at The Mall of San Juan resulting from Hurricane Maria in September 2017. The payment included $4.5 million of business interruption proceeds and $0.2 million for reimbursement of operating expenses, both of which were included in FFO. The $4.5 million of business interruption proceeds included $1.2 million for rental revenues recognized in prior periods that were credited back to tenants in the current period. This results in a net FFO contribution of $3.5 million in the quarter, including the $0.2 million reimbursement.

This final payment was in addition to the $4 million of business interruption insurance proceeds received in the first quarter of 2019. Year-to-date, insurance proceeds of $7.5 million was included in FFO.

2019 Guidance

Taubman is updating certain guidance measures for 2019.

EPS is now expected to be in the range of $0.60 to $0.80 per diluted share, revised from the previous range of $0.68 to $0.92, primarily due to costs associated with shareholder activism recognized in the second quarter.

Adjusted FFO, which excludes $0.17 per diluted common share of year-to-date adjustments, is now expected to be in the range of $3.64 to $3.74 per diluted common share, revised from the previous range of $3.62 to $3.74.

FFO is now expected to be in the range of $3.47 to $3.57 per diluted common share, revised from the previous range of $3.60 to $3.72.

All other guidance measures remain unchanged, including expected comparable center NOI growth of about 2 percent for the year.

This guidance does not include the impact of the agreement to sell 50 percent of Taubman Asia’s interests in three Asia shopping centers to Blackstone. We continue to anticipate these transactions to close throughout the second half of 2019. The guidance also does not include an assumption for future costs associated with shareholder 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 Certain Balance Sheet Information
  • Owned Centers
  • New Development & Acquisition
  • Anchors & Major Tenants in Owned Portfolio
  • Components of Rental Revenues
  • Components of Other Income, Other Operating Expense, and Nonoperating Income, Net
  • Earnings Reconciliations
  • Glossary

Investor Conference Call

Taubman will host a conference call at 11:00 a.m. EDT on Friday July 26, 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 Taubman

Taubman Centers is an S&P MidCap 400 Real Estate Investment Trust engaged in the ownership, management and/or leasing of 26 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.

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 delay or 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 June 30, 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)

147,006

 

 

142,097

 

 

 

 

 

Minimum rents (2)

 

 

 

 

87,580

 

 

87,734

 

Overage rents

1,713

 

 

5,164

 

 

1,565

 

 

5,789

 

Expense recoveries (2)

 

 

 

 

50,553

 

 

43,526

 

Management, leasing, and development services

892

 

 

 

 

826

 

 

 

Other (2)

11,993

 

 

6,660

 

 

12,245

 

 

6,742

 

Total revenues

161,604

 

 

153,921

 

 

152,769

 

 

143,791

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

Maintenance, taxes, utilities, and promotion

39,182

 

 

46,179

 

 

38,085

 

 

43,757

 

Other operating (2)

21,232

 

 

6,853

 

 

21,034

 

 

5,125

 

Management, leasing, and development services

491

 

 

 

 

408

 

 

 

General and administrative

8,554

 

 

 

 

8,522

 

 

 

Restructuring charge

84

 

 

 

 

(77

)

 

 

Costs associated with shareholder activism

12,000

 

 

 

 

5,000

 

 

 

Interest expense

38,010

 

 

35,685

 

 

33,023

 

 

33,650

 

Depreciation and amortization

44,259

 

 

35,622

 

 

42,996

 

 

33,949

 

Total expenses

163,812

 

 

124,339

 

 

148,991

 

 

116,481

 

 

 

 

 

 

 

 

 

Nonoperating income, net

6,627

 

 

923

 

 

12,301

 

 

581

 

 

4,419

 

 

30,505

 

 

16,079

 

 

27,891

 

Income tax expense

(2,364

)

 

(2,461

)

 

(28

)

 

(1,527

)

 

 

 

28,044

 

 

 

 

26,364

 

Equity in income of Unconsolidated Joint Ventures

14,822

 

 

 

 

14,042

 

 

 

Net income

16,877

 

 

 

 

30,093

 

 

 

Net income attributable to noncontrolling interests:

 

 

 

 

 

 

 

Noncontrolling share of income of consolidated joint ventures

(832

)

 

 

 

(1,480

)

 

 

Noncontrolling share of income of TRG

(3,408

)

 

 

 

(6,922

)

 

 

Distributions to participating securities of TRG

(593

)

 

 

 

(599

)

 

 

Preferred stock dividends

(5,785

)

 

 

 

(5,785

)

 

 

Net income attributable to Taubman Centers, Inc. common shareholders

6,259

 

 

 

 

15,307

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL INFORMATION:

 

 

 

 

 

 

 

EBITDA – 100%

86,688

 

 

101,812

 

 

92,098

 

 

95,490

 

EBITDA – outside partners’ share

(6,113

)

 

(49,119

)

 

(6,258

)

 

(46,206

)

Beneficial interest in EBITDA

80,575

 

 

52,693

 

 

85,840

 

 

49,284

 

Gain on insurance recoveries – The Mall of San Juan

(1,418

)

 

 

 

 

 

 

Beneficial interest expense

(34,981

)

 

(18,005

)

 

(29,995

)

 

(17,263

)

Beneficial income tax expense – TRG and TCO

(2,225

)

 

(912

)

 

5

 

 

(654

)

Beneficial income tax expense – TCO

 

 

 

 

 

 

 

Non-real estate depreciation

(1,152

)

 

 

 

(1,128

)

 

 

Preferred dividends and distributions

(5,785

)

 

 

 

(5,785

)

 

 

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

35,014

 

 

33,776

 

 

48,937

 

 

31,367

 

 

 

 

 

 

 

 

 

STRAIGHTLINE AND PURCHASE ACCOUNTING ADJUSTMENTS:

 

 

 

 

 

 

 

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

917

 

 

437

 

 

699

 

 

441

 

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

 

 

84

 

 

 

 

(100

)

The Mall at Green Hills purchase accounting adjustments – rental revenues

13

 

 

 

 

27

 

 

 

The Gardens Mall purchase accounting adjustments – rental revenues at TRG%

 

 

(177

)

 

 

 

 

The Gardens Mall purchase accounting adjustments – interest expense at TRG%

 

 

(528

)

 

 

 

 

 

 

 

 

 

 

 

 

(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 $1.5 million of leasing costs were expensed during the three months ended June 30, 2019. Comparative periods presented were not adjusted to reflect the change in accounting.

TAUBMAN CENTERS, INC.

 

 

 

 

 

 

Table 2 – Income Statement

 

 

 

 

 

 

For the Six Months Ended June 30, 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)

291,295

 

 

271,653

 

 

 

 

 

Minimum rents (2)

 

 

 

 

174,405

 

 

179,775

 

Overage rents

4,854

 

 

11,543

 

 

4,190

 

 

11,670

 

Expense recoveries (2)

 

 

 

 

102,081

 

 

89,396

 

Management, leasing, and development services

2,108

 

 

 

 

1,620

 

 

 

Other (2)

23,555

 

 

13,366

 

 

31,965

 

 

18,238

 

Total revenues

321,812

 

 

296,562

 

 

314,261

 

 

299,079

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

Maintenance, taxes, utilities, and promotion

77,720

 

 

87,139

 

 

75,722

 

 

84,135

 

Other operating (2)

40,457

 

 

12,374

 

 

44,900

 

 

15,111

 

Management, leasing, and development services

1,022

 

 

 

 

710

 

 

 

General and administrative

17,130

 

 

 

 

17,015

 

 

 

Restructuring charge

709

 

 

 

 

(423

)

 

 

Costs associated with shareholder activism

16,000

 

 

 

 

8,500

 

 

 

Interest expense

74,895

 

 

68,183

 

 

63,846

 

 

66,117

 

Depreciation and amortization

89,215

 

 

69,312

 

 

78,018

 

 

67,418

 

Total expenses

317,148

 

 

237,008

 

 

288,288

 

 

232,781

 

 

 

 

 

 

 

 

 

Nonoperating income, net

15,360

 

 

1,324

 

 

5,158

 

 

928

 

 

20,024

 

 

60,878

 

 

31,131

 

 

67,226

 

Income tax expense

(2,903

)

 

(4,369

)

 

(212

)

 

(3,264

)

 

 

 

56,509

 

 

 

 

63,962

 

Equity in income of Unconsolidated Joint Ventures

29,494

 

 

 

 

33,770

 

 

 

Net income

46,615

 

 

 

 

64,689

 

 

 

Net income attributable to noncontrolling interests:

 

 

 

 

 

 

 

Noncontrolling share of income of consolidated joint ventures

(2,261

)

 

 

 

(2,824

)

 

 

Noncontrolling share of income of TRG

(10,209

)

 

 

 

(15,201

)

 

 

Distributions to participating securities of TRG

(1,220

)

 

 

 

(1,198

)

 

 

Preferred stock dividends

(11,569

)

 

 

 

(11,569

)

 

 

Net income attributable to Taubman Centers, Inc. common shareholders

21,356

 

 

 

 

33,897

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL INFORMATION:

 

 

 

 

 

 

 

EBITDA – 100%

184,134

 

 

198,373

 

 

172,995

 

 

200,761

 

EBITDA – outside partners’ share

(12,852

)

 

(96,263

)

 

(12,515

)

 

(97,233

)

Beneficial interest in EBITDA

171,282

 

 

102,110

 

 

160,480

 

 

103,528

 

Gain on insurance recoveries – The Mall of San Juan

(1,418

)

 

 

 

 

 

 

Beneficial interest expense

(68,841

)

 

(34,781

)

 

(57,807

)

 

(34,014

)

Beneficial income tax expense – TRG and TCO

(2,714

)

 

(1,689

)

 

(129

)

 

(1,364

)

Beneficial income tax expense – TCO

 

 

 

 

3

 

 

 

Non-real estate depreciation

(2,297

)

 

 

 

(2,264

)

 

 

Preferred dividends and distributions

(11,569

)

 

 

 

(11,569

)

 

 

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

84,443

 

 

65,640

 

 

88,714

 

 

68,150

 

 

 

 

 

 

 

 

 

STRAIGHTLINE AND PURCHASE ACCOUNTING ADJUSTMENTS:

 

 

 

 

 

 

 

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

2,715

 

 

603

 

 

1,355

 

 

1,152

 

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

 

 

196

 

 

 

 

1,387

 

The Mall at Green Hills purchase accounting adjustments – rental revenues

48

 

 

 

 

58

 

 

 

The Gardens Mall purchase accounting adjustments – rental revenues at TRG%

 

 

(177

)

 

 

 

 

The Gardens Mall purchase accounting adjustments – interest expense at TRG%

 

 

(528

)

 

 

 

 

 

 

 

 

 

 

 

 

(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 $2.9 million of leasing costs were expensed during the six months ended June 30, 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.

Contacts

Erik Wright, Taubman, Manager, Investor Relations, 248-258-7390

[email protected]

Maria Mainville, Taubman, Director, Strategic Communications, 248-258-7469

[email protected]

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