TAUBMAN CENTERS INC, 10-Q filed on 4/30/2014
Quarterly Report
Document and Entity Information Document
3 Months Ended
Mar. 31, 2014
Apr. 29, 2014
Entity Information [Line Items]
 
 
Entity Registrant Name
TAUBMAN CENTERS INC. 
 
Entity Central Index Key
0000890319 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q1 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
63,262,891 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
CONSOLIDATED BALANCE SHEET (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Assets (Note 2):
 
 
Properties
$ 4,191,823 
$ 4,485,090 
Accumulated depreciation and amortization
(1,420,745)
(1,516,982)
Properties, net
2,771,078 
2,968,108 
Investment in Unconsolidated Joint Ventures (Notes 2 and 4)
326,905 
327,692 
Cash and Cash Equivalents, at Carrying Value
178,138 
40,993 
Restricted cash (Note 5)
48,083 
5,046 
Accounts and notes receivable, less allowance for doubtful accounts of $1,797 and $1,934 in 2014 and 2013
57,064 
73,193 
Accounts receivable from related parties
2,967 
1,804 
Deferred charges and other assets (Note 2)
161,865 
89,386 
Total Assets
3,546,100 
3,506,222 
Liabilities (Note 2):
 
 
Notes payable (Note 5)
2,580,033 
3,058,053 
Accounts payable and accrued liabilities
283,718 
292,280 
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures (Notes 2 and 4)
408,602 
371,549 
Total Liabilities
3,272,353 
3,721,882 
Commitments and contingencies (Notes 5, 7, 8, 9, and 10)
   
   
Equity (Note 6):
 
 
Series B Non-Participating Convertible Preferred Stock, $0.001 par and liquidation value, 40,000,000 shares authorized, 25,127,250 and 25,151,069 shares issued and outstanding at March 31, 2014 and December 31, 2013
25 
25 
Common Stock, $0.01 par value, 250,000,000 shares authorized, 63,262,045 and 63,101,614 shares issued and outstanding at March 31, 2014 and December 31, 2013
633 
631 
Additional paid-in capital
798,705 
796,787 
Accumulated other comprehensive income (loss) (Note 13)
(12,719)
(8,914)
Dividends in excess of net income
(573,755)
(908,656)
Stockholders' Equity Attributable to Parent
212,889 
(120,127)
Noncontrolling interests (Note 7)
60,858 
(95,533)
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
273,747 
(215,660)
Total Liabilities and Equity
$ 3,546,100 
$ 3,506,222 
CONSOLIDATED BALANCE SHEET (Parenthetical) (USD $)
Mar. 31, 2014
Dec. 31, 2013
Allowance for doubtful accounts
$ 1,797,000 
$ 1,934,100 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
250,000,000 
250,000,000 
Common stock, shares issued
63,262,045 
63,101,614 
Common stock, shares outstanding
63,262,045 
63,101,614 
Series B Preferred Stock [Member]
 
 
Preferred Stock, par or value
$ 0.001 
$ 0.001 
Preferred Stock, liquidation preference per share
$ 0.001 
$ 0.001 
Preferred Stock, shares authorized
40,000,000 
40,000,000 
Preferred Stock, shares issued
25,127,250 
25,151,069 
Preferred Stock, shares outstanding
25,127,250 
25,151,069 
Series J Preferred Stock [Member]
 
 
Preferred Stock, par or value
$ 0 
$ 0 
Preferred Stock, liquidation preference
192,500,000 
192,500,000 
Preferred Stock, shares authorized
7,700,000 
7,700,000 
Preferred Stock, shares issued
7,700,000 
7,700,000 
Preferred Stock, shares outstanding
7,700,000 
7,700,000 
Series K Preferred Stock [Member]
 
 
Preferred Stock, par or value
$ 0 
$ 0 
Preferred Stock, liquidation preference
$ 170,000,000 
$ 170,000,000 
Preferred Stock, shares authorized
6,800,000 
6,800,000 
Preferred Stock, shares issued
6,800,000 
6,800,000 
Preferred Stock, shares outstanding
6,800,000 
6,800,000 
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Revenues:
 
 
Minimum rents
$ 97,890 
$ 102,309 
Percentage rents
4,662 
5,628 
Expense recoveries
62,709 
64,037 
Management, leasing, and development services
2,505 
3,382 
Other
7,012 
7,901 
Total Revenues
174,778 
183,257 
Expenses:
 
 
Maintenance, taxes, utilities, and promotion
47,941 
46,557 
Other operating
15,496 
16,163 
Management, leasing, and development services
1,285 
2,026 
General and administrative
11,537 
12,236 
Interest expense
26,130 
34,452 
Depreciation and amortization
35,118 
37,022 
Total Expenses
137,507 
148,456 
Nonoperating income
1,103 
2,237 
Income before income tax expense, equity in income of Unconsolidated Joint Ventures, and gain on dispositions, net of tax
38,374 
37,038 
Income tax expense (Note 3)
(699)
(1,028)
Equity in income of Unconsolidated Joint Ventures (Note 4)
12,068 
10,346 
The consolidated profit or loss for the period, net of income taxes and gains on dispositions, including the portion attributable to the noncontrolling interest.
49,743 
46,356 
Gain on dispositions, net of tax (Note 2)
(476,414)
 
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest
526,157 
46,356 
Net income attributable to noncontrolling interests (Note 7)
(150,780)
(14,570)
Net income attributable to Taubman Centers, Inc.
375,377 
31,786 
Distributions to participating securities of TRG (Note 9)
(468)
(442)
Preferred stock dividends (Note 6)
(5,784)
(3,600)
Net income attributable to Taubman Centers, Inc. common shareowners
369,125 
27,744 
Other comprehensive income (Note 13):
 
 
Unrealized gain (loss) on interest rate instruments and other
(5,512)
432 
Cumulative translation adjustment
(3,186)
(2,859)
Reclassification adjustment for amounts recognized in net income
3,304 
375 
Other comprehensive income (loss)
(5,394)
(2,052)
Comprehensive income
520,763 
44,304 
Comprehensive income attributable to noncontrolling interests
(149,212)
(14,030)
Comprehensive income attributable to Taubman Centers, Inc.
$ 371,551 
$ 30,274 
Basic earnings per common share (Note 11)
$ 5.84 
$ 0.44 
Diluted earnings per common share (Note 11)
$ 5.74 
$ 0.43 
Cash dividends declared per common share
$ 0.5400 
$ 0.5000 
Weighted average number of common shares outstanding – basic
63,165,611 
63,415,922 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (USD $)
Total
Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Distributions in Excess of Net Income [Member]
Noncontrolling Interest [Member]
Balance at Dec. 31, 2012
$ (344,926,000)
$ 25,000 
$ 633,000 
$ 657,071,000 
$ (22,064,000)
$ (891,283,000)
$ (89,308,000)
Balance (in shares) at Dec. 31, 2012
 
33,027,699 
63,310,148 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Stock Issued During Period, Shares, Conversion of Units
 
10,801 
10,801 
 
 
 
 
Preferred Stock Issued During Period, Shares, New Issues
 
6,800,000 
 
 
 
 
 
Preferred Stock Issued During Period, Value, New Issues
 
 
 
164,389,000 
 
 
 
Stock Issued During Period, Value, New Issues
164,389,000 
 
 
 
 
 
 
Share-based compensation under employee and director benefit plans (Note 9)
607,000 
 
4,000 
603,000 
 
 
 
Share-based compensation under employee and director benefit plans (in shares)
 
 
357,022 
 
 
 
 
Tax impact of share-based compensation (Note 3)
80,000 
 
 
80,000 
 
 
 
Adjustments of noncontrolling interests (Note 7)
 
 
(55,000)
4,000 
 
51,000 
Contributions from Noncontrolling Interests (excludes contribution from redeemable noncontrolling interests)
1,049,000 
 
 
 
 
 
1,049,000 
Dividends and distributions
 
 
 
 
 
(35,908,000)
 
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders
 
 
 
 
 
 
14,000,000 
Dividend and distributions (excludes dividends attributable to redeemable noncontrolling interests)
(49,908,000)
 
 
 
 
 
 
Other
(41,000)
 
 
 
 
(41,000)
 
Net income
46,356,000 
 
 
 
 
31,786,000 
14,570,000 
Unrealized loss on interest rate instruments and other
 
 
 
 
289,000 
 
143,000 
Unrealized gain (loss) on interest rate instruments and other
432,000 
 
 
 
 
 
 
Cumulative translation adjustment
(2,859,000)
 
 
 
(2,043,000)
 
(816,000)
Reclassification adjustment for amounts recognized in net income
375,000 
 
 
 
242,000 
 
133,000 
Balance at Mar. 31, 2013
(184,446,000)
25,000 
637,000 
822,088,000 
(23,572,000)
(895,446,000)
(88,178,000)
Balance (in shares) at Mar. 31, 2013
 
39,816,898 
63,677,971 
 
 
 
 
Balance at Dec. 31, 2013
(215,660,000)
25,000 
631,000 
796,787,000 
(8,914,000)
(908,656,000)
(95,533,000)
Balance (in shares) at Dec. 31, 2013
 
39,651,069 
63,101,614 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Stock Issued During Period, Shares, Conversion of Units
 
25,250 
25,250 
 
 
 
 
Stock Repurchased and Retired During Period, Shares
 
 
(266)
 
 
 
 
Repurchase of common stock (Note 6)
(17,000)
 
   
(17,000)
 
 
 
Share-based compensation under employee and director benefit plans (Note 9)
1,800,000 
 
2,000 
1,798,000 
 
 
 
Share-based compensation under employee and director benefit plans (in shares)
 
 
135,447 
 
 
 
 
Tax impact of share-based compensation (Note 3)
52,000 
 
 
52,000 
 
 
 
Adjustments of noncontrolling interests (Note 7)
 
 
 
(6,000)
21,000 
 
(15,000)
Contributions from Noncontrolling Interests (excludes contribution from redeemable noncontrolling interests)
22,345,000 
 
 
 
 
 
22,345,000 
Dividends and distributions
(55,585,000)
 
 
 
 
(40,424,000)
 
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders
 
 
 
 
 
 
15,161,000 
Proceeds from Other Equity
 
1,431 
 
91,000 
 
 
 
Other
(49,000)
 
 
 
 
(52,000)
(10,000)
Net income
526,157,000 
 
 
 
 
375,377,000 
150,780,000 
Unrealized loss on interest rate instruments and other
(5,512,000)
 
 
 
(3,882,000)
 
(1,630,000)
Unrealized gain (loss) on interest rate instruments and other
(5,512,000)
 
 
 
 
 
 
Cumulative translation adjustment
(3,186,000)
 
 
 
(2,280,000)
 
(906,000)
Reclassification adjustment for amounts recognized in net income
3,304,000 
 
 
 
2,336,000 
 
968,000 
Balance at Mar. 31, 2014
$ 273,747,000 
$ 25,000 
$ 633,000 
$ 798,705,000 
$ (12,719,000)
$ (573,755,000)
$ 60,858,000 
Balance (in shares) at Mar. 31, 2014
 
39,627,250 
63,262,045 
 
 
 
 
CONSOLIDATED STATEMENT OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Cash Flows From Operating Activities:
 
 
Net income
$ 526,157 
$ 46,356 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
35,118 
37,022 
Provision for bad debts
240 
1,051 
Gain on sale of peripheral land
(486,620)
(863)
Gain on sale of marketable securities (Note 12)
   
(1,323)
Other
4,138 
3,616 
Increase (decrease) in cash attributable to changes in assets and liabilities:
 
 
Receivables, restricted cash, deferred charges, and other assets
(2,802)
8,036 
Accounts payable and other liabilities
(13,717)
(3,710)
Net Cash Provided By Operating Activities
62,514 
90,185 
Cash Flows From Investing Activities:
 
 
Additions to properties
(64,845)
(59,378)
Proceeds from sale of peripheral land
   
6,916 
Proceeds from sale of marketable securities
 
2,493 
Proceeds from dispositions, net of transaction costs (Note 2)
385,598 
 
Cash in escrow related to construction projects, investing activities
(44,992)
 
Repayments of notes receivable
7,345 
166 
Collection and release of TCBL related proceeds
   
12,903 
Contributions to Unconsolidated Joint Ventures (Note 2)
(11,767)
(2,864)
Distributions from Unconsolidated Joint Ventures in excess of income
9,350 
2,865 
Net Cash Provided By (Used In) Investing Activities
280,689 
(36,899)
Cash Flows From Financing Activities:
 
 
Debt proceeds
   
98,571 
Debt payments
(170,406)
(216,543)
Debt issuance costs
   
(6,408)
Repurchase of common stock (Note 6)
(17)
   
Issuance of common stock and/or partnership units in connection with incentive plans
(2,395)
(3,357)
Issuance of Series K Preferred Stock, net of offering costs
   
164,389 
Distributions to noncontrolling interests
(15,161)
(14,000)
Distributions to participating securities of TRG
(468)
(442)
Contributions from noncontrolling interests
22,345 
1,049 
Cash dividends to preferred shareowners
(5,784)
(3,128)
Cash dividends to common shareowners
(34,172)
(31,744)
Net Cash Used In Financing Activities
(206,058)
(11,613)
Net Increase In Cash and Cash Equivalents
137,145 
41,673 
Cash and Cash Equivalents at Beginning of Period
40,993 
32,057 
Cash and Cash Equivalents at End of Period
$ 178,138 
$ 73,730 
Interim Financial Statements
Interim Financial Statements
Interim Financial Statements

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 March 31, 2014 included 24 operating urban and suburban shopping centers in 12 states.

Taubman Properties Asia LLC and its subsidiaries (Taubman Asia), which is the platform for the Company’s expansion into China and South Korea, is headquartered in Hong Kong.

The unaudited interim financial statements should be read in conjunction with the audited financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results of interim periods are not necessarily indicative of the results for a full year.

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 approval rights over annual operating budgets, capital spending, refinancing, or sale of the property.

Ownership

In addition to the Company’s common stock, there were three classes of preferred stock outstanding (Series B, J, and K) as of March 31, 2014. Dividends on the 6.5% Series J Cumulative Redeemable Preferred Stock (Series J Preferred Stock) and the 6.25% Series K Cumulative Redeemable Preferred Stock (Series K Preferred Stock) are cumulative and are paid on the last day of each calendar quarter. The Company owns corresponding Series J and 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 J and Series K Preferred Stock. See "Note 6 - Equity Transactions" for further details on the Series K Preferred Stock issuance in 2013.

The Company also is obligated to issue to partners in the Operating Partnership other than the Company, upon subscription, one share of nonparticipating Series B Preferred Stock per each Operating Partnership unit. The Series B Preferred Stock entitles its holders to one vote per share on all matters submitted to the Company’s shareowners and votes together with the common stock on all matters as a single class. The holders of Series B Preferred Stock are not entitled to dividends or earnings. The Series B Preferred Stock is convertible into the Company’s common stock at a ratio of 14,000 shares of Series B Preferred Stock for one share of common stock.

Outstanding voting securities of the Company at March 31, 2014 consisted of 25,127,250 shares of Series B Preferred Stock and 63,262,045 shares of common stock.

The Operating Partnership

At March 31, 2014, the Operating Partnership’s equity included two classes of preferred equity (Series J and K) and the net equity of the partnership unitholders. Net income and distributions of the Operating Partnership are allocable first to the preferred equity interests, and the remaining amounts to the general and limited partners in the Operating Partnership in accordance with their percentage ownership. The Series J and Series K Preferred Equity are owned by the Company and are eliminated in consolidation.

The Company's ownership in the Operating Partnership at March 31, 2014 consisted of a 72% managing general partnership interest, as well as the Series J and Series K Preferred Equity interests. The Company's average ownership percentage in the Operating Partnership for the three months ended March 31, 2014 and 2013 was 72% and 71%, respectively. At March 31, 2014, the Operating Partnership had 88,407,745 partnership units outstanding, of which the Company owned 63,262,045 units.
Acquisitions, Dispositions, and Development
Mergers, Acquisitions and Dispositions Disclosures [Text Block]
Acquisitions, Dispositions, and Developments

Acquisitions

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. As of March 31, 2014, the book value of the loan assumed was $18.1 million, which includes a purchase accounting adjustment of $0.7 million premium to record the loan at fair value. The purchase accounting premium is being amortized as a reduction to interest expense over the remaining term of the loan which matures April 1, 2015.

Redemption of Joint Venture Outlet Interest

In September 2013, the Company redeemed the outlet joint venture partner's 10% interest, which increased the Company's ownership to 100%. See "Note 7 - Noncontrolling Interests" for further details on the redemption.

Dispositions

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. A gain of $367 million (net of tax of $10.2 million) was recognized as a result of the transaction. The disposition decreased the Company's ownership in the center to a noncontrolling 50.1% interest, which is accounted for under the equity method subsequent to the acquisition.

Arizona Mills

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. 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. 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.


U.S. Development

International Market Place

In March 2014, the Company broke ground on International Market Place, a 0.4 million square foot center, in Waikiki, Honolulu, Hawaii. Construction of the center is expected to begin later this summer. The center will be anchored by Saks Fifth Avenue and is expected to open in spring 2016. The Company owns a 93.5% interest in the project, which is subject to a participating ground lease. As of March 31, 2014, the Company's capitalized costs for the project were $33.2 million ($31.1 million at TRG's share).

The Mall at University Town Center

The Mall at University Town Center, a 0.9 million square foot center, is under construction in Sarasota, Florida. The Company owns a 50% interest in the project. The center will be anchored by Saks Fifth Avenue, Macy's, and Dillard's and is expected to open in October 2014. As of March 31, 2014, the Company had invested $106.3 million. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.

The Mall of San Juan

The Mall of San Juan, a 0.7 million square foot center, is under construction in San Juan, Puerto Rico. The Company owns 80% of the project. The center will be anchored by Nordstrom and Saks Fifth Avenue and is expected to open in March 2015. As of March 31, 2014, the Company had capitalized costs of $202.0 million ($162.3 million at TRG's share).

Asia

CityOn.Zhengzhou

In 2013, the Company formed a joint venture with Beijing Wangfujing Department Store (Group) Co., Ltd (Wangfujing), one of China's largest department store chains. The joint venture owns a majority interest in and will manage an approximately 1.0 million square foot multi-level shopping center to be located in Zhengzhou, China. Through this joint venture, the Company beneficially owns a 32% interest in the shopping center, which is scheduled to open in late 2015. As of March 31, 2014, the Company had invested $39.3 million in the project, after cumulative currency translation adjustments. The investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.

CityOn.Xi'an

In 2012, the Company formed a joint venture with Wangfujing. The joint venture will own a 60% controlling interest in and manage 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. Through this joint venture, the Company will beneficially own a 30% interest in the shopping center, which is scheduled to open in late 2015. As of March 31, 2014, the Company had invested $55.5 million in the project, after cumulative currency translation adjustments. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.

Hanam Union Square

In 2011, the Company partnered with Shinsegae Group, South Korea's largest retailer, to build an approximately 1.7 million square foot shopping mall in Hanam, Gyeonggi Province, South Korea. The Company has a 30% interest in the development, which is scheduled to open in late 2016. As of March 31, 2014, the Company had invested $99.7 million in the project, after cumulative currency translation adjustments. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.
Income Taxes
Income Taxes
Income Taxes

Income Tax Expense

The Company’s income tax expense (benefit) for the three months ended March 31, 2014 and 2013 was as follows:

 
2014
 
2013
State current
$
242

 
$
156

Federal current
51

 
152

Federal deferred
193

 
366

Foreign current
217

 
400

Foreign deferred
(4
)
 
(46
)
Total income tax expense
$
699

 
$
1,028



In addition to the above, the Company incurred $10.2 million of tax resulting from the sale of interests in International Plaza in January 2014. The tax on the sale was classified within Gain on Dispositions, Net of Tax on the Consolidated Statement of Operations and Comprehensive Income.

Deferred Taxes

Deferred tax assets and liabilities as of March 31, 2014 and December 31, 2013 were as follows:
 
2014
 
2013
Deferred tax assets:
 
 
 
Federal
$
1,135

 
$
2,746

Foreign
1,816

 
1,821

State
502

 
527

Total deferred tax assets
$
3,453

 
$
5,094

Valuation allowances
(1,778
)
 
(1,831
)
Net deferred tax assets
$
1,675

 
$
3,263

Deferred tax liabilities:
 

 
 

Federal
$
602

 
$
602

Foreign
468

 
449

State
107

 
107

Total deferred tax liabilities
$
1,177

 
$
1,158



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.

The Company realized a tax benefit as additional paid-in capital relating to the redemption of certain share-based compensation awards of $0.1 million during the three months ended March 31, 2014 and 2013. This benefit represents the amount of reduced Federal income tax attributed to the tax deduction that exceeds the recognized deferred tax asset relating to the awards, which was based on their cumulative book compensation cost. This excess tax deduction is due to changes in the fair value of the Company's shares between the grant date (the measurement date for book purposes) and the exercise date (the measurement date for tax purposes) of the awards.
Investments in Unconsolidated Joint Ventures
Investments in Unconsolidated Joint Ventures
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, and Westfarms. The Operating Partnership also provides certain management, leasing, and/or development services to the other shopping centers noted below.
Shopping Center
 
Ownership as of
March 31, 2014 and
December 31, 2013
Arizona Mills (1)
 
0/50%
CityOn.Xi'an (under construction)
 
Note 2
CityOn.Zhengzhou (under construction)
 
Note 2
Fair Oaks
 
50
Hanam Union Square (under construction)
 
Note 2
International Plaza (2)
 
50.1/100
The Mall at Millenia
 
50
Stamford Town Center
 
50
Sunvalley
 
50
The Mall at University Town Center (under construction)
 
Note 2
Waterside Shops
 
50
Westfarms
 
79


(1)
In January 2014, the Company disposed of its 50% interest in Arizona Mills (Note 2). Prior to the disposition, Arizona Mills was accounted for as an Unconsolidated Joint Venture.
(2)
In January 2014, the Company sold a total of 49.9% of its interests in the entity that owns International Plaza. The disposition decreased the Company's ownership in the center to a noncontrolling 50.1% interest (Note 2). Prior to the disposition, International Plaza was accounted for as a consolidated center.

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.

The estimated fair value of the Unconsolidated Joint Ventures’ mortgage notes payable was $1.7 billion at March 31, 2014 and $1.5 billion at December 31, 2013. The methodology for determining this fair value is consistent with that used for determining the fair value of consolidated mortgage notes payable (Note 12).

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 March 31, 2014 excluded the balances of Hanam Union Square, CityOn.Xi'an, and CityOn.Zhengzhou, 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.

 
March 31
2014
 
December 31
2013
Assets:
 
 
 
Properties
$
1,435,623

 
$
1,305,658

Accumulated depreciation and amortization
(525,829
)
 
(478,820
)
 
$
909,794

 
$
826,838

Cash and cash equivalents
17,297

 
28,782

Accounts and notes receivable, less allowance for doubtful accounts of $1,089 and $977 in 2014 and 2013
33,770

 
33,626

Deferred charges and other assets
32,102

 
28,095

 
$
992,963

 
$
917,341

 
 
 
 
Liabilities and accumulated deficiency in assets:
 

 
 

Notes payable
$
1,732,021

 
$
1,551,161

Accounts payable and other liabilities
65,022

 
70,226

TRG's accumulated deficiency in assets
(461,276
)
 
(412,204
)
Unconsolidated Joint Venture Partners' accumulated deficiency in assets
(342,804
)
 
(291,842
)
 
$
992,963

 
$
917,341

 
 
 
 
TRG's accumulated deficiency in assets (above)
$
(461,276
)
 
$
(412,204
)
TRG's investment in properties under development (Note 2)
194,557

 
193,306

TRG basis adjustments, including elimination of intercompany profit
128,600

 
118,132

TCO's additional basis
56,422

 
56,909

Net investment in Unconsolidated Joint Ventures
$
(81,697
)
 
$
(43,857
)
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures
408,602

 
371,549

Investment in Unconsolidated Joint Ventures
$
326,905

 
$
327,692

 
Three Months Ended March 31
 
2014
 
2013
Revenues
$
77,225

 
$
67,551

Maintenance, taxes, utilities, promotion, and other operating expenses
$
24,998

 
$
21,491

Interest expense
18,147

 
17,197

Depreciation and amortization
10,858

 
9,319

Total operating costs
$
54,003

 
$
48,007

Nonoperating income
2

 
8

Net income
$
23,224

 
$
19,552

 
 
 
 
Net income attributable to TRG
$
12,758

 
$
10,946

Realized intercompany profit, net of depreciation on TRG’s basis adjustments
(203
)
 
(113
)
Depreciation of TCO's additional basis
(487
)
 
(487
)
Equity in income of Unconsolidated Joint Ventures
$
12,068

 
$
10,346

 
 
 
 
Beneficial interest in Unconsolidated Joint Ventures’ operations:
 

 
 

Revenues less maintenance, taxes, utilities, promotion, and other operating expenses
$
29,090

 
$
26,031

Interest expense
(9,844
)
 
(9,376
)
Depreciation and amortization
(7,178
)
 
(6,309
)
Equity in income of Unconsolidated Joint Ventures
$
12,068

 
$
10,346

Beneficial Interest in Debt and Interest Expense
Beneficial interest in Debt and Interest Expense
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%), The Mall at Wellington Green (10%), and MacArthur Center (5%).

 
At 100%
 
At Beneficial Interest
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
Debt as of:
 
 
 
 
 
 
 
March 31, 2014
$
2,580,033

 
$
1,732,021

 
$
2,413,590

 
$
959,043

December 31, 2013
3,058,053

 
1,551,161

 
2,891,592

 
868,942

 
 
 
 
 
 
 
 
Capitalized interest:
 

 
 

 
 

 
 

Three Months Ended March 31, 2014
$
5,392

(1
)
$
768

 
$
5,173

 
$
384

Three Months Ended March 31, 2013
3,027

(1
)
6

 
2,929

 
3

 
 
 
 
 
 
 
 
Interest expense:
 

 
 

 
 

 
 

Three Months Ended March 31, 2014
$
26,130

 
$
18,147

 
$
24,066

 
$
9,844

Three Months Ended March 31, 2013
34,452

 
17,197

 
32,289

 
9,376




(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.


2014 Financings

In April 2014, a construction facility was completed for The Mall of San Juan (Note 15).

In March 2014, the maturity date on the Company's $65 million secondary revolving line of credit was extended through April 2016. All significant terms of the credit facility agreement remain unchanged as a result of the extension.

In January 2014, the Company used a portion of the proceeds from the sale of the total of 49.9% interests in the entity that owns International Plaza (Note 2) to pay off the $99.5 million mortgage note payable on Stony Point Fashion Park that was scheduled to mature in June 2014.

Debt Covenants

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 Mall at University Town Center construction facility: 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, Fairlane Town Center, Twelve Oaks Mall, and The Shops at Willow Bend 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. The corporate minimum fixed charge coverage ratio is the the Company’s most restrictive covenant. The Company was in compliance with all of its covenants and loan obligations as of March 31, 2014. 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.

Other

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 principal balance and 50% of all accrued but unpaid interest. 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 March 31, 2014 was $96.9 million. Accrued but unpaid interest as of March 31, 2014 was $0.1 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. In addition, the Operating Partnership has provided a limited guarantee as to the completion of construction of the center. The center is expected to open in October 2014 and the Company believes the likelihood of a payment under the guarantees to be remote.

The Company is required to escrow cash balances for specific uses stipulated by certain of its lenders. As of March 31, 2014 and December 31, 2013, the Company’s cash balances restricted for these uses were $48.1 million and $5.0 million. The Company is required under certain debt agreements to escrow cash for certain major construction projects. As of March 31, 2014, restricted cash associated with these major construction projects was $45.0 million.
Equity Transactions
Stockholders' Equity Note Disclosure [Text Block]
Equity Transactions

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. 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 March 31, 2014, the Company repurchased 787,071 shares of its common stock at an average price of $66.45 per share for a total of $52.3 million under the authorization. All shares repurchased have been cancelled. For each share of the Company’s stock repurchased, an equal number of the Company’s Operating Partnership units are redeemed. Repurchases of common stock were financed through general corporate funds, including borrowings under existing lines of credit.

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.
Noncontrolling Interests
Noncontrolling Interests
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). 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 May 2015) 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 March 31, 2014 and December 31, 2013. 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 March 31, 2014 and December 31, 2013. Any adjustments to the redemption value are recorded through equity.

Equity Balances of Nonredeemable Noncontrolling Interests

The net equity balance of the noncontrolling interests as of March 31, 2014 and December 31, 2013 included the following:
 
2014
 
2013
Non-redeemable noncontrolling interests:
 
 
 
Noncontrolling interests in consolidated joint ventures
$
(13,424
)
 
$
(37,191
)
Noncontrolling interests in partnership equity of TRG
74,282

 
(58,342
)
 
$
60,858

 
$
(95,533
)


Income Allocable to Noncontrolling Interests

Net income attributable to the noncontrolling interests for the three months ended March 31, 2014 and March 31, 2013 included the following:
 
2014
 
2013
Net income attributable to noncontrolling interests:
 
 
 
Non-redeemable noncontrolling interests:
 
 
 
Noncontrolling share of income of consolidated joint ventures
$
3,118

 
$
2,782

Noncontrolling share of income of TRG
147,662

 
11,788

 
$
150,780

 
$
14,570



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 three months ended March 31, 2014 and March 31, 2013:
 
2014
 
2013
Net income attributable to Taubman Centers, Inc. common shareowners
$
369,125

 
$
27,744

Transfers (to) from the noncontrolling interest –
 

 
 

Decrease in Taubman Centers, Inc.’s paid-in capital for adjustments of noncontrolling interest (1)
(6
)
 
(55
)
Net transfers (to) from noncontrolling interests
(6
)
 
(55
)
Change from net income attributable to Taubman Centers, Inc. and transfers (to) from noncontrolling interests
$
369,119

 
$
27,689


(1)
In 2014 and 2013, adjustments of noncontrolling interests 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 9), issuances of stock pursuant to the Continuing Offer (Note 10), and stock repurchases (Note 6).

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 March 31, 2014, the Company held a controlling interest in a consolidated entity with a specified termination date in 2083. The noncontrolling owner's 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 $400 million at March 31, 2014, compared to a book value of $(18.3) 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 share 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.
Derivative and Hedging Activities
Derivative and Hedging Activities
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 March 31, 2014, the Company had the following outstanding interest rate derivatives that were designated and are expected to be effective as cash flow hedges of the interest payments 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)
 
100
%
 
$
200,000

 
1.64
%
 
1.35
%
(1) 
2.99
%
(1) 
February 2019
Receive variable (LIBOR) /pay-fixed swap (1)
 
100
%
 
175,000

 
1.65
%
 
1.35
%
(1) 
3.00
%
(1) 
February 2019
Receive variable (LIBOR) /pay-fixed swap (1)
 
100
%
 
100,000

 
1.64
%
 
1.35
%
(1) 
2.99
%
(1) 
February 2019
Receive variable (LIBOR) /pay-fixed swap (2)
 
95
%
 
128,849

 
2.62
%
 
2.35
%
 
4.97
%
 
September 2020
Unconsolidated Joint Ventures:
 
 

 
 

 
 

 
 

 
 

 
 
Receive variable (LIBOR) /pay-fixed swap (3)
 
50
%
 
137,500

 
2.40
%
 
1.70
%
 
4.10
%
 
April 2018
Receive variable (LIBOR) /pay-fixed swap (3)
 
50
%
 
137,500

 
2.40
%
 
1.70
%
 
4.10
%
 
April 2018

(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, 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 of the swap is equal to the outstanding principal balance of the loan on MacArthur Center. The swap was novated to a different lender in February 2014 and consequently, was redesignated for hedge accounting purposes. Ineffectiveness recorded on the hedge reduces the effective rate of the loan to 4.97%, with the paid rate being 4.99%.
(3)
The notional amount on each of these swaps is equal to 50% of the outstanding principal balance of the loan on Fair Oaks Mall, which begins amortizing in August 2014.

Cash Flow Hedges of Interest Rate Risk

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 Accumulated Other Comprehensive Income (Loss) (AOCI) during the term of the hedged debt transaction.

Amounts reported in AOCI related to currently outstanding 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.

The Company expects that approximately $13.3 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 three months ended March 31, 2014 and March 31, 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.

During the three months ended March 31, 2014, the Company had an immaterial amount of hedge ineffectiveness related to the swap on MacArthur Center, which was classified as Nonoperating Income on the Consolidated Statement of Operations and Comprehensive Income. For the three months ended March 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)
 
Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Three Months Ended March 31
 
 
 
Three Months Ended March 31
 
2014
 
2013
 
 
 
2014
 
2013
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
Interest rate contracts – consolidated subsidiaries
$
(2,451
)
 
$
1,281

 
Interest Expense
 
$
(2,536
)
 
$
(793
)
Interest rate contracts – UJVs
243

 
652

 
Equity in Income of UJVs
 
(768
)
 
(754
)
Total derivatives in cash flow hedging relationships
$
(2,208
)
 
$
1,933

 
 
 
$
(3,304
)
 
$
(1,547
)
 
 
 
 
 
 
 
 
 
 
Realized losses on settled cash flow hedges:
 

 
 

 
 
 
 

 
 

Interest rate contract – consolidated subsidiaries
 

 
 

 
Interest Expense
 


 
$
(151
)
Interest rate contract – UJVs
 

 
 

 
Equity in Income of UJVs
 
 
 


Total realized losses on settled cash flow hedges
 

 
 

 
 
 
$

 
$
(151
)


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 March 31, 2014 and December 31, 2013.
 
 
 
Fair Value
 
Consolidated Balance Sheet Location
 
March 31
2014
 
December 31
2013
Derivatives designated as hedging instruments:
 
 
 
 
 
Asset derivatives:
 
 
 
 
 
Interest rate contracts – consolidated subsidiaries
Deferred Charges and Other Assets
 
$
122

 
$
1,543

Liability derivatives:
 
 
 

 
 

Interest rate contract – consolidated subsidiaries
Accounts Payable and Accrued Liabilities
 
$
(4,411
)
 
$
(3,418
)
Interest rate contracts – UJV's
Investment in UJVs
 
(5,695
)
 
(5,938
)
Total liabilities designated as hedging instruments
 
 
$
(10,106
)
 
$
(9,356
)


Contingent Features

Three of the Company's outstanding derivatives contain provisions that state if the hedged entity defaults on any of its indebtedness in excess of $1 million, then the derivative obligation could also be declared in default. Three of the Company’s outstanding derivatives contain provisions that state if the Operating Partnership defaults on any of its recourse indebtedness in excess of $50 million, then the derivative obligation could also be declared in default. As of March 31, 2014, the Company is not in default on any indebtedness that would trigger a credit risk related default on its current outstanding derivatives.

As of March 31, 2014 and December 31, 2013, the fair value of derivative instruments with credit-risk-related contingent features that were in a liability position was $10.1 million and $9.4 million, respectively. As of March 31, 2014 and December 31, 2013, 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 12 for fair value information on derivatives.
Share-Based Compensation
Share-Based Compensation
Share-Based Compensation

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, other than their meeting fees, 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 $3.6 million and $3.5 million for the three months ended March 31, 2014 and 2013, respectively. Compensation cost capitalized as part of properties and deferred leasing costs was $0.5 million and $0.4 million for the three months ended March 31, 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.

Options

A summary of option activity for the three months ended March 31, 2014 is presented below:
 
Number of Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (in years)
 
Range of Exercise Prices
Outstanding at January 1, 2014
563,436

 
$
43.81

 
2.6

 
$
31.31

-
$
55.90

Exercised

 


 
 
 
 
 
 
Outstanding at March 31, 2014
563,436

 
$
43.81

 
2.4

 
$
31.31

-
$
55.90

 
 
 
 
 
 
 
 
 
 
Fully vested options at March 31, 2014
563,436

 
$
43.81

 
2.4

 
 

 
 


No options were granted during the three months ended March 31, 2014.

The aggregate intrinsic value (the difference between the period end stock price and the option exercise price) of in-the-money options outstanding was $15.2 million as of March 31, 2014.

No options were exercised in the three months ended March 31, 2014. The total intrinsic value of options exercised during the three months ended March 31, 2013 was $3.6 million. Cash received from option exercises for the three months ended March 31, 2013 was $2.9 million.

As of March 31, 2014, all options outstanding were fully vested, and there was no unrecognized compensation cost related to options.

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 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.

Performance Share Units

In March 2014, the Company granted Performance Share Units (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 units vest in March 2017 if continuous service has been provided, or upon retirement or certain other events (such as death or disability) if earlier. No dividends accumulate during the vesting period.

The Company estimated the value of these PSU granted using a Monte Carlo simulation, considering the Company’s common stock price at the grant dates less the present value of the expected dividends during the vesting periods, historical returns of the Company and the peer group of companies, a risk-free interest rate of 0.70% and a measurement period of approximately three years. The resulting weighted average grant-date fair value was $93.07 per PSU.

A summary of PSU activity for the three months ended March 31, 2014 is presented below:
 
Number of Performance Share Units
 
Weighted Average Grant Date Fair Value
Outstanding at January 1, 2014
234,863

 
$
139.18

Vested
(43,858
)
(1) 
85.40

Granted
49,157

 
93.07

Outstanding at March 31, 2014
240,162

 
$
139.57



(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 three months ended March 31, 2014 equaled 172% of the number of PSU awards vested in the table above.

None of the PSU outstanding at March 31, 2014 were vested. As of March 31, 2014, there was $20.8 million of total unrecognized compensation cost related to nonvested PSU outstanding. This cost is expected to be recognized over an average period of 2.5 years.

Restricted Share Units

In March 2014, Restricted Share Units (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 units vest in March 2017, if continuous service has been provided, or upon retirement or certain other events (such as death or disability) if earlier. No dividends accumulate during the vesting period. The Company estimated the values of these RSU using the Company’s common stock at the grant dates deducting the present value of expected dividends during the vesting periods using a risk-free rate of 0.70%. The result of the Company’s valuation was a weighted average grant-date fair value of $63.95 per RSU.

In March 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 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.

A summary of RSU activity for the three months ended March 31, 2014 is presented below:
 
Number of Restricted Share Units
 
Weighted Average Grant Date Fair Value
Outstanding at January 1, 2014
269,899

 
$
62.00

Vested
(93,054
)
 
50.23

Granted (three-year vesting)
106,540

 
63.95

Granted (staggered vesting)
8,505

 
66.19

Forfeited
(1,007
)
 
59.59

Outstanding at March 31, 2014
290,883

 
$
66.61



None of the RSU outstanding at March 31, 2014 were vested. As of March 31, 2014, there was $12.4 million of total unrecognized compensation cost related to nonvested RSU outstanding. This cost is expected to be recognized over an average period of 2.2 years.
Commitments and Contingencies
Commitments and Contingencies
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 (the Cash Tender Agreement) with A. Alfred Taubman, who owns an interest in the Operating Partnership, whereby he has the annual 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. At A. Alfred Taubman's election, his family may participate in tenders. 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 between the Company and Mr. Taubman 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 March 31, 2014 of $70.79 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 $1.7 billion. The purchase of these interests at March 31, 2014 would have resulted in the Company owning an additional 27% interest in the Operating Partnership.

Continuing Offer

The Company has made a continuing, irrevocable offer to all present holders (other than certain excluded holders, including A. Alfred Taubman), 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

In April 2009, two restaurant owners, their two restaurants, and their principal filed a lawsuit in United States District Court for the Eastern District of Pennsylvania (Case No. 09-CV-01619) against Atlantic Pier Associates LLC ("APA", the then owner of the leasehold interest in The Pier Shops), the Operating Partnership, Taubman Centers, Inc., the owners of APA and certain affiliates of such owners, three individuals affiliated with, or at one time employed by an affiliate of one of the owners, and, subsequently added the Manager as a defendant. The plaintiffs are alleging the defendants misrepresented and concealed the status of certain tenant leases at The Pier Shops and that such status was relied upon by the plaintiffs in making decisions about their own leases. The plaintiffs are seeking damages exceeding $20 million, rescission of their leases, exemplary or punitive damages, costs and expenses, attorney's fees, return of certain rent, and other relief as the court may determine. The claims against the Operating Partnership, Taubman Centers, Inc., the Manager, other Taubman defendants, and one of the owners were dismissed in July 2011, but, in August 2011, the restaurant owners reinstated the same claims in a state court action that was then removed to the United States District Court for the Eastern District of Pennsylvania (Case No. 11-CV-05676). The defendants are vigorously defending the action. The outcome of this lawsuit cannot be predicted with any certainty and management is currently unable to estimate a range of potential loss that could result if an unfavorable outcome occurs. While management does not believe that an adverse outcome in this lawsuit would have a material adverse effect on the Company's financial condition, there can be no assurance that an adverse outcome would not have a material effect on the Company's results of operations for any particular period.

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. There are, however, 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 5 for the Operating Partnership's guarantees of certain notes payable relating to an Unconsolidated Joint Venture, Note 7 for contingent features relating to certain joint venture agreements, Note 8 for contingent features relating to derivative instruments, and Note 9 for obligations under existing share-based compensation plans.
Earnings Per Share
Earnings Per Share
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 10), 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 9). 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. 
 
Three Months Ended March 31
 
2014

2013
Net income attributable to Taubman Centers, Inc. common shareowners (Numerator):
 

 
 
Basic
$
369,125

 
$
27,744

Impact of additional ownership of TRG
3,055

 
152

Diluted
$
372,180

 
$
27,896

 
 
 
 
Shares (Denominator) – basic
63,165,611

 
63,415,922

Effect of dilutive securities
1,655,992

 
1,154,890

Shares (Denominator) – diluted
64,821,603

 
64,570,812

 
 
 
 
Earnings per common share - basic
$
5.84

 
$
0.44

Earnings per common share – diluted
$
5.74

 
$
0.43



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.

 
Three Months Ended March 31
 
2014
 
2013
Weighted average noncontrolling partnership units outstanding
4,338,681

 
4,658,409

Unissued partnership units under unit option deferral elections


 
871,262

Fair Value Disclosures
Fair Value Disclosures
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:
 
 
Fair Value Measurements as of
March 31, 2014 Using
 
Fair Value Measurements as of
December 31, 2013 Using
Description
 
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)
Insurance deposit
 
$
12,075

 
 

 
$
12,225

 
 

Derivative interest rate contracts (Note 8)
 
 
 
$
122

 
 
 
$
1,543

Total assets
 
$
12,075


$
122

 
$
12,225

 
$
1,543

 
 
 
 
 
 
 
 
 
Derivative interest rate contract (Note 8)
 
 

 
$
(4,411
)
 
 

 
$
(3,418
)
Total liabilities
 
 

 
$
(4,411
)
 
 

 
$
(3,418
)


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

In January 2014, the Company completed the sale of its 50% interest in Arizona Mills to Simon Property Group (SPG) (Note 2). As part of the consideration from the sale, the Company received 555,150 partnership units in Simon Property Group Limited Partnership. The fair value of the partnership units, derived from SPG's common stock price after considering the one-year restriction on the sale of the units, and therefore falling into Level 2 of the fair value hierarchy, was $83.9 million at March 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 March 31, 2014.

Community Development District Obligation

The owner of one shopping center pays annual special assessment levies of a Community Development District (CDD), which provided certain infrastructure assets and improvements. As the amount and period of the special assessments were determinable, the Company capitalized the infrastructure assets and improvements and recognized an obligation for the future special assessments to be levied. At March 31, 2014 and December 31, 2013, the book value of the infrastructure assets and improvements, net of depreciation, was $37.4 million and $37.8 million, respectively. The related obligation is classified within Accounts Payable and Accrued Liabilities on the Consolidated Balance Sheet and had a balance of $59.7 million at March 31, 2014 and December 31, 2013. The fair value of this obligation, obtained from quoted market prices and therefore falling into Level 1 of the fair value hierarchy, was $59.7 million at March 31, 2014 and $59.8 million at December 31, 2013.

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 March 31, 2014 and December 31, 2013, the Company employed the credit spreads at which the debt was originally issued. For debt refinanced prior to 2010, excluding debt assumed for acquisitions, an additional 1.00% credit spread was added to the discount rate at March 31, 2014 and December 31, 2013, 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 March 31, 2014 or December 31, 2013. 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 March 31, 2014 and December 31, 2013 were as follows:
 
2014
 
2013
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Notes payable
$
2,580,033

 
$
2,640,266

 
$
3,058,053

 
$
3,107,119



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 March 31, 2014 by$47.7 million or 1.8%.

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 4 regarding the fair value of the Unconsolidated Joint Ventures’ notes payable, and Note 8 regarding additional information on derivatives.
Accumulated Other Comprehensive Income (Notes)
Comprehensive Income (Loss) Note [Text Block]
Accumulated Other Comprehensive Income

Changes in the balance of each component of Accumulated Other Comprehensive Income (AOCI) for the three months ended March 31, 2014 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, 2014
$
5,040

 
$
(13,954
)
 
$
(8,914
)
 
$
2,011

 
$
6,141

 
$
8,152

Other comprehensive income/(loss) before reclassifications
(2,280
)
 
(3,882
)
 
(6,162
)
 
(906
)
 
(1,630
)
 
(2,536
)
Amounts reclassified from AOCI

 
2,336

 
2,336

 


 
968

 
968

Net current period other comprehensive income/(loss)
$
(2,280
)
 
$
(1,546
)
 
$
(3,826
)
 
$
(906
)
 
$
(662
)
 
$
(1,568
)
Adjustments due to changes in ownership
5

 
16

 
21

 
(5
)
 
(16
)
 
(21
)
March 31, 2014
$
2,765

 
$
(15,484
)
 
$
(12,719
)
 
$
1,100

 
$
5,463

 
$
6,563



Changes in the balance of each component of Accumulated Other Comprehensive Income (AOCI) for the three months ended March 31, 2013 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/(loss) before reclassifications
(2,043
)
 
289

 
(1,754
)
 
(816
)

143

 
(673
)
Amounts reclassified from AOCI

 
242

 
242

 


133

 
133

Net current period other comprehensive income/(loss)
$
(2,043
)
 
$
531

 
$
(1,512
)
 
$
(816
)
 
$
276

 
$
(540
)
Adjustments due to changes in ownership
1

 
3

 
4

 
(1
)

(3
)
 
(4
)
March 31, 2013
$
(154
)
 
$
(23,418
)
 
$
(23,572
)
 
$
(61
)
 
$
2,012

 
$
1,951



The following table presents reclassifications out of AOCI for the three months ended March 31, 2014:
Details about AOCI Components
 
Amounts reclassified from AOCI
 
Affected line item in Consolidated Statement of Operations
Losses on interest rate instruments and other:
 
 
 
 
Realized loss on interest rate contracts - consolidated subsidiaries
 
$
2,536

 
Interest Expense
Realized loss on interest rate contracts - UJVs
 
768

 
Equity in Income of UJVs
Total reclassifications for the period
 
$
3,304

 
 



The following table presents reclassifications out of AOCI for the three months ended March 31, 2013:
Details about AOCI Components
 
Amounts reclassified from AOCI
 
Affected line item in Consolidated Statement of Operations
(Gains)/losses on interest rate instruments and other:
 
 
 
 
Realized loss on interest rate contracts - consolidated subsidiaries
 
$
944

 
Interest Expense
Realized loss on interest rate contracts - UJVs
 
754

 
Equity in Income of UJVs
Realized gain on sale of securities (Note 12)
 
(1,323
)
 
Nonoperating Income, net
Total reclassifications for the period
 
$
375

 
 
Cash Flow Disclosures, Supplemental (Notes)
Cash Flow, Supplemental Disclosures [Text Block]
Cash Flow Disclosures and Non-Cash Investing and Financing Activities

The following non-cash investing and financing activities occurred during the three months ended March 2014 and March 2013. This table excludes any non-cash adjustments of noncontrolling interests as a result of equity transactions (Note 7).
 
Three Months Ended March 31
 
2014
 
2013
Issuance of a note receivable in connection with the sale of peripheral land
 
 
$
7,411

Receipt of Simon Property Group Limited Partnership units in connection with the sale of Arizona Mills (Note 2)
$
77,700

 
 
Issuance of TRG partnership units in connection with the purchase of the U.S. headquarters building (Note 2)
91

 
 
Assumption of debt in connection with the purchase of the U.S. headquarters building (Note 2)
18,215

 
 
Other non-cash additions to properties
43,664

 
16,090



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).
Subsequent Event (Notes)
Subsequent Events [Text Block]
Subsequent Event

In April 2014, a $320 million construction facility was completed for The Mall of San Juan, a consolidated joint venture. The construction facility has an initial three-year term with two, one-year extension options. The loan 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. The Operating Partnership 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.
Income Taxes (Tables)
The Company’s income tax expense (benefit) for the three months ended March 31, 2014 and 2013 was as follows:

 
2014
 
2013
State current
$
242

 
$
156

Federal current
51

 
152

Federal deferred
193

 
366

Foreign current
217

 
400

Foreign deferred
(4
)
 
(46
)
Total income tax expense
$
699

 
$
1,028



In addition to the above, the Company incurred $10.2 million of tax resulting from the sale of interests in International Plaza in January 2014. The tax on the sale was classified within Gain on Dispositions, Net of Tax on the
Deferred tax assets and liabilities as of March 31, 2014 and December 31, 2013 were as follows:
 
2014
 
2013
Deferred tax assets:
 
 
 
Federal
$
1,135

 
$
2,746

Foreign
1,816

 
1,821

State
502

 
527

Total deferred tax assets
$
3,453

 
$
5,094

Valuation allowances
(1,778
)
 
(1,831
)
Net deferred tax assets
$
1,675

 
$
3,263

Deferred tax liabilities:
 

 
 

Federal
$
602

 
$
602

Foreign
468

 
449

State
107

 
107

Total deferred tax liabilities
$
1,177

 
$
1,158

Investments in Unconsolidated Joint Ventures (Tables)
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, and Westfarms. The Operating Partnership also provides certain management, leasing, and/or development services to the other shopping centers noted below.
Shopping Center
 
Ownership as of
March 31, 2014 and
December 31, 2013
Arizona Mills (1)
 
0/50%
CityOn.Xi'an (under construction)
 
Note 2
CityOn.Zhengzhou (under construction)
 
Note 2
Fair Oaks
 
50
Hanam Union Square (under construction)
 
Note 2
International Plaza (2)
 
50.1/100
The Mall at Millenia
 
50
Stamford Town Center
 
50
Sunvalley
 
50
The Mall at University Town Center (under construction)
 
Note 2
Waterside Shops
 
50
Westfarms
 
79


(1)
In January 2014, the Company disposed of its 50% interest in Arizona Mills (Note 2). Prior to the disposition, Arizona Mills was accounted for as an Unconsolidated Joint Venture.
(2)
In January 2014, the Company sold a total of 49.9% of its interests in the entity that owns International Plaza. The disposition decreased the Company's ownership in the center to a noncontrolling 50.1% interest (Note 2). Prior to the disposition, International Plaza was accounted for as a consolidated center.
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 March 31, 2014 excluded the balances of Hanam Union Square, CityOn.Xi'an, and CityOn.Zhengzhou, 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.

 
March 31
2014
 
December 31
2013
Assets:
 
 
 
Properties
$
1,435,623

 
$
1,305,658

Accumulated depreciation and amortization
(525,829
)
 
(478,820
)
 
$
909,794

 
$
826,838

Cash and cash equivalents
17,297

 
28,782

Accounts and notes receivable, less allowance for doubtful accounts of $1,089 and $977 in 2014 and 2013
33,770

 
33,626

Deferred charges and other assets
32,102

 
28,095

 
$
992,963

 
$
917,341

 
 
 
 
Liabilities and accumulated deficiency in assets:
 

 
 

Notes payable
$
1,732,021

 
$
1,551,161

Accounts payable and other liabilities
65,022

 
70,226

TRG's accumulated deficiency in assets
(461,276
)
 
(412,204
)
Unconsolidated Joint Venture Partners' accumulated deficiency in assets
(342,804
)
 
(291,842
)
 
$
992,963

 
$
917,341

 
 
 
 
TRG's accumulated deficiency in assets (above)
$
(461,276
)
 
$
(412,204
)
TRG's investment in properties under development (Note 2)
194,557

 
193,306

TRG basis adjustments, including elimination of intercompany profit
128,600

 
118,132

TCO's additional basis
56,422

 
56,909

Net investment in Unconsolidated Joint Ventures
$
(81,697
)
 
$
(43,857
)
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures
408,602

 
371,549

Investment in Unconsolidated Joint Ventures
$
326,905

 
$
327,692

 
Three Months Ended March 31
 
2014
 
2013
Revenues
$
77,225

 
$
67,551

Maintenance, taxes, utilities, promotion, and other operating expenses
$
24,998

 
$
21,491

Interest expense
18,147

 
17,197

Depreciation and amortization
10,858

 
9,319

Total operating costs
$
54,003

 
$
48,007

Nonoperating income
2

 
8

Net income
$
23,224

 
$
19,552

 
 
 
 
Net income attributable to TRG
$
12,758

 
$
10,946

Realized intercompany profit, net of depreciation on TRG’s basis adjustments
(203
)
 
(113
)
Depreciation of TCO's additional basis
(487
)
 
(487
)
Equity in income of Unconsolidated Joint Ventures
$
12,068

 
$
10,346

 
 
 
 
Beneficial interest in Unconsolidated Joint Ventures’ operations:
 

 
 

Revenues less maintenance, taxes, utilities, promotion, and other operating expenses
$
29,090

 
$
26,031

Interest expense
(9,844
)
 
(9,376
)
Depreciation and amortization
(7,178
)
 
(6,309
)
Equity in income of Unconsolidated Joint Ventures
$
12,068

 
$
10,346