TAUBMAN CENTERS INC, 10-K filed on 2/24/2015
Annual Report
Document and Entity Information Document (USD $)
In Billions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Feb. 23, 2015
Jun. 30, 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-K 
 
 
Document Period End Date
Dec. 31, 2014 
 
 
Document Fiscal Year Focus
2014 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
63,315,227 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 4.7 
CONSOLIDATED BALANCE SHEET (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
Assets:
 
 
Properties (Notes 4 and 8)
$ 3,262,505 
$ 4,485,090 
Accumulated depreciation and amortization
(970,045)
(1,516,982)
Properties, net
2,292,460 
2,968,108 
Investment in Unconsolidated Joint Ventures (Notes 2 and 5)
370,004 
327,692 
Cash and cash equivalents
276,423 
40,993 
Restricted cash (Note 8)
37,502 
5,046 
Accounts and notes receivable, less allowance for doubtful accounts of $2,927 and $1,934 in 2014 and 2013 (Note 6)
49,245 
73,193 
Accounts receivable from related parties (Note 12)
832 
1,804 
Deferred charges and other assets (Note 7)
188,435 
89,386 
Total Assets
3,214,901 
3,506,222 
Liabilities:
 
 
Notes payable (Note 8)
2,025,505 
3,058,053 
Accounts payable and accrued liabilities
292,802 
292,280 
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures (Note 5)
476,651 
371,549 
Total Liabilities
2,794,958 
3,721,882 
Commitments and contingencies (Notes 2, 8, 9, 10, 11, 13, and 15)
   
   
Equity:
 
 
Series B Non-Participating Convertible Preferred Stock, $0.001 par and liquidation value, 40,000,000 shares authorized, 25,117,000 and 25,151,069 shares issued and outstanding at December 31, 2014 and 2013
25 
25 
Common Stock, $0.01 par value, 250,000,000 shares authorized, 63,324,409 and 63,101,614 shares issued and outstanding at December 31, 2014 and 2013
633 
631 
Additional paid-in capital
815,961 
796,787 
Accumulated other comprehensive income (loss) (Note 19)
(15,068)
(8,914)
Dividends in excess of net income
(483,188)
(908,656)
Stockholders' Equity Attributable to Parent
318,363 
(120,127)
Noncontrolling interests (Note 9)
101,580 
(95,533)
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
419,943 
(215,660)
Total Liabilities and Equity
$ 3,214,901 
$ 3,506,222 
CONSOLIDATED BALANCE SHEET (Parenthetical) (USD $)
Dec. 31, 2014
Dec. 31, 2013
Allowance for doubtful accounts
$ (2,927,000)
$ (1,934,000)
Common stock, par value per share
$ 0.01 
$ 0.01 
Common stock, shares authorized
250,000,000 
250,000,000 
Common stock, shares issued
63,324,409 
63,101,614 
Common stock, shares outstanding
63,324,409 
63,101,614 
Series B Preferred Stock [Member]
 
 
Preferred Stock, par value per share
$ 0.001 
$ 0.001 
Preferred Stock, liquidation value per share
$ 0.001 
$ 0.001 
Preferred Stock, shares authorized
40,000,000 
40,000,000 
Preferred Stock, shares issued
25,117,000 
25,151,069 
Preferred Stock, Shares Outstanding
25,117,000 
25,151,069 
Series J Preferred Stock [Member]
 
 
Preferred Stock, par value per share
$ 0 
$ 0 
Preferred Stock, liquidation value per share
$ 25 
 
Preferred Stock, Liquidation Preference, Value
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 value per share
$ 0 
$ 0 
Preferred Stock, liquidation value per share
$ 25 
 
Preferred Stock, Liquidation Preference, Value
$ 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
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Revenues:
 
 
 
Minimum rents
$ 371,454 
$ 417,729 
$ 398,306 
Percentage rents
22,929 
28,512 
28,026 
Expense recoveries
239,782 
272,494 
258,252 
Management, leasing, and development services
12,349 
16,142 
31,811 
Other
32,615 
32,277 
31,579 
Total Revenues
679,129 
767,154 
747,974 
Expenses:
 
 
 
Maintenance, taxes, utilities, and promotion
190,119 
215,825 
201,552 
Other operating
65,142 
71,235 
73,203 
Management, leasing, and development services
6,220 
5,321 
27,417 
General and administrative
48,292 
50,014 
39,659 
Restructuring charge (Note 2)
3,706 
 
 
Interest expense
90,803 
130,023 
142,616 
Depreciation and amortization
120,207 
155,772 
149,517 
Total Expenses
524,489 
628,190 
633,964 
Nonoperating income (expense) (Notes 2 and 10)
(42,807)
1,348 
277 
Income before income tax expense, equity in income of Unconsolidated Joint Ventures, and gain on dispositions, net of tax
111,833 
140,312 
114,287 
Income tax expense (Note 3)
(2,267)
(3,409)
(4,964)
Equity in income of Unconsolidated Joint Ventures (Note 5)
62,002 
52,465 
48,494 
Income before gain on dispositions, net of tax
171,568 
189,368 
157,817 
Gain on dispositions, net of tax (Note 2)
1,106,554 
 
 
Net income
1,278,122 
189,368 
157,817 
Net income attributable to noncontrolling interests (Note 9)
(385,109)
(56,778)
(51,643)
Net income attributable to Taubman Centers, Inc.
893,013 
132,590 
106,174 
Distributions to participating securities of TRG (Note 13)
(6,018)
(1,749)
(1,612)
Preferred stock dividends (Note 14)
(23,138)
(20,933)
(21,051)
Net income attributable to Taubman Centers, Inc. common shareowners
863,857 
109,908 
83,511 
Other comprehensive income (Note 19):
 
 
 
Unrealized gain (loss) on interest rate instruments and other
(18,004)
8,817 
(4,506)
Cumulative translation adjustment
(7,193)
4,407 
2,644 
Reclassification adjustment for amounts recognized in net income
16,729 
5,583 
793 
Other Comprehensive Income (Loss), Net of Tax
(8,468)
18,807 
(1,069)
Comprehensive income
1,269,654 
208,175 
156,748 
Comprehensive income attributable to noncontrolling interests
(382,825)
(62,443)
(51,238)
Comprehensive income attributable to Taubman Centers, Inc.
$ 886,829 
$ 145,732 
$ 105,510 
Basic earnings per common share (Note 16):
 
 
 
Basic earnings per common share (Note 16)
$ 13.65 
$ 1.73 
$ 1.39 
Diluted earnings per common share (Note 16)
 
 
 
Diluted earnings per common share (Note 16)
$ 13.47 
$ 1.71 
$ 1.37 
Weighted average number of common shares outstanding – basic
63,267,800 
63,591,523 
59,884,455 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income [Member]
Accumulated Distributions in Excess of Net Income [Member]
Noncontrolling Interest [Member]
Balance at Dec. 31, 2011
$ (340,448)
$ 26 
$ 580 
$ 673,923 
$ (27,613)
$ (863,040)
$ (124,324)
Balance, shares at Dec. 31, 2011
 
33,941,958 
58,022,475 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Issuance of common stock, net of offering costs
208,939 
 
29 
208,910 
 
 
 
Stock Issued During Period, Shares, New Issues
 
7,700,000 
2,875,000 
 
 
 
 
Preferred Stock Issued During Period, Value, New Issues
186,215 
 
 
186,215 
 
 
 
Issuance of stock pursuant to Continuing Offer
 
(1)
11 
(10)
 
 
 
Issuance of stock pursuant to Continuing Offer, shares
 
(1,132,359)
1,132,424 
 
 
 
 
Repurchase of common stock, shares
 
(1,900)
 
 
 
 
 
Redemption of Series G and H Preferred Stock
(180,588)
 
 
(180,588)
 
 
 
Redemption of Series G and H Preferred Stock, shares
 
(7,480,000)
 
 
 
 
 
Share-based compensation under employee and director benefit plans
19,846 
 
13 
19,833 
 
 
 
Share-based compensation under employee and director benefit plans, shares
 
 
1,280,249 
 
 
 
 
Tax impact of share-based compensation
1,020 
 
 
1,020 
 
 
 
Expiration of redemption feature on redeemable noncontrolling interests
72,035 
 
 
72,035 
 
 
 
Acquisition of additional ownership
(275,000)
 
 
(339,170)
 
 
64,170 
Adjustments of noncontrolling interests
 
 
 
14,903 
6,212 
 
(21,115)
Contributions from noncontrolling interests (excludes contributions attributable to redeemable noncontrolling interests)
4,567 
 
 
 
 
 
4,567 
Other
(140)
 
 
 
 
(140)
 
Dividend and distributions (excludes dividends attributable to redeemable noncontrolling interests)
(199,145)
 
 
 
 
(134,277)
(64,868)
Net income (excludes net loss attributable to redeemable noncontrolling interests)
158,793 
 
 
 
 
106,174 
52,619 
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period (excluding redeemable noncontrolling interests), Net of Tax
(4,457)
 
 
 
(3,117)
 
(1,340)
Net income
157,817 
 
 
 
 
 
 
Unrealized gain (loss) on interest rate instruments and other
(4,506)
 
 
 
 
 
 
Cumulative translation adjustment
2,644 
 
 
 
1,888 
 
756 
Reclassification adjustment for amounts recognized in net income
793 
 
 
 
566 
 
227 
Balance at Dec. 31, 2012
(344,926)
25 
633 
657,071 
(22,064)
(891,283)
(89,308)
Balance, shares at Dec. 31, 2012
 
33,027,699 
63,310,148 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Stock Issued During Period, Shares, New Issues
 
6,800,000 
 
 
 
 
 
Preferred Stock Issued During Period, Value, New Issues
164,395 
 
 
164,395 
 
 
 
Issuance of stock pursuant to Continuing Offer
 
 
(2)
 
 
 
Issuance of stock pursuant to Continuing Offer, shares
 
(176,630)
176,640 
 
 
 
 
Repurchase of common stock
(52,287)
 
(8)
(52,279)
 
 
 
Repurchase of common stock, shares
 
 
(786,805)
 
 
 
 
Share-based compensation under employee and director benefit plans
13,055 
 
13,051 
 
 
 
Share-based compensation under employee and director benefit plans, shares
 
 
401,631 
 
 
 
 
Tax impact of share-based compensation
472 
 
 
472 
 
 
 
Adjustments of noncontrolling interests
 
 
 
15,129 
 
(15,137)
Contributions from noncontrolling interests (excludes contributions attributable to redeemable noncontrolling interests)
4,729 
 
 
 
 
 
4,729 
Dividends and distributions (excludes dividends attributable to redeemable noncontrolling interests)
(208,047)
 
 
 
 
(149,787)
(58,260)
Other
(1,226)
 
 
(1,050)
 
(176)
 
Net income
189,368 
 
 
 
 
132,590 
56,778 
Unrealized gain (loss) on interest rate instruments and other
8,817 
 
 
 
6,117 
 
2,700 
Cumulative translation adjustment
4,407 
 
 
 
3,150 
 
1,257 
Reclassification adjustment for amounts recognized in net income
5,583 
 
 
 
3,875 
 
1,708 
Balance at Dec. 31, 2013
(215,660)
25 
631 
796,787 
(8,914)
(908,656)
(95,533)
Balance, shares at Dec. 31, 2013
 
39,651,069 
63,101,614 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Stock Issued During Period, Shares, New Issues
2,875,000 
 
 
 
 
 
 
Issuance of stock pursuant to Continuing Offer
 
 
 
   
 
 
 
Issuance of stock pursuant to Continuing Offer, shares
 
(35,500)
35,500 
 
 
 
 
Repurchase of common stock
(17)
 
 
(17)
 
 
 
Repurchase of common stock, shares
 
 
(266)
 
 
 
 
Share-based compensation under employee and director benefit plans
18,932 
 
18,930 
 
 
 
Share-based compensation under employee and director benefit plans, shares
 
 
187,561 
 
 
 
 
Tax impact of share-based compensation
87 
 
 
87 
 
 
 
Acquisition of additional ownership
 
 
 
   
 
 
 
Adjustments of noncontrolling interests
 
 
 
83 
30 
 
(113)
Contributions from noncontrolling interests (excludes contributions attributable to redeemable noncontrolling interests)
22,345 
 
 
 
 
 
22,345 
Dividends and distributions (excludes dividends attributable to redeemable noncontrolling interests)
(674,685)
 
 
 
 
(466,731)
(207,954)
Other, Shares
 
1,431 
 
 
 
 
 
Other
(713)
 
 
91 
 
(814)
10 
Net income
1,278,122 
 
 
 
 
893,013 
385,109 
Unrealized gain (loss) on interest rate instruments and other
(18,004)
 
 
 
(12,783)
 
(5,221)
Cumulative translation adjustment
(7,193)
 
 
 
(5,148)
 
(2,045)
Reclassification adjustment for amounts recognized in net income
16,729 
 
 
 
11,747 
 
4,982 
Balance at Dec. 31, 2014
$ 419,943 
$ 25 
$ 633 
$ 815,961 
$ (15,068)
$ (483,188)
$ 101,580 
Balance, shares at Dec. 31, 2014
 
39,617,000 
63,324,409 
 
 
 
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Parenthetical (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Contibutions attributable to redeemable noncontrolling interests
 
 
$ 231 
Dividends attributable to redeemable noncontrolling interests
 
 
(2,456)
Net income (loss) attributable to redeemable noncontrolling interest
   
   
(976)
Other comprehensive income (loss) attributable to redeemable noncontrolling interest
 
 
$ (49)
CONSOLIDATED STATEMENT OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Cash Flows From Operating Activities:
 
 
 
Net income
$ 1,278,122 
$ 189,368 
$ 157,817 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
120,207 
155,772 
149,517 
Provision for bad debts
2,900 
489 
1,397 
Gain on dispositions (Note 2)
(1,116,287)
 
 
Debt extinguishment costs (Note 2)
36,372 
 
 
Discontinuation of hedge accounting (Note 10)
7,763 
 
 
Income from Unconsolidated Joint Ventures in excess of distributions
 
(3,076)
 
Other
18,728 
11,315 
12,165 
Increase (decrease) in cash attributable to changes in assets and liabilities:
 
 
 
Receivables, restricted cash, deferred charges, and other assets
(595)
(12,053)
(24,445)
Accounts payable and other liabilities
16,476 
29,557 
27,898 
Net Cash Provided By Operating Activities
363,686 
371,372 
324,349 
Cash Flows From Investing Activities:
 
 
 
Additions to properties
(442,991)
(283,864)
(247,637)
Cash in escrow or deposits related to center construction projects (Notes 7 and 8)
(70,607)
 
 
Proceeds from dispositions, net of transaction costs (Note 2)
1,776,394 
 
 
Release of restricted cash (Note 2)
 
   
289,389 
Collection and release of TCBL related proceeds (Note 2)
 
12,903 
4,414 
Contributions to Unconsolidated Joint Ventures (Note 2)
(45,974)
(108,918)
(146,458)
Distributions from Unconsolidated Joint Ventures in excess of income
68,388 
 
220,662 
Other
7,329 
8,446 
5,974 
Net Cash Provided By (Used In) Investing Activities
1,292,539 
(371,433)
126,344 
Cash Flows From Financing Activities:
 
 
 
Debt proceeds
163,779 
429,745 
105,740 
Extinguishment of debt (Note 2)
(658,092)
 
 
Other debt payments
(264,884)
(317,365)
(11,462)
Repayment of installment notes
   
   
(281,467)
Debt issuance costs
(8,208)
(9,479)
(4,711)
Repurchase of common stock (Note 14)
(17)
(52,287)
 
Issuance of common stock, net of offering costs
   
   
208,939 
Issuance of common stock and/or partnership units in connection with incentive plans
(943)
(1,644)
6,503 
Issuance of Preferred Stock, net of offering costs
   
164,395 
186,215 
Redemptions of Series G and H Preferred Stock
 
   
(187,000)
Acquisition of noncontrolling interest in International Plaza
 
   
(275,000)
Distributions to noncontrolling interests
(207,954)
(58,260)
(67,325)
Distributions to participating securities of TRG (Note 2)
(6,018)
(1,749)
(1,612)
Contributions from noncontrolling interests
22,345 
4,729 
4,798 
Cash dividends to preferred shareowners
(23,138)
(20,933)
(14,639)
Cash dividends to common shareowners (Note 2)
(437,665)
(127,105)
(111,543)
Other
   
(1,050)
(105)
Net Cash Provided By (Used In) Financing Activities
(1,420,795)
8,997 
(442,669)
Net Increase In Cash and Cash Equivalents
235,430 
8,936 
8,024 
Cash and Cash Equivalents at Beginning of Year
40,993 
32,057 
24,033 
Cash and Cash Equivalents at End of Year
$ 276,423 
$ 40,993 
$ 32,057 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

Organization and Basis of Presentation

General

Taubman Centers, Inc. (the Company or TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate investment trust (REIT). The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is a majority-owned partnership subsidiary of TCO that owns direct or indirect interests in all of the Company’s real estate properties. In this report, the term “Company" refers to TCO, the Operating Partnership, and/or the Operating Partnership's subsidiaries as the context may require. The Company engages in the ownership, management, leasing, acquisition, disposition, development, and expansion of regional and super-regional retail shopping centers and interests therein. The Company’s owned portfolio as of December 31, 2014 included 18 urban and suburban shopping centers operating in 10 states.

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

Dollar amounts presented in tables within the notes to the financial statements are stated in thousands, except share data or as otherwise noted.

Consolidation

The consolidated financial statements of the Company include all accounts of the Company, the Operating Partnership, and its consolidated subsidiaries, including The Taubman Company LLC (the Manager) and Taubman Asia. All intercompany transactions have been eliminated. The entities included in these consolidated financial statements are separate legal entities and maintain records and books of account separate from any other entity. However, inclusion of these separate entities in the consolidated financial statements does not mean that the assets and credit of each of these legal entities are available to satisfy the debts or other obligations of any other such legal entity included in the consolidated financial statements.

Investments in entities not controlled but over which the Company may exercise significant influence (Unconsolidated Joint Ventures or UJVs) are accounted for under the equity method. The Company has evaluated its investments in the Unconsolidated Joint Ventures under guidance for determining whether an entity is a variable interest entity and has concluded that the ventures are not variable interest entities. Accordingly, the Company accounts for its interests in these entities under general accounting standards for investments in real estate ventures (including guidance for determining effective control of a limited partnership or similar entity). The Company’s partners or other owners in these Unconsolidated Joint Ventures have substantive participating rights including approval rights over annual operating budgets, capital spending, financing, admission of new partners/members, or sale of the properties and the Company has concluded that the equity method of accounting is appropriate for these interests. Specifically, the Company’s 79% and 50.1% investments in Westfarms and International Plaza, respectively, are through general partnerships in which the other general partners have participating rights over annual operating budgets, capital spending, refinancing, or sale of the property.

The Operating Partnership

At December 31, 2014 and December 31, 2013, the Operating Partnership’s equity included two classes of preferred equity (Series J and K Preferred Equity) and the net equity of the partnership unitholders (Note 14). Net income and distributions of the Operating Partnership are allocable first to the preferred equity interests, and the remaining amounts to the general and limited partners in the Operating Partnership in accordance with their percentage ownership. The Series J and K Preferred Equity are owned by the Company and are eliminated in consolidation.


The partnership equity of the Operating Partnership and the Company's ownership therein are shown below:

Year
 
TRG units outstanding at December 31
 
TRG units owned by TCO at December 31(1)
 
TRG units owned by noncontrolling interests at December 31
 
TCO's % interest in TRG at December 31
 
TCO's average interest % in TRG
2014
 
88,459,859

 
63,324,409

 
25,135,450

 
72%
 
72%
2013
 
88,271,133

 
63,101,614

 
25,169,519

 
71
 
72
2012
 
88,656,297

 
63,310,148

 
25,346,149

 
71
 
69

(1)
There is a one-for-one relationship between TRG units owned by TCO and TCO common shares outstanding; amounts in this column are equal to TCO’s common shares outstanding as of the specified dates.

Outstanding voting securities of the Company at December 31, 2014 consisted of 25,117,000 shares of Series B Preferred Stock (Note 14) and 63,324,409 shares of Common Stock.

Revenue Recognition

Shopping center space is generally leased to tenants under short and intermediate term leases that are accounted for as operating leases. Minimum rents are recognized on the straight-line method. Percentage rent is accrued when lessees' specified sales targets have been met. For traditional net leases, where tenants reimburse the landlord for an allocation of reimbursable costs incurred, the Company recognizes revenue in the period the applicable costs are chargeable to tenants. For tenants paying a fixed common area maintenance charge (which typically includes fixed increases over the lease term), the Company recognizes revenue on a straight-line basis over the lease terms. Management, leasing, and development revenue is recognized as services are rendered, when fees due are determinable, and collectibility is reasonably assured. Fees for management, leasing, and development services are established under contracts and are generally based on negotiated rates, percentages of cash receipts, and/or actual costs incurred. Fixed-fee development services contracts are generally accounted for under the percentage-of-completion method, using cost to cost measurements of progress. Profits on real estate sales are recognized whenever (1) a sale is consummated, (2) the buyer has demonstrated an adequate commitment to pay for the property, (3) the Company’s receivable is not subject to future subordination, and (4) the Company has transferred to the buyer the risks and rewards of ownership. Other revenues, including fees paid by tenants to terminate their leases, are recognized when fees due are determinable, no further actions or services are required to be performed by the Company, and collectibility is reasonably assured. Taxes assessed by government authorities on revenue-producing transactions, such as sales, use, and value-added taxes, are primarily accounted for on a net basis on the Company’s income statement.

Allowance for Doubtful Accounts and Notes

The Company records a provision for losses on accounts receivable to reduce them to the amount estimated to be collectible. The Company records a provision for losses on notes receivable to reduce them to the present value of expected future cash flows discounted at the loans’ effective interest rates or the fair value of the collateral if the loans are collateral dependent.

Depreciation and Amortization

Buildings, improvements, and equipment are primarily depreciated on straight-line bases over the estimated useful lives of the assets, which generally range from 3 to 50 years. Capital expenditures that are recoverable from tenants are generally depreciated over the estimated recovery period. Intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. Tenant allowances are depreciated on a straight-line basis over the shorter of the useful life of the leasehold improvements or the lease term. Deferred leasing costs are amortized on a straight-line basis over the lives of the related leases. In the event of early termination of such leases, the unrecoverable net book values of the assets are recognized as depreciation and amortization expense in the period of termination.


Capitalization

Direct and indirect costs that are clearly related to the acquisition, development, construction, and improvement of properties are capitalized. Compensation costs are allocated based on actual time spent on a project. Costs incurred on real estate for ground leases, property taxes, insurance, and interest costs for qualifying assets are capitalized during periods in which activities necessary to get the property ready for its intended use are in progress.

The viability of all projects under construction or development, including those owned by Unconsolidated Joint Ventures, are regularly evaluated on an individual basis under the accounting for abandonment of assets or changes in use. To the extent a project, or individual components of the project, are no longer considered to have value, the related capitalized costs are charged against operations. Additionally, all properties are reviewed for impairment on an individual basis whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Impairment of a shopping center owned by consolidated entities is recognized when the sum of expected cash flows (undiscounted and without interest charges) is less than the carrying value of the property. Other than temporary impairment of an investment in an Unconsolidated Joint Venture is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value, including the results of discounted cash flow and other valuation techniques. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is charged to income.

In leasing a shopping center space, the Company may provide funding to the lessee through a tenant allowance. In accounting for a tenant allowance, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership, for accounting purposes, of such improvements. If the Company is considered the owner of the leasehold improvements for accounting purposes, the Company capitalizes the amount of the tenant allowance and depreciates it over the shorter of the useful life of the leasehold improvements or the lease term. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements for accounting purposes, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of rental revenue. Factors considered during this evaluation usually include (1) who holds legal title to the improvements, (2) evidentiary requirements concerning the spending of the tenant allowance, and (3) other controlling rights provided by the lease agreement (e.g. unilateral control of the tenant space during the build-out process). Determination of the accounting for a tenant allowance is made on a case-by-case basis, considering the facts and circumstances of the individual tenant lease. Substantially all of the Company’s tenant allowances have been determined to be leasehold improvements.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with a maturity of 90 days or less at the date of purchase. The Company deposits cash and cash equivalents with institutions with high credit quality. From time to time, cash and cash equivalents may be in excess of FDIC insurance limits. Included in cash equivalents at December 31, 2014 was $251.0 million that is not insured or guaranteed by the FDIC or any other government agency. The majority of the $251.0 million was invested across three separate financial institutions as of December 31, 2014.

The Company is required to escrow cash balances for specific uses stipulated by certain of its lenders. As of December 31, 2014 and December 31, 2013, the Company’s cash balances restricted for these uses were $37.5 million and $5.0 million, respectively. As of December 31, 2014, $33.6 million of the $37.5 million of restricted cash was required under certain debt agreements to be in escrow for certain major construction projects. Included in restricted cash is $36.1 million at December 31, 2014 on deposit in excess of the FDIC insured limit.




Acquisitions

The Company recognizes the assets acquired, the liabilities assumed, and any noncontrolling interests in the acquiree at their fair values as of the acquisition date. The cost of acquiring a controlling ownership interest or an additional ownership interest (if not already consolidated) is allocated to the tangible assets acquired (such as land and building) and to any identifiable intangible assets based on their estimated fair values at the date of acquisition. The fair value of a property is determined on an “as-if-vacant” basis. Management considers various factors in estimating the "as-if-vacant" value including an estimated lease up period, lost rents, and carrying costs. The identifiable intangible assets would include the estimated value of “in-place” leases, above and below market “in-place” leases, and tenant relationships. The portion of the purchase price that management determines should be allocated to identifiable intangible assets is amortized in depreciation and amortization or as an adjustment to rental revenue, as appropriate, over the estimated life of the associated intangible asset (for instance, the remaining life of the associated tenant lease). The Company records goodwill when the cost of an acquired entity exceeds the net of the amounts assigned to assets acquired and liabilities assumed. Costs related to the acquisition of a controlling interest, including due diligence costs, professional fees, and other costs to effect an acquisition, are expensed as incurred.

Deferred Charges and Other Assets

Direct financing costs are deferred and amortized on a straight-line basis, which approximates the effective interest method, over the terms of the related agreements as a component of interest expense. Direct costs related to successful leasing activities are capitalized and amortized on a straight-line basis over the lives of the related leases. Cash expenditures for leasing costs are recognized in the Statement of Cash Flows as operating activities. All other deferred charges are amortized on a straight-line basis over the terms of the agreements to which they relate.

Share-Based Compensation Plans

The cost of share-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized over the requisite employee service period which is generally the vesting period of the grant. The Company recognizes compensation costs for awards with graded vesting schedules on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.

Interest Rate Hedging Agreements

All derivatives, whether designated in hedging relationships or not, are recorded on the balance sheet at fair value. If a derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (OCI) and are recognized in the income statement when the hedged item affects income. Ineffective portions of changes in the fair value of a cash flow hedge are recognized in the Company’s income generally as interest expense (Note 10).

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various hedge transactions. The Company assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items.


Income Taxes

The Company operates in such a manner as to qualify as a REIT under the applicable provisions of the Internal Revenue Code. To qualify as a REIT, the Company must distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains, to its shareowners and meet certain other requirements. As a REIT, the Company is entitled to a dividends paid deduction for the dividends it pays to its shareowners. Therefore, the Company will generally not be subject to federal income taxes as long as it currently distributes to its shareowners an amount equal to or in excess of its taxable income. REIT qualification reduces but does not eliminate the amount of state and local taxes paid by the Company. In addition, a REIT may be subject to certain excise taxes if it engages in certain activities.
No provision for federal income taxes for consolidated partnerships has been made, as such taxes are the responsibility of the individual partners. There are certain state income taxes incurred which are provided for in the Company’s financial statements.
The Company has made Taxable REIT Subsidiary (TRS) elections for all of its corporate subsidiaries pursuant to section 856 (I) of the Internal Revenue Code. The TRSs are subject to corporate level income taxes, including federal, state, and certain foreign income taxes for foreign operations, which are provided for in the Company’s financial statements.
Deferred tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. Deferred tax assets are reduced by a valuation allowance to the amount where realization is more likely than not assured after considering all available evidence, including expected taxable earnings. The Company’s temporary differences primarily relate to deferred compensation, depreciation, and net operating loss carryforwards.

Noncontrolling Interests

Noncontrolling interests in the Company are comprised of the ownership interests of (1) noncontrolling interests in the Operating Partnership and (2) the noncontrolling interests in joint ventures controlled by the Company through ownership or contractual arrangements. Consolidated net income and comprehensive income includes amounts attributable to the Company and the noncontrolling interests. Transactions that change the Company's ownership interest in a subsidiary are accounted for as equity transactions if the Company retains its controlling financial interest in the subsidiary.
The Company evaluates whether noncontrolling interests are subject to any redemption features outside of the Company's control that would result in presentation outside of permanent equity pursuant to general accounting standards regarding the classification and measurement of redeemable equity instruments. Certain noncontrolling interests in the Operating Partnership and consolidated ventures of the Company qualify as redeemable noncontrolling interests (Note 9). To the extent such noncontrolling interests are currently redeemable or it is probable that they will eventually become redeemable, these interests are adjusted to the greater of their redemption value or their carrying value at each balance sheet date.

Foreign Currency Translation
The Company has certain entities in Asia for which the functional currency is the local currency. The assets and liabilities of the entities are translated from their functional currency into U.S. Dollars at the rate of exchange in effect on the balance sheet date. Income statement accounts are generally translated using the average exchange rate for the period. Income statement amounts of significant transactions are translated at the rate in effect as of the date of the transaction. The Company's share of unrealized gains and losses resulting from the translation of the entities' financial statements are reflected in shareholders' equity as a component of Accumulated Other Comprehensive Income (loss) in the Company's Consolidated Balance Sheet (Note 19).
Discontinued Operations

Prior to 2014, the Company reclassified to discontinued operations any material operations and gains or losses on disposal related to properties that are held for sale or disposed of during the period in accordance with the applicable accounting standards. In 2014 the Company early adopted Accounting Standards Update (ASU) No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" issued by the Financial Accounting Standards Board (FASB). ASU No. 2014-08 changes the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity's operations and financial results. The Company applied the revised definition to all disposals on a prospective basis beginning January 1, 2014.


Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Segments and Related Disclosures

The Company has one reportable operating segment: it owns, develops, and manages regional shopping centers. The Company has aggregated its shopping centers into this one reportable segment, as the shopping centers share similar economic characteristics and other similarities. The shopping centers are located in major metropolitan areas, have similar tenants (most of which are national chains), are operated using consistent business strategies, and are expected to exhibit similar long-term financial performance. Earnings before interest, income taxes, depreciation, and amortization (EBITDA) is often used by the Company's chief operating decision makers in assessing segment operating performance. EBITDA is believed to be a useful indicator of operating performance as it is customary in the real estate and shopping center business to evaluate the performance of properties on a basis unaffected by capital structure.

No single retail company represents 10% or more of the Company's revenues. Although the Company does business in China and South Korea, there are not yet any material revenues from customers or long-lived assets attributable to a country other than the United States of America. At December 31, 2014, the Company's investments in Asia are in Unconsolidated Joint Ventures and accounted for under the equity method.
Acquisitions, Dispositions and Development
Acquisitions Dispositions and Development [Text Block]
Dispositions, Acquisitions, and Developments

Dispositions

Sale of Centers to Starwood

In October 2014, the Company completed the disposition of a portfolio of seven centers to an affiliate of the Starwood Capital Group (Starwood). The following centers (Sale Centers) were included in the agreements: MacArthur Center in Norfolk, Virginia, Stony Point Fashion Park in Richmond, Virginia, Northlake Mall in Charlotte, North Carolina, The Mall at Wellington Green in Wellington, Florida, The Shops at Willow Bend in Plano, Texas, The Mall at Partridge Creek in Clinton Township, Michigan, and Fairlane Town Center in Dearborn, Michigan.

In connection with the sale, the Company received consideration of $1.4 billion. The proceeds were used to prepay or defease $623 million of property-level debt and accrued interest and to pay $51.2 million of transaction and debt extinguishment costs. The net cash proceeds were used to pay $424.3 million to shareholders and unitholders as a special dividend (Note 3). The debt extinguished consisted of four loans secured by Northlake Mall, The Mall at Wellington Green, MacArthur Center, and The Mall at Partridge Creek (Note 8).

The Company recognized a gain of $629.7 million ($606.2 million at TRG's beneficial share) as a result of the disposition of the Sale Centers. In addition, the Company recorded debt extinguishment costs of $36.4 million, ($36.0 million at TRG's beneficial share) which were classified as Nonoperating Expense on the Consolidated Statement of Operations and Comprehensive Income.

In 2014, the Company incurred $7.8 million of expenses ($7.4 million at TRG's beneficial share) related to the discontinuation of hedge accounting on the swap previously designated to hedge the MacArthur Center note payable. In addition, the Company incurred $3.3 million of disposition costs related to the Sale Centers. These expenses are included in Nonoperating Expense on the Consolidated Statement of Operations and Comprehensive Income.

As a result of the sale, the Company underwent a restructuring plan to reduce its workforce across various areas of the organization. In 2014, the Company incurred $3.7 million of expenses related to the reduction in workforce. These expenses are classified as Restructuring Charge on the Consolidated Statement of Operations and Comprehensive Income. As of December 31, 2014, $1.7 million of restructuring costs were unpaid and remained accrued.

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 $368 million (net of tax of $9.7 million) was recognized as a result of the transaction. The Company's ownership in the center decreased to a noncontrolling 50.1% interest, which is accounted for under the equity method subsequent to the disposition.

Arizona Mills/Oyster Bay

In January 2014, the Company completed the sale of its 50% interest in Arizona Mills, an Unconsolidated Joint Venture, and land in Syosset, New York related to the former Oyster Bay project, to Simon Property Group (SPG). The consideration, excluding transaction costs, consisted of $60 million of cash and 555,150 partnership units in Simon Property Group Limited Partnership. The number of partnership units received was determined based on a value of $154.91 per unit. The fair value of the partnership units recognized for accounting purposes was $77.7 million, after considering the one-year restriction on the sale of these partnership units (Note 17). The number of partnership units subsequently increased to 590,124, in lieu of the Company's participation in a distribution of certain partnership units of another entity by SPG and Simon Property Group Limited Partnership. The increase in the number of partnership units was neutral to the market value of the Company's holdings as of the transaction date. The Company's investment in the partnership units is classified within Deferred Charges and Other Assets on the Consolidated Balance Sheet. As a result of the sale, the Company was relieved of its $84 million share of the $167 million mortgage loan outstanding on Arizona Mills at the time of the sale. A gain of $109 million was recognized as a result of the transaction.





TCBL

In November 2012, assets of the Taubman TCBL business were sold for $15.5 million. Additionally, the purchase price was adjusted for certain working capital and other transition costs. The total sale consideration was approximately equal to Taubman's investment in the business. As part of the sale, the non-controlling owners in Taubman TCBL relinquished the capital that was credited to them in connection with the Company's 2011 acquisition of Taubman TCBL. In connection with the sale, the Company received cash of approximately $4.4 million, while the remaining consideration consisted of approximately $3.6 million held in an escrow account pending receipt of consideration in an equivalent amount of Chinese Renminbi, a note receivable of approximately $8.5 million, and other receivables of approximately $0.8 million. Additionally, the Company incurred a tax liability of $3.2 million, which is included within Income Tax Expense on the Consolidated Statement of Operations and Comprehensive Income during 2012. In 2013, the Company collected the remaining consideration from the sale.

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. A purchase accounting premium adjustment of $0.7 million, recorded to recognize the loan at fair value, is being amortized as a reduction to interest expense over the remaining term of the loan which matures April 1, 2015.

International Plaza

In December 2012, the Company acquired an additional 49.9% interest in International Plaza from CSAT, LP, which increased the Company's ownership in the center to 100%. The $437 million purchase price for CSAT, LP's interest in the center consisted of $275 million of cash and approximately $162 million of beneficial interest in debt. The acquisition of the additional interest in a consolidated subsidiary was accounted for as an equity transaction. Consequently, the difference of $339.2 million between the consideration paid for the interest and the book value of the noncontrolling interest was recognized as an adjustment to additional paid-in-capital and the noncontrolling partners in TRG.

Waterside Shops

In December 2012, the Company acquired an additional 25% interest in Waterside Shops, which brought the Company's ownership interest in the center to 50%. The acquisition of the additional interest was accomplished by purchasing an affiliate of Oregon PERS' 50% interest in the center on a pari passu basis with an affiliate of The Forbes Company. The $155.0 million purchase price for Oregon PERS' interest in the center consisted of $72.5 million of cash and $82.5 million of beneficial interest in debt. The Company's share of the consideration for the additional interest was $77.5 million, which consisted of cash and beneficial interest in debt of $36.3 million and $41.3 million, respectively. After the acquisition, the Company continues to recognize its investment in Waterside Shops in Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet. The Company's share of the difference between the purchase price and the net book value of the additional interest in the Unconsolidated Joint Venture was $52.7 million, which was allocated to land, buildings, improvements, and equipment. In addition, beneficial interest in debt was increased by a $3.9 million purchase accounting premium to record the debt at fair value. The premium is being amortized as a reduction to interest expense over the remaining term of the debt and had a balance of $1.8 million as of December 31, 2014.

The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village

In 2011 cash was drawn from the Company's revolving lines of credit primarily to collateralize the $281.5 million in installment notes that were issued as part of the consideration for the acquisition of The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village. In 2012, the installment notes were repaid.






U.S. Development

International Market Place

International Market Place, a 0.4 million square foot center is under construction in Waikiki, Honolulu, Hawaii. The center will be anchored by Saks Fifth Avenue and is 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 December 31, 2014, the Company's capitalized costs for the project were $107.6 million ($100.8 million at TRG's share).

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 December 31, 2014, the Company had capitalized costs of $384.4 million ($309.5 million at TRG's share).

The Mall at University Town Center

The Mall at University Town Center, a 0.9 million square foot center in Sarasota, Florida, opened in October 2014. The Company owns a 50% interest in the project. As of December 31, 2014, the Company's share of project costs were $161.4 million. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.

Asia Development

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 (CityOn.Zhengzhou) under construction in Zhengzhou, China. Through this joint venture, the Company beneficially owns a 32% interest in the shopping center, which is scheduled to open in spring 2016. As of December 31, 2014, the Company's share of project costs were $41.2 million, as decreased for immaterial 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 (CityOn.Xi'an) located at Xi'an Saigao City Plaza, a large-scale mixed-use development under construction in Xi'an, China. Through this joint venture, the Company will beneficially own a 30% interest in the shopping center, which is scheduled to open in late 2015. As of December 31, 2014, the Company's share of project costs were $75.1 million, as increased by $0.6 million of 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 formed a joint venture with Shinsegae Group, South Korea's largest retailer, to develop an approximately 1.7 million square foot shopping mall (Hanam Union Square) under construction in Hanam, Gyeonggi Province, South Korea, which is scheduled to open in late 2016. In August 2014, the Company partnered with a major institution in Asia to acquire an additional 19% interest from Shinsegae Group, increasing the partnership ownership interest to 49%. The new institutional partner owns 14.7% of the project, bringing the Company's effective ownership to 34.3%, an increase from the Company's previous 30% share. As of December 31, 2014, the Company's share of project costs were $132.3 million, as decreased by $1.0 million of 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 for the years ended December 31, 2014, 2013, and 2012 consisted of the following:

 
2014
 
2013

2012
 
State current
$
1,361

 
$
230


$
205

 
State deferred
(3
)
 
(77
)

(13
)
 
Federal current
8,036

 
547


1,011

 
Federal deferred
1,354

 
632


257

 
Foreign current
1,300


2,193


3,324

(1) 
Foreign deferred
(48
)

(116
)

180

(1) 
 
$
12,000

 
$
3,409


$
4,964

 
Less income tax expense allocated to Gain on Dispositions (2)
9,733

 
 

 
 
Total income tax expense
$
2,267


$
3,409


$
4,964

 


(1)
The Company recognized $3.2 million of income tax expense related to the sale of Taubman TCBL's assets (Note 2), of which $2.8 million is included in foreign current tax expense and $0.4 million is included in foreign deferred tax expense.
(2)
Amount represents the income taxes incurred as part of the Company's sale of interests in International Plaza in January 2014. The tax on the sale is classified within Gain on Dispositions, Net of Tax on the Consolidated Statement of Operations and Comprehensive Income.

Net Operating Loss Carryforwards

As of December 31, 2014, the Company had a foreign net operating loss carryforward of $5.1 million. Of the $5.1 million, $0.7 million had a carryforward period of 10 years and $4.4 million had an indefinite carryforward period.

Deferred Taxes

Deferred tax assets and liabilities as of December 31, 2014 and 2013 are as follows:

 
2014
 
2013
Deferred tax assets:
 
 
 
Federal
$
1,382

 
$
2,746

Foreign
1,806

 
1,821

State
471

 
527

Total deferred tax assets
$
3,659

 
$
5,094

Valuation allowances
(1,703
)
 
(1,831
)
Net deferred tax assets
$
1,956

 
$
3,263

Deferred tax liabilities:
 

 
 

Federal
$
592

 
$
602

Foreign
473

 
449

State
89

 
107

Total deferred tax liabilities
$
1,154

 
$
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.



International Plaza

In November 2013, substantially all of the interest in International Plaza acquired by the Company in 2012 was transferred to a Taxable REIT Subsidiary of the Company. Prior to the transfer in November 2013, substantially all of the interest was held by a nontaxable subsidiary of the Company. No deferred taxes were recorded related to any book-tax basis differences related to this transaction because of its intercompany nature.

Tax Status of Dividends

Dividends declared on the Company’s common and preferred stock and their tax status are presented in the following tables. The tax status of the Company’s dividends in 2014, 2013, and 2012 may not be indicative of future periods.
Year
 
Dividends per common share declared
 
Return of capital
 
Ordinary income
 
Long term capital gain
 
Unrecaptured Sec. 1250 capital gain
 
2014
 
$
4.7500

(1) 
$
0.7057

 
$
0.0000


$
1.8748

(2) 
$
2.1695

(2) 
2014
 
2.1600

 
0.3208

 
1.7773

 
0.0287

(2) 
0.0332

(2) 
2013
 
2.0000

 
0.2636

 
1.7364

 
0.0000

 
0.0000

 
2012
 
1.8500

 
0.5429

 
1.3071

 
0.0000

 
0.0000

 


(1)
Includes a special dividend of $4.75 per share of common stock declared and paid during December 2014, which was declared as a result of the Company's disposition of a portfolio of seven centers to Starwood in October 2014 (Note 2).
(2)
The portion of the per share common dividends paid on December 31, 2014 designated as capital gain (long term and unrecaptured Sec. 1250) dividends for tax purposes is $0.0619 per share of the $0.54 dividend and $4.0443 per share of the $4.75 dividend). 
Year
 
Dividends per Series G Preferred share declared
 
Ordinary income
 
Long term capital gain
 
Unrecaptured Sec. 1250 capital gain
 
2012
 
$
1.350

 
$
1.350

 
$
0.0000

 
$
0.0000

 
Year
 
Dividends per Series H Preferred share declared
 
Ordinary income
 
Long term capital gain
 
Unrecaptured Sec. 1250 capital gain
 
2012
 
$
1.28672

 
$
1.28672

 
$
0.0000

 
$
0.0000

 

Year

Dividends per Series J Preferred share declared

Ordinary income

Long term capital gain

Unrecaptured Sec. 1250 capital gain
 
2014

$
1.6250


$
0.49072


$
0.52580

(1) 
$
0.60848

(1) 
2013

1.6250


1.6250


0.0000


0.0000

 
2012
 
0.6184

 
0.6184

 
0.0000

 
0.0000

 


(1)
The portion of the per share Series J preferred dividends designated as capital gain (long term and unrecaptured Sec. 1250) for tax purposes is as follows; $0.32178 per share of the $0.40625 paid on June 30, 2014, 0.40625 per share of the $0.40625 paid on September 30, 2014, and $0.40625 per share of the $0.40625 paid on December 31, 2014.


Year
 
Dividends per Series K Preferred share declared
 
Ordinary income
 
Long term capital gain
 
Unrecaptured Sec. 1250 capital gain
 
2014
 
$
1.56250

 
$
0.47185

 
$
0.50558

(1) 
$
0.58507

(1) 
2013
 
1.24132

 
1.24132

 
0.0000

 
0.0000

 


(1)
The portion of the per share Series K preferred dividends designated as capital gain (long term and unrecaptured Sec. 1250) for tax purposes is as follows; $0.30939 per share of the $0.39063 paid on June 30, 2014, $0.39063 per share of the $0.39063 paid on September 30, 2014, and $0.39063 per share of the $0.39063 paid on December 31, 2014.

Tax Benefits

During the years ended December 31, 2014, 2013, and 2012, the Company realized a $0.1 million, $0.5 million, and $1.0 million tax benefit, respectively, as additional paid-in capital relating to the redemption of certain share-based compensation awards. 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.

Uncertain Tax Positions

The Company expects no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of December 31, 2014. The Company has no material interest or penalties relating to income taxes recognized in the Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2014, 2013, and 2012 or in the Consolidated Balance Sheet as of December 31, 2014 and 2013. As of December 31, 2014, returns for the calendar years 2011 through 2014 remain subject to examination by U.S. and various state and foreign tax jurisdictions.
Properties
Real Estate Disclosure [Text Block]
Properties

Properties at December 31, 2014 and December 31, 2013 are summarized as follows:
 
2014
 
2013
Land
$
226,252

 
$
336,360

Buildings, improvements, and equipment
2,457,660

 
3,896,401

Construction in process and pre-development costs
578,593

 
252,329

 
$
3,262,505

 
$
4,485,090

Accumulated depreciation and amortization
(970,045
)
 
(1,516,982
)
 
$
2,292,460

 
$
2,968,108



Depreciation expense for 2014, 2013, and 2012 was $110.1 million, $142.5 million, and $134.9 million, respectively.

The charge to operations in 2014, 2013, and 2012 for domestic and non-U.S. pre-development activities was $4.2 million, $10.6 million, and $19.8 million, respectively.
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
December 31, 2014 and 2013
Arizona Mills (Note 2)
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 (Note 2)
50.1/100
The Mall at Millenia
50
Stamford Town Center
50
Sunvalley
50
The Mall at University Town Center (Note 2)
50
Waterside Shops
50
Westfarms
79


The Company's carrying value of its Investment in Unconsolidated Joint Ventures differs from its share of the partnership or members’ equity reported in the combined balance sheet of the Unconsolidated Joint Ventures due to (i) the Company's cost of its investment in excess of the historical net book values of the Unconsolidated Joint Ventures and (ii) the Operating Partnership’s adjustments to the book basis, including intercompany profits on sales of services that are capitalized by the Unconsolidated Joint Ventures. The Company's additional basis allocated to depreciable assets is recognized on a straight-line basis over 40 years. The Operating Partnership’s differences in bases are amortized over the useful lives or terms of the related assets and liabilities.

In its Consolidated Balance Sheet, the Company separately reports its investment in Unconsolidated Joint Ventures for which accumulated distributions have exceeded investments in and net income of the Unconsolidated Joint Ventures. The net equity of certain joint ventures is less than zero because distributions are usually greater than net income, as net income includes non-cash charges for depreciation and amortization. In addition, any distributions related to refinancing of the centers further decrease the net equity of the centers.



Combined Financial Information

Combined balance sheet and results of operations information is presented in the following table for the Unconsolidated Joint Ventures, followed by the Operating Partnership's beneficial interest in the combined operations information. The combined information of the Unconsolidated Joint Ventures as of December 31, 2014 and December 31, 2013 exclude 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.

 
December 31 2014
 
December 31 2013
Assets:
 
 
 
Properties
$
1,580,926

 
$
1,305,658

Accumulated depreciation and amortization
(548,646
)
 
(478,820
)
 
$
1,032,280

 
$
826,838

Cash and cash equivalents
49,765

 
28,782

Accounts and notes receivable, less allowance for doubtful accounts of $1,590 and $977 in 2014 and 2013
38,788

 
33,626

Deferred charges and other assets
33,200

 
28,095

 
$
1,154,033

 
$
917,341

 
 
 
 
Liabilities and accumulated deficiency in assets:
 

 
 

Mortgage notes payable
$
1,989,546

 
$
1,551,161

Accounts payable and other liabilities
103,161

 
70,226

TRG's accumulated deficiency in assets
(525,759
)
 
(412,204
)
Unconsolidated Joint Venture Partners' accumulated deficiency in assets
(412,915
)
 
(291,842
)
 
$
1,154,033

 
$
917,341

 
 
 
 
TRG's accumulated deficiency in assets (above)
$
(525,759
)
 
$
(412,204
)
TRG's investment in projects under development (Note 2)
232,091

 
193,306

TRG basis adjustments, including elimination of intercompany profit
132,058

 
118,132

TCO's additional basis
54,963

 
56,909

Net Investment in Unconsolidated Joint Ventures
$
(106,647
)
 
$
(43,857
)
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures
476,651

 
371,549

Investment in Unconsolidated Joint Ventures
$
370,004

 
$
327,692

 
Year Ended December 31
 
2014
 
2013
 
2012
Revenues
$
338,017

 
$
294,720

 
$
282,136

Maintenance, taxes, utilities, promotion, and other operating expenses
$
106,249

 
$
92,901

 
$
91,094

Interest expense
74,806

 
68,998

 
68,760

Depreciation and amortization
47,377

 
36,644

 
37,342

Total operating costs
$
228,432

 
$
198,543

 
$
197,196

Nonoperating income (expense)
(22
)
 


 
18

Net income
$
109,563

 
$
96,177

 
$
84,958

 
 
 
 
 
 
Net income attributable to TRG
$
60,690

 
$
53,166

 
$
47,763

Realized intercompany profit, net of depreciation on TRG’s basis adjustments
3,258

 
1,245

 
2,677

Depreciation of TCO's additional basis
(1,946
)
 
(1,946
)
 
(1,946
)
Equity in income of Unconsolidated Joint Ventures
$
62,002

 
$
52,465

 
$
48,494

 
 
 
 
 
 
Beneficial interest in Unconsolidated Joint Ventures’ operations:
 

 
 

 
 

Revenues less maintenance, taxes, utilities, promotion, and other operating expenses
$
132,652

 
$
114,939

 
$
107,044

Interest expense
(40,416
)
 
(37,554
)
 
(35,862
)
Depreciation and amortization
(30,234
)
 
(24,920
)
 
(22,688
)
Equity in income of Unconsolidated Joint Ventures
$
62,002

 
$
52,465

 
$
48,494



Other

The provision for losses on accounts receivable of the Unconsolidated Joint Ventures was $1.7 million, $0.6 million, and $0.3 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Deferred charges and other assets of $33.2 million at December 31, 2014 were comprised of leasing costs of $37.2 million, before accumulated amortization of $(16.6) million, net deferred financing costs of $9.6 million, and other net charges of $3.0 million. Deferred charges and other assets of $28.1 million at December 31, 2013 were comprised of leasing costs of $34.0 million, before accumulated amortization of $(17.7) million, net deferred financing costs of $9.0 million, and other net charges of $2.8 million.

In December 2014, an additional $175 million financing was completed on International Plaza, a 50.1% owned Unconsolidated Joint Venture. The loan has a seven-year term and bears interest at LIBOR plus 1.75%. In connection with this financing, the Unconsolidated Joint Venture also entered into an interest rate swap to fix the rate on the loan at 3.58% (Note 10).

The estimated fair value of the Unconsolidated Joint Ventures’ mortgage notes payable was $2.0 billion and $1.5 billion at December 31, 2014 and 2013, respectively. The methodology for determining this fair value is consistent with that used for determining the fair value of consolidated mortgage notes payable (Note 17).

Depreciation expense on properties for 2014, 2013, and 2012 was $40.9 million, $35.6 million, and $31.1 million, respectively.
Accounts and Notes Receivable
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]
Accounts and Notes Receivable

Accounts and notes receivable at December 31, 2014 and December 31, 2013 are summarized as follows:

 
2014
 
2013
Trade
$
24,757

 
$
32,162

Notes
2,037

 
9,407

Straight-line rent and recoveries
25,378

 
33,558

 
$
52,172

 
$
75,127

Less: Allowance for doubtful accounts
(2,927
)
 
(1,934
)
 
$
49,245

 
$
73,193



Notes receivable as of December 31, 2013 included a $7.4 million note related to a February 2013 sale of peripheral land. In January 2014, the $7.4 million note was repaid in full.
Deferred Charges Other Assets
Deferred Charges and Other Assets [Text Block]
Deferred Charges and Other Assets

Deferred charges and other assets at December 31, 2014 and December 31, 2013 are summarized as follows:

 
2014
 
2013
Leasing costs
$
27,454

 
$
39,529

Accumulated amortization
(10,659
)
 
(16,807
)
 
$
16,795

 
$
22,722

In-place leases, net
11,765

 
16,651

Investment in SPG partnership units (Notes 2 and 17)
77,711

 


Deferred financing costs, net
15,815

 
16,319

Insurance deposit (Note 17)
13,059

 
12,225

Deposits
40,257

 
4,320

Prepaid expenses
5,496

 
4,952

Deferred tax asset, net
1,956

 
3,263

Other, net
5,581

 
8,934

 
$
188,435

 
$
89,386



As of December 31, 2014, the Company had $37.0 million in restricted deposits related to its Asia investments.
Beneficial Interest in Debt and Interest Expense
Beneficial Interest in Debt and Interest Expense
Notes Payable

Notes payable at December 31, 2014 and December 31, 2013 consist of the following:
 
2014
 
2013
 
Stated Interest Rate
 
Maturity Date
 
Balance Due on Maturity
 
Facility Amount
 
Cherry Creek Shopping Center
$
280,000


$
280,000

 
5.24%
 
06/08/16
 
$280,000
 
 
 
City Creek Center
83,189

(1) 
84,560

(1) 
4.37%
 
08/01/23
 
68,575
 
 
 
El Paseo Village
15,932

(2) 
16,322

(2) 
4.42%
 
12/06/15
 
15,565
 
 
 
The Gardens on El Paseo
83,059

(3) 
84,197

(3) 
6.10%
 
06/11/16
 
81,480
 
 
 
Great Lakes Crossing Outlets
217,281


221,541

 
3.60%
 
01/06/23
 
177,038
 
 

 
The Mall at Green Hills
150,000


150,000

 
LIBOR+1.60%
 
12/01/18
(4) 
150,000
 
 
 
International Plaza



325,000

(5) 
4.85%
 
 
 
 
 
 

 
MacArthur Center



129,205

(6) 
LIBOR + 2.35%

 
 
 
 
 

 
Northlake Mall



215,500

(6) 
5.41%
 
 
 
 
 
 

 
The Mall at Partridge Creek



79,162

(6) 
6.15%
 
 
 
 
 
 
 
The Mall of San Juan
163,779

(7) 


 
LIBOR + 2.00%
 
04/02/17
(7) 
163,779
 
$
320,000

 
The Mall at Short Hills
540,000


540,000

 
5.47%
 
12/14/15
 
540,000
 
 
 
Stony Point Fashion Park



99,526

(8) 
6.24%
 
 
 
 
 
 
 
The Mall at Wellington Green



200,000

(6) 
5.44%
 
 
 
 
 
 

 
U.S. Headquarters Building
17,265

(9) 


 
5.90%
 
04/01/15
 
16,974
 
 
 
$65M Revolving Credit Facility
 
 
 
 
LIBOR + 1.40%
 
04/30/16
 
 
 
65,000

(10) 
$65M Revolving Credit Facility
 
 
33,040

 
LIBOR + 1.40%
 
04/30/14
(10) 
33,040
 
65,000


$1.1B Revolving Credit Facility
 
(11) (12) 
 
 
LIBOR + 1.15%
(11) 
02/28/19
(11) 
 
 
1,100,000

(11) 
$1.1B Revolving Credit Facility
 

125,000

(11)  
LIBOR + 1.45%
(11) 
03/29/17
 
125,000
 
1,100,000

 
$475M Unsecured Term Loan
475,000

(12) (13) 
475,000

(13) 
LIBOR + 1.35%
(13) 
02/28/19
 
475,000
 
 
 
 
$
2,025,505

 
$
3,058,053

 
 
 
 
 
 
 
 

 


(1)
The Operating Partnership has provided a limited guarantee of the repayment of the City Creek loan, which could be triggered only upon a decline in center occupancy to a level that the Company believes is remote.
(2)
Balance includes purchase accounting adjustment of $0.1 million and $0.2 million premium in 2014 and 2013, respectively, for an above market interest rate upon acquisition of the center in December 2011.
(3)
Balance includes purchase accounting adjustment of $1.6 million and $2.7 million premium in 2014 and 2013, respectively, for an above market interest rate upon acquisition of the center in December 2011.
(4)
Has a one-year extension option.
(5)
In January 2014, the Company sold a total of 49.9% of its interests in the entity that owns International Plaza (Note 2).
(6)
In October 2014, the remaining debt on the center was prepaid or defeased in connection with the Company's disposition of a portfolio of seven centers to Starwood (Note 2).
(7)
The Operating Partnership has provided an unconditional guaranty of the principal balance and all accrued but unpaid interest during the term of the loan. Loan has two one-year extension options.
(8)
In January 2014, the Company paid off the mortgage note payable on Stony Point Fashion Park.
(9)
Balance includes purchase accounting adjustment of $0.2 million for an above market interest rate upon acquisition of the building in February 2014 (Note 2).
(10)
In March 2014, the maturity date on the Company's $65 million secondary revolving line of credit was extended through April 2016. The unused borrowing capacity at December 31, 2014 was $60.8 million, after considering $4.2 million of letters of credit outstanding on the facility.
(11)
TRG is the borrower under the $1.1 billion unsecured revolving credit facility with an accordion feature to increase the borrowing capacity to $1.5 billion, subject to certain conditions including having the borrowing capacity based on the unencumbered asset pool EBITDA and obtaining lender commitments. As of December 31, 2014, the Company cannot fully utilize the accordion feature unless additional assets are added to the unencumbered asset pool. The facility bears interest at a range of LIBOR plus 1.15% to LIBOR plus 1.70% and a facility fee of 0.20% to 0.30% based on the Company's total leverage ratio. Prior to the amendment of the facility in November 2014, the interest rate was at a range of LIBOR plus 1.45% to LIBOR plus 1.85%. The facility has a one-year extension option. The unused borrowing capacity at December 31, 2014 was $1.1 billion.
(12)
As of December 31, 2014, the entities that own Beverly Center, Dolphin Mall, and Twelve Oaks Mall are guarantors under the $475 million unsecured term loan and the $1.1 billion unsecured revolving credit facility.
(13)
TRG is the borrower under the $475 million unsecured term loan with an accordion feature to increase the borrowing capacity to $600 million, subject to certain conditions including having the borrowing capacity based on the unencumbered asset pool EBITDA and obtaining lender commitments. As of December 31, 2014, the Company cannot fully utilize the accordion feature unless additional assets are added to the unencumbered asset pool. The loan bears interest at a range of LIBOR plus 1.35% to LIBOR plus 1.90% based on the Company's total leverage ratio. From January 2014 until maturity, the LIBOR rate is swapped to a fixed rate of 1.65%, resulting in an effective rate in the range of 3.00% to 3.55% (Note 10).


Notes payable are collateralized by properties with a net book value of $1.4 billion at December 31, 2014.


The following table presents scheduled principal payments on notes payable as of December 31, 2014:

2015
$
578,790

 
2016
367,527

  
2017
170,095

(1) 
2018
156,563

(2) 
2019
481,820

 
Thereafter
268,874

 
Total principal maturities
$
2,023,669

 
Net unamortized debt premiums
1,836

 
Total notes payable
$
2,025,505

 

(1)
Includes 163.8 million with two one-year extension options.
(2)
Includes $150.0 million with one-year extension option.

2015 Maturities

During the second half of 2015, the Company expects to complete a refinancing of the loan on The Mall at Short Hills. The existing $540.0 million, 5.47% fixed rate loan is scheduled to mature in December 2015 and is prepayable without penalty beginning September 2015. Also in 2015, the Company expects to complete a refinancing on the U.S headquarters building loan. The existing $17.3 million, 5.9% fixed rate loan on the U.S. headquarters building is scheduled to mature in April 2015.

The $15.9 million, 4.42% fixed rate loan on El Paseo Village matures in December 2015. The Company expects to pay off the loan in October 2015, the earliest prepayment date without penalty.

Debt Covenants and Guarantees

Certain loan agreements contain various restrictive covenants, including the following corporate covenants on the Company’s unsecured primary revolving line of credit, unsecured term loan, and the construction facilities on The Mall at University Town Center and The Mall of San Juan: a minimum net worth requirement, a maximum total leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum recourse secured debt ratio and a maximum payout ratio. In addition, the Company’s primary revolving line of credit and term loan have unencumbered pool covenants, which currently apply to Beverly Center, Dolphin Mall, and Twelve Oaks Mall on a combined basis. These covenants include a minimum number and minimum value of eligible unencumbered assets, a maximum unencumbered leverage ratio, a minimum unencumbered interest coverage ratio and a minimum unencumbered asset occupancy ratio. As of December 31, 2014, the corporate minimum fixed charge coverage ratio is the most restrictive covenant. The Company was in compliance with all of its covenants and loan obligations as of December 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

In connection with the financing of the construction facility at The Mall at University Town Center, 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 December 31, 2014 was $187.8 million. Accrued but unpaid interest as of December 31, 2014 was $0.3 million. The principal guaranty may be reduced to 12.5% of the outstanding principal balance upon achievement of certain performance measures. Upon stabilization, the unconditional guaranty may be released. The Company believes the likelihood of a payment under the guarantee to be remote.

In connection with the financing of the construction facility at The Mall of San Juan, the Operating Partnership has provided an unconditional guarantee of the construction loan principal balance and all accrued but unpaid interest during the term of the loan. In addition, the Operating Partnership has provided a guarantee as to the completion of the center. The outstanding balance of The Mall of San Juan construction financing facility as of December 31, 2014 was $163.8 million. Accrued but unpaid interest as of December 31, 2014 was $0.2 million. The center is expected to open in March 2015 and the Company believes the likelihood of a payment under the guarantees to be remote.


In connection with the December 2014 additional $175 million financing at International Plaza, which is owned by an Unconsolidated Joint Venture, the Operating Partnership provided an unconditional and several guarantee of 50.1% of all obligations and liabilities related to an interest rate swap that was required on the debt for the term of the loan. As of December 31, 2014, the interest rate swap was in an asset position and had unpaid interest of $0.1 million. The Company believes the likelihood of a payment under the guarantee to be remote.

Other

The Company is required to escrow cash balances for specific uses stipulated by certain of its lenders. As of December 31, 2014 and December 31, 2013, the Company's cash balances restricted for these uses were $37.5 million and $5.0 million, respectively. The Company is required under certain debt agreements to escrow cash for certain major construction projects. As of December 31, 2014, $33.6 million of the $37.5 million of restricted cash was required under certain debt agreements to be in escrow for certain major construction projects.

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%). In October 2014, the Company disposed of The Mall at Wellington Green and MacArthur Center as part of the sale to Starwood (Note 2).
 
At 100%
 
At Beneficial Interest
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
Debt as of:
 
 
 
 
 
 
 
December 31, 2014
$
2,025,505

 
$
1,989,546

 
$
1,852,749

 
$
1,085,991

December 31, 2013
3,058,053

 
1,551,161

 
2,891,592

 
868,942

 
 
 
 
 
 
 
 
Capitalized interest:
 

 
 

 
 

 
 

Year Ended December 31, 2014
$
27,255

(1) 
$
3,121

 
$
26,227

 
$
1,578

Year Ended December 31, 2013
16,385

(1) 
587

 
15,839

 
320

 
 
 
 
 
 
 
 
Interest expense:
 

 
 

 
 

 
 

Year Ended December 31, 2014
$
90,803

 
$
74,806

 
$
82,702

 
$
40,416

Year Ended December 31, 2013
130,023

 
68,998

 
121,353

 
37,554



(1)
The Company capitalizes interest costs incurred in funding its equity contributions to development projects accounted for as UJVs. The capitalized interest cost is included in the Company's basis in its investment in UJVs. 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.
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). In April 2014, the Taubman Asia operating agreement was amended to provide that so long as the Taubman Asia President is employed by Taubman Asia on April 1, 2016, then during the month ended April 30, 2016, he will have the right to exercise an option to put up to 40% of his ownership interest for cash in December 2016 at a valuation determined as of October 31, 2016. In addition, under the amended agreement, Taubman Asia has the ability to call, and the Asia President has the ability to put, the Asia President’s ownership interest upon specified terminations of the Asia President’s employment, although such put or call right may not be exercised for specified time periods after certain termination events. The redemption price for the ownership interest is 50% (increasing to 100% as early as June 2017) of the fair value of the ownership interest less the amount required to return the Operating Partnership's preferred interest. The Company has determined that the Asia President's ownership interest in Taubman Asia qualifies as an equity award, considering its specific redemption provisions, and accounts for it as a contingently redeemable noncontrolling interest, with a carrying value of zero at December 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 December 31, 2014 and December 31, 2013. Any adjustments to the redemption value are recorded through equity.

Partnership Units Issued in Connection with 2011 Acquisition

In December 2011, the Company acquired The Mall at Green Hills and The Gardens on El Paseo and El Paseo Village from affiliates of Davis Street Properties, LLC (Note 2). The purchase price consideration included 1.3 million Operating Partnership units determined based on a value of $55 per unit. These partnership units became eligible to be converted into the Company's common shares in December 2012 pursuant to the Continuing Offer (Note 15). Prior to that date, the holders had the ability to put the units back to the Operating Partnership for cash at the lesser of the current market price of the Company's common shares or $55 per share. Considering the redemption provisions, the Company accounted for these Operating Partnership units as a redeemable noncontrolling interest through December 2012 when they became subject to the Continuing Offer. In December 2012, upon the expiration of the redemption right of these redeemable noncontrolling interests, the carrying value of these units were classified within Noncontrolling Interests on the Consolidated Balance Sheet. As of December 31, 2014, of the 1.3 million Operating Partnership units originally issued as consideration, approximately 1.0 million units were tendered under the Continuing Offer.


Reconciliation of Redeemable Noncontrolling Interests

 
2012
Balance January 1
$
84,235

Contributions
231

Distributions
(2,456
)
Allocation of net income (loss)
(976
)
Allocation of other comprehensive income (loss)
(49
)
Capital relinquished in connection with TCBL disposition (Note 2)
(8,855
)
Transfer to nonredeemable equity
(72,035
)
Adjustments of redeemable noncontrolling interests
(95
)
Balance December 31
$


There was no significant activity regarding redeemable noncontrolling interests during the years ended December 31, 2014 or December 31, 2013.

Equity Balances of Nonredeemable Noncontrolling Interests

The net equity balance of the nonredeemable noncontrolling interests as of December 31, 2014 and December 31, 2013 includes the following:
 
2014
 
2013
Non-redeemable noncontrolling interests:
 
 
 
Noncontrolling interests in consolidated joint ventures
$
(14,796
)
 
$
(37,191
)
Noncontrolling interests in partnership equity of TRG
116,376

 
(58,342
)
 
$
101,580

 
$
(95,533
)

Income Allocable to Noncontrolling Interests

Net income attributable to the noncontrolling interests for the years ended December 31, 2014, 2013, and 2012 includes the following:
 
2014
 
2013
 
2012
Net income (loss) attributable to noncontrolling interests:
 
 
 
 
 
Non-redeemable noncontrolling interests:
 
 
 
 
 
Noncontrolling share of income of consolidated joint ventures
$
34,239

 
$
10,344

 
$
14,867

Noncontrolling share of income of TRG
350,870

 
46,434

 
37,752

 
$
385,109

 
$
56,778

 
$
52,619

Redeemable noncontrolling interests


 


 
(976
)
 
$
385,109

 
$
56,778

 
$
51,643




Equity Transactions

The following schedule presents the effects of changes in Taubman Centers, Inc.’s ownership interest in consolidated subsidiaries on Taubman Centers, Inc.’s equity for the years ended December 31, 2014, 2013, and 2012:

 
2014
 
2013
 
2012
Net income attributable to Taubman Centers, Inc. common shareowners
$
863,857

 
$
109,908

 
$
83,511

Transfers (to) from the noncontrolling interest:
 

 
 

 
 
Increase (Decrease) in Taubman Centers, Inc.’s paid-in capital for the adjustments of noncontrolling interest (1)
83

 
15,129

 
14,903

Decrease in Taubman Centers, Inc.’s paid-in capital related to the acquisition of additional ownership interest in International Plaza
 
 
 
 
(339,170
)
Decrease in Taubman Centers, Inc.’s paid-in capital related to the acquisition of additional ownership interest in an outlet joint venture


 
(1,050
)
 
 
Net transfers (to) from noncontrolling interests
83

 
14,079

 
(324,267
)
Change from net income attributable to Taubman Centers, Inc. and transfers (to) from noncontrolling interests
$
863,940

 
$
123,987

 
$
(240,756
)

(1)
In 2014, 2013, and 2012, adjustments of the noncontrolling interest were made as a result of changes in the Company's ownership of the Operating Partnership in connection with the Company's share-based compensation under employee and director benefit plans (Note 13), issuances of stock pursuant to the continuing offer (Note 15), issuances of common stock in 2012 (Note 14), the acquisition of additional ownership interest in International Plaza in 2012, redemption of the outlet joint venture partner's interest in 2013, 2013 stock repurchases (Note 14), issuances of Operating Partnership units in connection with the acquisition of centers (Note 2), and redemptions of certain redeemable Operating Partnership Units.

Finite Life Entities

Accounting Standards Codification Topic 480, “Distinguishing Liabilities from Equity” establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. At December 31, 2014, the Company held a controlling interest in a consolidated entity with a specified termination date in 2083. The noncontrolling owners’ interest in this entity is to be settled upon termination by distribution or transfer of either cash or specific assets of the underlying entity. The estimated fair value of this noncontrolling interest was approximately $430 million at December 31, 2014, compared to a book value of $(23.0) million that is classified in Noncontrolling Interests in the Company’s Consolidated Balance Sheet. The fair value of the noncontrolling interest was calculated as the noncontrolling interest's ownership shares of the underlying property's fair value. The property's fair value was estimated by considering its in-place net operating income, current market capitalization rate, and mortgage debt outstanding.
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 December 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
Unconsolidated Joint Ventures:
 
 

 
 

 
 

 
 

 
 

 
 
Receive variable (LIBOR) /pay-fixed swap (2)
 
50
%
 
136,706

 
2.40
%
 
1.70
%
 
4.10
%
 
April 2018
Receive variable (LIBOR) /pay-fixed swap (2)
 
50
%
 
136,706

 
2.40
%
 
1.70
%