TAUBMAN CENTERS INC, 10-Q filed on 5/3/2016
Quarterly Report
Document and Entity Information Document
3 Months Ended
Mar. 31, 2016
May 2, 2016
Entity Information [Line Items]
 
 
Entity Registrant Name
TAUBMAN CENTERS INC. 
 
Entity Central Index Key
0000890319 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2016 
 
Document Fiscal Year Focus
2016 
 
Document Fiscal Period Focus
Q1 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
60,344,194 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
CONSOLIDATED BALANCE SHEET (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Current Fiscal Year End Date
--12-31 
 
Assets:
 
 
Properties
$ 3,783,129 
$ 3,713,215 
Accumulated depreciation and amortization
(1,078,497)
(1,052,027)
Real Estate Investment Property, Net
2,704,632 
2,661,188 
Investment in Unconsolidated Joint Ventures (Notes 2 and 4)
595,902 
433,911 
Cash and cash equivalents
172,918 
206,635 
Restricted cash (Note 5)
3,500 
6,447 
Accounts and notes receivable, less allowance for doubtful accounts of $5,006 and $2,974 in 2016 and 2015
52,184 
54,547 
Accounts receivable from related parties
2,427 
2,478 
Deferred charges and other assets (Note 1)
197,791 
181,304 
Total Assets
3,729,381 
3,546,510 
Liabilities:
 
 
Notes payable, net (Notes 1 and 5)
2,843,155 
2,627,088 
Accounts payable and accrued liabilities
309,523 
334,525 
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures (Note 4)
468,240 
464,086 
Total Liabilities
3,620,918 
3,425,699 
Commitments and contingencies (Notes 5, 7, 8, 9, and 10)
   
   
Redeemable Noncontrolling Interest, Equity, Carrying Amount [Abstract]
 
 
Redeemable noncontrolling interest (Note 7)
13,041 
Equity:
 
 
Series B Non-Participating Convertible Preferred Stock, $0.001 par and liquidation value, 40,000,000 shares authorized, 25,044,939 shares issued and outstanding at both March 31, 2016 and December 31, 2015
25 
25 
Common Stock, $0.01 par value, 250,000,000 shares authorized, 60,342,914 and 60,233,561 shares issued and outstanding at March 31, 2016 and December 31, 2015
603 
602 
Additional paid-in capital
646,964 
652,146 
Accumulated other comprehensive income (loss) (Note 13)
(29,255)
(27,220)
Dividends in excess of net income
(524,240)
(512,746)
Stockholders' Equity Attributable to Parent
94,097 
112,807 
Noncontrolling interests (Note 7)
1,325 
8,004 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
95,422 
120,811 
Total Liabilities and Equity
$ 3,729,381 
$ 3,546,510 
CONSOLIDATED BALANCE SHEET (Parenthetical) (USD $)
Mar. 31, 2016
Dec. 31, 2015
Allowance for doubtful accounts
$ 5,006,000 
$ 2,974,000 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
250,000,000 
250,000,000 
Common stock, shares issued
60,342,914 
60,233,561 
Common stock, shares outstanding
60,342,914 
60,233,561 
Redeemable Noncontrolling Interest, Equity, Carrying Amount
13,041,000 
Series B Preferred Stock [Member]
 
 
Preferred Stock, par value
$ 0.001 
$ 0.001 
Preferred Stock, liquidation preference per share
$ 0.001 
$ 0.001 
Preferred Stock, shares authorized
40,000,000 
40,000,000 
Preferred Stock, shares issued
25,044,939 
25,044,939 
Preferred Stock, shares outstanding
25,044,939 
25,044,939 
Series J Preferred Stock [Member]
 
 
Preferred Stock, par value
$ 0 
$ 0 
Preferred Stock, liquidation preference
192,500,000 
192,500,000 
Preferred Stock, shares authorized
7,700,000 
7,700,000 
Preferred Stock, shares issued
7,700,000 
7,700,000 
Preferred Stock, shares outstanding
7,700,000 
7,700,000 
Series K Preferred Stock [Member]
 
 
Preferred Stock, par value
$ 0 
$ 0 
Preferred Stock, liquidation preference
$ 170,000,000 
$ 170,000,000 
Preferred Stock, shares authorized
6,800,000 
6,800,000 
Preferred Stock, shares issued
6,800,000 
6,800,000 
Preferred Stock, shares outstanding
6,800,000 
6,800,000 
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Revenues:
 
 
Minimum rents
$ 81,977 
$ 74,567 
Percentage rents
2,772 
2,930 
Expense recoveries
47,760 
43,912 
Management, leasing, and development services
1,728 
2,957 
Other
5,218 
4,623 
Total Revenues
139,455 
128,989 
Expenses:
 
 
Maintenance, taxes, utilities, and promotion
34,938 
31,633 
Other operating
18,708 
13,218 
Management, leasing, and development services
872 
1,130 
General and administrative
11,380 
11,925 
Interest expense
19,128 
13,525 
Depreciation and amortization
29,746 
24,041 
Operating Expenses
114,772 
95,472 
Nonoperating income, net
1,470 
1,246 
Income before income tax expense and equity in income of Unconsolidated Joint Ventures
26,153 
34,763 
Income tax expense (Note 3)
(302)
(838)
Equity in income of Unconsolidated Joint Ventures (Note 4)
18,478 
17,075 
Net income
44,329 
51,000 
Net income attributable to noncontrolling interests (Note 7)
(13,420)
(15,102)
Net income attributable to Taubman Centers, Inc.
30,909 
35,898 
Distributions to participating securities of TRG (Note 9)
(512)
(492)
Preferred stock dividends
(5,784)
(5,784)
Net income attributable to Taubman Centers, Inc. common shareowners
24,613 
29,622 
Other comprehensive income (Note 13):
 
 
Unrealized loss on interest rate instruments and other
(11,860)
(9,389)
Cumulative translation adjustment
5,942 
(1,917)
Reclassification adjustment for amounts recognized in net income
3,037 
2,893 
Other comprehensive income (loss)
(2,881)
(8,413)
Comprehensive income
41,448 
42,587 
Comprehensive income attributable to noncontrolling interests
(12,575)
(12,690)
Comprehensive income attributable to Taubman Centers, Inc.
$ 28,873 
$ 29,897 
Basic earnings per common share (Note 11)
$ 0.41 
$ 0.47 
Diluted earnings per common share (Note 11)
$ 0.41 
$ 0.47 
Cash dividends declared per common share
$ 0.5950 
$ 0.5650 
Weighted average number of common shares outstanding – basic
60,275,004 
63,039,777 
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 (Loss) [Member]
Accumulated Distributions in Excess of Net Income [Member]
Noncontrolling Interest [Member]
Balance at Dec. 31, 2014
$ 419,943 
$ 25 
$ 633 
$ 815,961 
$ (15,068)
$ (483,188)
$ 101,580 
Balance (in shares) at Dec. 31, 2014
 
39,617,000 
63,324,409 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Issuance of stock pursuant to Continuing Offer (Notes 9 and 10)
 
(1)
 
 
 
Issuance of stock pursuant to Continuing Offer (Notes 9 and 10), shares
 
(72,061)
72,065 
 
 
 
 
Repurchase of common stock (Note 6)
(84,982)
 
(12)
(84,970)
 
 
 
Repurchase of common stock (Note 6), Shares
 
 
(1,153,230)
 
 
 
 
Share-based compensation under employee and director benefit plans (Note 9)
2,809 
 
2,808 
 
 
 
Share-based compensation under employee and director benefit plans (Note 9), shares
 
 
63,780 
 
 
 
 
Adjustments of noncontrolling interests (Note 7)
 
 
23,324 
(55)
 
(23,269)
Dividends and distributions
(57,889)
 
 
 
 
(41,460)
 
Distributions to noncontrolling interests
 
 
 
 
 
 
(16,429)
Other
(96)
 
 
 
(99)
   
Other, Shares
 
   
 
 
 
 
 
Net income
51,000 
 
 
 
 
35,898 
15,102 
Unrealized loss on interest rate instruments and other
(9,389)
 
 
 
(6,698)
 
(2,691)
Cumulative translation adjustment
(1,917)
 
 
 
(1,367)
 
(550)
Reclassification adjustment for amounts recognized in net income
2,893 
 
 
 
2,064 
 
829 
Balance at Mar. 31, 2015
322,372 
25 
623 
757,125 
(21,124)
(488,849)
74,572 
Balance (in shares) at Mar. 31, 2015
 
39,544,939 
62,307,024 
 
 
 
 
Balance at Dec. 31, 2015
120,811 
25 
602 
652,146 
(27,220)
(512,746)
8,004 
Balance (in shares) at Dec. 31, 2015
 
39,544,939 
60,233,561 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Share-based compensation under employee and director benefit plans (Note 9)
3,994 
 
3,993 
 
 
 
Share-based compensation under employee and director benefit plans (Note 9), shares
 
 
109,353 
 
 
 
 
Temporary Equity, Accretion to Redemption Value
(13,041)
 
 
(13,041)
 
 
 
Adjustments of noncontrolling interests (Note 7)
 
 
3,865 
 
(3,866)
Dividends and distributions
(57,602)
 
 
 
 
(42,214)
 
Distributions to noncontrolling interests
 
 
 
 
 
 
(15,388)
Other
(188)
 
 
 
(189)
 
Net income
44,329 
 
 
 
 
30,909 
13,420 
Unrealized loss on interest rate instruments and other
(11,860)
 
 
 
(8,380)
 
(3,480)
Cumulative translation adjustment
5,942 
 
 
 
4,198 
 
1,744 
Reclassification adjustment for amounts recognized in net income
3,037 
 
 
 
2,146 
 
891 
Balance at Mar. 31, 2016
$ 95,422 
$ 25 
$ 603 
$ 646,964 
$ (29,255)
$ (524,240)
$ 1,325 
Balance (in shares) at Mar. 31, 2016
 
39,544,939 
60,342,914 
 
 
 
 
CONSOLIDATED STATEMENT OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Cash Flows From Operating Activities:
 
 
Net income
$ 44,329 
$ 51,000 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
29,746 
24,041 
Provision for bad debts
2,243 
456 
Gain on sale of peripheral land
(403)
 
Income from Unconsolidated Joint Ventures in excess of distributions
 
(1,448)
Other
4,488 
517 
Decrease in cash attributable to changes in assets and liabilities:
 
 
Receivables, restricted cash, deferred charges, and other assets
(4,803)
(2,696)
Accounts payable and accrued liabilities
(12,220)
(20,385)
Net Cash Provided By Operating Activities
63,380 
51,485 
Cash Flows From Investing Activities:
 
 
Additions to properties
(95,185)
(97,414)
Proceeds from sale of peripheral land
5,415 
 
Cash drawn from (provided to) escrow or deposits related to center construction projects (Note 5)
(4,097)
7,784 
Contributions to Unconsolidated Joint Ventures
(9,479)
(20,242)
Contribution for acquisition of Country Club Plaza (Note 2)
(314,245)
 
Distributions from Unconsolidated Joint Ventures in excess of income (Note 2)
168,260 
   
Other
20 
323 
Net Cash Used In Investing Activities
(249,311)
(109,549)
Cash Flows From Financing Activities:
 
 
Proceeds from revolving lines of credit, net
142,460 
   
Debt proceeds
74,727 
51,031 
Debt payments
(1,505)
(18,645)
Deposit in connection with anticipated refinancing
(5,500)
 
Repurchase of common stock
   
(84,982)
Issuance of common stock and/or partnership units in connection with incentive plans
(316)
(2,153)
Distributions to noncontrolling interests
(15,388)
(16,429)
Distributions to participating securities of TRG
(512)
(492)
Cash dividends to preferred shareowners
(5,784)
(5,784)
Cash dividends to common shareowners
(35,918)
(35,184)
Other
(50)
(182)
Net Cash Provided By (Used In) Financing Activities
152,214 
(112,820)
Net Decrease In Cash and Cash Equivalents
(33,717)
(170,884)
Cash and Cash Equivalents at Beginning of Period
206,635 
276,423 
Cash and Cash Equivalents at End of Period
$ 172,918 
$ 105,539 
Interim Financial Statements
Interim Financial Statements
Interim Financial Statements

General

Taubman Centers, Inc. (the Company or TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate investment trust (REIT). The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is a majority-owned partnership subsidiary of TCO that owns direct or indirect interests in all of the Company’s real estate properties. In this report, the term “Company" refers to TCO, the Operating Partnership, and/or the Operating Partnership's subsidiaries as the context may require. The Company engages in the ownership, management, leasing, acquisition, disposition, development, and expansion of regional and super-regional retail shopping centers and interests therein. The Company’s owned portfolio as of March 31, 2016 included 20 urban and suburban shopping centers operating in 10 states and Puerto Rico.

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.

The unaudited interim financial statements should be read in conjunction with the audited financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results of interim periods are not necessarily indicative of the results for a full year.

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

Consolidation

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

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

In 2016, the Company adopted Accounting Standards Update (ASU) No. 2015-02, “Amendments to the Consolidation Analysis”. This standard amends certain guidance applicable to the consolidation of various legal entities, including variable interest entities (VIE). The Company evaluated the application of the ASU and concluded that no change was required to its accounting or reporting for any of its interests in less than wholly owned joint ventures. However, under the new guidance all of the Company’s consolidated joint ventures, including the Operating Partnership, now meet the definition and criteria as VIEs. The Company or an affiliate of the Company is the primary beneficiary of each VIE.

In determining the method of accounting for partially owned joint ventures, the Company evaluates the characteristics of associated entities and determines whether an entity is a VIE, and, if so, determines whether the Company is the primary beneficiary by analyzing whether the Company has both the power to direct the entity's significant economic activities and the obligation to absorb potentially significant losses or receive potentially significant benefits. Significant judgments and assumptions inherent in this analysis include the nature of the entity's operations, the entity's financing and capital structure, and contractual relationship and terms, including consideration of governance and decision making rights. The Company consolidates a VIE when it has determined that it is the primary beneficiary.

The Company’s sole significant asset is its investment in the Operating Partnership and, consequently, substantially all of the Company’s consolidated assets and liabilities are assets and liabilities of the Operating Partnership. All of the Company’s debt (Note 5) is an obligation of the Operating Partnership or its consolidated subsidiaries. Note 5 also provides disclosure of guarantees provided by the Operating Partnership to certain consolidated joint ventures. Note 7 provides additional disclosures of the carrying balance of the noncontrolling interests in its consolidated joint ventures and other information, including a description of certain rights of the noncontrolling owners.

Ownership

In addition to the Company’s common stock, there were three classes of preferred stock outstanding (Series B, J, and K) as of March 31, 2016. Dividends on the 6.5% Series J Cumulative Redeemable Preferred Stock (Series J Preferred Stock) and the 6.25% Series K Cumulative Redeemable Preferred Stock (Series K Preferred Stock) are cumulative and are paid on the last day of each calendar quarter. The Company owns corresponding Series J and Series K Preferred Equity interests in the Operating Partnership that entitle the Company to income and distributions (in the form of guaranteed payments) in amounts equal to the dividends payable on the Company’s Series J and Series K Preferred Stock.

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

Outstanding voting securities of the Company at March 31, 2016 consisted of 25,044,939 shares of Series B Preferred Stock and 60,342,914 shares of common stock.

The Operating Partnership

At March 31, 2016, the Operating Partnership’s equity included two classes of preferred equity (Series J and K) and the net equity of the partnership unitholders. Net income and distributions of the Operating Partnership are allocable first to the preferred equity interests, and the remaining amounts to the general and limited partners in the Operating Partnership in accordance with their percentage ownership. The Series J and Series K Preferred Equity are owned by the Company and are eliminated in consolidation.

The Company's ownership in the Operating Partnership at March 31, 2016 consisted of a 71% managing general partnership interest, as well as the Series J and Series K Preferred Equity interests. The Company's average ownership percentage in the Operating Partnership for the three months ended March 31, 2016 and 2015 was 71% and 72%, respectively. At March 31, 2016, the Operating Partnership had 85,405,073 partnership units outstanding, of which the Company owned 60,342,914 units.

Change in Accounting Policy - Debt Issuance Costs

In April 2015, the Financial Accounting Standards Board (FASB) issued ASU No. 2015-03, "Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs" which changed the presentation of debt issuance costs on the Consolidated Balance Sheet. In connection with the adoption of ASU No. 2015-03 on January 1, 2016, the Company retrospectively reclassified the December 31, 2015 Consolidated Balance Sheet to move $16.9 million of debt issuance costs out of Deferred Charges and Other Assets and into Notes Payable, Net as a direct deduction of the related debt liabilities. Prior to the reclassification, the Company reported $198.2 million and $2.644 billion within Deferred Charges and Other Assets and Notes Payable, respectively, on the Consolidated Balance Sheet as of December 31, 2015. In accordance with ASU No. 2015-15, the Company retained its current methodology for recording and presenting debt issuance costs incurred in connection with its revolving lines of credit and will continue to recognize those costs as Deferred Charges and Other Assets on the Consolidated Balance Sheet.
Management’s Responsibility to Evaluate the Company’s Ability to Continue as a Going Concern

In connection with the Company's adoption of ASU No. 2014-15 "Presentation of Financial Statements - Going Concern" on January 1, 2016, when preparing financial statements for each annual and interim reporting period management now has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued. No such conditions or events were identified as of the issuance date of the financial statements contained in this Quarterly Report on Form 10-Q.
Acquisition, Redevelopments, and Developments
Acquisition, Redevelopments, and Developments [Text Block]
Acquisition, Redevelopments, and Developments

Acquisition

Country Club Plaza

In March 2016, a joint venture that the Company formed with The Macerich Company acquired Country Club Plaza, a mixed-use retail and office property in Kansas City, Missouri, from Highwood Properties for $660 million ($330 million at TRG's share) in cash, excluding transaction costs. The Company has a 50% ownership interest in the center, which is jointly managed by both companies. The Company's ownership interest in the center is accounted for as an Unconsolidated Joint Venture under the equity method. Also in March 2016, a 10-year, $320 million ($160 million at TRG's share) non-recourse financing was completed for this center.

The joint venture has not yet finalized its determination of the fair value of the tangible and identifiable intangible assets and liabilities acquired. The joint venture is awaiting certain valuation information for assets and liabilities acquired to complete its allocations. The Company expects a final determination of the fair value of the tangible and identifiable intangible assets and liabilities acquired will be made during 2016.

U.S. Redevelopments and Development

Redevelopments

The Company has ongoing redevelopment projects at Beverly Center and The Mall at Green Hills which are expected to be completed in 2018 and 2019, respectively. In total, these two redevelopment projects are expected to cost approximately $700 million. As of March 31, 2016, the Company's total capitalized costs related to these redevelopment projects were $78.5 million.

International Market Place

International Market Place, a 0.3 million square foot center, is under construction in Waikiki, Honolulu, Hawaii. The center will be anchored by Saks Fifth Avenue and is scheduled to open in August 2016. The Company owns a 93.5% interest in the project, which is subject to a participating ground lease. As of March 31, 2016, the Company's capitalized costs for the project were $337.5 million ($316.1 million at TRG's share). The Company is funding all costs of the development.

Asia Development

CityOn.Xi'an

The Company has a joint venture with Wangfujing Group Co., Ltd (Wangfujing), one of China's largest department store chains, which owns and manages an approximately 1.0 million square foot multi-level shopping center, CityOn.Xi'an, located at Xi'an Saigao City Plaza, a large-scale mixed-use development in Xi'an, China. The shopping center opened in April 2016. Also in April 2016, the joint venture effectively acquired the 40% noncontrolling interest in the project for approximately $150 million, increasing the partnership’s interest to 100%. The Company’s share of the purchase price for the additional interest was approximately $75 million. As a result of the acquisition, the Company’s effective ownership in the center is 50%, an increase from the Company’s previous effective 30% share. As of March 31, 2016, the Company's share of total project costs was $129.3 million, as decreased by $2.4 million for the change in exchange rates. This investment is accounted for as an Unconsolidated Joint Venture.

CityOn.Zhengzhou

The Company also has a second joint venture with Wangfujing which 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 fall 2016. As of March 31, 2016, the Company's share of total project costs was $73.9 million, as decreased by $2.1 million for the change in exchange rates. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.

Starfield Hanam (formerly Hanam Union Square)

The Company's joint venture with Shinsegae Group, one of South Korea's largest retailers, is developing an approximately 1.7 million square foot shopping center, Starfield Hanam, under construction in Hanam, South Korea, which is scheduled to open in September 2016. The Company has partnered with a major institution in Asia for a 49% ownership interest in Starfield Hanam. The institutional partner owns 14.7% of the project, bringing the Company's effective ownership to 34.3%. As of March 31, 2016, the Company's share of total project costs was $223.0 million, as decreased by $7.2 million for the change in exchange rates. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.
Income Taxes
Income Taxes
Income Taxes

Income Tax Expense

The Company’s income tax expense (benefit) for the three months ended March 31, 2016 and 2015 consisted of the following:

 
Three Months Ended March 31
 
2016
 
2015
Federal current
$
1,115

 
$
496

Federal deferred
(761
)
 
(85
)
Foreign current
134

 
274

Foreign deferred
(210
)
 
29

State current
127

 
120

State deferred
(103
)
 
4

Total income tax expense
$
302

 
$
838



Deferred Taxes

Deferred tax assets and liabilities as of March 31, 2016 and December 31, 2015 were as follows:
 
2016
 
2015
Deferred tax assets:
 
 
 
Federal
$
1,586

 
$
1,427

Foreign
1,764

 
1,676

State
972

 
944

Total deferred tax assets
$
4,322

 
$
4,047

Valuation allowances
(1,776
)
 
(1,913
)
Net deferred tax assets
$
2,546

 
$
2,134

Deferred tax liabilities:
 
 
 

Federal


 
$
602

Foreign
$
504

 
501

State
1

 
70

Total deferred tax liabilities
$
505

 
$
1,173



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.
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, The Mall at University Town Center, and Westfarms. The Operating Partnership also provides certain management, leasing, and/or development services to the other shopping centers noted below.
Shopping Center
 
Ownership as of
March 31, 2016 and
December 31, 2015
CityOn.Xi'an (under construction) (1)
 
Note 2
CityOn.Zhengzhou (under construction)
 
Note 2
Country Club Plaza (2)
 
50/0%
Fair Oaks
 
50
International Plaza
 
50.1
The Mall at Millenia
 
50
Stamford Town Center
 
50
Starfield Hanam (under construction)
 
Note 2
Sunvalley
 
50
The Mall at University Town Center
 
50
Waterside Shops
 
50
Westfarms
 
79


(1)
CityOn.Xi'an opened in April 2016. Also in April 2016, the joint venture effectively acquired the 40% noncontrolling interest in the project. As a result of the acquisition, the Company’s effective ownership is 50%, an increase from the Company’s previous 30% share (Note 2).
(2)
In March 2016, the Company acquired a 50% ownership interest in Country Club Plaza (Note 2).

The Company's carrying value of its Investment in Unconsolidated Joint Ventures differs from its share of the partnership or members’ equity reported on 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 March 31, 2016 and December 31, 2015 excluded the balances of CityOn.Xi'an, CityOn.Zhengzhou, and Starfield Hanam which were under construction as of March 31, 2016 and December 31, 2015 (Note 2). Beneficial interest is calculated based on the Operating Partnership's ownership interest in each of the Unconsolidated Joint Ventures.

 
March 31
2016
 
December 31
2015
Assets:
 
 
 
Properties
$
2,284,385

 
$
1,628,492

Accumulated depreciation and amortization
(600,880
)
 
(589,145
)
 
$
1,683,505

 
$
1,039,347

Cash and cash equivalents
26,384

 
36,047

Accounts and notes receivable, less allowance for doubtful accounts of $1,219 and $1,602 in 2016 and 2015
55,763

 
42,361

Deferred charges and other assets (1)
34,467

 
32,660

 
$
1,800,119

 
$
1,150,415

 
 
 
 
Liabilities and accumulated deficiency in assets:
 

 
 

Notes payable, net (1)(2)
$
2,309,146

 
$
1,994,298

Accounts payable and other liabilities
80,571

 
70,539

TRG's accumulated deficiency in assets
(349,998
)
 
(512,256
)
Unconsolidated Joint Venture Partners' accumulated deficiency in assets
(239,600
)
 
(402,166
)
 
$
1,800,119

 
$
1,150,415

 
 
 
 
TRG's accumulated deficiency in assets (above)
$
(349,998
)
 
$
(512,256
)
TRG's investment in properties under construction (Note 2)
305,254

 
296,847

TRG basis adjustments, including elimination of intercompany profit
119,876

 
132,218

TCO's additional basis
52,530

 
53,016

Net investment in Unconsolidated Joint Ventures
$
127,662

 
$
(30,175
)
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures
468,240

 
464,086

Investment in Unconsolidated Joint Ventures
$
595,902

 
$
433,911


(1)
The December 31, 2015 balance has been adjusted in connection with the Company's adoption of ASU No. 2015-03 "Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs" (Note 1).
(2)
As the balances presented exclude centers under construction, the Notes Payable, Net amounts exclude the construction financings outstanding for Starfield Hanam of $79.2 million ($27.2 million at TRG's share) and $52.9 million ($18.1 million at TRG's share) as of March 31, 2016 and December 31, 2015, respectively, and CityOn.Zhengzhou of $45.0 million ($14.3 million at TRG's share) and $44.7 million ($14.2 million at TRG's share) as of March 31, 2016 and December 31, 2015, respectively, and the related debt issuance costs.
 
Three Months Ended March 31
 
2016
 
2015
Revenues
$
96,763

 
$
91,914

Maintenance, taxes, utilities, promotion, and other operating expenses
$
28,322

 
$
26,995

Interest expense
21,596

 
21,229

Depreciation and amortization
15,299

 
12,752

Total operating costs
$
65,217

 
$
60,976

Nonoperating income, net
246

 
8

Net income
$
31,792

 
$
30,946

 
 
 
 
Net income attributable to TRG
$
17,459

 
$
17,053

Realized intercompany profit, net of depreciation on TRG’s basis adjustments
1,506

 
508

Depreciation of TCO's additional basis
(487
)
 
(486
)
Equity in income of Unconsolidated Joint Ventures
$
18,478

 
$
17,075

 
 
 
 
Beneficial interest in Unconsolidated Joint Ventures’ operations:
 

 
 

Revenues less maintenance, taxes, utilities, promotion, and other operating expenses
$
39,341

 
$
36,506

Interest expense
(11,528
)
 
(11,363
)
Depreciation and amortization
(9,335
)
 
(8,068
)
Equity in income of Unconsolidated Joint Ventures
$
18,478

 
$
17,075

Beneficial Interest in Debt and Interest Expense
Beneficial interest in Debt and Interest Expense
Beneficial Interest in Debt and Interest Expense

The Operating Partnership's beneficial interest in the debt, capitalized interest, and interest expense of its consolidated subsidiaries and its Unconsolidated Joint Ventures is summarized in the following table. The Operating Partnership's beneficial interest in the consolidated subsidiaries excludes debt and interest related to the noncontrolling interest in Cherry Creek Shopping Center (50%), International Market Place (6.5%), and The Mall of San Juan (20% prior to April 2015, and subsequently 5%).
 
At 100%
 
At Beneficial Interest
 
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
 
Debt as of:
 
 
 
 
 
 
 
 
March 31, 2016
$
2,843,155

 
$
2,429,149

 
$
2,680,035

 
$
1,282,299

 
December 31, 2015 (1)
2,627,088

 
2,087,552

 
2,468,451

 
1,116,395

 
 
 
 
 
 
 
 
 
 
Capitalized interest:
 

 
 

 
 

 
 

 
Three Months Ended March 31, 2016
$
6,502

(2) 
$
655

(3) 
$
6,486

 
$
655

(3) 
Three Months Ended March 31, 2015
8,672

(2) 
56

 
8,335

 
28

 
 
 
 
 
 
 
 
 
 
Interest expense:
 

 
 

 
 

 
 

 
Three Months Ended March 31, 2016
$
19,128

 
$
21,596

 
$
17,176

 
$
11,528

 
Three Months Ended March 31, 2015
13,525

 
21,229

 
11,871

 
11,363

 


(1)
The December 31, 2015 balances have been adjusted in connection with the Company's adoption of ASU No. 2015-03 "Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs" (Note 1).
(2)
The Company capitalizes interest costs incurred in funding its equity contributions to development projects accounted for as Unconsolidated Joint Ventures. The capitalized interest cost is included in the Company's basis in its investment in Unconsolidated Joint Ventures. Such capitalized interest reduces interest expense on the Company's Consolidated Statement of Operations and Comprehensive Income and in the table above is included within Consolidated Subsidiaries.
(3)
Capitalized interest on the Asia Unconsolidated Joint Venture construction financings is presented at the Company's beneficial interest in both the Unconsolidated Joint Ventures (at 100%) and Unconsolidated Joint Ventures (at Beneficial Interest) columns.

2016 Maturities

In April 2016, the Company extended the $65.0 million secured secondary revolving credit facility for one year upon maturity. All significant terms of the credit facility remain unchanged as a result of the extension.

In April 2016, the Company repaid the $81.5 million, 6.10% fixed rate loan on The Gardens on El Paseo, which was scheduled to mature in June 2016.

In the second quarter of 2016, the Company expects to complete a refinancing of the loan at Cherry Creek Shopping Center. The existing $280.0 million, 5.24% fixed rate loan is scheduled to mature in June 2016.

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, The Mall of San Juan, and International Market Place: 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 March 31, 2016, the corporate total leverage ratio was the most restrictive covenant. The Company was in compliance with all of its covenants and loan obligations as of March 31, 2016. 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 International Market Place, the Operating Partnership has provided an unconditional guarantee of 50% of the construction loan principal balance and all accrued but unpaid interest during the term of the loan. The Operating Partnership has also provided a guarantee as to the completion of construction of the center. The maximum amount of the construction facility is $330.9 million. The outstanding balance of the International Market Place construction financing facility as of March 31, 2016 was $140.4 million. Accrued but unpaid interest as of March 31, 2016 was $0.3 million. The principal guaranty may be reduced to 25% of the outstanding principal balance upon stabilization and achievement of certain performance measures. The principal guaranty may be released upon achievement of further restrictive performance measures. The Company believes the likelihood of a payment under the guarantees to be remote.

In connection with the financing of the construction facility at The Mall at University Town Center, which is owned by an Unconsolidated Joint Venture, the Operating Partnership provided an unconditional guarantee of 25% of the construction loan principal balance and 50% of all accrued but unpaid interest during the term of the loan. The maximum amount of the construction facility is $225 million. The outstanding balance of The Mall at University Town Center construction financing facility as of March 31, 2016 was $221.5 million. Accrued but unpaid interest as of March 31, 2016 was $0.4 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 guarantees 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 maximum amount of the construction facility is $320 million. The outstanding balance of The Mall of San Juan construction financing facility as of March 31, 2016 was $284.7 million. Accrued but unpaid interest as of March 31, 2016 was $0.3 million. The Company believes the likelihood of a payment under the guarantees to be remote.

In connection with the $175 million additional 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 March 31, 2016, the interest rate swap was in a liability position of $6.2 million and had unpaid interest of $0.2 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 and other various agreements. As of March 31, 2016 and December 31, 2015, the Company’s cash balances restricted for these uses were $3.5 million and $6.4 million, respectively.
Equity Transactions
Stockholders' Equity Note Disclosure [Text Block]
Equity Transactions

In August 2013, the Company’s Board of Directors authorized a share repurchase program under which the Company may repurchase up to $200 million of its outstanding common stock. In March 2015, the Company's Board of Directors increased the authorization by $250 million, bringing the total authorization to $450 million. The Company may repurchase shares from time to time on the open market or in privately negotiated transactions or otherwise, depending on market prices and other conditions. No shares were repurchased in the first quarter of 2016. As of March 31, 2016, the Company cumulatively repurchased 4,247,867 shares of its common stock at an average price of $71.79 per share, for a total of $304.9 million under the authorization. As of March 31, 2016, $145.1 million remained available under the repurchase program. All shares repurchased have been cancelled. For each share of the Company’s stock repurchased, one of the Company’s Operating Partnership units was redeemed. Repurchases of common stock were financed through general corporate funds, including borrowings under existing revolving lines of credit.
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. As of March 31, 2016, this interest entitled the Asia President 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 his percentage 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 has 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 accrues 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 addition, 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. The Company presents as temporary equity at each balance sheet date an estimate of the redemption value of the ownership interest, taking into account the proportion of the Asia President's services rendered before he is fully vested. As of March 31, 2016, the carrying amount of this redeemable equity was $13.0 million. Any adjustments to the redemption value are recorded through equity. In April 2016, the Company reacquired for $7.2 million half of the Asia President’s ownership interest in Taubman Asia. The Asia President’s remaining 5% interest is puttable beginning in 2019 at the earliest, upon reaching certain specified milestones, and was classified as Redeemable Noncontrolling Interest on the Consolidated Balance Sheet.

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 both March 31, 2016 and December 31, 2015. Any adjustments to the redemption value are recorded through equity.

Equity Balances of Nonredeemable Noncontrolling Interests

The net equity balance of the nonredeemable noncontrolling interests as of March 31, 2016 and December 31, 2015 included the following:
 
2016
 
2015
Non-redeemable noncontrolling interests:
 
 
 
Noncontrolling interests in consolidated joint ventures
$
(21,719
)
 
$
(23,569
)
Noncontrolling interests in partnership equity of TRG
23,044

 
31,573

 
$
1,325

 
$
8,004



Income Allocable to Noncontrolling Interests

Net income attributable to the noncontrolling interests for the three months ended March 31, 2016 and March 31, 2015 included the following:
 
2016
 
2015
Net income attributable to non-redeemable noncontrolling interests:
 
 
 
Noncontrolling share of income of consolidated joint ventures
$
2,521

 
$
2,591

Noncontrolling share of income of TRG
10,899

 
12,511

 
$
13,420

 
$
15,102



Equity Transactions

The following table presents the effects of changes in Taubman Centers, Inc.’s ownership interest in consolidated subsidiaries on Taubman Centers, Inc.’s equity for the three months ended March 31, 2016 and March 31, 2015:
 
2016
 
2015
Net income attributable to Taubman Centers, Inc. common shareowners
$
24,613

 
$
29,622

Transfers from the noncontrolling interest:
 

 
 

Increase in Taubman Centers, Inc.’s paid-in capital for adjustments of noncontrolling interest (1)
3,865

 
23,324

Net transfers from noncontrolling interests
3,865

 
23,324

Change from net income attributable to Taubman Centers, Inc. and transfers from noncontrolling interests
$
28,478

 
$
52,946


(1)
In 2016 and 2015, 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 9) and issuances of stock pursuant to the Continuing Offer (Note 10). In 2016, adjustments of the noncontrolling interest were also made in connection with the accounting for the Asia President's redeemable ownership interests. In 2015, adjustments of the noncontrolling interest were also made as a result of share repurchases (Note 6).

Finite Life Entities

Accounting Standards Codification Topic 480, “Distinguishing Liabilities from Equity” establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. At March 31, 2016, 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 $530 million at March 31, 2016, compared to a book value of $(21.7) million that is classified in Noncontrolling Interests on 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 March 31, 2016, the Company had the following outstanding derivatives that were designated and are expected to be effective as cash flow hedges of the interest payments and/or the currency exchange rate on the associated debt.
Instrument Type

Ownership

Notional Amount

Swap Rate

Credit Spread on Loan

Total Swapped Rate on Loan

Maturity Date
Consolidated Subsidiaries:

 

 
 
 
 
 
 
 
 
 
Receive variable (LIBOR) /pay-fixed swap (1)

100
%

$
200,000

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

100
%

175,000

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

100
%

100,000

 
1.64
%
 
1.35
%
(1) 
2.99
%
(1) 
February 2019
Receive variable (LIBOR) /pay-fixed swap (2)
 
100
%
 
12,000

 
2.09
%
 
1.40
%
 
3.49
%
 
March 2024
Unconsolidated Joint Ventures:

 


 

 
 

 
 

 
 

 
 
Receive variable (LIBOR) /pay-fixed swap (3)

50
%

134,172

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

50
%

134,172

 
2.40
%
 
1.70
%
 
4.10
%
 
April 2018
Receive variable (LIBOR) /pay-fixed swap (4)
 
50.1
%
 
171,392

 
1.83
%
 
1.75
%
 
3.58
%
 
December 2021
Receive variable (LIBOR) USD/pay-fixed Korean Won (KRW) cross-currency interest rate swap (5)
 
34.3
%
 
52,065 USD / 60,500,000 KRW

 
1.52
%
 
1.60
%
 
3.12
%
 
September 2020

(1)
The hedged forecasted transaction for each of these swaps is the first previously unhedged one-month LIBOR-indexed interest payments accrued and made each month on a debt principal amount equal to the swap notional amount, regardless of the specific debt agreement from which they may flow. The Company is currently using these swaps to manage interest rate risk on the $475 million unsecured term loan. The credit spread on this loan can also vary within a range of 1.35% to 1.90%, depending on the Company's leverage ratio at the measurement date.
(2)
The notional amount on this swap is equal to the outstanding principal balance of the floating rate loan on the U.S. headquarters building.
(3)
The notional amount on each of these swaps is equal to 50% of the outstanding principal balance of the loan on Fair Oaks.
(4)
The notional amount on this swap is equal to the outstanding principal balance of the floating rate loan on International Plaza.
(5)
The notional amount on this swap is equal to the outstanding principal balance of the U.S. dollar construction loan for Starfield Hanam. There is a cross-currency interest rate swap to fix the interest rate on the loan and swap the related principal and interest payments from U.S. dollars to KRW in order to reduce the impact of fluctuations in interest rates and exchange rates on the cash flows of the joint venture. The currency swap exchange rate is 1,162.0.

Cash Flow Hedges

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the unrealized gain or loss on the derivative is reported as a component of Other Comprehensive Income (OCI). The ineffective portion of the change in fair value, if any, is recognized directly in earnings. Net realized gains or losses resulting from derivatives that were settled in conjunction with planned fixed-rate financings or refinancings continue to be included in Accumulated Other Comprehensive Income (AOCI) during the term of the hedged debt transaction.

Amounts reported in AOCI related to currently outstanding interest rate derivatives are recognized as an adjustment to income as interest payments are made on the Company’s variable-rate debt. Realized gains or losses on settled derivative instruments included in AOCI are recognized as an adjustment to income over the term of the hedged debt transaction. Amounts reported in AOCI related to the cross-currency interest rate swap are recognized as an adjustment to income as transaction gains or losses arising from the remeasurement of foreign currency denominated loans are recognized and as actual interest and principal obligations are repaid.

The Company expects that approximately $8.7 million of the AOCI of Taubman Centers, Inc. and the noncontrolling interests will be reclassified from AOCI and recognized as a reduction of income in the following 12 months.

The following table presents the effect of derivative instruments on the Company’s Consolidated Statement of Operations and Comprehensive Income for the three months ended March 31, 2016 and March 31, 2015. The table includes the amount of gains or losses on outstanding derivative instruments recognized in OCI in cash flow hedging relationships and the location and amount of gains or losses reclassified from AOCI into income resulting from outstanding derivative instruments and settled derivative instruments associated with hedged debt.

During the three months ended March 31, 2016 and March 31, 2015, the Company recognized $0.4 million and $0.2 million, respectively, of hedge ineffectiveness related to the swaps used to hedge the unsecured term loan. The hedge ineffectiveness for both periods was recorded in Nonoperating Income, Net on the Consolidated Statement of Operations and Comprehensive Income.
 
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
 
Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Three Months Ended March 31
 
 
 
Three Months Ended March 31
 
2016
 
2015
 
 
 
2016
 
2015
Derivatives in cash flow hedging relationships:
 
 
 
 

 
 
 
 
Interest rate contracts – consolidated subsidiaries
$
(5,742
)
 
$
(4,538
)
 
Interest Expense
 
$
(1,517
)
 
$
(1,770
)
Interest rate contracts – UJVs
(2,791
)
 
(1,959
)
 
Equity in Income of UJVs
 
(974
)
 
(1,123
)
Cross-currency interest rate swap – UJV
(290
)
 
 
 
Equity in Income of UJVs
 
(546
)
 
 
Total derivatives in cash flow hedging relationships
$
(8,823
)
 
$
(6,497
)
 
 
 
$
(3,037
)
 
$
(2,893
)





The Company records all derivative instruments at fair value on the Consolidated Balance Sheet. The following table presents the location and fair value of the Company’s derivative financial instruments as reported on the Consolidated Balance Sheet as of March 31, 2016 and December 31, 2015.
 
 
 
Fair Value
 
Consolidated Balance Sheet Location
 
March 31
2016
 
December 31
2015
Derivatives designated as hedging instruments:
 
 
 
 
 
Liability derivatives:
 
 
 

 
 
Interest rate contracts – consolidated subsidiaries
Accounts Payable and Accrued Liabilities
 
$
(12,263
)
 
$
(6,077
)
Interest rate contracts – UJVs
Investment in UJVs
 
(7,765
)
 
(4,974
)
Cross-currency interest rate swap – UJV
Investment in UJVs
 
(805
)
 
(11
)
Total liabilities designated as hedging instruments
 
 
$
(20,833
)
 
$
(11,062
)


Contingent Features

All of the Company's outstanding derivatives contain provisions that state if the hedged entity defaults on its indebtedness above a certain threshold, then the derivative obligation could also be declared in default. The cross default thresholds vary for each agreement, ranging from $0.1 million of any indebtedness to $50 million of recourse indebtedness on the Company or the Operating Partnership's indebtedness. As of March 31, 2016, the Company is not in default on any indebtedness that would trigger a credit-risk-related default on its current outstanding derivatives.
As of March 31, 2016 and December 31, 2015, the fair value of derivative instruments with credit-risk-related contingent features that were in a liability position was $20.8 million and $11.1 million, respectively. As of March 31, 2016 and December 31, 2015, the Company was not required to post any collateral related to these agreements. If the Company breached any of these provisions it would be required to settle its obligations under the agreements at their fair value. See Note 5 regarding guarantees and Note 12 for fair value information on derivatives.
Share-Based Compensation
Share-Based Compensation
Share-Based Compensation

The Taubman Company 2008 Omnibus Long-Term Incentive Plan (2008 Omnibus Plan), as amended, which is shareowner approved, provides for the award to directors, officers, employees, and other service providers of the Company of restricted shares, restricted units of limited partnership in the Operating Partnership, options to purchase shares or Operating Partnership units, unrestricted shares or Operating Partnership units, and other awards to acquire up to an aggregate of 8.5 million Company common shares or Operating Partnership units. In addition, non-employee directors have the option to defer their compensation under a deferred compensation plan.

Non-option awards granted after an amendment of the 2008 Omnibus Plan in 2010 are deducted at a ratio of 1.85 Company common shares or Operating Partnership units, while non-option awards granted prior to the amendment are deducted at a ratio of 2.85. Options are deducted on a one-for-one basis. The amount available for future grants is adjusted when the number of contingently issuable shares or units are settled, for grants that are forfeited, and for options that expire without being exercised.

Prior to the adoption of the 2008 Omnibus Plan, the Company provided share-based compensation through an incentive option plan and non-employee directors' stock grant and deferred compensation plans.

Historically the Company has granted Performance Share Units (PSU) and Restricted Share Units (RSU) to executives and other non-executive employees on an annual basis during first quarter of the fiscal year. However, due to an expected modification of their equity award structure, the 2016 PSU and RSU awards due to the Company's executives will not be granted until the second quarter of 2016. The equity awards for non-executive employees were granted in March 2016.

The compensation cost charged to income for the Company’s share-based compensation plans was $3.4 million and $4.1 million for the three months ended March 31, 2016 and 2015, respectively. Compensation cost capitalized as part of properties and deferred leasing costs was $0.8 million for both the three months ended March 31, 2016 and 2015.

The Company has estimated the grant-date fair values of options, PSU, and RSU using the methods discussed in the separate sections below for each type of grant. Expected volatility and dividend yields are based on historical volatility and yields of the Company’s common stock, respectively, as well as other factors. The risk-free interest rates used are based on the U.S. Treasury yield curves in effect at the times of grants. The Company assumes no forfeitures of options or performance share units due to the small number of participants and low turnover rate.

Options

A summary of option activity for the three months ended March 31, 2016 is presented below:
 
Number of Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (in years)
 
Range of Exercise Prices
Outstanding at January 1, 2016
292,543

 
$
46.60

 
1.4
 
$
35.50

-
$
51.15

Exercised
(46,811
)
 
35.63

 
 
 
 
 
 
Outstanding at March 31, 2016
245,732

 
$
48.69

 
1.4
 
$
45.90

-
$
51.15

 
 
 
 
 
 
 
 
 
 
Fully vested options at March 31, 2016
245,732

 
$
48.69

 
1.4
 
 

 
 


No options were granted during the three months ended March 31, 2016.

As of March 31, 2016, all options outstanding were fully vested, and there was no unrecognized compensation cost related to options.

The aggregate intrinsic value (the difference between the period end stock price and the option exercise price) of in-the-money options outstanding was $5.5 million as of March 31, 2016.

The total intrinsic value of options exercised during the three months ended March 31, 2016 was $1.5 million. No options were exercised in the three months ended March 31, 2015. Cash received from option exercises for the three months ended March 31, 2016 was $1.7 million.

Under both the prior option plan and the 2008 Omnibus Plan, vested unit options can be exercised by tendering mature units with a market value equal to the exercise price of the unit options. In 2002, Robert S. Taubman, the Company’s chief executive officer, exercised options for 3.0 million units by tendering 2.1 million mature units and deferring receipt of 0.9 million units under the unit option deferral election. As the Operating Partnership pays distributions, the deferred option units receive their proportionate share of the distributions in the form of cash payments. Under an amendment executed in January 2011, beginning in December 2017 (unless Mr. Taubman retires earlier), the deferred partnership units will be issued in ten annual installments. The deferred units are accounted for as participating securities of the Operating Partnership.

Performance Share Units

A summary of PSU activity for the three months ended March 31, 2016 is presented below:
 
Number of Performance Share Units
 
Weighted Average Grant Date Fair Value
Outstanding at January 1, 2016
255,478

 
$
134.52

Vested
(44,866
)
(1) 
96.61

Forfeited
(33,529
)
 
142.69

Outstanding at March 31, 2016
177,083

 
$
142.59



(1)
Based on the Company's market performance relative to that of a peer group, the actual number of shares of common stock issued upon vesting during the three months ended March 31, 2016 was zero.

The Company's annual grant of PSU is anticipated to be made in the second quarter of 2016.

None of the PSU outstanding at March 31, 2016 were vested. As of March 31, 2016, there was $6.8 million of total unrecognized compensation cost related to nonvested PSU outstanding. This cost is expected to be recognized over an average period of 1.3 years.

Restricted Share Units

In March 2016, RSU were issued under the 2008 Omnibus Plan and represent the right to receive upon vesting one share of the Company's common stock, plus a cash payment equal to the aggregate cash dividends that would have been paid on such shares of common stock from the date of grant of the award to the vesting date. The units vest in March 2019, if continuous service has been provided, or upon retirement or certain other events (such as death or disability) if earlier. The Company estimated the value of these RSU using the Company’s common stock price at the grant date. The Company’s valuation was a grant-date fair value of $73.95 per RSU.

A summary of RSU activity for the three months ended March 31, 2016 is presented below:
 
Number of Restricted Share Units
 
Weighted Average Grant Date Fair Value
Outstanding at January 1, 2016
283,353

 
$
69.93

Vested
(88,469
)
 
71.58

Granted
49,458

 
73.95

Forfeited
(16,282
)
 
69.13

Outstanding at March 31, 2016
228,060

 
$
70.22



None of the RSU outstanding at March 31, 2016 were vested. As of March 31, 2016, there was $8.3 million of total unrecognized compensation cost related to nonvested RSU outstanding. This cost is expected to be recognized over an average period of 2.1 years.
Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies

Cash Tender

At the time of the Company's initial public offering and acquisition of its partnership interest in the Operating Partnership in 1992, the Company entered into an agreement (as later amended and restated, the Cash Tender Agreement) with A. Alfred Taubman, as trustee of the A. Alfred Taubman Restated Revocable Trust (the Revocable Trust) and TRA Partners (now Taubman Ventures Group LLC or TVG), each of whom owned an interest in the Operating Partnership, whereby each of the revocable trust and TVG has the right to tender to the Company partnership units in the Operating Partnership (provided that the aggregate value is at least $50 million) and cause the Company to purchase the tendered interests at a purchase price based on a market valuation of the Company on the trading date immediately preceding the date of the tender. TVG is controlled by a majority-in-interest among the Revocable Trust and entities affiliated with the children of A. Alfred Taubman (Robert S. Taubman, William S. Taubman, and Gayle Taubman Kalisman). At the election of the person making a tender, partnership units in the Operating Partnership held by members of A. Alfred Taubman’s family and partnership units held by entities in which his family members hold interests may be included in such a tender. Upon the death of A. Alfred Taubman in April 2015, the successor trustees of the trust (Robert S. Taubman, William S. Taubman and Gayle Taubman Kalisman) act on behalf of the trust.

The Company will have the option to pay for these interests from available cash, borrowed funds, or from the proceeds of an offering of the Company's common stock. Generally, the Company expects to finance these purchases through the sale of new shares of its stock. The tendering partner will bear all market risk if the market price at closing is less than the purchase price and will bear the costs of sale. Any proceeds of the offering in excess of the purchase price will be for the sole benefit of the Company. The Company accounts for the Cash Tender Agreement as a freestanding written put option. As the option put price is defined by the current market price of the Company's stock at the time of tender, the fair value of the written option defined by the Cash Tender Agreement is considered to be zero.

Based on a market value at March 31, 2016 of $71.23 per share for the Company's common stock, the aggregate value of interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was $1.7 billion. The purchase of these interests at March 31, 2016 would have resulted in the Company owning an additional 28% interest in the Operating Partnership.

Continuing Offer

The Company has made a continuing, irrevocable offer to all present holders (other than certain excluded holders, currently TVG and the Revocable Trust), permitted assignees of all present holders, those future holders of partnership interests in the Operating Partnership as the Company may, in its sole discretion, agree to include in the continuing offer, all existing optionees under the previous option plan, and all existing and future optionees under the 2008 Omnibus Plan to exchange shares of common stock for partnership interests in the Operating Partnership (the Continuing Offer). Under the Continuing Offer agreement, one unit of the Operating Partnership interest is exchangeable for one share of the Company's common stock. Upon a tender of Operating Partnership units, the corresponding shares of Series B Preferred Stock, if any, will automatically be converted into the Company’s common stock at a ratio of 14,000 shares of Series B Preferred Stock for one share of common stock.

Insurance

The Company carries liability insurance to mitigate its exposure to certain losses, including those relating to personal injury claims. We believe the Company's insurance policy terms and conditions and limits are appropriate and adequate given the relative risk of loss and industry practice. However, there are certain types of losses, such as punitive damage awards, that may not be covered by insurance, and not all potential losses are insured against.

Other

See Note 5 for the Operating Partnership's guarantees of certain notes payable, including guarantees relating to Unconsolidated Joint Ventures, Note 7 for contingent features relating to certain joint venture agreements, Note 8 for contingent features relating to derivative instruments, and Note 9 for obligations under existing share-based compensation plans.
Earnings Per Share
Earnings Per Share
Earnings Per Share

Basic earnings per share amounts are based on the weighted average of common shares outstanding for the respective periods. Diluted earnings per share amounts are based on the weighted average of common shares outstanding plus the dilutive effect of potential common stock. Potential common stock includes outstanding partnership units exchangeable for common shares under the Continuing Offer (Note 10), outstanding options for partnership units, PSU, RSU, deferred shares under the Non-Employee Directors’ Deferred Compensation Plan, and unissued partnership units under a unit option deferral election (Note 9). In computing the potentially dilutive effect of potential common stock, partnership units are assumed to be exchanged for common shares under the Continuing Offer, increasing the weighted average number of shares outstanding. The potentially dilutive effects of partnership units outstanding and/or issuable under the unit option deferral elections are calculated using the if-converted method, while the effects of other potential common stock are calculated using the treasury method. Contingently issuable shares are included in diluted EPS based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period. 
 
Three Months Ended March 31
 
2016
 
2015
Net income attributable to Taubman Centers, Inc. common shareowners (Numerator):
 
 
 
Basic
$
24,613

 
$
29,622

Impact of additional ownership of TRG
66

 
125

Diluted
$
24,679

 
$
29,747

 
 
 
 
Shares (Denominator) – basic
60,275,004

 
63,039,777

Effect of dilutive securities
515,997

 
895,503

Shares (Denominator) – diluted
60,791,001

 
63,935,280

 
 
 
 
Earnings per common share – basic
$
0.41

 
$
0.47

Earnings per common share – diluted
$
0.41

 
$
0.47



The calculation of diluted earnings per share in certain periods excluded certain potential common stock including outstanding partnership units and unissued partnership units under a unit option deferral election, both of which may be exchanged for common shares of the Company under the Continuing Offer. The table below presents the potential common stock excluded from the calculation of diluted earnings per share as they were anti-dilutive in the period presented.

 
Three Months Ended March 31
 
2016
 
2015
Weighted average noncontrolling partnership units outstanding
4,003,975

 
4,149,149

Unissued partnership units under unit option deferral elections
871,262

 
871,262

Fair Value Disclosures
Fair Value Disclosures
Fair Value Disclosures

This note contains required fair value disclosures for assets and liabilities remeasured at fair value on a recurring basis and financial instruments carried at other than fair value, as well as assumptions employed in deriving these fair values.

Recurring Valuations

Derivative Instruments

The fair value of interest rate hedging instruments is the amount that the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the reporting date. The Company’s valuations of its derivative instruments are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative, and therefore fall into Level 2 of the fair value hierarchy. The valuations reflect the contractual terms of the derivatives, including the period to maturity, and use observable market-based inputs, including forward curves. The fair values of interest rate hedging instruments also incorporate credit valuation adjustments to appropriately reflect both the Company’s own nonperformance risk and the respective counterparty's nonperformance risk.

Other

The Company's valuation of an insurance deposit utilizes unadjusted quoted prices determined by active markets for the specific securities the Company has invested in, and therefore falls into Level 1 of the fair value hierarchy.

For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each major category of assets and liabilities is presented below:
 
 
Fair Value Measurements as of March 31, 2016 Using
 
Fair Value Measurements as of
December 31, 2015 Using
Description
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
Insurance deposit
 
$
14,347

 
 

 
$
14,346

 
 

Total assets
 
$
14,347


$

 
$
14,346

 
$

 
 
 
 
 
 
 
 
 
Derivative interest rate contracts (Note 8)
 
 

 
$
(12,263
)
 
 

 
$
(6,077
)
Total liabilities
 
 

 
$
(12,263
)
 
 

 
$
(6,077
)


The insurance deposit shown above represents an escrow account maintained in connection with a property and casualty insurance arrangement for the Company’s shopping centers, and is classified within Deferred Charges and Other Assets on the Consolidated Balance Sheet. Corresponding deferred revenue relating to amounts billed to tenants for this arrangement has been classified within Accounts Payable and Accrued Liabilities on the Consolidated Balance Sheet.

Financial Instruments Carried at Other Than Fair Values

Simon Property Group Limited Partnership Units

At both March 31, 2016 and December 31, 2015, the Company owned 590,124 partnership units in Simon Property Group Limited Partnership. The fair value of the partnership units, which is derived from Simon Property Group's common stock price and therefore falls into Level 2 of the fair value hierarchy, was $122.6 million at March 31, 2016 and $114.7 million at December 31, 2015. The partnership units were classified as Deferred Charges and Other Assets on the Consolidated Balance Sheet and had a book value of $77.7 million at both March 31, 2016 and December 31, 2015.

Notes Payable

The fair value of notes payable is estimated using cash flows discounted at current market rates and therefore falls into Level 2 of the fair value hierarchy. When selecting discount rates for purposes of estimating the fair value of notes payable at March 31, 2016 and December 31, 2015, the Company employed the credit spreads at which the debt was originally issued. For debt refinanced prior to 2010, excluding debt assumed from acquisitions, an additional 1.00% credit spread was added to the discount rate at both March 31, 2016 and December 31, 2015 to attempt to account for current market conditions. This additional spread is an estimate and is not necessarily indicative of what the Company could obtain in the market at the reporting date. The Company does not believe that the use of different interest rate assumptions would have resulted in a materially different fair value of notes payable as of March 31, 2016 or December 31, 2015. To further assist financial statement users, the Company has included with its fair value disclosures an analysis of interest rate sensitivity.

The estimated fair values of notes payable at March 31, 2016 and December 31, 2015 were as follows:
 
2016
 
2015
 
Carrying Value
 
Fair Value
 
Carrying Value (1)
 
Fair Value
Notes payable, net
$
2,843,155

 
$
2,878,870

 
$
2,627,088

 
$
2,609,582



(1)
The December 31, 2015 balance has been adjusted in connection with the Company's adoption of ASU No. 2015-03 "Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs" (Note 1).

The fair values of the notes payable are dependent on the interest rates used in estimating the values. An overall 1% increase in rates employed in making these estimates would have decreased the fair values of the debt shown above at March 31, 2016 by $108.4 million or 3.8%.

Cash Equivalents and Notes Receivable

The fair value of cash equivalents and notes receivable approximates their carrying value due to their short maturity. The fair value of cash equivalents is derived from quoted market prices and therefore falls into Level 1 of the fair value hierarchy. The fair value of notes receivable is estimated using cash flows discounted at current market rates and therefore falls into Level 2 of the fair value hierarchy.

See Note 8 regarding additional information on derivatives.
Accumulated Other Comprehensive Income
Comprehensive Income (Loss) Note [Text Block]
Accumulated Other Comprehensive Income

Changes in the balance of each component of AOCI for the three months ended March 31, 2016 were as follows:
 
Taubman Centers, Inc. AOCI
 
Noncontrolling Interests AOCI
 
Cumulative translation adjustment
 
Unrealized gains (losses) on interest rate instruments and other
 
Total
 
Cumulative translation adjustment
 
Unrealized gains (losses) on interest rate instruments and other
 
Total
January 1, 2016
$
(10,890
)
 
$
(16,330
)
 
$
(27,220
)
 
$
(4,531
)
 
$
5,595

 
$
1,064

Other comprehensive income (loss) before reclassifications
4,198

 
(8,380
)
 
(4,182
)
 
1,744

 
(3,480
)
 
(1,736
)
Amounts reclassified from AOCI
 
 
2,146

 
2,146

 
 
 
891

 
891

Net current period other comprehensive income (loss)
$
4,198

 
$
(6,234
)
 
$
(2,036
)
 
$
1,744

 
$
(2,589
)
 
$
(845
)
Adjustments due to changes in ownership
(6
)
 
7

 
1

 
6

 
(7
)
 
(1
)
March 31, 2016
$
(6,698
)
 
$
(22,557
)
 
$
(29,255
)
 
$
(2,781
)
 
$
2,999

 
$
218



Changes in the balance of each component of AOCI for the three months ended March 31, 2015 were as follows:

 
Taubman Centers, Inc. AOCI
 
Noncontrolling Interests AOCI
 
Cumulative translation adjustment
 
Unrealized gains (losses) on interest rate instruments and other
 
Total
 
Cumulative translation adjustment
 
Unrealized gains (losses) on interest rate instruments and other
 
Total
January 1, 2015
$
(101
)
 
$
(14,967
)
 
$
(15,068
)
 
$
(41
)
 
$
5,879

 
$
5,838

Other comprehensive income (loss) before reclassifications
(1,367
)
 
(6,698
)
 
(8,065
)
 
(550
)
 
(2,691
)
 
(3,241
)
Amounts reclassified from AOCI

 
2,064

 
2,064

 


 
829

 
829

Net current period other comprehensive income (loss)
$
(1,367
)
 
$
(4,634
)
 
$
(6,001
)
 
$
(550
)
 
$
(1,862
)
 
$
(2,412
)
Adjustments due to changes in ownership

 
(55
)
 
(55
)
 


 
55

 
55

March 31, 2015
$
(1,468
)
 
$
(19,656
)
 
$
(21,124
)
 
$
(591
)
 
$
4,072

 
$
3,481



The following table presents reclassifications out of AOCI for the three months ended March 31, 2016:
Details about AOCI Components
 
Amounts reclassified from AOCI
 
Affected line item in Consolidated Statement of Operations
Losses on interest rate instruments and other:
 
 
 
 
Realized loss on interest rate contracts - consolidated subsidiaries
 
$
1,517

 
Interest Expense
Realized loss on interest rate contracts - UJVs
 
974

 
Equity in Income of UJVs
Realized loss on cross-currency interest rate contract - UJV
 
546

 
Equity in Income of UJVs
Total reclassifications for the period
 
$
3,037

 
 


The following table presents reclassifications out of AOCI for the three months ended March 31, 2015:
Details about AOCI Components
 
Amounts reclassified from AOCI
 
Affected line item in Consolidated Statement of Operations
Losses on interest rate instruments and other:
 
 
 
 
Realized loss on interest rate contracts - consolidated subsidiaries
 
$
1,770

 
Interest Expense
Realized loss on interest rate contracts - UJVs
 
1,123

 
Equity in Income of UJVs
Total reclassifications for the period
 
$
2,893

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

Interest paid for the three months ended March 31, 2016 and 2015, net of amounts capitalized of $6.5 million and $8.7 million, respectively, was $17.3 million and $12.8 million, respectively. Income taxes paid for the three months ended March 31, 2016 and 2015 were $0.5 million and $0.2 million, respectively. Other non-cash additions to properties, which primarily represent accrued construction and tenant allowance costs, were $87.0 million and $44.6 million for the three months ended March 31, 2016 and 2015, respectively.
New Accounting Pronouncements
New Accounting Pronouncements, Policy [Policy Text Block]
New Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, "Leases", which provides for significant changes to the current lease accounting standard. The primary objectives of this ASU is to address off-balance-sheet financing related to operating leases and to introduce a new lessee model that brings substantially all leases onto the balance sheet. ASU No. 2016-02 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2018. The Company is currently evaluating the application of this ASU and its effect on the Company’s financial position and results of operations.

In January 2016, the FASB issued ASU No. 2016-01,”Recognition and Measurement of Financial Assets and Financial Liabilities,” which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Amongst its changes, this ASU requires an entity to measure equity investments at fair value through net income, except for those that result in consolidation or are accounted for under the equity method of accounting. ASU No. 2016-01 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2017. The Company is currently evaluating the application of this ASU and its effect on the Company’s financial position and results of operations.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This standard provides a single comprehensive model to use in accounting for revenue arising from contracts with customers and gains and losses arising from transfers of non-financial assets including sales of property, plant, and equipment, real estate, and intangible assets. ASU No. 2014-09 supersedes most current revenue recognition guidance, including industry-specific guidance. In August 2015, the Financial Accounting Standards Board issued ASU No. 2015-14, which deferred the effective date of ASU No. 2014-09 one year to annual reporting periods beginning after December 15, 2017 for public entities. ASU No. 2015-14 permits public entities to adopt ASU No. 2014-09 early, but not before the original effective date of annual periods beginning after December 15, 2016. ASU No. 2014-09 may be applied either retrospectively or as a cumulative effect adjustment as of the date of adoption. The Company is currently evaluating the application of this ASU and its effect on the Company's financial position and results of operations.
Income Taxes (Tables)
The Company’s income tax expense (benefit) for the three months ended March 31, 2016 and 2015 consisted of the following:

 
Three Months Ended March 31
 
2016
 
2015
Federal current
$
1,115

 
$
496

Federal deferred
(761
)
 
(85
)
Foreign current
134

 
274

Foreign deferred
(210
)
 
29

State current
127

 
120

State deferred
(103
)
 
4

Total income tax expense
$
302

 
$
838



Deferred tax assets and liabilities as of March 31, 2016 and December 31, 2015 were as follows:
 
2016
 
2015
Deferred tax assets:
 
 
 
Federal
$
1,586

 
$
1,427

Foreign
1,764

 
1,676

State
972

 
944

Total deferred tax assets
$
4,322

 
$
4,047

Valuation allowances
(1,776
)
 
(1,913
)
Net deferred tax assets
$
2,546

 
$
2,134

Deferred tax liabilities:
 
 
 

Federal


 
$
602

Foreign
$
504

 
501

State
1

 
70

Total deferred tax liabilities
$
505

 
$
1,173

Investments in Unconsolidated Joint Ventures (Tables)
The Company owns beneficial interests in joint ventures that own shopping centers. The Operating Partnership is the sole direct or indirect managing general partner or managing member of Fair Oaks, International Plaza, Stamford Town Center, Sunvalley, The Mall at University Town Center, and Westfarms. The Operating Partnership also provides certain management, leasing, and/or development services to the other shopping centers noted below.
Shopping Center
 
Ownership as of
March 31, 2016 and
December 31, 2015
CityOn.Xi'an (under construction) (1)
 
Note 2
CityOn.Zhengzhou (under construction)
 
Note 2
Country Club Plaza (2)
 
50/0%
Fair Oaks
 
50
International Plaza
 
50.1
The Mall at Millenia
 
50
Stamford Town Center
 
50
Starfield Hanam (under construction)
 
Note 2
Sunvalley
 
50
The Mall at University Town Center
 
50
Waterside Shops
 
50
Westfarms
 
79


(1)
CityOn.Xi'an opened in April 2016. Also in April 2016, the joint venture effectively acquired the 40% noncontrolling interest in the project. As a result of the acquisition, the Company’s effective ownership is 50%, an increase from the Company’s previous 30% share (Note 2).
(2)
In March 2016, the Company acquired a 50% ownership interest in Country Club Plaza (Note 2).
Combined Financial Information

Combined balance sheet and results of operations information is presented in the following table for the Unconsolidated Joint Ventures, followed by the Operating Partnership's beneficial interest in the combined operations information. The combined information of the Unconsolidated Joint Ventures as of March 31, 2016 and December 31, 2015 excluded the balances of CityOn.Xi'an, CityOn.Zhengzhou, and Starfield Hanam which were under construction as of March 31, 2016 and December 31, 2015 (Note 2). Beneficial interest is calculated based on the Operating Partnership's ownership interest in each of the Unconsolidated Joint Ventures.

 
March 31
2016
 
December 31
2015
Assets:
 
 
 
Properties
$
2,284,385

 
$
1,628,492

Accumulated depreciation and amortization
(600,880
)
 
(589,145
)
 
$
1,683,505

 
$
1,039,347

Cash and cash equivalents
26,384

 
36,047

Accounts and notes receivable, less allowance for doubtful accounts of $1,219 and $1,602 in 2016 and 2015
55,763

 
42,361

Deferred charges and other assets (1)
34,467

 
32,660

 
$
1,800,119

 
$
1,150,415

 
 
 
 
Liabilities and accumulated deficiency in assets:
 

 
 

Notes payable, net (1)(2)
$
2,309,146

 
$
1,994,298

Accounts payable and other liabilities
80,571

 
70,539

TRG's accumulated deficiency in assets
(349,998
)
 
(512,256
)
Unconsolidated Joint Venture Partners' accumulated deficiency in assets
(239,600
)
 
(402,166
)
 
$
1,800,119

 
$
1,150,415

 
 
 
 
TRG's accumulated deficiency in assets (above)
$
(349,998
)
 
$
(512,256
)
TRG's investment in properties under construction (Note 2)
305,254

 
296,847

TRG basis adjustments, including elimination of intercompany profit
119,876

 
132,218

TCO's additional basis
52,530

 
53,016

Net investment in Unconsolidated Joint Ventures
$
127,662

 
$
(30,175
)
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures
468,240

 
464,086

Investment in Unconsolidated Joint Ventures
$
595,902

 
$
433,911


(1)
The December 31, 2015 balance has been adjusted in connection with the Company's adoption of ASU No. 2015-03 "Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs" (Note 1).
(2)
As the balances presented exclude centers under construction, the Notes Payable, Net amounts exclude the construction financings outstanding for Starfield Hanam of $79.2 million ($27.2 million at TRG's share) and $52.9 million ($18.1 million at TRG's share) as of March 31, 2016 and December 31, 2015, respectively, and CityOn.Zhengzhou of $45.0 million ($14.3 million at TRG's share) and $44.7 million ($14.2 million at TRG's share) as of March 31, 2016 and December 31, 2015, respectively, and the related debt issuance costs.
 
Three Months Ended March 31
 
2016
 
2015
Revenues
$
96,763

 
$
91,914

Maintenance, taxes, utilities, promotion, and other operating expenses
$
28,322

 
$
26,995

Interest expense
21,596

 
21,229

Depreciation and amortization
15,299

 
12,752

Total operating costs
$
65,217

 
$
60,976

Nonoperating income, net
246

 
8

Net income
$
31,792

 
$
30,946

 
 
 
 
Net income attributable to TRG
$
17,459

 
$
17,053

Realized intercompany profit, net of depreciation on TRG’s basis adjustments
1,506

 
508

Depreciation of TCO's additional basis
(487
)
 
(486
)
Equity in income of Unconsolidated Joint Ventures
$
18,478

 
$
17,075

 
 
 
 
Beneficial interest in Unconsolidated Joint Ventures’ operations:
 

 
 

Revenues less maintenance, taxes, utilities, promotion, and other operating expenses
$
39,341

 
$
36,506

Interest expense
(11,528
)
 
(11,363
)
Depreciation and amortization
(9,335
)
 
(8,068
)
Equity in income of Unconsolidated Joint Ventures
$
18,478

 
$
17,075

Beneficial Interest in Debt and Interest Expense (Tables)
Operating Partnership's beneficial interest

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 interest in Cherry Creek Shopping Center (50%), International Market Place (6.5%), and The Mall of San Juan (20% prior to April 2015, and subsequently 5%).
 
At 100%
 
At Beneficial Interest
 
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
 
Debt as of:
 
 
 
 
 
 
 
 
March 31, 2016
$
2,843,155

 
$
2,429,149

 
$
2,680,035

 
$
1,282,299

 
December 31, 2015 (1)
2,627,088

 
2,087,552

 
2,468,451

 
1,116,395

 
 
 
 
 
 
 
 
 
 
Capitalized interest:
 

 
 

 
 

 
 

 
Three Months Ended March 31, 2016
$
6,502

(2) 
$
655

(3) 
$
6,486

 
$
655

(3) 
Three Months Ended March 31, 2015
8,672

(2) 
56

 
8,335

 
28