TAUBMAN CENTERS INC, 10-Q filed on 5/5/2020
Quarterly Report
v3.20.1
Document and Entity Information Document - shares
3 Months Ended
Mar. 31, 2020
May 04, 2020
Entity Information [Line Items]    
Entity Central Index Key 0000890319  
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Mar. 31, 2020  
Entity File Number 1-11530  
Entity Registrant Name TAUBMAN CENTERS, INC.  
Entity Incorporation, State or Country Code MI  
Entity Tax Identification Number 38-2033632  
Entity Address, Address Line One 200 East Long Lake Road,  
Entity Address, Address Line Two Suite 300,  
Entity Address, City or Town Bloomfield Hills,  
Entity Address, State or Province MI  
Entity Address, Country US  
Entity Address, Postal Zip Code 48304-2324  
City Area Code (248)  
Local Phone Number 258-6800  
Current Fiscal Year End Date --12-31  
Amendment Flag false  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Entity Common Stock, Shares Outstanding   61,608,379
Common Stock [Member]    
Entity Information [Line Items]    
Title of 12(b) Security Common Stock, $0.01 Par Value  
Trading Symbol TCO  
Security Exchange Name NYSE  
Series J Preferred Stock [Member]    
Entity Information [Line Items]    
Title of 12(b) Security 6.5% Series J Cumulative Redeemable Preferred Stock,No Par Value  
Trading Symbol TCO PR J  
Security Exchange Name NYSE  
Series K Preferred Stock [Member]    
Entity Information [Line Items]    
Title of 12(b) Security 6.25% Series K CumulativeRedeemable Preferred Stock,No Par Value  
Trading Symbol TCO PR K  
Security Exchange Name NYSE  
v3.20.1
CONSOLIDATED BALANCE SHEET - USD ($)
Mar. 31, 2020
Dec. 31, 2019
Assets:    
Properties $ 4,737,571,000 $ 4,731,061,000
Accumulated depreciation and amortization (1,553,697,000) (1,514,992,000)
Real Estate Investment Property, Net 3,183,874,000 3,216,069,000
Investment in Unconsolidated Joint Ventures (UJVs) (Notes 2 and 4) 788,844,000 831,995,000
Cash and cash equivalents (Note 13) 395,070,000 102,762,000
Restricted cash (Note 13) 664,000 656,000
Accounts and notes receivable 90,927,000 95,416,000
Accounts receivable from related parties 1,491,000 2,112,000
Operating lease right-of-use assets 173,698,000 173,796,000
Deferred charges and other assets 92,442,000 92,659,000
Total Assets 4,727,010,000 4,515,465,000
Liabilities:    
Notes payable, net (Note 5) 4,003,126,000 3,710,327,000
Accounts payable and accrued liabilities 252,960,000 268,714,000
Operating lease liabilities 241,206,000 240,777,000
Distributions in excess of investments in and net income of UJVs (Note 4) 471,382,000 473,053,000
Total Liabilities 4,968,674,000 4,692,871,000
Commitments and contingencies (Notes 5, 6, 7, 8, and 9)
Redeemable Noncontrolling Interest, Equity, Carrying Amount [Abstract]    
Redeemable noncontrolling interests (Note 6) 0 0
Equity (Deficit):    
Series B Non-Participating Convertible Preferred Stock, $0.001 par and liquidation value, 40,000,000 shares authorized, 26,311,117 and 26,398,473 shares issued and outstanding at March 31, 2020 and December 31, 2019 26,000 26,000
Common Stock, $0.01 par value, 250,000,000 shares authorized, 61,375,291 and 61,228,579 shares issued and outstanding at March 31, 2020 and December 31, 2019 614,000 612,000
Additional paid-in capital 742,409,000 741,026,000
Accumulated other comprehensive income (loss) (Note 12) (61,502,000) (39,003,000)
Dividends in excess of net income (Note 7) (738,223,000) (712,884,000)
Stockholders' Equity Attributable to Parent (56,676,000) (10,223,000)
Noncontrolling interests (Note 6) (184,988,000) (167,183,000)
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest (241,664,000) (177,406,000)
Total Liabilities and Equity $ 4,727,010,000 $ 4,515,465,000
v3.20.1
CONSOLIDATED BALANCE SHEET (Parenthetical) - USD ($)
Mar. 31, 2020
Dec. 31, 2019
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 250,000,000 250,000,000
Common stock, shares issued 61,375,291 61,228,579
Common stock, shares outstanding 61,375,291 61,228,579
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 26,311,117 26,398,473
Preferred Stock, shares outstanding 26,311,117 26,398,473
Series J Preferred Stock [Member]    
Preferred Stock, par value $ 0 $ 0
Preferred Stock, liquidation preference $ 192,500,000 $ 192,500,000
Preferred Stock, liquidation preference per share $ 25  
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, liquidation preference per share $ 25  
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
v3.20.1
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenues:    
Rental revenues $ 142,658,000 $ 144,289,000
Overage rents 4,217,000 3,141,000
Management, leasing, and development services 566,000 1,216,000
Other 12,018,000 11,562,000
Total Revenues 159,459,000 160,208,000
Expenses:    
Maintenance, taxes, utilities, and promotion 38,751,000 38,538,000
Other operating 18,142,000 19,225,000
Management, leasing, and development services 493,000 531,000
General and administrative 8,016,000 8,576,000
Restructuring charges (Note 1) 362,000 625,000
Simon Property Group, Inc. transaction costs (Note 1) 6,385,000  
Costs associated with shareholder activism (Note 1) 0 4,000,000
Interest expense 34,849,000 36,885,000
Depreciation and amortization 51,696,000 44,956,000
Operating Expenses 158,694,000 153,336,000
Nonoperating income, net (Notes 9 and 11) 548,000 8,733,000
Income before income tax expense, equity in income of UJVs, gains on partial dispositions of ownership interests in UJVs, net of tax, and gains on remeasurements of ownership interests in UJVs 1,313,000 15,605,000
Income tax expense (Note 3) (756,000) (539,000)
Equity in income of UJVs (Note 4) 11,284,000 14,672,000
Income (Loss) from Continuing Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest 11,841,000 29,738,000
Gains on partial dispositions of ownership interests in UJVs (Note 2) 10,914,000  
Gains on remeasurements of ownership interests in UJVs (Note 2) 13,729,000  
Net income 36,484,000 29,738,000
Net income attributable to noncontrolling interests (Note 6) (10,233,000) (8,230,000)
Net income attributable to Taubman Centers, Inc. 26,251,000 21,508,000
Distributions to participating securities of TRG (Note 8) (595,000) (627,000)
Preferred stock dividends (5,784,000) (5,784,000)
Net income attributable to Taubman Centers, Inc. common shareholders 19,872,000 15,097,000
Other comprehensive income (loss) (Note 12):    
Unrealized loss on interest rate instruments (17,919,000) (4,888,000)
Cumulative translation adjustment (18,975,000) 3,318,000
Reclassification adjustment for amounts recognized in net income 768,000 1,423,000
Other comprehensive income (loss) (36,126,000) (2,993,000)
Comprehensive income 358,000 26,745,000
Comprehensive income attributable to noncontrolling interests (588,000) (7,364,000)
Comprehensive (loss) income attributable to Taubman Centers, Inc. $ (230,000) $ 19,381,000
Basic earnings per common share (Note 10) $ 0.32 $ 0.25
Diluted earnings per common share (Note 10) $ 0.32 $ 0.25
Weighted average number of common shares outstanding – basic 61,249,637 61,124,016
v3.20.1
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - USD ($)
Total
Series K Preferred Stock [Member]
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]
Series J Preferred Stock [Member]
Former Taubman Asia Redeemable Noncontrolling Interest [Member]
Balance at Dec. 31, 2018 $ (307,897,000)   $ 25,000 $ 611,000 $ 676,097,000 $ (25,376,000) $ (744,230,000) $ (215,024,000)    
Balance (in shares) at Dec. 31, 2018     39,362,994 61,069,108            
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Issuance of stock pursuant to Continuing Offer (Notes 8 and 9) 0                  
Issuance of stock pursuant to Continuing Offer (Notes 8 and 9), shares     (7,300) 7,300            
Share-based compensation under employee and director benefit plans (Note 8) 1,830,000     $ 1,000 (1,829,000)          
Share-based compensation under employee and director benefit plans (Note 8), shares       85,131            
Adjustments of noncontrolling interests (Note 6) (93,000)       (171,000) 2,000   76,000    
Dividends and distributions (1) (64,888,000)           47,694,000      
Distributions to noncontrolling interests               (17,194,000)    
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification 4,919,000           3,156,000 1,763,000    
Other (362,000)           (362,000)      
Net income (excludes net loss attributable to redeemable noncontrolling interest) (Note 6) 29,831,000           21,508,000 8,323,000    
Net Income (Loss) Attributable to Redeemable Noncontrolling Interest (93,000)                  
Unrealized gain (loss) on interest rate instruments and other (4,888,000)         (3,475,000)   (1,413,000)    
Cumulative translation adjustment 3,318,000         2,359,000   959,000    
Reclassification adjustment for amounts recognized in net income 1,423,000         1,011,000   412,000    
Balance at Mar. 31, 2019 (339,653,000)   $ 25,000 $ 612,000 677,755,000 (27,501,000) (767,622,000) (222,922,000)    
Balance (in shares) at Mar. 31, 2019     39,355,694 61,161,539            
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Common Stock, Dividends, Per Share, Declared       $ 0.675            
Preferred Stock, Dividends Per Share, Declared   $ 0.390625             $ 0.40625  
Balance at Dec. 31, 2018 (307,897,000)   $ 25,000 $ 611,000 676,097,000 (25,376,000) (744,230,000) (215,024,000)    
Balance (in shares) at Dec. 31, 2018     39,362,994 61,069,108            
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Payments for Repurchase of Redeemable Noncontrolling Interest                   $ (6,000,000.0)
Balance at Dec. 31, 2019 (177,406,000)   $ 26,000 $ 612,000 741,026,000 (39,003,000) (712,884,000) (167,183,000)    
Balance (in shares) at Dec. 31, 2019     40,898,473 61,228,579            
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Issuance of stock pursuant to Continuing Offer (Notes 8 and 9) 0     $ (1,000) 1,000          
Issuance of stock pursuant to Continuing Offer (Notes 8 and 9), shares     (106,312) 106,319            
Share-based compensation under employee and director benefit plans (Note 8) 1,457,000     $ 1,000 1,456,000          
Share-based compensation under employee and director benefit plans (Note 8), shares     18,956 40,393            
Adjustments of noncontrolling interests (Note 6) 0       (72,000) (17,000)   89,000    
Dividends and distributions (1) (66,218,000)           (47,736,000)      
Distributions to noncontrolling interests               (18,482,000)    
Partial disposition of ownership interest in Unconsolidated Joint Venture (Note 2) 0         3,999,000 (3,999,000)      
Other 145,000           145,000      
Net income (excludes net loss attributable to redeemable noncontrolling interest) (Note 6) 36,484,000           26,251,000 10,233,000    
Net Income (Loss) Attributable to Redeemable Noncontrolling Interest                  
Unrealized gain (loss) on interest rate instruments and other (17,919,000)         (12,539,000)   (5,380,000)    
Cumulative translation adjustment (18,975,000)         (14,479,000)   (4,496,000)    
Reclassification adjustment for amounts recognized in net income 768,000         537,000   231,000    
Balance at Mar. 31, 2020 $ (241,664,000)   $ 26,000 $ 614,000 $ 742,409,000 $ (61,502,000) $ (738,223,000) $ (184,988,000)    
Balance (in shares) at Mar. 31, 2020     40,811,117 61,375,291            
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Common Stock, Dividends, Per Share, Declared       $ 0.675            
Preferred Stock, Dividends Per Share, Declared   $ 0.390625             $ 0.40625  
v3.20.1
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Proceeds and Excess Tax Benefit from Share-based Compensation $ (608) $ (581)
Cash Flows From Operating Activities:    
Net income 36,484 29,738
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 51,696 44,956
Gains on partial dispositions of ownership interests in UJVs, net of tax (Note 2) (10,914)  
Gains on remeasurements of ownership interests in UJVs (Note 2) (13,729)  
Fluctuation in fair value of equity securities (Note 11) 3,346
Income (loss) from UJVs net of distributions 6,551 (1,684)
Non-cash operating lease expense 528 509
Other 3,108 3,499
Decrease in cash attributable to changes in assets and liabilities:    
Receivables, deferred charges, and other assets (5,923) (3,084)
Accounts payable and accrued liabilities (23,855) (27,420)
Net Cash Provided By Operating Activities 43,946 43,168
Cash Flows From Investing Activities:    
Additions to properties (24,165) (47,006)
Partial reimbursement of Saks anchor allowance at The Mall of San Juan 3,000  
Proceeds from partial dispositions of ownership interests in UJVs (Note 2) 48,311  
Proceeds from sale of equity securities (Note 11) 52,077
Contributions to UJVs (Note 2) (923) (16,900)
Distributions from UJVs (less than) in excess of income (2,827) 8,418
Other 24 23
Net Cash Provided By (Used In) Investing Activities 23,420 (3,388)
Cash Flows From Financing Activities:    
Proceeds from revolving lines of credit, net (Note 5) 295,000 18,475
Debt payments (2,998) (2,871)
Distributions to noncontrolling interests (18,482) (17,194)
Distributions to participating securities of TRG (595) (627)
Cash dividends to preferred shareholders (5,784) (5,784)
Cash dividends to common shareholders (41,357) (41,283)
Net Cash Provided By (Used In) Financing Activities 225,176 (49,865)
Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash (Note 13) (226) 2,601
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect 292,316 (7,484)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period (Note 13) 103,418 142,929
Cash, Cash Equivalents, and Restricted Cash at End of Period (Note 13) $ 395,734 $ 135,445
v3.20.1
Interim Financial Statements
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements [Abstract]  
Interim Financial Statements Interim Financial Statements

General

Taubman Centers, Inc. (TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate investment trust (REIT). TCO's sole asset is an approximate 70% general partnership interest in The Taubman Realty Group Limited Partnership (TRG), which owns direct or indirect interests in all of our real estate properties. In this report, the terms “we", "us", and "our'" refer to TCO, TRG, and/or TRG's subsidiaries as the context may require. We own, manage, lease, acquire, dispose of, develop, and expand retail shopping centers and interests therein. Our owned portfolio as of March 31, 2020 included 24 urban and suburban shopping centers operating in 11 U.S. states, Puerto Rico, South Korea, and China. The Taubman Company LLC (the Manager) provides certain management and administrative services for us and for our U.S. properties.

The Consolidated Businesses consist of shopping centers and entities that are controlled, through ownership or contractual agreements, by TRG, the Manager, or Taubman Properties Asia LLC and its subsidiaries and affiliates (Taubman Asia). Shopping centers owned through joint ventures that are not controlled by us but over which we have significant influence (UJVs) are accounted for under the equity method.

The unaudited interim financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019. 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 per share data or as otherwise noted.

Risks and Uncertainties Related to COVID -19

The operations of both our U.S. and Asia shopping centers have been and could continue to be significantly adversely impacted by the COVID-19 pandemic. The impact of the COVID-19 pandemic could have material and adverse effects on our business, financial condition, results of operations, and liquidity including, but not limited to, the following:

reduced global economic activity severely impacts our tenants' businesses, financial condition, and liquidity and may cause tenants to be unable to fully meet their obligations to us or to otherwise seek modifications of such obligations, resulting in increases in uncollectible receivables and reductions in rental revenues;

the negative financial impact could affect our future compliance with financial covenants of our $1.1 billion primary unsecured revolving line of credit, unsecured term loans, or other debt agreements and our ability to fund debt service; and

weaker economic conditions could result in lower fair values of assets and cause us to recognize impairment charges for our consolidated centers or other than temporary impairment of our Investments in UJVs.

In response to the COVID-19 pandemic, we temporarily closed all but two of our U.S. shopping centers on March 19. The other two centers closed soon thereafter. The closures of our U.S. shopping centers did not significantly affect our financial results for the three months ended March 31, 2020. In Asia, the operations and results of our three centers were significantly adversely impacted, though our share of the impact was limited due to our partial ownership interests in the centers (Note 2).

The extent to which the COVID-19 pandemic materially and adversely impacts our operations, financial condition, results of operations, and liquidity in the future, and those of our tenants and anchors, will depend on future actions and outcomes, which are highly uncertain and cannot be predicted, including (1) the severity and duration of the pandemic, (2) the actions taken to contain the pandemic or mitigate its impact, and (3) the direct and indirect economic and financial market effects of the pandemic and containment measures, among others.

Use of Estimates

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

We are not presently aware of any events or circumstances arising from the COVID-19 pandemic that would require us to update our current estimates, assumptions, or the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Our estimates may change, however, as new events occur and additional information is obtained, any such changes will be recognized in the consolidated financial statements. Actual results could differ from those estimates.

Merger Agreement

On February 9, 2020, we entered into an Agreement and Plan of Merger (the Merger Agreement) for Simon Property Group, Inc. (Simon) to acquire a 100% ownership interest in TCO and an 80% ownership interest in TRG. Simon, through its operating partnership, Simon Property Group, L.P. (the Simon Operating Partnership), will acquire all of TCO’s common stock (other than certain shares of excluded common stock) for $52.50 per share in cash (the Common Stock Merger Consideration) and certain members of the Taubman Family (including Robert S. Taubman, William S. Taubman, Gayle Taubman Kalisman, and the Estate of A. Alfred Taubman) will retain certain of their TRG interests so that they remain a 20% partner in TRG and will sell their remaining ownership interest in TRG for $52.50 per share in cash. The transaction is subject to customary closing conditions. We anticipate completing the transaction in the second or third quarter of 2020. During the three months ended March 31, 2020, we incurred costs of $6.4 million related to the transaction, which have been separately classified as Simon Property Group, Inc. Transaction Costs on our Consolidated Statement of Operations and Comprehensive Income (Loss). For additional information regarding the Merger Agreement, see our other filings with the Securities and Exchange Commission (SEC), which are available on the SEC’s website at www.sec.gov; provided, that the content of such website is not incorporated herein by reference.

Consolidation

The consolidated financial statements of TCO include all accounts of TCO, TRG, and our consolidated businesses, including 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 our 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 our consolidated financial statements.

In determining the method of accounting for partially owned joint ventures, we evaluate the characteristics of associated entities and determine whether an entity is a variable interest entity (VIE), and, if so, determine whether we are the primary beneficiary by analyzing whether we have 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. We consolidate a VIE when we have determined that we are the primary beneficiary. All of our consolidated joint ventures, including TRG, meet the definition and criteria as VIEs, as either we or an affiliate of ours is the primary beneficiary of each VIE.

TCO's sole asset is an approximate 70% general partnership interest in TRG and, consequently, substantially all of TCO's consolidated assets and liabilities are assets and liabilities of TRG. All of TCO's debt (Note 5) is a direct obligation of TRG or one of our other consolidated subsidiaries. Note 5 also provides disclosure of guarantees provided by TRG to certain consolidated joint ventures and UJVs. Note 6 provides additional disclosures of the carrying balance of the noncontrolling interests in our consolidated joint ventures and other information, including a description of certain rights of the noncontrolling owners.

Investments in UJVs are accounted for under the equity method. We have evaluated our investments in UJVs under guidance for determining whether an entity is a VIE and have concluded that the ventures are not VIEs. Accordingly, we account for our 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). Our partners or other owners in these UJVs 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 we have concluded that the equity method of accounting is appropriate for these interests. Specifically, our 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. We provide our beneficial interest in certain financial information of our UJVs (Notes 4 and 5). This beneficial information is derived as our ownership interest in the investee multiplied by the specific financial statement item being presented. Investors are cautioned that deriving our beneficial interest in this manner may not accurately depict the legal and economic implications of holding a noncontrolling interest in the investee.

Ownership

In addition to common stock, we had three classes of preferred stock outstanding (Series B, J, and K) as of March 31, 2020. 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 business day of each calendar quarter. We own corresponding Series J and Series K Preferred Equity interests in TRG that entitle us to income and distributions (in the form of guaranteed payments) in amounts equal to the dividends payable on our Series J and Series K Preferred Stock. Immediately prior to the effective time of the merger of TCO with and into a subsidiary of Simon (REIT Merger Effective Time) as referenced above, TCO will issue a redemption notice and cause funds to be set aside to pay the redemption price for each share of Series J Preferred Stock and each share of Series K Preferred Stock, at their respective liquidation preference of $25.00 plus all accumulated and unpaid dividends up to, but not including, the redemption date of such share.

We are also obligated to issue to the noncontrolling partners of TRG, upon subscription, one share of Series B Non-Participating Convertible Preferred Stock (Series B Preferred Share) per each unit of limited partnership in TRG (TRG Unit). Each Series B Preferred Share entitles the holder to one vote on all matters submitted to our shareholders. The holders of Series B Preferred Shares, voting as a class, have the right to designate up to four nominees for election as directors of TCO. On all other matters on which the holders of common stock are entitled to vote, including the election of directors, the holders of Series B Preferred Shares will vote with the holders of common stock. The holders of Series B Preferred Shares are not entitled to dividends or earnings of TCO. The Series B Preferred Shares are convertible into common stock at a ratio of 14,000 shares of Series B Preferred Stock for one share of common stock.

Outstanding voting securities of TCO at March 31, 2020 consisted of 26,311,117 shares of Series B Preferred Stock and 61,375,291 shares of common stock.

TRG

At March 31, 2020, TRG’s equity included two classes of preferred equity (Series J and K) and the net equity of the TRG unitholders. Net income and distributions of TRG are allocable first to the preferred equity interests, and the remaining amounts to the general and limited partners in TRG in accordance with their percentage ownership. The Series J and Series K Preferred Equity are owned by TCO and are eliminated in consolidation.

TCO's ownership in TRG at March 31, 2020 consisted of a 70% managing general partnership interest, as well as the Series J and Series K Preferred Equity interests. Our average ownership percentage in TRG for the three months ended March 31, 2020 and 2019 was 70% and 71%, respectively. At March 31, 2020, TRG had 87,704,007 TRG Units outstanding, of which we owned 61,375,291 TRG Units. Disclosures about TRG Units outstanding exclude TRG Profits Units granted or other share-based grants for which TRG Units may eventually be issued (Note 8).

The remaining approximate 30% of TRG Units are owned by TRG's partners other than TCO, including the Taubman Family.

Leases

Shopping center space is leased to tenants and certain anchors pursuant to lease agreements. Future rental revenues under operating leases in effect at March 31, 2020 for operating centers, assuming no new or renegotiated leases or option extensions on anchor agreements, is summarized as follows:
2020
$
339,089

2021
414,455

2022
367,229

2023
333,914

2024
309,713

Thereafter
832,715



Revenue Recognition

Disaggregation of Revenue

The nature, amount, timing, and uncertainty of individual types of revenues may be affected differently by economic factors. Under Accounting Standards Codification (ASC) Topic 606, "Revenue from Contracts with Customers", we are required to disclose a disaggregation of our revenues derived from contracts with customers that considers economic differences between revenue types. The following table summarizes our disaggregation of consolidated revenues for this purpose.
 
Three Months Ended March 31
 
2020
 
2019
Shopping center and other operational revenues
$
12,018

 
11,562

Management, leasing, and development services
566

 
1,216

Total revenue from contracts with customers
$
12,584

 
$
12,778


Information about Contract Balances and Unsatisfied Performance Obligations

Contract assets exist when we have a right to payment for services rendered that remains conditional on factors other than the passage of time. Similarly, contract liabilities are incurred when customers prepay for services to be rendered. Certain revenue streams within shopping center and other operational revenues may give rise to contract assets and liabilities. However, these revenue streams are generally short-term in nature and the difference between revenue recognition and cash collection, although variable, does not differ significantly from period to period. As of March 31, 2020, we had an inconsequential amount of contract assets and liabilities.

The aggregate amount of the transaction price allocated to our performance obligations that were unsatisfied, or partially unsatisfied, as of March 31, 2020 were inconsequential.

Restructuring Charges

We have been undergoing a restructuring to reduce our workforce and reorganize various areas of the organization in response to the completion of another major development cycle. During the three months ended March 31, 2020 and 2019, we incurred $0.4 million and $0.6 million, respectively, of expense related to our restructuring efforts. These expenses have been separately classified as Restructuring Charges on our Consolidated Statement of Operations and Comprehensive Income (Loss).

Costs Associated with Shareholder Activism

During the three months ended March 31, 2019, we incurred $4.0 million of expense associated with activities related to shareholder activism, largely legal and advisory services. Also included in the activism costs was a retention program for certain employees, which fully vested in December 2019. Given the uncertainties associated with shareholder activism and to ensure the retention of top talent in key positions within TCO, certain key employees were provided certain incentive benefits in the form of cash and/or equity retention awards. We and our Board of Directors believed these benefits were instrumental in ensuring the continued success of TCO during the retention period. Due to the unusual and infrequent nature of these expenses in our history, they were separately classified as Costs Associated with Shareholder Activism on our Consolidated Statement of Operations and Comprehensive Income (Loss). No expenses associated with activities related to shareholder activism were incurred during the three months ended March 31, 2020.

Management’s Responsibility to Evaluate Our Ability to Continue as a Going Concern

When preparing financial statements for each annual and interim reporting period, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our 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.

Change in Accounting Policies

Accounts Receivable and Uncollectible Tenant Revenues

In connection with the adoption of ASC Topic 842, "Leases", on January 1, 2019, we began reviewing the collectibility of both billed and accrued charges under our tenant leases each quarter taking into consideration the tenant’s historical payment status, credit profile, and known issues related to tenant operations. For any tenant receivable balances thought to be uncollectible, we record an offset for uncollectible tenant revenues directly to Rental Revenues on our Consolidated Statement of Operations and Comprehensive Income (Loss).

As a result of the above change in evaluation in uncollectible tenant revenues, the allowance for doubtful accounts was written off and an entry was recorded as of January 1, 2019 to adjust the receivables and equity balances of our Consolidated Businesses and UJVs. This resulted in a cumulative effect adjustment increasing Dividends in Excess of Net Income by $3.2 million and Non-redeemable Noncontrolling Interest by $1.8 million on our Consolidated Balance Sheet with offsetting increases in Accounts and Notes Receivable, Investment in UJVs, and Distributions in Excess of Investments In and Net Income of UJVs balances on our Consolidated Balance Sheet.
v3.20.1
Acquisition, Partial Disposition of Ownership Interests, Redevelopment, and Development
3 Months Ended
Mar. 31, 2020
Acquisition, Partial Disposition of Ownership Interests, Redevelopment, and Development [Abstract]  
Disposition, Redevelopments, and Developments [Text Block] Disposition, Partial Dispositions of Ownership Interests, Acquisition, Redevelopments, and Development

Disposition

In May 2018, we entered into a redevelopment agreement for Taubman Prestige Outlets Chesterfield, and all operations at the center, as well as the building and improvements, were transferred to The Staenberg Group (TSG). TSG leases the land from us through a long-term, participating ground lease. In December 2019, we determined that construction on the redevelopment was probable of commencing within the year, which would nullify our right to terminate the ground lease that was contingent on TSG commencing construction on the redevelopment within five years. Accordingly, the center was classified as held for sale as of December 31, 2019 and an impairment charge of $72.2 million was recognized in the fourth quarter of 2019, which reduced the book value of the buildings, improvements, and equipment that were transferred to zero. In March 2020, TSG began construction on the redevelopment and therefore our termination right was nullified, resulting in the sale of the center.

Partial Dispositions of Ownership Interests

In February 2019, we announced agreements to sell 50% of our interests in Starfield Hanam, CityOn.Xi’an, and CityOn.Zhengzhou to funds managed by The Blackstone Group L.P. (Blackstone). The interests sold were valued at $480 million which, after transaction costs, taxes and the allocation to Blackstone of its share of third party debt, resulted in net cash proceeds of about $330 million that were used to pay down our revolving lines of credit. We remain the partner responsible for the joint management of the three shopping centers, with Blackstone paying a property service fee recorded within Other revenue on our Consolidated Statement of Operations and Comprehensive Income (Loss).

The sales of 50% of our interests in Starfield Hanam and CityOn.Zhengzhou were completed in September 2019 and December 2019, respectively. In March 2020, we received an additional $0.5 million of cash proceeds from the sale of 50% of our interest in CityOn.Zhengzhou. As a result, we recorded adjustments to the previously recognized gains resulting in an additional $0.5 million gain on disposition and an additional $0.5 million gain on remeasurement during the three months ended March 31, 2020.

In February 2020, we completed the sale of 50% of our interest in CityOn.Xi'an. Net proceeds from the sale were $48.0 million, following the allocation to Blackstone of its share of third party debt, taxes, and transaction costs. A gain of $10.6 million was recognized as a result of the partial disposition of our interest, which represented the excess of the net consideration from the sale over our investment in the UJV. In addition, upon completion of the sale, we remeasured our remaining 25% interest in the shopping center to fair value, resulting in the recognition of a $13.2 million gain on remeasurement.

Acquisition

In April 2019, we acquired a 48.5% interest in The Gardens Mall in Palm Beach Gardens, Florida, in exchange for 1.5 million newly issued TRG Units. We also assumed our $94.6 million share of the existing debt at the center. Our ownership interest in the center is accounted for as a UJV under the equity method.

Redevelopments

Beverly Center

We substantially completed our redevelopment project at Beverly Center in November 2018, although some spending continued into 2019. We expect additional spending in future periods related to the ongoing redevelopment and tenant replacement activity, including the consolidation of the Macy's Men's space into the Macy's space in 2020.

The Mall at Green Hills

We substantially completed our redevelopment project at The Mall at Green Hills in June 2019. We expect some capital spending at The Mall at Green Hills to continue into future periods as certain costs are incurred subsequent to the project's completion, including construction on certain tenant spaces.

Asia Development

Starfield Anseong

We have partnered with Shinsegae Group, our partner in Starfield Hanam, to build, lease, own, and manage Starfield Anseong, an approximately 1.1 million square foot shopping center in Anseong, Gyeonggi Province, South Korea. We own a 49% interest in the project. The shopping center is scheduled to open in late 2020. As of March 31, 2020, we had invested $155.1 million in the project, after cumulative currency translation adjustments. This investment is classified within Investment in UJVs on our Consolidated Balance Sheet.
v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes

Income Tax Expense (Benefit)

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, allows a Federal net operating loss (NOL) incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Our taxable REIT subsidiary had a NOL carryforward of $9.7 million from its 2018 tax year that will now be carried back to prior tax years to claim a net Federal tax refund of $3.2 million. During the three months ended March 31, 2020, the expected tax refund was recorded as a receivable and the net Federal tax benefit of $1.4 million was recorded as an income tax benefit to reflect the effective 35% corporate tax rate applicable to the prior years of the NOL carryback as compared to the 21% corporate tax rate at which the benefit was originally recorded. The net Federal deferred tax asset was reduced by $1.8 million to reflect full utilization of the 2018 Federal NOL in the carryback claim and the use of additional investment tax credits.

The CARES Act also includes a technical correction to the Tax Cuts and Jobs Act of 2017 providing for shorter depreciable lives and potential use of bonus depreciation on qualifying improvement property fixed asset additions in 2018 and in future tax years. The Company is currently evaluating the impact of this provision and will record any benefit in the second quarter of 2020.

Our income tax expense (benefit) for the three months ended March 31, 2020 and 2019 consisted of the following:
 
Three Months Ended March 31
 
2020
 
2019
Federal current
$
57

 
$

Federal deferred
(1,099
)
 
193

Foreign current
688

 
120

Foreign deferred
1,037

(1) 
115

State current
9

 
19

State deferred
64

 
92

Total income tax expense
$
756

 
$
539



(1)
During the three months ended March 31, 2020, we recognized $1.1 million of foreign deferred tax expense (10% tax rate) as we are no longer able to assert indefinite reinvestment in CityOn.Xi'an due to the sale of 50% of our interest to funds managed by Blackstone (Note 2). The tax expense is related to an excess of the Investment in the UJV under GAAP accounting over the tax basis of our investment.
Deferred Taxes

Deferred tax assets and liabilities as of March 31, 2020 and December 31, 2019 were as follows:
 
2020
 
2019
 
Deferred tax assets:
 
 
 
 
Federal
$
2,310

(1) 
$
4,385

(2) 
Foreign
2,111

 
2,020

 
State
1,323

 
1,388

 
Total deferred tax assets
$
5,744

 
$
7,793

 
Valuation allowances
(2,772
)
(3) 
(2,761
)
(4) 
Net deferred tax assets
$
2,972

 
$
5,032

 
Deferred tax liabilities:
 
 
 

 
Foreign (5)
$
5,939

 
$
4,449

 
Total deferred tax liabilities
$
5,939

 
$
4,449

 


(1)
Includes a $3.0 million Federal investment tax credit carryforward.
(2)
Includes a $4.4 million Federal investment tax credit carryforward.
(3)
Includes a $1.7 million valuation allowance against Foreign deferred tax assets, and a $1.1 million valuation allowance against State deferred tax assets.
(4)
Includes a $1.7 million valuation allowance against Foreign deferred tax assets, and a $1.1 million valuation allowance against State deferred tax assets.
(5)
The foreign deferred tax liability relates to shareholder level withholding taxes from Korea and China on undistributed profits and an excess of the Investments in the UJVs under GAAP accounting over the tax basis of our investments.

We believe that it is more likely than not that 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 NOL carryforwards and tax basis differences where there is uncertainty regarding their realizability.

v3.20.1
Investments in Unconsolidated Joint Ventures
3 Months Ended
Mar. 31, 2020
Equity Method Investments and Joint Ventures [Abstract]  
Investments in Unconsolidated Joint Ventures Investments in UJVs

General Information

We own beneficial interests in joint ventures that own shopping centers. TRG is the sole direct or indirect managing general partner or managing member of Fair Oaks Mall, International Plaza, Stamford Town Center, Sunvalley, The Mall at University Town Center, and Westfarms; however, these joint ventures are accounted for under the equity method due to the substantive participation rights of the outside partners. TRG also provides certain management, leasing, and/or development services to the other shopping centers noted below.
Shopping Center
 
Ownership as of
March 31, 2020 and
December 31, 2019
CityOn.Xi'an (1)
 
25% / 50%
CityOn.Zhengzhou
 
24.5
Country Club Plaza
 
50
Fair Oaks Mall
 
50
The Gardens Mall
 
48.5
International Plaza
 
50.1
The Mall at Millenia
 
50
Stamford Town Center
 
50
Starfield Anseong (under development)
 
Note 2
Starfield Hanam
 
17.15
Sunvalley
 
50
The Mall at University Town Center
 
50
Waterside Shops
 
50
Westfarms
 
79


(1)
In February 2020, we completed the sale of 50% of our interest in CityOn.Xian (Note 2).

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

On our Consolidated Balance Sheet, we separately report our investment in UJVs for which accumulated distributions have exceeded investments in and net income of the UJVs. 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 shopping centers.
Combined Financial Information

Combined balance sheet and results of operations information is presented in the following table for our UJVs, followed by TRG's beneficial interest in the combined operations information. The combined financial information of the UJVs as of March 31, 2020 and December 31, 2019 excludes the balances of Starfield Anseong, which is currently under development (Note 2). Beneficial interest is calculated based on TRG's ownership interest in each of the UJVs.
 
March 31,
2020
 
December 31,
2019
Assets:
 
 
 
Properties
$
3,754,320

 
$
3,816,923

Accumulated depreciation and amortization
(955,165
)
 
(942,840
)
 
$
2,799,155

 
$
2,874,083

Cash and cash equivalents
185,127

 
201,501

Accounts and notes receivable
96,385

 
122,569

Operating lease right-of-use assets
12,540

 
11,521

Deferred charges and other assets
176,266

 
178,708

 
$
3,269,473

 
$
3,388,382

 
 
 
 
Liabilities and accumulated equity (deficiency) in assets:
 

 
 

Notes payable, net  (1)
$
3,016,036

 
$
3,049,737

Accounts payable and other liabilities
293,143

 
341,263

Operating lease liabilities
14,292

 
13,274

TRG's accumulated deficiency in assets
(254,202
)
 
(212,380
)
UJV Partners' accumulated equity in assets
200,204

 
196,488

 
$
3,269,473

 
$
3,388,382

 
 
 
 
TRG's accumulated deficiency in assets (above)
$
(254,202
)
 
$
(212,380
)
TRG's investment in Starfield Anseong (Note 2) and advances to CityOn.Zhengzhou
197,414

 
209,024

TRG basis adjustments, including elimination of intercompany profit
341,976

 
329,673

TCO's additional basis
32,274

 
32,625

Net investment in UJVs
$
317,462

 
$
358,942

Distributions in excess of investments in and net income of UJVs
471,382

 
473,053

Investment in UJVs
$
788,844

 
$
831,995


(1) The Notes Payable, Net amount excludes the construction financing outstanding for Starfield Anseong of $44.0 million ($21.6 million at TRG's share) as of March 31, 2020.

 
Three Months Ended March 31
 
2020
 
2019
Revenues
$
147,983

 
$
142,641

Maintenance, taxes, utilities, promotion, and other operating expenses
$
54,362

 
$
47,875

Interest expense
35,185

 
32,498

Depreciation and amortization
31,260

 
32,971

Total operating costs
$
120,807

 
$
113,344

Nonoperating income, net
542

 
401

Income tax expense
(2,100
)
 
(1,679
)
Net income
$
25,618

 
$
28,019

 
 
 
 
Net income attributable to TRG
$
12,411

 
$
14,293

Realized intercompany profit, net of depreciation on TRG’s basis adjustments
(776
)
 
866

Depreciation of TCO's additional basis
(351
)
 
(487
)
Equity in income of UJVs
$
11,284

 
$
14,672

 
 
 
 
Beneficial interest in UJVs’ operations:
 

 
 

Revenues less maintenance, taxes, utilities, promotion, and other operating expenses
$
44,393

 
$
49,417

Interest expense
(16,415
)
 
(16,776
)
Depreciation and amortization
(16,397
)
 
(17,192
)
Income tax expense
(297
)
 
(777
)
Equity in income of UJVs
$
11,284

 
$
14,672



Related Party

We have a note receivable outstanding with CityOn.Zhengzhou, which was originally issued to fund development costs. The balance of the note receivable was $42.3 million and $43.1 million as of March 31, 2020 and December 31, 2019, respectively, and was classified within Investment in UJVs on our Consolidated Balance Sheet.

Stamford Town Center

Stamford Town Center is currently being marketed for sale. In December 2019, we concluded that the carrying value of our 50% interest in the investment in the UJV that owns Stamford Town Center was impaired and recognized an impairment charge of $18.0 million within Equity in Income of UJVs on our Consolidated Statement of Operations and Comprehensive Income (Loss). The charge represented the excess of the book value of our equity investment in Stamford Town Center over our 50% share of its fair value. Our fair value conclusion was based on offers received from potential buyers of the shopping center.
v3.20.1
Beneficial Interest in Debt and Interest Expense
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Beneficial interest in Debt and Interest Expense Beneficial Interest in Debt and Interest Expense

TRG's beneficial interest in the debt, capitalized interest, and interest expense of our consolidated subsidiaries and our UJVs is summarized in the following table. TRG's beneficial interest in the consolidated subsidiaries excludes debt and interest related to the noncontrolling interest in Cherry Creek Shopping Center (50%) and International Market Place (6.5%).
 
At 100%
 
At Beneficial Interest
 
 
Consolidated Subsidiaries
 
UJVs
 
Consolidated Subsidiaries
 
UJVs
 
Debt as of:
 
 
 
 
 
 
 
 
March 31, 2020
$
4,003,126

 
$
3,060,022

 
$
3,712,400

 
$
1,481,496

 
December 31, 2019
3,710,327

 
3,049,737

 
3,419,625

 
1,508,506

 
 
 
 
 
 
 
 
 
 
Capitalized interest:
 

 
 

 
 

 
 

 
Three Months Ended March 31, 2020
$
1,707

(1) 
$
276

(2) 
$
1,676

(1) 
$
177

(2) 
Three Months Ended March 31, 2019
2,057

(1) 
33

 
2,053

(1) 
18

 
 
 
 
 
 
 
 
 
 
Interest expense:
 

 
 

 
 

 
 

 
Three Months Ended March 31, 2020
$
34,849

 
$
34,657

 
$
32,053

 
$
16,415

 
Three Months Ended March 31, 2019
36,885

 
32,498

 
33,860

 
16,776

 


(1)
We capitalize interest costs incurred in funding our equity contributions to development projects accounted for as UJVs. The capitalized interest cost is included at our basis in our investment in UJVs. Such capitalized interest reduces interest expense on our Consolidated Statement of Operations and Comprehensive Income (Loss) and in the table above is included within Consolidated Subsidiaries.
(2)
Capitalized interest on the Asia UJV construction financing is presented at the Company's beneficial interest in both the UJVs (at 100%) and UJVs (at Beneficial Interest Columns).

Upcoming Maturity

The loan for The Mall at Green Hills matures in December 2020. We are currently evaluating options related to refinancing or extending this loan.

Revolving Lines of Credit

In late March 2020, we borrowed an additional $350 million on our $1.1 billion primary unsecured revolving line of credit in order to increase liquidity and preserve financial flexibility due to uncertainty resulting from the COVID-19 pandemic, which is available to be used to fund temporary working capital needs in the near future. We also have a secured revolving line of credit of $65 million. The availability under these facilities as of March 31, 2020, after considering the outstanding balances (including the additional $350 million borrowing made as a precautionary measure), the outstanding letters of credit, and value of the unencumbered asset pool as of March 31, 2020, was $97.5 million.

Debt Covenants and Guarantees

Certain loan agreements contain various restrictive covenants, including the following corporate covenants on our primary unsecured revolving line of credit, as well as our unsecured term loans and the loan on 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, our primary unsecured revolving line of credit and unsecured term loans have unencumbered pool covenants, which currently apply to Beverly Center, Dolphin Mall, and The Gardens on El Paseo 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, 2020, the unencumbered leverage ratio and the corporate total leverage ratio were the most restrictive covenants. We were in compliance with all of our covenants and loan obligations as of March 31, 2020. Failure to meet certain of these financial covenants could cause an event of default under and/or accelerate some or all of such indebtedness, which could have a material adverse effect on us. 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 our tax status, pay preferred distributions, and for distributions related to the sale of certain assets.
In connection with the August 2018 financing at International Market Place, TRG provided an unconditional guarantee of the loan principal balance and all accrued but unpaid interest during the term of the loan. The $250 million loan is interest only during the initial three year term with principal amortization required during the extension periods, if exercised. Accrued but unpaid interest as of March 31, 2020 was $0.8 million. We believe the likelihood of a repayment under the guarantee to be remote.

In connection with the $175 million additional financing at International Plaza, which is owned by an UJV, TRG 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, 2020, the interest rate swap was a $3.9 million liability and accrued but unpaid interest was less than $0.1 million. We believe the likelihood of a payment under the guarantee to be remote.
v3.20.1
Noncontrolling Interests
3 Months Ended
Mar. 31, 2020
Noncontrolling Interest [Abstract]  
Noncontrolling Interests Noncontrolling Interests

Redeemable Noncontrolling Interests

Taubman Asia President

In September 2019, we reacquired René Tremblay's (the Former Asia President's) remaining 5% ownership interest in Taubman Asia for $6.0 million, which included the return of the $2.0 million previously contributed by the Former Asia President in connection with the prior repurchase transaction.

The Former Asia President had an ownership interest in Taubman Asia, which entitled him to 5% of Taubman Asia's dividends, with 85% of his dividends relating to investment activities withheld during his tenure as Asia President. These withholdings would have continued until he contributed and maintained his capital consistent with his percentage ownership interest, including all capital funded by TRG for Taubman Asia's operating and investment activities subsequent to the Former Asia President obtaining his ownership interest. TRG had a preferred investment in Taubman Asia to the extent the Former Asia President had not yet contributed capital commensurate with his ownership interest. The $6.0 million acquisition price for the ownership interest represented the fair value of the ownership interest less the amount required to return TRG's preferred interest. The 5% ownership interest became puttable in 2019.

Prior to the acquisition, we determined that the Former Asia President's ownership interest in Taubman Asia qualified as an equity award, considering its specific redemption provisions, and accounted for it as a contingently redeemable noncontrolling interest. We presented as temporary equity at each balance sheet date an estimate of the redemption value of the ownership interest, which was classified as Level 3 of the fair value hierarchy. Adjustments to the redemption value were recorded through equity.

In September 2016, we announced the appointment of Peter Sharp as president of Taubman Asia, succeeding the Former Asia President effective January 1, 2017. Peter Sharp also had an ownership interest in Taubman Asia, which entitled him to 3% of Taubman Asia's dividends for investment activities undergone by Taubman Asia subsequent to him obtaining his ownership interest, with all of his dividends being withheld as contributions to capital. Peter Sharp resigned from Taubman Asia effective October 2019. Upon resignation, Peter Sharp's ownership interest in Taubman Asia was assigned to us.

International Market Place

We own a 93.5% controlling interest in a joint venture that owns International Market Place in Waikiki, Honolulu, Hawaii. The 6.5% joint venture partner has no obligation and no right to contribute capital. We are entitled to a preferential return on our capital contributions. We have the right to purchase the joint venture partner's interest and the joint venture partner has the right to require us to purchase the joint venture partner's interest annually. The purchase price of the joint venture partner's interest will be based on fair value. Considering the redemption provisions, we account for the joint venture partner's interest as a contingently redeemable noncontrolling interest with a carrying value of zero at both March 31, 2020 and December 31, 2019. Any adjustments to the redemption value are recorded through equity.







Reconciliation of Redeemable Noncontrolling Interest
 
Three Months Ended March 31
 
2020
 
2019
Balance, January 1
$

 
$
7,800

Allocation of net loss
 
 
(93
)
Adjustments of redeemable noncontrolling interest
 
 
93

Balance, March 31
$

 
$
7,800



Equity Balances of Non-redeemable Noncontrolling Interests

The net equity balance of the non-redeemable noncontrolling interests as of March 31, 2020 and December 31, 2019 included the following:
 
2020
 
2019
Non-redeemable noncontrolling interests:
 
 
 
Noncontrolling interests in consolidated joint ventures
$
(152,970
)
 
$
(153,343
)
Noncontrolling interests in partnership equity of TRG
(32,018
)
 
(13,840
)
 
$
(184,988
)
 
$
(167,183
)


Net Income (Loss) Attributable to Noncontrolling Interests

Net income (loss) attributable to the noncontrolling interests for the three months ended March 31, 2020 and 2019 included the following:
 
Three Months Ended March 31
 
2020
 
2019
Net income (loss) attributable to noncontrolling interests:
 
 
 
Non-redeemable noncontrolling interests:
 
 
 
Noncontrolling share of income of consolidated joint ventures
$
1,023

 
$
1,522

Noncontrolling share of income of TRG
9,210

 
6,801

 
$
10,233

 
$
8,323

Redeemable noncontrolling interest:


 
(93
)
 
$
10,233

 
$
8,230





















Equity Transactions

The following table presents the effects of changes in TCO’s ownership interest in consolidated subsidiaries on TCO’s equity for the three months ended March 31, 2020 and 2019:
 
Three Months Ended March 31
 
2020
 
2019
Net income attributable to TCO common shareholders
$
19,872

 
$
15,097

Transfers (to) from the noncontrolling interest:
 

 
 

Increase (decrease) in TCO’s paid-in capital for adjustments of noncontrolling interest (1)
(72
)
 
(171
)
Net transfers (to) from noncontrolling interests
(72
)
 
(171
)
Change from net income attributable to TCO and transfers (to) from noncontrolling interests
$
19,800

 
$
14,926


(1)
In 2020 and 2019, adjustments of the noncontrolling interest were made as a result of changes in our ownership of TRG in connection with our share-based compensation under employee and director benefit plans (Note 8) and issuances of common stock pursuant to the Continuing Offer (Note 9). In 2019, adjustments of noncontrolling interest were made in connection with the accounting for the Former Asia President's redeemable ownership interest.

Finite Life Entities

ASC 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, 2020, we 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 $152 million at March 31, 2020, compared to a book value of $(153.0) million that is classified in Noncontrolling Interests on our Consolidated Balance Sheet. The fair value of the noncontrolling interest was calculated as the noncontrolling interest's effective ownership share of the underlying property's net asset value. The property's net asset value was estimated by considering its in-place net operating income, current market capitalization rate, and mortgage debt outstanding.
v3.20.1
Derivative and Hedging Activities
3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative and Hedging Activities Derivative and Hedging Activities

Risk Management Objective and Strategies for Using Derivatives

We use 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. We may also enter into forward starting swaps or treasury lock agreements to set the effective interest rate on a planned fixed-rate financing. Our interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for us 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 we cash settle in anticipation of a fixed rate financing or refinancing, we 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.

We do not use derivatives for trading or speculative purposes and currently do not have material derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and hedging.

As of March 31, 2020, we 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%
 
100,000
 
2.14%
 
1.55%
(1) 
3.69%
(1) 
February 2022
Receive variable (LIBOR) /pay-fixed swap (1)
 
100%
 
100,000
 
2.14%
 
1.55%
(1) 
3.69%
(1) 
February 2022
Receive variable (LIBOR) /pay-fixed swap (1)
 
100%
 
50,000
 
2.14%
 
1.55%
(1) 
3.69%
(1) 
February 2022
Receive variable (LIBOR) /pay-fixed swap (1)
 
100%
 
50,000
 
2.14%
 
1.55%
/
1.38%
(1) 
3.69%
/
3.51%
(1) 
February 2022
Receive variable (LIBOR) /pay-fixed swap (2)
 
100%
 
125,000
 
3.02%
 
1.60%
(2) 
4.62%
(2) 
March 2023
Receive variable (LIBOR) /pay-fixed swap (2)
 
100%
 
75,000
 
3.02%
 
1.60%
(2) 
4.62%
(2) 
March 2023
Receive variable (LIBOR) /pay-fixed swap (2)
 
100%
 
50,000
 
3.02%
 
1.60%
(2) 
4.62%
(2) 
March 2023
Receive variable (LIBOR) /pay-fixed swap (3)
 
100%
 
12,000
 
2.09%
 
1.40%
 
3.49%
 
March 2024
UJVs:

 

 
 
 
 
 
 
 
 
 
 
 
 
 
Receive variable (LIBOR) /pay-fixed swap (4)
 
50.1%
 
157,666
 
1.83%
 
1.75%
 
3.58%
 
December 2021
Receive variable (LIBOR) USD/pay-fixed Korean Won (KRW) cross-currency interest rate swap (5)
 
17.15%
 
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 payment 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. We are currently using these swaps to manage interest rate risk on the $275 million unsecured term loan and $25 million on the $1.1 billion primary unsecured revolving line of credit. The credit spread on these loans can vary within a range of 1.15% to 1.80% on the $275 million unsecured term loan and 1.05% to 1.60% on the $1.1 billion unsecured revolving line of credit, depending on our total leverage ratio at the measurement date, resulting in an effective rate in the range of 3.29% to 3.94% on the $275 million unsecured term loan and 3.19% to 3.74% on $25 million of the $1.1 billion primary unsecured revolving line of credit during the remaining swap period.
(2)
The hedged forecasted transaction for each of these swaps is the first previously unhedged one-month LIBOR-indexed interest payment 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 beginning with the March 2019 effective date of these swaps. We are currently using these swaps to manage interest rate risk on the $250 million unsecured term loan. The credit spread on this loan can vary within a range of 1.25% to 1.90%, depending on our total leverage ratio at the measurement date, resulting in an effective rate in the range of 4.27% to 4.92% during the swap period.
(3)
The notional amount on this swap is equal to the outstanding principal balance of the floating rate loan on the U.S. headquarters building.
(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

We recognize all changes in fair value for hedging instruments designated and qualifying for cash flow hedge accounting treatment as a component of Other Comprehensive Income (OCI).






Amounts reported in Accumulated Other Comprehensive Income (AOCI) related to currently outstanding interest rate derivatives are recognized as an adjustment to income as interest payments are made on our 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.

We expect that approximately $13.9 million of AOCI of TCO and the noncontrolling interests will be reclassified from AOCI and recognized as an increase in expense in the following 12 months.

The following tables present the effect of derivative instruments on our Consolidated Statement of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2020 and 2019. The tables include the amount of gains or losses on outstanding derivative instruments recognized in OCI in cash flow hedging relationships and the location and amount of gains or losses reclassified from AOCI into income resulting from outstanding derivative instruments.

 
Amount of Gain or (Loss) Recognized in OCI on Derivative
 
Location of Gain or (Loss) Reclassified from AOCI into Income
 
Amount of Gain or (Loss) Reclassified from AOCI into Income
 
Three Months Ended March 31
 
 
 
Three Months Ended March 31
 
2020
 
2019
 
 
 
2020
 
2019
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
Interest rate contracts – consolidated subsidiaries
$
(15,545
)
 
$
(5,716
)
 
Interest Expense
 
$
(1,211
)
 
$
838

Interest rate contracts – UJVs
(1,564
)
 
(625
)
 
Equity in Income of UJVs
 
(31
)
 
137

Cross-currency interest rate contract – UJV
(42
)
 
30

 
Equity in Income of UJVs
 
474

 
448

Total derivatives in cash flow hedging relationships
$
(17,151
)
 
$
(6,311
)
 
 
 
$
(768
)
 
$
1,423




We record all derivative instruments at fair value on our Consolidated Balance Sheet. The following table presents the location and fair value of our derivative financial instruments as reported on our Consolidated Balance Sheet as of March 31, 2020 and December 31, 2019.
 
 
 
Fair Value
 
Consolidated Balance Sheet Location
 
March 31,
2020
 
December 31,
2019
Derivatives designated as hedging instruments:
 
 
 
 
 
Asset derivatives:
 
 
 
 
 
Cross-currency interest rate contract - UJV
Investment in UJVs
 
$
343

 


Total assets designated as hedging instruments
 
 
$
343

 
$

 
 
 
 
 
 
Liability derivatives:
 
 
 

 
 
Interest rate contracts – consolidated subsidiaries
Accounts Payable and Accrued Liabilities
 
$
(30,965
)
 
$
(15,419
)
Interest rate contract – UJV
Investment in UJVs
 
(1,975
)
 
(412
)
Cross-currency interest rate contract – UJV
Investment in UJVs
 


 
(91
)
Total liabilities designated as hedging instruments
 
 
$
(32,940
)
 
$
(15,922
)

Contingent Features

Our 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 indebtedness on TRG's indebtedness. As of March 31, 2020, we are not in default on any indebtedness that would trigger a credit-risk-related default on our current outstanding derivatives.
As of March 31, 2020 and December 31, 2019, the fair value of derivative instruments with credit-risk-related contingent features that were in a liability position was $32.9 million and $15.9 million, respectively. As of March 31, 2020 and December 31, 2019, we were not required to post any collateral related to these agreements. If we breached any of these provisions we would be required to settle our obligations under the agreements at their fair value. See Note 5 regarding guarantees and Note 11 for fair value information on derivatives.
v3.20.1
Share-Based Compensation
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Share-Based Compensation Share-Based Compensation

General

In May 2018, our shareholders approved The Taubman Company LLC 2018 Omnibus Long-Term Incentive Plan (2018 Omnibus Plan). The 2018 Omnibus Plan provides for the award of restricted shares, restricted share units, restricted profits units of TRG (TRG Profits Units), options to purchase common shares, unrestricted shares, and dividend equivalent rights, in each case with or without performance conditions, to acquire up to an aggregate of 2.8 million common shares or TRG Profits Units to directors, officers, employees, and other service providers of TCO and our affiliates. Every share or TRG Profits Unit subject to awards under the 2018 Omnibus Plan shall be counted against this limit as one share or TRG Profits Unit for every one share or TRG Profits Unit granted. The amount of shares or TRG Profits Units available for future grants is adjusted when the number of contingently issuable common shares or units are settled. If an award issued under the 2018 Omnibus Plan is forfeited, expires without being exercised, or is used to pay tax withholding on such award, the shares or TRG Profits Units become available for issuance under new awards. TRG Profits Units are intended to constitute "profits interests" within the meaning of Treasury authority under the Internal Revenue Code of 1986, as amended. In addition, non-employee directors have the option to defer their compensation under a deferred compensation plan. The 2018 Omnibus Plan allows us to permit or require the deferral of all or a part of an award payment into a deferred compensation arrangement. Prior to the adoption of the 2018 Omnibus Plan, we provided share-based compensation through The Taubman Company LLC 2008 Omnibus Long-Term Incentive Plan (2008 Omnibus Plan), as amended, which expired in May 2018.

Changes to Share-Based Compensation Agreements Following Completion of Merger

Certain terms of our existing share-based compensation programs will change following the completion of Simon's pending acquisition of TCO. At the REIT Merger Effective Time, (1) each outstanding restricted stock unit award of TCO (each, a RSU) and each outstanding performance stock unit award (each, a PSU) granted under the 2008 Omnibus Plan and 2018 Omnibus Plan (Taubman Stock Plans) that vest in accordance with its terms in connection with the closing of the merger will automatically convert into the right to receive the Common Stock Merger Consideration; (2) each outstanding RSU and PSU that is not eligible to vest in accordance with its terms at the REIT Merger Effective Time will be converted into a cash substitute award to be paid (A) with respect to any such award granted prior to 2020, in accordance with the same service-vesting schedule that applied to the original RSU or PSU award and (B) with respect to any such award granted in 2020, in accordance with the same vesting schedule (including performance-vesting conditions) that applied to the original RSU or PSU award; (3) each outstanding share of deferred TCO Common Stock (each, a TCO DSU) granted under the Taubman Stock Plans will be converted into the right to receive the Common Stock Merger Consideration, and (4) each dividend equivalent right granted in tandem with any RSU or PSU (each, a TCO DER) will be treated in the same manner as the outstanding RSU or PSU to which such TCO DER relates.











TRG Profits Units

There were no TRG Profits Units granted in 2020. The following types of TRG Profits Units awards were granted to certain senior management employees in prior years: (1) a time-based award with a three year cliff vesting period (Restricted TRG Profits Units); (2) a performance-based award that is based on the achievement of relative total shareholder return (TSR) over a three year period (Relative TSR Performance-based TRG Profits Units); and (3) a performance-based award that is based on the achievement of net operating income (NOI) over a three year period (NOI Performance-based TRG Profits Units). The maximum number of Relative TSR and NOI Performance-based TRG Profits Units are issued at grant, eventually subject to a recovery and cancellation of previously granted amounts depending on actual performance against TSR and NOI measures over the three year performance measurement period. NOI Performance-based TRG Profits Units provide for a cap on the maximum number of units vested if absolute TSR is not positive over a three year period. Relative TSR and NOI Performance-based TRG Profits Units are generally subject to the same performance measures as the TSR-Based and NOI-Based Performance Share Units (see 2020 Awards - Other Management Employee Grants below). Despite the difference in scaling of the grant programs, the final outcome of the TSR and NOI performance measures will result in similar numbers of either TRG Units or common shares being issued at vesting under the TRG Profits Units program and the Performance Share Unit program, respectively.

Each such award represents a contingent right to receive a TRG Unit upon vesting and the satisfaction of certain tax-driven requirements and, as to the TSR and NOI Performance-based TRG Profits Units, the satisfaction of certain performance-based requirements. Until vested, a TRG Profits Unit entitles the holder to only one-tenth of the distributions otherwise payable by TRG on a TRG Unit. Therefore, we account for these TRG Profits Units as participating securities in TRG. A portion of the TRG Profits Units award represents estimated cash distributions that otherwise would have been payable during the vesting period and, upon vesting, there will be an adjustment in actual number of TRG Profits Units realized under each award to reflect TRG's actual cash distributions during the vesting period.

All outstanding TRG Profits Units previously issued will vest in March 2021, if continuous service has been provided, or upon retirement or certain other events (such as death or disability) if earlier. Each holder of a TRG Profits Unit will be treated as a limited partner in TRG from the date of grant. To the extent the vested TRG Profits Units have not achieved the applicable criteria for conversion to TRG Units, vesting and economic equivalence to a TRG Unit prior to the tenth anniversary of the date of grant, the awards will be forfeited pursuant to the terms of the award agreement.

2020 Awards - Other Management Employee Grants

During 2020 and in prior years, other types of awards granted to management employees include those described below. The awards granted in 2020 vest in March 2023, if continuous service has been provided, or upon retirement or certain other events (such as death or disability) if earlier.

TSR - Based Performance Share Units (TSR PSU) - Each TSR PSU represents the right to receive, upon vesting, shares of common stock ranging from 0-300% of the TSR PSU based on our market performance relative to that of a peer group. The TSR PSU grants include a cash payment upon vesting equal to the aggregate cash dividends that would have been paid on such shares of common stock during the vesting period.

NOI - Based Performance Share Units (NOI PSU) - Each NOI PSU represents the right to receive, upon vesting, shares of common stock ranging from 0-300% of the NOI PSU based on our NOI performance, as well as a cash payment upon vesting equal to the aggregate cash dividends that would have been paid on such shares of common stock during the vesting period. These awards also provide for a cap on the maximum number of units vested if absolute TSR is not positive over a three-year period.

Restricted Share Units (RSU) - Each RSU represents the right to receive upon vesting one share of common stock, as well as a cash payment upon vesting equal to the aggregate cash dividends that would have been paid on such shares of common stock during the vesting period.

Expensed and Capitalized Costs

The compensation cost charged to income for our share-based compensation plans was $1.9 million and $2.3 million for the three months ended March 31, 2020 and 2019, respectively. Compensation cost capitalized as part of properties and deferred leasing costs was $0.1 million and $0.1 million for the three months ended March 31, 2020 and 2019, respectively.



Valuation Methodologies

We estimated the grant-date fair values of share-based grants using the methods as follows. Expected volatility and dividend yields are based on historical volatility and yields of our 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 grant date. We assume no forfeitures for failure to meet the service requirement of PSU or TRG Profits Units, due to the small number of participants and low turnover rate.

The valuations of all grants utilized our common stock price at the grant date. Common stock prices when used in valuing TRG Profits Units are further adjusted by the present value of expected differences in dividends payable on the common stock versus the distributions payable on the TRG Profits Units over the vesting period. We estimated the value of grants dependent on TSR performance using a Monte Carlo simulation and considering historical returns of TCO and the peer group.

For awards dependent on NOI performance, we consider the NOI measure a performance condition under applicable accounting standards, and as such, have estimated a grant-date fair value for each of its possible outcomes. The compensation cost ultimately will be recognized equal to the grant-date fair value of the award that coincides with the actual outcome of the NOI performance. The weighted average grant-date fair value shown for NOI-dependent awards corresponds with management's current expectation of the probable outcome of the NOI performance measure. The product of the NOI-dependent awards outstanding and the grant-date fair value represents the compensation cost being recognized over the service periods.

The valuations of TRG Profits Units consider the possibility that sufficient share price appreciation will not be realized, such that the conversion to TRG Units will not occur and the awards will be forfeited.

Summaries of Activity for the Three Months Ended March 31, 2020

Restricted TRG Profits Units
 
Number of Restricted TRG Profits Units
 
Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2020
22,411

 
$
54.73

Units recovered and cancelled (1)
(58
)
 
57.84

Vested and converted (2)
(14,199
)
 
57.84

Outstanding at March 31, 2020
8,154

 
$
49.29


(1)
This reflects the recovery and cancellation of previously granted Restricted TRG Profits Units, which vested on March 1, 2020, as a result of the actual cash distributions made during the vesting period.
(2)
This represents the conversion of Restricted TRG Profits Units to TRG Units, which vested on March 1, 2020, and had previously satisfied certain tax–driven requirements.

As of March 31, 2020, there was $0.1 million of total unrecognized compensation cost related to nonvested Restricted TRG Profits Units outstanding. This cost is expected to be recognized over an average period of 0.9 years.

Relative TSR Performance-based TRG Profits Units
 
Number of relative TSR Performance-based TRG Profits Units
 
Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2020
50,420

 
$
22.81

Units recovered and cancelled (1)
(27,318
)
 
23.14

Vested and converted (2)
(4,757
)
 
23.14

Outstanding at March 31, 2020
18,345

 
$
22.22


(1)
This reflects the recovery and cancellation of previously granted (300% of target grant amount) Relative TSR Performance-based TRG Profits Units, which vested on March 1, 2020, as a result of the performance payout ratio of 17% and the actual cash distributions made during the vesting period. That is, despite the completion of applicable employee service requirements, the number of Relative TSR Performance-based TRG Profits Units ultimately considered earned is determined by the extent to which the TSR market performance measure was achieved during the performance period.
(2)
This represents the conversion of Restricted TRG Profits Units to TRG Units, which vested on March 1, 2020, and had previously satisfied certain tax–driven requirements.

As of March 31, 2020, there was $0.1 million of total unrecognized compensation cost related to nonvested Relative TSR Performance-based TRG Profits Units outstanding. This cost is expected to be recognized over an average period of 0.9 years.

NOI Performance-based TRG Profits Units
 
Number of NOI Performance-based TRG Profits Units
 
Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2020
50,420

 
$
2.99

Units recovered and cancelled (1)
(32,075
)
 

Outstanding at March 31, 2020
18,345

 
$
8.21


(1)
This reflects the recovery and cancellation of previously granted (300% of target grant amount) NOI Performance-based TRG Profits Units, which vested on March 1, 2020, as a result of the performance payout ratio of 0%. That is, despite the completions of applicable employee service requirements, the number of NOI Performance-based TRG Profits Units ultimately considered earned is determined by the extent to which the NOI performance measure was achieved during the performance period.

As of March 31, 2020, there was less than $0.1 million of total unrecognized compensation cost related to nonvested NOI Performance-based TRG Profits Units outstanding. This cost is expected to be recognized over an average period of 0.9 years.

TSR - Based Performance Share Units
 
Number of TSR PSU
 
Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2020
29,375

 
$
82.95

Vested (1)
(2,492
)
 
79.60

Outstanding at March 31, 2020
26,883

 
$
83.26

(1)
Based on our market performance relative to that of a peer group, the actual number of shares of common stock issued upon vesting on March 1, 2020 was 1,297 shares for the TSR PSU three-year grants. The shares of common stock were issued at 0.52x. That is, despite the completion of the applicable employee service requirements, the number of shares ultimately considered earned is determined by the extent to which the TSR market performance measure was achieved during the performance period.
    
As of March 31, 2020, there was $1.1 million of total unrecognized compensation cost related to nonvested TSR PSU outstanding. This cost is expected to be recognized over an average period of 1.6 years.







NOI - Based Performance Share Units
 
Number of NOI PSU
 
Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2020
29,375

 
$
40.95

Granted
31,318

 
43.24

Vested (1)
(2,492
)
 

Outstanding at March 31, 2020
58,201

 
$
43.94


(1)
The actual number of shares of common stock issued upon vesting on March 1, 2020 was zero. That is, despite the completion of applicable employee service requirements, the number of shares ultimately considered earned is determined by the extent to which NOI was achieved during the performance period.

As of March 31, 2020, there was $2.0 million of total unrecognized compensation cost related to nonvested NOI PSU outstanding. This cost is expected to be recognized over an average period of 2.1 years.

Restricted Share Units
 
Number of RSU
 
Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2020
179,846

 
$
57.73

Vested
(41,974
)
 
67.05

Granted
84,352

 
47.07

Forfeited
(1,681
)
 
56.55

Outstanding at March 31, 2020
220,543

 
$
51.89



As of March 31, 2020, there was $7.0 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.

Unit Option Deferral Election

Under a prior option plan, the 2008 Omnibus Plan, and the 2018 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, our 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 TRG 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 and subsequent deferral elections (the latest being made in September 2016), beginning in December 2022 (unless Mr. Taubman retires earlier), the deferred options units will be issued as TRG Units in five annual installments. The deferred option units are accounted for as participating securities of TRG.
v3.20.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies

Cash Tender

At the time of our initial public offering and acquisition of our partnership interest in TRG in 1992, we entered into an agreement (the Cash Tender Agreement) with the A. Alfred Taubman Restated Revocable Trust (Revocable Trust) and TRA Partners (now Taubman Ventures Group LLC or TVG), each of whom owned an interest in TRG, whereby each of the Revocable Trust and TVG (and/or any assignee of the Revocable Trust or TVG, which now include the Estate of A. Alfred Taubman and other specified entities that are affiliated with the children of A. Alfred Taubman (Robert S. Taubman, William S. Taubman, and Gayle Taubman Kalisman)) has the right to tender to us TRG Units (provided that if the tendering party is tendering less than all of its TRG Units, the aggregate value is at least $50 million) and cause us to purchase the tendered interests at a purchase price based on a market valuation of TCO on the trading date immediately preceding the date of the tender (except as otherwise provided below). TVG is controlled by a majority-in-interest among the Estate of A. Alfred Taubman 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 tendering party, TRG Units held by members of A. Alfred Taubman’s family and TRG Units held by entities in which his family members hold interests may be included in such a tender.


We would have the option to pay for these interests from available cash, borrowed funds, or from the proceeds of an offering of common stock. Generally, we expect to finance these purchases, if any, through the sale of new shares of our common stock. The tendering partner would bear all market risk if the market price at closing is less than the purchase price and would bear the costs of sale. Any proceeds of the offering in excess of the purchase price would be for our sole benefit. We account for the Cash Tender Agreement as a freestanding written put option. As the option put price is defined by the current market price of our 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, 2020 of $41.88 per share for our common stock, the aggregate value of TRG Units that may be tendered under the Cash Tender Agreement was $1.0 billion. The purchase of these interests at March 31, 2020 would have resulted in us owning an additional 28% interest in TRG.

Continuing Offer

We have made a continuing, irrevocable offer to exchange shares of common stock for TRG Units (the Continuing Offer) to all present holders of TRG Units (other than certain excluded holders, currently TVG and other specified entities), permitted assignees of all present holders of TRG Units, those future holders of TRG Units as we may, in our sole discretion, agree to include in the Continuing Offer, and all future optionees under the 2018 Omnibus Plan. Under the Continuing Offer agreement, one TRG Unit is exchangeable for one share of common stock. Upon a tender of TRG Units, the corresponding shares of Series B Preferred Stock, if any, will automatically be converted into common stock at a ratio of 14,000 shares of Series B Preferred Stock for one share of common stock.

Insurance

We carry liability insurance to mitigate our exposure to certain losses, including those relating to personal injury claims. We believe our insurance policy terms, 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, which may not be covered by insurance, and not all potential losses are insured against.

Hurricane Maria and The Mall of San Juan

The Mall of San Juan incurred significant damage from Hurricane Maria in 2017. We have received substantial insurance proceeds to cover hurricane and flood damage, as well as business and service interruption. In June 2019, we reached a final settlement with our insurer and received final payment related to our claims.

The following table presents a summary of the insurance proceeds received relating to our claim for The Mall of San Juan for the three months ended March 31, 2019:
Proceeds Description
Consolidated Statement of Operations and Comprehensive Income (Loss) Location
 
Three Months Ended
March 31, 2019
 
 
 
 
(in thousands)
Business interruption insurance recoveries
Nonoperating Income, Net
 
$
4,043

Expense reimbursement insurance recoveries
Nonoperating Income, Net
 
3



Other

See Note 5 for TRG's guarantees of certain notes payable, including guarantees relating to UJVs, Note 6 for contingent features relating to certain joint venture agreements, Note 7 for contingent features relating to derivative instruments, and Note 8 for obligations under existing share-based compensation plans.
v3.20.1
Earnings Per Share
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Earnings Per Share Earnings Per Common Share

Basic earnings per common share amounts are based on the weighted average of common shares outstanding for the respective periods. Diluted earnings per common 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 TRG Units exchangeable for common shares under the Continuing Offer (Note 9), TSR PSU, NOI PSU, Restricted and Performance-based TRG Profits Units, RSU, deferred shares under the Non-Employee Directors’ Deferred Compensation Plan, and unissued TRG Units under a unit option deferral election (Note 8). In computing the potentially dilutive effect of potential common stock, TRG 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 TRG 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 earnings per common share based on the number of shares, if any, which would be issuable if the end of the reporting period were the end of the contingency period. 
 
Three Months Ended March 31
 
2020
 
2019
Net income attributable to TCO common shareholders (Numerator):
 
 
 
Basic
$
19,872

 
$
15,097

Impact of additional ownership of TRG
24

 
21

Diluted
$
19,896

 
$
15,118

 
 
 
 
Shares (Denominator) – basic
61,249,637

 
61,124,016

Effect of dilutive securities
224,453

 
275,092

Shares (Denominator) – diluted
61,474,090

 
61,399,108

 
 
 
 
Earnings per common share – basic
$
0.32

 
$
0.25

Earnings per common share – diluted
$
0.32

 
$
0.25



The calculation of diluted earnings per common share in certain periods excluded certain potential common stock including outstanding TRG Units and unissued TRG Units under a unit option deferral election, both of which may be exchanged for common shares of TCO under the Continuing Offer. The table below presents the potential common stock excluded from the calculation of diluted earnings per common share as they were anti-dilutive in the period presented.
 
Three Months Ended March 31
 
2020
 
2019
Weighted average noncontrolling TRG Units outstanding
3,543,624

 
4,149,066

Unissued TRG Units under unit option deferral elections
871,262

 
871,262


v3.20.1
Fair Value Disclosures
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
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 we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the reporting date. The valuations of our 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 our own nonperformance risk and the respective counterparty's nonperformance risk.

Other

Our valuations of both our investments in an insurance deposit and in Simon common shares utilize unadjusted quoted prices determined by active markets for the specific securities we have invested in, and therefore fall into Level 1 of the fair value hierarchy. We measured our investment in Simon common shares at fair value with changes in value recorded through net income.
We owned zero Simon common shares as of both March 31, 2020 and December 31, 2019. In January 2019, we sold our remaining investment in 290,124 Simon common shares at an average price of $179.52 per share. Proceeds from the sale were used to pay down our revolving lines of credit.

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, 2020 Using
 
Fair Value Measurements as of
December 31, 2019 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
 
$
11,239

 
 

 
$
11,213

 
 

Total assets
 
$
11,239


$

 
$
11,213

 
$

 
 
 
 
 
 
 
 
 
Derivative interest rate contracts (Note 7)
 
 

 
$