TAUBMAN CENTERS INC, 10-K filed on 2/23/2017
Annual Report
Document and Entity Information Document (USD $)
In Billions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Feb. 22, 2017
Jun. 30, 2016
Entity Information [Line Items]
 
 
 
Entity Registrant Name
TAUBMAN CENTERS INC. 
 
 
Entity Central Index Key
0000890319 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2016 
 
 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
60,514,503 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Share Price
$ 73.93 
 
$ 74.20 
Entity Public Float
 
 
$ 4.3 
CONSOLIDATED BALANCE SHEET (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
Assets:
 
 
Properties (Notes 4 and 8)
$ 4,173,954 
$ 3,713,215 
Accumulated depreciation and amortization
(1,147,390)
(1,052,027)
Real Estate Investment Property, Net
3,026,564 
2,661,188 
Investment in Unconsolidated Joint Ventures (Notes 2 and 5)
604,808 
433,911 
Cash and cash equivalents
40,603 
206,635 
Restricted cash (Note 8)
932 
6,447 
Accounts and notes receivable, less allowance for doubtful accounts of $4,311 and $2,974 in 2016 and 2015 (Note 6)
60,174 
54,547 
Accounts receivable from related parties (Note 12)
2,103 
2,478 
Deferred charges and other assets (Notes 1 and 7)
275,728 
181,304 
Total Assets
4,010,912 
3,546,510 
Liabilities:
 
 
Notes payable, net (Notes 1 and 8)
3,255,512 
2,627,088 
Accounts payable and accrued liabilities
336,536 
334,525 
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures (Note 5)
480,863 
464,086 
Total Liabilities
4,072,911 
3,425,699 
Commitments and contingencies (Notes 8, 9, 10, 11, 13, and 15)
   
   
Equity:
 
 
Redeemable noncontrolling interests (Note 9)
8,704 
   
Series B Non-Participating Convertible Preferred Stock, $0.001 par and liquidation value, 40,000,000 shares authorized, 25,029,059 and 25,044,939 shares issued and outstanding at December 31, 2016 and 2015
25 
25 
Common Stock, $0.01 par value, 250,000,000 shares authorized, 60,430,613 and 60,233,561 shares issued and outstanding at December 31, 2016 and 2015
604 
602 
Additional paid-in capital
657,281 
652,146 
Accumulated other comprehensive income (loss) (Note 19)
(35,916)
(27,220)
Dividends in excess of net income
(549,914)
(512,746)
Stockholders' Equity Attributable to Parent
72,080 
112,807 
Noncontrolling interests (Note 9)
(142,783)
8,004 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
(70,703)
120,811 
Total Liabilities and Equity
$ 4,010,912 
$ 3,546,510 
CONSOLIDATED BALANCE SHEET (Parenthetical) (USD $)
Dec. 31, 2016
Dec. 31, 2015
Allowance for doubtful accounts
$ 4,311,000 
$ 2,974,000 
Common stock, par value per share
$ 0.01 
$ 0.01 
Common stock, shares authorized
250,000,000 
250,000,000 
Common stock, shares issued
60,430,613 
60,233,561 
Common stock, shares outstanding
60,430,613 
60,233,561 
Series B Preferred Stock [Member]
 
 
Preferred Stock, par value
$ 0.001 
$ 0.001 
Preferred Stock, liquidation value per share
$ 0.001 
$ 0.001 
Preferred Stock, shares authorized
40,000,000 
40,000,000 
Preferred Stock, shares issued
25,029,059 
25,044,939 
Preferred Stock, shares outstanding
25,029,059 
25,044,939 
Series J Preferred Stock [Member]
 
 
Preferred Stock, par value
$ 0 
$ 0 
Preferred Stock, liquidation preference, value
192,500,000 
192,500,000 
Preferred Stock, shares authorized
7,700,000 
7,700,000 
Preferred Stock, shares issued
7,700,000 
7,700,000 
Preferred Stock, shares outstanding
7,700,000 
7,700,000 
Series K Preferred Stock [Member]
 
 
Preferred Stock, par value
$ 0 
$ 0 
Preferred Stock, liquidation preference, value
$ 170,000,000 
$ 170,000,000 
Preferred Stock, shares authorized
6,800,000 
6,800,000 
Preferred Stock, shares issued
6,800,000 
6,800,000 
Preferred Stock, shares outstanding
6,800,000 
6,800,000 
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Revenues:
 
 
 
Minimum rents
$ 333,325 
$ 310,831 
$ 371,454 
Percentage rents
20,020 
20,233 
22,929 
Expense recoveries
202,467 
188,023 
239,782 
Management, leasing, and development services (Note 2)
28,059 
13,177 
12,349 
Other
28,686 
24,908 
32,615 
Total Revenues
612,557 
557,172 
679,129 
Expenses:
 
 
 
Maintenance, taxes, utilities, and promotion
156,506 
145,118 
190,119 
Other operating
78,794 
58,131 
65,142 
Management, leasing, and development services
4,042 
5,914 
6,220 
General and administrative (Note 13)
48,056 
45,727 
48,292 
Costs associated with shareowner activism (Note 1)
3,000 
 
 
Restructuring charge (Note 2)
   
   
3,706 
Interest expense
86,285 
63,041 
90,803 
Depreciation and amortization
138,139 
106,355 
120,207 
Total Expenses
514,822 
424,286 
524,489 
Nonoperating income (expense) (Notes 2, 7, and 10)
22,927 
5,256 
(42,807)
Income before income tax expense, equity in income of Unconsolidated Joint Ventures, and gain on dispositions, net of tax
120,662 
138,142 
111,833 
Income tax expense (Note 3)
(2,212)
(2,248)
(2,267)
Equity in income of Unconsolidated Joint Ventures (Note 5)
69,701 
56,226 
62,002 
Income before gain on dispositions, net of tax
188,151 
192,120 
171,568 
Gain on dispositions, net of tax (Note 2)
   
437 
1,106,554 
Net income
188,151 
192,557 
1,278,122 
Net income attributable to noncontrolling interests (Note 9)
(55,538)
(58,430)
(385,109)
Net income attributable to Taubman Centers, Inc.
132,613 
134,127 
893,013 
Distributions to participating securities of TRG (Note 13)
(2,117)
(1,969)
(6,018)
Preferred stock dividends (Note 14)
(23,138)
(23,138)
(23,138)
Net income attributable to Taubman Centers, Inc. common shareowners
107,358 
109,020 
863,857 
Other comprehensive income (Note 19):
 
 
 
Unrealized loss on interest rate instruments and other
(4,308)
(13,668)
(18,004)
Cumulative translation adjustment
(17,339)
(15,279)
(7,193)
Reclassification adjustment for amounts recognized in net income
9,339 
12,021 
16,729 
Other Comprehensive Income (Loss), Net of Tax
(12,308)
(16,926)
(8,468)
Comprehensive income
175,843 
175,631 
1,269,654 
Comprehensive income attributable to noncontrolling interests
(51,927)
(53,458)
(382,825)
Comprehensive income attributable to Taubman Centers, Inc.
$ 123,916 
$ 122,173 
$ 886,829 
Basic earnings per common share (Note 16)
$ 1.78 
$ 1.78 
$ 13.65 
Diluted earnings per common share (Note 16)
$ 1.77 
$ 1.76 
$ 13.47 
Weighted average number of common shares outstanding – basic
60,363,416 
61,389,113 
63,267,800 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income [Member]
Accumulated Distributions in Excess of Net Income [Member]
Noncontrolling Interest [Member]
Balance at Dec. 31, 2013
$ (215,660)
$ 25 
$ 631 
$ 796,787 
$ (8,914)
$ (908,656)
$ (95,533)
Balance, shares at Dec. 31, 2013
 
39,651,069 
63,101,614 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Issuance of stock pursuant to Continuing Offer (Notes 13, 14, and 15)
 
   
   
 
 
 
Issuance of stock pursuant to Continuing Offer (Notes 13, 14, and 15), shares
 
(35,500)
35,500 
 
 
 
 
Repurchase of common stock (Note 14)
(17)
 
   
(17)
 
 
 
Repurchase of common stock (Note 14), shares
 
 
(266)
 
 
 
 
Share-based compensation under employee and director benefit plans (Note 13)
18,932 
 
18,930 
 
 
 
Share-based compensation under employee and director benefit plans (Note 13), shares
 
 
187,561 
 
 
 
 
Adjustments of noncontrolling interests (Notes 9 and 18)
 
 
83 
30 
 
(113)
Contributions from noncontrolling interests
22,345 
 
 
 
 
 
22,345 
Dividends and distributions (Note 2)
(674,685)
 
 
 
 
(466,731)
 
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders
 
 
 
 
 
 
(207,954)
Other
(626)
 
 
178 
 
(814)
10 
Other, Shares
 
1,431 
 
 
 
 
 
Net income
1,278,122 
 
 
 
 
893,013 
385,109 
Unrealized loss on interest rate instruments and other
(18,004)
 
 
 
(12,783)
 
(5,221)
Cumulative translation adjustment
(7,193)
 
 
 
(5,148)
 
(2,045)
Reclassification adjustment for amounts recognized in net income
16,729 
 
 
 
11,747 
 
4,982 
Balance at Dec. 31, 2014
419,943 
25 
633 
815,961 
(15,068)
(483,188)
101,580 
Balance, shares at Dec. 31, 2014
 
39,617,000 
63,324,409 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Issuance of stock pursuant to Continuing Offer (Notes 13, 14, and 15)
 
(1)
 
 
 
Issuance of stock pursuant to Continuing Offer (Notes 13, 14, and 15), shares
 
(72,061)
73,295 
 
 
 
 
Repurchase of common stock (Note 14)
(252,633)
 
(35)
(252,598)
 
 
 
Repurchase of common stock (Note 14), shares
 
 
(3,460,796)
 
 
 
 
Share-based compensation under employee and director benefit plans (Note 13)
19,252 
 
19,249 
 
 
 
Share-based compensation under employee and director benefit plans (Note 13), shares
 
 
296,653 
 
 
 
 
Adjustments of noncontrolling interests (Notes 9 and 18)
(9,296)
 
 
69,521 
(198)
 
(78,619)
Dividends and distributions (Note 2)
(231,502)
 
 
 
 
(163,087)
 
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders
 
 
 
 
 
 
(68,415)
Other
(584)
 
 
14 
 
(598)
   
Net income
192,557 
 
 
 
 
134,127 
58,430 
Unrealized loss on interest rate instruments and other
(13,668)
 
 
 
(9,653)
 
(4,015)
Cumulative translation adjustment
(15,279)
 
 
 
(10,790)
 
(4,489)
Reclassification adjustment for amounts recognized in net income
12,021 
 
 
 
8,489 
 
3,532 
Balance at Dec. 31, 2015
120,811 
25 
602 
652,146 
(27,220)
(512,746)
8,004 
Balance, shares at Dec. 31, 2015
 
39,544,939 
60,233,561 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Issuance of stock pursuant to Continuing Offer (Notes 13, 14, and 15)
 
   
   
 
 
 
Issuance of stock pursuant to Continuing Offer (Notes 13, 14, and 15), shares
 
(15,880)
15,880 
 
 
 
 
Share-based compensation under employee and director benefit plans (Note 13)
17,030 
 
17,028 
 
 
 
Taubman Asia President redeemable equity adjustment (Note 9)
(13,854)
 
 
(13,854)
 
 
 
Share-based compensation under employee and director benefit plans (Note 13), shares
 
 
181,172 
 
 
 
 
Adjustments of noncontrolling interests (Notes 9 and 18)
(656)
 
 
1,959 
 
(2,616)
Dividends and distributions (Note 2)
(369,742)
 
 
 
 
(168,988)
 
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders
 
 
 
 
 
 
(200,754)
Other
(791)
 
 
 
(793)
   
Net income
188,151 
 
 
 
 
 
 
Net income (excludes $656 of net loss attributable to redeemable noncontrolling interest) (Note 9)
188,807 
 
 
 
 
132,613 
56,194 
Unrealized loss on interest rate instruments and other
(4,308)
 
 
 
(3,044)
 
(1,264)
Cumulative translation adjustment
(17,339)
 
 
 
(12,251)
 
(5,088)
Reclassification adjustment for amounts recognized in net income
9,339 
 
 
 
6,598 
 
2,741 
Balance at Dec. 31, 2016
$ (70,703)
$ 25 
$ 604 
$ 657,281 
$ (35,916)
$ (549,914)
$ (142,783)
Balance, shares at Dec. 31, 2016
 
39,529,059 
60,430,613 
 
 
 
 
CONSOLIDATED STATEMENT OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Cash Flows From Operating Activities:
 
 
 
Net income
$ 188,151 
$ 192,557 
$ 1,278,122 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
138,139 
106,355 
120,207 
Provision for bad debts
4,047 
1,994 
2,900 
Gain on dispositions (Note 2)
 
 
(1,116,287)
Gain on sales of peripheral land
(1,827)
 
 
Gain on SPG common stock conversion (Note 7)
(11,069)
 
 
Debt extinguishment costs (Note 2)
 
 
36,372 
Discontinuation of hedge accounting (Note 10)
 
 
7,763 
Other
18,925 
15,799 
18,728 
Increase (decrease) in cash attributable to changes in assets and liabilities:
 
 
 
Receivables, restricted cash, deferred charges, and other assets
(32,833)
(15,636)
(595)
Accounts payable and other liabilities
1,490 
6,616 
16,476 
Net Cash Provided By Operating Activities
305,023 
307,685 
363,686 
Cash Flows From Investing Activities:
 
 
 
Additions to properties
(504,864)
(440,678)
(442,991)
Proceeds from sales of peripheral land
11,258 
 
 
Cash drawn from (provided to) escrow related to center construction projects (Note 7)
(69,680)
28,857 
(70,607)
Proceeds from dispositions, net of transaction costs (Note 2)
 
 
1,776,394 
Contributions to Unconsolidated Joint Ventures
(79,976)
(97,293)
(45,974)
Contribution for acquisition of Country Club Plaza (Note 2)
(314,245)
 
 
Distributions from Unconsolidated Joint Ventures in excess of income (Note 2)
234,913 
5,755 
68,388 
Other
81 
(1,762)
7,329 
Net Cash Provided By (Used In) Investing Activities
(722,513)
(505,121)
1,292,539 
Cash Flows From Financing Activities:
 
 
 
Proceeds from (payments to) revolving lines of credit, net
234,700 
   
(158,040)
Debt proceeds
758,991 
1,198,640 
163,779 
Extinguishment of debt (Note 2)
   
   
(658,092)
Other debt payments
(367,527)
(578,790)
(106,844)
Debt issuance costs
(1,620)
(12,743)
(8,208)
Repurchase of common stock (Note 14)
   
(252,633)
(17)
Proceeds and Excess Tax Benefit from Share-based Compensation
1,806 
4,526 
 
Payments Related to Tax Withholding for Share-based Compensation
 
 
(943)
Distributions to noncontrolling interests (Note 9)
(207,904)
(68,415)
(207,954)
Distributions to participating securities of TRG
(2,117)
(1,969)
(6,018)
Contributions from noncontrolling interests
2,000 
   
22,345 
Cash dividends to preferred shareowners
(23,138)
(23,138)
(23,138)
Cash dividends to common shareowners (Note 2)
(143,733)
(137,830)
(437,665)
Net Cash Provided By (Used In) Financing Activities
251,458 
127,648 
(1,420,795)
Net Increase (Decrease) In Cash and Cash Equivalents
(166,032)
(69,788)
235,430 
Cash and Cash Equivalents at Beginning of Year
206,635 
276,423 
40,993 
Cash and Cash Equivalents at End of Year
$ 40,603 
$ 206,635 
$ 276,423 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

Organization and Basis of Presentation

General

Taubman Centers, Inc. (the Company or TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate investment trust (REIT). The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is a majority-owned partnership subsidiary of TCO that owns direct or indirect interests in all of the Company’s real estate properties. In this report, the term "Company" refers to TCO, the Operating Partnership, and/or the Operating Partnership's subsidiaries as the context may require. The Company engages in the ownership, management, leasing, acquisition, disposition, development, and expansion of regional and super-regional retail shopping centers and interests therein. The Company’s owned portfolio as of December 31, 2016 included 23 urban and suburban shopping centers operating in 11 U.S. states, Puerto Rico, South Korea, and China.

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

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

Consolidation

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

Investments in entities not controlled but over which the Company may exercise significant influence (Unconsolidated Joint Ventures or UJVs) are accounted for under the equity method. The Company has evaluated its investments in the Unconsolidated Joint Ventures under guidance for determining whether an entity is a variable interest entity and has concluded that the ventures are not variable interest entities. Accordingly, the Company accounts for its interests in these entities under general accounting standards for investments in real estate ventures (including guidance for determining effective control of a limited partnership or similar entity). The Company’s partners or other owners in these Unconsolidated Joint Ventures have substantive participating rights including approval rights over annual operating budgets, capital spending, financing, admission of new partners/members, or sale of the properties and the Company has concluded that the equity method of accounting is appropriate for these interests. Specifically, the Company’s 79% and 50.1% investments in Westfarms and International Plaza, respectively, are through general partnerships in which the other general partners have participating rights over annual operating budgets, capital spending, refinancing, or sale of the property. The Company provides its beneficial interest in certain financial information of its Unconsolidated Joint Ventures (Notes 5 and 8). This beneficial information is derived as the Company's ownership interest in the investee multiplied by the specific financial statement item being presented. Investors are cautioned that deriving the Company's beneficial interest in this manner may not accurately depict the legal and economic implications of holding a noncontrolling interest in the investee.

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





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

The Company’s sole significant asset is its investment in the Operating Partnership and, consequently, substantially all of the Company’s consolidated assets and liabilities are assets and liabilities of the Operating Partnership. All of the Company’s debt (Note 8) is an obligation of the Operating Partnership or its consolidated subsidiaries. Note 8 also provides disclosure of guarantees provided by the Operating Partnership to certain consolidated joint ventures. Note 9 provides additional disclosures of the carrying balance of the noncontrolling interests in its consolidated joint ventures and other information, including a description of certain rights of the noncontrolling owners.

The Operating Partnership

At December 31, 2016 and 2015, the Operating Partnership’s equity included two classes of preferred equity (Series J and K Preferred Equity) and the net equity of the partnership unitholders (Note 14). Net income and distributions of the Operating Partnership are allocable first to the preferred equity interests, and the remaining amounts to the general and limited partners in the Operating Partnership in accordance with their percentage ownership. The Series J and K Preferred Equity are owned by the Company and are eliminated in consolidation.

The partnership equity of the Operating Partnership and the Company's ownership therein are shown below:
Year
 
TRG units outstanding at December 31
 
TRG units owned by TCO at December 31(1)
 
TRG units owned by noncontrolling interests at December 31
 
TCO's % interest in TRG at December 31
 
TCO's average interest % in TRG
2016
 
85,476,892

 
60,430,613

 
25,046,279

 
71%
 
71%
2015
 
85,295,720

 
60,233,561

 
25,062,159

 
71
 
71
2014
 
88,459,859

 
63,324,409

 
25,135,450

 
72
 
72

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

Outstanding voting securities of the Company at December 31, 2016 consisted of 25,029,059 shares of Series B Preferred Stock (Note 14) and 60,430,613 shares of common stock.

Revenue Recognition

Shopping center space is generally leased to tenants under short and intermediate term leases that are accounted for as operating leases. Minimum rents are recognized on the straight-line method. Percentage rent is accrued when lessees' specified sales targets have been met. For traditional net leases, where tenants reimburse the landlord for an allocation of reimbursable costs incurred, the Company recognizes revenue in the period the applicable costs are chargeable to tenants. For tenants paying a fixed common area maintenance charge (which typically includes fixed increases over the lease term), the Company recognizes revenue on a straight-line basis over the lease terms. Management, leasing, and development revenue is recognized as services are rendered, when fees due are determinable, and collectibility is reasonably assured. Fees for management, leasing, and development services are established under contracts and are generally based on negotiated rates, percentages of cash receipts, and/or actual costs incurred. Fixed-fee development services contracts are generally accounted for under the percentage-of-completion method, using cost to cost measurements of progress. Profits on real estate sales are recognized whenever (1) a sale is consummated, (2) the buyer has demonstrated an adequate commitment to pay for the property, (3) the Company’s receivable is not subject to future subordination, and (4) the Company has transferred to the buyer the risks and rewards of ownership. Other revenues, including fees paid by tenants to terminate their leases, are recognized when fees due are determinable, no further actions or services are required to be performed by the Company, and collectibility is reasonably assured. Taxes assessed by government authorities on revenue-producing transactions, such as sales, use, and value-added taxes, are primarily accounted for on a net basis on the Company’s income statement. See Note 21 - New Accounting Pronouncements, for the Company's evaluation of the impact of ASU No. 2014-09, "Revenue's from Contracts with Customers."
Allowance for Doubtful Accounts and Notes

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

Depreciation and Amortization

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

Capitalization

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

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

In the fourth quarter of 2015, the Company recognized an impairment charge on previously capitalized pre-development costs related to its enclosed regional mall project that was intended to be part of the Miami Worldcenter mixed-use, urban development in Miami, Florida (Note 5).

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

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with a maturity of 90 days or less at the date of purchase. The Company deposits cash and cash equivalents with institutions with high credit quality. From time to time, cash and cash equivalents may be in excess of FDIC insurance limits. Substantially all cash equivalents at December 31, 2016 were not insured or guaranteed by the FDIC or any other government agency and were invested across three separate financial institutions as of December 31, 2016.

The Company is required to escrow cash balances for specific uses stipulated by certain of its lenders and other various agreements. As of December 31, 2016 and 2015, the Company’s cash balances restricted for these uses were $0.9 million and $6.4 million, respectively. Included in restricted cash is $0.7 million at December 31, 2016 on deposit in excess of the FDIC insured limit.

Acquisitions

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

Deferred Charges and Other Assets

Direct costs related to successful leasing activities are capitalized and amortized on a straight-line basis over the lives of the related leases. Cash expenditures for leasing costs are recognized in the Consolidated Statement of Cash Flows as operating activities. Debt issuance costs incurred in connection with the Company's revolving lines of credit are deferred and amortized on a straight line basis, which approximates the effective interest method. All other deferred charges are amortized on a straight-line basis over the terms of the agreements to which they relate.

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

Share-Based Compensation Plans

The cost of share-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized over the requisite employee service period which is generally the vesting period of the grant. The Company recognizes compensation costs for awards with graded vesting schedules on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. The Company recognizes compensation costs for awards with net operating income performance conditions based on the grant date fair value of the award that coincides with the expected outcome of the condition, as updated for actual results (see "Note 13 - Share-Based Compensation - Net Operating Income Performance Based TRG Profits Units").

Interest Rate Hedging Agreements

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

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

The Company operates in such a manner as to qualify as a REIT under the applicable provisions of the Internal Revenue Code. To qualify as a REIT, the Company must distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains, to its shareowners and meet certain other requirements. As a REIT, the Company is entitled to a dividends paid deduction for the dividends it pays to its shareowners. Therefore, the Company will generally not be subject to federal income taxes under current Federal income tax law as long as it currently distributes to its shareowners an amount equal to or in excess of its taxable income. REIT qualification reduces but does not eliminate the amount of state and local taxes paid by the Company. In addition, a REIT may be subject to certain excise taxes if it engages in certain activities.
No provision for federal income taxes for consolidated partnerships has been made; as such taxes are the responsibility of the individual partners under current Federal income tax law. There are certain state income taxes incurred which are provided for in the Company’s financial statements.
The Company has made Taxable REIT Subsidiary (TRS) elections for all of its corporate subsidiaries pursuant to section 856 (I) of the Internal Revenue Code. The TRSs are subject to corporate level income taxes, including federal, state, and certain foreign income taxes for foreign operations, which are provided for in the Company’s financial statements.
Deferred tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. Deferred tax assets are reduced by a valuation allowance to the amount where realization is more likely than not assured after considering all available evidence, including expected taxable earnings. The Company’s temporary differences primarily relate to deferred compensation, depreciation, and net operating loss carryforwards.
Future changes to tax laws could affect the taxation of the REIT, partnerships and Taxable REIT subsidiaries, possibly having a significant impact on the current and deferred income taxes of the Company.
Noncontrolling Interests
Noncontrolling interests in the Company are comprised of the ownership interests of (1) noncontrolling interests in the Operating Partnership and (2) the noncontrolling interests in joint ventures controlled by the Company through ownership or contractual arrangements. Consolidated net income and comprehensive income includes amounts attributable to the Company and the noncontrolling interests. Transactions that change the Company's ownership interest in a subsidiary are accounted for as equity transactions if the Company retains its controlling financial interest in the subsidiary.
The Company evaluates whether noncontrolling interests are subject to any redemption features outside of the Company's control that would result in presentation outside of permanent equity pursuant to general accounting standards regarding the classification and measurement of redeemable equity instruments. Certain noncontrolling interests in the Operating Partnership and consolidated ventures of the Company qualify as redeemable noncontrolling interests (Note 9). To the extent such noncontrolling interests are currently redeemable or it is probable that they will eventually become redeemable, these interests are adjusted to the greater of their redemption value or their carrying value at each balance sheet date.

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

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

Segments and Related Disclosures

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

No single retail company represents 5% or more of the Company's revenues. The Company's consolidated revenues and assets do not have any material amounts derived from countries other than the United States, as the Company's investments in Asia are in Unconsolidated Joint Ventures that are accounted for under the equity method.

Costs Associated with Shareowner Activism

During the year ended December 31, 2016, the Company incurred $3.0 million of expense associated with activities related to a shareowner activist campaign, largely legal and advisory services. Due to the unusual and infrequent nature of these expenses in the Company's history, they have been separately classified in the Company's Consolidated Statement of Operations and Comprehensive Income.

Management's Responsibility to Evaluate the Company's Ability to Continue as a Going Concern

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

Acquisitions

Country Club Plaza

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

Purchase of U.S. Headquarters Building

In February 2014, the Company purchased the U.S. headquarters building located in Bloomfield Hills, Michigan for $16.1 million from an affiliate of the Taubman family. In exchange for the building, the Company assumed the $17.4 million, 5.90% fixed rate loan on the building, issued 1,431 Operating Partnership units (and a corresponding number of shares of Series B Preferred Stock), and received $1.4 million in escrowed and other cash from the affiliate. In March 2015, the Company refinanced the loan on the building (Note 8).

Dispositions

Sale of Centers to Starwood

In October 2014, the Company completed the disposition of seven shopping centers to an affiliate of the Starwood Capital Group (Starwood). The following centers (Sale Centers) were sold: MacArthur Center in Norfolk, Virginia, Stony Point Fashion Park in Richmond, Virginia, Northlake Mall in Charlotte, North Carolina, The Mall at Wellington Green in Wellington, Florida, The Shops at Willow Bend in Plano, Texas, The Mall at Partridge Creek in Clinton Township, Michigan, and Fairlane Town Center in Dearborn, Michigan. In 2014, the Company early adopted ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" issued by the FASB. ASU No. 2014-08 changes the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity's operations and financial results. Therefore, the results of the seven centers are in the Company's continuing operations prior to the October 2014 sale.

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

The Company recognized a gain of $629.7 million ($606.2 million at TRG's beneficial share) in 2014 as a result of the disposition of the Sale Centers. In addition, the Company recorded debt extinguishment costs of $36.4 million, ($36.0 million at TRG's beneficial share) which were classified as Nonoperating Income (Expense) on the Consolidated Statement of Operations and Comprehensive Income.

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

As a result of the sale, the Company underwent a restructuring plan to reduce its workforce across various areas of the organization. In 2014, the Company incurred $3.7 million of expenses related to the reduction in workforce. These expenses were classified as Restructuring Charge on the Consolidated Statement of Operations and Comprehensive Income. As of December 31, 2016, all of the restructuring costs have been paid.


International Plaza

In January 2014, the Company sold a total of 49.9% of the Company's interests in the entity that owns International Plaza, including certain governance rights, for $499 million (excluding transaction costs), which consisted of $337 million of cash and approximately $162 million of beneficial interest in debt. The Company's ownership in the center decreased to a noncontrolling 50.1% interest, which is accounted for under the equity method subsequent to the disposition. During 2014, a gain of $368 million (net of tax of $9.7 million) was recognized as a result of the sale. In September 2015, an adjustment of $0.4 million was made, reducing the tax recognized as a result of the sale.

Arizona Mills/Oyster Bay

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

In December 2016, the Company converted 250,000 of these partnership units into SPG common shares. See Note 7 for additional information regarding this conversion. The Company's investment in the SPG common shares and the remaining investment in the partnership units are classified within Deferred Charges and Other Assets on the Consolidated Balance Sheet.

U.S. Redevelopments and Development

Redevelopments

The Company has ongoing redevelopment projects at Beverly Center and The Mall at Green Hills, which are expected to be completed in 2018 and 2019, respectively. In total, these two redevelopment projects are expected to cost approximately $700 million. As of December 31, 2016, the Company's total capitalized costs related to these redevelopment projects were $182.6 million.

International Market Place

International Market Place, a 0.3 million square foot center in Waikiki, Honolulu, Hawaii, opened in August 2016. The center is anchored by Saks Fifth Avenue. The Company owns a 93.5% interest in the project, which is subject to a participating ground lease. The Company is funding all costs of the development.

Asia Development

CityOn.Xi'an

The Company has a joint venture with Wangfujing Group Co., Ltd (Wangfujing), one of China's largest department store chains, which owns and manages an approximately 1.0 million square foot shopping center, CityOn.Xi'an, located at Xi'an Saigao City Plaza, a large-scale mixed-use development in Xi'an, China. The shopping center opened in April 2016. Also in April 2016, the joint venture effectively acquired the 40% noncontrolling interest in the project for approximately $150 million, increasing the partnership's interest to 100%. The Company's effective ownership in the center is 50% and its share of the purchase price for the additional interest was approximately $75 million. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.






CityOn.Zhengzhou

The Company also has a second joint venture with Wangfujing which owns a majority interest in and will manage an approximately 1.0 million square foot multi-level shopping center, CityOn.Zhengzhou, under construction in Zhengzhou, China. The center is scheduled to open in March 2017. In July 2016, the Company acquired an additional 17% interest in the project. As a result of the acquisition, the Company's effective ownership in the center is 49%. As of December 31, 2016, the Company's share of total project costs were $156.0 million, which was decreased by $10.1 million for the change in exchange rates. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.

Starfield Hanam

The Company's joint venture with Shinsegae Group, one of South Korea's largest retailers, owns and manages an approximately 1.7 million square foot shopping center, Starfield Hanam, located in Hanam, South Korea. The shopping center opened in September 2016. The Company has partnered with a major institution in Asia for a 49% ownership interest in Starfield Hanam. The institutional partner owns 14.7% of the project, bringing the Company's effective ownership to 34.3%. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.

Service Agreement

The Shops at Crystals

In April 2016, the third party leasing agreement for The Shops at Crystals was terminated in connection with a change in ownership of the center. As a result, the Company recognized management, leasing, and development services revenue for the lump sum payment of $21.7 million received in May 2016 in connection with the termination.
Income Taxes
Income Taxes
Income Taxes

Income Tax Expense

The Company’s income tax expense (benefit) for the years ended December 31, 2016, 2015, and 2014 consisted of the following:

 
2016
 
2015

2014
Federal current
$
2,238

 
$
1,931


$
8,036

Federal deferred
(1,310
)
 
(34
)

1,354

Foreign current
404


628


1,300

Foreign deferred
293


(114
)

(48
)
State current
782

 
(528
)
 
1,361

State deferred
(195
)
 
(72
)
 
(3
)
Total income tax expense
$
2,212

 
$
1,811


$
12,000

Less income tax (expense) benefit allocated to Gain on Dispositions (1)

 
437


(9,733
)
Income tax expense as reported on the Consolidated Statement of Operations and Comprehensive Income
$
2,212

(2) 
$
2,248


$
2,267



(1)
Amount represents the income taxes incurred as part of the Company's sale of interests in International Plaza in January 2014. The tax on the sale is classified within Gain on Dispositions, Net of Tax on the Consolidated Statement of Operations and Comprehensive Income. In September 2015, an adjustment of $0.4 million was made to reduce the tax recognized as a result of the sale.
(2)
Includes $0.5 million of income taxes recognized at the time of conversion of a portion of the Company's investment in partnership units in Simon Property Group Limited Partnership to common shares of SPG (Note 7).

Net Operating Loss Carryforwards

As of December 31, 2016, the Company had a foreign net operating loss carryforward of $5.4 million. Of the $5.4 million, $0.1 million had a carryforward period of 10 years and the remaining had an indefinite carryforward period.

Deferred Taxes

Deferred tax assets and liabilities as of December 31, 2016 and 2015 were as follows:

 
2016
 
2015
Deferred tax assets:
 
 
 
Federal
$
3,230

 
$
1,427

Foreign
1,673

 
1,676

State
935

 
944

Total deferred tax assets
$
5,838

 
$
4,047

Valuation allowances
(1,812
)
 
(1,913
)
Net deferred tax assets
$
4,026

 
$
2,134

Deferred tax liabilities:
 

 
 

Federal


 
$
602

Foreign
$
1,124

 
501

State


 
70

Total deferred tax liabilities
$
1,124

 
$
1,173



The Company believes that it is more likely than not the results of future operations will generate sufficient taxable income to recognize the net deferred tax assets. These future operations are primarily dependent upon the Manager's profitability, the timing and amounts of gains on peripheral land sales, the profitability of Taubman Asia's operations, and other factors affecting the results of operations of the Taxable REIT Subsidiaries. The valuation allowances relate to net operating loss carryforwards and tax basis differences where there is uncertainty regarding their realizability.
Tax Status of Dividends

Dividends declared on the Company’s common and preferred stock and their tax status are presented in the following tables. The tax status of the Company’s dividends in 2016, 2015, and 2014 may not be indicative of future periods. The portion of the per share dividends paid in 2016 detailed in each table below as capital gains (long term and unrecaptured Sec. 1250) are designated as capital gain dividends as required by Internal Revenue Code Section 857 (b)(3)(c).
Year
 
Dividends per common share declared
 
Return of capital
 
Ordinary income
 
Long term capital gain
 
Unrecaptured Sec. 1250 capital gain
 
2016
 
$
2.3800

 
$

 
$
1.8427

 
$
0.3929

 
$
0.1444

 
2015
 
2.2600

 
0.0972

 
2.1621

 
0.0004

 
0.0003

 
2014
 
4.7500

(1) 
0.7057
 
0.0000
 
1.8748

(2) 
2.1695

(2) 
2014
 
2.1600

 
0.3208

 
1.7773

 
0.0287

(2) 
0.0332

(2) 


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

Dividends per Series J Preferred share declared

Ordinary income

Long term capital gain

Unrecaptured Sec. 1250 capital gain
 
2016

$
1.6250


$
1.2581


$
0.2683


$
0.0986

 
2015

1.6250


1.6245


0.0003


0.0002

 
2014
 
1.6250

 
0.49072

 
0.52580

(1) 
0.60848

(1) 


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

Year
 
Dividends per Series K Preferred share declared
 
Ordinary income
 
Long term capital gain
 
Unrecaptured Sec. 1250 capital gain
 
2016
 
$
1.56250

 
$
1.2097

 
$
0.2580

 
$
0.0948

 
2015
 
1.56250

 
1.5620

 
0.0003

 
0.0002

 
2014
 
1.56250

 
0.47185

 
0.50558

(1) 
0.58507

(1) 


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

Uncertain Tax Positions

The Company expects no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of December 31, 2016. The Company has no material interest or penalties relating to income taxes recognized in the Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2016, 2015, and 2014 or in the Consolidated Balance Sheet as of December 31, 2016 and 2015. As of December 31, 2016, returns for the calendar years 2013 through 2016 remain subject to examination by U.S. and various state and foreign tax jurisdictions.
Properties
Real Estate Disclosure [Text Block]
Properties

Properties at December 31, 2016 and 2015 are summarized as follows:
 
2016
 
2015
Land
$
233,303


$
243,870

Buildings, improvements, and equipment
3,639,256


3,107,338

Construction in process and pre-development costs
301,395


362,007

 
$
4,173,954


$
3,713,215

Accumulated depreciation and amortization
(1,147,390
)

(1,052,027
)
 
$
3,026,564


$
2,661,188



Depreciation expense for 2016, 2015, and 2014 was $130.4 million, $98.8 million, and $110.1 million, respectively.

The charge to operations in 2016, 2015, and 2014 for domestic and non-U.S. pre-development activities was $5.0 million, $4.3 million, and $4.2 million, respectively.
Investments in Unconsolidated Joint Ventures
Investments in Unconsolidated Joint Ventures
Investments in Unconsolidated Joint Ventures

General Information

The Company owns beneficial interests in joint ventures that own shopping centers. The Operating Partnership is the sole direct or indirect managing general partner or managing member of Fair Oaks, International Plaza, Stamford Town Center, Sunvalley, The Mall at University Town Center, and Westfarms. The Operating Partnership also provides certain management, leasing, and/or development services to the other shopping centers noted below.
Shopping Center
 
Ownership as of
December 31, 2016 and 2015
CityOn.Xi'an (1)
 
50/30%
CityOn.Zhengzhou (under construction)
 
Note 2
Country Club Plaza (2)
 
50/0
Fair Oaks
 
50
International Plaza
 
50.1
The Mall at Millenia
 
50
Stamford Town Center
 
50
Starfield Hanam
 
34.3
Sunvalley
 
50
The Mall at University Town Center
 
50
Waterside Shops
 
50
Westfarms
 
79

(1)
In April 2016, the joint venture effectively acquired the 40% noncontrolling interest in the project. As a result of the acquisition, the Company's effective ownership is 50% (Note 2).
(2)
In March 2016, the Company acquired a 50% ownership interest in Country Club Plaza (Note 2).

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




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

The Mall at Miami Worldcenter

In 2015, the Company made a decision not to move forward with an enclosed regional mall that was intended to be part of the Miami Worldcenter mixed-use, urban development in Miami, Florida. As a result of this decision, an impairment charge of $11.8 million was recognized in the fourth quarter of 2015, which represents previously capitalized costs related to the pre-development of the enclosed mall plan. The impairment charge was recorded within Equity in Income of Unconsolidated Joint Ventures on the Consolidated Statement of Operations and Comprehensive Income.
Combined Financial Information

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




















 
December 31 2016
 
December 31 2015
Assets:
 
 
 
Properties (1)
$
3,371,216

 
$
1,628,492

Accumulated depreciation and amortization
(661,611
)
 
(589,145
)
 
$
2,709,605

 
$
1,039,347

Cash and cash equivalents
83,882

 
36,047

Accounts and notes receivable, less allowance for doubtful accounts of $1,965 and $1,602 in 2016 and 2015
87,612

 
42,361

Deferred charges and other assets (2)
67,167

 
32,660

 
$
2,948,266

 
$
1,150,415

 


 
 
Liabilities and accumulated deficiency in assets:
 

 
 

Notes payable, net (2)(3)
$
2,706,628

 
$
1,994,298

Accounts payable and other liabilities
359,814

 
70,539

TRG's accumulated deficiency in assets
(166,226
)
 
(512,256
)
Unconsolidated Joint Venture Partners' accumulated deficiency in assets
48,050

 
(402,166
)
 
$
2,948,266

 
$
1,150,415

 


 
 
TRG's accumulated deficiency in assets (above)
$
(166,226
)
 
$
(512,256
)
TRG's investment in centers under construction (Note 2)
112,861

 
296,847

TRG basis adjustments, including elimination of intercompany profit
126,240

 
132,218

TCO's additional basis
51,070

 
53,016

Net Investment in Unconsolidated Joint Ventures
$
123,945

 
$
(30,175
)
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures
480,863

 
464,086

Investment in Unconsolidated Joint Ventures
$
604,808

 
$
433,911


(1)
The December 31, 2016 amount includes $63.5 million related to an office tower, which is expected to be sold in the first half of 2017.
(2)
The December 31, 2015 balance has been retrospectively adjusted in connection with the Company's adoption of ASU No. 2015-03 "Imputation of Interest: Simplifying the presentation of Debt Issuance Costs" (Note 1).
(3)
The Notes Payable, net amount excludes the construction financing outstanding for CityOn.Zhengzhou of $70.5 million ($34.5 million at TRG's share) and $44.7 million ($14.2 million at TRG's share) as of December 31, 2016 and 2015, respectively. The balances presented also exclude the construction financing outstanding for Starfield Hanam of $52.9 million ($18.1 million at TRG's share) as of December 31, 2015, and the related debt issuance costs.
 
Year Ended December 31
 
2016
 
2015
 
2014
Revenues
$
477,458

 
$
378,280

 
$
338,017

Maintenance, taxes, utilities, promotion, and other operating expenses
$
172,325

 
$
118,909

 
$
106,249

Interest expense
103,973

 
85,198

 
74,806

Depreciation and amortization
95,051

 
55,318

 
47,377

Total operating costs
$
371,349

 
$
259,425

 
$
228,432

Nonoperating income (expense)
317

 
(1
)
 
(22
)
Income tax expense
(375
)
 
 
 
 
Net income
$
106,051

 
$
118,854

 
$
109,563

 


 
 
 
 
Net income attributable to TRG
$
61,561

 
$
65,384

 
$
60,690

Realized intercompany profit, net of depreciation on TRG’s basis adjustments
10,086

 
4,542

 
3,258

Depreciation of TCO's additional basis
(1,946
)
 
(1,946
)
 
(1,946
)
Beneficial interest in UJV impairment charge - Miami Worldcenter


 
(11,754
)
 
 
Equity in income of Unconsolidated Joint Ventures
$
69,701

 
$
56,226

 
$
62,002

 
 
 
 
 
 
Beneficial interest in Unconsolidated Joint Ventures’ operations:
 

 
 

 
 

Revenues less maintenance, taxes, utilities, promotion, and other operating expenses
$
178,009

 
$
147,905

 
$
132,652

Interest expense
(54,674
)
 
(45,564
)
 
(40,416
)
Depreciation and amortization
(53,012
)
 
(34,361
)
 
(30,234
)
Income tax expense
(622
)
 
 
 
 
Beneficial interest in UJV impairment charge - Miami Worldcenter
 
 
(11,754
)
 
 
Equity in income of Unconsolidated Joint Ventures
$
69,701

 
$
56,226

 
$
62,002



Related Party

TRG owns a 50% general partnership interest in Sunvalley, while the other 50% is controlled by the A. Alfred Taubman Restated Revocable Trust. A. Alfred Taubman was the former Chairman of the Board and the father of Robert S. and William S. Taubman. Sunvalley is subject to a ground lease on the land, which is 50% owned through an affiliate of TRG and 50% by an entity owned and controlled by Robert S. Taubman, William S. Taubman, and Gayle Taubman Kalisman. The Manager is the manager of the Sunvalley shopping center.

In 2016, the Company issued a note receivable to one of its Unconsolidated Joint Ventures for purposes of funding development costs. The balance of the note receivable was $43.2 million as of December 31, 2016 and was classified within Investments in Unconsolidated Joint Ventures on the Consolidated Balance Sheet and within Contributions to Unconsolidated Joint Ventures on the Consolidated Statement of Cash Flows.
Accounts and Notes Receivable
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]
Accounts and Notes Receivable

Accounts and notes receivable at December 31, 2016 and 2015 are summarized as follows:

 
2016
 
2015
Trade
$
31,958

 
$
29,559

Notes
2,959

 
1,297

Straight-line rent and recoveries
29,568

 
26,665

 
$
64,485

 
$
57,521

Less: Allowance for doubtful accounts
(4,311
)
 
(2,974
)
 
$
60,174

 
$
54,547



Deferred Charges Other Assets
Deferred Charges and Other Assets [Text Block]
Deferred Charges and Other Assets

Deferred charges and other assets at December 31, 2016 and 2015 are summarized as follows:

 
2016
 
2015
Leasing costs
$
35,939


$
29,097

Accumulated amortization
(10,519
)

(10,702
)
 
$
25,420


$
18,395

In-place leases, net
6,264


8,525

Investment in Simon Property Group Limited Partnership units (Notes 2 and 17) (1)
44,792


77,711

Investment in SPG common shares (Note 17) (1)
44,418

 
 
Deferred financing costs, net (2)
3,995


5,823

Insurance deposit (Note 17)
15,440


14,346

Deposits
116,809


40,424

Prepaid expenses
4,557


6,622

Deferred tax asset, net
4,026


2,134

Other, net
10,007


7,324

 
$
275,728


$
181,304


(1)
In 2016, the Company converted 250,000 Simon Property Group Limited Partnership units to SPG common shares. See Simon Property Group Limited Partnership Unit Conversion discussion below.
(2)
The December 31, 2015 balance has been retrospectively adjusted in connection with the Company's adoption of ASU No. 2015-03 "Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs" (Note 1).

As of both December 31, 2016 and 2015, the Company had $111.4 million and $37.0 million in restricted deposits related to its Asia investments.














Simon Property Group Limited Partnership Unit Conversion

In December 2016, the Company converted an investment in 250,000 Simon Property Group Limited Partnership units to SPG common shares. Upon conversion, the Company recognized an $11.1 million gain included within Nonoperating Income (Expense) in the Consolidated Statement of Operations and Comprehensive Income, which was calculated based on the change in fair value of the SPG share price at the date of conversion from the carrying value. The Simon Property Group Limited Partnership units were previously accounted for at cost. The SPG common shares are recorded in Deferred Charges and Other Assets on the Consolidated Balance Sheet at December 31, 2016 based on the common share price at year-end and are accounted for as available-for-sale marketable securities at fair value. Changes in fair value from conversion date to December 31, 2016 are recorded in Other Comprehensive Income in the Consolidated Statement of Operations and Comprehensive Income. The remaining Simon Property Group Limited Partnership units held as of December 31, 2016 are recorded in Deferred Charges and Other Assets on the Consolidated Balance Sheet at December 31, 2016 at historical book value per unit pursuant to cost method accounting.
Notes Payable
Debt Disclosure [Text Block]
Notes Payable, Net

Notes payable, net at December 31, 2016 and 2015 consist of the following:
 
2016
 
2015
 
Stated Interest Rate
 
Maturity Date
 
Number of One Year Extension Options
 
Facility Amount
 
Cherry Creek Shopping Center
$
550,000

(1) 
 
 
3.85%
 
06/01/28
 
 
 
 
 
Cherry Creek Shopping Center
 
 
$
280,000

 
5.24%
 
 
 
 
 
 
 
City Creek Center
80,269

(2) 
81,756

(2) 
4.37%
 
08/01/23
 
 
 
 
 
The Gardens on El Paseo
 

81,920

(3) 
6.10%
 

 
 
 
 
 
Great Lakes Crossing Outlets
208,303


212,863

 
3.60%
 
01/06/23
 
 
 
 

 
The Mall at Green Hills
150,000


150,000

 
LIBOR+1.60%
 
12/01/18

1

 
 
 
International Market Place
257,052


92,169

 
LIBOR + 1.75%
 
08/14/18

2

 
$
330,890

 
The Mall of San Juan
302,357

 
258,250

 
LIBOR + 2.00%
 
04/02/17

2

 
320,000

 
The Mall at Short Hills
1,000,000


1,000,000

 
3.48%
 
10/01/27
 
 
 
 
 
U.S. Headquarters Building
12,000


12,000

 
LIBOR + 1.40% Swapped to 3.49%
 
03/01/24
 
 
 
 
 
$65M Revolving Credit Facility
24,700

 
 
 
LIBOR + 1.40%
 
04/29/17
 
 
 
65,000

(4) 
$1.1B Revolving Credit Facility
210,000

(5) 
 
(5) 
LIBOR + 1.30%
(5) 
02/28/19
(5) 
1

 
1,100,000

(5) 
$475M Unsecured Term Loan
475,000

(6) 
475,000

(6) 
LIBOR + 1.45%
(6) 
02/28/19
 
 
 
 
 
Deferred Financing Costs, Net
(14,169
)
 
(16,870
)
 
 
 
 
 
 
 
 
 
 
$
3,255,512

 
$
2,627,088

 
 
 
 
 
 

 
 

 


(1)
Cherry Creek Shopping Center was refinanced in May 2016. The proceeds were used to repay the existing loan, with the remaining net proceeds distributed to the joint venture partners based on the partnership agreement ownership percentages.
(2)
The Operating Partnership has provided a limited guarantee of the repayment of the City Creek Center loan, which could be triggered only upon a decline in center occupancy to a level that the Company believes is remote.
(3)
Balance includes purchase accounting premium adjustment of $0.4 million in 2015 for an above market interest rate upon acquisition of the center in December 2011. In April 2016, the Company paid off the mortgage note payable on The Gardens on El Paseo.
(4)
The unused borrowing capacity at December 31, 2016 was $34.0 million, after considering $6.3 million of letters of credit outstanding on the facility.
(5)
TRG is the borrower under the $1.1 billion unsecured revolving credit facility. As of December 31, 2016 the interest rate on the facility was a range of LIBOR plus 1.15% to LIBOR plus 1.70% and a facility fee of 0.20% to 0.30% based on the Company's total leverage ratio. The unused borrowing capacity at December 31, 2016 was $890.0 million. In January 2017, the facility was refinanced (Note 22).
(6)
TRG is the borrower under the $475 million unsecured term loan with an accordion feature to increase the borrowing capacity to $600 million, subject to certain conditions including having the borrowing capacity based on the unencumbered asset pool EBITDA and obtaining lender commitments. As of December 31, 2016, the Company cannot fully utilize the accordion feature unless additional assets are added to the unencumbered asset pool. The loan bears interest at a range of LIBOR plus 1.35% to LIBOR plus 1.90% based on the Company's total leverage ratio. The LIBOR rate is swapped to a fixed interest rate of 1.65%, resulting in an effective interest rate in the range of 3.00% to 3.55% (Note 10).

Notes payable are collateralized by properties with a net book value of $2.0 billion at December 31, 2016.

The following table presents scheduled principal payments on notes payable as of December 31, 2016:

2017
$
333,373

(1) 
2018
413,615

(2) 
2019
691,820

(3) 
2020
7,058

 
2021
7,363

 
Thereafter
1,816,452

 
Total principal maturities
$
3,269,681

 
Net unamortized deferred financing costs
(14,169
)
 
Total notes payable, net
$
3,255,512

 

(1)
Includes $302.4 million with two, one-year extension options.
(2)
Includes $257.1 million with two, one-year extension options and $150.0 million with a one-year extension option.
(3)
Includes $210.0 million with a one-year extension option.


2017 Maturities and Financings

The construction facility for The Mall of San Juan matures in April 2017. As of December 31, 2016, the outstanding balance of this construction facility was $302.4 million. The Company is currently evaluating options related to refinancing or paying off this construction facility.

The $65.0 million secured secondary revolving credit facility matures in April 2017. The Company expects to extend this facility for one year at maturity.

In February 2017, the Company completed a $300 million unsecured term loan that matures in February 2022. Also in February 2017, the Company amended its $1.1 billion unsecured revolving line of credit (Note 22).

Debt Covenants and Guarantees

Certain loan agreements contain various restrictive covenants, including the following corporate covenants on the Company’s unsecured primary revolving line of credit, $475 million unsecured term loan, and the construction facilities on The Mall of San Juan and International Market Place: a minimum net worth requirement, a maximum total leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum recourse secured debt ratio, and a maximum payout ratio. In addition, the Company’s primary revolving line of credit and $475 million term loan have unencumbered pool covenants, which apply to Beverly Center, Dolphin Mall, and Twelve Oaks Mall on a combined basis as of December 31, 2016. These covenants include a minimum number and minimum value of eligible unencumbered assets, a maximum unencumbered leverage ratio, a minimum unencumbered interest coverage ratio, and a minimum unencumbered asset occupancy ratio. As of December 31, 2016, the corporate total leverage ratio was the most restrictive covenant. The Company was in compliance with all of its covenants and loan obligations as of December 31, 2016. The maximum payout ratio covenant limits the payment of distributions generally to 95% of funds from operations, as defined in the loan agreements, except as required to maintain the Company’s tax status, pay preferred distributions, and for distributions related to the sale of certain assets. In February 2017, The Gardens on El Paseo was added as a guarantor to the $1.1 billion revolving line of credit and $475 million unsecured term loan. See Note 22 - Subsequent Events for further details.

In connection with the financing of the construction facility at International Market Place, the Operating Partnership has provided an unconditional guarantee of the construction loan principal balance and all accrued but unpaid interest during the term of the loan. The Operating Partnership has also provided a guarantee as to the completion of construction of the center. The maximum amount of the construction facility is $330.9 million. The outstanding balance of the International Market Place construction financing facility as of December 31, 2016 was $257.1 million. Accrued but unpaid interest as of December 31, 2016 was $0.5 million. The Company believes the likelihood of a payment under the guarantees to be remote.




In connection with the financing of the construction facility at The Mall of San Juan, the Operating Partnership has provided an unconditional guarantee of the construction loan principal balance and all accrued but unpaid interest during the term of the loan. In addition, the Operating Partnership has provided a guarantee as to the completion of the center. The maximum amount of the construction facility is $320 million. The outstanding balance of The Mall of San Juan construction financing facility as of December 31, 2016 was $302.4 million. Accrued but unpaid interest as of December 31, 2016 was $0.4 million. The Company believes the likelihood of a payment under the guarantees to be remote.

In connection with the $175 million additional financing at International Plaza, which is owned by an Unconsolidated Joint Venture, the Operating Partnership provided an unconditional and several guarantee of 50.1% of all obligations and liabilities related to an interest rate swap that was required on the debt for the term of the loan. As of December 31, 2016, the interest rate swap was in a liability position of $0.4 million and had unpaid interest of $0.2 million. The Company believes the likelihood of a payment under the guarantee to be remote.

Other

The Company is required to escrow cash balances for specific uses stipulated by certain of its lenders and other various agreements. As of December 31, 2016 and 2015, the Company's cash balances restricted for these uses were $0.9 million and $6.4 million, respectively.

Beneficial Interest in Debt and Interest Expense

The Operating Partnership's beneficial interest in the debt, capitalized interest, and interest expense of its consolidated subsidiaries and its Unconsolidated Joint Ventures is summarized in the following table. The Operating Partnership's beneficial interest in the consolidated subsidiaries excludes debt and interest related to the noncontrolling interests in Cherry Creek Shopping Center (50%), International Market Place (6.5%), and The Mall of San Juan (5%).
 
At 100%
 
At Beneficial Interest
 
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
 
Debt as of:
 
 
 
 
 
 
 
 
December 31, 2016
$
3,255,512


$
2,777,162


$
2,949,440


$
1,425,511

 
December 31, 2015 (1)
2,627,088


2,087,552


2,468,451


1,116,395

 












 
Capitalized interest:
 


 


 


 

 
Year Ended December 31, 2016
$
21,864

(2) 
$
2,589

(3) 
$
21,728

(2) 
$
2,589

(3) 
Year Ended December 31, 2015
31,112

(2) 
792

(3) 
30,130

(2) 
543

(3) 












 
Interest expense:
 


 


 


 

 
Year Ended December 31, 2016
$
86,285


$
103,973


$
75,954


$
54,674

 
Year Ended December 31, 2015
63,041


85,198


56,076


45,564

 

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

Redeemable Noncontrolling Interests

Taubman Asia

In September 2016, the Company announced the appointment of Peter Sharp (Successor Asia President) as president of Taubman Asia, a consolidated subsidiary, succeeding René Tremblay (Former Asia President) effective January 1, 2017. The Former Asia President continues to be employed by the Company in other capacities.

The Former Asia President has an ownership interest in Taubman Asia. As of December 31, 2016, this interest entitled the Former Asia President to 5% of Taubman Asia's dividends, with 85% of his dividends being withheld as contributions to capital. These withholdings will continue until he contributes and maintains his capital consistent with his percentage ownership interest, including all capital funded by the Operating Partnership for Taubman Asia's operating and investment activities subsequent to the Former Asia President obtaining his ownership interest. The Operating Partnership has a preferred investment in Taubman Asia to the extent the Former Asia President has not yet contributed capital commensurate with his ownership interest. This preferred investment accrues an annual preferential return equal to the Operating Partnership's average borrowing rate (with the preferred investment and accrued return together being referred to herein as the preferred interest). In addition, Taubman Asia has the ability to call, and the Former Asia President has the ability to put, the Former Asia President’s ownership interest upon specified terminations of the Former Asia President’s employment, although such put or call right may not be exercised for specified time periods after certain termination events. The redemption price for the ownership interest is 50% (increasing to 100% as early as June 2017) of the fair value of the ownership interest less the amount required to return the Operating Partnership's preferred interest. The Company has determined that the Former Asia President's ownership interest in Taubman Asia qualifies as an equity award, considering its specific redemption provisions, and accounts for it as a contingently redeemable noncontrolling interest. The Company presents as temporary equity at each balance sheet date an estimate of the redemption value of the ownership interest, therefore falling into level 3 of the fair value hierarchy, taking into account the proportion of the Former Asia President's services rendered before he is fully vested. The carrying amount of this redeemable equity was $8.7 million and zero as of December 31, 2016 and 2015, respectively. Any adjustments to the redemption value are recorded through equity.

In April 2016, the Company reacquired half of the Former Asia President's ownership interest in Taubman Asia for $7.2 million. The Former Asia President contributed $2 million to Taubman Asia, which may be returned, in part or in whole, upon satisfaction of the re-evaluation of the full liquidation value of Taubman Asia as of April 2016; such re-evaluation will be performed at the Former Asia President's election on or after the third anniversary of the opening of specified Asia projects. The Former Asia President's remaining 5% interest is puttable beginning in 2019 at the earliest, upon reaching certain specified milestones, and was classified as Redeemable Noncontrolling Interest on the Consolidated Balance Sheet as of December 31, 2016. The $7.2 million acquisition price is reflected as a distribution to noncontrolling interests on the Consolidated Statement of Cash Flows.

The Successor Asia President also has a redeemable equity interest in Taubman Asia for which any future redemption value will be determined by new projects to be developed or acquired on or after January 1, 2017.

International Market Place

The Company owns a 93.5% controlling interest in a joint venture that owns International Market Place in Waikiki, Honolulu, Hawaii, which opened in August 2016. The 6.5% joint venture partner has no obligation nor the right to contribute capital. The Company is entitled to a preferential return on its capital contributions. The Company has the right to purchase the joint venture partner's interest and the joint venture partner has the right to require the Company to purchase the joint venture partner's interest after the third anniversary of the opening of the center, and annually thereafter. The purchase price of the joint venture partner's interest will be based on fair value. Considering the redemption provisions, the Company accounts for the joint venture partner's interest as a contingently redeemable noncontrolling interest with a carrying value of zero at both December 31, 2016 and 2015. Any adjustments to the redemption value are recorded through equity.








Reconciliation of Redeemable Noncontrolling Interest
 
2016
Balance, January 1
 
Former Taubman Asia President vested redeemable equity
$
13,854

Distributions
(7,150
)
Contributions
2,000

Allocation of net loss
(656
)
Adjustments of redeemable noncontrolling interest
656

Balance, December 31
$
8,704



Equity Balances of Non-redeemable Noncontrolling Interests

The net equity balance of the non-redeemable noncontrolling interests as of December 31, 2016 and 2015 included the following:
 
2016
 
2015
Non-redeemable noncontrolling interests:
 
 
 
Noncontrolling interests in consolidated joint ventures
$
(155,919
)
 
$
(23,569
)
Noncontrolling interests in partnership equity of TRG
13,136

 
31,573

 
$
(142,783
)
 
$
8,004


Net Income (Loss) Attributable to Noncontrolling Interests

Net income (loss) attributable to the noncontrolling interests for the years ended December 31, 2016, 2015, and 2014 included the following:
 
2016
 
2015
 
2014
Net income (loss) attributable to non-redeemable noncontrolling interests:
 
 
 
 
 
Non-redeemable noncontrolling interests:
 
 
 
 
 
Noncontrolling share of income of consolidated joint ventures
$
8,761

 
$
11,222

 
$
34,239

Noncontrolling share of income of TRG
47,433

 
47,208

 
350,870

 
$
56,194

 
$
58,430

 
$
385,109

Redeemable noncontrolling interest:
(656
)
 
 
 
 
 
$
55,538

 
$
58,430

 
$
385,109






















Equity Transactions

The following schedule presents the effects of changes in Taubman Centers, Inc.’s ownership interest in consolidated subsidiaries on Taubman Centers, Inc.’s equity for the years ended December 31, 2016, 2015, and 2014:
 
2016
 
2015
 
2014
Net income attributable to Taubman Centers, Inc. common shareowners
$
107,358

 
$
109,020

 
$
863,857

Transfers (to) from the noncontrolling interest:
 

 
 

 
 
Increase in Taubman Centers, Inc.’s paid-in capital for the adjustments of noncontrolling interest (1)
1,959

 
69,521

 
83

Net transfers (to) from noncontrolling interests
1,959

 
69,521

 
83

Change from net income attributable to Taubman Centers, Inc. and transfers from noncontrolling interests
$
109,317

 
$
178,541

 
$
863,940


(1)
In 2016, 2015, and 2014, adjustments of the noncontrolling interest were made as a result of changes in the Company's ownership of the Operating Partnership in connection with the Company's share-based compensation under employee and director benefit plans (Note 13) and issuances of stock pursuant to the continuing offer (Note 15). In 2016, adjustments of the noncontrolling interest were also made in connection with the accounting for the former Asia President's redeemable ownership interest. In 2015 and 2014, adjustments of the noncontrolling interest were also made as a result of share repurchases (Note 14).

Finite Life Entities

Accounting Standards Codification Topic 480, "Distinguishing Liabilities from Equity" establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. At December 31, 2016, the Company held a controlling interest in a consolidated entity with a specified termination date in 2083. The noncontrolling owners’ interest in this entity is to be settled upon termination by distribution or transfer of either cash or specific assets of the underlying entity. The estimated fair value of this noncontrolling interest was $360.0 million at December 31, 2016, compared to a book value of $(155.9) million that is classified in Noncontrolling Interests in the Company’s Consolidated Balance Sheet. The fair value of the noncontrolling interest was calculated as the noncontrolling interest's ownership shares of the underlying property's fair value. The property's fair value was estimated by considering its in-place net operating income, current market capitalization rate, and mortgage debt outstanding.
Derivative and Hedging Activities
Derivative and Hedging Activities
Derivative and Hedging Activities

Risk Management Objective and Strategies for Using Derivatives

The Company uses derivative instruments, such as interest rate swaps and interest rate caps, primarily to manage exposure to interest rate risks inherent in variable rate debt and refinancings. The Company may also enter into forward starting swaps or treasury lock agreements to set the effective interest rate on a planned fixed rate financing. The Company’s interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. In a forward starting swap or treasury lock agreement that the Company cash settles in anticipation of a fixed rate financing or refinancing, the Company will receive or pay an amount equal to the present value of future cash flow payments based on the difference between the contract rate and market rate on the settlement date.

The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and hedging.

As of December 31, 2016, the Company had the following outstanding derivatives that were designated and are expected to be effective as cash flow hedges of the interest payments and/or the currency exchange rate on the associated debt.
Instrument Type
 
Ownership
 
Notional Amount
 
Swap Rate
 
Credit Spread on Loan
 
Total Swapped Rate on Loan
 
Maturity Date
Consolidated Subsidiaries:
 
 
 
 
 
 
 
 
 
 
 
 
Receive variable (LIBOR) /pay-fixed swap (1)
 
100
%
 
$
200,000

 
1.64
%
 
1.45
%
(1) 
3.09
%
(1) 
February 2019
Receive variable (LIBOR) /pay-fixed swap (1)
 
100
%
 
175,000

 
1.65
%
 
1.45
%
(1) 
3.10
%
(1) 
February 2019
Receive variable (LIBOR) /pay-fixed swap (1)
 
100
%
 
100,000

 
1.64
%
 
1.45
%
(1) 
3.09
%
(1) 
February 2019
Receive variable (LIBOR) /pay-fixed swap (2)
 
100
%
 
12,000

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

 
 

 
 

 
 

 
 

 
 
Receive variable (LIBOR) /pay-fixed swap (3)
 
50
%
 
132,534

 
2.40
%
 
1.70
%
 
4.10
%
 
April 2018
Receive variable (LIBOR) /pay-fixed swap (3)
 
50
%
 
132,534

 
2.40
%
 
1.70
%
 
4.10
%
 
April 2018
Receive variable (LIBOR) /pay-fixed swap (4)
 
50.1
%
 
168,983

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

 
1.52
%
 
1.60
%
 
3.12
%
 
September 2020


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





Cash Flow Hedges

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

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

The Company expects that approximately $6.0 million of the AOCI of Taubman Centers, Inc. and the noncontrolling interests will be reclassified from AOCI and recognized as a reduction of income in the following 12 months.

The following tables present the effect of derivative instruments on the Company’s Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2016, 2015, and 2014. 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.

During the years ended December 31, 2016 and 2015, the Company recognized $0.3 million of hedge ineffectiveness income and $0.3 million of hedge ineffectiveness expense, respectively, related to the swaps used to hedge the unsecured term loan. The hedge ineffectiveness for both periods was recorded in Nonoperating Income (Expense) on the Consolidated Statement of Operations and Comprehensive Income. In addition, during the year ended December 31, 2015, the Company recorded a loss of $0.2 million of hedge ineffectiveness expense in Equity in Income of Unconsolidated Joint Ventures on the Consolidated Statement of Operations and Comprehensive Income related to the Starfield Hanam swap prior to its hedge inception in September 2015 and an immaterial amount of hedge ineffectiveness expense after hedge inception. During the year ended December 31, 2014, the Company had an immaterial amount of hedge ineffectiveness expense related to the swap on MacArthur Center (prior to discontinuation of hedge accounting (Note 2)) recorded as Nonoperating Income (Expense) on the Consolidated Statement of Operations and Comprehensive Income.
 
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
 
Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
2016
 
2015
 
2014
 
 
 
2016
 
2015
 
2014
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts – consolidated subsidiary (1)





 
 
 
Nonoperating Income (Expense) (1)
 





 
$
(4,880
)
Interest rate contracts – consolidated subsidiaries (1)
$
2,234


$
(1,730
)
 
$
(7,362
)
 
Interest Expense (1)
 
$
(5,823
)

$
(7,211
)
 
(8,663
)
Interest rate contracts – UJVs
2,478


71

 
893

 
Equity in Income of UJVs
 
(3,775
)

(4,489
)
 
(3,186
)
Cross-currency interest rate swap – UJV
(109
)

12

 

 
Equity in Income of UJVs
 
259


(321
)
 

Total derivatives in cash flow hedging relationships
$
4,603


$
(1,647
)
 
$
(6,469
)
 
 
 
$
(9,339
)

$
(12,021
)
 
$