TAUBMAN CENTERS INC, 10-K filed on 2/28/2019
Annual Report
v3.10.0.1
Document and Entity Information Document - USD ($)
$ / shares in Units, $ in Billions
12 Months Ended
Dec. 31, 2018
Feb. 27, 2019
Jun. 30, 2018
Entity Information [Line Items]      
Entity Registrant Name TAUBMAN CENTERS INC.    
Entity Central Index Key 0000890319    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Large Accelerated Filer    
Entity Public Float     $ 3.4
Share Price $ 45.49   $ 58.76
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Entity Common Stock, Shares Outstanding   61,122,292  
v3.10.0.1
CONSOLIDATED BALANCE SHEET - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Assets:    
Properties (Notes 4 and 8) $ 4,717,569 $ 4,461,045
Accumulated depreciation and amortization (1,404,692) (1,276,916)
Real Estate Investment Property, Net 3,312,877 3,184,129
Investment in Unconsolidated Joint Ventures (Note 5) 673,616 605,629
Cash and cash equivalents 48,372 42,499
Restricted cash (Notes 1 and 18) 94,557 121,905
Accounts and notes receivable, less allowance for doubtful accounts of $10,360 and $10,237 in 2018 and 2017 (Note 6) 77,730 78,566
Accounts receivable from related parties (Note 12) 1,818 1,365
Deferred charges and other assets (Note 7) 135,136 180,499
Total Assets 4,344,106 4,214,592
Liabilities:    
Notes payable, net (Note 8) 3,830,195 3,555,228
Accounts payable and accrued liabilities 336,208 307,041
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures (Note 5) 477,800 494,851
Total Liabilities 4,644,203 4,357,120
Commitments and contingencies (Notes 8, 9, 10, 11, 13, and 15)
Redeemable noncontrolling interests (Note 9) 7,800 7,500
Equity:    
Series B Non-Participating Convertible Preferred Stock, $0.001 par and liquidation value, 40,000,000 shares authorized, 24,862,994 and 24,938,114 shares issued and outstanding at December 31, 2018 and 2017 25 25
Common Stock, $0.01 par value, 250,000,000 shares authorized, 61,069,108 and 60,832,918 shares issued and outstanding at December 31, 2018 and 2017 611 608
Additional paid-in capital 676,097 675,333
Accumulated other comprehensive income (loss) (Notes 1, 10, and 19) (25,376) (6,919)
Dividends in excess of net income (744,230) (646,807)
Stockholders' Equity Attributable to Parent (92,873) 22,240
Noncontrolling interests (Note 9) (215,024) (172,268)
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest (307,897) (150,028)
Total Liabilities and Equity $ 4,344,106 $ 4,214,592
v3.10.0.1
CONSOLIDATED BALANCE SHEET (Parenthetical) - USD ($)
Dec. 31, 2018
Dec. 31, 2017
Allowance for doubtful accounts $ 10,360,000 $ 10,237,000
Common stock, par value per share $ 0.01 $ 0.01
Common stock, shares authorized 250,000,000 250,000,000
Common stock, shares issued 61,069,108 60,832,918
Common stock, shares outstanding 61,069,108 60,832,918
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 24,862,994 24,938,114
Preferred Stock, shares outstanding 24,862,994 24,938,114
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
v3.10.0.1
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Revenues:      
Minimum rents $ 353,226 $ 345,557 $ 333,325
Overage rents 16,670 16,923 20,020
Expense recoveries 205,514 211,625 202,467
Management, leasing, and development services (Note 2) 3,271 4,383 28,059
Other 62,189 50,677 28,686
Total Revenues 640,870 629,165 612,557
Expenses:      
Maintenance, taxes, utilities, and promotion 157,957 167,091 156,506
Other operating 87,308 94,513 78,794
Management, leasing, and development services 1,470 2,157 4,042
General and administrative (Note 13) 37,174 39,018 48,056
Restructuring charge (Note 1) 596 13,848
Costs associated with shareholder activism (Note 1) 12,500 14,500 3,000
Interest expense 133,197 108,572 86,285
Depreciation and amortization 179,275 167,806 138,139
Total Expenses 609,477 607,505 514,822
Nonoperating income, net (Notes 7, 10, and 15) 14,714 23,828 22,927
Income before income tax expense, and equity in income of Unconsolidated Joint Ventures 46,107 45,488 120,662
Income tax expense (Note 3) 231 (105) (2,212)
Equity in income of Unconsolidated Joint Ventures (Note 5) 69,404 67,374 69,701
Net income 115,742 112,757 188,151
Net income attributable to noncontrolling interests (Note 9) (32,256) (32,052) (55,538)
Net income attributable to Taubman Centers, Inc. 83,486 80,705 132,613
Distributions to participating securities of TRG (Note 13) (2,396) (2,300) (2,117)
Preferred stock dividends (Note 14) (23,138) (23,138) (23,138)
Net income attributable to Taubman Centers, Inc. common shareholders 57,952 55,267 107,358
Other comprehensive income (Note 19):      
Unrealized gain (loss) on interest rate instruments and other (38) 57 (4,308)
Cumulative translation adjustment (23,240) 33,303 (17,339)
Reclassification adjustment for amounts recognized in net income (1,809) 7,564 9,339
Other Comprehensive Income (Loss), Net of Tax (25,087) 40,924 (12,308)
Comprehensive income 90,655 153,681 175,843
Comprehensive income attributable to noncontrolling interests (24,994) (43,956) (51,927)
Comprehensive income attributable to Taubman Centers, Inc. $ 65,661 $ 109,725 $ 123,916
Basic earnings per common share (Note 16) $ 0.95 $ 0.91 $ 1.78
Diluted earnings per common share (Note 16) $ 0.95 $ 0.91 $ 1.77
Weighted average number of common shares outstanding – basic 60,994,444 60,675,129 60,363,416
v3.10.0.1
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - USD ($)
$ in Thousands
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]
Former Taubman Asia President Redeemable Noncontrolling Interest [Member]
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) 0          
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   $ 2 17,028        
Share-based compensation under employee and director benefit plans (Note 13), shares     181,172          
Former Taubman Asia President redeemable equity adjustment (Note 9)       (13,854)        
Adjustments of noncontrolling interests (Note 9) (656)     1,959 1   (2,616)  
Dividends and distributions (369,742)         168,988    
Other (791)     2   (793)  
Net income 188,151         132,613 56,194  
Net income (excludes net loss attributable to redeemable noncontrolling interest) (Note 9) 188,807              
Net Income (Loss) Attributable to Redeemable Noncontrolling Interest (656)              
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders             (200,754)  
Payments for Repurchase of Redeemable Noncontrolling Interest               $ (7,150)
Unrealized gain (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          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of stock pursuant to Continuing Offer (Notes 13, 14, and 15) 0   $ 1 (1)        
Issuance of stock pursuant to Continuing Offer (Notes 13, 14, and 15), shares   (90,945) 90,950          
Share-based compensation under employee and director benefit plans (Note 13) 18,049   $ 3 18,046        
Share-based compensation under employee and director benefit plans (Note 13), shares     311,355          
Former Taubman Asia President redeemable equity adjustment (Note 9) 1,204     1,204       (1,204)
Adjustments of noncontrolling interests (Note 9) (924)     (1,197) (23)   296  
Dividends and distributions (251,927)         (177,266)    
Other (332)       (332)  
Net income 112,757              
Net income (excludes net loss attributable to redeemable noncontrolling interest) (Note 9) 113,681         80,705 32,976  
Net Income (Loss) Attributable to Redeemable Noncontrolling Interest (924)             (656)
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders             (74,661)  
Payments for Repurchase of Redeemable Noncontrolling Interest               (7,150)
Unrealized gain (loss) on interest rate instruments and other 57       41   16  
Cumulative translation adjustment 33,303       23,615   9,688  
Reclassification adjustment for amounts recognized in net income 7,564       5,364   2,200  
Balance at Dec. 31, 2017 (150,028) $ 25 $ 608 675,333 (6,919) (646,807) (172,268)  
Balance, shares at Dec. 31, 2017   39,438,114 60,832,918          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of stock pursuant to Continuing Offer (Notes 13, 14, and 15) 0   $ 1 (1)        
Issuance of stock pursuant to Continuing Offer (Notes 13, 14, and 15), shares   (75,120) 77,584          
Share-based compensation under employee and director benefit plans (Note 13) 6,068   $ 2 6,066        
Share-based compensation under employee and director benefit plans (Note 13), shares     158,606          
Former Taubman Asia President redeemable equity adjustment (Note 9) (300)     (300)       300
Adjustments of noncontrolling interests (Note 9) (280)     (601) 47   274  
Dividends and distributions (253,420)         (185,392)    
Other (872)     (4,400) (679) 4,483 (276)  
Net income 115,742              
Net income (excludes net loss attributable to redeemable noncontrolling interest) (Note 9) 116,022         83,486 32,536  
Net Income (Loss) Attributable to Redeemable Noncontrolling Interest (280)             $ (280)
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders             (68,028)  
Unrealized gain (loss) on interest rate instruments and other (38)       (26)   (12)  
Cumulative translation adjustment (23,240)       (16,513)   (6,727)  
Reclassification adjustment for amounts recognized in net income (1,809)       (1,286)   (523)  
Balance at Dec. 31, 2018 $ (307,897) $ 25 $ 611 $ 676,097 $ (25,376) $ (744,230) $ (215,024)  
Balance, shares at Dec. 31, 2018   39,362,994 61,069,108          
v3.10.0.1
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash Flows From Operating Activities:      
Net income $ 115,742 $ 112,757 $ 188,151
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 179,275 167,806 138,139
Provision for bad debts 3,728 11,025 4,047
Gains on sales of peripheral land (1,034) (945) (1,827)
Gains on SPG common share conversions (Note 7) (11,613) (11,069)
Fluctuation in fair value of equity securities (Notes 1 and 7) (2,801)    
Income (loss) from Unconsolidated Joint Ventures in excess of distributions (1,429) 845 2,689
Other 14,730 17,285 18,925
Increase (decrease) in cash attributable to changes in assets and liabilities:      
Receivables, deferred charges, and other assets (17,141) (26,420) (34,989)
Accounts payable and other liabilities 2,762 7,634 1,490
Net Cash Provided By Operating Activities 293,832 278,374 305,556
Cash Flows From Investing Activities:      
Additions to properties (289,854) (353,322) (504,864)
Proceeds from sales of peripheral land 1,260 1,300 11,258
Proceeds from sale of equity securities (Note 7) 54,703    
Insurance proceeds for capital items at The Mall of San Juan (Note 15) 5,768    
Contributions to Unconsolidated Joint Ventures (95,329) (32,990) (79,976)
Contribution for acquisition of Country Club Plaza (Note 2) (314,245)
Proceeds from Unconsolidated Joint Venture, Distribution, Return of Capital (2,173) 70,002 232,224
Other 89 86 81
Net Cash Used In Investing Activities (325,536) (314,924) (655,522)
Cash Flows From Financing Activities:      
Proceeds from revolving lines of credit, net 255,020 269,955 234,700
Debt proceeds 800,000 336,749 758,991
Debt payments (778,549) (308,673) (367,527)
Debt issuance costs (5,112) (6,665) (1,620)
Issuance of common stock and/or TRG Units in connection with incentive plans (2,396) 6,289 1,806
Distributions to noncontrolling interests (Note 9) (68,028) (74,661) (207,904)
Distributions to participating securities of TRG (2,396) (2,300) (2,117)
Contributions from noncontrolling interests (Note 9) 2,000
Cash dividends to preferred shareholders (23,138) (23,138) (23,138)
Cash dividends to common shareholders (159,858) (151,828) (143,733)
Net Cash Provided By Financing Activities 15,543 45,728 251,458
Effect of Exchange Rate on Cash and Cash Equivalents (5,314) 2,261 1,391
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect (21,475) 11,439 (97,117)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents at Beginning of Year 164,404 152,965 250,082
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents at End of Year $ 142,929 $ 164,404 $ 152,965
v3.10.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

Organization and Basis of Presentation

General

Taubman Centers, Inc. (TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate investment trust (REIT). TCO's sole asset is an approximate 71% general partnership interest in The Taubman Realty Group Limited Partnership (TRG), which owns direct or indirect interests in all of our real estate properties. In this report, the terms "we", "us", and "our" refers to TCO, TRG, and/or TRG's subsidiaries as the context may require. We engage in the ownership, management, leasing, acquisition, disposition, development, and expansion of retail shopping centers and interests therein. Our owned portfolio as of December 31, 2018 included 23 urban and suburban shopping centers operating in 11 U.S. states, Puerto Rico, South Korea, and China. The Taubman Company LLC (the Manager) provides certain management and administrative services for us and for our U.S. properties.

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

In May 2018, we closed on a redevelopment agreement for Taubman Prestige Outlets Chesterfield. As of May 1, 2018, all operations at the center, as well as the building and improvements, were transferred to The Staenberg Group (TSG), and TSG leases the land from us through a long-term, participating ground lease. Both we and TSG have the ability to terminate the ground lease in the event that a redevelopment has not begun within five years, with the buildings and improvements reverting to us upon such a termination. We will defer recognition of a sale of the building and improvements and maintain the property on the Consolidated Balance Sheet until the foregoing termination right is no longer available to the parties, with this right ceasing upon TSG commencing a redevelopment. The shopping center has been excluded from our owned shopping center portfolio disclosure above.

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 TCO include all accounts of TCO, TRG, and its consolidated subsidiaries, including the Manager and Taubman Asia. All intercompany transactions have been eliminated. The entities included in these consolidated financial statements are separate legal entities and maintain records and books of account separate from any other entity. However, inclusion of these separate entities in 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.

In determining the method of accounting for partially owned joint ventures, we evaluate the characteristics of associated entities and determine whether an entity is a variable interest entity (VIE), and, if so, determine whether we are the primary beneficiary by analyzing whether we have both the power to direct the entity's significant economic activities and the obligation to absorb potentially significant losses or receive potentially significant benefits. Significant judgments and assumptions inherent in this analysis include the nature of the entity's operations, the entity's financing and capital structure, and contractual relationship and terms, including consideration of governance and decision making rights. We consolidate a VIE when we have determined that we are the primary beneficiary. All of our consolidated joint ventures, including TRG, meet the definition and criteria as VIEs, as either we or an affiliate of ours is the primary beneficiary of each VIE.

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

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

TRG

At December 31, 2018 and 2017, TRG's equity included two classes of preferred equity (Series J and K Preferred Equity) (Note 14) and the net equity of the TRG unitholders. Net income and distributions of TRG are allocable first to the preferred equity interests, and the remaining amounts to the general and limited partners in TRG in accordance with their percentage ownership. The Series J and K Preferred Equity are owned by TCO and are eliminated in consolidation.

The partnership equity of TRG and TCO'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
2018
 
85,946,862

 
61,069,108

 
24,877,754

 
71%
 
71%
2017
 
85,788,252

 
60,832,918

 
24,955,334

 
71
 
71
2016
 
85,476,892

 
60,430,613

 
25,046,279

 
71
 
71

(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 TCO at December 31, 2018 consisted of 24,862,994 shares of Series B Non-Participating Convertible Preferred Stock (Series B Preferred Shares) (Note 14) and 61,069,108 shares of common stock.

The remaining approximate 29% of TRG units are owned by TRG’s partners other than TCO (Other Partners), including Robert S. Taubman, William S. Taubman, Gayle Taubman Kalisman, and the A. Alfred Taubman Restated Revocable Trust (Taubman Family).

Revenue Recognition

General

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. Overage 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, we recognize 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), we recognize revenue on a straight-line basis over the lease terms.

On January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers. ASC Topic 606 provides a single comprehensive model to use in accounting for revenue arising from contracts with customers, and gains and losses arising from transfers of non-financial assets including sales of property and equipment, real estate, and intangible assets. We adopted ASC Topic 606 for all applicable contracts using the modified retrospective method, which would have required a cumulative-effect adjustment, if any, as of the date of adoption. The adoption of ASC Topic 606 did not have a material impact on our consolidated financial statements as of the date of adoption, and therefore a cumulative-effect adjustment was not required.

We applied ASC Topic 606 using certain practical expedients. As a result of this election, we will not disclose the aggregate amount of the transaction price for unsatisfied, or partially unsatisfied, performance obligations for all contracts with an original expected length of one year or less and management contracts for which we recognize revenue based on our right to invoice for management, leasing, and development services performed. Refer to "Nature of Services and Performance Obligations" for further discussion of these services.

Disaggregation of Revenue

The nature, amount, timing, and uncertainty of individual types of revenues may be affected differently by economic factors. Under ASC Topic 606, we are required to disclose a disaggregation of our revenues derived from contracts from customers that considers economic differences between revenue types. The following table summarizes our disaggregation of consolidated revenues for this purpose.
 
 
Year Ended December 31
 
 
2018
 
2017
 
2016
Expense recoveries
 
$
205,514

 
$
211,625

 
$
202,467

Shopping center and other operational revenues (1)
 
48,434

 
40,902

 
24,914

Management, leasing, and development services
 
3,271

 
4,383

 
28,059

Total revenue from contracts with customers
 
$
257,219

 
$
256,910

 
$
255,440


(1)
Represents consolidated Other revenue reported on the Consolidated Statement of Operations and Comprehensive Income excluding lease cancellation income.

Nature of Services and Performance Obligations

Expense recoveries revenue represents reimbursements from mall tenants for (1) services performed by us to the benefit of all mall tenants and the property as a whole for common area maintenance, (2) insurance, property taxes, and utilities, and (3) promotion and other miscellaneous charges. As these expense recoveries are provided for under tenant lease agreements, these revenues will not be evaluated under ASC Topic 606 until our adoption of ASU No. 2016-02, Leases, which will be adopted on January 1, 2019.

Shopping center and other operational revenues represent a collection of non-core revenue streams that are generated through the course of owning and operating a shopping center, including sponsorship, parking, and storage income, as well as revenues from food and beverage operations. The contracts for these revenue streams are predominately short-term in nature and individually do not contain more than one performance obligation. We satisfy our performance obligations related to shopping center and other operational revenues either over time or at a point in time, depending on the specific nature of the revenue generating activity. For performance obligations that are satisfied at a point in time, including food and beverage and parking income, the control of the good or service is immediately transferred to the customer upon completion of the performance obligation. Payment terms related to shopping center and other operational revenues vary depending on the nature of the agreement, however, payment is generally due directly upon the satisfaction of the related performance obligation.
Management, leasing, and development services revenue represents income from various services performed by us for our third party customers, as provided for under management agreements. These services typically generate fees that are based on operating results of the shopping centers, the execution and opening of mall tenants, and/or the successful completion of other agreed-upon services. As each management agreement provides for a variety of services, significant judgment is required to identify multiple performance obligations. The standalone selling price of each performance obligation is determined based on the terms of the management agreement and the specific services being rendered. Each performance obligation is considered to be satisfied over time as services are rendered. The related revenue is recognized upon billing, as the amounts invoiced generally correspond directly with the value the customer is receiving from the services. Customers are invoiced on a quarterly basis and payment is generally due within 30 days of each calendar quarter.

Information about Contract Balances and Unsatisfied Performance Obligations

Contract assets exist when we have a right to payment for services rendered that remains conditional on factors other than the passage of time. Similarly, contract liabilities are incurred when customers prepay for services to be rendered. Certain revenue streams within shopping center and other operational revenues may give rise to contract assets and liabilities. However, these revenue streams are generally short-term in nature and the difference between revenue recognition and cash collection, although variable, does not differ significantly from period to period. As of December 31, 2018, we had an inconsequential amount of contract assets and liabilities.

The aggregate amount of the transaction price allocated to our performance obligations that were unsatisfied, or partially unsatisfied, as of December 31, 2018 were inconsequential.

Allowance for Doubtful Accounts and Notes

We record a provision for losses on accounts receivable to reduce them to the amount estimated to be collectible. We record 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. No impairment was recognized for the years ended December 31, 2018, 2017, or 2016.


In leasing a shopping center space, we may provide funding to the lessee through a tenant allowance. In accounting for a tenant allowance, we determine whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership, for accounting purposes, of such improvements. If we are considered the owner of the leasehold improvements for accounting purposes, we capitalize the amount of the tenant allowance and depreciate 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 we are 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 our tenant allowances have been determined to be leasehold improvements.

Cash and Cash Equivalents and Restricted Cash

Cash equivalents consist of highly liquid investments with a maturity of 90 days or less at the date of purchase. We deposit 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 and cash equivalents at December 31, 2018 were not insured or guaranteed by the FDIC or any other government agency and were invested across four separate financial institutions as of December 31, 2018. Included in restricted cash is $94.1 million at December 31, 2018 on deposit in excess of the FDIC insured limit.

Acquisitions

We recognize 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). Costs related to the acquisition of a controlling interest, including due diligence costs, professional fees, and other costs to effect an acquisition, are capitalized.

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 our 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.

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. We recognize 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. We recognize 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 (Note 13).

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, all 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 (Note 10).

We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives and strategies for undertaking various hedge transactions. We assess, 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.

Insurance Accounting

We carry liability insurance to mitigate our exposure to certain losses, including those relating to property damage and business interruption. We record the estimated amount of expected insurance proceeds for property damage and other losses incurred as an asset (typically a receivable from the insurer) and income up to the amount of the losses incurred when receipt of insurance proceeds is deemed probable. Any amount of insurance recovery in excess of the amount of the losses incurred is considered a gain contingency and is not recorded until the proceeds are received. Insurance recoveries for business interruption for lost revenue or profit are accounted for as gain contingencies in their entirety, and therefore are not recorded in income until the proceeds are received.

During the years ended December 31, 2018 and 2017, we recorded insurance proceeds related to reimbursement of expenses and property damage incurred at The Mall of San Juan as a result of Hurricane Maria (Note 15).

Income Taxes

We operate in such a manner as to qualify as a REIT under the applicable provisions of the Internal Revenue Code. To qualify as a REIT, we must distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains, to our shareholders and meet certain other requirements. As a REIT, we are entitled to a dividends paid deduction for the dividends we pay to our shareholders. Therefore, we will generally not be subject to federal income taxes under current Federal income tax law as long as we currently distribute to our shareholders an amount equal to or in excess of our taxable income. REIT qualification reduces but does not eliminate the amount of state and local taxes paid by us. 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 our financial statements.
We have made Taxable REIT Subsidiary (TRS) elections for all of our 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 our 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. Our temporary differences primarily relate to deferred compensation, depreciation, and net operating loss carryforwards.
In connection with the new 21% Federal corporate income tax rate under the Tax Cuts and Jobs Act of 2017 (2017 Tax Act), we adjusted our net Federal deferred tax asset to reflect the change in tax rate (Note 3). 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 TCO.

Severance Plans and Restructuring Charges

We have severance plans in place for certain employees, which we account for as a post-employment benefit. We recognize a liability and expense when it is probable that employees will be entitled to benefits under the severance plans and the amount can be reasonably estimated.






We have been undergoing a restructuring to reduce our workforce and reorganize various areas of the organization in response to the completion of another major development cycle and the current near-term challenges facing the U.S. mall industry. During the year ended December 31, 2018, we incurred expense, partially offset by a change in estimate to previously recognized charges resulting in additional expense of $0.6 million. In 2017, we recognized $13.8 million of expense associated with our restructuring efforts. These expenses have been separately classified as Restructuring Charge on the Consolidated Statement of Operations and Comprehensive Income. As of December 31, 2018, $1.1 million of the restructuring costs recognized during 2018 were unpaid and remained accrued.    

Costs Associated with Shareholder Activism

During the years ended December 31, 2018 and 2017, we incurred $12.5 million and $14.5 million, respectively, of expense associated with activities related to shareholder activism, largely legal and advisory services. Also included in these costs is a retention program for certain employees. Given the uncertainties associated with shareholder activism and to ensure the retention of top talent in key positions within TCO, certain key employees were provided certain incentive benefits in the form of cash and/or equity retention awards. We and the Board of Directors believe these benefits are instrumental in ensuring our continued success during the retention period. Due to the unusual and infrequent nature of these expenses in our history, they have been separately classified as Costs Associated with Shareholder Activism on our Consolidated Statement of Operations and Comprehensive Income. Unvested incentive benefits under the retention awards as of December 31, 2018 were $1.2 million, which will be recognized as service is rendered through December 31, 2019.

Noncontrolling Interests
Noncontrolling interests in TCO are comprised of the ownership interests of (1) noncontrolling interests in TRG and (2) the noncontrolling interests in joint ventures controlled by us through ownership or contractual arrangements. Consolidated net income and comprehensive income includes amounts attributable to us and the noncontrolling interests. Transactions that change our ownership interest in a subsidiary are accounted for as equity transactions if we retain our controlling financial interest in the subsidiary.
We evaluate whether noncontrolling interests are subject to any redemption features outside of our 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 TRG and consolidated ventures of TCO 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
We have 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. Our 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) on our 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

We have one reportable operating segment: we own, develop, and manage shopping centers. We have aggregated our 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 our 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 our revenues. Our consolidated revenues and assets do not have any material amounts derived from countries other than the United States, as our investments in Asia are in Unconsolidated Joint Ventures that are accounted for under the equity method.

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

When preparing financial statements for each annual and interim reporting period, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. No such conditions or events were identified as of the issuance date of the financial statements contained in this Annual Report on Form 10-K.

Change in Accounting Policies

Recognition and Measurement of Financial Assets and Financial Liabilities

On January 1, 2018, we adopted Accounting Standards Update (ASU) No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities", which changed certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. As such, we now measure equity securities at fair value through net income, except for those that result in consolidation or are accounted for under the equity method. Upon adoption, we applied the modified-retrospective approach and recorded a one-time cumulative-effect adjustment to reclassify $1.0 million of historical unrealized gains on the fair value adjustments as of December 31, 2017 of our investment in Simon Property Group (SPG) common shares from Accumulated Other Comprehensive Income (Loss) (AOCI) to Dividends in Excess of Net Income on our Consolidated Balance Sheet. Beginning in January 2018, changes in the fair value of any outstanding SPG common shares are being recorded in Nonoperating Income, Net on our Consolidated Statement of Operations and Comprehensive Income (Note 11).

Cash Flow Statement Presentation

On January 1, 2018, we adopted ASU No. 2016-18, "Statement of Cash Flows - Restricted Cash", which changed the presentation of restricted cash and changes in restricted cash on the Consolidated Statement of Cash Flows. As a result, we changed the presentation of our Consolidated Statement of Cash Flows for both the years December 31, 2018 and 2017 to include restricted cash. Refer to Note 13 for a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheet that sum to the total of the same such amounts on the Consolidated Statement of Cash Flows. In connection with the adoption of this ASU, we revisited our accounting policies and presentation in regards to cash, deposits, and other investments subject to restrictions. In doing so, we reclassified $119.2 million from Deferred Charges and Other Assets to Restricted Cash on the Consolidated Balance Sheet as of December 31, 2017, to conform to current year classifications.

On January 1, 2018, we adopted ASU No. 2016-15, "Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments", which clarified the presentation of certain cash receipts and payments, including the classification of distributions received from equity method investees, on the Consolidated Statement of Cash Flows. In connection with the adoption of this ASU on January 1, 2018, we re-evaluated our current methodology and retrospectively changed the presentation of the Distributions from Unconsolidated Joint Ventures in excess of income and Income (loss) from Unconsolidated Joint Ventures in excess of distributions line items on the Consolidated Statement of Cash Flows for the year ended December 31, 2018 to re-classify prior year balances to correspond with current year classifications, specifically related to distributions received from equity method investees.
v3.10.0.1
Acquisition, Redevelopments, Developments, and Service Agreement
12 Months Ended
Dec. 31, 2018
Acquisition, Redevelopments, and Developments [Abstract]  
Acquisition, Redevelopments, Developments, and Service Agreement [Text Block]
Acquisition, Partial Disposition of Ownership Interests, Redevelopments, Developments, and Service Agreement

Acquisition

Country Club Plaza

In March 2016, a joint venture that we 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. We have a 50% ownership interest in the center, which is jointly managed by both companies. Our 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. In March 2017, the joint venture sold the Valencia Place office tower at Country Club Plaza for $75.2 million ($37.6 million at TRG's share), which was a component of the mixed-use property acquired.

Partial Disposition of Ownership Interests

In February 2019, we announced agreements to sell 50% of our interests in Starfield Hanam, CityOn.Xi’an and CityOn.Zhengzhou to funds managed by The Blackstone Group L.P. (Blackstone). Following the transactions, which are subject to customary closing conditions and are expected to close throughout 2019, we will retain a 17.15% ownership interest in Starfield Hanam, a 25% ownership interest in CityOn.Xi'an, and a 24.5% ownership interest in CityOn.Zhengzhou. We will remain the partner responsible for the joint management of the three shopping centers, with Blackstone paying a property service fee. The interests to be sold are valued at $480 million, with net cash proceeds expected to be about $315 million, after transaction costs and the allocation to Blackstone of its share of third-party debt. Also, we may receive up to an additional $50 million of consideration based on the 2019 performance of the three assets.

Redevelopments

We substantially completed our redevelopment project at Beverly Center in November 2018. We expect some capital spending at Beverly Center to continue into 2019 as certain costs are incurred subsequent to the project's completion, including construction on certain tenant spaces.

We have an ongoing redevelopment project at The Mall at Green Hills, which is expected to be completed in 2019. This redevelopment project is expected to cost approximately $200 million. As of December 31, 2018, our total capitalized costs related to this redevelopment project were $144.5 million.

U.S. Development

International Market Place

International Market Place, a shopping center located in Waikiki, Honolulu, Hawaii, opened in August 2016.

Asia Developments

Operating Centers

We have opened three shopping centers in Asia: CityOn.Xi’an, located in Xi’an, China; Starfield Hanam, located in Hanam, South Korea; and CityOn.Zhengzhou, located in Zhengzhou, China. The shopping centers opened in April 2016, September 2016, and March 2017, respectively (Note 5). These investments are classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.






South Korea Projects

We have partnered with Shinsegae Group, our partner in Starfield Hanam, to build, lease, and manage Starfield Anseong, an approximately 1.1 million square foot shopping center in Anseong, Gyeonggi Province, South Korea. We expect to beneficially own a 24.5% interest in the project; however we currently own and are funding 49% of the project until an additional capital partner is admitted. The shopping center is scheduled to open in late 2020. As of December 31, 2018, we have invested $97.1 million in the project, after cumulative currency translation adjustments. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.

We were previously exploring an additional development opportunity in South Korea with Shinsegae Group. In March 2017, we made a refundable deposit of $11.0 million relating to a potential development site. After performing due diligence, we decided not to proceed with the project. The deposit, including a 5% return, was returned to us in November 2017.

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, we 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.
v3.10.0.1
Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

Income Tax Expense (Benefit)

Our income tax expense (benefit) for the years ended December 31, 2018, 2017, and 2016 consisted of the following:
 
2018
 
2017

2016
 
Federal current
$
(373
)
 
$
(2,509
)

$
2,238

 
Federal deferred
(1,057
)
 
1,632

(1) 
(1,310
)
 
Foreign current
1,160


849


404

 
Foreign deferred
307


158


293

 
State current
(128
)
 
(208
)
 
782

 
State deferred
(140
)
 
183

 
(195
)
 
Total income tax (benefit) expense
$
(231
)
 
$
105


$
2,212

(2) 


(1)
Reflects $0.3 million of expense related to the restatement of the net Federal deferred tax asset at December 31, 2017 at the new 21% Federal corporate income tax rate under the 2017 Tax Act.
(2)
Includes $0.5 million of income taxes recognized at the time of conversion of a portion of our investment in partnership units in Simon Property Group Limited Partnership to common shares of Simon Property Group (Note 7).

On December 22, 2017, the 2017 Tax Act was signed into law making significant changes to the Internal Revenue Code. The 2017 Tax Act reduces the corporate tax rate to 21% effective January 1, 2018. Consequently, our Federal deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate. We recorded a decrease related to the TRS net Federal deferred tax asset of $0.3 million, with a corresponding net adjustment to deferred income tax expense of $0.3 million for the year ended December 31, 2017. With the exception of the reduction in the corporate tax rate, we did not identify any other items for which the accounting for the income tax effects of the 2017 Tax Act have not been completed.









Net Operating Loss Carryforwards

As of December 31, 2018, we had a foreign net operating loss carryforward of $6.1 million. Of the $6.1 million, $0.5 million had a carryforward period of 10 years, and the remaining had an indefinite carryforward period. As of December 31, 2018, the TRS's had a Federal net operating loss carryforward of $10.2 million, which has an indefinite carryforward period. Its future use is limited annually to 80% of taxable income. As of December 31, 2018, the TRS's also had an investment tax credit carryforward of $3.6 million, which had a carryforward period of 20 years. As of December 31, 2018 the TRS's also had a charitable contribution carryforward of $0.7 million. Of the $0.7 million, $0.5 million had a remaining carryforward period of 4 years, and $0.2 million had a remaining carryforward period of 5 years.

Deferred Taxes

Deferred tax assets and liabilities as of December 31, 2018 and 2017 were as follows:
 
2018
 
2017
 
Deferred tax assets:
 
 
 
 
Federal
$
5,662

(1) 
$
503

(2) 
Foreign
1,655

 
1,788

 
State
807

 
545

 
Total deferred tax assets
$
8,124

 
$
2,836

 
Valuation allowances
(1,744
)
(3) 
(1,620
)
(4) 
Net deferred tax assets
$
6,380

 
$
1,216

 
Deferred tax liabilities:
 

 
 

 
Foreign(5)
$
2,454

 
$
1,517

 
Total deferred tax liabilities
$
2,454

 
$
1,517

 


(1)
Includes a $3.6 million Federal investment tax credit carryforward and $2.0 million attributable to a Federal net operating loss carryforward.
(2)
Includes a $0.3 million reduction in the net Federal deferred tax asset due to the new 21% Federal corporate income tax rate under the 2017 Tax Act.
(3)
Includes a $1.2 million valuation allowance against Foreign deferred tax assets, and a $0.5 million valuation allowance against State deferred tax assets.
(4)
Includes a $1.2 million valuation allowance against Foreign deferred tax assets, and a $0.4 million valuation allowance against State deferred tax assets.
(5)
The foreign deferred tax liability relates to shareholder level withholding taxes from Korea and China on undistributed profits.

We believe 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 TCO's common and preferred stock and their tax status are presented in the following tables. The tax status of TCO's dividends in 2018, 2017, and 2016 may not be indicative of future periods. The portion of the per share dividends paid in 2018 and each year 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). In addition, 99.85% of the portion of the 2018 common dividend taxed as ordinary income are qualified REIT dividends that may be eligible for a new 20% tax deduction in 2018 under Internal Revenue Code Section 199A(a) if the shareholder meets certain holding period requirements.

Year
 
Dividends per common share declared
 
Return of capital
 
Ordinary income
 
Long term capital gain
 
Unrecaptured Sec. 1250 capital gain
2018
 
$
2.6200

 
$
1.1167

 
$
1.4766

 
$
0.0263

 
$
0.0004

2017
 
2.5000

 
0.4775

 
1.3927

 
0.4397

 
0.1901

2016
 
2.3800

 

 
1.8427

 
0.3929

 
0.1444



Year

Dividends per Series J Preferred share declared

Ordinary income

Long term capital gain

Unrecaptured Sec. 1250 capital gain
2018

$
1.6250


$
1.5961


$
0.0284


$
0.0005

2017

1.6250


1.0505


0.4011


0.1734

2016
 
1.6250

 
1.2581

 
0.2683

 
0.0986



Year
 
Dividends per Series K Preferred share declared
 
Ordinary income
 
Long term capital gain
 
Unrecaptured Sec. 1250 capital gain
2018
 
$
1.5625

 
$
1.5347

 
$
0.0273

 
$
0.0005

2017
 
1.5625

 
1.0101

 
0.3857

 
0.1667

2016
 
1.5625

 
1.2097

 
0.2580

 
0.0948



Uncertain Tax Positions

We expect no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of December 31, 2018. We have no material interest or penalties relating to income taxes recognized on the Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2018, 2017, and 2016 or on the Consolidated Balance Sheet as of December 31, 2018 and 2017. As of December 31, 2018, returns for the calendar years 2015 through 2018 remain subject to examination by U.S. and various state and foreign tax jurisdictions.
v3.10.0.1
Properties
12 Months Ended
Dec. 31, 2018
Property, Plant and Equipment [Abstract]  
Real Estate Disclosure [Text Block]
Properties

Properties at December 31, 2018 and 2017 are summarized as follows:
 
2018
 
2017
Land
$
233,301


$
232,970

Buildings, improvements, and equipment
4,342,664


3,838,862

Construction in process and pre-development costs
141,604


389,213

 
$
4,717,569


$
4,461,045

Accumulated depreciation and amortization
(1,404,692
)

(1,276,916
)
 
$
3,312,877


$
3,184,129



Depreciation expense for 2018, 2017, and 2016 was $155.1 million, $161.1 million, and $130.4 million, respectively.

The charge to operations in 2018, 2017, and 2016 for domestic and non-U.S. pre-development activities was $3.8 million, $5.6 million, and $5.0 million, respectively.
v3.10.0.1
Investments in Unconsolidated Joint Ventures
12 Months Ended
Dec. 31, 2018
Equity Method Investments and Joint Ventures [Abstract]  
Investments in Unconsolidated Joint Ventures
Investments in Unconsolidated Joint Ventures

General Information

We own beneficial interests in joint ventures that own shopping centers. TRG is the sole direct or indirect managing general partner or managing member of Fair Oaks Mall, International Plaza, Stamford Town Center, Sunvalley, The Mall at University Town Center, and Westfarms; however, these joint ventures are accounted for under the equity method due to the substantive participation rights of the outside partners. TRG also provides certain management, leasing, and/or development services to the other shopping centers noted below.
Shopping Center
 
Ownership as of
December 31, 2018 and 2017
CityOn.Xi'an (1)
 
50%
CityOn.Zhengzhou (1)
 
49
Country Club Plaza
 
50
Fair Oaks Mall
 
50
International Plaza
 
50.1
The Mall at Millenia
 
50
Stamford Town Center
 
50
Starfield Anseong (under development)
 
Note 2
Starfield Hanam (1)
 
34.3
Sunvalley
 
50
The Mall at University Town Center
 
50
Waterside Shops
 
50
Westfarms
 
79


(1)
We entered into agreements to sell half of our ownership interest in CityOn.Xi'an, CityOn.Zhengzhou, and Starfield Hanam in February 2019 (Note 2).

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

On our Consolidated Balance Sheet, we separately report our investment in 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 shopping centers further decrease the net equity of the shopping centers.


Combined Financial Information

Combined balance sheet and results of operations information is presented in the following table for the Unconsolidated Joint Ventures, followed by TRG's beneficial interest in the combined operations information. The combined financial information of the Unconsolidated Joint Ventures as of December 31, 2018 excludes the balances of Starfield Anseong, which was under development as of December 31, 2018 (Note 2). Beneficial interest is calculated based on TRG's ownership interest in each of the Unconsolidated Joint Ventures.
 
December 31 2018
 
December 31 2017
Assets:
 
 
 
Properties
$
3,728,846

 
$
3,756,890

Accumulated depreciation and amortization
(869,375
)
 
(767,678
)
 
$
2,859,471

 
$
2,989,212

Cash and cash equivalents
161,311

 
147,102

Accounts and notes receivable, less allowance for doubtful accounts of $6,616 and $4,706 in 2018 and 2017
131,767

 
121,173

Deferred charges and other assets
140,444

 
136,837

 
$
3,292,993

 
$
3,394,324

 


 
 
Liabilities and accumulated equity (deficiency) in assets:
 

 
 

Notes payable, net
$
2,815,617

 
$
2,860,384

Accounts payable and other liabilities
426,358

 
471,948

TRG's accumulated deficiency in assets
(49,465
)
 
(48,338
)
Unconsolidated Joint Venture Partners' accumulated equity in assets
100,483

 
110,330

 
$
3,292,993

 
$
3,394,324

 


 
 
TRG's accumulated deficiency in assets (above)
$
(49,465
)
 
$
(48,338
)
TRG's investment in Starfield Anseong (Note 2) and advances to CityOn.Zhengzhou
140,743

 
46,106

TRG basis adjustments, including elimination of intercompany profit
57,360

 
63,886

TCO's additional basis
47,178

 
49,124

Net investment in Unconsolidated Joint Ventures
$
195,816

 
$
110,778

Distributions in excess of investments in and net income of Unconsolidated Joint Ventures
477,800

 
494,851

Investment in Unconsolidated Joint Ventures
$
673,616

 
$
605,629



 
Year Ended December 31
 
2018
 
2017
 
2016
Revenues
$
601,272

 
$
586,499

 
$
477,458

Maintenance, taxes, utilities, promotion, and other operating expenses
$
211,285

 
$
218,004

 
$
172,325

Interest expense
132,669

 
130,339

 
103,973

Depreciation and amortization
131,884

 
127,625

 
95,051

Total operating costs
$
475,838

 
$
475,968

 
$
371,349

Nonoperating income, net
1,923

 
2,894

 
317

Income tax expense
(5,935
)
 
(5,226
)
 
(375
)
Gain on disposition, net of tax (1)


 
3,713

 


Net income
$
121,422

 
$
111,912

 
$
106,051

 


 
 
 
 
Net income attributable to TRG
$
62,964

 
$
59,994

 
$
61,561

Realized intercompany profit, net of depreciation on TRG’s basis adjustments
8,386

 
9,326

 
10,086

Depreciation of TCO's additional basis
(1,946
)
 
(1,946
)
 
(1,946
)
Equity in income of Unconsolidated Joint Ventures
$
69,404

 
$
67,374

 
$
69,701

 
 
 
 
 
 
Beneficial interest in Unconsolidated Joint Ventures’ operations:
 

 
 

 
 

Revenues less maintenance, taxes, utilities, promotion, and other operating expenses
$
209,423

 
$
202,332

 
$
178,009

Interest expense
(68,225
)
 
(67,283
)
 
(54,674
)
Depreciation and amortization
(68,894
)
 
(66,933
)
 
(53,012
)
Income tax expense
(2,900
)
 
(2,825
)
 
(622
)
Gain on disposition, net of tax (1)


 
2,083

 


Equity in income of Unconsolidated Joint Ventures
$
69,404

 
$
67,374

 
$
69,701



(1)Amount represents the gain related to the sale of the Valencia Place office tower at Country Club Plaza in March 2017 (Note 2).

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 (the 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, we issued a note receivable outstanding to CityOn.Zhengzhou for purposes of funding development costs. The balance of the note receivable was $43.6 million and $46.1 million as of December 31, 2018 and 2017, respectively, and was classified within Investments in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.
v3.10.0.1
Accounts and Notes Receivable
12 Months Ended
Dec. 31, 2018
Receivables [Abstract]  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]
Accounts and Notes Receivable

Accounts and notes receivable at December 31, 2018 and 2017 are summarized as follows:

 
2018
 
2017
Trade
$
46,292

 
$
51,416

Notes
3,172

 
4,031

Straight-line rent and recoveries
38,626

 
33,356

 
$
88,090

 
$
88,803

Less: Allowance for doubtful accounts
(10,360
)
 
(10,237
)
 
$
77,730

 
$
78,566



v3.10.0.1
Deferred Charges Other Assets
12 Months Ended
Dec. 31, 2018
Deferred Charges and Other Assets [Abstract]  
Deferred Charges and Other Assets [Text Block]
Deferred Charges and Other Assets

Deferred charges and other assets at December 31, 2018 and 2017 are summarized as follows:

 
2018
 
2017
Leasing costs
$
52,507


$
39,252

Accumulated amortization
(7,577
)

(9,223
)
 
$
44,930


$
30,029

In-place leases, net
3,122


4,462

Investment in Simon Property Group common shares (Note 17)
48,738

 
101,348

Revolving credit facilities' deferred financing costs, net
4,374


6,456

Insurance deposit (Note 17)
10,121


16,703

Deposits
975


3,715

Prepaid expenses
6,671


6,362

Deferred tax asset, net
6,380


1,216

Other, net
9,825


10,208

 
$
135,136


$
180,499



Simon Property Group Limited Partnership Unit Conversions

In December 2017 and 2016, we converted our investment in 340,124 and 250,000 partnership units of Simon Property Group Limited Partnership (SPG LP Units) to SPG common shares. Upon conversion, we recognized gains of $11.6 million and $11.1 million in 2017 and 2016, respectively, which were included within Nonoperating Income, Net on the Consolidated Statement of Operations and Comprehensive Income. The gains were calculated based on the change in fair value of the SPG share prices at the dates of conversion from the carrying value. The SPG LP Units were previously accounted for at cost. The SPG common shares were recorded in Deferred Charges and Other Assets on the Consolidated Balance Sheet at December 31, 2018 and 2017 based on the common share price at each date and are now accounted for as equity securities at fair value as a result of the adoption of ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities" (Note 1). We owned 290,124 and 590,124 SPG common shares as of December 31, 2018 and 2017, respectively. Changes in fair value from conversion date to December 31, 2018 are recorded in Nonoperating Income, Net on the Consolidated Statement of Operations and Comprehensive Income (Note 17).

Sale of SPG Common Shares

During 2018, we sold 300,000 SPG common shares at an average price of $182.37 per share. In January 2019, we sold our remaining investment in 290,124 SPG common shares at an average price of $179.52 per share. Proceeds from the sales were used to pay down our revolving lines of credit.
v3.10.0.1
Notes Payable, Net
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]
Notes Payable, Net

Notes payable, net at December 31, 2018 and 2017 consist of the following:
 
2018
 
2017
 
Stated Interest Rate as of 12/31/2018
 
Maturity Date
 
Number of Extension Options
 
Facility Amount
 
Cherry Creek Shopping Center
$
550,000


$
550,000

 
3.85%
 
06/01/28
 
 
 
 
 
City Creek Center
77,068

(1) 
78,703

(1) 
4.37%
 
08/01/23
 
 
 
 
 
Great Lakes Crossing Outlets
198,625


203,553

 
3.60%
 
01/06/23
 
 
 
 

 
The Mall at Green Hills
150,000


150,000

 
LIBOR+1.60% LIBOR capped at 4.25%
 
12/01/19

One, one-year option
 
 
 
International Market Place
250,000


293,801

(2) 
LIBOR + 2.15%
 
08/09/21

Two, one-year options
 
 
 
The Mall at Short Hills
1,000,000


1,000,000

 
3.48%
 
10/01/27
 
 
 
 
 
Twelve Oaks Mall
296,815

 
 
 
4.85%
 
03/06/28
 
 
 
 
 
U.S. Headquarters
12,000


12,000

 
LIBOR + 1.40% Swapped to 3.49%
 
03/01/24
 
 
 
 
 
$65M Revolving Credit Facility
34,675

 
19,655

 
LIBOR + 1.40%
 
04/27/19
 
 
 
65,000

(3) 
$1.1B Revolving Credit Facility
725,000

(4) (5) 
485,000

 
LIBOR + 1.45%
(4) 
02/01/21
 
Two, six-month options
 
1,100,000

(4) 
$475M Unsecured Term Loan



475,000

(6) 
 

 
 
 
 
 
 
$300M Unsecured Term Loan
300,000

(5) (7) 
300,000

(7) 
LIBOR + 1.60%
(7) 
02/01/22
 
 
 
 
 
$250M Unsecured Term Loan
250,000

(8) 
 
 
LIBOR + 1.60%
(8) 
03/31/23
 
 
 
 
 
Deferred Financing Costs, Net
(13,988
)
 
(12,484
)
 
 
 
 
 
 
 
 
 
 
$
3,830,195

 
$
3,555,228

 
 
 
 
 
 
 
 

 


(1)
TRG 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 we believe is remote.
(2)
In July 2018, we extended the construction facility for International Market Place from August 2018 to November 2018 and made a $43.8 million principal paydown on the construction facility that was funded using our revolving line of credit. In August 2018, we refinanced the $250.0 million outstanding balance, which bore interest at LIBOR plus 1.75%.
(3)
The unused borrowing capacity at December 31, 2018 was $25.8 million, after considering $4.6 million of letters of credit outstanding on the facility.
(4)
TRG is the borrower under the $1.1 billion primary unsecured revolving credit facility. As of December 31, 2018, the interest rate on the facility was a range of LIBOR plus 1.15% to 1.70% and a facility fee of 0.20% to 0.25% based on our total leverage ratio. The unused borrowing capacity at December 31, 2018 was $290.7 million. The LIBOR rate is swapped to 1.65% through February 2019 on $225 million of the $1.1 billion TRG revolving credit facility. This results in an effective interest rate in the range of 2.80% to 3.35% through February 2019 on $225 million of the credit facility balance.
(5)
The $1.1 billion primary unsecured revolving line of credit includes an accordion feature, which in combination with the $300 million unsecured term loan would increase our maximum aggregate total commitment to $2.0 billion between the two facilities if fully exercised, subject to obtaining additional lender commitments, customary closing conditions, covenant compliance, and minimum asset values for the unencumbered asset pool. As of December 31, 2018, we could not fully utilize the accordion feature unless additional assets were added to the unencumbered asset pool.
(6)
In March 2018, we repaid the $475 million unsecured term loan, which was scheduled to mature in February 2019. The loan bore interest at a range of LIBOR plus 1.35% to 1.90% based on our total leverage ratio. The LIBOR rate was swapped to a fixed interest rate of 1.65%, resulting in an effective interest rate range of 3.00% to 3.55% (Note 10).
(7)
TRG is the borrower under a $300 million unsecured term loan that bears interest at a range of LIBOR plus 1.25% to 1.90% based on our total leverage ratio. Beginning January 2018, the LIBOR rate is swapped through maturity to a fixed rate of 2.14%, resulting in an effective interest rate in the range of 3.39% to 4.04% (Note 10).
(8)
In March 2018, TRG completed a $250 million unsecured term loan that includes an accordion feature, which would increase our maximum aggregate total commitment to $400 million if fully exercised, subject to obtaining additional lender commitments, customary closing conditions, covenant compliance, and minimum asset values for the unencumbered asset pool. As of December 31, 2018, we could not utilize the accordion feature unless additional assets were added to the unencumbered asset pool. The loan bears interest at a range of LIBOR plus 1.25% to 1.90% based on our total leverage ratio. The LIBOR rate is swapped through February 2019 to a fixed rate of 1.64%, which results in an effective interest rate in the range of 2.89% to 3.54%. Beginning March 2019 through the March 2023 maturity date, the LIBOR rate is swapped to a fixed rate of 3.02% with forward starting swaps, which results in an effective interest rate in the range of 4.27% to 4.92% (Note 10).
(9)
Amounts in table may not add due to rounding.

Notes payable are collateralized by properties with a net book value of $1.6 billion at December 31, 2018.

The following table presents scheduled principal payments on notes payable as of December 31, 2018:

2019
$
195,998

(1) 
2020
11,747

 
2021
987,329

(2) 
2022
312,867

 
2023
502,278

 
Thereafter
1,833,964

 
Total principal maturities
$
3,844,183

 
Net unamortized deferred financing costs
(13,988
)
 
Total notes payable, net
$
3,830,195

 

(1)
Includes $150.0 million with a one-year extension option.
(2)
Includes $725.0 million with two, six-month extension options and $250.0 million with two, one-year extension options.

2019 Maturities

The loan for The Mall at Green Hills matures in December 2019. We expect to exercise the second one-year extension option upon maturity.

Debt Covenants and Guarantees

Certain loan agreements contain various restrictive covenants, including the following corporate covenants on our primary unsecured revolving line of credit, as well as the $300 million and $250 million unsecured term loans and the loan on International Market Place: a minimum net worth requirement, a maximum total leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum recourse secured debt ratio, and a maximum payout ratio. In addition, our primary unsecured revolving line of credit and unsecured term loans have unencumbered pool covenants, which currently apply to Beverly Center, Dolphin Mall, and The Gardens on El Paseo on a combined basis as of December 31, 2018. 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, 2018, the corporate total leverage ratio was the most restrictive covenant. We were in compliance with all of our covenants and loan obligations as of December 31, 2018. The maximum payout ratio covenant limits the payment of distributions generally to 95% of funds from operations, as defined in the loan agreements, except as required to maintain our tax status, pay preferred distributions, and for distributions related to the sale of certain assets.

In connection with the August 2018 financing at International Market Place, TRG has provided an unconditional guarantee of the loan principal balance and all accrued but unpaid interest during the term of the loan. The $250.0 million loan is interest only during the initial three-year term with principal amortization required during the extension periods, if exercised. Accrued but unpaid interest as of December 31, 2018 was $1.0 million. We believe the likelihood of a repayment under the guarantee to be remote.

In connection with the $175 million additional financing at International Plaza, which is owned by an Unconsolidated Joint Venture, TRG provided an unconditional and several guarantee of 50.1% of all obligations and liabilities related to an interest rate swap that was required on the debt for the term of the loan. As of December 31, 2018, the interest rate swap was an asset and in a receivable position for unpaid interest. We believe the likelihood of a payment under the guarantee to be remote.











Beneficial Interest in Debt and Interest Expense

TRG'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. TRG's beneficial interest in the consolidated subsidiaries excludes debt and interest related to the noncontrolling interest in Cherry Creek Shopping Center (50%) and International Market Place (6.5%).
 
At 100%
 
At Beneficial Interest
 
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
 
Debt as of:
 
 
 
 
 
 
 
 
December 31, 2018
$
3,830,195


$
2,815,617


$
3,539,588


$
1,437,445

 
December 31, 2017
3,555,228


2,860,384


3,261,777


1,459,854

 












 
Capitalized interest:
 


 


 


 

 
Year Ended December 31, 2018
$
15,221

(1) 
$
30


$
15,133

(1) 
$
18

 
Year Ended December 31, 2017
12,402

(1) 
456

(2) 
12,326

(1) 
456

(2) 












 
Interest expense:
 


 


 


 

 
Year Ended December 31, 2018
$
133,197


$
132,669


$
121,166


$
68,225

 
Year Ended December 31, 2017
108,572


130,339


96,630


67,283

 

(1)
We capitalize interest costs incurred in funding our equity contributions to development projects accounted for as Unconsolidated Joint Ventures. The capitalized interest cost is included in our basis in our investment in Unconsolidated Joint Ventures. Such capitalized interest reduces interest expense on the Consolidated Statement of Operations and Comprehensive Income and in the table above is included within Consolidated Subsidiaries.
(2)
Capitalized interest on the Asia Unconsolidated Joint Venture construction financing is presented at our beneficial interest in both the Unconsolidated Joint Ventures (at 100%) and Unconsolidated Joint Ventures (at Beneficial Interest) columns.
v3.10.0.1
Noncontrolling Interests
12 Months Ended
Dec. 31, 2018
Noncontrolling Interest [Abstract]  
Noncontrolling Interests
Noncontrolling Interests

Redeemable Noncontrolling Interests

Taubman Asia President

In September 2016, we 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 was employed by us in another capacity through September 30, 2017.

The Former Asia President has an ownership interest in Taubman Asia. This interest entitles the Former Asia President to 5% of Taubman Asia's dividends, with 85% of his dividends relating to investment activities undergone prior to the Successor Asia President obtaining an ownership interest (see below) 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 TRG for Taubman Asia's operating and investment activities subsequent to the Former Asia President obtaining his ownership interest. TRG 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 TRG'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 Taubman Asia's properties reaching certain specified milestones. The redemption price for the ownership interest is the fair value of the ownership interest less the amount required to return TRG's preferred interest. We have 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. We present 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. As of December 31, 2018 and 2017, the carrying amount of this redeemable equity was $7.8 million and $7.5 million, respectively. Adjustments to the redemption value are recorded through equity.

In April 2016, we reacquired half of the Former Asia President's previous 10% 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 current 5% interest is puttable beginning in 2019 at the earliest and was classified as Redeemable Noncontrolling Interest on the Consolidated Balance Sheet.

The Successor Asia President also has an ownership interest in Taubman Asia. This interest entitles the Successor Asia President to 3% of Taubman Asia's dividends for investment activities undergone by Taubman Asia subsequent to him obtaining his ownership interest, with all of his dividends being withheld as contributions to capital. These withholdings will continue until he contributes and maintains his capital consistent with his percentage ownership interest, including all capital funded by TRG for Taubman Asia's operating and investment activities subsequent to the Successor Asia President obtaining his ownership interest. TRG has a preferred investment in Taubman Asia to the extent the Successor Asia President has not yet contributed capital commensurate with his ownership interest. This preferred investment accrues an annual preferential return equal to TRG'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 Successor Asia President has the ability to put, the Successor Asia President’s ownership interest upon specified terminations of the Successor 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 January 2022) of the fair value of the ownership interest less the amount required to return TRG's preferred interest. We have determined that the Successor Asia President's ownership interest in Taubman Asia qualifies as an equity award, considering its specific redemption provisions, and account for it as a contingently redeemable noncontrolling interest. As of December 31, 2018, the carrying amount of this redeemable equity was zero. Any adjustments to the redemption value are recorded through equity.








International Market Place

We own 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 and no right to contribute capital. We are entitled to a preferential return on our capital contributions. We have the right to purchase the joint venture partner's interest and the joint venture partner has the right to require us to purchase the joint venture partner's interest 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, we account for the joint venture partner's interest as a contingently redeemable noncontrolling interest with a carrying value of zero at both December 31, 2018 and 2017. Any adjustments to the redemption value are recorded through equity.

Reconciliation of Redeemable Noncontrolling Interest
 
2018
 
2017
Balance, January 1
$
7,500

 
$
8,704

Former Taubman Asia President vested redeemable equity
300

 
(1,204
)
Allocation of net loss
(280
)
 
(924
)
Adjustments of redeemable noncontrolling interest
280

 
924

Balance, December 31
$
7,800