TAUBMAN CENTERS INC, 10-Q filed on 4/27/2018
Quarterly Report
v3.8.0.1
Document and Entity Information Document - shares
3 Months Ended
Mar. 31, 2018
Apr. 26, 2018
Entity Information [Line Items]    
Entity Registrant Name TAUBMAN CENTERS INC.  
Entity Central Index Key 0000890319  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Period End Date Mar. 31, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   60,992,212
Entity Well-known Seasoned Issuer Yes  
Entity Voluntary Filers No  
Entity Current Reporting Status Yes  
v3.8.0.1
CONSOLIDATED BALANCE SHEET - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Assets:    
Properties $ 4,527,155,000 $ 4,461,045,000
Accumulated depreciation and amortization (1,311,979,000) (1,276,916,000)
Real Estate Investment Property, Net 3,215,176,000 3,184,129,000
Investment in Unconsolidated Joint Ventures (Note 4) 603,848,000 605,629,000
Cash and cash equivalents (Note 13) 53,920,000 42,499,000
Restricted cash (Note 13) 126,954,000 121,905,000
Accounts and notes receivable, less allowance for doubtful accounts of $13,632 and $10,237 in 2018 and 2017 73,917,000 78,566,000
Accounts receivable from related parties 2,235,000 1,365,000
Deferred charges and other assets 169,945,000 180,499,000
Total Assets 4,245,995,000 4,214,592,000
Liabilities:    
Notes payable, net (Note 5) 3,640,128,000 3,555,228,000
Accounts payable and accrued liabilities 277,743,000 307,041,000
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures (Note 4) 490,485,000 494,851,000
Total Liabilities 4,408,356,000 4,357,120,000
Commitments and contingencies (Notes 5, 6, 7, 8, and 9)
Redeemable Noncontrolling Interest, Equity, Carrying Amount [Abstract]    
Redeemable noncontrolling interest (Note 6) 7,500,000 7,500,000
Equity (Deficit):    
Series B Non-Participating Convertible Preferred Stock, $0.001 par and liquidation value, 40,000,000 shares authorized, 24,937,221 and 24,938,114 shares issued and outstanding at March 31, 2018 and December 31, 2017 25,000 25,000
Common Stock, $0.01 par value, 250,000,000 shares authorized, 60,991,114 and 60,832,918 shares issued and outstanding at March 31, 2018 and December 31, 2017 610,000 608,000
Additional paid-in capital 673,727,000 675,333,000
Accumulated other comprehensive income (loss) (Notes 1, 7, and 12) 157,000 (6,919,000)
Dividends in excess of net income (Notes 1 and 7) (667,602,000) (646,807,000)
Stockholders' Equity Attributable to Parent 6,917,000 22,240,000
Noncontrolling interests (Note 6) (176,778,000) (172,268,000)
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest (169,861,000) (150,028,000)
Total Liabilities and Equity $ 4,245,995,000 $ 4,214,592,000
v3.8.0.1
CONSOLIDATED BALANCE SHEET (Parenthetical) - USD ($)
Mar. 31, 2018
Dec. 31, 2017
Allowance for doubtful accounts $ 13,632,000 $ 10,237,000
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 250,000,000 250,000,000
Common stock, shares issued 60,991,114 60,832,918
Common stock, shares outstanding 60,991,114 60,832,918
Series B Preferred Stock [Member]    
Preferred Stock, par value $ 0.001 $ 0.001
Preferred Stock, liquidation preference per share $ 0.001 $ 0.001
Preferred Stock, shares authorized 40,000,000 40,000,000
Preferred Stock, shares issued 24,937,221 24,938,114
Preferred Stock, shares outstanding 24,937,221 24,938,114
Series J Preferred Stock [Member]    
Preferred Stock, par value $ 0 $ 0
Preferred Stock, liquidation preference $ 192,500,000 $ 192,500,000
Preferred Stock, shares authorized 7,700,000 7,700,000
Preferred Stock, shares issued 7,700,000 7,700,000
Preferred Stock, shares outstanding 7,700,000 7,700,000
Series K Preferred Stock [Member]    
Preferred Stock, par value $ 0 $ 0
Preferred Stock, liquidation preference $ 170,000,000 $ 170,000,000
Preferred Stock, shares authorized 6,800,000 6,800,000
Preferred Stock, shares issued 6,800,000 6,800,000
Preferred Stock, shares outstanding 6,800,000 6,800,000
v3.8.0.1
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Revenues:    
Minimum rents $ 86,825 $ 84,303
Overage rents 2,625 2,575
Expense recoveries (Note 1) 51,528 53,012
Management, leasing, and development services (Note 1) 794 917
Other (Note 1) 19,720 8,276
Total Revenues 161,492 149,083
Expenses:    
Maintenance, taxes, utilities, and promotion 37,637 39,711
Other operating 23,866 19,319
Management, leasing, and development services 302 579
General and administrative 8,493 10,751
Restructuring charge (Note 1) (346) 1,896
Costs associated with shareowner activism (Note 1) 3,500 3,500
Interest expense 30,823 25,546
Depreciation and amortization 35,022 37,711
Operating Expenses 139,297 139,013
Nonoperating income (expense) (Notes 7, 9, and 11) (7,143) 2,779
Income before income tax expense and equity in income of Unconsolidated Joint Ventures 15,052 12,849
Income tax expense (Note 3) (184) (208)
Equity in income of Unconsolidated Joint Ventures (Note 4) 19,728 20,118
Net income 34,596 32,759
Net income attributable to noncontrolling interests (Note 6) (9,623) (9,234)
Net income attributable to Taubman Centers, Inc. 24,973 23,525
Distributions to participating securities of TRG (Note 8) (599) (571)
Preferred stock dividends (5,784) (5,784)
Net income attributable to Taubman Centers, Inc. common shareowners 18,590 17,170
Other comprehensive income (Note 12):    
Unrealized gain (loss) on interest rate instruments and other 6,419 (2,803)
Cumulative translation adjustment 3,721 9,449
Reclassification adjustment for amounts recognized in net income 774 3,235
Other comprehensive income (loss) 10,914 9,881
Comprehensive income 45,510 42,640
Comprehensive income attributable to noncontrolling interests (12,793) (12,115)
Comprehensive income attributable to Taubman Centers, Inc. $ 32,717 $ 30,525
Basic earnings per common share (Note 10) $ 0.31 $ 0.28
Diluted earnings per common share (Note 10) 0.30 0.28
Cash dividends declared per common share $ 0.6550 $ 0.6250
Weighted average number of common shares outstanding – basic 60,917,235 60,555,466
v3.8.0.1
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - USD ($)
Total
Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Distributions in Excess of Net Income [Member]
Noncontrolling Interest [Member]
Former Taubman Asia Redeemable Noncontrolling Interest [Member]
Balance at Dec. 31, 2016 $ (70,703,000) $ 25,000 $ 604,000 $ 657,281,000 $ (35,916,000) $ (549,914,000) $ (142,783,000)  
Balance (in 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 8 and 9) 0   $ 1,000 (1,000)        
Issuance of stock pursuant to Continuing Offer (Notes 8 and 9), shares   (75,000) 75,005          
Share-based compensation under employee and director benefit plans (Note 8) 5,509,000   $ 2,000 5,507,000        
Share-based compensation under employee and director benefit plans (Note 8), shares     179,802          
Former Taubman Asia President redeemable equity adjustment (Note 6) (266,000)             $ (266,000)
Adjustments of noncontrolling interests (Note 6) (192,000)     (19,000) (14,000)   (159,000)  
Dividends and distributions (61,689,000)         (44,283,000)    
Distributions to noncontrolling interests             17,406,000  
Other (Note 1) 141,000     4,000   137,000  
Net income (excludes net loss attributable to redeemable noncontrolling interest) (Note 6) 32,951,000         23,525,000 9,426,000  
Net Income (Loss) Attributable to Redeemable Noncontrolling Interest (192,000)             (192,000)
Unrealized gain (loss) on interest rate instruments and other (2,803,000)       (1,985,000)   (818,000)  
Cumulative translation adjustment 9,449,000       6,694,000   2,755,000  
Reclassification adjustment for amounts recognized in net income 3,235,000       2,291,000   944,000  
Balance at Mar. 31, 2017 (84,368,000) $ 25,000 $ 607,000 662,506,000 (28,930,000) (570,535,000) (148,041,000)  
Balance (in shares) at Mar. 31, 2017   39,454,059 60,685,420          
Balance at Dec. 31, 2017 (150,028,000) $ 25,000 $ 608,000 675,333,000 (6,919,000) (646,807,000) (172,268,000)  
Balance (in 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 8 and 9) 0          
Issuance of stock pursuant to Continuing Offer (Notes 8 and 9), shares   (893) 3,353          
Share-based compensation under employee and director benefit plans (Note 8) (1,533,000)   $ 2,000 (1,535,000)        
Share-based compensation under employee and director benefit plans (Note 8), shares     154,843          
Former Taubman Asia President redeemable equity adjustment (Note 6)              
Adjustments of noncontrolling interests (Note 6) (52,000)     (71,000) 9,000   10,000  
Dividends and distributions (63,418,000)         (46,331,000)    
Distributions to noncontrolling interests             17,087,000  
Other (Note 1) (392,000)     (677,000) 563,000 (278,000)  
Net income (excludes net loss attributable to redeemable noncontrolling interest) (Note 6) 34,648,000         24,973,000 9,675,000  
Net Income (Loss) Attributable to Redeemable Noncontrolling Interest (52,000)             $ (52,000)
Unrealized gain (loss) on interest rate instruments and other 6,419,000       4,553,000   1,866,000  
Cumulative translation adjustment 3,721,000       2,641,000   1,080,000  
Reclassification adjustment for amounts recognized in net income 774,000       550,000   224,000  
Balance at Mar. 31, 2018 $ (169,861,000) $ 25,000 $ 610,000 $ 673,727,000 $ 157,000 $ (667,602,000) $ (176,778,000)  
Balance (in shares) at Mar. 31, 2018   39,437,221 60,991,114          
v3.8.0.1
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Cash Flows From Operating Activities:    
Net income $ 34,596 $ 32,759
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 35,022 37,711
Provision for bad debts 3,913 2,890
Fair value adjustment for marketable equity securities (Notes 1 and 11) 10,262
Income (Loss) from Equity Method Investments, Net of Dividends or Distributions (3,408) 29,343
Other 4,103 5,866
Increase (decrease) in cash attributable to changes in assets and liabilities:    
Receivables, deferred charges, and other assets 1,428 (6,118)
Accounts payable and accrued liabilities (35,310) 5,792
Net Cash Provided By Operating Activities 50,606 108,243
Cash Flows From Investing Activities:    
Additions to properties (58,676) (79,436)
Insurance proceeds for capital items at The Mall of San Juan 4,787
Funding development deposit (Note 2) (10,998)
Contributions to Unconsolidated Joint Ventures (1,628)
Distributions from Unconsolidated Joint Ventures in excess of income (Notes 1 and 2) 1,726 39,289
Other 22 21
Net Cash Used In Investing Activities (52,141) (52,752)
Cash Flows From Financing Activities:    
Proceeds from revolving lines of credit, net 13,295 35,300
Debt proceeds 550,000 301,589
Debt payments (476,654) (303,951)
Debt issuance costs (2,925) (6,595)
Issuance of common stock and/or TRG Units in connection with incentive plans (2,293) 1,964
Distributions to noncontrolling interests (17,087) (17,406)
Distributions to participating securities of TRG (599) (571)
Cash dividends to preferred shareowners (5,784) (5,784)
Cash dividends to common shareowners (39,948) (37,928)
Net Cash Provided By (Used In) Financing Activities 18,005 (33,382)
Net Increase In Cash, Cash Equivalents, and Restricted Cash 16,470 22,109
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period (Note 13) 164,404 152,965
Cash and Cash Equivalents, and Restricted Cash at End of Period (Note 13) $ 180,874 $ 175,074
v3.8.0.1
Interim Financial Statements
3 Months Ended
Mar. 31, 2018
Notes to Financial Statements [Abstract]  
Interim Financial Statements
Interim Financial Statements

General

Taubman Centers, Inc. (the Company or TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate investment trust (REIT). The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is a majority-owned partnership subsidiary of TCO that owns direct or indirect interests in all of the Company’s real estate properties. In this report, the term “Company" refers to TCO, the Operating Partnership, and/or the Operating Partnership's subsidiaries as the context may require. The Company engages in the ownership, management, leasing, acquisition, disposition, development, and expansion of retail shopping centers and interests therein. The Company’s owned portfolio as of March 31, 2018 included 24 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 in China and South Korea, as well as any developments in Asia, is headquartered in Hong Kong.

The unaudited interim financial statements should be read in conjunction with the audited financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results of interim periods are not necessarily indicative of the results for a full year.

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

Consolidation

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

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 variable interest entity (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. All of the Company’s consolidated joint ventures, including the Operating Partnership, meet the definition and criteria as VIEs, as either the Company or an affiliate of the Company is the primary beneficiary of each VIE.

The Company’s sole significant asset is its investment in the Operating Partnership and, consequently, substantially all of the Company’s consolidated assets and liabilities are assets and liabilities of the Operating Partnership. All of the Company’s debt (Note 5) is an obligation of the Operating Partnership or its consolidated subsidiaries. Note 5 also provides disclosure of guarantees provided by the Operating Partnership to certain consolidated joint ventures. Note 6 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.









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 VIE and has concluded that the ventures are not VIEs. 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 4 and 5). 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.

Ownership

In addition to common stock, there were three classes of preferred stock outstanding (Series B, J, and K) as of March 31, 2018. Dividends on the 6.5% Series J Cumulative Redeemable Preferred Stock (Series J Preferred Stock) and the 6.25% Series K Cumulative Redeemable Preferred Stock (Series K Preferred Stock) are cumulative and are paid on the last business day of each calendar quarter. The Company owns corresponding Series J and Series K Preferred Equity interests in the Operating Partnership that entitle the Company to income and distributions (in the form of guaranteed payments) in amounts equal to the dividends payable on the Company’s Series J and Series K Preferred Stock.

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

Outstanding voting securities of the Company at March 31, 2018 consisted of 24,937,221 shares of Series B Preferred Stock and 60,991,114 shares of common stock.

The Operating Partnership

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

The Company's ownership in the Operating Partnership at March 31, 2018 consisted of a 71% managing general partnership interest, as well as the Series J and Series K Preferred Equity interests. The Company's average ownership percentage in the Operating Partnership for both the three months ended March 31, 2018 and 2017 was 71%. At March 31, 2018, the Operating Partnership had 85,943,093 TRG Units outstanding, of which the Company owned 60,991,114 TRG Units. Disclosures about TRG Units outstanding exclude TRG Profits Units granted or other share-based grants for which TRG Units may eventually be issued (Note 8).

Restructuring Charge

The Company has been undergoing a restructuring to reduce its 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 three months ended March 31, 2018, the Company recorded an adjustment to previously recognized charges resulting in a reversal of expense of $0.3 million. During the three months ended March 31, 2017, the Company incurred $1.9 million of expenses related to the restructuring. These expenses have been separately classified as Restructuring Charge on the Consolidated Statement of Operations and Comprehensive Income. As of March 31, 2018, $0.7 million of the restructuring costs recognized during 2017 and 2018 were unpaid and remained accrued.    
 
Costs Associated with Shareowner Activism

During both the three months ended March 31, 2018 and 2017, the Company incurred $3.5 million of expense in each period associated with activities related to shareowner activism, largely legal and advisory services. Also included in the activism costs for the three months ended March 31, 2018 is a retention program for certain employees. Given the uncertainties associated with shareowner activism and to ensure the retention of top talent in key positions within the Company, certain key employees were provided certain incentive benefits in the form of cash and/or equity retention awards. The Company and the Board of Directors believe these benefits are instrumental in ensuring the continued success of the Company. Due to the unusual and infrequent nature of these expenses in the Company's history, they have been separately classified as Costs Associated with Shareowner Activism on 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

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 the Company's ability to continue as a going concern within one year after the date that the financial statements are issued. No such conditions or events were identified as of the issuance date of the financial statements contained in this Quarterly Report on Form 10-Q.

Change in Accounting Policies

Recognition and Measurement of Financial Assets and Financial Liabilities

On January 1, 2018, the Company 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, the Company now measures equity investments at fair value through net income, except for those that result in consolidation or are accounted for under the equity method. Upon adoption, the Company 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 its 590,124 Simon Property Group (SPG) common shares investment from Accumulated Other Comprehensive Income (Loss) (AOCI) to Dividends in Excess of Net Income on the Company's Consolidated Balance Sheet. Beginning in January 2018, changes in the fair value of any outstanding SPG common shares are being recorded in Nonoperating Income (Expense) on the Company's Consolidated Statement of Operations and Comprehensive Income (Note 11).

Cash Flow Statement Presentation

On January 1, 2018, the Company 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, the Company changed the presentation of its Consolidated Statement of Cash Flows for both the three months ended March 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 this ASU, the Company revisited its accounting policies and presentation in regards to cash, deposits, and other investments subject to restrictions. In doing so, the Company 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, the Company 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, the Company re-evaluated its current methodology and retrospectively changed the presentation of the Consolidated Statement of Cash Flows for the three months ended March 31, 2017 to re-classify prior year balances to correspond with current year classifications, specifically related to distributions received from equity method investees.


Adoption of Accounting Standards Codification (ASC) Topic 606 ("Revenue from Contracts with Customers")

General

On January 1, 2018, the Company 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. The Company 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 the Company's consolidated financial statements as of the date of adoption, and therefore a cumulative-effect adjustment was not required.

The Company applied ASC Topic 606 using certain practical expedients. As a result of this election, the Company 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 the Company recognizes revenue based on its right to invoice for management, leasing, and development services performed. Refer to the "Nature of Services and Performance Obligations" section 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, the Company is required to disclose a disaggregation of its revenues derived from contracts from customers that considers economic differences between revenue types. The following table summarizes the Company’s disaggregation of consolidated revenues for this purpose.
 
 
Three Months Ended March 31
 
 
2018
 
2017
Expense recoveries
 
$
51,528

 
$
53,012

Shopping center and other operational revenues (1)
 
10,820

 
7,644

Management, leasing, and development services
 
794

 
917

Total revenue from contracts with customers
 
$
63,142


$
61,573


(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 the Company 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 the Company's adoption of ASU No. 2016-02, Leases, which will be adopted as of 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. The Company satisfies its 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 the Company for its 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 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 the Company has a right to payment for services rendered that remains conditional on factors other than the passage of time. Similarly, contract liabilities are incurred when customers prepay for services to be rendered. Certain revenue streams within shopping center and other operational revenues may give rise to contract assets and liabilities. However, these revenue streams are generally short-term in nature and the difference between revenue recognition and cash collection, although variable, does not differ significantly from period to period. As of March 31, 2018, the Company had an inconsequential amount of contract assets and liabilities.

The aggregate amount of the transaction price allocated to the Company's performance obligations that were unsatisfied, or partially unsatisfied, as of March 31, 2018 were inconsequential.
v3.8.0.1
Disposition, Redevelopments, and Developments
3 Months Ended
Mar. 31, 2018
Acquisition, Redevelopments, and Developments [Abstract]  
Disposition, Redevelopments, and Developments [Text Block]
Disposition, Redevelopments, and Developments

Disposition

Valencia Place Office Tower at Country Club Plaza

In March 2017, the Company's joint venture with The Macerich Company sold the Valencia Place office tower at Country Club Plaza for $75.2 million ($37.6 million at TRG's beneficial share), which was a component of the mixed-use property at the center. The joint venture recognized a gain on this sale, of which TRG's beneficial share, net of tax, was $2.1 million. The gain was included within Equity in income of Unconsolidated Joint Ventures on the Consolidated Statement of Operations and Comprehensive Income as the Company's 50% ownership interest in the office tower was accounted for as an Unconsolidated Joint Venture under the equity method.

Redevelopments

The Company has ongoing redevelopment projects at Beverly Center and The Mall at Green Hills, which are expected to be completed in 2018 and 2019, respectively. In total, these two redevelopment projects are expected to cost approximately $700 million. As of March 31, 2018, the Company's total capitalized costs related to these redevelopment projects were $426.2 million.

Asia Developments

Operating Center

CityOn.Zhengzhou, a shopping center located in Zhengzhou, China, opened in March 2017. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.

South Korea Project

The Company was previously exploring a second development opportunity in South Korea with Shinsegae Group, the Company's partner in Starfield Hanam. In March 2017, the Company made a refundable deposit of $11.0 million relating to a potential development site. After performing due diligence, the Company decided not to proceed with the project. The deposit, including a 5% return, was returned to the Company in November 2017.
v3.8.0.1
Income Taxes
3 Months Ended
Mar. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

Income Tax Expense (Benefit)

The Company’s income tax expense (benefit) for the three months ended March 31, 2018 and 2017 consisted of the following:

 
Three Months Ended March 31
 
2018

2017
Federal deferred
$
(87
)
 
$
152

Foreign current
172

 
88

Foreign deferred
138

 
(121
)
State current
3

 
86

State deferred
(42
)
 
3

Total income tax expense
$
184


$
208



Deferred Taxes

Deferred tax assets and liabilities as of March 31, 2018 and December 31, 2017 were as follows:

 
2018
 
2017
Deferred tax assets:
 
 
 
Federal
$
589

 
$
503

Foreign
1,620

 
1,788

State
589

 
545

Total deferred tax assets
$
2,798

 
$
2,836

Valuation allowances
(1,591
)
 
(1,620
)
Net deferred tax assets
$
1,207

 
$
1,216

Deferred tax liabilities:
 
 
 

Foreign
$
1,701

 
$
1,517

Total deferred tax liabilities
$
1,701

 
$
1,517



During the fourth quarter of 2017, the Tax Cuts and Jobs Act of 2017 was signed into law and reduced the corporate tax rate from 34% down to 21%. All Federal deferred tax assets and liabilities have been reported at the new 21% Federal corporate rate.

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


v3.8.0.1
Investments in Unconsolidated Joint Ventures
3 Months Ended
Mar. 31, 2018
Equity Method Investments and Joint Ventures [Abstract]  
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 Mall, International Plaza, Stamford Town Center, Sunvalley, The Mall at University Town Center, and Westfarms. The Operating Partnership also provides certain management, leasing, and/or development services to the other shopping centers noted below.
Shopping Center
 
Ownership as of
March 31, 2018 and
December 31, 2017
CityOn.Xi'an
 
50%
CityOn.Zhengzhou
 
49
Country Club Plaza
 
50
Fair Oaks Mall
 
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



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

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

Combined balance sheet and results of operations information is presented in the following table for the Unconsolidated Joint Ventures, followed by the Operating Partnership's beneficial interest in the combined operations information. Beneficial interest is calculated based on the Operating Partnership's ownership interest in each of the Unconsolidated Joint Ventures.

 
March 31,
2018
 
December 31,
2017
Assets:
 
 
 
Properties
$
3,762,220

 
$
3,756,890

Accumulated depreciation and amortization
(789,714
)
 
(767,678
)
 
$
2,972,506

 
$
2,989,212

Cash and cash equivalents
140,243

 
147,102

Accounts and notes receivable, less allowance for doubtful accounts of $5,967 and $4,706 in 2018 and 2017
125,570

 
121,173

Deferred charges and other assets
121,356

 
136,837

 
$
3,359,675

 
$
3,394,324

 
 
 
 
Liabilities and accumulated equity (deficiency) in assets:
 

 
 

Notes payable, net 
$
2,854,469

 
$
2,860,384

Accounts payable and other liabilities
441,808

 
471,948

TRG's accumulated deficiency in assets
(45,562
)
 
(48,338
)
Unconsolidated Joint Venture Partners' accumulated equity in assets
108,960

 
110,330

 
$
3,359,675

 
$
3,394,324

 
 
 
 
TRG's accumulated deficiency in assets (above)
$
(45,562
)
 
$
(48,338
)
TRG's advances to CityOn.Zhengzhou
47,359

 
46,106

TRG basis adjustments, including elimination of intercompany profit
62,929

 
63,886

TCO's additional basis
48,637

 
49,124

Net investment in Unconsolidated Joint Ventures
$
113,363

 
$
110,778

Distributions in excess of investments in and net income of Unconsolidated Joint Ventures
490,485

 
494,851

Investment in Unconsolidated Joint Ventures
$
603,848

 
$
605,629



 
Three Months Ended March 31
 
2018
 
2017
Revenues
$
155,288

 
$
140,600

Maintenance, taxes, utilities, promotion, and other operating expenses
$
52,790

 
$
48,380

Interest expense
32,467

 
30,369

Depreciation and amortization
32,784

 
29,767

Total operating costs
$
118,041

 
$
108,516

Nonoperating income, net
347

 
1,851

Income tax expense
(1,416
)
 
(2,943
)
Gain on disposition, net of tax (1)

 
3,713

Net income
$
36,178

 
$
34,705

 
 
 
 
Net income attributable to TRG
$
18,706

 
$
18,422

Realized intercompany profit, net of depreciation on TRG’s basis adjustments
1,509

 
2,183

Depreciation of TCO's additional basis
(487
)
 
(487
)
Equity in income of Unconsolidated Joint Ventures
$
19,728

 
$
20,118

 
 
 
 
Beneficial interest in Unconsolidated Joint Ventures’ operations:
 

 
 

Revenues less maintenance, taxes, utilities, promotion, and other operating expenses
$
54,244

 
$
51,101

Interest expense
(16,751
)
 
(15,781
)
Depreciation and amortization
(17,055
)
 
(15,652
)
Income tax expense
(710
)
 
(1,633
)
Gain on disposition, net of tax (1)

 
2,083

Equity in income of Unconsolidated Joint Ventures
$
19,728

 
$
20,118



(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

In 2016, the Company issued a note receivable to CityOn.Zhengzhou for purposes of funding development costs. The balance of the note receivable was $47.4 million and $46.1 million as of March 31, 2018 and December 31, 2017, respectively, and was classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.
v3.8.0.1
Beneficial Interest in Debt and Interest Expense
3 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Beneficial interest in Debt and Interest Expense
Beneficial Interest in Debt and Interest Expense

The Operating Partnership's beneficial interest in the debt, capitalized interest, and interest expense of its consolidated subsidiaries and its Unconsolidated Joint Ventures is summarized in the following table. The Operating Partnership's beneficial interest in the consolidated subsidiaries excludes debt and interest related to the noncontrolling interest in Cherry Creek Shopping Center (50%) and International Market Place (6.5%).
 
At 100%
 
At Beneficial Interest
 
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
 
Debt as of:
 
 
 
 
 
 
 
 
March 31, 2018
$
3,640,128

 
$
2,854,469

 
$
3,346,646

 
$
1,456,561

 
December 31, 2017
3,555,228

 
2,860,384

 
3,261,777

 
1,459,854

 
 
 
 
 
 
 
 
 
 
Capitalized interest:
 

 
 

 
 

 
 

 
Three Months Ended March 31, 2018
$
3,293


$

 
$
3,285

 
$

 
Three Months Ended March 31, 2017
4,081

(1) 
551

(2) 
4,039

(1) 
551

(2) 
 
 
 
 
 
 
 
 
 
Interest expense:
 

 
 

 
 

 
 

 
Three Months Ended March 31, 2018
$
30,823

 
$
32,467

 
$
27,812

 
$
16,751

 
Three Months Ended March 31, 2017
25,546

 
30,369

 
22,571

 
15,781

 


(1)
The Company capitalizes interest costs incurred in funding its equity contributions to development projects accounted for as Unconsolidated Joint Ventures. The capitalized interest cost is included in the Company's basis in its investment in Unconsolidated Joint Ventures. Such capitalized interest reduces interest expense on the 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 the Company's beneficial interest in both the Unconsolidated Joint Ventures (at 100%) and Unconsolidated Joint Ventures (at Beneficial Interest) columns.

2018 Financings

In March 2018, the Company completed a five-year, $250 million unsecured term loan. TRG is the borrower under the loan, which bears interest at a range of LIBOR plus 1.25% to LIBOR plus 1.90% based on the Company's total leverage ratio. The proceeds from this financing, in conjunction with the proceeds from the financing for Twelve Oaks Mall (see below), were used to pay off the Company's existing $475 million unsecured term loan. The Company's existing swaps on the $475 million unsecured term loan were applied to other unsecured debt, including the new $250 million unsecured term loan, resulting in an effective interest rate on the new term loan in the range of 2.89% to 3.54% through the remaining swap period ending in February 2019. The loan includes an accordion feature which would increase the Company's borrowing capacity to as much as $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.

In February 2018, a 10-year, $300 million non-recourse financing was completed for Twelve Oaks Mall. The payments on the loan, which bears interest at a fixed interest rate of 4.85%, began in April 2018 and are amortizing principal based on 30 years. As a result of this financing, Twelve Oaks Mall was removed as a guarantor and an unencumbered asset under the primary unsecured revolving line of credit and the unsecured term loans.

Upcoming Maturities

The construction facility for International Market Place matures in August 2018. As of March 31, 2018, the outstanding balance of this construction facility was $293.8 million. The Company is currently evaluating options related to refinancing or exercising the initial one-year extension option.

The loan for The Mall at Green Hills matures in December 2018. The Company plans to exercise the initial one-year extension option upon maturity.

Debt Covenants and Guarantees

Certain loan agreements contain various restrictive covenants, including the following corporate covenants on the Company’s primary unsecured revolving line of credit, $300 million and $250 million unsecured term loans, and the construction facility 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, the Company’s primary unsecured revolving line of credit and unsecured term loans have unencumbered pool covenants, which currently apply to Beverly Center, Dolphin Mall, and The Gardens on El Paseo on a combined basis. These covenants include a minimum number and minimum value of eligible unencumbered assets, a maximum unencumbered leverage ratio, a minimum unencumbered interest coverage ratio, and a minimum unencumbered asset occupancy ratio. As of March 31, 2018, the corporate total leverage ratio was the most restrictive covenant. The Company was in compliance with all of its covenants and loan obligations as of March 31, 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 the Company’s tax status, pay preferred distributions, and for distributions related to the sale of certain assets.

In connection with the financing of the construction facility at International Market Place, the Operating Partnership has provided an unconditional guarantee of 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 facility as of March 31, 2018 was $293.8 million. Accrued but unpaid interest as of March 31, 2018 was $0.9 million. The Company believes the likelihood of a payment under the guarantees to be remote.

In connection with the $175 million additional financing at International Plaza, which is owned by an Unconsolidated Joint Venture, the Operating Partnership provided an unconditional and several guarantee of 50.1% of all obligations and liabilities related to an interest rate swap that was required on the debt for the term of the loan. As of March 31, 2018, the interest rate swap was in an asset position and had an inconsequential amount of unpaid interest. The Company believes the likelihood of a payment under the guarantee to be remote.
v3.8.0.1
Noncontrolling Interests
3 Months Ended
Mar. 31, 2018
Noncontrolling Interest [Abstract]  
Noncontrolling Interests
Noncontrolling Interests

Redeemable Noncontrolling Interests

Taubman Asia President

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 was employed by the Company 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 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 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 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. As of both March 31, 2018 and December 31, 2017, the carrying amount of this redeemable equity was $7.5 million. Any adjustments to the redemption value are recorded through equity.

In April 2016, the Company 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 the Operating Partnership for Taubman Asia's operating and investment activities subsequent to the Successor Asia President obtaining his ownership interest. The Operating Partnership 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 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 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 the Operating Partnership's preferred interest. The Company has determined that the Successor 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. As of March 31, 2018, the carrying amount of this redeemable equity was zero. Any adjustments to the redemption value are recorded through equity.







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 and no right to contribute capital. The Company is entitled to a preferential return on its capital contributions. The Company has the right to purchase the joint venture partner's interest and the joint venture partner has the right to require the Company to purchase the joint venture partner's interest after the third anniversary of the opening of the center, and annually thereafter. The purchase price of the joint venture partner's interest will be based on fair value. Considering the redemption provisions, the Company accounts for the joint venture partner's interest as a contingently redeemable noncontrolling interest with a carrying value of zero at both March 31, 2018 and December 31, 2017. Any adjustments to the redemption value are recorded through equity.

Reconciliation of Redeemable Noncontrolling Interest
 
Three Months Ended March 31
 
2018
 
2017
Balance, January 1
$
7,500

 
$
8,704

Former Taubman Asia President vested redeemable equity


 
266

Allocation of net loss
(52
)
 
(192
)
Adjustments of redeemable noncontrolling interest
52

 
192

Balance, March 31
$
7,500

 
$
8,970



Equity Balances of Non-redeemable Noncontrolling Interests

The net equity balance of the non-redeemable noncontrolling interests as of March 31, 2018 and December 31, 2017 included the following:
 
2018
 
2017
Non-redeemable noncontrolling interests:
 
 
 
Noncontrolling interests in consolidated joint ventures
$
(159,654
)
 
$
(160,359
)
Noncontrolling interests in partnership equity of TRG
(17,124
)
 
(11,909
)
 
$
(176,778
)
 
$
(172,268
)


Net Income (Loss) Attributable to Noncontrolling Interests

Net income (loss) attributable to the noncontrolling interests for the three months ended March 31, 2018 and 2017 included the following:
 
Three Months Ended March 31
 
2018
 
2017
Net income (loss) attributable to noncontrolling interests:
 
 
 
Non-redeemable noncontrolling interests:
 
 
 
Noncontrolling share of income of consolidated joint ventures
$
1,396

 
$
1,636

Noncontrolling share of income of TRG
8,279

 
7,790

 
$
9,675

 
$
9,426

Redeemable noncontrolling interest:
(52
)
 
(192
)
 
$
9,623

 
$
9,234



Equity Transactions

The following table presents the effects of changes in Taubman Centers, Inc.’s ownership interest in consolidated subsidiaries on Taubman Centers, Inc.’s equity for the three months ended March 31, 2018 and 2017:
 
Three Months Ended March 31
 
2018
 
2017
Net income attributable to Taubman Centers, Inc. common shareowners
$
18,590

 
$
17,170

Transfers (to) from the noncontrolling interest:
 

 
 

(Decrease) increase in Taubman Centers, Inc.’s paid-in capital for adjustments of noncontrolling interest (1)
(71
)
 
(19
)
Net transfers (to) from noncontrolling interests
(71
)
 
(19
)
Change from net income attributable to Taubman Centers, Inc. and transfers (to) from noncontrolling interests
$
18,519

 
$
17,151


(1)
In 2018 and 2017, 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 8), issuances of common stock pursuant to the Continuing Offer (Note 9), and in connection with the accounting for the Former Asia President's redeemable ownership interest.

Finite Life Entities

ASC Topic 480, “Distinguishing Liabilities from Equity” establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. At March 31, 2018, the Company held a controlling interest in a consolidated entity with a specified termination date in 2083. The noncontrolling owners' interest in this entity is to be settled upon termination by distribution or transfer of either cash or specific assets of the underlying entity. The estimated fair value of this noncontrolling interest was approximately $360 million at March 31, 2018, compared to a book value of $(159.7) million that is classified in Noncontrolling Interests on the Company’s Consolidated Balance Sheet. The fair value of the noncontrolling interest was calculated as the noncontrolling interest's effective ownership share 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.
v3.8.0.1
Derivative and Hedging Activities
3 Months Ended
Mar. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative and Hedging Activities
Derivative and Hedging Activities

Risk Management Objective and Strategies for Using Derivatives

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

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



As of March 31, 2018, 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
%
 
1.60
%
(1) 
3.24
%
(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% / 1.60%

(1) 
3.09% / 3.24%

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

 
2.14
%
 
1.60
%
(2) 
3.74
%
(2) 
February 2022
Receive variable (LIBOR) /pay-fixed swap (2)
 
100
%
 
100,000

 
2.14
%
 
1.60
%
(2) 
3.74
%
(2) 
February 2022
Receive variable (LIBOR) /pay-fixed swap (2)
 
100
%
 
50,000

 
2.14
%
 
1.60
%
(2) 
3.74
%
(2) 
February 2022
Receive variable (LIBOR) /pay-fixed swap (2)
 
100
%
 
50,000

 
2.14
%
 
1.60
%
(2) 
3.74
%
(2) 
February 2022
Receive variable (LIBOR) /pay-fixed swap (3)
 
100
%
 
12,000

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

 


 

 
 

 
 

 
 

 
 
Receive variable (LIBOR) /pay-fixed swap (4)

50
%

129,590

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

50
%

129,590

 
2.40
%
 
1.70
%
 
4.10
%
 
April 2018
Receive variable (LIBOR) /pay-fixed swap (5)
 
50.1
%
 
164,803

 
1.83
%
 
1.75
%
 
3.58
%
 
December 2021
Receive variable (LIBOR) USD/pay-fixed Korean Won (KRW) cross-currency interest rate swap (6)
 
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 $250 million unsecured term loan and $225 million on the $1.1 billion primary unsecured revolving line of credit. The credit spreads on these loans can vary within a range of 1.25% to 1.90% on the $250 million unsecured term loan and 1.15% to 1.70% on the primary unsecured revolving line of credit, depending on the Company's total leverage ratio at the measurement date, resulting in an effective rate in the range of 2.89% to 3.54% on the $250 million unsecured term loan and 2.80% to 3.35% on $225 million of the $1.1 billion primary unsecured revolving line of credit during the remaining swap period.
(2)
The hedged forecasted transaction for each of these swaps is the first previously unhedged one-month LIBOR-indexed interest 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 its $300 million unsecured term loan. The credit spread on this loan can vary within a range of 1.25% to 1.90%, depending on the Company's total leverage ratio at the measurement date, resulting in an effective rate in the range of 3.39% to 4.04% during the swap period.
(3)
The notional amount on this swap is equal to the outstanding principal balance of the floating rate loan on the U.S. headquarters building.
(4)
The notional amount on each of these swaps is equal to 50% of the outstanding principal balance of the loan on Fair Oaks Mall.
(5)
The notional amount on this swap is equal to the outstanding principal balance of the floating rate loan on International Plaza.
(6)
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

On January 1, 2018, the Company early adopted ASU No. 2017-12, "Targeted Improvements to Accounting for Hedging Activities", which provided changes in hedge accounting recognition and presentation requirements. The Company now recognizes all changes in fair value for hedging instruments designated and qualifying for cash flow hedge accounting treatment as a component of Other Comprehensive Income (OCI), as opposed to previously recognizing the ineffective portion, if any, directly in earnings. Upon adoption, the Company applied the modified-retrospective approach and recorded a one-time cumulative-effect adjusting entry to reclassify an inconsequential amount of previous hedge ineffectiveness for cash flow hedges from Dividends in Excess of Net Income to AOCI on the Company's Consolidated Balance Sheet.

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. Prior to the adoption of ASU No. 2017-12 on January 1, 2018, the ineffective portion of the change in fair value, if any, was recognized directly in earnings. Beginning January 1, 2018, all unrealized gains or losses on the derivatives are reported as components of OCI. 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 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 $2.4 million of the AOCI of Taubman Centers, Inc. and the noncontrolling interests will be reclassified from AOCI and recognized as an increase to income in the following 12 months.

The following tables present the effect of derivative instruments on the Consolidated Statement of Operations and Comprehensive Income for the three months ended March 31, 2018 and 2017. The tables include the amount of gains or losses on outstanding derivative instruments recognized in OCI in cash flow hedging relationships and the location and amount of gains or losses reclassified from AOCI into income resulting from outstanding derivative instruments.
 
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
 
Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Three Months Ended March 31
 
 
 
Three Months Ended March 31
 
2018
 
2017
 
 
 
2018
 
2017
Derivatives in cash flow hedging relationships:
 
 
 
 

 
 
 
 
Interest rate contracts – consolidated subsidiaries
$
5,872

 
$
764

 
Interest Expense
 
$
(463
)
 
$
(1,074
)
Interest rate contracts – UJVs
1,372

 
1,042

 
Equity in Income of UJVs
 
(306
)
 
(759
)
Cross-currency interest rate contract – UJV
(51
)
 
36

 
Equity in Income of UJVs
 
(5
)
 
(1,402
)
Total derivatives in cash flow hedging relationships
$
7,193

 
$
1,842

 
 
 
$
(774
)
 
$
(3,235
)


The Company records all derivative instruments at fair value on the Consolidated Balance Sheet. The following table presents the location and fair value of the Company’s derivative financial instruments as reported on the Consolidated Balance Sheet as of March 31, 2018 and December 31, 2017.
 
 
 
Fair Value
 
Consolidated Balance Sheet Location
 
March 31,
2018
 
December 31,
2017
Derivatives designated as hedging instruments:
 
 
 
 
 
Asset derivative:
 
 
 
 
 
Interest rate contracts – consolidated subsidiaries
Deferred Charges and Other Assets
 
$
6,327

 
$
939

Interest rate contract - UJV
Investment in UJVs
 
1,830

 
760

Total assets designated as hedging instruments
 
 
$
8,157

 
$
1,699

 
 
 
 
 
 
Liability derivatives:
 
 
 

 
 
Interest rate contracts – consolidated subsidiary
Accounts Payable and Accrued Liabilities
 


 
$
(484
)
Interest rate contracts – UJV
Investment in UJVs
 
$
(55
)
 
(357
)
Cross-currency interest rate contract – UJV
Investment in UJVs
 
(1,700
)
 
(1,630
)
Total liabilities designated as hedging instruments
 
 
$
(1,755
)
 
$
(2,471
)


Contingent Features

All of the Company's outstanding derivatives contain provisions that state if the hedged entity defaults on its indebtedness above a certain threshold, then the derivative obligation could also be declared in default. The cross default thresholds vary for each agreement, ranging from $0.1 million of any indebtedness to $50 million of indebtedness on the Operating Partnership's indebtedness. As of March 31, 2018, the Company is not in default on any indebtedness that would trigger a credit-risk-related default on its current outstanding derivatives.
As of March 31, 2018 and December 31, 2017, the fair value of derivative instruments with credit-risk-related contingent features that were in a liability position was $1.8 million and $2.5 million, respectively. As of March 31, 2018 and December 31, 2017, the Company was not required to post any collateral related to these agreements. If the Company breached any of these provisions it would be required to settle its obligations under the agreements at their fair value. See Note 5 regarding guarantees and Note 11 for fair value information on derivatives.
v3.8.0.1
Share-Based Compensation
3 Months Ended
Mar. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation
Share-Based Compensation

General

The Taubman Company LLC 2008 Omnibus Long-Term Incentive Plan (2008 Omnibus Plan), as amended, which is shareowner approved, provides for the award to directors, officers, employees, and other service providers of the Company of restricted shares, restricted TRG Units, options to purchase common shares or TRG Units, share appreciation rights, performance share units, unrestricted shares or TRG Units, and other awards to acquire up to an aggregate of 8.5 million common shares or TRG Units. TRG Units to be awarded also include "TRG Profits Units", which are intended to constitute "profits interests" within the meaning of Treasury authority under the Internal Revenue Code of 1986, as amended. In addition, non-employee directors have the option to defer their compensation under a deferred compensation plan.

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


2018 Awards - TRG Profits Units

During 2018, the following types of TRG Profits Units awards were granted to certain senior management employees: (1) a time-based award with a three-year cliff vesting period (Restricted TRG Profits Units); (2) a performance-based award that is based on the achievement of relative total shareholder return (TSR) over a three-year period (Relative TSR Performance-based TRG Profits Units); and (3) a performance-based award that is based on the achievement of net operating income (NOI) over a three-year period (NOI Performance-based TRG Profits Units). The maximum number of Relative TSR and NOI Performance-based TRG Profits Units are issued at grant, eventually subject to a recovery and cancellation of previously granted amounts depending on actual performance against TSR and NOI measures over the three-year performance measurement period. NOI Performance-based TRG Profits Units provide for a cap on the maximum number of units vested if a specified absolute TSR level is not achieved. Relative TSR and NOI Performance-based TRG Profits Units are generally subject to the same performance measures as the TSR-Based and NOI-Based Performance Share Units (see 2018 Awards - Other Management Employee Grants below). Despite the difference in scaling of the grant programs, the final outcome of the TSR and NOI performance measures will result in similar numbers of either TRG Units or common shares being issued at vesting under the TRG Profits Units program and the Performance Share Unit program, respectively.

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

All TRG Profits Units issued in 2018 vest in March 2021, if continuous service has been provided, or upon retirement or certain other events (such as death or disability) if earlier. Each holder of a TRG Profits Unit will be treated as a limited partner in TRG from the date of grant. To the extent the vested TRG Profits Units have not achieved the applicable criteria for conversion to TRG Units, vesting and economic equivalence to a TRG Unit prior to the tenth anniversary of the date of grant, the awards will be forfeited pursuant to the terms of the award agreement.

2018 Awards - Other Management Employee Grants

During 2018, other types of awards granted to management employees include those described below. These vest in March 2021, if continuous service has been provided, or upon retirement or certain other events (such as death or disability) if earlier.

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

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

Expensed and Capitalized Costs

The compensation cost charged to income for the Company’s share-based compensation plans was $2.4 million and $3.1 million for the three months ended March 31, 2018 and 2017, respectively. Compensation cost capitalized as part of properties and deferred leasing costs was $0.2 million and $0.3 million for the three months ended March 31, 2018 and 2017, respectively.

Valuation Methodologies

The Company estimated the grant-date fair values of share-based grants using the methods as follows. Expected volatility and dividend yields are based on historical volatility and yields of the Company’s common stock, respectively, as well as other factors. The risk-free interest rates used are based on the U.S. Treasury yield curves in effect at the grant date. The Company assumes no forfeitures for failure to meet the service requirement of Performance Share Units (PSU) or TRG Profits Units, due to the small number of participants and low turnover rate.

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

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

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

Summaries of Activity for the Three Months Ended March 31, 2018

Restricted TRG Profits Units
 
Number of Restricted TRG Profits Units
 
Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2018
61,131

 
$
59.08

Granted
8,154

 
49.29

Outstanding at March 31, 2018
69,285

 
$
57.93

 
 
 
 
Fully vested at March 31, 2018
3,826

 
$
59.03



As of March 31, 2018, there was $1.8 million of total unrecognized compensation cost related to nonvested Restricted TRG Profits Units outstanding. This cost is expected to be recognized over an average period of 1.6 years.

Relative TSR Performance-based TRG Profits Units
 
Number of relative TSR Performance-based TRG Profits Units
 
Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2018
129,733

 
$
25.59

Granted
18,345

 
22.22

Outstanding at March 31, 2018
148,078

 
$
25.17

 
 
 
 
Fully vested at March 31, 2018
797

 
$
23.14



As of March 31, 2018, there was $1.7 million of total unrecognized compensation cost related to nonvested Relative TSR Performance-based TRG Profits Units outstanding. This cost is expected to be recognized over an average period of 1.7 years.

NOI Performance-based TRG Profits Units
 
Number of NOI Performance-based TRG Profits Units
 
Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2018
131,604

 
$
19.69

Granted
18,345

 
16.43

Outstanding at March 31, 2018
149,949

 
$
19.28

 
 
 
 
Fully vested at March 31, 2018
2,668

 
$
33.56

    
As of March 31, 2018, there was $1.3 million of total unrecognized compensation cost related to nonvested NOI Performance-based TRG Profits Units outstanding. This cost is expected to be recognized over an average period of 1.7 years.

TSR - Based Performance Share Units
 
Number of TSR PSU
 
Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2018
40,850

 
$
107.38

Vested
(37,046
)
(1) 
110.19

Granted
10,393

 
78.82

Outstanding at March 31, 2018
14,197

 
$
79.13

    
(1)
Based on the Company's market performance relative to that of a peer group, the actual number of shares of common stock issued upon vesting during the three months ended March 31, 2018 was 45,941 shares (1.24x) for the TSR PSU. That is, despite the completion of the applicable employee service requirements, the number of shares ultimately considered earned is determined by the extent to which the TSR market performance measure was achieved during the performance period.

As of March 31, 2018, there was $1.0 million of total unrecognized compensation cost related to nonvested TSR PSU outstanding. This cost is expected to be recognized over an average period of 2.5 years.

NOI - Based Performance Share Units
 
Number of NOI PSU
 
Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2018
3,804

 
$
67.00

Granted
10,393

 
58.28

Outstanding at March 31, 2018
14,197

 
$
60.59



As of March 31, 2018, there was $0.8 million of total unrecognized compensation cost related to nonvested NOI PSU outstanding. This cost is expected to be recognized over an average period of 2.5 years.

Restricted Share Units
 
Number of RSU
 
Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2018 (1)
195,021

 
$
69.22

Vested
(72,528
)
 
74.00

Granted
69,931

 
58.28

Forfeited
(1,940
)
 
57.68

Outstanding at March 31, 2018
190,484

 
$
63.50



(1)
The beginning balance outstanding and associated grant-date fair value were adjusted immaterially from previously reported amounts to reflect the actual number of RSU outstanding as of January 1, 2018.

As of March 31, 2018, there was $8.1 million of total unrecognized compensation cost related to nonvested RSU outstanding. This cost is expected to be recognized over an average period of 2.1 years.

Unit Option Deferral Election

Under both a prior option plan and the 2008 Omnibus Plan, vested unit options can be exercised by tendering mature units with a market value equal to the exercise price of the unit options. In 2002, Robert S. Taubman, the Company’s chief executive officer, exercised options for 3.0 million units by tendering 2.1 million mature units and deferring receipt of 0.9 million units under the unit option deferral election. As the Operating Partnership pays distributions, the deferred option units receive their proportionate share of the distributions in the form of cash payments. Under an amendment executed in January 2011 and subsequent deferral elections (the latest being made in September 2016), beginning in December 2022 (unless Mr. Taubman retires earlier), the deferred options units will be issued as TRG Units in five annual installments. The deferred option units are accounted for as participating securities of the Operating Partnership.

2008 Omnibus Plan

The following table sets forth certain information regarding the Company’s current equity compensation plans as of March 31, 2018:
 
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights
 
Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights
 
Number of Securities Remaining Available for Future Issuances Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
 
 
(a)
 
(b)
 
(c)
 
Equity compensation plans approved by security holders:
 
 
 
 
 
 
2008 Omnibus Plan:
 
 
 
 
2,352,680

 
Profits Units (1)
367,313

 
 
 
 
 
Performance Share Units (2)
85,182

 
 
(3) 
 
 
Restricted Share Units
190,484

 
 
(3) 
 
 
Non-Employee Directors’ Deferred Compensation Plan (4)
74,712

 

(3) 
 
 
 
717,691

 
 
 
2,352,680

 

(1)
The maximum number of Relative TSR and NOI Performance-Based TRG Profits Units was issued at grant, eventually subject to a recovery and cancellation of previously granted amounts depending on actual performance against targeted measures of total shareholder return relative to that of a peer group and net operating income thresholds over a three-year period.
(2)
Amount represents 28,394 performance share units at their maximum payout ratio of 300%. This amount may overstate dilution to the extent actual performance is different than such assumption. The actual number of performance share units that may ultimately vest will range from 0- 300% based on actual performance against targeted measures of total shareholder return relative to that of a peer group and net operating income thresholds over a three-year period.
(3)
Excludes restricted share units and performance share units issued under the Omnibus Plan because they are converted into common stock on a one-for-one basis at no additional cost.
(4)
The Deferred Compensation Plan, which was approved by the Board of Directors in May 2005, gives each non-employee director of the Company the right to defer the receipt of all or a portion of his or her annual director retainer fee until the termination of such director's service on the Board of Directors and for such deferred amount to be denominated in restricted share units. The number of restricted share units received equals the amount of the deferred retainer fee divided by the fair market value of the common stock on the business day immediately before the date the director would otherwise have been entitled to receive the retainer fee. The restricted share units represent the right to receive equivalent shares of common stock at the end of the deferral period. During the deferral period, when the Company pays cash dividends on the common stock, the directors' notional deferral accounts are credited with dividend equivalents on their deferred restricted share units, payable in additional restricted share units based on the fair market value of the common stock on the business day immediately before the record date of the applicable dividend payment. Each director's notional account is 100% vested at all times.
v3.8.0.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies

Cash Tender

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

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

Based on a market value at March 31, 2018 of $56.91 per share for the Company's common stock, the aggregate value of TRG Units that may be tendered under the Cash Tender Agreement was $1.4 billion. The purchase of these interests at March 31, 2018 would have resulted in the Company owning an additional 28% interest in TRG.

Continuing Offer

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

Insurance

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

Hurricane Maria and The Mall of San Juan

In the third quarter of 2017, The Mall of San Juan experienced certain interior water damage, impacts to exterior landscaping and signage, and significant damage to both Nordstrom and Saks Fifth Avenue as a result of Hurricane Maria. The Company has substantial insurance to cover hurricane and flood damage, as well as business and service interruption. The business interruption coverage commences at time of loss and continues for one year after the damage is fully repaired. The Company's hurricane coverage includes a single deductible of $2 million and policy limits of $900 million, all subject to various terms and conditions.
During the three months ended March 31, 2018, the Company recorded $0.7 million of insurance recoveries related to reimbursement of expensed costs within Nonoperating Income (Expense) on the Consolidated Statement of Operations and Comprehensive Income. Additionally, during the three months ended March 31, 2018, the Company recognized a reduction of $3.9 million of depreciation expense relating to insurance proceeds received in the period for property damage for which the Company took write-offs in 2017. The Company continues to assess physical loss and will update its estimates if necessary.
On October 17, 2017, Plaza Internacional Puerto Rico LLC (Plaza Internacional), the owner of The Mall of San Juan (the Mall), filed a civil action in the Commonwealth of Puerto Rico Court of First Instance, San Juan Judicial Center, Superior Court, Civil No. SJ2017CV02094 (503), against Saks Fifth Avenue Puerto Rico, Inc. (Saks PR), and Saks Incorporated (Saks Inc.). The lawsuit asks the court to compel Saks PR and Saks Inc. to immediately repair and remediate the Saks Fifth Avenue store (the Store) that was damaged by Hurricane Maria on September 20, 2017, to reopen the Store on the completion of the reconstruction, and to operate the Store in accordance with the Operating Covenant contained in the Construction, Operation and Reciprocal Easement Agreement among Plaza Internacional, Saks PR, and Nordstrom Puerto Rico LLC (Nordstrom PR) made as of April 23, 2013 (the REA). In response, Saks PR and Saks Inc. filed a Counterclaim, alleging that they have no obligation to repair, remediate, reconstruct, or reopen the Store, asserting various alleged breaches of the REA and other operating agreements. Should Saks PR prevail, Nordstrom PR and other Mall tenants may then have the right to terminate their own operating covenants or leases. Plaza Internacional is vigorously prosecuting its claims and defending the Counterclaim. The outcome of the action cannot be predicted, and, at this time, the Company is unable to estimate the amount of loss that could result from an unfavorable outcome. An unfavorable outcome may have a material and adverse effect on the Company's business and its results of operations.

Other

See Note 5 for the Operating Partnership's guarantees of certain notes payable, including guarantees relating to Unconsolidated Joint Ventures, Note 6 for contingent features relating to certain joint venture agreements, Note 7 for contingent features relating to derivative instruments, and Note 8 for obligations under existing share-based compensation plans.
v3.8.0.1
Earnings Per Share
3 Months Ended
Mar. 31, 2018
Earnings Per Share [Abstract]  
Earnings Per Share
Earnings Per Common Share

Basic earnings per common share amounts are based on the weighted average of common shares outstanding for the respective periods. Diluted earnings per common share amounts are based on the weighted average of common shares outstanding plus the dilutive effect of potential common stock. Potential common stock includes outstanding TRG Units exchangeable for common shares under the Continuing Offer (Note 9), outstanding options for TRG Units, TSR PSU, NOI PSU, Restricted and Performance-based TRG Profits Units, RSU, deferred shares under the Non-Employee Directors’ Deferred Compensation Plan, and unissued TRG Units under a unit option deferral election (Note 8). In computing the potentially dilutive effect of potential common stock, TRG Units are assumed to be exchanged for common shares under the Continuing Offer, increasing the weighted average number of shares outstanding. The potentially dilutive effects of TRG Units outstanding and/or issuable under the unit option deferral elections are calculated using the if-converted method, while the effects of other potential common stock are calculated using the treasury method. Contingently issuable shares are included in diluted earnings per common share based on the number of shares, if any, which would be issuable if the end of the reporting period were the end of the contingency period. 
 
Three Months Ended March 31
 
2018

2017
Net income attributable to Taubman Centers, Inc. common shareowners (Numerator):
 

 
 
Basic
$
18,590

 
$
17,170

Impact of additional ownership of TRG
28

 
45

Diluted
$
18,618

 
$
17,215

 
 
 
 
Shares (Denominator) – basic
60,917,235

 
60,555,466

Effect of dilutive securities
289,142

 
498,290

Shares (Denominator) – diluted
61,206,377

 
61,053,756

 
 
 
 
Earnings per common share – basic
$
0.31

 
$
0.28

Earnings per common share – diluted
$
0.30

 
$
0.28



The calculation of diluted earnings per common share in certain periods excluded certain potential common stock including outstanding TRG Units and unissued TRG Units under a unit option deferral election, both of which may be exchanged for common shares of the Company under the Continuing Offer. The table below presents the potential common stock excluded from the calculation of diluted earnings per common share as they were anti-dilutive in the period presented.
 
Three Months Ended March 31
 
2018

2017
Weighted average noncontrolling TRG Units outstanding
4,145,247

 
4,018,981

Unissued TRG Units under unit option deferral elections
871,262

 
871,262

v3.8.0.1
Fair Value Disclosures
3 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Disclosures
Fair Value Disclosures

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

Recurring Valuations

Derivative Instruments

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

Other

The Company's valuations of both its investments in an insurance deposit and in 590,124 SPG common shares utilize unadjusted quoted prices determined by active markets for the specific securities the Company has invested in, and therefore fall into Level 1 of the fair value hierarchy. In connection with the adoption of ASU No. 2016-01 on January 1, 2018 (Note 1), the Company now measures its investment in SPG common shares at fair value with changes in value recorded through net income. During the three months ended March 31, 2018, the Company recorded $10.3 million of expense in Nonoperating Income (Expense) on the Consolidated Statement of Operations and Comprehensive Income related to the change in fair value of its SPG common shares investment during the period.

For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each major category of assets and liabilities is presented below:
 
 
Fair Value Measurements as of March 31, 2018 Using
 
Fair Value Measurements as of
December 31, 2017 Using
Description
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
SPG common shares
 
$
91,086

 
 
 
$
101,348

 
 
Insurance deposit
 
8,903

 
 

 
16,703

 
 

Derivative interest rate contracts (Note 7)
 
 
 
$
6,327

 
 
 
$
939

Total assets
 
$
99,989


$
6,327

 
$
118,051

 
$
939

 
 
 
 
 
 
 
 
 
Derivative interest rate contracts (Note 7)