TAUBMAN CENTERS INC, 10-Q filed on 8/10/2020
Quarterly Report
v3.20.2
Document and Entity Information Document - shares
6 Months Ended
Jun. 30, 2020
Aug. 07, 2020
Entity Information [Line Items]    
Entity Central Index Key 0000890319  
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Jun. 30, 2020  
Entity File Number 1-11530  
Entity Registrant Name TAUBMAN CENTERS, INC.  
Entity Incorporation, State or Country Code MI  
Entity Tax Identification Number 38-2033632  
Entity Address, Address Line One 200 East Long Lake Road,  
Entity Address, Address Line Two Suite 300,  
Entity Address, City or Town Bloomfield Hills,  
Entity Address, State or Province MI  
Entity Address, Country US  
Entity Address, Postal Zip Code 48304-2324  
City Area Code (248)  
Local Phone Number 258-6800  
Current Fiscal Year End Date --12-31  
Amendment Flag false  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Entity Common Stock, Shares Outstanding   61,715,369
Common Stock [Member]    
Entity Information [Line Items]    
Title of 12(b) Security Common Stock, $0.01 Par Value  
Trading Symbol TCO  
Security Exchange Name NYSE  
Series J Preferred Stock [Member]    
Entity Information [Line Items]    
Title of 12(b) Security 6.5% Series J Cumulative Redeemable Preferred Stock,No Par Value  
Trading Symbol TCO PR J  
Security Exchange Name NYSE  
Series K Preferred Stock [Member]    
Entity Information [Line Items]    
Title of 12(b) Security 6.25% Series K CumulativeRedeemable Preferred Stock,No Par Value  
Trading Symbol TCO PR K  
Security Exchange Name NYSE  
v3.20.2
CONSOLIDATED BALANCE SHEET - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Assets:    
Properties $ 4,744,094,000 $ 4,731,061,000
Accumulated depreciation and amortization (1,610,629,000) (1,514,992,000)
Real Estate Investment Property, Net 3,133,465,000 3,216,069,000
Investment in Unconsolidated Joint Ventures (UJVs) (Notes 2 and 4) 790,136,000 831,995,000
Cash and cash equivalents (Note 13) 240,808,000 102,762,000
Restricted cash (Note 13) 655,000 656,000
Accounts and notes receivable (Note 1) 169,414,000 95,416,000
Accounts receivable from related parties 797,000 2,112,000
Operating lease right-of-use assets 172,877,000 173,796,000
Deferred charges and other assets 83,282,000 92,659,000
Total Assets 4,591,434,000 4,515,465,000
Liabilities:    
Notes payable, net (Note 5) 3,900,937,000 3,710,327,000
Accounts payable and accrued liabilities 254,228,000 268,714,000
Operating lease liabilities 240,912,000 240,777,000
Distributions in excess of investments in and net income of UJVs (Note 4) 470,166,000 473,053,000
Total Liabilities 4,866,243,000 4,692,871,000
Commitments and contingencies (Notes 5, 6, 7, 8, and 9)
Redeemable Noncontrolling Interest, Equity, Carrying Amount [Abstract]    
Redeemable noncontrolling interests (Note 6) 0 0
Equity (Deficit):    
Series B Non-Participating Convertible Preferred Stock, $0.001 par and liquidation value, 40,000,000 shares authorized, 26,079,064 and 26,398,473 shares issued and outstanding at June 30, 2020 and December 31, 2019 26,000 26,000
Common Stock, $0.01 par value, 250,000,000 shares authorized, 61,615,362 and 61,228,579 shares issued and outstanding at June 30, 2020 and December 31, 2019 616,000 612,000
Additional paid-in capital 745,326,000 741,026,000
Accumulated other comprehensive income (loss) (Note 12) (54,283,000) (39,003,000)
Dividends in excess of net income (Note 7) (772,700,000) (712,884,000)
Stockholders' Equity Attributable to Parent (81,015,000) (10,223,000)
Noncontrolling interests (Note 6) (193,794,000) (167,183,000)
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest (274,809,000) (177,406,000)
Total Liabilities and Equity $ 4,591,434,000 $ 4,515,465,000
v3.20.2
CONSOLIDATED BALANCE SHEET (Parenthetical) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 250,000,000 250,000,000
Common stock, shares issued 61,615,362 61,228,579
Common stock, shares outstanding 61,615,362 61,228,579
Series B Preferred Stock [Member]    
Preferred Stock, par value $ 0.001 $ 0.001
Preferred Stock, liquidation preference per share $ 0.001 $ 0.001
Preferred Stock, shares authorized 40,000,000 40,000,000
Preferred Stock, shares issued 26,079,064 26,398,473
Preferred Stock, shares outstanding 26,079,064 26,398,473
Series J Preferred Stock [Member]    
Preferred Stock, par value $ 0 $ 0
Preferred Stock, liquidation preference $ 192,500,000 $ 192,500,000
Preferred Stock, liquidation preference per share $ 25  
Preferred Stock, shares authorized 7,700,000 7,700,000
Preferred Stock, shares issued 7,700,000 7,700,000
Preferred Stock, shares outstanding 7,700,000 7,700,000
Series K Preferred Stock [Member]    
Preferred Stock, par value $ 0 $ 0
Preferred Stock, liquidation preference $ 170,000,000 $ 170,000,000
Preferred Stock, liquidation preference per share $ 25  
Preferred Stock, shares authorized 6,800,000 6,800,000
Preferred Stock, shares issued 6,800,000 6,800,000
Preferred Stock, shares outstanding 6,800,000 6,800,000
v3.20.2
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenues:        
Rental revenues (Note 1) $ 112,218,000 $ 147,006,000 $ 254,876,000 $ 291,295,000
Overage rents 749,000 1,713,000 4,966,000 4,854,000
Management, leasing, and development services 824,000 892,000 1,390,000 2,108,000
Other (Note 1) 4,744,000 11,993,000 16,762,000 23,555,000
Total Revenues 118,535,000 161,604,000 277,994,000 321,812,000
Expenses:        
Maintenance, taxes, utilities, and promotion 34,511,000 39,182,000 73,262,000 77,720,000
Other operating 12,792,000 21,232,000 30,934,000 40,457,000
Management, leasing, and development services 659,000 491,000 1,152,000 1,022,000
General and administrative 7,523,000 8,554,000 15,539,000 17,130,000
Restructuring charges (Note 1) 0 84,000 362,000 709,000
Simon Property Group, Inc. transaction costs (Note 1) 9,060,000   15,445,000  
Costs associated with shareholder activism (Note 1) 0 12,000,000 0 16,000,000
Interest expense 33,353,000 38,010,000 68,202,000 74,895,000
Depreciation and amortization 61,838,000 44,259,000 113,534,000 89,215,000
Operating Expenses 159,736,000 163,812,000 318,430,000 317,148,000
Nonoperating income (expense) (Notes 9 and 11) (910,000) 6,627,000 (362,000) 15,360,000
Income (loss) before income tax benefit (expense), equity in income (loss) of UJVs, gains on partial dispositions of ownership interests in UJVs, net of tax, and gains on remeasurements of ownership interests in UJVs (42,111,000) 4,419,000 (40,798,000) 20,024,000
Income tax benefit (expense) (Note 3) 248,000 (2,364,000) (508,000) (2,903,000)
Equity in income (loss) of UJVs (Note 4) (712,000) 14,822,000 10,572,000 29,494,000
Income (Loss) from Continuing Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest (42,575,000) 16,877,000 (30,734,000) 46,615,000
Gains on partial dispositions of ownership interests in UJVs (Note 2) 363,000   11,277,000  
Gains on remeasurements of ownership interests in UJVs (Note 2) 417,000   14,146,000  
Net income (loss) (41,795,000) 16,877,000 (5,311,000) 46,615,000
Net (income) loss attributable to noncontrolling interests (Note 6) 13,511,000 (4,240,000) 3,278,000 (12,470,000)
Net income (loss) attributable to Taubman Centers, Inc. (28,284,000) 12,637,000 (2,033,000) 34,145,000
Distributions to participating securities of TRG (Notes 1 and 8)   (593,000) (595,000) (1,220,000)
Preferred stock dividends (5,785,000) (5,785,000) (11,569,000) (11,569,000)
Net income (loss) attributable to Taubman Centers, Inc. common shareholders (34,069,000) 6,259,000 (14,197,000) 21,356,000
Other comprehensive income (loss) (Note 12):        
Unrealized loss on interest rate instruments (2,192,000) (9,533,000) (20,111,000) (14,421,000)
Cumulative translation adjustment 9,355,000 (13,829,000) (9,620,000) (10,511,000)
Reclassification adjustment for amounts recognized in net income (loss) 3,286,000 (423,000) 4,054,000 (1,846,000)
Other comprehensive income (loss) 10,449,000 (23,785,000) (25,677,000) (26,778,000)
Comprehensive income (loss) (31,346,000) (6,908,000) (30,988,000) 19,837,000
Comprehensive (income) loss attributable to noncontrolling interests 10,315,000 2,970,000 9,727,000 (4,394,000)
Comprehensive income (loss) attributable to Taubman Centers, Inc. $ (21,031,000) $ (3,938,000) $ (21,261,000) $ 15,443,000
Basic earnings (loss) per common share (Note 10) $ (0.55) $ 0.10 $ (0.23) $ 0.35
Diluted earnings (loss) per common share (Note 10) $ (0.55) $ 0.10 $ (0.23) $ 0.35
Weighted average number of common shares outstanding – basic 61,590,226 61,171,614 61,419,931 61,147,947
v3.20.2
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]
Series J Preferred Stock [Member]
Series K Preferred Stock [Member]
Former Taubman Asia Redeemable Noncontrolling Interest [Member]
Balance at Dec. 31, 2018 $ (307,897,000) $ 25,000 $ 611,000 $ 676,097,000 $ (25,376,000) $ (744,230,000) $ (215,024,000)      
Balance (in shares) at Dec. 31, 2018   39,362,994 61,069,108              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Issuance of stock pursuant to Continuing Offer (Notes 8 and 9) 0                  
Issuance of stock pursuant to Continuing Offer (Notes 8 and 9), shares   (41,060) 45,514              
Issuance of equity for acquisition of interest in UJV (Note 2) 79,320,000 $ 1,000         79,319,000      
Issuance of equity for acquisition of interest in UJV, shares   1,500,000                
Share-based compensation under employee and director benefit plans (Note 8) 3,650,000   $ 1,000 3,649,000            
Share-based compensation under employee and director benefit plans (Note 8), shares   91,183 93,958              
Redeemable Noncontrolling Interest, Vested Balance of Ownership Interest 1,800,000     1,800,000            
Adjustments of noncontrolling interests (Note 6) (237,000)     57,500,000 (76,000)   (57,661,000)      
Dividends and distributions (Note 1) (1) (131,068,000)         (95,367,000)        
Distributions to noncontrolling interests             (35,701,000)      
Adjustments of equity pursuant to adoption of ASC 842 (Note 1) 4,919,000         3,156,000 1,763,000      
Other (513,000)         (513,000)        
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest 46,615,000                  
Net income (excludes net loss attributable to redeemable noncontrolling interest) (Note 6) 46,852,000         34,145,000 12,707,000      
Net Income (Loss) Attributable to Redeemable Noncontrolling Interest (237,000)                  
Unrealized gain (loss) on interest rate instruments and other (14,421,000)       (10,072,000)   (4,349,000)      
Cumulative translation adjustment (10,511,000)       (7,341,000)   (3,170,000)      
Reclassification adjustment for amounts recognized in net income (1,846,000)       (1,289,000)   (557,000)      
Balance at Jun. 30, 2019 (329,952,000) $ 26,000 $ 612,000 739,046,000 (44,154,000) (802,809,000) (222,673,000)      
Balance (in shares) at Jun. 30, 2019   40,913,117 61,208,580              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Common Stock, Dividends, Per Share, Declared     $ 1.35              
Preferred Stock, Dividends Per Share, Declared               $ 0.8125 $ 0.78125  
Balance at Dec. 31, 2018 (307,897,000) $ 25,000 $ 611,000 676,097,000 (25,376,000) (744,230,000) (215,024,000)      
Balance (in shares) at Dec. 31, 2018   39,362,994 61,069,108              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Payments for Repurchase of Redeemable Noncontrolling Interest                   $ (6,000,000.0)
Balance at Dec. 31, 2019 (177,406,000) $ 26,000 $ 612,000 741,026,000 (39,003,000) (712,884,000) (167,183,000)      
Balance (in shares) at Dec. 31, 2019   40,898,473 61,228,579              
Balance at Mar. 31, 2019 (339,653,000) $ 25,000 $ 612,000 677,755,000 (27,501,000) (767,622,000) (222,922,000)      
Balance (in shares) at Mar. 31, 2019   39,355,694 61,161,539              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Issuance of stock pursuant to Continuing Offer (Notes 8 and 9) 0              
Issuance of stock pursuant to Continuing Offer (Notes 8 and 9), shares   (33,760) 38,214              
Issuance of equity for acquisition of interest in UJV (Note 2) 79,320,000 $ 1,000         79,319,000      
Issuance of equity for acquisition of interest in UJV, shares   1,500,000                
Share-based compensation under employee and director benefit plans (Note 8) 1,820,000   1,820,000            
Share-based compensation under employee and director benefit plans (Note 8), shares   91,183 8,827              
Redeemable Noncontrolling Interest, Vested Balance of Ownership Interest 1,800,000     1,800,000            
Adjustments of noncontrolling interests (Note 6) (144,000)     57,671,000 (78,000)   (57,737,000)      
Dividends and distributions (Note 1) (1) (66,180,000)         (47,673,000)        
Distributions to noncontrolling interests             (18,507,000)      
Other (151,000)         (151,000)        
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest 16,877,000                  
Net income (excludes net loss attributable to redeemable noncontrolling interest) (Note 6) 17,021,000         12,637,000 4,384,000      
Net Income (Loss) Attributable to Redeemable Noncontrolling Interest (144,000)                  
Unrealized gain (loss) on interest rate instruments and other (9,533,000)       (6,597,000)   (2,936,000)      
Cumulative translation adjustment (13,829,000)       (9,700,000)   (4,129,000)      
Reclassification adjustment for amounts recognized in net income (423,000)       (278,000)   (145,000)      
Balance at Jun. 30, 2019 (329,952,000) $ 26,000 $ 612,000 739,046,000 (44,154,000) (802,809,000) (222,673,000)      
Balance (in shares) at Jun. 30, 2019   40,913,117 61,208,580              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Common Stock, Dividends, Per Share, Declared     $ 0.675              
Preferred Stock, Dividends Per Share, Declared               0.40625 0.390625  
Balance at Dec. 31, 2019 (177,406,000) $ 26,000 $ 612,000 741,026,000 (39,003,000) (712,884,000) (167,183,000)      
Balance (in shares) at Dec. 31, 2019   40,898,473 61,228,579              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Issuance of stock pursuant to Continuing Offer (Notes 8 and 9) 0   $ 3,000 (3,000)            
Issuance of stock pursuant to Continuing Offer (Notes 8 and 9), shares   (338,365) 338,388              
Share-based compensation under employee and director benefit plans (Note 8) 4,552,000   $ 1,000 4,551,000            
Share-based compensation under employee and director benefit plans (Note 8), shares   18,956 48,395              
Adjustments of noncontrolling interests (Note 6) 0     (248,000) (51,000)   299,000      
Contributions from noncontrolling interests 1,950,000           1,950,000      
Dividends and distributions (Note 1) (1) (72,654,000)         (53,521,000)        
Distributions to noncontrolling interests             (19,133,000)      
Partial disposition of ownership interest in Unconsolidated Joint Venture (Note 2) 0       3,999,000 (3,999,000)        
Other (263,000)         (263,000)        
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest (5,311,000)         (2,033,000) (3,278,000)      
Net Income (Loss) Attributable to Redeemable Noncontrolling Interest                  
Unrealized gain (loss) on interest rate instruments and other (20,111,000)       (14,128,000)   (5,983,000)      
Cumulative translation adjustment (9,620,000)       (7,948,000)   (1,672,000)      
Reclassification adjustment for amounts recognized in net income 4,054,000       2,848,000   (1,206,000)      
Balance at Jun. 30, 2020 (274,809,000) $ 26,000 $ 616,000 745,326,000 (54,283,000) (772,700,000) (193,794,000)      
Balance (in shares) at Jun. 30, 2020   40,579,064 61,615,362              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Common Stock, Dividends, Per Share, Declared     $ 0.675              
Preferred Stock, Dividends Per Share, Declared               0.8125 0.78125  
Balance at Mar. 31, 2020 (241,664,000) $ 26,000 $ 614,000 742,409,000 (61,502,000) (738,223,000) (184,988,000)      
Balance (in shares) at Mar. 31, 2020   40,811,117 61,375,291              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Issuance of stock pursuant to Continuing Offer (Notes 8 and 9) 0   $ 2,000 (2,000)            
Issuance of stock pursuant to Continuing Offer (Notes 8 and 9), shares   (232,053) 232,069              
Share-based compensation under employee and director benefit plans (Note 8) 3,095,000     3,095,000            
Share-based compensation under employee and director benefit plans (Note 8), shares     8,002              
Adjustments of noncontrolling interests (Note 6) 0     (176,000) (34,000)   210,000      
Contributions from noncontrolling interests 1,950,000           1,950,000      
Dividends and distributions (Note 1) (1) (6,436,000)         (5,785,000)        
Distributions to noncontrolling interests             (651,000)      
Other (408,000)         (408,000)        
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest (41,795,000)         (28,284,000) (13,511,000)      
Net Income (Loss) Attributable to Redeemable Noncontrolling Interest                  
Unrealized gain (loss) on interest rate instruments and other (2,192,000)       (1,589,000)   (603,000)      
Cumulative translation adjustment 9,355,000       6,531,000   2,824,000      
Reclassification adjustment for amounts recognized in net income 3,286,000       2,311,000   975,000      
Balance at Jun. 30, 2020 $ (274,809,000) $ 26,000 $ 616,000 $ 745,326,000 $ (54,283,000) $ (772,700,000) $ (193,794,000)      
Balance (in shares) at Jun. 30, 2020   40,579,064 61,615,362              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                    
Common Stock, Dividends, Per Share, Declared     $ 0              
Preferred Stock, Dividends Per Share, Declared               $ 0.40625 $ 0.390625  
v3.20.2
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash Flows From Operating Activities:    
Net income (loss) $ (5,311) $ 46,615
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization 113,534 89,215
Gains on partial dispositions of ownership interests in UJVs, net of tax (Note 2) (11,277)  
Gains on remeasurements of ownership interests in UJVs (Note 2) (14,146)  
Fluctuation in fair value of equity securities (Note 11) (1,535) 3,346
Income from UJVs net of distributions 15,031 8,337
Non-cash operating lease expense 1,054 1,017
Other 7,307 6,774
Decrease in cash attributable to changes in assets and liabilities:    
Receivables, deferred charges, and other assets (Note 1) (78,535) (7,088)
Accounts payable and accrued liabilities (17,822) (4,525)
Net Cash Provided By Operating Activities 11,370 136,999
Cash Flows From Investing Activities:    
Additions to properties (37,404) (88,961)
Partial reimbursement of Saks anchor allowance at The Mall of San Juan 3,000  
Proceeds from partial dispositions of ownership interests in UJVs (Note 2) 48,673  
Proceeds from sale of equity securities (Note 11) 52,077
Insurance proceeds for capital items at The Mall of San Juan (Note 9)   948
Contributions to UJVs (Note 2) (3,111) (29,875)
Distributions from UJVs (less than) in excess of income (2,072) 10,011
Other 48 46
Net Cash Provided By (Used In) Investing Activities 9,134 (55,754)
Cash Flows From Financing Activities:    
Proceeds from (payments to) revolving lines of credit, net (Note 5) 195,000 (13,425)
Debt payments (5,965) (5,636)
Issuance of common stock and/or TRG Units in connection with incentive plans (606) (706)
Contributions from noncontrolling interests 1,950  
Distributions to noncontrolling interests (Note 1) (19,133) (35,701)
Distributions to participating securities of TRG (Note 1) (595) (1,220)
Cash dividends to preferred shareholders (11,569) (11,569)
Cash dividends to common shareholders (Note 1) (41,357) (82,578)
Net Cash Provided By (Used In) Financing Activities 117,725 (150,835)
Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash (Note 13) (184) 372
Net Increase (Decrease) In Cash, Cash Equivalents, and Restricted Cash 138,045 (69,218)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period (Note 13) 103,418 142,929
Cash, Cash Equivalents, and Restricted Cash at End of Period (Note 13) $ 241,463 $ 73,711
v3.20.2
Interim Financial Statements
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements [Abstract]  
Interim Financial Statements Interim Financial Statements

General

Taubman Centers, Inc. (TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate investment trust (REIT). TCO's sole asset is an approximate 70% general partnership interest in The Taubman Realty Group Limited Partnership (TRG), which owns direct or indirect interests in all of our real estate properties. In this report, the terms “we", "us", and "our'" refer to TCO, TRG, and/or TRG's subsidiaries as the context may require. We own, manage, lease, acquire, dispose of, develop, and expand retail shopping centers and interests therein. Our owned portfolio as of June 30, 2020 included 24 urban and suburban shopping centers operating in 11 U.S. states, Puerto Rico, South Korea, and China. The Taubman Company LLC (the Manager) provides certain management and administrative services for us and for our U.S. properties.

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

The unaudited interim financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results of interim periods are not necessarily indicative of the results for a full year.

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

Risks and Uncertainties Related to COVID-19 Pandemic

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

reduced global economic activity has impacted certain of our tenants' businesses, financial performance, and liquidity and has caused, and could continue to cause, certain tenants to be unable to fully meet their obligations to us or to otherwise seek modifications of such obligations, resulting in increases in uncollectible receivables, deferrals, and reductions in rental revenues;

the negative financial impact could affect our future compliance with financial covenants of our $1.1 billion primary unsecured revolving line of credit, unsecured term loans, and other debt agreements and our ability to fund debt service. In August 2020, we entered into amendments to waive all of our existing financial covenants related to our primary unsecured revolving line of credit, $275 million unsecured term loan, and $250 million unsecured term loan for the quarter ending September 30, 2020 through and including the quarter ending June 30, 2021. The financial covenants for our loan on International Market Place mirror the requirements under our primary unsecured revolving line of credit so therefore, the waiver of our financial covenants also applies to the International Market Place loan (Note 5).; and

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

In response to the COVID-19 pandemic, we temporarily closed most of our U.S. shopping centers in mid-March 2020. As of June 30, 2020, all of our U.S. centers had reopened and a substantial majority of stores had reopened with restrictions in place to ensure compliance with all local, state, and federal laws and mandates to help ensure the health and safety of communities we serve. However, in mid-July 2020, two of our centers in California were ordered to temporarily close again amid rising cases of COVID-19. If the U.S. continues to see prolonged or increased cases of COVID-19 infection, the risk of government mandated restrictions may rise, which could require other centers to close again.


The closures of our U.S. shopping centers adversely impacted mall tenant sales during the three months ended June 30, 2020. As a result, Rental Revenues on our Consolidated Statement of Operations and Comprehensive Income (Loss) was adversely affected, primarily due to an increase in uncollectible tenant revenues for the three and six months ended June 30, 2020. We assess collectibility of receivables on a tenant by tenant basis in accordance with ASC 842 (see "Changes in Accounting Policies - Accounts Receivable and Uncollectible Tenant Revenues"). Uncollectible tenant revenues are an estimate based on our assessment of revenues billed that may not result in collection, however we will continue our efforts to collect past due amounts. As such, the impact of the COVID-19 pandemic on our rental revenues in the future cannot be predicted at this point in time. The closures of our U.S. shopping centers also have adversely impacted parking revenue and food and beverage revenue of our restaurant joint venture, which has adversely affected Other Revenue on our Consolidated Statement of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2020.

In relation to cash collections and our increased accounts receivable balance, as a result of the COVID-19 pandemic, we have received requests from many tenants for rent abatement and rent deferral. A substantial amount of our rental revenue receivables for the three months ended June 30, 2020 currently remain outstanding and are under negotiation, with negotiations expected to continue through the end of the year, resulting in an increase in Accounts and Notes Receivable on our Consolidated Balance Sheet. We have made certain accounting policy elections for lease modifications negotiated with tenants as a result of the COVID-19 pandemic (Note 14). As a result of the uncertainty surrounding the impacts of the COVID-19 pandemic as well as the timing of the general economy's stabilization and recovery, collections and rent relief requests to-date may not be indicative of collections or requests in any future period. As such, the impact of the COVID-19 pandemic on our rental revenues, cash provided by operating activities, and accounts receivable in the future cannot be predicted at this point in time.

In Asia, our three operating centers experienced varying levels of disruption due to the COVID-19 pandemic. CityOn.Xi'an was closed for about a month in February, CityOn.Zhengzhou was closed for 10 days in February, and Starfield Hanam never closed. The closures of our Asia centers only adversely impacted the operations and financial results of the centers for the three months ended March 31, 2020, though our share of the impact was limited due to our partial ownership interests in the centers (Note 2).

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

Use of Estimates

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

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

Merger Agreement

On February 9, 2020, TCO and TRG (the Taubman Parties) entered into an Agreement and Plan of Merger (the Merger Agreement) for Simon Property Group, Inc. (Simon) to acquire a 100% ownership interest in TCO and an 80% ownership interest in TRG. Under the Merger Agreement, Simon, through its operating partnership, Simon Property Group, L.P. (the Simon Operating Partnership), would acquire all of TCO’s common stock (other than certain shares of excluded common stock) for $52.50 per share in cash and certain members of the Taubman Family (including Robert S. Taubman, William S. Taubman, Gayle Taubman Kalisman, and the Estate of A. Alfred Taubman) would retain certain of their TRG interests so that they remain a 20% partner in TRG and would sell their remaining ownership interest in TRG for $52.50 per share in cash. During the three and six months ended June 30, 2020, we incurred costs of $9.1 million and $15.4 million related to the transaction, respectively, which have been separately classified as Simon Property Group, Inc. Transaction Costs on our Consolidated Statement of Operations and Comprehensive Income (Loss). For additional information regarding the Merger Agreement, see our other filings with the Securities and Exchange Commission (SEC), which are available on the SEC’s website at www.sec.gov; provided, that the content of such website is not incorporated herein by reference.

On June 10, 2020, Simon delivered to the Taubman Parties a notice purporting to terminate the Merger Agreement (the Purported Termination Notice). In the Purported Termination Notice, Simon claimed that the Taubman Parties had suffered a Material Adverse Effect (as defined in the Merger Agreement) and had also breached their covenant to use commercially reasonable efforts to operate in the ordinary course of business. The Taubman Parties believe that Simon's purported termination of the Merger Agreement is invalid and without merit, and that Simon continues to be bound to the transaction in all respects. The Taubman Parties intend to hold Simon to its obligations under the Merger Agreement and the agreed transaction and to vigorously contest Simon's purported termination and legal claims. The Taubman Parties also intend to pursue their remedies to enforce their contractual rights under the Merger Agreement, including, among other things, the right to specific performance and the right to monetary damages, including damages based on the transaction price.

Also on June 10, 2020, Simon and the Simon Operating Partnership filed a complaint (the Simon Complaint), captioned, Simon Property Group, Inc. and Simon Property Group, L.P. v. Taubman Centers, Inc. and Taubman Realty Group, L.P., Case No. 2020-181675-CB, in the State of Michigan Circuit Court for the Sixth Judicial Circuit (Oakland County) (the Court), seeking a declaratory judgment that, among other things, the Taubman Parties had suffered a Material Adverse Effect and had breached their covenant in the Merger Agreement to use commercially reasonable efforts to operate in the ordinary course of business, and, as a result, Simon’s purported termination of the Merger Agreement was valid. On June 17, 2020, the Taubman Parties filed an Answer, Affirmative Defenses, and Counterclaim (the Taubman Answer and Counterclaim) in response to the Simon Complaint, which added Silver Merger Sub 1, LLC and Silver Merger Sub 2, LLC (with Simon and the Simon Operating Partnership, the Simon Parties) as counterclaim defendants. In the Taubman Answer and Counterclaim, the Taubman Parties deny that the Taubman Parties had suffered a Material Adverse Effect or that they had breached their covenant to use commercially reasonable efforts to operate in the ordinary course of business consistent with past practices, and, therefore, the Merger Agreement could not be terminated by the Simon Parties. Additionally, in the Taubman Answer and Counterclaim, the Taubman Parties ask the Court to enter a judgment of specific performance, compelling the Simon Parties to comply with their obligations under the Merger Agreement and consummate the transaction. Additionally, the Taubman Parties seek a declaratory judgment that, due to the Simon Parties' repudiation and material breach of the Merger Agreement by delivering the Purported Termination Notice and failing to use reasonable best efforts to consummate the transaction, the Taubman Parties have the right to seek damages, including based on the loss of the premium offered to the Taubman Parties’ equity holders. See Note 9 for more information regarding the ongoing litigation.

On June 25, 2020, we held a special meeting of shareholders, at which shareholders approved and adopted the Merger Agreement. Approximately 99.7% of the shares voted were in favor of the Merger Agreement and the transaction, which constitutes approximately 84.7% of the outstanding shares entitled to vote. The shareholder approval satisfied the final condition precedent to the closing of the transaction (other than those conditions that by their nature are to be satisfied at closing or by Simon). Simon, however, did not consummate the transaction on June 30, 2020, despite their contractual obligation to do so.

On June 23, 2020, the Court ordered that the case be referred to facilitative mediation to be completed by July 31, 2020. Discovery was ordered to commence immediately, and the case was ordered to be trial ready by mid-November 2020. Facilitative mediation has not resulted in a settlement as of the date hereof.

On July 31, 2020, the Court held a case management conference, at which time it scheduled trial to begin on November 16, 2020.


Consolidation

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

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

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

Investments in UJVs are accounted for under the equity method. We have evaluated our investments in UJVs under guidance for determining whether an entity is a VIE and have concluded that the ventures are not VIEs. Accordingly, we account for our interests in these entities under general accounting standards for investments in real estate ventures (including guidance for determining effective control of a limited partnership or similar entity). Our partners or other owners in these UJVs have substantive participating rights including approval rights over annual operating budgets, capital spending, financing, admission of new partners/members, or sale of the properties and we have concluded that the equity method of accounting is appropriate for these interests. Specifically, our 79% and 50.1% investments in Westfarms and International Plaza, respectively, are through general partnerships in which the other general partners have participating rights over annual operating budgets, capital spending, refinancing, or sale of the property. We provide our beneficial interest in certain financial information of our UJVs (Notes 4 and 5). This beneficial information is derived as our ownership interest in the investee multiplied by the specific financial statement item being presented. Investors are cautioned that deriving our beneficial interest in this manner may not accurately depict the legal and economic implications of holding a noncontrolling interest in the investee.

Ownership

In addition to common stock, we had three classes of preferred stock outstanding (Series B, J, and K) as of June 30, 2020. Dividends on the 6.5% Series J Cumulative Redeemable Preferred Stock (Series J Preferred Stock) and the 6.25% Series K Cumulative Redeemable Preferred Stock (Series K Preferred Stock) are cumulative and are paid on the last business day of each calendar quarter. We own corresponding Series J and Series K Preferred Equity interests in TRG that entitle us to income and distributions (in the form of guaranteed payments) in amounts equal to the dividends payable on our Series J and Series K Preferred Stock. If the Merger Agreement referenced above is consummated per the terms of the agreement, immediately prior to the effective time of the merger of TCO with and into a subsidiary of Simon (REIT Merger Effective Time), TCO will issue a redemption notice and cause funds to be set aside to pay the redemption price for each share of Series J Preferred Stock and each share of Series K Preferred Stock, at their respective liquidation preference of $25.00 plus all accumulated and unpaid dividends up to, but not including, the redemption date of such share.

We are also obligated to issue to the noncontrolling partners of TRG, upon subscription, one share of Series B Non-Participating Convertible Preferred Stock (Series B Preferred Share) per each unit of limited partnership in TRG (TRG Unit). Each Series B Preferred Share entitles the holder to one vote on all matters submitted to our shareholders. The holders of Series B Preferred Shares, voting as a class, have the right to designate up to four nominees for election as directors of TCO. On all other matters on which the holders of common stock are entitled to vote, including the election of directors, the holders of Series B Preferred Shares will vote with the holders of common stock. The holders of Series B Preferred Shares are not entitled to dividends or earnings of TCO. The Series B Preferred Shares are convertible into common stock at a ratio of 14,000 shares of Series B Preferred Stock for one share of common stock.
Outstanding voting securities of TCO at June 30, 2020 consisted of 26,079,064 shares of Series B Preferred Stock and 61,615,362 shares of common stock.

Dividends and Distributions
    
For the three months ended June 30, 2020, we did not pay a quarterly dividend to our common shareholders or any monthly distribution to participating securities of TRG. We continued to pay a quarterly dividend of $0.40625 per share on our 6.50% Series J Preferred Stock and $0.390625 per share on our 6.25% Series K Preferred Stock. The Board of Directors will continue to monitor our financial performance and liquidity position on an ongoing basis and will distribute taxable income, in the form of a common dividend and distributions to participating securities, in accordance with our partnership agreement and REIT qualification requirements as permitted under the new covenant waiver amendments (Note 5).

TRG

At June 30, 2020, TRG’s equity included two classes of preferred equity (Series J and K) and the net equity of the TRG unitholders. Net income and distributions of TRG are allocable first to the preferred equity interests, and the remaining amounts to the general and limited partners in TRG in accordance with their percentage ownership. The Series J and Series K Preferred Equity are owned by TCO and are eliminated in consolidation.

TCO's ownership in TRG at June 30, 2020 consisted of a 70% managing general partnership interest, as well as the Series J and Series K Preferred Equity interests. Our average ownership percentage in TRG for both the six months ended June 30, 2020 and 2019 was 70%. At June 30, 2020, TRG had 87,712,025 TRG Units outstanding, of which we owned 61,615,362 TRG Units. Disclosures about TRG Units outstanding exclude TRG Profits Units granted or other share-based grants for which TRG Units may eventually be issued (Note 8).

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

Leases

Shopping center space is leased to tenants and certain anchors pursuant to lease agreements. Future rental revenues under operating leases in effect at June 30, 2020 for operating centers, assuming no new or renegotiated leases or option extensions on anchor agreements, is summarized as follows:
2020
$
222,896

2021
414,533

2022
368,379

2023
325,500

2024
279,255

Thereafter
678,910



Revenue Recognition

Disaggregation of Revenue

The nature, amount, timing, and uncertainty of individual types of revenues may be affected differently by economic factors. Under Accounting Standards Codification (ASC) Topic 606, "Revenue from Contracts with Customers", we are required to disclose a disaggregation of our revenues derived from contracts with customers that considers economic differences between revenue types. The following table summarizes our disaggregation of consolidated revenues for this purpose.
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2020
 
2019
 
2020
 
2019
Shopping center and other operational revenues
$
4,744

 
11,993

 
$
16,762

 
23,555

Management, leasing, and development services
824

 
892

 
1,390

 
2,108

Total revenue from contracts with customers
$
5,568

 
$
12,885

 
$
18,152

 
$
25,663



Information about Contract Balances and Unsatisfied Performance Obligations

Contract assets exist when we have a right to payment for services rendered that remains conditional on factors other than the passage of time. Similarly, contract liabilities are incurred when customers prepay for services to be rendered. Certain revenue streams within shopping center and other operational revenues may give rise to contract assets and liabilities. However, these revenue streams are generally short-term in nature and the difference between revenue recognition and cash collection, although variable, does not differ significantly from period to period. As of June 30, 2020, we had an inconsequential amount of contract assets and liabilities.

The aggregate amount of the transaction price allocated to our performance obligations that were unsatisfied, or partially unsatisfied, as of June 30, 2020 were inconsequential.

Restructuring Charges

We have been undergoing a restructuring to reduce our workforce and reorganize various areas of the organization in response to the completion of another major development cycle. We did not incur any expense related to our restructuring efforts during the three months ended June 30, 2020. During the six months ended June 30, 2020, we incurred $0.4 million of expense related to our restructuring efforts. During the three and six months ended June 30, 2019, we incurred $0.1 million and $0.7 million, respectively, of expense related to our restructuring efforts. These expenses have been separately classified as Restructuring Charges on our Consolidated Statement of Operations and Comprehensive Income (Loss).

Costs Associated with Shareholder Activism

During the three and six months ended June 30, 2019, we incurred $12.0 million and $16.0 million of expense associated with activities related to shareholder activism, largely legal and advisory services. Expenses for the three and six months ended June 30, 2019 include a $5.0 million expense pursuant to an agreement with Land & Buildings Investment Management, LLC (Land & Buildings) for a reimbursement of a portion of the billed fees and expenses incurred by Land & Buildings and its affiliated funds in connection with Land & Buildings' activist involvement with TCO and the service on our Board of Directors of its founder and Chief Investment Officer, Jonathan Litt, which reimbursement represented a related party transaction. We received written certification from Land and Buildings that the actual billed fees and expenses as of the payment date exceeded $5.0 million.

Also included in the activism costs was a retention program for certain employees, which fully vested in December 2019. Given the uncertainties associated with shareholder activism and to ensure the retention of top talent in key positions within TCO, certain key employees were provided certain incentive benefits in the form of cash and/or equity retention awards. We and our Board of Directors believed these benefits were instrumental in ensuring the continued success of TCO during the retention period. Due to the unusual and infrequent nature of these expenses in our history, they were separately classified as Costs Associated with Shareholder Activism on our Consolidated Statement of Operations and Comprehensive Income (Loss). No expenses associated with activities related to shareholder activism were incurred during the three or six months ended June 30, 2020.

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

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

Change in Accounting Policies

Accounts Receivable and Uncollectible Tenant Revenues

In connection with the adoption of ASC Topic 842, "Leases", on January 1, 2019, we began reviewing the collectibility of both billed and accrued charges under our tenant leases each quarter on a tenant by tenant basis considering the tenant’s payment history, credit-worthiness, aging of the receivable, the tenant's operating performance and other factors. For any tenant receivable balances thought to be uncollectible, we record an offset for uncollectible tenant revenues directly to Rental Revenues on our Consolidated Statement of Operations and Comprehensive Income (Loss) for the total receivable balance, including straight-line receivables, and the tenant is transitioned to a cash basis for revenue recognition.

As a result of the above change in evaluation in uncollectible tenant revenues, the allowance for doubtful accounts was written off and an entry was recorded as of January 1, 2019 to adjust the receivables and equity balances of our Consolidated Businesses and UJVs. This resulted in a cumulative effect adjustment increasing Dividends in Excess of Net Income by $3.2 million and Non-redeemable Noncontrolling Interest by $1.8 million on our Consolidated Balance Sheet with offsetting increases in Accounts and Notes Receivable, Investment in UJVs, and Distributions in Excess of Investments In and Net Income of UJVs balances on our Consolidated Balance Sheet.
v3.20.2
Acquisition, Partial Disposition of Ownership Interests, Redevelopment, and Development
6 Months Ended
Jun. 30, 2020
Acquisition, Partial Disposition of Ownership Interests, Redevelopment, and Development [Abstract]  
Disposition, Redevelopments, and Developments [Text Block] Disposition, Partial Dispositions of Ownership Interests, Acquisition, Redevelopments, and Development

Disposition

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

Partial Dispositions of Ownership Interests

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

The sales of 50% of our interests in Starfield Hanam and CityOn.Zhengzhou were completed in September 2019 and December 2019, respectively. In March 2020, we received an additional $0.5 million of cash proceeds from the sale of 50% of our interest in CityOn.Zhengzhou. As a result, we recorded adjustments to the previously recognized gains resulting in an additional $0.5 million gain on disposition and an additional $0.5 million gain on remeasurement during the six months ended June 30, 2020.






In February 2020, we completed the sale of 50% of our interest in CityOn.Xi'an. Net cash proceeds from the sale were $48.0 million, following the allocation to Blackstone of its share of third party debt, taxes, and transaction costs. A gain of $10.6 million was recognized as a result of the partial disposition of our interest, which represented the excess of the net consideration from the sale over our investment in the UJV. In addition, upon completion of the sale, we remeasured our remaining 25% interest in the shopping center to fair value, resulting in the recognition of a $13.2 million gain on remeasurement. In June 2020, we received an additional $0.4 million of cash proceeds from the sale of 50% of our interest in CityOn.Xi'an. As a result, we recorded adjustments to the previously recognized gains resulting in an additional $0.4 million gain on disposition and an additional $0.4 million gain on remeasurement during the three months ended June 30, 2020.

Acquisition

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

Redevelopments

Beverly Center

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

The Mall at Green Hills

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

Asia Development

Starfield Anseong

We have partnered with Shinsegae Group, our partner in Starfield Hanam, to build, lease, own, and manage Starfield Anseong, a 1.0 million square foot shopping center in Anseong, Gyeonggi Province, South Korea. We own a 49% interest in the project. The shopping center is scheduled to open on September 25, 2020. As of June 30, 2020, our share of total project costs was $212.7 million, after cumulative currency translation adjustments. This investment is classified within Investment in UJVs on our Consolidated Balance Sheet.
v3.20.2
Income Taxes
6 Months Ended
Jun. 30, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes

Income Tax Expense (Benefit)

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act allows a Federal net operating loss (NOL) incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Additionally, the CARES Act permits bonus depreciation deductions for qualifying improvement property additions retroactive for tax years after 2017. As a result, our taxable REIT subsidiary had an amended total NOL of $12.8 million from its 2018 tax year that was carried back to prior tax years to claim a total Federal tax refund of $4.5 million ($3.4 million of which was received in June). The remaining $1.1 million Federal tax refund is recorded as a receivable, and a net Federal tax benefit of $1.9 million was recorded as an income tax benefit to reflect the effective 36% Federal tax recovery rate of the NOL carryback as compared to the 21% corporate tax rate at which the deferred items were originally recorded. The net Federal deferred tax asset has been reduced by $2.6 million in 2020 to reflect full utilization of the 2018 Federal NOL in the carryback claim, and the use of additional investment tax credits in 2019.

Our income tax expense (benefit) for the three and six months ended June 30, 2020 and 2019 consisted of the following:
 
Three Months Ended June 30
 
Six Months Ended June 30
 
 
2020

2019
 
2020
 
2019
 
Federal current
$
(57
)
 
116

 
$

 
$
116

 
Federal deferred
(827
)
 
428

 
(1,926
)
 
621

 
Foreign current
414

 
476

 
1,102

 
596

 
Foreign deferred
199

(1) 
1,320

(1) 
1,236

(1) 
1,435

(1) 
State current
7

 
22

 
16

 
41

 
State deferred
16

 
2

 
80

 
94

 
Total income tax expense (benefit)
$
(248
)
 
$
2,364


$
508

 
$
2,903

 


(1)
Due to the sale of 50% of our interests to funds managed by Blackstone (Note 2), we are no longer able to assert indefinite reinvestment in CityOn.Xi'an and CityOn.Zhengzhou. The foreign deferred tax expense (10% tax rate) is related to an excess of the Investment in the UJVs under GAAP accounting over the tax basis of our investments. During the three and six months ended June 30, 2020, we recognized $0.2 million and $1.3 million of foreign deferred tax expense, respectively, and recognized $1.7 million of foreign deferred tax expense for both the three and six months ended June 30, 2019.

Deferred Taxes

Deferred tax assets and liabilities as of June 30, 2020 and December 31, 2019 were as follows:
 
2020
 
2019
 
Deferred tax assets:
 
 
 
 
Federal
$
1,845

(1) 
$
4,385

(2) 
Foreign
2,147

 
2,020

 
State
1,657

 
1,388

 
Total deferred tax assets
$
5,649

 
$
7,793

 
Valuation allowances
(3,167
)
(3) 
(2,761
)
(4) 
Net deferred tax assets
$
2,482

 
$
5,032

 
Deferred tax liabilities:
 
 
 

 
Foreign (5)
$
5,405

 
$
4,449

 
Total deferred tax liabilities
$
5,405

 
$
4,449

 


(1)
The Federal deferred tax asset is net of Federal deferred tax liabilities and includes a $2.8 million Federal investment tax credit carryforward.
(2)
Includes a $4.4 million Federal investment tax credit carryforward.
(3)
Includes a $1.8 million valuation allowance against Foreign deferred tax assets, and a $1.4 million valuation allowance against State deferred tax assets.
(4)
Includes a $1.7 million valuation allowance against Foreign deferred tax assets, and a $1.1 million valuation allowance against State deferred tax assets.
(5)
The foreign deferred tax liability relates to shareholder level withholding taxes from Korea and China on undistributed profits and an excess of the Investments in the UJVs under GAAP accounting over the tax basis of our investments.

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

v3.20.2
Investments in Unconsolidated Joint Ventures
6 Months Ended
Jun. 30, 2020
Equity Method Investments and Joint Ventures [Abstract]  
Investments in Unconsolidated Joint Ventures Investments in UJVs

General Information

We own beneficial interests in joint ventures that own shopping centers. TRG is the sole direct or indirect managing general partner or managing member of Fair Oaks Mall, International Plaza, Stamford Town Center, Sunvalley, The Mall at University Town Center, and Westfarms; however, these joint ventures are accounted for under the equity method due to the substantive participation rights of the outside partners. TRG also provides certain management, leasing, and/or development services to the other shopping centers noted below.
Shopping Center
 
Ownership as of
June 30, 2020 and
December 31, 2019
CityOn.Xi'an (1)
 
25% / 50%
CityOn.Zhengzhou
 
24.5
Country Club Plaza
 
50
Fair Oaks Mall
 
50
The Gardens Mall
 
48.5
International Plaza
 
50.1
The Mall at Millenia
 
50
Stamford Town Center
 
50
Starfield Anseong (under development)
 
Note 2
Starfield Hanam
 
17.15
Sunvalley
 
50
The Mall at University Town Center
 
50
Waterside Shops
 
50
Westfarms
 
79


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

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

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

Combined balance sheet and results of operations information is presented in the following table for our UJVs, followed by TRG's beneficial interest in the combined operations information. The combined financial information of the UJVs as of June 30, 2020 and December 31, 2019 excludes the balances of Starfield Anseong, which is currently under development (Note 2). Beneficial interest is calculated based on TRG's ownership interest in each of the UJVs.
 
June 30,
2020
 
December 31,
2019
Assets:
 
 
 
Properties
$
3,791,076

 
$
3,816,923

Accumulated depreciation and amortization
(985,484
)
 
(942,840
)
 
$
2,805,592

 
$
2,874,083

Cash and cash equivalents
174,421

 
201,501

Accounts and notes receivable
150,095

 
122,569

Operating lease right-of-use assets
12,537

 
11,521

Deferred charges and other assets
159,056

 
178,708

 
$
3,301,701

 
$
3,388,382

 
 
 
 
Liabilities and accumulated equity (deficiency) in assets:
 

 
 

Notes payable, net  (1)
$
3,093,353

 
$
3,049,737

Accounts payable and other liabilities
241,325

 
341,263

Operating lease liabilities
14,286

 
13,274

TRG's accumulated deficiency in assets
(250,658
)
 
(212,380
)
UJV Partners' accumulated equity in assets
203,395

 
196,488

 
$
3,301,701

 
$
3,388,382

 
 
 
 
TRG's accumulated deficiency in assets (above)
$
(250,658
)
 
$
(212,380
)
TRG's investment in Starfield Anseong (Note 2) and advances to CityOn.Zhengzhou
204,177

 
209,024

TRG basis adjustments, including elimination of intercompany profit
334,527

 
329,673

TCO's additional basis
31,924

 
32,625

Net investment in UJVs
$
319,970

 
$
358,942

Distributions in excess of investments in and net income of UJVs
470,166

 
473,053

Investment in UJVs
$
790,136

 
$
831,995


(1) The Notes Payable, Net amount excludes the construction financing outstanding for Starfield Anseong of $127.2 million ($62.3 million at TRG's share) as of June 30, 2020.

 
Three Months Ended June 30
 
Six Months Ended June 30
 
2020
 
2019
 
2020
 
2019
Revenues
$
120,436

 
$
154,385

 
$
268,419

 
$
297,026

Maintenance, taxes, utilities, promotion, and other operating expenses
$
51,162

 
$
56,535

 
$
105,524

 
$
104,410

Interest expense
35,045

 
36,213

 
70,230

 
68,711

Depreciation and amortization
30,470

 
33,669

 
61,730

 
66,640

Total operating costs
$
116,677

 
$
126,417

 
$
237,484

 
$
239,761

Nonoperating income, net
600

 
923

 
1,142

 
1,324

Income tax expense
(2,167
)
 
(1,967
)
 
(4,267
)
 
(3,646
)
Net income
$
2,192

 
$
26,924

 
$
27,810

 
$
54,943

 
 
 
 
 
 
 
 
Net income attributable to TRG
$
1,221

 
$
14,155

 
$
13,632

 
$
28,448

Realized intercompany profit, net of depreciation on TRG’s basis adjustments
(1,583
)
 
1,152

 
(2,359
)
 
2,018

Depreciation of TCO's additional basis
(350
)
 
(485
)
 
(701
)
 
(972
)
Equity in income (loss) of UJVs
$
(712
)
 
$
14,822

 
$
10,572

 
$
29,494

 
 
 
 
 
 
 
 
Beneficial interest in UJVs’ operations:
 

 
 

 
 

 
 

Revenues less maintenance, taxes, utilities, promotion, and other operating expenses
$
31,001

 
$
52,693

 
$
75,394

 
$
102,110

Interest expense
(15,945
)
 
(18,005
)
 
(32,360
)
 
(34,781
)
Depreciation and amortization
(15,636
)
 
(18,954
)
 
(32,033
)
 
(36,146
)
Income tax expense
(132
)
 
(912
)
 
(429
)
 
(1,689
)
Equity in income (loss) of UJVs
$
(712
)
 
$
14,822

 
$
10,572

 
$
29,494



Related Party

We have a note receivable outstanding with CityOn.Zhengzhou, which was originally issued to fund development costs. The balance of the note receivable was $42.4 million and $43.1 million as of June 30, 2020 and December 31, 2019, respectively, and is classified within Investment in UJVs on our Consolidated Balance Sheet.

Stamford Town Center

Stamford Town Center is currently being marketed for sale. In December 2019, we concluded that the carrying value of our 50% interest in the investment in the UJV that owns Stamford Town Center was impaired and recognized an impairment charge of $18.0 million within Equity in Income (Loss) of UJVs on our Consolidated Statement of Operations and Comprehensive Income (Loss). The charge represented the excess of the book value of our equity investment in Stamford Town Center over our 50% share of its fair value. Our fair value conclusion was based on offers received from potential buyers of the shopping center.
v3.20.2
Beneficial Interest in Debt and Interest Expense
6 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
Beneficial interest in Debt and Interest Expense Beneficial Interest in Debt and Interest Expense

TRG's beneficial interest in the debt, capitalized interest, and interest expense of our consolidated subsidiaries and our UJVs is summarized in the following table. TRG's beneficial interest in the consolidated subsidiaries excludes debt and interest related to the noncontrolling interest in Cherry Creek Shopping Center (50%) and International Market Place (6.5%).
 
At 100%
 
At Beneficial Interest
 
 
Consolidated Subsidiaries
 
UJVs
 
Consolidated Subsidiaries
 
UJVs
 
Debt as of:
 
 
 
 
 
 
 
 
June 30, 2020
$
3,900,937

 
$
3,220,530

 
$
3,610,188

 
$
1,537,723

 
December 31, 2019
3,710,327

 
3,049,737

 
3,419,625

 
1,508,506

 
 
 
 
 
 
 
 
 
 
Capitalized interest:
 

 
 

 
 

 
 

 
Six Months Ended June 30, 2020
$
3,218

(1) 
$
743

(2) 
$
3,154

(1) 
$
582

(2) 
Six Months Ended June 30, 2019
4,354

(1) 
85

 
4,345

(1) 
47

 
 
 
 
 
 
 
 
 
 
Interest expense:
 

 
 

 
 

 
 

 
Six Months Ended June 30, 2020
$
68,202

 
$
69,174

 
$
62,658

 
$
32,360

 
Six Months Ended June 30, 2019
74,895

 
68,183

 
68,841

 
34,781

 


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

Upcoming Maturities

In August 2020, we extended the maturity date on the $150 million loan for The Mall at Green Hills to December 2021. The loan was previously scheduled to mature in December 2020 and commencing December 2020, the interest rate will be a variable rate equal to the greater of LIBOR plus 2.75% or 3.25%.

The $250 million loan for International Market Place matures in August 2021 and has two, one year extension options available. We are currently evaluating our options related to extending or refinancing this loan.

Revolving Lines of Credit

In late March 2020, we borrowed an additional $350 million on our $1.1 billion primary unsecured revolving line of credit as a precautionary measure to increase liquidity, preserve financial flexibility, and fund temporary working capital needs due to uncertainty resulting from the COVID-19 pandemic. In June 2020, we repaid $100 million, reducing the balance on our $1.1 billion primary unsecured revolving line of credit to $870 million as of June 30, 2020. We also have a secured revolving line of credit of $65 million. The availability under these facilities as of June 30, 2020, after considering the outstanding balances, the outstanding letters of credit, and value of the unencumbered asset pool as of June 30, 2020, was $118.5 million.

Debt Covenants and Guarantees

Certain loan agreements contain various restrictive covenants, including the following corporate covenants on our primary unsecured revolving line of credit, as well as our unsecured term loans and the loan on International Market Place: a minimum net worth requirement, a maximum total leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum recourse secured debt ratio, and a maximum payout ratio. In addition, our primary unsecured revolving line of credit and unsecured term loans have unencumbered pool covenants which currently apply to Beverly Center, Dolphin Mall, and The Gardens on El Paseo on a combined basis. These covenants include a minimum number and minimum value of eligible unencumbered assets, a maximum unencumbered leverage ratio, a minimum unencumbered interest coverage ratio and a minimum unencumbered asset occupancy ratio. As of June 30, 2020, the unencumbered leverage ratio and the corporate total leverage ratio were the most restrictive covenants. We were in compliance with all of our covenants and loan obligations as of June 30, 2020. Failure to meet certain of these financial covenants could cause an event of default under and/or accelerate some or all of such indebtedness, which could have an adverse effect on us. The maximum payout ratio covenant limits the payment of distributions generally to 95% of funds from operations, as defined in the loan agreements, except as required to maintain our tax status, pay preferred distributions, and for distributions related to the sale of certain assets.

In August 2020, we entered into amendments to waive all of our existing financial covenants related to our primary unsecured revolving line of credit, $275 million unsecured term loan, and $250 million unsecured term loan for the quarter ending September 30, 2020 through and including the quarter ending June 30, 2021. The amendments also added a liquidity covenant, which will remain in effect through the earlier of the end of the covenant waiver period or until the financial covenants are in compliance using the definitions and requirements prior to the amendments. The amendments impose limitations during the waiver period on acquisitions, additional indebtedness, share repurchases, as well as certain required prepayments following dispositions, equity or debt issuances. Additionally, the lenders have received a secured interest in certain unencumbered assets through the waiver period. The amendments provide for flexibility to complete planned capital spending, including spending for tenant allowances and redevelopment projects. In relation to distributions, the amendments permit distributions of taxable income in accordance with our partnership agreement and REIT qualification requirements and the ability to continue dividend payments for our 6.5% Series J Preferred Stock and 6.25% Series K Preferred Stock. The financial covenants for our loan on International Market Place mirror the requirements under our primary unsecured revolving line of credit so therefore, the waiver of our financial covenants also applies to the International Market Place loan.

Through the covenant compliance date, our primary unsecured revolving line of credit will bear interest at the maximum total leverage ratio level of LIBOR, subject to a 0.5% floor on the unhedged balance, plus 1.60% with a 0.25% facility fee; our $275 million unsecured term loan will bear interest at the maximum total leverage ratio level of LIBOR plus 1.80%; and our $250 million unsecured term loan will bear interest at the maximum total leverage ratio level of LIBOR plus 1.90%.

In connection with the August 2018 financing at International Market Place, TRG provided an unconditional guarantee of the loan principal balance and all accrued but unpaid interest during the term of the loan. The $250 million loan is interest only during the initial three year term with principal amortization required during the extension periods, if exercised. Accrued but unpaid interest as of June 30, 2020 was $0.5 million. We believe the likelihood of a repayment under the guarantee to be remote.

In connection with the $175 million additional financing at International Plaza, which is owned by a UJV, TRG provided an unconditional and several guarantee of 50.1% of all obligations and liabilities related to an interest rate swap that was required on the debt for the term of the loan. As of June 30, 2020, the interest rate swap was a $3.7 million liability and accrued but unpaid interest was $0.2 million. We believe the likelihood of a payment under the guarantee to be remote.
v3.20.2
Noncontrolling Interests
6 Months Ended
Jun. 30, 2020
Noncontrolling Interest [Abstract]  
Noncontrolling Interests Noncontrolling Interests

Redeemable Noncontrolling Interests

Former Taubman Asia President

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

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

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

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

International Market Place

We own a 93.5% controlling interest in a joint venture that owns International Market Place in Waikiki, Honolulu, Hawaii. The 6.5% joint venture partner has no obligation and no right to contribute capital. We are entitled to a preferential return on our capital contributions. We have the right to purchase the joint venture partner's interest and the joint venture partner has the right to require us to purchase the joint venture partner's interest annually. The purchase price of the joint venture partner's interest will be based on fair value. Considering the redemption provisions, we account for the joint venture partner's interest as a contingently redeemable noncontrolling interest with a carrying value of zero at both June 30, 2020 and December 31, 2019. Any adjustments to the redemption value are recorded through equity.

Reconciliation of Redeemable Noncontrolling Interest
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2020
 
2019
 
2020
 
2019
Beginning Balance
$

 
$
7,800

 
$

 
$
7,800

Allocation of net loss


 
(144
)
 
 
 
(237
)
Former Taubman Asia President adjustment of redeemable equity
 
 
(1,800
)
 
 
 
(1,800
)
Adjustments of redeemable noncontrolling interest


 
144

 
 
 
237

Ending Balance
$

 
$
6,000

 
$

 
$
6,000



Equity Balances of Non-redeemable Noncontrolling Interests

The net equity balance of the non-redeemable noncontrolling interests as of June 30, 2020 and December 31, 2019 included the following:
 
2020
 
2019
Non-redeemable noncontrolling interests:
 
 
 
Noncontrolling interests in consolidated joint ventures
$
(151,371
)
 
$
(153,343
)
Noncontrolling interests in partnership equity of TRG
(42,423
)
 
(13,840
)
 
$
(193,794
)
 
$
(167,183
)


Net Income (Loss) Attributable to Noncontrolling Interests

Net income (loss) attributable to the noncontrolling interests for the three months ended June 30, 2020 and 2019 included the following:
 
Three Months Ended June 30
 
2020
 
2019
Net income (loss) attributable to noncontrolling interests:
 
 
 
Non-redeemable noncontrolling interests:
 
 
 
Noncontrolling share of income of consolidated joint ventures
$
300

 
$
976

Noncontrolling share of income of TRG
(13,811
)
 
3,408

 
$
(13,511
)
 
$
4,384

Redeemable noncontrolling interest:


 
(144
)
 
$
(13,511
)
 
$
4,240



Net income (loss) attributable to the noncontrolling interests for the six months ended June 30, 2020 and 2019 included the following:
 
Six Months Ended June 30
 
2020
 
2019
Net income (loss) attributable to noncontrolling interests:
 
 
 
Non-redeemable noncontrolling interests:
 
 
 
Noncontrolling share of income of consolidated joint ventures
1,323

 
$
2,498

Noncontrolling share of income of TRG
(4,601
)
 
10,209

 
$
(3,278
)
 
$
12,707

Redeemable noncontrolling interest:


 
(237
)
 
$
(3,278
)
 
$
12,470



Equity Transactions

The following table presents the effects of changes in TCO’s ownership interest in consolidated subsidiaries on TCO’s equity for the six months ended June 30, 2020 and 2019:
 
Six Months Ended June 30
 
2020
 
2019
Net income (loss) attributable to TCO common shareholders
$
(14,197
)
 
$
21,356

Transfers (to) from the noncontrolling interest:
 

 
 

Increase (decrease) in TCO’s paid-in capital for adjustments of noncontrolling interest (1)
(248
)
 
57,500

Net transfers (to) from noncontrolling interests
(248
)
 
57,500

Change from net income (loss) attributable to TCO and transfers (to) from noncontrolling interests
$
(14,445
)
 
$
78,856


(1)
In 2020 and 2019, adjustments of the noncontrolling interest were made as a result of changes in our ownership of TRG in connection with our share-based compensation under employee and director benefit plans (Note 8) and issuances of common stock pursuant to the Continuing Offer (Note 9). In 2019, adjustments of noncontrolling interest were made in connection with the accounting for the Former Taubman Asia President's redeemable ownership interest and issuance of TRG Units for the acquisition of The Gardens Mall (Note 2).

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 June 30, 2020, we held a controlling interest in a consolidated entity with a specified termination date in 2083. The noncontrolling owners' interest in this entity is to be settled upon termination by distribution or transfer of either cash or specific assets of the underlying entity. The estimated fair value of this noncontrolling interest was approximately $152 million at June 30, 2020, compared to a book value of $(151.4) million that is classified in Noncontrolling Interests on our Consolidated Balance Sheet. The fair value of the noncontrolling interest was calculated as the noncontrolling interest's effective ownership share of the underlying property's net asset value. The property's net asset value was estimated by considering its in-place net operating income, current market capitalization rate, and mortgage debt outstanding.
v3.20.2
Derivative and Hedging Activities
6 Months Ended
Jun. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative and Hedging Activities Derivative and Hedging Activities

Risk Management Objective and Strategies for Using Derivatives

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

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

As of June 30, 2020, we had the following outstanding derivatives that were designated and are expected to be effective as cash flow hedges of the interest payments and/or the currency exchange rate on the associated debt.
Instrument Type

Ownership

Notional Amount

Swap
Rate

Credit Spread on Loan

Total Swapped Rate on Loan

Maturity
Date
Consolidated Subsidiaries:

 

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

 

 
 
 
 
 
 
 
 
 
 
 
 
 
Receive variable (LIBOR) /pay-fixed swap (4)
 
50.1%
 
156,734
 
1.83%
 
1.75%
 
3.58%
 
December 2021
Receive variable (LIBOR) USD/pay-fixed Korean Won (KRW) cross-currency interest rate swap (5)
 
17.15%
 
52,065 USD / 60,500,000 KRW
 
1.52%
 
1.60%
 
3.12%
 
September 2020

(1)
The hedged forecasted transaction for each of these swaps is the first previously unhedged one-month LIBOR-indexed interest payment accrued and made each month on a debt principal amount equal to the swap notional amount, regardless of the specific debt agreement from which they may flow. We are currently using these swaps to manage interest rate risk on the $275 million unsecured term loan and $25 million on the $1.1 billion primary unsecured revolving line of credit. The credit spread on these loans can vary within a range of 1.15% to 1.80% on the $275 million unsecured term loan and 1.05% to 1.60% on the $1.1 billion unsecured revolving line of credit, depending on our total leverage ratio at the measurement date, resulting in an effective rate in the range of 3.29% to 3.94% on the $275 million unsecured term loan and 3.19% to 3.74% on $25 million of the $1.1 billion primary unsecured revolving line of credit during the remaining swap period.
(2)
The hedged forecasted transaction for each of these swaps is the first previously unhedged one-month LIBOR-indexed interest payment accrued and made each month on a debt principal amount equal to the swap notional amount, regardless of the specific debt agreement from which they may flow beginning with the March 2019 effective date of these swaps. We are currently using these swaps to manage interest rate risk on the $250 million unsecured term loan. The credit spread on this loan can vary within a range of 1.25% to 1.90%, depending on our total leverage ratio at the measurement date, resulting in an effective rate in the range of 4.27% to 4.92% during the swap period.
(3)
The notional amount on this swap is equal to the outstanding principal balance of the floating rate loan on the U.S. headquarters building.
(4)
The notional amount on this swap is equal to the outstanding principal balance of the floating rate loan on International Plaza.
(5)
The notional amount on this swap is equal to the outstanding principal balance of the U.S. dollar construction loan for Starfield Hanam. There is a cross-currency interest rate swap to fix the interest rate on the loan and swap the related principal and interest payments from U.S. dollars to KRW in order to reduce the impact of fluctuations in interest rates and exchange rates on the cash flows of the joint venture. The currency swap exchange rate is 1,162.0.

Cash Flow Hedges

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

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

We expect that approximately $15.0 million of AOCI of TCO and the noncontrolling interests will be reclassified from AOCI and recognized as an increase in expense in the following 12 months.

The following tables present the effect of derivative instruments on our Consolidated Statement of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2020 and 2019. The tables include the amount of gains or losses on outstanding derivative instruments recognized in OCI in cash flow hedging relationships and the location and amount of gains or losses reclassified from AOCI into income resulting from outstanding derivative instruments.

 
Amount of Gain or (Loss) Recognized in OCI on Derivative
 
Location of Gain or (Loss) Reclassified from AOCI into Income
 
Amount of Gain or (Loss) Reclassified from AOCI into Income
 
Three Months Ended June 30
 
 
 
Three Months Ended June 30
 
2020
 
2019
 
 
 
2020
 
2019
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
Interest rate contracts – consolidated subsidiaries
$
922

 
$
(8,808
)
 
Interest Expense
 
$
(2,869
)
 
$
(72
)
Interest rate contracts – UJVs
124

 
(1,075
)
 
Equity in Income (Loss) of UJVs
 
(263
)
 
132

Cross-currency interest rate contract – UJV
48

 
(73
)
 
Equity in Income (Loss) of UJVs
 
(154
)
 
363

Total derivatives in cash flow hedging relationships
$
1,094

 
$
(9,956
)
 
 
 
$
(3,286
)
 
$
423



 
Amount of Gain or (Loss) Recognized in OCI on Derivative
 
Location of Gain or (Loss) Reclassified from AOCI into Income
 
Amount of Gain or (Loss) Reclassified from AOCI into Income
 
Six Months Ended June 30
 
 
 
Six Months Ended June 30
 
2020
 
2019
 
 
 
2020
 
2019
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
Interest rate contracts – consolidated subsidiaries
$
(14,623
)
 
$
(14,524
)
 
Interest Expense
 
$
(4,080
)
 
$
766

Interest rate contracts – UJVs
(1,440
)
 
(1,700
)
 
Equity in Income (Loss) of UJVs
 
(294
)
 
269

Cross-currency interest rate contract – UJV
6

 
(43
)
 
Equity in Income (Loss) of UJVs
 
320

 
811

Total derivatives in cash flow hedging relationships
$
(16,057
)
 
$
(16,267
)
 
 
 
$
(4,054
)
 
$
1,846



We record all derivative instruments at fair value on our Consolidated Balance Sheet. The following table presents the location and fair value of our derivative financial instruments as reported on our Consolidated Balance Sheet as of June 30, 2020 and December 31, 2019.
 
 
 
Fair Value
 
Consolidated Balance Sheet Location
 
June 30,
2020
 
December 31,
2019
Derivatives designated as hedging instruments: