Taubman Centers, Inc. Issues Fourth Quarter and Full Year 2017 Results and Introduces 2018 Guidance

Taubman Centers, Inc. (NYSE: TCO) today reported financial results for the quarter and full year periods ended December 31, 2017.

“Notwithstanding a very challenging retail environment, we saw growth in nearly all our key metrics in 2017,” said Robert S. Taubman, chairman, president and chief executive officer of Taubman Centers. “Adjusted FFO, sales, occupancy and average rent were up, and total NOI increased over 10 percent, primarily due to the growth of our newest assets in the U.S. and Asia. We continue to execute on our promise to deliver growth and value to shareholders.”

Operating Statistics

For the year, comparable center NOI was up 1.7 percent (up 0.7 percent excluding lease cancellation income). For the fourth quarter, comparable center NOI was up 0.1 percent (up 0.5 percent excluding lease cancellation income). Comparable center NOI for the year and the quarter benefited from favorable net recoveries and other income. Higher bad debt expense impacted the year-to-date and quarterly comparable center NOI by 0.8 percent and 1.4 percent, respectively.

Comparable center mall tenant sales per square foot were $810 for 2017, an increase of 2.3 percent from 2016. The fourth quarter of 2017 was up 3.2 percent. “This marked our sixth consecutive quarter of positive sales growth, and Holiday sales were especially encouraging,” said Mr. Taubman.

Ending occupancy in comparable centers was 95 percent at year-end, up 0.3 percent from 94.7 percent on December 31, 2016. Ending occupancy in all centers was 94.8 percent, up 0.9 percent from last year.

Leased space in comparable centers was 96 percent at year-end, essentially flat compared to December 31, 2016. Leased space in all centers was 95.9 percent, up 0.3 percent from last year.

For the year, average rent per square foot in comparable centers was $61.66, up 1 percent from $61.07 in 2016. For the fourth quarter, average rent per square foot in comparable centers was $61.35, up 0.6 percent from $60.97 last year.

The trailing 12-month releasing spread per square foot for the period ended December 31, 2017 was 5 percent. This spread was impacted, for the third quarter in a row, by a small number of spaces that opened in early 2017. These spaces have an average lease term of less than two-and-a-half years. Without these leases, the spread was nearly 15 percent.

“As the retail environment continues to stabilize, we’re seeing very good demand for space in our centers,” said Mr. Taubman. “Occupancy, rent, and sales are all at, or near, all-time highs.”

2017 Milestones, Events and Financing Activities

During 2017, the company:

• Amended and restated the company’s primary revolving line of credit, which included a new, unsecured, $300 million term loan and an extension of the $1.1 billion revolving credit facility to February 2021, with two six-month extension options. Both the term loan and the revolving line of credit facility bear interest at a range based on the company’s total leverage ratio. See Taubman Centers Announces the Amendment and Restatement of $1.1 Billion Line of Credit Including Additional $300 Million Unsecured Term Loan – February 7, 2017.

• Increased the regular quarterly dividend by 5 percent to $0.625 per share of common stock. See Taubman Centers Increases Quarterly Common Dividend 5 Percent to $0.625 Per Share – March 2, 2017.
• Celebrated the opening of CityOn.Zhengzhou in Zhengzhou, China, 100 percent leased with nearly 200 retailers, restaurants and entertainment venues. The center was jointly developed by Taubman Asia and Wangfujing Group Co., Ltd. See The New CityOn.Zhengzhou Shopping Center Opened to Capacity Crowds Today in Henan Province – March 16, 2017.
• Repaid the $302 million construction loan on The Mall of San Juan (San Juan, Puerto Rico) – March 16, 2017.
• Sold the company’s 50 percent owned Valencia Place office tower located within the Country Club Plaza (Kansas City, Mo.) for a net value of $37.6 million at the company’s share – March 17, 2017.
• In September was impacted by Hurricane Irma in Florida and Hurricane Maria in Puerto Rico. The company’s five centers in Florida sustained minimal damage, but were closed between four and 11 days. The Mall of San Juan was closed for approximately one month. The center’s performance will continue to be impacted for the foreseeable future.
• Announced the appointments of Mayree C. Clark and Michael J. Embler to the company’s Board of Directors, and declassification of the Board by the 2020 annual meeting of shareholders. See Taubman Appoints Two New Independent Directors and Announces Other Governance Enhancements – November 9, 2017.
• Underwent a restructuring of its workforce and reorganization of various functions in response to the completion of another major development cycle and in order to create operational efficiencies. During the three months and year ended December 31, 2017, the company incurred $9.8 million and $13.8 million, respectively, of expenses related to the restructuring.

Nordstrom Joining Country Club Plaza Lineup

Last week, Nordstrom, Inc., announced it is opening a new, state-of-the-art, approximately 116,000-square-foot store at Country Club Plaza, the company’s joint venture in Kansas City, Missouri. The new store is expected to open in 2021. See Nordstrom Announces Relocation of Oak Park Mall Store to Country Club Plaza – February 2, 2018.

2018 Guidance

The company is introducing guidance for 2018. Net income attributable to common shareholders (EPS) for the year is expected to be in the range of $1.15 to $1.39.

The company expects FFO per diluted common share to be in the range of $3.72 to $3.86. This guidance does not reflect any future costs that may be incurred related to shareowner activism.

This guidance assumes comparable center NOI growth of 2 to 3 percent for the year.

Supplemental Investor Information Available

The company provides supplemental investor information along with its earnings announcements, available online at www.taubman.com under “Investors.” This includes the following:

• Earnings Press Release
• Company Overview
• Operational Statistics
• Summary of Key Guidance Measures
• Income Statements
• Changes in Funds from Operations and Earnings Per Common Share
• Balance Sheet Information
• Debt Summary
• Capital Spending
• Owned Centers
• Redevelopments
• Anchors & Major Tenants in Owned Portfolio
• Components of Other Income, Other Operating Expense, and Nonoperating Income, Net
• Earnings Reconciliations
• Operating Statistics Glossary

Investor Conference Call

The company will host a conference call at 10:00 a.m. EST on Friday, February 9 to discuss these results, business conditions and the company’s outlook for 2018. The conference call will be simulcast at www.taubman.com. An online replay will follow shortly after the call and continue for approximately 90 days. Shareholders and interested parties may also listen to a live broadcast of the conference call by dialing 1-866-820-1712 or 1-973-638-3468 and using reservation code 5997197.

About Taubman

Taubman Centers is an S&P MidCap 400 Real Estate Investment Trust engaged in the ownership, management and/or leasing of 27 regional, super-regional and outlet shopping centers in the U.S. and Asia. Taubman’s U.S.-owned properties are the most productive in the publicly held U.S. regional mall industry. Founded in 1950, Taubman is headquartered in Bloomfield Hills, Mich. Taubman Asia, founded in 2005, is headquartered in Hong Kong. www.taubman.com.

For ease of use, references in this press release to “Taubman Centers,” “company,” “Taubman” or an operating platform mean Taubman Centers, Inc. and/or one or more of a number of separate, affiliated entities. Business is actually conducted by an affiliated entity rather than Taubman Centers, Inc. itself or the named operating platform.

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements reflect management's current views with respect to future events and financial performance. Forward-looking statements can be identified by words such as “will”, “may”, “could”, “expect”, “anticipate”, “believes”, “intends”, “should”, “plans”, “estimates”, “approximate”, “guidance” and similar expressions in this press release that predict or indicate future events and trends and that do not report historical matters. The forward-looking statements included in this release are made as of the date hereof. Except as required by law, the company assumes no obligation to update these forward-looking statements, even if new information becomes available in the future. Actual results may differ materially from those expected because of various risks, uncertainties and other factors. Such factors include, but are not limited to: changes in market rental rates; unscheduled closings or bankruptcies of tenants; relationships with anchor tenants; trends in the retail industry; challenges with department stores; changes in consumer shopping behavior; the liquidity of real estate investments; the company’s ability to comply with debt covenants; the availability and terms of financings; changes in market rates of interest and foreign exchange rates for foreign currencies; changes in value of investments in foreign entities; the ability to hedge interest rate and currency risk; risks related to acquiring, developing, expanding, leasing and managing properties; competitors gaining economies of scale through M&A and consolidation activity; changes in value of investments in foreign entities; risks related to joint venture properties; insurance costs and coverage; security breaches that could impact the company’s information technology, infrastructure or personal data; costs associated with response to technology breaches; the loss of key management personnel; shareholder activism costs and related diversion of management time; terrorist activities; maintaining the company’s status as a real estate investment trust; changes in the laws of states, localities, and foreign jurisdictions that may increase taxes on the company’s operations; and changes in global, national, regional and/or local economic and geopolitical climates. You should review the company's filings with the Securities and Exchange Commission, including “Risk Factors” in its most recent Annual Report on Form 10-K and subsequent quarterly reports, for a discussion of such risks and uncertainties.

TAUBMAN CENTERS, INC.
Use of Non-GAAP Financial Measures

The Company uses certain non-GAAP operating measures, including EBITDA, beneficial interest in EBITDA, Net Operating Income, and Funds from Operations. These measures are reconciled to the most comparable GAAP measures. Additional information as to the use of these measures are as follows.

EBITDA represents earnings before interest, income taxes, and depreciation and amortization of the Operating Partnership's consolidated and unconsolidated businesses. Beneficial interest in EBITDA represents the Operating Partnership’s share of the earnings before interest, income taxes, and depreciation and amortization of its consolidated and unconsolidated businesses. The Company believes EBITDA and beneficial interest in EBITDA provide useful indicators of operating performance, as it is customary in the real estate and shopping center business to evaluate the performance of properties on a basis unaffected by capital structure.

The Company uses Net Operating Income (NOI) as an alternative measure to evaluate the operating performance of centers, both on individual and stabilized portfolio bases. The Company defines NOI as property-level operating revenues (includes rental income excluding straight-line adjustments of minimum rent) less maintenance, taxes, utilities, promotion, ground rent (including straight-line adjustments), and other property operating expenses. Since NOI excludes general and administrative expenses, pre-development charges, interest income and expense, depreciation and amortization, impairment charges, restructuring charges, and gains from peripheral land and property dispositions, it provides a performance measure that, when compared period over period, reflects the revenues and expenses most directly associated with owning and operating rental properties, as well as the impact on their operations from trends in tenant sales, occupancy and rental rates, and operating costs. The Company also uses NOI excluding lease cancellation income as an alternative measure because this income may vary significantly from period to period, which can affect comparability and trend analysis. The Company generally provides separate projections for expected comparable center NOI growth and lease cancellation income. Comparable centers are generally defined as centers that were owned and open for the entire current and preceding period presented, excluding centers impacted by significant redevelopment activity. In addition, The Mall of San Juan has been excluded from “comparable center” statistics as a result of Hurricane Maria and the expectation that the center’s performance will be impacted for the foreseeable future.

The National Association of Real Estate Investment Trusts (NAREIT) defines Funds from Operations (FFO) as net income (computed in accordance with Generally Accepted Accounting Principles (GAAP)), excluding gains (or losses) from extraordinary items and sales of properties and impairment writedowns of depreciable real estate, plus real estate related depreciation and after adjustments for unconsolidated partnerships and joint ventures. The Company believes that FFO is a useful supplemental measure of operating performance for REITs. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, the Company and most industry investors and analysts have considered presentations of operating results that exclude historical cost depreciation to be useful in evaluating the operating performance of REITs. The Company primarily uses FFO in measuring performance and in formulating corporate goals and compensation.

The Company may also present adjusted versions of NOI, beneficial interest in EBITDA, and FFO when used by management to evaluate operating performance when certain significant items have impacted results that affect comparability with prior or future periods due to the nature or amounts of these items. The Company believes the disclosure of the adjusted items is similarly useful to investors and others to understand management's view on comparability of such measures between periods. For the three months and year ended December 31, 2017, FFO and EBITDA were adjusted to exclude a restructuring charge, costs incurred associated with shareowner activism, and a gain recognized upon the conversion of the Company's remaining investment in SPG LP Units to common shares of SPG. For the year ended December 31, 2017, FFO was also adjusted for a charge recognized in connection with the partial write-off of deferred financing costs related to an amendment of the Company's primary unsecured revolving line of credit in February 2017. For the year ended December 31, 2017, EBITDA was also adjusted to exclude a gain recognized in connection with the sale of the Valencia Place office tower at Country Club Plaza. For the three months and year ended December 31, 2016, FFO and EBITDA were adjusted to exclude costs incurred associated with shareowner activism and a gain, net of tax recognized upon the conversion of a portion of the Company's investment in SPG LP Units to common shares of SPG. For the year ended December 31, 2016, FFO and EBITDA were also adjusted to exclude the lump sum payment received in May 2016 for the termination of the Company's third party leasing agreement at The Shops at Crystals (Crystals) due to a change in ownership of the center. These non-GAAP measures as presented by the Company are not necessarily comparable to similarly titled measures used by other REITs due to the fact that not all REITs use the same definitions. These measures should not be considered alternatives to net income or as an indicator of the Company's operating performance. Additionally, these measures do not represent cash flows from operating, investing, or financing activities as defined by GAAP. The Company also provides its beneficial interest in certain financial information of its Unconsolidated Joint Ventures. This beneficial information is derived as the Company’s ownership interest in the investee multiplied by the specific financial statement item being presented. Investors are cautioned that deriving the Company’s beneficial interest in this manner may not accurately depict the legal and economic implications of holding a non-controlling interest in the investee.

These non-GAAP measures as presented by the Company are not necessarily comparable to similarly titled measures used by other REITs due to the fact that not all REITs use the same definitions. These measures should not be considered alternatives to net income or as an indicator of the Company's operating performance. Additionally, these measures do not represent cash flows from operating, investing, or financing activities as defined by GAAP.

The Company provides its beneficial interest in certain financial information of its Unconsolidated Joint Ventures. This beneficial information is derived as the Company’s ownership interest in the investee multiplied by the specific financial statement item being presented. Investors are cautioned that deriving the Company’s beneficial interest in this manner may not accurately depict the legal and economic implications of holding a non-controlling interest in the investee.

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