Form 8-K TAUBMAN CENTERS INC For: Feb 08

February 8, 2018 4:23 PM



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (date of earliest event reported): February 8, 2018

TAUBMAN CENTERS, INC.
(Exact Name of Registrant as Specified in its Charter)

Michigan
(State of Other Jurisdiction of Incorporation)

	1-11530	38-2033632
	(Commission File Number)	(I.R.S. Employer Identification No.)

	200 East Long Lake Road, Suite 300, Bloomfield Hills, Michigan	48304-2324
	(Address of Principal Executive Office)	(Zip Code)

	Registrant’s Telephone Number, Including Area Code: (248) 258-6800

	None
	(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (See General Instruction A.2. below):

o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging Growth Company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Item 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

The information under this caption is furnished by Taubman Centers, Inc. (the "Company") in accordance with Securities and Exchange Commission Release No. 33-8216. This information shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

On February 8, 2018, the Company issued a press release announcing its results of operations for the year ended December 31, 2017. A copy of the press release is attached as Exhibit 99 to this report.

Item 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

(d) Exhibits



Exhibit	Description

99	Press Release, dated February 8, 2018, entitled “Taubman Centers, Inc. Issues Fourth Quarter and Full Year 2017 Results and Introduces 2018 Guidance.”

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



Date: February 8, 2018	TAUBMAN CENTERS, INC.

	By:	/s/ Simon J. Leopold
		Simon J. Leopold
		Executive Vice President, Chief Financial Officer, and Treasurer

Exhibit 99



Taubman Centers, Inc.	T 248.258.6800
200 East Long Lake Road	www.taubman.com
Suite 300
Bloomfield Hills, Michigan
48304-2324

TAUBMAN CENTERS, INC. ISSUES FOURTH QUARTER AND FULL YEAR 2017 RESULTS AND INTRODUCES 2018 GUIDANCE


–	Mall Tenant Sales Per Square Foot Up 3.2 Percent for the Quarter, Sixth Consecutive Quarter of Positive Sales Growth


–	Industry-leading Sales Per Square Foot $810, Up 2.3 Percent for the Year


–	Occupancy and Average Rent Per Square Foot Up


–	Nordstrom Joining Country Club Plaza Lineup

BLOOMFIELD HILLS, Mich., Feb. 8, 2018 - - Taubman Centers, Inc. (NYSE: TCO) today reported financial results for the quarter and full year periods ended December 31, 2017.



	December 31, 2017 Three Months Ended	December 31, 2016 Three Months Ended	December 31, 2017 Year Ended	December 31, 2016 Year Ended
Net income attributable to common shareowners, diluted (in thousands) Growth rate	$20,291 (30.9)%	$29,361	$55,381 (48.5)%	$107,615
Net income attributable to common shareowners (EPS) per diluted common share Growth rate	$0.33 (31.3)%	$0.48	$0.91 (48.6)%	$1.77
Funds from Operations (FFO) per diluted common share Growth rate	$1.02 (7.3)%	$1.10	$3.51 (10.2)%	$3.91
Adjusted Funds from Operations (Adjusted FFO) per diluted common share Growth rate	$1.03 ⁽¹⁾ 2.0%	$1.01 ⁽²⁾	$3.70 ⁽¹⁾ 3.4%	$3.58 ⁽²⁾
(1) Adjusted FFO for the three months and year ended December 31, 2017 excludes a restructuring charge, costs associated with shareowner activism, and a gain recognized upon the conversion of the company’s remaining investment in Simon Property Group Limited Partnership units (SPG LP Units) to common shares of SPG. Adjusted FFO for the year ended December 31, 2017 also excludes a charge recognized in connection with the partial write-off of deferred financing costs related to an amendment of the company's primary line of credit in February 2017. (2) Adjusted FFO for the three months and year ended December 31, 2016 excludes costs 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. Adjusted FFO for the year ended December 31, 2016 also excludes a one-time payment the company received in the second quarter due to the termination of the company’s leasing services agreement at The Shops at Crystals (Las Vegas, Nev.).

“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.”

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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.

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•	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.

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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.

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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.

CONTACTS:

Ryan Hurren, Taubman, Director, Investor Relations, 248-258-7232

[email protected]

Maria Mainville, Taubman, Director, Strategic Communications, 248-258-7469

[email protected]

# # #

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TAUBMAN CENTERS, INC.
Table 1 - Income Statement
For the Three Months Ended December 31, 2017 and 2016
(in thousands of dollars)
		2017				2016
		CONSOLIDATED		UNCONSOLIDATED		CONSOLIDATED		UNCONSOLIDATED
		BUSINESSES		JOINT VENTURES (1)		BUSINESSES		JOINT VENTURES (1)
REVENUES:
	Minimum rents	89,980		92,794		87,252		90,580
	Overage rents	9,569		8,758		10,060		7,193
	Expense recoveries	57,240		48,240		55,176		50,393
	Management, leasing, and development services	944				1,736
	Other	14,451		7,028		11,967		9,405
	Total revenues	172,184		156,820		166,191		157,571

EXPENSES:
	Maintenance, taxes, utilities, and promotion	45,510		42,479		46,598		44,212
	Other operating	29,157		10,504		21,012		13,458
	Management, leasing, and development services	459				1,008
	General and administrative	9,369				13,405
	Restructuring charge	9,785
	Costs associated with shareowner activism	2,500				3,000
	Interest expense	28,498		33,141		24,440		30,304
	Depreciation and amortization	44,848		33,274		38,040		34,022
	Total expenses	170,126		119,398		147,503		121,996

Nonoperating income, net (2)		15,481		459		14,212		144
		17,539		37,881		32,900		35,719
Income tax benefit (expense) (2)		270		(1,338	)	(1,928	)	(413	)
				36,543				35,306
Equity in income of Unconsolidated Joint Ventures		20,275				19,922
Net income		38,084				50,894
Net income attributable to noncontrolling interests:
Noncontrolling share of income of consolidated joint ventures		(2,496	)			(2,292	)
Noncontrolling share of income of TRG		(8,975	)			(12,998	)
Distributions to participating securities of TRG		(577	)			(544	)
Preferred stock dividends		(5,785	)			(5,785	)
Net income attributable to Taubman Centers, Inc. common shareowners		20,251				29,275

SUPPLEMENTAL INFORMATION:
	EBITDA - 100%	90,885		104,296		95,380		100,045
	EBITDA - outside partners' share	(7,435	)	(49,274	)	(7,093	)	(47,138	)
	Beneficial interest in EBITDA	83,450		55,022		88,287		52,907
	Beneficial interest expense	(25,494	)	(17,079	)	(21,495	)	(15,665	)
	Beneficial income tax benefit (expense) - TRG and TCO	317		(554	)	(1,898	)	(307	)
	Beneficial income tax (benefit) expense - TCO	(28	)			465
	Non-real estate depreciation	(1,229	)			(591	)
	Preferred dividends and distributions	(5,785	)			(5,785	)
	Funds from Operations attributable to partnership unitholders and participating securities of TRG	51,231		37,389		58,983		36,935

STRAIGHTLINE AND PURCHASE ACCOUNTING ADJUSTMENTS:
	Net straight-line adjustments to rental revenue, recoveries, and ground rent expense at TRG%	828		705		1,420		303
	Country Club Plaza purchase accounting adjustments - minimum rents increase at TRG%			39				27
	The Mall at Green Hills purchase accounting adjustments - minimum rents increase	44				56

(1) With the exception of the Supplemental Information, amounts include 100% of the Unconsolidated Joint Ventures. Amounts are net of intercompany transactions. The Unconsolidated Joint Ventures are presented at 100% in order to allow for measurement of their performance as a whole, without regard to the Company's ownership interest.
(2) During the three months ended December 31, 2017 the Company recognized an $11.6 million gain upon the conversion of the Company's remaining investment in SPG LP Units to common shares of SPG. During the three months ended December 31, 2016, the Company recognized an $11.1 million gain and $0.5 million of income tax expense upon the conversion of a portion of the Company's investment in SPG LP Units to common shares of SPG.

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TAUBMAN CENTERS, INC.
Table 2 - Income Statement
For the Year Ended December 31, 2017 and 2016
(in thousands of dollars)
			2017				2016
			CONSOLIDATED BUSINESSES		UNCONSOLIDATED JOINT VENTURES (1)		CONSOLIDATED BUSINESSES		UNCONSOLIDATED JOINT VENTURES (1)
REVENUES:
	Minimum rents		345,557		344,613		333,325		281,892
	Overage rents		16,923		25,393		20,020		13,220
	Expense recoveries		211,625		186,161		202,467		162,652
	Management, leasing, and development services (2)		4,383				28,059
	Other		50,677		29,872		28,686		19,152
		Total revenues	629,165		586,039		612,557		476,916

EXPENSES:
	Maintenance, taxes, utilities, and promotion		167,091		158,437		156,506		130,971
	Other operating		94,513		45,371		78,794		28,384
	Management, leasing, and development services		2,157				4,042
	General and administrative		39,018				48,056
	Restructuring charge		13,848
	Costs associated with shareowner activism		14,500				3,000
	Interest expense		108,572		130,339		86,285		103,185
	Depreciation and amortization		167,806		130,537		138,139		97,859
		Total expenses	607,505		464,684		514,822		360,399

Nonoperating income, net (3)			23,828		3,010		22,927		656
			45,488		124,365		120,662		117,173
Income tax expense (3)			(105	)	(5,837	)	(2,212	)	(728	)
					118,528
Gain on disposition, net of tax (4)					3,713
					122,241				116,445
Equity in income of Unconsolidated Joint Ventures			67,374				69,701
Net income			112,757				188,151
Net income attributable to noncontrolling interests:
	Noncontrolling share of income of consolidated joint ventures		(6,775	)			(8,105	)
	Noncontrolling share of income of TRG		(25,277	)			(47,433	)
Distributions to participating securities of TRG			(2,300	)			(2,117	)
Preferred stock dividends			(23,138	)			(23,138	)
Net income attributable to Taubman Centers, Inc. common shareowners			55,267				107,358

SUPPLEMENTAL INFORMATION:
	EBITDA - 100%		321,866		389,685		345,086		318,217
	EBITDA - outside partners' share		(26,315	)	(184,539	)	(24,329	)	(140,208	)
	Beneficial interest in EBITDA		295,551		205,146		320,757		178,009
	Beneficial share of gain on disposition (4)				(2,814	)
	Beneficial interest expense		(96,630	)	(67,283	)	(75,954	)	(54,674	)
	Beneficial income tax benefit (expense) - TRG and TCO		29		(2,825	)	(2,163	)	(622	)
	Beneficial income tax (benefit) expense - TCO		(315	)			446
	Non-real estate depreciation		(3,596	)			(2,472	)
	Preferred dividends and distributions		(23,138	)			(23,138	)
	Funds from Operations attributable to partnership unitholders and participating securities of TRG		171,901		132,224		217,476		122,713

STRAIGHTLINE AND PURCHASE ACCOUNTING ADJUSTMENTS:
	Net straight-line adjustments to rental revenue, recoveries, and ground rent expense at TRG%		1,261		1,932		2,311		2,316
	Country Club Plaza purchase accounting adjustments - minimum rents increase at TRG%				34				109
	The Mall at Green Hills purchase accounting adjustments - minimum rents increase		174				223

(1) With the exception of the Supplemental Information, amounts include 100% of the Unconsolidated Joint Ventures. Amounts are net of intercompany transactions. The Unconsolidated Joint Ventures are presented at 100% in order to allow for measurement of their performance as a whole, without regard to the Company's ownership interest.
(2) The 2016 amount includes the $21.7 million lump sum payment received in May 2016 for the termination of the Company's third party leasing agreement at Crystals due to a change in ownership in the center.
(3) During the year ended December 31, 2017, the Company recognized an $11.6 million gain upon the conversion of the Company's remaining investment in SPG LP Units to common shares of SPG. During the year ended December 31, 2016, the Company recognized an $11.1 million gain and $0.5 million of income tax expense upon the conversion of a portion of the Company's investment in SPG LP Units to common shares of SPG.
(4) During the year ended December 31, 2017, the joint venture that owns the Valencia Place office tower at Country Club Plaza recognized a $4.4 million gain ($2.8 million at TRG's share) and $0.7 million of income tax expense ($0.7 million at TRG's share) in connection with the sale of the office tower.

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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 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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TAUBMAN CENTERS, INC.
Table 3 - Reconciliation of Net Income Attributable to Taubman Centers, Inc. Common Shareowners to Funds From Operations and Adjusted Funds From Operations
For the Three Months Ended December 31, 2017 and 2016
(in thousands of dollars except as noted; may not add or recalculate due to rounding)

		2017					2016
				Shares	Per Share				Shares	Per Share
		Dollars		/Units	/Unit		Dollars		/Units	/Unit
Net income attributable to TCO common shareowners - basic		20,251		60,737,750	0.33		29,275		60,427,603	0.48

Add impact of share-based compensation		40		367,344			86		565,777

Net income attributable to TCO common shareowners - diluted		20,291		61,105,094	0.33		29,361		60,993,380	0.48

Add depreciation of TCO's additional basis		1,617			0.03		1,617			0.03
Add (less) TCO's additional income tax (benefit) expense		(28	)		(0.00	)	465			0.01

Net income attributable to TCO common shareowners,
	excluding step-up depreciation and additional income tax (benefit) expense	21,880		61,105,094	0.36		31,443		60,993,380	0.52

Add noncontrolling share of income of TRG		8,975		24,955,434			12,998		25,046,278
Add distributions to participating securities of TRG		577		871,262			544		871,262

Net income attributable to partnership unitholders
	and participating securities of TRG	31,432		86,931,790	0.36		44,985		86,910,920	0.52

Add (less) depreciation and amortization:
	Consolidated businesses at 100%	44,848			0.52		38,040			0.44
	Depreciation of TCO's additional basis	(1,617	)		(0.02	)	(1,617	)		(0.02	)
	Noncontrolling partners in consolidated joint ventures	(1,888	)		(0.02	)	(1,826	)		(0.02	)
	Share of Unconsolidated Joint Ventures	17,114			0.20		17,013			0.20
	Non-real estate depreciation	(1,229	)		(0.01	)	(591	)		(0.01	)

Less impact of share-based compensation		(40	)		(0.00	)	(86	)		(0.00	)

Funds from Operations attributable to partnership unitholders
	and participating securities of TRG	88,620		86,931,790	1.02		95,918		86,910,920	1.10

TCO's average ownership percentage of TRG - basic (1)		70.9	%				70.7	%

Funds from Operations attributable to TCO's common shareowners,
	excluding additional income tax benefit (expense) (1)	62,812			1.02		67,811			1.10

Add (less) TCO's additional income tax benefit (expense)		28			0.00		(465	)		(0.01	)

Funds from Operations attributable to TCO's common shareowners (1)		62,840			1.02		67,346			1.10

Funds from Operations attributable to partnership unitholders
	and participating securities of TRG	88,620		86,931,790	1.02		95,918		86,910,920	1.10

Restructuring charge		9,785			0.10
Costs associated with shareowner activism		2,500			0.03		3,000			0.03
Gains on SPG common stock conversions		(11,613	)		(0.13	)	(11,069	)		(0.13	)
Adjusted Funds from Operations attributable to partnership unitholders
	and participating securities of TRG	89,292		86,931,790	1.03		87,849		86,910,920	1.01

TCO's average ownership percentage of TRG - basic (2)		70.9	%				70.7	%
Adjusted Funds from Operations attributable to TCO's common shareowners,
	excluding additional income tax benefit (2)	63,289			1.03		62,107			1.01

Add TCO's additional income tax benefit							1			0.00

Adjusted Funds from Operations attributable to TCO's common shareowners (2)		63,289			1.03		62,108			1.01

(1) For the three months ended December 31, 2017, Funds from Operations attributable to TCO's common shareowners was $61,946 using TCO's diluted average ownership percentage of TRG of 69.9%. For the three months ended December 31, 2016, Funds from Operations attributable to TCO's common shareowners was $66,225 using TCO's diluted average ownership percentage of TRG of 69.5%.
(2) For the three months ended December 31, 2017, Adjusted Funds from Operations attributable to TCO's common shareowners was $62,387 using TCO's diluted average ownership percentage of TRG of 69.9%. For the three months ended December 31, 2016, Adjusted Funds from Operations attributable to TCO's common shareowners was $61,081 using TCO's diluted average ownership percentage of TRG of 69.5%.

Taubman Centers/10



TAUBMAN CENTERS, INC.
Table 4 - Reconciliation of Net Income Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations and Adjusted Funds from Operations
For the Year Ended December 31, 2017 and 2016
(in thousands of dollars except as noted; may not add or recalculate due to rounding)

		2017					2016
				Shares	Per Share				Shares	Per Share
		Dollars		/Units	/Unit		Dollars		/Units	/Unit
Net income attributable to TCO common shareowners - basic		55,267		60,675,129	0.91		107,358		60,363,416	1.78

Add impact of share-based compensation		114		365,366			257		466,139

Net income attributable to TCO common shareowners - diluted		55,381		61,040,495	0.91		107,615		60,829,555	1.77

Add depreciation of TCO's additional basis		6,468			0.11		6,468			0.11
Add (less) TCO's additional income tax (benefit) expense		(315	)		(0.01	)	446			0.01

Net income attributable to TCO common shareowners,
	excluding step-up depreciation and additional income tax (benefit) expense	61,534		61,040,495	1.02		114,529		60,829,555	1.88

Add noncontrolling share of income of TRG		25,277		24,965,157			47,433		25,055,654
Add distributions to participating securities of TRG		2,300		871,262			2,117		871,262

Net income attributable to partnership unitholders
	and participating securities of TRG	89,111		86,876,914	1.03		164,079		86,756,471	1.89

Add (less) depreciation and amortization:
	Consolidated businesses at 100%	167,806			1.93		138,139			1.59
	Depreciation of TCO's additional basis	(6,468	)		(0.07	)	(6,468	)		(0.07	)
	Noncontrolling partners in consolidated joint ventures	(7,464	)		(0.09	)	(5,844	)		(0.07	)
	Share of Unconsolidated Joint Ventures	66,933			0.77		53,012			0.61
	Non-real estate depreciation	(3,596	)		(0.04	)	(2,472	)		(0.03	)

Less beneficial gain on disposition, net of tax		(2,083	)		(0.02	)
Less impact of share-based compensation		(114	)		(0.00	)	(257	)		(0.00	)

Funds from Operations attributable to partnership unitholders
	and participating securities of TRG	304,125		86,876,914	3.50		340,189		86,756,471	3.92

TCO's average ownership percentage of TRG - basic (1)		70.8	%				70.7	%

Funds from Operations attributable to TCO's common shareowners,
	excluding additional income tax benefit (expense) (1)	215,471			3.50		240,409			3.92

Add (less) TCO's additional income tax benefit (expense)		315			0.00		(446	)		(0.01	)

Funds from Operations attributable to TCO's common shareowners (1)		215,786			3.51		239,963			3.91

Funds from Operations attributable to partnership unitholders
	and participating securities of TRG	304,125		86,876,914	3.50		340,189		86,756,471	3.92

Restructuring charge		13,848			0.16
Costs associated with shareowner activism		14,500			0.17		3,000			0.03
Partial write-off of deferred financing costs		413			0.00
Gains on SPG common stock conversions		(11,613	)		(0.13	)	(11,069	)		(0.13	)
Crystals lump sum payment for termination of leasing agreement							(21,702	)		(0.25	)
Adjusted Funds from Operations attributable to partnership unitholders
	and participating securities of TRG	321,273		86,876,914	3.70		310,418		86,756,471	3.58

TCO's average ownership percentage of TRG - basic (2)		70.8	%				70.7	%
Adjusted Funds from Operations attributable to TCO's common shareowners,
	excluding additional income tax benefit (2)	227,619			3.70		219,370			3.58

Add TCO's additional income tax benefit							20			0.00

Adjusted Funds from Operations attributable to TCO's common shareowners (2)		227,619			3.70		219,390			3.58

(1) For the year ended December 31, 2017, Funds from Operations attributable to TCO's common shareowners was $212,715 using TCO's diluted average ownership percentage of TRG of 69.8%. For the year ended December 31, 2016, Funds from Operations attributable to TCO's common shareowners was $236,257 using TCO's diluted average ownership percentage of TRG of 69.6%.
(2) For the year ended December 31, 2017, Adjusted Funds from Operations attributable to TCO's common shareowners was $224,374 using TCO's diluted average ownership percentage of TRG of 69.8%. For the year ended December 31, 2016, Adjusted Funds from Operations attributable to TCO's common shareowners was $215,994 using TCO's diluted average ownership percentage of TRG of 69.6%.

Taubman Centers/11



TAUBMAN CENTERS, INC.
Table 5 - Reconciliation of Net Income to Beneficial Interest in EBITDA and Adjusted Beneficial Interest in EBITDA
For the Periods Ended December 31, 2017 and 2016
(in thousands of dollars; amounts attributable to TCO may not recalculate due to rounding)

			Three Months Ended				Year to Date
			2017		2016		2017		2016
Net income			38,084		50,894		112,757		188,151

Add (less) depreciation and amortization:
	Consolidated businesses at 100%		44,848		38,040		167,806		138,139
	Noncontrolling partners in consolidated joint ventures		(1,888	)	(1,826	)	(7,464	)	(5,844	)
	Share of Unconsolidated Joint Ventures		17,114		17,013		66,933		53,012

Add (less) interest expense and income tax expense (benefit):
	Interest expense:
		Consolidated businesses at 100%	28,498		24,440		108,572		86,285
		Noncontrolling partners in consolidated joint ventures	(3,004	)	(2,945	)	(11,942	)	(10,331	)
		Share of Unconsolidated Joint Ventures	17,079		15,665		67,283		54,674
	Income tax expense (benefit):
		Consolidated businesses at 100%	(270	)	1,462		105		1,746
		Noncontrolling partners in consolidated joint ventures	(47	)	(30	)	(134	)	(49	)
		Share of Unconsolidated Joint Ventures	554		307		2,825		622
		Income tax expense on SPG common stock conversion			466				466
		Share of income tax expense on disposition					731

Less noncontrolling share of income of consolidated joint ventures			(2,496	)	(2,292	)	(6,775	)	(8,105	)

Beneficial interest in EBITDA			138,472		141,194		500,697		498,766

TCO's average ownership percentage of TRG - basic			70.9	%	70.7	%	70.8	%	70.7	%

Beneficial interest in EBITDA attributable to TCO			98,146		99,814		354,740		352,465

Beneficial interest in EBITDA			138,472		141,194		500,697		498,766

Add (less):
	Restructuring charge		9,785				13,848
	Costs associated with shareowner activism		2,500		3,000		14,500		3,000
	Beneficial share of gain on disposition						(2,814	)
	Gains on SPG common stock conversions		(11,613	)	(11,069	)	(11,613	)	(11,069	)
	Crystals lump sum payment for termination of leasing agreement								(21,702	)

Adjusted Beneficial interest in EBITDA			139,144		133,125		514,618		468,995

TCO's average ownership percentage of TRG - basic			70.9	%	70.7	%	70.8	%	70.7	%

Adjusted Beneficial interest in EBITDA attributable to TCO			98,623		94,116		364,603		331,434

Taubman Centers/12



TAUBMAN CENTERS, INC.
Table 6 - Reconciliation of Net Income to Net Operating Income (NOI)
For the Periods Ended December 31, 2017, 2016, and 2015
(in thousands of dollars)
				Three Months Ended						Three Months Ended						Year Ended						Year Ended
				2017			2016			2016			2015			2017			2016			2016			2015
Net income				38,084			50,894			50,894			46,595			112,757			188,151			188,151			192,557

Add (less) depreciation and amortization:
		Consolidated businesses at 100%		44,848			38,040			38,040			28,780			167,806			138,139			138,139			106,355
		Noncontrolling partners in consolidated joint ventures		(1,888	)		(1,826	)		(1,826	)		(1,085	)		(7,464	)		(5,844	)		(5,844	)		(3,681	)
		Share of Unconsolidated Joint Ventures		17,114			17,013			17,013			9,133			66,933			53,012			53,012			34,361

Add (less) interest expense and income tax expense (benefit):
		Interest expense:
			Consolidated businesses at 100%	28,498			24,440			24,440			18,590			108,572			86,285			86,285			63,041
			Noncontrolling partners in consolidated joint ventures	(3,004	)		(2,945	)		(2,945	)		(1,871	)		(11,942	)		(10,331	)		(10,331	)		(6,965	)
			Share of Unconsolidated Joint Ventures	17,079			15,665			15,665			11,365			67,283			54,674			54,674			45,564
		Income tax expense (benefit):
			Consolidated businesses at 100%	(270	)		1,462			1,462			138			105			1,746			1,746			2,248
			Noncontrolling partners in consolidated joint ventures	(47	)		(30	)		(30	)					(134	)		(49	)		(49	)
			Share of Unconsolidated Joint Ventures	554			307			307						2,825			622			622
			Income tax expense on SPG common stock conversion				466			466									466			466
			Share of income tax expense on disposition													731
			Reduction of income tax expense on dispositions of International Plaza, Arizona Mills, and Oyster Bay																						(437	)

Less noncontrolling share of income of consolidated joint ventures				(2,496	)		(2,292	)		(2,292	)		(3,179	)		(6,775	)		(8,105	)		(8,105	)		(11,222	)

Add EBITDA attributable to outside partners:
		EBITDA attributable to noncontrolling partners in consolidated joint ventures		7,435			7,093			7,093			6,135			26,315			24,329			24,329			21,868
		EBITDA attributable to outside partners in Unconsolidated Joint Ventures		49,274			47,138			47,138			32,969			184,539			140,208			140,208			116,024
Add beneficial interest in UJV impairment charge - Miami Worldcenter													11,754												11,754
EBITDA at 100%				195,181			195,425			195,425			159,324			711,551			663,303			663,303			571,467

Add (less) items excluded from shopping center NOI:
		General and administrative expenses		9,369			13,405			13,405			13,132			39,018			48,056			48,056			45,727
		Management, leasing, and development services, net		(485	)		(728	)		(728	)		(1,697	)		(2,226	)		(24,017	)	(1)	(24,017	)	(1)	(7,263	)
		Restructuring charge		9,785												13,848
		Costs associated with shareowner activism		2,500			3,000			3,000						14,500			3,000			3,000
		Straight-line of rents		(2,861	)		(1,908	)		(1,908	)		(1,417	)		(7,698	)		(7,620	)		(7,620	)		(5,211	)
		Gains on SPG common stock conversions		(11,613	)		(11,069	)		(11,069	)					(11,613	)		(11,069	)		(11,069	)
		Insurance recoveries - The Mall of San Juan		(1,101	)											(1,101	)
		Gain on disposition														(4,445	)
		Gains on sales of peripheral land														(2,613	)		(1,828	)		(1,828	)
		Dividend income		(1,091	)		(974	)		(974	)		(944	)		(4,219	)		(3,836	)		(3,836	)		(3,570	)
		Interest income		(2,202	)		(2,309	)		(2,309	)		(403	)		(7,251	)		(6,488	)		(6,488	)		(1,999	)
		Other nonoperating expense (income)		67			(4	)		(4	)		(192	)		(41	)		(362	)		(362	)		314
		Unallocated operating expenses and other		12,443			12,574			12,574			12,319			39,256			44,576			44,576			36,651

NOI at 100% - total portfolio				209,992			207,412			207,412			180,122			776,966			703,715			703,715			636,116

Less NOI of non-comparable centers				(40,408	)	(2)	(37,984	)	(3)	(37,984	)	(3)	(11,238	)	(4)	(152,970	)	(2)	(90,229	)	(3)	(90,229	)	(3)	(42,862	)	(4)

NOI at 100% - comparable centers				169,584			169,428			169,428			168,884			623,996			613,486			613,486			593,254

NOI - growth %				0.1	%					0.3	%					1.7	%					3.4	%

NOI at 100% - comparable centers				169,584			169,428			169,428			168,884			623,996			613,486			613,486			593,254

Lease cancellation income				(2,699	)		(3,325	)		(3,325	)		(2,667	)		(12,669	)		(6,200	)		(6,200	)		(8,865	)

NOI at 100% - comparable centers excluding lease cancellation income				166,885			166,103			166,103			166,217			611,327			607,286			607,286			584,389

NOI at 100% excluding lease cancellation income - growth %				0.5	%					(0.1	)%					0.7	%					3.9	%

(1	)	Amount includes the lump sum payment of $21.7 million received in May 2016 in connection with the termination of the Company's third party leasing agreement at Crystals due to a change in ownership of the center.
(2	)	Includes Beverly Center, CityOn.Xi'an, CityOn.Zhengzhou, Country Club Plaza, International Market Place, The Mall of San Juan, and Starfield Hanam.
(3	)	Includes Beverly Center, CityOn.Xi'an, Country Club Plaza, International Market Place, The Mall of San Juan, Starfield Hanam, and certain post-closing adjustments relating to the portfolio of centers sold to Starwood.
(4	)	Includes Beverly Center and The Mall of San Juan.

Taubman Centers/13



TAUBMAN CENTERS, INC.
Table 7 - Annual Guidance
(all dollar amounts per common share on a diluted basis; amounts may not add due to rounding)


			Range for the Year Ended
			December 31, 2018 ⁽¹⁾

Funds from Operations per common share			3.72		3.86

Real estate depreciation - TRG			(2.43	)	(2.33	)

Distributions to participating securities of TRG			(0.03	)	(0.03	)

Depreciation of TCO's additional basis in TRG			(0.11	)	(0.11	)

Net income attributable to common shareowners, per common share (EPS)			1.15		1.39

(1	)	This guidance does not reflect any future costs that may be incurred related to shareowner activism.

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Form 8-K TAUBMAN CENTERS INC For: Feb 08

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