Taubman Centers' Q3 funds from operations swing to US$49.3M from loss of US$100.3M a year ago; company increases 2010 guidance due to higher rents, lease cancellation revenue

Cindy Allen

BLOOMFIELD HILLS, Michigan , October 27, 2010 (press release) – * Tenant Sales Per Square Foot Up Significantly: 13%
* Net Operating Income Excluding Lease Cancellation Up: 1.1%
* 2010 Financings Completed
* Company to Discontinue Support of Regency Square
* 2010 FFO Guidance Increased on Higher Rents, Lease Cancellation Revenue

Taubman Centers, Inc. (NYSE: TCO) today announced its financial results for the third quarter of 2010.

Net income (loss) allocable to common shareholders per diluted share (EPS) was $0.01 for the quarter ended September 30, 2010, up from $(1.77) for the quarter ended September 30, 2009. EPS for the nine months ended September 30, 2010 was $0.26, up from $(1.39) for the first nine months of 2009. The 2009 results were negatively impacted by impairment charges relating to The Pier Shops at Caesars (Atlantic City, N.J.) and Regency Square (Richmond, Va.).

Adjusted Funds from Operations (Adjusted FFO) per diluted share was $0.59 for the quarter ended September 30, 2010 versus $0.74 for the quarter ended September 30, 2009, which excludes the 2009 impairment charges. Adjusted FFO in the third quarter of 2010 reflects a $0.12 per share decrease in lease cancellation revenue compared to the comparable quarter of 2009. Lease cancellation revenue is expected to be very high in the fourth quarter of 2010, with the full year slightly above 2009. Adjusted FFO per diluted share for the nine months ended September 30, 2010 was $1.80 compared to $2.13 for the nine months ended September 30, 2009.

Funds from Operations (FFO) per diluted share was $0.59 for the quarter ended September 30, 2010, up from $(1.26) for the quarter ended September 30, 2009. FFO per diluted share was $1.80 for the nine months ended September 30, 2010, up from $0.11 for the nine months ended September 30, 2009.

"We're pleased that our core business is improving," said Robert S. Taubman, chairman, president and chief executive officer of Taubman Centers. "Rents are up, and excluding lease cancellation revenue, net operating income increased 1.1 percent."

Operating Statistics Continuing to Improve

Tenant sales per square foot continued to be strong in the quarter, up 13.2 percent, bringing the year to date increase to 12.1 percent and the company's 12-month trailing sales per square foot to $539. "We've now reported three quarters of double digit tenant sales increases, and there is strong momentum as we approach the holidays," said Mr. Taubman. "We attribute this outstanding performance to the merchandise mix at our centers and the overall health of our portfolio."

Ending occupancy for Taubman's portfolio was 88.6 percent on September 30, 2010, up 0.7 percent from June 30, 2010. Leased space was 91.7 percent on September 30, 2010, up 0.9 percent from June 30, 2010.

Average rent per square foot was $43.12, up from $43.08 in the third quarter of 2009. For the nine months ended September 30, 2010, average rent per square foot was $43.17 versus $43.89 in the nine months ended September 30, 2009.

"All of these statistics are very solid," said Mr. Taubman. "Retailers are becoming more optimistic with their expansion plans and capital allocation decisions."

Financings Completed for MacArthur Center and Arizona Mills

The refinancing of MacArthur Center (Norfolk, Va .), a 95 percent owned consolidated property, was completed in early September. The new 10-year $131 million non-recourse loan has been swapped to bear interest at an all-in rate of 5.12 percent for the entire term. The loan is interest only for the first two years and then amortizes principal based on 30 years. Proceeds from the refinancing were used to pay off the existing $127 million 6.96 percent (effective rate) loan.

As previously announced, the refinancing of Arizona Mills (Tempe, Ariz.), a 50 percent owned joint venture property, was completed in early July. The new 10-year $175 million non-recourse loan bears interest at an all-in rate of 5.84 percent, with principal amortizing based on 30 years. Proceeds from the refinancing were used to pay off the existing $131 million 7.90 percent (effective rate) loan, with excess amounts distributed to the partners.

"This completes our financing plan for 2010," said Lisa A. Payne, vice chairman and chief financial officer of Taubman Centers. "Together with the late June financing of Partridge Creek (Clinton Township, Mich.), our share of proceeds on the three loans totaled nearly $300 million; we locked in favorable 10-year rates averaging less than 5.7 percent and generated about $35 million of cash in excess of the previous loan balances. A year ago, this result would have been hard to imagine."

Regency Square Update

Taubman Centers' Board of Directors has concluded that it is in the best interest of the company to discontinue its financial support of Regency Square and as a result, the company has begun discussions with the lender about the center's future ownership. The center's $73 million non-recourse mortgage debt is due November 1, 2011. At the current time, subject to decisions by the lender, Taubman will continue to manage the shopping center.

Regency Square is an 820,000 square foot shopping center built in 1975 and anchored by Macy's (two locations), JCPenney and Sears. The property was acquired by Taubman in 1997. Taubman plans to continue to own and manage Stony Point Fashion Park, its other property in Richmond.

In the third quarter of 2009, Taubman Centers recognized an impairment charge of $59 million on Regency Square. The book value of the center at September 30, 2010 is $31 million. The company expects to accrue a default rate of interest on the loan of 10.75 percent beginning late in the fourth quarter of 2010. Although timing is uncertain, a non-cash accounting gain is expected to be recognized when the title to Regency Square is transferred and the loan obligations have been satisfied.

2010 Guidance

The company is raising its 2010 FFO guidance range to $2.77 to $2.82 per diluted share. Factors contributing to this increase include improved rents and net recoveries and higher lease cancellation revenue, now projected to be about $22 million for the year. The company is also revising its guidance for 2010 EPS to $0.74 to $0.81. These ranges assume continued ownership of both Regency Square and The Pier Shops at Caesars through 2010, as the timing of ownership transfer for each is not in the company's control. The Pier Shops' results are projected to have a negative non-cash impact on FFO per share and EPS (which includes depreciation and amortization) in 2010 of $(0.14) and $(0.23), respectively. The default interest at Regency Square is expected to have a nominal impact in 2010.

Supplemental Investor Information Available

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

* Income Statements
* Earnings Reconciliations
* Changes in Funds from Operations and Earnings (Loss) Per Share
* Components of Other Income, Other Operating Expense, and Nonoperating Income
* Recoveries Ratio Analysis
* Balance Sheets
* Debt Summary
* Other Debt, Equity and Certain Balance Sheet Information
* Construction
* Capital Spending
* Operational Statistics
* Owned Centers
* Major Tenants in Owned Portfolio
* Anchors in Owned Portfolio


Investor Conference Call

The company will host a conference call at 11:00 a.m. (EDT) on October 27 to discuss these results, business conditions and the company's outlook for the remainder of 2010. The conference call will be simulcast at www.taubman.com under "Investor Relations" as well as www.earnings.com and www.streetevents.com. An online replay will follow shortly after the call and continue for approximately 90 days.

Taubman Centers is a real estate investment trust engaged in the development, leasing and management of regional and super regional shopping centers. Taubman's 26 U.S. owned, leased and/or managed properties, the most productive in the industry, serve major markets from coast to coast. Taubman Centers is headquartered in Bloomfield Hills, Michigan and its Taubman Asia subsidiary is headquartered in Hong Kong. Founded in 1950, Taubman celebrates its 60th anniversary in 2010. For more information about Taubman, visit www.taubman.com.

Industry Intelligence Editor's Note: In an omitted table, Taubman Centers reported Q3 funds from operations of US$49.2 million versus a FFO loss of US$100.3 million a year ago. Net income was US$722,000 versus a loss of US$94 million a year ago.

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