The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains various "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
forward-looking statements represent our expectations or beliefs concerning
future events and performance. Actual results may differ materially from those
expected because of various risks and uncertainties. The forward-looking
statements included in this report are made as of the date hereof or the date
specified herein. Except as required by law, we assume no obligation to update
these forward-looking statements, even if new information becomes available in
the future. Other risks and uncertainties are detailed from time to time in
reports filed with the Securities and Exchange Commission (SEC), and in
particular those set forth under "Risk Factors" in our most recent Annual Report
on Form 10-K, as well as "Risk Factors" elsewhere in this report. The following
discussion should be read in conjunction with the accompanying consolidated
financial statements of Taubman Centers, Inc. and the notes thereto.
General Background and Performance Measurement
Taubman Centers, Inc. (TCO) is a Michigan corporation that operates as a
self-administered and self-managed real estate investment trust (REIT). The
Taubman Realty Group Limited Partnership (TRG) is a majority-owned partnership
subsidiary of TCO that 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. The Consolidated Businesses consist of shopping centers and
entities that are controlled through ownership or contractual agreements, The
Taubman Company LLC (Manager), and 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, Unconsolidated Joint Ventures (UJVs), are accounted for under the
equity method.
References in this discussion to "beneficial interest" refer to our ownership or
pro rata share of the item being discussed. Investors are cautioned that
deriving our beneficial interest as our ownership interest in individual
financial statement items may not accurately depict the legal and economic
implications of holding a noncontrolling interest in an investee.
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. For additional information regarding the
merger, see our other filings made with the 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 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 (as
defined in the Merger Agreement) and had breached our 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, we deny that we had suffered a Material Adverse Effect
or that we had breached our 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 our equity holders.
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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 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.
Refer to "Note 9 - Commitments and Contingencies - Simon Merger Agreement
Litigation" to our consolidated financial statements for further discussion
related to the ongoing litigation with Simon and the additional shareholder
litigation brought against us.
The comparability of information used in measuring performance is affected by
the acquisition of a 48.5% interest in The Gardens Mall in April 2019 (see
"Results of Operations - The Gardens Mall Acquisition") and the ongoing
redevelopment and tenant replacement activity, including the consolidation of
the Macy's Men's space into the Macy's space in 2020, at Beverly Center.
Additional "comparable center" statistics are provided to present the
performance of comparable centers. 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.
Comparable center statistics for 2019 have been restated to include comparable
centers to 2020. This affects the comparability of our operating results period
over period. Additionally, The Mall of San Juan has been excluded from
"comparable center" statistics as a result of Hurricane Maria, which occurred in
2017, given that the center's performance has been and is expected to continue
to be materially impacted for the foreseeable future (see "Results of Operations
- Hurricane Maria and The Mall of San Juan"). Stamford Town Center has also been
excluded from "comparable center" statistics as the center is currently being
marketed for sale (see "Results of Operations - Stamford Town Center"). Further,
Taubman Prestige Outlets Chesterfield has been excluded from "comparable center"
statistics due to the sale of the center during the three months ended March 31,
2020 (see "Results of Operations - Redevelopment Agreement for Taubman Prestige
Outlets Chesterfield").
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Current Operating Trends
COVID-19 Pandemic Portfolio Impact
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.
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. About 90 percent of tenants had reopened by the end of
April, and today, nearly all tenants are open following approval for cinemas to
reopen in China on July 20, 2020. Total mall tenant sales in Asia have
recovered, as May and June sales volumes were near 2019 levels.
The operations and results of both our U.S. and Asia shopping centers have been
and could continue to be adversely impacted by the COVID-19 pandemic as
described above. Mall tenant sales were adversely impacted at our U.S. shopping
centers during the six months ended June 30, 2020 as a result of the COVID-19
pandemic and the aforementioned center closures. Additionally, the Rental
Revenues, and therefore Net Operating Income (NOI) of our centers, were also
adversely affected by the COVID-19 pandemic, primarily due to the increase in
uncollectible tenant revenues during three and six months ended June 30, 2020.
We assess collectibility of receivables 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. When tenants are deemed
uncollectible, their existing receivables are written off (including
straight-line revenue receivables) and they are transitioned to a cash basis for
revenue recognition. 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.
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 or 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. Additionally, between April and July
2020, collections have continued to increase each month and we have seen a
substantial increase in collections for July, corresponding with the reopening
of our shopping centers. Collections are expected to continue to increase if
modifications or deferrals are executed and as conditions improve. Further, if
deferrals are agreed upon, collections in future periods could be significantly
higher due to the payment of accumulated deferred amounts along with current
amounts due.
We are evaluating tenant requests and negotiating with tenants on an individual
basis based on each tenant's unique financial and operating situation, however
we do not believe all tenant requests will result in the modification of current
agreements. Our negotiations are primarily focused on rent deferrals, however
they could result in rent abatements in certain circumstances. While we have
agreed to certain rent deferrals and a small number of abatements, discussions
with our tenants remain ongoing and may result in further rent deferrals or
lease modifications, as we deem appropriate on an individual basis based on each
tenant's unique financial and operating situation.
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.
As an owner of 24 real estate properties, our revenues are primarily derived
from rents and recoveries from our shopping center tenants. We have and will
continue to closely monitor the impact of the COVID-19 pandemic on all aspects
of our business, including how it will impact our tenants, however, we are
unable to predict the full magnitude of the pandemic and its effect on our
future results of operations, financial condition, cash flows, and liquidity due
to uncertainties related to the impact of the COVID-19 pandemic on our business,
the industry, and the global economy.
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In early March 2020, we began implementing several liquidity enhancement
initiatives in response to the COVID-19 pandemic. We decided to defer
significant planned capital expenditures at our U.S. shopping centers to future
periods. Refer to "Liquidity and Capital Resources - 2020 Planned Capital
Spending Update" for further details on these reductions. We continue to expect
our beneficial share of operating expenses to be reduced by approximately $10
million for the year. Further, as a result of the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act) enacted on March 27, 2020 in response to the
COVID-19 pandemic, our taxable REIT subsidiary was able to carry back additional
net operating losses, resulting in a $1.9 million income tax benefit related to
the carryback during the six months ended June 30, 2020.
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. As of
June 30, 2020, we had a consolidated cash balance of $240.8 million, which is
available to be used for temporary working capital needs and general corporate
purposes in the future. Refer to "Liquidity and Capital Resources - Cash and
Revolving Lines of Credit" for further information regarding our revolving line
of credit terms and remaining borrowing capacity.
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. See "Liquidity and Capital Resources - Covenant
Waiver Amendments" for further details related to the amendments. Although we
are currently able to meet our financial covenants, and expect to be able to
meet our liquidity covenant during the covenant waiver period, for our primary
unsecured revolving line of credit, $275 million unsecured term loan, and $250
million unsecured term loan, there is no assurance that we will continue to be
able to do so, even with the additional flexibility provided by the amendments.
Additionally, during the three months ended June 30, 2020, we completed
modifications of loans for three of our shopping centers to defer certain
interest and principal payments due through September 2020 to future months in
2020 and 2021. In addition, the principal amortization that was originally
scheduled to begin in August 2020 for one of these loans has been deferred to
August 2021 (see "Liquidity and Capital Resources - COVID-19 Pandemic Liquidity
Impact").
Further, for the three months ended June 30, 2020, we did not declare a
quarterly dividend on our common stock or pay any monthly distributions to
participating securities of TRG (see "Liquidity and Capital Resources -
Dividends").
Taken together, these actions have provided significant incremental liquidity to
operate through this period of disruption. Despite the actions we have taken and
intend to take to mitigate the impact of the COVID-19 pandemic to our business,
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. For further information regarding the potential impact of the
COVID-19 pandemic on our business, financial statements, liquidity, and stock
price, refer to "Part II, Item 1A. Risk Factors."
General Operating Trends
Prior to the COVID-19 pandemic, the U.S. shopping center industry already had
been facing challenges and turbulence in recent years as it continued to evolve
rapidly. Across the industry, department store sales weakened and their ability
to drive traffic substantially decreased, resulting in increased store closures,
with mature mall tenants and anchors rationalizing square footage and being
highly selective in opening new stores.
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Bankruptcy filings by our mall tenants have recently been elevated, and during
the six months ended June 30, 2020, 3.2% of the total number of tenant leases
filed for bankruptcy, as compared to 2.7% of tenant leases for the year ended
December 31, 2019. Tenants that filed for bankruptcy during the six months ended
June 30, 2020 accounted for 3.9% of Mall gross leasable area (GLA). In July
2020, an additional group of tenants accounting for 2.5% of the total number of
tenant leases and 3.3% of Mall GLA also filed for bankruptcy and their
associated receivable balances were therefore deemed uncollectible for the six
months ended June 30, 2020. Additionally, while excluded from the preceding
statistics, during the six months ended June 30, 2020, department stores
JCPenney and Neiman Marcus filed for bankruptcy. As of June 30, 2020, JCPenney
and Neiman Marcus accounted for an aggregate of nine anchor or major locations
in our centers. Typically, many anchors own their stores and, in general, those
anchors that lease their stores do so at rates substantially lower than those in
effect for mall tenants. In 2019, bankruptcies included Forever 21, one of our
largest mall tenants, who accounted for 3.6% of Mall GLA as of June 30, 2020.
General retail headwinds have the potential to be prolonged and ultimately may
still result in many centers incurring lost or reduced rent, paying higher
tenant allowances, and/or experiencing unexpected terminations. Additionally,
the impact of the COVID-19 pandemic has impeded and may continue to prolong the
recovery of the U.S. shopping center and retail industries.
Tenant Sales and Occupancy Costs
Mall tenants at our U.S. comparable centers reported an 41.6% decrease in mall
tenant sales per square foot in the second quarter of 2020 from the same period
in 2019. In light of the U.S. center closures, mall tenant sales per square
foot, normally a key metric, is not meaningful in the quarter. For the six
months ended June 30, 2020, our comparable mall tenant sales per square foot
decreased 25.7% from the comparable period in 2019. For the trailing 12-month
period ended June 30, 2020, tenant sales per square foot at our U.S. comparable
centers were $866, a 9.4% decrease from $956 for the trailing 12-month period
ended June 30, 2019. In 2020, tenant sales were adversely impacted by the
COVID-19 pandemic, and the comparison to the prior year period was impacted by
strong sales in 2019 from Tesla related to their Model 3 deliveries.
Over the long term, the level of mall tenant sales remains the single most
important determinant of revenues of the shopping centers because mall tenants
provide approximately 90% of these revenues and mall tenant sales determine the
amount of rent and overage rent (together, mall tenant occupancy costs) that
mall tenants can afford to pay. However, levels of mall tenant sales can be
considerably more volatile in the short run than total occupancy costs, and may
be impacted significantly, either positively or negatively, by the success or
lack of success of a small number of tenants or even a single tenant.
Additionally, mall tenant sales have been and could continue to be adversely
affected by the COVID-19 pandemic due to store closures in the near term, and
potentially in the long-term to the extent it significantly and adversely
impacts mall traffic and consumer behavior, as well as the desirability of
shopping, dining, and entertaining at malls (particular our large, enclosed
malls) compared to other alternatives.
We believe that because most mall tenants sell goods at profitable margins and
have certain fixed operating expenses, the occupancy costs that they can afford
to pay and still be profitable are higher as sales per square foot increases.
Mall tenant sales directly impact the amount of overage rents certain tenants
and anchors pay. The effects of increases or declines in mall tenant sales on
our operations are moderated by the relatively minor share of total rents that
overage rents represent. Overage rent is very difficult to predict as it is
highly dependent upon the sales performance of specific mall tenants in specific
centers, and is typically paid by a small number of our tenants in any given
period.
In negotiating lease renewals, we generally intend to maximize the minimum rents
we achieve. As a result, a tenant will generally pay a higher amount of minimum
rent and an initially lower amount of overage rent upon renewal.
While mall tenant sales are critical over the long term, the high-quality mall
business has generally been a very stable business model with its diversity of
income from thousands of tenants, its staggered lease maturities, and high
proportion of fixed rent. However, a sustained trend in mall tenant sales does
impact, either negatively, due to the adverse impact of the COVID-19 pandemic or
otherwise, or positively, our ability to lease vacancies and sign lease
renewals, negotiate rents at advantageous rates, and collect amounts
contractually due.
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Mall tenant occupancy costs (Rental Revenues and Overage Rents excluding lease
cancellation income and uncollectible tenant revenues) as a percentage of sales
in our U.S. Consolidated Businesses and UJVs are as follows:
Trailing 12-Months Ended June 30 (1)
2020 2019
U.S. Consolidated Businesses 17.2 % 13.5 %
U.S. UJVs 14.0 11.9
Combined U.S. Centers 15.7 12.7
(1) Based on reports of sales furnished by mall tenants of all U.S.
centers reported during that period.
Occupancy and Leased Space
U.S. mall tenant ending occupancy and leased space statistics as of June 30,
2020 and 2019 are as follows:
2020 (1) 2019 (1)
Ending occupancy - all U.S. centers 89.8 % 91.0 %
Ending occupancy - U.S. comparable centers 91.5 91.8
Leased space - all U.S. centers
91.9 94.0
Leased space - U.S. comparable centers 93.8 94.9
(1) Occupancy and leased space statistics include temporary in-line tenants
(TILs) and anchor spaces at value and outlet centers (Dolphin Mall and Great
Lakes Crossing Outlets).
The difference between leased space and occupancy is that leased space includes
spaces where leases have been signed but the tenants are not yet open. The
occupancy statistic represents those spaces upon which we are currently
collecting rent from mall tenants. The spread between U.S. comparable center
leased space and occupied space, at 2.3% this quarter, is consistent with our
history of 1% to 3% in the second quarter.
Although our occupancy and leased space statistics have not substantially
decreased, there have been elevated bankruptcy filings in 2020 (see "Current
Operating Trends - General Operating Trends") and more are expected in the
future as a result of the impact of the COVID-19 pandemic on the economy and our
tenants' businesses, financial performance, and liquidity, which could have an
adverse effect on our business, financial statements, and liquidity.
Average and Base Rent Per Square Foot
As leases have expired in our centers, we have generally been able to rent the
available space, either to the existing tenant or a new tenant, at rental rates
that are higher than those of the expired leases. Although average rent per
square foot is down during the three and six months ended June 30, 2020 as
compared to 2019 due to the restructuring of our leases with Forever 21 related
to their bankruptcy filing in 2019 and reduced sales-based rent as a result of
the shopping center closures due to the COVID-19 pandemic, generally, center
revenues have increased as older leases rolled over or were terminated early and
replaced with new leases negotiated at current rental rates that were usually
higher than the average rates for existing leases. In periods of increasing
sales, rents on new leases will generally tend to rise. In periods of slower
growth or declining sales, rents on new leases will generally grow more slowly
or will decline, as occurred in the second quarter of 2020, or we may execute
shorter lease terms, as tenants' expectations of future growth become less
optimistic. Average and base rent per square foot have been and could continue
to be adversely impacted by the COVID-19 pandemic in future periods (see
"Current Operating Trends - COVID-19 Pandemic Portfolio Impact"). Average and
base rent per square foot statistics are computed using contractual rentals per
the tenant lease agreements (excluding lease cancellation income, expense
recoveries, and uncollectible tenant revenues), which reflect any lease
modifications, including those for rental concessions. Rental information for
comparable centers in our Consolidated Businesses and UJVs follows:
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
Average rent per square foot - all
U.S. comparable centers: (1)
U.S. Consolidated Businesses $ 69.77 $ 71.75 $ 70.03 $ 71.31
U.S. UJVs 50.75 56.41 52.08 55.97
Combined U.S. Centers 60.35 64.13 61.14 63.67
(1) Statistics exclude non-comparable centers and Asia centers.
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Trailing 12-Months Ended June 30 (1) (2)
2020 2019
Opening base rent per square foot:
U.S. Consolidated Businesses $ 61.42 $ 60.83
U.S. UJVs 46.32 45.49
Combined U.S. Centers 55.35 54.40
Square feet of GLA opened:
U.S. Consolidated Businesses 477,411 635,542
U.S. UJVs 320,675 458,573
Combined U.S. Centers 798,086 1,094,115
Closing base rent per square foot:
U.S. Consolidated Businesses $ 69.88 $ 58.76
U.S. UJVs 49.82 51.69
Combined U.S. Centers 60.97 55.47
Square feet of GLA closed:
U.S. Consolidated Businesses 434,989 535,207
U.S. UJVs 347,604 464,813
Combined U.S. Centers 782,593 1,000,020
Releasing spread per square foot:
U.S. Consolidated Businesses $ (8.46 ) $ 2.07
U.S. UJVs (3.50 ) (6.20 )
Combined U.S. Centers (5.62 ) (1.07 )
Releasing spread per square foot growth:
U.S. Consolidated Businesses (12.1 )% 3.5 %
U.S. UJVs (7.0 )% (12.0 )%
Combined U.S. Centers (9.2 )% (1.9 )%
(1) Statistics exclude non-comparable centers and Asia centers.
(2) Opening and closing statistics exclude spaces greater than or equal to
10,000 square feet.
(2) Opening and closing statistics exclude spaces gr
The spread between rents on openings and closings may not be indicative of
future periods, as this statistic is not computed on comparable tenant spaces,
and can vary significantly from period to period depending on the total amount,
location, duration of the lease, and average size of tenant space opening and
closing in the period. Broadly, the lower or negative releasing spread reflects
the recently decelerating environment for retail and the impact of the COVID-19
pandemic, as demonstrated by lower or negative rent growth.
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Results of Operations
In addition to the results and trends in our operations discussed in the
preceding sections, the following sections discuss certain transactions or
events that affected operations during the three and six months ended June 30,
2020 and 2019, or are expected to affect operations in the future.
COVID-19 Pandemic Impact
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 the communities we serve.
During the three months ended March 31, 2020, the closure of our U.S. shopping
centers did not significantly affect our financial results; however, during the
three months ended June 30, 2020, the financial results of our U.S. shopping
centers were adversely impacted by the COVID-19 pandemic.
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. Our financial results in Asia were adversely impacted 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 (see "Results of
Operations - Partial Dispositions of Ownership Interests (Blackstone
Transactions)"). However, sales in our centers in Asia have recovered during the
three months ended June 30, 2020 and are approaching 2019 levels.
Refer to "Current Operating Trends - COVID-19 Pandemic Portfolio Impact",
elsewhere within "Results of Operations", and "Part II, Item 1A. Risk Factors"
for further information regarding the current impact and potential future impact
of the COVID-19 pandemic on our business, financial statements, liquidity, and
stock price, as well as our response to mitigate the impact.
Also, as a result of the CARES Act, our taxable REIT subsidiary was able to
carry back additional net operating losses, resulting in the recognition of a
$1.9 million income tax benefit related to the carryback during the six months
ended June 30, 2020 (see "Note 3 - Income Taxes" to our consolidated financial
statements for further information).
The Gardens Mall 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 units of limited
partnership in TRG (TRG Units). We also assumed our $94.6 million share of the
existing debt at the center, which bears interest at 6.8% and matures in July
2025. The debt assumed was adjusted for our beneficial share of $27.6 million of
purchase accounting adjustments, which has the effect of reducing the stated
rate on the debt of 6.8% to an average effective rate of 4.2% over the remaining
term of the loan. The Forbes Company, our partner in The Mall at Millenia and
Waterside Shops, also owns a 48.5% interest and manages and leases the center.
Our ownership interest in the center is accounted for as a UJV under the equity
method.
Simon Common Shares Investment
In January 2019, we sold our remaining investment in 290,124 Simon common shares
at an average price of $179.52 per share. Proceeds of $52.1 million from the
sale were used to pay down our revolving lines of credit.
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Hurricane Maria and The Mall of San Juan
The Mall of San Juan incurred significant damage from Hurricane Maria in 2017.
We have received substantial insurance proceeds to cover hurricane and flood
damage, as well as business and service interruption. In June 2019, we reached a
final settlement with our insurer and received final payment related to our
claims.
The following table presents a summary of the insurance proceeds received
relating to our claim for The Mall of San Juan for the three and six months
ended June 30, 2019. There were no insurance proceeds received during the three
or six months ended June 30, 2020:
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