Commitments and Contingencies

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Cash Tender

At the time of our initial public offering and acquisition of our partnership interest in TRG in 1992, we entered into an agreement (the Cash Tender Agreement) with the A. Alfred Taubman Restated Revocable Trust (Revocable Trust) and TRA Partners (now Taubman Ventures Group LLC or TVG), each of whom owned an interest in TRG, whereby each of the Revocable Trust and TVG (and/or any assignee of the Revocable Trust or TVG, which now include the Estate of A. Alfred Taubman and other specified entities that are affiliated with the children of A. Alfred Taubman (Robert S. Taubman, William S. Taubman, and Gayle Taubman Kalisman)) has the right to tender to us TRG Units (provided that if the tendering party is tendering less than all of its TRG Units, the aggregate value is at least $50 million) and cause us to purchase the tendered interests at a purchase price based on a market valuation of TCO on the trading date immediately preceding the date of the tender (except as otherwise provided below). TVG is controlled by a majority-in-interest among the Estate of A. Alfred Taubman and entities affiliated with the children of A. Alfred Taubman (Robert S. Taubman, William S. Taubman, and Gayle Taubman Kalisman). At the election of the tendering party, TRG Units held by members of A. Alfred Taubman’s family and TRG Units held by entities in which his family members hold interests may be included in such a tender.

We would have the option to pay for these interests from available cash, borrowed funds, or from the proceeds of an offering of common stock. Generally, we expect to finance these purchases, if any, through the sale of new shares of our common stock. The tendering partner would bear all market risk if the market price at closing is less than the purchase price and would bear the costs of sale. Any proceeds of the offering in excess of the purchase price would be for our sole benefit. We account for the Cash Tender Agreement as a freestanding written put option. As the option put price is defined by the current market price of our stock at the time of tender, the fair value of the written option defined by the Cash Tender Agreement is considered to be zero.

Based on a market value at June 30, 2020 of $37.76 per share for our common stock, the aggregate value of TRG Units that may be tendered under the Cash Tender Agreement was $0.9 billion. The purchase of these interests at June 30, 2020 would have resulted in us owning an additional 28% interest in TRG.

Continuing Offer

We have made a continuing, irrevocable offer to exchange shares of common stock for TRG Units (the Continuing Offer) to all present holders of TRG Units (other than certain excluded holders, currently TVG and other specified entities), permitted assignees of all present holders of TRG Units, those future holders of TRG Units as we may, in our sole discretion, agree to include in the Continuing Offer, and all future optionees under the 2018 Omnibus Plan. Under the Continuing Offer agreement, one TRG Unit is exchangeable for one share of common stock. Upon a tender of TRG Units, the corresponding shares of Series B Preferred Stock, if any, will automatically be converted into common stock at a ratio of 14,000 shares of Series B Preferred Stock for one share of common stock.

Insurance

We carry liability insurance to mitigate our exposure to certain losses, including those relating to personal injury claims. We believe our insurance policy terms, conditions, and limits are appropriate and adequate given the relative risk of loss and industry practice. However, there are certain types of losses, such as punitive damage awards, which may not be covered by insurance, and not all potential losses are insured against.

Simon Merger Agreement Litigation

In connection with the Merger Agreement for Simon and the Simon Operating Partnership to acquire a 100% ownership interest in TCO and an 80% ownership interest in TRG (Note 1), on June 10, 2020, Simon and the Simon Operating Partnership filed the Simon Complaint (Case Number 2020-181675-CB) in the Court seeking a declaration that they validly terminated the Merger Agreement and that they are not required to close the transaction contemplated by the Merger Agreement, and requesting an award of unspecified damages for our alleged breaches of the Merger Agreement. In the Simon Complaint, Simon and the Simon Operating Partnership allege that we have suffered a Material Adverse Effect under the Merger Agreement due to the effects of the COVID-19 pandemic, and that we breached the covenants in the Merger Agreement governing the conduct of our business in the ordinary course. On June 17, 2020, we filed our answer to the Simon Complaint and a counterclaim for a judgment enforcing specifically the performance by Simon, the Simon Operating Partnership, and their subsidiaries of their obligations under the Merger Agreement, including their obligation to consummate the transaction, or, in the alternative, a judgment for declaratory relief and for damages caused by their willful breach of the Merger Agreement.

See Note 1 for further detail of the status of the transaction and related litigation.

We are vigorously defending the claims and prosecuting our counterclaim. While we believe that the allegations made in the complaint are without merit, there can be no assurance that we will be successful in the outcome of any proceeding related to the complaint or any other lawsuits that may be brought against us in the future in connection with the transaction. An unfavorable outcome in this lawsuit may delay or prevent the transaction from being completed, which may have an adverse effect on our shareholders.

Additionally, several shareholders have filed complaints against us and our directors, stating claims arising under Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78n(a), 78t(a), and U.S. Securities and Exchange Commission (SEC) Rule 14a-9, based on certain alleged misstatements or omissions in a proxy statement filed with the SEC concerning our proposed transaction with Simon. We are attempting to resolve all of these complaints and have tendered these complaints to our insurance carrier. The outcome of the actions cannot be predicted, and, at this time, we are unable to estimate the amount of loss that could result from unfavorable outcomes. As such, as of June 30, 2020, no contingent liability was recorded.

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:



Proceeds Description	Consolidated Statement of Operations and Comprehensive Income (Loss) Location	Three Months Ended June 30, 2019				Six Months Ended June 30, 2019
Proceeds Description		Three Months Ended June 30, 2019				Six Months Ended June 30, 2019
		(in thousands)
Business interruption insurance recoveries	Nonoperating Income (Expense)	$	4,531			$	8,574
Revenue reduction related to business interruption ⁽¹⁾	Reduction of Rental Revenues	(1,202		)		(1,202		)
Expense reimbursement insurance recoveries	Nonoperating Income (Expense)	182				185
Reimbursement for capital items damaged in hurricane in 2017	Reversal of previously recognized Depreciation Expense	2,000			(2)	2,000			(2)
Gain on insurance recoveries	Nonoperating Income (Expense)	1,418				1,418


(1)	Represents amounts recognized in prior periods that were credited back to tenants upon receipt of business interruption claim proceeds.


(2)	Represents reduction of depreciation expense recorded in June 2019 for proceeds received in final settlement of insurance claim, which offset the original deductible expensed in 2017.

Other

See Note 5 for TRG's guarantees of certain notes payable, including guarantees relating to UJVs, Note 6 for contingent features relating to certain joint venture agreements, Note 7 for contingent features relating to derivative instruments, and Note 8 for obligations under existing share-based compensation plans.