Professional Documents
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Disclaimer
The information contained in this presentation (the Information) is based on publicly available information about Target Corporation (Target). None of Pershing Square Capital Management, L.P., its affiliates and any of their respective officers, directors and employees (collectively, Pershing), nor any representative of Pershing, has independently verified any of the Information. Pershing recognizes that there may be confidential or otherwise non-public information in Targets possession that could lead others to disagree with Pershings conclusions. The sole purpose of presenting the Information is to inform interested parties about the transaction described in this presentation (the Transaction). This presentation does not constitute an offer or a solicitation of any kind. Neither Pershing nor any of its representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of the Information or any other written or oral communication made in connection with this presentation or the Transaction. The Information includes certain forward-looking statements, estimates and projections with respect to the anticipated future financial, operating and stock market performance of Target in the absence of the Transaction and the two public companies that may result if the Transaction is completed. Such statements, estimates and projections may prove to be substantially inaccurate, reflect significant assumptions and judgments that may prove to be substantially inaccurate, and are subject to significant uncertainties and contingencies beyond Pershings control, including those described under the caption Risk Factors in Targets filings with the Securities and Exchange Commission as well as general economic, credit, capital and stock market conditions, competitive pressures, geopolitical conditions, inflation, interest rate fluctuations, regulatory and tax matters and other factors. Pershing and its representatives expressly disclaim any and all liability relating to or resulting from the use of the Information or any errors therein or omissions therefrom, including under applicable securities laws. The Information does not purport to include all information that may be material with respect to the Transaction or Target. Thus, shareholders and others should conduct their own independent investigation and analysis of Target, the Transaction and the Information. The Information is not intended to provide the basis for fully evaluating, and should not be considered a recommendation with respect to, the Transaction, Target, the securities of Target or any other matter. Except where otherwise indicated, the Information speaks as of the date hereof. Neither Pershing nor any of its representatives undertakes any obligation to correct, update or revise the Information or to otherwise provide any additional materials. The preparation and distribution of this presentation should not be taken as any form of commitment on the part of Pershing to take any action in connection with the Transaction. Pershing is in the business of buying and selling securities. It has, and may in the future, buy, sell or change the form of its position in Target for any or no reason. IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any discussion of U.S. tax matters contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such discussion of tax matters is written in connection with the promotion or marketing of the matters addressed; and (iii) you should seek advice from an independent advisor.
1
Recent Events
On October 29, 2008, Pershing presented A TIP for Target Shareholders, which detailed a potential Transaction (October 29th Transaction) that would create long-term value for Target Corporation and its shareholders After the presentation, Target expressed concerns regarding the October 29th Transaction Since then, Pershing has met with Target, members of its Board, as well as Retail and Real Estate investors We have received valuable feedback from these meetings Today, we will present a Revised Transaction that addresses Targets concerns, incorporates feedback from the investment community, and creates great value for Target shareholders
2
Agenda
Review of the October 29th Transaction Targets Concerns A Revised Transaction Benefits of the Revised Transaction Appendix
Objectives
In reviewing alternatives for Target, Pershing Squares objective was to eliminate the stock markets ascribed discount to the intrinsic value of Targets real estate and allow the Company to: Retain complete control of its buildings and its brand Retain 100% flexibility with respect to its construction, remodeling, and relocation plans Improve the Companys free cash flow and access to capital Increase the Companys ROIC and lower its cost of capital Maintain an investment grade credit rating Increase the Companys EPS growth rate Minimize tax leakage and friction costs
6
PreSpin
TARGET Shareholders
PostSpin
TARGET Shareholders
TARGET
TARGET Corp
Ground Leases
Owned Buildings 1
Land
New Target Corp owns its buildings on 75-year ground leases Outsources Facilities Management Services Continues to maintain properties
Leases back land to Target Corp through a Master Lease for a 75-year term Elects REIT status at the time of spin-off Becomes Target Corps outsourced facilities management provider Becomes Targets exclusive land developer for the first two years
After two years, becomes Target Corps Preferred Vendor for land procurement
5.8x
$37/Share (1)
14.5x
Large Cap REITs (1)
17.0x
Recent Big Box Ground Lease (2)
35.7x
Inflation Protected Treasury Securities (TIPS) (3)
The Transaction creates immense and instant value because 22% of Targets current EBITDA will be valued at a significantly higher multiple than where Target trades today
Note: Target valuation assumes sale of remaining 53% interest on credit card receivables for $4.4bn, with Target retaining $150mm of credit card EBITDA (1) Based on a 20-day trading average as of 11/14/08 (2) Based on mid-point precedent cap rate of 5.9% 8 (3) Based on current 20-year TIP yield of 2.8% as of 11/14/08
Valuation Summary
$80
$80
$67
$60 $/Share
TIP REIT
81% $37
Target Standalone
TIP REIT
$39
$40
$36
Target Corp Target Corp
$20
$31
$0 Target (20-Day Avg. Price) TIP REIT Spin-Off
$24 $33 6.5x 14.7x $27 $27 5.0% 5.4% 20.0x 19.1x
$41
Equity Value ($bn) Enterprise Value ($bn) 09E Dividend Yield Cap Rate '09E P/AFFO '09E EV/EBITDA
Target Corp
Equity Value ($bn) Enterprise Value ($bn) '09E EV/EBITDA '09E P/E
Equity Value ($bn) Enterprise Value ($bn) '10E EV/EBITDA '10E P/E Equity Value ($bn) Enterprise Value ($bn) 10E Dividend Yield Cap Rate '10E P/AFFO '10E EV/EBITDA
Note: Target valuation assumes sale of remaining 53% interest on credit card receivables for $4.4bn For illustrative purposes, assumes Spin-off Transaction occurs on 01/01/09 (1) Based on 20-day trading average as of 11/14/08; assumes sale of remaining 53% interest on credit card business with proceeds used to pay down debt (2) Based on mid-point of valuation analysis 9
TIP REIT
Even ignoring valuation benefits, there are important strategic reasons to consummate the Transaction
10
11
Cash Flow Impact on Key Affected Metrics Incremental After-Tax Rent Expense Dividends Paid Land Development Capex Net Impact to Cash Flow
888 $888
(1) Assumes sale of remaining 53% interest on credit card receivables for $4.4bn on 01/01/09, with Target retaining $150mm of credit card EBITDA in 09E
12
6. Creates over $510mm of tax savings in the first year post transaction
Optimizes ownership of land, a non-depreciable asset, through a REIT structure
(1) Assumes sale of remaining 53% interest on credit card receivables for $4.4bn on 01/01/09, with proceeds used to pay down debt
13
(1) Excludes $112mm (approximately $0.15/share) of incremental interest expense due to CY2009 cash E&P distribution
14
Given its market cap, TIP REIT will be owned by S&P 500 index funds, large cap funds, real estate index funds, yield-oriented investors, and investors seeking inflation-protected assets
(1) As of November 14, 2008 (2) Represents non-financial companies in the S&P 500 with market caps greater than $20bn (3) Based on 2009E dividends
16
Yes, typically 10% or more of leases up for renewal annually Yes, typically 8% of EBITDA No preferred arrangement None. Owns both land buildings
20-Year TIPS
Backed by federal government Payment based on CPI adjusted principal 20 years Interest payment required by law Over $450bn market (1) No Yes (tax on inflation adj. principal)
Backed by highly-rated Target Corp $39bn of Lease Security or 145% TIP REITs EV at 5.0% dividend yield Rent income adjusted for CPI 75-year lease term REIT dividend payment required by law $27bn market cap Yes No
20
Targets Concerns
Target expressed the following concerns regarding the October 29th Transaction:
Concern 1. Valuation Managements Commentary
The validity of assumptions supporting Pershing Square's market valuation of Target and the separate REIT entity The reduction in Target's financial flexibility due to the conveyance of valuable assets to the REIT and the large expense obligation created by the proposed lease payments which are subject to annual increase The adverse impact that the company believes the proposed structure would have on Target's debt ratings, borrowing costs and liquidity, exacerbated by current market conditions
2. Reduction in Targets financial flexibility and inflation risk 3. Credit ratings, borrowing costs, and liquidity
22
The frictional costs and operational risks, including tax implications, of executing Pershing Square's ideas
5. Management diversion
The risk of diverting management's focus away from core business operations over an extended time period to execute such a complex transaction, particularly in the current environment
23
A Revised Transaction
(1) TIP REIT assumes a portion of Target liabilities. This could include a portion of Targets debt (2) TIP REIT will lease land to Target Corp (i.e. the parent company) (3) Non-REIT assets (e.g., the Facilities Management Services) will be placed in a taxable REIT subsidiary (TRS) 25
Credit ratings impact: Target Corp will maintain its A+/A2 credit rating
At an opportune time (either pre- or post-IPO), Target sells remaining 53% interest in its credit card receivables For this analysis, we have assumed $4.4bn of proceeds from the sale
$ in billions Gross Receivables CY 2008E Allowance Net Receivables CY 2008E 53% Interest at Net Book Value $9.0 (0.8) $8.2 $4.4
$1.6bn of cash proceeds from the IPO is left on TIP REITs balance sheet
(1) Assumes TIP REIT funds land development capital expenditures of approximately $0.9bn post-IPO using debt
26
By December 31 of the calendar year of spin-off, TIP REIT pays a $1.6bn cash E&P dividend to TIP REIT shareholders
Note: Cash E&P dividend could be materially lower than $1.6bn The REIT industry group has requested the Treasury Department to issue a rule allowing low-cash stock-cash dividends If granted, this rule would reduce the cash portion of TIP REITs E&P dividend to as little as $400mm
27
(2)
(3)
(4)
(1) Calculation based on allocating and subsequently paying down $3.0bn of debt (2) Calculation based on adding net proceeds of $4.6bn to captive TIP REIT equity value of $24.0bn; assumes cash balance of $1.6bn at TIP REIT upon IPO (3) Assumes a 19.9% IPO of TIP REIT at a 15% IPO discount; net of paying $500mm after-tax frictional costs and fees, IPO proceeds are $4.6bn (4) Assumes approximately $350mm of after-tax frictional costs and $150mm of IPO fees
28
(1) Reflects cash flow generated after working capital, capex, and dividends; assumes maintenance of $500mm minimum cash balance; assumes TIP REIT funds land development capital expenditures of approximately $0.9bn by issuing debt during the first year post-IPO
29
($bn) JPMorgan GAAP Liability Credit Card Securitized Debt Unsecured Debt (1) Ending Debt Plus: Lease Adjusted Debt (8x Total Lease Expense) Ending Lease Adj. Debt Lease Adj. Total Debt / EBITDAR Expected Ratings Profile Memo: Rent Expense
Pro Forma Target Corp Post Spin-off 5.0 $5.0 13.6 $18.7 2.6x
(3)
Illustrative Timeline
2009CY Q1 Q2 Q3 Q4 2010CY Jan Nov Dec
Step 3: Sale of 53% Interest in CC Receivables Step 4: Debt Paydown Step 5: Spin-off of TIP REIT
Target enters into inflation-swap agreement Tax-free spin-off of remaining >80% interest in TIP REIT
31
Valuation Analysis
$79
$80
$65
TIP REIT
$60 $/Share
77% $37
$33
$40
$30
Target Corp Target Corp
$20
Target Standalone
$35
TIP REIT IPO
$26 $33 6.5x 15.1x $29 $27 5.0% 5.4% 20.0x 19.1x
$46
12-Month Future Price / TIP REIT Spin-Off
$35 $39 7.0x 16.8x $31 $30 4.8% 5.1% 21.0x 20.1x
Note: Target valuation assumes sale of remaining 53% interest on credit card receivables for $4.4bn, with Target retaining $150mm of credit card EBITDA For illustrative purposes, assumes 19.9% REIT IPO occurs on 01/01/09 and full REIT Spin-off occurs on 01/01/10 (1) Based on 20-day trading average as of 11/14/08; assumes sale of remaining 53% interest on credit card business with proceeds used to pay down debt (2) Based on mid-point of valuation analysis (3) Based on Adjusted Equity Value excluding cash balance of $1.6bn reserved for E&P distribution in 2010E 32
TIP REIT
Equity Value ($bn) Enterprise Value ($bn) (3) 09E Dividend Yield Cap Rate (3) '09E P/AFFO '09E EV/EBITDA
Target Corp
Equity Value ($bn) Enterprise Value ($bn) '09E EV/EBITDA '09E P/E
Equity Value ($bn) Enterprise Value ($bn) '10E EV/EBITDA '10E P/E Equity Value ($bn) Enterprise Value ($bn) (3) 10E Dividend Yield Cap Rate (3) '10E P/AFFO '10E EV/EBITDA
7.5% $52 56 59 62 66
7.0% $54 57 60 64 67
6.5% $55 59 62 65 69
6.0% $57 61 64 67 70
5.5% $59 63 66 69 73
5.0% $62 65 68 72 75
4.5% $65 69 72 75 78
5.0% 4.5% 67% 76% 77% 85% 85% 94% 94% 103% 103% 112%
Pros
Meaningfully accretive on all key measures (EPS, FCF/share) Maintains A category credit rating More than doubles dividends: $0.64/share today to $1.49 (1) share in 2010 Improves capital access and decreases the need for growth capital at Target Corp Reduces taxes by over $510mm Improves Targets ROIC and EPS growth Increases the total stock price from $37/share to $79/share by 2010
(1) Assumes a 19.9% IPO which increases TIP REITs shares outstanding to approximately 940mm shares from 755mm shares pre-IPO (2) Assumes a 15% IPO discount and a 19.9% IPO 37
Cons
Dilution:
<20% IPO of TIP REIT results in some dilution to Target shareholders, versus the October 29th Transaction proposal, equivalent to ~$1.50 per share in total value (2) Certain benefits such as reduced taxes and increased dividends wont be fully achieved until the spinoff is complete
Mitigating Factors: In the context of total value creation from Targets $37 stock price, the dilution is minimal Despite the longer transaction plan, the increased flexibility afforded to Target will significantly reduce execution risks
Borrowing costs will not be impacted by the Revised Transaction The Revised Transaction offers several key credit benefits:
Targets liquidity is significantly increased given IPO proceeds Targets access to and cost of capital is improved by the formation of TIP REIT
40
The Transaction is akin to placing a master ground lease on Targets stores. It will be completely transparent and seamless to Targets core business IPO and eventual spin-off of TIP REIT will not distract Targets core business teams: Merchandising / purchasing Vast majority of Targets team Marketing members will be Regional and store-level uninvolved
IT / systems / administration
42
This Transaction will best position Target to benefit from a weak competitive environment
Given potential retailer bankruptcies, Target can use the liquidity provided by TIP REIT to acquire real estate that might be for sale at substantial discounts in the next 12-18 months
The risk of the status quo is that Target may lose access to capital and not be able take advantage of the current environment
43
To achieve a TIP REIT IPO in Q3 2009, the Company will need to authorize work on this Revised Transaction in the beginning of 2009 In 2009, there could be opportunities for Target to benefit from a weak competitive landscape
TIP REIT needs to be in place for the Company to best do so
44
Appendix
PostTransaction
TARGET Shareholders >80%
TARGET
TARGET Corp
Ground Leases
Owned Buildings 1
Land
New Target Corp owns its buildings on 75-year ground leases Outsources Facilities Management Services Continues to maintain properties
Leases back land to Target Corp through a Master Lease for a 75-year term Elects REIT status at the time of IPO Becomes Target Corps outsourced facilities management provider Becomes Target Corps Preferred Vendor for land procurement
Transaction Description Step 1a: The existing company (Target Corp) forms a new subsidiary (TIP REIT) and transfers to it the Facilities Management Services business, the owned land under the stores, and the owned land under the distribution facilities TIP REIT will assume a portion of Targets liabilities Step 1b: TIP REIT leases the land back to Target Corp (i.e. the parent company) through a Master Lease for a 75-year term
Land
TIP REIT 1a
Master Lease
Land
Step 2a: After some period of time, TIP REIT offers up to 19.9% of its shares in a primary IPO for cash Cash proceeds could be retained for corporate business purposes or used to reduce TIP REIT debt Step 2b: TIP REIT elects REIT status effective immediately Simultaneously, TIP REIT drops the Facilities Management Services business into a new corporation, a taxable REIT subsidiary (TRS)
50
Land
Transaction Description
Step 3: Target Corp sells the remaining 53% interest in the credit card receivables business to an Investment Partner Step 4: Target Corp pays down debt using proceeds from the credit card receivables and the TIP REIT pays down assumed debt using proceeds from the TIP REIT IPO Step 5: Target Corp spins off its remaining >80.1% interest in TIP REIT to its shareholders pro rata and tax-free Step 6: TIP REIT pays a taxable dividend (at the dividend tax rate to non-corporate taxpayers) to shareholders equal to its allocated portion of Targets $16bn of retained Earnings and Profits (E&P), estimated to be $8bn based on the implied mid-point valuation of TIP REIT/Target Corp 20% of the dividend ($1.6bn) may be paid in cash with the remaining paid in TIP REIT common stock This cash dividend can be deferred until the end of the calendar year in which the spin-off occurs
51
5
Tax-free Spin-off of TIP REIT shares held by Target
Target Corp
>80%
<20%
TIP REIT
Land
<20%
>80%
TIP REIT
Target Corp
Land
75-year Lease
Why are Treasury Inflation Protected Securities (TIPS) the Best Comparable Security to TIP REIT?
1.95% 2.45%
4.75% 5.25%
The current TIPS yield of 2.8% implies an expected 20-year inflation rate of only 1.6%. If the expected 20-year inflation rate increased to 2.0% and the 20-year Treasury rate remained constant, then the 20-year TIPS would yield 2.4% and TIP REIT would yield 4.35% 4.85%. The higher the inflation rate, the more valuable TIP REIT will be
53
2010
$122 12 (21) (830) ($716)
2011
$233 14 (21) (1,539) ($1,313)
2012
$366 15 (22) (1,801) ($1,442)
2013
$524 17 (22) (2,117) ($1,599)
...
$52,694
Land Developer
$2/share
$38/share
5.1%
(1) At mid-point valuation (2) Implied yield calculated based on NOI / Implied value
55
$67
TIP REIT
$36
Target Corp
Using a TIPS-based valuation analysis, our mid-point valuation price of $36/share excludes the value of TIP REITs development platform
$31
TIP REIT Spin-off Equity Value / Share
56
Transaction For Sale For Sale For Sale For Sale For Sale For Sale Sold Sold - March 27, 2008 Sold - March 23, 2008 Sold - October 2007 Sold - September 2007 Sold - July 2007
Tenant Lowe's Kohl's Lowe's Lowe's Wal-Mart Kohl's Target Lowe's Home Depot Kohl's Lowe's Lowe's
Location Princeton, WV Selinsgrove, PA Derby, CT Eugene, OR Albuquerque, NM Fort Gratiot, MI Fairlawn, OH Whitehall, PA Austell, GA Reno, NV Escondido, CA Sayre, PA
Cap Rate 6.61% 6.25% 5.50% 6.25% 5.50% 5.75% 6.00% 6.05% 5.75% 6.10% 6.00% 6.25%
Options 6, Five-Year 8, Five-Year 8, Five-Year na 15, Five-Year 4, Five-Year 6, Five-Year na na na 6, Five-Year 8, Five-Year
Given the above factors, TIP REIT will trade at a lower cap rate than an individual private ground lease
(1) Represents 2008E Target Corp stores on TIP REIT land
59
Model Consolidated
2009
66,600 4.5%
2012
86,068 10.2%
2013
95,316 10.7%
(1,944)
150
4.5%
160
6.9%
176
9.7%
194
10.2%
215
10.7%
Total Revenue
Total Revenue Growth COGS % of Retail Sales SG&A (excluding D&A and Rent Expense) % of Retail Sales Credit Expenses % of Credit Revenue
66,750
4.5% 46,544 69.9%
71,331
6.9% 49,632 69.7%
78,258
9.7% 54,373 69.6%
86,262
10.2% 60,075 69.8%
95,530
10.7% 66,521 69.8%
12,392
20.2%
12,899
20.2%
15 (1,520)
12,914
20.3% 0.0%
13,596
20.4%
14,423
20.3%
15,744
20.2%
17,352
20.2%
19,213
20.2%
950
50.1%
1,520
72.8%
0.0%
0.0%
0.0%
0.0%
0.0%
Retail EBITDAR
Retail EBITDAR Margin (%)
6,150
10.0%
6,290
9.9%
6,275
9.8% (424)
6,460
9.7%
7,117
10.0% 160 100.0%
7,965
10.2% 176 100.0%
8,641
10.0% 194 100.0%
9,582
10.1% 215 100.0%
Credit EBITDAR
Credit EBITDAR Margin (%)
946
49.9%
567
27.2%
144
100.0%
150
100.0%
EBITDAR
EBITDAR Margin (%) Rent Expense
7,096
11.2%
6,857
10.4%
6,418
10.1%
6,610
9.9% 173
7,277
10.2% 178
8,140
10.4% 182
8,834
10.2% 187
9,796
10.3% 191
EBITDA
EBITDA Margin (%)
165 6,931
10.9%
169 6,688
10.2%
169 6,249
9.8%
6,436
9.6%
7,099
10.0%
7,958
10.2%
8,648
10.0%
9,605
10.1%
10.5%
1,659
2.7%
1,819
2.9%
1,819
2.9%
1,940
2.9%
2,073
2.9%
2,274
2.9%
2,507
2.9%
2,776
2.9%
Operating Income
Net Interest (Income) / Expense Income Tax Provision Tax Rate (%) Minority Interest Expense
4,496
333 1,469 35% 257
11.0%
Net Income
Net Income Margin (%) Current Diluted Shares Outstanding Shares Repurchase Share Repurchase from Options Total Shares Outstanding Weighted Average Shares Outstanding
2,849
4.5%
2,383
3.6%
259 2,383
3.7%
2,438
3.7%
266 2,750
3.9% 754.7
273 3,110
4.0% 702.1 (13.8)
280 3,360
3.9% 688.3 (10.0)
289 3,753
3.9% 678.3 (7.2)
11.4%
(52.5) 0.0
702.1 728.4 $3.78
0.0
688.3 695.2 $4.47
0.0
678.3 683.3 $4.92
0.0
671.1 674.7 $5.56
754.7
$3.23
6.29
14.6%
63
($mm)
Cash & Equivalents Trade Receivables Other Current Assets Property, Plant & Equipment, gross Accumulated Depreciation Property, Plant & Equipment, net Other Non-Current Assets
Status Quo CY2007 2,450 8,054 8,402 31,982 (7,887) 24,095 1,559 44,560 17,090 9,818 2,345 29,253 0 15,307 44,560
Status Quo CY2008 500 8,249 8,903 35,316 (9,265) 26,051 1,277 44,980 17,811 10,373 2,521 30,705 0 14,275 44,980
8,903 35,316 (9,265) 26,051 1,277 38,331 (8,000) (2,974) 6,837 10,373 2,521 19,731 4,574 14,026 38,331
Total Assets
Debt Other Current Liabilities Other Non-Current Liabilities
Total Liabilities
Minority Interest Total Equity
4,574 (249)
39,905
39,953
43,405
47,458
52,251
64
($mm) EBITDA less: Interest Expense less: Taxes less: Dividends Paid to Minorities
Share-based Compensation less: Increase in Net Working Capital less: Increase Funding of CC Growth
2009
6,436 (333) (1,469) (268)
2012
8,648 (469) (2,032) (302)
2013
9,605 (515) (2,272) (315)
0
(1,089)
0
(890)
0
(722)
3.0%
65
Sales Buildup Square Feet (mm) $ / Sq. Ft. Retail Sales Implied Retail Sales Growth (% ) Sq. Footage Growth (% ) SSS Growth (% ) CapEx Buildup Total System CapEx
CapEx as % of Retail Sales
2009
231 288 66,600 4.5% 4.0% 0.5%
2012
270 318 86,068 10.2% 6.5% 3.5%
2013
289 330 95,316 10.7% 7.0% 3.5%
63,720
3.7% 7.0% (3.1%)
2007 4,369
7.1%
2008 3,820
6.0%
2009 3,111
4.7%
2010 3,083
4.3%
2011
4,761 6.1%
2012
5,444 6.3%
2013
6,277 6.6%
Credit M etrics Lease Adjusted Debt Actual Debt Total Lease Adjusted Debt Total Lease Adjusted Debt/EBITDAR Total Debt / EBITDA EBITDAR / (Interest + Rent) EBITDA / Interest
8x
Status Quo CY2007 1,320 17,090 18,410 2.6 x 2.5 x 8.7 x 10.7 x
Status Quo CY2008 1,353 17,811 19,164 2.8 x 2.7 x 6.2 x 7.1 x
66
2009
4,164 38% 1,582 (16) (98) (0) 1,469
2012
5,672 38% 2,155 (17) (106) (0) 2,032
2013
6,313 38% 2,399 (17) (110) (0) 2,272
Adjustment Calculations: State Tax Savings: Total REIT Net Income Net Income to Other Shareholders Net Income to Target Assumed Tax Rate (150bps less than current rate) Total State Tax Savings Facilities Management Adjustments: Facilities Mgmt Income Facilities Mgmt Taxes Minority Interest on Taxes Target Share of Facilities Mgmt Income Adjustment for Dividend Received Deduction Incremental Facilities Mgmt Adj. Total Facilities Management Tax Adj. 1,303 259 1,044 38% (16) 1,292 257 1,035 37% (16) 1,334 266 1,069 37% (16) 1,370 273 1,097 37% (16) 1,408 280 1,128 37% (17) 1,450 289 1,161 37% (17)
67
38%
(1) Normalized to exclude incremental interest expense due to CY2010 cash E&P distribution (2) $1.6bn of proceeds from a 19.9% IPO of TIP REIT used to pay cash E&P distribution in CY 2010 69
($mm, except as noted) Real Estate: Gross Existing Properties - Land & Improvements Maintenance Capex Development Properties - Land & Improvements Accumulated Depreciation Net Real Estate Asset Cash Total Assets Debt: Revolver New Debt Total Debt Common Equity Retained Earnings (Deficit) Total Equity Total Liabilities & Equity
Pro Forma CY2008 11,833 (885) 10,948 10,948 10,948 10,948 10,948
2009 11,833 890 (941) 11,782 3 11,785 3 890 893 10,948 (55) 10,892 11,785
Calendar Year, 2010 2011 11,833 1,720 (1,007) 12,546 3 12,549 3 1,720 1,723 10,948 (121) 10,827 12,549 11,833 3,258 (1,092) 14,000 3 14,003 3 3,258 3,261 10,948 (206) 10,742 14,003
2012 11,833 5,059 (1,199) 15,693 3 15,696 3 5,059 5,062 10,948 (314) 10,634 15,696
2013 11,833 7,176 (1,333) 17,677 3 17,680 3 7,176 7,179 10,948 (448) 10,500 17,680
70
($mm, except as noted) Cash Flow from Operating Activities: EBITDA Less: Interest Expense Less: Taxes on Facilities Mgmt. Income Net Cash Flow from Operating Activities Cash Flow from Investing Activities: Development Capex Maintenance Capex Net Cash Flow from Investing Activities Cash Flow from Financing Activities: Debt Financing: Increase (Decrease) in Revolver Increase (Decrease) in New Debt Equity Financing: Increase (Decrease) in Common Equity Dividends on Common Special Dividends Net Cash Flow from Financing Activities Beginning Cash Balance Net Change in Cash Ending Cash Balance
2009 1,353 (205) (7) 1,141 1,417 (62) (7) 1,347 (890) (890)
Calendar Year, 2010 2011 1,511 (103) (8) 1,400 (830) (830) 1,659 (196) (8) 1,455 (1,539) (1,539)
1,539 (1,455) 84 3 3
71
5.7%
190 190
6.6%
Total Combined DCs & WHs - Sq. Ft. Count Owned DCs & WHs 25 Combined (Ground-leased) DCs & WHs 1 Third-party Leased DCs & WHs 5 Total Combined DCs & WHs Square Footage Total DCs & WHs Sq. Ft. vs. Total Combined Stores Sq. Ft. TIP REIT DCs & WHs - Sq. Ft. Count Owned DCs & WHs 25 Total TIP REIT DCs & WHs Square Footage Total TIP REIT DCs & WHs Square Footage Growth Rent / Square Foot - Store Land CPI Growth Average Growth TIP REIT Revenues from Ground-leased Land Rent / Square Foot - DCs & WHs Land CPI Growth Average Growth TIP REIT Revenues from Ground-leased DCs & WHs Total TIP REIT Gross Revenues Yes
35 1 7 44 19.6% 35 35
3.0%
3.7%
$7.00
1,327 $1.25
44 1,371
72
TIP REIT Model FFO & AFFO Reconciliations, Credit Statistics and Implied Metrics
FFO & AFFO Reconciliations: Net Income Plus: Depreciation & Amortization Funds from Operations Ending Shares Outstanding FFO / Share Less: Maintenance Capex Adjusted Funds from Operations Normalized AFFO (1) Pro Forma CY2008 1,303 44 1,347 942.1 $1.43 1,347 1,347 2009 1,292 55 1,347 942.1 $1.43 1,347 1,347 Calendar Year, 2010 2011 1,334 1,370 66 85 1,400 1,455 942.1 $1.49 1,400 1,400 942.1 $1.54 1,455 1,455 2012 1,408 108 1,515 942.1 $1.61 1,515 1,515 2013 1,450 134 1,584 942.1 $1.68 1,584 1,584
Credit Statistics: Coverage: EBITDA / Interest Expense (EBITDA - Maintenance Capex) / Interest Expense Leverage: Total Debt / EBITDA Capitalization: Total Debt / Total Real Estate Value (NOI capped at 6.0% and 8.5% for store land and DCs & WHs land, respectively) Implied Metrics: Incremental Stores Square Footage SuperTarget Stores 50.0% Implied New Combined SuperTarget Stores 0.177 % of Total New Stores Built Combined Total Number of SuperTarget Stores
General Merchandise Stores 50.0% Implied New Combined GM Stores 0.125 Sq. Ft. / GM % of Total New Stores Built Combined Total Number of General Merchandise Stores Total Implied New Stores Cumulative Combined Total Implied Stores Incremental DCs & WHs Square Footage Implied Combined New DCs & WHs Total Implied New DCs & WHs Cumulative Combined Total Implied DCs & WHs
(1) Normalized to exclude incremental interest expense due to CY2010 cash E&P distribution 73
1,445 1,684
1.408 31
0 31
($mm, except as noted) Total Combined Expenditures Maintenance / Retail Capital Expenditures Target Corp - Store Buildings TIP REIT Development Capital Expenditures Target Corp Building - Store and DCs & WHs TIP REIT Land - Store and DCs & WHs Target Corp - Other TIP REIT Land - Store Store Land Cost per Square Foot TIP REIT Land - DCs & WHs DCs & WHs Land Cost per Square Foot TIP REIT Land - Store TIP REIT Land - DCs & WHs Total Development Capex Development Financing Sources: Debt Financing Equity Financing 100% 0% Yes Yes 71.4% 28.6%
2009 3,111 1,332 1,332 1,779 890 890 890 $100.00 $14.00 890 890 890 -
Calendar Year, 2010 2011 3,083 4,761 1,423 1,423 1,660 830 830 830 $102.50 $14.35 830 830 830 1,638 1,638 3,122 1,583 1,539 1,509 $105.06 30 $14.71 1,509 30 1,539 1,539 -
2012 5,444 1,806 1,806 3,638 1,837 1,801 1,776 $107.69 24 $15.08 1,776 24 1,801 1,801 -
2013 6,277 2,000 2,000 4,278 2,160 2,117 2,088 $110.38 29 $15.45 2,088 29 2,117 2,117 -
$14.00
74
REIT Adj.
2010
71,171 6.9% 160 6.9%
2013
95,316 10.7% 215 10.7%
Total Revenue
Total Revenue Growth COGS % of Retail Sales SG&A (excluding D&A and Rent Expense) % of Retail Sales Credit Expenses % of Credit Revenue
66,750
46,544 69.9% 13,596 20.4% 0.0%
66,750
46,544 69.9% 13,561 20.4% 0.0% 6,495 9.8% 150 na
71,331
6.9% 49,632 69.7%
78,258
9.7% 54,373 69.6% 15,708 20.1% 0.0%
86,262
10.2% 60,075 69.8% 17,314 20.1% 0.0%
95,530
10.7% 66,521 69.8% 19,175 20.1% 0.0%
(35)
14,387
20.2% 0.0%
Retail EBITDAR
Retail EBITDAR Margin (%)
6,460
9.7% 150 100.0%
7,153
10.0% 160 na
8,001
10.2% 176 na
8,678
10.1% 194 na
9,620
10.1% 215 na
Credit EBITDAR
Credit EBITDAR Margin (%)
EBITDAR (Pre-spin)
EBITDAR Margin (%)
6,610
9.9% (125) 144 173
6,645
10.0% (125) 144 173 1,433
7,313
10.3% (134) 154 178 1,527
8,177
10.4% (147) 169 182 1,673
8,872
10.3% (162) 186 187 1,842
9,835
10.3% (179) 206 191 2,037
Current Embedded Facility Management Costs External Facility Mgmt. Payments to TIP REIT Current Rent Expense
Additional Rent Expense
6,436
9.6%
5,020
7.5%
5,588
7.8%
6,300
8.0%
6,819
7.9%
7,580
7.9%
10.9%
(55)
1,885 2.8%
2,007
2.8%
2,189
2.8%
2,400
2.8%
2,642
2.8%
Operating Income
Net Interest (Income) / Expense Income Tax Provision Tax Rate (%) Minority Interest
3,581
330 1,235 38% 0
12.0%
Net Income
Net Income Margin (%) Current Diluted Shares Outstanding Shares Repurchase Share Repurchase from Options Total Shares Outstanding Weighted Average Shares Outstanding
257 2,438
3.7%
(257)
1,757
2.6%
2,015
2.8%
0 2,334
3.0% 726.2
0 2,453
2.8% 683.8 (26.8)
0 2,717
2.8% 657.0 (29.3)
11.5%
(42.4) 0.0
683.8 705.0 $3.31
0.0
657.0 670.4 $3.66
0.0
627.7 642.3 $4.23
16.1%
76
($mm)
Cash & Equivalents Trade Receivables Other Current Assets Property, Plant & Equipment, gross Accumulated Depreciation Property, Plant & Equipment, net Other Non-Current Assets
(12,723)
941 (11,782)
Total Assets
Debt Other Current Liabilities Other Non-Current Liabilities
26,523 (890)
5,036 10,842 2,521
Total Liabilities
Minority Interest Total Equity
18,398
(4,563) (7,930) 0 8,124
39,905
26,523
27,407
29,405
31,765
34,574
77
2013
7,580 (555) (1,665)
(1,948)
(1,507)
(1,534)
(2,483)
(1,467)
(1,815)
(1,486)
(2,291)
3.0%
78
2010
239 297 71,171 6.9% 3.5% 3.3%
2013
289 330 95,316 10.7% 7.0% 3.5%
66,600
2009
3,111 4.7%
2010 3,083
4.3%
2011
4,761 6.1%
2012
5,444 6.3%
2013
6,277 6.6%
Maintenance/Retail CapEx Additional Cap Ex TOTAL M aintenance/ Retail CapEx Target Corp TIP REIT (Existing DC & WH) Development CapEx Buildings (Tgt Corp) Land Target Corp TIP REIT Other (Target Corp)
% of Development % of Development
1,332
0.0 % of total 35.0%
1,332
1,638 1,638
1,638 0
1,806 1,806
1,806 0
2,000 2,000
2,000 0
65.0%
3,122
1,583
3,638
1,837
4,278
2,160
1,539 0 1,539
0
1,801 0 1,801
0
2,117 0 2,117
0
% of Development
0%
134 6.9%
15% 154
147 9.7%
15% 169
162 10.2%
15% 186
179 10.7%
15% 206
Credit M etrics Lease Adjusted Debt Actual Debt Total Lease Adjusted Debt Total Lease Adjusted Debt/EBITDAR Total Debt / EBITDA EBITDAR / (Interest + Rent) EBITDA / Interest
8x
1,387
12,851
13,637
14,844
16,228
17,823
79