Unprecedentedunderstates the
global economic crisis faced by individuals,
businesses and nations in2008.
Not since the Great Depression have the value of assets, the resolve of management
teams and the validity of proven strategies been so challenged. All sectors of the
economy and regions of the world have been impacted.
Given this dramatically deteriorating environment, Taubman Centers
performed well, demonstrating once again the quality of our centers, the strength
of our balance sheet, the soundness of our strategy, and most important – the skill
of our people. Recognizing the difficulties ahead, we are aggressively managing
our costs, paying close attention to our core properties and staying alert to the
opportunities inevitably created by periods of uncertainty and upheaval.
Without minimizing the impact of the strong headwinds to come,
it is our intention to emerge from this crisis as an even stronger,
more competitive company.
That’s the commitment that all of us at Taubman
have made to our retailers, the communities we serve and our shareholders. Our
people have demonstrated that commitment by joining me in signing this letter.
S o l i d P e r f o r m a n c e a n d a S t r o n g B a l a n c e S h e e t
2008 was our 58th year in business. We continued to lead the regional mall
industry in mall tenant sales per square foot, which averaged $539, down 2.9
percent from 2007 but better than our performance in 2006. Attesting to the
quality of our centers, this percentage decline was the smallest among all public
mall REITs – once again, widening the significant average-sales-per-square-foot
lead we have on our peers. Tenant sales are the most important measure of a
portfolio’s overall strength.
Our 2008 rent-per-square-foot growth of 3 percent and
positive recoveries led to solid core Net Operating Income
(NOI) growth of nearly 5 percent for the year. We headed into 2009
with occupancy at 90.3 percent, which is at the higher end of our historical levels
but down modestly from 2007. Leased space at year end was 91.7 percent, indicating a
healthy backlog of tenants who have committed to opening stores in our space. The
1.4 percent spread between occupied and leased space is in line with our history.
Our 2008 Funds From Operations (FFO) per diluted share was $1.51 compared
to $2.88 per share for 2007. We recognized charges of $126.3 million in the fourth
quarter related to the delay of our project in Sarasota, Florida, and an unexpected
negative court ruling threatening the progress of our proposed Oyster Bay
project – I’ll provide more on both projects later in this letter. Excluding these
charges, our 2008 Adjusted FFO per diluted share was up 6.9 percent over our
FFO per diluted share in 2007.
Ta u b m a n C e n t e rs , I n c .
In this unprecedented time, it’s clear a
Solid Balance Sheet has never been a more
important corporate asset. We are fortunate to have no debt maturities until
the fall of 2010 and collectively through 2011, only about 13 percent of our
share of total debt. In addition, our credit lines are secured with nearly all of
these funds available until 2012. Further, we have significant margin on all our
financial covenants. With this strong balance sheet – arguably
the best pound-for-pound among
all public mall reits – we’re confident we’ll be able to
meet all our obligations and weather even the severest economic storm. We also
believe our financial strength, coupled with our people and our great assets,
positions us well to take advantage of opportunities that may arise from this
challenging environment.
Consistent with this confidence in our future we were pleased the Taubman
Centers Board of Directors determined to hold firm our dividend – this
in an environment where many of our public REIT peers cut their dividends
in 2008.
Unfortunately, Taubman Centers’ stock price performance was not immune to
the precipitous decline in the global economy. We ended 2007 at $49.19 and
after closing as high as $55.40 as late as September, we ended the year at
$25.46. Our total return to shareowners in 2008, although negative, was the
second best among mall REITs. As I write this letter, Taubman Centers continues
to lead all mall REITs in total return over the last 3, 5 and 10 years.
L e t t e r t o S h a r e o w n e rs
R e s p o n d i n g t o a C h a l l e n g i n g R e t a i l E n v i r o n m e n t
After 22 consecutive quarters of growth, sales in our centers throughout the
nation, began to decline sharply in September of 2008. The holiday season was
the weakest in memory, leaving even the best retailers with devastated margins.
The only good news is most of the retailers in our centers entered this downturn
with very healthy balance sheets. Nevertheless, with sales way down, they have
been forced to reduce inventories and dramatically scale back capital spending
programs for 2009 in order to conserve cash. While retail companies still need to
grow, they are very hesitant to make new leasing commitments and are delaying
store openings into 2010 or 2011 whenever possible.
Consequently, we anticipate that current and unscheduled vacancies will be
more difficult to fill quickly. Further, bankruptcies, which impacted 2.5 percent of
our leases in 2008 and have over the last 20 years ranged from 0.5 to 4.5 percent
annually, are likely to rise. It’s quite possible we’ll see a number at the higher end
of that range in 2009, albeit just because a retailer files for bankruptcy doesn’t
mean they will absolutely close all their stores.
Given this environment, a mall operator wants to own and manage the most
productive and highest quality assets.
Even in the toughest of times, we believe it is critical to continuously reinvest in our
centers to maintain their freshness and customer appeal. While we built our first
super regional mall in the early 1960s, the average age of our centers is under 17
years. Further, more than half our centers opened, were renovated or expanded
since 2000.This reinvestment helps create the most desirable shopping centers.
These centers are where the best retailers will want to be when they regain the
confidence to resume their expansion plans as the economy recovers. Leasing in
2009 will no doubt be challenging, but we believe our dominant properties will
attract a significant share of these stores at an earlier point in the recovery cycle
than our mall REIT peers.
Ta u b m a n C e n t e rs , I n c .
M a n a g i n g O u r D e v e l o p m e n t P i p e l i n e
Just as prudent retailers are responding to this unprecedented environment, we are
as well. The decision in December to delay University Town Center in Sarasota,
Florida, which we were developing with the Forbes Company and Florida-based
Benderson Development, was unique in our history. We have never stopped
construction on a project we had begun – let alone one anchored by Neiman
Marcus, Nordstrom and Macy’s. While we and our partners believe this will be
a wonderful opportunity, it is impossible to predict when retailing and financial
conditions will once again be right to resume this project. In the meantime, we
wrote off our $8 million investment and have no asset remaining on our books.
We will be expensing any additional costs as we go.
We were also extremely disappointed to receive a negative court ruling on The
Mall at Oyster Bay. This ruling surprisingly reversed a very forceful and favorable
order by the Supreme Court of the State of New York. While we are seeking an
appeal of the ruling, this unexpected action will at a minimum cause significant
delay. As I have been saying for many years, this is perhaps the most promising
location for a new mall in America.
Given this uncertainty, we took a $118 million charge to income in the fourth
quarter of 2008 and will be expensing all ongoing costs for Oyster Bay until
there is a higher probability that we will be building the center. We continue to
believe The Mall at Oyster Bay, with anchor commitments from Neiman Marcus,
Barney’s New York, and Nordstrom, would be a magnificent new property for
Taubman, as well as a tremendous economic asset for the communities it will
serve on Long Island.
L e t t e r t o S h a r e o w n e rs
On a very positive note, leasing is progressing well at both
City Creek Center in downtown Salt Lake City, Utah, and Crystals, the retail
district we are leasing for MGM MIRAGE at their CityCenter project in Las Vegas,
Nevada. We are developing the Salt Lake center with City Creek Reserve, an
affiliate of the LDS Church, and it is scheduled to open in 2012. Crystals is
designed by the architectural firm Studio Daniel Libeskind, and is expected to
debut in late 2009 along with the project’s 61-story, 4,000-room ARIA Resort &
Casino, Vdara Hotel & Spa and Mandarin Oriental Las Vegas.
The impact of the worldwide financial crisis is also being felt at Taubman Asia.
Macao Studio City, a nearly 4 million square foot mixed-use hotel, retail and
gaming resort planned on the Cotai Strip was forced to stop when the full
financing anticipated could not be finalized. Taubman Asia is expected to be a
partner in the project’s 600,000 square foot luxury retail space. We have received
incredible retail response, and are now waiting for our partners and master
developers of the project to determine when they can proceed.
In Incheon, South Korea, an amazing amount of construction is under way at
Songdo, where Taubman Asia is providing leasing, development and
management services for the new city’s 1.1 million square foot shopping center,
to be anchored by Lotte and Tesco Homeplus stores along with a nine-screen
Megabox multiplex. Within blocks of the center’s site, nearly 50 office and
residential towers, as well as bridge and subway connections are nearing
completion. Nonetheless, full financing for the shopping center has not yet been
completed. Until it is, we will be unable to determine whether an investment in
the center is appropriate for Taubman Asia.
Ta u b m a n C e n t e rs , I n c .
In this environment, figuring out the best way to nurture
our development pipelines in both the United States and
Asia – after years of human and financial capital investment –
is a complicated process, demanding the most disciplined
judgment of our best-in-industry professionals. We want to be
well-positioned when things recover to be able to exercise
our best options to allocate capital appropriately and grow
our business.
R e s p o n d i n g t o a R e c e s s i o n a r y E n v i r o n m e n t
To make sure we fulfill our commitment to come out the other end of this
downturn a better, stronger company we are taking the
necessary steps to assure our continued financial and
operational health.
While we will continue to make prudent capital investments
to enhance the market positions of our dominant centers, we have significantly
reduced our predevelopment spending in both the United States and Asia.
In January 2009 we went through the difficult process of downsizing our
organization, reducing our overall workforce by about 40 positions primarily
in the areas that directly or indirectly support our development activities.
Everyone in our organization understands that we must control costs.
But it is equally important that we have sufficient support within all of our
teams to maintain the strength of our core assets. Managing every asset with
intensity is the way we do business – that will not change.
Looking ahead to the second half of 2009 and beyond, many formidable
challenges are still on the horizon. As I write this letter, there is no end in sight.
These are clearly unprecedented times, and the world’s economy will likely get
worse before things get better.
L e t t e r t o S h a r e o w n e rs
But as I’ve said, I’m confident Taubman Centers will weather the storm and
emerge as a stronger, growing company. Here’s why:
We have the best people and most productive assets in the industry.
We have a solid balance sheet with no near-term debt maturities and ample
secured credit lines.
Our management, owning one third of the company, is completely committed
to excellence and is fully aligned with our shareowners.
In our 58 year history, we have successfully managed through tough times before.
We will take whatever actions necessary to respond to the changing conditions.
And perhaps most important, the regional mall has continued to prove its
resiliency and its unique value proposition to retailers and shoppers in good
times and bad.
In short, we are a company with the best assets, a strong
balance sheet and great people, well positioned to continue
to be a leader in this industry. Our performance culture,
embraced at all levels of the company, thrives on challenge
and has been tested over six decades of change.
I want to thank our committed Board of Directors for their invaluable wisdom and
guidance. I also want to thank all our company’s employees – who signed this report
with me – for their continuing dedication, creativity
and hard work. And on their behalf, I thank you, our shareowners,
for your support and trust.
Robert S. Taubman, Chairman of the Board, President & Chief Executive Officer
Ta u b m a n C e n t e rs , I n c .
TA U B M A N P E O P L E
L e t t e r t o S h a r e o w n e rs
L e t t e r t o S h a r e o w n e r s
Ta u b m a n C e n t e rs , I n c .
2008
Taubman Centers
form 10-k
Ta u b m a n C e n t e rs , I n c . p a g e 1 2
2 0 0 8 P O RT F O L I O
U S A
Arizona Mills
Tempe, AZ
arizonamills.com
Beverly Center
Los Angeles, CA
beverlycenter.com
Cherry Creek
Shopping Center
Denver, CO
shopcherrycreek.com
City Creek Center
Salt Lake City, UT
(under development)
downtownrising.com
Crystals at CityCenter
Las Vegas, NV
(leasing & development services)
citycenter.com
Dolphin Mall
Miami, FL
shopdolphinmall.com
Fair Oaks
Fairfax, VA
shopfairoaksmall.com
Fairlane Town Center
Dearborn, MI
shopfairlane.com
Great Lakes Crossing
Auburn Hills, MI
shopgreatlakescrossing.com
International Plaza
Tampa, FL
shopinternationalplaza.com
MacArthur Center
Norfolk,VA
shopmacarthur.com
The Mall at Millenia
Orlando, FL
mallatmillenia.com
Northlake Mall
Charlotte, NC
shopnorthlake.com
The Mall at Partridge Creek
Clinton Township, MI
shoppartridgecreek.com
The Pier Shops at Caesars
Atlantic City, NJ
thepieratcaesars.com
Regency Square
Richmond, VA
shopregencysqmall.com
The Mall at Short Hills
Short Hills, NJ
shopshorthills.com
Stamford Town Center
Stamford, CT
shopstamfordtowncenter.com
Stony Point Fashion Park
Richmond, VA
shopstonypoint.com
Sunvalley
Concord, CA
shopsunvalley.com
Twelve Oaks Mall
Novi, MI
shoptwelveoaks.com
Waterside Shops
Naples, FL
watersideshops.com
The Mall at
Wellington Green
Palm Beach County, FL
shopwellingtongreen.com
Westfarms
West Hartford, CT
shopwestfarms.com
The Shops at Willow Bend
Plano, TX
shopwillowbend.com
Woodfield
Schaumburg, IL (managed only)
shopwoodfield.com
A S I A
The Mall at Studio City
Macao, China
macaostudiocity.com
Songdo Shopping Center
Incheon, South Korea
songdo.com
Ta u b m a n C e n t e rs , I n c .
Ta u b m a n C e n t e rs , I n c . p a g e 1 3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to _________________
Commission File Number 1-11530
TAUBMAN CENTERS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Michigan
(State or other jurisdiction of
incorporation or organization)
200 East Long Lake Road, Suite 300
Bloomfield Hills, Michigan
(Address of principal executive office)
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock,
$0.01 Par Value
8% Series G Cumulative
Redeemable Preferred Stock,
No Par Value
7.625% Series H Cumulative
Redeemable Preferred Stock,
No Par Value
38-2033632
(I.R.S. Employer
Identification No.)
48304-2324
(Zip Code)
(248) 258-6800
Name of each exchange
on which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer", “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act). (Check one):
Large Accelerated Filer
Smaller reporting company
Accelerated Filer
Non-Accelerated Filer
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
The aggregate market value of the 51,850,290 shares of Common Stock held by non-affiliates of the registrant as of June 30, 2008 was
$2.5 billion, based upon the closing price $48.65 per share on the New York Stock Exchange composite tape on June 30, 2008. (For this
computation, the registrant has excluded the market value of all shares of its Common Stock held by directors of the registrant and
certain other shareholders; such exclusion shall not be deemed to constitute an admission that any such person is an "affiliate" of the
registrant.) As of February 23, 2009, there were outstanding 53,044,236 shares of Common Stock.
Portions of the proxy statement for the annual shareholders meeting to be held in 2009 are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
Ta u b m a n C e n t e rs , I n c . p a g e 1 4
TAUBMAN CENTERS, INC.
CONTENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters, and
Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 10.
Directors, Executive Officers, and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
2
9
15
15
20
20
20
22
23
47
47
47
47
47
47
47
48
48
48
49
1
Item 1. BUSINESS.
PART I
The following discussion of our business 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. We caution that
although forward-looking statements reflect our good faith beliefs and best judgment based upon current information,
these statements are qualified by important factors that could cause actual results to differ materially from those in the
forward-looking statements, including those risks, uncertainties, and factors detailed from time to time in reports filed
with the SEC, and in particular those set forth under “Risk Factors” in this Annual Report on Form 10-K.
The Company
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 (the Operating Partnership or TRG) is
a majority-owned partnership subsidiary of TCO, which owns direct or indirect interests in all of our real estate
properties. In this report, the terms "we", "us" and "our" refer to TCO, the Operating Partnership, and/or the Operating
Partnership's subsidiaries as the context may require.
We own, lease, develop, acquire, dispose of, and operate regional and super-regional shopping centers. Our
portfolio as of December 31, 2008 included 23 urban and suburban shopping centers in ten states. The Consolidated
Businesses consist of shopping centers and entities that are controlled by ownership or contractual agreements, The
Taubman Company LLC (Manager), and Taubman Properties Asia LLC and its subsidiaries (Taubman Asia). See the
table on pages 16 and 17 of this report for information regarding the centers.
Taubman Asia, which is the platform for our expansion into the Asia-Pacific region, is headquartered in Hong Kong.
We operate as a REIT under the Internal Revenue Code of 1986, as amended (the Code). In order to satisfy the
provisions of the Code applicable to REITs, we must distribute to our shareowners at least 90% of our REIT taxable
income prior to net capital gains and meet certain other requirements. The Operating Partnership's partnership
agreement provides that the Operating Partnership will distribute, at a minimum, sufficient amounts to its partners such
that our pro rata share will enable us to pay shareowner dividends (including capital gains dividends that may be
required upon the Operating Partnership's sale of an asset) that will satisfy the REIT provisions of the Code.
Recent Developments
For a discussion of business developments that occurred in 2008, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A)."
The Shopping Center Business
There are several types of retail shopping centers, varying primarily by size and marketing strategy. Retail shopping
centers range from neighborhood centers of less than 100,000 square feet of GLA to regional and super-regional
shopping centers. Retail shopping centers in excess of 400,000 square feet of GLA are generally referred to as
"regional" shopping centers, while those centers having in excess of 800,000 square feet of GLA are generally referred
to as "super-regional" shopping centers. In this annual report on Form 10-K, the term "regional shopping centers"
refers to both regional and super-regional shopping centers. The term "GLA" refers to gross retail space, including
anchors and mall tenant areas, and the term "Mall GLA" refers to gross retail space, excluding anchors. The term
"anchor" refers to a department store or other large retail store. The term "mall tenants" refers to stores (other than
anchors) that lease space in shopping centers.
Business of the Company
We are engaged in the ownership, management, leasing, acquisition, disposition, development, and expansion of
regional shopping centers.
2
The centers:
• are strategically located in major metropolitan areas, many in communities that are among the most affluent in the
country, including Atlantic City, Charlotte, Dallas, Denver, Detroit, Los Angeles, Miami, New York City, Orlando,
Phoenix, San Francisco, Tampa, and Washington, D.C.;
•
range in size between 282,000 and 1.6 million square feet of GLA and between 197,000 and 636,000 square feet
of Mall GLA. The smallest center has approximately 60 stores, and the largest has over 200 stores. Of the
23 centers, 18 are super-regional shopping centers;
• have approximately 3,000 stores operated by their mall tenants under approximately 900 trade names;
• have 68 anchors, operating under 15 trade names;
•
lease over 90% of Mall GLA to national chains, including subsidiaries or divisions of The Gap (Gap, Gap Kids/Baby
Gap, Banana Republic, Old Navy, and others), Forever 21 (Forever 21, For Love 21, XXI Forever, and others), and
Limited Brands (Bath & Body Works/White Barn Candle, Pink, Victoria's Secret, and others); and
• are among the most productive (measured by mall tenants' average sales per square foot) in the United States. In
2008, mall tenants reported average sales per square foot of $539, which is higher than the average for all regional
shopping centers owned by public companies.
The most important factor affecting the revenues generated by the centers is leasing to mall tenants (including
temporary tenants and specialty retailers), which represents approximately 90% of revenues. Anchors account for less
than 10% of revenues because many own their stores and, in general, those that lease their stores do so at rates
substantially lower than those in effect for mall tenants.
Our portfolio is concentrated in highly productive super-regional shopping centers. Of our 23 centers, 21 had annual
rent rolls at December 31, 2008 of over $10 million. We believe that this level of productivity is indicative of the centers'
strong competitive positions and is, in significant part, attributable to our business strategy and philosophy. We believe
that large shopping centers (including regional and especially super-regional shopping centers) are the least
susceptible to direct competition because (among other reasons) anchors and large specialty retail stores do not find it
economically attractive to open additional stores in the immediate vicinity of an existing location for fear of competing
with themselves. In addition to the advantage of size, we believe that the centers' success can be attributed in part to
their other physical characteristics, such as design, layout, and amenities.
Business Strategy And Philosophy
We believe that the regional shopping center business is not simply a real estate development business, but rather
an operating business in which a retailing approach to the on-going management and leasing of the centers is
essential. Thus we:
• offer retailers a location where they can maximize their profitability;
• offer a large, diverse selection of retail stores in each center to give customers a broad selection of consumer
goods and variety of price ranges;
• endeavor to increase overall mall tenants' sales by leasing space to a constantly changing mix of tenants, thereby
increasing achievable rents;
•
seek to anticipate trends in the retailing industry and emphasize ongoing introductions of new retail concepts into
our centers. Due in part to this strategy, a number of successful retail trade names have opened their first mall
stores in the centers. In addition, we have brought to the centers "new to the market" retailers. We believe that the
execution of this leasing strategy is an important element in building and maintaining customer loyalty and
increasing mall productivity; and
• provide innovative initiatives that utilize technology and the Internet to heighten the shopping experience, build
customer loyalty and increase tenant sales. Our Taubman center website program connects shoppers and retailers
through an interactive content-driven website. We also offer our shoppers a robust direct email program, which
allows them to receive, each week, information featuring what’s on sale and what’s new at the stores they select.
The centers compete for retail consumer spending through diverse, in-depth presentations of predominantly fashion
merchandise in an environment intended to facilitate customer shopping. While the majority of our centers include
stores that target high-end, upscale customers, each center is individually merchandised in light of the demographics of
its potential customers within convenient driving distance.
3
Our leasing strategy involves assembling a diverse mix of mall tenants in each of the centers in order to attract
customers, thereby generating higher sales by mall tenants. High sales by mall tenants make the centers attractive to
prospective tenants, thereby increasing the rental rates that prospective tenants are willing to pay. We implement an
active leasing strategy to increase the centers' productivity and to set minimum rents at higher levels. Elements of this
strategy include renegotiating existing leases and not leasing space to prospective tenants that (though viable or
attractive in certain ways) would not enhance a center's retail mix.
In 2005, we began a new leasing strategy to have our tenants pay a fixed charge rather than pay their share of
common area maintenance (CAM) costs, allowing the retailer greater predictability for a modest premium. From a
financial perspective, our analysis shows the premium will balance our additional risk. Over time there will be
significantly less matching of CAM income with CAM expenditures, which can vary considerably from period to period.
Approximately 32% of leases in our portfolio as of December 31, 2008 have fixed CAM provisions.
Potential For Growth
Our principal objective is to enhance shareowner value. We seek to maximize the financial results of our core assets,
while also pursuing a growth strategy that primarily has included an active new center development program. However,
the current recession and difficult capital markets have severely impacted certain of our planned development projects
and the potential, in the short term, for new projects. We have reduced and or eliminated spending on development
projects by slowing down or by putting projects on hold both in the U.S. and Asia. Consistent with this reduction, in
January 2009, we went through the process of downsizing our organization, reducing our overall workforce by about 40
positions. See “MD&A – Results of Operations – Subsequent Event” for further information. This primarily impacted the
areas that directly or indirectly support these development initiatives. We believe the company is now right sized to
efficiently pursue targeted growth opportunities in this environment, while ensuring we have sufficient support within all
of our teams to maintain the strength of our core assets. Although we expect lower revenues and occupancy in 2009,
we have a strong balance sheet and no debt maturities until fall 2010. We do not know when the economic downturn
will end, but we believe the regional mall business will continue to prove its resiliency and its unique value proposition
to the customer. See “MD&A – Results of Operations – Overall Summary of Management’s Discussion and Analysis of
Financial Condition and Results of Operations” for more details.
Internal Growth
We expect that over time the majority of our future growth will come from our existing core portfolio and business. We
have always had a culture of intensively managing our assets and maximizing the rents from tenants.
As noted in “Business Strategy and Philosophy” above in detail, our core business strategy is to maintain a portfolio
of properties that deliver above-market profitable growth by providing targeted retailers with the best opportunity to do
business in each market and targeted shoppers with the best local shopping experience for their needs.
New Centers
We have finalized the majority of the agreements, subject to certain conditions, regarding City Creek Center, a
mixed-use project in Salt Lake City, Utah and continue to work toward a 2012 opening. In January 2009, we received
an unfavorable ruling from the Appellate Division of the Supreme Court of the State of New York (Suffolk County) in
relation to our Oyster Bay project in Syosset, Long Island, New York, which we expect will significantly delay the
project. Due to the current economic and retail environment, in December 2008 we announced that our University
Town Center project in Sarasota, Florida has been put on hold. Although we continue to believe it should be a very
attractive opportunity longer term, we do not know if or when we will acquire an interest in the land and move forward
with the project. In 2008, we recognized impairment charges related to the Oyster Bay and Sarasota projects. Although
we have reduced our planned predevelopment activities for 2009, we continue to work on and evaluate various
development possibilities for new centers both in the United States and Asia.
See “MD&A – Results of Operations – Taubman Asia” regarding information on the Songdo and Macao projects,
“MD&A – Liquidity and Capital Resources – Capital Spending” regarding additional information on City Creek Center,
and “MD&A – Results of Operations – Impairment Charges” regarding additional information on the impairment
charges related to the Oyster Bay and Sarasota projects.
4
We generally do not intend to acquire land early in the development process. Instead, we generally acquire options
on land or form partnerships with landowners holding potentially attractive development sites. We typically exercise the
options only once we are prepared to begin construction. The pre-construction phase for a regional center typically
extends over several years and the time to obtain anchor commitments, zoning and regulatory approvals, and public
financing arrangements can vary significantly from project to project. In addition, we do not intend to begin construction
until a sufficient number of anchor stores have agreed to operate in the shopping center, such that we are confident
that the projected tenant sales and rents from Mall GLA are sufficient to earn a return on invested capital in excess of
our cost of capital. Having historically followed these principles, our experience indicates that, on average, less than
10% of the costs of the development of a regional shopping center will be incurred prior to the construction period.
However, no assurance can be given that we will continue to be able to so limit pre-construction costs.
While we will continue to evaluate development projects using criteria, including financial criteria for rates of return,
similar to those employed in the past, no assurances can be given that the adherence to these criteria will produce
comparable results in the future. In addition, the costs of shopping center development opportunities that are explored
but ultimately abandoned will, to some extent, diminish the overall return on development projects taken as a whole.
See "MD&A – Liquidity and Capital Resources – Capital Spending" for further discussion of our development activities.
Strategic Acquisitions
Given the current economic conditions there may be opportunities to acquire existing centers, or interests in existing
centers, from other companies at attractive prices. Our objective is to acquire existing centers only when they are
compatible with the quality of our portfolio (or can be redeveloped to that level). We also may acquire additional
interests in centers currently in our portfolio. We plan to carefully evaluate our future capital needs along with our
strategic plans and pricing requirements.
Expansions of the Centers
Another potential element of growth over time is the strategic expansion of existing properties to update and enhance
their market positions, by replacing or adding new anchor stores or increasing mall tenant space. Most of the centers
have been designed to accommodate expansions. Expansion projects can be as significant as new shopping center
construction in terms of scope and cost, requiring governmental and existing anchor store approvals, design and
engineering activities, including rerouting utilities, providing additional parking areas or decking, acquiring additional
land, and relocating anchors and mall tenants (all of which must take place with a minimum of disruption to existing
tenants and customers).
In September 2007, a 165,000 square foot Nordstrom opened at Twelve Oaks Mall (Twelve Oaks) along with
approximately 97,000 square feet of additional new store space. In 2008, Macy’s renovated its store and added
60,000 square feet of store space.
A lifestyle component addition to Stamford Town Center (Stamford), on the site once occupied by Filene’s
Department store, opened in November 2007. The project consists of a mix of signature retail and restaurant offerings,
creating significantly greater visibility to the city and much needed pedestrian access to the center. In addition, we
renovated the seventh level in 2007, adding a 450-seat food court and interactive children’s play area. The food court
tenants opened in early 2008.
Construction was completed on an expansion and renovation of tenant space at Waterside Shops (Waterside) in
2006. In addition, Nordstrom joined the center as an anchor in November 2008 and an expansion and full renovation of
the current anchor, Saks Fifth Avenue, was completed in the second half of 2008.
See “MD&A – Results of Operations – Openings, Expansions and Renovations, and Acquisitions” for information
regarding recent development, acquisition, and expansion and renovation activities that have been completed.
Third-Party Management, Leasing, and Development Services
We have several current and potential projects in the United States and Asia that contribute or may contribute in the
future to our third-party revenue results.
5
We have a management agreement for Woodfield Mall, which is owned by a third-party. This contract is renewable
year-to-year and is cancelable by the owner with 90 days written notice. We also have an agreement for retail leasing
and development and design advisory services for CityCenter, a mixed use urban development project scheduled to
open in late 2009 on the Strip in Las Vegas, Nevada. The term of this fixed-fee contract is approximately 25 years,
effective June 2005, and is generally cancelable for cause and by the project owner upon payment to us of a
cancellation fee.
We have also entered into agreements to provide services related to projects in Asia. See “MD&A – Results of
Operations – Taubman Asia” for more information. Also see “Risk Factors” regarding risks related to our international
activities.
In addition, we have finalized the majority of agreements, subject to certain conditions, regarding City Creek Center,
a mixed-use project in Salt Lake City, Utah. Under the agreements, we would provide development, leasing, and
management services and be an investor in this project under a participating lease structure. The center is expected to
open in 2012.
The actual amounts of revenue in any future period are difficult to predict because of many factors, including the
timing of completion of contractual arrangements and the actual timing of construction starts and opening dates of the
various projects. In light of the current capital markets, the timing of construction starts may be delayed until the
completion of financing. In addition, the amount of revenue we recognize is reduced by any ownership interest we may
have in a project. Also, there are various factors that determine the timing of recognition of revenue. For development,
revenue is recognized when the work is performed. For leasing, it is recognized when the leases are signed or when
stores open, depending on the agreement.
Rental Rates
As leases have expired in the 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. 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, as we are experiencing now, rents
on new leases will grow more slowly or will decline for the opposite reason, as tenants' expectations of future growth
become less optimistic.
The following tables contain certain information regarding per square foot minimum rent in our Consolidated
Businesses and Unconsolidated Joint Ventures at the comparable centers (centers that had been owned and open for
the current and preceding year):
2008
2007
2006
2005
2004
Average rent per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Opening base rent per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Square feet of GLA opened:
Consolidated Businesses
Unconsolidated Joint Ventures
Closing base rent per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Square feet of GLA closed:
Consolidated Businesses
Unconsolidated Joint Ventures
Releasing spread per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
$44.58
44.60
$53.74
55.26
659,681
439,820
$46.22
47.99
735,550
434,432
$7.52
7.27
$43.39
41.89
$53.35
48.05
$42.77
41.03
$41.25
42.98
$41.41
42.28
$42.38
44.90
885,982
394,316
1,007,419
306,461
682,305
400,477
$45.39
48.63
807,899
345,122
$7.96
(0.58)
$39.57
42.49
$40.59
44.26
911,986
246,704
650,701
366,932
$1.68
0.49
$1.79
0.64
$40.98
42.09
$44.35
44.67
688,020
337,679
$44.54
51.40
499,098
280,393
$(0.19)
(6.73)
6
The spread between opening and closing rents 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, and average size of tenant space opening and closing in the period. Openings in 2008 and 2007
were generally negotiated in a rising sales environment. Although the releasing spread per square foot of the
Unconsolidated Joint Ventures in 2007 was adversely impacted by the opening of large tenant spaces. Rents on stores
opening in 2004 were generally negotiated in a decreasing sales environment.
Lease Expirations
The following table shows scheduled lease expirations for mall tenants based on information available as of
December 31, 2008 for the next ten years for all owned centers in operation at that date:
Lease
Expiration
Year
2009 (1)
2010
2011
2012
2013
2014
2015
2016
2017
2018
Number of
Leases
Expiring
161
242
428
325
324
246
269
297
338
226
Leased Area in
Square Footage
412,955
653,961
1,362,876
1,312,034
1,381,436
925,887
1,002,619
1,052,897
1,357,747
1,014,672
Annualized Base Rent
Under Expiring Leases
(in thousands of dollars)
15,037
26,501
51,948
52,457
49,797
34,998
38,658
41,275
59,403
46,427
Annualized Base
Rent Under
Expiring Leases
Per Square Foot
$36.41
40.52
38.12
39.98
36.05
37.80
38.56
39.20
43.75
45.76
Percent of
Total Leased
Square Footage
Represented by
Expiring Leases
3.5%
5.5
11.5
11.1
11.7
7.8
8.5
8.9
11.5
8.6
(1) Excludes leases that expire in 2009 for which renewal leases or leases with replacement tenants have been executed as of December 31,
2008, except for Arizona Mills, which is not managed by us.
We believe that the information in the table is not necessarily indicative of what will occur in the future because of
several factors, but principally because of early lease terminations at the centers. For example, the average remaining
term of the leases that were terminated during the period 2003 to 2008 was approximately two years. The average
term of leases signed during 2008 and 2007 was approximately seven years.
In addition, mall tenants at the centers may seek the protection of the bankruptcy laws, which could result in the
termination of such tenants' leases and thus cause a reduction in cash flow. In 2008, tenants representing 2.5% of
leases filed for bankruptcy during this period compared to 0.5% in 2007. In 2009, indicators point toward a higher level
of bankruptcies due to the current economic environment. This statistic has ranged from 0.4% to 4.5% since we went
public in 1992. Since 1991, the annual provision for losses on accounts receivable has been less than 2% of annual
revenues.
Occupancy
Occupancy statistics include value center anchors. The 2008 and 2007 statistics for comparable centers exclude The
Mall at Partridge Creek (Partridge Creek), which opened in October 2007, and The Pier Shops at Caesars (The Pier
Shops) which began opening in phases in June 2006. Additionally, 2006, 2005, and 2004 also exclude Waterside,
which was renovated and expanded in 2006, Northlake Mall, which opened in 2005 and Woodland, which was sold in
2005.
All Centers:
Leased space
Ending occupancy
Average occupancy
Comparable Centers:
Leased space
Ending occupancy
Average occupancy
2008
91.7%
90.3
90.3
91.8%
90.3
90.4
2007
93.8%
91.2
90.0
93.8%
91.5
90.3
7
2006
92.5%
91.3
89.2
92.4%
91.3
89.1
2005
91.7%
90.0
88.9
91.5%
90.2
89.1
2004
90.7%
89.6
87.4
90.7%
89.6
87.4
Major Tenants
No single retail company represents 10% or more of our Mall GLA or revenues. The combined operations of The
Gap, Inc. accounted for less than 4% of Mall GLA as of December 31, 2008 and less than 4% of 2008 minimum rent.
No other single retail company accounted for more than 3.5% of Mall GLA as of December 31, 2008 or 3% of 2008
minimum rent.
The following table shows the ten mall tenants who occupy the most space at our centers and their square footage
as of December 31, 2008:
Tenant
The Gap (Gap, Gap Kids/Baby Gap, Banana Republic, Old Navy, and others)
Forever 21 (Forever 21, For Love 21, XXI Forever, and others)
Limited Brands (Bath & Body Works/White Barn Candle, Pink, Victoria's Secret, and others)
Abercrombie & Fitch (Abercrombie, Abercrombie & Fitch, Hollister, Ruehl and others)
Foot Locker (Foot Locker, Lady Foot Locker, Champs Sports, Foot Action USA, and others)
Ann Taylor (Ann Taylor, Ann Taylor Loft)
Williams-Sonoma (Williams-Sonoma, Pottery Barn, Pottery Barn Kids)
Talbots (Talbots, J. Jill, Talbots Woman, Talbots Petites)
H&M
Express (Express, Express Men)
# of
Stores
46
31
43
38
46
34
25
31
10
19
Square
Footage
387,628
351,443
278,190
277,963
208,572
196,249
190,081
178,725
175,351
171,230
% of
Mall GLA
3.5%
3.2
2.5
2.5
1.9
1.8
1.7
1.6
1.6
1.6
Competition
There are numerous shopping facilities that compete with our properties in attracting retailers to lease space.
We compete with other major real estate investors with significant capital for attractive investment opportunities. See
“Risk Factors” for further details of our competitive business.
Seasonality
The regional shopping center industry is seasonal in nature, with mall tenant sales highest in the fourth quarter due
to the Christmas season, and with lesser, though still significant, sales fluctuations associated with the Easter holiday
and back-to-school period. See “MD&A – Seasonality” for further discussion.
Environmental Matters
See “Risk Factors” regarding discussion of environmental matters.
Personnel
We have engaged the Manager to provide real estate management, acquisition, development, leasing, and
administrative services required by us and our properties in the United States. Taubman Asia Management Limited
(TAM) provides similar services for Taubman Asia.
As of December 31, 2008, the Manager and TAM had 611 full-time employees. The following table provides a
breakdown of employees by operational areas as of December 31, 2008:
Center Operations
Property Management
Financial Services
Leasing and Tenant Coordination
Development
Other
Total
Number of Employees
228
154
69
62
31
67
611
In January 2009, in response to a decreased level of active projects due to the downturn in the economy, we reduced
our workforce by about 40 positions, primarily in areas that directly or indirectly affect our development initiatives in the
U.S. and Asia. See “MD&A – Results of Operations – Subsequent Event” for further information.
8
Available Information
The Company makes available free of charge through its website at www.taubman.com all reports it electronically
files with, or furnishes to, the Securities Exchange Commission (the “SEC”), including its Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any amendments to those reports, as
soon as reasonably practicable after those documents are filed with, or furnished to, the SEC. These filings are also
accessible on the SEC’s website at www.sec.gov.
Item 1A. RISK FACTORS.
The economic performance and value of our shopping centers are dependent on many factors.
The economic performance and value of our shopping centers are dependent on various factors. Additionally, these
same factors will influence our decision whether to go forward on the development of new centers and may affect the
ultimate economic performance and value of projects under construction. Adverse changes in the economic
performance and value of our shopping centers would adversely affect our income and cash available to pay dividends.
Such factors include:
•
•
changes in the national, regional, and/or local economic and geopolitical climates, which as in the current
severe economic environment, may significantly impact our anchors, tenants and prospective customers of our
shopping centers;
changes in sales performance of our centers, which over the long term, are the single most important
determinant of revenues of the shopping centers because mall tenants provide approximately 90% of these
revenues and because mall tenant sales determine the amount of rent, percentage rent, and recoverable
expenses that mall tenants can afford to pay;
• availability and cost of financing, which may significantly reduce our ability to obtain financing or refinance
existing debt at current amounts or rates or may affect our ability to finance improvements to a property;
• decreases in other operating income, including sponsorship, garage and other income;
•
•
•
•
•
increases in operating costs;
the public perception of the safety of customers at our shopping centers;
legal liabilities;
changes in government regulations; and
changes in real estate zoning and tax laws.
In addition, the value and performance of our shopping centers may be adversely affected by certain other factors
discussed below including the recent global economic and financial market crisis, the current state of the capital
markets, unscheduled closings or bankruptcies of our tenants, competition, uninsured losses, and environmental
liabilities.
The recent global economic and financial market crisis has had and may continue to have a negative effect on our
business and operations.
The recent global economic and financial market crisis has caused, among other things, a significant tightening in the
credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, lower consumer and business
spending, and lower consumer confidence and net worth, all of which has had and may continue to have a negative
effect on our business, results of operations, financial condition and liquidity. Many of our tenants have been affected
by the current economic turmoil. We expect that the economy will continue to strain the resources of our tenants and
their customers. The timing and nature of any recovery in the credit and financial markets remains uncertain, and there
can be no assurance that market conditions will improve in the near future or that our results will not continue to be
adversely affected. Such conditions make it very difficult to forecast operating results, make business decisions and
identify and address material business risks. The foregoing conditions may also impact the valuation of certain long-
lived or intangible assets that are subject to impairment testing, potentially resulting in impairment charges, which may
be material to our financial condition or results of operations. In 2008, we recognized an impairment charge of
$8.3 million related to our Sarasota project, which was put on hold due to the current economic and retail environment
(see “MD&A – Results of Operations – Impairment Charges”).
9
Capital markets are currently experiencing a period of disruption and instability, which has had and could continue
to have a negative impact on the availability and cost of capital.
The general disruption in the U.S. capital markets has impacted the broader worldwide financial and credit markets
and reduced the availability of debt and equity capital for the market as a whole. These global conditions could persist
for a prolonged period of time or worsen in the future. Our ability to access the capital markets may be restricted at a
time when we would like, or need, to access those markets, which could have an impact on our flexibility to react to
changing economic and business conditions. The resulting lack of available credit, lack of confidence in the financial
sector, increased volatility in the financial markets and reduced business activity could materially and adversely affect
our business, financial condition, results of operations and our ability to obtain and manage our liquidity. In addition, the
cost of debt financing and the proceeds of equity financing may be materially adversely impacted by these market
conditions.
Credit market developments may reduce availability under our credit agreements.
Due to the current volatile state of the credit markets, there is risk that lenders, even those with strong balance
sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing
credit commitments, including but not limited to: extending credit up to the maximum permitted by a credit facility and/or
honoring loan commitments. Twelve banks participate in our $550 million line of credit and the failure of one bank to
fund a draw on our line does not negate the obligation of the other banks to fund their pro-rata share. In October 2008
we borrowed $35 million on this credit facility, which was funded by all participating banks. However, if our lenders fail
to honor their legal commitments under our credit facilities, it could be difficult in the current environment to replace our
credit facilities on similar terms. Although we believe that our operating cash flow, access to capital markets, two
unencumbered center properties and existing credit facilities will give us the ability to satisfy our liquidity needs at least
until fall 2010, when our $264 million beneficial share of three loans mature, the failure of the lenders under our credit
facilities may impact our ability to finance our operating or investing activities.
We are in a competitive business.
There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. In
addition, retailers at our properties face continued competition from discount shopping centers, lifestyle centers, outlet
malls, wholesale and discount shopping clubs, direct mail, telemarketing, television shopping networks and shopping
via the Internet. Competition of this type could adversely affect our revenues and cash available for distribution to
shareowners.
We compete with other major real estate investors with significant capital for attractive investment opportunities.
These competitors include other REITs, investment banking firms and private institutional investors. This competition
may impair our ability to make suitable property acquisitions on favorable terms in the future.
The bankruptcy or early termination of our tenants and anchors could adversely affect us.
We could be adversely affected by the bankruptcy or early termination of tenants and anchors. The bankruptcy of a
mall tenant could result in the termination of its lease, which would lower the amount of cash generated by that mall. In
addition, if a department store operating as an anchor at one of our shopping centers were to go into bankruptcy and
cease operating, we may experience difficulty and delay in replacing the anchor. In addition, the anchor’s closing may
lead to reduced customer traffic and lower mall tenant sales. As a result, we may also experience difficulty or delay in
leasing spaces in areas adjacent to the vacant anchor space. The early termination of mall tenants or anchors for
reasons other than bankruptcy could have a similar impact on the operations of our centers.
The bankruptcy of our joint venture partners could adversely affect us.
The profitability of shopping centers held in a joint venture could also be adversely affected by the bankruptcy of one
of the joint venture partners if, because of certain provisions of the bankruptcy laws, we were unable to make important
decisions in a timely fashion or became subject to additional liabilities.
Our investments are subject to credit and market risk.
We occasionally extend credit to third parties in connection with the sale of land or other transactions. We have
occasionally made investments in marketable and other equity securities. We are exposed to risk in the event the
values of our investments and/or our loans decrease due to overall market conditions, business failure, and/or other
nonperformance by the investees or counterparties.
10
Our real estate investments are relatively illiquid.
We may be limited in our ability to vary our portfolio in response to changes in economic, market, or other conditions
by restrictions on transfer imposed by our partners or lenders. In addition, under TRG’s partnership agreement, upon
the sale of a center or TRG’s interest in a center, TRG may be required to distribute to its partners all of the cash
proceeds received by TRG from such sale. If TRG made such a distribution, the sale proceeds would not be available
to finance TRG’s activities, and the sale of a center may result in a decrease in funds generated by continuing
operations and in distributions to TRG’s partners, including us.
We may acquire or develop new properties, and these activities are subject to various risks.
We actively pursue development and acquisition activities as opportunities arise, and these activities are subject to
the following risks:
•
the pre-construction phase for a regional center typically extends over several years, and the time to obtain
anchor commitments, zoning and regulatory approvals, and public financing can vary significantly from project
to project;
• we may not be able to obtain the necessary zoning or other governmental approvals for a project, or we may
determine that the expected return on a project is not sufficient; if we abandon our development activities with
respect to a particular project, we may incur a loss on our investment;
•
construction and other project costs may exceed our original estimates because of increases in material and
labor costs, delays and costs to obtain anchor and tenant commitments;
• we may not be able to obtain financing or to refinance construction loans, which are generally recourse to
TRG; and
• occupancy rates and rents, as well as occupancy costs and expenses, at a completed project may not meet
our projections, and the costs of development activities that we explore but ultimately abandon will, to some
extent, diminish the overall return on our completed development projects.
We are engaged in development and service activities in Macao and South Korea and are evaluating other
investment opportunities in international markets. These activities are subject to risks that may reduce our financial
return. In addition to the general risks related to development and acquisition activities described in the preceding
section, our international activities are subject to unique risks, including:
• adverse effects of changes in exchange rates for foreign currencies;
•
changes in foreign political environments;
• difficulties of complying with a wide variety of foreign laws including laws affecting corporate governance,
operations, taxes, and litigation;
•
changes in and/or difficulties in complying with applicable laws and regulations in the United States that affect
foreign operations, including the Foreign Corrupt Practices Act;
• difficulties in managing international operations, including difficulties that arise from ambiguities in contracts
written in foreign languages; and
• obstacles to the repatriation of earnings and cash.
Although our international activities are currently limited in their scope, to the extent that we expand them, these risks
could increase in significance and adversely affect our financial returns on international projects and services and
overall financial condition. We have put in place policies, practices, and systems for mitigating some of these
international risks, although we cannot provide assurance that we will be entirely successful in doing so.
Some of our potential losses may not be covered by insurance.
We carry liability, fire, flood, earthquake, extended coverage and rental loss insurance on each of our properties. We
believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however,
some types of losses, including lease and other contract claims, that generally are not insured. If an uninsured loss or a
loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as
well as the anticipated future revenue from the property. If this happens, we might nevertheless remain obligated for
any mortgage debt or other financial obligations related to the property.
11
In November 2002, Congress passed the “Terrorism Risk Insurance Act of 2002” (TRIA), which required insurance
companies to offer terrorism coverage to all existing insured companies for an additional cost. As a result, our property
insurance policies are currently provided without a sub-limit for terrorism, eliminating the need for separate terrorism
insurance policies.
In 2007, Congress extended the expiration date of TRIA by seven years to December 31, 2014. There are specific
provisions in our loans that address terrorism insurance. Simply stated, in most loans, we are obligated to maintain
terrorism insurance, but there are limits on the amounts we are required to spend to obtain such coverage. If a terrorist
event occurs, the cost of terrorism insurance coverage would be likely to increase, which could result in our having less
coverage than we have currently. Our inability to obtain such coverage or to do so only at greatly increased costs may
also negatively impact the availability and cost of future financings.
We may be subject to liabilities for environmental matters.
All of the centers presently owned by us (not including option interests in certain pre-development projects) have
been subject to environmental assessments. We are not aware of any environmental liability relating to the centers or
any other property in which we have or had an interest (whether as an owner or operator) that we believe would have a
material adverse effect on our business, assets, or results of operations. No assurances can be given, however, that all
environmental liabilities have been identified by us or that no prior owner or operator, or any occupant of our properties
has created an environmental condition not known to us. Moreover, no assurances can be given that (1) future laws,
ordinances, or regulations will not impose any material environmental liability or that (2) the current environmental
condition of the centers will not be affected by tenants and occupants of the centers, by the condition of properties in
the vicinity of the centers (such as the presence of underground storage tanks), or by third parties unrelated to us.
We hold investments in joint ventures in which we do not control all decisions, and we may have conflicts of interest
with our joint venture partners.
Some of our shopping centers are partially owned by non-affiliated partners through joint venture arrangements. As a
result, we do not control all decisions regarding those shopping centers and may be required to take actions that are in
the interest of the joint venture partners but not our best interests. Accordingly, we may not be able to favorably resolve
any issues that arise with respect to such decisions, or we may have to provide financial or other inducements to our
joint venture partners to obtain such resolution.
For joint ventures that we do not manage, we do not control decisions as to the design or operation of internal
controls over accounting and financial reporting, including those relating to maintenance of accounting records,
authorization of receipts and disbursements, selection and application of accounting policies, reviews of period-end
financial reporting, and safeguarding of assets. Therefore, we are exposed to increased risk that such controls may not
be designed or operating effectively, which could ultimately affect the accuracy of financial information related to these
joint ventures as prepared by our joint venture partners.
Various restrictive provisions and rights govern sales or transfers of interests in our joint ventures. These may work
to our disadvantage because, among other things, we may be required to make decisions as to the purchase or sale of
interests in our joint ventures at a time that is disadvantageous to us.
We may not be able to maintain our status as a REIT.
We may not be able to maintain our status as a REIT for federal income tax purposes with the result that the income
distributed to shareowners would not be deductible in computing taxable income and instead would be subject to tax at
regular corporate rates. We may also be subject to the alternative minimum tax if we fail to maintain our status as a
REIT. Any such corporate tax liability would be substantial and would reduce the amount of cash available for
distribution to our shareowners which, in turn, could have a material adverse impact on the value of, or trading price
for, our shares. Although we believe we are organized and operate in a manner to maintain our REIT qualification,
many of the REIT requirements of the Internal Revenue Code of 1986, as amended (the Code), are very complex and
have limited judicial or administrative interpretations. Changes in tax laws or regulations or new administrative
interpretations and court decisions may also affect our ability to maintain REIT status in the future. If we do not
maintain our REIT status in any year, we may be unable to elect to be treated as a REIT for the next four taxable
years.
Although we currently intend to maintain our status as a REIT, future economic, market, legal, tax, or other
considerations may cause us to determine that it would be in our and our shareowners’ best interests to revoke our
REIT election. If we revoke our REIT election, we will not be able to elect REIT status for the next four taxable years.
12
We may be subject to taxes even if we qualify as a REIT.
Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain federal, state, local
and foreign taxes on our income and property. For example, we will be subject to income tax to the extent we distribute
less than 100% of our REIT taxable income, including capital gains. Moreover, if we have net income from “prohibited
transactions,” that income will be subject to a 100% penalty tax. In general, prohibited transactions are sales or other
dispositions of property held primarily for sale to customers in the ordinary course of business. The determination as to
whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale. We
cannot guarantee that sales of our properties would not be prohibited transactions unless we comply with certain
statutory safe-harbor provisions. The need to avoid prohibited transactions could cause us to forego or defer sales of
facilities that non-REITs otherwise would have sold or that might otherwise be in our best interest to sell.
In addition, any net taxable income earned directly by our taxable REIT subsidiaries will be subject to federal, foreign,
and state corporate income tax. In this regard, several provisions of the laws applicable to REITs and their subsidiaries
ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a
taxable REIT subsidiary is limited in its ability to deduct certain interest payments made to an affiliated REIT. In
addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by
the taxable REIT subsidiaries if the economic arrangements between the REIT, the REIT’s tenants, and the taxable
REIT subsidiary are not comparable to similar arrangements between unrelated parties. Finally, some state and local
jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that
income, because not all states and localities follow the federal income tax treatment of REITs. To the extent that we
and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to
our shareowners.
The lower tax rate on certain dividends from non-REIT “C” corporations may cause investors to prefer to hold stock in
non-REIT “C” corporations.
Whereas corporate dividends have traditionally been taxed at ordinary income rates, the maximum tax rate on
certain corporate dividends received by individuals through December 31, 2010, has been reduced from 35% to 15%.
This change has reduced substantially the so-called “double taxation” (that is, taxation at both the corporate and
shareowner levels) that had generally applied to non-REIT “C” corporations but did not apply to REITs. Generally,
dividends from REITs do not qualify for the dividend tax reduction because REITs generally do not pay corporate-level
tax on income that they distribute currently to shareowners. REIT dividends are only eligible for the lower capital gains
rates in limited circumstances in which the dividends are attributable to income, such as dividends from a taxable REIT
subsidiary, that has been subject to corporate-level tax. The application of capital gains rates to non-REIT “C”
corporation dividends could cause individual investors to view stock in non-REIT “C” corporations as more attractive
than shares in REITs, which may negatively affect the value of our shares.
Our ownership limitations and other provisions of our articles of incorporation and bylaws generally prohibit the
acquisition of more than 8.23% of the value of our capital stock and may otherwise hinder any attempt to acquire us.
Various provisions of our articles of incorporation and bylaws could have the effect of discouraging a third party from
accumulating a large block of our stock and making offers to acquire us, and of inhibiting a change in control, all of
which could adversely affect our shareowners’ ability to receive a premium for their shares in connection with such a
transaction. In addition to customary anti-takeover provisions, as detailed below, our articles of incorporation contain
REIT-specific restrictions on the ownership and transfer of our capital stock which also serve similar anti-takeover
purposes.
Under our Restated Articles of Incorporation, in general, no shareowner may own more than 8.23% (the “General
Ownership Limit”) in value of our "Capital Stock" (which term refers to the common stock, preferred stock and Excess
Stock, as defined below). Our Board of Directors has the authority to allow a “look through entity” to own up to 9.9% in
value of the Capital Stock (Look Through Entity Limit), provided that after application of certain constructive ownership
rules under the Internal Revenue Code and rules regarding beneficial ownership under the Michigan Business
Corporation Act, no individual would constructively or beneficially own more than the General Ownership Limit. A look
through entity is an entity (other than a qualified trust under Section 401(a) of the Internal Revenue Code, certain other
tax-exempt entities described in the Articles, or an entity that owns 10% or more of the equity of any tenant from which
we or TRG receives or accrues rent from real property) whose beneficial owners, rather than the entity, would be
treated as owning the capital stock owned by such entity.
13
The Articles provide that if the transfer of any shares of Capital Stock or a change in our capital structure would
cause any person (Purported Transferee) to own Capital Stock in excess of the General Ownership Limit or the Look
Through Entity Limit, then the transfer is to be treated as invalid from the outset, and the shares in excess of the
applicable ownership limit automatically acquire the status of “Excess Stock.” A Purported Transferee of Excess Stock
acquires no rights to shares of Excess Stock. Rather, all rights associated with the ownership of those shares (with the
exception of the right to be reimbursed for the original purchase price of those shares) immediately vest in one or more
charitable organizations designated from time to time by our Board of Directors (each, a “Designated Charity”). An
agent designated from time to time by the Board (each, a “Designated Agent”) will act as attorney-in-fact for the
Designated Charity to vote the shares of Excess Stock, take delivery of the certificates evidencing the shares that have
become Excess Stock, and receive any distributions paid to the Purported Transferee with respect to those shares.
The Designated Agent will sell the Excess Stock, and any increase in value of the Excess Stock between the date it
became Excess Stock and the date of sale will inure to the benefit of the Designated Charity. A Purported Transferee
must notify us of any transfer resulting in shares converting into Excess Stock, as well as such other information
regarding such person’s ownership of the capital stock we request.
These ownership limitations will not be automatically removed even if the REIT requirements are changed so as to
no longer contain any ownership concentration limitation or if the concentration limitation is increased because, in
addition to preserving our status as a REIT, the effect of such ownership limit is to prevent any person from acquiring
unilateral control of us. Changes in the ownership limits can not be made by our Board of Directors and would require
an amendment to our articles. Currently, amendments to our articles require the affirmative vote of holders owning not
less than two-thirds of the outstanding capital stock entitled to vote.
Although Mr. A. Alfred Taubman beneficially owns 29% of our stock, which is entitled to vote on shareowner matters
(Voting Stock), most of his Voting Stock consists of Series B Preferred Stock. The Series B Preferred Stock is
convertible into shares of common stock at a ratio of 14,000 shares of Series B Preferred Stock to one share of
common stock, and therefore one share of Series B Preferred Stock has a value of 1/14,000ths of the value of one
share of common stock. Accordingly, Mr. A. Alfred Taubman’s significant ownership of Voting Stock does not violate
the ownership limitations set forth in our charter.
Members of the Taubman family have the power to vote a significant number of the shares of our capital stock entitled
to vote.
Based on information contained in filings made with the SEC, as of December 31, 2008, A. Alfred Taubman and the
members of his family have the power to vote approximately 32% of the outstanding shares of our common stock and
our Series B preferred stock, considered together as a single class, and approximately 91% of our outstanding
Series B preferred stock. Our shares of common stock and our Series B preferred stock vote together as a single class
on all matters generally submitted to a vote of our shareowners, and the holders of the Series B preferred stock have
certain rights to nominate up to four individuals for election to our board of directors and other class voting rights.
Mr. Taubman’s sons, Robert S. Taubman and William S. Taubman, serve as our Chairman of the Board, President and
Chief Executive Officer, and our Chief Operating Officer, respectively. These individuals occupy the same positions
with the Manager. As a result, Mr. A. Alfred Taubman and the members of his family may exercise significant influence
with respect to the election of our board of directors, the outcome of any corporate transaction or other matter
submitted to our shareowners for approval, including any merger, consolidation or sale of all or substantially all of our
assets. In addition, because our articles of incorporation impose a limitation on the ownership of our outstanding capital
stock by any person and such ownership limitation may not be changed without the affirmative vote of holders owning
not less than two-thirds of the outstanding shares of capital stock entitled to vote on such matter, Mr. A. Alfred
Taubman and the members of his family, as a practical matter, have the power to prevent a change in control of our
company.
Our ability to pay dividends on our stock may be limited.
Because we conduct all of our operations through TRG or its subsidiaries, our ability to pay dividends on our stock
will depend almost entirely on payments and dividends received on our interests in TRG. Additionally, the terms of
some of the debt to which TRG is a party limits its ability to make some types of payments and other dividends to us.
This in turn limits our ability to make some types of payments, including payment of dividends on our stock, unless we
meet certain financial tests or such payments or dividends are required to maintain our qualification as a REIT. As a
result, if we are unable to meet the applicable financial tests, we may not be able to pay dividends on our stock in one
or more periods beyond what is required for REIT purposes.
14
Our ability to pay dividends is further limited by the requirements of Michigan law.
Our ability to pay dividends on our stock is further limited by the laws of Michigan. Under the Michigan Business
Corporation Act, a Michigan corporation may not make a distribution if, after giving effect to the distribution, the
corporation would not be able to pay its debts as the debts become due in the usual course of business, or the
corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the
corporation were dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of
shareowners whose preferential rights are superior to those receiving the distribution. Accordingly, we may not make a
distribution on our stock if, after giving effect to the distribution, we would not be able to pay our debts as they become
due in the usual course of business or our total assets would be less than the sum of our total liabilities plus the
amount that would be needed to satisfy the preferential rights upon dissolution of the holders of any shares of our
preferred stock then outstanding.
We may incur additional indebtedness, which may harm our financial position and cash flow and potentially impact our
ability to pay dividends on our stock.
Our governing documents do not limit us from incurring additional indebtedness and other liabilities. As of December
31, 2008, we had approximately $2.8 billion of consolidated indebtedness outstanding, and our beneficial interest in
both our consolidated debt and the debt of our unconsolidated joint ventures was $3.0 billion. We may incur additional
indebtedness and become more highly leveraged, which could harm our financial position and potentially limit our cash
available to pay dividends.
We cannot assure that we will be able to pay dividends regularly, although we have done so in the past.
Our ability to pay dividends in the future is dependent on our ability to operate profitably and to generate cash from
our operations. Although we have done so in the past, we cannot guarantee that we will be able to pay dividends on a
regular quarterly basis or at the same level in the future. In addition, we may choose to pay a portion in stock
dividends. Furthermore, any new shares of common stock issued will increase the cash required to continue to pay
cash dividends at current levels. Any common stock or preferred stock that may in the future be issued to finance
acquisitions, upon exercise of stock options or otherwise, would have a similar effect.
Item 1B. UNRESOLVED STAFF COMMENTS.
None.
Item 2. PROPERTIES.
Ownership
The following table sets forth certain information about each of the centers. The table includes only centers in
operation at December 31, 2008. Centers are owned in fee other than Beverly Center (Beverly), Cherry Creek
Shopping Center (Cherry Creek), International Plaza, MacArthur Center, and The Pier Shops, which are held under
ground leases expiring between 2049 and 2083.
Certain of the centers are partially owned through joint ventures. Generally, our joint venture partners have ongoing
rights with regard to the disposition of our interest in the joint ventures, as well as the approval of certain major matters.
15
Center
Consolidated Businesses:
Beverly Center
Los Angeles, CA
Cherry Creek Shopping Center
Denver, CO
Dolphin Mall
Miami, FL
Fairlane Town Center
Dearborn, MI
(Detroit Metropolitan Area)
Great Lakes Crossing
Auburn Hills, MI
(Detroit Metropolitan Area)
International Plaza
Tampa, FL
MacArthur Center
Norfolk, VA
Northlake Mall
Charlotte, NC
The Mall at Partridge Creek
Clinton Township, MI
(Detroit Metropolitan Area)
The Pier Shops at Caesars (2)
Atlantic City, NJ
Regency Square
Richmond, VA
Stony Point Fashion Park
Richmond, VA
Twelve Oaks Mall
Novi, MI
(Detroit Metropolitan Area)
The Mall at Wellington Green
Wellington, FL
(Palm Beach County)
The Shops at Willow Bend
Plano, TX
(Dallas Metropolitan Area)
Year
Opened/
Expanded
Year
Acquired
Ownership
% as of
12/31/08
Anchors
Bloomingdales, Macy’s
Macy’s, Neiman Marcus, Nordstrom, Saks Fifth Avenue
Sq. Ft of
GLA/Mall
GLA as of
12/31/08
880,000
572,000
1,037,000
546,000
Bass Pro Shops Outdoor World, Burlington Coat
Factory,
Cobb Theatres, Dave & Busters, Marshalls, Neiman
Marcus-Last Call, Off 5th Saks, The Sports Authority
JCPenney, Macy’s, Sears
1,400,000
2001/2007
636,000
1,386,000 (1)
589,000
1976/1978/
1980/2000
AMC Theaters, Bass Pro Shops Outdoor World,
GameWorks, Neiman Marcus-Last Call, Off 5th Saks
1,353,000
536,000
Dillard’s, Neiman Marcus, Nordstrom, Robb & Stucky
Dillard’s, Nordstrom
Belk, Dick’s Sporting Goods, Dillard’s, Macy’s
Nordstrom, Parisian
JCPenney, Macy’s (two locations), Sears
1,197,000
576,000
936,000
522,000
1,071,000
465,000
600,000
366,000
282,000
282,000
820,000
233,000
1982
1990/1998
1998
2001
1999
2005
2007/2008
2006
100%
50%
100%
100%
100%
50%
95%
100%
100%
78%
100%
100%
100%
The Mall at Short Hills
Short Hills, NJ
Bloomingdale’s, Macy’s, Neiman Marcus, Nordstrom,
Saks Fifth Avenue
1,342,000
520,000
1980/1994/
1995
Dillard’s, Dick’s Sporting Goods, Saks Fifth Avenue
JCPenney, Lord & Taylor, Macy’s, Nordstrom, Sears
662,000
296,000
2003
1,513,000 (3)
548,000
1977/1978/
2007/2008
1975/1987
1997
100%
City Furniture and Ashley Furniture Home Store,
Dillard’s, JCPenney, Macy’s, Nordstrom
1,273,000
460,000
2001/2003
90%
Dillard’s, Macy’s, Neiman Marcus, Saks Fifth Avenue
Total GLA
Total Mall GLA
TRG% of Total GLA
TRG% of Total Mall GLA
1,381,000 (4)
523,000
17,133,000
7,670,000
15,780,000
6,975,000
2001/2004
100%
16
Center
Unconsolidated Joint Ventures:
Arizona Mills
Tempe, AZ
(Phoenix Metropolitan Area)
Fair Oaks
Fairfax, VA
(Washington, DC Metropolitan
Area)
The Mall at Millenia
Orlando, FL
Stamford Town Center
Stamford, CT
Sunvalley
Concord, CA
(San Francisco Metropolitan Area)
Waterside Shops
Naples, FL
Westfarms
West Hartford, CT
Anchors
Sq. Ft of
GLA/Mall
GLA as of
12/31/08
Year
Opened/
Expanded
Year
Acquired
Ownership
% as of
12/31/08
50%
50%
50%
50%
GameWorks, Harkins Cinemas, JCPenney Outlet, Neiman
Marcus-Last Call, Off 5th Saks
1,222,000
535,000
1997
JCPenney, Lord & Taylor, Macy’s (two locations), Sears
1,569,000
564,000
1980/1987/
1988/2000
Bloomingdale’s, Macy’s, Neiman Marcus
Macy’s, Saks Fifth Avenue
JCPenney, Macy’s (two locations), Sears
1,116,000
516,000
775,000
452,000
1,325,000
485,000
2002
1982/2007
1967/1981
2002
50%
Nordstrom, Saks Fifth Avenue
337,000 (5)
197,000
1992/2006/
2008
2003
25%
JCPenney, Lord & Taylor, Macy’s, Macy’s Men’s Store/
Furniture Gallery, Nordstrom
1,288,000
518,000
1974/1983/
1997
79%
Total GLA
Total Mall GLA
TRG% of Total GLA
TRG% of Total Mall GLA
Grand Total GLA
Grand Total Mall GLA
TRG% of Total GLA
TRG% of Total Mall GLA
7,632,000
3,267,000
4,105,000
1,734,000
24,765,000
10,937,000
19,885,000
8,709,000
(1) GLA includes the former Lord & Taylor store, which closed on June 24, 2006. Additionally, the former Off 5th Saks store, which closed December 31, 2007,
was replaced with a 25,000 square foot dining/entertainment wing that opened in November 2008.
(2) The center is attached to Caesars casino integrated resort.
(3) A 60,000 square foot expansion and renovation of Macy's was completed in October 2008.
(4) GLA includes the former Lord & Taylor store, which closed on April 30, 2005.
(5)
In November 2008, Nordstrom and an expansion and full renovation of Saks Fifth Avenue opened.
17
Anchors
The following table summarizes certain information regarding the anchors at the operating centers (excluding the
value centers) as of December 31, 2008:
Name
Belk
City Furniture and Ashley Furniture Home Store
Dick’s Sporting Goods
Dillard’s
JCPenney
Lord & Taylor
Macy’s
Bloomingdale’s
Macy’s
Macy’s Men’s Store/Furniture Gallery
Total
Neiman Marcus (1)
Nordstrom (2)
Parisian
Robb & Stucky
Saks (3)
Sears
Total
Number of
Anchor Stores
12/31/08 GLA
(in thousands
of square feet) % of GLA
1
1
2
6
7
3
3
17
1
21
5
9
1
1
6
5
68
180
140
159
1,335
1,266
397
614
3,454
80
4,148
556
1,294
116
119
487 (4)
0.9%
0.7%
0.8%
6.4%
6.1%
1.9%
20.0%
2.7%
6.2%
0.6%
0.6%
2.3%
1,104
5.3%
11,301
54.4% (5)
(1) Excludes three Neiman Marcus-Last Call stores at value centers.
(2) Nordstrom opened at The Mall at Partridge Creek in April 2008 and Waterside Shops in November 2008.
(3) Excludes three Off 5th Saks stores at value centers.
(4)
(5) Percentages in table may not add due to rounding.
In November 2008 a full expansion and renovation of Saks Fifth Avenue opened at Waterside Shops.
18
Mortgage Debt
The following table sets forth certain information regarding the mortgages encumbering the centers as of December
31, 2008. All mortgage debt in the table below is nonrecourse to the Operating Partnership except for debt
encumbering Dolphin Mall (Dolphin), Fairlane Town Center (Fairlane), and Twelve Oaks. The Operating Partnership
has guaranteed the payment of all or a portion of the principal and interest on the mortgage debt of these centers, all of
which are wholly owned. See "MD&A – Liquidity and Capital Resources – Loan Commitments and Guarantees" for
more information on guarantees and covenants.
Centers Consolidated in
TCO’s Financial Statements
Beverly Center
Cherry Creek Shopping Center (50%)
Dolphin Mall
Fairlane Town Center
Great Lakes Crossing
International Plaza (50.1%)
MacArthur Center (95%)
Northlake Mall
The Mall at Partridge Creek
The Pier Shops at Caesars (77.5%)
Regency Square
The Mall at Short Hills
Stony Point Fashion Park
Twelve Oaks Mall
The Mall at Wellington Green (90%)
Other Consolidated Secured Debt
TRG Credit Facility
Centers Owned by Unconsolidated
Joint Ventures/TRG’s % Ownership
Arizona Mills (50%)
Fair Oaks (50%)
The Mall at Millenia (50%)
Sunvalley (50%)
Taubman Land Associates (50%)
Waterside Shops (25%)
Westfarms (79%)
Stated
Interest
Rate
5.28%
5.24%
LIBOR+0.70%
LIBOR+0.70%
5.25%
LIBOR+1.15%
7.59%
5.41%
LIBOR+1.15%
6.01%
6.75%
5.47%
6.24%
LIBOR+0.70%
5.44%
(6)
(7)
Variable
Bank Rate
(11)
Principal
Balance as
of 12/31/08
(thousands
of dollars)
333,736
280,000
139,000 (3)
80,000 (3)
137,877
325,000
132,500 (7)
215,500
72,791
135,000
75,388
540,000
108,884
10,000 (3)
200,000
Annual
Debt
Service
(thousands
of dollars)
23,101
Interest Only
Interest Only
Interest Only
10,006
Interest Only
12,400
Interest Only
Interest Only
Interest Only
6,421
Interest Only
8,488
Interest Only
Interest Only
(1)
(1)
(6)
(1)
(1)
(1)
Balance
Due on
Maturity
(thousands
of dollars)
303,277
280,000
139,000
80,000
125,507
325,000
126,884
215,500
72,791
135,000
71,569
540,000
98,585
10,000
200,000
(4)
(4)
(6)
(4)
Earliest
Prepayment
Date
30 Days Notice
30 Days Notice
2 Days Notice
2 Days Notice
30 Days Notice
3 Days Notice
30 Days Notice
30 Days Notice
3 Days Notice
12/28/2009
60 Days Notice
01/01/11
30 Days Notice
2 Days Notice
30 Days Notice
Maturity
Date
02/11/14
06/08/16
02/14/11
02/14/11
03/11/13
01/08/11
10/01/10
02/06/16
09/07/10
05/11/17
11/01/11
12/14/15
06/01/14
02/14/11
05/06/15
10,900
Interest Only
02/14/11
10,900
At Any Time
7.90%
LIBOR+1.40%
5.46%
5.67%
LIBOR+0.90%
5.54%
6.10%
(12)
(13)
134,139
250,000
208,246
123,708
30,000
165,000
192,200
12,728
Interest Only
14,245
9,372
Interest Only
Interest Only
15,272
(1)
(12)
(1)
(1)
(1)
10/05/10
04/01/11
04/09/13
11/01/12
11/01/12
10/07/16
07/11/12
(12)
130,419
250,000
195,255
114,056
30,000
165,000
179,028
30 Days Notice
3 Days Notice
30 Days Notice
30 Days Notice
At Any Time
30 Days Notice
30 Days Notice
(2)
(2)
(5)
(5)
(2)
(5)
(2)
(8)
(5)
(9)
(9)
(10)
(8)
(5)
(8)
(5)
(2)
(5)
(2)
(2)
(5)
(9)
(2)
(1) Amortizing principal based on 30 years.
(2) No defeasance deposit required if paid within three months of maturity date.
(3) Subfacility in $550 million revolving line of credit. Facility may be increased to $650 million subject to available lender commitments and additional secured collateral.
(4) The maturity date may be extended one year.
(5) Prepayment can be made without penalty.
(6) The debt is swapped at 3.86% + 1.15% credit spread to the maturity date. The debt has 2 one year extension options and is interest only except during the second one year
extension (if elected).
(7) Debt includes $1.3 million of purchase accounting premium from acquisition, which reduces the stated rate on the debt of 7.59% to an effective rate of 6.93%.
(8) No defeasance deposit required if paid within four months of maturity date.
(9) No defeasance deposit required if paid within six months of maturity date.
(10) Debt may be prepaid with a prepayment penalty equal to greater of yield maintenance or 1% of principal prepaid. No prepayment penalty is due if prepaid within three months
of maturity date. 30 days notice required.
(11) The facility is a $40 million line of credit and is secured by an indirect interest in 40% of Short Hills.
(12) The debt is swapped at 2.82% + 1.40% credit spread to the maturity date. The debt has 2 one year extension options and is interest only except during the second one year
extension (if elected).
(13) Debt is swapped at 5.05% + 0.90% credit spread to the maturity date.
For additional information regarding the centers and their operations, see the responses to Item 1 of this report.
19
Item 3. LEGAL PROCEEDINGS.
In November 2007, three developers of a project called Blue Back Square (“BBS”) in West Hartford, Connecticut,
filed a lawsuit in the Connecticut Superior Court, Judicial District of Hartford at Hartford (Case No. CV-07-5014613-S)
against us, the Westfarms Unconsolidated Joint Venture, and its partners and its subsidiary, alleging that the
defendants (i) filed or sponsored vexatious legal proceedings and abused legal process in an attempt to thwart the
development of the competing BBS project, (ii) interfered with contractual relationships with certain tenants of BBS,
and (iii) violated Connecticut fair trade law. The lawsuit alleges damages in excess of $30 million and seeks double and
treble damages and punitive damages. Also in early November 2007, the Town of West Hartford and the West Hartford
Town Council filed a substantially similar lawsuit against the same entities in the same court (Case No. CV-07-
5014596-S). The second lawsuit did not specify any particular amount of damages but similarly requests double and
treble damages and punitive damages. The lawsuits are in their early legal stages and we are vigorously defending
both. The outcome of these lawsuits cannot be predicted with any certainty and management is currently unable to
estimate an amount or range of potential loss that could result if an unfavorable outcome occurs. While management
does not believe that an adverse outcome in either lawsuit would have a material adverse effect on our financial
condition, there can be no assurance that an adverse outcome would not have a material effect on our results of
operations for any particular period.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES.
The common stock of Taubman Centers, Inc. is listed and traded on the New York Stock Exchange (Symbol: TCO).
As of February 23, 2009, the 53,044,236 outstanding shares of Common Stock were held by 565 holders of record. A
substantially greater number of holders are beneficial owners whose shares are held of record by banks, brokers, and
other financial institutions. The closing price per share of the Common Stock on the New York Stock Exchange on
February 23, 2009 was $15.81.
The following table presents the dividends declared on our Common Stock and the range of closing share prices of
our Common Stock for each quarter of 2008 and 2007:
2008 Quarter Ended
March 31
June 30
September 30
December 31
2007 Quarter Ended
March 31
June 30
September 30
December 31
Market Quotations
Low
$43.93
Dividends
$0.415
High
$55.70
58.05
48.65
0.415
55.40
43.35
0.415
48.19
18.69
0.415
Market Quotations
Low
$50.33
Dividends
$0.375
High
$63.22
59.82
48.18
0.375
56.34
47.07
0.375
60.37
48.77
0.415
The restrictions on our ability to pay dividends on our Common Stock are set forth in “Managements Discussion and
Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Dividends.”
20
Beginning with the first quarter of 2009, in order to have more flexibility under Section 858 of the Internal Revenue
Code (IRC), the declaration and payment dates of our common dividends will be accelerated so that they coincide with
those of the preferred dividends. The IRC allows a REIT to avoid the income tax consequences of not meeting its
distribution requirement by allocating to the prior year, dividends paid in the current year, to cover the excess of REIT
taxable income of the prior year over dividends paid in such year. Currently, because of certain timing limitations
imposed by the IRC, only our preferred dividends can be allocated to a prior year. By changing the declaration and
payment dates of the common dividends to coincide with those of the preferred dividends, we will have the ability to
allocate both common and preferred dividends to a prior year should the need arise. Since the preferred dividends are
required to be paid at the end of each quarter according to our Articles of Incorporation, the effect of this change is to
accelerate the common distributions of TRG by moving them from the date that is 20 days after quarter-end to the last
day of the quarter.
Shareowner Return Performance Graph
The following line graph sets forth the cumulative total returns on a $100 investment in each of our Common Stock,
the MSCI US REIT Index, the NAREIT Equity Retail REIT Index, and the S&P Composite – 500 Stock Index for the
period December 31, 2003 through December 31, 2008 (assuming in all cases, the reinvestment of dividends):
COMPARISON OF CUMULATIVE TOTAL RETURN
Taubman Centers Inc.
MSCI US REIT Index
NAREIT Equity Retail REIT Index
S&P 500 Index
300
250
200
150
100
50
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
Taubman Centers Inc.
MSCI US REIT Index
NAREIT Equity Retail REIT Index
S&P 500 Index
12/31/03
$100.00
100.00
100.00
100.00
12/31/04
$151.71
131.49
140.23
110.88
12/31/05
$182.61
147.44
156.78
116.32
12/31/06
$275.30
200.40
202.26
134.69
12/31/07
$274.29
166.70
170.36
142.09
12/31/08
$147.98
103.40
87.97
89.52
Note: The stock performance shown on the graph above is not necessarily indicative of future price performance.
Equity Purchases
We did not purchase any equity securities in the fourth quarter of 2008.
21
Item 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data and should be read in conjunction with the financial statements and notes
thereto and MD&A included in this report:
2008
Year Ended December 31
2006
(in thousands of dollars, except as noted)
2007
2005
2004
STATEMENT OF OPERATIONS DATA:
Rents, recoveries, and other shopping center revenues
Income (loss) before gain on disposition of interest in
center, discontinued operations, and minority and
preferred interests (1)
Gain on disposition of interest in center (2)
Discontinued operations (3)
Minority interest in TRG
TRG preferred distributions
Net income (loss) (1)
Preferred dividends
Net income (loss) allocable to common shareowners
Income (loss) from continuing operations per common
share – diluted
Net income (loss) per common share – diluted
Dividends declared per common share
Weighted average number of common shares
outstanding –basic
Weighted average number of common shares
outstanding – diluted
Number of common shares outstanding at end of period
Ownership percentage of TRG at end of period
BALANCE SHEET DATA:
Real estate before accumulated depreciation
Total assets
Total debt
SUPPLEMENTAL INFORMATION:
Funds from Operations allocable to TCO (1)(4)
Mall tenant sales (5)
Sales per square foot (5)(6)
Number of shopping centers at end of period
Ending Mall GLA in thousands of square feet
Leased space (7)
Ending occupancy
Average occupancy
Average base rent per square foot (6):
Consolidated businesses:
All mall tenants
Stores opening during year
Stores closing during year
Unconsolidated Joint Ventures:
All mall tenants
Stores opening during year
Stores closing during year
671,498
626,822
579,284
479,405
436,815
(8,052)
116,236
95,140
(45,478)
(2,460)
(72,025)
(14,634)
(86,659)
(1.64)
(1.64)
1.660
(42,614)
(2,460)
63,124
(14,634)
48,490
0.90
0.90
1.540
(36,870)
(2,460)
45,117
(23,723)
21,394
0.40
0.40
1.290
57,432
52,799
(35,869)
(2,460)
71,735
(27,622)
44,113
0.87
0.87
1.160
59,970
328
(35,694)
(12,244)
12,378
(17,444)
(5,066)
(0.11)
(0.10)
1.095
52,866,050
52,969,067
52,661,024
50,459,314
49,021,843
52,866,050
53,018,987
67%
53,622,017
52,624,013
66%
52,979,453
52,931,594
65%
50,530,139
51,866,184
64%
49,021,843
48,745,625
61%
3,699,480
3,071,792
2,796,821
3,781,136
3,151,307
2,700,980
3,398,122
2,826,622
2,319,538
3,081,324
2,797,580
2,089,948
2,936,964
2,632,434
1,930,439
81,274
4,654,885
539
23
10,937
91.7%
90.3%
90.3%
155,376
4,734,940
555
23
10,879
93.8%
91.2%
90.0%
136,736
4,344,565
529
22
10,448
92.5%
91.3%
89.2%
110,578
4,124,534
508
21
10,029
91.7%
90.0%
88.9%
103,070
3,728,010
466
21
9,982
90.7%
89.6%
87.4%
$44.58
53.74
46.22
$44.60
55.26
47.99
$43.39
53.35
45.39
$41.89
48.05
48.63
$42.77
41.25
39.57
$41.03
42.98
42.49
$41.41
42.38
40.59
$42.28
44.90
44.26
$40.98
44.35
44.54
$42.09
44.67
51.40
(1) Funds from Operations (FFO) is defined and discussed in MD&A – Presentation of Operating Results. Net loss and FFO in 2008 includes the impairment
charges of $117.9 million and $8.3 million related to investments in our Oyster Bay and Sarasota projects, respectively. Net income and FFO in 2006 includes
$3.1 million in connection with the write-off of financing costs related to the respective pay-off and refinancing of the loans on The Shops at Willow Bend and
Dolphin Mall. In addition to these charges, FFO in 2006 includes a $4.7 million charge incurred in connection with the redemption of $113 million of the Series
A Preferred Stock and $113 million of the Series I Preferred Stock.
In December 2005, a 50% owned unconsolidated joint venture sold its interest in Woodland for $177.4 million.
(2)
(3) Discontinued operations of $0.3 million in 2004 include gains on disposition of interests in a center that was sold in 2003.
(4) Reconciliations of net income (loss) allocable to common shareowners to FFO for 2008, 2007, and 2006 are provided in MD&A – Presentation of Operating
Results. For 2005, net income of $44.1 million, less the gain on dispositions of interests in centers of $52.8 million, adding back depreciation and amortization
of $150.5 million and minority interests in TRG of $35.9 million, arrives at TRG’s FFO of $177.7 million, of which TCO’s share was $110.6 million. For 2004,
net loss of $5.1 million, less the gain on dispositions of interests in centers of $0.3 million, adding back depreciation and amortization of $139.8 million and
minority interests in TRG of $35.7 million, arrives at TRG’s FFO of $170.1 million, of which TCO’s share was $103.1 million.
(5) Based on reports of sales furnished by mall tenants.
(6) See MD&A for information regarding this statistic.
(7) Leased space comprises both occupied space and space that is leased but not yet occupied.
22
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following MD&A 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, including the following:
statements regarding future developments and joint ventures, rents, returns, and earnings; statements regarding the
continuation of trends; and any statements regarding the sufficiency of our cash balances and cash generated from
operating, investing, and financing activities for our future liquidity and capital resource needs. We caution that
although forward-looking statements reflect our good faith beliefs and best judgment based upon current information,
these statements are qualified by important factors that could cause actual results to differ materially from those in the
forward-looking statements, because of risks, uncertainties, and factors including, but not limited, to the ongoing U.S.
recession, the existing global credit and financial crisis and other changes in general economic and real estate
conditions, changes in the interest rate environment and the availability of financing, and adverse changes in the retail
industry. Other risks and uncertainties are detailed from time to time in reports filed with the SEC, and in particular
those set forth under “Risk Factors” of this Annual Report on Form 10-K. 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 (the Operating Partnership or TRG) is
a majority-owned partnership subsidiary of TCO, which owns direct or indirect interests in all of our real estate
properties. In this report, the terms "we", "us", and "our" refer to TCO, the Operating Partnership, and/or the Operating
Partnership's subsidiaries as the context may require. We own, lease, develop, acquire, dispose of, and operate
regional and super-regional shopping centers. The Consolidated Businesses consist of shopping centers and entities
that are controlled by ownership or contractual agreements, The Taubman Company LLC (Manager), and Taubman
Properties Asia LLC and its subsidiaries (Taubman Asia). In September 2008, we acquired the interests of the owner of
Partridge Creek (see “Note 2 – Acquisitions” to our consolidated financial statements). Prior to the acquisition, we
consolidated the accounts of the owner of Partridge Creek, which qualified as a variable interest entity under Financial
Accounting Standards Board Interpretation No. 46R “Consolidation of Variable Interest Entities” for which the Operating
Partnership was considered to be the primary beneficiary. Shopping centers owned through joint ventures that are not
controlled by us but over which we have significant influence (Unconsolidated Joint Ventures) 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. Also, the operations of the shopping centers are often best understood by measuring their performance as
a whole, without regard to our ownership interest. Consequently, in addition to the discussion of the operations of the
Consolidated Businesses, the operations of the Unconsolidated Joint Ventures are presented and discussed as a
whole.
The comparability of information used in measuring performance is affected by the opening of Partridge Creek in
October 2007 and The Pier Shops, which began opening in phases in June 2006. In April 2007, we increased our
ownership in The Pier Shops to 77.5% (see “Results of Operations – Openings, Expansions and Renovations, and
Acquisitions”). The Pier Shops’ results of operations are included within the Consolidated Businesses beginning
April 13, 2007 and within the Unconsolidated Joint Ventures prior to the acquisition date. The 2006 results of
operations for the Unconsolidated Joint Ventures include results of The Pier Shops. The Pier Shops was excluded from
all operating statistics in 2006. Our investment in The Pier Shops represented an effective 6% interest prior to the
acquisition date, based on relative equity contributions. Additional “comparable center” statistics that exclude Partridge
Creek and The Pier Shops are provided for 2008 and 2007 to present the performance of comparable centers in our
continuing operations. Comparable centers are generally defined as centers that were owned and open for two years.
Overall Summary of Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our primary source of revenue is from the leasing of space in our shopping centers. Generally these leases are long
term, with our average lease term at approximately seven years, excluding temporary leases. Therefore general
economic trends most directly impact our tenants’ sales and consequently their ability to perform under their existing
lease agreements and expand into new locations as well as our ability to find new tenants for our shopping centers.
23
The real estate industry is facing very difficult times due to the current recession and tough retail environment. The
global credit and financial crisis has worsened in the fourth quarter and there is considerable uncertainty as to how
severe the current downturn may be and how long it may continue. We clearly expect a negative impact on our
business in 2009, and we expect that the economy will continue to strain the resources of our tenants and their
customers. Retailers have had a tough fourth quarter and are looking at an uncertain 2009. In this environment, retailer
capital spending has significantly decreased, and we expect that retailers will want to delay any openings into either
2010 or 2011 whenever possible. In addition, a number of regional and national retailers have announced store
closings or filed for bankruptcy. During 2008, 2.5% of our tenants sought the protection of the bankruptcy laws,
compared to 0.5% in 2007. It is difficult to predict when the environment will improve.
We also saw the impact of the current financial crisis on our tenants’ sales. Our tenants reported a 13.7% decrease
in sales per square foot in the quarter over the same period in 2007. Annual sales per square foot declined by 2.9% to
a level of $539 per square foot for our comparable centers, which is higher than the average in 2008 for all regional
shopping centers owned by public companies, and exceeded our 2006 results. See "Mall Tenant Sales and Center
Revenues".
Average occupancy remained relatively flat during 2008, however, we anticipate occupancy will decrease by
approximately 2% by year end 2009, although it is likely the impact on income will be somewhat offset by a higher level
of temporary tenant leasing in 2009. For all of 2008, rents showed solid increases compared to the prior year. In 2009,
we expect that average rents per square foot will be relatively flat in comparison to 2008. The rents we are able to
achieve are affected by economic trends and tenants’ expectations thereof, as described under “Rental Rates and
Occupancy”. 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 quarter to quarter depending on
the total amount, location, and average size of tenant space opening and closing in the period. Mall tenant sales,
occupancy levels and our resulting revenues are seasonal in nature (see “Seasonality").
Our analysis of our financial results begins under “Results of Operations”. We describe the most recent center
openings under “Results of Operations – Openings, Expansions and Renovations, and Acquisitions.” In 2007, we
acquired an additional interest in The Pier Shops. We also describe the current status of our efforts to broaden our
growth in Asia (see “Results of Operations – Taubman Asia”).
We similarly have been very active in managing our balance sheet, completing refinancings of Fair Oaks and
International Plaza in early 2008, as outlined under “Results of Operations – Debt Transactions”.
An unfavorable court decision and the difficult economy drove our decisions to record impairment charges in the
fourth quarter of 2008 of $117.9 million and $8.3 million related to our Oyster Bay project in the Town of Oyster Bay,
New York (Oyster Bay project or Oyster Bay) and our Sarasota project, respectively (see “Results of Operations –
Impairment Charges”).
We have certain additional sources of income beyond our rental revenues, recoveries from tenants, and revenue
from management, leasing, and development services. We disclose our share of these sources of income under
“Results of Operations – Other Income” and provide certain guidance for 2009. Included in other revenue are lease
cancellation income, as well as other sources of revenue derived from our shopping centers, such as parking garage
and sponsorship income. Other sources of income include interest income, gains on peripheral land sales, and in 2007,
gains related to discontinued hedges.
We then provide a discussion of our critical accounting policies, and the expected impact in 2009 of recently issued
accounting pronouncements.
With all the preceding information as background, we then provide insight and explanations for variances in our
financial results for 2008, 2007, and 2006 under “Comparison of 2008 to 2007” and “Comparison of 2007 to 2006”. As
information useful to understanding our results, we have described the presentation of our minority interest, the
presentation of certain interests in centers, and the reasons for our use of non-GAAP measures such as Beneficial
Interest in EBITDA and Funds from Operations (FFO) under “Results of Operations – Presentation of Operating
Results”. Reconciliations from net income (loss) and net income (loss) allocable to common shareowners to these
measures follow the annual comparisons.
Our discussion of sources and uses of capital resources under “Liquidity and Capital Resources” begins with a brief
overview of current market conditions and our financial position. We have no maturities on our current debt until fall
2010, when three loans mature with principal amounts of $338 million at 100% and $264 million at our beneficial share.
We then discuss our capital activities and transactions that occurred in 2008. Analysis of specific operating, investing,
and financing activities is then provided in more detail.
24
Specific analysis of our fixed and floating rates and periods of interest rate risk exposure is provided under “Liquidity
and Capital Resources – Beneficial Interest in Debt”. Completing our analysis of our exposure to rates are the effects
of changes in interest rates on our cash flows and fair values of debt contained under “Liquidity and Capital Resources
– Sensitivity Analysis”. Also see “Liquidity and Capital Resources – Loan Commitments and Guarantees” for discussion
of compliance with debt covenants.
In conducting our business, we enter into various contractual obligations, including those for debt, capital leases for
property improvements, operating leases for land and office space, purchase obligations, and other long-term
commitments. Detail of these obligations, including expected settlement periods, is contained under “Liquidity and
Capital Resources – Contractual Obligations”. Property-level debt represents the largest single class of obligations.
Described under “Liquidity and Capital Resources – Loan Commitments and Guarantees” and “Liquidity and Capital
Resources – Cash Tender Agreement” are our significant guarantees and commitments.
Development of new malls and renovation and expansion of existing malls has been a significant use of our capital,
as described in “Liquidity and Capital Resources – Capital Spending” and “Liquidity and Capital Resources – Capital
Spending – Planned Capital Spending”. Spending in the last two years includes construction of Partridge Creek and
The Pier Shops, the expansion and renovation of Twelve Oaks, the expansion at Stamford, our Oyster Bay project, and
other development activities and capital items. However, with our Sarasota project on hold and the continued delays on
our Oyster Bay and Asia projects, we expect capital spending in 2009 to consist primarily of tenant allowances and
other capital expenditures on our operating centers.
Dividends and distributions are also significant uses of our capital resources. The factors considered when
determining the amount of our dividends, including requirements arising because of our status as a REIT, are
described under “Liquidity and Capital Resources – Dividends”.
Mall Tenant Sales and Center Revenues
Sales per square foot growth was positive during the first, second, and third quarters of 2008, at 3.0%, 3.3%, and
0.5%, respectively. Sales began to decline in September, and the decline steepened during the fourth quarter, with the
luxury and tourism centers experiencing the most negative impact from the slowdown. During a time of such economic
uncertainty, the consumer clearly moderated spending as the fourth quarter of 2008 progressed, and we reported our
first quarterly decrease in tenant sales in over five years. For 2008 our sales decreased 2.9% to a level of $539 per
square foot. Sales per square foot decreased by 13.7% in the fourth quarter.
Over the long term, the level of mall tenant sales is the single most important determinant of revenues of the
shopping centers because mall tenants provide approximately 90% of these revenues and because mall tenant sales
determine the amount of rent, percentage rent, and recoverable expenses (together, total 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.
We believe that the ability of tenants to pay occupancy costs and earn profits over long periods of time increases as
sales per square foot increase, whether through inflation or real growth in customer spending. Because most mall
tenants have certain fixed expenses, the occupancy costs that they can afford to pay and still be profitable are a higher
percentage of sales at higher sales per square foot.
Sales directly impact the amount of percentage rents certain tenants and anchors pay. The effects of increases or
declines in sales on our operations are moderated by the relatively minor share of total rents that percentage rents
represent of total rents (approximately 4% in 2008).
While sales are critical over the long term, the high quality regional mall business has 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 sales does impact, either negatively or positively, our ability to lease vacancies and
negotiate rents at advantageous rates. In the current environment, we are finding that negotiations are tougher. While
retailers continue to recognize the need to position themselves for the future, on the other end of the spectrum there is
an increase in bankruptcies (see “Rental Rates and Occupancy”).
25
The following table summarizes occupancy costs, excluding utilities, for mall tenants as a percentage of mall tenant
sales:
Mall tenant sales (in thousands of dollars)
Sales per square foot (1)
2008
4,654,885
539
2007
4,734,940
555
2006
4,344,565
529
Consolidated Businesses:
Minimum rents
Percentage rents
Expense recoveries
Mall tenant occupancy costs as a percentage of mall tenant sales
Unconsolidated Joint Ventures:
Minimum rents
Percentage rents
Expense recoveries
Mall tenant occupancy costs as a percentage of mall tenant sales
9.6%
0.4
5.4
15.4%
8.9%
0.4
4.6
13.9%
(1) Sales per square foot is presented for the comparable centers, including value centers.
8.9%
0.4
4.9
14.2%
8.0%
0.4
4.2
12.6%
9.1%
0.4
4.9
14.4%
8.3%
0.4
3.9
12.6%
In 2008, mall tenant occupancy costs as a percentage of mall tenant sales increased due to the decline in sales
during the year, as well as due to increases in minimum rents and expense recoveries.
Rental Rates and Occupancy
As leases have expired in the 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. 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, as we are experiencing now, rents
on new leases will grow more slowly or will decline for the opposite reason, as tenants' expectations of future growth
become less optimistic. Rent per square foot information for comparable centers in our Consolidated Businesses and
Unconsolidated Joint Ventures follows:
Average rent per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Opening base rent per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Square feet of GLA opened:
Consolidated Businesses
Unconsolidated Joint Ventures
Closing base rent per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Square feet of GLA closed:
Consolidated Businesses
Unconsolidated Joint Ventures
Releasing spread per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
2008
2007
2006
$44.58
44.60
$53.74
55.26
659,681
439,820
$46.22
47.99
735,550
434,432
$7.52
7.27
$43.39
41.89
$53.35
48.05
$42.77
41.03
$41.25
42.98
885,982
394,316
1,007,419
306,461
$45.39
48.63
807,899
345,122
$7.96
(0.58)
$39.57
42.49
911,986
246,704
$1.68
0.49
Average rents per square foot of the Unconsolidated Joint Ventures in 2007 were impacted by prior year adjustments
totaling $3.0 million (at 100%) in 2007, related to The Mills Corporation’s accounting for lease incentives at Arizona
Mills, a 50% owned joint venture. Excluding these adjustments, average rents per square foot of the Unconsolidated
Joint Ventures would have been $42.93 in 2007.
26
The spread between opening and closing rents 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, and average size of tenant space opening and closing in the period. In 2007, the releasing spread
per square foot of the Unconsolidated Joint Ventures was impacted by the opening of large tenant spaces at a certain
center. In 2006, the releasing spread per square foot of the Unconsolidated Joint Ventures was impacted by the
opening of large tenant spaces at certain centers.
Mall tenant leased space, ending occupancy, and average occupancy rates are as follows:
All Centers:
Leased space
Ending occupancy
Average occupancy
Comparable Centers:
Leased space
Ending occupancy
Average occupancy
2008
2007
2006
91.7%
90.3
90.3
91.8%
90.3
90.4
93.8%
91.2
90.0
93.8%
91.5
90.3
92.5%
91.3
89.2
92.4%
91.3
89.1
Ending occupancy was 90.3%, a 0.9% decrease from 91.2% in 2007. This decline is largely due to three big box
anchor store locations, which are part of national bankruptcies, that closed late in 2008 at our value centers. At 91.7%,
leased space is 1.4% over the year end occupancy level, indicating a backlog of tenants who have committed to
opening stores in the future. We expect occupancy to be down about 2% by year end 2009. In this environment, capital
spending is down and retailers are expected to delay openings into 2010 and 2011. We have executed 80% of our
leasing plan for 2009, which is in line with our history. However, we are concerned it will be difficult to execute new
leases and open additional stores. In addition, we expect unscheduled terminations, including bankruptcies, to increase
in 2009. It is likely the impact on income will be somewhat offset by a higher level of temporary tenant leasing in 2009.
Temporary tenants, defined as those with lease terms less than 12 months, are not included in occupancy or leased
space statistics. As of December 31, 2008, approximately 2.7% of space was occupied by temporary tenants. Tenant
bankruptcy filings as a percentage of the total number of tenant leases 2.5% in 2008, compared to 0.5% in 2007, and
1.0% in 2006.
Seasonality
The regional shopping center industry is seasonal in nature, with mall tenant sales highest in the fourth quarter due
to the Christmas season, and with lesser, though still significant, sales fluctuations associated with the Easter holiday
and back-to-school period. While minimum rents and recoveries are generally not subject to seasonal factors, most
leases are scheduled to expire in the first quarter, and the majority of new stores open in the second half of the year in
anticipation of the Christmas selling season. Additionally, most percentage rents are recorded in the fourth quarter.
Accordingly, revenues and occupancy levels are generally highest in the fourth quarter. Gains on sales of peripheral
land and lease cancellation income may vary significantly from quarter to quarter.
Mall tenant sales (1)
Revenues and gains on land sales
and other nonoperating income:
Consolidated Businesses
Unconsolidated Joint Ventures
Occupancy:
Ending-comparable
Average-comparable
Ending
Average
Leased space:
Comparable
All centers
(1) Based on reports of sales furnished by mall tenants.
Total
2008
3rd
Quarter
2008
(in thousands of dollars, except occupancy and leased space data)
1,083,608
1,112,502
4,654,885
2nd
Quarter
2008
4th
Quarter
2008
1st
Quarter
2008
1,342,748
1,116,027
676,067
272,496
190,855
77,277
164,124
67,169
161,868
63,657
159,220
64,393
90.3%
90.7
90.3
90.7
91.8%
91.7
90.6%
90.5
90.5
90.4
92.5%
92.4
90.2%
90.1
90.0
90.0
92.7%
92.7
90.1%
90.2
89.9
90.0
93.0%
93.1
90.3%
90.4
90.3
90.3
91.8%
91.7
27
Because the seasonality of sales contrasts with the generally fixed nature of minimum rents and recoveries, mall
tenant occupancy costs (the sum of minimum rents, percentage rents, and expense recoveries) as a percentage of
sales are considerably higher in the first three quarters than they are in the fourth quarter.
Consolidated Businesses:
Minimum rents
Percentage rents
Expense recoveries
Mall tenant occupancy costs
Unconsolidated Joint Ventures:
Minimum rents
Percentage rents
Expense recoveries
Mall tenant occupancy costs
Total
2008
9.6%
0.4
5.4
15.4%
8.9
0.4
4.6
13.9%
4th
Quarter
2008
3rd
Quarter
2008
2nd
Quarter
2008
1st
Quarter
2008
8.8%
0.6
5.4
14.8%
7.9%
0.6
4.9
13.4%
9.9%
0.3
5.4
15.6%
9.5%
0.4
4.8
14.7%
9.9%
0.2
5.3
15.4%
9.3%
0.0
4.4
13.7%
10.2%
0.3
5.3
15.8%
9.2%
0.4
4.2
13.8%
Results of Operations
Openings, Expansions and Renovations, and Acquisitions
During the three year period ended December 31, 2008, we completed the following shopping center openings,
expansions and renovations, and acquisitions:
Openings
Shopping Center
The Mall at Partridge Creek
The Pier Shops at Caesars
Date
October 2007
June 2006
Location
Clinton Township, Michigan
Atlantic City, New Jersey
Ownership
Wholly-owned
(See below)
Expansions and Renovations
Shopping Center
Stamford Town Center
Twelve Oaks Mall
Waterside Shops
Date
November 2007
September 2007
September 2006
Location
Stamford, Connecticut
Novi, Michigan
Naples, Florida
Ownership
50% owned Unconsolidated Joint Venture
Wholly-owned
25% owned Unconsolidated Joint Venture
Acquisitions
Shopping Center
The Pier Shops at Caesars
Land under Sunvalley
Date
April 2007
October 2006
Acquisition
(See below)
50% interest
Resulting Ownership
77.5% owned consolidated joint venture
50% owned unconsolidated joint venture
The Pier Shops, located in Atlantic City, New Jersey, began opening in phases in June 2006. Gordon Group
Holdings LLC (Gordon) developed the center, and in January 2007, we assumed full management and leasing
responsibility for the center. In April 2007, we increased our ownership in The Pier Shops to a 77.5% controlling
interest. The remaining 22.5% interest continues to be held by an affiliate of Gordon. We began consolidating The Pier
Shops as of the April 2007 purchase date. At closing, we made a $24.5 million equity investment in the center, bringing
our total equity investment to $28.5 million. We are entitled to a 7% cumulative preferred return on our $133.1 million
total investment, including our $104.6 million share of debt (see “Debt Transactions”). We will be responsible for any
additional capital requirements, on which we will receive a preferred return at a minimum of 8%. As of
December 31, 2008, we had provided $4.3 million of additional capital.
Taubman Asia
In February 2008, Taubman Asia entered into agreements to acquire a 25% interest in The Mall at Studio City, the
retail component of Macao Studio City, a major mixed-use project on the Cotai Strip in Macao, China. In addition,
Taubman Asia entered into long-term agreements to perform development, management, and leasing services for the
shopping center. Macao is a project that has been clearly impacted by the financial crisis. It is on hold until financing
can be arranged, the timing of which is very uncertain. There continues to be retailer interest in Macao, but the project
is unlikely to move forward in 2009.
28
In August 2009, our Macao agreements will terminate and our $54 million initial cash payment, which is in escrow,
will be returned to us if the financing for the project is not completed. No interest is being capitalized on this payment.
Excluding the $54 million initial refundable deposit, we had capitalized costs of $2.5 million on the Macao project as of
December 31, 2008. Offsetting these costs, we received a $2.5 million non-refundable development fee payment in
October 2008 from the owner of the Macao project, which was recorded as deferred revenue. We began expensing
costs relating to the project in the third quarter of 2008.
In 2007, we entered into an agreement to provide development services for a 1.1 million square foot retail and
entertainment complex in Songdo International Business District (Songdo), Incheon, South Korea. We also finalized an
agreement to provide management and leasing services for the retail component, and we continue to provide services
as the regional mall progresses. The shopping center will be anchored by Lotte Department Store, Tesco Homeplus,
and a nine-screen Megabox multiplex. Progress has been made on the mall infrastructure and parking. We will not
make a final determination about an investment in this center until full financing is completed.
Debt Transactions
We completed a series of debt financings in the three year period ended December 31, 2008, as follows:
Fair Oaks
International Plaza
TRG revolving credit facility (4)
The Pier Shops at Caesars
Taubman Land Associates (Sunvalley)
Waterside Shops
The Mall at Partridge Creek
construction facility
TRG revolving credit facility (6)
Cherry Creek Shopping Center
Northlake Mall
Date
April 2008
January 2008
November 2007
April 2007
December 2006
September 2006
September 2006
August 2006
May 2006
February 2006
Initial Loan
Balance/Facility
(in millions of dollars)
250
325
550
135
30
165
Stated
Interest Rate
LIBOR+1.40% (2)
LIBOR+1.15% (3)
LIBOR+0.70%
6.01%
LIBOR+0.90% (5)
5.54%
Maturity Date (1)
April 2011
January 2011
February 2011
May 2017
November 2012
October 2016
81
350
280
216
LIBOR+1.15%
LIBOR+0.70%
5.24%
5.41%
September 2010
February 2009
June 2016
February 2016
(1) Excludes any options to extend the maturities (see the footnotes to our financial statements regarding extension options).
(2) The loan is swapped at 4.22% for the initial three-year term of the loan agreement.
(3) The loan is swapped at 5.01% for the initial three-year term of the loan agreement.
(4)
In November 2007, we increased the borrowing limit on the TRG revolving credit facility by $200 million and extended the maturity date by two
years, with a one-year extension option.
(5) The loan is swapped at 5.95% (5.05% swap rate plus 0.90% credit spread) from January 2, 2007 through the term of the loan.
(6) TRG revolving credit facility was amended in November 2007.
Borrowings under TRG’s revolving credit facility are primary obligations of the entities owning Dolphin, Fairlane, and
Twelve Oaks, which are collateral for the line of credit. The Operating Partnership and the entities owning Fairlane and
Twelve Oaks are guarantors under the credit agreement.
29
Equity Transactions
We also completed a series of equity transactions in the three year period ended December 31, 2008, as follows:
Redemptions and Repurchases:
Stock repurchases (1)
Stock repurchases (1)
Redemption of Series I Cumulative
Redeemable Preferred Stock (2)
Redemption of Series A Cumulative
Redeemable Preferred Stock (3)
Issuances:
Issuance of Series I Cumulative
Redeemable Preferred Stock (4)
# of shares
Amount
(in millions of dollars)
Price
per share
Date
987,180
923,364
4,520,000
4,520,000
50.0
50.0
113.0
113.0
$50.65
54.15
August 2007
May - June 2007
25.00
25.00
June 2006
May 2006
4,520,000
113.0
25.00
May 2006
(1) For each common share repurchased, a unit of TRG partnership interest is similarly redeemed. See “Note 14 – Common and Preferred
Stock and Equity of TRG” to our consolidated financial statements regarding the repurchase of our common stock.
(2) A $0.6 million charge was recognized upon redemption of this preferred stock, comprised of the difference between the redemption price
($113.0 million) and its book value ($112.4 million).
(3) A $4.0 million charge was recognized upon redemption of this preferred stock, comprised of the difference between the redemption price
($113.0 million) and its book value ($109.0 million).
(4) Proceeds were used to redeem $113 million of our remaining 8.30% Series A Cumulative Redeemable Preferred Stock.
Impairment Charges
In January 2009, the Appellate Division of the Supreme Court of the State of New York reversed the favorable order
that we had been issued in June 2008 directing the Town of Oyster Bay to immediately issue a special use permit for
The Mall at Oyster Bay. The court also upheld the Town Board’s request for a supplemental environmental impact
statement. Although we intend to immediately seek an appeal of the decision, we determined in February 2009 that we
would recognize in the fourth quarter of 2008 a charge to income of $117.9 million relating to the Oyster Bay project,
including $4.6 million in costs for future expenditures associated with obligations under existing contracts related to the
project. This determination was reached after an overall assessment of the probability of the development of the mall
as designed and a review of our previously capitalized project costs. The charge includes the costs of previous
development activities as well as holding and other costs that management believes will likely not benefit the
development if and when we obtain the rights to build the center. We also expect to expense any additional costs
relating to Oyster Bay until it is probable that we will be able to successfully move forward with a project. We began
expensing carrying costs as incurred beginning in the fourth quarter of 2008. Our remaining capitalized investment in
the project as of December 31, 2008 is $39.8 million, consisting of land and site improvements. If we are ultimately
unsuccessful in obtaining the right to build the center, it is uncertain whether we would be able to recover the full
amount of this capitalized investment through alternate uses of the land.
In May 2008, we entered into agreements to jointly develop University Town Center, a regional mall in Sarasota,
Florida. Under the agreements, we would own a noncontrolling 25% interest in the project. Due to the current economic
and retail environment, in December 2008 we announced that the project has been put on hold. Although we continue
to believe it should be a very attractive opportunity longer term, we do not know if or when we will acquire an interest in
the land and move forward with the project. Due to this uncertainty, we recognized an $8.3 million charge to income in
the fourth quarter of 2008. The charge to income represents our share of total project costs. We have no asset
remaining and expect to expense any additional costs related to the monitoring of the project until a definitive
agreement is reached by the parties on going forward with the project.
30
Other Income
We have certain additional sources of income beyond our rental revenues, recoveries from tenants, and revenues
from management, leasing, and development services, as summarized in the following table. Lease cancellation
revenue is dependent on the overall economy and performance of particular retailers in specific locations and can vary
significantly. Gains on peripheral land sales can also vary significantly from year-to-year, depending on the results of
negotiations with tenants, counterparties, and potential purchasers of land, as well as the timing of the transactions. In
2009, we estimate our share of lease cancellation income to be approximately $7 million to $8 million. In addition, due
to current economic conditions, we would expect that certain shopping center related revenues that are based on
month to month or shorter term contracts, primarily sponsorship and retail marketing units income, may decrease
substantially in 2009.
2008
2007
2006
Consolidated
Businesses
Unconsolidated
Joint Ventures
Consolidated
Businesses
Unconsolidated
Joint Ventures
Consolidated
Businesses
Unconsolidated
Joint Ventures
(Operating Partnership’s share in millions of dollars)
Other income:
Shopping center related revenues
Lease cancellation revenue
Gains on land sales and other
nonoperating income:
Gains on sales of peripheral land
Interest income
Gains on discontinued hedges
26.9
9.7
36.6
2.8
1.5
4.3
3.0
2.5
5.5
0.4
0.4
23.1
10.9
33.9
0.7
2.2
0.2
3.1
2.5
2.0
4.6
0.8
0.8
21.9
10.5
32.4
4.1
5.2
9.3
2.6
2.8
5.4
0.6
0.6
(1) Amounts in this table may not add due to rounding.
Subsequent Event
In January 2009, in response to a decreased level of active projects due to the downturn in the economy, we reduced
our workforce by about 40 positions, primarily in areas that directly or indirectly affect our development initiatives in the
U.S. and Asia. A restructuring charge of approximately $2.6 million will be recorded in the first quarter of 2009, which
primarily represents the cost of terminations of personnel. The majority of the restructuring costs will be paid during the
first quarter of 2009.
Application of Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the financial statements and
disclosures. Some of these estimates and assumptions require application of difficult, subjective, and/or complex
judgment, often about the effect of matters that are inherently uncertain and that may change in subsequent periods.
We are required to make such estimates and assumptions when applying the following accounting policies.
Valuation of Shopping Centers
The viability of all projects under construction or development, including those owned by Unconsolidated Joint
Ventures, are regularly evaluated under applicable accounting requirements, including requirements relating to
abandonment of assets or changes in use. To the extent a project, or individual components of the project, are no
longer considered to have value, the related capitalized costs are charged against operations. Additionally, all
properties are reviewed for impairment on an individual basis whenever events or changes in circumstances indicate
that their carrying value may not be recoverable. Impairment of a shopping center owned by consolidated entities is
recognized when the sum of expected cash flows (undiscounted and without interest charges) is less than the carrying
value of the property. Other than temporary impairment of an investment in an Unconsolidated Joint Venture is
recognized when the carrying value is not considered recoverable based on evaluation of the severity and duration of
the decline in value, including the results of discounted cash flow and other valuation techniques. The expected cash
flows of a shopping center are dependent on estimates and other factors subject to change, including (1) changes in
the national, regional, and/or local economic climates, (2) competition from other shopping centers, stores, clubs,
mailings, and the internet, (3) increases in operating costs, (4) bankruptcy and/or other changes in the condition of third
parties, including anchors and tenants, (5) expected holding period, and (6) availability of credit. These factors could
cause our expected future cash flows from a shopping center to change, and, as a result, an impairment could be
considered to have occurred. To the extent impairment has occurred, the excess carrying value of the asset over its
estimated fair value is charged to income.
31
In 2008, we recognized impairment charges of $117.9 million and $8.3 million related to our Oyster Bay and
Sarasota projects, respectively (see “Impairment Charges”). There were no impairment charges recognized in 2007 or
2006. As of December 31, 2008, the consolidated net book value of our properties was $2.6 billion, representing over
85% of our consolidated assets. We also have varying ownership percentages in the properties of Unconsolidated
Joint Ventures with a total combined net book value of $0.7 billion. These amounts include certain development costs
that are described in the policy that follows.
Capitalization of Development Costs
In developing shopping centers, we typically obtain land or land options, zoning and regulatory approvals, anchor
commitments, and financing arrangements during a process that may take several years and during which we may
incur significant costs. We capitalize all development costs once it is considered probable that a project will reach a
successful conclusion. Prior to this time, we expense all costs relating to a potential development, including payroll,
and include these costs in Funds from Operations (see "Presentation of Operating Results").
On an ongoing basis, we continue to assess the probability of a project going forward and whether the asset is
impaired. In addition, we also assess whether there are sufficient substantive development activities in a given period
to support the capitalization of carrying costs, including interest capitalization, in that period.
Many factors in the development of a shopping center are beyond our control, including (1) changes in the national,
regional, and/or local economic climates, (2) competition from other shopping centers, stores, clubs, mailings, and the
internet, (3) availability and cost of financing, (4) changes in regulations, laws, and zoning, and (5) decisions made by
third parties, including anchors. These factors could cause our assessment of the probability of a development project
reaching a successful conclusion to change. If a project subsequently was considered less than probable of reaching a
successful conclusion, a charge against operations for previously capitalized development costs would occur.
Our $64.9 million balance of development pre-construction costs as of December 31, 2008 consists primarily of
approximately $40 million of costs relating to our Oyster Bay project, as described above. The balance also includes
approximately $22 million of land and improvement costs for a parcel in North Atlanta, Georgia, which was acquired for
future development. A portion of this land is expected to be sold for various uses. See “Impairment Charges” regarding
the status of the Oyster Bay project and others.
Valuation of Accounts and Notes Receivable
Rents and expense recoveries from tenants are our principal source of income; they represent over 90% of our
revenues. In generating this income, we will routinely have accounts receivable due from tenants. The collectibility of
tenant receivables is affected by bankruptcies, changes in the economy, and the ability of the tenants to perform under
the terms of their lease agreements. While we estimate potentially uncollectible receivables and provide for them
through charges against income, actual experience may differ from those estimates. Also, if a tenant were not able to
perform under the terms of its lease agreement, receivable balances not previously provided for may be required to be
charged against operations. Bad debt expense was less than 1% of total revenues in 2008, while bankruptcy filings
affected 2.5% of tenant leases during the year. Since 1991, the annual provision for losses on accounts receivable has
been less than 2% of annual revenues.
Notes receivable at December 31, 2008 totaled $7.5 million, of which $2.0 million relates to notes receivable from
three tenants with common ownership that became delinquent during the third quarter 2008. The notes are guaranteed
by affiliates of the tenants, and we expect to recover the remaining $0.6 million net book value. In addition, $1.0 million
of the total notes receivable balance related to the sale of residual land. This land contract receivable is currently in
default. The fair value of the land that serves as collateral is at least equal to the book value of the receivable.
Valuation of delinquent notes receivable are dependent on management’s estimates of the collectibility of contractual
principal and interest payments, which are inherently judgmental.
32
Valuation of Deferred Tax Assets
Our taxable REIT subsidiaries (TRSs) currently have deferred tax assets, reflecting net operating loss carryforwards
and the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes
and the bases of such assets and liabilities as measured by tax laws. Our temporary differences primarily relate to
deferred compensation and depreciation. We reduce our deferred tax assets through valuation allowances to the
amount where realization is more likely than not assured, considering all available evidence, including expected future
taxable earnings and potential tax planning strategies. Expected future taxable earnings and the implementation of tax
planning strategies require certain significant judgments and estimates, including those relating to our management
company's profitability, the timing and amounts of gains on land sales, the profitability of our Asian operations, and
other factors affecting the results of operations of our TRSs. Changes in any of these factors could cause our estimates
of the realization of deferred tax assets to change materially. In July 2007, the State of Michigan signed into law the
Michigan Business Tax Act, replacing the Michigan single business tax with a business income tax and modified gross
receipts tax. These new taxes became effective on January 1, 2008, and are subject to the provisions of SFAS No. 109
“Accounting for Income Taxes.” As of December 31, 2008, we had a net federal and foreign deferred tax asset of
$3.2 million, after a valuation allowance of $6.6 million.
Valuations for Acquired Property and Intangibles
Upon acquisition of an investment property, including that of an additional interest in an asset already partially
owned, we make an assessment of the valuation and composition of assets and liabilities acquired. These
assessments consider fair values of the respective assets and liabilities and are determined based on estimated future
cash flows using appropriate discount and capitalization rates and other commonly accepted valuation techniques. The
estimated future cash flows that are used for this analysis reflect the historical operations of the property, known trends
and changes expected in current market and economic conditions which would impact the property’s operations, and
our plans for such property. These estimates of cash flows and valuations are particularly important given the
application of FASB Statement Nos. 141 and 142 for the allocation of purchase price between land, building and
improvements, and other identifiable intangibles.
New Accounting Pronouncements
In December 2007, the FASB issued Statement No. 160 "Noncontrolling Interests in Consolidated Financial
Statements – an amendment of Accounting Research Bulletin (ARB) No. 51.” This Statement amends ARB 51 to
establish accounting and reporting standards for the noncontrolling interest (previously referred to as a minority
interest) in a subsidiary and for the deconsolidation of a subsidiary. Statement No. 160 generally requires
noncontrolling interests to be treated as a separate component of equity (not as a liability or other item outside of
permanent equity) and consolidated net income and comprehensive income to include the noncontrolling interest’s
share. The calculation of earnings per share will continue to be based on income amounts attributable to the parent.
Statement No. 160 also establishes a single method of accounting for transactions that change a parent's ownership
interest in a subsidiary by requiring that all such transactions be accounted for as equity transactions if the parent
retains its controlling financial interest in the subsidiary. The Statement also amends certain of ARB 51's consolidation
procedures for consistency with the requirements of FASB Statement No. 141 (Revised) "Business Combinations" and
eliminates the requirement to apply purchase accounting to a parent’s acquisition of noncontrolling ownership interests
in a subsidiary. Statement No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning
on or after December 15, 2008. Except for certain presentation and disclosure requirements, Statement No. 160 will be
applied on a prospective basis. In March 2008, the SEC announced revisions to EITF Topic No. D-98 "Classification
and Measurement of Redeemable Securities" that provide interpretive guidance on the interaction between Topic
No. D-98 and Statement No. 160.
Upon our adoption of Statement No. 160 on January 1, 2009, the noncontrolling interests in the Operating
Partnership and certain consolidated joint ventures will no longer need to be carried at zero balances in our balance
sheet. As a result, the income allocated to these noncontrolling interests will no longer be required to be equal to their
share of distributions, which will result in a material increase to TCO's net income. See “Note 1 – Summary of
Significant Accounting Policies” to our consolidated financial statements regarding current accounting for minority
interests.
See “Note 20 – New Accounting Pronouncements” to our consolidated financial statements regarding
Statement 160, as well as other new accounting pronouncements that will be adopted in 2009.
33
Presentation of Operating Results
The following table contains the operating results of our Consolidated Businesses and the Unconsolidated Joint
Ventures. Income allocated to the minority partners in the Operating Partnership and preferred interests is deducted to
arrive at the results allocable to our common shareowners. Because the net equity balances of the Operating
Partnership and the outside partners in certain consolidated joint ventures are less than zero, the income allocated to
these minority and outside partners is equal to their share of operating distributions (see “New Accounting
Pronouncements” regarding changes to the accounting for minority interests). The net equity of these minority and
outside partners is less than zero due to accumulated distributions in excess of net income and not as a result of
operating losses. Distributions to partners are usually greater than net income because net income includes non-cash
charges for depreciation and amortization. Our average ownership percentage of the Operating Partnership was 67%
in 2008, 66% in 2007, and 65% in 2006.
The results of The Pier Shops are presented within the Consolidated Businesses for periods beginning
April 13, 2007, as a result of our acquisition of a controlling interest in the center. Prior to the acquisition date, the
results of The Pier Shops are included within the Unconsolidated Joint Ventures.
Use of Non-GAAP Measures
The operating results in the following table include the supplemental earnings measures of Beneficial Interest in
EBITDA and Funds from Operations (FFO). Beneficial Interest in EBITDA represents our share of the earnings before
interest, income taxes, and depreciation and amortization of our consolidated and unconsolidated businesses. We
believe Beneficial Interest in EBITDA provides a useful indicator 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 National Association of Real Estate Investment Trusts (NAREIT) defines FFO as net income (loss) (computed in
accordance with Generally Accepted Accounting Principles (GAAP)), excluding gains (or losses) from extraordinary
items and sales of properties, plus real estate related depreciation and after adjustments for unconsolidated
partnerships and joint ventures. We believe 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, we 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. We primarily use
FFO in measuring performance and in formulating corporate goals and compensation.
Our presentations of Beneficial Interest in EBITDA and FFO are not necessarily comparable to the similarly titled
measures of other REITs due to the fact that not all REITs use the same definitions. These measures should not be
considered alternatives to net income (loss) or as an indicator of our operating performance. Additionally, neither
represents cash flows from operating, investing or financing activities as defined by GAAP. Reconciliations of Net
Income (Loss) Allocable to Common Shareowners to Funds from Operations and Net Income (Loss) to Beneficial
Interest in EBITDA are presented following the Comparison of 2007 to 2006.
34
Comparison of 2008 to 2007
The following table sets forth operating results for 2008 and 2007, showing the results of the Consolidated Businesses and
Unconsolidated Joint Ventures:
2008
2007
CONSOLIDATED
BUSINESSES
UNCONSOLIDATED
JOINT VENTURES
AT 100%(1)
CONSOLIDATED
BUSINESSES
UNCONSOLIDATED
JOINT VENTURES
AT 100%(1)
(in millions of dollars)
REVENUES:
Minimum rents
Percentage rents
Expense recoveries
Management, leasing, and development services
Other
Total revenues
EXPENSES:
Maintenance, taxes, and utilities
Other operating
Management, leasing, and development services
General and administrative
Impairment charge (2)
Interest expense
Depreciation and amortization (3)
Total expenses
Gains on land sales and other nonoperating income
Income tax expense
Equity in income of Unconsolidated Joint Ventures (3)(4)
Income (loss) before minority and preferred interests
Minority and preferred interests:
TRG preferred distributions
Minority share of income of consolidated joint
ventures
Distributions in excess of minority share of income
of consolidated joint ventures
Minority share of (income) loss of TRG
Distributions in excess of minority share of income
(loss) of TRG
Net income (loss)
Preferred dividends
Net income (loss) allocable to common shareowners
SUPPLEMENTAL INFORMATION:
EBITDA - 100%
EBITDA - outside partners' share
Beneficial interest in EBITDA
Beneficial interest expense
Beneficial income tax expense
Non-real estate depreciation
Preferred dividends and distributions
Funds from Operations contribution
353.2
13.8
248.6
15.9
40.1
671.5
189.2
79.6
8.7
28.1
117.9
147.4
147.4
718.4
4.6
(42.3)
(1.1)
35.4
(8.1)
(2.5)
(7.4)
(8.6)
11.3
(56.8)
(72.0)
(14.6)
(86.7)
244.2
(40.0)
204.2
(127.8)
(1.1)
(3.3)
(17.1)
54.9
157.1
6.6
98.5
9.6
271.8
66.8
22.5
65.0
40.7
195.0
0.7
77.5
183.2
(82.2)
101.1
(33.8)
67.3
329.4
14.8
228.4
16.5
37.7
626.8
175.9
69.6
9.1
30.4
131.7
137.9
554.7
3.6
75.7
40.5
116.2
(2.5)
(5.0)
(3.0)
(33.2)
(9.4)
63.1
(14.6)
48.5
345.3
(36.6)
308.7
(117.4)
(2.7)
(17.1)
171.6
150.9
8.4
94.9
8.4
262.6
66.6
20.7
66.2
39.4
193.0
1.6
71.2
176.8
(80.0)
96.8
(33.3)
63.5
(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 our ownership interest. In our consolidated financial statements, we account for investments in the Unconsolidated Joint Ventures under the equity
method.
In 2008, we recognized an impairment charge on our Oyster Bay project.
(2)
(3) Amortization of our additional basis in the Operating Partnership included in depreciation and amortization was $4.9 million in both 2008 and 2007. Also,
amortization of our additional basis included in equity in income of Unconsolidated Joint Ventures was $1.9 million in both 2008 and 2007.
(4) Equity in income of Unconsolidated Joint Ventures in 2008 includes an $8.3 million charge recognized in connection with the impairment of our Sarasota
joint venture.
(5) Amounts in this table may not add due to rounding.
35
Consolidated Businesses
Total revenues for the year ended December 31, 2008 were $671.5 million, a $44.7 million or 7.1% increase over
2007. Minimum rents increased $23.8 million, primarily due to the October 2007 opening of Partridge Creek, the
September 2007 expansion at Twelve Oaks, and The Pier Shops, which we began consolidating in April 2007 upon the
acquisition of a controlling interest in the center. Minimum rents also increased due to tenant rollovers and increases in
average occupancy. Percentage rents decreased due to lower tenant sales. Expense recoveries increased primarily
due to Partridge Creek, Twelve Oaks, and The Pier Shops, as well as increased CAM capital expenditures and
recoverable costs at certain centers. Management, leasing, and development revenue decreased primarily due to
lower revenue on the Songdo development contract, which in the first quarter of 2007 included revenue related to 2006
services, and was partially offset by increased revenue from our Salt Lake City project. In 2009, we expect our margin
on management, leasing, and development revenue to be comparable to 2008. Other income increased primarily due
to increases in parking-related and sponsorship revenue, which were partially offset by a decrease in lease
cancellation revenue.
Total expenses were $718.4 million, a $163.7 million or 29.5% increase from 2007. Maintenance, taxes, and utilities
expense increased primarily due to Partridge Creek, The Pier Shops, and Twelve Oaks, as well as increases in
maintenance costs and property taxes at certain centers. Other operating expense increased due to increased pre-
development costs and bad debt expense, The Pier Shops, and Partridge Creek. Given the overall retail environment
and capital market status, we expect to reduce our pre-development spending in both the U.S. and in Asia in 2009. In
2008, we incurred $18.5 million on pre-development activities. We expect to incur about $13 million in 2009, of which
about $2 million relates to our ongoing Oyster Bay efforts, which we began expensing in the fourth quarter of 2008.
General and administrative expense decreased primarily due to a significant decrease in bonus expense. In addition to
a significant reduction in annual bonus plan expense due to financial performance, our deferred long-term
compensation grants are marked to market quarterly based on our stock price. Due to the payout of most of these
deferred grants early in 2009, we no longer expect a significant impact of marking to market beyond 2008. In 2009, we
expect general and administrative expense to be comparable to 2008. In 2008, we recognized a $117.9 million
impairment charge on our Oyster Bay project (see “Results of Operations – Impairment Charges”). Interest expense
increased primarily due to the January 2008 refinancing at International Plaza, Partridge Creek, and The Pier Shops.
Interest expense also increased due to the termination of interest capitalization on our Oyster Bay project in the fourth
quarter of 2008, the repurchase of common stock in 2007, the escrowed Macao payment, and the expansion at Twelve
Oaks. These increases were partially offset by decreases in floating interest rates. Depreciation expense increased
due to Partridge Creek, The Pier Shops, and Twelve Oaks.
Gains on land sales and other nonoperating income increased primarily due to $2.8 million of gains on land sales
and land-related rights in 2008, compared to $0.7 million of gains in 2007. This increase was partially offset by
decreased interest income. In 2009, gains on land sales are expected to be under $2 million, and we may not be able
to complete any transactions.
Income tax expense in 2008 consists of taxes related to the Michigan Business Tax Act, which became effective
January 1, 2008 (see “Results of Operations – Application of Critical Accounting Policies – Valuation of Deferred Tax
Assets”). The new tax replaced the Michigan Single Business Tax, which was previously classified within Other
operating expense on our Statement of Operations.
36
Unconsolidated Joint Ventures
Total revenues for the year ended December 31, 2008 were $271.8 million, a $9.2 million or 3.5% increase from
2007. Minimum rents increased by $6.2 million, primarily due to tenant rollovers, the November 2007 expansion at
Stamford, increased income from specialty retailers, and prior year adjustments at Arizona Mills in 2007. These
increases were partially offset by the reduction due to the consolidation of The Pier Shops and decreases due to
frictional vacancy on spaces that opened in the second half of the year. Percentage rents decreased due to lower
tenant sales. Expense recoveries increased primarily due to increased maintenance costs at certain centers, Stamford,
and an increase in revenue from marketing and promotion services, which were partially offset by The Pier Shops and
decreases due to adjustments in 2007 to prior estimated recoveries at certain centers. Other income increased
primarily due to Stamford and increases in lease cancellation revenue.
Total expenses increased by $2.0 million or 1.0%, to $195.0 million for the year ended December 31, 2008.
Maintenance, taxes, and utilities expense remained relatively flat, with increases due to Stamford and increased
maintenance costs at certain centers being offset by The Pier Shops. Other operating expense increased primarily due
to Stamford and increased professional fees, which were partially offset by The Pier Shops. Interest expense
decreased due to The Pier Shops, which was partially offset by the refinancing at Fair Oaks. Depreciation expense
increased due to the expansion at Stamford and higher depreciation on CAM assets, which were partially offset by The
Pier Shops.
As a result of the foregoing, income of the Unconsolidated Joint Ventures increased by $6.3 million to $77.5 million.
We had an effective 6% interest in The Pier Shops based on relative equity contributions, prior to our acquisition of a
controlling interest in April 2007 (see “Results of Operations – Openings, Expansions and Renovations, and
Acquisitions”). Our equity in income of the Unconsolidated Joint Ventures was $35.4 million, a $5.1 million decrease
from 2007. In 2008, we recognized an impairment charge of $8.3 million related to our investment in University Town
Center (see “Results of Operations – Impairment Charges”). The charge to income represents our share of our
Sarasota joint venture project costs.
Net Income (Loss)
Our income (loss) before minority and preferred interests decreased by $124.3 million to a $8.1 million loss for 2008,
due to the impairment charges. After allocation of income to minority and preferred interests, the net income (loss)
allocable to common shareowners for 2008 was a loss of $86.7 million compared to $48.5 million of income in 2007.
37
Comparison of 2007 to 2006
The following table sets forth operating results for 2007 and 2006, showing the results of the Consolidated Businesses and
Unconsolidated Joint Ventures:
2007
2006
CONSOLIDATED
BUSINESSES
UNCONSOLIDATED
JOINT VENTURES
AT 100%(1)
CONSOLIDATED
BUSINESSES
UNCONSOLIDATED
JOINT VENTURES
AT 100%(1)
(in millions of dollars)
REVENUES:
Minimum rents
Percentage rents
Expense recoveries
Management, leasing and development services
Other
Total revenues
EXPENSES:
Maintenance, taxes, and utilities
Other operating
Management, leasing and development services
General and administrative
Interest expense (2)
Depreciation and amortization (3)
Total expenses
Gains on land sales and other nonoperating income
Equity in income of Unconsolidated Joint Ventures (3)
Income before minority and preferred interests
Minority and preferred interests:
TRG preferred distributions
Minority share of income of consolidated joint
ventures
Distributions in excess of minority share of income
of consolidated joint ventures
Minority share of income of TRG
Distributions in excess of minority share of income
of TRG
Net income
Preferred dividends (4)
Net income allocable to common shareowners
SUPPLEMENTAL INFORMATION:
EBITDA - 100%
EBITDA - outside partners' share
Beneficial interest in EBITDA
Beneficial interest expense
Non-real estate depreciation
Preferred dividends and distributions
Funds from Operations contribution
329.4
14.8
228.4
16.5
37.7
626.8
175.9
69.6
9.1
30.4
131.7
137.9
554.7
3.6
75.7
40.5
116.2
(2.5)
(5.0)
(3.0)
(33.2)
(9.4)
63.1
(14.6)
48.5
345.3
(36.6)
308.7
(117.4)
(2.7)
(17.1)
171.6
150.9
8.4
94.9
8.4
262.6
66.6
20.7
66.2
39.4
193.0
1.6
71.2
176.8
(80.0)
96.8
(33.3)
63.5
311.2
14.7
206.2
11.8
35.4
579.3
152.9
71.6
5.7
30.3
128.6
138.0
527.1
9.5
61.6
33.5
95.1
(2.5)
(5.8)
(4.9)
(22.8)
(14.1)
45.1
(23.7)
21.4
328.2
(33.2)
295.0
(115.8)
(2.9)
(26.2)
150.0
148.8
8.0
85.6
9.7
252.2
64.3
26.3
57.6
45.8
193.9
1.3
59.6
162.9
(71.4)
91.6
(31.2)
60.4
(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 our ownership interest. In our consolidated financial statements, we account for investments in the Unconsolidated Joint Ventures under the equity
method.
Interest expense for 2006 includes charges of $3.1 million in connection with the write-off of financing costs related to the respective pay off and
refinancing of the loans on Willow Bend and Dolphin when the loans became prepayable without penalty, in the first and third quarters of 2006,
respectively.
(2)
(3) Amortization of our additional basis in the Operating Partnership included in depreciation and amortization was $4.9 million in both 2007 and 2006. Also,
amortization of our additional basis included in equity in income of Unconsolidated Joint Ventures was $1.9 million in both 2007 and 2006.
(4) Preferred dividends for 2006 include $4.7 million of charges recognized in connection with the redemption of the remaining Series A and Series I Preferred
Stock.
(5) Amounts in this table may not add due to rounding.
38
Consolidated Businesses
Total revenues for the year ended December 31, 2007 were $626.8 million, a $47.5 million or 8.2% increase over
2006. Minimum rents increased $18.2 million, primarily due to The Pier Shops, which we began consolidating upon the
acquisition of a controlling interest in the center, tenant rollovers, and increases in occupancy. Minimum rents also
increased due to the October 2007 opening of Partridge Creek and the September 2007 expansion at Twelve Oaks.
Expense recoveries increased primarily due to The Pier Shops, increases in recoverable costs at certain centers,
Partridge Creek, and Twelve Oaks. Management, leasing, and development revenue increased primarily due to
revenue on the Songdo development contract, which was executed in January 2007 and includes revenue related to
2006 services. Other income increased primarily due to increases in sponsorship income, The Pier Shops, and
parking-related revenue.
Total expenses were $554.7 million, a $27.6 million or 5.2% increase from 2006. Maintenance, taxes, and utilities
expense increased primarily due to The Pier Shops, increases in maintenance costs and property taxes at certain
centers, Partridge Creek, and Twelve Oaks. Other operating expense decreased due to decreases in the provision for
bad debts, costs related to marketing and promotion, and professional fees, which were partially offset by increases
due to The Pier Shops, pre-development costs, and property management costs. Management, leasing, and
development expense increased primarily due to activities related to the Songdo development contract. General and
administrative expense remained relatively flat, with increases in compensation expenses and travel costs, offset in
part by decreased bonus expense due to the mark-to-market of long term grants that fluctuate with our stock price.
Interest expense increased due to The Pier Shops, interest on new debt used to fund the redemption of preferred stock
in June 2006, the repurchase of common stock in 2007, Partridge Creek, and Twelve Oaks. These increases were
partially offset by reduced rates on the refinancings of Dolphin and Cherry Creek, the pay off of Willow Bend, and the
write-off in 2006 of financing costs related to the refinancing of Dolphin and the pay-off of the Willow Bend and Oyster
Bay loans. In addition, excess proceeds received from the financing of Waterside in 2006 were used to pay down our
lines of credit. Depreciation expense remained relatively flat, with decreases due to fully depreciated assets at certain
centers and lower depreciation on CAM assets being offset by increases due to The Pier Shops, Partridge Creek, and
changes in depreciable lives of tenant allowances and other assets in connection with early terminations.
Gains on land sales and other nonoperating income was down $5.9 million in 2007 due to a decrease in interest
income due to overall lower average cash balances in 2007 and a decrease in gains on peripheral land sales. There
were $0.7 million of gains on land sales in 2007, compared to $4.1 million of gains in 2006.
Unconsolidated Joint Ventures
Total revenues for the year ended December 31, 2007 were $262.6 million, a $10.4 million or 4.1% increase from
2006. Minimum rents increased by $2.1 million due to tenant rollovers and the expansion at Stamford, which were
partially offset by The Pier Shops and prior year adjustments at Arizona Mills. Expense recoveries increased primarily
due to increases in recoverable costs at certain centers. Other income decreased primarily due to decreases in lease
cancellation revenue.
Total expenses decreased by $0.9 million to $193.0 million for the year ended December 31, 2007. Maintenance,
taxes, and utilities expenses increased due to increased maintenance costs, which were partially offset by The Pier
Shops. Other operating expense decreased due to The Pier Shops, decreases in ground rent and costs related to
marketing and promotion services, and professional fees. Interest expense increased primarily due to the new
financing on Waterside in 2006 and the financing related to the land purchase at Sunvalley. Depreciation expense
decreased due to prior year adjustments at Arizona Mills, a decrease in depreciation on CAM assets and changes in
depreciable lives of tenant allowances in connection with early terminations, which were partially offset by increases
due to Waterside.
As a result of the foregoing, income of the Unconsolidated Joint Ventures increased by $11.6 million to $71.2 million.
We had an effective 6% interest in The Pier Shops based on relative equity contributions, prior to our acquisition of a
controlling interest in April 2007 (see “Results of Operations – Openings, Expansions and Renovations, and
Acquisitions”). Our equity in income of the Unconsolidated Joint Ventures was $40.5 million, a $7.0 million increase
from 2006.
Net Income
Our income before minority and preferred interests increased by $21.1 million to $116.2 million for 2007. Preferred
dividends decreased due to the redemption of preferred stock in 2006. Preferred dividends in 2006 also included
$4.7 million of charges recognized in connection with the redemption of the preferred stock (see “Results of Operations
– Equity Transactions”). After allocation of income to minority and preferred interests, the net income allocable to
common shareowners for 2007 was $48.5 million compared to $21.4 million in 2006.
39
Reconciliation of Net Income (Loss) Allocable to Common Shareowners to Funds from Operations
Net income (loss) allocable to common shareowners
Add (less) depreciation and amortization (1):
Consolidated businesses at 100%
Minority partners in consolidated joint ventures
Share of unconsolidated joint ventures
Non-real estate depreciation
Add minority interests:
Minority share of income (loss) in TRG
Distributions in excess of minority share of income of TRG
Distributions in excess of minority share of income of consolidated
joint ventures
Funds from Operations
2007
2008
(in millions of dollars, except as indicated)
48.5
2006
(86.7)
21.4
147.4
(13.0)
23.6
(3.3)
137.9
(17.3)
23.0
(2.7)
(11.3)
56.8
33.2
9.4
138.0
(14.6)
26.9
(2.9)
22.8
14.1
8.6
3.0
4.9
122.2
235.1
210.4
TCO’s average ownership percentage of TRG
66.6%
66.1%
65.0%
Funds from Operations allocable to TCO
81.3
155.4
136.7
(1) Depreciation and amortization includes $14.1 million, $11.3 million, and $10.2 million of mall tenant allowance amortization for the years ended
December 31, 2008, 2007, and 2006, respectively.
(2) Amounts in this table may not add due to rounding.
Reconciliation of Net Income (Loss) to Beneficial Interest in EBITDA
Net income (loss)
Add (less) depreciation and amortization:
Consolidated businesses at 100%
Minority partners in consolidated joint ventures
Share of unconsolidated joint ventures
Add (less) preferred interests, interest expense, and
income tax expense:
Preferred distributions
Interest expense:
Consolidated businesses at 100%
Minority partners in consolidated joint ventures
Share of unconsolidated joint ventures
Income tax expense
Add minority interests:
Minority share of income (loss) in TRG
Distributions in excess of minority share of income of TRG
Distributions in excess of minority share of income of consolidated
joint ventures
Beneficial interest in EBITDA
2007
2008
(in millions of dollars, except as indicated)
63.1
2006
(72.0)
45.1
147.4
(13.0)
23.6
137.9
(17.3)
23.0
138.0
(14.6)
26.9
2.5
2.5
2.5
147.4
(19.6)
33.8
1.1
131.7
(14.3)
33.3
128.6
(12.9)
31.2
(11.3)
56.8
33.2
9.4
22.8
14.1
8.6
3.0
4.9
305.3
405.6
386.5
TCO’s average ownership percentage of TRG
66.6%
66.1%
65.0%
Beneficial interest in EBITDA allocable to TCO
203.2
268.0
251.1
(1) Amounts in this table may not add due to rounding.
40
Liquidity and Capital Resources
Capital resources are required to maintain our current operations, pay dividends, and fund planned capital spending,
future developments, and other commitments and contingencies. Current market conditions have severely limited the
availability of new sources of financing and capital, which will clearly have an impact on our ability and the ability of our
partners to obtain construction financing for planned new development projects in the near term. However, we are
financed with property-specific secured debt, we have two unencumbered center properties (Willow Bend and
Stamford, a 50% owned unconsolidated joint venture property), and we have no maturities on our current debt until fall
2010, when $338 million at 100% and $264 million at our beneficial share of three loans mature. In addition, the three
loans maturing in 2010 are financed at historically conservative loan to value ratios averaging five to six times current
net operating income for the properties. Further, of the $650 million at 100% and $363 million at our beneficial share of
additional debt that matures in 2011(excluding our lines of credit, which are discussed below), $575 million at 100%
and $288 million at our beneficial share can be extended at our option to 2013, subject to certain covenants.
Summaries of 2008 Capital Activities and Transactions
As of December 31, 2008, we had a consolidated cash balance of $62.1 million, of which $2.9 million is restricted to
specific uses stipulated by our lenders. We also have secured lines of credit of $550 million and $40 million. As of
December 31, 2008, the total amount utilized of the $550 million and $40 million lines of credit was $240 million. Both
lines of credit mature in February 2011. The $550 million line of credit has a one-year extension option. Twelve banks
participate in these facilities. Given the lack of debt maturities until fall 2010, we believe we have sufficient liquidity from
our lines of credit and cash flows from both our consolidated and unconsolidated properties to meet our planned
operating, financing and capital needs and commitments during this period. See “MD&A – Liquidity and Capital
Resources – Capital Spending” for more details.
Operating Activities
Our net cash provided by operating activities was $253.4 million in 2008, compared to $257.8 million in 2007 and
$223.5 million in 2006. See also “Results of Operations” for descriptions of 2008 and 2007 transactions affecting
operating cash flow. All of the impairment charge on the Oyster Bay project, other than $16.9 million, represented
previous years’ expenditures. See “MD&A – Results of Operations – Impairment Charges” for more details.
Investing Activities
Net cash used in investing activities was $111.1 million in 2008 compared to $227.7 million in 2007 and
$131.5 million in 2006. Cash used in investing activities was impacted by the timing of capital expenditures, with
additions to properties in 2008, 2007, and 2006 for the construction of Partridge Creek and Northlake, the expansion
and renovation at Twelve Oaks, the acquisition of land for future development, and our Oyster Bay Project, as well as
other development activities and other capital items. Additions to properties in 2007 also included costs to complete
construction at The Pier Shops, paid subsequent to our acquisition of a controlling interest. A tabular presentation of
2008 and 2007 capital spending is shown in “Capital Spending”. In 2008, we exercised our option to purchase interests
in Partridge Creek from the third-party owner for $11.8 million (see “Note 2 – Acquisitions – The Mall at Partridge
Creek” in our consolidated financial statements). During April 2007, we purchased a controlling interest in The Pier
Shops for $24.5 million in cash and upon its consolidation we included its $33.4 million balance of cash on our balance
sheet. In 2008, a $54.3 million contribution was made related to our acquisition of a 25% interest in The Mall at Studio
City. The contribution is currently held in escrow (see “Results of Operations – Taubman Asia”). In 2008 and 2007,
$2.7 million and $3.4 million, respectively, were used to acquire marketable equity securities and other assets. During
2007, we issued $2.2 million in notes receivable in connection with the construction of certain tenant leasehold
improvements and in 2008 we received $0.2 million in payments on the notes. Contributions to Unconsolidated Joint
Ventures of $12.1 million in 2008 included $7.2 million of funding and costs related to our Sarasota joint venture.
Contributions to Unconsolidated Joint Ventures of $15.2 million in 2007 were made primarily to fund the expansions at
Stamford and Waterside. Contributions to Unconsolidated Joint Ventures of $25.3 million in 2006 were made primarily
to purchase land that Sunvalley is located on and to fund the expansion at Waterside.
41
Sources of cash used in funding these investing activities, other than cash flows from operating activities, included
distributions from Unconsolidated Joint Ventures, as well as the transactions described under Financing Activities.
Distributions in excess of earnings from Unconsolidated Joint Ventures provided $63.3 million in 2008, which included
excess proceeds from the Fair Oaks refinancing. Distributions in excess of earnings from Unconsolidated Joint
Ventures provided $3.0 million and $57.6 million in 2007 and 2006, respectively. The amounts in 2006 included
proceeds from the Waterside financing. Net proceeds from sales of peripheral land were $6.3 million, $1.1 million and
$5.4 million in 2008, 2007, and 2006, respectively. The timing of land sales is variable and proceeds from land sales
can vary significantly from period to period. A $9.0 million note received in connection with the 2005 sale of a center
was collected in 2006.
Financing Activities
Net cash used in financing activities was $127.3 million in 2008 compared to $9.3 million in 2007 and $231.6 million
in 2006. Net cash used in financing activities was primarily impacted by cash requirements of the investing activities
described in the preceding section. Proceeds from the issuance of debt, net of payments and issuance costs, were
$93.2 million in 2008, compared to $244.2 million in 2007 and $51.6 million in 2006. Repurchases of common stock
totaled $100.0 million in 2007. In 2006 we used the proceeds from the issuance of the $113 million Series I Preferred
Stock to redeem the remaining outstanding Series A Preferred Stock. The Series I Preferred Stock was subsequently
redeemed in 2006. Equity issuance costs were $0.6 million in 2006. In 2008 and 2007, $3.8 million and $0.4 million
was received, respectively, in connection with incentive plans. The prior third-party owner of Partridge Creek
contributed $9.0 million in 2006 to fund the project (see “Note 2 – Acquisitions – The Mall at Partridge Creek” regarding
the ownership structure of this project). Total dividends and distributions paid were $221.3 million, $149.7 million, and
$178.6 million in 2008, 2007, and 2006, respectively. Distributions to minority interests in 2008 and 2006 include $51.3
million and $45.3 million of excess proceeds from the refinancings of International Plaza and Cherry Creek,
respectively.
Beneficial Interest in Debt
At December 31, 2008, the Operating Partnership's debt and its beneficial interest in the debt of its Consolidated and
Unconsolidated Joint Ventures totaled $3,004.0 million, with an average interest rate of 5.26% excluding amortization
of debt issuance costs and the effects of interest rate hedging instruments. These costs are reported as interest
expense in the results of operations. Interest expense for the year ended December 31, 2008 includes $0.8 million of
non-cash amortization relating to acquisitions, or 0.03% of the average all-in rate. Beneficial interest in debt includes
debt used to fund development and expansion costs. Beneficial interest in construction work in progress totaled
$69.5 million as of December 31, 2008, which includes $29.1 million of assets on which interest is being capitalized.
Beneficial interest in capitalized interest was $7.9 million for 2008. The following table presents information about our
beneficial interest in debt as of December 31, 2008:
Fixed rate debt
Floating rate debt:
Swapped through December 2010
Swapped through March 2011
Swapped through October 2012
Floating month to month
Total floating rate debt
Total beneficial interest in debt
Amortization of financing costs (2)
Average all-in rate
Amount
(in millions of dollars)
2,388.0
Interest Rate
Including Spread
5.70%
(1)
162.8
125.0
15.0
302.8
313.2
616.0
3,004.0
5.01%
4.22%
5.95%
4.73%
2.47%
3.58%
5.26%
0.18%
5.44%
(1)
(1)
(1)
(1)
(1) Represents weighted average interest rate before amortization of financing costs.
(2) Financing costs include financing fees, interest rate cap premiums, and losses on settlement of derivatives used to hedge the refinancing of
certain fixed rate debt.
(3) Amounts in table may not add due to rounding.
42
Sensitivity Analysis
We have exposure to interest rate risk on our debt obligations and interest rate instruments. We use derivative
instruments primarily to manage exposure to interest rate risks inherent in variable rate debt and refinancings. We
routinely use cap, swap, and treasury lock agreements to meet these objectives. Based on the Operating Partnership's
beneficial interest in floating rate debt in effect at December 31, 2008 and 2007, a one percent increase or decrease in
interest rates on this floating rate debt would decrease or increase cash flows by approximately $3.1 million and
$3.5 million, respectively, and, due to the effect of capitalized interest, annual earnings by approximately $3.1 million
and $3.3 million, respectively. Based on our consolidated debt and interest rates in effect at December 31, 2008 and
2007, a one percent increase in interest rates would decrease the fair value of debt by approximately $111.7 million
and $126.1 million, respectively, while a one percent decrease in interest rates would increase the fair value of debt by
approximately $118.8 million and $135.2 million, respectively.
Contractual Obligations
In conducting our business, we enter into various contractual obligations, including those for debt, capital leases for
property improvements, operating leases for land and office space, purchase obligations (primarily for construction),
and other long-term commitments. Detail of these obligations as of December 31, 2008 for our consolidated
businesses, including expected settlement periods, is contained below:
Payments due by period
Total
Less than 1
year (2009)
1-3 years
(2010-2011)
3-5 years
(2012-2013)
More than 5
years (2014+)
(in millions of dollars)
Debt (1)
Interest payments (1)
Capital lease obligations
Operating leases
Purchase obligations:
Planned capital spending
Other purchase obligations (2)
Other long-term liabilities (3)
Total
2,796.8
782.8
2.6
440.1
40.6
20.4
64.6
4,147.9
14.4
147.9
1.9
10.5
40.6
6.9
0.7
222.9
862.3
256.8
0.8
18.6
5.8
1.7
1,146.0
146.2
205.7
15.1
4.7
2.4
374.1
1,773.8
172.5
395.9
2.9
59.7
2,404.8
(1) The settlement periods for debt do not consider extension options. Amounts relating to interest on floating rate debt are calculated based on
the debt balances and interest rates as of December 31, 2008.
(2) Excludes purchase agreements with cancellation provisions of 90 days or less.
(3) Other long-term liabilities consist of various accrued liabilities, most significantly assessment bond obligations and long-term incentive
compensation.
(4) Amounts in this table may not add due to rounding.
Loan Commitments and Guarantees
Certain loan agreements contain various restrictive covenants, including a minimum net worth requirement, a
maximum payout ratio on distributions, a minimum debt yield ratio, a maximum leverage ratio, minimum interest
coverage ratios and a minimum fixed charges coverage ratio, the latter being the most restrictive. We are in
compliance with all of our covenants as of December 31, 2008. The maximum payout ratio on distributions covenant
limits the payment of distributions generally to 95% of funds from operations, as defined in the loan agreements, except
as required to maintain our tax status, pay preferred distributions, and for distributions related to the sale of certain
assets. See “Note 9 – Notes Payable – Debt Covenants and Guarantees” to the consolidated financial statements for
more details.
Cash Tender Agreement
A. Alfred Taubman has the annual right to tender units of partnership interest in the Operating Partnership 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. See “Note 15 – Commitments and Contingencies” to the consolidated
financial statements for more details.
43
Capital Spending
New Centers
Our remaining investment in the Oyster Bay project as of December 31, 2008 is $39.8 million, consisting of land and
site improvements. We also expect to expense any additional costs relating to Oyster Bay until it is probable that we
will be able to successfully move forward with a project. We began expensing carrying costs as incurred beginning in
the fourth quarter of 2008. Also, we have no remaining asset related to our Sarasota project and expect to expense
any additional costs related to the monitoring of the project until a definitive agreement is reached by the parties on
going forward with the project. See “MD&A – Results of Operations – Impairment Charges” for more details.
We have finalized the majority of agreements, subject to certain conditions, regarding City Creek Center, a mixed-
use project in Salt Lake City, Utah. The 0.7 million square foot retail component of the project will include Macy’s and
Nordstrom as anchors. We have been a consultant throughout the planning process for this project and are finalizing
agreements to develop, manage, lease, and own the retail space under a participating lease. When the conditions are
satisfied we will provide the anticipated costs and returns. Meanwhile, construction is progressing and we are leasing
space for a 2012 opening. The lessor will provide all of the construction financing.
In January 2007, we acquired land for future development in North Atlanta, Georgia. This land and two adjoining
parcels, which are currently under our option, are being considered for a significant mixed use project. The project
would include about 1.4 million square feet of retail, 900,000 square feet of office, 875 residential units, and 500 hotel
rooms.
See “MD&A – Results of Operations – Taubman Asia” regarding the status of our involvement in The Mall at Studio
City and Songdo.
2008 and 2007 Capital Spending
Capital spending for routine maintenance of the shopping centers is generally recovered from tenants. Capital
spending during 2008, excluding acquisitions, is summarized in the following table:
2008 (1)
Consolidated
Businesses
Beneficial
Interest in
Consolidated
Businesses
Unconsolidated
Joint Ventures
Beneficial
Interest in
Unconsolidated
Joint Ventures
(in millions of dollars)
New Development Projects:
Pre-construction development activities (2)
New centers (3)
Existing Centers:
Renovation projects with incremental GLA
and/or anchor replacement
Renovations with no incremental GLA effect
and other
Mall tenant allowances (4)
Asset replacement costs reimbursable by tenants
Corporate office improvements, technology, and
equipment (5)
Additions to properties
16.4
1.7
12.3
1.3
9.4
11.0
4.2
56.3
16.4
1.7
10.7
1.1
8.9
9.6
4.2
52.6
6.5
4.0
18.8
4.8
11.7
12.2
___
54.1
6.7
2.9
7.3
7.9
___
28.9
(1) Costs are net of intercompany profits and are computed on an accrual basis.
(2) Primarily includes costs related to Oyster Bay and Sarasota projects through September 30, 2008, all of which were written off as part of the fourth
quarter impairment charge. Excludes $54.3 million escrow deposit paid in 2008 relating to the Macao project.
Includes costs related to The Mall at Partridge Creek.
(3)
(4) Excludes initial lease-up costs.
Includes U.S. and Asia offices.
(5)
(6) Amounts in this table may not add due to rounding.
44
The following table presents a reconciliation of the Consolidated Businesses’ capital spending shown above (on an
accrual basis) to additions to properties (on a cash basis) as presented in our Consolidated Statement of Cash Flows
for the year ended December 31, 2008:
Consolidated Businesses’ capital spending
Differences between cash and accrual basis
Additions to properties
(in millions of dollars)
56.3
43.7
100.0
Capital spending during 2007, excluding acquisitions, is summarized in the following table:
2007 (1)
Beneficial
Interest in
Consolidated
Businesses
Consolidated
Businesses
Unconsolidated
Joint Ventures
Beneficial
Interest in
Unconsolidated
Joint Ventures
(in millions of dollars)
New Development Projects:
Pre-construction development activities (2)
New centers (3)
Existing Centers:
Renovation projects with incremental GLA
and/or anchor replacement (4)
Renovations with no incremental GLA effect
and other
Mall tenant allowances (5)
Asset replacement costs reimbursable by tenants
Corporate office improvements, technology, and
equipment
Additions to properties
30.6
87.7
53.7
3.0
18.5
34.0
1.8
229.2
30.1
87.1
51.0
2.9
17.1
32.6
1.8
222.6
68.0
4.0
1.8
4.7
___
78.6
27.6
2.3
1.0
2.7
___
33.5
(1) Costs are net of intercompany profits and are computed on an accrual basis.
(2) Primarily includes costs to acquire and improve land for future development in North Atlanta, Georgia, and project costs of Oyster Bay.
(3)
(4)
(5) Excludes initial lease-up costs.
(6) Amounts in this table may not add due to rounding.
Includes costs related to The Mall at Partridge Creek and The Pier Shops at Caesars (subsequent to the acquisition).
Includes costs related to the renovation at Stamford Town Center and the expansion at Twelve Oaks Mall.
The Operating Partnership's share of mall tenant allowances per square foot leased, committed under contracts
during the year, excluding expansion space and new developments, was $18.09 in 2008 and $18.47 in 2007. In
addition, the Operating Partnership's share of capitalized leasing and tenant coordination costs excluding new
developments, was $7.6 million and $7.7 million in 2008 and 2007, respectively, or $7.76 and $7.52, in 2008 and 2007,
respectively, per square foot leased.
Planned Capital Spending
The following table summarizes planned capital spending for 2009:
2009 (1)
Consolidated
Businesses
Beneficial
Interest in
Consolidated
Businesses
Unconsolidated
Joint Ventures
Beneficial
Interest in
Unconsolidated
Joint Ventures
Site improvements(2)
Existing centers(3)
Corporate office improvements, technology,
and equipment
Total
1.9
37.0
1.8
40.6
(in millions of dollars)
1.9
29.8
12.1
1.8
33.4
12.1
6.6
6.6
Includes costs to improve land for future development in North Atlanta, Georgia.
(1) Costs are net of intercompany profits.
(2)
(3) Primarily includes costs related to mall tenant allowances and asset replacement costs reimbursable by tenants.
(4) Amounts in this table may not add due to rounding.
45
Estimates of future capital spending include only projects approved by our Board of Directors and, consequently,
estimates will change as new projects are approved. Costs of potential development projects, including our exploration
of development possibilities in Asia, are expensed until we conclude that it is probable that the project will reach a
successful conclusion. We are currently capitalizing costs on our project in Salt Lake City. As of December 31, 2008,
the capitalized cost of this project was $1.2 million.
Disclosures regarding planned capital spending, including estimates regarding timing of openings, capital
expenditures, occupancy, and returns on new developments are forward-looking statements and certain significant
factors could cause the actual results to differ materially, including but not limited to (1) actual results of negotiations
with anchors, tenants, and contractors, (2) timing and outcome of litigation and entitlement processes, (3) changes in
the scope, number, and valuation of projects, (4) cost overruns, (5) timing of expenditures, (6) availability of and cost of
financing and other financing considerations, (7) actual time to start construction and complete projects, (8) changes in
economic climate, (9) competition from others attracting tenants and customers, (10) increases in operating costs, (11)
timing of tenant openings, and (12) early lease terminations and bankruptcies.
Dividends
We pay regular quarterly dividends to our common and Series G and Series H preferred shareowners. Dividends to
our common shareowners are at the discretion of the Board of Directors and depend on the cash available to us, our
financial condition, capital and other requirements, and such other factors as the Board of Directors deems relevant. To
qualify as a REIT, we must distribute at least 90% of our REIT taxable income prior to net capital gains to our
shareowners, as well as meet certain other requirements. We must pay these distributions in the taxable year the
income is recognized, or in the following taxable year if they are declared during the last three months of the taxable
year, payable to shareowners of record on a specified date during such period and paid during January of the following
year. Such distributions are treated as paid by us and received by our shareowners on December 31 of the year in
which they are declared. In addition, at our election, a distribution for a taxable year may be declared in the following
taxable year if it is declared before we timely file our tax return for such year and if paid on or before the first regular
dividend payment after such declaration. These distributions qualify as dividends paid for the 90% REIT distribution
test for the previous year and are taxable to holders of our capital stock in the year in which paid. Preferred dividends
accrue regardless of whether earnings, cash availability, or contractual obligations were to prohibit the current payment
of dividends.
The annual determination of our common dividends is based on anticipated Funds from Operations available after
preferred dividends and our REIT taxable income, as well as assessments of annual capital spending, financing
considerations, and other appropriate factors.
Any inability of the Operating Partnership or its Joint Ventures to secure financing as required to fund maturing debts,
capital expenditures and changes in working capital, including development activities and expansions, may require the
utilization of cash to satisfy such obligations, thereby possibly reducing distributions to partners of the Operating
Partnership and funds available to us for the payment of dividends.
On December 10, 2008, we declared a quarterly dividend of $0.415 per common share that was paid on January 20,
2009 to shareowners of record on December 31, 2008. We declared a quarterly dividend of $0.50 per share on our 8%
Series G Preferred Stock, paid December 31, 2008 to shareowners of record on December 19, 2008. We also declared
a quarterly dividend of $0.4765625 per share on our 7.625% Series H Preferred Stock, paid on December 31, 2008 to
shareowners of record on December 19, 2008.
46
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is included in this report at Item 7 under the caption “Liquidity and Capital
Resources”.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements of Taubman Centers, Inc. and the Reports of Independent Registered Public Accounting
Firm thereon are filed pursuant to this Item 8 and are included in this report at Item 15.
Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this annual report, we carried out an evaluation, under the supervision and
with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2008, our disclosure controls
and procedures were effective to ensure the information required to be disclosed by us in reports that we file or submit
under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the
time periods prescribed by the SEC, and that such information is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Management’s Annual Report on Internal Control over Financial Reporting accompanies the Company’s financial
statements included in Item 15 of this annual report.
Report of the Independent Registered Public Accounting Firm
The report issued by the Company’s independent registered public accounting firm, KPMG LLP, accompanies the
Company’s financial statements included in Item 15 of this annual report.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting identified in connection with the
Company’s fourth quarter 2008 evaluation of such internal control that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial reporting.
Item 9B. OTHER INFORMATION.
Not applicable.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
The information required by this item is hereby incorporated by reference to the material appearing in the Proxy
Statement under the captions “Proposal 1-Election of Directors—Directors and Executive Officers,” “Proposal 1-
Election of Directors—Committees of the Board,” "Proposal 1-Election of Directors—Corporate Governance,” and
“Additional Information—Section 16(a) Beneficial Ownership Reporting Compliance.”
Item 11. EXECUTIVE COMPENSATION.
The information required by this item is hereby incorporated by reference to the material appearing in the Proxy
Statement under the captions "Proposal 1-Election of Directors—Director Compensation,” “Compensation Committee
Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” and
“Executive Compensation Tables.”
47
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The following table sets forth certain information regarding the Company’s current and prior equity compensation plans
as of December 31, 2008:
Equity compensation plans approved by security holders:
The Taubman Company 2008 Omnibus Long-Term
Incentive Plan (1)
1992 Incentive Option Plan (2)
The Taubman Company 2005 Long-Term Incentive Plan (3)
Equity compensation plan not approved by security holders -
Non-Employee Directors’ Deferred Compensation Plan (5)
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants,
and Rights
(a)
Weighted-
Average Exercise
Price of
Outstanding
Options,
Warrants,
and Rights
(b)
Number of Securities
Remaining Available for
Future Issuances Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(c)
1,350,477
334,878
1,685,355
24,296
1,709,651
$39.73
(4)
39.73
(6)
$39.73
6,098,558
6,098,558
(7)
6,098,558
(1) Under The Taubman Company 2008 Omnibus Long-Term Incentive Plan, directors, officers, employees, and other service providers of the
Company receive restricted shares, restricted share units, restricted units of limited partnership in TRG (“TRG Units”), restricted TRG Units,
options to purchase common stock or TRG Units, share appreciation rights, unrestricted shares of common stock or TRG Units, and other
awards to acquire up to an aggregate of 6,100,000 shares of common stock or TRG Units. No further awards will be made under the 1992
Incentive Option Plan, The Taubman Company 2005 Long-Term Incentive Plan, or the Non-Employee Directors' Stock Grant Plan.
(2) Under the 1992 Incentive Option Plan, employees receive TRG Units upon the exercise of their vested options, and each TRG Unit can be
converted into one share of common stock under the Continuing Offer. Excludes 871,262 deferred units, the receipt of which were deferred by
Robert S. Taubman at the time he exercised options in 2002; the options were initially granted under TRG's 1992 Incentive Option Plan (See
Note 13 to our consolidated financial statements included at Item 15 (a) (1)).
(3) Under The Taubman Company 2005 Long-Term Incentive Plan, employees receive restricted stock units, which represent the right to one
share of common stock upon vesting.
(4) Excludes restricted stock units issued under The Taubman Company 2005 Long-Term Incentive Plan because they are converted into
common stock on a one-for-one basis at no additional cost.
(5) The Deferred Compensation Plan, which was approved by the Board in May 2005, gives each non-employee director of the Company the right
to defer the receipt of all or a portion of his or her annual director retainer until the termination of such director's service on the Board and for
such deferred compensation to be denominated in restricted stock units. The number of restricted stock units received equals the deferred
retainer fee divided by the fair market value of the common stock on the business day immediately before the date the director would otherwise
have been entitled to receive the retainer fee. The restricted stock units represent the right to receive equivalent shares of common stock at
the end of the deferral period. During the deferral period, when the Company pays cash dividends on the common stock, the directors' deferral
accounts are credited with dividend equivalents on their deferred restricted stock units, payable in additional restricted stock units based on the
then-fair market value of the common stock. Each Director's account is 100% vested at all times.
(6) The restricted stock units are excluded because they are converted into common stock on a one-for-one basis at no additional cost.
(7) The number of securities available for future issuance is unlimited and will reflect whether non-employee directors elect to defer all or a portion
of their annual retainers.
Additional information required by this item is hereby incorporated by reference to the table and related footnotes
appearing in the Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and
Management.”
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item is hereby incorporated by reference to the material appearing in the Proxy
Statement under the caption “Related Person Transactions,” and "Proposal 1-Election of Directors—Committees of the
Board.”
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this item is hereby incorporated by reference to the material appearing in the Proxy
Statement under the caption “Audit Committee Disclosure.”
48
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
PART IV
15(a)(1) The following financial statements of Taubman Centers, Inc. and the Reports of Independent
Registered Public Accounting Firm thereon are filed with this report:
TAUBMAN CENTERS, INC.
Management's Annual Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheet as of December 31, 2008 and 2007
Consolidated Statement of Operations for the years ended December 31, 2008,
2007, and 2006
Consolidated Statement of Shareowners' Equity for the years ended December 31,
2008, 2007, and 2006
Consolidated Statement of Cash Flows for the years ended December 31, 2008,
2007, and 2006
Notes to Consolidated Financial Statements
15(a)(2) The following is a list of the financial statement schedules required by Item 15(d):
TAUBMAN CENTERS, INC.
Schedule II - Valuation and Qualifying Accounts for the years ended December 31,
2008, 2007, and 2006
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2008
Page
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-37
F-38
15(a)(3)
3(a)
3(b)
4(a)
4(b)
4(c)
4(d)
4(e)
4(f)
-- Restated By-Laws of Taubman Centers, Inc. (incorporated herein by reference to Exhibit
3 filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
2005).
-- Restated Articles of Incorporation of Taubman Centers, Inc. (incorporated herein by
reference to Exhibit 3 filed with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006).
-- Loan Agreement dated as of January 15, 2004 among La Cienega Associates, as
Borrower, Column Financial, Inc., as Lender (incorporated herein by reference to Exhibit 4
filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2004 ("2004 First Quarter Form 10-Q")).
-- Assignment of Leases and Rents, La Cienega Associates, Assignor, and Column
Financial, Inc., Assignee, dated as of January 15, 2004 (incorporated herein by reference
to Exhibit 4 filed with the 2004 First Quarter Form 10-Q).
-- Leasehold Deed of Trust, with Assignment of Leases and Rents, Fixture Filing, and
Security Agreement, dated as of January 15, 2004, from La Cienega Associates,
Borrower, to Commonwealth Land Title Company, Trustee, for the benefit of Column
Financial, Inc., Lender (incorporated herein by reference to Exhibit 4 filed with the 2004
First Quarter Form 10-Q).
-- Amended and Restated Promissory Note A-1, dated December 14, 2005, by Short Hills
Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by reference to
Exhibit 4.1 filed with the Registrant’s Current Report on Form 8-K dated December 16,
2005).
-- Amended and Restated Promissory Note A-2, dated December 14, 2005, by Short Hills
Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by reference to
Exhibit 4.2 filed with the Registrant’s Current Report on Form 8-K dated December 16,
2005).
-- Amended and Restated Promissory Note A-3, dated December 14, 2005, by Short Hills
Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by reference to
Exhibit 4.3 filed with the Registrant’s Current Report on Form 8-K dated December 16,
2005).
49
4(g)
4(h)
4(i)
4(j)
4(k)
4(l)
-- Amended and Restated Mortgage, Security Agreement and Fixture Filings, dated
December 14, 2005 by Short Hills Associates L.L.C. to Metropolitan Life Insurance
Company (incorporated by reference to Exhibit 4.4 filed with the Registrant’s Current
Report on Form 8-K dated December 16, 2005).
-- Amended and Restated Assignment of Leases, dated December 14, 2005, by Short Hills
Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by reference to
Exhibit 4.5 filed with the Registrant’s Current Report on Form 8-K dated December 16,
2005).
-- Second Amended and Restated Secured Revolving Credit Agreement, dated as of
November 1, 2007, by and among Dolphin Mall Associates Limited Partnership, Fairlane
Town Center LLC and Twelve Oaks Mall, LLC, as Borrowers, Eurohypo AG, New York
Branch, as Administrative Agent and Lead Arranger, and the various lenders and agents
on the signature pages thereto (incorporated herein by reference to Exhibit 4.1 filed with
the Registrant’s Current Report on Form 8-K dated November 1, 2007).
-- Third Amended and Restated Mortgage, Assignment of Leases and Rents and Security
Agreement, dated as of November 1, 2007, by and between Dolphin Mall Associates
Limited Partnership and Eurohypo AG, New York Branch, as Administrative Agent
(incorporated herein by reference to Exhibit 4.5 filed with the Registrant’s Current Report
on Form 8-K dated November 1, 2007).
-- Second Amended and Restated Mortgage, dated as of November 1, 2007, by and
between Fairlane Town Center LLC and Eurohypo AG, New York Branch, as
Administrative Agent (incorporated herein by reference to Exhibit 4.3 filed with the
Registrant’s Current Report on Form 8-K dated November 1, 2007).
-- Second Amended and Restated Mortgage, dated as of November 1, 2007, by and
between Twelve Oaks Mall, LLC and Eurohypo AG, New York Branch, as Administrative
Agent (incorporated herein by reference to Exhibit 4.4 filed with the Registrant’s Current
Report on Form 8-K dated November 1, 2007).
4(m)
-- Guaranty of Payment, dated as of November 1, 2007, by and among The Taubman
Realty Group Limited Partnership, Fairlane Town Center LLC and Twelve Oaks Mall, LLC
(incorporated herein by reference to Exhibit 4.2 filed with the Registrant’s Current Report
on Form 8-K dated November 1, 2007).
4(n)
--
Loan Agreement dated January 8, 2008, by and between Tampa Westshore Associates
Limited Partnership and Eurohypo AG, New York Branch, as Administrative Agent, Joint
Lead Arranger and Joint Book Runner and the various lenders and agents on the
signature pages thereto (incorporated herein by reference to Exhibit 4.1 filed with the
Registrant’s Current Report on Form 8-K dated January 8, 2008).
4(o)
4(p)
4(q)
-- Amended and Restated Leasehold Mortgage, Security Agreement and Financing
Statement dated January 8, 2008, by Tampa Westshore Associates Limited Partnership,
in favor of Eurohypo AG, New York Branch, as Administrative Agent (incorporated herein
by reference to Exhibit 4.2 filed with the Registrant’s Current Report on Form 8-K dated
January 8, 2008).
-- Assignment of Leases and Rents dated January 8, 2008, by Tampa Westshore
Associates Limited Partnership, in favor of Eurohypo AG, New York Branch, as
Administrative Agent (incorporated herein by reference to Exhibit 4.3 filed with the
Registrant’s Current Report on Form 8-K dated January 8, 2008).
-- Carveout Guaranty dated January 8, 2008, by The Taubman Realty Group Limited
Partnership to and for the benefit of Eurohypo AG, New York Branch, as Administrative
Agent (incorporated herein by reference to Exhibit 4.4 filed with the Registrant’s Current
Report on Form 8-K dated January 8, 2008).
*10(a)
-- The Taubman Realty Group Limited Partnership 1992 Incentive Option Plan, as Amended
and Restated Effective as of September 30, 1997 (incorporated herein by reference to
Exhibit 10(b) filed with the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 1997).
50
*10(b)
*10(c)
*10(d)
*10(e)
*10(f)
10(g)
10(h)
-- First Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive
Option Plan as Amended and Restated Effective as of September 30, 1997, effective
January 1, 2002 (incorporated herein by reference to Exhibit 10(b) filed with the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001 (“2001
Form 10-K”)).
-- Second Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive
Plan as Amended and Restated Effective as of September 30, 1997 (incorporated herein
by reference to Exhibit 10(c) filed with the Registrant’s Annual Report on Form 10-K for
the year ended December 31, 2004 (“2004 Form 10-K”)).
-- Third Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive Plan
as Amended and Restated Effective as of September 30, 1997 (incorporated herein by
reference to Exhibit 10(d) filed with the 2004 Form 10-K).
-- Fourth Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive
Plan as Amended and Restated Effective as of September 30, 1997 (incorporated herein
by reference to Exhibit 10(a) filed with the Registrant’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2007).
-- The Form of The Taubman Realty Group Limited Partnership 1992 Incentive Option Plan
Option Agreement (incorporated herein by reference to Exhibit 10(e) filed with the 2004
Form 10-K).
-- Master Services Agreement between The Taubman Realty Group Limited Partnership
and the Manager (incorporated herein by reference to Exhibit 10(f) filed with the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 1992).
-- Amended and Restated Cash Tender Agreement among Taubman Centers, Inc., The
Taubman Realty Group Limited Partnership, and A. Alfred Taubman, A. Alfred Taubman,
acting not individually but as Trustee of the A. Alfred Taubman Restated Revocable Trust,
and TRA Partners, (incorporated herein by reference to Exhibit 10 (a) filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 (“2000
Second Quarter Form 10-Q”)).
*10(i)
-- Supplemental Retirement Savings Plan (incorporated herein by reference to Exhibit 10(i)
filed with the Registrant's Annual Report on Form 10-K for the year ended December 31,
1994).
*10(j)
--
The Taubman Company Long-Term Compensation Plan (as amended and restated
effective January 1, 2000) (incorporated herein by reference to Exhibit 10 (c) filed with the
2000 Second Quarter Form 10-Q).
*10(k)
--
First Amendment to the Taubman Company Long-Term Compensation Plan (as amended
and restated effective January 1, 2000)(incorporated herein by reference to Exhibit 10(m)
filed with the 2004 Form 10-K).
*10(l)
-- Second Amendment to the Taubman Company Long-Term Performance Compensation
Plan (as amended and restated effective January 1, 2000)(incorporated herein by
reference to Exhibit 10(n) filed with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 2005).
*10(m)
--
The Taubman Company 2005 Long-Term Incentive Plan (incorporated herein by
reference to the Form DEF14A filed with the Securities and Exchange Commission on
April 5, 2005).
*10(n)
*10(o)
-- Employment Agreement between The Taubman Company Limited Partnership and Lisa
A. Payne (incorporated herein by reference to Exhibit 10 filed with the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997).
-- Amended and Restated Change of Control Employment Agreement, dated December 18,
2008, by and among the Company, Taubman Realty Group Limited Partnership, and Lisa
A. Payne (revised for Code Section 409A compliance).
51
*10(p)
--
Form of Amended and Restated Change of Control Employment Agreement, dated
December 18, 2008 (revised for Code Section 409A compliance).
10(q)
-- Second Amended and Restated Continuing Offer, dated as of May 16, 2000.
(incorporated herein by reference to Exhibit 10 (b) filed with the 2000 Second Quarter
Form 10-Q).
10(r)
--
The Second Amendment and Restatement of Agreement of Limited Partnership of the
Taubman Realty Group Limited Partnership dated September 30, 1998 (incorporated
herein by reference to Exhibit 10 filed with the Registrant’s Quarterly Report on Form 10-
Q dated September 30, 1998).
10(s)
10(t)
10(u)
-- Annex II to Second Amendment to the Second Amendment and Restatement of
Agreement of Limited Partnership of The Taubman Realty Group Limited Partnership
(incorporated herein by reference to Exhibit 10(p) filed with Registrant’s Annual Report on
Form 10-K for the year ended December 31, 1999).
-- Annex III to The Second Amendment and Restatement of Agreement of Limited
Partnership of The Taubman Realty Group Limited Partnership, dated as of May 27, 2004
(incorporated by reference to Exhibit 10(c) filed with the 2004 Second Quarter Form 10-
Q).
-- Second Amendment to the Second Amendment and Restatement of Agreement of
Limited Partnership of The Taubman Realty Group Limited Partnership effective as of
September 3, 1999 (incorporated herein by reference to Exhibit 10(a) filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).
10(v)
--
Third Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of the Taubman Realty Group Limited Partnership, dated May 2, 2003
(incorporated herein by reference to Exhibit 10(a) filed with the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003).
10(w)
--
Fourth Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of the Taubman Realty Group Limited Partnership, dated December 31, 2003
(incorporated herein by reference to Exhibit 10(x) filed with the Registrant’s Annual Report
on Form 10-K for the year ended December 31, 2003).
10(x)
--
Fifth Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of the Taubman Realty Group Limited Partnership, dated February 1, 2005
(incorporated herein by reference to Exhibit 10.1 filed with the Registrant’s Current Report
on Form 8-K filed on February 7, 2005).
10(y)
10(z)
-- Sixth Amendment to the Second Amendment and Restatement of Agreement of Limited
Partnership of the Taubman Realty Group Limited Partnership, dated March 29, 2006
(incorporated herein by reference to Exhibit 10 filed with the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2006).
-- Seventh Amendment to the Second Amendment and Restatement of Agreement of
Limited Partnership of the Taubman Realty Group Limited Partnership, dated December
14, 2007 (incorporated herein by reference to Exhibit 10(z) filed with the Registrant’s
Annual Report on Form 10-K for the year ended December 31, 2007).
10(aa)
-- Amended and Restated Shareholders' Agreement dated as of October 30, 2001 among
Taub-Co Management, Inc., The Taubman Realty Group Limited Partnership, The A.
Alfred Taubman Restated Revocable Trust, and Taub-Co Holdings LLC (incorporated
herein by reference to Exhibit 10(q) filed with the 2001 Form 10-K).
*10(ab)
--
The Taubman Realty Group Limited Partnership and The Taubman Company LLC
Election and Option Deferral Agreement (incorporated herein by reference to Exhibit 10(r)
filed with the 2001 Form 10-K).
10(ac)
-- Operating Agreement of Taubman Land Associates, a Delaware Limited Liability
Company, dated October 20, 2006 (incorporated herein by reference to Exhibit 10(ab)
filed with the Registrant's Annual Report on Form 10-K for the year ended December 31,
2006 (“2006 Form 10-K”)).
52
10(ad)
-- Amended and Restated Agreement of Partnership of Sunvalley Associates, a California
general partnership (incorporated herein by reference to Exhibit 10(a) filed with the
Registrant’s Amended Quarterly Report on Form 10-Q/A for the quarter ended June 30,
2002).
*10(ae)
-- Summary of Compensation for the Board of Directors of Taubman Centers, Inc.
(incorporated herein by reference to Exhibit 10(ae) filed with the 2006 Form 10-K).
*10(af)
--
The Form of The Taubman Company Restricted Stock Unit Award Agreement
(incorporated by reference to Exhibit 10 filed with the Registrant’s Current Report on Form
8-K dated May 18, 2005).
*10(ag)
--
The Taubman Centers, Inc. Non-Employee Directors' Deferred Compensation Plan
(incorporated by reference to Exhibit 10 filed with the Registrant’s Current Report on Form
8-K dated May 18, 2005).
*10(ah)
--
The Form of The Taubman Centers, Inc. Non-Employee Directors' Deferred
Compensation Plan (incorporated by reference to Exhibit 10 filed with the Registrant’s
Current Report on Form 8-K dated May 18, 2005).
*10(ai)
-- Amended and Restated Limited Liability Company Agreement of Taubman Properties
Asia LLC, a Delaware Limited Liability Company (incorporated herein by reference to
Exhibit 10(a) filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2008).
*10(aj)
-- Employment Agreement between The Taubman Company Asia Limited and Morgan
Parker (incorporated herein by reference to Exhibit 10(b) filed with the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2008).
*10(ak)
--
First Amendment to the Taubman Centers, Inc. Non-Employee Directors’ Deferred
Compensation Plan (incorporated herein by reference to Exhibit 10(c) filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008).
*10(al)
--
The Taubman Company 2008 Omnibus Long-Term Incentive Plan (incorporated
herein by reference to Appendix A to the Registrant’s Proxy Statement on Schedule
14A, filed with the Commission on April 15, 2008).
*10(am)
--
Letter Agreement regarding the Amended and Restated Limited Liability Company
Agreement of Taubman Properties Asia LLC, a Delaware Limited Liability Company,
dated November 25, 2008.
*10(an)
-- Second Amendment to the Master Services Agreement between The Taubman Realty
Group Limited Partnership and the Manager, dated December 23, 2008.
*10(ao)
-- Summary of modification to the Employment Agreement between The Taubman
Company Asia Limited and Morgan Parker.
*10(ap)
--
Form of Taubman Centers, Inc. Non-Employee Directors’ Deferred Compensation
Plan Amendment Agreement (revised for Code Section 409A compliance).
*10(aq)
--
First Amendment to The Taubman Company Supplemental Retirement Savings Plan,
dated December 12, 2008 (revised for Code Section 409A compliance).
*10(ar)
-- Amendment to The Taubman Centers, Inc. Change of Control Severance Program,
dated December 12, 2008 (revised for Code Section 409A compliance).
*10(as)
--
Form of The Taubman Company Long-Term Performance Compensation Plan
Amendment Agreement (revised for Code Section 409A compliance).
*10(at)
-- Amendment to Employment Agreement, dated December 22, 2008, for Lisa A. Payne
(revised for Code Section 409A compliance).
*10(au)
--
First Amendment to the Master Services Agreement between The Taubman Realty
Group Limited Partnership and the Manager, dated September 30, 1998.
53
12
21
23
24
-- Statement Re: Computation of Taubman Centers, Inc. Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends.
-- Subsidiaries of Taubman Centers, Inc.
-- Consent of Independent Registered Public Accounting Firm.
-- Powers of Attorney.
31(a)
-- Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 10A, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)
-- Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 10A, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32(a)
-- Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32(b)
-- Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99(a)
-- Debt Maturity Schedule.
99(b)
-- Real Estate and Accumulated Depreciation Schedule of the Unconsolidated Joint
Ventures of The Taubman Realty Group Limited Partnership.
*
A management contract or compensatory plan or arrangement required to be filed.
15(b) The list of exhibits filed with this report is set forth in response to Item 15(a)(3). The required
exhibit index has been filed with the exhibits.
15(c) The financial statement schedules of the Company listed at Item 15(a)(2) are filed pursuant to
this Item 15(c).
54
TAUBMAN CENTERS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and consolidated financial statement schedules are included in
Item 8 of this Annual Report on Form 10-K:
CONSOLIDATED FINANCIAL STATEMENTS
Management’s Annual Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheet as of December 31, 2008 and 2007
Consolidated Statement of Operations for the years ended December 31, 2008, 2007, and 2006
Consolidated Statement of Shareowners’ Equity for the years ended December 31, 2008, 2007, and 2006
Consolidated Statement of Cash Flows for the years ended December 31, 2008, 2007, and 2006
Notes to Consolidated Financial Statements
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
F-2
F-3
F-5
F-6
F-7
F-8
F-9
Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2008, 2007, and 2006
F-37
Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2008
F-38
F-1
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Taubman Centers, Inc. is responsible for the preparation and integrity of the financial
statements and financial information reported herein. This responsibility includes the establishment and maintenance of
adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to
provide reasonable assurance that assets are safeguarded, transactions are properly authorized and recorded, and
that the financial records and accounting policies applied provide a reliable basis for the preparation of financial
statements and financial information that are free of material misstatement.
The management of Taubman Centers, Inc. is required to assess the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2008. Management bases this assessment of the effectiveness of its
internal control on recognized control criteria, the Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Management has completed its assessment as of
December 31, 2008.
Based on its assessment, management believes that Taubman Centers, Inc. maintained effective internal control
over financial reporting as of December 31, 2008. The independent registered public accounting firm, KPMG LLP, that
audited the 2008 financial statements included in this annual report have issued an audit report on the Company’s
system of internal controls over financial reporting, also included herein.
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareowners
Taubman Centers, Inc.:
We have audited the accompanying consolidated balance sheet of Taubman Centers, Inc. (the Company) as of
December 31, 2008 and 2007, and the related consolidated statements of operations, shareowners’ equity, and cash
flows for each of the years in the three-year period ended December 31, 2008. In connection with our audits of the
consolidated financial statements, we also have audited financial statement schedules listed in the Index at Item
15(a)(2). These consolidated financial statements and financial statement schedules are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Taubman Centers, Inc. as of December 31, 2008 and 2007, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of December 31, 2008, based on criteria established
in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 23, 2009 expressed an unqualified opinion on the effectiveness of
the Company’s internal control over financial reporting.
KPMG LLP
Chicago, Illinois
February 23, 2009
F-3
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareowners
Taubman Centers, Inc.:
We have audited Taubman Centers, Inc.’s (the Company) internal control over financial reporting as of December 31,
2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheet of the Company as of December 31, 2008 and 2007, and the related
consolidated statements of operations, shareowners’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2008, and our report dated February 23, 2009 expressed an unqualified opinion on those
consolidated financial statements.
KPMG LLP
Chicago, Illinois
February 23, 2009
F-4
TAUBMAN CENTERS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
Assets:
Properties (Notes 5 and 9)
Accumulated depreciation and amortization (Note 5)
Investment in Unconsolidated Joint Ventures (Note 6)
Cash and cash equivalents
Accounts and notes receivable, less allowance for doubtful accounts of $9,895
and $6,694 in 2008 and 2007 (Note 7)
Accounts receivable from related parties (Note 12)
Deferred charges and other assets (Notes 1 and 8)
Liabilities:
Notes payable (Note 9)
Accounts payable and accrued liabilities
Dividends and distributions payable
Distributions in excess of investments in and net income of Unconsolidated
Joint Ventures (Note 6)
Commitments and contingencies (Notes 1, 9, 11, 13, and 15)
Preferred Equity of TRG (Note 14)
Minority interest in TRG and consolidated joint ventures (Notes 1, 2, and 20)
Shareowners' Equity (Note 14):
Series B Non-Participating Convertible Preferred Stock, $0.001 par and
liquidation value, 40,000,000 shares authorized, 26,429,235 and
December 31
2008
2007
$ 3,699,480
(1,049,626)
$ 2,649,854
89,933
62,126
46,732
1,850
221,297
$ 3,071,792
$ 2,796,821
262,226
22,002
$ 3,781,136
(933,275)
$ 2,847,861
92,117
47,166
52,161
2,283
109,719
$ 3,151,307
$ 2,700,980
296,385
21,839
154,141
$ 3,235,190
100,234
$ 3,119,438
$
$
29,217
6,559
$
$
29,217
18,494
26,524,235 shares issued and outstanding at December 31, 2008 and 2007
$
26
$
27
Series G Cumulative Redeemable Preferred Stock, 4,000,000 shares
authorized, no par, $100 million liquidation preference, 4,000,000 shares
issued and outstanding at December 31, 2008 and 2007
Series H Cumulative Redeemable Preferred Stock, 3,480,000 shares
authorized, no par, $87 million liquidation preference, 3,480,000 shares
issued and outstanding at December 31, 2008 and 2007
Common Stock, $0.01 par value, 250,000,000 shares authorized, 53,018,987
and 52,624,013 shares issued and outstanding at December 31, 2008 and 2007
Additional paid-in capital
Accumulated other comprehensive income (loss) (Note 10)
Dividends in excess of net income (Note 1)
530
556,145
(29,778)
(726,097)
$ (199,174)
$ 3,071,792
526
543,333
(8,639)
(551,089)
$
(15,842)
$ 3,151,307
See notes to consolidated financial statements.
F-5
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share data)
Year Ended December 31
2007
2006
2008
Revenues:
Minimum rents
Percentage rents
Expense recoveries
Management, leasing, and development services
Other
Expenses:
Maintenance, taxes, and utilities
Other operating
Management, leasing, and development services
General and administrative
Impairment charge (Note 5)
Interest expense (Note 9)
Depreciation and amortization
Gains on land sales and other nonoperating income
Income (loss) before income tax expense, equity in income of
Unconsolidated Joint Ventures, and minority and preferred interests
Income tax expense (Note 3)
Equity in income of Unconsolidated Joint Ventures (Note 6)
Income (loss) before minority and preferred interests
Minority share of consolidated joint ventures (Note 1):
Minority share of income of consolidated joint ventures
Distributions in excess of minority share of income of consolidated joint
ventures
Minority interest in TRG (Note 1):
Minority share of (income) loss of TRG
Distributions in excess of minority share of income
TRG Series F preferred distributions (Note 14)
Net income (loss)
Series A, G, H, and I preferred stock dividends (Note 14)
Net income (loss) allocable to common shareowners
Basic earnings per common share (Note 16)
- Net income (loss)
Diluted earnings per common share (Note 16)
- Net income (loss)
Cash dividends declared per common share
$
353,200 $ 329,420 $
13,764
248,555
15,911
40,068
14,817
228,418
16,514
37,653
671,498 $ 626,822 $
189,162 $ 175,948 $
69,638
9,080
30,403
79,595
8,710
28,110
117,943
147,397
147,441
718,358 $ 554,679 $
3,595 $
131,700
137,910
4,569 $
$
75,738 $
(42,291)
(1,117)
35,356
(8,052) $ 116,236 $
40,498
311,187
14,700
206,190
11,777
35,430
579,284
152,885
71,643
5,730
30,290
128,643
137,957
527,148
9,460
61,596
33,544
95,140
(7,441)
(5,031)
(5,789)
(8,594)
(3,007)
(4,904)
11,338
(56,816)
(2,460)
(72,025) $
(14,634)
(86,659) $
(33,210)
(9,404)
(2,460)
63,124 $
(14,634)
48,490 $
(22,816)
(14,054)
(2,460)
45,117
(23,723)
21,394
(1.64) $
.92 $
(1.64) $
.90 $
.41
.40
1.660 $
1.540 $
1.290
$
$
$
$
$
$
$
$
$
$
$
Weighted average number of common shares outstanding-basic
52,866,050
52,969,067
52,661,024
See notes to consolidated financial statements.
F-6
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
(in thousands, except share data)
Preferred Stock
Shares
Amount
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Dividends in
Excess of
Net Income
Total
Balance, January 1, 2006
41,175,240
$74
51,866,184
$519
$739,090
$(9,051)
$(404,474)
$326,158
Cumulative effect of adopting EITF 04-5 (Note 1)
Cumulative effect of adopting SAB 108 (Note 1)
Issuance of stock pursuant to Continuing Offer
(Notes 13, 14, and 15)
(1,061,343)
(1)
1,061,414
10
(9)
(60,226)
(5,876)
(60,226)
(5,876)
Issuance of Series I Preferred Stock, net of
issuance costs (Note 14)
Redemption of Series A Preferred Stock (Note 14)
Redemption of Series I Preferred Stock (Note 14)
Share-based compensation under employee
and director benefit plans (Note 13)
Dividend equivalents (Note 13)
Cash dividends declared
Net income
Other comprehensive income (Note 10):
Unrealized gain on interest rate instruments
and other
Reclassification adjustment for amounts
recognized in net income
Total comprehensive income
Balance, December 31, 2006
Issuance of stock pursuant to Continuing Offer
(Notes 13, 14, and 15)
Repurchase of common stock (Note 14)
Share-based compensation under employee
and director benefit plans (Note 13)
Dividend equivalents (Note 13)
Cash dividends declared
Net income
Other comprehensive income (Note 10):
Unrealized loss on interest rate instruments
and other
Reclassification adjustment for amounts
recognized in net income
Total comprehensive income
Balance, December 31, 2007
Issuance of stock pursuant to Continuing Offer
(Notes 13, 14, and 15)
Share-based compensation under employee
and director benefit plans (Note 13)
Dividend equivalents (Note 13)
Cash dividends declared
Net loss
Other comprehensive income (Note 10):
Unrealized loss on interest rate instruments
and other
Reclassification adjustment for amounts
recognized in net income
Total comprehensive loss
Balance, December 31, 2008
4,520,000
(4,520,000)
(4,520,000)
(45)
109,229
(108,910)
(109,229)
3,996
5,133
(297)
(91,903)
45,117
(1,900)
1,391
35,593,897
$28
52,931,594
$529
$635,304
$(9,560)
$(517,659)
(1,589,662)
(1)
1,601,371
(1,910,544)
16
(19)
348
(99,981)
1,592
7,662
(562)
(95,992)
63,124
(340)
1,261
34,004,235
$27
52,624,013
$526
$543,333
$(8,639)
$(551,089)
109,229
(108,955)
(109,229)
5,133
(297)
(91,903)
45,117
(1,900)
1,391
$44,608
$108,642
363
(100,000)
7,662
(562)
(95,992)
63,124
(340)
1,261
$64,045
$(15,842)
(95,000)
(1)
95,004
299,970
1
3
12,812
(560)
(102,423)
12,815
(560)
(102,423)
(72,025)
(72,025)
33,909,235
$26
53,018,987
$530
$556,145
$(29,778)
$(726,097)
(22,399)
1,260
(22,399)
1,260
$(93,164)
$(199,174)
See notes to consolidated financial statements.
F-7
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31
2007
2006
2008
Cash Flows From Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
$
(72,025) $
63,124 $
45,117
activities:
Minority and preferred interests
Depreciation and amortization
Impairment charge (Note 5)
Provision for bad debts
Gains on sales of land and land-related rights
Other
Increase (decrease) in cash attributable to changes in assets and liabilities:
Receivables, deferred charges, and other assets
Accounts payable and other liabilities
Net Cash Provided by Operating Activities
Cash Flows From Investing Activities:
Additions to properties
Acquisition of interests in The Mall at Partridge Creek (Note 2)
Acquisition of additional interest in The Pier Shops (Note 2)
Cash transferred in upon consolidation of The Pier Shops (Note 2)
Funding of The Mall at Studio City escrow (Note 2)
Net proceeds from disposition of interest in center
Proceeds from sales of land and land-related rights
Acquisition of marketable equity securities and other assets
Issuances and repayments of notes receivable
Contributions to Unconsolidated Joint Ventures
Distributions from Unconsolidated Joint Ventures in excess of income
Net Cash Used In Investing Activities
$
$
63,973
147,441
117,943
6,088
(2,816)
10,770
(5,596)
(12,358)
253,420
53,112
137,910
50,023
137,957
1,830
(668)
9,592
(22,652)
15,588
5,110
(4,084)
7,037
(7,610)
(10,070)
223,480
$ 257,836 $
(99,964) $ (219,847) $ (178,304)
(11,838)
(24,504)
33,388
(54,334)
9,000
5,423
6,268
(2,655)
223
(12,111)
63,269
1,138
(3,435)
(2,228)
(15,162)
2,990
(25,251)
57,583
$ (111,142) $ (227,660) $ (131,549)
Cash Flows From Financing Activities:
Debt proceeds
Debt payments
Debt issuance costs
Repurchase of common stock (Note 14)
Redemption of preferred stock and repurchase of preferred equity
in TRG (Note 14)
Issuance of preferred stock and equity in TRG (Note 14)
Equity issuance costs
Issuance of common stock and/or partnership units in connection with
$
335,665
(239,072)
(3,419)
$ 263,086 $
(16,044)
(2,892)
(100,000)
585,584
(530,522)
(3,475)
(226,000)
113,000
(607)
Incentive Option Plan (Notes 13 and 15)
Contribution from minority interest (Note 2)
Distributions to minority and preferred interests
Cash dividends to preferred shareowners
Cash dividends to common shareowners
Other
Net Cash Used In Financing Activities
3,809
363
(118,941)
(14,634)
(87,679)
(3,047)
$ (127,318) $
9,000
(95,359)
(19,071)
(64,130)
(55,669)
(14,634)
(79,384)
(4,118)
(9,292) $ (231,580)
Net Increase (Decrease) In Cash and Cash Equivalents
$
14,960
$
20,884
$ (139,649)
Cash and Cash Equivalents at Beginning of Year
47,166
26,282
163,577
Effect of consolidating Cherry Creek Shopping Center (Note 1)
(Cherry Creek Shopping Center's cash balance at beginning of year)
2,354
Cash and Cash Equivalents at End of Year
$
62,126
$
47,166 $
26,282
See notes to consolidated financial statements.
F-8
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Organization and Basis of Presentation
General
Taubman Centers, Inc. (the Company or 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 (Operating
Partnership or TRG) is a majority-owned partnership subsidiary of TCO that owns direct or indirect interests in all of its
real estate properties. In this report, the term “Company" refers to TCO, the Operating Partnership, and/or the
Operating Partnership's subsidiaries as the context may require. The Company engages in the ownership,
management, leasing, acquisition, disposition, development, and expansion of regional and super-regional retail
shopping centers and interests therein. The Company’s owned portfolio as of December 31, 2008 included 23 urban
and suburban shopping centers in ten states.
Taubman Properties Asia LLC and its subsidiaries (Taubman Asia), which is the platform for the Company’s
expansion into the Asia-Pacific region, is headquartered in Hong Kong.
Consolidation
The consolidated financial statements of the Company include all accounts of the Company, the Operating
Partnership, and its consolidated subsidiaries, including The Taubman Company LLC (the Manager) and Taubman
Asia. In September 2008, the Company acquired the interests of the owner of The Mall at Partridge Creek (Partridge
Creek) (Note 2). Prior to the acquisition, the Company consolidated the accounts of the owner of Partridge Creek,
which qualified as a variable interest entity under Financial Accounting Standards Board (FASB) Interpretation No. 46
“Consolidation of Variable Interest Entities” (FIN 46R) for which the Operating Partnership was considered to be the
primary beneficiary. In April 2007, the Company increased its ownership in The Pier Shops at Caesars (The Pier
Shops) to a 77.5% controlling interest and began consolidating the entity that owns The Pier Shops (Note 2). Prior to
the acquisition date, the Company accounted for The Pier Shops under the equity method. All intercompany
transactions have been eliminated.
Investments in entities not controlled but over which the Company may exercise significant influence
(Unconsolidated Joint Ventures) are accounted for under the equity method. The Company has evaluated its
investments in the Unconsolidated Joint Ventures and has concluded that the ventures are not variable interest entities
as defined in FIN 46R. Accordingly, the Company accounts for its interests in these ventures under the guidance in
Statement of Position 78-9 "Accounting for Investments in Real Estate Ventures" (SOP 78-9), as amended by FASB
Staff Position 78-9-1, and Emerging Issues Task Force Issue No. 04-5 "Determining Whether a General Partner, or the
General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain
Rights" (EITF 04-5). The Company’s partners or other owners in these Unconsolidated Joint Ventures have
substantive participating rights, as contemplated by paragraphs 16 through 18 of EITF 04-5, including approval rights
over annual operating budgets, capital spending, financing, admission of new partners/members, or sale of the
properties and the Company has concluded that the equity method of accounting is appropriate for these interests.
Specifically, the Company’s 79% investment in Westfarms is through a general partnership in which the other general
partners have approval rights over annual operating budgets, capital spending, refinancing, or sale of the property.
With the issuance of EITF 04-5 and the amendment of SOP 78-9, the Company began consolidating, as of January
1, 2006, the entity that owns Cherry Creek Shopping Center (Cherry Creek), a 50% owned joint venture, pursuant to
the transition methodology provided in EITF 04-5. The impact to the Consolidated Balance Sheet was an increase in
assets of approximately $136 million and liabilities of approximately $199 million, and a $63 million reduction of
beginning equity representing the cumulative effects of changes in accounting principles related to Cherry Creek (see
also “Adoption of Staff Accounting Bulletin No. 108”). The reduction in beginning equity was the result of the
Company's venture partner's $52 million deficit capital account as of December 31, 2005 and the adoption of Staff
Accounting Bulletin No. 108 (SAB 108), which increased the venture partner’s deficit capital account to $60 million. The
venture partner’s deficit account was recorded at zero in the Consolidated Balance Sheet as of January 1, 2006. The
Company’s $3.5 million cumulative impact of adopting SAB 108 that is attributable to Cherry Creek is included in the
total cumulative effect of adopting SAB 108 in the Company’s Consolidated Statement of Shareowners’ Equity.
F-9
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Operating Partnership
At December 31, 2008, the Operating Partnership’s equity included three classes of preferred equity (Series F, G,
and H) and the net equity of the partnership unitholders. Net income and distributions of the Operating Partnership are
allocable first to the preferred equity interests, and the remaining amounts to the general and limited partners in the
Operating Partnership in accordance with their percentage ownership. The Series G and Series H Preferred Equity are
owned by the Company and are eliminated in consolidation. The Series F Preferred Equity is owned by an institutional
investor.
Minority Interests
As of December 31, 2008 and 2007, minority interests in the Company are comprised of the ownership interests of
(1) noncontrolling unitholders of the Operating Partnership and (2) the noncontrolling interests in joint ventures
controlled by the Company through ownership or contractual arrangements.
The net equity of the Operating Partnership noncontrolling unitholders is less than zero. The net equity balances of
the noncontrolling partners in certain of the consolidated joint ventures are also less than zero. The interests of the
noncontrolling unitholders of the Operating Partnership and outside partners with net equity balances in the
consolidated joint ventures of less than zero are recognized as zero balances within the Consolidated Balance Sheet.
The interests of the noncontrolling partners with positive equity balances in consolidated joint ventures represent the
minority interests presented on the Company’s Consolidated Balance Sheet of $6.6 million and $18.5 million at
December 31, 2008 and 2007, respectively.
The income allocated to the Operating Partnership noncontrolling unitholders is equal to their share of distributions
as long as the net equity of the Operating Partnership is less than zero. Similarly, the income allocated to the
noncontrolling partners with net equity balances in consolidated joint ventures of less than zero is equal to their share
of operating distributions.
The net equity balances of the Operating Partnership and certain of the consolidated joint ventures are less than zero
because of accumulated distributions in excess of net income and not as a result of operating losses. Distributions to
partners are usually greater than net income because net income includes non-cash charges for depreciation and
amortization.
In January 2008, International Plaza refinanced its debt and distributed a portion of the excess proceeds to its
partner (Note 9). The joint venture partner’s $51.3 million share of the distributed excess proceeds is classified as
minority interest and included in Deferred Charges and Other Assets in the Company’s Consolidated Balance Sheet.
As of December 31, 2008, the total of excess proceeds distributed to partners for this financing and the May 2006
financing at the Cherry Creek consolidated joint venture, which are included in Deferred Charges and Other Assets,
was $96.8 million. The Company accounts for distributions to minority partners that result from such financing
transactions as a debit balance minority interest upon determination that (1) the distribution was the result of
appreciation in the fair value of the property above the book value, (2) the financing was provided at a loan to value
ratio commensurate with non-recourse real estate lending, and (3) the excess of the property value over the financing
provides support for the eventual recovery of the debit balance minority interest upon sale or disposal of the property.
Debit balance minority interests are considered as part of the carrying value of a property for purposes of evaluating
impairment, should events or circumstances indicate that the carrying value may not be recoverable.
F-10
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In January 2008, the Company's president of Taubman Asia (the Asia President) obtained an ownership interest in
Taubman Asia, a consolidated subsidiary. The Asia President is entitled to 10% of Taubman Asia's dividends, with
85% of his dividends being withheld as contributions to capital. These withholdings will continue until he contributes
and maintains his capital consistent with a 10% ownership interest, including all capital funded by the Operating
Partnership for Taubman Asia's operating and investment activities prior and subsequent to the Asia President
obtaining his ownership interest. The Asia President's ownership interest will be reduced to 5% upon his cumulatively
receiving a specified amount in dividends. The Operating Partnership will have a preferred investment in Taubman
Asia to the extent the Asia President has not yet contributed capital commensurate with his ownership interest. This
preferred investment will accrue an annual preferential return equal to the Operating Partnership's average borrowing
rate (with the preferred investment and accrued return together being referred to herein as the preferred interest).
Taubman Asia has the ability to call at any time the Asia President's ownership at fair value, less the amount required
to return the Operating Partnership's preferred interest. The Asia President similarly has the ability to put his ownership
interest to Taubman Asia at 85% (increasing to 100% in 2013) of fair value, less the amount required to return the
Operating Partnership's preferred interest. In the event of a liquidation of Taubman Asia, the Operating Partnership's
preferred interest would be returned in advance of any other ownership interest or income. The Asia President's
noncontrolling interest in Taubman Asia is accounted for as a minority interest in the Company's financial statements,
currently at a zero balance.
See “Note 20 – New Accounting Pronouncements” regarding changes in 2009 to the accounting for minority
interests.
Revenue Recognition
Shopping center space is generally leased to tenants under short and intermediate term leases that are accounted
for as operating leases. Minimum rents are recognized on the straight-line method. Percentage rent is accrued when
lessees' specified sales targets have been met. Most expense recoveries, which include an administrative fee, are
recognized as revenue in the period applicable costs are chargeable to tenants. Management, leasing, and
development revenue is recognized as services are rendered, when fees due are determinable, and collectibility is
reasonably assured. Fees for management, leasing, and development services are established under contracts and
are generally based on negotiated rates, percentages of cash receipts, and/or actual costs incurred. Fixed-fee
development services contracts are generally accounted for under the percentage-of-completion method, using cost to
cost measurements of progress. Profits on real estate sales are recognized whenever (1) a sale is consummated, (2)
the buyer has demonstrated an adequate commitment to pay for the property, (3) the Company’s receivable is not
subject to future subordination, and (4) the Company has transferred to the buyer the risks and rewards of ownership.
Other revenues, including fees paid by tenants to terminate their leases, are recognized when fees due are
determinable, no further actions or services are required to be performed by the Company, and collectibility is
reasonably assured. Taxes assessed by government authorities on revenue-producing transactions, such as sales,
use, and value-added taxes are primarily accounted for on a net basis on the Company’s income statement.
Allowance for Doubtful Accounts
The Company records a provision for losses on accounts receivable to reduce them to the amount estimated to be
collectible. The Company records a provision for losses on notes receivable to reduce them to the present value of
expected future cash flows discounted at the loans effective interest rates or the fair value of the collateral if the loans
are collateral dependent.
Depreciation and Amortization
Buildings, improvements and equipment are depreciated on straight-line or double-declining balance bases over the
estimated useful lives of the assets, which generally range from 3 to 50 years. Capital expenditures that are
recoverable from tenants are depreciated over the estimated recovery period. Intangible assets are amortized on a
straight-line basis over the estimated useful lives of the assets. Tenant allowances are depreciated over the shorter of
the useful life of the leasehold improvements or the lease term. Deferred leasing costs are amortized on a straight-line
basis over the lives of the related leases. In the event of early termination of such leases, the unrecoverable net book
values of the assets are recognized as depreciation and amortization expense in the period of termination.
F-11
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Capitalization
Direct and indirect costs that are clearly related to the acquisition, development, construction and improvement of
properties are capitalized under guidelines of SFAS No. 67, “Accounting for Costs and Initial Rental Operations of Real
Estate Projects.” Compensation costs are allocated based on actual time spent on a project. Costs incurred on real
estate for ground leases, property taxes and insurance are capitalized during periods in which activities necessary to
get the property ready for its intended use are in progress. Interest costs determined under guidelines of SFAS No. 34,
“Capitalization of Interest Cost” and SFAS No. 58 “Capitalization of Interest Costs in Financial Statements that Include
Investments Accounted for by the Equity Method” are capitalized during periods in which activities necessary to get the
property ready for its intended use are in progress.
The viability of all projects under construction or development, including those owned by Unconsolidated Joint
Ventures, are regularly evaluated under the requirements of SFAS No. 67, including requirements relating to
abandonment of assets or changes in use. To the extent a project, or individual components of the project, are no
longer considered to have value, the related capitalized costs are charged against operations. Additionally, all
properties are reviewed for impairment on an individual basis whenever events or changes in circumstances indicate
that their carrying value may not be recoverable. Impairment of a shopping center owned by consolidated entities is
recognized when the sum of expected cash flows (undiscounted and without interest charges) is less than the carrying
value of the property. Other than temporary impairment of an investment in an Unconsolidated Joint Venture is
recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity
and duration of the decline in value, including the results of discounted cash flow and other valuation techniques. To
the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is charged to
income.
In the fourth quarter of 2008, the Company recognized impairment charges on its Oyster Bay project (Note 5) and its
Sarasota joint venture project (Note 6).
In leasing a shopping center space, the Company may provide funding to the lessee through a tenant allowance. In
accounting for a tenant allowance, the Company determines whether the allowance represents funding for the
construction of leasehold improvements and evaluates the ownership, for accounting purposes, of such improvements.
If the Company is considered the owner of the leasehold improvements for accounting purposes, the Company
capitalizes the amount of the tenant allowance and depreciates it over the shorter of the useful life of the leasehold
improvements or the lease term. If the tenant allowance represents a payment for a purpose other than funding
leasehold improvements, or in the event the Company is not considered the owner of the improvements for accounting
purposes, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of
rental revenue. Factors considered during this evaluation usually include (1) who holds legal title to the improvements,
(2) evidentiary requirements concerning the spending of the tenant allowance, and (3) other controlling rights provided
by the lease agreement (e.g. unilateral control of the tenant space during the build-out process). Determination of the
accounting for a tenant allowance is made on a case-by-case basis, considering the facts and circumstances of the
individual tenant lease. Substantially all of the Company’s tenant allowances have been determined to be leasehold
improvements.
Cash and Cash Equivalents
Substantially all cash deposits are invested in accounts insured by the Federal Deposit Insurance Corporation (FDIC)
Temporary Liquidity Guarantee Program, the FDIC deposit insurance, money market funds that participate in the U.S.
Treasury Department Temporary Guarantee Program for Money Market Funds, or in a money market fund that invests
solely in U.S. Treasury securities. Cash equivalents consist of highly liquid investments with a maturity of 90 days or
less at the date of purchase.
Acquisition of Interests in Centers
The cost of acquiring an ownership interest or an additional ownership interest in a center is allocated to the tangible
assets acquired (such as land and building) and to any identifiable intangible assets based on their estimated fair
values at the date of acquisition. The fair value of the property is determined on an “as-if-vacant” basis. Management
considers various factors in estimating the "as-if-vacant" value including an estimated lease up period, lost rents and
carrying costs. The identifiable intangible assets would include the estimated value of “in-place” leases, above and
below market “in-place” leases, and tenant relationships. The portion of the purchase price that management
determines should be allocated to identifiable intangible assets is amortized in depreciation and amortization over the
estimated life of the associated intangible asset (for instance, the remaining life of the associated tenant lease).
F-12
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred Charges and Other Assets
Direct financing costs are deferred and amortized on a straight-line basis, which approximates the effective interest
method, over the terms of the related agreements as a component of interest expense. Direct costs related to
successful leasing activities are capitalized and amortized on a straight-line basis over the lives of the related leases.
All other deferred charges are amortized on a straight-line basis over the terms of the agreements to which they relate.
Share-Based Compensation Plans
In accordance with Statement No. 123 (Revised) “Share-Based Payment,” the cost of share-based compensation is
measured at the grant date, based on the calculated fair value of the award, and is recognized over the requisite
employee service period which is generally the vesting period of the grant. The Company recognizes compensation
costs for awards with graded vesting schedules on a straight-line basis over the requisite service period for each
separately vesting portion of the award as if the award was, in-substance, multiple awards.
Interest Rate Hedging Agreements
All derivatives, whether designated in hedging relationships or not, are recorded on the balance sheet at fair value. If
a derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are
recorded in other comprehensive income (OCI) and are recognized in the income statement when the hedged item
affects income. Ineffective portions of changes in the fair value of a cash flow hedge are recognized in the Company’s
income as interest expense.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its
risk management objectives and strategies for undertaking various hedge transactions. The Company assesses, both
at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in the cash flows of the hedged items.
Income Taxes
The Company operates in such a manner as to qualify as a REIT under the applicable provisions of the Internal
Revenue Code; therefore, REIT taxable income is included in the taxable income of its shareowners, to the extent
distributed by the Company. To qualify as a REIT, the Company must distribute at least 90% of its REIT taxable
income prior to net capital gains to its shareowners and meet certain other requirements. Additionally, no provision for
income taxes for consolidated partnerships has been made, as such taxes are the responsibility of the individual
partners.
In connection with the Tax Relief Extension Act of 1999, the Company made Taxable REIT Subsidiary elections for
all of its corporate subsidiaries pursuant to section 856(I) of the Internal Revenue Code. The Company’s Taxable REIT
Subsidiaries are subject to corporate level income taxes which are provided for in the Company’s financial statements.
Deferred tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and
liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws.
Deferred tax assets are reduced by a valuation allowance to the amount where realization is more likely than not
assured after considering all available evidence, including expected taxable earnings and potential tax planning
strategies. The Company’s temporary differences primarily relate to deferred compensation, depreciation and net
operating loss carryforwards.
Finite Life Entities
Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity” establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. At
December 31, 2008, the Company held controlling majority interests in consolidated entities with specified termination
dates in 2081 and 2083. The minority owners’ interests in these entities are to be settled upon termination by
distribution or transfer of either cash or specific assets of the underlying entity. The estimated fair value of these
minority interests were approximately $104.3 million at December 31, 2008, compared to a book value of $(96.8)
million, which was classified as Deferred Charges and Other Assets in the Company’s Consolidated Balance Sheet.
F-13
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates. See Note 5 regarding the balance of costs relating to the Company’s Oyster Bay project.
Segments and Related Disclosures
The Company has one reportable operating segment: it owns, develops, and manages regional shopping centers.
The Company has aggregated its shopping centers into this one reportable segment, as the shopping centers share
similar economic characteristics and other similarities. The shopping centers are located in major metropolitan areas,
have similar tenants (most of which are national chains), are operated using consistent business strategies, and are
expected to exhibit similar long-term financial performance. Earnings before interest, income taxes, depreciation, and
amortization (EBITDA) is often used by the Company's chief operating decision makers in assessing segment
performance. EBITDA is believed to be a useful indicator 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.
No single retail company represents 10% or more of the Company's revenues. Although the Company operates a
subsidiary headquartered in Hong Kong, there are not yet any material revenues from customers or long-lived assets
attributable to a country other than the United States of America.
Adoption of Staff Accounting Bulletin No. 108
In September 2006, the Securities and Exchange Commission (SEC) published Staff Accounting Bulletin (SAB) No.
108 “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial
Statements.” The interpretations in SAB 108 express the SEC’s staff’s views regarding the process of quantifying
financial statement misstatements. The staff’s interpretations resulted from their awareness of a diversity in practice as
to how the effect of prior year errors were considered in relation to current year financial statements. Through SAB 108,
the staff communicated its belief that allowing prior year errors to remain unadjusted on the balance sheet is not in the
best interest of the users of financial statements. SAB 108 became effective for the Company for the year ended
December 31, 2006.
In adopting SAB 108, the Company changed its methods of evaluating financial statement misstatements from a
“rollover” (income statement-oriented) approach to SAB 108’s “dual-method” (both an income statement and balance
sheet-oriented) approach. In doing so, the Company identified three misstatements previously considered immaterial to
all previous periods under the rollover method but material when evaluated together under the dual-method, as
described below. These misstatements were corrected upon adoption of SAB 108.
Accounting for Cherry Creek Ground Rent Prior to 1999
Prior to 1999, Cherry Creek, a venture previously accounted for under the equity method, recognized ground rentals
under its 99 year ground lease on a cash basis instead of the straight-line method required by Statement of Financial
Accounting Standards No. 13, “Accounting for Leases”. This error resulted in the Company overstating its cumulative
equity in the net income of Cherry Creek by a total of $3.5 million from the Company’s 1992 acquisition of an interest in
the Operating Partnership through December 31, 2005. The maximum misstatement of the Company’s equity in the net
income of Cherry Creek in any individual year in this period under the rollover method was $0.3 million.
The Company began consolidating Cherry Creek on January 1, 2006 as a result of adopting EITF 04-5. As a result
of the correction of the above error, the cumulative effect of a change in accounting principle upon adoption of EITF 04-
5, assets, and liabilities recognized by the Company upon the consolidation of Cherry Creek were increased by
$7.9 million, $8.3 million and $19.7 million, respectively. Prior to 2006, the Company accounted for its investment in
Cherry Creek under the equity method.
Recognition of Payroll Costs
The Company previously recognized its payroll costs in a manner that corresponded to its biweekly pay periods,
which do not necessarily end on the last day of the calendar year. Differences caused by not strictly recognizing payroll
on a calendar year basis, while previously adjusted on a periodic basis, have resulted in overstatements of net income
by a total of $1.0 million over the decade prior to adoption of SAB 108, with the maximum misstatement in any
individual year computed under the rollover method being $0.1 million.
F-14
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Arizona Mills
In 2006, The Mills Corporation (Mills), which managed (prior to April 2007) the 50% Unconsolidated Joint Venture,
Arizona Mills, advised the Company that Mills had identified errors in prior year financial statements, primarily relating
to the timing of writeoffs of tenant allowances, that relate to years prior to 2006. Based on information received from
Mills, the Company determined that the cumulative impact of its share of prior years’ errors identified by Mills is an
overstatement of the Company’s equity by $1.3 million as of December 31, 2006. See Note 6 for adjustments relating
to Arizona Mills that had not been identified at the time of adoption of SAB 108.
Cumulative Effect of Adopting SAB 108
As a result of applying the guidance in SAB 108, during the year ended December 31, 2006, the Company recorded
a $5.9 million reduction to its shareowners’ equity account (dividends in excess of net income) in its opening balance
sheet to correct for the effect of the errors associated with the accounting for Cherry Creek’s ground rent prior to 1999,
the recognition of payroll costs, and its share of Arizona Mills errors identified by Mills, described above.
Other
Dollar amounts presented in tables within the notes to the consolidated financial statements are stated in thousands,
except share data or as otherwise noted.
Note 2 – Acquisitions
The Mall at Partridge Creek
Partridge Creek, a 0.6 million square foot center, opened in October 2007 in Clinton Township, Michigan. The center
is anchored by Nordstrom and Parisian. In May 2006, the Company engaged the services of a third-party investor to
acquire certain property associated with the project, in order to facilitate a Section 1031 like-kind exchange to provide
flexibility for disposing of assets in the future. The third-party investor was the owner of the project and leased the land
from a subsidiary of the Company. In turn, the owner leased the project back to the Company.
Funding for the project was provided by the following sources. The Company provided approximately 45% of the
project funding under a junior subordinated financing, which was repaid in September 2008. The owner provided
$9 million in equity. Funding for the remaining project costs was provided by the owner’s third-party recourse
construction loan.
In September 2008, the Company exercised its option to purchase the third-party owner’s interests in Partridge
Creek. The purchase price of $11.8 million included the original owner's equity contribution of $9 million plus a 12%
cumulative return. The acquisition of the interests was accounted for under the purchase method. The excess of the
purchase price over the book value of the interests acquired was approximately $3.8 million and was allocated
principally to building and improvements. The Company assumed all of the obligations and was assigned all of the
owner's rights under the ground lease, the operating lease, and any remaining obligations under the loans.
The Pier Shops at Caesars
The Pier Shops, located in Atlantic City, New Jersey, began opening in phases in June 2006. Gordon Group
Holdings LLC (Gordon) developed the center, and in January 2007, the Company assumed full management and
leasing responsibility for the center. In April 2007, the Company increased its ownership in The Pier Shops to a 77.5%
controlling interest. The remaining 22.5% interest continues to be held by an affiliate of Gordon. The Company began
consolidating The Pier Shops as of the April 2007 purchase date. At closing, the Company made a $24.5 million equity
investment in the center, bringing its total equity investment to $28.5 million. At the purchase date, the book values of
the center’s assets and liabilities were $229.7 million and $171.3 million, respectively. The excess of the book value of
the net assets acquired over the purchase price was approximately $17 million, which was allocated principally to
building and improvements. The Company is entitled to a 7% cumulative preferred return on its $133.1 million total
investment, including its $104.6 million share of debt. The Company will be responsible for any additional capital
requirements, on which it will receive a preferred return at a minimum of 8%. As of December 31, 2008, the Company
had provided $4.3 million of additional capital.
F-15
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note 3 - Income Taxes
Federal, State and Foreign Income Taxes
During the years ended December 31, 2008, 2007, and 2006, the Company's federal and foreign income tax
expense was zero. The federal and foreign income tax was zero as a result of net operating losses incurred by the
Company’s Taxable REIT Subsidiaries. The Company has a federal net operating loss carryforward of $14.7 million
($0.1 million from 2002 that will expire in 2022, $0.3 million from 2003 that will expire in 2023, $3.3 million from 2004
that will expire in 2024, $1.6 million from 2005 that will expire in 2025, $0.2 million from 2006 that will expire in 2026,
$3.3 million from 2007 that will expire in 2027 and $5.9 million from 2008 that will expire in 2028). The Company has a
foreign net operating loss carryforward of $5.8 million, $0.3 million of which has an indefinite carryforward period, $4.6
million expires in 2011, and $0.9 million expires in 2013.
In July 2007, the State of Michigan signed into law the Michigan Business Tax Act, replacing the Michigan single
business tax with a business income tax and modified gross receipts tax. These new taxes became effective January
1, 2008, and, because they are based on or derived from income-based measures, the provisions of SFAS No. 109
“Accounting for Income Taxes,” apply as of the enactment date. In September 2007, an amendment to the Michigan
Business Tax Act was also signed into law establishing a deduction to the business income tax base if temporary
differences associated with certain assets result in a net deferred tax liability as of September 30, 2007. The tax effect
of this deduction, which was equal to the amount of the aggregate deferred tax liability as of September 30, 2008, has
an indefinite carryforward period. The enactment of the Michigan Business Tax Act and the related amendment
resulted in both a deferred tax liability and deferred tax asset, balances of which are $3.7 million and $3.4 million
respectively, as of December 31, 2008. During 2008, the Company’s deferred Michigan business tax expense was
$0.3 million. During the year ended December 31, 2008, the Company's current Michigan business tax expense was
$0.8 million. There was no current or deferred Michigan business tax expense for years ended December 31, 2007 and
2006.
As of December 31, 2008 and 2007 the Company had net federal and foreign deferred tax assets of $3.2 million and
$3.3 million, after valuation allowances of $6.6 million and $6.6 million, respectively. The Company believes that it is
more likely than not the results of future operations will generate sufficient taxable income to recognize the net deferred
tax asset. These future operations are dependent upon the Manager’s profitability, the timing and amounts of gains on
land sales, the profitability of the Company’s Asian operations, and other factors affecting the results of operations of
the Taxable REIT Subsidiaries.
Tax Status of Dividends
Dividends declared on the Company’s common and preferred stock and their tax status are presented in the
following tables. The tax status of the Company’s dividends in 2008, 2007, and 2006 may not be indicative of future
periods. The portion of dividends paid in 2008 shown below as capital gains are designated as capital gain dividends
for tax purposes.
Dividends
per common
share declared
$1.660
1.540
1.290
Return
of capital
$0.0000
0.0000
0.0687
Ordinary
income
$1.3324
1.5385
1.2006
15% Rate
long term
capital gain
$0.3011
0.0015
0.0207
Unrecaptured
Sec. 1250
capital gain
$0.0265
0.0000
0.0000
Dividends per
Series A Preferred
share declared
$0.790
Ordinary
income
$0.7770
15% Rate
long term
capital gain
$0.0130
Unrecaptured
Sec. 1250
capital gain
$0.0000
Year
2008
2007
2006
Year
2006
F-16
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Dividends per
Series G Preferred
share declared
$2.000
2.000
2.000
Dividends per
Series H Preferred
share declared
$1.906
1.906
1.906
Ordinary
income
$1.6053
1.9981
1.9679
Ordinary
income
$1.5300
1.9042
1.8757
Year
2008
2007
2006
Year
2008
2007
2006
15% Rate
long term
capital gain
$0.3628
0.0019
0.0321
15% Rate
long term
capital gain
$0.3457
0.0018
0.0303
Unrecaptured
Sec. 1250
capital gain
$0.0319
0.0000
0.0000
Unrecaptured
Sec. 1250
capital gain
$0.0303
0.0000
0.0000
The Company redeemed the remaining 4,520,000 shares of its outstanding Series A Preferred Stock in May 2006 for
$25 per share and paid all holders, of the Series A Preferred Stock, $0.27 per share in accrued dividends, which are
included above as a 2006 dividend payment.
Uncertain Tax Positions
The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes –
An Interpretation of FASB Statement No. 109” (FIN 48) on January 1, 2007. FIN 48 defines a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to
be taken in a tax return. The Interpretation also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. Adoption of FIN 48 did not have a material effect on
the Company’s results of operations or financial position.
The Company had no unrecognized tax benefits as of the January 1, 2007 adoption date or as of December 31,
2008. The Company expects no significant increases or decreases in unrecognized tax benefits due to changes in tax
positions within one year of December 31, 2008. The Company has no interest or penalties relating to income taxes
recognized in the Consolidated Statement of Operations for the year ended December 31, 2008 or in the balance sheet
as of December 31, 2008. As of December 31, 2008, returns for the calendar years 2005 through 2008 remain subject
to examination by U.S. and various state and foreign tax jurisdictions.
Note 4 - Investment in the Operating Partnership
The partnership equity of the Operating Partnership and the Company's ownership therein are shown below:
TRG units
outstanding at
December 31
79,481,431
79,181,457
81,078,700
TRG units
owned by TCO at
December 31 (1)
53,018,987
52,624,013
52,931,594
Year
2008
2007
2006
TRG Units owned
by minority
interests at
December 31
26,462,444
26,557,444
28,147,106
TCO's % interest
in TRG at
December 31
67%
66
65
TCO's average
interest in TRG
67%
66
65
(1) There is a one-for-one relationship between TRG units owned by TCO and TCO common shares outstanding; amounts in this column are
equal to TCO’s common shares outstanding as of the specified dates.
Net income and distributions of the Operating Partnership are allocable first to the preferred equity interests (Note
14), and the remaining amounts to the general and limited Operating Partnership partners in accordance with their
percentage ownership.
F-17
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note 5 - Properties
Properties at December 31, 2008 and December 31, 2007 are summarized as follows:
Land
Buildings, improvements, and equipment
Construction in process
Development pre-construction costs
Accumulated depreciation and amortization
2008
$ 263,619
3,363,638
10,650
61,573
$ 3,699,480
(1,049,626)
$ 2,649,854
2007
$ 266,480
3,337,745
17,064
159,847
$ 3,781,136
(933,275)
$ 2,847,861
Buildings, improvements, and equipment under capital leases were $2.5 million and $5.5 million at December 31,
2008 and 2007, respectively. Amortization of assets under capital leases is included within depreciation expense.
Depreciation expense for 2008, 2007, and 2006 was $138.7 million, $128.4 million, and $128.5 million, respectively.
The charge to operations in 2008, 2007, and 2006 for domestic and non-U.S. pre-development activities was
$18.5 million, $11.9 million, and $10.1 million, respectively.
In January 2009, the Appellate Division of the Supreme Court of the State of New York reversed the favorable order
that the Company had been issued in June 2008 directing the Town of Oyster Bay to immediately issue a special use
permit for The Mall at Oyster Bay. The court also upheld the Town Board’s request for a supplemental environmental
impact statement. Although the Company intends to immediately seek an appeal of the decision, the Company
determined in February 2009 that it would recognize in the fourth quarter of 2008 a charge to income of $117.9 million
relating to the Oyster Bay project, including $4.6 million in costs for future expenditures associated with obligations
under existing contracts related to the project. This determination was reached after an overall assessment of the
probability of the development of the mall as designed and a review of the Company’s previously capitalized project
costs. The charge includes the costs of previous development activities as well as holding and other costs that
management believes will likely not benefit the development if and when the Company obtains the rights to build the
center. The Company also expects to expense any additional costs relating to Oyster Bay until it is probable that the
Company will be able to successfully move forward with a project. The Company began expensing carrying costs as
incurred beginning in the fourth quarter of 2008. The Company’s remaining capitalized investment in the project as of
December 31, 2008 is $39.8 million, consisting of land and site improvements. If the Company is ultimately
unsuccessful in obtaining the right to build the center, it is uncertain whether the Company would be able to recover the
full amount of this capitalized investment through alternate uses of the land.
One shopping center pays annual special assessment levies of a Community Development District (CDD), which
provided certain infrastructure assets and improvements. As the amount and period of the special assessments were
determinable, the Company capitalized the infrastructure assets and improvements and recognized an obligation for
the future special assessments to be levied. At December 31, 2008, the book value of the infrastructure assets and
improvements, net of depreciation, was $48.1 million. The related obligation is classified as an accrued liability and had
a balance of $63.9 million at December 31, 2008. The fair value of this obligation, derived from quoted market prices,
was $51.2 million at December 31, 2008.
In January 2007, the Company acquired land for future development in North Atlanta, Georgia for $15.5 million. A
portion of this land is expected to be sold for various uses.
Note 6 - Investments in Unconsolidated Joint Ventures
General Information
The Company owns beneficial interests in joint ventures that own shopping centers. The Operating Partnership is the
direct or indirect managing general partner or managing member of these Unconsolidated Joint Ventures, except for
the ventures that own Arizona Mills, The Mall at Millenia, and Waterside Shops (Waterside). The Company, which
formerly accounted for The Pier Shops as an Unconsolidated Joint Venture, began consolidating it after acquiring a
controlling interest in April 2007 (Note 2).
F-18
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Shopping Center
Arizona Mills
Fair Oaks
The Mall at Millenia
Stamford Town Center
Sunvalley
Waterside Shops
Westfarms
Ownership as of
December 31, 2008 and 2007
50%
50
50
50
50
25
79
The Company's carrying value of its Investment in Unconsolidated Joint Ventures differs from its share of the
partnership or members equity reported in the combined balance sheet of the Unconsolidated Joint Ventures due to (i)
the Company's cost of its investment in excess of the historical net book values of the Unconsolidated Joint Ventures
and (ii) the Operating Partnership’s adjustments to the book basis, including intercompany profits on sales of services
that are capitalized by the Unconsolidated Joint Ventures. The Company's additional basis allocated to depreciable
assets is recognized on a straight-line basis over 40 years. The Operating Partnership’s differences in bases are
amortized over the useful lives of the related assets.
In its Consolidated Balance Sheet, the Company separately reports its investment in joint ventures for which
accumulated distributions have exceeded investments in and net income of the joint ventures. The net equity of certain
joint ventures is less than zero because distributions are usually greater than net income, as net income includes non-
cash charges for depreciation and amortization.
In May 2008, the Company entered into agreements to jointly develop University Town Center, a regional mall in
Sarasota, Florida. Under the agreements, the Company would own a noncontrolling 25% interest in the project. Due to
the current economic and retail environment, in December 2008 the Company announced that the project has been put
on hold. The Company does not know if or when it will acquire an interest in the land and move forward with the
project. Due to this uncertainty, the Company recognized an $8.3 million charge to income in the fourth quarter of
2008. This charge is included in Equity in Income of Unconsolidated Joint Ventures on the Consolidated Statement of
Operations and represents the Company’s share of project costs and its total investment in the project. The
contribution payable to the University Town Center joint venture represents the Company’s share of unpaid costs,
which were funded subsequent to December 31, 2008.
Combined Financial Information
Combined balance sheet and results of operations information is presented in the following table for the
Unconsolidated Joint Ventures, followed by the Operating Partnership's beneficial interest in the combined information.
Beneficial interest is calculated based on the Operating Partnership's ownership interest in each of the Unconsolidated
Joint Ventures. Amounts related to The Pier Shops are included in the combined information of the Unconsolidated
Joint Ventures through the date of the Company’s acquisition of a controlling interest in April 2007 (Note 2). The
Operating Partnership’s investment in The Pier Shops represented an effective 6% interest based on relative equity
contributions prior to the Company acquiring a controlling interest.
F-19
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Assets:
Properties
Accumulated depreciation and amortization
Cash and cash equivalents
Accounts and notes receivable, less allowance for doubtful accounts
of $1,419 and $1,799 in 2008 and 2007
Deferred charges and other assets
Liabilities and accumulated deficiency in assets:
Notes payable
Accounts payable and other liabilities
TRG's accumulated deficiency in assets
Unconsolidated Joint Venture Partners' accumulated deficiency
in assets
December 31
2008
2007
$ 1,087,341
(366,168)
$ 721,173
28,946
$ 1,056,380
(347,459)
$ 708,921
40,097
26,603
20,098
$ 796,820
26,271
18,229
$ 793,518
$ 1,103,903
61,570
(201,466)
$ 1,003,463
55,242
(151,363)
(167,187)
$ 796,820
(113,824)
$ 793,518
TRG's accumulated deficiency in assets (above)
Contribution payable
TRG basis adjustments, including elimination of intercompany profit
TCO's additional basis
Net Investment in Unconsolidated Joint Ventures
Distributions in excess of investments in and net income of
Unconsolidated Joint Ventures
Investment in Unconsolidated Joint Ventures
$ (201,466)
(1,005)
71,623
66,640
(64,208)
$
$ (151,363)
74,660
68,586
(8,117)
$
154,141
89,933
$
100,234
92,117
$
Revenues
Maintenance, taxes, utilities, and other operating expenses
Interest expense
Depreciation and amortization
Total operating costs
Nonoperating income
Net income
2008
$ 271,813
$ 93,218
65,002
39,756
$ 197,976
683
$ 74,520
Year Ended December 31
2007
$ 262,587
$ 90,782
66,232
37,355
$ 194,369
1,587
$ 69,805
2006
$ 252,129
$ 93,452
57,563
43,124
$ 194,139
1,289
$ 59,279
Net income allocable to TRG
Realized intercompany profit, net of depreciation on TRG’s
basis adjustments
Depreciation of TCO's additional basis
Impairment charge
Equity in income of Unconsolidated Joint Ventures
$ 41,857
$ 40,518
$ 34,101
3,770
(1,948)
(8,323)
$ 35,356
1,924
(1,944)
1,387
(1,944)
$ 40,498
$ 33,544
Beneficial interest in Unconsolidated Joint Ventures' operations:
Revenues less maintenance, taxes, utilities, and other
operating expenses
Interest expense
Depreciation and amortization
Impairment charge
Equity in income of Unconsolidated Joint Ventures
$ 101,089
(33,777)
(23,633)
(8,323)
$ 35,356
$ 96,844
(33,311)
(23,035)
$ 91,559
(31,151)
(26,864)
$ 40,498
$ 33,544
F-20
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Other
The provision for losses on accounts receivable of the Unconsolidated Joint Ventures was $1.0 million, $1.2 million,
and $1.2 million for the years ended December 31, 2008, 2007, and 2006, respectively.
Deferred charges and other assets of $20.1 million at December 31, 2008 were comprised of leasing costs of
$27.4 million, before accumulated amortization of $(13.5) million, net deferred financing costs of $3.9 million, and other
net charges of $2.3 million. Deferred charges and other assets of $18.2 million at December 31, 2007 were comprised
of leasing costs of $25.0 million, before accumulated amortization of $(12.4) million, net deferred financing costs of
$2.6 million, and other net charges of $3.0 million.
The estimated fair value of the Unconsolidated Joint Ventures’ notes payable was $1.1 billion and $1.0 billion at
December 31, 2008 and 2007, respectively.
Depreciation expense on properties for 2008, 2007, and 2006 was $36.1 million, $33.2 million, and $40.2 million.
In January 2008 and the first quarter of 2007, the Company received adjustments relating to accounting policies and
procedures of Mills for years prior to 2007. These prior period adjustments, including $3.0 million of reductions to
minimum rent related to tenant inducements, $0.8 million reduction to depreciation and amortization, and other
adjustments, totaled to a net $2.0 million reduction in income. The Company’s share was a $1.0 million reduction to
income for the year ended December 31, 2007. The Company received audited financial statements for Arizona Mills
as of and for the year ended December 31, 2007 from Simon Property Group, Inc. There were no material adjustments
recognized relating to the Company’s investment in Arizona Mills as a result of the finalization of these financial
statements.
Refer to “Note 1 – Significant Accounting Policies” regarding prior period adjustments to Arizona Mills recognized
upon adoption of SAB 108.
In October 2006, Taubman Land Associates LLC, a 50% Unconsolidated Joint Venture owned by the Company and
an affiliate of the Taubman family, acquired for $42.5 million the land on which Sunvalley is situated. Sunvalley is
owned by SunValley Associates, a 50% joint venture with a Taubman family affiliate.
Note 7 - Accounts and Notes Receivable
Accounts and notes receivable at December 31, 2008 and December 31, 2007 are summarized as follows:
Trade
Notes
Straight-line rent
Other
Less: Allowance for doubtful accounts
2008
$ 36,149
7,471
12,904
103
$ 56,627
(9,895)
$ 46,732
2007
$ 37,183
8,272
12,930
470
$ 58,855
(6,694)
$ 52,161
Notes receivable as of December 31, 2008 provide interest at a range of interest rates from 6.5% to 10.0% (with a
weighted average interest rate of 8.3%) and mature at various dates through June 2009. The Company has one
delinquent land contract receivable with a book value of $1.0 million as of December 31, 2008. The original maturity of
this note was July 2007. The fair value of the land, which serves as collateral, is at least equal to the book value of the
receivable. In addition, $2.0 million of notes receivable from three tenants with common ownership became delinquent
during the third quarter of 2008. The notes are guaranteed by affiliates of the tenants. As of December 31, 2008, the
Company has recorded a provision of $1.4 million against these notes, which was charged to income in 2008. After
receipt of partial repayment, the Company is negotiating the repayment terms and expects to recover the remaining net
book value of $0.6 million.
F-21
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note 8 - Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 2008 and December 31, 2007 are summarized as follows:
Leasing costs
Accumulated amortization
Minority interest (Note 1)
The Mall at Studio City escrow
Deferred financing costs, net
Intangibles, net
Insurance deposit (Note 17)
Investments
Deferred tax asset, net
Prepaid expenses
Other, net
2008
$ 38,700
(19,872)
$ 18,828
96,810
54,334
9,739
2,241
8,957
4,351
6,652
3,387
15,998
$221,297
2007
$ 39,801
(20,878)
$ 18,923
45,332
9,597
3,882
5,924
7,197
5,557
13,307
$109,719
Intangible assets are primarily comprised of the fair value of in-place leases recognized in connection with
acquisitions (Note 2).
In February 2008, Taubman Asia entered into agreements to acquire a 25% interest in The Mall at Studio City, the
retail component of Macao Studio City, a major mixed-use project on the Cotai Strip in Macao, China. In August 2009,
the Company’s Macao agreements will terminate and its $54 million initial cash payment, which is in escrow, will be
returned to the Company if the financing for the project is not completed.
Note 9 – Notes Payable
Notes payable at December 31, 2008 and December 31, 2007 consist of the following:
Beverly Center
Cherry Creek Shopping Center
Cherry Creek Shopping Center
Dolphin Mall
Fairlane Town Center
Great Lakes Crossing
International Plaza
International Plaza
MacArthur Center
Northlake Mall
The Mall at Partridge Creek
The Pier Shops at Caesars
Regency Square
The Mall at Short Hills
Stony Point Fashion Park
Twelve Oaks Mall
The Mall at Wellington Green
Line of Credit
2008
$333,736
280,000
245
139,000
80,000
137,877
325,000
132,500
215,500
72,791
135,000
75,388
540,000
108,884
10,000
200,000
10,900
$2,796,821
2007
$ 338,779
280,000
490
139,000
80,000
140,449
175,150
135,439
215,500
62,126
135,000
76,591
540,000
110,411
60,000
200,000
Stated
Interest Rate
5.28%
5.24%
Prime
LIBOR + 0.70%
LIBOR + 0.70%
5.25%
LIBOR +1.15% (2)
4.21%
7.59%
5.41%
LIBOR + 1.15%
6.01%
6.75%
5.47%
6.24%
LIBOR + 0.70%
5.44%
12,045 Variable Bank Rate
$2,700,980
Maturity Date
02/11/14
06/08/16
12/20/09
02/14/11 (1)
02/14/11 (1)
03/11/13
01/08/11 (2)
01/08/08
10/01/10
02/06/16
09/07/10
05/11/17
11/01/11
12/14/15
06/01/14
02/14/11 (1)
05/06/15
02/14/11
Balance Due
on Maturity
$303,277
280,000
20
139,000
80,000
125,507
325,000
175,150
126,884
215,500
72,791
135,000
71,569
540,000
98,585
10,000
200,000
10,900
Facility
Amount
$ 2,000
(1)
(1)
81,000
(1)
40,000
(1) Dolphin, Fairlane, and Twelve Oaks are the borrowers and collateral for the $550 million revolving credit facility. The unused borrowing
capacity at December 31, 2008 was $321 million. Sublimits may be reallocated quarterly but not more often than twice a year. The facility has
a one year extension option.
(2) Stated interest rate is swapped to an effective rate of 5.01%. The loan has two one-year extension options.
Notes payable are collateralized by properties with a net book value of $2.3 billion at December 31, 2008 and
$2.4 billion at December 31, 2007.
F-22
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Interest expense for the year ended December 31, 2006 includes a $1.0 million charge for the write-off of financing
costs related to the refinancing of the loan on Dolphin Mall (Dolphin) prior to maturity and a $2.1 million charge from the
write-off of financing costs related to the pay-off of the loans on The Shops at Willow Bend (Willow Bend) prior to their
maturity date.
The following table presents scheduled principal payments on notes payable as of December 31, 2008:
2009
2010
2011
2012
2013
Thereafter
$
14,433
213,838
648,489 (1)
11,413
134,802
1,773,846
$ 2,796,821
(1) Includes $229 million with a one year extension option and $325 million with two one-year extension options.
Debt Covenants and Guarantees
Certain loan agreements contain various restrictive covenants, including a minimum net worth requirement, a
maximum payout ratio on distributions, a minimum debt yield ratio, a maximum leverage ratio, minimum interest
coverage ratios and a minimum fixed charges coverage ratio, the latter being the most restrictive. The Operating
Partnership is in compliance with all of its covenants as of December 31, 2008. The maximum payout ratio on
distributions covenant limits the payment of distributions generally to 95% of funds from operations, as defined in the
loan agreements, except as required to maintain the Company's tax status, pay preferred distributions, and for
distributions related to the sale of certain assets.
Payments of principal and interest on the loans in the following table are guaranteed by the Operating Partnership as
of December 31, 2008.
Center
Dolphin Mall
Fairlane Town Center
Twelve Oaks Mall
139.0
80.0
10.0
Loan
balance as
of 12/31/08
TRG's
beneficial
interest in loan
balance as
of 12/31/08
(in millions of dollars)
139.0
80.0
10.0
Amount of
loan balance
guaranteed
by TRG as
of 12/31/08
% of loan
balance
guaranteed
by TRG
% of interest
guaranteed
by TRG
139.0
80.0
10.0
100%
100%
100%
100%
100%
100%
The Operating Partnership has also guaranteed certain obligations of Partridge Creek, which is encumbered by a
$72.8 million recourse construction loan (Note 2).
The Company is required to escrow cash balances for specific uses stipulated by its lenders. As of December 31,
2008 and December 31, 2007, the Company’s cash balances restricted for these uses were $2.9 million and
$1.0 million, respectively. Such amounts are included within cash and cash equivalents in the Company’s Consolidated
Balance Sheet.
Beneficial Interest in Debt and Interest Expense
The Operating Partnership's beneficial interest in the debt, capital lease obligations, capitalized interest, and interest
expense of its consolidated subsidiaries and its Unconsolidated Joint Ventures is summarized in the following table.
The Operating Partnership's beneficial interest in the consolidated subsidiaries excludes debt and interest related to
the minority interests in Cherry Creek (50%), International Plaza (49.9%), The Pier Shops (22.5% as of April 2007,
Note 2), The Mall at Wellington Green (10%), and MacArthur Center (5%). The Operating Partnership’s beneficial
interest in the Unconsolidated Joint Ventures, prior to April 2007, excludes The Pier Shops.
F-23
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At 100%
Consolidated
Subsidiaries
Unconsolidated
Joint
Ventures
Consolidated
Subsidiaries
At Beneficial Interest
Unconsolidated
$2,796,821
2,700,980
$1,103,903
1,003,463
$2,437,590
2,416,292
$2,474
5,521
$7,972
14,613
$167
504
$139
496
$2,467
5,507
$7,819
14,518
Joint
Ventures
$566,437
517,228
$84
252
$101
125
$147,397
131,700
$65,002
66,232
$127,769
$117,385
$33,777
$33,311
Debt as of:
December 31, 2008
December 31, 2007
Capital lease obligations as of:
December 31, 2008
December 31, 2007
Capitalized interest:
Year ended December 31, 2008
Year ended December 31, 2007
Interest expense:
Year ended December 31, 2008
Year ended December 31, 2007
Note 10 - Derivatives
The Company uses derivative instruments primarily to manage exposure to interest rate risks inherent in variable
rate debt and refinancings. The Company routinely uses cap, swap, and treasury lock agreements to meet these
objectives. None of the Company’s derivatives are designated as fair value hedges. Derivatives not designated as
hedges are not speculative and were entered into to manage the Company’s exposure to interest rate movements and
other identified risks, but do not meet the strict hedge accounting requirements of FASB Statement No. 133
“Accounting for Derivative Instruments and Hedging Activities.”
In March 2008, Fair Oaks, a 50% owned unconsolidated joint venture, entered into a $250 million forward starting
swap to hedge interest rate risk associated with a $250 million financing in April 2008. The rate on this financing is
swapped at an all-in rate, which includes credit spread, of 4.56% for the initial three-year term of the debt. The swap
agreement has been designated, and is expected to be effective, as a cash flow hedge of the interest payments on the
new debt. Changes in fair value of the swap agreement at each balance sheet date during the term of the agreement
are recorded in Other Comprehensive Income.
In December 2007, the Company entered into a $325 million forward starting swap to hedge interest rate risk
associated with a $325 million financing at International Plaza in January 2008. The rate on this financing is swapped
at an all-in rate, which includes credit spread, of 5.375% for the initial three-year term of the debt. The swap agreement
has been designated, and is expected to be effective, as a cash flow hedge of the interest payments on the new debt.
Changes in fair value of the swap agreement at each balance sheet date during the term of the agreement are
recorded in Other Comprehensive Income.
In 2006, the Operating Partnership entered into three forward starting swaps for $150 million to partially hedge
interest rate risk associated with a planned long-term refinancing of International Plaza in January 2008. The Operating
Partnership terminated the swaps in September 2007. As the swaps were no longer effective as hedges of the planned
refinancing, the Operating Partnership recognized its $0.2 million share of the $0.4 million gain on the termination,
included in “Gains on land sales and other nonoperating income” within results of operations.
The following table presents the effect that derivative instruments had on interest expense and equity in income of
Unconsolidated Joint Ventures during the three years ended December 31, 2008:
Receipts under swap and cap agreements
Payments under swap agreements
Adjustment of accumulated other comprehensive income for amounts
recognized in net income
Change in fair value of cap agreements not designated as hedges
Net reduction to income
2008
$ (482)
3,785
2007
$
(69)
2006
$ (121)
1,260
$ 4,563
1,261
8
$ 1,200
1,391
59
$ 1,329
F-24
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As of December 31, 2008, the Company had $5.1 million of net realized losses included in Accumulated OCI, related
to terminated derivative instruments, that are being recognized as interest expense over the term of the hedged debt,
as follows:
Hedged Items
Beverly Center refinancing
Regency Square financing
Westfarms refinancing
OCI Amounts
$ 3,027
795
1,314
$ 5,136
Recognition Period
January 2004 through December 2013
November 2001 through October 2011
July 2002 through July 2012
As of December 31, 2008, the Company had $23.2 million of net unrealized losses included in Accumulated OCI that
will be recognized as interest expense over the effective periods of the derivative agreements, as follows:
Hedged Items
Fair Oaks refinancing
International Plaza refinancing
Taubman Land Associates financing
OCI Amounts
$ 4,236
17,188
1,738
$ 23,162
Effective Period
April 2008 through March 2011
January 2008 through December 2010
January 2007 through October 2012
The Company expects that approximately $8.8 million of the $29.8 million in Accumulated OCI at December 31, 2008
will be reclassified from Accumulated OCI and recognized as a reduction of income during 2009.
Note 11 - Leases
Shopping center space is leased to tenants and certain anchors pursuant to lease agreements. Tenant leases
typically provide for minimum rent, percentage rent, and other charges to cover certain operating costs. Future
minimum rent under operating leases in effect at December 31, 2008 for operating centers, assuming no new or
renegotiated leases or option extensions on anchor agreements, is summarized as follows:
2009
2010
2011
2012
2013
Thereafter
$
331,270
316,961
283,714
248,010
223,779
775,041
Certain shopping centers, as lessees, have ground leases expiring at various dates through the year 2107. In
addition, two centers have the option to extend the lease terms, one for five 10 year periods, and the other for one
25 year period. Ground rent expense is recognized on a straight-line basis over the lease terms. The Company also
leases its office facilities and certain equipment. Office facility leases expire at various dates through the year 2015.
Additionally, two of the leases have 5 year extension options and one lease has a 3 year extension option. The
Company’s U.S. headquarters is rented from an affiliate of the Taubman family under a 10 year lease, with a 5 year
extension option. Rental expense on a straight-line basis under operating leases was $10.8 million in 2008, $9.5 million
in 2007, and $8.3 million in 2006. Included in these amounts are related party office rental expense of $2.3 million in
2008, $2.2 million in 2007 and $2.3 million in 2006. Payables representing straightline rent adjustments under lease
agreements were $32.7 million and $31.5 million as of December 31, 2008 and 2007, respectively.
The following is a schedule of future minimum rental payments required under operating leases:
2009
2010
2011
2012
2013
Thereafter
$
10,532
10,443
8,116
7,542
7,587
395,896
F-25
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The table above includes $2.4 million in 2009, $2.5 million in 2010 and $2.6 million in each year from 2011 through
2014 of related party amounts.
Certain shopping centers have entered into lease agreements for property improvements that qualify as capital
leases. As of December 31, 2008, future minimum lease payments for these capital leases are as follows:
2009
2010
2011
Total minimum lease payments
Less amount representing interest
Capital lease obligations
$
$
$
1,855
620
155
2,630
(156)
2,474
Note 12 - Transactions with Affiliates
The Taubman Company LLC (the Manager), which is 99% beneficially owned by the Operating Partnership, provides
property management, leasing, development, and other administrative services to the Company, the shopping centers,
Taubman affiliates, and other third parties. Accounts receivable from related parties include amounts due from
Unconsolidated Joint Ventures or other affiliates of the Company, primarily relating to services performed by the
Manager. These receivables include certain amounts due to the Manager related to reimbursement of third party (non-
affiliated) costs.
A. Alfred Taubman and certain of his affiliates receive various management services from the Manager. For such
services, Mr. Taubman and affiliates paid the Manager approximately $2.2 million, $2.1 million, and $1.9 million in
2008, 2007, and 2006, respectively.
Other related party transactions are described in Notes 1, 6, 11, 13, and 15.
Note 13 – Share-Based Compensation and Other Employee Plans
In May 2008, the Company’s shareowners approved The Taubman Company 2008 Omnibus Long-Term Incentive
Plan (2008 Omnibus Plan). The 2008 Omnibus Plan provides for the award to directors, officers, employees, and other
service providers of the Company of restricted shares, restricted units of limited partnership in the Operating
Partnership, options to purchase shares or Operating Partnership units, unrestricted Shares or Operating Partnership
units, and other awards to acquire up to an aggregate of 6,100,000 Company common shares or Operating
Partnership units, of which 6,098,558 were available as of December 31, 2008. The Company anticipates that all future
grants of share-based compensation will be made under the 2008 Omnibus Plan. In addition, non-employee directors
have the option to defer their compensation, other than their meeting fees, under a deferred compensation plan.
Prior to the adoption of the 2008 Omnibus Plan, the Company provided share-based compensation through an
incentive option plan, a long-term incentive plan, and non-employee directors' stock grant and deferred compensation
plans.
The compensation cost charged to income for its share-based compensation plans was $7.6 million, $6.8 million,
and $4.6 million for the years ended December 31, 2008, 2007, and 2006, respectively. Compensation cost capitalized
as part of properties and deferred leasing costs was $0.9 million, $0.8 million, and $0.6 million for the years ended
December 31, 2008, 2007, and 2006, respectively.
The Company currently recognizes no tax benefits from the recognition of compensation cost or tax deductions
incurred upon the exercise or vesting of share-based awards. Any allocations of compensation cost or deduction to the
Company’s corporate taxable REIT subsidiaries from the Company's Manager, which is treated as a partnership for
federal income tax purposes, have resulted in a valuation allowance being recorded against its net deferred tax asset
associated with the temporary differences related to share-based compensation. This is primarily due to prior year
cumulative tax net operating losses incurred through the year ended December 31, 2008.
F-26
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Incentive Options
The Company’s incentive option plan (the Option Plan), which was shareowner approved, permitted the grant of
options to employees. The Operating Partnership's units issued in connection with the Option Plan are exchangeable
for new shares of the Company's common stock under the Continuing Offer (Note 15). Options for 1.4 million
partnership units have been granted and are outstanding at December 31, 2008. Of the 1.4 million options outstanding,
0.9 million have vesting schedules with one-third vesting at each of the first, second, and third years of the grant
anniversary, if continuous service has been provided or upon retirement or certain other events if earlier. Substantially
all of the other 0.5 million options outstanding have vesting schedules with one-third vesting at each of the third, fifth,
and seventh years of the grant anniversary, if continuous service has been provided and certain conditions dependent
on the Company’s market performance in comparison to its competitors have been met, or upon retirement or certain
events if earlier. The options have ten-year contractual terms.
The Company has estimated the value of the options issued during the years ended December 31, 2008, 2007, and
2006 using a Black-Scholes valuation model based on the following assumptions:
Expected volatility
Expected dividend yield
Expected term (in years)
Risk-free interest rate
Weighted average grant-date fair value
2008
2007
24.33%
3.50%
6
3.08%
$9.31
20.76%
3.00%
7
4.45%
$11.77
2006
20.87%-21.14%
3.50%
7
4.74%-5.08%
$8.11
Expected volatility and dividend yields are based on historical volatility and yields of the Company’s common stock,
respectively, as well as other factors. In developing the assumption of expected term, the Company has considered the
vesting and contractual terms as required by the simplified method of developing expected term assumptions. The risk-
free interest rates used are based on the U.S. Treasury yield curves in effect at the times of grants. The Company
assumes no forfeitures under the Option Plan due to the small number of participants and low turnover rate.
A summary of option activity under the Option Plan for the years ended December 31, 2008, 2007, and 2006 is
presented below:
Number
of Options
Weighted Average
Exercise Price
Outstanding at January 1, 2006
Granted
Outstanding at December 31, 2006
Granted
Exercised
Outstanding at December 31, 2007
Granted
Exercised
Outstanding at December 31, 2008
852,139
263,237
1,115,376
226,875
(11,605)
1,330,646
230,567
(210,736)
1,350,477
Fully vested options at December 31, 2008
490,927
$30.13
40.37
$32.55
55.90
31.31
$36.54
50.65
31.55
$39.73
$37.05
Weighted Average
Remaining
Contractual Term
(in years)
9.2
8.5
Range of
Exercise
Prices
$29.38 - $31.31
$29.38 - $40.39
7.8
$29.38 - $55.90
7.2
6.8
$29.38 - $55.90
There were 434,220 options that vested during the year ended December 31, 2008.
The aggregate intrinsic value (the difference between the period end stock price and the option exercise price) of
options outstanding and options fully vested as of December 31, 2008 were both zero due to the stock price being
lower than the options’ exercise prices.
The total intrinsic value of options exercised during the years ended December 31, 2008 and 2007 was $4.1 million,
$0.3 million, respectively. Cash received from option exercises under the Option Plan for the years ended December
31, 2008 and 2007 was $6.6 million and $0.4 million, respectively. No options were exercised in 2006.
F-27
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As of December 31, 2008 there were 0.9 million nonvested options outstanding, and $2.1 million of total
unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the
Plan. That cost is expected to be recognized over a weighted average period of 1.7 years.
Under the Option Plan, vested unit options can be exercised by tendering mature units with a market value equal to
the exercise price of the unit options. In 2002, Robert S. Taubman, the Company’s chief executive officer, exercised
options for 3.0 million units by tendering 2.1 million mature units and deferring receipt of 0.9 million units under the unit
option deferral election. As the Company declares distributions, the deferred option units receive their proportionate
share of the distributions in the form of cash payments. These deferred option units will remain in a deferred
compensation account until Mr. Taubman's retirement or ten years from the date of exercise. Beginning with the ten
year anniversary of the date of exercise, the deferred partnership units will be paid in ten annual installments.
Long-Term Incentive Plan
The Taubman Company 2005 Long-Term Incentive Plan (LTIP) was shareowner approved. The LTIP allowed the
Company to make grants of restricted stock units (RSU) to employees. There were RSU for 0.3 million shares
outstanding at December 31, 2008. Each RSU represents the right to receive upon vesting one share of the
Company’s common stock plus a cash payment equal to the aggregate cash dividends that would have been paid on
such share of common stock from the date of grant of the award to the vesting date. Each RSU is valued at the closing
price of the Company’s common stock on the grant date.
A summary of activity under the LTIP is presented below:
Outstanding at January 1, 2006
Granted
Forfeited
Redeemed
Outstanding at December 31, 2006
Granted
Forfeited
Redeemed
Outstanding at December 31, 2007
Granted
Forfeited
Redeemed
Outstanding at December 31, 2008
Restricted Stock Units
138,904
131,698
(4,999)
(3,918)
261,685
102,905
(5,621)
(672)
358,297
121,037
(8,256)
(136,200)
334,878
Weighted average
Grant Date Fair Value
31.31
40.38
33.84
33.53
35.79
56.54
43.71
34.93
41.63
50.65
48.69
32.15
48.57
These RSU vest on the third year anniversary of the grant if continuous service has been provided for that period, or
upon retirement or certain other events if earlier. Based on an analysis of historical employee turnover, the Company
has made an annual forfeiture assumption of 2.4% of grants when recognizing compensation costs relating to the RSU.
All of the RSU outstanding at December 31, 2008 were nonvested. As of December 31, 2008, there was $6.2 million
of total unrecognized compensation cost related to nonvested RSU outstanding under the LTIP. This cost is expected
to be recognized over an average period of 1.8 years.
Non-Employee Directors’ Stock Grant and Deferred Compensation Plans
The Non-Employee Directors’ Stock Grant Plan (SGP), which was shareowner approved, provided for the annual
grant to each non-employee director of the Company shares of the Company’s common stock based on the fair value
of the Company's common stock on the last business day of the preceding quarter. Quarterly grants beginning in July
of 2008 were made under the 2008 Omnibus Plan. The annual fair market value of the grant was $50,000 in 2008 and
2007, and $15,000 in 2006. As of December 31, 2008, 2,875 shares have been issued under the SGP and 506 shares
have been issued under the 2008 Omnibus Plan. Certain directors have elected to defer receipt of their shares as
described below.
F-28
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Non-Employee Directors’ Deferred Compensation Plan (DCP), which was approved by the Company’s Board of
Directors, allows each non-employee director of the Company the right to defer the receipt of all or a portion of his or
her annual director retainer until the termination of his or her service on the Company’s Board of Directors and for such
deferred compensation to be denominated in restricted stock units, representing the right to receive shares of the
Company’s common stock at the end of the deferral period. During the deferral period, when the Company pays cash
dividends on its common stock, the directors’ deferral accounts will be credited with dividend equivalents on their
deferred restricted stock units, payable in additional restricted stock units based on the then-fair market value of the
Company’s common stock. There were 24,296 restricted stock units outstanding under the DCP at December 31,
2008.
Other Employee Plans
As of December 31, 2008 and 2007 the Company had fully vested awards outstanding for 82,718 and 79,760
notional shares of stock, respectively, under a previous long-term performance compensation plan. These awards will
be settled in cash based on a twenty day average of the market value of the Company's common stock. The liability for
the eventual payout of these awards is marked to market quarterly based on the twenty day average of the Company's
stock price. The Company recorded compensation costs of $(1.9) million, $0.2 million, and $1.1 million relating to these
awards for the years ended December 31, 2008, 2007, and 2006, respectively. The Company paid $0.5 million of this
deferred liability in 2006. No payments were made in 2007 and 2008. The majority of the awards were paid out in early
2009, leaving awards for 16,392 notional shares of stock remaining.
The Company has a voluntary retirement savings plan established in 1983 and amended and restated effective
January 1, 2001 (the Plan). The Plan is qualified in accordance with Section 401(k) of the Internal Revenue Code (the
Code). The Company contributes an amount equal to 2% of the qualified wages of all qualified employees and
matches employee contributions in excess of 2% up to 7% of qualified wages. In addition, the Company may make
discretionary contributions within the limits prescribed by the Plan and imposed in the Code. The Company’s
contributions and costs relating to the Plan were $2.0 million in 2008, $1.9 million in 2007, and $1.7 million in 2006.
Note 14 - Common and Preferred Stock and Equity of TRG
Outstanding Preferred Stock and Equity
The Company is obligated to issue to the minority interest, upon subscription, one share of Series B Non-
Participating Convertible Preferred Stock (Series B Preferred Stock) for each of the Operating Partnership units held by
the minority interest. Each share of Series B Preferred Stock entitles the holder to one vote on all matters submitted to
the Company's shareowners. The holders of Series B Preferred Stock, voting as a class, have the right to designate up
to four nominees for election as directors of the Company. On all other matters, including the election of directors, the
holders of Series B Preferred Stock will vote with the holders of common stock. The holders of Series B Preferred
Stock are not entitled to dividends or earnings of the Company. The Series B Preferred Stock is convertible into
common stock at a ratio of 14,000 shares of Series B Preferred Stock for one share of common stock. During the years
ended December 31, 2008, 2007, and 2006, 95,000 shares, 1,589,662 shares, and 1,061,343 shares of Series B
Preferred Stock, respectively, were converted to 4 shares, 104 shares, and 71 shares of the Company’s common
stock, respectively, as a result of tenders of units under the Continuing Offer (Note 15).
The Operating Partnership’s $30 million 8.2% Cumulative Redeemable Preferred Partnership Equity (Series F
Preferred Equity) is owned by institutional investors, and has no stated maturity, sinking fund, or mandatory redemption
requirements. The Company, beginning in May 2009 can redeem the Series F Preferred Equity. The holders of Series
F Preferred Equity have the right, beginning in 2014, to exchange $100 in liquidation value of such equity for one share
of Series F Preferred Stock. The terms of the Series F Preferred Stock are substantially similar to those of the Series F
Preferred Equity. The Series F Preferred Stock is non-voting.
The 8.0% Series G Cumulative Redeemable Preferred Stock (Series G Preferred Stock), which was issued in 2004,
has no stated maturity, sinking fund, or mandatory redemption requirements and is not convertible into any other
security of the Company. The Series G Preferred Stock has liquidation preferences of $100 million ($25 per share).
Dividends are cumulative and are payable in arrears on or before the last day of each calendar quarter. All accrued
dividends have been paid. The Series G Preferred Stock will be redeemable by the Company at $25 per share, plus
accrued dividends, beginning in November 2009. The Company owns corresponding Series G Preferred Equity
interests in the Operating Partnership that entitle the Company to income and distributions (in the form of guaranteed
payments) in amounts equal to the dividends payable on the Company's Series G Preferred Stock. The Series G
Preferred Stock is non-voting.
F-29
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The $87 million 7.625% Series H Cumulative Redeemable Preferred Stock (Series H Preferred Stock), which was
issued in 2005, has no stated maturity, sinking fund, or mandatory redemption requirements and are not convertible
into any other security of the Company. Dividends are cumulative and are payable in arrears on or before the last day
of each calendar quarter. All accrued dividends have been paid. The Series H Preferred Stock will be redeemable by
the Company at $25 per share (par), plus accrued dividends, beginning in July 2010. The Company owns
corresponding Series H Preferred Equity interests in the Operating Partnership that entitle the Company to income and
distributions (in the form of guaranteed payments) in amounts equal to the dividends payable on the Company’s Series
H Preferred Stock. The Series H Preferred Stock is non-voting.
Redemption of Preferred Stock and Equity
In May 2006, the Company redeemed the remaining $113 million of its 8.3% Series A Preferred Stock (Series A
Preferred Stock). Emerging Issues Task Force Topic D-42, “The Effect on the Calculation of Earnings Per Share for the
Redemption or Induced Conversion of Preferred Stock,” provides that any excess of the fair value of the consideration
transferred to the holders of preferred stock redeemed over the carrying amount of the preferred stock should be
subtracted from net earnings to determine net earnings available to common shareowners. As a result of application of
Topic D-42, the Company recognized a charge of $4.0 million in the second quarter of 2006, representing the
difference between the carrying value and the redemption price of the Series A Preferred Stock.
This Series A Preferred Stock was redeemed with the proceeds of a $113 million private preferred stock issuance,
the Series I Cumulative Redeemable Preferred Stock (Series I Preferred Stock). The Series I Preferred Stock paid
dividends at a floating rate equal to 3-month LIBOR plus 1.25%, an effective rate of 6.4225% for the period the shares
were outstanding. The Company redeemed the Series I Preferred Stock on June 30, 2006, using available cash. The
Company recognized a charge of $0.6 million at that time, representing the difference between the carrying value,
which includes original issuance costs, and the redemption price of the Series I Preferred Stock.
Common Stock and Equity
In July 2007, the Company’s Board of Directors authorized the repurchase of $100 million of the Company’s common
stock on the open market or in privately negotiated transactions. During August 2007, the Company repurchased
987,180 shares of its common stock at an average price of $50.65 per share, for a total of $50 million under the
authorization. During May and June 2007, the Company repurchased 923,364 shares of its common stock on the open
market at an average price of $54.15 per share, for a total of $50 million, the maximum amount permitted under the
program approved by the Board of Directors in December 2005. All shares repurchased have been cancelled. For each
share of stock repurchased, an equal number of Operating Partnership units owned by the Company were redeemed.
Repurchases of common stock were financed through general corporate funds, including borrowings under existing
lines of credit. As of December 31, 2008, $50 million remained of the July 2007 authorization.
Note 15 - Commitments and Contingencies
At the time of the Company's initial public offering and acquisition of its partnership interest in the Operating
Partnership in 1992, the Company entered into an agreement (the Cash Tender Agreement) with A. Alfred Taubman,
who owns an interest in the Operating Partnership, whereby he has the annual right to tender to the Company units of
partnership interest in the Operating Partnership (provided that the aggregate value is at least $50 million) and cause
the Company to purchase the tendered interests at a purchase price based on a market valuation of the Company on
the trading date immediately preceding the date of the tender. At A. Alfred Taubman's election, his family and certain
others may participate in tenders. The Company will have the option to pay for these interests from available cash,
borrowed funds, or from the proceeds of an offering of the Company's common stock. Generally, the Company expects
to finance these purchases through the sale of new shares of its stock. The tendering partner will bear all market risk if
the market price at closing is less than the purchase price and will bear the costs of sale. Any proceeds of the offering
in excess of the purchase price will be for the sole benefit of the Company. The Company accounts for the Cash
Tender Agreement between the Company and Mr. Taubman as a freestanding written put option. As the option put
price is defined by the current market price of the Company's stock at the time of tender, the fair value of the written
option defined by the Cash Tender Agreement is considered to be zero.
F-30
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Based on a market value at December 31, 2008 of $25.46 per common share, the aggregate value of interests in the
Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $647 million. The
purchase of these interests at December 31, 2008 would have resulted in the Company owning an additional 32%
interest in the Operating Partnership.
The Company has made a continuing, irrevocable offer to all present holders (other than certain excluded holders,
including A. Alfred Taubman), assignees of all present holders, those future holders of partnership interests in the
Operating Partnership as the Company may, in its sole discretion, agree to include in the continuing offer, and all
existing optionees under the Option Plan all existing and future optionees under the 2008 Omnibus Plan to exchange
shares of common stock for partnership interests in the Operating Partnership (the Continuing Offer). Under the
Continuing Offer agreement, one unit of the Operating Partnership interest is exchangeable for one share of the
Company's common stock. Upon a tender of Operating Partnership units, the corresponding shares of Series B
Preferred Stock, if any, will automatically be converted into the Company’s common stock at a rate of 14,000 shares of
Series B Preferred Stock for one common share.
The disposition of Woodland in 2005 by one of the Company's Unconsolidated Joint Ventures was structured in a tax
efficient manner to facilitate the investment of the Company's share of the sales proceeds in a like-kind exchange in
accordance with Section 1031 of the Internal Revenue Code and the regulations thereunder. The structuring of the
disposition has included the continued existence and operation of the partnership that previously owned the shopping
center. In connection with the disposition, the Company entered into a tax indemnification agreement with the
Woodland joint venture partner, a life insurance company. Under this tax indemnification agreement, the Company has
agreed to indemnify the joint venture partner in the event an unfavorable tax determination is received as a result of the
structuring of the sale in the tax efficient manner described. The maximum amount that the Company could be required
to pay under the indemnification is equal to the taxes incurred by the joint venture partner as a result of the unfavorable
tax determination by the IRS or the state of Michigan within their respective three and four year statutory assessment
limitation periods, in excess of those that would have otherwise been due if the Unconsolidated Joint Venture had sold
Woodland, distributed the cash sales proceeds, and liquidated the owning entities. The Company cannot reasonably
estimate the maximum amount of the indemnity, as the Company is not privy to or does not have knowledge of its joint
venture partner's tax basis or tax attributes in the Woodland entities or its life insurance-related assets. However, the
Company believes that the probability of having to perform under the tax indemnification agreement is remote. The
Company and the Woodland joint venture partner have also indemnified each other for their shares of costs or
revenues of operating or selling the shopping center in the event additional costs or revenues are subsequently
identified.
In November 2007, three developers of a project called Blue Back Square (BBS) in West Hartford, Connecticut, filed
a lawsuit in the Connecticut Superior Court, Judicial District of Hartford at Hartford (Case No. CV-07-5014613-S)
against the Company, the Westfarms Unconsolidated Joint Venture, and its partners and its subsidiary, alleging that
the defendants (i) filed or sponsored vexatious legal proceedings and abused legal process in an attempt to thwart the
development of the competing BBS project, (ii) interfered with contractual relationships with certain tenants of BBS,
and (iii) violated Connecticut fair trade law. The lawsuit alleges damages in excess of $30 million and seeks double and
treble damages and punitive damages. Also in early November 2007, the Town of West Hartford and the West Hartford
Town Council filed a substantially similar lawsuit against the same entities in the same court (Case No. CV-07-
5014596-S). The second lawsuit did not specify any particular amount of damages but similarly requests double and
treble damages and punitive damages. The lawsuits are in their early legal stages and the Company is vigorously
defending both. The outcome of these lawsuits cannot be predicted with any certainty and management is currently
unable to estimate an amount or range of potential loss that could result if an unfavorable outcome occurs. While
management does not believe that an adverse outcome in either lawsuit would have a material adverse effect on the
Company’s financial condition, there can be no assurance that an adverse outcome would not have a material effect on
the Company’s results of operations for any particular period.
See Note 1 regarding the put option held by the noncontrolling member in Taubman Asia, Note 5 regarding the
Company’s Oyster Bay project, Note 9 for the Operating Partnership's guarantees of certain notes payable and other
obligations, and Note 13 for obligations under existing share-based compensation plans.
F-31
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note 16 - Earnings Per Share
Basic earnings per share amounts are based on the weighted average of common shares outstanding for the
respective periods. Diluted earnings per share amounts are based on the weighted average of common shares
outstanding plus the dilutive effect of potential common stock. Potential common stock includes outstanding
partnership units exchangeable for common shares under the Continuing Offer (Note 15), outstanding options for units
of partnership interest under the Option Plan, RSU under the LTIP and Non-Employee Directors’ Deferred
Compensation Plan (Note 13), and unissued partnership units under unit option deferral election. In computing the
potentially dilutive effect of potential common stock, partnership units are assumed to be exchanged for common
shares under the Continuing Offer, increasing the weighted average number of shares outstanding. The potentially
dilutive effects of partnership units outstanding and/or issuable under the unit option deferral elections are calculated
using the if-converted method, while the effects of other potential common stock are calculated using the treasury stock
method.
As of December 31, 2008, there were 8.8 million partnership units outstanding and 0.9 million unissued partnership
units under unit option deferral elections, that may be exchanged for common shares of the Company under the
Continuing Offer (Note 15). These outstanding partnership units and unissued units were excluded from the
computation of diluted earnings per share as they were anti-dilutive in all periods presented. These outstanding units
and unissued units could only be dilutive to earnings per share if the minority interests' ownership share of the
Operating Partnership's income was greater than their share of distributions. Potentially dilutive securities under share
based compensation plans (Note 13) were excluded from the computation of diluted EPS for the year ended December
31, 2008 because they were anti-dilutive due to the net loss in 2008.
Year Ended December 31
2007
2008
2006
Net
income
(Numerator)
(loss) allocable
to common shareowners
Shares (Denominator) – basic
Effect of dilutive securities
Shares (Denominator) – diluted
Earnings (loss) per common share:
Basic
Diluted
Note 17 – Fair Value Disclosures
$
(86,659)
$
48,490
$
21,394
52,866,050
52,866,050
52,969,067
652,950
53,622,017
52,661,024
318,429
52,979,453
$
$
(1.64)
(1.64)
$
$
0.92
0.90
$
$
0.41
0.40
The following methods and assumptions were used to estimate the fair value of financial instruments:
The carrying value of cash and cash equivalents, accounts and notes receivable, and accounts payable and accrued
liabilities approximates fair value due to the short maturity of these instruments.
The fair value of mortgage notes and other notes payable is estimated based on quoted market prices, if available. If
no quoted market prices are available, the fair value of mortgages and other notes payable are estimated using cash
flows discounted at current market rates. When selecting discount rates for purposes of estimating the fair value of
mortgage and other notes, in 2007 the Company employed the credit spreads at which the debt was originally issued.
The December 31, 2008 fair value includes an additional 2% credit spread to account for current market conditions.
This additional spread is an estimate and is not necessarily indicative of what the Company could obtain in the market
at the reporting date. The Company does not believe that the use of different interest rate assumptions would have
resulted in a materially different fair value of mortgage and other notes payable as of December 31, 2008 or 2007. To
further assist financial statement users, the Company has included with its fair value disclosures an analysis of interest
rate sensitivity.
See (Note 5) regarding the fair value of CDD assessment bonds.
F-32
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The fair value of interest rate hedging instruments is the amount that the Company would receive to sell an asset or
pay to transfer a liability in an orderly transaction between market participants at the reporting date. The Company’s
valuation of its derivative instruments are determined using widely accepted valuation techniques, including discounted
cash flow analysis on the expected cash flows of each derivative and therefore fall into level 2 of the fair value
hierarchy. The valuation reflects the contractual terms of the derivatives, including the period to maturity, and uses
observable market-based inputs, including forward curves. To comply with the provisions of SFAS 157 in the
December 31, 2008 fair value measurement of interest rate hedging instruments, the Company incorporates credit
valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s
nonperformance risk.
The Company's valuation of marketable securities, which are considered to be available-for-sale, and an insurance
deposit utilize unadjusted quoted prices determined by active markets for the specific securities the Company has
invested in, and therefore fall into Level 1 of the fair value hierarchy.
The estimated fair values of notes payable at December 31, 2008 and December 31, 2007 are as follows:
Notes payable
2008
2007
Carrying Value
$2,796,821
Fair Value
$2,871,252
Carrying Value
$2,700,980
Fair Value
$2,791,341
The fair value of the notes payable are dependent on the interest rates employed used in estimating the value (Note
1). An overall 1% increase in rates employed in making these estimates would have decreased the fair value of the
debt shown above by $112 million, or 3.9%.
For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each
major category of assets and liabilities is presented below:
Description
Available-for-sale securities
Insurance deposit
Derivative assets
Total assets
Derivative interest rate instruments liabilities (Note 10)
Total liabilities
Fair Value Measurements at
December 31, 2008 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
$ 4,351
8,957
$ 13,308
Significant Other
Observable Inputs
(Level 2)
$
$
217
217
$(17,188)
$(16,971)
The insurance deposit shown above represents an escrow account maintained in connection with a property and
casualty insurance arrangement for the Company’s shopping centers, and is classified within Deferred Charges and
Other Assets. A corresponding deferred revenue relating to amounts billed to tenants for this arrangement has been
classified within Accounts Payable and Other Liabilities.
The Company has one delinquent land contract receivable with a book value of $1.0 million as of December 31,
2008. The original maturity of this note was July 2007. The fair value of the land, which was determined by using
observable market data including comparable parcels of land in similar locations, serves as collateral and is at least
equal to the book value of the receivable.
The carrying and fair values of derivative interest rate instruments were both $1.1 million at December 31, 2007.
F-33
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note 18 - Cash Flow Disclosures and Non-Cash Investing and Financing Activities
Interest paid in 2008, 2007, and 2006, net of amounts capitalized of $8.0 million, $14.6 million, and $9.8 million,
respectively, approximated $144.3 million, $126.0 million, and $119.8 million, respectively. The following non-cash
investing and financing activities occurred during 2008, 2007, and 2006:
Non-cash additions to properties
Additions to capital lease obligations
2008
$14,820
2007
$61,131
2,138
2006
$24,051
Non-cash additions to properties primarily represent accrued construction and tenant allowance costs of new centers
and development projects. Additionally, consolidated assets and liabilities increased upon consolidation of the
accounts of The Pier Shops in 2007 (Note 2) and Cherry Creek in 2006 (Note 1).
Note 19 - Quarterly Financial Data (Unaudited)
The following is a summary of quarterly results of operations for 2008 and 2007:
2008 (1)
Revenues
Equity in income of Unconsolidated Joint Ventures
Income (loss) before minority and preferred interests
Net income (loss)
Net income (loss) allocable to common shareowners
Basic and Diluted earnings per common share -
Net income (loss)
Revenues
Equity in income of Unconsolidated Joint Ventures
Income before minority and preferred interests
Net income
Net income allocable to common shareowners
Basic earnings per common share -
Net income
Diluted earnings per common share -
Net income
Third
Quarter
Second
Quarter
Fourth
First
Quarter
Quarter
$157,417 $160,412 $163,713 $189,956
6,342
(80,818)
(97,117)
(100,776)
11,289
27,836
12,855
9,197
8,491
21,414
4,032
373
9,234
23,516
8,205
4,547
$ 0.09
$ 0.01
$ 0.17
$ (1.90)
2007
Third
Quarter
Second
Quarter
Fourth
First
Quarter
Quarter
$145,026 $152,274 $150,653 $178,869
11,798
38,223
25,068
21,409
11,275
25,461
11,507
7,849
9,239
26,002
12,493
8,834
8,186
26,550
14,056
10,398
$ 0.19
$ 0.17
$ 0.15
$ 0.41
$ 0.19
$
0.16
$
0.15
$ 0.40
(1) Amounts include the impairment charges recognized in the fourth quarter of 2008 of $117.9 million and $8.3
million related to the Company’s investment in its Oyster Bay and Sarasota projects, respectively (Notes 5 and
6).
Note 20 - New Accounting Pronouncements
In November 2008, the FASB ratified Emerging Issue Task Force Issue No. 08-6, "Equity Method Investment
Accounting Considerations." EITF 08-6 addresses certain issues that arise from a company's application of the equity
method under Opinion 18 due to a change in accounting for business combinations and consolidated subsidiaries
resulting from the issuance of Statement 141(R) and Statement 160. EITF 08-6 addresses issues regarding the initial
carrying value of an equity method investment, tests of impairment performed by the investor over an investee's
underlying assets, changes in ownership resulting from the issuance of shares by an investee, and changes in an
investment from the equity method to the cost method. This Issue is effective and will be applied on a prospective basis
in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years, consistent with
the effective dates of Statement 141(R) and Statement 160.
F-34
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In March 2008, the FASB issued Statement No. 161 “Disclosures about Derivative Instruments and Hedging
Activities – an amendment of FASB Statement No. 133.” This Statement amends Statement No. 133 to provide
additional information about how derivative and hedging activities affect an entity’s financial position, financial
performance, and cash flows. The Statement requires enhanced disclosures about an entity’s derivatives and hedging
activities. Statement No. 161 is effective for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008. The Company anticipates the Statement will not have an effect on its results of operations or
financial position as the Statement only provides for new disclosure requirements.
In December 2007, the FASB issued Statement No. 160 "Noncontrolling Interests in Consolidated Financial
Statements – an amendment of Accounting Research Bulletin (ARB) No. 51.” This Statement amends ARB 51 to
establish accounting and reporting standards for the noncontrolling interest (previously referred to as a minority
interest) in a subsidiary and for the deconsolidation of a subsidiary. Statement No. 160 generally requires
noncontrolling interests to be treated as a separate component of equity (not as a liability or other item outside of
permanent equity) and consolidated net income and comprehensive income to include the noncontrolling interest’s
share. The calculation of earnings per share will continue to be based on income amounts attributable to the parent.
Statement No. 160 also establishes a single method of accounting for transactions that change a parent's ownership
interest in a subsidiary by requiring that all such transactions be accounted for as equity transactions if the parent
retains its controlling financial interest in the subsidiary. The Statement also amends certain of ARB 51's consolidation
procedures for consistency with the requirements of FASB Statement No. 141 (Revised) "Business Combinations" and
eliminates the requirement to apply purchase accounting to a parent’s acquisition of noncontrolling ownership interests
in a subsidiary. Statement No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning
on or after December 15, 2008. Except for certain presentation and disclosure requirements, Statement No. 160 will be
applied on a prospective basis. In March 2008, the SEC announced revisions to EITF Topic No. D-98 "Classification
and Measurement of Redeemable Securities" that provide interpretive guidance on the interaction between Topic No.
D-98 and Statement No. 160.
Upon the Company's adoption of Statement No. 160 on January 1, 2009, the noncontrolling interests in the
Operating Partnership and certain consolidated joint ventures will no longer need to be carried at zero balances in the
Company’s balance sheet. As a result, the income allocated to these noncontrolling interests will no longer be required
to be equal, at a minimum, to the share of distributions, which will result in a material increase to the Company’s net
income. See Note 1 regarding current accounting for minority interests.
Also in December 2007, the FASB issued Statement No. 141 (Revised) "Business Combinations.” This Statement
establishes principles and requirements for how the acquirer in a business combination recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree,
and any goodwill acquired in the business combination or a gain from a bargain purchase. This Statement requires
most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be
recorded at “full fair value.” Statement No. 141 (Revised) also requires most acquisition related costs to be separately
identified and expensed. Statement No. 141 (Revised) must be applied prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008.
In September 2006, the FASB issued Statement No. 157 “Fair Value Measurements.” This Statement defines fair
value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. This Statement applies to accounting pronouncements that require or
permit fair value measurements, except for share-based payments transactions under FASB Statement No. 123
(Revised) “Share-Based Payment.” This Statement was effective for financial statements issued for fiscal years
beginning after November 15, 2007, except for non-financial assets and liabilities, for which this Statement will be
effective for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The deferral
to this Statement applies to all nonfinancial assets and nonfinancial liabilities including but not limited to initial
measurements of fair value of: nonfinancial assets and nonfinancial liabilities in a business combination or other new
basis event, asset retirement obligations, and nonfinancial liabilities for exit or disposal activities, as well as impairment
assessments of nonfinancial long lived assets and goodwill. This Statement does not require any new fair value
measurements or remeasurements of previously reported fair values. The Company will account for nonfinancial
assets and nonfinancial liabilities under this Standard beginning on January 1, 2009.
F-35
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note 21 - Subsequent Events
In January 2009, in response to the decreased level of active projects due to the downturn in the economy, the
Company reduced its workforce by about 40 positions, primarily in areas that directly or indirectly affect its
development initiatives in the U.S. and Asia. A restructuring charge of approximately $2.6 million will be recorded in the
first quarter of 2009, which primarily represents the cost of terminations of personnel. The majority of the restructuring
costs will be paid during the first quarter of 2009.
F-36
TAUBMAN CENTERS, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 2008, 2007, and 2006
(in thousands)
Schedule II
Year ended December 31, 2008
Allowance for doubtful receivables
Year ended December 31, 2007
Allowance for doubtful receivables
Year ended December 31, 2006
Allowance for doubtful receivables
Balance at
beginning of year
Charged to costs
and expenses
Charged to
other accounts
Write-offs
Transfers, net
Additions
$6,694
$6,088
$(2,887)
Balance at
end of year
$9,895
$7,581
$1,830
$(3,423)
$706(1)
$6,694
$5,497
$5,110
$(3,055)
$ 29 (2)
$7,581
(1) Represents the transfer in of The Pier Shops. Prior to April 13, 2007, the Company accounted for its interest in The Pier Shops under the equity method.
(2) Represents the transfer in of Cherry Creek. Prior to January 1, 2006, the Company accounted for its interest in Cherry Creek under the equity method.
See accompanying report of independent registered public accounting firm.
F-37
TAUBMAN CENTERS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2008
(in thousands)
Schedule III
Initial Cost
to Company
Buildings,
Improvements,
and Equipment
Land
Cost
Capitalized
Subsequent
to Acquisition
Gross Amount at Which
Carried at Close of Period
Land
BI&E
Total
Accumulate
d
Depreciation
(A/D)
Total Cost
Net of A/D
Encumbrances
Date of
Completion of
Construction
or Acquisition
Depreciable
Life
Shopping Centers:
Beverly Center, Los Angeles, CA
Cherry Creek Shopping Center,
Denver, CO
Dolphin Mall, Miami, FL
Fairlane Town Center, Dearborn, MI
Great Lakes Crossing, Auburn Hills, MI
$ 34,881
17,330
15,506
International Plaza, Tampa, FL
MacArthur Center, Norfolk, VA
Northlake Mall, Charlotte, NC
The Mall at Partridge Creek,
Clinton Township, MI
The Pier Shops at Caesars,
Atlantic City, NJ
Regency Square, Richmond, VA
The Mall at Short Hills, Short Hills, NJ
Stony Point Fashion Park, Richmond, VA
Twelve Oaks Mall, Novi, MI
The Mall at Wellington Green,
Wellington, FL
The Shops at Willow Bend, Plano, TX
Other:
Office Facilities
Peripheral Land
Construction in Process and
Development Pre-Construction Costs
Assets under CDD obligations
Other
Total
$
209,093
$
56,430
$ 265,523
$ 265,523
$ 119,914
$ 145,609
$ 333,736
99,260
238,252
104,668
194,093
308,648
145,768
147,756
110,371
43,545
45,857
24,870
11,962
13,946
2,291
$ 34,881
17,330
15,506
22,540
209,631
281,797
150,525
218,963
320,610
159,714
150,047
209,631
316,678
167,855
234,469
320,610
159,714
172,587
100,424
63,877
54,306
87,561
79,144
46,055
32,111
109,207
252,801
113,549
146,908
241,466
113,659
140,476
280,000
139,000 (1)
80,000 (1)
137,877
325,000
132,500
215,500
22,540
14,098
122,974
12,766
14,098
135,740
149,838
11,176
138,662
72,791
176,835
101,600
168,004
98,365
191,185
191,698
229,058
18,635
25,114
10,677
25,410
18,967
26,192
27,633
4,164
$ 261,147
61,573 (3)
61,411
2,710
$ 2,852,951
10,148
119,982
890
74,780
9,452
9,262
28,180
10,650
18,635
25,114
10,677
25,410
21,439
26,192
27,633
4,164
$
585,382 $ 263,619
176,835
111,748
287,986
99,255
265,965
198,678
238,320
28,180
176,835
130,383
313,100
109,932
291,375
220,117
264,512
28,180
27,633
15,806
41,711
122,562
30,834
88,235
62,496
60,642
14,522
161,029
88,672
190,538
79,098
203,140
157,621
203,870
13,658
27,633
72,223
61,411
2,710
$3,435,861
72,223
65,575
2,710
$3,699,480 (2)
17,518
732
$1,049,626
72,223
48,057
1,978
$ 2,649,854
135,000
75,388
540,000
108,884
10,000 (1)
200,000
1982
1990
2001
1996
1998
2001
1999
2005
2007
2006
1997
1980
2003
1977
2001
2001
40 Years
40 Years
50 Years
40 Years
50 Years
50 Years
50 Years
50 Years
50 Years
50 Years
40 Years
40 Years
50 Years
50 Years
50 Years
50 Years
The changes in total real estate assets and accumulated depreciation for the years ended December 31, 2008, 2007, and 2006 are as follows:
Balance, beginning of year
New development and improvements
Disposals/Write-offs
Transfers In/(Out)
Balance, end of year
Total Real
Estate Assets
2008
$3,781,136
58,259
(136,579) (3)
(3,336)
$3,699,480
Total Real
Estate Assets
2007
$3,398,122
229,199
(23,179)
176,994 (4)
$3,781,136
Total Real
Estate Assets
2006
$3,081,324
151,428
(39,672)
Balance, beginning of year
Depreciation for year
Disposals/Write-offs
205,042 (5) Transfers In/(Out)
$3,398,122
Balance, end of year
Accumulated
Depreciation
2008
$(933,275)
(138,741)
22,425
(35)
$(1,049,626)
Accumulated
Depreciation
2007
$(821,384)
(128,358)
23,179
(6,712) (4)
Accumulated
Depreciation (6)
2006
$(651,665)
(128,488)
39,195
(80,426) (5)
$(933,275)
$(821,384)
(1) These centers are collateral for the Company’s $550 million line of credit. Borrowings under the line of credit are primary obligations of the entities owning these centers.
(2) The unaudited aggregate costs for federal income tax purposes as of December 31, 2008 was $3.664 billion.
(3) Primarily includes the writeoff of certain Oyster Bay costs. In 2008, the Company recognized a $117.9 million impairment charge on the Oyster Bay project. The remaining balance of $39.8 million as of December 31, 2008 is
included in development pre-construction costs.
Includes costs related to The Pier Shops at Caesars, which became a consolidated center in 2007.
Includes costs related to Cherry Creek Shopping Center, which became a consolidated center in 2006.
(4)
(5)
(6) Does not include depreciation of assets recoverable from tenants.
See accompanying report of independent registered public accounting firm.
F-38
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
TAUBMAN CENTERS, INC.
Date: February 24, 2009
By:
/s/ Robert S. Taubman
Robert S. Taubman, Chairman of the Board, President,
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Robert S. Taubman
Robert S. Taubman
Chairman of the Board, President,
Chief Executive Officer, and Director
(Principal Executive Officer)
February 24, 2009
/s/ Lisa A. Payne
Lisa A. Payne
Vice Chairman, Chief Financial
Officer, and Director (Principal Financial Officer)
February 24, 2009
/s/ William S. Taubman
William S. Taubman
Chief Operating Officer,
and Director
February 24, 2009
Senior Vice President, Controller, and
Chief Accounting Officer
February 24, 2009
Director
Director
Director
Director
Director
Director
February 24, 2009
February 24, 2009
February 24, 2009
February 24, 2009
February 24, 2009
February 24, 2009
/s/ Esther R. Blum
Esther R. Blum
*
Graham Allison
*
Jerome A. Chazen
*
Craig M. Hatkoff
*
Peter Karmanos, Jr.
*
William U. Parfet
*
Ronald W. Tysoe
*By:
/s/ Lisa A. Payne
Lisa A. Payne,
as Attorney-in-Fact
TAUBMAN CENTERS, INC.
Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Dividends
(in thousands, except ratios)
Exhibit 12
Earnings from continuing operations before income
from equity investees (1)
Add back:
Fixed charges
Amortization of previously capitalized interest
Distributed income of Unconsolidated Joint
Ventures (2)
Deduct:
Capitalized interest
Preferred distributions
Earnings available for fixed charges and
preferred dividends
2008
2007
2006
2005
2004
Year Ended December 31
$
(42,291)
$
75,738
$
61,596
$
14,982
$
19,900
163,667
4,575
154,332
4,391
146,103
4,329
137,837
3,843
116,584
3,612
35,356
40,498
33,544
95,249
40,070
(7,972)
(2,460)
(14,613)
(2,460)
(9,803)
(2,460)
(9,940)
(2,460)
(5,995)
(12,244)
$
150,875
$
257,886
$
233,309
$
239,511
$
161,927
Fixed Charges
Interest expense (3)
Capitalized interest
Interest portion of rent expense
Preferred distributions (4)
$
147,397
7,972
5,838
2,460
$
131,700
14,613
5,559
2,460
$
128,643
9,803
5,197
2,460
$
121,612
9,940
3,825
2,460
$
95,934
5,995
2,411
12,244
Total Fixed Charges
$
163,667
$
154,332
$
146,103
$
137,837
$
116,584
Preferred dividends (5)
14,634
14,634
23,723
27,622
17,444
Total fixed charges and preferred dividends
$
178,301
$
168,966
$
169,826
$
165,459
$
134,028
Ratio of earnings to fixed charges and
preferred dividends
0.8
(6)
1.5
1.4
1.4
1.2
(1)
(2)
Earnings from continuing operations before income from equity investees for the year ended December 31, 2008 includes a $117.9 million impairment charge related to
our Oyster Bay project.
Distributed income of Unconsolidated Joint Ventures for the year ended December 31, 2008 includes an $8.3 million impairment charge related to our investment in
University Town Center. In December 2005, a 50% owned unconsolidated joint venture sold its interest in Woodland. The Company's $52.8 million equity in the gain on
the sale is separately presented on the face of the income statement.
(3)
Interest expense for the year ended December 31, 2006 includes charges of $3.1 million in connection with the write-off of financing costs. Interest expense for the year
ended December 31, 2005 includes a $12.7 million charge incurred in connection with a prepayment premium and the write-off of financing costs.
(4)
TRG preferred distributions for the year ended December 31, 2004 include a $2.7 million charge relating to the redemption of the Series C and D Preferred Equity.
(5)
Preferred dividends for the years ended December 31, 2006 and 2005 include $4.7 million and $3.1 million, respectively, of charges recognized in connection with the
redemption of Preferred Stock.
(6) Earnings available for fixed charges and preferred dividends were less than total fixed charges and preferred dividends by $27.4 million. See Notes 1 and 2.
Exhibit 31 (a)
Certification of Chief Executive Officer
Pursuant to 15 U.S.C. Section 10A, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Robert S. Taubman, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Taubman Centers, Inc.;
Based on my knowledge, this annual report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and
Disclosed in this report any change in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting, which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize, and report financial information; and
Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial reporting.
Date: February 24, 2009
/s/ Robert S. Taubman
Robert S. Taubman
Chairman of the Board of Directors, President, and
Chief Executive Officer
Exhibit 31 (b)
Certification of Chief Financial Officer
Pursuant to 15 U.S.C. Section 10A, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Lisa A. Payne, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Taubman Centers, Inc.;
Based on my knowledge, this annual report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and
Disclosed in this report any change in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting, which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize, and report financial information; and
Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial reporting.
Date: February 24, 2009
/s/ Lisa A. Payne
Lisa A. Payne
Vice Chairman, Chief Financial Officer, and
Director (Principal Financial Officer)
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32 (a)
I, Robert S. Taubman, Chief Executive Officer of Taubman Centers, Inc. (the "Registrant"), certify that
based upon a review of the Annual Report on Form 10-K for the period ended December 31, 2008 (the
"Report"):
(i)
(ii)
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Registrant.
/s/ Robert S. Taubman
Robert S. Taubman
Chairman of the Board of Directors, President, and
Chief Executive Officer
Date: February 24, 2009
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32 (b)
I, Lisa A. Payne, Chief Financial Officer of Taubman Centers, Inc. (the "Registrant"), certify that based
upon a review of the Annual Report on Form 10-K for the period ended December 31, 2008 (the
"Report"):
(i)
(ii)
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Registrant.
/s/ Lisa A. Payne
Lisa A. Payne
Vice Chairman, Chief Financial Officer, and
Director (Principal Financial Officer)
Date: February 24, 2009
MORTGAGE AND OTHER NOTES PAYABLE (a)
INCLUDING WEIGHTED AVERAGE INTEREST RATES AT DECEMBER 31, 2008
(in millions of dollars, amounts may not add due to rounding)
100%
12/31/08
Beneficial
Interest
12/31/08
Effective
Rate
12/31/08
(b)
LIBOR
Rate
Spread
2009
2010
2011
Principal Amortization and Debt Maturities
2015
2013
2012
2014
Exhibit 99 (a)
2016
2017
Total
Consolidated Fixed Rate Debt:
Beverly Center
Cherry Creek Shopping Center
Great Lakes Crossing
MacArthur Center
Northlake Mall
Regency Square
Stony Point Fashion Park
The Mall at Short Hills
The Mall at Wellington Green
The Pier Shops at Caesars
Total Consolidated Fixed
Weighted Rate
Consolidated Floating Rate Debt:
International Plaza
The Mall at Partridge Creek (f)
Other (h)
TRG Revolving Credit
TRG $550M Revolving Credit Facility:
Dolphin Mall (j)
Fairlane Town Center (j)
Twelve Oaks Mall (j)
Total Consolidated Floating
Weighted Rate
Total Consolidated
Weighted Rate
Joint Ventures Fixed Rate Debt:
Arizona Mills
The Mall at Millenia
Sunvalley
Waterside Shops
Westfarms
Total Joint Venture Fixed
Weighted Rate
Joint Ventures Floating Rate Debt:
Fair Oaks
Taubman Land Associates
Other (h)
Total Joint Venture Floating
Weighted Rate
Total Joint Venture
Weighted Rate
TRG Beneficial Interest Totals
Fixed Rate Debt
Floating Rate Debt
Total
50.00%
95.00%
90.00%
77.50%
50.10%
50.00%
50.00%
50.00%
25.00%
78.94%
50.00%
50.00%
333.7
280.0
137.9
132.5
215.5
75.4
108.9
540.0
200.0
135.0
2,158.9
5.59%
325.0
72.8
0.2
10.9
139.0
80.0
10.0
637.9
3.76%
2,796.8
5.18%
134.1
208.2
123.7
165.0
192.2
823.3
6.05%
250.0
30.0
0.6
280.6
4.40%
1,103.9
5.63%
2,982.2
5.72%
918.5
3.96%
3,900.7
5.31%
5.28%
5.24%
5.25%
6.93% (c)
5.41%
6.75%
6.24%
5.47%
5.44%
6.01%
5.01% (d)
2.27% (g)
3.25%
1.13% (i)
2.60% (g)
2.60% (g)
2.60% (g)
7.90%
5.46%
5.67%
5.54%
6.10%
4.22% (l)
5.95% (m)
3.25%
333.7
140.0
137.9
125.9
215.5
75.4
108.9
540.0
180.0
104.6
1,962.0
5.61%
162.8
72.8
0.1
10.9
139.0
80.0
10.0
475.6
3.34%
2,437.6
5.17%
67.1
104.1
61.9
41.3
151.7
426.0
6.11%
125.0
15.0
0.4
140.4
4.40%
566.4
5.69%
2,388.0
5.70%
616.0
3.58%
3,004.0
5.26%
Average Maturity Fixed Debt
Average Maturity Total Debt
5.4
2.7
3.0
1.3
1.6
5.7
2.9
122.9
1.4
1.8
6.0
3.0
72.7
1.9
6.3
3.2
6.6
303.8
126.0
2.0
2.1
99.5
140.0
215.5
14.1
5.88%
134.6
6.81%
83.6
6.58%
11.4
5.44%
134.8
5.27%
403.3
5.52%
540.0
180.0
720.0
5.46%
355.5
5.34%
104.6
104.6
6.01%
1.15%
72.8
0.1
0.70%
0.70%
0.70%
72.8
2.27%
207.4
5.22%
66.0
1.5
1.2
2.9
71.7
7.73%
0.1
0.1
3.25%
71.8
7.73%
206.3
7.13%
72.9
2.27%
279.2
5.86%
0.1
3.25%
14.2
5.85%
1.0
1.4
1.2
2.7
6.3
6.17%
0.3
0.3
3.25%
6.6
6.05%
20.4
5.97%
0.4
3.25%
20.8
5.91%
5
5
162.8 (e)
10.9
139.0 (k)
80.0 (k)
10.0 (k)
402.7
3.53%
486.3
4.06%
1.6
1.3
3.1
6.0
5.84%
125.0 (e)
125.0
4.22%
131.0
4.29%
89.6
6.53%
527.7
3.70%
617.3
4.11%
0.0
0.00%
11.4
5.44%
1.6
58.2
142.9
202.7
5.97%
15.0
15.0
5.95%
217.7
5.97%
214.1
5.94%
15.0
5.95%
229.1
5.94%
0.0
0.00%
403.3
5.52%
0.0
0.00%
720.0
5.46%
0.0
0.00%
355.5
5.34%
0.0
0.00%
104.6
6.01%
0.0
0.00%
134.8
5.27%
98.1
98.1
5.46%
0.0
0.00%
0.0
0.00%
0.0
0.00%
98.1
5.46%
232.9
5.35%
0.0
0.00%
232.9
5.35%
0.0
0.00%
0.0
0.00%
403.3
5.52%
0.0
0.00%
403.3
5.52%
0.0
0.00%
0.0
0.00%
720.0
5.46%
0.0
0.00%
720.0
5.46%
41.3
41.3
5.54%
0.0
0.00%
41.3
5.54%
396.8
5.36%
0.0
0.00%
396.8
5.36%
0.0
0.00%
0.0
0.00%
0.0
0.00%
104.6
6.01%
0.0
0.00%
104.6
6.01%
333.7
140.0
137.9
125.9
215.5
75.4
108.9
540.0
180.0
104.6
1,962.0
162.8
72.8
0.1
10.9
139.0
80.0
10.0
475.6
2,437.6
67.1
104.1
61.9
41.3
151.7
426.0
125.0
15.0
0.4
140.4
566.4
2,388.0
616.1
3,004.0
(a) All debt is secured and non-recourse to TRG unless otherwise indicated.
(b) Includes the impact of interest rate swaps, if any, but does not include effect of amortization of debt issuance costs,
losses on settlement of derivatives used to hedge the refinancing of certain fixed rate debt, or interest rate cap premiums.
(c) Debt includes $1.3 million of purchase accounting premium from acquisition which reduces the stated rate on the
debt of 7.59% to an effective rate of 6.93%.
(d) Debt is swapped to an effective rate of 5.01% until maturity.
(e) Two one year extension options available.
(f) TRG has guaranteed certain obligations of Partridge Creek.
(g) The debt is floating month to month at LIBOR plus spread.
(h) Debt is unsecured.
(i) $40 million available; rate floats daily.
(j) TRG revolving credit facility of $550 million. Dolphin, Fairlane and Twelve Oaks are the direct
borrowers under this facility. Debt is guaranteed by TRG.
(k) One year extension option available.
(l) Debt is swapped to an effective rate of 4.22% until maturity.
(m) Debt is swapped to an effective rate of 5.95% until maturity.
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2008
(in thousands)
Exhibit 99 (b)
Initial Cost
to Company
Gross Amount at Which
Carried at Close of Period
Buildings,
Improvements,
and Equipment
$ 150,581
36,043
177,774
41,668
66,010
67,115
38,638
Land
$ 22,017
7,667
22,516
9,537
350
12,604
5,287
42,697
1,547
Cost
Capitalized
Subsequent to
Acquisition
Land
BI&E
Total
$
6,529
64,957
7,032
84,088
13,090
86,050
120,931
$ 22,017
7,667
22,516
9,537
350
12,604
5,287
$ 157,110
101,000
184,806
125,756
79,100
153,165
159,569
$ 179,127
108,667
207,322
135,293
79,450
165,769
164,856
42,697
1,547
42,697
1,547
Accumulated
Depreciation
(A/D)
$ 51,214
53,814
46,494
49,190
52,649
36,315
76,492
Total Cost
Net of A/D
$ 127,913
54,853
160,828
86,103
26,801
129,454
88,364
42,697
1,547
Date of
Completion of
Construction
or Acquisition
1997
1980
2002
1982
1967
2003
1974
Depreciable
Life
50 Years
55 Years
50 Years
40 Years
40 Years
40 Years
34 Years
Encumbrances
$134,139
250,000
208,246
123,708
165,000
192,200
30,000
2006
Shopping Centers:
Arizona Mills, Tempe, AZ
Fair Oaks, Fairfax, VA
The Mall at Millenia, Orlando, FL
Stamford Town Center, Stamford, CT
Sunvalley, Concord, CA
Waterside Shops, Naples, FL
Westfarms, Farmington, CT
Other:
Taubman Land Associates
(Sunvalley), Concord, CA
Peripheral Land
Construction in Process and
Development Pre-Construction Costs
Total
$ 124,222
$ 577,829
2,613
$ 385,290
$ 124,222
2,613
$ 963,119
2,613
$1,087,341 (1)
$ 366,168
2,613
$ 721,173
The changes in total real estate assets and accumulated depreciation for the years ended December 31, 2008, 2007, and 2006 are as follows:
Balance, beginning of year
New development and improvements
Acquisitions
Disposals/Write-offs
Transfers In/(Out)
Balance, end of year
Total Real
Estate Assets
2008
$1,056,380
47,908
(16,947)
$1,087,341
Total Real
Estate Assets
2007
$1,157,872
78,885
(3,907)
(176,470) (3)
$1,056,380
Total Real
Estate Assets
2006
$1,076,743
48,800
42,697 (2)
(8,272)
(2,096) (4)
$1,157,872
Balance, beginning of year
Depreciation for year
Disposals/Write-offs
Transfers In/(Out)
Balance, end of year
Accumulated
Depreciation
2008
$ (347,459)
(36,108)
16,676
723
$ (366,168)
Accumulated
Depreciation
2007
$ (320,256)
(33,173)
3,928
2,042 (3)
$ (347,459)
Accumulated
Depreciation
2006
$ (363,394)
(40,224)
8,270
75,092 (4)
$ (320,256)
(1) The unaudited aggregate cost for federal income tax purposes as of December 31, 2008 was $1.331 billion.
Includes costs related to the purchase of the land under Sunvalley, acquired by a 50% owned joint venture.
(2)
(3)
Includes costs related to The Pier Shops at Caesars, which became a consolidated center in 2007.
(4) Primarily includes a $174.8 million transfer out of costs relating to Cherry Creek Shopping Center, which became a consolidated center in 2006, offset by a $176.5 million transfer in of costs relating to The Pier Shops at
Caesars.
C O R E N O I G R O W T H : R E C O N C I L I AT I O N O F
N E T I N C O M E T O N E T O P E R AT I N G I N C O M E 1
(in millions of dollars; amounts may not add due to rounding)
Year Ended
Net income (loss)
Depreciation and amortization
Preferred interests, interest expense, and income tax expense
Minority interests
EBITDA allocations to outside partners
EBITDA at 100%
Items excluded from shopping center Net Operating Income 2
Net Operating Income – all centers at 100% 3
Less – Net Operating Income of non-comparable centers 3
Net Operating Income at 100% 3
Net Operating Income – growth % 3
2008
2007
(72.0)
63.1
158.1 143.7
165.1 153.2
45.6
122.2 116.6
54.1
427.5 522.2
17.1
148.8
576.3 539.3
4.6
15.3
561.0 534.7
4.9%
1 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 (rental income, excluding
straightline adjustments of minimum rent, tenant recoveries, and other shopping center-related income) less maintenance, taxes, utilities,
ground rent, and other property operating expenses. Since NOI excludes general and administrative expenses, pre-development
charges, interest expense, depreciation and amortization, and gains from 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.
Core Net Operating Income includes centers that have been owned and open for the two periods being compared. The composition of
core centers changes as centers are opened, acquired, or sold.
2 Items excluded from shopping center Net Operating Income in 2008 include impairment charges of $117.9 million and $8.3 million
related to investments in our Oyster Bay and Sarasota projects, respectively.
3 Excludes all lease cancellation revenue.
Ta u b m a n C e n t e rs , I n c .
O F F I C E R S A N D D I R E C T O R S
Taubman Centers, Inc.
Board of Directors
Graham T. Allison (3, 4)
Professor
Harvard University
Jerome A. Chazen (1, 2)
Chairman
Chazen Capital Partners
Chairman Emeritus
Liz Claiborne, Inc.
Craig M. Hatkoff (2, 3)
Former Vice Chairman
Capital Trust, Inc.
Peter Karmanos, Jr. (2)
Chairman and
Chief Executive Officer
Compuware Corporation
William U. Parfet (1, 3)
Chairman and
Chief Executive Officer
MPI Research
Lisa A. Payne
Vice Chairman
Chief Financial Officer
Taubman Centers, Inc.
Robert S. Taubman (4)
Chairman of the Board
President and Chief Executive Officer
Taubman Centers, Inc.
William S. Taubman
Chief Operating Officer
Taubman Centers, Inc.
Ronald W. Tysoe (1, 4)
Former Vice Chairman
Finance and Real Estate
Federated Department Stores
(Now Macy’s, Inc.)
The Taubman Company LLC
Senior Officers and
Operating Committee
Founder
A. Alfred Taubman
Robert S. Taubman
Chairman of the Board
President and Chief Executive Officer
Lisa A. Payne
Vice Chairman
Chief Financial Officer
William S. Taubman
Chief Operating Officer
Denise Anton
Senior Vice President
Center Operations
Esther R. Blum (5)
Senior Vice President
Controller and Chief
Accounting Officer
Steven E. Eder (6)
Senior Vice President
Capital Markets and Treasurer
Chris B. Heaphy (7)
Senior Vice President
General Counsel and Secretary
Stephen J. Kieras
Senior Vice President
Development
Robert R. Reese
Senior Vice President
Chief Administrative Officer
David T. Weinert
Senior Vice President
Leasing
Morgan B. Parker
President
Taubman Asia Management Limited
(1) Audit Committee Member
(2) Compensation Committee
Member
(3) Nominating and Corporate
Governance Committee Member
(4) Executive Committee Member
(5) Also serves as Senior Vice
President, Controller and
Chief Accounting Officer of
Taubman Centers, Inc.
(6) Also serves as Treasurer of
Taubman Centers, Inc.
(7) Also serves as Assistant Secretary
of Taubman Centers, Inc.
Ta u b m a n C e n t e rs , I n c .
Ta u b m a n C e n t e rs , I n c . p a g e 1 6
S H A R E O W N E R I N F O R M AT I O N
Corporate Headquarters
Taubman Centers, Inc.
200 East Long Lake Road, Suite 300
Bloomfield Hills, MI 48304-2324
248.258.6800
Asia
Taubman Asia Management Limited
1/F Aon China Building
Central, Hong Kong
852.3607.1333
Use of Taubman
For ease of use, references in this report to “Taubman
Centers” or “Taubman” mean Taubman Centers, Inc. or
one or more of a number of separate, affiliated entities.
However, business is actually conducted by an affiliated
entity rather than Taubman Centers, Inc. itself.
Quarterly Share Price and
Dividend Information
The common stock of Taubman Centers, Inc. is listed
and traded on the New York Stock Exchange (Symbol
TCO). The following table represents the dividends and
range of closing share prices for each quarter of 2008:
Market Quotations
2008 Quarter Ended
March 31
June 30
September 30
December 31
High
$55.70
Low Dividends
$0.415
$43.93
58.05
55.40
48.19
48.65
43.35
18.69
0.415
0.415
0.415
Independent Registered
Public Accounting Firm
KPMG LLP
Chicago, IL
Shareowner Inquiries
Barbara K. Baker
Vice President, Investor Relations
The Taubman Company LLC
200 East Long Lake Road, Suite 300
Bloomfield Hills, MI 48304-2324
248.258.7367
bbaker@taubman.com
Our Website
www.taubman.com
Investor information includes press releases, corporate
governance information, our Code of Business Conduct
and Ethics, SEC filings, and webcasts of quarterly
earnings conference calls.
Confidential Hotline
1.800.500.0333
Independent, confidential hotline to be used to report
concerns regarding possible accounting, internal
accounting control or auditing matters, or fraudulent
acts which may compromise our ethical standards.
Other means of reporting concerns are identified in the
Investing Corporate Governance section of our website.
Design: SAMATAMASON Editorial: CHRISTOPHER TENNYSON Printing: COLORTECH GRAPHICS
Dividend Reinvestment and
Direct Stock Purchase Plan
The Dividend Reinvestment and Direct Stock Purchase
Plan – sponsored and administrated by The Bank of
New York Mellon – provides owners of common stock
a convenient way to reinvest dividends and purchase
additional shares. In addition, investors who do not
currently own any Taubman Centers’ stock can make an
initial investment through this program. A plan descrip-
tion can be viewed online on BNY Mellon Shareowner
Services website: www.bnymellon.com/shareowner
(Select “Investors” and then select “Enroll in a direct
stock purchase plan.”)
For questions about this plan or your account, call:
1.888.877.2889
For a brochure and enrollment form, call:
1.866.353.7849
Publications
Taubman Centers’ annual report on Form 10-K and
quarterly reports on Form 10-Q are available free of
charge from our Corporate Affairs Department or can
be viewed online at www.taubman.com. A Notice of
Annual Meeting of Shareholders and Proxy Statement
are furnished in advance of the annual meeting to all
shareowners entitled to vote at the annual meeting.
Annual Meeting
The 2009 Taubman Centers, Inc. Annual Meeting
will be held on Friday, May 29 at The Townsend
Hotel in Birmingham, Michigan. The meeting will
begin at 11:00 a.m. Eastern Time.
Transfer Agent And Registrar
BNY Mellon Shareowner Services
P.O. Box 358016
Pittsburgh PA 15252-8016
1.888.877.2889
www.bnymellon.com/shareowner/isd
Certifications
On June 26, 2008 the Annual CEO Certification was
submitted to the NYSE pursuant to Section 303A.12 of
the NYSE’s listing standards, whereby our CEO certi-
fied that he is not aware of any violation by Taubman
Centers, Inc. of the NYSE’s corporate governance listing
standards as of the date of the certification. In addition,
Taubman Centers, Inc. has filed with the SEC, as
exhibits to its Quarterly Reports on Form 10-Q for the
quarters ended March 31, June 30, and September 30,
2008, and our Annual Report on Form 10-K for the
year ended December 31, 2008, certifications by our
CEO and CFO in accordance with Sections 302 and
906 of the Sarbanes-Oxley Act of 2002.
Taubman Centers, Inc.
200 East Long Lake Road, Suite 300
Bloomfield Hills, Michigan 48304-2324
www.taubman.com