12719 Cover 3/23/10 10:18 AM Page 1
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Over the last 60 years we’ve proven that patience and planning
are compatible with performance.
We’ve demonstrated that we create value in good times and
bad through strategic development and intensive management
of our highly productive properties.
And as we assess the evolving competitive and economic
landscape ahead, we’re well positioned and well prepared to
create growth over time.
Ta ubman Centers, Inc .
200 East Long Lake Road, Suite 300
Bloomfield Hills, Michigan 48304-2324
www.taubman.com
We’ve always operated
with a long view…
12719 Cover 3/23/10 10:18 AM Page 2
lette r to shar eowne rs
sha r eo wne r i nfo r ma ti on
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 2009:
m ark et quot at ions
2009 quarter ended
high
low
dividends
March 31
June 30
September 30
December 31
$ 26.79
$ 13.56
$ 0.415
28.16
37.37
37.66
16.65
22.55
30.40
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, supplemental
investor information, corporate governance information,
our Code of Business Conduct and Ethics, SEC filings,
and webcasts of quarterly earnings conference calls.
Design: SAMATAMASON Editorial: CHRISTOPHER TENNYSON Printing: COLORTECH GRAPHICS
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.
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 con-
venient way to reinvest dividends and purchase additional
shares. In addition, investors who do not currently own
any Taubman Centers’ stock can make an initial invest-
ment through this program. A plan description can be
viewed online on BNY Mellon Shareowner Services
website: www.bnymellon.com/shareowner (Select
“Investors” and then select “Enroll in a direct stock
For questions about this plan or your account, call:
For a brochure and enrollment form, call:
purchase plan.”)
1.888.877.2889
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 and downloaded 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 2010 Taubman Centers, Inc. Annual Meeting will
be held on Friday, May 21 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
12719 Text 3/19/10 5:23 PM Page 1
Surviving the most challenging economic environment
we’ve faced in our 60 years in business, it makes sense to
highlight the strengths that helped us navigate 2009.
Our properties are the most productive and consistent in
the shopping center industry; our balance sheet is strong;
our people are exceptional; and our historic development
capabilities position us well for external growth. Taking
a long view, we can look forward with confidence in the
proven ability of these strengths to create long-term
value, regardless of the ever-changing landscape ahead.
I began last year’s annual report by observing that businesses around the
world were operating in a “dramatically deteriorating environment.”
A year ago we were facing frozen markets, consumer confidence at
all-time lows, and paralyzing uncertainty over what would come next.
My gloomy prognosis was correct. Fortunately, we did begin to see
signs of stabilization as the year progressed. It now appears that retail
sales bottomed out in September with the anniversary of the Lehman
collapse and staged a much-welcomed single-digit recovery during the
holiday season.
12719 Text 3/19/10 5:23 PM Page 2
Ta u b m a n C e n t e rs , I n c . p a g e 2
a n i m p r o v i n g o u t l o o k
f o r s a l e s a n d l e a s i n g
While mall tenant sales for the year ended December 31, 2009, were
down 6.7 percent, the 3.8 percent increase we achieved in the fourth
quarter is a positive sign of what we believe will be modest improvement
throughout 2010. Sales are the most important measure of a portfolio’s
overall strength and the best predictor of the leasing environment ahead.
Our 2009 sales of $498 per square foot once again were the highest in
the industry and very much in line with what we predicted at the
beginning of the year. In fact, the spread over our closest competitors
actually widened during the year.
Leased space at year end was flat compared to the prior year, ending
just under 92 percent, with rent per square foot for our consolidated
portfolio at $43.31, down 1 percent from 2008. Thanks to their strong
tenant relationships and extraordinary dedication, the Taubman leasing
team executed nearly as many leases in 2009 as they did in 2008. We also
achieved record temporary inline tenant leasing of about 4 percent of
our space, which is not included in our year end occupancy numbers.
We continue to believe strongly in the resilience of the regional mall, and
its value proposition to the consumer. Retailers agree, and with cautious
optimism are beginning to increase their capital expenditures. Clearly,
with 85 percent of the leasing required to achieve our budgeted income
for 2010 committed – at opening rents 5 percent higher than 2009 – our
leasing outlook is improving.
100.00
1999
111.03
2000
162.58
2001
190.00
2002
254.59
2003
12719 Text 3/19/10 5:23 PM Page 3
L e t t e r t o S h a r e o w n e rs p a g e 3
L e t t e r t o S h a r e o w n e rs p a g e 3
The successful opening in December 2009 of Crystals at CityCenter
in Las Vegas further demonstrated the effectiveness of our leasing
capabilities. Taubman is responsible for the merchandising and leasing
of this mixed-use project’s 500,000 square foot retail and entertainment
district. This is the best collection of luxury tenants ever assembled in a
new project. With one of the largest Louis Vuitton stores in the world, as
well as the market’s flagship stores for such international merchants as
Tiffany, Prada, Gucci, Roberto Cavalli, and Zegna, Crystals has clearly
achieved its vision to be the preeminent luxury shopping destination in
Las Vegas.
m a i n t a i n i n g a s t r o n g b a l a n c e s h e e t
a n d m a n a g i n g c o s t s
Thanks to the strength of our balance sheet, we were one of only a
handful of U.S. REITs who weren’t forced to sell assets or raise common
equity in 2009. For most, these actions came at the market’s weakest
moments and created significant dilution for their shareholders.
1 2 4 ÷ 7 0 0 . 9 1 = * 0 . 1 7 6 9
c o m p a r i s o n o f
c u m u l a t i v e t o t a l r e t u r n (%)
Taubman Centers Inc.
FTSE NAREIT AII REIT Index,
Property Sector: Retail
MSCI US REIT Index
S&P 500 Index
698.33
700.91
464.92
386.26
376.75
2004
2005
2006
2007
2008
565.82
305.87
269.68
90.90
2009
12719 Text 3/19/10 5:23 PM Page 4
Ta u b m a n C e n t e rs , I n c . p a g e 4
Unlike many of our competitors, we had no debt maturities in 2009,
face only modest debt maturities in 2010, and enjoy a solid interest
coverage ratio of 2.7 times. Further, our balance sheet allows us to
consider opportunities as they arise.
I’m also pleased that our strong financial fundamentals never put in doubt
the Taubman Centers Board’s decision to maintain our cash dividend,
while many of our peers had to cut or issue theirs partially in stock.
We’ve paid and never reduced our quarterly cash dividends for the 17
years we’ve been a public company. Validating the wisdom of our long
view, we finished the 10-year period ended December 31, 2009, among
the top 10 of all U.S. REITs for total shareholder returns.
Throughout 2009 we continued the intensive management of our
properties to enhance their market positions while aggressively
controlling costs. Our corporate and center operations teams did a superb
job of prioritizing expenditures. An important part of this cost-saving
effort has been to keep our properties’ common area maintenance (CAM)
costs, which are paid by our tenants, as low as possible. A priority for
2010 is to continue holding CAM expenses down while maintaining
the attractiveness of our centers.
1.33
0.985
2000
1.56
1.005
2001
1.75
1.025
2002
2.00
1.050
2003
2.16
1.095
2004
12719 Text 3/19/10 5:23 PM Page 5
L e t t e r t o S h a r e o w n e rs p a g e 5
Funds from Operations (FFO) per diluted share for the year ended
December 31, 2009, was $0.68 compared to $1.51 for 2008. These
bottom line results were negatively impacted by restructuring charges
related to a reduction in force, asset impairments and litigation settlement
costs. Adjusted FFO per diluted share (which excludes these charges)
was $3.06, down 0.6 percent, or 2 cents, from 2008.
p r e p a r i n g f o r
e x t e r n a l g r o w t h
Since our company was founded in 1950, development has been one of
our most important differentiating core competencies, and the primary
driver of our external growth.
By every measure, the last 18 months have been inhospitable to new mall
development in the United States, which has virtually ground to a halt.
Before any new project can move forward it is going to need to pass
through four decision “gates.”
2.36
1.160
2005
2.65
1.290
2006
1 2 4 ÷ 3 . 0 8 = * 4 0 . 2 5 9 7
a d j u s t e d f f o p e r s h a r e ($)
d i v i d e n d p e r s h a r e ($)
2.88
1.540
3.08
3.06
1.660
1.660
2007
2008
2009
12719 Text 3/19/10 5:23 PM Page 6
Ta u b m a n C e n t e rs , I n c . p a g e 6
First, there has to be department store interest in the site. Department
stores are beginning to look forward again, but it will likely be at least
another 12 months before department store anchors commit to a new
mall. Second, you need sufficient specialty store enthusiasm to achieve rent
levels high enough to support new construction. If sales continue to
increase, retailers will likely be ready to help underwrite a new center.
Third, you need to be able to project with confidence investment returns
demanded by today’s capital costs. And finally, in the current capital-
constrained environment – especially for real estate – construction
financing, if available, would require substantial levels of equity and
recourse. Right now, no one can pass confidently through any one of
these four gates.
We have responded to this unprecedented environment with patience
and preparedness. Our best guess is the earliest a new project could
move forward is in the second half of 2011, with two more years for
construction before opening. Having put a number of the promising
projects in our pipeline on hold, we remain committed to development
and convinced that selected opportunities – in the U.S. and in Asia –
pursued with careful planning and fiscal prudence, will deliver strong
long-term returns. Operating with a long view, we understand popula-
tion growth will inevitably create demand for new retail capacity, and
down economic cycles don’t last forever.
466
465
457
441
466
2000
2001
2002
2003
2004
12719 Text 3/19/10 5:23 PM Page 7
L e t t e r t o S h a r e o w n e rs p a g e 7
One reason for our enthusiasm for development in the future is the solid
track record of our most recent development projects. Analyzing the
internal rates of return for the nine centers we developed in the last decade,
it becomes clear that development has been a rewarding business for
Taubman.
Over the last decade our U.S. developments – representing a total capital
investment of about $2 billion, including all predevelopment expenses
during the period and the costs related to projects in Sarasota and Oyster
Bay – have delivered a leveraged internal rate of return of approximately
26 percent at a terminal cap rate of 7 percent. (Terminal values are based
on 2009 net operating income.) Assuming a historically conservative
cap rate of 8 percent, the return would be approximately 22 percent.
These assets – listed on page 8 – on average are at least equal in quality
to our portfolio average.
Even after assuming a far less favorable leverage and interest rate
environment than the one we’ve enjoyed over the last 10 years – more
representative of current conditions – the internal rate of return would
at worst have been in the mid to high teen range. On an unlevered basis,
the internal rate of return is in the range of 11 to 13 percent, depending
on the cap rate assumed. (Further details on this analysis are found on
the notes and reconciliations page at the end of this report.)
508
529
555
533
498
1 2 4 ÷ 5 5 5 = * 0 . 2 2 3 4
t e n a n t s a l e s
p e r s q u a r e f o o t ($)
2005
2006
2007
2008
2009
12719 Text 3/19/10 5:24 PM Page 8
Ta u b m a n C e n t e rs , I n c . p a g e 8
t a u b m a n d e v e l o p m e n t s
1 9 9 9 - 2 0 0 9
project
MacArthur Center
Dolphin Mall
The Shops at Willow Bend
International Plaza
The Mall at Wellington Green
The Mall at Millenia
Stony Point Fashion Park
Northlake Mall
The Mall at Partridge Creek
opening year
1999
2001
2001
2001
2001
2002
2003
2005
2007
investment
through 12/2009
$ 159 million
$ 320 million
$ 265 million
$ 340 million
$ 220 million
$ 207 million
$ 109 million
$ 171 million
$ 147 million
We’re also under construction at City Creek Center in the heart of Salt
Lake City, Utah, one of only two regional malls being built in the U.S.
today. Scheduled to open in 2012, this 700,000 square foot center is
anchored by Nordstrom and Macy’s, and is surrounded by 20 acres
of attractive new residential and office offerings. We expect to invest
$76 million in this project, with an 11 – 12 percent cash-on-cash return
at stabilization. Further, we’re readying the best projects in our
pipeline to go forward when the economy rebounds and the lending
environment improves.
93.8
87.7
90.3
89.8
90.7
2000
2001
2002
2003
2004
12719 Text 3/19/10 5:24 PM Page 9
L e t t e r t o S h a r e o w n e rs p a g e 9
f u t u r e o p p o r t u n i t i e s
i n a s i a
For many years the Asian economies have been growing at a much
faster pace than the U.S., and these economies have shown incredible
resilience coming out of the recent financial crisis. This economic and
income growth is translating into increasingly higher retail sales, as an
enormous consumer class is emerging.
In many Asian markets there is a shortage of well-designed and well-
managed retail space. We believe this creates a very attractive opportunity
for our core competencies in design, leasing and management, which are
value-added points of difference for us. We went to Asia to underpin and
augment our new development opportunities and believe that eventually
Taubman Asia will have the ability to invest similar amounts of capital
with comparable levels of return as we do in the U.S. Having developed
good brand awareness in the region and gained valuable internal
knowledge of how to work in Asia, we’ve created a solid platform to
build on.
We’re committed to Taubman Asia, with about 20 people currently on
staff in South Korea and Hong Kong. We’re also well along in a search for
a new president. I’m pleased to report there are many strong candidates
to lead this important component of our external growth strategy.
91.7
92.5
93.8
92.0
91.6
1 2 4 ÷ 9 3 . 8 = * 1 . 3 2 1 9
l e a s e d
s p a c e (%)
2005
2006
2007
2008
2009
12719 Text 3/19/10 5:24 PM Page 10
Ta u b m a n C e n t e rs , I n c . p a g e 1 0
r e a d y f o r
r e c o v e r y
Last year every Taubman employee joined me in signing the letter to
shareowners in our annual report. That represented our collective
determination to emerge from the recession a stronger and more
competitive company. I would like to congratulate my colleagues for
making good on that promise.
On behalf of the Taubman Centers Board of Directors, I would also
like to thank you, our shareowners, for believing in our long view and
continuing to trust in our ability to create value, as we have through
the many economic cycles of the last 60 years.
Robert S. Taubman
Chairman of the Board,
President & Chief Executive Officer
12719 Text 3/19/10 5:24 PM Page 11
2 0 0 9
t a u b m a n c e n t e r s
f o r m 1 0- k
12719 Text 3/19/10 5:24 PM Page 12
Ta u b m a n C e n t e rs , I n c . p a g e 1 2
2 0 0 9 p o r t f o l i o
Arizona Mills
Tempe, AZ
arizonamills.com
Beverly Center
Los Angeles, CA
beverlycenter.com
Shops at Charleston Place
Charleston, SC
(leasing services)
Cherry Creek
Shopping Center
Denver, CO
shopcherrycreek.com
City Creek Center
Salt Lake City, UT
(under development)
shopcitycreekcenter.com
Crystals at CityCenter
Las Vegas, NV
(leasing & development services)
crystalsatcitycenter.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
(leasing and management)
shopwoodfield.com
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, 2009.
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
No
the registrant was required to submit and post such files).
Yes
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).
Large Accelerated Filer
Smaller reporting company
Non-Accelerated Filer
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 52,059,790 shares of Common Stock held by non-affiliates of the registrant as of June 30, 2009 was $1.4
billion, based upon the closing price $26.86 per share on the New York Stock Exchange composite tape on June 30, 2009. (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 24, 2010,
there were outstanding 54,326,934 shares of Common Stock.
Portions of the proxy statement for the annual shareholders meeting to be held in 2010 are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
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
Item 15.
Exhibits, Financial Statement Schedules
PART IV
2
9
16
16
21
21
22
24
25
51
51
51
51
51
51
51
52
52
52
53
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, acquire, dispose of, develop, expand, and manage regional and super-regional shopping
centers. Our portfolio as of December 31, 2009 consisted of 23 owned 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 17 and 18 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 2009, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations (MD&A)." The loan encumbering The Pier Shops at Caesars
(The Pier Shops) is currently in default, and the loan obligation will be extinguished upon transfer of the title of the
center, which is expected to occur in 2010 (see “MD&A – Results of Operations – Impairment Charges – The Pier
Shops at Caesars”). Consequently, The Pier Shops has been excluded from operating statistics in 2009 and 2008
and certain other information as indicated.
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.
2
Business of the Company
We are engaged in the ownership, management, leasing, acquisition, disposition, development, and expansion
of regional shopping centers.
The centers:
• are strategically located in major metropolitan areas, many in communities that are among the most affluent in
the country, including Charlotte, Dallas, Denver, Detroit, Los Angeles, Miami, New York City, Orlando,
Phoenix, San Francisco, Tampa, and Washington, D.C.;
•
range in size between 295,000 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 leased Mall GLA to national chains, including subsidiaries or divisions of Forever 21
(Forever 21, For Love 21, XXI Forever, and others), The Gap (Gap, Gap Kids/Baby Gap, Banana Republic,
Old Navy, 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 2009, mall tenants reported average sales per square foot of $498, excluding The Pier Shops,
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 owned centers,
20 had annual rent rolls at December 31, 2009 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
3
• provide innovative initiatives, including those that utilize technology and the Internet, to increase revenues,
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.
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 leasing space to prospective tenants
that would 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 37% of leases in our portfolio as of December 31, 2009 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 U.S. recession and global credit environment have continued to negatively impact certain
of our planned development projects and the potential for new projects. We have reduced spending on
development projects by slowing down or by putting projects on hold. Consistent with this reduction, in 2009, we
went through the process of downsizing our organization, reducing our overall workforce by about 40 positions.
See “MD&A – Results of Operations – Restructuring” for further information. This primarily impacted the areas that
directly or indirectly support these development initiatives. We believe we are 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. We do not know how long the effects of the recession will continue to
impact our operations and prospects for new projects, but we believe the regional mall business will continue to
prove its resiliency and its unique value proposition to the customer. See “MD&A –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 agreements, subject to certain conditions, regarding City Creek Center, a
mixed-use project in Salt Lake City, Utah and continue to work toward an early 2012 opening. The 0.7 million
square foot retail component of the project will include Macy’s and Nordstrom as anchors. We are currently
providing development and leasing services and will be the manager for the retail space, which we will own under
a participating lease. See “MD&A – Liquidity and Capital Resources – Capital Spending” regarding additional
information on City Creek Center.
4
In addition, we continue to work on and evaluate various development possibilities for new centers both in the
United States and Asia. We expect however, that with current economic and capital market conditions, few new
retail centers will be built in the U.S. over the next two years. We expect that in three to five years, with growth in
population, there will be more demand for new centers. We are also working with a consultant with deep expertise
in Asia to reassess the market opportunity and address the geographies, products, and services we intend to
pursue.
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.
Nordstrom opened as an anchor at Waterside Shops (Waterside) in November 2008 and an expansion and full
renovation of the current anchor, Saks Fifth Avenue, was completed in the second half of 2008.
5
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). The amounts in the table exclude The Pier Shops, and in 2009 and
2008, exclude spaces with greater than 10,000 square feet:
2009
2008
2007
2006
2005
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
$43.31
44.49
$45.19
51.10
681,773
218,953
$41.70
48.64
832,451
259,457
$3.49
2.46
$43.95
44.61
$54.78
59.36
589,730
340,275
$49.60
48.72
650,607
342,698
$5.18
10.64
$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
$39.57
42.49
$40.59
44.26
911,986
246,704
650,701
366,932
$7.96
(0.58)
$1.68
0.49
$1.79
0.64
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 2009 were
generally negotiated in a declining sales and tight capital environment, whereas openings in 2008 and 2007 were
generally negotiated in a rising sales environment. However, the releasing spread per square foot of the
Unconsolidated Joint Ventures in 2007 was adversely impacted by the opening of large tenant spaces.
6
Lease Expirations
The following table shows scheduled lease expirations for mall tenants based on information available as of
December 31, 2009 for the next ten years for all owned centers in operation at that date, with the exception of The
Pier Shops:
Lease
Expiration
Year
2010 (1)
2011
2012
2013
2014
2015
2016
2017
2018
2019
Number of
Leases
Expiring
149
441
358
359
263
283
252
298
207
164
Leased Area in
Square Footage
467,010
1,421,747
1,364,090
1,427,653
943,793
1,018,630
917,124
1,258,726
937,719
754,341
Annualized Base Rent
Under Expiring Leases
(in thousands of dollars)
14,626
51,215
52,753
51,080
34,860
38,836
36,851
53,269
40,906
29,228
Annualized Base
Rent Under
Expiring Leases
Per Square Foot
$31.32
36.02
38.67
35.78
36.94
38.13
40.18
42.32
43.62
38.75
Percent of
Total Leased
Square Footage
Represented by
Expiring Leases
4.1%
12.4
11.9
12.5
8.2
8.9
8.0
11.0
8.2
6.6
(1) Excludes leases that expire in 2010 for which renewal leases or leases with replacement tenants have been executed as of
December 31, 2009.
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 2004 to 2009 was approximately one year.
The average term of leases signed was approximately six years during 2009 and approximately seven years
during 2008.
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 2009, tenants representing 4.1% of
leases filed for bankruptcy during the year compared to 2.5% in 2008. 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 2009 and 2008 statistics exclude The Pier Shops.
Leased space
Ending occupancy
Average occupancy
Major Tenants
2009
91.6%
89.6
89.0
2008
92.0%
90.5
90.5
2007
93.8%
91.2
90.0
2006
92.5%
91.3
89.2
2005
91.7%
90.0
88.9
No single retail company represents 10% or more of our Mall GLA or revenues. The combined operations of
Forever 21 accounted for less than 4% of Mall GLA as of December 31, 2009 and less than 3% of 2009 minimum
rent. No other single retail company accounted for more than 3.5% of Mall GLA as of December 31, 2009 or 5%
of 2009 minimum rent.
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The following table shows the ten mall tenants who occupy the most space at our centers and their square
footage as of December 31, 2009:
Tenant
Forever 21 (Forever 21, For Love 21, XXI Forever, and others)
The Gap (Gap, Gap Kids, Baby Gap, Banana Republic, Old Navy, and others)
Limited Brands (Bath & Body Works/White Barn Candle, Pink, Victoria's Secret, and others)
Abercrombie & Fitch (Abercrombie & Fitch, Hollister, and others)
Williams-Sonoma (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, and others)
Foot Locker (Foot Locker, Lady Foot Locker, Champs Sports, Foot Action USA, and others)
Ann Taylor (Ann Taylor, Ann Taylor Loft, and others)
H&M
Express (Express, Express Men)
American Eagle Outfitters (American Eagle Outfitters, Aerie, and Martin + Osa)
# of
Stores
32
44
46
38
25
45
32
10
19
25
Square
Footage
403,206
381,760
293,298
277,963
193,458
190,605
184,340
175,351
171,230
147,397
% of
Mall GLA
3.7%
3.5
2.7
2.5
1.8
1.7
1.7
1.6
1.6
1.3
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.
Financial Information about Geographic Areas
We have not had material revenues attributable to foreign countries in the last three years. We also do not yet
have material long-lived assets located in foreign countries.
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, 2009, the Manager and TAM had 590 full-time employees. The following table provides a
breakdown of employees by operational areas as of December 31, 2009:
Center Operations
Property Management
Financial Services
Leasing and Tenant Coordination
Development
Other
Total
Available Information
Number of Employees
241
153
64
52
20
60
590
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.
8
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
economic environment of high unemployment, uncertain recovery, and credit availability, may significantly
impact our anchors, tenants and prospective customers of our shopping centers;
changes in mall tenant 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, interest rates, and other terms 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 global economic condition and weakness in the financial markets, the
current state of the capital markets, unscheduled closings or bankruptcies of our tenants, competition, uninsured
losses, and environmental liabilities.
The global economic and financial market downturn has had and may continue to have a negative effect on our
business and operations.
The global economic and financial market downturn 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 conditions. 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 2009, we concluded that the book values of the investments in The Pier Shops and Regency
Square were impaired, which resulted in a non-cash charge of $166.7 million (or $160.8 million at our share). 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 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 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 shares. However, if one or more of our lenders fail to honor their legal commitments under our credit facilities,
it could be difficult in the current environment to replace such lenders and/or 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, the failure of one or more 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. (See “MD&A – Rental Rates and Occupancy”).
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. Further, pursuant to
TRG’s partnership agreement, TRG may not dispose or encumber certain of its centers or its interest in such
centers without the consent of a majority-in-interest of its partners other than 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.
In addition, adverse impacts of the global economic and market downturn may reduce viable development and
acquisition opportunities that meet our unlevered return requirements.
Our pursuit of new opportunities in Asia may pose risks.
We have an office in Hong Kong and we are pursuing and evaluating management, leasing and development
service and investment opportunities in various Asian 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.
11
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.
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.
12
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.
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 assets 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,
and state corporate income tax, and to the extent there are foreign operations certain foreign taxes. 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 eligible for the
lower dividend rates only in the limited circumstances in which the dividends are attributable to income that has
already been subject to corporate tax, such as income from a prior taxable year that the REIT did not distribute
and dividend income received by the REIT from a taxable REIT subsidiary or other fully-taxable C corporation.
Although REITs, unlike non-REIT “C” corporations, have the ability to designate certain dividends as capital gain
dividends subject to the favorable rates applicable to capital gain, the application of reduced dividend rates to
non-REIT “C” corporation dividends may still 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.
13
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.
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 28% 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.
14
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, 2009, A. Alfred Taubman and
the members of his family have the power to vote approximately 31% of the outstanding shares of our common
stock and our Series B preferred stock, considered together as a single class, and approximately 92% 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 son, Robert S. Taubman, serves as our Chairman of the Board,
President and Chief Executive Officer. Mr. Taubman’s son, William S. Taubman, serves as our Chief Operating
Officer and one of our directors. 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.
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, 2009, we had approximately $2.7 billion of consolidated indebtedness outstanding, and our
beneficial interest in both our consolidated debt and the debt of our unconsolidated joint ventures was $2.9 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.
15
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, 2009. 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.
16
Center
Consolidated Businesses:
Beverly Center
Los Angeles, CA
Anchors
Bloomingdale’s, Macy’s
Cherry Creek Shopping Center
Denver, CO
Macy’s, Neiman Marcus, Nordstrom,
Saks Fifth Avenue
Sq. Ft of
GLA/Mall
GLA as of
12/31/09
880,000
572,000
1,038,000
547,000
1,399,000
636,000
Year
Opened/
Expanded
Year
Acquired
Ownership
% as of
12/31/09
1982
1990/1998
100%
50%
2001/2007
100%
1,384,000 (1) 1976/1978/
1980/2000
587,000
1,354,000
537,000
1,204,000
583,000
937,000
523,000
1,071,000
465,000
1998
2001
1999
2005
599,000
365,000
2007/2008
100%
100%
50%
95%
100%
100%
Bass Pro Shops Outdoor World,
Burlington Coat Factory, Cobb Theatres,
Dave & Buster’s, Marshalls,
Neiman Marcus-Last Call, Off 5th Saks,
The Sports Authority
JCPenney, Macy’s, Sears
AMC Theatres, Bass Pro Shops Outdoor World,
GameWorks, Neiman Marcus-Last Call,
Off 5th Saks
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
295,000
295,000
818,000
231,000
2006
78%
1975/1987
1997
100%
The Mall at Short Hills
Short Hills, NJ
Bloomingdale’s, Macy’s, Neiman Marcus,
Nordstrom, Saks Fifth Avenue
1,340,000
518,000
1980/1994/
1995
Stony Point Fashion Park
Richmond, VA
Dillard’s, Dick’s Sporting Goods,
Saks Fifth Avenue
662,000
296,000
2003
JCPenney, Lord & Taylor, Macy’s, Nordstrom,
Sears
1,512,000
547,000
1977/1978/
2007/2008
100%
100%
100%
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
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)
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
1,379,000 (3) 2001/2004
521,000
100%
Total GLA
Total Mall GLA
TRG% of Total GLA
TRG% of Total Mall GLA
17,145,000
7,683,000
15,785,000
6,981,000
17
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
Center
Unconsolidated Joint Ventures:
Anchors
Sq. Ft of
GLA/Mall
GLA as of
12/31/09
Year
Opened/
Expanded
Year
Acquired
Ownership
% as of
12/31/09
Arizona Mills
Tempe, AZ
(Phoenix Metropolitan Area)
GameWorks, Harkins Cinemas,
JCPenney Outlet, Neiman Marcus-Last Call,
Off 5th Saks
1,214,000
527,000
1997
JCPenney, Lord & Taylor,
Macy’s (two locations), Sears
1,570,000
566,000
1980/1987/
1988/2000
50%
50%
50%
50%
Bloomingdale’s, Macy’s, Neiman Marcus
Macy’s, Saks Fifth Avenue
JCPenney, Macy’s (two locations), Sears
1,116,000
516,000
772,000
449,000
1,331,000
491,000
2002
1982/2007
1967/1981
2002
50%
Nordstrom, Saks Fifth Avenue
337,000
197,000
1992/2006/
2008
2003
25%
JCPenney, Lord & Taylor, Macy’s,
Macy’s Men’s Store/Furniture Gallery, Nordstrom
1,287,000
517,000
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
7,627,000
3,263,000
4,102,000
1,732,000
24,772,000
10,946,000
19,887,000
8,713,000
(1) GLA includes the former Lord & Taylor store, which closed on June 24, 2006.
(2) The center is attached to Caesars casino integrated resort. The loan at The Pier Shops is currently in default, and we expect to transfer title of
the center in 2010 (see “MD&A – Results of Operations – Impairment Charges – The Pier Shops at Caesars”).
(3) A Crate & Barrel store is expected to open in March 2011 as part of the redevelopment of the former Lord & Taylor space.
18
Anchors
The following table summarizes certain information regarding the anchors at the operating centers (excluding
the value centers) as of December 31, 2009:
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
Parisian
Robb & Stucky
Saks (2)
Sears
Total
Number of
Anchor Stores
1
1
2
6
7
3
3
17
1
21
5
9
1
1
6
5
68
12/31/09 GLA
(in thousands
of square feet) % of GLA
180
140
159
1,335
1,266
397
614
3,454
80
4,148
556
1,294
116
119
487
0.9%
0.7%
0.8%
6.4%
6.1%
1.9%
19.9%
2.7%
6.2%
0.6%
0.6%
2.3%
1,104
5.3%
11,301
54.3%(3)
(1) Excludes three Neiman Marcus-Last Call stores at value centers.
(2) Excludes three Off 5th Saks stores at value centers.
(3) Percentages in table may not add due to rounding.
19
Mortgage Debt
The following table sets forth certain information regarding the mortgages encumbering the centers as of
December 31, 2009. 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%
(9)
6.75%
5.47%
6.24%
LIBOR+0.70%
5.44%
(6)
(7)
Variable
Bank Rate
(12)
Principal
Balance as
of 12/31/09
(thousands
of dollars)
328,365
280,000
64,000 (3)
80,000 (3)
135,144
325,000
129,358 (7)
215,500
73,770
135,000 (9)
74,085
540,000
107,237
–
200,000
(3)
Annual
Debt
Service
(thousands
of dollars)
23,101
Interest Only
Interest Only
Interest Only
10,006
Interest Only
12,400
Interest Only
Interest Only
(9)
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
64,000
80,000
125,507
325,000
126,884
215,500
73,770
(9)
71,569
540,000
98,585
–
200,000
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
(9)
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
(9)
11/01/11
12/14/15
06/01/14
02/14/11
05/06/15
(4)
(4)
(6)
(4)
3,560
Interest Only
02/14/11
3,560
At Any Time
7.90%
LIBOR+1.40%
5.46%
5.67%
LIBOR+0.90%
5.54%
6.10%
(13)
(14)
132,073
250,000
205,458
121,387
30,000
165,000
188,718
12,728
Interest Only
14,245
9,372
Interest Only
Interest Only
15,272
(1)
(13)
(1)
(1)
(1)
10/05/10
04/01/11
04/09/13
11/01/12
11/01/12
10/07/16
07/11/12
(13)
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)
(10)
(11)
(8)
(5)
(8)
(5)
(2)
(5)
(2)
(2)
(5)
(10)
(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 to an effective rate of 5.01% 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 $0.6 million of purchase accounting premium from acquisition which reduces the stated rate on the debt of 7.59% to an effective rate of 6.96%.
(8) No defeasance deposit required if paid within four months of maturity date.
(9) As of December 2009 The Pier Shops’ loan is in default. Interest is accruing at the default rate of 10.01% versus the original stated rate of 6.01% and accumulating in
interest payable. The debt obligation is expected to be extinguished in 2010 (see “MD&A – Results of Operations – Impairment Charges – The Pier Shops at Caesars”).
(10) No defeasance deposit required if paid within six months of maturity date.
(11) 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.
(12) The facility is a $40 million line of credit and is secured by an indirect interest in 40% of Short Hills.
(13) The debt is swapped to an effective rate of 4.22% 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).
(14) Debt is swapped to an effective rate of 5.95% to the maturity date.
For additional information regarding the centers and their operations, see the responses to Item 1 of this report.
20
Item 3. LEGAL PROCEEDINGS.
On December 8, 2009, West Farms Associates and West Farms Mall, LLC (together, “Westfarms”) and The
Taubman Company LLC (together with Westfarms, the “WFM Parties”) entered into a settlement agreement (the
“Settlement Agreement”) with three developers of a project called Blue Back Square in West Hartford,
Connecticut. The Settlement Agreement relates to a lawsuit originally filed by the developers against the WFM
Parties and related persons in November 2007 in the Connecticut Superior Court, Judicial District of Hartford at
Hartford and subsequently transferred to the Superior Court for the Judicial District of Waterbury at Waterbury.
The developers alleged damages in excess of $40 million and sought double, treble, and punitive damages, as
well as attorneys fees. Pursuant to the Settlement Agreement, the lawsuit was withdrawn with prejudice upon
payment by Westfarms of $34 million to the developers on December 15, 2009. We have a 79% investment in
Westfarms Associates, an unconsolidated joint venture which owns Westfarms mall, and our share of the
settlement was $26.8 million. The developers, for themselves and on behalf of related persons, agreed to a full
and general release for the benefit of the WFM Parties and related persons as of December 8, 2009. There was
no admission of liability or fault by any parties to the lawsuit or related persons. In early November 2007, the
Town of West Hartford and the West Hartford Town Council (the “Town”) filed a substantially similar lawsuit
against the same entities in the same court, which was also subsequently transferred to the Superior Court for the
Judicial District of Waterbury at Waterbury. The Town alleged damages in excess of $5.5 million and sought
double, treble, and punitive damages, as well as attorneys fees. In January 2010, the WFM Parties executed a
settlement agreement with the Town, which provided for a full and general release for the benefit of the WFM
Parties upon payment by Westfarms of $4.5 million, or $3.6 million at our share, which was recorded in 2009.
There was no admission of liability or fault by any parties to the lawsuit or related persons.
See “Note 15 – Commitments and Contingencies – Litigation” to our consolidated financial statements for
information regarding other outstanding litigation. While management does not believe that an adverse outcome
in the lawsuits described would have a material adverse effect on our financial condition, there can be no
assurance that adverse outcomes would not have material effects on our results of operations for any particular
period.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
21
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 24, 2010, the 54,326,934 outstanding shares of Common Stock were held by 548 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 24, 2010 was $38.69.
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 2009 and 2008:
2009 Quarter Ended
March 31
June 30
September 30
December 31
2008 Quarter Ended
March 31
June 30
September 30
December 31
Market Quotations
Low
High
$13.56
$26.79
Dividends
$0.415
28.16
16.65
0.415
37.37
22.55
0.415
37.66
30.40
0.415
Market Quotations
Low
High
$43.93
$55.70
Dividends
$0.415
58.05
48.65
0.415
55.40
43.35
0.415
48.19
18.69
0.415
The restrictions on our ability to pay dividends on our Common Stock are set forth in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Dividends.”
22
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 FTSE NAREIT All REIT Index, Property Sector: Retail, and the S&P
Composite – 500 Stock Index for the period December 31, 2004 through December 31, 2009 (assuming in all
cases, the reinvestment of dividends):
COMPARISON OF CUMULATIVE TOTAL RETURN
Taubman Centers Inc.
MSCI US REIT Index
FTSE NAREIT All REIT Index, Property Sector: Retail
S&P 500 Index
250
200
150
100
50
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
Taubman Centers Inc.
MSCI US REIT Index
FTSE NAREIT All REIT Index,
Property Sector: Retail
S&P 500 Index
12/31/04 12/31/05
$ 120.37
$ 100.00
112.13
100.00
12/31/06
$ 181.46
152.41
12/31/07 12/31/08
$ 97.54
$ 180.79
78.64
126.78
12/31/09
$ 146.49
101.14
100.00
100.00
111.80
104.91
144.23
121.48
121.49
128.15
62.74
80.74
79.78
102.11
Note: The stock performance shown on the graph above is not necessarily indicative of future price
performance.
12720 Text p24.indd 1
3/12/10 12:50 PM
23
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. See “Note 9 – Noncontrolling Interests” to our
consolidated financial statements regarding reclassifications of previously reported information.
2009
Year Ended December 31
2007
(in thousands of dollars, except as noted)
2008
2006
2005
STATEMENT OF OPERATIONS DATA:
Rents, recoveries, and other shopping center revenues
Income (loss) before gain on disposition of interest in
center (1)
Gain on disposition of interest in center (2)
Net income (loss) (1)
Attributable to noncontrolling interests
Distributions to participating securities of TRG
Preferred dividends
Net income (loss) attributable to Taubman Centers, Inc.
common shareowners
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 attributable to TCO (1)(3)
Mall tenant sales (4)(5)
Sales per square foot (4)(5)(6)
Number of shopping centers at end of period
Ending Mall GLA in thousands of square feet
Leased space (5)(7)
Ending occupancy (5)
Average occupancy (5)
Average base rent per square foot (5)(6):
Consolidated businesses:
All mall tenants
Stores opening during year (8)
Stores closing during year(8)
Unconsolidated Joint Ventures:
All mall tenants
Stores opening during year(8)
Stores closing during year(8)
666,104
671,498
626,822
579,284
479,405
(79,161)
(8,052)
116,236
95,140
(79,161)
25,649
(1,560)
(14,634)
(69,706)
(1.31)
1.66
(8,052)
(62,527)
(1,446)
(14,634)
(86,659)
(1.64)
1.66
116,236
(51,782)
(1,330)
(14,634)
48,490
0.90
1.54
95,140
(48,919)
(1,104)
(23,723)
21,394
0.40
1.29
57,432
52,799
110,231
(37,491)
(1,005)
(27,622)
44,113
0.87
1.16
53,239,279
52,866,050
52,969,067
52,661,024
50,459,314
53,239,279
54,321,586
67%
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%
3,496,853
2,606,853
2,691,019
36,799
4,227,936
498
23
10,946
91.6%
89.6%
89.0%
$43.31
45.19
41.70
$44.49
51.10
48.64
3,699,480
2,974,982
2,796,821
81,274
4,536,500
533
23
10,937
92.0%
90.5%
90.5%
$43.95
54.78
49.60
$44.61
59.36
48.72
3,781,136
3,105,975
2,700,980
155,376
4,734,940
555
23
10,879
93.8%
91.2%
90.0%
$43.39
53.35
45.39
$41.89
48.05
48.63
3,398,122
2,781,290
2,319,538
136,736
4,344,565
529
22
10,448
92.5%
91.3%
89.2%
$42.77
41.25
39.57
$41.03
42.98
42.49
3,081,324
2,797,580
2,089,948
110,578
4,124,534
508
21
10,029
91.7%
90.0%
88.9%
$41.41
42.38
40.59
$42.28
44.90
44.26
(1) Funds from Operations (FFO) is defined and discussed in “MD&A – Presentation of Operating Results.” Net loss and FFO in 2009 include the
$166.7 million (or $160.8 million at our share) impairment charges related to the write down of The Pier Shops and Regency Square to their fair values,
the $30.4 million charges related to the litigation settlements at Westfarms, and $2.5 million in restructuring charges which primarily represented the cost
of terminations of personnel. Net loss and FFO in 2008 include the impairment charges of $126.3 million related to investments in our Oyster Bay and
Sarasota projects. Net income and FFO in 2006 include $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 preferred stock.
(2) In December 2005, a 50% owned unconsolidated joint venture sold its interest in Woodland for $177.4 million.
(3) Reconciliations of net income (loss) attributable to TCO common shareowners to FFO for 2009, 2008, and 2007 are provided in “MD&A – Presentation of
Operating Results.” For 2006, net income attributable to TCO common shareowners of $21.4 million, adding back depreciation and amortization of
$147.3 million, noncontrolling interests of $40.7 million, and distributions to participating securities of $1.1 million arrives at TRG’s FFO of $210.4 million,
of which TCO’s share was $136.7 million. For 2005, net income attributable to TCO common shareowners of $44.1 million, less the gain on dispositions
of interests in centers of $52.8 million, adding back depreciation and amortization of $150.3 million, noncontrolling interests of $35.0 million, and
distributions to participating securities of $1.0 million arrives at TRG’s FFO of $177.7 million, of which TCO’s share was $110.6 million.
(4) Based on reports of sales furnished by mall tenants.
(5) Amounts in 2009 and 2008 exclude The Pier Shops, which opened in 2006. See “MD&A – Results of Operations – Impairment Charges – The Pier Shops
at Caesars” for further information.
(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.
(8) Amounts in 2009 and 2008 exclude spaces greater than 10,000 square feet.
24
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations
contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements represent our expectations or beliefs concerning future events, 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 reasonable 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 continuing impacts of the U.S. recession and global credit environment, 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. Except as required by law, we assume no obligation to
update these forward-looking statements, even if new information becomes available in the future. Other risks and
uncertainties are detailed from time to time in reports filed with the 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, acquire, dispose of, develop,
expand, and manage 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 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.
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 of new leases at approximately six years during 2009 and approximately
seven years during 2008, 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.
The real estate industry continues to face difficult times due to the impacts of the recent recession and tough
capital market and retail environment. Although there have been some positive signs, unemployment continues to
be very high and there is considerable uncertainty as to how long the impacts of the recession may continue. We
have seen the negative effect on our business in 2009, and we expect that the economy will continue to strain the
resources of our tenants and their customers. A number of regional and national retailers have announced store
closings or filed for bankruptcy. During 2009, 4.1% of our tenants sought the protection of the bankruptcy laws,
compared to 2.5% and 0.5% in 2008 and 2007, respectively. The highest level of bankruptcies we’ve experienced
in the last 20 years for a full year was 4.5% in both 1992 and 2001.
25
Tenant sales per square foot were $498 in 2009, a 6.7% decrease from 2008. However, sales per square foot
increased by 3.8% in the fourth quarter of 2009. This is the first positive quarterly tenant sales performance since
the third quarter of 2008. We are expecting sales to be flat to 3% to 4% up in 2010. See "Mall Tenant Sales and
Center Revenues."
Ending occupancy was 89.6% at December 31, 2009, down 0.9% from 2008. We anticipate occupancy will end
the year flat in 2010, although it is likely to be down as much as 1% in the first three quarters of the year. Rent per
square foot decreased 2.2% for the fourth quarter of 2009 and decreased 1% for the year. We expect that
average rents per square foot in 2010 will be down in comparison to 2009 by approximately 2% to 2.5%. 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
period to period 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.”
In the fourth quarter of 2009 we recognized $38.5 million of litigation charges related to Westfarms mall, an
Unconsolidated Joint Venture, of which our share was $30.4 million (see “Results of Operations – Litigation
Charges”).
In the third quarter of 2009, we concluded that the book values of the investments in The Pier Shops and
Regency Square were impaired, which resulted in a non-cash charge of $166.7 million (or $160.8 million at our
share). We also recorded impairment charges in the fourth quarter of 2008 of $126.3 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.
See “Results of Operations – Impairment Charges” for further discussion and the status of The Pier Shops’ loan,
which is in default.
In the first half of 2009, in response to the 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. The restructuring charge was $2.5 million, and primarily represents
the cost of terminations of personnel.
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.”
We also describe the current status of our efforts to broaden our growth in Asia (see “Results of Operations –
Taubman Asia”).
We then provide a discussion of the impact in 2009 of recently issued accounting pronouncements including the
new requirements for accounting for noncontrolling interests.
With all the preceding information as background, we then provide insight and explanations for variances in our
financial results for 2009, 2008, and 2007 under “Comparison of 2009 to 2008” and “Comparison of 2008 to
2007.” As information useful to understanding our results, we have described the presentation of our
noncontrolling interests, the presentation of certain interests in centers, and the reasons for our use of non-GAAP
measures such as Beneficial Interests in EBITDA and Funds from Operations (FFO) under “Results of Operations
– Use of Non-GAAP Measures.” Reconciliations from net income (loss) and net income (loss) allocable to
common shareowners to these measures follow the annual comparisons.
We then provide a discussion of our critical accounting policies and new accounting pronouncements that will
affect periods subsequent to 2009.
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 $335 million at 100% and $262 million at our
beneficial share, and we are in discussions with a variety of lenders to refinance these three loans. We then
discuss our capital activities and transactions that occurred in 2009. Analysis of specific operating, investing, and
financing activities is then provided in more detail.
26
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.
Renovation and expansion of existing malls has been a significant use of our capital in recent years, as
described in “Liquidity and Capital Resources – Capital Spending” and “Liquidity and Capital Resources – Capital
Spending – Planned Capital Spending.” Our City Creek Center project, which we will own under a participating
lease, is expected to open in early 2012 at which time a $75 million payment will be made to the lessor. With our
Sarasota project on hold and the continued delays on our Oyster Bay and Asia projects, we expect capital
spending in 2010 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
Our mall tenant sales per square foot statistics have shown improvement since July 2009 and in the fourth
quarter of 2009 increased by 3.8% compared to the prior year. This is the first quarter sales have been up since
third quarter 2008. For 2009, our sales decreased 6.7% to a level of $498 per square foot.
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 3% in 2009).
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.
27
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
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
(1) Statistics exclude The Pier Shops.
2009 (1)
4,227,936
498
2008 (1)
4,536,500
533
2007
4,734,940
555 (1)
10.2%
0.3
5.7
16.2%
9.6%
0.3
5.0
14.9%
9.7%
0.4
5.3
15.4%
8.9%
0.4
4.6
13.9%
8.9%
0.4
4.9
14.2%
8.0%
0.4
4.2
12.6%
In 2009, mall tenant occupancy costs as a percentage of mall tenant sales increased primarily due to the
decline in sales during the year.
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 centers in our
Consolidated Businesses (excluding The Pier Shops) and Unconsolidated Joint Ventures follows:
2009 (1)
2008 (1)
2007 (2)
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
$43.31
44.49
$45.19
51.10
681,773
218,953
$41.70
48.64
832,451
259,457
$3.49
2.46
$43.95
44.61
$54.78
59.36
589,730
340,275
$49.60
48.72
650,607
342,698
$5.18
10.64
$43.39
41.89
$53.35
48.05
885,982
394,316
$45.39
48.63
807,899
345,122
$7.96
(0.58)
(1) Opening and closing statistics exclude spaces greater than 10,000 square feet.
(2) Opening and closing statistics exclude spaces greater than 40,000 square feet.
28
Average rent per square foot of the Consolidated Businesses in 2009 was impacted by increases in rent relief.
Rent per square foot in 2010 is expected to be down 2% to 2.5% due to the annualization of rent relief granted in
2009. Average rent per square foot of the Unconsolidated Joint Ventures in 2007 was 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 rent per square foot
of the Unconsolidated Joint Ventures would have been $42.93 in 2007.
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.
Mall tenant leased space, ending occupancy, and average occupancy rates are as follows:
Leased space
Ending occupancy
Average occupancy
(1) Statistics exclude The Pier Shops.
2009 (1)
2008 (1)
91.6%
89.6
89.0
92.0%
90.5
90.5
2007
93.8%
91.2
90.0
Ending occupancy was 89.6%, a 0.9% decrease from 90.5% in 2008. At 91.6%, leased space is 2.0% over the
year end occupancy level, indicating a backlog of tenants who have committed to opening stores in the future. We
expect occupancy in 2010 to end the year flat with 2009, although it is likely to be down as much as 1% in the first
three quarters of 2010. Temporary tenant leasing continues to be strong and ended the year at about 4.2%
compared to 2.7% in 2008. Temporary tenants, defined as those with lease terms less than 12 months, are not
included in occupancy or leased space statistics. Tenant bankruptcy filings as a percentage of the total number of
tenant leases was 4.1% in 2009, compared to 2.5% in 2008, and 0.5% in 2007.
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) (2)
Revenues and gains on land sales
and other nonoperating income:
Consolidated Businesses
Unconsolidated Joint Ventures
Occupancy and leased space (2):
Ending occupancy
Average occupancy
Leased space
Total
2009
3rd
Quarter
2009
(in thousands of dollars, except occupancy and leased space data)
921,158
4,227,936
1st
Quarter
2009
4th
Quarter
2009
2nd
Quarter
2009
1,350,806
987,008
968,964
666,815
272,622
186,306
75,504
163,447
67,317
159,137
63,657
157,925
66,144
89.6%
89.0
91.6
89.6%
89.5
91.6
88.7%
88.5
91.0
88.8%
88.9
91.3
88.8%
89.0
90.7
(1) Based on reports of sales furnished by mall tenants.
(2) Excludes The Pier Shops.
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.
29
Total
2009
10.2%
0.3
5.7
16.2%
9.6%
0.3
5.0
14.9%
4th
Quarter
2009
3rd
Quarter
2009
2nd
Quarter
2009
1st
Quarter
2009
8.0%
0.5
5.9
14.4%
7.7%
0.5
4.8
13.0%
10.6%
0.2
5.3
16.1%
10.3%
0.3
5.0
15.6%
10.8%
0.1
5.9
16.8%
10.6%
0.0
5.1
15.7%
12.2%
0.3
6.0
18.5%
10.9%
0.3
4.9
16.1%
Consolidated Businesses (1) :
Minimum rents
Percentage rents
Expense recoveries
Mall tenant occupancy costs
Unconsolidated Joint Ventures:
Minimum rents
Percentage rents
Expense recoveries
Mall tenant occupancy costs
(1) Excludes The Pier Shops.
Results of Operations
In addition to the results and trends in our operations discussed in the preceding sections, the following sections
discuss certain transactions that affected operations in the years ending 2009, 2008, and 2007, or are expected to
affect operations in the future.
Impairment Charges
In 2009, we concluded that the book values of the investments in The Pier Shops and Regency Square were
impaired, which resulted in a non-cash charge of $166.7 million (or $160.8 million at our share). In 2008, we
recorded impairment charges of $126.3 million related to our Oyster Bay project and our Sarasota project.
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, 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 at that date. As of December 31, 2009, we had
provided $10.6 million of additional capital.
In September 2009, our Board of Directors concluded that given long term prospects for the property, it was in
our best interest to discontinue financial support of The Pier Shops. Cash flows generated from the center are
insufficient to cover debt service on the $135 million non-recourse mortgage loan. As a result, the book value of
The Pier Shops was written down by $107.7 million (our share of which is $101.8 million) to a fair value of
approximately $52 million. The loan is now in default. Under the terms of the agreement, interest accrues at the
original stated rate of 6.01% plus a 4% default rate. Although we are no longer funding any cash shortfalls, we
continue to record the operations of the center, and interest on the loan, in our results until title for the center has
been transferred and our obligation for the loan is extinguished. While the timing is uncertain as the foreclosure
process is not in our control, we are hoping to transfer ownership in the second quarter of 2010. We expect the
non-cash impact of owning The Pier Shops (including default interest) to result in an incremental earnings charge,
excluding depreciation and amortization, of approximately $(0.9) million per month in 2010. Including the impact of
depreciation and amortization, the impact on earnings is expected to be $(1.3) million per month.
Regency Square
In September 2009, we concluded that the book value of the investment in Regency Square was also impaired
based on current estimates of future cash flows for the property, which will be negatively impacted by necessary
capital expenditures and declining net operating income. As a result, the book value of the property was written
down by $59 million to a fair value of approximately $29 million. At the current level of cash flows, Regency
Square intends to continue to service its $74.1 million non-recourse mortgage loan.
The Pier Shops and Regency Square generate less than two percent of our net operating income. See “Note 4
– Properties” to our consolidated financial statements for additional information.
30
Oyster Bay
In January 2009, the Appellate Division of the Supreme Court of the State of New York, Second Department,
reversed the Supreme Court's order directing the Town Board of the Town of Oyster Bay to issue a special use
permit for the construction of The Mall at Oyster Bay. The court also held that the Town Board's request for a
supplemental environmental impact statement was proper. 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, which were paid in 2009, 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 included
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. In June 2009, the Court of
Appeals of the State of New York denied our motion for leave to appeal the January 2009 decision of the
Appellate Division of the Supreme Court of the State of New York. We have been expensing costs relating to
Oyster Bay since the fourth quarter of 2008 and will continue to do so until it is probable that we will be able to
successfully move forward with a project. Our remaining capitalized investment in the project as of December 31,
2009 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.
Sarasota
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 economic
and retail environment, we announced in December 2008 that the project had 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 represented our share of total
project costs. We have no asset remaining and will continue 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.
Litigation Charges
In the fourth quarter of 2009, we recognized litigation charges relating to the settlement of two lawsuits related
to Westfarms, our center in West Hartford, Connecticut. The settlements include $34 million settled in
December 2009 and $4.5 million settled in January 2010, of which our share of the total settlements was
$30.4 million (see “Note 15 – Commitments and Contingencies – Litigation”).
Restructuring
In the first half of 2009, in response to the 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. The restructuring charge was $2.5 million, and primarily represents
the cost of terminations of personnel.
Center Operations
The impacts of the recession, which negatively impacted our operating statistics in 2009 as discussed in the
previous sections, are expected to continue to affect operations in 2010. We expect that net operating income
(NOI) of our centers, excluding lease cancellation income, could decrease by 2% to 4% in 2010. The expected
NOI decrease is impacted by over 1% related to recoveries of CAM capital expenditures as we manage our
tenants’ CAM costs to reduce overall expenses. We also expect rent relief to have a significant negative impact in
2010 as rent relief contracted in 2009 is fully annualized.
31
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 primarily 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 potential purchasers of land, as well as the economy and
the timing of the transactions. During the year ended December 31, 2009, we recognized our approximately $18.7
million and $1.8 million share of the Consolidated Businesses’ and Unconsolidated Joint Ventures’ lease
cancellation revenue, respectively. Lease cancellation income over the last five years ranged from $8 million to
this year’s record high, and is likely to be much lower in 2010 at about $9 million to $11 million.
2009
2008
2007
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
22.5
18.7
41.2
0.6
0.6
(1) Amounts in this table may not add due to rounding.
Taubman Asia
2.7
1.8
4.5
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
In 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,
our Macao agreements terminated and our $54 million initial cash payment was returned to us because the
financing for the project was not completed. In the fourth quarter of 2009 we recognized approximately $7 million
of development fees collected for services performed primarily prior to 2009 on the Macao project.
In 2007, we entered into an agreement to provide development services for a 1.1 million square foot retail and
entertainment complex called Riverstone in Songdo International Business District (Songdo), Incheon, South
Korea. We also finalized an agreement to provide management and leasing services for Riverstone. The
shopping center will be anchored by Lotte Department Store, Tesco Homeplus, and a nine-screen MegaBox
multiplex. Construction has been completed on the mall infrastructure and parking, including the subway station
that will connect the mall to Seoul. However, the project financing of Riverstone remains unresolved due to market
conditions and the overall complexity and scale of the broader Songdo financings. Once financing is complete, full
construction will begin and we will make a determination about an investment in this center.
Debt Transactions
We completed a series of debt financings in 2008 and 2007 as follows:
Fair Oaks
International Plaza
TRG revolving credit facility (4)
The Pier Shops at Caesars
Date
April 2008
January 2008
November 2007
April 2007
Initial Loan
Balance/Facility
(in millions of dollars)
250
325
550
135
Stated
Interest Rate
Maturity Date (1)
LIBOR+1.40% (2) April 2011
LIBOR+1.15% (3)
LIBOR+0.70%
6.01%
January 2011
February 2011
May 2017
(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.
32
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.
Partnership Unit Redemptions and Common Share Repurchases
We also completed a series of partnership unit redemptions and common share repurchases in 2007:
# of shares
Amount
(in millions of dollars)
Price
per share
Date
Stock repurchases (1)
Stock repurchases (1)
987,180
923,364
50.0
50.0
$50.65
54.15
August 2007
May - June 2007
(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.
Presentation of Operating Results
The following table contains the operating results of our Consolidated Businesses and the Unconsolidated Joint
Ventures. On January 1, 2009, we adopted the new requirements of ASC Topic 810 “Consolidation” as it relates
to noncontrolling interests (formerly Statement of Financial Accounting Standards (SFAS) No. 160 "Noncontrolling
Interests in Consolidated Financial Statements – an amendment of Accounting Research Bulletin (ARB) No. 51.”)
The new requirements of ASC 810 amended prior accounting and reporting standards for the noncontrolling
interest (previously referred to as a minority interest) in a subsidiary. Consequently, the noncontrolling interests in
the Operating Partnership and certain consolidated joint ventures no longer need to be carried at zero balances in
our balance sheet. As a result, the income allocated to these noncontrolling interests is no longer required to be
equal, at a minimum, to their share of distributions, which results in a material increase to our net income. Prior to
2009, under the previous accounting for noncontrolling interests, the income allocated to the Operating
Partnership noncontrolling unitholders was equal to their share of distributions as long as the net equity of the
Operating Partnership was less than zero. Similarly, the income allocated to the noncontrolling partners in
consolidated joint ventures with net equity balances less than zero was equal to their share of operating
distributions. The net equity balances of the Operating Partnership and certain of the consolidated joint ventures
were less than zero because of accumulated distributions in excess of net income and not as a result of operating
losses. Distributions to partners were 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 2009 and 2008, and 66% in 2007.
Upon our adoption of the new accounting for noncontrolling interests, net income was reclassified to include the
amounts attributable to the noncontrolling interests. However, as the new accounting is applicable beginning with
the January 1, 2009 adoption date, the interests of these noncontrolling interests for prior periods have not been
remeasured.
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
We use net operating income (NOI) as an alternative measure to evaluate the operating performance of
centers, both on individual and stabilized portfolio bases. We define NOI as property-level operating revenues
(includes rental income excluding straightline adjustments of minimum rent) less maintenance, taxes, utilities,
ground rent, and other property operating expenses. Since NOI excludes general and administrative expenses,
pre-development charges, interest income and expense, depreciation and amortization, impairment charges,
restructuring charges, 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.
33
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 2008 to 2007.
34
Comparison of 2009 to 2008
The following table sets forth operating results for 2009 and 2008, showing the results of the Consolidated
Businesses and Unconsolidated Joint Ventures:
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
Litigation charges
Impairment charges
Restructuring charge
Interest expense
Depreciation and amortization (2)
Total expenses
Gains on land sales and other nonoperating income
Impairment loss on marketable securities
Loss before income tax expense and equity in
income of Unconsolidated Joint Ventures
Income tax expense
Equity in income of Unconsolidated Joint Ventures (2)
Net loss
Net (income) loss attributable to noncontrolling
interests:
Noncontrolling share of income of consolidated
joint ventures
Distributions in excess of noncontrolling share of
income of consolidated joint ventures
TRG Series F preferred distributions
Noncontrolling share of loss of TRG
Distributions in excess of noncontrolling share of
loss of TRG
Distributions to participating securities of TRG
Preferred stock dividends
Loss attributable to Taubman Centers, Inc.
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
2009
2008
CONSOLIDATED
BUSINESSES
UNCONSOLIDATED
JOINT VENTURES
AT 100%(1)
CONSOLIDATED
BUSINESSES
UNCONSOLIDATED
JOINT VENTURES
AT 100%(1)
(in millions of dollars)
341.9
10.8
246.4
21.2
45.8
666.1
189.1
67.2
7.9
27.9
166.7
2.5
145.7
147.3
754.1
0.7
(1.7)
(89.0)
(1.7)
11.5
(79.2)
(3.1)
(2.5)
31.2
(1.6)
(14.6)
(69.7)
204.0
(35.3)
168.7
(125.8)
(1.7)
(3.4)
(17.1)
20.6
157.1
5.1
101.7
8.7
272.5
68.1
24.0
38.5
64.4
39.3
234.3
0.1
38.3
142.0
(74.2)
67.8
(33.4)
34.4
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)
(7.4)
(8.6)
(2.5)
11.3
(55.4)
(1.4)
(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
(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.
(2) Amortization of our additional basis in the Operating Partnership included in depreciation and amortization was $4.9 million in both 2009 and 2008. Also, amortization of
our additional basis included in equity in income of Unconsolidated Joint Ventures was $1.9 million in both 2009 and 2008.
(3) Amounts in this table may not add due to rounding.
35
Consolidated Businesses
Total revenues for the year ended December 31, 2009 were $666.1 million, a $5.4 million or 0.8% decrease
over 2008. Minimum rents decreased by $11.3 million, due to decreases in rent per square foot, primarily as a
result of rent relief, and decreased average occupancy. Percentage rents decreased due to lower tenant sales.
Expense recoveries decreased primarily due to decreases in occupancy and the lower level of recoveries from in-
place tenants. Management, leasing, and development revenue increased primarily due to the collection of
development fees on the Macao project. Other income increased primarily due to an increase in lease
cancellation revenue, which was partially offset by decreases in parking-related revenue and sponsorship income.
Total expenses were $754.1 million, a $35.7 million or 5.0% increase from 2008. Other operating expense
decreased due to a reduction in pre-development costs, lower costs related to marketing and promotion, and
decreased bad debt expense. In 2009, we incurred $12.3 million on pre-development activities and we expect to
incur about $15 million in 2010. General and administrative expense was relatively flat with 2008. In 2010, we
expect general and administrative expense to be comparable to 2009. In 2009, we recognized a $2.5 million
restructuring charge (see “Results of Operations – Restructuring”). Also in 2009, we recognized impairment
charges of $166.7 million on The Pier Shops and Regency Square. In 2008, we recognized a $117.9 million
impairment charge on our Oyster Bay project (see “Results of Operations – Impairment Charges”). Interest
expense decreased due to the lower rates on floating rate debt and lower outstanding debt as a result of the
return of the Macao deposit, offset partially by the termination of interest capitalization on the Oyster Bay project
in the fourth quarter of 2008.
Gains on land sales and other nonoperating income decreased by $3.9 million in 2009. There were no gains on
land sales in 2009, compared to $2.8 million of gains in 2008. In 2010, gains on land sales are expected to be
approximately $1 million to $2 million. Interest income declined in 2009 due to overall lower average interest
rates.
Unconsolidated Joint Ventures
Total revenues for the year ended December 31, 2009 were $272.5 million, a $0.7 million or 0.3% increase from
2008. Percentage rents decreased primarily due to lower tenant sales. Expense recoveries increased primarily
due to increases in property taxes and electricity recoveries, increased revenue from marketing and promotion
services, and adjustments in 2008 to prior estimated recoveries at certain centers.
Total expenses increased by $39.3 million or 20.2%, to $234.3 million for the year ended December 31, 2009,
primarily due to litigation charges of $38.5 million recognized in 2009 (see “Results of Operations – Litigation
Charges”). Maintenance, taxes, and utilities expense increased due to higher property taxes, partially offset by
decreased electricity expense. Other operating expense increased primarily due to professional fees.
Depreciation expense decreased primarily due to changes in depreciable lives of tenant allowances in connection
with early terminations.
As a result of the foregoing, income of the Unconsolidated Joint Ventures decreased by $39.2 million to
$38.3 million. Our equity in income of the Unconsolidated Joint Ventures was $11.5 million, a $23.9 million
decrease from 2008. 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 represented
our share of our Sarasota joint venture project costs.
Net Income (Loss)
Net loss increased by $71.1 million to a $79.2 million loss in 2009, due to the increased impairment charges and
the litigation charges. After allocation of income to noncontrolling and preferred interests, the net loss allocable to
common shareowners for 2009 was a loss of $69.7 million compared to a loss of $86.7 million in 2008.
36
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:
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
Interest expense
Depreciation and amortization (2)
Total expenses
Gains on land sales and other nonoperating income
Income (loss) before income tax expense and equity in
income of Unconsolidated Joint Ventures
Income tax expense
Equity in income of Unconsolidated Joint Ventures (2)
Net income (loss)
Net (income) loss attributable to noncontrolling
interests:
Noncontrolling share of income of consolidated joint
ventures
Distributions in excess of noncontrolling share of
income of consolidated joint ventures
TRG Series F preferred distributions
Noncontrolling share of (income) loss of TRG
Distributions in excess of noncontrolling share of
income (loss) of TRG
Distributions to participating securities of TRG
Preferred stock dividends
Net income (loss) attributable to Taubman Centers, Inc.
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
2008
2007
CONSOLIDATED
BUSINESSES
UNCONSOLIDATED
JOINT VENTURES
AT 100%(1)
CONSOLIDATED
BUSINESSES
UNCONSOLIDATED
JOINT VENTURES
AT 100%(1)
(in millions of dollars)
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)
(7.4)
(8.6)
(2.5)
11.3
(55.4)
(1.4)
(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
(5.0)
(3.0)
(2.5)
(33.2)
(8.1)
(1.3)
(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.
(2) 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.
(3) Amounts in this table may not add due to rounding.
37
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. 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. 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 were marked to market quarterly based on our stock price. 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.
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 Consolidated Statement of Operations.
38
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. 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)
Net income (loss) decreased by $124.3 million to a $8.1 million loss for 2008, due to the impairment charges.
After allocation of income to noncontrolling 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.
39
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.
In 2009, we recognized impairment charges of $107.7 million and $59.0 million related to The Pier Shops and
Regency Square, respectively. In 2008, we recognized impairment charges of $117.9 million and $8.3 million
related to our Oyster Bay and Sarasota projects, respectively (see “Results of Operations – Impairment
Charges”). There were no impairment charges recognized in 2007. As of December 31, 2009, the consolidated
net book value of our properties was $2.4 billion, representing over 90% 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.
40
Our $64 million balance of development pre-construction costs as of December 31, 2009 consists primarily of
$40 million of costs relating to our Oyster Bay project. The balance also includes approximately $24 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.
Valuation of Accounts and Notes Receivable
Rents and expense recoveries from tenants are our principal source of income; they represent approximately
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 2009, while bankruptcy filings affected 4.1% 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, 2009 totaled $9.2 million. Valuation of the recoverability of notes receivable
is dependent on management’s estimates of the collectibility of contractual principal and interest payments, which
are inherently judgmental.
Valuation of Deferred Tax Assets
We currently have deferred tax assets, reflecting 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, net operating loss carryforwards
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, the profitability of the unitary filing group for the Michigan Business Tax, and other factors affecting the
results of operations of our taxable REIT subsidiaries. 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
accounting requirements for income taxes. As of December 31, 2009, we had a net federal, state and foreign
deferred tax asset of $7.6 million, after a valuation allowance of $9.1 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 for the recording of the acquisition at fair value, and allocation of purchase price between
land, building and improvements, and other identifiable intangibles.
41
New Accounting Pronouncements
In June 2009, the FASB made changes to ASC Topic 810 “Consolidation” (ASC 810). These changes eliminate
certain scope exceptions previously permitted, provide additional guidance for determining whether an entity is a
variable interest entity, and require companies to more frequently reassess whether they must consolidate
variable interest entities. The changes also replace the previously required quantitative approach to determining
the primary beneficiary of a variable interest entity with a requirement for an enterprise to perform a qualitative
analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in
a variable interest entity. Changes are effective as of the beginning of the first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. Earlier application is prohibited. We anticipate the Statement will not have an effect
on our results of operations or financial position, as we do not currently have any variable interest or interests that
give us a controlling financial interest in a variable interest entity in accordance with ASC 810.
In September 2009, the FASB ratified the EITF’s consensus on “Multiple-Deliverable Revenue Arrangements”,
contained in Accounting Standards Update No. 2009-13. This consensus amends previous accounting guidance
on separating consideration in multiple-deliverable arrangements. This consensus eliminates the residual method
of allocation in previous guidance and requires that arrangement consideration be allocated at the inception of the
arrangement to all deliverables using the relative selling price. This consensus also establishes a selling price
hierarchy based on available evidence for determining the selling price of a deliverable, (i) first on vendor-specific
objective evidence, (ii) then third party evidence, and (iii) then the estimated selling price. This consensus also
requires that a vendor determine its best estimate of selling price in a manner that is consistent with that used to
determine the price to sell the deliverable on a standalone basis. This consensus is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.
Early adoption is permitted. We are currently evaluating the application of the EITF’s consensus on our results of
operations and financial position.
42
Reconciliation of Net Income (Loss) Attributable to Taubman Centers, Inc. Common Shareowners to
Funds from Operations
Net income (loss) attributable to TCO common shareowners
Add (less) depreciation and amortization (1):
Consolidated businesses at 100%
Noncontrolling partners in consolidated joint ventures
Share of Unconsolidated Joint Ventures
Non-real estate depreciation
Add noncontrolling interests:
Noncontrolling share of income (loss) of TRG
Distributions in excess of noncontrolling share of income/loss of TRG
Distributions in excess of noncontrolling share of income of
consolidated joint ventures
2009
2008
(in millions of dollars, except as indicated)
(86.7)
(69.7)
2007
48.5
147.3
(12.4)
22.9
(3.4)
(31.2)
147.4
(13.0)
23.6
(3.3)
(11.3)
55.4
8.6
137.9
(17.3)
23.0
(2.7)
33.2
8.1
3.0
Add distributions to participating securities of TRG
1.6
1.4
1.3
Funds from Operations
55.0
122.2
235.1
TCO’s average ownership percentage of TRG
66.8%
66.6%
66.1%
Funds from Operations attributable to TCO
36.8
81.3
155.4
(1) Depreciation and amortization includes $15.5 million, $14.1 million, and $11.3 million of mall tenant allowance amortization for the years
ended December 31, 2009, 2008, and 2007, 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%
Noncontrolling partners in consolidated joint ventures
Share of Unconsolidated Joint Ventures
Add (less) interest expense and income tax expense:
Interest expense:
Consolidated businesses at 100%
Noncontrolling partners in consolidated joint ventures
Share of unconsolidated joint ventures
Income tax expense
2009
2008
(in millions of dollars, except as indicated)
(8.1)
(79.2)
116.2
2007
147.3
(12.4)
22.9
147.4
(13.0)
23.6
137.9
(17.3)
23.0
145.7
(19.8)
33.4
1.7
147.4
(19.6)
33.8
1.1
131.7
(14.3)
33.3
Less noncontrolling share of income of consolidated joint ventures
(3.1)
(7.4)
(5.0)
Beneficial interest in EBITDA
236.5
305.3
405.6
TCO’s average ownership percentage of TRG
66.8%
66.6%
66.1%
Beneficial interest in EBITDA allocable to TCO
158.1
203.2
268.0
(1) Amounts in this table may not add due to rounding.
43
Liquidity and Capital Resources
Our internally generated funds from operating activities, distributions from operating centers and other investing
activities, augmented by use of our existing lines of credit, provide resources to maintain our current operations
and assets, and pay dividends. Generally, our need to access the capital markets is limited to refinancing debt
obligations at maturity and funding major capital investments. See “MD&A – Liquidity and Capital Resources –
Capital Spending” for more details. Market conditions may continue to limit our sources of funds for these
financing activities and our ability to refinance our debt obligations at present principal amounts, interest rates,
and other terms.
We are financed with property-specific secured debt and we have two unencumbered center properties (Willow
Bend and Stamford, a 50% owned Unconsolidated Joint Venture property). We have no maturities on our current
debt until fall 2010, when $335 million at 100% and $262 million at our beneficial share of three loans mature.
Further, of the $649 million at 100% and $362 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. We hope to finalize the
refinancing on the Partridge Creek loan during the first half of 2010, extending the maturity for three years with a
one-year extension option. We expect a 2% LIBOR floor and a spread of 3.5%, which with fees would result in an
all-in rate of nearly 6%. We are in discussions with a variety of lenders to refinance the MacArthur and Arizona
Mills loans that also mature in 2010.
Summaries of 2009 Capital Activities and Transactions
As of December 31, 2009, we had a consolidated cash balance of $19.6 million, of which $3.5 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, 2009, the total amount utilized of the $550 million and $40 million lines of credit
was $148 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 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 shares.
Our $135 million loan at The Pier Shops is currently in default. Under the terms of the agreement, interest
accrues at 10.01%, the original stated rate of 6.01% plus 4% due to the default. See “Note 4 – Properties – The
Pier Shops at Caesars” to our consolidated financial statements.
Operating Activities
Our net cash provided by operating activities was $236.2 million in 2009, compared to $253.4 million in 2008
and $257.8 million in 2007. See also “Results of Operations” for descriptions of 2009, 2008, and 2007
transactions affecting operating cash flow.
Investing Activities
Net cash provided by investing activities was $6.3 million in 2009, compared to $111.1 million used in 2008 and
$227.7 million used in 2007. Cash used in investing activities was impacted by the timing of capital expenditures.
Additions to properties in 2009 related to additions to existing centers, site improvements, and other capital items.
Additions to properties in 2008 related to the construction of Partridge Creek, our Oyster Bay Project, and the
expansion and renovation at Twelve Oaks, as well as other development activities and other capital items.
Additions to properties in 2007 related to the construction of Partridge Creek, 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 2009 and 2008 capital spending is shown in “Capital Spending.”
44
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” to 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. In 2009, the
$54.3 million was returned to us when our agreements terminated because the financing for the project was not
completed. See “Note 7 – Deferred Charges and Other Assets” to our consolidated financial statements for more
details regarding these transactions. In 2008 and 2007, $2.7 million and $3.4 million, respectively, were used to
acquire marketable equity securities and other assets. During 2009, we issued $7.2 million in notes receivable to
fund the noncontrolling partner’s share of the settlement at Westfarms that was paid in December 2009 (see
“Note 15 – Commitments and Contingencies – Litigation” to our consolidated financial statements). Also in 2009,
we received a $4.5 million repayment of a note receivable. 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 $28.7 million and
$12.1 million in 2009 and 2008, respectively, included $1.0 million and $7.2 million, respectively, of funding and
costs related to our Sarasota joint venture. Contributions to Unconsolidated Joint Ventures in 2009 also included
$26.8 million to fund our share of the settlement at Westfarms that was paid in December 2009. Contributions to
Unconsolidated Joint Ventures of $15.2 million in 2007 were made primarily to fund the expansions at Stamford
and Waterside.
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 $36.9 million in 2009,
compared to $63.3 million in 2008 and $3.0 million in 2007. The amount in 2008 included excess proceeds from
the Fair Oaks refinancing. Net proceeds from sales of peripheral land were $6.3 million and $1.1 million in 2008
and 2007, respectively. The timing of land sales is variable and proceeds from land sales can vary significantly
from period to period.
Financing Activities
Net cash used in financing activities was $284.9 million in 2009 compared to $127.3 million in 2008 and
$9.3 million in 2007. Net cash used in financing activities was primarily impacted by cash requirements of the
investing activities described in the preceding section. Payments of debt, net of proceeds from issuances, were
$105.0 million in 2009, and were funded in part using the returned deposit from The Mall at Studio City. Proceeds
from the issuance of debt, net of payments and issuance costs, were $93.2 million in 2008 and $244.2 million in
2007. Repurchases of common stock totaled $100.0 million in 2007. In 2009, $14.7 million was received in
connection with incentive plans, compared to $3.8 million and $0.4 million in 2008 and 2007, respectively. Total
dividends and distributions paid were $192.5 million, $221.3 million, and $149.7 million in 2009, 2008, and 2007,
respectively. Common dividends paid in 2009 increased primarily due to a change in the timing of quarterly
dividend payments. Distributions to noncontrolling interests in 2008 included $51.3 million of excess proceeds
from the refinancing of International Plaza.
45
Beneficial Interest in Debt
At December 31, 2009, the Operating Partnership's debt and its beneficial interest in the debt of its
Consolidated Businesses and Unconsolidated Joint Ventures totaled $2,891.8 million, with an average interest
rate of 5.39% excluding amortization of debt issuance costs and interest rate hedging costs. These costs are
reported as interest expense in the results of operations. Interest expense for the year ended December 31, 2009
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 $69.1 million as of December 31, 2009, which includes $24.9 million of
assets on which interest is being capitalized. Beneficial interest in capitalized interest was $1.3 million for 2009.
The following table presents information about our beneficial interest in debt as of December 31, 2009:
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 (3)
Average all-in rate
Amount
(in millions of dollars)
2,367.6
Interest Rate
Including Spread
5.87% (1) (2)
162.8
125.0
15.0
302.8
221.5
524.3
2,891.8
5.01%
4.22%
5.95%
4.73% (1)
1.09% (1)
3.19% (1)
5.39% (1)
0.19%
5.58% (2)
(1) Represents weighted average interest rate before amortization of financing costs.
(2) The Pier Shops’ loan is in default. As of December 2009 interest is accruing at the default rate of 10.01% versus the original stated rate
of 6.01% and accumulating in interest payable. Excluding our beneficial interest in The Pier Shops’ debt of $104.6 million from the
table changes the average fixed rate to 5.68% and the average all-in rate to 5.41%.
(3) Financing costs include financing fees and costs related to interest rate agreements of certain fixed rate debt.
(4) Amounts in table may not add due to rounding.
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, 2009, a one percent increase in
interest rates on this floating rate debt would decrease cash flows and, due to the effect of capitalized interest,
annual earnings by approximately $2.2 million, while a one percent decrease in interest rates on this floating rate
debt would increase cash flows and, due to the effect of capitalized interest, annual earnings by approximately
$2.1 million. Based on our consolidated debt and interest rates in effect at December 31, 2009, a one percent
increase in interest rates would decrease the fair value of debt by approximately $80.4 million, while a
one percent decrease in interest rates would increase the fair value of debt by approximately $84.7 million.
46
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, 2009 for our
consolidated businesses, including expected settlement periods, is contained below:
Payments due by period
Total
Less than 1
year (2010)
1-3 years
(2011-2012)
3-5 years
(2013-2014)
More than 5
years (2015+)
(in millions of dollars)
Debt (1) (2)
Interest payments (1) (2)
Capital lease obligations
Operating leases (3)
Purchase obligations:
Planned capital spending
Other purchase obligations (3)(4)
Other long-term liabilities and
commitments(5)
Total
2,691.0
569.6
0.4
364.3
77.2
13.6
349.8
132.9
0.3
9.7
77.2
3.1
567.6
200.6
0.1
15.1
5.2
66.3
3,782.5
3.3
576.3
2.1
790.5
538.1
164.8
14.3
4.7
2.5
724.5
1,235.5
71.3
325.2
0.6
58.5
1,691.1
(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, 2009.
(2) The Pier Shops’ loan is in default and is shown as an obligation in the current year. The debt is accruing interest at the default rate.
Other than the interest accrued at December 31, 2009, interest related to The Pier Shops’ loan is excluded from the table because of
the uncertain length of time the debt will remain outstanding. See “Note 4 – Properties – The Pier Shops at Caesars” to our
consolidated financial statements.
(3) Excludes The Pier Shops.
(4) Excludes purchase agreements with cancellation provisions of 90 days or less.
(5) Other long-term liabilities consist of various accrued liabilities, most significantly assessment bond obligations and long-term incentive
compensation.
(6) 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. This covenant
requires that we maintain a minimum fixed charges coverage ratio of more than 1.5 over a trailing 12-month
period. As of December 31, 2009, our minimum fixed charges coverage ratio was 2.2. Other than The Pier Shops’
loan, which is in default, we are in compliance with all of our covenants and loan obligations as of December 31,
2009. The default on this loan did not trigger any cross defaults on our lines of credit or any other indebtedness
(see “Note 4 – Properties” to our consolidated financial statements). 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 8 – Notes Payable – Debt Covenants and Guarantees” to our
consolidated financial statements for more details on loan guarantees.
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
our consolidated financial statements for more details.
47
Capital Spending
City Creek Center
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 are currently providing development and leasing services and will be the
manager for the retail space, which we will own under a participating lease. City Creek Reserve, Inc. (CCRI), an
affiliate of the LDS Church, is the participating lessor and will provide all of the construction financing. We expect
an approximately 11% to 12% return on our approximately $76 million investment, of which $75 million will be
paid to CCRI upon opening of the retail center. Upon completion of all agreements, we will be required to maintain
a $25 million letter of credit until the $75 million is paid to CCRI. As of December 31, 2009, the capitalized cost of
this project was $0.9 million. Construction is progressing and we are leasing space for an early 2012 opening.
2009 and 2008 Capital Spending
Capital spending for routine maintenance of the shopping centers is generally recovered from tenants. Capital
spending during 2009 is summarized in the following table:
2009 (1)
Beneficial
Interest in
Consolidated
Businesses
Consolidated
Businesses
Unconsolidated
Joint Ventures
Beneficial
Interest in
Unconsolidated
Joint Ventures
Site improvements (2)
Existing Centers:
Projects with incremental GLA
Projects with no incremental GLA and other
Mall tenant allowances (3)
Asset replacement costs reimbursable by tenants
Corporate office improvements, technology, and
equipment
Additions to properties
2.5
11.5
4.9
19.0
14.2
0.6
52.8
(in millions of dollars)
2.5
6.5
4.6
17.3
12.2
0.6
43.7
0.4
2.4
4.0
5.5
0.1
1.2
2.3
3.0
12.3
6.6
Includes costs related to land acquired for future development in North Atlanta, Georgia.
(1) Costs are net of intercompany profits and are computed on an accrual basis.
(2)
(3) Excludes initial lease-up costs.
(4) Amounts in this table may not add due to rounding.
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, 2009:
Consolidated Businesses’ capital spending
Differences between cash and accrual basis
Additions to properties
(in millions of dollars)
52.8
1.8
54.6
48
Capital spending during 2008, excluding acquisitions, is summarized in the following table:
2008 (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:
Projects with incremental GLA
Projects with no incremental GLA 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
18.8
4.8
11.7
12.2
4.0
6.7
2.9
7.3
7.9
54.1
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 2008 impairment charges. 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.
(5)
Includes U.S. and Asia offices.
(6) Amounts in this table may not add due to rounding.
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 $21.50 in 2009 and $18.09 in 2008. In
addition, the Operating Partnership's share of capitalized leasing and tenant coordination costs excluding new
developments, was $6.6 million and $7.6 million in 2009 and 2008, respectively, or $6.85 and $7.76, in 2009 and
2008, respectively, per square foot leased.
Planned Capital Spending
The following table summarizes planned capital spending for 2010:
Existing centers (2)
Corporate office improvements, technology, and
equipment
Total
2010 (1)
Beneficial
Interest in
Consolidated
Businesses
Consolidated
Businesses
Unconsolidated
Joint Ventures
Beneficial
Interest in
Unconsolidated
Joint Ventures
(in millions of dollars)
76.2
1.0
77.2
73.2
1.0
74.2
12.9
12.9
7.1
7.1
(1) Costs are net of intercompany profits.
(2) Primarily includes costs related to renovations, mall tenant allowances, and asset replacement costs reimbursable by tenants.
(3) Amounts in this table may not add due to rounding.
Estimates of future capital spending include only projects approved by our Board of Directors and,
consequently, estimates will change as new projects are approved.
49
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. We intend to continue to pay dividends in cash in 2010,
subject to our Board of Directors’ approval.
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 3, 2009, we declared a quarterly dividend of $0.415 per common share, $0.50 per share on our
8% Series G Preferred Stock, and $0.4765625 on our 7.625% Series H Preferred Stock, all of which were paid on
December 31, 2009 to shareowners of record on December 15, 2009.
50
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. CHANGES 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, 2009, 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 2009 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,” “Proposal 1 – Election of Directors
– Committees of the Board,” "Proposal 1 – Election of Directors – Corporate Governance,” “Executive Officers,”
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,” “Proposal 1 – Election of Directors – Committees of the Board,” and “Named Executive
Officer Compensation Tables.”
51
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, 2009:
Equity compensation plans approved by security holders:
The Taubman Company 2008 Omnibus Long-Term
Incentive Plan: (1)
Options
Performance Share Units (2)
Restricted Share Units
1992 Incentive Option Plan (4)
The Taubman Company 2005 Long-Term Incentive Plan (5)
Equity compensation plan not approved by security holders -
Non-Employee Directors’ Deferred Compensation Plan (6)
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)
309,132
590,829
363,001
1,320,477
204,109
2,787,548
43,467
2,831,015
$15.24
39.92
(3)
(3)
(3)
(7)
$35.24
1,935,211 (1)
1,935,211
(8)
1,935,211
(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) Amount represents 196,943 performance share units (PSU) at their maximum payout ratio of 300%. This amount may overstate dilution
to the extent actual performance is different than such assumption. The actual number of PSU that may ultimately vest will range from 0 –
300% based on the Company’s market performance relative to that of a peer group.
(3) Excludes restricted stock units issued under the Long-Term Incentive Plan and Omnibus Plan and performance share units under the
Omnibus Plan because they are converted into common stock on a one-for-one basis at no additional cost.
(4) Under the 1992 Incentive Option Plan, employees received TRG Units upon the exercise of their vested options, and each TRG Unit
generally will 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)).
(5) Under The Taubman Company 2005 Long-Term Incentive Plan, employees received restricted stock units, which represent the right to
one share of common stock upon vesting.
(6) 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.
(7) The restricted stock units are excluded because they are converted into common stock on a one-for-one basis at no additional cost.
(8) 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 information appearing in
the Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management –
Ownership Table.”
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item is hereby incorporated by reference to the information appearing in the
Proxy Statement under the caption “Related Person Transactions,” and "Proposal 1 – Election of Directors –
Directors.”
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.”
52
Item 15. EXHIBITS, 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, 2009 and 2008
Consolidated Statement of Operations for the years ended December 31, 2009,
2008, and 2007
Consolidated Statement of Changes in Equity for the years ended December 31,
2009, 2008, and 2007
Consolidated Statement of Cash Flows for the years ended December 31, 2009,
2008, and 2007
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-5
F-6
F-7
F-8
F-9
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,
2009, 2008, and 2007
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2009
F-43
F-44
15(a)(3)
3(a)
-- Restated By-Laws of Taubman Centers, Inc. (incorporated herein by reference to
Exhibit 3.1 filed with the Registrant's Current Report on Form 8-K dated December 16,
2009).
3(b)
-- 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).
4(a)
--
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")).
4(b)
-- 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).
4(c)
--
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).
4(d)
4(e)
4(f)
-- 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).
53
4(g)
--
4(h)
--
4(i)
--
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).
4(j)
--
4(k)
--
4(l)
--
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)
--
4(o)
--
4(p)
--
4(q)
--
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).
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).
54
*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).
*10(b)
--
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”)).
*10(c)
-- 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”)).
*10(d)
--
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).
*10(e)
--
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).
*10(f)
--
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).
10(g)
10(h)
-- 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)
the Taubman Company Long-Term Performance
-- Second Amendment
January 1,
Compensation Plan
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).
to
(as amended and
restated effective
*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)
-- 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).
55
*10(o)
-- 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) (incorporated herein
by reference to Exhibit 10(o) filed with the 2008 Form 10-K).
*10(p)
--
Form of Amended and Restated Change of Control Employment Agreement, dated
December 18, 2008 (revised for Code Section 409A compliance) (incorporated herein
by reference to Exhibit 10(p) filed with the 2008 Form 10-K).
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 to Second Amendment to the Second Amendment and Restatement of
Agreement of Limited Partnership of The Taubman Realty Group Limited Partnership.
-- 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).
10(v)
--
First Amendment to the Second Amendment and Restatement of Agreement of
Limited Partnership of The Taubman Realty Group Limited Partnership effective as of
September 30, 1998.
10(w)
-- 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(x)
--
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(y)
--
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(z)
--
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(aa)
10(ab)
-- 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).
56
10(ac)
-- 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(ad)
--
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(ae)
10(af)
-- 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”)).
-- 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(ag)
-- 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(ah)
--
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(ai)
--
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(aj)
--
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(ak)
-- 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(al)
--
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(am)
--
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(an)
--
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 (incorporated herein by reference to Exhibit 10(am) filed
with the 2008 Form 10-K).
*10(ao)
-- Second Amendment to the Master Services Agreement between The Taubman Realty
Group Limited Partnership and the Manager, dated December 23, 2008 (incorporated
herein by reference to Exhibit 10(an) filed with the 2008 Form 10-K).
*10(ap)
--
Form of Taubman Centers, Inc. Non-Employee Directors’ Deferred Compensation
Plan Amendment Agreement (revised for Code Section 409A compliance)
(incorporated herein by reference to Exhibit 10(ap) filed with the 2008 Form 10-K).
*10(aq)
--
First Amendment to The Taubman Company Supplemental Retirement Savings Plan,
dated December 12, 2008 (revised for Code Section 409A compliance) (incorporated
herein by reference to Exhibit 10(aq) filed with the 2008 Form 10-K).
57
*10(ar)
-- Amendment to The Taubman Centers, Inc. Change of Control Severance Program,
dated December 12, 2008 (revised for Code Section 409A compliance) (incorporated
herein by reference to Exhibit 10(ar) filed with the 2008 Form 10-K).
*10(as)
--
Form of The Taubman Company Long-Term Performance Compensation Plan
Amendment Agreement (revised for Code Section 409A compliance) (incorporated
herein by reference to Exhibit 10(as) filed with the 2008 Form 10-K).
*10(at)
-- Amendment to Employment Agreement, dated December 22, 2008, for Lisa A. Payne
(revised for Code Section 409A compliance) (incorporated herein by reference to
Exhibit 10(at) filed with the 2008 Form 10-K).
*10(au)
--
First Amendment to the Master Services Agreement between The Taubman Realty
Group Limited Partnership and the Manager, dated September 30, 1998 (incorporated
herein by reference to Exhibit 10(au) filed with the 2008 Form 10-K).
*10(av)
-- The Form of Fair Competition Agreement, by and between the Company and various
officers of the Company (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,
2009).
*10(aw)
-- Separation Agreement and Release, dated October 4, 2009, for Morgan Parker.
*10(ax)
-- Assignment of Membership Interest in Taubman Properties Asia LLC between
Morgan Parker and Taubman Asia Management II LLC, dated October 4, 2009.
10(ay)
-- Settlement Agreement between Raymond Road Associates, LLC, BBS Development,
LLC, and Blue Back Square, LLC and The Taubman Company LLC, West Farms
Associates, and West Farms Mall, LLC, dated December 8, 2009.
*10(az)
--
Form of The Taubman Company LLC 2008 Omnibus Long-Term Incentive Plan
Restricted Share Unit Award Agreement (incorporated by reference to Exhibit 10(a)
filed with the Registrant’s Current Report on Form 8-K dated March 10, 2009).
*10(ba)
--
*10(bb)
--
Form of The Taubman Company LLC 2008 Omnibus Long-Term Incentive Plan
Option Award Agreement (incorporated by reference to Exhibit 10(b) filed with the
Registrant’s Current Report on Form 8-K dated March 10, 2009).
Form of The Taubman Company LLC 2008 Omnibus Long-Term Incentive Plan
Restricted and Performance Share Unit Award Agreement (incorporated by reference
to Exhibit 10(c) filed with the Registrant’s Current Report on Form 8-K dated March
10, 2009).
*10(bc)
-- Summary of modification to the Employment Agreement between The Taubman
Company Asia Limited and Morgan Parker (incorporated herein by reference to
Exhibit 10(ao) filed with the 2008 Form 10-K).
12
21
23
-- 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.
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.
58
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).
Note: The Company has not filed certain instruments with respect to long-term debt that did not exceed 10% of
the Company’s total assets on a consolidated basis. A copy of such instruments will be furnished to the
Commission upon request.
59
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, 2009 and 2008
Consolidated Statement of Operations for the years ended December 31, 2009, 2008, and 2007
Consolidated Statement of Changes in Equity for the years ended December 31, 2009, 2008, and 2007
Consolidated Statement of Cash Flows for the years ended December 31, 2009, 2008, and 2007
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, 2009, 2008, and 2007
F-43
Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2009
F-44
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, 2009. 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, 2009.
Based on its assessment, management believes that Taubman Centers, Inc. maintained effective internal control
over financial reporting as of December 31, 2009. The independent registered public accounting firm, KPMG LLP,
that audited the 2009 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, 2009 and 2008, and the related consolidated statements of operations, changes in equity, and cash
flows for each of the years in the three-year period ended December 31, 2009. 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, 2009 and 2008, and the results of their operations
and their cash flows for each of the years in the three-year period ended December 31, 2009, 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.
As discussed in Note 9 to the consolidated financial statements, Taubman Centers, Inc. has changed their method
of accounting for noncontrolling interests due to the adoption of a new accounting pronouncement for noncontrolling
interests, as of January 1, 2009.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Taubman Centers, Inc.’s internal control over financial reporting as of December 31, 2009, 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 26, 2010 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
KPMG LLP
Chicago, Illinois
February 26, 2010
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, 2009, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Taubman Centers, Inc.’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, Taubman Centers, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2009, 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, 2009 and 2008, and the
related consolidated statements of operations, changes in equity, and cash flows for each of the years in the three-
year period ended December 31, 2009, and our report dated February 26, 2010 expressed an unqualified opinion on
those consolidated financial statements.
KPMG LLP
Chicago, Illinois
February 26, 2010
F-4
TAUBMAN CENTERS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
Assets:
Properties (Notes 4 and 8)
Accumulated depreciation and amortization
Investment in Unconsolidated Joint Ventures (Note 5)
Cash and cash equivalents
Accounts and notes receivable, less allowance for doubtful accounts and notes
of $6,894 and $9,895 in 2009 and 2008 (Note 6)
Accounts receivable from related parties (Note 12)
Deferred charges and other assets (Note 7)
Liabilities:
Notes payable (Note 8)
Accounts payable and accrued liabilities
Dividends payable
Distributions in excess of investments in and net income of Unconsolidated
Joint Ventures (Note 5)
Commitments and contingencies (Notes 4, 8, 10, 11, 13, and 15)
Equity (Note 14):
Taubman Centers, Inc. Shareowners’ Equity:
Series B Non-Participating Convertible Preferred Stock, $0.001 par and
liquidation value, 40,000,000 shares authorized, 26,359,235 and
December 31
2009
2008
$ 3,496,853
(1,100,610)
$ 2,396,243
89,804
19,640
44,503
1,558
55,105
$ 2,606,853
$ 2,691,019
230,276
$ 3,699,480
(1,049,626)
$ 2,649,854
89,933
62,126
46,732
1,850
124,487
$ 2,974,982
$ 2,796,821
262,226
22,002
160,305
$ 3,081,600
154,141
$ 3,235,190
26,429,235 shares issued and outstanding at December 31, 2009 and 2008
$
26
$
26
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, 2009 and 2008
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, 2009 and 2008
Common Stock, $0.01 par value, 250,000,000 shares authorized, 54,321,586
and 53,018,987 shares issued and outstanding at December 31, 2009 and
2008
Additional paid-in capital
Accumulated other comprehensive income (loss) (Note 10)
Dividends in excess of net income
Noncontrolling interests (Note 9)
543
579,983
(24,443)
(884,666)
$ (328,557)
530
556,145
(29,778)
(726,097)
$ (199,174)
(146,190)
$ (474,747)
$ 2,606,853
(61,034)
$ (260,208)
$ 2,974,982
See notes to consolidated financial statements.
F-5
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share data)
Year Ended December 31
2008
2007
2009
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 charges (Note 4)
Restructuring charge (Note 12)
Interest expense
Depreciation and amortization
Gains on land sales and other nonoperating income
Impairment loss on marketable securities (Note 17)
Income (loss) before income tax expense and equity in income of
Unconsolidated Joint Ventures
Income tax expense (Note 3)
Equity in income of Unconsolidated Joint Ventures (Note 5)
Net income (loss)
Net (income) loss attributable to noncontrolling interests (Note 9)
Net income (loss) attributable to Taubman Centers, Inc.
Distributions to participating securities of TRG (Note 13)
Preferred stock dividends (Note 14)
Net income (loss) attributable to Taubman Centers, Inc. common shareowners
Basic earnings (loss) per common share (Note 16)
Diluted earnings (loss) per common share (Note 16)
Cash dividends declared per common share
$ 341,914
10,818
246,377
21,179
45,816
$ 666,104
$ 189,061
67,182
7,862
27,858
166,680
2,512
145,670
147,316
$ 754,141
711
(1,666)
$ (88,992)
(1,657)
11,488
$ (79,161)
25,649
$ (53,512)
(1,560)
(14,634)
$ (69,706)
$
$
$
(1.31)
(1.31)
1.660
$ 353,200
13,764
248,555
15,911
40,068
$ 671,498
$ 189,162
79,595
8,710
28,110
117,943
147,397
147,441
$ 718,358
4,569
$
$ (42,291)
(1,117)
35,356
(8,052)
(62,527)
$ (70,579)
(1,446)
(14,634)
$ (86,659)
$
$
$
(1.64)
(1.64)
1.660
$ 329,420
14,817
228,418
16,514
37,653
$ 626,822
$ 175,948
69,638
9,080
30,403
131,700
137,910
$ 554,679
3,595
$ 75,738
40,498
$ 116,236
(51,782)
$ 64,454
(1,330)
(14,634)
$ 48,490
$
$
$
0.92
0.90
1.540
Weighted average number of common shares outstanding – basic
53,239,279
52,866,050
52,969,067
See notes to consolidated financial statements.
F-6
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TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31
2008
2009
2007
Cash Flows From Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization
Impairment loss on marketable securities
Impairment charges
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:
Receivable, 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)
Refund (funding) of The Mall at Studio City escrow (Note 7)
Proceeds from sales of land and land-related rights
Acquisition of marketable equity securities and other assets
Repayments of notes receivable (Note 6)
Issuances of notes receivable (Note 6)
Contributions to Unconsolidated Joint Ventures
Distributions from Unconsolidated Joint Ventures in excess of income
Other
Net Cash Provided By (Used In) Investing Activities
Cash Flows From Financing Activities:
Debt proceeds
Debt payments
Debt issuance costs
Repurchase of common stock (Note 14)
Issuance of common stock and/or partnership units in connection with
incentive plans (Notes 13 and 15)
Distributions to noncontrolling interests in TRG (Note 9)
Distributions to participating securities of TRG
Cash dividends to preferred shareowners
Cash dividends to common shareowners
Other
Net Cash Used In Financing Activities
$ (79,161)
$
(8,052)
$ 116,236
147,316
1,666
166,680
2,081
11,281
147,441
137,910
117,943
6,088
(2,816)
10,770
1,830
(668)
9,592
5,613
(19,304)
$ 236,172
(5,596)
(12,358)
$ 253,420
(22,652)
15,588
$ 257,836
$ (54,592)
$ (99,964)
(11,838)
$(219,847)
54,334
4,500
(7,160)
(28,718)
36,903
985
6,252
$
(24,504)
33,388
1,138
(3,435)
(2,228)
(15,162)
2,990
(54,334)
6,268
(2,655)
223
(12,111)
63,269
$(111,142)
$(227,660)
$
978
(106,026)
$ 335,665
(239,072)
(3,419)
14,737
(65,810)
(1,560)
(14,634)
(110,492)
(2,103)
$ (284,910)
3,809
(117,495)
(1,446)
(14,634)
(87,679)
(3,047)
$ (127,318)
$ 263,086
(16,044)
(2,892)
(100,000)
363
(54,339)
(1,330)
(14,634)
(79,384)
(4,118)
(9,292)
$
Net Increase (Decrease) In Cash and Cash Equivalents
$ (42,486)
$ 14,960
$ 20,884
Cash and Cash Equivalents at Beginning of Year
62,126
47,166
26,282
Cash and Cash Equivalents at End of Year
$ 19,640
$ 62,126
$ 47,166
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 (the
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,
2009 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 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. See Note 9 for information relating to the Company’s policies on
noncontrolling interests including the adoption of new requirements in 2009.
Investments in entities not controlled but over which the Company may exercise significant influence
(Unconsolidated Joint Ventures or UJVs) 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. Accordingly, the Company accounts for its interests in these entities under general
accounting standards for investments in real estate ventures (including guidance for determining effective control
of a limited partnership or similar entity). The Company’s partners or other owners in these Unconsolidated Joint
Ventures have substantive participating rights 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.
The Operating Partnership
At December 31, 2009, 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 (Note 14), 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 and accounted for as a noncontrolling interest of
the Company.
F-9
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
The partnership equity of the Operating Partnership and the Company's ownership therein are shown below:
TRG units
outstanding at
December 31
80,699,271
79,481,431
79,181,457
TRG units
owned by TCO at
December 31 (1)
54,321,586
53,018,987
52,624,013
Year
2009
2008
2007
TRG units owned
by noncontrolling
interests at
December 31
26,377,685
26,462,444
26,557,444
TCO's % interest
in TRG at
December 31
67%
67
66
TCO's average
interest in TRG
67%
67
66
(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.
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 and Notes
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 primarily depreciated on straight-line 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, on a straight-line
basis, 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.
Capitalization
Direct and indirect costs that are clearly related to the acquisition, development, construction and improvement
of properties are capitalized. Compensation costs are allocated based on actual time spent on a project. Costs
incurred on real estate for ground leases, property taxes, insurance, and interest costs for qualifying assets are
capitalized during periods in which activities necessary to get the property ready for its intended use are in
progress.
F-10
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
The viability of all projects under construction or development, including those owned by Unconsolidated Joint
Ventures, are regularly evaluated on an individual basis under the accounting for 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 third quarter of 2009, the Company recognized impairment charges on its investments in The
Pier Shops and Regency Square (Note 4). In the fourth quarter of 2008, the Company recognized impairment
charges on its Oyster Bay project (Note 4) and its Sarasota joint venture project (Note 5).
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
Cash equivalents consist of highly liquid investments with a maturity of 90 days or less at the date of purchase.
Cash equivalents include $11.3 million at December 31, 2009 invested in a single investment company's money
market funds, which are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
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).
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.
F-11
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Share-Based Compensation Plans
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 federal income taxes for consolidated partnerships has been made, as such taxes are the
responsibility of the individual partners. There are certain state income taxes incurred which are provided for in
the Company’s financial statements.
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, including certain foreign income taxes for
foreign operations, 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.
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
accounting requirements 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, 2007, has an indefinite carryforward period.
F-12
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Finite Life Entities
ASC Topic 480, “Distinguishing Liabilities from 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, 2009, the Company held controlling majority interests in consolidated
entities with specified termination dates in 2081 and 2083. The noncontrolling 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 noncontrolling interests were approximately $107.1 million at
December 31, 2009, compared to a book value of $(98.9) million, which was classified as Noncontrolling Interests
in the Company’s Consolidated Balance Sheet.
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.
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.
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. 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. 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 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.
F-13
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
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, at that date, 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. In 2009, the Company recorded an
impairment of its investment in The Pier Shops (Note 4).
Note 3 – Income Taxes
Income Tax Expense
The Company’s income tax expense for the years ended December 31, 2009 and 2008 is as follows:
State:
Current
Deferred
Foreign:
Current
Total income tax expense
2009
2008
$ 1,017
385
$ 775
342
255
$ 1,657
$ 1,117
The Company had no federal income tax during these years as a result of net operating losses incurred by the
Company’s Taxable REIT Subsidiaries.
Net Operating Loss Carryforwards
As of December 31, 2009, the Company has a total federal net operating loss carryforward of $15.4 million,
expiring as follows:
$
Tax Year
2002
2003
2004
2005
2006
2007
2008
2009
Expiration
2022
-
2024
2025
2026
2027
2028
2029
Amount
56
-
3,009
380
176
3,304
5,326
3,168
The Company also has a foreign net operating loss carryforward of $3.4 million, $0.7 million of which has an
indefinite carryforward period, $0.9 million expires in 2013, and $1.8 million expires in 2019.
F-14
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Deferred Taxes
Deferred tax assets and liabilities as of December 31, 2009 and 2008 are as follows:
Deferred tax assets:
Federal
Foreign
State
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Federal
State
Total deferred tax liabilities
2009
2008
$ 8,697
1,513
6,467
$ 16,677
(9,090)
$ 7,587
$ 9,188
1,183
3,910
$ 14,281
(7,535)
$ 6,746
$
615
4,396
$ 5,011
$
33
3,769
$ 3,802
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 assets. These future operations are primarily dependent upon
the Manager’s profitability, the timing and amounts of gains on land sales, the profitability of the Company’s Asian
operations, the future profitability of the Company’s unitary filing group for Michigan Business Tax purposes, and
other factors affecting the results of operations of the Taxable REIT Subsidiaries. The valuation allowances relate
to net operating loss carryforwards or tax basis differences where there is uncertainty regarding their realizability.
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 2009, 2008, and 2007 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
1.660
1.540
Year
2009
2008
2007
Return
of capital
$0.6467
0.0000
0.0000
Ordinary
income
$1.0133
1.3324
1.5385
15% Rate
long term
capital gain
$0.0000
0.3011
0.0015
Unrecaptured
Sec. 1250
capital gain
$0.0000
0.0265
0.0000
Dividends per
Series G Preferred
share declared
$2.000
2.000
2.000
Dividends per
Series H Preferred
share declared
$1.9063
1.9060
1.9060
Year
2009
2008
2007
Year
2009
2008
2007
Ordinary
income
$2.0000
1.6053
1.9981
Ordinary
income
$1.9063
1.5300
1.9042
15% Rate
long term
capital gain
$0.0000
0.3628
0.0019
15% Rate
long term
capital gain
$0.0000
0.3457
0.0018
Unrecaptured
Sec. 1250
capital gain
$0.0000
0.0319
0.0000
Unrecaptured
Sec. 1250
capital gain
$0.0000
0.0303
0.0000
F-15
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Uncertain Tax Positions
The Company had no unrecognized tax benefits as of or during the three year period ended December 31,
2009. The Company expects no significant increases or decreases in unrecognized tax benefits due to changes
in tax positions within one year of December 31, 2009. The Company has no material interest or penalties relating
to income taxes recognized in the Consolidated Statement of Operations for the years ended December 31, 2009,
2008, and 2007 or in the Consolidated Balance Sheet as of December 31, 2009 and 2008. As of December 31,
2009, returns for the calendar years 2006 through 2009 remain subject to examination by U.S. and various state
and foreign tax jurisdictions.
Note 4 – Properties
Properties at December 31, 2009 and December 31, 2008 are summarized as follows:
Land
Buildings, improvements, and equipment
Construction in process
Development pre-construction costs
Accumulated depreciation and amortization
2009
2008
$ 263,619
$ 254,994
3,363,638
3,173,724
10,650
4,040
61,573
64,095
$ 3,496,853
$ 3,699,480
(1,100,610) (1,049,626)
$ 2,649,854
$ 2,396,243
Buildings, improvements, and equipment under capital leases were $0.4 million and $2.5 million at
December 31, 2009 and 2008, respectively. Amortization of assets under capital leases is included within
depreciation expense.
Depreciation expense for 2009, 2008, and 2007 was $139.7 million, $138.7 million, and $128.4 million,
respectively.
The charge to operations in 2009, 2008, and 2007 for domestic and non-U.S. pre-development activities was
$12.3 million, $18.5 million, and $11.9 million, respectively.
The Pier Shops at Caesars
In September 2009, the Company concluded that the carrying value (book value) of the investment in the
consolidated joint venture that owns The Pier Shops was impaired and recognized a non-cash charge of
$107.7 million, which was allocated primarily to buildings and improvements. The charge represents the excess of
The Pier Shops’ book value of the investment over its fair value of approximately $52 million. The Operating
Partnership’s share of the charge was $101.8 million. The Company’s conclusion was based on a decision by its
Board of Directors, in connection with a review of the Company’s capital plan, to discontinue the Company’s
financial support of The Pier Shops. The $135 million loan encumbering the center was turned over to the special
servicer and is currently in default. The Company will continue to record the operations of the center in its results
until the loan obligation is extinguished upon transfer of the title of The Pier Shops.
The Board’s decision considered that The Pier Shops’ current cash flows, as well as estimates of future cash
flows, are insufficient to cover debt service and operating costs due to economic conditions, tenant sales
performance, high capital requirements to complete the property’s lease-up, high operating costs, and the
anticipated refinancing shortfall at the loan’s maturity in May 2017. The default on this loan did not trigger any
cross defaults on the Company’s lines of credit or any other indebtedness.
F-16
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Regency Square
In September 2009, the Company concluded that the carrying value of the investment in Regency Square was
also impaired and recognized a non-cash charge of $59.0 million, of which $9.6 million was allocated to land and
$49.4 million to buildings and improvements. The charge represents the excess book value of the investment over
its fair value of approximately $29 million. The Company’s conclusion was based on current estimates of future
cash flows for the property, which will be negatively impacted by necessary capital expenditures and declining net
operating income. At the current level of cash flow, Regency Square intends to continue to service its non-
recourse mortgage loan. This loan has a principal balance of $74.1 million as of December 31, 2009, with
$71.6 million due on this amortizing loan at its maturity in November 2011.
Oyster Bay
In January 2009, the Appellate Division of the Supreme Court of the State of New York, Second Department,
reversed the Supreme Court's order directing the Town Board of the Town of Oyster Bay to issue a special use
permit for the construction of The Mall at Oyster Bay. The court also held that the Town Board's request for a
supplemental environmental impact statement was proper. 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. 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 included 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. In June 2009, the
Court of Appeals of the State of New York denied the Company’s motion for leave to appeal the January 2009
decision of the Appellate Division of the Supreme Court of the State of New York. The Company is expensing
costs relating to Oyster Bay until it is probable that it will be able to successfully move forward with a project. The
Company began expensing carrying costs as incurred in the fourth quarter of 2008. The Company’s remaining
capitalized investment in the project as of December 31, 2009 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.
Other
One shopping center pays annual special assessment levies of a Community Development District (CDD), for
which the Company has capitalized the related infrastructure assets and improvements (Note 17).
Note 5 – 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).
Shopping Center
Arizona Mills
Fair Oaks
The Mall at Millenia
Stamford Town Center
Sunvalley
Waterside Shops
Westfarms
Ownership as of
December 31, 2009 and 2008
50%
50
50
50
50
25
79
F-17
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
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 Unconsolidated Joint
Ventures for which accumulated distributions have exceeded investments in and net income of the
Unconsolidated Joint Ventures. The net equity of certain Unconsolidated 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.
University Town Center
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 have owned a noncontrolling 25% interest in the
project. Due to the current economic and retail environment, in December 2008 the Company announced that the
project had 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 that existed at
December 31, 2008 represented the Company’s share of previously unpaid costs, which were funded in 2009.
Westfarms
See Note 15 for information on the litigation charges recognized in 2009 relating to the Westfarms joint venture.
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-18
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 $1,703 and $1,419 in 2009 and 2008
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
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
December 31
2009
2008
$1,094,963
(396,518)
$ 698,445
23,117
$1,087,341
(366,168)
$ 721,173
28,946
26,982
17,737
$ 766,281
26,603
20,098
$ 796,820
$1,092,806
50,615
(205,566)
$1,103,903
61,570
(201,466)
(171,574)
$ 766,281
(167,187)
$ 796,820
$ (205,566)
70,371
64,694
(70,501)
$
$ (201,466)
(1,005)
71,623
66,640
(64,208)
$
160,305
$ 89,804
154,141
$ 89,933
Revenues
Maintenance, taxes, utilities, and other operating expenses
Litigation charges (Note 15)
Interest expense
Depreciation and amortization
Total operating costs
Nonoperating income
Net income
Year Ended December 31
2008
2007
2009
$ 272,535
$ 95,775
38,500
64,405
38,396
$ 237,076
87
$ 35,546
$ 271,813
$ 93,218
$ 262,587
$ 90,782
65,002
39,756
$ 197,976
683
$ 74,520
66,232
37,355
$ 194,369
1,587
$ 69,805
Net income attributable 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
$ 10,748
$ 41,857
$ 40,518
2,686
(1,946)
3,770
(1,948)
(8,323)
1,924
(1,944)
$ 11,488
$ 35,356
$ 40,498
Beneficial interest in Unconsolidated Joint Ventures' operations:
Revenues less maintenance, taxes, utilities, and other
operating expenses
Interest expense
Depreciation and amortization
Impairment charge
$ 67,815
(33,427)
(22,900)
$ 101,089
(33,777)
(23,633)
$ 96,844
(33,311)
(23,035)
(8,323)
Equity in income of Unconsolidated Joint Ventures
$ 11,488
$ 35,356
$ 40,498
F-19
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Other
The provision for losses on accounts receivable of the Unconsolidated Joint Ventures was $0.9 million,
$1.0 million, and $1.2 million for the years ended December 31, 2009, 2008, and 2007, respectively.
Deferred charges and other assets of $17.7 million at December 31, 2009 were comprised of leasing costs of
$26.6 million, before accumulated amortization of $(13.7) million, net deferred financing costs of $2.6 million, and
other net charges of $2.2 million. 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.
The estimated fair value of the Unconsolidated Joint Ventures’ notes payable was $1.1 billion at both
December 31, 2009 and 2008.
Depreciation expense on properties for 2009, 2008, and 2007 was $33.8 million, $36.1 million, and
$33.2 million.
In January 2008 and the first quarter of 2007, the Company received adjustments relating to accounting policies
and procedures of The Mills Corporation 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.
Condensed Financial Information of Individually Significant Unconsolidated Joint Venture
The following is summarized financial information for West Farms Associates, an individually significant
Unconsolidated Joint Venture in 2009. This information is provided as of December 31, 2009 and 2008 and for
the years ended December 31, 2009, 2008, and 2007. The Company owns a 79% general partnership interest in
West Farms Associates, owner of Westfarms mall located in West Hartford, Connecticut. West Farms Associates
qualified as an individually significant subsidiary in 2009 under Regulation S-X’s computational tests as a result of
the litigation charges incurred during the year.
Assets:
Properties
Accumulated depreciation and amortization
Cash and cash equivalents
Accounts and notes receivable, less allowance for doubtful accounts
of $193 and $242 in 2009 and 2008
Deferred charges and other assets
Liabilities and accumulated deficiency in assets:
Notes payable
Accounts payable and other liabilities
TRG's accumulated deficiency in assets
Other general partners’ accumulated deficiency
in assets
December 31
2009
2008
$ 167,332
(81,734)
$ 85,598
2,784
$ 165,657
(76,492)
$ 89,165
6,441
1,592
3,290
$ 93,264
1,306
3,907
$ 100,819
$ 188,888
10,835
(82,272)
$ 192,591
11,706
(79,918)
(24,187)
$ 93,264
(23,560)
$ 100,819
TRG's accumulated deficiency in assets (above)
TRG basis adjustments, including elimination of intercompany profit
TCO's additional basis
Investment in West Farms Associates
$
$
(82,272)
(3,919)
22,685
(63,506)
$
$
(79,918)
(4,319)
23,368
(60,869)
F-20
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Revenues:
Minimum rents
Expense recoveries
Other
Expenses:
Repairs and maintenance
Real estate taxes
Other operating
Litigation charges (Note 15)
Interest expense
Depreciation and amortization
Nonoperating income
Net income (loss)
Net income (loss) attributable to TRG
Realized intercompany profit, net of depreciation on TRG’s
basis adjustments
Depreciation of TCO's additional basis
Equity in income (loss) of West Farms Associates
Year Ended December 31
2008
2009
2007
$ 34,079
17,033
1,517
$ 52,629
$ 31,888
16,476
3,075
$ 51,439
$ 32,434
15,626
1,975
$ 50,035
$
$
7,791
2,009
8,664
7,678
2,148
8,191
$
7,945
2,020
10,498
38,500
12,366
6,475
$ 77,804
18
12,557
6,738
$ 37,759
102
$ (25,157) $ 13,782
12,820
6,558
$ 37,395
136
$ 12,776
$ (19,861) $ 10,879
$ 10,085
1,593
(683)
1,813
(684)
1,535
(684)
$ 10,936
$ (18,951) $ 12,008
Year Ended December 31
2008
2007
2009
Cash Flows From Operating Activities:
Net income (loss)
Depreciation and amortization
Increase (decrease) in cash attributable to changes in assets and
liabilities
Other
Net cash provided by (used in) operating activities
Cash Flows Used In Investing Activities:
Additions to mall facilities
Cash Flows from Financing Activities:
Mortgage and other notes payable
Cash contributions
Cash distributions
Net cash provided by (used in) financing activities
$ (25,157)
6,475
$ 13,782
6,738
$ 12,776
6,558
1,749
476
$ (16,457)
(366)
476
$ 20,630
1,096
487
$ 20,917
$
(5,197)
$ (10,063)
$
(2,261)
$
(3,703)
34,000
(12,300)
$ 17,997
$
(3,491) $
(3,418)
(4,500)
(14,500)
(7,991) $ (17,918)
$
Net increase (decrease) in cash and cash equivalents
$
(3,657)
$
2,576 $
738
Cash and cash equivalents at the beginning of the year
6,441
3,865
3,127
Cash and cash equivalents at the end of the year
$
2,784
$
6,441 $
3,865
F-21
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 6 – Accounts and Notes Receivable
Accounts and notes receivable at December 31, 2009 and December 31, 2008 are summarized as follows:
Trade
Notes
Straight-line rent and recoveries
Other
Less: Allowance for doubtful accounts
and notes
2009
$ 21,767
9,175
20,455
$ 51,397
2008
$ 29,378
7,471
19,690
88
$ 56,627
(6,894)
$ 44,503
(9,895)
$ 46,732
Notes receivable as of December 31, 2009 provide interest at a range of interest rates from 2.9% to 7.5% (with
a weighted average interest rate of 3.9%) and mature at various dates through December 2019. The balances at
December 31, 2009 and 2008 included $2.0 million of notes receivable from three tenants at The Pier Shops. The
Company has recorded a provision of $1.4 million against these notes, which was charged to income in 2008.
The balance at December 31, 2009 included $7.2 million related to the joint venture partners at Westfarms for
their share of the litigation charges that were paid in 2009 (Note 15).
Note 7 – Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 2009 and December 31, 2008 are summarized as follows:
Leasing costs
Accumulated amortization
The Mall at Studio City escrow
Deferred financing costs, net
Intangibles, net
Insurance deposit (Note 17)
Investments (Note 17)
Deferred tax asset, net
Prepaid expenses
Other, net
2009
$ 33,991
(15,286)
$ 18,705
5,679
1,247
9,689
1,665
7,587
3,302
7,231
$ 55,105
2008
$ 38,700
(19,872)
$ 18,828
54,334
9,739
2,241
8,957
4,351
6,746
3,387
15,904
$ 124,487
Intangible assets are primarily comprised of the fair value of in-place leases recognized in connection with
acquisitions.
In 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. In August 2009, the Company’s Macao agreements were terminated and its initial
$54 million cash payment was returned because the financing for the project was not completed.
F-22
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 8 – Notes Payable
Notes payable at December 31, 2009 and December 31, 2008 consist of the following:
Beverly Center
Cherry Creek Shopping Center
Cherry Creek Shopping Center
Dolphin Mall
Fairlane Town Center
Great Lakes Crossing
International Plaza
MacArthur Center
Northlake Mall
The Mall at Partridge Creek
The Pier Shops at Caesars
(Note 4)
Regency Square
The Mall at Short Hills
Stony Point Fashion Park
Twelve Oaks Mall
The Mall at Wellington Green
Line of Credit
2009
2008
$ 328,365 $ 333,736
280,000
245
139,000
80,000
137,877
325,000
132,500
215,500
72,791
135,000
280,000
-
64,000
80,000
135,144
325,000
129,358
215,500
73,770
135,000
Stated
Interest Rate
5.28%
5.24%
Prime
LIBOR + 0.70%
LIBOR + 0.70%
5.25%
LIBOR +1.15% (2)
7.59%
5.41%
LIBOR + 1.15%
(3)
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)
10/01/10
02/06/16
09/07/10
(3)
Balance Due
on Maturity
$ 303,277
280,000
-
64,000
80,000
125,507
325,000
126,884
215,500
73,770
(3)
74,085
540,000
107,237
200,000
75,388
540,000
108,884
10,000
200,000
6.75%
5.47%
6.24%
LIBOR + 0.70%
5.44%
3,560
10,900 Variable Bank Rate
11/01/11
12/14/15
06/01/14
02/14/11 (1)
05/06/15
02/14/11
71,569
540,000
98,585
200,000
3,560
$ 2,691,019 $ 2,796,821
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, 2009 was $406 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.
(3) As of December 31, 2009, The Pier Shops’ loan is in default. Interest accrues at the default rate of 10.01% rather than the original stated
rate of 6.01% (Note 4).
Notes payable are collateralized by properties with a net book value of $2.1 billion at December 31, 2009.
The following table presents scheduled principal payments on notes payable as of December 31, 2009:
2010
2011
2012
2013
2014
Thereafter
$
349,816 (1)
556,141 (2)
11,413
134,802
403,347
1,235,500
$ 2,691,019
(1) The Pier Shops’ loan is in default. Debt maturity is included in 2010 when the debt obligation is expected to be extinguished upon
transfer of the title to the center.
Includes $144 million with a one year extension option and $325 million with two one-year extension options.
(2)
Refinancing
The Company expects to complete the refinancing on the Partridge Creek loan during the first half of 2010,
extending the maturity for three years with a one-year extension option. The Company expects a 2% LIBOR floor
and a spread of 3.5%, which with fees would result in an all-in rate of nearly 6%. The Company is in discussions
with a variety of lenders to refinance the MacArthur and Arizona Mills loans that also mature in 2010.
F-23
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
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. Other than The
Pier Shops’ loan, which is in default, the Operating Partnership is in compliance with all of its covenants and loan
obligations as of December 31, 2009. The default on this loan did not trigger any cross defaults on the Company’s
lines of credit or any other indebtedness. 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, 2009.
Center
Dolphin Mall
Fairlane Town Center
Twelve Oaks Mall
Amount of
loan balance
guaranteed by
TRG as
of 12/31/09
TRG's
beneficial
interest in loan
balance as
of 12/31/09
(in millions of dollars)
64.0
80.0
–
Loan
balance as
of 12/31/09
64.0
80.0
–
% of loan
balance
guaranteed
by TRG
% of interest
guaranteed
by TRG
64.0
80.0
–
100%
100%
100%
100%
100%
100%
The Operating Partnership has also guaranteed certain obligations of Partridge Creek, which is encumbered by
a $73.8 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, 2009 and December 31, 2008, the Company’s cash balances restricted for these uses were
$3.5 million and $2.9 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, 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 noncontrolling interests in Cherry Creek (50%), International Plaza (49.9%), The Pier Shops (22.5%), The
Mall at Wellington Green (10%), and MacArthur Center (5%).
Debt as of:
December 31, 2009
December 31, 2008
Capitalized interest:
Year ended December 31, 2009
Year ended December 31, 2008
Interest expense:
Year ended December 31, 2009
Year ended December 31, 2008
At 100%
At Beneficial Interest
Consolidated
Subsidiaries
Unconsolidated
Joint
Ventures
Consolidated
Subsidiaries
Unconsolidated
Joint
Ventures
$2,691,019
2,796,821
$ 1,092,806
1,103,903
$2,332,030
2,437,590
$ 559,817
566,437
$
1,257
7,972
$
23
139
$
1,246
7,819
$
11
101
$ 145,670
147,397
$
64,405
65,002
$ 125,823
127,769
$ 33,427
33,777
F-24
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 9 – Noncontrolling Interests
New Accounting Requirements - Background and Reclassifications
On January 1, 2009, the Company adopted the new requirements of ASC 810 as it relates to noncontrolling
interests (formerly Statement of Financial Accounting Standards (SFAS) No. 160 "Noncontrolling Interests in
Consolidated Financial Statements – an amendment of Accounting Research Bulletin (ARB) No. 51”). The new
requirements amended prior accounting and reporting standards for the noncontrolling interest (previously
referred to as a minority interest) in a subsidiary. The requirements generally require 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 continues to be based on income amounts attributable to the parent. The requirements also
contain 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 consolidated financial statements presented include reclassifications to previously reported amounts to
conform to the new presentation requirements. These reclassifications did not affect the amounts previously
reported as net income attributable to common shareowners or earnings per share.
Presentation
As of December 31, 2009 and 2008, noncontrolling interests in the Company are comprised of the ownership
interests of (1) noncontrolling interests in the Operating Partnership and (2) the noncontrolling interests in joint
ventures controlled by the Company through ownership or contractual arrangements. On January 1, 2009,
balances attributable to these noncontrolling interests, including amounts previously included in Deferred Charges
and Other Assets, were reclassified to become a separate component of equity as of all dates presented. Also,
consolidated net income and comprehensive income were reclassified to include the amounts attributable to the
noncontrolling interests. These noncontrolling interests reported in equity are not subject to any mandatory
redemption requirements or other redemption features outside of the Company's control that would result in
presentation outside of permanent equity pursuant to general accounting standards regarding the classification
and measurement of the redeemable equity instruments.
Measurement
Prior to adoption of the new requirements for noncontrolling interests, the net equity of the Operating
Partnership noncontrolling unitholders was less than zero. The net equity balances of the noncontrolling partners
in certain of the consolidated joint ventures were also less than zero. Therefore, under previous accounting
standards for noncontrolling interests, 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 were recognized
as zero balances within the Company’s Consolidated Balance Sheet. As a result of the need to present these
noncontrolling interests as zero balances, it was previously required that income be allocated to these interests
equal, at a minimum, to their share of distributions. The net equity balances of the Operating Partnership and
certain of the consolidated joint ventures were less than zero because of accumulated operating distributions in
excess of net income and not as a result of operating losses. Operating distributions to partners are usually
greater than net income because net income includes non-cash charges for depreciation and amortization.
Upon adoption of the new requirements for noncontrolling interests, the interests of the noncontrolling
unitholders of the Operating Partnership and the outside partners with net equity balances in the consolidated
joint ventures of less than zero generally no longer need to be carried at zero balances in the Company’s
Consolidated Balance Sheet and this previous income allocation methodology described above is generally no
longer applicable. However, as the new measurement provisions of ASC 810 are applicable beginning with the
January 1, 2009 adoption date, the interests of these noncontrolling interests for prior periods have not been
remeasured.
F-25
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
The net equity balance of the noncontrolling interests as of December 31, 2009 and December 31, 2008
includes the following:
Noncontrolling interests:
Noncontrolling interests in consolidated joint ventures $ (100,014)
(75,393)
Noncontrolling interests in partnership equity of TRG
29,217
Preferred equity of TRG
$ (146,190)
$ (90,251)
29,217
$ (61,034)
2009
2008
Income attributable to the noncontrolling interests for the year ended December 31, 2009, 2008, and 2007
includes the following:
Net (income) loss attributable to noncontrolling interests:
Noncontrolling share of income of consolidated joint
ventures
Distributions in excess of noncontrolling share of income of
consolidated joint ventures
TRG Series F preferred distributions
Noncontrolling share of (income) loss of TRG
Distributions in excess of noncontrolling share of income of TRG
2009
2008
2007
$ (3,115)
$ (7,441)
$ (5,031)
(2,460)
31,224
$ 25,649
(8,594)
(2,460)
11,338
(55,370)
$ (62,527)
(3,007)
(2,460)
(33,210)
(8,074)
$ (51,782)
Pro forma results
Net loss attributable to Taubman Centers, Inc. common shareowners for the year ended December 31, 2009
would have been $(153.5) million, or $(2.88) per common share, if accounted for under the previous method of
accounting for noncontrolling interests.
Equity Transactions
The following schedule presents the effects of changes in Taubman Centers, Inc.’s ownership interest in
consolidated subsidiaries on Taubman Centers, Inc.’s equity:
Net income (loss) attributable to Taubman Centers, Inc.
common shareowners
Transfers (to) from the noncontrolling interest –
Increase in Taubman Centers, Inc.’s paid-in capital for the
acquisition of additional units of TRG under the
Continuing Offer
Net transfers (to) from noncontrolling interests
Change from net income (loss) attributable to Taubman
Centers, Inc. and transfers (to) from noncontrolling
Year Ended December 31,
2008
$ (69,706) $ (86,659) $ 48,490
2009
2007
483
483
interests
$ (69,223)
$ (86,659)
$ 48,490
In 2008 and 2007, there was no impact to the equity of Taubman Centers, Inc. common shareowners resulting
from the acquisition of additional units under the Continuing Offer because the equity balance of the
noncontrolling partners was maintained at zero.
F-26
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Taubman Asia
In October 2009, the Company's President of The Taubman Company Asia Limited (the Asia President)
resigned and assigned his 10% membership interest in Taubman Properties Asia, LLC to an affiliate of the
Company for a nominal amount. The Asia President had obtained this ownership interest in January 2008. The
Operating Partnership had a preferred investment in Taubman Asia to the extent the Asia President had not yet
contributed capital commensurate with his ownership interest. The Asia President’s interest in Taubman Asia was
accounted for as a noncontrolling interest, which had a zero balance at the date of assignment.
International Plaza Refinancing
In January 2008, International Plaza refinanced its debt and distributed a portion of the excess proceeds to its
partners. The noncontrolling partner’s share of the distributions was $51.3 million.
Note 10 – Derivative and Hedging Activities
Risk Management Objective and Strategies for Using Derivatives
The Company uses derivative instruments primarily to manage exposure to interest rate risks inherent in
variable rate debt and refinancings. Interest rate swaps and interest rate caps are entered into to manage interest
rate risk inherent in the Company’s variable rate borrowings and refinancings. The Company may also enter into
forward starting swaps or treasury lock agreements to set the effective interest rate on a planned fixed-rate
financing. The Company’s interest rate swaps involve the receipt of variable-rate amounts from a counterparty in
exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the
underlying notional amount. Interest rate caps involve the receipt of variable-rate amounts from a counterparty if
interest rates rise above the strike rate on the contract in exchange for an up front premium. In a forward starting
swap or treasury lock agreement that the Company cash settles in anticipation of a fixed rate financing or
refinancing, the Company will receive or pay an amount equal to the present value of future cash flow payments
based on the difference between the contract rate and market rate on the settlement date.
The Company does not use derivatives for trading or speculative purposes and currently does not have any
derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and
hedging.
As of December 31, 2009, the Company has exposure to three outstanding derivatives. Two of the derivatives
are receive-variable/pay-fixed interest rate swaps held by 50% owned Unconsolidated Joint Ventures that have a
total notional balance of $280 million. The third derivative is a receive-variable/pay-fixed interest rate swap held
by a 50.1% owned consolidated joint venture with a total notional balance of $325 million. All three of the swaps
have been designated and are expected to be effective as cash flow hedges of the interest payments on the
associated debt.
Cash Flow Hedges of Interest Rate Risk
For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the
unrealized gain or loss on the derivative is reported as a component of Other Comprehensive Income (OCI). The
ineffective portion of the change in fair value is recognized directly in earnings. Net realized gains or losses
resulting from derivatives that were settled in conjunction with planned fixed-rate financings or refinancings
continue to be included in Accumulated Other Comprehensive Income (loss) (AOCI) during the term of the
hedged debt transaction.
Amounts reported in AOCI related to currently outstanding derivatives are recognized as a reduction to income
as interest payments are made on the Company’s variable-rate debt. Realized gains or losses on settled
derivative instruments included in AOCI are recognized as an adjustment to income over the term of the hedged
debt transaction.
The Company expects that approximately $15.5 million of the AOCI of Taubman Centers, Inc. and the
noncontrolling interests will be reclassified from AOCI and recognized as a reduction of income in the following
12 months.
F-27
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
As of December 31, 2009, the Company had $3.9 million of net realized losses included in AOCI resulting from
discontinued cash flow hedges related to settled derivative instruments that are being recognized as a reduction
of income over the term of the hedged debt.
The tables below present the effect of derivative instruments on the Company’s Consolidated Statement of
Operations for the years ended December 31, 2009, 2008, and 2007. The tables include the location and amount
of unrealized gains and losses on outstanding derivative instruments in cash flow hedging relationships and the
location and amount of realized losses reclassified from AOCI into income resulting from settled derivative
instruments associated with hedged debt.
During the years ended December 31, 2009, 2008, and 2007 the Company did not have any hedge
ineffectiveness or amounts that were excluded from the assessment of hedge effectiveness recorded in earnings.
Amount of Gain or (Loss)
Recognized in OCI on
Derivative
(Effective Portion)
2008
2009
2007
Location of Gain or
(Loss)
Reclassified from AOCI
into Income
(Effective Portion)
Amount of Gain or
(Loss) Reclassified
from AOCI into
Income (Effective Portion)
2008
2007
2009
Derivatives in cash flow hedging
relationships:
Interest rate contract –
consolidated subsidiaries
Interest rate contracts – UJVs
Total derivatives in cash
$
6,402
1,516
$ (16,138) $
(5,309)
Interest Expense
805
(618) Equity in Income of UJVs
$ (11,474) $ (3,267)
(3,761)
(383) $
42
flow hedging
relationships
$
7,918
$ (21,447) $
187
$ (15,235) $ (3,650) $
42
Realized losses on settled
cash flow hedges:
Interest rate contracts –
consolidated subsidiaries
Interest rate contract – UJVs
Total realized losses on
settled cash flow hedges
Interest Expense
Equity in Income of UJVs
$
(886) $
(376)
(885) $
(375)
(885)
(376)
$ (1,262) $ (1,260) $ (1,261)
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 Company records all derivative instruments at fair value in the Consolidated Balance Sheet. The following
table presents the location and fair value of the Company’s derivative financial instruments as reported in the
Consolidated Balance Sheet as of December 31, 2009 and 2008. As of December 31, 2009 and 2008 the
Company does not have any derivatives in an asset position.
Derivatives designated as hedging instruments:
Interest rate contract – consolidated subsidiaries
Interest rate contracts – UJVs
Total designated as hedging instruments
Total derivatives
Consolidated Balance Sheet Location
Accounts Payable and Accrued Liabilities
Investment in UJVs
Liability Derivatives
December 31
2009
December 31
2008
$ 10,786
4,458
$ 15,244
$ 15,244
$ 17,188
5,974
$ 23,162
$ 23,162
F-28
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Contingent Features
As of December 31, 2009 and 2008, all three of the Company's outstanding derivatives contain provisions that
state if the hedged entity defaults on any of its indebtedness in excess of $1 million, then the derivative obligation
could also be declared in default. In addition, one of the three outstanding derivatives contains a provision that if
the Operating Partnership defaults on any of its indebtedness in excess of $1 million, then the derivative
obligation could also be declared in default. Although the Company is currently in default on the debt relating to
The Pier Shops, the Company is not in default on any debt obligations that would trigger a credit risk related
default on its current outstanding derivatives.
As of December 31, 2009 and 2008, the fair value of derivative instruments with credit-risk-related contingent
features that are in a liability position was $15.2 million and $23.2 million, respectively. As of December 31, 2009
and 2008, the Company was not required to post any collateral related to these agreements. If the Company
breached any of these provisions it would be required to settle its obligations under the agreements at their fair
value. See Note 17 for fair value information on derivatives.
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, 2009 for operating centers assuming no new or
renegotiated leases or option extensions on anchor agreements, is summarized as follows:
2010
2011
2012
2013
2014
Thereafter
$ 314,645
285,008
251,003
224,375
197,238
623,151
The table above excludes $7.1 million in 2010 and $60.9 million thereafter for The Pier Shops.
Certain shopping centers, as lessees, have ground leases expiring at various dates through the year 2107. In
addition, one center has the option to extend the lease term for five 10-year periods. 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 $9.9 million in 2009, $10.8 million in 2008, and
$9.5 million in 2007. Included in these amounts are related party office rental expense of $2.3 million in 2009 and
2008, and $2.2 million in 2007. Payables representing straightline rent adjustments under lease agreements were
$36.7 million and $32.7 million as of December 31, 2009 and 2008, respectively.
The following is a schedule of future minimum rental payments required under operating leases, excluding The
Pier Shops:
2010
2011
2012
2013
2014
Thereafter
$
9,678
7,871
7,185
7,197
7,137
325,214
The table above includes $2.5 million in 2010 and $2.6 million in each year from 2011 through 2014 of related
party amounts. The Pier Shops is subject to a ground lease with base rentals of $1.0 million plus percentage rent
until 2081. We anticipate that the ground lease obligation will be transferred along with the title to The Pier Shops
upon extinguishment of the loan obligation (Note 4).
F-29
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Certain shopping centers have entered into lease agreements for property improvements that qualify as capital
leases. As of December 31, 2009, future minimum lease payments for these capital leases are as follows:
2010
2011
Total minimum lease payments
Less amount representing interest
Capital lease obligations
$ 312
78
$ 390
(19)
$ 371
Note 12 – The Manager
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 $1.6 million, $2.2 million, and
$2.1 million in 2009, 2008, and 2007, respectively.
Other related party transactions are described in Notes 11, 13, and 15.
In 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 $2.5 million was recorded in 2009, which
primarily represents the cost of terminations of personnel. Substantially all of the costs were paid in 2009.
Note 13 – Share-Based Compensation and Other Employee Plans
In 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. In 2009, all grants made were 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.
Under the 2008 Omnibus Plan, in arriving at the amount of shares or Operating Partnership units available for
future grants, the actual number of restricted stock units, performance share units and unrestricted shares
granted are deducted at a ratio of 2.85 to one. Options are deducted on a one-for-one basis. The amount
available for future grants is adjusted when the number of contingently issuable shares or units are settled, for
grants that are forfeited, and for options that expire without being exercised.
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 the Company’s share-based compensation plans was
$8.7 million, $7.6 million, and $6.8 million for the years ended December 31, 2009, 2008, and 2007, respectively.
Compensation cost capitalized as part of properties and deferred leasing costs was $0.3 million, $0.9 million, and
$0.8 million for the years ended December 31, 2009, 2008, and 2007, respectively.
F-30
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
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,
2009.
The Company estimated the values of options, performance share units, and restricted share units using the
methods discussed in the separate sections below for each type of grant. Expected volatility and dividend yields
are based on historical volatility and yields of the Company’s common stock, respectively, as well as other factors.
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 of options or performance share units due to the small number of participants
and low turnover rate.
Options
Options are granted to purchase units of limited partnership interest in the Operating Partnership, which are
exchangeable for new shares of the Company’s stock under the Continuing Offer (Note 15). The options have
ten-year contractual terms.
In the first quarter of 2009, 1.4 million options were granted that vested during the third quarter of 2009 due to
the satisfaction of the vesting condition of the closing price of the Company’s common stock, as quoted on the
New York Stock Exchange, being $30 or greater for ten consecutive trading days. The remaining unamortized
compensation cost was recognized upon the satisfaction of the vesting condition.
In addition, the Company granted 40,000 options in the second quarter of 2009. These options vest one third
each year over three years, if continuous service has been provided or upon retirement or certain other events if
earlier.
The Company estimated the value of the options granted during the first quarter 2009 using a Monte Carlo
simulation due to the market-based vesting condition. The Company estimated the values of the options issued
during the second quarter of 2009 and the years ended December 31, 2008, and 2007 using a Black-Scholes
valuation model. Significant assumptions employed include the following:
Expected volatility
Expected dividend yield
Expected term (in years)
Risk-free interest rate
Weighted average grant-date fair value
1st Quarter
2009
29.61%
8.00%
N/A
2.83%
$1.35
2nd Quarter
2009
40.65%
7.00%
6
2.57%
$5.04
2008
24.33%
3.50%
6
3.08%
$9.31
2007
20.76%
3.00%
7
4.45%
$11.77
F-31
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
A summary of option activity for the years ended December 31, 2009, 2008, and 2007 is presented below:
Number
of Options
Weighted Average
Exercise Price
Outstanding at January 1, 2007
Granted
Exercised
Outstanding at December 31, 2007
Granted
Exercised
Outstanding at December 31, 2008
Granted
Exercised
Forfeited
1,115,376
226,875
(11,605)
1,330,646
230,567
(210,736)
1,350,477
1,439,135
(1,140,003)
(20,000)
Outstanding at December 31, 2009
1,629,609
Fully vested options at December 31, 2009 980,280
$ 32.55
55.90
31.31
$ 36.54
50.65
31.55
$ 39.73
14.13
13.98
31.31
$ 35.24
$ 33.36
Weighted Average
Remaining
Contractual Term
(in years)
Range of Exercise
Prices
8.5
$29.38 - $40.39
7.8
$29.38 - $55.90
7.2
$29.38 - $55.90
6.8
7.1
$13.83 - $55.90
There were 1.6 million options that vested during the year ended December 31, 2009.
Of the 1.6 million total options outstanding excluding 0.3 million granted in the first quarter of 2009, 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 0.4 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 aggregate intrinsic value (the difference between the period end stock price and the option exercise price)
of in-the-money options outstanding and in-the-money fully vested options as of December 31, 2009 was $10.1
million and $7.3 million, respectively.
The total intrinsic value of options exercised during the years ended December 31, 2009, 2008, and 2007 was
$22.6 million, $4.1 million, and $0.3 million, respectively. Cash received from option exercises for the years ended
December 31, 2009, 2008, and 2007 was $15.9 million, $6.6 million, and $0.4 million, respectively.
As of December 31, 2009 there were 0.6 million nonvested options outstanding, and $0.8 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 1.4 years.
Under both the prior option plan and the 2008 Omnibus 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 Operating Partnership pays
distributions, the deferred option units receive their proportionate share of the distributions in the form of cash
payments. Beginning with the ten year anniversary of the date of exercise (unless Mr. Taubman retires earlier),
the deferred partnership units will be issued in ten annual installments. The deferred units are accounted for as
participating securities of the Operating Partnership.
F-32
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Performance Share Units
In 2009, the Company granted Performance Share Units (PSU) under the 2008 Omnibus Plan. Each PSU
represents the right to receive, upon vesting, one share of the Company’s common stock, subject to adjustments.
The vesting date is three years from the grant date if continuous service has been provided or upon retirement or
certain other events if earlier. The actual number of PSU that may ultimately vest will range from 0 – 300% based
on the Company’s market performance relative to that of a peer group. No dividends accumulate during the
vesting period.
The Company estimated the value of the PSU granted during the year ended December 31, 2009 using a
Monte Carlo simulation based on the following assumptions and resulting in the grant date fair value shown
below. When used in the simulation, the value of the Company’s stock at the grant date was reduced by the
discounted present value of expected dividends during the vesting period.
Expected volatility
Risk-free interest rate
Weighted average grant-date fair value
42.53%
1.3%
$15.60
A summary of PSU activity for the year ended December 31, 2009 is presented below:
Outstanding at January 1, 2009
Granted
Outstanding at December 31, 2009
-
196,943
196,943
None of the PSU outstanding at December 31, 2009 were vested. No PSU were granted in 2008 and 2007. As
of December 31, 2009, there was $2.2 million of total unrecognized compensation cost related to nonvested PSU
outstanding. This cost is expected to be recognized over an average period of 2.1 years.
Restricted Share Units
In 2009, restricted share units (RSU) were issued under the 2008 Omnibus Plan and represent the right to
receive upon vesting one share of the Company’s common stock. The 2009 RSU vest three years from the grant
date if continuous service has been provided for that period, or upon retirement or certain other events if earlier.
No dividends accumulate during the vesting period.
The Company estimated the value of the RSU granted during the year ended December 31, 2009 using the
Company’s common stock price at the grant date deducting the present value of expected dividends during the
vesting period using a risk-free interest rate of 1.3%. The result of the Company’s valuation was a weighted
average grant-date fair value of $8.99.
Prior to 2009, RSU were issued under the Taubman Company 2005 Long-Term Incentive Plan (LTIP), which
was shareowner approved. Each of these 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. These RSU vest three
years from the grant date if continuous service has been provided for that period, or upon retirement or certain
other events if earlier. Each of these RSU were valued at the closing price of the Company’s common stock on
the grant date.
F-33
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
A summary of RSU activity for the years ended December 31, 2009, 2008, and 2007 is presented below:
Outstanding at January 1, 2007
Granted
Forfeited
Redeemed
Outstanding at December 31, 2007
Granted
Forfeited
Redeemed
Outstanding at December 31, 2008
Granted
Forfeited
Redeemed
Outstanding at December 31, 2009
Number of Restricted
Stock Units
261,685
102,905
(5,621)
(672)
358,297
121,037
(8,256)
(136,200)
334,878
368,588
(17,532)
(118,824)
567,110
Weighted average
Grant Date Fair Value
35.79
56.54
43.71
34.93
41.63
50.65
48.69
32.15
48.57
8.99
37.00
40.38
24.92
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, 2009 were nonvested. As of December 31, 2009, there was
$4.5 million of total unrecognized compensation cost related to nonvested RSU outstanding. This cost is expected
to be recognized over an average period of 1.6 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 2008 were made under the 2008 Omnibus Plan. The annual fair market value of the grant was
$50,000 in 2009, 2008, and 2007. As of December 31, 2009, 2,875 shares have been issued under the SGP and
2,540 shares have been issued under the 2008 Omnibus Plan. Certain directors have elected to defer receipt of
their shares as described below.
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 43,467 restricted stock units
outstanding under the DCP at December 31, 2009.
Other Employee Plans
As of December 31, 2009 and 2008 the Company had fully vested awards outstanding for 17,803 and
82,718 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 $0.2 million, $(1.9) million,
and $0.2 million relating to these awards for the years ended December 31, 2009, 2008, and 2007, respectively.
The majority of the awards were paid out in early 2009. No payments were made in 2008 and 2007.
F-34
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
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 $2.6 million in 2009, $2.0 million in 2008, and
$1.9 million in 2007.
Note 14 – Common and Preferred Stock and Equity of TRG
Outstanding Preferred Stock and Equity
The Company is obligated to issue to the noncontrolling partners of TRG, 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 noncontrolling partners. 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, 2009, 2008, and 2007,
70,000 shares, 95,000 shares, and 1,589,662 shares of Series B Preferred Stock, respectively, were converted to
3 shares, 4 shares, and 104 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. As of May 2009, the Company 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. As of November 2009, the Series G Preferred Stock can be redeemed by the
Company at $25 per share, plus accrued dividends. 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.
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 is 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.
F-35
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
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, 2009, $50 million
remained of the July 2007 authorization.
Note 15 – Commitments and Contingencies
Cash Tender
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.
Based on a market value at December 31, 2009 of $35.91 per common share, the aggregate value of interests
in the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately
$913 million. The purchase of these interests at December 31, 2009 would have resulted in the Company owning
an additional 32% interest in the Operating Partnership.
Continuing Offer
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, all existing optionees under the previous option plan, and 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.
F-36
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Indemnification
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.
Litigation
In September 2009, a restaurant owner filed a lawsuit in Superior Court of the State of California for the County
of Los Angeles (Case No. BC 421212) against Taubman Centers, Inc., the Operating Partnership, and the
Manager. The plaintiff is alleging breach of oral agreement, promissory estoppel, specific performance, and fraud
related to a proposed lease. The plaintiff is seeking damages exceeding $10 million, lost profits, restitution on its
current lease, exemplary or punitive damages, and specific performance. The lawsuit is in its early legal stages
and the Company is vigorously defending it. The outcome of this lawsuit 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.
In April 2009, two restaurant owners, their two restaurants, and their principal filed a lawsuit in United States
District Court for the Eastern District of Pennsylvania (Case No. CV01619) against Atlantic Pier Associates LLC
("APA", the owner of The Pier Shops), the Operating Partnership, Taubman Centers, Inc., the owners of APA and
certain affiliates of such owners, and a former employee of one of such affiliates. The plaintiffs are alleging the
defendants misrepresented and concealed the status of certain tenant leases at The Pier Shops and that such
status was relied upon by the plaintiffs in making decisions about their own leases. The plaintiffs are seeking
damages exceeding $20 million, rescission of their leases, exemplary or punitive damages, costs and expenses,
attorney’s fees, return of certain rent, and other relief as the court may determine. The lawsuit is in its early legal
stages and the defendants are vigorously defending it. The outcome of this lawsuit 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 or both of the above lawsuits would
have a material adverse effect on the Company's financial condition, there can be no assurance that adverse
outcomes would not have material effects on the Company's results of operations for any particular period.
F-37
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
On December 8, 2009, West Farms Associates and West Farms Mall, LLC (together, “Westfarms”) and The
Taubman Company LLC (together with Westfarms, the “WFM Parties”) entered into a settlement agreement (the
“Settlement Agreement”) with three developers of a project called Blue Back Square in West Hartford,
Connecticut. The Settlement Agreement relates to a lawsuit originally filed by the developers against the WFM
Parties and related persons in November 2007 in the Connecticut Superior Court, Judicial District of Hartford at
Hartford and subsequently transferred to the Superior Court for the Judicial District of Waterbury at Waterbury.
The developers alleged damages in excess of $40 million and sought double, treble, and punitive damages, as
well as attorneys fees. Pursuant to the Settlement Agreement, the lawsuit was withdrawn with prejudice upon
payment by Westfarms of $34 million to the developers on December 15, 2009. The Company has a 79%
investment in Westfarms Associates, an unconsolidated joint venture which owns Westfarms mall, and the
Company’s share of the settlement was $26.8 million. The developers, for themselves and on behalf of related
persons, agreed to a full and general release for the benefit of the WFM Parties and related persons as of
December 8, 2009. There was no admission of liability or fault by any parties to the lawsuit or related persons. In
early November 2007, the Town of West Hartford and the West Hartford Town Council (the “Town”) filed a
substantially similar lawsuit against the same entities in the same court, which was also subsequently transferred
to the Superior Court for the Judicial District of Waterbury at Waterbury. The Town alleged damages in excess of
$5.5 million and sought double, treble, and punitive damages, as well as attorneys fees. In January 2010, the
WFM Parties executed a settlement agreement with the Town, which provided for a full and general release for
the benefit of the WFM Parties upon payment by Westfarms of $4.5 million, or $3.6 million at the Company’s
share, which was recorded in 2009. There was no admission of liability or fault by any parties to the lawsuit or
related persons.
See Note 4 regarding The Pier Shops’ loan and the Company’s Oyster Bay project, Note 8 for the Operating
Partnership's guarantees of certain notes payable and other obligations, Note 10 for contingent features relating
to derivative instruments, and Note 13 for obligations under existing share-based compensation plans.
Note 16 – Earnings (Loss) 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, RSU, PSU, and deferred shares under the 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, 2009, there were 8.7 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. Also, there were
0.7 million and 0.5 million shares representing the potentially dilutive effect of potential common stock under
share-based compensation plans (Note 13) excluded from the computation of diluted EPS for the years ended
December 31, 2009 and 2008, respectively, because they were anti-dilutive due to net losses in 2009 and 2008.
F-38
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Year Ended December 31
2008
2009
2007
Net income (loss) attributable to Taubman Centers,
Inc. common shareowners (Numerator)
$
(69,706)
$
(86,659)
$
48,490
Weighted average shares (Denominator) – basic
Effect of dilutive securities
Weighted average shares (Denominator) – diluted
53,239,279 52,866,050 52,969,067
652,950
53,239,279 52,866,050 53,622,017
Earnings (loss) per common share:
Basic
Diluted
Note 17 – Fair Value Disclosures
$
$
(1.31)
(1.31)
$
$
(1.64) $
(1.64) $
0.92
0.90
This note contains required fair value disclosures for assets and liabilities remeasured at fair value on a
recurring basis, assets that were remeasured at fair value on a nonrecurring basis during the period, and financial
instruments carried at other than fair value, as well as assumptions employed in deriving these fair values.
Recurring Valuations
Derivative Instruments
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 valuations 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 valuations reflect the contractual terms of the derivatives, including the
period to maturity, and use observable market-based inputs, including forward curves. The fair values of interest
rate hedging instruments also incorporate credit valuation adjustments to appropriately reflect both the
Company’s own nonperformance risk and the respective counterparty's nonperformance risk.
Marketable Securities
The Company's valuations 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.
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:
Fair Value Measurements as of
December 31, 2009 Using
Fair Value Measurements as of
December 31, 2008 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
$ 1,665
9,689
$ 11,354
Significant Other
Observable Inputs
(Level 2)
Significant Other
Observable
Inputs
(Level 2)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
$ 4,351
8,957
$ 13,308
$ (10,786)
$ (10,786)
$ (17,188)
$ (17,188)
Description
Available-for-sale securities
Insurance deposit
Total assets
Derivative interest rate contract
(Note 10)
Total liabilities
F-39
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
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. Corresponding deferred revenue relating to amounts billed to tenants for this
arrangement has been classified within Accounts Payable and Other Liabilities.
The available-for-sale securities shown above consist of $1.7 million at December 31, 2009 and $1.4 million at
December 31, 2008 of marketable securities that represent shares in a Vanguard REIT fund that were purchased
to facilitate a tax efficient structure for the 2005 disposition of Woodland mall. In the second quarter of 2009, the
Company concluded that a decrease in value was other than temporary, and therefore recognized a $1.7 million
impairment loss.
Nonrecurring Valuations
The Pier Shops, Regency Square, and Oyster Bay investments represent the remaining book values after
recognizing non-cash impairment charges to write the investments to their fair values. The fair values of the
investments were determined based on discounted future cash flows, using management's estimates of cash
flows from operations, necessary capital expenditures, the eventual disposition of the investments, and
appropriate discount and capitalization rates (Note 4).
For assets measured at fair value on a nonrecurring basis, quantitative disclosure of the fair value for each
major category of assets is presented below:
2009
Fair Value
Measurements
Using Significant
Unobservable Inputs
Description
The Pier Shops investment
Regency Square investment
Oyster Bay investment
(Level 3)
$ 52,300
28,800
Total
Impairment
Losses
$ (107,652)
(59,028)
Total assets
$ 81,100
$ (166,680)
Financial Instruments Carried at Other Than Fair Values
Community Development District Obligation
2008
Fair Value
Measurements
Using Significant
Unobservable Inputs
(Level 3)
Total
Impairment
Losses
$ 39,778
$ 39,778
$ (117,943)
$ (117,943)
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, 2009 and 2008, the
book value of the infrastructure assets and improvements, net of depreciation, was $45.8 million and
$48.1 million, respectively. The related obligation is classified within Accounts Payable and Accrued Liabilities and
had a balance of $63.3 million and $63.9 million at December 31, 2009 and 2008, respectively. The fair value of
this obligation, derived from quoted market prices, was $59.8 million at December 31, 2009 and $51.2 million at
December 31, 2008.
F-40
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Notes Payable
The fair value of 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
notes payable at December 31, 2009 and 2008, the Company employed the credit spreads at which the debt was
originally issued plus 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 notes payable as of December 31, 2009 or 2008. To further assist
financial statement users, the Company has included with its fair value disclosures an analysis of interest rate
sensitivity. The fair values of the loans on The Pier Shops and Regency Square, at December 31, 2009, have
been estimated at the fair value of the centers, which are collateral for the loans (Note 4).
The estimated fair values of notes payable at December 31, 2009 and 2008 are as follows:
Notes payable
2009
2008
Carrying Value
$ 2,691,019
Fair Value
$2,523,759
Carrying Value
$2,796,821
Fair Value
$2,871,252
The fair values of the notes payable are dependent on the interest rates employed used in estimating the
values. An overall 1% increase in rates employed in making these estimates would have decreased the fair
values of the debt shown above at December 31, 2009 by $80.4 million or 3.3%.
See Note 5 regarding the fair value of the Unconsolidated Joint Ventures’ notes payable, and Note 10 regarding
additional information on derivatives.
Note 18 – Cash Flow Disclosures and Non-Cash Investing and Financing Activities
Interest paid in 2009, 2008, and 2007, net of amounts capitalized of $1.3 million, $8.0 million, and $14.6 million,
respectively, approximated $141.8 million, $144.3 million, and $126.0 million, respectively. The following non-
cash investing and financing activities occurred during 2009, 2008, and 2007:
Non-cash additions to properties
Additions to capital lease obligations
2009
$14,138
2008
2007
$ 14,820 $61,131
2,138
Non-cash additions to properties primarily represent accrued construction and tenant allowance costs.
Additionally, consolidated assets and liabilities increased upon consolidation of the accounts of The Pier Shops in
2007 (Note 2).
F-41
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 19 – Quarterly Financial Data (Unaudited)
The following is a summary of quarterly results of operations for 2009 and 2008:
2009 (1)
Revenues
Equity in income (loss) of Unconsolidated Joint Ventures
Net income (loss)
Net income (loss) attributable to TCO common
shareowners
Basic and diluted earnings per common share -
First
Quarter
Second
Quarter
Fourth
Quarter
$157,690 $158,939 $163,200 $ 186,275
(17,492)
14,235
10,454
(138,788)
Third
Quarter
8,368
20,866
10,158
24,526
11,499
8,908
(94,073)
3,960
Net income (loss)
$
0.22 $
0.17 $ (1.77) $
0.07
2008 (2)
Revenues
Equity in income of Unconsolidated Joint Ventures
Net income (loss)
Net income (loss) attributable to TCO common
shareowners
Basic and diluted earnings per common share -
First
Quarter
Second
Quarter
Fourth
Quarter
$157,417 $160,412 $163,713 $ 189,956
6,342
(80,818)
Third
Quarter
11,289
27,836
8,491
21,414
9,234
23,516
4,547
373
9,197
(100,776)
Net income (loss)
$
0.09 $
0.01 $
0.17 $
(1.90)
(1) Amounts include the impairment charges recognized in the third quarter of 2009 of $166.7 million related to the Company’s
investments in The Pier Shops and Regency Square (Note 4) and litigation charges in the fourth quarter of 2009 related to
Westfarms (Note 15).
(2) 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 investments in its Oyster Bay and Sarasota projects, respectively (Notes 4 and 5).
Note 20 – New Accounting Pronouncements
In June 2009, the FASB made changes to ASC Topic 810 “Consolidation” (ASC 810). These changes eliminate
certain scope exceptions previously permitted, provide additional guidance for determining whether an entity is a
variable interest entity, and require companies to more frequently reassess whether they must consolidate
variable interest entities. The changes also replace the previously required quantitative approach to determining
the primary beneficiary of a variable interest entity with a requirement for an enterprise to perform a qualitative
analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in
a variable interest entity. Changes are effective as of the beginning of the first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. Earlier application is prohibited. The Company anticipates that the new accounting
will not have an effect on its results of operations or financial position, as the Company does not currently have
any variable interest or interests that give it a controlling financial interest in a variable interest entity in
accordance with ASC 810.
In September 2009, the FASB ratified the EITF’s consensus on “Multiple-Deliverable Revenue Arrangements”,
contained in Accounting Standards Update No. 2009-13. This consensus amends previous accounting guidance
on separating consideration in multiple-deliverable arrangements. This consensus eliminates the residual method
of allocation in previous guidance and requires that arrangement consideration be allocated at the inception of the
arrangement to all deliverables using the relative selling price. This consensus also establishes a selling price
hierarchy based on available evidence for determining the selling price of a deliverable, (i) first on vendor-specific
objective evidence, (ii) then third party evidence, and (iii) then the estimated selling price. This consensus also
requires that a vendor determine its best estimate of selling price in a manner that is consistent with that used to
determine the price to sell the deliverable on a standalone basis. This consensus is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.
Early adoption is permitted. The Company is currently evaluating the application of the EITF’s consensus on its
results of operations and financial position.
F-42
TAUBMAN CENTERS, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 2009, 2008, and 2007
(in thousands)
Schedule II
Balance at
beginning of year
Charged to costs
and expenses
Charged to
other accounts
Write-offs
Transfers, net
Balance at
end of year
Additions
Year ended December 31, 2009
Allowance for doubtful receivables
$ 9,895
$ 2,081
$ (5,082)
Year ended December 31, 2008
Allowance for doubtful receivables
$ 6,694
$ 6,088
$ (2,887)
$ 6,894
$ 9,895
Year ended December 31, 2007
Allowance for doubtful receivables
$ 7,581
$ 1,830
$ (3,423)
$ 706 (1)
$ 6,694
(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.
See accompanying report of independent registered public accounting firm.
F-43
TAUBMAN CENTERS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(in thousands)
Schedule III
Initial Cost
to Company
Gross Amount at Which
Carried at Close of Period
Buildings,
Improvements,
and Equipment
Cost Capitalized
Subsequent to
Acquisition
Land
Land
BI&E
Total
Accumulated
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
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
$
209,093
$ 55,590
$
264,683
$
264,683
$ 127,782
$
136,901
$ 328,365
$ 34,881
17,330
15,506
22,540
99,260
238,252
104,668
194,093
307,592
144,514
146,285
112,912
47,288
46,138
27,744
32,092
14,125
1,979
$ 34,881
17,330
15,506
22,540
212,172
285,540
150,806
221,837
339,684
158,639
148,264
212,172
320,421
168,136
237,343
339,684
158,639
170,804
107,921
73,443
59,564
93,896
90,445
48,619
40,061
104,251
246,978
108,572
143,447
249,239
110,020
130,743
280,000
64,000 (1)
80,000 (1)
135,144
325,000
129,358
215,500
14,097
120,625
12,173
14,097
132,798
146,895
20,051
126,844
73,770
47,315 (2)
6,657 (2)
167,967
97,774
191,185
191,698
226,986
9,006 (2)
25,114
10,677
25,410
18,967
26,192
28,638
3,798
14,256
124,519
969
76,041
8,926
11,717
27,780
4,040
9,006
25,114
10,677
25,410
21,439
26,192
28,638
4,164
$ 622,087
$ 254,994
51,113
20,913
292,486
98,743
267,226
198,152
238,703
27,780
51,113
29,919
317,600
109,420
292,636
219,591
264,895
27,780
28,638
947 (3)
403 (3)
130,750
35,124
97,803
69,183
67,017
16,990
50,166
29,516
186,850
74,296
194,833
150,408
197,878
10,790
28,638
135,000
74,085
540,000
107,237
(1)
200,000
68,135
61,411
2,774
$ 3,241,859
68,135
65,575
2,774
19,732
879
$ 3,496,853 (5) $ 1,100,610
68,135
45,843
1,895
$ 2,396,243
Construction in Process and
Development Pre-Construction Costs
Assets under CDD obligations
Other
Total
4,164
$ 252,522
64,095 (4)
61,411
2,774
$ 2,622,244
The changes in total real estate assets and accumulated depreciation for the years ended December 31, 2009, 2008, and 2007 are as follows:
2009
Total Real Estate Assets
2008
2007
2009
Balance, beginning of year
New development and improvements
Disposals/Write-offs
Transfers In/(Out)
Balance, end of year
$ 3,699,480
52,772
(256,404) (2)(3)
1,005
$ 3,496,853
$ 3,781,136
58,259
(136,579) (4)
(3,336)
$ 3,699,480
$ 3,398,122
229,199
(23,179)
176,994 (6)
$ 3,781,136
Balance, beginning of year
Depreciation for year
Disposals/Write-offs
Transfers In/(Out)
Balance, end of year
$ (1,049,626)
(139,658)
88,690 (3)
(16)
$ (1,100,610)
$
Accumulated Depreciation
2008
(933,275)
(138,741)
22,425
(35)
$ (1,049,626)
$
$
In 2009, the Company wrote down The Pier Shops at Caesars and Regency Square to their fair values. The impairment charges were $107.7 million and $59.0 million, respectively.
(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)
(3) As a result of the impairments of The Pier Shops and Regency Square in 2009, the related accumulated depreciation was set to zero.
(4)
(5) The unaudited aggregate costs for federal income tax purposes as of December 31, 2009 was $3.696 billion.
(6)
Includes costs related to The Pier Shops at Caesars, which became a consolidated center in 2007.
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, 2009 is included in development pre-construction costs.
See accompanying report of independent registered public accounting firm.
F-44
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
2007
(821,384)
(128,358)
23,179
(6,712)
(933,275)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange 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 26, 2010
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
/s/ Lisa A. Payne
Lisa A. Payne
/s/ William S. Taubman
William S. Taubman
/s/ Esther R. Blum
Esther R. Blum
/s/ Graham Allison
Graham Allison
/s/ Jerome A. Chazen
Jerome A. Chazen
/s/ Craig M. Hatkoff
Craig M. Hatkoff
/s/ Peter Karmanos, Jr.
Peter Karmanos, Jr.
/s/ William U. Parfet
William U. Parfet
/s/ Ronald W. Tysoe
Ronald W. Tysoe
Chairman of the Board, President,
Chief Executive Officer, and Director
(Principal Executive Officer)
February 26, 2010
Vice Chairman, Chief Financial
Officer, and Director (Principal Financial Officer)
February 26, 2010
Chief Operating Officer,
and Director
February 26, 2010
Senior Vice President, Controller, and
Chief Accounting Officer
February 26, 2010
Director
Director
Director
Director
Director
Director
February 26, 2010
February 26, 2010
February 26, 2010
February 26, 2010
February 26, 2010
February 26, 2010
TAUBMAN CENTERS, INC.
Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Dividends
(in thousands, except ratios)
Exhibit 12
2009
2008
2007
2006
2005
Year Ended December 31
Earnings before income from equity investees (1)
$
(88,992)
$
(42,291)
$
75,738
$
61,596
$
14,982
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
154,952
4,558
163,667
4,575
154,332
4,391
146,103
4,329
137,837
3,843
11,488
35,356
40,498
33,544
95,249
(1,257)
(2,460)
(7,972)
(2,460)
(14,613)
(2,460)
(9,803)
(2,460)
(9,940)
(2,460)
$
78,289
$
150,875
$
257,886
$
233,309
$
239,511
Fixed Charges
Interest expense (3)
Capitalized interest
Interest portion of rent expense
Preferred distributions
$
145,670
1,257
5,565
2,460
$
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
Total Fixed Charges
$
154,952
$
163,667
$
154,332
$
146,103
$
137,837
Preferred dividends (4)
14,634
14,634
14,634
23,723
27,622
Total fixed charges and preferred dividends
$
169,586
$
178,301
$
168,966
$
169,826
$
165,459
Ratio of earnings to fixed charges and
preferred dividends
0.5
(5)
0.8
(5)
1.5
1.4
1.4
(1)
(2)
(3)
(4)
Earnings before income from equity investees for the year ended December 31, 2009 includes $166.7 million in impairment charges related to The Pier Shops and
Regency Square and a $2.5 million restructuing charge, which primarily represents the costs of terminations of personnel. Earnings 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, 2009 includes $30.4 million in litigation charges related to Westfarms. 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.
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.
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.
(5) Earnings available for fixed charges and preferred dividends were less than total fixed charges and preferred dividends by $91.3 million and $27.4 million for 2009 and
2008, respectively. 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 26, 2010
/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 26, 2010
/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 year ended December 31, 2009 (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 26, 2010
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 year ended December 31, 2009 (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 26, 2010
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
50.00%
95.00%
90.00%
77.50%
50.10%
Consolidated Floating Rate Debt:
International Plaza
The Mall at Partridge Creek (f)
TRG Revolving Credit
TRG $550M Revolving Credit Facility:
Dolphin Mall (j)
Fairlane Town Center (j)
Twelve Oaks Mall (j)
Total Consolidated Floating
Weighted Rate
50.00%
50.00%
50.00%
25.00%
78.94%
50.00%
50.00%
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
MORTGAGE AND OTHER NOTES PAYABLE (a)
INCLUDING WEIGHTED AVERAGE INTEREST RATES AT DECEMBER 31, 2009
Exhibit 99 (a)
100%
12/31/09
Beneficial
Interest
12/31/09
Effective
Rate
12/31/09
(b)
LIBOR
Rate
Spread
2010
2011
2012
2013
2014
2015
2016
Total
Principal Amortization and Debt Maturities
5.28%
5.24%
5.25%
6.96% (c)
5.41%
6.75%
6.24%
5.47%
5.44%
10.01% (n)
5.01% (d)
1.39% (g)
1.17% (i)
0.93% (g)
0.94% (g)
(g)
7.90%
5.46%
5.67%
5.54%
6.10%
4.22% (l)
5.95% (m)
3.25%
328.4
280.0
135.1
129.4
215.5
74.1
107.2
540.0
200.0
135.0 (n)
2,144.7
5.85%
325.0
73.8
3.6
64.0
80.0
0.0
546.3
3.42%
2,691.0
5.35%
132.1
205.5
121.4
165.0
188.7
812.6
6.05%
250.0
30.0
0.2
280.2
4.40%
1,092.8
5.63%
2,957.3
5.90%
826.5
3.75%
3,783.8
5.43%
328.4
140.0
135.1
122.9
215.5
74.1
107.2
540.0
180.0
104.6
1,947.9
5.82%
162.8
73.8
3.6
64.0
80.0
0.0
384.2
2.75%
2,332.0
5.32%
66.0
102.7
60.7
41.3
149.0
419.7
6.11%
125.0
15.0
0.1
140.1
4.40%
559.8
5.68%
2,367.6
5.87%
524.3
3.19%
2,891.8
5.39%
Average Maturity Fixed Debt
Average Maturity Total Debt
5.7
2.9
122.9
1.4
1.8
104.6 (n)
239.2
8.22%
6.0
3.0
72.7
1.9
6.3
3.2
6.6
303.8
126.0
2.0
2.1
99.5
83.6
6.58%
11.4
5.44%
134.8
5.27%
403.3
5.52%
140.0
215.5
355.5
5.34%
540.0
180.0
720.0
5.46%
162.8 (e)
3.6
64.0 (k)
80.0 (k)
0.0 (k)
310.4
3.07%
394.0
3.82%
1.6
1.3
3.1
6.0
5.84%
125.0 (e)
125.0
4.22%
131.0
4.29%
89.5
6.53%
435.4
3.40%
524.9
3.94%
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%
1.15%
73.8
0.70%
0.70%
0.70%
73.8
1.39%
313.0
6.61%
66.0
1.5
1.2
2.9
71.7
7.73%
0.1
0.1
3.25%
71.8
7.73%
310.9
8.11%
73.9
1.39%
384.8
6.82%
4
4
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%
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%
328.4
140.0
135.1
122.9
215.5
74.1
107.2
540.0
180.0
104.6
1,947.9
162.8
73.8
3.6
64.0
80.0
0.0
384.2
2,332.0
66.0
102.7
60.7
41.3
149.0
419.7
125.0
15.0
0.1
140.1
559.8
2,367.6
524.3
2,891.8
(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 $0.6 million of purchase accounting premium from acquisition which reduces the stated rate on the debt of 7.59% to an effective rate of 6.96%.
(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)
(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.
(n) The Pier Shops' loan is in default. As of December 2009, interest accrues at the default rate of 10.01% rather than the original stated rate of 6.01%. Debt maturity is shown in 2010 when the debt obligation is
$40 million available; rate floats daily.
expected to be extinguished.
UNCONSOLIDATED JOINT VENTURES OF THE TAUBMAN REALTY GROUP LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(in thousands)
Exhibit 99 (b)
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
Initial Cost
to Company
Gross Amount at Which
Carried at Close of Period
Buildings,
Improvements,
and Equipment
Cost Capitalized
Subsequent to
Acquisition
Land
BI&E
Total
Accumulated
Depreciation
(A/D)
Total Cost
Net of A/D
Encumbrances
Date of
Completion of
Construction
or Acquisition
Depreciable
Life
$
150,364
36,043
177,024
40,044
65,740
66,960
38,638
$
$
5,673
68,424
7,635
85,324
16,627
86,575
123,407
$ 22,017
7,667
22,516
9,537
350
12,604
5,287
$
156,037
104,467
184,659
125,368
82,367
153,535
162,045
42,697
1,547
$
$
53,917
58,099
53,917
52,860
55,162
40,829
81,734
178,054
112,134
207,175
134,905
82,717
166,139
167,332
42,697
1,547
124,137
54,035
153,258
82,045
27,555
125,310
85,598
42,697
1,547
$ 132,073
250,000
205,458
121,387
165,000
188,718
1997
1980
2002
1982
1967
2003
1974
50 Years
55 Years
50 Years
40 Years
40 Years
40 Years
34 Years
30,000
2006
Land
$ 22,017
7,667
22,516
9,537
350
12,604
5,287
42,697
1,547
$ 124,222
$
574,813
2,263
$ 395,928
$ 124,222
$
2,263
970,741
2,263
$ 1,094,963 (1) $ 396,518
2,263
698,445
$
The changes in total real estate assets and accumulated depreciation for the years ended December 31, 2009, 2008, and 2007 are as follows:
2009
Total Real Estate Assets
2008
2007
Balance, beginning of year
New development and improvements
Disposals/Write-offs
Transfers In/(Out)
Balance, end of year
$ 1,087,341
12,423
(4,801)
$ 1,056,380
47,908
(16,947)
$ 1,157,872
78,885
(3,907)
(176,470) (2)
$ 1,094,963
$ 1,087,341
$ 1,056,380
Balance, beginning of year
Depreciation for year
Disposals/Write-offs
Transfers In/(Out)
Balance, end of year
$
$
(1) The unaudited aggregate cost for federal income tax purposes as of December 31, 2009 was $1.427 billion.
(2)
Includes costs related to The Pier Shops at Caesars, which became a consolidated center in 2007.
2009
(366,168)
(33,795)
3,157
288
(396,518)
$
Accumulated Depreciation
2008
(347,459)
(36,108)
16,676
723
(366,168)
$
$
$
2007
(320,256)
(33,173)
3,928
2,042 (2)
(347,459)
12720 Text 125_126 3/19/10 9:34 AM Page 1
n o t e s a n d r e c o n c i l i a t i o n s f o r g r a p h s a n d d e v e l o p m e n t a n a l y s i s
(pages 4 through 8)
funds from operations (ffo) and adjusted ffo per share: reconciliation of net income
(loss) attributable to tco common shareowners to ffo and adjusted ffo per share1
(in millions of dollars; amounts may not add due to rounding)
Year Ended
Net income (loss) attributable to TCO common shareowners
Gains on dispositions of properties and other
Depreciation and amortization
Noncontrolling interests and distributions to participating
securities of TRG
Funds from Operations
Funds from Operations allocable to TCO
Funds from Operations per share
Funds from Operations
Restructuring charges
Costs related to unsolicited tender offer, net of recoveries
Charge upon redemption of preferred equity
Adjusted Funds from Operations
Adjusted Funds from Operations allocable to TCO
2000
86.4
(85.3)
80.5
2001
(8.9)
8.4
96.5
2002
(2.2)
(12.3)
124.3
2003
21.2
(49.6)
137.4
30.3
31.7
32.8
35.5
111.9
127.6
142.6
144.5
69.9
78.5
88.2
87.3
2004
(5.1)
(0.3)
139.8
35.7
170.1
103.1
$ 1.33
$ 1.53
$ 1.69
$ 1.70
$ 2.07
111.9
127.6
2.0
142.6
144.5
5.1
24.8
111.9
129.6
147.7
69.9
79.7
91.4
169.4
102.4
170.1
5.7
(1.0)
2.7
177.5
107.5
Adjusted Funds from Operations per share
$ 1.33
$ 1.56
$ 1.75
$ 2.00
$ 2.16
Year Ended
Net income (loss) attributable to TCO common shareowners
Gains on dispositions of properties and other
Depreciation and amortization
Noncontrolling interests and distributions to participating
securities of TRG
Funds from Operations
Funds from Operations allocable to TCO
Funds from Operations per share
Funds from Operations
Debt prepayment premium and write-off of financing costs
Charges upon redemption of preferred stock
Impairment charges
Litigation charges
Restructuring charges
Adjusted Funds from Operations
Adjusted Funds from Operations allocable to TCO
2005
44.1
(52.8)
150.3
36.0
177.7
110.6
2006
21.4
2007
48.5
2008
(86.7)
2009
(69.7)
147.3
141.0
154.8
154.4
41.8
210.4
136.7
45.6
235.1
155.4
54.1
122.2
81.3
(29.7)
55.0
36.8
$ 2.17
$ 2.56
$ 2.88
$ 1.51
$ 0.68
177.7
12.7
3.1
210.4
3.1
4.7
235.1
122.2
55.0
126.3
193.5
120.5
218.2
141.7
235.1
155.4
248.5
165.5
160.8
30.4
2.5
248.7
166.3
Adjusted Funds from Operations per share
$ 2.36
$ 2.65
$ 2.88
$ 3.08
$ 3.06
1 Refer to the Form 10-K for a definition of FFO and the Company’s uses of the measure.
t e n a n t s a l e s p e r s q u a r e f o o t
Added International Plaza, The Mall at Millenia, The Mall at Wellington Green and The Shops at Willow Bend beginning
in 2003. Added Arizona Mills, Dolphin Mall and Great Lakes Crossing beginning in 2004.
a s s u m p t i o n s f o r t h e h i s t o r i c a l d e v e l o p m e n t a n a l y s i s
Investments include the following:
• Initial project costs, including lease up expenses;
• After opening, all capital expenditures (including tenant allowances) for each project; and
• All predevelopment expenses for the 10-year period, including costs related to Sarasota and Oyster Bay.
Additional cost bases totaling $25 million related to the acquisition of partners’ interests in MacArthur Center, Dolphin
Mall, International Plaza and The Mall at Partridge Creek are excluded from the analysis. These amounts are included
in balances in Schedule III of the Form 10-K.
Sales of land adjacent to these properties and the related gains are excluded from the analysis.
“Current conditions” leverage case assumes leverage of 50 percent and an interest rate of 6 percent.
Project costs and returns are analyzed on a 100 percent ownership basis.
12720 Text 125_126 3/19/10 9:34 AM Page 2
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.
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
Robert S. Taubman (4)
Chairman of the Board
President and Chief Executive Officer
Taubman Centers, Inc.
Stephen J. Kieras
Senior Vice President
Development
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.)
Robert R. Reese
Senior Vice President
Chief Administrative Officer
David T. Weinert
Senior Vice President
Leasing
(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.
12719 Cover 3/23/10 10:18 AM Page 2
letter to shareowners
s ha reowner informa tion
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 2009:
market quotations
2009 quarter ended
March 31
June 30
September 30
December 31
high
$ 26.79
low
$ 13.56
dividends
$ 0.415
28.16
37.37
37.66
16.65
22.55
30.40
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, supplemental
investor information, corporate governance information,
our Code of Business Conduct and Ethics, SEC filings,
and webcasts of quarterly earnings conference calls.
Design: SAMATAMASON Editorial: CHRISTOPHER TENNYSON Printing: COLORTECH GRAPHICS
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.
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 con-
venient way to reinvest dividends and purchase additional
shares. In addition, investors who do not currently own
any Taubman Centers’ stock can make an initial invest-
ment through this program. A plan description 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 and downloaded 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 2010 Taubman Centers, Inc. Annual Meeting will
be held on Friday, May 21 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
12719 Cover 3/23/10 10:18 AM Page 1
T
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Over the last 60 years we’ve proven that patience and planning
are compatible with performance.
We’ve demonstrated that we create value in good times and
bad through strategic development and intensive management
of our highly productive properties.
And as we assess the evolving competitive and economic
landscape ahead, we’re well positioned and well prepared to
create growth over time.
Taubman Cente rs, Inc .
200 East Long Lake Road, Suite 300
Bloomfield Hills, Michigan 48304-2324
www.taubman.com
We’ve always operated
with a long view…