2 010 an n ual r e p ort
Core Strength
T A U B M A N C E N T E R S creates extraordinary
retail environments for communities,
shoppers, merchants and investors. Our
portfolio of regional and super regional
malls, located in major markets from
coast to coast, is the most productive in
the U.S. We delight customers and build
shareholder value through the intense
management of our existing properties
and the highly selective development of
new shopping destinations.
2010
Long-term success in any business requires resilience. The ability to recover
from challenges and respond effectively to change is a key attribute of all
great companies. In 2010, Taubman Centers once again demonstrated the
resilience that has helped sustain our performance and growth over the last
six decades. Rebounding from the depths of the Great Recession, tenant sales
per square foot in our properties reached $564, well above our previous high
of $555 in 2007, setting a new record for the publicly held U.S. regional
mall industry.
Clearly this is a welcome sign of an economic recovery and improving
confidence among retailers and consumers. But during this difficult period,
we always believed in the power of our core strengths: People, Assets,
Strategy and Values. Thanks to these enduring qualities, I believe we’ve
emerged from the worst economic climate in decades as an even stronger,
more confident company.
Letter to Shareowners page 1
Taubman people, the heart of our organization,
bring unmatched expertise, commitment and passion
to the pursuit of our mission.
people
R E T U R N I N G T O G R O W T H
Notwithstanding the uncertainties of
the economic environment, the strong sales trends
we saw in 2010 give us reason for optimism. Cus-
tomers began to spend at pre-recession levels in our
centers across the nation, resulting in a 12.4 percent
increase in mall tenant sales for the year. Especially
encouraging was the outstanding fourth quarter
holiday season, with sales up 12.9 percent over the
same period in 2009.
These sales increases throughout the portfolio –
well ahead of our industry – significantly improved
retailer expectations, enhancing the leasing envi-
ronment. Importantly, our leasing momentum is
continuing into 2011 and retailers across categories
and price points are returning to expansion mode.
Net Operating Income (NOI) for 2010 finished the
year up 0.5 percent, which was well ahead of our
initial expectations. An analysis of NOI over the last
three very challenging years underscores the attrac-
tiveness – and yes, resilience – of our business model
and core assets. Despite a collapsing economy in
2008, NOI actually grew 4.9 percent. The following
year, arguably the worst since the Great Depression,
we experienced the only negative year in our history,
with 2009 NOI down 2.7 percent. Then
in 2010, NOI began growing again.
Such steady performance through extraordinary
turbulence is possible because our portfolio is dom-
inated by A-quality regional mall assets. This income
flows from thousands of tenants with laddered lease
terms who have made investments in our properties.
It’s rare that 15 percent of the portfolio will turn
over in any year. This provides a very predictable
income stream in good times and bad. As pioneers
of the modern regional mall concept, we’ve always
had great confidence in our business model, and
were not surprised that our cash flows over the last
three years never dropped as deeply or as quickly as
the general economy.
O U R C O M M I T M E N T T O T H E C O R E
Working every day to maximize the potential of each
center in our portfolio is how we have operated for
61 years. The benefits of that commitment to the core
have never been clearer than they were in 2010.
For example, two of the best performing centers over
the last three years have been our Connecticut prop-
erties, Stamford Town Center and Westfarms. Each
benefitted from recent strategic investments and
Taubman Centers, Inc. page 2
Taubman’s portfolio of extraordinary retail
properties is the highest quality and most productive
in the regional mall industry.
aSSetS
remerchandising. At Stamford we rede-
veloped the former Filene’s department
store space with a new restaurant wing to better serve
the city’s booming daytime office worker population.
At Westfarms we enhanced the center’s historic
positioning of unique-to-the-market merchandise,
with the introduction of central Connecticut’s only
Louis Vuitton and Tiffany & Co. stores. This contin-
ues to strengthen the extended draw of Westfarms.
We also substantially upgraded the restaurant lineup,
encouraging the destination nature of the center.
Also experiencing robust sales per square foot
growth have been our Florida centers as the econo-
my improves and tourism rebounds. We have the
dominant assets with the highest price points and
sales productivity in Orlando, Tampa and Naples;
the third strongest in Palm Beach County; and with
Dolphin Mall, we have the dominant value center
in Miami-Dade County. These assets are constantly
increasing their market positioning, with a focus on
unique store leasing, a willingness to continually
reinvest and a vigilance toward operational detail.
At The Shops at Willow Bend in Plano, Texas, there’s
a similar story. We’re strengthening the center’s
merchandise mix with new large-format Crate and
Barrel and Restoration Hardware stores.
Recent investments in our home state
of Michigan have contributed significantly to our
sales growth, with the opening of The Mall at
Partridge Creek, the Nordstrom wing at Twelve
Oaks, new restaurants at Fairlane Town Center,
and a very successful rebranding in 2010 at Great
Lakes Crossing Outlets.
We’re in the midst of yet another renovation and
expansion at The Mall at Short Hills in northern
New Jersey – our fifth in 30 years. We’re adding
additional luxury tenants – including Miu Miu,
Zegna, flagship Prada and Hermès stores, and an
expanded Louis Vuitton – upgrading the common
areas, opening a Cheesecake Factory restaurant,
and creating space internally to accommodate a
new 40,000 square foot, two-level XXI Forever. We
expect to achieve a double-digit return on the
expanded space, augmenting one of the most pro-
ductive retail properties in the U.S.
As you can see, continually reinvesting in our assets
is for us a natural, self sustaining activity – it’s the
way we breathe. Over the last ten years we’ve reno-
vated, expanded or built from scratch more than
three quarters of our centers.
Letter to Shareowners page 3
We grow in good times and bad through the
intense management of our existing centers and
the disciplined development of new properties.
Strategy
The manageable size of our core portfolio
allows us to be nimble and focus intensely
on every property – our brands – to keep them fresh
and competitive for our customers, whose tastes are
ever-changing. Our center management teams, the
best in the industry, think and act like owners.
We’ve created innovative ways to monetize many
customer amenities, enhancing the shopper experi-
ence while growing NOI and driving traffic. For
example, we have developed a destination holiday
experience featuring our common area “Ice Palaces,”
which are sold each year to major motion picture
studios for content sponsorship. In 2010 we part-
nered with Twentieth Century Fox and Walden
Media to support their release of The Chronicles of
Narnia: The Voyage of the Dawn Treader. This stu-
dio alliance also tied to our Santa experience and
photo sales, which created a synergistic national
sponsorship opportunity with Fujifilm to offer
a unique, digital promotion for our customers.
Again this creates more reasons for our shoppers
to come to us – and it makes money. In 2010, alter-
native sources of income including sponsorship,
operations, specialty leasing and temporary tenants
represented 12 percent of our NOI. In just twelve
years, this type of income has increased more than
500 percent.
Also in 2010, our operations profes-
sionals were very successful in reducing
costs at the centers, using new methods to become
more energy efficient, and further partnering with
our national vendors to reduce expenses and rebid-
ding contracts.
For us, this is all about our commitment to manag-
ing our core and maximizing our assets to their
highest potential.
F O U R P R O N G S O F E X T E R N A L G R O W T H
With the positive shift in the economy and the
rebound in our sales performance, we are once again
optimistic about the outlook for investment in new
properties. We feel well-positioned to find good
opportunities through our four prongs of external
growth: U.S. Mall Development, Asia Develop-
ment, Outlet Development and Acquisitions.
There continues to be steady population growth in
America – with nearly three million new people each
year. While generally there is substantial supply in
most markets – and even attrition in some – there
are many reasons a new center gets built: whether
because of unique pockets of growth creating new
demand, outdated assets, an ownership that hasn’t
Taubman Centers, Inc. page 4
We love what we do, striving every day
for excellence, embracing innovation and
celebrating teamwork.
ValueS
been responsive to market changes, or a
retailer wanting to enter a new market.
We believe there will be as many as 15 to 20 new
centers over the next decade throughout the U.S.
We’re hopeful we’ll develop four to five of those
new centers over this period, with the first opening
as soon as 2014.
In the meantime, we’re very excited about our
progress at City Creek Center in Salt Lake City,
which is on schedule to open in March 2012. This
amazing property, part of a major mixed-use devel-
opment in the heart of Utah’s capital city, is
anchored by Nordstrom and Macy’s and will feature
a retractable glass roof over the central mall corridor.
It’s the only regional mall under construction in
America today and when it debuts, we are confi-
dent it will be one of our nation’s most attractive
urban marketplaces.
In Asia, we continue to be optimistic about develop-
ment opportunities in China and South Korea.
We’re operating with a long view, confident that our
Taubman Asia initiative will ultimately make signif-
icant contributions to our growth. We consider our
approach to be very affordable R&D in a region of
explosive growth and wealth creation. Along the way,
we’ve managed our costs by generating
fees from our involvement in projects in
Seoul and New Songdo, South Korea and Macao.
Working for others has been helpful as we build and
train our team while we pursue good investment
opportunities. And during the year, we were delighted
to announce the appointment of René Tremblay as our
new Taubman Asia president. He is a proven executive
with extensive financial and real estate experience
and a history of successful international activity.
Also, we’re very bullish about the future of our
outlet business. Over the last three years, some of
our strongest improvement in sales has come at our
three value and outlet centers. Recognizing the
opportunities ahead for this popular retail format,
we’ve teamed up with a company headed by Bruce
Zalaznick, former executive vice president of Prime
Outlets and Chelsea. He’s scouring the U.S. for
potential sites, targeting markets that can support
higher productivity outlet centers capable of achiev-
ing tenant sales of at least $400 per square foot.
Our goal is to build five to ten outlet centers over the
next ten years. We’ll have a 90 percent ownership
interest in this joint venture. I’ll be disappointed if
we’re not in a position to announce one or two new
outlet projects by the end of 2011.
Letter to Shareowners page 5
As for acquisitions, the U.S. mall sector is extremely
consolidated – especially the better assets we find
attractive. We’re always watching, and have the
capital available to take advantage of selective
opportunities. We’re also open to acquisition activi-
ties in Asia and think the markets there may provide
more for us to consider.
Whether through new U.S. or Asian centers, outlet
malls or an acquisition, we’re very confident over
the next period of years we’ll find ways to invest
capital wisely and augment our core growth.
R E W A R D I N G O U R S H A R E O W N E R S
Even with great people, assets, strategy and values,
successfully weathering the storm of the last several
years would not have been possible without a strong
balance sheet – and pound for pound ours is as solid
as any in our industry. In recognition of our stability
and performance, the Taubman Centers Board of
Directors approved in December 2010 a regular
quarterly dividend increase of 5.4 percent. Since our
public offering in 1992, Taubman Centers’ dividend,
which has never been decreased or paid in stock,
has been increased 13 times, achieving a 3.9 percent
compound annual growth rate.
We’re proud that during 2010 we rewarded our
shareowners with a total return on their investment
of 46.8 percent. Over the last 10 years ending
December 31, 2010, the company’s compounded
annual shareholder return has been 22.2 percent.
That compares very favorably to the performance
over that same period of the MSCI US REIT Index of
10.6 percent, the FTSE NAREIT Equity Index of
13.2 percent, and the S&P 500 Index of 1.4 percent.
I would like to thank my talented, dedicated
Taubman Centers colleagues for the resilience they
demonstrated through the most trying of times.
Their confidence and focus, along with the stead-
fast leadership of our Board of Directors, assured
our success and has positioned us for continued
growth as we see the welcome signs of economic
recovery. And as always, special thanks to you, our
shareowners, for your interest and support.
R O B E R T S . TA U B M A N
Chairman of the Board, President & Chief Executive Officer
Taubman Centers, Inc. page 6
2010
Core strength is measured in many ways.
It’s evident in the spirit, energy, intelligence and commitment
that our 582 employees bring to work every day. It’s in the loyalty and friendship
of our valued shoppers and the success of our approximately 2,800 retailers.
It’s in the numbers that give shareowners confidence in our ability
to build long-term value on a foundation of carefully-conceived
and well-executed growth.
22.2%
COMPOUND
ANNUAL
GROWTH RATE
22.2%
13.2%
10.6%
7.2%
1.4%
00
01
02
03
04
05
06
07
08
09
10
100.00
146.43
171.12
229.29
347.87
418.72
631.25
628.93
339.31
509.59
747.91
100.00
100.00
100.00
100.00
130.42
112.83
99.40
88.11
157.90
116.94
84.97
68.64
231.75
159.91
115.24
88.33
324.98
210.26
134.24
97.94
363.33
235.78
151.10
102.75
468.73
320.46
166.70
118.97
394.81
266.57
179.99
125.51
203.88
165.36
114.78
79.07
259.28
212.66
157.68
100.00
345.90
273.32
199.69
115.06
Taubman Centers Inc.
FTSE NAREIT Equity Retail Index
MSCI US REIT Index
S&P MidCap 400 Index
S&P 500 Index
CoM par IS on oF CuM ul at IV e
Sh ar e h ol D e r r e t ur n
Very few companies can boast a 22.2 percent compound annual growth rate in their stock over a ten year
period. That’s what Taubman Centers’ stock has returned to its shareowners from December 31, 2000
through December 31, 2010, with reinvestment of dividends. We ranked seventh out of more than 100
REITs. Our total return handily beats all of the relevant benchmarks: The FTSE NAREIT Equity Retail
Index, the MSCI US REIT Index and the S&P 500 Index. We were also proud to be added to the prestigious
S&P 400 MidCap Index in January 2011. 186÷747.91=*.24869
Taubman Centers, Inc. page 8
$2.86
COMPOUND
ANNUAL
GROWTH RATE
7.0%
5.9%
01
02
03
04
05
06
07
08
09
10
1.56
1.005
1.75
1.025
2.00
1.05
2.16
1.095
2.36
1.16
2.65
1.29
2.88
1.54
3.08
1.66
3.06
1.66
2.86
1.683(1)
Adjusted FFO per share ($)
Dividend per share ($)
aDJ uS t e D F un D S F roM op e r at Ion S /
D IV ID e n D S p e r S h ar e ( $ )
Taubman Centers’ 2010 adjusted Funds from Operations(2) grew at a 7.0 percent compounded annual rate
over the past decade, even with the Great Recession. This illustrates the steady, predictable income stream
generated by the regional mall in good times and in bad. And thanks to its strong balance sheet, Taubman
Centers has never cut its dividend or found it necessary to pay its dividend in stock. Over the 10-year period
ended December 31, 2010, Taubman Centers’ dividend has grown 67.4 percent – a compounded annual
growth rate of 5.9 percent.
(1) Excludes special dividend of $0.1834 per share paid in December, 2010. The annualized amount of the fourth quarter 2010 regular dividend is $1.75.
(2) Adjusted Funds from Operations excludes Westfarms litigation settlements, restructuring and impairment charges and costs related to the unsolicited tender offer in
2002 and 2003. See Reconciliations page at the end of this report.
186÷308=*.60389
page 9
$564
01
02
03
04
05
06
07
08
09
10
465
457
441
466
508
529
555
533
502
564
t e n an t Sal e S
p e r S Quar e F oot ( $ ) ( 1 )
Tenant sales per square foot is the most important measure of the quality of regional mall assets. Once again
in 2010, Taubman led the publicly held U.S. regional mall industry with a sales per square foot increase of
12.4 percent and a record performance of $564 per square foot. This is above our previous record of $555
per square foot and is 46 percent above the $385(2) per square foot average reported by the International
Council of Shopping Centers in 2010. The higher the retailers’ sales, the higher the rents those retailers can
pay. This means greater rewards to the landlord and its shareholders.
(1) Excludes The Pier Shops and Regency Square in 2010 and 2009. The Pier Shops is also excluded in 2008. 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.
(2)
Includes over 500 regional and super-regional malls. Sales per square foot information is self-reported data provided to the International Council of Shopping Centers
by participating companies.
Taubman Centers, Inc. page 10
92%
01
02
03
04
05
06
07
08
09
10
87.7
90.3
89.8
90.7
91.7
92.5
93.8
92.0
91.6
92.0
l e aS e D
S paCe ( % )
Since 2002, our leased space percentage has been consistently about 90 percent or greater, reaching its peak
in 2007 at 93.8 percent. Even in the Great Recession of 2008 and 2009, our centers remained well-leased.
Significantly, this important statistic began to grow again in 2010 indicating retailer interest in our high
quality properties. It’s not surprising that the world’s greatest merchants want to do business in the most
productive retail environments in the U.S. 186÷938=*.19829
page 11
2 010
p ort F ol Io
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
(Opening March 22, 2012)
shopcitycreekcenter.com
CRYSTALS AT CITYCENTER
Las Vegas, NV
(Leasing and development services)
crystalsatcitycenter.com
DOLPHIN MALL
Miami, FL
shopdolphinmall.com
FAIR OAKS
Fairfax, VA
shopfairoaksmall.com
FAIRLANE TOWN CENTER
Dearborn, MI
shopfairlane.com
IFC MALL
Yeouido, Seoul, South Korea
(Leasing, development
and management services)
ifcseoul.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
GREAT LAKES CROSSING OUTLETS
Auburn Hills, MI
greatlakescrossingoutlets.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 services)
shopwoodfield.com
MAP KEY
Owned centers
Leasing, management
and/or development services
Project under development
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010.
FORM 10-K
2 010
p ort F ol Io
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
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
Accelerated Filer
Non-Accelerated Filer
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
The aggregate market value of the 53,564,353 shares of Common Stock held by non-affiliates of the registrant as of June 30, 2010 was $2 billion,
based upon the closing price $37.63 per share on the New York Stock Exchange composite tape on June 30, 2010. (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, 2011,
there were outstanding 55,789,117 shares of Common Stock.
Portions of the proxy statement for the annual shareholders meeting to be held in 2011 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
(Removed and Reserved)
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 Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
2
10
18
18
23
23
24
26
27
53
53
53
53
53
53
53
54
54
54
55
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 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, 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 forward-looking statements included in this report are made as
of the date hereof. Except as required by law, we assume no obligation to update these forward-looking
statements, even if new information becomes available in the future.
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, 2010 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). 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. See the table on pages 19 and 20 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 2010, 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. In September 2010, our Board of Directors made the decision to
discontinue financial support of Regency Square. The $72.7 million loan on this center matures in November
2011. The loan was not in default as of December 31, 2010. The Pier Shops and Regency Square loan
obligations will be extinguished upon transfer of the title of the centers. The process is not in our control and the
timing of transfer of title of the centers is uncertain (see “MD&A – Results of Operations – The Pier Shops at
Caesars” and “MD&A – Results of Operations – Regency Square”). Consequently, The Pier Shops has been
excluded from operating statistics in 2010, 2009, and 2008. Regency Square has also been excluded from
operating statistics in 2010 and 2009. The Pier Shops and Regency Square have also been excluded from certain
other information as indicated.
2
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 gross leasable area (GLA)
to regional and super-regional shopping centers. Retail shopping centers in excess of 400,000 square feet of GLA
are generally referred to as "regional" shopping centers, while those centers having in excess of 800,000 square
feet of GLA are generally referred to as "super-regional" shopping centers. In this Annual Report on Form 10-K,
the term "regional shopping centers" refers to both regional and super-regional shopping centers. The term "GLA"
refers to gross retail space, including anchors and mall tenant areas, and the term "Mall GLA" refers to gross retail
space, excluding anchors. The term "anchor" refers to a department store or other large retail store. The term
"mall tenants" refers to stores (other than anchors) that lease space in shopping centers.
Business of the Company
We are engaged in the ownership, leasing, acquisition, disposition, development, expansion, and management
of regional shopping centers. Excluding The Pier Shops and Regency Square (see “MD&A – Results of
Operations – The Pier Shops at Caesars” and “MD&A – Results of Operations – Regency Square”), we have 21
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 336,000 and 1.6 million square feet of GLA and between 196,000 and 641,000 square
feet of Mall GLA. The smallest center has approximately 60 stores, and the largest has over 200 stores. Of
the 21 centers, 18 are super-regional shopping centers;
• have approximately 2,800 stores operated by their mall tenants under approximately 800 trade names;
• have 63 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 2010, our mall tenants reported average sales per square foot of $564, which is a record for our
Company.
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 21 owned centers,
excluding The Pier Shops and Regency Square, 20 had annual rent rolls at December 31, 2010 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.
3
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 rents;
•
seek to anticipate trends in the retailing industry and emphasize ongoing introductions of new retail concepts
into our centers. Due in part to this strategy, a number of successful retail trade names have opened their first
mall stores in the centers. In addition, we have brought to the centers "new to the market" retailers. We
believe that the execution of this leasing strategy is an important element in building and maintaining
customer loyalty and increasing mall productivity; and
• provide innovative initiatives, 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 many of our centers
include stores that target high-end customers, each center is individually merchandised in light of the
demographics of its potential customers within convenient driving distance. When necessary, we will consider
rebranding existing centers in order to maximize customer loyalty, increase tenant sales, and achieve greater
profitability.
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.
Since 2005, an increased number of our tenants are paying a fixed Common Area Maintenance (CAM) charge,
with typically a fixed increase over the term of the lease, rather than the traditional net lease structure where a
tenant pays their share of CAM. This allows the retailer greater predictability of their costs. While some pricing risk
has shifted to the landlord, cost savings can have a positive impact on our profitability. Approximately 60% of our
tenants in 2010 (including those with gross leases or paying a percentage of their sales) effectively pay a fixed
charge for CAM. Over time there will be significantly less matching of CAM income with CAM expenditures, which
can vary considerably from period to period.
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. Our internally generated funds and 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. Market conditions may continue to limit our sources of funds for
these financing activities. We have begun to see positive signs of stabilization in the economy; however, the
capital markets continue to be more conservative in investment decisions and practices than they were before the
recent financial market downturn.
4
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.
Another potential element of growth over time is the strategic expansion and redevelopment of existing
properties to update and enhance their market positions by replacing or adding new anchor stores, increasing
mall tenant space, or rebranding centers. 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 2010, the success of the existing value and outlet retailers and consumer demand for more fashion outlet
options led to the renaming and rebranding of Great Lakes Crossing as an outlet shopping center (outlet). The
center has been renamed Great Lakes Crossing Outlets. At 1.4 million square feet of GLA, the fully-enclosed
Great Lakes Crossing Outlets is the largest outlet center in Michigan, including about 185 retail and dining
options.
In 2010, we began construction at The Mall at Short Hills (Short Hills) to accommodate new stores, upgrade
common areas and add tenant space. We have received approvals to build a new 40,000 square foot two-level
XXI Forever, which will utilize about 33,000 square feet of existing basement level space. XXI Forever is expected
to open in the fourth quarter of 2011.
In 2010, we began remerchandising the land vacated by Lord & Taylor at The Shops at Willow Bend. The Lord
& Taylor site will be replaced with a 25,000 square foot Crate & Barrel store. Next door will be a new 12,000
square foot Restoration Hardware. The new Crate & Barrel store will open in March 2011.
In 2008, Macy’s at Twelve Oaks Mall (Twelve Oaks) renovated its store and added 60,000 square feet of store
space.
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.
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.
External Growth
We are focused on four areas of external growth: U.S. traditional center development, outlets, Asia, and
acquisitions. With growth in population, we expect that there will be demand for new centers over the next 10
years. We continue to work on and evaluate various development possibilities for new centers both in the United
States and Asia.
5
• New U.S. Traditional and Outlet Centers
We have finalized agreements 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 own the retail space under a participating lease.
City Creek Reserve, Inc. (CCRI), an affiliate of the LDS Church, is the participating lessor and is providing all of
the construction financing. Construction is progressing and we are leasing space for a March 2012 opening. See
“MD&A – Liquidity and Capital Resources – Capital Spending” regarding additional information on City Creek
Center.
In 2010, we formed a joint venture with a company headed by an executive with a proven track record of
successful outlet development. We believe the outlet business is a natural extension of our capabilities and it will
diversify our portfolio. In many cases the leasing executives and retailers are the same for both the outlet and
traditional retail divisions and many of our tenants have encouraged us to enter this segment. As we’ve analyzed
the business, we believe it is quite likely the pool of good development opportunities in this sector will exceed
those of traditional malls. We expect to announce our involvement in at least one or two outlet opportunities by the
end of 2011.
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 or significant tenants 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.
• Asia
In October 2010 we appointed a new President of Taubman Asia. He is responsible for Taubman’s operations
and future expansion into the Asia-Pacific region, focusing on China and South Korea. Taubman Asia is engaged
in projects that leverage our strong retail planning, design and operational capabilities. In September 2010, we
entered into agreements to provide development, leasing and management services for IFC Mall in Yeouido,
Seoul, South Korea. Currently under construction, the approximate 430,000 square foot mall will feature up to 100
stores and restaurants.
• Strategic Acquisitions
As the capital markets and availability of credit improves, we expect attractive opportunities to acquire existing
centers, or interests in existing centers, from other companies to continue to be scarce and expensive. However,
we continue to look for assets where we can add significant value or that would be strategic to the rest of our
portfolio. 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.
6
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, such as we are experiencing now, rents on new leases will generally tend to rise. In periods of
slower growth or declining sales, 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 table contains certain information regarding mall tenant minimum rent per square foot of 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 in 2010,
2009, and 2008 and Regency Square in 2010 and 2009:
Average rent per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
2010
$43.63
43.73
43.66
2009
2008
2007
2006
$43.69
44.49
43.95
$43.95
44.61
44.15
$43.39
41.89
42.90
$42.77
41.03
42.22
See “MD&A – Rental Rates and Occupancy” for information regarding opening and closing rents per square
foot for our centers.
Lease Expirations
The following table shows scheduled lease expirations for mall tenants based on information available as of
December 31, 2010 for the next ten years for all owned centers in operation at that date, with the exception of The
Pier Shops and Regency Square:
Tenants 10,000 square feet or less
Lease
Expiration
Year
2011 (3)
2012
2013
2014
2015
2016
2017
2018
2019
2020
Number
of
Leases
Expiring
283
364
353
259
275
273
263
185
153
119
Leased
Area in
Square
Footage
711,335
930,519
860,296
588,990
727,043
743,910
759,365
596,412
482,436
372,588
Annualized
Base
Rent Under
Expiring
Leases
Per Square
_Foot (2)
$42.72
45.61
46.85
48.99
45.30
48.92
52.41
53.65
54.06
56.70
Percent of
Total Leased
Square
Footage
Represented
by Expiring
_Leases_
10.0%
13.1
12.1
8.3
10.3
10.5
10.7
8.4
6.8
5.3
Number
of
Leases
Expiring
291
382
375
271
288
286
286
200
165
133
Leased
Area in
Square
Footage
853,675
1,367,566
1,441,854
937,864
1,046,558
1,102,664
1,290,039
899,231
705,259
655,233
Total (1)
Annualized
Base
Rent Under
Expiring
Leases
Per Square
Foot (2)
$38.02
38.72
34.37
39.21
37.88
37.54
40.30
44.45
44.21
45.67
Percent of
Total Leased
Square
Footage
Represented
by Expiring
_Leases_
7.6%
12.2
12.9
8.4
9.3
9.8
11.5
8.0
6.3
5.9
(1)
In addition to tenants with spaces 10,000 square feet or less, includes tenants with spaces over 10,000 square feet and
value and outlet center anchors. Excludes rents from regional mall anchors and temporary in-line tenants.
(2) Weighted average of the annualized contractual rent per square foot as of the end of the reporting period.
(3) Excludes leases that expire in 2011 for which renewal leases or leases with replacement tenants have been executed as of
December 31, 2010.
7
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 2005 to 2010 was approximately one year.
The average term of leases signed was approximately seven years during 2010 and approximately six years
during 2009.
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 2010, tenants representing 0.7% of
leases filed for bankruptcy during the year compared to 3.9% in 2009. 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 and was only 0.5% in 2010.
Occupancy
Occupancy statistics include value and outlet center anchors. The statistics exclude The Pier Shops for 2010,
2009, and 2008 and Regency Square in 2010 and 2009.
Ending occupancy
Average occupancy
Leased space
Major Tenants
2010
90.1%
88.8
92.0
2009
89.8%
89.4
91.6
2008
90.5%
90.5
92.0
2007
91.2%
90.0
93.8
2006
91.3%
89.2
92.5
No single retail company represents 10% or more of our Mall GLA or revenues. The combined operations of
Forever 21 accounted for approximately 4% of Mall GLA as of December 31, 2010 and less than 3% of 2010
minimum rent. No other single retail company accounted for more than 3.8% of Mall GLA as of December 31,
2010 or 3% of 2010 minimum rent.
The following table shows the ten mall tenants who occupy the most space at our centers and their square
footage as of December 31, 2010, excluding The Pier Shops and Regency Square:
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)
H&M
Ann Taylor (Ann Taylor, Ann Taylor Loft, and others)
Foot Locker (Foot Locker, Lady Foot Locker, Champs Sports, Foot Action USA, and others)
Express (Express, Express Men)
American Eagle Outfitters (American Eagle Outfitters, Aerie, and 77kids)
# of
Stores
26
43
43
34
24
10
29
39
18
23
Square
Footage
425,246
392,384
276,546
247,478
188,756
177,078
169,429
167,795
162,796
133,000
% of
Mall GLA
4.1%
3.8
2.7
2.4
1.8
1.7
1.6
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.
8
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, 2010, the Manager and TAM had 582 full-time employees. The following table provides a
breakdown of employees by operational areas as of December 31, 2010:
Center Operations
Property Management
Financial Services
Leasing and Tenant Coordination
Development
Other
Total
Available Information
Number of Employees
229
159
64
52
20
58
582
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.
9
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. While the economic
environment and credit availability improved in 2010, current high unemployment and uncertainty as to
whether this is a sustainable recovery may adversely 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.
These factors may ultimately 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 addition, the value and performance of our shopping centers may be adversely affected by certain other
factors discussed below including the global economic condition, the state of the capital markets, unscheduled
closings or bankruptcies of our tenants, competition, uninsured losses, and environmental liabilities.
The recent global economic and financial market downturn has had and may continue to have a negative effect
on our business and operations.
The recent global economic and financial market downturn 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 a negative effect on
our business, results of operations, financial condition and liquidity. Many of our tenants have been affected by
these negative economic conditions and, although we have seen some improvement, these conditions may
continue to strain the resources of our tenants and their customers.
10
Capital markets have experienced and may continue to experience a period of disruption and instability, which
caused and may continue to have a negative impact on the availability and cost of capital.
The recent general disruption in the U.S. capital markets impacted the broader worldwide financial and credit
markets and reduced the availability of capital for the market as a whole. Although the capital markets now appear
to be recovering, the capital markets continue to be more conservative in investment decisions and practices than
they were before the recent financial market downturn. Regulations put in place in response to the disruption to
the markets may further restrict the availability and/or increase the cost of capital. Our ability to access the capital
markets may be restricted at a time when we would like, or need, to access those markets. This could have an
impact on our flexibility to react to changing economic and business conditions. A 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 such market conditions.
Credit market developments may reduce availability under our credit agreements.
Further disruption in the credit markets, similar to what we experienced recently, could create 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 secured 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 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 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, although in such cases we may benefit in the short-term from lease cancellation
income. (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.
11
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 also
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.
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 (including outlet 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 new project often extends over several years, and the time to obtain
anchor and tenant 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.
12
Our business activities and pursuit of new opportunities in Asia may pose risks.
We have offices in Hong Kong and Seoul, South Korea and we are pursuing and evaluating management,
leasing and development service and investment opportunities in various Asian markets. In addition, we are
currently providing development and leasing services for a retail project in Seoul which is under construction.
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, anti-corruption, taxes, and litigation;
•
changes in and/or difficulties in complying with applicable laws and regulations in the United States that
affect foreign operations, including the Foreign Corrupt Practices Act;
• difficulties in managing international operations, including difficulties that arise from ambiguities in
contracts written in foreign languages; and
• obstacles to the repatriation of earnings and cash.
Although our international activities are currently limited in their scope, to the extent that we expand them, these
risks could increase in significance and adversely affect our financial returns on international projects and services
and overall financial condition. We have put in place policies, practices, and systems for mitigating some of these
international risks, although we cannot provide assurance that we will be entirely successful in doing so.
Some of our potential losses may not be covered by insurance.
We carry liability, fire, flood, earthquake, extended coverage and rental loss insurance on each of our
properties. We believe the policy specifications and insured limits of these policies are adequate and appropriate.
There are, however, some types of losses, including lease and other contract claims, which 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.
13
We hold investments in joint ventures in which we do not control all decisions, and we may have conflicts of
interest with our joint venture partners.
Some of our shopping centers are partially owned by non-affiliated partners through joint venture arrangements.
As a result, we do not control all decisions regarding those shopping centers and may be required to take actions
that are in the interest of the joint venture partners but not our best interests. Accordingly, we may not be able to
favorably resolve any issues that arise with respect to such decisions, or we may have to provide financial or other
inducements to our joint venture partners to obtain such resolution.
For joint ventures that we do not manage, we do not control decisions as to the design or operation of internal
controls over accounting and financial reporting, including those relating to maintenance of accounting records,
authorization of receipts and disbursements, selection and application of accounting policies, reviews of period-
end financial reporting, and safeguarding of assets. Therefore, we are exposed to increased risk that such
controls may not be designed or operating effectively, which could ultimately affect the accuracy of financial
information related to these joint ventures as prepared by our joint venture partners.
Various restrictive provisions and rights govern sales or transfers of interests in our joint ventures. These may
work to our disadvantage because, among other things, we may be required to make decisions as to the
purchase or sale of interests in our joint ventures at a time that is disadvantageous to us.
We may not be able to maintain our status as a REIT.
We may not be able to maintain our status as a REIT for federal income tax purposes with the result that the
income distributed to shareowners would not be deductible in computing taxable income and instead would be
subject to tax at regular corporate rates. We may also be subject to the alternative minimum tax if we fail to
maintain our status as a REIT. Any such corporate tax liability would be substantial and would reduce the amount
of cash available for distribution to our shareowners which, in turn, could have a material adverse impact on the
value of, or trading price for, our shares. Although we believe we are organized and operate in a manner to
maintain our REIT qualification, many of the REIT requirements of the Internal Revenue Code of 1986, as
amended (the Code), are very complex and have limited judicial or administrative interpretations. Changes in tax
laws or regulations or new administrative interpretations and court decisions may also affect our ability to maintain
REIT status in the future. If we do not maintain our REIT status in any year, we may be unable to elect to be
treated as a REIT for the next four taxable years.
Although we currently intend to maintain our status as a REIT, future economic, market, legal, tax, or other
considerations may cause us to determine that it would be in our and our shareowners’ best interests to revoke
our REIT election. If we revoke our REIT election, we will not be able to elect REIT status for the next four taxable
years.
14
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, 2012, 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.
15
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 cannot 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.
16
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, 2010, 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, 2010, 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.
17
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, 2010. 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.
18
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
Dolphin Mall
Miami, FL
Fairlane Town Center
Dearborn, MI
(Detroit Metropolitan Area)
Bass Pro Shops Outdoor World,
Bloomingdale’s Outlet,
Burlington Coat Factory, Cobb Theatres,
Dave & Buster’s, Marshalls,
Neiman Marcus-Last Call, Off 5th Saks,
The Sports Authority
JCPenney, Macy’s, Sears
Great Lakes Crossing Outlets
Auburn Hills, MI
(Detroit Metropolitan Area)
AMC Theatres, Bass Pro Shops Outdoor World,
Lord & Taylor Outlet, 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
Sq. Ft of
GLA/Mall
GLA as of
12/31/10
Year
Opened/
Expanded
Year
Acquired
Ownership
% as of
12/31/10
876,000
568,000
1982
1,036,000 (1) 1990/1998
545,000
100%
50%
1,406,000
641,000
2001/2007
100%
1,384,000 (2) 1976/1978/
1980/2000
587,000
1,355,000
536,000
1,200,000
579,000
934,000
520,000
1,071,000
465,000
1998
2001
1999
2005
599,000
365,000
2007/2008
100%
100%
50%
95%
100%
100%
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
667,000
301,000
2003
JCPenney, Lord & Taylor, Macy’s, Nordstrom,
Sears
1,513,000
548,000
1977/1978/
2007/2008
100%
100%
100%
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 (3)
Atlantic City, NJ
Regency Square (4)
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
1,272,000
459,000
2001/2003
90%
Dillard’s, Macy’s, Neiman Marcus
1,383,000 (5) 2001/2004
525,000
100%
Total GLA
Total Mall GLA
TRG% of Total GLA
TRG% of Total Mall GLA
17,149,000
7,683,000
15,792,000
6,984,000
19
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
12/31/10
Year
Opened/
Expanded
Year
Acquired
Ownership
% as of
12/31/10
Arizona Mills
Tempe, AZ
(Phoenix Metropolitan Area)
GameWorks, Harkins Cinemas,
JCPenney Outlet, Neiman Marcus-Last Call,
Off 5th Saks
1,215,000
528,000
1997
JCPenney, Lord & Taylor,
Macy’s (two locations), Sears
1,569,000
565,000
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
1,332,000
492,000
2002
1982/2007
1967/1981
2002
50%
Nordstrom, Saks Fifth Avenue
336,000
196,000
1992/2006/
2008
2003
25%
JCPenney, Lord & Taylor, Macy’s,
Macy’s Men’s Store/Furniture Gallery, Nordstrom
1,283,000
513,000
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
7,623,000
3,259,000
4,100,000
1,729,000
24,772,000
10,942,000
19,892,000
8,713,000
(1) GLA includes the Saks Fifth Avenue store, which is scheduled to close in March 2011.
(2) GLA includes the former Lord & Taylor store, which closed in June 2006.
(3) The center is attached to Caesars casino integrated resort. The loan at The Pier Shops is currently in default. The foreclosure process is not in
(4)
our control and the timing of transfer of title is uncertain.
In September 2010, the Board of Directors made the decision to discontinue financial support of Regency Square. The loan was not in default as
of December 31, 2010. The timing of transfer of title is uncertain.
(5) GLA includes the former Saks Fifth Avenue store which closed in August 2010. Crate & Barrel is expected to open in March 2011 as part of the
redevelopment of the former Lord & Taylor space.
20
Anchors
The following table summarizes certain information regarding the anchors at the operating centers (excluding
the value and outlet centers) as of December 31, 2010:
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
5
5
67
12/31/10 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
412
0.9%
0.7%
0.8%
6.4%
6.1%
1.9%
19.9%
2.7%
6.2%
0.6%
0.6%
2.0%
1,104
5.3%
11,226
54.0%(3)
(1) Excludes three Neiman Marcus-Last Call stores at value and outlet centers.
(2) Excludes three Off 5th Saks stores at value and outlet centers. Includes the Saks Fifth Avenue store at Cherry Creek Shopping
Center, which is scheduled to close in March 2011.
(3) Percentages in table may not add due to rounding.
21
Mortgage Debt
The following table sets forth certain information regarding the mortgages encumbering the centers as of
December 31, 2010. 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 Outlets
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%
LIBOR+2.35%
5.41%
6.15%
(10)
6.75%
5.47%
6.24%
LIBOR+0.70%
5.44%
Variable
Bank Rate
Principal
Balance as
of 12/31/10
(thousands)
$322,700
280,000
10,000 (3)
80,000 (3)
132,262
325,000
131,000
215,500
82,140
135,000 (10)
72,690 (11)
540,000
105,484
(3)
200,000
Annual
Debt
Service
(thousands)
$23,101
Interest Only
Interest Only
Interest Only
10,006
Interest Only
Interest Only
Interest Only
6,031
(10)
6,421
Interest Only
8,488
Interest Only
Interest Only
(1)
(1)
(6)
(7)
(1)
(11)
(1)
Maturity
Date
02/11/14
06/08/16
02/14/11
02/14/11
03/11/13
01/08/11
09/01/20
02/06/16
07/06/20
(10)
11/01/11
12/14/15
06/01/14
02/14/11
05/06/15
(4)
(4)
(6)
(11)
(4)
Balance
Due on
Maturity
(thousands)
$303,277
280,000
10,000
80,000
125,507
325,000
117,234
215,500
70,433
(10)
71,569 (11)
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
08/31/15
30 Days Notice
08/12/12
30 Days Notice
30 Days Notice
2 Days Notice
30 Days Notice
(2)
(2)
(5)
(5)
(2)
(5)
(8)
(9)
(2)
(10)
(11)
(12)
(9)
(5)
(9)
(6)
(7)
(11)
(13)
24,784
Interest Only
02/14/12
24,784
At Any Time
(5)
5.76%
LIBOR+1.40%
5.46%
5.67%
LIBOR+0.90%
5.54%
6.10%
(14)
(15)
174,164
250,000
202,511
118,929
30,000
165,000
185,014
12,268
Interest Only
14,245
9,372
Interest Only
Interest Only
15,272
(1)
(14)
(1)
(1)
(1)
07/01/20
04/01/11
04/09/13
11/01/12
11/01/12
10/07/16
07/11/12
(14)
147,702
250,000
195,255
114,056
30,000
165,000
179,028
10/24/12
3 Days Notice
30 Days Notice
30 Days Notice
At Any Time
30 Days Notice
30 Days Notice
(2)
(5)
(2)
(2)
(5)
(16)
(2)
(1) Amortizing principal based on 30 years.
(2) No defeasance deposit required if paid within three months of maturity date.
(3) Sub facility in $550 million secured revolving line of credit. Facility may be increased to $650 million subject to available lender commitments and additional secured
collateral.
(4) Effective February 2011 the maturity date was extended one year to February 2012.
(5) Prepayment can be made without penalty.
(6)
In January 2011, the debt was extended to January 2012 (see “MD&A – Liquidity and Capital Resources”). Prior to the extension, the debt was swapped to an effective
rate of 5.01%. The debt has one remaining one-year extension option available. The loan is interest only during the extension period except during the remaining one-
year extension period (if elected).
(7) The debt is swapped to an effective rate of 4.99% to the maturity date. The loan is interest only until September 2012 at which time monthly principal payments are due
based on a 7% interest rate and 30 year amortization.
(8) From September 2015 thru August 2017 debt may be prepaid with a prepayment penalty of 2% on principal prepaid. From September 2017 thru August 2019 the
prepayment penalty drops to 1% of principal prepaid, and beginning September 2019 it changes to 0.5% of principal prepaid until March 2020 when it can be prepaid
without penalty.
(9) No defeasance deposit required if paid within four months of maturity date.
(10) 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% and is accumulating in interest payable (see
“MD&A – Results of Operations – The Pier Shops at Caesars”).
(11) We have announced that we will discontinue financial support of Regency Square. As a result we are in discussions with the lender about the center's future ownership.
The loan was not in default as of December 31, 2010 (see “MD&A – Results of Operations – Regency Square”). The default rate of interest is 10.75%.
(12) 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.
(13) The facility is a $40 million line of credit and is secured by an indirect interest in 40% of Short Hills.
(14) The debt is swapped to an effective rate of 4.22% to maturity in April 2011. The debt has two one-year extension options and is interest only except during the second
one-year extension (if elected). Notice has been given to lender to exercise option to extend maturity to April 2012. When the loan is extended, the rate would float at
LIBOR plus 1.40% during the extension period.
(15) Debt is swapped to an effective rate of 5.95% to the maturity date.
(16) No defeasance deposit required if paid within six months of maturity date.
For additional information regarding the centers and their operations, see the responses to Item 1 of this report.
22
Item 3. LEGAL PROCEEDINGS.
See “Note 14 – Commitments and Contingencies – Litigation” to our consolidated financial statements for
information regarding 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. (REMOVED AND RESERVED)
23
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, 2011, the 55,789,117 outstanding shares of Common Stock were held by 521 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, 2011 was $52.27.
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 2010 and 2009:
2010 Quarter Ended
March 31
June 30
September 30
December 31
2009 Quarter Ended
March 31
June 30
September 30
December 31
Market Quotations
Low
High
$31.66
$41.93
Dividends
$0.415
44.94
37.63
0.415
46.27
35.98
0.415
50.76
44.41
0.4375 (1)
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
(1) Amount excludes a special dividend of $0.1834 per share, which was declared as a result of the taxation of capital
gain incurred from a restructuring of our ownership in International Plaza, including liquidation of the Operating
Partnership’s private REIT.
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.”
24
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 Equity Retail Index, the S&P Composite – 500 Stock Index,
and the S&P 400 MidCap Index for the period December 31, 2005 through December 31, 2010 (assuming in all
cases, the reinvestment of dividends):
COMPARISON OF CUMULATIVE TOTAL RETURN
Taubman Centers Inc.
MSCI US REIT Index
FTSE NAREIT Equity Retail Index
S&P 500 Index
S&P 400 MidCap Index
200
175
150
125
100
75
50
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
Taubman Centers Inc.
MSCI US REIT Index
FTSE NAREIT Equity Retail Index
S&P 500 Index
S&P 400 MidCap Index
12/31/05
$100.00
100.00
100.00
100.00
100.00
12/31/06
$ 150.76
135.92
129.01
115.79
110.32
12/31/07 12/31/08
$ 81.03
$ 150.20
70.13
113.06
56.11
108.67
76.96
122.16
75.96
119.12
12/31/09
$ 121.70
90.20
71.36
97.33
104.35
12/31/10
$ 178.66
115.88
95.20
111.99
132.15
Note: The stock performance shown on the graph above is not necessarily indicative of future price
performance.
25
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.
2010
2009
2007
2006
Year Ended December 31
2008
(in thousands)
STATEMENT OF OPERATIONS DATA:
Rents, recoveries, and other shopping center revenues
Net income (loss) (1)
Attributable to noncontrolling interests (2)
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 (3)
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)(4)
Mall tenant sales (5)(6)
Sales per square foot (5)(6)(7)
Number of shopping centers at end of period
Ending Mall GLA in thousands of square feet
Leased space (6)(8)
Ending occupancy (6)
Average occupancy (6)
Average base rent per square foot (6)(7):
Consolidated businesses:
All mall tenants
Stores opening during year (9)
Stores closing during year(9)
Unconsolidated Joint Ventures:
All mall tenants
Stores opening during year(9)
Stores closing during year(9)
$ 654,558
102,327
(38,459)
(1,635)
(14,634)
$ 666,104
(79,161)
25,649
(1,560)
(14,634)
$ 671,498
(8,052)
(62,527)
(1,446)
(14,634)
$ 626,822
116,236
(51,782)
(1,330)
(14,634)
$ 579,284
95,140
(48,919)
(1,104)
(23,723)
47,599
0.86
1.68
(69,706)
(1.31)
1.66
(86,659)
(1.64)
1.66
48,490
0.90
1.54
21,394
0.40
1.29
54,569,618
53,239,279
52,866,050
52,969,067
52,661,024
55,702,813
54,696,054
68%
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%
3,528,297
2,546,873
2,656,560
160,138
4,619,896
564
23
10,942
92.0%
90.1%
88.8%
$43.63
50.69
46.27
$43.73
47.16
47.20
3,496,853
2,606,853
2,691,019
36,799
4,185,996
502
23
10,946
91.6%
89.8%
89.4%
$43.69
46.69
42.75
$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
(1) Funds from Operations (FFO) is defined and discussed in “Results of Operations – Use of Non-GAAP Measures.” 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,
$30.4 million in charges related to the litigation settlements at Westfarms, and a $2.5 million restructuring charge 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 2009, we adopted the requirements of ASC Topic 810 as it relates to noncontrolling interests (formerly SFAS 160). See “Note 1 – Summary of
Significant Accounting Policies – Noncontrolling Interests” to our consolidated financial statements.
(3) Amount excludes a special dividend of $0.1834 per share, which was declared as a result of the taxation of capital gain incurred from a restructuring of
the Company’s ownership in International Plaza, including liquidation of the Operating Partnership’s private REIT.
(4) Reconciliations of net income (loss) attributable to TCO common shareowners to FFO for 2010, 2009, and 2008 are provided in “MD&A – Reconciliation
of Net Income (Loss) Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations and Adjusted Funds from Operations.” For
2007, net income attributable to TCO common shareowners of $48.5 million, adding back depreciation and amortization of $141 million, noncontrolling
interests of $44.3 million, and distributions to participating securities of $1.3 million arrives at TRG’s FFO of $235.1 million, of which TCO’s share was
$155.4 million. 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.
(5) Based on reports of sales furnished by mall tenants.
(6) Amounts in 2010, 2009, and 2008 exclude The Pier Shops, which opened in 2006. Amounts in 2010 and 2009 exclude Regency Square. See “MD&A –
Results of Operations –The Pier Shops at Caesars” and “MD&A – Results of Operations – Regency Square” for further information.
(7) See “MD&A – Rental Rates and Occupancy” for information regarding this statistic.
(8) Leased space comprises both occupied space and space that is leased but not yet occupied.
(9) Amounts in 2010, 2009, and 2008 exclude spaces greater than 10,000 square feet.
26
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 recent 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. The forward-looking statements included in this report are
made as of the date hereof. 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, manage, lease, acquire, dispose of,
develop, and expand 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). 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. All operating statistics provided exclude The Pier Shops. In addition, 2010
and 2009 statistics also exclude Regency Square. See “Results of Operations – The Pier Shops at Caesars,” and
“Results of Operations – Regency Square.”
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 seven years during 2010 and
approximately six years during 2009, 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.
We have begun to see positive signs of stabilization in the economy and capital markets although the impacts
of the recent recession continue. During 2010, only 0.7% of tenants sought the protection of the bankruptcy laws,
compared to 3.9% and 2.5% of tenants in 2009 and 2008, respectively. We believe this is indicative of the
improved health of retailers as well as the proactive way landlords worked with retailers in trouble last year so that
they could stay open, effectively helping them restructure outside of bankruptcy. The retail environment has
shown improvement and retailers are becoming more optimistic with their expansion plans and capital allocation
decisions. However, retailers are still sensitive to occupancy costs and negotiations continue to be challenging.
27
Our mall tenant sales per square foot statistics have shown strong improvement in 2010. Tenant sales per
square foot were $564 in 2010, a 12.4% increase from 2009, and higher than we have ever reported. We are
expecting tenant sales per square foot to be up 3% to 4% in 2011. See "Mall Tenant Sales and Center
Revenues."
Ending occupancy was 90.1% at December 31, 2010, up 0.3% from 2009. We anticipate year end occupancy
will be up about 1% in 2011 but may see a modest decrease early in the year. Rent per square foot increased
0.7% for the fourth quarter of 2010 and was down 0.7% for the year. We expect that average rents per square
foot in 2011 will be up in comparison to 2010 by approximately 3%. 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 September 2010, our Board of Directors made the decision to discontinue financial support of Regency
Square. In 2009, we also discontinued financial support of The Pier Shops and the loan on this property is in
default. Impairment charges were recognized on Regency Square and The Pier Shops in 2009. See “Results of
Operations – Regency Square” and “Results of Operations – The Pier Shop at Caesars” for further discussion
and the status of the Regency Square and Pier Shops’ loans. In 2008, we also recorded impairment charges
related to our Oyster Bay project and our Sarasota project. See “Results of Operations – Oyster Bay” and
“Results of Operations – Sarasota.”
We have begun to see signs of an economic recovery and have seen some improvement in our center
operations in 2010. See “Results of Operations – Center Operations."
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 have been very active in managing our balance sheet, completing refinancings of MacArthur Center,
Arizona Mills, and The Mall at Partridge Creek in 2010 as outlined under “Results of Operations – Debt
Transactions.”
We also describe the current status of our efforts to broaden our growth in Asia. See “Results of Operations –
Taubman Asia”.
With all the preceding information as background, we then provide insight and explanations for variances in our
financial results for 2010, 2009, and 2008 under “Comparison of 2010 to 2009” and “Comparison of 2009 to
2008.” As information useful to understanding our results, we have described 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 2010.
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 as of December 31, 2010. In January 2011,
the International Plaza loan matured and was extended, and two additional loans mature in 2011. The $250
million Fair Oaks loan, $125 million at our share, matures in April 2011. The $72.7 million Regency Square loan
matures in November 2011 but we have notified the lender of our intent not to continue support of the center
including not repaying the loan. In February 2011, our $550 million line of credit was extended to February 2012.
Our $40 million line was extended in December 2010 to February 2012. We then discuss our capital activities and
transactions that occurred in 2010. Analysis of specific operating, investing, and financing activities is then
provided in more detail.
28
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 March 2012 at which time a $75 million payment will be made to the lessor. We
expect capital spending in 2011 to consist primarily of tenant allowances, renovations and expansions at our
operating centers, including projects at Short Hills and Willow Bend. In the fourth quarter of 2010, we formed a
joint venture to seek development sites for outlet shopping 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 2010 increased by 12.9% compared to the corresponding period in the prior year. For all of 2010, our
tenant sales increased 12.4% to a record level of $564 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 mall tenant sales
determine the amount of rent, percentage rent, and recoverable expenses (together, total occupancy costs) that
mall tenants can afford to pay. However, levels of mall tenant sales can be considerably more volatile in the short
run than total occupancy costs, and may be impacted significantly, either positively or negatively, by the success
or lack of success of a small number of tenants or even a single tenant.
We believe that the ability of tenants to pay occupancy costs and earn profits over long periods of time
increases as sales per square foot increase, whether through inflation or real growth in customer spending.
Because most mall tenants have certain fixed expenses, the occupancy costs that they can afford to pay and still
be profitable are a higher percentage of sales at higher sales per square foot.
Sales directly impact the amount of percentage rents certain tenants and anchors pay. The effects of increases
or declines in sales on our operations are moderated by the relatively minor share of total rents that percentage
rents represent of total rents (approximately 4% in 2010).
While tenant 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.
29
The following table summarizes occupancy costs, excluding utilities, for mall tenants as a percentage of mall
tenant sales:
Mall tenant sales (in thousands)
Sales per square foot
2010
$ 4,619,896
564
2009
$ 4,185,996
502
2008
$ 4,536,500
533
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
Combined:
Minimum rents
Percentage rents
Expense recoveries
Mall tenant occupancy costs as a percentage of mall tenant sales
9.1%
0.4
5.0
14.5%
8.6%
0.4
4.5
13.5%
9.0%
0.4
4.7
14.1%
10.2%
0.3
5.7
16.2%
9.6%
0.3
5.0
14.9%
9.9%
0.3
5.6
15.8%
9.7%
0.4
5.3
15.4%
8.9%
0.4
4.6
13.9%
9.4%
0.4
5.1
14.9%
In 2009, mall tenant occupancy costs as a percentage of mall tenant sales increased due primarily to the
decrease in tenant sales. In 2010, the statistic decreased primarily due to the increase in tenant sales.
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 as we are experiencing now, rents on new leases will generally tend to rise. In periods of slower
growth or declining sales, rents on new leases will grow more slowly or will decline for the opposite reason, as
tenants' expectations of future growth become less optimistic. Average rent per square foot in 2011 is expected to
be up about 3%. Rent per square foot information for centers in our Consolidated Businesses and Unconsolidated
Joint Ventures follows:
30
Average rent per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
Opening base rent per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
Square feet of GLA opened:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
Closing base rent per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
Square feet of GLA closed:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
Releasing spread per square foot:
Consolidated Businesses
Unconsolidated Joint Ventures
Combined
2010
$43.63
43.73
43.66
$50.69
47.16
49.69
577,435
228,075
805,510
$46.27
47.20
46.52
647,982
243,093
891,075
$4.42
(0.04)
3.17
2009
2008
$43.69
44.49
43.95
$46.69
51.10
47.82
637,900
218,953
856,853
$42.75
48.64
44.25
761,726
259,457
1,021,183
$3.94
2.46
3.57
$43.95
44.61
44.15
$54.78
59.36
56.46
589,730
340,275
930,005
$49.60
48.72
49.30
650,607
342,698
993,305
$5.18
10.64
7.16
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.
Mall tenant leased space, ending occupancy, and average occupancy rates are as follows:
Ending occupancy
Average occupancy
Leased space
2010
90.1%
88.8
92.0
2009
89.8%
89.4
91.6
2008
90.5%
90.5
92.0
Ending occupancy was 90.1%, a 0.3% increase from 89.8% in 2009. At 92.0%, leased space is 0.9% over the
year end occupancy level. We expect occupancy in 2011 to end the year up about 1% but we may see a modest
decrease early in the year. Temporary tenant leasing continues to be strong and ended the year at about 5.0%
compared to 4.1% in 2009. Temporary tenants, defined as those with lease terms less than or equal to a year, are
not included in occupancy or leased space statistics. Tenant bankruptcy filings as a percentage of the total
number of tenant leases was 0.7% in 2010, compared to 3.9% in 2009, and 2.5% in 2008.
31
Seasonality
The regional shopping center industry is seasonal in nature, with mall tenant sales highest in the fourth quarter
due to the Christmas season, and with lesser, though still significant, sales fluctuations associated with the Easter
holiday and back-to-school period. While minimum rents and recoveries are generally not subject to seasonal
factors, most leases are scheduled to expire in the first quarter, and the majority of new stores open in the second
half of the year in anticipation of the Christmas selling season. Additionally, most percentage rents are recorded in
the fourth quarter. Accordingly, revenues and occupancy levels are generally highest in the fourth quarter. Gains
on sales of peripheral land and lease cancellation income may vary significantly from quarter to quarter.
Mall tenant sales (1)
Revenues and gains on land sales
and other nonoperating income:
Consolidated Businesses
Unconsolidated Joint Ventures
Occupancy and leased space:
Ending occupancy
Average occupancy
Leased space
Total 2010
4th Quarter
2010
3rd Quarter
2010
(in thousands, except occupancy and leased space data)
$1,487,634 $ 1,085,195 $ 1,052,274
2nd Quarter
2010
1st Quarter
2010
$ 994,793
$4,619,896
657,360
270,393
195,036
77,553
155,454
67,777
155,232
63,711
151,638
63,352
90.1%
88.8
92.0
90.1%
89.9
92.0
88.6%
88.4
91.8
88.0%
88.2
90.9
88.2%
88.5
91.3
(1) Based on reports of sales furnished by mall tenants.
Because the seasonality of sales contrasts with the generally fixed nature of minimum rents and recoveries,
mall tenant occupancy costs (the sum of minimum rents, percentage rents, and expense recoveries) as a
percentage of sales are considerably higher in the first three quarters than they are in the fourth quarter.
Consolidated Businesses:
Minimum rents
Percentage rents
Expense recoveries
Mall tenant occupancy costs
Unconsolidated Joint Ventures:
Minimum rents
Percentage rents
Expense recoveries
Mall tenant occupancy costs
Combined:
Minimum rents
Percentage rents
Expense recoveries
Mall tenant occupancy costs
Total 2010
4th Quarter
2010
3rd Quarter
2010
2nd Quarter
2010
1st Quarter
2010
9.1%
0.4
5.0
14.5%
8.6%
0.4
4.5
13.5%
9.0%
0.4
4.7
14.1%
7.3%
0.6
5.2
13.1%
6.8%
0.6
4.3
11.7%
7.2%
0.6
4.8
12.6%
9.6%
0.3
4.7
14.6%
9.2%
0.3
4.6
14.1%
9.4%
0.3
4.7
14.4%
9.8%
0.1
5.1
15.0%
9.5%
0.1
4.5
14.1%
9.7%
0.1
4.9
14.7%
10.6%
0.3
5.0
15.9%
9.7%
0.3
4.5
14.5%
10.3%
0.3
4.8
15.4%
32
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 2010, 2009, and 2008, or are expected to
affect operations in the future.
Regency Square
In September 2009, we concluded that the book value of the investment in Regency Square was impaired and
as a result, the book value of the property was written down by $59.0 million to a fair value of approximately $29
million as of September 30, 2009. The decision was based on estimates of future cash flows for the property,
which were negatively impacted by necessary capital expenditures and declining net operating income (NOI). In
September 2010, our Board of Directors made the decision to discontinue financial support of Regency Square
including not funding the non-recourse mortgage debt that is due in November 2011. As a result, we have begun
discussions with the lender about the center’s future ownership. We expect the non-cash impact of owning
Regency Square (assuming default interest begins April 2011) to result in an earnings charge in 2011 of
approximately $(5.6) million. The impact excluding depreciation and amortization is expected to be approximately
$(3.6) million. In addition, a significant non-cash accounting gain, representing the difference between the book
value of the debt, interest payable and other obligations extinguished over the net book value of the property and
any other assets transferred, will be recognized when the loan obligation is extinguished upon transfer of title of
Regency Square. The process is not in our control and the timing of transfer of title is uncertain. The book value of
the investment in Regency Square as of December 31, 2010 was approximately $30 million, which includes
additional capital spending that was anticipated in determining the fair value in 2009.
The Pier Shops at Caesars
In September 2009, the book value of The Pier Shops was written down by $107.7 million (of which, our share
was $101.8 million) to a fair value of approximately $52 million. Our decision was based on the conclusion of our
Board of Directors to discontinue financial support of The Pier Shops given long-term prospects for the property,
including that cash flows generated from the center were insufficient to cover debt service on the $135 million
non-recourse loan. As a result of our discontinuing payment of debt service, the loan is now in default. Under the
terms of the loan agreement, interest accrues at the original stated rate of 6.01% plus a 4% default rate. Accrued
interest and late fees total $16.0 million as of December 31, 2010. Including the impact of compounding default
interest and late fees, the effective rate on the $135 million loan balance is 11.33% and 10.93%, respectively, for
the quarter and year ended December 31, 2010. 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. In April 2010, the holder of the loan on The Pier
Shops filed a lawsuit to foreclose on the loan. The foreclosure process is not in our control and the timing of
transfer of title is uncertain. We expect the non-cash impact of owning The Pier Shops (including default interest)
to result in an earnings charge in 2011 of approximately $(22.9) million. The impact excluding depreciation and
amortization is expected to be approximately $(16.5) million. These earnings impacts represent 100% of the
results of The Pier Shops. In addition, a significant non-cash accounting gain, representing the difference between
the book value of the debt, interest payable and other obligations extinguished over the net book value of the
property and any other assets transferred, will be recognized when the loan obligation is extinguished upon
transfer of title of The Pier Shops. The book value of the investment in The Pier Shops as of December 31, 2010
was approximately $44 million.
Oyster Bay
In 2008, we recognized an impairment charge to income of $117.9 million for 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 as a result of the delay in obtaining a special use permit. 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. 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,
2010 is $39.8 million, which is classified in “development pre-construction costs” (see “Note 3 – Properties –
Oyster Bay” to our consolidated financial statements) and consists 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.
33
Sarasota
In 2008, we recognized an $8.3 million charge to income relating to a project in Sarasota, Florida. The charge to
income represented our share of total project costs. We have no asset remaining and continue to expense any
additional costs related to the monitoring of the project. See “Note 4 – Investments in Unconsolidated Joint
Ventures – University Town Center” to our consolidated financial statements.
Litigation Charges
In 2009, we recognized litigation charges relating to the settlement of two lawsuits related to Westfarms, our
center in West Hartford, Connecticut. The settlements included $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 4 –
Investments in Unconsolidated Joint Ventures - Westfarms” to our consolidated financial statements.
Restructuring
In 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
We saw improvement in the NOI of our centers in the fourth quarter of 2010, and ended the year up 0.5% over
2009, excluding lease cancellation income. We expect that NOI of our centers, excluding lease cancellation
income, will be up in the range of 1% to 2% in 2011. We expect increased tenant rents resulting from higher
average rent per square foot and improved occupancy. We expect net recoveries to be modestly down however
because of increases in utility costs, lower CAM capital recoveries, and increased other expenses. See “Results
of Operations – Use of Non-GAAP Measures” for the definition and discussion of NOI and see “Reconciliation of
Net Income (Loss) to NOI.”
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, 2010, we recognized our approximately $22.4
million share of lease cancellation revenue. Our largest collections occurred in the fourth quarter when we
recorded the income from the closure of the Saks Fifth Avenue store at Willow Bend. However, we do not expect
this pace to continue, which could negatively impact our results in 2011. Excluding two large payments in 2010,
our share of lease cancellation income would have been about $6 million. Our share of lease cancellation income
over the last six years ranged from $8 million to this year’s $22.4 million. In 2011, we are estimating our share of
lease cancellation income to be about $6 million to $8 million.
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
2010
2009
2008
Consolidated
Businesses
Unconsolidated
Joint Ventures
Consolidated
Businesses
Unconsolidated
Joint Ventures
Consolidated
Businesses
Unconsolidated
Joint Ventures
(Operating Partnership’s share in millions)
$ 22.2
21.2
$ 43.4
$ 2.8
1.2
$ 4.1
$ 22.5
18.7
$ 41.2
$ 2.7
1.8
$ 4.5
$ 26.9
9.7
$ 36.6
$ 3.0
2.5
$ 5.5
$ 2.2
0.5
$ 2.8
$ 0.6
$ 0.6
$ 2.8
1.5
$ 4.3
$ 0.4
$ 0.4
(1) Amounts in this table may not add due to rounding.
34
Debt Transactions
We completed a series of debt financings in the three-year period ending December 31, 2010 as follows:
MacArthur Center
Arizona Mills
The Mall at Partridge Creek
Fair Oaks
International Plaza
Date
September 2010
July 2010
June 2010
April 2008
January 2008
Initial Loan
Balance
(in millions)
$ 131
175
83
250
325
Stated
Interest Rate
Maturity Date (1)
LIBOR + 2.35% (2) September 2020
July 2020
5.76%
6.15%
July 2020
LIBOR+1.40% (3) April 2011
LIBOR+1.15% (4)
January 2011
(1) Excludes any options to extend the maturities (see the footnotes to our financial statements regarding extension options).
(2) The loan is swapped to an effective rate of 4.99% for the entire term.
(3) The loan is swapped at 4.22% for the initial three-year term of the loan agreement.
(4) The loan had been swapped at 5.01% for the initial three-year term of the loan agreement. In January 2011 the loan maturity was
extended. See “Liquidity and Capital Resources.”
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.
Taubman Asia
In October 2010 we appointed a new President of Taubman Asia. He will be responsible for Taubman’s
operations and future expansion in the Asia-Pacific region, focusing on China and South Korea.
In September 2010, we entered into agreements to provide development, leasing and management services for
IFC Mall in Yeouido, Seoul, South Korea. Currently under construction, the approximate 430,000 square foot mall
will feature up to 100 stores and restaurants.
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.
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 accounting for noncontrolling interests. See “Note 1 –
Summary of Significant Accounting Policies – Noncontrolling Interests,” to our consolidated financial statements.
Our average ownership percentage of the Operating Partnership was 67% in 2010, 2009 and 2008.
Use of Non-GAAP Measures
We use 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 (including straightline
adjustments), 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. We also use NOI excluding lease cancellation income as an alternative
measure because this income may vary significantly from period to period, which can affect comparability and
trend analysis. We generally provide separate projections for expected NOI growth and our lease cancellation
income.
35
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 operating performance and in formulating corporate goals and
compensation. We may also present adjusted versions of NOI, Beneficial Interest in EBITDA, and FFO when
used by management to evaluate our operating performance when certain significant items have impacted our
results that affect comparability with prior or future periods due to the nature or amounts of these items. In 2009,
FFO was adjusted for impairment charges, a restructuring charge, and litigation charges. In 2008, FFO was
adjusted for impairment charges. FFO was not adjusted in 2010.
Our presentations of NOI, Beneficial Interest in EBITDA, FFO, and adjusted versions of these measures, 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, these measures do not represent cash flows from operating,
investing or financing activities as defined by GAAP. Reconciliations of Net Income (Loss) Attributable to
Taubman Centers, Inc. Common Shareowners to Funds from Operations and Adjusted Funds from Operations,
Net Income (Loss) to Beneficial Interest in EBITDA, and Net Income (Loss) to Net Operating Income (Loss) are
presented following “New Accounting Pronouncements.”
36
Comparison of 2010 to 2009
The following table sets forth operating results for 2010 and 2009, 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
Nonoperating income
Impairment loss on marketable securities
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
TRG Series F preferred distributions
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 (3):
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
2010
2009
CONSOLIDATED
BUSINESSES
UNCONSOLIDATED
JOINT VENTURES
AT 100%(1)
CONSOLIDATED
BUSINESSES
UNCONSOLIDATED
JOINT VENTURES
AT 100%(1)
(in millions)
$ 341.7
13.2
237.4
16.1
46.1
$ 654.6
$ 179.2
75.4
8.3
30.2
152.7
153.9
$ 599.7
2.8
$ 57.6
(0.7)
45.4
$ 102.3
(9.8)
(2.5)
(26.2)
(1.6)
(14.6)
$ 47.6
$ 364.2
(41.5)
$ 322.7
(131.5)
(0.7)
(3.7)
(17.1)
$ 169.7
$ 155.4
6.6
100.6
7.8
$ 270.4
$ 68.3
19.4
63.8
38.2
$ 189.7
$ 80.7
$ 182.7
(82.1)
$ 100.7
(33.1)
$ 67.6
$ 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
(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 2010 and 2009. Also,
amortization of our additional basis included in equity in income of Unconsolidated Joint Ventures was $1.9 million in both 2010 and 2009.
(3) See “Results of Operations– Use of Non-GAAP Measures” for the definition and discussion of EBITDA and FFO.
(4) Amounts in this table may not add due to rounding.
37
Consolidated Businesses
Total revenues for the year ended December 31, 2010 were $654.6 million, an $11.5 million or 1.7% decrease
over 2009. Percentage rents increased due to higher tenant sales. Expense recoveries decreased primarily due
to lower recoverable expenses. Management, leasing, and development revenue was unusually high in 2009 due
to the collection of development fees on the Macao project.
Total expenses were $599.7 million, a $154.4 million or 20.5% decrease from 2009 primarily due to impairment
charges of $166.7 million on The Pier Shops and Regency Square recognized in 2009 (see “Results of
Operations – The Pier Shops at Caesars” and “Results of Operations – Regency Square”). Maintenance, taxes
and utilities expense decreased primarily due to intensive management actions to reduce maintenance and
electricity costs. Other operating expense increased due to increases in pre-development costs, center-related
property management costs, and bad debt expense. Pre-development expense in 2009 was lower partially due to
reimbursements for work performed in prior periods. In 2010, we incurred $16 million on pre-development
activities and we expect our 2011 expense to be comparable. General and administrative expense increased
primarily due to an increase in bonus expense. In 2009, we recognized a $2.5 million restructuring charge (see
“Results of Operations – Restructuring”). Interest expense increased primarily due to the default interest rate
charged on The Pier Shops loan in 2010 and the refinancing of Partridge Creek at a higher interest rate, partially
offset by the refinancing of MacArthur at a lower interest rate. Depreciation expense increased due to changes in
depreciable lives of tenant allowances in connection with early terminations.
Nonoperating income increased by $2.1 million in 2010. There were $2.2 million of gains on land sales in 2010,
compared to none in 2009. We are not projecting any land sale transactions to occur in 2011.
Income tax expense decreased due to state tax expense and foreign income tax on the Macau revenue
recognized in 2009.
Unconsolidated Joint Ventures
Total revenues for the year ended December 31, 2010 were $270.4 million, a $2.1 million or 0.8% decrease
from 2009. Minimum rents decreased primarily due to decreases in rent per square foot. Percentage rents
increased primarily due to higher tenant sales. Expense recoveries decreased primarily due to decreased
marketing and promotion revenue.
Total expenses decreased by $44.6 million or 19.0%, to $189.7 million for the year ended December 31, 2010,
primarily due to litigation charges of $38.5 million recognized in 2009 (see “Results of Operations – Litigation
Charges”). Other operating expense decreased primarily due to reductions in professional fees and marketing and
promotional expense. Depreciation expense decreased primarily due to a decrease in depreciation on CAM
assets.
As a result of the foregoing, income of the Unconsolidated Joint Ventures increased by $42.4 million to
$80.7 million. Our equity in income of the Unconsolidated Joint Ventures was $45.4 million, a $33.9 million
increase from 2009.
Net Income (Loss)
Net income increased by $181.5 million to $102.3 million, primarily due to the impairment charges and the
litigation charges in 2009. After allocation of income to noncontrolling and preferred interests, the net income
(loss) allocable to common shareowners for 2010 was $47.6 million compared to a loss of $(69.7) million in 2009.
FFO and FFO per Share
Our FFO was $237.3 million for 2010 compared to $55.0 million for 2009. FFO per diluted share was $2.86 in
2010 compared to $0.68 in 2009. Adjusted FFO in 2009, which excludes impairment, litigation and restructuring
charges, was $248.7 million. Adjusted FFO per diluted share was $3.06 in 2009. See “Results of Operations –
Use of Non-GAAP Measures” for the definition of FFO and “Reconciliation of Net Income (Loss) Attributable to
Taubman Centers, Inc. Common Shareowners to Funds from Operations and Adjusted Funds from Operations.”
38
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
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 (3):
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)
$ 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
$ 353.2
13.8
248.6
15.9
40.1
$ 671.5
$ 189.2
79.6
8.7
28.1
117.9
$ 157.1
6.6
98.5
9.6
$ 271.8
$ 66.8
22.5
64.4
39.3
$ 234.3
147.4
147.4
$ 718.4
65.0
40.7
$ 195.0
0.1
4.6
0.7
$ 38.3
$ 77.5
$ (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
$ 183.2
(82.2)
$ 101.1
(33.8)
$ 67.3
$ 142.0
(74.2)
$ 67.8
(33.4)
$ 34.4
(1) With the exception of the Supplemental Information, amounts include 100% of the Unconsolidated Joint Ventures. Amounts are net of intercompany
transactions. The Unconsolidated Joint Ventures are presented at 100% in order to allow for measurement of their performance as a whole, without regard to
our ownership interest. In our consolidated financial statements, we account for investments in the Unconsolidated Joint Ventures under the equity method.
(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) See “Results of Operations– Use of Non-GAAP Measures” for the definition and discussion of EBITDA and FFO.
(4) Amounts in this table may not add due to rounding.
39
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. General and
administrative expense was relatively flat with 2008. 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 – The Pier Shops at Caesars,” “Results of Operations Regency
Square” and “Results of Operations – Oyster Bay”). 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. 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 a
development project in Sarasota, Florida.
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.
FFO and FFO per Share
Our FFO was $55.0 million for 2009 compared to $122.2 million for 2008. FFO per diluted share was $0.68 in
2009 compared to $1.51 in 2008. Our Adjusted FFO, which excludes 2009 impairment, litigation and restructuring
charges and 2008 impairment charges, was $248.7 million for 2009 compared to $248.5 million for 2008.
Adjusted FFO per diluted share was $3.06 in 2009, a decrease of 0.6% from $3.08 in 2008. See “Results of
Operations – Use of Non-GAAP Measures” for the definition of FFO and “Reconciliation of Net Income (Loss)
Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations and Adjusted Funds from
Operations.”
40
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.
No impairment charges were recognized in 2010. 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”). As of December 31, 2010, the consolidated net book value of our
properties was $2.3 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 "Results of Operations – Use of Non-
GAAP Measures").
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.
Many factors in the development of a shopping center are beyond our control, including (1) changes in the
national, regional, and/or local economic climates, (2) competition from other shopping centers, stores, clubs,
mailings, and the internet, (3) availability and cost of financing, (4) changes in regulations, laws, and zoning, and
(5) decisions made by third parties, including anchors. These factors could cause our assessment of the
probability of a development project reaching a successful conclusion to change. If a project subsequently was
considered less than probable of reaching a successful conclusion, a charge against operations for previously
capitalized development costs would occur.
Our $46.7 million balance of development pre-construction costs as of December 31, 2010 consists primarily of
$40 million of land and site improvements relating to our Oyster Bay project. The balance also includes land for
future development in Atlanta, Georgia. See “Results of Operations – Oyster Bay” regarding the status of the
Oyster Bay project.
41
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 2010, while bankruptcy filings affected 0.7% 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, 2010 totaled $10.5 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. Expected future taxable earnings 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. We also have Michigan business
income tax and modified gross receipts tax, which are subject to the accounting requirements for income taxes.
As of December 31, 2010, we had a net federal, state and foreign deferred tax asset of $7.5 million, after a
valuation allowance of $10.2 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 (unless it was already consolidated), 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.
New Accounting Pronouncements
See “Note 19 – New Accounting Pronouncements” to our consolidated financial statements.
42
Reconciliation of Net Income (Loss) Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations and
Adjusted Funds from Operations
2010
Diluted
Shares/
Units
Per
Share/
Unit
Dollars in
millions
2009
Diluted
Shares/
Units(1)
Per
Share/
Unit
Dollars in
millions
2008
Diluted
Shares/
Units (1)
Per
Share/
Unit
Dollars in
millions
$ 47.6
55,702,813
$ 0.86
$ (69.7)
53,239,279 $ (1.31) $ (86.7) 52,866,050 $ (1.64)
6.9
0.12
6.9
0.13
6.9
0.13
$ 54.5
55,702,813
$ 0.98
$ (62.8)
53,239,279 $ (1.18) $ (79.8) 52,866,050 $ (1.51)
Net income (loss) attributable to
TCO common shareowners
Add depreciation of TCO’s
additional basis
Net income (loss) attributable to
TCO common shareowners,
excluding step-up depreciation
Add:
Noncontrolling share of income
(loss) of TRG
26.2
26,301,349
(31.2)
26,417,074
(11.3) 26,528,755
Distributions in excess of
noncontrolling share of loss of
TRG
Distributions in excess of
noncontrolling share of
income of consolidated joint
ventures
Distributions to participating
securities
1.6
871,262
1.6
55.4
8.6
1.4
Net income (loss) attributable to
partnership unitholders and
participating securities
Add (less) depreciation and
amortization (2):
Consolidated businesses at
100%
Depreciation of TCO’s
additional basis
Noncontrolling partners in
consolidated joint ventures
Share of Unconsolidated Joint
Ventures
Non-real estate depreciation
Funds from Operations
TCO's average ownership
percentage of TRG
Funds from Operations
attributable to TCO
$ 82.3
82,875,424
$ 0.99
$ (92.5)
79,656,353 $ (1.16) $ (25.7) 79,394,805 $ (0.32)
153.9
(6.9)
(10.5)
22.2
(3.7)
$237.3
1.86
147.3
1.85
147.4
1.86
(0.08)
(6.9)
(0.09)
(6.9)
(0.13)
(12.4)
(0.16)
(13.0)
(0.09)
(0.16)
0.27
(0.04)
$ 2.86
22.9
(3.4)
$ 55.0
0.29
(0.04)
81,269,311 $0.68
23.6
(3.3)
$ 122.2
0.30
(0.04)
80,745,237 $ 1.51
82,875,424
67.5%
66.8%
66.6%
$160.1
$ 2.86
$ 36.8
$ 0.68
$ 81.3
$ 1.51
Funds from Operations
237.3
82,875,424
$ 2.86
$ 55.0
81,269,311 $ 0.68
$ 122.2
80,745,237 $ 1.51
Impairment charges
Litigation charges
Restructuring charge
Adjusted Funds from Operations
TCO's average ownership
percentage of TRG
Adjusted Funds from Operations
160.8
30.4
2.5
1.98
126.3
1.56
0.37
0.03
$237.3
82,875,424
$ 2.86
$ 248.7
81,269,311 $ 3.06
$ 248.5
80,745,237 $ 3.08
67.5%
66.8%
66.6%
attributable to TCO
$160.1
$ 2.86
$ 166.3
$ 3.06
$ 165.5
$ 3.08
(1) Per share amounts for Funds from Operations and Adjusted Funds from Operations are calculated using weighted average diluted shares, which include
the impact of common stock equivalents. Per share amounts for net loss attributable to common shareholders and net loss attributable to partnership
unitholders and participating securities are calculated using weighted average outstanding shares, which exclude the impact of common stock equivalents
because the impact is anti-dilutive.
(2) Depreciation includes $14.4 million, $15.5 million, and $14.1 million of mall tenant allowance amortization for the 2010, 2009, and 2008, respectively.
(3) Amounts in this table may not recalculate due to rounding.
43
Reconciliation of Net Income (Loss) to Beneficial Interest in EBITDA
2010
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
(in millions, except as indicated)
$
$ (79.2)
2008
(8.1)
$ 102.3
153.9
(10.5)
22.2
147.3
(12.4)
22.9
152.7
(21.2)
33.1
0.7
145.7
(19.8)
33.4
1.7
(3.1)
147.4
(13.0)
23.6
147.4
(19.6)
33.8
1.1
(7.4)
Less noncontrolling share of income of consolidated joint ventures
(9.8)
Beneficial interest in EBITDA
$ 423.4
$ 236.5
$ 305.3
TCO’s average ownership percentage of TRG
67.5%
66.8%
66.6%
Beneficial interest in EBITDA allocable to TCO
$ 285.7
$ 158.1
$ 203.2
(1) Amounts in this table may not add due to rounding.
44
Reconciliation of Net Income (Loss) to Net Operating Income
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 (benefit):
Interest expense:
Consolidated businesses at 100%
Noncontrolling partners in consolidated joint ventures
Share of Unconsolidated Joint Ventures
Income tax expense
Less noncontrolling share of income of consolidated joint ventures
Add EBITDA attributable to outside partners:
EBITDA attributable to noncontrolling partners in consolidated
joint ventures
EBITDA attributable to outside partners in Unconsolidated Joint
Ventures
EBITDA at 100%
Add (less) items excluded from shopping center Net Operating
Income:
General and administrative expenses
Management, leasing, and development services, net
Restructuring charge
Litigation charges
Impairment charges
Gain on sale of peripheral land
Interest income
Impairment loss on marketable securities
Straight-line of rents
The Pier Shops’ net operating income
Regency Square’s net operating income
Non-center specific operating expenses and other
2010
2009
2008
$ 102.3
(in millions)
$ (79.2)
$
(8.1)
153.9
(10.5)
22.2
152.7
(21.2)
33.1
0.7
(9.8)
147.3
(12.4)
22.9
145.7
(19.8)
33.4
1.7
(3.1)
147.4
(13.0)
23.6
147.4
(19.6)
33.8
1.1
(7.4)
41.5
35.3
40.0
82.1
74.2
82.2
$ 547.0
$ 346.0
$ 427.5
30.2
(7.9)
(2.2)
(0.6)
(2.7)
(4.1)
(4.3)
24.3
27.9
(13.3)
2.5
38.5
166.7
(0.8)
1.7
(2.6)
(2.6)
(5.2)
18.8
28.1
(7.2)
126.3
(2.8)
(2.4)
(4.2)
(3.0)
25.2
Net Operating Income at 100%
$ 579.8
$ 577.5
$ 587.4
45
Liquidity and Capital Resources
Our internally generated funds and 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 “Capital Spending” for more details. Market conditions may
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). The three loans that matured in 2010
were refinanced at higher principal amounts than the previous loan balances. For the terms of these new loans,
see “Results of Operations – Debt Transactions.”
In 2011, loans on three of our centers (International Plaza, Fair Oaks, and Regency Square) mature.
In January 2011, the International Plaza loan was extended to a maturity of January 2012. The principal
balance on the loan was required to be paid down by $52.6 million. We funded our $26.4 million beneficial share
of the paydown with funds from our revolving lines of credit. The principal on the loan is now $272.4 million at
100%, and $136.5 million at our beneficial share. The rate on the loan had been fixed at 5.01% due to an interest
rate swap that also matured in January. The loan has now reverted to a floating rate at LIBOR plus 1.15%. The
extended loan is prepayable at any time and has an additional one-year extension option.
The $250 million Fair Oaks loan, $125 million at our beneficial share, matures in April 2011 and has two one-
year extension options. Currently the loan is fixed at 4.22% due to an interest rate swap that also matures in April.
Notice has been given to the lender to exercise the option to extend the maturity to April 2012. When the loan is
extended, the loan will revert to a floating rate at LIBOR plus 1.40%. However the loan is prepayable, and we
believe we can fully refinance the principal balance, if we choose to do so.
The $72.7 million Regency Square loan matures in November 2011. In September 2010, our Board of Directors
concluded that it was in our best interest to discontinue financial support of Regency Square. We have begun
discussions with the lender regarding the transfer of ownership of this property. A default on this loan will not
trigger any cross defaults on our other indebtedness. The loan was not in default as of December 31, 2010. We
will continue to accrue the results of the center until the ownership of Regency Square is transferred in
satisfaction of the obligations under the debt. However, we are not obligated to fund cash shortfalls of the center
(see “Results of Operations – Regency Square”).
Summaries of 2010 Capital Activities and Transactions
As of December 31, 2010, we had a consolidated cash balance of $19.3 million. We also have secured lines of
credit of $550 million and $40 million. As of December 31, 2010, $406 million was available under these facilities.
Both lines of credit have been extended to February 2012. In connection with the extension of the $550 million
line of credit, the borrowing limits attributable to each of the three centers securing the line were reallocated.
Considering the facilities as adjusted, $447 million would have been available as of December 31, 2010. 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. We will continue to accrue the results of
operations of the center until the foreclosure process is complete and the ownership of The Pier Shops is
transferred in satisfaction of the obligations under the debt. However, there is no cash impact as we are not
obligated to fund cash shortfalls of the center (see “Results of Operations – The Pier Shops at Caesars”).
Operating Activities
Our net cash provided by operating activities was $264.6 million in 2010, compared to $235.6 million in 2009
and $251.8 million in 2008. See also “Results of Operations” for descriptions of 2010, 2009, and 2008
transactions affecting operating cash flow.
46
Investing Activities
Net cash used in investing activities was $44.8 million in 2010, compared to $6.3 million provided in 2009 and
$111.1 million used in 2008. Additions to properties in 2010 related primarily to tenant improvements at existing
centers and other capital items. Additions to properties in 2009 included tenant allowances and asset replacement
costs at 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. A tabular presentation of 2010 and 2009 capital
spending is shown in “Capital Spending.”
In 2008, we exercised our option to purchase interests in Partridge Creek from the third-party owner for
$11.8 million (see “Note 3 – Properties – The Mall at Partridge Creek” to our consolidated financial statements). 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. Net proceeds from sales of peripheral land were $3.1 million and $6.3 million in 2010
and 2008, respectively. The timing of land sales is variable and proceeds from land sales can vary significantly
from period to period. During 2010, we issued $2.9 million in notes receivable and received $1.6 million in
repayment. During 2009, we issued $7.2 million in notes receivable to fund the noncontrolling partner’s share of a
settlement at Westfarms that was paid in December 2009 (see “Note 14 – Commitments and Contingencies –
Litigation” to our consolidated financial statements). Also in 2009, we received a $4.5 million repayment of a note
receivable. Contributions to Unconsolidated Joint Ventures in 2010 and 2009 included $3.6 million and $26.8
million to fund our share of the settlement at Westfarms. Contributions to Unconsolidated Joint Ventures in 2009
and 2008 included $1.0 million and $7.2 million, respectively, of funding and costs related to our Sarasota joint
venture. Distributions in excess of earnings from Unconsolidated Joint Ventures provided $32.8 million in 2010,
compared to $36.9 million in 2009 and $63.3 million in 2008. The amount in 2010 included $21 million of excess
proceeds from the Arizona Mills refinancing. The amount in 2008 included $53.4 million in excess proceeds from
the Fair Oaks refinancing.
Financing Activities
Net cash used in financing activities was $216.7 million in 2010 compared to $284.9 million in 2009 and
$127.3 million in 2008. Payments of debt and for issuance costs, net of proceeds from the issuance of debt, were
$33.3 million in 2010, compared to $105.0 million in 2009, with payments in 2009 being 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. In 2010, $2.5 million was received in connection with incentive plans, compared
to $14.7 million and $3.8 million in 2009 and 2008, respectively. Total dividends and distributions paid were
$185.6 million, $192.5 million, and $221.3 million in 2010, 2009, and 2008, respectively. Common dividends paid
in 2010 include the special dividend paid in December 2010. See “Liquidity and Capital Resources – Dividends.”
Common dividends paid in 2009 increased over 2008 primarily due to 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.
Beneficial Interest in Debt
At December 31, 2010, the Operating Partnership's debt and its beneficial interest in the debt of its
Consolidated Businesses and Unconsolidated Joint Ventures totaled $2,872.6 million, with an average interest
rate of 5.43% excluding amortization of debt issuance costs and interest rate hedging costs. These costs are
reported as interest expense in the results of operations. Beneficial interest in debt includes debt used to fund
development and expansion costs. Beneficial interest in construction work in progress totaled $63.5 million as of
December 31, 2010, which includes $14.5 million of assets on which interest is being capitalized. The following
table presents information about our beneficial interest in debt as of December 31, 2010:
47
Fixed rate debt
Floating rate debt:
Swapped to January 2011
Swapped through March 2011
Swapped through October 2012
Swapped through August 2020
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)
$2,330.5
162.8
125.0
15.0
124.5
427.3
114.8
$ 542.1
$2,872.6
Interest Rate
Including Spread
5.77% (1) (2)
5.01%
4.22%
5.95%
4.99%
4.80% (1)
1.02% (1)
4.00% (1)
5.43% (1)
0.22%
5.65% (2)
(1) Represents weighted average interest rate before amortization of financing costs.
(2) 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%. Excluding
our beneficial interest in The Pier Shops’ debt of $104.6 million from the table changes the average fixed rate to 5.57% and the
average all-in rate to 5.47%.
(3) Financing costs include debt issuance costs 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, 2010, a one percent increase or
decrease in interest rates on this floating rate debt would decrease or increase cash flows and annual earnings by
approximately $3.7 million, respectively. Based on our consolidated debt and interest rates in effect at
December 31, 2010, a one percent increase in interest rates would decrease the fair value of debt by
approximately $77.0 million, while a one percent decrease in interest rates would increase the fair value of debt
by approximately $80.8 million.
48
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, 2010 for our
consolidated businesses, including expected settlement periods, is contained below:
Payments due by period
Total
Less than 1
year (2011)
1-3 years
(2012-2013)
(in millions)
3-5 years
(2014-2015)
More than 5
years (2016+)
Debt (1) (2)
Interest payments (1) (2)
Capital lease obligations
Operating leases (3)
Purchase obligations:
Planned capital spending (4)
Other purchase obligations (3)(5)
Other long-term liabilities and
commitments(6)
Total
$ 2,656.6
561.4
0.1
401.4
$ 634.5
131.2
0.1
8.7
153.4
10.6
78.4
2.8
$ 174.8
212.5
$ 1,148.7
157.7
$ 698.5
60.0
19.2
75.0
4.8
15.1
358.5
3.0
63.0
$ 3,846.5
0.9
$ 856.5
2.4
$ 488.8
2.7
$ 1,327.1
57.0
$1,174.0
(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, 2010.
(2) The Pier Shops’ loan is in default and The Regency Square loan is expected to be in default in 2011. They are shown as an obligation
in the current year. The debt on the Pier Shop’s loan is accruing interest at the default rate. Other than the interest accrued at
December 31, 2010, interest related to The Pier Shops’ is excluded from the table because of the uncertain length of time the debt will
remain outstanding. Regency Square is included through the November 2011 maturity date. See “Note 3 – Properties – The Pier
Shops” and “Note 3 – Properties – Regency Square” to our consolidated financial statements.
In 2012, $75 million will be paid upon opening of City Creek Center.
(3) Excludes The Pier Shops.
(4)
(5) Excludes purchase agreements with cancellation provisions of 90 days or less.
(6) Other long-term liabilities consist of various accrued liabilities, most significantly assessment bond obligations and long-term incentive
compensation.
(7) 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, 2010, our fixed charges coverage ratio was 2.1. 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, 2010.
The default on this loan did not trigger, and a default on the Regency Square loan will not trigger, any cross
defaults on our other indebtedness. See “Note 3 – Properties – The Pier Shops” and “Note 3 – Properties –
Regency Square” 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 7 – 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 14 – Commitments and Contingencies –
Cash Tender” to our consolidated financial statements for more details.
49
Capital Spending
City Creek Center
We have finalized agreements 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 long-term participating lease. City Creek Reserve, Inc. (CCRI), an affiliate of the LDS Church, is the
participating lessor and is providing all of the construction financing. We own 100% of the leasehold interest in the
retail buildings and property. CCRI has an option to purchase our interest at fair value at various points in time
over the term of the lease. 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. As required, we have
issued to CCRI a $25 million letter of credit, which will remain in place until the $75 million is paid. As of
December 31, 2010, the capitalized cost of this project was approximately $1 million. Construction is progressing
and we are leasing space for a March 2012 opening.
Outlets
In 2010, we formed a joint venture to seek development sites for outlets. Taubman will hold a 90% ownership
interest in the joint venture for any projects that move forward.
2010 and 2009 Capital Spending
Capital spending for routine maintenance of the shopping centers is generally recovered from tenants. Capital
spending during 2010 is summarized in the following table:
2010 (1)
Consolidated
Businesses
Beneficial
Interest in
Consolidated
Businesses
Unconsolidated
Joint Ventures
Beneficial
Interest in
Unconsolidated
Joint Ventures
(in millions)
Existing centers:
Projects with incremental GLA or anchor
replacement
Projects with no incremental GLA and other
Mall tenant allowances (2)
Asset replacement costs reimbursable by tenants
Corporate office improvements, technology,
equipment, and other
Additions to properties
$ 15.2
4.2
43.4
16.0
1.3
$ 80.0
(1) Costs are net of intercompany profits and are computed on an accrual basis.
(2) Excludes initial lease-up costs.
(3) Amounts in this table may not add due to rounding.
$ 15.2
4.0
40.6
14.3
1.3
$ 75.5
$ 2.4
1.7
6.4
$ 1.2
0.9
3.6
$ 10.5
$ 5.7
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, 2010:
Consolidated Businesses’ capital spending
Differences between cash and accrual basis
Additions to properties
(in millions)
$80.0
(7.9)
$72.2
50
Capital spending during 2009, excluding acquisitions, is summarized in the following table:
2009 (1)
Beneficial
Interest in
Consolidated
Businesses
Consolidated
Businesses
Unconsolidated
Joint Ventures
Beneficial
Interest in
Unconsolidated
Joint Ventures
$ 2.5
$ 2.5
(in millions)
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
11.5
4.9
19.0
14.2
Corporate office improvements, technology,
equipment, and other
Additions to properties
0.6
$ 52.8
6.5
4.6
17.3
12.2
0.6
$ 43.7
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.
$ 0.4
2.4
4.0
5.5
$ 0.1
1.2
2.3
3.0
$ 12.3
$ 6.6
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 $37.56 in 2010 and $19.99 in 2009.
Excluding allowances for a new theater and the repositioning and rebranding of certain centers, including a
substantial number of luxury tenants, 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
$16.71 in 2010. In addition, the Operating Partnership's share of capitalized leasing and tenant coordination costs
excluding new developments was $8.4 million and $7.6 million in 2010 and 2009, respectively, or $7.10 and
$6.36, in 2010 and 2009, respectively, per square foot leased.
Planned Capital Spending
The following table summarizes planned capital spending for 2011:
Existing centers (2)
Corporate office improvements, technology, and
equipment
Total
2011 (1)
Beneficial
Interest in
Consolidated
Businesses
Consolidated
Businesses
Unconsolidated
Joint Ventures
Beneficial
Interest in
Unconsolidated
Joint Ventures
$ 77.0
$ 69.3
$ 15.7
$ 8.4
(in millions)
1.4
$ 78.4
1.4
$ 70.7
$ 15.7
$ 8.4
(1) Costs are net of intercompany profits.
(2) Primarily includes costs related to renovations, mall tenant allowances, and asset replacement costs reimbursable by tenants. Also,
includes the cost to acquire the building that will be vacated by Saks Fifth Avenue at Cherry Creek in March 2011.
(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.
51
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 preferred shareowners. Dividends to our common
shareowners are at the discretion of the Board of Directors and depend on the cash available to us, our financial
condition, capital and other requirements, and such other factors as the Board of Directors deems relevant. To
qualify as a REIT, we must distribute at least 90% of our REIT taxable income prior to net capital gains to our
shareowners, as well as meet certain other requirements. We must pay these distributions in the taxable year the
income is recognized, or in the following taxable year if they are declared during the last three months of the
taxable year, payable to shareowners of record on a specified date during such period and paid during January of
the following year. Such distributions are treated as paid by us and received by our shareowners on December 31
of the year in which they are declared. In addition, at our election, a distribution for a taxable year may be
declared in the following taxable year if it is declared before we timely file our tax return for such year and if paid
on or before the first regular dividend payment after such declaration. These distributions qualify as dividends paid
for the 90% REIT distribution test for the previous year and are taxable to holders of our capital stock in the year
in which paid. Preferred dividends accrue regardless of whether earnings, cash availability, or contractual
obligations were to prohibit the current payment of dividends.
The annual determination of our common dividends is based on anticipated Funds from Operations available
after preferred dividends and our REIT taxable income, as well as assessments of annual capital spending,
financing considerations, and other appropriate factors.
Any inability of the Operating Partnership or its Joint Ventures to secure financing as required to fund maturing
debts, capital expenditures and changes in working capital, including development activities and expansions, may
require the utilization of cash to satisfy such obligations, thereby possibly reducing distributions to partners of the
Operating Partnership and funds available to us for the payment of dividends.
On December 9, 2010, we declared a quarterly dividend of $0.4375 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, 2010 to shareowners of record on December 17, 2010. We also declared a special dividend of
$0.1834 per share. The special dividend was payable December 31, 2010 to common shareholders of record on
December 17, 2010. This dividend was a result of the taxation of capital gains incurred from the liquidation of
TRG's private REIT and restructuring of our ownership in International Plaza, a property in Tampa, Florida. The
private REIT was formed in 1999 to raise capital from a foreign investor, who has since been bought out. The
dividend was necessary to fully distribute all of Taubman Centers' projected taxable income for the 2010 tax year
and comply with the REIT distribution requirements under federal income tax law. The liquidation has no impact
on our funds from operations, our net income or our percentage ownership of International Plaza.
52
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, 2010, 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 2010 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 2011
Proxy Statement under the captions “Proposal 1 – Election of Directors,” “Board Matters – Committees of the
Board,” "Board Matters – 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 2011
Proxy Statement under the captions "Board Matters – Director Compensation,” “Compensation Committee
Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” “Compensation Committee
Report,” and “Named Executive Officer Compensation Tables.”
53
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, 2010:
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)
200,658
817,068
505,816
1,252,123
112,068
2,887,733
56,051
2,943,784
$16.00
40.37
(3)
(3)
(3)
(7)
$37.00
3,651,218 (1)
3,651,218
(8)
3,651,218
(1) Under The Taubman Company 2008 Omnibus Long-Term Incentive Plan (as amended), 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 8,500,000 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 272,356 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 12 – Share Based Compensation and Other Employee Plans” 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. The remaining restricted stock units granted under this plan will vest in March 2011.
(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
2011 Proxy Statement under the caption “Related Person Transactions,” and "Proposal 1 – Election of Directors –
Director Independence.”
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item is hereby incorporated by reference to the material appearing in the 2011
Proxy Statement under the caption “Audit Committee Disclosure.”
54
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
PART IV
15(a)(1) The following financial statements of Taubman Centers, Inc. and the Reports of
Independent Registered Public Accounting Firm thereon are filed with this report:
TAUBMAN CENTERS, INC.
Management's Annual Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheet as of December 31, 2010 and 2009
Consolidated Statement of Operations and Comprehensive Income for the years
ended December 31, 2010, 2009, and 2008
Consolidated Statement of Changes in Equity for the years ended December 31,
2010, 2009, and 2008
Consolidated Statement of Cash Flows for the years ended December 31, 2010,
2009, and 2008
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,
F-41
2010, 2009, and 2008
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2010
F-42
15(a)(3)
3(a)
3(b)
-- 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).
-- 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)
-- 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).
55
4(f)
4(g)
4(h)
4(i)
-- Amended and Restated Promissory Note A-3, dated December 14, 2005, by Short Hills
Associates L.L.C. to Metropolitan Life Insurance Company (incorporated herein by
reference to Exhibit 4.3 filed with the Registrant’s Current Report on Form 8-K dated
December 16, 2005).
-- 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 herein 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 herein 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)
--
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).
4(k)
4(l)
4(m)
-- 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).
-- 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)
--
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).
4(p)
--
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).
56
4(q)
--
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).
4(r)
--
The Limited Waiver Letter, dated August 9, 2010, to the Second Amended and Restated
Mortgage, dated as of November 1, 2007, by and between Dolphin Mall LLC, Fairlane
Town Center LLC, Twelve Oaks Mall, LLC and Eurohypo A6, New York Branch, as
Administrative Agent (incorporated herein by reference to Exhibit 4(a) filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010).
*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).
57
*10(l)
-- Second Amendment to the Taubman Company Long-Term Performance Compensation
Plan (as amended and restated effective January 1, 2000) (incorporated herein by
reference to Exhibit 10(n) filed with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 2005).
*10(m)
--
The Taubman Company 2005 Long-Term Incentive Plan (incorporated herein by reference
to the Registrant’s Proxy Statement on Schedule 14A filed with the Securities and
Exchange Commission on April 5, 2005).
*10(n)
*10(o)
-- Employment Agreement between The Taubman Company Limited Partnership and Lisa A.
Payne (incorporated herein by reference to Exhibit 10 filed with the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997).
-- Amended and Restated Change of Control Employment Agreement, dated December 18,
2008, by and among the Company, Taubman Realty Group Limited Partnership, and Lisa
A. Payne (revised for Code Section 409A compliance) (incorporated herein by reference to
Exhibit 10(o) filed with 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 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 (incorporated
herein by reference to Exhibit 10(s) filed with Registrant’s Annual Report on Form 10-K for
the year ended December 31, 2009 (“2009 Form 10-K”)).
-- 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 (incorporated herein by reference to Exhibit 10(v) filed with the 2009 Form 10-K).
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).
58
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)
10(ac)
-- 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).
-- 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., effective
January 1, 2011.
*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, as amended and
restated as of May 21, 2010 (incorporated herein by reference to Appendix A to the
Registrant’s Proxy Statement on Schedule 14A, filed with the Commission on March 31,
2010).
59
*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).
*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
(incorporated herein by reference to Exhibit 10(aw) filed with the 2009 Form 10-K).
*10(ax)
*10(ay)
10(az)
-- Amendment to Separation Agreement and Release, dated December 3, 2010, for Morgan
Parker.
-- Assignment of Membership Interest in Taubman Properties Asia LLC between Morgan
Parker and Taubman Asia Management II LLC, dated October 4, 2009 (incorporated
herein by reference to Exhibit 10(ax) filed with the 2009 Form 10-K).
-- 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 (incorporated herein by
reference to Exhibit 10(ay) filed with the 2009 Form 10-K).
*10(ba)
--
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(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).
60
*10(bc)
--
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(bd)
-- 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.
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.
101.INS
-- XBRL Instance Document**
101.SCH
-- XBRL Taxonomy Extension Schema Document**
101.CAL
-- XBRL Taxonomy Extension Calculation Linkbase Document**
101.LAB
-- XBRL Taxonomy Extension Label Linkbase Document**
101.PRE
-- XBRL Taxonomy Extension Presentation Linkbase Document**
101.DEF
-- XBRL Taxonomy Extension Definition Linkbase Document**
*
**
15(b)
15(c)
A management contract or compensatory plan or arrangement required to be filed.
Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities
Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act
of 1934, and otherwise is not subject to liability under these sections.
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.
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.
61
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, 2010 and 2009
F-2
F-3
F-5
Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2010,
F-6
2009, and 2008
Consolidated Statement of Changes in Equity for the years ended December 31, 2010, 2009, and 2008
Consolidated Statement of Cash Flows for the years ended December 31, 2010, 2009, and 2008
Notes to Consolidated Financial Statements
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
F-7
F-8
F-9
Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2010, 2009, and 2008
F-41
Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2010
F-42
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, 2010. 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, 2010.
Based on its assessment, management believes that Taubman Centers, Inc. maintained effective internal control
over financial reporting as of December 31, 2010. The independent registered public accounting firm, KPMG LLP,
that audited the 2010 financial statements included in this annual report have issued their 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, 2010 and 2009, and the related consolidated statements of operations and comprehensive income,
changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2010. 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, 2010 and 2009, and the results of their operations
and their cash flows for each of the years in the three-year period ended December 31, 2010, 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 1 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, 2010, 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 25, 2011 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Chicago, Illinois
February 25, 2011
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, 2010, 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, 2010, 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, 2010 and 2009, and the
related consolidated statements of operations and comprehensive income, changes in equity, and cash flows for
each of the years in the three-year period ended December 31, 2010, and our report dated February 25, 2011
expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Chicago, Illinois
February 25, 2011
F-4
TAUBMAN CENTERS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
Assets:
Properties (Notes 3 and 7)
Accumulated depreciation and amortization
Investment in Unconsolidated Joint Ventures (Note 4)
Cash and cash equivalents
Accounts and notes receivable, less allowance for doubtful accounts of $7,966
and $6,894 in 2010 and 2009 (Note 5)
Accounts receivable from related parties (Note 11)
Deferred charges and other assets (Note 6)
Liabilities:
Notes payable (Note 7)
Accounts payable and accrued liabilities
Distributions in excess of investments in and net income of Unconsolidated Joint
Ventures (Note 4)
Commitments and contingencies (Notes 3, 7, 8, 9, 10, 12, and 14)
Equity (Note 13):
Taubman Centers, Inc. Shareowners’ Equity:
Series B Non-Participating Convertible Preferred Stock, $0.001 par and
liquidation value, 40,000,000 shares authorized, 26,233,126 and 26,359,235
shares issued and outstanding at December 31, 2010 and 2009
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, 2010 and 2009
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, 2010 and 2009
Common Stock, $0.01 par value, 250,000,000 shares authorized, 54,696,054
and 54,321,586 shares issued and outstanding at December 31, 2010 and
2009
Additional paid-in capital
Accumulated other comprehensive income (loss) (Note 9)
Dividends in excess of net income
Noncontrolling interests (Note 8)
December 31
2010
2009
$ 3,528,297
(1,199,247)
$ 2,329,050
77,122
19,291
49,906
1,414
70,090
$ 2,546,873
$ 3,496,853
(1,100,610)
$ 2,396,243
89,804
16,176
44,503
1,558
58,569
$ 2,606,853
$ 2,656,560
247,895
$ 2,691,019
230,276
170,329
$ 3,074,784
160,305
$ 3,081,600
$
26
$
26
547
589,881
(14,925)
(939,290)
$ (363,761)
(164,150)
$ (527,911)
$ 2,546,873
543
579,983
(24,443)
(884,666)
$ (328,557)
(146,190)
$ (474,747)
$ 2,606,853
See notes to consolidated financial statements.
F-5
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except share data)
Year Ended December 31
2009
2008
2010
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 3)
Restructuring charge (Note 11)
Interest expense
Depreciation and amortization
Nonoperating income
Impairment loss on marketable securities (Note 16)
Income (loss) before income tax expense and equity in income of
Unconsolidated Joint Ventures
Income tax expense (Note 2)
Equity in income of Unconsolidated Joint Ventures (Note 4)
Net income (loss)
Net (income) loss attributable to noncontrolling interests (Note 8)
Net income (loss) attributable to Taubman Centers, Inc.
Distributions to participating securities of TRG (Note 12)
Preferred stock dividends (Note 13)
Net income (loss) attributable to Taubman Centers, Inc. common shareowners
Net income (loss)
Other comprehensive income (Note 9):
Unrealized gain (loss) on interest rate instruments and other
Reclassification adjustment for amounts recognized in net income:
Impairment loss on marketable securities
Other
Comprehensive income (loss)
Comprehensive (income) loss attributable to noncontrolling interests
Comprehensive income (loss) attributable to Taubman Centers, Inc.
Basic earnings (loss) per common share (Note 15)
Diluted earnings (loss) per common share (Note 15)
$ 341,727
13,167
237,415
16,109
46,140
$ 654,558
$ 179,234
75,401
8,258
30,234
152,708
153,876
$ 599,711
2,802
$ 57,649
(734)
45,412
$ 102,327
(38,459)
$ 63,868
(1,635)
(14,634)
$ 47,599
$ 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)
$ 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)
$ 102,327
$ (79,161)
$
(8,052)
18,240
8,227
(22,377)
1,260
121,827
(48,490)
$ 73,337
$
$
0.87
0.86
1,666
1,262
(68,006)
19,829
$ (48,177)
$
$
(1.31)
(1.31)
1,260
(29,169)
(62,549)
$ (91,718)
$
$
(1.64)
(1.64)
Weighted average number of common shares outstanding – basic
54,569,618
53,239,279
52,866,050
See notes to consolidated financial statements.
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TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
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:
Receivables, deferred charges, and other assets
Accounts payable and other liabilities
Net Cash Provided by Operating Activities
Cash Flows From Investing Activities:
Additions to properties
Acquisition of interests in The Mall at Partridge Creek (Note 3)
Refund (funding) of The Mall at Studio City escrow (Note 4)
Proceeds from sales of land and land-related rights
Issuances of notes receivable (Note 5)
Repayments of notes receivable (Note 5)
Contributions to Unconsolidated Joint Ventures
Distributions from Unconsolidated Joint Ventures in excess of income
Other
Year Ended December 31
2009
2010
2008
$ 102,327
$ (79,161)
$
(8,052)
153,876
3,363
(2,218)
11,216
147,316
1,666
166,680
2,081
11,281
147,441
117,943
6,088
(2,816)
10,770
(21,805)
17,849
$ 264,608
5,087
(19,304)
$ 235,646
(7,183)
(12,358)
$ 251,833
$ (72,152)
$ (54,592)
3,060
(2,948)
1,623
(7,261)
32,836
54,334
(7,160)
4,500
(28,718)
36,903
985
6,252
$ (99,964)
(11,838)
(54,334)
6,268
223
(12,111)
63,269
(2,655)
$(111,142)
$ 335,665
(239,072)
(3,419)
3,809
(117,495)
(1,446)
(14,634)
(87,679)
(3,047)
$ (127,318)
Net Cash Provided By (Used In) Investing Activities
$ (44,842)
$
Cash Flows From Financing Activities:
Debt proceeds
Debt payments
Debt issuance costs
Issuance of common stock and/or partnership units in connection with
incentive plans (Notes 12 and 14)
Distributions to noncontrolling interests (Note 8)
Distributions to participating securities of TRG
Cash dividends to preferred shareowners
Cash dividends to common shareowners
Other
Net Cash Used In Financing Activities
$ 213,500
(243,885)
(2,943)
2,532
(67,468)
(1,635)
(14,634)
(101,890)
(228)
$ (216,651)
$
978
(106,026)
14,737
(65,810)
(1,560)
(14,634)
(110,492)
(2,103)
$ (284,910)
Net Increase (Decrease) In Cash and Cash Equivalents
$
3,115
$ (43,012)
$ 13,373
Cash and Cash Equivalents at Beginning of Year
16,176
59,188
45,815
Cash and Cash Equivalents at End of Year
$ 19,291
$ 16,176
$ 59,188
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 the company’s 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, 2010 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.
Dollar amounts presented in tables within the notes to the financial statements are stated in thousands, except
share data or as otherwise noted. Certain reclassifications have been made to prior year amounts to conform with
current year classifications.
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 3). 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. All intercompany transactions have been eliminated.
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 under guidance for determining whether an entity
is a variable interest entity, including amendments to ASC Topic 810 "Consolidation" that became effective
January 1, 2010, 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, 2010, the Operating Partnership’s equity included three classes of preferred equity (Series F,
G, and H) and the net equity of the partnership unitholders (Note 13). Net income and distributions of the
Operating Partnership are allocable first to the preferred equity interests, and the remaining amounts to the
general and limited partners in the Operating Partnership in accordance with their percentage ownership. The
Series G and Series H Preferred Equity are owned by the Company and are eliminated in consolidation. The
Series F Preferred Equity is owned by an institutional investor and accounted for as a noncontrolling interest of
the Company (Note 8).
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
80,947,630
80,699,271
79,481,431
Year
2010
2009
2008
TRG units owned by
TCO at December 31 (1)
54,696,054
54,321,586
53,018,987
TRG units owned by
noncontrolling
interests at
December 31
26,251,576
26,377,685
26,462,444
TCO's % interest in
TRG at December 31
68%
67
67
TCO's average
interest in TRG
67%
67
67
(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.
Outstanding voting securities of the Company at December 31, 2010 consisted of 26,233,126 shares of Series
B Preferred Stock (Note 13) and 54,696,054 shares of Common Stock.
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. Expense recoveries 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
is reasonably assured. Taxes assessed by government authorities on revenue-producing
collectibility
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 at Caesars (The Pier Shops) and Regency Square (Note 3). In the fourth quarter of 2008, the
Company recognized impairment charges on its Oyster Bay project (Note 3) and its Sarasota joint venture project
(Note 4).
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.
Included in cash equivalents is $9.0 million at December 31, 2010 invested in a single investment company's
money market funds, which are not insured or guaranteed by the FDIC or any other government agency.
Acquisition of Interests in Centers
The cost of acquiring an ownership interest or an additional ownership interest (if not already consolidated) 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 or as an adjustment to rental revenue, as appropriate, over the
estimated life of the associated intangible asset (for instance, the remaining life of the associated tenant lease).
Acquisition-related costs, including due diligence costs, professional fees, and other costs to effect an acquisition,
are expensed as incurred.
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. Cash expenditures for leasing costs are recognized in the Statement of Cash Flows as operating
activities. 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. The Company’s
loss
temporary differences primarily relate
carryforwards.
to deferred compensation, depreciation and net operating
Noncontrolling Interests
Accounting Requirements - Background
On January 1, 2009, the Company adopted the 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 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.
F-12
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Presentation
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
these
noncontrolling interests, including amounts previously included in Deferred Charges and Other Assets, were
reclassified to become a separate component of equity for 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.
to
Measurement
Prior to adoption of the 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 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.
Noncontrolling interests in certain consolidated ventures of the Company qualify as redeemable noncontrolling
interests (Note 8). To the extent such noncontrolling interests are currently redeemable or it is probable that they
will eventually become redeemable, these interests will be adjusted to their maximum redemption value at each
balance sheet date. The redemption values of the Company’s redeemable noncontrolling interests were zero at
December 31, 2010.
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 operating 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.
F-13
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
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.
Note 2 – Income Taxes
Income Tax Expense
The Company’s income tax expense for the years ended December 31, 2010, 2009 and 2008 is as follows:
State current
State deferred
Federal current
Foreign current
2010
$ 907
(183)
45
(35)
2009
2008
$ 1,017 $ 775
342
385
255
Total income tax expense
$ 734
$ 1,657 $ 1,117
Net Operating Loss Carryforwards
As of December 31, 2010, the Company has a total federal net operating loss carryforward of $9.8 million,
expiring as follows:
Tax Year
2004
2005
2006
2007
2008
2009
Expiration
2024
2025
2026
2027
2028
2029
Amount
$ 345
380
176
3,304
5,326
297
The Company also has a foreign net operating loss carryforward of $8.4 million, $4.1 million of which has an
indefinite carryforward period, $0.9 million expires in 2013, and $3.4 million expires in 2019.
Deferred Taxes
Deferred tax assets and liabilities as of December 31, 2010 and 2009 are as follows:
Deferred tax assets:
Federal
Foreign
State
Total deferred tax assets
Valuation allowances
Net deferred tax assets
Deferred tax liabilities:
Federal
State
Total deferred tax liabilities
2010
2009
$ 8,589
2,361
6,786
$ 17,736
(10,199)
$ 7,537
$ 8,697
1,513
6,467
$ 16,677
(9,090)
$ 7,587
$
607
4,171
$ 4,778
$
615
4,396
$ 5,011
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 and tax basis differences where there is uncertainty regarding their
realizability.
F-14
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
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 2010, 2009, and 2008 may not be indicative of
future periods. The portion of dividends paid in 2010 and 2008 shown below as capital gains are designated as
capital gain dividends for tax purposes.
Dividends per
common share
declared
$1.8659 (1)
1.660
1.660
Year
2010
2009
2008
Return of
capital
$0.0780
0.6467
0.0000
Ordinary
income
$1.2732
1.0133
1.3324
15% Rate long
term capital gain
$0.5147
0.0000
0.3011
Unrecaptured
Sec. 1250
capital gain
$0.0000
0.0000
0.0265
(1)
Includes a special dividend of $0.1834 per share, which was declared as a result of the taxation of
capital gain incurred from the restructuring of the company’s ownership in International Plaza,
including the liquidation of the Operating Partnership’s private REIT.
Dividends per Series
G Preferred share
declared
$2.000
2.000
2.000
Dividends per Series
H Preferred share
declared
$1.90625
1.90625
1.90625
Year
2010
2009
2008
Year
2010
2009
2008
Ordinary
income
$1.4483
2.0000
1.6053
15% Rate long
term capital gain
$0.5517
0.0000
0.3628
Ordinary
income
$1.38045
1.90625
1.53025
15% Rate long
term capital gain
$0.5258
0.0000
0.3457
Unrecaptured
Sec. 1250
capital gain
$0.0000
0.0000
0.0319
Unrecaptured
Sec. 1250
capital gain
$0.0000
0.0000
0.0303
Uncertain Tax Positions
The Company had no unrecognized tax benefits as of or during the three year period ended December 31,
2010. The Company expects no significant increases or decreases in unrecognized tax benefits due to changes
in tax positions within one year of December 31, 2010. The Company has no material interest or penalties relating
to income taxes recognized in the Consolidated Statement of Operations and Comprehensive Income for the
years ended December 31, 2010, 2009, and 2008 or in the Consolidated Balance Sheet as of December 31, 2010
and 2009. As of December 31, 2010, returns for the calendar years 2007 through 2010 remain subject to
examination by U.S. and various state and foreign tax jurisdictions.
Note 3 – Properties
Properties at December 31, 2010 and December 31, 2009 are summarized as follows:
Land
Buildings, improvements, and equipment
Construction in process
Development pre-construction costs
Accumulated depreciation and amortization
2010
2009
$ 254,994
$ 271,662
3,173,724
3,194,309
4,040
15,626
46,700
64,095
$ 3,528,297
$ 3,496,853
(1,199,247) (1,100,610)
$ 2,396,243
$ 2,329,050
Depreciation expense for 2010, 2009, and 2008 was $144.9 million, $139.7 million, and $138.7 million,
respectively.
The charge to operations in 2010, 2009, and 2008 for domestic and non-U.S. pre-development activities was
$16.0 million, $12.3 million, and $18.5 million, respectively.
F-15
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Regency Square
In September 2010, the Board of Directors concluded that it is in the best interest of the Company to
discontinue its financial support of Regency Square, including not funding the mortgage debt that is due in
November 2011. As a result, the Company has begun discussions with the lender about the center’s future
ownership. At the current time, subject to decisions by the lender, the Company will continue to manage the
shopping center. The Regency Square loan was not in default as of December 31, 2010.
In 2009, the Company concluded that the carrying value (book value) of the investment in Regency Square was
impaired and recognized a non-cash charge of $59.0 million, representing the excess book value of the
investment over its fair value of approximately $29 million. The Company’s conclusion was based on estimates of
future cash flows for the property, which were negatively impacted by necessary capital expenditures and
declining net operating income. The book value of the investment in Regency Square as of December 31, 2010
was approximately $30 million, which includes additional capital spending that was anticipated in determining the
fair value in 2009.
The Pier Shops at Caesars
In 2009, the Company concluded that the carrying 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, representing 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 Pier Shops is currently in default.
The administration of the loan has been turned over to the special servicer. The book value of the investment in
The Pier Shops as of December 31, 2010 was approximately $44 million. See Note 7 for more information on the
loan and Note 14 for more information on related litigation.
Regarding both Regency Square and The Pier Shops, a non-cash accounting gain will be recognized for each
center when its loan obligation is extinguished upon transfer of title of the respective center. The gain will
represent the difference between the book value of the debt, interest payable and other obligations extinguished
over the net book value of the property and any other assets transferred. The transition processes are not in the
Company’s control and the timing of transfer of title for each of the centers is uncertain. The Company will
continue to record the operations of the centers and interest on the loans in its results until ownership of the
centers has been transferred.
Oyster Bay
In 2008, the Company recognized an impairment charge to income of $117.9 million for the Oyster Bay project.
The determination to recognize this charge was reached after an overall assessment of the probability of the
development of the mall as designed and as a result of the delay in obtaining a special use permit. 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.
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’s remaining capitalized investment in the project as of December 31, 2010 is
$39.8 million, which is classified in “development pre-construction costs” and consists 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.
F-16
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
The Mall at Partridge Creek
In May 2006, the Company engaged the services of a third-party investor to acquire certain property associated
with Partridge Creek, in order to facilitate a Section 1031 like-kind exchange to provide flexibility for disposing of
assets in the future. The Company provided approximately 45% of the project funding and 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.
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 16).
Note 4 – 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.
Shopping Center
Arizona Mills
Fair Oaks
The Mall at Millenia
Stamford Town Center
Sunvalley
Waterside Shops
Westfarms
Ownership as of
December 31, 2010 and 2009
50%
50
50
50
50
25
79
The Company's carrying value of its Investment in Unconsolidated Joint Ventures differs from its share of the
partnership or members equity reported in the combined balance sheet of the Unconsolidated Joint Ventures due
to (i) the Company's cost of its investment in excess of the historical net book values of the Unconsolidated Joint
Ventures and (ii) the Operating Partnership’s adjustments to the book basis, including intercompany profits on
sales of services that are capitalized by the Unconsolidated Joint Ventures. The Company's additional basis
allocated to depreciable assets is recognized on a straight-line basis over 40 years. The Operating Partnership’s
differences in bases are amortized over the useful lives of the related assets.
In its Consolidated Balance Sheet, the Company separately reports its investment in 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.
F-17
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Westfarms
In 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. Pursuant to the Settlement Agreement, the lawsuit was withdrawn with prejudice upon payment by
Westfarms of $34 million to the developers. 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. In January 2010, the WFM Parties executed a settlement agreement with the Town of West
Hartford, 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.
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 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 Comprehensive Income and represents the Company’s share of
project costs and its total investment in the project.
The Mall at Studio City
In 2008, Taubman Asia entered into agreements to own a noncontrolling 25% interest in, and provide services
to, The Mall at Studio City, the retail component of a major mixed-use project in Macao, China. In 2009, the
Company’s Macao agreements were terminated and an initial $54 million cash payment was returned because
the financing for the project was not completed.
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.
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 $1,471 and $1,703 in 2010 and 2009
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)
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
2010
2009
$1,092,916
(417,712)
$ 675,204
21,339
$1,094,963
(396,518)
$ 698,445
18,544
26,288
18,891
$ 741,722
26,982
22,310
$ 766,281
$1,125,618
37,292
(224,636)
$1,092,806
50,615
(205,566)
(196,552)
$ 741,722
(171,574)
$ 766,281
$ (224,636)
68,682
62,747
(93,207)
$
$ (205,566)
70,371
64,694
(70,501)
$
170,329
$ 77,122
160,305
$ 89,804
Revenues
Maintenance, taxes, utilities, and other operating expenses
Litigation charges (Note 14)
Interest expense
Depreciation and amortization
Total operating costs
Nonoperating income
Net income
2010
$ 270,391
$ 90,680
63,835
37,234
$ 191,749
2
$ 78,644
2008
$ 271,813
$ 93,218
Year Ended December 31
2009
$ 272,535
$ 95,775
38,500
64,405
38,396
$ 237,076
87
$ 35,546
65,002
39,756
$ 197,976
683
$ 74,520
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
$ 45,092
$ 10,748
$ 41,857
2,266
(1,946)
2,686
(1,946)
$ 45,412
$ 11,488
3,770
(1,948)
(8,323)
$ 35,356
Beneficial interest in Unconsolidated Joint Ventures’
operations:
Revenues less maintenance, taxes, utilities, and other
operating expenses
Interest expense
Depreciation and amortization
Impairment charge
Equity in income of Unconsolidated Joint Ventures
$ 100,682
(33,076)
(22,194)
$ 67,815
(33,427)
(22,900)
$ 45,412
$ 11,488
$ 101,089
(33,777)
(23,633)
(8,323)
$ 35,356
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 $0.5 million,
$0.9 million, and $1.0 million for the years ended December 31, 2010, 2009, and 2008, respectively.
Deferred charges and other assets of $18.9 million at December 31, 2010 were comprised of leasing costs of
$30.9 million, before accumulated amortization of $(18.9) million, net deferred financing costs of $2.8 million, and
other net charges of $4.1 million. Deferred charges and other assets of $22.3 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 $6.7 million.
The estimated fair value of the Unconsolidated Joint Ventures’ notes payable was $1.2 billion and $1.1 billion at
December 31, 2010 and 2009, respectively.
Depreciation expense on properties for 2010, 2009, and 2008 was $32.3 million, $33.8 million, and
$36.1 million, respectively.
Note 5 – Accounts and Notes Receivable
Accounts and notes receivable at December 31, 2010 and December 31, 2009 are summarized as follows:
Trade
Notes
Straight-line rent and recoveries
Less: Allowance for doubtful accounts
and notes
2010
$ 24,515
10,517
22,840
$ 57,872
2009
$ 21,767
9,175
20,455
$ 51,397
(7,966)
$ 49,906
(6,894)
$ 44,503
Notes receivable as of December 31, 2010 provide interest at a range of interest rates from 2.9% to 10.0% (with
a weighted average interest rate of 5.1%) and mature at various dates through December 2019. The balances at
December 31, 2010 and 2009 included $4.0 million and $2.0 million, respectively, of notes receivable from certain
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 of notes receivable at December 31, 2010 and 2009 included $6.5
million and $7.2 million, respectively, related to the joint venture partners at Westfarms for their share of the
litigation charges that were paid in 2009 (Note 4).
Note 6 – Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 2010 and December 31, 2009 are summarized as follows:
2010
2009
Leasing costs
Accumulated amortization
Deferred financing costs, net
Restricted cash
Intangibles, net
Insurance deposit (Note 16)
Investments (Note 16)
Interest rate contract (Note 9)
Deferred tax asset, net
Prepaid expenses
Other, net
$ 33,991
(15,286)
$ 18,705
5,679
3,464
1,247
9,689
1,665
7,587
3,302
7,231
$ 58,569
$ 37,780
(17,282)
$ 20,498
5,399
7,599
252
10,135
2,061
4,856
7,537
3,487
8,266
$ 70,090
F-20
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 7 – Notes Payable
Notes payable at December 31, 2010 and December 31, 2009 consist of the following:
2010
2009 Stated Interest Rate Maturity Date
Balance Due on
Maturity
Facility
Amount
Beverly Center
Cherry Creek Shopping Center
Dolphin Mall
Fairlane Town Center
Great Lakes Crossing Outlets
International Plaza
MacArthur Center
MacArthur Center
Northlake Mall
The Mall at Partridge Creek
The Mall at Partridge Creek
The Pier Shops at Caesars
(Note 3)
Regency Square (Note 3)
The Mall at Short Hills
Stony Point Fashion Park
Twelve Oaks Mall
The Mall at Wellington Green
Line of Credit
$ 322,700 $ 328,365
280,000
64,000
80,000
135,144
325,000
280,000
10,000
80,000
132,262
325,000
131,000
215,500
82,140
135,000
72,690
540,000
105,484
129,358
215,500
73,770
135,000
74,085
540,000
107,237
200,000
200,000
5.28%
5.24%
LIBOR + 0.70%
LIBOR + 0.70%
5.25%
LIBOR +1.15% (2)
LIBOR + 2.35% (3)
7.59%
5.41%
6.15%
LIBOR + 1.15%
(4)
6.75% (5)
5.47%
6.24%
LIBOR + 0.70%
5.44%
24,784
3,560 Variable Bank Rate
$ 2,656,560 $ 2,691,019
02/11/14
06/08/16
02/14/11 (1)
02/14/11 (1)
03/11/13
01/08/11 (2)
09/01/20
$ 303,277
280,000
10,000
80,000
125,507
325,000
117,234
(1)
(1)
02/06/16
07/06/20
(4)
11/01/11 (5)
12/14/15
06/01/14
02/14/11 (1)
05/06/15
02/14/12
215,500
70,433
71,569(5)
540,000
98,585
200,000
24,784
81,000
(1)
40,000(6)
(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, 2010 was $394 million. Sublimits may be reallocated quarterly but not more often than twice a year. In February
2011, the maturity date was extended for one year.
(2) Stated interest rate was swapped to an effective rate of 5.01%, until January 2011. In January 2011, the loan was extended for one year, at
a new principal amount of $272.4 million, and has a one-year extension option remaining. The loan floats at LIBOR + 1.15% during the
extension period.
(3) Stated interest rate is swapped to an effective rate of 4.99%.
(4) 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 3).
(5) The Company has announced that it will discontinue financial support of Regency Square. As a result the Company is in discussions with
the lender about the center's future ownership. As of December 31, 2010 the loan was not in default.
(6) The unused borrowing capacity at December 31, 2010 was $12 million.
Notes payable are collateralized by properties with a net book value of $2.0 billion at December 31, 2010.
The following table presents scheduled principal payments on notes payable as of December 31, 2010:
2011
2012
2013
2014
2015
Thereafter
Debt in Default
$
499,510(1)
37,613
137,223
405,935
742,766
698,513
135,000
$ 2,656,560
(1)
Includes $90 million with a one-year extension option and $325 million with two one-year extension options. Both loans were extended
for one year to February 2012.
F-21
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
2011 Maturities
In January 2011, the International Plaza loan was extended to a maturity of January 2012. The principal
balance on the loan was required to be paid down by $52.6 million. The Company funded its $26.4 million
beneficial share of the paydown with funds from the revolving lines of credit. The principal on the loan is now
$272.4 million at 100%, and $136.5 million at the Company’s beneficial share. The rate on the loan had been
fixed at 5.01% due to an interest rate swap that also matured in January. The loan has now reverted to a floating
rate at LIBOR plus 1.15%. The extended loan is prepayable at any time and has an additional one-year extension
option.
The $250 million loan at Fair Oaks, a 50% owned Unconsolidated Joint Venture (Note 4), matures in April 2011
and has two one-year extension options. Currently the loan is fixed at 4.22% due to an interest rate swap that
also matures in April. Notice has been given to the lender to exercise the option to extend the maturity to April
2012. When the loan is extended the loan will revert to a floating rate at LIBOR plus 1.40%. However the loan is
prepayable, and the Company believes it can fully refinance the principal balance, if it chooses to do so.
In December 2010, the Company extended its $40 million line of credit and in February 2011, extended the
$550 million line of credit. Both lines were extended for one year.
The Company had $406 million of availability on its lines of credit as of December 31, 2010. In connection with
the extension of the $550 million line of credit, the borrowing limits attributable to each of the three centers
securing the line were reallocated. Considering the facilities as adjusted, $447 million would have been available
as of December 31, 2010. There are outstanding letters of credit of $28.2 million that reduce the availability of the
lines of credit as of December 31, 2010.
The loan on Regency Square matures in November 2011, see Note 3 for more information.
Loan in Default
The $135 million loan encumbering The Pier Shops is currently in default (see Notes 3 and 14 regarding
additional information on the center and the default on this loan).
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 fixed charges coverage ratio, the latter being the most restrictive. Other than The Pier
Shops’ loan, which is in default, the Company is in compliance with all of its covenants and loan obligations as of
December 31, 2010. The default on The Pier Shops’ loan did not trigger, and a default on the Regency Square
loan will not trigger, any cross defaults on the Company’s 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, 2010.
Center
Loan Balance
as of 12/31/10
Dolphin Mall
Fairlane Town Center
Twelve Oaks Mall
$ 10.0
80.0
–
Amount of
Loan Balance
Guaranteed by
TRG as of
12/31/10
% of Loan
Balance
Guaranteed
by TRG
% of Interest
Guaranteed
by TRG
$ 10.0
80.0
–
100%
100
100
100%
100
100
TRG's
Beneficial
Interest in
Loan Balance
as of 12/31/10
(in millions)
$ 10.0
80.0
–
F-22
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
The Company is required to escrow cash balances for specific uses stipulated by its lenders. As of
December 31, 2010 and December 31, 2009, the Company’s cash balances restricted for these uses were
$7.6 million and $3.5 million, respectively. Such amounts are included within Deferred Charges and Other Assets
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, 2010
December 31, 2009
Capitalized interest:
At 100%
At Beneficial Interest
Consolidated
Subsidiaries
Unconsolidated
Joint Ventures
Consolidated
Subsidiaries
Unconsolidated
Joint Ventures
$2,656,560
2,691,019
$ 1,125,618
1,092,806
$2,297,460
2,332,030
$ 575,103
559,817
Year ended December 31, 2010
Year ended December 31, 2009
$
319
1,257
Interest expense:
Year ended December 31, 2010
Year ended December 31, 2009
$ 152,708
145,670
$
$
$
319
1,246
23
$
11
63,835
64,405
$ 131,484
125,823
$ 33,076
33,427
Note 8 – Noncontrolling Interests
Redeemable Noncontrolling Interests
In October 2010, the Company's new president of Taubman Asia (the Asia President) obtained an ownership
interest in Taubman Asia, a consolidated subsidiary. The Asia President is entitled to 10% of Taubman Asia's
dividends, with 85% of his dividends being withheld as contributions to capital. These withholdings will continue
until he contributes and maintains his capital consistent with a 10% ownership interest, including all capital funded
by the Operating Partnership for Taubman Asia's operating and investment activities subsequent to the Asia
President obtaining his ownership interest. The Operating Partnership will have a preferred investment in
Taubman Asia to the extent the Asia President has not yet contributed capital commensurate with his ownership
interest. This preferred investment will accrue an annual preferential return equal to the Operating Partnership's
average borrowing rate (with the preferred investment and accrued return together being referred to herein as the
preferred interest). Taubman Asia has the ability to call, and the Asia President has the ability to put, the Asia
President’s ownership interest, subject to certain conditions including the termination of the Asia President’s
employment and the expiration of certain required holding periods. The redemption price for the ownership
interest is a nominal amount through 2013 and subsequently 50% (increasing to 100% in May 2015) of the fair
value of the ownership interest less the amount required to return the Operating Partnership’s preferred interest.
The Company has determined that the Asia President's ownership interest in Taubman Asia qualifies as an equity
award, considering its specific redemption provisions, and accounts for it as a contingently redeemable
noncontrolling interest, with a redemption value of zero at December 31, 2010. Adjustments to the redemption
value will be recorded through equity.
F-23
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
In July 2010, the Company formed a joint venture that will focus on developing and owning outlet shopping
centers. The Company owns a 90% controlling interest and consolidates the venture, while the joint venture
partner owns a 10% interest. The amount of capital that the joint venture partner is required to contribute is
capped. The Company will have a preferred investment to the extent it contributes capital in excess of the amount
commensurate with its ownership interest. At any time after June 2012, the Company will have the right to
purchase the joint venture partner's entire interest and the joint venture partner will have the right to require the
Company to purchase the joint venture partner's entire interest. Additionally, the parties each have a one-time put
and/or call on the joint venture partner’s interest in any stabilized centers, while still maintaining the ongoing joint
venture relationship. The purchase price of the joint venture partner's interest will be based on fair value.
Considering the redemption provisions, the Company accounts for the joint venture partner’s interest as a
contingently redeemable noncontrolling interest with a redemption value of zero at December 31, 2010.
Adjustments to the redemption value will be recorded through equity.
Reconciliation of redeemable noncontrolling interests:
Balance January 1, 2010
Contributions
Allocation of net loss
Balance December 31, 2010
2010
-
79
(79)
-
$
$
Equity Balances and Income (Loss) Allocable to Noncontrolling Interests
The net equity balance of the noncontrolling interests as of December 31, 2010 and December 31, 2009
includes the following:
Non-redeemable noncontrolling interests:
Noncontrolling interests in consolidated joint ventures
Noncontrolling interests in partnership equity of TRG
Preferred equity of TRG
2010
2009
$ (100,355)
(93,012)
29,217
$ (164,150)
$ (100,014)
(75,393)
29,217
$ (146,190)
Income attributable to the noncontrolling interests for the year ended December 31, 2010, 2009, and 2008
includes the following:
2010
2009
2008
Net income (loss) attributable to noncontrolling interests:
Non-redeemable noncontrolling interests:
Noncontrolling share of income of consolidated joint
ventures
$ 9,859
$ 3,115
$ 7,441
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
Redeemable noncontrolling interests
2,460
26,219
2,460
(31,224)
8,594
2,460
(11,338)
38,538
(79)
$ 38,459
(25,649)
55,370
62,527
$ (25,649)
$ 62,527
F-24
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
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:
Year Ended December 31,
2009
2010
2008
Net income (loss) attributable to Taubman Centers, Inc.
common shareowners
Transfers (to) from the noncontrolling interest –
Increase (Decrease) 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
interests
$ 47,599 $ (69,706) $ (86,659)
(989)
(989)
(484)
(484)
$ 46,610 $ (70,190) $ (86,659)
In 2008, 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.
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.
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, 2010, 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 $175.1 million at
December 31, 2010, compared to a book value of $(99.1) million, which was classified as Noncontrolling Interests
in the Company’s Consolidated Balance Sheet.
Note 9 – Derivative and Hedging Activities
Risk Management Objective and Strategies for Using Derivatives
The Company uses derivative instruments, such as interest rate swaps and interest rate caps, primarily to
manage exposure to interest rate risks inherent in variable rate debt 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.
F-25
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
As of December 31, 2010, the Company had the following outstanding interest rate derivatives that were
designated and are expected to be effective as cash flow hedges of the interest payments on the associated debt.
Instrument Type
Consolidated Subsidiaries:
Ownership
Notional
Amount Swap Rate
Credit
Spread on
Loan
Total
Swapped
Rate on
Loan
Maturity Date
Receive variable (LIBOR) /pay-fixed swap
Receive variable (LIBOR) /pay-fixed swap (1)
50.1%
95.0
$325,000
131,000
3.86%
2.64
1.15%
2.35
5.01% January 2011
4.99
September 2020
Unconsolidated Joint Ventures:
Receive variable (LIBOR) /pay-fixed swap
Receive variable (LIBOR) /pay-fixed swap
50.0
50.0
250,000
30,000
2.82
5.05
1.40
0.90
4.22
5.95
April 2011
November 2012
(1) The notional amount of the swap is equal to the outstanding principal balance on the loan, which begins amortizing in September 2012.
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 an adjustment 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 $6.0 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.
As of December 31, 2010, the Company had $2.6 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 following tables present the effect of derivative instruments on the Company’s Consolidated Statement of
Operations and Comprehensive Income for the years ended December 31, 2010, 2009, and 2008. 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.
F-26
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
During the years ended December 31, 2010, 2009, and 2008 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)
2009
2010
2008
Location of Gain or
(Loss) Reclassified from
AOCI into Income
(Effective Portion)
Amount of Gain or (Loss)
Reclassified from AOCI into Income
(Effective Portion)
2009
2008
2010
Derivatives in cash flow hedging
relationships:
Interest rate contracts –
consolidated subsidiaries
Interest rate contracts – UJVs
$ 15,351 $ 6,402
1,516
2,494
$ (16,138)
Interest Expense
(5,309) Equity in Income of UJVs
$ (12,876) $ (11,474) $ (3,267)
(383)
(3,945)
(3,761)
Total derivatives in cash flow
hedging relationships
Realized losses on settled cash
flow hedges:
Interest rate contracts –
consolidated subsidiaries
Interest rate contract – UJVs
Total realized losses on settled
cash flow hedges
$ 17,845 $ 7,918
$ (21,447)
$ (16,821) $ (15,235) $ (3,650)
Interest Expense
Equity in Income of UJVs
$
(886) $
(376)
(886) $
(376)
(885)
(375)
$ (1,262) $ (1,262) $ (1,260)
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, 2010 and 2009.
Consolidated Balance Sheet Location
Fair Value
December 31
2010
December 31
2009
Derivatives designated as hedging instruments:
Asset derivatives-
Interest rate contract – consolidated subsidiaries Deferred Charges and Other Assets
$
4,856
Liability derivatives:
Interest rate contract – consolidated subsidiaries Accounts Payable and Accrued Liabilities
Interest rate contracts – UJVs
Investment in UJVs
Total liabilities designated as hedging instruments
$
$
(291)
(1,964)
(2,255)
$ (10,786)
(4,458)
$ (15,244)
F-27
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Contingent Features
As of December 31, 2010 and 2009, all four 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 four outstanding derivatives contains a provision that if
the Company defaults on an obligation in excess of $1 million on its $40 million line of credit, 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. The Regency Square loan was not in default as of December 31,
2010, and a default on this loan would not trigger a credit-risk related default on the Company’s current
outstanding derivatives.
As of December 31, 2010 and 2009, the fair value of derivative instruments with credit-risk-related contingent
features that are in a liability position was $2.3 million and $15.2 million, respectively. As of December 31, 2010
and 2009, 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 16 for fair value information on derivatives.
Note 10 – 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, 2010 for operating centers assuming no new or
renegotiated leases or option extensions on anchor agreements, is summarized as follows:
2011
2012
2013
2014
2015
Thereafter
$ 310,819
283,564
259,245
232,750
202,294
653,240
The table above excludes $9.5 million in 2011 and $55.8 million thereafter for The Pier Shops and Regency
Square.
Certain shopping centers, as lessees, have ground and building 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 and another
center has an option to extend the term for three 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 $10.2 million in 2010, $9.9 million in 2009, and $10.8 million in 2008. Included
in these amounts are related party office rental expense of $2.3 million in 2010 through 2008. Payables
representing straightline rent adjustments under lease agreements were $37.8 million and $36.7 million as of
December 31, 2010 and 2009, respectively.
The following is a schedule of future minimum rental payments required under operating leases, excluding the
ground lease at The Pier Shops:
2011
2012
2013
2014
2015
Thereafter
$
8,685
9,639
9,564
8,734
6,335
358,468
F-28
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
The table above includes $2.6 million in each year from 2011 through 2014 and $0.7 in 2015 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. The ground lease obligation will be transferred along with the title to The Pier Shops upon extinguishment
of the loan obligation (Note 3).
In 2010, the Company finalized agreements regarding City Creek Center, a mixed-use project in Salt Lake City,
Utah. The Company is currently providing development and leasing services and will be the manager for the retail
space, which the Company will own under a long-term participating lease. City Creek Reserve, Inc. (CCRI), an
affiliate of the LDS Church, is the participating lessor and is providing all of the construction financing. The
Company owns 100% of the leasehold interest in the retail buildings and property. In addition to the minimum rent
included in the table above, the Company will pay contingent rent based on the performance of the center. CCRI
has an option to purchase the Company’s interest at fair value at various points in time over the term of the lease.
Under the agreements, the Company will pay $75 million to CCRI upon opening of the retail center in March
2012. As required, the Company has issued to CCRI a $25 million letter of credit, which will remain in place until
the $75 million is paid.
Note 11 – 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 $2.1 million, $1.6 million, and
$2.2 million in 2010, 2009, and 2008, respectively. These amounts are classified in Management, Leasing, and
Development Services revenues within the Consolidated Statement of Operations and Comprehensive Income.
Other related party transactions are described in Notes 10, 12, and 14.
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.
Note 12 – 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 Company common shares or Operating Partnership units. In
addition, non-employee directors have the option to defer their compensation, other than their meeting fees,
under a deferred compensation plan.
In May 2010, the Company’s shareowners approved an amendment to the 2008 Omnibus Plan to increase the
Company common shares or Operating Partnership units available for awards by 2.4 million from an aggregate of
6.1 million to 8.5 million. This amendment also revised the methodology used to determine the amount of
Company common shares or Operating Partnership units available for future grants. Under the 2008 Omnibus
Plan (as amended) non-option awards granted after the May 2010 amendment are deducted at a ratio of 1.85
Company common shares or Operating Partnership units while non-option awards granted prior to the
amendment continue to be deducted at a ratio of 2.85. 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.
F-29
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
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
$7.7 million, $8.7 million, and $7.6 million for the years ended December 31, 2010, 2009, and 2008, respectively.
Compensation cost capitalized as part of properties and deferred leasing costs was $0.3 million, $0.3 million, and
$0.9 million for the years ended December 31, 2010, 2009, and 2008, respectively.
The Company currently recognizes no tax benefits from the recognition of compensation cost or tax deductions
incurred upon the exercise or vesting of share-based awards. 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 not resulted in the recognition of tax benefits due to the
Company’s current income tax position (Note 2).
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 14). 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 entire compensation cost
was recognized in 2009 due to 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 year ended December 31, 2008 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
F-30
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
A summary of option activity for the years ended December 31, 2010, 2009, and 2008 is presented below:
Number of
Options
Weighted Average
Exercise Price
Outstanding at January 1, 2008
Granted
Exercised
Outstanding at December 31, 2008
Granted
Exercised
Forfeited
Outstanding at December 31, 2009
Exercised
Outstanding at December 31, 2010
1,330,646
230,567
(210,736)
1,350,477
1,439,135
(1,140,003)
(20,000)
1,629,609
(176,828)
1,452,781
Fully vested options at December 31, 2010 1,154,265
$ 36.54
50.65
31.55
$ 39.73
14.13
13.98
31.31
$ 35.24
20.75
$ 37.00
$ 37.31
Weighted Average
Remaining
Contractual Term
(in years)
Range of Exercise
Prices
7.8
$29.38 - $55.90
7.2
$29.38 - $55.90
6.8
5.7
5.8
$13.83 - $55.90
$13.83 – $55.90
There were 0.4 million options that vested during the year ended December 31, 2010.
Of the 1.5 million total options outstanding excluding 0.2 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, 2010 was $20.8
million and $16.4 million, respectively.
The total intrinsic value of options exercised during the years ended December 31, 2010, 2009, and 2008 was
$4.0 million, $22.6 million, and $4.1 million, respectively. Cash received from option exercises for the years ended
December 31, 2010, 2009, and 2008 was $3.7 million, $15.9 million, and $6.6 million, respectively.
As of December 31, 2010 there were 0.3 million nonvested options outstanding, and $0.2 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 1.0 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. In January 2011, an amendment was made to extend the
issuance of the deferred units to begin in December 2017.
F-31
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Performance Share Units
In 2010 and 2009, the Company granted performance share units (PSU) under the 2008 Omnibus Plan (as
amended). Each PSU represents the right to receive, upon vesting, shares of the Company’s common stock
ranging from 0-300% of the PSU based on the Company’s market performance relative to that of a peer group.
The vesting date is March 2013 and March 2012 for the 2010 and 2009 grants, respectively, if continuous service
has been provided or upon retirement or certain other events if earlier. No dividends accumulate during the
vesting period.
The Company estimated the value of the PSU granted in 2010 and 2009 using a Monte Carlo simulation,
considering historical returns of the Company and the peer group of companies, a risk-free interest rate of 1.1%
and 1.3% in 2010 and 2009, respectively, and measurement periods of 2.78 and 3.00 years for the 2010 and
2009 grants, respectively. When used in the simulation, the value of the Company's stock was reduced by the
discounted present value of expected dividends during the vesting period. The resulting weighted average grant-
date fair values were $63.54 and $15.60 in 2010 and 2009, respectively.
A summary of PSU activity for the years ended December 31, 2010 and 2009 is presented below:
Outstanding at January 1, 2009
Granted
Outstanding at December 31, 2009
Granted
Outstanding at December 31, 2010
Number of
Performance Stock
Units
Weighted Average
Grant Date Fair
Value
-
196,943
196,943
75,413
272,356
$ 15.60
$ 15.60
$ 63.54
$ 28.88
None of the PSU outstanding at December 31, 2010 were vested. No PSU were granted in 2008. As of
December 31, 2010, there was $4.7 million of total unrecognized compensation cost related to nonvested PSU
outstanding. This cost is expected to be recognized over an average period of 1.9 years.
Restricted Share Units
In 2010 and 2009, restricted share units (RSU) were issued under the 2008 Omnibus Plan (as amended) and
represent the right to receive upon vesting one share of the Company’s common stock. The vesting date is March
2013 and March 2012 for the 2010 and 2009 grants, respectively, if continuous service has been provided
through 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 in 2010 and 2009 using the Company’s common stock
at the grant date deducting the present value of expected dividends during the vesting period using a risk-free
rate of 1.1% and 1.3%, respectively. The result of the Company’s valuation was a weighted average grant-date
fair value of $35.37 and $8.99 for 2010 and 2009, respectively.
In 2008, 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-32
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
A summary of RSU activity for the years ended December 31, 2010, 2009, and 2008 is presented below:
Outstanding at January 1, 2008
Granted
Forfeited
Redeemed
Outstanding at December 31, 2008
Granted
Forfeited
Redeemed
Outstanding at December 31, 2009
Granted
Forfeited
Redeemed
Outstanding at December 31, 2010
Number of Restricted
Stock Units
358,297
121,037
(8,256)
(136,200)
334,878
368,588
(17,532)
(118,824)
567,110
144,588
(2,057)
(91,757)
617,884
Weighted average
Grant Date Fair Value
$41.63
50.65
48.69
32.15
48.57
8.99
37.00
40.38
24.92
35.37
56.44
14.71
$22.72
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.
The total intrinsic value of RSU redeemed during the years ended December 31, 2010, 2009, and 2008 was
$3.6 million, $1.9 million, and $6.7 million, respectively.
All of the RSU outstanding at December 31, 2010 were nonvested. As of December 31, 2010, there was
$4.8 million of total unrecognized compensation cost related to nonvested RSU outstanding. This cost is expected
to be recognized over an average period of 1.8 years.
Non-Employee Directors’ Stock Grant and Deferred Compensation Plans
The Non-Employee Directors’ Stock Grant Plan (SGP), which was shareowner approved, provided for the
annual grant to each non-employee director of the Company shares of the Company’s common stock based on
the fair value of the Company's common stock on the last business day of the preceding quarter. Quarterly grants
beginning in July 2008 were made under the 2008 Omnibus Plan. The annual fair market value of the grant was
$50,000 in 2010, 2009, and 2008. As of December 31, 2010, 2,875 shares have been issued under the SGP and
3,813 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 56,051 restricted stock units
outstanding under the DCP at December 31, 2010.
Other Employee Plans
As of December 31, 2010 and 2009, the Company had fully vested awards outstanding for 18,572 and
17,803 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 $0.3 million, $0.2 million,
and $(1.9) million relating to this plan for the years ended December 31, 2010, 2009, and 2008, respectively. The
majority of the awards under this plan were paid out in early 2009. No payments were made in 2010 or 2008.
F-33
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 $2.7 million in 2010, $2.6 million in 2009, and
$2.0 million in 2008.
Note 13 – 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, 2010, 2009, and 2008,
126,109 shares, 70,000 shares, and 95,000 shares of Series B Preferred Stock, respectively, were converted to
7 shares, 3 shares, and 4 shares of the Company’s common stock, respectively, as a result of tenders of units
under the Continuing Offer (Note 14).
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. Distributions are cumulative and are payable in arrears on or before the last day of
each calendar quarter. All accrued distributions have been paid. 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. As of July 2010, the Series H
Preferred Stock can be redeemed by the Company at $25 per share, plus accrued dividends. 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-34
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 14 – 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 partnership units 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 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, 2010 of $50.48 per common share, the aggregate value of interests
in the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately
$1.2 billion. The purchase of these interests at December 31, 2010 would have resulted in the Company owning
an additional 30% 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), permitted 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 (as amended) 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.
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 within the six year
statutory assessment limitation period, 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.
F-35
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Litigation
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 leasehold interest in The Pier Shops), the Operating Partnership, Taubman Centers,
Inc., the Manager, 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 this lawsuit would have a material adverse effect on the Company's financial
condition, there can be no assurance that an adverse outcome would not have a material effect on the Company's
results of operations for any particular period.
In April 2010, the holder of the loan on The Pier Shops filed a mortgage foreclosure complaint in the United
States District Court for the District of New Jersey (Case No. CV01755) against APA. The plaintiff seeks to
establish the amounts due under The Pier Shops’ mortgage loan agreement, foreclose all right, title, and lien
which APA has in The Pier Shops’ leasehold interest, obtain possession of the property, and order a foreclosure
sale of the property to satisfy the amounts due under the loan. The foreclosure process is not in the Company’s
control and the timing of transfer of title is uncertain. Upon completion of the foreclosure sale, the ownership of
The Pier Shops will be transferred in satisfaction of the obligations under the debt.
See Note 7 for the Operating Partnership's guarantees of certain notes payable and other obligations, Note 9
for contingent features relating to derivative instruments, and Note 12 for obligations under existing share-based
compensation plans.
Note 15 – 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 14), outstanding options for
units of partnership interest, RSU, PSU, and deferred shares under the Non-Employee Directors’ Deferred
Compensation Plan (Note 12), 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. Contingently issuable shares are included in diluted EPS based on the number
of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period.
As of December 31, 2010, there were 8.5 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 14). 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
out-of-the-money options for 0.5 million shares for the year ended December 31, 2010 that were excluded from
the computation of diluted EPS because they were anti-dilutive. 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 12) 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-36
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Year Ended December 31
2009
2010
2008
Net income (loss) attributable to Taubman Centers,
Inc. common shareowners (Numerator):
Basic
Impact of additional ownership of TRG
Diluted
Shares (Denominator) – basic
Effect of dilutive securities
Shares (Denominator) – diluted
$
$
47,599 $
337
47,936 $
(69,706) $
(86,659)
(69,706) $
(86,659)
54,569,618 53,239,279 52,866,050
1,133,195
55,702,813 53,239,279 52,866,050
Earnings (loss) per common share – basic
Earnings (loss) per common share – diluted
$
$
0.87 $
0.86 $
(1.31) $
(1.31) $
(1.64)
(1.64)
Note 16 – Fair Value Disclosures
This note contains required fair value disclosures for assets and liabilities remeasured at fair value on a
recurring basis 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:
Description
Available-for-sale securities
Derivative interest rate contract
Insurance deposit
Total assets
Derivative interest rate contract
(Note 9)
Total liabilities
Fair Value Measurements as of
December 31, 2010 Using
Fair Value Measurements as of
December 31, 2009 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
$ 2,061
10,135
$ 12,196
Significant Other
Observable Inputs
(Level 2)
$
4,856
$
4,856
$
$
(291)
(291)
F-37
Significant Other
Observable
Inputs
(Level 2)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
$ 1,665
9,689
$ 11,354
$ (10,786)
$ (10,786)
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. The corresponding deferred revenue relating to amounts billed to tenants for this
arrangement is classified within Accounts Payable and Other Liabilities.
The available-for-sale securities shown above consist of shares in a Vanguard REIT fund that were purchased
to facilitate a tax efficient structure for the 2005 disposition of Woodland mall. In 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 3).
For these 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)
The owner of 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, 2010 and 2009, the
book value of the infrastructure assets and improvements, net of depreciation, was $43.7 million and
$45.8 million, respectively. The related obligation is classified within Accounts Payable and Accrued Liabilities and
had a balance of $62.6 million and $63.3 million at December 31, 2010 and 2009, respectively. The fair value of
this obligation, derived from quoted market prices, was $56.8 million at December 31, 2010 and $59.8 million at
December 31, 2009.
F-38
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 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,
2010 and 2009, the Company employed the credit spreads at which the debt was originally issued. Excluding
2010 refinancings, an additional 1.5% credit spread was added to the discount rate at December 31, 2010 and
2.0% credit spread at December 31, 2009, 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, 2010 or 2009. 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, 2010 and 2009, have been
estimated at the fair value of the centers, which are collateral for the loans (Note 3).
The estimated fair values of notes payable at December 31, 2010 and 2009 are as follows:
Notes payable
2010
2009
Carrying Value
$ 2,656,560
Fair Value
$2,616,986
Carrying Value
$ 2,691,019
Fair Value
$2,523,759
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, 2010 by $77.0 million or 2.9%.
See Note 4 regarding the fair value of the Unconsolidated Joint Ventures’ notes payable, and Note 9 regarding
additional information on derivatives.
Note 17 – Cash Flow Disclosures and Non-Cash Investing Activities
Interest paid in 2010, 2009, and 2008, net of amounts capitalized of $0.3 million, $1.3 million, and $8.0 million,
respectively, approximated $134.6 million, $141.8 million, and $144.3 million, respectively. The following non-
cash investing activities occurred during 2010, 2009, and 2008:
Non-cash additions to properties
2010
$28,678
2009
2008
$ 14,138 $ 14,820
Non-cash additions to properties primarily represent accrued construction and tenant allowance costs.
F-39
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 18 – Quarterly Financial Data (Unaudited)
The following is a summary of quarterly results of operations for 2010 and 2009:
2010
Revenues
Equity in income of Unconsolidated Joint Ventures
Net income
Net income attributable to TCO common shareowners
Earnings per common share – basic
Earnings per common share – diluted
Revenues
Equity in income (loss) of Unconsolidated Joint Ventures
Net income (loss)
Net income (loss) attributable to TCO common
First
Quarter
Third
Quarter
Second
Quarter
Fourth
Quarter
$151,489 $154,082 $ 155,263 $ 193,724
16,199
58,572
33,141
0.61
0.60
9,973
8,458
722
0.01 $
0.01 $
9,505
18,484
7,453
9,735
16,813
6,283
0.14 $
0.14 $
0.12 $
0.11 $
$
$
2009 (1)
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
shareowners
Earnings (loss) per common share – basic and diluted
11,499
8,908
(94,073)
$
0.22 $
0.17 $ (1.77) $
3,960
0.07
(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 3) and litigation charges in the fourth quarter of 2009 related to
Westfarms (Note 14).
Note 19 – New Accounting Pronouncements
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 does not expect the application of the EITF’s consensus will be
material to its results of operations and financial position.
F-40
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SIGNATURES
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.
TAUBMAN CENTERS, INC.
Date: February 25, 2011
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 25, 2011
Vice Chairman, Chief Financial
Officer, and Director (Principal Financial Officer)
February 25, 2011
Chief Operating Officer,
and Director
February 25, 2011
Senior Vice President, Controller, and
Chief Accounting Officer
February 25, 2011
Director
Director
Director
Director
Director
Director
February 25, 2011
February 25, 2011
February 25, 2011
February 25, 2011
February 25, 2011
February 25, 2011
TAUBMAN CENTERS, INC.
Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Dividends
(in thousands, except ratios)
Exhibit 12
2010
Year Ended December 31
2008
2009
2007
2006
Earnings before income from equity investees (1)
$
57,649
$
(88,992)
$
(42,291)
$
75,738
$
61,596
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
160,741
4,526
154,952
4,558
163,667
4,575
154,332
4,391
146,103
4,329
45,412
11,488
35,356
40,498
33,544
(319)
(2,460)
(1,257)
(2,460)
(7,972)
(2,460)
(14,613)
(2,460)
(9,803)
(2,460)
$
265,549
$
78,289
$
150,875
$
257,886
$
233,309
Fixed Charges
Interest expense (3)
Capitalized interest
Interest portion of rent expense
Preferred distributions
$
152,708
319
5,254
2,460
$
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
Total Fixed Charges
$
160,741
$
154,952
$
163,667
$
154,332
$
146,103
Preferred dividends (4)
14,634
14,634
14,634
14,634
23,723
Total fixed charges and preferred dividends
$
175,375
$
169,586
$
178,301
$
168,966
$
169,826
Ratio of earnings to fixed charges and
preferred dividends
1.5
0.5
(5)
0.8
(5)
1.5
1.4
(1)
(2)
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.
(3)
Interest expense for the year ended December 31, 2006 includes charges of $3.1 million in connection with the write-off of financing costs.
(4)
Preferred dividends for the year ended December 31, 2006 includes $4.7 million 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) above.
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 quarterly 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 25, 2011
/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 quarterly 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 25, 2011
/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, 2010 (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 25, 2011
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, 2010 (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 25, 2011
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r e Con CIl Iat Ion S F or g r ap h – page 9
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 SHARE (1)
(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
2001
(8.9)
8.4
96.5
31.7
127.6
78.5
2002
2003
2004
2005
(2.2)
(12.3)
124.3
32.8
142.6
88.2
21.2
(49.6)
137.4
35.5
144.5
87.3
(5.1)
(0.3)
139.8
35.7
170.1
103.1
44.1
(52.8)
150.3
36.0
177.7
110.6
$ 1.53
$ 1.69
$ 1.70
$ 2.07
$ 2.17
127.6
2.0
142.6
144.5
5.1
24.8
129.6
79.7
147.7
91.4
169.4
102.4
170.1
5.7
(1.0)
2.7
177.5
107.5
177.7
12.7
3.1
193.5
120.5
Adjusted Funds from Operations per share
$ 1.56
$ 1.75
$ 2.00
$ 2.16
$ 2.36
YEAR ENDED
Net income (loss) attributable to TCO common shareowners
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
2006
21.4
147.3
41.8
210.4
136.7
2007
48.5
141.0
45.6
235.1
155.4
2008
2009
(86.7)
154.8
54.1
122.2
81.3
(69.7)
154.4
(29.7)
55.0
36.8
2010
47.6
161.8
27.9
237.3
160.1
$ 2.56
$ 2.88
$ 1.51
$ 0.68
$ 2.86
235.1
122.2
55.0
237.3
210.4
3.1
4.7
126.3
218.2
141.7
235.1
155.4
248.5
165.5
160.8
30.4
2.5
248.7
166.3
237.3
160.1
Adjusted Funds from Operations per share
$ 2.65
$ 2.88
$ 3.08
$ 3.06
$ 2.86
(1) Refer to Form 10-K page 36 for a definition of FFO and the Company’s uses of this measure.
oF F ICe r S
an D D Ir e Ctor S
TA UB M A N C E NT E RS, I NC .
B OA RD OF DI RE C T ORS
G R A H A M T. A L L I S O N (3,4)
Professor
Harvard University
J E R O M E A . C H A Z E N (1,2)
Chairman
Chazen Capital Partners
Chairman Emeritus
Liz Claiborne, Inc.
C R A I G M . H AT K O F F (2,3)
Co-founder
Tribeca Film Festival
P E T E R K A R M A N O S , J R. (2)
Chairman and Chief Executive Officer
Compuware Corporation
W I L L I A M U . PA R F E T (1,3)
Chairman and Chief Executive Officer
MPI Research
L I S A A . PAY N E
Vice Chairman
Chief Financial Officer
Taubman Centers, Inc.
R O B E R T S . TA U B M A N (4)
Chairman of the Board
President and Chief Executive Officer
Taubman Centers, Inc.
W I L L I A M S . TA U B M A N
Chief Operating Officer
Taubman Centers, Inc.
R O N A L D W. T Y S O E (1, 4)
Former Vice Chairman
Finance and Real Estate
Federated Department Stores
(Now Macy’s, Inc.)
T HE TA UB M A N C OM PA NY LLC
SE NI OR OF F I C E RS A ND
OPE RAT I NG C OM M I T T E E
R O B E R T S . TA U B M A N
Chairman of the Board
President and Chief Executive Officer
TA UB M A N A SI A
R E N É T R E M B L AY (8)
President
Taubman Asia Management Limited
F OUNDE R
A . A L F R E D TA U B M A N
(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.
(8) Also serves as a member of the Operating
Committee
L I S A A . PAY N E
Vice Chairman
Chief Financial Officer
W I L L I A M S . TA U B M A N
Chief Operating Officer
D E N I S E A N T O N
Senior Vice President
Center Operations
E S T H E R R . B L U M (5)
Senior Vice President
Controller and Chief
Accounting Officer
S T E V E N E . E D E R (6)
Senior Vice President
Capital Markets and Treasurer
C H R I S B . H E A P H Y (7)
Senior Vice President
General Counsel and Secretary
S T E P H E N J . K I E R A S
Senior Vice President
Development
R O B E R T R . R E E S E
Senior Vice President
Chief Administrative Officer
D AV I D T. W E I N E R T
Senior Vice President
Leasing
S h ar e own e r
In F or M at Ion
I NDE PE NDE NT RE GI ST E RE D
PUB LI C A C C OUNT I NG F I RM
KPMG LLP, Chicago, Illinois
SHA RE OW NE R I NQUI RI E S
Barbara K. Baker
Vice President, Investor Relations
Taubman
200 East Long Lake Road, Suite 300
Bloomfield Hills, Michigan 48304-2324
248.258.7367
bbaker@taubman.com
OUR W E B SI T E :
WWW. TA UB M A N. C OM
Investor information on our website
includes press releases, supplemental
investor information, corporate gover-
nance information, our Code of Business
Conduct and Ethics, SEC filings, and
webcasts of quarterly earnings confer-
ence calls.
C ONF I DE NT I A L HOT LI NE :
1 . 8 0 0 . 50 0 . 0 3 3 3
Independent, confidential hotline to be
used to report concerns regarding pos-
sible accounting, internal accounting
control or auditing matters, or fraudu-
lent acts which may compromise our
ethical standards. Other means of
reporting concerns are identified in the
Investing/Corporate Governance section
of our website.
C ORPORAT E HE A DQUA RT E RS
Taubman Centers, Inc.
200 East Long Lake Road, Suite 300
Bloomfield Hills, MI 48304-2324
248.258.6800
TA UB M A N A SI A
Taubman Asia Management Limited
Suites 1107-11, 11F, Two Pacific Place
88 Queensway
Admiralty, Hong Kong
852.3607.1333
USE OF TA UB M A N
For ease of use, references in this report
to “Taubman Centers,” “Taubman,” or
“Company” 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.
QUA RT E RLY SHA RE PRI C E
A ND DI V I DE ND I NF ORM AT I ON
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 share prices for each quar-
ter of 2010:
MA R KET QUOTAT IONS
2010 QUARTER ENDED
HIGH
LOW DIVIDENDS
March 31
June 30
44.94
September 30 46.27
50.76
December 31
$ 41.93 $ 31.66 $ 0.415
0.415
37.63
0.415
35.98
0.438(1)
44.41
(1) Amount excludes a special dividend of $0.1834
per share, which was declared as a result of the
taxation of capital gain incurred from a restructuring
of the Company’s ownership in International Plaza,
including liquidation of the Operating Partnership’s
private REIT.
DI V I DE ND RE I NV E ST M E NT
A ND DI RE C T ST OC K PURC HA SE PLA N
The Dividend Reinvestment and Direct
Stock Purchase Plan – sponsored and
administrated by The Bank of New York
Mellon – provides owners of common
stock a convenient way to reinvest divi-
dends and purchase additional shares. In
addition, investors who do not currently
own any Taubman Centers’ stock can
make an initial investment through this
program. A plan description can be
viewed online on BNY Mellon Share-
owner Services website:
www.bnymellon.com/shareowner/isd
(Once on the website click “Continue”
and then select “Investment Plan
Enrollment.”) For questions about this
plan or your account, call:
1.888.877.2889
For a brochure and enrollment form,
call: 1.866.353.7849
PUB LI C AT I ONS
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
2011 Annual Meeting of Shareholders
and Proxy Statement is furnished in
advance of the annual meeting to all
shareowners entitled to vote at the
annual meeting.
A NNUA L M E E T I NG
The 2011 Taubman Centers, Inc. Annual
Meeting will be held on Thursday, June 2
at The Townsend Hotel in Birmingham,
Michigan. The meeting will begin at
11:00 a.m. Eastern Time.
T RA NSF E R A GE NT A ND RE GI ST RA R
BNY Mellon Shareowner Services
P.O. Box 358016
Pittsburgh PA 15252-8016
1.888.877.2889
www.bnymellon.com/shareowner/isd
Design: SMBOLIC Editorial: CHRISTOPHER TENNYSON Printing: COLORTECH GRAPHICS
tCo
Taubman Centers, Inc.
200 East Long Lake Road, Suite 300
Bloomfield Hills, Michigan 48304-2324
www.taubman.com