Taubman Centers Inc.
Annual Report 2011

Plain-text annual report

PLD WRE KIM ESS SKT KRC WRI CBL BRE CPT UDR HME SPG ST SUI LRY CLI PPS HIW REG EQR AEC Taubman 2011 Annual Repor t TCO Visible Progress Current Value Net Income (CNVNI) 10- year CAGR Letter to Shareowners Letter to Shareowners page 1 Progress. Sometimes it’s easy to see. In our business, you can’t miss the tan- gible signs of progress in a ground- breaking ceremony, a ribbon cutting, the announcement of an acquisition, or a commitment from a great new anchor tenant for one of our centers. TA 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 intensive management of our existing properties, acquisitions, and the highly selective development of new shopping destinations. TCO V i si ble Pr o gress But because developing, merchandis- ing and operating regional shopping malls is a complex, long-term enter- prise, important progress is often less visible on the surface. Evidence that you’re heading in the right direction is more subtle, like the careful manage- ment of costs, the restructuring of debt, or a productive meeting with a city’s planning commission. Ultimately, it is the cumulative impact of the decisions we make and the actions we take every day, year after year, that determines the success of our business. And I am proud to report that as we look back on our performance in 2011 and ahead to the exciting prospects for 2012 and beyond, we see compelling signs of visible progress. Creating Shareholder Value In a 10-year analysis, Taubman Centers ranks second among all 38 publicly traded REITs followed by Green Street Advisors during this time frame and first among the five companies within the mall sector using a measure called CVNI, which is the combination of Net Asset Value growth and Dividends Per Share as calculated by Green Street Advisors.(1) The metric is an important component of measuring the success of a company’s ability to create value to shareholders as assets are added to the company’s portfolio and core properties are managed. Plotted along the horizontal axis is the trailing 10-year compounded annual growth in CVNI of all 38 publicly traded equity REITS that have been covered by Green Street Advisors for the past ten years. Along the vertical axis is the compounded annual growth in total assets per the balance sheet, excluding depreciation, of the same 38 REITs over the trailing 10-year period. As you can see, shareholder value is not created by simply adding assets; rather value is created by adding shareholder value every step of the way.(2) Source: Green Street Advisors, CapIQ, SNL Financial, Morgan Stanley, and company filings. The source data is proprietary to these parties and the company has not been given access to most of the underlying data. We believe these sources are reliable, but we have not independently verified the accuracy or completeness of this data nor ascertained the underlying economic assumptions relied upon therein. Notes: (1) Mall REITs GRT and PEI are excluded from this analysis as they were not covered by Green Street Advisors over the entire 10-year period. (2) TCO does not include two recent acquisitions in CA & TN from Davis Street Properties. See Notes and Reconciliations page at the end of this report for a discussion of CVNI and related components that are non-GAAP measures. Letter to Shareowners Letter to Shareowners page 1 Undepreciated Assets 10-year CAGR (%) 25 20 15 10 5 0 FCR GGP PLD DDR WRE VNO MAC ELS ESS KIM SKT KRC WRI CBL BRE CPT UDR HME AVB MAA PSABXP FRT SPG CLP HST SUI DRE CUZ LRY CLI REG EQR AEC AIV PPS HIW Progress. Sometimes it’s easy to see. In our business, you can’t miss the tan- gible signs of progress in a ground- breaking ceremony, a ribbon cutting, the announcement of an acquisition, or a commitment from a great new anchor tenant for one of our centers. you’re heading in the right direction is more subtle, like the careful manage- ment of costs, the restructuring of debt, or a productive meeting with a city’s planning commission. Ultimately, it is the cumulative impact of the decisions we make and the actions we take every day, year after year, that determines the success of our business. And I am proud to report that as we look back on our performance in 2011 and ahead to the exciting prospects for 2012 and beyond, we see compelling signs of visible progress. TCO Vi sible Progr ess But because developing, merchandis- ing and operating regional shopping malls is a complex, long-term enter- prise, important progress is often less visible on the surface. Evidence that Current Value Net Income (CVNI) 10-year CAGR (%) -10 -5 0 5 10 15 20 Taubman Centers, Inc. page 2 Photos taken at the grand opening of City Creek Center on March 22, 2012. Letter to Shareowners page 3 02 03 04 05 06 07 08 09 10 11 555 529 533 508 641 564 502 333÷641=*.5195 457 441 466 Tenant Sales Per Square Foot ($)(1) Tenant sales per square foot is the most important measure of the quality of regional mall assets. Sales per square foot were up 13.7 percent for the year ended December 31, 2011 at Taubman properties. The resulting sales per square foot of $641 is another record for the company and for the publicly held U.S. regional mall industry, and exceeded our record-setting 2010 sales per square foot of $564. Over the 10-year period ended December 31, 2011 – which includes the Great Recession – the company’s compounded annual growth of tenant sales per square foot has been 3.8%. This compares to the core Consumer Price Index of 1.9% compounded over the same period. (1) See Notes and Reconciliations page at the end of this report for properties included and excluded. Beyond sales, all our key fundamentals are showing visible progress. Leased space for Taubman Centers’ portfolio was 92.4 per- cent at December 31, 2011, up from 92.0 percent on December 31, 2010. Ending occupancy was 90.7 percent on December 31, 2011, up from 90.1 percent at the end of 2010. Including temporary tenants, ending occupancy was 95.5% on December 31, 2011, the highest combined occupancy number we’ve ever had. Average rent per square foot for the year was $45.22, up 3.6 percent from $43.66 in 2010. Opening rents per square foot for the year were $56.20, up 13.1 percent from opening rents per square foot of $49.69 in 2010.That positive spread is another key indicator of progress, reflecting the continuing attractiveness of our centers to the retailers who thrive in them. P R O G R E S S O N P E R F O R M A N C E Driven by record tenant sales, increased rents, and a continued focus on expense controls at our centers, Taubman Centers’ financial performance in 2011 was out- standing. In measuring our progress, we always begin with the critical performance metric of mall tenant sales per square foot. Historically, this has provided the clearest picture of a retail real estate portfolio’s strength and value. For the year ended December 31, 2011, mall tenant sales in our centers climbed a robust 13.7 percent to $641. That’s another record for Taubman Centers and for the publicly held U.S. regional mall industry. The fourth quarter of 2011 also marked the eighth straight quarter of double-digit tenant sales increases. That’s truly unprecedented. Our accelerating sales are driving increases in rents and, in turn, growth in our Net Operating Income (NOI), which was up 4.9 percent for the year, excluding lease cancellation income. That’s a significant improvement over 2010’s increase of 0.5 percent. The income stream from our port- folio, which is dominated by A-quality regional malls, has proven to be very pre- dictable in good times and bad. With our sales growth and the recovering economic environment in the United States, it’s likely we will see NOI continue to grow. Taubman Centers, Inc. page 4 Letter to Shareowners page 5 Another important measure of our progress is Current Value Net Income (CVNI), the combination of Net Asset Value (NAV) growth and Dividends Per Share. This met- ric, created by Green Street Advisors, tracks how successful we’ve been at creating value for our shareholders, as we add assets to our portfolio and intensively manage our core properties. The graphic in the inside cover of this report, depicting the trailing 10-year compounded annual growth rate in CVNI for all publicly traded equity REITs in Green Street’s uni- verse over the period, effectively illustrates why we’re so proud of our performance. Clearly, there is visible progress when we rank number two among these 38 REITs and number one within the mall sector. Delivering value isn’t simply a matter of adding assets to the balance sheet; progress here is all about managing our business wise- ly at every step of the way. We started as a public company in 1992 with 19 assets. Since then we’ve built 13, acquired 10, divested 18, and now we own 24. Along the way – adding just a net five assets – the company has nearly quadrupled both its total enterprise value and its equity market capitalization, while improving its balance sheet. P R O G R E S S O N E X T E R N A L G R O W T H Adding to the momentum from these excellent performance fundamentals, we completed several strategic acquisitions in 2011. We’re confident they will enhance both the quality of our portfolio and its anticipated rate of growth. In December, we added The Mall at Green Hills in Nashville, Tennessee, and The Gar- dens on El Paseo and El Paseo Village in Palm Desert, California. Purchased from affiliates of Davis Street Properties, LLC of Evanston, Illinois, for $560 million, these high quality assets have tremendous growth potential, especially under our management. Here’s why we’re so bullish about these properties: They were among maybe 15 assets in the U.S. not owned by a public mall REIT likely to perform over $700 per square foot in 2012. They are very strategic acquisi- tions as they fit perfectly within our portfolio and are significantly under-leased at less than 10 percent total occupancy cost. They have also been perfectly positioned with unique-to-the-market tenants, including Nashville’s only Nordstrom store and the Coachella Valley’s only Saks Fifth Avenue. Further, we were able to acquire these assets as a negotiated transaction as the Davis Street principals were attracted to the high quality portfolio underlying the partner- ship units they now own. 02 03 04 05 06 07 08 09 10 11 90.3 89.8 90.7 91.7 92.5 93.8 92.0 91.6 92.0 92.4 333÷92.3=*3.607 Leased Space (%) The world’s greatest merchants want to do business in the most productive retail environments in the U.S., and our leased space percentage reflects the attractiveness of our shopping centers. Despite ups and downs in the economy, our leased space percentage has remained consistent. Leased space for our portfolio was a healthy 92.4 percent at December 31, 2011, up from 92.0 percent a year ago. Taubman Centers, Inc. page 6 Letter to Shareowners page 7 01 02 03 04 05 06 07 08 09 10 11 Taubman Centers, Inc. FTSE NAREIT Equity Retail Index MSCI US REIT Index S&P MidCap 400 Index S&P 500 Index 431.11 429.52 333÷648.22=*.5137 zero at 54p9 REAL data in March 09.12 156.59 116.86 100.00 285.96 237.57 231.72 510.77 348.02 648.22 20.5% 297.60 11.5% 263.21 10.2% 197.42 7.0% 133.34 2.9% Compound Annual Growth Rate Comparison of Cumulative Shareholder Return This 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, 2001 through December 31, 2011 (assuming in all cases, the reinvestment of dividends). During 2011, Taubman Centers shareowners enjoyed a 27 percent total shareholder return. Over the 10-year period ended December 31, 2011, the company’s compounded annual total shareholder return has been 20.5 percent. P R O G R E S S I N A S I A Also in December, Taubman Asia completed the $24 million acquisition of a 90-percent controlling interest in TCBL, a China-based retail real estate consultancy headquartered in Beijing. With this transaction we formed a new company, Taubman TCBL, which will serve as the platform for our future investments in mainland China. We’ve never been more convinced that China will continue its march toward being the world’s leading consumer market and is creating endless and diverse retail opportu- nities. Our investment in TCBL brings us critical first-hand knowledge, as they have provided services in over 55 cities across China. Their ability to quickly understand critical market factors like retail supply and demand, and the status of government- sponsored initiatives, is key to assessing the stream of investment opportunities we are seeing in China. And given the breadth of their business – over 200 TCBL employees in seven major offices – they greatly enhance our ability to execute our investments with confidence. René Tremblay, president of Taubman Asia, is serving as chairman of Taubman TCBL, with Thomas Tam, TCBL’s joint managing director, assuming the positions of president and CEO. In addition, Lawrence Wu, joint managing director of TCBL and one of its founders with Thomas, has also joined the Taubman TCBL board. Taubman Asia also provides leasing and management services for IFC Mall in Yeouido, Seoul, South Korea, opening in fall 2012. It is already nearly 100 percent leased with outstanding merchants from around the world. P R O G R E S S O N D E V E L O P M E N T During the year we made great progress toward the grand opening of City Creek Center in Salt Lake City, Utah, which debuted on schedule with 92 of its 100 stores opening on Grand Opening day, March 22, 2012. The centerpiece of a 23-acre mixed- use development downtown, City Creek Center is the only regional mall slated to open in the U.S. this year and the first of its size and type since 2006. This extraordinary project, one of the most complex we’ve ever developed, is at the core of Salt Lake City’s revitalization efforts, and we believe both the merchandising and design create a unique leisure environment and a regionally dominant customer experi- ence. City Creek Center’s central location – bordered by South Temple, 100 South, West Temple and State Street – is directly across the street from The Church of Jesus Christ of Latter-day Saints’ historic Temple Square. It is also just blocks from I-15 and I-80, and a 10-minute drive from Salt Lake City Inter- national Airport. Over 5 million tourists annually come to Salt Lake City. Taubman Centers, Inc. page 8 Letter to Shareowners page 9 Anchored by Macy’s and Nordstrom, over a third of the center’s retailers are unique to the state of Utah. The center features stores and restaurants such as Tiffany & Co., Rolex, Hugo Boss, BCBGMAXAZRIA, The Cheesecake Factory, Texas de Brazil, Michael Kors, Coach and Brooks Brothers. City Creek’s LEED Silver certified sustain- able design incorporates such unique ele- ments as a remarkable retractable roof that opens the mall to Salt Lake City’s more than 300 days of sunshine. There is also a 1,200 foot creek running through the mall and a pedestrian sky bridge, which, by connect- ing the center to the two blocks of retail surrounding it, effectively integrates this vibrant retail district into the fabric of downtown Salt Lake City. Development has been a core competency and a central component of our growth strategy since we were founded in 1950. Given the negative economic climate of the last few years, there has been little major retail development under way anywhere in the U.S. With City Creek Center open for business, this is the first of what we believe will be as many as 15 to 20 new regional centers developed domestically over this decade. We estimate that about half of these – seven to ten – will meet our quality criteria and that we will build at least four to five of them. In fact, emerging from our pipeline we expect to begin construction in 2012 in San Juan, Puerto Rico and Sarasota, Florida with two extremely high quality develop- ment opportunities. And building on our success at Great Lakes Crossing Outlets in Auburn Hills, Michigan, and Dolphin Mall in Miami, we believe that outlet centers are a natural extension of our capabilities. Our goal is to build a handful of high quality outlet centers over this decade. The first will be in Chesterfield, Missouri, a suburb of St. Louis. We have completed our zoning on a terrific site and as I write this letter we have just begun construction for a fall 2013 opening. That’s a clear demonstration of visible progress. P R O G R E S S O N O U R B A L A N C E S H E E T In 2011 we continued to strengthen our balance sheet, which is one of the strongest in our industry. Our ratio of debt to total market capitalization at year end of 36 per- cent reflects our conservative financing strategy, which has served us well in both good times and bad. Recognizing the improving economic envi- ronment and the outstanding performance of our business, we issued 2 million shares of common equity in June 2011. The $112 million net proceeds were used to reduce outstanding borrowings under the compa- ny’s revolving credit facilities, providing us with additional capacity to respond to external growth opportunities moving for- ward. This was the first time we raised equity since 1996, and only the second offering since our initial public offering in 1992. In fact, prior to this offering, we believe we may have been the only REIT to have actually bought back more common equity than we had issued since we became public. 02 03 04 05 06 07 08 09 10 11 3.08 3.06 2.88 2.86 2.84 Adjusted FFO per share ($) Dividends per share ($) 2.36 2.65 2.16 2.00 1.75 1.54 1.29 1.66 1.66 (1.683(1) (1.763(2) 1.025 1.05 1.095 1.16 333÷3.08=*108.117 Adjusted Funds From Operations / Dividends Per Share ($) Taubman Centers’ Adjusted Funds from Operations(3) grew at a 5.5 percent compound annual rate over the past decade despite a difficult economic environment. This steady performance is possible because our portfolio of high quality regional mall assets provides a very predictable income stream in good times and bad. With the approval of our Board, we increased our regular quarterly dividend in December 2011 by 2.9 percent and then on March 1, 2012, another 2.8 percent. Over the 10-year period ended December 31, 2011, our dividend has achieved a 6.2 percent compounded annual growth rate. (1) Excludes special dividend of $0.1834 per share paid in December 2010. (2) The annualized amount of the fourth quarter 2011 regular dividend is $1.80; the annualized amount of the first quarter 2012 regular dividend is $1.85. (3) Adjusted Funds from Operations excludes: gains on extinguishment of debt related to the disposition of Regency Square and The Pier Shops; costs related to the acquisitions of The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village, and Taubman TCBL; the redemption of the Series F Preferred Equity; Westfarms litigation settlements; restructuring and impairment charges, and costs related to an unsolicited tender offer. See Notes and Reconciliations page at the end of this report. Taubman Centers, Inc. page 10 In 2011, we had several successful property- level financings at favorable rates. In July, we completed a $275 million, seven-year, non-recourse financing on our 50-percent owned Fair Oaks mall (Fairfax, Virginia). The loan has been swapped to an all-in fixed rate of 4.27 percent. And in November, we completed a $325 million 10-year, non- recourse financing on International Plaza (Tampa, Florida). The center is 50.1 percent owned by Taubman. The loan bears interest at an all-in fixed rate of 4.89%. During the year, titles to The Pier Shops (Atlantic City, New Jersey) and Regency Square (Richmond, Virginia) were trans- ferred to the mortgage lenders, and subse- quently, management of the centers was fully transitioned. This relieved Taubman of debt obligations totaling $207 million plus accrued interest associated with the prop- erties. As a result, non-cash accounting gains totaling $174 million were recognized in the fourth quarter of 2011 on extinguishment of the debt obligations. These were small, underperforming assets that represented less than two percent of our NOI. Our solid balance sheet and outstanding performance throughout 2011 made it possible for the company in December 2011 to increase Taubman Centers’ regular quarterly dividend by 2.9 percent. We raised the dividend another 2.8 percent in March 2012. Since our public offering in 1992, Taubman Centers’ dividend has been increased 15 times, achieving a 4 percent compounded annual growth rate. 2 01 1 Taub ma n Center s Fo r m 1 0 -K We were also able to reward our share- owners in 2011 with a 27 percent total return on their investment. This compares very favorably to the MSCI US REIT Index’s return of 8.7 percent and the S&P 500 Index’s return of 2.1 percent. Over the 10 years ending December 31, 2011, the com- pany’s compounded annual shareholder return has been 20.5 percent. This compares to the MSCI US REIT Index of 10.2 percent and the S&P 500 Index of 2.9 percent. Progress in any endeavor takes people. Our success will continue to be driven by the extraordinary people who dedicate their creativity, expertise and enthusiasm to making Taubman Centers a truly out- standing organization. I want to thank all my colleagues for their critical contribu- tions to our progress and recognize the Taubman Centers Board of Directors for their leadership. And as always, special thanks to you, our shareowners, for your trust and support. PLD WRE KIM ESS SKT KRC WRI CBL BRE CPT UDR HME SPG LRY REG EQR AEC TCO R O B E R T S . TA U B M A N Chairman of the Board, President & Chief Executive Officer PPS HIW Taubman Centers, Inc. page 12 2 0 11 Por tfoli o ARIZONA MILLS Tempe, AZ arizonamills.com BEVERLY CENTER Los Angeles, CA beverlycenter.com SHOPS AT CHARLESTON PLACE Charleston, SC (Leasing services) CHERRY CREEK SHOPPING CENTER Denver, CO shopcherrycreek.com CITY CREEK CENTER Salt Lake City, UT shopcitycreekcenter.com CRYSTALS AT CITYCENTER Las Vegas, NV (Leasing services) crystalsatcitycenter.com DOLPHIN MALL Miami, FL shopdolphinmall.com FAIR OAKS Fairfax, VA shopfairoaksmall.com FAIRLANE TOWN CENTER Dearborn, MI shopfairlane.com THE GARDENS ON EL PASEO AND EL PASEO VILLAGE Palm Desert, CA thegardensonelpaseo.com GREAT LAKES CROSSING OUTLETS Auburn Hills, MI greatlakescrossingoutlets.com THE MALL AT GREEN HILLS Nashville, TN themallatgreenhills.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 PLAZA INTERNACIONAL San Juan, Puerto Rico THE MALL AT SHORT HILLS Short Hills, NJ shopshorthills.com STAMFORD TOWN CENTER Stamford, CT shopstamfordtowncenter.com STONY POINT FASHION PARK Richmond, VA shopstonypoint.com SUNVALLEY Concord, CA shopsunvalley.com TAUBMAN PRESTIGE OUTLETS CHESTERFIELD Chesterfield, MO taubmanprestigeoutletschesterfield.com TWELVE OAKS MALL Novi, MI shoptwelveoaks.com THE MALL AT UNIVERSITY TOWN CENTER Sarasota, FL 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 Projects expected to begin construction in 2012 TAUBMAN CENTERS, INC. CONTENTS Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures PART I PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers, and Corporate Governance Item 11. Executive Compensation 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 Item 15. Exhibits and Financial Statement Schedules PART IV 1 10 18 18 23 23 24 26 28 56 56 56 56 56 57 57 58 59 59 60 EXPLANATORY NOTE This Amendment No. 1 to Annual Report on Form 10-K (the “Amendment”) amends our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2012 (the “Original Form 10-K”). The purpose of this Amendment is solely to add the date to the certification set forth in Exhibit 31.1 and to revise the references to the annual report on Form 10-K in the certifications set forth in Exhibits 31 and 32. In accordance with applicable SEC rules, this Amendment includes all of the certifications in Exhibits 31 and 32, each dated as of the date of this Amendment. We have also updated the exhibit list in the Original Form 10-K to reflect agreements that were filed therewith. Except as noted above, this Amendment does not amend or modify any of the other information included in the Original Form 10-K and this Amendment does not update any information included in the Original Form 10-K to reflect any events, developments or results that occurred subsequent to February 24, 2012. 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, 2011 consisted of 23 owned urban and suburban shopping centers in eleven 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 20 and 21 of this report for information regarding the centers. Taubman Asia, which is the platform for our expansion into China and South Korea, 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 2011, see "Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)." In December 2011, we acquired The Mall at Green Hills in Nashville, Tennessee, and The Gardens on El Paseo and El Paseo Village in Palm Desert, California from affiliates of Davis Street Properties, LLC. These properties have been excluded from all operating statistics during the year, other than operating statistics as of December 31, 2011. The consideration for the properties was $560 million, excluding transaction costs (see “MD&A – Results of Operations In December 2011, Taubman Asia acquired a 90% controlling interest in a Beijing-based retail real estate – Acquisitions”). consultancy. The new company is named Taubman TCBL. The total consideration for the transaction was $23.7 million (see “MD&A – Results of Operations – Taubman Asia”). In the fourth quarter of 2011, the titles to Regency Square and The Pier Shops at Caesars (The Pier Shops) properties were transferred to the mortgage lenders and the mortgage obligations were extinguished (see “MD&A – Results of Operations – Dispositions/Discontinued Operations”). The Pier Shops and Regency Square have been excluded from 2009 through 2011 operating statistics. Additionally, The Pier Shops was excluded from 2008 operating statistics. 1 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. We own interests in 23 centers as of December 31, 2011. 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, Nashville, New York City, Orlando, Phoenix, San Francisco, Tampa, and Washington, D.C.; range in size between 238,000 and 1.6 million square feet of GLA and between 188,000 and 641,000 square feet of Mall GLA. The smallest center has approximately 60 stores, and the largest has over 200 stores. Of the 23 centers, 18 are super-regional shopping centers; have approximately 2,900 stores operated by their mall tenants under approximately 800 trade names; have 65 anchors, operating under 14 trade names; lease over 95% 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 2011, our mall tenants reported average sales per square foot of $641, 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 23 owned centers, 21 had annual rent rolls at December 31, 2011 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. 2 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, which is available on desktop and mobile devices. We also offer our shoppers a robust 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 65% of our tenants in 2011 (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. 3 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 limit our sources of funds for these financing activities. We have seen positive signs of stabilization in the economy; however, the capital sources continue to be more restrictive on loan requirements and have more conservative practices than they had before the recent financial market downturn. Internal Growth 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. 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 2011, a 25,000 square foot Crate & Barrel store opened on land vacated by Lord & Taylor at The Shops at Willow Bend (Willow Bend). Next door will be a new 12,000 square foot Restoration Hardware, which will open in 2012. 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 built a new 40,000 square foot two-level XXI Forever, which utilizes about 33,000 square feet of existing basement level space. XXI Forever opened in the fourth quarter of 2011. 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 was 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. 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. 4 • Development of New U.S. Traditional and Outlet Centers City Creek Center, a mixed-use project in Salt Lake City, Utah will open in March 2012. 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 we own the retail space subject to 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. See “MD&A – Liquidity and Capital Resources – Capital Spending” regarding additional information on City Creek Center. We believe we are in the final predevelopment stages for a project in San Juan, Puerto Rico, near the San Juan Luis Munoz Marin International Airport. The retail component of the project will include Nordstrom and Saks Fifth Avenue as anchors. We anticipate the project will start construction in 2012. We have completed the zoning requirements for a regional mall in Sarasota, Florida. We are close to finalizing our joint venture agreements with the landowner on this site and expect to begin construction in 2012. 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. We have completed the zoning for an outlet project in the St. Louis, Missouri area and we expect to begin construction in 2012. 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 December 2011, Taubman Asia acquired a 90% controlling interest in TCBL, a Beijing-based retail real estate consultancy. The new company, Taubman TCBL, will serve as a platform through which Taubman's future investments in mainland China will be made, giving Taubman Asia a 90% ownership interest in these investments. 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 approximately 400,000 square foot mall will feature over 80 retailers and is projected to open in the third quarter of 2012. See "MD&A - Results of Operations - Taubman Asia" for further details and information on a potential project. 5 • Strategic Acquisitions 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. In December 2011, we purchased The Mall at Green Hills in Nashville, Tennessee and The Gardens on El Paseo and El Paseo Village in Palm Desert, California from affiliates of Davis Street Properties, LLC. We believe these properties are high quality assets that make a great addition to our portfolio as a result of the tenants' high sales per square foot and low occupancy costs as a percentage of their sales. See "MD&A - Results of Operations - Acquisitions" for further details regarding the assets acquired. 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. Average rent per square foot statistics reflect the contractual rental terms of the lease currently in effect and include the impact of rental concessions. 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 average 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): Average rent per square foot: Consolidated Businesses Unconsolidated Joint Ventures Combined 2011 2010 2009 2008 2007 $ 45.53 $ 43.63 $ 43.69 $ 43.95 $ 44.58 45.22 43.73 43.66 44.49 43.95 44.61 44.15 43.39 41.89 42.90 See “MD&A – Rental Rates and Occupancy” for information regarding opening and closing rents per square foot for our centers. 6 Lease Expirations The following table shows scheduled lease expirations for mall tenants based on information available as of December 31, 2011 for the next ten years for all owned centers in operation at that date: Tenants 10,000 square feet or less (1) Total (1)(2) Number of Leases Expiring Leased Area in Square Footage Annualized Base Rent Under Expiring Leases Per Square Foot (3) Percent of Total Leased Square Footage Represented by Expiring Leases Number of Leases Expiring Leased Area in Square Footage Annualized Base Rent Under Expiring Leases Per Square Foot (3) Percent of Total Leased Square Footage Represented by Expiring Leases 257 395 314 330 316 293 186 169 143 218 700,863 $ 967,140 718,154 887,718 815,061 809,737 609,850 521,219 434,257 641,102 42.48 43.55 48.91 43.19 49.18 53.65 53.82 53.53 62.18 65.00 9.3% 12.8% 9.5% 11.8% 10.8% 10.7% 8.1% 6.9% 5.8% 8.5% 268 411 325 343 329 309 204 178 155 239 880,478 $ 1,392,659 1,055,791 1,205,211 1,172,037 1,325,119 1,001,850 711,247 707,866 1,090,763 40.70 35.26 39.11 37.49 38.73 38.76 42.34 45.77 48.46 49.59 7.6% 12.0% 9.1% 10.4% 10.1% 11.4% 8.6% 6.1% 6.1% 9.4% Lease Expiration Year 2012 (4) 2013 2014 2015 2016 2017 2018 2019 2020 2021 (1) Includes all centers in Taubman owned portfolio, including The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village. Excludes rents from temporary in-line tenants. (2) 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. (3) Weighted average of the annualized contractual rent per square foot as of the end of the reporting period. (4) Excludes leases that expire in 2012 for which renewal leases or leases with replacement tenants have been executed as of December 31, 2011. 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 2006 to 2011 was approximately one year. The average term of leases signed was approximately eight years during 2011 and approximately seven years during 2010. 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 2011, tenants representing 1.5% of leases filed for bankruptcy during the year compared to 0.7% in 2010. This statistic has ranged from 0.4% to 4.5% of leases per year 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 0.3% in 2011. 7 Occupancy Occupancy statistics include value and outlet center anchors. Comparable center statistics for 2011 exclude The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village. All Centers: Ending occupancy Average occupancy Leased space Comparable Centers: Ending occupancy Leased space Major Tenants 2011 2010 2009 2008 2007 90.7% 88.8 92.4 90.6% 92.3 90.1% 88.8 92.0 90.1% 92.0 89.8% 89.4 91.6 89.8% 91.6 90.5% 90.5 92.0 90.5% 92.0 91.2% 90.0 93.8 91.2% 93.8 No single retail company represents 10% or more of our Mall GLA or revenues. The combined operations of Forever 21 accounted for under 5% of Mall GLA as of December 31, 2011 and less than 4% of 2011 minimum rent. No other single retail company accounted for more than 4% of Mall GLA as of December 31, 2011 or 3% of 2011 minimum rent. The following table shows the ten mall tenants who occupy the most Mall GLA at our centers and their square footage as of December 31, 2011: 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) H&M Williams-Sonoma (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, and others) 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) Urban Outfitters (Urban Outfitters, Anthropologie, Free People, and others) # of Stores (1) 22 Square Footage (1) 507,881 % of Mall GLA (1) 4.6% 45 47 35 13 27 31 39 19 18 417,091 294,446 254,297 235,452 207,193 176,095 167,904 166,855 147,729 3.8 2.7 2.3 2.1 1.9 1.6 1.5 1.5 1.3 (1) Includes all centers in Taubman owned portfolio, including The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village. 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. 8 Seasonality The regional shopping center industry is seasonal in nature, with mall tenant sales highest in the fourth quarter due to the Christmas season, and with lesser, though still significant, sales fluctuations associated with the Easter holiday and back-to-school period. See “MD&A – Seasonality” for further discussion. Environmental Matters See “Risk Factors” regarding discussion of environmental matters. Financial Information about Geographic Areas We have not had material revenues attributable to foreign countries in the last three years. We also do not 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) and Taubman TCBL provide similar services for third parties in China and South Korea as well as Taubman Asia. As of December 31, 2011, the Manager, TAM, and Taubman TCBL had 821 full-time employees, including 232 in Asia. The following table provides a breakdown of employees by operational areas as of December 31, 2011: Center Operations Property Management Financial Services Leasing and Tenant Coordination Research, Planning and Development Other Total Total Number of Employees 259 166 86 122 91 97 821 Available Information The Company makes available free of charge through its website at www.taubman.com all reports it electronically files with, or furnishes to, the Securities Exchange Commission (the “SEC”), including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any amendments to those reports, as soon as reasonably practicable after those documents are filed with, or furnished to, the SEC. These filings are also accessible on the SEC’s website at www.sec.gov. 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 global, national, regional, and/or local economic and geopolitical climates. 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. While the economic environment and credit availability have improved since the recent recession, high unemployment continues and economic conditions and prospects for the near term remain uncertain and potentially volatile, which may adversely impact the 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. See “MD&A – Results of Operations – Application of Critical Accounting Policies: Valuation of Shopping Centers" for additional information regarding impairment testing. In addition, the value and performance of our shopping centers may be adversely affected by certain other factors discussed below including the state of the capital markets, unscheduled closings or bankruptcies of our tenants, competition, uninsured losses, and environmental liabilities. 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 have improved, the European sovereign debt crisis and downgrade of the U.S. debt in 2011 have contributed to volatility in the capital markets. The capital markets continue to be more conservative in investment decisions and practices than they were before the recent financial market downturn. Consequently, there are now fewer lenders originating real estate loans over $200 million. In addition, 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. Thirteen banks participate in our $650 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. Three out of the thirteen banks are European banks, representing less than 30% of the facility. 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 obligated to comply with financial and other covenants that could affect our operating activities. 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 minimum fixed charges coverage ratio, minimum interest coverage ratios, the latter being the most restrictive. These covenants may restrict our ability to pursue certain and a maximum leverage ratio, business initiatives or certain transactions that might otherwise be advantageous. In addition, failure to meet certain of these financial covenants could cause an event of default under and/or accelerate some or all of such indebtedness which could have a material effect on us. Our hedging interest rate protection arrangements may not effectively limit our interest rate risk exposure. We manage our exposure to interest rate risk through a combination of interest rate protection agreements to effectively fix or cap a portion of our variable rate debt. Our use of interest rate hedging arrangements to manage risk associated with interest rate volatility may expose us to additional risks, including that a counterparty to a hedging arrangement may fail to honor its obligations. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have the desired beneficial impact on our results of operations or financial condition. We might be subject to additional costs, such as transaction fees or breakage costs, if we terminate these arrangements. 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 and institutional investors. This competition may impair our ability to make suitable property acquisitions on favorable terms in the future. 11 The bankruptcy, early termination, or closing of our tenants and anchors could adversely affect us. We could be adversely affected by the bankruptcy, early termination, or closing 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 or closing of mall tenants or anchors for reasons other than bankruptcy could have a similar impact on the operations of our centers, although in the case of early terminations 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. 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, governmental approvals, or anchor or tenant commitments 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; occupancy rates and rents, as well as occupancy costs and expenses, at a completed project or an acquired property 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; and we may have difficulty in integrating acquired operations, including restructuring and realigning activities, personnel, and technologies. 12 In addition, adverse impacts of the global economic and market downturn may reduce viable development and acquisition opportunities that meet our unlevered return requirements. Our business activities and pursuit of new opportunities in Asia may pose risks. We have offices in Hong Kong, Seoul, and Beijing and other cities in China and we are pursuing and evaluating management, leasing and development service and investment opportunities in various South Korea and China markets. In 2011, Taubman Asia acquired a 90% controlling interest in a Beijing-based retail real estate consultancy company. The new company, Taubman TCBL, provides retail-focused real estate consulting services to property developers, retailers and institutional investors in planning, research, leasing, marketing, operations and asset management in China. 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 and/or difficulties in operating in foreign political environments; difficulties of complying with a wide variety of foreign laws including laws affecting funding, corporate governance, property ownership restrictions, development activities, 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 difficulties that arise in enforcing such contracts; differing lending practices; differing employment and labor issues; obstacles to the repatriation of earnings and cash; and differences in cultures including adapting practices and strategies that have been successful in the U.S. regional mall business to retail needs and expectations in new markets. As a result of the acquisition and creation of Taubman TCBL, substantially all of the purchase price was allocated to goodwill in applying purchase price accounting. Applicable accounting principles require that goodwill be tested annually for impairment or earlier upon the occurrence of certain events or substantive changes in circumstances. If relevant qualitative factors indicate that goodwill may be impaired and we find that the carrying value of goodwill exceeds estimated fair value, we will reduce the carrying value of the goodwill asset to the estimated fair value, and we will recognize impairment with respect to such goodwill. 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. 13 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. 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. 14 We may not be able to maintain our status as a REIT. We may not be able to maintain our status as a REIT for federal income tax purposes with the result that the income distributed to shareowners would not be deductible in computing taxable income and instead would be subject to tax at regular corporate rates. We may also be subject to the alternative minimum tax if we fail to maintain our status as a REIT. Any such corporate tax liability would be substantial and would reduce the amount of cash available for distribution to our shareowners which, in turn, could have a material adverse impact on the value of, or trading price for, our shares. Although we believe we are organized and operate in a manner to maintain our REIT qualification, many of the REIT requirements of the Internal Revenue Code of 1986, as amended (the Code), are very complex and have limited judicial or administrative interpretations. Changes in tax laws or regulations or new administrative interpretations and court decisions may also affect our ability to maintain REIT status in the future. If we do not maintain our REIT status in any year, we may be unable to elect to be treated as a REIT for the next four taxable years. Although we currently intend to maintain our status as a REIT, future economic, market, legal, tax, or other considerations may cause us to determine that it would be in our and our shareowners’ best interests to revoke our REIT election. If we revoke our REIT election, we will not be able to elect REIT status for the next four taxable years. We may be subject to taxes even if we qualify as a REIT. Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain federal, state, local and foreign taxes on our income and property. For example, we will be subject to income tax to the extent we distribute less than 100% of our REIT taxable income, including capital gains. Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale. We cannot guarantee that sales of our properties would not be prohibited transactions unless we comply with certain statutory safe-harbor provisions. The need to avoid prohibited transactions could cause us to forego or defer sales of assets that non-REITs otherwise would have sold or that might otherwise be in our best interest to sell. In addition, any net taxable income earned directly by our taxable REIT subsidiaries will be subject to federal, and state corporate income tax, and to the extent there are foreign operations certain foreign taxes. In this regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct certain interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by the taxable REIT subsidiaries if the economic arrangements between the REIT, the REIT’s tenants, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties. Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income, because not all states and localities follow the federal income tax treatment of REITs. To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to our shareowners. The lower tax rate on certain dividends from non-REIT “C” corporations may cause investors to prefer to hold stock in non-REIT “C” corporations. Whereas corporate dividends have traditionally been taxed at ordinary income rates, the maximum tax rate on certain corporate dividends received by individuals through December 31, 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 27% of our stock that 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, 2011, A. Alfred Taubman and the members of his family have the power to vote approximately 30% of the outstanding shares of our common stock and our Series B preferred stock, considered together as a single class, and approximately 91% of our outstanding Series B preferred stock. Our shares of common stock and our Series B preferred stock vote together as a single class on all matters generally submitted to a vote of our shareowners, and the holders of the Series B preferred stock have certain rights to nominate up to four individuals for election to our board of directors and other class voting rights. Mr. Taubman’s 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 shareholders will experience dilution as a result of equity offerings and they may experience further dilution if we issue additional common stock. We issued common equity, both common shares and TRG partnership units, that had a dilutive effect on our earnings per diluted share and funds from operations per diluted share for the year ended December 31, 2011. Additionally, we are not restricted from issuing additional shares of our common stock or preferred stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock or any substantially similar securities. Any additional future issuances of common stock will reduce the percentage of our common stock owned by investors who do not participate in future issuances. In most circumstances, shareholders will not be entitled to vote on whether or not we issue additional common stock. In addition, depending on the terms and pricing of an additional offering of our common stock and the value of our properties, our shareholders may experience dilution in both the book value and fair value of their shares. The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after this offering or the perception that such sales could occur, and this could materially and adversely affect our ability to raise capital through future offerings of equity or equity-related securities. 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. 17 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; however, certain loan covenants include certain restrictions regarding future indebtedness. As of December 31, 2011, we had approximately $3.1 billion of consolidated indebtedness outstanding, and our beneficial interest in both our consolidated debt and the debt of our unconsolidated joint ventures was $3.4 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 may change the distribution policy for our common stock in the future. The decision to declare and pay dividends on our common stock in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our board of directors and will depend on our earnings, funds from operations, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our indebtedness and preferred shares, the annual dividend requirements under the REIT provisions of the Internal Revenue Code, state law and such other factors as our board of directors deems relevant. Our actual dividend payable will be determined by our board of directors based upon the circumstances at the time of declaration. Any change in our dividend policy could have a material adverse effect on the market price of our common stock. 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, 2011. Centers are owned in fee other than Beverly Center (Beverly), Cherry Creek Shopping Center (Cherry Creek), International Plaza, MacArthur Center, and certain outparcel land at The Mall at Green Hills, which are held under ground leases expiring between 2049 and 2104. 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 Macy’s, Neiman Marcus, Nordstrom Denver, CO 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, Lord & Taylor Outlet, Marshalls, Neiman Marcus-Last Call Off 5th Saks, The Sports Authority JCPenney, Macy’s, Sears The Gardens on El Paseo/ El Paseo Village Saks Fifth Avenue Palm Desert, CA Great Lakes Crossing Outlets AMC Theatres, Bass Pro Shops Outdoor World, Auburn Hills, MI Lord & Taylor Outlet, Neiman Marcus-Last Call (Detroit Metropolitan Area) Off 5th Saks Sq. Ft of GLA/ Mall GLA as of 12/31/11 Year Opened/ Expanded Year Acquired Ownership % as of 12/31/11 867,000 559,000 1982 1,036,000 (1) 1990/1998 545,000 1,406,000 641,000 2001/2007 1,386,000 (2) 1976/1978/ 589,000 1980/2000 100% 50% 100% 100% 238,000 188,000 1,353,000 534,000 868,000 356,000 1998/2010 2011 100% 1998 100% 1955/2011 2011 100% The Mall at Partridge Creek Nordstrom, Parisian The Mall at Green Hills Nashville, TN International Plaza Tampa, FL MacArthur Center Norfolk, VA Northlake Mall Charlotte, NC Clinton Township, MI (Detroit Metropolitan Area) The Mall at Short Hills Short Hills, NJ Dillard’s, Neiman Marcus, Nordstrom, 1,202,000 (3) 2001 Dillard's, Macy's, Nordstrom Dillard’s, Nordstrom Belk, Dick’s Sporting Goods, Dillard’s, Macy’s Bloomingdale’s, Macy’s, Neiman Marcus, 1,373,000 1980/1994/ Nordstrom, Saks Fifth Avenue 581,000 936,000 522,000 1,070,000 464,000 609,000 375,000 1999 2005 2007/2008 1995 2003 1977/1978/ 2007/2008 551,000 667,000 301,000 1,513,000 548,000 1,272,000 459,000 Stony Point Fashion Park Dillard’s, Dick’s Sporting Goods, Richmond, VA Twelve Oaks Mall Novi, MI (Detroit Metropolitan Area) Saks Fifth Avenue JCPenney, Lord & Taylor, Macy's, Nordstrom, Sears The Mall at Wellington Green City Furniture & Ashley Furniture Home Store, Wellington, FL (Palm Beach County) Dillard’s, JCPenney, Macy’s, Nordstrom 2001/2003 90% The Shops at Willow Bend Dillard’s, Macy’s, Neiman Marcus 1,256,000 (4) 2001/2004 100% Plano, TX (Dallas Metropolitan Area) Total GLA Total Mall GLA TRG% of Total GLA TRG% of Total Mall GLA 19 517,000 17,052,000 7,730,000 15,759,000 7,095,000 50% 95% 100% 100% 100% 100% 100% Center Anchors Sq. Ft of GLA/Mall GLA as of 12/31/11 Year Opened/ Expanded Year Acquired Ownership % as of 12/31/11 Unconsolidated Joint Ventures: Arizona Mills Tempe, AZ GameWorks, Harkins Cinemas, JCPenney Outlet, Neiman Marcus-Last Call, 1,221,000 552,000 1997 (Phoenix Metropolitan Area) Off 5th Saks JCPenney, Lord & Taylor, Macy’s (two locations), Sears 1,569,000 565,000 1980/1987/ 1988/2000 Fair Oaks Fairfax, VA (Washington, DC Metropolitan Area) The Mall at Millenia Orlando, FL Bloomingdale’s, Macy’s, Neiman Marcus Stamford Town Center Macy’s, Saks Fifth Avenue Stamford, CT Sunvalley Concord, CA (San Francisco Metropolitan Area) Waterside Shops Naples, FL Westfarms West Hartford, CT JCPenney, Macy’s (two locations), Sears Nordstrom, Saks Fifth Avenue JCPenney, Lord & Taylor, Macy’s, Macy’s Men’s Store/Furniture Gallery, Nordstrom 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 2002 1982/2007 1967/1981 2002 1992/2006/ 2003 2008 1974/1983/ 1997 1,117,000 517,000 769,000 446,000 1,333,000 493,000 336,000 196,000 1,280,000 510,000 7,625,000 3,279,000 4,100,000 1,738,000 24,677,000 11,009,000 19,859,000 8,833,000 50% 50% 50% 50% 50% 25% 79% (1) GLA includes the former Saks Fifth Avenue store, which closed in March 2011. (2) GLA includes the former Lord & Taylor store, which closed in June 2006. (3) GLA includes the former Robb & Stucky store, which closed in May 2011. (4) GLA includes Crate & Barrel which opened in March 2011 and Restoration Hardware which is expected to open in April 2012 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, 2011: Name Belk City Furniture and Ashley Furniture Home Store Dick’s Sporting Goods Dillard’s JCPenney (1) Lord & Taylor (2) Macy’s Bloomingdale’s Macy’s Macy’s Men’s Store/Furniture Gallery Total Neiman Marcus (3) Nordstrom Parisian Saks (4) Sears Total Number of Anchor Stores 12/31/11 GLA (in thousands of square feet) % of GLA 1 1 2 7 6 3 3 16 1 20 5 10 1 5 4 65 180 140 159 1,522 1,096 397 614 3,410 80 4,104 556 1,439 116 373 911 0.9% 0.7% 0.8% 7.4% 5.3% 1.9% 19.8% 2.7% 7.0% 0.6% 1.8% 4.4% 10,993 53.1% (5) (1) Excludes one JCPenney Outlet store at a value center. (2) Excludes two Lord & Taylor Outlet stores at value and outlet centers. (3) Excludes three Neiman Marcus-Last Call stores at value and outlet centers. (4) Excludes three Off 5th Saks stores at value and outlet centers. (5) Percentages in table may not add due to rounding. 21 Mortgage Debt & Installment Notes The following table sets forth certain information regarding the mortgages encumbering the centers and the installment notes collateralized by restricted cash as of December 31, 2011. 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 El Paseo Village Stated Interest Rate 5.28% 5.24% LIBOR+1.75% 4.42% Fairlane Town Center LIBOR+1.75% The Gardens on El Paseo Great Lakes Crossing Outlets The Mall at Green Hills International Plaza (50.1%) 6.10% 5.25% 6.89% 4.85% (5) (7) (8) MacArthur Center (95%) LIBOR+2.35% (11) Northlake Mall The Mall at Partridge Creek The Mall at Short Hills Stony Point Fashion Park 5.41% 6.15% 5.47% 6.24% Principal Balance as of 12/31/11 (thousands) Annual Debt Service (thousands) Maturity Date Balance Due on Maturity (thousand s) Earliest Prepayment Date $ 316,724 $ 23,101 (1) 2/11/2014 $ 303,277 30 Days Notice (3) (5) (3) (7) (8) 280,000 290,000 17,059 30,000 86,475 129,222 111,801 325,000 131,000 215,500 81,203 540,000 103,615 Interest Only Interest Only 6/8/2016 1/29/2015 (3) 1,024 (1) 12/6/2015 Interest Only Interest Only (1) 10,006 8,685 Interest Only Interest Only (10) (11) Interest Only 1/29/2015 (3) 6/11/2016 3/11/2013 12/1/2013 12/1/2021 9/1/2020 2/6/2016 6,031 (1) 7/6/2020 280,000 290,000 15,565 30,000 81,480 125,507 105,045 285,503 117,234 215,500 70,433 30 Days Notice 2 Days Notice 12/29/2012 2 Days Notice 30 Days Notice 30 Days Notice 30 Days Notice 4/1/2015 9/1/2015 30 Days Notice 8/13/2012 Interest Only 12/14/2015 540,000 30 Days Notice 8,488 (1) 6/1/2014 98,585 30 Days Notice Twelve Oaks Mall LIBOR+1.75% (3) Interest Only 1/29/2015 (3) 2 Days Notice The Mall at Wellington Green (90%) Other Consolidated Secured Debt 5.44% 200,000 Interest Only 5/6/2015 200,000 30 Days Notice (2) (2) (4) (6) (4) (2) (2) (9) (9) (12) (13) (2) (9) (13) (4) (13) TRG Credit Facility LIBOR+1.00% (14) 6,535 Interest Only TRG Installment Notes 3.13% 281,468 (15) Interest Only 4/30/2012 2/21/2012 6,535 At Any Time (4) 281,468 Not Prepayable Centers Owned by Unconsolidated Joint Ventures/TRG’s % Ownership Arizona Mills (50%) Fair Oaks (50%) The Mall at Millenia (50%) Sunvalley (50%) 5.76% LIBOR+1.70% (16) 5.46% 5.67% Taubman Land Associates (50%) LIBOR+0.90% (18) Waterside Shops (25%) Westfarms (79%) 5.54% 6.10% 172,010 275,000 199,397 116,326 30,000 165,000 181,075 (1) (16) (1) (1) 12,268 Interest Only 14,245 9,372 Interest Only Interest Only 7/1/2020 7/13/2018 4/9/2013 11/1/2012 11/1/2012 10/7/2016 15,272 (1) 7/11/2012 147,702 275,000 195,255 114,056 30,000 165,000 179,028 10/25/2012 3 Days Notice 30 Days Notice 30 Days Notice At Any Time 30 Days Notice 30 Days Notice (2) (17) (2) (2) (4) (19) (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 $650 million secured revolving line of credit. The facility has a one-year extension option. (4) Prepayment can be made without penalty. (5) Debt includes $0.3 million of purchase accounting premium from acquisition, which reduces the stated rate on the debt of 4.42% to an effective rate of 3.85%. (6) No defeasance deposit required if paid within two months of maturity date. (7) Debt includes $5.0 million of purchase accounting premium from acquisition which reduces the stated rate on the debt of 6.10% to an effective rate of 4.43%. (8) Debt includes $4.2 million of purchase accounting premium from acquisition which reduces the stated rate on the debt of 6.89% to an effective rate of 4.66%. (9) 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. (10)The loan is interest only until January 2015 at which time monthly principal payments are due based on a 30 year amortization. (11)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. (12)From September 2015 through August 2017 debt may be prepaid with a prepayment penalty of 2% on principal prepaid. From September 2017 through August 2019 the prepayment penalty drops to 1% of principal prepaid, and on September 2019 it changes to 0.5% of principal prepaid until March 2020 when it can be prepaid without penalty. 22 (13)No defeasance deposit required if paid within four months of maturity date. (14)The facility is a $65 million line of credit and is secured by an indirect interest in 40% of Short Hills. (15)The installment notes were paid on February 21, 2012 with cash drawn on the line of credit as of December 31, 2011. (16)The debt is swapped to an effective rate of 4.10% thru April 2018. The loan is interest only until August 2014 at which time monthly principal payments are due based on a 7.5% interest rate and 25 year amortization. (17)If loan is prepaid before mid-July 2012 the prepayment fee is 0.5% of prepaid amount. If the loan is prepaid between mid-July 2012 and mid-July 2013 the fee is 0.25%. There is no prepayment thereafter. (18)Debt is swapped to an effective rate of 5.95% to the maturity date. (19)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. Item 3. LEGAL PROCEEDINGS. See “Note 15 – 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 or litigation 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. In November 2011, the holder of the mortgage loan on The Pier Shops completed the foreclosure sale and court approval process, and acquired title to the property. Refer to “MD&A – Results of Operations – Dispositions/Discontinued Operations” for further details related to the disposition. Item 4. MINE SAFETY DISCLOSURES. Not applicable. 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 23, 2012, the 58,058,113 outstanding shares of Common Stock were held by 500 holders of record. Asubstantially greater number of holders are beneficial owners whose shares are held of record by banks, brokers, and other financial institutions. The closing price per share of the Common Stock on the New York Stock Exchange on February 23, 2012 was $69.02. 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 2011 and 2010: 2011 Quarter Ended March 31 June 30 September 30 December 31 2010 Quarter Ended March 31 June 30 September 30 December 31 Market Quotations High Low Dividends $ 55.48 $ 49.96 $ 0.438 60.57 62.53 62.71 53.02 48.71 48.27 0.438 0.438 0.450 Market Quotations High Low Dividends $ 41.93 $ 31.66 $ 0.415 44.94 46.27 50.76 37.63 35.98 44.41 0.415 0.415 0.438 (1) (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 500, and the S&P 400 MidCap Index for the period December 31, 2006 through December 31, 2011 (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 S&P 400 MidCap Index 12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 $ 100.00 $ 99.63 $ 53.75 $ 80.73 $ 118.48 $ 150.36 100.00 100.00 100.00 100.00 83.18 84.23 105.49 107.98 51.60 43.50 66.46 68.86 66.36 55.31 84.05 94.59 85.26 73.79 96.71 119.79 92.67 82.80 98.76 117.71 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. 2011 2010 2009 2008 2007 Year Ended December 31 (in thousands) STATEMENT OF OPERATIONS DATA: Rents, recoveries, and other shopping center revenues $ 644,918 $ 626,427 $ 637,458 $ 639,058 $ 596,768 Income from continuing operations Discontinued operations (1) Net income (loss) (2) Net (income) loss attributable to noncontrolling interests (3) 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 (4) 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 141,399 145,999 287,398 (94,527) (1,536) (14,634) 122,606 (20,279) 102,327 (38,459) (1,635) (14,634) 104,463 (183,624) (79,161) 25,649 (1,560) (14,634) 7,274 (15,326) (8,052) (62,527) (1,446) (14,634) 127,229 (10,993) 116,236 (51,782) (1,330) (14,634) 176,701 47,599 (69,706) (86,659) 48,490 3.03 1.76 0.86 1.68 (1.30) 1.66 (1.64) 1.66 0.90 1.54 56,899,966 54,569,618 53,239,279 52,866,050 52,969,067 58,529,089 58,022,475 55,702,813 54,696,054 53,986,656 54,321,586 52,866,050 53,018,987 53,622,017 52,624,013 Ownership percentage of TRG at end of period 69% 68% 67% 67% 66% BALANCE SHEET DATA: Real estate before accumulated depreciation Total assets Total debt SUPPLEMENTAL INFORMATION (5): Funds from Operations attributable to TCO (2)(6) Mall tenant sales (7)(8) Sales per square foot (7)(8)(9) Number of shopping centers at end of period Ending Mall GLA in thousands of square feet Leased space (8)(10) Ending occupancy (8) Average occupancy (8) Average base rent per square foot (8)(9): Consolidated businesses (8)(11) Unconsolidated Joint Ventures (11) Combined (8)(11) 4,020,954 3,336,792 3,145,602 3,528,297 2,546,873 2,656,560 3,496,853 2,606,853 2,691,019 3,699,480 2,974,982 2,796,821 3,781,136 3,105,975 2,700,980 285,400 5,164,916 160,138 4,619,896 144,220 4,185,996 81,274 4,536,500 155,376 4,734,940 641 23 564 23 502 23 533 23 555 23 11,009 10,942 10,946 10,937 10,879 92.4% 90.7% 88.8% 92.0% 90.1% 88.8% 91.6% 89.8% 89.4% 92.0% 90.5% 90.5% 93.8% 91.2% 90.0% $ $ 45.53 44.58 45.22 $ 43.63 43.73 43.66 $ 43.69 44.49 43.95 $ 43.95 44.61 44.15 43.39 41.89 42.90 26 (2) (1) Discontinued operations includes the operations of Regency Square and The Pier Shops. See “MD&A – Results of Operations –Dispositions/Discontinued Operations" for further information. In 2011, discontinued operations includes the gains on extinguishment of debt of $174.2 million related to the dispositions of The Pier Shops and Regency Square. In 2009, discontinued operations includes 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. Funds from Operations (FFO) is defined and discussed in “Results of Operations – Use of Non-GAAP Measures.” In 2011, net income and FFO include the gains on extinguishment of debt of $174.2 million related to the dispositions of The Pier Shops and Regency Square and $5.3 million of acquisition costs related to the acquisitions of The Mall at Green Hills, The Gardens on El Paseo, El Paseo Village, and TCBL. See “MD&A – Results of Operations – Dispositions/Discontinued Operations" and “MD&A – Results of Operations –Acquisitions" for further information. In 2009, net loss includes and FFO excludes 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. In 2009, net loss and FFO also include $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. In 2008, net loss and FFO include the impairment charges of $126.3 million related to investments in our Oyster Bay and Sarasota projects. In 2009, we adopted the requirements of ASC Topic 810 as it relates to noncontrolling interests (formerly SFAS 160). Effective at that time it was no longer required that income be allocated to these interests, at a minimum, equal to their share of distributions. (3) (4) 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. (5) All statistics exclude The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village, except for those reported as of December 31, 2011. (6) Reconciliations of net income (loss) attributable to TCO common shareowners to FFO for 2011, 2010, and 2009 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 2008, net loss attributable to TCO common shareowners of $86.7 million, adding back depreciation and amortization of $154.8 million, noncontrolling interests of $52.7 million, and distributions to participating securities of $1.4 million arrives at TRG’s FFO of $122.2 million, of which TCO’s share was $81.3 million. 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. (7) Based on reports of sales furnished by mall tenants. (8) Amounts in 2011, 2010, 2009, and 2008 exclude The Pier Shops and amounts in 2011, 2010, and 2009 exclude Regency Square. See “MD&A – Results of Operations –Dispositions/Discontinued Operations" for further information. (9) See “MD&A – Rental Rates and Occupancy” for information regarding this statistic. (10) Leased space comprises both occupied space and space that is leased but not yet occupied. (11) Amounts in 2011, 2010, 2009, and 2008 exclude spaces greater than 10,000 square feet. 27 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 global credit environment and the continuing impacts of the recent U.S. recession, other changes in general economic and real estate conditions, changes in the interest rate environment and the availability of financing, adverse changes in the retail industry and integration and other acquisition risks. 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. The comparability of information used in measuring performance is affected by the dispositions of The Pier Shops at Caesars (The Pier Shops) and Regency Square and the acquisitions of The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village in 2011. All statistics exclude The Pier Shops and Regency Square. The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village are excluded from 2011 statistics except for ending occupancy and leased space. Comparable center amounts are provided for statistics presented as of December 31, 2011. Comparable centers are generally defined as centers that were owned and open for two years. See “Results of Operations – Dispositions/Discontinued Operations,” "Results of Operations - Acquisitions" and "Discontinued Operations of The Pier Shops and Regency Square: Reconciliations of Net Operating Income to Net Loss” for background and information on operations of these centers. 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 eight years during 2011 and approximately seven years during 2010, 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. Our tenant sales continue to be strong and the momentum that gained strength throughout 2010 clearly continued throughout 2011. Tenant sales per square foot were $641 in 2011, a 13.7% increase from 2010, and the highest we have ever reported. We are estimating tenant sales per square foot to be up 4% to 6% in 2012. See "Mall Tenant Sales and Center Revenues." 28 Ending occupancy was 90.6% for comparable centers at December 31, 2011, up 0.5% from 2010. We anticipate occupancy will be up on average about 1% throughout 2012. Rent per square foot increased 3.6% in 2011. We expect that average rents per square foot in 2012 will be up in comparison to 2011 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” and we provide information about transactions that affected the periods presented or will affect operations in the future. We made substantial progress on our external growth initiatives and completed the purchases of The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village and Taubman TCBL in China in 2011 (see "Results of Operations - Acquisitions"). Dispositions of The Pier Shops and Regency Square were completed in November and December of 2011, respectively. Titles to the properties were transferred to the mortgage lenders. As a result, we have been relieved of our $207.2 million of debt obligations plus accrued interest associated with the properties. See “Results of Operations – Dispositions/Discontinued Operations” for further discussion. We also describe the current status of our efforts to broaden our growth in Asia in 2011 (see “Results of Operations – Taubman Asia”). We continue to see signs of an economic recovery and have seen improvement in our center operations in 2011. See “Results of Operations – Center Operations." Wehave 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 International Plaza, Fair Oaks and our revolving credit facility in 2011 as outlined under “Results of Operations – Debt Transactions.” In addition to the issuance of 1.3 million Operating Partnership units in connection with the acquisitions of The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village, we also completed other equity transactions in 2011. We redeemed the Operating Partnership's Series F Preferred Equity and completed an equity offering of 2.0 million common shares (see "Results of Operations - Other Equity Transactions"). As information useful to understanding our results, we have described the reasons for our use of non-GAAP measures such as Beneficial Interest in EBITDA and Funds from Operations (FFO) under “Results of Operations – Use of Non-GAAP Measures.” With all the preceding information as background, we then provide insight and explanations for variances in our financial results for 2011, 2010, and 2009 under “Comparison of 2011 to 2010” and “Comparison of 2010 to 2009.” We then discuss our application of critical accounting policies and then provide reconciliations from net income (loss) and net income (loss) allocable to common shareowners to our non-GAAP measures. 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, 2011. In July 2011, the $275 million refinancing of the Fair Oaks loan, $137.5 million at our share, was completed. In November 2011, the refinancing of the $325 million International Plaza loan, $162.8 million at our share, was completed. In 2011, we refinanced our primary line of credit, which extended the maturity date to January 2015 (with a one year extension option), and our second line of credit's maturity was extended to April 2012. The new primary line of credit increased the borrowing capacity to $650 million from $550 million. We then discuss our capital activities and transactions that occurred in 2011. After that, analysis of specific operating, investing, and financing activities is provided in more detail. 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. 29 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 and Other” are our significant guarantees and commitments. City Creek Center, which we own subject to a participating lease, is opening in March 2012 at which time a $75 million payment will be made to the lessor. We also provide information on our capital spending in 2011 and 2010, as well as planned capital spending for 2012. We provide information on certain new center projects that are in the final pre-development phase (see "Liquidity - Capital Spending"). 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 We have now had eight consecutive quarters of double digit mall tenant sales per square foot growth and in the fourth quarter of 2011, tenant sales increased by 14.2% compared to the corresponding period in the prior year. For all of 2011, our tenant sales increased 13.7% over 2010 to a new record level for our centers of $641 per square foot. We estimate tenant sales to be up 4% to 6% in 2012. 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 tenant 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 tenant sales at higher sales per square foot. Tenant sales directly impact the amount of percentage rents certain tenants and anchors pay. The effects of increases or declines in tenant sales on our operations are moderated by the relatively minor share of total rents that percentage rents represent of total rents (approximately 6% in 2011). 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. 30 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 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 2011 2010 2009 $ 5,164,916 $ 4,619,896 $ 4,185,996 641 564 502 8.4% 0.5 4.5 13.4% 7.9% 0.5 3.8 12.2% 8.2% 0.5 4.3 13.0% 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% In 2011 and 2010, mall tenant occupancy costs as a percentage of mall tenant sales decreased due primarily 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. Average rent per square foot statistics reflect the contractual rental terms of the lease currently in effect and include the impact of rental concessions. 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 2012 is expected to be up about 3.0%. Rent per square foot information for centers in our Consolidated Businesses and Unconsolidated Joint Ventures follows: 31 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 2011 2010 2009 $ $ 45.53 $ 43.63 $ 44.58 45.22 43.73 43.66 59.31 $ 50.69 $ 45.42 56.20 989,260 285,919 1,275,179 47.16 49.69 577,435 228,075 805,510 $ 49.27 $ 46.27 $ 43.98 47.93 1,013,284 344,799 1,358,083 47.20 46.52 647,982 243,093 891,075 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 $ 10.04 $ 1.44 8.27 $ 4.42 (0.04) 3.17 3.94 2.46 3.57 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 - all centers Ending occupancy - comparable Average occupancy Leased space - all centers Leased space - comparable 2011 2010 2009 90.7% 90.6 88.8 92.4 92.3 90.1% 90.1 88.8 92.0 92.0 89.8% 89.8 89.4 91.6 91.6 We expect occupancy to be up on average about 1% throughout 2012. Temporary tenant leasing continues to be strong and ended the year at about 4.9% for comparable centers compared to 5.0% in 2010. 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 1.5% in 2011, compared to 0.7% in 2010, and 3.9% in 2009. 32 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. Total 2011 4th quarter 2011 3rd quarter 2011 2nd quarter 2011 1st quarter 2011 Mall tenant sales (1) Revenues and gains on land sales and other nonoperating income from continuing operations: Consolidated Businesses Unconsolidated Joint Ventures Occupancy and leased space: Ending occupancy - all centers Ending - comparable Average occupancy Leased space - all centers Leased space - comparable $ 5,164,916 (in thousands, except occupancy and leased space data) $ 1,197,351 $ 1,182,236 $ 1,670,378 $ 1,114,951 646,170 266,617 187,717 75,333 158,651 64,997 150,063 62,923 149,739 63,364 90.7% 90.6 88.8 92.4 92.3 90.7% 90.6 90.0 92.4 92.3 88.5% 88.5 88.6 91.4 91.4 88.2% 88.2 88.2 90.9 90.9 87.9% 87.9 88.2 90.5 90.5 (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. Total 2011 4th quarter 2011 3rd quarter 2011 2nd quarter 2011 1st quarter 2011 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 6.7% 0.8 4.2 11.7% 6.2% 0.8 3.7 10.7% 6.6% 0.8 4.0 11.4% 9.0% 0.4 4.7 14.1% 8.4% 0.4 4.2 13.0% 8.8% 0.4 4.5 13.7% 9.0% 0.2 4.6 13.8% 8.7% 0.2 3.7 12.6% 8.9% 0.2 4.3 13.4% 9.8% 0.4 4.6 14.8% 8.8% 0.3 4.0 13.1% 9.4% 0.4 4.4 14.2% 8.4% 0.5 4.5 13.4% 7.9% 0.5 3.8 12.2% 8.2% 0.5 4.3 13.0% 33 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 2011, 2010, and 2009, or are expected to affect operations in the future. Acquisitions In December 2011, we acquired The Mall at Green Hills in Nashville, Tennessee, and The Gardens on El Paseo and El Paseo Village in Palm Desert, California from affiliates of Davis Street Properties, LLC. The consideration for the properties was $560 million, excluding transaction costs. The consideration consisted of the assumption of $206 million of debt, $281 million in installment notes, and the issuance of 1.3 million of Operating Partnership units. The assumed debt consists of three loans (see "Note 8 - Notes Payable" for detail on these loans). The number of partnership units issued was determined based on a value of $55 per unit. The partnership units will become eligible to be converted into common shares after one year. Prior to this date, holders have the ability to put the units back to us at the lesser of the current market price of Taubman Centers' common stock or $55 per share. The installment notes were secured by letters of credit, which were funded by borrowings under our line of credit, and were paid off in February 2012. See "Note 2 - Acquisitions and Dispositions" for a preliminary allocation of the purchase price to the identifiable assets acquired and liabilities assumed at the dates of acquisition. Based on consideration of $560 million and estimates of the properties’ combined net operating income (NOI) in 2012, the capitalization rate on the acquisition is about 4.5%. The tenant occupancy costs as a percentage of tenant sales of these centers average below 10%, significantly less than the occupancy costs of our portfolio. We believe there is an opportunity to substantially increase the NOI of the properties over time. 2012 actual NOI results may vary considerably from the original estimates. While it will be difficult to significantly impact NOI before 2013, today's low interest rate environment is expected to make these acquisitions about neutral to Funds from Operations (FFO) per share in 2012, excluding $4.5 million in positive adjustments for purchase accounting. The impact of these centers on net income in 2012 will also include approximately $21 million of depreciation and amortization. See “Results of Operations – Use of Non-GAAP Measures” for the definition and discussion of NOI and FFO and see “Reconciliation of Net Income (Loss) to Net Operating Income” and "Reconciliation of Net Income (Loss) Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations and Adjusted Funds from Operations." In December 2011, Taubman Asia acquired a 90% controlling interest in a Beijing-based retail real estate consultancy company with more than 200 staff across seven offices in Mainland China. The new company is named Taubman TCBL. The total consideration for the transaction was $23.7 million. Taubman Asia paid approximately $11.5 million in cash and credited the noncontrolling owners with approximately $11.9 million of capital in the newly formed company. The $11.5 million in cash includes approximately $10.2 million that was lent in August 2011 by Taubman Asia to the noncontrolling partners. Upon closing, the loan and $0.3 million of accrued interest were converted to capital and the remaining balance was paid in cash. Substantially all of the purchase price was allocated to goodwill in Taubman TCBL. Taubman Asia will fund any additional capital required by the business and will receive a preferred return on all capital contributed. The ownership agreements provide for the distribution of preferred returns on capital as well as returns of all such capital prior to the sharing of profits on relative ownership interests. We have not yet finalized our allocations of the purchase prices to the tangible and identifiable intangible assets and liabilities acquired. We are awaiting certain valuation information for assets and liabilities acquired to complete our allocations. A final determination of the required purchase price allocations will be made during 2012. During 2011, acquisition costs of $5.3 million were incurred in connection with the above transactions. These costs have been separately presented in our Consolidated Statement of Operations and Comprehensive Income. Dispositions/Discontinued Operations In December 2011, the mortgage lender for Regency Square accepted a deed in lieu of foreclosure on the property. As a result, title to the property was transferred to the mortgage lender, and we have been relieved of the $72.2 million of debt obligations plus accrued interest. We recognized a $47.4 million non-cash accounting gain on extinguishment of the debt obligation 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 other assets transferred as of the transfer date. The non-cash impact of owning Regency Square resulted in an earnings charge of $(5.6) million for the year ended December 31, 2011. The impact excluding depreciation and amortization was $(2.9) million in 2011. In 2009, we recognized a $59.0 million impairment charge on Regency Square to write the property down to its fair value. 34 In November 2011, the mortgage lender for The Pier Shops completed the foreclosure on the property. As a result, title to the property was transferred to the mortgage lender and we have been relieved of the $135 million of debt obligations plus accrued interest. We recognized a $126.7 million non-cash accounting gain on extinguishment of the debt obligation 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 other assets transferred as of the transfer date. The non-cash impact of owning The Pier Shops resulted in an earnings charge of $(22.6) million for the year ended December 31, 2011. The impact excluding depreciation and amortization was $(14.9) million in 2011. In 2009, we recognized a $107.7 million impairment charge on The Pier Shops to write the property down to its fair value. Financial results of The Pier Shops and Regency Square are classified in discontinued operations for all periods presented in the Consolidated Statement of Operations and Comprehensive Income. Taubman Asia In December 2011, Taubman Asia acquired a controlling interest in Taubman TCBL (see "Results of Operations - Acquisitions.)" In September 2011, Taubman Asia agreed to partner with Shinsegae Group (Shinsegae), South Korea's largest retailer, on a shopping mall project in Hanam, Gyeonggi Province, South Korea (Hanam Project). We have invested $20.9 million for an interest in the project, however, we have the option to put our interest in the project after completion of our due diligence activities. The potential return of the investment, including a 7% return on the investment, is secured by a letter of credit from Shinsegae. 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 400,000 square foot mall will feature over 80 retailers. In 2011, we recognized the first installment of the leasing success fee for our progress at IFC Mall and expect to recognize the second installment of the fee in 2012. The project is over 97% leased and is expected to open in the third quarter of 2012. Center Operations For the year ended December 31, 2011, NOI excluding lease cancellation income was up 4.9% from 2010. We estimate that NOI of our comparable centers, excluding lease cancellation income, will be up in the range of 3% to 3.5% in 2012. We expect increased tenant rents resulting from higher average rent per square foot and improved occupancy. See “Results of Operations – Use of Non-GAAP Measures” for the definition and discussion of NOI and see “Reconciliation of Net Income (Loss) to Net Operating Income.” 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. Shopping center related revenues include parking, sponsorship, and other income. 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, 2011, we recognized our approximately $2.6 million share of lease cancellation revenue from continuing operations. In 2010, lease cancellation income was high primarily due to two large payments. Our share of lease cancellation income from continuing operations over the last five years ranged from this year's $2.6 million to last year’s $21.6 million from continuing operations. In 2012, we are currently estimating our share of lease cancellation income to be about $3 million to $5 million. 35 2011 2010 2009 Consolidated Businesses Unconsolidated Joint Ventures Consolidated Businesses Unconsolidated Joint Ventures Consolidated Businesses Unconsolidated Joint Ventures (Operating Partnership’s share in millions) Other income from continuing operations: Shopping center related revenues Lease cancellation revenue Gains on land sales and other nonoperating income: Gains on sales of peripheral land Interest income $ $ $ $ 22.3 $ 2.3 24.5 $ 0.5 0.7 1.2 $ $ 2.7 $ 21.8 $ 2.8 $ 22.0 $ 0.4 3.1 0.1 0.1 $ $ $ 20.3 42.1 $ 1.2 4.1 2.2 0.5 2.7 18.2 40.1 $ 0.5 0.5 $ $ $ 2.7 1.8 4.5 (1) Amounts in this table may not add due to rounding. Debt Transactions We completed a series of debt financings in the three-year period ending December 31, 2011 as follows: International Plaza Fair Oaks TRG revolving credit facility MacArthur Center Arizona Mills The Mall at Partridge Creek Date November 2011 July 2011 July 2011 September 2010 July 2010 June 2010 Initial Loan Balance/Facility Amount (in millions) Stated Interest Rate Maturity Date(1) $325 275 650 131 175 83 4.85% LIBOR + 1.70%(2) LIBOR + 1.75% LIBOR + 2.35%(3) 5.76% 6.15% December 2021 July 2018 January 2015 September 2020 July 2020 July 2020 (1) Excludes any options to extend the maturities (see the footnotes to our financial statements regarding extension options). (2) The loan has been swapped to an effective rate of 4.10% through April 2018. (3) The loan is swapped to an effective rate of 4.99% for the entire term. Borrowings under TRG’s revolving credit facility are primary obligations of the entities owning Dolphin Mall, Fairlane Town Center, and Twelve Oaks Mall, which are collateral for the line of credit. The Operating Partnership and the entities owning Fairlane and Twelve Oaks guarantee amounts under the credit agreement up to the $650 million facility, while the entity owning Dolphin guarantees amounts up to its sublimit, which is currently $315 million. In December 2011, we assumed $206 million of debt in relation to the acquisition of The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village (see "Results of Operations - Acquisitions"). Other Equity Transactions In October 2011, we redeemed the Operating Partnership's 8.2% Series F Preferred Equity for $27 million, which represented a $2.2 million discount from the book value. The $2.2 million excess of the book value over the redemption amount was reflected as a reduction in earnings allocated to the noncontrolling interests in 2011. In June 2011, we sold 2,012,500 of our common shares. The proceeds were used to acquire an equal number of Operating Partnership units. The Operating Partnership paid all offering costs. The Operating Partnership used the net proceeds, after offering costs, of $112.0 million to reduce outstanding borrowings under our lines of credit. 36 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 5 – 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 affected our development initiatives in the U.S. and Asia. The restructuring charge was $2.5 million, and primarily represented the cost of terminations of personnel. 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 straight-line adjustments of minimum rent) less maintenance, taxes, utilities, promotion, ground rent (including straight-line 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. For our stabilized portfolio basis, we generally provide separate projections for expected NOI growth and our lease cancellation income. The operating results in the following table include the supplemental earnings measures of Beneficial Interest in EBITDA and 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. In 2011, NAREIT clarified the definition to also exclude impairment write-downs of depreciable real estate. Consequently, we have restated 2009 FFO, which previously included impairment charges for The Pier Shops and Regency Square, to be consistent with the clarified definition. 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 2011, FFO was adjusted for the gains on extinguishment of debt related to the disposition of The Pier Shops and Regency Square, acquisition costs related to The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village and Taubman TCBL, and our redemption of the Operating Partnership's Series F Preferred Equity. In 2009, FFO was adjusted for a restructuring charge and litigation 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 “Application of Critical Accounting Policies.” 37 Comparison of 2011 to 2010 The following table sets forth operating results for 2011 and 2010, showing the results of the Consolidated Businesses and Unconsolidated Joint Ventures: 2011 2010 CONSOLIDATED BUSINESSES UNCONSOLIDATED JOINT VENTURES AT 100%(1) CONSOLIDATED BUSINESSES UNCONSOLIDATED JOINT VENTURES AT 100%(1) (in millions) REVENUES: Minimum rents Percentage rents Expense recoveries Management, leasing, and development services Other Total revenues EXPENSES: Maintenance, taxes, utilities, and promotion (2) Other operating (2) Management, leasing, and development services General and administrative Acquisition costs Interest expense Depreciation and amortization (3) Total expenses Nonoperating income Income from continuing operations before income tax expense and equity in income of Unconsolidated Joint Ventures Income tax expense Equity in income of Unconsolidated Joint Ventures (3) Income from continuing operations Discontinued operations(4): Gains on extinguishment of debt Discontinued operations Net income Net income attributable to noncontrolling interests: Noncontrolling share of income of consolidated joint ventures TRG Series F preferred distributions (5) Noncontrolling share of income from continuing operations of TRG Noncontrolling share of (income) loss from discontinued operations of TRG Distributions to participating securities of TRG Preferred stock dividends Net income attributable to Taubman Centers, Inc. common shareowners SUPPLEMENTAL INFORMATION (6): EBITDA - 100% EBITDA - outside partners' share Beneficial interest in EBITDA Gains on extinguishment of debt Beneficial interest expense Beneficial income tax expense Non-real estate depreciation Preferred dividends and distributions (5) Funds from Operations contribution $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 155.7 9.0 95.9 5.8 266.5 67.9 14.4 61.0 39.3 182.6 0.2 84.0 184.3 (83.6) 100.8 (31.6) 342.6 20.4 229.3 25.6 27.1 644.9 179.1 67.3 12.0 31.6 5.3 122.3 132.7 550.2 1.3 95.9 (0.6) 46.1 141.4 174.2 (28.2) 287.4 (14.4) 0.4 (36.2) (44.3) (1.5) (14.6) 176.7 354.5 (37.7) 316.8 174.2 (131.6) (0.6) (2.6) (14.3) 341.9 $ $ $ $ $ 327.6 13.1 225.1 16.1 44.6 626.4 177.7 57.4 8.3 30.2 132.4 145.3 551.2 2.7 77.9 (0.7) 45.4 122.6 (20.3) 102.3 (9.8) (2.5) (32.8) 6.6 (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 73.2 14.4 63.8 38.2 189.7 — 80.7 182.7 (82.1) 100.7 (33.1) $ (2) 67.6 (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. Promotion expenses, which were previously classified in Other Operating expense, are now included in Maintenance, Taxes, Utilities, and Promotion expense. Amounts for 2010 have been reclassified to conform to the 2011 classification. Amortization of our additional basis in the Operating Partnership included in depreciation and amortization was $4.9 million in both 2011 and 2010. Also, amortization of our additional basis included in equity in income of Unconsolidated Joint Ventures was $1.9 million in both 2011 and 2010. Includes the operations of The Pier Shops and Regency Square. See "Results of Operations - Other Equity Transactions" for information regarding the Preferred Equity that was redeemed during the year. See “Results of Operations– Use of Non-GAAP Measures” for the definition and discussion of EBITDA and FFO. Amounts in this table may not add due to rounding. (4) (5) (6) (7) 69.2 (3) $ $ $ 38 Consolidated Businesses Total revenues for the year ended December 31, 2011 were $644.9 million, an $18.5 million or 3.0% increase over 2010. Minimum rents increased by $15 million primarily due to an increase in rent per square foot due to tenant rollovers and lower rent relief. Percentage rents increased due to higher tenant sales. Expense recoveries increased primarily due to an increase in certain recoverable expenses and an increase in fixed CAM revenue. Management, leasing, and development revenue increased by $9.5 million to $25.6 million due to an incentive fee recognized in 2011 for our leasing progress at IFC Mall, Seoul, South Korea, along with a one-time collection of past due development fees for services provided in previous years on the Riverstone project in Songdo International Business District, Incheon, South Korea. We expect net management leasing and development income to be in the range of $5.5 million to $7.0 million in 2012. We expect a reduction in domestic fee revenue with City Creek Center opening in March 2012. In Asia, while we are anticipating another leasing success fee relating to IFC Mall in 2012, net third party income is expected to decrease due to the opening of the center and expected losses at Taubman TCBL. Other income decreased primarily due to lower lease cancellation income. Total expenses were $550.2 million, a $1.0 million or 0.2% decrease from 2010. Maintenance, taxes, utilities and promotion expense increased primarily due to increased maintenance costs and marketing and promotion expenses, partially offset by decreased property taxes at certain centers. Other operating expense increased primarily due to increases in pre-development activities including costs related to the outlet joint venture formed in 2010 and costs related to our Asia pipeline. In 2011, we incurred our $22.7 million share of pre-development activities and we expect our share of 2012 expense, including both U.S and Asia, to be about $21 million. Management, leasing, and development expense increased due to costs related to City Creek Center, which opens in March 2012 and costs of our services in South Korea. General and administrative expense increased primarily due to increases in travel and compensation expenses. In 2011, we incurred $5.3 million in costs related to the acquisitions of TCBL and The Mall at Green Hills and The Gardens on El Paseo and El Paseo Village (see "Results of Operations - Acquisitions"). Interest expense decreased primarily due to the change in interest rate on the International Plaza loan to a floating rate during the period the loan was extended. Depreciation expense was high in 2010 primarily due to changes in depreciable lives of tenant allowances in connection with early terminations. Depreciation in 2010 was also impacted by shortened useful lives of certain assets at one center as part of a construction project to build a new theater. Nonoperating income decreased by $1.4 million in 2011. There were $0.5 million of gains on land sales in 2011, compared to $2.2 million in 2010. We are not projecting any land sale transactions to occur in 2012. Unconsolidated Joint Ventures Total revenues for the year ended December 31, 2011 were $266.5 million, a $3.9 million or 1.4% decrease from 2010. Percentage rents increased due to higher tenant sales. Expense recoveries decreased primarily due to lower expenses and adjustments from prior estimated recoveries at certain centers. Other income decreased primarily due to lower lease cancellation income. Total expenses decreased by $7.1 million or 3.7%, to $182.6 million for the year ended December 31, 2011. Maintenance, taxes, utilities, and promotion expenses decreased primarily due to decreased property taxes and reduced maintenance costs at certain centers. Interest expense decreased primarily due to the change in interest rate on the Fair Oaks loan to a floating rate for the period the loan was extended. Depreciation expense increased primarily due to an increase in depreciation on CAM assets. As a result of the foregoing, income of the Unconsolidated Joint Ventures increased by $3.3 million to $84.0 million. Our equity in income of the Unconsolidated Joint Ventures was $46.1 million, a $0.7 million increase from 2010. Net Income Income from continuing operations increased by $18.8 million for the year ended December 31, 2011. The income from discontinued operations in 2011 includes $174.2 million of gains on extinguishment of debt. Excluding these gains, the loss on discontinued operations increased by $7.9 million over 2010. Net income increased by $185.1 million to $287.4 million from 2010 primarily due to the gains on extinguishment of debt. After allocation of income to noncontrolling and preferred interests, the net income attributable to common shareowners for 2011 was $176.7 million compared to $47.6 million in 2010. FFO and FFO per Share Our FFO was $411.1 million for 2011 compared to $237.3 million for 2010. FFO per diluted share was $4.86 in 2011 compared to $2.86 in 2010. Adjusted FFO in 2011, which excludes acquisition costs, the Series F preferred equity redemption and the gains on extinguishment of debt, was $240.0 million in 2011 compared to $237.3 million for 2010. 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.” 39 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: 2010 2009 CONSOLIDATED BUSINESSES UNCONSOLIDATED JOINT VENTURES AT 100%(1) CONSOLIDATED BUSINESSES UNCONSOLIDATED JOINT VENTURES AT 100%(1) (in millions) REVENUES: Minimum rents Percentage rents Expense recoveries Management, leasing, and development services Other Total revenues EXPENSES: Maintenance, taxes, utilities, and promotion (2) Other operating (2) Management, leasing, and development services General and administrative Litigation charges Restructuring charge Interest expense Depreciation and amortization (3) Total expenses Nonoperating income Impairment loss on marketable securities Income from continuing operations before income tax expense and equity in income of Unconsolidated Joint Ventures Income tax expense Equity in income of Unconsolidated Joint Ventures (3) Income from continuing operations Discontinued operations (4): Discontinued operations Impairment charges Net income (loss) Net (income) loss attributable to noncontrolling interests: Noncontrolling share of income of consolidated joint ventures from continuing operations Noncontrolling share of loss of consolidated joint ventures from discontinued operations TRG Series F preferred distributions Noncontrolling share of income from continuing operations of TRG Noncontrolling share of loss from discontinued operations of TRG Distributions to participating securities of TRG Preferred stock dividends Net income (loss) attributable to Taubman Centers, Inc. common shareowners SUPPLEMENTAL INFORMATION (5): EBITDA - 100% EBITDA - outside partners' share Beneficial interest in EBITDA Beneficial interest expense Impairment charges Beneficial income tax expense Non-real estate depreciation Preferred dividends and distributions Funds from Operations contribution $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 327.6 13.1 225.1 16.1 44.6 626.4 177.7 57.4 8.3 30.2 132.4 145.3 551.2 2.7 77.9 (0.7) 45.4 122.6 (20.3) 102.3 (9.8) (2.5) (32.8) 6.6 (1.6) (14.6) 47.6 364.2 (41.5) 322.7 (131.5) (0.7) (3.7) (17.1) 169.7 $ $ $ 40 $ $ $ $ $ $ $ $ $ 155.4 6.6 100.6 7.8 270.4 73.2 14.4 63.8 38.2 189.7 80.7 182.7 (82.1) 100.7 (33.1) 67.6 $ 157.1 5.1 101.7 8.7 272.6 74.9 17.2 38.5 64.4 39.3 234.3 0.1 38.3 $ $ $ $ $ 327.0 10.7 234.0 21.2 44.6 637.5 186.4 49.0 7.9 27.9 2.5 131.6 136.5 541.7 0.6 (1.7) 94.6 (1.7) 11.5 104.5 (16.9) (166.7) (79.2) (10.8) 7.7 (2.5) (27.2) 58.4 (1.6) (14.6) (69.7) 204.0 (35.3) 168.7 (125.8) 160.8 (1.7) (3.4) (17.1) 181.4 $ $ $ 142.0 (74.2) 67.8 (33.4) 34.4 (2) (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. Promotion expenses, which were previously classified in Other Operating expense, are now included in Maintenance, Taxes, Utilities, and Promotion expense. Amounts for 2010 and 2009 have been reclassified to conform to the 2011 classification. 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. Includes the operations of The Pier Shops and Regency Square. See “Results of Operations– Use of Non-GAAP Measures” for the definition and discussion of EBITDA and FFO. Amounts in this table may not add due to rounding. (4) (5) (6) (3) Consolidated Businesses Total revenues for the year ended December 31, 2010 were $626.4 million, an $11.1 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 $551.2 million, a $9.5 million or 1.8% increase from 2009. Maintenance, taxes, utilities and promotion 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. 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 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. 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 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”). Maintenance, taxes, utilities and promotion expense decreased primarily due to a decrease in promotional expense. Other operating expense decreased primarily due to a reduction in professional fees. 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) Income from continuing operations increased by $18.1 million from 2009. The loss from discontinued operations decreased by $163.3 million due to impairment charges of $166.7 million on The Pier Shops and Regency Square recognized in 2009 (see "Results of Operations - Dispositions/Discontinued Operations"). Net income (loss) 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 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 $215.8 million for 2009. FFO per diluted share was $2.86 in 2010 compared to $2.66 in 2009. Adjusted FFO in 2009, which excludes 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.” 41 Application of Critical Accounting Policies The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 2011 and 2010. In 2009, we recognized impairment charges of $107.7 million and $59.0 million related to The Pier Shops and Regency Square, respectively (see “Results of Operations - Dispositions/Discontinued Operations”). As of December 31, 2011, the consolidated net book value of our properties was $2.7 billion, representing over 80% 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. 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. 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. 42 Our $46.7 million balance of capitalized development pre-construction costs as of December 31, 2011 consists primarily of approximately$40 million of land and site improvements relating to our Oyster Bay project. The balance also includes land for future development in Atlanta, Georgia. Pre-development charges in 2011, 2010, and 2009 were $22.7 million, $16.0 million and $12.3 million, respectively. Of these amounts, $3.1 million, $0.3 million and $0.7 million related to projects with land under option in each of the respective periods. 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 2011, while bankruptcy filings affected 1.5% of tenant leases during the year. Since 1991, the annual provision for losses on accounts receivable has been less than 2% of annual revenues. Notes receivable at December 31, 2011 totaled $7.0 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, 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. As of December 31, 2011, we had a net federal, state and foreign deferred tax asset of $3.7 million, after a valuation allowance of $1.4 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. In 2011, we acquired The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village. See "Note 2 - Acquisitions and Dispositions" for the preliminary allocation of the purchase price to the identifiable assets acquired and liabilities assumed at the dates of acquisition. In 2011, we also acquired a controlling interest in a Beijing-based retail real estate consultancy company and substantially all of the purchase price was allocated to goodwill in Taubman TCBL. We have not yet finalized our allocations of the purchase prices to the tangible and identifiable intangible assets and liabilities acquired. We are awaiting certain valuation information for assets and liabilities acquired to complete our allocations. A final determination of required purchase price allocations will be made during 2012. 43 4 4 ( 3 ) ( 2 ) A m o u n t s i n t h i s t a b l e m a y n o t r e c a l c u l a t e d u e t o r o u n d i n g . i n c l u d e t h e i m p a c t o f c o m m o n s t o c k e q u i v a l e n t s b e c a u s e t h e i m p a c t i s d i l u t i v e t o i n c o m e f r o m c o n t i n u i n g o p e r a t i o n s p e r s h a r e . D e p r e c i a t i o n f r o m c o n t i n u i n g a n d d i s c o n t i n u e d o p e r a t i o n s i n c l u d e s $ 1 7 . 6 m i l l i o n , $ 1 4 . 4 m i l l i o n , a n d $ 1 5 . 5 m i l l i o n o f m a l l t e n a n t a l l o w a n c e a m o r t i z a t i o n f o r t h e 2 0 1 1 , 2 0 1 0 , a n d 2 0 0 9 , r e s p e c t i v e l y . ( 1 ) P e r s h a r e a m o u n t s f o r n e t l o s s a t t r i b u t a b l e t o c o m m o n s h a r e h o l d e r s a n d n e t l o s s a t t r i b u t a b l e t o p a r t n e r s h i p u n i t h o l d e r s a n d p a r t i c i p a t i n g s e c u r i t i e s a r e c a l c u l a t e d u s i n g w e i g h t e d a v e r a g e o u t s t a n d i n g s h a r e s , w h i c h d e p r e c i a t i o n A d d :N o n c o n t r o l l i n g s h a r e o f i n c o m e f r o m c o n t i n u i n g o p e r a t i o n s o f T R G A d d i m p a c t o f s h a r e - b a s e d c o m p e n s a t i o n A d d d e p r e c i a t i o n o f T C O ’ s a d d i t i o n a l b a s i s N e t i n c o m e a t t r i b u t a b l e t o T C O c o m m o n s h a r e o w n e r s - d i l u t e d N e t i n c o m e ( l o s s ) a t t r i b u t a b l e t o T C O c o m m o n s h a r e o w n e r s , e x c l u d i n g s t e p - u p D i s t r i b u t i o n s t o p a r t i c i p a t i n g s e c u r i t i e s N o n c o n t r o l l i n g s h a r e o f i n c o m e ( l o s s ) f r o m d i s c o n t i n u e d o p e r a t i o n s o f T R G A c q u i s i t i o n c o s t s S e r i e s F r e d e m p t i o n F u n d s f r o m O p e r a t i o n s L i t i g a t i o n c h a r g e s R e s t r u c t u r i n g c h a r g e G a i n s o n e x t i n g u i s h m e n t o f d e b t F u n d s f r o m O p e r a t i o n s a t t r i b u t a b l e t o T C O T C O s ' a v e r a g e o w n e r s h i p p e r c e n t a g e o f T R G F u n d s f r o m O p e r a t i o n s P l u s i m p a i r m e n t c h a r g e s L e s s i m p a c t o f s h a r e - b a s e d c o m p e n s a t i o n N o n - r e a l e s t a t e d e p r e c i a t i o n S h a r e o f U n c o n s o l i d a t e d J o i n t V e n t u r e s A d j u s t e d F u n d s f r o m O p e r a t i o n s T C O s ' a v e r a g e o w n e r s h i p p e r c e n t a g e o f T R G A d j u s t e d F u n d s f r o m O p e r a t i o n s a t t r i b u t a b l e t o T C O A d d ( l e s s ) d e p r e c i a t i o n a n d a m o r t i z a t i o n ( 2 ) : D e p r e c i a t i o n o f T C O ’ s a d d i t i o n a l b a s i s C o n s o l i d a t e d b u s i n e s s e s a t 1 0 0 % C o n s o l i d a t e d b u s i n e s s e s a t 1 0 0 % - - c o n t i n u i n g o p e r a t i o n s d i s c o n t i n u e d o p e r a t i o n s N o n c o n t r o l l i n g p a r t n e r s i n c o n s o l i d a t e d j o i n t v e n t u r e s N o n c o n t r o l l i n g p a r t n e r s i n c o n s o l i d a t e d j o i n t v e n t u r e s - - c o n t i n u i n g o p e r a t i o n s d i s c o n t i n u e d o p e r a t i o n s $ $ 1 6 6 . 9 2 4 0 . 0 6 9 . 3 % $ $ ( 1 7 4 . 2 ) ( 2 . 2 ) 5 . 3 4 1 1 . 1 2 8 5 . 4 4 1 1 . 1 6 9 . 3 % ( 0 . 9 ) ( 2 . 6 ) 2 3 . 1 ( 1 1 . 2 ) 1 0 . 3 ( 6 . 9 ) 1 3 2 . 7 8 4 , 6 5 9 , 9 9 4 8 4 , 6 5 9 , 9 9 4 8 4 , 6 5 9 , 9 9 4 $ $ $ $ $ 2 . 8 4 2 . 8 4 ( 2 . 0 6 ) ( 0 . 0 3 ) 0 . 0 6 4 . 8 6 4 . 8 6 4 . 8 6 ( 0 . 0 1 ) ( 0 . 0 3 ) 0 . 2 7 ( 0 . 1 3 ) ( 0 . 0 8 ) 0 . 1 2 1 . 5 7 $ $ $ $ $ N e t i n c o m e ( l o s s ) a t t r i b u t a b l e t o p a r t n e r s h i p u n i t h o l d e r s a n d p a r t i c i p a t i n g s e c u r i t i e s $ 2 6 6 . 6 8 4 , 6 5 9 , 9 9 4 $ 3 . 1 5 $ 2 3 7 . 3 1 6 0 . 1 2 3 7 . 3 6 7 . 5 % ( 0 . 3 ) ( 3 . 7 ) 2 2 . 2 ( 1 0 . 5 ) ( 6 . 9 ) 8 . 6 1 4 5 . 3 8 2 . 7 1 . 6 3 2 . 8 ( 6 . 6 ) 1 6 0 . 1 2 3 7 . 3 6 7 . 5 % 8 2 , 8 7 5 , 4 2 4 8 2 , 8 7 5 , 4 2 4 8 2 , 8 7 5 , 4 2 4 $ $ $ $ $ 2 . 8 6 2 . 8 6 2 . 8 6 2 . 8 6 2 . 8 6 0 . 0 0 ( 0 . 0 4 ) 0 . 2 7 ( 0 . 1 3 ) ( 0 . 0 8 ) 0 . 1 0 1 . 7 5 $ $ $ $ $ 1 6 6 . 3 6 6 . 8 % 2 4 8 . 7 3 0 . 4 2 . 5 2 1 5 . 8 1 4 4 . 2 2 1 5 . 8 1 6 0 . 8 6 6 . 8 % 0 . 3 2 2 . 9 ( 3 . 4 ) ( 1 . 2 ) ( 1 1 . 2 ) 1 0 . 8 ( 6 . 9 ) 1 3 6 . 5 8 1 , 2 6 9 , 3 1 1 8 1 , 2 6 9 , 3 1 1 8 1 , 2 6 9 , 3 1 1 $ $ $ $ $ 3 . 0 6 3 . 0 6 0 . 0 3 0 . 3 7 2 . 6 6 2 . 6 6 2 . 6 6 1 . 9 8 ( 0 . 0 4 ) 0 . 2 9 ( 0 . 0 1 ) ( 0 . 1 4 ) ( 0 . 0 9 ) 0 . 1 3 1 . 6 8 4 4 . 3 3 6 . 2 1 . 5 2 5 , 2 5 9 , 6 4 3 8 7 1 , 2 6 2 2 6 , 3 0 1 , 3 4 9 8 7 1 , 2 6 2 ( 5 8 . 4 ) 2 7 . 2 1 . 6 2 6 , 4 1 7 , 0 7 4 8 7 1 , 2 6 2 8 2 , 8 7 5 , 4 2 4 $ 1 . 0 0 $ ( 9 2 . 8 ) 8 1 , 2 6 9 , 3 1 1 $ ( 1 . 1 6 ) $ 1 8 4 . 5 5 8 , 5 2 9 , 0 8 9 $ 3 . 1 5 $ 5 4 . 8 5 5 , 7 0 2 , 8 1 3 $ 0 . 9 8 $ ( 6 3 . 1 ) 5 3 , 9 8 0 , 9 7 5 $ ( 1 . 1 7 ) O p e r a t i o n s R e c o n c i l i a t i o n o f N e t I n c o m e ( L o s s ) A t t r i b u t a b l e t o T a u b m a n C e n t e r s , I n c . C o m m o n S h a r e o w n e r s t o F u n d s f r o m O p e r a t i o n s a n d A d j u s t e d F u n d s f r o m N e t i n c o m e ( l o s s ) a t t r i b u t a b l e t o T C O c o m m o n s h a r e o w n e r s $ 1 7 6 . 7 5 6 , 8 9 9 , 9 6 6 $ 3 . 1 1 m i l l i o n s D o l l a r s i n U n i t s S h a r e s / D i l u t e d 2 0 1 1 U n i t S h a r e / P e r 1 7 7 . 6 6 . 9 0 . 9 5 8 , 5 2 9 , 0 8 9 1 , 6 2 9 , 1 2 3 0 . 1 2 3 . 0 3 $ $ 4 7 . 9 0 . 3 4 7 . 6 6 . 9 m i l l i o n s D o l l a r s i n 5 5 , 7 0 2 , 8 1 3 1 , 1 3 3 , 1 9 5 5 4 , 5 6 9 , 6 1 8 $ $ 0 . 1 2 0 . 8 6 0 . 8 7 $ $ ( 7 0 . 0 ) ( 0 . 3 ) ( 6 9 . 7 ) 6 . 9 U n i t s S h a r e s / D i l u t e d 2 0 1 0 U n i t P e r S h a r e / m i l l i o n s D o l l a r s i n U n i t s ( 1 ) S h a r e s / D i l u t e d 2 0 0 9 5 3 , 9 8 0 , 9 7 5 7 4 1 , 6 9 6 5 3 , 2 3 9 , 2 7 9 $ $ U n i t S h a r e / P e r 0 . 1 3 ( 1 . 3 0 ) ( 1 . 3 1 ) Discontinued Operations of The Pier Shops and Regency Square: Reconciliations of Net Operating Income to Net Income (Loss) The Pier Shops (1), (2): NOI Interest expense Adjusted FFO Gain on extinguishment of debt Impairment charges Depreciation and amortization Net income (loss) Regency Square (2): NOI Interest expense Adjusted FFO Gain on extinguishment of debt Impairment charge Depreciation and amortization Net income (loss) $ $ $ $ $ $ 2011 2010 2009 (in millions) Outside Partner’s Share 100% TRG% 100% TRG% $ 4.2 (15.0) $ (10.7) $ 0.9 (11.6) $ (10.7) $ $ 3.4 (3.4) — $ $ 2.9 (8.6) (5.8) $ $ 7.4 (6.7) 0.7 (0.8) (14.2) (15.0) 126.7 (7.6) 104.2 (6.6) $ (17.4) (6.6) $ (17.4) (107.7) (6.3) $(119.7) (101.8) (5.1) $ (106.2) Outside Partner’s Share $ $ $ (4.5) (1.9) (6.5) (5.9) (1.2) (13.6) $ 4.5 (5.4) $ (0.9) 4.4 (7.3) (2.9) 47.4 (2.7) 41.8 (2.0) $ (2.9) $ $ 5.1 (5.5) (0.4) (68.0) (4.5) $ (72.9) (1) We had a controlling, 77.5% ownership interest in The Pier Shops prior to the foreclosure on the property in November 2011. However, beginning in 2010, we allocated 100% of the losses and negative FFO impact of The Pier Shops' operations to TRG's unitholders in order to maintain the equity balance of The Pier Shops' 22.5% outside partner at zero. Prior to 2011, our presentation of these results included an allocation of 22.5% of The Pier Shops' interest expense and an equal amount of NOI to the outside partner (effectively, a net zero allocation of the net loss and negative FFO impact). Beginning in 2011, the presentation has been simplified to allocate all components of net income to TRG's unitholders. (2) Although we had stopped funding cash shortfalls of The Pier Shops and Regency Square, we continued to record the operations of these centers until titles for both properties were transferred to the mortgage lenders and the loan obligations were extinguished in the fourth quarter of 2011 (see "Results of Operations - Dispositions/Discontinued Operations"). (3) Amounts in this table may not add due to rounding. 45 Reconciliation of Net Income (Loss) to Beneficial Interest in EBITDA Net income (loss) Add (less) depreciation and amortization: 2011 2010 2009 (in millions, except as indicated) $ 287.4 $ 102.3 $ (79.2) Consolidated businesses at 100% - continuing operations Consolidated businesses at 100% - discontinued operations Noncontrolling partners in consolidated joint ventures - continuing operations Noncontrolling partners in consolidated joint ventures - discontinued operations Share of Unconsolidated Joint Ventures 132.7 10.3 145.3 8.6 (11.2) (10.5) 23.1 22.2 Add (less) interest expense, gains on extinguishment of debt and income tax expense: Interest expense: Consolidated businesses at 100% - continuing operations Consolidated businesses at 100% - discontinued operations Noncontrolling partners in consolidated joint ventures - continuing operations Noncontrolling partners in consolidated joint ventures - discontinued operations Share of unconsolidated joint ventures Gains on extinguishment of debt Income tax expense 122.3 21.4 132.4 20.3 (12.2) (21.2) 31.6 (174.2) 0.6 33.1 0.7 Less noncontrolling share of income of consolidated joint ventures (14.4) (9.8) 136.5 10.8 (11.2) (1.2) 22.9 131.6 14.1 (17.9) (1.9) 33.4 1.7 (3.1) Beneficial interest in EBITDA $ 417.6 $ 423.4 $ 236.4 TCO’s average ownership percentage of TRG 69.3% 67.5% 66.8% Beneficial interest in EBITDA allocable to TCO $ 289.2 $ 285.7 $ 158.1 (1) Amounts in this table may not add due to rounding. 46 Reconciliation of Net Income (Loss) to Net Operating Income Net income (loss) Add (less) depreciation and amortization: Consolidated businesses at 100% - continuing operations Consolidated businesses at 100% - discontinued operations Noncontrolling partners in consolidated joint ventures - continuing operations Noncontrolling partners in consolidated joint ventures - discontinued operations Share of Unconsolidated Joint Ventures Add (less) interest expense, gains on extinguishment of debt, and income tax expense: Interest expense: Consolidated businesses at 100% - continuing operations Consolidated businesses at 100% - discontinued operations Noncontrolling partners in consolidated joint ventures - continuing operations Noncontrolling partners in consolidated joint ventures - discontinued operations Share of Unconsolidated Joint Ventures Gains on extinguishment of debt 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 2011 $ 287.4 2010 (in millions) 102.3 $ 2009 $ (79.2) 132.7 10.3 145.3 8.6 (11.2) (10.5) 23.1 22.2 122.3 21.4 132.4 20.3 (12.2) (21.2) 31.6 (174.2) 0.6 (14.4) 37.7 83.6 33.1 0.7 (9.8) 41.5 82.1 136.5 10.8 (11.2) (1.2) 22.9 131.6 14.1 (17.9) (1.9) 33.4 1.7 (3.1) 35.3 74.2 EBITDA at 100% $ 538.8 $ 547.0 $ 346.0 Add (less) items excluded from shopping center Net Operating Income: General and administrative expenses Management, leasing, and development services, net Acquisition costs Restructuring charge Litigation charges Impairment charges Gains on sales of peripheral land Interest income Impairment loss on marketable securities Straight-line of rents Non-center specific operating expenses and other Net Operating Income at 100% - all centers Less - Net Operating Income of non-comparable centers (1) Net Operating Income at 100% - comparable centers Lease cancellation income Net Operating Income at 100% - comparable centers excluding lease cancellation income $ $ $ 31.6 (13.6) 5.3 (0.5) (0.9) (2.5) 33.0 591.2 (4.1) 587.1 (3.2) $ $ 30.2 (7.9) (2.2) (0.6) (2.7) 24.3 588.2 (8.4) 579.8 (23.5) $ $ 27.9 (13.3) 2.5 38.5 166.7 (0.8) 1.7 (2.6) 18.8 585.3 (2.6) 582.7 (20.0) 583.9 $ 556.3 $ 562.7 (1) Includes The Pier Shops, Regency Square, The Mall at Green Hills, The Gardens on El Paseo, and El Paseo Village. 47 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 maturing debt obligations 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 two loans that matured in 2011 were refinanced. We also refinanced our primary line of credit in 2011. For the terms of these new loans, see “Results of Operations – Debt Transactions.” As of December 31, 2011, we had a consolidated cash balance of $24.0 million. Our primary line of credit was refinanced in 2011 and our second line of credit's maturity was extended. The new primary line of credit increased the borrowing capacity to $650 million from $550 million and now matures in January 2015, with a 1-year extension option. The maturity date on our second line of credit was extended through April 2012 and the maximum amount available under this facility was increased to $65 million from $40 million. As of December 31, 2011, after considering current loan balances and outstanding letters of credit $359 million was available under these facilities. Thirteen banks participate in our $650 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. In 2012, three loans relating to two of our Unconsolidated Joint Venture properties mature. The $181.1 million Westfarms loan, $142.9 million at our beneficial share, matures in July 2012 and is prepayable without penalty in April 2012. Currently the loan is fixed at 6.10%. The $116.3 million Sunvalley loan, $58.2 million at our beneficial share, matures in November 2012. Currently the loan is fixed at 5.67%. The $30 million Taubman Land Associates (Sunvalley entity) loan, $15 million at our beneficial share, also matures in November 2012. Currently the loan is swapped to an effective rate of 5.95% until maturity. We expect to refinance these loans at rates under 5% and expect our share of excess proceeds on these loans to be in excess of $100 million. Summaries of 2011 Capital, Debt and Equity Activities and Transactions In December 2011, we acquired The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village for $560 million. The consideration for the properties consisted of the assumption of $206 million of debt, $281 million in installment notes, and the issuance of 1.3 million of Operating Partnership units (see "Results of Operations - Acquisitions"). In November and December 2011, titles to The Pier Shops and Regency Square, respectively, were transferred to their respective mortgage lenders and we were relieved of $207.2 million of debt obligations plus accrued interest associated with the properties (see "Results of Operations - Dispositions/Discontinued Operations"). In December 2011, Taubman Asia acquired a 90% controlling interest in a Beijing-based retail real estate consultancy company. Under the terms of the agreement, the total consideration for the transaction was $23.7 million (see "Results of Operations - Acquisitions"). In addition, see "Results of Operations - Other Equity Transactions" for information regarding the redemption of the Operating Partnership's Series F Preferred Equity and the equity offering of 2.0 million common shares in October 2011 and June 2011, respectively. Also, see "Results of Operations - Debt Transactions" for a summary of debt financings in 2011. Operating Activities Our net cash provided by operating activities was $270.2 million in 2011, compared to $264.6 million in 2010 and $235.6 million in 2009. See “Results of Operations” for descriptions of 2011, 2010, and 2009 transactions affecting operating cash flow. 48 Investing Activities Net cash used in investing activities was $368.3 million in 2011, compared to $44.8 million used in 2010. In 2009, investing activities provided $6.3 million. Additions to properties in 2011 included the purchase of the space vacated by Saks Fifth Avenue at Cherry Creek, costs of the expansion at Short Hills, anchor replacement costs at Willow Bend, tenant allowances at existing centers, and other capital items. Additions to properties in 2010 related primarily to tenant allowances 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. A tabular presentation of 2011 and 2010 capital spending is shown in “Capital Spending.” In 2011, Taubman Asia invested $20.9 million for an interest in the Hanam project with Shinsegae (see "Results of Operations - Taubman Asia"). In 2009, the $54.3 million contribution made related to our acquisition of a 25% interest in The Mall at Studio City 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 $3.7 million and $3.1 million in 2011 and 2010, respectively. The timing of land sales is variable and proceeds from land sales can vary significantly from period to period. Additions to restricted cash in 2011 include cash drawn from our line of credit that was used in February 2012 to repay the $281.5 million of installment notes that were issued as part of the consideration for the acquired centers (see "Results of Operations - Acquisitions"). In 2011, $11.5 million was paid related the acquisition of TCBL (see "Results of Operations - Acquisitions"). During 2010 and 2009, we issued $2.9 million and $7.2 million in notes receivable, respectively, and in 2011, 2010 and 2009 received $1.5 million, $1.6 million, and $4.5 million in repayment, respectively. The notes receivable in 2009 represent amounts issued to fund the noncontrolling partner’s share of a settlement at Westfarms that was paid in December 2009 (see "Note 5 - Investment in Unconsolidated Joint Ventures - Westfarms" to our consolidated financial statements). 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. Sources of cash used in funding these investing activities other than cash flows from operating activities included distributions from Unconsolidated Joint Ventures. Distribution in excess of income from Unconsolidated Joint Ventures provided $17.6 million in 2011, compared to $32.8 million in 2010 and $36.9 million in 2009. The amounts in 2011 and 2010 included $11.1 million and $21 million of excess proceeds from the Fair Oaks and Arizona Mills refinancings, respectively. Financing Activities Net cash provided by financing activities was $102.9 million in 2011 compared to $216.7 million used in 2010 and $284.9 million used in 2009. Proceeds from the issuance of debt, net of payments and issuance costs, were $193.8 million in 2011. Proceeds in 2011 include the cash drawn on our line of credit to cash collateralize the installment notes issued in connection with the acquisitions of centers in 2011 (see "Results of Operations - Acquisitions"). Payments of debt and issuance costs, net of proceeds from the issuance of debt, were $33.3 million in 2010, compared to $105.0 million in 2009. In 2011, $112.0 million was received from issuing new shares of common stock, net of offering costs. In addition, $2.6 million, $2.5 million and $14.7 million of proceeds were received in connection with incentive plans in 2011, 2010 and 2009, respectively. Total dividends and distributions paid were $210.6 million, $185.6 million, and $192.5 million in 2011, 2010, and 2009, respectively. Common dividends paid in 2010 include the special dividend paid in December 2010. Contributions from noncontrolling interests were $32.2 million in 2011, which included contributions to fund the paydown required with the International Plaza loan extension and the purchase of the space vacated by Saks Fifth Avenue at Cherry Creek. In 2011, the Operating Partnership's Series F Preferred Equity was redeemed for $27.0 million (see "Note 14 – Common and Preferred Stock and Equity of TRG"). 49 Beneficial Interest in Debt At December 31, 2011, the Operating Partnership's debt and its beneficial interest in the debt of its Consolidated Businesses and Unconsolidated Joint Ventures totaled $3,397.4 million, with an average interest rate of 4.82% 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 $57.6 million as of December 31, 2011, which includes $3.0 million of assets on which interest is being capitalized. The following table presents information about our beneficial interest in debt as of December 31, 2011: Fixed rate debt Floating rate debt: Swapped through October 2012 Swapped through April 2018 Swapped through August 2020 Floating month to month Total floating rate debt Total beneficial interest in debt Amortization of financing costs (2) Average all-in rate Interest Rate Including Spread 5.17% (1) 5.95% 4.10% 4.99% 4.60% 2.01% 3.20% (1) (1) (1) Amount (in millions) 2,793.9 $ 15.0 137.5 124.5 277.0 326.5 603.5 $ $ 3,397.4 4.82% (1) 0.18% 5.00% (1) Represents weighted average interest rate before amortization of financing costs. (2) Financing costs include debt issuance costs and costs related to interest rate agreements of certain fixed rate debt. (3) 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, 2011, 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 $3.3 million, respectively. Based on our consolidated debt and interest rates in effect at December 31, 2011, a one percent increase in interest rates would decrease the fair value of debt by approximately $94.7 million, while a one percent decrease in interest rates would increase the fair value of debt by approximately $99.8 million. 50 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, 2011 for our consolidated businesses, including expected settlement periods, is contained below: Debt (1) (2) Interest payments (1) Operating leases Purchase obligations: Planned capital spending (3) Other purchase obligations (4) Other long-term liabilities and commitments (5) Total Payments due by period Total Less than 1 year (2012) 1-3 years (2013-2014) (in millions) 3-5 years (2015-2016) More than 5 years (2017+) $ 3,136.1 $ 302.4 $ 650.1 $ 1,668.6 $ 648.8 437.6 128.7 14.4 62.1 148.1 11.3 128.7 3.8 1.2 254.8 21.1 7.1 2.5 133.7 14.3 2.4 3.0 515.0 112.3 391.0 1.3 55.4 $ 4,427.9 $ 595.4 $ 935.5 $ 1,822.0 $ 1,075.0 (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, 2011. Debt excludes $9.5 million in unamortized debt premiums related to the acquisitions of The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village. (2) Includes $281.5 million of installment notes repaid in February 2012 using restricted cash funded by our line of credit in December 2011. (3) In 2012, $75 million will be paid upon opening of City Creek Center. (4) Excludes purchase agreements with cancellation provisions of 90 days or less. (5) Other long-term liabilities consist of various accrued liabilities, most significantly assessment bond obligations and long- term incentive compensation. (6) Amounts in this table may not add due to rounding. Loan Commitments and Guarantees Certain loan agreements contain various restrictive covenants, including a minimum net worth requirement, a maximum payout ratio on distributions, a minimum debt yield ratio, a minimum fixed charges coverage ratio, minimum interest coverage ratios, and a maximum leverage ratio, the latter being the most restrictive. We are in compliance with all of our covenants and loan obligations as of December 31, 2011. The maximum payout ratio on distributions covenant limits the payment of distributions generally to 95% of funds from operations, as defined in the loan agreements, except as required to maintain our tax status, pay preferred distributions, and for distributions related to the sale of certain assets. See “Note 8 – Notes Payable – Debt Covenants and Guarantees” to our consolidated financial statements for more details on loan guarantees. Cash Tender Agreement and Other A. Alfred Taubman has the annual right to tender units of partnership interest in the Operating Partnership and cause us to purchase the tendered interests at a purchase price based on a market valuation of TCO on the trading date immediately preceding the date of the tender. See “Note 15 – Commitments and Contingencies – Cash Tender” to our consolidated financial statements for more details. As part of the consideration for the acquisition of The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village, 1.3 million Operating Partnership units were issued (see "Results of Operations - Acquisitions"). The partnership units will become eligible to be converted into common shares after one year. Prior to this date, holders will have the ability to put the units back to us at the lesser of the current market price of TCO's common stock or $55 per share. 51 Capital Spending City Creek Center City Creek Center, a mixed-use project in Salt Lake City, Utah, will include a 0.7 million square foot retail component anchored by Macy’s and Nordstrom. The center will open in March 2012. We are currently providing development and leasing services and will be the manager for the retail space, which we own subject to 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 at stabilization, 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, 2011, the capitalized cost of this project was approximately $0.1 million. Leasing of retail tenant space is about 92% committed. New Developments We believe we are in the final stages of pre-development for three projects: two new regional malls in Sarasota, Florida and San Juan, Puerto Rico and a new outlet mall in the St. Louis, Missouri area, and we expect to begin construction in 2012 for all three projects. We anticipate our share of project costs to be at least $500 million. We will provide additional detail on expected costs, returns and anchors once construction begins. We expect to finance these projects using our lines of credit and construction loans. 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. 2011 and 2010 Capital Spending Capital spending for routine maintenance of the shopping centers is generally recovered from tenants. Capital spending during 2011, excluding acquisitions, is summarized in the following table: 2011 (1) Consolidated Businesses Beneficial Interest in Consolidated Businesses Unconsolidated Joint Ventures Beneficial Interest in Unconsolidated Joint Ventures Existing centers: Projects with incremental GLA or anchor replacement (2) Projects with no incremental GLA and other Mall tenant allowances (3) Asset replacement costs reimbursable by tenants Corporate office improvements, equipment, and other $ 24.3 $ 6.8 31.9 11.6 1.3 (in millions) 19.3 5.8 $ 29.8 10.3 1.3 3.3 $ 11.5 7.1 1.7 6.6 4.1 Total $ 76.0 $ 66.5 $ 21.9 $ 12.4 (1) Costs are net of intercompany profits and are computed on an accrual basis. (2) Includes costs to acquire the building that was vacated by Saks Fifth Avenue at Cherry Creek in March 2011, costs of the expansion of Short Hills, and anchor replacement costs at Willow Bend. (3) Excludes initial lease-up costs. (4) Amounts in this table may not add due to rounding. 52 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, 2011: Consolidated Businesses’ capital spending Differences between cash and accrual basis Additions to properties Capital spending during 2010 is summarized in the following table: (in millions) $ $ 76.0 (6.7) 69.4 2010 (1) Consolidated Businesses Beneficial Interest in Consolidated Businesses Unconsolidated Joint Ventures Beneficial Interest in Unconsolidated Joint Ventures (in millions) $ 15.2 4.0 40.6 14.3 1.3 $ 15.2 4.2 43.4 16.0 1.3 $ 2.4 1.7 6.4 80.0 $ 75.5 $ 10.5 $ 1.2 0.9 3.6 5.7 Existing Centers: Projects with incremental GLA Projects with no incremental GLA and other Mall tenant allowances (2) Asset replacement costs reimbursable by tenants Corporate office improvements, equipment, and other Total $ $ (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. 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 $23.80 in 2011 and $37.56 in 2010. 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 2010, excluding expansion space and new developments, was $16.71. In addition, the Operating Partnership's share of capitalized leasing and tenant coordination costs excluding new developments was $7.8 million and $8.4 million in 2011 and 2010, respectively, or $6.03 and $7.10, in 2011 and 2010, respectively, per square foot leased. 53 Planned Capital Spending The following table summarizes planned capital spending for 2012: 2012 (1) Consolidated Businesses Beneficial Interest in Consolidated Businesses Unconsolidated Joint Ventures Beneficial Interest in Unconsolidated Joint Ventures $ 75.0 $ 75.0 (in millions) New development projects (2) Existing centers Projects with incremental GLA or anchor replacement Projects with no incremental GLA and other Mall tenant allowances Asset replacement costs recoverable by tenants Corporate office improvements, technology, and equipment 9.5 9.6 15.6 16.3 2.7 $ 9.5 6.4 14.4 14.7 2.7 $ 0.1 0.2 4.0 17.7 0.1 2.3 9.6 Total $ 128.7 $ 122.8 $ 21.9 $ 12.0 (1) Costs are net of intercompany profits. (2) Represents the amount due on opening of City Creek Center. (3) Amounts in this table may not add due to rounding. These estimates for planned capital spending do not include any amounts for the three centers expected to begin construction in 2012. We will update our planned capital spending when the projects' budgets are finalized and timing of expenditures are determined. In addition, estimates of capital spending will change as new projects are approved by our board of directors. 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. 54 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, 2011, we declared a quarterly dividend of $0.45 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 30, 2011 to shareowners of record on December 19, 2011. 55 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, 2011, 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 2011 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. 56 Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE. PART III The information required by this item is hereby incorporated by reference to the material appearing in the 2012 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 2012 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.” 57 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, 2011: Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights Number of Securities Remaining Available for Future Issuances Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (a) (b) (c) 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) Equity compensation plan not approved by security holders - Non-Employee Directors’ Deferred Compensation Plan (5) 200,521 $ 16.01 978,453 605,927 1,121,469 2,906,370 69,507 40.91 (3) (3) (6) 3,169,407 (1) 3,169,407 (7) 2,975,877 $ 37.13 3,169,407 (1) Under The Taubman Company 2008 Omnibus Long-Term Incentive Plan (as amended), directors, officers, employees, and other service providers of the Company may 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. (2) Amount represents 326,151 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 and performance share units issued under the Omnibus Plan because they are converted into common stock on a one-for-one basis at no additional cost. (4) Under the 1992 Incentive Option Plan, employees received TRG Units upon the exercise of their vested options, and each TRG Unit generally will be converted into one share of common stock under the Continuing Offer. Excludes 871,262 deferred units, the receipt of which were deferred by Robert S. Taubman at the time he exercised options in 2002; the options were initially granted under TRG's 1992 Incentive Option Plan (See “Note 13 – Share Based Compensation and Other Employee Plans” to our consolidated financial statements included at Item 15 (a) (1)). (5) The Deferred Compensation Plan, which was approved by the Board in May 2005, gives each non-employee director of the Company the right to defer the receipt of all or a portion of his or her annual director retainer until the termination of such director's service on the Board and for such deferred compensation to be denominated in restricted stock units. The number of restricted stock units received equals the deferred retainer fee divided by the fair market value of the common stock on the business day immediately before the date the director would otherwise have been entitled to receive the retainer fee. The restricted stock units represent the right to receive equivalent shares of common stock at the end of the deferral period. During the deferral period, when the Company pays cash dividends on the common stock, the directors' deferral accounts are credited with dividend equivalents on their deferred restricted stock units, payable in additional restricted stock units based on the then-fair market value of the common stock. Each Director's account is 100% vested at all times. (6) The restricted stock units are excluded because they are converted into common stock on a one-for-one basis at no additional cost. (7) The number of securities available for future issuance is unlimited and will reflect whether non-employee directors elect to defer all or a portion of their annual retainers. Additional information required by this item is hereby incorporated by reference to the information appearing in the Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management – Ownership Table.” 58 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 2012 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 2012 Proxy Statement under the caption “Audit Committee Disclosure.” 59 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. 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: PART IV 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, 2011 and 2010 Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2011, 2010, and 2009 Consolidated Statement of Changes in Equity for the years ended December 31, 2011, 2010, and 2009 Consolidated Statement of Cash Flows for the years ended December 31, 2011, 2010, and 2009 Notes to Consolidated Financial Statements 15(a)(2) The following is a list of the financial statement schedules required by Item 15(d): TAUBMAN CENTERS, INC. Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2011, 2010, and 2009 Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2011 Page F-2 F-3 F-5 F-6 F-7 F-8 F-9 F-46 F-47 15(a)(3) Exhibit Number 3.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 Incorporated by Reference Exhibit Description Restated By-Laws of Taubman Centers, Inc. Form Period Ending 8-K Exhibit 3.1 Filing Date December 16, 2009 Filed Herewith Restated Articles Amended Incorporation of Taubman Centers, Inc. and of 10-Q September 30, 2011 3.1 Loan Agreement dated as of January 15, 2004 among La Cienega Associates, as Borrower, Column Financial, Inc., as Lender. Assignment of Leases and Rents, La Cienega Associates, Assignor, and Column Financial, Inc., Assignee, dated as of January 15, 2004. 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. Amended and Restated Promissory Note A-1, dated December 14, 2005, by Short Hills Associates L.L.C. to Metropolitan Life Insurance Company. Amended and Restated Promissory Note A-2, dated December 14, 2005, by Short Hills Associates L.L.C. to Metropolitan Life Insurance Company. Amended and Restated Promissory Note A-3, dated December 14, 2005, by Short Hills Associates L.L.C. to Metropolitan Life Insurance Company. 4 4 4 4.1 4.2 4.3 December 16, 2005 December 16, 2005 December 16, 2005 10-Q March 31, 2004 10-Q March 31, 2004 10-Q March 31, 2004 8-K 8-K 8-K 60 Exhibit Number 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.14.1 4.14.2 *10.1 *10.1.1 *10.1.2 Exhibit Description Amended and Restated Mortgage, Security Agreement dated December 14, 2005 by Short Hills Associates L.L.C. Insurance Company. to Metropolitan Life and Fixture Filings, Amended and Restated Assignment of Leases, dated December 14, 2005, by Short Hills Associates L.L.C. to Metropolitan Life Insurance Company. Third 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. Fourth Amended and Restated Mortgage, Assignment of Leases and Rents and Security Agreement, dated as of July 29, 2011, by and between Dolphin Mall Associates LLC and Eurohypo AG, New York Branch, as Administrative Agent. Third Amended and Restated Mortgage, dated as of July 29, 2011, by and between Fairlane Town Center LLC and Eurohypo AG, New York Branch, as Administrative Agent. Third Amended and Restated Mortgage, dated as of July 29, 2011, by and between Twelve Oaks Mall, LLC and Eurohypo AG, New York Branch, as Administrative Agent. Guaranty of Payment, dated as of July 29, 2011, by and among The Taubman Realty Group Limited Partnership, Dolphin Mall Associates LLC, Fairlane Town Center LLC and Twelve Oaks Mall, LLC. Amended and Restated Mortgage, Security Agreement and Fixture Filing, dated as of November 4, 2011, by Tampa Westshore Associates Limited Partnership, in favor of Metropolitan Life Insurance Company. . Assignment of Leases, dated as of November 4, 2011, by Tampa Westshore Associates Limited Partnership (Assignor), a Delaware limited partnership, in favor of Metropolitan Life Insurance Company. Guaranty Agreement, dated as of November 4, 2011, by The Taubman Realty Group Limited Partnership, in favor of Metropolitan Life Insurance Company. The Taubman Realty Group Limited Partnership 1992 Incentive Option Plan, as Amended and Restated Effective as of September 30, 1997. First Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive Option Plan as Amended and Restated Effective as of September 30, 1997. Second Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive Plan as Amended and Restated Effective as of September 30, 1997. Incorporated by Reference Form Period Ending 8-K 8-K 10-Q September 30, 2011 Exhibit 4.4 Filing Date December 16, 2005 Filed Herewith December 16, 2005 4.5 4.1 10-Q September 30, 2011 4.2 10-Q September 30, 2011 10-Q September 30, 2011 10-Q September 30, 2011 8-K 8-K 8-K 4.3 4.4 4.5 4.1 4.2 4.3 10-K December 31, 1997 10(b) 10-K December 31, 2001 10(b) 10-K December 31, 2004 10(c) 61 November 9, 2011 November 9, 2011 November 9, 2011 Exhibit Number *10.1.3 *10.1.4 *10.1.5 10.2 10.2.1 10.2.2 10.3 Exhibit Description Third Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive Plan as Amended and Restated Effective as of September 30, 1997. Fourth Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive Plan as Amended and Restated Effective as of September 30, 1997. The Form of The Taubman Realty Group Limited Partnership 1992 Incentive Option Plan Option Agreement. Master Services Agreement between The Taubman Realty Group Limited Partnership and the Manager. to the Master Services First Amendment Agreement between The Taubman Realty Group Limited Partnership and the Manager, dated September 30, 1998. Second Amendment to the Master Services Agreement between The Taubman Realty Group Limited Partnership and the Manager, dated December 23, 2008. 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 by Reference Form 10-K Period Ending December 31, 2004 Exhibit 10(d) 10-Q March 31, 2007 10(a) Filing Date Filed Herewith 10-K 10-K 10-K December 31, 2004 December 31, 1992 10(e) 10(f) December 31, 2008 10(au) 10-K December 31, 2008 10(an) 10-Q June 30, 2000 10(a) *10.4 Supplemental Retirement Savings Plan. *10.4.1 *10.5 *10.5.1 *10.6 *10.6.1 *10.6.2 10.7 10.8 First Amendment to The Taubman Company Supplemental Retirement Savings Plan, dated December 12, 2008 (revised for Code Section 409A compliance). Employment Agreement The Taubman Company Limited Partnership and Lisa A. Payne. between Amendment to Employment Agreement, dated December 22, 2008, for Lisa A. Payne (revised for Code Section 409A compliance). 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). Form of Amended and Restated Change of dated Control Employment Agreement, December 18, 2008 (revised for Code Section 409A compliance). Amendment to The Taubman Centers, Inc. Change of Control Severance Program, dated December 12, 2008 (revised for Code Section 409A compliance). Second Amended and Restated Continuing Offer, dated as of May 16, 2000. The Second Amendment and Restatement of Agreement of Limited Partnership of the Taubman Realty Group Limited Partnership dated September 30, 1998. 10-K 10-K December 31, 1994 December 31, 2008 10(i) 10(aq) 10-Q March 31, 1997 10 10-K 10-K December 31, 2008 December 31, 2008 10(at) 10(o) 10-K December 31, 2008 10(p) 10-K December 31, 2008 10(ar) 10-Q June 30, 2000 10(b) 10-Q September 30, 1998 10 62 Exhibit Number 10.8.1 10.8.2 10.8.3 10.8.4 10.8.5 10.8.6 10.8.7 10.8.8 10.8.9 10.8.10 10.8.11 10.8.12 *10.9 10.10 10.11 Exhibit Description Annex to Second Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of The Taubman Realty Group Limited Partnership. Annex II to Second Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of The Taubman Realty Group Limited Partnership. Annex III to The Second Amendment and Restatement of Limited of Agreement Partnership of The Taubman Realty Group Limited Partnership, dated as of May 27, 2004. 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. to Second Amendment Second Amendment and Restatement of Agreement of Limited Partnership of The Taubman Realty Group Limited Partnership effective as of September 3, 1999. the Third Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of the Taubman Realty Group Limited Partnership, dated May 2, 2003. 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 by Reference Form 10-K Period Ending December 31, 2009 Exhibit 10(s) Filing Date Filed Herewith 10-K December 31, 1999 10(p) 10-Q June 30, 2004 10(c) 10-K December 31, 2009 10(v) 10-Q September 30, 1999 10(a) 10-Q June 30, 2003 10(a) 10-K December 31, 2003 10(x) Fifth Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of the Taubman Realty Group Limited Partnership, dated February 1, 2005. 8-K 10.1 February 7, 2005 Sixth Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of the Taubman Realty Group Limited Partnership, dated March 29, 2006. 10-Q March 31, 2006 10 to Second Seventh Amendment Amendment and Restatement of Agreement of Limited Partnership of the Taubman Realty Group Limited Partnership, dated December 14, 2007. the Eighth Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of the Taubman Realty Group Limited Partnership, dated December 21, 2011. Ninth Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of the Taubman Realty Group Limited Partnership, dated December 30, 2011. The Taubman Realty Group Limited Partnership and The Taubman Company LLC Election and Option Deferral Agreement, as Amended and Restated Effective as of January 27, 2011 Operating Agreement of Taubman Land Associates, a Delaware Limited Liability Company, dated October 20, 2006. Amended Partnership California general partnership. and Restated Agreement of Sunvalley Associates, of a 10-K December 31, 2011 10.8.11 10-K December 31, 2011 10.8.12 10-Q March 31, 2011 10(b) 10-K December 31, 2006 10(ab) 10-Q/A June 30, 2002 10(a) 63 Exhibit Number *10.12 *10.13 *10.13.1 *10.13.2 *10.13.3 *10.14 *10.15 *10.15.1 *10.15.2 *10.15.3 *10.16 10.17 10.17.1 12 21 23 31.1 Incorporated by Reference Exhibit Description Summary of Compensation for the Board of Directors of Taubman Centers, Inc., effective January 1, 2011. Form 10-Q Period Ending March 31, 2011 Exhibit 10(a) Filing Date Filed Herewith The Taubman Centers, Inc. Non-Employee Directors' Deferred Compensation Plan. The Form of The Taubman Centers, Inc. Non- Employee Directors' Deferred Compensation Plan. 8-K 8-K 10 10 May 18, 2005 May 18, 2005 First Amendment to the Taubman Centers, Inc. Deferred Non-Employee Compensation Plan. Directors' Form of Taubman Centers, Inc. Non- Employee Directors' Deferred Compensation Plan Amendment Agreement (revised for Code Section 409A compliance). Amended and Restated Limited Liability Company Agreement of Taubman Properties Asia LLC, a Delaware Limited Liability Company. The Taubman Company 2008 Omnibus Long- Term Incentive Plan, as amended and restated as of May 21, 2010. Form of The Taubman Company LLC 2008 Plan Omnibus Restricted Share Unit Award Agreement. Long-Term Incentive Form of The Taubman Company LLC 2008 Omnibus Long-Term Incentive Plan Option Award Agreement. Form of The Taubman Company LLC 2008 Omnibus Plan Restricted and Performance Share Unit Award Agreement. Long-Term Incentive The Form of Fair Competition Agreement, by and between the Company and various officers of the Company. Acquisition Agreement between Davis Street Land Company of Tennessee, L.L.C., as Trustee of The Green Hills Mall Trust, Davis Street Land Company of Tennessee II, L.L.C., as Trustee of GH II Trust, Gardens SPE II, LLC, and El Paseo Land Company, L.L.C and The Taubman Realty Group Limited Partnership dated September 30, 2011. the Acquisition to First Amendment Agreement between Davis Street Land Company of Tennessee, L.L.C., as Trustee of The Green Hills Mall Trust, Davis Street Land Company of Tennessee II, L.L.C., as Trustee of GH II Trust, Gardens SPE II, LLC, and El Paseo Land Company, L.L.C and The Taubman Realty Group Limited Partnership, dated December 21, 2011 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. 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. 10-Q June 30, 2008 10(c) 10-K December 31, 2008 10(ap) 10-Q June 30, 2008 10(a) DEF 14 A March 31, 2010 8-K 8-K 8-K 10-Q 10-Q 10(a) March 10, 2009 10(b) March 10, 2009 10(c) March 10, 2009 September 30, 2009 10(a) September 30, 2011 4.6 10-K December 31, 2011 10.17.1 10-K 10-K 10-K December 31, 2011 December 31, 2011 December 31, 2011 12 21 23 64 X Incorporated by Reference Form Period Ending Exhibit Filing Date Filed Herewith X X X Exhibit Number 31.2 32.1 32.2 99.1 99.2 Exhibit Description 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. 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. 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. Debt Maturity Schedule. Real Estate and Accumulated Depreciation Schedule of the Unconsolidated Joint Ventures of The Taubman Realty Group Limited Partnership. 101.INS XBRL Instance Document** 10-K 10-K 10-K 101.SCH 101.CAL 101.LAB 101.PRE 101.DEF * ** XBRL Document** Taxonomy Extension Schema 10-K 10-K 10-K 10-K 10-K XBRL Taxonomy Extension Calculation Linkbase Document** XBRL Taxonomy Extension Label Linkbase Document** XBRL Taxonomy Extension Presentation Linkbase Document** XBRL Taxonomy Extension Definition Linkbase Document** 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. December 31, 2011 December 31, 2011 99.1 99.2 December 31, 2011 December 31, 2011 December 31, 2011 December 31, 2011 December 31, 2011 December 31, 2011 101.INS 101.SCH 101.CAL 101.LAB 101.PRE 101.DEF 15(b) The list of exhibits filed with this report is set forth in response to Item 15(a)(3). The required exhibit index has been filed with the exhibits. 15(c) The financial statement schedules of the Company listed at Item 15(a)(2) are filed pursuant to this Item 15(c). Note: The Company has not filed certain instruments with respect to long-term debt that did not exceed 10% of the Company’s total assets on a consolidated basis. A copy of such instruments will be furnished to the Commission upon request. 65 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, 2011 and 2010 Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2011, 2010, and 2009 Consolidated Statement of Changes in Equity for the years ended December 31, 2011, 2010, and 2009 Consolidated Statement of Cash Flows for the years ended December 31, 2011, 2010, and 2009 Notes to Consolidated Financial Statements CONSOLIDATED FINANCIAL STATEMENT SCHEDULES Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2011, 2010, and 2009 Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2011 F-2 F-3 F-5 F-6 F-7 F-8 F-9 F-46 F-47 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, 2011. 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, 2011. Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011 excluded internal controls of Taubman TCBL, acquired by the Company in December 2011 (see Note 2 to the Company’s consolidated financial statements.) The assets and owners’ equity of the acquired business were $26 million and $24 million at December 31, 2011, respectively. The acquisition of Taubman TCBL had an immaterial impact on the Company’s consolidated net income during the year ended December 31, 2011. Based on its assessment, management believes that Taubman Centers, Inc. maintained effective internal control over financial reporting as of December 31, 2011. The independent registered public accounting firm, KPMG LLP, that audited the financial statements included in this annual report have issued their report on the Company’s system of internal control 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, 2011 and 2010, 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, 2011. 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, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Taubman Centers, Inc.'s internal control over financial reporting as of December 31, 2011, 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 24, 2012 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. /s/ KPMG LLP Chicago, Illinois February 24, 2012 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, 2011, 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, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2011 excluded internal controls of Taubman TCBL, acquired by the Company in December 2011. The assets and owners' equity of the acquired business were $26 million and $24 million at December 31, 2011, respectively. The acquisition of Taubman TCBL had an immaterial impact on the Company's consolidated net income during the year ended December 31, 2011. Our audit of internal control over financial reporting of Taubman Centers, Inc. also excluded an evaluation of the internal control over financial reporting of Taubman TCBL. 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, 2011 and 2010, 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, 2011, and our report dated February 24, 2012 expressed an unqualified opinion on those consolidated financial statements. /s/ KPMG LLP Chicago, Illinois February 24, 2012 F-4 TAUBMAN CENTERS, INC. CONSOLIDATED BALANCE SHEET (in thousands, except share data) Assets: Properties (Notes 4 and 8) Accumulated depreciation and amortization Investment in Unconsolidated Joint Ventures (Note 5) Cash and cash equivalents Restricted cash (Notes 2 and 8) Accounts and notes receivable, less allowance for doubtful accounts of $3,303 and $7,966 in 2011 and 2010 (Note 6) Accounts receivable from related parties (Note 12) Deferred charges and other assets (Note 7) Total Assets Liabilities: Mortgage notes payable (Note 8) Installment notes (Notes 2 and 8) Accounts payable and accrued liabilities Distributions in excess of investments in and net income of Unconsolidated Joint Ventures (Note 5) Commitments and contingencies (Notes 4, 8, 9, 10, 11, 13, and 15) Redeemable noncontrolling interests (Note 9) Equity: Taubman Centers, Inc. Shareowners’ Equity (Note 14): Series B Non-Participating Convertible Preferred Stock, $0.001 par and liquidation value, 40,000,000 shares authorized, 26,461,958 and 26,233,126 shares issued and outstanding at December 31, 2011 and 2010 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, 2011 and 2010 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, 2011 and 2010 Common Stock, $0.01 par value, 250,000,000 shares authorized, 58,022,475 and 54,696,054 shares issued and outstanding at December 31, 2011 and 2010 Additional paid-in capital Accumulated other comprehensive income (loss) (Note 10) Dividends in excess of net income Noncontrolling interests (Note 9) Total Liabilities and Equity December 31 2011 December 31 2010 $ $ $ $ $ $ $ $ $ $ 4,020,954 (1,271,943) 2,749,011 75,582 24,033 295,318 59,990 1,418 131,440 3,336,792 $ $ $ 3,528,297 (1,199,247) 2,329,050 77,122 19,291 7,599 49,906 1,414 62,491 2,546,873 2,864,135 281,467 255,146 $ 2,656,560 247,895 192,257 3,593,005 $ 170,329 3,074,784 84,235 26 $ 26 580 673,923 (27,613) (863,040) (216,124) (124,324) (340,448) 3,336,792 $ $ $ 547 589,881 (14,925) (939,290) (363,761) (164,150) (527,911) 2,546,873 See notes to consolidated financial statements. F-5 TAUBMAN CENTERS, INC. CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (in thousands, except share data) Revenues: Minimum rents Percentage rents Expense recoveries Management, leasing, and development services Other Expenses: Maintenance, taxes, utilities, and promotion Other operating Management, leasing, and development services General and administrative Restructuring charge (Note 12) Acquisition costs (Note 2) Interest expense Depreciation and amortization Nonoperating income Impairment loss on marketable securities (Note 17) Income from continuing operations before income tax expense and equity in income of Unconsolidated Joint Ventures Income tax expense (Note 3) Equity in income of Unconsolidated Joint Ventures (Note 5) Income from continuing operations Discontinued operations (Note 2): Gains on extinguishment of debt Impairments (Note 17) Other discontinued operations Net income (loss) Income from continuing operations attributable to noncontrolling interests (Note 9) (Income) loss from discontinued operations attributable to noncontrolling interests (Note 9) Net income (loss) attributable to Taubman Centers, Inc. Distributions to participating securities of TRG (Note 13) Preferred stock dividends (Note 14) Net income (loss) attributable to Taubman Centers, Inc. common shareowners Net income (loss) Other comprehensive income (Note 10): 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 16): Continuing operations Discontinued operations Total basic earnings per common share Diluted earnings (loss) per common share (Note 16): Continuing operations Discontinued operations Total diluted earnings per common share Year Ended December 31 2010 2009 2011 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 342,612 20,358 229,313 25,551 27,084 644,918 179,092 67,301 11,955 31,598 5,295 122,277 132,707 550,225 1,252 95,945 (610) 46,064 141,399 174,171 (28,172) 145,999 287,398 (50,218) (44,309) 192,871 (1,536) (14,634) 176,701 287,398 (20,583) 1,215 268,030 (74,856) 193,174 1.32 1.79 3.11 1.29 1.74 3.03 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 327,580 13,063 225,079 16,109 44,596 626,427 177,703 57,354 8,258 30,234 132,362 145,271 551,182 2,683 77,928 (734) 45,412 122,606 (20,279) (20,279) 102,327 (45,053) 6,594 63,868 (1,635) (14,634) 47,599 102,327 18,240 1,260 121,827 (48,490) 73,337 1.12 (0.25) 0.87 1.11 (0.25) 0.86 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 327,033 10,710 233,957 21,179 44,579 637,458 186,397 49,035 7,862 27,858 2,512 131,558 136,505 541,727 567 (1,666) 94,632 (1,657) 11,488 104,463 (166,680) (16,944) (183,624) (79,161) (40,416) 66,065 (53,512) (1,560) (14,634) (69,706) (79,161) 8,227 1,666 1,262 (68,006) 19,829 (48,177) 0.90 (2.21) (1.31) 0.89 (2.19) (1.30) Weighted average number of common shares outstanding – basic 56,899,966 54,569,618 53,239,279 See notes to consolidated financial statements. F-6 F - 7 S e e n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s . B a l a n c e , D e c e m b e r 3 1 , 2 0 1 1 3 3 , 9 4 1 , 9 5 8 $ 2 6 5 8 , 0 2 2 , 4 7 5 $ 5 8 0 $ 6 7 3 , 9 2 3 $ ( 2 7 , 6 1 3 ) $ ( 8 6 3 , 0 4 0 ) $ ( 1 2 4 , 3 2 4 ) $ ( 3 4 0 , 4 4 8 ) O t h e r c o m p r e h e n s i v e i n c o m e ( N o t e 1 0 ) : U n r e a l i z e d l o s s o n i n t e r e s t r a t e i n s t r u m e n t s a n d o t h e r R e c l a s s i f i c a t i o n a d j u s t m e n t f o r a m o u n t s r e c o g n i z e d i n n e t i n c o m e i n t e r e s t s ) ( N o t e 9 ) N e t i n c o m e ( e x c l u d e s $ 7 3 9 o f n e t l o s s a t t r i b u t a b l e t o r e d e e m a b l e n o n c o n t r o l l i n g D i v i d e n d e q u i v a l e n t s ( N o t e 1 3 ) n o n c o n t r o l l i n g D i v i d e n d s a n d i n t e r e s t s ) d i s t r i b u t i o n s ( e x c l u d e s $ 6 6 o f d i v i d e n d s a t t r i b u t a b l e t o r e d e e m a b l e C o n t r i b u t i o n s f r o m n o n c o n t r o l l i n g i n t e r e s t s ( e x c l u d e s $ 7 9 4 a t t r i b u t a b l e t o r e d e e m a b l e n o n c o n t r o l l i n g i n t e r e s t s ) ( N o t e 9 ) o f c o n t r i b u t i o n s i n t e r e s t s ) ( N o t e 9 ) N e t i n c o m e ( e x c l u d e s $ 7 9 o f n e t l o s s a t t r i b u t a b l e t o r e d e e m a b l e n o n c o n t r o l l i n g A d j u s t m e n t s o f n o n c o n t r o l l i n g i n t e r e s t s ( N o t e 9 ) S h a r e - b a s e d c o m p e n s a t i o n u n d e r e m p l o y e e a n d d i r e c t o r b e n e f i t p l a n s ( N o t e 1 3 ) 2 2 1 , 1 5 5 R e d e m p t i o n o f S e r i e s F P r e f e r r e d E q u i t y ( N o t e 1 4 ) I s s u a n c e o f s t o c k p u r s u a n t t o C o n t i n u i n g O f f e r ( N o t e s 1 3 , 1 4 , a n d 1 5 ) B a l a n c e , D e c e m b e r 3 1 , 2 0 1 0 I s s u a n c e o f e q u i t y f o r a c q u i s i t i o n o f p r o p e r t i e s ( N o t e 2 ) I s s u a n c e o f c o m m o n s t o c k , n e t o f o f f e r i n g c o s t s ( N o t e 1 4 ) O t h e r c o m p r e h e n s i v e i n c o m e ( N o t e 1 0 ) : U n r e a l i z e d g a i n o n i n t e r e s t r a t e i n s t r u m e n t s a n d o t h e r R e c l a s s i f i c a t i o n a d j u s t m e n t f o r a m o u n t s r e c o g n i z e d i n n e t i n c o m e ( 1 , 0 9 2 , 6 9 0 ) 1 , 3 2 1 , 5 2 2 3 3 , 7 1 3 , 1 2 6 $ ( 1 ) 1 , 0 9 2 , 7 6 6 2 61 2 , 0 1 2 , 5 0 0 5 4 , 6 9 6 , 0 5 4 $ D i v i d e n d s a n d d i s t r i b u t i o n s D i v i d e n d e q u i v a l e n t s ( N o t e 1 3 ) A d j u s t m e n t s o f n o n c o n t r o l l i n g i n t e r e s t s ( N o t e 9 ) S h a r e - b a s e d c o m p e n s a t i o n u n d e r e m p l o y e e a n d d i r e c t o r b e n e f i t p l a n s ( N o t e 1 3 ) I s s u a n c e o f s t o c k p u r s u a n t t o C o n t i n u i n g O f f e r ( N o t e s 1 3 , 1 4 , a n d 1 5 ) ( 1 2 6 , 1 0 9 ) 2 4 8 , 3 5 2 1 2 6 , 1 1 6 N e t l o s s D i v i d e n d s a n d d i s t r i b u t i o n s D i v i d e n d e q u i v a l e n t s ( N o t e 1 3 ) O t h e r c o m p r e h e n s i v e i n c o m e ( N o t e 1 0 ) : A d j u s t m e n t s o f n o n c o n t r o l l i n g i n t e r e s t s ( N o t e 9 ) O t h e r B a l a n c e , D e c e m b e r 3 1 , 2 0 0 9 I m p a i r m e n t l o s s o n m a r k e t a b l e s e c u r i t i e s U n r e a l i z e d g a i n o n i n t e r e s t r a t e i n s t r u m e n t s a n d o t h e r R e c l a s s i f i c a t i o n a d j u s t m e n t f o r a m o u n t s r e c o g n i z e d i n n e t i n c o m e 3 3 , 8 3 9 , 2 3 5 $ 2 6 5 4 , 3 2 1 , 5 8 6 $ S h a r e - b a s e d c o m p e n s a t i o n u n d e r e m p l o y e e a n d d i r e c t o r b e n e f i t p l a n s ( N o t e 1 3 ) I s s u a n c e o f s t o c k p u r s u a n t t o C o n t i n u i n g O f f e r ( N o t e s 1 3 , 1 4 , a n d 1 5 ) ( 7 0 , 0 0 0 ) 1 , 2 1 7 , 8 3 7 8 4 , 7 6 2 B a l a n c e , J a n u a r y 1 , 2 0 0 9 3 3 , 9 0 9 , 2 3 5 $ 2 6 5 3 , 0 1 8 , 9 8 7 $ 1 12 5 4 7 2 0 5 4 313 5 3 01 1 2 ( 4 0 , 5 6 1 ) 1 2 , 6 7 7 ( 1 0 ) 1 1 1 , 9 3 6 ( 1 3 , 9 8 0 ) 8 4 3 ( 6 , 6 0 3 ) ( 2 0 , 5 8 3 ) 3 7 2 1 , 2 1 5 1 9 2 , 8 7 1 9 5 , 2 6 6 2 8 8 , 1 3 7 ( 1 1 6 , 5 0 8 ) ( 9 4 , 0 4 7 ) ( 2 1 0 , 5 5 5 ) 4 4 9 ( 1 1 3 ) 3 1 , 4 1 7 3 1 , 4 1 7 4 0 , 4 2 1 ( 2 7 , 0 0 0 ) 1 2 , 6 7 9 ( 2 7 , 0 0 0 ) 3 0 9 ( 1 1 3 ) 1 1 1 , 9 5 61 $ 5 8 9 , 8 8 1 $ ( 1 4 , 9 2 5 ) $ ( 9 3 9 , 2 9 0 ) $ ( 1 6 4 , 1 5 0 ) $ ( 5 2 7 , 9 1 1 ) 1 0 , 8 8 7 ( 9 8 8 ) ( 1 ) 4 9 9 3 9 $ 5 7 9 , 9 8 3 $ ( 2 4 , 4 4 3 ) $ ( 8 8 4 , 6 6 6 ) $ ( 1 4 6 , 1 9 0 ) $ ( 4 7 4 , 7 4 7 ) 2 4 , 3 2 2 ( 4 8 3 ) ( 1 ) 1 , 1 1 7 8 4 6 3 , 3 7 2 ( 1 0 4 , 7 1 2 ) ( 5 3 , 5 1 2 ) ( 3 4 5 ) 4 1 6 5 4 9 1 , 2 6 2 1 , 6 6 6 4 , 8 5 5 8 , 2 2 7 ( 2 5 , 6 4 9 ) ( 6 5 , 8 1 0 ) 4 8 3 ( 1 7 0 , 5 2 2 ) ( 7 9 , 1 6 1 ) ( 3 4 5 ) 2 4 , 3 3 4 $ 5 5 6 , 1 4 5 $ ( 2 9 , 7 7 8 ) $ ( 7 2 6 , 0 9 7 ) $ ( 6 1 , 0 3 4 ) $ ( 2 6 0 , 2 0 8 ) 8 , 6 1 7 8 5 2 6 3 , 8 6 8 ( 1 1 8 , 1 8 6 ) ( 3 0 6 ) 9 , 6 2 3 4 0 8 1 8 , 2 4 0 1 , 2 6 0 3 8 , 5 3 8 1 0 2 , 4 0 6 ( 6 7 , 4 6 8 ) ( 1 8 5 , 6 5 4 ) 1 0 , 8 9 0 ( 3 0 6 ) ( i n t h o u s a n d s , e x c e p t s h a r e d a t a ) Y E A R S E N D E D D E C E M B E R 3 1 , 2 0 1 1 , 2 0 1 0 , A N D 2 0 0 9 C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y T A U B M A N C E N T E R S , I N C . T a u b m a n C e n t e r s , I n c . S h a r e o w n e r s ’ E q u i t y P r e f e r r e d S t o c k C o m m o n S t o c k S h a r e s A m o u n t S h a r e s A m o u n t C a p i t a l P a i d - I n A c c u m u l a t e d O t h e r D i v i d e n d s I n c o m e ( L o s s ) C o m p r e h e n s i v e N e t I n c o m e i n E x c e s s o f I n t e r e s t s N o n c o n t r o l l i n g N o n - R e d e e m a b l e E q u i t y T o t a l 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 - continuing operations Depreciation and amortization - discontinued operations Impairment loss on marketable securities Impairments Provision for bad debts Gains on sales of land and land-related rights Gains on extinguishment of debt of discontinued operations Other Increase (decrease) in cash attributable to changes in assets and liabilities: Receivables, restricted cash, deferred charges, and other assets Accounts payable and other liabilities Net Cash Provided By Operating Activities Cash Flows From Investing Activities: Additions to properties Funding of development project (Note 7) Refund of The Mall at Studio City escrow (Note 5) Proceeds from sales of land Additions to restricted cash (Notes 2 and 8) Investment in TCBL (Note 2) Issuances of notes receivable Repayments of notes receivable Contributions to Unconsolidated Joint Ventures Distributions from Unconsolidated Joint Ventures in excess of income Other Net Cash Provided By (Used In) Investing Activities Cash Flows From Financing Activities: Debt proceeds Debt payments Debt issuance costs Issuance of common stock, net of offering costs (Note 14) Issuance of common stock and/or partnership units in connection with incentive plans (Notes 13 and 15) Distributions to noncontrolling interests Distributions to participating securities of TRG Contributions from noncontrolling interests Redemption of Series F preferred equity Cash dividends to preferred shareowners Cash dividends to common shareowners Other Net Cash Provided By (Used In) Financing Activities Net Increase (Decrease) In Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year $ $ $ $ $ $ $ Year Ended December 31 2010 2009 2011 $ 287,398 $ 102,327 $ (79,161) 132,707 10,309 145,271 8,605 136,505 10,811 1,666 166,680 2,081 3,363 (2,218) 11,216 11,281 (21,805) 17,849 264,608 $ 5,087 (19,304) 235,646 (72,152) $ (54,592) 3,060 (2,948) 1,623 (7,261) 32,836 (44,842) $ 54,334 (7,160) 4,500 (28,718) 36,903 985 6,252 $ 213,500 (243,885) (2,943) 978 (106,026) 2,532 (67,468) (1,635) (14,634) (101,890) (228) (216,651) 3,115 $ $ 14,737 (65,810) (1,560) (14,634) (110,492) (2,103) (284,910) (43,012) 2,032 (519) (174,171) 13,142 (21,211) 20,479 270,166 (69,443) (20,882) 3,728 (289,389) (11,523) 1,544 (875) 17,639 861 (368,340) 536,648 (334,017) (8,830) 111,956 2,593 (94,113) (1,536) 32,211 (27,000) (14,634) (100,286) (76) 102,916 4,742 $ $ $ $ $ $ 19,291 16,176 59,188 24,033 $ 19,291 $ 16,176 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, 2011 included 23 urban and suburban shopping centers in 11 states. Taubman Properties Asia LLC and its subsidiaries (Taubman Asia), which is the platform for the Company’s expansion into China and South Korea, 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. Expenses for promotion and advertising of shopping centers that were previously classified in Other Operating are now included in Maintenance, Taxes, Utilities, and Promotion Expense. Restricted Cash, which was previously classified in Deferred Charges and Other Assets, is now shown separately in the Consolidated Balance Sheet. Amounts for 2009 and 2010 have been reclassified to conform to the 2011 classification. Income statement amounts for properties disposed of have been reclassified to discontinued operations for all periods presented. In addition, certain income statement related disclosures in the accompanying footnotes exclude amounts that have been reclassified to discontinued operations. 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. All intercompany transactions have been eliminated. The entities included in these consolidated financial statements are separate legal entities and maintain records and books of account separate from any other entity. However, inclusion of these separate entities in the consolidated financial statements does not mean that the assets and credit of each of these legal entities are available to satisfy the debts or other obligations of any other such legal entity included in the consolidated financial statements. 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 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, 2011, the Operating Partnership’s equity included two classes of preferred equity (Series G and H) and the net equity of the partnership unitholders (Note 14). 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. F-9 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2010 and 2009, the Operating Partnership’s equity included a third class of preferred equity (Series F). In October 2011, the Series F Preferred Equity was redeemed. The Series F Preferred Equity was owned by an institutional investor and accounted for as a noncontrolling interest of the Company (Note 9). See Note 14 for information related to the redemption. The partnership equity of the Operating Partnership and the Company's ownership therein are shown below: TRG units outstanding at December 31 84,502,883 80,947,630 80,699,271 TRG units owned by TCO at December 31(1) 58,022,475 54,696,054 54,321,586 TRG units owned by noncontrolling interests at December 31 26,480,408 26,251,576 26,377,685 TCO's % interest in TRG at December 31 69% 68 67 TCO's average interest in TRG 69% 67 67 Year 2011 2010 2009 (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, 2011 consisted of 26,461,958 shares of Series B Preferred Stock (Note 14) and 58,022,475 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. For traditional net leases, where tenants reimburse the landlord for an allocation of reimbursable costs incurred, the Company recognizes revenue in the period the applicable costs are chargeable to tenants. For tenants paying a fixed common area maintenance charge (which typically includes fixed increases over the lease term), the Company recognizes revenue on a straight-line basis over the lease terms. Management, leasing, and development revenue is recognized as services are rendered, when fees due are determinable, and collectibility is reasonably assured. Fees for management, leasing, and development services are established under contracts and are generally based on negotiated rates, percentages of cash receipts, and/or actual costs incurred. Fixed-fee development services contracts are generally accounted for under the percentage-of-completion method, using cost to cost measurements of progress. Profits on real estate sales are recognized whenever (1) a sale is consummated, (2) the buyer has demonstrated an adequate commitment to pay for the property, (3) the Company’s receivable is not subject to future subordination, and (4) the Company has transferred to the buyer the risks and rewards of ownership. Other revenues, including fees paid by tenants to terminate their leases, are recognized when fees due are determinable, no further actions or services are required to be performed by the Company, and collectibility is reasonably assured. Taxes assessed by government authorities on revenue-producing transactions, such as sales, use, and value-added taxes, are primarily accounted for on a net basis on the Company’s income statement. Allowance for Doubtful Accounts and Notes The Company records a provision for losses on accounts receivable to reduce them to the amount estimated to be collectible. The Company records a provision for losses on notes receivable to reduce them to the present value of expected future cash flows discounted at the loans’ effective interest rates or the fair value of the collateral if the loans are collateral dependent. Depreciation and Amortization Buildings, improvements and equipment are primarily depreciated on straight-line bases over the estimated useful lives of the assets, which generally range from 3 to 50 years. Capital expenditures that are recoverable from tenants are depreciated over the estimated recovery period. Intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. Tenant allowances are depreciated on a straight-line basis over the shorter of the useful life of the leasehold improvements or the lease term. Deferred leasing costs are amortized on a straight-line basis over the lives of the related leases. In the event of early termination of such leases, the unrecoverable net book values of the assets are recognized as depreciation and amortization expense in the period of termination. F-10 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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 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 $12.6 million and $9.0 million at December 31, 2011 and 2010, respectively, invested in a single investment company's money market fund, which are not insured or guaranteed by the FDIC or any other government agency. The Company is required to escrow cash balances for specific uses stipulated by its lenders. As of December 31, 2011 and December 31, 2010, the Company’s restricted cash balances were $295.3 million and $7.6 million, respectively. In 2011 cash was drawn from the Company's line of credit primarily to collateralize the repayment of the $281.5 million installment notes that were issued for the acquisition of The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village (Note 2) and is classified within Restricted Cash on the Consolidated Balance Sheet. Acquisitions The Company recognizes the assets acquired, the liabilities assumed, and any noncontrolling interests in the acquiree at their fair values as of the acquisition date. The cost of acquiring a controlling ownership interest or an additional ownership interest (if not already consolidated) 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 a 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). The Company records goodwill when the cost of an acquired entity exceeds the net of the amounts assigned to assets acquired and liabilities assumed. Acquisition-related costs, including due diligence costs, professional fees, and other costs to effect an acquisition, are expensed as incurred. F-11 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Goodwill is reviewed for impairment annually, or more frequently if events or circumstances indicate that the asset may be impaired. If relevant qualitative factors indicate that goodwill may be impaired, the Company evaluates whether the fair value of goodwill is less than its carrying amount. If the book value of goodwill exceeds its estimated fair value, an impairment test is performed to measure the amount of impairment loss, if any, to be recorded. 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. The Company has made Taxable REIT Subsidiary (TRS) elections for all of its corporate subsidiaries pursuant to section 856 (I) of the Internal Revenue Code. The TRSs 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 temporary differences primarily relate to deferred compensation, depreciation and net operating loss carryforwards. F-12 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Noncontrolling Interests 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. Consolidated net income and comprehensive income includes amounts attributable to the Company and the noncontrolling interests. Transactions that change the Company's ownership interest in a subsidiary are accounted for as equity transactions if the Company retains its controlling financial interest in the subsidiary. A gain or loss is recognized upon the deconsolidation of a subsidiary. The Company evaluates whether noncontrolling interests are subject to any 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 redeemable equity instruments. Certain noncontrolling interests in the Operating Partnership and consolidated ventures of the Company qualify as redeemable noncontrolling interests (Note 9). To the extent such noncontrolling interests are currently redeemable or it is probable that they will eventually become redeemable, these interests are adjusted to the greater of their redemption value or their carrying value at each balance sheet date. Discontinued Operations The Company reclassifies to discontinued operations any material operations and gains or losses on disposal related to consolidated properties disposed of during the period. In 2011, the Company disposed of two centers and reported gains on the extinguishment of debt in the Statement of Operations and Comprehensive Income (Note 2). Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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. No single retail company represents 10% or more of the Company's revenues. Although the Company does business in China, South Korea and 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. F-13 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Acquisitions and Dispositions Acquisitions The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village In December 2011, the Company acquired The Mall at Green Hills in Nashville, Tennessee, and The Gardens on El Paseo and El Paseo Village in Palm Desert, California from affiliates of Davis Street Properties, LLC. The consideration for the properties was $560 million, excluding transaction costs. The consideration consists of the assumption of approximately $206 million of debt, approximately $281.5 million in installment notes, and the issuance of 1.3 million Operating Partnership units. The assumed debt consists of three loans (see Note 8 for balances, stated interest rates, and maturity dates). The 1.3 million Operating Partnership units issued were determined based on a value of $55 per unit, which approximates the fair value due to restrictions on sale of these Operating Partnership units. See Note 9 for features of the Operating Partnership units. The installment notes bore interest at 3.125% and were paid in full in February 2012 (Note 8). As of December 31, 2011, the installment notes were secured by restricted cash funded by borrowings under the Company's line of credit, which was classified within Restricted Cash on the Consolidated Balance Sheet. All recipients of the Operating Partnership units acquired an equal number of shares of Series B Preferred Stock (Note 14). The following table summarizes the preliminary allocation of the purchase price to the identifiable assets acquired and liabilities assumed at the dates of acquisition. Properties: Land Buildings, improvements, and equipment Total additions to properties Deferred charges and other assets: In-place leases Total assets acquired Accounts payable and accrued liabilities: Below market rents Mortgage notes payable: Premium for above market interest rates Total liabilities acquired Net assets acquired Allocation of purchase price $ $ $ $ $ $ 74,200 468,936 543,136 29,831 572,967 (3,377) (9,590) (12,967) 560,000 Revenue and net income of the acquired centers were immaterial for the partial period owned in December. Unaudited Proforma Information If the acquisitions had occurred on January 1, 2010, the Company's consolidated revenues and net income for the year ended December 31, 2011 would have been $678.4 million and $275.8 million, respectively, and the Company's consolidated revenues and net income for the year ended December 31, 2010 would have been $657.6 million and $87.9 million, respectively. F-14 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TCBL In December 2011, Taubman Asia acquired a 90% controlling interest in a Beijing-based retail real estate consultancy company with more than 200 staff across seven offices in Mainland China. The new company is named Taubman TCBL and the total consideration for the transaction was $23.7 million. Taubman Asia paid approximately $11.5 million in cash and credited the noncontrolling owners with approximately $11.9 million of capital in the newly formed company. The $11.5 million in cash includes approximately $10.2 million that was lent in August 2011 by Taubman Asia to the noncontrolling partners. Upon closing, the loan and $0.3 million of accrued interest were converted to capital and the remaining balance was paid in cash. Substantially all of the purchase price was allocated to goodwill in Taubman TCBL. Revenues and net income of the acquired business were immaterial for the period owned in December 2011. The acquisition would not have had a material impact on the Company's 2011 and 2010 results had the acquisition occurred on January 1, 2010. Purchase Price Allocations For the preceding acquisitions, the Company has not yet finalized its allocations of the purchase prices to the tangible and identifiable intangible assets and liabilities acquired. The Company is awaiting certain valuation information for assets and liabilities acquired to complete its allocations. A final determination of the required purchase price allocations will be made during 2012. Acquisition costs During the year ended December 31, 2011, the Operating Partnership incurred expenses for the acquisition of The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village, and Taubman TCBL as discussed above. No acquisition costs were incurred during 2010 and 2009. Dispositions In November 2011, the mortgage lender for The Pier Shops at Caesars (The Pier Shops) completed the foreclosure on the property and title to the property was transferred to the mortgage lender. The Company has been relieved of $135 million of debt obligations plus accrued default interest associated with the property. As a result, a $126.7 million non-cash accounting gain was recognized on extinguishment of the debt obligation, 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 other assets transferred as of the transfer date. 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. In December 2011, the mortgage lender for Regency Square accepted a deed in lieu of foreclosure on the property and title to the property was transferred to the mortgage lender. The Company has been relieved of $72.2 million of debt obligations plus accrued default interest associated with the property. As a result, a $47.4 million non-cash accounting gain was recognized on extinguishment of the debt obligation, 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 other assets transferred as of the transfer date. In 2009, the Company concluded that the carrying value of the investment in Regency Square was impaired and recognized a non-cash charge of $59 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. In September 2010, the Board of Directors concluded that it was in the best interest of the Company to discontinue its financial support of Regency Square. Discontinued operations for all periods reported in the accompanying Statement of Operations and Comprehensive Income consist of the financial results of The Pier Shops and Regency Square. Total revenues from discontinued operations were $21.5 million, $28.1 million, and $28.7 million for the years ended December 31, 2011, 2010 and 2009. The net loss from discontinued operations, excluding the gains on extinguishment of debt in 2011, during the years ended December 31, 2011, 2010 and 2009 was $28.2 million, $20.3 million, and $183.6 million, respectively. Included in the net loss for the year ended December 31, 2009 are non-cash impairment charges of $166.7 million. F-15 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Income Taxes Income Tax Expense The Company’s income tax expense for the years ended December 31, 2011, 2010 and 2009 is as follows: State current State deferred Federal current Federal deferred Foreign current Total income tax expense Net Operating Loss Carryforwards 2011 2010 2009 551 (366) 217 158 50 610 $ $ $ 907 (183) 45 1,017 385 (35) 734 $ 255 1,657 $ $ As of December 31, 2011, the Company has a total federal net operating loss carryforward of $5.9 million, expiring as follows: Tax Year 2007 2008 2009 Expiration 2027 2028 2029 $ Amount 273 5,326 286 The Company also has a foreign net operating loss carryforward of $5.3 million, $4.4 million of which has an indefinite carryforward period and $0.9 million of which expires in 2020. Deferred Taxes Deferred tax assets and liabilities as of December 31, 2011 and 2010 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 2011 2010 $ $ $ $ $ 3,655 1,196 232 5,083 (1,373) 3,710 623 121 744 $ $ $ $ $ 8,589 2,361 6,786 17,736 (10,199) 7,537 607 4,171 4,778 The Company believes that it is more likely than not the results of future operations will generate sufficient taxable income to realize 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 Asia operations 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-16 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 2011, 2010, and 2009 may not be indicative of future periods. The portion of dividends paid in 2010 shown below as capital gains are designated as capital gain dividends for tax purposes. Dividends per common share declared $ 1.7625 1.8659 1.6600 (1) Return of capital Ordinary income 15% Rate long term capital gain Unrecaptured Sec. 1250 capital gain $ 0.4455 $ 1.3170 $ 0.0000 $ 0.0780 0.6467 1.2732 1.0133 0.5147 0.0000 0.0000 0.0000 0.0000 Year 2011 2010 2009 (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 $ $ Ordinary income 2.0000 1.4483 2.0000 Ordinary income 1.90625 1.38045 1.90625 $ $ 15% Rate long term capital gain Unrecaptured Sec. 1250 capital gain $ 0.0000 0.5517 0.0000 0.0000 0.0000 0.0000 15% Rate long term capital gain Unrecaptured Sec. 1250 capital gain $ 0.0000 0.5258 0.0000 0.0000 0.0000 0.0000 Year 2011 2010 2009 Year 2011 2010 2009 Michigan State Taxes In May 2011, the State of Michigan replaced the Michigan Business Tax with a Corporate Income Tax that became effective on January 1, 2012. Due to the repeal of the Michigan Business Tax, the Company wrote off net deferred tax assets and deferred tax liabilities of approximately $3.7 million and $4.1 million, respectively, in 2011. Under the new law, the Company does not expect to pay any Corporate Income Tax based on estimates of taxable income of the Company's unitary filing group for Michigan tax purposes. Uncertain Tax Positions The Company had no unrecognized tax benefits as of or during the three year period ended December 31, 2011. The Company expects no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of December 31, 2011. 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, 2011, 2010 and 2009 or in the Consolidated Balance Sheet as of December 31, 2011 and 2010. As of December 31, 2011, returns for the calendar years 2008 through 2011 remain subject to examination by U.S. and various state and foreign tax jurisdictions. F-17 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 – Properties Properties at December 31, 2011 and December 31, 2010 are summarized as follows: Land 2011 2010 $ 333,375 $ 271,662 Buildings, improvements, and equipment 3,625,400 3,194,309 Construction in process Development pre-construction costs Accumulated depreciation and amortization 15,479 46,700 15,626 46,700 $ $ 4,020,954 (1,271,943) 2,749,011 $ $ 3,528,297 (1,199,247) 2,329,050 Depreciation expense for 2011, 2010, and 2009 was $127.2 million, $144.9 million, and $139.7 million, respectively. The charge to operations in 2011, 2010, and 2009 for domestic and non-U.S. pre-development activities was $23.7 million, $16.0 million, and $12.3 million, respectively. See Note 2 for properties acquired in 2011. The Pier Shops at Caesars and Regency Square See Note 2 for information related to the transfers of these shopping centers to their mortgage lenders in 2011 and Note 17 regarding impairment charges taken on these centers in 2009. Oyster Bay The Company is expensing costs relating to the Oyster Bay project until it is probable that it will be able to successfully move forward with a project. The Company’s capitalized investment in the project as of December 31, 2011 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. Other One shopping center pays annual special assessment levies of a Community Development District (CDD), for which the Company has capitalized the related infrastructure assets and improvements (Note 17). F-18 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Investments in Unconsolidated Joint Ventures General Information The Company owns beneficial interests in joint ventures that own shopping centers. The Operating Partnership is the direct or indirect managing general partner or managing member of these Unconsolidated Joint Ventures, except for the ventures that own Arizona Mills, The Mall at Millenia, and Waterside Shops. Shopping Center Arizona Mills Fair Oaks The Mall at Millenia Stamford Town Center Sunvalley Waterside Shops Westfarms Ownership as of December 31, 2011 and 2010 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 joint ventures is less than zero because distributions are usually greater than net income, as net income includes non-cash charges for depreciation and amortization. In addition, distributions related to refinancing of the centers will further decrease the net equity of the centers. 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 that 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. 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. F-19 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 operations information. Beneficial interest is calculated based on the Operating Partnership's ownership interest in each of the Unconsolidated Joint Ventures. Assets: Properties Accumulated depreciation and amortization Cash and cash equivalents Accounts and notes receivable, less allowance for doubtful accounts of $1,422 and $1,471 in 2011 and 2010 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 2011 December 31 2010 $ $ 1,107,314 (446,059) 661,255 $ $ 22,042 24,628 21,289 1,092,916 (417,712) 675,204 21,339 26,288 18,891 $ 729,214 $ 741,722 $ 1,138,808 $ 1,125,618 55,737 (244,758) (220,573) 729,214 (244,758) 67,282 60,801 (116,675) 192,257 75,582 $ $ $ $ 37,292 (224,636) (196,552) 741,722 (224,636) 68,682 62,747 (93,207) 170,329 77,122 $ $ $ $ F-20 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Revenues Year Ended December 31 2011 2010 2009 $ 266,455 $ 270,391 $ 272,535 Maintenance, taxes, utilities, promotion, and other operating expenses $ 84,922 $ 90,680 $ 95,775 Litigation charges Interest expense Depreciation and amortization Total operating costs Nonoperating income Net income Net income attributable to TRG Realized intercompany profit, net of depreciation on TRG’s basis adjustments Depreciation of TCO's additional basis Equity in income of Unconsolidated Joint Ventures Beneficial interest in Unconsolidated Joint Ventures’ operations: Revenues less maintenance, taxes, utilities, promotion, and other operating expenses Interest expense Depreciation and amortization Equity in income of Unconsolidated Joint Ventures Other — 61,034 38,389 — 63,835 37,234 38,500 64,405 38,396 $ 184,345 $ 191,749 $ 237,076 162 82,272 46,208 1,802 (1,946) 46,064 $ $ $ 2 78,644 45,092 2,266 (1,946) 45,412 $ $ $ $ 100,773 (31,607) (23,102) 46,064 $ $ 100,682 (33,076) (22,194) 45,412 $ 87 35,546 10,748 2,686 (1,946) 11,488 67,815 (33,427) (22,900) 11,488 $ $ $ $ $ The provision for losses on accounts receivable of the Unconsolidated Joint Ventures was $0.7 million, $0.5 million, and $0.9 million for the years ended December 31, 2011, 2010, and 2009, respectively. Deferred charges and other assets of $21.3 million at December 31, 2011were comprised of leasing costs of $31.3 million, before accumulated amortization of $(19.6) million, net deferred financing costs of $4.8 million, and other net charges of $4.8 million. 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. The estimated fair value of the Unconsolidated Joint Ventures’notes payable was $1.2 billion at December 31, 2011 and 2010. The methodology for determining fair value is consistent with the methodology used for determining the fair value of consolidated mortgage notes payable (Note 17). Depreciation expense on properties for 2011, 2010, and 2009 was $30.3 million, $32.3 million, and $33.8 million, respectively. F-21 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 – Accounts and Notes Receivable Accounts and notes receivable at December 31, 2011 and December 31, 2010 are summarized as follows: Trade Notes Straight-line rent and recoveries Less: Allowance for doubtful accounts and notes 2011 2010 $ $ $ 31,462 $ 6,968 24,863 63,293 (3,303) 59,990 $ $ 24,515 10,517 22,840 57,872 (7,966) 49,906 Notes receivable as of December 31, 2011 provide interest at a range of interest rates from 2.9% to 10.0% (with a weighted average interest rate of 4.8%) and mature at various dates through December 2019. The balance of notes receivable at December 31, 2010 included $4 million of notes from certain tenants at The Pier Shops that were delinquent. These notes, net of their related allowance, were transferred to the lender as part of the extinguishment of the center's debt (Note 2). The balance of notes receivable at December 31, 2011 and 2010 included $5.1 million and $6.5 million, respectively, related to the joint venture partners at Westfarms for their share of the litigation charges that were paid in 2009 (Note 5). Note 7 – Deferred Charges and Other Assets Deferred charges and other assets at December 31, 2011 and December 31, 2010 are summarized as follows: Leasing costs Accumulated amortization In-place leases, net (Note 2) Goodwill (Note 2) Funding of development project (below) Deferred financing costs, net Insurance deposit (Note 17) Prepaid expenses Deferred tax asset, net Investments (Note 17) Interest rate contract (Note 10) Intangibles, net Other, net 2011 2010 $ $ 37,026 (17,259) 19,767 $ $ 37,780 (17,282) 20,498 29,632 22,884 20,882 11,200 10,708 3,923 3,710 2,158 6,576 5,399 10,135 3,487 7,537 2,061 4,856 252 8,266 $ 131,440 $ 62,491 In September 2011, Taubman Asia agreed to partner with Shinsegae Group, South Korea's largest retailer, to build a shopping mall in Hanam, Gyeonggi Province, South Korea. The Company has invested $20.9 million for an interest in the project. The Company has the option to put its interest in the project after the completion of due diligence. The potential return of the investment, including a 7% return on the investment, is secured by a letter of credit from Shinsegae. F-22 Note 8 – Notes Payable Mortgage notes payable at December 31, 2011 and December 31, 2010 consist of the following: Beverly Center $ 316,724 $ 322,700 2011 2010 Cherry Creek Shopping Center Dolphin Mall Dolphin Mall El Paseo Village Fairlane Town Center Fairlane Town Center Great Lakes Crossing Outlets International Plaza International Plaza MacArthur Center Northlake Mall Regency Square Stony Point Fashion Park The Gardens on El Paseo The Mall at Green Hills The Mall at Partridge Creek The Mall at Short Hills The Mall at Wellington Green The Pier Shops at Caesars Twelve Oaks Mall Twelve Oaks Mall Line of Credit Stated Interest Rate 5.28% 5.24% 280,000 LIBOR + 1.75% 10,000 LIBOR + 0.70% 4.42% LIBOR + 1.75% 80,000 LIBOR + 0.70% 132,262 5.25% 4.85% 325,000 LIBOR + 1.15% 131,000 LIBOR + 2.35% (3) (4) 215,500 72,690 105,484 82,140 540,000 200,000 135,000 5.41% 6.24% 6.10% 6.89% 6.15% 5.47% 5.44% (1) (1) (1) (1) Maturity Date 02/11/14 06/08/16 01/29/15 12/06/15 01/29/15 03/11/13 12/01/21 09/01/20 02/06/16 06/01/14 06/11/16 12/01/13 07/06/20 12/14/15 05/06/15 Facility Amount Balance Due on Maturity $ 303,277 280,000 290,000 15,565 30,000 125,507 285,503 117,234 215,500 98,585 81,480 105,045 70,433 540,000 200,000 (5) 280,000 290,000 (2) 17,059 30,000 129,222 325,000 131,000 215,500 103,615 86,475 111,801 81,203 540,000 200,000 (5) (6) (7) (8) LIBOR + 1.75% 01/29/15 LIBOR + 0.70% (1) (1) 6,536 24,784 LIBOR + 1.00% 04/30/12 6,536 65,000 $ 2,864,135 $ 2,656,560 (1) (1) (1) (1) (1) (1) (9) (1) Dolphin, Fairlane, and Twelve Oaks are the borrowers and collateral for the $650 million revolving credit facility. The unused borrowing capacity at December 31, 2011 was $330 million. Sublimits may be reallocated quarterly but not more often than twice a year. The facility has a one-year extension option. Prior to the July 2011 refinancing, the revolving facility was $550 million. (2) Balance includes purchase accounting adjustment of $0.3 million premium for an above market interest rate upon acquisition of the (3) center in December 2011 (Note 2). In January 2011, the loan was extended. Prior to January 2011, the rate on the loan was fixed at 5.01% due to an interest rate swap that expired. (4) Stated interest rate is swapped to an effective rate of 4.99%. (5) Title to Regency Square was transferred to the lender in December 2011 and the Company was relieved of $72.2 million of debt plus accrued interest (Note 2). (6) Balance includes purchase accounting adjustment of $5 million premium for an above market interest rate upon acquisition of the center in December 2011 (Note 2). (7) Balance includes purchase accounting adjustment of $4.2 million premium for an above market interest rate upon acquisition of the center in December 2011 (Note 2). (8) Title to The Pier Shops was transferred to the lender in November 2011 and the Company was relieved of $135 million debt plus accrued interest (Note 2). (9) The unused borrowing capacity at December 31, 2011 was $29.2 million. Mortgage notes payable are collateralized by properties with a net book value of $2.4 billion at December 31, 2011. F-23 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents scheduled principal payments on mortgage notes payable as of December 31, 2011: 2012 2013 2014 2015 2016 Thereafter Total principal maturities Net unamortized debt premiums Total mortgages (1) $ $ $ 20,950 243,842 406,241 1,083,548 585,092 514,974 2,854,647 9,488 2,864,135 (1) Includes $320 million with a one-year extension option. Installment Notes At December 31, 2011, the Company had installment notes outstanding of $281.5 million that were repaid in February 2012. The interest rate on the notes was 3.13%. As of December 31, 2011, the installment notes were secured by restricted cash funded by borrowings under the Company's line of credit, which was classified within Restricted Cash on the Consolidated Balance Sheet. 2012 Maturities In March 2011, the maturity date on the Company’s secondary line of credit was extended through April 2012. In addition, the maximum amount available under this facility was increased to $65 million from the prior $40 million maximum for the $25 million letter of credit required by the lessor of the City Creek Center project. The Company intends to extend the line of credit at maturity. The $181.1 million loan on Westfarms, a 79% owned Unconsolidated Joint Venture (Note 5), matures in July 2012 and is prepayable without penalty in April 2012. Currently the loan is fixed at 6.10%. The $116.3 million loan on Sunvalley, a 50% owned Unconsolidated Joint Venture (Note 5), matures in November 2012 and is prepayable without penalty in August 2012. Currently the loan is fixed at 5.67%. The $30 million loan on Taubman Land Associates, a Sunvalley entity, also matures in November 2012. Currently the loan is swapped to an effective rate of 5.95% until maturity. The Company expects to refinance these loans at rates under 5% and expects its share of excess proceeds to be in excess of $100 million. 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 minimum fixed charges coverage ratio, minimum interest coverage ratios, and a maximum leverage ratio, the latter being the most restrictive. The Company is in compliance with all covenants and loan obligations as of December 31, 2011. 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. F-24 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Payments of principal and interest on the loans in the following table are guaranteed by the Operating Partnership as of December 31, 2011. Center Dolphin Mall Fairlane Town Center Twelve Oaks Mall Loan Balance as of 12/31/11 TRG's Beneficial Interest in Loan Balance as of 12/31/11 (in millions) Amount of Loan Balance Guaranteed by TRG as of 12/31/11 % of Loan Balance Guaranteed by TRG % of Interest Guaranteed by TRG $ 290.0 $ 290.0 $ 30.0 — 30.0 — 290.0 30.0 — 100% 100% 100% 100% 100% 100% Restricted cash at December 31, 2011 included cash funded by the Company's line of credit that was used to repay the $281.5 million of installment notes in February 2012 (Note 2). In addition, the Company is required to escrow cash balances for specific uses stipulated by its lenders. As of December 31, 2011 and December 31, 2010, the Company’s restricted cash balances for these uses were $5.9 million and $7.6 million, respectively. 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%) through disposition in November 2011, The Mall at WellingtonGreen (10%), and MacArthur Center (5%). Debt as of: December 31, 2011 December 31 2010 At 100% At Beneficial Interest Consolidated Subsidiaries Unconsolidated Joint Ventures Consolidated Subsidiaries Unconsolidated Joint Ventures $ 3,145,602 $ 1,138,808 $ 2,816,877 $ 2,656,560 1,125,618 2,297,460 (1) 580,557 575,103 Capitalized interest: Year Ended December 31, 2011 Year Ended December 31, 2010 $ 422 319 Interest expense from continuing operations: Year Ended December 31, 2011 Year Ended December 31, 2010 $ 122,277 $ 132,362 61,034 63,835 Interest expense from discontinued operations (2): Year Ended December 31, 2011 $ Year Ended December 31, 2010 21,427 20,346 $ $ $ 422 319 110,147 114,504 $ 31,607 33,076 21,427 16,980 (1) (1) The Pier Shops is included at beneficial interest of 77.5%. (2) Includes The Pier Shops and Regency Square, see Note 2. See “MD&A – Results of Operations – Discontinued Operations of The Pier Shops and Regency Square: Reconciliations of Net Operating Income to Net Loss,” regarding a change in the presentation of beneficial interest in The Pier Shops’ operations in 2011. F-25 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9 - Noncontrolling Interests Redeemable Noncontrolling Interests In December 2011, the Company acquired The Mall at Green Hills and The Gardens on El Paseo and El Paseo Village from affiliates of Davis Street Properties, LLC (Note 2). The purchase price consideration included approximately 1.3 million Operating Partnership units determined based on a value of $55 per unit. These partnership units will become eligible to be converted into the Company's common shares after one year pursuant to the Continuing Offer (Note 15). Prior to that date, the holders have the ability to put the units back to the Company for cash at the lesser of the current market price of the Company's common shares or $55 per share. Considering the redemption provisions, the Company is accounting for these Operating Partnership units as a redeemable noncontrolling interest until they become subject to the Continuing Offer. The carrying value of these units was $72.7 million at December 31, 2011. Adjustments to the redemption value are recorded through equity. In December 2011, Taubman Asia acquired a 90% controlling interest in TCBL (Note 2). As part of the purchase price consideration, $11.9 million of capital in the newly formed company was credited by Taubman Asia to the noncontrolling owners, who also own a 10% residual interest. The noncontrolling ownership interest can be put back to the Company at 50% of the fair value of the ownership interest beginning in December 2016, increasing to 100% in December 2018. Taubman Asia will fund any additional capital required by the business and will receive a preferred return on all capital contributed. The ownership agreements provide for the distribution of preferred returns on capital as well as returns of all such capital prior to the sharing of profits on relative ownership interests. Considering the redemption provisions, the Company accounts for the joint venture partner's interest as a contingently redeemable noncontrolling interest. The carrying value of the interest was $11.6 million at December 31, 2011. Any adjustments to the redemption value will be recorded through equity. In October 2010, the Company's president of Taubman Asia (the Asia President) obtained an ownership interest in Taubman Asia, a consolidated subsidiary. The Asia President is entitled to 10% of Taubman Asia's dividends, with 85% of his dividends being withheld as contributions to capital. These withholdings will continue until he contributes and maintains his capital consistent with a 10% ownership interest, including all capital funded by the Operating Partnership for Taubman Asia's operating and investment activities 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 carrying value of zero at December 31, 2011. Any adjustments to the redemption value will be recorded through equity. In July 2010, the Company formed a joint venture that is focusing 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 carrying value of zero at December 31, 2011. Any adjustments to the redemption value will be recorded through equity. F-26 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reconciliation of Redeemable Noncontrolling Interests Balance January 1, 2011 Issuance of redeemable noncontrolling interest (Note 2) Issuance of redeemable noncontrolling interest (Note 2) Contributions Allocation of net loss Comprehensive income (loss) Distributions Adjustments of redeemable noncontrolling interests Balance December 31, 2011 $ 2011 — 11,882 72,683 794 (739) (10) (66) (309) $ 84,235 Equity Balances of Nonredeemable Noncontrolling Interests The net equity balance of the nonredeemable noncontrolling interests as of December 31, 2011 and December 31, 2010 includes the following: Non-redeemable noncontrolling interests: Noncontrolling interests in consolidated joint ventures Noncontrolling interests in partnership equity of TRG TRG Series F preferred equity (Note 14) Income Allocable to Noncontrolling Interests 2011 2010 $ $ (101,872) (22,452) $ (124,324) $ (100,355) (93,012) 29,217 (164,150) Net income attributable to the noncontrolling interests for the years ended December 31, 2011, 2010, and 2009 includes the following: Net income (loss) attributable to noncontrolling interests: Non-redeemable noncontrolling interests: Noncontrolling share of income of consolidated joint ventures Noncontrolling share of income (loss) of TRG TRG Series F preferred distributions Redeemable noncontrolling interests 2011 2010 2009 $ $ $ 15,477 80,161 (372) 95,266 (739) 94,527 $ $ $ 9,859 26,219 2,460 38,538 (79) 38,459 $ $ $ 3,115 (31,224) 2,460 (25,649) (25,649) F-27 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 for the years ended December 31, 2011, 2010, and 2009: Net income (loss) attributable to Taubman Centers, Inc. common shareowners $ 2011 176,701 2010 2009 $ 47,599 $ (69,706) Transfers (to) from the noncontrolling interest – Decrease in Taubman Centers, Inc.’s paid-in capital for the adjustments of noncontrolling interest (1) Net transfers (to) from noncontrolling interests Change from net income (loss) attributable to Taubman Centers, Inc. and transfers (to) from noncontrolling interests (40,561) (40,561) (988) (988) (483) (483) $ 136,140 $ 46,611 $ (70,189) (1) In 2011, 2010 and 2009, adjustments of the noncontrolling interest were made as a result of changes in the Company's ownership of the Operating Partnership in connection with the Company's issuance of common stock (Note 14), share-based compensation under employee and director benefit plans (Note 13), issuances of stock pursuant to the Continuing Offer (Note 13), and issuances of Operating Partnership units in connection with the acquisition of centers (Note 2). International Plaza Refinancing In November 2011, 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 $25.2 million and is classified within Dividends and Distributions in the Consolidated Statement of Changes in Equity. In January 2011, the loan on International Plaza was extended. At extension, the principal balance on the loan was required to be paid down by $52.6 million. The outside partner's share of $26.4 million is classified within Contributions from Noncontrolling Interest in the Consolidated Statement of Changes in Equity. Finite Life Entities Accounting Standards Codification 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, 2011, the Company held controlling 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 was approximately $208 million at December 31, 2011, compared to a book value of $(99.3) million that is classified in Noncontrolling Interests in the Company’s Consolidated Balance Sheet. The fair values of the noncontrolling interests were calculated as the noncontrolling interests' ownership shares of the underlying properties' fair values. The properties' fair values were estimated by considering their in-place net operating incomes, current market capitalization rates, and mortgage debt outstanding. Note 10 - 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, except for two immaterial out-of-the-money interest rate caps, which mature in January 2012 and April 2012. F-28 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2011, 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 Ownership Notional Amount Swap Rate Credit Spread on Loan Total Swapped Rate on Loan Maturity Date Consolidated Subsidiaries: Receive variable (LIBOR) / pay-fixed swap (1) Unconsolidated Joint Ventures: Receive variable (LIBOR) / pay-fixed swap Receive variable (LIBOR) / pay-fixed swap (2) Receive variable (LIBOR) / pay-fixed swap (2) 95.0% $ 131,000 2.64% 2.35% 4.99% September 2020 50.0% 30,000 5.05% 50.0% 137,500 2.40% 50.0% 137,500 2.40% 0.90% 1.70% 1.70% 5.95% November 2012 4.10% April 2018 4.10% April 2018 (1) (2) The notional amount of the swap is equal to the outstanding principal balance on the loan, which begins amortizing in September 2012. The notional amount on each of these swaps is equal to 50% of the outstanding principal balance on the loan, which begins amortizing in August 2014. 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 $6.6 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, 2011, the Company had $1.4 million of net realized losses included in AOCI resulting from settled derivative instruments, which were designated as cash flow hedges that are being recognized as a reduction of income over the term of the hedged debt. F-29 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2011, 2010, and 2009. The tables include the location and amount of unrealized gains and losses on outstanding derivative instruments in cash flow hedging relationships and the location and amount of realized losses reclassified from AOCI into income resulting from settled derivative instruments associated with hedged debt. During the years ended December 31, 2011, 2010 and 2009 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) 2011 2010 2009 Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion) Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion) 2011 2010 2009 $(13,609) $ 15,351 $ 6,402 Interest Expense $ (3,488) $(12,876) $(11,474) (7,081) 2,494 1,516 Equity in Income of UJVs (2,788) (3,945) (3,761) $(20,690) $ 17,845 $ 7,918 $ (6,276) $(16,821) $(15,235) Interest Expense $ (839) $ (886) $ (886) Equity in Income of UJVs (376) (376) (376) $ (1,215) $ (1,262) $ (1,262) Derivatives in cash flow hedging relationships: Interest rate contracts – consolidated subsidiaries Interest rate contracts – UJVs 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 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, 2011 and 2010. Consolidated Balance Sheet Location Fair Value December 31 2011 December 31 2010 Derivatives designated as hedging instruments: Asset derivatives- Interest rate contract – consolidated subsidiaries Liability derivatives: Interest rate contract – consolidated subsidiaries Deferred Charges and Other Assets Accounts Payable and Accrued Liabilities Interest rate contracts – UJVs Investment in UJVs Total liabilities designated as hedging instruments $ $ 4,856 (291) (1,964) (9,044) (9,045) (18,089) $ (2,255) $ $ F-30 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Contingent Features Certain 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. As of December 31, 2011, the Company is not in default on any debt obligations that would trigger a credit risk related default on its current outstanding derivatives. As of December 31, 2011 and 2010, the fair value of derivative instruments with credit-risk-related contingent features that are in a liability position was $18.1 million and $2.3 million, respectively. As of December 31, 2011 and 2010, the Company was not required to post any collateral related to these agreements. If the Company breached any of these provisions it would be required to settle its obligations under the agreements at their fair value. See Note 17 for fair value information on derivatives. Note 11 – Leases Shopping center space is leased to tenants and certain anchors pursuant to lease agreements. Tenant leases typically provide for minimum rent, percentage rent, and other charges to cover certain operating costs. Future minimum rent under operating leases in effect at December 31, 2011 for operating centers assuming no new or renegotiated leases or option extensions on anchor agreements, is summarized as follows: 2012 2013 2014 2015 2016 Thereafter $ 347,581 323,540 295,431 260,624 224,673 720,831 Certain shopping centers, as lessees, have ground and building leases expiring at various dates through the year 2104. 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 $9.8 million in 2011, $10.2 million in 2010, and $9.9 million in 2009. Included in these amounts are related party office rental expense of $2.2 million in 2011 through 2009. Payables representing straight-line rent adjustments under lease agreements were $38.8 million and $37.8 million as of December 31, 2011 and 2010, respectively. F-31 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a schedule of future minimum rental payments required under operating leases: 2012 2013 2014 2015 2016 Thereafter $ 11,286 11,196 9,901 7,454 6,821 390,962 The table above includes $2.6 million in each year from 2012 through 2014 and $0.7 million in 2015 of related party amounts. City Creek Center is 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 owns subject to 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 12 – The Manager The Taubman Company LLC (the Manager), which is 99% beneficially owned by the Operating Partnership, provides property management, leasing, development, and other administrative services to the Company, the shopping centers, Taubman affiliates, and other third parties. Accounts receivable from related parties include amounts due from Unconsolidated Joint Ventures or other affiliates of the Company, primarily relating to services performed by the Manager. These receivables include certain amounts due to the Manager related to reimbursement of third party (non-affiliated) costs. A. Alfred Taubman and certain of his affiliates receive various management services from the Manager. For such services, Mr. Taubman and affiliates paid the Manager approximately $2.3 million, $2.1 million, and $1.6 million in 2011, 2010, and 2009, 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 11, 13, and 15. In 2009, in response to the decreased level of active projects due to the downturn in the economy, the Company reduced its workforce by about 40 positions, primarily in areas that directly or indirectly affect its development initiatives in the U.S. and Asia. A restructuring charge of $2.5 million was recorded in 2009, which primarily represents the cost of terminations of personnel. Note 13 – Share-Based Compensation and Other Employee Plans The Taubman Company 2008 Omnibus Long-Term Incentive Plan (2008 Omnibus Plan), as amended, which is shareowner approved, provides for the award to directors, officers, employees, and other service providers of the Company of restricted shares, restricted units of limited partnership in the Operating Partnership, options to purchase shares or Operating Partnership units, unrestricted shares or Operating Partnership units, and other awards to acquire up to an aggregate of 8.5 million 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. Non-option awards granted after an amendment of the 2008 Omnibus Plan in 2010 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. 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. F-32 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The compensation cost charged to income for the Company’s share-based compensation plans was $9.0 million, $7.7 million, and $8.7 million for the years ended December 31, 2011, 2010, and 2009, respectively. Compensation cost capitalized as part of properties and deferred leasing costs was $0.3 million in each of the years ended December 31, 2011, 2010, and 2009. 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 any current tax benefits due to the Company’s current income tax position (Note 3). The Company estimated the grant-date fair values of options, performance share units, and restricted share units using the methods discussed in the separate sections below for each type of grant. Expected volatility and dividend yields are based on historical volatility and yields of the Company’s common stock, respectively, as well as other factors. The risk-free interest rates used are based on the U.S. Treasury yield curves in effect at the times of grants. The Company assumes no forfeitures of options or performance share units due to the small number of participants and low turnover rate. Options Options are granted to purchase units of limited partnership interest in the Operating Partnership, which are exchangeable for new shares of the Company’s stock under the Continuing Offer (Note 15). The options have ten-year contractual terms. In the first quarter of 2009, 1.4 million options were granted that vested during the third quarter of 2009 due to the satisfaction of the vesting condition of the closing price of the Company’s common stock, as quoted on the New York Stock Exchange, being $30 or greater for ten consecutive trading days. The 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 value of the options issued during the second quarter of 2009 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 2nd Quarter 2009 29.61% 8.00% N/A 2.83% $1.35 40.65% 7.00% 6 2.57% $5.04 F-33 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of option activity for the years ended December 31, 2011, 2010, and 2009 is presented below: Number of Options Weighted Average Exercise Price Outstanding at January 1, 2009 1,350,477 $ Granted Exercised Forfeited Outstanding at December 31, 2009 Exercised Outstanding at December 31, 2010 Exercised 1,439,135 (1,140,003) (20,000) 1,629,609 $ (176,828) 1,452,781 $ (130,791) Outstanding at December 31, 2011 1,321,990 Fully vested options at December 31, 2011 1,113,661 $ $ 39.73 14.13 13.98 31.31 35.24 20.75 37.00 35.66 37.13 38.27 Weighted Average Remaining Contractual Term (in years) Range of Exercise Prices 7.2 $ 29.38 - $ 55.90 6.8 $ 13.83 - $ 55.90 5.7 $ 13.83 - $ 55.90 4.8 $ 13.83 - $ 55.90 5.0 There were 0.1 million options that vested during the year ended December 31, 2011. Of the 1.3 million total options outstanding excluding 0.2 million granted in the first quarter of 2009, 0.8 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 0.3 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, 2011 was $33.0 million and $26.5 million, respectively. The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 was $3.3 million, $4.0 million and $22.6 million, respectively. Cash received from option exercises for the years ended December 31, 2011, 2010 and 2009 was $4.7 million, $3.7 million and $15.9 million, respectively. As of December 31, 2011, there were 0.2 million nonvested options outstanding, and less than $0.1 million of total unrecognized compensation cost related to nonvested options. The remaining cost is expected to be recognized within one year. 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. Under an amendment executed in January 2011, beginning in December 2017 (unless Mr. Taubman retires earlier), the deferred partnership units will be issued in ten annual installments. The deferred units are accounted for as participating securities of the Operating Partnership. F-34 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Performance Share Units In 2011, 2010, and 2009 the Company granted Performance Share Units (PSU) under the 2008 Omnibus Plan. 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 2014, March 2013 and March 2012 for the 2011, 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 2011, 2010, and 2009 using a Monte Carlo simulation, considering the Company’s common stock price at the grant date less the present value of the expected dividends during the vesting period, historical returns of the Company and the peer group of companies, a risk-free interest rate of 1.18%, 1.1%, and 1.3%, respectively, and measurement periods of 3 years for the 2011 and 2009 grants and 2.78 years for the 2010 grant. The resulting weighted average grant-date fair values were $85.40, $63.54, and $15.60 per PSU in 2011, 2010 and 2009 respectively. A summary of PSU activity for the years ended December 31, 2011, 2010 and 2009 is presented below: Outstanding at January 1, 2009 Granted Outstanding at December 31, 2009 Granted Outstanding at December 31, 2010 Granted Outstanding at December 31, 2011 Number of Performance Stock Units Weighted Average Grant Date Fair Value — 196,943 196,943 75,413 272,356 53,795 326,151 $ $ $ $ $ $ 15.60 15.60 63.54 28.88 85.40 38.20 None of the PSU outstanding at December 31, 2011 were vested. As of December 31, 2011, there was $5.3 million of total unrecognized compensation cost related to nonvested PSU outstanding. This cost is expected to be recognized over an average period of 1.7 years. Restricted Share Units In 2011, 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 2014, March 2013 and March 2012 for the 2011, 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 2011 RSU were issued in March and June 2011. The Company estimated the value of the RSU grants in March 2011 and June 2011 using the Company’s common stock at the grant date deducting the present value of expected dividends during the vesting period using risk-free rates of 1.18% and 0.78%, respectively. The result of the Company’s valuation was a weighted average grant-date fair value of $47.98 per RSU granted in March 2011, and $53.65 per RSU granted in June 2011. 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. F-35 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of RSU activity for the years ended December 31, 2011, 2010, and 2009 is presented below: Number of Restricted Stock Units Weighted average Grant Date Fair Value Outstanding at January 1, 2009 334,878 $ Granted Forfeited Redeemed Outstanding at December 31, 2009 Granted Forfeited Redeemed Outstanding at December 31, 2010 Granted March 2011 Granted June 2011 Forfeited Redeemed Outstanding at December 31, 2011 368,588 (17,532) (118,824) 567,110 144,588 (2,057) (91,757) 617,884 105,391 1,972 (3,450) (115,870) 605,927 $ 48.57 8.99 37.00 40.38 24.92 35.37 56.44 14.71 22.72 47.98 53.65 22.19 49.67 22.06 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, 2011, 2010, and 2009 was $6.4 million, $3.6 million, and $1.9 million, respectively. None of the RSU outstanding at December 31, 2011 were vested. As of December 31, 2011, there was $5.3 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 $70,000 in 2011 and $50,000 in 2010 and 2009. As of December 31, 2011, 2,875 shares have been issued under the SGP and 5,127 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 69,507 restricted stock units outstanding under the DCP at December 31, 2011. F-36 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other Employee Plans As of December 31, 2011 and 2010, the Company had fully vested awards outstanding for 19,161 and 18,572 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, $0.3 million, and $0.2 million relating to this plan for the years ended December 31, 2011, 2010, and 2009, respectively. The majority of the awards under this plan were paid out in early 2009. No payments were made in 2011 or 2010. 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 $2.9 million in 2011, $2.7 million in 2010, and $2.6 million in 2009. Note 14 – Common and Preferred Stock and Equity of TRG Common Stock In June 2011, the Company sold 2,012,500 of its common shares. The proceeds were used by the Company to acquire an equal number of Operating Partnership units. The Operating Partnership paid all offering costs. The Operating Partnership used the net proceeds, after offering costs, of $112 million to reduce outstanding borrowings under its lines of credit. Outstanding Preferred Stock 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, 2011, 2010, and 2009, 1,092,690 shares, 126,109 shares, and 70,000 shares of Series B Preferred Stock, respectively, were converted to 76 shares, 7 shares, and 3 shares of the Company’s common stock, respectively, as a result of tenders of units under the Continuing Offer (Note 15). The Operating Partnership’s $30 million 8.2% Cumulative Redeemable Preferred Partnership Equity (Series F Preferred Equity) was owned by an institutional investor and accounted for as a noncontrolling interest of the Company. In October 2011, the Series F Preferred Equity was redeemed. The Operating Partnership redeemed the Series F Preferred Equity for $27 million, which represented a $2.2 million discount from the book value. The $2.2 million excess of the book value over the redemption amount is reflected as a reduction in earnings allocated to the noncontrolling interests in the year ended December 31, 2011. The Series F Preferred Equity had no stated maturity, sinking fund, or mandatory redemption requirements. Distributions were cumulative and payable in arrears on or before the last day of each calendar quarter. The 8% 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 paid on 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. F-37 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Note 15 - Commitments and Contingencies Cash Tender At the time of the Company's initial public offering and acquisition of its partnership interest in the Operating Partnership in 1992, the Company entered into an agreement (the Cash Tender Agreement) with A. Alfred Taubman, who owns an interest in the Operating Partnership, whereby he has the annual right to tender to the Company 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, 2011 of $62.10 per common share, the aggregate value of interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $1.5 billion. The purchase of these interests at December 31, 2011 would have resulted in the Company owning an additional 29% 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 to exchange shares of common stock for partnership interests in the Operating Partnership (the Continuing Offer). The Operating Partnership units issued in connection with the acquisition of The Mall at Green Hills and The Gardens on El Paseo and El Paseo Village are not eligible to be converted into common shares under the Continuing Offer for a one year period ending December 2012. Under the Continuing Offer agreement, one unit of the Operating Partnership interest is exchangeable for one share of the Company's common stock. Upon a tender of Operating Partnership units, the corresponding shares of Series B Preferred Stock, if any, will automatically be converted into the Company’s common stock at a rate of 14,000 shares of Series B Preferred Stock for one common share . F-38 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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. 09-CV-01619) against Atlantic Pier Associates LLC ("APA", the then owner of the leasehold interest in The Pier Shops), the Operating Partnership, Taubman Centers, Inc., the owners of APA and certain affiliates of such owners, three individuals affiliated with, or at one time employed by an affiliate of one of the owners, and, subsequently added the Manager as a defendant. 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 claims against the Operating Partnership, Taubman Centers, Inc., the Manager, other Taubman defendants, and one of the owners, were dismissed in July 2011, but, in August 2011, the restaurant owners reinstated the same claims in a state court action that was then removed to the United States District Court for the Eastern District of Pennsylvania (Case No. 11-CV-05676). The defendants are vigorously defending the action. 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 November 2011, the holder of the mortgage loan on The Pier Shops completed the foreclosure sale and court approval process, and acquired title to the property. See Note 2 for further details related to the disposition. Other See Note 8 for the Operating Partnership's guarantees of certain notes payable, Note 9 for contingent features relating to certain joint venture agreements, Note 10 for contingent features relating to derivative instruments, and Note 13 for obligations under existing share-based compensation plans. See Note 2 for the Operating Partnership's contingent obligation to repurchase units issued in connection with the acquisition of centers for a one year period ending December 2012. Subsequent to that date the units will become eligible to be converted into common shares under the Continuing Offer. F-39 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 16 - Earnings (Loss) Per Share Basic earnings per share amounts are based on the weighted average of common shares outstanding for the respective periods. Diluted earnings per share amounts are based on the weighted average of common shares outstanding plus the dilutive effect of potential common stock. Potential common stock includes outstanding partnership units exchangeable for common shares under the Continuing Offer (Note 15), outstanding options for partnership units, PSU, RSU, deferred shares under the Non-Employee Directors’Deferred Compensation Plan, and unissued partnership units under a unit option deferral election (Note 13). 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 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, 2011, there were 8.8 million partnership units outstanding and 0.9 million unissued partnership units under unit option deferral elections that may be exchanged for common shares of the Company under the Continuing Offer. These outstanding partnership units were excluded from the computation of diluted earnings per share as they were anti-dilutive in all periods presented. The unissued partnership units were excluded in December 31, 2010 and December 31, 2009 as they were anti- dilutive in those periods. Also, there were out-of-the-money options for 0.1 million shares for the year ended December 31, 2011 and 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 shares representing the potentially dilutive effect of potential common stock under share-based compensation plans (Note 13) excluded from the computation of diluted EPS for the year ended December 31, 2009 because they were anti-dilutive due to net losses in 2009. Net income (loss) attributable to Taubman Centers, Inc. common shareowners (Numerator): Income from continuing operations Income (loss) from discontinued operations Basic Shares (Denominator) – basic Earnings per common share from continuing operations Income (loss) from discontinued operations Earnings (loss) per common share – basic Year Ended December 31 2011 2010 2009 $ $ $ $ 75,011 101,690 176,701 $ $ 61,284 (13,685) 47,599 $ $ 47,853 (117,559) (69,706) 56,899,966 54,569,618 53,239,279 1.32 1.79 3.11 $ $ 1.12 (0.25) 0.87 $ $ 0.90 (2.21) (1.31) F-40 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net income (loss) attributable to Taubman Centers, Inc. common shareowners (Numerator): Income from continuing operations - basic Impact of additional ownership of TRG on income from continuing operations Income from continuing operations - diluted Income (loss) from discontinued operations - basic Impact of additional ownership of TRG on income (loss) from discontinued operations Diluted $ $ Year Ended December 31 2011 2010 2009 75,011 $ 61,284 $ 47,853 625 75,636 $ 101,690 296 $ 177,622 $ 428 61,712 (13,685) (91) 47,936 $ $ 293 48,146 (117,559) (542) (69,955) Shares – basic Effect of dilutive securities Shares (Denominator) – diluted 56,899,966 54,569,618 53,239,279 1,629,123 1,133,195 747,377 58,529,089 55,702,813 53,986,656 Earnings per common share from continuing operations Income (loss) from discontinued operations Earnings (loss) per common share – diluted $ $ 1.29 1.74 3.03 $ $ 1.11 (0.25) 0.86 $ $ 0.89 (2.19) (1.30) Note 17 - 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. F-41 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 (Note 10) Insurance deposit Total assets Derivative interest rate contract (Note 10) Total liabilities Fair Value Measurements as of December 31, 2011 Using Fair Value Measurements as of December 31, 2010 Using Significant Other Observable Inputs (Level 2) Quoted Prices in Active Markets for Identical Assets (Level 1) $ $ 2,158 10,708 12,866 $ $ (9,044) (9,044) 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) 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 has been classified within Accounts Payable and Other Liabilities. The available-for-sale securities shown above consist of marketable securities that represent shares in a Vanguard REIT fund that were purchased to facilitate a tax efficient structure for the 2005 disposition of Woodland mall and is classified within Deferred Charges and Other Assets. 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 In 2009, the Company's investments in The Pier Shops and Regency Square were written down 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 2). For these assets measured at fair value on a nonrecurring basis, quantitative disclosure of the fair value for each is presented below: Description The Pier Shops investment Regency Square investment Total assets 2009 Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Total Impairment Losses $ $ 52,300 28,800 81,100 $ $ (107,652) (59,028) (166,680) F-42 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Financial Instruments Carried at Other Than Fair Values Community Development District Obligation 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, 2011 and 2010, the book value of the infrastructure assets and improvements, net of depreciation, was $41.6 million and $43.7 million, respectively. The related obligation is classified within Accounts Payable and Accrued Liabilities and had a balance of $61.8 million and $62.6 million at December 31, 2011 and 2010, respectively. The fair value of this obligation, derived from quoted market prices, was $58.2 million at December 31, 2011 and $56.8 million at December 31, 2010. 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, 2011 and 2010, the Company employed the credit spreads at which the debt was originally issued. Excluding 2011 and 2010 refinancings, an additional 1.50% credit spread was added to the discount rate at December 31, 2011 and December 31, 2010, to attempt 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, 2011 or 2010. 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, were estimated at the fair value of the centers, which were collateral for the loans (Note 2). The estimated fair values of notes payable at December 31, 2011 and 2010 are as follows: Notes payable $ 3,145,602 $ 3,299,243 $ 2,656,560 $ 2,616,986 2011 2010 Carrying Value Fair Value Carrying Value Fair Value The fair values of the notes payable are dependent on the interest rates 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, 2011 by $94.7 million or 2.9%. See Note 5 regarding the fair value of the Unconsolidated Joint Ventures’ notes payable, and Note 10 regarding additional information on derivatives. F-43 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 18 – Cash Flow Disclosures and Non-Cash Investing and Financing Activities Interest paid in 2011, 2010, and 2009, net of amounts capitalized of $0.4 million, $0.3 million, and $1.3 million, respectively, approximated $117.2 million, $134.6 million, and $141.8 million, respectively. The following non-cash investing and financing activities occurred during 2011, 2010, and 2009: 2011 2010 2009 Issuance of TRG partnership units in connection with acquisitions of The Mall at Green Hills and The Gardens on El Paseo and El Paseo Village (Note 2) $ 72,683 Assumption of debt in connection with acquisitions of The Mall at Green Hills and The Gardens on El Paseo and El Paseo Village (Note 2) Issuance of installment notes in connection with acquisitions of The Mall at Green Hills and The Gardens on El Paseo and El Paseo Village (Note 2) Conversion of loan receivable and accrued interest to equity in connection with acquisition of TCBL (Note 2) Issuance of redeemable equity in connection with acquisition of TCBL (Note 2) Transfer of The Pier Shops and Regency Square in settlement of mortgage debt obligations, net (Note 2) Other non-cash additions to properties 215,439 281,467 10,450 11,882 63,941 29,803 $ 28,678 $ 14,138 Other non-cash additions to properties primarily represent accrued construction and tenant allowance costs. Various other assets and liabilities were also assumed in connection with the acquisitions of The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village, and TCBL (Note 2) Note 19 – Quarterly Financial Data (Unaudited) The following is a summary of quarterly results of operations for 2011 and 2010: Revenues Equity in income of Unconsolidated Joint Ventures Net income(1) Net income attributable to TCO common shareowners Income from continuing operations per share - basic Earnings per common share – basic(1) Income from continuing operations per share - diluted Earnings per common share – diluted(1) 2011 First Quarter Second Quarter Third Quarter Fourth Quarter $ $ $ $ $ 149,634 10,146 24,444 10,716 0.27 0.19 0.26 0.19 $ $ $ $ $ 149,407 10,886 20,290 8,344 0.23 0.15 0.23 0.15 $ $ $ $ $ 158,555 10,958 21,868 8,461 0.29 0.15 0.28 0.14 $ $ $ $ $ 187,322 14,074 220,796 149,180 0.53 2.58 0.52 2.50 F-44 TAUBMAN CENTERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Revenues Equity in income of Unconsolidated Joint Ventures Net income Net income attributable to TCO common shareowners Income from continuing operations per share - basic Earnings per common share – basic Income from continuing operations per share - diluted Earnings per common share – diluted 2010 First Quarter Second Quarter Third Quarter Fourth Quarter $ 145,053 $ 146,906 $ 148,029 $ 186,439 9,735 16,813 6,283 9,505 18,484 7,453 $ $ $ $ 0.18 0.12 0.17 0.11 $ $ $ $ 0.20 0.14 0.19 0.14 $ $ $ $ 9,973 8,458 722 0.09 0.01 0.09 0.01 $ $ $ $ 16,199 58,572 33,141 0.66 0.61 0.65 0.60 (1) Amounts include non-cash accounting gains of $126.7 million and $47.4 million, respectively, that were recognized on extinguishment of the debt obligations at The Pier Shops and Regency Square in the fourth quarter of 2011 (Note 2). F-45 VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 2011, 2010, and 2009 (in thousands) Schedule II Additions Balance at beginning of year Charged to costs and expenses Charged to other accounts Write-offs Transfers, net Balance at end of year Year ended December 31, 2011 Allowance for doubtful receivables $7,966 $2,032 $(2,535) $(4,160) (1) $3,303 Year ended December 31, 2010 Allowance for doubtful receivables $6,894 $3,363 Year ended December 31, 2009 Allowance for doubtful receivables $9,895 $2,081 $(2,291) $(5,082) $7,966 $6,894 (1) Amounts represent balances associated with The Pier Shops and Regency Square as the centers were transferred to their mortgage lenders during 2011. See accompanying report of independent registered public accounting firm. F-46 T o t a l O t h e r A s s e t s u n d e r C D D O b l i g a t i o n s D e v e l o p m e n t C o n s t r u c t i o n i n P r o c e s s a n d - p r e - c o n s t r u c t i o n c o s t s P e r i p h e r a l L a n d O f f i c e F a c i l i t i e s O t h e r : P l a n o , T X T h e S h o p s a t W i l l o w B e n d W e l l i n g t o n , F L T h e M a l l a t W e l l i n g t o n G r e e n N o v i , M I T w e l v e O a k s M a l l S h o r t H i l l s , N J T h e M a l l a t S h o r t H i l l s R i c h m o n d , V A S t o n y P o i n t F a s h i o n P a r k C l i n t o n T o w n s h i p , M I T h e M a l l a t P a r t r i d g e C r e e k C h a r l o t t e , N o r t h l a k e N C M a l l T a m p a , F L I n t e r n a t i o n a l P l a z a N a s h v i l l e , T N T h e M a l l a t G r e e n H i l l s P a l m D e s e r t , C A E l P a s e o V i l l a g e T h e G a r d e n s o n E l P a s e o / A u b u r n H i l l s , M I G r e a t L a k e s C r o s s i n g O u t l e t s M a c A r t h u r C e n t e r , N o r f o l k , V A $ 3 7 7 , 6 0 3 $ 2 , 9 1 0 , 1 2 6 $ 7 3 3 , 2 2 5 $ 3 8 0 , 0 7 5 $ 3 , 6 4 0 , 8 7 9 $ 4 , 0 2 0 , 9 5 4 ( 4 ) $ 1 , 2 7 1 , 9 4 3 $ 2 , 7 4 9 , 0 1 1 4 , 1 6 4 4 6 , 7 0 0 4 6 , 5 2 5 7 , 6 2 3 6 1 , 4 1 1 1 5 , 4 7 9 2 7 , 5 7 7 4 , 1 6 4 4 6 , 7 0 0 4 6 , 5 2 5 7 , 6 2 3 6 1 , 4 1 1 1 5 , 4 7 9 2 7 , 5 7 7 7 , 6 2 3 6 5 , 5 7 5 6 2 , 1 7 9 4 6 , 5 2 5 2 7 , 5 7 7 1 , 1 1 2 2 3 , 8 3 1 1 9 , 8 4 7 6 , 5 1 1 4 1 , 7 4 4 6 2 , 1 7 9 4 6 , 5 2 5 7 , 7 3 0 F - 4 7 2 6 , 1 9 2 2 1 3 , 2 3 4 2 5 , 7 7 0 2 6 , 1 9 2 2 3 9 , 0 0 4 2 6 5 , 1 9 6 7 9 , 2 6 8 1 8 5 , 9 2 8 1 8 , 9 6 7 1 8 2 , 2 2 8 1 2 , 6 1 9 2 1 , 4 3 9 1 9 2 , 3 7 5 2 1 3 , 8 1 4 7 3 , 1 9 4 1 4 0 , 6 2 0 2 0 0 , 0 0 0 1 0 , 6 7 7 9 2 , 0 5 6 1 2 , 7 8 7 1 0 , 6 7 7 1 0 4 , 8 4 3 1 1 5 , 5 2 0 4 2 , 8 6 6 7 2 , 6 5 4 1 0 3 , 6 1 5 2 5 , 4 1 0 1 9 0 , 5 1 4 8 1 , 0 8 3 2 5 , 4 1 0 2 7 1 , 5 9 7 2 9 7 , 0 0 7 1 1 6 , 3 1 1 1 8 0 , 6 9 6 ( 1 ) 2 5 , 1 1 4 1 6 7 , 5 9 5 1 4 7 , 8 9 4 2 5 , 1 1 4 3 1 5 , 4 8 9 3 4 0 , 6 0 3 1 4 6 , 7 4 2 1 9 3 , 8 6 1 5 4 0 , 0 0 0 1 4 , 0 9 7 1 1 9 , 2 5 3 1 4 , 2 8 5 1 4 , 0 9 7 1 3 3 , 5 3 8 1 4 7 , 6 3 5 3 7 , 9 3 9 1 0 9 , 6 9 6 8 1 , 2 0 3 2 2 , 5 4 0 1 4 2 , 9 4 7 5 , 0 4 7 2 2 , 5 4 0 1 4 7 , 9 9 4 1 7 0 , 5 3 4 5 4 , 0 1 0 1 1 6 , 5 2 4 2 1 5 , 5 0 0 4 6 , 0 0 0 3 3 2 , 2 6 1 1 5 , 5 0 6 1 8 8 , 9 3 3 1 4 3 , 4 7 1 3 0 0 , 3 4 4 1 7 , 6 5 4 3 6 , 4 3 6 4 2 , 4 4 08 1 5 , 5 0 6 2 3 1 , 3 7 3 2 4 6 , 8 7 9 1 0 2 , 2 1 4 1 4 4 , 6 6 5 1 2 9 , 2 2 2 4 6 , 0 0 0 3 3 2 , 2 6 9 3 7 8 , 2 6 9 3 0 1 3 7 7 , 9 6 8 1 1 1 , 8 0 1 ( 3 ) 1 6 1 , 1 2 5 3 3 6 , 7 8 0 1 6 1 , 1 2 5 3 3 6 , 7 8 0 5 6 , 8 5 3 1 0 4 , 7 9 8 1 0 4 , 2 7 2 2 3 1 , 9 8 2 1 3 1 , 0 0 0 3 2 5 , 0 0 0 2 3 , 5 0 0 1 3 2 , 7 1 7 5 2 3 , 5 0 0 1 3 2 , 7 2 2 1 5 6 , 2 2 2 1 0 0 1 5 6 , 1 2 2 B e v e r l y C e n t e r L o s A n g e l e s , C A S h o p p i n g C e n t e r s : D e n v e r , C O C h e r r y C r e e k S h o p p i n g C e n t e r F a i r l a n e T o w n C e n t e r , D e a r b o r n , M I 1 7 , 3 3 0 D o l p h i n M a l l , M i a m i , F L $ 3 4 , 8 8 1 1 0 4 , 6 6 8 2 2 2 , 5 1 8 9 9 , 2 6 0 1 2 0 , 3 6 7 4 9 , 4 4 6 5 7 , 6 1 3 $ 1 7 , 3 3 0 3 4 , 8 8 1 1 5 4 , 1 1 4 2 8 0 , 1 3 1 2 1 9 , 6 2 7 1 7 1 , 4 4 4 3 1 5 , 0 1 2 2 1 9 , 6 2 7 6 9 , 2 3 5 7 7 , 6 5 5 1 2 3 , 0 6 3 1 0 2 , 2 0 9 2 3 7 , 3 5 7 9 6 , 5 6 4 $ 2 0 9 , 0 9 3 $ 6 6 , 7 1 5 $ 2 7 5 , 8 0 8 $ 2 7 5 , 8 0 8 $ 1 4 2 , 6 0 4 $ 1 3 3 , 2 0 4 $ 3 1 6 , 7 2 4 1 7 , 0 5 9 8 6 , 4 7 5 / 3 0 , 0 0 0 2 9 0 , 0 0 0 2 8 0 , 0 0 0 ( 2 ) ( 1 ) ( 1 ) 2 0 0 1 2 0 0 1 1 9 7 7 2 0 0 3 1 9 8 0 2 0 0 7 2 0 0 5 1 9 9 9 2 0 0 1 2 0 1 1 1 9 9 8 2 0 1 1 1 9 9 6 2 0 0 1 1 9 9 0 1 9 8 2 5 0 Y e a r s 5 0 Y e a r s 5 0 Y e a r s 5 0 Y e a r s 4 0 Y e a r s 5 0 Y e a r s 5 0 Y e a r s 5 0 Y e a r s 5 0 Y e a r s 4 0 Y e a r s 5 0 Y e a r s 4 8 Y e a r s 4 0 Y e a r s / 4 0 Y e a r s 5 0 Y e a r s 4 0 Y e a r s 4 0 Y e a r s I n i t i a l C o s t t o C o m p a n y G r o s s A m o u n t a t W h i c h C a r r i e d a t C l o s e o f P e r i o d L a n d a n d E q u i p m e n t I m p r o v e m e n t s , B u i l d i n g s , A c q u i s i t i o n S u b s e q u e n t t o C a p i t a l i z e d C o s t L a n d I B & E T o t a l ( A D / ) D e p r e c i a t i o n A c c u m u l a t e d o f A D / T o t a l C o s t N e t E n c u m b r a n c e s A c q u i s i t i o n C o n s t r u c t i o n o r C o m p l e t i o n o f D a t e o f L i f e D e p r e c i a b l e ( i n t h o u s a n d s ) D e c e m b e r 3 1 , 2 0 1 1 R E A L E S T A T E A N D A C C U M U L A T E D D E P R E C A T I O N I T A U B M A N C E N T E R S , I N C . S c h e d u l e I I I n o i t a i c e r p e D d e t a l u m u c c A s t e s s A e t a t s E l a e R l a t o T 9 0 0 2 0 1 0 2 1 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 ) 6 2 6 , 9 4 0 , 1 ( $ ) 0 1 6 , 0 0 1 , 1 ( $ ) 7 4 2 , 9 9 1 , 1 ( $ r a e y f o g n i n n i g e b , e c n a l a B 0 8 4 , 9 9 6 , 3 $ 3 5 8 , 6 9 4 , 3 $ 7 9 2 , 8 2 5 , 3 $ r a e y f o g n i n n i g e b , e c n a l a B : s w o l l o f s a e r a 9 0 0 2 d n a 0 1 0 2 , 1 1 0 2 , 1 3 r e b m e c e D d e d n e s r a e y e h t r o f n o i t a i c e r p e d d e t a l u m u c c a d n a s t e s s a e t a t s e l a e r l a t o t n i s e g n a h c e h T ) 7 ( 0 9 6 , 8 8 ) 6 1 ( ) 6 0 3 , 9 2 1 ( ) 2 5 3 , 0 1 ( ) 8 0 1 , 8 ( 5 9 2 , 6 4 ) 4 2 8 , 6 3 1 ( ) 6 ( ) 4 6 7 , 9 ( 4 — 3 5 , 4 5 ) 6 6 4 , 7 1 1 ( s n o i t a r e p o g n i u n i t n o c s n o i t a r e p o d e u n i t n o c s i d s f f o - e t i r W / s l a s o p s i D ) 7 ( ) 6 ( ) 4 0 4 , 6 5 2 ( ) t u O ( / n I s r e f s n a r T 5 0 0 , 1 - - n o i t a i c e r p e D n o i t a i c e r p e D 2 7 7 , 2 5 ) 2 4 8 ( 3 2 0 , 9 7 ) 7 3 7 , 6 4 ( ) 5 ( ) 6 ( 6 3 1 , 3 4 5 6 2 0 , 6 7 ) 6 6 6 , 2 ( ) 9 3 8 , 3 2 1 ( ) 0 1 6 , 0 0 1 , 1 ( $ ) 7 4 2 , 9 9 1 , 1 ( $ ) 3 4 9 , 1 7 2 , 1 ( $ r a e y f o d n e , e c n a l a B 3 5 8 , 6 9 4 , 3 $ 7 9 2 , 8 2 5 , 3 $ 4 5 9 , 0 2 0 , 4 $ s t n e m e v o r p m i d n a t n e m p o l e v e d w e N s n o i t i s i u q c A s f f o - e t i r W / s l a s o p s i D r a e y f o d n e , e c n a l a B ) t u O ( / n I s r e f s n a r T e s e h t g n i n w o s e i t i t n e e h t f o s n o i t a g i l b o y r a m i r p e r a t i d e r c f o e n i l e h t r e d n u s g n i w o r r o B . t i d e r c f o e n i l n o i l l i m 0 5 6 $ s ’ y n a p m o C e h t r o f l a r e t a l l o c e r a s r e t n e c e s e h T ) 1 ( . s r e t n e c h c i h w n o i l l i m 1 . 7 1 $ d n a n o i l l i m 5 . 6 8 $ r o f e g a l l i V o e s a P l E d n a o e s a P l E n o s n e d r a G e h T n o y l e t a r a p e s d l e h s e t o n e g a g t r o m t n e r e f f i d o w t e h t t n e s e r p e r s e c n a l a B ) 2 ( , s e c n a l a b k o o b e h T . s r e d n e l e g a g t r o m e h t o t d e r r e f s n a r t e r e w t a h t e r a u q S y c n e g e R d n a s p o h S r e i P e h T f o s t e s s a y t r e p o r p f o s e c n a l a b k o o b e h t s e d u l c n i , 1 1 0 2 n I r i a f r i e h t o t e r a u q S y c n e g e R d n a s p o h S r e i P e h T n w o d e t o r w y n a p m o C e h t , 9 0 0 2 n I . y l e v i t c e p s e r , n o i l l i m 9 . 5 3 $ d n a n o i l l i m 7 . 5 2 $ e r e w , n o i t a i c e r p e d f o t e n . e g a l l i V o e s a P l E d n a o e s a P l E n o s n e d r a G e h T , s l l i H n e e r G t a l l a M e h T f o e s a h c r u p e h t o t g n i t a l e r s t s o c s e d u l c n I . n o i l l i b 0 9 3 . 4 $ s a w 1 1 0 2 , 1 3 r e b m e c e D f o s a s e s o p r u p x a t e m o c n i l a r e d e f r o f t s o c e t a g e r g g a d e t i d u a n u e h T . s m u i m e r p g n i t n u o c c a e s a h c r u p f o , y l e v i t c e p s e r , n o i l l i m 0 . 5 $ d n a n o i l l i m 3 . 0 $ e d u l c n i . m u i m e r p g n i t n u o c c a e s a h c r u p n o i l l i m 2 . 4 $ s e d u l c n i e c n a l a B ) 3 ( ) 4 ( ) 5 ( ) 6 ( . o r e z o t t e s s a w n o i t a i c e r p e d d e t a l u m u c c a d e t a l e r e h t , 9 0 0 2 n i e r a u q S y c n e g e R d n a s p o h S r e i P e h T f o s t n e m r i a p m i e h t f o t l u s e r a s A ) 7 ( . y l e v i t c e p s e r , n o i l l i m 0 . 9 5 $ d n a n o i l l i m 7 . 7 0 1 $ e r e w s e g r a h c t n e m r i a p m i e h T . s e u l a v . m r i f g n i t n u o c c a c i l b u p d e r e t s i g e r t n e d n e p e d n i f o t r o p e r g n i y n a p m o c c a e e S 8 4 - F SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to the report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 28, 2012 TAUBMAN CENTERS, INC. By: /s/ Lisa A. Payne Lisa A. Payne, Vice Chairman, Chief Financial Officer, and Director (Principal Financial Officer) TAUBMAN CENTERS, INC. Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Dividends (in thousands, except ratios) Exhibit 12 Year Ended December 31 2011 2010 2009 2008 2007 Earnings from continuing operations before income from equity investees and taxes (1) (2) $ 95,945 $ 77,928 $ 94,632 $ (26,965) $ 86,731 Add back: Fixed charges Amortization of previously capitalized interest Distributed income of Unconsolidated Joint Ventures (3) 127,128 139,410 139,854 148,738 4,401 46,064 4,411 45,412 4,443 11,488 4,460 35,356 141,965 4,308 40,498 Deduct: Capitalized interest Preferred distributions (4) (422) 372 (319) (2,460) (1,257) (2,460) (7,972) (2,460) (14,613) (2,460) Earnings available for fixed charges and preferred dividends $ 273,488 $ 264,382 $ 246,700 $ 151,157 $ 256,429 Fixed charges: Interest expense Capitalized interest Interest portion of rent expense Preferred distributions (4) Total fixed charges $ 122,277 $ 132,362 $ 131,558 $ 133,455 $ 120,042 422 4,801 (372) 319 4,269 2,460 1,257 4,579 2,460 7,972 4,851 2,460 14,613 4,850 2,460 $ 127,128 $ 139,410 $ 139,854 $ 148,738 $ 141,965 Preferred dividends 14,634 14,634 14,634 14,634 14,634 Total fixed charges and preferred dividends $ 141,762 $ 154,044 $ 154,488 $ 163,372 $ 156,599 Ratio of earnings to fixed charges and preferred dividends (1) 1.9 1.7 1.6 0.9 (5) 1.6 (1) In November and December 2011, the Company disposed of The Pier Shops at Caesars and Regency Square, respectively. These centers are reported separately as discontinued operations in the Consolidated Financial Statements. See "Note 2- Acquisitions and Dispositions" to the Consolidated Financial Statements for further discussion of our discontinued operations. All reported periods of the calculation of the ratio of earnings to fixed charges exclude discontinued operations. (2) 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. (3) 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. (4) In October 2011, the Company redeemed the Operating Partnership's 8.2% Series F Preferred Equity for $27 million, which represented a $2.2 million discount from the book value. (5) Earnings available for fixed charges and preferred dividends were less than total fixed charges and preferred dividends by $12.2 million for 2008. See notes (2) and (3) above. Exhibit 31.1 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/A (Amendment No. 1) of Taubman Centers, Inc.; Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) b) c) d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 28, 2012 /s/ Robert S. Taubman Robert S. Taubman Chairman of the Board of Directors, President, and Chief Executive Officer Exhibit 31.2 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/A (Amendment No. 1) of Taubman Centers, Inc.; Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) b) c) d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 28, 2012 /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 32.1 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/A (Amendment No. 1) for the year ended December 31, 2011 (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 28, 2012 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 32.2 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/A (Amendment No. 1) for the year ended December 31, 2011 (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 28, 2012 e f f e c t i v e r a t e o f 4 . 4 3 % . ( d ) D e b t i n c l u d e s $ 5 . 0 m i l l i o n o f p u r c h a s e a c c o u n t i n g p r e m i u m f r o m a c q u i s i t i o n w h i c h r e d u c e s t h e s t a t e d r a t e o n t h e d e b t o f 6 . 1 0 % t o a n r a t e o f 3 . 8 5 % . ( c ) D e b t i n c l u d e s $ 0 . 3 m i l l i o n o f p u r c h a s e a c c o u n t i n g p r e m i u m f r o m a c q u i s i t i o n w h i c h r e d u c e s t h e s t a t e d r a t e o n t h e d e b t o f 4 . 4 2 % t o a n e f f e c t i v e A l l d e b t i s s e c u r e d a n d n o n - r e c o u r s e t o T R G u n l e s s o t h e r w i s e i n d i c a t e d . A v e r a g e M a t u r i t y T o t a l D e b t A v e r a g e M a t u r i t y F i x e d D e b t d e r i v a t i v e s u s e d t o h e d g e t h e r e f i n a n c i n g o f c e r t a i n f i x e d r a t e d e b t o r i n t e r e s t r a t e c a p p r e m i u m s . I n c l u d e s t h e i m p a c t o f i n t e r e s t r a t e s w a p s , i f a n y , b u t d o e s n o t i n c l u d e e f f e c t o f a m o r t i z a t i o n o f d e b t i s s u a n c e c o s t s , l o s s e s o n s e t t l e m e n t o f ( b ) ( a ) T o t a l F l o a t i n g R a t e D e b t W e i g h t e d R a t e T o t a l J o i n t V e n t u r e F i x e d R a t e D e b t T R G B e n e f i c i a l I n t e r e s t T o t a l s F a i r O a k s W e i g h t e d R a t e T a u b m a n L a n d A s s o c i a t e s T o t a l J o i n t V e n t u r e F l o a t i n g J o i n t V e n t u r e s F l o a t i n g R a t e D e b t : S u n v a l l e y W e s t f a r m s W a t e r s i d e S h o p s A r i z o n a M i l l s T h e M a l l a t M i l l e n i a W e i g h t e d R a t e T o t a l J o i n t V e n t u r e F i x e d D o l p h i n M a l l ( i ) T w e l v e O a k s M a l l ( i ) F a i r l a n e T o w n C e n t e r ( i ) W e i g h t e d R a t e T o t a l C o n s o l i d a t e d F l o a t i n g W e i g h t e d R a t e T o t a l C o n s o l i d a t e d J o i n t V e n t u r e s F i x e d R a t e D e b t : M a c A r t h u r C e n t e r T R G $ 6 5 M R e v o l v i n g C r e d i t C o n s o l i d a t e d F l o a t i n g R a t e D e b t : T R G $ 6 5 0 M R e v o l v i n g C r e d i t F a c i l i t y : W e i g h t e d R a t e T o t a l C o n s o l i d a t e d F i x e d T R G - D a v i s S t r e e t I n s t a l l m e n t N o t e s ( j ) N o r t h l a k e M a l l I n t e r n a t i o n a l P l a z a T h e G a r d e n s o n E l P a s e o S t o n y P o i n t F a s h i o n P a r k T h e M a l l T h e M a l l T h e M a l l T h e M a l l a t a t a t a t S h o r t H i l l s G r e e n H i l l s P a r t r i d g e C r e e k W e l l i n g t o n G r e e n E l P a s e o V i l l a g e G r e a t L a k e s C r o s s i n g O u t l e t s C h e r r y C r e e k S h o p p i n g C e n t e r B e v e r l y C e n t e r C o n s o l i d a t e d F i x e d R a t e D e b t : 5 0 . 0 0 % 5 0 . 0 0 % 7 8 . 9 4 % 2 5 . 0 0 % 5 0 . 0 0 % 5 0 . 0 0 % 5 0 . 0 0 % 9 5 . 0 0 % 9 0 . 0 0 % 5 0 . 1 0 % 5 0 . 0 0 % 4 , 2 8 4 . 4 4 . 8 9 % 3 . 4 3 % 7 6 2 . 5 5 . 2 1 % 3 , 5 2 1 . 9 1 , 1 3 8 . 8 5 . 3 2 % 3 0 5 . 0 2 7 5 . 0 3 0 . 0 4 . 2 8 % 8 3 3 . 8 1 8 1 . 1 1 6 5 . 0 1 1 6 . 3 1 9 9 . 4 1 7 2 . 0 5 . 7 1 % 3 , 1 4 5 . 6 4 . 7 4 % 4 5 7 . 5 2 . 8 6 % 3 0 . 0 0 . 0 2 9 0 . 0 1 3 1 . 0 6 . 5 2 , 6 8 8 . 1 5 . 0 6 % 2 8 1 . 5 2 0 0 . 0 5 4 0 . 0 1 1 1 . 8 8 1 . 2 8 6 . 5 1 0 3 . 6 2 1 5 . 5 3 2 5 . 0 1 2 9 . 2 ( e ) ( d ) 2 8 0 . 0 3 1 6 . 7 1 7 . 1 ( c ) 3 , 3 9 7 . 4 6 0 3 . 5 3 . 2 0 % 2 , 7 9 3 . 9 5 . 1 7 % ( e ) 4 . 8 2 % ( e ) 5 8 0 . 6 5 . 3 8 % 1 5 2 . 5 1 3 7 . 5 1 5 . 0 4 . 2 8 % 4 2 8 . 1 1 4 2 . 9 5 . 7 7 % 4 1 . 3 5 8 . 2 9 9 . 7 8 6 . 0 2 , 8 1 6 . 9 4 . 7 0 % ( e ) 4 5 1 . 0 2 . 8 3 % 3 0 . 0 0 . 0 2 9 0 . 0 1 2 4 . 5 6 . 5 2 , 3 6 5 . 9 5 . 0 6 % 2 8 1 . 5 1 8 0 . 0 5 4 0 . 0 1 1 1 . 8 8 1 . 2 8 6 . 5 1 0 3 . 6 2 1 5 . 5 1 6 2 . 8 1 2 9 . 2 1 7 . 1 1 4 0 . 0 3 1 6 . 7 5 . 9 5 % 4 . 1 0 % ( f ) ( h ) 6 . 1 0 % 5 . 5 4 % 5 . 6 7 % 5 . 4 6 % 5 . 7 6 % 2 . 0 3 % 2 . 0 3 % 1 . 3 0 % ( g ) 4 . 9 9 % ( f ) 3 . 1 3 % 5 . 4 4 % 5 . 4 7 % 6 . 1 5 % 4 . 6 6 % 4 . 4 3 % 6 . 2 4 % 5 . 4 1 % 4 . 8 5 % 5 . 2 5 % ( e ) ( d ) 5 . 2 4 % 5 . 2 8 % 3 . 8 5 % ( c ) 1 . 7 5 % 1 . 7 5 % 1 . 7 5 % 1 . 0 0 % ( i ) ( h ) ( g ) ( f ) ( e ) 34 4 . 3 6 % 5 2 4 . 7 4 . 5 5 % 2 1 . 9 5 0 2 . 7 4 . 3 5 % 2 1 8 . 9 5 . 9 7 % 1 5 . 0 1 5 . 0 5 . 9 5 % 2 0 3 . 8 1 4 2 . 9 5 . 9 7 % 5 8 . 2 1 . 6 1 . 1 3 0 5 . 8 3 . 2 1 % 1 . 5 1 % 6 . 9 6 . 5 0 . 4 2 9 8 . 9 2 8 1 . 5 3 . 2 5 % 1 . 0 3 . 5 1 . 1 2 . 0 3 . 2 0 . 4 6 . 3 ( j ) I n s t a l l m e n t n o t e s w e r e p a i d o n F e b r u a r y 2 1 , 2 0 1 2 w i t h r e s t r i c t e d c a s h d r a w n o n t h e C o m p a n y s ' l i n e o f c r e d i t a s o f D e c e m b e r 3 1 , 2 0 1 1 . D e b t i s s w a p p e d t o t h e e f f e c t i v e r a t e i n d i c a t e d u n t i l m a t u r i t y . D e b t i s s w a p p e d t o a n e f f e c t i v e r a t e o f 4 . 1 0 % u n t i l 2 . 5 m o n t h s p r i o r t o m a t u r i t y . R a t e f l o a t s d a i l y a t L I B O R p l u s s p r e a d . L e t t e r s o f c r e d i t t o t a l i n g $ 2 9 . 3 m i l l i o n a r e a l s o o u t s t a n d i n g o n t h e f a c i l i t y . b y T R G . A o n e y e a r e x t e n s i o n o p t i o n i s a v a i l a b l e . T R G r e v o l v i n g c r e d i t f a c i l i t y o f $ 6 5 0 m i l l i o n . D o l p h i n , F a i r l a n e a n d T w e l v e O a k s a r e t h e d i r e c t b o r r o w e r s u n d e r t h i s f a c i l i t y . D e b t i s g u a r a n t e e d r a t e o f 4 . 6 6 % . D e b t i n c l u d e s $ 4 . 2 m i l l i o n o f p u r c h a s e a c c o u n t i n g p r e m i u m f r o m a c q u i s i t i o n w h i c h r e d u c e s t h e s t a t e d r a t e o n t h e d e b t o f 6 . 8 9 % t o a n e f f e c t i v e 5 . 1 3 % 3 4 6 . 2 4 . 9 9 % 1 . 3 3 4 4 . 9 5 . 1 3 % 5 . 4 6 % 9 9 . 3 5 . 4 6 % 9 9 . 3 9 8 . 1 1 . 2 2 4 7 . 0 5 . 0 0 % 4 . 9 9 % 1 . 3 5 . 5 1 % 4 0 9 . 5 4 . 6 6 % 2 . 2 4 0 7 . 3 5 . 5 1 % 5 . 1 3 % 2 . 1 4 . 1 0 % 0 . 8 0 . 8 5 . 7 6 % 1 . 3 1 0 6 5 . 6 4 . 4 0 % 2 . 0 5 % 3 2 3 . 5 7 4 2 . 1 5 . 4 2 % 4 . 7 7 % 3 . 4 4 . 1 0 % 2 . 0 2 . 0 5 . 7 6 % 1 . 4 5 . 2 0 % 4 8 7 . 7 4 . 4 8 % 3 . 8 4 8 4 . 0 5 . 2 1 % 4 4 . 8 5 . 4 8 % 4 . 1 0 % 2 . 2 2 . 2 5 . 5 5 % 4 2 . 7 4 1 . 3 5 . 0 2 % 9 . 6 4 . 4 8 % 4 . 0 5 . 4 1 % 5 . 6 4 . 7 6 % 3 . 9 4 . 1 0 % 2 . 3 2 . 3 5 . 7 6 % 1 . 5 4 . 1 7 % 1 3 8 . 0 4 . 1 1 % 1 3 2 . 0 5 . 4 2 % 5 . 9 1 3 1 . 8 4 . 1 2 % 1 3 0 . 2 4 . 1 0 % 1 3 0 . 2 5 . 3 2 % 8 . 2 4 . 9 9 % 2 . 0 5 . 4 2 % 6 . 2 5 . 7 6 % 1 . 7 5 . 5 2 % 2 6 1 . 9 4 . 9 9 % 1 1 2 . 8 1 4 9 . 1 5 . 9 3 % 7 4 . 7 5 . 7 6 % 1 4 6 . 1 4 . 8 5 % 1 4 6 . 1 4 . 8 5 % 5 . 7 6 % 1 . 6 5 . 7 6 % 1 . 7 5 . 7 6 % 7 4 . 7 1 . 3 1 . 4 1 . 4 1 . 5 1 . 6 1 . 7 7 4 . 7 4 0 7 . 4 5 . 5 1 % 4 . 9 9 % 1 . 4 1 0 6 2 . 2 4 . 4 0 % 3 2 1 . 5 2 . 0 4 % 3 0 . 0 0 . 0 2 9 0 . 0 ( i ) ( i ) 4 4 2 . 9 5 . 1 7 % 4 . 9 9 % 1 . 6 5 . 2 0 % 5 . 8 4 . 9 9 % 1 . 7 5 . 2 0 % 6 . 1 4 . 9 9 % 1 . 8 5 . 2 0 % 6 . 5 4 . 9 9 % 2 . 0 1 8 7 . 1 5 . 4 3 % 1 1 2 . 8 4 . 9 9 % 1 4 6 . 1 4 . 8 5 % 1 . 3 1 . 4 1 . 5 1 . 6 1 . 7 1 . 8 2 . 0 1 1 2 . 8 3 , 3 9 7 . 4 6 0 3 . 5 2 , 7 9 3 . 9 5 8 0 . 6 1 5 2 . 5 1 3 7 . 5 1 5 . 0 4 2 8 . 1 1 4 2 . 9 4 1 . 3 5 8 . 2 9 9 . 7 8 6 . 0 2 , 8 1 6 . 9 4 5 0 . 9 3 0 . 0 0 . 0 2 9 0 . 0 1 2 4 . 5 6 . 5 2 4 5 . 7 5 . 0 0 % 4 0 6 . 0 5 . 5 1 % 7 4 0 . 7 5 . 4 2 % 4 4 1 . 3 5 . 1 7 % 5 . 2 8 % 4 . 1 5 . 2 9 % 4 . 3 5 . 2 9 % 4 . 5 6 . 1 0 % 7 4 . 4 1 4 6 . 1 4 . 8 5 % 2 , 3 6 5 . 9 1 0 8 . 3 1 . 1 1 . 1 2 . 1 1 2 6 . 0 0 . 4 1 . 1 9 9 . 5 1 . 1 0 . 4 6 . 6 3 0 3 . 8 1 8 0 . 0 5 4 0 . 0 1 . 2 1 . 1 2 . 5 1 5 . 9 1 . 3 8 1 . 9 2 1 5 . 5 2 . 6 1 4 0 . 0 1 . 4 1 . 4 1 . 5 7 1 . 2 2 . 7 2 . 9 3 . 0 3 . 1 1 4 6 . 1 2 8 1 . 5 1 8 0 . 0 5 4 0 . 0 1 1 1 . 8 8 6 . 5 1 0 3 . 6 2 1 5 . 5 1 6 2 . 8 1 2 9 . 2 1 7 . 1 1 4 0 . 0 8 1 . 2 T o t a l3 1 6 . 7 E x h i b i t 9 9 . 1 D e b t S u m m a r y A s o f D e c e m b e r 3 1 , 2 0 1 1 T A U B M A N C E N T E R S , I N C . ( i n m i l l i o n s o f d o l l a r s , a m o u n t s m a y n o t a d d d u e t o r o u n d i n g ) 1 2 / 3 1 / 2 0 1 1 1 0 0 % 1 2 / 3 1 / 2 0 1 1 I n t e r e s t B e n e f i c i a l E R a t e f f e c t i v e 1 2 / 3 1 / 2 0 1 1 ( b ) S p r e a d R a t e L I B O R 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 2 0 2 0 2 0 2 1 P r i n c i p a l A m o r t i z a t i o n a n d D e b t M a t u r i t i e s I N C L U D I N G W E I G H T E D A V E R A G E I N T E R E S T R A T E S A T D E C E M B E R 3 1 , 2 0 1 1 M O R T G A G E A N D O T H E R N O T E S P A Y A B L E ( a ) 2 . 9 9 t i b i h x E P I H S R E N T R A P D E T I M I L P U O R G Y T L A E R N A M B U A T E H T F O S E R U T N E V T N O J D E T A D I L O S N O C N U I I N O I T A C E R P E D D E T A L U M U C C A D N A E T A T S E L A E R 1 1 0 2 , 1 3 r e b m e c e D ) s d n a s u o h t n i ( e l b a i c e r p e D e f i L n o i t e l p m o C f o e t a D r o n o i t c u r t s n o C f o n o i t i s i u q c A s e c n a r b m u c n E t s o C l a t o T / D A f o t e N d e t a l u m u c c A n o i t a i c e r p e D ) / D A ( l a t o T , s g n i d l i u B , s t n e m e v o r p m I t n e m p i u q E d n a d n a L d e z i l a t i p a C t s o C o t t n e u q e s b u S n o i t i s i u q c A , s g n i d l i u B , s t n e m e v o r p m I t n e m p i u q E d n a d n a L d o i r e P f o e s o l C t a d e i r r a C h c i h W t a t n u o m A s s o r G y n a p m o C o t t s o C l a i t i n I s r a e Y 0 5 s r a e Y 5 5 s r a e Y 0 5 s r a e Y 0 4 s r a e Y 0 4 s r a e Y 0 4 s r a e Y 4 3 7 9 9 1 0 8 9 1 2 0 0 2 2 8 9 1 7 6 9 1 3 0 0 2 4 7 9 1 0 1 0 , 2 7 1 0 0 0 , 5 7 2 7 9 3 , 9 9 1 6 2 3 , 6 1 1 0 0 0 , 5 6 1 5 7 0 , 1 8 1 6 0 0 2 0 0 0 , 0 3 0 8 2 , 4 5 8 7 9 , 9 3 1 3 8 3 , 5 7 6 3 7 , 8 2 1 5 8 , 0 8 9 2 6 , 6 1 1 7 9 6 , 2 4 7 4 5 , 1 8 9 9 , 1 7 0 0 , 4 6 7 2 3 , 5 6 2 3 7 , 2 6 6 7 4 , 7 5 8 5 7 , 9 4 1 8 0 , 2 9 8 9 9 , 1 8 9 9 , 1 8 9 9 , 1 7 8 2 , 8 1 1 5 0 3 , 5 0 2 5 1 1 , 8 3 1 2 1 2 , 6 8 7 8 3 , 6 6 1 2 3 9 , 2 7 1 7 4 5 , 1 7 9 6 , 2 4 0 2 6 , 0 1 1 8 8 7 , 2 8 1 8 7 5 , 8 2 1 2 6 8 , 5 8 3 8 7 , 3 5 1 5 4 6 , 7 6 1 7 6 6 , 7 7 3 5 , 9 7 1 5 , 2 2 0 5 3 7 8 2 , 5 4 0 6 , 2 1 7 9 6 , 2 4 7 4 5 , 1 1 1 2 , 6 3 7 4 , 7 7 4 3 5 , 8 8 2 2 1 , 0 2 3 5 8 , 6 8 7 0 0 , 9 2 1 7 4 1 , 3 3 7 7 5 , 6 7 1 4 4 0 , 0 4 0 4 7 , 5 6 0 3 9 , 6 6 8 3 6 , 8 3 7 6 6 , 7 7 1 5 , 2 2 7 3 5 , 9 0 5 3 7 8 2 , 5 4 0 6 , 2 1 7 9 6 , 2 4 7 4 5 , 1 $ 6 5 1 , 9 1 1 $ 8 7 6 , 4 5 $ 4 3 8 , 3 7 1 $ 7 1 8 , 1 5 1 $ 7 1 0 , 2 2 $ 6 8 8 , 3 $ 1 3 9 , 7 4 1 $ 7 1 0 , 2 2 $ T C , d r o f m a t S , r e t n e C n w o T d r o f m a t S L F , o d n a l r O , a i n e l l i M t a l l a M e h T Z A , e p m e T , s l l i M a n o z i r A A V , x a f r i a F , s k a O r i a F : s r e t n e C g n i p p o h S L F , s e l p a N , s p o h S e d i s r e t a W T C , n o t g n i m r a F , s m r a f t s e W A C , d r o c n o C , y e l l a v n u S : r e h t O , ) y e l l a v n u S ( s e t a i c o s s A d n a L n a m b u a T A C , d r o c n o C d n a L l a r e h p i r e P t n e m p o l e v e D d n a s s e c o r P n i n o i t c u r t s n o C s t s o c n o i t c u r t s n o c - e r P - 5 5 2 , 1 6 6 $ 9 5 0 , 6 4 4 $ ) 1 ( 4 1 3 , 7 0 1 , 1 $ 1 9 0 , 3 8 9 $ 3 2 2 , 4 2 1 $ 4 8 0 , 4 1 4 $ 7 0 0 , 9 6 5 $ 3 2 2 , 4 2 1 $ l a t o T n o i t a i c e r p e D d e t a l u m u c c A 9 0 0 2 0 1 0 2 1 1 0 2 s t e s s A e t a t s E l a e R l a t o T 9 0 0 2 0 1 0 2 1 1 0 2 ) 8 6 1 , 6 6 3 ( $ ) 8 1 5 , 6 9 3 ( $ ) 2 1 7 , 7 1 4 ( $ r a e y f o g n i n n i g e b , e c n a l a B 1 4 3 , 7 8 0 , 1 $ 3 6 9 , 4 9 0 , 1 $ 6 1 9 , 2 9 0 , 1 $ r a e y f o g n i n n i g e b , e c n a l a B ) 5 9 7 , 3 3 ( ) 4 2 3 , 2 3 ( ) 9 8 2 , 0 3 ( r a e y r o f n o i t a i c e r p e D 8 8 2 7 5 1 , 3 0 3 1 , 1 1 2 4 9 , 1 n I s r e f s n a r T s l a s o p s i D 3 2 4 , 2 1 ) 1 0 8 , 4 ( 3 0 7 , 0 1 ) 0 5 7 , 2 1 ( 2 5 3 , 9 1 ) 4 5 9 , 4 ( ) 8 1 5 , 6 9 3 ( $ ) 2 1 7 , 7 1 4 ( $ ) 9 5 0 , 6 4 4 ( $ r a e y f o d n e , e c n a l a B 3 6 9 , 4 9 0 , 1 $ 6 1 9 , 2 9 0 , 1 $ 4 1 3 , 7 0 1 , 1 $ s t n e m e v o r p m i d n a t n e m p o l e v e d w e N s f f o - e t i r W / s l a s o p s i D n I s r e f s n a r T r a e y f o d n e , e c n a l a B : s w o l l o f s a e r a 9 0 0 2 d n a , 0 1 0 2 , 1 1 0 2 r e b m e c e D d e d n e s r a e y e h t r o f n o i t a i c e r p e d d e t a l u m u c c a d n a s t e s s a e t a t s e l a e r l a t o t n i s e g n a h c e h T . n o i l l i b 7 8 2 . 1 $ s a w 1 1 0 2 , 1 3 r e b m e c e D f o s a s e s o p r u p x a t e m o c n i l a r e d e f r o f t s o c e t a g e r g g a d e t i d u a n u e h T ) 1 ( PAGE INTENTIONALLY LEFT BLANK Not es a nd Rec onciliat ions fo r Gra p hs – insid e c ov er and pages 2 and 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 Costs related to unsolicited tender offer, net of recoveries Restructuring charges Charge upon redemption of preferred equity Debt prepayment premium and write-off of financing costs Adjusted Funds from Operations Adjusted Funds from Operations allocable to TCO Adjusted Funds from Operations per share YEAR ENDED Net income (loss) attributable to TCO common shareowners Impairment charges of depreciable real estate 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 Impairment charges of non-depreciable real estate Litigation charges Restructuring charges Acquisition costs Redemption of preferred equity Gains on extinguishment of debt Adjusted Funds from Operations Adjusted Funds from Operations allocable to TCO Adjusted Funds from Operations per share (1) Refer to the Form 10-K for a definition of FFO and the company’s uses of the measure. 2002 (2.2) (12.3) 124.3 2003 21.2 (49.6) 137.4 32.8 142.6 88.2 $ 1.69 142.6 5.1 35.5 144.5 87.3 $ 1.70 144.5 24.8 2004 (5.1) (0.3) 139.8 35.7 170.1 103.1 $ 2.07 170.1 (1.0) 5.7 2.7 147.7 91.4 $ 1.75 169.4 102.4 $ 2.00 177.5 107.5 $ 2.16 2007 48.5 2008 (86.7) 141.0 154.8 45.6 235.1 155.4 $ 2.88 235.1 54.1 122.2 81.3 $ 1.51 122.2 126.3 2009 (69.7) 160.8 154.4 (29.7) 215.8 144.2 $ 2.66 215.8 30.4 2.5 2005 44.1 (52.8) 150.3 36.0 177.7 110.6 $ 2.17 177.7 3.1 12.7 193.5 120.5 $ 2.36 2006 21.4 147.3 41.8 210.4 136.7 $ 2.56 210.4 4.7 3.1 218.2 141.7 $ 2.65 2010 47.6 2011 176.7 161.8 152.3 27.9 237.3 160.1 $ 2.86 237.3 82.1 411.1 285.4 $ 4.86 411.1 235.1 155.4 $ 2.88 248.5 165.5 $ 3.08 248.7 166.3 $ 3.06 237.3 160.1 $ 2.86 5.3 (2.2) (174.2) 240.0 166.9 $ 2.84 T E N A N T S A L E S P E R S Q U A R E F O O T Excludes The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village in 2011. Excludes The Pier Shops and Regency Square in 2011, 2010 and 2009. 2008 excludes The Pier Shops. 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 Outlets (formerly Great Lakes Crossing) beginning in 2004. C U R R E N T VA L U E N E T I N C O M E Current Value Net Income (CVNI), referenced on the inside cover of this annual report, is a non-GAAP measure that combines a company’s net asset value (NAV) growth and dividends per share calculated by Green Street Advisors. The source data is proprietary to these parties and the company has not been given access to most of the underlying data. We believe this source is reliable, but we have not independently verified the accuracy or completeness of this data nor ascertained the underlying economic assumptions relied upon therein. There is no directly comparable GAAP financial measure to CVNI, although we believe it to be a useful supplemental measure to track shareholder value. NAV is a non-GAAP measure that represents the net market value of all of a company’s assets, including but not limited to its properties, after subtracting all its liabilities and obligations. NAV is a non-GAAP measure that has no directly comparable GAAP financial measure, although we believe it to be a useful supplemental measure of the fair value of assets. The components of NAV include NOI, which is also a non-GAAP measure. See page 48 of Form 10-K for a reconciliation of NOI to the most comparable GAAP measure. The calculation of CVNI and NAV involve significant estimates and assumptions and may not be comparable to similarly titled measures due to differences in definitions and methodologies. Taubman Centers, Inc. Of ficers and Directors S hare owner Infor ma tion TAUBMA N C ENTERS, INC . B OARD OF DIREC TORS 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) Executive Chairman 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 TAUBMAN COMPANY LLC SENIOR OFF IC ERS AND OPERAT I NG COM MIT TEE R O B E R T S . TA U B M A N Chairman of the Board President and Chief Executive Officer 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 J O N G C H O W Senior Vice President Chief Strategy 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 TA UBMA N ASIA R E N É T R E M B L AY (8) President Taubman Asia Management Limited F OUNDER 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 CORPORATE HE ADQUARTERS Taubman Centers, Inc. 200 East Long Lake Road Bloomfield Hills, MI 48304-2324 248.258.6800 TAUBMAN PRE STIGE OUTLET S Corporate Headquarters 200 East Long Lake Road Bloomfield Hills, MI 48304-2324 248.258.6800 TAUBMAN ASIA Taubman Asia Management Limited Suite 1107, 11/F Two Pacific Place 88 Queensway Admiralty Hong Kong 852.3607.1333 TAUBMAN TCBL Room 608, Jinbao Tower 89 Jinbao Street Dongcheng District Beijing, China Postcode: 100005 +86 10 8522 1998 USE OF TAUBM AN For ease of use, references in this report to “Taubman Centers,” “company,” “Taubman” or an operating platform mean Taubman Centers, Inc. and/or one or more of a number of separate, affili- ated entities. Business is actually con- ducted by an affiliated entity rather than Taubman Centers, Inc. itself or the named operating platform. QUARTERLY SHARE PRICE AND DIVIDEND INF ORMATION The common stock of Taubman Centers, Inc. is listed and traded on the New York Stock Exchange (Symbol TCO). The following table represents the divi- dends and range of share prices for each quarter of 2011: MARKET QUOTATIONS 2011 QUARTER ENDED HIGH LOW DIVIDENDS March 31 June 30 60.57 September 30 62.53 62.71 December 31 $ 55.48 $ 49.96 $ 0.438 0.438 53.02 0.438 48.71 0.450 48.27 DIVIDEND REINV ESTMENT & DIRECT STOCK PURC HASE PLAN The Dividend Reinvestment and Direct Stock Purchase Plan – sponsored and administrated by BNY Mellon(1) – provides owners of common stock a convenient way to reinvest dividends and purchase additional shares. In addition, investors who do not currently own any Taubman Centers’ stock can make an initial investment through this program. A plan description can be viewed online on BNY Mellon Shareowner 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 PUBLICATIONS Taubman Centers’ annual report on Form 10-K and quarterly reports on Form 10-Q are available free of charge from our Corporate Affairs Department or can be viewed and downloaded online at www.taubman.com. A Notice of 2012 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. ANNUAL MEETING The 2012 Taubman Centers, Inc. Annual Meeting will be held on Thursday, June 7 at The Townsend Hotel in Birmingham, Michigan. The meeting will begin at 11:00 a.m. Eastern Time. INDE PE NDE NT REGISTE RE D PUB LI C ACCOUNTING FIRM KPMG LLP Chicago, Illinois SHAREOWNER INQUIRIES Barbara K. Baker Vice President, Investor Relations Taubman 200 East Long Lake Road Bloomfield Hills, Michigan 48304-2324 248.258.7367 bbaker@taubman.com OUR WE BSITE : www.taubman.com 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. CONFIDE NTIAL HOTLINE S AND WE BSITE S: U.S.: 888.773.2513 Hong Kong: 800.96.4633 Korea: 00798.1.1.002.5877 North China: 10.800.711.1152 South China: 10.800.110.1076 English Only: www.reportlineweb.com/taubman International Languages: https://iwf.tnwgrc.com/taubman Independent, confidential hotlines to be used to report concerns regarding possi- ble accounting, internal accounting con- trol or auditing matters, or fraudulent acts which may compromise our ethical standards. Other means of reporting concerns are identified in the Investing/ Corporate Governance section of our website. TRANSFER AGENT AND REGISTRAR BNY Mellon Shareowner Services (1) P.O. Box 358016 Pittsburgh, PA 15252-8016 1.888.877.2889 www.bnymellon.com/shareowner/isd (1) BNY Mellon merged with Computershare on 12/31/11 S S E R P E T T E H C N A L B : g n i t n i r P N O S Y N N E T R E H P O T S I R H C : l a i r o t i d E C I L O B M S : y h p a r g o t o h P d n a n g i s e D Taubman Centers, Inc. 200 East Long Lake Road Bloomfield Hills, Michigan 48304-2324 www.taubman.com 20 15 10 5 0 FCR DDR DRE CUZ CLP H S AIV 

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