Taubman Center s, Inc.
2012 A nnual Repor t
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 publicly held U.S.
regional mall industry. We delight customers and build share-
holder value through the intensive management of our existing
properties, acquisitions, and the highly selective development of
new shopping destinations.
Taubman Centers, Inc. page a2
“Sustainable success in any endeavor requires balance.
That’s especially true in our business. For us, developing and
managing productive retail properties is both an art and a science.
We create and operate our dominant shopping destinations with
equal parts planning and passion. Taubman properties are designed
to maximize the opportunities for both shoppers and retailers.
And we make our investment decisions carefully balancing today’s
costs against tomorrow’s returns.
For more than six decades – the last 20 years as a public company –
we’ve gotten the balance just about right.”
– ROBERT S. TAUBMAN
page 1
C O M PA R I S O N O F C U M U L AT I V E
S H A R E H O L D E R R E T U R N
The graph below displays 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,
2002 through December 31, 2012 (assuming in all cases, the reinvestment of dividends).
During 2012, Taubman Centers’ shareowners enjoyed a 29.7 percent total shareholder
return. Over the 10-year period ended December 31, 2012, total shareholder return
was 21.8 percent.
The company’s 10-year compound annual shareholder return was the highest in the
publicly held U.S. regional mall industry and placed the company fourth of the 85 U.S.
REITs that have operated during this period.
447÷720.64=*.6203
zero at 61p3
space between points is 3p8
368.90 367.54
297.80
244.70
203.29
198.29
134.00
100.00
Taubman Centers, Inc.
FTSE NAREIT Equity Retail Index
MSCI US REIT Index
S&P MidCap 400 Index
S&P 500 Index
720.64 21.8%
554.69
437.07
311.54 12.0%
299.07 11.6%
272.21 10.5%
198.57 7.1%
Compound
Annual
Growth Rate
02
03
04
05
06
07
08
09
10
11
12
Taubman Centers, Inc. page 2
A LETTER FROM
ROBERT S. TAUBMAN
Chairman of the Board,
President & Chief Executive Officer
For Taubman Centers, 2012 was an outstanding year.
Performance was driven by a balance of contributions from both internal and
external sources of growth. Our core properties produced tremendous results
and we made substantial progress on our development pipeline that will fuel
our company’s growth for years to come.
Since Taubman Centers’ IPO in
November 1992, total share-
holder return has been about
17 percent compounded annu-
ally. In the more recent 10-year
period ending December 31,
2012, total annual shareholder
return was nearly 22 percent,
the best performance among all
publicly held U.S. regional mall
REITs. And I’m especially proud
to report that during 2012 our
shareholders were rewarded
with a total return of 29.7 per-
cent, comparing very favorably
to the MSCI US REIT Index’s
17.7 percent and the S&P 500
Index’s 15.9 percent.
page 3
S O L I D C O N T R I B U T I O N S
F R O M T H E C O R E
Starting with the critical metric
of average tenant sales per
square foot, the company’s
properties achieved historic
results of $688 in 2012, an
increase of 7.3 percent over the
comparable portfolio in 2011.
This was another record for
Taubman Centers and the pub-
licly held U.S. regional mall
industry. Tenants doing business
in our space enjoy average sales
per square foot $120 higher than
our closest competitor. That’s
one of the reasons such point-of-
difference merchants as Diesel,
MAC, Restoration Hardware,
Gap, Victoria’s Secret and D&G
opened their first U.S. mall
locations in Taubman centers.
In fact, many of the first Apple
stores were opened in Taubman
shopping centers.
Great, unique merchants are
the most important reason that
over the 10-year period ended
December 31, 2012, the com-
pounded annual growth of our
tenant sales per square foot has
been 5.1 percent. As a compar-
ison, the core Consumer Price
Index compounded annual
growth over this same 10-year
period was just 1.9 percent.
This massive outperformance
in sales growth has led to com-
pounded annual Adjusted
Funds from Operations growth
of approximately 6 percent
over the same period.
Reflecting the positive retailer
sentiment in our centers, leased
space was 93.4 percent at year
end, up 1 percent from 92.4
percent on December 31, 2011.
Ending occupancy in our centers
was 91.8 percent on December
31, 2012 – the highest in our
history – up a solid 1.1 percent
from 90.7 percent on December
31, 2011. Including temporary
in-line tenants with leases of one
year or less, ending occupancy
was 96.6 percent, the best com-
bined occupancy number in
our history.
Average rent per square foot for
the year was a record $46.69, up
3.3 percent from $45.22 in 2011.
Capitalizing on the aggressive
management of our costs and
strong tenant sales performance
over the last several years, Net
Operating Income (NOI)
excluding lease cancellation
income increased 7.2 percent in
2012. This is the highest NOI
growth rate we’ve achieved in
10 years.
Taubman Centers, Inc. page 4
A C C E L E R A T I N G
E X T E R N A L G R O W T H
Complementing the strong per-
formance of our core assets, we
continued in 2012 to make
progress on all four prongs of
our external growth strategy:
development of traditional
regional mall properties; devel-
opment of outlet centers; acqui-
sitions; and Asia expansion.
D E V E L O P M E N T
In the first quarter of 2012 we
celebrated the opening of City
Creek Center in Salt Lake City,
Utah. Anchored by Nordstrom
and Macy’s, City Creek Center
is the retail component of City
Creek, a 23-acre, mixed-use
development on three blocks
including hotel, offices, and
residential space in the heart of
downtown Salt Lake City. The
center has been enthusiastically
embraced by the community
and is off to a great start.
page 5
We’re very proud that City
Creek Center was named “Best
Retail Development” for 2012
at the prestigious International
Property Awards in London.
The center won for the entire
Americas region, which
includes the U.S., Canada,
Central and South America,
and the Caribbean.
City Creek Center was the first
enclosed regional shopping
center to open in the United
States in six years. It should
come as no surprise that our
company would have the confi-
dence to lead the industry out
of this period of inactivity.
Development is in our DNA and
we’re one of very few companies
with the history, people, capital,
and credibility able to sponsor
a large-scale retail project.
In the last decade, about 40 new
regional malls were built in the
U.S. About 18 to 20 would have
met our standards, and we built
nine of those. We think only 15
to 20 new regional malls will be
built this decade. About half of
those – seven to ten – will meet
our quality standards. Of these,
we are expecting to build at
least five.
We are well on our way, as in
addition to City Creek Center,
during 2012 we broke ground
on two new regional malls and
one outlet center:
• The Mall at University Town
Center is an 880,000 square
foot traditional two-level
enclosed mall in Sarasota,
Florida, anchored by Saks
Fifth Avenue, Dillard’s and
Macy’s. The center, opening
on October 16, 2014, will
feature more than 100 spe-
cialty stores and restaurants,
over half of which will be
new to the market.
A D J U S T E D F U N D S F R O M O P E R AT I O N S /
D I V I D E N D S P E R S H A R E ( $ )
Taubman Centers’ Adjusted Funds from Operations(1) in 2012 was $3.34 per share – the
highest recorded in our history. Over the last decade, Adjusted Funds from Operations
grew at a 5.9 percent compound annual rate. Over the10-year period ended December 31,
2012, Taubman Centers’ dividend has grown 76.2 percent – a compounded annual
growth rate of 6.5 percent. Since the company went public in 1992 it has never reduced
its common dividend and has increased its dividend 16 times.
(1) Adjusted Funds from Operations excludes charges and gains on redemption of preferred stock and equity, gains or losses
on extinguishment of debt, PRC taxes on sale of Taubman TCBL assets, acquisition costs, Westfarms litigation settlements,
and certain restructuring and impairment charges. See Notes and Reconciliations page at the end of this report.
(2) Excludes special dividend of $0.1834 per share paid in December, 2010.
(3) The annualized amount of the first quarter 2013 regular dividend is $2.00.
• The Mall of San Juan, the
• Taubman Prestige Outlets
island of Puerto Rico’s first
luxury retail venue, is a
650,000 square foot two-level
shopping center featuring the
first Saks Fifth Avenue and
Nordstrom in the Caribbean.
Approximately 60 percent of
the center’s 100 stores and
restaurants are expected to
be new to the island. The
center is scheduled to open
on March 26, 2015.
Chesterfield is located in the
western St. Louis suburban
city of Chesterfield, Missouri.
The center’s initial phase will
feature 310,000 square feet of
space with approximately 80
stores. This open-air property,
opening on August 2, 2013,
will join our very successful
Dolphin Mall and Great
Lakes Crossing Outlets as our
third outlet venue. The center
further diversifies our port-
folio, building on our core
capabilities and responding
to the needs of our retailers.
A C Q U I S I T I O N S
On the acquisition front, for the
second year in a row we were
able to invest more than a half
billion dollars. We are pleased to
be able to increase our owner-
ship in two very high perform-
ing assets located in Florida:
• In December, we acquired an
additional 49.9 percent inter-
est in International Plaza in
Tampa for $437 million.
This brings the company’s
ownership in the center to
100 percent.
• Also in December, we
acquired an additional 25
percent interest in Waterside
Shops in Naples for $78 mil-
lion, bringing the company’s
ownership in the center to
50 percent.
Taubman Centers, Inc. page 6
156÷3.34= *46.707
zero at 19p9 (top of year txt box)
space between points 4p4
3.34
Adjusted FFO per share
Dividends per share
2.88
2.65
3.08
3.06
2.86
2.84
2.00
2.16
2.36
1.050
1.095
1.160
1.290
1.540
1.660
1.660
1.683(2)
1.763
1.850(3)
03
04
05
06
07
08
09
10
11
12
T A U B M A N A S I A
As anticipated, in 2012, we
dramatically expanded our
presence and capabilities in
Asia. With offices in Hong
Kong, Beijing, Shanghai, and
Seoul, we now believe we have
the ability to source, build, and
operate in China and South
Korea. Underpinning our con-
fidence was the successful
opening of the IFC project in
Seoul. At its opening in August,
the 430,000 square foot retail
center was 100 percent leased.
IFC Mall is part of a 5.4 million
square-foot mixed-use project
and we’re delighted with the
initial results.
As a result, we have been able
to accelerate our investment
opportunities. In the last eight
months Taubman Asia has
announced three new projects:
• Hanam Union Square, located
just east of Seoul, will be a 1.7
million square foot western-
style shopping center. We’re
joint venturing with Shinsegae
Group, South Korea’s largest
retailer, to build, lease, and
manage the shopping center.
Scheduled for a 2016 opening,
this will be the largest shop-
ping center in Korea.
• Xi’an Saigao City Plaza will
be an over one million square
foot shopping center located
in Xi’an, China. We will be
joint venturing with Wang-
fujing, one of China’s largest
department store chains, and
together we will own a con-
trolling interest in and man-
age the shopping center. The
center is scheduled to open in
2015 and is part of a 5.9 mil-
lion square foot mixed-use
project, which includes two
hotels, a residential tower,
two serviced apartment tow-
ers and an office building.
• Zhengzhou Vancouver Times
Square will be an approxi-
mately one million square
foot multi-level shopping
center located in Zhengzhou,
China. Zhengzhou is home to
a number of major industries
and the headquarters of Fox-
conn, the manufacturer of
many of Apple’s products.
This is a second joint venture
with Wangfujing, and togeth-
er we’ll own a majority inter-
est and manage the center,
which is scheduled to open
in 2015.
page 7
Taubman Centers’ dividend
has been increased 16 times,
achieving a 4.2 percent com-
pounded annual growth rate.
L O O K I N G
F O R WA R D
As we look to the future, our
company is well positioned for
continued growth from our core
properties and our growing
development pipeline. With the
global economic environment
improving at a slow but steady
pace, we’re confident we’ll see
our share of attractive oppor-
tunities to put both our capital
and capabilities to work in the
U.S. and Asia. As we make these
important investment and
resource decisions, we’ll be
guided by all we have learned
and achieved over six decades
of economic cycles.
Our impressive record of
success gives us that confidence
to strike the right balance
between the realities of risk
with the promises of reward.
The company’s outstanding
performance in 2012 would
not have been possible without
the dedication of the talented
women and men of Taubman
Centers, the leadership of our
Board of Directors, and the
support of our shareowners.
Thank you for all your
contributions.
Sincerely,
R O B E R T S . TA U B M A N
Chairman of the Board,
President & Chief Executive Officer
S T R E N G T H E N I N G
O U R B A L A N C E S H E E T
Key to our growth will be main-
taining a strong balance sheet
with significant flexibility. We
will continue to find ways to
secure capital whenever we
believe it is favorably priced.
In 2012, we issued over $400
million in common and pre-
ferred stock and completed
more than $850 million of refi-
nancings. In addition, in March
2013, we completed a $170
million preferred stock offering.
At 6.25 percent coupon, this is
the lowest coupon ever for an
unrated REIT.
Our solid performance and
strong financial position made
it possible to once again grow
Taubman Centers’ dividend by
2.8 percent in March 2012. In
March 2013, we announced an
additional 8.1 dividend increase.
Since our public offering in 1992,
Taubman Centers, Inc. page 8
C I T Y C R E E K C E N T E R – S A L T L A K E C I T Y , U T A H
City Creek Center – conceived to complement and enliven Salt Lake City’s downtown commercial,
residential and leisure offerings - opened in March 2012. The center is the retail centerpiece of one of
the most ambitious urban mixed-use redevelopment projects in the United States and was the first
enclosed regional shopping center to open in the U.S. since 2006.
page 9
R E T A I L C O M P O N E N T O F X I ’ A N S A I G A O C I T Y P L A Z A – X I ’ A N , C H I N A
Xi’an Saigao City Plaza will be an over one million square foot shopping center located in Xi’an, China.
We will be joint venturing with Wangfujing, and together we will own a controlling interest in and
manage the shopping center. The center is scheduled to open in 2015 and is part of a 5.9 million square
feet mixed-use project, which includes two hotels, a residential tower, two serviced apartment towers
and an office building.
Taubman Centers, Inc. page 10
RIS K | REWA RD
“We’re confident developing new properties will continue to be a differentiating
strategy for us. Throughout our history, knowing when to take that risk has
created tremendous value for our shareowners.”
– LISA A. PAYNE
page 11
A LETTER FROM
LISA A. PAYNE
Vice Chairman,
Chief Financial Officer
Nothing ventured, nothing gained.
That’s not a generally accepted accounting phrase. But it does capture the
essence of a question we ask ourselves every day: How do we best deploy
our capital to create value and maximize return on investment?
One clear indication of our
success is the fact that of the
approximately $2 billion of
capital investment we’ve made
in development projects since
2001, our unlevered Internal
Rate of Return (IRR) has been
In determining the best course, it
helps to be able to call upon the
expertise and confidence that
come from our 63-year history
of developing extraordinarily
productive retail properties.
Because we’ve had a lot of
experience balancing risk and
reward, we’ve enjoyed consis-
tently strong returns on our
investments.
Taubman Centers, Inc. page 12
27.2
6.4
1.8
64.6
Common Stock and Operating
Partnership Equity
Fixed Debt
Floating Debt
Preferred Stock
Consider that in our 20 years as
a public company we’ve nearly
quintupled our total market cap
and more than quintupled our
net equity. During that time we
have issued only $350 million
of common equity – including
equity issued for acquisitions
and net of buybacks. Yet we’ve
increased our dividend 16 times
and reduced our payout ratio
from 104 percent to 55 percent.
In March 2013 we finalized an
increase to our primary line of
credit to $1.1 billion, up from
$650 million, with an accordion
feature that increases the bor-
rowing capacity to as much as
$1.5 billion if fully exercised.
This provides us additional
financial flexibility to fund our
operations and development
pipeline.
B A L A N C E S H E E T
C O M P O S I T I O N ( % )
At December 31, 2012 our debt to total market capitalization stood at just 33.6 percent,
as compared to the sector average of 47.9 percent. With our conservative balance sheet
management, we maintain the financial flexibility to fund new investments and protect our
liquidity from volatile capital markets. We typically place moderate leverage on our assets,
reducing risk and increasing the likelihood that we will generate excess proceeds from
refinancing activity.
We estimate that about 40 per-
cent of our current share price
can be attributed to the devel-
opments that have come online
since 2001. And because the
asset value of our properties
increases over time, as we refi-
nance our centers we are able
to fund new development with
internal sources of capital.
During 2012, our share of
property refinancings generated
excess proceeds of more than
$215 million.
over 16 percent, based on a
terminal cap rate of 5 percent.
Assuming 50 percent leverage,
the IRR would have been
approximately 22 percent.
And on average, the centers
we’ve developed since 2001 are
at least equal in quality to our
portfolio average.
I remember 10 years ago
addressing investor concerns
regarding these now highly
productive assets as they
emerged from our development
pipeline. Many of the same
concerns are being expressed
today with our current crop of
new projects. But we’re confi-
dent developing new properties
will continue to be a differenti-
ating strategy for us. Through-
out our history, knowing when
to take that risk has created
tremendous value for our
shareowners.
page 13
Also in March 2013, we com-
pleted a $170 million 6.25 per-
cent preferred stock offering.
The net proceeds were used to
reduce outstanding borrowings
under our revolving lines of
credit.
We feel very comfortable with
our ability to fund all our capital
needs. In fact, if we elected to not
raise any capital through the sale
of joint venture interests or sell
common equity at any point
during the development cycle of
our current pipeline, our analysis
shows our debt to market cap
would be roughly 40 percent.
At December 31, 2012, our debt
to total market capitalization
stood at 33.6 percent, down
nearly 5 percent compared to
the same period last year. As we
fund our development pipeline
over the next few years, we’re
committed to maintaining our
strong balance sheet. At year-
end, it was one of the most con-
servative in the publicly held
U.S. regional mall industry. We
believe our balance sheet will
continue to be a key competitive
advantage that allows us to
respond to opportunities.
We expect to act prudently to
maintain that balance sheet
we’ve worked so hard over 20
years to create. Successfully
balancing risk and reward is
something we’ve done with
confidence for more than six
decades.
L I S A A . PAY N E
Vice Chairman,
Chief Financial Officer
Taubman Centers, Inc. page 14
H A N A M U N I O N S Q U A R E – H A N A M , G Y E O N G G I P R O V I N C E , S O U T H K O R E A
Hanam Union Square, located just east of Seoul, will be a 1.7 million square foot western-style shopping
center. We’re joint venturing with Shinsegae Group, South Korea’s largest retailer, to build, lease, and
manage the shopping center. Scheduled for a 2016 opening, this will be the largest shopping center
in Korea.
page 15
T H E M A L L O F S A N J U A N – S A N J U A N , P U E R T O R I C O
In September 2012, we broke ground on the The Mall of San Juan, the island of Puerto Rico’s first
luxury development. The 650,000 square foot, two-level upscale shopping center will feature the first
Saks Fifth Avenue and Nordstrom in the Caribbean and approximately 100 stores and restaurants, 60
percent of which are expected to be new to the island. The Mall of San Juan will be the dominant upscale
shopping destination for the entire island of Puerto Rico. The center will open on March 26, 2015.
Taubman Centers, Inc. page 16
TODAY | TOMORROW
“For merchants and developers, it’s always been about keeping things fresh,
balancing the timeless elements of retailing with the best of contemporary fashion,
technology and environment. That requires making the right investments today
to ensure a brighter tomorrow.”
– WILLIAM S. TAUBMAN
page 17
T E N A N T S A L E S P E R S Q U A R E F O O T ( $ ) ( 1 )
Tenant sales per square foot is the most important measure of the quality of regional mall
assets. The higher the retailers’ sales, the higher the rents those retailers can pay, which
translates to greater rewards to the landlord and its shareholders. Once again in 2012,
Taubman led the publicly held U.S. regional mall industry with sales per square foot of
$688, another record for the company and for the publicly held U.S. regional mall
industry. Over the last decade, the compounded annual growth of our tenant sales per
square foot has been 5.1 percent, more than two and half times greater than the 1.9
percent compounded annual growth of the core Consumer Price Index.
(1) See Notes and Reconciliations page at the end of this report for properties included and excluded.
A LETTER FROM
WILLIAM S. TAUBMAN
Chief Operating Officer
Nothing ever stays the same.
Nowhere is that more the case than in retailing. Not long ago, there were
no Apple stores and online shopping was just an emerging concept. Like
fashion, retailing is constantly changing to meet the needs and address the
tastes of the ever-more-demanding consumer.
Since our founding in 1950,
we’ve operated with the mind-
set of a retailer, and we’ve been
willing to invest in our proper-
ties to keep them fresh and
appealing to customers. That’s
been the approach that guides
our core investment decisions.
We’re constantly balancing the
opportunities to maximize
NOI for today with the need to
invest for growth years down
the road.
Taubman Centers, Inc. page 18
156÷688= *.2267
zero at 19p9 (top of year txt box)
space between points 4p4
688
641
508
529
555
533
564
502
441
466
03
04
05
06
07
08
09
10
11
12
Since 2000, we have renovated,
expanded or built from scratch
over 80 percent of our centers.
We’re constantly reinvesting in
our centers in order to make
the environments compelling
and enhance them as real desti-
nations. It’s critical to offer
enough key brands to excite
customers and keep them com-
ing back. We have the shortest
lease terms in the industry so
we turn our stores more often,
keeping the properties refreshed
with appealing new offerings
and providing our customers
an exciting atmosphere.
Throughout our history we have
pioneered innovations that
become the industry standard,
including the earliest two-level
centers, the first food courts,
the first multiplex theatres, the
first ring road traffic systems,
and the first column-free store
design. We’re always working
on ways to improve our cus-
tomer experience and differen-
tiate our centers. And we
believe new technologies will
bring us that opportunity.
Today the best retailers touch
their customers seamlessly
whether through e-commerce,
catalogues, direct mail or brick
and mortar. Brick and mortar
enables retailers to holistically
present and establish their
brands, and create an interac-
tive human experience that
uniquely inspires customers.
Retailers are using technology
to improve the customer expe-
rience at all levels… from the
front of the house, to the logis-
tics chain, to products, design,
and assortment, to the efficiency
of the manufacturing process
and pricing, to customer knowl-
edge and service. Social media
platforms also enhance the
connectivity of the customer
and retailer. And in this omni-
channel world, the brand is
more important than ever.
For merchants and developers,
it’s always been about keeping
things fresh, balancing the time-
less elements of retailing with
the best of contemporary fash-
ion, technology and environ-
ment. That requires making the
right investments today to
ensure a brighter tomorrow.
W I L L I A M S . TA U B M A N
Chief Operating Officer
page 19
L E A S E D S PA C E A N D O C C U PA N C Y ( % )
The world’s greatest merchants want to do business in the most productive retail environ-
ments in the U.S., and our occupancy and leased space percentages reflect the attractive-
ness of our shopping centers. Despite ups and downs in the economy, our leased space
percentage has remained consistent. Occupancy for our centers at December 31, 2012 was
91.8 percent, up 1.1 percent from last year. Temporary tenants comprised an additional
4.8 percent, bringing the total to 96.6 percent – the highest combined occupancy number
we’ve ever had. Leased space was 93.4 percent, up 1 percent from last year – another
reflection of the positive retailer sentiment in our centers.
447÷93.4=*4.77
zero at 61p3
space between points is 4p4
cheated Ending Occ by moving
line down by 2 points
Leased Space
Ending Occupancy
90.7
89.6
91.7
90.0
89.8
87.4
92.5
91.3
93.8
91.2
92.0
90.5
91.6
89.8
92.0
90.1
92.4
90.7
93.4
91.8
03
04
05
06
07
08
09
10
11
12
Taubman Centers, Inc. page 20
T H E M A L L A T U N I V E R S I T Y T O W N C E N T E R – S A R A S O T A , F L O R I D A
In October 2012, we broke ground on The Mall at University Town Center, a two-level enclosed mall
in Sarasota, Florida, anchored by Saks Fifth Avenue, Dillard’s and Macy’s. The 880,000 square foot
center will include more than 100 specialty stores and restaurants, approximately half of which are
anticipated to be new to the market. Located at i-75 and University Parkway, the area’s most heavily
traveled interchange, The Mall at University Town Center will be the dominant fashion shopping
destination in the growing Sarasota region. The center will open on October 16, 2014.
page 21
2012 Por tfolio
U S A
CORPORATE HEADQUARTERS
Bloomfield Hills, MI
CORPORATE OFFICE
New York, NY
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
THE SHOPS AT CRYSTALS
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
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
MAP KEY
Owned centers
Leasing and /or management services
Projects under construction or
expected to begin construction
Corporate Offices
Taubman Centers, Inc. page 22
THE MALL OF SAN JUAN
San Juan, Puerto Rico
themallofsanjuan.com
THE MALL AT SHORT HILLS
Short Hills, NJ
shopshorthills.com
STAMFORD TOWN CENTER
Stamford, CT
shopstamfordtowncenter.com
STONY POINT FASHION PARK
Richmond, VA
shopstonypoint.com
SUNVALLEY
Concord, CA
shopsunvalley.com
TWELVE OAKS MALL
Novi, MI
shoptwelveoaks.com
THE MALL AT UNIVERSITY TOWN CENTER
Sarasota, FL
themallatuniversitytowncenter.com
WATERSIDE SHOPS
Naples, FL
watersideshops.com
THE MALL AT WELLINGTON GREEN
Palm Beach County, FL
shopwellingtongreen.com
WESTFARMS
West Hartford, CT
shopwestfarms.com
TAUBMAN PRESTIGE OUTLETS CHESTERFIELD
Chesterfield, MO
taubmanprestigeoutletschesterfield.com
THE SHOPS AT WILLOW BEND
Plano, TX
shopwillowbend.com
A S I A
TAUBMAN ASIA REGIONAL HEADQUARTERS
Hong Kong
CORPORATE OFFICES
Beijing, China
Shanghai, China
Seoul, South Korea
HANAM UNION SQUARE
Hanam, South Korea
IFC MALL
Yeouido, Seoul, South Korea
(Leasing and management services)
ifcseoul.com
XI’AN SAIGAO CITY PLAZA (Retail Component)
Xi’an, China
ZHENGZHOU VANCOUVER TIMES SQUARE
Zhengzhou, China
page 23
2012 Taubman Centers, Inc.
For m 10-K
Taubman Centers, Inc. page 24
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 1-11530
TAUBMAN CENTERS, INC.
(Exact name of registrant as specified in its charter)
Michigan
(State or other jurisdiction of
incorporation or organization)
200 East Long Lake Road, Suite 300,
Bloomfield Hills, Michigan
(Address of principal executive offices)
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock,
$0.01 Par Value
6.5% Series J Cumulative
Redeemable Preferred Stock,
No Par Value
38-2033632
(I.R.S. Employer Identification No.)
48304-2324
(Zip code)
(248) 258-6800
Name of each exchange
on which registered
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of "large accelerated filer", “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Smaller reporting company
Accelerated Filer
Non-Accelerated Filer
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
The aggregate market value of the 57,367,778 shares of Common Stock held by non-affiliates of the registrant as of June 30, 2012 was $4.4 billion, based upon the
closing price of $77.16 per share on the New York Stock Exchange composite tape on June 29, 2012. (For this computation, the registrant has excluded the market value
of all shares of its Common Stock held by directors of the registrant and certain other shareholders; such exclusion shall not be deemed to constitute an admission that
any such person is an "affiliate" of the registrant.) As of February 22, 2013, there were outstanding 63,346,242 shares of Common Stock.
Portions of the proxy statement for the annual shareholders meeting to be held in 2013 are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
PAGE INTENTIONALLY LEFT BLANK
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
2
11
21
21
26
26
27
29
31
62
62
62
62
62
63
63
64
65
65
66
1
Item 1. BUSINESS.
PART I
The following discussion of our business contains various “forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-
looking statements represent our expectations or beliefs concerning future events. We caution that although forward-looking
statements reflect our good faith beliefs and reasonable judgment based upon current information, these statements are qualified
by important factors that could cause actual results to differ materially from those in the forward-looking statements, including
those risks, uncertainties, and factors detailed from time to time in reports filed with the SEC, and in particular those set forth
under “Risk Factors” in this Annual Report on Form 10-K. The forward-looking statements included in this report are made as of
the date hereof. Except as required by law, we assume no obligation to update these forward-looking statements, even if new
information becomes available in the future.
The Company
Taubman Centers, Inc. (TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate
investment trust (REIT). The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is a majority-owned
partnership subsidiary of TCO that 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 and interests
therein. Our owned portfolio as of December 31, 2012 consisted of 24 urban and suburban shopping centers in 12 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 22 and 23 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 2012, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations (MD&A)."
The Shopping Center Business
There are several types of retail shopping centers, varying primarily by size and marketing strategy. Retail shopping centers
range from neighborhood centers of less than 100,000 square feet of 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.
2
Business of the Company
We are engaged in the ownership, leasing, acquisition, disposition, development, expansion, and management of regional
shopping centers and interests therein. We own interests in 24 centers as of December 31, 2012.
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, Salt
Lake City, San Francisco, Tampa, and Washington, D.C.;
range in size between 236,000 and 1.6 million square feet of GLA and between 186,000 and 646,000 square feet of Mall
GLA with an average of 1,100,000 and 500,000 square feet, respectively. The smallest center has approximately 60 stores,
and the largest has over 200 stores with an average of 150 stores per center. Of the 24 centers, 18 are super-regional
shopping centers;
have approximately 3,000 stores operated by their mall tenants under approximately 850 trade names;
have 67 anchors, operating under 14 trade names;
lease approximately 95% of leased Mall GLA to national chains, including subsidiaries or divisions of Forever 21 (Forever
21, For Love 21, and XXI Forever), 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 highest quality centers in the United States public regional mall industry as measured by our high portfolio
average of mall tenants' sales per square foot. In 2012, our mall tenants reported average sales per square foot of $688,
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 24 owned centers, 22 had annual
rent rolls at December 31, 2012 over $10 million. We believe that this level of productivity is indicative of the centers' strong
competitive positions and is, in significant part, attributable to our business strategy and philosophy. We believe that large shopping
centers (including regional and especially super-regional shopping centers) are the least susceptible to direct competition because
(among other reasons) anchors and large specialty retail stores do not find it economically attractive to open additional stores in
the immediate vicinity of an existing location for fear of competing with themselves. In addition to the advantage of size, we
believe that the centers' success can be attributed in part to their other physical characteristics, such as design, layout, and amenities.
3
Business Strategy And Philosophy
We believe that the regional shopping center business is not simply a real estate development business, but rather an operating
business in which a retailing approach to the on-going management and leasing of the centers is essential. Thus we:
•
•
•
•
•
offer retailers a location where they can maximize their profitability;
offer a large, diverse selection of retail stores in each center to give customers a broad selection of consumer goods and
variety of price ranges;
endeavor to increase overall mall tenants' sales by leasing space to a constantly changing mix of tenants, thereby increasing
rents;
seek to anticipate trends in the retailing industry and emphasize ongoing introductions of new retail concepts into our
centers. Due in part to this strategy, a number of successful retail trade names have opened their first mall stores in the
centers. In addition, we have brought to the centers "new to the market" retailers. We believe that the execution of this
leasing strategy is an important element in building and maintaining customer loyalty and increasing mall productivity;
and
provide innovative initiatives, including those that utilize technology and the Internet, to increase revenues, enhance the
shopping experience, build customer loyalty, and increase tenant sales. Our Taubman website program connects shoppers
to each of our individual center brands through desktop and mobile devices. We have a robust email program reaching
our most loyal customers weekly and our social media sites offer retailers and customers an immediate geo-targeted
communication vehicle.
The centers compete for retail consumer spending through diverse, in-depth presentations of predominantly fashion merchandise
in an environment intended to facilitate customer shopping. Many of our centers include stores that target high-end customers,
and such stores may also attract other retailers to come to the center. However, each center is individually merchandised in light
of the demographics of its potential customers within convenient driving distance. When necessary, we 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 74% of our tenants in 2012 (including those with gross leases or paying
a percentage of their sales) effectively pay a fixed charge for CAM. As a result there is significantly less matching of CAM income
with CAM expenditures, which can vary considerably from period to period.
4
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 revolving 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. From time to time, we also
may access the equity markets to raise additional funds or refinance existing obligations on a strategic basis.
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 a significant portion 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 previously vacated by Lord & Taylor at The Shops at Willow
Bend (Willow Bend). In 2012, a new 12,000 square foot Restoration Hardware opened next door at Willow Bend.
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 have recently announced
and/or begun construction on six shopping centers in the United States and Asia and we continue to work on and evaluate various
development possibilities for additional new centers.
5
•
Development of New U.S. Traditional and Outlet Centers
City Creek Center, a mixed-use project in Salt Lake City, Utah, opened in March 2012. The 0.6 million square foot retail
component of the center, which we own subject to a participating lease, includes Macy’s and Nordstrom as anchors. City Creek
Reserve, Inc. (CCRI), an affiliate of the LDS Church, is the participating lessor and provided all of the construction financing.
See “MD&A – Liquidity and Capital Resources – Capital Spending” regarding additional information on City Creek Center.
Our United States development currently includes three projects that have begun construction: a new outlet mall in Chesterfield,
Missouri and new regional malls in Sarasota, Florida and San Juan, Puerto Rico. We will be responsible for the development,
management, and leasing of these centers.
Taubman Prestige Outlets Chesterfield, our project in the St. Louis market, is under construction. We have a 90% ownership
interest in the project and expect to open the first phase (0.3 million square feet) of the open-air outlet shopping center in August
2013.
In Sarasota, The Mall at University Town Center is under construction and we are funding our 50% share of the project. The
0.9 million square foot center will be anchored by Saks Fifth Avenue, Macy's, and Dillard's, and is expected to open in October
2014.
We have begun construction on The Mall of San Juan in San Juan, Puerto Rico and are targeting a spring 2015 opening. We
have an 80% ownership interest in the 0.7 million square foot center, which will be anchored by the Caribbean's first Nordstrom
and Saks Fifth Avenue. The casino and hotel being developed by the landowner will connect to and are expected to open with the
center.
While we attempt to maximize external growth through the development of new centers, we also prudently manage the risks
associated with development. We generally do not 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 generally do not 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.
6
•
Asia
Taubman Asia is responsible for our 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.
We are growing our business in Asia with a systematic approach. We provide leasing and management services for IFC Mall
in Yeouido, Seoul, South Korea. In August 2012, the 0.4 million square foot mall opened 100% leased with over 100 stores.
In August 2012, we announced our first joint-venture with Beijing Wangfujing Department Store (Group) Co., Ltd (Wangfujing),
one of China's largest department store chains. The joint venture will own a 60% controlling interest in and manage a shopping
center to be located at Xi'an Saigao City Plaza, a large-scale mixed-use development in Xi'an, China. We will beneficially own a
30% interest in the shopping center, which is scheduled to open in 2015. The center is part of a 5.9 million square foot mixed-use
project, which includes two hotels, a residential tower, two serviced apartment towers and an office building. We are investing in
the retail portion only, which will be over 1.0 million square feet with over half of that in mall specialty stores.
In February 2013, we announced a second joint venture with Wangfujing. This joint venture will manage and own a 65% majority
interest in Zhengzhou Vancouver Times Square, a shopping center in Zhengzhou, China. We will beneficially own a 32% interest
in the 1.0 million square foot shopping center, which is scheduled to open in 2015.
In August 2012, we invested in a 1.7 million square foot shopping mall in Hanam Gyeonggi Province, South Korea in which
we agreed to partner with Shinsegae Group, South Korea's largest retailer. We will beneficially own a 30% interest in the the
center, which is scheduled to open in 2016.
We attempt to manage risks for our Asia developments through similar means as those mentioned previously under "Development
of New U.S. Traditional and Outlet Centers". However, in Asia, our projects are expected to have lower initial rates of return at
stabilization than those expected in the U.S. With the high sales growth rates in that region, we generally expect that returns on
our investments are forecasted to equal those earned in the U.S. by the seventh or eighth year.
See "MD&A - Results of Operations - Taubman Asia" for further details regarding our activities in Asia.
•
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 2012, we acquired an additional 49.9% interest in International Plaza, located in Tampa, Florida, bringing our
ownership in the shopping center to 100%.
Also in December 2012, we acquired an additional 25% interest in Waterside Shops, which brought our ownership interest in
the center to 50% on a pari passu basis with an affiliate of the Forbes Company.
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.
See "MD&A - Results of Operations - Acquisitions" for further details regarding the assets acquired.
7
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
2012
2011
2010
2009
2008
$
47.28
$
45.53
$
43.63
$
43.69
$
45.44
46.69
44.58
45.22
43.73
43.66
44.49
43.95
43.95
44.61
44.15
See “MD&A – Rental Rates and Occupancy” for information regarding opening and closing rents per square foot for our centers.
Lease Expirations
The following table shows scheduled lease expirations for mall tenants based on information available as of December 31, 2012
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
212
338
362
363
340
231
189
143
220
263
574,363
$
790,764
937,181
892,656
870,464
727,681
566,377
416,544
624,593
731,092
42.57
43.80
43.42
48.76
54.51
53.99
56.50
62.29
65.86
60.96
7.5%
10.4%
12.3%
11.7%
11.4%
9.5%
7.4%
5.5%
8.2%
9.6%
219
353
376
375
364
253
201
160
241
294
698,902
$
1,220,593
1,263,576
1,254,495
1,496,188
1,315,753
759,086
861,840
1,009,664
1,178,471
36.71
35.61
37.62
38.49
39.47
38.53
50.20
43.80
53.79
48.14
5.9%
10.2%
10.6%
10.5%
12.6%
11.0%
6.4%
7.2%
8.5%
9.9%
Lease
Expiration
Year
2013 (4)
2014
2015
2016
2017
2018
2019
2020
2021
2022
(1) 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 2013 for which renewal leases or leases with replacement tenants have been executed as
of December 31, 2012.
8
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 2007 to 2012 was approximately one year. The average term of leases signed was
approximately eight years during both 2012 and 2011.
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 2012, tenants representing 0.7% of leases filed for bankruptcy
during the year compared to 1.5% in 2011. This statistic has ranged from 0.7% to 3.9% of leases per year over the last five years.
The annual provision for losses on accounts receivable represents 0.2% of total revenues in 2012 and has ranged from 0.2% to
0.9% over the last five years.
Occupancy
Occupancy statistics include value and outlet center anchors. Comparable center statistics for 2012 exclude The Mall at Green
Hills, The Gardens on El Paseo and El Paseo Village, and City Creek Center.
All Centers:
Ending occupancy
Average occupancy
Leased space
Comparable Centers:
Ending occupancy
Average occupancy
Leased space
Major Tenants
2012
2011
2010
2009
2008
91.8%
90.3
93.4
91.6%
90.3
93.2
90.7%
88.8
92.4
90.6%
88.8
92.3
90.1%
88.8
92.0
90.1%
88.8
92.0
89.8%
89.4
91.6
89.8%
89.4
91.6
90.5%
90.5
92.0
90.5%
90.5
92.0
No single retail company represents 10% or more of our Mall GLA or revenues. The combined operations of Forever 21 accounted
for under 6% of Mall GLA as of December 31, 2012 and less than 4% of 2012 minimum rent. No other single retail company
accounted for more than 4% of Mall GLA as of December 31, 2012 or 3% of 2012 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, 2012:
Tenant
Forever 21 (Forever 21, For Love 21, XXI Forever)
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)
H&M
Abercrombie & Fitch (Abercrombie & Fitch, Hollister, and others)
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 (Anthropologie, Anthropologie Accessories, Free People, Urban Outfitters)
# of
Stores
21
48
49
15
34
28
35
42
20
20
Square
Footage
609,516
434,172
297,808
281,748
247,931
214,615
191,191
180,936
167,034
161,572
% of
Mall GLA
5.4%
3.8
2.6
2.5
2.2
1.9
1.7
1.6
1.5
1.4
9
Competition
There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. We compete with
other major real estate investors with significant capital for attractive investment opportunities. See “Risk Factors” for further
details of our competitive business.
Seasonality
The regional shopping center industry is seasonal in nature, with mall tenant sales highest in the fourth quarter due to the
Christmas season, and with lesser, though still significant, sales fluctuations associated with the Easter holiday and back-to-school
period. See “MD&A – Seasonality” for further discussion.
Environmental Matters
See “Risk Factors” regarding discussion of environmental matters.
Financial Information about Geographic Areas
We have not had material revenues attributable to foreign countries in the last three years. We also do not have material long-
lived assets located in foreign countries, as our investments in Asia are accounted for as equity method investments.
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 certain other affiliates
provide similar services for third parties in China and South Korea as well as Taubman Asia.
As of December 31, 2012, the Manager, TAM, and certain other affiliates had 665 full-time employees.
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.
10
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. Changes such as the recent
global economic and financial market downturn caused or may in the future cause, 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;
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. While current interest rates are historically low, it is uncertain how long such rates will
continue;
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.
11
We are in a competitive business.
There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. The existence of
competing shopping centers could have a material adverse impact on our ability to lease space and on the level of rents that can
be achieved. In addition, retailers at our properties face continued competition from shopping via the Internet, lifestyle centers,
outlet malls, wholesale and discount shopping clubs, and television shopping networks. Competition of this type could adversely
affect our revenues and cash available for distribution to shareowners. Further, as new technologies emerge, the relationship
among customers, retailers, and shopping centers are evolving on a rapid basis and it is critical that we adapt to such new technologies
and relationships on a timely basis. For example, a small but increasing number of tenants utilize our shopping centers as showrooms
or as part of an omni-channel strategy (allowing customers to shop seamlessly through various sales channels). As a result,
customers may make purchases during or immediately after visiting our shopping centers, with such sales not being captured
currently in our tenant sales figures or monetized in our minimum or percentage rents.
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 acquire or develop suitable properties on favorable terms in the future.
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”).
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.
12
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 landowner, 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.
We currently have multiple projects under development in the U.S. and Asia for which we will be providing development,
leasing and certain other services. Although we believe we have adequate resources and the ability to perform all responsibilities,
certain risks described above may be magnified due to the higher level of activity.
Certain of our projects under development represent the retail portion of larger mixed-use projects. As a result, there may be
certain additional risks associated with such projects, including:
•
•
•
Increased time to obtain necessary permits and approvals;
Increased uncertainty regarding shared infrastructure and common area costs; and
Impact on sales and performance of the retail center from delays in opening of other uses and or/the performance of such
uses.
In addition, global economic and market conditions may reduce viable development and acquisition opportunities that meet our
unlevered return requirements.
13
Our business activities and pursuit of new opportunities in Asia may pose risks.
We have offices in Hong Kong, Seoul, Beijing, and Shanghai and we are pursuing and evaluating investment opportunities in
various South Korea and China markets. We have announced three joint ventures to develop shopping centers in Asia. In addition,
we are currently providing leasing and management services for a retail project in Seoul, South Korea. In addition to the general
risks related to development 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 in operating with foreign vendors and joint venture and business partners;
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;
obstacles to hiring appropriately trained staff; 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.
In regards to foreign currency, our projects in China and South Korea will require investments and may require debt financing
denominated in foreign currencies, with the possibility that such investments will be greater than anticipated depending on changes
in exchange rates. Similarly, these projects will generate returns on or of capital in foreign currencies that could ultimately be less
than anticipated as a result of exchange rates. As part of investing in these projects, we are implementing appropriate risk
management policies and practices, which may include the hedging of foreign currency risks. We cannot provide assurance that
such policies and practices will be successful and/or that the applicable accounting for foreign currency hedges will be favorable
to any particular period's results of operations. Foreign currency hedges could be economically beneficial to us, but could have
unfavorable accounting impacts, depending on the qualification of the hedges for hedge accounting treatment.
As we expand our international activities and levels of investment, 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.
14
Capital markets may limit our sources of funds for financing activities.
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.
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.
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.
15
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.
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.
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.
16
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 federal 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 among the REIT, the REIT’s tenants, and the taxable REIT
subsidiary are not comparable to similar arrangements among unrelated parties. Finally, some state, local, and foreign 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,
localities, and foreign jurisdictions follow the federal income tax treatment of REITs. To the extent that we and our affiliates are
required to pay federal, state, local, and foreign 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.
Beginning with the 2013 taxable year, the maximum tax rate (including the Medicare tax surcharge of 3.8%) on certain corporate
dividends received by individuals is 23.8%, up from 15% in 2012, but less than the maximum income tax rate of 39.6% applicable
to ordinary income. This rate differential continues to substantially reduce the so-called "double taxation" (that is, taxation at both
the corporate and shareowner levels) that applies to non-REIT "C" corporations but does not generally apply to REITs. Dividends
from a REIT do not qualify for the favorable tax rate applicable to dividends from non-REIT "C" corporations unless the dividends
are attributable to income that has already been subjected to the corporate income tax, such as income from a prior 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.
17
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 directly or indirectly 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.
A. Alfred Taubman, Robert Taubman, William Taubman, and Gayle Taubman Kalisman (Taubman Family) may be deemed
under SEC rules of attribution to beneficially own 26%, 29%, 28%, and 25% of our stock that is entitled to vote on shareowner
matters (Voting Stock) as of December 31, 2012. However, the combined Taubman Family ownership of Voting Stock includes
24,127,588 shares of the 25,327,699 shares of Series B Preferred Stock outstanding or 95% of the total outstanding and 1,211,275
shares of the 63,310,148 shares of common stock outstanding or 2% of the total outstanding as of December 31, 2012. 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, the foregoing ownership of Voting Stock does not violate the ownership limitations set forth in our
charter.
18
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, 2012, A. Alfred Taubman and the members
of his family have the power to vote approximately 29% of the outstanding shares of our common stock and our Series B Preferred
Stock, considered together as a single class, and approximately 95% 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.
The market price of our common stock may fluctuate significantly.
The market price of our common stock may fluctuate significantly in response to many factors, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
general market and economic conditions;
actual or anticipated variations in our operating results, funds from operations, cash flows, liquidity or distributions;
changes in our earnings estimates or those of analysts;
publication of research reports about us,
recommendations by financial analysts with respect to us or other REITs;
the real estate industry generally or the regional mall
industry, and
adverse market reaction to the amount of our outstanding debt at any time, the amount of our maturing debt in the near
and medium term and our ability to refinance such debt and the terms thereof or our plans to incur additional debt in the
future;
the ability of our tenants to pay rent to us and meet their other obligations to us under current lease terms and our ability
to re-lease space as leases expire;
increases in market interest rates that lead purchasers of our common stock to demand a higher dividend yield;
changes in market valuations of similar companies;
adverse market reaction to any securities we may issue or additional debt we incur in the future;
additions or departures of key management personnel;
actions by institutional shareholders;
adverse market reaction to the risks we are taking in relation to our new developments and capital uses;
speculation in the press or investment community; and
continuing high levels of volatility in the capital and credit markets.
Many of the factors listed above are beyond our control. These factors may cause the market price of our common stock to
decline, regardless of our financial performance and condition and prospects. It is impossible to provide any assurance that the
market price of our common stock will not fall in the future, and it may be difficult for holders to resell shares of our common
stock at prices they find attractive, or at all.
19
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 years ended December 31, 2012 and 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.
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, 2012, we had $3.0 billion of consolidated
indebtedness outstanding, and our beneficial interest in both our consolidated debt and the debt of our unconsolidated joint ventures
was $3.6 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. Further, we have regularly issued new shares of common stock as
compensation to our employees, and we have periodically issued new shares pursuant to public offerings or acquisitions. Any
future issuances may substantially increase the cash required to pay dividends at current or higher levels. Our actual dividend
payable will be determined by our board of directors based upon the circumstances at the time of declaration. Although we have
regularly paid dividends on a quarterly basis on our common and preferred stock in the past, we do not guarantee we will continue
to do so in the future. Any change in our dividend policy could have a material adverse effect on the market price of our common
stock.
20
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, 2012. Centers are owned in fee other than Beverly Center (Beverly), Cherry Creek Shopping Center (Cherry
Creek), City Creek Center, International Plaza, MacArthur Center, and certain outparcel land at The Mall at Green Hills, which
are held under ground leases expiring between 2042 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.
21
Center
Anchors
Consolidated Businesses:
Beverly Center
Los Angeles, CA
Bloomingdale’s, Macy’s
Cherry Creek Shopping Center
Macy’s, Neiman Marcus, Nordstrom
Denver, CO
City Creek Center
Salt Lake City, UT
Dolphin Mall
Miami, FL
Fairlane Town Center
Dearborn, MI
(Detroit Metropolitan Area)
Macy's, Nordstrom
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
The Mall at Green Hills
Dillard's, Macy's, Nordstrom
Nashville, TN
International Plaza
Tampa, FL
MacArthur Center
Norfolk, VA
Northlake Mall
Charlotte, NC
Dillard’s, Nordstrom
Belk, Dick’s Sporting Goods,
Dillard’s, Macy’s
Sq. Ft of GLA/
Mall GLA as of
12/31/12
Year
Opened/
Expanded
Year
Acquired
Ownership
% as of
12/31/12
869,000
561,000
1982
1,034,000
(1)
1990/1998
543,000
629,000
349,000
1,390,000
646,000
2012
2001/2007
1,386,000
(2)
1976/1978/
589,000
1980/2000
100%
50%
100%
100%
100%
236,000
186,000
1,353,000
534,000
867,000
355,000
1998/2010
2011
100%
1998
100%
1955/2011
2011
100%
582,000
932,000
519,000
1,070,000
464,000
609,000
375,000
1999
2005
2007/2008
95%
100%
100%
100%
100%
100%
The Mall at Partridge Creek
Nordstrom, Carson's (formerly Parisian)
Clinton Township, MI
(Detroit Metropolitan Area)
The Mall at Short Hills
Bloomingdale’s, Macy’s, Neiman Marcus,
1,370,000
1980/1994/
Short Hills, NJ
Nordstrom, Saks Fifth Avenue
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
548,000
668,000
302,000
1,513,000
549,000
1,272,000
459,000
1995
2003
1977/1978/
2007/2008
2001/2003
90%
The Shops at Willow Bend
Dillard’s, Macy’s, Neiman Marcus
1,261,000
(5)
2001/2004
100%
Plano, TX
(Dallas Metropolitan Area)
Total GLA
Total Mall GLA
TRG% of Total GLA
TRG% of Total Mall GLA
22
522,000
17,662,000
8,083,000
16,971,000
7,740,000
Dillard’s, Neiman Marcus, Nordstrom
1,203,000
(3)
2001
100%
(4)
Center
Anchors
Sq. Ft of
GLA/Mall
GLA as of
12/31/12
Year
Opened/
Expanded
Year
Acquired
Ownership
% as of
12/31/12
Unconsolidated Joint Ventures:
Arizona Mills
Tempe, AZ
GameWorks, Harkins Cinemas,
JCPenney Outlet, Neiman Marcus-Last Call,
1,220,000
551,000
1997
(Phoenix Metropolitan Area)
Off 5th Saks
Fair Oaks
Fairfax, VA
JCPenney, Lord & Taylor,
Macy’s (two locations), Sears
1,566,000
1980/1987/
562,000
1988/2000
(Washington, DC Metropolitan Area)
The Mall at Millenia
Bloomingdale’s, Macy’s, Neiman Marcus
Orlando, FL
Stamford Town Center
Macy’s, Saks Fifth Avenue
1,118,000
518,000
2002
767,000
(6)
1982/2007
444,000
50%
50%
50%
50%
JCPenney, Macy’s (two locations), Sears
1,335,000
1967/1981
2002
50%
Stamford, CT
Sunvalley
Concord, CA
(San Francisco Metropolitan Area)
Naples, FL
Westfarms
Waterside Shops
Nordstrom, Saks Fifth Avenue
495,000
336,000
196,000
1992/2006/
2003
50%
(4)
2008
JCPenney, Lord & Taylor, Macy’s,
1,281,000
1974/1983/
79%
West Hartford, CT
Macy’s Men’s Store/Furniture Gallery,
511,000
1997
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
7,623,000
3,277,000
4,183,000
1,787,000
25,285,000
11,360,000
21,154,000
9,527,000
(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)
(5) GLA includes the former Saks Fifth Avenue store, which closed in August 2010.
(6)
In February 2013, Saks Fifth Avenue announced that it plans to close this location in early 2014.
In 2012, we acquired an additional 50% interest in International Plaza and an additional 25% interest in Waterside Shops.
23
Anchors
The following table summarizes certain information regarding the anchors at the operating centers (excluding the value and
outlet centers) as of December 31, 2012:
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
Carson's (4)
Saks (5)
Sears
Total
Number of
Anchor Stores
12/31/12 GLA
(in thousands
of square feet)
% of GLA
1
1
2
7
6
3
3
17
1
21
5
11
1
5
4
67
180
140
159
0.8%
0.7%
0.7%
1,522
7.1%
1,096
397
614
3,565
80
4,259
5.1%
1.9%
20.0%
556
2.6%
1,564
7.3%
116
373
911
0.5%
1.7%
4.3%
11,273
52.9% (6)
(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) In January 2013, the name of the Parisian store at The Mall at Partridge Creek was changed to Carson's.
(5) Excludes three Off 5th Saks stores at value and outlet centers. Also in February 2013, Saks Fifth Avenue announced
that it plans to close its store located at Stamford Town Center in early 2014.
(6) Percentages in table may not add due to rounding.
24
Mortgage Debt
The following table sets forth certain information regarding the mortgages encumbering the centers as of December 31, 2012.
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 three 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
Fairlane Town Center
The Gardens on El Paseo
Great Lakes Crossing Outlets
The Mall at Green Hills
International Plaza
Stated
Interest
Rate
5.28%
5.24%
4.42%
LIBOR+1.75%
6.10%
5.25%
6.89%
4.85%
(5)
(7)
(9)
MacArthur Center (95%)
LIBOR+2.35% (12)
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 12/31/12
(thousands)
Annual
Debt
Service
(thousands)
Maturity
Date
Balance
Due on
Maturity
(thousands)
Earliest
Prepayment
Date
$
310,468
$
23,101
(1)
2/11/2014
$
303,277
30 Days Notice
LIBOR+1.75%
250,000
(3)
Interest Only
1/29/2015
(3)
280,000
Interest Only
6/8/2016
16,698 (5)
1,024 (1)
12/6/2015
60,000
(3)
Interest Only
1/29/2015
(3)
85,336 (7)
Interest Only
6/11/2016
126,036
10,006
(1)
3/11/2013
(8)
108,284 (9)
8,685 (1)
12/1/2013
325,000
130,567
215,500
80,222
540,000
101,644
Interest Only (11)
12/1/2021
7,951 (12)
9/1/2020
Interest Only
2/6/2016
6,031
(1)
7/6/2020
Interest Only
12/14/2015
8,488
(1)
6/1/2014
280,000
250,000
15,565
60,000
81,480
125,507
105,045
285,503
117,234
215,500
70,433
540,000
98,585
85,000
30 Days Notice
2 Days Notice
30 Days Notice
2 Days Notice
30 Days Notice
30 Days Notice
30 Days Notice
4/1/2015
9/1/2015
30 Days Notice
30 Days Notice
30 Days Notice
30 Days Notice
2 Days Notice
(2)
(2)
(4)
(6)
(4)
(2)
(2)
(10)
(10)
(13)
(14)
(2)
(10)
(14)
(4)
(14)
Twelve Oaks Mall
LIBOR+1.75%
85,000
(3)
Interest Only
1/29/2015
(3)
The Mall at Wellington Green
(90%)
Other Consolidated Secured Debt
5.44%
200,000
Interest Only
5/6/2015
200,000
30 Days Notice
TRG Credit Facility
LIBOR+1.40% (15)
37,275
Interest Only
4/30/2014
37,275
At Any Time
(4)
Centers Owned by Unconsolidated Joint Ventures/TRG’s % Ownership
Arizona Mills (50%)
Fair Oaks (50%)
The Mall at Millenia (50%)
Sunvalley (50%)
Taubman Land Associates (50%)
Waterside Shops (50%)
Westfarms (79%)
5.76%
LIBOR+1.70% (16)
4.00%
4.44%
3.84%
5.54%
4.50%
169,754
275,000
350,000
189,262
23,964
165,000
317,877
12,268
(1)
7/1/2020
Interest Only (16)
7/13/2018
Interest Only (18)
10/15/2024
11,471
1,349
(1)
(1)
Interest Only
9/1/2022
11/1/2022
10/7/2016
19,457
(1)
7/1/2022
147,702
257,516
293,748
153,642
19,001
165,000
256,944
30 Days Notice
3 Days Notice
1/15/2013
10/17/2014
1/11/2015
30 Days Notice
10 Days Notice
(2)
(17)
(19)
(2)
(20)
(21)
(19)
(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 $0.2 million of purchase accounting premium from December 2011 acquisition, which reduces the stated rate on the debt of 4.42% to an
effective rate of 3.87%.
(6) No defeasance deposit required if paid within two months of maturity date.
(7) Debt includes $3.9 million of purchase accounting premium from December 2011 acquisition, which reduces the stated rate on the debt of 6.10% to an
effective rate of 4.52%.
(8) In January 2013, a 10-year, $225 million non-recourse refinancing was completed on Great Lakes Crossing Outlets. The payments on the loan, which bears
interest at a stated rate of 3.60%, are based on amortizing principal over 30 years. The existing $126 million, 5.25% fixed rate loan, which was scheduled
to mature in March 2013, was paid off and the approximately $100 million of excess proceeds were used to pay down the revolving lines of credit.
(9) Debt includes $2.0 million of purchase accounting premium from December 2011 acquisition, which reduces the stated rate on the debt of 6.89% to an
effective rate of 4.73%.
(10)Debt may be prepaid with a prepayment penalty equal to greater of yield maintenance or 1% of principal prepaid. No prepayment penalty is due if prepaid
within three months of maturity date. 30 days notice required.
(11)The loan is interest only until January 2015 at which time monthly principal payments are due based on a 30 year amortization.
(12)The debt is swapped to an effective rate of 4.99% to the maturity date. Amortizing principal based on a 7% interest rate and 30 year amortization.
(13)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.
25
(14)No defeasance deposit required if paid within four months of maturity date.
(15)The facility is a $65 million revolving line of credit and is secured by an indirect interest in 40% of Short Hills.
(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 2013 the prepayment fee is 0.25% of prepaid amount. There is no prepayment thereafter.
(18)The loan is interest only until November 2016 at which time monthly principal payments are due based on a 30 year amortization. At our option on or before
April 30, 2016, provided that The Mall at Millenia meets a required NOI for calendar year 2015, the interest only period may be extended until maturity.
(19)Debt may be prepaid with a prepayment penalty equal to greater of modified yield maintenance or 1% of principal prepaid. No prepayment penalty is due
if prepaid within three months of maturity date. 10 days notice is required.
(20)No defeasance deposit required if paid within five months of maturity date.
(21)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.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
26
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 22, 2013, the 63,346,242 outstanding shares of Common Stock were held by 472 holders of record. A substantially
greater number of holders are beneficial owners whose shares are held of record by banks, brokers, and other financial institutions.
The closing price per share of the Common Stock on the New York Stock Exchange on February 22, 2013 was $77.12.
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 2012 and 2011:
2012 Quarter Ended
March 31
June 30
September 30
December 31
2011 Quarter Ended
March 31
June 30
September 30
December 31
Market Quotations
High
Low
Dividends
$
72.95
$
62.03
$
0.4625
78.79
81.34
80.42
70.71
75.17
74.61
0.4625
0.4625
0.4625
Market Quotations
High
Low
Dividends
$
55.48
$
49.96
$
0.4375
60.57
62.53
62.71
53.02
48.71
48.27
0.4375
0.4375
0.4500
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.”
27
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,
2007 through December 31, 2012 (assuming in all cases, the reinvestment of dividends):
COMPARISON OF CUMULATIVE TOTAL RETURN
12/31/2007
12/31/2008
12/31/2009
12/31/2010
12/31/2011
12/31/2012
Taubman Centers Inc.
MSCI US REIT Index
FTSE NAREIT Equity Retail Index
S&P 500
S&P 400 MidCap Index
$
100.00
$
53.95
$
81.03
$
118.92
$
150.92
$
100.00
100.00
100.00
100.00
62.03
51.64
63.00
63.77
79.78
65.67
79.67
87.60
102.50
87.61
91.68
110.94
111.41
98.30
93.61
109.02
196.07
131.20
124.59
108.59
128.51
Note: The stock performance shown on the graph above is not necessarily indicative of future price performance.
28
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.
2012
2011
2010
2009
2008
Year Ended December 31
(in thousands)
STATEMENT OF OPERATIONS DATA:
Rents, recoveries, and other shopping center revenues
$
747,974
$
644,918
$
626,427
$
637,458
$
639,058
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
157,817
157,817
(51,643)
(1,612)
(21,051)
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)
83,511
176,701
47,599
(69,706)
(86,659)
1.37
1.85
3.03
1.76
0.86
1.68
(1.30)
1.66
(1.64)
1.66
59,884,455
56,899,966
54,569,618
53,239,279
52,866,050
61,376,444
58,529,089
55,702,813
53,986,656
52,866,050
Number of common shares outstanding at end of period
63,310,148
58,022,475
54,696,054
54,321,586
53,018,987
Ownership percentage of TRG at end of period
71%
69%
68%
67%
67%
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)(10)
Number of shopping centers at end of period
Ending Mall GLA in thousands of square feet
Leased space (8)(11)
Ending occupancy (8)
Average occupancy (8)
Average base rent per square foot (8)(9):
Consolidated businesses (8)(12)
Unconsolidated Joint Ventures (12)
Combined (8)(12)
4,246,000
3,268,495
2,952,030
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
197,671
6,008,265
285,400
5,164,916
160,138
4,619,896
144,220
4,185,996
81,274
4,536,500
688
24
641
23
564
23
502
23
533
23
11,360
11,009
10,942
10,946
10,937
93.4%
91.8%
90.3%
92.4%
90.7%
88.8%
92.0%
90.1%
88.8%
91.6%
89.8%
89.4%
92.0%
90.5%
90.5%
$
$
47.28
45.44
46.69
$
45.53
44.58
45.22
$
43.63
43.73
43.66
$
43.69
44.49
43.95
43.95
44.61
44.15
29
(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 “MD&A – Results of Operations – Use of Non-GAAP Measures.” In 2012, net income and FFO
include $6.4 million of charges upon redemption of Series G and H Cumulative Redeemable Preferred Stock, the $1.6 million loss on extinguishment of
debt at The Mall at Millenia, and the $3.2 million PRC tax on sale of Taubman TCBL assets. See “MD&A – Results of Operations –Other Equity Transactions",
“MD&A – Results of Operations –Debt Transactions" and “MD&A – Results of Operations –Taubman Asia" for further information. 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 and El Paseo Village, and Taubman 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 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 in 2010 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 for periods prior to 2012 exclude The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village, and City Creek Center, except for
those reported as of December 31, 2011.
(6) Reconciliations of net income (loss) attributable to TCO common shareowners to FFO for 2012, 2011, and 2010 are provided in “MD&A – Reconciliation
of Net Income Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations and Adjusted Funds from Operations.” For 2009, net
loss attributable to TCO common shareowners of $69.7 million, deducting noncontrolling interests of $31.2 million and adding back depreciation and
amortization of $154.3 million, impairment charges of $160.8 million, and distributions to participating securities of $1.6 million arrives at TRG’s FFO of
$215.8 million, of which TCO’s share was $144.2 million. 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.
(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.
See “MD&A – Rental Rates and Occupancy” for information regarding this statistic.
(9)
(10) For all periods presented, this amount represents sales per square foot of comparable centers, which are defined as all centers that were owned and opened
for the entire current and preceding period.
(11) Leased space comprises both occupied space and space that is leased but not yet occupied.
(12) Amounts exclude spaces greater than 10,000 square feet.
30
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 and performance. Actual results may differ materially from those expected because of various risks and
uncertainties. 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 following discussion should be read in conjunction with the accompanying consolidated financial statements of Taubman
Centers, Inc. and the notes thereto, as well as "Risk Factors" elsewhere in this report.
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 that 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 and interests
therein. 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 opening of City Creek Center in March 2012, as well as 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. Additional "comparable center" statistics that exclude City Creek Center, The Mall at Green Hills, The
Gardens on El Paseo and El Paseo Village, The Pier Shops and Regency Square are provided to present the performance of
comparable centers in our continuing operations. Comparable centers are generally defined as centers that were owned and open
for the entire current and preceding period. The Pier Shops and Regency Square are excluded from all operating statistics. See
“Results of Operations – Development,” "Results of Operations – Acquisitions," and “Results of Operations – Dispositions/
Discontinued Operations,” 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 2012 and 2011, 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 increase in sales per square foot growth moderated through the year and has now reached a more normalized level. For the
fourth quarter of 2012, tenant sales per square foot increased 3.5% from the corresponding period in the prior year. For all of 2012,
tenant sales per square foot were $688, a 7.3% increase from 2011 (see "Mall Tenant Sales and Center Revenues").
31
Ending occupancy was 91.6% for comparable centers at December 31, 2012, up 1.0% from 2011. We anticipate 2013 year-end
occupancy will be up modestly from 2012. Rent per square foot increased 3.3% in 2012. We expect that average rents per square
foot in 2013 will be up in comparison to 2012 by approximately 4% to 5%. The rents we are able to achieve are affected by
economic trends and tenants’ expectations thereof, as described under “Rental Rates and Occupancy.” The spread between rents
on openings and closings may not be indicative of future periods, as this statistic is not computed on comparable tenant spaces,
and can vary significantly from period to period depending on the total amount, location, and average size of tenant space opening
and closing in the period. Mall tenant sales, occupancy levels, and our resulting revenues are seasonal in nature (see “Seasonality").
Our analysis of our financial results begins under “Results of Operations” and we provide information about transactions that
affected the periods presented or will affect operations in the future.
We have been active in developing and expanding our U.S. shopping center portfolio, including the opening of City Creek
Center in 2012. We also have begun construction on our U.S. development projects, including Taubman Prestige Outlets
Chesterfield, The Mall at University Town Center, and The Mall of San Juan (see "Liquidity and Capital Resources - Capital
Spending - New Developments").
In 2012, we acquired an additional 49.9% interest in International Plaza as well as an additional 25% interest in Waterside Shops.
The purchases of The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village were completed 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 were 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 with the opening of IFC Mall in South Korea,
as well as our investments in new development projects, including the retail component of Xi'an Saigao City Plaza, Zhengzhou
Vancouver Times Square, and Hanam Union Square (see “Results of Operations – Taubman Asia”). In 2012, we sold assets of the
Taubman TCBL business that was acquired in 2011 (see "Results of Operations - Taubman Asia").
We have certain additional sources of income beyond our rental revenues, recoveries from tenants, and revenue from management,
leasing, and development services. We disclose our share of these sources of income under “Results of Operations – Other Income.”
Expectations about general and administrative and pre-development expenses are discussed under "Results of Operations - Other
Expenses."
We have been very active in managing our balance sheet, completing refinancings of The Mall at Millenia (Millenia), Sunvalley,
Westfarms, and other financings in 2012 as outlined under “Results of Operations – Debt Transactions.”
In 2012, we redeemed the Series G and H Cumulative Redeemable Preferred Stock (Series G and H Preferred Stock), completed
a preferred stock offering of $192.5 million of 6.5% Series J Cumulative Redeemable Preferred Stock (Series J Preferred Stock),
and a common equity offering of 2,875,000 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 2012, 2011, and 2010 under “Comparison of 2012 to 2011” and “Comparison of 2011 to 2010.” We then discuss our application
of critical accounting policies and then provide reconciliations from net income and net income 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 our financial position as of December 31, 2012. We then discuss our capital activities and transactions that occurred in 2012.
After that, analysis of specific operating, investing, and financing activities is provided in more detail.
32
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 a discussion of compliance with debt
covenants.
In conducting our business, we enter into various contractual obligations, including those for debt, 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.
Taubman Prestige Outlets Chesterfield, our project in the St. Louis market, is scheduled to open in August 2013. We also have
development projects including The Mall at University Town Center, The Mall of San Juan, the retail component of Xi'an Saigao
City Plaza, Zhengzhou Vancouver Times Square, and Hanam Union Square, all of which are expected to open over the next several
years. We also provide information on our capital spending in 2012 and 2011, as well as planned capital spending for 2013 and
spending scheduled for all projects through their anticipated openings (see "Liquidity and Capital Resources - 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
Our mall tenant sales per square foot growth has moderated through the year and has now reached a more normalized level.
Our mall tenants reported a 3.5% increase in sales per square foot in the fourth quarter of 2012 compared to the corresponding
period in the prior year. For all of 2012, our tenant sales increased 7.3% over 2011 to a new record level for our centers of $688 per
square foot.
Over the long term, the level of mall tenant sales is the single most important determinant of revenues of the shopping centers
because mall tenants provide approximately 90% of these revenues and mall tenant sales determine the amount of rent, percentage
rent, and recoverable expenses, excluding utilities (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. Over
the last five years, percentage rent as a share of total rent has ranged from 3% to 7%.
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.
33
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
Rental Rates and Occupancy
2012
2011
2010
$ 6,008,265
$ 5,164,916
$ 4,619,896
688
641
564
8.1%
0.6
4.1
12.8%
7.7%
0.5
4.0
12.2%
8.0%
0.5
4.2
12.7%
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%
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 2013 is expected to be up about 4% to 5%. Rent per square foot information for centers in our Consolidated Businesses and
Unconsolidated Joint Ventures follows:
34
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
$
$
$
$
2012 (1)
2011 (1)
2010 (1)
47.28
$
45.53
$
45.44
46.69
44.58
45.22
56.22
$
59.31
$
54.95
55.92
45.42
56.20
43.63
43.73
43.66
50.69
47.16
49.69
884,446
278,651
989,260
285,919
1,163,097
1,275,179
577,435
228,075
805,510
$
46.23
50.50
47.33
$
49.27
43.98
47.93
46.27
47.20
46.52
868,028
301,724
1,013,284
344,799
1,169,752
1,358,083
647,982
243,093
891,075
9.99
4.45
8.59
$
10.04
$
1.44
8.27
4.42
(0.04)
3.17
(1) Opening and closing statistics exclude spaces greater than 10,000 square feet.
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 ending occupancy, average occupancy, and leased space rates are as follows:
Ending occupancy - all centers
Ending occupancy - comparable centers
Average occupancy - all centers
Average occupancy - comparable centers
Leased space - all centers
Leased space - comparable centers
2012
2011
2010
91.8%
91.6
90.3
90.3
93.4
93.2
90.7%
90.6
88.8
88.8
92.4
92.3
90.1%
90.1
88.8
88.8
92.0
92.0
We expect 2013 year-end occupancy will be up modestly from 2012. Temporary tenant leasing continues to be strong and ended
the year at about 5.0% for comparable centers compared to 4.9% in 2011 and 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 0.7% in 2012, compared to 1.5% in 2011, and 0.7% in 2010.
35
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
4th quarter
3rd quarter
2nd quarter
1st quarter
2012
Mall tenant sales (1)
Revenues and gains on land sales and other
nonoperating income from continuing operations:
Consolidated Businesses
Unconsolidated Joint Ventures
Occupancy:
Ending - comparable
Average - comparable
Ending - all centers
Average - all centers
Leased Space:
Comparable
All Centers
$ 6,008,265
(in thousands, except occupancy and leased space data)
$ 1,378,384
$ 1,879,341
$ 1,396,440
$ 1,354,100
748,251
282,154
209,732
79,619
189,595
70,453
179,536
66,764
169,388
65,318
91.6%
90.3
91.8
90.3
93.2%
93.4
91.6%
91.3
91.8
91.4
93.2%
93.4
90.4%
90.2
90.4
90.1
92.4%
92.6
90.2%
90.0
90.1
89.9
92.2%
92.3
89.5%
89.6
89.5
89.7
92.0%
91.9
(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, excluding utilities) as a percentage of sales are
considerably higher in the first three quarters than they are in the fourth quarter.
Total
4th quarter
3rd quarter
2nd quarter
1st quarter
2012
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
6.8%
0.9
3.9
11.6%
6.3%
0.7
4.0
11.0%
6.7%
0.9
3.7
11.3%
8.8%
0.5
4.7
14.0%
8.5%
0.5
4.5
13.5%
8.7%
0.5
4.7
13.9%
8.6%
0.2
4.3
13.1%
8.5%
0.3
4.0
12.8%
8.6%
0.2
4.2
13.0%
8.7%
0.5
4.0
13.2%
7.8%
0.5
3.7
12.0%
8.4%
0.5
4.0
12.9%
8.1%
0.6
4.1
12.8%
7.7%
0.5
4.0
12.2%
8.0%
0.5
4.2
12.7%
36
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 2012, 2011, and 2010, or are expected to affect operations in the future.
U.S. Development
City Creek Center, a mixed-use project in Salt Lake City, Utah, opened in March 2012. The center includes a retail component
anchored by Macy’s and Nordstrom. We own 0.6 million square feet of the retail space subject to a long-term participating lease.
City Creek Reserve, Inc. (CCRI), an affiliate of the LDS Church, is the participating lessor and provided 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 our return to be approximately 12% at stabilization on
our $76 million investment, of which $75 million was paid to CCRI upon opening of the retail center.
Our United States development currently includes three projects that are under construction: Taubman Prestige Outlets
Chesterfield, which is scheduled to open in August 2013, The Mall at University Town Center, and The Mall of San Juan (see
"Liquidity and Capital Resources - Capital Spending - New Developments"). In addition, we have projects under development in
Asia (see Taubman Asia below).
U.S. Acquisitions
In December 2012, we acquired an additional 49.9% interest in International Plaza, located in Tampa, Florida, bringing our
ownership in the shopping center to 100%. The $437 million purchase price for the outside partner's interest in the consolidated
joint venture that owns the center consisted of $275 million of cash and approximately $162 million of beneficial interest in debt.
The excess of the purchase price over the net book value of the interest acquired has been accounted for as a reduction of our
shareholder equity.
Also in December 2012, we acquired an additional 25% interest in Waterside Shops, which brought our ownership interest in
the center to 50%. The acquisition of the additional interest was accomplished by purchasing an affiliate of Oregon PERS' 50%
interest in the center on a pari passu basis with an affiliate of the Forbes Company. The $155 million purchase price for Oregon
PERS' interest in the center consisted of $72.5 million of cash and $82.5 million of beneficial interest in debt. Our share of the
consideration for the additional interest was $77.5 million, which consisted of cash and beneficial interest in debt of $36.3 million
and $41.3 million, respectively. After the acquisition, we continue to recognize our investment in Waterside Shops in Investment
in Unconsolidated Joint Ventures on the Consolidated Balance Sheet. Our share of the difference between the purchase price and
the net book value of the additional interest in the Unconsolidated Joint Venture is estimated to be $52.7 million, which has been
preliminarily allocated to land, buildings, improvements, and equipment. In addition, beneficial interest in debt was increased by
a $3.9 million purchase accounting premium to record the debt at fair value. The Forbes Company will continue to lease and
manage the center.
Based on the total combined consideration for the additional interests in these properties and estimates of the properties' combined
net operating income (NOI) in 2013, the combined capitalization rate on the International Plaza and Waterside Shops acquisitions
is about 4.6%.
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, $281.5 million in
installment notes, and the issuance of 1.3 million of Operating Partnership units. The number of partnership units issued was
determined based on a value of $55 per unit. The partnership units became eligible to be converted into common shares in December
2012. Prior to this date, holders had 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 restricted cash, which was funded by borrowings
under our revolving lines of credit, and were paid in full in February 2012. See "Note 2 - Acquisitions, Dispositions, and
Development" for an allocation of the purchase price to the identifiable assets acquired and liabilities assumed at the dates of
acquisition.
37
U.S. 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 were relieved of the $72.2 million of debt obligations plus
accrued interest. In 2011, 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.
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 were relieved of the $135 million of debt obligations plus accrued interest.
In 2011, 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.
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 August 2012, IFC Mall in Yeouido, South Korea opened 100% leased with over 100 stores. We provide management and
leasing services for the 0.4 million square foot mall. In 2011, we recognized the first installment of the leasing success fee and we
recognized the second installment in the third quarter of 2012. We expect to recognize the final installment in 2013.
Also in August 2012, we announced a joint-venture with Beijing Wangfujing Department Store (Group) Co., Ltd (Wangfujing),
one of China's largest department store chains to be located at Xi'an Saigao City Plaza (retail component of Xi'an Saigao City
Plaza). As of December 31, 2012, we have invested $49.2 million in the project (see "Liquidity and Capital Resources - Capital
Spending - New Developments").
In February 2013, we announced a second joint venture with Wangfujing, Zhengzhou Vancouver Times Square, a shopping
center in Zhengzhou, China (see "Liquidity and Capital Resources - Capital Spending - New Developments").
In addition, in August 2012, we invested in a shopping mall project in Hanam, Gyeonggi Province, South Korea (Hanam Union
Square) in which we have partnered with Shinsegae Group (Shinsegae), South Korea's largest retailer. We have invested $78.8
million as of December 31, 2012 (see "Liquidity and Capital Resources - Capital Spending - New Developments").
In December 2011, we acquired a 90% controlling interest in a Beijing-based retail real estate consultancy company in Mainland
China. The new company was named Taubman TCBL and the total consideration for the transaction was $23.7 million, including
$11.9 million of capital credited to the noncontrolling owners. In November 2012, we sold assets of the Taubman TCBL business
to China Xintiandi, a subsidiary of Shui On Land for $15.5 million, an amount approximately equal to our investment in the
business. As part of the sale, the non-controlling owners in Taubman TCBL relinquished the capital that was credited to them in
connection with our 2011 acquisition of the company, including their 10% ownership interests in investments in China. In connection
with the sale, we incurred the People's Republic of China (PRC) taxes of $3.2 million. We have offices in Beijing and Shanghai
and the business will operate under the Taubman Asia platform. Approximately 40 employees were retained to develop our
announced projects in China, as well as future investments.
Center Operations
For the year ended December 31, 2012, NOI excluding lease cancellation income was up 7.2% from 2011. We estimate that
NOI of our comparable centers, excluding lease cancellation income, will be up at least 3% in 2013. We are estimating that our
recoveries ratio will be roughly even with 2012. We expect increased tenant rents resulting from higher average rent per square
foot with a modest increase in occupancy. See “Results of Operations – Use of Non-GAAP Measures” for the definition and
discussion of NOI and see “Reconciliation of Net Income to Net Operating Income.”
Management, Leasing and Development Services
Our management and leasing services to Woodfield Mall in Schaumburg, Illinois were terminated in November 2012. We expect
net management, leasing, and development income to be in the range of $6 million to $9 million in 2013, including the final leasing
success fee relating to IFC Mall in 2013 and the impact of the loss of the Woodfield Mall contract.
38
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. 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
2011's $2.6 million to 2010’s $21.6 million. In 2013, we are currently estimating our share of lease cancellation income to be in
the range of $3 million to $4 million. 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. In February
2013, we closed on a land sale with an approximately $0.8 million gain. We are not expecting any further sales in 2013.
2012
2011
2010
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
$
$
$
$
25.7
$
3.3
29.1
$
0.3
0.3
3.1
$
22.3
$
2.7
$
21.8
$
0.8
3.8
$
$
$
2.3
24.5
$
0.5
0.7
1.2
$
$
0.4
3.1
0.1
0.1
$
$
$
20.3
42.1
$
2.2
0.5
2.7
2.8
1.2
4.1
(1) Amounts in this table may not add due to rounding.
Other Expenses
Beginning in 2013, we will classify certain Asia expenses in general and administrative expense, as opposed to pre-development
expense. We are moving from mainly a pursuit and third party business to one that is primarily executing investments in new
projects. This is consistent with the presentation of our U.S. business.
During 2012, we incurred $39.7 million of general and administrative expenses in the U.S. Our quarterly general and administrative
expense run rate is now expected to be about $13 million, including U.S. and Asia costs.
We expense all costs relating to a potential development, including payroll, until it is considered probable the project will reach
a successful conclusion. In 2012, our share of such expenses was $18.4 million. In 2013, we expect our share of this pre-development
expense, including that for both the U.S. and Asia, to be about $13 to $14 million.
39
Debt Transactions
We completed a series of debt financings in the three-year period ending December 31, 2012 as follows:
Taubman Land Associates
The Mall at Millenia (2)
Sunvalley
Westfarms
TRG revolving credit facility
International Plaza
Fair Oaks
TRG revolving credit facility
Date
November 2012
October 2012
August 2012
June 2012
April 2012
November 2011
July 2011
July 2011
MacArthur Center
September 2010
Arizona Mills
The Mall at Partridge Creek
July 2010
June 2010
Initial Loan
Balance/Facility
Amount
(in millions)
$24
350
190
320
65
325
275
650
131
175
83
Stated
Interest Rate
Maturity Date(1)
3.84%
4.00%
4.44%
4.50%
LIBOR + 1.40%
4.85%
LIBOR + 1.70%(3)
LIBOR + 1.75%
LIBOR + 2.35%(4)
5.76%
6.15%
November 2022
October 2024
September 2022
July 2022
April 2014
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) Since the refinancing of this loan was earlier than allowed under the agreement, the joint venture incurred a $3.2 million defeasance charge,
of which $1.6 million was our share.
(3) The loan has been swapped to an effective rate of 4.10% through April 2018.
(4) The loan is swapped to an effective rate of 4.99% for the entire term.
At December 31, 2012, 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 revolving line of credit. In January 2013, we
refinanced our existing loan on Great Lakes Crossing Outlets with a new 10-year, $225 million loan with a stated fixed rate of
3.60% (see "Liquidity and Capital Resources").
In December 2012, we assumed $162 million of additional beneficial interest in debt as part of our purchase of an additional
49.9% interest in International Plaza. We have and will continue to consolidate International Plaza in our financial statements as
a result of our controlling interest in the center. Therefore, the debt of International Plaza was already presented at 100% in our
consolidated balance sheet for periods prior to the acquisition. Also in December 2012, we assumed $41.3 million of additional
beneficial interest in debt as part of our purchase of an additional 25% interest in the Unconsolidated Joint Venture Waterside
Shops (see "Results of Operations - Acquisitions").
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 August 2012, we issued $192.5 million of 6.5% Series J Preferred Stock. Proceeds from the issuance were used to redeem
all of our $100 million 8.00% Series G Preferred Stock and $87 million 7.625% Series H Preferred Stock in September 2012. We
recognized a $6.4 million charge representing the difference in the book values over the redemption amounts of the Series G and
Series H Preferred Stock redeemed. This issuance and redemption will reduce our future annual preferred dividends paid by $2.1
million.
Also in August 2012, we sold 2,875,000 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 of $208.9
million to reduce outstanding borrowings under our revolving lines of credit.
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.
40
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 million to reduce outstanding borrowings under our revolving lines of credit.
Use of Non-GAAP Measures
We use Net Operating Income (NOI) as an alternative measure to evaluate the operating performance of centers, both on individual
and stabilized portfolio bases. We define NOI as property-level operating revenues (includes rental income excluding 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. 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 (computed in accordance with
Generally Accepted Accounting Principles (GAAP)), excluding gains (or losses) from extraordinary items and sales of properties
and impairment write-downs of depreciable real estate, plus real estate related depreciation and after adjustments for unconsolidated
partnerships and joint ventures. We believe that FFO is a useful supplemental measure of operating performance for REITs.
Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over
time. Since real estate values instead have historically risen or fallen with market conditions, we and most industry investors and
analysts have considered presentations of operating results that exclude historical cost depreciation to be useful in evaluating the
operating performance of REITs. We primarily use FFO in measuring performance and in formulating corporate goals and
compensation.
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 addition to the reasons noted above for each measure, we believe the
disclosure of the adjusted items is similarly useful to investors and others to understand management's view on comparability of
such measures between periods. In 2012, FFO was adjusted for the charge upon redemption of our Series G and H Preferred Stock,
the PRC tax on sale of assets of Taubman TCBL, and the loss on extinguishment of debt related to the refinancing of Millenia. 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. FFO was not adjusted in 2010.
Our presentations of NOI, Beneficial Interest in EBITDA, FFO, and adjusted versions of these measures, if any, 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 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 Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations and Adjusted Funds from
Operations, Net Income to Beneficial Interest in EBITDA, and Net Income to Net Operating Income are presented following
“Application of Critical Accounting Policies.”
41
Comparison of 2012 to 2011
The following table sets forth operating results for 2012 and 2011, showing the results of the Consolidated Businesses and Unconsolidated
Joint Ventures:
2012
2011
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
Other operating
Management, leasing, and development services
General and administrative
Acquisition costs
Interest expense (2)
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
Other discontinued operations
Net income
Net income attributable to noncontrolling interests:
Noncontrolling share of income of consolidated joint
ventures
TRG Series F preferred distributions
Noncontrolling share of income of TRG - continuing
operations
Noncontrolling share of income of TRG- discontinued
operations
Distributions to participating securities of TRG
Preferred stock dividends (5)
Net income attributable to Taubman Centers, Inc. common
shareowners
SUPPLEMENTAL INFORMATION (6):
EBITDA - 100%
EBITDA - outside partners' share
Beneficial interest in EBITDA
Beneficial interest expense (2)
Beneficial income tax expense
Non-real estate depreciation
Preferred dividends and distributions (5)
Funds from Operations contribution
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
161.8
10.7
102.5
7.1
282.1
73.0
14.9
68.8
38.3
195.0
—
87.2
194.3
(87.2)
107.0
(35.9)
398.3
28.0
258.3
31.8
31.6
748.0
201.6
73.2
27.4
39.7
142.6
149.5
634.0
0.3
114.3
(5.0)
48.5
157.8
157.8
(11.9)
(39.7)
(1.6)
(21.1)
83.5
406.4
(38.3)
368.2
(126.0)
(4.9)
(2.7)
(21.1)
213.5
$
$
$
$
$
$
$
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
528.7
(37.7)
491.0
(131.6)
(0.6)
(2.6)
(14.3)
341.9
$
(2)
(3)
69.2
(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.
Includes a charge related to the early extinguishment of debt at The Mall of Millenia in October 2012 of $3.2 million, of which TRG's share is $1.6 million.
Amortization of our additional basis in the Operating Partnership included in depreciation and amortization was $4.9 million in both 2012 and 2011. Also, amortization of our
additional basis included in equity in income of Unconsolidated Joint Ventures was $1.9 million in both 2012 and 2011.
Includes the operations of The Pier Shops and Regency Square.
See "Results of Operations - Other Equity Transactions" for information regarding the Preferred Stock that was redeemed during 2012.
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)
71.2
$
$
$
42
Consolidated Businesses
Total revenues for the year ended December 31, 2012 were $748.0 million, a $103.1 million or 16.0% increase over 2011.
Minimum rents increased by $55.7 million, the majority of which was due to non-comparable centers. Minimum rents also increased
due to increases in average rent per square foot and average occupancy. Percentage rents increased primarily due to higher tenant
sales. Expense recoveries increased primarily due to non-comparable centers, as well as an increase in fixed CAM revenue.
Management, leasing, and development revenue increased primarily due to an increase in revenue related to Taubman Asia, partially
offset by a one-time collection in 2011 of past due development fees for services provided in previous years on the Riverstone
project in Songdo International Business District, Incheon, South Korea. Other income increased primarily due to an increase in
sponsorship revenue and income from City Creek Center.
Total expenses were $634.0 million, an $83.8 million or 15.2% increase from 2011. Maintenance, taxes, utilities, and promotion
expense increased due to non-comparable centers. Other operating expense increased primarily due to non-comparable centers
and increased payroll expenses, and was partially offset by decreases in development charges. Management, leasing and
development expenses increased primarily due to costs incurred by Taubman TCBL. General and administrative expense increased
primarily due to increased compensation expense and professional fees. Interest expense increased primarily due to the non-
comparable centers and the November 2011 refinancing of the International Plaza loan at a fixed interest rate higher than the
previous floating rate, partially offset by the impact of lower borrowings due to the common share issuance. Depreciation expense
increased primarily due to non-comparable centers, partially offset by changes in depreciable lives of tenant allowances in
connection with early terminations in 2011.
In 2012, non-comparable centers contributed total operating revenues of $56.1 million, and incurred operating expenses, excluding
interest, depreciation, and amortization, of $26.4 million. In 2011, non-comparable centers (excluding Regency and the Pier Shops)
contributed total operating revenues of $0.9 million, and incurred operating expenses of $0.2 million.
Nonoperating income decreased by $1.0 million in 2012. There were no land sales in 2012, compared to $0.5 million in 2011.
Income tax expense increased primarily as a result of the PRC tax on sale of assets of Taubman TCBL.
Unconsolidated Joint Ventures
Total revenues for the year ended December 31, 2012 were $282.1 million, a $15.6 million or 5.9% increase from 2011. Minimum
rents increased primarily due to increases in average rent per square foot and average occupancy. Expense recoveries increased
due to increased expenses and fixed CAM revenue as a result of higher occupancy, as well as higher property taxes. This was
partially offset by a property tax refund received in the prior year.
Total expenses increased by $12.4 million or 6.8%, to $195.0 million for the year ended December 31, 2012. Maintenance,
taxes, utilities, and promotion expense increased primarily due to increased property taxes and maintenance costs at certain centers,
as well as the property tax refund received in the prior year. Interest expense increased due to the October 2012 refinancing of the
Mall at Millenia which included the charge on the early extinguishment of its debt, the August 2012 refinancing of Sunvalley, the
June 2012 refinancing of Westfarms, all at higher principal balances, and the July 2011 refinancing of the Fair Oaks loan at a
higher rate.
As a result of the foregoing, income of the Unconsolidated Joint Ventures increased by $3.2 million to $87.2 million. Our equity
in income of the Unconsolidated Joint Ventures was $48.5 million, a $2.4 million increase from 2011.
Net Income
Income from continuing operations increased by $16.4 million for the year ended December 31, 2012. The income from
discontinued operations in 2011 included $174.2 million of gains on extinguishment of debt relating to the Pier Shops and Regency.
Net income decreased by $129.6 million to $157.8 million from 2011 due to the 2011 gains on extinguishment of debt. After
allocation of income to noncontrolling and preferred interests, the net income attributable to common shareowners for 2012 was
$83.5 million compared to $176.7 million in 2011.
43
FFO and FFO per Share
Our FFO was $284.7 million for 2012 compared to $411.1 million for 2011. FFO per diluted share was $3.21 in 2012 compared
to $4.86 in 2011. Adjusted FFO in 2012, which excludes charges upon redemption of the Series G and H Preferred Stock, the PRC
tax on sale of assets of Taubman TCBL, and the loss on extinguishment of debt related to the Millenia refinancing was $295.8
million in 2012 compared to $240.0 million for 2011. Adjusted FFO in 2011 excludes acquisition costs, the Series F Preferred
Equity redemption and the gains on extinguishment of debt. See “Results of Operations – Use of Non-GAAP Measures” for the
definition of FFO and “Reconciliation of Net Income Attributable to Taubman Centers, Inc. Common Shareowners to Funds from
Operations and Adjusted Funds from Operations.”
44
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
Other operating
Management, leasing, and development services
General and administrative
Acquisition Costs
Interest expense
Depreciation and amortization (2)
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 (2)
Income from continuing operations
Discontinued operations (3):
Gain on extinguishment of debt
Discontinued operations
Net income (loss)
Net (income) loss attributable to noncontrolling interests:
Noncontrolling share of income of consolidated joint ventures from
continuing operations
TRG Series F preferred distributions (4)
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
Beneficial income tax expense
Non-real estate depreciation
Preferred dividends and distributions (4)
Funds from Operations contribution
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
342.6
20.4
229.3
25.6
27.1
644.9
179.1
67.3
12.0
31.6
5.3
122.3
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(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.
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 2011.
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.
(3)
(4)
(5)
(6)
45
Consolidated Businesses
Total revenues for the year ended December 31, 2011 were $644.9 million, an $18.5 million or 3.0% decrease over 2010.
Minimum rents increased by $15.0 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. 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. Management, leasing, and development expense increased due to
costs related to City Creek Center, which opened 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 Taubman 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.
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 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 in 2010. Net income increased by $185.1 million to $287.4 million, primarily
due to the gains on extinguishment of debt. After allocation of income to noncontrolling and preferred interests, the net income
allocable 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 Attributable to Taubman Centers, Inc. Common
Shareowners to Funds from Operations and Adjusted Funds from Operations."
46
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 2012, 2011 or 2010. As of December 31, 2012, the consolidated net book value of
our properties was $2.9 billion, representing over 85% of our consolidated assets. We also have varying ownership percentages
in the properties of Unconsolidated Joint Ventures with a total combined net book value of $0.7 billion. These amounts include
certain development costs that are described in the policy that follows.
Capitalization of Development Costs
In developing shopping centers, we typically obtain land or land options, zoning and regulatory approvals, anchor commitments,
and financing arrangements during a process that may take several years and during which we may incur significant costs. We
capitalize all development costs once it is considered probable that a project will reach a successful conclusion. Prior to this time,
we expense all costs relating to a potential development, including payroll, and include these costs in Funds from Operations (see
"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,
global, 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.
47
As of December 31, 2012, our beneficial interest in construction work in process was $213.5 million, representing our share of
capitalized project costs for our current U.S. and Asia development projects (See "Liquidity and Capital Resources - Capital
Spending"). We also had a $46.7 million balance of capitalized development pre-construction costs as of December 31, 2012,
which 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 2012, 2011, and 2010 were $18.4 million, $22.7 million, and $16.0 million, respectively. Of these
amounts, $0.2 million, $3.1 million, and $0.3 million related to projects with land under option in each of the respective periods.
We capitalized payroll costs of $5.9 million in connection with construction and development projects in 2012. Capitalized
payroll costs were immaterial for 2011 and 2010.
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 2012, while bankruptcy filings affected 0.7% of tenant leases during the year. The annual provision for losses
on accounts receivable represents 0.2% of total revenues in 2012 and has ranged from 0.2% to 0.9% over the last five years.
Notes receivable at December 31, 2012 totaled $9.5 million, of which $8.5 million is a short-term note related to the disposition
of assets of Taubman TCBL (see "Note 6 – Accounts and Notes Receivable"). 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, 2012,
we had a net federal, state, and foreign deferred tax asset of $3.7 million, after a valuation allowance of $1.0 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 December 2012, we acquired an additional
25% interest in Waterside Shops. Our share of the difference between the purchase price and the net book value of the additional
interest in the Unconsolidated Joint Venture that owns Waterside Shops has been preliminarily allocated to the venture's land,
buildings, improvements, and equipment, as well as its mortgage debt. In 2011, we acquired The Mall at Green Hills, The Gardens
on El Paseo and El Paseo Village. See "Note 2 - Acquisitions, Dispositions, and Development" for allocations of the purchase
price to the identifiable assets acquired and liabilities assumed at the dates of acquisitions.
48
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Discontinued Operations of The Pier Shops and Regency Square: Reconciliations of Net Operating
Income to Net Income (Loss)
2011
(in millions)
2010
100%
TRG%
Outside
Partner’s
Share
The Pier Shops (1), (2):
NOI
Interest expense
Adjusted FFO
Gain on extinguishment of debt
Depreciation and amortization
Net income (loss)
Regency Square (2):
NOI
Interest expense
Adjusted FFO
Gain on extinguishment of debt
Depreciation and amortization
Net income (loss)
$
$
$
$
$
$
(0.8)
(14.2)
(15.0)
126.7
(7.6)
104.2
4.4
(7.3)
(2.9)
47.4
(2.7)
41.8
$
$
$
$
$
$
4.2
(15.0)
(10.7)
(6.6)
(17.4)
$
$
$
$
0.9
(11.6)
(10.7) $
(6.6)
(17.4) $
3.4
(3.4)
—
—
4.5
(5.4)
(0.9)
(2.0)
(2.9)
(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). In 2011, the presentation was 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.
50
Reconciliation of Net Income to Beneficial Interest in EBITDA
Net income
Add (less) depreciation and amortization:
Consolidated businesses at 100% - continuing operations
Consolidated businesses at 100% - discontinued operations
Noncontrolling partners in consolidated joint ventures
Share of Unconsolidated Joint Ventures
Add (less) interest expense and income tax expense:
Interest expense:
Consolidated businesses at 100% - continuing operations
Consolidated businesses at 100% - discontinued operations
Noncontrolling partners in consolidated joint ventures
Share of unconsolidated joint ventures
Share of income tax expense (1)
2012
2011
2010
(in millions, except as indicated)
$
157.8
$
287.4
$
102.3
149.5
(9.7)
22.7
142.6
(16.6)
35.9
4.9
132.7
10.3
(11.2)
23.1
122.3
21.4
(12.2)
31.6
0.6
145.3
8.6
(10.5)
22.2
132.4
20.3
(21.2)
33.1
0.7
Less noncontrolling share of income of consolidated joint ventures
(11.9)
(14.4)
(9.8)
Beneficial interest in EBITDA
$
475.2
$
591.8
$
423.4
TCO’s average ownership percentage of TRG
69.4%
69.3%
67.5%
Beneficial interest in EBITDA allocable to TCO
$
329.9
$
410.5
$
285.7
Includes $3.2 million of PRC taxes in connection with the sale of assets of the Taubman TCBL business.
(1)
(2) Amounts in this table may not add due to rounding.
51
Reconciliation of Net Income to Net Operating Income
Net income
Add (less) depreciation and amortization:
Consolidated businesses at 100% - continuing operations
Consolidated businesses at 100% - discontinued operations
Noncontrolling partners in consolidated joint ventures
Share of Unconsolidated Joint Ventures
Add (less) interest expense and income tax expense:
Interest expense:
Consolidated businesses at 100% - continuing operations
Consolidated businesses at 100% - discontinued operations
Noncontrolling partners in consolidated joint ventures
Share of Unconsolidated Joint Ventures
Share of income tax expense (1)
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
2012
$
157.8
2011
(in millions)
287.4
$
2010
$
102.3
149.5
(9.7)
22.7
142.6
(16.6)
35.9
4.9
(11.9)
38.3
87.2
132.7
10.3
(11.2)
23.1
122.3
21.4
(12.2)
31.6
0.6
(14.4)
37.7
83.6
145.3
8.6
(10.5)
22.2
132.4
20.3
(21.2)
33.1
0.7
(9.8)
41.5
82.1
EBITDA at 100%
$
600.7
$
713.0
$
547.0
Add (less) items excluded from shopping center Net Operating Income:
General and administrative expenses
Management, leasing, and development services, net
Acquisition costs
Gains on extinguishment of debt
Gains on sales of peripheral land
Interest income
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 (2)
Net Operating Income at 100% - comparable centers
Lease cancellation income
Net Operating Income at 100% - comparable centers excluding lease
cancellation income (3)
$
$
$
39.7
(4.4)
(0.3)
(6.5)
31.4
660.5
(29.7)
630.8
(4.9)
$
$
31.6
(13.6)
5.3
(174.2)
(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)
625.9
$
583.9
$
556.3
(1)
(2)
Includes $3.2 million of PRC taxes in connection with the sale of assets of the Taubman TCBL business.
Includes City Creek Center, The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village in 2012. Includes The Mall at Green
Hills, The Gardens on El Paseo and El Paseo Village, The Pier Shops, and Regency Square in 2011. Includes The Pier Shops and Regency
in 2010.
(3) See "Results of Operations - Use of Non-GAAP Measures" for a discussion of the use and utility of Net Operating Income excluding lease
cancellation income as a performance measure.
(4) Amounts in this table may not add due to rounding.
52
Liquidity and Capital Resources
Our internally generated funds and distributions from operating centers and other investing activities, augmented by use of our
existing revolving 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.
From time to time, we also may access the equity markets to raise additional funds or refinance existing obligations on a strategic
basis. See “Capital Spending” for more details.
We are financed as of December 31, 2012 with property-specific secured debt and we have three unencumbered center properties
(Willow Bend; Stamford Town Center, a 50% owned Unconsolidated Joint Venture property; and City Creek Center). Five loans
were refinanced in 2012. For the terms of these new loans, see “Results of Operations – Debt Transactions.”
As of December 31, 2012, we had a consolidated cash balance of $32.1 million. We also have secured revolving lines of credit
of $650 million and $65 million as of December 31, 2012. After considering current loan balances and outstanding letters of credit,
$279 million was available as of December 31, 2012 under these facilities. Thirteen banks participate in our $650 million revolving
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 2013, we expect to refinance our primary revolving line of credit with a $1.1 billion unsecured line. This will
provide us with additional financial flexibility to fund our operations and development pipeline. The facility will include an
accordion feature that would increase the borrowing capacity to as much as $1.5 billion, if fully exercised. The new line will have
a four-year term with a one-year extension option and pricing will be based on total corporate leverage. As of December 31, 2012,
our leverage ratio would result in pricing of LIBOR plus 1.50% with a 0.25% facility fee. Under the new agreement, TRG will
be the direct borrower, and the line will be guaranteed by the entities that own Dolphin Mall, Fairlane Town Center, Twelve Oaks
Mall, and Willow Bend.
In January 2013, a 10-year, $225 million non-recourse refinancing was completed on Great Lakes Crossing Outlets. The payments
on the loan, which bears interest at an all-in rate of 3.63%, are based on amortizing principal over 30 years. The loan may be
defeased the earlier of three years after the January loan closing or two years from the securitization of the entire loan. The existing
$126 million, 5.25% fixed rate loan, which was scheduled to mature in March 2013, was paid off and the excess proceeds of
approximately $100 million were used to pay down the revolving lines of credit.
The $108.3 million loan on The Mall At Green Hills matures in December 2013. We expect to pay off the loan using our revolving
line of credit to allow for financial flexibility as we continue to explore expansion opportunities at the center.
We plan to obtain financing on City Creek Center later this year. We expect financing proceeds to be in excess of our investment
in the center.
Summaries of 2012 Capital, Debt, and Equity Activities and Transactions
In December 2012, we acquired an additional 49.9% in International Plaza, as well as an additional 25% interest in Waterside
Shops (See "Results of Operations - Acquisitions").
In November 2012, we sold assets of the Taubman TCBL business. See "Results of Operations - Taubman Asia" for information
regarding the sale of assets of Taubman TCBL.
In addition, see "Results of Operations - Other Equity Transactions" for information regarding the redemption of the Series G
and H Preferred Stock and the stock offerings of 2,875,000 common shares and $192.5 million of Series J Preferred Stock in
August 2012. Also, see "Results of Operations - Debt Transactions" for a summary of debt financings in 2012.
Also see our Consolidated Statement of Cash Flows for additional capital, debt, and equity transactions.
Operating Activities
Our net cash provided by operating activities was $324.3 million in 2012, compared to $270.2 million in 2011 and $264.6 million
in 2010. See “Results of Operations” for descriptions of 2012, 2011, and 2010 transactions affecting operating cash flow.
53
Investing Activities
Net cash provided by investing activities was $126.3 million in 2012, compared to $368.3 million used in 2011 and $44.8 million
used in 2010. Additions to properties in 2012 related primarily to the costs of the new centers under development, $75 million
paid upon the opening of City Creek Center, tenant improvements at existing centers, and other capital items. 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. A tabular presentation of 2012 and 2011
capital spending is shown in “Capital Spending.”
Restricted cash in 2012 was used to repay the $281.5 million of installment notes that were issued as part of the consideration
for the acquired centers in 2011 (See "Results of Operations - Acquisitions"), while additions to restricted cash in 2011 included
cash drawn from our revolving line of credit that was used in February 2012 to repay the $281.5 million of installment notes.
In 2012, we received $4.4 million from the disposition of Taubman TCBL assets, with the remainder of the sales price being
in the form of a receivable. In 2011, $11.5 million was paid for the acquisition of Taubman TCBL (see "Results of Operations -
Taubman Asia"). In 2012, Taubman Asia invested $104.8 million for interests in three projects; Xi'an Saigao City Plaza, Zhengzhou
Vancouver Times Square, and Hanam Union Square (see "Capital Spending - New Developments"). In 2011, Taubman Asia
invested $20.9 million for an interest in the Hanam Union Square project.
Contributions to Unconsolidated Joint Ventures in 2012 of $5.5 million were related to the refinancings of Millenia and Taubman
Land Associates (Sunvalley entity). Contributions to Unconsolidated Joint Ventures in 2010 included $3.6 million to fund our
share of the settlement of the Westfarms litigation charges. In 2012, $36.3 million was paid to acquire an additional 25% in
Waterside Shops. Distributions in excess of income from Unconsolidated Joint Ventures provided $220.7 million in 2012, compared
to $17.6 million in 2011, and $32.8 million in 2010. The 2012 amount included $75 million, $31.7 million, and $110 million of
excess proceeds from the Millenia, Sunvalley, and Westfarms refinancings, respectively. The 2011 amount included $11.1 million
from the Fair Oaks refinancing, while the amount in 2010 included $21 million of excess proceeds from the Arizona Mills
refinancings. Net proceeds from sales of peripheral land were $3.7 million and $3.1 million in 2011 and 2010, respectively. There
were no land sales in 2012. During 2010, we issued $2.9 million in notes receivable, and in 2012, 2011, and 2010 received $6.0
million, $1.5 million, and $1.6 million in repayment, respectively.
Financing Activities
Net cash used in financing activities was $442.7 million in 2012 compared to $102.9 million provided in 2011 and $216.7
million used in 2010. Proceeds from the issuance of debt, net of payments and issuance costs, were $89.6 million in 2012 compared
to $193.8 million in 2011. Proceeds in 2011 included the cash drawn on our revolving lines of credit to cash collateralize the
installment notes issued in connection with the acquisitions of centers in 2011. These installment notes were repaid in February
2012 (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.
In 2012 and 2011, $208.9 million and $112.0 million, respectively, were received from issuing new shares of common stock,
net of offering costs. In addition, $6.5 million was paid in connection with incentive plans in 2012 compared to $2.6 million and
$2.5 million in 2011 and 2010, respectively. In 2012, we used the $186.2 million of net proceeds from the issuance of Series J
Preferred Stock to redeem the $187.0 million Series G and Series H Preferred Stock. 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"). Borrowings
of $275 million from our revolving line of credit were used to acquire the noncontrolling interest in International Plaza. Total
dividends and distributions paid were $195.1 million, $210.6 million, and $185.6 million in 2012, 2011, and 2010, respectively.
Common dividends paid in 2010 included the special dividend paid in December 2010. Contributions from noncontrolling
interests were $4.8 million in 2012 compared to $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.
54
Beneficial Interest in Debt
At December 31, 2012, the Operating Partnership's debt and its beneficial interest in the debt of its Consolidated Businesses
and Unconsolidated Joint Ventures totaled $3,626.9 million, with an average interest rate of 4.67% excluding amortization of debt
issuance costs and interest rate hedging costs. These costs are reported as interest expense in the results of operations. Interest
expense includes non-cash amortization of premiums relating to acquisitions. On an annualized basis, this amortization of
acquisition premiums is equal to 0.12% of the average all-in rate. Beneficial interest in debt includes debt used to fund development
and expansion costs. Beneficial interest in construction work in progress totaled $267.9 million as of December 31, 2012, which
includes $213.1 million of assets on which interest is being capitalized. The following table presents information about our
beneficial interest in debt as of December 31, 2012:
Fixed rate debt
Floating rate debt:
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
5.09% (1)
4.10%
4.99%
4.52% (1)
1.93% (1)
2.91% (1)
4.67% (1)
0.16%
Amount
(in millions)
2,933.1
$
137.5
124.0
261.5
432.3
693.8
3,626.9
$
$
4.84%
(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, 2012, a one percent increase on this floating rate debt would decrease cash flows by approximately
$4.3 million, and due to the effect of capitalized interest, decrease annual earnings by approximately $4 million. A one percent
decrease in interest rates (or to zero percent for LIBOR rates that are below one percent) would increase cash flows by approximately
$0.9 million and due to the effect of capitalized interest, increase annual earnings by approximately $0.8 million. Based on our
consolidated debt and interest rates in effect at December 31, 2012, a one percent increase in interest rates would decrease the fair
value of debt by approximately $73.9 million, while a one percent decrease in interest rates would increase the fair value of debt
by approximately $77.6 million.
55
Contractual Obligations
In conducting our business, we enter into various contractual obligations, including those for debt, 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, 2012 for our consolidated businesses, including expected settlement periods, is contained below:
Debt (1)
Interest payments (1)
Operating leases
Purchase obligations:
Planned capital spending (2)
Other purchase obligations (3)
Other long-term liabilities and
commitments (4)
Total
Payments due by period
Total
Less than 1
year (2013)
1-3 years
(2014-2015)
(in millions)
3-5 years
(2016-2017)
More than 5
years (2018+)
$
2,946.0
$
243.8
$
1,602.1
$
593.7
$
504.3
437.3
502.2
11.6
62.7
142.4
13.4
210.8
3.9
2.6
211.1
19.7
291.4
5.5
3.0
64.7
14.0
1.8
3.4
506.4
86.2
390.2
0.4
53.7
$
4,464.0
$
616.9
$
2,132.7
$
677.5
$
1,036.9
(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, 2012. Debt excludes $6.1 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) This disclosure includes planned capital spending related to our consolidated businesses only. We have investments in Unconsolidated Joint
Ventures through which material construction activities will be occurring. Refer to "Capital Spending - New Developments" for discussion
of those projects.
(3) Excludes purchase agreements with cancellation provisions of 90 days or less.
(4) Other long-term liabilities consist of various accrued liabilities, most significantly assessment bond obligations and long-term incentive
compensation, as well as energy contracts at certain centers.
(5) 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, 2012. The maximum payout ratio on distributions covenant limits the payment of distributions
generally to 95% of funds from operations, as defined in the loan agreements, except as required to maintain our tax status, pay
preferred distributions, and for distributions related to the sale of certain assets. See “Note 8 – Notes Payable – Debt Covenants
and Guarantees” to our consolidated financial statements for more details on loan guarantees.
Cash Tender Agreement
A. Alfred Taubman has the annual right to tender units of partnership interest in the Operating Partnership and cause us to
purchase the tendered interests at a purchase price based on a market valuation of TCO on the trading date immediately preceding
the date of the tender. See “Note 15 – Commitments and Contingencies – Cash Tender” to our consolidated financial statements
for more details.
56
Capital Spending
Acquisitions of Additional Interests
In December 2012, we acquired an additional 49.9% interest in International Plaza, located in Tampa, Florida, which brought
our ownership in the shopping center to 100%. Also in December 2012, we acquired an additional 25% interest in Waterside Shops,
which brought our ownership in the shopping center to 50% (see "Results of Operations - Acquisitions").
New Developments
City Creek Center, a mixed-use project in Salt Lake City, Utah, opened in March 2012. At opening, we paid $75 million to
CCRI and the $25 million letter of credit that was previously issued to CCRI to secure the payment was cancelled (see "Results
of Operations - Development").
Our United States development currently includes three projects that have begun construction: Taubman Prestige Outlets
Chesterfield, The Mall at University Town Center, and The Mall of San Juan. We have also made initial investments in two projects
in Asia: Xi'an Saigao City Plaza and Hanam Union Square. In addition, in February 2013, we announced Zhengzhou Vancouver
Times Square, a second project in China. Internally generated funds, excess proceeds from refinancings of maturing debt obligations,
and borrowings under our revolving lines of credit would be sufficient to finance these projects, but we also expect construction
loan financing to be available.
Taubman Prestige Outlets Chesterfield, our project in the St. Louis market, is under construction. We have a 90% ownership
interest in the project and expect to open the 0.3 million square foot open-air outlet shopping center in August 2013. We will be
responsible for management, leasing, and development of the center. Due to competitive pressures in the market, the return is
uncertain. Total project costs are expected to be approximately $130 million for the first phase.
In Sarasota, The Mall at University Town Center is under construction and we are funding our 50% share of the project. We
will be responsible for management, leasing, and development of the center. The 0.9 million square foot center will be anchored
by Saks Fifth Avenue, Macy's, and Dillard's, and is expected to open in October 2014. We expect an 8% to 8.5% unlevered return
on our share of the approximately $315 million total project cost.
The Mall of San Juan is under construction in San Juan, Puerto Rico. The 0.7 million square foot center will be anchored by
the Caribbean's first Nordstrom and Saks Fifth Avenue. We now expect a spring 2015 opening. We will be responsible for
management, leasing, and development of the center. The casino and hotel being developed by the landowner will connect to and
are expected to open with the center. We are expecting an 8% to 8.5% unlevered return on our 80% share of the approximately
$405 million total project cost.
In 2012, we entered into a joint-venture with Beijing Wangfujing Department Store (Group) Co., Ltd (Wangfujing), one of
China's largest department store chains. The joint venture will own a 60% controlling interest in and manage a shopping center
to be located at Xi'an Saigao City Plaza, a large-scale mixed-use development in Xi'an, China. It is scheduled to open in 2015 and
is part of a 5.9 million square foot mixed-use project. We are investing in the retail portion only, which will be over 1.0 million
square feet with over half of that in mall specialty stores. We have invested $49.2 million for an interest in the project as of
December 31, 2012. Our total anticipated investment will be approximately $115 million for a 30% equity interest. We are expecting
a 6% to 6.5% unlevered return at stabilization. Sales growth rates are expected to be in excess of 10%.
In 2013, we announced a second joint venture with Wangfujing that will own a majority interest in and manage a shopping
center to be located in Zhengzhou, China. Currently under construction, the approximately 1.0 million square feet shopping mall,
Zhengzhou Vancouver Times Square, is scheduled to open in 2015. Our total anticipated investment will be somewhat over $100
million for a 32% equity interest. We are expecting a 6% to 6.5% unlevered return at stabilization.
Combined with shorter lease terms than the U.S., returns on our investments in China are expected to equal those earned in the
U.S. by the seventh or eighth year
57
We have invested in a 1.7 million square foot shopping mall project in Hanam, Gyeonggi Province, South Korea (Hanam Union
Square) in which Taubman Asia has partnered with Shinsegae Group (Shinsegae), South Korea's largest retailer. The center is
scheduled to open in 2016. As of December 31, 2012, we have invested $78.8 million for an interest in the project. Our total
anticipated investment including capitalized interest will be about $330 million for a 30% equity interest in the retail portion of
the project. We are considering bringing in a financial partner for as much as 50% of our share. We are expecting a 7% to 7.5%
unlevered return at stabilization.
2012 and 2011 Capital Spending
Capital spending for routine maintenance of the shopping centers is generally recovered from tenants. Capital spending during
2012, excluding acquisitions, is summarized in the following table:
2012 (1)
Consolidated
Businesses
Beneficial
Interest in
Consolidated
Businesses
Unconsolidated
Joint Ventures
Beneficial
Interest in
Unconsolidated
Joint Ventures
New development projects - U.S. (2)
New development projects - Asia (3)
Existing Centers:
Projects with incremental GLA or anchor
replacement
Projects with no incremental GLA and other
Mall tenant allowances
Asset replacement costs reimbursable by tenants
Corporate office improvements, technology,
equipment, and other
$
168.7
$
154.3
$
(in millions)
3.4
5.8
23.6
29.7
2.2
3.4
5.0
22.6
25.5
2.2
$
5.9
107.4
5.9
107.4
2.6
8.7
17.9
1.3
4.3
10.0
Total
$
233.3
$
213.1
$
142.5
$
129.0
(1) Costs are net of intercompany profits and are computed on an accrual basis.
(2)
Includes the $75 million paid at opening of City Creek Center and costs related to The Mall of San Juan, Taubman Prestige Outlets
Chesterfield, and The Mall at University Town Center.
Includes costs related to the retail component of Xi'an Saigao City Plaza, Hanam Union Square, and Zhengzhou Vancouver Times Square.
Asia spending is included at our beneficial interest in both the Unconsolidated Joint Ventures and Beneficial Interest in Unconsolidated
Joint Ventures columns.
(3)
(4) Amounts in this table may not add due to rounding.
The following table presents a reconciliation of the Consolidated Businesses’ capital spending shown above (on an accrual basis)
to additions to properties (on a cash basis) as presented in our Consolidated Statement of Cash Flows for the year ended December 31,
2012:
Consolidated Businesses’ capital spending
Differences between cash and accrual basis and other
Additions to properties
(in millions)
$
$
233.3
14.3
247.6
58
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
(in millions)
19.3
5.8
$
29.8
10.3
1.3
24.3
$
6.8
31.9
11.6
1.3
3.3
$
11.5
7.1
1.7
6.6
4.1
76.0
$
66.5
$
21.9
$
12.4
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, technology,
equipment, and other
Total
$
$
(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.
Our share of mall tenant allowances per square foot leased, committed under contracts during the year, excluding new
developments and expansion space, was $16.62 in 2012 and $23.80 in 2011. In the past five years, average tenant allowances per
square foot have ranged from a low of $16.62 in 2012 and a high of $37.56 in 2010. Average tenant allowances per square foot
can vary significantly from year to year due to the type, size, and location of tenants signed. Our share of capitalized leasing and
tenant coordination costs excluding new developments was $7.4 million and $7.8 million in 2012 and 2011, respectively, or $4.56
and $6.03, in 2012 and 2011, respectively, per square foot leased.
59
Planned Capital Spending
The following table summarizes planned capital spending for 2013:
2013 (1)
Consolidated
Businesses
Beneficial
Interest in
Consolidated
Businesses
Unconsolidated
Joint Ventures
Beneficial
Interest in
Unconsolidated
Joint Ventures
$
157.9
$
150.5
$
167.3
$
(in millions)
New development projects - U.S. (2)
New development projects - Asia (3)
Existing Centers:
Projects with no incremental GLA and other
Mall tenant allowances
Asset replacement costs reimbursable by tenants
Corporate office improvements, technology, equipment,
and other
6.3
16.4
25.2
4.9
5.0
15.4
18.0
4.9
57.7
0.1
5.2
24.7
83.6
57.7
0.1
2.9
13.2
Total
$
210.8
$
193.7
$
255.0
$
157.5
(1) Costs are net of intercompany profits and are computed on an accrual basis.
(2)
(3)
Includes costs related to The Mall at San Juan, Taubman Prestige Outlets Chesterfield, and The Mall at University Town Center.
Includes costs related to the retail component of Xi'an Saigao City Plaza, Hanam Union Square, and Zhengzhou Vancouver Times Square.
Asia spending is included at our beneficial interest in both the Unconsolidated Joint Ventures and Beneficial Interest in Unconsolidated
Joint Ventures columns.
(4) Amounts in this table may not add due to rounding.
We anticipate that our share of costs incurred for new center development projects included in the table above will be $390
million, $260 million, and $60 million in 2014, 2015 and 2016, respectively.
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, (12) early lease terminations and bankruptcies and
(13) fluctuations in foreign currency exchange rates. In addition, estimates of capital spending will change as new projects are
approved by our board of directors.
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.
60
The annual determination of our common dividends is based on anticipated Funds from Operations available after preferred
dividends and our REIT taxable income, as well as assessments of annual capital spending, financing considerations, and other
appropriate factors.
Any inability of the Operating Partnership or its Joint Ventures to secure financing as required to fund maturing debts, capital
expenditures, and changes in working capital, including development activities and expansions, may require the utilization of cash
to satisfy such obligations, thereby possibly reducing distributions to partners of the Operating Partnership and funds available to
us for the payment of dividends.
On November 30, 2012, we declared a quarterly dividend of $0.4625 per common share and $0.40625 per share on our Series
J Preferred Stock, both of which were paid on December 31, 2012 to shareowners of record on December 17, 2012.
61
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, 2012, 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 2012 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.
62
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 2013 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 2013 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.”
63
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, 2012:
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)
40,000
$
24.74
886,866
322,305
649,802
1,898,973
79,877
43.60
(3)
(3)
(6)
2,084,572 (1)
2,084,572
(7)
1,978,850
$
42.50
2,084,572
(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 164,094 and 98,646 performance share units (PSU) at their maximum payout ratio of 300% and 400%, respectively. 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% and 0-400% 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.”
64
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 2013 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 2013 Proxy Statement
under the caption “Audit Committee Disclosure.”
65
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, 2012 and 2011
Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2012,
2011, and 2010
Consolidated Statement of Changes in Equity for the years ended December 31, 2012, 2011, and 2010
Consolidated Statement of Cash Flows for the years ended December 31, 2012, 2011, and 2010
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, 2012, 2011, and 2010
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2012
Page
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-48
F-49
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
Amended
Restated Articles
Incorporation of Taubman Centers, Inc.
and
of
8-K
Filed
Herewith
Exhibit
3.1
3.1
Filing Date
December 16,
2009
August 14,
2012
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
66
Exhibit
Number
4.7
4.8
4.9
4.9.1
4.9.2
4.9.3
4.10
4.11
4.12
4.13
4.14
4.14.1
4.14.2
4.15
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.
First Amendment
Restated
Agreement
Secured
to Third Amended and
Credit
Revolving
Substitution of Agent and Second Amendment
to Third Amended and Restated Secured
Revolving Credit Agreement.
Form of
of Agent
Substitution
Confirmatory Assignment of Mortgage
and
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
as
Eurohypo AG, New York Branch,
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.
Form of certificate evidencing 6.500% Series
J Cumulative Redeemable Preferred Stock,
Liquidation Preference $25.00 Per Share.
8-A12B
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
March 31, 2012
4
10-Q
June 30, 2012
4.1
10-Q
June 30, 2012
10-Q
September 30,
2011
10-Q
September 30,
2011
10-Q
September 30,
2011
10-Q
September 30,
2011
8-K
8-K
8-K
4.2
4.2
4.3
4.4
4.5
4.1
4.2
4.3
4.1
November 9,
2011
November 9,
2011
November 9,
2011
August 13,
2012
Exhibit
Number
*10.1
*10.1.1
*10.1.2
*10.1.3
*10.1.4
*10.1.5
10.2
10.2.1
10.2.2
10.3
Exhibit Description
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.
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.
First Amendment
to the Master Services
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,
1997
Exhibit
10(b)
Filing Date
Filed
Herewith
10-K
December 31,
2001
10(b)
10-K
December 31,
2004
10(c)
10-K
December 31,
2004
10(d)
10-Q
March 31, 2007
10(a)
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
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
Control Employment Agreement,
dated
December 18, 2008 (revised for Code Section
409A compliance).
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)
Exhibit
Number
*10.6.2
10.7
10.8
*10.9
10.10
10.11
10.11.1
*10.12
*10.12.1
*10.13
*10.13.1
*10.13.2
*10.13.3
*10.14
*10.15
*10.15.1
*10.15.2
*10.15.3
*10.15.4
Exhibit Description
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.
Incorporated by Reference
Form
10-K
Period Ending
December 31,
2008
Exhibit
10(ar)
10-Q
June 30, 2000
10(b)
Filing Date
Filed
Herewith
The Third Amendment and Restatement of
Agreement of Limited Partnership of The
Taubman Realty Group Limited Partnership
dated December 12, 2012.
S-3
10.3
December 27,
2012
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
First Amendment to Amended and Restated
Agreement of Partnership of Sunvalley
Associates, a California general partnership.
Summary of Compensation for the Board of
Directors of Taubman Centers, Inc., effective
January 1, 2011.
Summary of Compensation for the Board of
Directors of Taubman Centers, Inc., effective
January 1, 2013.
The Taubman Centers, Inc. Non-Employee
Directors' Deferred Compensation Plan.
The Form of The Taubman Centers, Inc. Non-
Employee Directors' Deferred Compensation
Plan.
First Amendment to the Taubman Centers, Inc.
Non-Employee
Deferred
Compensation Plan.
Directors'
Form of Taubman Centers,
Inc. Non-
Employee Directors' Deferred Compensation
Plan Amendment Agreement
(revised for
Code Section 409A compliance).
Third 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
Omnibus
Plan
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
Form of The Taubman Company LLC 2008
Omnibus
Plan
Performance Share Unit Award Agreement
(Five-Year Vesting)
Long-Term Incentive
10-Q
March 31, 2011
10(b)
10-K
December 31,
2006
10(ab)
10-Q/A June 30, 2002
10(a)
10-Q
March 31, 2011
10(a)
8-K
8-K
10
10
May 18, 2005
May 18, 2005
10-Q
June 30, 2008
10(c)
10-K
December
2008
31,
10(ap)
DEF 14
A
March 31, 2010
8-K
8-K
8-K
10(a)
March 10, 2009
10(b)
March 10, 2009
10(c)
March 10, 2009
10-Q
March 31, 2012
10
X
X
X
Exhibit
Number
*10.16
10.17
10.17.1
*10.18
10.19
*10.20
12
21
23
31.1
31.2
32.1
32.2
99.1
99.2
Exhibit Description
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.
First Amendment
the Acquisition
to
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
Separation Agreement and Release, dated July
2, 2012, for David Weinert
Partnership Interest Purchase Agreement
dated as of December 17, 2012 between
CSAT, L.P., and Woodland Shopping Center
Limited Partnership
Employment Agreement between Taubman
Asia Management Limited
and Rene
Tremblay.
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.
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**
101.SCH
101.CAL
101.LAB
XBRL
Document**
Taxonomy
Extension
Schema
XBRL Taxonomy Extension Calculation
Linkbase Document**
XBRL Taxonomy Extension Label Linkbase
Document**
Incorporated by Reference
Form
10-Q
Period Ending
September 30,
2009
Exhibit
10(a)
10-Q
September 30,
2011
4.6
Filing Date
Filed
Herewith
10-K
December 31,
2011
10.17.1
10-Q
8-K
September 30,
2012
10
10
December 20,
2012
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Incorporated by Reference
Form
Period Ending
Exhibit
Filing Date
Filed
Herewith
X
X
Exhibit
Number
101.PRE
101.DEF
*
**
Exhibit Description
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.
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.
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, 2012 and 2011
Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2012, 2011,
and 2010
Consolidated Statement of Changes in Equity for the years ended December 31, 2012, 2011, and 2010
Consolidated Statement of Cash Flows for the years ended December 31, 2012, 2011, and 2010
Notes to Consolidated Financial Statements
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2012, 2011, and 2010
Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2012
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-48
F-49
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, 2012. 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, 2012.
Based on its assessment, management believes that Taubman Centers, Inc. maintained effective internal control over financial
reporting as of December 31, 2012. 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,
2012 and 2011, 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, 2012. 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, 2012 and 2011, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2012, 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, 2012, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated February 25, 2013 expressed an unqualified opinion on the effectiveness of the Company's internal control
over financial reporting.
/s/ KPMG LLP
Chicago, Illinois
February 25, 2013
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, 2012,
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, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheet of the Company as of December 31, 2012 and 2011, 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, 2012, and our report dated February 25, 2013 expressed an unqualified opinion on those consolidated financial
statements.
/s/ KPMG LLP
Chicago, Illinois
February 25, 2013
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 (Notes 2 and 5)
Cash and cash equivalents
Restricted cash (Notes 2 and 8)
Accounts and notes receivable, less allowance for doubtful accounts of $3,424 and $3,303
in 2012 and 2011 (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 2, 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, 25,327,699 and 26,461,958 shares issued and
outstanding at December 31, 2012 and 2011
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. No shares outstanding or authorized at December 31, 2012
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. No shares outstanding or authorized at December 31, 2012
Series J Cumulative Redeemable Preferred Stock, 7,700,000 shares authorized, no
par, $192.5 million liquidation preference, 7,700,000 shares issued and outstanding at
December 31, 2012. No shares outstanding or authorized at December 31, 2011
Common Stock, $0.01 par value, 250,000,000 shares authorized, 63,310,148 and
58,022,475 shares issued and outstanding at December 31, 2012 and 2011
Additional paid-in capital (Note 2)
Accumulated other comprehensive income (loss) (Note 19)
Dividends in excess of net income
Noncontrolling interests (Note 9)
Total Liabilities and Equity
See notes to consolidated financial statements.
F-5
December 31
2012
December 31
2011
$
$
$
4,246,000
(1,395,876)
2,850,124
214,152
32,057
6,138
69,033
2,009
94,982
3,268,495
$
$
$
4,020,954
(1,271,943)
2,749,011
75,582
24,033
295,318
59,990
1,418
131,440
3,336,792
$
2,952,030
$
278,098
383,293
3,613,421
$
$
$
2,864,135
281,467
255,146
192,257
3,593,005
84,235
$
25
$
26
633
657,071
(22,064)
(891,283)
(255,618) $
(89,308)
(344,926) $
$
3,268,495
580
673,923
(27,613)
(863,040)
(216,124)
(124,324)
(340,448)
3,336,792
$
$
$
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
Acquisition costs (Note 2)
Interest expense
Depreciation and amortization
Nonoperating income
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
Other discontinued operations
Net income
Income from continuing operations attributable to noncontrolling interests (Note 9)
(Income) loss from discontinued operations attributable to noncontrolling interests (Note 9)
Net income attributable to Taubman Centers, Inc.
Distributions to participating securities of TRG (Note 13)
Preferred stock dividends (Note 14)
Net income attributable to Taubman Centers, Inc. common shareowners
Net income
Other comprehensive income (Note 10):
Unrealized gain (loss) on interest rate instruments and other
Cumulative translation adjustment
Reclassification adjustment for amounts recognized in net income
Comprehensive income
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Taubman Centers, Inc.
Basic earnings per common share (Note 16):
Continuing operations
Discontinued operations
Total basic earnings per common share
Diluted earnings per common share (Note 16):
Continuing operations
Discontinued operations
Total diluted earnings per common share
Year Ended December 31
2011
2010
2012
398,306
28,026
258,252
31,811
31,579
747,974
201,552
73,203
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1.39
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$
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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
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1,215
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268,030
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327,580
13,063
225,079
16,109
44,596
626,427
177,703
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30,234
132,362
145,271
551,182
2,683
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(20,279)
102,327
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102,327
18,240
1,260
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121,827
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73,337
1.12
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0.87
1.11
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0.86
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Weighted average number of common shares outstanding – basic
59,884,455
56,899,966
54,569,618
See notes to consolidated financial statements.
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.
TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization - continuing operations
Depreciation and amortization - discontinued operations
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
Release of (additions to) restricted cash (Note 2)
Proceeds from disposition of Taubman TCBL (Note 2)
Investment in TCBL Inc. (Note 2)
Investments in Asia Unconsolidated Joint Ventures
Contributions to Unconsolidated Joint Ventures
Contribution for acquisition of additional interest in Waterside Shops (Note 2)
Distributions from Unconsolidated Joint Ventures in excess of income
Proceeds from sales of land
Issuances of notes receivable
Repayments of notes receivable
Other
Net Cash Provided By (Used In) Investing Activities
Cash Flows From Financing Activities:
Debt proceeds
Debt payments
Repayment of installment notes
Debt issuance costs
Issuance of common stock, net of offering costs
Issuance of common stock and/or partnership units in connection with incentive plans
Issuance of Series J Preferred Stock, net of offering costs
Redemptions of Series G and H Preferred Stock
Redemption of Series F Preferred Equity
Acquisition of noncontrolling interest in International Plaza (Note 2)
Distributions to noncontrolling interests
Distributions to participating securities of TRG
Contributions from noncontrolling interests
Cash dividends to preferred shareowners
Cash dividends to common shareowners
Other
Net Cash Provided By (Used In) Financing Activities
Net Increase 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
2011
2010
2012
$
157,817
$
287,398
$
102,327
149,517
1,397
12,165
(24,445)
27,898
324,349
(247,637) $
289,389
4,414
(104,753)
(5,455)
(36,250)
220,662
105,740
(11,462)
(281,467)
(4,711)
208,939
6,503
186,215
(187,000)
(275,000)
(67,325)
(1,612)
4,798
(14,639)
(111,543)
(105)
(442,669) $
132,707
10,309
2,032
(519)
(174,171)
13,142
(21,211)
20,479
270,166
$
145,271
8,605
3,363
(2,218)
11,216
(21,805)
17,849
264,608
(69,443) $
(72,152)
(289,389)
(11,523)
(20,882)
(875)
17,639
3,728
(7,261)
32,836
3,060
(2,948)
1,623
(44,842)
(8,830)
111,956
2,593
(27,000)
(94,113)
(1,536)
32,211
(14,634)
(100,286)
(76)
102,916
(2,943)
2,532
(67,468)
(1,635)
(14,634)
(101,890)
(228)
(216,651)
3,115
16,176
$
$
5,974
126,344
$
1,544
861
(368,340) $
$
536,648
(334,017)
$
213,500
(243,885)
8,024
$
4,742
24,033
19,291
32,057
$
24,033
$
19,291
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, 2012 included 24 urban and suburban shopping centers in 12 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.
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, 2012, the Operating Partnership’s equity included one class of preferred equity (Series J Preferred Equity)
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 interest, and the remaining amounts to the general and limited partners in the Operating Partnership
in accordance with their percentage ownership. The Series J Preferred Equity is owned by the Company and is eliminated in
consolidation.
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. In September 2012, the Series G and Series H Preferred Equity were redeemed. The
Series G and Series H Preferred Equity were owned by the Company and eliminated in consolidation. At December 31, 2010,
the Operating Partnership's equity also included the Series F Preferred Equity. 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 redemptions of the Series G and Series H Preferred Equity and
the issuance of the Series J Preferred Equity.
F-9
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The partnership equity of the Operating Partnership and the Company's ownership therein are shown below:
TRG units
outstanding at
December 31
88,656,297
84,502,883
80,947,630
TRG units owned
by TCO at
December 31(1)
63,310,148
58,022,475
54,696,054
TRG units owned
by noncontrolling
interests at
December 31
25,346,149
26,480,408
26,251,576
TCO's %
interest in TRG
at December 31
71%
69
68
TCO's average
interest in TRG
69%
69
67
Year
2012
2011
2010
(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, 2012 consisted of 25,327,699 shares of Series B Preferred Stock
(Note 14) and 63,310,148 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. The Company
deposits cash and cash equivalents with institutions with high credit quality. From time to time, cash and cash equivalents may
be in excess of FDIC insurance limits. Included in cash equivalents is $18.0 million and $12.6 million at December 31, 2012 and
2011, 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, 2012 and
December 31, 2011, the Company’s restricted cash balances were $6.1 million and $295.3 million, respectively. Included in
restricted cash is $4.6 million at December 31, 2012 on deposit in excess of the FDIC insured limit. In 2011 cash was drawn
from the Company's revolving lines 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
F-11
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
acquired and liabilities assumed. Costs related to the acquisition of a controlling interest, including due diligence costs, professional
fees, and other costs to effect an acquisition, are expensed as incurred.
Deferred Charges and Other Assets
Direct financing costs are deferred and amortized on a straight-line basis, which approximates the effective interest method,
over the terms of the related agreements as a component of interest expense. Direct costs related to successful leasing activities
are capitalized and amortized on a straight-line basis over the lives of the related leases. Cash expenditures for leasing costs are
recognized in the Statement of Cash Flows as operating activities. All other deferred charges are amortized on a straight-line basis
over the terms of the agreements to which they relate. 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.
Foreign Currency Translation
The Company has certain entities in Asia for which the functional currency is the local currency. The assets and liabilities of the
entities are translated from their functional currency into U.S. Dollars at the rate of exchange in effect on the balance sheet date.
Income statement accounts are generally translated using the average exchange rate for the period. Income statement amounts of
significant transactions are translated at the rate in effect as of the date of the transaction. The Company's share of unrealized
gains and losses resulting from the translation of the entities' financial statements are reflected in stockholders' equity as a component
of Accumulated Other Comprehensive Income (loss) in the Company's Consolidated Balance Sheet (Note 19).
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. At December 31, 2012, the Company's investments in Asia are in Unconsolidated Joint
Ventures and accounted for under the equity method.
F-13
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Acquisitions, Dispositions, and Development
Acquisitions
International Plaza
In December 2012, the Company acquired an additional 49.9% interest in International Plaza from CSAT, LP, which increased
its ownership in the center to 100%. The $437 million purchase price for CSAT, LP's interest in the center consisted of $275 million
of cash and approximately $162 million of beneficial interest in debt. The acquisition of the additional interest in a consolidated
subsidiary was accounted for as an equity transaction. Consequently, the difference of $339.2 million between the consideration
paid for the interest and the book value of the noncontrolling interest was recognized as an adjustment to additional paid-in-capital
and the noncontrolling partners in TRG.
Waterside Shops
In December 2012, the Company acquired an additional 25% interest in Waterside Shops, which brought the Company's
ownership interest in the center to 50%. The acquisition of the additional interest was accomplished by purchasing an affiliate of
Oregon PERS' 50% interest in the center on a pari passu basis with an affiliate of The Forbes Company. The $155 million purchase
price for Oregon PERS' interest in the center consisted of $72.5 million of cash and $82.5 million of beneficial interest in debt.
The Company's share of the consideration for the additional interest was $77.5 million, which consisted of cash and beneficial
interest in debt of $36.3 million and $41.3 million, respectively. After the acquisition, the Company continues to recognize its
investment in Waterside Shops in Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet. The Company's
share of the difference between the purchase price and the net book value of the additional interest in the Unconsolidated Joint
Venture was estimated to be $52.7 million, which has been preliminarily allocated to land, buildings, improvements, and equipment.
In addition, beneficial interest in debt was increased by a $3.9 million purchase accounting premium to record the debt at fair
value.
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 consisted of the assumption of $206 million of debt, $281.5
million in installment notes, and the issuance of 1.3 million Operating Partnership units. The assumed debt consisted 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 approximated the fair value at the acquisition date, 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 revolving lines of credit, which was classified within Restricted Cash on the
Consolidated Balance Sheet. For each Operating Partnership unit issued, a share of Series B Preferred Stock (Note 15) was also
issued.
F-14
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the 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
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
468,077
542,277
30,690
572,967
(3,377)
(9,590)
(12,967)
560,000
Acquisition costs
During the year ended December 31, 2011, the Operating Partnership incurred $5.3 million in expenses for the acquisition of
The Mall at Green Hills, The Gardens on El Paseo and El Paseo Village, and Taubman TCBL. Acquisition costs incurred during
2012 were immaterial and none were incurred during 2010.
Dispositions
Discontinued operations for all periods reported in the accompanying Statement of Operations and Comprehensive Income
consist of the financial results of The Pier Shops at Caesars (The Pier Shops) and Regency Square. Total revenues from discontinued
operations were $21.5 million and $28.1 million for the years ended December 31, 2011 and 2010, respectively. The net loss from
discontinued operations, excluding the gains on extinguishment of debt in 2011, during the years ended December 31, 2011 and
2010 was $28.2 million and $20.3 million, respectively.
In November 2011, the mortgage lender for The Pier Shops completed the foreclosure on the property and title to the property
was transferred to the mortgage lender. The Company was 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 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 was 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.
F-15
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. Development
City Creek Center
City Creek Center, a mixed-use project in Salt Lake City, Utah, opened in March 2012. The Company owns the retail space
subject to a long-term participating lease. City Creek Reserve, Inc. (CCRI), an affiliate of the LDS Church, is the participating
lessor and provided all of the construction financing. The Company owns 100% of the leasehold interest in the retail buildings
and property. The Company paid $75 million to CCRI for leasehold improvements upon opening of the retail center in March
2012, which is classified within Additions to Properties on the Consolidated Statement of Cash Flows.
The Mall at University Town Center
The Mall at University Town Center, a 0.9 million square foot center, is under construction in Sarasota, Florida. The Company
is funding its 50% share of the project. The center will be anchored by Saks Fifth Avenue, Macy's, and Dillard's and is expected
to open in October 2014. As of December 31, 2012, the Company has invested $5.9 million in the project.
The Mall of San Juan
The Mall of San Juan, a 0.7 million square foot center, is under construction in San Juan, Puerto Rico. In July 2012, the Company
closed on the purchase of the land and owns 80% of the project. The center will be anchored by Nordstrom and Saks Fifth Avenue
and is expected to open in spring 2015. As of December 31, 2012, the Company has capitalized costs of $46.5 million ($36.8
million at TRG's share).
Taubman Prestige Outlets Chesterfield
Taubman Prestige Outlets Chesterfield, an outlet project in Chesterfield, Missouri, is under construction. The Company has a
90% ownership interest in the project and expects to open the 0.3 million square foot first phase of this project in August 2013.
As of December 31, 2012, the Company has capitalized costs of $47.2 million ($42.6 million at TRG's share).
Asia
Hanam Union Square
In 2011, the Company agreed to partner with Shinsegae Group, South Korea's largest retailer, to build an approximately 1.7
million square foot shopping mall in Hanam, Gyeonggi Province, South Korea. At that time, the Company invested $20.9 million
for an interest in the project, which was classified within Deferred Charges and Other Assets on the Consolidated Balance Sheet
as of December 31, 2011. In 2012, upon completion of due diligence, the Company confirmed its 30% interest in the development
and invested additional funds into the project, which is scheduled to open in 2016. As of December 31, 2012, the Company has
invested $78.8 million in the project, which is classified within Investment in Unconsolidated Joint Ventures on the Consolidated
Balance Sheet.
Retail component of Xi'an Saigao City Plaza
In 2012, the Company entered into a joint venture with Beijing Wangfujing Department Store (Group) Co., Ltd, one of China's
largest department store chains. The joint venture will own a 60% controlling interest in and manage an approximately 1.0 million
foot shopping center to be located at Xi'an Saigao City Plaza, a large-scale mixed-use development in Xi'an, China. Through this
joint venture, the Company will beneficially own a 30% interest in the shopping center, which is scheduled to open in 2015. As
of December 31, 2012, the Company has invested $49.2 million in the project, which is classified within Investment in
Unconsolidated Joint Ventures on the Consolidated Balance Sheet.
Zhengzhou Vancouver Times Square
In 2013, the Company entered into a joint venture with Beijing Wangfujing Department Store (Group) Co., Ltd. The joint venture
will own a majority interest and manage an approximately 1.0 million square foot multi-level shopping center to be located in
Zhengzhou, China. Through this joint venture, the Company will beneficially own a 32% interest in the shopping center, which
is scheduled to open in 2015. As of December 31, 2012, the Company has invested $0.3 million in the project, which is classified
within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.
F-16
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TCBL
In December 2011, the Company acquired a 90% controlling interest in a Beijing-based retail real estate consultancy company
in Mainland China. The new company was named Taubman TCBL and the total consideration for the transaction was $23.7 million.
Taubman Asia paid $11.5 million in cash and credited the noncontrolling owners with $11.9 million of capital in the newly formed
company. Substantially all of the purchase price was allocated to goodwill in Taubman TCBL.
In November 2012, assets of the Taubman TCBL business were sold for $15.5 million. Additionally, the purchase price was
adjusted for certain working capital and other transition costs. The total sale consideration was approximately equal to Taubman's
investment in the business. As part of the sale, the non-controlling owners in Taubman TCBL relinquished the capital that was
credited to them in connection with the Company's 2011 acquisition of Taubman TCBL. In connection with the sale, the Company
received cash of approximately $4.4 million, while the remaining consideration consisted of approximately $3.6 million held in
an escrow account pending receipt of consideration in an equivalent amount of Chinese Renminbi, a note receivable of
approximately $8.5 million, and other receivables of approximately $0.8 million. The cash held in escrow is included within
Deferred Charges and Other Assets on the Consolidated Balance Sheet (Note 7). The note receivable and other receivables are
included within Accounts and Notes Receivable on the Consolidated Balance Sheet (Note 6). Additionally, the Company incurred
a tax liability of $3.2 million, which is included within Income Tax Expense on the Consolidated Statement of Operations and
Comprehensive Income during 2012.
Note 3 -
Income Taxes
Income Tax Expense
The Company’s income tax expense for the years ended December 31, 2012, 2011, and 2010 is as follows:
State current
State deferred
Federal current
Federal deferred
Foreign current
Foreign deferred
2012
2011
2010
$
$
205
(13)
1,011
257
3,324 (1)
180 (1)
$
551
(366)
217
158
50
907
(183)
45
(35)
Total income tax expense
$
4,964
$
610
$
734
(1) The Company recognized $3.2 million of income tax expense related to the sale of Taubman TCBL's assets (Note 2), of which
$2.8 million is included in foreign current tax expense and $0.4 million is included in foreign deferred tax expense.
Net Operating Loss Carryforwards
As of December 31, 2012, the Company has a total federal net operating loss carryforward of $5.7 million, expiring as follows:
Tax Year
2007
2008
2009
2010
2011
$
Expiration
2027
2028
2029
2030
2031
Amount
30
5,245
297
37
44
The Company also has a foreign net operating loss carryforward of $4.4 million, $4.3 million of which has an indefinite
carryforward period and $0.1 million of which expires at various points between 2014 and 2016.
F-17
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Taxes
Deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows:
Deferred tax assets:
Federal
Foreign
State
Total deferred tax assets
Valuation allowances
Net deferred tax assets
Deferred tax liabilities:
Federal
Foreign
State
Total deferred tax liabilities
2012
2011
$
$
$
$
$
3,378
1,090
182
4,650
(991)
3,659
609
401
107
1,117
$
$
$
$
$
3,655
1,196
232
5,083
(1,373)
3,710
623
121
744
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-18
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 2012, 2011, and 2010 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
Return of
capital
Ordinary
income
15% Rate
long term
capital gain
Unrecaptured
Sec. 1250
capital gain
$
1.8500
$
0.5429
$
1.3071
$
0.0000
$
1.7625
1.8659 (1)
0.4455
0.0780
1.3170
1.2732
0.0000
0.5147
0.0000
0.0000
0.0000
Year
2012
2011
2010
(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
1.350
$
2.000
2.000
Dividends per
Series H
Preferred
share declared
1.28672
$
1.90625
1.90625
Dividends per
Series J
Preferred
share declared
0.6184
$
$
$
Ordinary
income
1.3500
2.0000
1.4483
Ordinary
income
1.28672
1.90625
1.38045
$
$
15% Rate
long term
capital gain
Unrecaptured
Sec. 1250
capital gain
$
0.0000
0.0000
0.5517
0.0000
0.0000
0.0000
15% Rate
long term
capital gain
Unrecaptured
Sec. 1250
capital gain
$
0.0000
0.0000
0.5258
0.0000
0.0000
0.0000
Ordinary
income
15% Rate
long term
capital gain
Unrecaptured
Sec. 1250
capital gain
$
0.6184
$
0.0000
$
0.0000
Year
2012
2011
2010
Year
2012
2011
2010
Year
2012
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 $3.7 million and $4.1 million, respectively, in 2011. The Company did not recognize any Michigan Corporate
Income Tax in 2012 based on its estimates of taxable income of the Company's unitary filing group for Michigan tax purposes.
Tax Benefits
During the year ended December 31, 2012, the Company realized a $1.0 million tax benefit as additional paid-in capital relating
to the redemption of certain share-based compensation awards. This benefit represents the amount of reduced Federal income tax
attributed to the tax deduction that exceeds the recognized deferred tax asset relating to the awards, which was based on their
cumulative book compensation cost. This excess tax deduction is due to changes in the fair value of the Company's shares between
the grant date (the measurement date for book purposes) and the exercise date (the measurement date for tax purposes) of the
awards.
F-19
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Uncertain Tax Positions
The Company expects no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within
one year of December 31, 2012. 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, 2012, 2011, and 2010 or in
the Consolidated Balance Sheet as of December 31, 2012 and 2011. As of December 31, 2012, returns for the calendar years 2009
through 2012 remain subject to examination by U.S. and various state and foreign tax jurisdictions.
Note 4 – Properties
Properties at December 31, 2012 and December 31, 2011 are summarized as follows:
Land
2012
2011
$
333,270
$
333,375
Buildings, improvements, and equipment
3,749,180
3,625,400
Construction in process
Development pre-construction costs
Accumulated depreciation and amortization
116,850
46,700
15,479
46,700
$
$
4,246,000
(1,395,876)
2,850,124
$
$
4,020,954
(1,271,943)
2,749,011
Depreciation expense for 2012, 2011, and 2010 was $134.9 million, $127.2 million, and $144.9 million, respectively.
The charge to operations in 2012, 2011, and 2010 for domestic and non-U.S. pre-development activities was $19.8 million,
$23.7 million, and $16.0 million, respectively.
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, 2012 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-20
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 sole direct
or indirect managing general partner or managing member of Fair Oaks, Stamford Town Center, Sunvalley, and Westfarms. The
Operating Partnership also provides certain management, leasing, and/or development services to the other shopping centers.
Shopping Center
Arizona Mills
Fair Oaks
Hanam Union Square (under development)
The Mall at Millenia
Stamford Town Center
Sunvalley
Waterside Shops
Westfarms
Retail component of Xi'an Saigao City Plaza (under development)
Ownership as of
December 31, 2012 and 2011
50%
50
Note 2
50
50
50
50/25 (Note 2)
79
Note 2
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 or terms of the related assets and liabilities.
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.
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. The combined
information of the Unconsolidated Joint Ventures as of December 31, 2012 excludes the balances of Hanam Union Square and
the retail component of Xi'an Saigao City Plaza, which are currently under development (Note 2). Beneficial interest is calculated
based on the Operating Partnership's ownership interest in each of the Unconsolidated Joint Ventures.
F-21
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets:
Properties
Accumulated depreciation and amortization
Cash and cash equivalents
Accounts and notes receivable, less allowance for doubtful accounts of $1,072 and $1,422
in 2012 and 2011
Deferred charges and other assets
Liabilities and accumulated deficiency in assets:
Mortgage 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's investment in projects under development (Note 2)
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
2012
December 31
2011
$
$
1,129,647
(473,101)
656,546
$
$
30,070
26,032
31,282
1,107,314
(446,059)
661,255
22,042
24,628
21,289
$
743,930
$
729,214
$
1,490,857
$
1,138,808
68,282
(470,411)
(344,798)
743,930
$
(470,411) $
128,279
114,136
58,855
(169,141) $
383,293
55,737
(244,758)
(220,573)
729,214
(244,758)
67,282
60,801
(116,675)
192,257
214,152
$
75,582
$
$
$
$
F-22
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues
Year Ended December 31
2012
2011
2010
$ 282,136
$ 266,455
$ 270,391
Maintenance, taxes, utilities, promotion, and other operating expenses
$
91,094
$
84,922
$
90,680
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:
68,760
37,342
61,034
38,389
63,835
37,234
$ 197,196
$ 184,345
$ 191,749
18
162
2
84,958
$
82,272
$
78,644
47,763
$
46,208
$
45,092
2,677
(1,946)
48,494
$
1,802
(1,946)
46,064
$
2,266
(1,946)
45,412
$
$
$
Interest expense
Revenues less maintenance, taxes, utilities, promotion, and other operating expenses $ 107,044
(35,862)
(22,688)
48,494
Equity in income of Unconsolidated Joint Ventures
Depreciation and amortization
$
$ 100,773
(31,607)
(23,102)
46,064
$
$ 100,682
(33,076)
(22,194)
45,412
$
Other
The provision for losses on accounts receivable of the Unconsolidated Joint Ventures was $0.3 million, $0.7 million, and $0.5
million for the years ended December 31, 2012, 2011, and 2010, respectively.
Deferred charges and other assets of $31.3 million at December 31, 2012 were comprised of leasing costs of $28.3 million,
before accumulated amortization of $(15.8) million, net deferred financing costs of $7.0 million, and other net charges of $11.7
million. Deferred charges and other assets of $21.3 million at December 31, 2011 were 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.
The estimated fair value of the Unconsolidated Joint Ventures’ notes payable was $1.5 billion and $1.2 billion at December 31,
2012 and 2011, respectively. The methodology for determining this fair value is consistent with that used for determining the fair
value of consolidated mortgage notes payable (Note 17).
Depreciation expense on properties for 2012, 2011, and 2010 was $31.1 million, $30.3 million, and $32.3 million, respectively.
F-23
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 – Accounts and Notes Receivable
Accounts and notes receivable at December 31, 2012 and December 31, 2011 are summarized as follows:
Trade
Notes
Straight-line rent and recoveries
Less: Allowance for doubtful accounts
2012
2011
$
$
$
33,351
$
9,512
29,594
72,457
(3,424)
69,033
$
$
31,462
6,968
24,863
63,293
(3,303)
59,990
Notes receivable as of December 31, 2012 includes a $8.5 million note related to the sale of Taubman TCBL's assets (Note 2),
which was non-interest bearing in 2012. All of the notes receivable as of December 31, 2012 mature in 2013. The balance of notes
receivable at December 31, 2011 included $5.1 million related to the joint venture partners at Westfarms for their share of litigation
charges that were paid in 2009. In June 2012, the joint venture partners at Westfarms repaid this note upon the refinancing of
Westfarms' debt.
Note 7 – Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 2012 and December 31, 2011 are summarized as follows:
Leasing costs
Accumulated amortization
In-place leases, net (Note 2)
Goodwill (Note 2)
Initial funding of Hanam Union Square development project (Note 2)
Deferred financing costs, net
Insurance deposit (Note 17)
Deposits
Prepaid expenses
Deferred tax asset, net
TCBL disposition escrow (Note 2)
Investments (Note 17)
Other, net
2012
2011
$
$
$
$
36,291
(16,472)
19,819
22,751
13,071
11,291
6,295
5,181
3,659
3,550
2,452
6,913
37,026
(17,259)
19,767
29,632
22,884
20,882
11,200
10,708
1,749
3,923
3,710
2,158
4,827
$
94,982
$
131,440
F-24
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 – Notes Payable
Mortgage notes payable at December 31, 2012 and December 31, 2011 consist of the following:
Beverly Center
$ 310,468
$ 316,724
Cherry Creek Shopping Center
280,000
280,000
2012
2011
Stated Interest
Rate
5.28%
5.24%
Dolphin Mall
El Paseo Village
Fairlane Town Center
Great Lakes Crossing Outlets
International Plaza
MacArthur Center
Northlake Mall
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
Twelve Oaks Mall
Revolving line of credit
Revolving line of credit
250,000
16,698 (2)
290,000
LIBOR + 1.75%
17,059 (2)
4.42%
30,000
LIBOR + 1.75%
60,000
126,036
325,000
130,567
215,500
101,644
85,336 (4)
108,284 (5)
80,222
540,000
200,000
85,000
37,275
129,222
325,000
131,000
215,500
103,615
86,475 (4)
111,801 (5)
81,203
540,000
200,000
5.25%
4.85%
5.41%
6.24%
6.10%
6.89%
6.15%
5.47%
5.44%
LIBOR + 1.75%
LIBOR + 1.40% (6)
LIBOR + 1.00% (6)
6,536
Maturity
Date
02/11/14
06/08/16
01/29/15
12/06/15
01/29/15
03/11/13
12/01/21
02/06/16
06/01/14
06/11/16
12/01/13
07/06/20
12/14/15
05/06/15
01/29/15
04/30/14
Balance Due
on Maturity
$
303,277
Facility
Amount
(1)
(1)
(1)
(6)
280,000
250,000
15,565
60,000
125,507
285,503
117,234
215,500
98,585
81,480
105,045
70,433
540,000
200,000
85,000
37,275
(1)
(1)
(1)
65,000 (6)
LIBOR + 2.35% (3)
09/01/20
$ 2,952,030
$ 2,864,135
(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, 2012 was $255 million. Sublimits may be reallocated quarterly, but not more often than twice a year. The
facility has a one-year extension option.
(2) Balance includes purchase accounting adjustment of $0.2 million and $0.3 million premium in 2012 and 2011, respectively, for an
above market interest rate upon acquisition of the center in December 2011 (Note 2).
(3) Stated interest rate is swapped to an effective rate of 4.99%.
(4) Balance includes purchase accounting adjustment of $3.9 million and $5.0 million premium in 2012 and 2011, respectively, for an
above market interest rate upon acquisition of the center in December 2011 (Note 2).
(5) Balance includes purchase accounting adjustment of $2.0 million and $4.2 million premium in 2012 and 2011, respectively, for an
(6)
above market interest rate upon acquisition of the center in December 2011 (Note 2).
In April 2012, the maturity date on the Company's secondary revolving line of credit was extended through April 2014. The maximum
amount available under this facility increased to $65 million and the rate was increased to LIBOR plus 1.40% from LIBOR plus 1.00%.
The unused borrowing capacity at December 31, 2012 was $23.6 million.
Mortgage notes payable are collateralized by properties with a net book value of $2.3 billion at December 31, 2012.
F-25
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents scheduled principal payments on mortgage notes payable as of December 31, 2012:
2013
2014
2015
2016
2017
Thereafter
Total principal maturities
Net unamortized debt premiums
Total mortgages
$
$
$
243,843 (1)
443,515
1,158,548
585,093
8,585
506,390
2,945,974
6,056
2,952,030
(1)
Includes $126 million that was refinanced in January 2013 (Note 21).
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 3.125%. As of December 31, 2011, the installment notes were secured by restricted cash funded
by borrowings under the Company's revolving lines of credit, which was classified within Restricted Cash on the Consolidated
Balance Sheet.
2013 Maturities
In January 2013, a 10-year, $225 million non-recourse refinancing was completed on Great Lakes Crossing Outlets. The existing
$126 million, 5.25% fixed rate loan was scheduled to mature in March 2013 (Note 21).
The $108.3 million loan on The Mall at Green Hills loan matures in December 2013. The Company expects to pay off the loan
using its revolving line of credit to allow for financial flexibility as it continues to explore expansion opportunities at the center.
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 of its covenants and
loan obligations as of December 31, 2012. The maximum payout ratio on distributions covenant limits the payment of distributions
generally to 95% of funds from operations, as defined in the loan agreements, except as required to maintain the Company's tax
status, pay preferred distributions, and for distributions related to the sale of certain assets.
Payments of principal and interest on the Dolphin Mall, Fairlane Town Center, and Twelve Oaks Mall loans were guaranteed
by the Operating Partnership as of December 31, 2012.
The Company is required to escrow cash balances for specific uses stipulated by certain of its lenders. As of December 31, 2012
and December 31, 2011, the Company’s cash balances restricted for these uses were $6.1 million and $5.9 million, respectively.
Restricted cash at December 31, 2011 included cash funded by the Company's revolving lines of credit that was used to repay the
$281.5 million of installment notes in February 2012 (Note 2).
F-26
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Shopping Center (50%),
International Plaza (49.9%) through acquisition of additional interest in December 2012 (Note 2), The Mall at Wellington Green
(10%), and MacArthur Center (5%).
At 100%
At Beneficial Interest
Consolidated
Subsidiaries
Unconsolidated
Joint Ventures
Consolidated
Subsidiaries
Unconsolidated
Joint Ventures
Debt as of:
December 31, 2012
December 31, 2011
Capitalized interest:
Year Ended December 31, 2012
Year Ended December 31, 2011
Interest expense from continuing operations:
Year Ended December 31, 2012
Year Ended December 31, 2011
$
$
$ 2,952,030
$
1,490,857
$ 2,785,501
$
3,145,602
1,138,808
2,816,877
3,594 (1)
422
67
$
3,487
422
841,363
580,557
33
142,616
122,277
$
68,760
61,034
$
126,031
110,147
$
35,862
31,607
Interest expense from discontinued operations (2) -
Year Ended December 31, 2011
21,247
21,247
(1) The Company capitalizes interest costs incurred in funding its equity contributions to development projects accounted for as UJVs. The capitalized
interest cost is included in the Company's basis in its investment in UJVs. Such capitalized interest reduces interest expense in the Company's
Consolidated Statement of Operations and Comprehensive Income and in the table above is included within Consolidated Subsidiaries.
Includes The Pier Shops and Regency Square (Note 2).
(2)
F-27
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Noncontrolling Interests
Partnership Units Issued in Connection with 2011 Acquisition
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 1.3 million Operating Partnership
units determined based on a value of $55 per unit. These partnership units became eligible to be converted into the Company's
common shares in December 2012 pursuant to the Continuing Offer (Note 15). Prior to that date, the holders had the ability to put
the units back to the Operating Partnership 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 accounted for these Operating Partnership units as a redeemable
noncontrolling interest through December 2012 when they became subject to the Continuing Offer. The carrying value of these
units was $72.7 million at December 31, 2011, which was classified within Redeemable Noncontrolling Interests on the
Consolidated Balance Sheet. Adjustments to the redemption value were recorded through equity. In December 2012, upon the
expiration of the redemption right of these redeemable noncontrolling interests, the carrying value of these units is now classified
within Noncontrolling Interests on the Consolidated Balance Sheet. As of December 31, 2012, of the 1.3 million Operating
Partnership units originally issued as consideration, approximately 0.9 million units were tendered under the Continuing Offer.
Redeemable Noncontrolling Interests
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 owned a 10% residual interest. The noncontrolling ownership interest could be put back to the Company at various dates.
Considering the redemption provisions, the Company accounted 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. In November 2012, upon the
sale of Taubman TCBL's assets (Note 2), the non-controlling owners relinquished the capital that was credited in connection with
the acquisition.
The Company's president of Taubman Asia (the Asia President) has 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 upon specified terminations of
the Asia President’s employment, although such put or call right may not be exercised for specified time periods after certain
termination events. The redemption price for the ownership interest is generally a nominal amount through 2013 and subsequently
50% (increasing to 100% as early as 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, 2012 and December 31, 2011. Any adjustments to the
redemption value are recorded through equity.
The Company owns a 90% controlling interest in a joint venture that is focusing on developing and owning outlet shopping
centers. The amount of capital that the 10% 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. The
Company has the right to purchase the joint venture partner's entire interest and the joint venture partner has 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, 2012 and December 31, 2011. Any adjustments to the redemption value are recorded through equity.
F-28
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of Redeemable Noncontrolling Interests
Balance January 1
Issuance of redeemable noncontrolling interest - TCBL acquisition (Note 2)
Issuance of redeemable noncontrolling interest - shopping center acquisitions (Note 2)
Contributions
Distributions
Allocation of net loss
Allocation of other comprehensive loss
Capital relinquished in connection with TCBL disposition (Note 2)
Transfer to nonredeemable equity
Adjustments of redeemable noncontrolling interests
Balance December 31
Equity Balances of Nonredeemable Noncontrolling Interests
2012
2011
$
84,235
$
231
794
(2,456)
(976)
(49)
(8,855)
(72,035)
(95)
— $
$
—
11,882
72,683
(66)
(739)
(10)
(309)
84,235
The net equity balance of the nonredeemable noncontrolling interests as of December 31, 2012 and December 31, 2011 includes
the following:
Non-redeemable noncontrolling interests:
Noncontrolling interests in consolidated joint ventures
Noncontrolling interests in partnership equity of TRG
Income Allocable to Noncontrolling Interests
2012
2011
$
$
(45,066) $
(44,242)
(89,308) $
(101,872)
(22,452)
(124,324)
Net income attributable to the noncontrolling interests for the years ended December 31, 2012, 2011, and 2010 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 of TRG
TRG Series F preferred distributions
Redeemable noncontrolling interests
2012
2011
2010
$
$
$
14,867
37,752
52,619
(976)
51,643
$
$
$
15,477
80,161
(372)
95,266
(739)
94,527
$
$
$
9,859
26,219
2,460
38,538
(79)
38,459
F-29
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, 2012, 2011, and 2010:
Net income attributable to Taubman Centers, Inc. common shareowners
$
83,511
$
2012
2011
176,701
2010
$
47,599
Transfers (to) from the noncontrolling interest –
Increase (Decrease) in Taubman Centers, Inc.’s paid-in capital for the
adjustments of noncontrolling interest (1)
Decrease in Taubman Centers, Inc.’s paid-in capital related to the
acquisition of additional ownership interest in International Plaza
Net transfers (to) from noncontrolling interests
Change from net income attributable to Taubman Centers, Inc. and transfers
(to) from noncontrolling interests
14,903
(40,561)
(988)
(339,170)
(324,267)
(40,561)
(988)
$
(240,756) $
136,140
$
46,611
(1)
In 2012, 2011, and 2010, 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 in August 2012 and June 2011 (Note 14),
share-based compensation under employee and director benefit plans (Note 13), issuances of stock pursuant to the Continuing Offer
(Note 13), the acquisition of additional ownership interest in International Plaza, issuances of Operating Partnership units in connection
with the acquisition of centers (Note 2), and redemptions of certain redeemable Operating Partnership units (Note 2) .
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, 2012, the Company held a controlling interest in a consolidated entity with a specified
termination date in 2083. The noncontrolling owners’ interest in this entity is to be settled upon termination by distribution or
transfer of either cash or specific assets of the underlying entity. The estimated fair value of this noncontrolling interest was
approximately $361 million at December 31, 2012, compared to a book value of $(46.0) million that is classified in Noncontrolling
Interests in the Company’s Consolidated Balance Sheet. The fair value of the noncontrolling interest was calculated as the
noncontrolling interest's ownership shares of the underlying property's fair value. The property's fair value was estimated by
considering its in-place net operating income, current market capitalization rate, and mortgage debt outstanding.
F-30
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
As of December 31, 2012, 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 (2)
Receive variable (LIBOR) /
pay-fixed swap (2)
95.0% $ 130,567
2.64%
2.35%
4.99% September 2020
50.0%
137,500
2.40%
50.0%
137,500
2.40%
1.70%
1.70%
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.
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, if any, 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 $6.8 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, 2012, the Company had $0.6 million of net realized losses included in AOCI resulting from a settled
derivative instrument, which was designated as a cash flow hedge that is being recognized as a reduction of income over the term
of the hedged debt.
F-31
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, 2012, 2011, and 2010. 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, 2012, 2011, and 2010 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)
2012
2011
2010
Location of Gain or
(Loss) Reclassified from
AOCI into Income
(Effective Portion)
Amount of Gain or (Loss)
Reclassified from AOCI into
Income (Effective Portion)
2012
2011
2010
$ (2,821) $(13,609) $ 15,351
Interest Expense
$ (3,190) $ (3,488) $(12,876)
(1,976)
(7,081)
2,494 Equity in Income of UJVs
(3,600)
(2,788)
(3,945)
$ (4,797) $(20,690) $ 17,845
$ (6,790) $ (6,276) $(16,821)
Interest Expense
$
(605) $
(839) $
(886)
Equity in Income of UJVs
(188)
(376)
(376)
$
(793) $ (1,215) $ (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, 2012 and 2011.
Consolidated Balance Sheet Location
Fair Value
December 31
2012
December 31
2011
Derivatives designated as hedging instruments:
Liability derivatives:
Interest rate contract – consolidated
subsidiaries
Accounts Payable and Accrued Liabilities
Interest rate contracts – UJVs
Investment in UJVs
Total liabilities designated as hedging
instruments
$
$
(11,865) $
(11,021)
(9,044)
(9,045)
(22,886) $
(18,089)
F-32
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contingent Features
All 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, 2012, 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, 2012 and 2011, the fair value of derivative instruments with credit-risk-related contingent features that are
in a liability position was $22.9 million and $18.1 million, respectively. As of December 31, 2012 and 2011, 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, 2012 for operating centers assuming no new or renegotiated leases or option extensions on anchor
agreements, is summarized as follows:
2013
2014
2015
2016
2017
Thereafter
$
385,251
355,941
320,254
283,431
241,726
781,082
Certain shopping centers, as lessees, have ground and building leases expiring at various dates through the year 2107. In addition,
one center has the option to extend the lease term for five 10-year periods and another center has an option to extend the term for
three 10-year periods. Ground rent expense is recognized on a straight-line basis over the lease terms.
The Company also leases its office facilities and certain equipment. Office facility and equipment leases expire at various dates
through the year 2018. Additionally, one of the leases has a 1-year extension option and one lease has a 5-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 $12.0 million in 2012, $9.8 million in 2011, and $10.2 million
in 2010. Included in these amounts are related party office rental expense of $2.2 million in 2012 through 2010. Contingent rent
expense under operating leases was $0.9 million in 2012. Payables representing straight-line rent adjustments under lease
agreements were $40.0 million and $38.8 million as of December 31, 2012 and 2011, respectively.
The following is a schedule of future minimum rental payments required under operating leases:
2013
2014
2015
2016
2017
Thereafter
$
12,306
11,111
7,731
7,028
6,963
390,225
The table above includes $2.8 million in both 2013 and 2014 and $0.7 million in 2015 of related party amounts.
F-33
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
City Creek Center, a mixed-use project in Salt Lake City, Utah, opened in March 2012. The Company owns the retail space
subject to a long-term participating lease. City Creek Reserve, Inc. (CCRI), an affiliate of the LDS Church is the participating
lessor. The Company owns 100% of the leasehold interest in the retail buildings and property. CCRI has an option to purchase
the Company’s interest at fair value at various points in time over the term of the lease. In addition to the minimum rent included
in the table above, the Company pays contingent rent based on the performance of the center.
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 $3.2 million, $2.3 million, and $2.1 million in 2012, 2011, and 2010,
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.
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 and non-employee directors' stock grant and deferred compensation plans.
The compensation cost charged to income for the Company’s share-based compensation plans was $11.9 million, $9.0 million,
and $7.7 million for the years ended December 31, 2012, 2011, and 2010, respectively. Compensation cost capitalized as part of
properties and deferred leasing costs was $1.1 million for the year ended December 31, 2012 and $0.3 million for both years ended
December 31, 2011 and 2010.
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 generally low turnover rate.
F-34
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
A summary of option activity for the years ended December 31, 2012, 2011, and 2010 is presented below:
Outstanding at January 1, 2010
Exercised
Outstanding at December 31, 2010
Exercised
Outstanding at December 31, 2011
Exercised
Outstanding at December 31, 2012
Number of
Options
Weighted Average
Exercise Price
1,629,609
(176,828)
1,452,781
(130,791)
1,321,990
(632,188)
689,802
$
$
$
$
35.24
20.75
37.00
35.66
37.13
31.28
42.50
Weighted Average
Remaining
Contractual Term
(in years)
Range of Exercise
Prices
6.8
$ 13.83 - $ 55.90
5.7
$ 13.83 - $ 55.90
4.8
$ 13.83 - $ 55.90
3.8
$ 24.74 - $ 55.90
Fully vested options at December 31, 2012
689,802
$
42.50
3.8
There were 0.2 million options that vested during the year ended December 31, 2012. As of December 31, 2012, all options
outstanding were fully vested and there was no unrecognized compensation cost related to options.
Of the 0.7 million total options outstanding, 0.6 million had vesting schedules with one-third vesting at each of the first, second,
and third years of the grant anniversary. Substantially all of the other 0.1 million options outstanding had vesting schedules with
one-third vesting at each of the third, fifth, and seventh years of the grant anniversary.
The aggregate intrinsic value (the difference between the period end stock price and the option exercise price) of in-the-money
options outstanding was $25.0 million as of December 31, 2012.
The total intrinsic value of options exercised during the years ended December 31, 2012, 2011, and 2010 was $28.7 million,
$3.3 million, and $4.0 million, respectively. Cash received from option exercises for the years ended December 31, 2012, 2011,
and 2010 was $19.8 million, $4.7 million, and $3.7 million, respectively.
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-35
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Performance Share Units
In 2012, 2011, and 2010 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 2015, March 2014, and March 2013
for the 2012, 2011, and 2010 grants, respectively, if continuous service has been provided, or upon retirement or certain other
events (such as death or disability) if earlier. No dividends accumulate during the vesting period.
The Company estimated the value of the PSU granted in 2012, 2011, and 2010 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, and risk-free interest rates and measurement periods existing
at the grant dates. Specific assumptions and the valuation results are shown below.
Risk-free interest rate
Measurement period
Weighted average grant-date fair value
2012
0.35% to 0.45%
3 years
$107.45
Grant Dates
2011
1.18%
3 years
$85.40
2010
1.1%
2.78 years
$63.54
In 2012, the Company also granted additional PSU under the 2008 Omnibus Plan that represents the right to receive, upon
vesting, shares of the Company’s common stock ranging from 0-400% of the PSU based on the Company’s market performance
relative to that of a peer group. The units vest in March 2017, if continuous service has been provided, or upon certain other events
(such as death or disability) if earlier. No dividends accumulate during the vesting period. The Company estimated the value of
these PSU granted 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 0.70% to 0.90%, and a measurement period of five years. The resulting weighted average grant-date
fair value was $189.23 per PSU.
A summary of PSU activity for the years ended December 31, 2012, 2011, and 2010 is presented below:
Outstanding at January 1, 2010
Granted
Outstanding at December 31, 2010
Granted
Outstanding at December 31, 2011
Vested
Granted (three-year vesting)
Granted (five-year vesting)
Forfeited
Outstanding at December 31, 2012
Number of
Performance
Stock Units
Weighted Average
Grant Date Fair
Value
196,943
75,413
272,356
53,795
326,151
(196,943) (1)
50,041
108,224
(24,733)
262,740
$
$
$
$
15.60
63.54
28.88
85.40
38.20
15.60
107.45
189.23
123.41
122.52
(1) Based on the Company's market performance relative to that of a peer group, the actual number of shares of common stock issued upon vesting
during the year ended December 31, 2012 equaled 240% of the number of PSU awards vested in the table above.
The total intrinsic value of PSU vested during the year ended December 31, 2012 was $32.8 million. No PSU vested during
the years ended December 31, 2011 and 2010.
None of the PSU outstanding at December 31, 2012 were vested. As of December 31, 2012, there was $20.9 million of total
unrecognized compensation cost related to nonvested PSU outstanding. This cost is expected to be recognized over an average
period of 3.6 years.
F-36
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Share Units
In 2012, 2011, and 2010, restricted share units (RSU) were issued under the 2008 Omnibus Plan and represent the right to receive
upon vesting one share of the Company’s common stock. The vesting date is March 2015, March 2014, and March 2013 for the
2012, 2011, and 2010 grants, respectively, if continuous service has been provided through that period, or upon retirement or
certain other events if earlier. No dividends accumulate during the vesting period.
The Company estimated the values of the RSU granted in 2012 using the Company’s common stock at the grant dates deducting
the present value of expected dividends during the vesting period using a risk-free rate of 0.35% to 0.50%. The result of the
Company’s valuations was a weighted average grant-date fair value of $65.14 per RSU granted during 2012. 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 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%.
The result of the Company's valuation was a weighted average grant-date fair value of $35.37 for 2010.
A summary of RSU activity for the years ended December 31, 2012, 2011, and 2010 is presented below:
Number of
Restricted Stock
Units
Weighted average
Grant Date Fair
Value
Outstanding at January 1, 2010
567,110
$
Granted
Forfeited
Vested
Outstanding at December 31, 2010
Granted March 2011
Granted June 2011
Forfeited
Vested
Outstanding at December 31, 2011
Granted
Forfeited
Vested
Outstanding at December 31, 2012
144,588
(2,057)
(91,757)
617,884
105,391
1,972
(3,450)
(115,870)
605,927
107,653
(26,665)
(364,610)
322,305
$
$
$
24.92
35.37
56.44
14.71
22.72
47.98
53.65
22.19
49.67
22.06
65.14
46.48
9.90
48.19
Based on an analysis of historical employee turnover, the Company has made an annual forfeiture assumption of approximately
2% of grants when recognizing compensation costs relating to the RSU.
The total intrinsic value of RSU vested during the years ended December 31, 2012, 2011, and 2010 was $25.2 million, $6.4
million, and $3.6 million, respectively.
None of the RSU outstanding at December 31, 2012 were vested. As of December 31, 2012, there was $6.1 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.
F-37
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-Employee Directors’ Stock Grant and Deferred Compensation
The 2008 Omnibus Plan provides a quarterly 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. The
annual fair market value of the grant was $70,000 in 2012 and 2011, and $50,000 in 2010. As of December 31, 2012, 6,101 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 79,877 restricted stock units outstanding
under the DCP at December 31, 2012.
Other Employee Plans
As of December 31, 2012 and 2011, the Company had fully vested awards outstanding for 10,243 and 19,161 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 relating to this plan for each of the years ended December 31, 2012, 2011 and 2010, respectively. $0.7 million
was paid out under this plan during 2012. No awards under this plan were paid out during 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 $3.0 million in 2012, $2.9
million in 2011, and $2.7 million in 2010.
Note 14 – Common and Preferred Stock and Equity of TRG
Common Stock
In August 2012 and June 2011, the Company sold 2,875,000 and 2,012,500 of its common shares, respectively. 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 $208.9 million and $112 million in 2012 and 2011,
respectively, to reduce outstanding borrowings under its revolving 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, 2012, 2011, and 2010, 1,132,359 shares,
1,092,690 shares, and 126,109 shares of Series B Preferred Stock, respectively, were converted to 65 shares, 76 shares, and 7 shares
of the Company’s common stock, respectively, as a result of tenders of units under the Continuing Offer (Note 15).
F-38
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In September 2012, the Company redeemed the 8% Series G Cumulative Redeemable Preferred Stock (Series G Preferred Stock)
and 7.625% Series H Cumulative Redeemable Preferred Stock (Series H Preferred Stock) at prices per share of $25.35 and
$25.33359375, respectively, which include accrued and unpaid dividends. The Company previously had 4,000,000 shares (par
value $100 million) of its Series G Preferred Stock outstanding and 3,480,000 shares (par value $87 million) of its Series H
Preferred Stock outstanding. As a result of the redemptions in 2012, the Company recognized charges of $3.3 million and $3.1
million, representing the difference between the carrying values and the redemption prices of its Series G Preferred Stock and
Series H Preferred Stock, respectively. These charges are included within Preferred Stock Dividends on the Consolidated Statement
of Operations and Comprehensive Income for the year ended December 31, 2012. The Series G Preferred Stock had no stated
maturity, sinking fund, or mandatory redemption requirements. Dividends were cumulative and payable on the last day of each
calendar quarter. The Series H Preferred Stock had no stated maturity, sinking fund, or mandatory redemption requirements.
Dividends were cumulative and payable in arrears on or before the last day of each calendar quarter.
The Series G Preferred Stock and Series H Preferred Stock were redeemed with the net proceeds of $186.2 million from the
issuance of 7,700,000 shares of 6.5% Series J Cumulative Redeemable Preferred Stock (Series J Preferred Stock) in August 2012.
Offering costs of $6.3 million were incurred in connection with this issuance. The Series J Preferred Stock has no stated maturity,
sinking fund, or mandatory redemption requirements and generally is not convertible into any other security of the Company. The
Series J Preferred Stock has a liquidation preference of $192.5 million ($25 per share). Dividends are cumulative and are paid on
the last business day of each calendar quarter. All accrued dividends have been paid. The Series J Preferred Stock will be redeemable
by the Company at par, $25 per share, plus accrued dividends, generally beginning in August 2017. The Company owns
corresponding Series J 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 J Preferred Stock. The
Series J Preferred Stock is generally non-voting.
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.
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, 2012 of $78.72 per common share, the aggregate value of interests in the Operating
Partnership that may be tendered under the Cash Tender Agreement was $1.9 billion. The purchase of these interests at December 31,
2012 would have resulted in the Company owning an additional 27% interest in the Operating Partnership.
F-39
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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). 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.
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.
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.
F-40
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16 - Earnings Per Share
Basic earnings per share amounts are based on the weighted average of common shares outstanding for the respective periods.
Diluted earnings per share amounts are based on the weighted average of common shares outstanding plus the dilutive effect of
potential common stock. Potential common stock includes outstanding partnership units exchangeable for common shares under
the Continuing Offer (Note 15), outstanding options for 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.
Net income 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 per common share – basic
Year Ended December 31
2012
2011
2010
$
$
$
$
83,511
$
75,011
$
101,690
83,511
$
176,701
$
61,284
(13,685)
47,599
59,884,455
56,899,966
54,569,618
1.39
$
1.39
$
1.32
1.79
3.11
$
$
1.12
(0.25)
0.87
F-41
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net income 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
$
$
Year Ended December 31
2012
2011
2010
83,511
$
75,011
$
61,284
672
625
84,183
$
75,636
$
101,690
296
428
61,712
(13,685)
(91)
47,936
Diluted
$
84,183
$
177,622
$
Shares – basic
Effect of dilutive securities
Shares (Denominator) – diluted
59,884,455
56,899,966
54,569,618
1,491,989
1,629,123
1,133,195
61,376,444
58,529,089
55,702,813
Earnings per common share from continuing operations
Income (loss) from discontinued operations
Earnings per common share – diluted
$
$
1.37
$
1.37
$
1.29
1.74
3.03
$
$
1.11
(0.25)
0.86
The calculation of diluted earnings per share excluded certain potential common stock including outstanding partnership units,
unissued partnership units under a unit option deferral election, and out-of-the-money options, all of which may be exchanged for
common shares of the Company under the Continuing Offer. The table below presents the potential common stock excluded from
the calculation of diluted earnings per share as they were anti-dilutive in the period presented.
Weighted average partnership units outstanding
Unissued partnership units under unit option deferral
elections
Out-of-the-money options
Year Ended December 31
2012
2011
2010
5,063,736
7,449,132
8,565,622
871,262
871,262
60,469
871,262
515,449
F-42
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each major
category of assets and liabilities is presented below:
Description
Available-for-sale securities
Insurance deposit
Total assets
Fair Value Measurements as of
December 31, 2012 Using
Fair Value Measurements as of
December 31, 2011 Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
$
$
2,452
11,291
13,743
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
$
$
2,158
10,708
12,866
Significant
Other
Observable
Inputs
(Level 2)
Derivative interest rate contract (Note 10)
Total liabilities
$
$
(11,865)
(11,865)
$
$
(9,044)
(9,044)
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 on the Consolidated
Balance Sheet. The corresponding deferred revenue relating to amounts billed to tenants for this arrangement has been classified
within Accounts Payable and Other Liabilities on the Consolidated Balance Sheet.
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 on the Consolidated Balance Sheet. In January 2013, this security was sold, resulting in a $1.3 million
realized gain that will be recognized in the first quarter 2013.
F-43
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, 2012 and 2011, the book value of the infrastructure assets and improvements, net of depreciation,
was $39.8 million and $41.6 million, respectively. The related obligation is classified within Accounts Payable and Accrued
Liabilities on the Consolidated Balance Sheet and had a balance of $60.8 million and $61.8 million at December 31, 2012 and
2011, respectively. The fair value of this obligation, derived from quoted market prices and therefore falling into Level 1 of the
fair value hierarchy, was $60.9 million at December 31, 2012 and $58.2 million at December 31, 2011.
Notes Payable
The fair value of notes payable are estimated using cash flows discounted at current market rates and therefore fall into Level
2 of the fair value hierarchy. When selecting discount rates for purposes of estimating the fair value of notes payable at December 31,
2012 and 2011, the Company employed the credit spreads at which the debt was originally issued. Excluding 2010 through 2012
refinancings and debt assumed as part of the 2011 acquisitions, an additional 1.50% credit spread was added to the discount rate
at December 31, 2012 and December 31, 2011, 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, 2012 or 2011. To further assist financial statement users, the Company has included with its fair value
disclosures an analysis of interest rate sensitivity.
The estimated fair values of notes payable at December 31, 2012 and 2011 are as follows:
Notes payable
$
2,952,030
$
3,082,265
$
3,145,602
$
3,299,243
2012
2011
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, 2012
by $73.9 million or 2.4%.
Cash Equivalents and Notes Receivable
The fair value of cash equivalents and notes receivable approximates their carrying value due to their short maturity. The fair
value of cash equivalents is derived from quoted market prices and therefore falls into Level 1 of the fair value hierarchy. The
fair value of notes receivable are estimated using cash flows discounted at current market rates and therefore fall into Level 2 of
the fair value hierarchy.
See Note 5 regarding the fair value of the Unconsolidated Joint Ventures’ notes payable, and Note 10 regarding additional
information on derivatives.
F-44
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 – Cash Flow Disclosures and Non-Cash Investing and Financing Activities
Interest paid in 2012, 2011, and 2010, net of amounts capitalized of $3.6 million, $0.4 million, and $0.3 million, respectively,
was $142.0 million, $117.2 million, and $134.6 million, respectively. Income taxes paid in 2012, 2011, and 2010 were immaterial.
The following non-cash investing and financing activities occurred during 2012, 2011, and 2010. This table excludes any non-
cash adjustments of noncontrolling interests as a result of equity transactions (Note 9).
Issuance of note and other receivable in connection with the sale of Taubman
TCBL's assets (Note 2)
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)
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)
Issuance of redeemable equity in connection with acquisition of Taubman
TCBL (Note 2)
Receipt of escrow in connection with the sale of Taubman TCBL (Note 2)
Relinquishment of redeemable equity in connection with disposition of
Taubman 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
2012
2011
2010
$
9,353
$
72,683
215,439
281,467
11,882
3,550
8,855
19,952
63,941
29,803
$
28,678
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, Taubman TCBL, and an additional interest in International Plaza, as well as the disposition of Taubman TCBL.
(Note 2).
F-45
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19 – Accumulated Other Comprehensive Income
Changes in the balance of each component of Accumulated Other Comprehensive Income (AOCI) for the year ended December
31, 2012 are as follows:
Taubman Centers, Inc. AOCI
Noncontrolling Interests AOCI
Cumulative
translation
adjustment
Unrealized gains
(losses) on interest
rate instruments
and other
Total
Cumulative
translation
adjustment
Unrealized gains
(losses) on interest
rate instruments
and other
Total
1,888
1,888
(27,613)
(27,613)
(2,551)
6,212
(663)
6,212
(23,952)
(22,064)
756
756
9,113
9,113
(1,162)
(6,212)
1,739
(406)
(6,212)
2,495
January 1, 2012
Current Period Other
Comprehensive Income
Other Adjustments
December 31, 2012
Changes in the balance of each component of AOCI for the year ended December 31, 2011 are as follows:
Taubman Centers, Inc. AOCI
Noncontrolling Interests AOCI
Cumulative
translation
adjustment
Unrealized gains
(losses) on interest
rate instruments
and other
Total
Cumulative
translation
adjustment
Unrealized gains
(losses) on interest
rate instruments
and other
Total
(14,925)
(14,925)
15,802
15,802
(13,137)
(13,137)
449
449
(27,613)
(27,613)
(6,240)
(449)
9,113
(6,240)
(449)
9,113
January 1, 2011
Current Period Other
Comprehensive Income
Other Adjustments
December 31, 2011
Changes in the balance of each component of AOCI for the year ended December 31, 2010 are as follows:
Taubman Centers, Inc. AOCI
Noncontrolling Interests AOCI
Cumulative
translation
adjustment
Unrealized gains
(losses) on interest
rate instruments
and other
Total
Cumulative
translation
adjustment
Unrealized gains
(losses) on interest
rate instruments
and other
Total
(24,443)
(24,443)
9,469
49
9,469
49
(14,925)
(14,925)
5,820
5,820
10,031
10,031
(49)
(49)
15,802
15,802
January 1, 2010
Current Period Other
Comprehensive Income
Other Adjustments
December 31, 2010
F-46
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20 – Quarterly Financial Data (Unaudited)
The following is a summary of quarterly results of operations for 2012 and 2011:
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
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)
2012
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
169,264
11,901
32,177
17,531
0.30
0.30
0.30
0.30
$
$
$
$
$
179,465
11,170
31,448
16,373
0.28
0.28
0.27
0.27
$
$
$
$
$
189,539
12,672
45,061
21,700
0.36
0.36
0.35
0.35
$
$
$
$
$
209,706
12,751
49,131
27,907
0.45
0.45
0.44
0.44
2011
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
149,634
$
149,407
$
158,555
$
187,322
10,146
24,444
10,716
10,886
20,290
8,344
10,958
21,868
8,461
$
$
$
$
0.27
0.19
0.26
0.19
$
$
$
$
0.23
0.15
0.23
0.15
$
$
$
$
0.29
0.15
0.28
0.14
$
$
$
$
14,074
220,796
149,180
0.53
2.58
0.52
2.50
(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).
Note 21 – Subsequent Events
Great Lakes Crossing Outlets
In January 2013, a 10-year, $225 million non-recourse refinancing was completed on Great Lakes Crossing Outlets. The payments
on the loan, which bears interest at an all-in rate of 3.63%, are based on amortizing principal over 30 years. The existing $126
million, 5.25% fixed rate loan, which was scheduled to mature in March 2013, was paid off and the approximately $100 million
of excess proceeds were used to pay down the revolving lines of credit.
F-47
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 2012, 2011, and 2010
(in thousands)
Additions
Balance at
beginning
of year
Charged to
costs and
expenses
Charged to
other
accounts
Write-offs
Transfers,
net
Year Ended December 31, 2012
Allowance for doubtful receivables
$3,303
$1,397
$(1,276)
Year Ended December 31, 2011
Schedule II
Balance at
end of
year
$3,424
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
$(2,291)
$7,966
(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-48
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F
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 25, 2013
By:
TAUBMAN CENTERS, INC.
/s/ Robert S. Taubman
Robert S. Taubman, Chairman of the Board, President, and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Robert S. Taubman
Robert S. Taubman
/s/ Lisa A. Payne
Lisa A. Payne
/s/ William S. Taubman
William S. Taubman
/s/ Esther R. Blum
Esther R. Blum
/s/ Graham Allison
Graham Allison
/s/ Jerome A. Chazen
Jerome A. Chazen
/s/ Craig M. Hatkoff
Craig M. Hatkoff
/s/ Peter Karmanos, Jr.
Peter Karmanos, Jr.
/s/ William U. Parfet
William U. Parfet
/s/ Ronald W. Tysoe
Ronald W. Tysoe
Chairman of the Board, President,
Chief Executive Officer, and Director
(Principal Executive Officer)
February 25, 2013
Vice Chairman, Chief Financial
Officer, and Director (Principal Financial Officer)
February 25, 2013
Chief Operating Officer,
and Director
Senior Vice President, Controller, and
Chief Accounting Officer
Director
Director
Director
Director
Director
Director
February 25, 2013
February 25, 2013
February 25, 2013
February 25, 2013
February 25, 2013
February 25, 2013
February 25, 2013
February 25, 2013
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
2012
2011
2010
2009
2008
Earnings from continuing operations before income from
equity investees and taxes (1) (2)
$ 114,287
$
95,945
$
77,928
$
94,632
$ (26,965)
Add back:
Fixed charges
Amortization of previously capitalized interest
Distributed income of Unconsolidated Joint Ventures (3)
152,517
127,128
139,410
139,854
148,738
4,427
48,494
4,401
46,064
4,411
45,412
4,443
11,488
4,460
35,356
Deduct:
Capitalized interest
Preferred distributions (4)
(3,594)
(422)
372
(319)
(2,460)
(1,257)
(2,460)
(7,972)
(2,460)
Earnings available for fixed charges and preferred
dividends
$ 316,131
$ 273,488
$ 264,382
$ 246,700
$ 151,157
Fixed charges:
Interest expense
Capitalized interest
Interest portion of rent expense
Preferred distributions (4)
$ 142,616
$ 122,277
$ 132,362
$ 131,558
$ 133,455
3,594
6,307
422
4,801
(372)
319
4,269
2,460
1,257
4,579
2,460
7,972
4,851
2,460
Total fixed charges
$ 152,517
$ 127,128
$ 139,410
$ 139,854
$ 148,738
Preferred dividends (5)
21,051
14,634
14,634
14,634
14,634
Total fixed charges and preferred dividends
$ 173,568
$ 141,762
$ 154,044
$ 154,488
$ 163,372
Ratio of earnings to fixed charges and preferred dividends (1)
1.8
1.9
1.7
1.6
0.9
(6)
(1) In 2011, the Company disposed of The Pier Shops at Caesars and Regency Square. These centers are reported separately as discontinued operations in the Consolidated
Financial Statements in 2011. See "Note 2- Acquisitions, Dispositions, and Development" 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) In September 2012, the Company redeemed its 8% Series G Preferred Stock and its 7.625% Series H Preferred Stock. As a result of these redemptions, the Company
recognized a charge of $6.4 million, which represents the difference between the carrying values and the redemption prices of the Series G & H Preferred Stock. This charge
is included in preferred dividends for the year ended December 31, 2012.
(6) 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 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 25, 2013
/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 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 25, 2013
/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 for the year ended December 31, 2012 (the "Report"):
(i)
(ii)
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant.
/s/ Robert S. Taubman
Robert S. Taubman
Chairman of the Board of Directors, President, and Chief
Executive Officer
Date: February 25, 2013
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 for the year ended December 31, 2012 (the "Report"):
(i)
(ii)
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant.
/s/ Lisa A. Payne
Lisa A. Payne
Vice Chairman, Chief Financial Officer, and Director
(Principal Financial Officer)
Date: February 25, 2013
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PAGE INTENTIONALLY LEFT BLANK
Notes and Reconciliations for Graphs (pages 7 and 19)
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
Series G and H Preferred Stock redemption charges
Early extinguishment of debt on The Mall at Millenia
PRC taxes on sale of Taubman TCBL assets
Adjusted Funds from Operations
Adjusted Funds from Operations allocable to TCO
Adjusted Funds from Operations per share
35.5
144.5
87.3
$ 1.70
144.5
24.8
2003
21.2
(49.6)
137.4
2004
(5.1)
(0.3)
139.8
2005
44.1
(52.8)
150.3
2006
21.4
2007
48.5
147.3
141.0
35.7
170.1
103.1
$ 2.07
36.0
177.7
110.6
$ 2.17
41.8
210.4
136.7
$ 2.56
45.6
235.1
155.4
$ 2.88
170.1
(1.0)
5.7
2.7
177.7
210.4
235.1
3.1
12.7
193.5
120.5
$ 2.36
4.7
3.1
218.2
141.7
$ 2.65
235.1
155.4
$ 2.88
169.4
102.4
$ 2.00
177.5
107.5
$ 2.16
2008
(86.7)
160.8
154.8
54.1
122.2
81.3
$ 1.51
122.2
126.3
2009
(69.7)
2010
47.6
2011
176.7
2012
83.5
154.4
161.8
152.3
159.8
(29.7)
215.8
144.2
$ 2.66
27.9
237.3
160.1
$ 2.86
82.1
411.1
285.4
$ 4.86
41.3
284.7
197.7
$ 3.21
215.8
237.3
411.1
284.7
30.4
2.5
5.3
(2.2)
(174.2)
248.5
165.5
$ 3.08
248.7
166.3
$ 3.06
237.3
160.1
$ 2.86
240.0
166.9
$ 2.84
6.4
1.6
3.2
295.8
205.4
$ 3.34
(1) Refer to the Form 10-K for a definition of FFO and the Company’s uses of the measure. The Company presents adjusted versions of FFO when used by management to evaluate operating
performance when certain significant items have impacted results that affect comparability with prior or future periods due to the nature or amounts of these items. The Company
believes the disclosure of the adjusted items is similarly useful to investors and others to understand management’s view on comparability of such measures between periods.
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 non-comparable centers. Excludes The Pier Shops and Regency Square in 2011, 2010, and 2009. 2008 excludes The Pier Shops.
Added value centers beginning 2004.
Taubman Centers, Inc.
Of ficers and Directors
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 Assistant Secretary of Taubman
Centers, Inc.
(7) Also serves as Treasurer of Taubman Centers, Inc.
(8) Also serves as a member of the Operating
Committee
TAUBMAN CENTE RS, I NC .
BOA RD OF DIRE CTORS
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
Fifth & Pacific Companies Inc.
(f.k.a 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)
Former 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 ING 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
C H R I S B . H E A P H Y (6)
Senior Vice President
General Counsel and Secretary
D AV I D S . J O S E P H I I
Senior Vice President
Leasing
S T E P H E N J . K I E R A S
Senior Vice President
Development
S I M O N J . L E O P O L D (7)
Senior Vice President
Capital Markets and Treasurer
Shareowner Infor mation
CORPORATE HEADQUARTE RS
Taubman Centers, Inc.
200 East Long Lake Road
Bloomfield Hills, MI 48304-2324
248.258.6800
TAUBMA N A SIA
Taubman Asia Management Limited
Suite 1308, 13/F, Two Pacific Place
88 Queensway Admiralty, Hong Kong
852.3607.1333
USE OF TAUB MA N
For ease of use, references in this report to
“Taubman Centers,” “company,” “Taub-
man” or an operating platform mean
Taubman Centers, Inc. and/or one or more
of a number of separate, affiliated entities.
Business is actually conducted by an affiliat-
ed entity rather than Taubman Centers, Inc.
itself or the named operating platform.
QUA RT ERLY SHARE PRIC E AND
DI VI DEND INFORMATION
The common stock of Taubman Centers, Inc.
is listed and traded on the New York Stock
Exchange (Symbol TCO). The following
table represents the dividends and range of
share prices for each quarter of 2012:
MARKET QUOTATIONS
2012 QUARTER ENDED
HIGH
LOW
DIVIDENDS
March 31
June 30
September 30
December 31
$ 72.95 $ 62.03 $ 0.4625
0.4625
70.71
0.4625
75.17
0.4625
74.61
78.79
81.34
80.42
INDEPENDENT REGISTE RE D PUB LI C
A CC OUNTING FIRM
KPMG LLP
Chicago, Illinois
SHA REOWNER INQUIRIES
Barbara K. Baker
Vice President
Corporate Affairs & Investor Relations
Taubman
200 East Long Lake Road
Bloomfield Hills, Michigan 48304-2324
248.258.7367
bbaker@taubman.com
OUR WEBSITE :
www.taubman.com
Investor information on our website includes
press releases, supplemental investor infor-
mation, corporate governance information,
our Code of Business Conduct and Ethics,
SEC filings, and webcasts of quarterly
earnings conference calls.
CONFI DENTIAL HOTLINES
AND WEBSIT ES:
U.S.: 888.773.2513
Hong Kong: 800.96.4633
South 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
Independently operated, confidential hot-
lines and websites to be used to report con-
cerns regarding possible accounting, internal
accounting control or auditing matters, or
fraudulent acts and/or illegal activities
involving our Company which may com-
promise our ethical standards. Other means
of reporting concerns are identified in our
Code of Business Conduct and Ethics
located in the Investing/ Corporate Gover-
nance section of our Company’s website.
DIVIDEND REINVE STMENT &
DIRE CT STOCK PURCHASE PLAN
The Dividend Reinvestment and Direct
Stock Purchase Plan – sponsored and
administrated by Computershare – provides
owners of common stock a convenient way
to reinvest dividends and purchase addition-
al 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 Computershare Shareowner
Services website:
www.computershare.com/investor (Once
on the website click “Buy stock direct” and
follow the subsequent instructions). For
questions about this plan or your account,
or for a brochure and enrollment form,
call: 1.888.877.2889
PUBLICAT IONS
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 2013
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.
ANNUA L MEET ING
The 2013 Taubman Centers, Inc. Annual
Meeting will be held on Wednesday, May 29
at The Townsend Hotel in Birmingham,
Michigan. The meeting will begin at 11:00
a.m. Eastern Time.
TRANSF ER A GENT A ND RE GISTRAR
Shareholder correspondence can be
mailed to:
Computershare
P.O. Box 43006
Providence, RI 02940-3006
computershare.com/investor/Contact
Overnight correspondence can be mailed to:
Computershare
250 Royall Street
Canton, MA 02021
S
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Taubman Centers, Inc.
200 East Long Lake Road
Bloomfield Hills, Michigan 48304-2324
www.taubman.com