UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2006.
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from ___________________ to _________________
		Commission File Number 1-11530
TAUBMAN CENTERS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Michigan			38-2033632
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification No.)
200 East Long Lake Road
Suite 300, P.O. Box 200
Bloomfield Hills, Michigan			48303-0200
(Address of principal executive office)			(Zip Code)
Registrant's telephone number, including area code:			(248) 258-6800
Securities registered pursuant to Section 12(b) of the Act:
			Name of each exchange
Title of each class			on which registered
Common Stock,			New York Stock Exchange
$0.01 Par Value
8% Series G Cumulative			New York Stock Exchange
Redeemable Preferred Stock,
No Par Value
7.625% Series H Cumulative			New York Stock Exchange
Redeemable Preferred Stock,
No Par Value
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.  x Yes  o 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.  o Yes  x 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.  x Yes  o 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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerate filer and large accelerated filer" in Rule 12b-2 of the Exchange Act). Large Accelerated Filer  x Accelerated Filer o Non-Accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes  x No
The aggregate market value of the 52,564,093 shares of Common Stock held by non-affiliates of the registrant as of February 26, 2007 was $2.1 billion, based upon the closing price $40.90 on the New York Stock Exchange composite tape on June 30, 2006. (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 26, 2007, there were outstanding 53,594,244 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held in 2007 are incorporated by reference into Part III.

 

·	are strategically located in major metropolitan areas, many in communities that are among the most affluent in the country, including Atlantic City, Charlotte, Dallas, Denver, Detroit, Los Angeles, Miami, New York City, Orlando, Phoenix, San Francisco, Tampa, and Washington, D.C.;

·	range in size between 242,000 and 1.6 million square feet of GLA and between 197,000 and 624,000 square feet of Mall GLA. The smallest center has approximately 60 stores, and the largest has over 200 stores. Of the 22 centers, 19 are super-regional shopping centers;

·	have approximately 3,000 stores operated by their mall tenants under approximately 1,000 trade names;

·	have 64 anchors, operating under 15 trade names;

·	lease most of Mall GLA to national chains, including subsidiaries or divisions of The Limited (The Limited, Express, Victoria's Secret, and others), Gap (Gap, Gap Kids, Banana Republic, Old Navy, and others), and Foot Locker, Inc. (Foot Locker, Lady Foot Locker, Champs Sports, and others); and

·	are among the most productive (measured by mall tenants' average sales per square foot) in the United States. In 2006, mall tenants had average sales per square foot of $539, which is significantly greater than the average for all regional shopping centers owned by public companies.

·	offer a large, diverse selection of retail stores in each center to give customers a broad selection of consumer goods and variety of price ranges;

·	endeavor to increase overall mall tenants' sales by leasing space to a constantly changing mix of tenants, thereby increasing achievable rents;

·

seek to anticipate trends in the retailing industry and emphasize ongoing introductions of new retail concepts into our centers. Due in part to this strategy, a number of successful retail trade names have opened their first mall stores in the centers. In addition, we have brought to the centers "new to the market" retailers. We believe that the execution of this leasing strategy has been unique in the industry and is an important element in building and maintaining customer loyalty and increasing mall productivity; and

·

provide innovative initiatives that utilize technology and the Internet to heighten the shopping experience, build customer loyalty and increase tenant sales. Our Taubman Center website program connects shoppers and retailers through an interactive content-driven website. We also offer our shoppers a robust direct email program, which allows them to receive, each week, information featuring what’s on sale and what’s new at the stores they select.

Developments:

Completion Date	Center	Location
June 2006 (1)	The Pier Shops at Caesars	Atlantic City, New Jersey
September 2005	Northlake Mall	Charlotte, North Carolina

Acquisitions:

Completion Date	Center	Location
October 2006	Land under Sunvalley	Concord, California
July 2004	International Plaza	Tampa, Florida
	additional interest (2)
January 2004	Beverly Center	Los Angeles, California
	additional interest (3)

(1)	Began opening in phases.

(2)	In July 2004, an additional 23.6% interest in the center was acquired.

(3)	In January 2004, the joint venture partner’s 30% interest in the center was acquired.

			2006			2005			2004			2003			2002
Average rent per square foot:
Consolidated Businesses		$	43.20		$	41.41		$	40.98		$	40.06		$	42.31
Unconsolidated Joint Ventures			41.03			42.28			42.09			42.75			42.03
Opening base rent per square foot:
Consolidated Businesses		$	42.24		$	42.38		$	44.35		$	43.41		$	45.91
Unconsolidated Joint Ventures			42.98			44.90			44.67			40.06			43.03
Square feet of GLA opened:
Consolidated Businesses			941,163			682,305			688,020			512,105			429,705
Unconsolidated Joint Ventures			306,461			400,477			337,679			498,950			344,311
Closing base rent per square foot:
Consolidated Businesses		$	39.73		$	40.59		$	44.54		$	40.80		$	43.47
Unconsolidated Joint Ventures			42.49			44.26			51.40			41.28			41.63
Square feet of GLA closed:
Consolidated Businesses			894,770			650,701			499,098			628,626			299,234
Unconsolidated Joint Ventures			246,704			366,932			280,393			470,143			362,747
Releasing spread per square foot:
Consolidated Businesses		$	2.51		$	1.79		$	(0.19	)	$	2.61		$	2.44
Unconsolidated Joint Ventures			0.49			0.64			(6.73	)		(1.22	)		1.40

Lease Expirations

The following table shows scheduled lease expirations based on information available as of December 31, 2006 for the next ten years for all owned centers in operation at that date, excluding Arizona Mills and The Pier:

 

Lease Expiration Year	Number of Leases Expiring	Leased Area in Square Footage	Annualized Base Rent Under Expiring Leases (in thousands of dollars)	Annualized Base Rent Under Expiring Leases   Per Square Foot	Percent of Total Leased Square Footage Represented b y Expiring Leases
2007 (1)	140	414,098	16,487	$39.81	4.1%
2008	258	729,423	30,372	41.64	7.3
2009	296	759,318	32,170	42.37	7.6
2010	224	590,268	27,847	47.18	5.9
2011	434	1,333,204	54,253	40.69	13.3
2012	299	1,064,200	48,056	45.16	10.6
2013	256	983,699	41,179	41.86	9.8
2014	197	721,516	27,776	38.50	7.2
2015	237	934,797	34,725	37.15	9.3
2016	243	919,426	36,662	39.87	9.2

(1)	Excludes leases that expire in 2007 for which renewal leases or leases with replacement tenants have been executed as of December 31, 2006.

Occupancy

Occupancy statistics include centers owned and open in the full periods presented, and value center anchors. The statistics for comparable centers exclude Northlake Mall (Northlake), which opened in 2005. The statistics for comparable centers also exclude Waterside due to the recent renovation and expansion, and Woodland, which was sold in the fourth quarter of 2005. All statistics exclude The Pier, which opened in 2006.

	2006	2005	2004
All Centers:
Leased space	92.5%	91.7%	90.7%
Ending occupancy	91.3	90.0	89.6
Average occupancy	89.2	88.9	87.4
Comparable Centers:
Leased space	92.3%	91.5%	90.7%
Ending occupancy	91.2	90.2	89.6
Average occupancy	89.1	89.1	87.4

Tenant	# of Stores	Square Footage	% of Mall GLA
Limited (The Limited, Express, Victoria's Secret, and others)	64	476,358	4.7%
Gap (Gap, Gap Kids, Banana Republic, Old Navy, and others)	41	338,560	3.3
Forever 21 (Forever 21, XXI Forever, and others)	19	255,803	2.5
Abercrombie & Fitch (Abercrombie & Fitch, Hollister, and others)	34	250,475	2.5
Foot Locker (Foot Locker, Lady Foot Locker, Champs Sports, and others)	43	221,250	2.2
Williams-Sonoma (Williams-Sonoma, Pottery Barn, Pottery Barn Kids)	28	215,629	2.1
Talbots (Talbots, J. Jill)	32	185,587	1.8
Ann Taylor	31	180,307	1.8
The TJX Companies (Marshalls, T.J. Maxx)	4	151,313	1.5
Luxottica (Lenscrafters, Sunglass Hut International, Things Remembered, and others)	62	118,074	1.2

·	changes in the national, regional, and/or local economic and geopolitical climates;

·	increases in operating costs;

·	the public perception of the safety of customers at our shopping centers;

·	legal liabilities;

·	availability and cost of financing;

·	changes in government regulations; and

·	changes in real estate zoning and tax laws.

·	the pre-construction phase for a regional center typically extends over several years, and the time to obtain anchor commitments, zoning and regulatory approvals, and public financing can vary significantly from project to project;

·	we may not be able to obtain the necessary zoning or other governmental approvals for a project, or we may determine that the expected return on a project is not sufficient; if we abandon our development activities with respect to a particular project, we may incur a loss on our investment;

·	construction and other project costs may exceed our original estimates because of increases in material and labor costs, delays and costs to obtain anchor and tenant commitments;

·	we may not be able to obtain financing or to refinance construction loans, which are generally recourse to TRG; and

·	occupancy rates and rents at a completed project may not meet our projections, and the costs of development activities that we explore but ultimately abandon will, to some extent, diminish the overall return on our completed development projects.

·	adverse effects of changes in exchange rates for foreign currencies;

·	changes in foreign political environments;

·	difficulties of complying with a wide variety of foreign laws including corporate governance, operations, taxes, and litigation;

·	changes in and/or difficulties in complying with applicable laws and regulations in the United States that affect foreign operations, including the Foreign Corrupt Practices Act;

·	difficulties in managing international operations, including difficulties that arise from ambiguities in contracts written in foreign languages; and

·	obstacles to the repatriation of earnings and cash.

Personnel

We have engaged the Manager to provide real estate management, acquisition, development, and administrative services required by us and our properties.

As of December 31, 2006, the Manager had 547 full-time employees. The following table provides a breakdown of employees by operational areas as of December 31, 2006:

	Number of Employees
Center Operations	206
Property Management	133
Leasing and Tenant Coordination	60
Development	25
Financial Services	62
Other	61
Total	547

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, 2006. Centers are owned in fee other than Beverly Center (Beverly), Cherry Creek Shopping Center (Cherry Creek), International Plaza, and MacArthur Center, which are held under ground leases expiring between 2049 and 2083.

Certain of the centers are partially owned through joint ventures. Generally, the Operating Partnership's joint venture partners have ongoing rights with regard to the disposition of the Operating Partnership's interest in the joint ventures, as well as the approval of certain major matters.

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Center	Anchors	Sq. Ft of GLA/Mall GLA as of 12/31/06	Year Opened/ Expanded	Year Acquired	Ownership % as of 12/31/06
Consolidated Businesses:
Beverly Center	Bloomingdales, Macy’s	884,000	1982		100%
Los Angeles, CA		576,000
Cherry Creek Shopping Center	Macy’s, Neiman Marcus, Nordstrom (2007),	1,023,000 (1)	1990/1998		50%
Denver, CO	Saks Fifth Avenue	550,000
Dolphin Mall	Bass Pro Shops Outdoor World (2007), Burlington Coat	1,315,000	2001		100%
Miami, FL	Factory, Cobb Theatres, Dave & Busters, Marshalls, Neiman	624,000
	Marcus-Last Call, Off 5 th Saks, The Sports Authority
Fairlane Town Center	JCPenney, Macy’s, Off 5 th Saks, Sears	1,513,000 (2)	1976/1978/		100%
Dearborn, MI		623,000	1980/2000
(Detroit Metropolitan Area)
Great Lakes Crossing	AMC Theaters, Bass Pro Shops Outdoor World, Circuit City,	1,360,000	1998		100%
Auburn Hills, MI	GameWorks, Neiman Marcus-Last Call, Off 5 th Saks	545,000
(Detroit Metropolitan Area)
International Plaza	Dillard’s, Neiman Marcus, Nordstrom, Robb & Stucky	1,221,000	2001		50%
Tampa, FL		579,000
MacArthur Center	Dillard’s, Nordstrom	933,000	1999		95%
Norfolk, VA		519,000
Northlake Mall	Belk, Dick’s Sporting Goods, Dillard’s, Macy’s	1,072,000	2005		100%
Charlotte, NC		466,000
Regency Square	JCPenney, Macy’s (two locations), Sears	823,000	1975/1987	1997	100%
Richmond, VA		236,000
The Mall at Short Hills	Bloomingdale’s, Macy’s, Neiman Marcus, Nordstrom, Saks	1,340,000	1980/1994/		100%
Short Hills, NJ	Fifth Avenue	518,000	1995
Stony Point Fashion Park	Dick’s Sporting Goods, Dillard’s, Saks Fifth Avenue	662,000	2003		100%
Richmond, VA		296,000
Twelve Oaks Mall	JCPenney, Lord & Taylor, Macy’s, Nordstrom (2007), Sears	1,190,000 (3)	1977/1978		100%
Novi, MI		452,000
(Detroit Metropolitan Area)
The Mall at Wellington Green	City Furniture and Ashley Furniture Home Store, Dillard’s,	1,274,000	2001/2003		90%
Wellington, FL	JCPenney, Macy’s, Nordstrom	461,000
(Palm Beach County)
The Shops at Willow Bend	Dillard’s, Macy’s, Neiman Marcus, Saks Fifth Avenue	1,388,000 (4)	2001/2004		100%
Plano, TX		530,000
(Dallas Metropolitan Area)
	Total GLA	15,998,000
	Total Mall GLA	6,975,000
	TRG% of Total GLA	14,702,000
	TRG% of Total Mall GLA	6,338,000
Unconsolidated Joint Ventures:
Arizona Mills	GameWorks, Harkins Cinemas, JCPenney Outlet, Neiman	1,231,000	1997		50%
Tempe, AZ	Marcus-Last Call, Off 5 th Saks	527,000
(Phoenix Metropolitan Area)
Fair Oaks	JCPenney, Lord & Taylor, Macy’s (two locations), Sears	1,571,000	1980/1987/		50%
Fairfax, VA		566,000	1988/2000
(Washington, DC Metropolitan Area)
The Mall at Millenia	Bloomingdale’s, Macy’s, Neiman Marcus	1,115,000	2002		50%
Orlando, FL		515,000
The Pier Shops at Caesars		303,000	2006		(5)
Atlantic City, NJ		303,000
Stamford Town Center	Macy’s, Saks Fifth Avenue	852,000 (6)	1982		50%
Stamford, CT		359,000
Sunvalley	JCPenney, Macy’s (two locations), Sears	1,326,000	1967/1981	2002	50%
Concord, CA		486,000
(San Francisco Metropolitan Area)
Waterside Shops at Pelican Bay	Nordstrom (2008), Saks Fifth Avenue	242,000	1992/2006	2003	25%
Naples, FL		197,000
Westfarms	JCPenney, Lord & Taylor, Macy’s, Macy’s Men’s Store/	1,290,000	1974/1983/		79%
West Hartford, CT	Furniture Gallery, Nordstrom	520,000	1997
	Total GLA	7,930,000
	Total Mall GLA	3,473,000
	TRG% of Total GLA	4,127,000
	TRG% of Total Mall GLA	1,687,000
	Grand Total GLA	23,928,000
	Grand Total Mall GLA	10,448,000
	TRG% of Total GLA	18,829,000
	TRG% of Total Mall GLA	8,025,000

(1)	Nordstrom will occupy the former Lord & Taylor space, which closed on April 2005.

(2)	GLA includes the former Lord & Taylor store, which closed in June 2006.

(3)	In addition to the 2007 Nordstrom addition, an expansion and renovation of Macy’s and additional store space will open in September 2007.

(4)	GLA includes the former Lord & Taylor store, which closed in April 2005.

(5)	The Company is in final negotiations to increase its ownership from 30% to 50%.

(6)	GLA includes the space formerly occupied by Filene’s, which is 100% leased and will include a mix of stores and restaurants. The expected opening date is November 2007.

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Anchors

The following table summarizes certain information regarding the anchors at the operating centers (excluding the value centers) as of December 31, 2006:

Name	Number of Anchor Stores		12/31/06 GLA (in thousands)		% of GLA
Belk	1		180		0.9%
City Furniture and Ashley Furniture Home Store	1		140		0.7%
Dick’s Sporting Goods	2		159		0.8%
Dillard’s	6		1,335		6.8%
Federated
Macy’s	17		3,394
Bloomingdale’s	3		614
Lord & Taylor	3		397
Macy’s Men’s Store/Furniture Gallery	1		80
Total	24		4,485		22.7%
JCPenney	7		1,266		6.4%
Neiman Marcus (1)	5		556		2.8%
Nordstrom (2)	5		796		4.0%
Robb & Stucky	1		119		0.6%
Saks
Saks Fifth Avenue	6		467
Off 5 th Saks (3)	1		93
Total	7		560		2.8%
Sears	5		1,104		5.6 %
Total	64		10,700		54.3 % (4)

(1)	Excludes three Neiman Marcus-Last Call stores at value centers.

(2)	Nordstrom will open at Cherry Creek and Twelve Oaks in Fall 2007, and Waterside in 2008.

(3)	Excludes three Off 5th Saks stores at value centers.

(4)	Percentages in table may not add due to rounding.

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Mortgage Debt

The following table sets forth certain information regarding the mortgages encumbering the centers as of December 31, 2006. All mortgage debt in the table below is nonrecourse to the Operating Partnership except for debt encumbering Dolphin Mall (Dolphin), Fairlane Town Center (Fairlane), and Twelve Oaks. The Operating Partnership has guaranteed the payment of all or a portion of the principal and interest on the mortgage debt of these centers. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Loan Commitments and Guarantees"). An $86 million mortgage for The Pier is excluded along with a $0.3 million note secured by certain equipment of The Mall at Millenia.

Centers Consolidated in TCO’s Financial Statements		Stated Interest Rate			Principal Balance as of 12/31/06 (thousands of dollars)			Annual Debt Service (thousands of dollars)			Maturity Date			Balance Due on Maturity (thousands of dollars)		Earliest Prepayment Date
Beverly Center		5.28%			343,608			23,101	(1)		02/11/14			303,277		01/16/07	(2)
Cherry Creek Shopping Center (50%)		5.24%			280,000			Interest Only			06/18/16			280,000		05/11/09	(2)(3)
Dolphin Mall		LIBOR+0.70%			5,000	(4)		Interest Only			02/14/09	(5)		5,000		2 Days Notice	(6)
Fairlane Town Center		LIBOR+0.70%			55,000	(4)		Interest Only			02/14/09	(5)		55,000		2 Days Notice	(6)
Great Lakes Crossing		5.25%			142,908			10,006	(1)		03/11/13			125,507		30 Days Notice	(2)
International Plaza (50.1%)		4.21%	(7)		178,719	(7)		11,274	(1)		01/08/08	(8)		175,150		30 Days Notice	(9)
MacArthur Center (95%)		7.59%	(10)		138,243	(10)		12,400	(1)		10/01/10			126,884		30 Days Notice	(2)
Northlake Mall		5.41%			215,500			Interest Only			02/06/16			215,500		3/23/08	(11)
The Mall at Partridge Creek		LIBOR+1.15%			22,010			Interest Only			09/07/10			22,010		3 Days Notice	(6)
Regency Square		6.75%			77,812			6,421	(1)		11/01/11			71,569		60 Days Notice	(12)
The Mall at Short Hills		5.47%			540,000			Interest Only			12/14/15			540,000		01/01/11	(13)
Stony Point Fashion Park		6.24%			111,864			8,488	(1)		06/01/14			98,585		08/13/06	(11)
The Mall at Wellington Green (90%)		5.44%			200,000			Interest Only			05/06/15			200,000		06/24/07	(11)
Twelve Oaks Mall		LIBOR+0.70%			0	(4)		Interest Only			02/09/07	(5)		0		2 Days Notice	(6)
Other Consolidated Secured Debt
TRG Credit Facility		Variable Bank Rate	(14)		8,075			Interest Only			02/14/08			8,075		At Any Time	(6)
Centers Owned by Unconsolidated Joint Ventures/TRG’s % Ownership
Arizona Mills (50%)		7.90%			137,780			12,728	(1)		10/05/10			130,419		30 Days Notice	(2)
Fair Oaks (50%)		6.60%			140,000			Interest Only			04/01/08			140,000		30 Days Notice	(15)
The Mall at Millenia (50%)		5.46%			210,000			Interest Only	(16)		04/09/13			195,255		30 Days Notice	(2)
Sunvalley (50%)		5.67%			127,950			9,372	(1)		11/01/12			114,056		30 Days Notice	(2)
Taubman Land Associates (50%)		LIBOR+0.90%	(17)		30,000			Interest Only			11/01/12			30,000		At Any Time	(6)
Waterside Shops at Pelican Bay (25%)		5.54%			165,000			Interest Only			10/07/16			165,000		09/28/09	(12)(18)
Westfarms (79%)		6.10%			198,521			15,272	(1)		07/11/12			179,028		30 Days Notice	(2)

 

(1)	Amortizing principal based on 30 years.

(2)	No defeasance deposit required if paid within three months of maturity date.

(3)	Loan may be defeased earlier of 2 years from the date the final note is securitized or 5/11/09.

(4)	Subfacility in $350 million revolving line of credit. Facility may be increased to $650 million subject to available lender commitments and additional secured collateral.

(5)	The maturity date may be extended one year.

(6)	Prepayment can be made without penalty.

(7)	Debt is reduced by $0.2 million of purchase accounting discount from acquisition which increases the stated rate on the debt of 4.21% to an effective rate of 4.38%.

(8)	The operating partnership has entered into three forward starting swaps totaling $150 million to partially hedge the refinancing of this debt at maturity. The weighted average forward swap rate for these three swaps is 5.33% excluding the credit spread.

(9)	No defeasance deposit required if paid within one month of maturity date.

(10)	Debt includes $2.8 million of purchase accounting premium from acquisition which reduces the stated rate on the debt of 7.59% to an effective rate of 6.87%.

(11)	No defeasance deposit required if paid within four months of maturity date.

(12)	No defeasance deposit required if paid within six months of maturity date.

(13)	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.

(14)	The facility is a $40 million line of credit and is secured by an indirect interest in 40% of Short Hills.

(15)	Debt may be prepaid with a yield maintenance prepayment penalty. No prepayment penalty is due if prepaid within six months of maturity date.

(16)	Interest only through 4/9/08. Thereafter, principal will be amortized based on 30 years. Annual debt service will be $14,245.

(17)	Beginning 1/2/07, debt is swapped at 5.05% +0.90% credit spread. Effective rate of 5.95% from 1/2/07 to 11/1/12.

(18)	Loan may be defeased earlier of 2 years from the date the final note is securitized or 9/28/09.

 

For additional information regarding the centers and their operations, see the responses to Item 1 of this report.

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Item 3. LEGAL PROCEEDINGS.

Neither we, our subsidiaries, nor any of the joint ventures is presently involved in any material litigation, nor, to our knowledge, is any material litigation threatened against us, our subsidiaries, or any of the properties. Except for routine litigation involving present or former tenants (generally eviction or collection proceedings), substantially all litigation is covered by liability insurance.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.  

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

The common stock of Taubman Centers, Inc. is listed and traded on the New York Stock Exchange (Symbol: TCO). As of February 26, 2007, the 53,594,244 outstanding shares of Common Stock were held by 607 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 26, 2007 was $60.97.

The following table presents the dividends declared on our Common Stock and the range of share prices of our Common Stock for each quarter of 2006 and 2005:

	Market Quotations
2006 Quarter Ended	High	Low	Dividends
March 31	$43.77	$35.61	$0.305
June 30	42.01	36.85	0.305
September 30	44.42	39.43	0.305
December 31	50.86	44.77	0.375

	Market Quotations
2005 Quarter Ended	High	Low	Dividends
March 31	$29.85	$26.60	$0.285
June 30	35.03	27.83	0.285
September 30	36.04	31.00	0.285
December 31	35.83	28.75	0.305

The restrictions on our ability to pay dividends on our Common Stock are set forth in “Managements Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Dividends.”

 

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Shareholder Return Performance Graph

The following line graph sets forth the cumulative total returns on a $100 investment in each of the Company’s Common Stock, the MSCI US REIT Index, the NAREIT Equity Retail REITI Index, and the S&P Composite - 500 Stock Index for the period December 31, 2001 through December 31, 2006 (assuming in all cases, the reinvestment of dividends).

 

	12/31/01	12/31/02	12/31/03	12/31/04	12/31/05	12/31/06
Taubman Centers Inc.	$100.00	$116.86	$156.59	$237.57	$285.96	$431.11
MSCI US REIT Index	100.00	103.64	141.73	186.35	208.96	284.02
NAREIT Equity Retail REIT Index	100.00	121.07	177.69	249.18	278.58	359.40
S&P 500 Index	100.00	77.90	100.25	111.15	116.61	135.02

Note: the stock performance shown on the graph above is not necessarily indicative of future price performance.

Equity Purchases

We did not purchase any equity securities in the fourth quarter of 2006.

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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 Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report:

		Year Ended December 31
			2006			2005			2004			2003			2002
		(in thousands of dollars, except as noted)
STATEMENT OF OPERATIONS DATA:
Rents, recoveries, and other shopping center revenues (1)			579,284			479,405			436,815			398,959			358,902
Income before gain on disposition of interest in center, discontinued operations, and minority and preferred interests			95,140			57,432			59,970			31,292			42,015
Gain on disposition of interest in center (2)						52,799
Discontinued operations (3)									328			50,881			13,816
Minority interest in TRG			(36,870	)		(35,869	)		(35,694	)		(35,501	)		(32,826	)
TRG preferred distributions			(2,460	)		(2,460	)		(12,244	)		(9,000	)		(9,000	)
Net income (4)			45,117			71,735			12,378			37,836			14,426
Preferred dividends			(23,723	)		(27,622	)		(17,444	)		(16,600	)		(16,600	)
Net income (loss) allocable to common shareowners			21,394			44,113			(5,066	)		21,236			(2,174	)
Income (loss) from continuing operations per common share - diluted			0.41			0.87			(0.11	)		(0.13	)		(0.16	)
Net income (loss) per common share - diluted			0.40			0.87			(0.10	)		0.41			(0.05	)
Dividends declared per common share			1.290			1.160			1.095			1.050			1.025
Weighted average number of common shares outstanding - basic			52,661,024			50,459,314			49,021,843			50,387,616			51,239,237
Weighted average number of common shares outstanding - diluted			52,979,453			50,530,139			49,021,843			50,387,616			51,239,237
Number of common shares outstanding at end of period			52,931,594			51,866,184			48,745,625			49,936,786			52,207,756
Ownership percentage of TRG at end of period			65	%		64	%		61	%		61	%		62	%
BALANCE SHEET DATA:
Real estate before accumulated depreciation			3,398,122			3,081,324			2,936,964			2,519,922			2,393,428
Total assets			2,826,622			2,797,580			2,632,434			2,186,970			2,269,707
Total debt			2,319,538			2,089,948			1,930,439			1,495,777			1,463,725
SUPPLEMENTAL INFORMATION:
Funds from Operations allocable to TCO (4)(5)			136,736			110,578			103,070			87,325			88,240
Mall tenant sales (6)			4,348,826			4,124,534			3,728,010			3,417,572			3,113,620
Sales per square foot (6)(7)			539			508			466			441			457
Number of shopping centers at end of period			22			21			21			21			20
Ending Mall GLA in thousands of square feet			10,448			10,029			9,982			9,988			9,850
Leased space (8)(9)			92.5	%		91.7	%		90.7	%		89.8	%		90.3	%
Ending occupancy (9)			91.3	%		90.0	%		89.6	%		87.4	%		87.0	%
Average occupancy (9)			89.2	%		88.9	%		87.4	%		86.6	%		84.8	%
Average base rent per square foot (7) :
Consolidated businesses:
All mall tenants		$	43.20		$	41.41		$	40.98		$	40.06		$	42.31
Stores opening during year			42.24			42.38			44.35			43.41			45.91
Stores closing during year			39.73			40.59			44.54			40.80			43.47
Unconsolidated Joint Ventures:
All mall tenants		$	41.03		$	42.28		$	42.09		$	42.75		$	42.03
Stores opening during year			42.98			44.90			44.67			40.06			43.03
Stores closing during year			42.49			44.26			51.40			41.28			41.63

 

(1) Certain reclassifications have been made to prior year information to conform to current year classifications.

(2) In December 2005, a 50% owned unconsolidated joint venture sold its interest in Woodland for $177.4 million.

(3) Biltmore Fashion Park was sold in 2003, and La Cumbre Plaza and Paseo Nuevo were sold in 2002. Discontinued operations in 2004, 2003, and 2002 include gains on dispositions of interests in centers of $0.3 million,

      $49.6 million, and $12.3 million, respectively.

(4) Funds from Operations (FFO) is defined and discussed in MD&A - Presentation of Operating Results. Net income in 2006 includes $3.1 million in connection with the write-off of financing costs related to the respective

      pay-off and refinancing of the loans on The Shops at Willow Bend and Dolphin. In addition to these charges, FFO in 2006 includes a $4.7 million charge incurred in connection with the redemption of $113 million of the

      Series A Preferred Stock and $113 million of the Series I Preferred Stock. Net income in 2005 includes a $12.7 million charge incurred in connection with a prepayment premium and the write-off of financing costs related

      to the refinancing of The Mall at Short Hills, the pay-off of the Northlake loan, and debt modifications in connection with the pay-off of the loan on The Mall at Oyster Bay. In addition to these charges, FFO in 2005 includes a

      $3.1 million charge incurred in connection with the redemption of $87 million of the Series A Preferred Stock. Net income and FFO in 2004 include insurance recoveries related to the unsolicited tender offer of $1.0 million,

      a $2.7 million charge incurred in connection with the redemption of the Series C and D Preferred Equity, and a $5.7 million restructuring loss. Net income (loss) and FFO include costs incurred in connection with the

      unsolicited tender offer, net of recoveries, of $24.8 million and $5.1 million in 2003 and 2002, respectively.

(5) Reconciliations of net income (loss) to FFO for 2006, 2005, and 2004 are provided in MD&A - Presentation of Operating Results. For 2003, net income of $21.2 million, less the gain on dispositions of interests in centers

      of $49.6 million, adding back depreciation and amortization of $137.4 million and minority interests in TRG of $35.5 million, arrives at TRG’s FFO of $144.5 million, of which TCO’s share was $87.3 million. For 2002, net

      loss of $2.2 million, less the gain on dispositions of interests in centers of $12.3 million, adding back depreciation and amortization of $124.3 million and minority interests in TRG of $32.8 million, arrives at TRG’s FFO

      of $142.6 million, of which TCO’s share was $88.2 million.

(6) Based on reports of sales furnished by mall tenants.

(7) See MD&A for information regarding this statistic.

(8) Leased space comprises both occupied space and space that is leased but not yet occupied.

(9) 2002 statistics exclude anchor spaces at value centers.

 

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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our expectations or beliefs concerning future events, including the following: statements regarding future developments and joint ventures, rents and returns, statements regarding the continuation of trends, and any statements regarding the sufficiency of our cash balances and cash generated from operating and financing activities for our future liquidity and capital resource needs. We caution that although forward-looking statements reflect our good faith beliefs and best judgment based upon current information, these statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including those risks, uncertainties, and factors detailed from time to time in reports filed with the SEC, and in particular those set forth under the headings “General Risks of the Company” and “Environmental Matters” in Item 1. of this Annual Report on Form 10-K. The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements of Taubman Centers, Inc. and the Notes thereto.

General Background and Performance Measurement

Taubman Centers, Inc. (“we”, “us”, “our” or “TCO”) owns a managing general partner's interest in The Taubman Realty Group Limited Partnership (the “Operating Partnership” or “TRG”), through which we conduct all of our operations. The Operating Partnership owns, develops, acquires, and operates shopping centers. The Consolidated Businesses consist of shopping centers that are controlled by ownership or contractual agreement, development projects for future regional shopping centers, variable interest entities for which we are the primary beneficiary, and The Taubman Company LLC (“Manager”). 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 Northlake in September 2005 and the sale of our interest in Woodland in December 2005, as well as the expansion and renovation at Waterside. The Pier began opening stores in late June 2006, and is accounted for under the equity method. The Pier has been excluded from all operating statistics. Additional “comparable center” statistics that exclude Northlake, Waterside, and Woodland are provided for 2006 and 2005 to present the performance of comparable centers in our continuing operations. Comparable centers are generally defined as centers that were owned and open for two years. As of January 1, 2006, we began consolidating the entity that owns Cherry Creek. The center is included within our consolidated results and statistics as of that date, while it continues to be presented as an Unconsolidated Joint Venture for dates and periods prior to January 1, 2006.

Overall Summary of Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our business is to lease space in our shopping centers. Generally these leases are long term, with our average lease term at approximately 7 years. 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. Occupancy continued to increase during 2006, and we anticipate continued occupancy growth throughout 2007, although we expect more modest increases in the first half of 2007 than in the second half. Average rent per square foot increased by 1.7% in 2006 and we anticipate rent per square foot to increase in the range of 2.5% in 2007. Tenant sales trends demonstrated strong growth in 2006, increasing 6.1% and reaching a new record level of $539 per square foot for our comparable centers. This increase in sales resulted in a significant increase in percentage rent in 2006. We believe these improving tenant sales provide us an opportunity to continue to increase rents in the future (see "Mall Tenant Sales and Center Revenues" and "Rental Rates and Occupancy").

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The rents we are able to achieve are similarly affected by economic trends and tenants’ expectations thereof, as described under “Rental Rates and Occupancy”. The spread between rents on openings and closings may not be indicative of future periods, as this statistic is not computed on comparable tenant spaces, and can vary significantly from quarter to quarter depending on the total amount, location, and average size of tenant space opening and closing in the period. Mall tenant sales, occupancy levels and our resulting revenues are seasonal in nature (see “Seasonality").

Our analysis of our financial results begins under “Results of Operations”. We have been active in developing and expanding our shopping center portfolio, and we describe the most recent center openings, including The Pier and Northlake, under “Openings, Dispositions, and Acquisitions”. In 2005, we disposed of our interest in a 50% owned unconsolidated joint venture and we acquired additional interests in two centers in 2004. Additional efforts to broaden our growth included the formation in 2005 of Taubman Asia, which is the platform for our expansion into the Asia-Pacific region. In January 2007, we completed an agreement to provide development services for a project in New Songdo City, Incheon, South Korea and were selected as the preferred retail partner for a project in Macao (see “Subsequent Events”).

We similarly have been very active in managing our balance sheet, completing a series of new financings and refinancings of existing debt, as well as a series of stock buybacks, as outlined under “Debt Transactions” and “Equity Transactions”. As a result of our financings, our floating rate debt represents less than 5% of our total debt and we believe we are well positioned if there is a rise in interest rates.

We have certain additional sources of income beyond our rental revenues, recoveries from tenants, and revenue from management, leasing, and development services. We disclose the Operating Partnership’s share of these sources of income under “Other Income”. Included in other revenue are lease cancellation income, as well as other sources of revenue derived from our shopping centers, such as parking garage and sponsorship income. Other sources of income include interest income and gains on peripheral land sales.

We then provide a discussion of our critical accounting policies, the impact of adoption of new accounting principles, and the expected impact of recently issued accounting pronouncements.

With all the preceding information as background, we have then provided insight and explanations for variances in our financial results from 2004 through 2006 under “Comparison of 2006 to 2005” and “Comparison of 2005 to 2004”. As information useful to understanding our results, we have described the presentation of our minority interest, the presentation of certain interests in centers, and the reasons for our use of non-GAAP measures such as EBITDA and Funds from Operations (FFO) under “Presentation of Operating Results”. Reconciliations from net income and net income allocable to common shareowners to these measures follow the annual comparisons.

Our discussion of sources and uses of capital resources under “Liquidity and Capital Resources” begins with a brief overview of capital activities and transactions occurring in 2006. Analysis of specific operating, investing, and financing activities is then provided in more detail. Cash flows from rents and recoveries, lease cancellation revenue, and recent center openings provide the resources for payments of interest and other operating expenses, leasing costs, and required distributions and dividends. Proceeds from the sale of a property and the completion of a major financing occurring in late 2005, in addition to financings in 2006, created significant liquidity used for the pay-off or refinancing of several existing loans and further investment in development properties in 2006.

Specific analysis of our fixed and floating rates and periods of interest rate risk exposure is provided under “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 “Sensitivity Analysis”.

In conducting our business, we enter into various contractual obligations, including those for debt, capital leases for property improvements, operating leases for land and office space, purchase obligations, and other long-term commitments. Detail of these obligations, including expected settlement periods, is contained under “Contractual Obligations”. Property-level debt represents the largest single class of obligations. Described under “Loan Commitments and Guarantees” and “Cash Tender Agreement” are our significant guarantees and commitments.

Development of new malls and renovation and expansion of existing malls continues to be a significant use of our capital, as described in “Capital Spending” and “Planned Capital Spending”. Recent spending includes that related to the construction of Partridge Creek, in Clinton Township, Michigan, the expansion and renovation of Twelve Oaks and Waterside, the renovation of the former Filene’s space at Stamford Town Center, our Oyster Bay project in the Town of Oyster Bay, New York, and other development activities and capital items. Additional capital spending in 2007 is expected to continue for these and other projects.

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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 “Dividends”. We increased our quarterly dividend by 23% in the fourth quarter of 2006. Our total return to our shareholders, assuming reinvestment of dividends, was 50.8% for 2006.

Mall Tenant Sales and Center Revenues

Over the long term, the level of mall tenant sales is the single most important determinant of revenues of the shopping centers because mall tenants provide approximately 90% of these revenues and because mall tenant sales determine the amount of rent, percentage rent, and recoverable expenses (together, total occupancy costs) that mall tenants can afford to pay. However, levels of mall tenant sales can be considerably more volatile in the short run than total occupancy costs.

We believe that the ability of tenants to pay occupancy costs and earn profits over long periods of time increases as sales per square foot increase, whether through inflation or real growth in customer spending. Because most mall tenants have certain fixed expenses, the occupancy costs that they can afford to pay and still be profitable are a higher percentage of sales at higher sales per square foot.

Sales directly impact the amount of percentage rents certain tenants and anchors pay. The effects of increases or declines in sales on our operations are moderated by the relatively minor share that percentage rents represent of total rents (approximately five percent in 2006). However, a sustained trend in sales does impact, either negatively or positively, our ability to lease vacancies and negotiate rents at advantageous rates.

Tenant sales trends demonstrated strong growth in 2006, increasing 6.1% and reaching a new record level of $539 per square foot. This increase in sales resulted in a significant increase in percentage rent in 2006. We believe these improving tenant sales provide us an opportunity to increase rents in the future.

The following table summarizes occupancy costs, excluding utilities, for mall tenants as a percentage of mall tenant sales:

			2006			2005			2004
Mall tenant sales (in thousands of dollars)			4,348,826			4,124,534			3,728,010
Sales per square foot (1)			539			508			466
Consolidated Businesses:
Minimum rents			9.1	%		9.3	%		10.0	%
Percentage rents			0.4			0.4			0.2
Expense recoveries			4.9			4.6			5.0
Mall tenant occupancy costs as a percentage of mall tenant sales			14.4	%		14.3	%		15.2	%
Unconsolidated Joint Ventures:
Minimum rents			8.3	%		8.9	%		9.7	%
Percentage rents			0.4			0.3			0.3
Expense recoveries			3.8			4.0			4.4
Mall tenant occupancy costs as a percentage of mall tenant sales			12.5	%		13.2	%		14.4	%

(1)	Sales per square foot is presented for the comparable centers, including value centers.

Rental Rates and Occupancy

As leases have expired in the shopping 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. In a period of increasing sales, rents on new leases will tend to rise as tenants' expectations of future growth become more optimistic. In periods of slower growth or declining sales, rents on new leases will grow more slowly or will decline for the opposite reason. However, center revenues nevertheless increase as older leases roll over or are terminated early and replaced with new leases negotiated at current rental rates that are usually higher than the average rates for existing leases.

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The following table contains certain information regarding rentals at the comparable shopping centers:

			2006			2005			2004
Average rent per square foot:
Consolidated Businesses		$	43.20		$	41.41		$	40.98
Unconsolidated Joint Ventures			41.03			42.28			42.09
Opening base rent per square foot:
Consolidated Businesses		$	42.24		$	42.38		$	44.35
Unconsolidated Joint Ventures			42.98			44.90			44.67
Square feet of GLA opened:
Consolidated Businesses			941,163			682,305			688,020
Unconsolidated Joint Ventures			306,461			400,477			337,679
Closing base rent per square foot:
Consolidated Businesses		$	39.73		$	40.59		$	44.54
Unconsolidated Joint Ventures			42.49			44.26			51.40
Square feet of GLA closed:
Consolidated Businesses			894,770			650,701			499,098
Unconsolidated Joint Ventures			246,704			366,932			280,393
Releasing spread per square foot:
Consolidated Businesses		$	2.51		$	1.79		$	(0.19	)
Unconsolidated Joint Ventures			0.49			0.64			(6.73	)

 

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. Rents on stores opening in 2004 were generally negotiated in a decreasing sales environment. In 2006, the releasing spread per square foot of the Unconsolidated Joint Ventures was impacted by the opening of large tenant spaces at certain centers. Additionally, average rents and releasing spreads in 2006 were impacted by the consolidation of Cherry Creek, which is included within the Consolidated Businesses as of January 1, 2006. Prior to that time, Cherry Creek was included within the Unconsolidated Joint Ventures.

Mall tenant leased space, ending occupancy, and average occupancy rates are as follows:

			2006			2005			2004
All Centers:
Leased space			92.5	%		91.7	%		90.7	%
Ending occupancy			91.3			90.0			89.6
Average occupancy			89.2			88.9			87.4
Comparable Centers:
Leased space			92.3	%		91.5	%		90.7	%
Ending occupancy			91.2			90.2			89.6
Average occupancy			89.1			89.1			87.4

Occupancy continued to increase during 2006, with ending occupancy increasing to 91.3%, a 1.3% increase from 90.0% in 2005. For our comparable centers, ending occupancy was 91.2%, a 1.0% increase from 90.2% in 2005. We anticipate continued occupancy growth throughout 2007, with more modest increases in the first half than in the second half of the year. Income from temporary in-line tenants, which has become an integral part of our business, continues to augment our income. Temporary tenants, defined as those with lease terms less than 12 months, are not included in occupancy or leased space statistics. As of December 31, 2006, approximately 2.2% of space was occupied by temporary tenants. Tenant bankruptcy filings as a percentage of the total number of tenant leases was 1.0% in 2006, compared to 0.4% in 2005, and 1.7% in 2004.

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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 events. 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. Included in revenues are gains on sales of peripheral land and lease cancellation income that may vary significantly from quarter to quarter.

			Total 2006			4 th Quarter 2006			3 rd Quarter 2006			2 nd Quarter 2006			1 st Quarter 2006
		(in thousands of dollars, except as indicated)
Mall tenant sales			4,348,826			1,447,188			985,224			989,275			927,139
Revenues and gains on land sales and interest income:
Consolidated Businesses			588,744			163,455			140,065			144,780			140,444
Unconsolidated Joint Ventures			253,486			72,584			63,772			58,554			58,576
Occupancy:
Ending-comparable			91.2	%		91.2	%		89.2	%		88.7	%		88.3	%
Average-comparable			89.1			90.4			88.9			88.6			88.4
Ending			91.3			91.3			89.5			89.0			88.3
Average			89.2			90.6			89.2			88.7			88.4
Leased space:
Comparable			92.3	%		92.3	%		92.1	%		91.6	%		90.7	%
All centers			92.5			92.5			92.4			91.8			90.9

Because the seasonality of sales contrasts with the generally fixed nature of minimum rents and recoveries, mall tenant occupancy costs (the sum of minimum rents, percentage rents, and expense recoveries) as a percentage of sales are considerably higher in the first three quarters than they are in the fourth quarter.

			Total 2006			4 th Quarter 2006			3 rd Quarter 2006			2 nd Quarter 2006			1 st Quarter 2006
Consolidated Businesses:
Minimum rents			9.1	%		7.1	%		9.9	%		9.9	%		10.5	%
Percentage rents			0.4			0.8			0.3			0.1			0.4
Expense recoveries			4.9			4.2			4.9			5.6			4.8
Mall tenant occupancy costs			14.4	%		12.1	%		15.1	%		15.6	%		15.7	%
Unconsolidated Joint Ventures:
Minimum rents			8.3	%		6.4	%		9.2	%		9.1	%		9.7	%
Percentage rents			0.4			0.8			0.3			0.2			0.2
Expense recoveries			3.8			3.2			4.1			4.1			3.9
Mall tenant occupancy costs			12.5	%		10.4	%		13.6	%		13.4	%		13.8	%

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Results of Operations

Openings, Dispositions, and Acquisitions

During the three year period ended December 31, 2006, we completed the following shopping center openings, dispositions, and acquisitions:

Openings

Shopping Center	Date	Location	Ownership
The Pier Shops at Caesars	June 2006	Atlantic City, New Jersey	(1)
Northlake Mall	September 2005	Charlotte, North Carolina	Wholly-owned

Dispositions

Shopping Center	Date	Former Ownership
Woodland	December 2005	50% owned unconsolidated joint venture

Acquisitions

Shopping Center	Date	Acquisition	Resulting Ownership
International Plaza	July 2004	Additional 23.6% interest	50.1% owned consolidated joint venture
Beverly Center	January 2004	Additional 30% interest	Wholly-owned

(1)	See “Planned Capital Spending-New Centers”.

In October 2006, we purchased a 50% interest in the land under Sunvalley, which was subject to two ground leases. We placed a 6-year, $30 million interest-only, non-recourse loan on the land and swapped the rate in early January 2007 to a fixed rate of 5.95%.

In December 2005, a 50% owned unconsolidated joint venture sold its interest in Woodland for $177.4 million. Our share of proceeds was $85.4 million. We recognized a gain of $52.8 million on the transaction, representing the excess of the fair value over the net book basis of our interest in the center. Our gain on the transaction differed from the $73.4 million gain recognized by the Operating Partnership due to our $20.6 million additional basis in Woodland. The cash proceeds from the sale were used in early 2006 to acquire the land for Partridge Creek, as part of a like-kind exchange pursuant to Section 1031 of the Internal Revenue Code and the regulations thereunder ("Section 1031 like-kind exchange"). Additional proceeds were also used to purchase the land and real property improvements of the Oyster Bay development, also as part of a Section 1031 like-kind exchange, and to pay off the outstanding balance on the loan on the property.

Taubman Asia

In April 2005, we formed Taubman Asia, which is the platform for our expansion into the Asia-Pacific region. Taubman Asia is headquartered in Hong Kong and is engaged in projects that leverage our strong retail planning, design, and operational capabilities. In 2007, Taubman Asia completed the development services agreement for our involvement in New Songdo City in South Korea. Additionally, we announced our involvement in the retail component of Macao Studio City on the Cotai strip in Macao (see “Subsequent Events”).

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Debt Transactions

We completed a series of debt financings in the three year period ended December 31, 2006, as follows:

	Date	Initial Loan Balance/Facility	Stated Interest Rate	Maturity Date (1)
	(in millions of dollars)
Taubman Land Associates (Sunvalley)	December 2006	30	LIBOR+0.90% (2)	November 2012
Waterside Shops at Pelican Bay	September 2006	165	5.54%	October 2016
The Mall at Partridge Creek construction facility (3)	September 2006	81	LIBOR+1.15%	September 2010
TRG revolving credit facility (4)	August 2006	350	LIBOR+0.70%	February 2009
Cherry Creek Shopping Center	May 2006	280	5.24%	June 2016
Northlake Mall	February 2006	216	5.41%	February 2016
The Mall at Short Hills	December 2005	540	5.47%	December 2015
The Mall at Wellington Green	May 2005	200	5.44%	May 2015
TRG revolving credit facility	October 2004	350	LIBOR+0.80%	February 2008 (4)
Northlake Mall construction facility	July 2004	142	LIBOR+1.75%	August 2007 (5)
Stony Point Fashion Park	June 2004	115	6.24%	June 2014
The Mall at Oyster Bay facility	May 2004	62	LIBOR+2.00%	March 2006 (6)
The Mall at Wellington Green	April 2004	140	LIBOR+1.50%	May 2007 (7)
Dolphin Mall	February 2004	145	LIBOR+2.15%	February 2007 (8)
Beverly Center	January 2004	348	5.28%	February 2014

(1)	Excludes any options to extend the maturities (see the footnotes to our financial statements regarding extension options).

(2)	The loan is swapped at 5.95% (5.05% swap rate plus 0.90% credit spread) from January 2, 2007 through the term of the loan.

(3)	See "Liquidity and Capital Resources - Contractual Obligations".

(4)	TRG revolving credit facility was amended in August 2006.

(5)	The loan was repaid in December 2005.

(6)	The loan was repaid in February 2006.

(7)	The loan was repaid in May 2005.

(8)	The remaining balance on the loan was refinanced with the TRG revolving credit facility in August 2006.

We paid off the remaining $144 million balance on the loans on The Shops at Willow Bend (Willow Bend) when they became prepayable without penalty in February 2006. We wrote off the remaining $2.1 million of financing costs associated with the Willow Bend loans at that time. Proceeds from the August 2006 amendment to our revolving credit facility were used to refinance the remaining $140 million balance on the loan on Dolphin when it became prepayable without penalty in August 2006. We wrote off $1.0 million of financing costs related to the Dolphin loan at that time. Under the revised terms, borrowings under the line of credit are primary obligations of the entities owning Dolphin, Fairlane, and Twelve Oaks, which are collateral for the line of credit. The Operating Partnership and the entities owning Fairlane and Twelve Oaks are guarantors under the credit agreement.

Proceeds from the December 2005 financing on The Mall at Short Hills (Short Hills) were used to pay down the existing 6.7%, $260 million loan on the center, the Northlake construction loan and our revolver. We incurred charges of $10.9 million during the fourth quarter of 2005 in connection with a prepayment premium for the existing Short Hills loan and the write-off of the remaining financing costs for the Short Hills and Northlake loans. We also wrote off $1.8 million of financing costs related to the modification of the loan on The Mall at Oyster Bay (Oyster Bay), which we repaid in February 2006.

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Equity Transactions

We also completed a series of equity transactions in the three year period ended December 31, 2006, as follows:

	# of shares/units	Amount	Price per share/unit	Date
	(in millions of dollars)
Redemptions and Repurchases:
Redemption of Series I Cumulative   Redeemable Preferred Stock (1)	4,520,000	113.0	$25.00	June 2006
Redemption of Series A Cumulative   Redeemable Preferred Stock (2)	4,520,000	113.0	25.00	May 2006
Redemption of Series A Cumulative   Redeemable Preferred Stock (3)	3,480,000	87.0	25.00	July 2005
Redemption of Series C and D Preferred   Partnership Equity (4)		100.0		November 2004
Stock buybacks (5)	2,447,781	50.2	20.50	April-May 2004
Issuances:
Issuance of Series I Cumulative   Redeemable Preferred Stock (6)	4,520,000	113.0	25.00	May 2006
Issuance of Series H Cumulative   Redeemable Preferred Stock (7)	3,480,000	87.0	25.00	July 2005
Issuance of Series G Cumulative   Redeemable Preferred Stock (8)	4,000,000	100.0	25.00	November 2004
Private placement of 8.2% Series F   Cumulative Redeemable Preferred   Partnership Equity		30.0		May 2004
TRG units issued in connection with   acquisition of additional interest in   Beverly Center (9)	276,724	7.6	27.50	January 2004

(1)	A $0.6 million charge was recognized upon redemption of this preferred stock, comprised of the difference between the redemption price ($113.0 million) and its book value ($112.4 million).

(2)	A $4.0 million charge was recognized upon redemption of this preferred stock, comprised of the difference between the redemption price ($113.0 million) and its book value ($109.0 million).

(3)	A $3.1 million charge was recognized upon redemption of this preferred stock, comprised of the difference between the redemption price ($87.0 million) and its book value ($83.9 million).

(4)	A $2.7 million charge was recognized upon redemption of this preferred equity, comprised of the difference between the redemption price ($100.0 million) and its book value ($97.3 million).

(5)	For each common share repurchased, a unit of TRG partnership interest is similarly redeemed.

(6)	Proceeds were used to redeem $113 million of our remaining 8.30% Series A Cumulative Redeemable Preferred Stock.

(7)	Proceeds were used to redeem $87 million of our outstanding $200 million 8.30% Series A Cumulative Redeemable Preferred Stock.

(8)	Proceeds were used to redeem all of the outstanding TRG 9% Series C and D Cumulative Redeemable Preferred Equity for $100 million.

(9)

Reflects units of partnership interest issued without any corresponding change in our common shares outstanding. With these changes in partnership units outstanding, corresponding changes may also occur in the Series B Preferred Stock (see Note 16 to our financial statements regarding this relationship).

In December 2005, our Board of Directors authorized the purchase of up to $50 million of our common stock on the open market. As of December 31, 2006, we had not purchased any shares or redeemed any units under this program. Repurchases of common stock will be financed through general corporate funds, including equity issuances, and through borrowings under existing lines of credit.

 

Repurchases of common stock in 2004 were under a previous buyback program. As of December 31, 2004, the maximum amount authorized under this program had been repurchased.

GMPT Portfolio and Restructuring

In October 2004, The Mills Corporation finalized its acquisition of 50% interests in nine of General Motors Pension Trusts’ (GMPT) shopping centers, completing a recapitalization of GMPT’s mall portfolio. We reached an agreement with GMPT to cease management of these centers, effective November 1, 2004. We recognized a restructuring charge of $5.7 million during the fourth quarter of 2004 relating to the termination of these contracts. Substantially all of this charge represented employee severance payments.

 

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Other Income

We have certain additional sources of income beyond our rental revenues, recoveries from tenants, and revenues from management, leasing, and development services, as summarized in the following table. Lease cancellation revenue is dependent on the overall economy and performance of particular retailers in specific locations and can vary significantly. Gains on peripheral land sales can also vary significantly from year-to-year, depending on the results of negotiations with tenants, counterparties, and potential purchasers of land, as well as the timing of the transactions. In 2007, we estimate our share of lease cancellation income to be approximately $6 million to $7 million and gains on land sales to be approximately $3 million to $4 million.

		2006						2005						2004
			Consolidated Businesses			Unconsolidated Joint Ventures			Consolidated Businesses			Unconsolidated Joint Ventures			Consolidated Businesses			Unconsolidated Joint Ventures
		(Operating Partnership’s share in millions of dollars)
Other Income:
Shopping center related revenues			21.9			2.6			20.7			3.2			15.5			3.0
Lease cancellation revenue			10.5			2.8			6.5			1.4			7.5			1.7
			32.4			5.4			27.2			4.6			22.9			4.7
Gains on Land Sales and Interest Income:
Gains on sales of peripheral land			4.1						4.4						6.4
Interest income			5.2			0.6			1.6			0.4			1.1			0.1
			9.3			0.6			6.0			0.4			7.5			0.1

(1)   Amounts in this table may not add due to rounding.

 

Subsequent Events

In January 2007, we assumed full management and leasing responsibility of The Pier. We are in final negotiations to increase our ownership percentage in the center from 30% to 50% (see “Planned Capital Spending- New Centers”).

Also in January 2007, Taubman Asia completed the development services agreement for a 1.2 million square foot retail and entertainment complex in New Songdo City, Incheon, South Korea. The shopping complex is scheduled to open in early 2010, with construction beginning in 2007. We have negotiated the opportunity to invest in a portion of the broader project, which will include not only retail, but also office, hotel, and residential uses. We anticipate finalizing our decision on this investment in 2007. In January 2007, we announced our involvement in the retail component of Macao Studio City on the Cotai Strip in Macao. Taubman Asia has signed a term sheet to acquire a minority position in the retail component of the project and will provide development, leasing, and management services, subject to definitive agreements to be completed in the first half of 2007.

In addition, in January 2007, we announced our involvement as a third party leasing agent for a lifestyle center in the city of North Las Vegas, Nevada. This is a mixed use project that will include retail, dining, and entertainment of up to 1.3 million square feet and a residential component consisting of approximately 800 units. The shopping center will open in late 2008. The developer of the residential component is an affiliate of the Taubman family.

Also in January 2007, we acquired land for future development for $15.5 million.

Application of Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the financial statements and disclosures. Some of these estimates and assumptions require application of difficult, subjective, and/or complex judgment, often about the effect of matters that are inherently uncertain and that may change in subsequent periods. We are required to make such estimates and assumptions when applying the following accounting policies.

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Valuation of Shopping Centers

All properties, including those under construction and/or owned by joint ventures, are reviewed for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. Impairment of a shopping center owned by consolidated entities would be 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 discontinued 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, and (5) expected holding period. 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 an impairment has occurred, the excess carrying value of the asset over its estimated fair value is charged against operations. There were no impairment charges recognized in the periods covered within this Annual Report. As of December 31, 2006, the consolidated net book value of our properties was $2.6 billion, representing over 90% of our consolidated assets. We also have varying ownership percentages in the properties of Unconsolidated Joint Ventures with a total combined net book value of $0.8 billion. These amounts include certain development costs that are described in the policy that follows.

Capitalization of Development Costs

In developing shopping centers, we typically obtain land or land options, zoning and regulatory approvals, anchor commitments, and financing arrangements during a process that may take several years and during which we may incur significant costs. We capitalize all development costs once it is considered probable that a project will reach a successful conclusion. Prior to this time, we expense all costs relating to a potential development, including payroll, and include these costs in Funds from Operations (see "Presentation of Operating Results").

Many factors in the development of a shopping center are beyond our control, including (1) changes in the national, regional, and/or local economic climates, (2) competition from other shopping centers, stores, clubs, mailings, and the internet, (3) availability and cost of financing, (4) changes in regulations, laws, and zoning, and (5) decisions made by third parties, including anchors. These factors could cause our assessment of the probability of a development project reaching a successful conclusion to change. If a project subsequently was considered less than probable of reaching a successful conclusion, a charge against operations for previously capitalized development costs would occur.

Our approximately $129.3 million balance of development pre-construction costs as of December 31, 2006 consists primarily of costs relating to our Oyster Bay project in the Town of Oyster Bay, New York. See “Liquidity and Capital Resources - Planned Capital Spending” regarding the status of this project.

Valuation of Accounts Receivable

Rents and expense recoveries from tenants are our principal source of income; they represent over 90% of our revenues. In generating this income, we will routinely have accounts receivable due from tenants. The collectibility of tenant receivables is affected by bankruptcies, changes in the economy, and the ability of the tenants to perform under the terms of their lease agreements. While we estimate potentially uncollectible receivables and provide for them through charges against income, actual experience may differ from those estimates. Also, if a tenant were not able to perform under the terms of its lease agreement, receivable balances not previously provided for may be required to be charged against operations. Bad debt expense was less than 1% of total revenues in 2006, while bankruptcy filings affected 1% of tenant leases during the year. Since 1991, the annual provision for losses on accounts receivable has been less than 2% of annual revenues.

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Valuation of Deferred Tax Assets

Our taxable REIT subsidiaries (TRSs) currently have deferred tax assets, reflecting net operating loss carryforwards and the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. Our temporary differences primarily relate to deferred compensation and depreciation. We reduce our deferred tax assets through valuation allowances to the amount where realization is more likely than not assured, considering all available evidence, including expected future taxable earnings and potential tax planning strategies. Expected future taxable earnings and the implementation of tax planning strategies require certain significant judgments and estimates, including those relating to our management company's profitability, the timing and amounts of gains on land sales, the profitability of our Asian operations, and other factors affecting the results of operations of our TRSs. Changes in any of these factors could cause our estimates of the realization of deferred tax assets to change materially. As of December 31, 2006, we had a consolidated gross deferred tax asset of $8.9 million, reduced to a net deferred tax asset of $3.3 million by a valuation allowance of $5.6 million.

Valuations for Acquired Property and Intangibles

Upon acquisition of an investment property, including that of an additional interest in an asset already partially owned, we make an assessment of the valuation and composition of assets and liabilities acquired. These assessments consider fair values of the respective assets and liabilities and are determined based on estimated future cash flows using appropriate discount and capitalization rates and other commonly accepted valuation techniques. The estimated future cash flows that are used for this analysis reflect the historical operations of the property, known trends and changes expected in current market and economic conditions which would impact the property’s operations, and our plans for such property. These estimates of cash flows and valuations are particularly important given the application of FASB Statement Nos. 141 and 142 for the allocation of purchase price between land, building and improvements, and other identifiable intangibles.

Adoption of New Accounting Pronouncements in 2006

Adoption of Staff Accounting Bulletin No. 108

In September 2006, the Securities and Exchange Commission published Staff Accounting Bulletin No. 108 (SAB 108) “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements.” The interpretations in SAB 108 express the SEC’s staff’s views regarding the process of quantifying financial statement misstatements. The staff’s interpretations resulted from their awareness of a diversity in practice as to how the effect of prior year errors were considered in relation to current year financial statements. Through SAB 108, the staff communicated its belief that allowing prior year errors to remain unadjusted on the balance sheet is not in the best interest of the users of financial statements. SAB 108 became effective for us in the fourth quarter of 2006.

In adopting SAB 108, we changed our method of evaluating financial statement misstatements from a “rollover” (income statement-oriented) approach to SAB 108’s “dual-method” (both an income statement and balance sheet-oriented) approach. In doing so, we identified three misstatements previously considered immaterial to all previous periods under the rollover method but material when evaluated together under the dual-method, as described below. These misstatements were corrected upon adoption of SAB 108.

Accounting for Cherry Creek Shopping Center Ground Rent Prior to 1999

Prior to 1999, Cherry Creek, a venture previously accounted for under the equity method, recognized ground rentals under its 99 year ground lease on a cash basis instead of the straightline method required by Statement of Financial Accounting Standards No. 13, “Accounting for Leases”. This error resulted in us overstating our cumulative equity in the net income of Cherry Creek by a total of $3.5 million from our 1992 acquisition of an interest in the Operating Partnership through December 31, 2005. The maximum misstatement of our equity in the net income of Cherry Creek in any individual year in this period under the rollover method was $0.3 million.

We began consolidating Cherry Creek on January 1, 2006 as a result of adopting EITF 04-5. As a result of the correction of the above error, the cumulative effect of a change in accounting principle upon adoption of EITF 04-5, assets, and liabilities recognized upon the consolidation of Cherry Creek were increased by $7.9 million, $8.3 million and $19.7 million, respectively. Prior to 2006, we accounted for our investment in Cherry Creek under the equity method.

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Recognition of Payroll Costs

We previously recognized our payroll costs in a manner that corresponded to our biweekly pay periods, which do not necessarily end on the last day of the calendar year. Differences caused by not strictly recognizing payroll on a calendar year basis, while previously adjusted on a periodic basis, have resulted in overstatements of net income by a total of $1.0 million over the last decade, with the maximum misstatement in any individual year computed under the rollover method being $0.1 million.

Arizona Mills

In 2006, The Mills Corporation (Mills), which manages our 50% unconsolidated joint venture, Arizona Mills, advised us that Mills had identified errors in prior year financial statements, primarily relating to the timing of writeoffs of tenant allowances, that relate to years prior to 2006. We have not yet received audited financial statements for any period after 2004 from Mills and amounts identified as errors may change as a result of the eventual completion of the Arizona Mills 2005 audit. However, based on the information we have received from Mills, we have determined that the cumulative impact of our share of prior years’ errors identified by Mills to date is an overstatement of our equity by $1.3 million.

Cumulative Effect of Adoption of SAB 108

As a result of applying the guidance in SAB 108, during the year ended December 31, 2006, we recorded a $5.9 million reduction to our shareholders’ equity account (dividends in excess of net income) in our opening balance sheet to correct for the effect of the errors associated with the accounting for Cherry Creek’s ground rent prior to 1999, the recognition of payroll costs, and our share of Arizona Mills’s errors identified by Mills, described above.

Adoption of EITF 04-5

Under guidance in EITF 04-5 "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights" and Statement of Position 78-9, "Accounting for Investments in Real Estate Ventures" (SOP 78-9) as amended by FASB Staff Position 78-9-1 and the corresponding changes and considerations surrounding control, we began consolidating the entity that owns Cherry Creek as of January 1, 2006. This entity was previously accounted for under the equity method in accordance with the provisions of SOP 78-9. As of January 1, 2006, the impact to the balance sheet was an increase in assets of approximately $136 million and liabilities of approximately $196 million, and a $60 million reduction of beginning equity representing the cumulative effect of change in accounting principle.

New Accounting Pronouncements

In December 2006, the FASB issued Staff Position No. EITF 00-19-2, “Accounting for Registration Payment Arrangements.” This Staff Position requires companies that agree to register securities recognize a liability if a payment to investors for failing to fulfill the agreement is probable and its amount can be reasonably estimated. This Staff Position is effective for fiscal years beginning after December 15, 2006. We do not anticipate that the adoption of this Staff Position will have a material effect on our results of operations or financial position.

In September 2006, the FASB issued Statement No. 157 “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies to accounting pronouncements that require or permit fair value measurements, except for share-based payments transactions under FASB Statement No. 123. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. As Statement No. 157 does not require any new fair value measurements or remeasurements of previously computed fair values, we not believe adoption of this Statement will have a material effect on our financial statements.

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In June 2006, the FASB issued Interpretation No. 48, “Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.” This Interpretation defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. We do not anticipate that the adoption of this Statement will have a material effect on our results of operations or financial position.

Presentation of Operating Results

The following tables contain the operating results of our Consolidated Businesses and the Unconsolidated Joint Ventures. Income allocated to the minority partners in the Operating Partnership and preferred interests is deducted to arrive at the results allocable to our common shareowners. Because the net equity of the Operating Partnership is less than zero, the income allocated to the minority partners is equal to their share of distributions. The net equity of these minority partners is less than zero due to accumulated distributions in excess of net income and not as a result of operating losses. Distributions to partners are usually greater than net income because net income includes non-cash charges for depreciation and amortization. Amounts allocable to minority partners in certain consolidated joint ventures are added back or deducted to arrive at our net results. Our average ownership percentage of the Operating Partnership was 65% in 2006, 62% in 2005, and 61% in 2004.

The results of Cherry Creek are presented within the Consolidated Businesses for periods beginning January 1, 2006, as a result of our adoption of EITF 04-5. The results of International Plaza are presented within the Consolidated Businesses for periods beginning July 1, 2004, as a result of our acquisition of a controlling interest in the center. Prior to the respective adoption date and acquisition date, these centers are included within the Unconsolidated Joint Ventures.

The accounts of The Pier, which opened in June 2006, are included within the Unconsolidated Joint Ventures beginning in 2006. As of December 31, 2006, we have a $4 million investment in The Pier. The joint venture partner has guaranteed 100% of the outstanding construction loan and is responsible for funding the completion of development and initial leasing costs of the center and all operating requirements of the center prior to stabilization of the center.

Prior year information for which errors were identified and corrected through an adjustment of beginning (January 1, 2006) shareholders’ equity pursuant to SAB 108 has not been adjusted.

Use of Non-GAAP Measures

The operating results in the following tables include the supplemental earnings measures of Beneficial Interest in EBITDA and Funds from Operations (FFO). Beneficial Interest in EBITDA represents the Operating Partnership’s share of the earnings before interest and depreciation and amortization, excluding gains on sales of depreciated operating properties of its consolidated and unconsolidated businesses. We believe Beneficial Interest in EBITDA provides a useful indicator of operating performance, as it is customary in the real estate and shopping center business to evaluate the performance of properties on a basis unaffected by capital structure.

The National Association of Real Estate Investment Trusts (NAREIT) defines FFO as net income (loss) (computed in accordance with Generally Accepted Accounting Principles (GAAP)), excluding gains (or losses) from extraordinary items and sales of properties, plus real estate related depreciation and after adjustments for unconsolidated partnerships and joint ventures. We believe that FFO is a useful supplemental measure of operating performance for REITs. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, we and most industry investors and analysts have considered presentations of operating results that exclude historical cost depreciation to be useful in evaluating the operating performance of REITs. We primarily use FFO in measuring performance and in formulating corporate goals and compensation.

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Our presentations of EBITDA and FFO are not necessarily comparable to the similarly titled measures of other REITs due to the fact that not all REITs use the same definitions. These measures should not be considered alternatives to net income (loss) or as an indicator of our operating performance. Additionally, neither represents cash flows from operating, investing or financing activities as defined by GAAP. Reconciliations of Net Income (Loss) Allocable to Common Shareowners to Funds from Operations and Net Income to Beneficial Interest in EBITDA are presented following the Comparison of 2005 to 2004. See the following section regarding certain presentation changes affecting EBITDA and FFO.

Presentation Changes

As previously reported for 2005, because of a change in our business practice to offer our tenants the option to pay a fixed charge or pay their share of common area maintenance (CAM) costs and the related change to contractual terms of leases, we began adding back in the fourth quarter of 2005 all depreciation on CAM assets to calculate EBITDA and FFO. Additionally, we have reclassified depreciation on CAM assets from recoverable expenses to depreciation and amortization expense for all periods presented.

Also, as a result of this change in our business practice, we modified our estimated useful lives of CAM assets that are recoverable from tenants as of January 1, 2006. The change in useful lives better aligns the depreciation of common area assets with our lease portfolio. The change in estimate did not have a material effect on the current results of operations but could be material in future periods. The Operating Partnership's share of depreciation on CAM capital expenditures was $15.7 million, $15.7 million, and $14.2 million in 2006, 2005, and 2004, respectively.

During 2006, we began recognizing revenue for marketing and promotion services at the gross amount billed to tenants, rather than a net amount retained (that is, the amount billed to the tenants less the related costs incurred). Revenues are now included in recoveries from tenants and the related expenses in other operating expense. This presentation change was made as a result of our recent offering to tenants of an option to pay fixed amounts for marketing and promotion of the shopping centers. In evaluating the accounting for marketing and promotion services, we considered that there may no longer be a direct relationship between tenant billings and the marketing and promotion costs incurred, as well as the fact that we are the primary obligor on the costs incurred. Historically, revenues from marketing and promotion services have been equal to costs incurred.

In addition, we now separately present gains on peripheral land sales and interest income in the income statement following revenues and expenses.

Prior year revenues and expenses in the following tables have been reclassified as described above to be consistent with the 2006 presentation.

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Comparison of 2006 to 2005

The following table sets forth operating results for 2006 and 2005, showing the results of the Consolidated Businesses and Unconsolidated Joint Ventures:

2006

2005

CONSOLIDATED BUSINESSES

UNCONSOLIDATED JOINT VENTURES AT 100% (1)

CONSOLIDATED BUSINESSES

UNCONSOLIDATED JOINT VENTURES AT 100% (1)

                                                                        (in millions of dollars)

REVENUES:
Minimum rents			311.2			148.8			262.1			184.5
Percentage rents			14.7			8.0			9.8			8.1
Expense recoveries			206.2			85.6			164.6			104.1
Management, leasing and development services			11.8						13.8
Other			35.4			9.7			29.0			8.7
Total revenues			579.3			252.2			479.4			305.4
EXPENSES:
Maintenance, taxes, and utilities			152.9			64.3			126.4			71.3
Other operating			71.6			26.3			57.7			29.6
Management, leasing and development services			5.7						9.1
General and administrative			30.3						27.7
Interest expense (2)			128.6			57.6			121.6			67.6
Depreciation and amortization (3) (4)			138.0			45.8			128.4			54.8
Total operating expenses			527.1			193.9			470.9			223.3
Gains on land sales and interest income			9.5			1.3			6.5			0.8
			61.6			59.6			15.0			82.9
Equity in income of Unconsolidated Joint Ventures (4) (5)			33.5						42.5
Income before gain on disposition of interest in center and   minority and preferred interests			95.1						57.4
Gain on disposition of interest in center (5)									52.8
Minority and preferred interests:
TRG preferred distributions			(2.5	)					(2.5	)
Minority share of consolidated joint ventures			(10.7	)					(0.2	)
Minority share of income of TRG			(22.8	)					(40.4	)
Distributions less than (in excess of) minority share of income			(14.1	)					4.5
Net income			45.1						71.7
Preferred dividends (6)			(23.7	)					(27.6	)
Net income (loss) allocable to common shareowners			21.4						44.1
SUPPLEMENTAL INFORMATION:
EBITDA - 100%			328.2			162.9			265.0			205.3
EBITDA - outside partners' share			(33.2	)		(71.4	)		(14.9	)		(91.9	)
Beneficial interest in EBITDA			295.0			91.6			250.1			113.5
Beneficial interest expense			(115.8	)		(31.2	)		(116.1	)		(37.6	)
Non-real estate depreciation			(2.9	)					(2.1	)
Preferred dividends and distributions			(26.2	)					(30.1	)
Funds from Operations contribution			150.0			60.4			101.8			75.9

(1)

With the exception of the Supplemental Information, amounts include 100% of the Unconsolidated Joint Ventures. Amounts are net of intercompany transactions. The Unconsolidated Joint Ventures are presented at 100% in order to allow for measurement of their performance as a whole, without regard to our ownership interest. In our consolidated financial statements, we account for investments in the Unconsolidated Joint Ventures under the equity method.

(2)

Interest expense for 2006 includes charges of $3.1 million in connection with the write-off of financing costs related to the respective pay off and refinancing of the loans on Willow Bend and Dolphin when the loans became prepayable without penalty, in the first and third quarters of 2006, respectively. Interest expense for 2005 includes a $12.7 million charge incurred in connection with a prepayment premium and the write-off of financing costs related to the refinancing of Short Hills, the pay-off of the Northlake loan, and the debt modifications in connection with the pay-off of the Oyster Bay loan.

(3)	Included in depreciation and amortization of the Consolidated Businesses and Unconsolidated Joint Ventures (at 100%) are $13.4 million and $6.7 million, respectively, of depreciation of center replacement assets for 2006, and $11.5 million and $8.8 million, respectively, for 2005.

(4)

Amortization of the additional basis included in depreciation and amortization was $4.9 million and $4.3 million in 2006 and 2005, respectively. Also, amortization of our additional basis in the Operating Partnership included in equity in income of Unconsolidated Joint Ventures was $1.9 million and $3.0 million in 2006 and 2005, respectively.

(5)	During 2005, a 50% owned unconsolidated joint venture sold its interest in Woodland. Our equity in the gain on the sale is separately presented on the income statement, and is therefore excluded from the equity in income of Unconsolidated Joint Ventures line item.

(6)

Preferred dividends for 2006 include $4.7 million of charges recognized in connection with the redemption of the remaining Series A and Series I Preferred Stock. Preferred dividends for 2005 include a $3.1 million charge recognized in connection with the partial redemption of the Series A Preferred Stock.

(7)	Certain reclassifications have been made to prior year information to conform to current year classifications. Amounts in this table may not add due to rounding.

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Consolidated Businesses

Total revenues for the year ended December 31, 2006 were $579.3 million, a $99.9 million or 20.8% increase over 2005. Minimum rents increased $49.1 million, primarily due to Cherry Creek, which we began consolidating in 2006 upon our adoption of EITF 04-5, and the September 2005 opening of Northlake. Minimum rents also increased due to tenant rollovers. Percentage rents increased due to higher tenant sales and Cherry Creek. Expense recoveries increased primarily due to Cherry Creek and Northlake, and increases in recoverable costs. Management, leasing, and development revenue decreased primarily due to a reduction in reimbursable third party costs, offset by increased revenues related to services from certain contracts. We expect that management, leasing, and development revenue, less related expenses, will be in the range of $6 million to $7 million in 2007. Other income increased primarily due to Cherry Creek, Northlake, and increases in lease cancellation revenue.

Total expenses were $527.1 million, a $56.2 million or 11.9% increase from 2005. Maintenance, taxes, and utilities expense increased primarily due to Cherry Creek, Northlake, and increases in maintenance costs, property taxes, and electricity expense at certain centers. Other operating expense increased primarily due to Cherry Creek and Northlake, as well as increases in bad debt expense, pre-development costs, and professional fees. We expect that pre-development costs for both our domestic and non-U.S. projects, which were $10.1 million in 2006, will be between $10 million and $11 million in 2007. Management, leasing, and development expense decreased primarily due to a reduction in reimbursable third party costs. General and administrative expense increased primarily due to increases in compensation expenses, including bonus expense and the mark-to-market of long term grants that fluctuate with our stock price, which were partially offset by decreased severance costs. We expect that general and administrative expenses will be approximately $7.5 million for each quarter of 2007. Interest expense increased due to Cherry Creek, Northlake, the higher balance on the refinancing of Short Hills, and increases in floating interest rates. These increases were partially offset by the pay-off of the Willow Bend and Oyster Bay loans and reduced rates on refinancings. Interest expense in 2006 also included the write-off of financing costs related to the respective pay-off and refinancing of the loans on Willow Bend and Dolphin, while interest expense in 2005 included charges incurred in connection with a prepayment premium and the write-off of financing costs related to the refinancing of Short Hills, the pay-off of the Northlake loan and a debt modification in connection with the pay-off of the Oyster Bay loan. Depreciation expense increased primarily due to Cherry Creek and Northlake, which were partially offset by a decrease due to fully depreciated assets at certain centers and changes in depreciable lives of tenant and anchor allowances in connection with early terminations during 2005.

Gains on land sales and interest income increased due to higher interest rates and average cash balances in 2006, which were partially offset by a decrease in gains on peripheral land sales.

Unconsolidated Joint Ventures

Total revenues for the year ended December 31, 2006 were $252.2 million, a $53.2 million or 17.4% decrease from 2005. Minimum rents decreased $35.7 million, primarily due to the consolidation of Cherry Creek in 2006 and the sale of Woodland in December 2005, which were partially offset by the opening of The Pier in June 2006, increases in occupancy, and tenant rollovers. Percentage rents remained relatively flat, with decreases due to Cherry Creek, offset by percentage rent from increased tenant sales. Expense recoveries decreased primarily due to Cherry Creek and Woodland, which were partially offset by increased recoverable costs at certain centers and The Pier. Other income increased due to increases in lease cancellation income, which were partially offset by Cherry Creek and Woodland.

Total expenses decreased by $29.4 million to $193.9 million for the year ended December 31, 2006. Maintenance, taxes, and utilities expenses decreased primarily due to Cherry Creek and Woodland, which were partially offset by The Pier and increases in maintenance costs and electricity expense at certain centers. Other operating expense decreased primarily due to Cherry Creek, Woodland, and decreases in professional fees, which were partially offset by increases related to The Pier and bad debt expense. Interest expense decreased due to Cherry Creek, which was partially offset by The Pier and the new financing of Waterside. Depreciation expense decreased primarily due to Cherry Creek and Woodland, which was partially offset by The Pier.

As a result of the foregoing, income of the Unconsolidated Joint Ventures decreased by $23.3 million to $59.6 million. Our equity in income of the Unconsolidated Joint Ventures was $33.5 million, a $9.0 million decrease from 2005.

Net Income

Our income before the gain on disposition of our interest in Woodland and minority and preferred interests increased by $37.7 million to $95.1 million for 2006. In 2005, we recognized our $52.8 million share of the gain on the disposition of Woodland. Minority share of income of consolidated joint ventures increased due to Cherry Creek (see "Presentation of Operating Results"). Preferred dividends in 2006 include $4.7 million of charges related to the redemption of the remaining Series A and Series I Preferred Stock. Preferred dividends in 2005 include a $3.1 million charge related to the partial redemption of the Series A Preferred Stock (see “Equity Transactions”). After allocation of income to minority and preferred interests, the net income allocable to common shareowners for 2006 was $21.4 million compared to $44.1 million in 2005.

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Comparison of 2005 to 2004

The following table sets forth operating results for 2005 and 2004, showing the results of the Consolidated Businesses and Unconsolidated Joint Ventures:

2005

2004

CONSOLIDATED BUSINESSES

UNCONSOLIDATED JOINT VENTURES AT 100% (1)

CONSOLIDATED BUSINESSES

UNCONSOLIDATED JOINT VENTURES AT 100% (1)

                       (in millions of dollars)

REVENUES:
Minimum rents			262.1			184.5			235.1			195.0
Percentage rents			9.8			8.1			6.3			6.5
Expense recoveries			164.6			104.1			150.7			110.1
Management, leasing and development services			13.8						21.3
Other			29.0			8.7			23.4			9.5
Total revenues			479.4			305.4			436.8			321.2
EXPENSES:
Maintenance, taxes, and utilities			126.4			71.3			118.4			76.0
Other operating			57.7			29.6			51.5			30.9
Restructuring loss									5.7
Costs related to unsolicited tender offer, net of recoveries									(1.0	)
Management, leasing and development services			9.1						17.5
General and administrative			27.7						26.6
Interest expense (2)			121.6			67.6			95.9			74.0
Depreciation and amortization (3) (4)			128.4			54.8			110.2			60.0
Total expenses			470.9			223.3			424.8			240.9
Gains on land sales and interest income			6.5			0.8			7.9			0.2
			15.0			82.9			19.9			80.6
Equity in income of Unconsolidated Joint Ventures (4) (5)			42.5						40.1
Income before gain on disposition of interest in center, discontinued operations, and minority and preferred interests			57.4						60.0
Gain on disposition of interest in center (5)			52.8
Discontinued operations-
Net gain on disposition of interest in center									0.3
Minority and preferred interests:
TRG preferred distributions (6)			(2.5	)					(12.2	)
Minority share of consolidated joint ventures			(0.2	)					0.0
Minority share of income of TRG			(40.4	)					(14.9	)
Distributions less than (in excess of) minority share of income			4.5						(20.8	)
Net income			71.7						12.4
Preferred dividends (7)			(27.6	)					(17.4	)
Net income (loss) allocable to common shareowners			44.1						(5.1	)
SUPPLEMENTAL INFORMATION:
EBITDA - 100%			265.0			205.3			226.0			214.6
EBITDA - outside partners' share			(14.9	)		(91.9	)		(6.2	)		(99.4	)
Beneficial interest in EBITDA			250.1			113.5			219.8			115.2
Beneficial interest expense			(116.1	)		(37.6	)		(92.9	)		(39.9	)
Non-real estate depreciation			(2.1	)					(2.4	)
Preferred dividends and distributions			(30.1	)					(29.7	)
Funds from Operations contribution			101.8			75.9			94.8			75.3

(1)

With the exception of the Supplemental Information, amounts include 100% of the Unconsolidated Joint Ventures. Amounts are net of intercompany transactions and exclude the gain on the sale of Woodland (Note 5). The Unconsolidated Joint Ventures are presented at 100% in order to allow for measurement of their performance as a whole, without regard to our ownership interest. In our consolidated financial statements, we account for investments in the Unconsolidated Joint Ventures under the equity method.

(2)

Interest expense for 2005 includes a $12.7 million charge incurred in connection with a prepayment premium and the write-off of financing costs related to the refinancing of Short Hills, the pay-off of the Northlake loan, and the debt modifications in connection with the pay-off of the Oyster Bay loan.

(3)	Included in depreciation and amortization of the Consolidated Businesses and Unconsolidated Joint Ventures (at 100%) are $11.5 million and $8.5 million, respectively, of depreciation of center replacement assets for 2005, and $9.1 million and $9.6 million, respectively, for 2004.

(4)

Amortization of the additional basis included in depreciation and amortization was $4.3 million and $4.2 million in 2005 and 2004, respectively. Also, amortization of our additional basis in the Operating Partnership included in equity in income of Unconsolidated Joint Ventures was $3.0 million in both 2005 and 2004.

(5)	During 2005, a 50% owned unconsolidated joint venture sold its interest in Woodland. Our equity in the gain on the sale is separately presented on the income statement, and is therefore excluded from the equity in income of Unconsolidated Joint Ventures line item.

(6)	TRG preferred distributions for 2004 include a $2.7 million charge incurred in connection with the redemption of the Series C and D preferred equity.

(7)	Preferred dividends in 2005 include a $3.1 million charge incurred in connection with the partial redemption of the Series A Preferred Stock.

(8)	Amounts in this table may not add due to rounding. Certain reclassifications have been made to prior year information to conform to current year classifications.

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Consolidated Businesses

Total revenues for the year ended December 31, 2005 were $479.4 million, a $42.6 million or 9.8% increase over 2004. Minimum rents increased $27.0 million, due to International Plaza, which we began consolidating upon the acquisition of a controlling interest in the center, the September 2005 opening of Northlake and increases in occupancy, tenant rollovers, and income from temporary tenants and specialty retailers. Percentage rents increased due to International Plaza and higher tenant sales. Expense recoveries increased due to International Plaza, Northlake, and increases in recoverable costs at certain centers, which were partially offset by a decrease in revenue from marketing and promotion services. Management, leasing, and development revenue decreased primarily due to the loss of revenue from the nine GMPT management contracts, which were cancelled in November 2004, and were partially offset by revenue from the MGM Project CityCenter and Salt Lake City contracts and cost reimbursements related to Taubman Asia. Other income increased primarily due to increases in parking-related revenue and sponsorship income.

Total expenses were $470.9 million, a $46.1 million or 10.9% increase from 2004. Recoverable expenses increased primarily due to International Plaza and Northlake, as well as increases in maintenance costs, electricity expense, and property taxes at certain centers. Other operating expense increased primarily due to office and deal pursuit costs in Asia, International Plaza, and overhead no longer allocable to the GMPT management contracts, offset by a decrease in bad debt expense. During 2004, $1.0 million of insurance proceeds were received relating to costs expended in connection with an unsolicited tender offer in 2003. Also during 2004, a $5.7 million restructuring loss was recognized. Substantially all of this charge represented employee severance payments and benefits. Management, leasing, and development expense decreased primarily due to the cancellation of the GMPT management contracts, with certain overhead costs previously allocated to the contracts now being recognized as other operating expenses or general and administrative expense. This was partially offset by expenses related to the MGM Project CityCenter and Salt Lake City contracts and activities related to Taubman Asia. In addition to the increase related to expenses that were previously allocated to GMPT, general and administrative expense increased due to professional fees, travel, and severance costs, which were offset by a decrease in bonus grants outstanding that fluctuate with our stock price. Interest expense increased due to charges incurred in 2005 in connection with a prepayment premium and the write-off of financing costs related to the refinancing of Short Hills, the pay-off of the Northlake loan and a debt modification in connection with the pay-off of the Oyster Bay loan. Other interest expense increases were due to International Plaza, the refinancings of Wellington Green and Stony Point Fashion Park (Stony Point), as well as the opening of Northlake and increases in floating interest rates. Depreciation expense increased primarily due to International Plaza, Northlake, and changes in depreciable lives of tenant and anchor allowances in connection with early terminations.

Gains on land sales and interest income decreased due to decreases in gains on sales of peripheral land, which were partially offset by increased interest income.

Unconsolidated Joint Ventures

Total revenues for the year ended December 31, 2005 were $305.4 million, a $15.8 million or 4.9% decrease from 2004. Minimum rents decreased $10.5 million, primarily due to the consolidation of International Plaza, which was partially offset by increases in occupancy and tenant rollovers. Percentage rents increased due to higher tenant sales. Expense recoveries decreased due to International Plaza, offset by increases at other centers.

Total expenses decreased by $17.6 million to $223.3 million for the year ended December 31, 2005. Recoverable expenses decreased primarily due to International Plaza. Other operating expense decreased primarily due to International Plaza, partially offset by increases in professional fees and other expenses. Interest expense decreased primarily due to International Plaza and the payoff of debt on Woodland and Stamford Town Center. Depreciation expense decreased primarily due to International Plaza.

As a result of the foregoing, income of the Unconsolidated Joint Ventures increased by $2.3 million to $82.9 million. Our equity in income of the Unconsolidated Joint Ventures was $42.5 million, a $2.4 million increase from 2004.

Net Income

As a result of the foregoing, our income before the gain on disposition of our interest in Woodland, discontinued operations and minority and preferred interests decreased by $2.6 million to $57.4 million for 2005. In 2005, we recognized our $52.8 million share of the gain on disposition of Woodland. Discontinued operations in 2004 included a $0.3 million adjustment to the gain on the disposition of Biltmore Fashion Park. Preferred dividends in 2005 include a $3.1 million charge related to the partial redemption of the Series A preferred stock, while TRG preferred distributions in 2004 include a $2.7 million charge incurred in connection with the redemption of the Series C and Series D Preferred Equity. After allocation of income to minority and preferred interests, the net income (loss) allocable to common shareowners for 2005 was $44.1 million compared to $(5.1) million in 2004.

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Reconciliation of Net Income (Loss) Allocable to Common Shareowners to Funds from Operations

			2006			2005			2004
		(in millions of dollars, except as indicated)
Net income (loss) allocable to common shareowners			21.4			44.1			(5.1	)
Add (less) depreciation and gains on dispositions of properties:
Gains on dispositions of interests in centers						(52.8	)		(0.3	)
Depreciation and amortization (1) :
Consolidated businesses at 100%			138.0			128.4			110.2
Minority partners in consolidated joint ventures			(14.6	)		(9.3	)		(3.2	)
Share of unconsolidated joint ventures			26.9			33.4			35.2
Non-real estate depreciation			(2.9	)		(2.1	)		(2.4	)
Add minority interests in TRG:
Minority share of income in TRG			22.8			40.4			14.9
Distributions (less than) in excess of minority share of income of TRG			14.1			(4.5	)		20.8
Distributions in excess of minority share of income of consolidated joint ventures			4.9			0.2
Funds from Operations			210.4			177.7			170.1
TCO’s average ownership percentage of TRG			65.0	%		62.2	%		60.6	%
Funds from Operations allocable to TCO			136.7			110.6			103.1

 

(1)

Depreciation includes $10.2 million, $10.1 million, and $8.1 million of mall tenant allowance amortization for the years ended December 31, 2006, 2005, and 2004, respectively. Depreciation also includes TRG’s beneficial interest in depreciation of center replacement assets recoverable from tenants of $15.7 million, $15.7 million, and $14.2 million for the years ended December 31, 2006, 2005, and 2004, respectively.

(2)	Amounts in this table may not add due to rounding.

Reconciliation of Net Income to Beneficial Interest in EBITDA

			2006			2005			2004
		(in millions of dollars, except as indicated)
Net income			45.1			71.7			12.4
Add (less) depreciation and gains on dispositions of properties:
Gains on dispositions of interests in centers						(52.8	)		(0.3	)
Depreciation and amortization:
Consolidated businesses at 100%			138.0			128.4			110.2
Minority partners in consolidated joint ventures			(14.6	)		(9.3	)		(3.2	)
Share of unconsolidated joint ventures			26.9			33.4			35.2
Add (less) preferred interests and interest expense:
Preferred distributions			2.5			2.5			12.2
Interest expense:
Consolidated businesses at 100%			128.6			121.6			95.9
Minority partners in consolidated joint ventures			(12.9	)		(5.5	)		(3.1	)
Share of unconsolidated joint ventures			31.2			37.6			39.9
Add minority interests in TRG:
Minority share of income in TRG			22.8			40.4			14.9
Distributions (less than) in excess of minority share of income of TRG			14.1			(4.5	)		20.8
Distributions in excess of minority share of income of consolidated joint ventures			4.9			0.2
Beneficial interest in EBITDA			386.5			363.5			335.0
TCO’s average ownership percentage of TRG			65.0	%		62.2	%		60.6	%
Beneficial interest in EBITDA allocable to TCO			251.1			226.4			202.9

 

(1)	Amounts in this table may not add due to rounding.

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Liquidity and Capital Resources

In the following discussion, references to beneficial interest represent the Operating Partnership’s ownership share of the results of its consolidated and unconsolidated businesses. We do not have, and have not had, any parent company indebtedness; all debt discussed represents obligations of the Operating Partnership or its subsidiaries and joint ventures.

Capital resources are required to maintain our current operations, pay dividends, and fund planned capital spending for projects under construction, future developments, and other commitments and contingencies. We believe that our net cash provided by operating activities, distributions from our joint ventures, the unutilized portions of our credit facilities, and our ability to access the capital markets assure adequate liquidity to meet current and future cash requirements and will allow us to conduct our operations in accordance with our dividend and financing policies. The following sections contain information regarding our recent capital transactions and sources and uses of cash; beneficial interest in debt and sensitivity to interest rate risk; contractual obligations; covenants, commitments, and contingencies; and historical capital spending. We then provide information regarding our anticipated future capital spending and our dividend policies.

Summaries of 2006 Capital Activities and Transactions

As of December 31, 2006, we had a consolidated cash balance of $26.3 million. Our cash balance includes $2.0 million that is restricted to specific uses stipulated by our lenders, including ground lease payments, taxes, insurance, debt service, capital improvements, leasing costs, and tenant allowances. Additionally, we have a secured $350 million line of credit. This line had $60.0 million of borrowings as of December 31, 2006. We also have available a second secured bank line of credit of up to $40 million, which had $8.1 of borrowings as of December 31, 2006. Our $350 million line of credit matures in February 2009 and has a one year extension option. The $40 million line of credit matures in February 2008.

During 2006, we:

 

·	Completed financings of approximately $1.1 billion relating to our $350 million revolving line of credit, Cherry Creek, Northlake, Partridge Creek, the land under Sunvalley, and Waterside and paid off floating rate loans on Willow Bend and Oyster Bay.

·	Acquired a 50% interest in the land under Sunvalley.

·	Redeemed $113 million of preferred stock.

·	Continued to be active in construction and development activities for both existing centers and centers currently under development.

These transactions are more fully described in “Results of Operations” and “Capital Spending”.

Operating Activities

Our net cash provided by operating activities was $223.5 million in 2006, compared to $184.6 million in 2005 and $135.5 million in 2004. In 2006, increases in cash related primarily to increases in rents, recoveries, lease cancellation revenue, the consolidation of Cherry Creek, and the full year of operations of Northlake. In 2005, increases in cash related primarily to increases in rents, the opening of Northlake, and additional operating cash flows due to International Plaza, which we began consolidating upon acquisition of a controlling interest in the center. Included in interest expense in 2005 was a prepayment premium paid in connection with the Short Hills refinancing in December 2005 (see "Debt Transactions"). In 2004, increases in cash related primarily to increases in rents and recoveries and additional operating cash flows due to the full year of operations of Stony Point, offset by payments of costs previously accrued in connection with the unsolicited tender offer, restructuring and other costs.

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Investing Activities

Net cash used in investing activities was $131.5 million in 2006 compared to $91.1 million in 2005 and $243.6 million in 2004. Cash used in investing activities was impacted by the timing of capital expenditures, with additions to properties in 2006, 2005, and 2004 for the construction of Northlake, Partridge Creek, Stony Point, the expansion and renovation at Twelve Oaks, and our Oyster Bay Project, as well as other development activities and other capital items. A tabular presentation of 2006 capital spending is shown in “Capital Spending”. During 2004, $58.5 million, net of cash transferred in, was used to purchase an additional interest in International Plaza, and $3.3 million was used to acquire an additional interest in Beverly. Contributions to Unconsolidated Joint Ventures of $25.3 million in 2006 were made primarily to purchase land that Sunvalley is located on and to fund the expansion at Waterside (see “Capital Spending - Existing Centers”), while $30.4 million of contributions in 2005 were made primarily for the purchase of anchor spaces at Stamford Town Center and Cherry Creek, the initial contribution to The Pier (see "Capital Spending - New Centers"), and to fund construction at Waterside, while $72.3 million of contributions in 2004 were made primarily to fund the repayment of debt at Stamford and Woodland.

Sources of cash used in funding these investing activities, other than cash flows from operating activities, included distributions from Unconsolidated Joint Ventures, as well as the transactions described under Financing Activities. Distributions in excess of earnings from Unconsolidated Joint Ventures provided $57.6 million in 2006, which included $39.5 million of proceeds from the Waterside financing. Distributions in excess of earnings from Unconsolidated Joint Ventures provided $17.1 million and $20.2 million in 2005 and 2004, respectively, and included amounts for Cherry Creek which was consolidated in 2006 and Woodland which was sold in 2005. Net proceeds from sales of peripheral land were $5.4 million, $6.1 million and $11.5 million in 2006, 2005, and 2004, respectively. The timing of land sales is variable and proceeds from land sales can vary significantly from period to period. During 2005, $76.4 million of escrowed cash was received in connection with the sale of Woodland and used in 2006 for the purchase of replacement property. In addition a $9.0 million note received in connection with the sale of Woodland was collected during the first quarter of 2006.

Financing Activities

Net cash used in financing activities was $231.6 million in 2006, compared to $41.0 million of cash provided in 2005, and $106.8 million of cash used in 2004.

Net cash used in or provided by financing activities was primarily impacted by cash requirements of the investing activities described in the preceding section. Proceeds from the issuance of debt, net of payments and issuance costs, were $51.6 million in 2006, compared to $157.4 million in 2005 and $236.5 million in 2004. In 2006 we used the proceeds from the issuance of the $113 million Series I Preferred Stock to redeem the remaining outstanding Series A Preferred Stock. The Series I Preferred Stock was then redeemed using available cash. In 2005 we used $87 million in proceeds from the issuance of Series H Preferred Stock to redeem a portion of Series A Preferred Stock. In 2004, issuance of Series F Preferred Equity contributed $30 million and we used proceeds from the issuance of the $100 million Series G Preferred Stock to redeem all of the outstanding Series C and D Cumulative Redeemable Preferred Equity. Equity issuance costs were $0.6 million, $3.2 million, and $4.1 million in 2006, 2005, and 2004, respectively. Issuance of stock and partnership units related to the exercise of employee options contributed $6.7 million in 2005 and $10.4 million in 2004. The third party owner of Partridge Creek contributed $9.0 million in 2006 to fund the project (see “Contractual Obligations - The Mall at Partridge Creek Contractual Obligations” regarding the ownership structure of this project). Repurchases of common stock totaled $50.2 million in 2004. Total dividends and distributions paid were $178.6 million, $119.9 million, and $115.8 million in 2006, 2005, and 2004, respectively. Distributions to minority interests in 2006 include $45.3 million of excess proceeds from the refinancing of Cherry Creek.

Beneficial Interest in Debt

At December 31, 2006, the Operating Partnership's debt and its beneficial interest in the debt of its Consolidated and Unconsolidated Joint Ventures totaled $2,585.3 million, with an average interest rate of 5.69% excluding amortization of debt issuance costs and the effects of interest rate hedging instruments. These costs are reported as interest expense in the results of operations. Interest expense for the year ended December 31, 2006 includes $0.6 million of non-cash amortization relating to acquisitions, or 0.02% of the average all-in rate. Included in beneficial interest in debt is debt used to fund development and expansion costs. Beneficial interest in construction work in progress totaled $241.0 million as of December 31, 2006, which includes $227.1 million of assets on which interest is being capitalized. Beneficial interest in capitalized interest was $9.8 million for 2006. The following table presents information about our beneficial interest in debt as of December 31, 2006:

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		Amount			Interest Rate Including Spread
		(in millions of dollars)
Fixed rate debt			2,478.5			5.66%	(1)
Floating rate debt -
Floating month to month			106.8	(2)		6.22	(1)
Total beneficial interest in debt			2,585.3			5.69	(1)
Amortization of financing costs (3)						0.17	%
Average all-in rate						5.86	%

(1)	Represents weighted average interest rate before amortization of financing costs.

(2)	$15 million of floating rate debt is swapped at 5.95% from January 2, 2007 to November 1, 2012.

(3)	Financing costs include financing fees, interest rate cap premiums, and losses on settlement of derivatives used to hedge the refinancing of certain fixed rate debt.

(4)	Amounts in table may not add due to rounding.

In 2006, we entered into three forward starting swaps for $150 million to partially hedge interest rate risk associated with the planned refinancing of International Plaza in January 2008. The weighted average forward swap rate for these three swaps is 5.33%, excluding the credit spread.

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, 2006, a one percent increase or decrease in interest rates on this floating rate debt would decrease or increase cash flows by approximately $0.9 million and, due to the effect of capitalized interest, annual earnings by approximately $0.8 million. Based on our consolidated debt and interest rates in effect at December 31, 2006, a one percent increase in interest rates would decrease the fair value of debt by approximately $126.2 million, while a one percent decrease in interest rates would increase the fair value of debt by approximately $134.9 million.

Contractual Obligations

In conducting our business, we enter into various contractual obligations, including those for debt, capital leases for property improvements, operating leases for land and office space, purchase obligations (primarily for construction), and other long-term commitments. Detail of these obligations as of December 31, 2006 for our consolidated businesses, including expected settlement periods, is contained below:

		Payments due by period
			Total		Less than 1 year (2007)		1-3 years (2008-2009)		3-5 years (2010-2011)		More than 5 years (2012+)
		(in millions of dollars)
Debt (1)			2,319.5		16.6		271.2		246.7		1,785.1
Interest payments			923.9		129.7		237.9		215.2		341.0
Capital lease obligations			8.1		3.9		4.3
Operating leases			369.7		8.1		15.9		14.7		331.0
Purchase obligations:
Planned capital spending (2)			201.9		201.9
Other purchase obligations (3)			7.8		2.4		2.9		1.3		1.2
Other long-term liabilities (4)			81.9		8.9		4.6		1.9		66.5
Total			3,912.8		371.5		536.8		479.8		2,524.8

(1)	The settlement periods for debt do not consider extension options. Amounts relating to interest on floating rate debt are calculated based on the debt balances and interest rates as of December 31, 2006.

(2)	As of December 31, 2006, we were contractually committed for $90.9 million of this planned spending. See “Planned Capital Spending” for detail regarding planned spending.

(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.

(5)	Amounts in this table may not add due to rounding.

 

 

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The Mall at Partridge Creek Contractual Obligations

In May 2006, we engaged the services of a third-party investor to acquire certain property associated with Partridge Creek, in order to facilitate a Section 1031 like-kind exchange to provide flexibility for disposing of assets in the future. The third-party investor became the owner of the project and leases the land from one of our subsidiaries. In turn, the owner leases the project back to us.

Funding for the project is provided by the following sources. We provide approximately 45% of the project funding under a junior subordinated financing. The owner has provided $9 million in equity. Funding for the remaining project costs is being provided by the owner’s third-party construction loan, which has a balance of $22.0 million as of December 31, 2006 (see “Debt Transactions”).

We are the construction manager for the project and have an option to purchase the property and assume the ground lease from the owner during the 30-month exchange period ending December 2008. The option, if exercised, will provide the owner a 12% cumulative return on its equity. In the event that we do not exercise our right to purchase the property from the owner, the owner will have the right to sell all of its interest in the property, provided that the purchaser shall assume all of the obligations and be assigned all of the owner's rights under the ground lease, the operating lease, and any remaining obligations under the loans.

 

We have guaranteed the lease payments on the operating lease (excluding annual supplemental rent equal to 1.67% of the owner's outstanding equity balance, commencing after the exchange period) as well as completion of the project. The lease payments are structured to cover debt service, ground rent payments, and other expenses of the lessor. We consolidate the accounts of the owner and the junior loan and other intercompany transactions are eliminated in consolidation.

Loan Commitments and Guarantees

Certain loan agreements contain various restrictive covenants, including minimum net worth requirements, minimum debt service coverage ratios, a maximum payout ratio on distributions, a maximum leverage ratio, a minimum debt yield ratio, and a minimum fixed charges coverage ratio, the latter being the most restrictive. The Operating Partnership is in compliance with all of its covenants.

Payments of principal and interest on the loans in the following table are guaranteed by the Operating Partnership as of December 31, 2006.

Center			Loan balance as of 12/31/06			TRG's beneficial interest in loan balance as of 12/31/06			Amount of loan balance guaranteed by TRG as of 12/31/06			% of loan balance guaranteed by TRG			% of interest guaranteed by TRG
		(in millions of dollars)
Dolphin Mall			5.0			5.0			5.0			100	%		100	%
Fairlane Town Center			55.0			55.0			55.0			100	%		100	%
The Mall at Millenia			0.3			0.2			0.2			50	%		50	%
Twelve Oaks Mall			-			-			-			100	%		100	%

In 2006, the $350 million revolver was amended by the Operating Partnership. Under the revised terms, borrowings under the line of credit are primary obligations of the entities owning Dolphin, Fairlane, and Twelve Oaks, which are the collateral for the line of credit. The Operating Partnership and the entities owning Fairlane and Twelve Oaks are guarantors under the credit agreement.

In addition, we have guaranteed certain obligations of Partridge Creek (see “Contractual Obligations”) and the payment of $3.7 million related to the remaining development costs and certain tenant allowances for Northlake.

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Cash Tender Agreement

A. Alfred Taubman has the annual right to tender to us units of partnership interest in the Operating Partnership (provided that the aggregate value is at least $50 million) 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 (the Cash Tender Agreement). At A. Alfred Taubman's election, his family, and certain others may participate in tenders. We will have the option to pay for these interests from available cash, borrowed funds, or from the proceeds of an offering of our common stock. Generally, we expect to finance these purchases through the sale of new shares of our 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 TCO.

We account for the cash tender agreement between us and Mr. Taubman as a freestanding written put option. As the option put price is defined by the current price of our 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, 2006 of $50.86 per common share, the aggregate value of interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $1.3 billion. The purchase of these interests at December 31, 2006 would have resulted in our owning an additional 31% interest in the Operating Partnership.

Capital Spending

Capital spending for routine maintenance of the shopping centers is generally recovered from tenants. Capital spending during 2006, excluding acquisitions, is summarized in the following table:

		2006 (1)
			Consolidated Businesses			Beneficial Interest in Consolidated Businesses			Unconsolidated Joint Ventures			Beneficial Interest in Unconsolidated Joint Ventures
		(in millions of dollars)
New Development Projects:
Pre-construction development activities (2)			25.6			25.6
New centers (3)			41.4			41.4
Existing Centers:
Renovation projects with incremental GLA and/or anchor replacement (4)			38.8			38.8			33.2			9.9
Renovations with no incremental GLA effect and other			9.0			8.7			4.9			2.4
Mall tenant allowances (5)			14.6			14.1			5.1			2.5
Asset replacement costs reimbursable by tenants			14.0			12.9			5.3			3.0
Corporate office improvements and equipment			8.6			8.6
Additions to properties			151.9			150.0			48.5			17.9

(1)	Costs are net of intercompany profits and are computed on an accrual basis.

(2)	Primarily includes project costs of Oyster Bay.

(3)	Includes costs related to Partridge Creek.

(4)	Includes costs related to the renovation of the former Filene's space at Stamford Town Center, the expansion at Twelve Oaks, and the expansion and renovation of Waterside.

(5)	Excludes initial lease-up costs.

(6)	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 cash additions (on a cash basis) to properties as presented in our Consolidated Statement of Cash Flows for the year ended December 31, 2006:

			(in millions   of dollars)
Consolidated Businesses’ capital spending			151.9
Differences between cash and accrual basis			26.4
Additions to properties			178.3

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Capital spending during 2005, excluding acquisitions, is summarized in the following table:

		2005 (1)
			Consolidated Businesses			Beneficial Interest in Consolidated Businesses			Unconsolidated Joint Ventures			Beneficial Interest in Unconsolidated Joint Ventures
		(in millions of dollars)
New Development Projects:
Pre-construction development activities (2)			31.8			31.8
New centers (3)			106.3			106.3
Existing Centers:
Renovation projects with incremental GLA and/or anchor replacement (4)			2.6			2.6			49.4			19.7
Renovations with no incremental GLA effect and other			4.2			4.1			3.1			1.6
Mall tenant allowances (5)			13.2			12.2			5.6			2.9
Asset replacement costs reimbursable by tenants			9.8			9.2			8.0			4.6
Corporate office improvements and equipment			5.2			5.2
Additions to properties			173.1			171.5			66.1			28.8

(1)	Costs are net of intercompany profits and are computed on an accrual basis.

(2)	Primarily includes project costs of Oyster Bay.

(3)	Primarily includes costs related to Northlake and Partridge Creek.

(4)	Includes costs related to the acquisition of the former Filene's space at Stamford Town Center, the former Lord & Taylor space at Cherry Creek, and the expansion and renovation of Waterside.

(5)	Excludes initial lease-up costs.

(6)	Amounts in this table may not add due to rounding.

The Operating Partnership's share of mall tenant allowances per square foot leased, committed under contracts during the year, excluding expansion space and new developments, was $19.05 in 2006 and $19.84 in 2005. In addition, the Operating Partnership's share of capitalized leasing and tenant coordination costs excluding new developments, was $6.6 million in both 2006 and 2005, or $5.64 and $6.09, in 2006 and 2005, respectively, per square foot leased.

Planned Capital Spending

New Centers

Partridge Creek, a 640,000 square foot center, is under construction in Clinton Township, Michigan. The center will be anchored by Nordstrom, Parisian, and MJR Theatres, and is scheduled to open on October 18, 2007, with Nordstrom opening in spring 2008. Our investment in this center will be approximately $155 million and we are expecting a stabilized return of 9.5%.

The Pier, located in Atlantic City, New Jersey and developed by Gordon Group Holdings LLC (Gordon), began opening in phases in June 2006. In January 2005, we contributed $4 million as a first payment to acquire a 30% interest in the center. We are in final negotiations to increase our ownership of The Pier from 30% to 50%. Our original agreement with Gordon specified we would purchase the 30% interest at a 7% capitalization rate based on The Pier’s 2007 net operating income (NOI). We have now negotiated that the entire 50% interest will be purchased at a 7% capitalization rate based on The Pier’s 2008 NOI. Given the phased openings at the center, we do not expect a full run rate before 2008. Therefore, the asset is not likely to contribute significantly to our earnings and FFO in 2007. We expect to close on our agreement with Gordon in the first quarter of 2007 when we also expect to close on a refinancing for The Pier, which will pay off the $86 million balance on the existing floating rate loan. We assumed full management and leasing of The Pier in January 2007. The Pier is accounted for under the equity method.

 

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We are negotiating agreements regarding City Creek Center, a mixed-use project in Salt Lake City, Utah. Demolition of the existing structures began in November 2006 and the project is expected to open in 2011. The retail component of the project will include approximately 300,000 square feet of tenant GLA and three department stores, including Dillard’s, Macy’s, and Nordstrom. We have been a consultant throughout the planning process for this project and will develop, manage, lease, and own the retail space. We are currently in the final stages of refining the agreements that will govern our investment in the retail portion. When complete, we will provide the anticipated costs and returns.

A new 1.2 million square foot retail and entertainment complex in New Songdo City, Incheon, South Korea is scheduled to open in early 2010, with construction beginning in 2007. We have negotiated the opportunity to invest in a portion of the broader project, which will include not only retail, but also office, hotel, and residential uses. We anticipate finalizing our decision on this investment in 2007.

In January 2007, we announced our involvement in the retail component of Macao Studio City on the Cotai Strip in Macao. Taubman Asia has signed a term sheet to acquire a minority position in the retail component of the project and will provide development, leasing, and management services, subject to definitive agreements to be completed in the first half of 2007.

In October 2006, we announced that we are seeking a final decision in the Supreme Court of the State of New York (Suffolk County) on our land use plan for our Oyster Bay project in Syosset, Long Island, New York. Although the timing is uncertain, we believe it is likely the court ruling will occur in the next two to three months. We believe we will be successful in this litigation and we will ultimately build the mall. Depending on the timing of the construction and opening of the mall, which will be anchored by Neiman Marcus, Nordstrom, and Barneys New York, we anticipate spending as much as $500 million on this project. Assuming $500 million of cost we expect a minimum return of 7%. We expect success with the litigation, but if we are ultimately unsuccessful it is anticipated that the recovery on this asset would be significantly less than our current investment. Our cost in this project as of December 31, 2006 was $128.2 million. With capitalized interest, storage costs and ongoing expenses we expect our investment to increase $4 million to $5 million each quarter.

Existing Centers

Construction has been completed on an expansion and renovation of tenant space at Waterside at a cost of approximately $52 million. We expect a return of approximately 11% on our $13 million share of project costs. In addition, Nordstrom will join the center as an anchor in fall 2008 and an expansion of the current anchor, Saks Fifth Avenue, will be completed in late 2007 with a full renovation of the store expected to be completed by summer 2008.

At Twelve Oaks, construction is underway on an addition of a 165,000 square foot Nordstrom. In addition, the project includes a 60,000 square foot expansion and renovation of Macy’s (previously Marshall Fields), and approximately 97,000 square feet of additional new store space. A grand opening is planned for September 28, 2007. We expect a return of approximately 10% on our estimated cost of $63 million.

Construction is underway on a lifestyle component addition to Stamford Town Center, on the site once occupied by Filene's department store. The project, which is 100% leased, will consist of a mix of signature retail and restaurant offerings, creating significantly greater visibility to the city and much-needed pedestrian access to the center. We expect a 7.5% to 8% return on the $51 million project, which is expected to open in November 2007.

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The following table summarizes planned capital spending for 2007, excluding The Pier, as well as costs related to City Creek Center, Asia projects, and other projects or expansions for which budgets have not yet been approved by the Board of Directors:

		2007 (1)
			Consolidated Businesses			Beneficial Interest in Consolidated Businesses			Unconsolidated Joint Ventures			Beneficial Interest in Unconsolidated Joint Ventures
		(in millions of dollars)
New development projects (2)			120.1			120.1
Existing centers (3)			80.8			77.8			55.1			28.7
Corporate office improvements and equipment			1.0			1.0
Total			201.9			198.9			55.1			28.7

(1)	Costs are net of intercompany profits.

(2)	Primarily includes costs related to Partridge Creek and Oyster Bay.

(3)	Primarily includes costs related to the expansion and renovation of Twelve Oaks and Stamford Town Center.

(4)	Amounts in this table may not add due to rounding.

Estimates of future capital spending include only projects approved by our Board of Directors and, consequently, estimates will change as new projects are approved. Costs of potential development projects, including our exploration of development possibilities in Asia, are expensed until we conclude that it is probable that the project will reach a successful conclusion.

Disclosures regarding planned capital spending, including estimates regarding capital expenditures, occupancy, and returns on new developments presented above 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) financing considerations, (7) actual time to complete projects, (8) changes in economic climate, (9) competition from others attracting tenants and customers, (10) increases in operating costs, (11) timing of tenant openings, and (12) early lease terminations and bankruptcies.

Dividends

We pay regular quarterly dividends to our common and Series G and Series H preferred shareowners. Dividends to our common shareowners are at the discretion of the Board of Directors and depend on the cash available to us, our financial condition, capital and other requirements, and such other factors as the Board of Directors deems relevant. To qualify as a REIT, we must distribute at least 90% of our REIT taxable income to our shareowners, as well as meet certain other requirements. Preferred dividends accrue regardless of whether earnings, cash availability, or contractual obligations were to prohibit the current payment of dividends.

 

On December 7, 2006, we declared a quarterly dividend of $0.375 per common share that was paid on January 19, 2007 to shareowners of record on December 29, 2006. We declared a quarterly dividend of $0.50 per share on our 8% Series G Preferred Stock, paid December 29, 2006 to shareowners of record on December 19, 2006. We also declared a quarterly dividend of $0.4765625 per share on our 7.625% Series H Preferred Stock, paid on December 29, 2006 to shareholders of record on December 19, 2006.

The annual determination of our common dividends is based on anticipated Funds from Operations available after preferred dividends, 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.

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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 Firms thereon are filed pursuant to this Item 8 and are included in this report at Item 15.

Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

Item 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this annual report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined by SEC Rule 13a-15(e)). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

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 2006 evaluation of such internal control that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. OTHER INFORMATION.

Not applicable.

PART III *

Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the captions “Proposal 1-Election of Directors—Directors and Executive Officers,” “Proposal 1-Election of Directors—The Board of Directors and Committees,” "Proposal 1-Election of Directors—Corporate Governance,” and “Additional Information—Section 16(a) Beneficial Ownership Reporting Compliance.”

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Item 11. EXECUTIVE COMPENSATION.

The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the captions "Proposal 1-Election of Directors—Director Compensation,” “Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” and “Executive Compensation Tables.”

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 equity compensation plans as of December 31, 2006:

			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: (1) (2)
Incentive Option Plan			1,115,376		$	32.55			1,114,611
The Taubman Company 2005 Long-Term Incentive Plan			261,685				(3)		1,235,061
			1,377,061		$	32.55			2,349,672
Equity compensation plan not approved by security holders: (4)
Non-Employee Directors’ Deferred Compensation Plan			7,981				(5)			(6)
			1,385,042		$	32.55			2,349,672

(1)

Consists of TRG's 1992 Incentive Option Plan, as amended, and The Taubman Company 2005 Long-Term Incentive Plan. Under the 1992 Incentive Option Plan, employees receive Units of Partnership Interest in TRG upon the exercise of their vested options, and each Unit can be converted into one share of Common Stock under the Continuing Offer. Under The Taubman Company 2005 Long-Term Incentive Plan, employees receive restricted stock units, which represent the right to one share of Common Stock upon vesting. The Taubman Centers, Inc. Non-Employee Directors' Stock Grant Plan was also approved by security holders, but is not included in the table above because issuances under such plan consist of stock grants with no exercise price and such plan does not have a limit on the aggregate number of shares that can be issued thereunder. Under the Taubman Centers, Inc. Non-Employee Directors' Stock Grant Plan, non-employee directors received grants of Common Stock on a quarterly basis having a value of $3,750 in 2006 and will receive in 2007 grants of Common Stock on a quarterly basis having a value of $12,500.

(2)	No options were exercised or granted between January 1, 2007 and February 26, 2007. In addition, no restricted stock units were granted between January 1, 2007 and February 26, 2007.

(3)	Excludes restricted stock units issued under The Taubman Company 2005 Long-Term Incentive Plan because they are converted into Common Stock on a one-for-one basis at no additional cost.

(4)

Consists of the Company's Non-Employee Directors' Deferred Compensation Plan, which was approved by the Board in May 2005. The Deferred Compensation Plan 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.

(5)	The restricted stock units are excluded because they are converted into Common Stock on a one-for-one basis at no additional cost.

(6)	The number of securities available for future issuance is unlimited and will reflect whether non-employee directors elect to defer all or a portion of their annual retainers.

Additional information required by this item is hereby incorporated by reference to the table and related footnotes appearing in the Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management.”

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the caption “Related Person Transactions,” and "Proposal 1-Election of Directors—The Board of Directors and Committees.”

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the caption “Audit Committee Disclosure,” and “Report of the Audit Committee.”

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*   The Compensation Committee Report on Executive Compensation and the Audit Committee Report appearing in the Proxy Statement are not incorporated by reference in this Annual Report on Form 10-K or in any other report, registration statement, or prospectus of the Registrant.

PART IV

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:

TAUBMAN CENTERS, INC.	Page
Management's Annual Report on Internal Control Over Financial Reporting	F-2
Reports of Independent Registered Public Accounting Firm	F-3
Consolidated Balance Sheet as of December 31, 2006 and 2005	F-5
Consolidated Statement of Operations for the years ended December 31, 2006, 2005, and 2004	F-6
Consolidated Statement of Shareowners' Equity for the years ended December 31, 2006, 2005, and 2004	F-7
Consolidated Statement of Cash Flows for the years ended December 31, 2006, 2005, and 2004	F-8
Notes to Consolidated Financial Statements	F-9

15(a)(2)

The following is a list of the financial statement schedules required by Item 15(d):

TAUBMAN CENTERS, INC.
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2006, 2005, and 2004	F-34
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2006	F-35

3(a)	--	Restated By-Laws of Taubman Centers, Inc. (incorporated herein by reference to Exhibit 3 filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (“2005 Second Quarter Form 10-Q”)).
3(b)	--	Restated Articles of Incorporation of Taubman Centers, Inc. (incorporated herein by reference to Exhibit 3 filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006).
4(a)	--	Loan Agreement dated as of January 15, 2004 among La Cienega Associates, as Borrower, Column Financial, Inc., as Lender (incorporated herein by reference to Exhibit 4 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 ("2004 First Quarter Form 10-Q"))
4(b)	--	Assignment of Leases and Rents, La Cienega Associates, Assignor, and Column Financial, Inc., Assignee, dated as of January 15, 2004 (incorporated herein by reference to Exhibit 4 filed with the 2004 First Quarter Form 10-Q).

4(c)

--

Leasehold Deed of Trust, with Assignment of Leases and Rents, Fixture Filing, and Security Agreement, dated as of January 15, 2004, from La Cienega Associates, Borrower, to Commonwealth Land Title Company, Trustee, for the benefit of Column Financial, Inc., Lender (incorporated herein by reference to Exhibit 4 filed with the 2004 First Quarter Form 10-Q).

4(d)	--	Amended and Restated Promissory Note A-1, dated December 14, 2005, by Short Hills Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K dated December 16, 2005).
4(e)	--	Amended and Restated Promissory Note A-2, dated December 14, 2005, by Short Hills Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K dated December 16, 2005).

4(f)	--	Amended and Restated Promissory Note A-3, dated December 14, 2005, by Short Hills Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by reference to Exhibit 4.3 of the Registrant’s Current Report on Form 8-K dated December 16, 2005).
4(g)	--	Amended and Restated Mortgage, Security Agreement and Fixture Filings, dated December 14, 2005 by Short Hills Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by reference to Exhibit 4.4 of the Registrant’s Current Report on Form 8-K dated December 16, 2005).
4(h)	--	Amended and Restated Assignment of Leases, dated December 14, 2005, by Short Hills Associates L.L.C. to Metropolitan Life Insurance Company (incorporated by reference to Exhibit 4.5 of the Registrant’s Current Report on Form 8-K dated December 16, 2005).
4(i)	--	Amended and Restated Secured Revolving Credit Agreement, dated as of August 9, 2006, by and among Dolphin Mall Associates Limited Partnership, Fairlane Town Center LLC and Twelve Oaks Mall, LLC, as Borrowers, Eurohypo AG, New York Branch, as Administrative Agent and Lead Arranger, and the various lenders and agents on the signature pages thereto (incorporated herein by reference to Exhibit 4.1 filed with the Registrant’s Current Report on Form 8-K dated August 9, 2006).
4(j)	--	Second Amended and Restated Mortgage, Assignment of Leases and Rents and Security Agreement, dated as of August 9, 2006, by and between Dolphin Mall Associates Limited Partnership and Eurohypo AG, New York Branch, as Administrative Agent (incorporated herein by reference to Exhibit 4.5 filed with the Registrant’s Current Report on Form 8-K dated August 9, 2006).

4(k)	--	Amended and Restated Mortgage, dated as of August 9, 2006, by and between Fairlane Town Center LLC and Eurohypo AG, New York Branch, as Administrative Agent (incorporated herein by reference to Exhibit 4.3 filed with the Registrant’s Current Report on Form 8-K dated August 9, 2006).
4(l)	--	Amended and Restated Mortgage, dated as of August 9, 2006, by and between Twelve Oaks Mall, LLC and Eurohypo AG, New York Branch, as Administrative Agent (incorporated herein by reference to Exhibit 4.4 filed with the Registrant’s Current Report on Form 8-K dated August 9, 2006).
4(m)	--	Guaranty of Payment, dated as of August 9, 2006, by and among The Taubman Realty Group Limited Partnership, Fairlane Town Center LLC and Twelve Oaks Mall, LLC (incorporated herein by reference to Exhibit 4.2 filed with the Registrant’s Current Report on Form 8-K dated August 9, 2006).
*10(a)	--	The Taubman Realty Group Limited Partnership 1992 Incentive Option Plan, as Amended and Restated Effective as of September 30, 1997 (incorporated herein by reference to Exhibit 10(b) filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997).
*10(b)	--	First Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive Option Plan as Amended and Restated Effective as of September 30, 1997, effective January 1, 2002 (incorporated herein by reference to Exhibit 10(b) filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001 (“2001 Form 10-K”)).

*10(c)	--	Second Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive Plan as Amended and Restated Effective as of September 30, 1997 (incorporated herein by reference to Exhibit 10(c) filed with the 2004 Form 10-K).
*10(d)	--	Third Amendment to The Taubman Realty Group Limited Partnership 1992 Incentive Plan as Amended and Restated Effective as of September 30, 1997 (incorporated herein by reference to Exhibit 10(d) filed with the 2004 Form 10-K).
*10(e)	--	The Form of The Taubman Realty Group Limited Partnership 1992 Incentive Option Plan Option Agreement (incorporated herein by reference to Exhibit 10(e) filed with the 2004 Form 10-K).

 

 

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10(f)	--	Master Services Agreement between The Taubman Realty Group Limited Partnership and the Manager (incorporated herein by reference to Exhibit 10(f) filed with the 1992 Form 10-K).
10(g)	--	Amended and Restated Cash Tender Agreement among Taubman Centers, Inc., The Taubman Realty Group Limited Partnership, and A. Alfred Taubman, A. Alfred Taubman, acting not individually but as Trustee of the A. Alfred Taubman Restated Revocable Trust, and TRA Partners, (incorporated herein by reference to Exhibit 10 (a) filed with the 2000 Second Quarter Form 10-Q).
*10(h)	--	Supplemental Retirement Savings Plan (incorporated herein by reference to Exhibit 10(i) filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994).
*10(i)	--	The Taubman Company Long-Term Compensation Plan (as amended and restated effective January 1, 2000) (incorporated herein by reference to Exhibit 10 (c) filed with the 2000 Second Quarter Form 10-Q).
*10(j)	--	First Amendment to the Taubman Company Long-Term Compensation Plan (as amended and restated effective January 1, 2000) (incorporated herein by reference to Exhibit 10(m) filed with the 2004 Form 10-K).
*10(k)	--	Second Amendment to the Taubman Company Long-Term Performance Compensation Plan (as amended and restated effective January 1, 2000).
*10(l)	--	The Taubman Company 2005 Long-Term Incentive Plan (incorporated herein by reference to the Form DEF14A filed with the Securities and Exchange Commission on April 5, 2005).
*10(m)	--	Employment Agreement between The Taubman Company Limited Partnership and Lisa A. Payne (incorporated herein by reference to Exhibit 10 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997).
*10(n)	--	Change of Control Agreement, dated July 17, 2006, by and among the Company, Taubman Realty Group Limited Partnership, and Lisa A. Payne (incorporated herein by reference to Exhibit 10.2 filed with the Registrant’s Current Report on Form 8-K dated July 17, 2006).
*10(o)	--	Form of Change of Control Agreement (incorporated herein by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K dated July 17, 2006).

10(p)	--	Second Amended and Restated Continuing Offer, dated as of May 16, 2000. (incorporated herein by reference to Exhibit 10 (b) filed with the 2000 Second Quarter Form 10-Q).
10(q)	--	The Second Amendment and Restatement of Agreement of Limited Partnership of the Taubman Realty Group Limited Partnership dated September 30, 1998 (incorporated herein by reference to Exhibit 10 filed with the Registrant’s Quarterly Report on Form 10-Q dated September 30, 1998).

10(r)	--	Annex II to Second Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of The Taubman Realty Group Limited Partnership. (incorporated herein by reference to Exhibit 10(p) filed with Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999 (“1999 Form 10-K”)).
10(s)	--	Annex III to The Second Amendment and Restatement of Agreement of Limited Partnership of The Taubman Realty Group Limited Partnership, dated as of May 27, 2004 (incorporated by reference to Exhibit 10(c) filed with the 2004 Second Quarter Form 10-Q).

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10(t)	--	First Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of the Taubman Realty Group Limited Partnership dated September 30, 1998 (incorporated herein by reference to Exhibit 10(b) filed with the Registrant’s Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2002 (“2002 Second Quarter Form 10-Q/A”)).
10(u)	--	Second Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of The Taubman Realty Group Limited Partnership effective as of September 3, 1999 (incorporated herein by reference to Exhibit 10(a) filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (“1999 Third Quarter Form 10-Q”)).
10(v)	--	Third Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of the Taubman Realty Group Limited Partnership, dated May 2, 2003 (incorporated herein by reference to Exhibit 10(a) filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (“2003 Second Quarter Form 10-Q”)).
10(w)	--	Fourth Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of the Taubman Realty Group Limited Partnership, dated December 31, 2003 (incorporated herein by reference to Exhibit 10(x) filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003).
10(x)	--	Fifth Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of the Taubman Realty Group Limited Partnership, dated February 1, 2005 (incorporated herein by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K filed on February 7, 2005).
10(y)	--	Sixth Amendment to the Second Amendment and Restatement of Agreement of Limited Partnership of the Taubman Realty Group Limited Partnership, dated March 29, 2006 (incorporated herein by reference to Exhibit 10 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).
10(z)	--	Amended and Restated Shareholders' Agreement dated as of October 30, 2001 among Taub-Co Management, Inc., The Taubman Realty Group Limited Partnership, The A. Alfred Taubman Restated Revocable Trust, and Taub-Co Holdings LLC (incorporated herein by reference to Exhibit 10(q) filed with the 2001 Form 10-K).
*10(aa)	--	The Taubman Realty Group Limited Partnership and The Taubman Company LLC Election and Option Deferral Agreement (incorporated herein by reference to Exhibit 10(r) filed with the 2001 Form 10-K).
10(ab)	--	Operating Agreement of Taubman Land Associates, a Delaware Limited Liability Company, dated October 20, 2006.

10(ac)

--

Amended and Restated Agreement of Partnership of Sunvalley Associates, a California general partnership (incorporated herein by reference to Exhibit 10(a) filed with the 2002 Second Quarter Form 10-Q/A).

*10(ad)	--	Summary of Compensation for the Board of Directors of Taubman Centers, Inc. (incorporated herein by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K dated December 7, 2004).
*10(ae)	--	Summary of Compensation for the Board of Directors of Taubman Centers, Inc.
*10(af)	--	The Form of The Taubman Company Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10 of the Registrant’s Current Report on Form 8-K dated May 18, 2005).
*10(ag)	--	The Taubman Centers, Inc. Non-Employee Directors' Deferred Compensation Plan (incorporated by reference to Exhibit 10 of the Registrant’s Current Report on Form 8-K dated May 18, 2005).

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*10(ah)	--	The Form of The Taubman Centers, Inc. Non-Employee Directors' Deferred Compensation Plan (incorporated by reference to Exhibit 10 of the Registrant’s Current Report on Form 8-K dated May 18, 2005).
12	--	Statement Re: Computation of Taubman Centers, Inc. Ratio of Earnings to Combined Fixed Charges and Preferred Dividends.
21	--	Subsidiaries of Taubman Centers, Inc.
24	--	Powers of Attorney.
31(a)	--	Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)	--	Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32(a)	--	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32(b)	--	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99(a)	--	Debt Maturity Schedule.
99(b)	--	Real Estate and Accumulated Depreciation Schedule of the Unconsolidated Joint Ventures of The Taubman Realty Group Limited Partnership.

*	A management contract or compensatory plan or arrangement required to be filed.

15(b)

The list of exhibits filed with this report is set forth in response to Item 15(a)(3). The required exhibit index has been filed with the exhibits.

15(c)

The financial statement schedules of the Company listed at Item 15(a)(2) are filed pursuant to this Item 15(c).

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