UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: March 31, 2013
Commission File No. 1-11530

Taubman Centers, Inc.
(Exact name of registrant as specified in its charter)

Michigan
 
38-2033632
(State or other jurisdiction of
incorporation or organization)
 
 
(I.R.S. Employer Identification No.)
200 East Long Lake Road, Suite 300, Bloomfield Hills, Michigan
 
48304-2324
(Address of principal executive offices)
 
(Zip code)
 
(248) 258-6800
(Registrant's telephone number, including area code)
 
 
 
 
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x  Yes  o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer,” “accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  x    Accelerated Filer  o   Non-Accelerated Filer  o    Smaller Reporting Company o
(Do not check if a smaller reporting company)

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o  Yes x  No

As of April 29, 2013 there were outstanding 63,768,363 shares of the Company's common stock, par value $0.01 per share.


Table of Contents

TAUBMAN CENTERS, INC.
CONTENTS



PART I – FINANCIAL INFORMATION
Item 1.
 
 
Consolidated Balance Sheet – March 31, 2013 and December 31, 2012
 
 
Consolidated Statement of Changes in Equity – Three Months Ended March 31, 2013 and 2012
 
Consolidated Statement of Cash Flows – Three Months Ended March 31, 2013 and 2012
 
Item 2.
Item 3.
Item 4.

PART II – OTHER INFORMATION  
Item 1.
Item 1A.
Item 6.
 
 
 
 

1
Table of Contents

TAUBMAN CENTERS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
 
 
March 31
2013
 
December 31 2012
Assets:
 
 
 
Properties
$
4,282,213

 
$
4,246,000

Accumulated depreciation and amortization
(1,422,799
)
 
(1,395,876
)
 
$
2,859,414

 
$
2,850,124

Investment in Unconsolidated Joint Ventures (Notes 2 and 4)
212,875

 
214,152

Cash and cash equivalents
73,730

 
32,057

Restricted cash (Note 5)
5,185

 
6,138

Accounts and notes receivable, less allowance for doubtful accounts of $4,032 and $3,424 in 2013 and 2012
62,130

 
69,033

Accounts receivable from related parties
1,850

 
2,009

Deferred charges and other assets (Note 2)
87,328

 
94,982

Total Assets
$
3,302,512

 
$
3,268,495

 
 
 
 
Liabilities:
 
 
 
Notes payable (Note 5)
$
2,832,385

 
$
2,952,030

Accounts payable and accrued liabilities
270,350

 
278,098

Distributions in excess of investments in and net income of Unconsolidated Joint Ventures (Note 4)
384,223

 
383,293

 
$
3,486,958

 
$
3,613,421

Commitments and contingencies (Notes 5, 7, 8, 9, and 10)


 


 
 
 
 
Equity:
 

 
 

Taubman Centers, Inc. Shareowners’ Equity:
 

 
 

Series B Non-Participating Convertible Preferred Stock, $0.001 par and liquidation value, 40,000,000 shares authorized, 25,316,898 and 25,327,699 shares issued and outstanding at March 31, 2013 and December 31, 2012
$
25

 
$
25

Series J Cumulative Redeemable Preferred Stock, 7,700,000 shares authorized, no par, $192.5 million liquidation preference, 7,700,000 shares issued and outstanding at March 31, 2013 and December 31, 2012
 
 
 
Series K Cumulative Redeemable Preferred Stock, 6,800,000 shares authorized, no par, $170.0 million liquidation preference, 6,800,000 shares issued and outstanding at March 31, 2013 (Note 6). No shares outstanding or authorized at December 31, 2012.
 
 
 
Common Stock, $0.01 par value, 250,000,000 shares authorized, 63,677,971 and 63,310,148 shares issued and outstanding at March 31, 2013 and December 31, 2012
637

 
633

Additional paid-in capital
822,088

 
657,071

Accumulated other comprehensive income (loss)
(23,572
)
 
(22,064
)
Dividends in excess of net income
(895,446
)
 
(891,283
)
 
$
(96,268
)
 
$
(255,618
)
Noncontrolling interests (Note 7)
(88,178
)
 
(89,308
)
 
$
(184,446
)
 
$
(344,926
)
Total Liabilities and Equity
$
3,302,512

 
$
3,268,495


See notes to consolidated financial statements.

2
Table of Contents

TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except share data)
 
Three Months Ended March 31
 
2013
 
2012
Revenues:
 
 
 
Minimum rents
$
102,309

 
$
93,744

Percentage rents
5,628

 
4,403

Expense recoveries
64,037

 
56,477

Management, leasing, and development services
3,382

 
8,648

Other
7,901

 
5,992

 
$
183,257

 
$
169,264

Expenses:
 

 
 
Maintenance, taxes, utilities, and promotion
$
46,557

 
$
41,698

Other operating
16,163

 
16,310

Management, leasing, and development services
2,026

 
8,522

General and administrative
12,236

 
8,407

Interest expense
34,452

 
37,527

Depreciation and amortization
37,022

 
36,434

 
$
148,456

 
$
148,898

Nonoperating income
2,237

 
124

Income before income tax expense and equity in income of Unconsolidated Joint Ventures
$
37,038

 
$
20,490

Income tax expense (Note 3)
(1,028
)
 
(214
)
Equity in income of Unconsolidated Joint Ventures (Note 4)
10,346

 
11,901

Net income
$
46,356

 
$
32,177

Net income attributable to noncontrolling interests (Note 7)
(14,570
)
 
(10,585
)
Net income attributable to Taubman Centers, Inc.
$
31,786

 
$
21,592

Distributions to participating securities of TRG (Note 9)
(442
)
 
(403
)
Preferred stock dividends (Note 6)
(3,600
)
 
(3,658
)
Net income attributable to Taubman Centers, Inc. common shareowners
$
27,744


$
17,531

 
 
 
 
Net income
$
46,356

 
$
32,177

Other comprehensive income (Note 13):
 

 
 
Unrealized gain on interest rate instruments and other
432

 
2,785

Cumulative translation adjustment
(2,859
)
 
 
Reclassification adjustment for amounts recognized in net income
375

 
245

 
$
(2,052
)
 
$
3,030

Comprehensive income
$
44,304

 
$
35,207

Comprehensive income attributable to noncontrolling interests
(14,030
)
 
(11,585
)
Comprehensive income attributable to Taubman Centers, Inc.
$
30,274

 
$
23,622

 
 
 
 
Basic earnings per common share (Note 11)
$
0.44

 
$
0.30

 
 
 
 
Diluted earnings per common share (Note 11)
$
0.43

 
$
0.30

 
 
 
 
Cash dividends declared per common share
$
0.5000

 
$
0.4625

 
 
 
 
Weighted average number of common shares outstanding – basic
63,415,922


58,247,148


See notes to consolidated financial statements.

3
Table of Contents

TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
THREE MONTHS ENDED MARCH 31, 2013 AND 2012
(in thousands, except share data)

 
Taubman Centers, Inc. Shareowners’ Equity
 
 
 
 
 
Preferred Stock
 
Common Stock
 
Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Dividends in Excess of Net Income
 
Non-Redeemable Noncontrolling Interests
 
Total Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance, January 1, 2012
33,941,958

 
$
26

 
58,022,475

 
$
580

 
$
673,923

 
$
(27,613
)
 
$
(863,040
)
 
$
(124,324
)
 
$
(340,448
)
Share-based compensation under employee and director benefit plans (Note 9)
 

 
 

 
705,452

 
7

 
(7,725
)
 
 

 
 

 
 

 
(7,718
)
Tax impact of share-based compensation (Note 3)
 
 
 
 
 
 
 
 
190

 
 
 
 
 
 
 
190

Adjustments of noncontrolling interests (Note 7)
(1,900
)
 
 
 
 
 
 
 
(381
)
 
8

 
 
 
294

 
(79
)
Dividend equivalents (Note 9)
 

 
 

 
 

 
 

 
 

 
 

 
(33
)
 
 
 
(33
)
Dividends and distributions (excludes $611 of distributions attributable to redeemable noncontrolling interests) (Note 7)
 

 
 

 
 

 
 

 
 

 
 

 
(31,206
)
 
(15,518
)
 
(46,724
)
Net income (excludes $924 of net loss attributable to redeemable noncontrolling interests) (Note 7)
 

 
 

 
 

 
 

 
 

 
 

 
21,592

 
11,509

 
33,101

Other comprehensive income (Note 8):
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Unrealized gain on interest rate instruments and other (excludes $45 of other comprehensive loss attributable to redeemable noncontrolling interests) (Note 7)
 

 
 

 
 

 
 

 
 

 
1,861

 
 

 
879

 
2,740

Reclassification adjustment for amounts recognized in net income
 

 
 

 
 

 
 

 
 

 
169

 
 

 
76

 
245

Balance, March 31, 2012
33,940,058

 
$
26

 
58,727,927

 
$
587

 
$
666,007

 
$
(25,575
)
 
$
(872,687
)
 
$
(127,084
)
 
$
(358,726
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2013
33,027,699

 
$
25

 
63,310,148

 
$
633

 
$
657,071

 
$
(22,064
)
 
$
(891,283
)
 
$
(89,308
)
 
$
(344,926
)
Issuance of stock pursuant to Continuing Offer (Notes 9 and 10)
(10,801
)
 
 
 
10,801

 
 
 
 
 
 
 
 

 
 
 
 

Issuance of Series K Preferred Stock, net of offering costs (Note 6)
6,800,000

 
 
 
 
 
 
 
164,389

 
 
 
 
 
 
 
164,389

Share-based compensation under employee and director benefit plans (Note 9)
 

 
 

 
357,022

 
4

 
603

 
 

 
 

 
 

 
607

Tax impact of share-based compensation (Note 3)
 
 
 
 
 
 
 
 
80

 
 
 
 
 
 
 
80

Adjustments of noncontrolling interests (Note 7)
 
 
 
 
 
 
 
 
(55
)
 
4

 
 
 
51

 
—

Contributions from noncontrolling interests
 

 
 

 
 

 
 

 
 

 
 

 
 

 
1,049

 
1,049

Dividend equivalents (Note 9)
 

 
 

 
 

 
 

 
 

 
 

 
(41
)
 
 

 
(41
)
Dividends and distributions
 

 
 

 
 

 
 

 
 

 
 

 
(35,908
)
 
(14,000
)
 
(49,908
)
Net income
 

 
 

 
 

 
 

 
 

 
 

 
31,786

 
14,570

 
46,356

Other comprehensive income (Note 13):
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Unrealized gain on interest rate instruments and other
 

 
 

 
 

 
 

 
 

 
289

 
 

 
143

 
432

Cumulative translation adjustment
 
 
 
 
 
 
 
 
 
 
(2,043
)
 
 
 
(816
)
 
(2,859
)
Reclassification adjustment for amounts recognized in net income
 

 
 

 
 

 
 

 
 

 
242

 
 

 
133

 
375

Balance, March 31, 2013
39,816,898

 
$
25

 
63,677,971

 
$
637

 
$
822,088

 
$
(23,572
)
 
$
(895,446
)
 
$
(88,178
)
 
$
(184,446
)

See notes to consolidated financial statements.

4
Table of Contents

TAUBMAN CENTERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
 
Three Months Ended March 31
 
2013
 
2012
Cash Flows From Operating Activities:
 
 
 
Net income
$
46,356

 
$
32,177

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
37,022

 
36,434

Provision for bad debts
1,051

 
130

Gain on sale of peripheral land
(863
)
 


Gain on sale of marketable securities (Note 12)
(1,323
)
 
 
Other
3,616

 
3,788

Increase (decrease) in cash attributable to changes in assets and liabilities:
 

 
 

Receivables, restricted cash, deferred charges, and other assets
8,036

 
1,194

Accounts payable and other liabilities
(3,710
)
 
(13,031
)
Net Cash Provided By Operating Activities
$
90,185

 
$
60,692

 
 
 
 
Cash Flows From Investing Activities:
 

 
 

Additions to properties
$
(59,378
)
 
$
(93,681
)
Proceeds from sale of peripheral land
6,916

 


Proceeds from sale of marketable securities (Note 12)
2,493

 
 
Repayments of notes receivable
166

 
523

Collection and release of TCBL related proceeds (Note 2)
12,903

 
 
Release of restricted cash
 
 
289,389

Contributions to Unconsolidated Joint Ventures
(29
)
 
(225
)
Investments in Asia Unconsolidated Joint Ventures (Note 2)
(2,835
)
 


Distributions from Unconsolidated Joint Ventures in excess of income
2,865

 
3,554

Net Cash Provided By (Used In) Investing Activities
$
(36,899
)
 
$
199,560

 
 
 
 
Cash Flows From Financing Activities:
 

 
 

Debt proceeds
$
98,571

 
$
85,955

Debt payments
(216,543
)
 
(3,592
)
Repayment of installment notes


 
(281,467
)
Debt issuance costs
(6,408
)
 


Issuance of common stock and/or partnership units in connection with incentive plans
(3,357
)
 
(10,885
)
Issuance of Series K Preferred Stock, net of offering costs
164,389

 
 
Distributions to noncontrolling interests
(14,000
)
 
(16,129
)
Distributions to participating securities of TRG
(442
)
 
(403
)
Contributions from noncontrolling interests
1,049

 
230

Cash dividends to preferred shareowners
(3,128
)
 
(3,658
)
Cash dividends to common shareowners
(31,744
)
 
(27,145
)
Other


 
(90
)
Net Cash Used In Financing Activities
$
(11,613
)
 
$
(257,184
)
 
 
 
 
Net Increase In Cash and Cash Equivalents
$
41,673

 
$
3,068

 
 
 
 
Cash and Cash Equivalents at Beginning of Period
32,057

 
24,033

 
 
 
 
Cash and Cash Equivalents at End of Period
$
73,730

 
$
27,101


See notes to consolidated financial statements.

5
Table of Contents
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1 -
Interim Financial Statements

General

Taubman Centers, Inc. (the Company or TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate investment trust (REIT). The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is a majority-owned partnership subsidiary of TCO that owns direct or indirect interests in all of the Company’s real estate properties. In this report, the term “Company" refers to TCO, the Operating Partnership, and/or the Operating Partnership's subsidiaries as the context may require. The Company engages in the ownership, management, leasing, acquisition, disposition, development, and expansion of regional and super-regional retail shopping centers and interests therein. The Company’s owned portfolio as of March 31, 2013 included 24 urban and suburban shopping centers in 12 states.

Taubman Properties Asia LLC and its subsidiaries (Taubman Asia), which is the platform for the Company’s expansion into China and South Korea, is headquartered in Hong Kong.

The unaudited interim financial statements should be read in conjunction with the audited financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 . In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results of interim periods are not necessarily indicative of the results for a full year.

Dollar amounts presented in tables within the notes to the financial statements are stated in thousands, except share data or as otherwise noted.

Consolidation

The consolidated financial statements of the Company include all accounts of the Company, the Operating Partnership, and its consolidated subsidiaries, including The Taubman Company LLC (the Manager) and Taubman Asia. All intercompany transactions have been eliminated. The entities included in these consolidated financial statements are separate legal entities and maintain records and books of account separate from any other entity. However, inclusion of these separate entities in the consolidated financial statements does not mean that the assets and credit of each of these legal entities are available to satisfy the debts or other obligations of any other such legal entity included in the consolidated financial statements.

Investments in entities not controlled but over which the Company may exercise significant influence (Unconsolidated Joint Ventures or UJVs) are accounted for under the equity method. The Company has evaluated its investments in the Unconsolidated Joint Ventures under guidance for determining whether an entity is a variable interest entity and has concluded that the ventures are not variable interest entities. Accordingly, the Company accounts for its interests in these entities under general accounting standards for investments in real estate ventures (including guidance for determining effective control of a limited partnership or similar entity). The Company’s partners or other owners in these Unconsolidated Joint Ventures have substantive participating rights including approval rights over annual operating budgets, capital spending, financing, admission of new partners/members, or sale of the properties and the Company has concluded that the equity method of accounting is appropriate for these interests. Specifically, the Company’s 79% investment in Westfarms is through a general partnership in which the other general partners have approval rights over annual operating budgets, capital spending, refinancing, or sale of the property.

Ownership

In addition to the Company’s common stock, there are three classes of preferred stock outstanding (Series B, J and K) as of March 31, 2013 . Dividends on the 6.5% Series J Cumulative Redeemable Preferred Stock (Series J Preferred Stock) and the 6.25% Series K Cumulative Redeemable Preferred Stock (Series K Preferred Stock) are cumulative and are paid on the last day of each calendar quarter. The Company owns corresponding Series J and Series K Preferred Equity interests in the Operating Partnership that entitle the Company to income and distributions (in the form of guaranteed payments) in amounts equal to the dividends payable on the Company’s Series J and Series K Preferred Stock. See "Note 6 - Equity Transactions" for further details on the issuance of Series K Preferred Stock.


6
Table of Contents
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Company also is obligated to issue to partners in the Operating Partnership other than the Company, upon subscription, one share of nonparticipating Series B Preferred Stock per each Operating Partnership unit . The Series B Preferred Stock entitles its holders to one vote per share on all matters submitted to the Company’s shareowners and votes together with the common stock on all matters as a single class. The holders of Series B Preferred Stock are not entitled to dividends or earnings. The Series B Preferred Stock is convertible into the Company’s common stock at a ratio of 14,000 shares of Series B Preferred Stock for one share of common stock .

Outstanding voting securities of the Company at March 31, 2013 consisted of 25,316,898 shares of Series B Preferred Stock and 63,677,971 shares of common stock.

The Operating Partnership

At March 31, 2013 , the Operating Partnership’s equity included two classes of preferred equity (Series J and K) and the net equity of the partnership unitholders. Net income and distributions of the Operating Partnership are allocable first to the preferred equity interests, and the remaining amounts to the general and limited partners in the Operating Partnership in accordance with their percentage ownership. The Series J and Series K Preferred Equity are owned by the Company and are eliminated in consolidation.

The Company's ownership in the Operating Partnership at March 31, 2013 consisted of a 72% managing general partnership interest, as well as the Series J and Series K Preferred Equity interests. The Company's average ownership percentage in the Operating Partnership for the three months ended March 31, 2013 and 2012 was 71% and 69% , respectively. At March 31, 2013 , the Operating Partnership had 89,013,319 partnership units outstanding, of which the Company owned 63,677,971 units.

Note 2 -
Acquisitions, Dispositions, and Development

Acquisitions

International Plaza

In December 2012, the Company acquired an additional 49.9% interest in International Plaza from CSAT, LP, which increased its ownership in the center to 100% .

Waterside Shops

In December 2012, the Company acquired an additional 25% interest in Waterside Shops, which brought the Company's ownership interest in the center to 50% . After the acquisition, the Company continues to recognize its investment in Waterside Shops in Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet. The Company's share of the difference between the purchase price and the net book value of the additional interest in the Unconsolidated Joint Venture was estimated to be $52.7 million , which has been preliminarily allocated to land, buildings, improvements, and equipment. In addition, beneficial interest in debt was increased by a $3.9 million purchase accounting premium to record the debt at fair value. The premium is being amortized as a reduction to interest expense over the remaining term of the debt and had a balance of $3.7 million as of March 31, 2013.

Development

The Mall at University Town Center

The Mall at University Town Center, a 0.9 million square foot center, is under construction in Sarasota, Florida. The Company is funding its 50% share of the project. The center will be anchored by Saks Fifth Avenue, Macy's, and Dillard's and is expected to open in October 2014. As of March 31, 2013, the Company has invested $14.1 million in the project.

The Mall of San Juan

The Mall of San Juan, a 0.7 million square foot center, is under construction in San Juan, Puerto Rico. In 2012, the Company closed on the purchase of the land and owns 80% of the project. The center will be anchored by Nordstrom and Saks Fifth Avenue and is expected to open in March 2015. As of March 31, 2013, the Company has capitalized costs of $58.8 million ( $46.7 million at TRG's share).


7
Table of Contents
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Taubman Prestige Outlets Chesterfield

Taubman Prestige Outlets Chesterfield, an outlet project in Chesterfield, Missouri, is under construction. The Company has a 90% ownership interest in the project and expects to open the 0.3 million square foot first phase of this project in August 2013. As of March 31, 2013, the Company has capitalized costs of $69.9 million ( $63.1 million at TRG's share).

Asia

Hanam Union Square

The Company has partnered with Shinsegae Group, South Korea's largest retailer, to build an approximately 1.7 million square foot shopping mall in Hanam, Gyeonggi Province, South Korea. In 2012, upon completion of due diligence, the Company confirmed its 30% interest in the development, which is scheduled to open in 2016. As of March 31, 2013, the Company has invested $76.7 million in the project, including cumulative currency translation adjustments. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.

Retail component of Xi'an Saigao City Plaza

In 2012, the Company entered into a joint venture with Beijing Wangfujing Department Store (Group) Co., Ltd, one of China's largest department store chains. The joint venture will own a 60% controlling interest in and manage an approximately 1.0 million square foot shopping center to be located at Xi'an Saigao City Plaza, a large-scale mixed-use development in Xi'an, China. Through this joint venture, the Company will beneficially own a 30% interest in the shopping center, which is scheduled to open in 2015. As of March 31, 2013 , the Company has invested $50.9 million in the project, including cumulative currency translation adjustments. This investment is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.

Zhengzhou Vancouver Times Square

In 2013, the Company entered into a joint venture with Beijing Wangfujing Department Store (Group) Co., Ltd. The joint venture will own a majority interest in and manage an approximately 1.0 million square foot multi-level shopping center to be located in Zhengzhou, China. Through this joint venture, the Company will beneficially own a 32% interest in the shopping center, which is scheduled to open in 2015. As of March 31, 2013, the Company has invested $0.7 million in the project, which is classified within Investment in Unconsolidated Joint Ventures on the Consolidated Balance Sheet.

Dispositions

TCBL

In 2012, the Company sold assets of the Taubman TCBL business. In connection with the sale, the Company received cash of approximately $4.4 million , while the remaining consideration consisted of approximately $3.6 million held in an escrow account that was pending receipt of consideration in an equivalent amount of Chinese Renminbi, a note receivable of approximately $8.5 million , and other receivables of approximately $0.8 million . In 2013, the Company collected this remaining consideration from the sale. As of December 31, 2012, the cash held in escrow was included within Deferred Charges and Other Assets on the Consolidated Balance Sheet and the note receivable and other receivables were included within Accounts and Notes Receivable on the Consolidated Balance Sheet.

Peripheral Land Sale - Non-Cash Investing Activity

In 2013, the Company recognized a $0.9 million gain on the sale of peripheral land. In connection with this sale, the Company received a $7.4 million note as part of the purchase price consideration. The note, which bears interest at 1% during the first year and 7% in the second year, is due in February 2015 and is collateralized by the land.


8
Table of Contents
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 3 -
Income Taxes

Income Tax Expense

The Company’s income tax expense for the three months ended March 31, 2013 and 2012 is as follows:

 
2013
 
2012
State current
$
156

 
$
43

State deferred
—

 
(4
)
Federal current
152

 
203

Federal deferred
366

 
(34
)
Foreign current
400

 
6

Foreign deferred
(46
)
 
—

Total income tax expense
$
1,028

 
$
214


Deferred Taxes

Deferred tax assets and liabilities as of March 31, 2013 and December 31, 2012 are as follows:
 
2013
 
2012
Deferred tax assets:
 
 
 
Federal
$
3,018

 
$
3,378

Foreign
1,332

 
1,090

State
209

 
182

Total deferred tax assets
$
4,559

 
$
4,650

Valuation allowances
(1,206
)
 
(991
)
Net deferred tax assets
$
3,353

 
$
3,659

Deferred tax liabilities:
 

 
 

Federal
$
608

 
$
609

Foreign
403

 
401

State
119

 
107

Total deferred tax liabilities
$
1,130

 
$
1,117


The Company believes that it is more likely than not the results of future operations will generate sufficient taxable income to recognize the net deferred tax assets. These future operations are primarily dependent upon the Manager’s profitability, the timing and amounts of gains on peripheral land sales, the profitability of Taubman Asia's operations, and other factors affecting the results of operations of the Taxable REIT Subsidiaries. The valuation allowances relate to net operating loss carryforwards and tax basis differences where there is uncertainty regarding their realizability.

The Company realized a tax benefit as additional paid-in capital relating to the redemption of certain share-based compensation awards of $0.1 million and $0.2 million during the three months ended March 31, 2013 and 2012, respectively.  This benefit represents the amount of reduced Federal income tax attributed to the tax deduction that exceeds the recognized deferred tax asset relating to the awards, which was based on their cumulative book compensation cost. This excess tax deduction is due to changes in the fair value of the Company's shares between the grant date (the measurement date for book purposes) and the exercise date (the measurement date for tax purposes) of the awards.


9
Table of Contents
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 4 -
Investments in Unconsolidated Joint Ventures

General Information

The Company owns beneficial interests in joint ventures that own shopping centers. The Operating Partnership is the sole direct or indirect managing general partner or managing member of Fair Oaks, Stamford Town Center, Sunvalley, and Westfarms. The Operating Partnership also provides certain management, leasing, and/or development services to the other shopping centers.
Shopping Center
 
Ownership as of
March 31, 2013 and
December 31, 2012
Arizona Mills
 
50%
Fair Oaks
 
50
Hanam Union Square (under development)
 
Note 2
The Mall at Millenia
 
50
Stamford Town Center
 
50
Sunvalley
 
50
Waterside Shops
 
50
Westfarms
 
79
Retail component of Xi'an Saigao City Plaza (under development)
 
Note 2
Zhengzhou Vancouver Times Square (under development)
 
Note 2

The Company's carrying value of its Investment in Unconsolidated Joint Ventures differs from its share of the partnership or members’ equity reported in the combined balance sheet of the Unconsolidated Joint Ventures due to (i) the Company's cost of its investment in excess of the historical net book values of the Unconsolidated Joint Ventures and (ii) the Operating Partnership’s adjustments to the book basis, including intercompany profits on sales of services that are capitalized by the Unconsolidated Joint Ventures. The Company's additional basis allocated to depreciable assets is recognized on a straight-line basis over 40 years . The Operating Partnership’s differences in bases are amortized over the useful lives or terms of the related assets and liabilities.

In its Consolidated Balance Sheet, the Company separately reports its investment in Unconsolidated Joint Ventures for which accumulated distributions have exceeded investments in and net income of the Unconsolidated Joint Ventures. The net equity of certain joint ventures is less than zero because distributions are usually greater than net income, as net income includes non-cash charges for depreciation and amortization. In addition, any distributions related to refinancing of the centers further decrease the net equity of the centers.

The estimated fair value of the Unconsolidated Joint Ventures’ notes payable was $1.5 billion at March 31, 2013 and December 31, 2012 . The methodology for determining this fair value is consistent with that used for determining the fair value of consolidated mortgage notes payable (Note 12).



10
Table of Contents
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Combined Financial Information

Combined balance sheet and results of operations information is presented in the following table for the Unconsolidated Joint Ventures, followed by the Operating Partnership's beneficial interest in the combined operations information. The combined information of the Unconsolidated Joint Ventures as of March 31, 2013 excludes the balances of Hanam Union Square, the retail component of Xi'an Saigao City Plaza, and Zhengzhou Vancouver Times Square , which are currently under development (Note 2). Beneficial interest is calculated based on the Operating Partnership's ownership interest in each of the Unconsolidated Joint Ventures.
 
March 31
2013
 
December 31
2012
Assets:
 
 
 
Properties
$
1,126,845

 
$
1,129,647

Accumulated depreciation and amortization
(475,936
)
 
(473,101
)
 
$
650,909

 
$
656,546

Cash and cash equivalents
20,597

 
30,070

Accounts and notes receivable, less allowance for doubtful accounts of $1,276 and $1,072 in 2013 and 2012
24,702

 
26,032

Deferred charges and other assets
32,715

 
31,282

 
$
728,923

 
$
743,930

 
 
 
 
Liabilities and accumulated deficiency in assets:
 

 
 

Mortgage notes payable
$
1,488,062

 
$
1,490,857

Accounts payable and other liabilities
58,227

 
68,282

TRG's accumulated deficiency in assets
(471,220
)
 
(470,411
)
Unconsolidated Joint Venture Partners' accumulated deficiency in assets
(346,146
)
 
(344,798
)
 
$
728,923

 
$
743,930

 
 
 
 
TRG's accumulated deficiency in assets (above)
$
(471,220
)
 
$
(470,411
)
TRG's investment in property under development (Note 2)
128,255

 
128,279

TRG basis adjustments, including elimination of intercompany profit
113,249

 
114,136

TCO's additional basis
58,368

 
58,855

Net investment in Unconsolidated Joint Ventures
$
(171,348
)
 
$
(169,141
)
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures
384,223

 
383,293

Investment in Unconsolidated Joint Ventures
$
212,875

 
$
214,152



11
Table of Contents
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 
Three Months Ended March 31
 
2013
 
2012
Revenues
$
67,551

 
$
65,310

Maintenance, taxes, utilities, promotion, and other operating expenses
$
21,491

 
$
20,222

Interest expense
17,197

 
15,667

Depreciation and amortization
9,319

 
8,274

Total operating costs
$
48,007

 
$
44,163

Nonoperating income
8

 
8

Net income
$
19,552

 
$
21,155

 
 
 
 
Net income attributable to TRG
$
10,946

 
$
12,004

Realized intercompany profit, net of depreciation on TRG’s basis adjustments
(113
)
 
384

Depreciation of TCO's additional basis
(487
)
 
(487
)
Equity in income of Unconsolidated Joint Ventures
$
10,346

 
$
11,901

 
 
 
 
Beneficial interest in Unconsolidated Joint Ventures’ operations:
 

 
 

Revenues less maintenance, taxes, utilities, promotion, and other operating expenses
$
26,031

 
$
25,106

Interest expense
(9,376
)
 
(8,094
)
Depreciation and amortization
(6,309
)
 
(5,111
)
Equity in income of Unconsolidated Joint Ventures
$
10,346

 
$
11,901


Note 5 -
Beneficial Interest in Debt and Interest Expense

The Operating Partnership's beneficial interest in the debt, capitalized interest, and interest expense of its consolidated subsidiaries and its Unconsolidated Joint Ventures is summarized in the following table. The Operating Partnership's beneficial interest in the consolidated subsidiaries excludes debt and interest related to the noncontrolling interests in Cherry Creek Shopping Center ( 50% ), International Plaza ( 49.9% ) in 2012 (Note 2), The Mall at Wellington Green ( 10% ), and MacArthur Center ( 5% ).
 
At 100%
 
At Beneficial Interest
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
 
Consolidated Subsidiaries
 
Unconsolidated Joint Ventures
Debt as of:
 
 
 
 
 
 
 
March 31, 2013
$
2,832,385

 
$
1,488,062

 
$
2,665,873

 
$
839,329

December 31, 2012
2,952,030

 
1,490,857

 
2,785,501

 
841,363

 
 
 
 
 
 
 
 
Capitalized interest:
 

 
 

 
 

 
 

Three Months Ended March 31, 2013
$
3,027

(1
)
$
6

 
$
2,929

 
$
3

Three Months Ended March 31, 2012
8

 


 
8

 


 
 
 
 
 
 
 
 
Interest expense:
 

 
 

 
 

 
 

Three Months Ended March 31, 2013
$
34,452

 
$
17,197

 
$
32,289

 
$
9,376

Three Months Ended March 31, 2012
37,527

 
15,667

 
33,321

 
8,094



(1)
The Company capitalizes interest costs incurred in funding its equity contributions to development projects accounted for as UJVs. The capitalized interest cost is included in the Company's basis in its investment in UJVs. Such capitalized interest reduces interest expense in the Company's Consolidated Statement of Operations and Comprehensive Income and in the table above is included within Consolidated Subsidiaries.





12
Table of Contents
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2013 Financings

In February 2013, the Company refinanced its primary revolving line of credit. The new facility increased the borrowing capacity from a $ 650 million secured facility to a $ 1.1 billion unsecured line, which includes an accordion feature that would increase the borrowing capacity to as much as $ 1.5 billion , if fully exercised. The new line matures in March 2017 with a one-year extension option. The new facility bears interest at a range based on the Company's total leverage ratio. As of March 31, 2013, the leverage ratio results in a rate of LIBOR plus 1.45% , down from LIBOR plus 1.75% on the previous facility. TRG is the direct borrower with the entities that own Dolphin Mall, Fairlane Town Center, Twelve Oaks Mall, and The Shops at Willow Bend as guarantors under the line. Unamortized deferred financing costs of $1 million were written off in connection with the refinancing and recognized within interest expense.

In January 2013, a 10-year , $225 million non-recourse refinancing was completed on Great Lakes Crossing Outlets. The payments on the loan, which bears interest at an all-in rate of 3.63% , are based on amortizing principal over 30 years . The existing $126 million , 5.25% fixed rate loan, which was scheduled to mature in March 2013 , was paid off and the approximately $100 million of excess proceeds were used to pay down the revolving lines of credit.

Debt Covenants

Certain loan agreements contain various restrictive covenants, including the following corporate covenants on the Company's primary revolving line of credit: a minimum net worth requirement, a maximum total leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum recourse secured debt ratio, and a maximum payout ratio. In addition, the Company's primary revolving line of credit has unencumbered pool covenants, which currently apply to Dolphin Mall, Fairlane Town Center, Twelve Oaks Mall and The Shops at Willow Bend on a combined basis. These covenants include a minimum number and minimum value of eligible unencumbered assets, a maximum unencumbered leverage ratio, a minimum unencumbered interest coverage ratio, and a minimum unencumbered asset occupancy ratio. The corporate maximum secured leverage ratio is the most restrictive covenant for the Company's primary revolving line of credit. The Company is in compliance with all of its covenants and loan obligations as of March 31, 2013. The maximum payout ratio covenant limits the payment of distributions generally to 95% of funds from operations, as defined in the loan agreements, except as required to maintain the Company's tax status, pay preferred distributions, and for distributions related to the sale of certain assets.

The Company is required to escrow cash balances for specific uses stipulated by certain of its lenders. As of March 31, 2013 and December 31, 2012 , the Company’s cash balances restricted for these uses were $5.2 million and $6.1 million , respectively.

Note 6 -
Equity Transactions

In March 2013, the Company issued 6,800,000 shares of 6.25% Series K Preferred Stock. Net proceeds from the offering were $164.4 million , net of offering costs of $5.6 million . The Series K Preferred Stock has no stated maturity, sinking fund, or mandatory redemption requirements and generally is not convertible into any other security of the Company. The Series K Preferred Stock has a liquidation preference of $170.0 million ( $25 per share). Dividends are cumulative and are paid in arrears on the last day of each calendar quarter, beginning June 28, 2013 for the period from and including March 15, 2013 to June 30, 2013. The Series K Preferred Stock will be redeemable by the Company at par, $25 per share, plus accrued dividends, generally beginning in March 2018. The Company owns corresponding Series K Preferred Equity interests in the Operating Partnership that entitle the Company to income and distributions (in the form of guaranteed payments) in amounts equal to the dividends payable on the Company's Series K Preferred Stock. The Series K Preferred Stock is generally non-voting. The Company's Series K Preferred Stock will rank on parity with its Series J Preferred Stock with respect to the payment of dividends and distributions of assets upon liquidation, dissolution or winding up of its affairs.


13
Table of Contents
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 7 -
Noncontrolling Interests

Redeemable Noncontrolling Interests

The Company's president of Taubman Asia (the Asia President) has an ownership interest in Taubman Asia, a consolidated subsidiary. The Asia President is entitled to 10% of Taubman Asia's dividends, with 85% of his dividends being withheld as contributions to capital. These withholdings will continue until he contributes and maintains his capital consistent with a 10% ownership interest, including all capital funded by the Operating Partnership for Taubman Asia's operating and investment activities subsequent to the Asia President obtaining his ownership interest. The Operating Partnership will have a preferred investment in Taubman Asia to the extent the Asia President has not yet contributed capital commensurate with his ownership interest. This preferred investment will accrue an annual preferential return equal to the Operating Partnership's average borrowing rate (with the preferred investment and accrued return together being referred to herein as the preferred interest). Taubman Asia has the ability to call, and the Asia President has the ability to put, the Asia President’s ownership interest upon specified terminations of the Asia President’s employment, although such put or call right may not be exercised for specified time periods after certain termination events. The redemption price for the ownership interest is generally a nominal amount through 2013 and subsequently 50% (increasing to 100% as early as May 2015) of the fair value of the ownership interest less the amount required to return the Operating Partnership's preferred interest. The Company has determined that the Asia President's ownership interest in Taubman Asia qualifies as an equity award, considering its specific redemption provisions, and accounts for it as a contingently redeemable noncontrolling interest, with a carrying value of zero at March 31, 2013 and December 31, 2012 . Any adjustments to the redemption value are recorded through equity.

The Company owns a 90% controlling interest in a joint venture that is focusing on developing and owning outlet shopping centers. The amount of capital that the 10% joint venture partner is required to contribute is capped. The Company will have a preferred investment to the extent it contributes capital in excess of the amount commensurate with its ownership interest. The Company has the right to purchase the joint venture partner's entire interest and the joint venture partner has the right to require the Company to purchase the joint venture partner's entire interest. Additionally, the parties each have a one-time put and/or call on the joint venture partner’s interest in any stabilized centers, while still maintaining the ongoing joint venture relationship. The purchase price of the joint venture partner's interest will be based on fair value. Considering the redemption provisions, the Company accounts for the joint venture partner’s interest as a contingently redeemable noncontrolling interest with a carrying value of zero at March 31, 2013 and December 31, 2012 . Any adjustments to the redemption value are recorded through equity.

Equity Balances of Nonredeemable Noncontrolling Interests

The net equity balance of the noncontrolling interests as of March 31, 2013 and December 31, 2012 includes the following:
 
2013
 
2012
Non-redeemable noncontrolling interests:
 
 
 
Noncontrolling interests in consolidated joint ventures
$
(42,308
)
 
$
(45,066
)
Noncontrolling interests in partnership equity of TRG
(45,870
)
 
(44,242
)
 
$
(88,178
)
 
$
(89,308
)

Income Allocable to Noncontrolling Interests

Net income attributable to the noncontrolling interests for the three months ended March 31, 2013 and March 31, 2012 includes the following:
 
2013
 
2012
Net income attributable to noncontrolling interests:
 
 
 
Non-redeemable noncontrolling interests:
 
 
 
Noncontrolling share of income of consolidated joint ventures
$
2,782

 
$
3,194

Noncontrolling share of income of TRG
11,788

 
8,315

 
$
14,570

 
$
11,509

Redeemable noncontrolling interests


 
(924
)
 
$
14,570

 
$
10,585




14
Table of Contents
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Equity Transactions

The following schedule presents the effects of changes in Taubman Centers, Inc.’s ownership interest in consolidated subsidiaries on Taubman Centers, Inc.’s equity for the three months ended March 31, 2013 and March 31, 2012 :
 
2013
 
2012
Net income attributable to Taubman Centers, Inc. common shareowners
$
27,744

 
$
17,531

Transfers (to) from the noncontrolling interest –
 

 
 

Decrease in Taubman Centers, Inc.’s paid-in capital for the adjustments of noncontrolling interest (1)
(55
)
 
(381
)
Net transfers (to) from noncontrolling interests
(55
)
 
(381
)
Change from net income attributable to Taubman Centers, Inc. and transfers (to) from noncontrolling interests
$
27,689

 
$
17,150


(1)
In 2013 and 2012, adjustments of the noncontrolling interest were made as a result of changes in the Company's ownership of the Operating Partnership in connection with the Company's share-based compensation under employee and director benefit plans (Note 9), issuances of stock pursuant to the Continuing Offer (Note 10), and redemptions of certain redeemable Operating Partnership Units.

Finite Life Entities

Accounting Standards Codification Topic 480, “Distinguishing Liabilities from Equity” establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. At March 31, 2013 , the Company held a controlling interest in a consolidated entity with a specified termination date in 2083 . The noncontrolling owner's interest in this entity is to be settled upon termination by distribution or transfer of either cash or specific assets of the underlying entity. The estimated fair value of this noncontrolling interest was approximately $361 million at March 31, 2013 , compared to a book value of $(44.0) million that is classified in Noncontrolling Interests in the Company’s Consolidated Balance Sheet. The fair value of the noncontrolling interest was calculated as the noncontrolling interest's ownership share of the underlying property's fair value. The property's fair value was estimated by considering its in-place net operating income, current market capitalization rate, and mortgage debt outstanding.


15
Table of Contents
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 8 -
Derivative and Hedging Activities

Risk Management Objective and Strategies for Using Derivatives

The Company uses derivative instruments, such as interest rate swaps and interest rate caps, primarily to manage exposure to interest rate risks inherent in variable rate debt and refinancings. The Company may also enter into forward starting swaps or treasury lock agreements to set the effective interest rate on a planned fixed-rate financing. The Company’s interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. In a forward starting swap or treasury lock agreement that the Company cash settles in anticipation of a fixed rate financing or refinancing, the Company will receive or pay an amount equal to the present value of future cash flow payments based on the difference between the contract rate and market rate on the settlement date.

The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and hedging.

As of March 31, 2013 , the Company had the following outstanding interest rate derivatives that were designated and are expected to be effective as cash flow hedges of the interest payments on the associated debt.
Instrument Type
 
Ownership
 
Notional Amount
 
Swap Rate
 
Credit Spread on Loan
 
Total Swapped Rate on Loan
 
Maturity Date
Consolidated Subsidiary:
 
 
 
 
 
 
 
 
 
 
 
 
Receive variable (LIBOR) /pay-fixed swap (1)
 
95.0
%
 
$
130,235

 
2.64
%
 
2.35
%
 
4.99
%
 
September 2020
Unconsolidated Joint Ventures:
 
 

 
 

 
 

 
 

 
 

 
 
Receive variable (LIBOR) /pay-fixed swap  (2)
 
50.0
%
 
137,500

 
2.40
%
 
1.70
%
 
4.10
%
 
April 2018
Receive variable (LIBOR) /pay-fixed swap  (2)
 
50.0
%
 
137,500

 
2.40
%
 
1.70
%
 
4.10
%
 
April 2018

(1)
The notional amount of the swap is equal to the outstanding principal balance on the loan.
(2)
The notional amount on each of these swaps is equal to 50% of the outstanding principal balance on the loan, which begins amortizing in August 2014 .

Cash Flow Hedges of Interest Rate Risk

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the unrealized gain or loss on the derivative is reported as a component of Other Comprehensive Income (OCI). The ineffective portion of the change in fair value, if any, is recognized directly in earnings. Net realized gains or losses resulting from derivatives that were settled in conjunction with planned fixed-rate financings or refinancings continue to be included in Accumulated Other Comprehensive Income (Loss) (AOCI) during the term of the hedged debt transaction.

Amounts reported in AOCI related to currently outstanding derivatives are recognized as an adjustment to income as interest payments are made on the Company’s variable-rate debt. Realized gains or losses on settled derivative instruments included in AOCI are recognized as an adjustment to income over the term of the hedged debt transaction.

The Company expects that approximately $6.6 million of the AOCI of Taubman Centers, Inc. and the noncontrolling interests will be reclassified from AOCI and recognized as a reduction of income in the following 12 months.

As of March 31, 2013 , the Company had $0.5 million of net realized losses included in AOCI resulting from settled derivative instruments, which were designated as cash flow hedges that are being recognized as a reduction of income over the term of the hedged debt.






16
Table of Contents
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following tables present the effect of derivative instruments on the Company’s Consolidated Statement of Operations and Comprehensive Income for the three months ended March 31, 2013 and March 31, 2012 . The tables include the location and amount of unrealized gains and losses on outstanding derivative instruments in cash flow hedging relationships and the location and amount of realized losses reclassified from AOCI into income resulting from settled derivative instruments associated with hedged debt.

During the three months ended March 31, 2013 and March 31, 2012 , the Company did not have any hedge ineffectiveness or amounts that were excluded from the assessment of hedge effectiveness recorded in earnings.
 
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
 
Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Three Months Ended March 31
 
 
 
Three Months Ended March 31
 
2013
 
2012
 
 
 
2013
 
2012
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
Interest rate contract – consolidated subsidiary
$
1,281

 
$
1,732

 
Interest Expense
 
$
(793
)
 
$
(784
)
Interest rate contracts – UJVs
652

 
848

 
Equity in Income of UJVs
 
(754
)
 
(910
)
Total derivatives in cash flow hedging relationships
$
1,933

 
$
2,580

 
 
 
$
(1,547
)
 
$
(1,694
)
 
 
 
 
 
 
 
 
 
 
Realized losses on settled cash flow hedges:
 

 
 

 
 
 
 

 
 

Interest rate contract – consolidated subsidiary
 

 
 

 
Interest Expense
 
$
(151
)
 
$
(151
)
Interest rate contract – UJVs
 

 
 

 
Equity in Income of UJVs
 
—

 
(94
)
Total realized losses on settled cash flow hedges
 

 
 

 
 
 
$
(151
)
 
$
(245
)

The Company records all derivative instruments at fair value in the Consolidated Balance Sheet. The following table presents the location and fair value of the Company’s derivative financial instruments as reported in the Consolidated Balance Sheet as of March 31, 2013 and December 31, 2012 .
 
 
 
Fair Value
 
Consolidated Balance Sheet Location
 
March 31
2013
 
December 31
2012
Derivatives designated as hedging instruments:
 
 
 
 
 
Liability derivatives:
 
 
 

 
 

Interest rate contract – consolidated subsidiaries
Accounts Payable and Accrued Liabilities
 
$
(10,584
)
 
$
(11,865
)
Interest rate contracts – UJVs
Investment in UJVs
 
(10,369
)
 
(11,021
)
Total liabilities designated as hedging instruments
 
 
$
(20,953
)
 
$
(22,886
)

Contingent Features

All of the Company's outstanding derivatives contain provisions that state if the hedged entity defaults on any of its indebtedness in excess of $1 million , then the derivative obligation could also be declared in default. As of March 31, 2013 , the Company is not in default on any debt obligations that would trigger a credit risk related default on its current outstanding derivatives.

17
Table of Contents
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


As of March 31, 2013 and December 31, 2012 , the fair value of derivative instruments with credit-risk-related contingent features that are in a liability position was $21.0 million and $22.9 million , respectively. As of March 31, 2013 and December 31, 2012 , the Company was not required to post any collateral related to these agreements. If the Company breached any of these provisions it would be required to settle its obligations under the agreements at their fair value. See Note 12 for fair value information on derivatives.

Note 9 - Share-Based Compensation

The Taubman Company 2008 Omnibus Long-Term Incentive Plan (2008 Omnibus Plan), as amended, which is shareowner approved, provides for the award to directors, officers, employees, and other service providers of the Company of restricted shares, restricted units of limited partnership in the Operating Partnership, options to purchase shares or Operating Partnership units, unrestricted shares or Operating Partnership units, and other awards to acquire up to an aggregate of 8.5 million Company common shares or Operating Partnership units. In addition, non-employee directors have the option to defer their compensation, other than their meeting fees, under a deferred compensation plan.

Non-option awards granted after an amendment of the 2008 Omnibus Plan in 2010 are deducted at a ratio of 1.85 Company common shares or Operating Partnership units, while non-option awards granted prior to the amendment are deducted at a ratio of 2.85 . Options are deducted on a one-for-one basis. The amount available for future grants is adjusted when the number of contingently issuable shares or units are settled, for grants that are forfeited, and for options that expire without being exercised.

Prior to the adoption of the 2008 Omnibus Plan, the Company provided share-based compensation through an incentive option plan and non-employee directors' stock grant and deferred compensation plans.

The compensation cost charged to income for the Company’s share-based compensation plans was $3.5 million and $2.9 million for the three months ended March 31, 2013 and 2012, respectively. Compensation cost capitalized as part of properties and deferred leasing costs was $0.4 million and $0.3 million for the three months ended March 31, 2013 and 2012, respectively.

The Company estimated the grant-date fair values of options, performance share units, and restricted share units using the methods discussed in the separate sections below for each type of grant. Expected volatility and dividend yields are based on historical volatility and yields of the Company’s common stock, respectively, as well as other factors. The risk-free interest rates used are based on the U.S. Treasury yield curves in effect at the times of grants. The Company assumes no forfeitures of options or performance share units due to the small number of participants and low turnover rate.

Options

A summary of option activity for the three months ended March 31, 2013 is presented below:
 
Number of Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (in years)
 
Range of Exercise Prices
Outstanding at January 1, 2013
689,802

 
$
42.50

 
3.8

 
$
13.83

-
$
55.90

Exercised
(84,225
)
 
33.92

 
 
 
 
 
 
Outstanding at March 31, 2013
605,577

 
$
43.70

 
3.4

 
$
29.38

-
$
55.90

 
 
 
 
 
 
 
 
 
 
Fully vested options at March 31, 2013
605,577

 
$
43.70

 
3.4

 
 

 
 

The aggregate intrinsic value (the difference between the period end stock price and the option exercise price) of in-the-money options outstanding and in-the-money fully vested options was $20.6 million as of March 31, 2013 .

The total intrinsic value of options exercised during the three months ended March 31, 2013 and 2012 was $3.6 million and $2.3 million , respectively. Cash received from option exercises for the three months ended March 31, 2013 and 2012 was $2.9 million and $2.1 million , respectively.

As of March 31, 2013 , all options outstanding were fully vested, and there was no unrecognized compensation cost related to options.

18
Table of Contents
TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Under both the prior option plan and the 2008 Omnibus Plan, vested unit options can be exercised by tendering mature units with a market value equal to the exercise price of the unit options. In 2002, Robert S. Taubman, the Company’s chief executive officer, exercised options for 3.0 million units by tendering 2.1 million mature units and deferring receipt of 0.9 million units under the unit option deferral election. As the Operating Partnership pays distributions, the deferred option units receive their proportionate share of the distributions in the form of cash payments. Under an amendment executed in January 2011, beginning in December 2017 (unless Mr. Taubman retires earlier), the deferred partnership units will be issued in ten annual installments. The deferred units are accounted for as participating securities of the Operating Partnership.

Performance Share Units

In March 2013, the Company granted Performance Share Units (PSU) under the 2008 Omnibus Plan. Each PSU represents the right to receive, upon vesting, shares of the Company’s common stock ranging from 0-300% of the PSU based on the Company’s market performance relative to that of a peer group . The units vest in March 2016 if continuous service has been provided, or upon retirement or certain other events (such as death or disability) if earlier. No dividends accumulate during the vesting period.

The Company estimated the value of the PSU granted using a Monte Carlo simulation, considering the Company’s common stock price at the grant date less the present value of the expected dividends during the vesting period, historical returns of the Company and the peer group of companies, a risk-free interest rate of 0.40% and a measurement period of three years . The resulting weighted average grant-date fair value was $102.29 per PSU.

In March 2013, the Company also granted a limited number of additional PSU that represents the right to receive, upon vesting, shares of the Company’s common stock ranging from 0-400% of the PSU based on the Company’s market performance relative to that of a peer group . The units vest in March 2017, if continuous service has been provided, or upon certain other events (such as death or disability) if earlier. No dividends accumulate during the vesting period. The Company estimated the value of these PSU considering the valuation of other similar PSU. The resulting weighted average grant-date fair value was $218.61 per PSU.

A summary of PSU activity for the three months ended March 31, 2013 is presented below:
 
Number of Performance Share Units
 
Weighted Average Grant Date Fair Value
Outstanding at January 1, 2013
262,740

 
$
122.52

Vested
(73,259
)
(1)  
65.29

Granted (three-year vesting)
37,630

 
102.29

Granted (four-year vesting)
5,050

 
218.61

Outstanding at March 31, 2013
232,161

 
$
139.38


(1)
Based on the Company's market performance relative to that of a peer group, the actual number of shares of common stock issued upon vesting during the three months ended March 31, 2013 equaled 300% of the number of PSU awards vested in the table above.

None of the PSU outstanding at March 31, 2013 were vested. As of March 31, 2013 , there was $24.2 million of total unrecognized compensation cost related to nonvested PSU outstanding. This cost is expected to be recognized over an average period of 3.3  years.


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TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Restricted Share Units

In March 2013, Restricted Share Units (RSU) were issued under the 2008 Omnibus Plan and represent the right to receive upon vesting one share of the Company’s common stock . The units vest in March 2016, if continuous service has been provided through that period, or upon retirement or certain other events if earlier. No dividends accumulate during the vesting period.

The Company estimated the values of the RSU granted in March 2013 using the Company’s common stock at the grant dates deducting the present value of expected dividends during the vesting period using a risk-free rate of 0.40% . The result of the Company’s valuation was a weighted average grant-date fair value of $71.27 per RSU.

A summary of RSU activity for the three months ended March 31, 2013 is presented below:
 
Number of Restricted Share Units
 
Weighted Average Grant Date Fair Value
Outstanding at January 1, 2013
322,305

 
$
48.19

Vested
(136,221
)
 
37.03

Granted
86,620

 
71.27

Outstanding at March 31, 2013
272,704

 
$
61.09


None of the RSU outstanding at March 31, 2013 were vested. As of March 31, 2013 , there was $10.6 million of total unrecognized compensation cost related to nonvested RSU outstanding. This cost is expected to be recognized over an average period of 2.3  years.

Note 10 -
Commitments and Contingencies

Cash Tender

At the time of the Company's initial public offering and acquisition of its partnership interest in the Operating Partnership in 1992, the Company entered into an agreement (the Cash Tender Agreement) with A. Alfred Taubman, who owns an interest in the Operating Partnership, whereby he has the annual right to tender to the Company partnership units in the Operating Partnership (provided that the aggregate value is at least $50 million ) and cause the Company to purchase the tendered interests at a purchase price based on a market valuation of the Company on the trading date immediately preceding the date of the tender. At A. Alfred Taubman's election, his family may participate in tenders. The Company will have the option to pay for these interests from available cash, borrowed funds, or from the proceeds of an offering of the Company's common stock. Generally, the Company expects to finance these purchases through the sale of new shares of its stock. The tendering partner will bear all market risk if the market price at closing is less than the purchase price and will bear the costs of sale. Any proceeds of the offering in excess of the purchase price will be for the sole benefit of the Company. The Company accounts for the Cash Tender Agreement between the Company and Mr. Taubman as a freestanding written put option. As the option put price is defined by the current market price of the Company's stock at the time of tender, the fair value of the written option defined by the Cash Tender Agreement is considered to be zero .

Based on a market value at March 31, 2013 of $77.66 per common share, the aggregate value of interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was $1.9 billion . The purchase of these interests at March 31, 2013 would have resulted in the Company owning an additional 27% interest in the Operating Partnership.

Continuing Offer

The Company has made a continuing, irrevocable offer to all present holders (other than certain excluded holders, including A. Alfred Taubman), permitted assignees of all present holders, those future holders of partnership interests in the Operating Partnership as the Company may, in its sole discretion, agree to include in the continuing offer, all existing optionees under the previous option plan, and all existing and future optionees under the 2008 Omnibus Plan to exchange shares of common stock for partnership interests in the Operating Partnership (the Continuing Offer). Under the Continuing Offer agreement, one unit of the Operating Partnership interest is exchangeable for one share of the Company's common stock . Upon a tender of Operating Partnership units, the corresponding shares of Series B Preferred Stock, if any, will automatically be converted into the Company’s common stock at a ratio of 14,000 shares of Series B Preferred Stock for one share of common stock .

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TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Litigation

In April 2009, two restaurant owners, their two restaurants, and their principal filed a lawsuit in United States District Court for the Eastern District of Pennsylvania (Case No.  April 2009 ) against Atlantic Pier Associates LLC ("APA", the then owner of the leasehold interest in The Pier Shops), the Operating Partnership, Taubman Centers, Inc., the owners of APA and certain affiliates of such owners, three individuals affiliated with, or at one time employed by an affiliate of one of the owners, and, subsequently added the Manager as a defendant. The plaintiffs are alleging the defendants misrepresented and concealed the status of certain tenant leases at The Pier Shops and that such status was relied upon by the plaintiffs in making decisions about their own leases. The plaintiffs are seeking damages exceeding $20 million , rescission of their leases, exemplary or punitive damages, costs and expenses, attorney's fees, return of certain rent, and other relief as the court may determine. The claims against the Operating Partnership, Taubman Centers, Inc., the Manager, other Taubman defendants, and one of the owners were dismissed in July 2011, but, in August 2011, the restaurant owners reinstated the same claims in a state court action that was then removed to the United States District Court for the Eastern District of Pennsylvania (Case No. 11-CV-05676). The defendants are vigorously defending the action. The outcome of this lawsuit cannot be predicted with any certainty and management is currently unable to estimate a range of potential loss that could result if an unfavorable outcome occurs. While management does not believe that an adverse outcome in this lawsuit would have a material adverse effect on the Company's financial condition, there can be no assurance that an adverse outcome would not have a material effect on the Company's results of operations for any particular period.

Other

See Note 7 for contingent features relating to certain joint venture agreements, Note 8 for contingent features relating to derivative instruments, and Note 9 for obligations under existing share-based compensation plans.

Note 11 -
Earnings Per Share

Basic earnings per share amounts are based on the weighted average of common shares outstanding for the respective periods. Diluted earnings per share amounts are based on the weighted average of common shares outstanding plus the dilutive effect of potential common stock. Potential common stock includes outstanding partnership units exchangeable for common shares under the Continuing Offer (Note 10), outstanding options for partnership units, PSU, RSU, deferred shares under the Non-Employee Directors’ Deferred Compensation Plan, and unissued partnership units under a unit option deferral election (Note 9). In computing the potentially dilutive effect of potential common stock, partnership units are assumed to be exchanged for common shares under the Continuing Offer, increasing the weighted average number of shares outstanding. The potentially dilutive effects of partnership units outstanding and/or issuable under the unit option deferral elections are calculated using the if-converted method, while the effects of other potential common stock are calculated using the treasury method. Contingently issuable shares are included in diluted EPS based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period. 
 
Three Months Ended March 31
 
2013
 
2012
Net income attributable to Taubman Centers, Inc. common shareowners (Numerator):
 
 
 
Basic
$
27,744

 
$
17,531

Impact of additional ownership of TRG
152

 
168

Diluted
$
27,896

 
$
17,699

 
 
 
 
Shares (Denominator) – basic
63,415,922

 
58,247,148

Effect of dilutive securities
1,154,890

 
1,660,712

Shares (Denominator) – diluted
64,570,812

 
59,907,860

 
 
 
 
Earnings per common share - basic
$
0.44

 
$
0.30

Earnings per common share – diluted
$
0.43

 
$
0.30



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TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The calculation of diluted earnings per share excluded certain potential common stock including outstanding partnership units and unissued partnership units under a unit option deferral election, both of which may be exchanged for common shares of the Company under the Continuing Offer. The table below presents the potential common stock excluded from the calculation of diluted earnings per share as they were anti-dilutive in the period presented.

 
Three Months Ended March 31
 
2013
 
2012
Weighted average noncontrolling partnership units outstanding
4,658,409

 
7,449,132

Unissued partnership units under unit option deferral elections
871,262

 
871,262


Note 12 -
Fair Value Disclosures

This note contains required fair value disclosures for assets and liabilities remeasured at fair value on a recurring basis and financial instruments carried at other than fair value, as well as assumptions employed in deriving these fair values.

Recurring Valuations

Derivative Instruments

The fair value of interest rate hedging instruments is the amount that the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the reporting date. The Company’s valuations of its derivative instruments are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative, and therefore fall into Level 2 of the fair value hierarchy. The valuations reflect the contractual terms of the derivatives, including the period to maturity, and use observable market-based inputs, including forward curves. The fair values of interest rate hedging instruments also incorporate credit valuation adjustments to appropriately reflect both the Company’s own nonperformance risk and the respective counterparty's nonperformance risk.

Marketable Securities

The Company's valuations of marketable securities, which were considered to be available-for-sale, and an insurance deposit utilize unadjusted quoted prices determined by active markets for the specific securities the Company has invested in, and therefore fall into Level 1 of the fair value hierarchy.

For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each major category of assets and liabilities is presented below:
 
 
Fair Value Measurements as of
March 31, 2013 Using
 
Fair Value Measurements as of
December 31, 2012 Using
Description
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
Available-for-sale securities
 


 
 
 
$
2,452

 
 
Insurance deposit
 
$
11,303

 
 

 
11,291

 
 

Total assets
 
$
11,303

 


 
$
13,743

 


 
 
 
 
 
 
 
 
 
Derivative interest rate contracts
 
 

 
$
(10,584
)
 
 

 
$
(11,865
)
Total liabilities
 
 

 
$
(10,584
)
 
 

 
$
(11,865
)


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TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The insurance deposit shown above represents an escrow account maintained in connection with a property and casualty insurance arrangement for the Company’s shopping centers, and is classified within Deferred Charges and Other Assets on the Consolidated Balance Sheet. Corresponding deferred revenue relating to amounts billed to tenants for this arrangement has been classified within Accounts Payable and Accrued Liabilities on the Consolidated Balance Sheet.

The available-for-sale securities shown above consisted of marketable securities that represented shares in a Vanguard REIT fund that were purchased to facilitate a tax efficient structure for the 2005 disposition of Woodland mall and were classified within Deferred Charges and Other Assets on the Consolidated Balance Sheet as of December 31, 2012. In January 2013, these securities were sold for $2.5 million , resulting in a $1.3 million realized gain.

Financial Instruments Carried at Other Than Fair Values

Community Development District Obligation

The owner of one shopping center pays annual special assessment levies of a Community Development District (CDD), which provided certain infrastructure assets and improvements. As the amount and period of the special assessments were determinable, the Company capitalized the infrastructure assets and improvements and recognized an obligation for the future special assessments to be levied. At March 31, 2013 and December 31, 2012 , the book value of the infrastructure assets and improvements, net of depreciation, was $39.2 million and $39.8 million , respectively. The related obligation is classified within Accounts Payable and Accrued Liabilities on the Consolidated Balance Sheet and had a balance of $60.8 million at both March 31, 2013 and December 31, 2012 . The fair value of this obligation, derived from quoted market prices and therefore falling into Level 1 of the fair value hierarchy, was $62.1 million at March 31, 2013 and $60.9 million at December 31, 2012 .

Notes Payable

The fair value of notes payable is estimated using cash flows discounted at current market rates and therefore fall into Level 2 of the fair value hierarchy. When selecting discount rates for purposes of estimating the fair value of notes payable at March 31, 2013 and December 31, 2012 , the Company employed the credit spreads at which the debt was originally issued. Excluding 2010 through 2013 refinancings and debt assumed as part of the 2011 acquisitions, an additional 1.25% and 1.50% credit spread was added to the discount rate at March 31, 2013 and December 31, 2012 , respectively, to attempt to account for current market conditions. This additional spread is an estimate and is not necessarily indicative of what the Company could obtain in the market at the reporting date. The Company does not believe that the use of different interest rate assumptions would have resulted in a materially different fair value of notes payable as of March 31, 2013 or December 31, 2012 . To further assist financial statement users, the Company has included with its fair value disclosures an analysis of interest rate sensitivity.

The estimated fair values of notes payable at March 31, 2013 and December 31, 2012 are as follows:
 
2013
 
2012
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Notes payable
$
2,832,385

 
$
2,960,057

 
$
2,952,030

 
$
3,082,265


The fair values of the notes payable are dependent on the interest rates used in estimating the values. An overall 1% increase in rates employed in making these estimates would have decreased the fair values of the debt shown above at March 31, 2013 by $84.9 million or 2.9% .

Cash Equivalents and Notes Receivable

The fair value of cash equivalents and notes receivable approximates their carrying value due to their short maturity. The fair value of cash equivalents is derived from quoted market prices and therefore falls into Level 1 of the fair value hierarchy. The fair value of notes receivable are estimated using cash flows discounted at current market rates and therefore fall into Level 2 of the fair value hierarchy.

See Note 4 regarding the fair value of the Unconsolidated Joint Ventures’ notes payable, and Note 8 regarding additional information on derivatives.


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TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 13 – Accumulated Other Comprehensive Income

Changes in the balance of each component of Accumulated Other Comprehensive Income (AOCI) for the quarter ended March 31, 2013 are as follows:
 
Taubman Centers, Inc. AOCI
 
Noncontrolling Interests AOCI
 
Cumulative translation adjustment
 
Unrealized gains (losses) on interest rate instruments and other
 
Total
 
Cumulative translation adjustment
 
Unrealized gains (losses) on interest rate instruments and other
 
Total
January 1, 2013
$
1,888

 
$
(23,952
)
 
$
(22,064
)
 
$
756

 
$
1,739

 
$
2,495

Other comprehensive income/(loss) before reclassifications
(2,043
)
 
289

 
(1,754
)
 
(816
)
 
143

 
(673
)
Amounts reclassified from AOCI
 
 
242

 
242

 
 
 
133

 
133

Net current period other comprehensive income/(loss)
(2,043
)
 
531

 
(1,512
)
 
(816
)
 
276

 
(540
)
Adjustments due to changes in ownership
1

 
3

 
4

 
(1
)
 
(3
)
 
$
(4
)
March 31, 2013
$
(154
)
 
$
(23,418
)
 
$
(23,572
)
 
$
(61
)
 
$
2,012

 
$
1,951


Changes in the balance of each component of AOCI for the quarter ended March 31, 2012 are as follows:
 
Taubman Centers, Inc. AOCI
 
Noncontrolling Interests AOCI
 
Cumulative translation adjustment
 
Unrealized gains (losses) on interest rate instruments and other
 
Total
 
Cumulative translation adjustment
 
Unrealized gains (losses) on interest rate instruments and other
 
Total
January 1, 2012
 
 
$
(27,613
)
 
$
(27,613
)
 
 
 
$
9,113

 
$
9,113

Current period other comprehensive income
 
 
2,030

 
2,030

 
 
 
1,000

 
1,000

Adjustments due to changes in ownership
 
 
8

 
8

 
 
 
(8
)
 
(8
)
March 31, 2012

 
$
(25,575
)
 
$
(25,575
)
 

 
$
10,105

 
$
10,105


The following table presents reclassifications out of AOCI for the quarter ended March 31, 2013:
Details about AOCI Components
 
Amounts reclassified from AOCI
 
Affected line item in Consolidated Statement of Operations
(Gains)/losses on interest rate instruments and other:
 
 
 
 
Realized loss on interest rate contracts - consolidated subsidiary
 
$
944

 
Interest Expense
Realized loss on interest rate contracts - UJVs
 
754

 
Equity in Income of UJVs
Realized gain on sale of securities (Note 12)
 
(1,323
)
 
Nonoperating Income
Total reclassifications for the period
 
$
375

 
 





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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our expectations or beliefs concerning future events and performance. Actual results may differ materially from those expected because of various risks and uncertainties. The forward-looking statements included in this report are made as of the date hereof. Except as required by law, we assume no obligation to update these forward looking statements, even if new information becomes available in the future. Other risks and uncertainties are detailed from time to time in reports filed with the SEC, and in particular those set forth under "Risk Factors" in our most recent Annual Report on Form 10-K. The following discussion should be read in conjunction with the accompanying consolidated financial statements of Taubman Centers, Inc. and the notes thereto.

General Background and Performance Measurement

Taubman Centers, Inc. (TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate investment trust (REIT). The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is a majority-owned partnership subsidiary of TCO that owns direct or indirect interests in all of our real estate properties. In this report, the terms "we", "us", and "our" refer to TCO, the Operating Partnership, and/or the Operating Partnership's subsidiaries as the context may require. We own, manage, lease, acquire, dispose of, develop, and expand regional and super-regional shopping centers and interests therein. The Consolidated Businesses consist of shopping centers and entities that are controlled by ownership or contractual agreements, The Taubman Company LLC (Manager), and Taubman Properties Asia LLC and its subsidiaries (Taubman Asia). Shopping centers owned through joint ventures that are not controlled by us but over which we have significant influence (Unconsolidated Joint Ventures) are accounted for under the equity method.

References in this discussion to “beneficial interest” refer to our ownership or pro-rata share of the item being discussed. Also, the operations of the shopping centers are often best understood by measuring their performance as a whole, without regard to our ownership interest. Consequently, in addition to the discussion of the operations of the Consolidated Businesses, the operations of the Unconsolidated Joint Ventures are presented and discussed as a whole. The comparability of information used in measuring performance is affected by the opening of City Creek Center in March 2012. Additional "comparable center" statistics that exclude City Creek Center are provided to present the performance of comparable centers in our continuing operations. Comparable centers are generally defined as centers that were owned and open for the entire current and preceding period. Comparable center statistics for 2012, other than sales per square foot growth, growth in Net Operating Income, and statistics for the trailing 12 months ended March 31, 2012 have been restated to include comparable centers to 2013.

Use of Non-GAAP Measures

We use Net Operating Income (NOI) as an alternative measure to evaluate the operating performance of centers, both on individual and stabilized portfolio bases. We define NOI as property-level operating revenues (includes rental income excluding straight-line adjustments of minimum rent) less maintenance, taxes, utilities, promotion, ground rent (including straight-line adjustments), and other property operating expenses. Since NOI excludes general and administrative expenses, pre-development charges, interest income and expense, depreciation and amortization, impairment charges, restructuring charges, and gains from peripheral land and property dispositions, it provides a performance measure that, when compared period over period, reflects the revenues and expenses most directly associated with owning and operating rental properties, as well as the impact on their operations from trends in tenant sales, occupancy and rental rates, and operating costs. We also use NOI excluding lease cancellation income as an alternative measure because this income may vary significantly from period to period, which can affect comparability and trend analysis. We generally provide separate projections for expected NOI growth and our lease cancellation income.

The operating results in “Results of Operations” include the supplemental earnings measures of Beneficial Interest in EBITDA and Funds from Operations (FFO). Beneficial Interest in EBITDA represents our share of the earnings before interest, income taxes, and depreciation and amortization of our consolidated and unconsolidated businesses. We believe Beneficial Interest in EBITDA provides a useful indicator of operating performance, as it is customary in the real estate and shopping center business to evaluate the performance of properties on a basis unaffected by capital structure.


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Table of Contents


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

We may also present adjusted versions of NOI, Beneficial Interest in EBITDA, and FFO when used by management to evaluate our operating performance when certain significant items have impacted our results that affect comparability with prior or future periods due to the nature or amounts of these items. In addition to the reasons noted above for each measure, we believe the disclosure of the adjusted items is similarly useful to investors and others to understand management's view on comparability of such measures between periods.

Our presentations of NOI, Beneficial Interest in EBITDA, FFO, and adjusted versions of these measures, if any, are not necessarily comparable to the similarly titled measures of other REITs due to the fact that not all REITs use the same definitions. These measures should not be considered alternatives to net income or as an indicator of our operating performance. Additionally, these measures do not represent cash flows from operating, investing or financing activities as defined by GAAP. Reconciliations of Net Income Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations, Net Income to Beneficial Interest in EBITDA, and Net Income to Net Operating Income are presented following the Comparison of the Three Months Ended March 31, 2013 to the Three Months Ended March 31, 2012 .

Current Operating Trends

Our mall tenants reported a 5.6% increase in sales per square foot in the first quarter of 2013 from the same period in 2012 . Our sales per square foot growth moderated during 2012 and has now reached a more normalized level. For the trailing twelve month period ended March 31, 2013 , mall tenant sales were $698 per square foot, a 5.9% increase over $659 per square foot for the trailing twelve month period ended March 31, 2012.

Tenant sales and sales per square foot information are operating statistics used in measuring the productivity of the portfolio and are based on reports of sales furnished by mall tenants. Sales are the most important measure of a portfolio’s overall strength and the best predictor of the leasing environment ahead. Over the long term, the level of mall tenant sales is the single most important determinant of revenues of the shopping centers because mall tenants provide approximately 90% of these revenues and mall tenant sales determine the amount of rent, percentage rent, and recoverable expenses (together, total occupancy costs) that mall tenants can afford to pay. However, levels of mall tenant sales can be considerably more volatile in the short run than total occupancy costs, and may be impacted significantly, either positively or negatively, by the success or lack of success of a small number of tenants or even a single tenant.

Tenant sales directly impact the amount of percentage rents certain tenants and anchors pay. The effects of increases or declines in tenant sales on our operations are moderated by the relatively minor share of total rents that percentage rents represent.

While tenant sales are critical over the long term, the high quality regional mall business has been a very stable business model with its diversity of income from thousands of tenants, its staggered lease maturities, and high proportion of fixed rent. However, a sustained trend in sales does impact, either negatively or positively, our ability to lease vacancies and negotiate rents at advantageous rates.

Ending occupancy increased to 90.3% at March 31, 2013 compared to 89.5% at March 31, 2012 for all centers and increased to 90.2% at March 31, 2013 compared to 89.7% at March 31, 2012 for our comparable centers. We expect ending occupancy in comparable centers to end the year up about 0.5% over 2012. Temporary tenants, defined as those with lease terms less than or equal to a year, are not included in occupancy or leased space statistics. As of March 31, 2013 , 3.5% of mall tenant space for all centers was occupied by temporary tenants compared to 4.0% as of March 31, 2012 . See “Seasonality” for occupancy and leased space statistics.


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Table of Contents


Leased space was 92.4% at March 31, 2013 , compared to 91.9% at March 31, 2012 . For our comparable centers, leased space was 92.3% at March 31, 2013 , compared to 92.2% at March 31, 2012 . The difference between leased space and occupancy is that leased space includes spaces where leases have been signed but the tenants are not yet open. Neither statistic includes temporary tenants. We view occupancy as more relevant to operating results as it represents those spaces upon which we are currently collecting rent from permanent tenants. Finally, the spread between leased space and occupied space, at 2.1% this quarter, is consistent with our history of 1% to 3% in the first quarter.

As leases have expired in the centers, we have generally been able to rent the available space, either to the existing tenant or a new tenant, at rental rates that are higher than those of the expired leases. Generally, center revenues have increased as older leases rolled over or were terminated early and replaced with new leases negotiated at current rental rates that were usually higher than the average rates for existing leases. In periods of increasing sales, such as we are experiencing now, rents on new leases will generally tend to rise. In periods of slower growth or declining sales, rents on new leases will grow more slowly or will decline for the opposite reason, as tenants' expectations of future growth become less optimistic.

Rent per square foot statistics are computed using contractual rentals per the tenant lease agreements, which reflect any lease modifications, including those for rental concessions. Rent per square foot information for our comparable centers in our Consolidated Businesses and Unconsolidated Joint Ventures follows:
 
Three Months Ended March 31
 
2013
 
2012
Average rent per square foot:
 
 
 
Consolidated Businesses
$
48.13

 
$
46.56

Unconsolidated Joint Ventures
47.11
 
44.41
Combined
47.83

 
45.90

 
Trailing 12 Months Ended March 31
 
2013 (1)
 
2012 (1) (2)
Opening base rent per square foot:
 
 
 
Consolidated Businesses
$
54.64

 
$
55.49

Unconsolidated Joint Ventures
63.85

 
42.06

Combined
56.91

 
52.53

Square feet of GLA opened:
 
 
 
Consolidated Businesses
855,898

 
983,347

Unconsolidated Joint Ventures
279,003

 
277,772

Combined
1,134,901

 
1,261,119

Closing base rent per square foot:
 
 
 
Consolidated Businesses
$
43.30

 
$
46.29

Unconsolidated Joint Ventures
53.57

 
40.56

Combined
46.12

 
44.81

Square feet of GLA closed:
 
 
 
Consolidated Businesses
843,648

 
926,607

Unconsolidated Joint Ventures
319,295

 
324,277

Combined
1,162,943

 
1,250,884

Releasing spread per square foot:
 
 
 
Consolidated Businesses
$
11.34

 
$
9.20

Unconsolidated Joint Ventures
10.28

 
1.50

Combined
10.79

 
7.72


(1)
Opening and closing statistics exclude spaces greater than or equal to 10,000 square feet.
(2)
2012 statistics were not restated for 2013 comparable centers as the non-comparable centers were not owned and open for the trailing 12 months ended March 31, 2012.


27
Table of Contents


Average rent per square foot across our portfolio, including comparable centers for both consolidated and unconsolidated properties, was up 4.2% for this quarter. We continue to expect average rent per square foot for the year to be up at least 4% over 2012. 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.

Seasonality

The regional shopping center industry is seasonal in nature, with mall tenant sales highest in the fourth quarter due to the Christmas season, and with lesser, though still significant, sales fluctuations associated with the Easter holiday and back-to-school period. While minimum rents and recoveries are generally not subject to seasonal factors, most leases are scheduled to expire in the first quarter, and the majority of new stores open in the second half of the year in anticipation of the Christmas selling season. Additionally, most percentage rents are recorded in the fourth quarter. Accordingly, revenues and occupancy levels are generally highest in the fourth quarter. Gains on sales of peripheral land and lease cancellation income may vary significantly from quarter to quarter.
 
 
2013
 
2012
 
 
1 st  Quarter
 
Total
 
4 th  Quarter
 
3 rd  Quarter
 
2 nd  Quarter
 
1 st  Quarter
 
 
(in thousands, except occupancy and leased space data)
Mall tenant sales (1)
 
$1,454,788
 
$6,008,265
 
$
1,879,341

 
$1,378,384
 
$1,396,440
 
$1,354,100
Revenues and gains on peripheral land sales and other nonoperating income from continuing operations:
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Businesses
 
185,494

 
748,251

 
209,732

 
189,595

 
179,536

 
169,388

Unconsolidated Joint Ventures
 
67,559

 
282,154

 
79,619

 
70,453

 
66,764

 
65,318

Occupancy:
 
 
 
 
 
 
 
 
 
 
 
 
Ending - comparable
 
90.2
%
 
91.8
%
 
91.8
%
 
90.5
%
 
90.3
%
 
89.7
%
Average - comparable
 
90.4

 
90.4

 
91.4

 
90.3

 
90.1

 
89.8

Ending - all centers
 
90.3

 
91.8

 
91.8

 
90.4

 
90.1

 
89.5

Average - all centers
 
90.4

 
90.3

 
91.4

 
90.1

 
89.9

 
89.7

Leased space:
 
 
 
 
 
 
 
 
 
 
 
 
Comparable
 
92.3
%
 
93.3
%
 
93.3
%
 
92.5
%
 
92.3
%
 
92.2
%
All centers
 
92.4

 
93.4

 
93.4

 
92.6

 
92.3

 
91.9


(1)
Based on reports of sales furnished by mall tenants.


28
Table of Contents


Because the seasonality of sales contrasts with the generally fixed nature of minimum rents and recoveries, mall tenant occupancy costs (the sum of minimum rents, percentage rents, and expense recoveries, excluding utilities) as a percentage of sales are considerably higher in the first three quarters than they are in the fourth quarter.
 
 
2013
 
2012
 
 
1 st  Quarter
 
Total
 
4 th  Quarter
 
3 rd  Quarter
 
2 nd  Quarter
 
1 st  Quarter
Consolidated Businesses:
 
 
 
 
 
 
 
 
 
 
 
 
Minimum rents
 
8.8
%
 
8.1
%
 
6.8
%
 
8.8
%
 
8.6
%
 
8.7
%
Percentage rents
 
0.5

 
0.6

 
0.9

 
0.5

 
0.2

 
0.5

Expense recoveries
 
4.4

 
4.1

 
3.9

 
4.7

 
4.3

 
4.0

Mall tenant occupancy costs
 
13.7
%
 
12.8
%
 
11.6
%
 
14.0
%
 
13.1
%
 
13.2
%
Unconsolidated Joint Ventures:
 
 
 
 

 
 

 
 
 
 
 
 

Minimum rents
 
7.7
%
 
7.7
%
 
6.3
%
 
8.5
%
 
8.5
%
 
7.8
%
Percentage rents
 
0.5

 
0.5

 
0.7

 
0.5

 
0.3

 
0.5

Expense recoveries
 
3.8

 
4.0

 
4.0

 
4.5

 
4.0

 
3.7

Mall tenant occupancy costs
 
12.0
%
 
12.2
%
 
11.0
%
 
13.5
%
 
12.8
%
 
12.0
%
Combined:
 
 
 
 

 
 

 
 
 
 
 
 

Minimum rents
 
8.5
%
 
8.0
%
 
6.7
%
 
8.7
%
 
8.6
%
 
8.4
%
Percentage rents
 
0.5

 
0.5

 
0.9

 
0.5

 
0.2

 
0.5

Expense recoveries
 
4.2

 
4.2

 
3.7

 
4.7

 
4.2

 
4.0

Mall tenant occupancy costs
 
13.2
%
 
12.7
%
 
11.3
%
 
13.9
%
 
13.0
%
 
12.9
%

Results of Operations

In addition to the results and trends in our operations disclosed in the preceding sections, the following sections discuss certain transactions that affected operations in the three month periods ended March 31, 2013 and March 31, 2012 , or are expected to impact operations in the future.

U.S. Development

Our United States development currently includes three projects that are under construction: Taubman Prestige Outlets Chesterfield, which is scheduled to open in August 2013, The Mall at University Town Center, and The Mall of San Juan (see "Liquidity and Capital Resources - Capital Spending - New Developments"). In addition, we have projects under development in Asia (see Taubman Asia below).

U.S. Acquisitions

In December 2012, we acquired an additional 49.9% interest in International Plaza, located in Tampa, Florida, bringing our ownership in the shopping center to 100%. The $437 million purchase price for the outside partner's interest in the consolidated joint venture that owns the center consisted of $275 million of cash and approximately $162 million of beneficial interest in debt. The excess of the purchase price over the net book value of the interest acquired was accounted for as a reduction of additional paid-in-capital and equity of the noncontrolling partners in TRG.

Also in December 2012, we acquired an additional 25% interest in Waterside Shops, which brought our ownership interest in the center to 50%. The acquisition of the additional interest was accomplished by purchasing an affiliate of Oregon PERS' 50% interest in the center on a pari passu basis with an affiliate of the Forbes Company. The $155 million purchase price for Oregon PERS' interest in the center consisted of $72.5 million of cash and $82.5 million of beneficial interest in debt. Our share of the consideration for the additional interest was $77.5 million, which consisted of cash and beneficial interest in debt of $36.3 million and $41.3 million, respectively. Our share of the difference between the purchase price and the net book value of the additional interest in the Unconsolidated Joint Venture was $52.7 million, which has been preliminarily allocated to land, buildings, improvements, and equipment. In addition, beneficial interest in debt was increased by a $3.9 million purchase accounting premium to record the debt at fair value. The premium is being amortized as a reduction of interest expense over the remaining term of the debt and had a $3.7 million balance at March 31, 2013.


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Table of Contents


Taubman Asia

In August 2012, IFC Mall opened in Yeouido, South Korea. We provide management and leasing services for the 0.4 million square foot mall. In 2012, we recognized the second installment of the leasing success fee. We expect to recognize the final installment in the fourth quarter of 2013.

In addition, in August 2012, we invested in a shopping mall project in Hanam, Gyeonggi Province, South Korea (Hanam Union Square) in which we have partnered with Shinsegae Group (Shinsegae), South Korea's largest retailer. As of March 31, 2013, we have invested $76.7 million, including cumulative currency translation adjustments (see "Liquidity and Capital Resources - Capital Spending - New Developments").

Also in August 2012, we announced a joint-venture with Beijing Wangfujing Department Store (Group) Co., Ltd (Wangfujing), one of China's largest department store chains, for a shopping center to be located at Xi'an Saigao City Plaza (retail component of Xi'an Saigao City Plaza). As of March 31, 2013, we have invested $50.9 million in the project, including cumulative currency translation adjustments (see "Liquidity and Capital Resources - Capital Spending - New Developments").

In February 2013, we announced a second joint venture with Wangfujing to build a shopping mall, Zhengzhou Vancouver Times Square, in Zhengzhou, China (see "Liquidity and Capital Resources - Capital Spending - New Developments").

In November 2012, we sold assets of Taubman TCBL, which eliminated our ownership of the third party business. The consideration for the assets was $15.5 million, an amount approximately equal to our investment in Taubman TCBL. In 2013, we began classifying certain Asia expenses in general and administrative expense, as opposed to pre-development expense, because we have moved from mainly a pursuit and third party business to one that is primarily executing investments in new projects. This is consistent with the presentation of our U.S. business.

Debt and Equity Transactions

In March 2013, we issued 6,800,000 shares or $170 million of 6.25% Series K Cumulative Redeemable Preferred Stock (Series K Preferred Stock). Offering costs of $5.6 million were incurred in connection with this issuance. Net proceeds after offering costs of $164.4 million were used to reduce outstanding borrowings under our revolving lines of credit.

In February 2013, we refinanced our primary revolving line of credit (See "Liquidity and Capital Resources").

In January 2013, a 10-year, $225 million non-recourse refinancing was completed on Great Lakes Crossing Outlets (See "Liquidity and Capital Resources").

Center Operations

The NOI of our comparable centers excluding lease cancellation income in the first quarter of 2013 was up 5.0% over the same period in 2012 primarily due to increased rents and net recoveries. We continue to expect that NOI of our comparable centers, excluding lease cancellation income, will be up at least 3% in 2013. For the three months ended March 31, 2013 , we recognized our $1.8 million share of lease cancellation income. We continue to expect our share of lease cancellation income to be in the range of $3 million to $4 million for 2013. See “General Background and Performance Measurement – Use of Non-GAAP Measures” for the definition and discussion of NOI and see “Reconciliation of Net Income to Net Operating Income.”

Interest Expense

Interest expense is impacted by the capitalization of interest on the costs of our U.S. and Asia development projects. Interest is capitalized based on our average consolidated borrowing rate, which may not reflect the specific source of funds for the costs and will generally be greater than our incremental borrowing rate.



30
Table of Contents


Comparison of the Three Months Ended March 31, 2013 to the Three Months Ended March 31, 2012

The following table sets forth operating results for the three months ended March 31, 2013 and March 31, 2012 , showing the results of the Consolidated Businesses and Unconsolidated Joint Ventures:
 
Three Months Ended
 
Three Months Ended
 
March 31, 2013
 
March 31, 2012
 
CONSOLIDATED BUSINESSES
 
UNCONSOLIDATED JOINT VENTURES AT 100% (1)
 
CONSOLIDATED BUSINESSES
 
UNCONSOLIDATED JOINT VENTURES AT 100% (1)
 
(in millions)
REVENUES:
 
 
 
 
 
 
 
Minimum rents
$
102.3

 
$
40.1

 
$
93.7

 
$
38.6

Percentage rents
5.6

 
2.2

 
4.4

 
2.2

Expense recoveries
64.0

 
23.6

 
56.5

 
22.8

Management, leasing, and development services
3.4

 
 
 
8.6

 
 
Other
7.9

 
1.7

 
6.0

 
1.7

Total revenues
$
183.3

 
$
67.6

 
$
169.3

 
$
65.3

EXPENSES:
 

 
 

 
 

 
 

Maintenance, taxes, utilities, and promotion
$
46.6

 
$
17.2

 
$
41.7

 
$
16.1

Other operating
16.2

 
4.1

 
16.3

 
3.6

Management, leasing, and development services
2.0

 
 
 
8.5

 
 
General and administrative
12.2

 
 
 
8.4

 
 
Interest expense
34.5

 
16.9

 
37.5

 
15.7

Depreciation and amortization (2)
37.0

 
10.1

 
36.4

 
8.6

Total expenses
$
148.5

 
$
48.3

 
$
148.9

 
$
44.0

Nonoperating income
2.2

 
—

 
0.1

 
—

Income before income tax expense and equity in income of Unconsolidated Joint Ventures
$
37.0

 
$
19.2

 
$
20.5

 
$
21.3

Income tax expense
(1.0
)
 
 
 
(0.2
)
 
 
Equity in income of Unconsolidated Joint Ventures (2)
10.3

 
 
 
11.9

 
 
Net income
$
46.4

 
 
 
$
32.2

 
 
Net income attributable to noncontrolling interests:
 
 
 
 
 
 
 
Noncontrolling share of income of consolidated joint ventures
(2.8
)
 
 
 
(1.8
)
 
 
Noncontrolling share of income of TRG
(11.8
)
 
 
 
(8.8
)
 
 
Distributions to participating securities of TRG
(0.4
)
 
 
 
(0.4
)
 
 
Preferred stock dividends
(3.6
)
 
 
 
(3.7
)
 
 
Net income attributable to Taubman Centers, Inc. common shareowners
$
27.7

 
 
 
$
17.5

 
 
 
 
 
 
 
 
 
 
SUPPLEMENTAL INFORMATION  (3) :
 
 
 
 
 
 
 
EBITDA – 100%
$
108.5

 
$
46.2

 
$
94.5

 
$
45.6

EBITDA – outside partners' share
(6.1
)
 
(20.2
)
 
(8.5
)
 
(20.5
)
Beneficial interest in EBITDA
$
102.5

 
$
26.0

 
$
86.0

 
$
25.1

Beneficial interest expense
(32.3
)
 
(9.4
)
 
(33.3
)
 
(8.1
)
Beneficial income tax expense - TRG and TCO
(1.0
)
 
 
 
(0.2
)
 
 
Beneficial income tax expense - TCO
—

 
 
 
 
 
 
Non-real estate depreciation
(0.7
)
 
 
 
(0.7
)
 
 
Preferred dividends and distributions
(3.6
)
 
 
 
(3.7
)
 
 
Funds from Operations contribution
$
64.9

 
$
16.7

 
$
48.1

 
$
17.0

(1)
With the exception of the Supplemental Information, amounts include 100% of the Unconsolidated Joint Ventures. Amounts are net of intercompany transactions. The Unconsolidated Joint Ventures are presented at 100% in order to allow for measurement of their performance as a whole, without regard to our ownership interest. In our consolidated financial statements, we account for investments in the Unconsolidated Joint Ventures under the equity method.
(2)
Amortization of our additional basis in the Operating Partnership included in depreciation and amortization was $1.2 million in both 2013 and 2012 . Also, amortization of our additional basis included in equity in income of Unconsolidated Joint Ventures was $0.5 million in both 2013 and 2012 .
(3)
See “General Background and Performance Measurement – Use of Non-GAAP Measures” for the definition and discussion of EBITDA and FFO.
(4)
Amounts in this table may not add due to rounding.

31
Table of Contents


Consolidated Businesses

Total revenues for the three months ended March 31, 2013 were $ 183.3  million, a $ 14.0  million or 8.3% increase from the comparable period in 2012 . Minimum rents increased by $ 8.6 million primarily due to increases in average rent per square foot and average occupancy, as well as City Creek Center, which opened in March 2012. Percentage rents increased primarily due to higher tenant sales. Expense recoveries increased due to an increase in fixed CAM revenue, City Creek Center, and an increase in recoverable property taxes. Management, leasing, and development income decreased primarily due to decreased reimbursable third party costs, the elimination of the third party business of Taubman TCBL, and the loss of the Woodfield Mall contract. We now expect net management, leasing, and development income to be $8 million to $10 million in 2013, including the final leasing success fee relating to IFC Mall in 2013 and net of the impact of the loss of the Woodfield Mall contract.

Total expenses for the three months ended March 31, 2013 were $ 148.5  million, a $ 0.4  million or 0.3% decrease from the comparable period in 2012 . Maintenance, taxes, utilities, and promotion expense increased primarily due to City Creek Center as well as increased property taxes and maintenance costs at certain centers. Other operating expense decreased as a result of the reclassification of certain Asia costs to general and administrative expense (see "Results of Operations - Taubman Asia"). This was partially offset by increased expense due to City Creek Center. In 2013, we now expect our share of pre-development expenses, including both U.S. and Asia, to be about $12 million to $13 million. Management, leasing, and development costs decreased primarily due to decreased reimbursable third party costs and the elimination of the third party business of Taubman TCBL. General and administrative expense increased primarily due to the reclassification of certain Asia costs, as well as increased compensation expense. We continue to expect our quarterly general and administrative expense, including U.S. and Asia, to average about $13 million. Interest expense decreased due to capitalization of U.S. and Asia development projects, lower borrowings due to the 2012 common share issuance, and repayment of installment notes, partially offset by interest on borrowings for our acquisition of additional interest in International Plaza and the write-off of original deferred financing costs upon the refinancing of our primary revolving line of credit.

Nonoperating income increased by $ 2.1 million in 2013 due to the gain on the sale of marketable securities as well as the gain on the sale of peripheral land. We are not expecting any further peripheral land sales in 2013.

Unconsolidated Joint Ventures

Total revenues for the three months ended March 31, 2013 were $ 67.6 million, up $ 2.3 million or 3.5% over the comparable period in 2012 . Minimum rents increased primarily due to an increase in average rent per square foot, partially offset by a decrease in average occupancy. Expense recoveries increased due to increased fixed CAM revenue.

Total expenses increased by $ 4.3  million or 9.8% , to $ 48.3  million for the three months ended March 31, 2013 . Maintenance, taxes, utilities and promotion expense increased primarily due to increased maintenance costs, promotion costs, and property taxes at certain centers. Interest expense increased due to excess proceeds received from the refinancings at The Mall at Millenia, Westfarms, and Sunvalley, partially offset by the favorable rates received on the refinancings. Depreciation expense increased due to the depreciation of abandoned fixed assets at certain centers and the acquisition of additional interest in Waterside Shops.

As a result of the foregoing, income of the Unconsolidated Joint Ventures decreased by $ 2.1 million or 9.9% to $ 19.2  million for the three months ended March 31, 2013 . Our equity in income of the Unconsolidated Joint Ventures was $ 10.3 million, a $ 1.6  million or 13.4% decrease from the comparable period in 2012 .

Net Income

Net income was $ 46.4 million for the three months ended March 31, 2013 compared to $32.2 million for the three months ended March 31, 2012 . After allocation of income to noncontrolling, preferred, and participating interests, the net income attributable to Taubman Centers, Inc. common shareowners for the three months ended March 31, 2013 was $ 27.7  million compared to $ 17.5  million in the comparable period in 2012 .

FFO and FFO per Share

Our FFO was $ 81.5 million for the three months ended March 31, 2013 compared to $ 65.2 million for the three months ended March 31, 2012 . FFO per diluted share was $0.90 in 2013 compared to $0.75 in the comparable period in 2012 . See “General Background and Performance Measurement – Use of Non-GAAP Measures” for the definition of FFO and “Reconciliation of Net Income Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations.”


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Table of Contents

 
Reconciliation of Net Income Attributable to Taubman Centers, Inc. Common Shareowners to Funds from Operations
 
Three Months Ended March 31
 
2013
 
2012
 
Dollars in millions
 
Diluted Shares/ Units
 
Per Share/ Unit
 
Dollars in millions
 
Diluted Shares/ Units
 
Per Share/ Unit
Net income attributable to TCO common shareowners – basic
$
27.7

 
63,415,922

 
$
0.44

 
$
17.5

 
58,247,148

 
$
0.30

Add impact of share-based compensation
0.2

 
1,154,890

 
 
 
0.2

 
1,660,712

 
 
Net income attributable to TCO common shareowners – diluted
$
27.9

 
64,570,812

 
$
0.43

 
$
17.7

 
59,907,860

 
$
0.30

Add depreciation of TCO’s additional basis
1.7

 
 
 
0.03

 
1.7

 
 
 
0.03

Add TCO's additional income tax expense
—

 
 
 
—

 


 
 
 


Net income attributable to TCO common shareowners, excluding step-up depreciation and additional income tax expense
$
29.6

 
64,570,812

 
$
0.46

 
$
19.4

 
59,907,860

 
$
0.32

Add:
 
 
 
 
 
 
 
 
 
 
 
Noncontrolling share of income of TRG
11.8

 
25,344,949

 

 
8.8

 
26,479,740

 
 
Distributions to participating securities of TRG
0.4

 
871,262

 
 
 
0.4

 
871,262

 
 
Net income attributable to partnership unitholders and participating securities
$
41.9

 
90,787,023

 
$
0.46

 
$
28.6

 
87,258,862

 
$
0.33

Add (less) depreciation and amortization (1) :
 
 
 
 
 
 
 
 
 
 
 
Consolidated businesses at 100%
37.0

 
 
 
0.41

 
36.4

 
 
 
0.42

Depreciation of TCO’s additional basis
(1.7
)
 
 
 
(0.02
)
 
(1.7
)
 
 
 
(0.02
)
Noncontrolling partners in consolidated joint ventures
(1.1
)
 
 
 
(0.01
)
 
(2.4
)
 
 
 
(0.03
)
Share of Unconsolidated Joint Ventures
6.3

 
 
 
0.07

 
5.1

 
 
 
0.06

Non-real estate depreciation
(0.7
)
 
 
 
(0.01
)
 
(0.7
)
 
 
 
(0.01
)
Less impact of share-based compensation
(0.2
)
 
 
 
—

 
(0.2
)
 
 
 
—

Funds from Operations
$
81.5

 
90,787,023

 
$
0.90

 
$
65.2

 
87,258,862

 
$
0.75

TCO's average ownership percentage of TRG
71.4
%
 
 
 
 
 
68.7
%
 
 
 
 
Funds from Operations attributable to TCO, excluding additional income tax expense
58.2

 
 
 
0.90

 
44.8

 
 
 
0.75

Less TCO's additional income tax expense
—

 
 
 
—

 
 
 
 
 


Funds from Operations attributable to TCO
$
58.2

 
 
 
$
0.90

 
$
44.8

 
 
 
$
0.75


(1)
Depreciation includes $4.7 million and $4.8 million of mall tenant allowance amortization for the three months ended March 31, 2013 and 2012 , respectively.
(2)
Amounts in this table may not recalculate due to rounding.


 




33
Table of Contents


Reconciliation of Net Income to Beneficial Interest in EBITDA

 
Three Months Ended March 31
 
(in millions)
 
2013
 
2012
Net income
$
46.4

 
$
32.2

 
 
 
 
Add (less) depreciation and amortization:
 
 
 
Consolidated businesses at 100%
37.0

 
36.4

Noncontrolling partners in consolidated joint ventures
(1.1
)
 
(2.4
)
Share of Unconsolidated Joint Ventures
6.3

 
5.1

 
 
 
 
Add (less) interest expense and income tax expense:
 
 
 
Interest expense:
 
 
 
Consolidated businesses at 100%
34.5

 
37.5

Noncontrolling partners in consolidated joint ventures
(2.2
)
 
(4.2
)
Share of Unconsolidated Joint Ventures
9.4

 
8.1

Share of income tax expense
1.0

 
0.2

 
 
 
 
Less noncontrolling share of income of consolidated joint ventures
(2.8
)
 
(1.8
)
 
 
 
 
Beneficial interest in EBITDA
$
128.5

 
$
111.1

 
 
 
 
TCO's average ownership percentage of TRG
71.4
%
 
68.7
%
 
 
 
 
Beneficial interest in EBITDA attributable to TCO
$
91.8

 
$
76.4


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

34
Table of Contents


Reconciliation of Net Income to Net Operating Income

 
Three Months Ended March 31
 
(in millions)
 
2013
 
2012
Net income
$
46.4

 
$
32.2

Add (less) depreciation and amortization:
 
 
 
Consolidated businesses at 100%
37.0

 
36.4

Noncontrolling partners in consolidated joint ventures
(1.1
)
 
(2.4
)
Share of Unconsolidated Joint Ventures
6.3

 
5.1

Add (less) interest expense and income tax expense:
 
 
 
Interest expense:
 
 
 
Consolidated businesses at 100%
34.5

 
37.5

Noncontrolling partners in consolidated joint ventures
(2.2
)
 
(4.2
)
Share of Unconsolidated Joint Ventures
9.4

 
8.1

Share of income tax expense
1.0

 
0.2

Less noncontrolling share of income of consolidated joint ventures
(2.8
)
 
(1.8
)
Add EBITDA attributable to outside partners:
 
 
 
EBITDA attributable to noncontrolling partners in consolidated joint ventures
6.1

 
8.5

EBITDA attributable to outside partners in Unconsolidated Joint Ventures
20.2

 
20.5

EBITDA at 100%
$
154.8

 
$
140.0

Add (less) items excluded from shopping center Net Operating Income:
 
 
 
General and administrative expenses
12.2

 
8.4

Management, leasing, and development services, net
(1.4
)
 
(0.1
)
Gain on sale of peripheral land
(0.9
)
 


Interest income
(0.1
)
 
(0.1
)
Gain on sale of marketable securities
(1.3
)
 
 
Straight-line rents
(1.5
)
 
(0.6
)
Non-center specific operating expenses and other
3.9

 
6.9

Net Operating Income at 100% - all centers
$
165.8

 
$
154.4

Less - Net Operating Income of non-comparable center  (1)
(3.1
)
 
(0.3
)
Net Operating Income at 100% - comparable centers
$
162.7

 
$
154.1

Lease cancellation income
(1.8
)
 
(1.0
)
Net Operating Income at 100% excluding lease cancellation income (2)
$
160.8

 
$
153.1


(1)
Includes City Creek Center.
(2)
See "General Background and Performance Measurement - Use of Non-GAAP Measures" for a discussion of the use and utility of Net Operating Income excluding lease cancellation income as a performance measure.
(3)
Amounts in this table may not recalculate due to rounding.


35
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Liquidity and Capital Resources

Our internally generated funds and distributions from operating centers and other investing activities, augmented by use of our existing revolving lines of credit, provide resources to maintain our current operations and assets and pay dividends. Generally, our need to access the capital markets is limited to refinancing debt obligations at or near maturity and funding major capital investments. From time to time, we also may access the equity markets to raise additional funds or refinance existing obligations on a strategic basis. See “Capital Spending” for more details.

We are primarily financed with property-specific secured debt and we have six unencumbered center properties. The entities that own Dolphin Mall, Fairlane Town Center, Twelve Oaks Mall, and Willow Bend are guarantors under our unsecured primary revolving credit facility and are currently unencumbered assets under the facility. Any of the assets may be removed from the facility unencumbered asset pool and encumbered upon notice to lender that there is no default and the required covenant calculations are met on a pro forma basis. Additionally, City Creek Center and Stamford Town Center, a 50% owned Unconsolidated Joint Venture property, are unencumbered.

As of March 31, 2013 , we had a consolidated cash balance of $ 73.7 million. We also have an unsecured revolving line of credit of $1.1 billion and a secured revolving line of credit of $65 million, as of March 31, 2013 . The availability under these facilities as of March 31, 2013 , after considering then outstanding loan balances and outstanding letters of credit, was $941 million. Sixteen banks participate in our $1.1 billion revolving line of credit and the failure of one bank to fund a draw on our line does not negate the obligation of the other banks to fund their pro-rata shares. The unsecured line includes an accordion feature that would increase the borrowing capacity to as much as $1.5 billion if fully exercised. The line matures in March 2017, with a one-year extension option. The facility bears interest at a range based on our total leverage ratio. As of March 31, 2013, the leverage ratio results in a rate of LIBOR plus 1.45%.

In January 2013, a 10-year, $225 million non-recourse refinancing was completed on Great Lakes Crossing Outlets. The payments on the loan, which bears interest at an all-in rate of 3.63%, are based on amortizing principal over 30 years. The loan may be defeased beginning in March 2015. The existing $126 million, 5.25% fixed rate loan, which was scheduled to mature in March 2013, was paid off and the excess proceeds of approximately $100 million were used to pay down the revolving lines of credit.

The $107.4 million loan on The Mall At Green Hills matures in December 2013. We expect to pay off the loan using our revolving line of credit to allow for financial flexibility as we continue to explore expansion opportunities at the center.

We plan to obtain financing on City Creek Center during the second quarter of 2013. We expect financing proceeds to be in excess of our investment in the center.

Summaries of Capital Activities and Transactions for the Three Months Ended March 31, 2013 and 2012

Operating Activities

Our net cash provided by operating activities was $ 90.2  million in 2013 , compared to $ 60.7  million in 2012 . See also “Results of Operations” for descriptions of 2013 and 2012 transactions affecting operating cash flows.

Investing Activities

Net cash used in investing activities was $ 36.9  million in 2013 , compared to $ 199.6  million provided by investing activities in 2012 . Additions to properties in 2013 related primarily to the costs of new centers under development as well as tenant improvements at existing centers. Additions to properties in 2012 related primarily to the $75 million paid upon the opening of City Creek Center, tenant improvements at existing centers, and other capital items. A tabular presentation of 2013 capital spending is shown in “Capital Spending”. Net cash proceeds from the sale of peripheral land were $6.9 million in 2013. There were no peripheral land sales in 2012. The timing of peripheral land sales is variable and proceeds from peripheral land sales can vary significantly from period to period.
   

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Proceeds from the sale of marketable securities were $ 2.5 million in 2013. Collection of the remaining consideration from the sale of assets of the Taubman TCBL business provided $12.9 million in 2013. Restricted cash in 2012 was used to repay the $281.5 million of installment notes that were issued as part of the consideration for acquired centers in 2011. In 2013, we invested $ 2.8 million for Taubman Asia project costs (see "Capital Spending - New Developments"). Distributions in excess of income from Unconsolidated Joint Ventures provided $ 2.9  million in 2013 , compared to $ 3.6  million in 2012 .

Financing Activities

Net cash used in financing activities was $ 11.6  million in 2013 compared to $ 257.2  million in 2012 . Payments of debt and issuance costs, net of proceeds from the issuance of debt, were $ 124.4  million in 2013 . Proceeds from the issuance of debt, net of payments, were $82.4 million in 2012 . Installment notes issued in connection with the acquisitions of centers in 2011 were repaid in February 2012. In 2013 , $3.4  million was paid in connection with incentive plans, compared to $ 10.9  million in 2012 . In 2013, net proceeds of $164.4 million, after offering costs, were received from the issuance of the Series K Preferred Stock. Contributions from noncontrolling interests were $ 1.0 million in 2013 compared to $0.2 million in 2012. Total dividends and distributions paid were $ 49.3  million and $ 47.3  million in 2013 and 2012 , respectively.

Beneficial Interest in Debt

At March 31, 2013 , the Operating Partnership's debt and its beneficial interest in the debt of its Consolidated Businesses and Unconsolidated Joint Ventures totaled $3,505.2 million, with an average interest rate of 4.73% excluding amortization of debt issuance costs and interest rate hedging costs. These costs are reported as interest expense in the results of operations. Interest expense includes non-cash amortization of premiums relating to acquisitions. On an annualized basis, this amortization of acquisition premiums is equal to 0.13% of the average all-in rate. Beneficial interest in debt includes debt used to fund development and expansion costs. Beneficial interest in construction work in progress totaled $301 million as of March 31, 2013 , which includes $244.9 million of assets on which interest is being capitalized. The following table presents information about our beneficial interest in debt as of March 31, 2013 :
 
Amount
 
Interest Rate Including Spread
 
 
(in millions)
 
 
 
Fixed rate debt
$
3,025.8

 
4.97
%
(1)  
Floating rate debt:
 
 
 
   
Swapped through April 2018
137.5

 
4.10
%
 
Swapped through August 2020
123.7

 
4.99
%
 
 
$
261.2

 
4.52
%
(1)  
 
 
 
 
 
Floating month to month
218.2

 
1.64
%
(1)  
Total floating rate debt
$
479.4

 
3.21
%
(1)  
 
 
 
 
 
Total beneficial interest in debt
$
3,505.2

 
4.73
%
(1)  
 
 
 
 
 
Amortization of financing costs (2)
 

 
0.19
%
 
Average all-in rate
 

 
4.92
%
 

(1)
Represents weighted average interest rate before amortization of financing costs.
(2)
Financing costs include debt issuance costs and costs related to interest rate agreements of certain fixed rate debt.
(3)
Amounts in table may not add due to rounding.


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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 March 31, 2013 , a one percent increase on this floating rate debt would decrease cash flows by approximately $2.2 million, and due to the effect of capitalized interest, decrease annual earnings by approximately $2.0 million. A one percent decrease in interest rates (or to zero percent for LIBOR rates that are below one percent) would increase cash flows and annual earnings by approximately $0.4 million. Based on our consolidated debt and interest rates in effect at March 31, 2013 , a one percent increase in interest rates would decrease the fair value of debt by approximately $84.7 million, while a one percent decrease in interest rates would increase the fair value of debt by approximately $89.5 million.

Loan Commitments and Guarantees

Certain loan agreements contain various restrictive covenants, including the following corporate covenants on our primary revolving line of credit: a minimum net worth requirement, a maximum total leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum recourse secured debt ratio, and a maximum payout ratio. In addition, our primary revolving line of credit has unencumbered pool covenants, which currently apply to Dolphin Mall, Fairlane Town Center, Twelve Oaks Mall, and The Shops at Willow Bend on a combined basis. These covenants include a minimum number and minimum value of eligible unencumbered assets, a maximum unencumbered leverage ratio, a minimum unencumbered interest coverage ratio, and a minimum unencumbered asset occupancy ratio. The corporate maximum secured leverage ratio is the most restrictive covenant for our primary revolving line of credit. We are in compliance with all of our covenants and loan obligations as of March 31, 2013 . The maximum payout ratio covenant limits the payment of distributions generally to 95% of funds from operations, as defined in the loan agreements, except as required to maintain our tax status, pay preferred distributions, and for distributions related to the sale of certain assets.

Cash Tender Agreement

A. Alfred Taubman has the annual right to tender units of partnership interest in the Operating Partnership and cause us to purchase the tendered interests at a purchase price based on a market valuation of TCO on the trading date immediately preceding the date of the tender. See “Note 10 – Commitments and Contingencies – Cash Tender” to our consolidated financial statements for more details.

Capital Spending

New Developments

Our United States development currently includes three projects that are under construction: Taubman Prestige Outlets Chesterfield, The Mall at University Town Center, and The Mall of San Juan. We have also made initial investments in two projects in Asia: Xi'an Saigao City Plaza and Hanam Union Square. In addition, in February 2013, we announced Zhengzhou Vancouver Times Square, a second project in China. Internally generated funds, excess proceeds from refinancings of maturing debt obligations, and borrowings under our revolving lines of credit would be sufficient to finance the anticipated costs of these projects, but we also expect construction loan financing to be available.

Taubman Prestige Outlets Chesterfield, our project in the St. Louis market, is under construction. We have a 90% ownership interest in the project and expect to open the first phase for a 0.3 million square foot open-air outlet shopping center in August 2013. We will be responsible for management, leasing, and development of the center. Due to competitive pressures in the market, the return is uncertain. Total project costs are expected to be approximately $130 million for the first phase.

In Sarasota, The Mall at University Town Center is under construction and we are funding our 50% share of the project. We will be responsible for management, leasing, and development of the center. The 0.9 million square foot center will be anchored by Saks Fifth Avenue, Macy's, and Dillard's, and is expected to open in October 2014. We expect an 8% to 8.5% unlevered return on our share of the approximately $315 million total project cost.


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The Mall of San Juan is under construction in San Juan, Puerto Rico. The 0.7 million square foot center will be anchored by the Caribbean's first Nordstrom and Saks Fifth Avenue. We expect a March 2015 opening. We will be responsible for management, leasing, and development of the center. The casino and hotel being developed by the landowner will connect to and are expected to open with the center. We are expecting an 8% to 8.5% unlevered return on our 80% share of the approximately $430 million total project cost.

In 2012, we entered into a joint-venture with Beijing Wangfujing Department Store (Group) Co., Ltd (Wangfujing), one of China's largest department store chains. The joint venture will own a 60% controlling interest in and manage a shopping center to be located at Xi'an Saigao City Plaza, a large-scale mixed-use development in Xi'an, China. It is scheduled to open in 2015 and is part of a 5.9 million square foot mixed-use project. We are investing in the retail portion only, which will be over 1.0 million square feet with over half of that in mall specialty stores. We have invested $50.9 million, including cumulative currency translation adjustments, in the project as of March 31, 2013. Our total anticipated investment will be approximately $115 million for a 30% equity interest. We are expecting a 6% to 6.5% unlevered return at stabilization. Sales growth rates are expected to be in excess of 10%.

In 2013, we announced a second joint venture with Wangfujing that will own a majority interest in and manage a shopping center to be located in Zhengzhou, China. Currently under construction, the approximately 1.0 million square foot shopping mall, Zhengzhou Vancouver Times Square, is scheduled to open in 2015. Our total anticipated investment will be somewhat over $100 million for a 32% equity interest. We are expecting a 6% to 6.5% unlevered return at stabilization.

Combined with shorter lease terms than the U.S., returns on our investments in China are expected to equal those earned in the U.S. by the seventh or eighth year.

We have invested in a 1.7 million square foot shopping mall project in Hanam, Gyeonggi Province, South Korea (Hanam Union Square) in which Taubman Asia has partnered with Shinsegae Group (Shinsegae), South Korea's largest retailer. The center is scheduled to open in 2016. As of March 31, 2013 , we have invested $76.7 million, including cumulative currency translation adjustments, in the project. Our total anticipated investment including capitalized interest will be about $330 million for a 30% equity interest in the retail portion of the project. We are considering bringing in a financial partner for as much as 50% of our share. We are expecting a 7% to 7.5% unlevered return at stabilization.

2013 Capital Spending

Capital spending for routine maintenance of the shopping centers is generally recovered from tenants. Capital spending through March 31, 2013 , is summarized in the following table:
 
2013 (1)
 
Consolidated Businesses
 
Beneficial Interest in Consolidated Businesses
 
Unconsolidated Joint Ventures
 
Beneficial Interest in Unconsolidated Joint Ventures
 
(in millions)
New development projects - U.S. (2)
$
37.3

 
$
32.8

 
$
8.2

 
$
8.2

New development projects - Asia (3) (4)
 
 
 
 
2.8

 
2.8

Existing centers:
 
 
 
 
 
 
 
Projects with no incremental GLA and other
1.9

 
1.4

 
1.6

 
0.8

Mall tenant allowances
1.5

 
1.5

 
2.8

 
1.4

Asset replacement costs recoverable from tenants
5.5

 
4.4

 
1.0

 
0.6

Corporate office improvements, technology, equipment, and other
1.5

 
1.5

 
 
 
 
Total
$
47.8

 
$
41.6

 
$
16.3

 
$
13.8


(1)
Costs are net of intercompany profits and are computed on an accrual basis.
(2)
Includes costs related to The Mall of San Juan, Taubman Prestige Outlets Chesterfield, and The Mall at University Town Center.
(3)
Includes costs related to the retail component of Xi'an Saigao City Plaza, Hanam Union Square, and Zhengzhou Vancouver Times Square. Asia spending is included at our beneficial interest in both the Unconsolidated Joint Ventures and Beneficial Interest in Unconsolidated Joint Ventures columns.
(4)
Asia costs exclude $2.9 million in net unfavorable currency translation adjustments.
(5) Amounts in this table may not add due to rounding.

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For the three months ended March 31, 2013 , in addition to the costs above, we incurred our $1.3 million share of Consolidated Businesses’ and $0.7 million share of Unconsolidated Joint Ventures’ capitalized leasing costs.

The following table presents a reconciliation of the Consolidated Businesses’ capital spending shown above (on an accrual basis) to additions to properties (on a cash basis) as presented in our Consolidated Statement of Cash Flows for the three months ended March 31, 2013 :
 
(in millions)
Consolidated Businesses’ capital spending
$
47.8

Differences between cash and accrual basis and other
11.6

Additions to properties
$
59.4


Planned 2013 Capital Spending

The following table summarizes planned capital spending for 2013, including actual spending through March 31, 2013 and anticipated spending for the remainder of the year:

 
2013 (1)
 
Consolidated Businesses
 
Beneficial Interest in Consolidated Businesses
 
Unconsolidated Joint Ventures
 
Beneficial Interest in Unconsolidated Joint Ventures
 
(in millions)
New development projects - U.S. (2)
$
169.6

 
$
146.5

 
$
160.9

 
$
86.6

New development projects - Asia (3)(4)
 
 
 
 
78.5

 
78.5

Existing centers:
 
 
 
 
 
 
 
Projects with no incremental GLA and other
6.7

 
5.4

 
3.6

 
1.8

Mall tenant allowances
16.4

 
15.4

 
5.2

 
2.9

Asset replacement costs recoverable from tenants
28.8

 
21.5

 
33.0

 
18.1

Corporate office improvements, technology, equipment, and other
3.7

 
3.7

 
 
 
 
Total
$
225.3

 
$
192.6

 
$
281.1

 
$
187.8


(1)
Costs are net of intercompany profits and are computed on an accrual basis.
(2)
Includes costs related to The Mall at San Juan, Taubman Prestige Outlets Chesterfield, and The Mall at University Town Center.
(3)
Includes costs related to the retail component of Xi'an Saigao City Plaza, Hanam Union Square, and Zhengzhou Vancouver Times Square. Asia spending is included at our beneficial interest in both the Unconsolidated Joint Ventures and Beneficial Interest in Unconsolidated Joint Ventures columns.
(4)
Asia costs exclude currency translation adjustments.
(5)
Amounts in this table may not add due to rounding.

We anticipate that our share of costs incurred for new center development projects included in the table above will be $360 million, $250 million, and $60 million for 2014, 2015, and 2016, respectively.

Disclosures regarding planned capital spending, including estimates regarding timing of openings, capital expenditures, occupancy, and returns on new developments are forward-looking statements and certain significant factors could cause the actual results to differ materially, including but not limited to (1) actual results of negotiations with anchors, tenants, and contractors, (2) timing and outcome of litigation and entitlement processes, (3) changes in the scope, number, and valuation of projects, (4) cost overruns, (5) timing of expenditures, (6) availability of and cost of financing and other financing considerations, (7) actual time to start construction and complete projects, (8) changes in economic climate, (9) competition from others attracting tenants and customers, (10) increases in operating costs, (11) timing of tenant openings, (12) early lease terminations and bankruptcies, and (13) fluctuations in foreign currency exchange rates.


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Dividends

We pay regular quarterly dividends to our common and preferred shareowners. Dividends to our common shareowners are at the discretion of the Board of Directors and depend on the cash available to us, our financial condition, capital and other requirements, and such other factors as the Board of Directors deems relevant. To qualify as a REIT, we must distribute at least 90% of our REIT taxable income prior to net capital gains to our shareowners, as well as meet certain other requirements. We must pay these distributions in the taxable year the income is recognized, or in the following taxable year if they are declared during the last three months of the taxable year, payable to shareowners of record on a specified date during such period and paid during January of the following year. Such distributions are treated as paid by us and received by our shareowners on December 31 of the year in which they are declared. In addition, at our election, a distribution for a taxable year may be declared in the following taxable year if it is declared before we timely file our tax return for such year and if paid on or before the first regular dividend payment after such declaration. These distributions qualify as dividends paid for the 90% REIT distribution test for the previous year and are taxable to holders of our capital stock in the year in which paid. Preferred dividends accrue regardless of whether earnings, cash availability, or contractual obligations were to prohibit the current payment of dividends.

The annual determination of our common dividends is based on anticipated Funds from Operations available after preferred dividends and our REIT taxable income, as well as assessments of annual capital spending, financing considerations, and other appropriate factors.

Any inability of the Operating Partnership or its Joint Ventures to secure financing as required to fund maturing debts, capital expenditures and changes in working capital, including development activities and expansions, may require the utilization of cash to satisfy such obligations, thereby possibly reducing distributions to partners of the Operating Partnership and funds available to us for the payment of dividends.

On March 8, 2013, we declared a quarterly dividend of $0.50 per common share and $0.40625 per share on our 6.5% Series J Preferred Stock, which was paid on March 29, 2013 to shareowners of record on March 18, 2013. In addition, dividends on the 6.25% Series K Preferred Stock, which began accruing, from and including, March 15, 2013, will be payable in the following quarter.

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Item 3.
Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is included in this report at Item 2 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Sensitivity Analysis.”

Item 4.
Controls and Procedures

As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2013 , our disclosure controls and procedures were effective to ensure the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods prescribed by the SEC, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II
OTHER INFORMATION

Item 1.
Legal Proceedings

Refer to “Note 10 – Commitments and Contingencies” to our consolidated financial statements relating to the restaurant owners at The Pier Shops litigation. There were no material developments regarding these matters during the quarter ended March 31, 2013 .

Item 1 A.
Risk Factors

There were no material changes in our risk factors previously disclosed in Part I, Item 1A. of our Form 10-K for the year ended December 31, 2012 .


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Item 6. Exhibits

 
 
 
 
Incorporated by Reference
 
 
Exhibit Number
 
Exhibit Description
 
Form
 
Period Ending
 
Exhibit
 
Filing Date
 
Filed Herewith
3
 
Amended and Restated Articles of Incorporation of Taubman Centers, Inc.
 
8-K
 
 
 
3.1
 
March 15, 2013
 
 
4.1
 
Form of certificate evidencing 6.25% Series K Cumulative Redeemable Preferred Stock, Liquidation Preference $25.00 per share
 
8-A12B
 
 
 
4.1
 
March 14, 2013
 
 
4.2
 
Revolving Credit Agreement, dated as of February 28, 2013, by and among The Taubman Realty Group Limited Partnership and JPMorgan Chase Bank N.A., as Administrative Agent, and the various lenders and agents on the signature pages thereto
 
8-K
 
 
 
4.1
 
March 1, 2013
 
 
4.3
 
Guaranty, dated as of February 28, 2013, by and among Dolphin Mall Associates LLC, Fairlane Town Center LLC, Twelve Oaks Mall, LLC, and Willow Bend Shopping Center Limited Partnership in favor of JPMorgan Chase Bank, N.A., in its capacity as Administrative Agent for the Lenders under the Revolving Credit Agreement
 
8-K
 
 
 
4.2
 
March 1, 2013
 
 
10
 
First Amendment to Operating Agreement of Taubman Land Associates, a Delaware Limited Liability Company, dated October 20, 2006.
 
 
 
 
 
 
 
 
 
X
12
 
Statement Re: Computation of Taubman Centers, Inc. Ratio of Earnings to Combined Fixed Charges and Preferred Dividends
 
 
 
 
 
 
 
 
 
X
31.1
 
Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
 
 
X
31.2
 
Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
 
 
X
32.1
 
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
 
 
 
 
 
 
 
 
 
X
32.2
 
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
 
 
 
 
 
 
 
 
 
X
99
 
Debt Maturity Schedule
 
 
 
 
 
 
 
 
 
X
101.INS
 
XBRL Instance Document
 
 
 
 
 
 
 
 
 
X
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
 
 
 
 
X
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
 
 
 
 
X
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
 
 
 
 
 
X
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
 
 
 
 
 
X
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
 
 
 
 
X

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
TAUBMAN CENTERS, INC.
Date:
April 30, 2013
By: /s/ Lisa A. Payne                                                                     
 
 
Lisa A. Payne
 
 
Vice Chairman, Chief Financial Officer, and Director (Principal Financial Officer)

45



    
FIRST AMENDMENT
TO
OPERATING AGREEMENT
OF
TAUBMAN LAND ASSOCIATES LLC


THIS FIRST AMENDMENT TO OPERATING AGREEMENT (this “ Amendment ”) is entered into as of the 1st day of November, 2012, by TRG SUNVALLEY LLC, a Delaware limited partnership and TAUB-SV, LLC, a Delaware limited liability company (the successor by merger of TILV-SV, LLC) (individually, a “ Member ” and together, “ Members ”), and Julia A. McCullough and Beth L. Peoples, as Independent Managers (the “Independent Managers”), based upon the following:

A. Members, the owners of one hundred percent (100%) of the limited liability company interests in Taubman Land Associates LLC (the “ Company ”), are parties to that certain Operating Agreement dated as of October 20, 2006 (the “ Original Operating Agreement ;” the Original Operating Agreement as amended by this Amendment is referred to as the “ Operating Agreement ”).

B. Concurrently with the execution of this Amendment, the Company is refinancing the mortgage loan encumbering the Company's interest in certain real property located in the Contra Costa County, California and more particularly described on Exhibit A to the Operating Agreement (the “ Property ”).

C. In connection with the refinancing, it is necessary to amend the Original Operating Agreement as hereinafter provided.

NOW, THEREFORE, intending to be legally bound, Members and the Independent Managers hereby agree as follows:

1. Unless defined herein, capitalized terms used in this Amendment shall have the meanings ascribed to them in the Original Operating Agreement or, if not defined in the Original Operating Agreement, in the Loan Documents.

2. Section 1.3 of the Original Operating Agreement is hereby deleted in its entirety and replaced with the following:

Section 1.3.      Purposes .

The Company has been organized pursuant to the Limited Liability Company Law and in accordance with this Agreement, for the following purposes: (A) owning, holding, selling, leasing, transferring, exchanging, managing, operating, expanding, renovating, improving and financing that certain real property consisting of approximately 68 acres located in Concord, California, which has been ground leased in part to SunValley Shopping Center LLC, as successor in interest, by various assignments, of Del E. Webb Corporation, an Arizona corporation, and ground leased in part to Sears, Roebuck & Co., and which has been developed as a regional retail shopping center known as “SunValley Shopping Center” (as more particularly described on Exhibit A attached hereto, the “ Property ”) and any other property that the Company shall acquire, directly or indirectly, that is related to the Property, all business incidental thereto, (B) obtaining and performing its obligations under the Mortgage Loan (as




defined below), (C) refinancing the Property in connection with a permitted repayment or defeasance of the Mortgage Loan, and (D) transacting lawful business for which the Company may be organized under the Limited Liability Company Law that is incidental, necessary or appropriate to accomplish the foregoing.

3. Article I of the Original Operating Agreement is hereby amended by inserting the following Section 1.12 after Section 1.11 therein:

1.12      Limitations on Company Activities .

(a)      Notwithstanding any other provisions contained in this Agreement or in any other document governing the formation, management, or operating of the Company, so long as the Mortgage Loan is Outstanding, the Members shall cause the Company to do, and the Company shall do, the following:

     (i)      will pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same shall become due (unless the same is subject to good faith dispute by the Company, in appropriate proceedings therefor, and for which adequate reserves have been established in accordance with GAAP) to the extent, but only to the extent, there is current sufficient cash flow generated by and available from the Property; provided, however, that this provision shall not be deemed to require any direct or indirect equity owner of the Company to make any loans or capital contributions to the Company to comply with this provision;

(ii)      will do all things necessary to observe organizational formalities and preserve its existence, and will not, nor will it permit any member of the Company to, amend, modify or otherwise change the Company's operating agreement or other organizational documents in any material respect which adversely affects the Company's existence as a single purpose entity or its other obligations with respect to the Mortgage Loan without the prior written consent of Lender;

(iii)      will maintain all of its books, records, financial statements and bank accounts separate from those of any other Person and, except as required or permitted under GAAP, its assets have not been and will not be listed as assets on the financial statement of any other Person;

(iv)      will file its own tax returns and will not file a consolidated federal income tax return with any other Person (except that the Company may file or may be part of a consolidated federal tax return to the extent (i) required or permitted by applicable law, or (ii) it is treated as a “disregarded” entity for tax purposes and is not required to file tax returns under applicable law); provided, however, that there shall be an appropriate notation indicating the separate existence of the Company;

(v)      will be and shall hold itself out to the public as, a legal entity separate and distinct from any other Person (including any Affiliate of the Company), shall use good faith efforts to correct any known misunderstanding regarding its status as a separate entity, has and shall conduct business in its own name (provided, that the Company shall not be precluded from identifying the Property in connection with a “Taubman” mall);





(vi)      will hold all of its assets in its own name and will maintain and account for its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other person or entity;

(vii)      will allocate fairly and reasonably any overhead expenses that are shared with any Affiliate, including, without limitation, paying for office space and services performed by any employee of an Affiliate;

(viii)      will employ or engage a service provider to provide a sufficient number of employees in light of its contemplated business operations and pay the salaries of its own employees from its own funds to the extent there is sufficient cash flow generated by and available from the Property; provided, however, that (A) the Company shall not be obligated to have any employees and (B) this provision shall not be deemed to require any direct or indirect equity owner of the Company to make any loans or capital contributions to comply with this provision;

(ix)      to the fullest extent permitted by law, will conduct its business so that the assumptions made with respect to it in the Insolvency Opinion shall be true and correct in all material respects.

(b)      Notwithstanding any other provisions contained in this Agreement, so long as the Mortgage Loan is Outstanding, the Members shall cause the Company not to do, and the Company shall not do, any of the following:

(i)      own any asset or property other than (A) the Property, and (B) incidental personal property necessary for and used or to be used in connection with the ownership, management or operation of the Property;

(ii)      engage in any business or activities other than (A) owning, holding, selling, leasing, transferring, exchanging, managing, operating, expanding, renovating, improving and financing the Property and the other assets described in clauses (A) and (B) of subsection 1.12(b)(i), and all business incidental thereto, (B) obtaining and performing its obligations under the Mortgage Loan, (C) refinancing the Property in connection with a permitted repayment or defeasance of the Mortgage Loan and (D) transacting lawful business for which the Company may be organized under the Limited Liability Company Law that is incidental, necessary or appropriate to accomplish the foregoing.

(iii)      enter into any contract or agreement with any Affiliate of the Company other than the Management Agreement, the Shopping Center Ground Lease and contracts or agreements that are intrinsically fair, commercially reasonable and substantially similar to those that would be available on an arms-length basis with third parties not so affiliated with the Company;

(iv)      create, incur or assume any Indebtedness other than (A) the Mortgage Loan, (B) additional Indebtedness expressly permitted under the Loan Agreement;

(v)      make any advance payments other than in the ordinary course of its business or loans to any Person and shall not acquire obligations or securities of any Affiliate of the Company;





(vi)      unless required to do so by law, engage in, seek or consent to the dissolution, winding up, liquidation, consolidation, merger or sale of all or substantially all of its assets, except as permitted by the Loan Documents or in connection with a defeasance of the Loan as permitted under the Loan Documents;

(vii)      commingle its funds or assets with those of any other Person;

(viii)      guarantee or become obligated for the debts of any other Person and will not hold itself out as being responsible for the debts or obligations of any other Person except as permitted pursuant to the Loan Documents;

(ix)      pledge its assets to secure the obligations of any other Person other than with respect to (A) the Mortgage Loan, (B) equipment leases entered into in the ordinary course in connection with the Property, only as to the underlying equipment itself, and (C) other secured indebtedness expressly permitted under the Loan Documents.

4. Article II is hereby amended by inserting the following definitions in the appropriate alphabetical order

“ Approved ID Provider ” means each of CT Corporation, Corporation Service Company, National Registered Agents, Inc., Wilmington Trust Company, Stewart Management Company and Lord Securities Corporation; provided, that, (A) if Independent Managers are appointed after the date hereof, the foregoing shall only be deemed Approved ID Providers to the extent still acceptable to the Rating Agencies as of the time of such appointment and (B) additional national providers of Independent Managers may be deemed added to the foregoing hereunder to the extent approved in writing by Lender, and which are acceptable to the Rating Agencies as of the time of appointment.

“ Independent Manager ” means a natural person who (i) has not been at the time of such individual's initial appointment, and shall not have been at any time during the preceding five (5) years, and shall not be at any time while serving as Independent Manager, either (A) a shareholder (or other equity owner) of, or an officer, director, partner, member, manager, attorney, counsel or employee of, the Company or any of its shareholders, partners, members, subsidiaries or Affiliates (with the exception of serving as an independent manager, independent director or independent trustee, as the case may be, of the Company or any affiliate of the Company), (B) a creditor of, customer of, or supplier to, or other Person who derives any of its purchases or revenues from its activities with the Company or its respective shareholders, partners, members, subsidiaries or affiliates (except for (1) fees received for acting as an independent manager, independent director or independent trustee, as the case may be, of the Company or any affiliate of the Company, and (2) any fees paid by the Company or any affiliate of the Company to the Approved ID Provider for such Independent Manager), (C) a member of the immediate family of any such shareholder, officer, director, partner, member, manager, attorney, counsel, employee, creditor, supplier, customer or other person or (D) a Person who controls or is under common control with any Person described in clauses (A)-(C) (provided that, acting as an independent manager, independent director or independent trustee of the Company or any affiliate of the Company shall not constitute control of the Company or any such affiliate of the Company), and (ii) is employed by, in good standing with and engaged by the Company in connection with, in each case, an Approved ID Provider. A person that otherwise satisfies the foregoing shall not be disqualified from serving as an Independent Manager or an independent director, as the case may be, solely because such




individual is at the time of initial appointment, or at any time while serving as an Independent Manager or an independent director, as the case may be, an Independent Manager, an independent manager or springing member of a “Special Purpose Entity” affiliated with the Company or an affiliate of the Company provided that such Person is provided by an Approved ID Provider.

“ Loan Agreement ” means that certain Loan Agreement dated on or about November 1, 2012 between the Company and the Lender regarding the Mortgage Loan.

“ Loan Documents ” has the meaning assigned to such term in the Loan Agreement.

“ Material Action ” is defined in Section 5.11(b) hereof.

“ Mortgage Loan ” means that certain mortgage loan in the original principal amount of Twenty Four Million Dollars ($24,000,000) made by Morgan Stanley Mortgage Capital Holdings LLC, a New York limited liability company (“ Lender ”) to the Company.

“ Mortgage Loan is Outstanding ” means that (A) the Mortgage Loan or any part thereof is outstanding to the Lender or its affiliate(s), successor(s) or assign(s) as holders of the Mortgage Loan, and (B) the Mortgage Loan is secured by a mortgage lien on the Property.

" Special Member " means, upon such person's admission to the Company as a member of the Company pursuant to Section 6.9 , a person acting as Independent Manager, in such person's capacity as a member of the Company. A Special Member shall only have the rights and duties expressly set forth in this Agreement.
5.      The definition of "Bankruptcy" in Article II of the Original Operating Agreement is hereby amended by deleting the word "dissolution," from subsection (vii)(a) thereof and by adding the following sentence at the end thereof: "The foregoing definition of Bankruptcy is intended to replace and shall supersede and replace the definition of "Bankruptcy" set forth in Sections 18-101(1) and 18-304 of the Limited Liability Company Law.”
6.      Article IV of the Original Operating Agreement is hereby amended by inserting the following Section 4.10 at the end thereof:
4.10      Limitations on Distributions . Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not be required to make a distribution to any Member on account of its interest in the Company if such distribution would violate the Limited Liability Company Law or any other applicable law.
7.      Section 5.1(a) of the Original Operating Agreement is hereby amended by inserting the words “and Material Actions” after the words “Major Decisions” in the first line thereof and in the third sentence thereof.

8.      Section 5.1(c) of the Original Operating Agreement is hereby amended by inserting the phrase “but subject to Section 5.11(b) hereof” after the phrase “Notwithstanding Sections 5.1(a) and 5.1(b) hereof” in the first line thereof.

9.      Section 5.5 of the Original Operating Agreement is hereby amended by inserting the following sentence at the end thereof: “Notwithstanding anything in this Section 5.5. to the contrary, so long as the




Mortgage Loan is Outstanding, termination of the Management Agreement and replacement of the manager is subject to the terms of the Loan Agreement.”

10.      Section 5.6 of the Original Operating Agreement is hereby amended in its entirety to read as follows:

5.6      Indemnification; Limits on Liability . Without duplication of amounts reimbursed to a Member pursuant to Section 5.3 hereof, the Company shall and does hereby, to the fullest extent permitted by law, indemnify and hold harmless each Member (including the Managing Member), Independent Manager and Special Member, their respective successors and assigns, from and against any and all losses, liabilities, obligations, claims, causes of action, demands, costs and expenses including reasonable attorneys' fees), incurred by such party with respect to any act or omission performed by such party within the scope of the authority conferred upon it by this Agreement, except for acts or omissions that constitute fraud, willful misconduct, gross negligence or a material breach of this Agreement. Except for acts that constitute fraud, willful misconduct, gross negligence, or a material breach of this Agreement, no Member, Independent Manager or Special Member shall be liable to the Company or to another Member (and the interest of each Member in the Company, and in its property and assets, shall be free of any claims by the Company or a Member) by reason of any act performed for or on behalf of the Company, or in furtherance of the Company business, or by reason of any omission. Any indemnity under this Section 5.6 shall be provided out of and the extent of Company assets only, and no Member shall have any personal liability on account thereof. The indemnity and the limit on liability provided in this Section 5.6 shall survive the dissolution and termination of the Company and the termination of this Agreement. Notwithstanding anything to the contrary herein or in any other document governing the formation, management or operation of the Company, so long as the Mortgage Loan is Outstanding, any indemnification by the Company of the Members, including a Special Member, an affiliate of a Member, or an Independent Manager, shall be fully subordinate to any obligations respecting the Mortgage Loan and to the fullest extent permitted by law, shall not constitute a claim against the Company in the event that the cash flow of the Company after payment of all obligations then due under the Mortgage Loan is insufficient to pay such indemnity obligations.

11.      Article V of the Original Operating Agreement is hereby amended by inserting the following Section 5.11 at the end thereof:

5.11.      Independent Managers .

(a)      So long as the Mortgage Loan is Outstanding, the Members shall cause the Company to have at least two Independent Managers who will be appointed by the Members. The Members hereby appoint Julia A. McCullough and Beth L. Peoples as the Independent Managers. To the fullest extent permitted by law, including Section 18-1101(c) of the Limited Liability Company Law, and notwithstanding any duty otherwise existing at law or in equity, the Independent Managers shall consider only the interests of the Company, including its creditors, and the Members in acting or otherwise voting on the matters referred to in Section 5.11(b) . Except for duties to the Company as set forth in the immediately preceding sentence (which such duties to the Members, the Company and the Company's creditors apply solely to the extent of their respective economic interests in the Company but excluding (i) all other interests (including, without limitation, all other interests of the Members), (ii) the interests of other affiliates of the Company or the Members, and (iii) the interests of any group of




affiliates of which the Company or the Members is a part), the Independent Managers shall not have any fiduciary duties to the Members or any other Person bound by this Agreement; provided, however, the foregoing shall not eliminate the implied contractual covenant of good faith and fair dealing. To the fullest extent permitted by law, including Section 18-1101(e) of the Limited Liability Company Law, an Independent Manager shall not be liable to the Company, the Members or any other Person bound by this Agreement for breach of contract or breach of duties (including fiduciary duties), unless the Independent Manager acted in bad faith or engaged in willful misconduct. No resignation or removal of an Independent Manager, and no appointment of a successor Independent Manager, shall be effective until such successor shall have accepted his or her appointment as an Independent Manager by executing a counterpart to this Agreement. In the event of a vacancy in the position of Independent Manager, the Members shall, as soon as practicable, appoint a successor Independent Manager. Notwithstanding anything to the contrary contained in this Agreement, no Independent Manager shall be removed or replaced unless the Company provides the Lender with the identity of the proposed replacement Independent Manager, together with a certification that such replacement satisfies the requirements for an Independent Manager set forth in this Agreement. All right, power and authority of the Independent Managers shall be limited to the extent necessary to exercise those rights and perform those duties specifically set forth in this Agreement. No Independent Manager shall at any time serve as trustee in bankruptcy for any Affiliate of the Company. An Independent Manager is hereby designated as a "manager" within the meaning of Section 18-101(10) of the Limited Liability Company Law.

(b)      Notwithstanding any other provision of this Agreement or in any other document governing the formation, management or operation of the Company, so long as the Mortgage Loan is Outstanding, neither the Members nor any other Person shall be authorized or empowered, nor shall they permit the Company, without the prior unanimous written consent of the Members and all Independent Managers, to take any of the following actions (“ Material Actions ”), provided, however, that, so long as the Mortgage Loan is Outstanding, the Members may not authorize the taking of any Material Action, unless there are at least two Independent Managers then serving in such capacity:

(i) file any insolvency, or reorganization case or proceeding, to institute proceedings to have the Company be adjudicated bankrupt or insolvent;

(ii) institute proceedings under any applicable insolvency law respecting the Company;

(iii) seek any relief for the Company under any law relating to relief from debts or the protection of debtors;

(iv) consent to the filing or institution of bankruptcy or insolvency proceedings against the Company:

(v) file a petition seeking, or consent to, reorganization or relief with respect to the Company under any applicable federal or state law relating to bankruptcy or insolvency;

(vi) seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian, or any similar official of or for the Company or a substantial part of its property;

(vii) make any assignment for the benefit of creditors of the Company;





(viii) to sell all, or substantially all, of the assets of the Company (except as otherwise expressly permitted in the Loan Documents); or

(ix) to the fullest extent permitted by law, consent to the dissolution, winding up, liquidation, consolidation or merger, in whole or in part, of the Company.

In the event of a conflict between Section 5.1(c) and Section 5.11(b) of this Agreement, the provisions of Section 5.11(b) shall control.

12.      Section 6.1(a) of the Original Operating Agreement is hereby amended by inserting the following clause at the end thereof: “including without limitation the Loan Agreement (so long as the Mortgage Loan is Outstanding)”.

13.      The second paragraph of Section 6.6(a) of the Original Operating Agreement is hereby amended by inserting the clause “,subject to the provisions of Section 5.11(b) hereof, “ after the words “the Triggering Members may” and before the words “sell the Property” in the first sentence thereof.

14.      Section 6.8 of the Original Operating Agreement is hereby amended by adding the clause “and, so long as the Mortgage Loan is Outstanding, subject to the provisions of the Loan Agreement” at the end of the introductory provision thereof.

15.      Article VI of the Original Operating Agreement is hereby amended by inserting the following Section 6.9 after Section 6.8 thereof:

6.9.      Special Member .
Upon the occurrence of any event that causes the Members to cease to be a member of the Company (other than upon continuation of the Company without dissolution upon (a) an assignment by each Member of all of its limited liability company interest in the Company and the admission of the transferee pursuant to Article VI , or (b) the resignation of each Member and the admission of an additional member of the Company as set forth herein), each person acting as an Independent Manager pursuant to Section 5.11 shall, without any action of any person and simultaneously with the Members ceasing to be members of the Company, automatically be admitted to the Company as a Special Member and shall continue the Company without dissolution. No Special Member may resign from the Company or transfer its rights as Special Member unless (i) a successor Special Member has been admitted to the Company as Special Member by executing a counterpart to this Agreement, and (ii) such successor has also accepted its appointment as Independent Manager pursuant to Section 5.11 ; provided, however, the Special Members shall automatically cease to be members of the Company upon the admission to the Company of a substitute Member. Each Special Member shall be a member of the Company that has no interest in the profits, losses and capital of the Company and has no right to receive any distributions of Company assets. Pursuant to Section 18-301 of the Limited Liability Company Law, a Special Member shall not be required to make any capital contributions to the Company and shall not receive a limited liability company interest in the Company. A Special Member, in its capacity as Special Member, may not bind the Company. Except as required by any mandatory provision of the Limited Liability Company Law, each Special Member, in its capacity as Special Member, shall have no right to vote on, approve or otherwise consent to any action by, or matter relating to, the Company, including, without limitation, the merger, consolidation or




conversion of the Company; provided, however, the forgoing prohibition shall not limit the obligations of the Special Member, in its capacity as Independent Manager, to vote on such matters required under this Agreement. In order to implement the admission to the Company of each Special Member, each person acting as an Independent Manager pursuant to Section 5.11 shall execute a counterpart to this Agreement. Prior to its admission to the Company as Special Member, each Person acting as an Independent Manager pursuant to Section 5.11 shall not be a member of the Company.
16.      Section 7.1(a) of the Original Operating Agreement is hereby amended by deleting the word "Bankruptcy" after "(B)" in the first sentence thereof and replacing it with the words "[Intentionally Omitted]".
17.      Section 7.1(b) of the Original Operating Agreement is hereby amended by inserting the phrase "to the fullest extent permitted by law," immediately following the phrase "in respect of a Member,”.
18.      Article VII of the Original Operating Agreement is hereby amended by inserting the following Section 7.7 at the end thereof:
7.7      Dissolution . The Company shall be dissolved, and its affairs shall be wound up upon the first to occur of the following: (i) the termination of the legal existence of the last remaining member of the Company or the occurrence of any other event which terminates the continued membership of the last remaining member of the Company in the Company unless the Company is continued without dissolution in a manner permitted by this Agreement or the Limited Liability Company Law or (ii) the entry of a decree of judicial dissolution under Section 18‑802 of the Limited Liability Company Law. Upon the occurrence of any event that causes the last remaining member of the Company to cease to be a member of the Company or that causes the last remaining Member to cease to be a member of the Company (other than upon continuation of the Company without dissolution upon an assignment by such Member of all of its limited liability company interest in the Company and the admission of the transferee pursuant to the terms of this Agreement), to the fullest extent permitted by law, the personal representative of such member is hereby authorized to, and shall, within 90 days after the occurrence of the event that terminated the continued membership of such member in the Company, agree in writing (i) to continue the Company and (ii) to the admission of the personal representative or its nominee or designee, as the case may be, as a substitute member of the Company, effective as of the occurrence of the event that terminated the continued membership of such member in the Company.
19.      Section 8.1(a) of the Original Operating Agreement is hereby amended in its entirety to read as follows:
(a)      Upon the dissolution of the Company, the Managing Member (unless the Managing Member shall have suffered a Disabling Event in which event the Non-Managing Member) (herein referred to as the “Liquidator”) shall proceed to wind up the affairs of the Company, liquidate the property and assets of the Company, and terminate the Company, and the proceeds of such liquidation shall be applied and distributed in the following order of priority:
(1)      to the expenses of liquidation and to the payment of the debts and liabilities of the Company owing to Persons other than Members and their Affiliates; and to the establishment of any reserves, that the Liquidator deems necessary or appropriate to provide for any contingent or conditional or unmatured liabilities or obligations of the Company (other




than those owing to Members) or of the Members arising out of or in connection with the Company (which reserves may be held by a liquidating trust established for the benefit of the Members for the purpose of liquidating Company assets, collecting amounts owed to the Company, and paying any contingent or unforeseen liabilities of the Company); provided, however, that after the expiration of a one year period, any excess reserves remaining shall be distributed in the manner hereinafter provided in this Section 8.1(a); and then
(2)      to the satisfaction of any obligations of the Company to Members and/or their Affiliates not otherwise provided for in this Section 8.1(a); and then
(3)      to TRG LLC in an amount equal to any accrued but unpaid Return on the TRG Excess Contributions; and then
(4)      to TRG LLC in an amount equal to the TRG Excess Contributions to the extent that the TRG Excess Contributions have not been previously distributed to TRG LLC; and then
(5)      to Members in proportion to and to the extent of their positive Capital Account balances. For this purpose, the determination of the Members' Capital Account balances shall be made after adjustment to reflect the allocation of all Profits, Losses, and items in the nature of income, gain, expense, or loss under Section 4.1, Section 4.2, and Section 4.3 hereof and distributions pursuant to Section 4.5 hereof and clauses (5) and (6) of this Section 8.1(a) through the Fiscal Year of Liquidation of the Company. Subject to the provisions of clause (3) of this Section 8.1(a), all distributions pursuant to this Section 8.1
20.      Section 8.2 is hereby deleted in its entirety, and the following Sections 8.2, 8.3 and 8.4 are hereby inserted in lieu thereof:
8.2      Bankruptcy of a Member . Notwithstanding any other provision of this Agreement, the Bankruptcy of a Member or a Special Member shall not cause such Member or Special Member, respectively, to cease to be a member of the Company and upon the occurrence of such an event, the Company shall continue without dissolution. Each Member and Special Member waives any right it may have to agree in writing to dissolve the Company upon the Bankruptcy of such Member or Special Member, or the occurrence of any event that caused such Member or Special Member to cease to be a member of the Company.
8.3      Existence of the Company . The existence of the Company as a separate legal entity shall continue until cancellation of the Certificate of Formation as provided in the Limited Liability Company Law.
8.4      Cancellation of the Company . The Company shall terminate when (i) all of the assets of the Company, after payment of or due provision for all debts, liabilities and obligations of the Company shall have been distributed to the Members in the manner provided for in this Agreement and (ii) the Certificate of Formation shall have been canceled in the manner required by the Limited Liability Company Law.
21.      Section 9.3 is hereby deleted in its entirety and the following language is hereby inserted in lieu thereof:
9.3      Applicable Law; Binding Agreement. This Agreement shall be governed by and construed under the laws of the State of Delaware (without regard to conflict of laws




principles), all rights and remedies being governed by said laws. The Members hereby confirm that the Members intended that the Company and this Agreement be governed by the laws of the State of Delaware at all times since its formation. Notwithstanding any other provision of this Agreement, the Member agrees that this Agreement, including, without limitation, Section 5.11 , constitutes a legal, valid and binding agreement of the Members, and is enforceable against the Members in accordance with its terms.
22.      Notwithstanding any other provision of the Operating Agreement, this Amendment constitutes a legal, valid, and binding agreement of the parties and is enforceable against such parties, in accordance with its terms. Except as hereby amended, the Original Operating Agreement shall remain in full force and effect. This Amendment shall be governed by and construed under the laws of the State of Delaware (without regard to conflict of laws principles), all rights and remedies being governed by said laws. Each provision of this Amendment shall be considered severable, and if for any reason any provision or provisions herein are determined to be invalid, unenforceable, or illegal under any existing or future law, such invalidity, unenforceability, or illegality shall not impair the operation of or affect those portions of this Amendment which are valid, enforceable, and legal. For purposes of this Amendment, a signature delivered by facsimile or other electronic format shall be deemed the same as the delivery of an original signature. This Amendment may be executed in multiple counterparts, each of which shall be deemed an original and together which shall constitute one and the same agreement.


[Signatures to follow on next page]

































IN WITNESS WHEREOF, the undersigned has executed this Amendment as of the date first written above.


Members :

TRG SUNVALLEY LLC, a
Delaware limited liability company

By: The Taubman Realty Group Limited
Partnership                                                  
By:
/s/ Robert S. Taubman
 
 
Its:
Authorized Signatory

                        


TAUB-SV, LLC, a
Delaware limited liability company

By: The Robert S. Taubman Revocable
Trust dated August 9, 1982,
as amended, a manager                     
                        
By:
/s/ Robert S. Taubman
 
Robert S. Taubman, Trustee

                        



Independent Managers/Special Members :

                        
                        
 
/s/ Julia A. McCullough
Name:
Julia A. McCullough
                        
                        
 
/s/ Beth L. Peoples
Name:
Beth L. Peoples

                    




 
 
 
 
Exhibit 12
 
 
 
 
 
 
 
 
TAUBMAN CENTERS, INC.
 
 
 
 
 
 
 
 
Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Dividends
 
 
(in thousands, except ratios)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
Earnings operations before income from equity investees and taxes  
$
37,038

 
$
20,490

 
 
 
 
 
 
 
 
Add back:
 
 
 
 
 
Fixed charges
39,018

 
38,876

 
 
Amortization of previously capitalized interest
1,110

 
1,103

 
 
Distributed income of Unconsolidated Joint Ventures
10,346

 
11,901

 
 
 
 
 
 
 
 
Deduct:
 
 
 
 
 
Capitalized interest
(3,027
)
 
(8
)
 
 
 
 
 
 
 
 
Earnings available for fixed charges and preferred dividends
$
84,485

 
$
72,362

 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
Interest expense
$
34,452

 
$
37,527

 
 
Capitalized interest
3,027

 
8

 
 
Interest portion of rent expense
1,539

 
1,341

 
 
Total fixed charges
$
39,018

 
$
38,876

 
 
 
 
 
 
 
 
Preferred dividends  
3,600

 
3,658

 
 
 
 
 
 
 
 
Total fixed charges and preferred dividends
$
42,618

 
$
42,534

 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges and preferred dividends  
2.0

 
1.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





Exhibit 31.1

Certification of Chief Executive Officer
Pursuant to 15 U.S.C. Section 10A, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
    
I, Robert S. Taubman, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Taubman Centers, Inc.;

2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:
April 30, 2013
/s/ Robert S. Taubman
 
 
Robert S. Taubman
 
 
Chairman of the Board of Directors, President, and Chief Executive Officer





Exhibit 31.2

Certification of Chief Financial Officer
Pursuant to 15 U.S.C. Section 10A, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
                                        
I, Lisa A. Payne, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Taubman Centers, Inc.;

2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:
April 30, 2013
/s/ Lisa A. Payne
 
 
Lisa A. Payne
 
 
Vice Chairman, Chief Financial Officer, and Director (Principal Financial Officer)





Exhibit 32.1


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




I, Robert S. Taubman, Chief Executive Officer of Taubman Centers, Inc. (the "Registrant"), certify that based upon a review of the Quarterly Report on Form 10-Q for the period ended March 31, 2013 (the "Report"):

(i)
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

(ii)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


/s/ Robert S. Taubman
Date:
April 30, 2013
Robert S. Taubman
 
 
Chairman of the Board of Directors, President, and Chief Executive Officer
 
 





Exhibit 32.2


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




I, Lisa A. Payne, Chief Financial Officer of Taubman Centers, Inc. (the "Registrant"), certify that based upon a review of the Quarterly Report on Form 10-Q for the period ended March 31, 2013 (the "Report"):

(i)
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

(ii)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


/s/ Lisa A. Payne
Date:
April 30, 2013
Lisa A. Payne
 
 
Vice Chairman, Chief Financial Officer, and Director (Principal Financial Officer)
 
 





TAUBMAN CENTERS, INC.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exhibit 99
 
Debt Summary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions of dollars, amounts may not add due to rounding)
 
 
 
 
 
 
 
 
 
 
MORTGAGE AND OTHER NOTES PAYABLE (a)
 
 
INCLUDING WEIGHTED AVERAGE INTEREST RATES AT MARCH 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100%
 
Beneficial Interest
 
Effective Rate
 
LIBOR Rate
 
Principal Amortization and Debt Maturities
 
 
 
 
 
 
3/31/2013
 
3/31/2013
 
3/31/2013
(b)
Spread
 
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Total
 
Consolidated Fixed Rate Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beverly Center
 
 
308.8

 
308.8

 
5.28
%
 
 
 
5.0

303.8

 
 
 
 
 
 
 
 
 
 
308.8

 
Cherry Creek Shopping Center
50.00
%
 
280.0

 
140.0

 
5.24
%
 
 
 
 
 
 
140.0
 
 
 
 
 
 
 
 
140.0

 
El Paseo Village
 
 
16.6

(c)
16.6

 
3.86
%
(c)
 
 
0.3

0.4

15.9

 
 
 
 
 
 
 
 
 
16.6

(k)
Great Lakes Crossing Outlets
 
 
224.6

 
224.6

 
3.60
%
 
 
 
3.1

4.3

4.4

4.6
4.8
4.9
5.1
5.3
5.5
5.7
177.0
 
224.6

 
International Plaza
 
 
325.0

 
325.0

 
4.85
%
 
 
 
 
 
4.9
5.2
5.4
5.7

6.0
6.3
291.5
 
 
 
325.0

 
Northlake Mall
 
 
215.5

 
215.5

 
5.41
%
 
 
 
 
 
 
215.5
 
 
 
 
 
 
 
 
215.5

 
Stony Point Fashion Park
 
 
101.1

 
101.1

 
6.24
%
 
 
 
1.6

99.5

 
 
 
 
 
 
 
 
 
 
101.1

 
The Gardens on El Paseo
 
 
85.1

(d)
85.1

 
4.50
%
(d)
 
 
0.9

1.1

1.1

81.9

 
 
 
 
 
 
 
 
85.1

(k)
The Mall at Green Hills
 
 
107.4

(e)
107.4

 
4.74
%
(e)
 
 
107.4

 
 
 
 
 
 
 
 
 
 
 
107.4

(k)
The Mall at Partridge Creek
 
 
79.9

 
79.9

 
6.15
%
 
 
 
0.8

1.1

1.2

1.3

1.4

1.4

1.5

71.2

 
 
 
 
79.9

 
The Mall at Short Hills
 
 
540.0

 
540.0

 
5.47
%
 
 
 
 
 
540.0
 
 
 
 
 
 
 
 
 
540.0

 
The Mall at Wellington Green
90.00
%
 
200.0

 
180.0

 
5.44
%
 
 
 
 
 
180.0
 
 
 
 
 
 
 
 
 
180.0

 
Total Consolidated Fixed
 
 
2,484.0

 
2,324.0

 
 
 
 
 
118.9

410.3

747.6

448.4

11.5

12.1

12.6

82.8

297.0

5.7

177.0

 
2,324.0

 
Weighted Rate
 
 
5.14
%
 
5.13
%
 
 
 
 
 
4.76
%
5.49
%
5.41
%
5.17
%
4.49
%
4.50
%
4.50
%
5.89
%
4.83
%
3.60
%
3.60
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Floating Rate Debt:
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MacArthur Center
 
95.00
%
 
130.2

 
123.7

 
4.99
%
(f)
 
 
1.0

1.4

1.5

1.6

1.7

1.8

2.0

112.8

 
 
 
 
123.7

 
TRG $65M Revolving Credit
 
 
 
13.2

 
13.2

 
1.60
%
(g)
1.40
%
 
 
13.2

 
 
 
 
 
 
 
 
 
 
13.2

 
TRG $1.1B Revolving Credit Facility
 
 
 
205.0

 
205.0

 
1.64
%
(h)
1.45
%
 
 
 
 
 
205.0
(h)
 
 
 
 
 
 
205.0
 
Total Consolidated Floating
 
 
348.4

 
341.9

 
 
 
 
 
1.0

14.6

1.5

1.6

206.7

1.8

2.0

112.8

 
 
 
 
341.9

 
Weighted Rate
 
 
2.89
%
 
2.85
%
 
 
 
 
 
4.99
%
1.93
%
4.99
%
4.99
%
1.67
%
4.99
%
4.99
%
4.99
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Consolidated
 
 
2,832.4

 
2,665.9

 
 
 
 
 
119.9

424.8

749.1

450.0

218.2

13.9

14.6

195.5

297.0

5.7

177.0

 
2,665.9

 
Weighted Rate
 
 
4.86
%
 
4.84
%
 
 
 
 
 
4.76
%
5.37
%
5.41
%
5.17
%
1.82
%
4.56
%
4.57
%
5.37
%
4.83
%
3.60
%
3.60
%
 
 
 
Joint Ventures Fixed Rate Debt:
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Arizona Mills
50.00
%
 
169.1

 
84.6

 
5.76
%
 
 
 
0.9

1.3

1.4

1.4

1.5

1.6

1.7

74.7

 
 
 
 
84.6

 
The Mall at Millenia
50.00
%
 
350.0

 
175.0

 
4.00
%
 
 
 
 
 
 
0.5
3.1
3.2
3.4
3.5
3.6
3.8
3.9
149.9

175.0

(l)
Sunvalley
50.00
%
 
188.5

 
94.2

 
4.44
%
 
 
 
1.1

1.6

1.6
1.7
1.8
1.9
2.0
2.1
2.2
78.3
 
 
94.2

 
Taubman Land Associates
50.00
%
 
23.9

 
11.9

 
3.84
%
 
 
 
0.2
0.2
0.2
0.2
0.2
0.3

0.3
0.3
0.3
9.7
 
 
11.9

 
Waterside Shops
50.00
%
 
165.0

 
86.2

(i)
4.08
%
(i)
 
 
0.8
1.1
1.1
83.3
 
 
 
 
 
 
 
 
86.2

(k)
Westfarms
78.94
%
 
316.6

 
249.9

 
4.50
%
 
 
 
3.1

4.3

4.5

4.8

5.0

5.2

5.4

5.7

5.9

205.9

 
 
249.9

 
Total Joint Venture Fixed
 
 
1,213.1

 
701.8

 
 
 
 
 
6.1

8.5

8.8

91.9

11.6

12.2

12.8

86.3

12.0

297.8

3.9

149.9

701.8

 
Weighted Rate
 
 
4.45
%
 
4.46
%
 
 
 
 
 
4.60
%
4.61
%
4.62
%
4.14
%
4.51
%
4.51
%
4.51
%
5.57
%
4.32
%
4.46
%
4.00
%
4.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Joint Ventures Floating Rate Debt:
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Oaks
50.00
%
 
275.0

 
137.5

 
4.10
%
(j)
 
 
 
0.8

2.0

2.2
2.3
130.2
 
 
 
 
 
 
137.5

 
Total Joint Venture Floating
 
 
275.0

 
137.5

 
 
 
 
 
 
0.8

2.0

2.2

2.3

130.2

 
 
 
 
 
 
137.5

 
Weighted Rate
 
 
4.10
%
 
4.10
%
 
 
 
 
 
 
4.10
%
4.10
%
4.10
%
4.10
%
4.10
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Joint Venture
 
 
1,488.1

 
839.3

 
 
 
 
 
6.1

9.3

10.8

94.1

14.0

142.4

12.8

86.3

12.0

297.8

3.9

149.9

839.3

 
Weighted Rate
 
 
4.39
%
 
4.40
%
 
 
 
 
 
4.60
%
4.57
%
4.52
%
4.14
%
4.44
%
4.14
%
4.51
%
5.57
%
4.32
%
4.46
%
4.00
%
4.00
%
 
 
TRG Beneficial Interest Totals
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Rate Debt
 
 
3,697.0

 
3,025.8

(c),(d),(e),(i)
 
 
 
125.0

418.7

756.4

540.3

23.2

24.3

25.4

169.0

309.1

303.5

181.0

149.9

3,025.8

 
 
 
 
 
4.91
%
 
4.97
%
 
 
 
 
 
4.75
%
5.48
%
5.40
%
4.99
%
4.50
%
4.50
%
4.51
%
5.73
%
4.81
%
4.44
%
3.61
%
4.00
%
 
 
Floating Rate Debt
 
 
623.4

 
479.4

 
 
 
 
 
1.0

15.3

3.5

3.8

209.0

132.0

2.0

112.8

 
 
 
 
479.4

 
 
 
 
 
3.42
%
 
3.21
%
 
 
 
 
 
4.99
%
2.04
%
4.48
%
4.48
%
1.69
%
4.11
%
4.99
%
4.99
%
 
 
 
 
 
 
Total
 
 
4,320.4

 
3,505.2

(c),(d),(e),(i)
 
 
 
126.0

434.1

759.9

544.1

232.2

156.3

27.3

281.8

309.1

303.5

181.0

149.9

3,505.2

 
 
 
 
 
4.70
%
 
4.73
%
 
 
 
 
 
4.76
%
5.35
%
5.40
%
4.99
%
1.97
%
4.17
%
4.54
%
5.43
%
4.81
%
4.44
%
3.61
%
4.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Maturity Fixed Debt
 
 
5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Maturity Total Debt
 
 
5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
All debt is secured and non-recourse to TRG unless otherwise indicated.
 
(g)

Rate floats daily at LIBOR plus spread. Letters of credit totaling $5.4 million are also outstanding on the facility.
 
 
 
(b)
Includes the impact of interest rate swaps, if any, but does not include effect of amortization of debt issuance costs, losses on settlement of derivatives used to hedge the refinancing of certain fixed rate debt or interest rate cap premiums.
 
(h)

TRG is the direct borrower under the $1.1 billion unsecured revolving credit facility. The facility bears interest at a range of LIBOR + 1.45% to 1.85% with a facility fee ranging from 0.20% to 0.35% based on the Company's total leverage ration. At March 31, 2013, the interest rate is LIBOR + 1.45% with a 0.20% facility fee. A one year extension option is available.
 
 
 
 
 
(c)
Debt includes $0.2 million of purchase accounting premium from acquisition which reduces the stated rate on the debt of 4.42% to an effective rate of 3.86%.
 
 
 
 
 
(i)

Beneficial interest in debt includes $3.7 million of purchase accounting premium from acquisition of an additional 25% investment in Waterside Shops which reduces the stated rate on the debt of 5.54% to an effective rate of 4.08% on total beneficial interest in debt.
 
(d)
Debt includes $3.6 million of purchase accounting premium from acquisition which reduces the stated rate on the debt of 6.10% to an effective rate of 4.50%.
 
 
 
 
 
(j)

Debt is swapped to an effective rate of 4.10% until 2.5 months prior to maturity.
 
(e)
Debt includes $1.4 million of purchase accounting premium from acquisition which reduces the stated rate on the debt of 6.89% to an effective rate of 4.74%.
 
(k)

Principal amortization includes amortization of purchase accounting adjustments.
 
 
 
 
 
(l)

The loan on The Mall at Millenia is interest only until November 2016 and then amortizes principal based on 30 years. The interest only period may be extended until the maturity date provided that the net income available for debt service equals or exceeds a certain amount for the calendar year 2015.
 
(f)
Debt is swapped to the effective rate indicated until maturity.