10-K 1 tco-123113x10k.htm 10-K TCO-12.31.13-10K

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

Form 10-K
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________
Commission File 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)
Registrant's telephone number, including area code:
(248) 258-6800                    

Securities registered pursuant to Section 12(b) of the Act:
 
 
Name of each exchange
Title of each class
 
on which registered
Common Stock,
 
New York Stock Exchange
$0.01 Par Value
 
 
 
 
 
6.5% Series J Cumulative
 
New York Stock Exchange
Redeemable Preferred Stock,
 
 
No Par Value
 
 
 
 
 
6.25% Series K Cumulative
 
New York Stock Exchange
Redeemable Preferred Stock,
 
 
No Par Value
 
 

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  x Yes    o No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  o Yes    x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   x Yes    o No

Indicate by check mark 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer", “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer    x       Accelerated Filer   o          Non-Accelerated Filer   o        Smaller reporting company  o
(Do not check if a smaller
reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   o Yes    x No

The aggregate market value of the 62,220,369 shares of Common Stock held by non-affiliates of the registrant as of June 30, 2013 was $4.7 billion, based upon the closing price of $75.15 per share on the New York Stock Exchange composite tape on June 28, 2013. (For this computation, the registrant has excluded the market value of all shares of its Common Stock held by directors of the registrant and certain other shareholders; such exclusion shall not be deemed to constitute an admission that any such person is an "affiliate" of the registrant.)  As of February 25, 2014, there were outstanding 63,127,287 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual shareholders meeting to be held in 2014 are incorporated by reference into Part III.



TAUBMAN CENTERS, INC.
CONTENTS


PART I
PART II
PART III
PART IV


1


PART I

Item 1. BUSINESS.

The following discussion of our business contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our expectations or beliefs concerning future events. We caution that although forward-looking statements reflect our good faith beliefs and reasonable judgment based upon current information, these statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including those risks, uncertainties, and factors detailed from time to time in reports filed with the SEC, and in particular those set forth under “Risk Factors” in this Annual Report on Form 10-K. The forward-looking statements included in this report are made as of the date hereof. Except as required by law, we assume no obligation to update these forward-looking statements, even if new information becomes available in the future.

The Company

Taubman Centers, Inc. (TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate investment trust (REIT). The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is a majority-owned partnership subsidiary of TCO that owns direct or indirect interests in all of our real estate properties. In this report, the terms "we", "us" and "our" refer to TCO, the Operating Partnership, and/or the Operating Partnership's subsidiaries as the context may require.

We own, lease, acquire, dispose of, develop, expand, and manage regional and super-regional shopping centers and interests therein. Our owned portfolio as of December 31, 2013 consisted of 25 urban and suburban shopping centers in 13 states. In January 2014, we disposed of our ownership interest in Arizona Mills, our only shopping center in the state of Arizona, reducing our current portfolio to 24 centers. The Consolidated Businesses consist of shopping centers and entities that are controlled by ownership or contractual agreements, The Taubman Company LLC (Manager), and Taubman Properties Asia LLC and its subsidiaries (Taubman Asia). Shopping centers owned through joint ventures that are not controlled by us but over which we have significant influence (Unconsolidated Joint Ventures) are accounted for under the equity method. See the table on pages 22 and 23 of this report for information regarding the centers. In January 2014, we sold a total of 49.9% of our interests in the entity that owns International Plaza as well as certain governance rights in the center. Following the disposition, this center will be accounted for as an equity method investment along with our other Unconsolidated Joint Ventures.

Taubman Asia, which is the platform for our expansion into China and South Korea, is headquartered in Hong Kong.

We operate as a REIT under the Internal Revenue Code of 1986, as amended (the Code). In order to satisfy the provisions of the Code applicable to REITs, we must distribute to our shareowners at least 90% of our REIT taxable income prior to net capital gains and meet certain other requirements. The Operating Partnership's partnership agreement provides that the Operating Partnership will distribute, at a minimum, sufficient amounts to its partners such that our pro rata share will enable us to pay shareowner dividends (including capital gains dividends that may be required upon the Operating Partnership's sale of an asset) that will satisfy the REIT provisions of the Code.

Recent Developments

For a discussion of business developments that occurred in 2013, see "Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)."

The Shopping Center Business

There are several types of retail shopping centers, varying primarily by size and marketing strategy. Retail shopping centers range from neighborhood centers of less than 100,000 square feet of gross leasable area (GLA) to regional and super-regional shopping centers. Retail shopping centers in excess of 400,000 square feet of GLA are generally referred to as "regional" shopping centers, while those centers having in excess of 800,000 square feet of GLA are generally referred to as "super-regional" shopping centers. In this Annual Report on Form 10-K, the term "regional shopping centers" refers to both regional and super-regional shopping centers. The term "GLA" refers to gross retail space, including anchors and mall tenant areas, and the term "Mall GLA" refers to gross retail space, excluding anchors. The term "anchor" refers to a department store or other large retail store. The term "mall tenants" refers to stores (other than anchors) that lease space in shopping centers.


2


Business of the Company

We are engaged in the ownership, leasing, acquisition, disposition, development, expansion, and management of regional shopping centers and interests therein. We owned interests in 25 centers as of December 31, 2013.

The centers:

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

range in size between 236,000 and 1.6 million square feet of GLA and between 186,000 and 666,000 square feet of Mall GLA with an average of 1.0 million and 0.5 million square feet, respectively. The smallest center has approximately 60 stores, and the largest has over 200 stores with an average of 145 stores per center. Of the 25 centers, 18 are super-regional shopping centers;

have approximately 3,000 stores operated by their mall tenants under approximately 850 trade names;

have 67 anchors, operating under 14 trade names;

lease approximately 94% of leased Mall GLA to national chains, including subsidiaries or divisions of Forever 21 (Forever 21, For Love 21, and XXI Forever), The Gap (Gap, Gap Kids, Baby Gap, Banana Republic, Old Navy, and others), and Limited Brands (Bath & Body Works/White Barn Candle, Pink, Victoria's Secret, and others); and

are among the highest quality centers in the United States public regional mall industry as measured by our high portfolio average of mall tenants' sales per square foot. In 2013, our mall tenants at comparable centers and excluding Arizona Mills reported average sales per square foot of $721, which is a record for our Company.

The most important factor affecting the revenues generated by the centers is leasing to mall tenants (including temporary tenants and specialty retailers), which represents approximately 90% of revenues. Anchors account for less than 10% of revenues because many own their stores and, in general, those that lease their stores do so at rates substantially lower than those in effect for mall tenants.

Our portfolio is concentrated in highly productive super-regional shopping centers. Of our 25 owned centers, 22 had annual rent rolls at December 31, 2013 over $10 million. We believe that this level of productivity is indicative of the centers' strong competitive positions and is, in significant part, attributable to our business strategy and philosophy. We believe that large shopping centers (including regional and especially super-regional shopping centers) are the least susceptible to direct competition because (among other reasons) anchors and large specialty retail stores do not find it economically attractive to open additional stores in the immediate vicinity of an existing location for fear of competing with themselves. In addition to the advantage of size, we believe that the centers' success can be attributed in part to their other physical characteristics, such as design, layout, and amenities.

3


Business Strategy And Philosophy

We believe that the regional shopping center business is not simply a real estate development business, but rather an operating business in which a retailing approach to the on-going management and leasing of the centers is essential. Thus we:

offer retailers a location where they can maximize their profitability;

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

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

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

provide innovative initiatives, including those that utilize technology and the Internet, to increase revenues, enhance the shopping experience, build customer loyalty, and increase tenant sales. Our Taubman website program connects shoppers to each of our individual center brands through desktop and mobile devices. We have a robust email program reaching our most loyal customers weekly and our social media sites offer retailers and customers an immediate geo-targeted communication vehicle.

The centers compete for retail consumer spending through diverse, in-depth presentations of predominantly fashion merchandise in an environment intended to facilitate customer shopping. Many of our centers include stores that target high-end customers, and such stores may also attract other retailers to come to the center. However, each center is individually merchandised in light of the demographics of its potential customers within convenient driving distance. When necessary, we consider rebranding existing centers in order to maximize customer loyalty, increase tenant sales, and achieve greater profitability.

Our leasing strategy involves assembling a diverse mix of mall tenants in each of the centers in order to attract customers, thereby generating higher sales by mall tenants. High sales by mall tenants make the centers attractive to prospective tenants, thereby increasing the rental rates that prospective tenants are willing to pay. We implement an active leasing strategy to increase the centers' productivity and to set minimum rents at higher levels. Elements of this strategy include renegotiating existing leases and leasing space to prospective tenants that would enhance a center's retail mix.

Since 2005, an increased number of our tenants are paying a fixed Common Area Maintenance (CAM) charge, with typically a fixed increase over the term of the lease, rather than the traditional net lease structure where a tenant pays their share of CAM. This allows the retailer greater predictability of their costs. While some pricing risk has shifted to the landlord, cost savings can have a positive impact on our profitability. Approximately 78% of our tenants in 2013 (including those with gross leases or paying a percentage of their sales) effectively pay a fixed charge for CAM. As a result there is significantly less matching of CAM income with CAM expenditures, which can vary considerably from period to period.

4


Potential For Growth

Our principal objective is to enhance shareowner value. We seek to maximize the financial results of our core assets, while also pursuing a growth strategy that primarily has included an active new center development program. Our internally generated funds and distributions from operating centers and other investing activities, augmented by use of our existing revolving lines of credit, provide resources to maintain our current operations and assets, and pay dividends. Generally, our need to access the capital markets is limited to refinancing debt obligations at maturity and funding major capital investments. From time to time, we also may access the equity markets or sell interests in shopping centers to raise additional funds or refinance existing obligations on a strategic basis.

Internal Growth

As noted in “Business Strategy and Philosophy” above in detail, our core business strategy is to maintain a portfolio of properties that deliver above-market profitable growth by providing targeted retailers with the best opportunity to do business in each market and targeted shoppers with the best local shopping experience for their needs.

We continue to expect that over time a significant portion of our future growth will come from our existing core portfolio and business. We have always had and will continue to have a culture of intensively managing our assets and maximizing the rents from tenants as this is a key growth driver going forward.

Another potential element of growth over time is the strategic expansion and redevelopment of existing properties to update and enhance their market positions by replacing or adding new anchor stores, increasing mall tenant space, or rebranding centers. Most of the centers have been designed to accommodate expansions. Expansion projects can be as significant as new shopping center construction in terms of scope and cost, requiring governmental and existing anchor store approvals, design and engineering activities, including rerouting utilities, providing additional parking areas or decking, acquiring additional land, and relocating anchors and mall tenants (all of which must take place with a minimum of disruption to existing tenants and customers).

We currently have projects underway at several of our centers that are expected to create incremental GLA:

In January 2014, we began a project on the 8th level of Beverly Center. The project will add a net 12,000 square feet, including the addition of a new, 30,000 square foot mini-anchor. The mini-anchor will open by late 2014 and a new dining court will open in 2015.
 
At Cherry Creek we are adding an approximately 53,000 square foot, three-level Restoration Hardware store as a mini-anchor, as well as about 38,000 square feet of additional in-line mall space. This expansion will occupy the former Saks Fifth Avenue site. Demolition of the space is set to begin soon and all work is anticipated to be completed by late 2015.

At Dolphin Mall we are planning to add approximately 32,000 square feet of new restaurant space along with an adjacent valet area on a vacant parcel of the property. Construction is expected to commence in April 2014 and be completed by the third quarter of 2015.

At The Mall at Green Hills, a relocation of the current Dillard’s store and the addition of 170,000 square feet of mall tenant area is set to begin. The project is expected to be completed in 2018.

And finally, at Sunvalley we are converting some existing lower-level space into a food court. Construction is expected to begin in June 2014 and be complete by the middle of 2015.

In 2011, a 25,000 square foot Crate & Barrel store opened on land previously vacated by Lord & Taylor at The Shops at Willow Bend (Willow Bend). In 2012, a new 12,000 square foot Restoration Hardware opened next door at Willow Bend.

5


External Growth

We are focused on four areas of external growth: U.S. traditional center development, outlet centers, Asia, and acquisitions. With growth in population, we expect that there will be demand for new centers over the next ten years. We have announced and/or begun construction on seven shopping centers in the United States and Asia and we continue to work on and evaluate various development possibilities for additional new centers.

Development of New U.S. Traditional and Outlet Centers

We have developed 11 properties since 1998, or an average about one every 18 months. We are currently under construction on two centers opening in 2014 and 2015, and have announced plans for two others with targeted openings in 2016. We expect to continue to have sufficient opportunities to build projects at a pace, on average, of about one center every other year. We believe that they represent a natural extension of our existing capabilities. We will target projects in markets with high barriers to entry and require significant pre-leasing before we begin construction.

Taubman Prestige Outlets Chesterfield, a new outlet center, opened in the western-St. Louis, Missouri suburb of Chesterfield in August 2013. We have a 100% ownership interest in the 0.3 million square foot outlet center.

City Creek Center, a mixed-use project in Salt Lake City, Utah, opened in March 2012.

In Sarasota, Florida, The Mall at University Town Center is under construction and we are funding our 50% share of the project. The 0.9 million square foot center will be anchored by Saks Fifth Avenue, Macy's, and Dillard's, and is expected to open in October 2014.

The Mall of San Juan, part of a mixed-use development featuring a hotel/casino and retail, is also under construction in San Juan, Puerto Rico and is expected to open in March 2015. The Caribbean's first Nordstrom and Saks Fifth Avenue will anchor the 0.7 million square foot center. We have an 80% ownership interest in the retail portion of the project.

International Market Place, a 0.4 million square foot center, is under development in Waikiki, Honolulu, Hawaii and will break ground in early 2014. The center will be anchored by the only full-line Saks Fifth Avenue in Hawaii and is expected to open in spring 2016. We have a 93.5% interest in the project, which is subject to a participating ground lease.

In 2013, we announced our involvement in The Mall at Miami Worldcenter, which will be developed in partnership with the Forbes Company. We will own at least one-third of the project, and as much as one-half, depending on the participation of the land owner. The center will be part of a mixed-use development offering a hotel, convention and entertainment space, office, residential and retail. The 0.7 million square foot center will feature Macy's and Bloomingdale's, and is currently planned to open in late 2016.

While we attempt to maximize external growth through the development of new centers, we also prudently manage the risks associated with development. We generally do not acquire land early in the development process. Instead, we generally acquire options on land or form partnerships with landowners holding potentially attractive development sites. We typically exercise the options only once we are prepared to begin construction. The pre-construction phase for a regional center typically extends over several years and the time to obtain anchor commitments, zoning and regulatory approvals, and public financing arrangements can vary significantly from project to project. In addition, we generally do not begin construction until a sufficient number of anchor stores or significant tenants have agreed to operate in the shopping center, such that we are confident that the projected tenant sales and rents from Mall GLA are sufficient to earn a return on invested capital in excess of our cost of capital. Having historically followed these principles, our experience indicates that, on average, less than 10% of the costs of the development of a regional shopping center will be incurred prior to the construction period. However, no assurance can be given that we will continue to be able to so limit pre-construction costs.

While we will continue to evaluate development projects using criteria, including financial criteria for rates of return, similar to those employed in the past, no assurances can be given that the adherence to these criteria will produce comparable results in the future. In addition, the costs of shopping center development opportunities that are explored but ultimately abandoned will, to some extent, diminish the overall return on development projects taken as a whole. See "MD&A – Liquidity and Capital Resources – Capital Spending" for further discussion of our development activities.

6


Asia

Taubman Asia is responsible for our operations and future expansion into the Asia-Pacific region, focusing on China and South Korea. We have pursued a strategy of seeking strategic partners to jointly develop high quality malls in our areas of focus. Taubman Asia is engaged in projects that leverage our strong retail planning, design, and operational capabilities with our strategic partners being responsible for acquiring and entitling the land and leading construction.

In 2012, we formed 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 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. We will beneficially own a 30% interest in CityOn.Xi'an, which is scheduled to open in late 2015.

In 2013, we formed a second joint venture with Wangfujing. This joint venture will manage and own a 65% majority interest in CityOn.Zhengzhou, a shopping center in Zhengzhou, China. We will beneficially own a 32% interest in the 1.0 million square foot shopping center, which is scheduled to open in late 2015.

We have also 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. We will beneficially own a 30% interest in the the center, which is scheduled to open in late 2016. We are considering bringing in a financial partner for as much as 50% of our share.

As part of our Asia strategy, we are looking to mitigate our operating costs through third-party contracts when possible. We provide leasing and management services for IFC Mall in Yeouido, Seoul, South Korea. In August 2012, the 0.4 million square foot mall opened 100% leased with over 100 stores. In 2013, we signed an agreement to provide management, leasing, and development services for the retail portion of Studio City, a cinematically-themed integrated entertainment, retail and gaming resort developed by Melco Crown Entertainment Limited in the Cotai region of Macau, China.

We attempt to manage risks for our Asia developments through similar means as those mentioned previously under "Development of New U.S. Traditional and Outlet Centers", as well as pursuing initial projects that are already fully entitled with partners having appropriate expertise in land acquisition and local regulatory issues. However, in Asia, our projects are expected to have lower initial rates of return at stabilization than those expected in the U.S. With the high sales growth rates in that region, we generally expect that returns on our investments are forecasted to equal those earned in the U.S. by the seventh or eighth year.

See "MD&A - Results of Operations - Taubman Asia" for further details regarding our activities in Asia.

Strategic Acquisitions

We expect attractive opportunities to acquire existing centers, or interests in existing centers, from other companies to continue to be scarce and expensive. However, we continue to look for assets where we can add significant value or that would be strategic to the rest of our portfolio. Our objective is to acquire existing centers only when they are compatible with the quality of our portfolio (or can be redeveloped to that level). We also may acquire additional interests in centers currently in our portfolio.

In December 2012, we acquired an additional 49.9% interest in International Plaza, located in Tampa, Florida, bringing our ownership in the shopping center to 100%. Subsequently, in January 2014 we sold a total of 49.9% of our interests in the entity that owns the center in order to generate significant capital for our development projects.

Also in December 2012, we acquired an additional 25% interest in Waterside Shops, which brought our ownership interest in the center to 50% on a pari passu basis with an affiliate of the Forbes Company.

In December 2011, we purchased The Mall at Green Hills in Nashville, Tennessee and The Gardens on El Paseo and El Paseo Village in Palm Desert, California from affiliates of Davis Street Properties, LLC.

See "MD&A - Results of Operations - Acquisitions" for further details regarding the assets acquired.


7


Rental Rates

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

The following table contains certain information regarding average mall tenant minimum rent per square foot of our Consolidated Businesses and Unconsolidated Joint Ventures at the comparable centers (centers that had been owned and open for the current and preceding year):

 
2013
 
2012
 
2011
 
2010
 
2009
Average rent per square foot:
 
 
 
 
 
 
 
 
 
Consolidated Businesses
$
48.45

 
$
46.86

 
$
45.53

 
$
43.63

 
$
43.69

Unconsolidated Joint Ventures
48.69

 
45.44

 
44.58

 
43.73

 
44.49

Combined
48.52

 
46.42

 
45.22

 
43.66

 
43.95


See “MD&A – Rental Rates and Occupancy” for information regarding opening and closing rents per square foot for our centers.

Lease Expirations

The following table shows scheduled lease expirations for mall tenants based on information available as of December 31, 2013 for the next ten years for all owned centers in operation at that date, excluding Arizona Mills:

 
 
Tenants 10,000 square feet or less (1)
 
Total (1)(2)
Lease
Expiration
Year
 
Number of
Leases
Expiring
 
Leased Area in
Square Footage
 
Annualized Base
Rent Under
Expiring Leases
Per Square Foot (3)
 
Percent of Total Leased Square Footage Represented by Expiring Leases
 
Number of
Leases
Expiring
 
Leased Area in
Square Footage
 
Annualized Base
Rent Under
Expiring Leases
Per Square Foot (3)
 
Percent of Total Leased Square Footage Represented by Expiring Leases
    2014 (4)
 
232
 
564
 
$
45.33

 
7.6
%
 
238
 
680
 
$
41.84

 
6.0
%
2015
 
361
 
933
 
44.05

 
12.6
%
 
374
 
1,254
 
37.76

 
11.1
%
2016
 
327
 
860
 
47.68

 
11.6
%
 
337
 
1,175
 
38.57

 
10.4
%
2017
 
327
 
835
 
53.51

 
11.3
%
 
347
 
1,290
 
42.55

 
11.4
%
2018
 
257
 
773
 
53.44

 
10.4
%
 
277
 
1,189
 
43.27

 
10.5
%
2019
 
210
 
603
 
56.22

 
8.1
%
 
226
 
1,008
 
43.05

 
8.9
%
2020
 
156
 
458
 
58.72

 
6.2
%
 
172
 
812
 
45.44

 
7.2
%
2021
 
217
 
586
 
70.58

 
7.9
%
 
235
 
899
 
59.04

 
7.9
%
2022
 
271
 
742
 
63.41

 
10.0
%
 
300
 
1,335
 
49.36

 
11.8
%
2023
 
238
 
670
 
61.05

 
9.0
%
 
244
 
753
 
58.82

 
6.6
%

(1)
Excludes rents from temporary in-line tenants.
(2)
In addition to tenants with spaces 10,000 square feet or less, includes tenants with spaces over 10,000 square feet and value and outlet center anchors.  Excludes rents from regional mall anchors and temporary in-line tenants.
(3)
Weighted average of the annualized contractual rent per square foot as of the end of the reporting period.
(4)
Excludes leases that expire in 2014 for which renewal leases or leases with replacement tenants have been executed as of December 31, 2013.



8


We believe that the information in the table is not necessarily indicative of what will occur in the future because of several factors, but principally because of early lease terminations at the centers. For example, the average remaining term of the leases that were terminated during the period 2008 to 2013 was approximately one year. The average term of leases signed was approximately eight years during both 2013 and 2012.

In addition, mall tenants at the centers may seek the protection of the bankruptcy laws, which could result in the termination of such tenants' leases and thus cause a reduction in cash flow. In 2013, tenants representing 0.3% of leases filed for bankruptcy during the year compared to 0.7% in 2012. This statistic has ranged from 0.3% to 3.9% of leases per year over the last five years. The annual provision for losses on accounts receivable represents 0.1% of total revenues in 2013 and has ranged from 0.1% to 0.5% over the last five years.

Occupancy

Occupancy statistics include value and outlet center anchors. Comparable center statistics for 2013 exclude City Creek Center and Taubman Prestige Outlets Chesterfield.

 
2013
 
2012
 
2011
 
2010
 
2009
All Centers:
 
 
 
 
 
 
 
 
 
Ending occupancy
91.7
%
 
91.8
%
 
90.7
%
 
90.1
%
 
89.8
%
Average occupancy
90.9

 
90.3

 
88.8

 
88.8

 
89.4

Leased space
93.1

 
93.4

 
92.4

 
92.0

 
91.6

 
 
 
 
 
 
 
 
 
 
Comparable Centers:
 
 
 
 
 
 
 
 
 
Ending occupancy
92.1
%
 
91.8
%
 
 
 
 
 
 
Average occupancy
91.1

 
90.4

 
 
 
 
 
 
Leased space
93.6

 
93.3

 
 
 
 
 
 

Major Tenants

No single retail company represents 10% or more of our Mall GLA or revenues. The combined operations of Forever 21 accounted for under 6% of Mall GLA as of December 31, 2013 and less than 5% of 2013 minimum rent. No other single retail company accounted for more than 4% of Mall GLA as of December 31, 2013 or 3% of 2013 minimum rent.

The following table shows the ten mall tenants who occupy the most Mall GLA at our centers and their square footage as of December 31, 2013:

Tenant
 
# of
Stores
 
Square
Footage
 
% of
Mall GLA
Forever 21 (Forever 21, For Love 21, XXI Forever)
 
21
 
622,245
 
5.3%
The Gap (Gap, Gap Kids, Baby Gap, Banana Republic, Old Navy, Athleta, and others)
 
52
 
459,472
 
3.9
H&M
 
18
 
350,013
 
3.0
Limited Brands (Bath & Body Works/White Barn Candle, Pink, Victoria's Secret, and others)
 
49
 
300,824
 
2.6
Abercrombie & Fitch (Abercrombie & Fitch, Hollister, and others)
 
32
 
236,708
 
2.0
Williams-Sonoma (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, and others)
 
28
 
214,667
 
1.8
Ann Taylor (Ann Taylor, Ann Taylor Loft, and others)
 
36
 
196,981
 
1.7
Foot Locker (Foot Locker, Lady Foot Locker, Champs Sports, Foot Action USA, and others)
 
40
 
181,394
 
1.6
Express (Express, Express Men)
 
20
 
168,629
 
1.4
Urban Outfitters (Anthropologie, Anthropologie Accessories, Free People, Urban Outfitters)
 
21
 
165,044
 
1.4


9


Competition

There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. We compete with other major real estate investors with significant capital for attractive investment opportunities. See “Risk Factors” for further details of our competitive business.

Seasonality

The regional shopping center industry is seasonal in nature, with mall tenant sales highest in the fourth quarter due to the Christmas season, and with lesser, though still significant, sales fluctuations associated with the Easter holiday and back-to-school period. See “MD&A – Seasonality” for further discussion.

Environmental Matters

See “Risk Factors” regarding discussion of environmental matters.

Financial Information about Geographic Areas

We have not had material revenues attributable to foreign countries in the last three years. We also do not have material long-lived assets located in foreign countries, as our investments in Asia are accounted for as equity method investments.

Personnel

We have engaged the Manager to provide real estate management, acquisition, development, leasing, and administrative services required by us and our properties in the United States. Taubman Asia Management Limited (TAM) and certain other affiliates provide similar services for third parties in China and South Korea as well as Taubman Asia.

As of December 31, 2013, the Manager, TAM, and certain other affiliates had 708 full-time employees.

Available Information

The Company makes available free of charge through its website at www.taubman.com all reports it electronically files with, or furnishes to, the Securities Exchange Commission (the “SEC”), including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any amendments to those reports, as soon as reasonably practicable after those documents are filed with, or furnished to, the SEC. These filings are also accessible on the SEC’s website at www.sec.gov.


10


Item 1A. RISK FACTORS.

The economic performance and value of our shopping centers are dependent on many factors.

The economic performance and value of our shopping centers are dependent on various factors. Additionally, these same factors will influence our decision whether to go forward on the development of new centers and may affect the ultimate economic performance and value of projects under construction. Adverse changes in the economic performance and value of our shopping centers would adversely affect our income and cash available to pay dividends.

Such factors include:

changes in the global, national, regional, and/or local economic and geopolitical climates. Changes such as the recent global economic and financial market downturn caused or may in the future cause, among other things, a significant tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, lower consumer and business spending, and lower consumer confidence and net worth;

changes in specific local economies and/or real estate conditions. These changes may have a more significant impact on our financial performance due to the geographic concentration of some of our centers;

changes in mall tenant sales performance of our centers, which over the long term are the single most important determinant of revenues of the shopping centers because mall tenants provide approximately 90% of these revenues and because mall tenant sales determine the amount of rent, percentage rent, and recoverable expenses that mall tenants can afford to pay;

availability and cost of financing. While current interest rates continue to be historically low, it is uncertain how long such rates will continue;

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

legal liabilities;

changes in government regulations; and

changes in real estate zoning and tax laws.

These factors may ultimately impact the valuation of certain long-lived or intangible assets that are subject to impairment testing, potentially resulting in impairment charges, which may be material to our financial condition or results of operations. See “MD&A – Results of Operations – Application of Critical Accounting Policies: Valuation of Shopping Centers" for additional information regarding impairment testing.

In addition, the value and performance of our shopping centers may be adversely affected by certain other factors discussed below including the state of the capital markets, expansion into Asia, unscheduled closings or bankruptcies of our tenants, competition, uninsured losses, and environmental liabilities.


11


We are in a competitive business.

There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. The existence of competing shopping centers could have a material adverse impact on our ability to develop or operate shopping centers, lease space, and on the level of rents that can be achieved. In addition, retailers at our properties face continued competition from shopping through various means and channels, including via the Internet, lifestyle centers, outlet malls, wholesale and discount shopping clubs, and television shopping networks. Competition of this type could adversely affect our revenues and cash available for distribution to shareowners. Further, as new technologies emerge, the relationship among customers, retailers, and shopping centers are evolving on a rapid basis and it is critical that we adapt to such new technologies and relationships on a timely basis. For example, a small but increasing number of tenants utilize our shopping centers as showrooms or as part of an omni-channel strategy (allowing customers to shop seamlessly through various sales channels). As a result, customers may make purchases during or immediately after visiting our shopping centers, with such sales not being captured currently in our tenant sales figures or monetized in our minimum or percentage rents.

We compete with other major real estate investors with significant capital for attractive investment opportunities. These competitors include other REITs, investment banking firms, and private and institutional investors. This competition may impair our ability to acquire or develop suitable properties on favorable terms in the future.

Our real estate investments are relatively illiquid.

We may be limited in our ability to vary our portfolio in response to changes in economic, market, or other conditions by restrictions on transfer imposed by our partners or lenders. If we were unable to refinance our debt at a center, we may be required to contribute capital to repay debt, fund capital spending, or other cash requirements. In addition, under TRG’s partnership agreement, upon the sale of a center or TRG’s interest in a center, TRG may be required to distribute to its partners all of the cash proceeds received by TRG from such sale. If TRG made such a distribution, the sale proceeds would not be available to finance TRG’s activities, and the sale of a center may result in a decrease in funds generated by continuing operations and in distributions to TRG’s partners, including us. Further, pursuant to TRG’s partnership agreement, TRG may not dispose or encumber certain of its centers or its interest in such centers without the consent of a majority-in-interest of its partners other than us.

We may acquire or develop new properties, and these activities are subject to various risks.

We actively pursue development and acquisition activities as opportunities arise, and these activities are subject to the following risks:

the pre-construction phase for a new project often extends over several years, and the time to obtain landowner, anchor, and tenant commitments, zoning and regulatory approvals, and public financing can vary significantly from project to project;

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

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

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

we may be obligated to contribute funding for development projects in excess of our ownership requirements if our partners are unable or are not required to fund their ownership share;

equity markets as a source of funds may become less financially favorable as affected by our stock price as well as general market conditions;

occupancy rates and rents, as well as occupancy costs and expenses, at a completed project or an acquired property may not meet our projections, and the costs of development activities that we explore but ultimately abandon will, to some extent, diminish the overall return on our completed development projects; and

competitive pressures in our targeted markets may negatively impact our ability to meet our initial leasing objectives.





12


We currently have multiple projects under development in the U.S. and Asia for which we will be providing development, leasing and certain other services. Although we believe we have adequate resources and the ability to perform all responsibilities, certain risks described above may be magnified due to the higher level of activity.

Certain of our projects under development represent the retail portion of larger mixed-use projects. As a result, there may be certain additional risks associated with such projects, including:

increased time to obtain necessary permits and approvals;

increased uncertainty regarding shared infrastructure and common area costs; and

impact on sales and performance of the retail center from delays in opening of other uses and or/the performance of such uses.

In addition, global economic and market conditions may reduce viable development and acquisition opportunities that meet our unlevered return requirements.

Our business activities and pursuit of new opportunities in Asia may pose risks.

We have offices in Hong Kong, Seoul, Beijing, and Shanghai and we are pursuing and evaluating investment opportunities in various South Korea and China markets. We have invested in three joint ventures to develop shopping centers in Asia and may invest in other shopping centers in the future. We are also currently providing leasing and management services for a retail project in Seoul, South Korea and development, leasing, and management services for a retail project in Macau. In addition to the general risks related to development activities described in the preceding section, our international activities are subject to unique risks, including:

adverse effects of changes in exchange rates for foreign currencies;

changes in and/or difficulties in operating in foreign political environments;

difficulties in operating with foreign vendors and joint venture and business partners;

difficulties of complying with a wide variety of foreign laws including laws affecting funding, corporate governance, property ownership restrictions, development activities, operations, anti-corruption, taxes, and litigation;

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

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

differing lending practices;

differing employment and labor issues;

obstacles to the repatriation of earnings and cash;

lower initial investment returns than those generally experienced in the U.S.;

obstacles to hiring and maintaining appropriately trained staff; and

differences in cultures including adapting practices and strategies that have been successful in the U.S. regional mall business to retail needs and expectations in new markets.


13


In regards to foreign currency, our projects in China and South Korea will require investments and may require debt financing denominated in foreign currencies, with the possibility that such investments will be greater than anticipated depending on changes in exchange rates. Similarly, these projects will generate returns on or of capital in foreign currencies that could ultimately be less than anticipated as a result of exchange rates. As part of investing in these projects, we are implementing appropriate risk management policies and practices, which may include the hedging of foreign currency risks. We cannot provide assurance that such policies and practices will be successful and/or that the applicable accounting for foreign currency hedges will be favorable to any particular period's results of operations. Foreign currency hedges could be economically beneficial to us, but could have unfavorable accounting impacts, depending on the qualification of the hedges for hedge accounting treatment.
As we expand our international activities and levels of investment, these risks could increase in significance and adversely affect our financial returns on international projects and services and overall financial condition. We have put in place policies, practices, and systems for mitigating some of these international risks, although we cannot provide assurance that we will be entirely successful in doing so.

We could be subject to liability, penalties and other sanctions and other adverse consequences arising out of non-compliance with the United States Foreign Corrupt Practices Act (FCPA) or foreign anti-corruption laws

We are subject to the FCPA, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business, and which requires proper record keeping and characterization of payments we make in our reports filed with the SEC. Although we have policies and procedures designed to promote compliance with the FCPA and other anti-corruption laws, we cannot provide assurance that we will continue to be found to be operating in compliance with, or be able to detect violations of, any such laws or regulations. We cannot provide assurance that these policies and procedures will protect us from intentional, reckless or negligent acts committed by our employees, agents, partners or others acting on our behalf. If our employees, agents, partners, or others acting on our behalf are found to have engaged in such practices, severe penalties and other consequences could be imposed. Those penalties and consequences that may be imposed against us or individuals in appropriate circumstances include, but are not limited to, injunctive relief, disgorgement, fines, penalties and modifications to business practices and compliance programs. In addition, we cannot predict the nature, scope or effect of future regulatory requirements or investigations to which our international operations might be subject, the manner in which existing laws might be administered or interpreted, or the potential that we may face regulatory sanctions. Any of these violations or remedial measures, if applicable to us, could have a material adverse impact on our business, reputation, results of operations, cash flow, financial condition, liquidity, ability to make distributions to our shareholders or the value of our investments.

Foreign companies, including some that may compete with us, may not be subject to the FCPA. Accordingly, such companies may be more likely to engage in activities prohibited by the FCPA, which could have a significant adverse impact on our returns or our ability to compete for business in such countries.
      
The bankruptcy, early termination, or closing of our tenants and anchors could adversely affect us.

We could be adversely affected by the bankruptcy, early termination, or closing of tenants and anchors. The bankruptcy of a mall tenant could result in the termination of its lease, which would lower the amount of cash generated by that mall. In addition, if a department store operating as an anchor at one of our shopping centers were to go into bankruptcy and cease operating, we may experience difficulty and delay, and incur significant expense, in replacing the anchor. In addition, the anchor’s closing may lead to reduced customer traffic and lower mall tenant sales. As a result, we may also experience difficulty or delay in leasing spaces in areas adjacent to the vacant anchor space. The early termination or closing of mall tenants or anchors for reasons other than bankruptcy could have a similar impact on the operations of our centers, although in the case of early terminations we may benefit in the short-term from lease cancellation income. (See “MD&A – Rental Rates and Occupancy”).

Our investments are subject to credit and market risk.

We occasionally extend credit to third parties in connection with the sale of land or other transactions. We also have occasionally made investments in marketable and other equity securities. We are exposed to risk in the event the values of our investments and/or our loans decrease due to overall market conditions, business failure, and/or other nonperformance by the investees or counterparties.


14


Capital markets may limit our sources of funds for financing activities.

Our ability to access the capital markets may be restricted at a time when we would like, or need, to access those markets. This could have an impact on our flexibility to react to changing economic and business conditions. A lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could materially and adversely affect our business, financial condition, results of operations and our ability to obtain and manage our liquidity. In addition, the cost of debt financing and the proceeds may be materially adversely impacted by such market conditions. Also, our ability to access equity markets as a source of funds may be affected by our stock price as well as general market conditions.

We are obligated to comply with financial and other covenants that could affect our operating activities.

Certain loan agreements contain various restrictive covenants, including the following corporate covenants on our unsecured primary revolving line of credit and unsecured term loan: 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 and term loan have unencumbered pool covenants, which currently apply to Beverly Center, 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 and term loan. These covenants may restrict our ability to pursue certain business initiatives or certain transactions that might otherwise be advantageous. In addition, failure to meet certain of these financial covenants could cause an event of default under and/or accelerate some or all of such indebtedness which could have a material effect on us.

Our hedging interest rate protection arrangements may not effectively limit our interest rate risk exposure.

We manage our exposure to interest rate risk through a combination of interest rate protection agreements to effectively fix or cap a portion of our variable rate debt. Our use of interest rate hedging arrangements to manage risk associated with interest rate volatility may expose us to additional risks, including that a counterparty to a hedging arrangement may fail to honor its obligations. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have the desired beneficial impact on our results of operations or financial condition. We might be subject to additional costs, such as transaction fees or breakage costs, if we terminate these arrangements.

Some of our potential losses may not be covered by insurance.

We carry liability, fire, flood, earthquake, extended coverage, and rental loss insurance on each of our properties. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, some types of losses, including lease and other contract claims, which generally are not insured. If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. If this happens, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property.

In November 2002, Congress passed the “Terrorism Risk Insurance Act of 2002” (TRIA), which required insurance companies to offer terrorism coverage to all existing insured companies for an additional cost. As a result, our property insurance policies are currently provided without a sub-limit for terrorism, eliminating the need for separate terrorism insurance policies.

In 2007, Congress extended the expiration date of TRIA by seven years to December 31, 2014. Congress is presently considering a reauthorization of TRIA, with possible changes. A final decision is expected in the second quarter of 2014. There are specific provisions in our loans that address terrorism insurance. Simply stated, in most loans, we are obligated to maintain terrorism insurance, but there are limits on the amounts we are required to spend to obtain such coverage. If a terrorist event occurs, the cost of terrorism insurance coverage would be likely to increase, which could result in our having less coverage than we have currently. Our inability to obtain such coverage or to do so only at greatly increased costs may also negatively impact the availability and cost of future financings.


15


We may be subject to liabilities for environmental matters.

All of the centers presently owned by us (not including option interests in certain pre-development projects) have been subject to environmental assessments. We are not aware of any environmental liability relating to the centers or any other property in which we have or had an interest (whether as an owner or operator) that we believe would have a material adverse effect on our business, assets, or results of operations. No assurances can be given, however, that all environmental liabilities have been identified by us or that no prior owner or operator, or any occupant of our properties has created an environmental condition not known to us. Moreover, no assurances can be given that (1) future laws, ordinances, or regulations will not impose any material environmental liability or that (2) the current environmental condition of the centers will not be affected by tenants and occupants of the centers, by the condition of properties in the vicinity of the centers (such as the presence of underground storage tanks), or by third parties unrelated to us.

We hold investments in joint ventures in which we do not control all decisions, and we may have conflicts of interest with our joint venture partners.

Some of our shopping centers are partially owned by non-affiliated partners through joint venture arrangements. As a result, we do not control all decisions regarding those shopping centers and may be required to take actions that are in the interest of the joint venture partners but not our best interests. Accordingly, we may not be able to favorably resolve any issues that arise with respect to such decisions, or we may have to provide financial or other inducements to our joint venture partners to obtain such resolution.

For joint ventures that we do not manage, we do not control decisions as to the design or operation of internal controls over accounting and financial reporting, including those relating to maintenance of accounting records, authorization of receipts and disbursements, selection and application of accounting policies, reviews of period-end financial reporting, and safeguarding of assets. Therefore, we are exposed to increased risk that such controls may not be designed or operating effectively, which could ultimately affect the accuracy of financial information related to these joint ventures as prepared by our joint venture partners.

Various restrictive provisions and rights govern sales or transfers of interests in our joint ventures. These may work to our disadvantage because, among other things, we may be required to make decisions as to the purchase or sale of interests in our joint ventures at a time that is disadvantageous to us.

The bankruptcy or financial difficulties of our joint venture partners could adversely affect us.

The profitability of shopping centers held in a joint venture could also be adversely affected by the bankruptcy of one of the joint venture partners if, because of certain provisions of the bankruptcy laws, we were unable to make important decisions in a timely fashion or became subject to additional liabilities. In addition, if our joint venture partners are not able to fund required contributions, it may be necessary for us to contribute equity in excess of our ownership share to fund initial development, capital, and/or operating costs.

We may not be able to maintain our status as a REIT.

We may not be able to maintain our status as a REIT for federal income tax purposes with the result that the income distributed to shareowners would not be deductible in computing taxable income and instead would be subject to tax at regular corporate rates. We may also be subject to the alternative minimum tax if we fail to maintain our status as a REIT. Any such corporate tax liability would be substantial and would reduce the amount of cash available for distribution to our shareowners which, in turn, could have a material adverse impact on the value of, or trading price for, our shares. Although we believe we are organized and operate in a manner to maintain our REIT qualification, many of the REIT requirements of the Internal Revenue Code of 1986, as amended (the Code), are very complex and have limited judicial or administrative interpretations. Changes in tax laws or regulations or new administrative interpretations and court decisions may also affect our ability to maintain REIT status in the future. If we do not maintain our REIT status in any year, we may be unable to elect to be treated as a REIT for the next four taxable years.

Although we currently intend to maintain our status as a REIT, future economic, market, legal, tax, or other considerations may cause us to determine that it would be in our and our shareowners’ best interests to revoke our REIT election. If we revoke our REIT election, we will not be able to elect REIT status for the next four taxable years.


16


We may be subject to taxes even if we qualify as a REIT.

Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain federal, state, local, and foreign taxes on our income and property. For example, we will be subject to federal income tax to the extent we distribute less than 100% of our REIT taxable income, including capital gains. Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale. We cannot guarantee that sales of our properties would not be prohibited transactions unless we comply with certain statutory safe-harbor provisions. The need to avoid prohibited transactions could cause us to forego or defer sales of assets that non-REITs otherwise would have sold or that might otherwise be in our best interest to sell.

In addition, any net taxable income earned directly by our taxable REIT subsidiaries will be subject to federal, and state corporate income tax, and to the extent there are foreign operations certain foreign taxes. In this regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct certain interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by the taxable REIT subsidiaries if the economic arrangements among the REIT, the REIT’s tenants, and the taxable REIT subsidiary are not comparable to similar arrangements among unrelated parties. Finally, some state, local, and foreign jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income, because not all states, localities, and foreign jurisdictions follow the federal income tax treatment of REITs. To the extent that we and our affiliates are required to pay federal, state, local, and foreign taxes, we will have less cash available for distributions to our shareowners.

The lower tax rate on certain dividends from non-REIT “C” corporations may cause investors to prefer to hold stock in non-REIT “C” corporations.

Beginning with the 2013 taxable year, the maximum tax rate (including the net investment income tax of 3.8%) on certain corporate dividends received by individuals is 23.8%, up from 15% in 2012, but less than the maximum income tax rate of 39.6% applicable to ordinary income. This rate differential continues to substantially reduce the so-called "double taxation" (that is, taxation at both the corporate and shareowner levels) that applies to non-REIT "C" corporations but does not generally apply to REITs. Dividends from a REIT do not qualify for the favorable tax rate applicable to dividends from non-REIT "C" corporations unless the dividends are attributable to income that has already been subjected to the corporate income tax, such as income from a prior year that the REIT did not distribute and dividend income received by the REIT from a taxable REIT subsidiary or other fully taxable "C" corporation. Although REITs, unlike non-REIT “C” corporations, have the ability to designate certain dividends as capital gain dividends subject to the favorable rates applicable to capital gain, the application of reduced dividend rates to non-REIT “C” corporation dividends may still cause individual investors to view stock in non-REIT “C” corporations as more attractive than shares in REITs, which may negatively affect the value of our shares.


17


Our ownership limitations and other provisions of our articles of incorporation and bylaws generally prohibit the acquisition of more than 8.23% of the value of our capital stock and may otherwise hinder any attempt to acquire us.

Various provisions of our articles of incorporation and bylaws could have the effect of discouraging a third party from accumulating a large block of our stock and making offers to acquire us, and of inhibiting a change in control, all of which could adversely affect our shareowners’ ability to receive a premium for their shares in connection with such a transaction. In addition to customary anti-takeover provisions, as detailed below, our articles of incorporation contain REIT-specific restrictions on the ownership and transfer of our capital stock which also serve similar anti-takeover purposes.

Under our Restated Articles of Incorporation, in general, no shareowner may own more than 8.23% (the “General Ownership Limit”) in value of our "Capital Stock" (which term refers to the common stock, preferred stock and Excess Stock, as defined below). Our Board of Directors has the authority to allow a “look through entity” to own up to 9.9% in value of the Capital Stock (Look Through Entity Limit), provided that after application of certain constructive ownership rules under the Code and rules regarding beneficial ownership under the Michigan Business Corporation Act, no individual would constructively or beneficially own more than the General Ownership Limit. A look through entity is an entity (other than a qualified trust under Section 401(a) of the Code, certain other tax-exempt entities described in the Articles, or an entity that owns 10% or more of the equity of any tenant from which we or TRG directly or indirectly receives or accrues rent from real property) whose beneficial owners, rather than the entity, would be treated as owning the capital stock owned by such entity.

The Articles provide that if the transfer of any shares of Capital Stock or a change in our capital structure would cause any person (Purported Transferee) to own Capital Stock in excess of the General Ownership Limit or the Look Through Entity Limit, then the transfer is to be treated as invalid from the outset, and the shares in excess of the applicable ownership limit automatically acquire the status of “Excess Stock.” A Purported Transferee of Excess Stock acquires no rights to shares of Excess Stock. Rather, all rights associated with the ownership of those shares (with the exception of the right to be reimbursed for the original purchase price of those shares) immediately vest in one or more charitable organizations designated from time to time by our Board of Directors (each, a “Designated Charity”). An agent designated from time to time by the Board (each, a “Designated Agent”) will act as attorney-in-fact for the Designated Charity to vote the shares of Excess Stock, take delivery of the certificates evidencing the shares that have become Excess Stock, and receive any distributions paid to the Purported Transferee with respect to those shares. The Designated Agent will sell the Excess Stock, and any increase in value of the Excess Stock between the date it became Excess Stock and the date of sale will inure to the benefit of the Designated Charity. A Purported Transferee must notify us of any transfer resulting in shares converting into Excess Stock, as well as such other information regarding such person’s ownership of the capital stock we request.

These ownership limitations will not be automatically removed even if the REIT requirements are changed so as to no longer contain any ownership concentration limitation or if the concentration limitation is increased because, in addition to preserving our status as a REIT, the effect of such ownership limit is to prevent any person from acquiring unilateral control of us. Changes in the ownership limits cannot be made by our Board of Directors and would require an amendment to our articles. Currently, amendments to our articles require the affirmative vote of holders owning not less than two-thirds of the outstanding capital stock entitled to vote.

A. Alfred Taubman, Robert Taubman, William Taubman, and Gayle Taubman Kalisman (Taubman Family) may be deemed under SEC rules of attribution, which includes conversion of options that have vested and shares subject to issuance under an option deferral agrement, to beneficially own 26%, 29%, 28%, and 26%, respectively, of our stock that is entitled to vote on shareowner matters (Voting Stock) as of December 31, 2013. However, the combined Taubman Family ownership of Voting Stock includes 24,127,588 shares of the 25,151,069 shares of Series B Preferred Stock outstanding or 96% of the total outstanding and 1,349,925 shares of the 63,101,614 shares of common stock outstanding or 2% of the total outstanding as of December 31, 2013. The Series B Preferred Stock is convertible into shares of common stock at a ratio of 14,000 shares of Series B Preferred Stock to one share of common stock, and therefore one share of Series B Preferred Stock has a value of 1/14,000ths of the value of one share of common stock. Accordingly, the foregoing ownership of Voting Stock does not violate the ownership limitations set forth in our charter.


18


Members of the Taubman family have the power to vote a significant number of the shares of our capital stock entitled to vote.

Based on information contained in filings made with the SEC, as of December 31, 2013, A. Alfred Taubman and the members of his family have the power to vote approximately 29% of the outstanding shares of our common stock and our Series B Preferred Stock, considered together as a single class, and approximately 96% of our outstanding Series B preferred stock. Our shares of common stock and our Series B Preferred Stock vote together as a single class on all matters generally submitted to a vote of our shareowners, and the holders of the Series B preferred stock have certain rights to nominate up to four individuals for election to our board of directors and other class voting rights. Mr. Taubman’s son, Robert S. Taubman, serves as our Chairman of the Board, President and Chief Executive Officer. Mr. Taubman’s son, William S. Taubman, serves as our Chief Operating Officer and one of our directors. These individuals occupy the same positions with the Manager. As a result, Mr. A. Alfred Taubman and the members of his family may exercise significant influence with respect to the election of our board of directors, the outcome of any corporate transaction or other matter submitted to our shareowners for approval, including any merger, consolidation or sale of all or substantially all of our assets. In addition, because our articles of incorporation impose a limitation on the ownership of our outstanding capital stock by any person and such ownership limitation may not be changed without the affirmative vote of holders owning not less than two-thirds of the outstanding shares of capital stock entitled to vote on such matter, Mr. A. Alfred Taubman and the members of his family, as a practical matter, have the power to prevent a change in control of our company.

The market price of our common stock may fluctuate significantly.

The market price of our common stock may fluctuate significantly in response to many factors, including:

general market and economic conditions;

actual or anticipated variations in our operating results, funds from operations, cash flows, liquidity or distributions;

changes in our earnings estimates or those of analysts;

publication of research reports about us, the real estate industry generally or the regional mall industry, and recommendations by financial analysts with respect to us or other REITs;

the amount of our outstanding debt at any time, the amount of our maturing debt in the near and medium term and our ability to refinance such debt and the terms thereof or our plans to incur additional debt in the future;

the ability of our tenants to pay rent to us and meet their other obligations to us under current lease terms and our ability to re-lease space as leases expire;

increases in market interest rates that lead purchasers of our common stock to demand a higher dividend yield;

changes in market valuations of similar companies;

any securities we may issue or additional debt we incur in the future;

additions or departures of key management personnel;

actions by institutional shareholders;

risks we are taking in relation to our new developments and capital uses;

perceived risks in connection with our international development strategy;

speculation in the press or investment community; and

continuing high levels of volatility in the capital and credit markets.

Many of the factors listed above are beyond our control. These factors may cause the market price of our common stock to decline, regardless of our financial performance and condition and prospects. It is impossible to provide any assurance that the market price of our common stock will not fall in the future, and it may be difficult for holders to resell shares of our common stock at prices they find attractive, or at all.


19


Our shareholders will experience dilution as a result of equity offerings and they may experience further dilution if we issue additional common stock.

We issued common equity, both common shares and TRG partnership units, that had a dilutive effect on our earnings per diluted share and funds from operations per diluted share for the years ended December 31, 2012 and December 31, 2011. Also during 2013 and 2012, we issued additional shares of preferred stock which adversely affected the earnings per share available to our common shareholders. We are not restricted from issuing additional shares of our common stock or preferred stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock or any substantially similar securities. Any additional future issuances of common stock will reduce the percentage of our common stock owned by investors who do not participate in future issuances. In most circumstances, shareholders will not be entitled to vote on whether or not we issue additional common stock. In addition, depending on the terms and pricing of an additional offering of our common stock and the value of our properties, our shareholders may experience dilution in both the book value and fair value of their shares. The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after this offering or the perception that such sales could occur, and this could materially and adversely affect our ability to raise capital through future offerings of equity or equity-related securities.

Our ability to pay dividends on our stock may be limited.

Because we conduct all of our operations through TRG or its subsidiaries, our ability to pay dividends on our stock will depend almost entirely on payments and distributions received on our interests in TRG. Additionally, the terms of some of the debt to which TRG is a party limits its ability to make some types of payments and other distributions to us. This in turn limits our ability to make some types of payments, including payment of dividends on our stock, unless we meet certain financial tests or such payments or dividends are required to maintain our qualification as a REIT. As a result, if we are unable to meet the applicable financial tests, we may not be able to pay dividends on our stock in one or more periods beyond what is required for REIT purposes.

Our ability to pay dividends is further limited by the requirements of Michigan law.

Our ability to pay dividends on our stock is further limited by the laws of Michigan. Under the Michigan Business Corporation Act, a Michigan corporation may not make a distribution if, after giving effect to the distribution, the corporation would not be able to pay its debts as the debts become due in the usual course of business, or the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareowners whose preferential rights are superior to those receiving the distribution. Accordingly, we may not make a distribution on our stock if, after giving effect to the distribution, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of any shares of our preferred stock then outstanding.

We may incur additional indebtedness, which may harm our financial position and cash flow and potentially impact our ability to pay dividends on our stock.

Our governing documents do not limit us from incurring additional indebtedness and other liabilities; however, certain loan covenants include certain restrictions regarding future indebtedness. As of December 31, 2013, we had $3.1 billion of consolidated indebtedness outstanding, and our beneficial interest in both our consolidated debt and the debt of our unconsolidated joint ventures was $3.8 billion. We may incur additional indebtedness and become more highly leveraged, which could harm our financial position and potentially limit our cash available to pay dividends.

We may change the distribution policy for our common stock in the future.

The decision to declare and pay dividends on our common stock in the future, as well as the timing, amount, and composition of any such future dividends, will be at the sole discretion of our board of directors and will depend on our earnings, funds from operations, liquidity, financial condition, capital requirements, contractual prohibitions, or other limitations under our indebtedness and preferred shares, the annual dividend requirements under the REIT provisions of the Code, state law and such other factors as our board of directors deems relevant. Further, we have regularly issued new shares of common stock as compensation to our employees, and we have periodically issued new shares pursuant to public offerings or acquisitions. Any future issuances may substantially increase the cash required to pay dividends at current or higher levels. Our actual dividend payable will be determined by our board of directors based upon the circumstances at the time of declaration. Although we have regularly paid dividends on a quarterly basis on our common and preferred stock in the past, we do not guarantee we will continue to do so in the future. Any change in our dividend policy could have a material adverse effect on the market price of our common stock.

20


Item 1B. UNRESOLVED STAFF COMMENTS.

None.

Item 2. PROPERTIES.

Ownership

The following table sets forth certain information about each of the centers. The table includes only centers in operation at December 31, 2013. Centers are owned in fee other than Beverly Center (Beverly), Cherry Creek Shopping Center (Cherry Creek), City Creek Center, International Plaza, MacArthur Center, and certain land at The Mall at Green Hills, which are held under ground leases expiring between 2042 and 2104.

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

21


Center
 
Anchors
 
Sq. Ft of GLA/
Mall GLA as of 12/31/13
 
 
Year
Opened/
Expanded
 
Year
Acquired
 
Ownership
% as of
12/31/13
 
Consolidated Businesses:
 
 
 
 
 
 
 
 
 
 
 
 
Beverly Center
 
Bloomingdale’s, Macy’s
 
868,000
 
 
1982
 
 
 
100%
 
Los Angeles, CA
 
 
 
560,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cherry Creek Shopping Center
 
Macy’s, Neiman Marcus, Nordstrom
 
1,032,000
(1) 
 
1990/1998
 
 
 
50%
 
Denver, CO
 
 
 
541,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
City Creek Center
 
Macy's, Nordstrom
 
626,000
 
 
2012
 
 
 
100%
 
Salt Lake City, UT
 
 
 
346,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dolphin Mall
 
Bass Pro Shops Outdoor World,
 
1,389,000
 
 
2001/2007
 
 
 
100%
 
Miami, FL
 
Bloomingdale's Outlet, Burlington Coat Factory
 
666,000
 
 
 
 
 
 
 
 
 
 
Cobb Theatres, Dave & Buster's,
 
 
 
 
 
 
 
 
 
 
 
 
Marshalls, Neiman Marcus-Last Call,
 
 
 
 
 
 
 
 
 
 
 
 
Off 5th Saks, The Sports Authority
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fairlane Town Center
 
JCPenney, Macy’s, Sears
 
1,386,000
(2) 
 
1976/1978/
 
 
 
100%
 
Dearborn, MI
 
 
 
589,000
 
 
1980/2000
 
 
 
 
 
(Detroit Metropolitan Area)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Gardens on El Paseo/ El Paseo Village
 
Saks Fifth Avenue
 
236,000
 
 
1998/2010
 
2011
 
100%
 
Palm Desert, CA
 
 
 
186,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Great Lakes Crossing Outlets
 
AMC Theatres, Bass Pro Shops Outdoor World,
 
1,353,000
 
 
1998
 
 
 
100%
 
Auburn Hills, MI
 
Lord & Taylor Outlet, Neiman Marcus-Last Call,
 
534,000
 
 
 
 
 
 
 
 
(Detroit Metropolitan Area)
 
Off 5th Saks
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Mall at Green Hills
 
Dillard's, Macy's, Nordstrom
 
869,000
 
 
1955/2011
 
2011
 
100%
 
Nashville, TN
 
 
 
357,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
International Plaza
 
Dillard’s, Neiman Marcus, Nordstrom
 
1,202,000
(3) 
 
2001
 
 
 
100%
(4) 
Tampa, FL
 
 
 
581,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MacArthur Center
 
Dillard’s, Nordstrom
 
934,000
 
 
1999
 
 
 
95%
 
Norfolk, VA
 
 
 
520,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Northlake Mall
 
Belk, Dick’s Sporting Goods,
 
1,071,000
 
 
2005
 
 
 
100%
 
Charlotte, NC
 
Dillard’s, Macy’s
 
465,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Mall at Partridge Creek
 
Nordstrom, Carson's
 
607,000
 
 
2007/2008
 
 
 
100%
 
Clinton Township, MI
 
 
 
373,000
 
 
 
 
 
 
 
 
(Detroit Metropolitan Area)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Mall at Short Hills
 
Bloomingdale’s, Macy’s, Neiman Marcus,
 
1,369,000
 
 
1980/1994/
 
 
 
100%
 
Short Hills, NJ
 
Nordstrom, Saks Fifth Avenue
 
546,000
 
 
1995
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stony Point Fashion Park
 
Dillard’s, Dick’s Sporting Goods,
 
669,000
 
 
2003
 
 
 
100%
 
Richmond, VA
 
Saks Fifth Avenue
 
302,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taubman Prestige Outlets Chesterfield
 
Polo Ralph Lauren Factory Store,
 
308,000
 
 
2013
 
 
 
100%
 
Chesterfield, MO
 
Restoration Hardware
 
308,000
 
 
 
 
 
 
 
 
(St. Louis Metropolitan Area)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve Oaks Mall
 
JCPenney, Lord & Taylor, Macy's,
 
1,515,000
 
 
1977/1978/
 
 
 
100%
 
Novi, MI
 
Nordstrom, Sears
 
550,000
 
 
2007/2008
 
 
 
 
 
(Detroit Metropolitan Area)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Mall at Wellington Green
 
City Furniture & Ashley Furniture Home Store,
 
1,271,000
 
 
2001/2003
 
 
 
90%
 
Wellington, FL
 
Dillard’s, JCPenney, Macy’s, Nordstrom
 
458,000
 
 
 
 
 
 
 
 
(Palm Beach County)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Shops at Willow Bend
 
Dillard’s, Macy’s, Neiman Marcus
 
1,262,000
(5) 
 
2001/2004
 
 
 
100%
 
Plano, TX
 
 
 
523,000
 
 
 
 
 
 
 
 
(Dallas Metropolitan Area)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total GLA
 
17,967,000
 
 
 
 
 
 
 
 
 
 
Total Mall GLA
 
8,405,000
 
 
 
 
 
 
 
 
 
 
TRG% of Total GLA
 
17,277,000
 
 

 
 
 
 
 
 
 
TRG% of Total Mall GLA
 
8,063,000
 
 
 
 
 
 
 
 


22


Center
 
Anchors
 
Sq. Ft of GLA/
Mall GLA as of
12/31/13
 
 
Year
Opened/
Expanded
 
Year
Acquired
 
Ownership
% as of
12/31/13
 
Unconsolidated Joint Ventures:
 
 
 
 
 
 
 
 
 
 
 
 
Arizona Mills
 
Conn's, GameWorks, Harkins Cinemas,
 
1,220,000
 
 
1997
 
 
 
50%
(6) 
Tempe, AZ
 
JCPenney Outlet, Neiman Marcus-Last Call,
 
551,000
 
 
 
 
 
 
 
 
(Phoenix Metropolitan Area)
 
Off 5th Saks
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Oaks
 
JCPenney, Lord & Taylor,
 
1,565,000
 
 
1980/1987/
 
 
 
50%
 
Fairfax, VA
 
Macy’s (two locations), Sears
 
561,000
 
 
1988/2000
 
 
 
 
 
(Washington, DC Metropolitan Area)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Mall at Millenia
 
Bloomingdale’s, Macy’s, Neiman Marcus
 
1,120,000
 
 
2002
 
 
 
50%
 
Orlando, FL
 
 
 
520,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stamford Town Center
 
Macy’s, Saks Fifth Avenue
 
767,000
(7) 
 
1982/2007
 
 
 
50%
 
Stamford, CT
 
 
 
444,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sunvalley
 
JCPenney, Macy’s (two locations), Sears
 
1,330,000
 
 
1967/1981
 
2002
 
50%
 
Concord, CA
 
 
 
490,000
 
 
 
 
 
 
 
 
(San Francisco Metropolitan Area)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Waterside Shops
 
Nordstrom, Saks Fifth Avenue
 
336,000
 
 
1992/2006/
 
2003
 
50%
 
Naples, FL
 
 
 
196,000
 
 
2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Westfarms
 
JCPenney, Lord & Taylor, Macy’s,
 
1,280,000
 
 
1974/1983/
 
 
 
79%
 
West Hartford, CT
 
Macy’s Men’s Store/Furniture Gallery,
 
510,000
 
 
1997
 
 
 
 
 
 
 
Nordstrom
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total GLA
 
7,618,000
 
 
 
 
 
 
 
 
 
 
Total Mall GLA
 
3,272,000
 
 
 
 
 
 
 
 
 
 
TRG% of Total GLA
 
4,180,000
 
 
 
 
 
 
 
 
 
 
TRG% of Total Mall GLA
 
1,784,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Grand Total GLA
 
25,585,000
 
 
 
 
 
 
 
 
 
 
Grand Total Mall GLA
 
11,677,000
 
 
 
 
 
 
 
 
 
 
TRG% of Total GLA
 
21,457,000
 
 
 
 
 
 
 
 
 
 
TRG% of Total Mall GLA
 
9,847,000
 
 
 
 
 
 
 
 

(1)
GLA includes the former Saks Fifth Avenue store, which closed in March 2011. This space is currently under development. See "Business - Potential for Growth - Internal Growth".
(2)
GLA includes the former Lord & Taylor store, which closed in June 2006.
(3)
GLA includes the former Robb & Stucky store, which closed in May 2011.
(4)
In January 2014, we sold a total of 49.9% of our interests in the entity that owns International Plaza as well as certain governance rights in the center. Following the disposition, this center will be accounted for as an equity method investment along with our other Unconsolidated Joint Ventures.
(5)
GLA includes the former Saks Fifth Avenue store, which closed in August 2010.
(6)
In January 2014, we sold our interest in Arizona Mills.
(7)
Saks Fifth Avenue announced that it plans to close this location in early 2014.

23


Anchors

The following table summarizes certain information regarding the anchors at the operating centers (excluding the value and outlet centers) as of December 31, 2013:

Name
 
Number of
Anchor Stores
 
GLA
(in thousands
of square feet)
 
% of GLA
  
Macy’s
 
 
 
 
 
 
 
Bloomingdale’s
 
3
 
614
 
 
 
Macy’s
 
17
 
3,565
 
 
 
Macy’s Men’s Store/Furniture Gallery
 
1
 
80
 
 
 
Total
 
21
 
4,259
 
20.0
%
 
 
 
 
 
 
 
 
 
Nordstrom
 
11
 
1,564
 
7.3
%
 
 
 
 
 
 
 
 
 
Dillard’s
 
7
 
1,522
 
7.1
%
 
 
 
 
 
 
 
 
 
JCPenney (1)
 
6
 
1,096
 
5.1
%
 
 
 
 
 
 
 
 
 
Sears
 
4
 
911
 
4.3
%
 
 
 
 
 
 
 
 
 
Neiman Marcus (2)
 
5
 
556
 
2.6
%
 
 
 
 
 
 
 
 
 
Lord & Taylor (3)
 
3
 
397
 
1.9
%
 
 
 
 
 
 
 
 
 
Saks (4)
 
5
 
373
 
1.7
%
 
 
 
 
 
 
 
 
 
Belk
 
1
 
180
 
0.8
%
 
 
 
 
 
 
 
 
 
City Furniture and Ashley Furniture Home Store
 
1
 
140
 
0.7
%
 
 
 
 
 
 
 
 
 
Dick’s Sporting Goods
 
2
 
159
 
0.7
%
 
 
 
 
 
 
 
 
 
Carson's
 
1
 
116
 
0.5
%
 
 
 
 
 
 
 
 
 
Total
 
67
 
11,273
 
52.9
%
(5) 

(1)
Excludes one JCPenney Outlet store at a value center.
(2)
Excludes three Neiman Marcus-Last Call stores at value and outlet centers.
(3)
Excludes one Lord & Taylor Outlet store at an outlet center.
(4)
Excludes three Off 5th Saks stores at value and outlet centers. Saks Fifth Avenue announced that it plans to close its store located at Stamford Town Center in early 2014.
(5)
Percentages in table may not add due to rounding.


24


Mortgage Debt

The following table sets forth certain information regarding the mortgages encumbering the centers as of December 31, 2013. All mortgage debt in the table below is nonrecourse to the Operating Partnership except for the TRG $65 million revolving credit facility. The Operating Partnership has provided limited guarantees regarding the mortgage debt encumbering City Creek Center and The Mall at University Town Center. In addition, the entities that own Beverly Center, Dolphin Mall, Fairlane Town Center, Twelve Oaks Mall, and The Shops at Willow Bend are guarantors under our $475 million corporate unsecured term loan and $1.1 billion unsecured primary revolving line of credit. See "MD&A – Liquidity and Capital Resources – Loan Commitments and Guarantees" for more information on guarantees and covenants.
 
Centers Consolidated in
TCO’s Financial Statements
 
Stated
Interest
Rate
 
Principal
Balance as
of 12/31/13
(thousands)
 
Annual
Debt
Service
(thousands)
 
Maturity
Date
 
Balance
Due on
Maturity
(thousands)
 
Earliest
Prepayment
Date
 
Cherry Creek Shopping Center (50%)
 
5.24%
 
$
280,000

 
Interest Only

 
6/8/2016
 
$
280,000

 
30 Days Notice
(1) 
City Creek Center
 
4.37%
 
84,560

 
5,090

 
8/1/2023
(2) 
68,575

 
10/28/2015
(3) 
El Paseo Village
 
4.42%
(4) 
16,322

(4) 
1,024

(5) 
12/6/2015
 
15,565

 
30 Days Notice
(6) 
The Gardens on El Paseo
 
6.10%
(7) 
84,197

(7) 
Interest Only

 
6/11/2016
 
81,480

 
30 Days Notice
(1) 
Great Lakes Crossing Outlets
 
3.60%
 
221,541

 
10,006

(5) 
1/6/2023
 
177,038

 
3/13/2015
(8) 
The Mall at Green Hills
 
LIBOR+1.60%
 
150,000

 
Interest Only

 
12/1/2018
(9) 
150,000

 
12/1/2014
(10) 
International Plaza (11)
 
4.85%
 
325,000

 
Interest Only

(11) 
12/1/2021
 
285,503

 
4/1/2015
(12) 
MacArthur Center (95%)
 
LIBOR+2.35%
(13) 
129,205

 
7,951

(13) 
9/1/2020
 
117,234

 
9/1/2015
(14) 
Northlake Mall
 
5.41%
 
215,500

 
Interest Only

 
2/6/2016
 
215,500

 
30 Days Notice
(8) 
The Mall at Partridge Creek
 
6.15%
 
79,162

 
6,031

(5) 
7/6/2020
 
70,433

 
30 Days Notice
(1) 
The Mall at Short Hills
 
5.47%
 
540,000

 
Interest Only

 
12/14/2015
 
540,000

 
30 Days Notice
(12) 
Stony Point Fashion Park (15)
 
6.24%
 
99,526

 
8,488

(5) 
6/1/2014
(15) 
98,585

 
30 Days Notice
(8) 
The Mall at Wellington Green (90%)
 
5.44%
 
200,000

 
Interest Only

 
5/6/2015
 
200,000

 
30 Days Notice
(8) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Consolidated Secured Debt
 
 
 
 
 
 
 
 
 
 
 
TRG $65M Revolving Credit Facility
 
LIBOR+1.40%
(16) 
33,040

 
Interest Only

 
4/30/2014
 
33,040

 
At Any Time
(17) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Centers Owned by Unconsolidated Joint Ventures/TRG’s % Ownership
 
 
 
Arizona Mills (50%) (18)
 
5.76%
 
167,335

 
12,268

(5) 
7/1/2020
 
147,702

 
30 Days Notice
(1) 
Fair Oaks (50%)
 
LIBOR+1.70%
(19) 
275,000

 
Interest Only

(19) 
7/13/2018
 
257,516

 
3 Days Notice
(17) 
The Mall at Millenia (50%)
 
4.00%
 
350,000

 
Interest Only

(20) 
10/15/2024
 
293,748

 
10 Days Notice
(12) 
Sunvalley (50%)
 
4.44%
 
186,249

 
11,471

(5) 
9/1/2022
 
153,642

 
10/17/2014
(1) 
Taubman Land Associates (50%)
 
3.84%
 
23,541

 
1,349

(5) 
11/1/2022
 
19,001

 
2/1/2015
(21) 
The Mall at University Town Center (50%)
 
LIBOR+1.70%
(22) 
71,418

 
Interest Only

(22) 
10/28/2016
(22) 
71,418

 
3 Days Notice
 
Waterside Shops (50%)
 
5.54%
 
165,000

 
Interest Only

 
10/7/2016
 
165,000

 
30 Days Notice
(23) 
Westfarms (79%)
 
4.50%
 
312,617

 
19,457

(5) 
7/1/2022
 
256,944

 
10 Days Notice
(12) 
 
(1)
No defeasance deposit required if paid within three months of maturity date.
(2)
If the loan is not repaid on or before August 1, 2023, the loan may continue until April 1, 2024. If this occurs, the interest rate becomes the greater of (i) the stated 4.37% interest rate plus 5% and (ii) the then current 10-year treasury rate plus 5%.
(3)
Debt may be defeased on or after October 28, 2015, or debt may be prepaid with a prepayment penalty equal to greater of yield maintenance or 0.5% of principal prepaid. No prepayment penalty is due if prepaid within three months of maturity date. 30 days notice is required.
(4)
Debt includes $0.2 million of purchase accounting premium from December 2011 acquisition, which reduces the stated rate on the debt of 4.42% to an effective rate of 3.88%.
(5)
Amortizing principal based on 30-years.
(6)
No defeasance deposit required if paid within two months of maturity date.
(7)
Debt includes $2.7 million of purchase accounting premium from December 2011 acquisition, which reduces the stated rate on the debt of 6.10% to an effective rate of 4.58%.
(8)
No defeasance deposit required if paid within four months of maturity date.
(9)
A one-year extension option is available.
(10)
From December 2014 through November 2016 debt may be prepaid with a prepayment penalty of 0.5% of principal prepaid. From December 2016 through to November 2017 the prepayment penalty drops to 0.25% of principal prepaid. There is no prepayment fee thereafter.
(11)
In January 2014, we sold a total of 49.9% of our interests in the entity that owns International Plaza. Subsequent to the sale, we will account for our remaining 50.1% investment in the center under the equity method as we no longer have a controlling interest. The loan is interest only until January 2015 at which time monthly principal payments are due based on a 30-year amortization.
(12)
Debt may be prepaid with a prepayment penalty equal to greater of yield maintenance or 1% of principal prepaid. No prepayment penalty is due if prepaid within three months of maturity date.
(13)
The debt is swapped to an effective rate of 4.99% to the maturity date. Amortizing principal based on a 7% interest rate and 30-year amortization.
(14)
From September 2015 through August 2017 debt may be prepaid with a prepayment penalty of 2% on principal prepaid. From September 2017 through August 2019 the prepayment penalty drops to 1% of principal prepaid, and on September 2019 it changes to 0.5% of principal prepaid until March 2020 when it can be prepaid without penalty.

25


(15)
In January 2014, the loan was repaid using funds from the sale of our 49.9% interests in International Plaza.
(16)
The facility is a $65 million revolving line of credit and is secured by an indirect interest in 40% of Short Hills.
(17)
Prepayment can be made without penalty.
(18)
Our interest in Arizona Mills was sold in January 2014 and upon completion of the sale, the entire debt was assumed by the purchaser of our interest in the center.
(19)
The debt is swapped to an effective rate of 4.10% through April 2018. The loan is interest only until August 2014 at which time monthly principal payments are due based on a 7.5% interest rate and 25-year amortization.
(20)
The loan is interest only until November 2016 at which time monthly principal payments are due based on a 30-year amortization. At our option on or before April 30, 2016, provided that The Mall at Millenia meets a required NOI for calendar year 2015, the interest only period may be extended until maturity.
(21)
No defeasance deposit required if paid within five months of maturity date.
(22)
Rate decreases to LIBOR + 1.60% upon achieving certain performance measures. The loan has four one-year extension options. During each extension period debt service payments also include principal payments based on an assumed interest rate of 6.0% and a 30-year amortization.
(23)
No defeasance deposit required if paid within six months of maturity date.

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

Item 3. LEGAL PROCEEDINGS.

See “Note 15 – Commitments and Contingencies – Litigation” to our consolidated financial statements for information regarding outstanding litigation. While management does not believe that an adverse outcome in the lawsuits or litigation described would have a material adverse effect on our financial condition, there can be no assurance that adverse outcomes would not have material effects on our results of operations for any particular period.

Item 4. MINE SAFETY DISCLOSURES.

Not applicable.



26


PART II

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

The common stock of Taubman Centers, Inc. is listed and traded on the New York Stock Exchange (Symbol: TCO). As of February 25, 2014, the 63,127,287 outstanding shares of Common Stock were held by 467 holders of record. A substantially greater number of holders are beneficial owners whose shares are held of record by banks, brokers, and other financial institutions. The closing price per share of the Common Stock on the New York Stock Exchange on February 25, 2014 was $70.66.

The following table presents the dividends declared on our Common Stock and the range of closing share prices of our Common Stock for each quarter of 2013 and 2012:

 
 
Market Quotations
 
 
 
2013 Quarter Ended
 
High
 
Low
 
Dividends
 
March 31
 
$
82.29

 
$
75.02

 
$
0.50

 
 
 
 
 
 
 
 
 
June 30
 
88.95

 
73.67

 
0.50

 
 
 
 
 
 
 
 
 
September 30
 
80.61

 
65.37

 
0.50

 
 
 
 
 
 
 
 
 
December 31
 
71.56

 
63.65

 
0.50

 

 
 
Market Quotations
 
 
 
2012 Quarter Ended
 
High
 
Low
 
Dividends
 
March 31
 
$
72.95

 
$
62.03

 
$
0.4625

 
 
 
 
 
 
 
 
 
June 30
 
78.79

 
70.71

 
0.4625

 
 
 
 
 
 
 
 
 
September 30
 
81.34

 
75.17

 
0.4625

 
 
 
 
 
 
 
 
 
December 31
 
80.42

 
74.61

 
0.4625

 

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
















27


Shareowner Return Performance Graph
            
The following line graph sets forth the cumulative total returns on a $100 investment in each of our Common Stock, the MSCI US REIT Index, the FTSE NAREIT Equity Retail Index, the S&P 500 Index, and the S&P 400 MidCap Index for the period December 31, 2008 through December 31, 2013 (assuming in all cases, the reinvestment of dividends):
   
                
 
12/31/2008
 
12/31/2009
 
12/31/2010
 
12/31/2011
 
12/31/2012
 
12/31/2013
Taubman Centers Inc.
$
100.00

 
$
150.19

 
$
220.42

 
$
279.74

 
$
363.43

 
$
303.46

MSCI US REIT Index
100.00

 
128.61

 
165.23

 
179.60

 
211.50

 
216.73

FTSE NAREIT Equity Retail Index
100.00

 
127.17

 
169.66

 
190.36

 
241.26

 
245.74

S&P 500 Index
100.00

 
126.47

 
145.52

 
148.59

 
172.37

 
228.17

S&P 400 MidCap Index
100.00

 
137.38

 
173.97

 
170.96

 
201.52

 
268.94


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

28


Equity Purchases

The following table presents information with respect to repurchases of common stock made by us during the three months ended December 31, 2013:

Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
 
 
 
 
 
 
 
 
 
October 2013
 
14,868

 
$
67.00

 
14,868

 
$
177,818,222

 
 
 
 
 
 
 
 
 
November 2013
 
102,569

 
66.06

 
102,569

 
171,042,409

 
 
 
 
 
 
 
 
 
December 2013
 
356,326

 
65.47

 
356,326

 
147,713,158

 
 
 
 
 
 
 
 
 
Total
 
473,763

 
 
 
473,763

 
147,713,158


In August 2013, the Company’s Board of Directors authorized a share repurchase program under which the Company may repurchase up to $200 million of its outstanding common stock on the open market or in privately negotiated transactions or otherwise. During the year ended December 31, 2013, the Company repurchased 786,805 shares of our common stock on the open market at an average price of $66.45 per share, for a total of $52.3 million under the authorization. All shares repurchased have been cancelled. For each share of stock repurchased, an equal number of Operating Partnership units were redeemed. Repurchases of common stock were financed through general corporate funds, including borrowings under existing lines of credit.

The restrictions on our ability to pay dividends on our common stock are set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Dividends".




29


Item 6. SELECTED FINANCIAL DATA.

The following table sets forth selected financial data and should be read in conjunction with the financial statements and notes thereto and MD&A included in this report.
 
 
Year Ended December 31
 
 
2013
 
2012
 
2011
 
2010
 
2009
 
 
(in thousands, except per share and per square foot data)
STATEMENT OF OPERATIONS DATA:
 
 
 
 
 
 
 
 
 
 
Rents, recoveries, and other shopping center revenues
 
$
767,154

 
$
747,974

 
$
644,918

 
$
626,427

 
$
637,458

Income from continuing operations
 
189,368

 
157,817

 
141,399

 
122,606

 
104,463

Discontinued operations (1)
 


 


 
145,999

 
(20,279
)
 
(183,624
)
Net income (loss) (2)
 
189,368

 
157,817

 
287,398

 
102,327

 
(79,161
)
Net (income) loss attributable to noncontrolling interests
 
(56,778
)
 
(51,643
)
 
(94,527
)
 
(38,459
)
 
25,649

Distributions to participating securities of TRG
 
(1,749
)
 
(1,612
)
 
(1,536
)
 
(1,635
)
 
(1,560
)
Preferred dividends
 
(20,933
)
 
(21,051
)
 
(14,634
)
 
(14,634
)
 
(14,634
)
Net income (loss) attributable to Taubman Centers, Inc. common shareowners
 
109,908

 
83,511

 
176,701

 
47,599

 
(69,706
)
Net income (loss) per common share – diluted
 
1.71

 
1.37

 
3.03

 
0.86

 
(1.30
)
Dividends declared per common share (3)
 
2.00

 
1.85

 
1.76

 
1.68

 
1.66

Weighted average number of common shares outstanding –basic
 
63,591,523

 
59,884,455

 
56,899,966

 
54,569,618

 
53,239,279

Weighted average number of common shares outstanding – diluted
 
64,575,412

 
61,376,444

 
58,529,089

 
55,702,813

 
53,986,656

Number of common shares outstanding at end of period
 
63,101,614

 
63,310,148

 
58,0