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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, 2019
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
USA
 
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:
 
Trading
Name of each exchange
Title of each class
Symbol
on which registered
Common Stock,
$0.01 Par Value
TCO
New York Stock Exchange
 
 
 
 
 
6.5% Series J Cumulative
Redeemable Preferred Stock,
No Par Value
TCO PR J
New York Stock Exchange
 
 
 
 
 
 
 
6.25% Series K Cumulative
Redeemable Preferred Stock,
No Par Value
TCO PR K
New York Stock Exchange
 
 
 
 

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  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 every Interactive Data File required to be submitted 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 such files).  x Yes  o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer    x       Accelerated Filer   o          Non-Accelerated Filer   o        Smaller reporting company   Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

The aggregate market value of the 59,434,600 shares of Common Stock held by non-affiliates of the registrant as of June 28, 2019 was $2.4 billion, based upon the closing price of $40.83 per share on the New York Stock Exchange composite tape on June 28, 2019. (For this computation, the registrant has excluded the market value of all shares of its Common Stock held by directors of the registrant and certain other shareholders; such exclusion shall not be deemed to constitute an admission that any such person is an "affiliate" of the registrant.)  As of February 26, 2020, there were outstanding 61,238,366 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual meeting of shareholders to be held in 2020 are incorporated by reference into Part III, which we will file within 120 days after December 31, 2019, or if such proxy statement is not filed within such 120-day period, Part III will be filed as part of an amendment to this Form 10-K no later than the end of the 120-day period.




TAUBMAN CENTERS, INC.
CONTENTS


PART I
PART II
PART III
PART IV


1

Table of Contents


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 and performance. 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 Securities and Exchange Commission (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 or the date specified herein. 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 (incorporated in 1973) that operates as a self-administered and self-managed real estate investment trust (REIT). TCO's sole asset is an approximate 70% general partnership interest in The Taubman Realty Group Limited Partnership (TRG), which owns direct or indirect interests in all of our real estate properties. In this report, the terms "we", "us", and "our" refer to TCO, TRG, and/or TRG's subsidiaries as the context may require. See "Our UPREIT Structure" for additional information about our structure.

We own, manage, lease, acquire, dispose of, develop, and expand shopping centers and interests therein. Our owned portfolio of operating centers as of December 31, 2019 consisted of 24 urban and suburban shopping centers operating in 11 U.S. states, Puerto Rico, South Korea, and China. The Taubman Company LLC (the Manager) provides certain management and administrative services for us and for our U.S. properties. See "Personnel" below for more information about the Manager.

The Consolidated Businesses consist of shopping centers and entities that are controlled, through ownership or contractual agreements, by TRG, the Manager, or Taubman Properties Asia LLC and its subsidiaries and affiliates (Taubman Asia). Shopping centers owned through joint ventures that are not controlled by us but over which we have significant influence (Unconsolidated Joint Ventures or UJVs) are accounted for under the equity method. See "Item 2. Properties" for information regarding the shopping centers.

On February 9, 2020, TCO, TRG, Simon Property Group, Inc., a Delaware corporation (Simon), Simon Property Group, L.P., a Delaware limited partnership (the Simon Operating Partnership), Silver Merger Sub 1, LLC, a Delaware limited liability company and wholly owned subsidiary of the Simon Operating Partnership (Merger Sub 1), and Silver Merger Sub 2, LLC, a Delaware limited liability company and wholly owned subsidiary of Merger Sub 1 (Merger Sub 2) (Merger Sub 2, Simon, the Simon Operating Partnership, and Merger Sub 1, referenced collectively as the Simon Parties), entered into an Agreement and Plan of Merger (the Merger Agreement) pursuant to which, on the terms and subject to the conditions set forth therein, Merger Sub 2 will be merged with and into TRG (the Partnership Merger), and TCO will be merged with and into Merger Sub 1 (the REIT Merger) (the REIT Merger and the Partnership Merger, referenced collectively as the Mergers). Upon completion of the Partnership Merger, TRG will survive and the separate existence of Merger Sub 2 will cease. On completion of the REIT Merger, Merger Sub 1 will survive and the separate corporate existence of TCO will cease. Immediately following the Partnership Merger, TRG will be converted into a Delaware limited liability company. On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the REIT Merger each share of our common stock then issued and outstanding, other than certain shares of excluded common stock (as set forth in the Merger Agreement), will be converted into the right to receive $52.50 in cash.
 
We expect to continue paying regular cash dividends on shares of our common and preferred stock until the completion of the Mergers (see "Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) - Liquidity and Capital Resources - Dividends" for further information).

We expect the Mergers to close in mid-2020. Completion of the Mergers is, however, subject to various conditions, and it is possible that events or other circumstances could result in the Mergers being completed at a later time or not at all. In addition, the announcement of the proposed transaction may materially impact our ongoing relationships with our tenants, operating results, and business generally, and the proposed transaction may disrupt management’s attention from our ongoing business operations. For additional information regarding the Mergers or the Merger Agreement, see our other filings made with the SEC, including our Current Report on Form 8-K filed with the SEC on February 11, 2020; in addition, see Part I - Item 1A - Risk Factors and Item 15 - Exhibits and Financial Statement Schedules - Notes to Consolidated Financial Statements - Note 22 - Subsequent Event.

2

Table of Contents


Our UPREIT Structure
We are structured as an umbrella partnership real estate investment trust, referred to as an UPREIT. In our UPREIT structure, TCO, which is a publicly-traded REIT, is the sole managing general partner of TRG. TCO's sole asset is its ownership of partnership interests in TRG (TRG Units), which constitute an approximate 70% economic interest in TRG as of December 31, 2019. The remaining approximate 30% of TRG Units are owned by TRG's partners other than TCO (Other Partners), including Robert S. Taubman, William S. Taubman, Gayle Taubman Kalisman, and the A. Alfred Taubman Restated Revocable Trust (Taubman Family). TRG owns direct or indirect interests in our real estate properties and in the companies that provide management services to us and our real estate properties, including in our UJVs and the Manager.
The following chart illustrates TCO's and TRG's structure:
structureoverview12312019.jpg

Since TCO manages TRG as the sole managing general partner, the Other Partners have limited control rights in TRG in which they hold an economic interest. To provide the Other Partners with voting rights in TCO corresponding with their economic interests in TRG, in 1998, TCO issued, and made available for the Other Partners to purchase, Series B Non-Participating Convertible Preferred Stock (Series B Preferred Shares). The holders of the Series B Preferred Shares vote together with the holders of our common stock on all matters on which the common shareholders vote. Holders of our common stock and the Series B Preferred Shares are each entitled to one vote per share.
Shares of TCO's common stock are held by TCO's public shareholders and represent, as of December 31, 2019, an approximate 70% voting interest in TCO, which corresponds with TCO's economic ownership of TRG. The Series B Preferred Shares represent, as of December 31, 2019, an approximate 30% voting interest in TCO, which corresponds with the Series B Preferred shareholders’ economic ownership in TRG. As of December 31, 2019, based on information contained in filings made with the SEC by members of the Taubman Family, members of the Taubman Family collectively held 92% of the outstanding Series B Preferred Shares, and collectively held an approximate 30% voting interest in TCO based on their ownership of TCO common stock and Series B Preferred Shares. For further information regarding the control rights of members of the Taubman Family, see "Risk Factors - Risks Related to Our Business and Industry - Members of the Taubman Family have the power to vote a significant number of the shares of Capital Stock entitled to vote and have contractual rights."

3

Table of Contents


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 shareholders at least 90% of our REIT taxable income prior to net capital gains and meet certain other requirements. TRG's partnership agreement provides that TRG will distribute, at a minimum, sufficient amounts to its partners such that our pro rata share will enable us to pay shareholder dividends (including capital gains dividends that may be required upon TRG's sale of an asset) that will satisfy the REIT provisions of the Code.
In 2017, the U.S. Congress passed the Tax Cuts and Jobs Act of 2017 (2017 Tax Act), which made significant changes to both corporate and individual tax rates and the resulting calculation of taxes, as well as international tax rules for U.S. domestic corporations. As a REIT, this legislation minimally changed the taxes we pay. However, it could impact the way in which our dividends are taxed on the holders of our stock.

Recent Developments

For a discussion of business developments that occurred in 2019, see "MD&A."

Business of TCO

We are engaged in the ownership, management, leasing, acquisition, disposition, development, and expansion of shopping centers and interests therein. We owned interests in 24 operating centers as of December 31, 2019. In the following discussion, 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, including temporary tenants and specialty retailers.

As of December 31, 2019, the shopping centers:

are strategically located in major metropolitan areas, many in communities that are among the most affluent in the U.S. or Asia, including Denver, Detroit, Honolulu, Kansas City, Los Angeles, Miami, Naples, Nashville, New York City, Orlando, Salt Lake City, San Francisco, San Juan, Sarasota, Tampa, Washington, D.C., West Palm Beach, Hanam (South Korea), Xi'an (China), and Zhengzhou (China);

range in size between 238,000 and 1.7 million square feet of GLA and between 187,000 and 1.0 million 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 300 stores with an average of approximately 150 stores per shopping center.

have approximately 3,400 stores operated by their mall tenants;

have 59 anchors, operating under 17 trade names;

primarily lease to national chains (U.S. centers only), including subsidiaries or divisions of H&M, The Gap (Gap, Gap Kids, Baby Gap, Banana Republic, Janie and Jack, Old Navy, Athleta, and others), Forever 21 (Forever 21 and XXI Forever), and Limited Brands (Bath & Body Works/White Barn Candle, Pink, Victoria's Secret, and others); and

are among the highest quality centers in the U.S. public regional mall industry as measured by our high portfolio average of mall tenants' sales per square foot. In 2019, our mall tenants at U.S. comparable centers reported average sales per square foot of $972.

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.









4

Table of Contents


Our portfolio is concentrated in highly productive shopping centers. All of our 24 owned centers have annualized rent rolls at December 31, 2019 of over $10 million. We believe that this level of productivity is indicative of the centers' strong competitive positions and is, in significant part, attributable to our business strategy and philosophy. We believe that our high-quality shopping centers are among the least susceptible to direct competition because, among other reasons, anchors and 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. We also believe that our centers' success can be attributed in part to their other characteristics, such as being well-designed with effective layouts, natural light, good physical condition, strong and evolving retail programming, state-of-the-art technology infrastructure, and other amenities. Many of our shopping centers are also strategically located in high-quality markets, with convenient access to a high density of customers, including significant tourist traffic.

Business Strategy and Philosophy

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

offer retailers a location where they can have strong profitability. We believe leading retailers and emerging concepts choose to showcase their brand in the best markets and highest quality assets;

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

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

seek to anticipate trends in our industry and emphasize ongoing introductions of new concepts into our centers. Due in part to this strategy, a number of successful retail trade names have opened their first mall stores in our centers. In addition, we have brought to the centers "new to the market" retailers and other retailers that previously served customers through online presences. 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, personalize our relationship with shoppers, build customer loyalty, and increase mall tenant sales, with the following as examples:

we are continuing to invest in other synergistic digital capabilities and are a developer of the "Smart Mall" concept. Of the 24 shopping centers in our portfolio, 18 are considered to be "Smart Malls." This technology includes an upgraded fiber optic network throughout the centers, free shopper Wi-Fi, navigation and directory technology, advanced energy management, high-speed networking options for our tenants, new digital, mobile shopper engagement, and advanced shopper analytics;

our Taubman website program connects shoppers to each of our individual center brands through the internet. In 2019, we transitioned to a new, more efficient and scalable back end content management system that powers content on our websites, directories, and applications;

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;

we actively manage a comprehensive social media program at 18 centers, delivering authentic local content which gained over 537 million social content impressions in 2019, an increase of nearly 20% year-over-year;

we deploy highly targeted digital media programs that leverage geographic and behavioral targeting to drive incremental visits from local and tourist customers;

we continue to install "smart parking" systems at some of our shopping centers, providing customers real-time information about parking availability, most convenient spots, and directions to their parked cars;

we have implemented rewards, loyalty, VIP, and incentive programs that provide exclusive benefits to designated shoppers leveraging a variety of technologies ranging from dedicated applications for VIPs to customer relationship management database marketing efforts; and

5

Table of Contents


we have added digital sponsorship screens within a number of centers, including high impact large screen LEDs at The Mall at Short Hills and at Beverly Center.

Our leasing strategy involves assembling a diverse and unique 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 renewal and new tenants, thereby increasing the rental rates that current and prospective tenants are willing to pay. We have implemented 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.

The shopping 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. Each center is always individually merchandised in light of the demographics of its potential customers within convenient driving distance. When necessary, we consider rebranding existing shopping centers in order to maximize customer loyalty, maintain and increase mall tenant sales, and achieve greater profitability.

As our tenant mix continues to evolve to include tenants such as digitally native concepts and emerging brands, luxury, entertainment, restaurants, and fast fashion, increased tenant allowances have been, and may continue to be, provided to attract the best tenants to our centers. We believe bringing in great retailers will drive traffic and productivity to our centers, enhancing the long-term strategic position of each center.

Recent Trends in Retail

The U.S. shopping center industry has been challenged in recent years and is currently facing turbulence as it continues to evolve rapidly. Across the industry, department store sales have weakened and their ability to drive traffic has substantially decreased, resulting in increased store closures, with mature mall tenants and anchors rationalizing square footage and being highly selective in opening new stores. Bankruptcy filings by our mall tenants have recently been elevated, and included Forever 21, one of our largest mall tenants during the year ended December 31, 2019.

There has been some stabilization of the retail landscape recently; however, the retail headwinds still have the potential to be prolonged and ultimately may still result in many centers incurring lost or reduced rent, paying higher tenant allowances, and/or experiencing unscheduled terminations.

The impact of e-commerce on shopping center retail has been steadily increasing. There have been secular changes in shopper behavior affecting how, where, and what consumers shop for. In addition, technology has intervened in the direct relationship between shoppers and the mall by enabling them to research, compare, and purchase products online easily, challenging our unique position as the main shopping portal within a trade area.

While challenging traditional retail in the shorter-term, e-commerce is also making high-quality brick-and-mortar assets more valuable, as retailers focus their real estate investments on the strongest assets. Successful retailers understand that a combination of both physical and digital channels is likely to best meet their customer needs. Physical locations are an important distribution channel that reduce order fulfillment and customer acquisition costs, while improving website traffic and brand recognition. Physical locations also allow for tenants to most successfully express their full brand statement, creating emotional connections to customers. We strive to position our assets to be desirable platforms for omni-channel retailers, believing technology improves the customer experience and will continue to do so, from the front of the house, logistics, efficiency, pricing, customer acquisition, customer knowledge and service.

Over time we believe high-quality mall portfolios such as ours will continue to gain market share of mall tenant sales and rents. We expect to achieve this because brick-and-mortar remains the heart of omni-channel retailing. Our high-quality portfolio of shopping centers complements retailers' strategies by positioning their brands among high-end, productive retailers in the best markets. As an upscale, niche player in our industry, most of our assets have a unique value proposition in their respective markets for tenants and consumers - it's estimated that nearly 80% of our malls are ranked number one or two in their markets. They remain critical brick-and-mortar locations for retail brands and important destinations for shoppers. This is a strength of our assets that represents a key advantage against our larger competitors in our industry.




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Apparel retailers, traditionally a dominant category for malls, had been facing particularly challenging times in recent years, however there has been recent momentum in the category, and apparel retail sales have increased in both 2018 and 2019. While it is prudent to continuously adjust the use of space in order to broaden the mall experience, we believe that the rebound of apparel is further evidence that the dramatic reallocation of in-line space to other tenants across the board for the sake of reducing exposure to apparel is neither economically sustainable nor strategically necessary. However, we have seen the emergence of a new tenant pool offering additional entertainment and coworking alternatives within the mall. We continue to expect that additional dining, entertainment, digitally native concepts, grocery, fitness, events, coworking and other new uses over time will gain a larger allocation of space alongside a significant presence of apparel, encouraging more shopping destination trips and strengthening high-quality malls as social hubs in their communities.

Throughout the industry, traditional department stores have been experiencing declining sales and market shares. As a result, some department stores have been pursuing strategies of consolidation and/or closure of under-performing locations. Given the overall quality of our real estate, however, many of our department stores have been performing comparatively well. As a result, we do not expect that we will have as many opportunities as others in our industry to reacquire and re-purpose anchor locations, with department stores often being reluctant to exit our malls. However, in the event of anchor closures, we generally expect re-purposing of anchors to add value strategically and be accretive financially.

Potential For Growth

Our principal objective is to enhance shareholder value. We seek to maximize the financial results of our core assets, while also pursuing a growth strategy that includes redevelopment of existing centers as well as a new center development program. With limited opportunities for new development in the U.S., our emphasis will now be on strengthening and growing our core assets and executing our redevelopments. We continue to invest for the future and are creating value in our centers that is intended to lead to sustained growth for our shareholders. Our internally generated funds and distributions from operating centers and other investing activities (including strategic dispositions of centers or a portion of our interests therein), augmented by use of our existing revolving lines of credit, provide resources to maintain our current operations and assets, pay dividends, and fund a portion of our major capital investments. We pursue an overall strategy of creating value and recycling capital using long-term fixed rate financing on the centers upon stabilization. Excess proceeds from refinancings, if any, typically are used to reinvest in our business. Generally, our need to access the capital markets is limited to refinancing debt obligations at or near maturity and funding major capital investments. From time to time, we also may sell interests in shopping centers or, in limited circumstances, access the equity markets, to raise additional funds or refinance existing obligations on a strategic basis, including using excess proceeds therefrom.

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 mall tenants over the long term as this is a key growth driver going forward.

Another element of our internal growth over time is the strategic expansion and redevelopment of existing properties to update and enhance their market positions by adding, replacing, re-tenanting, or otherwise re-merchandising the use of anchor space, 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 minimum disruption to existing tenants and customers).

We substantially completed our redevelopment project at Beverly Center in November 2018, which included a complete renovation and significant re-merchandising, including transformation of food offerings. We also substantially completed our redevelopment project at The Mall at Green Hills in 2019, which will ultimately add approximately 170,000 square feet of incremental GLA to the center.





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We also look to monetize our common areas through robust specialty leasing and sponsorship programs. About 8% of our 2019 comparable center Net Operating Income (NOI) was generated from such programs. In the past five years, comparable center NOI from leasing and sponsorship programs has ranged from 8% to 9%. Examples found in our centers include destination holiday experiences, customer service programs, sponsored children's play areas, and turnkey attractions. In addition, we monetize our common areas through static and digital media that comes in a variety of formats.

External Growth

We pursue various areas of external growth, including traditional center development in the U.S., new opportunities in Asia, and acquisitions in both the U.S. and Asia. We have invested in a development project, Starfield Anseong, in South Korea for which we have formed an additional joint venture with Shinsegae Group (Shinsegae). Additionally, we opened CityOn.Zhengzhou in China in 2017. We continue to evaluate various development and acquisition possibilities for additional new centers.

Development of New U.S. Centers

Throughout our history, a critical element of our success has been the ground-up development of new shopping centers. Given the over saturation of suburban retail in the U.S., almost no new supply of suburban malls is expected within the foreseeable future. Current trends suggest that any future new supply of malls will likely be limited and in the format of mixed-use or destination projects. We do expect expansions of high-quality malls will continue as lower quality centers atrophy, and we will pro-actively pursue the re-purposing of anchors where appropriate (see "Internal Growth" above). We do not anticipate significant new ground-up developments.

While we will continue to evaluate potential future U.S. 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 or projected 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.

Miami Worldcenter is a large, mixed-use, urban development currently under construction in Miami, Florida. Miami Worldcenter's master developer, Miami Worldcenter Associates, is pursuing a high street retail plan as a part of their master development of the site. We have agreed with Miami Worldcenter Associates on terms for a co-leasing services agreement with The Forbes Company for the retail portion of the street level project, with an option to purchase the retail component at a favorable price once it opens.

Asia

We are pursuing a development strategy in Asia to:

provide additional growth through exposure to countries that have more rapidly growing gross domestic products;

utilize our expertise, including leasing/retailer relationships, design/development expertise, and operational/marketing skills; and

take advantage of a generational opportunity, as the demand for high-quality retail is early to mid-cycle, there is significant deal flow, and it diversifies longer-term growth investment opportunities.

Taubman Asia is responsible for our operations and development in 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.

We envision that the Asia business will be a smaller but complementary and important part of our overall business. We have built three high-quality shopping centers and a fully integrated development and management platform with strategic, local partners. Our goal is to create a platform that finances itself by bringing in new capital partners, and potentially adding additional operating partners where appropriate, to create a less capital-intensive business that can grow the asset base with improved returns on equity, which is evidenced by our agreement in February 2019 with The Blackstone Group L.P. (Blackstone) to sell 50% of our interests in Starfield Hanam, CityOn.Xi'an, and CityOn.Zhengzhou described below.


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As part of our Asia strategy, we look to mitigate our operating costs through property management fees and third party service contracts when possible. We currently provide some management and advisory services to third parties in Asia. We also attempt to manage risks and financial returns for our Asia developments through actively managing and limiting pre-construction costs, ensuring there is adequate anchor and tenant interest in the project prior to construction, and pursuing initial projects that are already fully entitled with partners having appropriate expertise in land acquisition and local regulatory issues. Developments in China and South Korea are subject to income taxes and taxes upon repatriation of earnings that also must be planned for and managed.

We have a joint venture with Shinsegae, one of South Korea's largest retailers, to build, lease, own, and manage Starfield Anseong, an approximately 1.1 million square foot shopping center, in Anseong, Gyeonggi Province, South Korea. We own a 49% interest in the project, which is scheduled to open in late 2020. We also have an additional joint venture with Shinsegae that owns and manages an approximately 1.7 million square foot shopping center, Starfield Hanam, in Hanam, South Korea. Additionally, we have two joint ventures with Wangfujing Group Co., Ltd (Wangfujing), one of China's largest department store chains, that own CityOn.Xi'an and CityOn.Zhengzhou in China.

In February 2019, we announced agreements to sell 50% of our interests in Starfield Hanam, CityOn.Xi’an, and CityOn.Zhengzhou to funds managed by Blackstone (Blackstone Transactions). In September 2019, we completed the sale of 50% of our interest in Starfield Hanam and now own 17.15% of the center. Additionally, in December 2019, we completed the sale of 50% of our interest in CityOn.Zhengzhou and now own 24.5% of the center. We expect to close on the sale of 50% of our interest in CityOn.Xi'an in the first quarter of 2020, and following the sale of 50% of our interest, we will own 25% of CityOn.Xi'an. We remain the partner responsible for the joint management of the three shopping centers, with Blackstone paying a property service fee.

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

Strategic Acquisitions

We expect attractive opportunities to acquire existing centers, or interests in existing centers, from other companies may be scarce and expensive. However, we continue to look for assets in both the U.S. and Asia 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 April 2019, we acquired a 48.5% interest in The Gardens Mall in Palm Beach Gardens, Florida in exchange for 1.5 million newly issued TRG Units. The Forbes Company, our partner in The Mall at Millenia and Waterside Shops, also owns a 48.5% interest and manages and leases the center. This purchase is consistent with our strategy to own high-quality, dominant assets in great markets. See "MD&A - Results of Operations - The Gardens Mall Acquisition" for additional information regarding the acquisition.

Redevelopment Agreement for Taubman Prestige Outlets Chesterfield

In May 2018, we entered into a redevelopment agreement for Taubman Prestige Outlets Chesterfield, and all operations at the center, as well as the building and improvements, were transferred to The Staenberg Group (TSG). TSG leases the land from us through a long-term, participating ground lease and we receive ground lease payments and a share of the property’s revenues above a specified level. TSG is planning a significant redevelopment of the property, which will transform it into a unique entertainment, shopping and dining destination. We have the right to terminate the ground lease in the event that the redevelopment has not begun within five years, with the buildings and improvements reverting to us upon termination. We have deferred recognition of a sale until our termination right is no longer available, with the right ceasing upon TSG commencing construction of a redevelopment. TSG has made significant progress on its redevelopment plans and the commencement of construction is probable within the year, leading to an expected sale of the property in 2020. Accordingly, the center was classified as held for sale as of December 31, 2019 and an impairment charge of $72.2 million was recognized in the fourth quarter, which reduced the book value of the buildings, improvements, and equipment that were transferred to zero. See "MD&A - Results of Operations - Redevelopment Agreement for Taubman Prestige Outlets Chesterfield" for further details regarding the redevelopment agreement and impairment charge.


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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. 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 generally grow more slowly or will decline, as occurred in 2019, or we may execute shorter lease terms, as tenants' expectations of future growth become less optimistic. Where appropriate, we are making decisions as we re-tenant space to use some shorter term leases in order to maintain occupancy, merchandising, and preserve cash flow; this activity can have a material impact on our releasing spread for an applicable period. See "Risk Factors" for further information.

The following table contains certain information regarding average rent per square foot of our Consolidated Businesses and UJVs at the comparable centers (centers that had been owned and open for the current and preceding year, excluding centers impacted by significant redevelopment activity, as well as The Mall of San Juan due to the impact of Hurricane Maria). Comparable center statistics for 2019 and 2018 exclude Beverly Center, The Gardens Mall, The Mall of San Juan, and Taubman Prestige Outlets Chesterfield. Average rent per square foot statistics are computed using contractual rentals per the tenant lease agreements (excluding lease cancellation income, expense recoveries, and uncollectible tenant revenues), which reflect any lease modifications, including those for rental concessions.

 
2019
 
2018
 
2017
 
2016
 
2015
Average rent per square foot:
 
 
 
 
 
 
 
 
 
Consolidated Businesses
$
70.69

 
$
71.24

 
$
69.25

 
$
63.83

 
$
61.37

Unconsolidated Joint Ventures
47.29

 
46.27

 
47.02

 
58.10

 
57.28

Combined
56.12

 
55.24

 
55.36

 
61.07

 
59.41


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


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Lease Expirations

The following table shows scheduled lease expirations for mall tenants based on information available as of December 31, 2019 for the next ten years for all owned centers in operation at that date.

 
 
Tenants 10,000 square feet or less (1)
 
Total (1)(2)
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
   2020 (4)
 
368
 
719

 
$
44.75

 
8.8
%
 
380
 
928
 
$
43.54

 
5.9
%
2021
 
591
 
1,332

 
58.88

 
16.2

 
617
 
1,993
 
47.45

 
12.7

2022
 
525
 
1,199

 
57.62

 
14.6

 
557
 
2,062
 
42.53

 
13.2

2023
 
303
 
903

 
60.41

 
11.0

 
315
 
1,132
 
55.50

 
7.2

2024
 
298
 
862

 
61.24

 
10.5

 
320
 
1,270
 
50.34

 
8.1

2025
 
259
 
875

 
65.39

 
10.7

 
290
 
1,505
 
53.83

 
9.6

2026
 
202
 
565

 
77.98

 
6.9

 
220
 
952
 
64.39

 
6.1

2027
 
149
 
462

 
72.47

 
5.6

 
164
 
875
 
47.72

 
5.6

2028
 
136
 
405

 
67.66

 
4.9

 
160
 
1,619
 
28.20

 
10.4

2029
 
159
 
494

 
57.55

 
6.0

 
171
 
760
 
50.41

 
4.9


(1)
Excludes rents from temporary in-line tenants and centers not open and operating at December 31, 2019.
(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 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 2020 for which renewal leases or leases with replacement tenants have been executed as of December 31, 2019.

We believe that the information in the table is not necessarily indicative of what will occur in the future, partially due to early lease terminations at the centers. The average remaining term of the leases that were terminated during the last five years was approximately 1.5 years. The average term of leases signed was approximately six and seven years during 2019 and 2018, respectively, excluding temporary in-line tenants (TILs).

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 2019, tenants representing 2.7% of the total number of tenant leases filed for bankruptcy during the year compared to 1.6% in 2018. In 2019, bankruptcy filings included Forever 21, one of our largest mall tenants during the year ended December 31, 2019. This statistic has ranged from 0.8% to 3.1% of leases per year over the last five years. However, many bankruptcies do not ultimately impact our occupancy because historically less than half of our tenants who file for bankruptcy actually close.


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Occupancy

Occupancy and leased space statistics include TILs and value and outlet center anchors (Dolphin Mall, Great Lakes Crossing Outlets, and Taubman Prestige Outlets Chesterfield). The following table shows ending occupancy and leased space for the past five years:
 
2019
 
2018
 
2017
 
2016
 
2015
All Centers:
 
 
 
 
 
 
 
 
 
Ending occupancy
93.9
%
 
94.6
%
 
94.8
%
 
93.9
%
 
94.2
%
Leased space
95.2

 
96.2

 
95.9

 
95.6

 
96.1

 
 
 
 
 
 
 
 
 
 
Comparable Centers:
 
 
 
 
 
 
 
 
 
Ending occupancy
94.3
%
 
94.9
%
 
 
 
 
 
 
Leased space
95.7

 
96.4

 
 
 
 
 
 

Major Tenants

No single retail company represented 4% or more of our Mall GLA as of December 31, 2019 or 2019 Rental Revenues. The combined operations of H&M accounted for 3.8% of Mall GLA as of December 31, 2019 and less than 2% of 2019 Rental Revenues.

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, 2019:
Tenant
 
# of
Stores
 
Square
Footage
 
% of
Mall GLA
H&M
 
22
 
466,549
 
3.8%
The Gap (Gap, Gap Kids, Baby Gap, Banana Republic, Janie and Jack, Old Navy, Athleta, and others)
 
61
 
450,693
 
3.6
Forever 21 (Forever 21, XXI Forever)
 
16
 
448,690
 
3.6
Limited Brands (Bath & Body Works/White Barn Candle, Pink, Victoria's Secret, and others)
 
41
 
290,131
 
2.3
Inditex (Zara, Zara Home, Massimo Dutti, Bershka, and others)
 
20
 
235,063
 
1.9
Williams-Sonoma (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, and others)
 
28
 
230,966
 
1.9
Urban Outfitters (Anthropologie, Free People, Urban Outfitters)
 
29
 
230,863
 
1.9
Abercrombie & Fitch (Abercrombie & Fitch, Hollister, and others)
 
32
 
214,876
 
1.7
Ascena Retail Group (Ann Taylor, Ann Taylor Loft, Justice, and others)
 
40
 
198,245
 
1.6
Restoration Hardware
 
6
 
197,754
 
1.6


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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. We also compete with online retailers as they draw sales away from our tenants or reduce sales attributed to their stores in our centers, which impacts rental rates. See "Risk Factors" for further details of our competitive business.

Seasonality

The shopping center industry in the U.S. 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.

Personnel

The Manager provides real estate management, acquisition, development, leasing, and administrative services required by us and our properties in the United States, and employs all of our U.S. employees, including our executive officers. 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. The Manager is 99.8% beneficially owned by TRG and 0.2% owned by Taub-Co Holdings LLC (Taub-Co), which is 100% owned by members of the Taubman Family. The Manager receives fees from the shopping centers, TCO, TRG, and their respective affiliates and third parties in exchange for the performance of its services. Since TRG has an approximate 99.8% beneficial interest in the Manager, substantially all of these fees accrue to TRG, with a de minimis portion of the fees accruing to the benefit of Taub-Co through its 0.2% beneficial interest in the Manager. For more information about the Manager, see "Risk Factors - Risks Related to Our Business and Industry - Members of the Taubman Family have the power to vote a significant number of the shares of Capital Stock entitled to vote and have contractual rights."
As of December 31, 2019, the Manager, TAM, and certain other affiliates had 420 full time employees.

Available Information

TCO makes available free of charge through its website at www.taubman.com all reports it electronically files with, or furnishes to, 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.











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Item 1A. RISK FACTORS.

The following factors and other factors discussed in this Annual Report on Form 10-K could cause our actual results to differ materially from those contained in forward-looking statements made in this Annual Report on Form 10-K or presented elsewhere in future Securities and Exchange Commission (SEC) reports or statements made by our management from time to time. These factors may have a material adverse effect on our business, financial condition, operating results and cash flows, and should be carefully considered. We may update these factors in our future periodic reports.

Risks Related to the Merger

The Mergers are subject to receipt of approval from our shareholders as well as the satisfaction of other closing conditions in the Merger Agreement. 

The Merger Agreement contains a number of conditions to completion of the Mergers, including the adoption of the Merger Agreement by: (1) the holders of at least two-thirds of the outstanding shares of our common stock and the Series B Preferred Shares (voting together as a single class); (2) the holders of at least a majority of the Series B Preferred Shares; and (3) the holders of at least a majority of the outstanding shares of our common stock and the Series B Preferred Shares (voting together as a single class), excluding the outstanding shares of our common stock and the Series B Preferred Shares owned of record or beneficially by certain members of the Taubman family. In addition, the consummation of the Mergers is subject to certain other customary closing conditions, including, among others, the approval of the Partnership Merger by the partners holding at least a majority of the aggregate percentage interests in TRG other than those held by TCO (which approval has been obtained), the absence of certain legal impediments to the consummation of the Mergers, the absence of a Material Adverse Effect (as defined in the Merger Agreement) with respect to TCO, and the performance in all material respects by each of the parties to the Merger Agreement of their respective obligations under the Merger Agreement. The obligations of the parties to consummate the Mergers are not subject to any financing condition or the receipt of any financing by the Simon Parties. We can provide no assurance that all required approvals will be obtained or that all closing conditions will otherwise be satisfied (or waived, if applicable), or as to the timing of such approvals or the satisfaction (or waiver, if applicable) of such conditions. Certain of the conditions to completion of the Mergers are not within either our or the Simon Parties’ control, and neither we nor the Simon Parties can predict when or if these conditions will be satisfied (or waived, if applicable). Any delay in completing the Mergers could cause us not to realize some or all of the benefits that we expect to achieve if the Mergers are successfully completed within their expected timeframe.

Failure to complete the Mergers could materially adversely affect our stock price, future business operations and financial results. 

If the Mergers are not completed for any reason, our common shareholders will not receive the Common Stock Merger Consideration (as defined in the Merger Agreement). Instead, TCO will remain an independent public company, and the shares of our common stock will continue to be traded on the NYSE. Moreover, our ongoing business may be materially adversely affected, and we would be subject to a number of risks, including the following:

we may experience negative reactions from the financial markets, including potentially significant negative impacts on our stock price (which as of February 26, 2020, reflected a 70.9% premium compared to our closing stock price of $31.09 on December 31, 2019), and it is uncertain when, if ever, the price of the shares would return to the prices at which the shares currently trade;

we may experience negative publicity, which could have an adverse effect on our ongoing operations including, but not limited to, retaining and attracting employees, tenants, partners, customers, and others with whom we do business;

in recent years, we have incurred significant expense related to shareholder activism, and our failure to complete the Mergers could result in continued or increasing shareholder activism and further significant expense;

we will still be required to pay certain significant costs relating to the Mergers, such as legal, accounting, financial advisor, printing, and other professional services fees, which may relate to activities that we would not have undertaken other than in connection with the Mergers;

we may be required to pay a cash termination fee as required under the Merger Agreement;

the Merger Agreement places certain restrictions on the conduct of our business, which may have delayed or prevented us from undertaking business opportunities that, absent the Merger Agreement, we may have pursued;


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matters relating to the Mergers require substantial commitments of time and resources by our management, which may have resulted and could continue to result in the distraction of management from ongoing business operations and pursuing other opportunities that could have been beneficial to us; and

we may be required to commit time and resources to defending against enforcement proceedings commenced against us related to the Mergers.

If the Mergers are not consummated, the risks described above may materialize, and they may have a material adverse effect on our business operations, financial results, and stock price, especially to the extent that the current market price of our common stock reflects an assumption that the Mergers will be completed.

Shareholder litigation challenging the proposed Mergers may prevent the Mergers from being completed within the anticipated timeframe. 

Shareholder litigation challenging the proposed Mergers may be commenced against us and may delay completion of the Mergers in the expected timeframe or altogether. If the plaintiffs in any such litigation are successful in obtaining an injunction prohibiting the parties from consummating the Mergers on the terms contemplated by the Merger Agreement, the injunction may prevent the completion of the Mergers in the expected timeframe or altogether. In addition, litigation challenging the Mergers may result in significant defense costs and serve as a distraction to management and directors.

We are subject to certain restrictions in the Merger Agreement that may hinder operations pending the consummation of the Mergers. 

Whether or not they are completed, the pending Mergers may disrupt our current plans and operations, which could have an adverse effect on our business and financial results. The Merger Agreement generally requires us to operate our business in the ordinary course of business consistent with past practice pending completion of the Mergers, and it also restricts us from taking certain actions with respect to our business and financial affairs, subject to certain exceptions. These restrictions could be in place for an extended period of time, including if the consummation of the Mergers is delayed more than expected, which may delay or prevent us from undertaking business opportunities that, absent the Merger Agreement, we might have pursued, or from effectively responding to competitive pressures or industry developments. For these and other reasons, the pendency of the Mergers could adversely affect our business and financial results.

If the Merger Agreement is terminated, we may, under certain circumstances, be obligated to pay a termination fee to Simon. These costs could require us to use cash that would have otherwise been available for other uses. 

If the Mergers are not completed, in certain circumstances, we could be required to pay Simon a termination fee of $111.9 million if such termination occurs after the conclusion of the first 45 days following the signing of the Merger Agreement (the Go-Shop Period), or $46.6 million if such termination occurs during the Go-Shop Period (and for a limited period beyond the Go-Shop Period in certain cases, as described in the Merger Agreement). The termination fee is payable if the Merger Agreement is terminated by TCO prior to the approval of the Merger Agreement by TCO’s shareholders to accept a Superior Proposal (as defined in the Merger Agreement). If the Merger Agreement is terminated, any termination fee we may be required to pay under the Merger Agreement may require us to use available cash that would have otherwise been available for general corporate purposes or other uses. For these and other reasons, termination of the Merger Agreement could materially adversely affect our business operations and financial results, which in turn would materially and adversely affect the price of our common stock.



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Risks Related to Our Business and Industry

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 on whether to go forward on the development of new shopping centers, acquisitions and dispositions, and have affected and may continue to affect the ultimate economic performance and value of projects under construction and acquired shopping centers. Adverse changes in the economic performance and value of our shopping centers would also 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 a global economic and financial market downturn may 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, decreases in tourism, and/or other real estate conditions. These changes may have a more significant impact on our financial performance due to the geographic concentration of some of our shopping centers;
changes in mall tenant sales performance of our shopping centers, which over the long term are the single most important determinant of revenues of the shopping centers because mall tenants (including temporary tenants and specialty retailers), provide approximately 90% of these revenues and because mall tenant sales determine the amount of rent, overage rent, and recoverable expenses, excluding utilities (together, total occupancy costs) that mall tenants can afford to pay. In times of stagnant or depressed sales, mall tenants may become less willing to pay traditional levels of rent;
changes in business strategies of anchors and key tenants. Anchors and key tenants may adopt new or modify existing strategies in order to adapt to new challenges and shifts in the economic environment. Such strategies could include improving the overall in-store customer experience and creating a desired destination, which could impact the type of space anchors and key tenants desire in our shopping centers. Beyond changing the existing experience, other strategies could include consolidation, contraction, renegotiation of business arrangements, or closing;
changes in consumer shopping behavior. Certain merchandise categories have been experiencing lower growth in traditional shopping centers and technology has significantly impacted consumer spending habits;
availability and cost of financing. While current interest rates continue to be low, it is uncertain how long such rates will continue;
changes in the attractiveness of our shopping centers due to the public perception of the safety, convenience, and supply of shopping centers in the market;
changes in property tax assessments of our shopping centers which, if increased, may adversely affect our tenants' ability to pay under the terms of their existing leases, reduce our ability to release space at accretive rates, and/or lessen attractiveness of the shopping center for future prospective tenants;
consequences of unexpected natural disasters, climate change, epidemics and pandemics, outbreaks and the fear of spread of contagious diseases (such as coronavirus), or acts of war or terrorism;
changes in government regulations, global geopolitics, and international trade policies due to economic tensions between governments, especially between the U.S. and China, which could adversely impact the supply chains of our tenants;
legal liabilities; and
changes in real estate zoning and tax laws in the U.S., South Korea, or China.

These factors can impact the valuation of certain long-lived or intangible assets that are subject to impairment testing, which has resulted in and may in the future result in impairment charges that are material to our financial condition or results of operations. See "MD&A - Application of Critical Accounting Policies and New Accounting Pronouncements - Valuation of Shopping Centers" for additional information regarding impairment testing and "MD&A - Results of Operations - Impairment Charges" for details of the impairment charges recognized during 2019.



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In addition, the value and performance of our shopping centers have been and may continue to be adversely affected by certain other factors discussed below including the state of the capital markets, expansion in Asia, unscheduled closings or bankruptcies of our anchors and tenants, competition, uninsured losses, the impact of technology on consumer spending, and environmental liabilities.

We are in a competitive business.

There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. Our ability to attract tenants to our shopping centers and lease space is important to our success, and difficulties in doing so can materially impact our shopping centers' performance. The existence of competing shopping centers have had, and could have in the future a material adverse impact on our ability to develop or operate shopping centers, lease space to desirable anchors and tenants, 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, value and outlet malls, wholesale and discount shopping clubs, and television shopping networks. Competition of this type has had, and could continue to have in the future, an adverse effect on our revenues and cash available for distribution to shareholders.

As new technologies emerge, the relationship among customers, retailers, and shopping centers are evolving on a rapid basis and we may not be able to adapt to such new technologies and relationships on a timely basis. Our relative size may limit the capital and resources we are willing to allocate to invest in strategic technology to enhance the mall experience, which may make our shopping centers relatively less desirable to anchors, mall tenants, and consumers. Additionally, 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, with respect to customers that make purchases through other sales channels during or immediately after visiting our shopping centers, such sales are not being captured currently in our tenant sales figures or monetized in our rental revenues or overage 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, some of whom have greater financial resources or have different investment criteria than we do. In particular, there is competition to acquire, develop, or redevelop highly productive retail properties. This could become even more severe as competitors gain size and economies of scale as a result of merger and consolidation activity. This competition has impaired and may continue to impair our ability to acquire, develop, or redevelop suitable properties, and to attract key retailers, on favorable terms in the future.

Our real estate investments are relatively illiquid.

We are limited in our ability to vary our portfolio in response to changes in economic, market, or other conditions by certain restrictions on transfer imposed by our partners or lenders. If we were unable to refinance our debt at a shopping 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 or a portion of the cash proceeds received by TRG from such sale (a special distribution). 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 operations and in distributions to TRG’s partners, including us. Further, pursuant to TRG’s partnership agreement, TRG cannot dispose or encumber certain of its shopping centers or its interest in such shopping centers, specifically Beverly Center, Cherry Creek Shopping Center, Twelve Oaks Mall, The Mall at Short Hills, or Stamford Town Center, without the consent of a majority-in-interest of its partners other than TCO, which is currently held by members of the Taubman Family.

We acquire and develop new properties and/or redevelop and expand our existing properties, and these activities are subject to various risks.

We pursue development, redevelopment, expansion, and acquisition activities as opportunities arise, and these activities are subject to the following risks, one or more of which typically occur in a given project or transaction:

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 financing can vary significantly from project to project;
we may not be able to obtain the necessary zoning, governmental and other 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;

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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, increases in tenant allowances, costs to obtain anchor and tenant commitments, and other reasons;
we may not be able to obtain financing or to refinance construction loans at desired loan-to-value ratios or at all, which are generally recourse to TRG;
we may be obligated to contribute funding for development, redevelopment, or expansion projects in excess of our ownership requirements if our partners are unable or are not required to fund their ownership share;
we may be required to initiate redevelopments at potentially significant costs for tenant or anchor spaces that are returned to us upon termination of their lease;
equity issuances as a source of funds, directly as consideration for acquisitions or indirectly through capital market transactions, 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 operating expenses, at a completed project or an acquired property may not meet our projections at opening or stabilization;
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 leasing objectives.
Certain of our projects represent the retail portion of larger mixed-use projects. As a result, there have been and may continue to 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, or the inability to open or finance such other uses.
In addition, economic, market, and other conditions may reduce viable development and acquisition opportunities in the U.S. that meet our unlevered return requirements in the short to intermediate horizon. As a result, we anticipate focusing on strategic repurposing of shopping centers (including potential repurposing of certain anchor stores).

Clauses in leases with certain tenants of our development or redevelopment properties include inducements, such as reduced rent and tenant allowance payments, that can reduce our rental revenues, Funds from Operations (FFO), and/or returns achieved. The leases for a number of the tenants that have opened stores at properties we have developed or redeveloped have reduced rent from co-tenancy clauses that allow those tenants to pay reduced rent until occupancy at the respective property reaches certain thresholds and/or certain named co-tenants open stores at the respective property. Additionally, some tenants have rent abatement clauses that delay rent commencement for a prolonged period of time after initial occupancy. The effect of these clauses reduces our rents and FFO while they are applicable. We expect to continue to offer co-tenancy and rent abatement clauses in the future to attract tenants to our development and redevelopment properties. As a result, our current and future development and redevelopment properties are more likely to achieve lower returns during their stabilization periods than other projects of this nature historically have, which adversely impact our investment returns in such developments, and may adversely impact our financial condition and results of operations.

Dispositions may not achieve anticipated results.

We actively maintain a strategy of recycling capital to achieve growth over time. At times this strategy may include strategically disposing of assets, or partial interests in assets, to improve our liquidity and the overall performance of our core mall portfolio, measured by:

achieving improved portfolio metrics, demographics, and operating statistics, such as higher sales productivity and occupancy rates;

accelerating future growth targets in our operating results and FFO;

strengthening of our balance sheet; and

creating increased net asset value for our shareholders over time.

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However, we may not achieve some or all of the targeted results we originally anticipated at the time of disposition. If we are not successful at achieving the anticipated results from any disposition, there is potential for a significant adverse impact on our returns and our overall profitability. We may not be able to achieve certain desired cap rates related to dispositions of assets, or partial interests in assets, due to general economic reasons or, in cases of lower productivity malls, the perception of over-capacity of such malls in the U.S.

We hold investments in joint ventures in which we do not control all decisions. As a result, we may have material conflicts with our joint venture partners, who may make decisions that are not in our best interests.

Many of our shopping centers and shopping center projects are partially owned by non-affiliated partners through joint venture arrangements. As a result, we do not control all decisions regarding certain of 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 some of our UJVs, 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. Some of such joint venture partners do not have similar expertise or experience that we do regarding internal controls, and 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.

In our joint ventures, we have and may continue to partner with entities with whom we do not have a historical business relationship and therefore there is additional risk in working through operational, financial, and other issues.

Investors are cautioned that deriving our beneficial interest in a joint venture as our ownership interest in individual financial statement items of that joint venture may not accurately depict the legal and economic implications of holding a noncontrolling interest in it.

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

We have offices in Hong Kong, Seoul, and Shanghai and we are pursuing and evaluating investment opportunities in various locations in China and South Korea. We have invested in four joint ventures to develop and operate shopping centers in China and South Korea and may invest in other shopping centers in China and South Korea in the future. In addition, we provide management and advisory services for third parties for other shopping centers in Asia. In addition to the general risks described in this report, our international activities are subject to unique risks, including:
adverse effects of changes in exchange rates for foreign currencies and the risks of hedging related thereto;
changes in and/or difficulties in operating in foreign political environments;
difficulties in attracting new capital partners at existing projects due to risks specific to foreign investment;
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 and use of cash, corporate governance, property ownership restrictions, development activities, operations, anti-corruption, taxes, and litigation;
changes in and/or requirements of complying with applicable laws and regulations in the U.S. that affect foreign operations, including the U.S. Foreign Corrupt Practices Act (FCPA);
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, including lower loan-to-value ratios and increased difficulty in obtaining construction loans or timing thereof;
differing employment and labor issues;

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economic downturn in foreign countries or geographic regions where we have significant operations, such as in China and South Korea;
economic tensions between governments and changes in international trade and investment policies, especially between the U.S. and China;
obstacles to the repatriation of earnings and cash;
obstacles to various government approval processes and other hurdles in funding our Chinese projects;
lower initial investment returns than those generally experienced in the U.S.;
obstacles to hiring and maintaining appropriately trained staff;
differences in consumer retail behavior, including increased interest in retail brands in which we have no or limited prior relationships with in the U.S. and changes in seasonal consumer spending due to timing of certain national holidays;
differences in cultures including adapting practices and strategies that have been successful in the U.S. mall business to retail needs and expectations in new markets; and
labor discord, war, terrorism (including incidents targeting us), political instability and natural disasters.
Further, major global health issues, such as the coronavirus that has impacted China’s population, commerce and travel and has spread to other countries, including South Korea and the U.S., adversely affect trade as well as global and local economies. Should major public health issues, including epidemics and pandemics arise, we would be adversely affected by actions limiting trade and population movement, the movement of goods through the supply chain, and other impacts to business and consumer demand that may diminish the demand and rents for our properties. The current coronavirus outbreak has adversely impacted our operations in China and South Korea, and may impact operations in the U.S. in the future. CityOn.Xi'an was recently closed and remains closed for business and CityOn.Zhengzhou was closed and recently reopened in a limited capacity. Shopper traffic and rent, especially percentage of sales rent, is adversely impacting our China operations and is starting to impact our South Korea operations. In addition, the outbreak is forcing many of our on-site and management office employees to work remotely, which may adversely impact our ability to effectively manage our business.

In addition, any significant or prolonged deterioration in U.S.-China relations could adversely affect our China business. Certain risks and uncertainties of doing business in China are solely within the control of the Chinese government, and Chinese law regulates the scope of our foreign investments and business conducted within China.

With regard to foreign currency, our projects in China and South Korea require investments, and have required, and may continue to require debt financing, denominated in foreign currencies, with the possibility that such investments or debt will be greater than anticipated depending on changes in exchange rates. These projects could also 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, including the consideration of hedging of foreign currency risks. However, developing an effective foreign currency risk strategy is complex and may be costly, and no strategy can completely insulate us from risk associated with foreign currency fluctuations. Further, 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.

As we expand our international activities and levels of investment, these risks would increase in significance and could 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.


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We could be subject to material liability, penalties and other sanctions and other adverse consequences arising out of non-compliance with the FCPA or foreign anti-corruption laws.

We are subject to the FCPA, which generally prohibits U.S. 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. Further, our policies and procedures cannot fully 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, significant fines and 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 or other anti-corruption laws. Accordingly, such companies may be more likely to engage in activities prohibited by the FCPA or other anti-corruption laws, which could have a significant adverse impact on our returns or our ability to compete for business in such countries.
      
The bankruptcy, early termination, sales performance, or closing of our tenants and anchors have had, and could continue to have an adverse effect on us.

We have been, and may continue to be, adversely affected by the bankruptcy, early termination, sales performance, or closing of tenants and anchors. Certain of our lease agreements include co-tenancy and/or sales-based kick-out provisions which allow a tenant to pay a reduced rent amount and, in certain instances, terminate the lease, if we fail to maintain certain occupancy levels or retain specified named anchors, or if the tenant does not achieve certain specified sales targets. If occupancy or tenant sales do not meet or fall below certain thresholds, rents we are entitled to receive from our retail tenants would be reduced. The bankruptcy of a mall tenant could result in the termination of its lease, which would lower the amount of cash generated by that shopping mall.

In September 2019, Forever 21, one of our largest mall tenants, filed for Chapter 11 bankruptcy. As of December 31, 2019, we had 16 Forever 21 stores in our portfolio totaling approximately 449,000 square feet. For the year ended December 31, 2019, the combined operations of Forever 21 accounted for 3.6% of Mall GLA and 2.1% of Rental Revenues. In February 2020, the Bankruptcy Court approved a sale of Forever 21 to a purchaser. The situation has not yet been fully resolved and we are in ongoing negotiations with the new owners of Forever 21. We currently expect all or most of our remaining locations to remain open, though at substantially reduced rents.

Replacing mall tenants with better performing, emerging retailers often takes longer than our historical experience of re-tenanting due to their lack of infrastructure and limited experience in opening stores as well as the significant competition for such emerging brands, which sometimes requires us to pay significant tenant allowances or offer reduced rents as an inducement. In addition, when a department store operating as an anchor at one of our shopping centers ceases operating, we sometimes experience difficulty, at least in the near term, and delay and incur significant expense in replacing the anchor, re-tenanting, redeveloping, or otherwise re-merchandising the anchor space. In addition, the anchor’s closing may lead to reduced customer traffic and lower mall tenant sales. As a result, we have and may continue to 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 often have a similar impact on the operations of our shopping 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").

Most recently, certain traditional department stores have experienced challenges including, limited opportunities for new investment/openings, declining sales, and store closures. Department stores' market share is declining, and their ability to drive traffic has substantially decreased. Despite our shopping centers traditionally being driven by department store anchors, in the event of a need for replacement, we sometimes are replacing department stores with non-department store anchors. Certain of these non-department store anchors may demand higher allowances than a standard mall tenant due to the nature of the services/products they provide (for example, restaurants, entertainment, coworking, or luxury).



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Excess space at our properties could materially and adversely affect us.

Certain of our properties have had excess space available for prospective tenants, and those properties may continue to experience, and other properties may begin experiencing, such oversupply in the future. Recently, there has been an increased number of bankruptcies of anchor stores and other national retailers, as well as store closures, and there has been lower demand from retail tenants for space, due to certain retailers increasing their use of e-commerce websites to distribute their merchandise. As a result of the increased bargaining power of creditworthy retail tenants, there is downward pressure on our rental rates and occupancy levels, and this increased bargaining power may also result in us having to increase our spend on tenant improvements and potentially make other lease modifications, any of which, in the aggregate, could materially and adversely affect us.

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 have and may continue to affect our operating activities.

Certain loan agreements contain various restrictive covenants, including the following corporate covenants on our primary unsecured revolving line of credit, as well as our unsecured term loans, and the loan on International Market Place: 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 unsecured revolving line of credit and unsecured term loans have unencumbered pool covenants, which currently apply to Beverly Center, Dolphin Mall, and The Gardens on El Paseo 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. As of December 31, 2019, the corporate total leverage ratio was the most restrictive covenant. These covenants may restrict our ability to pursue certain business initiatives or certain transactions that might otherwise be advantageous. In addition, these covenants have and may continue to limit our ability to borrow up to the maximum capacity of $1.1 billion on our primary unsecured revolving line of credit. 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 adverse effect on us.

TRG guarantees debt or otherwise provides support for a number of joint venture properties.

Joint venture debt is the liability of the joint venture and the joint venture property is typically encumbered by a mortgage or construction financing. A default by a joint venture under its debt obligations may expose us to liability under a guaranty (see "Note 8 - Notes Payable, Net - Debt Covenants and Guarantees" to our consolidated financial statements for more details on loan guarantees). We may elect to fund cash needs of a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances, or partner loans, although these means of funding are not typically required contractually or otherwise.

Our hedging interest rate protection arrangements does not completely 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. We enter into swaps that are exempt from the requirements of central clearing and/or trading on a designated contract market or swap execution facility pursuant to the applicable regulations and rules, and thus there may be more counterparty risk relative to others who do not utilize such exemption. 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.





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We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined.

In July 2017, the Financial Conduct Authority (FCA), the authority that regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate (SOFR) as its preferred alternative rate for USD-LIBOR in derivatives and other financial contracts. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.

We have material contracts that are indexed to LIBOR and are monitoring and evaluating the related risks, which include interest on loans or amounts received and paid on derivative instruments. Refer to "Note 8 - Notes Payable, Net" and "Note 10 - Derivative and Hedging Activities" to our consolidated financial statements for more details on our loans and derivative instruments, respectively. These risks arise in connection with transitioning contracts to an alternative rate, including any resulting value transfer that may occur. The value of loans or derivative instruments tied to LIBOR could also be impacted if LIBOR is limited or discontinued. For some instruments the method of transitioning to an alternative reference rate may be challenging, especially if we cannot agree with the respective counterparty about how to make the transition.
If a contract is not transitioned to an alternative reference rate and LIBOR is discontinued, the impact on our contracts is likely to vary by contract. If LIBOR is discontinued or if the methods of calculating LIBOR change from their current form, interest rates on our current or future indebtedness may be adversely affected.
While we expect LIBOR to be available in substantially its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.
Alternative rates and other market changes related to the replacement of LIBOR, including the introduction of financial products and changes in market practices, may lead to risk modeling and valuation challenges, such as adjusting interest rate accrual calculations and building a term structure for an alternative rate.
The introduction of an alternative rate also may create additional basis risk and increased volatility as alternative rates are phased in and utilized in parallel with LIBOR.
Adjustments to systems and mathematical models to properly process and account for alternative rates will be required, which may strain the model risk management and information technology functions and result in substantial incremental costs for us.
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.

Inflation may adversely affect our financial condition and results of operations.

Inflationary price increases can have an adverse effect on consumer spending, which would impact our tenants' sales and, in turn, our tenants' business operations. This would affect the amount of rent these tenants pay, in particular if their leases provide for overage rent or percentage of sales rent, and their ability to pay rent. Also, inflation would cause increases in operating expenses, which would increase occupancy costs for tenants and, to the extent that we are unable to recover operating expenses from tenants, would increase operating expenses for us. In addition, if the rate of inflation exceeds the scheduled rent increases included in our leases, then our profitability and our Net Operating Income would decrease. As of December 31, 2019, approximately 58% of our gross leasable and occupied area included clauses in leases for rent increases based on changes in the Consumer Price Index, although we are attempting to reduce our exposure to such variable rentals as leases are negotiated or renewed.





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The occurrence of cyber incidents, a deficiency in our cyber security, or a data breach could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, subject us to regulatory investigations and/or penalties, and/or damage to our business relationships, all of which could negatively impact our financial results.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information technology resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupting data, or stealing confidential information. We rely upon information technology networks and systems, some of which are managed by third parties, to process, transmit, and store electronic information, and to manage or support a variety of business processes and activities. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. Primary risks that could directly result from the occurrence of a cyber incident include, but are not limited to, operational interruption, damage to our tenant relationships, private data exposure (including personally identifiable information, or proprietary and confidential information, of ours and our employees, as well as third parties), and potentially significant response and remediation costs. Any such incidents could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, and reduce the benefits of our advanced technologies. We carry cyber liability insurance; however, a loss could exceed the limits of the policy or may fall within a policy exclusion based on the nature of the event. We have implemented processes, procedures and controls to help mitigate these risks, such as cyber security awareness training with simulated phishing attacks for employees, but these measures, our increased awareness of a risk of a cyber incident, and our insurance coverage, do not guarantee that our financial results will not be negatively impacted by such an incident.

Legislators and/or regulators in countries in which we operate are increasingly adopting or revising privacy, information security and data protection laws. The new California Consumer Protection Act (CCPA) and other similar state laws recently or soon to be enacted, or other similar laws and regulations adopted in other countries in which we operate, as well as any associated inquiries or investigations or any other government actions, may be costly to comply with, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to remedies that may harm our business, including fines or demands or orders that we modify or cease existing business practices. Furthermore, the CCPA went into effect on January 1, 2020 and many of its requirements have not yet been interpreted by courts, and best practices are still being developed by the industry, all of which increase the risk of compliance failure and related adverse impacts.

Some of our potential losses are 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 information technology system failures, punitive damages (in certain states), and lease and other contract claims, which generally are not insured. If an uninsured liability claim or a liability claim in excess of insured limits is made, we will have to make a payment to satisfy such claim. In addition, if an uninsured property loss or a property 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 December 2019, Congress passed the "Terrorism Risk Insurance Program Reauthorization Act of 2019", which extended the termination date of the Terrorism Insurance Program established under the Terrorism Risk Insurance Act of 2002 (TRIA) through December 31, 2027. 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 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.

Some of our properties are at a higher risk for potential natural or other disasters.

A number of our properties are located in areas with a higher risk of natural disasters such as earthquakes, hurricanes, or tsunamis. The occurrence of natural disasters can adversely impact operations, redevelopment, or development at our shopping centers and projects, increase investment costs to repair or replace damaged properties, increase future property insurance costs, and negatively impact the tenant demand for lease space. In addition, many of our properties are located in coastal regions, and would therefore be affected by any future increases in sea levels. To the extent climate change causes changes in weather patterns, our properties in certain markets could experience increases in storm intensity and rising sea levels. If insurance is unavailable to us or is unavailable on acceptable terms, or our insurance is not adequate to cover losses from these events, our financial condition and results of operations could be adversely affected.

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During September 2017, Puerto Rico was struck by Hurricane Maria, which significantly impacted local infrastructure, residents, and the prospects for tourism. The Mall of San Juan experienced damage and interruption of operations. We are subject to all of the aforementioned risks of natural disasters in relation to The Mall of San Juan and the impact of Hurricane Maria. While a portion of the adverse impact to the future operations of the shopping center were mitigated through business interruption insurance, we do not believe the full extent of revenue losses were covered by insurance. In addition, we believe the shopping center's operations continue to be affected, although overall foot traffic and tenant sales at the shopping center have improved. The timing for the recovery of business in Puerto Rico will depend on successful rebuilding and recovery efforts and in turn the availability of workers and materials, which has been and may continue to be scarce for periods of time. The local economy is highly dependent on tourism and declines could continue to adversely impact the center for an extended period of time.

We may be subject to liabilities for environmental matters.

Our properties are subject to a variety of local, state, and federal laws concerning the protection of public health and the environment. Such environmental laws may vary according to the location and environmental condition of a property and the present and former uses of the property. Before acquiring a property, we typically engage independent environmental consultants to evaluate for the potential presence of adverse environmental conditions, and all of the shopping centers that we presently own (not including option interests in certain pre-development projects) have been subject to such environmental assessments. We are not aware of any environmental liability relating to these shopping centers or to any other property we have owned or operated that would have a reasonable likelihood of resulting in a material adverse effect on our business, assets, or results of operations. No assurances can be given, however, that (1) all environmental liabilities have been identified, (2) no prior owner or operator of our properties, or any occupant of our properties has not created an environmental condition not known to us, (3) future laws, ordinances, or regulations will not impose any material environmental liability, or (4) the current environmental condition of our shopping centers will not be affected by tenants or other occupants of the shopping centers, by the environmental condition of properties in the vicinity of the shopping centers (such as the migration from off-site underground storage tanks), or by third parties unrelated to us. Environmental liability may be imposed under certain laws without regard to fault, and in some circumstances can be joint and several, resulting in one party being held responsible for the entire obligation including related natural resource damages. In addition, the presence of, or failure to remediate, adverse environmental conditions may adversely affect our ability to sell, rent, or collateralize any property.

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 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, we would need 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 shareholders would not be deductible in computing taxable income and instead would be subject to tax at regular corporate rates. Any such corporate tax liability would be significant and would reduce the amount of cash available for distribution to our shareholders which, in turn, would 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 are 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 shareholders’ 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.


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We are subject to certain taxes even though 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 or the properties otherwise qualify as held for investment purposes. The need to avoid prohibited transactions could cause us to forego or defer sales of certain 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, state, and local corporate income tax, and to the extent there are foreign operations certain foreign taxes. 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. To that end, we will be subject to a 100% penalty tax on the amount of any rents, deductions, service income or excess interest if the economic arrangements among us, our tenants, and our taxable REIT subsidiaries are not comparable to similar arrangements among unrelated parties.

Also, some state, local, and foreign jurisdictions 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. Finally, there may be changes in the federal tax law and laws of states, localities, and foreign jurisdictions that may increase the taxes we pay. To the extent that we and our affiliates are required to pay federal, state, local, and/or foreign taxes, we will have less cash available for distributions to our shareholders.

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.

The maximum tax rate (including the net investment income tax of 3.8%) on certain corporate dividends received by individuals is 23.8%, which is less than the maximum income tax rate enacted by the 2017 Tax Act of 37% applicable to ordinary income. This rate differential continues to substantially reduce the so-called "double taxation" (that is, taxation at both the corporate and shareholder 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. Under the 2017 Tax Act, however, provided that the shareholder meets certain holding period requirements, ordinary dividends from a REIT are eligible for the 20% deduction as “qualified business income” and thus taxed at a maximum rate of 29.6% plus the 3.8% tax on net investment income. The 20% deduction and the maximum individual rate of 37%, unless extended, are scheduled to expire after 2025. 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. Future changes to tax laws could potentially adversely affect the taxation of the REIT, its subsidiaries, or its shareholders, possibly having a negative effect on the value of our shares.

Partnership tax audit rules could have a material adverse effect on us.

The Bipartisan Budget Act of 2015 changed the rules applicable to U.S. federal income tax audits of partnerships. Under the rules, effective for taxable years beginning in 2018, among other changes and subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and a partner’s allocable share thereof) is determined, and taxes, interest, and penalties attributable thereto are assessed and collected, at the partnership level. Unless the partnership makes an election permitted under the new law or takes certain steps to require the partners to pay their tax on their allocable shares of the adjustment, it is possible that partnerships in which we directly or indirectly invest would be required to pay additional taxes, interest, and penalties as a result of an audit adjustment. We, as a direct or indirect partner of these partnerships, could be required to bear our allocable share of the economic burden of those taxes, interest, and penalties even though TCO, as a REIT, may not otherwise have been required to pay additional corporate‑level taxes had we owned the assets of the partnership directly. The partnership tax audit rules apply to TRG and its subsidiaries that are classified as partnerships for U.S. federal income tax purposes. The changes created by these rules are significant for collecting tax in partnership audits and, accordingly, there can be no assurance that these rules will not have a material adverse effect on us.


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Members of the Taubman Family have the power to vote a significant number of the shares of Capital Stock entitled to vote and have contractual rights.
Based on information contained in filings made with the SEC, as of December 31, 2019, members of the Taubman Family have the power to vote approximately 30% of the outstanding voting shares of TCO (consisting of our common stock and our Series B Preferred Shares). The Taubman Family members’ ownership of Series B Preferred Shares (representing an approximate 28% voting interest in TCO) corresponds with the Taubman Family members’ economic ownership in TRG. Our shares of common stock and our Series B Preferred Shares vote together as a single class on all matters submitted to a vote of our shareholders.
Based on their current ownership of the Series B Preferred Shares, the holders of the Series B Preferred Shares (92% of which are held by members of the Taubman Family) have the right to nominate up to four individuals for election to our Board of Directors and certain other class voting rights. Like all director nominees, the Series B nominees are voted on by shareholders at TCO’s annual meeting. For so long as the holders of our Series B Preferred Shares are entitled to nominate individuals for election to the Board of Directors, the Board of Directors is required to consist of nine directors (other than as a result of any vacancy caused by death, resignation or removal of a director), and a majority of our directors must be independent. Of our current nine directors, only one, Mr. Robert S. Taubman, was initially nominated by the holders of the Series B Preferred Shares. He was subsequently nominated, and recommended for election, by our Board of Directors. None of our eight other directors was nominated by the holders of the Series B Preferred Shares.

As a result of their ownership of our voting stock (common shares and Series B Preferred Shares), members of the Taubman Family can exercise significant influence with respect to the election of our Board of Directors and the outcome of matters submitted to our shareholders for approval. Our governing documents provide that any matter submitted to our shareholders for approval, including any merger, consolidation or sale of all or substantially all of our assets, requires the affirmative vote of holders owning not less than two-thirds of the outstanding shares of Capital Stock (which term refers to the common stock, preferred stock, and Excess Stock, as defined below) entitled to vote on such matter (except the election of directors, which is subject to a plurality vote coupled with a majority vote resignation policy, and the adjournment of meetings).
TRG’s partnership agreement provides that, for so long as members of the Taubman Family own 5% or more of TRG Units, without the prior written consent of a majority-in-interest of the Other Partners (currently held by members of the Taubman Family), TRG cannot, among other things, enter into certain business combination transactions, issue additional TRG Units (other than to TCO in certain circumstances) to a person or entity that, together with such person’s or entity’s affiliates, would own more than 5% of TRG Units, dispose or encumber all or substantially all of TRG's assets, or dispose or encumber specified shopping centers (specifically Beverly Center, Cherry Creek, Twelve Oaks, Short Hills or Stamford Town Center, which were contributed to TRG in 1985).
The Manager is 99.8% beneficially owned by TRG and 0.2% beneficially owned by Taub-Co, which is 100% owned by members of the Taubman Family. The Manager provides certain administrative, management, accounting, shareholder relations and other services relative to the operations and administration of TCO pursuant to a corporate services agreement between TCO and the Manager (Corporate Services Agreement) and certain management, leasing, development, acquisition and administrative services pursuant to a management services agreement between TRG and the Manager (Master Services Agreement). At the time of TCO's initial public offering in 1992, TCO and TRG entered into the Corporate Services Agreement and the Master Services Agreement, respectively, and an entity controlled by members of the Taubman Family served as sole general partner of the Manager. In 2001, the Manager converted to a Delaware limited liability company, and Taub-Co became sole managing member of the Manager, preserving the management rights of the Taubman Family members in the Manager. In 2006, although Taub-Co was sole managing member of the Manager, Taub-Co granted TRG the right to unilaterally act on behalf of Taub-Co as the managing member of the Manager, with Taub-Co having the right to revoke this authority at any time. In 2010, to formalize TRG's management rights in the Manager, TRG became a co-managing member of the Manager with the authority to act unilaterally on behalf of the Manager and was designated as the sole tax matters member, which co-management organizational structure of the Manager remains in place today. Under the Manager’s operating agreement, although TRG has been acting on behalf of the Manager as the managing member and Taub-Co has not exercised its rights as co-managing member, Taub-Co can revoke the authority of TRG to act unilaterally on behalf of the Manager, in which event the Manager’s actions would require approval by both co-managing members.








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TCO has the unilateral right to terminate the Corporate Services Agreement and, in addition, TCO, as the sole managing general partner of TRG, has the unilateral right to terminate the Master Services Agreement. If the Master Services Agreement is terminated, TRG can terminate the property services agreements between the Manager and our subsidiaries pursuant to which the Manager provides services to our shopping centers, provided that the termination of certain property service agreements may require the consent of our joint venture partners or other third parties. In addition, if the Master Services Agreement is terminated, Taub-Co has the right to purchase all of the membership interests in the Manager that it does not already own for a purchase price based on the net book value of the Manager. TCO can terminate either the Corporate Services Agreement or the Master Services Agreement without terminating the other.

As a result of these voting and contractual rights, it would be difficult, as a practical matter, for there to be a change in control of TCO without the affirmative vote of members of the Taubman Family.
Our Ownership Limit and other provisions of our Articles and Amended and Restated Bylaws generally prohibit the acquisition of more than 8.23% of the value of our Capital Stock and may hinder any attempt to acquire us.

Various provisions of our Articles and Amended and Restated 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 shareholders’ 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 contain REIT-specific restrictions on the ownership and transfer of our capital stock, which also serve similar anti-takeover purposes.
Under our Articles, in general, no shareholder can own more than 8.23% (the Ownership Limit) in value of our Capital Stock. 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 Ownership Limit. A look through entity is any 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 actually or constructively 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.
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 Ownership Limit or the Look Through Entity Limit, then the transfer is 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 of Directors (each, a Designated Agent) will act as attorney-in-fact for the Designated Charity to vote the shares of Excess Stock. 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.
These ownership limitations will not be automatically removed even if the REIT requirements are changed so as to no longer contain any ownership limitation or if an ownership limitation is increased because, in addition to preserving our status as a REIT, the effect of the ownership limitations is to prevent any person from acquiring control of us. Changes in the ownership limitations cannot be made solely by our Board of Directors and would require an amendment to our Articles. Amendments to our Articles require the approval of our Board of Directors and the affirmative vote of shareholders owning not less than two-thirds of the outstanding shares of Capital Stock entitled to vote.
Members of the Taubman Family, collectively, own approximately 30% of our Capital Stock as of December 31, 2019. The combined Taubman Family members' ownership of our Capital Stock includes 24,191,177 shares of the 26,398,473 shares of Series B Preferred Shares outstanding or 92% of the total outstanding and 1,748,477 shares of the 61,228,579 shares of common stock outstanding or 2.86% of the total outstanding as of December 31, 2019. The Series B Preferred Shares are convertible into shares of common stock at a ratio of 14,000 Series B Preferred Shares to one share of common stock, and therefore one Series B Preferred Share has a value of 1/14,000ths of the value of one share of common stock. Accordingly, the foregoing ownership of Capital Stock by members of the Taubman Family does not violate the Ownership Limit set forth in our Articles.




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Our success depends, in part, on our ability to attract and retain talented employees, and the loss of any one of our key personnel could adversely impact our business.

The success of our business depends, in part, on the leadership and performance of our executive management team and key employees, and our ability to attract, retain, and motivate talented employees could significantly impact our future performance. Competition for these individuals is intense, and we cannot assure you that we will retain our executive management team and key employees or that we will be able to attract and retain other highly qualified individuals for these positions in the future. Losing any one or more of these persons could have a material adverse effect on our results of operations, financial condition, and cash flows.

Our cost savings and restructuring initiatives may be disruptive to our workforce and operations and adversely affect our financial results.

We have been undergoing a restructuring to reduce our workforce and reorganize various areas of the organization in response to the completion of another major development cycle and the current near-term challenges facing the U.S. retail industry. To the extent such initiatives involve workforce changes, such changes may temporarily reduce workforce productivity, impact employee morale, and affect our ability to attract and retain talented employees, which would be disruptive to our business and adversely affect our results of operations. In addition, we may not achieve or sustain the expected cost savings or other benefits of our restructuring plans, or do so within the expected time frame.

The market price of our common stock has, and may continue to fluctuate significantly.

The market price of our common stock recently increased significantly following the announcement of the Mergers. The market price of our common stock also has fluctuated significantly in recent years, and it may continue to do so in the future in response to many factors other than the Mergers and related matters, including if the Mergers are not consummated, such as:

general market and economic conditions;
actual or anticipated variations in our operating results, FFO, cash flows, liquidity or distributions (including special distributions);
changes in our earnings estimates or those of analysts;
publication of research reports about us, the real estate industry generally or the mall industry, and recommendations by financial analysts with respect to us or other REITs;
impairment charges affecting the carrying value of one or more of our properties or other assets;
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;
mergers and acquisitions activity in the retail real estate sector;
any securities we may issue or additional debt we incur in the future;
additions or departures of key management personnel;
actions by institutional shareholders;
business disruptions, increased costs or other adverse impacts relating to actual or potential actions by activist shareholders;
adverse impacts relating to court or administrative decisions;
perceived strength of our corporate governance;
perceived risks in connection with our international development strategy;
risks we are taking in relation to, and the public announcement of, proposed acquisitions and dispositions, developments and redevelopments and the consummation thereof, including related capital uses;
speculation in the press or investment community;

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continuing high levels of volatility in the capital and credit markets; and
the occurrence of any of the other risk factors included in, or incorporated by reference in, this report.

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.

Our shareholders have experienced dilution as a result of equity offerings and they would experience further dilution if we issue additional common equity.

We have previously issued common equity, both common shares and TRG Units, which had a dilutive effect on our earnings per diluted share and FFO per diluted share. TRG Units have also been issued from time to time, including in 2019, in connection with acquisitions of real estate, which once tendered, have had a similar dilution impact. In addition, we have previously 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 equity 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 equity will reduce the percentage of our common equity 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 equity. In addition, depending on the terms and pricing of an additional offering of our common equity and the value of our properties, our shareholders may experience dilution in both the book value and fair value of their interests. 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 an 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 is 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 would 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 cannot 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 shareholders whose preferential rights are superior to those receiving the distribution. Accordingly, we cannot 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 adversely affect our earnings and 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, 2019, we had $3.7 billion of consolidated indebtedness outstanding, and our beneficial interest in both our consolidated debt and the debt of our UJVs was $4.9 billion. We may incur additional indebtedness and become more highly leveraged, requiring us to pay increased levels of interest, which could adversely affect our earnings and harm our financial position and potentially limit our cash available to pay dividends.


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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, FFO, 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 equity as compensation to our employees, and we have periodically issued new shares of capital stock 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, and since we went public in 1992 we have never reduced our regular common dividend and have increased it 22 times, 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.

REIT distribution requirements could adversely affect our liquidity and our ability to execute our business plan.

In order for us to qualify to be taxed as a REIT, and assuming that certain other requirements are also satisfied, we generally must distribute at least 90% of REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, to our shareholders each year. To this point, we have historically distributed at least 100% of our taxable income and thereby avoided income tax altogether. To the extent we satisfy this distribution requirement and qualify for taxation as a REIT, but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed net taxable income and could be subject to a 4% nondeductible excise tax if the actual amount that is distributed to shareholders in a calendar year is less than the minimum amount required to be distributed under U.S. federal income tax laws. We intend to make distributions to our shareholders to comply with the REIT requirements of the Code and to avoid the imposition of an excise tax.

From time to time, we might generate taxable income greater than our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash, the effect of nondeductible capital expenditures, the creation of reserves, required debt or amortization payments, limitations on deductions of interest expense and executive compensation enacted in the 2017 Tax Act, or income inclusions of foreign earnings as to which cash has not been repatriated to us by distributions from our foreign entities. If we do not have other funds available in these situations, we could be required to access capital on unfavorable terms (the receipt of which cannot be assured), sell assets at disadvantageous prices, distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt, or make taxable distributions of capital stock or debt securities to make distributions sufficient to pay out enough REIT taxable income to satisfy the REIT distribution requirement and avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase costs or reduce our equity. Further, amounts distributed will not be available to fund the growth of our business. Thus, compliance with the REIT requirements may adversely affect our liquidity and our ability to execute our business plan.


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Item 1B. UNRESOLVED STAFF COMMENTS.

None.

Item 2. PROPERTIES.

Ownership

The following table sets forth certain information about each of our shopping centers. The table includes only shopping centers in operation at December 31, 2019. Shopping centers are owned in fee other than Beverly Center, Cherry Creek Shopping Center, City Creek Center, The Mall at Green Hills, International Market Place, and International Plaza, which are held under ground leases expiring between 2042 and 2105. CityOn.Xi'an and CityOn.Zhengzhou use Chinese state-owned land and are subject to a property-use right, expiring in 2051 for both shopping centers.

Certain of the shopping 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.

Shopping Center
 
Anchors
 
Sq. Ft of GLA/
Mall GLA as of 12/31/19
 
 
Year
Opened/
Expanded
 
Year
Acquired
 
Ownership
% as of
12/31/19
Consolidated Businesses:
 
 
 
 
 
 
 
 
 
 
 
Beverly Center
 
Bloomingdale’s, Macy’s
 
834,000
 
 
1982
 
 
 
100%
Los Angeles, CA
 
 
 
510,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cherry Creek Shopping Center
 
Macy’s, Neiman Marcus, Nordstrom
 
1,037,000
 
 
1990/1998/
 
 
 
50%
Denver, CO
 
 
 
634,000
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
City Creek Center
 
Macy's, Nordstrom
 
623,000
 
 
2012
 
 
 
100%
Salt Lake City, UT
 
 
 
342,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dolphin Mall
 
Bass Pro Shops Outdoor World,
 
1,434,000
 
 
2001/2007/
 
 
 
100%
Miami, FL
 
Bloomingdale's Outlet, Burlington Coat Factory
 
702,000
 
 
2015
 
 
 
 
 
 
Cobb Theatres, Dave & Buster's,
 
 
 
 
 
 
 
 
 
 
 
Marshalls, Neiman Marcus-Last Call,
 
 
 
 
 
 
 
 
 
 
 
Polo Ralph Lauren Factory Store, Saks Off 5th
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Gardens on El Paseo
 
Saks Fifth Avenue
 
238,000
 
 
1998/2010
 
2011
 
100%
Palm Desert, CA
 
 
 
187,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Great Lakes Crossing Outlets
 
AMC Theatres, Bass Pro Shops Outdoor World,
 
1,355,000
 
 
1998
 
 
 
100%
Auburn Hills, MI
 
Burlington Coat Factory, Legoland,
 
533,000
 
 
 
 
 
 
 
(Detroit Metropolitan Area)
 
Planet Fitness, Round 1 Bowling and
 
 
 
 
 
 
 
 
 
 
 
Amusement, Sea Life
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Mall at Green Hills
 
Dillard's, Macy's, Nordstrom
 
969,000
(1)
 
1955/2011/
 
2011
 
100%
Nashville, TN
 
 
 
464,000
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
International Market Place
 
Saks Fifth Avenue
 
340,000
 
 
2016
 
 
 
93.5%
Waikiki, Honolulu, HI
 
 
 
261,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Mall of San Juan
 
Nordstrom
 
627,000
(2)
 
2015
 
 
 
95%
San Juan, PR
 
 
 
389,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Mall at Short Hills
 
Bloomingdale’s, Macy’s, Neiman Marcus,
 
1,443,000
(3)
 
1980/1994/
 
 
 
100%
Short Hills, NJ
 
Nordstrom
 
607,000
 
 
1995/2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve Oaks Mall
 
JCPenney, Lord & Taylor, Macy's,
 
1,519,000
(4)
 
1977/1978/
 
 
 
100%
Novi, MI
 
Nordstrom
 
550,000
 
 
2007/2008
 
 
 
 
(Detroit Metropolitan Area)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total GLA
 
10,419,000
 
 
 
 
 
 
 
 
 
Total Mall GLA
 
5,179,000
 
 
 
 
 
 
 
 
 
TRG% of Total GLA
 
9,847,000
 
 

 
 
 
 
 
 
TRG% of Total Mall GLA
 
4,826,000
 
 
 
 
 
 
 

(1)
GLA does not reflect the total incremental GLA to be added in connection with the redevelopment project at the center.
(2)
GLA includes approximately 100,000 square feet of GLA related to the former Saks Fifth Avenue space, which closed in September 2017 and terminated its lease in August 2019.
(3)
GLA includes the former Saks Fifth Avenue store, which closed in September 2016. A portion of this space opened as Mall GLA in 2018, while the remaining 31,000 square feet of GLA of the space is currently under redevelopment as coworking office space.
(4)
GLA includes approximately 228,000 square feet of GLA related to the former Sears space, which closed in March 2019.


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Table of Contents



Shopping Center
 
Anchors
 
Sq. Ft of GLA/
Mall GLA as of 12/31/19
 
 
Year
Opened/
Expanded
 
Year
Acquired
 
Ownership
% as of
12/31/19
Unconsolidated Joint Ventures:
 
 
 
 
 
 
 
 
 
 
 
CityOn.Xi'an
 
Wangfujing
 
994,000
 
 
2016
 
 
 
50% (5)
Xi'an, China
 
 
 
692,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CityOn.Zhengzhou
 
G-Super, Wangfujing
 
919,000
 
 
2017
 
 
 
24.5% (5)
Zhengzhou, China
 
 
 
621,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Country Club Plaza
 
(6)
 
947,000
(7)
 
1922/1977/
 
2016
 
50%
Kansas City, MO
 
 
 
729,000
 
 
2000/2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Oaks
 
JCPenney, Lord & Taylor,
 
1,557,000
(8)
 
1980/1987/
 
 
 
50%
Fairfax, VA
 
Macy’s (two locations)
 
561,000
 
 
1988/2000
 
 
 
 
(Washington, DC Metropolitan Area)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Gardens Mall
 
Bloomingdale's, Macy's, Nordstrom,
 
1,406,000
 
 
1988/2005
 
2019
 
48.5%
Palm Beach Gardens, FL
 
Saks Fifth Avenue, Sears
 
449,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
International Plaza
 
Dillard’s, Life Time Athletic, Neiman Marcus,
 
1,252,000
 
 
2001/2015
 
 
 
50.1%
Tampa, FL
 
Nordstrom
 
616,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Mall at Millenia
 
Bloomingdale’s, Macy’s, Neiman Marcus
 
1,114,000
 
 
2002
 
 
 
50%
Orlando, FL
 
 
 
514,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stamford Town Center
 
Macy’s, Saks Off 5th
 
761,000
 
 
1982/2007
 
 
 
50%
Stamford, CT
 
 
 
438,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Starfield Hanam
 
PK Market, Shinsegae, Traders
 
1,709,000
 
 
2016
 
 
 
17.15% (5)
Hanam, South Korea
 
 
 
978,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sunvalley
 
JCPenney, Macy’s (two locations), Sears
 
1,324,000
 
 
1967/1981
 
2002
 
50%
Concord, CA
 
 
 
485,000
 
 
 
 
 
 
 
(San Francisco Metropolitan Area)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Mall at University Town Center
 
Dillard's, Macy's, Saks Fifth Avenue
 
863,000
 
 
2014
 
 
 
50%
Sarasota, FL
 
 
 
441,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Waterside Shops
 
Nordstrom, Saks Fifth Avenue
 
342,000
 
 
1992/2006/
 
2003
 
50%
Naples, FL
 
 
 
202,000
 
 
2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Westfarms
 
JCPenney, Lord & Taylor,
 
1,266,000
 
 
1974/1983/
 
 
 
79%
West Hartford, CT
 
Macy’s (two locations), Nordstrom
 
497,000
 
 
1997
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total GLA
 
14,454,000
 
 
 
 
 
 
 
 
 
Total Mall GLA
 
7,223,000
 
 
 
 
 
 
 
 
 
TRG% of Total GLA
 
6,779,000
 
 
 
 
 
 
 
 
 
TRG% of Total Mall GLA
 
3,270,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Grand Total GLA
 
24,873,000
 
 
 
 
 
 
 
 
 
Grand Total Mall GLA
 
12,402,000
 
 
 
 
 
 
 
 
 
TRG% of Total GLA
 
16,626,000
 
 
 
 
 
 
 
 
 
TRG% of Total Mall GLA
 
8,096,000
 
 
 
 
 
 
 

(5)
On February 14, 2019, we announced agreements to sell 50% of our ownership interests in Starfield Hanam, CityOn.Xi’an, and CityOn.Zhengzhou to funds managed by Blackstone. In September 2019 and December 2019, we completed the sale of 50% of our interests in Starfield Hanam and CityOn.Zhengzhou, respectively. The CityOn.Xi'an transaction is expected to close in the first quarter of 2020, subject to customary closing conditions.
(6)
In 2018, Nordstrom announced plans to relocate a store to the center. The new, approximately 116,000-square-foot store is expected to open in 2021.
(7)
GLA includes 218,000 square feet of office property.
(8)
GLA includes approximately 210,000 square feet of GLA related to the former Sears space, which closed in November 2018 and is now partially occupied.




33

Table of Contents


Anchors

The following table summarizes certain information regarding the anchors at the operating centers (excluding value and outlet centers) as of December 31, 2019:
Name
 
Number of
Anchor Stores
 
GLA
(in thousands
of square