TAUBMAN CENTERS INC, 10-Q filed on 4/29/2011
Quarterly Report
CONSOLIDATED BALANCE SHEET (USD $)
In Thousands
3 Months Ended
Mar. 31, 2011
Year Ended
Dec. 31, 2010
Assets:
 
 
Properties
$ 3,543,882 
$ 3,528,297 
Accumulated depreciation and amortization
(1,223,672)
(1,199,247)
Properties, net
2,320,210 
2,329,050 
Investment in Unconsolidated Joint Ventures (Note 3)
74,461 
77,122 
Cash and cash equivalents
21,040 
19,291 
Accounts and notes receivable, less allowance for doubtful accounts of $9,717 and $7,966 in 2011 and 2010
46,911 
49,906 
Accounts receivable from related parties
1,595 
1,414 
Deferred charges and other assets
71,427 
70,090 
Total Assets
2,535,644 
2,546,873 
Liabilities:
 
 
Notes payable (Note 4)
2,636,672 
2,656,560 
Accounts payable and accrued liabilities
239,357 
247,895 
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures (Note 3)
172,458 
170,329 
Liabilities:
3,048,487 
3,074,784 
Commitments and contingencies (Notes 4, 5, 6, 7, and 8)
 
 
Equity:
 
 
Series B Non-Participating Convertible Preferred Stock, $0.001 par and liquidation value, 40,000,000 shares authorized, 25,140,436 and 26,233,126 shares issued and outstanding at March 31, 2011 and December 31, 2010
25 
26 
Common Stock, $0.01 par value, 250,000,000 shares authorized, 55,875,471 and 54,696,054 shares issued and outstanding at March 31, 2011 and December 31, 2010
559 
547 
Additional paid-in capital
586,714 
589,881 
Accumulated other comprehensive income (loss)
(12,734)
(14,925)
Dividends in excess of net income
(953,053)
(939,290)
Taubman Centers, Inc. Shareowners' Equity:
(378,489)
(363,761)
Noncontrolling interests (Note 5)
(134,354)
(164,150)
Stockholders' Equity, including Portion Attributable to Noncontrolling Interest
(512,843)
(527,911)
Liabilities and Equity
$ 2,535,644 
$ 2,546,873 
PARENTHETICAL DATA TO THE CONSOLIDATED BALANCE SHEET (USD $)
Mar. 31, 2011
Dec. 31, 2010
Assets:
 
 
Allowance for doubtful accounts
$ 9,717,000 
$ 7,966,000 
Equity:
 
 
Common stock, par value
0.01 
0.01 
Common stock, shares authorized
250,000,000 
250,000,000 
Common stock, shares issued
55,875,471 
54,696,054 
Common stock, shares outstanding
55,875,471 
54,696,054 
Series B Non-Participating Convertible Preferred Stock, par value
0.001 
0.001 
Series B Non-Participating Convertible Preferred Stock, liquidation value
0.001 
0.001 
Series B Non-Participating Convertible Preferred Stock, shares authorized
40,000,000 
40,000,000 
Series B Non-Participating Convertible Preferred Stock, shares issued
25,140,436 
26,233,126 
Series B Non-Participating Convertible Preferred Stock, shares outstanding
25,140,436 
26,233,126 
Series G Preferred Stock [Member]
 
 
Equity:
 
 
Preferred stock, no par value
Preferred stock, liquidation value
100,000,000 
100,000,000 
Preferred stock, shares authorized
4,000,000 
4,000,000 
Preferred stock, shares issued
4,000,000 
4,000,000 
Preferred stock, shares outstanding
4,000,000 
4,000,000 
Series H Preferred Stock [Member]
 
 
Equity:
 
 
Preferred stock, no par value
Preferred stock, liquidation value
$ 87,000,000 
$ 87,000,000 
Preferred stock, shares authorized
3,480,000 
3,480,000 
Preferred stock, shares issued
3,480,000 
3,480,000 
Preferred stock, shares outstanding
3,480,000 
3,480,000 
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (USD $)
In Thousands, except Share data
3 Months Ended
Mar. 31,
2011
2010
Revenues:
 
 
Minimum rents
$ 85,985 
$ 83,354 
Percentage rents
3,392 
2,074 
Expense recoveries
54,043 
52,921 
Management, leasing, and development services
5,860 
3,056 
Other
6,239 
10,084 
Total Revenue
155,519 
151,489 
Expenses:
 
 
Maintenance, taxes, utilities, and promotion
43,937 
44,925 
Other operating
18,834 
15,956 
Management, leasing, and development services
2,280 
1,593 
General and administrative
7,284 
7,389 
Interest expense
35,015 
37,417 
Depreciation and amortization
33,789 
37,084 
Total Expenses
141,139 
144,364 
Nonoperating income
128 
149 
Income before income tax expense and equity in income of Unconsolidated Joint Ventures
14,508 
7,274 
Income tax expense (Note 2)
(210)
(196)
Equity in income of Unconsolidated Joint Ventures (Note 3)
10,146 
9,735 
Net income
24,444 
16,813 
Net income attributable to noncontrolling interests (Note 5)
(9,689)
(6,510)
Net income attributable to Taubman Centers, Inc.
14,755 
10,303 
Distributions to participating securities of TRG (Note 7)
(381)
(362)
Preferred stock dividends
(3,658)
(3,658)
Net income attributable to Taubman Centers, Inc. common shareowners
10,716 
6,283 
Net income
24,444 
16,813 
Other comprehensive income:
 
 
Unrealized gain on interest rate instruments and other
2,635 
2,433 
Reclassification adjustment for amounts recognized in net income
315 
315 
Comprehensive income
27,394 
19,561 
Comprehensive income attributable to noncontrolling interests
(10,752)
(8,090)
Comprehensive income attributable to Taubman Centers, Inc.
16,642 
11,471 
Basic earnings per common share (Note 9)
0.19 
0.12 
Diluted earnings per common share (Note 9)
0.19 
0.11 
Cash dividends declared per common share
$ 0.4375 
$ 0.415 
Weighted average number of common shares outstanding - basic
55,560,988 
54,357,122 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (USD $)
In Thousands, except Share data
Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Dividends in Excess of Net Income [Member]
Noncontrolling Interest [Member]
Total
Balance, shares at Dec. 31, 2009
33,839,235 
54,321,586 
 
 
 
 
 
Balance at Dec. 31, 2009
$ 26 
$ 543 
$ 579,983 
$ (24,443)
$ (884,666)
$ (146,190)
$ (474,747)
Issuance of stock pursuant to Continuing Offer (Notes 5, 7, and 8)
 
 
(864)
29 
 
835 
 
Issuance of stock pursuant to Continuing Offer, shares
(30,909)
30,910 
 
 
 
 
 
Share-based compensation under employee and director benefit plans (Note 7)
 
1,384 
 
 
 
1,385 
Share-based compensation under employee and director benefit plans, shares
 
88,073 
 
 
 
 
 
Dividend equivalents (Note 7)
 
 
 
 
(47)
 
(47)
Dividends and distributions
 
 
 
 
(26,633)
(14,366)
(40,999)
Net income
 
 
 
 
10,303 
6,510 
16,813 
Unrealized gain on interest rate instruments and other
 
 
 
956 
 
1,477 
2,433 
Reclassification adjustment for amounts recognized in net income
 
 
 
212 
 
103 
315 
Balance, shares at Mar. 31, 2010
33,808,326 
54,440,569 
 
 
 
 
 
Balance at Mar. 31, 2010
26 
544 
580,503 
(23,246)
(901,043)
(151,631)
(494,847)
Balance, shares at Dec. 31, 2010
33,713,126 
54,696,054 
 
 
 
 
 
Balance at Dec. 31, 2010
26 
547 
589,881 
(14,925)
(939,290)
(164,150)
(527,911)
Issuance of stock pursuant to Continuing Offer (Notes 5, 7, and 8)
(1)
11 
(4,227)
304 
 
3,913 
 
Issuance of stock pursuant to Continuing Offer, shares
(1,092,690)
1,092,766 
 
 
 
 
 
Share-based compensation under employee and director benefit plans (Note 7)
 
1,060 
 
 
 
1,061 
Share-based compensation under employee and director benefit plans, shares
 
86,651 
 
 
 
 
 
Contributions from Noncontrolling Interests (excludes $62 contribution from redeemable noncontrolling interests) (Note 5)
 
 
 
 
 
31,417 
31,417 
Dividend equivalents (Note 7)
 
 
 
 
(25)
 
(25)
Dividends and distributions
 
 
 
 
(28,493)
(16,348)
(44,841)
Net income (excludes $62 of net loss attributable to redeemable noncontrolling interests) (Note 5)
 
 
 
 
14,755 
9,751 
24,506 
Unrealized gain on interest rate instruments and other
 
 
 
1,670 
 
965 
2,635 
Reclassification adjustment for amounts recognized in net income
 
 
 
217 
 
98 
315 
Balance, shares at Mar. 31, 2011
32,620,436 
55,875,471 
 
 
 
 
 
Balance at Mar. 31, 2011
$ 25 
$ 559 
$ 586,714 
$ (12,734)
$ (953,053)
$ (134,354)
$ (512,843)
CONSOLIDATED STATEMENT OF CASH FLOWS (USD $)
In Thousands
3 Months Ended
Mar. 31,
2011
2010
Cash Flows From Operating Activities:
 
 
Net income
$ 24,444 
$ 16,813 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
Depreciation and amortization
33,789 
37,084 
Provision for bad debts
2,304 
1,204 
Other
3,354 
2,150 
Increase (decrease) in cash attributable to changes in assets and liabilities:
 
 
Receivables, deferred charges, and other assets
(1,589)
392 
Accounts payable and other liabilities
(9,017)
(8,275)
Net Cash Provided By Operating Activities
53,285 
49,368 
Cash Flows From Investing Activities:
 
 
Additions to properties
(21,414)
(10,898)
Repayments of notes receivable
440 
292 
Issuances of notes receivable
 
(2,948)
Contributions to Unconsolidated Joint Ventures
(225)
(3,772)
Distributions from Unconsolidated Joint Ventures in excess of income
6,052 
4,924 
Other
 
73 
Net Cash Used In Investing Activities
(15,147)
(12,329)
Cash Flows From Financing Activities:
 
 
Debt proceeds
35,996 
5,605 
Debt payments
(54,892)
(3,540)
Debt issuance costs
(2,062)
 
Issuance of common stock and/or partnership units in connection with incentive plans
(2,000)
(492)
Distributions to noncontrolling interests
(16,348)
(14,366)
Distributions to participating securities of TRG
(381)
(362)
Contributions from noncontrolling interests
31,479 
 
Cash dividends to preferred shareowners
(3,658)
(3,658)
Cash dividends to common shareowners
(24,446)
(22,585)
Other
(77)
(71)
Net Cash Used In Financing Activities
(36,389)
(39,469)
Net Increase (Decrease) In Cash and Cash Equivalents
1,749 
(2,430)
Cash and Cash Equivalents at Beginning of Period
19,291 
16,176 
Cash and Cash Equivalents at End of Period
$ 21,040 
$ 13,746 
Interim Financial Statements
Interim Financial Statements
Note 1 – Interim Financial Statements

General

Taubman Centers, Inc. (the Company or TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate investment trust (REIT). The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is a majority-owned partnership subsidiary of TCO that owns direct or indirect interests in all of the company’s real estate properties. In this report, the term “Company" refers to TCO, the Operating Partnership, and/or the Operating Partnership's subsidiaries as the context may require. The Company engages in the ownership, management, leasing, acquisition, disposition, development, and expansion of regional and super-regional retail shopping centers and interests therein. The Company’s owned portfolio as of March 31, 2011 included 23 urban and suburban shopping centers in ten states.

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

The unaudited interim financial statements should be read in conjunction with the audited financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results of interim periods are not necessarily indicative of the results for a full year.

Dollar amounts presented in tables within the notes to the financial statements are stated in thousands, except share data or as otherwise noted. Expenses for promotion and advertising of shopping centers which were previously classified in Other Operating, are now included in Maintenance, Taxes, Utilities and Promotion expense. Amounts for 2010 have been reclassified to conform to the 2011 classification.

Consolidation

The consolidated financial statements of the Company include all accounts of the Company, the Operating Partnership, and its consolidated subsidiaries, including The Taubman Company LLC (the Manager) and Taubman Asia.

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

Ownership

In addition to the Company’s common stock, there are three classes of preferred stock (Series B, G, and H) outstanding as of March 31, 2011. Dividends on the 8% Series G and 7.625% Series H Preferred Stock are cumulative and are paid on the last day of each calendar quarter. The Company owns corresponding Series G and Series H Preferred Equity interests in the Operating Partnership that entitle the Company to income and distributions (in the form of guaranteed payments) in amounts equal to the dividends payable on the Company’s Series G and Series H Preferred Stock.

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

Outstanding voting securities of the Company at March 31, 2011 consisted of 25,140,436 shares of Series B Preferred Stock and 55,875,471 shares of Common Stock.

The Operating Partnership

At March 31, 2011, the Operating Partnership’s equity included three classes of preferred equity (Series F, G, and H) and the net equity of the partnership unitholders. Net income and distributions of the Operating Partnership are allocable first to the preferred equity interests, and the remaining amounts to the general and limited partners in the Operating Partnership in accordance with their percentage ownership. The Series G and Series H Preferred Equity are owned by the Company and are eliminated in consolidation. The Series F Preferred Equity is owned by an institutional investor and accounted for as a noncontrolling interest of the Company.

The Company's ownership in the Operating Partnership at March 31, 2011 consisted of a 69% managing general partnership interest, as well as the Series G and H Preferred Equity interests. The Company's average ownership percentage in the Operating Partnership for the three months ended March 31, 2011 and 2010 was 69% and 67%, respectively. At March 31, 2011, the Operating Partnership had 81,034,357 partnership units outstanding, of which the Company owned 55,875,471 units.
Income Taxes
Income Taxes
Note 2 – Income Taxes

Income Tax Expense

The Company’s income tax expense for the three months ended March 31, 2011 and 2010 is as follows:

   
Three Months Ended March 31
 
   
2011
  
2010
 
State current
 $242  $275 
State deferred
  (49)  (79)
Federal current
 
17
  
 
 
Total income tax expense
 $210  $196 

The Company expects to have less than $0.1 million of federal alternative minimum tax payable in 2011. The Company had no other federal or foreign income tax expense during these periods as a result of net operating losses incurred by the Company’s Taxable REIT Subsidiaries.

Deferred Taxes

Deferred tax assets and liabilities as of March 31, 2011 and December 31, 2010 are as follows:

   
2011
  
2010
 
Deferred tax assets:
      
Federal
 $8,481  $8,589 
Foreign
  2,108   2,361 
State
  6,895   6,786 
Total deferred tax assets
 $17,484  $17,736 
Valuation allowances
  (9,932)  (10,199)
Net deferred tax assets
 $7,552  $7,537 
Deferred tax liabilities:
        
Federal
 $607  $607 
State
  4,137   4,171 
Total deferred tax liabilities
 $4,744  $4,778 

The Company believes that it is more likely than not the results of future operations will generate sufficient taxable income to recognize the net deferred tax assets. These future operations are primarily dependent upon the Manager’s profitability, the timing and amounts of gains on land sales, the profitability of the Company’s Asia-Pacific operations, the future profitability of the Company’s unitary filing group for Michigan Business Tax purposes, and other factors affecting the results of operations of the Taxable REIT Subsidiaries. The valuation allowances relate to net operating loss carryforwards and tax basis differences where there is uncertainty regarding their realizability.
Investments in Unconsolidated Joint Ventures
Investments in Unconsolidated Joint Ventures
Note 3 – Investments in Unconsolidated Joint Ventures

General Information

The Company owns beneficial interests in joint ventures that own shopping centers. The Operating Partnership is the direct or indirect managing general partner or managing member of these Unconsolidated Joint Ventures, except for the ventures that own Arizona Mills, The Mall at Millenia, and Waterside Shops.

Shopping Center
 
Ownership as of
March 31, 2011 and
December 31, 2010
 
Arizona Mills
     50% 
Fair Oaks
  50 
The Mall at Millenia
  50 
Stamford Town Center
  50 
Sunvalley
  50 
Waterside Shops
  25 
Westfarms
  79 

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

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

Combined Financial Information

Combined balance sheet and results of operations information is presented in the following table for the Unconsolidated Joint Ventures, followed by the Operating Partnership's beneficial interest in the combined operations information. Beneficial interest is calculated based on the Operating Partnership's ownership interest in each of the Unconsolidated Joint Ventures.


   
March 31
2011
  
December 31
2010
 
Assets:
      
Properties
 $1,092,796  $1,092,916 
Accumulated depreciation and amortization
  (424,949)  (417,712)
   $667,847  $675,204 
Cash and cash equivalents
  16,555   21,339 
Accounts and notes receivable, less allowance for doubtful accounts of $1,189 and $1,471 in 2011 and 2010
  22,036   26,288 
Deferred charges and other assets
  17,525   18,891 
   $723,963  $741,722 
          
Liabilities and accumulated deficiency in assets:
        
Notes payable
 $1,122,597  $1,125,618 
Accounts payable and other liabilities
  30,761   37,292 
TRG's accumulated deficiency in assets
  (228,562)  (224,636)
Unconsolidated Joint Venture Partners' accumulated deficiency in assets
  (200,833)  (196,552)
   $723,963  $741,722 
          
TRG's accumulated deficiency in assets (above)
 $(228,562) $(224,636)
TRG basis adjustments, including elimination of intercompany profit
  68,305   68,682 
TCO's additional basis
  62,260   62,747 
Net Investment in Unconsolidated Joint Ventures
 $(97,997) $(93,207)
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures
  172,458   170,329 
Investment in Unconsolidated Joint Ventures
 $74,461  $77,122 



   
Three Months Ended March 31
 
   
2011
  
2010
 
Revenues
 $63,359  $63,340 
Maintenance, taxes, utilities, promotion, and other operating expenses
 $20,237  $20,830 
Interest expense
  15,596   15,818 
Depreciation and amortization
  9,185   9,292 
Total operating costs
 $45,018  $45,940 
Nonoperating income
  5   12 
Net income
 $18,346  $17,412 
          
Net income attributable to TRG
 $10,469  $9,893 
Realized intercompany profit, net of depreciation on TRG’s basis adjustments
  164   329 
Depreciation of TCO's additional basis
  (487)  (487)
Equity in income of Unconsolidated Joint Ventures
 $10,146  $9,735 
          
Beneficial interest in Unconsolidated Joint Ventures’ operations:
        
Revenues less maintenance, taxes, utilities, promotion, and other operating expenses
 $23,709  $23,415 
Interest expense
  (8,077)  (8,202)
Depreciation and amortization
  (5,486)  (5,478)
Equity in income of Unconsolidated Joint Ventures
 $10,146  $9,735 

The estimated fair value of the Unconsolidated Joint Ventures’ notes payable was $1.2 billion at March 31, 2011 and December 31, 2010.

Beneficial Interest in Debt and Interest Expense
Beneficial Interest in Debt and Interest Expense
Note 4 – Beneficial Interest in Debt and Interest Expense

The Operating Partnership's beneficial interest in the debt, capitalized interest, and interest expense of its consolidated subsidiaries and its Unconsolidated Joint Ventures is summarized in the following table. The Operating Partnership's beneficial interest in the consolidated subsidiaries excludes debt and interest related to the noncontrolling interests in Cherry Creek Shopping Center (50%), International Plaza (49.9%), The Pier Shops at Caesars (The Pier Shops) (see Notes 1 and 2 below), The Mall at Wellington Green (10%), and MacArthur Center (MacArthur) (5%).

   
At 100%
  
At Beneficial Interest
 
   
Consolidated Subsidiaries
  
Unconsolidated Joint Ventures
  
Consolidated Subsidiaries
  
Unconsolidated Joint Ventures
 
Debt as of:
            
March 31, 2011
 $2,636,672  $1,122,597  $2,303,820(1) $573,302 
December 31, 2010
  2,656,560   1,125,618   2,297,460(1)  575,103 
                  
Capitalized interest:
                
Three months ended March 31, 2011
 $213      $213     
Three months ended March 31, 2010
  15       15     
                  
Interest expense:
                
Three months ended March 31, 2011
 $35,015  $15,596  $32,116(2) $8,077 
Three months ended March 31, 2010
  37,417   15,818   32,197(1)  8,202 
                  
(1)  
The Pier Shops is included at beneficial interest of 77.5%.
(2)  
The Pier Shops is included at 100%. See “MD&A – Results of Operations – The Pier Shops and Regency Square Reconciliations of Net Operating Income to Net Income,” regarding a change in the presentation of beneficial interest in The Pier Shops’ operations in 2011.

 
Debt Covenants and Guarantees

Certain loan agreements contain various restrictive covenants, including a minimum net worth requirement, a maximum payout ratio on distributions, a minimum debt yield ratio, a maximum leverage ratio, minimum interest coverage ratios, and a minimum fixed charges coverage ratio, the latter being the most restrictive. This covenant requires that the Company maintain a minimum fixed charges coverage ratio of more than 1.5 over a trailing 12-month period. As of March 31, 2011, the Company’s trailing 12-month fixed charges coverage ratio was 2.2. Other than The Pier Shops’ loan, which is in default, the Company is in compliance with all of its covenants and loan obligations as of March 31, 2011. The default on The Pier Shops’ loan did not trigger, and a default on the Regency Square loan will not trigger, any cross defaults on our other indebtedness. The maximum payout ratio on distributions covenant limits the payment of distributions generally to 95% of funds from operations, as defined in the loan agreements, except as required to maintain our tax status, pay preferred distributions, and for distributions related to the sale of certain assets.

Payments of principal and interest on the loans in the following table are guaranteed by the Operating Partnership as of March 31, 2011.

Center
 
Loan Balance
as of 3/31/11
  
TRG's Beneficial Interest in Loan Balance
as of 3/31/11
  
Amount of Loan Balance Guaranteed by TRG
as of 3/31/11
  
% of Loan Balance Guaranteed by TRG
  
% of Interest Guaranteed by TRG
 
   
(in millions)
       
Dolphin Mall
 $60.0  $60.0  $60.0   100%  100%
Fairlane Town Center
  80.0   80.0   80.0   100   100 
Twelve Oaks Mall
           100   100 

The Company is required to escrow cash balances for specific uses stipulated by certain of its lenders. As of March 31, 2011 and December 31, 2010, the Company’s cash balances restricted for these uses were $8.7 million and $7.6 million, respectively. Such amounts are included within Deferred Charges and Other Assets in the Company’s Consolidated Balance Sheet.
 
2011 Financings

In April 2011, the $250 million Fair Oaks loan, $125 million at the Company’s beneficial share, was extended to April 2012 and has a one-year extension option remaining. The rate on the loan had been fixed at 4.22% due to an interest rate swap that also matured in April 2011. The loan has now reverted to a floating rate at LIBOR plus 1.40%. The extended loan is prepayable at any time.

In February 2011, the maturity date on the Company’s $550 million primary line of credit was extended to February 2012. In March 2011, the maturity date on the Company’s second line of credit was extended through April 2012. In addition, the maximum amount available under this facility was increased to $65 million from the prior $40 million maximum for the $25 million letter of credit required by the lessor of the City Creek Center project (see “MD&A - Liquidity and Capital Resources - Capital Spending - City Creek Center” for more details). The availability under the line will revert to $40 million when the obligation under the letter of credit is extinguished.

In January 2011, the International Plaza loan was extended to a maturity of January 2012. The principal balance on the loan was required to be paid down by $52.6 million. The Company funded its $26.4 million beneficial share of the paydown using its revolving line of credit. The principal on the loan is now $272.4 million at 100%, and $136.5 million at the Company’s beneficial share. The rate on the loan had been fixed at 5.01% due to an interest rate swap that also matured in January 2011. The loan has now reverted to a floating rate at LIBOR plus 1.15%. The extended loan is prepayable at any time and has an additional one-year extension option.

Regency Square

In 2010, the Board of Directors concluded that it is in the best interest of the Company to discontinue its financial support of Regency Square, including not funding cash shortfalls nor repaying the non-recourse mortgage debt that is due in November 2011. As a result, the Company is in discussions with the lender about the center’s future ownership. At the current time, subject to decisions by the lender, the Company will continue to manage the shopping center. The Regency Square loan was not in default as of March 31, 2011. The book value of the investment in Regency Square as of March 31, 2011 was $29 million.

The Pier Shops Loan Default

The $135 million non-recourse loan encumbering The Pier Shops is currently in default. The administration of the loan has been turned over to the special servicer. The book value of the investment in The Pier Shops as of March 31, 2011 was approximately $43 million. See Note 8 for more information on related litigation.

Regarding both Regency Square and The Pier Shops, a non-cash accounting gain will be recognized for each center when its loan obligation is extinguished upon transfer of title of the respective center. The gain will represent the difference between the book value of the debt, interest payable and other obligations extinguished over the net book value of the property and any other assets transferred. The transition processes are not in the Company’s control and the timing of transfer of title for each of the centers is uncertain. The Company will continue to record the operations of the centers and interest on the loans in its results until ownership of the centers has been transferred.
Noncontrolling Interests
Noncontrolling Interests
Note 5 – Noncontrolling Interests

Redeemable Noncontrolling Interests

In 2010, the Company's president of Taubman Asia (the Asia President) obtained an ownership interest in Taubman Asia, a consolidated subsidiary. The Asia President is entitled to 10% of Taubman Asia's dividends, with 85% of his dividends being withheld as contributions to capital. Taubman Asia has the ability to call, and the Asia President has the ability to put, the Asia President’s ownership interest, subject to certain conditions including the termination of the Asia President’s employment and the expiration of certain required holding periods. The Company has determined that the Asia President's ownership interest in Taubman Asia qualifies as an equity award, considering its specific redemption provisions, and accounts for it as a contingently redeemable noncontrolling interest. At March 31, 2011, the interest had an immaterial redemption value. Adjustments to the redemption value will be recorded through equity.
 
Also in 2010, the Company formed a joint venture that is focusing on developing and owning outlet shopping centers. The Company owns a 90% controlling interest and consolidates the venture, while the joint venture partner owns a 10% interest. At any time after June 2012, the Company will have the right to purchase the joint venture partner's entire interest and the joint venture partner will have the right to require the Company to purchase the joint venture partner's entire interest. Additionally, the parties each have a one-time put and/or call on the joint venture partner’s interest in any stabilized centers, while still maintaining the ongoing joint venture relationship. Considering the redemption provisions, the Company accounts for the joint venture partner’s interest as a contingently redeemable noncontrolling interest. At March 31, 2011, the interest had an immaterial redemption value. Adjustments to the redemption value will be recorded through equity.

Reconciliation of redeemable noncontrolling interests:
 
2011
 
Balance January 1, 2011
 $- 
Contributions
  62 
Allocation of net loss
  (62)
Balance March 31, 2011
 $- 

Equity Balances and Income Allocable to Noncontrolling Interests

The net equity balance of the noncontrolling interests as of March 31, 2011 and December 31, 2010 includes the following:

   
2011
  
2010
 
Non-redeemable noncontrolling interests:
      
Noncontrolling interests in consolidated joint ventures
 $(70,004) $(100,355)
Noncontrolling interests in partnership equity of TRG
  (93,567)  (93,012)
Preferred equity of TRG
  29,217   29,217 
   $(134,354) $(164,150)

Net income attributable to the noncontrolling interests for the three months ended March 31, 2011 and March 31, 2010 includes the following:

   
2011
  
2010
 
Net income attributable to noncontrolling interests:
Non-redeemable noncontrolling interests:
      
Noncontrolling share of income of consolidated joint ventures
 $3,447  $2,013 
Noncontrolling share of income of TRG
  5,689   3,882 
TRG Series F preferred distributions
  615   615 
    9,751   6,510 
Redeemable noncontrolling interests
  (62)    
   $9,689  $6,510 

Equity Transactions

The following schedule presents the effects of changes in Taubman Centers, Inc.’s ownership interest in consolidated subsidiaries on Taubman Centers, Inc.’s equity for the three months ended March 31, 2011 and March 31, 2010:

   
2011
  
2010
 
Net income attributable to Taubman Centers, Inc. common shareowners
 $10,716  $6,283 
Transfers (to) from the noncontrolling interest –
        
Decrease in Taubman Centers, Inc.’s paid-in capital for the acquisition of additional units of TRG under the Continuing Offer
  (4,227)  (864)
Net transfers (to) from noncontrolling interests
  (4,227)  (864)
Change from net income attributable to Taubman Centers, Inc. and transfers (to) from noncontrolling interests
 $6,489  $5,419 
 
Finite Life Entities

ASC Topic 480, “Distinguishing Liabilities from Equity” establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. At March 31, 2011, the Company held controlling interests in consolidated entities with specified termination dates in 2081 and 2083. The noncontrolling owners’ interests in these entities are to be settled upon termination by distribution or transfer of either cash or specific assets of the underlying entity. The estimated fair value of these noncontrolling interests was approximately $208 million at March 31, 2011, compared to a book value of $(68.6) million that is classified in Noncontrolling Interests in the Company’s Consolidated Balance Sheet.
Derivative and Hedging Activities
Derivative and Hedging Activities
Note 6 – Derivative and Hedging Activities

Risk Management Objective and Strategies for Using Derivatives

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

The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and hedging, except for two immaterial out-of-the-money interest rate caps, which mature in January 2012 and April 2012.

As of March 31, 2011, the Company had the following outstanding interest rate derivatives that were designated and are expected to be effective as cash flow hedges of the interest payments on the associated debt.

Instrument Type
 
Ownership
  
Notional Amount
  
Swap Rate
  
Credit Spread      on Loan
  
Total Swapped Rate on Loan
  
Maturity Date
Consolidated Subsidiaries:
                 
Receive variable (LIBOR) /pay-fixed swap (1)
 95.0% $131,000  2.64% 2.35% 4.99% 
September 2020
Unconsolidated Joint Ventures:
                  
Receive variable (LIBOR) /pay-fixed swap
 50.0   250,000  2.82  1.40  4.22  
April 2011
Receive variable (LIBOR) /pay-fixed swap
 50.0   30,000  5.05  0.90  5.95  
November 2012

(1)
The notional amount of the swap is equal to the outstanding principal balance on the loan, which begins amortizing in September 2012.

Cash Flow Hedges of Interest Rate Risk

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

Amounts reported in AOCI related to currently outstanding derivatives are recognized as an adjustment to income as interest payments are made on the Company’s variable-rate debt. Realized gains or losses on settled derivative instruments included in AOCI are recognized as an adjustment to income over the term of the hedged debt transaction.
 
The Company expects that approximately $4.8 million of the AOCI of Taubman Centers, Inc. and the noncontrolling interests will be reclassified from AOCI and recognized as a reduction of income in the following 12 months.

As of March 31, 2011, the Company had $2.3 million of net realized losses included in AOCI resulting from settled derivative instruments, which were designated as cash flow hedges that are being recognized as a reduction of income over the term of the hedged debt.

The following tables present the effect of derivative instruments on the Company’s Consolidated Statement of Operations and Comprehensive Income for the three months ended March 31, 2011 and March 31, 2010. The tables include the location and amount of unrealized gains and losses on outstanding derivative instruments in cash flow hedging relationships and the location and amount of realized losses reclassified from AOCI into income resulting from settled derivative instruments associated with hedged debt.

During the three months ended March 31, 2011 and March 31, 2010, the Company did not have any hedge ineffectiveness or amounts that were excluded from the assessment of hedge effectiveness recorded in earnings.

   
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
 
Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
   
Three months ended
March 31
    
Three months ended
March 31
 
   
2011
  
2010
    
2011
  
2010
 
Derivatives in cash flow hedging relationships:
              
Interest rate contracts – consolidated subsidiaries
 $1,627  $2,032 
Interest Expense
 $(1,070) $(2,948)
Interest rate contracts – UJVs
  943   240 
Equity in Income of UJVs
  (978)  (989)
Total derivatives in cash flow hedging relationships
 $2,570  $2,272    $(2,048) $(3,937)
                    
Realized losses on settled cash flow hedges:
                  
Interest rate contracts – consolidated subsidiaries
        
Interest Expense
 $(221) $(221)
Interest rate contract – UJVs
        
Equity in Income of UJVs
  (94)  (94)
Total realized losses on settled cash flow hedges
           $(315) $(315)

The Company records all derivative instruments at fair value in the Consolidated Balance Sheet. The following table presents the location and fair value of the Company’s derivative financial instruments as reported in the Consolidated Balance Sheet as of March 31, 2011 and December 31, 2010.

     
Fair Value
 
 
Consolidated Balance Sheet Location
 
March 31 2011
  
December 31 2010
 
Derivatives designated as hedging instruments:
        
Asset derivatives-
        
Interest rate contract – consolidated subsidiaries
Deferred Charges and Other Assets
 $6,192  $4,856 
Liability derivatives:
          
Interest rate contract – consolidated subsidiaries
Accounts Payable and Accrued Liabilities
     $(291)
Interest rate contracts – UJVs
Investment in UJVs
 $(1,021)  (1,964)
Total liabilities designated as hedging instruments
   $(1,021) $(2,255)

Contingent Features

Certain of the Company's outstanding derivatives contain provisions that state if the hedged entity defaults on any of its indebtedness in excess of $1 million, then the derivative obligation could also be declared in default. As of March 31, 2011, the Company is not in default on any debt obligations that would trigger a credit risk related default on its current outstanding derivatives. The Regency Square loan was not in default as of March 31, 2011, and a default on this loan would not trigger a credit-risk related default on the Company’s current outstanding derivatives.

As of March 31, 2011 and December 31, 2010, the fair value of derivative instruments with credit-risk-related contingent features that are in a liability position was $1.0 million and $2.3 million, respectively. As of March 31, 2011 and December 31, 2010, the Company was not required to post any collateral related to these agreements. If the Company breached any of these provisions it would be required to settle its obligations under the agreements at their fair value. See Note 10 for fair value information on derivatives.
Share-Based Compensation
Share-Based Compensation and Other Plans
Note 7 – Share-Based Compensation

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

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

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

The compensation cost charged to income for the Company’s share-based compensation plans was $2.4 million and $1.5 million for the three months ended March 31, 2011 and 2010, respectively. Compensation cost capitalized as part of properties and deferred leasing costs was approximately $0.1 million for the three months ended March 31, 2011 and 2010.

The Company currently recognizes no tax benefits from the recognition of compensation cost or tax deductions incurred upon the exercise or vesting of share-based awards. Allocations of compensation cost or deduction to the Company’s corporate taxable REIT subsidiaries from the Company's Manager, which is treated as a partnership for federal income tax purposes, have not resulted in the recognition of tax benefits due to the Company’s current income tax position (Note 2).

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

Options

A summary of option activity for the three months ended March 31, 2011 is presented below:

   
Number of Options
  
Weighted Average Exercise Price
  
Weighted Average Remaining Contractual Term  (in years)
  
Range of Exercise Prices
 
Outstanding at January 1, 2011
  1,452,781  $37.00   5.7  $13.83 - $55.90 
Outstanding at March 31, 2011
  1,452,781  $37.00   5.4  $13.83 - $55.90 
                  
Fully vested options at March 31, 2011
  1,244,452  $38.00   5.6     

There were 0.1 million options that vested during the three months ended March 31, 2011.

The aggregate intrinsic value (the difference between the period end stock price and the option exercise price) of in-the-money options outstanding and in-the-money fully vested options as of March 31, 2011 was $24.6 million and $19.9 million, respectively.

No options were exercised during the three months ended March 31, 2011. The total intrinsic value of options exercised during the three months ended March 31, 2010 was $0.2 million. Cash received from option exercises for the three months ended March 31, 2010 was $0.6 million.

As of March 31, 2011 there were 0.2 million nonvested options outstanding, and $0.1 million of total unrecognized compensation cost related to nonvested options. The remaining cost is expected to be recognized over a weighted average period of within one year.

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

Performance Share Units

In March 2011, the Company granted Performance Share Units (PSU) under the 2008 Omnibus Plan. Each PSU represents the right to receive, upon vesting, shares of the Company’s common stock ranging from 0-300% of the PSU based on the Company’s market performance relative to that of a peer group. The vesting date is three years from the grant date, if continuous service has been provided, or upon retirement or certain other events if earlier. No dividends accumulate during the vesting period.

The Company estimated the value of the PSU granted in March 2011 using a Monte Carlo simulation, considering the Company’s common stock price at the grant date less the present value of the expected dividends during the vesting period, historical returns of the Company and the peer group of companies, a risk-free interest rate of 1.18%, and a measurement period of 3 years. The resulting weighted average grant-date fair value was $85.40 per PSU.
 
A summary of PSU activity for the three months ended March 31, 2011 is presented below:

   
Number of Performance Stock Units
  
Weighted Average Grant Date Fair Value
 
Outstanding at January 1, 2011
 272,356  $28.88 
Granted
 53,795  $85.40 
Outstanding at March 31, 2011
 326,151  $38.20 

None of the PSU outstanding at March 31, 2011 were vested. As of March 31, 2011, there was $8.4 million of total unrecognized compensation cost related to nonvested PSU outstanding. This cost is expected to be recognized over an average period of 2.3 years.

Restricted Share Units

In March 2011, restricted share units (RSU) were issued under the 2008 Omnibus Plan and represent the right to receive upon vesting one share of the Company’s common stock. The vesting date is three years from the grant date, if continuous service has been provided through that period, or upon retirement or certain other events if earlier. No dividends accumulate during the vesting period.

The Company estimated the value of the RSU granted in March 2011 using the Company’s common stock at the grant date deducting the present value of expected dividends during the vesting period using a risk-free rate of 1.18%. The result of the Company’s valuation was a weighted average grant-date fair value of $47.98 per RSU.

A summary of Restricted Share Units (RSU) activity for the three months ended March 31, 2011 is presented below:

   
Number of Restricted Stock Units
  
Weighted Average Grant Date Fair Value
 
Outstanding at January 1, 2011
 617,884  $22.72 
Redeemed
 (111,945)  50.65 
Granted
 105,391   47.98 
Forfeited
 (1,484)  18.76 
Outstanding at March 31, 2011
 609,846  $21.96 

All of the RSU outstanding at March 31, 2011 were nonvested. As of March 31, 2011, there was $8.4 million of total unrecognized compensation cost related to nonvested RSU outstanding. This cost is expected to be recognized over an average period of 2.3 years.
Commitments and Contingencies
Commitments and Contingencies
Note 8 – Commitments and Contingencies

Cash Tender

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

Based on a market value at March 31, 2011 of $53.58 per common share, the aggregate value of interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $1.3 billion. The purchase of these interests at March 31, 2011 would have resulted in the Company owning an additional 30% interest in the Operating Partnership.

Continuing Offer

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

Litigation

In April 2009, two restaurant owners, their two restaurants, and their principal filed a lawsuit in United States District Court for the Eastern District of Pennsylvania (Case No. CV01619) against Atlantic Pier Associates LLC ("APA", the owner of the leasehold interest in The Pier Shops), the Operating Partnership, Taubman Centers, Inc., the Manager, the owners of APA and certain affiliates of such owners, and a former employee of one of such affiliates. The plaintiffs are alleging the defendants misrepresented and concealed the status of certain tenant leases at The Pier Shops and that such status was relied upon by the plaintiffs in making decisions about their own leases. The plaintiffs are seeking damages exceeding $20 million, rescission of their leases, exemplary or punitive damages, costs and expenses, attorney’s fees, return of certain rent, and other relief as the court may determine. The lawsuit is in its early legal stages and the defendants are vigorously defending it. The outcome of this lawsuit cannot be predicted with any certainty and management is currently unable to estimate an amount or range of potential loss that could result if an unfavorable outcome occurs. While management does not believe that an adverse outcome in this lawsuit would have a material adverse effect on the Company's financial condition, there can be no assurance that an adverse outcome would not have a material effect on the Company's results of operations for any particular period.

In April 2010, the holder of the loan on The Pier Shops filed a mortgage foreclosure complaint in the United States District Court for the District of New Jersey (Case No. CV01755) against APA. The plaintiff seeks to establish the amounts due under The Pier Shops’ mortgage loan agreement, foreclose all right, title, and lien which APA has in The Pier Shops’ leasehold interest, obtain possession of the property, and order a foreclosure sale of the property to satisfy the amounts due under the loan. In March 2011, a consent judgment of foreclosure was entered by the Court. The completion of the foreclosure process is not in the Company’s control and the timing of transfer of title is uncertain. Upon completion of the foreclosure sale, the ownership of The Pier Shops will be transferred in satisfaction of the obligations under the debt.

See Note 4 for the Operating Partnership's guarantees of certain notes payable, Note 6 for contingent features relating to derivative instruments, and Note 7 for obligations under existing share-based compensation plans.
Earnings Per Share
Earnings (Loss) Per Share
Note 9 – Earnings Per Share

Basic earnings per share amounts are based on the weighted average of common shares outstanding for the respective periods. Diluted earnings per share amounts are based on the weighted average of common shares outstanding plus the dilutive effect of potential common stock. Potential common stock includes outstanding partnership units exchangeable for common shares under the Continuing Offer (Note 8), outstanding options for partnership units, PSU, RSU, deferred shares under the Non-Employee Directors’ Deferred Compensation Plan, and unissued partnership units under a unit option deferral election (Note 7). In computing the potentially dilutive effect of potential common stock, partnership units are assumed to be exchanged for common shares under the Continuing Offer, increasing the weighted average number of shares outstanding. The potentially dilutive effects of partnership units outstanding and/or issuable under the unit option deferral elections are calculated using the if-converted method, while the effects of other potential common stock are calculated using the treasury method. Contingently issuable shares are included in diluted EPS based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period.
 
As of March 31, 2011, there were 7.4 million partnership units outstanding and 0.9 million unissued partnership units under unit option deferral elections that may be exchanged for common shares of the Company under the Continuing Offer. These outstanding partnership units and unissued units were excluded from the computation of diluted earnings per share as they were anti-dilutive in all periods presented. Also, there were out-of-the-money options for 0.3 million and 0.7 million shares for the periods ended March 31, 2011 and 2010, respectively, that were excluded from the computation of diluted EPS because they were anti-dilutive.

   
Three Months Ended
 
   
March 31
 
   
2011
  
2010
 
Net income attributable to Taubman Centers, Inc. common shareowners (Numerator):
      
Basic
 $10,716  $6,283 
Impact of additional ownership of TRG
  98   48 
Diluted
 $10,814  $6,331 
          
Shares (Denominator) – basic
  55,560,988   54,357,122 
Effect of dilutive securities
  1,419,844   1,011,785 
Shares (Denominator) – diluted
  56,980,832   55,368,907 
          
Earnings per common share – basic
 $0.19  $0.12 
Earnings per common share – diluted
 $0.19  $0.11 
Fair Value Disclosures
Fair Value Disclosures
Note 10 – Fair Value Disclosures

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

Recurring Valuations

Derivative Instruments

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

Marketable Securities

The Company's valuations of marketable securities, which are considered to be available-for-sale, and an insurance deposit utilize unadjusted quoted prices determined by active markets for the specific securities the Company has invested in, and therefore fall into Level 1 of the fair value hierarchy.
 
For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each major category of assets and liabilities is presented below:

   
Fair Value Measurements as of
March 31, 2011 Using
  
Fair Value Measurements as of
December 31, 2010 Using
 
Description
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
  
Significant Other Observable Inputs
(Level 2)
  
Quoted Prices in Active Markets for Identical Assets
(Level 1)
  
Significant Other Observable Inputs
(Level 2)
 
Available-for-sale securities
 $2,126     $2,061    
Derivative interest rate contract
     $6,192      $4,856 
Insurance deposit
  10,138       10,135     
Total assets
 $12,264  $6,192  $12,196  $4,856 
                  
Derivative interest rate contract
             $(291)
Total liabilities
             $(291)

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

The available-for-sale securities shown above consist of marketable securities that represent shares in a Vanguard REIT fund that were purchased to facilitate a tax efficient structure for the 2005 disposition of Woodland mall and is classified within Deferred Charges and Other Assets.

Financial Instruments Carried at Other Than Fair Values

Community Development District Obligation

The owner of one shopping center pays annual special assessment levies of a Community Development District (CDD), which provided certain infrastructure assets and improvements. As the amount and period of the special assessments were determinable, the Company capitalized the infrastructure assets and improvements and recognized an obligation for the future special assessments to be levied. At March 31, 2011 and December 31, 2010, the book value of the infrastructure assets and improvements, net of depreciation, was $43.1 million and $43.6 million, respectively. The related obligation is classified within Accounts Payable and Accrued Liabilities and had a balance of $62.6 million at March 31, 2011 and December 31, 2010. The fair value of this obligation, derived from quoted market prices, was $55.6 million at March 31, 2011 and $56.8 million at December 31, 2010.

Notes Payable

The fair value of notes payable is estimated based on quoted market prices, if available. If no quoted market prices are available, the fair value of notes payable are estimated using cash flows discounted at current market rates. When selecting discount rates for purposes of estimating the fair value of notes payable at March 31, 2011 and December 31, 2010, the Company employed the credit spreads at which the debt was originally issued. Excluding 2010 refinancings, an additional 1.25% credit spread was added to the discount rate at March 31, 2011 and 1.50% credit spread at December 31, 2010, to attempt to account for current market conditions. This additional spread is an estimate and is not necessarily indicative of what the Company could obtain in the market at the reporting date. The Company does not believe that the use of different interest rate assumptions would have resulted in a materially different fair value of notes payable as of March 31, 2011 or December 31, 2010. To further assist financial statement users, the Company has included with its fair value disclosures an analysis of interest rate sensitivity.
 
The estimated fair values of notes payable at March 31, 2011 and December 31, 2010 are as follows:

   
2011
  
2010
 
   
Carrying Value
  
Fair Value
  
Carrying Value
  
Fair Value
 
Notes payable
 $2,636,672  $2,598,073  $2,656,560  $2,616,986 

The fair values of the notes payable are dependent on the interest rates used in estimating the values. An overall 1% increase in rates employed in making these estimates would have decreased the fair values of the debt shown above at March 31, 2011 by $73.5 million or 2.8%.

See Note 3 regarding the fair value of the Unconsolidated Joint Ventures’ notes payable, and Note 6 regarding additional information on derivatives.
Document Information
3 Months Ended
Mar. 31, 2011
Document Type
10-Q 
Amendment Flag
FALSE 
Document Period End Date
2011-03-31 
Entity Information
3 Months Ended
Mar. 31, 2011
Jun. 30, 2010
Entity Registrant Name
Taubman Centers Inc 
 
Entity Central Index Key
0000890319 
 
Current Fiscal Year End Date
12/31 
 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Public Float
 
2,000,000,000 
Entity Common Stock, Shares Outstanding
 
53,564,353 
Document Fiscal Year Focus
2011 
 
Document Fiscal Period Focus
Q1