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

FORM 10-K

OR

TAUBMAN CENTERS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Securities registered pursuant to Section 12(b) of the Act:

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

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 periods that the registrant was required to file such report(s)) and (2) has been subject to such filing requirements for the past 90 days.

     Yes X    No

As of March 5, 2004, the aggregate market value of the 49,724,783 shares of Common Stock held by non-affiliates of the registrant was $1.2 billion, based upon the closing price $24.68 on the New York Stock Exchange composite tape on such date. (For this computation, the registrant has excluded the market value of all shares of its Common Stock reported as beneficially owned by executive officers and 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 March 5, 2003, there were outstanding 50,456,343 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual shareholders meeting to be held in 2003 are incorporated by reference into Parts II and III.

PART I

Item 1. BUSINESS.

The Company

        Taubman Centers, Inc. (“we”, “us”, “our”, or “TCO”) was incorporated in Michigan in 1973 and had our initial public offering (“IPO”) in 1992. We own a 61% managing general partner’s interest in The Taubman Realty Group Limited Partnership (the “Operating Partnership” or “TRG”), through which we conduct all of our operations.

        We are engaged in the ownership, development, acquisition, and operation of regional shopping centers and interests therein. Our portfolio, as of December 31, 2003, included 21 urban and suburban centers located in nine states. One new center is under construction in North Carolina and is scheduled to open September 15, 2005. The Operating Partnership also owns certain regional retail shopping center development projects and more than 99% of The Taubman Company LLC (the “Manager”), which manages the shopping centers and provides other services to the Operating Partnership and to us. See the table on page 10 of this report for information regarding the centers.

        We are a real estate investment trust, or 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 and meet certain other requirements. The Operating Partnership’s partnership agreement provides that the Operating Partnership will distribute, at a minimum, sufficient amounts to its partners such that our pro rata share will enable us to pay shareholder dividends (including capital gains dividends that may be required upon the Operating Partnership’s sale of an asset) that will satisfy the REIT provisions of the Code.

Recent Developments

        For a discussion of business developments that occurred in 2003, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A).

The Shopping Center Business

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

Business of the Company

        We, as managing general partner of the Operating Partnership, are engaged in the ownership, management, leasing, acquisition, development, and expansion of regional shopping centers.

      The centers:

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

        Our portfolio is concentrated in highly productive super-regional shopping centers. Of the 21 centers, 20 had annual rent rolls at December 31, 2003 of over $10 million. We believe that this level of productivity is indicative of the centers’ strong competitive position and is, in significant part, attributable to our business strategy and philosophy. We believe that large shopping centers (including regional and especially super-regional shopping centers) are the least susceptible to direct competition because (among other reasons) anchors and large specialty retail stores do not find it economically attractive to open additional stores in the immediate vicinity of an existing location for fear of competing with themselves. In addition to the advantage of size, we believe that the centers’ success can be attributed in part to their other physical characteristics, such as design, layout, and amenities.

Business Strategy And Philosophy

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

        The centers compete for retail consumer spending through diverse, in-depth presentations of predominantly fashion merchandise in an environment intended to facilitate customer shopping. While some centers include stores that target high-end, upscale customers, each center is individually merchandised in light of the demographics of its potential customers within convenient driving distance.

        Our leasing strategy involves assembling a diverse mix of mall tenants in each of the centers in order to attract customers, thereby generating higher sales by mall tenants. High sales by mall tenants make the centers attractive to prospective tenants, thereby increasing the rental rates that prospective tenants are willing to pay. We implement an active leasing strategy to increase the centers’ productivity and to set minimum rents at higher levels. Elements of this strategy include terminating leases of under-performing tenants, renegotiating existing leases, and not leasing space to prospective tenants that (though viable or attractive in certain ways) would not enhance a center’s retail mix.

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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 primarily includes an active new center development program.

Internal Growth

        We expect that 90% of our future growth will come from our existing core portfolio and business. Although we’ve always had a culture of intensively managing our assets and maximizing the rents from tenants, we’re committed to improving the processes that significantly impact the core portfolio in order to drive even better performance.

        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 are working on three endeavors that we believe will lead to achievement of our key mission to “deliver above market profitable growth”. Our first endeavor is to become an even more customer centric company than we are today, which will enable us to make better decisions driven by a fact-based understanding of what retailers and shoppers want. Our second endeavor is to become more operationally excellent, which will enable us to achieve competitive cost efficiencies, greater discipline, and more timely processes and decision making. This is especially important as our competitors search for economies of scale in increasingly larger operations. Our third endeavor is to achieve profitable growth, which we’ve defined as maintaining the highest tenant sales and sales growth in the industry, and accelerating core operations growth over time. We believe further integrating these basic strategic themes throughout the organization will serve to coordinate and prioritize all of our efforts to achieve our strategy.

        We’ve identified the key drivers to achieve our core business strategy. These drivers fall into four categories: people drivers, organizational drivers, customer drivers and financial drivers. These drivers served as a basis for the companywide initiatives we worked on in 2003 and that we believe will establish a strong foundation for improved core performance. We made progress on our initiatives, including the implementation of a new lease process software package in 2003, which will help reduce the time between a tenant leaving a space and a new tenant paying rent in that space. In addition, in a year which we’ve experienced significant early tenant terminations, we’ve worked to maximize income by increasing the number of temporary tenants. Also, we’ve made improvements to our tenant grading system to ensure that the system is a strong predictor of a new tenant’s ability to pay contract rent for its entire term and to establish risk parameters for each asset to guide our leasing team. We’re continuing to work on these and other initiatives to improve core performance.

        We strongly believe that focusing management attention on these initiatives will improve our performance on these drivers and by establishing specific benchmarks and goals for these drivers, which we can measure year after year, we will have set the stage for future strong core operations growth.

Development of New Centers

        We are pursuing an active program of regional shopping center development. We believe that we have the expertise to develop economically attractive regional shopping centers through intensive analysis of local retail opportunities. We believe that the development of new centers is an important use of our capital and an area in which we excel. At any time, we have numerous potential development projects in various stages.

        The Mall at Millenia, a 1.1 million square foot center in which the Operating Partnership has a 50% interest, opened in October 2002 in Orlando, Florida.

        Stony Point Fashion Park, a 665,000 square foot wholly-owned center, opened September 18, 2003 in Richmond, Virginia.

        Northlake Mall, a 1.1 million square foot wholly-owned center in Charlotte, North Carolina is currently under construction and is scheduled to open September 15, 2005.

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        Our approximately $34.2 million balance of development pre-construction costs as of December 31, 2003 consists of costs relating to our Oyster Bay project in Syosset, New York. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations-Planned Capital Spending regarding the status of this project.

        Our policies with respect to development activities are designed to reduce the risks associated with development. We generally do not intend to acquire land early in the development process. Instead, we generally acquire options on land or form partnerships with landholders holding potentially attractive development sites. We typically exercise the options only once we are prepared to begin construction. The pre-construction phase for a regional center typically extends over several years and the time to obtain anchor commitments, zoning and regulatory approvals, and public financing arrangements can vary significantly from project to project. In addition, we do not intend to begin construction until a sufficient number of anchor stores have agreed to operate in the shopping center, such that we are confident that the projected sales and rents from Mall GLA are sufficient to earn a return on invested capital in excess of our cost of capital. Having historically followed these principles, our experience indicates that, on average, less than 10% of the costs of the development of a regional shopping center will be incurred prior to the construction period. However, no assurance can be given that we will continue to be able to so limit pre-construction costs. Unexpected costs due to extended zoning and regulatory processes may cause our investment in a project to exceed this historic experience.

        While we will continue to evaluate development projects using criteria, including financial criteria for rates of return, similar to those employed in the past, no assurances can be given that the adherence to these policies will produce comparable results in the future. In addition, the costs of shopping center development opportunities that are explored but ultimately abandoned will, to some extent, diminish the overall return on development projects (see Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Spending for further discussion of our development activities).

Strategic Acquisitions

        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) and that satisfy our strategic plans and pricing requirements. During 2003 we acquired:

Expansions of the Centers

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

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        The following table includes information regarding recent development, acquisition, and expansion activities:

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

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        The following tables contain certain information regarding per square foot minimum rent at the comparable centers, which exclude the discontinued operations at Biltmore Fashion Park, La Cumbre Plaza, and Paseo Nuevo, as well as centers opened or acquired during 2001 through 2003:

Lease Expirations

        The following table shows lease expirations based on information available as of December 31, 2003 for the next ten years for the centers in operation at that date:

        We believe that the information in the table is not necessarily indicative of what will occur in the future because of several factors, but principally because of early lease terminations at the centers. For example, the average remaining term of the leases that were terminated during the period 1997 to 2003 was approximately two years. The average term of leases signed during 2003 and 2002 was approximately seven years.

        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 2003, approximately 2.3% of leases were so affected compared to 1.7% in 2002. This statistic has ranged from 1.2% to 4.5% since we went public in 1992. Since 1991, the annual provision for losses on accounts receivable has been less than 2% of annual revenues.

Occupancy

        For comparable centers, leased space, ending occupancy, and average occupancy were 90.0%, 88.1%, and 87.8%, respectively, in 2003, and 93.3%, 90.3%, and 88.2%, respectively, in 2002. Mall tenant average occupancy, ending occupancy, and leased space rates of all centers are as follows:

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Major Tenants

        No single retail company represents 10% or more of our revenues. The combined operations of The Limited, Inc. accounted for approximately 5.2% of Mall GLA as of December 31, 2003 and 5.3% of 2003 minimum rent. No other single retail company accounted for more than 3% of Mall GLA or 4% of 2003 minimum rent. The following table shows the ten largest tenants and their square footage as of December 31, 2003:

General Risks of the Company

Economic Performance and Value of Shopping Centers Dependent on Many Factors

        The economic performance and value of our shopping centers are dependent on various factors. Additionally, these same factors will influence our decision whether to go forward on the development of new centers and may affect the ultimate economic performance and value of projects under construction (see other risks associated with the development of new centers under “Business of the Company — Development of New Centers”). Such factors include:

In addition, the value of shopping centers may be adversely affected by:

        Adverse changes in the economic performance and value of shopping centers would adversely affect our income and cash available to pay dividends.

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Third Party Interests in the Centers

        Some of the shopping centers are partially owned by non-affiliated partners through joint venture arrangements. As a result, we do not control all decisions regarding those shopping centers and may be required to take actions that are in the interest of the joint venture partners but not our best interests.

Bankruptcy of Mall Tenants or Joint Venture Partners

        We could be adversely affected by the bankruptcy of third parties. The bankruptcy of a mall tenant could result in the termination of its lease which would lower the amount of cash generated by that mall. In addition, if a department store operating an anchor at one of our shopping centers were to go into bankruptcy and cease operating, its closing may lead to reduced customer traffic and lower mall tenant sales which would, in turn, affect the amount of rent our tenants pay us. The profitability of shopping centers held in a joint venture could also be adversely affected by the bankruptcy of one of the joint venture partners if, because of certain provisions of the bankruptcy laws, we were unable to make important decisions in a timely fashion or became subject to additional liabilities.

Investments in and Loans to Third Parties

        We occasionally extend credit to third parties in connection with the sale of land or other transactions. We 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.

Third Party Contracts

        We provide property management, leasing, development, and other administrative services to centers owned by General Motors pension trusts, other third parties and to certain Taubman affiliates. The contracts under which these services are provided may be canceled or not renewed or may be renegotiated on terms less favorable to us. Certain overhead costs allocated to these contracts would not be eliminated if the contracts were to be canceled or not renewed.

Inability to Maintain Status as a REIT

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Environmental Matters

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

Personnel

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

        As of December 31, 2003, the Manager had 718 full-time employees. The following table provides a breakdown of employees by operational areas as of December 31, 2003:

Available Information

        We make available free of charge through our website at www.taubman.com all reports we electronically file with, or furnish to, the Securities Exchange Commission (the “SEC”), including our 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.

Item 2. PROPERTIES.

Ownership

        The following table sets forth certain information about each of the centers. The table includes only centers in operation at December 31, 2003. Excluded from this table is Northlake Mall which will open in 2005. Centers are owned in fee other than Beverly Center, Cherry Creek, International Plaza, MacArthur Center, and Sunvalley, which are held under ground leases expiring between 2049 and 2083.

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

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Anchors

        The following table summarizes certain information regarding the anchors at the operating centers (excluding the value centers) as of December 31, 2003:

Mortgage Debt

        The following table sets forth certain information regarding the mortgages encumbering the centers as of December 31, 2003. All mortgage debt in the table below is nonrecourse to the Operating Partnership, except for debt encumbering Dolphin Mall, Stony Point Fashion Park, The Mall at Wellington Green, and The Shops at Willow Bend. The Operating Partnership has guaranteed the payment of all or a portion of the principal and interest on the mortgage debt of these centers. The Stony Point Fashion Park and Wellington Green loan agreements provide for the reduction of the amounts guaranteed as certain center performance and valuation criteria are met. (See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Covenants and Commitments”). Assessment bonds totaling approximately $0.2 million, which are not included in the table, also encumber Sunvalley. A $2.3 million note secured by certain equipment of The Mall at Millenia is also excluded.

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

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Item 3. LEGAL PROCEEDINGS.

        Information required by this Item regarding proceedings terminated in the fourth quarter of 2003 is included in this report at Item 7 under the caption Management’s Discussion and Analysis of Financial Condition and Results of Operations, Unsolicited Tender Offer.

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

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

        On December 19, 2003, we held our annual meeting of shareholders. The matters on which shareholders voted were: the election of three directors to serve a three year term, and the ratification of the Board’s selection of Deloitte & Touche LLP as our independent auditors for the year ended December 31, 2003. Graham T. Allison, Peter Karmanos, Jr., and William S. Taubman were re-elected at the meeting, and the six remaining incumbent directors, Robert S. Taubman, Lisa A. Payne, Allan J. Bloostein, Jerome A. Chazen, S. Parker Gilbert, and Myron E. Ullman, III, continued to hold office after the meeting. The shareholders ratified the selection of the independent auditors. The results of the voting are shown below:

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

        The common stock of Taubman Centers, Inc. is listed and traded on the New York Stock Exchange (Symbol: TCO). As of March 5, 2004, the 50,456,343 outstanding shares of Common Stock were held by 675 holders of record. The closing price per share of the Common Stock on the New York Stock Exchange on March 5 was $24.68.

        The following table presents the dividends declared and range of share prices for each quarter of 2003 and 2002:

        Other information required by this item is hereby incorporated by reference to the table and footnote appearing in our definitive proxy statement for the annual meeting of shareholders to be held in 2004 (the “Proxy Statement”) under the caption “Management – Securities Authorized For Issuance Under Equity Compensation Plans.”

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Item 6. SELECTED FINANCIAL DATA.

        The following table sets forth selected financial data and should be read in conjunction with the financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report:

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

General Background and Performance Measurement

        Taubman Centers, Inc. (“we”, “us”, “our” or “TCO”) owns a managing general partner’s interest in The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG), through which we conduct all of our operations. The Operating Partnership owns, develops, acquires, and operates regional shopping centers nationally. The Consolidated Businesses consist of shopping centers that are controlled by ownership or contractual agreement, development projects for future regional shopping centers, and The Taubman Company LLC (the Manager). Shopping centers that are not controlled and that are owned through joint ventures with third parties (Unconsolidated Joint Ventures) are accounted for under the equity method.

        References in this discussion to “beneficial interest” refer to our ownership or pro-rata share of the item being discussed. Also, the operations of the shopping centers are often best understood by measuring their performance as a whole, without regard to our ownership interest. Consequently, in addition to the discussion of the operations of the Consolidated Businesses, the operations of the Unconsolidated Joint Ventures are presented and discussed as a whole.

        There are a number of items that affect the comparability of information used in measuring performance. During 2003, we opened Stony Point Fashion Park (Results of Operations — Recent Openings), acquired an interest in Waterside Shops at Pelican Bay, and sold our interest in Biltmore Fashion Park (Results of Operations — Acquisitions and Dispositions). During 2002, we opened The Mall at Millenia (Results of Operations — Recent Openings). Also during 2002, we acquired an interest in Sunvalley and sold our interests in La Cumbre Plaza and Paseo Nuevo (Results of Operations – Acquisitions and Dispositions). We opened four new shopping centers during 2001, which are currently not at stabilization. Additional “comparable center” statistics that exclude Biltmore, La Cumbre Plaza, The Mall at Millenia, Paseo Nuevo, Stony Point, Sunvalley, Waterside Shops at Pelican Bay, and the centers that opened in 2001 are provided to present the performance of comparable centers in our continuing operations.

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

        Our business is to lease space in our shopping centers. Generally these leases are long term (7 to 10 years). Therefore general economic trends most directly impact our tenants’ sales and consequently their ability to perform under their existing lease agreements and expand into new locations as well as our ability to find new tenants for our shopping centers. Tenant rents and expense recoveries represent over 90% of our total revenues. We recently have experienced decreases in occupancy, primarily due to unscheduled tenant closings. The impact on our income has been somewhat moderated by a significant increase in lease cancellation revenue and leasing to temporary in-line tenants. These trends are discussed under “Current Operating Trends.” The trend in tenant sales improved in 2003. Sales per square foot in 2003 continued to lead the industry, while mall tenant occupancy costs as a percentage of sales are within our historical norms. See “Mall Tenant Sales and Center Revenues” and “Rental Rates and Occupancy.”

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        The rents we are able to achieve are similarly affected by economic trends and tenants’ expectations thereof, as described under “Rental Rates and Occupancy”. In 2003, the spread between rents of tenants opening and those closing was within historical norms. Mall tenant sales, occupancy levels and our resulting revenues are seasonal in nature. Refer to “Seasonality” for these relationships, as well as descriptions of revenues that historically are not as predictable.

        Our analysis of our financial results begins under “Results of Operations”. We have been active in developing and expanding our shopping center portfolio, and we describe the most recent center openings, including Stony Point Fashion Park and The Mall at Millenia under “Recent Openings”. Also, over the last two years, we acquired additional interests in six centers and disposed of interests in three, as discussed under “Acquisitions and Dispositions”.

        We similarly have been very active in managing our balance sheet, completing a series of new financings or refinancings of existing debt, as well as a series of stock buybacks, issuances of partnership equity, and redemptions of partners’ interests in TRG, as outlined under “Debt Transactions” and “Equity Transactions”. We believe good balance sheet management — both for debt and equity — will continue to minimize exposure to interest rate risk and ensure adequate liquidity over the coming years.

        In the fall of 2002, we received an unsolicited proposal from Simon Property Group, which sought to acquire control of the company. A tender offer and litigation were commenced but ultimately ended in 2003 as described under “Unsolicited Tender Offer”.

        We have certain additional sources of income beyond our rental revenues and recoveries from tenants. We disclose the Operating Partnership’s share of these sources of income under “Other Income”. Included in this income are lease cancellation income and gains on peripheral land sales , which in 2003 were at a historical high and close to a historical low, respectively. The timing of this income is difficult to predict. Other sources of income derived from our shopping centers, such as parking garage and sponsorship income, have been increasing.

        We provide property management, leasing, development, and other administrative services to centers owned by General Motors pension trusts, other third parties, and certain Taubman affiliates. The General Motors pension trusts contracts are cancelable with 90 days notice. Certain annual overhead costs allocated to these contracts would not be eliminated if they were to be canceled or not renewed.

        Certain significant transactions that occurred in 2004, including financings and an acquisition of an additional interest in Beverly Center, are discussed in “Subsequent Events”. The preparation of our financial statements requires management to make significant estimates when applying certain accounting policies. Background and discussion of these policies, including those related to the valuation of our shopping centers, capitalization of development costs, valuation of accounts receivable, and valuations for acquired property and intangibles, are contained under “Application of Critical Accounting Policies”.

        With all the preceding information as background, we have then provided insight and explanations for variances in our financial results from 2001 through 2003 under “Comparison of 2003 to 2002” and “Comparison of 2002 to 2001". As information useful to understanding our results, we have described the presentation of our minority interest, the recent dispositions of interests in centers, and the reasons for our use of non-GAAP statistics such as EBITDA and Funds from Operations (FFO) under “Presentation of Operating Results”. Reconciliations from net income allocable to common shareowners to these statistics follow the annual comparisons.

        Our discussion of sources and uses of capital resources under “Liquidity and Capital Resources” begins with a brief overview of capital activities and transactions occurring in 2003. Analysis of specific operating, investing, and financing activities is then provided in more detail. Cash flows from rents and recoveries provide the resources for payments of interest and other operating expenses, leasing costs, and generally for required distributions and dividends. Recent positive operating cash flow generated by new center openings, increases in rents, and other positive events offset the cash used in connection with the unsolicited tender offer. Similarly, significant capital outflows continue in connection with the construction of new centers and acquisitions, financed through sales of centers, debt, and certain equity issuances.

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        Funding for new developments, acquisitions, and other capital spending typically is provided by new borrowings. As new developments reach their expected stabilized occupancy, we may be able to refinance the assets for more than the original financings, providing additional resources for growth. Specific analysis of our fixed and floating rates and periods of interest rate risk exposure is provided under “Beneficial Interest in Debt”. Completing our analysis of our exposure to rates are the effects of changes in interest rates on our cash flows and fair values of debt contained under “Sensitivity Analysis”.

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

        Development, renovation, and expansion of new and existing malls continues to be a significant use of our capital, as described in “Capital Spending” and “Planned Capital Spending”. Recent spending includes that related to the recently opened Stony Point Fashion Park and The Mall at Millenia, and the currently under construction Northlake Mall. A use of future capital may be for our planned Oyster Bay project in Syosset, New York. We hope to resolve entitlement issues and receive the necessary approvals to begin construction in late 2004 for a planned 2006 opening of this project.

        Dividends are also significant uses of our capital resources. Tax status of our dividends and the factors considered when determining the amount of our dividends, including requirements arising because of our status as a REIT, are described under “Dividends”. We again increased our quarterly dividend in the fourth quarter of 2003.

Current Operating Trends

        Since 2001 the regional shopping center industry has been affected by the softness in the national economy. Economic and geopolitical pressures that affect consumer confidence, job growth, energy costs, and income gains can affect retail sales growth and impact our ability to lease vacancies and negotiate rents at advantageous rates. The impact of a soft economy on our current results of operations can be moderated by lease cancellation income, which tends to increase in down-cycles of the economy. During 2003, we recognized our approximately $11.7 million share of lease cancellation revenue, which exceeded historical averages; this level of lease cancellation income is not indicative of future periods (see Results of Operations — Other Income).

        Our sales statistics have shown improvement over the last nine months of 2003 (see Mall Tenant Sales and Center Revenues). Sales directly impact the amount of percentage rents certain tenants and anchors pay. The effects of increases or declines in sales on our operations are moderated by the relatively minor share of total rents (approximately two percent) percentage rents represent. However, a sustained trend in sales does impact, either negatively or positively, our ability to lease vacancies and negotiate rents at advantageous rates.

        In 2003, we experienced a decrease in occupancy from 2002 (see Rental Rates and Occupancy). Increased income from temporary in-line tenants, which has become an integral part of our business, partially offsets the impact of lower occupancy in the portfolio. Temporary tenants, defined as those with lease terms less than 12 months, are not included in occupancy or leased space statistics. As of December 31, 2003, approximately 3.7% of space was occupied by temporary tenants.

Mall Tenant Sales and Center Revenues

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

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

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

        Tenant sales per square foot in 2003 increased by 2.4% compared to 2002. Sales per square foot have increased year over year for each of the last nine months of 2003.

Rental Rates and Occupancy

        As leases have expired in the shopping centers, we have generally been able to rent the available space, either to the existing tenant or a new tenant, at rental rates that are higher than those of the expired leases. In a period of increasing sales, rents on new leases will tend to rise as tenants’ expectations of future growth become more optimistic. In periods of slower growth or declining sales, rents on new leases will grow more slowly or will decline for the opposite reason. However, center revenues nevertheless increase as older leases roll over or are terminated early and replaced with new leases negotiated at current rental rates that are usually higher than the average rates for existing leases. The following table contains certain information regarding rentals at the comparable shopping centers:

        The opening and closing rent statistics are not computed on comparable tenant spaces, and can vary significantly from period to period depending on the total amount, location, and average size of tenant space opening and closing in the period.

        Generally, the rent spread between opening and closing stores is in our historic range of $5.00 to $10.00 per square foot. This statistic is difficult to predict in part because of unscheduled lease terminations, which may have actual average closing rents per square foot that vary from the average rent per square foot of scheduled lease expirations.

        In 2003, the square feet of GLA opened decreased from 2002, primarily due to certain large tenant spaces (greater than 10,000 square feet) that opened in 2002. During 2003, the number of tenants opened in the 13 comparable centers actually increased from 2002. The number of square feet of GLA closed increased in 2003 due to a number of unscheduled lease terminations and bankruptcies.

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

        A number of unscheduled lease terminations and bankruptcies accounted for the majority of the decline in comparable center occupancy. Tenant bankruptcy filings as a percentage of the total number of tenant leases was 2.3% in 2003, compared to 1.7% in 2002 and 4.5% in 2001. We are expecting a reversal of this decline in occupancy by mid 2004 and anticipate 2004 year end to be ahead of 2002 occupancy.

Seasonality

        The regional shopping center industry is seasonal in nature, with mall tenant sales highest in the fourth quarter due to the Christmas season, and with lesser, though still significant, sales fluctuations associated with the Easter holiday and back-to-school events. While minimum rents and recoveries are generally not subject to seasonal factors, most leases are scheduled to expire in the first quarter, and the majority of new stores open in the second half of the year in anticipation of the Christmas selling season. Additionally, most percentage rents are recorded in the fourth quarter. Accordingly, revenues and occupancy levels are generally highest in the fourth quarter. Included in revenues are gains on sales of peripheral land and lease cancellation income that may vary significantly from quarter to quarter.

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

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Results of Operations

Recent Openings

        Stony Point Fashion Park, a wholly-owned regional center, opened September 18, 2003 in Richmond, Virginia. Stony Point Fashion Park has performed well since its opening. The center is fully leased and was 92% occupied by December 2003. The 2004 return on Stony Point is expected to be approximately 10.5%. The 665,000 square foot center is anchored by Saks Fifth Avenue, Galyan’s, and Dillard’s.

        The Mall at Millenia, a 1.1 million square foot regional center in which the Operating Partnership has a 50% interest, opened in October 2002, in Orlando, Florida. The Mall at Millenia was 95% occupied at December 31, 2003.

        The Mall at Wellington Green, a 90% owned 1.3 million square foot regional center, opened in October 2001 in Wellington, Florida. A new anchor, Nordstrom, and additional tenant space opened in November 2003. International Plaza, a 26% owned 1.2 million square foot regional center, opened in September 2001 in Tampa, Florida. The Shops at Willow Bend, a wholly-owned 1.3 million square foot regional center, opened in August 2001 in Plano, Texas. A new anchor, Saks Fifth Avenue, will open in September 2004. Dolphin Mall, a 1.3 million square foot value regional center, opened in March 2001, in Miami, Florida. In October 2002, we acquired the remaining 50% interest in Dolphin Mall (see Results of Operations — Acquisitions and Dispositions).

        Estimates regarding returns are forward-looking statements and certain significant factors could cause the actual results to differ materially, including but not limited to: (1) actual results of negotiations with tenants, (2) timing of tenant openings, (3) early lease terminations and bankruptcies, (4) sales performance of the centers, and (5) increases in operating costs.

Acquisitions and Dispositions

        In December 2003, we sold our interest in Biltmore Fashion Park to The Macerich Company. The sales price consisted of $51 million of cash and $30.2 million in Macerich partnership units (which were then used as consideration for redeeming the former Biltmore owners’ TRG partnership interests, see Equity Transactions). Biltmore Fashion Park was encumbered by $77.4 million of property level fixed rate debt maturing in July 2009 and bearing an interest rate of 7.68%. We recognized a gain of approximately $48 million representing the excess of the sales price over the book value of our investment in the center.

        Also in December 2003, we acquired a 25% interest in Waterside Shops at Pelican Bay, located in Naples, Florida, for $22 million in cash. We are exploring redevelopment opportunities along with the Forbes Company, which is managing the center.

        In July 2003, we acquired an additional 25% interest in MacArthur Center, bringing our ownership in the shopping center to 95%, for $4.9 million in cash and 190,909 operating partnership units. Although the number of units issued was determined based on a negotiated value of $27.50 per unit, these units have been recorded based on our common share price of $19.48 as of the closing date of July 10, 2003.

        In March 2003, we acquired the 15% minority interest in Great Lakes Crossing for $3.2 million in cash, pursuant to a favorable pricing formula pre-established in the partnership agreement, bringing our ownership in the center to 100%.

        In October 2002, we acquired Swerdlow Real Estate Group’s (Swerdlow’s) 50% interest in Dolphin Mall, bringing our ownership in the shopping center to 100%. The results of Dolphin have been consolidated in our results subsequent to the acquisition date (prior to that date, Dolphin was accounted for under the equity method as an Unconsolidated Joint Venture). In May 2002, we acquired a 50% general partnership interest in SunValley Associates, a California general partnership that owns the Sunvalley shopping center located in Concord, California; Sunvalley is accounted for under the equity method as an Unconsolidated Joint Venture. Also in May 2002, we purchased an additional interest in Arizona Mills, bringing our interest in the center to 50%, and sold our interest in Paseo Nuevo. In March 2002, we sold our interest in La Cumbre Plaza.

        See also Subsequent Events.

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Debt Transactions

        We completed a series of debt transactions in the three year period ended December 31, 2003, as follows:

Equity Transactions

        We also completed a series of equity transactions in the three year period ended December 31, 2003, as follows:

        The December 2003 repurchase transaction, which occurred immediately following the sale of Biltmore Fashion Park, included the transfer of the Macerich units received from the sale to several Operating Partnership unitholders in redemption and retirement of their Operating Partnership units. These unitholders were the original owners of Biltmore Fashion Park.

        The partnership units issued in connection with the May 2003 investment have the same attributes as existing partnership units, except that they do not have voting rights and have limited resale rights for a specified period of time. An affiliate of the investor owned an interest in Beverly Center, which we purchased in January 2004 (see Subsequent Events).

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        In March 2000, our Board of Directors authorized the purchase of up to $50 million of our common stock in the open market. For each share of our stock repurchased, an equal number of our Operating Partnership units are redeemed. In February 2003, our Board of Directors authorized the expansion of the existing buyback program to repurchase up to an additional $100 million of our common shares. As of December 31, 2003, we had purchased, and the Operating Partnership had redeemed, approximately 7.1 million shares and units for approximately $99.8 million. The December 2003 repurchase transaction was separately authorized by the Board and does not count against the amount of buybacks authorized under the share buyback program.

Unsolicited Tender Offer

        In the fall of 2002, we received an unsolicited proposal from Simon Property Group, Inc. (SPG) seeking to acquire control of TCO. The proposal was subsequently revised. Thereafter, a tender offer was commenced by SPG and later joined by a subsidiary of Westfield America Trust (Westfield). Our Board of Directors rejected the proposal and recommended that the shareholders not tender their shares pursuant to SPG’s and Westfield’s tender offer. SPG filed suit against us to enjoin the voting of our Series B Non-participating Convertible Preferred Stock based on a variety of legal theories. In October 2003, SPG and Westfield withdrew their tender offer, and TCO and SPG mutually agreed to end the litigation. During 2003 we incurred approximately $30.4 million in costs, in connection with the unsolicited tender offer and related litigation, offset by insurance recoveries of $5.6 million. During 2002, $5.1 million of costs were incurred. No further costs are expected to be incurred.

Other

        In July 2003, May Company announced that it intends to divest 32 of its 86 Lord & Taylor stores, including four at our centers. As May Company’s press release outlined, the company has decided to exit certain markets in the south and southwest including Florida, Texas, and Colorado. This impacts Cherry Creek, International Plaza, Wellington Green, and Willow Bend. May had also announced in its press release that it will continue to fulfill its obligations under existing documents to operate each store until satisfactory arrangements can be negotiated to divest each location. We are continuing discussions with May and expect that a mutually satisfactory and positive solution for each center will be found.

        We previously had investments in certain technology companies (MerchantWired and Fashionmall.com) for which charges of $8.1 million and $1.9 million were recorded during the years ended December 31, 2002 and 2001, respectively, when events and circumstances indicated their carrying amounts were not recoverable.

        In October 2001, we committed to a restructuring of our development operations. A restructuring charge of $2.0 million was recorded primarily representing the cost of certain involuntary terminations of personnel. Pursuant to the restructuring plan, 17 positions were eliminated within the development department.

        Effective January 1, 2001, we adopted Statement of Financial Accounting Standards (SFAS) No. 133 “Accounting for Derivative Instruments and Hedging Activities” and its related amendments and interpretations, which establish accounting and reporting standards for derivative instruments. The initial adoption of SFAS 133 resulted in a reduction to income of approximately $8.4 million as the cumulative effect of a change in accounting principle and a reduction to Other Comprehensive Income (OCI) of $0.8 million. These amounts represented the transition adjustments necessary to mark our share of interest rate agreements to fair value as of January 1, 2001.

Other Income

        We have certain additional sources of income beyond our rental revenues, recoveries from tenants, and revenues from management, leasing, and development services, as summarized in the following table. While gains on peripheral land sales in 2003 were less than in the prior year, we expect that 2004 gains on land sales will be about $5 million. Interest income in 2002 decreased primarily due to the settlement of a note receivable. Lease cancellation income is dependent on the overall economy and performance of particular retailers in specific locations and is difficult to predict; prior to 2001, it had averaged between $2 million and $4 million. 2003 lease cancellation income was unusually high due mostly to a small number of tenants who shifted their business strategy and closed stores that had only recently opened. In 2004, lease cancellation revenue is expected to be significantly lower than in 2003 and is currently estimated to be approximately $5 million. Estimates regarding anticipated 2004 other income are forward-looking statements and certain significant factors could cause the actual results to differ materially, including but not limited to: (1) actual results of negotiations with tenants, counterparties, and potential purchasers of peripheral land, and (2) timing of transactions.

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Management, Leasing, and Development Services

        In addition, we provide property management, leasing, development, and other administrative services to centers owned by the General Motors pension trusts, other third parties, and certain Taubman affiliates. In 2003, 2002, and 2001, revenues recognized related to these services, net of costs of providing the services, were $2.7 million, $2.6 million, and $7.0 million, respectively. The amount in 2002 decreased from 2001 due to the acquisition of the interest in Sunvalley and the completion of a short-term contract. The General Motors pension trusts contracts are cancelable with 90 days notice. Certain annual overhead costs of between $3 million and $5 million allocated to these contracts would not be eliminated if they were to be canceled or not renewed.

Subsequent Events

        In January 2004, we completed a $347.5 million refinancing on Beverly Center. The 10-year mortgage loan carries an all-in interest rate of 5.5%. Proceeds were used to pay off the $146 million 8.36% mortgage, $20 million of the Wellington construction loan, all of the outstanding balances on the lines of credit, and transaction fees. The net impact of this financing is expected to be an increase in interest expense of $2.7 million for 2004.

        Also in January 2004, we purchased the additional 30% ownership of Beverly Center from Sheldon Gordon and the estate of E. Phillip Lyon. Consideration of approximately $11 million for this interest consisted of $3.3 million in cash and 276,724 of newly issued partnership units valued at $27.50 per unit. The price of the acquisition was determined pursuant to a 1988 option agreement between us and a partnership controlled by Mr. Gordon and Mr. Lyon. We have carried the $11 million net exercise price as a liability on our balance sheet. We already recognized 100% of the financial results of the center in our financial statements.

        In February 2004, the $66 million loan on Woodland was repaid by the joint venture partners. We used borrowings under a line of credit for our 50% share of the repayment.

        Also in February 2004, we completed a $145 million refinancing, secured by a mortgage on Dolphin Mall. The loan matures in February 2006 and may be extended for a total of three years. The loan bears interest at a rate of LIBOR plus 2.15%. The payment of principal and interest is guaranteed 100% by TRG. Proceeds from the financing were used to repay the existing $142 million loan.

        Subsequent to these financings, 74% of our debt was fixed rate and 26% was floating, not including the impact of hedge instruments.

Application of Critical Accounting Policies

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

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Valuation of Shopping Centers

        All properties, including those under construction and/or owned by joint ventures, are reviewed for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. Impairment would be recognized when the sum of expected cash flows (undiscounted and without interest charges) is less than the carrying value of the property. The expected cash flows of a shopping center are dependent on estimates and other factors subject to change, including (1) changes in the national, regional, and/or local economic climates, (2) competition from other shopping centers, stores, clubs, mailings, and the internet, (3) increases in operating costs, (4) bankruptcy and/or other changes in the condition of third parties, including anchors and tenants, and (5) expected holding period. These factors could cause our expected future cash flows from a shopping center to change, and, as a result, an impairment could be considered to have occurred. To the extent an impairment has occurred, the excess carrying value of the property over its estimated fair value is charged against operations. There were no impairment charges recognized in the periods covered within this Annual Report. As of December 31, 2003, the consolidated net book value of our properties was $2.1 billion, representing over 90% of our consolidated assets. We also have varying ownership percentages in the properties of Unconsolidated Joint Ventures with a total combined net book value of $0.9 billion. These amounts include certain development costs that are described in the policy that follows.

Capitalization of Development Costs

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

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

        Our approximately $34.2 million balance of development pre-construction costs as of December 31, 2003 consists of costs relating to our Oyster Bay project in Syosset, New York. Refer to Planned Capital Spending regarding the status of this project.

Valuation of Accounts Receivable

        Rents and expense recoveries from tenants are our principal source of income; they represent over 90% of our revenues. In generating this income, we will routinely have accounts receivable due from tenants. The collectibility of tenant receivables is affected by bankruptcies, changes in the economy, and the ability of the tenants to perform under the terms of their lease agreements. While we estimate potentially uncollectible receivables and provide for them through charges against income, actual experience may differ from those estimates. Also, if a tenant were not able to perform under the terms of its lease agreement, receivable balances not previously provided for may be required to be charged against operations. Bad debt expense was approximately 1% of total revenues in 2003, while bankruptcy filings affected 2.3% of tenant leases during the year. Since 1991, the annual provision for losses on accounts receivable has been less than 2% of annual revenues.

Valuations for Acquired Property and Intangibles

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

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New Accounting Pronouncements

        In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (SFAS 150). This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is currently effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective for us on July 1, 2003. The provisions of SFAS 150 had no impact on our financial statements.

        In January 2003, the FASB issued Interpretation No. 46 “Consolidation of Variable Interest Entities” (FIN 46). This Interpretation addresses consolidation by business enterprises of certain variable interest entities and the conditions under which they should be included in consolidated financial statements. FIN 46 is effective for the first interim or annual period ending after December 15, 2003. In December 2003, the FASB issued Interpretation No. 46R (FIN 46R), which served to clarify guidance in FIN 46, and provided additional guidance surrounding the application of FIN 46. We adopted the provisions of FIN 46R during the fourth quarter of 2003, evaluating the equity-at-risk and other characteristics of our financial interests in our consolidated and unconsolidated businesses. The adoption did not change the entities that we currently consolidate in our financial statements.

Presentation of Operating Results

        The following tables contain the operating results of our Consolidated Businesses and the Unconsolidated Joint Ventures. Income allocated to the minority partners in the Operating Partnership and preferred interests is deducted to arrive at the results allocable to our common shareowners. Because the net equity of the Operating Partnership is less than zero, the income allocated to the minority partners is equal to their share of distributions. The net equity of these minority partners is less than zero due to accumulated distributions in excess of net income and not as a result of operating losses. Distributions to partners are usually greater than net income because net income includes non-cash charges for depreciation and amortization. Amounts allocable to minority partners in certain consolidated joint ventures are added back or deducted to arrive at our net results. Our average ownership percentage of the Operating Partnership was 60% in 2003 and 62% in both 2002 and 2001.

        The results of Dolphin Mall are presented within the Consolidated Businesses subsequent to its October 2002 acquisition. Prior to that date, they are included within the Unconsolidated Joint Ventures.

        In December 2003, we sold our interest in Biltmore Fashion Park. The results of Biltmore Fashion Park and the results of La Cumbre Plaza and Paseo Nuevo, including the gains on their disposition in 2002, are presented as discontinued operations.

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

        The National Association of Real Estate Investment Trusts (NAREIT) defines FFO as net income (loss) (computed in accordance with Generally Accepted Accounting Principles (GAAP)), excluding gains (or losses) from extraordinary items and sales of properties, plus real estate related depreciation and after adjustments for unconsolidated partnerships and joint ventures. We believe that FFO is a useful supplemental measure of operating performance for REITs. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, we and most industry investors and analysts have considered presentations of operating results that exclude historical cost depreciation to be useful in evaluating the operating performance of REITs. We primarily use FFO in measuring performance and in formulating corporate goals and compensation. Our presentation of FFO is not necessarily comparable to the FFO of other REITs due to the fact that not all REITs use the NAREIT definition. FFO should not be considered an alternative to net income as an indicator of our operating performance. Additionally, FFO does not represent cash flows from operating, investing or financing activities as defined by GAAP.

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Comparison of 2003 to 2002

        The following table sets forth operating results for 2003 and 2002, showing the results of the Consolidated Businesses and Unconsolidated Joint Ventures:

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Consolidated Businesses

        Total revenues for the year ended December 31, 2003 were $388.5 million, a $32.3 million or 9.1% increase over 2002. Minimum rents increased $22.1 million, primarily due to the consolidation of Dolphin Mall and the opening of Stony Point. Minimum rents also increased due to increased average occupancy and income from temporary tenants and specialty retailers. Expense recoveries increased due to related recoverable expenses. The increase in expense recoveries was partially offset by a $2.7 million decrease as a result of a property tax credit at a certain center. Other revenue decreased by $0.7 million from 2002 primarily due to a decrease in gains on sales of peripheral land, partially offset by an increase in lease cancellation revenue.

        Total operating costs were $393.9 million, a $51.8 million or 15.1% increase over the comparable period in 2002. Recoverable expenses increased primarily due to Dolphin Mall, partially offset by a $4.9 million property tax credit at one of the centers. Other operating expense increased due to increases in property management costs and bad debt expense, partially offset by a decrease in the charge to operations for pre-development activities. During 2003, $24.8 million in costs, net of insurance recoveries, were incurred in connection with the unsolicited tender offer. During 2002, write-offs of technology investments of $8.1 million were recognized. General and administrative expenses increased primarily due to deferred bonus expense based on our stock price and higher insurance costs. Interest expense increased primarily due to the consolidation of Dolphin Mall, increased debt and decreased capitalized interest upon opening of Stony Point, and increases due to the hedging of certain floating rate debt, partially offset by decreases due to the lower floating rates and paydown of debt from the proceeds of the sale of La Cumbre Plaza and Paseo Nuevo. Depreciation expense increased primarily due to the acquisition of the additional interest in Dolphin Mall and the opening of Stony Point.

Unconsolidated Joint Ventures

        Total revenues for the year ended December 31, 2003 were $320.0 million, a $27.9 million or 9.6% increase from 2002. Minimum rents increased $14.8 million, primarily due to Millenia and the acquisition of the interest in Sunvalley, partially offset by a decrease due to the transfer of Dolphin Mall to the Consolidated Businesses. Minimum rents also increased due to increased average occupancy, tenant rollovers, and income from temporary tenants and specialty retailers. Expense recoveries increased primarily due to Millenia and Sunvalley, partially offset by the transfer of Dolphin Mall. Other revenue increased primarily due to an increase in lease cancellation revenue, partially offset by a decrease in gains on sales of peripheral land.

        Total operating costs increased by $10.2 million to $248.9 million for the year ended December 31, 2003. Recoverable expenses increased primarily due to Millenia and Sunvalley, partially offset by the transfer of Dolphin Mall. Recoverable expenses in 2002 included the reversal of a $2.8 million special assessment tax accrued during 2001. Other operating expense decreased due to the transfer of Dolphin Mall and charges for development activities incurred during 2002, partially offset by Millenia and Sunvalley. Interest expense increased due to the Sunvalley acquisition and refinancing and increased debt and decreased capitalized interest upon opening of Millenia. These increases were partially offset by a decrease due to the transfer of Dolphin Mall. Depreciation expense decreased due to the transfer of Dolphin Mall, partially offset by Millenia and Sunvalley.

        As a result of the foregoing, income of the Unconsolidated Joint Ventures increased by $17.7 million to $71.1 million. Our equity in income of the Unconsolidated Joint Ventures was $36.7 million, an $8.8 million increase from 2002.

Net Income

        As a result of the foregoing, our income before discontinued operations and minority and preferred interests decreased by $10.7 million to $31.3 million for 2003. Discontinued operations in 2003 included a $49.6 million gain on the disposition of Biltmore and adjustments to prior gains, while 2002 included $12.3 million of gains on the dispositions of La Cumbre Plaza and Paseo Nuevo. After allocation of income to minority and preferred interests, the net income (loss) allocable to common shareowners for 2003 was $21.2 million compared to $(2.2) million in 2002.

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Comparison of 2002 to 2001

        The following table sets forth operating results for 2002 and 2001, showing the results of the Consolidated Businesses and Unconsolidated Joint Ventures: