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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

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

For the Quarterly Period Ended: March 31, 2004
Commission File No. 1-11530

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

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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

        As of May 3, 2004, there were outstanding 49,706,243 shares of the Company’s common stock, par value $0.01 per share.

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements.

The following consolidated financial statements of Taubman Centers, Inc. (the Company) are provided pursuant to the requirements of this item.

1

TAUBMAN CENTERS, INC.

CONSOLIDATED BALANCE SHEET
(in thousands, except share data)

See notes to consolidated financial statements.

2

TAUBMAN CENTERS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except share data)

See notes to consolidated financial statements.

3

TAUBMAN CENTERS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)

See notes to consolidated financial statements.

4

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Interim Financial Statements

        Taubman Centers, Inc. (the Company or TCO), a real estate investment trust, or REIT, is the managing general partner of The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG). The Operating Partnership is an operating subsidiary that engages in the ownership, management, leasing, acquisition, development, and expansion of regional retail shopping centers and interests therein. The Operating Partnership’s owned portfolio as of March 31, 2004 included 21 urban and suburban shopping centers in nine states. Another center is currently under construction in North Carolina.

        The consolidated financial statements of the Company include all accounts of the Company, TRG, and its consolidated subsidiaries, including The Taubman Company LLC (the Manager); all intercompany transactions have been eliminated. Investments in entities not controlled but over which the Company has significant influence (Unconsolidated Joint Ventures) are accounted for under the equity method. The Company has evaluated its investments in the Unconsolidated Joint Ventures and has concluded that the ventures are not variable interest entities as defined in FIN 46, as revised. Accordingly, the Company continues to account for its interests in these ventures under the guidance in Statement of Position 78-9 (SOP 78-9). The Company’s partners or other owners in these Unconsolidated Joint Ventures have important rights, as contemplated by paragraphs .09 and .10 of SOP 78-9, 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. Under the equity method of accounting, the investments in Joint Ventures are initially recorded at cost, and subsequently increased for additional contributions and allocations of income and reduced for distributions received.

        At March 31, 2004, the Operating Partnership’s equity included three classes of preferred equity (Series A, C, and D) 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 A Preferred Equity is owned by the Company and is eliminated in consolidation. The Series C and Series D Preferred Equity are owned by institutional investors and have a fixed 9% coupon rate, no stated maturity, sinking fund, or mandatory redemption requirements. The Company, beginning in September 2004 and November 2004, can redeem the Series C and Series D Preferred Equity, respectively.

        Because the net equity of the Operating Partnership unitholders is less than zero, the interest of the noncontrolling unitholders is presented as a zero balance in the consolidated balance sheet as of March 31, 2004 and December 31, 2003. The income allocated to the noncontrolling unitholders is equal to their share of distributions. The net equity of the Operating Partnership is less than zero because of 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.

        The Company’s ownership in the Operating Partnership at March 31, 2004 consisted of a 61% managing general partnership interest, as well as the Series A Preferred Equity interest. The Company’s average ownership percentage in the Operating Partnership for the three months ended March 31, 2004 and 2003 was 61% and 62%, respectively. At March 31, 2004, the Operating Partnership had 82,428,622 units of partnership interest outstanding, of which the Company owned 50,456,343. Included in the total units outstanding are 43,514 units issued in connection with the 1999 acquisition of Lord Associates that currently do not receive allocations of income or distributions, and 2,083,333 non-voting units issued in May 2003.

        Biltmore Fashion Park was sold in December 2003. The Company has separately presented the results of Biltmore Fashion Park as discontinued operations through the date of the sale.

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TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

        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, 2003. 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.

        Certain prior year amounts have been reclassified to conform to 2004 classifications.

Note 2 – Income Taxes

        The Company’s Taxable REIT Subsidiaries are subject to corporate level income taxes, which are provided for in the Company’s financial statements. The Company’s deferred tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. Deferred tax assets are reduced, if necessary, by a valuation allowance to the amount where realization is more likely than not assured after considering all available evidence. The Company’s temporary differences primarily relate to deferred compensation and depreciation. During the three months ended March 31, 2004, the Company’s federal income tax expense was zero as a result of a net operating loss incurred from its Taxable REIT Subsidiaries. As of March 31, 2004, the Company had a net deferred tax asset of $3.4 million, after a valuation allowance of $10.2 million.

Note 3 – Acquisitions

        In January 2004, the Company 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 the Company and a partnership controlled by Mr. Gordon and Mr. Lyon. The Company has carried the $11 million net exercise price as a liability on its balance sheet. The Company already recognized 100% of the financial results of the center in its financial statements.

Note 4 – Unsolicited Tender Offer

        During the three months ended March 31, 2004, the Company received $1.0 million in insurance recoveries relating to the unsolicited tender offer and related litigation, which were withdrawn and ended in October 2003. Costs incurred in connection with the unsolicited tender offer were $9.8 million during the three months ended March 31, 2003. Substantially all costs have been paid and no additional insurance recoveries are expected.

6

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

Note 5 — Investments in Unconsolidated Joint Ventures

        The Company has investments in joint ventures that own shopping centers. The Operating Partnership is the 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 at Pelican Bay.

        As of March 31, 2004, the Operating Partnership has a preferred investment in International Plaza of $15 million, on which an annual preferential return of 8.25% will accrue. In addition to the preferred return on its investment, the Operating Partnership is entitled to receive the balance of its preferred investment before any available cash will be utilized for distributions to non-preferred partners.

        The Company’s carrying value of its Investment in Unconsolidated Joint Ventures differs from its share of the partnership 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.

        Combined balance sheet and results of operations information is presented in the following table for all Unconsolidated Joint Ventures, followed by the Operating Partnership’s beneficial interest in the combined information. The combined information of the Unconsolidated Joint Ventures as of December 31, 2003 excludes the balances of Waterside Shops at Pelican Bay. A 25% interest in this center was acquired in December 2003. TRG’s basis adjustments as of March 31, 2004 include $68 million, $8 million, and $8 million related to the acquisitions of interests in Sunvalley, Arizona Mills, and Waterside, respectively, representing the differences between the acquisition prices and the book values of the ownership interests acquired. These amounts are being depreciated over the remaining useful lives of the underlying assets. Beneficial interest is calculated based on the Operating Partnership’s ownership interest in each of the Unconsolidated Joint Ventures.

7

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

8

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 6 – Beneficial Interest in Debt and Interest Expense

        In February 2004, the Company 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 the Operating Partnership. Proceeds from the financing were used to repay the existing $142 million loan.

        Also in February 2004, the $66 million loan on Woodland was repaid by the joint venture partners. The Operating Partnership used borrowings under a line of credit for its 50% share of the repayment.

        In January 2004, the Company 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. At the time of the refinancing, the forward-starting swaps hedging the planned Beverly refinancing were cash settled for $6.0 million. This realized loss is included in Accumulated OCI and is being recognized as interest expense over the ten-year term of the debt.

        Payments of principal and interest on the loans in the following table are guaranteed by the Operating Partnership as of March 31, 2004, including those of certain Unconsolidated Joint Ventures. The Stony Point Fashion Park loan agreement provides for a reduction of the amounts guaranteed as certain center performance and valuation criteria are met.

9

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

        The Operating Partnership’s beneficial interest in the debt, capital lease obligations, 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 consolidated subsidiaries excludes debt and interest relating to the minority interests in MacArthur Center (5% as of July 2003), The Mall at Wellington Green, and prior to March 2003, Great Lakes Crossing. Also excluded from this table is Biltmore Fashion Park, which is classified as discontinued operations through the date of its sale.

Note 7 – Incentive Option Plan

        The Operating Partnership has an incentive option plan for employees of the Manager. Incentive options generally become exercisable to the extent of one-third of the units on each of the third, fourth, and fifth anniversaries of the date of grant. Options expire ten years from the date of grant. The Operating Partnership’s units issued in connection with the incentive option plan are exchangeable for shares of the Company’s common stock under the Continuing Offer (Note 8).

        There were options for 312,012 units exercised during the three months ended March 31, 2004 at an average exercise price of $12.28 per unit. During the three months ended March 31, 2003, options for 80,985 units were exercised at a weighted average price of $12.73 per unit. There were no options granted during the three months ended March 31, 2004 and 2003. As of March 31, 2004, there were options for 1.1 million units outstanding with a weighted average exercise price of $12.11 per unit, all of which were vested.

        Currently, options for 3.3 million Operating Partnership units may be issued under the plan, including options outstanding for 1.1 million units. When the holder of an option elects to pay the exercise price by surrendering mature partnership units, only those units issued to the holder in excess of the number of units surrendered are counted for purposes of determining the remaining number of units available for future grants under the plan.

        In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123". This Statement amends FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has determined that it will apply the prospective method of implementing SFAS No. 148, and apply its expense recognition provisions to all employee awards granted, modified, or settled after January 1, 2003. During the three months ended March 31, 2004 and 2003, there would have been no additional compensation expense if the Company applied the fair value method of SFAS No. 148 to its existing options, as all were vested.

10

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 8 — Commitments and Contingencies

        At the time of the Company’s initial public offering (IPO) and acquisition of its partnership interest in the Operating Partnership, 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 units of partnership interest 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. 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. At A. Alfred Taubman’s election, his family and certain others may participate in tenders.

        Based on a market value at March 31, 2004 of $25.17 per common share, the aggregate value of interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $627 million. The purchase of these interests at March 31, 2004 would have resulted in the Company owning an additional 30% interest in the Operating Partnership.

        The Company has made a continuing, irrevocable offer to all present holders (other than certain excluded holders, including A. Alfred Taubman), 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, and all existing and future optionees under the Operating Partnership’s incentive option 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.

        The Company is currently involved in certain litigation arising in the ordinary course of business. Management believes that this litigation will not have a material adverse effect on the Company’s financial statements.

        Refer to Note 6 for the Operating Partnership’s guarantees of certain notes payable.

Note 9 — Earnings Per Share

        Basic earnings per common share are calculated by dividing earnings available to common shareowners by the average number of common shares outstanding during each period. For diluted earnings per common share, the Company’s ownership interest in the Operating Partnership (and therefore earnings) is adjusted assuming the exercise of all options for units of partnership interest under the Operating Partnership’s incentive option plan having exercise prices less than the average market value of the units using the treasury stock method. There were no options excluded from the computation of diluted earnings per share for the three months ended March 31, 2004 and 2003.

11

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 10 – Cash Flow Disclosures and Noncash Investing and Financing Activities

        Interest paid on mortgage notes and other loans of the Company’s continuing operations during the three months ended March 31, 2004 and 2003, net of amounts capitalized of $1.1 million and $2.3 million, was $20.2 million and $19.1 million, respectively. Interest paid on mortgage notes and other loans of discontinued operations during the three months ended March 31, 2003, was $1.5 million.

        During the three months ended March 31, 2004, Operating Partnership units valued at $7.6 million were issued in connection with the Company’s acquisition of the outside interest in Beverly Center (Note 3).

Note 11 – Subsequent Events

         Subsequent to March 31, 2004, the Company repurchased, and the Operating Partnership redeemed, 0.8 million shares of its common stock and units under an existing buyback program for $15.4 million. The remaining amount authorized under the program is $34.8 million.

        In April 2004, the Company completed a $140 million three year refinancing of the $130.6 million outstanding balance of the existing construction loan on The Mall at Wellington Green. The loan bears interest at a rate of LIBOR plus 1.5%. The payment of principal and interest is guaranteed 100% by the Operating Partnership. If a certain valuation criteria is not met in April 2006, a partial prepayment of debt will be required. The Company used its $8.6 million share of excess proceeds to pay down lines of credit.

        In April 2004, the Company announced that it had been informed by GMPT of its intention to pursue a recapitalization of its wholly-owned mall portfolio, which the Company currently manages. This initiative may include the sale of partial or full interests in one or more of eight of GMPT’s nine wholly-owned malls. The third-party management contracts continue to be in effect and the Company is actively managing and leasing the properties. If at some future date, GMPT cancels any of these contracts, 90 days notice is required. The Company allocates to these contracts $3 million to $5 million of annual overhead costs that would not be eliminated if all of the GMPT contracts were to be cancelled.

        In May 2004, the Company obtained a commitment for a $65 million recourse financing on Oyster Bay, which will provide funding for the land acquisition and other predevelopment costs up to construction of the mall.

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

        The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our expectations or beliefs concerning future events, 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 owned through joint ventures that are not controlled but over which we have significant influence (Unconsolidated Joint Ventures) are accounted for under the equity method.

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

        There are a number of items that affect the comparability of information used in measuring performance. During 2003, we opened Stony Point Fashion Park, acquired an interest in Waterside Shops at Pelican Bay, and sold our interest in Biltmore Fashion Park. Additional “comparable center” statistics that exclude Biltmore, Stony Point, and Waterside are provided to present the performance of comparable centers in our continuing operations.

Current Operating Trends and Other Recent Events

        The improvement in our sales statistics over the last nine months of 2003 continued through the first quarter of 2004, with sales per square foot increasing 12.7% over the first quarter of 2003, the largest quarterly increase in over a decade. 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 2004, we experienced a decrease in occupancy from 2003 primarily due to unscheduled closings. We continue to anticipate occupancy variances will turn positive in the third quarter, and we will end the year ahead of 2002‘s ending occupancy of 87%. Refer to “Seasonality” for occupancy and leased space statistics. Increased income from temporary in-line tenants and specialty leasing, which have 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 March 31, 2004, approximately 2.1% of space was occupied by temporary tenants. Including temporary tenants, occupancy increased slightly over the prior year. Lease cancellation income can also moderate the effect of lower occupancy. During the first quarter of 2004, we recognized our approximately $3.5 million and $0.1 million share of the Consolidated Businesses’ and Unconsolidated Joint Ventures’ lease cancellation revenue. We continue to expect approximately $5 million in lease cancellation income in 2004.

13

        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 periods of increasing sales, such as those we are currently experiencing, 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 may 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. Rent per square foot information during the first quarter for our consolidated businesses and unconsolidated joint ventures follows:

        The spread between rents on openings and closings may not be indicative of future periods, as this statistic is not computed on comparable tenant spaces, and can vary significantly from quarter to quarter depending on the total amount, location, and average size of tenant space opening and closing in the period.

        Stony Point Fashion Park, a wholly-owned regional center that opened in September 2003 in Richmond, Virginia, continues to perform well. The 2004 return on Stony Point is expected to be approximately 10.5% on our $115 million investment. This estimated return is a forward-looking statement and certain significant factors could cause the actual results to differ materially, including but not limited to: (1) early lease terminations and bankruptcies, (2) sales performance of the center, and (3) increases in operating costs. We expect to refinance Stony Point in the next couple of months, returning most, if not all, of our investment.

        We have been very active in managing our balance sheet, completing a series of new financings or refinancings of existing debt as outlined under “Debt 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. We also recently completed the acquisitions of interests in centers described under “Acquisitions.”

        In April 2004, we announced that we had been informed by GMPT of its intention to pursue a recapitalization of its wholly-owned mall portfolio, which we currently manage. This initiative may include the sale of partial or full interests in one or more of eight of GMPT’s nine wholly-owned malls. The third-party management contracts continue to be in effect and we are actively managing and leasing the properties. If at some future date, GMPT cancels any of these contracts, 90 days notice is required. We expect that any transaction that might result, including a cancellation of any or all eight of the center contracts, would have a non-material effect on our earnings for 2004 (excluding the impact of any potential non-recurring organizational charges). We allocate $3 million to $5 million of annual overhead costs that would not be eliminated if all of the GMPT contracts were to be cancelled. The estimate of the effect of any cancellations of the contracts is a forward-looking statement and certain significant factors could cause the actual results to differ materially, including but not limited to: (1) the timing of the notices of cancellation of the management contracts, and (2) the number of centers for which contracts will be cancelled.

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        In July 2003, May Company (May) announced that it intends to divest 32 of its 86 Lord & Taylor stores, including four at our centers. 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.

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

Acquisitions

        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 December 2003, we acquired a 25% interest in Waterside Shops at Pelican Bay, located in Naples, Florida, for $22 million.

Debt and Equity Transactions

        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.

        Also 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.

        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.

        Also in January 2004, we issued partnership units in connection with the acquisition of the additional interest in Beverly Center (see Acquisitions).

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 the first quarter of 2004, we recovered through our insurance $1.0 million of costs incurred in connection with the unsolicited tender offer and related litigation. Substantially all costs have been paid and no additional insurance recoveries are expected.

Subsequent Events

        In April 2004, we completed a $140 million three year refinancing of the $130.6 million outstanding balance of the existing construction loan on The Mall at Wellington Green. The loan bears interest at a rate of LIBOR plus 1.5%. The payment of principal and interest is guaranteed 100% by the Operating Partnership. If a certain valuation criteria is not met in April 2006, a partial prepayment of debt will be required. We used our $8.6 million share of excess proceeds to pay down lines of credit.

        Also in April 2004, we resumed repurchases of our common stock under the existing buyback program, as well as obtained a financing commitment for Oyster Bay (Liquidity and Capital Resources – Subsequent Events).

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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 61% and 62% during the three months ended March 31, 2004 and 2003, respectively.

        In December 2003, we sold our interest in Biltmore Fashion Park. The results of Biltmore Fashion Park 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.

        Reconciliations of Net Income (Loss) to Funds from Operations and Beneficial Interest in EBITDA are presented following the Comparison of the Three Months Ended March 31, 2004 to the Three Months Ended March 31, 2003.

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Comparison of the Three Months Ended March 31, 2004 to the Three Months Ended March 31, 2003

        The following table sets forth operating results for the three months ended March 31, 2004 and March 31, 2003, showing the results of the Consolidated Businesses and Unconsolidated Joint Ventures:

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Consolidated Businesses

        Total revenues for the quarter ended March 31, 2004 were $101.3 million, a $3.8 million or 3.9% increase over 2003. Minimum rents increased primarily due to the opening of Stony Point. Minimum rent also increased due to tenant rollovers and temporary tenants, which offset decreases due to the decline in occupancy. Other income was consistent with the prior year, with gains on peripheral land sales offsetting a decrease in lease cancellation revenue. Gains on peripheral land sales are expected to be $5 million in 2004.

        Total operating costs were $91.7 million, an $8.6 million or 8.6% decrease over the comparable period in 2003. Other operating expense decreased due to decreases in advertising costs and bad debt expense, as well as a decrease in the charge to operations for pre-development activities. During 2004, $1.0 million of insurance proceeds were received relating to costs expended in connection with the unsolicited tender offer, while $9.8 million in costs were incurred during 2003. General and administrative costs increased primarily due to the mark to market of deferred long-term compensation grants. Excluding these mark to market adjustments, we expect general and administrative expenses to be approximately $5.5 million each quarter. A one dollar change in our stock price increases or decreases our general and administrative expenses by $0.3 million. Interest expense increased primarily due to increased debt and decreased capitalized interest upon the opening of Stony Point, as well as the refinancing of Beverly Center, partially offset by decreases due to lower floating rates.

Unconsolidated Joint Ventures

        Total revenues for the three months ended March 31, 2004 were $80.0 million, a $0.6 million or 0.8% increase from 2003. Minimum rents increased primarily due to the acquisition of the interest in Waterside Shops at Pelican Bay, as well as tenant rollovers and temporary tenants. Percentage rents increased primarily due to Waterside, as well as improved sales performance at certain tenants at other centers. Expense recoveries increased primarily due to Waterside. Other revenue decreased primarily due to a decrease in lease cancellation revenue.

        Total operating costs increased by $1.3 million to $60.4 million for the three months ended March 31, 2004. Recoverable expenses increased primarily due to Waterside. Interest expense increased due to the 2003 refinancing of Millenia, partially offset by the payoff of debt on Woodland Mall.

        As a result of the foregoing, income of the Unconsolidated Joint Ventures decreased by $0.7 million to $19.6 million. Our equity in income of the Unconsolidated Joint Ventures was $9.6 million, a $0.8 million decrease from 2003.

Net Income

        As a result of the foregoing, our income before discontinued operations and minority and preferred interests increased by $11.6 million to $19.2 million for 2004. After allocation of income to minority and preferred interests, the net income (loss) allocable to common shareowners for 2004 was $3.8 million compared to $(7.1) million in 2003.

        Estimates regarding anticipated 2004 income and expenses 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, potential purchasers of peripheral land, and others, 2) increases in operating costs, and 3) timing of transactions.

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Reconciliation of Net Income (Loss) to Funds from Operations

Reconciliation of Net Income (Loss) to Beneficial Interest in EBITDA

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Liquidity and Capital Resources

        In the following discussion, references to beneficial interest represent the Operating Partnership’s share of the results of its consolidated and unconsolidated businesses. We do not have, and have not had, any parent company indebtedness; all debt discussed represents obligations of the Operating Partnership or our subsidiaries and joint ventures.

        Capital resources are required to maintain our current operations, complete construction on Northlake Mall, which is currently under development, pay dividends, and fund planned capital spending for future developments and other commitments and contingencies. We believe that our net cash provided by operating activities, distributions from our joint ventures, the unutilized portions of our credit facilities, and our ability to access the capital markets assure adequate liquidity to meet current and future cash requirements and will allow us to conduct our operations in accordance with our dividend and financing policies. The following sections contain information regarding our recent capital transactions and sources and uses of cash; beneficial interest in debt and sensitivity to interest rate risk; and historical capital spending. We then provide information regarding our anticipated future capital spending; covenants, commitments, and contingencies; and dividend policies.

Summaries of 2004 Capital Activities and Transactions

        As of March 31, 2004, we had a consolidated cash balance of $18.3 million. Additionally, we have a secured $275 million line of credit. This line had $30.0 million of borrowings as of March 31, 2004 and expires in November 2004 with a one-year extension option. We also have available a second secured bank line of credit of up to $40 million. This line had $7.9 million outstanding as of March 31, 2004 and expires in November 2004.

        During 2004, we completed a transaction to acquire the minority interest in Beverly Center. Also, financings of approximately $493 million were completed relating to Dolphin Mall and Beverly Center. These transactions are more fully described in Results of Operations.

Operating Activities

        Our net cash provided by operating activities was $8.2 million in 2004, compared to $15.8 million in 2003. In 2004, increases in cash related primarily to increases in rents and recoveries, and additional operating cash flows due to the opening of Stony Point Fashion Park, offset by payments of costs previously accrued in connection with the unsolicited tender offer.

Investing Activities

        Net cash used in investing activities was $45.7 million in 2004 compared to $24.1 million in 2003.

        Cash used in investing activities was impacted by the timing of capital expenditures, with additions to properties and/or contributions to joint ventures in 2004 and 2003 for the construction of Northlake Mall and Stony Point Fashion Park, as well as other development activities and other capital items. A tabular presentation of 2004 capital spending is shown in Capital Spending. Additionally, $3.3 million was used in 2004 to acquire an additional interest in Beverly Center and $3.2 million was used in 2003 to acquire an additional interest in Great Lakes Crossing.

        Sources of cash used in funding these investing activities included distributions from Unconsolidated Joint Ventures, as well as the financing activities described in the next section. Contributions to Unconsolidated Joint Ventures of $33 million in 2004 were used to fund the repayment of debt at Woodland. Distributions in excess of earnings from Unconsolidated Joint Ventures provided $6.9 million in 2004 and $27.6 million in 2003. In 2003, these distributions included $21.0 million of excess proceeds from the March 2003 refinancing of The Mall at Millenia. Net proceeds from sales of peripheral land were $5.4 million and $0.6 million in 2004 and 2003, respectively. The timing of land sales is variable and proceeds from land sales can vary significantly from period to period.

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Financing Activities

        Net cash provided by financing activities was $25.3 million in 2004, compared to $0.9 million of cash provided in 2003.

        Net cash used in financing activities was primarily impacted by cash requirements of the investing activities described in the preceding section. Proceeds from the issuance of debt, net of payments, issuance costs, and settlement of the Beverly swap agreement were $50.2 million in 2004, compared to $24.1 million in 2003. Issuance of stock pursuant to the Continuing Offer related to the exercise of employee options contributed $3.8 million in 2004 and $1.0 million in 2003. Total dividends and distributions paid were $28.7 million and $24.3 million in 2004 and 2003, respectively.

Beneficial Interest in Debt

        At March 31, 2004, the Operating Partnership’s debt and its beneficial interest in the debt of its Consolidated and Unconsolidated Joint Ventures totaled $2,188.6 million with an average interest rate of 5.68% excluding amortization of debt issuance costs and the effects of interest rate hedging instruments. These costs are reported as interest expense in the results of operations. Included in beneficial interest in debt is debt used to fund development and expansion costs. Beneficial interest in assets on which interest is being capitalized totaled $75.5 million as of March 31, 2004. Beneficial interest in capitalized interest was $1.1 million for the quarter ended March 31, 2004. The following table presents information about our beneficial interest in debt as of March 31, 2004 (amounts may not add due to rounding):

        In addition, as of March 31, 2004, $210.9 million of our beneficial interest in floating rate debt is covered under interest rate cap agreements with LIBOR cap rates ranging from 4.6% to 8.2% with terms ending August 2004 through July 2006.

Subsequent Events

         Subsequent to March 31, 2004, the Company repurchased, and the Operating Partnership redeemed, 0.8 million shares of its common stock and units under an existing buyback program for $15.4 million. The remaining amount authorized under the program is $34.8 million.

        In April 2004, the Company completed a $140 million three year refinancing of the $130.6 million outstanding balance of the existing construction loan on The Mall at Wellington Green. The loan bears interest at a rate of LIBOR plus 1.5%. The payment of principal and interest is guaranteed 100% by the Operating Partnership. If a certain valuation criteria is not met in April 2006, a partial prepayment of debt will be required. The Company used its $8.6 million share of excess proceeds to pay down lines of credit.

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        In May 2004, the Company obtained a commitment for a $65 million recourse financing on Oyster Bay, which will provide funding for the land acquisition and other predevelopment costs up to construction of the mall.

Sensitivity Analysis

        We have exposure to interest rate risk on our debt obligations and interest rate instruments. We use derivative instruments primarily to manage exposure to interest rate risks inherent in variable rate debt and refinancings. We routinely use cap, swap, and treasury lock agreements to meet these objectives. Based on the Operating Partnership’s beneficial interest in floating rate debt in effect at March 31, 2004, excluding debt fixed under interest rate swaps, a one percent increase or decrease in interest rates on this floating rate debt would decrease or increase cash flows by approximately $3.9 million and, due to the effect of capitalized interest, annual earnings by approximately $3.7 million. Based on our consolidated debt and interest rates in effect at March 31, 2004, a one percent increase in interest rates would decrease the fair value of debt by approximately $59.8 million, while a one percent decrease in interest rates would increase the fair value of debt by approximately $64.3 million.

Contractual Obligations

        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 (primarily for construction), and other long-term commitments. The commitment for long-term compensation decreased by $6.9 million from December 31, 2003. Planned capital spending increased related to Oyster Bay (see Planned Capital Spending). There were no material changes in capital lease obligations, operating leases, or purchase obligations during the quarter ended March 31, 2004. Detail of our debt obligations as of March 31, 2004, including expected settlement periods is contained in the table below:

Loan Commitments and Guarantees

        Certain loan agreements contain various restrictive covenants, including minimum net worth requirements, minimum debt service and fixed charges coverage ratios, a maximum payout ratio on distributions, a minimum debt yield ratio, and a leverage ratio, the latter two being the most restrictive. The Operating Partnership is in compliance with all of its covenants.

        Certain debt agreements, including all construction facilities, contain performance and valuation criteria that must be met for the loans to be extended at the full principal amounts; these agreements provide for partial prepayments of debt to facilitate compliance with extension provisions. A partial prepayment on the Wellington Green construction loan was made in January 2004 and the loan was refinanced in April 2004 (see Subsequent Events).

        Payments of principal and interest on the loans in the following table are guaranteed by the Operating Partnership as of March 31, 2004. The Stony Point Fashion Park loan agreement provides for a reduction of the amount guaranteed as certain center performance and valuation criteria are met.

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