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

Form 10-Q

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

For the Quarterly Period Ended: September 30, 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 October 29, 2004, there were outstanding 48,600,865 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 OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except share data)

See notes to consolidated financial statements.

4

TAUBMAN CENTERS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)

See notes to consolidated financial statements.

5

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 September 30, 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). The Company also consolidates the accounts of the owner of the Oyster Bay project (Note 6), which qualifies as a variable interest entity under FASB Interpretation No. 46 “Consolidation of Variable Interest Entities” (FIN 46R) and in which the Operating Partnership holds the majority variable interest. 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 46R. 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 September 30, 2004, the Operating Partnership’s equity included four classes of preferred equity (Series A, C, D, and F) 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, D, and F Preferred Equity are owned by institutional investors and have no stated maturity, sinking fund, or mandatory redemption requirements. The Series C and D Preferred Equity have a fixed 9% coupon rate and the Series F Preferred Equity has a fixed 8.2% coupon rate. The Company can redeem the Series C, D, and F Preferred Equity beginning in September 2004, November 2004, and May 2009, respectively. The Series C, D, and F Preferred Equity are convertible into Taubman Centers Preferred Stock beginning 10 years from the initial dates of issuance, having substantially similar terms as the related classes of preferred equity. The Series B Preferred Stock is currently held by partners in TRG other than the Company. The Series B Preferred Stock entitles its holders to one vote per share on all matters submitted to the Company’s shareholders and votes together with the common stock on all matters as a single class.

        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 September 30, 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.

6

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

        The Company’s ownership in the Operating Partnership at September 30, 2004 consisted of a 60% managing general partnership interest, as well as the Series A Preferred Equity interest. The Company’s average ownership percentage in the Operating Partnership for both the nine months ended September 30, 2004 and 2003 was 61%. At September 30, 2004, the Operating Partnership had 80,510,645 units of partnership interest outstanding, of which the Company owned 48,538,366. 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. In 2004, the Company recognized a $0.3 million adjustment to the gain on the disposition of the center.

        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.

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 and nine months ended September 30, 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 September 30, 2004, the Company had a net deferred tax asset of $3.4 million, after a valuation allowance of $9.8 million.

Note 3 – Acquisitions

        In July 2004, the Company acquired an additional 23.6% interest in International Plaza from an outside owner for $60.2 million in cash, increasing its ownership in the center to 50.1%. The center is encumbered by a $187.5 million mortgage; the beneficial interest in the debt attributable to the additional interest acquired is $44.3 million. In conjunction with the purchase, the Company also repaid its $20 million note to the former investor, which carried an interest rate of 13%. As a result of the acquisition, the Company has a controlling interest in the center and began consolidating its results as of the purchase date. Prior to the acquisition date, the Company accounted for International Plaza on the equity method. At the date of the acquisition, the center’s assets and liabilities were $241 million and $208 million, respectively. The Company has not yet finalized its allocations of the purchase price to the tangible and intangible assets and liabilities acquired. As of September 30, 2004, the Operating Partnership has a preferred investment in International Plaza of $30 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 distribution to the non-preferred partner.

7

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

        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 had 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 nine months ended September 30, 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 $25.1 million during the nine months ended September 30, 2003.

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.

        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. The results of International Plaza are included in this information through the acquisition date (Note 3). TRG’s basis adjustments as of September 30, 2004 include $67 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.

8

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

9

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 6 – Beneficial Interest in Debt and Interest Expense

        In August 2004, the $76 million loan on Stamford Town Center 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 July 2004, the Company closed on a $142 million construction facility for Northlake Mall. This loan has a three-year maturity with two one-year extension options and bears interest at a rate of LIBOR plus 1.75%. The payment of principal and interest is guaranteed 100% by the Operating Partnership. The amounts guaranteed and the interest rate on the loan may be reduced as certain performance and valuation criteria are met.

        In June 2004, the Company completed a $115 million refinancing of the $74 million outstanding balance of the existing construction loan on Stony Point Fashion Park. The 10-year mortgage loan bears an all-in interest rate of 6.28%. The Company used the excess proceeds to pay down lines of credit and to pay off the $10.2 million outstanding balance of the land loan on The Shops at Willow Bend.

        In May 2004, the Operating Partnership entered into a series of agreements related to a project at Oyster Bay, New York. The property is being developed in a build-to-suit structure to facilitate a 1031 like-kind exchange in order to provide flexibility for disposing of assets in the future. While the Company has no specific asset sale in mind, the Company is committed to recycling its capital over time and believes that this planning will facilitate future transactions. A third party acquired the Operating Partnership’s option to purchase land at Oyster Bay, New York and reimbursed it for its project costs to date. Subsequently, the third party acquired the land and became the owner of the project. The Operating Partnership is the developer of the project and has an option to purchase the project. The owner will provide 3% of project funding and will lease the property to a wholly owned subsidiary of the Operating Partnership. A senior lender will provide 62% of the project costs at a rate of LIBOR plus 2.0%. A wholly owned subsidiary of the Operating Partnership will provide 35% of the project funding under a junior subordinated financing at LIBOR plus 2.75% to the owner. The Operating Partnership will also guarantee the lease payments and the completion of the project. The lease payments are structured to cover debt service on the senior loan, junior loan, a return (greater of LIBOR plus 4.0% or 8.0%) on the owner’s 3% equity investment during the term of the lease, and repayment of the principal and 3% equity contribution upon termination. As of September 30, 2004, the balances of the senior loan and owner equity contribution were $38.9 million and $1.9 million, respectively; the senior loan is limited to a total commitment of $62 million until municipal approvals have been obtained. The Operating Partnership consolidates the owner and other entities described above and the junior loan and other intercompany transactions are eliminated in consolidation.

        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. The Company used the excess proceeds to pay down lines of credit.

        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, pay down lines of credit and $20 million of the Wellington construction loan, and pay 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.

        Other financing activity is described in Notes 3 and 12.

10

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

        Payments of principal and interest on the loans in the following table are guaranteed by the Operating Partnership as of September 30, 2004.

        In addition to the guarantees shown above, payments of rent and all other sums payable related to the Oyster Bay arrangement as described above are also guaranteed by the Operating Partnership.

        The Company is required to escrow cash balances for specific uses stipulated by its lenders, including ground lease payments, taxes, insurance, debt service, capital improvements, leasing costs, and tenant allowances. As of September 30, 2004 and December 31, 2003, the Company’s cash balances restricted for these uses were $21.7 million and $8.4 million, respectively.

        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 International Plaza (49% as of July 2004), 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.

11

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 7 – Equity Transactions

        During 2004, under an existing buyback program, the Company repurchased 2,447,781 shares of its common stock at an average price of $20.50. For each share of stock repurchased, an equal number of Operating Partnership units were redeemed. Cumulatively, since the program’s inception in March 2000, the Company has repurchased approximately 9.6 million shares for a total of $150 million, the maximum amount permitted under the program. Repurchases of common stock have been financed through general corporate funds, including equity issuances, and through borrowings under existing lines of credit.

        In May 2004, the Company completed a $30 million private placement of preferred equity in the Operating Partnership. The Series F Preferred Equity was purchased by an institutional investor, and has a fixed 8.2% coupon and no stated maturity, sinking fund, or mandatory redemption requirements. The Series F Preferred Equity is convertible into Taubman Centers Series F Preferred Stock in ten years, having substantially similar terms to the Preferred Equity. The Preferred Equity is callable in five years by the Operating Partnership.

Note 8 – 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 9).

        There were options for 841,816 units exercised during the nine months ended September 30, 2004 at an average exercise price of $12.28 per unit. During the nine months ended September 30, 2003, options for 135,293 units were exercised at a weighted average price of $12.16 per unit. Of the options exercised during 2004, 217,259 were exercised at $12.17 per unit by executive officers of the Company who elected to hold the units instead of exchanging them for common shares under the Continuing Offer. There were no options granted during the nine months ended September 30, 2004 and 2003. As of September 30, 2004, there were options for 0.6 million units outstanding with a weighted average exercise price of $11.96 per unit, all of which were vested.

        Currently, options for 2.8 million Operating Partnership units may be issued under the plan, including options outstanding for 0.6 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 adopted the prospective method of implementing SFAS No. 148, applying its expense recognition provisions to all employee awards granted, modified, or settled after January 1, 2003. During the nine months ended September 30, 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.

12

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 9 — Commitments and Contingencies

        At the time of the Company’s initial public offering 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 September 30, 2004 of $25.83 per common share, the aggregate value of interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $643 million. The purchase of these interests at September 30, 2004 would have resulted in the Company owning an additional 31% 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 not currently involved in any material litigation, nor to its knowledge is any material litigation threatened against it.

        Refer to Note 6 for the Operating Partnership’s guarantees of certain notes payable and to Note 12, Subsequent Events.

13

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 10 — Earnings Per Share

        Basic earnings per share amounts are based on the weighted average of common shares outstanding for the respective periods. Diluted earnings per share amounts are based on the weighted average of common shares outstanding plus the dilutive effect of common stock equivalents. Common stock equivalents include outstanding partnership units exchangeable for common shares under the Continuing Offer, outstanding options for units of partnership interest under the Operating Partnership’s incentive option plan, and unissued partnership units under unit option deferral elections. In computing the potentially dilutive effect of these common stock equivalents, they are assumed to be exchanged for common shares under the Continuing Offer, increasing the weighted average number of shares outstanding. The potentially dilutive effects of partnership units outstanding and/or issuable under the unit option deferral elections are calculated using the if-converted method, while the effects of partnership units that would result from the exercise of options are calculated using the treasury stock method. Prior to 2004, diluted earnings per share was computed assuming the Company’s ownership interest in the Operating Partnership (and therefore earnings) were adjusted for additional partnership units issuable for outstanding options and unit option deferral elections, without assuming their exchange for common shares under the Continuing Offer. Earnings per share under this method were not materially different than the results of the method used in 2004.

        As of September 30, 2004, there were options for 0.6 million units of partnership interest outstanding that were excluded from the computation of diluted earnings per share in 2004, as their effect was antidilutive. Additionally, as of September 30, 2004, there were 7.4 million partnership units outstanding and 0.9 million unissued partnership units under unit option deferral elections currently receiving income allocations equal to distributions paid (Note 1), which may be exchanged for common shares of the Company under the Continuing Offer (Note 9). These outstanding units and unissued units could only be dilutive to earnings per share if the minority interests’ ownership share of the Operating Partnership’s income was greater than their share of distributions.

14

TAUBMAN CENTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 11 – Noncash Investing and Financing Activities

        During the nine months ended September 30, 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). Also, the Company entered into capital leases valued at $3.5 million relating to renovations and mall furnishings. Additionally, consolidated assets and liabilities increased upon consolidation of the accounts of International Plaza (Note 3).

Note 12 – Subsequent Events

        In October 2004, the Company closed on a $350 million secured revolving credit facility. The facility bears interest at LIBOR plus 0.80% and expires in February 2008, with a one-year extension option. Initial borrowings of $135 million on the new credit facility were used to pay down the balance on the Operating Partnership’s existing $275 million line of credit.

        In October 2004, The Mills Corporation finalized its acquisition of 50 percent interests in nine of General Motors Pension Trusts’ (GMPT) shopping centers, completing a recapitalization of GMPT’s mall portfolio. The Company has reached an agreement with GMPT to cease management of these centers, effective November 1, 2004. The Company expects to recognize a restructuring charge of approximately $6 million during the fourth quarter of 2004 relating to the termination of these contracts. Substantially all of this charge represents employee severance payments.

        Also in October 2004, the maturity date on the Operating Partnership’s existing secured $40 million line of credit was extended to February 2008.

15

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, variable interest entities for which we are the primary beneficiary, 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.

        Tenant sales and sales per square foot information are operating statistics used in measuring the productivity of the portfolio and are based on reports of sales furnished by mall tenants.

        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. In July 2004, we acquired an additional controlling interest in International Plaza. The center’s results of operations are included within our consolidated results subsequent to the acquisition date.

Current Operating Trends and Other Recent Events

        Our tenant sales statistics have continued to improve through the third quarter of 2004, with sales per square foot increasing 6.0% over the third quarter of 2003 and 8.9% over the nine month period ended September 30, 2003. 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.

16

        As anticipated, occupancy trends began to show improvement in the third quarter of 2004, in which ending occupancy increased to 86.9% from 85.2% in the third quarter of 2003. We believe we are on track to exceed occupancy of 87% by year-end. 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, continues to contribute to growth. Temporary tenants, defined as those with lease terms less than 12 months, are not included in occupancy or leased space statistics. As of September 30, 2004, approximately 3.1% of space was occupied by temporary tenants, an increase of 0.6%, from 2.5% at September 30, 2003. Including temporary tenants, occupancy was 90.0% at September 30, 2004, an increase from 87.7% at September 30, 2003. Lease cancellation income can also moderate the effect of vacancies. During the third quarter of 2004, we recognized our approximately $1.5 million and $0.3 million share of the Consolidated Businesses’ and Unconsolidated Joint Ventures’ lease cancellation revenue.

        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 for comparable centers in our consolidated businesses and unconsolidated joint ventures follows:

        The spread between rents on openings and closings during the third quarter of 2004 was impacted by the Unconsolidated Joint Venture closing statistic being calculated on a very small number of closings, while the opening statistics were affected by openings of large spaces and spaces at value centers, which typically command lower rental rates. 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.

        Recent events include the September 2004 opening of Saks Fifth Avenue (Saks) at The Shops at Willow Bend, which has experienced strong sales growth in 2004 and should be further benefited by Saks. Additionally, a renovation and expansion will begin soon at Waterside Shops at Pelican Bay, which will add approximately 78 thousand feet of mall tenant space. This project is expected to be completed in October 2005.

        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 our 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.

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        In October 2004, The Mills Corporation finalized its acquisition of 50 percent interests in nine of General Motors Pension Trusts’ (GMPT) shopping centers, completing a recapitalization of GMPT’s mall portfolio. We have reached an agreement with GMPT to cease management of these centers, effective November 1, 2004. We expect to recognize a restructuring charge of approximately $6 million during the fourth quarter of 2004 relating to the termination of these contracts. Substantially all of this charge represents employee severance payments. Excluding the restructuring charge, the impact on our results of operations is not expected to be material in 2004. The impact on 2005 results of operations is expected to be a reduction of income of approximately $4 million. These are forward-looking statements and certain significant factors could cause the actual results to differ materially, including, but not limited to, the number of employees terminated, the nature of the positions eliminated, actual severance payments made, and the results of other restructuring activities undergone.

        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. Lord & Taylor has closed at International Plaza and The Mall at Wellington Green and we have purchased the spaces. We have announced that a 120,000 square foot Robb & Stucky furniture and design studio showroom will open at International Plaza in early 2005. The new store will occupy the entire first level and part of the second level of the former Lord & Taylor space. Plans also include an additional 20,000 square feet of specialty shop space on the second level with retailers to be announced at a future date. We are in discussions with potential tenants for the former Lord & Taylor space at Wellington Green and are optimistic that the center will benefit from a new use of the building. May is continuing to operate the Lord & Taylor stores at the remaining two centers although we are continuing discussions with May about the future of these stores.

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.

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        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.

Results of Operations

Openings and Acquisitions

        In July 2004, we acquired an additional 23.6% interest in International Plaza from an outside owner for $60.2 million in cash, increasing our ownership in the center to 50.1%. The center is encumbered by a mortgage, which had a balance of $187.5 million at the acquisition date; the beneficial interest in the debt attributable to the additional interest acquired was $44.3 million. In conjunction with the purchase, we also repaid our $20 million note to the former investor, which carried an interest rate of 13%. As a result of the acquisition, we have a controlling interest in the center and began consolidating its results as of the purchase date. Prior to the acquisition date, we accounted for International Plaza under the equity method of accounting. At the date of the acquisition, the center’s assets and liabilities were $241 million and $208 million, respectively. We have not yet finalized our allocations of the purchase price to the tangible and intangible assets and liabilities acquired. As of September 30, 2004, the Operating Partnership has a preferred investment in International Plaza of $30 million, on which an annual preferential return of 8.25% will accrue. In addition to the preferred return on our investment, the Operating Partnership is entitled to receive the balance of our preferred investment before any available cash will be utilized for distribution to the non-preferred partner.

        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, which is managed by our partner, the Forbes Company, for $22 million in cash. A project to redevelop and expand the center began in 2004 (see Liquidity and Capital Resources-Planned Capital Spending).

        Stony Point Fashion Park, a wholly-owned regional center, opened in September 2003.

        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.

        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%.

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Debt and Equity Transactions

        The following debt transactions were completed through September 30, 2004.

        Proceeds from the financings above were used to repay existing mortgage debt, pay down lines of credit, and to fund project and transaction costs. There were no borrowings on the Northlake Mall construction facility as of September 30, 2004. Additionally, the $76 million and $66 million loans on Stamford Town Center and Woodland were repaid in August and February 2004, respectively, by the joint venture partners; we used our existing lines of credit to fund our share of the repayments.

        In May 2004, we completed a $30 million private placement of 8.2% Series F Cumulative Redeemable Preferred Partnership Equity, which was purchased by an institutional investor.

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

        During 2004, under an existing buyback program, we repurchased 2,447,781 shares of our common stock at an average price of $20.50. For each share of our stock repurchased, an equal number of our Operating Partnership units were redeemed. Cumulatively, since the program’s inception in March 2000, we have repurchased approximately 9.6 million shares for a total of $150 million, the maximum amount permitted under our program. Repurchases of common stock have been financed through general corporate funds, including equity issuances, and through borrowings under existing lines of credit.

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 nine months ended September 30, 2004, we recovered through our insurance $1.0 million of costs incurred in connection with the unsolicited tender offer and related litigation, while we incurred $25.1 million in expenses during the nine months ended September 30, 2003.

Subsequent Events

        In October 2004, we closed on a $350 million secured revolving credit facility. The facility bears interest at LIBOR plus 0.80% and expires in February 2008, with a one-year extension option. Initial borrowings of $135 million on the new credit facility were used to pay down the balance on the Operating Partnership’s existing $275 million line of credit.

        Also in October 2004, the maturity date of the Operating Partnership’s existing secured $40 million line of credit was extended to February 2008.

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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 60% and 61% during the three and nine months ended September 30, 2004, respectively, and 59% and 61% during the three and nine months ended September 30, 2003, respectively.

        In December 2003, we sold our interest in Biltmore Fashion Park. The results of Biltmore Fashion Park are presented as discontinued operations. In 2004, we recognized a $0.3 million adjustment to the gain on the disposition of the center. The results of International Plaza are presented within the Consolidated Businesses for periods beginning July 1, 2004, as a result of our acquisition of a controlling interest in the center. Results of International Plaza prior to the acquisition date are included within the Unconsolidated Joint Ventures.

        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 Nine Months Ended September 30, 2004 to the Nine Months Ended September 30, 2003.

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Comparison of the Three Months Ended September 30, 2004 to the Three Months Ended September 30, 2003

        The following table sets forth operating results for the three months ended September 30, 2004 and September 30, 2003, showing the results of the Consolidated Businesses and Unconsolidated Joint Ventures: