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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: March 31, 2005
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, 2005, there were outstanding 50,691,245 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

General

        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, 2005 included 21 urban and suburban shopping centers in nine states. Two new centers are under construction in New Jersey and North Carolina.

        In 2005, the Company formed Taubman Asia, which will be the platform for its future expansion into the Asia-Pacific region. Taubman Asia will be headquartered in Hong Kong and will seek opportunities in Asia to augment the Company’s existing development and acquisition activities.

Consolidation

        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, 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 by the Company but over which the Company may exercise 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 Unconsolidated Joint Ventures are initially recorded at cost, and subsequently increased for additional contributions and allocations of income and reduced for distributions received.

Ownership

        Besides the Company’s common stock, there are three classes of preferred stock (Series A, B and G) outstanding. Dividends on the Series A and Series G preferred stocks are cumulative and are payable in arrears on or before the last day of each calendar quarter. The Company owns corresponding Series A and Series G Preferred Equity interests in the Operating Partnership that entitle the Company to income and distributions (in the form of guaranteed payments) in amounts equal to the dividends payable on the Company’s Series A and Series G Preferred Stock.

        The Company also is obligated to issue to partners in the Operating Partnership other than the Company, upon subscription, one share of nonparticipating Series B Preferred Stock. 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. The holders of Series B Preferred Stock are not entitled to dividends or earnings. Under certain circumstances, the Series B Preferred Stock is convertible into common stock at a ratio of 14,000 shares of Series B Preferred Stock for one share of common stock.

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TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

The Operating Partnership

        At March 31, 2005, the Operating Partnership’s equity included three classes of preferred equity (Series A, F, and G) 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 and Series G Preferred Equity are owned by the Company and are eliminated in consolidation. The Series F Preferred Equity is owned by an institutional investor.

        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, 2005 and December 31, 2004. 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, 2005 consisted of a 62% managing general partnership interest, as well as the Series A and G Preferred Equity interests. The Company’s average ownership percentage in the Operating Partnership for both the three months ended March 31, 2005 and 2004 was 61%. At March 31, 2005, the Operating Partnership had 81,074,049 units of partnership interest outstanding, of which the Company owned 49,976,870.

Finite Life Entity

        SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. At March 31, 2005, the Company held a controlling majority interest in a consolidated entity with a specified termination date in 2080. The minority owner’s interest in this entity is to be settled upon termination by distribution or transfer of either cash or specific assets of the underlying entity. The estimated fair value of this minority interest was approximately $45.6 million at March 31, 2005, compared to a book value of zero.

Other

        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, 2004. 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 reclassifications have been made to 2004 amounts to conform to current year 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, 2005, 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, 2005, the Company had a net deferred tax asset of $3.1 million, after a valuation allowance of $9.8 million. As of December 31, 2004, the net deferred tax asset was $3.4 million, after a valuation allowance of $9.4 million.

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TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 3 – Acquisitions and New Center Development

        In January 2005, the Company entered into an agreement to invest in The Pier at Caesars (“The Pier”), located in Atlantic City, New Jersey, with Gordon Group Holdings LLC (“Gordon”), who is developing the center. The Pier is currently under construction, and is expected to open in 2006. Under the agreement, the Company will have a 30% interest in The Pier. The Company’s capital contribution in The Pier will be made in three steps, with the initial investment of $4 million made at closing. A second payment equal to 70% of the Company’s projected required total investment (less the initial $4 million payment) is expected to be made within six months after the project opens. The third and final payment will be made shortly after the completion of the project’s stabilization year (2007) based on its actual net operating income (NOI) and debt levels. The investment in The Pier is accounted for under the equity method (Note 5). During construction of the project, Gordon will loan the venture the funding for capital expenditures in excess of the construction loan financing. Interest on the loan will be accruable at the short-term applicable federal rate (AFR) under Section 1274(d) of the Internal Revenue Code and will be repaid before any distributions to the venture partners. The contributions of the Company will be used to repay the principal portion of the loan. Consequently, the Company expects that its share of distributions and income will initially be less than its residual 30% interest.

        In July 2004, the Company acquired an additional 23.6% interest in International Plaza, increasing its ownership in the center to 50.1%. 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. As of March 31, 2005, 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 the 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.

        In January 2004, the Company purchased the additional 30% ownership of Beverly Center with consideration including both cash and the issuance of partnership units. The Company already recognized 100% of the financial results of the center in its financial statements.

        The Company’s approximately $79 million balance of development pre-construction costs as of March 31, 2005 consists of costs relating to its Oyster Bay project in the Town of Oyster Bay, New York. Both Neiman Marcus and Lord & Taylor have committed to the project and retailer interest has been very strong. Although the Company still needs to obtain the necessary entitlement approvals to move forward with the project, the Company is encouraged by six straight favorable court decisions. In February 2005, the Company had its hearing on the seventh round of court actions, and is awaiting the ruling. The Company expects continued success with the ongoing litigation, but if the Company is ultimately unsuccessful in the litigation process, it is anticipated that its recovery on this asset would be significantly less than its current investment. Given the current status, the Company believes the center could open as early as 2007 and the Company is hopeful that it will begin construction soon. The acquisition of the land occurred in May 2004 and the Company has completed the demolition of the existing industrial buildings on the site.

Note 4 – Unsolicited Tender Offer

        During the three months ended March 31, 2004 the Company received $1.0 million in insurance recoveries relating to an unsolicited tender offer and related litigation, which were withdrawn and ended in October 2003.

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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, The Pier at Caesars, 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 the 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 March 31, 2005 excludes the balances of The Pier at Caesars, currently under construction (Note 3). Beneficial interest is calculated based on the Operating Partnership’s ownership interest in each of the Unconsolidated Joint Ventures. The accounts of International Plaza, formerly an Unconsolidated Joint Venture, are included in these results through the date of its acquisition (Note 3).

8

TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 6 – Beneficial Interest in Debt and Interest Expense

        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 excludes debt and interest related to the minority interests in International Plaza (49.9% as of July 2004, Note 3), MacArthur Center (5%), and The Mall at Wellington Green (10%).

        Payments of principal and interest on the loans in the following table are guaranteed by the Operating Partnership as of March 31, 2005.

        The Northlake Mall loan agreement provides for a reduction of the amounts guaranteed as certain center performance and valuation criteria are met.

        Payments of rent and all other sums payable related to the Oyster Bay agreements are guaranteed by the Operating Partnership. As of March 31, 2005, the balances of the senior loan and owner equity contribution were $46.1 million and $2.2 million, respectively.

        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 March 31, 2005 and December 31, 2004 the Company’s cash balances restricted for these uses were $13.4 million and $9.7 million, respectively.

10

TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 7 – Equity Transactions

        In November 2004, the Company completed the issuance of the $100 million Series G Preferred Stock. This stock has a fixed 8.0% coupon and no stated maturity, sinking fund, or mandatory redemption requirements. Proceeds from the issuance of the Series G Preferred Stock were used to redeem the Operating Partnership’s Series C and Series D Preferred Equity.

        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 had repurchased approximately 9.6 million shares for a total of $150 million, the maximum amount permitted under the program. Repurchases of common stock were 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 Series F 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.

Note 8 – Share-Based Compensation

        The Company’s incentive option plan (the Plan), which is shareholder approved, permits the grant of options to employees of the Manager. As of March 31, 2005, options for 1.7 million Operating Partnership units may be issued under the Plan. In 2005, the Company granted selected executives option awards for 570,000 Operating Partnership units, believing that such awards provide additional incentive for achievement of financial goals and offers additional alignment of management interests with those of its shareholders. Option awards are granted with an exercise price equal to the market price of the Company common stock at the date of grant; a third of those option awards generally vest at each of the third, fifth, and seventh years of the anniversaries of the grant, if continuous service has been provided for those periods. In addition to service vesting requirements, options issued in 2005 have other vesting restrictions dependent on the Company’s market performance in comparison to its competitors. The options have ten-year contractual terms. Generally, option holders are required to convert their units to Company shares under the Continuing Offer. As of March 31, 2005, the 2005 grants are the only options outstanding.

        The Company has initially estimated the value of the options issued in March 2005 at approximately $2.5 million, or $4.34 per option, using a Black-Scholes valuation model based on the following assumptions: expected volatility of 18.4%, expected dividends of 4.3%, expected term of 8.5 years, and a risk-free rate of 4.2%. The Company is in the process of finalizing its valuation of these options, giving effect to the vesting conditions that are dependent on the Company’s market performance in comparison to its competitors. Compensation cost relating to these options recognized during the three months ended March 31, 2005 was less than $0.1 million, with the estimated remaining unrecognized service cost of $2.4 million expected to be recognized over the three, five, and seven year service periods (representing an average remaining service period of five years). The finalization of the valuation will not materially affect the compensation cost recognized during the three months ended March 31, 2005.

        A summary of option activity under the Plan as of March 31, 2005, and changes during the quarter then ended is presented below:

        As of March 31, 2005, the 2005 options had no intrinsic value.

        Cash received from option exercises under the Plan for the three months ended March 31, 2005 and 2004 was $6.7 million and $3.8 million, respectively.

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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 March 31, 2005 of $27.74 per common share, the aggregate value of interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $705 million. The purchase of these interests at March 31, 2005 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.

        In the fourth quarter of 2004, the Company ceased management of nine shopping centers and underwent a restructuring. A restructuring charge of $5.7 million was recognized in that period, substantially all of which represented employee severance payments and benefits. The remaining accrual for the unpaid balance of the restructuring charge was $0.3 million and $1.4 million as of March 31, 2005 and December 31, 2004, respectively.

        There are two shareholder class and derivative actions outstanding, which were initiated at the time of the unsolicited tender offer. Counsel for the plaintiffs in those cases and counsel for defendants have agreed to present to the Court for its approval a settlement of both cases, the terms of which are not material to the Company.

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

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

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.

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TAUBMAN CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

        There were options for 0.6 million units of partnership interest issued during 2005 that were excluded from the computation of diluted earnings per share in 2005, as their effect was antidilutive. Options for 0.6 million units of partnership interest that were exercised during the first quarter of 2005 had a dilutive effect on earnings per share. Additionally, as of March 31, 2005, there were 12.9 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.

Note 11 – New Accounting Pronouncements

        In December 2004, the FASB issued Statement No. 123 (Revised) “Share-Based Payment”. This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. A public entity will initially measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value; the fair value of that award will be remeasured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. Statement No. 123 (Revised) will be effective for the Company in 2006. The Company is in the process of evaluating the impact of this Statement on its future results of operations. The Company currently applies Statement No. 123 “Accounting for Stock-Based Compensation,” including its provisions for the expense recognition of options (Note 8).

Note 12 – Subsequent Event

        In April 2005, the Company entered into a rate lock agreement at 5.44% with the lender to hedge the planned $200 million ten year non-recourse refinancing of the existing $140 million loan on The Mall at Wellington Green. The planned financing is expected to close in May 2005.

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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, 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 by us 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.

Current Operating Trends

        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. Our tenant sales statistics have continued to improve through the first quarter of 2005, with sales per square foot increasing 7.2% over the first quarter of 2004. Tenant sales have increased every month over the past two years. 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 three 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.

        As anticipated, occupancy trends continued to show improvement in the first quarter of 2005. Ending occupancy increased to 88.4% from 86.2% in the first quarter of 2004, resulting in higher rental income. This was the third straight quarter of year-over-year occupancy gains and the trend is expected to continue through 2005. 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 March 31, 2005, approximately 2.2% of space was occupied by temporary tenants, an increase of 0.5%, from 1.7% at March 31, 2004. Including temporary tenants, occupancy was 90.6% at March 31, 2005, an increase from 87.9% at March 31, 2004. Lease cancellation income can also moderate the effect of vacancies. During the first quarter of 2005, we recognized our approximately $2.8 million and $0.8 million share of the Consolidated Businesses’ and Unconsolidated Joint Ventures’ lease cancellation revenue. For 2005, we expect our share of lease cancellation revenue to be approximately $7 million.

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

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.

Recent Events

        Recent events relating to our operations include the following. In April 2005, we announced the formation of Taubman Asia, which will be the platform for our future expansion into the Asia-Pacific region. Taubman Asia will be headquartered in Hong Kong and will seek projects that leverage our strong retail planning, design and operational capabilities. Taubman Asia, along with Morgan Stanley Real Estate Fund, is currently evaluating opportunities in the region, including the previously announced New Songdo City project in Incheon, South Korea.

        In January 2005, we entered into an agreement and made an initial contribution relating to The Pier at Caesars, currently under construction. Refer to Liquidity and Capital Resources regarding The Pier.

        In July 2003, The May Department Stores Company (May) announced that it intends to divest 32 of its 86 Lord & Taylor stores, including four at our centers. In March 2005, we announced a plan to form a venture with May to find a replacement for the Lord & Taylor store at The Shops at Willow Bend, which closed in April 2005. Also in March, we announced that Nordstrom will take over space previously occupied by Lord & Taylor at Cherry Creek Shopping Center. The 120,000 square foot store is tentatively scheduled to open in 2006. At International Plaza, a 120,000 square foot Robb & Stucky furniture and design studio showroom opened in February 2005, occupying the first level and part of the second level of the former Lord & Taylor space. At the Mall at Wellington Green, a 140,000 square foot City Furniture and Ashley Furniture Home Store has signed a lease and is expected to open in October 2005.

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%. 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. As of March 31, 2005, 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 for $3.3 million in cash and 276,724 of newly issued partnership units valued at $27.50 per unit. We already recognized 100% of the financial results of the center in our financial statements.

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Debt and Equity Transactions

        During November 2004, we redeemed the Operating Partnership’s Series C and Series D Preferred Equity, with the proceeds of our issuance of $100 million in Series G Cumulative Redeemable Preferred Stock.

        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

        During the three months ended March 31, 2004 we recovered through our insurance $1.0 million of costs incurred in connection with the unsolicited tender offer and related litigation, which were withdrawn and ended during October 2003.

Restructuring

        In October 2004, The Mills Corporation finalized its acquisition of 50 percent interests in nine of the ten General Motors Pension Trusts’ (GMPT) shopping centers that we managed, completing a recapitalization of GMPT’s mall portfolio. In the fourth quarter of 2004, we ceased management of these centers and underwent a personnel restructuring. The impact on 2005 results of operations is expected to be a net reduction of income of approximately $4 million.

Planned Financing

        In April 2005, we entered into a rate lock agreement at 5.44% with the lender to hedge the planned $200 million ten year non-recourse refinancing of the existing $140 million loan on The Mall at Wellington Green. The planned financing is expected to close in May 2005. Excess proceeds from the planned financing will be used to pay down our lines of credit.

New Accounting Pronouncements

        Refer to Note 11 in our financial statements regarding Statement No. 123 (Revised) “Share-Based Payment,” required to be adopted in 2006.

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Presentation of Operating Results

        The following table contains 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% during the three months ended March 31, 2005 and 2004.

        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 table 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.

        Prior to the fourth quarter of 2004, we did not include an add-back for depreciation of center replacement assets when computing our Beneficial Interest in EBITDA or FFO. As of the fourth quarter of 2004, we began to include such an add-back and restated previously reported EBITDA and FFO amounts. We did this both to be consistent with industry practice and because we have begun offering our tenants the option to pay a fixed charge or pay their share of common area maintenance (CAM) costs. Assuming tenants sign up for the fixed CAM option, over time there will be significantly less matching of CAM income with CAM capital-related expenses, which was the basis for our prior reporting practice.

        Reconciliations of Net Income to Funds from Operations and Beneficial Interest in EBITDA are presented following the Comparison of the Three Months Ended March 31, 2005 to the Three Months Ended March 31, 2004.

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        Comparison of the Three Months Ended March 31, 2005 to the Three Months Ended March 31, 2004

        The following table sets forth operating results for the three months ended March 31, 2005 and March 31, 2004, 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, 2005 were $111.8 million, a $10.5 million or 10.4% increase over the comparable period in 2004. Minimum rents increased primarily due to International Plaza, which we began consolidating upon the acquisition of a controlling interest in the center. Minimum rents also increased due to increases in occupancy, tenant rollovers, and income from temporary tenants and specialty retailers. Percentage rents increased due to International Plaza and improving tenant sales. Expense recoveries increased primarily due to International Plaza. Management, leasing, and development revenue decreased primarily due to the loss of revenue from the nine GMPT management contracts, which were cancelled in November 2004. We expect our management, leasing, and development revenues, net of the related expenses, to be as much as $2 million in 2005. Considered in this estimate are leasing commissions still expected to be recognized relating to our previous management of the nine GMPT shopping centers, third party income related to the remaining GMPT center, and revenue from the Salt Lake City development project, as well as other sources of income. Other income decreased primarily due to decreases in gains on peripheral land sales, as well as decreases in lease cancellation revenue. We expect gains on peripheral land sales to be approximately $4 million for 2005.

        Total operating expenses were $102.7 million, an $11.0 million or 12.0% increase over the comparable period in 2004. Recoverable expenses increased primarily due to International Plaza. Other operating expense increased primarily due to increases in development-related costs, expenses related to Asia activities, overhead no longer allocable to the GMPT management contracts, bad debt expense, and International Plaza. We are expecting unfavorable variances in other operating expense throughout 2005. As described under “Recent Events” we are evaluating opportunities in Asia. We expect to incur additional costs in 2005 of approximately $2 million for payroll, consultants, travel, and office expenses in connection with our Asian initiatives. These costs will be accounted for similarly to other predevelopment costs, which are expensed as incurred. During 2004, $1.0 million of insurance proceeds were received relating to costs expended in connection with the unsolicited tender offer. Management, leasing, and development expense decreased primarily due to the cancellation of the GMPT management contracts, with certain overhead costs previously allocated to the contracts now being recognized as other operating expenses or general and administrative expense. General and administrative costs decreased primarily due to the mark to market of deferred long-term compensation bonuses in 2004, most of which were paid in early 2005, partially offset by an increase related to costs previously allocated to the GMPT contracts. We are expecting general and administrative expense of approximately $6 million per quarter in 2005. Interest expense increased due to International Plaza, additional debt used to fund the repurchase of shares and the 2004 payoff of the Woodland and Stamford Town Center mortgages, and increases in floating interest rates, partially offset by a decrease due to the repayment of a $20 million loan bearing interest at 13%. Depreciation expense increased primarily due to International Plaza.

Unconsolidated Joint Ventures

        Total revenues for the three months ended March 31, 2005 were $70.9 million, a $9.1 million or 11.4% decrease from the comparable period in 2004. Minimum rents decreased primarily due to the consolidation of International Plaza, which was partially offset by increases in occupancy, as well as income from specialty retailers and temporary tenants. Expense recoveries decreased primarily due to International Plaza. Other revenue increased primarily due to an increase in lease cancellation revenue.

        Total operating expenses decreased by $8.1 million to $52.3 million for the three months ended March 31, 2005. Recoverable expenses decreased primarily due to International Plaza. Other operating expense increased primarily due to increases in development-related costs, professional fees, and bad debt expense, which were partially offset by International Plaza. Interest expense decreased primarily due to International Plaza and the payoff of debt on Woodland and Stamford Town Center. Depreciation expense decreased primarily due to International Plaza.

        As a result of the foregoing, income of the Unconsolidated Joint Ventures decreased by $1.1 million to $18.5 million. Our equity in income of the Unconsolidated Joint Ventures was $9.1 million, a $0.5 million decrease from the comparable period in 2004.

Net Income

        Our income before minority and preferred interests decreased by $1.0 million to $18.2 million for 2005. After allocation of income to minority and preferred interests, the net income allocable to common shareowners for 2005 was $2.3 million compared to $3.8 million in the comparable period in 2004.

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Reconciliation of Net Income to Funds from Operations

Reconciliation of Net Income 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 its 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; contractual obligations; covenants, commitments, and contingencies; and historical capital spending. We then provide information regarding our anticipated future capital spending.

Summaries of 2005 Capital Activities and Transactions

        As of March 31, 2005, we had a consolidated cash balance of $31.4 million. Additionally, we have a secured $350 million line of credit. This line had $135.0 million of borrowings as of March 31, 2005. We also have available a second secured bank line of credit of up to $40 million. This line had $10.6 million outstanding as of March 31, 2005. Both lines of credit mature in February 2008.

Operating Activities

        Our net cash provided by operating activities was $28.9 million in 2005, compared to $3.2 million in 2004. In 2005, increases in cash from 2004 related primarily to increases in rents and additional operating cash flows due to International Plaza, which we began consolidating upon the acquisition of a controlling interest in the center. Additionally, in 2004, a swap agreement on the Beverly financing was settled and costs relating to the unsolicited tender offer were paid; similar payments were not made in 2005.

Investing Activities

        Net cash used in investing activities was $25.5 million in 2005 compared to $46.7 million in 2004. Cash used in investing activities was impacted by the timing of capital expenditures, with additions to properties in 2005 and 2004 for the construction of Northlake Mall, as well as other development activities and other capital items. A tabular presentation of 2005 capital spending is shown in Capital Spending. During 2004, $3.3 million was used to acquire an additional interest in Beverly Center. Contributions to Unconsolidated Joint Ventures of $8.0 million in 2005 were made primarily to fund construction at Waterside Shops at Pelican Bay and the purchase of an anchor space at Stamford Town Center, while $33.0 million was contributed in 2004 in connection with the payoff of Woodland’s debt.

        Sources of cash used in funding these investing activities included distributions from Unconsolidated Joint Ventures, as well as the transactions described under Financing Activities. Distributions in excess of earnings from Unconsolidated Joint Ventures provided $4.0 million in 2005 and $6.9 million in 2004. Net proceeds from sales of peripheral land were $3.3 million and $5.4 million in 2005 and 2004, respectively. The timing of land sales is variable and proceeds from land sales can vary significantly from period to period.

Financing Activities

        Net cash used in financing activities was $1.2 million in 2005, compared to $31.4 million of cash provided in 2004. Net cash provided by financing activities was determined by the cash requirements of the investing activities described in the preceding section. Proceeds from the issuance of debt, net of payments and issuance costs, were $22.0 million in 2005, compared to $56.2 million in 2004. Issuance of stock pursuant to the Continuing Offer related to the exercise of employee options contributed $38 thousand in 2005 and $1.2 million in 2004. Issuance of partnership units related to the exercise of employee options contributed $6.7 million and $2.6 million in 2005 and 2004, respectively. Total dividends and distributions paid were $29.8 million and $28.7 million in 2005 and 2004, respectively.

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Beneficial Interest in Debt

        At March 31, 2005, the Operating Partnership’s debt and its beneficial interest in the debt of its Consolidated and Unconsolidated Joint Ventures totaled $2,401.0 million with an average interest rate of 5.74% 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. Interest expense for the three months ended March 31, 2005 includes $0.15 million of non-cash amortization relating to acquisitions. On an annualized basis, interest expense from non-cash amortization relating to acquisitions is equal to $0.6 million, or 0.03% of the average all-in rate. Included in beneficial interest in debt is debt used to fund development and expansion costs. Beneficial interest in construction work in process totaled $182.2 million as of March 31, 2005, which includes $176.4 million of assets on which interest is being capitalized. Beneficial interest in capitalized interest was $2.4 million for the three months ended March 31, 2005. The following table presents information about our beneficial interest in debt as of March 31, 2005 (amounts may not add due to rounding):

        In addition, as of March 31, 2005, $287.5 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 7.0% with terms ending February 2006 through July 2006.

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, 2005, 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 $6.6 million and, due to the effect of capitalized interest, annual earnings by approximately $5.9 million. Based on our consolidated debt and interest rates in effect at March 31, 2005, a one percent increase in interest rates would decrease the fair value of debt by approximately $61.9 million, while a one percent decrease in interest rates would increase the fair value of debt by approximately $66.1 million.

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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. Disclosure of these items is contained in our Annual Report on Form 10-K. Updates of the 10-K disclosures for debt obligations and planned capital spending, which can vary significantly from period to period, as of March 31, 2005 are provided in the table below:

        In May 2004, we entered into a series of agreements related to a project at the Town of Oyster Bay, New York (see Planned Capital Spending). 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 we have no specific asset sale in mind, we are committed to recycling our capital over time and believe that this planning will facilitate future transactions. A third party acquired our option to purchase land at the Town of Oyster Bay, New York and reimbursed us for our project costs to date. Subsequently, the third party acquired the land and became the owner of the project. We are the developer of the project and have 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%. We will provide 35% of the project funding under a junior subordinated financing at LIBOR plus 2.75% to the owner. We 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 March 31, 2005, the balances of the senior loan and owner equity contribution were $46.1 million and $2.2 million, respectively; the senior loan is limited to a total commitment of $62 million until municipal approvals have been obtained. We consolidate the owner and other entities described above and the junior loan and other intercompany transactions are eliminated in consolidation.

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Loan Commitments and Guarantees

        Certain loan agreements contain various restrictive covenants, including minimum net worth requirements, minimum debt service coverage ratios, a maximum payout ratio on distributions, a minimum fixed charges coverage ratio, a minimum interest coverage ratio, a maximum leverage ratio, and a minimum debt yield 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.

        Payments of principal and interest on the loans in the following table are guaranteed by the Operating Partnership as of March 31, 2005.

        The Northlake Mall loan agreement provides for a reduction of the amounts guaranteed as certain center performance and valuation criteria are met.

        Payments of rent and all other sums payable related to the Oyster Bay agreements are guaranteed by the Operating Partnership. As of March 31, 2005, the balances of the senior loan and owner equity contribution (see Contractual Obligations) were $46.1 million and $2.2 million, respectively.

Cash Tender Agreement

        A. Alfred Taubman has the annual right to tender units of partnership interest in the Operating Partnership (provided that the aggregate value is at least $50 million) and cause us to purchase the tendered interests at a purchase price based on a market valuation of TCO on the trading date immediately preceding the date of the tender (the Cash Tender Agreement). At A. Alfred Taubman’s election, his family, and certain others may participate in tenders. We will have the option to pay for these interests from available cash, borrowed funds, or from the proceeds of an offering of our common stock. Generally, we expect to finance these purchases through the sale of new shares of our 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 TCO.

        Based on a market value at March 31, 2005 of $27.74 per common share, the aggregate value of interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $705 million. The purchase of these interests at March 31, 2005 would have resulted in our owning an additional 31% interest in the Operating Partnership.

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Capital Spending

        Capital spending for routine maintenance of the shopping centers is generally recovered from tenants. Capital spending through March 31, 2005 not recovered from tenants is summarized in the following table:

        For the three months ended March 31, 2005, in addition to the costs above, we incurred our $0.9 million share of Consolidated Businesses’ and $0.3 million share of Unconsolidated Joint Ventures’ capitalized leasing costs. Our share of the Consolidated Businesses’ asset replacement costs that will be reimbursed by tenants was $0.2 million.

        The following table presents a reconciliation of the Consolidated Businesses’ capital spending shown above to cash additions to properties as presented in our Consolidated Statement of Cash Flows for the quarter ended March 31, 2005:

Planned Capital Spending

        In January 2005, we entered into an agreement to invest in The Pier at Caesars (“The Pier”), located in Atlantic City, New Jersey, from Gordon Group Holdings LLC (“Gordon”), who is developing the center. The Pier is currently under construction, and is expected to open in 2006. Under the agreement, we will have a 30% interest in The Pier. Our capital contribution in The Pier will be made in three steps, with the initial investment of $4 million made at closing. A second payment equal to 70% of our projected required total investment (less the initial $4 million payment) is expected to be made within six months after the project opens. The third and final payment will be made shortly after the completion of the project’s stabilization year (2007) based on its actual net operating income (NOI) and debt levels. Our total capital contribution will be computed at a price to be calculated at a seven percent capitalization rate. Depending on the performance of the project, we expect our total cash investment to be in the range of $30 million to $35 million. During construction of the project, Gordon will loan the venture the funding for capital expenditures in excess of the construction loan financing. Interest on the loan will be accruable at the short-term applicable federal rate (AFR) under Section 1274(d) of the Internal Revenue Code and will be repaid before any distributions to the venture partners. The contributions of the Company will be used to repay the principal portion of the loan. Consequently, the Company expects that its share of distributions and income will initially be less than its residual 30% interest.

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        In addition to our acquisition of an interest in The Pier, we have entered into a joint development agreement with Gordon to develop future casino and entertainment oriented retail projects that are not anchored by department stores. The five-year agreement, which includes extension options, requires each party to offer an equal ownership of future development opportunities for such projects to the other company.

        In 2004, we signed a conditional letter of intent regarding a future development in Salt Lake City, Utah. The project would be a reconfiguration of two existing properties, and although the ownership structure and amount of our investment have not yet been finalized, construction is anticipated to begin during the remainder of 2005.

        We are also working on a project to build an approximately 600,000 square foot center, Partridge Creek Fashion Park, in southeastern Michigan. Although a final determination has not been made to go forward with the project, if certain conditions are met and municipal approvals are obtained, we would expect to begin construction in 2005 for a likely 2007 opening.

        We have progressed on the replacement of the four Lord & Taylor stores that were part of May’s July 2003 announcement to close 32 stores in certain geographic regions – refer to “Recent Events”. Together, our share of all costs anticipated for the complete replacement of these four Lord & Taylor stores is expected to be just over $20 million. This amount includes buyout costs, build out costs, tenant allowances, and an estimate for potential costs at Willow Bend. For this investment, we expect to earn a return of over 10%.

        We have announced plans for the addition of a 165,000 square foot Nordstrom, a 60,000 square foot expansion and renovation of Marshall Field’s, and approximately 90,000 square feet of additional new store space at Twelve Oaks Mall. Construction is expected to begin in early 2006 and be completed by fall 2007. While the budget for the expansion has not been finalized, the cost is estimated to be in the range of $50 million to $60 million.

        In addition, at Stamford Town Center we purchased the Filene’s store, which closed in January 2005. The former Filene’s building will be demolished to make way for a mix of retail uses. Plans for the new retail mix are still under discussion. Construction is expected to begin in early 2006, with a 2007 anticipated completion.

        Northlake Mall, a new 1.1 million square foot enclosed center in Charlotte, North Carolina, will be anchored by Dillard’s, Hecht’s, Belk, Dick’s Sporting Goods, and AMC Theatres and will have 0.4 million square feet of Mall GLA. The center is scheduled to open September 15, 2005 and is expected to cost approximately $175 million. We have over 80% of the space committed and nearly all of the remaining space is under negotiation. We expect returns on this investment to be approximately 11% at stabilization. Future construction costs for Northlake Mall will be funded through its construction facility.

        Construction has begun on an expansion and renovation at Waterside Shops at Pelican Bay. The expansion will increase the size of the center to 282,000 square feet and will cost approximately $51 million. We expect a return of approximately 11% on our $13 million share of project costs. The project is scheduled to be completed in October 2005.

        Our approximately $79 million balance of development pre-construction costs as of March 31, 2005 consists of costs relating to our Oyster Bay project in the Town of Oyster Bay, New York. Both Neiman Marcus and Lord & Taylor have committed to the project and retailer interest has been very strong. Although we still need to obtain the necessary entitlement approvals to move forward with the project, we are encouraged by six straight favorable court decisions. In February 2005, we had our hearing on the seventh round of court actions, and are awaiting the ruling. We expect continued success with the ongoing litigation, but if we are ultimately unsuccessful in the litigation process, it is anticipated that our recovery on this asset would be significantly less than our current investment. Given the current status, we believe the center could open as early as 2007 and we are hopeful that we will begin construction soon. The acquisition of the land occurred in May 2004 and we have completed the demolition of the existing industrial buildings on the site. The returns on this project will be somewhat lower than our normal targets due to the significant pre-development and construction costs on this site.

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        The following table summarizes planned capital spending, which is not recovered from tenants, assumes no acquisitions during 2005, and excludes the capital contribution related to The Pier (above), as well as costs related to Partridge Creek Fashion Park and the future development in Salt Lake City:

        Estimates of future capital spending include only projects approved by our Board of Directors and, consequently, estimates will change as new projects are approved. Costs of potential development projects, including our exploration of development possibilities in Asia, are expensed until we conclude that it is probable that the project will reach a successful conclusion.

        Disclosures regarding planned capital spending, including estimates regarding capital expenditures, occupancy, and returns on new developments presented above 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 anchors, tenants, and contractors, (2) timing and outcome of litigation and entitlement processes, (3) changes in the scope, number, and valuation of projects, (4) cost overruns, (5) timing of expenditures, (6) financing considerations, (7) actual time to complete projects, (8) changes in economic climate, (9) competition from others attracting tenants and customers, (10) increases in operating costs, (11) timing of tenant openings, and (12) early lease terminations and bankruptcies.

Dividends

        We pay regular quarterly dividends to our common and Series A and Series G preferred shareowners. Dividends to our common shareowners are at the discretion of the Board of Directors and depend on the cash available to us, our financial condition, capital and other requirements, and such other factors as the Board of Directors deems relevant. To qualify as a REIT, we must distribute at least 90% of our REIT taxable income to our shareowners, as well as meet certain other requirements. Preferred dividends accrue regardless of whether earnings, cash availability, or contractual obligations were to prohibit the current payment of dividends. The 8.3% Series A preferred stock became callable in October 2002.

        On March 1, 2005, we declared a quarterly dividend of $0.285 per common share payable April 20, 2005 to shareowners of record on March 31, 2005. The Board of Directors also declared a quarterly dividend of $0.51875 per share on our 8.3% Series A Preferred Stock, paid March 31, 2005 to shareowners of record on March 21, 2005. We also declared a quarterly dividend of $0.50 per share on our 8% Series G Preferred Stock, also paid March 31, 2005 to shareowners of record on March 21, 2005.

        The annual determination of our common dividends is based on anticipated Funds from Operations available after preferred dividends, as well as assessments of annual capital spending, financing considerations, and other appropriate factors. Over the past several years, we have determined that the growth in common dividends would be less than the growth in Funds from Operations. We expect to evaluate our policy and the benefits of increasing dividends at a higher rate than historical increases, subject to our assessment of cash requirements.

        Any inability of the Operating Partnership or its Joint Ventures to secure financing as required to fund maturing debts, capital expenditures and changes in working capital, including development activities and expansions, may require the utilization of cash to satisfy such obligations, thereby possibly reducing distributions to partners of the Operating Partnership and funds available to us for the payment of dividends.

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Additional Information

        The Company provides supplemental investor information coincident with its earning announcements that can be found online at www.taubman.com under “Investor Relations.”

Item 3. Quantitative and Qualitative Disclosures About Market Risk

        The information required by this item is included in this report at Item 2 under the caption “Liquidity and Capital Resources – Sensitivity Analysis.”

Item 4. Controls and Procedures

        As of the end of the period covered by this quarterly report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial and Administrative Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial and Administrative Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be disclosed in the Company’s periodic SEC reports.

        There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II
OTHER INFORMATION

Item 1. Legal Proceedings

        As a result of an unsolicited tender offer initiated in 2003, there remain two shareholder class and derivative actions. Counsel for the plaintiffs in those cases and counsel for defendants have agreed to present to the Court for its approval a settlement of both cases, the terms of which are not material to the Company.

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

Item 6. Exhibits