e424b5
The
information in this preliminary prospectus supplement is not
complete and may be changed. This preliminary prospectus
supplement and the accompanying prospectus are not an offer to
sell these securities and are not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is
not permitted.
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Subject to Completion.
Preliminary Prospectus
Supplement Dated June 14, 2011
Filed
Pursuant to Rule 424(b)(5)
Registration
No. 333-174880
PROSPECTUS
SUPPLEMENT
(to Prospectus dated June 14, 2011)
1,750,000 Shares
Taubman Centers, Inc.
Common
Stock
We are offering 1,750,000 shares of our common stock, par
value $0.01 per share. Our common stock is listed on the New
York Stock Exchange under the symbol TCO. The last
reported sale price of our common stock on June 13, 2011
was $56.52 per share.
We are organized and conduct our operations to qualify as a real
estate investment trust, or REIT, for federal income tax
purposes. Our charter contains certain restrictions relating to
ownership and transfer of our stock to assist us in complying
with certain federal income tax requirements applicable to REITs.
Investing in our common stock involves risks. See Risk
Factors beginning on
page S-3
of this prospectus supplement, on page 3 of the
accompanying prospectus and beginning on page 10 of our
Annual Report on
Form 10-K
for the year ended December 31, 2010, which is incorporated
by reference herein, to read about factors you should consider
before buying our common stock.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus
supplement or the accompanying prospectus. Any representation to
the contrary is a criminal offense.
Goldman, Sachs & Co. has agreed to purchase the common
stock from us at a price of
$
per share, which will result in
$ of
total proceeds to us, before expenses.
Goldman, Sachs & Co. may offer the common stock from time
to time in one or more transactions on the New York Stock
Exchange, in the over-the-counter market, through negotiated
transactions or otherwise at market prices prevailing at the
time of sale, at prices related to prevailing market prices or
at negotiated prices.
We have granted Goldman, Sachs & Co. the option to purchase
within 30 days from the date of this prospectus supplement
up to an additional 262,500 shares of our common stock at
the per share purchase price set forth above.
Goldman, Sachs & Co. expects to deliver the common stock in
book-entry form only, through the facilities of The Depository
Trust Company, against payment in New York, New York on or
about June , 2011.
Goldman,
Sachs & Co.
Prospectus Supplement dated June , 2011.
We are responsible for the information contained or incorporated
by reference in this prospectus supplement, the accompanying
prospectus and any related free writing prospectus we may
authorize to be delivered to you. We have not, and the
underwriter has not, authorized anyone to provide you with
different information. We are not, and the underwriter is not,
making an offer of these securities in any jurisdiction where
the offer is not permitted. You should not assume that the
information contained in this prospectus supplement or the
accompanying prospectus is accurate as of any date other than
the date on the front of this prospectus supplement. Our
business, financial condition, results of operations and
prospects may have changed since that date. Information
contained on our website does not constitute part of this
prospectus supplement or the accompanying prospectus.
TABLE OF
CONTENTS
Prospectus Supplement
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Page
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S-ii
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S-ii
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S-1
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S-3
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S-4
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S-5
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S-6
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S-6
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S-8
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S-11
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Prospectus
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Page
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About This Prospectus
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1
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Where You Can Find More Information
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1
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Incorporation of Certain Documents by Reference
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1
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Disclosure Regarding Forward-Looking Statements
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2
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About Us
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2
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Risk Factors
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3
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Use of Proceeds
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3
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Description of Securities Being Offered
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3
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Important Provisions of our Governing Documents and Michigan Law
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11
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Restrictions on Transfer and Ownership
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13
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Material U.S. Federal Income Tax Consequences
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14
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Legal Matters
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37
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Experts
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37
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S-i
ABOUT
THIS PROSPECTUS SUPPLEMENT
You should read this prospectus supplement along with the
accompanying prospectus, as well as the information incorporated
by reference herein and therein, carefully before you invest in
our common stock. The documents incorporated by reference herein
are described under Where You Can Find More
Information and Incorporation of Certain Documents
by Reference in the accompanying prospectus. These
documents contain important information that you should consider
before making your investment decision. This prospectus
supplement and the accompanying prospectus contain the terms of
this offering of common stock. The accompanying prospectus
contains information about our securities generally, some of
which does not apply to the common stock covered by this
prospectus supplement. This prospectus supplement may add,
update or change information contained in or incorporated by
reference in the accompanying prospectus. If the information in
this prospectus supplement is inconsistent with any information
contained in or incorporated by reference in the accompanying
prospectus, the information in this prospectus supplement will
apply and will supersede the inconsistent information contained
in or incorporated by reference in the accompanying prospectus.
Unless this prospectus supplement otherwise indicates or the
context otherwise requires, the terms our,
us and we as used in this prospectus
supplement refer to Taubman Centers, Inc.
and/or one
or more of a number of separate, affiliated entities, and
Taubman Centers refers to Taubman Centers, Inc.
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
Information included and incorporated by reference in this
prospectus supplement and the accompanying prospectus contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or
the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended, or the
Exchange Act. You can identify these forward-looking
statements by our use of the words believe,
anticipate, plan, expect,
may, might, should,
will, intend, estimate and
similar expressions, whether in the negative or affirmative.
These forward-looking statements represent our expectations or
beliefs concerning future events, including the following:
statements regarding future developments and joint ventures,
rents, returns, and earnings; statements regarding the
continuation of trends; and any statements regarding the
sufficiency of our cash balances and cash generated from
operating, investing, and financing activities for our future
liquidity and capital resource needs. We caution that although
forward-looking statements reflect our good faith beliefs and
reasonable 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, because of risks, uncertainties, and
factors including, but not limited to, the final terms of the
offering and the final size of such offering, the continuing
impacts of the U.S. recession and global credit environment,
other changes in general economic and real estate conditions,
changes in the interest rate environment and the availability of
financing, and adverse changes in the retail industry. Further,
we have included important factors in the cautionary statements
contained or incorporated by reference in this prospectus
supplement, particularly under the heading Risk
Factors in our Annual Report on
Form 10-K
for the year ended December 31, 2010, and other periodic
reports that we believe could cause our actual results to differ
materially from the forward-looking statements that we make.
Except as required by law, we do not undertake any obligation to
update our forward-looking statements or the risk factors
contained in this prospectus supplement to reflect new
information or future events or otherwise.
S-ii
SUMMARY
This summary may not contain all the information that may be
important to you in deciding whether to invest in our common
stock. You should read this entire prospectus supplement and the
accompanying prospectus and the documents incorporated and
deemed to be incorporated by reference herein and therein,
including the financial statements and related notes before
making an investment decision.
The
Company
We are a Michigan corporation and a self-administered and
self-managed real estate investment trust, or REIT.
Our business is actually conducted by an affiliated entity
rather than Taubman Centers itself. The Taubman Realty Group
Limited Partnership, or the Operating Partnership,
is a majority-owned partnership subsidiary of Taubman Centers
that owns direct or indirect interests in all of our real estate
properties. Taubman Centers ownership in the Operating
Partnership at June 13, 2011 consisted of a 69% managing
general partnership interest, as well as Series G and H
preferred equity interests.
We engage in the ownership, management, leasing, acquisition,
disposition, development and expansion of regional and
super-regional retail shopping centers and interests therein.
Our owned portfolio as of June 13, 2011 included 23 urban
and suburban shopping centers in ten states. Taubman Properties
Asia LLC and its subsidiaries, which is the platform for our
expansion into the Asia-Pacific region, is headquartered in Hong
Kong.
Taubman Centers is incorporated in Michigan and our executive
offices are located at 200 East Long Lake Road, Suite 300,
Bloomfield Hills, MI
48304-2324
and our telephone number is
(248) 258-6800.
If you want to find more information about us, please see the
sections entitled Where You Can Find More
Information and Incorporation of Certain Documents
by Reference in the accompanying prospectus.
S-1
The
Offering
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Issuer |
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Taubman Centers, Inc. |
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Common stock offered |
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1,750,000 shares (or 2,012,500 shares if the
underwriter exercises its option to purchase additional shares
in full) |
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Common stock to be outstanding after this offering |
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57,627,030 shares (or 57,889,530 shares if the
underwriter exercises its option to purchase additional shares
in
full)(1) |
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Use of proceeds |
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We estimate that the net proceeds from this offering will be
approximately $ (or approximately
$ if the underwriter exercises its
option to purchase additional shares in full). We intend to use
the net proceeds to reduce outstanding borrowings under our
$615 million revolving credit facilities. Amounts available
under our revolving credit facilities may be borrowed in the
future to repay other outstanding debt, to retire some or all of
a series of outstanding preferred shares, to repurchase equity,
to fund our development activity and property acquisitions, and
for working capital and other general corporate purposes. |
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Restrictions on ownership and transfer |
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To assist us in complying with certain federal income tax
requirements applicable to real estate investment trusts, among
other purposes, our charter imposes certain restrictions on
ownership and transfer of our common stock. See
Restrictions on Transfer and Ownership in the
accompanying prospectus. |
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Listing |
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Our common stock is listed on the New York Stock Exchange, or
NYSE, under the symbol TCO. |
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Dividends |
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On June 2, 2011, our board of directors declared a regular
quarterly dividend of $0.4375 per share of common stock. The
common stock dividend is payable on June 30, 2011 to
shareholders of record on June 15, 2011. Investors
purchasing shares in this offering will not receive this
dividend if they are not shareholders on June 15, 2011. See
Price Range of Common Stock and Dividends and
Dividend Policy for further information regarding
our dividends. |
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Risk factors |
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Investing in our common stock involves risks. See Risk
Factors beginning on
page S-3
of this prospectus supplement, on page 3 of the
accompanying prospectus and beginning on page 10 of our
Annual Report on
Form 10-K
for the year ended December 31, 2010, which is incorporated
by reference herein, to read about factors you should consider
before buying our common stock. |
(1) The
number of shares of common stock to be outstanding after this
offering is based upon 55,877,030 shares outstanding as of
June 13, 2011. This number excludes 2,389,011 shares
of common stock underlying options, restricted stock units and
performance share units outstanding that were granted to
employees under our equity incentive plans, 62,418 shares
of common stock underlying restricted stock units under the
non-employee directors deferred compensation plan,
7,449,132 shares of common stock to be exchanged for
outstanding partnership units of the Operating Partnership under
the Continuing Offer (as such term is defined and described in
our Annual Report on
Form 10-K
for the year ended December 31, 2010), and
871,262 shares of common stock to be exchanged for unissued
partnership units of the Operating Partnership in accordance
with a unit option deferral election, in each case as of
June 13, 2011.
For additional information regarding our common stock, see
Description of Securities Being Offered Common
Stock in the accompanying prospectus. For a description of
the U.S. federal income tax considerations reasonably
anticipated to be material to prospective holders in connection
with the purchase, ownership and disposition of our common
stock, see Material U.S. Federal Income Tax
Consequences in the accompanying prospectus.
S-2
RISK
FACTORS
Before investing in our securities, you should carefully
consider the risks and uncertainties described below, as well as
such information set forth elsewhere in this prospectus
supplement, the accompanying prospectus and any other
information that is incorporated by reference, including the
risks described in our reports we file with the Securities and
Exchange Commission, or the SEC, under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act that
are incorporated by reference herein, particularly under the
heading Risk Factors in our Annual Report on
Form 10-K
for the year ended December 31, 2010.
The
market price of our common stock may fluctuate
significantly.
The market price of our common stock may fluctuate significantly
in response to many factors, including:
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general market and economic conditions;
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actual or anticipated variations in our operating results, funds
from operations, cash flows, liquidity or distributions;
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changes in our earnings estimates or those of analysts;
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publication of research reports about us, the real estate
industry generally or the regional mall industry, and
recommendations by financial analysts with respect to us or
other REITs;
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adverse market reaction to the amount of our outstanding debt at
any time, the amount of our maturing debt in the near and medium
term and our ability to refinance such debt and the terms
thereof or our plans to incur additional debt in the future;
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the ability of our tenants to pay rent to us and meet their
other obligations to us under current lease terms and our
ability to re-lease space as leases expire;
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increases in market interest rates that lead purchasers of our
common stock to demand a higher dividend yield;
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changes in market valuations of similar companies;
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adverse market reaction to any securities we may issue or
additional debt we incur in the future;
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additions or departures of key management personnel;
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actions by institutional shareholders;
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speculation in the press or investment community;
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continuing high levels of volatility in the capital and credit
markets; and
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the realization of any of the other risk factors included in, or
incorporated by reference to, this prospectus supplement and the
accompanying prospectus.
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Many of the factors listed above are beyond our control. These
factors may cause the market price of our common stock to
decline, regardless of our financial performance and condition
and prospects. It is impossible to provide any assurance that
the market price of our common stock will not fall in the
future, and it may be difficult for holders to resell shares of
our common stock at prices they find attractive, or at all.
Our
shareholders will experience dilution as a result of this
offering and they may experience further dilution if we issue
additional common stock.
Giving effect to the issuance of common stock in this offering,
the receipt of the expected net proceeds and the use of those
proceeds, we expect that this offering will have a dilutive
effect on our expected earnings per diluted share and funds from
operations per diluted share for the year ending
December 31, 2011. Additionally, we are not restricted from
issuing additional shares of our common stock or preferred
stock, including any securities that are convertible into or
exchangeable for, or that represent the right to receive, common
stock or preferred stock or any substantially similar
securities. Any additional future issuances of common stock will
reduce the percentage of our
S-3
common stock owned by investors purchasing shares in this
offering who do not participate in future issuances. In most
circumstances, shareholders will not be entitled to vote on
whether or not we issue additional common stock. In addition,
depending on the terms and pricing of an additional offering of
our common stock and the value of our properties, our
shareholders may experience dilution in both the book value and
fair value of their shares. The market price of our common stock
could decline as a result of sales of a large number of shares
of our common stock in the market after this offering or the
perception that such sales could occur, and this could
materially and adversely affect our ability to raise capital
through future offerings of equity or equity-related securities.
We may
change the distribution policy for our common stock in the
future.
The decision to declare and pay dividends on our common stock in
the future, as well as the timing, amount and composition of any
such future dividends, will be at the sole discretion of our
board of directors and will depend on our earnings, funds from
operations, liquidity, financial condition, capital
requirements, contractual prohibitions or other limitations
under our indebtedness and preferred shares, the annual dividend
requirements under the REIT provisions of the Internal Revenue
Code, state law and such other factors as our board of directors
deems relevant. Our actual dividend payable will be determined
by our board of directors based upon the circumstances at the
time of declaration. Any change in our dividend policy could
have a material adverse effect on the market price of our common
stock.
USE OF
PROCEEDS
We estimate that our net proceeds from this offering, after
deducting estimated offering expenses, will be approximately
$ (or approximately
$ if the underwriter exercises its
option to purchase additional shares in full). We intend to use
the net proceeds to reduce outstanding borrowings under our
$550 million primary and $65 million secondary
revolving credit facilities, which mature on February 14,
2012 and April 30, 2012, respectively. Amounts available
under our revolving credit facilities may be borrowed in the
future to repay other outstanding debt, to retire some or all of
a series of outstanding preferred shares, to repurchase equity,
to fund our development activity and property acquisitions, and
for working capital and other general corporate purposes.
At June 13, 2011, the weighted average interest rates
payable on our primary and secondary revolving credit facilities
were 0.89% and 1.19%, respectively, per year and the principal
amounts outstanding were approximately $115.0 million and
$10.3 million, respectively. Pending application of the net
proceeds from this offering as described above, we may invest
such proceeds in short-term, interest bearing investments.
S-4
CAPITALIZATION
The following table sets forth our cash and capitalization as of
March 31, 2011, on an actual basis and an as adjusted basis
to give effect to: (1) the offer and sale of
1,750,000 shares (excluding the effect of the
underwriters option to purchase additional shares) at the
purchase price to the underwriter set forth on the cover page of
this prospectus supplement, after deducting estimated
transaction costs, and (2) the application of the net
proceeds of this offering to reduce outstanding borrowings under
our $615 million revolving credit facilities as described
in Use of Proceeds in this prospectus supplement.
This table should be read in conjunction with our consolidated
financial statements and related notes included in our Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2011 and incorporated by
reference in the accompanying prospectus.
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As of March 31,
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2011
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Actual
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As Adjusted
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(In thousands)
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Cash and cash equivalents
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$
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21,040
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$
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21,040
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Notes payable(1)
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$
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2,636,672
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$
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Equity:
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Taubman Centers, Inc. Shareowners Equity:
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Series B Non-Participating Convertible Preferred Stock,
$0.001 par and liquidation value, 40,000,000 shares
authorized, 25,140,436 shares issued and outstanding at
March 31, 2011
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$
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25
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$
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25
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Series G Cumulative Redeemable Preferred Stock,
4,000,000 shares authorized, no par value,
$100 million liquidation preference, 4,000,000 shares
issued and outstanding at March 31, 2011
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Series H Cumulative Redeemable Preferred Stock,
3,480,000 shares authorized, no par value, $87 million
liquidation preference, 3,480,000 shares issued and
outstanding at March 31, 2011
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Common Stock, $0.01 par value, 250,000,000 shares
authorized, 55,875,471 shares issued and outstanding at
March 31, 2011 (as adjusted, 57,625,471 shares issued
and outstanding)
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559
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576
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Additional paid-in capital
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586,714
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Accumulated other comprehensive income (loss)
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(12,734
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)
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(12,734
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)
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Dividends in excess of net income
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(953,053
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)
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(953,053
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$
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(378,489
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$
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Noncontrolling interests
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(134,354
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)
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(134,354
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$
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(512,843
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)
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$
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Total capitalization
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$
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2,123,829
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$
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(1) |
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At March 31, 2011, substantially all notes payable were
collateralized by our properties. Notes payable include our
$615 million revolving credit facilities with
$150.8 million outstanding at March 31, 2011. The
amount outstanding on our revolving credit facilities was
$125.3 million at June 13, 2011. |
S-5
PRICE
RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock is listed on the NYSE under the symbol
TCO. On June 13, 2011, the last reported sales
price per share of our common stock on the NYSE was $56.52. The
table below sets forth, for the periods indicated, the high and
low closing sales price per share of our common stock, as
reported by the NYSE, and the cash dividends declared per share
with respect to such periods.
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Price Per Share of Common Stock
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Cash Dividends
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High
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Low
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Declared Per Share
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2011-Quarter
Ended
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March 31
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$
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55.48
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$
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49.96
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$
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0.4375
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June 30 (through June 13)
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$
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60.57
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$
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53.02
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0.4375
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2010-Quarter
Ended
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March 31
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$
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41.93
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$
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31.66
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$
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0.415
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June 30
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44.94
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|
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|
37.63
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|
|
|
0.415
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September 30
|
|
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46.27
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|
|
|
35.98
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|
|
|
0.415
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December 31
|
|
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50.76
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|
|
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44.41
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|
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|
0.4375
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(1)
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2009-Quarter
Ended
|
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|
|
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March 31
|
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$
|
26.79
|
|
|
$
|
13.56
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|
|
$
|
0.415
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June 30
|
|
|
28.16
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|
|
|
16.65
|
|
|
|
0.415
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September 30
|
|
|
37.37
|
|
|
|
22.55
|
|
|
|
0.415
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|
December 31
|
|
|
37.66
|
|
|
|
30.40
|
|
|
|
0.415
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|
|
|
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(1) |
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Amount excludes a special dividend of $0.1834 per share, which
was declared as a result of the taxation of capital gain
incurred from a restructuring of our ownership in International
Plaza, including liquidation of the Operating Partnerships
private REIT. |
On June 2, 2011, our board of directors declared a regular
quarterly dividend of $0.4375 per share of common stock. The
common stock dividend is payable on June 30, 2011 to
shareholders of record on June 15, 2011. Investors
purchasing shares in this offering will not receive this
dividend if they are not shareholders of record on June 15,
2011.
DIVIDEND
POLICY
We pay regular quarterly dividends to our common and preferred
shareholders. Dividends to our common shareholders are at the
discretion of our board of directors and depend on the cash
available to us, our financial condition, capital and other
requirements, and such other factors as our board of directors
deems relevant. To qualify as a REIT, we must distribute at
least 90% of our REIT taxable income prior to net capital gains
to our shareholders, as well as meet certain other requirements.
We must pay these distributions in the taxable year the income
is recognized, or in the following taxable year if they are
declared during the last three months of the taxable year,
payable to shareholders of record on a specified date during
such period and paid during January of the following year. Such
distributions are treated as paid by us and received by our
shareholders on December 31 of the year in which they are
declared. In addition, at our election, a distribution for a
taxable year may be declared in the following taxable year if it
is declared before we timely file our tax return for such year
and if paid on or before the first regular dividend payment
after such declaration. These distributions qualify as dividends
paid for the 90% REIT distribution test for the previous year
and are taxable to holders of our capital stock in the year in
which paid. Dividends on our Series G and Series H
Cumulative Redeemable Preferred Stock accumulate regardless of
whether earnings, cash availability, or contractual obligations
were to prohibit the current payment of dividends.
The determination of our common dividends is based on
anticipated funds from operations available after preferred
dividends and our REIT taxable income, as well as assessments of
annual capital spending, financing
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considerations and other appropriate factors. Although we have
done so in the past, we cannot guarantee that we will be able to
pay dividends on a regular quarterly basis or at the same level
in the future. In addition, we may choose to pay a portion of
such dividends in stock. Furthermore, any new shares of common
stock issued under this prospectus supplement will increase the
cash required to continue to pay cash dividends at current
levels.
S-7
UNDERWRITING
We and Goldman, Sachs & Co. (the underwriter)
have entered into an underwriting agreement with respect to the
shares of common stock being offered. Subject to certain
conditions, the underwriter has agreed to purchase all of the
1,750,000 shares offered hereby.
The underwriter may receive from purchasers of the shares
brokerage commissions in amounts agreed to with such purchasers.
Our common stock is traded on the NYSE under the symbol
TCO.
The underwriter is committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised.
We have granted the underwriter the option to purchase within
30 days from the date of this prospectus supplement up to
an additional 262,500 shares of our common stock from us at
the purchase price set forth on the cover of this prospectus
supplement.
The underwriter proposes to offer the shares of common stock
from time to time for sale in one or more transactions on the
NYSE, in the
over-the-counter
market, through negotiated transactions or otherwise at market
prices prevailing at the time of sale, at prices related to
prevailing market prices or at negotiated prices, subject to
receipt and acceptance by it and subject to its right to reject
any order in whole or in part. In connection with the sale of
the shares of common stock offered hereby, the underwriter may
be deemed to have received compensation in the form of
underwriting discounts. The underwriter may effect such
transactions by selling shares of common stock to or through
dealers, and such dealers (including, in certain instances,
affiliates of the underwriter) may receive compensation in the
form of discounts, concessions or commissions from the
underwriter
and/or
purchasers of shares of common stock for whom they may act as
agents or to whom they may sell as principal.
We and our executive officers and our directors each have agreed
with the underwriter, subject to certain exceptions, not to
dispose of or hedge any of our common stock or securities
convertible into or exchangeable for shares of common stock
during the period from the date of this prospectus supplement
continuing through the date 90 days after the date of this
prospectus supplement, except with the prior written consent of
the underwriter.
R & W-TRG
LLC, a company owned by Mr. Robert Taubman, our Chairman of
the Board, President, Chief Executive Officer and director, and
Mr. William Taubman, our Chief Operating Officer and
director, own securities of us that are pledged to Citibank,
N.A. as collateral for various loans, and such pledged
securities are not subject to Messrs. Robert Taubmans
and William Taubmans
lock-up
agreements.
In connection with this offering, the underwriter may purchase
and sell shares of common stock in the open market. These
transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Shorts
sales involve the sale by the underwriter of a greater number of
shares than it is required to purchase in the offering.
Covered short sales are sales made in an amount not
greater than the underwriters option to purchase
additional shares from us in the offering. The underwriter may
close out any covered short position by either exercising its
option to purchase additional shares or purchasing shares in the
open market. In determining the source of shares to close out
the covered short position, the underwriter will consider, among
other things, the price of shares available for purchase in the
open market as compared to the price at which it may purchase
additional shares pursuant to the option granted to it.
Naked short sales are any sales in excess of such
option. The underwriter must close out any naked short position
by purchasing shares in the open market. A naked short position
is more likely to be created if the underwriter is concerned
that there may be downward pressure on the price of the common
stock in the open market after pricing that could adversely
affect investors who purchase in the offering. Stabilizing
transactions consist of various bids for or purchases of common
stock made by the underwriter in the open market prior to the
completion of the offering.
Purchases to cover a short position and stabilizing
transactions, as well as other purchases by the underwriter for
its own account, may have the effect of preventing or retarding
a decline in the market price of the companys stock, and
may stabilize, maintain or otherwise affect the market price of
the common stock. As a result, the price of the common stock may
be higher than the price that otherwise might exist in the open
market. If these activities are
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commenced, they may be discontinued at any time. These
transactions may be effected on the NYSE, in the
over-the-counter market or otherwise.
We may enter into derivative transactions with third parties, or
sell securities not covered by this prospectus supplement to
third parties in privately negotiated transactions. In
connection with those derivatives, the third party may sell
securities covered by this prospectus supplement, including in
short sale transactions. If so, the third party may use
securities pledged by us or borrowed from us or others to settle
those sales or to close out any related open borrowings of
stock, and may use securities received from us in settlement of
those derivatives to close out any related open borrowings of
stock. The third party in such sale transactions will be an
underwriter or will be identified in a post-effective amendment.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), the underwriter has represented and agreed that
with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the
Relevant Implementation Date) it has not made and will not make
an offer of shares to the public in that Relevant Member State
prior to the publication of a prospectus in relation to the
shares which has been approved by the competent authority in
that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive, except that it may, with effect from
and including the Relevant Implementation Date, make an offer of
shares to the public in that Relevant Member State at any time:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive)
subject to obtaining the prior consent of the underwriter for
any such offer; or
(d) in any other circumstances which do not require the
publication by the Issuer of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
offer of shares to the public in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State, and the expression Prospectus Directive means
Directive 2003/71/EC
and includes any relevant implementing measure in each Relevant
Member State.
The underwriter has represented and agreed that:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the Financial Services
and Markets Act (FSMA)) received by it in connection
with the issue or sale of the shares in circumstances in which
Section 21(1) of the FSMA does not apply to the
Issuer; and
(b) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
The shares may not be offered or sold by means of any document
other than (1) in circumstances which do not constitute an
offer to the public within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), or (2) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (3) in other
circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are
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likely to be accessed or read by, the public in Hong Kong
(except if permitted to do so under the laws of Hong Kong) other
than with respect to shares which are or are intended to be
disposed of only to persons outside Hong Kong or only to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong)
and any rules made thereunder.
This prospectus supplement and the accompanying prospectus have
not been registered as a prospectus with the Monetary Authority
of Singapore. Accordingly, this prospectus supplement and the
accompanying prospectus and any other document or material in
connection with the offer or sale, or invitation for
subscription or purchase, of the shares may not be circulated or
distributed, nor may the shares be offered or sold, or be made
the subject of an invitation for subscription or purchase,
whether directly or indirectly, to persons in Singapore other
than (1) to an institutional investor under
Section 274 of the Securities and Futures Act,
Chapter 289 of Singapore (the SFA), (2) to
a relevant person, or any person pursuant to
Section 275(1A), and in accordance with the conditions,
specified in Section 275 of the SFA or (3) otherwise
pursuant to, and in accordance with the conditions of, any other
applicable provision of the SFA.
Where the shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for six months after that
corporation or that trust has acquired the shares under
Section 275 except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the transfer; or
(3) by operation of law.
The shares have not been and will not be registered under the
Financial Instruments and Exchange Law of Japan (the Financial
Instruments and Exchange Law) and the underwriter has agreed
that it will not offer or sell any shares, directly or
indirectly, in Japan or to, or for the benefit of, any resident
of Japan (which term as used herein means any person resident in
Japan, including any corporation or other entity organized under
the laws of Japan), or to others for re-offering or resale,
directly or indirectly, in Japan or to a resident of Japan,
except pursuant to an exemption from the registration
requirements of, and otherwise in compliance with, the Financial
Instruments and Exchange Law and any other applicable laws,
regulations and ministerial guidelines of Japan.
We estimate that our total expenses of this offering will be
approximately as follows:
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Securities and Exchange Commission fee
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$
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13,200
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Accountants fees and expenses
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40,000
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Legal fees and expenses
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120,000
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Printing expenses
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12,000
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Miscellaneous
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11,200
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Total
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$
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196,400
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We and the underwriter have agreed to indemnify or contribute
payments to each other against certain liabilities, including
liabilities under the Securities Act.
The underwriter and its affiliates are full service financial
institutions engaged in various activities, which may include
securities trading, commercial and investment banking, financial
advisory, investment management, investment research, principal
investment, hedging, financing and brokerage activities. The
underwriter and its affiliates have, from time to time,
performed, and may in the future perform, various financial
advisory and investment banking services for us, for which they
have received or will receive customary fees and expenses. In
the ordinary course of their various business activities, the
underwriter and its affiliates may make or hold a broad array of
investments and actively trade debt and equity securities (or
related derivative securities) and financial instruments
(including bank loans) for their own account and for the
accounts of their customers, and such investment and securities
activities may involve securities
and/or
instruments of the issuer. The underwriter and its affiliates
may also make investment recommendations
and/or
publish or express independent research views in
S-10
respect of such securities or instruments and may at any time
hold, or recommend to clients that they acquire, long
and/or short
positions in such securities and instruments.
VALIDITY
OF COMMON STOCK
The validity of the shares of common stock being offered herein
and the certain tax matters related to our qualification as a
REIT will be passed upon for us by Honigman Miller Schwartz and
Cohn LLP, Detroit, Michigan. Certain members of Honigman and
their families own beneficial interests of less than 1% of our
common stock. Jeffrey H. Miro, a partner of Honigman Miller
Schwartz and Cohn LLP, is our corporate Secretary.
Sullivan & Cromwell LLP, New York, New York, will pass
upon certain legal matters for the underwriter with respect to
this offering.
S-11
PROSPECTUS
TAUBMAN CENTERS, INC.
Common Stock
Preferred Stock
Warrants
Depositary Shares
Rights
Units
We may from time to time offer the following securities on terms
to be determined at the time of the offering:
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Shares of common stock, par value $0.01 per share;
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Shares of preferred stock;
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Warrants to purchase common stock or preferred stock;
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Depositary shares representing shares of preferred stock;
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Rights; and
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Units.
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Our common stock is traded on the New York Stock Exchange, or
NYSE, under the symbol TCO. We will make
applications to list any shares of common stock sold pursuant to
a supplement to this prospectus on the NYSE. We have not
determined whether we will list any other securities we may
offer on any exchange or
over-the-counter
market. If we decide to seek listing of any securities, the
applicable prospectus supplement will disclose the exchange or
market.
Our common stock, preferred stock, common stock warrants and
preferred stock warrants, depositary shares representing shares
of preferred stock and rights may be offered separately, or
together as units, in separate classes or series, in amounts, at
prices and on terms to be set forth in the applicable prospectus
supplement. The specific terms may include limitations on direct
or beneficial ownership and restrictions on transfer of the
securities offered by this prospectus, in each case as may be
appropriate to preserve our status as a real estate investment
trust, or REIT, for federal income tax purposes.
The securities offered by this prospectus may be offered on a
delayed or continuous basis and offered directly, through agents
designated from time to time by us, or to or through
underwriters or dealers. If any agents or underwriters are
involved in the sale of any of the securities offered by this
prospectus, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will
be set forth, or will be calculable from the information set
forth, in the applicable prospectus supplement. None of the
securities offered by this prospectus may be sold without
delivery of the applicable prospectus supplement describing the
method and terms of the offering of those securities.
Each prospectus supplement will also contain information, where
applicable, about United States federal income tax
considerations and any legend or statement required by state law
or the Securities and Exchange Commission.
Investing in our securities involves risks. Please read
carefully the section entitled Risk Factors on
page 3 of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is June 14, 2011
We have not authorized any underwriter, dealer, salesman or
other person to give any information or to make any
representation other than those contained or incorporated by
reference in this prospectus and the applicable prospectus
supplement or any free-writing prospectus that we may authorize
to be delivered to you. We take no responsibility for, and can
provide no assurances as to the reliability of, any other
information that others may give you. This prospectus and the
applicable prospectus supplement do not constitute an offer to
sell or the solicitation of an offer to buy any securities other
than the registered securities to which they relate, nor do this
prospectus and the applicable prospectus supplement constitute
an offer to sell or the solicitation of an offer to buy
securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such
jurisdiction. The information contained in this prospectus and
any prospectus supplement is accurate only as of the dates on
their respective covers. When we deliver this prospectus
and/or a
prospectus supplement or make a sale pursuant to this prospectus
and/or a
prospectus supplement, we are not implying that the information
is current as of the date of the delivery or sale.
TABLE OF
CONTENTS
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37
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37
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References in this prospectus to we,
our or us mean Taubman Centers, Inc.
and/or one
or more of a number of separate, affiliated entities, as the
context may require, and Taubman Centers refers to
Taubman Centers, Inc.
ABOUT
THIS PROSPECTUS
This prospectus is part of an automatic shelf registration
statement that we filed with the Securities and Exchange
Commission, or SEC, as a well-known seasoned
issuer as defined in Rule 405 under the Securities
Act of 1933, as amended, or the Securities Act.
Under the automatic shelf registration process, we may, over
time, sell any combination of the securities described in this
prospectus or in any applicable prospectus supplement in one or
more offerings. This prospectus provides you with a general
description of the securities we may offer. As allowed by SEC
rules, this prospectus does not contain all the information you
can find in the registration statement or the exhibits to the
registration statement. Each time we sell securities, we will
provide a prospectus supplement that will contain specific
information about the terms of that offering. A prospectus
supplement and any other offering material may also add, update
or change information contained in this prospectus. Accordingly,
to the extent inconsistent, information in or incorporated by
reference in this prospectus is superseded by the information in
the prospectus supplement and any other offering material
related to such securities. You should read both this prospectus
and any prospectus supplement together with additional
information described under Where You Can Find More
Information and Incorporation of Certain Documents
By Reference before considering an investment in the
securities offered by that prospectus supplement.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC, all of which are available
to the public over the Internet at the SECs web site at
www.sec.gov. You may also read and copy any document we
file by visiting the SECs public reference room at
100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at
1-800-SEC-0330
for further information about the public reference room. You may
also inspect our SEC reports and other information at the
New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005. You may also obtain copies of these
filings, at no cost, by accessing our website at
www.taubman.com; however, the information found on our
website is not considered part of this prospectus or any
applicable prospectus supplement.
We have filed a registration statement on
Form S-3
with the SEC covering the securities that may be sold under this
prospectus. For further information on us and the securities
being offered, you should refer to our registration statement
and its exhibits. This prospectus summarizes material provisions
of contracts and other documents that we refer you to. Because
the prospectus may not contain all the information that you may
find important, you should review the full text of these
documents. We have included copies of these documents as
exhibits to our registration statement of which this prospectus
is a part and each summary is qualified in all respects by that
reference and the exhibits and schedules thereto.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
We incorporate by reference in this prospectus the documents
listed below (file number 1-11530) and all future filings we
make with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended, prior to the
termination of this offering. This means that we can disclose
important information to you by referring you to these
documents. The information incorporated by reference is
considered to be part of this prospectus, and information that
we file later with the SEC will automatically update and, where
applicable, supersede any information contained in this
prospectus or incorporated by reference in this prospectus:
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our annual report on
Form 10-K
for the year ended December 31, 2010, filed with the SEC on
February 25, 2011;
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our quarterly report on
Form 10-Q
for the quarter ended March 31, 2011, filed with the SEC on
April 29, 2011;
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our current report on
Form 8-K
filed with the SEC on June 3, 2011;
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the description of our common stock contained in our
registration statement on
Form 8-A
filed with the SEC on November 10, 1992, including any
subsequently filed amendments and reports filed for the purpose
of updating the description;
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the description of our Series G preferred stock contained
under the heading Description of Our Series G
Preferred Stock in our prospectus supplement dated
November 16, 2004 and under the heading Description
of Preferred Stock in the our prospectus dated
September 19, 1997, each relating to our registration
statement on
Form S-3
(Registration
No. 333-35433),
which description is incorporated by reference in our
registration statement on
Form 8-A
filed with the SEC on November 22, 2004, and including any
subsequently filed amendments and reports filed for the purpose
of updating the description; and
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the description of our Series H preferred stock contained
under the heading Description of Our Series H
Preferred Stock in our prospectus supplement dated
June 8, 2005 and under the heading Description of
Preferred Stock in our prospectus dated September 19,
1997, each relating to our registration statement on
Form S-3
(Registration
No. 333-35433),
which description is incorporated by reference in our
registration statement on
Form 8-A
filed with the SEC on June 10, 2005, and including any
subsequently filed amendments and reports filed for the purpose
of updating the description.
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Copies of all documents which are incorporated by reference in
this prospectus and the applicable prospectus supplement (not
including the exhibits to such information, unless such exhibits
are specifically incorporated by reference) will be provided
without charge to each person, including any beneficial owner of
the securities offered by this prospectus, to whom this
prospectus or the applicable prospectus supplement is delivered,
upon written or oral request. Requests should be directed to
Taubman Centers, Inc., 200 East Long Lake Road, Suite 300,
Bloomfield Hills, MI
48304-2324,
Attention: Investor Relations, and our telephone number is
(248) 258-6800.
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference various
forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of
the Securities Exchange Act of 1934, as amended, or the
Exchange Act. You can identify these forward-looking
statements by our use of the words believe,
anticipate, plan, expect,
may, might, should,
will, intend, estimate and
similar expressions, whether in the negative or affirmative.
These forward-looking statements represent our expectations or
beliefs concerning future events, including the following:
statements regarding future developments and joint ventures,
rents, returns, and earnings; statements regarding the
continuation of trends; and any statements regarding the
sufficiency of our cash balances and cash generated from
operating, investing, and financing activities for our future
liquidity and capital resource needs. We caution that although
forward-looking statements reflect our good faith beliefs and
reasonable 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, because of risks, uncertainties, and
factors including, but not limited to, the final terms of the
offering of the applicable securities and the final size of such
offering, the continuing impacts of the U.S. recession and
global credit environment, other changes in general economic and
real estate conditions, changes in the interest rate environment
and the availability of financing, and adverse changes in the
retail industry. Further, we have included important factors in
the cautionary statements contained or incorporated by reference
in this prospectus, particularly under the heading Risk
Factors in our Annual Report on
Form 10-K
for the year ended December 31, 2010 and other periodic
reports that we believe could cause our actual results to differ
materially from the forward-looking statements that we make.
Except as required by law, we do not undertake any obligation to
update our forward-looking statements or the risk factors
contained in this prospectus to reflect new information or
future events or otherwise.
ABOUT
US
We are a Michigan corporation that operates as a
self-administered and self-managed real estate investment trust,
or REIT. Our business is actually conducted by an
affiliated entity rather than Taubman Centers itself. The
Taubman Realty Group Limited Partnership, or the Operating
Partnership or TRG, is a majority-owned
partnership subsidiary of Taubman Centers that owns direct or
indirect interests in all of the our real estate
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properties. Taubman Centers ownership in the Operating
Partnership at June 13, 2011 consisted of a 69% managing
general partnership interest, as well as Series G and H
preferred equity interests.
We engage in the ownership, management, leasing, acquisition,
disposition, development, and expansion of regional and
super-regional retail shopping centers and interests therein.
Our owned portfolio as of June 13, 2011 included 23 urban
and suburban shopping centers in ten states. Taubman Properties
Asia LLC and its subsidiaries, which is the platform for our
expansion into the Asia-Pacific region, is headquartered in Hong
Kong.
Taubman Centers is incorporated in Michigan and our executive
offices are located at 200 East Long Lake Road, Suite 300,
Bloomfield Hills, MI
48304-2324,
and our telephone number is
(248) 258-6800.
If you want to find more information about us, please see the
sections entitled Where You Can Find More
Information and Incorporation of Certain Documents
By Reference in this prospectus.
RISK
FACTORS
Before investing in our securities, you should carefully
consider the risks and uncertainties described in our reports we
file with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act that are incorporated by reference herein,
particularly under the heading Risk Factors in our
Annual Report on
Form 10-K
for the year ended December 31, 2010, as well as such
information set forth in this prospectus and any applicable
prospectus supplement and any other information incorporated by
reference.
USE OF
PROCEEDS
We expect to use the net proceeds from the sale of the
securities for general corporate purposes, unless otherwise
specified in the prospectus supplement relating to any specific
offering. Our general corporate purposes may include repaying
debt, financing capital commitments and financing future
acquisitions. If we decide to use the net proceeds from an
offering in some other way, we will describe such use of the net
proceeds in the prospectus supplement for that offering.
DESCRIPTION
OF SECURITIES BEING OFFERED
Authorized
Stock
The Restated Articles of Incorporation of Taubman Centers as in
effect on the date of this prospectus, or the
Articles, authorize the issuance of up to
500 million shares of our capital stock, including
250 million shares of common stock and 250 million
shares of preferred stock. As of June 13, 2011, the
outstanding shares of our capital stock were as follows:
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55,877,030 shares of common stock;
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25,140,436 shares of Series B Non-Participating
Convertible Preferred Stock, or the Series B
Preferred Stock;
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no shares of 8.2% Series F Cumulative Redeemable Preferred
Stock, or the Series F Preferred Stock;
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4,000,000 shares of 8% Series G Cumulative Redeemable
Preferred Stock, or the Series G Preferred
Stock; and
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3,480,000 shares of 7.625% Series H Cumulative
Redeemable Preferred Stock, or the Series H Preferred
Stock.
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All of the 300,000 authorized shares of our 8.2% Series F
Preferred Stock have been reserved for issuance to holders of
Series F preferred equity in TRG upon exercise of their
conversion rights. In addition, as of June 13, 2011,
9,564,846 shares of our common stock were subject to
issuance in exchange for outstanding TRG units (including
options that were currently exercisable) pursuant to the
Continuing Offer (as described in our Annual Report on Form
10-K for the
year ended December 31, 2010).
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The authorized shares of our common stock and preferred stock in
excess of those presently outstanding or specifically reserved
are available for issuance at such times and for such purposes
as our board of directors may deem advisable without further
action by our shareholders, except as may be required by
applicable laws or regulations, including stock exchange rules.
These purposes may include stock dividends, stock splits,
retirement of indebtedness, employee benefit programs, corporate
business combinations, acquisitions of property or other
corporate purposes. The excess authorized shares are available
for issuance subject to our Articles and as may be necessary to
preserve our qualification as a REIT under applicable tax laws.
Because the holders of our common stock do not have preemptive
rights, the issuance of common stock, other than on a pro rata
basis to all current shareholders, would reduce the current
shareholders proportionate interests. In any such event,
however, shareholders wishing to maintain their interests may be
able to do so through normal market purchases. Any future
issuance of our common stock will be subject to the rights of
holders of outstanding shares of our existing series of
preferred stock and of any shares of preferred stock we may
issue in the future. See also Preferred
Stock.
Common
Stock
Subject to any preferential rights granted to any existing or
future series of preferred stock, all shares of common stock
have equal right to dividends payable to common shareholders as
declared by our board of directors and in net assets available
for distribution to common shareholders on our liquidation,
dissolution, or winding up. Each outstanding share of common
stock entitles the holder to one vote on all matters submitted
to a vote of the shareholders. Holders of our common stock do
not have cumulative voting rights in the election of directors.
All issued and outstanding shares of our common stock are, and
the common stock offered under this prospectus will be upon
issuance, validly issued, fully paid and nonassessable. Holders
of our common stock do not have preference, conversion, exchange
or preemptive rights.
In addition to the holders of the common stock, the holders of
our Series B Preferred Stock are entitled to one vote per
share on all matters submitted to a vote of the shareholders.
The holders of Series B Preferred Stock (voting as a
separate class) are entitled to nominate up to four individuals
for election to our board of directors. The number of
individuals the holders of Series B Preferred Stock may
nominate in any given year is reduced by the number of directors
nominated by such holders in prior years whose terms are not
expiring.
Currently, a majority of the outstanding shares of common stock
and Series B Preferred Stock, or the Voting
Stock, is required for a quorum. Any action regarding
shareholder approval (other than the election of directors) will
be approved, upon the affirmative vote of holders of two-thirds
of the outstanding shares of Voting Stock. Directors are elected
by a plurality of the votes cast.
Our common stock is listed on the NYSE under the ticker symbol
TCO. The registrar and transfer agent for our common
stock is BNY Mellon Shareowner Services.
Preferred
Stock
General. We are authorized to issue up to
250,000,000 shares of preferred stock, of which
25,140,436 shares, 4,000,000 shares and
3,480,000 shares have been designated and issued as
Series B Preferred Stock, Series G Preferred Stock and
Series H Preferred Stock, respectively as of June 13,
2011. In addition, we have 300,000 shares of Preferred Stock
that have been designated as our Series F Preferred Stock,
all of which are reserved for issuance as described above under
Authorized Stock. The Articles authorize
our board of directors to establish one or more series of
preferred stock and to determine, with respect to any series of
preferred stock, the preferences, rights (including voting and
conversion rights), and other terms of such series. We believe
that the ability of our board of directors to issue one or more
series of preferred stock provides us with increased flexibility
in meeting corporate needs.
Existing Series. Our Series G Preferred
Stock and Series H Preferred Stock do not entitle its
holders to vote. Although we have authorized the issuance of
shares of our 8.2% Series F Preferred Stock pursuant to the
exercise of conversion rights granted to holders of
Series F preferred equity in TRG, at this time no such
shares of preferred stock are outstanding. When issued, such
shares of Series F Preferred Stock will not entitle their
respective holders to vote. See Common
Stock above for information regarding the voting rights of
holders of the Series B Preferred Stock.
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Our Series G Preferred Stock and Series H Preferred
Stock are listed on the NYSE under the ticker symbols TCO
Pr G and TCO Pr H, respectively.
Future Series. We urge you to read carefully
the Articles and the amendment to the Articles we will file in
relation to an issue of any particular series of preferred stock
before you buy any preferred stock. This section describes the
general terms and provisions of the preferred stock we may offer
by this prospectus. The applicable prospectus supplement will
describe the specific terms of the series of the preferred stock
then offered, and the terms and provisions described in this
section will apply only to the extent not superseded by the
terms of the applicable prospectus supplement.
Our board of directors may, without further action of the
shareholders except as may be required by applicable laws or
regulations including stock exchange rules, determine and set
forth in an amendment to the Articles the following for each
series of preferred stock:
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the serial designation and the number of shares in that series;
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the dividend rate or rates, whether dividends shall be
cumulative and, if so, from what date, the payment date or dates
for dividends, and any participating or other special rights
with respect to dividends;
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any voting powers of the shares;
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whether the shares will be redeemable and, if so, the price or
prices at which, and the terms and conditions on which the
shares may be redeemed;
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the amount or amounts payable upon the shares in the event of
voluntary or involuntary liquidation, dissolution or winding up
of us prior to any payment or distribution of our assets to any
class or classes of our stock ranking junior to the preferred
stock;
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whether the shares will be entitled to the benefit of a sinking
or retirement fund and, if so entitled, the amount of the fund
and the manner of its application, including the price or prices
at which the shares may be redeemed or purchased through the
application of the fund;
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whether the shares will be convertible into, or exchangeable
for, shares of any other class or of any other series of the
same or any other class of our stock or the stock of another
issuer, and if so convertible or exchangeable, the conversion
price or prices, or the rates of exchange, and any adjustments
to the conversion price or rates of exchange at which the
conversion or exchange may be made, and any other terms and
conditions of the conversion or exchange; and
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any other preferences, privileges and powers, and relative,
participating, optional, or other special rights, and
qualifications, limitations or restrictions, as our board of
directors may deem advisable and as shall not be inconsistent
with the provisions of the Articles.
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Depending on the rights prescribed for a series of preferred
stock and although our board of directors has no present
intention to do so, the board of directors could issue a series
of preferred stock that (because of its terms) could impede a
merger, tender offer, or other transaction that some of our
shareholders might believe to be in their best interests or in
which shareholders might receive a premium over the
then-prevailing market prices for their shares. In addition,
preferred stock could be issued in order to dilute the
percentage voting stock of a significant shareholder or be
issued to a holder expected to vote in accordance with the
recommendations of our management with respect to any
shareholder proposal.
The preferred stock, when issued, will be fully paid and
non-assessable. Unless the applicable prospectus supplement
provides otherwise, the preferred stock will have no preemptive
rights to subscribe for any additional securities which may be
issued by us in the future. The transfer agent and registrar for
the preferred stock will be specified in the applicable
prospectus supplement.
In addition to the voting rights set forth in our Articles,
holders of our shares of preferred stock have certain voting
rights pursuant to the Michigan Business Corporation Act, or the
MBCA. Pursuant to the MBCA, the holders of the
outstanding shares of a class of our capital stock have the
right to vote as a class upon a proposed amendment to our
Articles if the amendment would increase or decrease the
aggregate number of authorized shares
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of such class, or alter or change the powers, preferences or
special rights of the shares of such class or other classes so
as to affect such class adversely. If a proposed amendment to
our Articles would alter or change the powers, preferences or
special rights of a class of our capital stock so as to
adversely affect one or more series of such class, but not the
entire class, then only the shares of the one or more series
affected by the amendment shall as a group be considered a
single class for purposes of such voting rights. Additionally,
if a plan of merger is adopted by our board of directors and
such plan of merger contains a provision that, if contained in a
proposed amendment to our Articles would entitle a class or
series of our shares of capital stock to vote as a class on such
amendment, such class or series is entitled to vote as a class
with respect to such plan of merger. If our board of directors
adopts a share exchange, any class or series of our shares of
capital stock which is included in such exchange is entitled to
vote as a class with respect to such share exchange. Except with
respect to additional class voting rights set forth in our
Articles, under the MBCA a class or series of our capital stock
is not entitled to vote as a class in the case of a merger or
share exchange if our board of directors determines on a
reasonable basis that the class or series is to receive
consideration under the plan of merger or share exchange that
has a fair value that is not less than the fair value of the
shares of the class or series on the date of adoption of the
plan.
Warrants
General. This section describes the general
terms and provisions of the warrants that we may offer pursuant
to this prospectus. The applicable prospectus supplement will
describe the specific terms of the warrants then offered, and
the terms and provisions described in this section will apply
only to the extent not superseded by the terms of the applicable
prospectus supplement.
We may issue warrants for the purchase of common stock or
preferred stock. Warrants may be issued alone or together with
common stock or preferred stock offered by any prospectus
supplement and may be attached to or separate from those
securities. Each series of warrants will be issued under warrant
agreements between us and a bank or trust company, as warrant
agent, which will be described in the applicable prospectus
supplement. The warrant agent will act solely as our agent in
connection with the warrants and will not act as an agent or
trustee for any holders or beneficial holders of warrants.
This section summarizes the general terms and provisions of the
forms of warrant agreements and warrant certificates. Because
this is only a summary, it does not contain all of the details
found in the full text of the warrant agreements and the warrant
certificates. We urge you to read the applicable form of warrant
agreement and the form of warrant certificate that we will file
in relation to an issue of any warrants.
If warrants for the purchase of common stock or preferred stock
are offered, the applicable prospectus supplement will describe
the terms of those warrants, including the following if
applicable:
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the offering price;
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the total number of shares that can be purchased upon exercise
and, in the case of warrants for preferred stock, the
designation, total number and terms of the series of preferred
stock that can be purchased upon exercise;
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the designation and terms of the series of preferred stock with
which the warrants are being offered and the number of warrants
being offered with each share of common stock or preferred stock;
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the date on and after which the holder of the warrants can
transfer them separately from the related common stock or series
of preferred stock;
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the number of shares of common stock or preferred stock that can
be purchased upon exercise and the price at which the common
stock or preferred stock may be purchased upon exercise;
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the date on which the right to exercise the warrants begins and
the date on which that right expires;
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United States federal income tax consequences; and
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any other terms of the warrants.
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Unless the applicable prospectus supplement provides otherwise,
warrants will be in book-entry form only. Until any warrants to
purchase preferred stock or common stock are exercised, holders
of the warrants will not have any rights of holders of the
underlying preferred stock or common stock, including any right
to receive dividends or to exercise any voting rights.
If warrants are issued in certificated form, a holder of warrant
certificates may:
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exchange them for new certificates of different denominations;
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present them for registration of transfer; and
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exercise them at the corporate trust office of the warrant agent
or any other office indicated in the applicable prospectus
supplement.
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Exercise of Warrants. Each holder of a warrant
is entitled to purchase the number of shares of common stock or
preferred stock at the exercise price described in the
applicable prospectus supplement. After the close of business on
the day when the right to exercise terminates, or a later date
if we extend the time for exercise, unexercised warrants will
become void.
Unless the applicable prospectus supplement provides otherwise,
a holder of warrants may exercise them by following the general
procedure outlined below:
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delivering to the warrant agent the payment required by the
applicable prospectus supplement to purchase the underlying
security;
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properly completing and signing the reverse side of the warrant
certificate representing the warrants; and
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delivering the warrant certificate representing the warrants to
the warrant agent within five business days of the warrant agent
receiving payment of the exercise price.
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If you comply with the procedures described above, your warrants
will be considered to have been exercised when the warrant agent
receives payment of the exercise price. After you have completed
those procedures, we will, as soon as practicable, issue and
deliver to you preferred stock or common stock that you
purchased upon exercise. If you exercise fewer than all of the
warrants represented by a warrant certificate, a new warrant
certificate will be issued to you for the unexercised amount of
warrants. Holders of warrants will be required to pay any tax or
governmental charge that may be imposed in connection with
transferring the underlying securities in connection with the
exercise of the warrants.
Amendments and Supplements to Warrant
Agreements. Unless the applicable prospectus
supplement provides otherwise, the following describes generally
the provisions relating to amending and supplementing the
warrant agreements.
We may amend or supplement a warrant agreement without the
consent of the holders of the applicable warrants if the changes
are not inconsistent with the provisions of the warrants and do
not materially adversely affect the interests of the holders of
the warrants. We and the warrant agent may also modify or amend
a warrant agreement and the terms of the warrants if a majority
of the then outstanding unexercised warrants affected by the
modification or amendment consent. However, no modification or
amendment that accelerates the expiration date, increases the
exercise price, reduces the majority consent requirement for any
modification or amendment or otherwise materially adversely
affects the rights of the holders of the warrants may be made
without the consent of each holder affected by the modification
or amendment.
Warrant Adjustments. The warrant certificate
and the applicable prospectus supplement will describe the
events requiring adjustment to the warrant exercise price or the
number or principal amount of securities issuable upon exercise
of the warrant.
Depositary
Shares
General. We may issue receipts for depositary
shares, each of which will represent a fractional interest of a
share of a particular series of preferred stock, as specified in
the applicable prospectus supplement. Shares of preferred stock
of each series represented by the depositary shares will be
deposited under a separate deposit
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agreement to be entered into between us, the depositary named
therein and the holders of the depositary receipts. Subject to
the terms of the deposit agreement, each depositary receipt
owner will be entitled, in proportion to the fractional interest
of a share of a particular series of preferred stock represented
by the depositary shares evidenced by such depositary receipt,
to all the rights and preferences of the preferred stock
represented thereby.
Depositary receipts issued pursuant to the applicable deposit
agreement will evidence the depositary shares. Immediately
following our issuance and delivery of the preferred stock to
the depositary, we will cause the depositary to issue, on our
behalf, the depositary receipts. Upon request, we will provide
you with copies of the applicable form of deposit agreement and
depositary receipt.
Dividends and Other Distributions. The
depositary will distribute all cash dividends or other cash
distributions received in respect of the preferred stock to the
record holders of depositary receipts evidencing the related
depositary shares in proportion to the number of depositary
receipts owned by the holders.
If there is a distribution other than in cash, the depositary
will distribute property received by it to the record holders of
depositary receipts entitled thereto. If the depositary
determines that it is not feasible to make such distribution,
the depositary may, with our approval, sell the property and
distribute the net proceeds from such sale to the holders.
Withdrawal of Stock. Upon surrender of the
depositary receipts at the corporate trust office of the
depositary, unless the related depositary shares have previously
been called for redemption, the holders thereof will be entitled
to delivery, to or upon such holders order, of the number
of whole or fractional shares of the preferred stock and any
money or other property represented by the depositary shares
evidenced by the depositary receipts. Holders of depositary
receipts will be entitled to receive whole or fractional shares
of the related preferred stock on the basis of the proportion of
preferred stock represented by each depositary share as
specified in the applicable prospectus supplement. Thereafter,
holders of such shares of preferred stock will not be entitled
to receive depositary shares for the preferred stock. If the
depositary receipts delivered by the holder evidence a number of
depositary shares in excess of the number of depositary shares
representing the number of shares of preferred stock to be
withdrawn, the depositary will deliver to the holder a new
depositary receipt evidencing the excess number of depositary
shares.
Redemption of Depositary Shares. Provided we
shall have paid in full to the depositary the redemption price
of the preferred stock to be redeemed plus an amount equal to
any accrued and unpaid dividends thereon to the redemption date,
whenever we redeem shares of preferred stock held by the
depositary, the depositary will redeem as of the same redemption
date the number of depositary shares representing shares of the
preferred stock so redeemed. The redemption price per depositary
share will be equal to the redemption price and any other
amounts per share payable with respect to the preferred stock.
If fewer than all the depositary shares are to be redeemed, the
depositary shares to be redeemed will be selected as nearly as
may be practicable without creating fractional depositary
shares, pro rata, or by any other equitable method we determine.
From and after the date fixed for redemption, all dividends in
respect of the shares of preferred stock so called for
redemption will cease to accrue, the depositary shares called
for redemption will no longer be deemed to be outstanding and
all rights of the holders of the depositary receipts evidencing
the depositary shares so called for redemption will cease,
except the right to receive any monies payable upon such
redemption and any money or other property to which the holders
of such depositary receipts were entitled to receive upon such
redemption upon surrender to the depositary of the depositary
receipts representing the depositary shares.
Voting of the Preferred Stock. Upon receipt of
notice of any meeting at which the holders of the preferred
stock are entitled to vote, the depositary will mail the
information contained in such notice of meeting to the record
holders of the depositary receipts evidencing the depositary
shares that represent such preferred stock. Each record holder
of depositary receipts evidencing depositary shares on the
record date, which will be the same date as the record date for
the preferred stock, will be entitled to instruct the depositary
as to the exercise of the voting rights pertaining to the amount
of preferred stock represented by such holders depositary
shares. The depositary will vote the amount of preferred stock
represented by such depositary shares in accordance with such
instructions, and we will agree to take all reasonable action
that may be deemed necessary by the depositary in order to
enable the depositary to do so. If the depositary does not
receive specific instructions from the holders of depositary
receipts evidencing such depositary shares, it will abstain from
voting the amount of preferred stock represented by such
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depositary shares. The depositary shall not be responsible for
any failure to carry out any instruction to vote, or for the
manner or effect of any such vote made, as long as any such
action or non-action is in good faith and does not result from
the depositarys negligence or willful misconduct.
Liquidation Preference. Upon our liquidation,
dissolution or winding up, whether voluntary or involuntary, the
holders of each depositary receipt will be entitled to the
fraction of the liquidation preference accorded each share of
preferred stock represented by the depositary share evidenced by
such depositary receipt, as set forth in the applicable
prospectus supplement.
Conversion of Preferred Stock. Except with
respect to certain conversions in connection with the
preservation of our REIT status, the depositary shares are not
convertible into our common stock or any other of our securities
or property. Nevertheless, if the applicable prospectus
supplement so specifies, the holders of the depositary receipts
may surrender their depositary receipts to the depositary with
written instructions to the depositary to instruct us to cause
conversion of the preferred stock represented by the depositary
shares evidenced by such depositary receipts into whole shares
of common stock, other shares of our preferred stock or other
shares of our capital stock, and we have agreed that upon
receipt of such instructions and any amounts payable in respect
thereof, we will cause the conversion of the depositary shares
utilizing the same procedures as those provided for delivery of
preferred stock to effect such conversion. If the depositary
shares evidenced by a depositary receipt are to be converted in
part only, the depositary will issue a new depositary receipt
for any depositary shares not to be converted. No fractional
shares of common stock will be issued upon conversion, and if
such conversion will result in a fractional share being issued,
we will pay an amount in cash equal to the value of the
fractional interest based upon the closing price of the common
stock on the last business day prior to the conversion.
Amendment and Termination of the Deposit
Agreement. By agreement, we and the depositary at
any time can amend the form of depositary receipt and any
provision of the deposit agreement. However, any amendment that
materially and adversely alters the rights of the holders of
depositary receipts or that would be materially and adversely
inconsistent with the rights granted to holders of the related
preferred stock will be effective only if the existing holders
of at least two-thirds of the depositary shares have approved
the amendment. No amendment shall impair the right, subject to
certain exceptions in the deposit agreement, of any holder of
depositary receipts to surrender any depositary receipt with
instructions to deliver to the holder the related preferred
stock and all money and other property, if any, represented
thereby, except in order to comply with law. Every holder of an
outstanding depositary receipt at the time an amendment becomes
effective shall be deemed, by continuing to hold the depositary
receipt, to consent and agree to the amendment and to be bound
by the deposit agreement as amended thereby.
Upon 30 days prior written notice to the depositary, we may
terminate the deposit agreement if (a) such termination is
necessary to preserve our status as a REIT or (b) a
majority of each series of preferred stock affected by such
termination consents to such termination. Upon the termination
of the deposit agreement, the depositary shall deliver or make
available to each holder of depositary receipts, upon surrender
of the depositary receipts held by such holder, such number of
whole or fractional shares of preferred stock as are represented
by the depositary shares evidenced by the depositary receipts
together with any other property held by the depositary with
respect to the depositary receipt. If the deposit agreement is
terminated to preserve our status as a REIT, then we will use
our best efforts to list the preferred stock issued upon
surrender of the related depositary shares on a national
securities exchange.
The deposit agreement will automatically terminate if
(a) all outstanding depositary shares shall have been
redeemed, (b) there shall have been a final distribution in
respect of the related preferred stock in connection with our
liquidation, dissolution or winding up and such distribution
shall have been distributed to the holders of depositary
receipts evidencing the depositary shares representing such
preferred stock or (c) each share of the related preferred
stock shall have been converted into our capital stock not so
represented by depositary shares.
Charges of Depositary. We will pay all
transfer and other taxes and governmental charges arising solely
from the existence of the deposit agreement. In addition, we
will pay the fees and expenses of the depositary in connection
with the performance of its duties under the deposit agreement.
However, holders of depositary receipts will pay certain other
transfer and other taxes and governmental charges. The holders
will also pay the fees and
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expenses of the depositary for any duties, outside of those
expressly provided for in the deposit agreement, the holders
request to be performed.
Resignation and Removal of Depositary. The
depositary may resign at any time by delivering to us notice of
its election to do so. We may at any time remove the depositary,
any such resignation or removal will take effect upon the
appointment of a successor depositary. A successor depositary
must be appointed within 60 days after delivery of the
notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and
having a combined capital and surplus of $50,000,000 or more.
Miscellaneous. The depositary will forward to
holders of depositary receipts any reports and communications
from us which are received by the depositary with respect to the
related preferred stock.
We and the depositary will not be liable if either of us is
prevented from or delayed in, by law or any circumstances beyond
its control, performing its obligations under the deposit
agreement. Our obligations and the depositarys obligations
under the deposit agreement will be limited to performing the
duties thereunder in good faith and without negligence, in the
case of any action or inaction in the voting of preferred stock
represented by the depositary shares, gross negligence or
willful misconduct. If satisfactory indemnity is furnished, we
and the depositary will be obligated to prosecute or defend any
legal proceeding in respect of any depositary receipts,
depositary shares or shares of preferred stock represented
thereby. We and the depositary may rely on written advice of
counsel or accountants, or information provided by persons
presenting shares of preferred stock represented by depositary
receipts for deposit, holders of depositary receipts or other
persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be
genuine and signed by a proper party.
In the event the depositary shall receive conflicting claims,
requests or instructions from any holders of depositary
receipts, on the one hand, and us, on the other hand, the
depositary shall be entitled to act on our claims, requests or
instructions.
Rights
We may from time to time, issue rights to our shareholders for
the purchase of common stock, preferred stock or other
securities. Each series of rights will be issued under a
separate rights agreement to be entered into between us, from
time to time, and a bank or trust company, as rights agent, all
as set forth in the applicable prospectus supplement relating to
the particular issue of rights. The rights agent will act solely
as an agent of ours in connection with the certificates relating
to the rights and will not assume any obligation or relationship
of agency or trust for or with any holders of rights
certificates or beneficial owners of rights. The rights
agreement and the rights certificates relating to each series of
rights will be filed with the SEC and incorporated by reference
as an exhibit to the registration statement of which this
prospectus is a part at or prior to the time of the issuance of
such series of rights.
The applicable prospectus supplement will describe the terms of
the rights to be issued, including the following where
applicable:
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the date for determining the shareholders entitled to the rights
distribution;
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the aggregate number of shares of common stock or other
securities purchasable upon exercise of the rights and the
exercise price and any adjustments to such exercise price;
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the aggregate number of rights being issued;
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the date, if any, on and after which the rights may be
transferable separately;
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the date on which the right to exercise the rights shall
commence and the date on which the right shall expire;
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any special United States federal income tax
consequences; and
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any other terms of the rights, including terms, procedures and
limitations relating to the distribution, exchange and exercise
of the rights.
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Units
We may issue securities in units, each consisting of two or more
types of securities. For example, we might issue units
consisting of a combination of common stock and warrants to
purchase common stock. If we issue units, the prospectus
supplement relating to the units will describe the terms of each
of the securities that is a component of the units. In addition,
the prospectus supplement relating to the units will describe
the terms of any units we issue, including as applicable:
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whether, and under what circumstances, the securities comprising
such units may be held or transferred separately;
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whether we will apply to have the units traded on a securities
exchange or securities quotation system;
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any material United States federal income tax
consequences; and
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how, for United States federal income tax purposes, the purchase
price paid for the units is to be allocated among the component
securities.
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The applicable prospectus supplement will also describe any unit
agreement that may be entered into in connection with the
offering and sale of the units and, if applicable, collateral or
depositary arrangements relating to such units.
IMPORTANT
PROVISIONS OF OUR GOVERNING DOCUMENTS AND MICHIGAN LAW
Limited
Partnership Agreement
The limited partnership agreement of the Operating Partnership
contains a consent requirement that limits the possibility that
we will be acquired or undergo a change in control, even if some
of our shareholders believe that a change would be in our and
their best interests. Specifically, the partnership agreement
provides that for so long as Mr. A. Alfred Taubman, his
affiliates or any member of Mr. Taubmans immediate
family own, individually or collectively, five percent or more
of the percentage interests in the Operating Partnership, then
without the prior written consent of a majority in interest of
the percentage interests held by the partners other than us, the
Operating Partnership may not:
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sell, exchange, or otherwise dispose (including the encumbering)
of all or substantially all of the property described on
Schedule E to the limited partnership agreement;
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merge (including by way of a triangular merger), consolidate, or
otherwise combine with another person or entity;
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issue additional partnership interests to any person or entity
(including a partner in the Operating Partnership other than us)
such that such person or entity together with any of such
persons or entitys affiliates would own a percentage
interest in the Operating Partnership in excess of five percent;
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place the Operating Partnership into bankruptcy;
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recapitalize the Operating Partnership; or
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dissolve the Operating Partnership.
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Michigan
Law and Certain Articles and Bylaw Provisions
Various provisions of the MBCA, our Articles and the Restated
Bylaws of Taubman Centers as in effect on the date of this
prospectus, or the Bylaws, could have the effect of
discouraging, delaying or preventing a third party from
accumulating a large block of our stock, engaging in a tender
offer and making offers to acquire us, and of inhibiting a
change in control, all of which could adversely affect our
shareholders ability to receive a premium for their shares
in connection with such a transaction. Such provisions noted
below are intended to encourage persons seeking to acquire
control of us to negotiate first with our board of directors and
to discourage certain types of coercive takeover practices and
inadequate takeover bids. We believe that the benefits of these
provisions outweigh
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the potential disadvantages of discouraging takeover proposals
because, among other things, negotiation of takeover proposals
might result in an improvement of their terms. The following
paragraphs summarize applicable provisions of the MBCA, our
Articles and our Bylaws; for a complete description, we refer
you to the MBCA, as well as our Articles and our Bylaws which we
have incorporated by reference as exhibits to the registration
statement of which this prospectus is a part.
Ownership
Limit
In addition to customary anti-takeover provisions, as detailed
below, our Articles contain REIT-specific restrictions on the
ownership and transfer of our capital stock which also serve
similar anti-takeover purposes. See Restrictions on
Transfer and Ownership below.
Supermajority
Voting; Amendment of Articles of Incorporation and
Bylaws
Our Articles generally require any action requiring shareholder
approval, including the amendment of the Articles and Bylaws, to
be approved upon the affirmative vote of holders of two-thirds
of the outstanding shares of capital stock entitled to vote on
such matter. Directors are elected by a plurality vote.
A majority of our board of directors may amend our Bylaws at any
time, except as limited by statute and except for a bylaw that
is adopted by the shareholders and that, by its terms, provides
that it can be amended only by the shareholders. A majority of
our board of directors may also issue series of preferred stock
without shareholder approval; see Blank Check
Preferred Stock below.
Based on information contained in filings made with the SEC, as
of April 4, 2011, A. Alfred Taubman and the members of his
family have the power to vote approximately 31% of the
outstanding shares of our common stock and our Series B
Preferred Stock, considered together as a single class, and
approximately 96% of our outstanding Series B Preferred
Stock. These persons disclaim group status under
section 13(d) of the Exchange Act. Our shares of common stock
and our Series B Preferred Stock vote together as a single
class on all matters generally submitted to a vote of our
shareholders, and the holders of the Series B Preferred
Stock have certain rights to nominate up to four individuals for
election to our board of directors and other class voting
rights. Mr. Taubmans sons, Robert S. Taubman and
William S. Taubman, serve as our Chairman of the Board,
President and Chief Executive Officer, and our Chief Operating
Officer, respectively. These individuals occupy the same
positions with the manager of Taubman Centers. As a result,
Mr. A. Alfred Taubman and the members of his family may
exercise significant influence with respect to the election of
our board of directors, the outcome of any corporate transaction
or other matter submitted to our shareholders for approval,
including any merger, consolidation or sale of all or
substantially all of our assets. In addition, because our
Articles impose a limitation on the ownership of our outstanding
capital stock by any person and such ownership limitation may
not be changed without the affirmative vote of holders owning
not less than two-thirds of the outstanding shares of capital
stock entitled to vote on such matter, Mr. A. Alfred
Taubman and the members of his family, as a practical matter,
have the power to prevent a change in control of us.
Advance
Notice Requirements
Our Bylaws set forth advance notice procedures with regard to
the nomination of candidates for election as directors or the
proposal of other business to be presented at meetings of
shareholders. These procedures provide that notice of such
shareholder proposals must be timely, reflect a proper matter
for shareholder action and comply with various disclosure
obligations. The advance notice requirements may have the effect
of precluding the consideration of certain business at a meeting
if the notice procedures are not properly followed.
Number
of Directors; Classified Board Of Directors
Our Articles provide that the number of our directors will be
fixed by our Bylaws. Our Bylaws currently provide for our board
of directors to establish from time to time the size of our
board of directors, however, the size cannot be reduced except
upon the expiration of the term of one or more directors or the
death, resignation or removal of a director. Currently our board
of directors is comprised of nine directors serving three-year
staggered terms.
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Since our initial public offering in 1992, our Bylaws have
provided that the board of directors be divided into three
classes, with each class constituting approximately one-third of
the total number of directors, and directors elected to
three-year staggered terms. Subject to the right of holders of
any series of preferred stock to elect directors, shareholders
elect one class constituting approximately one-third of the
board of directors for a three-year term at each annual meeting
of shareholders. Staggering the terms of directors makes it more
difficult for a potential acquirer to seize control of a target
company through a proxy contest, even if the acquirer controls a
majority of our stock, because only one-third of the directors
stand for election in any one year.
Removal
of Directors
Shareholders may remove directors, with or without cause, upon
the affirmative vote of two-thirds of the outstanding shares of
capital stock entitled to vote. This provision may restrict the
ability of a third party to remove incumbent directors and
simultaneously gain control of the board of directors by filling
the vacancies created by removal with its own nominees.
Blank
Check Preferred Stock
As noted above, our board of directors has the authority under
our Articles to issue preferred stock with rights superior to
the rights of the holders of common stock without shareholder
approval. Our preferred stock could be deemed to have an
anti-takeover effect in that, if a hostile takeover situation
should arise, shares of preferred stock could be issued to
purchasers sympathetic with our management or others in such a
way as to render more difficult or to discourage a merger,
tender offer, proxy contest, the assumption of control by a
holder of a large block of our securities or the removal of
incumbent management.
The effects of the issuance of the preferred stock on the
holders of our common stock could include:
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reduction of the amount otherwise available for payments of
dividends on common stock if dividends are payable on the series
of preferred stock;
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restrictions on dividends on our common stock if dividends on
the series of preferred stock are in arrears;
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dilution of the voting power of our common stock if the series
of preferred stock has voting rights, including a possible
veto power;
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dilution of the equity interest of holders of our common stock
if the series of preferred stock is convertible, and is
converted, into our common stock; and
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restrictions on the rights of holders of our common stock to
share in our assets upon liquidation until satisfaction of any
liquidation preference granted to the holders of the series of
preferred stock.
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Business
Combination Act
Chapter 7A of the MBCA may affect an attempt to acquire
control of us. In general, under Chapter 7A, business
combinations (defined to include, among other
transactions, certain mergers, dispositions of assets or shares
and recapitalizations) between covered Michigan business
corporations or their subsidiaries and an interested
shareholder (defined as the direct or indirect beneficial
owner of at least 10 percent of the voting power of a
covered corporations outstanding shares) can only be
consummated if there is an advisory statement by the board of
directors and the combination is approved by at least
90 percent of the votes of each class of the
corporations shares entitled to vote and by at least
two-thirds of such voting shares not held by the interested
shareholder or affiliates, unless five years have elapsed after
the person involved became an interested shareholder
and unless certain price and other conditions are satisfied. The
board of directors has the power to elect to be subject to
Chapter 7A as to specifically identified or unidentified
interested shareholders.
RESTRICTIONS
ON TRANSFER AND OWNERSHIP
Our board of directors believes it is essential for us to
continue to qualify as a REIT. Our Articles contain restrictions
on the ownership and transfer of our capital stock, which are
intended to assist us in complying with the REIT ownership
requirements. Specifically, for us to qualify as a REIT under
the Internal Revenue Code of 1986, as
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amended, or the Code, not more than 50% in value of
our outstanding stock may be owned, actually or constructively,
by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year, and
our stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of
12 months or during a proportionate part of a shorter
taxable year.
Under the Articles, in general, no shareholder may own more than
8.23% (the General Ownership Limit) in value of the
our Capital Stock (which term refers to the common
stock, preferred stock and Excess Stock, as defined below). The
Articles specifically permit two pension trusts to each own 9.9%
in value of our Capital Stock and a third pension trust to own
13.74% in value of our Capital Stock (collectively, the
Existing Holder Limit). In addition, the board of
directors has the authority to allow a look through
entity to own up to 9.9% in value of the Capital Stock
(the Look Through Entity Limit), provided that after
application of certain constructive ownership rules under the
Code and rules defining beneficial ownership under the MBCA, no
person would constructively or beneficially own more than the
General Ownership Limit. A look through entity is an entity
(other than a qualified trust under Section 401(a) of the
Code, certain other tax-exempt entities described in the
Articles, or an entity that owns 10% or more of the equity of
any tenant from which Taubman Centers or TRG receives or accrues
rent from real property) whose beneficial owners, rather than
the entity, would be treated as owning the capital stock owned
by such entity. Changes in the ownership limits cannot be made
by our board of directors and would require an amendment to our
Articles. Amendments to the Articles require the affirmative
vote of holders owning not less than two-thirds of the
outstanding shares of capital stock entitled to vote on such
matter.
The Articles provide that if the transfer of any shares of
Capital Stock or a change in our capital structure would cause
any person (the Purported Transferee) to own Capital
Stock in excess of the General Ownership Limit, the Look Through
Entity Limit, or the applicable Existing Holder Limit, then the
transfer is to be treated as invalid from the outset, and the
shares in excess of the applicable ownership limit automatically
acquire the status of Excess Stock. A Purported
Transferee of Excess Stock acquires no rights to shares of
Excess Stock. Rather, all rights associated with the ownership
of those shares (with the exception of the right to be
reimbursed for the original purchase price of those shares)
immediately vest in one or more charitable organizations
designated from time to time by the board of directors (each, a
Designated Charity). An agent designated from time
to time by the board of directors (each, a Designated
Agent) will act as attorney-in-fact for the Designated
Charity to vote the shares of Excess Stock, take delivery of the
certificates evidencing the shares that have become Excess
Stock, and receive any distributions paid to the Purported
Transferee with respect to those shares. The Designated Agent
will sell the Excess Stock, and any increase in value of the
Excess Stock between the date it became Excess Stock and the
date of sale will inure to the benefit of the Designated
Charity. A Purported Transferee must notify us of any transfer
resulting in shares converting into Excess Stock, as well as
such other information regarding such persons ownership of
the capital stock as we request.
Under the Articles, only the Designated Agent has the right to
vote shares of Excess Stock; however, the Articles also provide
that votes cast with respect to certain irreversible corporate
actions (e.g., a merger or sale of us) will not be
invalidated if erroneously voted by the Purported Transferee.
The Articles also provide that a director is deemed to be a
director for all purposes, notwithstanding a Purported
Transferees unauthorized exercise of voting rights with
respect to shares of Excess Stock in connection with such
directors election.
The General Ownership Limit will not be automatically removed
even if the REIT provisions are changed so as to no longer
contain any ownership concentration limitation or if the
concentration limitation is increased. Therefore, in addition to
preserving our status as a REIT, the General Ownership Limit
limits any person from acquiring control of us.
MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax
consequences and considerations relating to the acquisition,
ownership and disposition of our securities. For purposes of
this discussion under the heading Material
U.S. Federal Income Tax Consequences, the terms
the Company, our Company,
we, our and us refer solely
to Taubman Centers, Inc., except where the context indicates
otherwise.
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As you review this discussion, you should keep in mind that:
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the tax consequences to you may vary depending on your
particular tax situation;
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special rules that are not discussed below may apply to you if,
for example, you are a tax-exempt organization, a broker-dealer,
a
non-U.S. person,
a trust, an estate, a regulated investment company, a financial
institution, an insurance company, or otherwise subject to
special tax treatment under the Internal Revenue Code (the
Code);
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certain U.S. expatriates, including certain individuals who
have lost U.S. citizenship and long-term
residents (within the meaning of Section 877(e)(2) of
the Code) who have ceased to be lawful permanent residents of
the United States, are subject to special rules;
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if a partnership, including for this purpose any entity treated
as a partnership for U.S. federal income tax purposes,
holds securities (including stock) issued by us, the tax
treatment of a partner will generally depend upon the status of
the partner and the activities of the partnership;
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this summary does not address state, local or
non-U.S. tax
considerations;
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this summary deals only with our shareholders who hold their
shares as capital assets, within the meaning of
Section 1221 of the Code; and
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this discussion is not intended to be and should not be
construed as tax advice.
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YOU ARE URGED BOTH TO REVIEW THE FOLLOWING DISCUSSION AND TO
CONSULT WITH YOUR OWN TAX ADVISOR TO DETERMINE THE EFFECT OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR SECURITIES ON YOUR
INDIVIDUAL TAX SITUATION, INCLUDING ANY STATE, LOCAL OR
NON-U.S. TAX
CONSEQUENCES. This discussion is based on current provisions of
the Code, existing, temporary and proposed Treasury Regulations
under the Code, the legislative history of the Code, existing
administrative rulings and practices of the Internal Revenue
Service (IRS), including its practices and policies
as endorsed in private letter rulings, which are not binding on
the IRS, and judicial decisions. Future legislation,
regulations, administrative interpretations and court decisions
could change current law or adversely affect existing
interpretations of current law. Any change could apply
retroactively. It is also possible that the IRS could challenge
the statements in this discussion and that a court could agree
with the IRS.
Taxation
of Taubman Centers, Inc.
General
We have elected to be taxed as a REIT under Sections 856
through 860 of the Code. We believe we have been organized and
have operated in a manner that allows us to qualify for taxation
as a REIT under the Code. We intend to continue to operate in
this manner. Nonetheless, our qualification and taxation as a
REIT depend upon our ability to meet on a continuing basis
(through actual operating results, distribution levels,
diversity of stock ownership, composition of assets and sources
of income) the various qualification tests imposed under the
Code. Accordingly, there is no assurance that we have operated
or will continue to operate in a manner so as to qualify or
remain qualified as a REIT.
We have received an opinion from Honigman Miller Schwartz and
Cohn LLP, our tax counsel, to the effect that we have been
organized and have operated in conformity with the requirements
for qualification and taxation as a REIT under the Code,
effective for each of our taxable years that ended on
December 31, 2005 through December 31, 2010, and our
past, current and proposed method of operation will enable us to
meet the requirements for qualification and taxation as a REIT
for our taxable year ending December 31, 2011 and
thereafter. A copy of this opinion is filed as an exhibit to the
registration statement of which this prospectus is a part. It
must be emphasized that the opinion of Honigman Miller Schwartz
and Cohn LLP is based on various assumptions relating to our
organization and operation that we believe are correct, and is
conditioned upon representations and covenants made by our
management regarding our assets and the past, present, and
future conduct of our business operations. While we intend to
operate so that we will qualify as a REIT, given the highly
complex nature of the rules governing REITs, the ongoing
importance of factual determinations, and the possibility of
future changes in our circumstances, no assurance can be given
by Honigman Miller Schwartz and Cohn LLP or by us that we will
so qualify for any particular year. The opinion was expressed as
of the date issued and will not cover subsequent periods.
Honigman Miller Schwartz and Cohn LLP will have no obligation to
advise us or the holders of our securities of any subsequent
change in the matters stated, represented or assumed, or of
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any subsequent change in the applicable law. You should be aware
that opinions of counsel are not binding on the IRS or any
court, and no assurance can be given that the IRS will not
challenge, or a court will not rule contrary to, the conclusions
set forth in such opinions.
Our qualification and taxation as a REIT depend on our ability
to meet on a continuing basis, through actual operating results,
distribution levels, diversity of stock ownership, composition
of assets and sources of income, various qualification
requirements imposed on REITs by the Code, our compliance with
which has been monitored by us but has not been, and will not
be, reviewed by Honigman Miller Schwartz and Cohn LLP. In
addition, our ability to qualify as a REIT depends in part on
the operating results, organizational structure and entity
classification for federal income tax purposes of certain of our
affiliated entities, which may not have been reviewed by
Honigman Miller Schwartz and Cohn LLP. Accordingly, no assurance
can be given that the actual results of our operations for any
taxable year satisfy or will satisfy such requirements for
qualification and taxation as a REIT.
The sections of the Code that relate to the qualification and
operation as a REIT are highly technical and complex. The
following discussion sets forth the material aspects of the
sections of the Code that govern the federal income tax
treatment of a REIT and its shareholders. This summary is
qualified in its entirety by the applicable Code provisions,
relevant rules and regulations promulgated under the Code, and
administrative and judicial interpretations of the Code.
If we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income taxes on our net income that
is currently distributed to our shareholders. This treatment
substantially eliminates the double taxation (once
at the corporate level when earned and once again at the
shareholder level when distributed) that generally applies to
the net income of a corporation. Shareholders generally will be
subject to taxation on dividends (other than capital gain
dividends and qualified dividend income) at rates
applicable to ordinary income instead of lower capital gain
rates. Regular corporations (non-REIT C
corporations) generally are subject to federal corporate income
taxation on their income, and shareholders of regular
corporations are subject to tax on any dividends that are
received. Currently, shareholders of regular corporations who
are taxed at individual rates generally are taxed on dividends
they receive at capital gain rates which are lower for
individuals than ordinary income rates, and shareholders of
regular corporations who are taxed at regular corporate rates
will receive the benefit of a dividends received deduction that
substantially reduces the effective rate that they pay on such
dividends. Income earned by a REIT and distributed currently to
its shareholders will be subject to lower aggregate rates of
federal income taxation than if such income were earned by a
regular corporation subject to tax at regular corporate rates
and taxed again on distribution.
While we generally will not be subject to corporate income taxes
on income we distribute currently to shareholders, we will be
subject to federal income tax as follows:
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First, we will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net
capital gains.
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Second, we may be subject to the alternative minimum
tax on our items of tax preference, and, in computing
alternative minimum taxable income subject to such
tax, deductions for net operating losses carried from any other
year(s) would be limited.
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Third, if we have (a) net income from the sale or other
disposition of foreclosure property (defined
generally as property we acquire through foreclosure or after a
default on a loan secured by the property or a lease of the
property) that is held primarily for sale to customers in the
ordinary course of business or (b) other non-qualifying
income from foreclosure property, we will be subject to tax at
the highest corporate rate on this income.
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Fourth, we will be subject to a 100% tax on any net income from
prohibited transactions (which are, in general,
certain sales or other dispositions of property held primarily
for sale to customers in the ordinary course of business other
than foreclosure property).
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Fifth, if we should fail to satisfy the 75% gross income test or
the 95% gross income test discussed below, due to reasonable
cause and not due to willful neglect, and we nonetheless
maintain our REIT qualification as a result of specified cure
provisions, we will be subject to a 100% tax on an amount equal
to (1) the greater
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of (a) the amount by which we fail the 75% gross income
test and (b) the amount by which we fail the 95% gross
income test, multiplied, in each case, by (2) a fraction
intended to reflect our profitability.
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Sixth, if we should fail to satisfy the asset tests (other than
a de minimis failure of the 5% and 10% asset tests) described
below, due to reasonable cause and not due to willful neglect,
and we nonetheless maintain our REIT qualification as a result
of specified cure provisions, we will be required to pay a tax
equal to the greater of $50,000 or the highest corporate tax
rate (currently 35%) multiplied by the net income generated by
the nonqualifying assets that caused us to fail such test.
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Seventh, if we fail to satisfy any requirement of the Code for
qualifying as a REIT, other than a failure to satisfy the gross
income tests or asset tests, and the failure is due to
reasonable cause and not due to willful neglect, we may retain
our REIT qualification but we will be required to pay a penalty
of $50,000 for each such failure.
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Eighth, if we fail to distribute during each calendar year at
least the sum of (1) 85% of our REIT ordinary income for
the year, (2) 95% of our REIT capital gain net income for
the year, and (3) any undistributed taxable income from
prior periods, then we will be subject to a 4% excise tax on the
excess of such sum over the amounts actually distributed plus
retained amounts on which income tax is paid at the corporate
level.
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Ninth, if we acquire any asset from a corporation that is or has
been a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in a transaction in which
the basis of the asset in our hands is determined by reference
to the basis of the asset in the hands of the C
corporation, and we subsequently recognize gain on the
disposition of the asset during the
10-year
period beginning on the date that we acquired the asset, then we
will be subject to tax, pursuant to guidelines issued by the
IRS, at the highest regular corporate tax rate on this gain to
the extent of the built-in gain (i.e., the excess of
(a) the fair market value of the asset over (b) our
adjusted basis in the asset, each determined as of the date we
acquired the asset).
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Tenth, we will be subject to a 100% penalty tax on some payments
we receive from (or on certain expenses deducted by) a taxable
REIT subsidiary if arrangements among us, our tenants, and our
taxable REIT subsidiaries are not comparable to similar
arrangements among unrelated parties.
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Eleventh, we may be required to pay monetary penalties to the
IRS in certain circumstances, including if we fail to meet
certain record keeping requirements intended to monitor our
compliance with rules relating to the composition of a
REITs shareholders.
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Twelfth, certain of our subsidiaries are corporations, and their
earnings are subject to corporate income tax.
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Requirements
for Qualification as a REIT General
The Code defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable
certificates to evidence its beneficial ownership;
(3) that would be taxable as a domestic C
corporation but for Sections 856 through 860 of the Code;
(4) that is neither a financial institution nor an
insurance company within the meaning of certain provisions of
the Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of
which during the last half of each taxable year is owned,
actually or constructively, by five or fewer individuals, as
defined in the Code to include the entities set forth in
Section 542(a)(2) of the Code; and
(7) that meets certain other tests, described below,
regarding the nature of its income and assets and the amount of
its distributions.
The Code provides that conditions (1) through (4) must
be met during the entire taxable year and that condition
(5) must be met during at least 335 days of a taxable
year of twelve months, or during a proportionate part of a
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taxable year of less than twelve months. Conditions (5) and
(6) do not apply until after the first taxable year for
which an election is made to be taxed as a REIT. For purposes of
condition (6), pension funds and some other tax-exempt entities
are treated as individuals, subject to a
look-through exception in the case of pension funds.
We believe that we have satisfied each of these conditions. In
addition, our articles of incorporation provide for restrictions
regarding transfer of our shares of capital stock, and our
Continuing Offer to certain partners of The Taubman Realty Group
Limited Partnership (TRG) to exchange shares of our
common stock for their units of partnership interest in TRG
includes certain restrictions on who is entitled to exercise
these rights. These restrictions are intended to assist us in
continuing to satisfy the share ownership requirements described
in (5) and (6) above. These restrictions, however, may
not ensure that we will, in all cases, be able to satisfy the
share ownership requirements described in (5) and
(6) above. If we were to fail to satisfy these share
ownership requirements, we would not meet the requirements for
qualification as a REIT. If, however, we comply with the rules
contained in applicable Treasury Regulations that require us to
ascertain the actual ownership of our shares and we do not know,
or would not have known through the exercise of reasonable
diligence, that we failed to meet the requirement described in
condition (6) above, we will be treated as having met this
requirement.
In addition, a corporation may not elect to become a REIT unless
its taxable year is the calendar year. We have and intend to
continue to have a calendar taxable year.
In the case of a REIT that is a partner in a partnership or a
member of a limited liability company that is classified as a
partnership for federal income tax purposes, IRS regulations
provide that the REIT will be deemed to own its proportionate
share (based on its capital interest in the partnership or
limited liability company) of the assets of the partnership or
limited liability company (as the case may be), and the REIT
will be entitled to the income of the partnership or limited
liability company (as the case may be) attributable to such
share. The character of the assets and gross income of the
partnership or limited liability company (as the case may be)
retains the same character in the hands of the REIT for purposes
of Section 856 of the Code, including satisfying the gross
income tests and the asset tests described below. Accordingly,
our proportionate share of the assets, liabilities and items of
income of TRG, including TRGs proportionate share of the
assets, liabilities, and items of income of The Taubman Company
LLC (the Manager) and the shopping center joint
ventures (provided that the joint ventures are not taxable as
corporations for federal income tax purposes) is treated as our
assets, liabilities and items of income for purposes of applying
the requirements described herein (including the income and
asset tests described below). Commencing with our taxable year
beginning January 1, 2005, one exception to the rule
described above is that for purposes of determining whether a
REIT owns more than 10% of the total value of the securities of
any issuer, a REITs proportionate share of the securities
held by a partnership is not based solely on the REITs
capital interest in the partnership but may also include the
REITs interest (as a creditor) in certain debt securities
of the partnership held by the REIT (excluding certain debt
securities that are not otherwise taken into account in applying
the 10% of total value test described below). See
Asset Tests, below.
Income
Tests
We must satisfy two gross income requirements annually to
maintain our qualification as a REIT. First, each taxable year
we must derive directly or indirectly at least 75% of our gross
income (excluding gross income from prohibited transactions)
from investments relating to real property or mortgages on real
property (including rents from real property and
mortgage interest) or from certain types of temporary
investments. Second, each taxable year we must derive at least
95% of our gross income (excluding gross income from prohibited
transactions) from these real property investments, dividends,
interest and gain from the sale or disposition of stock or
securities (or from any combination of the foregoing). The term
interest generally does not include any amount
received or accrued (directly or indirectly) if the
determination of the amount depends in whole or in part on the
income or profits of any person. Nevertheless, an amount
received or accrued generally will not be excluded from the term
interest solely by reason of being based on a fixed
percentage or percentages of receipts or sales.
From time to time, we enter into transactions, such as interest
rate swaps, that hedge our risk with respect to one or more of
our assets or liabilities. Any income we derive from
hedging transactions entered into prior to
July 31, 2008, will be nonqualifying income for purposes of
the 75% gross income test. Income from hedging
transactions that are clearly identified in the manner
specified by the Code will not constitute gross income, and will
not be counted,
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for purposes of the 75% gross income test if entered into by us
on or after July 31, 2008, and will not constitute gross
income, and will not be counted, for purposes of the 95% gross
income test if entered into by us on or after January 1,
2005. The term hedging transaction, as used above,
generally means any transaction into which we enter in the
normal course of our business primarily to manage risk of
interest rate changes or fluctuations with respect to borrowings
made or to be made by us in order to acquire or carry real
estate assets. We have structured our hedging activities, and
intend to structure our hedging activities, in a manner that
does not jeopardize our status as a REIT.
Rents we receive will qualify as rents from real
property in satisfying the gross income requirements for a
REIT described above only if the following conditions are met:
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First, the amount of rent must not be based in whole or in part
on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term
rents from real property solely by reason of being
based on a fixed percentage or percentages of receipts or sales;
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Second, amounts received from a tenant generally will not
qualify as rents from real property in satisfying the gross
income tests if the REIT directly, indirectly, or constructively
owns (1) in the case of a tenant that is a corporation, 10%
or more of the total combined voting power of all classes of
stock entitled to vote or 10% or more of the total value of
shares of all classes of stock of such tenant, or (2) in
the case of a tenant that is not a corporation, an interest of
10% or more in the assets or net profits of such tenant (a
related-party tenant). Rents that we receive from a
related-party tenant that is also a taxable REIT subsidiary of
ours, however, will not be excluded from the definition of
rents from real property if at least 90% of the
space at the property to which the rents relate is leased to
third parties, and the rents paid by the taxable REIT subsidiary
are substantially comparable to rents paid by our other tenants
for comparable space. Whether rents paid by our taxable REIT
subsidiaries are substantially comparable to rents paid by our
other tenants is determined at the time the lease with the
taxable REIT subsidiary is entered into, extended, or modified,
if such modification increases the rents due under such lease.
Notwithstanding the foregoing, however, if a lease with a
controlled taxable REIT subsidiary is modified and
the modification results in an increase in the rents payable by
the taxable REIT subsidiary, any such increase will not qualify
as rents from real property. For purposes of this rule, a
controlled taxable REIT subsidiary is a taxable REIT
subsidiary in which we own stock possessing more than 50% of the
voting power or more than 50% of the total value;
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Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of
the total rent received under the lease, then the portion of
rent attributable to personal property will not qualify as
rents from real property; and
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Fourth, for rents to qualify as rents from real
property, the REIT generally must not operate or manage
the property or furnish or render services to the tenants of the
property (subject to a 1% de minimis exception), other than
through either an independent contractor from whom the REIT
derives no revenue or a taxable REIT subsidiary. The REIT may,
however, directly perform certain services that are
usually or customarily rendered in connection with
the rental of space for occupancy only or are not considered
primarily for the convenience of the occupant of the
property.
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Substantially all of our income is derived from our partnership
interest in TRG. Currently, TRGs real estate investments
give rise to income that enables us to satisfy all of the income
tests described above. TRGs income is largely derived from
its interests in the shopping centers. This income generally
qualifies as rents from real property for purposes
of the 75% and the 95% gross income tests. TRG also derives
income from its membership interest in the Manager and, to the
extent dividends are paid by our taxable REIT subsidiaries, from
TRGs interest in them.
We believe that neither TRG nor any of the entities that own our
shopping centers generally charge rent that is based in whole or
in part on the income or profits of any person (except by reason
of being based on a fixed percentage or percentages of receipts
or sales, as described above). We believe that neither TRG nor
any of the entities that own our shopping centers derives rent
from a lease attributable to personal property leased in
connection with real property that exceeds 15% of the total
rents under that lease. In addition, although TRG or the
entities that own our shopping centers may advance money from
time to time to tenants for the purpose of financing
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tenant improvements, they do not intend to charge interest that
will depend in whole or in part on the income or profits of any
person.
We do not believe that we derive rent from property rented to a
related-party tenant; however, the determination of whether we
own 10% or more of any tenant is made after the application of
complex attribution rules under which we will be treated as
owning interests in tenants that are owned by shareholders who
own more than 10% of the value of our stock. In determining
whether any shareholder will own more than 10% of the value of
our stock, each individual or entity will be treated as owning
common stock and preferred stock held by certain related
individuals and entities. Accordingly, we cannot be absolutely
certain whether all related-party tenants have been or will be
identified. Although rent derived from a related-party tenant
will not qualify as rents from real property and, therefore,
will not be qualifying income under the 75% or 95% gross income
tests, we believe that the aggregate amount of any such rental
income (and any other non-qualifying income) in any taxable year
will not cause us to exceed the limits on non-qualifying income
under such gross income tests.
Neither TRG nor any of the entities that own our shopping
centers intends to lease any property to a taxable REIT
subsidiary unless it determines that at least 90% of the space
at the property to which the rents relate is leased to third
parties and the rents paid by the taxable REIT subsidiary are
substantially comparable to rents paid by our other tenants for
comparable space.
TRG has entered into an agreement with the Manager pursuant to
which the Manager provides services that TRG requires in
connection with the operation of TRGs shopping centers. As
a result of TRGs ownership interests in the Manager and
Taub-Co Management IV, Inc., one of our taxable REIT
subsidiaries, the Manager does not qualify as an independent
contractor from which we derive no income. We believe, however,
that no amounts of rent should be excluded from the definition
of rents from real property solely by reason of the failure to
use an independent contractor since the Manager performs only
services that are usual and customary or are not primarily for
the convenience of the tenant and an independent contractor will
perform any other services that are required to be performed by
an independent contractor for rental income from a tenant of our
shopping centers to qualify as rents from real
property.
The Manager receives fees in exchange for the performance of
certain management and administrative services, including fees
to be received pursuant to agreements with us and TRG. A portion
of those fees will accrue to us because TRG owns a membership
interest in the Manager. Our indirect interest in the management
fees generated by the Manager generally results in
non-qualifying income under the 75% and 95% gross income tests
(at least to the extent attributable to properties in which TRG
has no interest or to a joint venture partners interest in
a property). In any event, we believe that the aggregate amount
of such fees and any other non-qualifying income attributable to
our indirect interest in the Manager in any taxable year has not
exceeded and will not exceed the limits on non-qualifying income
under the 75% and 95% gross income tests.
If we fail to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, we may nevertheless qualify as a
REIT for the year if we are entitled to relief under specific
provisions of the Code. Commencing with our taxable year
beginning January 1, 2005, we may avail ourselves of the
relief provisions if: (1) following our identification of
the failure to meet the 75% or 95% gross income test for any
taxable year, we file a schedule with the IRS setting forth each
item of our gross income for purposes of the 75% or 95% gross
income test for such taxable year in accordance with Treasury
Regulations to be issued; and (2) our failure to meet the
test was due to reasonable cause and not due to willful neglect.
It is not possible, however, to state whether in all
circumstances we would be entitled to the benefit of these
relief provisions. For example, if we fail to satisfy the gross
income tests because non-qualifying income that we intentionally
incur exceeds the limits on non-qualifying income, the IRS could
conclude that our failure to satisfy the tests was not due to
reasonable cause. If these relief provisions do not apply to a
particular set of circumstances, we will not qualify as a REIT.
As discussed above in Taxation of Taubman Centers,
Inc. General, even if these relief provisions
were to apply, and we were to retain our status as a REIT, a tax
would be imposed with respect to the excess non-qualifying gross
income. We may not always be able to maintain compliance with
the gross income tests for REIT qualification despite our
periodic monitoring of our income.
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Prohibited
Transaction Income
Any gain realized by us on the sale of any property (other than
foreclosure property) held as inventory or primarily for sale to
customers in the ordinary course of business (including our
share of any such gain realized by TRG) will be treated as
income from a prohibited transaction that is subject to a 100%
penalty tax. Under existing law, whether property is held as
inventory or primarily for sale to customers in the ordinary
course of a trade or business is a question of fact that depends
on all the facts and circumstances surrounding the particular
transaction. TRG owns interests in real property that is
situated on the periphery of certain of its shopping centers.
TRG intends to hold its properties for investment with a view to
long-term appreciation and to engage in the business of
acquiring, developing and owning properties. However, TRG does
intend to make occasional sales of its properties as are
consistent with its investment objectives, and the IRS may
contend that one or more of these sales is subject to the 100%
penalty tax. In the event TRG determines a sale of property will
generate prohibited transaction income, TRG will generally
transfer such property to a taxable REIT subsidiary, and gain
from such sale will be subject to the corporate income tax, as
discussed below under The Taxable REIT Subsidiary.
Foreclosure
Property
Foreclosure property is real property and any personal property
incident to such real property (1) that is acquired by a
REIT as the result of the REITs having bid in the property
at foreclosure, or having otherwise reduced the property to
ownership or possession by agreement or process of law, after
there was a default (or default was imminent) on a lease of the
property or on a mortgage loan held by the REIT and secured by
the property, (2) the loan or lease related to which was
acquired by the REIT at a time when default was not imminent or
anticipated, and (3) that such REIT makes a proper election
to treat as foreclosure property. REITs are subject to tax at
the maximum corporate rate (currently 35%) on any net income
from foreclosure property, including any gain from the
disposition of the foreclosure property, other than income that
would otherwise be qualifying income for purposes of the 75%
gross income test. Any gain from the sale of property for which
a foreclosure property election has been made will not be
subject to the 100% excise tax on gains from prohibited
transactions described above, even if the property would
otherwise constitute dealer property (i.e., property held
primarily for sale to customers in the ordinary course of
business) in the hands of the selling REIT.
Redetermined
Rents, Redetermined Deductions, and Excess
Interest
Any redetermined rents, redetermined deductions, or excess
interest we generate will be subject to a 100% penalty tax.
In general, redetermined rents are rents from real property that
are overstated as a result of services furnished by a taxable
REIT subsidiary to any of our tenants, and redetermined
deductions and excess interest represent amounts that are
deducted by a taxable REIT subsidiary for amounts paid to us
that are in excess of the amounts that would have been charged
based on arms-length negotiations. Under safe
harbor provisions of the Code, rents we receive from
tenants of a property will not constitute redetermined rents (by
reason of the performance of services by any taxable REIT
subsidiary to such tenants) if:
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So much of such amounts as constitutes impermissible tenant
service income (i.e., income from services performed for
tenants that are not usual and customary or are primarily for
the convenience of the tenant) does not exceed 1% of all amounts
received or accrued during the year with respect to the property;
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The taxable REIT subsidiary renders a significant amount of
similar services to unrelated parties and the charges for such
services are substantially comparable;
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Rents paid by tenants leasing at least 25% of the net leasable
space in the property who are not receiving services from the
taxable REIT subsidiary are substantially comparable to the
rents paid by tenants leasing comparable space who are receiving
such services from the taxable REIT subsidiary and the charge
for the services is separately stated; or
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The taxable REIT subsidiarys gross income from the service
is not less than 150% of the subsidiarys direct cost in
furnishing the service.
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Asset
Tests
At the close of each quarter of our taxable year, we also must
satisfy four tests relating to the nature and diversification of
our assets.
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First, at least 75% of the value of our total assets (including
our allocable share of the assets held by TRG and the
subsidiaries of TRG that are treated as partnerships for federal
income tax purposes) must consist of (i) real estate
assets, including shares of other REITs, (ii) stock or debt
instruments held for not more than one year and purchased with
the proceeds of an offering by us of our stock or long-term
(i.e., with a maturity of at least five years) debt,
(iii) cash, (iv) cash items (including receivables),
and (v) certain government securities.
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Second, not more than 25% of the value of our total assets may
consist of securities, other than those securities includable in
the 75% asset test.
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Third, not more than 25% of the value of our total assets may
consist of securities of one or more taxable REIT subsidiaries.
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Fourth, except with respect to securities of a taxable REIT
subsidiary or securities includable in the 75% asset test, the
value of any one issuers securities may not exceed 5% of
the value of our total assets and we may not own more than 10%
of any one issuers outstanding voting securities nor more
than 10% of the total value of any one issuers outstanding
securities, unless with respect to the 10% of total value
limitation, the securities are among a limited list of excepted
securities, including but not limited to straight
debt.
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Securities issued by a corporation or partnership that would
otherwise qualify as straight debt will not so
qualify if we own (alone or with any taxable REIT subsidiary in
which we own a greater than 50% interest, as measured by vote or
value) other securities of such issuer that represent more than
1% of the total value of all securities of such issuer.
Debt instruments issued by a partnership that do not qualify as
straight debt or for another safe harbor are
(1) not taken into account as securities for purposes of
the 10% value test to the extent of our interest as a partner in
that partnership and (2) completely excluded from the 10%
value test if at least 75% of the partnerships gross
income (excluding income from prohibited
transactions) consists of income qualifying under the 75%
gross income test. In addition, the 10% value test does not take
into account as securities (1) any loan made to an
individual or an estate, (2) certain rental agreements in
which one or more payments are to be made in subsequent years
(other than agreements between us and certain persons related to
us), (3) any obligation to pay rents from real property,
(4) securities issued by governmental entities that are not
dependent in whole or in part on the profits of (or payments on
obligations issued by) a non-governmental entity and
(5) any security issued by another REIT.
Commencing with our taxable year which began January 1,
2005, we are deemed to own, for purposes of the 10% of total
value limitation, the securities held by a partnership based on
our proportionate interest in any securities issued by the
partnership (excluding straight debt and the
securities described in the second sentence of the preceding
paragraph). Thus, our proportionate share is not based solely on
our capital interest in the partnership but may also include our
interest in certain debt securities issued by the partnership.
We are deemed to own a proportionate share of all of the assets
owned by TRG and by the non-corporate entities which own our
shopping centers and in which TRG is (directly or through other
non-corporate entities) a partner or member. We believe that
more than 75% of the value of these assets qualify as real
estate assets. An election has been made or will be made
to treat each of TRGs direct or indirect corporate
subsidiaries as a taxable REIT subsidiary. Further, we believe
that the value of our proportionate share of TRGs interest
in securities of taxable REIT subsidiaries does not exceed, and
we expect that it will not exceed, the maximum permissible
percentage of the value of our assets.
Through December 28, 2010, we held an indirect stock interest in
T-I REIT, Inc., which had elected to be taxed as a REIT for
federal income tax purposes. T-I REIT, Inc. was liquidated on
December 28, 2010, and, after the redemption of its preferred
shares in exchange for a cash payment, its assets and
liabilities were distributed to its sole common shareholder, a
limited liability company wholly owned by TRG. As a REIT, T-I
REIT, Inc. was subject to the various REIT qualification
requirements. We believe that T-I REIT, Inc. was organized and
operated in a manner to qualify for taxation as a REIT for
federal income tax purposes. If T-I REIT, Inc. had failed to
qualify as a REIT, our interest in T-I REIT, Inc. would have
ceased to be a qualifying real estate asset for purposes of the
75% asset test and would have
22
become subject to the 5% asset test, the 10% voting stock
limitation and the 10% value limitation generally applicable to
our ownership of corporations (other than REITs, qualified REIT
subsidiaries and taxable REIT subsidiaries). If T-I REIT, Inc.
were to have failed to qualify as a REIT, we would not have met
the 10% voting stock limitation and the 10% value limitation
with respect to our interest in T-REIT, Inc., and we would have
failed to have qualified as a REIT. Accordingly, unless entitled
to relief under specific statutory provisions, we would have
been disqualified from taxation as a REIT for the four taxable
years following the year of termination of our REIT status.
After initially meeting the asset tests at the close of any
quarter, we will not lose our status as a REIT for failure to
satisfy the asset tests at the end of a later quarter solely by
reason of changes in the relative values of our assets. If
failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, we can cure
this failure by disposing of sufficient non-qualifying assets
within 30 days after the close of that quarter. An
acquisition of securities could result from our increasing our
interest in TRG through the exercise by limited partners of
their rights to exchange units of partnership interest in TRG
for our shares pursuant to the Continuing Offer or through our
contribution of additional capital to TRG from the proceeds of
an offering of our shares of stock.
Commencing with our taxable year which began January 1,
2005, we will not lose our status as a REIT for failure to
satisfy the 5% asset test or the 10% asset test if the failure
is due to the ownership of assets the total value of which does
not exceed the lesser of 1% of the total value of our assets at
the end of the quarter or $10 million, provided that we
either dispose of the non-qualifying assets within six months
after the last day of the quarter in which we identify the
failure or otherwise meet the requirements of the 5% asset test
or the 10% asset test by the end of such quarter (the De
Minimis Exception). Commencing with our taxable year which
began January 1, 2005, if we fail to meet any of the asset
tests described above, and the failure exceeds the De Minimis
Exception, we will still be deemed to satisfy the asset tests
if, following our identification of the failure, we file a
schedule with a description of each asset that caused the
failure, the failure was due to reasonable cause and not willful
neglect, we dispose of the non-qualifying assets within six
months after the last day of the quarter in which we identified
them, and we pay an excise tax equal to the greater of $50,000
or an amount determined by multiplying the highest rate of
income tax applicable to corporations by the net income
generated by the non-qualifying assets for the period beginning
on the first day of the failure to meet the asset tests and
ending on the day we dispose of the non-qualifying assets or the
end of the first quarter in which there is no longer a failure
to satisfy the asset tests. We believe we have maintained, and
intend to continue to maintain, adequate records of the value of
our assets to enable us to comply with the asset tests and to
take such other actions within six months after the close of any
quarter as may be required to cure any noncompliance. If we were
to fail to cure noncompliance with the asset tests within this
time period, we would cease to qualify as a REIT. See
Failure to Qualify, below.
We believe that our holdings of securities and other assets have
complied and will continue to comply with the foregoing REIT
asset tests, and we intend to monitor compliance on an ongoing
basis. No independent appraisals have been obtained, however, to
support our conclusions as to the value of our total assets, or
the value of any particular security or securities. Moreover,
values of some assets may not be susceptible to a precise
determination, and values are subject to change in the future.
Accordingly, there can be no assurance that the IRS will not
contend that we fail to meet the REIT asset requirements by
reason of our interests in our subsidiaries or in the securities
of other issuers or for some other reason.
The
Taxable REIT Subsidiary
The Code provides that a REIT may own more than 10% of the
voting power and value of securities in a taxable REIT
subsidiary. A taxable REIT subsidiary is a corporation, other
than a REIT, (a) in which the REIT directly or indirectly
owns stock, and (b) as to which an election has been
jointly made to treat the corporation as a taxable REIT
subsidiary. In addition, any corporation (other than a REIT) is
a taxable REIT subsidiary if a taxable REIT subsidiary of a REIT
owns directly or indirectly (i) securities having more than
35% of the total voting power of the outstanding securities of
the corporation, or (ii) securities with a value of more
than 35% of the total value of the outstanding securities of the
corporation. As discussed under Asset Tests above,
not more than 25% of the fair market value of a REITs
assets can consist of securities of taxable REIT subsidiaries,
and stock of a taxable REIT subsidiary is not a qualified asset
for purposes of the 75% asset test.
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Although the activities and income of a taxable REIT subsidiary
are subject to the corporate income tax, a taxable REIT
subsidiary is permitted to engage in activities and render
services the income from which, if earned directly by the REIT,
might disqualify the REIT. Additionally, under certain limited
conditions described above, a REIT may receive rental income
from a taxable REIT subsidiary that will be treated as
qualifying income for purposes of the income tests.
The amount of interest on related-party debt a taxable REIT
subsidiary may deduct is limited. Further, a 100% excise
tax applies to any interest payments by a taxable REIT
subsidiary to its affiliated REIT to the extent the interest
rate is set above a commercially reasonable level. A taxable
REIT subsidiary is generally permitted to deduct interest
payments to unrelated parties without any restrictions other
than those that would apply irrespective of our REIT status.
Any amount by which a REIT overstates its income or understates
its deductions, or understates the income or overstates the
deductions of its taxable REIT subsidiary, by reason of
transactions between them will (unless certain exceptions apply)
be subject to a nondeductible 100% federal excise tax. Moreover,
if an exception from the 100% excise tax applies, the IRS
is permitted to reallocate costs between a REIT and its taxable
REIT subsidiary if the REITs charges to its taxable REIT
subsidiary are not at arms length. In that case, any
taxable income allocated to, or deductible expenses allocated
away from, a taxable REIT subsidiary would increase its tax
liability, and the amount of such increase would be subject to
an interest charge.
Annual
Distribution Requirement
To maintain our qualification as a REIT, we are required to
distribute dividends (other than capital gain dividends) to our
shareholders in an amount at least equal to (i) 90% of our
REIT taxable income (computed without regard to the
dividends paid deduction and our net capital gain),
(ii) plus 90% of our net income (after tax), if any, from
foreclosure property, (iii) minus the excess of the sum of
particular items of our non-cash income
(i.e., income attributable to leveled stepped rents,
original issue discount on debt, or a like-kind exchange that is
later determined to be taxable) over 5% of our REIT
taxable income as described and computed above.
We must pay these distributions in the taxable year to which
they relate, or in the following taxable year if they are
declared during the last three months of the taxable year,
payable to shareholders of record on a specified date during
such period and paid during January of the following year. Such
distributions in January are treated as paid by us and received
by our shareholders on December 31 of the year in which they are
declared. In addition, at our election, a distribution for a
taxable year may be declared in the following taxable year if
declared before we timely file our tax return for such year and
if paid on or before the first regular dividend payment after
such declaration. These distributions are taxable to holders of
our capital stock (to the extent that such holders are not
otherwise exempt from tax on our dividends by reason of being
tax-exempt entities) in the year in which paid. This is so even
though these distributions relate to the prior year for purposes
of our 90% distribution requirement. To be counted in meeting
the 90% distribution requirement, the amount distributed must
not be preferential; that is, every shareholder of the class of
stock with respect to which a distribution is made must be
treated the same as every other shareholder of that class, and
no class of stock may be treated otherwise than in accordance
with its dividend rights as a class. To the extent that we do
not distribute all of our net capital gain or distribute at
least 90%, but less than 100%, of our REIT taxable
income (computed without regard to the dividends paid
deduction and with certain adjustments), we will be subject to
tax on such income at corporate tax rates.
Our REIT taxable income consists substantially of our
distributive share of the income of TRG. Our REIT taxable income
has historically been less than the cash flow we have received
from TRG as a result of the allowance of depreciation and other
non-cash deductions in computing REIT taxable income.
Accordingly, we have had, and anticipate that we will generally
have, sufficient cash or liquid assets to enable us to satisfy
the 90% distribution requirement.
It is possible that from time to time we may not have sufficient
cash or other liquid assets to meet this distribution
requirement due to timing differences between the actual receipt
of income and actual payment of deductible expenses and the
inclusion of income and deduction of expenses in arriving at our
taxable income. If these timing differences occur, then in order
to meet the distribution requirement, we may need to arrange for
short-term, or possibly long-term, borrowings or we may need to
pay dividends in the form of taxable stock dividends.
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We may be able to rectify a failure to meet the distribution
requirement for a year by paying deficiency
dividends to shareholders in a later year, which may be
included in our deduction for dividends paid for the earlier
year. Thus, we may be able to avoid being taxed on amounts
distributed as deficiency dividends and being disqualified as a
REIT. Nonetheless, we will be required to pay interest based on
the amount of any deduction taken for deficiency dividends.
Furthermore, if we should fail to distribute during any calendar
year (or in the case of distributions with declaration dates
falling in the last three months of the calendar year, by the
end of January immediately following such year) at least the sum
of 85% of our REIT ordinary income (i.e., REIT
taxable income excluding capital gain and without regard
to the dividends paid deduction) for such year, 95% of our REIT
capital gain income for the year and any undistributed taxable
income from prior periods, then we would be subject to a 4%
excise tax on the excess of such sum over the amounts actually
distributed plus retained amounts on which income tax was paid
at the corporate level.
Failure
to Qualify
Commencing with our taxable year which began January 1,
2005, specified cure provisions are available to us in the event
that we violate a provision of the Code that would otherwise
result in our failure to qualify as a REIT. Except with respect
to violations of the REIT income tests and asset tests (for
which the cure provisions are described above), and provided the
violation is due to reasonable cause and not due to willful
neglect, these cure provisions impose a $50,000 penalty for each
violation in lieu of a loss of REIT status. If we fail to
qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, we will be subject to tax
(including any applicable alternative minimum tax) on our
taxable income at regular corporate rates. Distributions to
shareholders in any year in which we fail to qualify will not be
deductible by us, and we will not be required to distribute any
amounts to our shareholders. As a result, our failure to qualify
as a REIT would reduce the cash available for distribution by us
to our shareholders. In addition, if we fail to qualify as a
REIT, all distributions to shareholders will generally be
taxable in the same manner as C corporation
distributions, and subject to limitations of the Code, corporate
distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory
provisions, we will also be disqualified from taxation as a REIT
for the four taxable years following the year during which we
lost our qualification. It is not possible to state whether in
all circumstances we would be entitled to this statutory relief.
Taxation
of Taxable U.S. Shareholders
As used below, the term U.S. shareholder means
a holder of shares of our common or preferred shares who (for
United States federal income tax purposes) is:
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a citizen or resident of the United States;
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a corporation (including an entity treated as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States or of any state thereof
or in the District of Columbia;
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an estate the income of which is subject to United States
federal income taxation regardless of its source; or
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a trust if (1) a United States court is able to exercise
primary supervision over the administration of such trust and
one or more United States persons have the authority to control
all substantial decisions of the trust or (2) it has a
valid election in place to be treated as a U.S. person.
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Distributions
Generally
As long as we qualify as a REIT, distributions out of our
current or accumulated earnings and profits, other than
qualified dividend income or dividends designated as
capital gain dividends, will constitute dividends taxable to our
taxable U.S. shareholders as ordinary income. These
distributions will not be eligible for the dividends-received
deduction in the case of U.S. shareholders that are
corporations.
For purposes of determining whether distributions to holders of
shares are made out of current or accumulated earnings and
profits, our earnings and profits will be allocated first to the
outstanding preferred stock and then to the
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common stock. In addition, the IRS has taken the position in
published guidance that if a REIT has two classes of shares, the
amount of any particular type of income (including net capital
gain) allocated to each class in any year cannot exceed such
classs proportionate share of such income based on the
total dividends paid to each class for such year. Consequently,
if both common shares and preferred shares are outstanding,
particular types of income will be allocated in accordance with
the classes proportionate shares of such income. Thus, net
capital gain will be allocated between holders of common shares
and holders of preferred shares, if any, in proportion to the
total dividends paid to each class during the taxable year, or
otherwise as required by applicable law.
We may make distributions to shareholders paid in common or
preferred shares that are intended to be treated as dividends
for federal income tax purposes. In that event, our shareholders
would generally have taxable income with respect to such
distributions of our common or preferred shares and may have tax
liability by reason of such distributions in excess of the cash
(if any) that is received by them.
To the extent that we make distributions, other than capital
gain dividends discussed below, in excess of our current and
accumulated earnings and profits, these distributions will be
treated first as a tax-free return of capital to each
U.S. shareholder. This treatment will reduce the adjusted
basis that each U.S. shareholder has in his shares for tax
purposes by the amount of the distribution (but not below zero).
Distributions in excess of a U.S. shareholders
adjusted basis in his shares will be taxable as capital gain
(provided that the shares have been held as a capital asset) and
will be taxable as long-term capital gain if the shares have
been held for more than one year. Dividends we declare in
October, November, or December of any year and payable to a
shareholder of record on a specified date in any of these months
will be treated as both paid by us and received by the
shareholder on December 31 of that year, provided we actually
pay the dividend on or before January 31 of the following
calendar year.
Shareholders may not include in their own income tax returns any
of our net operating losses or capital losses.
Capital
Gain Distributions
Distributions that we properly designate as capital gain
dividends will be taxable to taxable U.S. shareholders as
gains (to the extent that they do not exceed our actual net
capital gain for the taxable year) from the sale or disposition
of a capital asset. U.S. shareholders that are corporations
may, however, be required to treat up to 20% of some capital
gain dividends as ordinary income.
Retention
of Net Long-Term Capital Gains
We may elect to retain, rather than distribute as a capital gain
dividend, our net long-term capital gains. If we make this
election, we would pay tax on our retained net long-term capital
gains. In addition, to the extent we designate, a
U.S. shareholder generally would:
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include its proportionate share of our undistributed long-term
capital gains in computing its long-term capital gains in its
return for its taxable year in which the last day of our taxable
year falls (subject to certain limitations as to the amount that
is includable);
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be deemed to have paid the capital gains tax imposed on us on
the designated amounts included in the
U.S. shareholders long-term capital gains;
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receive a credit or refund for the amount of tax deemed paid by
it;
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increase the adjusted basis of its common stock by the
difference between the amount of includable gains and the tax
deemed to have been paid by it; and
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in the case of a U.S. shareholder that is a corporation,
appropriately adjust its earnings and profits for the retained
capital gains in accordance with Treasury Regulations to be
prescribed by the IRS.
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Capital
Gain Classification
We will classify portions of any designated capital gain
dividend or undistributed capital gain as either:
(1) a 15% rate gain distribution, which would be taxable to
non-corporate U.S. shareholders at a maximum rate of
15%; or
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(2) an unrecaptured Section 1250 gain
distribution, which would be taxable to non-corporate
U.S. shareholders at a maximum rate of 25%.
We must determine the maximum amounts that we may designate as
15% and 25% rate capital gain dividends by performing the
computation required by the Code as if the REIT were an
individual whose ordinary income were subject to a marginal tax
rate of at least 28%.
Recipients of capital gain dividends from us that are taxed at
corporate income tax rates will be taxed at the normal corporate
income tax rates on those dividends.
For a summary of certain anticipated changes in tax rates,
including changes to the tax rate on long-term capital gains,
see Federal Income Tax Rates, below.
Qualified
Dividend Income
We may elect to designate a portion of our distributions paid to
non-corporate U.S. shareholders as qualified dividend
income. A portion of a distribution that is properly
designated as qualified dividend income is taxable to
non-corporate U.S. shareholders at a maximum 15% tax rate,
provided generally that the shareholder has held the shares with
respect to which the distribution is made for more than
60 days during the
121-day
period beginning 60 days before the date on which such
shares become ex-dividend with respect to the relevant
distribution and the shareholder meets certain other holding
period requirements. The maximum amount of our distributions
eligible to be designated as qualified dividend income for a
taxable year is generally equal to the sum of:
(1) the qualified dividend income received by us during
such taxable year from domestic (and certain foreign) non-REIT
C corporations (including our corporate
subsidiaries);
(2) the excess of any undistributed REIT
taxable income recognized during the immediately preceding year
over the federal income tax paid by us with respect to such
undistributed REIT taxable income; and
(3) any income recognized during the immediately preceding
year attributable to the sale of a
built-in-gain
asset that was acquired by us in a carry-over basis transaction
from a non-REIT C corporation or held by us on the
first day of a taxable year for which we first requalify as a
REIT after being subject to tax as a C corporation
for more than two years (less the amount of corporate tax on
such income).
Generally, dividends that we receive will be treated as
qualified dividend income for purposes of (1) above if the
dividends are received from a domestic corporation (other than a
REIT or a regulated investment company) or a qualifying
foreign corporation and specified holding period
requirements and other requirements are met. A foreign
corporation (other than a passive foreign investment
company) will be a qualifying foreign corporation if it is
incorporated in a possession of the United States, the
corporation is eligible for benefits of an income tax treaty
with the United States that the Secretary of Treasury determines
is satisfactory, or the stock of the foreign corporation with
respect to which the dividend is paid is readily tradable on an
established securities market in the United States. We generally
expect that an insignificant portion, if any, of our
distributions will consist of qualified dividend income.
Dispositions
of Shares
If a U.S. shareholder sells or disposes of its shares, the
U.S. shareholder will recognize gain or loss for federal
income tax purposes in an amount equal to the difference between
the amount of cash and the fair market value of any property it
receives on the sale or other disposition and its adjusted basis
in the shares for tax purposes. This gain or loss will be
capital if the U.S. shareholder has held the shares as a
capital asset and will be long-term capital gain or loss if the
U.S. shareholder has held the shares for more than one
year. In general, if a U.S. shareholder recognizes a loss
upon the sale or other disposition of shares that it has held
for six months or less (after applying holding period rules set
forth in the Code), the loss the U.S. shareholder
recognizes will be treated as a long-term capital loss, to the
extent it received distributions from us which were required to
be treated as long-term capital gains or to the extent the
U.S. shareholder was required to recognize long-term
capital gain in respect of our retained net long-term capital
gain, as described above.
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A redemption of preferred shares will be treated under
Section 302 of the Code as a distribution taxable as a
dividend (to the extent of our current and accumulated earnings
and profits) at ordinary income rates unless the redemption
satisfies one of the tests set forth in Section 302(b) of
the Code and is therefore treated as a sale or exchange of the
redeemed shares. The redemption will be treated as a sale or
exchange if it (1) is substantially
disproportionate with respect to the
U.S. shareholder, (2) results in a complete
termination of the U.S. shareholders interest
in us, or (3) is not essentially equivalent to a
dividend with respect to the U.S. shareholder, all
within the meaning of Section 302(b) of the Code. In
determining whether any of these tests have been met, preferred
stock actually owned by the U.S. shareholder as well as
preferred shares considered to be owned by such shareholder by
reason of certain constructive ownership rules set forth in the
Code must generally be taken into account. If a
U.S. shareholder of preferred shares owns (actually or
constructively) no shares of our common stock or an
insubstantial percentage of our common stock, a redemption of
the preferred shares held by such U.S. shareholder is
likely to qualify for sale or exchange treatment because the
redemption would not be essentially equivalent to a
dividend. Because the determination as to whether any of
the alternative tests set forth in Section 302(b) of the
Code will be satisfied with respect to any particular
shareholder depends on the facts and circumstances at the time
that the determination must be made, prospective
U.S. shareholders of preferred stock should consult their
own tax advisors to determine such tax treatment.
If a redemption of preferred shares is not treated as a
distribution taxable as a dividend to a particular
U.S. shareholder, it will be treated, as to that
shareholder, as a taxable sale or exchange. As a result, such
shareholder will recognize gain or loss for federal income tax
purposes in an amount equal to the difference between
(1) the amount of cash and the fair market value of any
property received (less any portion thereof attributable to
accumulated but unpaid dividends that we are legally obligated
to pay at the time of the redemption, which will be taxable as a
dividend to the extent of our current and accumulated earnings
and profits), and (2) the U.S. shareholders
adjusted basis in the preferred shares for tax purposes. Such
gain or loss will be capital gain or loss and will be long-term
capital gain or loss if, at the time of the redemption, the
shares were held for more than 12 months.
If a redemption of preferred shares is treated as a distribution
taxable as a dividend, the amount of the distribution would be
measured by the amount of cash and the fair market value of any
property received by the U.S. shareholder. The
U.S. shareholders adjusted basis in the redeemed
preferred shares for tax purposes will be transferred to such
shareholders remaining shares in us. If the
U.S. shareholder owns no other shares in us, such basis
may, under certain circumstances, be transferred to a related
person or it may be lost entirely.
Convertible
Preferred Shares
See the applicable prospectus supplement for a discussion of any
additional tax consequences to a U.S. shareholder of investing
in convertible preferred shares offered by such prospectus
supplement.
Redemption Premium
on Preferred Shares
If the redemption price of preferred shares that are subject to
redemption exceeds the issue price of such preferred shares
(such excess referred to in this section as a redemption
premium), in certain situations the entire amount of the
redemption premium will be treated as being distributed to the
holder of such shares, on an economic accrual basis, over the
period from issuance of such shares until the date the shares
are first redeemable (such deemed distribution referred to in
this section as a constructive distribution). A
constructive distribution may occur only if the preferred shares
are subject to a redemption premium, and only if (1) we are
required to redeem the shares at a specified time, (2) the
holder of the shares has the option to require us to redeem the
shares, or (3) we have the right to redeem the shares, but
only if under applicable regulations, redemption pursuant to
that right is more likely than not to occur. See the applicable
prospectus supplement for further information regarding the
possible tax treatment of redemption premiums with respect to
any such preferred shares offered by such prospective supplement.
Federal
Income Tax Rates
The maximum individual tax rate for long-term capital gains is
generally 15% for sales occurring through December 31,
2012, and the maximum individual tax rate for ordinary income is
35% for tax years through 2012.
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Generally, dividends from non-REIT C corporations will be taxed
at capital gain rates, as opposed to ordinary income rates, for
tax years through 2012. Without future congressional action, in
2013 the maximum tax rate on long-term capital gains will
increase to 20%, dividends from non-REIT C corporations will be
taxed at ordinary income tax rates, and the maximum ordinary
income tax rate on dividends will increase to 39.6%.
Because we are not generally subject to federal income tax on
the portion of our REIT taxable income or capital gains
distributed to our shareholders, our dividends will generally
not be eligible for the 15% tax rate on dividends. As a result,
our ordinary REIT dividends will be taxed at the higher tax
rates applicable to ordinary income. However, the 15% tax rate
for long-term capital gains and dividends will generally apply
to:
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a U.S. shareholders long-term capital gains, if any,
recognized on the disposition of our shares;
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our distributions designated as long-term capital gain dividends
(except to the extent attributable to unrecaptured
Section 1250 gain, in which case such distributions
would continue to be subject to a 25% tax rate); and
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our qualified dividend income.
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Passive
Activity Losses and Investment Interest
Limitations
Distributions we make and gain arising from the sale or exchange
by a U.S. shareholder of our shares will not be treated as
passive activity income. As a result, U.S. shareholders
generally will not be able to apply any passive
losses against this income or gain. U.S. shareholders
may elect to treat capital gain dividends, capital gains from
the disposition of shares and qualified dividend income as
investment income for purposes of computing the limitation on
the deductibility of investment interest, but in such case the
shareholder will be taxed at ordinary income rates on those
amounts. Other distributions made by us, to the extent they do
not constitute a return of capital, will generally be treated as
investment income for purposes of computing the investment
interest limitation.
Backup
Withholding and Information Reporting
We report to our U.S. shareholders and the IRS the amount
of dividends paid during each calendar year and the amount of
any tax withheld. Under the backup withholding rules, a
shareholder may be subject to backup withholding with respect to
dividends paid unless the holder is a corporation or comes
within certain other exempt categories and, when required,
demonstrates this fact, or provides a taxpayer identification
number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements
of the backup withholding rules. The
back-up
withholding rate through 2012 is 28%. A U.S. shareholder
that does not provide us with his correct taxpayer
identification number may also be subject to penalties imposed
by the IRS. Backup withholding is not an additional tax. Any
amount paid as backup withholding will be creditable against the
shareholders income tax liability. In addition, we may be
required to withhold a portion of capital gain distributions to
any shareholders who fail to certify their non-foreign status.
See Taxation of
Non-U.S. Shareholders,
below.
Medicare
Tax
For taxable years beginning after December 31, 2012, certain
domestic shareholders who are individuals, estates or trusts
will be required to pay a 3.8% Medicare tax with respect to,
inter alia, dividends on and capital gains from the sale or
other disposition of stock, subject to certain exceptions.
Prospective shareholders should consult their tax advisors
regarding the applicability of this tax to any income and gains
in respect of an investment in our common or preferred shares.
Taxation
of Tax-Exempt Shareholders
The IRS has ruled that amounts distributed as dividends by a
REIT do not constitute unrelated business taxable income
(UBTI) when received by a tax-exempt entity, subject
to the exception discussed below for dividends paid by a
pension-held REIT. Based on that ruling, provided
that a tax-exempt shareholder (other than a tax-exempt
shareholder described below) has not held its shares as
debt financed property within the meaning of the
Code (generally, shares, the acquisition of which was financed
through a borrowing by the tax-exempt shareholder) and the
shares are not otherwise used in a trade or business, dividend
income from us will not be UBTI to a tax-exempt shareholder.
Similarly,
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income from the sale of shares will not constitute UBTI unless a
tax-exempt shareholder has held its shares as
debt-financed property within the meaning of the
Code or has used the shares in its trade or business.
For tax-exempt shareholders which are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit
trusts, and qualified group legal services plans exempt from
federal income taxation under Code Sections 501(c)(7),
(c)(9), (c)(17) and (c)(20), respectively, and certain other
tax-exempt entities, income from an investment in our shares
will constitute UBTI unless the organization is able to properly
deduct amounts set aside or placed in reserve for certain
purposes so as to offset the income generated by its investment
in our shares. These prospective investors should consult their
own tax advisors concerning these set aside and
reserve requirements.
Notwithstanding the above, however, a portion of the dividends
paid by a pension-held REIT may be treated as UBTI
as to any trust which:
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is described in Section 401(a) of the Code;
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is tax-exempt under Section 501(a) of the Code; and
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holds more than 10% (by value) of the interests in the REIT.
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Tax-exempt pension funds that are described in
Section 401(a) of the Code are referred to below as
qualified trusts.
A REIT is a pension-held REIT if:
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it would not have qualified as a REIT but for the fact that
Section 856(h)(3) of the Code provides that stock owned by
qualified trusts will be treated, for purposes of the not
closely held requirement, as owned by the beneficiaries of
the trust (rather than by the trust itself); and
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either at least one such qualified trust holds more than 25% (by
value) of the interests in the REIT, or one or more such
qualified trusts, each of which owns more than 10% (by value) of
the interests in the REIT, holds in the aggregate more than 50%
(by value) of the interests in the REIT.
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The percentage of any REIT dividend treated as UBTI is equal to
the ratio of:
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the UBTI earned by the REIT (treating the REIT as if it were a
qualified trust and therefore subject to tax on UBTI) to
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the total gross income of the REIT.
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A de minimis exception applies where the percentage is
less than 5% for any year.
We do not expect to be classified as a pension-held REIT.
Taxation
of Non-U.S.
Shareholders
The rules governing United States federal income taxation of
nonresident alien individuals, foreign corporations, foreign
partnerships, and foreign trusts and estates are complex, and
the following is only a brief summary of these rules.
Prospective
non-U.S. shareholders
should consult with their own tax advisors to determine the
impact of federal, state and local income tax laws on an
investment in the Company, including any reporting
requirements.
When we use the term
non-U.S. shareholder,
we mean a holder of shares who (for United States federal income
tax purposes) is not a U.S. Shareholder. See Taxation
of Taxable U.S. Shareholders, above.
Distributions
Subject to the discussion below, a distribution made by us with
respect to our shares will generally be treated as a dividend of
ordinary income to the extent the distribution is made out of
our current or accumulated earnings and profits. Distributions
treated as a dividend of ordinary income will generally be
subject to withholding of United States federal income tax
on a gross income basis (that is, without allowance of
deductions) at a 30% rate unless an applicable tax treaty
reduces that rate and the
non-U.S. shareholder
files an IRS
Form W-8BEN.
However, distributions treated as a dividend of ordinary income
will be subject to a federal income tax on a net basis
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(that is, after allowance of deductions) when the dividend is
treated as effectively connected with the
non-U.S. shareholders
conduct of a United States trade or business and the
non-U.S. shareholder
has filed an IRS
Form W-8ECI
with us. In this event, as long as certain certification and
disclosure requirements are met, the dividend will be taxed at
graduated rates, in the same manner as U.S. shareholders
are taxed with respect to such dividends and will generally not
be subject to withholding. Any such dividends received by a
non-U.S. shareholder
that is a corporation may also be subject to an additional
branch profits tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Under current Treasury Regulations, dividends paid to an address
in a country outside the United States are generally presumed to
be paid to a resident of the country for purposes of determining
the applicability of withholding discussed above and the
applicability of a tax treaty rate. A
non-U.S. shareholder
who wishes to claim the benefit of an applicable treaty rate
will be required to satisfy certain certification and other
requirements. Under certain treaties, lower withholding rates
generally applicable to dividends do not apply to dividends from
a REIT.
If we make a distribution in excess of our current or
accumulated earnings and profits, the distribution will not be
taxable to a
non-U.S. shareholder
to the extent it does not exceed the adjusted basis of the
shareholders shares. Instead, the distribution will reduce
the adjusted basis of the shareholders shares. If the
distribution does exceed the adjusted basis of a
non-U.S. shareholders
shares, the distribution will result in gain from the sale or
exchange of the
non-U.S. shareholders
shares. We discuss the tax treatment of this gain in further
detail below. For withholding purposes, we treat all
distributions as if made out of our current or accumulated
earnings and profits. However, the IRS will generally refund
amounts that are withheld if it is determined that the
distribution was, in fact, in excess of our current or
accumulated earnings and profits.
We expect to withhold United States federal income tax at the
rate of 30% on any dividend distributions (including
distributions that later may be determined to have been in
excess of current and accumulated earnings and profits) made to
a
non-U.S. shareholder
unless:
(1) a lower treaty rate applies and the
non-U.S. shareholder
files with us an IRS Form
W-8BEN
evidencing eligibility for that reduced treaty rate; or
(2) the
non-U.S. shareholder
files an IRS
Form W-8ECI
with us claiming that the distribution is income effectively
connected with the
non-U.S. shareholders
conduct of a United States trade or business.
In any event, we may be required to withhold at least 10% of any
distribution in excess of our current and accumulated earnings
and profits, even if a lower treaty rate applies and the
non-U.S. shareholder
is not liable for tax on the receipt of that distribution.
However, a
non-U.S. shareholder
may seek a refund of these amounts from the IRS if the
non-U.S. shareholders
United States tax liability with respect to the distribution is
less than the amount withheld.
A distribution to a
non-U.S. shareholder
that we properly designate as a capital gain dividend at the
time of distribution that does not arise from our disposition of
a United States real property interest generally will not be
subject to United States federal income taxation unless any of
the following is true:
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investment in our shares is effectively connected with the
non-U.S. shareholders
United States trade or business, in which case the
non-U.S. shareholder
will be taxed on the gain at the same rates as
U.S. shareholders (except that a shareholder that is a
foreign corporation may also be subject to the 30% branch
profits tax); or
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the
non-U.S. shareholder
is a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year and
certain other conditions are satisfied, in which case the
nonresident alien individual will be taxed at a rate equal to
30% of the individuals capital gains.
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As described above, we may make distributions paid in common or
preferred shares that are intended to be treated as dividends
for U.S. federal income tax purposes. If we are required to
withhold an amount in excess of any cash that is distributed to
non-U.S. shareholders
along with the common or preferred shares, we may retain and
sell some of the common or preferred shares that would otherwise
be distributed in order to satisfy any withholding tax imposed
on the distribution.
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Pursuant to the Foreign Investment in Real Property Tax Act of
1980 (FIRPTA), distributions made by us with respect
to any class of shares to
non-U.S. shareholders
that hold more than 5% of that class of shares at any time
during the taxable year, which distributions are attributable to
gain from our sale or exchange of United States real property
interests, will cause the
non-U.S. shareholders
to be treated as recognizing this gain as income effectively
connected with a United States trade or business. This same
treatment would also apply to distributions to
non-U.S. shareholders
that own 5% or less of the class of shares if the class of
shares is not regularly traded on an established securities
market located in the United States.
Non-U.S. shareholders
would generally be taxed at the same rates as
U.S. shareholders (subject to a special alternative minimum
tax in the case of nonresident alien individuals) on these
distributions. Also, a
non-U.S. shareholder
that is a corporation may be subject to a 30% branch
profits tax on this distribution. Under such circumstances, we
are generally required to withhold 35% of any such distribution.
This amount is creditable against the
non-U.S. shareholders
United States federal income tax liability.
Unless a
non-U.S. shareholder
holds more than 5% of the class of shares in respect of which
the distribution is made at any time during the taxable year, or
the class of shares is not regularly traded on an established
securities market located in the United States, a
non-U.S. shareholder
is not taxable on a distribution attributable to gain from our
sale or exchange of United States real property interests as if
the gain were income effectively connected with a United States
trade or business. Instead, such
non-U.S. shareholder
is taxed on the distribution as a dividend that is not a capital
gain dividend, and the branch profits tax does not apply to such
distribution.
Although the law is not clear on the matter, it appears that
amounts designated by us as retained capital gains in respect of
our shares held by
non-U.S. shareholders
generally should be treated in the same manner as our actual
distributions of capital gain dividends. Under this approach, a
non-U.S. shareholder
would be able to claim as a credit against its U.S. federal
income tax liability, its proportionate share of the tax paid by
us on the retained capital gains, and to obtain from the IRS a
refund to the extent its proportionate share of the tax paid by
us exceeds its actual U.S. federal income tax liability.
We or any nominee (e.g., a broker holding shares in
street name) may rely on a certificate of non-foreign status on
Form W-8
or
Form W-9
to determine whether withholding is required on gains realized
from the disposition of United States real property interests. A
domestic person who holds shares on behalf of a
non-U.S. shareholder
will bear the burden of withholding, provided that we have
properly designated the appropriate portion of a distribution as
a capital gain dividend.
Sale
of Shares
Unless our shares constitute a United States real property
interest within the meaning of FIRPTA, a sale or exchange
of shares by a
non-U.S. shareholder
generally will not be subject to United States federal income
taxation. Our shares will not constitute a United States
real property interest if we are a domestically
controlled REIT. A domestically controlled
REIT is a REIT in which at all times during a specified
testing period
non-U.S. shareholders
held, directly or indirectly, less than 50% in value of the
REITs shares. We believe that we are, and expect to
continue to be, a domestically-controlled REIT and,
therefore, the sale of our shares should not be subject to
taxation under FIRPTA. Because our shares are publicly traded,
however, no assurance can be given that we are or will be a
domestically-controlled REIT.
If we are not or cease to be a domestically-controlled
REIT, a
non-U.S. shareholders
sale or exchange of our shares would be subject to United States
taxation under FIRPTA as a sale of a United States real
property interest, assuming the class of shares is
regularly traded (as defined by applicable Treasury Regulations)
on an established securities market (e.g., the NYSE),
only if the seller owned (actually or constructively) more than
5% of the class of shares during the applicable testing period.
If gain on the sale or exchange of shares were subject to
taxation under FIRPTA, the
non-U.S. shareholder
would be subject to the same United States federal income tax
treatment with respect to the gain as a U.S. shareholder
(subject to any applicable alternative minimum tax in the case
of nonresident alien individuals and the possible application of
the 30% branch profits tax in the case of foreign corporations),
and the purchaser of the shares would be required to withhold
and remit to the IRS 10% of the purchase price.
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Notwithstanding the foregoing, a
non-U.S. shareholder
who recognizes gain from the sale or exchange of our shares
which is not subject to FIRPTA will be subject to United States
taxation if:
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the
non-U.S. shareholders
investment is effectively connected with a United States trade
or business (and, if an income treaty applies, is attributable
to a United States permanent establishment); or
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the
non-U.S. shareholder
is a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year and
certain other conditions are satisfied, in which case the
nonresident alien individual will be subject to a 30% United
States withholding tax on the amount of the gain.
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Convertible
Preferred Shares
See the applicable prospectus supplement for a discussion of any
additional tax consequences to a
non-U.S. shareholder
of investing in convertible preferred shares offered by such
prospectus supplement.
Backup
Withholding Tax and Information Reporting
Backup withholding tax generally is a withholding tax imposed on
certain payments to persons who fail to furnish certain
information under the United States information reporting rules,
as discussed above under Backup Withholding and
Information Reporting.
Non-U.S. shareholders
will generally not be subject to backup withholding tax and
information reporting for distributions they receive from us.
However, if our shares are not held through a qualified
intermediary, the amount of dividends paid on those shares, the
name and address of the beneficial owner and the amount, if any,
of tax withheld may generally be reported to the IRS.
As a general matter, backup withholding and information
reporting will generally not apply to a payment of the proceeds
of a sale of stock by or through a foreign office of a foreign
broker. Information reporting (but not backup withholding) will
apply, however, to a payment of the proceeds of a sale by a
noncorporate shareholder of stock by or through a foreign office
of a broker that:
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is a United States person;
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derives 50% or more of its gross income for certain periods from
the conduct of a trade or business in the United States;
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is a controlled foreign corporation (generally, a
foreign corporation controlled by United States shareholders)
for United States tax purposes; or
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is a foreign partnership which generally is owned more than 50%
by U.S. persons
and/or is
engaged in the conduct of a trade or business in the United
States.
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Treasury Regulations provide certain presumptions if the
shareholder fails to provide certain required documentation.
Failure to provide the documentation may result in backup
withholding. You are urged to consult your advisor regarding the
required documentation and the backup withholding rules.
Federal
Income Taxation of Warrants
A holder who receives shares upon the exercise of a warrant
should not recognize gain or loss except to the extent of any
cash received for fractional shares. Except to the extent of any
cash so received, such a holder would have a tax basis in the
shares acquired pursuant to a warrant equal to the amount of the
purchase price paid for (or, if the warrant is purchased as part
of an investment unit, allocated to) the warrant
plus the amount paid for the shares pursuant to the warrant. The
holding period for the shares acquired pursuant to a warrant
would begin on the date of exercise. Upon the subsequent sale of
shares acquired pursuant to a warrant or upon a sale of a
warrant, the holder thereof would generally recognize capital
gain or loss in an amount equal to the difference between the
amount realized on the sale and its tax basis in such shares or
warrant, as the case may be. The foregoing assumes that warrants
will not be held as a hedge, straddle or as a similar offsetting
position with respect to our shares and that Section 1092
of the Code will not apply.
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Tax
Aspects of TRG
The following discussion summarizes certain federal income tax
considerations applicable solely to our investment in TRG. The
discussion does not cover state or local tax laws or any federal
tax laws other than income tax laws.
Classification
We are entitled to include in our income our distributive share
of TRGs income and to deduct our distributive share of
TRGs losses only if TRG is classified for federal income
tax purposes as a partnership rather than as an association
taxable as a corporation. TRG is entitled to include in its
income its distributive share of the income or losses of any
entity that owns our shopping centers only if such entity is
classified as a partnership or a disregarded entity for federal
income tax purposes.
An entity will be classified as a partnership or a disregarded
entity rather than as a corporation or an association taxable as
a corporation for federal income tax purposes if the entity is
treated as a partnership or a disregarded entity under Treasury
Regulations, effective January 1, 1997, relating to entity
classification.
In general, under these classification regulations, an
unincorporated entity with at least two members may elect to be
classified either as an association taxable as a corporation or
as a partnership. If such an entity fails to make an election,
it generally will be treated as a partnership for federal income
tax purposes. An unincorporated entity, such as a limited
liability company, that has only one member and that does not
elect to be classified as a corporation will be disregarded. The
federal income tax classification of an entity that was in
existence prior to January 1, 1997, such as TRG and many of
the entities that own our shopping centers, will be respected
for all periods prior to January 1, 1997 if:
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the entity had a reasonable basis for its claimed classification;
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the entity and all members of the entity recognized the federal
income tax consequences of any changes in the entitys
classification within the 60 months prior to
January 1, 1997; and
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neither the entity nor any member of the entity was notified in
writing by a taxing authority on or before May 8, 1996,
that the classification of the entity was under examination.
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We believe that TRG and each entity that existed prior to 1997
and that owns any of our shopping centers reasonably claimed
partnership classification under the Treasury Regulations
relating to entity classification in effect prior to
January 1, 1997, and such classification should be
respected for federal income tax purposes. TRG and the entities
that own our shopping centers intend to continue to be
classified as partnerships or disregarded entities for federal
income tax purposes, and none of them will elect to be treated
as an association taxable as a corporation under the entity
classification regulations.
We owned an interest in a trust (The TRG Trust)
until The TRG Trust was dissolved in 2007. We believe that The
TRG Trust was not taxable as a corporation for federal income
tax purposes. No assurance can be given, however, that the IRS
will not challenge the non-corporate status of The TRG Trust for
federal income tax purposes. If such challenge were sustained by
a court, The TRG Trust would be treated as a corporation for
federal income tax purposes, as described below. In addition,
our belief is based on existing law, which is to a great extent
the result of administrative and judicial interpretation. We
cannot be certain that changes in administrative or judicial
interpretations would not modify these conclusions.
If for any reason, The TRG Trust were to have been taxable as a
corporation rather than as a trust for federal income tax
purposes, we would not have been able to satisfy the asset
requirements for REIT status (and could not re-elect to be taxed
as a REIT for four years). See Taxation of Taubman
Centers, Inc. Asset Tests, above. If The TRG
Trust were to have been taxable as a corporation, items of
income and deduction would not have passed through to its
beneficiary, which would have been treated as a shareholder for
tax purposes. The trust would have been required to pay income
tax at corporate tax rates on its net income, and distributions
would have constituted dividends that would not have been
deductible in computing the trusts taxable income.
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Partners,
Not TRG, Subject to Tax
A partnership such as TRG is not a taxable entity for federal
income tax purposes. Rather, we are required to take into
account our allocable share of TRGs income, gains, losses,
deductions, and credits for any taxable year of TRG ending
within or with our taxable year regardless of whether we have
received or will receive a distribution from TRG.
Tax
Allocations with Respect to Contributed Properties
Pursuant to Section 704(c) of the Code, income, gain, loss,
and deduction, including depreciation, attributable to
appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership must
be allocated for federal income tax purposes in such a manner
that the contributor is charged with, or benefits from, the
unrealized gain or unrealized loss associated with the property
at the time of the contribution (Section 704(c)
allocations). The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the
fair market value of the contributed property at the time of
contribution and the adjusted tax basis of such property at the
time of contribution. TRGs partnership agreement requires
allocations of income, gain, loss, and deduction attributable to
such contributed property to be made in a manner that is
consistent with Section 704(c) of the Code and the
applicable Treasury Regulations thereunder. If a partner
contributes cash to a partnership at a time when the partnership
holds appreciated or depreciated property and such property is
revalued for book purposes, Section 704(c) of the Code and
the applicable Treasury Regulations provide for
Section 704(c) allocations of income, gain, loss, and
deduction (including depreciation) in such a manner that the
pre-existing partners are charged with, or benefit from, the
unrealized gain or unrealized loss associated with the property
at the time of the cash contribution.
Accordingly, depreciation on any property contributed to TRG is
allocated away from the contributing partner so as to reduce the
difference between such propertys fair market value and
its tax basis. In addition, depreciation will be allocated to us
so as to reduce the disparity between fair market value and tax
basis with respect to appreciated property held by TRG prior to
our admission to TRG. Such allocations will permit us to claim
larger depreciation deductions because we have, except as noted
below, contributed solely unappreciated property. On the other
hand, upon a revaluation of TRGs assets after our
admission to TRG, we will be treated as having
Section 704(c) gain equal to the excess of our share of
their revalued fair market value over our share of the tax basis
of TRGs assets. As a result of this difference, our
depreciation deductions will be reduced to take into account the
disparity between fair market value and the tax basis of the
assets that have been revalued.
Sale
of TRGs Property
Generally, any gain realized by TRG on the sale of property held
by TRG or an entity that owns our shopping centers for more than
one year will be long-term capital gain, except for any portion
of such gain that is treated as depreciation or cost recovery
recapture. Under Section 704(c) of the Code and the
Treasury Regulations governing the revaluation of TRGs
assets, any built-in gain under Section 704(c) attributable
to appreciation in the regional shopping center interests prior
to the admission of the Company to TRG in 1992 must, to the
extent not reduced by prior Section 704(c) allocations, be
allocated to the contributing partners when such gain is
recognized. Thus, to such extent, we will not incur a tax on
such Section 704(c) gains because (except as noted below)
they must be allocated to partners in TRG other than us. In
addition, any Section 704(c) gain with respect to
properties contributed to TRG subsequent to our admission to TRG
must be allocated to the contributing partners. As a consequence
of our 1% pre-contribution interests in two of our shopping
centers, we will be allocated an equivalent percentage of
Section 704(c) gain, to the extent not reduced by prior
Section 704(c) allocations, in the event of a disposition
of either property. Upon a revaluation of TRGs assets, we
will be treated as having Section 704(c) gain equal to the
excess of our share of the revalued fair market value of
TRGs assets over our share of the tax basis of such
assets. Upon a taxable disposition of such revalued assets, we
will be allocated our share of the Section 704(c) gain to
the extent not reduced by prior Section 704(c) allocations.
Upon the sale of an asset, TRG is required by its partnership
agreement to distribute to its partners an amount determined by
reference to the greater of the tax liability of its partners
other than us or our net capital gain. TRGs partnership
agreement provides for pro rata distributions to its partners in
all cases. Accordingly, the distribution
35
provisions in TRGs partnership agreement should permit us
to distribute 100% of our capital gain. As a result of the pro
rata nature of the distribution provisions, however, it is
possible that TRG will be required to distribute to its partners
all of the proceeds from a sale of an asset.
Our share of any gain realized by TRG on the sale of any
property held by TRG or a non-corporate subsidiary of TRG as
inventory or other property held primarily for sale to customers
in the ordinary course of TRGs or its non-corporate
subsidiarys trade or business will be treated as income
from a prohibited transaction that is subject to a 100% penalty
tax. See Taxation of Taubman Centers, Inc.
Prohibited Transaction Income, above. Such prohibited
transaction income will also adversely affect our ability to
satisfy the income tests for REIT status. See Taxation of
Taubman Centers, Inc. Income Tests, above.
Under existing law, whether property is held as inventory or
primarily for sale to customers in the ordinary course of
TRGs or its non-corporate subsidiarys trade or
business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. TRG
and its non-corporate subsidiaries intend to hold our shopping
centers for investment with a view to long-term appreciation,
and to engage in the business of acquiring, developing, owning,
and operating our shopping centers, including peripheral land,
consistent with TRGs and its non-corporate
subsidiaries investment objectives. In the event TRG
determines a sale of property will generate prohibited
transaction income, TRG intends to transfer such property to a
taxable REIT subsidiary. See Taxation of Taubman Centers,
Inc. The Taxable REIT Subsidiary, above.
Other Tax
Consequences
State
and Local Taxes
We may be subject to state or local taxation in various state or
local jurisdictions, including those in which we transact
business, and our shareholders may be subject to state or local
taxation in various state or local jurisdictions, including
those in which they reside. Our state and local tax treatment
may not conform to the federal income tax consequences discussed
above. In addition, your state and local tax treatment may not
conform to the federal income tax consequences discussed above.
Consequently, you should consult your tax advisors regarding the
effect of state and local tax laws on an investment in our
securities.
Disclosure
of Certain Transactions to the IRS
If a shareholder recognizes a loss as a result of a transaction
with respect to our shares of at least (i) for a
shareholder that is an individual, S corporation, trust, or
a partnership with at least one non-corporate unitholder,
$2 million or more in a single taxable year or
$4 million or more in a combination of taxable years, or
(ii) for a shareholder that is either a corporation or a
partnership with only corporate unitholders, $10 million or
more in a single taxable year or $20 million or more in a
combination of taxable years, such shareholder may be required
to file a disclosure statement with the IRS on Form 8886.
Direct stockholders of portfolio securities are in many cases
exempt from this reporting requirement, but shareholders of a
REIT currently are not exempt. The fact that a loss is
reportable under these regulations does not affect the legal
determination of whether the taxpayers treatment of the
loss is proper. There may be other circumstances in which
shareholders might be required to report their investment in us
under tax shelter regulations. Shareholders should consult their
tax advisors to determine the applicability of these regulations
in light of their individual circumstances.
Additional
U.S. Federal Income Tax Withholding Rules
The following new withholding rules are scheduled to become
effective generally for payments made after 2012. A
U.S. withholding tax at a 30% rate will be imposed on
dividends and gross proceeds of sale in respect of our shares
received by certain foreign financial institutions, investment
funds and other
non-U.S. persons
which fail to comply with information reporting requirements in
respect of their direct and indirect U.S. shareholders
and/or
U.S. accountholders. If payment of withholding taxes is
required,
non-U.S. shareholders
that are otherwise eligible for an exemption from, or reduction
of, U.S. withholding taxes with respect to such dividends
and proceeds will be required to seek a refund from the IRS to
obtain the benefit of such exemption or reduction. We will not
pay any additional amounts in respect of any amounts withheld.
Prospective shareholders are encouraged to consult their tax
36
advisors regarding the possible implications of these new
withholding rules on their investment in our shares as well as
the status of any related federal regulations.
Information
with Respect to Foreign Financial Assets
Under recently enacted legislation, individuals who own
specified foreign financial assets with an aggregate
value in excess of $50,000 are generally required to file an
information report with respect to such assets with their tax
returns. Specified foreign financial assets include
any financial accounts maintained by foreign financial
institutions. Our shares may be subject to these rules if they
are held in a financial account maintained by a foreign
financial institution. U.S. holders who are individuals are
urged to consult their tax advisors regarding the application of
this legislation to their ownership of our shares.
Legislative
or Other Actions Affecting REITs
The rules dealing with federal income taxation are constantly
under review by persons involved in the legislative process and
by the IRS and the U.S. Treasury Department. Changes to the
federal tax laws and interpretations of federal tax laws could
adversely affect an investment in our securities.
Dividend
Reinvestment Plan
To the extent that a shareholder receives common shares or
preferred shares pursuant to a dividend reinvestment plan, the
federal income tax treatment of the shareholder and us will
generally be the same as if the distribution had been made in
cash.
Additional
Tax Consequences for Holders of Depositary Shares or
Rights
See the applicable prospectus supplement for a discussion of any
additional tax consequences for holders of depositary shares or
rights offered by such prospectus supplement.
LEGAL
MATTERS
Unless otherwise specified in a prospectus supplement, the
validity of the securities offered hereby and certain federal
income tax matters will be passed upon for us by Honigman Miller
Schwartz and Cohn LLP, Detroit, Michigan, and for any
underwriters, dealers or agents by counsel named in the
applicable prospectus supplement. Certain members of Honigman
and their families own beneficial interests of less than 1% of
our common stock. Jeffrey H. Miro, a partner of Honigman Miller
Schwartz and Cohn LLP, is our corporate Secretary.
EXPERTS
The consolidated financial statements and schedules of Taubman
Centers, Inc. as of December 31, 2010 and 2009, and for
each of the years in the three-year period ended
December 31, 2010, and managements assessment of the
effectiveness of internal control over financial reporting as of
December 31, 2010, all as filed in our
Form 10-K
for the year ended December 31, 2010, have been
incorporated by reference herein in reliance upon the reports of
KPMG LLP, independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. The audit report
covering the December 31, 2010 consolidated financial
statements contains an explanatory paragraph that the Company
has changed their method of accounting for noncontrolling
interests due to the adoption of a new accounting pronouncement
for noncontrolling interests, as of January 1, 2009.
37
1,750,000 Shares
Taubman Centers, Inc.
Common Stock
PROSPECTUS SUPPLEMENT
Goldman, Sachs &
Co.
June , 2011