TAU B M A N CENTERS, INC. 2014 ANNUAL REPORT LEGAL LEASING SPECIALTY LEASING TENANT COORDINATION DEVELOPMENT RISK MANAGEMENT CONTRACT ADMINISTRATION INFORMATION TECHNOLOGY CORPORATE AFFAIRS STRATEGY SHAREHOLDERS TREASURY RETAILERS TRANSFORMATION TAX SHOPPERS EXECUTIVES INTERNAL AUDIT CENTER MANAGEMENT MARKETING ACCOUNTING SPONSORSHIP REAL ESTATE TAX LEASING ADMINISTRATION CENTER OPERATIONS TECHNOLOGY IS TRANSFORMING HOW PEOPLE SHOP. AT TAUBMAN CENTERS, WE ARE EM BRACING THIS TRANSFORMATION. SUCCESSFUL RETAILERS WILL BE OMNI-CHANNEL AND WILL CONTINUOUSLY SEARCH FOR INNOVATIVE WAYS TO CONNECT WITH CUSTOMERS THROUGH BOTH ONLINE AND BRICK AND MORTAR PLATFORMS. IN THIS DYNAMIC ENVIRONMENT, OUR A-QUALITY MALLS AND CUSTOMER-FOCUSED ORGANIZATION ARE EXTREMELY WELL POSITIONED TO MAXIMIZE RETAIL SALES AND CREATE ADDITIONAL SHAREHOLDER VALUE. PAG E 1 Over the 10 -year period ended Dece m ber 31, 2014, Tau b m an Centers’ compounded annual total shareholder return was 14.4% 387 354 296 273 252 222 215 209 197 181 181 146 120 100 98 04 05 06 07 08 09 10 11 12 13 14 COMPARISON OF CUMULATIVE TOTAL RETURN Taubman Centers, Inc. S&P 400 MidCap Index S&P 500 Index MSCI US REIT Index FTSE NAREIT Equity Retail Index This graph sets forth the cumulative total returns on a $100 investment in each of our Common Stock, the MSCI US REIT Index, the FTSE NAREIT Equity Retail Index, the S&P 500 Index and the S&P 400 MidCap Index for the period December 31, 2004 through December 31, 2014 (assuming in all cases, the reinvestment of dividends). During 2014, Taubman Centers’ shareowners enjoyed a 30.7% total shareholder return. The company’s 10-year total shareholder return was the eleventh highest of the 98 U.S REITs that have operated during this period. PAGE 2 TAUBMAN CENTERS, INC. LETTER TO SHAREHOLDERS THE SPECTACULAR GRAND OPENING OF THE MALL AT UNIVERSITY TOWN CENTER WAS ONE OF THE HIGHLIGHTS OF A VERY PRODUCTIVE 2014 FOR TAUBMAN CENTERS. OPENING IN OCTOBER WITH MORE THAN HALF ITS RETAILERS AND RESTAURANTS NEW TO THE SARASOTA, FLORIDA MARKET, THE MALL ALSO DEBUTED AS THE MOST TECHNOLOGICALLY ADVANCED SHOPPING CENTER WE’VE EVER DEVELOPED. Designed from the ground up as a “smart You may not immediately think of Taubman building,” The Mall at University Town Center is Centers or any other shopping center developer also a proving ground for many of the exciting as a technology company. After all, wasn’t the opportunities we see for our business with the Internet supposed to make malls obsolete? evolving convergence of brick and mortar and But what’s becoming clearer every day is that online shopping. physical spaces – stores – are at the heart of retailers’ omni-channel marketing and distribu- Customers are responding enthusiastically to such tion strategies. offerings as free Wi-Fi, a feature-filled mobile app and interactive touchscreen directories. Highly successful brands, connecting with Tenants are utilizing high-speed broadband and customers through both bricks and clicks, are voice services delivered over a state-of-the-art using their brick and mortar assets for ware- fiber-optic infrastructure, which also facilitates housing and inventory management, as well as efficient operation of the center’s energy, for showcasing their products and functioning life-safety, lighting and HVAC systems. as service centers for pick-ups, deliveries and returns. While evolving digital platforms may for some merchants slow the growth in their number of stores, good locations in major markets, especially A-quality malls like ours, are increasingly coveted. PAG E 3 819 809 708 641 555 564 529 533 508 502 Since 20 05, the compound annual growth rate of Tau b m an Centers’ tenant sales per sq uare foot has been 5.3% Tenant sales per square foot is the most important measure of the quality of regional mall assets. The higher the retailers’ sales, the higher the rents those retailers can pay, which translates to greater rewards to the landlord and its shareholders. Taubman Centers’ tenant sales per square foot are the highest in the publicly held U.S. regional mall industry. (1) See Notes and Reconciliations page at the end of this report for properties included and excluded. TENANT SALES PER SQUARE FOOT(1) ( $ ) 05 06 07 08 09 10 11 12 13 14 Technology is our friend, not a foe, and we’re In a key transaction completed in the fourth embracing its promise. Consistent with our quarter of 2014 we sold our seven lowest- history of breaking down “Threshold Resis- performing assets for $1.4 billion. While these tance” – any barrier that stands between a centers are strong assets, they were less produc- shopper and a purchase – and creating the tive than the balance of our portfolio and they no most productive retail environments in the longer met our criteria for longer-term ownership. industry, we’re collaborating with our tenants, In selling these properties, our portfolio’s tenant listening to our shoppers and investing in our sales performance increased significantly by properties to maximize retail sales. about $100 to more than $800 per square foot. This will also enhance our ability to grow Net How we are strategically approaching these Operating Income (NOI) over time. As a result opportunities and deploying technology at our of the transaction, we paid a special cash new and existing centers is the subject of the dividend to our shareholders in December of feature section of this annual report. $4.75 per share. FOCUSING OUR RESOURCES FOR GROWTH Earlier in the year we also completed the sale of Having the resources and operational skills to our 50 percent interest in Arizona Mills (Tempe, improve the shopper experience through tech- Ariz.) and our land in Syosset (Oyster Bay, New nology is one of the factors that will differentiate York). We were not managing Arizona Mills, the most productive malls into the future. The and in Oyster Bay it had become clear to us full potential of these new platforms is likely to that the political environment on Long Island be realized only in the highest performing made it very unlikely that we would be able to centers. Given this opportunity and the com- move forward with our development plans any petitive environment in general, dominant, time soon. well-merchandised centers will thrive, while poorly-positioned properties will demand increasing amounts of capital and managerial attention just to survive. PAGE 4 TAUBMAN CENTERS, INC. 3.65 3.67 3.34 Over the last 10 years, the company’s 3.08 3.06 2.88 2.86 2.84 Adjusted Fu nds fro m O perations and Dividends 2.65 per share have a co m pou nded annual growth rate of 5% and 7.2%, respectively 2.36 Adjusted FFO per share Dividends per share Over the last 10 years, Adjusted Funds from Operations per share has grown 56%. This increase in earnings has allowed Taubman Centers to regularly 2.16 (3) reward our shareholders with a growing dividend. In 2014, the dividend was 2.00 increased to $2.16 per share, the seventeenth increase since the company went 1.85 1.76 public in 1992. Over the last 10 years, dividends per share have grown 86%. 1.66 1.66 1.68 (2 ) 1.54 (1) See Notes and Reconciliations page at the end of this report for a 1.29 reconciliation of net income to adjusted funds from operations. 1.16 (2) Excludes special dividend of $0.1834 per share paid in December, 2010. (3) Excludes special dividend of $4.75 per share paid in December, 2014. ADJUSTED FUNDS FROM OPERATIONS / D I V I D E N D S P E R S H A R(1) E ( $ ) 05 06 07 08 09 10 11 12 13 14 DEVELOPMENT AND infers a $1 billion valuation for this asset, which REDEVELOPMENT PROGRESS we developed in 2001 for approximately $250 Significant progress was made throughout the million. Two other centers we developed in year at six redevelopment and six ground-up Florida in 2001 and 2002, Dolphin Mall and projects in the U.S. and Asia. We expect a The Mall at Millenia (Orlando, Fla.), represent weighted average return of 7 percent on our even greater value-creation success stories. share of the approximately $1.9 billion invest- ment in these projects. This investment includes There are very few opportunities for great new $275 million in U.S. redevelopment, $1 billion in shopping centers in the U.S. today, and we will U.S. development (including The Mall at Univer- continue to be very selective in where we direct sity Town Center), and about $600 million in our time, talents and dollars. Our bar is very Asia development (roughly 60 percent in South high. We are looking only to develop assets Korea and 40 percent in China). that will eventually achieve sales productivity in the top half of our portfolio. We’re confident Major redevelopment projects – renovations that our newest properties will comfortably and/or expansions – are under way at The Mall meet that standard. at Green Hills (Nashville, Tenn.), Cherry Creek Shopping Center (Denver, Colo.), Dolphin Mall As mentioned earlier, The Mall at University (Miami, Fla.), Beverly Center (Los Angeles, Calif.), Town Center welcomed shoppers before the Sunvalley (Concord, Calif.), and International 2014 holiday season. It was the only newly Plaza (Tampa, Fla.). built enclosed regional mall that opened last year in the U.S. Customer response has been As we’ve said many times before, development terrific to the center’s design, amenities and continues to be one of our company’s most retail offerings, which include Macy’s and the valuable and distinguishing core competencies.