e424b3
The information in this prospectus
supplement is not complete and may be changed. This preliminary
prospectus supplement and the accompanying prospectus are not an
offer to sell nor do they seek an offer to buy these securities
in any jurisdiction where the offer or sale is not
permitted.
|
Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-35433
|
|
|
PROSPECTUS SUPPLEMENT |
|
SUBJECT TO COMPLETION DATED
JUNE 6, 2005
(TO PROSPECTUS DATED SEPTEMBER 19, 1997) |
Shares
Taubman Centers, Inc.
%
Series H Cumulative Redeemable Preferred Stock
(Liquidation Preference $25.00 per
Share)
Taubman
Centers, Inc. is offering to the public
its % Series H
Cumulative Redeemable Preferred Stock, which we refer to in this
prospectus supplement as the Series H preferred stock, on
terms summarized as follows:
|
|
|
We will pay cumulative dividends on the
Series H preferred stock, from the date of original
issuance, in arrears, at the rate
of %
per year of the $25.00 liquidation preference per share,
payable on or about the last day of March, June, September and
December of each year when and as declared by the board of
directors, beginning September 30, 2005. This is equivalent
to a fixed annual amount of
$ per
share.
|
|
|
We cannot redeem the Series H
preferred stock before July ,
2010.
|
|
|
On and after
July , 2010, we may, at our
option, redeem the Series H preferred stock, in whole or in
part, for cash at a redemption price of $25.00 per share,
plus all accrued and unpaid dividends, if any, to the date of
the redemption.
|
|
|
Our Series H preferred stock has no
stated maturity and will not be subject to any sinking fund or
mandatory redemption and will not be convertible into or
exchangeable for any other property or securities.
|
|
|
Holders of the Series H preferred
stock will generally have no voting rights but will have limited
voting rights if we fail to pay dividends on any Series H
preferred stock for six or more quarters (whether or not
consecutive) and in certain other events.
|
|
|
To preserve our status as a real estate
investment trust, or REIT, for Federal income tax purposes, we
impose certain restrictions on ownership of our Series H
preferred stock. See Restrictions on Transfer
beginning on page 15 of the accompanying prospectus.
|
We
intend to file an application to list our Series H
preferred stock on the New York Stock Exchange, or NYSE. If the
application is approved, we expect trading of our Series H
preferred stock on the NYSE to begin within 30 days after
the date of initial delivery of our Series H preferred
stock.
Investing in our Series H
preferred stock involves risks. See Risk Factors
beginning on page S-8 of this prospectus
supplement.
|
|
|
|
|
|
|
|
|
|
|
Per Share | |
|
Total | |
|
|
| |
|
| |
Public offering price
|
|
$ |
25.0000 |
|
|
$ |
|
|
Underwriting discounts and commission
|
|
$ |
|
|
|
$ |
|
|
Proceeds to us
|
|
$ |
|
|
|
$ |
|
|
The
underwriters expect to deliver shares of our Series H
preferred stock on or about July ,
2005.
The
Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or
determined if this prospectus supplement or the accompanying
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
Wachovia Securities
|
|
RBC Capital Markets |
KeyBanc Capital Markets |
You should only rely on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We have not, and the underwriters have
not, authorized anyone to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not,
and the underwriters are not, making an offer to sell these
securities in any state or other jurisdiction where the offer or
sale is not permitted. You should assume that the information
appearing in this prospectus supplement and the accompanying
prospectus, as well as information previously filed by us with
the Securities and Exchange Commission, or the SEC, and
incorporated by reference herein and therein, is accurate only
as of their respective dates. Our business, financial condition,
results of operations and prospects may have changed since then.
TABLE OF CONTENTS
Prospectus Supplement
|
|
|
|
|
|
|
|
Page | |
|
|
| |
|
|
|
S-2 |
|
|
|
|
S-2 |
|
|
|
|
S-4 |
|
|
|
|
S-8 |
|
|
|
|
S-9 |
|
|
|
|
S-10 |
|
|
|
|
|
|
|
Dividends
|
|
|
S-10 |
|
|
|
|
S-10 |
|
|
|
|
S-11 |
|
|
|
|
S-19 |
|
|
|
|
S-40 |
|
|
|
|
S-41 |
|
|
|
|
S-41 |
|
Prospectus |
The Company
|
|
|
1 |
|
Risk Factors
|
|
|
1 |
|
Use of Proceeds
|
|
|
5 |
|
Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends
|
|
|
5 |
|
Certain Provisions of the Articles of Incorporation and Bylaws
|
|
|
5 |
|
Description of Common Stock
|
|
|
7 |
|
Description of Preferred Stock
|
|
|
7 |
|
Description of Depositary Shares
|
|
|
11 |
|
Description of Warrants
|
|
|
14 |
|
Restrictions on Transfer
|
|
|
15 |
|
Federal Income Tax Considerations
|
|
|
17 |
|
ERISA Considerations
|
|
|
31 |
|
Plan of Distribution
|
|
|
33 |
|
Legal Matters
|
|
|
33 |
|
Experts
|
|
|
33 |
|
Available Information
|
|
|
33 |
|
Incorporation by Reference
|
|
|
34 |
|
Glossary
|
|
|
35 |
|
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Some of the statements contained or incorporated by reference in
this prospectus supplement and the accompanying prospectus are
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements relate to our business and financial
outlook which are based on our current expectations, beliefs,
projections, forecasts, future plans and strategies, and
anticipated events or trends. We use words such as
anticipate, believe, could,
should, propose, continue,
estimate, expect, intend,
may, plan, predict,
project, will and similar terms and
phrases to identify forward-looking statements. These
forward-looking statements are not guarantees of future
performance and financial condition but rather reflect estimates
and assumptions and are subject to certain risks and
uncertainties that are difficult to predict or anticipate.
Therefore, actual outcomes and results may differ materially
from those projected or anticipated in these forward-looking
statements. You should not place undue reliance on these
forward-looking statements, which speak only as of the
respective dates of this prospectus supplement, the accompanying
prospectus or the documents incorporated by reference herein. A
number of important factors could cause actual results to differ
materially from those indicated by the forward-looking
statements, including, without limitation, the following factors:
|
|
|
|
|
economic conditions generally and in the regional and local
economies where our shopping centers are located specifically, |
|
|
|
competition from other shopping centers and other shopping
venues, |
|
|
|
changes in governmental regulations, tax rates and similar
matters, |
|
|
|
availability and cost of financing, |
|
|
|
our continuing to qualify as a REIT, and |
|
|
|
other risks and uncertainties detailed in this prospectus
supplement or the accompanying prospectus. |
All of the forward-looking statements should be considered in
light of these factors. 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 or the accompanying prospectus to reflect new
information or future events or otherwise.
We urge you to review carefully the Risk Factors
section of this prospectus supplement for a more complete
discussion of the risks involved in an investment in our
securities.
INCORPORATION BY REFERENCE
We incorporate by reference in this prospectus supplement and
the accompanying 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 until this offering is completed. 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
supplement, and information that we file later with the SEC will
automatically update and supersede this information:
|
|
|
|
|
our annual report on Form 10-K for the year ended
December 31, 2004 filed with the SEC on March 4, 2005; |
|
|
|
our quarterly report on Form 10-Q for the quarter ended
March 31, 2005 filed with the SEC on May 4, 2005; |
|
|
|
our proxy statement for our 2005 annual meeting of shareholders
filed with the SEC on April 5, 2005; |
S-2
|
|
|
|
|
our current reports on Form 8-K filed with the SEC on
February 7, 2005, March 9, 2005, May 19, 2005 and
June 6, 2005; |
|
|
|
the description of our common stock contained in our
registration statement on Form 8-A filed with the SEC on
November 10, 1992; |
|
|
|
the description of our 8.30% Series A Cumulative Redeemable
Preferred Stock contained in our registration statement on
Form 8-A filed with the SEC on October 3,
1997; and |
|
|
|
the description of our 8% Series G Cumulative Redeemable
Preferred Stock contained in our registration statement on
Form 8-A filed with the SEC on November 22, 2004. |
Upon request, we will provide to you without charge a copy of
any of the documents incorporated by reference in this
prospectus supplement and the accompanying prospectus. You may
ask for these copies in writing or orally by contacting:
Taubman Centers, Inc.,
200 East Long Lake Road, Suite 300
Bloomfield Hills, Michigan 48303-0200
Attention: Investor Relations,
Telephone: (248) 258-6800
You may read and copy materials we have filed with the SEC,
including the registration statement of which this prospectus
supplement and the accompanying prospectus are a part, at the
SECs public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of its
public reference room. The SEC maintains an Internet website
that contains reports, proxy and information statements, and
other information regarding issuers, including us, that file
electronically with the SEC. The address of that site is
http://www.sec.gov. You may read and copy our SEC filings at the
offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005. In addition, we maintain an
Internet website that contains information about us at
http://www.taubman.com. The information on our website is not,
and you must not consider the information to be, a part of this
prospectus supplement or the accompanying prospectus.
Readers should rely only on the information provided or
incorporated by reference in this prospectus supplement or the
accompanying prospectus. Readers should not assume that the
information in this prospectus supplement and the accompanying
prospectus is accurate as of any date other than the date on the
front cover of the document.
S-3
PROSPECTUS SUPPLEMENT SUMMARY
This summary may not contain all of the information that is
important to you. Before you decide to invest in our
Series H preferred stock, you should read this prospectus
supplement along with the accompanying prospectus and the
information incorporated by reference in this prospectus
supplement and the accompanying prospectus carefully. These
documents contain important information that you should consider
when making your investment decision. This prospectus supplement
may add, update or change information in the accompanying
prospectus. If information in this prospectus supplement, or the
information incorporated by reference in this prospectus
supplement and the accompanying prospectus, is inconsistent with
the accompanying prospectus, this prospectus supplement, or the
information incorporated by reference in this prospectus
supplement and the accompanying prospectus, will apply and will
supersede that information in the accompanying prospectus.
Unless the context indicates otherwise, references in this
prospectus supplement and the accompanying prospectus to the
Company, our Company, we,
us or our refer to Taubman Centers, Inc.
and its subsidiaries, including The Taubman Realty Group Limited
Partnership, our operating partnership, and references in this
prospectus supplement and the accompanying prospectus to
TRG refer to The Taubman Realty Group Limited
Partnership.
Our Company
We are a fully integrated real estate company that is organized
as a real estate investment trust, or REIT. We are the managing
general partner of and as of March 31, 2005, owned
approximately 62% of the partnership interests in TRG. We
conduct all of our operations through TRG. We acquire and
develop, finance, operate, manage and lease regional shopping
centers. In addition to acquiring and developing new shopping
centers, we acquire and redevelop and/or expand existing
centers. We currently own 21 urban and suburban shopping centers
located in nine states. Two new shopping centers are under
construction in New Jersey and North Carolina.
In addition to the 21 shopping centers, we own more than
99% of The Taubman Company LLC, the entity that manages our
shopping centers and provides other services to us. We also own
development projects for future regional shopping centers.
We were incorporated in Michigan and our executive offices are
located at 200 East Long Lake Road, Suite 300, P.O.
Box 200, Bloomfield Hills, Michigan 48303-0200, telephone:
(248) 258-6800.
Recent Developments
Re-designation of Officers
On June 6, 2005, we announced that Lisa A. Payne, who has
served as our chief financial officer since joining our company
in 1997, has assumed the additional responsibilities of vice
chairman and that William S. Taubman, who has served as
executive vice president since 1994, has been appointed chief
operating officer.
Audit Committee Financial Expert
The Audit Committee of our board of directors currently does not
have an audit committee financial expert as such
term is defined under the rules adopted by the SEC. In October
2004, Myron E. Ullman resigned from our board of directors
following his appointment as Chairman and Chief Executive
Officer of JCPenney to avoid any appearance of conflict of
interest. At the time of his resignation, Mr. Ullman had
been a member of the Audit Committee of our board of directors
and was deemed the committees sole audit committee
financial expert. Immediately following Mr. Ullmans
resignation, our board of directors began a search for an
individual qualified to become a member of our board who would
also meet the requirements of an audit committee financial
expert. Our board of directors has engaged a consultant to
assist with its search and is working to identify and evaluate
suitable candidates.
S-4
Ratios of Earnings to Combined Fixed Charges and Preferred
Dividends
Our ratios of earnings to combined fixed charges and preferred
dividends for the quarter ended March 31, 2005 was 1.3x and
for the years ended December 31, 2004, 2003, 2002, 2001 and
2000 were 1.2x, 1.0x, 1.1x, 1.0x and 1.9x, respectively. See
Ratio of Earnings to Combined Fixed Charges and Preferred
Dividends.
The Offering
The following is a brief summary of certain terms of this
offering. For a more complete description of the terms of our
Series H preferred stock, please refer to the
Description of Our Series H Preferred Stock
section of this prospectus supplement.
|
|
|
Securities Offered |
|
shares
of our % Series H cumulative
redeemable preferred stock. |
|
Price Per Share |
|
$25.00 |
|
Dividends |
|
Holders of our Series H preferred stock will be entitled to
receive cumulative cash dividends on our Series H preferred
stock at a rate of % per year
of the $25.00 liquidation preference (equivalent to
$ per
year per share). Dividends on our Series H preferred
stock will be payable quarterly in arrears on or about the last
day of March, June, September and December of each year,
beginning on September 30, 2005. Dividends on the
Series H preferred stock will accrue regardless of whether: |
|
|
|
we have earnings; |
|
|
|
there are funds legally available for the payment of
dividends; or |
|
|
|
such dividends are declared by our board of
directors. |
|
Liquidation Preference |
|
If we liquidate, dissolve or wind up our affairs, holders of our
Series H preferred stock will have the right to receive
$25.00 per share, plus accrued and unpaid dividends
(whether or not declared) to the date of payment, before any
payments are made to the holders of our common stock and any
other class or series of our capital stock ranking junior to our
Series H preferred stock with respect to the payment of
dividends and distribution of assets upon liquidation,
dissolution or winding up of our affairs. The rights of the
holders of our Series H preferred stock to receive their
liquidation preference will be subject to the proportionate
rights of the holders of our 8.30% Series A cumulative
redeemable preferred stock, our 8.20% Series F cumulative
redeemable preferred stock (if and when issued), our 8%
Series G cumulative redeemable preferred stock and each
other series of our preferred stock that we may issue in the
future that ranks on a parity with our Series H preferred
stock. |
|
No Maturity |
|
Our Series H preferred stock has no maturity date, and we
are not required to redeem our Series H preferred stock.
Accordingly, our Series H preferred stock will remain
outstanding indefinitely, unless we decide to redeem it. We are
not required to set aside funds to redeem our Series H
preferred stock. |
S-5
|
|
|
Optional Redemption |
|
We may not redeem our Series H preferred stock prior to
July , 2010. On or after
July , 2010, we may, at our
option, redeem our Series H preferred stock, in whole or in
part, at any time and from time to time, for cash at
$25.00 per share, plus accrued and unpaid dividends, if
any, to and including the redemption date. Any partial
redemption will be made on a pro rata basis or by any other
equitable method determined by us. |
|
Ranking |
|
Our Series H preferred stock will rank (a) senior to
our common stock and our Series B non-participating
convertible preferred stock and (b) on a parity with our
Series A preferred stock, Series F preferred stock (if
and when issued), Series G preferred stock and any other
shares of preferred stock that we may issue in the future the
terms of which provide that they are on a parity with our
Series H preferred stock with respect to the payment of
dividends and distributions of assets upon liquidation,
dissolution or winding up of our affairs. |
|
Voting Rights |
|
Except as may be required by law, holders of our Series H
preferred stock will generally have no voting rights. If,
however, dividends on any outstanding shares of our
Series H preferred stock have not been paid for six or more
quarterly periods (whether or not consecutive), holders of our
Series H preferred stock, voting as a class with the
holders of our Series A preferred stock, Series F
preferred stock (if and when issued), Series G preferred
stock, and any other series of our preferred stock that we may
issue in the future that are entitled to similar voting rights,
will be entitled to elect two additional directors to our board
of directors to serve until all unpaid dividends have been paid
or declared and set apart for payment. In addition, certain
material and adverse changes to the terms of our Series H
preferred stock cannot be made, and certain other actions may
not be taken, without the affirmative vote of holders of at
least two-thirds of the outstanding shares of our Series H
preferred stock, voting separately as a class. |
|
No Conversion |
|
Our Series H preferred stock is not convertible into or
exchangeable for any other of our property or securities. |
|
Transfer and Ownership Restrictions |
|
For us to qualify as a REIT under the Internal Revenue Code, the
transfer of our capital stock, including our Series H
preferred stock, is restricted, and not more than 50% in value
of our outstanding stock may be owned, directly or
constructively, by five or fewer individuals, as defined in the
Internal Revenue Code. Ownership by a single holder of more than
8.23% in value of our common and preferred stock, on a combined
basis, is restricted in order to ensure that we remain qualified
as a REIT for Federal income tax purposes. Any shares held in
violation of the ownership limit will be automatically
transferred to a trust for the benefit of a charitable
beneficiary and subsequently sold to a permitted holder. |
|
Use of Proceeds |
|
We estimate that the net proceeds, after deducting underwriting
fees and commissions and expenses payable by us, from this
offering will be approximately
$ million.
We expect to |
S-6
|
|
|
|
|
use the net proceeds to
redeem shares
of our outstanding 8.30% Series A preferred stock at an
aggregate redemption price of
$ ,
plus accrued and unpaid distributions. The redemption is
expected to take place on or about
July , 2005. Pending
application of the net proceeds from this offering as described
above, we will use the net proceeds from this offering to
temporarily repay a portion of the amount outstanding under our
revolving credit facility. See Use of Proceeds. |
|
Listing |
|
We intend to apply to list our Series H preferred stock on
the NYSE. If approved for listing, we expect trading of our
Series H preferred stock on the NYSE to begin within
30 days after the initial delivery of shares of our
Series H preferred stock. |
|
Risk Factors |
|
Investing in our Series H preferred stock involves
substantial risks. You should carefully consider the risk
factors under the Risk Factors section of, and the
other information contained or incorporated by reference in,
this prospectus supplement and accompanying prospectus. |
S-7
RISK FACTORS
In addition to the other information contained in or
incorporated by reference in this prospectus supplement and the
accompanying prospectus, you should carefully consider the
following material risk factors, as well as those set forth in
the section titled General Risks of the Company
beginning on page 7 of our Annual Report on Form 10-K
for the year ended December 31, 2004 and filed with the SEC
on March 4, 2005, before making an investment in the
Series H preferred stock.
The market value of our Series H preferred stock could
be substantially affected by various factors.
Our Series H preferred stock is a new issue of securities
with no established trading market. We intend to apply to list
our Series H preferred stock on the NYSE. However, an
active trading market on the NYSE for our Series H
preferred stock may not develop or last, in which case the
trading price of shares of our Series H preferred stock
could be adversely affected. If an active trading market does
develop on the NYSE, the shares may trade at prices higher or
lower than their initial offering price. The trading price of
our Series H preferred stock would depend on many factors,
including:
|
|
|
|
|
prevailing interest rates; |
|
|
|
the market for similar securities; |
|
|
|
general economic conditions; and |
|
|
|
our financial condition, performance and prospects. |
We have been advised by certain of the underwriters that they
intend to make a market in our Series H preferred stock,
but they are not obligated to do so and may discontinue
market-making at any time without notice.
Our ability to pay dividends on our Series H preferred
stock may be limited.
Because we conduct all of our operations through TRG, our
ability to pay dividends on our Series H preferred stock
will depend almost entirely on payments and dividends received
on our interests in TRG. Additionally, the terms of some of the
debt to which TRG is a party limits its ability to make some
types of payments and other dividends to us. This in turn limits
our ability to make some types of payments, including payment of
dividends on our Series H preferred stock, unless we meet
certain financial tests or such payments or dividends are
required to maintain our qualification as a REIT. As a result,
if we are unable to meet the applicable financial tests, we may
not be able to pay dividends on our Series H preferred
stock in one or more periods.
Our ability to pay dividends is further limited by the
requirements of Michigan law.
Our ability to pay dividends on our Series H preferred
stock is further limited by the laws of Michigan. Under the
Michigan Business Corporation Act, a Michigan corporation may
not make a distribution if, after giving effect to the
distribution, the corporation would not be able to pay its debts
as the debts become due in the usual course of business, or the
corporations total assets would be less than the sum of
its total liabilities plus the amount that would be needed, if
the corporation were dissolved at the time of the distribution,
to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those
receiving the distribution. Accordingly, we may not make a
distribution on our Series H preferred stock if, after
giving effect to the distribution, we would not be able to pay
our debts as they become due in the usual course of business or
our total assets would be less than the sum of our total
liabilities plus the amount that would be needed to satisfy the
preferential rights upon dissolution of the holders of any
shares of our preferred stock then outstanding, if any, with
preferences senior to the rights of our Series H preferred
stock.
S-8
We may incur additional indebtedness, which may harm our
financial position and cash flow and potentially impact our
ability to pay dividends on our Series H preferred
stock.
Our governing documents do not limit us from incurring
additional indebtedness and other liabilities. As of
March 31, 2005, we had approximately $2.0 billion of
consolidated indebtedness outstanding, and our beneficial
interest in both our consolidated debt and the debt of our
unconsolidated joint ventures was $2.4 billion. We may
incur additional indebtedness and become more highly leveraged,
which could harm our financial position and potentially limit
our cash available to pay dividends. As a result, we may not
have sufficient funds remaining to satisfy our dividend
obligations relating to our Series H preferred stock if we
incur additional indebtedness.
We cannot assure you that we will be able to pay dividends
regularly although we have done so in the past.
Our ability to pay dividends in the future is dependent on our
ability to operate profitably and to generate cash from our
operations. Although we have done so in the past, we cannot
guarantee that we will be able to pay dividends on a regular
quarterly basis in the future. Furthermore, any new shares of
common stock issued will substantially increase the cash
required to continue to pay cash dividends at current levels.
Any common stock or preferred stock that may in the future be
issued to finance acquisitions, upon exercise of stock options
or otherwise, would have a similar effect.
Our Series H preferred stock will rank junior to all of
our liabilities and will not limit our ability to incur future
indebtedness that will rank senior to our Series H
preferred stock.
Our Series H preferred stock will rank junior to all of our
liabilities. In the event of our liquidation, winding-up or
dissolution, our assets will be available to pay obligations on
our Series H preferred stock only after all of our
indebtedness and other liabilities have been paid. In addition,
our Series H preferred stock will effectively rank junior
to all existing and future liabilities of our subsidiaries and
any capital stock of our subsidiaries held by others. The rights
of holders of our Series H preferred stock to participate
in the distribution of assets of our subsidiaries will rank
junior to the prior claims of each subsidiarys creditors
and any such other equity holders. We and our subsidiaries may
incur substantial amounts of additional debt and other
obligations that will rank senior to our Series H preferred
stock, and the terms of our Series H preferred stock will
not limit the amount of such debt or other obligations that we
may incur, except that we will not be able to authorize, create
or issue preferred stock senior to the Series H preferred
stock without the approval of holders of at least two-thirds of
the shares of our Series H preferred stock then outstanding.
Our ability to issue preferred stock in the future could
adversely affect the rights of holders of our Series H
preferred stock.
Our articles of incorporation authorize us to issue up to
250,000,000 shares of preferred stock in one or more series
on terms determined by our board of directors. As of
March 31, 2005, we had 43,063,970 shares of preferred
stock outstanding. Our future issuance of any series of
preferred stock under our articles of incorporation could
therefore effectively diminish our ability to pay dividends on,
and the liquidation preference of, our Series H preferred
stock.
THE COMPANY
We are a fully integrated real estate company that is organized
as a REIT. We are the managing general partner of and as of
March 31, 2005, owned approximately 62% of the partnership
interests in TRG. We conduct all of our operations through TRG.
We acquire and develop, finance, operate, manage and lease
regional shopping centers. In addition to acquiring and
developing new shopping centers, we acquire and redevelop and/or
expand existing centers. We currently own 21 urban and suburban
shopping centers located in nine states. Two new shopping
centers are under construction in New Jersey and North Carolina.
S-9
In addition to the 21 shopping centers, we own more than 99% of
The Taubman Company LLC, the entity that manages our shopping
centers and provides other services to us. We also own
development projects for future regional shopping centers.
We were incorporated in Michigan, and our executive offices are
located at 200 East Long Lake Road, Suite 300, P.O.
Box 200, Bloomfield Hills, Michigan 48303-0200, telephone:
(248) 258-6800.
RECENT DEVELOPMENTS
Re-designation of Officers
On June 6, 2005, we announced that Lisa A. Payne, who has
served as our chief financial officer since joining our company
in 1997, has assumed the additional responsibilities of vice
chairman and that William S. Taubman, who has served as
executive vice president since 1994, has been appointed chief
operating officer.
Audit Committee Financial Expert
The Audit Committee of our board of directors currently does not
have an audit committee financial expert as such
term is defined under the rules adopted by the SEC. In October
2004, Myron E. Ullman resigned from our board of directors
following his appointment as Chairman and Chief Executive
Officer of JCPenney to avoid any appearance of conflict of
interest. At the time of his resignation, Mr. Ullman had
been a member of the Audit Committee of our board of directors
and was deemed the committees sole audit committee
financial expert. Immediately following Mr. Ullmans
resignation, our board of directors began a search for an
individual qualified to become a member of our board who would
also meet the requirements of an audit committee financial
expert. Our board of directors has engaged a consultant to
assist with its search and is working to identify and evaluate
suitable candidates.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
DIVIDENDS
Our ratios of earnings to combined fixed charges and preferred
dividends for the quarter ended March 31, 2005 was 1.3x and
for the years ended December 31, 2004, 2003, 2002, 2001 and
2000 were 1.2x, 1.0x, 1.1x, 1.0x and 1.9x, respectively. For
this purpose, earnings have been calculated by taking our
earnings from continuing operations before income from equity
investees and adding fixed charges, amortization of previously
capitalized interest, and the distributed income of our
unconsolidated joint ventures, and subtracting capitalized
interest and the preferred distributions of TRG. Fixed charges
include interest expense, capitalized interest, the interest
portion of rent expense and the preferred distributions of TRG.
USE OF PROCEEDS
We estimate that the net proceeds, after deducting underwriting
fees and commissions and expenses payable by us, from this
offering will be approximately
$ million. We
expect to use the net proceeds from this offering to redeem a
portion of the shares of our outstanding 8.30% Series A
preferred stock at an aggregate redemption price of
$ ,
plus accrued but unpaid distributions. The redemption is
expected to take place on or about
July , 2005.
Pending application of the net proceeds as described above, we
will use the net proceeds from this offering to temporarily
repay a portion of the amount outstanding under our revolving
credit facility. The facility expires in February 2008, and as
of June 3, 2005, the facility had an outstanding balance of
$80.0 million and bore interest at a rate equal to LIBOR
plus 0.80%, or approximately 3.91%. An affiliate of KeyBanc
Capital Markets, which is an underwriter of this offering, is a
lender under our revolving credit facility and will receive
approximately 10.7% of the amount of the revolving credit
facility to be temporarily repaid from the net proceeds of this
offering.
S-10
Emerging Issues Task Force Topic D-42, The Effect of
Calculation of Earnings Per Share, provides, among other
things, that any excess of the fair value of the consideration
transferred to the holders of preferred stock redeemed over the
carrying amount of the preferred stock should be subtracted from
net earnings to determine net earnings available to common
stockholders in the calculation of earnings per share. As a
result of application of Topic D-42, we expect that the
redemption of a portion of the shares of our Series A
preferred stock with the net proceeds from this offering will
result in a
$ million
reduction in our earnings available to common shareholders for
the quarter ending September 30, 2005, representing the
difference between the carrying value and the redemption price
of the shares of Series A preferred stock being redeemed.
DESCRIPTION OF OUR SERIES H PREFERRED STOCK
Set forth below is a summary of the terms of our Series H
preferred stock. This summary supplements the description of the
general terms and conditions of the preferred stock set forth in
the accompanying prospectus and replaces the description in the
prospectus to the extent of any inconsistencies.
This summary is not complete and is qualified in its entirety by
reference to our articles of incorporation, as amended and
restated, the designating amendment (as described below) and our
bylaws, as restated and amended. Copies of these documents may
be obtained from us.
General
We are authorized to issue up to 250,000,000 shares of
preferred stock in one or more series. Our board of directors
also has the authority, without further shareholder approval, to
establish the terms of each series, including the preferences,
conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and
conditions of redemption, if any, by amending our articles of
incorporation.
Prior to the completion of the offering, our board of directors
will adopt and file with the State of Michigan an amendment,
which we refer to as the designating amendment, to our articles
of incorporation designating the terms of our Series H
preferred stock.
As of the date of this prospectus supplement, we have the
following authorized and outstanding series of preferred stock:
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
Number of | |
Series |
|
Authorized Shares | |
|
Outstanding Shares | |
|
|
| |
|
| |
8.30% Series A Cumulative Redeemable Preferred Stock
(liquidation preference of $25.00 per share)
|
|
|
8,000,000 |
|
|
|
8,000,000 |
|
Series B Non-Participating Convertible Preferred Stock
(liquidation preference of $0.001 per share)
|
|
|
40,000,000 |
|
|
|
31,063,970 |
|
8.20% Series F Cumulative Redeemable Preferred Stock
(liquidation preference of $100.00 per share)
|
|
|
300,000 |
|
|
|
|
|
8% Series G Cumulative Redeemable Preferred Stock
(liquidation preference of $25.00 per share)
|
|
|
4,000,000 |
|
|
|
4,000,000 |
|
None of our Series F preferred stock has been issued or is
yet outstanding. Currently, there is a corresponding amount of
issued and outstanding Series F preferred equity of TRG.
The Series F preferred equity holders of TRG may exchange
their Series F preferred equity in TRG for Series F
preferred shares in the Company on or after May 27, 2014.
We expect to call for
redemption shares
of our Series A preferred stock at an aggregate redemption
price of $ plus accrued but unpaid distributions to the
redemption date. It is expected that the redemption will take
place on or about July ,
2005. See Use of Proceeds.
S-11
We expect to list our Series H preferred stock on the NYSE
and expect that trading will commence within 30 days after
initial issuance of our Series H preferred stock. See
Underwriting.
Rank
Our Series H preferred stock will, with respect to dividend
rights and rights upon liquidation, winding up or dissolution,
rank:
|
|
|
|
|
junior to any other series of preferred stock established by us
in the future, the terms of which specifically provide that such
series ranks prior to our Series H preferred stock as to
the payment of dividends and distribution of assets upon
liquidation, winding up or dissolution; |
|
|
|
on a parity with our Series A preferred stock, our
Series F preferred stock (if and when issued), our
Series G preferred stock and any other series of preferred
stock established by us in the future, the terms of which
specifically provide that such series ranks on a parity with our
Series H preferred stock as to the payment of dividends and
distribution of assets upon liquidation, winding up or
dissolution; and |
|
|
|
prior to our common stock, our Series B preferred stock and
any other class or series of capital stock issued by us in the
future, the terms of which specifically provide that such class
or series of capital stock ranks junior to our Series H
preferred stock as to the payment of dividends and distribution
of assets upon liquidation, winding up or dissolution. |
Dividends
As holders of our Series H preferred stock, you will be
entitled to receive, when and as declared by our board of
directors, out of legally available funds, cumulative
preferential cash dividends at the rate
of % of the liquidation preference
per annum per share, which is equivalent to
$ per
share of Series H preferred stock per year.
Dividends on our Series H preferred stock will accrue and
be cumulative from the date of original issuance and will be
payable quarterly in arrears on or about the last day of March,
June, September and December of each year, or, if not a business
day, the next succeeding business day. The initial dividend on
our Series H preferred stock, which will be paid on
September 30, 2005 if declared by our board of directors,
will be for less than a full quarter. We will prorate and
compute this initial dividend and any other dividend payable for
a full or partial dividend period on the basis of a 360-day year
consisting of twelve 30-day months.
We will pay dividends to holders of record as they appear in our
stock records at the close of business on the applicable
dividend record date. The dividend record date will be the
fifteenth day of the calendar month in which the related
dividend payment date falls, or such other date that our board
of directors designates for the payment of dividends that is not
more than 30 nor less than 10 days prior to the dividend
payment date.
We will not declare dividends on our Series H preferred
stock, or pay or set apart for payment dividends on our
Series H preferred stock, if the terms of any of our
agreements, including any agreement relating to our
indebtedness, prohibit such a declaration, payment or setting
apart for payment or provide that such declaration, payment or
setting apart for payment would constitute a breach of or
default under such an agreement. Likewise, no dividends will be
declared by our board of directors or paid or set apart for
payment if such declaration or payment is restricted or
prohibited by law. Dividends on our Series H preferred
stock will accrue and accumulate, however, whether or not we
have earnings, whether or not there are funds legally available
for the payment of dividends and whether or not such dividends
are declared by our board of directors.
S-12
Except as described in the next paragraph, unless full
cumulative dividends on our Series H preferred stock have
been or contemporaneously are declared and paid or declared and
a sufficient sum set apart for payment for all past dividend
periods and the current dividend period:
|
|
|
|
|
no dividends (other than dividends in shares of our common
stock, our Series B preferred stock or other shares of our
capital stock ranking junior to our Series H preferred
stock as to dividend rights and rights upon liquidation, winding
up or dissolution) may be declared or paid or set aside for
payment, and no other distribution may be declared or made upon
our common stock, our Series A preferred stock, our
Series B preferred stock, our Series F preferred stock
(if and when issued), our Series G preferred stock or any
of our other capital stock ranking junior to or on a parity with
our Series H preferred stock as to dividend rights and
rights upon liquidation, winding up or dissolution; and |
|
|
|
no shares of our common stock, our Series A preferred
stock, our Series B preferred stock, our Series F
preferred stock (if and when issued), our Series G
preferred stock or any other shares of our capital stock ranking
junior to or on a parity with our Series H preferred stock
as to dividend rights and rights upon liquidation, winding up or
dissolution may be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any such shares) by us,
except by conversion into or exchange for other shares ranking
junior to our Series H preferred stock as to dividend
rights and rights upon liquidation, winding up or dissolution. |
When dividends are not paid in full (or we do not set apart a
sum sufficient to pay them in full) upon our Series H
preferred stock and the shares of any other series of preferred
stock ranking on a parity as to dividend rights with our
Series H preferred stock, all dividends declared upon our
Series H preferred stock and any other series of preferred
stock ranking on a parity as to dividend rights with our
Series H preferred stock will be declared pro rata, so that
the amount of dividends declared per share of our Series H
preferred stock and such other series of preferred stock will in
all cases bear to each other the same ratio that accrued
dividends per share of our Series H preferred stock and
such other series of preferred stock (which will not include any
accrual in respect of unpaid dividends for prior dividend
periods if such preferred stock does not have a cumulative
dividend) bear to each other.
No interest will be payable in respect of any dividend payment
on our Series H preferred stock that may be in arrears.
Holders of shares of our Series H preferred stock shall not
be entitled to any dividend, whether payable in cash, property,
or stock, in excess of the full cumulative dividends on our
Series H preferred stock to which they are entitled. Any
dividend payment made on shares of our Series H preferred
stock shall first be credited against the earliest accumulated
but unpaid dividend due with respect to such shares that remains
payable.
If, for any taxable year, we elect to designate as capital
gain dividends (as defined in Section 857 of the
Internal Revenue Code of 1986, as amended, or any successor
revenue code or section) any portion, which we refer to as the
Capital Gains Amount, of the total dividends (as
determined for Federal income tax purposes) paid or made
available for the year to holders of all classes and series of
shares of our capital stock, then the portion of the Capital
Gains Amount that will be allocable to holders of our
Series H preferred stock shall be in the same portion that
the total dividends paid or made available to the holders of our
Series H preferred stock for the year bears to the total
dividends for the year made with respect to all classes and
series of our outstanding shares of capital stock.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or
winding up of our affairs, you, as a holder of our Series H
preferred stock, will be entitled to receive out of our assets
available for distribution to shareholders (after payment or
provision for all of our debts and other liabilities) a
liquidation preference of $25.00 per share in cash (or
property having a fair market value as determined by our board
of directors valued at $25.00 per share) plus any accrued
and unpaid dividends to the date of payment,
S-13
before any distribution of assets is made to holders of common
stock, our Series B preferred stock, or any other class or
series of capital stock ranking junior to our Series H
preferred stock as to liquidation rights.
If upon any voluntary or involuntary liquidation, dissolution or
winding up of our affairs, our available assets are insufficient
to make full payment to holders of our Series H preferred
stock and other shares of our preferred stock ranking on a
parity with our Series H preferred stock as to liquidation
rights, then you and shareholders of shares of the preferred
stock ranking on a parity with our Series H preferred stock
will share ratably in any distribution of assets in proportion
to the full liquidating distributions to which they would
otherwise be respectively entitled.
Written notice of any such liquidation, dissolution or winding
up, stating the payment date or dates when, and the place or
places where, the amounts distributable in such circumstances
will be payable, shall be given to you by first class mail,
postage pre-paid, not less than 30 nor more than
60 days prior to the payment date stated therein, at your
address as it appears on our stock transfer records.
After payment of the full amount of the liquidating dividends to
which you are entitled, you will not have any right or claim to
any of our remaining assets.
Our consolidation or merger with or into another entity, the
merger of another entity with or into us, or the sale, lease or
conveyance of all or substantially all of our property or
business will, in each case, not be deemed to constitute a
liquidation, dissolution or winding up of our affairs for
purposes of the liquidation rights of our Series H
preferred stock.
Redemption
We may not redeem our Series H preferred stock prior to
July , 2010. On or after
July , 2010, we, at our
option, upon giving the notice described below, may redeem our
Series H preferred stock, in whole or from time to time in
part, for cash, at a redemption price of $25.00 per share,
plus all accrued and unpaid dividends to the date of redemption.
Notwithstanding the foregoing, unless full cumulative dividends
on all shares of our Series H preferred stock have been or
contemporaneously are declared and paid or declared and a
sufficient sum set apart for payment for all past dividend
periods and the then current dividend period, we may not:
|
|
|
|
|
redeem any shares of our Series H preferred stock or any
class or series of our capital stock ranking junior to or on a
parity with the Series H preferred stock as to dividends or
upon liquidation, dissolution or our winding up unless we
simultaneously redeem all shares of our Series H preferred
stock; or |
|
|
|
purchase or otherwise acquire directly or indirectly any shares
of our Series H preferred stock or any other shares of our
capital stock ranking junior to or on a parity with our
Series H preferred stock as to dividends or upon
liquidation, dissolution or our winding up, except by exchange
for shares of capital stock ranking junior to our Series H
preferred stock as to dividends and upon liquidation,
dissolution or our winding up. |
If a redemption date falls after a dividend record date and
prior to the corresponding dividend payment date, each holder of
shares of our Series H preferred stock at the close of
business on such dividend record date will be entitled to the
dividend payable on such shares on the corresponding dividend
payment date notwithstanding the redemption of such shares
before the dividend payment date. Except as provided in the
previous sentence, we will make no payment or allowance for
unpaid dividends, whether or not in arrears, on shares of our
Series H preferred stock to be redeemed.
If we redeem fewer than all of the shares of our Series H
preferred stock, we will determine the number of shares to be
redeemed. In such circumstances, the shares of our Series H
preferred stock to be redeemed will be selected pro rata or in
another equitable manner determined by us.
If we redeem our Series H preferred stock, we will mail
you, if you are a record holder of our Series H preferred
stock, a notice of redemption no less than 30 days nor more
than 60 days before the
S-14
redemption date. We will send the notice to your address as
shown on our stock transfer books. Each notice will state the
following:
|
|
|
|
|
the redemption date; |
|
|
|
the redemption price and accrued and unpaid dividends payable on
the redemption date; |
|
|
|
the number of shares of our Series H preferred stock to be
redeemed; |
|
|
|
the place where you may surrender certificates for payment of
the redemption price; |
|
|
|
that dividends on our Series H preferred stock to be
redeemed will cease to accrue on the redemption date; and |
|
|
|
if fewer than all shares of our Series H preferred stock by
you are to be redeemed, the number of shares of our
Series H preferred stock to be redeemed from you. |
From and after the redemption date (unless we default in payment
of the redemption price), all dividends will cease to accrue on
our Series H preferred stock designated for redemption, and
all of your rights as a holder of our Series H preferred
stock will terminate with respect to such shares, except the
right to receive the redemption price and all accumulated and
unpaid dividends up to the redemption date.
Our Series H preferred stock will not have a stated
maturity and will not be subject to any sinking fund or
mandatory redemption provisions, except as provided under
Restrictions on Transfer in the accompanying
prospectus.
We may redeem, in whole or in part, our Series A preferred
stock at any time, our Series F preferred stock, if issued,
beginning on May 27, 2009, and our Series G preferred
stock beginning on November 23, 2009, for cash redemption
prices of $25.00 per share, $100.00 per share and
$25.00 per share, respectively, plus all accumulated and
unpaid dividends on our Series A preferred stock, our
Series F preferred stock or our Series G preferred
stock, as applicable, to the applicable date of redemption. The
redemption price for our Series A preferred stock may be
paid by us solely out of sale proceeds of other capital stock.
Voting Rights
As a holder of our Series H preferred stock, you will not
have any voting rights, except as set forth below or as required
by law. On any matters in which our Series H preferred
stock are entitled to vote, each share will be entitled to one
vote.
Whenever dividends on our Series H preferred stock are in
arrears for six or more quarterly periods (whether or not
consecutive), the holders of our Series H preferred stock
will be entitled, voting together as a single class with holders
of all other series of our preferred stock upon which voting
rights have been conferred and are exercisable (which includes
our Series A preferred stock, our Series F preferred
stock (if and when issued) and our Series G preferred
stock), to elect a total of two additional directors to our
board of directors.
Under our articles of incorporation, we may not, without the
affirmative vote of holders of at least two-thirds of the
outstanding shares of our Series H preferred stock voting
separately as a class:
|
|
|
|
|
authorize, create or increase the authorized or issued amount of
any class or series of capital stock ranking senior to our
Series H preferred stock with respect to the payment of
dividends or the distribution of assets upon our liquidation,
dissolution or winding up; |
|
|
|
reclassify any authorized capital stock into, or create,
authorize or issue any obligation or security convertible into,
exchangeable for or evidencing the right to purchase, any such
shares; or |
|
|
|
amend, alter or repeal the provisions of our articles of
incorporation (including the designating amendment), whether by
merger, consolidation or otherwise, so as to materially and
adversely affect any right, preference, privilege or voting
power of our Series H preferred stock or the holders
thereof. |
S-15
However, with respect to any such amendment, alteration or
repeal of the provisions of our articles of incorporation
(including the designating amendment), whether by merger,
consolidation or otherwise, so long as our Series H
preferred stock remains outstanding with the terms thereof
materially unchanged, taking into account that, upon the
occurrence of such event, we may not be the surviving entity and
such surviving entity may thereafter be the issuer of our
Series H preferred stock, the occurrence of any such event
will not be deemed to materially and adversely affect the
rights, preferences, privileges or voting power of our
Series H preferred stock. In addition, any increase in the
amount of authorized preferred stock, the creation or issuance
of any other series of preferred stock or any increase in the
amount of authorized shares of our Series H preferred stock
or any other series of our preferred stock, in each case ranking
on a parity with or junior to our Series H preferred stock
with respect to the payment of dividends and the distribution of
assets upon our liquidation, dissolution or winding up, will not
be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers. Holders of our
Series A preferred stock and Series G preferred stock
have, and holders of our Series F preferred stock (if and
when issued) will have, comparable class voting rights under our
articles of incorporation.
In contrast to the voting rights of our Series A preferred
stock, our Series F preferred stock (if and when issued),
our Series G preferred stock, and our Series H
preferred stock, our Series B preferred stock, which is
held by unitholders of TRG, votes together with our common stock
on all matters as a single class. In addition, the holders of
our Series B preferred stock (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 our
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. At all times when the
holders of our Series B preferred stock, voting as a
separate class, are entitled to designate nominees for election
as directors, (a) our board of directors is required to
consist of nine directors (other than during any vacancy caused
by the death, resignation, or removal of a director), plus the
number of directors that any series of preferred stock, voting
separately as a class, has the right to elect because of a
default in the payment of preferential dividends due on such
series, and (b) a majority of our directors shall be
independent. For these purposes, an individual is
deemed independent as long as the individual is not
one of our officers or employees. Further, as long as shares of
our Series B preferred stock remain outstanding, we may
not, without the affirmative vote or consent of the holders of a
majority of the outstanding shares of our Series B
preferred stock (voting as a separate class):
|
|
|
|
|
create, authorize, or issue any securities or any obligation or
security convertible into or evidencing the right to purchase
any such securities, the issuance of which could adversely and
(relative to our other outstanding capital stock) disparately
affect the voting power or voting rights of our Series B
preferred stock or the holders of our Series B preferred
stock (including the rights of our Series B preferred stock
to vote together with our common stock, and disregarding, for
these purposes, the right of any series of our preferred stock,
voting as a separate class, to elect directors as the result of
any default in the payment of a preferential dividend to which
the holders of such series of preferred stock are entitled); |
|
|
|
amend, alter, or repeal the provisions of our articles of
incorporation, whether by merger, consolidation, or otherwise,
in a manner that could adversely affect the voting power or
voting rights of our Series B preferred stock or the
holders of our Series B preferred stock (including the
rights of our Series B preferred stock to vote together
with our common stock, and disregarding, for these purposes, the
right of any series of our preferred stock, voting as a separate
class, to elect directors as the result of the default in the
payment of a preferential dividend to which the holders of such
series of preferred stock are entitled); |
|
|
|
be a party to a material transaction, including, without
limitation, a merger, consolidation, or share exchange (a
Series B transaction) if such Series B
transaction could adversely and (relative to our other
outstanding capital stock) disparately affect the voting power
or voting rights of our Series B preferred stock or the
holders of our Series B preferred stock (including the
rights the rights of our Series B preferred stock to vote
together with our common stock, and disregarding, for these
purposes, the right of any series of our preferred stock, voting
as a separate class, to elect |
S-16
|
|
|
|
|
directors as the result of any default in the payment of a
preferential dividend to which the holders of such series of
preferred stock are entitled). These provisions apply to
successive Series B transactions; or |
|
|
|
issue any shares of our Series B preferred stock to anyone
other than a unitholder of TRG. |
Our Series B preferred stock is convertible and will
automatically be converted upon exchange of TRG units by a
holder thereof, into common stock at a conversion ratio of
14,000 shares of our Series B preferred stock for one
share of our common stock. Our Series B preferred stock
does not have any dividend rights.
In addition to the voting rights set forth in our articles of
incorporation, holders of our shares of preferred stock have
certain voting rights pursuant to the Michigan Business
Corporation Act. Pursuant to such act, 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 of incorporation if the amendment would increase or
decrease the aggregate number of authorized shares 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 of incorporation 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 of incorporation, 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 of incorporation, under the
Michigan Business Corporation Act 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.
No Conversion
Our Series H preferred stock is not convertible into or
exchangeable for our property or securities.
Restrictions on Ownership and Transfer
Our Series H preferred stock is subject to general
restrictions on ownership and transferability including the
ownership limits and excess stock provisions of our articles of
incorporation. For more information, please see the section
titled Restrictions on Transfer in the accompanying
prospectus.
Book-Entry Only Issuance The Depository
Trust Company
Our Series H preferred stock will be represented by one
global security that will be deposited with and registered in
the name of The Depository Trust Company, or DTC or its
nominee. This means that we will not issue certificates to you
for the shares. One global security will be issued to DTC, who
will keep a computerized record of its participants (for
example, your broker) whose clients have purchased the shares.
Each participant will then keep a record of its clients. Unless
it is exchanged in whole or in part for a certificated security,
a global security may not be transferred. However, DTC, its
nominees, and their successors may transfer a global security as
a whole to one another. Beneficial interests in the global
security will be shown on, and transfers of the global security
will be made only through, records maintained by DTC and its
participants.
S-17
DTC is a limited-purpose trust company organized under the New
York Banking Law, a banking organization within the
meaning of the New York Banking Law, a member of the United
States Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform
Commercial Code and a clearing agency registered
under the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC holds securities that its participants
(direct participants) deposit with DTC. DTC also records the
settlement among direct participants of securities transactions,
such as transfers and pledges, in deposited securities through
computerized records for direct participants accounts.
This eliminates the need to exchange certificates. Direct
participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other
organizations.
DTCs book-entry system is also used by other organizations
such as securities brokers and dealers, banks and trust
companies that work through a direct participant. The rules that
apply to DTC and its participants are on file with the SEC.
DTC is owned by a number of its direct participants and by the
NYSE, the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc.
When you purchase shares through the DTC system, the purchases
must be made by or through a direct participant who will receive
credit for the shares on DTCs records. Since you actually
own the shares, you are the beneficial owner and your ownership
interest will only be recorded on the direct (or indirect)
participants records. DTC has no knowledge of your
individual ownership of our Series H preferred stock.
DTCs records only show the identity of the direct
participants and the amount of the shares held by or through
them. You will not receive a written confirmation of your
purchase or sale or any periodic account statement directly from
DTC. You will receive these from your direct (or indirect)
participant. Thus, the direct (or indirect) participants are
responsible for keeping accurate account of the holdings of
their customers like you.
We will wire dividend payments to DTCs nominee, and we
will treat DTCs nominee as the owner of the global
security for all purposes. Accordingly, we will have no direct
responsibility or liability to pay amounts due on the global
security to you or any other beneficial owners in the global
security.
Any redemption notices will be sent by us directly to DTC, who
will in turn inform the direct participants, who will then
contact you as a beneficial holder.
It is DTCs current practice, upon receipt of any payment
of dividends or liquidation amount, to credit direct
participants accounts on the payment date based on their
holdings of beneficial interests in the global securities as
shown on DTCs records. In addition, it is DTCs
current practice to assign any consenting or voting rights to
direct participants whose accounts are credited with preferred
securities on a record date, by using an omnibus proxy. Payments
by participants to owners of beneficial interests in the global
securities, and voting by participants, will be based on the
customary practices between the participants and owners of
beneficial interests, as is the case with the shares held for
the account of customers registered in street name.
However, payments will be the responsibility of the participants
and not of DTC or us.
Our Series H preferred stock represented by a global
security will be exchangeable for certificated securities with
the same terms in authorized denominations only if:
|
|
|
|
|
DTC is unwilling or unable to continue as depositary or if DTC
ceases to be clearing agency registered under applicable law and
a successor depositary is not appointed by us within
90 days; or |
|
|
|
we determine not to require all of our Series H preferred
stock to be represented by a global security. |
If the book-entry-only system is discontinued, our transfer
agent will keep the registration books for our Series H
preferred stock at its corporate office.
S-18
Transfer Agent
The transfer agent, registrar and dividend disbursing agent for
our Series H preferred stock will be Mellon Investor
Services LLC.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
This section updates and replaces the discussion under
Federal Income Tax Considerations in the
accompanying prospectus. A description of the material
U.S. Federal income tax consequences relevant to the
acquisition, ownership and disposition of our Series H
preferred stock is set forth below under the captions
Taxation of Taxable
U.S. Shareholders, Taxation of
Tax-Exempt Shareholders, Redemption of
Preferred Stock and Taxation of
Non-U.S. Shareholders. Also set forth below is a
summary of the material U.S. Federal income tax
considerations relating to our election to be taxed as a REIT
and the tax aspects of our investment in TRG. As used in this
section of the prospectus supplement entitled 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.
As you review this discussion, you should keep in mind that:
|
|
|
|
|
the tax consequences to you may vary depending on your
particular tax situation; |
|
|
|
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
Code; |
|
|
|
this summary does not address state, local or non-U.S. tax
considerations; |
|
|
|
this summary deals only with our shareholders who hold their
shares as capital assets, within the meaning of
Section 1221 of the Code; and |
|
|
|
this discussion is not intended to be and should not be
construed as tax advice. |
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.
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 (through actual annual (or
in some cases quarterly) operating results, asset
diversification, source of income, distribution levels and
diversity of stock ownership) 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.
S-19
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 ended December 31,
2001 through December 31, 2004, 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, 2005 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 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 securities of any
subsequent change in the matters stated, represented, covenanted
or assumed, or of 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 upon our
ability, and the ability of certain affiliated entities, to
meet, through actual operating results, certain requirements
including requirements relating to distribution levels,
diversity of stock ownership, composition of assets and sources
of income, and the various qualification tests imposed under the
Code, the results of which have not been and will not be
reviewed by Honigman Miller Schwartz and Cohn LLP. Accordingly,
no assurance can be given that the actual results of our
operations for any one taxable year 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 results from
investment in 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 generally will be subject to lower aggregate
rates of Federal income taxation than if such income were earned
by a regular corporation, subjected to tax at regular corporate
rates and taxed again on distribution either at capital gain
rates or the effective rate paid by a corporate recipient
entitled to the benefit of the dividends received deduction.
S-20
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:
|
|
|
|
|
First, we will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net
capital gains. |
|
|
|
Second, we may be subject to the alternative minimum
tax on our items of tax preference under some
circumstances. |
|
|
|
Third, if we have (a) net income from the sale or other
disposition of foreclosure property (defined
generally as property we acquired 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. |
|
|
|
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). |
|
|
|
Fifth, if we should fail to satisfy the 75% gross income test or
the 95% gross income test discussed below, but nonetheless
maintain our qualification as a REIT because such failure is due
to reasonable cause and not due to willful neglect and certain
other requirements are met, we will be subject to a 100% tax on
an amount equal to (1) the greater 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 (or, for
taxable years beginning before October 23, 2004, the amount
by which 90% of our gross income exceeds the amount of income
qualifying under the 95% gross income test), multiplied, in each
case, by (2) a fraction intended to reflect our
profitability. |
|
|
|
Sixth, if we should fail to satisfy the asset tests discussed
below in any taxable year beginning after October 22, 2004
(and a de minimis exception does not apply), or we fail certain
other tests, the satisfaction of which are required to maintain
our qualification as a REIT, and in either case our failure is
due to reasonable cause and not due to willful neglect, we may
elect to pay an excise tax of $50,000 per failure or, in the
case of failure to satisfy the asset tests, if such amount is
greater, an amount equal to the product of the highest corporate
income tax rate (currently 35%) and the net income from the
nonqualifying assets. |
|
|
|
Seventh, 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. |
|
|
|
Eighth, 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). |
|
|
|
Ninth, 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. |
S-21
|
|
|
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) of which during the last half of each taxable year not
more than 50% in value of its outstanding stock 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 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 and
include 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 taxable 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 none of the joint ventures are 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
S-22
described below). For taxable years beginning after
October 22, 2004, 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 proportional 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 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.
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 of receipts or sales.
For taxable years beginning before October 23, 2004, any
gross income arising from certain hedging transactions into
which we entered to reduce the interest rate risks with respect
to any borrowings incurred or to be incurred by us to acquire or
carry real estate assets would have been treated as qualifying
income under the 95% gross income test. For taxable years
beginning after October 22, 2004, this rule has been
changed to exclude from the 95% gross income test any gross
income arising from a clearly identified hedging
transaction into which we enter to manage the risk of interest
rate movements, price changes or currency fluctuations with
respect to borrowings incurred or to be incurred by us to
acquire or carry real estate assets.
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:
|
|
|
|
|
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; |
|
|
|
Second, except for rents received from a taxable REIT
subsidiary, as discussed below, rents received from a tenant
will not qualify as rents from real property in
satisfying the gross income tests if the REIT, or an actual or
constructive owner of 10% or more of the REIT, actually or
constructively owns 10% or more of the interests in such tenant
(a related-party tenant); |
|
|
|
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; |
|
|
|
Fourth, if rent is received from a taxable REIT subsidiary of a
REIT with respect to any property, such rent will not qualify as
rents from real property in satisfying the gross
income tests if more than 10% of the leased space at the
property is leased to taxable REIT subsidiaries and
related-party tenants, or the rents received from such property
are not substantially comparable to rents paid by other tenants
(except related-party tenants) of the REITs property for
comparable space; and |
|
|
|
Fifth, 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 |
S-23
|
|
|
|
|
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. |
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 Taub-Co Management IV, Inc.
(Taub-Co IV), one of our taxable REIT subsidiaries,
from TRGs interest in Taub-Co IV.
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 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 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 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 not more than 10% of the
leased space at such property would be leased to related-party
tenants and our taxable REIT subsidiaries and the rents received
from such leases would be substantially comparable to those
received from other tenants (except rent from related-party
tenants) of TRG or the entities that own our shopping centers
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 IV, 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 an independent contractor
will perform any services required to be performed by an
independent contractor for rental income from 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 limited
partnership 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
S-24
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. Generally, we may avail ourselves of the
relief provisions if:
|
|
|
|
|
our failure to meet these tests was due to reasonable cause and
not due to willful neglect; and |
|
|
|
(i) for taxable years beginning before October 23,
2004, we attach to our Federal income tax return a schedule of
the sources of our income and any incorrect information on the
schedule is not due to fraud with the intent to evade tax, or
(ii) for taxable years beginning after October 22,
2004, following identification of the failure, we file with the
IRS a schedule describing each item of our gross income. |
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
apply, and we retain our status as a REIT, a tax would be
imposed with respect to our excess net 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.
|
|
|
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 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.
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.
|
|
|
|
|
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 real estate assets, stock
or debt instruments held for not more than one year 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
offering of our Company, cash, cash items (including
receivables), and government securities. |
|
|
|
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. |
S-25
|
|
|
|
|
Third, not more than 20% of the value of our total assets may
consist of securities of one or more taxable REIT subsidiaries. |
|
|
|
Fourth, except with respect to 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. |
Securities issued by a corporation or partnership that would
otherwise qualify as straight debt will not so
qualify if we own (and a taxable REIT subsidiary in which we own
a greater than 50% interest, as measured by vote or value, owns)
non-straight debt 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/or (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.
For taxable years beginning after October 22, 2004, 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 20%
of the value of our assets, and we do not expect that it will
exceed 20% in the future.
We currently hold an indirect stock interest in
T-I REIT, Inc., which has elected to be taxed as a
REIT for Federal income tax purposes. As a REIT,
T-I REIT, Inc. is subject to the various REIT
qualification requirements. We believe that
T-I REIT, Inc. has been organized and has operated in
a manner to qualify for taxation as a REIT for Federal income
tax purposes and will continue to be organized and operated in
this manner. If T-I REIT, Inc. were to fail to qualify
as a REIT, our interest in T-I REIT, Inc. would cease
to be a qualifying real estate asset for purposes of the 75%
gross asset test and would become subject to the 5% asset test,
the 10% voting stock limitation and the 10% value limitation
generally applicable to our ownership in corporations (other
than REITs, qualified REIT subsidiaries and taxable REIT
subsidiaries). If T-I REIT, Inc. were to fail to qualify as a
REIT, we would not meet the 10% voting stock limitation and the
10% value limitation with respect to our interest in T-I REIT,
Inc., and we would fail to qualify as a REIT.
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
S-26
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,
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 an additional capital contribution of
proceeds to TRG from an offering of our shares of beneficial
interest.
For taxable years beginning after October 22, 2004, 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). If we fail to meet any of the asset tests
described above in a taxable year beginning after
October 22, 2004, 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.
|
|
|
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 20% 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.
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 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, will be (unless
certain exceptions apply) 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
S-27
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. If we dispose of any asset having
built-in gain during the 10-year period beginning on the date
that we acquired the asset, the built-in gain (after tax), if
any, recognized on the disposition of such asset would be
included in our REIT taxable income for purposes of
the distribution requirement.
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, as adjusted, 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. Currently, our REIT
taxable income is less than the cash flow we receive from TRG as
a result of the allowance of depreciation and other non-cash
deductions in computing REIT taxable income. Accordingly, we
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.
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 for such year,
S-28
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. Because the amount
actually distributed is deemed, for purposes of these
calculations, to include amounts on which the REIT was required
to pay a corporate-level tax, such as retained capital gains,
the 4% excise tax is not in fact imposed on retained capital
gains. Any REIT taxable income and net capital gain on which
this excise tax is imposed for any year is treated as an amount
distributed during that year for purposes of calculating such
tax.
Failure to Qualify
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 Series H preferred stock who (for
United States Federal income tax purposes):
|
|
|
|
|
is a citizen or resident of the United States; |
|
|
|
is a corporation, partnership, or other entity created or
organized in or under the laws of the United States or of any
state thereof or in the District of Columbia, unless, in the
case of an entity taxed as a partnership, Treasury Regulations
provide otherwise; |
|
|
|
is an estate the income of which is subject to United States
Federal income taxation regardless of its source; or |
|
|
|
is a trust if 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. |
Notwithstanding the preceding sentence, to the extent provided
in Treasury Regulations, certain trusts in existence, and
treated as United States persons, prior to August 20, 1996,
and that elect to continue to be treated as United States
persons, shall also be considered U.S. shareholders.
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 common stock. 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
S-29
treatment will reduce the adjusted basis which 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 gains (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. We allocate capital gain
dividends between the holders of preferred stock and common
stock based on the ratio that the total amount of dividends paid
or made available to a class of stock for the taxable year bears
to the total dividends paid or made available to all classes of
stock for the taxable year.
|
|
|
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:
|
|
|
|
|
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); |
|
|
|
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; |
|
|
|
receive a credit or refund for the amount of tax deemed paid by
it; |
|
|
|
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 |
|
|
|
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. |
|
|
|
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 |
|
|
(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.
S-30
|
|
|
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 as capital gain, 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.
|
|
|
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. Distributions we make
(to the extent they do not constitute a return of capital)
generally will be treated as investment income for purposes of
computing the investment interest limitation. Gain arising from
the sale or other disposition of our shares, however, may not be
treated as investment income in some circumstances.
If you are a U.S. shareholder and you sell or dispose of
your shares, you 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 you
receive on the sale or other disposition and your adjusted basis
in the shares for tax purposes. This gain or loss will be
capital if you have held the shares as a capital asset and will
be long-term capital gain or loss if you have held the shares
for more than one year. In general, if you are a
U.S. shareholder and you recognize loss upon the sale or
other disposition of shares that you have held for six months or
less (after applying holding period rules set forth in the
Code), the loss you recognize will be treated as a long-term
capital loss, to the extent you received distributions from us
which were required to be treated as long-term capital gains or
to the extent you were required to recognize long-term capital
gain in respect of our retained net long-term capital gain, as
described above.
S-31
|
|
|
Reduction in Certain Tax Rates |
The Jobs and Growth Tax Relief Reconciliation Act of 2003
reduced the maximum individual tax rate for long-term capital
gains generally from 20% to 15% (for sales occurring through
December 31, 2008) and for ordinary income generally from
38.6% to 35% (for tax years through 2008). Generally, dividends
from non-REIT C corporations will be taxed at capital gain
rates, as opposed to ordinary income rates (for tax years
through 2008). Without future congressional action, in 2009 the
maximum tax rate on long-term capital gains will return to 20%,
and 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% in 2011. Because we are
not generally subject to Federal income tax on the portion of
our REIT taxable income or capital gains distributed to our
stockholders, our dividends will generally not be eligible for
the new 15% tax rate on dividends. As a result, our ordinary
REIT dividends will continue to 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:
|
|
|
|
|
your long-term capital gains, if any, recognized on the
disposition of our shares; |
|
|
|
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 |
|
|
|
our qualified dividend income. |
|
|
|
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
currently 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.
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 (except tax-exempt shareholders
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, 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
S-32
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:
|
|
|
|
|
is described in Section 401(a) of the Code; |
|
|
|
is tax-exempt under Section 501(a) of the Code; and |
|
|
|
holds more than 10% (by value) of the interests in the REIT. |
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:
|
|
|
|
|
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 |
|
|
|
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. |
The percentage of any REIT dividend treated as UBTI is equal to
the ratio of:
|
|
|
|
|
the UBTI earned by the REIT (treating the REIT as if it were a
qualified trust and therefore subject to tax on UBTI) to |
|
|
|
the total gross income of the REIT. |
A de minimis exception applies where the percentage is
less than 5% for any year.
Redemption of Preferred Stock
A redemption of the preferred stock 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 (i) is substantially
disproportionate with respect to the shareholder,
(ii) results in a complete termination of the
shareholders interest in our Company, or (iii) is
not essentially equivalent to a dividend with
respect to the 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
shareholder as well as preferred stock 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 shareholder of preferred stock owns (actually or
constructively) no shares of our common stock or an
insubstantial percentage of our common stock, a redemption of
the preferred stock held by such 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 shareholders of preferred stock should
consult their own tax advisors to determine such tax treatment.
If a redemption of preferred stock is treated as a distribution
taxable as a dividend, the shareholders adjusted basis in
the redeemed preferred stock for tax purposes will be
transferred to such shareholders remaining shares of our
Company. If the shareholder owns no other shares of our Company,
such basis may, under certain circumstances, be transferred to a
related person or it may be lost entirely.
S-33
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.
Unless a non-U.S. shareholder owns more than 5% of our
Series H preferred stock at any time during the taxable
year, or our Series H preferred stock is not regularly
traded on an established securities market located in the United
States, a distribution made by us with respect to our stock 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 (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 |
S-34
|
|
|
(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 are true:
|
|
|
|
|
investment in the 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 |
|
|
|
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 has a tax home in the
United States, in which case the nonresident alien individual
will be taxed at a rate equal to 30% of the individuals
capital gains. |
Pursuant to the Foreign Investment in Real Property Tax Act of
1980 (FIRPTA), distributions made by us with respect
to our Series H preferred stock to
non-U.S. shareholders that hold more than 5% of our
Series H preferred stock 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 our Series H preferred stock if our Series H
preferred stock 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 our
Series H preferred stock at any time during the taxable
year, or our Series H preferred stock 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.
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.
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
S-35
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 shares would be subject to United States taxation under
FIRPTA as a sale of a United States real property
interest, assuming our Series H preferred stock is
regularly traded (as defined by applicable Treasury Regulations)
on an established securities market (e.g., the New York
Stock Exchange), only if the seller owned (actually or
constructively) more than 5% of our Series H preferred stock
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, a special alternate 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.
Notwithstanding the foregoing, a non-U.S. shareholder who
recognizes gain from the sale or exchange of our Series H
preferred stock which is not subject to FIRPTA will be subject
to United States taxation if:
|
|
|
|
|
the non-U.S. shareholders investment is effectively
connected with a United States trade or business (or, if an
income treaty applies, is attributable to a United States
permanent establishment); or |
|
|
|
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 has a tax home in the United
States. In this case, the non-U.S. shareholder will be subject
to a 30% United States withholding tax on the amount of the gain. |
|
|
|
Backup Withholding Tax and Information Reporting |
Backup withholding tax generally is a withholding tax imposed on
certain payments to persons that 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.
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:
|
|
|
|
|
is a United States person; |
|
|
|
derives 50% or more of its gross income for certain periods from
the conduct of a trade or business in the United States; |
|
|
|
is a controlled foreign corporation (generally, a
foreign corporation controlled by United States shareholders)
for United States tax purposes; or |
|
|
|
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. |
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.
S-36
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.
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:
|
|
|
|
|
the entity had a reasonable basis for its claimed classification; |
|
|
|
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 |
|
|
|
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. |
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 also believe that the trust in which we own an interest
(The TRG Trust) is 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 such
trust for Federal income tax purposes. If such challenge were
sustained by a court, such 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 administrative or
judicial changes would not modify these conclusions.
If for any reason, The TRG Trust were taxable as a corporation
rather than as a trust for Federal income tax purposes, we would
be unable to satisfy the asset requirements for REIT status.
See Asset Tests. If such trust were taxable
as a corporation, items of income and deduction would not pass
through to its beneficiary, which would be treated as a
shareholder for tax purposes. The trust would be required to pay
income tax at corporate tax rates on its net income, and
distributions would constitute dividends that would not be
deductible in computing the trusts taxable income.
S-37
|
|
|
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. 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.
Accordingly, depreciation on any property contributed to TRG is
allocated to each contributing partner in a manner designed to
reduce the difference between such propertys fair market
value and its tax basis, using methods that are intended to be
consistent with statutory intent and Treasury Regulations under
Section 704(c) of the Code. Any income, gain, loss, or
deduction in excess of that specially allocated to the
contributing partners pursuant to Section 704(c) of the
Code is allocated to TRGs partners in accordance with
their percentage interests.
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 and the restatement of its capital accounts to fair
market value, any built-in gain (or Section 704(c)
gain) attributable to appreciation in the regional
shopping center interests prior to the admission of the Company
to TRG in late 1992, must, when recognized, be allocated to the
contributing partners. Thus, 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 portion of Section 704(c)
gain in the event of a disposition of either property. Further,
depreciation will be allocated to reduce the disparity between
fair market value and tax basis with respect to appreciated
property contributed to TRG or otherwise 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
above, contributed solely unappreciated property. On the other
hand, upon a revaluation of TRGs assets, we will be
treated as having Section 704(c) gain equal to the
difference between their revalued fair market value and 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. In addition, upon a
taxable disposition of such revalued assets, we will be
allocated our share of the remaining difference between their
revalued fair market value and our share of the tax basis of
TRGs assets.
Upon the sale of an asset, TRG is required 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 provisions in TRGs partnership agreement
should permit us to distribute 100% of our capital
S-38
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, however, be treated as
income from a prohibited transaction that is subject to a 100%
penalty tax. See Prohibited Transaction Income,
above. Such prohibited transaction income will also adversely
affect our ability to satisfy the income tests for REIT status.
See 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 The Taxable
REIT Subsidiary, above.
Other Tax Consequences
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 a disposition of limited
partnership units or an investment in our shares.
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 Internal Revenue Service
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.
S-39
UNDERWRITING
Subject to the terms and conditions stated in the underwriting
agreement, each underwriter named below has agreed to purchase,
and we have agreed to sell to each underwriter the number of our
shares of Series H preferred stock set forth opposite each
underwriters name.
|
|
|
|
|
|
Name |
|
Number of Shares | |
|
|
| |
Wachovia Capital Markets, LLC
|
|
|
|
|
RBC Dain Rauscher Inc.
|
|
|
|
|
KeyBanc Capital Markets, a Division of McDonald Investments
Inc.
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
The underwriting agreement provides that the obligations of the
several underwriters to purchase our Series H preferred
stock included in this offering are subject to approval of legal
matters by counsel and to other conditions. The underwriters are
obligated to purchase all of the shares if they purchase any of
the shares.
The underwriters, for whom Wachovia Capital Markets, LLC is
acting as representative, propose to offer some of our
Series H preferred stock directly to the public at the
public offering price set forth on the cover page of this
prospectus supplement and some of our Series H preferred
stock to dealers at the public offering price less a concession
not to exceed
$ per
share. The underwriters may allow, and dealers may reallow, a
concession not to exceed
$ per
share on sales to other dealers.
In connection with the offering of the Series H preferred
stock, we have agreed that for 60 days after the date of
this prospectus supplement, we will not offer, sell or otherwise
dispose of, directly or indirectly, any other preferred stock
substantially similar to our Series H preferred stock,
without the prior written consent of Wachovia Capital
Markets, LLC.
The following table shows the per share and total public
offering price, underwriting discount and proceeds, before
expenses, to us.
|
|
|
|
|
|
|
|
|
|
|
Per Share | |
|
Total | |
|
|
| |
|
| |
Public offering price
|
|
$ |
25.0000 |
|
|
$ |
|
|
Underwriting discount and commissions
|
|
$ |
|
|
|
$ |
|
|
Proceeds, before expenses, to us
|
|
$ |
|
|
|
$ |
|
|
Prior to the offering, there has been no public market for our
Series H preferred stock. We intend to apply to have our
Series H preferred stock listed on the NYSE, and if the
application is approved, we expect trading in our Series H
preferred stock on the NYSE to begin within 30 days after
the original issue date. In order to meet the requirements for
listing our Series H preferred stock, the underwriters will
undertake to sell lots of 100 or more shares of our
Series H preferred stock to a minimum of
100 beneficial holders.
Our Series H preferred stock is a new issue of securities
with no established trading market, but we have been advised by
the underwriters that they intend to make a market in our
Series H preferred stock. The underwriters are not
obligated, however, to do so and may discontinue their market
making at any time without notice. No assurance can be given as
to the liquidity of the trading market for our Series H
preferred stock.
In order to facilitate the offering of our Series H
preferred stock, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of our
Series H preferred stock. Specifically, the underwriters
may overallot in connection with the offering, creating a short
position in our Series H preferred stock for their own
account. In addition, to cover overallotments or to stabilize
the price of the Series H preferred stock, the underwriters
may bid for, and purchase shares of our Series H preferred
stock in the open market. Finally, the underwriters may reclaim
selling concessions allowed to an underwriter or a dealer for
distributing our Series H preferred stock in the offering,
if they repurchase
S-40
previously distributed Series H preferred stock in
transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price for our Series H
preferred stock above independent market levels. The
underwriters are not required to engage in these activities and
may end any of these activities at any time.
We expect to incur expenses of approximately
$ in
connection with this offering.
Certain of the underwriters have performed investment banking,
lending and advisory services for us from time to time for which
they have received customary fees and expenses. The underwriters
may, from time to time, engage in transactions with and perform
services for us in the ordinary course of their business. An
affiliate of one of the underwriters of this offering is a
lender under our revolving credit facility and will receive some
of the proceeds of this offering that will be used to
temporarily repay a portion of the amount outstanding under our
revolving credit facility. See Use of Proceeds.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be
required to make because of any of those liabilities.
We expect that delivery of our Series H preferred stock
will be made against payment therefor on or about
July , 2005, which is
the business
day following the date of this prospectus supplement. Under
Rule 15c6-1 under the Securities Exchange Act of 1934,
trades in the secondary market generally are required to settle
in three business days, unless the parties to any such trade
expressly agree otherwise. Accordingly, purchasers who wish to
trade the shares before
July , 2005 will be required,
by virtue of the fact that any such trade will settle in more
than three business days, to specify an alternative settlement
cycle at the time of any such trade to prevent a failed
settlement, and should consult their own advisor with respect to
these matters.
LEGAL MATTERS
The legality of the Series H preferred stock and our
qualification as a REIT for Federal income tax purposes will be
passed upon for us by Honigman Miller Schwartz and Cohn LLP,
Detroit, Michigan. Partners of Honigman Miller Schwartz and Cohn
LLP own an aggregate of approximately 57,000 shares of our
common stock, and Jeffery H. Miro, a partner of Honigman Miller
Schwartz and Cohn LLP, is our corporate Secretary. The legality
of our Series H preferred stock will be passed upon for the
underwriters by Dickinson Wright PLLC, Detroit, Michigan.
Hogan & Hartson L.L.P. has acted as counsel to the
underwriters with respect to certain matters.
EXPERTS
Our consolidated financial statements and related financial
statement schedules as of and for the year ended
December 31, 2004, the combined financial statements and
related financial statement schedules of the Unconsolidated
Joint Ventures of The Taubman Realty Group Limited Partnership
as of and for the year ended December 31, 2004, and
managements assessment of the effectiveness of internal
control over financial reporting as of December 31, 2004,
have been incorporated by reference herein and in the
registration statement 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. Our consolidated
financial statements and the combined financial statements of
the Unconsolidated Joint Ventures of The Taubman Realty Group
Limited Partnership as of December 31, 2003 and for the two
years ended December 31, 2003, incorporated in this
prospectus supplement by reference from our annual report on
Form 10-K for the year ended December 31, 2004, have
been audited by Deloitte & Touche LLP, independent
registered public accounting firm, as stated in their reports,
which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
S-41
PROSPECTUS
$500,000,000
TAUBMAN CENTERS, INC.
COMMON STOCK, PREFERRED STOCK,
DEPOSITARY SHARES, AND WARRANTS
Taubman Centers, Inc. (the
Company) may offer from time to time (i) shares of
the Companys common stock, par value $0.01 per share
(Common Stock), (ii) in one or more series,
shares of preferred stock (Preferred Stock),
(iii) in one or more series, shares of Preferred Stock
represented by depositary shares (Depositary
Shares), and (iv) warrants to purchase Common Stock
or Preferred Stock (Warrants) with an aggregate
public offering price of up to $500 million in amounts, at
prices, and on terms to be determined at the time of the
offering. The Common Stock, Preferred Stock, Depositary Shares,
and Warrants (collectively, the Securities) may be
offered separately or together, in amounts, at prices, and on
terms to be described in one or more supplements to this
Prospectus (each, a Prospectus Supplement).
The specific terms of the
Securities with respect to which this Prospectus is being
delivered will be set forth in the applicable Prospectus
Supplement and will include, as applicable: (i) in the case
of Common Stock, the initial offering price; (ii) in the
case of Preferred Stock, the title, the distribution,
liquidation, redemption, conversion, voting, and other rights,
and the public offering price; (iii) in the case of
Depositary Shares, the fractional shares of Preferred Stock
represented by each Depositary Share; and (iv) in the case
of Warrants, the offering price, duration, exercise price, and
detachability provisions. Such specific terms may also include
limitations on direct or beneficial ownership and restrictions
on transfer to assist in maintaining the Companys
qualification as a real estate investment trust (a
REIT) for Federal income tax purposes or for other
reasons.
Each Prospectus Supplement will
also contain any additional information not contained in this
Prospectus relating to any material United States Federal income
tax considerations relating to, and any listing on a securities
exchange of, the Securities offered by such Prospectus
Supplement.
The Securities may be offered
directly or through agents designated from time to time by the
Company or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the
Securities, their names, and any applicable purchase price, fee,
commission, or discount arrangement between or among them will
be set forth in, or will be calculable from, the information in
the accompanying Prospectus Supplement. No Securities may be
sold by the Company through agents, underwriters, or dealers
without delivery of a Prospectus Supplement describing the
method and terms of the offering of such Securities.
See
the discussion under the caption Risk Factors
beginning on page 1 of this Prospectus for a discussion of
certain factors relating to an investment in the Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is September 19, 1997.
No person is authorized in connection with any offering made
by this Prospectus to give any information or to make any
representation not contained in this Prospectus, and if given or
made, such information or representation must not be relied upon
as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to
buy any security other than the Securities nor does it
constitute an offer to sell or a solicitation of an offer to buy
any of the Securities to any person in any jurisdiction in which
it is unlawful to make such an offer or solicitation to such
person. Neither the delivery of nor sale under this Prospectus
or the related Prospectus Supplement shall under any
circumstance create any implication that the information
contained in this Prospectus or the related Prospectus
Supplement is correct as of any date subsequent to the date of
this Prospectus or the related Prospectus Supplement.
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page | |
|
|
| |
|
|
|
1 |
|
|
|
|
1 |
|
|
|
|
5 |
|
|
|
|
5 |
|
|
|
|
5 |
|
|
|
|
7 |
|
|
|
|
7 |
|
|
|
|
11 |
|
|
|
|
14 |
|
|
|
|
15 |
|
|
|
|
17 |
|
|
|
|
31 |
|
|
|
|
33 |
|
|
|
|
33 |
|
|
|
|
33 |
|
|
|
|
33 |
|
|
|
|
34 |
|
|
|
|
35 |
|
i
THE COMPANY
The Company believes that it is organized and operates in such a
manner so as to qualify as a real estate investment trust (a
REIT) under the Internal Revenue Code of 1986, as
amended (the Code). The Company is the managing
general partner of The Taubman Realty Group Limited Partnership
(TRG), an operating partnership that engages in the
ownership, operation, management, leasing, acquisition,
development, redevelopment, expansion, financing, and
refinancing of regional shopping centers. TRG owns as its
primary assets interests in regional retail shopping centers
located throughout the United States (the Taubman Shopping
Centers or Centers). TRG has interests in
certain Centers through partnerships (the Joint
Ventures and, together with the partnerships owning
Taubman Shopping Centers that are 100% beneficially owned by
TRG, the Center Owners) with unaffiliated third
parties (the Joint Venture Partners). TRG also owns
development projects for future regional shopping centers and
more than a 99% beneficial interest in The Taubman Company
Limited Partnership (the Manager), which manages the
Taubman Shopping Centers and provides other services to TRG and
the Company. TRG also owns the entire beneficial interest in
various grantor trusts established by TRG (the TRG
Trusts) to serve as TRGs partners in the Center
Owners of the wholly-owned Taubman Shopping Centers.
See Glossary for the definitions of certain terms
used in this Prospectus.
The Companys executive offices are maintained by the
Manager at 200 East Long Lake Road, Suite 300, P.O.
Box 200, Bloomfield Hills, Michigan 48304, Telephone:
(248) 258-6800.
RISK FACTORS
Prospective investors should carefully consider, among other
factors, the matters described below.
Equity Real Estate Investments
Economic Performance and Value of Shopping Centers
Dependent on Many Factors
Shopping center economic performance and values could be
adversely affected by a number of factors, including changes in
the national, regional, and local economic climate, the quality
and philosophy of management, local conditions (such as the
supply of retail space), the attractiveness of the properties to
tenants and their customers, the ability and willingness of the
owner to provide adequate maintenance and insurance, operating
costs, and the public perception of the safety of customers at
the shopping centers. In addition to the factors affecting
economic performance of shopping centers, shopping center values
could be adversely affected by such factors as government
regulations and changes in real estate zoning and tax laws,
interest rate levels, the availability of financing, and
potential liability under environmental and other laws. Adverse
changes in one or more of these factors could adversely affect
the Companys income and cash available for distribution,
as well as the value of its investment in TRG.
Dependence on Rental Income from Real Property
Substantially all of the Companys income is derived
(through its interest in TRG) from rental income from real
property. If the sales of stores operating in the Centers
decline sufficiently, tenants might be unable to pay their
existing minimum rents or expense recovery charges, since such
rents and charges would represent a higher percentage of their
sales. In addition, if there were such declines in sales, new
tenants would be less likely to be willing to pay minimum rents
as high as they would otherwise pay. In a recessionary
environment, such risks are increased.
The Companys income and cash available for distribution
would be adversely affected if lessees were unable to meet their
lease obligations or if one or more of the Center Owners were
unable to lease space (or collect rental payments). In the event
of default by a lessee, the relevant Center Owner may experience
delays in enforcing its rights as lessor and may incur
substantial costs in protecting its investment.
1
Inability to Compete
The Taubman Shopping Centers compete with other retailers in
attracting customers. Regional shopping centers face increasing
competition from discount stores, outlet malls, discount
shopping clubs, and direct mail and telemarketing. There are
numerous shopping centers that compete with the Taubman Shopping
Centers in seeking tenants to lease space in commercial
properties and numerous companies that compete with TRG in
seeking properties for acquisition or development. No assurance
can be given that the Taubman Shopping Centers will be able to
compete successfully in the future. The inability of one or more
Taubman Shopping Centers to compete successfully would adversely
affect TRGs revenues and, consequently, the Companys
income and funds available to pay dividends.
Conflicts of Interest with Joint Venture Partners in Jointly
Owned Centers
Certain Taubman Shopping Centers are owned by Joint Ventures
consisting of TRG and one or more Joint Venture Partners who
have no interest in TRG. Sales or transfers of interests in the
Joint Ventures are subject to various restrictive provisions and
rights. These may work to the advantage or disadvantage of TRG
because, among other things, TRG may have an opportunity to
acquire the interests of the Joint Venture Partners on
advantageous terms, or TRG may be required to make decisions as
to the purchase or sale of interests in a Joint Venture at a
time that is disadvantageous to TRG.
In addition, the consent of each Joint Venture Partner could be
required with respect to certain major transactions, such as
refinancing, encumbering, or the expansion or sale of, the
relevant Taubman Shopping Center. The interests of the Joint
Venture Partners and those of TRG are not necessarily aligned in
connection with the resolution of such issues. Accordingly, TRG
may not be able to favorably resolve any such issue, or TRG may
have to provide financial or other inducement to the Joint
Venture Partner to obtain such resolution.
Failure to Qualify as a REIT
Although the Company believes that it is organized and operates
in such a manner so as to qualify as a REIT under the Code, no
assurance can be given that the Company will remain so
qualified. Qualification as a REIT involves the application of
highly technical and complex Code provisions for which there are
only limited judicial or administrative interpretations. The
complexity of these provisions and applicable Treasury
Regulations is also increased in the context of a REIT that
holds its assets in partnership form. The determination of
various factual matters and circumstances not entirely within
the Companys control may affect its ability to qualify as
a REIT. In addition, no assurance can be given that legislation,
new regulations, administrative interpretations, or court
decisions will not significantly change the tax laws with
respect to qualification as a REIT or the Federal income tax
consequences of such qualification.
If in any taxable year the Company fails to qualify as a REIT,
the Company would not be allowed a deduction for distributions
to shareholders in computing its taxable income and would be
subject to Federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular
corporate rates. As a result, the amount available for
distribution to the Companys shareholders would be reduced
for the year or years involved. In addition, unless entitled to
relief under certain statutory provisions, the Company would
also be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification was
lost.
Notwithstanding that the Company currently operates in a manner
designed to qualify as a REIT, future economic, market, legal,
tax, or other considerations may cause the Company to determine
that it is in the best interest of the Company and its
shareholders to revoke the REIT election. The Company would be
disqualified to elect treatment as a REIT for the four taxable
years following the year of such revocation.
2
Inability to Comply with REIT Distribution Requirements
REIT Requirements
To obtain the favorable tax treatment for REITs qualifying under
the Code, the Company generally will be required each year to
distribute to its shareholders at least 95% of its otherwise
taxable income (after certain adjustments). In addition, the
Company will be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with
respect to any calendar year are less than the sum of 85% of its
ordinary income for the calendar year, 95% of its capital gains
net income for the calendar year and any undistributed taxable
income from prior periods. Failure to comply with the 95%
distribution requirement would result in the Company failing to
qualify as a REIT and the Companys income being subject to
tax at regular corporate rates.
Inability of the Company to Maintain its Distribution
Policy
The Company intends to make distributions to its shareholders to
comply with the 95% distribution provision of the Code and to
avoid the nondeductible excise tax discussed above. The
Companys income consists almost entirely of the
Companys share of the income of TRG, and the
Companys cash flow consists almost entirely of its share
of distributions from TRG. No assurance can be given that the
Companys share of distributions from TRG will be
sufficient to enable it to pay its operating expenses and meet
the distribution requirements discussed above.
Bankruptcy of Others
Bankruptcy of Anchors
Several department store companies operating anchors at regional
shopping centers have filed for protection under the United
States Bankruptcy Code. In TRGs experience, anchors have
continued to operate their stores at the Taubman Shopping
Centers during bankruptcy proceedings, until and unless the
proceedings have resulted in liquidation. In the event of
liquidation, the store site and related property (or the
leasehold interest) are generally sold at auction. In TRGs
experience, the bankruptcy of department store companies has not
had a materially adverse effect on TRGs financial
condition; however, anchor closings could result in reduced
customer traffic and lower mall tenant sales.
Over time, there has been a consolidation in the department
store industry. As a result, there are fewer independent
department store chains in existence today. Accordingly, the
bankruptcy of any one department store chain could involve more
anchors at the Taubman Shopping Centers (and, therefore, could
have a greater effect on TRG) than may have been the case when
there was less concentration in the department store industry.
Bankruptcy of Mall Tenants
Mall tenants at Taubman Shopping Centers may seek the protection
of the bankruptcy laws, which could result in the termination of
such tenants leases and thus cause a reduction in the cash
flow generated by the Taubman Shopping Centers.
Bankruptcy of Joint Venture Partners
The bankruptcy of a Joint Venture Partner could adversely affect
the relevant Taubman Shopping Center, principally because of the
problems created by dealing with a bankruptcy court regarding
material partnership decisions. Under the bankruptcy laws, TRG
would be precluded by the automatic stay from taking certain
actions which affect the estate of the Joint Venture Partner
without prior approval of the bankruptcy court, which would, in
most cases, entail prior notice to other parties and a hearing
in the bankruptcy court. At a minimum, the requirement of
approval may delay the taking of such actions. If a Joint
Venture has incurred recourse obligations, the discharge in
bankruptcy of a Joint Venture Partner might result in the
ultimate liability of TRG for a greater portion of such
obligations than it would otherwise bear. In addition, even in
situations where the Joint Venture Partner (or its estate) was
not
3
completely relieved of liability for such obligations, TRG, as a
general partner of the Joint Venture, might be required to
satisfy such obligations and then rely upon a claim against the
Joint Venture Partners estate for reimbursement.
Effect of Uninsured Loss on Profitability
Each Center Owner carries comprehensive liability, fire, flood,
earthquake, extended coverage, and rental loss insurance, with
policy specifications and insured limits customarily carried for
similar properties. There are, however, certain types of losses
(generally of a catastrophic nature, such as from wars, riots,
or civil disturbances) that are generally not insured either
because they are uninsurable or not economically insurable.
Should an uninsured loss occur, the Center Owner could lose
capital invested in, and anticipated profits from, the property,
which would nevertheless continue to be subject to the
obligation of any mortgage indebtedness. Any such loss could
adversely affect the profitability and cash flow of TRG and,
therefore, the Company. The Company believes that the Taubman
Shopping Centers are adequately insured in accordance with
industry standards.
Liabilities for Environmental Matters
Under various Federal, state and local environmental laws,
ordinances, and regulations, the Company, TRG, or the Manager,
as the case may be, in connection with the ownership (direct or
indirect), operation, management, and development of real
properties, may be considered an owner or operator of such
properties or may have arranged for the disposal or treatment of
hazardous or toxic substances, and therefore may become
potentially liable for removal or remediation costs, as well as
certain other potential costs that could relate to such
hazardous or toxic substances (including governmental fines and
injuries to persons and property). Such laws often impose
liability without regard to whether the owner or operator knows
of, or was responsible for, the release of such hazardous or
toxic substances.
Of the Centers, one is located in a region that has been used
extensively to store various petroleum products; one is located
over an oil field and several abandoned oil wells and is
adjacent to an active oil production facility; and one is
situated on land that was previously used as a landfill.
In addition, certain environmental laws impose liability for
release of asbestos-containing materials (ACMs) into
the air, and third parties may seek recovery from owners or
operators of real properties for personal injury associated with
ACMs. There are ACMs at most of the Taubman Shopping Centers,
primarily in the form of floor tiles and mastics.
Although there can be no assurances, the Company is not aware of
any environmental liability relating to the above matters or
generally to the Taubman Shopping Centers or any other property
in which the Company, TRG, or the Manager has or had an interest
(whether as an owner or operator) that the Company believes
would have a material adverse effect on the Companys or
TRGs business, assets, or results of operations. The
existence of any such environmental liability could have an
adverse effect on TRGs cash flow and the funds available
to the Company to pay dividends.
Treatment of Assets of the Company as Plan Assets under
ERISA
The Company believes that shares of Common Stock are, and that
other Securities offered hereby will be, publicly-offered
securities for purposes of the Employee Retirement Income
Security Act of 1974, as amended (ERISA), and that,
consequently, the assets of the Company are not, and will not
be, plan assets of an ERISA plan, individual
retirement account, or other non-ERISA plan that invests in the
Common Stock or such Securities. Were the Companys assets
deemed to be plan assets of any such plan, then TRGs and
the Companys ability to engage in business transactions
would be hampered because: (i) certain persons exercising
discretion as to the Companys assets might be considered
to be fiduciaries under ERISA; (ii) transactions involving
the Company undertaken at their direction or pursuant to their
advice might violate ERISA; and (iii) certain transactions
that the Company might enter into in the ordinary course of its
business might constitute prohibited transactions
under ERISA and the Code.
4
Sale of the Taubman Shopping Centers
Under TRGs partnership agreement, upon the sale of a
Center or TRGs interest in a Center, TRG may be required
to distribute to its partners all of the cash proceeds received
by TRG from such sale. If TRG made such a distribution, the sale
proceeds would not be available to finance TRGs
activities, and the sale of a Center may result in a decrease in
funds generated by continuing operations and in distributions to
TRGs partners, including the Company.
Restrictions on Control of TRG
TRGs Partnership Committee has final authority over the
management of TRGs business. As a result of provisions in
TRGs Partnership Agreement, the Company may not be able to
designate a majority of the members of the Partnership Committee
prior to owning, under certain circumstances, up to 61.5% of TRG.
Ownership Limit and Other Provisions of the Articles and
Bylaws
The general limitation on ownership of the Companys
Regular Capital Stock and other provisions of the Companys
Articles and Bylaws could have the effect of discouraging offers
to acquire the Company and of inhibiting a change of control,
which could adversely affect the shareholders ability to
receive a premium for their shares in connection with such a
transaction. See Certain Provisions of the Articles of
Incorporation and Bylaws and Restrictions on
Transfer.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus
Supplement, the Company anticipates that the net proceeds from
the Companys sale of the Securities will be available for
general corporate purposes, which may include the acquisition of
additional regional retail shopping centers, other properties,
interests in such centers or other properties, or additional
interests in TRG. TRG may use any proceeds that the Company
contributes or otherwise transfers to TRG to repay or prepay
indebtedness of TRG, including secured indebtedness, finance
capital expenditures, including expansions and development
activities, acquisitions, working capital, and for other general
partnership activities.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The Company does not have, and has not had, any outstanding
indebtedness or Preferred Stock. The applicable Prospectus
Supplement with respect to an offering of Securities will
include a pro forma ratio of earnings to combined fixed charges
and preferred stock dividends, if applicable.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND
BYLAWS
Set forth below is a description of certain provisions of the
Companys Second Amended and Restated Articles of
Incorporation (the Articles) and the Companys
Bylaws (the Bylaws) as in effect on the date of this
Prospectus. The description is a summary only, and is qualified
in its entirety by reference to the Articles and Bylaws, which
have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
Under the Articles, the Company is authorized to issue a total
of 300 million shares of Capital Stock, consisting of
250 million shares of Common Stock and up to
50 million shares of Preferred Stock. The term
Capital Stock means Common Stock, Preferred Stock,
and Excess Stock, and the term Regular Capital Stock
means shares of Common Stock and Preferred Stock that have not
become Excess Stock. See Restrictions on Transfer.
5
Staggered Board of Directors
The Bylaws provide that the Board of Directors will be divided
into three classes of directors, each class constituting
approximately one-third of the total number of directors, with
the classes serving staggered three-year terms. The Articles
provide that 40% of the Companys Directors must be
Independent, as defined in the Articles (in general,
a Director is Independent if he is not affiliated with A. Alfred
Taubman or his affiliates or certain pension trusts of General
Motors Corporation or their affiliates (the
GM Trusts)). The classification of the Board of
Directors will have the effect of making it more difficult for
shareholders to change the composition of the Board of Directors
because only a minority of the directors are elected at any one
time. The Company believes, however, that the longer terms
associated with the classified Board of Directors will help to
ensure continuity and stability of the Companys management
and policies.
The classification provisions could also have the effect of
discouraging a third party from accumulating a large block of
the Companys stock or attempting to obtain control of the
Company, even though such an attempt might be beneficial to the
Company and some, or a majority, of its shareholders.
Number of Directors; Removal
The Articles provide that the number of directors will be fixed
by the Bylaws. The Bylaws currently provide that the number of
directors will be 11 or such greater number as is necessary to
ensure that 40% of the directors are Independent Directors.
Directors may be removed only upon the affirmative vote of
two-thirds of the outstanding shares of Capital Stock entitled
to vote.
Preferred Stock
The Articles authorize the 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. See Description of Preferred Stock. The
Company believes that the ability of the Board of Directors to
issue one or more series of Preferred Stock will provide the
Company with increased flexibility in meeting corporate needs.
All authorized but unissued shares of Preferred Stock and Common
Stock are available for issuance without further action by the
Companys shareholders, unless such action is required by
applicable law or the rules of any stock exchange or automated
quotation system on which the Companys securities may be
listed or traded. 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 the
Companys 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.
Amendment of Articles of Incorporation and Bylaws
The Articles may be amended only by the affirmative vote of
two-thirds of the outstanding Capital Stock entitled to vote. A
majority of the disinterested members of the Board of Directors,
together with a majority of the disinterested Independent
Directors, may amend the Bylaws at any time, except with respect
to a bylaw that is adopted by the shareholders and that, by its
terms, can be amended only by the shareholders. The shareholders
can amend the Bylaws only upon the affirmative vote of
two-thirds of the outstanding Capital Stock entitled to vote.
Ownership Limit
The General Ownership Limit set forth in the Companys
Articles could have the effect of discouraging offers to acquire
the Company and of increasing the difficulty of consummating any
such acquisition. See Restrictions on Transfer.
6
DESCRIPTION OF COMMON STOCK
Subject to such preferential rights as may be granted by the
Board of Directors in connection with the future issuance of
Preferred Stock, holders of Common Stock are entitled to one
vote per share on all matters to be voted on by shareholders and
are entitled to receive ratably such dividends as may be
declared on the Common Stock by the Board of Directors in its
discretion from funds legally available for the payment of
dividends. In the event of the liquidation, dissolution, or
winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of all
debts and other liabilities and any liquidation preference of
the holders of Preferred Stock.
Currently, a majority of the outstanding shares of Common Stock
is required for a quorum. Any action requiring shareholder
approval (other than the election of directors) will be approved
upon the affirmative vote of the holders of two-thirds of the
outstanding shares of Capital Stock entitled to vote (currently,
two-thirds of the outstanding shares of Common Stock because no
Preferred Stock has been issued). Directors are elected by a
plurality of the votes cast. Holders of Common Stock do not have
cumulative voting rights in the election of directors. Holders
of shares of Common Stock do not have preemptive rights, which
means they have no right to acquire additional securities that
the Company may issue. See Restrictions on Transfer
and Certain Provisions of the Articles of Incorporation
and Bylaws.
The Common Stock is listed on The New York Stock Exchange
(symbol: TCO). The registrar and transfer agent for the Common
Stock is ChaseMellon Shareholder Services, L.L.C.
DESCRIPTION OF PREFERRED STOCK
General
The following description of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to
which a Prospectus Supplement may relate.
The Board of Directors is authorized to establish, from time to
time, one or more series of Preferred Stock and to establish the
number of shares in each series and to fix the preferences,
conversion, and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and
conditions of redemption of such series, without any further
vote or actions by the shareholders, unless such action is
required by applicable law or the rules of a stock exchange or
automated quotation system on which the Companys
securities may be listed. Because the Board of Directors has the
power to establish the preferences and rights of each series of
Preferred Stock, the Board may afford the holder of any series
of Preferred Stock preferences, powers, and rights, voting or
otherwise, senior to the rights of holders of Common Stock. The
Preferred Stock will, when issued, be fully paid and
nonassessable.
The Prospectus Supplement relating to any Preferred Stock
offered by such Prospectus Supplement will contain the specific
terms of the offered shares, including:
|
|
|
(i) the title of such Preferred Stock; |
|
|
(ii) the number of shares of such Preferred Stock
offered, the liquidation preference per share, and the offering
price of such Preferred Stock; |
|
|
(iii) the dividend rate, payment date, or method of
calculating the foregoing applicable to such Preferred Stock; |
|
|
(iv) the date from which dividends on such Preferred Stock
will accumulate, if applicable; |
|
|
(v) the procedures for any auction and remarketing,
if any, for such Preferred Stock; |
|
|
(vi) the provision for any sinking fund for such Preferred
Stock; |
|
|
(vii) any redemption provisions applicable to such
Preferred Stock; |
|
|
(viii) any listing of such Preferred Stock on any
securities exchange; |
7
|
|
|
(ix) the terms and conditions, if applicable, upon which
such Preferred Stock will be convertible into Common Stock of
the Company, including the conversion price (or manner of
calculating the conversion price); |
|
|
(x) whether interests in such Preferred Stock will be
represented by Depositary Shares; |
|
|
(xi) any other specific terms, preferences, rights,
limitations, or restrictions of such Preferred Stock; |
|
|
(xii) a discussion of all material Federal income tax
considerations applicable to such Preferred Stock that are not
discussed in this Prospectus; |
|
|
(xiii) the relative ranking and preferences of such
Preferred Stock as to dividend rights and rights upon
liquidation, dissolution, or winding up of the affairs of the
Company; |
|
|
(xiv) any limitations on issuance of any series of
Preferred Stock ranking senior to, or on a parity with, such
series of Preferred Stock as to dividend rights and rights upon
liquidation, dissolution, or winding up of the affairs of the
Company; and |
|
|
(xv) any limitations on direct or beneficial ownership and
restrictions on transfer in addition to the General Ownership
Limit. See Restrictions on Transfer. |
Rank
Unless otherwise specified in the Prospectus Supplement, the
Preferred Stock will, with respect to dividend rights and rights
upon liquidation, dissolution, or winding up of the Company,
rank (i) senior to the Common Stock of the Company and to
all equity securities ranking junior to such Preferred Stock;
(ii) on a parity with all equity securities issued by the
Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Stock; and
(iii) junior to all equity securities issued by the Company
the terms of which specifically provide that such equity
securities rank senior to the Preferred Stock. The term
equity securities does not include convertible debt
securities.
Dividends
Holders of the Preferred Stock of each series will be entitled
to receive, when, as, and if declared by the Board of Directors,
out of assets of the Company legally available for payment, cash
dividends (or dividends in kind or in other property if
expressly permitted and described in the applicable Prospectus
Supplement) at such rates and on such dates as will be set forth
in the applicable Prospectus Supplement. Each such dividend will
be payable to holders of record as they appear on the stock
transfer books of the Company on the record date fixed by the
Board of Directors.
Redemption
If so provided in the applicable Prospectus Supplement, the
Preferred Stock will be subject to mandatory redemption or
redemption at the option of the Company, in whole or in part, in
each case upon the terms, at the times, and at the redemption
prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to shares of a series of
Preferred Stock that is subject to mandatory redemption will
specify the number of shares of such Preferred Stock that will
be redeemed by the Company in each year commencing after a date
to be specified, at a redemption price per share to be
specified, together with an amount equal to all accrued and
unpaid dividends (which will not, if such Preferred Stock does
not have a cumulative dividend, include any accumulation in
respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable Prospectus
Supplement. If the redemption price for Preferred Stock of any
series is payable only from the net proceeds of the issuance of
shares of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such shares of capital
stock have been issued or to the extent the net proceeds from
any issuance are insufficient to pay in full the aggregate
redemption price then due, such Preferred Stock shall
automatically and mandatorily be
8
converted into the applicable shares of capital stock of the
Company pursuant to conversion provisions to be specified in the
applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative
dividends on all shares of series of Preferred Stock have been
paid or contemporaneously are declared and paid or are declared
and a sum sufficient for the payment of such dividends has been
set apart for payment for all past distribution periods and the
then current dividend period, and (ii) if such series of
Preferred Stock does not have a cumulative dividend, full
dividends of the Preferred Stock of any series have been paid or
contemporaneously are declared and paid or are declared and a
sum sufficient for the payment of such dividends has been set
apart for payment for the then current dividend period, no
shares of any series of Preferred Stock may be redeemed unless
all outstanding Preferred Stock of such series is simultaneously
redeemed. The foregoing limitation will not prevent the purchase
or acquisition of Preferred Stock of such series to preserve the
Companys REIT qualification or pursuant to a purchase or
exchange offer made on the same terms to holders of all
outstanding Preferred Stock of such series.
In addition, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all
outstanding shares of any series of Preferred Stock have been
paid or contemporaneously are declared and paid or are declared
and a sum sufficient for the payment of such dividends has been
set apart for payment for all past dividend periods and the then
current dividend period, and (ii) if such series of
Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been paid or
contemporaneously are declared and paid or are declared and sum
sufficient for the payment of such dividends has been set apart
for payment for the then current dividend period, the Company
may not purchase or otherwise acquire (directly or indirectly)
any shares of Preferred Stock of such series (except by
conversion into or exchange for shares of capital stock of the
Company ranking junior to the Preferred Stock of such series as
to dividends and upon liquidation). The foregoing limitation
will not prevent the purchase or acquisition of Preferred Stock
of such series to preserve the Companys REIT qualification
or pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding Preferred Stock of such
series.
If fewer than all of the outstanding shares of Preferred Stock
of any series are to be redeemed, the number of shares to be
redeemed will be determined by the Company, and such shares may
be redeemed pro rata from the holders of record of such shares
in proportion to the number of such shares held or for which
redemption is requested by each holder (with adjustments to
avoid redemption of fractional shares) or by lot in a manner
determined by the Company.
Notice of redemption will be mailed at least 30 days but
not more than 60 days before the redemption date to each
holder of record of Preferred Stock of any series to be redeemed
at the address shown on the stock transfer books of the Company.
Each notice will state: (i) the redemption date;
(ii) the number of shares and series of the Preferred Stock
to be redeemed; (iii) the redemption price; (iv) the
place(s) where certificates for such Preferred Stock are to be
surrendered for payment of the redemption price; (v) that
dividends on the shares to be redeemed will cease to accrue on
such redemption date; and (vi) the date upon which the
holders conversion rights, if any, as to such shares will
terminate. If fewer than all of the shares of Preferred Stock of
any series are to be redeemed, the notice mailed to each holder
of such series will also specify the number of shares of
Preferred Stock to be redeemed from each holder. If notice of
redemption of any Preferred Stock has been given and if the
funds necessary for such redemption have been set aside by the
Company in trust for the benefit of the holders of any Preferred
Stock so called for redemption, then from and after the
redemption date, dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares
will terminate, except the right to receive the redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution, or
winding up of the affairs of the Company, then before any
dividend or payment may be made to the holders of the Common
Stock, which will rank junior to the Preferred Stock in the
distribution of assets upon any liquidation, dissolution, or
9
winding up of the Company, the holders of each series of
Preferred Stock will be entitled to receive out of assets of the
Company legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation
preference per share of Preferred Stock (set forth in the
applicable Prospectus Supplement), plus an amount equal to all
accrued but unpaid dividends (which will not include any
accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative
dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of
Preferred Stock will have no right or claim to any of the
remaining assets of the Company. If upon any voluntary or
involuntary liquidation, dissolution, or winding up of the
Company, the available assets of the Company are insufficient to
pay the amount of the liquidating distributions on all
outstanding Preferred Stock, then the holders of the Preferred
Stock will share ratably in any such distribution of assets in
proportion to the full liquidating distributions to which they
would otherwise be respectively entitled.
If the liquidating distributions have been made in full to all
holders of Preferred Stock, the remaining assets of the Company
will be distributed among the holders of Common Stock according
to their respective number of shares. For such purposes, neither
the consolidation or merger of the Company with or into any
other corporation or entity nor the sale, lease, or conveyance
of all or substantially all of the property or business of the
Company will be deemed to constitute a liquidation, dissolution,
or winding up of the Company.
Voting Rights
Holders of Preferred Stock will not have any voting rights,
except as set forth below or as otherwise from time to time
required by law or as indicated in the applicable Prospectus
Supplement.
Unless otherwise indicated in the applicable Prospectus
Supplement, whenever dividends on any shares of Preferred Stock
are in arrears for six or more quarterly periods, the holders of
such shares of Preferred Stock (voting separately as a class
with all other series of Preferred Stock upon which like voting
rights have been conferred and are exercisable) will be entitled
to vote for the election of two additional directors of the
Company at a special meeting called by the holders of record of
at least 10% of any series of Preferred Stock so in arrears
(unless such request is received less than 90 days before the
date fixed for the next annual or special meeting of the
shareholders) or at the next annual meeting of shareholders, and
at each subsequent annual meeting, until (i) if such series
of Preferred Stock has a cumulative dividend, all dividends
accumulated on such shares of Preferred Stock for the past
dividend periods and the then current dividend period have been
paid or declared and a sum sufficient for the payment of such
dividends has been set aside for payment or (ii) if such
series of Preferred Stock does not have a cumulative dividend,
four consecutive quarterly distributions have been paid
regularly. In such case, the Board of Directors will be
increased by two directors.
Unless otherwise provided for any series of Preferred Stock, as
long as any shares of Preferred Stock remain outstanding, the
Company will not, without the affirmative vote or consent of the
holders of at least two-thirds of the shares of each series of
Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting
separately as a class): (i) authorize or create, or
increase the authorized or issued amount of, any class or series
of capital stock ranking senior to such series of Preferred
Stock with respect to the payment of dividends or the
distribution of assets upon liquidation, dissolution, or winding
up or reclassify any authorized capital stock of the Company
into such shares, or create, authorize, or issue any obligation
or security convertible into or evidencing the right to purchase
any such shares; or (ii) amend, alter, or repeal the
provisions of the Companys Articles, whether by merger,
consolidation, or otherwise (an Event), so as to
materially and adversely affect any right, preference,
privilege, or voting power of such series of Preferred Stock or
the holders of such series; however, as long as the Preferred
Stock remains outstanding with its terms materially unchanged,
taking into account that upon the occurrence of an Event, the
Company may not be the surviving entity, the occurrence of an
Event described in clause (ii) above will not be deemed to
materially and adversely affect such rights, preferences,
privileges, or voting power of holders of Preferred Stock, and
(x) any increase in the amount of the authorized Preferred
Stock or the creation or issuance of any other series of
10
Preferred Stock, or (y) any increase in the amount of
authorized shares of such series or any other series of
Preferred Stock, in each case ranking on a parity with or junior
to the Preferred Stock of such series with respect to payment of
dividends or the distribution of assets upon liquidation,
dissolution, or winding up, will not be deemed to materially and
adversely affect such rights, preferences, privileges, or voting
powers.
The foregoing voting provisions will not apply if at or prior to
the time when the act with respect to which such vote would
otherwise be required is effected, all outstanding shares of
such series of Preferred Stock have been redeemed or called for
redemption, and sufficient funds have been deposited in trust to
effect such redemption.
Conversion Rights
The terms and conditions, if any, upon which any series of
Preferred Stock is convertible into Common Stock will be set
forth in the applicable Prospectus Supplement relating thereto.
Such terms will include the number of shares of Common Stock
into which the Preferred Stock is convertible, the conversion
price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the
holders of the Preferred Stock or the Company, the events
requiring an adjustment of the conversion price, and provisions
affecting conversion in the event of the redemption of such
series of Preferred Stock.
Registrar and Transfer Agent
The registrar and transfer agent for the Preferred Stock will be
set forth in the applicable Prospectus Supplement. See
Restrictions on Transfer and Certain
Provisions of the Articles of Incorporation and Bylaws.
DESCRIPTION OF DEPOSITARY SHARES
General
The Company may issue receipts (Depositary 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 Depositary Shares
will be deposited under a separate deposit agreement (each, a
Deposit Agreement) among the Company, the depositary
named in such Depositary Agreement (the Preferred Stock
Depositary), and the holders from time to time of the
Depositary Receipts. Subject to the terms of the Deposit
Agreement, each owner of a Depositary Receipt 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 by
such Depositary Shares (including dividend, voting, conversion,
redemption, and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts
issued pursuant to the applicable Deposit Agreement. Immediately
following the issuance and delivery of the Preferred Stock by
the Company to the Preferred Stock Depositary, the Company will
cause the Preferred Stock Depositary to issue the Depositary
Receipts on behalf of the Company. Copies of the applicable form
of Deposit Agreement and Depositary Receipt may be obtained from
the Company upon request.
Dividends
The Preferred Stock Depositary will distribute all cash
dividends 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 such Depositary
Receipts owned by such holders, subject to certain obligations
of holders to file proofs, certificates, and other information
and to pay certain charges and expenses to the Preferred Stock
Depositary.
11
In the event of a dividend other than in cash, the Preferred
Stock Depositary will distribute property received by it to the
record holders of Depositary Receipts entitled to such
dividends, subject to certain obligations of holders to file
proofs, certificates, and other information and to pay certain
charges and expenses to the Preferred Stock Depositary, unless
the Preferred Stock Depositary determines that it is not
feasible to make such distribution, in which case the Preferred
Stock Depositary may, with the approval of the Company, sell
such property and distribute the net proceeds from such sale to
such holders.
No dividend will be paid to the record holder of any Depositary
Receipt to the extent that it represents any Preferred Stock
converted into Excess Stock.
Withdrawal of Preferred Stock
Upon surrender of the Depositary Receipts at the corporate trust
office of the Preferred Stock Depositary (unless the related
Depositary Shares have previously been called for redemption or
converted into Excess Stock), the holders of such Depositary
Receipt will be entitled to delivery at such office, to or upon
such holders order, of the number of whole or fractional
shares of Preferred Stock and any money or other property
represented by the Depositary Shares evidenced by 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 the Preferred Stock
represented by each Depositary Share as specified in the
applicable Prospectus Supplement, but holders of such Preferred
Stock will not thereafter be entitled to receive Depositary
Shares for such 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 Preferred Stock
Depositary will deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary
Shares.
Redemption of Depositary Shares
Whenever the Company redeems shares of Preferred Stock held by
the Preferred Stock Depositary, the Preferred Stock Depositary
will redeem as of the same redemption date the number of
Depositary Shares representing shares of Preferred Stock so
redeemed, provided the Company has paid in full to the Preferred
Stock Depositary the redemption price of the Preferred Stock to
be redeemed plus an amount equal to any accrued and unpaid
dividends to the date fixed for redemption. 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 pro rata (as nearly as may be practicable without
creating fractional Depositary Shares) or by any other equitable
method determined by the Company.
From and after the date fixed for redemption: all distributions
in respect of the shares of Preferred Stock 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 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 upon such redemption upon
surrender of the Depositary Receipts to the Preferred Stock
Depositary.
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 Preferred Stock
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 Preferred Stock Depositary as to the
exercise of the voting rights pertaining to the shares of
Preferred Stock represented by such holders Depositary
Shares. The Preferred Stock Depositary will vote the shares of
Preferred Stock represented by such Depositary Shares in
accordance with such instructions, and the Company will agree
12
to take all reasonable action that may be deemed necessary by
the Preferred Stock Depositary in order to enable the Preferred
Stock Depositary to do so. The Preferred Stock Depositary will
abstain from voting the shares of Preferred Stock represented by
such Depositary Shares to the extent it does not receive
specific instructions from the holders of Depositary Receipts
evidencing such Depositary Shares. The Preferred Stock
Depositary will 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 inaction is in good
faith and does not result from negligence or willful misconduct
of the Preferred Stock Depositary.
Liquidation Preference
In the event of the liquidation, dissolution, or winding up of
the Company, 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
The Depositary Shares, as such, are not convertible into Common
Stock or any other securities or property of the Company.
Nevertheless, if so specified in the applicable Prospectus
Supplement relating to an offering of Depositary Shares, the
Depositary Receipts may be surrendered by their holders to the
Preferred Stock Depositary with written instructions to the
Preferred Stock Depositary to instruct the Company to cause
conversion of the Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipts into whole shares
of Common Stock or other shares of Preferred Stock of the
Company, and the Company has agreed that upon receipt of such
instructions and any amounts payable in respect of such
conversion, it will cause the conversion 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, a new
Depositary Receipt will be issued for any Depositary Shares not
to be converted. No fractional shares of Common Stock will be
issued upon conversion, and if such conversion would result in a
factional share being issued, an amount will be paid in cash by
the Company 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 a Deposit Agreement
Any form of Depositary Receipt evidencing Depositary Shares and
any provision of a Deposit Agreement will be permitted at any
time to be amended by agreement between the Company and the
applicable Preferred Stock Depositary. 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 the holders of the
related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least
two-thirds of the applicable Depositary Shares evidenced by the
applicable Depositary Receipts then outstanding. No amendment
may impair the right, subject to certain anticipated exceptions
in the Deposit Agreements, 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 by such Receipt, except in
order to comply with law. Every holder of an outstanding
Depositary Receipt at the time any such amendment becomes
effective will be deemed, by continuing to hold such Depositary
Receipt, to consent and agree to such amendment and to be bound
by the applicable Deposit Agreement as amended.
A Deposit Agreement will be permitted to be terminated by the
Company upon not less than 30 days prior written
notice to the applicable Preferred Stock Depositary if a
majority of each series of Preferred Stock affected by such
termination consents to such termination. Upon such termination,
the Preferred Stock Depositary will be required to deliver or
make available to each holder of Depositary Receipts, upon
surrender of the Depositary Receipts held by such holder, the
number of whole or fractional shares of Preferred Stock that are
represented by the Depositary Shares evidenced by such
Depositary Receipts, together with any other property held by
such Preferred Stock Depositary with respect to such Depositary
13
Receipts. In addition, a Deposit Agreement will automatically
terminate if (i) all outstanding Depositary Shares issued
under such Agreement have been redeemed, (ii) there has
been a final distribution in respect of the related Preferred
Stock in connection with any liquidation, dissolution, or
winding up of the Company, and such distribution has been
distributed to the holders of Depositary Receipts evidencing the
Depositary Shares representing such Preferred Stock, or
(iii) each share of the related Preferred Stock has been
converted into stock of the Company not so represented by
Depositary Shares.
Charges of a Preferred Stock Depositary
The Company will pay all transfer and other taxes and
governmental charges arising solely from the existence of a
Deposit Agreement. In addition, the Company will pay the fees
and expenses of a Preferred Stock Depositary in connection with
the performance of its duties under a Deposit Agreement;
however, holders of Depositary Receipts will pay the fees and
expenses of a preferred Stock Depositary for any duties
requested by such holders to be performed that are outside of
those expressly provided for in the applicable Deposit Agreement.
Resignation and Removal of Depositary
A Preferred Stock Depositary will be permitted to resign at any
time by delivering to the Company notice of its election to do
so, and the Company will be permitted at any time to remove a
Preferred Stock Depositary effective upon the appointment of a
successor Preferred Stock Depositary. A successor Preferred
Stock Depositary will be required to be appointed within
60 days after delivery of the notice of resignation or
removal and will be required to be a bank or trust company
having its principal office in the United States and having a
combined capital and surplus of at least $50.0 million.
Miscellaneous
The Preferred Stock Depositary will forward to holders of
Depositary Receipts any reports and communications from the
Company that are received by the Preferred Stock Depositary with
respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be
liable if it is prevented from, or delayed in (whether by law or
any circumstances beyond its control), performing its
obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Stock Depositary under the Deposit
Agreement will be limited to performing their duties 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, and
the Company and the Preferred Stock Depositary will not be
obligated to prosecute or defend any legal proceeding in respect
of any Depositary Receipts, Depositary Shares, or shares of
Preferred Stock represented by such Receipts unless satisfactory
indemnity is furnished. The Company and the Preferred Stock
Depositary may rely on written advice of counsel or accountants,
information provided by persons presenting shares of Preferred
Stock 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 Preferred Stock Depositary receives conflicting
claims, requests, or instructions from any holders of Depositary
Receipts, on the one hand, and the Company, on the other hand,
the Preferred Stock Depositary will be entitled to act on such
claims, requests or instructions received from the Company.
DESCRIPTION OF WARRANTS
The Company has no Warrants outstanding; however, as of
September 11, 1997, the Company had reserved for issuance
approximately 97 million shares of Common Stock that may be
issued (i) in exchange for TRG Units of Partnership
Interest upon acceptance by certain TRG partners or employees of
the Manager of the Companys Continuing Offer to exchange
Units (including Units issuable upon the
14
exercise of Incentive Options under TRGs Incentive Option
Plan) for Common Stock or (ii) by the Company in one or
more public offerings to raise funds to enable it to satisfy its
obligations pursuant to the Cash Tender Agreement to purchase
the TRG Units held by the GM Trusts and A. Alfred Taubman
and members of his family.
The Company may issue Warrants for the purchase of shares of
Preferred Stock or Common Stock. Warrants may be issued
independently or together with any other Securities offered by
any Prospectus Supplement and may be attached to or separate
from such Securities. Each series of Warrants will be issued
under a separate warrant agreement (each, a Warrant
Agreement) to be entered into between the Company and a
warrant agent specified in the applicable Prospectus Supplement
(the Warrant Agent). The Warrant Agent will act
solely as an agent of the Company in connection with the
Warrants of such series and will not assume any obligation or
relationship of agency or trust for or with holders or
beneficial owners of Warrants. The following sets forth certain
general terms and provisions of the Warrants offered by this
Prospectus. Further terms of the Warrants and the applicable
Warrant Agreements will be set forth in the applicable
Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of
the Warrants in respect of which this Prospectus is being
delivered, including, where applicable, the following:
|
|
|
(i) the title of such Warrants; |
|
|
(ii) the aggregate number of such Warrants; |
|
|
(iii) the price at which such Warrants will be issued; |
|
|
(iv) the designation, terms, and number of shares of Common
Stock or Preferred Stock purchasable upon exercise of such
Warrants; |
|
|
(v) the designation and terms of the Securities, if
any, with which such Warrants are issued, and the number of such
Warrants issued with each such Security; |
|
|
(vi) the date, if any, on and after which such Warrants and
the related shares of Common Stock or Preferred Stock will be
separately transferable; |
|
|
(vii) the price at which each share of Common Stock or
Preferred Stock purchasable upon exercise of such Warrants may
be purchased; |
|
|
(viii) the date on which the right to exercise such
Warrants will commence and the date on which such right will
expire; |
|
|
(ix) the minimum or maximum amount of such Warrants that
may be exercised at any one time; |
|
|
(x) information with respect to book-entry
procedures, if any; |
|
|
(xi) a discussion of certain Federal income tax
considerations; and |
|
|
(xii) any other terms of such Warrants, including terms,
procedures and limitations relating to the exchange and exercise
of such Warrants. |
See Description of Preferred Stock,
Description of Common Stock, Restrictions on
Transfer, and Certain Provisions of the Articles of
Incorporation and Bylaws.
RESTRICTIONS ON TRANSFER
To maintain its qualification as a REIT, the Company cannot be
closely held within the meaning of applicable
provisions of the Code and Treasury Regulations. In general, a
REIT is closely held if five or fewer individuals
(as defined by the Code and Regulations) own more than 50% in
value of the REITs outstanding capital stock. Under the
Companys Articles, in general, no shareholder may own more
than 8.23% in value of the Companys Capital Stock (which
term refers to Regular Common Stock, Regular
15
Preferred Stock, and Excess Stock) (the General Ownership
Limit). The GM Trusts may collectively own the greater of
8,731,426 shares of Regular Capital Stock (which term refers to
shares of Common Stock and Preferred Stock that are not Excess
Stock) and 19.8% in value of the outstanding Capital Stock; the
AT&T Master Pension Trust and its assigns (collectively, the
AT&T Trust and, together with the GM Trusts, the
Trusts) may own the greater of 6,059,080 shares of
Regular Capital Stock and 13.74% in value of the outstanding
Capital Stock; and the Trusts may own, in the aggregate, the
greater of 14,790,506 shares of Regular Capital Stock and 33.54%
in value of the outstanding Capital Stock (each such variation
from the General Ownership Limit is referred to as an
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). A Look
Through Entity, in general, is an entity (other than a
qualified trust under section 401(a) of the Code, an entity
that owns 10% or more of the equity of any tenant from which the
Company or TRG receives or accrues rent from real property, or
certain tax exempt entities described in the Articles) whose
beneficial owners, rather than the entity, would be treated as
owning the Capital Stock owned by such entity.
The Articles provide that if the transfer of any shares of
Regular Capital Stock or a change in the Companys capital
structure would cause any person (the Purported
Transferee) to own Regular Capital Stock in excess of the
General Ownership Limit (which refers to 8.23% in value of the
outstanding Capital Stock) or the Look Through Limit (which
refers to 9.9% in value of the outstanding Capital Stock) or in
excess of the applicable Existing Holder Limit (which is the
greater of the fixed number of shares of Regular Capital Stock
and percentage in value of the outstanding Capital Stock
applicable to the relevant Trust, as described above), then the
transfer is void ab initio (the General Ownership Limit,
the Look Through Limit, and the Existing Holder Limit are
referred to collectively as the Ownership Limits).
It is possible, however, that a transfer of Regular Capital
Stock in violation of one of the Ownership Limits could occur
without the Companys knowledge. Accordingly, the Articles
provide that if notwithstanding the provisions of the Articles,
the transfer nevertheless occurs or a change in capital
structure causes a person to own in excess of any of the
Ownership Limits, the shares in excess of such Ownership Limit
automatically acquire the status of Excess Stock.
Shares that have become Excess Stock continue to be issued and
outstanding shares of Common Stock or Preferred Stock, as the
case may be.
A Purported Transferee of Excess Stock acquires no rights to
those shares. 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 Companys 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 and to
take delivery of the certificates evidencing the shares that
have become Excess Stock and 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 the Company of any transfer
resulting in shares converting into Excess Stock, as well as
such other information regarding such persons ownership of
the Companys Capital Stock as the Company requests. In
addition, any person holding 5% or more of the Companys
Capital Stock must provide the Company with information
regarding such persons ownership of Capital Stock.
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 the Company) 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.
16
The General Ownership Limit will not be automatically removed
even if the REIT provisions under the Code are changed so as to
no longer contain any ownership concentration limitation or if
the concentration limitation is increased. In addition to
preserving the Companys status as a REIT, the effect of
the General Ownership Limit is to prevent any person from
acquiring unilateral control of the Company. Any change in the
General Ownership Limit would require an amendment to the
Articles. Currently, amendments to the Articles require the
affirmative vote of holders owning not less than two-thirds of
the outstanding Capital Stock entitled to vote.
All certificates evidencing shares of Capital Stock bear or will
bear a legend referring to the restrictions described above.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of all material Federal income tax
considerations that may be relevant to a prospective purchaser
of Securities, is based upon current law, and is not tax advice.
This discussion does not address all aspects of taxation that
may be relevant to particular shareholders in light of their
personal investment or tax circumstances or to certain types of
shareholders (including insurance companies, financial
institutions, and broker-dealers) subject to special treatment
under the Federal income tax laws.
This discussion was prepared by Miro Weiner & Kramer,
counsel to the Company, and is based on certain factual
assumptions, current provisions of the Code, existing,
temporary, and currently proposed Treasury Regulations under the
Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS, and judicial
decisions. No assurance can be given that legislative, judicial,
or administrative changes will not affect the accuracy of any
statements in this Prospectus with respect to transactions
entered into or contemplated prior to the effective date of such
changes.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE
PURCHASE, OWNERSHIP, AND SALE OF THE SECURITIES AND OF THE
COMPANYS ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT
TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION
AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
General
The Company has made an election to be taxed as a REIT under
Sections 856 through 860 of the Code and applicable Treasury
Regulations, which are the requirements for qualifying as a REIT
(the REIT Requirements). The Company believes that
it is organized and operates in such a manner as to qualify for
taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner; however, no assurance can
be given that it has operated in such a manner or that it will
continue to operate in a manner so as to qualify or remain
qualified.
In the opinion of Miro Weiner & Kramer, counsel to the
Company, the Company qualifies for taxation as a REIT under the
Code. Such opinion assumes, among other things, the accuracy of
the Companys representations that it conducts, and has
conducted, its operations in a manner consistent with the REIT
Requirements described below.
The REIT Requirements relating to the Federal income tax
treatment of REITs and their shareholders are highly technical
and complex. The following discussion sets forth only a summary
of the material aspects of the REIT Requirements and the Federal
income taxation of REITs and their shareholders.
17
Taxation of the Company
As a REIT, the Company generally will not be subject to Federal
corporate income taxes on that portion of its ordinary income or
capital gain that is currently distributed to shareholders.
The REIT provisions of the Code generally allow a REIT to deduct
dividends paid to its shareholders. This deduction for dividends
paid to shareholders substantially eliminates the Federal
double taxation on earnings (once at the corporate
level and once again at the shareholder level) that results from
investment in a corporation.
Even if the Company qualifies for taxation as a REIT, the
Company may be subject to Federal income and excise taxes as
follows:
|
|
|
First, the Company will be taxed at regular corporate
rates on any undistributed REIT taxable income and undistributed
net capital gains. |
|
|
Second, under certain circumstances, the Company may be
subject to the alternative minimum tax on its items
of tax preference, if any. |
|
|
Third, if the Company has (i) net income from the sale or
other disposition of foreclosure property
(generally, property acquired by reason of a default on a lease
or an indebtedness held by a REIT) that is held primarily for
sale to customers in the ordinary course of business or
(ii) other nonqualifying net income from foreclosure
property, it will be subject to tax at the highest corporate
rate on such income. |
|
|
Fourth, if the Company has 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), such income will be subject to a 100% tax. |
|
|
Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed
below) and has nonetheless maintained its qualification as a
REIT because certain other requirements have been met, it will
be subject to a 100% tax on the gross income attributable to the
greater of the amount by which the Company fails the 75% or 95%
test, multiplied by a fraction intended to reflect the
Companys profitability. |
|
|
Sixth, if the Company should fail to distribute with
respect to each calendar year at least the sum of (i) 85%
of its REIT ordinary income from such year, (ii) 95% of its
REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company
would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. |
|
|
Seventh, if a REIT acquires any asset from a
C corporation (i.e., generally a corporation subject to
full corporate-level tax) in a carryover basis transaction (or
if a REIT such as the Company holds assets beginning on the
first day of the first taxable year for which the Company
qualifies as a REIT) and the REIT subsequently recognizes gain
on the disposition of such asset during the 10-year period (the
Recognition Period) beginning on the date on which
the asset was acquired by the REIT (or the REIT first qualified
as a REIT), then the excess of (a) the fair market value of
the asset as of the beginning of the applicable Recognition
Period, over (b) the REITs adjusted basis in such
asset as of the beginning of such Recognition Period will be
subject to tax at the highest regular corporate rate, pursuant
to guidelines issued by the IRS (the Built-in Gain
Rules). |
Requirements for Qualification
To qualify as a REIT, the Company must meet the requirements
discussed below relating to the Companys organization,
sources of income, nature of assets, and distributions of income
to shareholders.
18
Organizational Requirements
The Code defines a REIT as a corporation, trust, or association:
|
|
|
(i) that is managed by one or more trustees or
directors; |
|
|
(ii) the beneficial ownership of which is evidenced
by transferable shares or by transferable certificates of
beneficial interest; |
|
|
(iii) that would be taxable as a domestic corporation but
for the REIT Requirements; |
|
|
(iv) that is neither a financial institution nor an
insurance company subject to certain provisions of the Code; |
|
|
(v) the beneficial ownership of which is held by 100
or more persons; and |
|
|
(vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned,
directly or indirectly through the application of certain
attribution rules, by five or fewer individuals (as defined in
the Code to include certain entities). |
In addition, certain other tests, described below, regarding the
nature of its income and assets must also be satisfied.
The Code provides that conditions (i) through (iv), inclusive,
must be met during the entire taxable year and that condition
(v) must be met during at least 335 days of a taxable
year of 12 months, or during a proportionate part of a
taxable year of less than 12 months.
The Company satisfies the requirements set forth in (i) through
(v) above and believes that it satisfies the requirement set
forth in (vi) above. In addition, the Companys Articles
currently include certain restrictions regarding transfer of the
Companys shares, and the Companys Continuing Offer
to certain individuals in TRG to exchange Units of Partnership
Interest for shares of Common Stock includes certain
restrictions on who is entitled to exercise rights under the
Continuing Offer. In both cases, these restrictions are intended
(among other things) to assist the Company in continuing to
satisfy the share ownership requirements described in (v) and
(vi) above.
Income Tests
To maintain qualification as a REIT, there are three gross
income requirements that must be satisfied annually.
|
|
|
First, at least 75% of the Companys gross
income, excluding gross income from certain dispositions of
property held primarily for sale to customers in the ordinary
course of a trade or business (prohibited
transactions), for each taxable year must be derived
directly or indirectly from investments relating to real
property or mortgages (including rents from real
property and, in certain circumstances, interest) or from
certain types of temporary investments. |
|
|
Second, at least 95% of the Companys gross
income (excluding gross income from prohibited transactions) for
each taxable year must be derived from such real property
investments described above and from dividends, interest, and
gain from the sale or disposition of stock or securities or from
any combination of the foregoing. |
|
|
Third, short-term gain from the sale or other
disposition of stock or securities held for less than one year,
gain from prohibited transactions, and gain on the sale or other
disposition of real property held for less than four years
(apart from involuntary conversions and sales of foreclosure
property) must represent less than 30% of the Companys
gross income (including gross income from prohibited
transactions) for each taxable year. The Taxpayer Relief Act of
1997 (the 1997 Act) repealed the 30% income test for
taxable years commencing after August 5, 1997. See
Recent Legislation. |
19
In the case of a REIT that is a partner in a partnership,
Treasury Regulations provide that the REIT is deemed to own its
proportionate share of the assets of the partnership and is
deemed to be entitled to the income of the partnership
attributable to such share. In addition, the character of the
assets and gross income of the partnership retain the same
character in the hands of the REIT for purposes of the REIT
Requirements, including satisfying the gross income tests and
the asset tests. Accordingly, the Companys 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 Manager and of the
Center Owners, will be treated as assets, liabilities, and items
of income of the Company for purposes of applying the
requirements described in this Prospectus, provided that each of
the Center Owners is treated as a partnership for Federal income
tax purposes and that none of the TRG Trusts are taxable as
corporations for Federal income tax purposes. See the discussion
below under Tax Aspects of TRG
Classification.
Rents received or deemed to be received by the Company will
qualify as rents from real property in satisfying
the gross income requirements for a REIT described above only if
several conditions are met.
|
|
|
First, the amount of rent must not be based in whole
or in part on the income or profits of any person. 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.
Rents based on income or profits do not include rents received
from a tenant based on the tenants income from the
property if the tenant derives substantially all of its income
with respect to such property from the leasing or subleasing of
substantially all of such property, provided that the tenant
receives from subtenants only amounts that would be treated as
rents from real property if received directly by a REIT. |
|
|
Second, the Code provides that rents received from a
tenant will not qualify as rents from real property
in satisfying the gross income tests if the REIT, directly,
indirectly, or constructively, owns 10% or more of such tenant
(a Related Party Tenant). |
|
|
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 such personal property will not
qualify as rents from real property. |
|
|
Finally, if a REIT provides services to tenants of a
property, the rent received from such property will qualify as
rents from real property only if the services are of
a type that a tax-exempt organization can provide to its tenants
without causing its rental income to be unrelated business
taxable income under the Code (that is, if such services are
usually or customarily rendered in connection with the
rental of space for occupancy only and are not otherwise
considered primarily for the tenants
convenience). Services which would give rise to unrelated
business taxable income (Prohibited UBTI Service
Income) if provided by a tax-exempt organization must be
provided by an independent contractor (as defined in
the Code) who is adequately compensated and from whom the REIT
does not derive any income. In any event, receipts from services
furnished (whether or not rendered by an independent contractor)
which are not customarily provided to tenants in properties of a
similar class in the geographic market in which the property is
located will in no event qualify as rents from real
property. The 1997 Act provides a de minimis
exception for impermissible service income. See
Recent Legislation. |
Substantially all of the Companys income is derived from
its partnership interest in TRG. Currently, TRGs real
estate investments give rise to income that enables the Company
to satisfy all of the income tests described above. TRGs
income is largely derived from its interests in the Taubman
Shopping Centers, which income qualifies as rents from
real property for purposes of the 75% and the 95% gross
income tests in an amount sufficient to permit the Company to
satisfy these tests. TRG also derives income from its
partnership interest in the Manager and, to the extent dividends
are paid by the Managers managing partner
(Taub-Co), from TRGs interest in Taub-Co.
The Company believes that neither TRG nor any of the Center
Owners charges rent from any property that is based in whole or
in part on the income or profits of any person (except by reason
of
20
being based on a fixed percentage of receipts or sales, as
described above). The Company believes that neither TRG nor any
of the Center Owners derives rent attributable to personal
property leased in connection with real property that exceeds
15% of the total rents.
The Company does not believe that it derives rent from property
rented to a Related Party Tenant; however, the determination of
whether the Company owns 10% or more of any tenant is made after
the application of complex attribution rules under which the
Company will be treated as owning interests in tenants that are
owned by its Ten Percent Stockholders. In
identifying the Companys Ten Percent Stockholders, each
individual or entity will be treated as owning Common Stock and
Preferred Stock held by related individuals and entities.
Accordingly, the Company 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, the
Company believes that the aggregate amount of such rental income
(together with any other nonqualifying income) in any taxable
year will not cause the Company to exceed the limits on
nonqualifying income under such gross income tests. See
Failure to Qualify.
TRG has entered into an agreement with the Manager, pursuant to
which the Manager provides services in connection with the
operation of the Taubman Shopping Centers. As a result of
TRGs ownership interests in the Manager and Taub-Co, the
Manager does not qualify as an independent contractor from whom
the Company derives no income. The Company believes, 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 TRG hires independent
contractors to the extent necessary to qualify rental income as
rents from real property under Section 856(d)(1).
The Manager receives fees in exchange for the performance of
certain management and administrative services, including fees
to be received pursuant to agreements with the Company and TRG.
A portion of those fees will accrue to the Company because TRG
owns a limited partnership interest in the Manager. The
Companys indirect interest in the management fees
generated by the Manager generally may not be qualified income
under the 75% or 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, the Company believes that the aggregate amount of such
fees (together with any other nonqualifying income) in any
taxable year has not exceeded and will not exceed the limits on
nonqualifying income under the 75% and 95% gross income tests.
The term interest, for purposes of satisfying the
income tests, generally does not include any amount received or
accrued (directly or indirectly) if the determination of such
amount depends in whole or in part on the income or profits of
any person. An amount received or accrued generally will not be
excluded from the term interest, however, solely by
reason of being based on a fixed percentage or percentages of
receipts or sales. TRG or the Center Owners may advance money
from time to time to tenants for the purpose of financing tenant
improvements. The Company and TRG do not intend to charge
interest that will depend in whole or in part on the income or
profits of any person.
The term prohibited transaction, for purposes of the
income tests and the excise tax described below, generally means
a sale or other disposition of property (other than foreclosure
property) that is held primarily for sale to customers in the
ordinary course of a trade or business. Any gross income derived
from a prohibited transaction is taken into account in applying
the 30% test (and the net income from any such transaction is
subject to a 100% tax); however, the 1997 Act repealed the 30%
income test for taxable years beginning after August 5,
1997. See Recent Legislation. TRG owns
interests in real property that is situated on the periphery of
certain of the Taubman Shopping Centers. The Company and TRG
believe that this peripheral property is not held for sale to
customers and that the sale of such peripheral property is not
in the ordinary course of TRGs business. Whether property
is held primarily for sale to customers in the ordinary
course of its trade or business depends, however, on the
facts and circumstances in effect from time to time, including
those relating to a particular property. As a result, no
assurance can be given that the Company can avoid being deemed
to own property that the IRS later
21
characterizes as property held primarily for sale to
customers in the ordinary course of its trade or business.
If the Company fails to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may nevertheless
qualify as a REIT for such year if it is entitled to relief
under certain provisions of the Code. These relief provisions
will be generally available if (i) the Companys
failure to meet such tests was due to reasonable cause and not
due to willful neglect, (ii) the Company attaches a
schedule of the sources of its income to its return, and
(iii) any incorrect information on the schedule was not due
to fraud with intent to evade tax. It is not possible, however,
to state whether in all circumstances the Company would be
entitled to the benefit of these relief provisions. For example,
if the Company fails to satisfy the gross income tests because
nonqualifying income that the Company intentionally earns
exceeds the limits on such income, the IRS could conclude that
the Companys failure to satisfy the tests was not due to
reasonable cause. As discussed above in Federal Income Tax
Considerations Taxation of the Company, even if
these relief provisions apply, a tax would be imposed with
respect to the excess gross income. No similar mitigation
provision applies to provide relief if the 30% income test is
failed, and in such case, the Company will cease to qualify as a
REIT. See Federal Income Tax Considerations Failure
to Qualify. For taxable years beginning after
August 5, 1997, the 1997 Act repealed the 30% income test.
See Recent Legislation.
Asset Tests
The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its
assets.
|
|
|
First, at least 75% of the value of the
Companys total assets, including its allocable share of
assets held by TRG, must be represented by real estate assets
(which for this purpose include stock or debt instruments held
for not more than one year purchased with the proceeds of a
stock offering or a long-term (at least five years) public debt
offering of the Company), cash, cash items, and government
securities. |
|
|
Second, not more than 25% of the value of the
Companys total assets may be represented by securities
other than those in the 75% asset class. |
|
|
Third, of the investments included in the 25% asset
class, the value of any one issuers securities owned by
the Company may not exceed 5% of the value of the Companys
total assets, and the Company may not own more than 10% of any
one issuers outstanding voting securities. |
The Company is deemed to own its proportionate share of all of
the assets owned by TRG and the Center Owners. The Company
believes that more than 75% of the value of TRGs assets
qualify as real estate assets. TRGs interest
in Taub-Co should not violate the prohibition against a
REITs ownership of more than 10% of the voting securities
of any one issuer. The Company believes that the value of the
Companys proportionate share of TRGs interest in
Taub-Co does not exceed 5% of the total value of the
Companys assets, and the Company does not expect that it
will exceed 5% in the future.
After initially meeting the asset tests at the close of any
quarter, the Company will not lose its status as a REIT for
failure to satisfy the asset tests at the end of a later quarter
solely by reason of changes in asset values. If the failure to
satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can
be cured by a disposition of sufficient nonqualifying assets
within 30 days after the close of that quarter. The Company
believes that it maintains adequate records of the value of its
assets to ensure compliance with the asset tests and to enable
the Company to take such other action within 30 days after the
close of any quarter as may be required to cure any
noncompliance. There can be no assurance, however, that such
other action will always be successful.
Annual Distribution Requirements
In order to be treated as a REIT, the Company is required to
distribute dividends (other than capital gain dividends) to its
shareholders in an amount at least equal to (i) the sum of
(a) 95% of the
22
Companys REIT taxable income (computed without
regard to the dividends paid deduction and the Companys
net capital gain) and (b) 95% of the net income, if any,
from foreclosure property in excess of the special tax on income
from foreclosure property, minus (ii) the sum of certain
items of noncash income.
In addition, during its Recognition Period, if the Company
disposes of any asset that was held by the Company prior to
January 1, 1992, or that is otherwise subject to the
Built-in Gain rules, the Company may be required, pursuant to
guidance to be issued by the IRS, to distribute at least 95% of
the Built-in Gain (after tax), if any, recognized on the
disposition of such asset. Any such distributions must be paid
in the taxable year to which they relate, or in the following
taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the date of the
first regular dividend payment after such declaration.
To the extent that the Company does not distribute all of its
net capital gain or distributes at least 95% (but less than
100%) of its REIT taxable income, as adjusted, it
will be subject to tax thereon at regular corporate tax rates.
Furthermore, if the Company fails to distribute during each
calendar year at least the sum of (a) 85% of its REIT
ordinary income for such year, (b) 95% of its REIT capital
gain net income for such year, and (c) any undistributed
taxable income from prior periods, the Company will be subject
to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. The Company intends to
make timely distributions sufficient to satisfy this annual
distribution requirement.
The Companys REIT taxable income consists substantially of
the Companys distributive share of the income of TRG.
Currently the Companys REIT taxable income is less than
the cash flow it receives from TRG due to the allowance for
depreciation and other non-cash charges in computing REIT
taxable income. Accordingly, the Company anticipates that it
will have sufficient cash or liquid assets to enable it to
satisfy the 95% distribution requirement.
It is possible that, from time to time, the Company may not have
sufficient cash or other liquid assets to meet the 95%
distribution requirement due to the insufficiency of cash flow
from TRG in a particular year or to timing differences between
(i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income
and deduction of such expenses in arriving at taxable income of
the Company. In the event that such an insufficiency or such
timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for
short-term, or possibly long-term, borrowings or to pay
dividends in the form of taxable stock dividends.
Under certain circumstances, the Company 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 the Companys
deduction for dividends paid for the earlier year. Thus, the
Company may be able to avoid being taxed on amounts distributed
as deficiency dividends; however, the Company will be required
to pay interest based upon the amount of any deduction taken for
deficiency dividends.
Failure to Qualify
If the Company fails to qualify for taxation as a REIT in any
taxable year, the Company will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any
year in which the Company fails to qualify will not be
deductible by the Company nor will they be required to be made.
In such event, to the extent of current and accumulated earnings
and profits, all distributions to shareholders will be taxable
as ordinary income, and subject to certain limitations of the
Code, corporate distributees may be eligible for the
dividends-received deduction. Unless entitled to relief under
specific statutory provisions, the Company will also be
disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is
not possible to state whether in all circumstances the Company
would be entitled to such statutory relief. For example, if the
Company fails to satisfy the gross income tests because
nonqualifying income that the Company intentionally earns
exceeds the limits on such income, the
23
IRS could conclude that the Companys failure to satisfy
the tests was not due to reasonable cause. See Federal
Income Tax Considerations Requirements for Qualification
Income Tests.
Taxation of U.S. Shareholders
As used in the following discussion, the term U.S. Shareholder
means a holder of shares of Common Stock, Preferred Stock, or
Depositary Shares (collectively, the Shares) that
(for United States Federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a
corporation, partnership, or other entity created or organized
in or under the laws of the United States or of any political
subdivision thereof, or (iii) is an estate or trust the
income of which is subject to United States Federal income
taxation regardless of its source. For any taxable year for
which the Company qualifies for taxation as a REIT, amounts
distributed to taxable U.S. Shareholders will be taxed as
follows.
Distributions Generally
Distributions to U.S. Shareholders, other than capital gain
dividends discussed below, constitute dividends to such
shareholders up to the amount of the Companys current or
accumulated earnings and profits and are taxable to such
shareholders as ordinary income. Such distributions are not
eligible for the dividends-received deduction for corporations.
Under current law, the maximum Federal income tax rate
applicable to ordinary income of individuals is 39.6% and
applicable to corporations is 35%. To the extent that the
Company makes distributions in excess of its current or
accumulated earnings and profits, such distributions will first
be treated as a tax-free return of capital, reducing the tax
basis in the U.S. Shareholders shares. Distributions in
excess of the U.S. Shareholders tax basis are taxable as
gain realized from the sale of such shares. Distributions on the
Preferred Stock will be considered to be made out of the
Companys earnings and profits to the extent thereof.
Distributions on the Common Stock will be considered to be made
out of the Companys undistributed earnings and profits as
reduced by distributions on the Preferred Stock. A dividend
declared by the Company in October, November, or December of any
year payable to a shareholder of record on a specified date in
any such month is treated as both paid by the Company and
received by the shareholder on December 31 of such year,
provided that the dividend is actually paid by the Company
during January of the following calendar year. Shareholders may
not include on their own income tax returns any tax losses of
the Company. Pursuant to Regulations to be promulgated by the
Treasury, a portion of the Companys distributions may be
subject to the alternative minimum tax to the extent of the
Companys items of tax preference, if any, allocated to the
shareholders.
The Company will be treated as having sufficient earnings and
profits to treat as a dividend any distribution by the Company
up to the amount required to be distributed in order to avoid
imposition of the 4% excise tax discussed in Federal
Income Tax Considerations Taxation of the Company
above. As a result, U.S. Shareholders may be required to treat
certain distributions that would otherwise result in a tax-free
return of capital as taxable dividends. Moreover, any
deficiency dividend will be treated as a
dividend (an ordinary dividend or a capital gain
dividend, as the case may be), regardless of the Companys
earnings and profits.
Capital Gain Dividends
A dividend paid to a U.S. Shareholder that is properly
designated by the Company as a capital gain dividend will be
treated as long-term capital gain (to the extent it does not
exceed the Companys actual net capital gain) for the
taxable year without regard to the period for which the
shareholder has held his Shares. Capital gain dividends are not
eligible for the dividends-received deduction for corporations.
Passive Activity Loss and Investment Interest
Limitations
Distributions from the Company and gain from the disposition of
Shares will not be treated as passive activity income, and
therefore, U.S. Shareholders generally will not be able to apply
any passive losses against such income. Dividends
from the Company (to the extent they do not constitute a return
of
24
capital) and gain from the disposition of shares generally may
be treated as investment income for purposes of the investment
interest limitation.
Certain Dispositions of Shares
A U.S. Shareholder will recognize gain or loss on the sale or
exchange of Shares to the extent of the difference between the
amount realized on such sale or exchange and the
shareholders tax basis in such Shares. Such gain or loss
generally will constitute long-term capital gain or loss if the
shareholder has held such shares for more than one year. Losses
incurred on the sale or exchange of Shares held for six months
or less (after applying certain holding period rules), however,
will generally be deemed long-term capital loss to the extent of
any long-term capital gain dividends received by the U.S.
Shareholder with respect to such Shares.
Treatment of Tax-Exempt Shareholders
Distributions from the Company to a tax-exempt employees
pension trust or other domestic tax-exempt shareholder will not
constitute unrelated business taxable income
(UBTI) unless such shareholder has borrowed to
acquire or carry its shares of the Company or the Company is a
pension-held REIT, as discussed below.
Qualified trusts that hold more than 10% (by value) of the
shares of certain REITs (pension-held REITS) may be
required to treat a certain percentage of such a REITs
distributions as UBTI. This requirement will apply only if
(i) the REIT would not qualify as such for Federal income
tax purposes but for the application of a
look-through exception to the five-or-fewer
requirement applicable to shares held by qualified trusts and
(ii) the REIT is predominantly held by
qualified trusts. A REIT is predominantly held if either
(i) a single qualified trust holds more than 25% by value
of the REIT interests or (ii) one or more qualified trusts,
each owning more than 10% by value of the REIT interests, hold
in the aggregate more than 50% of the REIT interests. The
percentage of any REIT dividend treated as UBTI is equal to the
ratio of (a) the UBTI earned by the REIT (treating the REIT
as if it were a qualified trust and therefore subject to tax on
UBTI) to (b) the total gross income (less certain
associated expenses) of the REIT. A de minimis exception
applies when the ratio set forth in the preceding sentence is
less than 5% for any year. For these purposes, a qualified trust
is any trust described in section 401(a) of the Code and
exempt from tax under section 501(a) of the Code. The
provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to
satisfy the five-or-fewer requirement without relying upon the
look-through exception. The Company believes that it
is not a pension-held REIT. No assurance can be given, however,
that the Company will not become a pension-held REIT in the
future.
Redemption of Preferred Stock
A redemption of the Preferred Stock will be treated under
Section 302 of the Code as a distribution taxable as a
dividend (to the extent of the Companys 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 (i) is
substantially disproportionate with respect to the
shareholder, (ii) results in a complete
termination of the shareholders interest in the
Company, or (iii) is not essentially equivalent to a
dividend with respect to the 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 shareholder as well as Preferred Stock
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 shareholder of Preferred
Stock owns (actually or constructively) no shares of Common
Stock of the Company or an insubstantial percentage of the
Common Stock of the Company, a redemption of the Preferred Stock
held by such 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
25
to any particular shareholder depends on the facts and
circumstances at the time that the determination must be made,
prospective shareholders of Preferred Stock should consult their
own tax advisors to determine such tax treatment.
If a redemption of Preferred Stock is treated as a distribution
taxable as a dividend, the shareholders adjusted basis in
the redeemed Preferred Stock for tax purposes will be
transferred to such shareholders remaining shares of the
Company. If the shareholder owns no other shares of the Company,
such basis may, under certain circumstances, be transferred to a
related person or it may be lost entirely.
Additional Tax Consequences for Holders of Depositary
Shares and Warrants
If the Company offers Depositary Shares or Warrants, there may
be additional tax consequences for the holders of such
Securities. For a discussion of any such additional
consequences, see the applicable Prospectus Supplement.
Special Tax Considerations for Foreign Shareholders
The rules governing United States Federal income taxation of
nonresident alien individuals, foreign corporations, foreign
partnerships, and foreign trusts and estates (collectively,
Non-U.S. Shareholders) are complex, and the
following discussion is intended only as a summary of such
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.
In general, a Non-U.S. Shareholder will be subject to regular
United States income tax with respect to its investment in the
Company if such investment is effectively connected
with the Non-U.S. Shareholders conduct of a trade or
business in the United States. A corporate Non-U.S. Shareholder
that receives income that is (or is treated as) effectively
connected with a U.S. trade or business may also be subject to
the branch profits tax under Section 884 of the Code, which
is payable in addition to regular United States corporate income
tax. The following discussion will apply to Non-U.S.
Shareholders whose investment in the Company is not so
effectively connected.
A distribution by the Company that is not attributable to gain
from the sale or exchange by the Company of a United States real
property interest and that is not designated by the Company as a
capital gain dividend will be treated as an ordinary income
dividend to the extent made out of current or accumulated
earnings and profits. Generally, any ordinary income dividend
will be subject to a United States withholding tax equal to 30%
of the gross amount of the dividend unless such tax is reduced
by an applicable tax treaty. A distribution of cash in excess of
the Companys earnings and profits will be treated first as
a return of capital that will reduce a Non-U.S.
Shareholders basis in its Shares (but not below zero) and
then as gain from the disposition of such shares, the tax
treatment of which is described under the rules discussed below
with respect to disposition of Shares.
Distributions by the Company that are attributable to gain from
the sale or exchange of a United States real property interest
will be taxed to a Non-U.S. Shareholder under the Foreign
Investment in Real Property Tax Act of 1980
(FIRPTA). Under FIRPTA, such distributions are taxed
to a Non-U.S. Shareholder as if such distributions were gains
effectively connected with a United States trade or
business. Accordingly, a Non-U.S. Shareholder will be taxed at
the normal capital gain rates applicable to a U.S. Shareholder
(subject to any applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien
individuals). Distributions subject to FIRPTA may be subject to
a 30% branch profits tax in the hands of a foreign corporate
shareholder that is not entitled to treaty exemption.
The Company will be required to withhold from distributions to
Non-U.S. Shareholders, and remit to the IRS, (i) 35% of
designated capital gain dividends (or, if greater, 35% of the
amount of any distributions that could be designated as capital
gain dividends) and (ii) 30% of ordinary dividends paid out
of earnings and profits. Distributions on the Preferred Stock
will be considered to be made out of the Companys earnings
and profits to the extent thereof. Distributions on the Common
Stock will be considered to be made out of the Companys
undistributed earnings and profits as reduced by distributions
26
on the Preferred Stock. In addition, if the Company designates
prior distributions as capital gain dividends, subsequent
distributions, up to the amount of such prior distributions,
will be treated as capital gain dividends for purposes of
withholding. A distribution in excess of the Companys
earnings and profits may be subject to 30% dividend withholding
if at the time of the distribution it cannot be determined
whether the distribution will be in an amount in excess of the
Companys current and accumulated earnings and profits. Tax
treaties may reduce the Companys withholding obligations.
If the amount withheld by the Company with respect to a
distribution to a Non-U.S. Shareholder exceeds such
shareholders United States tax liability with respect to
such distribution (as determined under the rules described in
the two preceding paragraphs), the Non-U.S. Shareholder may file
for a refund of such excess from the IRS. It should be noted
that the 35% withholding tax rate on capital gain dividends
currently corresponds to the maximum income tax rate applicable
to corporations, but is higher than the 28% maximum rate on
capital gains of individuals.
Unless the Shares constitute a United States real property
interest within the meaning of FIRPTA, the sale of Shares
by a Non-U.S. Shareholder generally will not be subject to
United States taxation. The Shares will not constitute a United
States real property interest if the Company is a
domestically controlled REIT. A domestically
controlled REIT is a REIT in which at all times during a
specified testing period less than 50% in value of its shares is
held directly or indirectly by Non-U.S. Shareholders. Currently,
the Company believes that it is a domestically controlled REIT,
and therefore the sale of Shares is not subject to taxation
under FIRPTA. Because the Shares are or may be publicly traded,
however, no assurance can be given that the Company will
continue to be a domestically controlled REIT. If the Company
does not constitute a domestically controlled REIT, whether a
Non-U.S. Shareholders sale of Shares would be subject to
tax under FIRPTA as a sale of a United States real property
interest would depend on whether the shares were regularly
traded (as defined by applicable Treasury Regulations) on
an established securities market (e.g., the New York Stock
Exchange), and on the size of the selling shareholders
interest in the Company.
If the gain on the sale of the Shares were subject to taxation
under FIRPTA, the Non-U.S. Shareholder would be subject to the
same treatment as a U.S. Shareholder with respect to such gain
(subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien
individuals). In any event, a purchaser of Shares from a
Non-U.S. Shareholder will not be required under FIRPTA to
withhold on the purchase price if the purchased Shares are
regularly traded on an established securities market
or if the Company is a domestically controlled REIT. Otherwise,
under FIRPTA the purchaser of Shares may be required to withhold
10% of the purchase price and remit such amount to the IRS, and
the Company may be required to withhold 10% of certain
distributions to Non-U.S. Shareholders. Notwithstanding the
foregoing, capital gain not subject to FIRPTA will be taxable to
a Non-U.S. Shareholder if 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 apply, in which case the nonresident alien
individual will be subject to a 30% tax on such
individuals capital gains.
Information Reporting Requirements and Backup Withholding
Tax
Under certain circumstances, U.S. Shareholders of Shares may be
subject to backup withholding at a rate of 31% on payments made
with respect to, or cash proceeds of a sale or exchange of,
Shares. Backup withholding will apply only if the holder
(i) fails to furnish its taxpayer identification number
(TIN) (which, for an individual, would be his social
security number), (ii) furnishes an incorrect TIN,
(iii) is notified by the IRS that it has failed properly to
report payments of interest and dividends, or (iv) under
certain circumstances, fails to certify, under penalty of
perjury, that it has furnished a correct TIN and has not been
notified by the IRS that it is subject to backup withholding for
failure to report interest and dividend payments. Backup
withholding will not apply with respect to payments made to
certain exempt recipients, such as corporations and tax-exempt
organizations. U.S. Shareholders should consult their own tax
advisors regarding their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
Backup withholding is not an additional tax. Rather, the amount
of any
27
backup withholding with respect to a payment to a U.S.
Shareholder will be allowed as a credit against such U.S.
Shareholders United States Federal income tax liability
and may entitle such U.S. Shareholder to a refund, provided that
the required information is furnished to the IRS.
Additional issues may arise pertaining to information reporting
and backup withholding with respect to Non-U.S. Shareholders,
and Non-U.S. Shareholders should consult their tax advisors with
respect to any such information reporting and backup withholding
requirements. Backup withholding with respect to Non-U.S.
Shareholders is not an additional tax. Rather, the amount of any
backup withholding with respect to a payment to a Non-U.S.
Shareholder will be allowed as a credit against any United
States Federal income tax liability of such Non-U.S.
Shareholder. If withholding results in an overpayment of taxes,
a refund may be obtained, provided that the required information
is furnished to the IRS.
Tax Aspects of TRG
The following discussion summarizes certain Federal income tax
considerations applicable solely to the Companys
investment in TRG. The discussion does not cover state or local
tax laws or any Federal tax laws other than income tax laws.
Classification
The Company is entitled to include in its income its
distributive share of TRGs income and to deduct its
distributive share of TRGs losses only if TRG and each
Center Owner is classified for Federal income tax purposes as a
partnership rather than as an association taxable as a
corporation, and none of the TRG Trusts are classified for
Federal income tax purposes as associations taxable as
corporations.
An entity will be classified as a partnership 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 under Treasury Regulations, effective
January 1, 1997, relating to entity classification (the
Check-the-Box Regulations).
In general, under the Check-the-Box 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. The Federal income tax classification of an entity
that was in existence prior to January 1, 1997, such as TRG
and most of the Center Owners, will be respected for all periods
prior to January 1, 1997 if (i) the entity had a
reasonable basis for its claimed classification, (ii) 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 (iii) 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. The Company believes that
TRG and each Center Owner existing prior to January 1, 1997
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 Center
Owners intend to continue to be classified as partnerships for
Federal income tax purposes, and none of them will elect to be
treated as an association taxable as a corporation under the
Check-the-Box Regulations.
The Company also believes that none of the TRG Trusts are
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 Trusts for Federal income
tax purposes. If such challenge were sustained by a court, the
TRG Trusts would be treated as a corporation for Federal income
tax purposes, as described below. In addition, the
Companys belief is based on existing law, which is to a
great extent the result of administrative and judicial
interpretation. No assurance can be given that administrative or
judicial changes would not modify this conclusion.
If for any reason any TRG Trust were taxable as a corporation
rather than as a trust for Federal income tax purposes, the
Company would not be able to satisfy the income and asset
requirements for REIT status. See Federal Income Tax
Considerations Requirements for Qualification
Income
28
Tests and Federal Income Tax Considerations
Requirements for Qualification Asset Tests. In
addition, any change in the status of a TRG Trust for tax
purposes might be treated as a taxable event, in which case the
Company might incur a tax liability without any related cash
distribution. If a TRG Trust were taxable as a corporation,
items of income and deduction would not pass through to its
beneficiary, which would be treated as a shareholder for tax
purposes. Such TRG Trust would be required to pay income tax at
corporate tax rates on its net income, and distributions would
constitute dividends that would not be deductible in computing
such TRG Trusts taxable income.
Income Taxation of TRG and Its Partners
Partners, Not TRG, Subject to Tax
A partnership is not a taxable entity for Federal income tax
purposes. Rather, the Company is required to take into account
its allocable share of TRGs income, gains, losses,
deductions, and credits for any taxable year of TRG ending
within or with the taxable year of the Company, without regard
to whether the Company has received or will receive any
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 a manner such
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. 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. Any
income, gain, loss, or deduction in excess of that specially
allocated to the contributing partners pursuant to
Section 704(c) of the Code is allocated to TRGs
partners in accordance with their percentage interests.
Accordingly, depreciation on any property contributed to TRG is
allocated to each contributing partner in a manner designed to
reduce the difference between such propertys fair market
value and its tax basis, using methods that are intended to be
consistent with statutory intent and Treasury Regulations under
Section 704(c) of the Code. On the other hand, depreciation
with respect to any property purchased by TRG subsequent to the
admission of the Company in late 1992 will generally be
allocated among the partners in accordance with their respective
percentage interests in TRG.
Sale of TRGs Property
Generally, any gain realized by TRG on the sale of property held
by TRG or a Center Owner 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. For a
discussion of the tax rate applicable to recapture of
depreciation on real property, see Recent
Legislation. Under Section 704(c) of the Code and the
Treasury Regulations governing the revaluation of TRGs
assets and the restatement of its capital accounts to fair
market value, any unrealized gain attributable to appreciation
in the regional shopping center interests prior to the admission
of the Company to TRG in late 1992 (Built-in-Gain)
must, when recognized, be allocated to the contributing
partners. Such Built-in-Gain would generally be equal to the
difference between the fair market value of the property upon
the Companys admission and the adjusted tax basis of TRG
in such property. Thus, the Company will not incur a tax on such
Built-in-Gains because (except as noted in the following
sentence) they must be allocated to partners in TRG other than
the Company. In addition, any Built-in-Gain with respect to
properties contributed to TRG subsequent to the Companys
admission to TRG must be allocated to the contributing partners.
As a consequence of its 1% pre-contribution interests in two of
the Taubman Shopping Centers, the Company will be allocated an
equivalent portion of pre-contribution gain in the event of a
disposition of either property. Further,
29
depreciation will be allocated to reduce the disparity between
fair market value and tax basis with respect to appreciated
property contributed to TRG or otherwise held by TRG prior to
the Companys admission to TRG. Such allocations will
permit the GM Trusts and the Company to claim larger
depreciation deductions because they have contributed solely
unappreciated property.
The Companys share of any gain realized by TRG on the sale
of any property held by TRG or a Center Owner as inventory or
other property held primarily for sale to customers in the
ordinary course of TRGs or a Center Owners trade or
business will, however, be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. See
Federal Income Tax Considerations Taxation of the
Company Income Tests. Such prohibited transaction
income will also have an adverse effect on the Companys
ability to satisfy the income tests for REIT status. See
Federal Income Tax Considerations Requirements For
Qualification 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 a Center
Owners trade or business is a question of fact that
depends on all the facts and circumstances with respect to the
particular transaction. TRG and the Center Owners intend to hold
the Taubman Shopping Centers for investment with a view to
long-term appreciation, and to engage in the business of
acquiring, developing, owning, and operating the Taubman
Shopping Centers, including peripheral land, consistent with
TRGs and the Center Owners investment objectives.
Recent Legislation
The 1997 Act contains significant changes to the taxation
of capital gains of individuals, trusts and estates and certain
changes to the REIT Requirements and to the taxation of REITs.
For net capital gains realized by individuals, trusts and
estates after July 28, 1997, and subject to certain
exceptions, the maximum rate of tax on gain from the sale or
exchange of assets held for more than 18 months has been
reduced to 20%. The maximum rate has been reduced to 18% for
assets acquired after December 31, 2000 and held for more
than five years. The maximum capital gains rate for capital
assets held for more than one year but not more than
18 months remains at 28%. The maximum rate for net capital
gains attributable to the sale of depreciable real property held
for more than 18 months is 25% to the extent of the
deductions for depreciation with respect to such property. With
respect to any depreciable real property held for more than one
year but not more than 18 months, depreciation deductions
claimed in excess of the depreciation that would have been
allowed if computed on a straight-line basis will be taxed at
the rates applicable to ordinary income with the remaining gain
being taxed at a maximum rate of 28%. The 1997 Act gives
the Treasury authority to issue regulations that could, among
other things, apply these rates on a look-through basis in the
case of pass-through entities such as the Company.
The taxation of capital gains of corporations was not changed by
the 1997 Act.
The 1997 Act also includes several provisions that are
intended to simplify the taxation of REITs. These provisions are
effective for the Companys taxable years commencing after
August 5, 1997.
|
|
|
First, the 1997 Act repeals the requirement that a
REIT receive less than 30% of its gross income from the sale or
disposition of stock or securities held for less than one year,
gain from prohibited transactions, and gain from certain sales
of real property held for less than four years. |
|
|
Second, in determining whether a REIT satisfies the
income tests, a REITs rental income from a property will
not cease to qualify as rents from real property
merely because the REIT performs services for a tenant other
than permitted customary services if the amount that the REIT
received or is deemed to have received as a result of performing
impermissible services does not exceed one percent of all
amounts received, directly or indirectly, by the REIT with
respect to such property. The amount that a REIT will be deemed
to have received for performing impermissible services is not
less than 150% of the direct cost to the REIT of providing those
services. |
|
|
Third, certain non-cash income, including income
from cancellation of indebtedness and original issue discount in
excess of actual payments received will be excluded from income
in determining the amount that a REIT is required to distribute
for the taxable year. The 1997 Act, |
30
|
|
|
however, did not change the 4% excise tax imposed upon a failure
to make required distributions. See Annual
Distribution Requirements. |
|
|
Fourth, a REIT may elect to require its shareholders
to include the REITs undistributed net capital gains in
their income. If the REIT makes such an election, the
REITs shareholders will include in their income as
long-term capital gain their proportionate share of the
undistributed net long-term capital gains and will receive a
credit or refund for their proportionate share of the tax paid
by the REIT on such undistributed capital gains as well as an
increase in basis for the amount of capital gain so included in
their income reduced by the amount of the credit or refund. The
1997 Act, however, did not change the 4% excise tax imposed upon
a failure to make required distributions. See
Annual Distribution Requirements. |
|
|
Finally, the 1997 Act contains a number of technical
provisions that reduce the risk that a REIT will inadvertently
cease to qualify as a REIT. |
State and Local Taxes
The Company is, and its shareholders may be, subject to state,
local, or other taxation in various state, local, or other
jurisdictions, including those in which they transact business
or reside. The tax treatment in such jurisdictions may differ
from the Federal income tax consequences discussed above.
Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on
their investment in the Company.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising
under ERISA, and the prohibited transaction provisions of
Section 4975 of the Code that may be relevant to prospective
investors. This discussion does not purport to deal with all
aspects of ERISA or the Code that may be relevant to particular
investors in light of their particular circumstances. A
PROSPECTIVE INVESTOR THAT IS AN EMPLOYEE BENEFIT PLAN SUBJECT TO
ERISA, A TAX QUALIFIED RETIREMENT PLAN, AN IRA OR A
GOVERNMENTAL, CHURCH OR OTHER PLAN THAT IS EXEMPT FROM ERISA IS
ADVISED TO CONSULT ITS OWN LEGAL ADVISOR REGARDING THE SPECIFIC
CONSIDERATIONS ARISING UNDER APPLICABLE PROVISIONS OF ERISA, THE
CODE AND STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP, OR
SALE OF THE SECURITIES BY SUCH PLAN OR IRA.
Fiduciary Duties and Prohibited Transactions
A fiduciary of a pension, profit-sharing, retirement, or other
employee benefit plan subject to ERISA (an ERISA
Plan) should consider the fiduciary standards under ERISA
in the context of the ERISA Plans particular circumstances
before authorizing an investment of any portion of the ERISA
Plans assets in Securities. Accordingly, such fiduciary
should consider (i) whether the investment satisfies the
diversification requirements of Section 404(a)(1)(C) of
ERISA; (ii) whether the investment is in accordance with
the documents and instruments governing the ERISA Plan as
required by Section 404(a)(1)(D) of ERISA;
(iii) whether the investment is prudent under
Section 404(a)(1)(B) of ERISA; and (iv) whether the
investment is solely in the interests of the ERISA Plan
participants and beneficiaries and for the exclusive purpose of
providing benefits to the ERISA Plan participants and
beneficiaries and defraying reasonable administrative expenses
of the ERISA Plan as required by Section 404(a)(1)(A) of
ERISA.
In addition to the imposition of fiduciary standards, ERISA and
Section 4975 of the Code prohibit a wide range of
transactions between an ERISA Plan, an IRA or certain other
plans (collectively, a Plan) and persons who have
certain specified relationships to the Plan (parties in
interest within the meaning of ERISA Section 3(14)
and disqualified persons within the meaning of the
Code Section 4975(e)(2)). Thus, a Plan fiduciary or person
making an investment decision for a Plan also should consider
whether
31
the acquisition or the continued holding of the Securities
Warrants might constitute or give rise to a direct or indirect
prohibited transaction.
Plan Assets
The prohibited transaction rules of ERISA and the Code apply to
transactions with a Plan and also to transactions with the
plan assets of a Plan. The plan assets
of a Plan include the Plans interest in an entity in which
the Plan invests and, in certain circumstances, the assets of
the entity in which the Plan holds such interest. The term
plan assets is not specifically defined in ERISA or
the Code, nor, as of the date hereof, has it been interpreted
definitively by the courts in litigation. On November 13,
1986, the United States Department of Labor (the
DOL), the governmental agency primarily responsible
for administering ERISA, adopted a final regulation (the
DOL Regulation) establishing the standards it will
apply in determining whether an equity investment in an entity
will cause the assets of such entity to constitute plan
assets. The DOL Regulation applies for purposes of both
ERISA and Section 4975 of the Code.
Under the DOL Regulation, if a Plan acquires an equity interest
in an entity, which equity interest is not a
publicly-offered security, and equity participation
in the entity by Plan investors is significant as
defined in the DOL Regulation, the Plans assets generally
would include both the equity interest and an undivided interest
in each of the entitys underlying assets unless certain
specified exceptions apply. The DOL Regulation defines a
publicly-offered security as a security that is widely
held, freely transferable, and either part of
a class of securities registered under Section 12(b) or
12(g) of the Exchange Act or sold pursuant to an effective
registration statement under the Securities Act (provided the
securities are registered under the Exchange Act within
120 days after the end of the fiscal year of the issuer
during which the offering occurred). The shares of Common Stock
and Preferred Stock offered by this Prospectus are being sold in
an offering registered under the Securities Act and are
registered under Section 12(b) of the Exchange Act.
The DOL Regulation provides that a security is widely
held only if it is part of a class of securities that is
owned by 100 or more investors independent of the issuer and of
one another. The DOL Regulation also provides that class of
securities will not fail to be widely held solely
because the number of independent investors falls below 100
subsequent to an initial public offering as a result of events
beyond the issuers control. The Company believes that the
Common Stock and the Preferred Stock are widely held
for purposes of the DOL Regulation.
The DOL Regulation provides that whether a security is
freely transferable is a factual question to be
determined on the basis of all the relevant facts and
circumstances. The DOL Regulation further provides that when a
security is part of an offering in which the minimum investment
is $10,000 or less, as is the case with this offering, certain
restrictions ordinarily will not affect, alone or in
combination, the finding that such securities are freely
transferable. The Company believes that the restrictions imposed
under the Articles on the transfer of Common Stock and Preferred
Stock are limited to restrictions on transfer generally
permitted under the DOL Regulation and are not likely to result
in the failure of the Common Stock or the Preferred Stock to be
freely transferable. See Restrictions on
Transfer. The DOL Regulation only establishes a
presumption in favor of a finding of free transferability;
therefore, no assurance can be given that the Department of
Labor and the Treasury Department would not reach a contrary
conclusion with respect to the Common Stock and/or the Preferred
Stock. Any additional transfer restrictions imposed on the
transfer of Common Stock or Preferred Stock will be discussed in
the applicable Prospectus Supplement.
Assuming that the Common Stock and the Preferred Stock will be
widely held and freely transferable, the
Company believes that the Common Stock will be publicly-offered
securities for purposes of the DOL Regulation and that the
assets of the Company will not be deemed to be plan
assets of any Plan that invests in the Common Stock or the
Preferred Stock.
32
PLAN OF DISTRIBUTION
The Company may sell the Securities to or through underwriters
and also may sell the Securities directly to investors or
through agents. The distribution of the Securities may be
effected from time to time in one or more transactions at a
fixed price or prices, which may be changed, at market prices
prevailing at the time of sale, at prices related to such
prevailing market prices at the time of sale, or at negotiated
prices.
The Prospectus Supplement will set forth terms of the offering
of the Securities, including where applicable: (i) the name
or names of any underwriters or agents with whom the Company has
entered into arrangements with respect to the sale or issuance
of Securities; (ii) any underwriting discounts,
commissions, and other items constituting underwriters
compensation from the Company and any other discounts,
concessions, or commissions allowed or reallowed or paid by any
underwriters to other dealers; (iii) any commissions paid
to any agents; and (iv) the net proceeds to the Company.
In connection with the sale of Securities, underwriters may
receive compensation from the Company or from purchasers of
Securities, for whom they may act as agents, in the form of
discounts, concessions, or commissions. Underwriters may sell
Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions, or
commissions from the underwriters or commissions from the
purchasers for whom they may act as agents. Underwriters,
dealers, and agents that participate in the distribution of
Securities may be deemed to be underwriters, and any discounts
or commissions they receive from the Company, and any profit on
the resale of Securities they realize, may be deemed to be
underwriting discounts and commissions under the Securities Act.
Underwriters, dealers, and agents may engage in transactions
with, or perform services for, the Company in the ordinary
course of business.
Unless otherwise set forth in the Prospectus Supplement relating
to the issuance of Securities, the obligations of the
underwriters to purchase such Securities will be subject to
certain conditions precedent, and each of the underwriters with
respect to such Securities will be obligated to purchase all of
the Securities allocated to it if any such Securities are
purchased. Any initial public offering price and any discounts
or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
LEGAL MATTERS
The validity of the Securities offered by this Prospectus, as
well as certain tax matters, will be passed upon for the Company
by Miro Weiner & Kramer, Bloomfield Hills, Michigan. Jeffrey
H. Miro, a senior member of Miro Weiner & Kramer, is the
Secretary of the Company.
EXPERTS
The audited financial statements and schedules incorporated by
reference in the Registration Statement of which this Prospectus
is a part, to the extent and for the periods indicated in their
reports, have been audited by Deloitte & Touche LLP,
independent public accountants, and are incorporated by
reference herein in reliance upon the authority of said firm as
experts in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the Exchange Act),
and in accordance therewith files reports, proxy statements, and
other information with the Securities and Exchange Commission
(the Commission). Such reports, proxy statements,
and other information filed by the Company with the Commission
can be inspected and copied at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of
the Commission: 7 World Trade Center, Suite 1300, New
York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Section
33
of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the
Companys Common Stock is traded on the New York Stock
Exchange (the NYSE). These reports, proxy
statements, and other information filed by the Company can also
be inspected at the NYSEs offices at 20 Broad Street,
New York, New York 10005.
This Prospectus constitutes a part of a Registration Statement
on Form S-3 (the Registration Statement) filed by
the Company with the Commission under the Securities Act of
1933, as amended (the Securities Act). In accordance
with the rules and regulations of the Commission, this
Prospectus omits certain of the information contained in the
Registration Statement and the exhibits and schedules to the
Registration Statement. For further information concerning the
Company and the Securities offered by this Prospectus, reference
is hereby made to the Registration Statement and the exhibits
and schedules filed with the Registration Statement, which may
be inspected without charge at the office of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and
copies of which may be obtained from the Commission at
prescribed rates. The Commission maintains a World Wide Web Site
(http://www.sec.gov) that contains such material regarding
issuers that file electronically with the Commission. The
Registration Statement has been so filed and may be obtained at
such site. Any statements contained in this Prospectus
concerning the provisions of any document are not necessarily
complete, and in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
INCORPORATION BY REFERENCE
The following documents filed with the Commission pursuant to
the Exchange Act (file number 1-11530) are incorporated by
reference into this Prospectus:
|
|
|
(a) the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 1996; |
|
|
(b) the Companys Proxy Statement dated March 28,
1997, relating to the annual meeting of shareholders held on May
14, 1997; |
|
|
(c) the Companys Quarterly Report on Form 10-Q for
the quarters ended March 31, 1997, and June 30, 1997; |
|
|
(d) the Companys Current Report on Form 8-K/A#1 filed
on July 10, 1997; and |
|
|
(e) the Companys Current Reports on Form 8-K dated
July 17, 1997, and September 4, 1997. |
All documents filed by the Company pursuant to Sections 13(a),
13(c), 14, or 15(d) of the Exchange Act (including any documents
incorporated by reference in such documents) after the date of
this Prospectus and prior to the termination of the offering of
the Securities offered by this Prospectus shall be deemed to be
incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of filing such documents. Any
statement contained in a document incorporated or deemed
incorporated by reference in this Prospectus shall be deemed to
be modified or superseded for purposes of this Prospectus to the
extent that a statement contained in this Prospectus or in any
other subsequently filed document that also is or is deemed to
be incorporated by reference in this Prospectus modifies or
supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or
oral request of any such person, a copy of any or all of the
documents incorporated by reference in this Prospectus (other
than exhibits to such documents that are not specifically
incorporated by reference in such documents). Written or oral
requests for copies should be directed to Taubman Centers, Inc.,
200 East Long Lake Road, Suite 300, Bloomfield Hills,
Michigan 48303-0200, Attention: Chief Financial Officer
(telephone: (248) 258-6800).
34
GLOSSARY
Unless the context otherwise requires, the following capitalized
terms shall have the meanings set forth below for the purposes
of this Prospectus:
ACMs means asbestos-containing materials.
Articles means the Companys Second
Amended and Restated Articles of Incorporation.
Asset Tests means, under the DOL
Regulations guidelines for an entity to qualify as a real
estate operating company, the requirement that on certain
specified valuation dates, at least 50% of its assets (valued at
cost and excluding certain short-term investments) be invested
in real estate which is managed or developed and with respect to
which such entity has the right to substantially participate
directly in the management or development activities.
AT&T Trust means the AT&T Master
Pension Trust and its assigns.
Built-in-Gain has the meaning ascribed to it
under the caption Federal Income Tax Considerations
Taxation of the Company.
Capital Stock means the Companys Common
Stock, Preferred Stock, and Excess Stock.
Cash Tender Agreement means the agreement
among the Company, the GM Trusts, and A. Alfred Taubman
trust, setting forth the terms and conditions of the Cash Tender.
Center Owners means, collectively, the Joint
Ventures, and the entities owning Taubman Shopping Centers that
are 100% beneficially owned by TRG.
Centers means the Taubman Shopping Centers.
Code means the Internal Revenue Code of 1986,
as amended.
Commission means the United States Securities
and Exchange Commission.
Common Stock means the Common Stock of the
Company.
Company means Taubman Centers, Inc., a
Michigan corporation.
Continuing Offer means the continuous,
irrevocable offer that Company has made to all present (and may,
in the discretion of the Company, make to certain future)
holders of partnership interests in TRG other than the GM Trusts
and A. Alfred Taubman and affiliates.
Deposit Agreement means an agreement among
the Company, a Depositary, and the holders of the Depositary
Receipts evidencing interests held by the Depositary pursuant to
such agreement.
Depositary Shares means shares of Preferred
Stock deposited with a Depositary pursuant to a Deposit
Agreement.
Depositary Receipts means receipts for
Depositary Shares evidencing a fractional interest of a share of
a particular series of Preferred Stock.
DOL means the United States Department of
Labor.
DOL Regulation means a regulation, issued by
the DOL, defining plan assets.
ERISA means the Employee Retirement Income
Security Act of 1974, as amended from time to time.
ERISA Plan means a pension, profit-sharing,
or other employee benefit plan subject to Title I of ERISA.
Excess Stock means shares owned, or deemed to
be owned, or transferred to a shareholder in excess of the
General Ownership Limited or an Existing Holder Limit.
35
Existing Holder Limit means the maximum
shares of Regular Capital Stock that the Trusts may own: the
greater of 8,731,426 shares and 19.8% in value of the Capital
Stock, in the case of the GM Trusts collectively; the greater of
6,059,080 shares and 13.74% in value of the Capital Stock, in
the case of the AT&T Trust; and the greater of 14,790,506
shares and 33.54% in value of the Capital Stock, in the case of
the Trusts collectively.
General Ownership Limit means the ownership
of more than 8.23% in value of the Capital Stock.
GM Trusts means the General Motors
Hourly-Rate Employes Pension Trust and the General Motors
Salaried Employes Pension Trust.
Incentive Option Plan means the plan under
which TRG issues to employees of the Manager options to acquire
Units of Partnership Interest.
Incentive Options means options to acquire
Units of Partnership Interest that may be granted under
TRGs Incentive Option Plan.
Independent Directors means the directors of
the Company who are unaffiliated with TRG, the TG Affiliates,
and the GM Trusts.
IRA means an individual retirement account.
IRS means the United States Internal Revenue
Service.
Joint Ventures means partnerships with
unaffiliated third parties through which TRG has interests in
certain Centers.
Look Through Limit means the up to 9.9% in
value of the outstanding Capital Stock that a Look Through
Entity may own under certain circumstances.
Manager means The Taubman Company Limited
Partnership, a Delaware limited partnership, which is more than
99% beneficially owned by TRG.
Non-U.S. Shareholders means non-resident
alien individuals, foreign corporations, foreign partnerships
and foreign trusts and estates.
Ownership Limits means the General Ownership
Limit, the Look Through Limit, and the Existing Holder Limit.
Partnership Agreement means the partnership
agreement of TRG.
Partnership Committee means the partnership
committee of TRG in which governance of TRG is vested.
Preferred Stock means the Preferred Stock of
the Company.
Prohibited UBTI Service Income means services
that would give rise to UBTI.
Recognition Period means the recognition
period pertaining to Built-in-Gain as defined pursuant to
Regulations to be issued under Section 337(d) of the Code.
Regular Capital Stock means shares of Common
Stock and Preferred Stock that have not become Excess Stock.
Regular Preferred Stock means shares of
Preferred Stock that have not become Excess Stock.
REIT means a real estate investment trust as
defined pursuant to Sections 856 through 860 of the Code.
REIT Requirements means the requirements for
qualifying as a REIT under the Code and Treasury Regulations.
Related Party Tenant means a tenant that is
owned, directly or constructively, by a REIT or an owner of 10%
or more of a REIT.
36
Securities means the Common Stock, Preferred
Stock, Depositary Shares, and Warrants offered by this
Prospectus and the applicable Prospectus Supplement.
Securities Act means the Securities Act of
1933, as amended from time to time.
Shares means shares of Common Stock,
Preferred Stock, or Depositary Shares.
Taub-Co means Taub-Co Management, Inc., a
Michigan corporation formerly known as The Taubman Company,
Inc., which is the Managers managing general partner and
predecessor-in-interest.
The Taubman Company Limited Partnership means
a Delaware limited partnership that is the Manager and that
provides substantially all property management and leasing
services for each Taubman Shopping Center and corporate,
development, administrative, and acquisition services for TRG
and the Company.
Taubman Shopping Centers means the regional
shopping centers in which TRG has ownership interests.
Ten Percent Stockholder means each individual
or entity which owns, either directly or through related
individuals and entities under the applicable attribution rules
of the Code, 10% or more of the Companys outstanding
shares of Capital Stock.
TG means TG Partners Limited Partnership, a
Delaware limited partnership, which is a general partner in TRG
and affiliates of A. Alfred Taubman.
TG Affiliates means TG, A. Alfred Taubman,
the members of his family, his and their affiliates, the
original partners in TRG and any affiliate of an original
partner in TRG or of any member of an original partners
family, and all officers and employees of the Manager for so
long as they are actively employed by the Manager, and for so
long as such individuals are so included, any affiliate of such
individuals, officers and employees.
Treasury Regulations means the Income Tax
Regulations promulgated under the Code.
TRG means The Taubman Realty Group Limited
Partnership, a Delaware limited partnership.
TRG Trusts means the trusts, of which TRG is
the sole beneficiary, which are (or in the future will become) a
partner with TRG in certain of the Center Owners.
Trusts means the GM Trusts and the AT&T
Trust.
UBTI means unrelated business taxable income
as defined in Section 512(a) of the Code.
Units of Partnership Interest means the units
into which partnership interests of TRG are divided, as provided
in the Partnership Agreement, and as the same may be adjusted,
as provided in the Partnership Agreement.
37
Taubman Centers, Inc.
Shares
%
Series H Cumulative Redeemable Preferred Stock
(Liquidation Preference $25.00 per
Share)
PROSPECTUS SUPPLEMENT
June ,
2005
Wachovia Securities
RBC Capital Markets
KeyBanc Capital Markets