The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our expectations or beliefs concerning future events and performance. Actual results may differ materially from those expected because of various risks and uncertainties. The forward-looking statements included in this report are made as of the date hereof or the date specified herein. Except as required by law, we assume no obligation to update these forward-looking statements, even if new information becomes available in the future. Other risks and uncertainties are detailed from time to time in reports filed with the Securities and Exchange Commission (SEC), and in particular those set forth under "Risk Factors" in our most recent Annual Report on Form 10-K, as well as "Risk Factors" elsewhere in this report. The following discussion should be read in conjunction with the accompanying consolidated financial statements of Taubman Centers, Inc. and the notes thereto.

General Background and Performance Measurement

Taubman Centers, Inc. (TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate investment trust (REIT). The Taubman Realty Group Limited Partnership (TRG) is a majority-owned partnership subsidiary of TCO that owns direct or indirect interests in all of our real estate properties. In this report, the terms "we", "us", and "our" refer to TCO, TRG, and/or TRG's subsidiaries as the context may require. We own, manage, lease, acquire, dispose of, develop, and expand retail shopping centers and interests therein. The Consolidated Businesses consist of shopping centers and entities that are controlled through ownership or contractual agreements, The Taubman Company LLC (Manager), and Taubman Properties Asia LLC and its subsidiaries and affiliates (Taubman Asia). Shopping centers owned through joint ventures that are not controlled by us but over which we have significant influence, Unconsolidated Joint Ventures (UJVs), are accounted for under the equity method.

References in this discussion to "beneficial interest" refer to our ownership or pro rata share of the item being discussed. Investors are cautioned that deriving our beneficial interest as our ownership interest in individual financial statement items may not accurately depict the legal and economic implications of holding a noncontrolling interest in an investee.

On February 9, 2020, we entered into an Agreement and Plan of Merger (the Merger Agreement) for Simon Property Group, Inc. (Simon) to acquire a 100% ownership interest in TCO and an 80% ownership interest in TRG. Simon, through its operating partnership, Simon Property Group, L.P. (the Simon Operating Partnership), will acquire all of TCO's common stock (other than certain shares of excluded common stock) for $52.50 per share in cash and certain members of the Taubman Family (including Robert S. Taubman, William S. Taubman, Gayle Taubman Kalisman, and the Estate of A. Alfred Taubman) will retain certain of their TRG interests so that they remain a 20% partner in TRG and will sell their remaining ownership interest in TRG for $52.50 per share in cash. The transaction is subject to customary closing conditions and is expected to close in the second or third quarter of 2020. For additional information regarding the merger, see our other filings made with the SEC, which are available on the SEC's website at www.sec.gov; provided, that the content of such website is not incorporated herein by reference.

The comparability of information used in measuring performance is affected by the acquisition of a 48.5% interest in The Gardens Mall in April 2019 (see "Results of Operations - The Gardens Mall Acquisition"), the redevelopment agreement for Taubman Prestige Outlets Chesterfield in May 2018 (see "Results of Operations - Redevelopment Agreement for Taubman Prestige Outlets Chesterfield"), and the ongoing redevelopment and tenant replacement activity, including the consolidation of the Macy's Men's space into the Macy's space in 2020, at Beverly Center. Additional "comparable center" statistics are provided to present the performance of comparable centers. Comparable centers are generally defined as centers that were owned and open for the entire current and preceding period presented, excluding centers impacted by significant redevelopment activity. Comparable center statistics for 2019 have been restated to include comparable centers to 2020. This affects the comparability of our operating results period over period. Additionally, The Mall of San Juan has been excluded from "comparable center" statistics as a result of Hurricane Maria, which occurred in 2017, given that the center's performance has been and is expected to continue to be materially impacted for the foreseeable future (see "Results of Operations - Hurricane Maria and The Mall of San Juan"). Stamford Town Center has also been excluded from "comparable center" statistics as the center is currently being marketed for sale (see "Results of Operations - Stamford Town Center").



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Current Operating Trends

COVID-19 Portfolio Impact

In response to the COVID-19 pandemic, we temporarily closed all but two of our U.S. shopping centers on March 19. The other two centers closed soon thereafter. We are preparing to reopen our centers, using enhanced protocols, as soon as possible in compliance with all local, state, and federal laws and mandates to help ensure the health and safety of communities we serve.

In Asia, our three operating centers experienced varying levels of disruption due to the COVID-19 pandemic. CityOn.Xi'an was closed for about a month and reopened on February 29. CityOn.Zhengzhou was closed for 10 days and reopened on February 27. Starfield Hanam never closed. In China, only theaters and children's entertainment tenants, representing on average about 10% of the space, remains restricted. Since reopening, both CityOn.Xi'an and CityOn.Zhengzhou have increased their traffic and sales. Total mall tenant sales and customer traffic at both centers upon reopening were down nearly 90 percent year-over-year. Now, two months later, both are approaching 2019 levels. At Starfield Hanam, both traffic and sales have fully recovered.

The operations of both our U.S. and Asia shopping centers have been and could continue to be significantly adversely impacted by COVID-19 as described above, however, the closures of our U.S. shopping centers did not significantly affect our financial results for the three months ended March 31, 2020. Mall tenant sales were significantly adversely impacted at our U.S. shopping centers during the three months ended March 31, 2020 as a result of the COVID-19 pandemic and the aforementioned center closures. In Asia, the operations and results of our three centers were significantly adversely impacted, though our share of the impact was limited due to our partial ownership interests in the centers (see "Results of Operations - Partial Dispositions of Ownership Interests (Blackstone Transactions)." As an owner of 24 real estate properties, our revenues are primarily derived from rents and recoveries from our shopping center tenants. We have and will continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our tenants, however, we are unable to predict the full magnitude of the pandemic and its effect on our future results of operations, cash flows, and liquidity due to uncertainties related to the impact of COVID-19 on our business, the industry, and the global economy.

As a result of the COVID-19 pandemic, during March and April, we received requests from many tenants relating to rent relief or rent deferral. We are evaluating each tenant request and negotiating with tenants on an individual basis based on a number of factors, however we do not believe all tenant requests will result in the modification of current agreements. A substantial amount of our April rental revenue receivables currently remains outstanding and are under negotiation. As a result of the rapid development and uncertainty surrounding the impact of COVID-19, collections and rent relief requests to-date may not be indicative of collections or requests in any future period. As such, the impact of the COVID-19 pandemic on our rental revenues in the future cannot be predicted at this point in time.

In early March, we began implementing several liquidity enhancement initiatives in response to the COVID-19 pandemic. We decided to defer significant planned capital expenditures at our U.S. shopping centers to future periods. Refer to "Liquidity and Capital Resources - 2020 Planned Capital Spending Update" for further details on these reductions. Operating expenses, at beneficial interest, are also expected to be reduced by approximately $10 million for the year. Further, as a result of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted on March 27, 2020 in response to the COVID-19 pandemic, our taxable REIT subsidiary was able to carry back additional net operating losses, resulting in a $1.4 million income tax benefit related to the carryback during the three months ended March 31, 2020.

In late March 2020, we borrowed an additional $350 million on our $1.1 billion primary unsecured revolving line of credit as a precautionary measure to increase liquidity and preserve financial flexibility due to uncertainty resulting from the COVID-19 pandemic, which is available to be used for temporary working capital needs and general corporate purposes in the near future. Refer to "Liquidity and Capital Resources - Cash and Revolving Lines of Credit" for further information regarding our cash balance, revolving line of credit terms, and remaining borrowing capacity.

Taken together, these actions have provided significant incremental liquidity to operate through this period of disruption. Despite the actions we have taken and intend to take to mitigate the impact of COVID-19 to our business, the extent to which the COVID-19 pandemic materially and adversely impacts our operations, financial condition, results of operations, and liquidity in the future, and those of our tenants and anchors, will depend on future actions and outcomes, which are highly uncertain and cannot be predicted, including (1) the severity and duration of the pandemic, (2) the actions taken to contain the pandemic or mitigate its impact, and (3) the direct and indirect economic and financial market effects of the pandemic and containment measures, among others. For further information regarding the potential impact of COVID-19 on our business, refer to "Part II, Item 1A. Risk Factors."



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General Operating Trends

Prior to the COVID-19 pandemic, the U.S. shopping center industry had already been facing challenges and turbulence in recent years as it continued to evolve rapidly. Across the industry, department store sales weakened and their ability to drive traffic substantially decreased, resulting in increased store closures, with mature mall tenants and anchors rationalizing square footage and being highly selective in opening new stores. Bankruptcy filings by our mall tenants have recently been elevated, and in 2019 included Forever 21, one of our largest mall tenants as of March 31, 2020. For the three months ended March 31, 2020, the combined operations of Forever 21 accounted for 3.6% of Mall gross leasable area (GLA) and 0.6% of Rental Revenues, as compared to 4.0% of Mall GLA and 2.1% of Rental Revenues for the three months ended March 31, 2019.

General retail headwinds have the potential to be prolonged and ultimately may still result in many centers incurring lost or reduced rent, paying higher tenant allowances, and/or experiencing unexpected terminations. Additionally, the impact of the COVID-19 pandemic has the potential to materially impede and/or slow the recovery of the U.S. shopping center and retail industries.

Tenant Sales and Occupancy Costs

Mall tenants at our U.S. comparable centers reported an 11.6% decrease in mall tenant sales per square foot in the first quarter of 2020 from the same period in 2019. For the trailing 12-month period ended March 31, 2020, tenant sales per square foot at our U.S. comparable centers were $955, a 2.0% increase from $936 for the trailing 12-month period ended March 31, 2019. In the first quarter of 2020, tenant sales were significantly adversely impacted by the COVID-19 pandemic, and the comparison to the prior year period was impacted by strong sales in the first quarter of 2019 from Tesla related to their Model 3 deliveries.

Over the long term, the level of mall tenant sales remains the single most important determinant of revenues of the shopping centers because mall tenants provide approximately 90% of these revenues and mall tenant sales determine the amount of rent and overage rent (together, mall tenant occupancy costs) that mall tenants can afford to pay. However, levels of mall tenant sales can be considerably more volatile in the short run than total occupancy costs, and may be impacted significantly, either positively or negatively, by the success or lack of success of a small number of tenants or even a single tenant. Additionally, mall tenant sales have been and could continue to be materially adversely affected by the COVID-19 pandemic due to store closures in the near term, and potentially in the long-term to the extent it significantly and adversely impacts mall traffic and consumer behavior, as well as the desirability of shopping, dining, and entertaining at malls (particular our large, enclosed malls) compared to other alternatives.

We believe that because most mall tenants sell goods at profitable margins and have certain fixed operating expenses, the occupancy costs that they can afford to pay and still be profitable are higher as sales per square foot increases.

Mall tenant sales directly impact the amount of overage rents certain tenants and anchors pay. The effects of increases or declines in mall tenant sales on our operations are moderated by the relatively minor share of total rents that overage rents represent. Overage rent is very difficult to predict as it is highly dependent upon the sales performance of specific mall tenants in specific centers, and is typically paid by a small number of our tenants in any given period.

In negotiating lease renewals, we generally intend to maximize the minimum rents we achieve. As a result, a tenant will generally pay a higher amount of minimum rent and an initially lower amount of overage rent upon renewal.

While mall tenant sales are critical over the long term, the high-quality mall business has generally been a very stable business model with its diversity of income from thousands of tenants, its staggered lease maturities, and high proportion of fixed rent. However, a sustained trend in mall tenant sales does impact, either negatively, due to the adverse impact of the COVID-19 pandemic or otherwise, or positively, our ability to lease vacancies and sign lease renewals, negotiate rents at advantageous rates, and collect amounts contractually due.



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Mall tenant occupancy costs (Rental Revenues and Overage Rents excluding lease cancellation income and uncollectible tenant revenues) as a percentage of sales in our U.S. Consolidated Businesses and UJVs are as follows:


                               Trailing 12-Months Ended March 31 (1)
                                    2020                    2019
U.S. Consolidated Businesses           14.0 %                   13.8 %
U.S. UJVs                              12.2                     12.0
Combined U.S. Centers                  13.1                     13.0



(1)            Based on reports of sales furnished by mall tenants of all U.S.
               centers reported during that period.

Occupancy and Leased Space

U.S. mall tenant ending occupancy and leased space statistics as of March 31, 2020 and 2019 are as follows:


                                           2020 (1)    2019 (1)
Ending occupancy - all U.S. centers           90.9 %      92.2 %

Ending occupancy - U.S. comparable centers 91.9 93.0 Leased space - all U.S. centers

               93.4        94.8

Leased space - U.S. comparable centers 94.6 95.5

(1) Occupancy and leased space statistics include temporary in-line tenants (TILs) and anchor spaces at value and outlet centers (Dolphin Mall and Great Lakes Crossing Outlets).

The difference between leased space and occupancy is that leased space includes spaces where leases have been signed but the tenants are not yet open. The occupancy statistic represents those spaces upon which we are currently collecting rent from mall tenants. The spread between comparable center leased space and occupied space, at 2.7% this quarter, is consistent with our history of 1% to 3% in the first quarter.

During the three months ended March 31, 2020, 0.6% of the total number of tenant leases filed for bankruptcy, as compared to 2.7% of our stores for the year ended December 31, 2019. Although our occupancy and leased space statistics remain solid, there is a potential for elevated bankruptcy filings in 2020 as a result of the impact of the COVID-19 pandemic on the economy and our tenants' businesses, which could have a material and adverse effect on our business and results of operations.






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Average and Base Rent Per Square Foot

As leases have expired in our centers, we have generally been able to rent the available space, either to the existing tenant or a new tenant, at rental rates that are higher than those of the expired leases. Although rental revenues are down during the three months ended March 31, 2020 as compared to 2019 due to the restructuring of our leases with Forever 21 related to their bankruptcy filing in 2019, generally, center revenues have increased as older leases rolled over or were terminated early and replaced with new leases negotiated at current rental rates that were usually higher than the average rates for existing leases. In periods of increasing sales, rents on new leases will generally tend to rise. In periods of slower growth or declining sales, rents on new leases will generally grow more slowly or will decline, as occurred in the first quarter of 2020, or we may execute shorter lease terms, as tenants' expectations of future growth become less optimistic. Average and base rent per square foot could be significantly adversely impacted by the COVID-19 pandemic in future periods (see "Current Operating Trends - COVID-19 Portfolio Impact"). Average and base rent per square foot statistics are computed using contractual rentals per the tenant lease agreements (excluding lease cancellation income, expense recoveries, and uncollectible tenant revenues), which reflect any lease modifications, including those for rental concessions. Rental information for comparable centers in our Consolidated Businesses and UJVs follows:


                                                         Three Months Ended March 31
                                                           2020                2019

Average rent per square foot - all U.S. comparable centers: (1) U.S. Consolidated Businesses

                        $          70.47     $        71.13
U.S. UJVs                                                      53.65              55.69
Combined U.S. Centers                                          62.12              63.41

(1) Statistics exclude non-comparable centers and Asia centers.




                                                       Trailing 12-Months Ended March 31 (1) (2)
                                                             2020                       2019
Opening base rent per square foot:
U.S. Consolidated Businesses                        $           57.59           $           66.21
U.S. UJVs                                                       48.04                       47.54
Combined U.S. Centers                                           53.77                       58.55
Square feet of GLA opened:
U.S. Consolidated Businesses                                  588,694                     590,038
U.S. UJVs                                                     391,543                     410,702
Combined U.S. Centers                                         980,237                   1,000,740
Closing base rent per square foot:
U.S. Consolidated Businesses                        $           65.17           $           61.17
U.S. UJVs                                                       52.25                       50.15
Combined U.S. Centers                                           59.46                       56.21
Square feet of GLA closed:
U.S. Consolidated Businesses                                  523,139                     513,404
U.S. UJVs                                                     414,893                     420,343
Combined U.S. Centers                                         938,032                     933,747
Releasing spread per square foot:
U.S. Consolidated Businesses                        $           (7.58 )         $            5.04
U.S. UJVs                                                       (4.21 )                     (2.61 )
Combined U.S. Centers                                           (5.69 )                      2.34
Releasing spread per square foot growth:
U.S. Consolidated Businesses                                    (11.6 )%                      8.2  %
U.S. UJVs                                                        (8.1 )%                     (5.2 )%
Combined U.S. Centers                                            (9.6 )%                      4.2  %

(1) Statistics exclude non-comparable centers and Asia centers.




(2)    Opening and closing statistics exclude spaces greater than or equal to
       10,000 square feet.

(2) Opening and closing statistics exclude spaces gr The spread between rents on openings and closings may not be indicative of future periods, as this statistic is not computed on comparable tenant spaces, and can vary significantly from period to period depending on the total amount, location, duration of the lease, and average size of tenant space opening and closing in the period. Broadly, the lower or negative releasing spread reflects the recently decelerating environment for retail, as demonstrated by lower or negative rent growth.



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Results of Operations

In addition to the results and trends in our operations discussed in the preceding sections, the following sections discuss certain transactions or events that affected operations during the three months ended March 31, 2020 and 2019, or are expected to affect operations in the future.

COVID-19 Impact

In response to the COVID-19 pandemic, we temporarily closed all but two of our U.S. shopping centers on March 19. The other two centers closed soon thereafter. The closures of our U.S. shopping centers did not significantly affect our financial results for the three months ended March 31, 2020. In Asia, the operations and results of our three centers were significantly adversely impacted, though our share of the impact was limited due to our partial ownership interests in the centers (see "Results of Operations - Partial Dispositions of Ownership Interests (Blackstone Transactions)." We are preparing to reopen our U.S. shopping centers, using enhanced protocols, as soon as possible in compliance with all local, state and federal laws and mandates to help ensure the health and safety of communities we serve. In Asia, all three centers are currently open, and operations continue to improve and stabilize.

Despite the actions we have taken and intend to take to mitigate the impact of COVID-19 on our business, the extent to which the COVID-19 pandemic materially and adversely impacts our operations, financial condition, results of operations, and liquidity in the future, and those of our tenants and anchors, will depend on future actions and outcomes, which are highly uncertain and cannot be predicted, including (1) the severity and duration of the pandemic, (2) the actions taken to contain the pandemic or mitigate its impact, and (3) the direct and indirect economic and financial market effects of the pandemic and containment measures, among others. Refer to "Current Operating Trends - COVID-19 Portfolio Impact" and "Part II, Item 1A. Risk Factors" for further information regarding the current impact and potential future impact of the COVID-19 pandemic on our business and our response to mitigate the impact.

Also, as a result of the CARES Act, our taxable REIT subsidiary was able to carry back additional net operating losses, resulting in the recognition of a $1.4 million income tax benefit related to the carryback during the three months ended March 31, 2020 (see "Note 3 - Income Taxes" to our consolidated financial statements for further information).

The Gardens Mall Acquisition

In April 2019, we acquired a 48.5% interest in The Gardens Mall in Palm Beach Gardens, Florida in exchange for 1.5 million newly issued units of limited partnership in TRG (TRG Units). We also assumed our $94.6 million share of the existing debt at the center, which bears interest at 6.8% and matures in July 2025. The debt assumed was adjusted for our beneficial share of $27.6 million of purchase accounting adjustments, which has the effect of reducing the stated rate on the debt of 6.8% to an average effective rate of 4.2% over the remaining term of the loan. The Forbes Company, our partner in The Mall at Millenia and Waterside Shops, also owns a 48.5% interest and manages and leases the center. Our ownership interest in the center is accounted for as a UJV under the equity method.

Simon Common Shares Investment

In January 2019, we sold our remaining investment in 290,124 Simon common shares at an average price of $179.52 per share. Proceeds from the sale were used to pay down our revolving lines of credit.




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Hurricane Maria and The Mall of San Juan

The Mall of San Juan incurred significant damage from Hurricane Maria in 2017. We have received substantial insurance proceeds to cover hurricane and flood damage, as well as business and service interruption. In June 2019, we reached a final settlement with our insurer and received final payment related to our claims.

The following table presents a summary of the insurance proceeds received relating to our claim for The Mall of San Juan for the three months ended March 31, 2019:

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