Taubman, 3rd Largest Mall Operator, Surrenders Atantic City Mall & Writes Down Others

Discussion in 'Wall St. News' started by ByLoSellHi, Sep 22, 2009.

  1. Things are fine. Consumer is robust in AC and Richmond, Virgina, and NYC - nothing to see.

    Government is telling the truth. Green shoots everywhere.

    Go get loans, rack up credit cards, borrow on margin, borrow against collateral (oh wait, you can't, and consumer credit is shrinking).

    Taubman Will Relinquish Atlantic City Shops to Lender (Update4)
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    By David M. Levitt

    Sept. 22 (Bloomberg) --
    Mall owner Taubman Centers Inc. plans to turn over to its lender a mall on the Atlantic City, New Jersey, boardwalk because the recession cut traffic to the East Coast gaming capital.

    Taubman said the shops at the Caesars Atlantic City hotel aren’t generating enough cash to pay the debt. The Bloomfield Hills, Michigan-based real estate investment trust wrote down the value of The Pier Shops at Caesars and its Regency Square property in Richmond, Virginia, it said in a statement today.

    “Taubman has made the decision not to fund the negative cash flow, and we’re going to start talking to the lenders about restructuring the debt,” Lisa Payne, Taubman Centers’ chief financial officer, said in a telephone interview. The lender may end up owning the asset, she said.

    Atlantic City’s gambling revenue fell 16 percent in August as the second-biggest U.S. gambling center grappled with the industry’s worst slump on record. Sales at U.S. retail properties fell 71 percent to $3.6 billion in the first half of the year, according to New York-based research company Real Capital Analytics Inc.

    “In the past year, traffic has not met expectations due to a weakened economy and the challenges of the significant new gaming competition in Pennsylvania,” Robert S. Taubman, Taubman Centers’ chief executive officer, said in the statement.

    Competition for Gamblers

    Las Vegas Sands opened a casino in Bethlehem, Pennsylvania, in May that diverted gamblers from Atlantic City, according to Fitch Ratings.

    Taubman’s Atlantic City mall, a 282,000 square-foot retail center built on a pier off the boardwalk, includes a Tiffany & Co. jewelry store and the men’s clothier Hugo Boss. The mall is shown in an ad campaign for the Caesars casino, Payne said. The ad features the slogan “The Life You Were Meant to Live.”

    The Pier Shops are about 80 percent occupied, Payne said.

    The mall owner has a $135 million mortgage on the New Jersey shore property, according to the company’s statement. Payne said the REIT intends to “immediately” begin discussions with Centerline Capital Group, the debt servicer working on behalf of bondholders who bought securities backed by the loan.

    Negotiations could lead to an auction of the property, she said.

    “We’re happy to manage it while it goes through this transition,” Payne said. “We’ve got to have them move towards them taking control and ownership of the asset.”

    Elizabeth Haukaas, a Centerline spokeswoman, declined to comment.

    Burberry on Boardwalk

    The Pier Shops feature 80 “iconic luxury brands” and seven award-winning restaurants, according to Taubman Centers’ Web site. Burberry, Tourneau and Betsey Johnson have stores there, according to the site. The shops are on a pier that juts 900 feet into the Atlantic Ocean and connects to the 1,144-room hotel and casino via a sky bridge over the boardwalk.

    “We as a company have put a lot of effort and time into this asset,” Payne said. “The shoppers love it. It looks good. Unfortunately the debt is just too much.”

    The company acquired the mall in 2006, she said. As of early 2007, its interest in the property was 77.5 percent, according to the release.

    The Atlantic City and Virginia properties generate about $10 million of net operating income for Taubman, or less than 2 percent of the REIT’s expected $500 million of 2009 net operating income, Payne said.

    Effect of Writedowns

    Taubman’s writedowns will reduce third-quarter earnings by $161 million to $169 million, or $1.95 to $2.05 a share, according to the company’s statement. The Pier Shops will be written down to $52 million. Regency Square, an 820,000 square foot shopping center built in 1975, will be written down to about $30 million.

    Mall owners are reporting falling revenue as the recession reduces consumer spending. General Growth Properties Inc. filed the biggest real estate bankruptcy in U.S. history on April 16.

    Taubman shares rose $1.45, or 4 percent, to $37.37 in New York Stock Exchange composite trading. They are down 26 percent this year.

    To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net
    Last Updated: September 22, 2009 16:54 EDT