Taubman Centers Inc. (NYSE: TCO) this week announced the write down of the book values of 282,000-square-foot The Pier Shops at Caesars in Atlantic City, N.J., and the 820,000-square-foot Regency Square in Richmond, Va. The writedowns will result in a reduction in Taubman's earnings of $161 to $169 million, representing earnings and funds from operations of $1.95 to $2.05 per share.
"It's disappointing to announce these impairment charges," Chairman, president and CEO Robert S. Taubman said in a statement. "We've invested a significant amount of time and capital in these two properties. Unfortunately, the current economic environment has worked against our best efforts."
The company said that NOI generated from The Pier Shops at Caesars is insufficient to cover the debt service on the asset's $135 million non-recourse mortgage. Furthermore, given the dim long term prospects on the property, Taubman's board of directors has decided that the firm should "discontinue its financial support of the center." The company intends to immediately begin discussions with the lender, Centerline Capital, and, subject to the lender's future decisions, will continue management and leasing of the center.
Taubman is writing down the book value of the Pier by $106 to $111 million down to approximately $52 million. The company's entire cash investment to date in the property has been approximately $35 million. The property opened in 2006 and sits at the midpoint of the Atlantic City Boardwalk on a pier over the Atlantic Ocean.
The firm has also concluded that the investment in Regency Square is impaired based on current estimates of future cash flows for the property. As a result, the book value of the asset will be written down by $55 to $58 million to approximately $30 million. At the current level of NOI, Regency Square intends to continue to service its $74.5 million non-recourse mortgage loan.