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CHICAGO-Trizec Properties Inc. intends to become owner of the Sears Tower Jan. 2, says president and chief executive officer Timothy Callahan, and the REIT is basing its 2003 funds from operations estimates on the assumption that it will own the 110-story building for the entire year. Meanwhile, talks “are moving forward” with Metropolitan Life on restructuring the mortgage Trizec Properties, Inc. assumes on the tallest building in North America, Callahan adds, and could produce a new deal in January.

While quashing speculation that it may walk away from the trophy property three weeks from now, Trizec Properties instead is putting the 3.5-million-sf assets on its books at $774 million, Callahan says in a conference call Friday, while adding a corresponding debt load of $750 billion. Most recently, Sears Tower was appraised at $826 million, 9% less than a 2001 estimate of its value and just 6% more than the debt on the property.

“As things currently stand, the property will contribute six cents per share” to 2003 funds from operations, says Callahan, whose REIT’s expected range of $1.72 to $1.82 was below Wall Street analysts’ estimates.

Still unsettled, though, is terrorism insurance, despite President George W. Bush’s signature on the Terrorism Risk Insurance Act of 2002. However, Callahan expects the terrorism bill to be factored into quotes from insurance companies, and says lenders have agreed to exclude Sears Tower from loan covenants.

While Trizec Properties’ leasing team has renewed deals at Sears Tower for 130,000 sf, it hardly offsets the loss of two major financial services tenants that account for about 10% of the space at 233 S. Wacker Dr., where 7% of the building already is available. Although it has nine years remaining on its lease, Goldman Sachs & Co. is moving to a building under construction at 71 S. Wacker Dr., Merrill Lynch’s lease begins to expire in 2003, as the company moves to UBS Tower at 1 N. Wacker Dr.

While not referring to Sears Tower specifically, Callahan says Trizec Properties is not willing to conduct fire sales of assets. “We’re not going to sell just for the sake of selling, or sell just to reduce debt,” he says.

With Sears Tower becoming a full-fledged asset in the portfolio, Trizec Properties expects 2003 occupancy to range from 85% to 87%, down about three percentage points. The company is bearish on economic improvements and tenants’ need for office space, Callahan says.

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