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BLOOMFIELD HILLS, MI-Taubman Centers Inc. announced it is writing down the book values of two of its properties to align with fair value this quarter. The REIT will write down the value of The Pier Shops at Caesars in Atlantic City, NJ and Regency Square in Richmond, VA. The action will produce a reduction of earnings between $161 million and $169 million, representing earnings and funds from operations of $1.95 to $2.05 per share.

“It’s disappointing to announce these impairment charges,” Robert S. Taubman, chairman, president and CEO of Taubman, says. “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.”

By Generally Accepted Accounting Principles (GAAP), an impairment charge must be noted in the case that the book value of a long-lived asset exceeds its fair value and is not believed to be recoverable. Taubman’s decision to write down the properties was based on their expected future cash flows after capital expenditures.

Opened in 2006, the 282,000-square-foot The Pier Shops generated positive net operating income (NOI), but in an amount insufficient to cover debt service on its $135 million mortgage. As a result, Taubman’s board of directors decided to discontinue its financial support of the center and will engage the lender to determine the future of the property. The company’s cash investment there to date is around $35 million, and the book value of the property will now be written down by about $111 million to $52 million.

“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,” Taubman says. “This is underscored by the recently released August gaming results.”

Built in 1975, Regency Square is an 820,000-square-foot shopping center, which is also impaired based on future cash flow estimates. The property has declining NOI and will be further impacted negatively by necessary capital expenditures. The book value will be written down by around $58 million to $30 million, but Regency’s $74.5 million mortgage will continue to be serviced, given current levels of NOI.

“It’s important to note that these properties generate less than two percent of our net operating income and are estimated to be dilutive to 2009 Funds from Operations by $0.06 per share (before the impairment charges),” Taubman says. “The rest of our portfolio is performing well, our balance sheet is strong, our overall business is sound and our company is well positioned to move forward.

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