in failed e-retail portal Fashionmall.com and broadband network MerchantWired.com will impact Taubman Centers’ second quarter 2002 earnings.
The Bloomfield Hills, Mich.-based REIT announced today it has agreed to convert its preferred stockin Fashionmall.com into 824,084 common shares. The conversion will occur on the contingent that Fashionmall.com’s CEO and majority shareholder will either liquidate the company or conduct a transaction that is reasonable to both Taubman and the majority shareholder by the end of the year. According to Taubman, the REIT expects to receive $3.1 million and an estimated residual value of at least $0.4 million from the transaction. Taubman says it will recognize an approximately $2 million loss on the Fashionmall.com investment in second quarter 2002.
Taubman’s second charge relates to MerchantWired, a collaboration between the industry’s biggest mall REITs that is closing down after a failed attempt to find a buyer. Taubman invested approximately $6 million in the venture, $4.1 million of which was paid in the second quarter to guarantee MerchantWired’s obligations. Taubman says it will assume ownership of MerchantWired’s equipment and related assets located at its centers.
Other REITs are sharing Taubman’s pain, though analysts speculate the charges will affect only the companies’ net income and not funds from operations (FFO). "We expect to see several mall REITs, including Simon, Macerich, Rouse, Taubman and Westfield, take charges with respect to their losses in MerchantWired," wrote analyst Jonathon Litt of Salomon Smith Barney in a report on the announcement.
"In addition, these companies will no longer be incurring operating losses from MerchantWired. Therefore, since the companies will not be expensing their share of operating losses, we expect this to be positive to FFO by approximately $0.02 to $0.04 per share on an annual basis."