Desert Passage disappoints

Tuesday, Nov. 5, 2002 | 11:17 a.m.

SUN STAFF AND WIRE REPORTS

NEW YORK -- Trizec Properties Inc.'s third-quarter loss widened as the second-largest U.S. office owner on Monday wrote down the value of big retail properties in Las Vegas and Los Angeles.

The net loss widened to $254.3 million, or $1.70 a share, from $8.49 million, or 6 cents, a year earlier, the co-owner of Chicago's Sears Tower said Monday. Revenue rose 5.7 percent to $244 million.

After a failed diversification into European real estate, U.S. retail space and "telecom hotels" that house switching equipment, Trizec chose to focus on U.S. offices just as vacancies were rising to a five-year high. Chairman Peter Munk in August hired Timothy Callahan, formerly of Equity Office Properties Trust, as the second chief executive since Trizec switched strategies.

Lower-than-expected returns from the Hollywood & Highland retail and office complex in Los Angeles and the Desert Passage mall at the bankrupt Aladdin resort on the Las Vegas Strip contributed to a 35 percent drop in Trizec's share price this year.

The company wrote down its investments in Hollywood & Highland by $181.4 million and Desert Passage by $57 million in the latest quarter. It also wrote down its investment in Sears Tower's second mortgage by $48.3 million.

This is the second time the value of the Hollywood & Highland and Desert Passage investments have been written down by Trizec. In January Trizec cut the value of the 2-year-old, 450,000-square-foot Desert Passage mall, originally valued at $290 million, by $18 million.

Also today, Trizec said it had reclassified Desert Passage as an asset it will hold instead of an asset held for sale. Trizec said earlier plans to sell the mall aren't being pursued because it's unlikely to sell before the end of 2003.

"Hollywood and Highland and Desert Passage depend on tourism for a significant portion of their visitors. The Sept. 11 2001 terrorist attacks have continued to impact the levels of visitors at both projects," Trizec said Monday.

"The results of operations of both projects have not met the levels expected in 2002 and the corporation believes the fair value of these properties has declined further," Trizec said.

"Further, the corporation anticipates that it will take considerably longer than originally expected to stabilize these properties and that their sale prior to the end of 2003 is unlikely," Trizec said.