LOGO TAUBMAN
THE FORUM SHOPS AT CAESARS:
A UNIQUE OPPORTUNITY
THE OPPORTUNITY
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o Approached by Sheldon Gordon - original visionary and designer of The Forum
Shops at Caesars (Las Vegas)
o Gordon Group ("Gordon") approximately 42% limited partner, Simon 58%
general partner in Forum Shops
o Gordon attracted to Taubman leasing strengths and Taubman focus on high-
quality assets
- Historic partner in Beverly Center
- Over 40-year relationship with Taubman
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THE FORUM SHOPS
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o Unique, premium-quality asset -- perfect fit within Taubman portfolio
o Approximately 500,000 sf existing (Phases I and II)
o One of the most productive retail venues in the country
- Sales per square foot in excess of $1,100
o High-end tenancy (Louis Vuitton, Gucci, Escada, Bvlgari, etc.)
o Opening of Celine Dion Theatre in March 2003 -- entrance and exit next to
casino/mall entrance
- 4,000 additional high-end consumers passing through the property each
day
o Expansion potential (Phase III)
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BUY/SELL: A "TEXAS DRAW"
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o Current partnership agreement between Simon and Gordon contains a "buy/
sell" provision
o Gordon has initiated the buy/sell mechanism
- Willing to buy or sell at a gross valuation of $590 million
- Existing Debt: $175 million
- Simon Equity: $241 million (58%)
- Gordon Equity: $174 million (42%)
- Non-competitive process; approximate 6.25-6.5% cap rate
o Current partnership agreement provides:
- Simon has 30 days to decide whether to buy or sell
- Absent affirmative election, Simon deemed to have agreed to sell
- Closing to occur within 120 days of Simon decision
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THE FORUM SHOPS VENTURE - STRUCTURE
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IF SIMON SELLS:
o Gordon acquires Simon interests and becomes sole owner of Forum Shops
o Gordon then contributes a 33.3% interest in Forum Shops to Taubman in
exchange for 2.42 million Taubman OP units at $24 per unit and Gordon and
Taubman become joint venture partners in Forum Shops
- Gordon's OP units will have the same attributes of ordinary units
except:
- No voting rights
- Very limited rights to sell units for 2 years, then on a
phased basis over 3 years
- Ownership: Gordon 66.7%, Taubman 33.3%
- Taubman becomes the Manager of Forum Shops
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THE FORUM SHOPS VENTURE - STRUCTURE
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IF SIMON SELLS:
o Firm commitment for $385 million mortgage financing
- 5-year fixed rate
o Taubman to provide preferred equity of $72 million to the joint venture
- Provided in two tranches -- $44 million for Gordon's purchase of Simon's
interest, $28 million equity for Phase III expansion
- 12% coupon, current pay
- To be repaid with refinancing proceeds
o At Gordon's insistence, agreement with Taubman contains provisions ensuring
that Gordon's partnership with Simon is ended permanently
- Change-of-control "put" at fair market value in the event that Simon
ever becomes successor to Taubman's interest
- Ability to change Manager if Simon ever becomes successor to Taubman
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THE FORUM SHOPS VENTURE - STRUCTURE
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IF SIMON SELLS (CONTINUED):
o Sources and Uses of funds
Sources:
Mortgage Debt $ 385 million
Taubman Preferred Equity* 72
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$ 457 million
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Uses:
Pay Off Mortgage $ 175 million
Gordon's Purchase of Simon's Interest 241
Transaction Costs 13
Equity for Phase III 28
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$ 457 million
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* Two tranches: $ 44 million for Gordon's Purchase of Simon's
Interest
28 million equity for Phase III
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$ 72 million
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THE FORUM SHOPS VENTURE - STRUCTURE
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IF SIMON SELLS (CONTINUED):
o Balance Sheet -- Phases I and II
Gordon Equity $ 116 million
Taubman Equity 58
Taubman Preferred Equity 44
Mortgage Debt 385
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Total $ 603 million*
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* Includes $13 million of transaction costs.
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THE FORUM SHOPS VENTURE - STRUCTURE
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IF SIMON BUYS:
o Gordon to invest $50 million cash in Taubman in exchange for 2.08 million
Taubman OP units at $24 per unit to have the same attributes of ordinary
units except:
- No voting rights
- Very limited rights to sell units for 2 years, then on a phased basis
over 3 years
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SIGNIFICANT UPSIDE
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o Substantially Under-Rented
- Extremely high sales levels -- in excess of $1,100 psf
- Relatively low occupancy costs of 12.9% vs. Taubman average of 14.5% (vs.
$456 psf Taubman average sales for 2001)
- Significant near-term rollover at low rents: 131,000 sf over next 5
years
o Tenant Mix
- Will benefit from Taubman's strong luxury tenant relationships
- Increased food and entertainment focus
o Phase III Expansion -- brings the mall directly onto the Strip
- 175,000 additional square feet of prime space
- 10% unleveraged return on conservative rent assumptions
o New Demand/Increase in Core Customers
- Caesars (opening of Celine Dion Theatre)
- Le Reve (new high-end hotel with approximately 2,700 rooms)
- Venetian (new hotel tower with 1,000 additional rooms)
- 5,000 additional rooms in immediate trade area over next 5 years
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WHY THIS MAKES SENSE FOR TAUBMAN
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o Perfect asset fit in "buy" scenario
- Consistent with Taubman management / leasing strengths
o Immediately accretive: $0.06 during first full year
- Management, leasing, development fees
- 12% preferred return on $72 million investment
o Significant upside
o Increases equity base of Taubman under either scenario
- Equity issuance at a premium to current market price
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TRANSACTION STEPS
(Flow Chart Depicts Following:)
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Gordon Within 30 Days: Within 120 Days New JV to Own Forum
Triggers Buy/Sell Simon Decides of Decision: Closing Shops if Simon Sells to Gordon
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Simon decides Simon sells to Gordon o Gordon and Taubman form new joint venture
to sell - Gordon and Taubman serve as General Partners
- Taubman serves as Manager
o Ownership: Gordon 66.7%, Taubman 33.3%
- Gordon contributes 33.3% interest to
Taubman in exchange for Taubman units
- Approximately 2.42 million units issued
- $24/unit
o Gordon units have same attributes as ordinary
Taubman units, except:
Gordon triggers Simon makes no Under the terms of the - No voting rights
buy/sell provision decision within buy/sell provision, "no - Very limited rights to sell units for 2 years,
of current partnership 30 day period decision" by Simon then on a phased basis over 3 years
agreement with Simon results in a Simon sale o Firm commitment in hand for $385 million
mortgage financing
o Taubman provides $72 million of preferred
equity to JV
- 12% coupon, current pay
- To be repaid with refinancing proceeds
o Gordon invests $50 million cash in Taubman
and receives Taubman units:
- Approximately 2.08 million units issued
- $24/unit
Simon decides Gordon sells to Simon o Gordon units have same attributes as ordinary
to buy Taubman units, except:
- No voting rights
- Very limited rights to sell units for 2 years,
then on a phased basis over 3 years
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