Rouse operating net up shopping center planned

May 11, 1994|By Jay Hancock | Jay Hancock,Sun Staff Writer

Continuing its recovery from the retail and real estate slumps, the Rouse Co. yesterday reported sharply higher operating profits for its latest quarter and confirmed that it will start its first major mall project since 1987.

Columbia-based Rouse will develop a more than 1-million-square-foot shopping center with four or five department stores in Spartanburg, S.C., said David Tripp, the company's director of investor relations.

Rouse will formally announce the project, scheduled to be completed as early as 1996, at its shareholders' meeting tomorrow.

The company's operating earnings for the three months that ended March 31 rose by 28 percent, to $20.19 million, thanks to lower interest costs and higher store rents. The improvements came even though vacancies in the company's malls rose slightly.

Operating earnings don't include depreciation and deferred taxes, noncash expenses that financial analysts believe often mask a real estate company's performance.

Rouse's last major mall was Arizona Center in Phoenix, announced in 1987 and opened in 1989 and 1990. Since then, like many real estate firms, the company has become mainly a landlord, collecting rents and keeping the floors clean.

When Rouse begins building shopping centers again, analysts believe, its already improved results should be burnished even more.

"That's what Wall Street is looking for -- for them to get back into the development front," said David L. Beeghly, an analyst with investment firm Scott & Stingfellow Inc. in Richmond, Va.

Indeed, Rouse's improved profits and its Spartanburg project, on the growing corridor between Atlanta and Charlotte, N.C., underscore how much the retail real estate sector has recovered.

"A year ago, if you had announced you were building a regional shopping center, people would have thought you were crazy," Mr. Beeghly said.

One factor in the renewed interest in retail development is more readily available financing.

Lenders are making loans again, in part because borrowers such as Rouse have cleaned up their balance sheets. Rouse's bottom line for the first quarter was boosted by millions of dollars because it was able to refinance much of its debt last year at lower rates, analysts said.

But tenant stores are doing better, too. Rouse estimates that its retail tenants will post sales increases of between 2 percent and 4 percent this year, as the economy continues to improve and consumer confidence grows.

That helps Rouse because it gets a cut of store revenue, and a better retail climate means landlords can charge higher rents, too. The company said its first-quarter results were helped by rent increases.

Rouse's retail occupancy rate has fallen slightly, to 91.6 percent on March 31 compared with 92.2 percent a year previously. But analysts said Rouse's malls still have lower vacancies than most.

And company spokesman Mr. Tripp said many of the vacancies would be filled soon -- at higher rates.

As in previous periods, Rouse's bottom-line results for its latest three months actually showed a net loss. That's because accounting rules require the company to take depreciation charges on real estate assets that actually are gaining value.

Rouse's net loss for the first quarter was $2.72 million, on revenue of $162.53 million. That compared with a loss of $2.50 million on revenue of $152.74 million for the same period a year ago.

But Wall Street isn't worried. Said Mr. Beeghly: "I think they're in very good shape."

Rouse Co. ... ... ... ... Ticker ... ... ... ... Yesterday's

... ... ... ... .. .. ... Symbol ... ... ... ... Cls. ... Chg.

... ... ... ... .. .. ... ROUS ... ... .. .. ... 18 3/4 .. .. - 1/4

Period ended

3/31/94 ... ... ... ... 1st qtr. ... ... ... Year ago ... ... Chg.

Revenue ... ... ... ... $162,534 ... ... ... $152,742 ... ... +6.4%

Net Income* ... ... ... $(2,724) ... ... ... $(2,501) ... ... --%

Primary EPS ... ... ... $(0.13) .. .. .. ... $(0.09) .. .. .. --%

* Earnings before depreciation and deferred taxes, a common measure of profits in the real estate industry, increased by 28 percent, to $20.19 million.

Figures in thousands (except per share data.)

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