Rouse Co. cuts annual interest by $2.5 million

REFINANCING OWINGS MILLS MALL

April 25, 1995|By Kevin L. McQuaid | Kevin L. McQuaid,Sun Staff Writer

The Rouse Co. has refinanced its nearly $100 million mortgage on the Owings Mills Mall, part of a campaign by the Columbia-based real estate concern to reduce its interest expenses by millions of dollars annually.

The new Lehman Brothers loan on the 809,000-square-foot mall bears a variable interest rate and trims more than 3 percentage points off Rouse's previous mortgage, according to data contained in the company's most recent annual report and a Rouse official.

The $96.8 million mortgage replaces debt held by four pension funds, including Wisconsin and Alaska retirement plans.

Rouse expects the loan from the New York brokerage house will save the company $2.5 million a year, based on current interest rates.

"We were able to work out a deal with them in part because the pension funds were looking to devaluate their exposure to real estate," said Jeffrey H. Donahue, a Rouse senior vice president and the company's chief financial officer.

Owings Mills Mall, completed in July 1986 and one of eight area Rouse retail hubs, is anchored by Hecht's, Saks Fifth Avenue and Macy's department stores.

It also is the model for two new Rouse malls planned for Spartanburg, S.C., and Orlando, Fla.

The Owings Mills refinancing also represents the latest in a series of Rouse moves to lower payments on its $2.4 billion total debt through interest rate reductions and mortgage retirements.

Rouse President and Chief Executive Anthony W. Deering cited lower interest expenses as one of several key factors contributing to Rouse's record $94.7 million in earnings before noncash charges last year.

Since 1991, Rouse has tapped public capital markets and other lenders for nearly $2 billion worth of new financing for its Arizona Center project in Phoenix; Staten Island Mall in New York; and various buildings connected to its 1988 purchase of the former McCormick Properties Inc. portfolio, among others.

"They've been fairly aggressive in addressing situations where they feel the debt coverage is burdensome," said Robert A. Frank, an Alex. Brown & Sons Inc. managing partner who tracks Rouse. "And they're in good shape for having done that. Now that that is largely done, I think they'll be able to focus more on the asset side of their business."

The new financing marks the second recent transaction by Rouse involving Owings Mills Mall.

In June 1993, Rouse acquired the 50 percent equity interest of partner JMB Realty Co. for roughly $4 million.

Despite the pension funds' willingness to reduce their real estate exposure, Rouse had to pay $7.1 million in penalties for prepaying the mortgage, the annual report noted.

"This gets us out of a relatively high-rate loan with substantially lower interest rate expenses longer term," Mr. Donahue said. "On a simple yield maintenance basis, the normal pre-payment would have been two to three times what we paid."

The old loan carried an 11 percent interest rate that was scheduled to go up to 12 percent later this year. The Lehman Brothers mortgage, set to mature in February 1996 and tied to London interbank offered rate percentages, currently bears an interest rate under 8 percent, Mr. Donahue said.

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