Rouse takes charge after losing La. suit Fourth-quarter write-down to total $12.3 million

November 21, 1995|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

The Rouse Co. said yesterday that it will take a $12.3 million fourth-quarter writedown after losing a dispute with a tenant at -- its Riverwalk complex in New Orleans, a lawsuit that will assure that Rouse posts a loss in the fourth quarter.

The dispute arose from the bankruptcy of a bar and cafe that Rouse evicted from the mixed-use complex along the Mississippi River on Christmas Day of 1990, said William E. Brown, a Louisiana lawyer representing the owners of HJ's Great American Cafe.

The owners of HJ's claimed Rouse committed four separate breaches of their lease after the restaurant opened in 1989, including refusing to fix flood damage and depriving the restaurant of air conditioning for 2 1/2 months in order to paint a nearby fence and make other minor repairs.

The tenants also claimed that Rouse interfered with their ability to sell liquor and offer outdoor entertainment, and that it secretly negotiated with a prospective tenant in a bid to force the cafe out of business.

Mr. Brown said his clients were "destitute." He said they had expected the Riverwalk project to turn into a profit machine as legal gambling came to New Orleans. A gambling riverboat is about 200 feet from the cafe's old front door, he said, and a land-based casino is set to open nearby next year.

Rouse announced the charge after losing its appeal to a Louisiana appellate court, which upheld all but $240,000 of a 1993 trial court award. The jury in the first court found Rouse breached the lease, committed unfair trade practices and wrongfully interfered with HJ's business.

The charge means Rouse's net income will be negative for 1995, as well as the fourth quarter, the company said. But, as with most real estate companies, analysts place little stock in Rouse's net income figures, preferring to focus on cash flow measures because accounting principles mandate that real estate assets be depreciated to calculate net income even when they are actually rising in value.

In the first nine months of 1995, Rouse recorded earnings before noncash charges of almost $77 million, a 14.6 percent gain from a year ago. But revenues were flat at $495.3 million, and the company posted a net loss of $3.4 million after depreciation.

Rouse said the charge will not fundamentally affect its finances.

Rouse shares closed yesterday at $21.375, down 12.5 cents.

David L. Tripp, Rouse's investor relations director, said the news has had no effect on plans to offer a new round of preferred stock to the public today.

"We're going to do more than our original plan for shares, and we're going to do it at the expected price," which has not been disclosed, he said. "What has happened today, everyone heard about it and said, 'Eh, it's unfortunate, but it's not a significant concern.' "

Mr. Tripp said he could not discuss Rouse's side of the lawsuit because the company is appealing the case.

The company has long had a reputation as a tough landlord that occasionally gets into legal scrapes with tenants. In September, tenants at the company's Faneuil Hall complex in Boston filed a class action in a Massachusetts court against their landlord.

Rouse denied the charges.

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