Rouse Co. yesterday announced plans to redeem a block of preferred shares by converting them to common stock, a move that will save the Columbia-based real estate concern $3.5 million annually.
Rouse's decision to redeem all 3.95 million outstanding shares of its Series A convertible preferred shares stems from increases in its common stock price and a desire to curtail relatively expensive dividend payments.
"For shareholders, they've gotten the benefit of an extra dividend yield, and they're also getting the benefit of a rise in the common stock price," said David L. Tripp, a Rouse vice president and the company's director of investor relations. "And for us, it allows us to pay out less in dividends every year."
When Rouse sold the shares, it stipulated they could be converted when or if its common stock price remained at a level equal to 120 percent of a planned conversion price for 20 consecutive business days. The company met that requirement on Thursday, when its common stock closed at $26.12 per share.
Rouse raised $225 million from the preferred sale in February 1993, which it used to retire debt and to acquire property interests. The Series A shares represent the only Rouse preferred shares outstanding.
By converting the preferred shares to 10.6 million shares of common stock, Rouse is expected to save $3.5 million a year. The outstanding preferred shares carry an annual dividend of $12.85 million, or 6.5 percent, against a common share dividend of $9.3 million, equal to a 3.4 percent yield. Preferred shareholders will receive 2.35 shares of Rouse common stock for each share of preferred.
The preferred shares, which closed yesterday at $61.37 per share, were owned primarily by Smith Barney, Dreyfus Corp., Pioneering Management, Keystone and T. Rowe Price Associates Inc. mutual funds.
"It was a good product for Rouse and the investors," said David Lee, a T. Rowe Price investment analyst. "For the more conservative investor, it was a good vehicle because it paid a higher dividend and because it was higher in their capital structure."
T. Rowe Price controls 2.1 million shares -- or 4.4 percent -- of the company's common stock, according to a June filing with the Securities & Exchange Commission. The firm is the sixth largest common-stock holder.
The preferred shares will be redeemed officially on Sept. 30. After that date, Rouse will have roughly 66.5 million common shares outstanding.
"It's positive from a shareholders' viewpoint because it will simplify reading Rouse's balance sheet," said Barry C. Curtis, an Alex. Brown & Sons Inc. analyst who tracks the company. "Usually, if investors have to work hard to figure out a company's finances, they'll look elsewhere."
Pub Date: 8/31/96