Rouse deal would put it among giants CPI expected to make the acquirer stronger and more diverse

From No. 11 to Top 5

Attractions include a 50-story N.Y. gem, plus REIT structuring

Commercial real estate

January 19, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

In a world where business success is often equated with size, Rouse Co. will likely soon be among the triumphant kingfish of commercial real estate.

If Rouse's pending merger with or acquisition of Corporate Property Investors Inc. reaches fruition early next month, as expected, the anticipated record $4 billion deal would catapult the Columbia-based company into the ranks of the nation's top five publicly traded real estate concerns.

It also would make Rouse -- which became a real estate investment trust on Jan. 1 specifically so it could pursue such acquisitions -- a more diverse, financially strong and competitive company able to withstand industry consolidation and a possible buyout, analysts contend.

"With CPI, [Rouse] and Simon DeBartolo Corp. would be the dominant players, the leading companies, in the industry," said Jim Ulmer, an ABKB/LaSalle Securities Ltd. real estate analyst.

"It would increase their asset quality and de-leverage their balance sheet, especially if Rouse decided to make the deal by issuing operating partnership units rather than common stock and cash," Ulmer added. "And, it would give them the financial flexibility to continue to expand."

The privately held CPI's 27 retail and office projects would likely double Rouse's market capitalization, a REIT's gauge of financial strength that takes into account a company's debt, equity, stock price and shares outstanding.

With CPI, Rouse's market capitalization would skyrocket to just over $5 billion, analysts predict. At that size, only hotel owner Starwood Hotels & Resorts Trust, the Samuel Zell-controlled Equity Office Properties Trust, mall giant Simon DeBartolo Corp. and office building holder Crescent Real Estate Equities Inc. would rival Rouse.

"Rouse is buying and expanding not because they feel they have but I suspect because they feel [CPI] is in the best interest of their shareholders," said Abraham Rosenthal, chief executive of Prime Retail Inc., a Baltimore-based outlet-center REIT with a market capitalization of $508 million. "But it would give them the financial strength that comes with being a large company."

Rouse's decision to go after such an extensive portfolio -- $4 billion would represent one of the largest deals for a real estate company in history -- indicates that the company has listened to Wall Street's mantra of bigger is better, analysts say.

Rouse's current $2.5 billion market capitalization ranks it 11th nationwide, according to figures compiled by the National Association of Real Estate Investment Trusts, a Washington-based trade group. The numbers change often, even daily, though, because so many REIT deals are being executed, adding size and strength to a few well-capitalized companies.

That CPI is structured as a so-called "paired-share" REIT, allowing Rouse to operate businesses such as hotels or stores that other REITs can't, would merely be icing on the multibillion-dollar cake, the analysts add.

CPI might also give Rouse some assets to sell for tremendous profit, specifically the 50-story GM Building in New York, a 1.6 million-square-foot behemoth that would command tens of millions of dollars on the open market.

"We'd certainly be interested in the GM Building, if it came at the right price," said Ross Brennan, of TrizecHahn Corp., the Toronto-based property owner that last month bought the 4.5 million-square-foot Sears Tower in Chicago as part of a $1.5 billion 1997 buying spree that focused on downtown trophy buildings.

Top 10 U.S. publicly held commercial real estate companies

1% (Ranked by market capitalization)

.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. MARKET CAP

COMPANY ... .. .. .. .. .. .. .. .. .. .. .. (in thousands)

Starwood Hotels & Resorts Trust *.. .. .. .. $12,000,000

Equity Office Properties Trust . .. .. .. ... $5,671,825

Simon DeBartolo Group Inc. .. .. .. .. .. ... $5,501,055

Crescent Real Estate Equities Inc. ... .. ... $5,147,711

Rouse Co. ** .. .. .. .. .. .. .. .. .. ... $5,021,646

Equity Residential Property Trust . .. .. ... $4,927,530

Vornado Realty Trust .. .. .. .. .. .. .. ... $3,653,953

Public Storage Inc. ... .. .. .. .. .. .. ... $3,084,931

Security Capital Industrial Trust . .. .. ... $3,044,317

Spieker Properties Inc. .. .. .. .. .. .. ... $2,703,720

* Includes Starwood's pending acquisition of ITT Corp.

Assumes Rouse merges with or purchases Corporate Property Investors

SOURCE: National Association of Real Estate Investment Trusts

Pub Date: 1/19/98

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