Rouse gains financing to buy 7 malls Towson Town Center, others to be bought from Toronto firm

2 banks lend $800 million

Columbia real estate trust opts to borrow after stock sale uproar

Commercial real estate

July 08, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

The Rouse Co. announced yesterday that it has secured $800 million in financing, capital it plans to use to buy Towson Town Center and six other malls from Toronto-based TrizecHahn Corp.

The Columbia real estate concern's decision to borrow money from First Chicago Capital Markets Inc. and Bankers Trust New York Corp. comes after some investors balked at a company plan to raise up to $2 billion through the sale of new stock.

Rouse, which converted to a real estate investment trust at the beginning of the year, hasn't sold common stock since its initial offering in 1956. It said the new financing provides it with needed flexibility.

"We'll have enough capital now to close the [Trizec-Hahn] deal," said David L. Tripp, a Rouse vice president. "And this gives us flexibility going forward to sell some stock, if necessary, or find a venture partner in a few centers. It's really open at this point."

Rouse plans to use nearly half of the First Chicago-Bankers Trust capital, $350 million, to help it buy seven shopping malls for $1.1 billion from TrizecHahn. The two companies signed an agreement cementing the deal yesterday.

In addition to Towson Town, the malls are in Denver; two in Las Vegas; Salt Lake City; Bridgewater, N.J.; and Cedar Rapids, Iowa.

An additional $450 million will be available as a three-year revolving credit facility, replacing a $250 million credit line that Rouse currently uses.

In the wake of a shelf registration filing with the Securities and Exchange Commission in May that asked for permission to raise up to $2 billion, Rouse's common stock slid to roughly $28 as anxious investors feared their holdings would be diluted by the sale of additional shares.

At the same time, Wall Street has hammered REIT stocks, in part because trusts have sold tens of millions of dollars in new securities to finance acquisitions and add to their portfolios, while diluting the holdings of existing shareholders.

"My sense is it's not a bad strategy," Robert A. Frank, director of research at Legg Mason Wood Walker Inc., said of Rouse's plan. "I think it's a bad time for REITs to sell equity. At this point in the cycle, REIT stocks have not kept pace with the market as a whole, and the market seems willing to accept higher debt levels."

The new debt will add to a heavy mortgage burden for Rouse. With the First Chicago-Bankers Trust deal, Rouse will have more than $3.4 billion in obligations.

Rouse has 67 million shares of common stock outstanding. Its stock closed yesterday at $32.18, up 25 cents.

Pub Date: 7/08/98

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