Rouse profit surges by 20%

Hefty retail sales, high mall occupancies among reasons for gain

`A very solid quarter'

August 11, 1999|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

The Rouse Co. reported yesterday that vibrant retail sales helped its second-quarter earnings to leap 20 percent from the corresponding period a year earlier, to $55.6 million.

The Columbia-based real estate investment trust's funds from operations of 70 cents per share, a 13 percent gain from the 1998 quarter, topped Wall Street consensus estimates by 2 cents a share.

Rouse's revenue in the quarter totaled $249.8 million, a 13 percent gain from the period that ended June 30 a year earlier.

The REIT attributed the increases to strong occupancy levels, sales gains and rental rate increases in its regional mall portfolio. As of June 30, Rouse's retail occupancy stood at a company-record 94 percent, vs. 92.6 percent at the corresponding time last year.

Retail sales growth from comparable space -- from which Rouse derives a portion of its rental income -- was up 4 percent in the first six months.

Rouse also attributed its earnings increases to the company's strategy of focusing on up-scale malls in major markets and the decision to revitalize retail projects such as The Mall in Columbia.

"Our retail-center strategy is performing brilliantly," said Anthony W. Deering, Rouse's chairman and chief executive officer. "We're doing better than anyone in the industry."

Deering added that Rouse's retail projects generate an average sales per square foot of nearly $400, far above the industry average in the mid-$200 per square foot.

Over the next 18 months, Rouse intends to complete expansions and renovations to six retail centers, including The Mall in Columbia; Pioneer Place in Portland, Ore.; Exton Square in Exton, Pa.; Moorestown Mall in Moorestown, N.J.; Perimeter Mall in Atlanta; and Oviedo Marketplace in Orlando, Fla.

The company, which owns and operates 300 properties in 24 states valued at $4.4 billion, also is working to develop five new projects and complete expansions to centers in Nevada, Texas and Florida.

"It was a very solid quarter for them," said David M. Fick, a principal and senior analyst at Legg Mason Wood Walker Inc., who follows Rouse.

"It shows they are able to capitalize on a healthy retail environment and drive rents up above those of their peer group."

Rouse also took steps in the quarter to streamline its operations, a move that resulted in a $6.2 million one-time charge to earnings to cover severance and early retirement benefits for the roughly two dozen employees affected.

The primary change stemming from the streamlining was the combination of Rouse's retail cen- ters division with its office, mixed-use and other properties division into one operating property division.

The company expects that the streamlining will save $10 million a year in overhead costs, beginning in 2000.

In the first six months of this year, Rouse generated funds from operations -- a standard measure of REIT performance -- of $116.8 million, a 12 percent increase over the first half of last year.

On a per-share basis, Rouse funds from operations were $1.46 per share, 6 percent above the comparable period last year. Rouse's revenue in the six-month period was $519.5 million, a 5.2 percent increase.

Funds from operations is often considered the best measure of real estate profit because it factors out depreciation, which can distort results.

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