Rouse joins $5.3 billion mall deal

Md. company agrees to pay $1.45 billion for 8 upscale centers

Firm's largest deal ever

Acquisition cements Rouse as a provider of high-end retail

January 14, 2002|By Meredith Cohn | Meredith Cohn,SUN STAFF

In one of the nation's biggest real estate deals, the Rouse Co. and two other firms said yesterday that they would pay $5.3 billion in cash to a Dutch company for 35 prime shopping malls and other assets.

The Rouse Co., which developed the community of Columbia and malls such as The Gallery at Harborplace and Towson Town Center, will spend about $1.45 billion. It will get eight of the malls and cement its place among the country's largest purveyors of upscale retail.

The deal was worked out over the past several months and grew out of a bitter power struggle that will dissolve the seller, Netherlands-based Rodamco North America NV, and split its malls and other assets among Rouse, Simon Property Group Inc. and Westfield America Trust.

The enormous cost of the malls was reason to split them up, analysts said. They could name only one larger real estate deal: Equity Office Properties Trust's acquisition in 2000 of Speiker Properties for $7.2 billion.

The deal is by far the largest for the Columbia-based Rouse Co., eclipsing its acquisition of Howard Hughes Corp. in Nevada for $520 million in 1996. But yesterday's deal for high-end malls, some of which were already partly owned by Rouse, fits with the company's strategy of the past six years to go upscale.

"Our corporate strategy has been to focus on dominant retail centers in major markets, and these eight properties certainly fit that profile," said Anthony W. Deering, the Rouse Co.'s chairman and chief executive officer, in a weekend interview.

"We are intimately familiar with four of these properties, having owned and managed them for many years, and the other four centers provide the company a high-quality presence in three new markets: Chicago, Detroit and Durham [N.C.]."

The Rouse Co. has obtained an 18-month, $870 million loan from a Banc of America Securities affiliate, and plans to sell stock or bonds to raise cash to repay the debt, Deering said.

Real estate analysts, who had been expecting the deal, said that each company did well.

"Rouse is getting some of the nation's best malls," said David Fick, a managing director for Legg Mason Wood Walker Inc. who follows mall companies. "High-end malls are more likely to perform well over the long run."

The level of debt could be a concern, Fick said. Among similar companies, Rouse already has the highest debt compared with its worth in the market. If its share price stays up, the money raised in a stock offering could cover the company's debt burden, he said. And because a deal for top-flight malls such as these does not come along often, the risk is probably worth it, Fick said.

The Rodamco deal has been approved by the companies' boards and is expected to close by the middle of the year.

The Rouse Co. owns 47 regional retail centers and 14 community centers, including such properties as Faneuil Hall Marketplace in Boston. Eight are under construction or renovation. Locally, Rouse owns malls in Columbia, Towson, Owings Mills, White Marsh and Baltimore.

Rouse malls average about $450 in sales per square foot, or $125 above the national average. Its new malls from Rodamco have sales close to $480 per square foot, raising the bar for the Rouse Co., Fick said.

Analysts say the new income could translate into an additional 5 cents to 10 cents a share for Rouse investors by next year. Rouse Co. stock closed Friday at $28.73, up 9 cents a share.

Although the deal is viewed as a victory for each of the companies involved, the battle for control of Rodamco had grown bitter.

"It was shaping up to be a war in the Dutch courts," Fick said.

Rodamco, seeking to fend off a hostile takeover by the Australian owners of Westfield, acknowledged last month that it was trying to sell the malls to other buyers.

Westfield, whose properties include malls in Annapolis, Bethesda and Wheaton, had acquired about 23 percent of Rodamco's stock last summer and was trying to put its management board in place.

Rodamco hired a consultant to find buyers, and it brought aboard Rouse and Simon. But the companies concluded that they could not seal the deal without Westfield, which had initiated court proceedings to stop a sale.

Rouse and Simon officials negotiated directly with Westfield, and the partners shook hands last month on an agreement to split the malls and assets, which include a property management firm, a New York office building and a hotel company that the buyers will own jointly.

Rodamco signaled that it is pleased with the deal, because it would receive cash for its shareholders and split control of its prized malls, which include New Jersey's Garden State Plaza, Boston's Copley Place, Houston's Galleria and Chicago's Water Tower Place. The company owns no malls in Maryland.

The purchase agreement ends Westfield's litigation.

"We are delighted to work in partnership with Simon and Rouse, two of America's leading [real estate investment trusts], in a way that creates value for all parties," Peter Lowy, the chief executive of Westfield America, said in a statement.

Indianapolis-based Simon Property Group's share of the deal amounts to $1.55 billion, the Westfield America portion is $2.3 billion and the Rouse Co. part is $1.45 billion.

Malls acquired by Rouse include: Collin Creek in Plano, Texas; Lakeside Mall in Sterling Heights, Mich.; North Star Mall in San Antonio; Oakbrook Center in Oakbrook, Ill.; Perimeter Mall in Atlanta; The Streets at Southpoint in Durham; Water Tower Place in Chicago; and Willowbrook in Wayne, N.J.

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