Rouse falls 13 cents short of analysts' forecasts

Funds from operations rise but are victim of new rule

April 30, 2003|By Meredith Cohn | Meredith Cohn,SUN STAFF

Amid a slew of changes at the Rouse Co. that has included corporate and executive restructuring, the Columbia real estate investment trust said yesterday that its funds from operations were up in the first quarter of 2003.

However, new accounting rules that require some one-time charges to be included in the results caused Rouse to miss Wall Street analysts' consensus earnings estimate.

The charges - $24 million this quarter - stemmed predominantly from deferred taxes and severance for executives who took early retirement.

Rouse and other REITs routinely excluded some one-time costs in their calculations and had been criticized by an analyst last year. The Securities and Exchange Commission said this year that REITs should include the costs.

Rouse's funds from operations for the quarter that ended March 31 were $76.6 million, or 82 cents a share, compared with $50.5 million, or 57 cents a share, in the corresponding period last year. Analysts had expected the per-share funds from operations to reach 95 cents this quarter.

Analysts and investors generally gauge the performance of REITs by using funds from operations, which exclude some one-time charges and other items such as depreciation and amortization, rather than earnings.

Anthony W. Deering, Rouse's chairman and chief executive officer, said: "We expect that our performance will continue to be strong for the balance of this year; however, improved consumer confidence, reduced tensions worldwide and a strengthening economic environment would certainly be welcome trends."

Rouse credited gains in income from the company's retail centers, including 10 new and newly acquired shopping malls, and increased sales in its community developments. Rouse developed the communities of Columbia and Summerlin, Nev. It also owns several local malls such as Towson Town Center, the Mall in Columbia and the Gallery at Harborplace.

The company said net earnings were $24.1 million, or 24 cents a diluted share, compared with $14.7 million, or 14 cents a diluted share, in the first quarter of 2002.

Net operating income at Rouse retail centers was $129.5 million, up from $95.0 million in the first quarter of 2002, largely because of interest in eight malls the company acquired in May 2002 from Rodamco North America NV and the expansion of Fashion Show mall in Las Vegas and the opening of the Village of Merrick Park in Coral Gables, Fla. in the second half of 2002.

A demand for land in Columbia, Summerlin and Fairwood, a community development project in Maryland, pushed net operating income in the company's community development unit to $28.6 million from $19.7 million in the corresponding quarter of 2002.

In the office and other properties, the third major segment of Rouse businesses, net operating income was down to $29.9 million from $30.9 million last year.

Overall, the numbers looked good to David Fick, a managing director at Legg Mason Wood Walker Inc.

"Fundamentally, their day-to-day business out in the field, with the exception of office rentals, is in very good shape and we're pleased with the way the numbers look," he said.

However, Fick said the one-time costs that REITs now have to report caused Rouse to have "a significant earnings miss" in its funds from operations - although he said he applauded the company for including the charges. The analyst had criticized Rouse for not including other one-time charges in past calculations.

Rouse said yesterday that they still believe the previous method provided a truer picture of company performance, and that method would have allowed Rouse to meet the analysts' mark.

Deering also said in a conference call to analysts yesterday that the charges were larger than expected mainly because of an unanticipated early retirement this quarter of Jerome Smalley, a vice chairman and chief operating officer.

The company had known earlier about two other top retirements and about costs from elimination of about 50 other jobs as part of its restructuring.

Tomas J. DeRosa, vice chairman and chief financial officer, said most of the job cuts announced in October have been completed.

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