Rouse Co. buying upscale mall in Rhode Island

$522 million deal for Providence Place

February 04, 2004|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

Venturing into another downtown revitalization area of another old East Coast city, the Rouse Co. announced yesterday that it intends to purchase a large upscale mall in Providence, R.I.

The Columbia real estate development and management company agreed to pay $522 million for Providence Place, which opened in 1999. The price includes assumed financing.

The mall, built with about $200 million in tax breaks, has proved popular with shoppers and is hailed as the centerpiece of the city's revitalization efforts.

Rouse, which is buying the mall from Providence Place Group LP, expects to close on the deal in about a month.

"It's totally consistent with the strategy that we've been following for the last 10 years: large regional centers, major metro areas, high-quality department stores, high sales productivity," said David L. Tripp, the company's vice president of investor relations and corporate communications.

"It's practically the definition of an `A' center, and that's what we're trying to make the focus of our portfolio."

The mall has 1.3 million square feet of retail space, more than Arundel Mills has. Anchored by three department stores, Filene's, Nordstrom and Lord & Taylor, it has a 16-screen cinema, an IMAX theater and a 4,500-space parking deck. Its 420,000 square feet of smaller stores, including five restaurants, is 98 percent occupied.

Some of Rouse's recent purchases have been in the suburbs and in cities too young to need much revitalization, but the community development company has a long history of downtown renewal. It owns Harborplace, the Inner Harbor anchor that opened in 1980.

Rhode Island economic officials were thrilled to hear that Rouse is poised to enter Providence's downtown, the scene of increased residential development and four hotel projects in various stages of planning and development.

Richard C. Reed, chief administrative officer of the state's Economic Development Corp., called Rouse's management of retail "unparalleled" and said the cachet of the company name will be a valuable asset to the area.

"The acquisition by Rouse of Providence Place will continue to enhance the development of the city center," Reed said.

With the purchase, Rouse would increase its portfolio of retail centers to 48 nationwide, ranging from Fashion Show in Las Vegas to Faneuil Hall Marketplace in Boston.

In the past year, the company has bought Christiana Mall in Newark, Del., and a mixed-use center with shops in Boca Raton, Fla. It sold six centers in the Philadelphia market and a center in Jacksonville, Fla.

Arthur Oduma, an equity analyst who follows real estate investment trusts for Morningstar, said Providence Place seems like a solid buy for a company that has been selling lower-tier malls in favor of high-end operations.

"It ensures that going forward, they'll have a very strong tenant roster, and obviously they'll have higher revenues because their malls will have higher traffic than the average mall," he said. "Overall, I think it's a very good strategy. ... Rouse [is] becoming a bigger and bigger player in the regional mall business."

Though development plans for Providence Place were initially met with skepticism by taxpayers, most city residents had a favorable impression of the mall, and nearly half said it was a good public investment when they were polled in 2000 for a Brown University study.

"It's been very popular," said Darrell West, a political science professor at Brown. "It's really the destination mall in southern New England. People come from Connecticut and Massachusetts to go shopping there."

The original tax-incentive package included a deal from the state allowing the developer to use some of the sales tax receipts generated at the mall - up to $72 million over 20 years - to help pay off the loan.

Whether this incentive will pass on to Rouse is subject to negotiation, said Reed, the Rhode Island economic development official. The state and company haven't talked.

Tripp said the company's purchase isn't final and is based in part on the understanding that the deal will continue.

"Our perspective is, we stepped into the shoes of the prior owner, and we're perfectly willing to live up to all of their prior obligations," he said. "I have no reason to expect that the business arrangements with the city or the state will change significantly."

Rouse's stock closed yesterday at $49.52, down 28 cents.

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