`Delighted' Rouse raises $222 million after stock run-up

Columbia company issues 4.6 million shares as it prepares to buy R.I. mall

`Market is rewarding them'

February 05, 2004|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

Cashing in on a steady run-up in its stock price, the Rouse Co. sold an additional 4.6 million shares yesterday to raise $222 million.

The Columbia real estate development and management company wants to keep its debt-to-equity levels stable as it prepares to buy a large mall in Rhode Island for about half a billion dollars.

At $48.50 a share, the new offering of common stock was priced just below the record high set at the beginning of this week. Rouse initially expected to sell 4 million shares, but demand prompted underwriter Deutsche Bank Securities Inc. to use its option for 600,000 more.

"That shows the investment community's confidence in the company, and we're delighted," said David L. Tripp, Rouse's vice president of investor relations and corporate communications.

Rouse's stock price has soared since 2000, peaking at $49.80 Monday after starting the decade at $21.25. In the past 12 months - during which Rouse purchased two large properties in Texas and two East Coast shopping centers - the price has jumped more than 50 percent.

With trading volume at six times its daily average, Rouse shares fell $1.02 yesterday, closing at $48.50, the price Rouse set for the new offering.

Lee Schalop, a Banc of America Securities equity analyst who follows real estate investment trusts, thinks Rouse wouldn't have signed a contract to buy the expensive Providence Place mall in the Rhode Island capital if its stock price wasn't so high.

"Buying a high-quality asset at a full price but being able to issue stock at a high price makes it a good combination," he said.

Analysts say the stock appears to be overvalued but that the price is not outrageous for a company that has successfully followed a strategy of replacing its lower-tier malls with high-end, high-performing ones.

Retail properties account for most of Rouse's net operating income, though it also owns offices and develops planned communities such as Columbia.

"Very few own the top-notch malls, and Rouse has become a player in that category," said Arthur Oduma, a Morningstar equity analyst. "That is the reason why the market is rewarding them."

The company intends to use the money to cover part of the proposed purchase of Providence Place, to redeem the remaining Quarterly Income Preferred Securities of Rouse Capital and possibly to temporarily reduce credit-line borrowing.

New shares can dilute the value of existing shares, but Oduma said the plan to put the money toward a significant purchase and to pay off debt seems solid.

"It gives them a lot more financial flexibility going forward," he said. "They don't want to mortgage too much in case they need to sell the property. They can move in and out of markets much faster."

The sale increases the number of Rouse shares by about 5 percent, to nearly 100 million.

The company last offered new shares two years ago - about 16.7 million - to help pay for a joint purchase of the assets of Rodamco North America NV, a company that primarily owned high-end regional malls.

Priced at $27.40, those shares netted Rouse about $457 million.

Though strong consumer spending - and the strong performance of upscale malls in particular - has helped Rouse, the company is also in a favored sector. Investors are pumping money into companies whose business is property.

The National Association of Real Estate Investment Trusts' composite index had a 38.5 percent return last year, its biggest gain since 1976.

"We're just in the right place," Tripp said.

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