A blend of good, bad news for Rouse

First quarter was strong, but stock on the decline

Price down 22% since April 1

May 07, 2004|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

It's the best and worst of times for the Rouse Co.

The Columbia real estate development and management company reported good first-quarter earnings yesterday, building on a highly profitable 2003. But its stock price - after rising steadily for 1 1/2 years - has plummeted 22 percent since early April.

Rouse stock peaked at an all-time high of just under $54 a share April 1. It finished at $42.09 yesterday, down 23 cents for the day.

That mirrors - though more sharply - the plunge taken by other formerly high-flying real-estate companies in April. The National Association of Real Estate Investment Trusts' composite index dropped nearly 16 percent last month, which analysts attributed to profit taking and fears of interest-rate increases.

Retail REITs have fallen about 20 percent, analysts said.

Still, it's a sign of how far Rouse climbed in recent months that its stock price - even with the drop - is about 20 percent above its 52-week low last May.

"That's not too bad," said Anthony W. Deering, Rouse's chairman and chief executive. "And prospects for the company are still very bright. First quarter was very strong. Land development and retail could have the best year they've had in 10 years, and office seemingly has stabilized."

Rouse is known primarily for its malls and master-planned communities.

The company's funds from operations, a key measure of performance for REITs, were $89.3 million in the first quarter, up 16.6 percent compared with the same time last year.

That worked out to 87 cents a share, a 6.1 percent increase because the company sold more shares in February.

Ian Weissman, the retail REIT analyst for UBS, a financial services firm, called Rouse's first-quarter growth "decent." He expected funds from operations of 94 cents per share, but he said he wasn't disappointed that the company fell short because the difference "seemed to be a timing issue" related to deferred income taxes.

"Fundamentals still look good for the company," he added. "They had healthy land sale gains in their Summerlin and Houston markets. ... Retail sales were up a solid 9 percent, and that's actually only going to benefit them going forward."

Lou Taylor, senior real estate analyst for Deutsche Bank, said he's happy with the quarter as well.

"The retail portfolio did well; the land portfolio did well," he said.

He attributed the plunging stock prices of Rouse and the other REITs mainly to profit-taking.

"The group was up 60 percent, 15 months," Taylor said. "It had not had a correction since July of '02. It's just one of those things - it's not going to go straight up forever. And valuations just got ahead of themselves. They were about 15 percent above asset value; it's just hard to sustain that."

He thinks REITs are "fairly" priced, noting that some companies have begun buying back their stock.

But Weissman warned that stock prices might continue to be volatile because investors fear that interest rates will rise, making REIT dividends less attractive and potentially limiting companies' growth by acquisitions. The stock unloading spree was touched off by the better-than-expected national jobs report April 2, he said.

"The sell-off in the group really has nothing to do with fundamentals," Weissman said.

Corporate Office Properties Trust, another Columbia-based REIT, saw its stock drop from $25 at the end of March to $20.55 yesterday. But its first-quarter earnings, reported late Wednesday, were healthy.

The company had $16.3 million in funds from operations for the first quarter, up almost 20 percent from the same time last year. Funds from operations performance was 40 cents a share, up 8.1 percent.

"Most of the office REITs have been reporting flat to negative growth, so 8.1 percent is a very strong first-quarter performance," said Randall M. Griffin, president and chief operating officer of Corporate Office Properties, which has benefited from the boom in government security and defense contracting.

He said his company's stock appeared to rise a bit too far, and fast, shortly before the drop. But Griffin thinks the marketplace overreacted to interest-rate fears.

"Last year we did 58 percent shareholder return, and only 6 percent of that was dividends, so we are a growth company," he said.

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