The Rouse Co. yesterday announced a $70 million purchase involving three shopping centers, the first major deal in a nearly two-year effort to add new properties to its retail portfolio.
The Columbia-based real estate concern's investment will add nearly 1.7 million square feet to the company's 75-center portfolio, which locally includes the Owings Mills Mall, Gallery at Harborplace and White Marsh Mall.
Rouse expects the acquisitions of partnership interests in the California, Texas and Pennsylvania projects to generate double-digit returns to the development firm beginning in 1998, although the company declined to provide exact figures.
"One piece of this fits nicely into our strategy of enhancing our existing portfolio, one piece adds something new with great growth potential, and in the other we got a piece of a strong center that protects our franchise nearby," said Robert Minutoli, a Rouse senior vice president and its director of acquisitions.
The three purchases include buying out a minority stake held by Ernest W. Hahn Inc. in Santa Monica Place, a 578,000-square-foot mall developed by Rouse in 1980; a 30 percent interest in the 1.12 million-square-foot Collin Creek Mall in Plano, Texas; and a one-third stake in Brandywine Square Shopping Center, a 565,000-square-foot discount center under construction in suburban Philadelphia.
Over the last two years, Rouse has been trying to consolidate its ownership in existing centers and acquire new properties. In the latter objective, the company has been largely thwarted by the re-emergence of real estate investment trusts.
In the past six months, for example, Rouse's effort to acquire the retail component of Sears, Roebuck & Co.'s Homart Development Co. fell short when General Growth Properties Inc., a Des Moines, Iowa-based REIT, bid $1.8 billion through a combination of cash and debt assumption for the company.
"The market for acquisitions is extremely competitive right now," said David L. Tripp, a Rouse vice president and the company's director of investor relations. "Frankly, we anticipated there would have been a lot more opportunities than there have been."
Both Mr. Tripp and Mr. Minutoli said Rouse is under no pressure to add to its $4.7 billion portfolio, however.
Rouse intends to finance the purchase of the stakes in the three centers by assuming roughly $35 million in debt on the properties and providing the balance in cash or by obtaining mortgages, Mr. Tripp said.
"The threshold question is what impact does this have on earnings?" said Robert A. Frank, an Alex. Brown & Sons Inc. managing director who follows Rouse.
"It seems to be consistent with their strategy. The only negative initially is it increases their leverage."
In the case of Santa Monica Place, Rouse duplicated moves it made last year, when it bought out partnership interests held by JMB Realty Corp. in both the Owings Mills and White Marsh malls.
At Collin Creek, Rouse's purchase marks the latest in a series of financial dealings with Rodamco N.V., a Dutch investment firm. In addition to its equity or lending involvements with Rouse in three other malls, a Rodamco affiliate holds company stock worth roughly $47 million.
The Brandywine center, located about three miles from Rouse's Exton Square project, will be completed next spring. Roughly 60 percent of the center has been pre-leased to BJ's Wholesale Club, Hechinger and others.