The Rouse Co. yesterday raised $132 million in a preferred stock offering intended to retire existing mortgage loans on specific projects and lower the company's overall debt figure.
The 5.3-million-share perpetual preferred offering -- a 32 percent increase over the number of shares the Columbia-based real estate concern had initially intended to sell -- will pay an annual dividend to holders of 9.25 percent.
"This is an important deal for us, because it provides us with liquidity in a business where liquidity is No. 1," said Anthony W. Deering, Rouse's president and chief executive. "And it continues a strategic objective we've had for the past couple of years."
If lead underwriters Goldman, Sachs & Co. and Alex. Brown & Sons Inc. exercise an allowed overallotment, Rouse could receive an additional $20 million from the offering. By comparison, Rouse's common stock generates a 4 percent yield, while the return on convertible preferred shares is currently 6.5 percent.
The company intends to use the proceeds from the offering to repay outstanding project debt, possibly including about $28 million from the Teachers Insurance & Annuity Association for a mortgage on Rouse's 570,000-square-foot Santa Monica Place mall in California.
"Many ratings agencies like to see totally debt-free properties," explained David L. Tripp, a Rouse vice president and the company's director of investor relations.
The $132 million, sold at $25 per share, will also lower Rouse's overall debt figure, which as of Sept. 30 stood at $2.55 billion.
In exchange, Rouse will be required to pay a $4.9 million annual dividend to shareholders, or $2.31 per share. The company will be able to deduct the new dividend as an interest payment, however.
"That's good because Rouse is fairly leveraged," said Barry P. Oxford, an Alex. Brown & Sons analyst. "But Rouse is a good name; people have bought the stock in the past and done well with it."
The preferred offering had been scheduled for Monday, but was postponed in the wake of a decision by a Louisiana court to uphold a ruling against the Rouse Co. in a 1990 lawsuit involving the developer's Riverwalk project in New Orleans. As a result, Rouse announced Monday that it will take a $12.3 million charge in the fourth quarter.
No effect on ratings
"It's obviously not a positive, but the decision didn't have ratings implications," said Paul Reardon, a vice president and senior credit officer for Moody's Investors Service.
Rouse's only previous preferred offering was in February 1993, when the company issued $130 million in stock.