Rouse Co., one of the nation's largest owners of shopping malls, said yesterday that it will sell up to $600 million in office and industrial properties to raise money to partly buy back a large portion of its stock.
The Columbia company's board gave Rouse executives approval yesterday to purchase up to $250 million in common stock. That represents nearly 14 percent -- 10 million shares -- of Rouse's stock. The money that's raised will be used to pay off the mortgages on the properties and allow for the buyback of stock.
The share price of Rouse's stock, like those of other real estate investment trusts, has slipped nearly 17 percent since the year began. Rouse shares closed unchanged yesterday at $22.8125.
Since hitting its all-time high of $35.6875 on Jan. 16, 1998, Rouse's stock has fallen 36 percent as investors have pumped money into Internet and technology companies.
"We concluded that at these levels, buying our own stock is among the best investments we can make," said Anthony W. Deering, Rouse's chairman and chief executive officer. "This is more of a response to the doldrums in the market in general."
Deering declined to say when the buyback program will begin or end.
Deering and David L. Tripp, a Rouse vice president and its director of investor relations, said the decision to sell properties is not a move to refocus the company. "We are not departing from the office development and management business," Tripp said.
The Rouse real estate portfolio is valued at $6 billion, so the sale of $600 million in property is minimal, Deering said.
Buildings that could be sold include office and industrial properties in the mid-Atlantic and near the Las Vegas airport, Deering said. He did not name specific properties.
Kevin Comer, head of the REIT group at Deutsche Banc Alex. Brown in New York, said he expects the company to sell properties in the Baltimore-Washington region.
Rouse controls dozens of office properties in the area, including the 28-story Harborplace Tower downtown; the 12-story RWD Building and seven-story Parkside office building, both in Columbia; and a 10-story building and a 12-story office building in Owings Mills.
Rouse grabbed a stake in the hot Las Vegas real estate market in 1996, when it acquired the Howard Hughes Corp. for $520 million. The deal gave the company 59 office buildings with 4.34 million square feet.
Analysts applauded Rouse's decision to begin buying back stock.
"A brilliant move," Comer said.
Rouse will be able to acquire its stock at a "phenomenal discount" to its assets, he said.
If Rouse properties were liquidated, the company's shares would be worth $31 to $32, said David M. Fick, a principal at Legg Mason Wood Walker Inc., who tracks the company.
"It is a stock trading well below its liquidation value," he said. "We are glad to see this happen."
Fick said it makes more sense for Rouse to buy its stock at a steep discount than to acquire new properties at current prices. "Essentially, buying the stock at this price is re-investing in their assets at a 30 percent or greater discount," he said.
He said the buyback program will reduce the number of outstanding shares, giving stockholders a larger percentage of the company.
"That is a very significant percentage reduction of shares," said Bentley R. Offutt, an analyst at Offutt Securities, in Hunt Valley. "It certainly is an attractive time to purchase the shares."
REITs have had trouble over the past 18 months convincing investors that they are worthy investments, despite often robust profits. Rouse earnings increased 20 percent in the second quarter, and the company pays a dividend with a yield of 5.12 percent.
"Investors today have lost sight of the risk return equation," Comer said.
Pub Date: 9/24/99