Rouse's selling trend likely to continue


As a real estate company, the Rouse Co. has been all over the map - literally buying and building all kinds of real estate properties around the country.

But the company known for its shopping centers and the communities of Columbia and Summerlin, outside Las Vegas, has been concentrating in recent years on being a mall owner.

Last month, the company announced that it sold ExecuCentre, a collection of furnished, ready-to-use offices that can be rented from an hour to a year. That caps off sales of strip shopping centers, offices and side businesses, in addition to land sold for commercial and residential development in Columbia and Las Vegas.

Rouse said the trend will continue, although nothing else is officially for sale, and the company expects to plow the proceeds back into its malls.

"We think we're among the best - the top one, two or three - in terms of owning and operating high quality retail projects," said David Tripp, vice president and director of investor relations. "And we think we're the best at developing new communities.

"But when it comes right down to it, a lot of people do a good job of operating and developing offices and other kinds of projects. To a large extent, we don't lend a tremendous amount of value to what others do well. It would be our strategy to concentrate on our strengths."

Tripp noted as an example the sale of ExecuCentre and community shopping centers in Columbia, which he said are a different kind of retail than large-scale malls.

The development of new malls is expected to slow as the nation becomes saturated with big regional centers. Rouse has said it will continue to tweak its portfolio with expansions, acquisitions and sales of underperformers.

The move to streamline could make the company an attractive acquisition target, analysts said. More immediately, it could make Rouse more efficient, make it less heavily loaded with properties in two locations and less leveraged, they said.

Recently, Rouse announced that the shift in strategy has led the company to reorganize management. To that end, the company will eliminate 50 or more positions.

"They've been focusing on getting down to the core business," said Louis W. Taylor, an analyst who follows Rouse for Deutsche Bank. "The sales are related to that. They'll continue to sell, according to market conditions, and make an effective redeployment of the proceeds. It's all part of their strategy."

Taylor said Rouse will continue to sell land in Columbia and Summerlin for years, building the communities up and winding its control down. And he expects the company to continue to sell other "odds and ends."

In addition to ExecuCentre, which was sold to BusinesSuites of Austin, Texas, a national provider of furnished offices, other properties sold by Rouse over the past few years include:

Canyon Pointe, a 157,000- square-foot retail center. It was sold to New York-based Kimco Realty Corp., a large operator of community centers, in December 2001.

A parking lot that is the former site of a McCormick & Co. spice plant in downtown Baltimore. Central Parking Corp., based in Nashville, Tenn., bought the property in October.

Eleven community and village retail shopping centers in Columbia to a joint venture controlled largely by Kimco Realty Corp. The deal was announced in February last year, and Rouse maintained a minority stake in the centers.

Thirty-seven office and industrial buildings and some land in Las Vegas to a joint venture formed by affiliates of Rouse and Delaware-based Stoltz Bros. Ltd. Rouse received about $85 million after costs and expenses and a minority stake in the venture, formed in December 2000.

The Hughes Center, a 115-acre business park in Las Vegas, was put up for sale in June 2001 but is not being actively marketed now. Rouse acquired the center as part of its $520 million purchase of the Howard Hughes Corp. in 1996.

The company also put its portfolio of Columbia office buildings on the block about a year and a half ago, but took them off the market.

In each case, Rouse noted its focus on malls.

Recently, the company opened the $550 million Village of Merrick Park, a posh shopping mall in Coral Gables, Fla., and expanded its Fashion Show shopping center in Las Vegas. It has also invested in other malls such as The Mall in Columbia.

Rouse bought all or parts of eight malls from the portfolio of Rodamco North America NV for $1.5 billion. Rouse then sold 16.7 million shares of stock and raised $456.9 million in part to pay for the deal.

Analysts said the cost was high, but such malls - the kind Rouse strives to have in its portfolio - are rarely for sale.

Buyers of Rouse properties say there are benefits to focusing on one type of real estate.

"We eat, sleep, drink and think about this business all the time, and there's the value in that for us," said John G. Jordan, president of BusinesSuites, buyers of ExecuCentre. "If we put all of our energy and resources to a single focus, we leverage our return and become more efficient."

Jordan said that Robert Manekin, a Baltimore broker, helped hook him up with Rouse officials, who were not marketing ExecuCentre. He plans to continue the relationship and explore further acquisitions that fit better into BusinesSuites' model than Rouse's.

Corporate Office Properties Trust, which vies with Rouse as the largest landowner in the Baltimore-Washington corridor, also has its eye on Rouse's properties. The trust focuses exclusively on suburban office buildings.

Randall M. Griffin, president and chief operating officer, said it is not a good time for Rouse to sell the Maryland office portfolio because some of the buildings have vacancies resulting from the economic downturn. Those buildings, like others locally and nationally, have little chance of leasing rapidly because few businesses are looking for space, Griffin said.

He said Rouse could get top dollar only for the full buildings that have long leases -which is why Rouse took the properties off the market.

"Their office buildings are probably not helping them much right now," Griffin said. "We bid on them before and continue to have a high interest."

Griffin estimated that the Rouse office portfolio would be worth $200 million to $300 million, depending on vacancy rates at sale time.

Rouse's most recent earnings, for the third quarter reported in October, show that income from offices remains flat, while the largest share of income comes from retail - and continues to rise.

Net operating income from retail centers was $123.1 million in that quarter, compared with $94.4 million in 2001. Rouse attributed the increase to recently purchased malls from the Rodamco portfolio.

Income from the office portfolio fell to $30 million from $32.5 million the year before. Rouse blamed the decline on the dipping occupancy related to corporate cutbacks and weak demand. Occupancy was 89 percent, down from 93 percent the year before.

A higher-than-expected number of land sales closing in the third quarter bumped net operating income in this sector to $26.5 million, up from the $16.5 million in 2001's third quarter.

As part of its community development efforts in Columbia and Summerlin, the company primarily sells property to developers for houses and commercial buildings.

Rouse is due to report fourth- quarter and year-end earnings this month.

As for the next sale or purchase, Rouse's Tripp said: "This is a business. We'll continue to monitor the market. We'll be opportunistic."

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