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REIT status is catalyst for Rouse's growth

The Rouse Co., a publicly held company since 1956, announced its conversion to real estate investment trust status late in 1997. That move came a year after it acquired the real estate holdings of the estate of Howard Hughes, which consist of office buildings, retail and undeveloped land in Las Vegas. Rouse will acquire seven TrizecHahn centers located in Las Vegas and the East, including the portion of Fashion Show Mall (in Las Vegas) it does not already own.

SCT: Your company has been busy lately.

Mr. Deering: It's also been a busy couple of years for the industry. There are a lot of fundamental changes occurring and we're just trying to stay on top of it.

Have you completed the process of converting to REIT status?

We are essentially operating as a REIT now.

Would this deal have been possible if you had not made this transition?

This deal probably would have been possible, but less likely for the following reasons. There's no complication when we, like everyone else, are in the real estate industry as opposed to explaining why we're slightly different and why that would work. Being in a REIT format will have advantages in that component. The actual transaction is that we are buying assets rather than exchanging securities.

Is this a heavy debt load to carry, and what might you do to change that?

I don't think it's overloaded with debt. It's a big transaction, there is a substantial component of debt that will be related to it, but our overall indices of balance sheet health and interest coverage, etc., will be substantially the same as they are part of the transaction.

How did you come to work with Westfield?

We had jointly owned properties in the past, and we were aware of their initiatives in the United States. ... During the process of evaluating information ... it was suggested by Goldman Sachs, which was representing Westfield in this transaction, that it might make sense for us strategically to align ourselves. We discussed that with the people representing the seller ... and they were comfortable with that.

Then we pretty rapidly came to an agreement on how we would work on this transaction together. ... The Rouse Co. would take everything in Las Vegas and the East.

Will you take over the management of the seven centers immediately, and will it close in blocks?

We already manage Fashion Show [Mall, Las Vegas]. With respect to the other properties, we're in the process of evaluating how we transition the management responsibilities. We in fact won't take over management immediately, and the degree we do will be as each property closes.

Is this the beginning of a lot of growth by acquisition for you?

If you look back over the last decade, we made a number of key acquisitions: We bought McCormick Properties from the spice company for $700 million [in 1988] and we bought a number of shopping centers over the same period. The Hughes acquisition was important to us, [as] this acquisition is. We are very focused on large-scale projects in relatively dense markets. We do not run around looking at every deal or talking to the press about every deal we're working on. If you look at what's been accomplished, we've done an awful lot in that period of time in the acquisition area.

Is that a strategy you will pursue, more acquiring than developing from the ground up?

We have eight or nine projects under way in Nevada, we just opened a brand new project [Oviedo Marketplace] in Orlando, Fla., we have a couple of more projects in Florida, a big town shopping center in Summerlin in Las Vegas. So we have an active pipeline, but the scale and size of the company now probably moves us more toward looking at strategic acquisitions than it did 10 years ago.

Is this a totally different animal from the Hughes deal, which also included office buildings and undeveloped land?

All acquisitions are driven by an underlying set of economics: whether it's a strategic fit, whether the process is collaborative. The Hughes transaction was more complex because there were different types of assets there and there was a huge community development and land component, and that's more difficult to evaluate because it's a relatively more volatile asset. But overall, I think the principles were pretty much the same.

Can we expect more of the same?

We've been in lots of business, and over the decades we have concluded that the businesses we wanted to be in were large-scale retail projects, office and the mixed use area. I think we will continue with that.