Thursday, May 2, 2002 | 11:20 a.m.
The Rouse Co. -- owner of the Fashion Show mall on the Las Vegas Strip and Las Vegas developer the Howard Hughes Corp. -- said Wednesday its profit dropped in the first quarter as Las Vegas land sales slowed.
The real estate investment trust's profit, or funds from operations, was $70.9 million, or 80 cents per share, compared to $72.6 million, or 96 cents per share, in the same quarter a year ago.
The shopping center and master-planned community developer attributed the decline in funds from operations, the prevailing performance standard in the REIT industry, to a drop in land sales at its master-planned communities of Summerlin in Las Vegas and in Columbia, Md., and the issuing of shares for its purchase of assets from Dutch shopping center developer Rodamco.
"In the middle of last year, everyone said the country was going into a recession, and then Sept. 11 came along," said David Tripp, a spokesman for Columbia, Md.-based Rouse, of the land-sales drop-off. "People saw what happened to tourism in Las Vegas initially. We didn't want to spend millions of dollars on developing land in Summerlin if it wasn't going to sell, so we slowed a little bit in anticipation of dropping demand."
That faltering demand never materialized, though.
Data from local real estate research firm SalesTraq shows new home sales in the valley rose about 5 percent in the first quarter when compared to the same quarter a year ago.
Local home builders closed on 5,329 new units in the first quarter, up from 5,119 new home sales in the first quarter of 2001.
That means despite last year's slumping economy and subsequently chastened consumers, this year's local new home sales are on track to beat last year's record of more than 22,000 closings.
Tripp said Rouse is boosting land sales activity in Summerlin as a result of that sustained demand.
"We're now aggressively developing land (in Summerlin) to get ready to sell, so land sales will probably be much higher in the latter part of the year," he said.
In addition to restrained land sales, the company's estimated $1.5 billion acquisition of eight Rodamco shopping centers in the Midwest and the East hurt Rouse's results.
The developer issued more than 16 million shares, worth about $460 million, in January to aid in the Rodamco purchase.
The deal is expected to close today or Friday, Tripp said, allowing Rouse to apply the cash from the issued stock to the acquisition.
A key component of the company's business saw boosted performance in the first quarter despite last year's economic downturn.
Rouse's net operating income from its portfolio of shopping centers rose 6 percent in the quarter year-over-year, to $95 million.
Net operating income from office and other properties dropped 3 percent in the quarter year-over-year to $30.9 million.
In a statement, the company also said it was pleased with the progress of construction work at Fashion Show mall on the Strip.
The first phase of the property's addition is scheduled to open in November, with Nordstrom as the phase's anchor.
Tripp said Fashion Show was representative of the company's shopping center philosophy, a philosophy he said has buffered the developer from trying times in the retail business and helped improve its shopping center portfolio's earnings in the first quarter.
"Strategically, we look for shopping centers in major metropolitan markets, properties that are focused on affluent markets, properties that are slightly high-end. It's not a tremendous retail environment out there -- the department stores and specialty retailers are reporting sales declines, and Kmart went into bankruptcy. There's a lot of nervousness in the market right now.
"However, our experience is the bigger projects in major, higher-end markets have held up reasonably well. We didn't have any Montgomery Ward or Kmart stores in our centers, so that focus on higher-end properties has worked well for us."
Tripp said occupancy rates in the developer's companywide retail portfolio exceed 91 percent, and tenants are signing and renewing leases that command 15 percent rental increases year-over-year.
Tripp also said ongoing construction work at Fashion Show mall has caused a slight decline in sales per square foot at the center, though he said it was a substantially smaller decrease than Rouse executives had expected.
He was unable to state sales per square foot and lease rates at Fashion Show.
In addition, Rouse continues to keep its Hughes Center office park at Flamingo and Paradise roads off the market, though that strategy might change in the future.
"The reality is, we're a broad, nationally diverse company that, with the Fashion Show, Summerlin and Hughes Center, has a substantial concentration of all our assets in Las Vegas," Tripp said. "Just for diversification purposes, we'll probably feel like we ought to take some of that capital out of the market and deploy it somewhere else."
Tripp estimated the value of Rouse's Las Vegas-area holdings at "well over $1 billion."
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