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July 24, 2014

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Summerlin developer Rouse is sold

General Growth Properties Inc., a large owner of shopping malls in Las Vegas and nationwide, said today it agreed to buy The Rouse Co., owner and developer of the planned community Summerlin and the Las Vegas Strip's Fashion Show mall, for $12.6 billion in cash and debt.

The sale would put General Growth Properties in charge of more than half of all mall space in the Las Vegas Valley.

Under the terms of the agreement, which has been approved by each company's board of directors, shareholders of Rouse will receive $7.2 billion or $67.50 per share, a 33 percent premium over Thursday's closing price, Chicago-based General Growth said in a statement. The company also will assume about $5.4 billion of existing debt.

General Growth will issue $500 million in common stock to fund the purchase.

Rouse stock rose $16.03 per share, or 31 percent, to $66.64 this morning. General Growth stock fell 3.5 percent to $30.43.

The transaction is expected to close in the fourth quarter.

Wally Brewster, senior vice president of marketing at General Growth, said the companies would continue normal operations.

"We will keep moving forward with the great things Rouse has done," Brewster said.

Exactly what would happen, if anything, to the 22,500-acre Summerlin community in the western Las Vegas Valley and the Howard Hughes Corp., a division of Rouse, was unclear.

"We are still in the stages of really getting to understand the properties and the different aspects of Rouse's holdings," Brewster said.

Officials with Rouse and Howard Hughes could not be reached for comment.

While the acquisition of Summerlin and Rouse's other planned communities would deviate from General Growth's core mall assets, General Growth said it expects to build on Rouse's success in developing planned communities.

"This is an area we don't have much experience in, but with the help of the extremely talented group at The Rouse Co., we expect to build on the success they have achieved over the years," John Bucksbaum, chief executive of General Growth, said during this morning's conference call about the acquisition of Rouse and its planned communities, including Summerlin.

Summerlin accounted for $30.5 million of $39.4 million of Rouse's community development division's net operating income in the second quarter that ended June 30.

Bernard Freidbaum, chief financial officer of General Growth, said in the conference call that the company planned to "continue generating very high returns" through the community development work at Rouse.

"We will ... consider any and all alternatives depending on the markets and other events as they occur over time. We wouldn't do any bulk sales but we might accelerate slightly the pace at certain of the developments," Freidbaum said. "They have done an excellent job of maximizing the value of their land by dolling it out and controlling the supply, especially in Summerlin in Las Vegas."

"We believe that still is the best way to maximize the long-term value. ... Because of the large size of this transaction we will consider all of the options and at least initially continue along the path that they have utilized -- but always consider other options as well," he said.

Average land prices for the first half of the year in Summerlin averaged $900,000 an acre, Anthony Deering, Rouse chairman and chief executive, said during the company's second-quarter conference call in July.

The high price tag was because of the type of land sold -- land for high-density and multi-use parcels. Deering said during the July conference call that he expects the average price for land in Summerlin to level off at $600,000 an acre by the end of the year.

That's up from an average of $454,000 an acre in 2003, he said.

At that time, Rouse announced a new land-sale program, being rolled out in Summerlin, that involves multi-year purchase agreements with major home builders in an attempt to stabilize revenue and generate a continuous, and increasing, cash flow.

Observers said the prime real estate asset -- Summerlin -- would have no trouble finding a buyer if General Growth sells it off.

Phillip Peckman, chief executive officer of The Greenspun Corporation, parent company of American Nevada Company, one of the Las Vegas valley's largest developers of retail space and planned communities, said it's possible General Growth may sell off the communities, including Summerlin.

"I wouldn't be surprised if they spin off some of their non core assets," he said.

As to whether American Nevada would be interested in buying Summerlin or its commercial properties, Peckman said pricing would be a big issue.

"We would be interested in looking at any solid real estate assets to buy," he said. "They have some great assets, including their office (portfolio) and we're in that business."

The Greenspun family owns The Greenspun Corporation and the Las Vegas Sun.

When the purchase is finalized, General Growth Properties will have control and ownership of four malls in the Las Vegas Valley, including the Fashion Show, Boulevard, Meadows and Grand Canal Shoppes at The Venetian for a total of more than 4.5 million square feet of local mall retail space.

There is more 8.5 million square feet of mall space in the valley.

Rouse has announced plans for a large regional mall at Sahara Avenue and the Las Vegas Beltway in Summerlin, to open in 2006 or 2007. General Growth Properties has said it will open an extension to the Grand Canal Shoppes at The Venetian.

General Growth Properties purchased the Grand Canal Shoppes in May for $766 million.

Michael Kammerling, senior vice president, retail advisory services at Grubb & Ellis, Las Vegas, said the acquisition is a positive development for General Growth and Las Vegas.

"General Growth has demonstrated with other properties, such as the Boulevard mall, that they are prepared to spend large sums of money to bring them into the mainstream," he said. "That bodes well for Rouse because they have been so delayed in getting (the Summerlin mall) going."

General Growth properties announced this spring that it would give its 36-year-old Boulevard mall a face lift, similar to a renovation completed at Meadows in 2003.

Kammerling also said General Growth ownership might put the Summerlin mall on the fast track for development.

"General Growth is so aggressive in doing things, if there is any chance of the mall happening, it will happen faster with them than Rouse doing it themselves," he said.

The amount of land and retail holdings that General Growth will own was not of much concern to Tim Hay, chief deputy attorney general and Nevada consumer advocate who has the authority to review mergers.

"It is probably something we would take a look at, but I would doubt that it is something that would cause enough market concentration to be of much concern."

Hay said it would probably be difficult to amass enough of a holding to create antitrust concerns "in a market like Las Vegas where you've got a number of big players."

Officials with the Federal Trade Commission said they could not comment as to whether they would investigate the acquisition or General Growth's Las Vegas dominance.

Nationwide, Rouse has ownership interests in 37 regional malls, four community centers, and six mixed-use projects totaling about 40 million square feet. Rouse also is the developer of planned communities Summerlin, the Bridgelands and The Woodlands in Houston and a community in Columbia, Md., where Rouse is based.

Rouse has more than 9 million square feet of office, industrial and other commercial properties in the Baltimore area and in Las Vegas, the company said.

"In the past, I have explained why our principal focus is to acquire, develop and manage regional shopping centers," Bucksbaum said in a statement. "We want to continue to build and enhance our existing national platform."

General Growth owns 178 regional shopping malls in 41 states.

Deering said in a statement the transaction "will create the most powerful portfolio of retail assets in the United States."

Rouse acquired the Howard Hughes Corp. in 1996 and has sold off many of its Las Vegas office and warehouse assets in recent years while aggressively developing Summerlin and Fashion Show.

Most recently, Rouse sold the Hughes Center office park, a 1.1 million-square-foot high-end office complex just east of the Las Vegas Strip, for $233 million including $137.5 million of debt to Houston-based Crescent Real Estate Equities.

In 2000, the Hughes Airport and Cheyenne centers -- complexes of office, industrial and "flex" buildings -- were sold to Stoltz Bros Ltd. for $85 million, narrowing Rouse's exposure in the Las Vegas market.

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