<PAGE>
THIS DOCUMENT IS A COPY OF THE FORM 10-K FILED ON MARCH 31, 1997 PURSUANT TO A
RULE 201 TEMPORARY HARDSHIP EXEMPTION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NO 0-1743
THE ROUSE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-0735512
---------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10275 LITTLE PATUXENT PARKWAY
COLUMBIA, MARYLAND 21044-3456
---------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (410) 992-6000
--------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------- ---------------------
Common Stock (par value 1c per share) New York Stock Exchange
- -------------------------------------
9 1/4% Cumulative Quarterly Income Preferred Securities New York Stock Exchange
- -------------------------------------------------------
Series B Convertible Preferred Stock
- ------------------------------------
(par value 1c per share) New York Stock Exchange
- ------------------------
Securities registered pursuant to Section 12(g) of the Act:
NONE
----
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.__
As of March 17, 1997, there were outstanding 66,788,842 shares of the
registrant's common stock, par value 1c, which is the only class of common or
voting stock of the registrant. As of that date, the aggregate market value of
the shares of common stock held by nonaffiliates of the registrant (based on the
closing price as reported in The Wall Street Journal, Eastern Edition) was
----------------------------------------
approximately $1,943,623,000.
Documents Incorporated by Reference
The specified portions of the Annual Report to Shareholders for the fiscal year
ended December 31, 1996 are incorporated by reference into Parts I, II and IV.
Definitive Proxy Statement to be filed pursuant to Regulation 14A on or before
April 4, 1997 is incorporated by reference into Part III.
<PAGE>
PART I
------
Item 1. Business.
Item 1(a). General Development of Business.
The Rouse Company (the "Company") was incorporated as a business corporation
under the laws of the State of Maryland in 1956. Its principal offices are
located at The Rouse Company Building, Columbia, Maryland 21044. Its
telephone number is (410) 992-6000. The Company, through its subsidiaries
and affiliates, is engaged in (i) the ownership, management, acquisition and
development of income-producing and other real estate in the United States,
including retail centers, office buildings, mixed-use projects, community
retail centers and two hotels, and the management of one retail center in
Canada, and (ii) the development and sale of land to builders and other
developers, primarily around Columbia, Maryland, and Las Vegas, Nevada, for
residential, commercial and industrial uses.
DEVELOPMENTS IN 1996
On June 12, 1996, the Company completed the acquisition, through merger, of
The Hughes Corporation and Howard Hughes Properties, Limited Partnership
(collectively "Hughes") from the heirs of the late Howard R. Hughes, Jr. and
others (the "Hughes Owners"). The Hughes assets include: four large-scale,
master-planned business parks (three in Las Vegas and one in Los Angles); a
75 percent partnership interest in an 840,000 square foot regional shopping
center, Fashion Show Mall, located on the "Strip" in Las Vegas; a 22,500
acre master-planned, new community development project, Summerlin, which
extends from northwest Las Vegas west to the Spring Mountain Range; and a
number of other land parcels and commercial buildings in both Nevada and the
Los Angeles area.
The purchase price was approximately $549 million, comprised of $178 million
of common stock of the Company (7,742,884 shares valued at $23 per share)
and $371 million of debt and other liabilities (net of certain receivables
and other current assets acquired) incurred or assumed by the Company.
Additional shares of common stock, (or in certain circumstances, Increasing
Rate Cumulative Preferred Stock) of the Company may be issued to the Hughes
Owners based on the values of certain specified assets at various
"termination" dates over a 14-year period and net cash flows generated from
the development or sale of those assets prior to the termination dates
pursuant to terms of a Contingent Stock Agreement.
I-1
<PAGE>
Item 1. Business, continued.
Item 1(b). Financial Information About Industry Segments.
Information required by Item 1(b) is incorporated herein by reference to note
11 of the notes to consolidated financial statements included in the 1996
Annual Report to Shareholders.
As noted in Item 1(a), the Company is a real estate company engaged in most
aspects of the real estate industry, including the management, acquisition
and development of income-producing and other properties, both retail and
commercial, community development and management, and land sales. These
business segments are further described below.
I-2
<PAGE>
Item 1. Business, continued.
Item 1(c). Narrative Description of Business.
Operating Properties:
--------------------
As set forth in Item 2, at December 31, 1996, the 58 regional retail centers
owned, in whole or in part, or operated by subsidiaries or affiliates of the
Company, aggregated 43,721,000 square feet of leasable space, including
25,166,000 square feet owned by or leased to department stores and 147,000
square feet of office space. The activities involved in operating and
managing retail centers include: negotiating lease terms with present and
prospective tenants, identifying and attracting desirable new tenants,
conducting local market and consumer research, developing and implementing
short- and long-term merchandising and leasing programs, assisting tenants
in the presentation of their merchandise and the layout of their stores and
storefronts, and maintaining the buildings and common areas.
In conjunction with other partners or investors, the Company acquires
interests in completed retail centers, with the Company having management
responsibility and earning incentive fees including, in some instances,
equity interests in the centers. The Company also provides management
services for centers developed and owned by others under management
agreements that also provide for incentive fees and, in some instances,
equity interests in the centers. As of December 31, 1996, the Company
managed 17 such centers, which are included in the figures in the preceding
paragraph and aggregated 12,646,000 square feet of leasable space, 7,117,000
square feet of which was department store space.
The Howard Research And Development Corporation ("HRD", a wholly- owned
subsidiary of the Company) and its subsidiaries own and/or manage 14 office
and industrial buildings with 2,432,000 square feet of leasable space, 9
community retail centers with 868,000 square feet of leasable retail space
and other properties and additional commercial space, including the 289-room
Columbia Inn in Columbia, Maryland.
The Hughes Corporation ("Hughes", a wholly-owned subsidiary of the Company)
and its subsidiaries and affiliates own and/or manage 53 office and
industrial buildings with 3,209,000 square feet of leasable space, a
community retail center with 36,000 square feet of leasable space and other
properties in and around Las Vegas, Nevada and Los Angeles, California.
Other subsidiaries of the Company own and operate 5 mixed-use projects with a
total of 1,301,000 square feet of leasable retail space, 1,858,000 square
feet of leasable office space and the 148-room Cross Keys Inn located at The
Village of Cross
I-3
<PAGE>
Item 1. Business, continued.
Keys in Baltimore, Maryland. Other subsidiaries of the Company own, in whole
or in part, 8 office buildings with a total of 1,098,000 square feet of
leasable office space. The Company also has a 5% interest in Rouse-Teachers
Properties, Inc., which owns 29 office/industrial buildings with 4,608,000
square feet of space and 303 acres of land. A wholly-owned affiliate of the
Company is responsible for the operation, management and development of all
buildings and land owned by Rouse-Teachers Properties, Inc.
Development:
-----------
The Company renovates and expands existing retail centers and develops
suburban and downtown retail centers, mixed-use projects and master-planned
business parks, primarily for ownership. In addition, the Company is capable
of serving as the master developer for certain mixed-use projects, with the
Company generally owning at least the retail component of such projects. The
activities involved in the development, renovation and expansion of retail
centers, mixed-use projects and master-planned business parks include:
initial market and consumer research, evaluating and acquiring land sites,
obtaining necessary public approvals, engaging architectural and engineering
firms to design the project, estimating development costs, developing and
testing pro forma operating statements, selecting a general contractor,
arranging construction and permanent financing, identifying and obtaining
department stores and other tenants, negotiating lease terms, negotiating
partnership and joint venture agreements and promoting new, renovated or
expanded retail centers, mixed-use projects and master-planned business
parks.
The Company and certain subsidiaries or affiliates are in the construction or
development stage of announced projects, primarily the construction of a new
retail center in Orlando, Florida, expansions of existing retail centers and
expansions of existing master-planned business parks in Las Vegas, Nevada.
Land Sales:
----------
HRD is the developing entity of Columbia, Maryland, which is located in the
Baltimore-Washington corridor. HRD owns approximately 2,000 developable
acres (1,741 saleable acres) of land in and around Columbia, and, through
its subsidiaries and affiliates, develops and sells this land to builders
and other developers for residential, commercial and industrial uses. Hughes
is the developing entity of Summerlin, Nevada, which is located immediately
north and west of Las Vegas. Hughes owns approximately 16,500 developable
acres(11,500 saleable acres) of land in Summerlin, and develops and sells
this land to builders and other developers for residential and commercial
I-4
<PAGE>
Item 1. Business, continued.
uses. The Company may also retain some of this land for its own development
purposes. The Company, through its subsidiaries and affiliates, also is
presently involved in community development and related land sales elsewhere
in Maryland, and is developing for sale parcels of land elsewhere in Nevada
and California.
In all aspects of the Company's business pertaining to the ownership,
management, acquisition or development of income-producing and other real
estate, the Company operates in highly competitive markets. With respect to
the leasing and operation or management of developed properties, each
project faces market competition from existing and future developments in
its geographical market area. The Company competes with developers and other
buyers with respect to the acquisition of development sites or centers and
for financing opportunities in the money markets. The Company also faces
competition in and around Columbia, Maryland and Las Vegas, Nevada with
respect to the development and sale of land for residential, commercial and
industrial uses.
Neither the Company's business, taken as a whole, nor any of its industry
segments, is seasonal in nature.
Federal, state and local statutes and regulations relating to the protection
of the environment have previously had no material effect on the Company's
business. Future development opportunities of the Company may involve
additional capital and other expenditures in order to comply with such
statutes and regulations. It is impossible at this time to predict with any
certainty the magnitude of any such expenditures or the long-range effect,
if any, on the Company's operations. Compliance with such laws has had no
material adverse effect on the operating results or competitive position of
the Company in the past; the Company anticipates that they will have no
material adverse effect on its future operating results or its competitive
position in the industry.
None of the Company's industry segments depends upon a single customer or a
few customers, the loss of which would have a materially adverse effect on
the segment. No customer accounts for 10 percent or more of the consolidated
revenues of the Company.
The Company and its subsidiaries had 4,287 full-time and part-time employees
at December 31, 1996.
I-5
<PAGE>
Item 2. Properties.
The Company leases its headquarters building (approximately 127,000 square
feet) in Columbia, Maryland for an initial term of 30 years which expires in
2003 with options for two 15-year renewal periods. The lease on the
headquarters building is accounted for as a capital lease.
Information respecting the Company's operating properties is incorporated
herein by reference to the "Projects of The Rouse Company" table on pages 64
through 67 of Exhibit 13 to this Form 10-K. The ownership of virtually all
properties is subject to mortgage financing. The table of projects includes
retail centers managed by the Company for a fee as identified in notes (c)
and (d) to the table. Excluding such managed centers, certain of the
remaining properties are subject to leases which provide an option to
purchase (or repurchase) the property and/or to renew the leases for one or
more renewal periods. The years of expiration indicated below assume all
options to extend the terms of the leases are exercised. The properties
subject to such leases in whole or in part are as follows:
<TABLE>
<CAPTION>
Year of
Nature of expiration
Property interest of lease
- -------- --------- -----------
<S> <C> <C>
Arizona Center Leasehold Various dates
from 2017 to
2050
Augusta Mall Leasehold 2068
Bayside Marketplace Leasehold by joint venture 2062
Columbia Mall, Inc. -
American City Building Leasehold and fee 2000
Columbia Mall, Inc. -
Columbia Cinema Leasehold and fee 2003
Columbia Mall, Inc. -
Exhibit Building Leasehold and fee 2012
Columbia Mall, Inc. -
Oakland Building Leasehold 2062
Echelon Mall Leasehold 2008
Faneuil Hall Marketplace Leasehold 2074
First National Bank Plaza Leasehold 2013
</TABLE>
I-6
<PAGE>
Item 2. Properties, continued.
<TABLE>
<CAPTION>
Year of
Nature of expiration
Property interest of lease
-------- -------- ----------
<S> <C> <C>
Franklin Park Leasehold and fee by
joint venture 2024
The Gallery at Market East Leasehold 2082
Governor's Square Leasehold by joint venture 2054
Greengate Mall Leasehold 2070
Harborplace Leasehold 2054
Harundale Mall Leasehold and fee owned
jointly with others 2059
Highland Mall Leasehold and fee by
joint venture 2070
The Jacksonville Landing Leasehold 2057
Mall St. Matthews Leasehold 2053
Midtown Square Leasehold 2055
Pioneer Place Leasehold 2076
Plymouth Meeting Leasehold and fee 2063
Riverwalk Leasehold by joint venture 2076
St. Louis Union Station Leasehold 2060
South Street Seaport Leasehold 2031
Tampa Bay Center Leasehold and fee 2047
Westlake Center Leasehold by joint venture 2043
</TABLE>
I-7
<PAGE>
Item 3. Legal Proceedings.
None.
I-8
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None.
I-9
<PAGE>
Directors and Executive Officers.
The executive officers of the Company as of March 31, 1997 are:
<TABLE>
<CAPTION>
Present office and Date of election Business or professional
position with the or appointment to experience during the past
Executive Officer Age Company present office five years
- --------------------- --- ------------------------- ----------------- -----------------------------
<S> <C> <C> <C> <C>
Anthony W. Deering 52 Chairman of the Board, 2/25/97 Chairman of the Board,
President and 2/25/93 President and Chief Executive
Chief Executive Officer 2/23/95 Officer of the Company;
formerly President and Chief
Executive Officer of the
Company; President and Chief
Operating Officer of the
Company; and Executive Vice
President - Finance and
Administration and Chief
Financial Officer of the
Company
Jeffrey H. Donahue 50 Senior Vice-President, 9/23/93 Senior Vice-President and
Chief Financial Officer 9/23/93 Chief Financial Officer of the
and Director of the 8/17/93 Company and Director of the
Finance Division Finance Division; formerly
Vice-President and Treasurer
of the Company
John L. Goolsby 55 President and Chief 9/1/88 President and Chief Executive
Executive Officer of Officer of The Howard Hughes
The Howard Hughes Corporation
Corporation, a wholly
owned subsidiary of the
Company
Duke S. Kassolis 45 Senior Vice-President 9/23/93 Senior Vice-President and
and Director of Office 8/17/93 Director of Office and Mixed-
and Mixed-Use Operations Use Operations of the Company;
formerly Vice-President and
Director of Office and
Commercial Properties of the
Company
</TABLE>
I-10
<PAGE>
<TABLE>
<CAPTION>
Present office and Date of election Business or professional
position with the or appointment to experience during the past
Executive Officer Age Company present office five years
- --------------------- --- ------------------------- ----------------- -----------------------------
<S> <C> <C> <C> <C>
Paul I. Latta, Jr. 53 Senior Vice-President 9/23/93 Senior Vice-President and
and Director of Retail 8/17/93 Director of Retail Operations
Operations of the Company; formerly Vice-
President and Associate
Division Director, Operating
Properties Division of the
Company
Douglas A. McGregor 54 Executive Vice-President 8/17/93 Executive Vice-President for
for Development and Development and Operations of
Operations the Company; formerly
Executive Vice-President -
Development and Director of
the Office and Community
Development Division of the
Company
Robert Minutoli 46 Senior Vice-President 9/23/93 Senior Vice-President and
and Director of 8/17/93 Director of Acquisitions of
Acquisitions the Company; formerly Vice-
President for Development of
the Company
Robert D. Riedy 51 Senior Vice-President 9/23/93 Senior Vice-President and
and Director of Retail 8/17/93 Director of Retail Leasing of
Leasing the Company; formerly Vice-
President for Development of
the Company
</TABLE>
I-11
<PAGE>
<TABLE>
<CAPTION>
Present office and Date of election Business or professional
position with the or appointment to experience during the past
Executive Officer Age Company present office five years
- --------------------- --- ------------------------- ----------------- -----------------------------
<S> <C> <C> <C> <C>
Alton J. Scavo 50 Senior Vice-President, 9/23/93 Senior Vice-President and
Director of the 8/17/93 Director of the Community
Community Development Development Division of the
Division and General Company and General Manager of
Manager of Columbia Columbia; formerly Vice-
President and Associate
Director of the Community
Development Division of the
Company
Jerome D. Smalley 47 Senior Vice-President 9/23/93 Senior Vice-President and
and Director of the 8/17/93 Director of the Commercial and
Commercial and Office Office Development Division of
Development Division the Company; formerly Vice-
President for Development
George L. Yungmann 54 Senior 9/23/93 Senior Vice-President and
Vice-President, 7/26/72 Controller of the Company and
Controller and 7/26/72 Director of the Controller's
Director of the Division; formerly Vice-
Controller's Division President, Controller and
Director of the Controller's
Division
</TABLE>
The term of office of each officer is until election of a successor or otherwise
at the pleasure of the Board of Directors.
There is no arrangement or understanding between any of the above-listed
officers and any other person pursuant to which any such officer was elected as
an officer.
I-12
<PAGE>
Directors and Executive Officers.
The executive officers of the Company as of March 31, 1997 are:
<TABLE>
<CAPTION>
Present office and Date of election Business or professional
position with the or appointment to experience during the past
Executive Officer Age Company present office five years
- --------------------- --- ------------------------- ----------------- -----------------------------
<S> <C> <C> <C> <C>
</TABLE>
None of the above-listed officers has any family relationship with any director
or other executive officer.
I-13
<PAGE>
Part II
-------
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.
Information required by Item 5 is incorporated herein by reference to
page 51 of Exhibit 13.
Item 6. Selected Financial Data.
Information required by Item 6 is incorporated herein by reference to
page 51 of Exhibit 13.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Information required by Item 7 is incorporated herein by reference to
pages 52 through 59 of Exhibit 13.
Item 8. Financial Statements and Supplementary Data.
Financial Statements required by Item 8 are set forth in the Index to
Financial Statements and Schedules on page IV-2.
Supplementary data required by Item 8 are incorporated herein by
reference to page 51 of Exhibit 13.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
II-1
<PAGE>
Part III
--------
The information required by Items 10, 11, 12 and 13 (except that information
regarding executive officers called for by Item 10 that is contained in Part I)
is incorporated herein by reference from the definitive proxy statement that the
Company intends to file pursuant to Regulation 14A on or before April 4, 1997.
III-1
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) 1 and 2. Financial Statements and Schedules:
Reference is made to the Index to Financial Statements and
Schedules on page IV-2.
3. Exhibits: Reference is made to the Exhibit Index.
(b) Reports on Form 8-K:
None.
IV-1
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Index to Financial Statements and Schedules
<TABLE>
<CAPTION>
Page
---------
<S> <C> <C>
Independent Auditors' Report IV-3
Report of Independent Real Estate Consultants included on
page 23 of Exhibit 13 incorporated herein by reference
Financial Statements:
The Rouse Company and Subsidiaries included on pages 24
through 50 of Exhibit 13 incorporated herein by
reference:
Consolidated Cost Basis and Current Value Basis
Balance Sheets at December 31, 1996 and 1995
Consolidated Cost Basis Statements of Operations
for the Years Ended December 31, 1996, 1995 and 1994
Consolidated Cost Basis Statements of Shareholders'
Equity for the Years Ended December 31, 1996, 1995
and 1994
Consolidated Cost Basis Statements of Cash Flows for
the Years Ended December 31, 1996, 1995 and 1994
Consolidated Current Value Basis Statements of
Changes in Revaluation Equity for the Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Schedules:
The Rouse Company and Subsidiaries as of December 31,
1996 or for the years ended December 31, 1996, 1995
and 1994:
Schedule II Valuation and Qualifying Accounts IV-4
Schedule III Real Estate and Accumulated Depreciation IV-5
All other schedules have been omitted as not applicable
or not required, or because the required information is
included in the consolidated financial statements or
notes thereto.
</TABLE>
IV-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Shareholders
The Rouse Company:
We have audited the consolidated cost basis financial statements and the related
financial statement schedules of The Rouse Company and subsidiaries as listed in
the accompanying index. We have also audited the supplemental consolidated
current value basis financial statements listed in the index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated cost basis financial statements referred to
above present fairly, in all material respects, the financial position of The
Rouse Company and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules,
when considered in relation to the basic consolidated cost basis financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
As more fully described in note 1 to the consolidated financial statements, the
supplemental consolidated current value basis financial statements referred to
above have been prepared by management to present relevant financial information
about The Rouse Company and its subsidiaries which is not provided by the cost
basis financial statements and are not intended to be a presentation in
conformity with generally accepted accounting principles. In addition, as more
fully described in note 1, the supplemental consolidated current value basis
financial statements do not purport to present the net realizable, liquidation
or market value of the Company as a whole. Furthermore, amounts ultimately
realized by the Company from the disposal of properties may vary from the
current values presented.
In our opinion, the supplemental consolidated current value basis financial
statements referred to above present fairly, in all material respects, the
information set forth therein on the basis of accounting described in note 1 to
the consolidated financial statements.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
February 25, 1997
IV-3
<PAGE>
Schedule II
-----------
THE ROUSE COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end of
Descriptions of year expenses accounts Deductions year
------------ ---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful receivables $24,468 $ 3,688 $1,161 $1,164 (1) $28,153
======= ======= ======= ====== =======
Valuation allowance - properties held for sale $15,589 $25,825 $ $5,743 (2) $35,671
======= ======= ======= ====== =======
Preconstruction reserve $15,379 $ 2,700 $ - $1,762 (3) $16,317
======= ======= ======= ====== =======
Year ended December 31, 1995:
Allowance for doubtful receivables $25,124 $ 3,318 $ - $3,974 (1) $24,468
======= ======= ======= ====== =======
Valuation allowance - properties held for sale $ - $15,589 $ - $ - $15,589
======= ======= ======= ====== =======
Preconstruction reserve $14,109 $ 3,800 $ - $2,530 (3) $15,379
======= ======= ======= ====== =======
Year ended December 31, 1994:
Allowance for doubtful receivables $24,036 $ 5,185 $ - $4,097 (1) $25,124
======= ======= ======= ====== =======
Valuation allowance - properties held for sale $ - $ - $ - $ - $ -
======= ======= ======= ====== =======
Preconstruction reserve $12,822 $ 3,400 $ - $2,113 (3) $14,109
======= ======= ======= ====== =======
</TABLE>
Notes:
(1) Balances written off as uncollectible.
(2) Allowance related to properties sold.
(3) Costs of unsuccessful projects written off.
IV-4
<PAGE>
Schedule III
------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
<TABLE>
<CAPTION>
Cost capitalized
Initial cost to subsequent to
Company acquisition
------------------- ----------------------
Buildings
and Carrying
Encumbrances Improve- Improve- costs
Description (note 4) Land ments ments (note 2)
- ----------- ------------ -------- --------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Operating Properties:
Woodbridge Center $135,835 $26,301 $ -- $117,092 $ --
Retail Center
Woodbridge, NJ
South Street Seaport 52,000 -- -- 141,248 --
Retail Center
New York, NY
Arizona Center 112,464 97 -- 138,871 --
Mixed-use project
Phoenix, AZ
Fashion Show Mall 76,786 28,908 104,741 833 --
Retail Center
Las Vegas, NV
Pioneer Place 97,140 -- -- 122,423 --
Mixed-use project
Portland, OR
Westlake Center 94,678 10,582 -- 101,758 --
Mixed-use project
Seattle, WA
The Gallery at 109,095 6,648 -- 103,554 --
Harborplace
Mixed-use project
Baltimore, MD
Owings Mills 61,000 13,408 -- 86,841 --
Retail Center
Baltimore, MD
Bayside Marketplace 83,850 -- -- 98,196 --
Retail Center
Miami, FL
</TABLE>
<TABLE>
<CAPTION>
Life on
Gross amount at which carried which
at December 31, 1996 Accumu- depre-
------------------------------ lated ciation
Buildings depre- Date of in latest
and ciation comple- income
Improve- and tion of state-
ments amorti- construc- Date ment is
Land (note 3) Total zation tion acquired computed
-------- --------- -------- -------- --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Properties:
Woodbridge Center $26,301 $117,092 $143,393 $21,676 03/71 N/A Note 8
Retail Center
Woodbridge, NJ
South Street Seaport -- 141,248 141,248 24,641 07/83 N/A Note 8
Retail Center
New York, NY
Arizona Center 97 138,871 138,968 22,839 07/83 N/A Note 8
Mixed-use project
Phoenix, AZ
Fashion Show Mall 28,908 105,574 134,482 1,313 03/81 06/96 Note 8
Retail Center
Las Vegas, NV
Pioneer Place -- 122,423 122,423 20,104 03/90 N/A Note 8
Mixed-use project
Portland, OR
Westlake Center 10,582 101,758 112,340 21,779 10/88 N/A Note 8
Mixed-use project
Seattle, WA
The Gallery at 6,648 103,554 110,202 22,330 09/87 N/A Note 8
Harborplace
Mixed-use project
Baltimore, MD
Owings Mills 13,408 86,841 100,249 10,213 07/86 N/A Note 8
Retail Center
Baltimore, MD
Bayside Marketplace -- 98,196 98,196 16,382 04/87 N/A Note 8
Retail Center
Miami, FL
</TABLE>
IV-5
<PAGE>
Schedule III, continued
-----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
<TABLE>
<CAPTION>
Cost capitalized
Initial cost to subsequent to
Company acquisition
------------------- ------------------
Buildings
and Carrying
Encumbrances Improve- Improve- costs
Description (note 4) Land ments ments (note 2)
- ----------- ------------ -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Mall St. Matthews 72,797 -- -- 94,200 --
Retail Center
Louisville, KY
Paramus Park 70,353 13,475 -- 69,177 --
Retail Center
Paramus, NJ
White Marsh 57,576 2,627 -- 73,667 --
Retail Center
Baltimore, MD
Santa Monica Place -- 5,088 -- 68,079 --
Retail Center
Santa Monica, CA
Faneuil Hall Marketplace 54,412 -- -- 72,170 --
Retail Center
Boston, MA
Cherry Hill Mall 79,780 14,767 -- 56,729 --
Retail Center
Cherry Hill, NJ
Oakwood Center 54,576 14,750 -- 56,098 --
Retail Center
Gretna, LA
Hulen Mall 65,458 5,064 -- 64,712 --
Retail Center
Ft. Worth, TX
Riverwalk 10,433 -- -- 69,597 --
Retail Center
New Orleans, LA
</TABLE>
<TABLE>
<CAPTION>
Life on
Gross amount at which carried which
at December 31, 1996 Accumu- depre-
------------------------------ lated ciation
Buildings depre- Date of in latest
and ciation comple- income
Improve- and tion of state-
ments amorti- construc- Date ment is
Land (note 3) Total zation tion acquired computed
-------- --------- -------- -------- --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mall St. Matthews -- 94,200 94,200 12,751 03/62 N/A Note 8
Retail Center
Louisville, KY
Paramus Park 13,475 69,177 82,652 6,687 03/74 N/A Note 8
Retail Center
Paramus, NJ
White Marsh 2,627 73,667 76,294 12,387 08/81 N/A Note 8
Retail Center
Baltimore, MD
Santa Monica Place 5,088 68,079 73,167 8,949 10/80 N/A Note 8
Retail Center
Santa Monica, CA
Faneuil Hall Marketplace -- 72,170 72,170 10,108 08/76 N/A Note 8
Retail Center
Boston, MA
Cherry Hill Mall 14,767 56,729 71,496 16,103 10/61 N/A Note 8
Retail Center
Cherry Hill, NJ
Oakwood Center 14,750 56,098 70,848 6,827 10/82 N/A Note 8
Retail Center
Gretna, LA
Hulen Mall 5,064 64,712 69,776 9,179 08/77 N/A Note 8
Retail Center
Ft. Worth, TX
Riverwalk -- 69,597 69,597 9,091 08/86 N/A Note 8
Retail Center
New Orleans, LA
</TABLE>
IV-6
<PAGE>
Schedule III, continued
-----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
<TABLE>
<CAPTION>
Cost capitalized
Initial cost to subsequent to
Company acquisition
------------------- ------------------
Buildings
and Carrying
Encumbrances Improve- Improve- costs
Description (note 4) Land ments ments (note 2)
- ----------- ------------ -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Augusta Mall 55,366 5,390 -- 63,065 --
Retail Center
Augusta, GA
St. Louis Union Station -- -- -- 66,987 --
Retail Center
St. Louis, MO
Echelon Mall 61,181 6,160 -- 54,234 --
Retail Center
Voorhees, NJ
The Mall in Columbia 24,308 4,788 -- 46,856 --
Retail Center
Columbia, MD
Beachwood Place 40,671 7,188 -- 40,971 --
Retail Center
Beachwood, OH
3800 Howard
Hughes Parkway 40,514 4,109 43,604 427 --
Office Building
Las Vegas, NV
Village of Cross Keys -- 1,100 -- 44,619 --
Mixed-use project
Baltimore, MD
Blue Cross &
Blue Shield Building I 35,437 1,000 -- 44,713 --
Office Building
Baltimore, MD
Harborplace 32,508 -- -- 44,806 --
Retail Center
Baltimore, MD
</TABLE>
<TABLE>
<CAPTION>
Life on
Gross amount at which carried which
at December 31, 1996 Accumu- depre-
------------------------------ lated ciation
Buildings depre- Date of in latest
and ciation comple- income
Improve- and tion of state-
ments amorti- construc- Date ment is
Land (note 3) Total zation tion acquired computed
-------- --------- --------- -------- --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Augusta Mall 5,390 63,065 68,455 5,739 08/78 N/A Note 8
Retail Center
Augusta, GA
St. Louis Union Station -- 66,987 66,987 16,454 08/85 N/A Note 8
Retail Center
St. Louis, MO
Echelon Mall 6,160 54,234 60,394 10,530 09/70 N/A Note 8
Retail Center
Voorhees, NJ
The Mall in Columbia 4,788 46,856 51,644 10,505 08/71 N/A Note 8
Retail Center
Columbia, MD
Beachwood Place 7,188 40,971 48,159 7,019 08/78 N/A Note 8
Retail Center
Beachwood, OH
3800 Howard
Hughes Parkway 4,109 44,031 48,140 849 11/86 06/96 Note 8
Office Building
Las Vegas, NV
Village of Cross Keys 1,100 44,619 45,719 15,501 09/65 N/A Note 8
Mixed-use project
Baltimore, MD
Blue Cross &
Blue Shield Building I 1,000 44,713 45,713 7,840 07/89 N/A Note 8
Office Building
Baltimore, MD
Harborplace -- 44,806 44,806 10,713 07/80 N/A Note 8
Retail Center
Baltimore, MD
</TABLE>
IV-7
<PAGE>
Schedule III, continued
-----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
<TABLE>
<CAPTION>
Cost capitalized
Initial cost to subsequent to
Company acquisition
------------------- ------------------
Buildings
and Carrying
Encumbrances Improve- Improve- costs
Description (note 4) Land ments ments (note 2)
- ----------- ------------ --------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
The Jacksonville Landing 15,211 -- -- 34,444 --
Retail Center
Jacksonville, FL
Tampa Bay Center 47,281 920 -- 30,607 --
Retail Center
Tampa, FL
Gateway Commerce Center #20 -- 6,200 -- 23,497 --
Industrial Building
Columbia, MD
North Star -- 168 -- 28,050 --
Retail Center
San Antonio, TX
Plymouth Meeting 14,352 702 -- 27,312 --
Retail Center
Montgomery County, PA
Exton Square 8,274 1,408 -- 26,490 --
Retail Center
Exton, PA
Governor's Square 27,787 -- -- 27,234 --
Retail Center
Tallahassee, FL
Alexander &
Alexander Building I 21,639 1,000 -- 24,507 --
Office Building
Baltimore, MD
Ryland Group Headquarters 21,000 856 -- 24,280 --
Office Building
Columbia, MD
</TABLE>
<TABLE>
<CAPTION> Life on
Gross amount at which carried which
at December 31, 1996 Accumu- depre-
------------------------------ lated ciation
Buildings depre- Date of in latest
and ciation comple- income
Improve- and tion of state-
ments amorti- construc- Date ment is
Land (note 3) Total zation tion acquired computed
-------- --------- -------- -------- --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
The Jacksonville Landing -- 34,444 34,444 10,127 06/87 N/A Note 8
Retail Center
Jacksonville, FL
Tampa Bay Center 920 30,607 31,527 9,279 08/79 N/A Note 8
Retail Center
Tampa, FL
Gateway Commerce Center #20 6,200 23,497 29,697 4,509 N/A 08/93 Note 8
Industrial Building
Columbia, MD
North Star 168 28,050 28,218 7,282 09/60 N/A Note 8
Retail Center
San Antonio, TX
Plymouth Meeting 702 27,312 28,014 11,342 02/66 N/A Note 8
Retail Center
Montgomery County, PA
Exton Square 1,408 26,490 27,898 8,423 03/73 N/A Note 8
Retail Center
Exton, PA
Governor's Square -- 27,234 27,234 4,489 08/79 N/A Note 8
Retail Center
Tallahassee, FL
Alexander &
Alexander Building I 1,000 24,507 25,507 5,137 09/87 N/A Note 8
Office Building
Baltimore, MD
Ryland Group Headquarters 856 24,280 25,136 3,689 06/92 N/A Note 8
Office Building
Columbia, MD
</TABLE>
IV-8
<PAGE>
Schedule III, continue
----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
<TABLE>
<CAPTION>
Cost capitalized
Initial cost to subsequent to
Company acquisition
------------------- ------------------
Buildings
and Carrying
Encumbrances Improve- Improve- costs
Description (note 4) Land ments ments (note 2)
- ----------- ------------ -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
The Gallery at Market East -- -- -- 23,799 --
Retail Center
Philadelphia, PA
3773 Howard
Hughes Parkway 23,000 1,574 20,485 1,056 --
Office Building
Las Vegas, NV
Perimeter Mall -- -- -- 21,880 --
Retail Center
Atlanta, GA
Willowbrook 33,750 853 -- 20,943 --
Retail Center
Wayne, NJ
Franklin Park 24,500 653 -- 20,728 --
Retail Center
Toledo, OH
Columbia Inn -- 1,384 -- 19,187 --
Hotel
Columbia, MD
The Grand Avenue 8,542 -- -- 20,556 --
Retail Center
Milwaukee, WI
Mondawmin 5,795 2,251 -- 17,766 --
Retail Center
Baltimore, MD
RWD Building 11,456 2,596 -- 16,385 --
Office Building
Columbia, MD
</TABLE>
<TABLE>
<CAPTION>
Life on
Gross amount at which carried which
at December 31, 1996 Accumu- depre-
------------------------------ lated ciation
Buildings depre- Date of in latest
and ciation comple- income
Improve- and tion of state-
ments amorti- construc- Date ment is
Land (note 3) Total zation tion acquired computed
-------- --------- -------- -------- --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
The Gallery at Market East -- 23,799 23,799 6,579 08/77 N/A Note 8
Retail Center
Philadelphia, PA
3773 Howard
Hughes Parkway 1,574 21,541 23,115 274 11/95 06/96 Note 8
Office Building
Las Vegas, NV
Perimeter Mall -- 21,880 21,880 5,861 08/71 N/A Note 8
Retail Center
Atlanta, GA
Willowbrook 853 20,943 21,796 7,800 09/69 N/A Note 8
Retail Center
Wayne, NJ
Franklin Park 653 20,728 21,381 4,677 07/71 N/A Note 8
Retail Center
Toledo, OH
Columbia Inn 1,384 19,187 20,571 6,799 06/72 N/A Note 8
Hotel
Columbia, MD
The Grand Avenue -- 20,556 20,556 9,329 08/82 N/A Note 8
Retail Center
Milwaukee, WI
Mondawmin 2,251 17,766 20,017 6,121 01/78 N/A Note 8
Retail Center
Baltimore, MD
RWD Building 2,596 16,385 18,981 5,578 07/86 N/A Note 8
Office Building
Columbia, MD
</TABLE>
IV-9
<PAGE>
Schedule III, continued
-----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
<TABLE>
<CAPTION>
Cost capitalized
Initial cost to subsequent to
Company acquisition
------------------- ------------------
Buildings
and Carrying
Encumbrances Improve- Improve- costs
Description (note 4) Land ments ments (note 2)
- ----------- ------------ -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Blue Cross &
Blue Shield Building II 12,926 1,000 -- 16,559 --
Office Building
Baltimore, MD
Alexander &
Alexander Building II 12,278 650 -- 16,683 --
Office Building
Baltimore, MD
Highland Mall 6,634 13 -- 16,932 --
Retail Center
Austin, TX
3753/3763 Howard
Hughes Parkway 11,431 4,064 12,707 25 --
Office Building
Las Vegas, NV
Parkside 11,863 463 -- 15,196 --
Office Building
Columbia, MD
Gateway Commerce Center #2 -- 1,947 -- 12,379 --
Industrial Building
Columbia, MD
Midtown Square -- -- -- 14,226 --
Retail Center
Charlotte, NC
3930 Howard
Hughes Parkway 7,950 2,809 10,192 4 --
Office Building
Las Vegas, NV
</TABLE>
<TABLE>
<CAPTION>
Life on
Gross amount at which carried which
at December 31, 1996 Accumu- depre-
------------------------------ lated ciation
Buildings depre- Date of in latest
and ciation comple- income
Improve- and tion of state-
ments amorti- construc- Date ment is
Land (note 3) Total zation tion acquired computed
-------- --------- -------- -------- --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Blue Cross & 1,000 16,559 17,559 2,517 08/90 N/A Note 8
Blue Shield Building II
Office Building
Baltimore, MD
Alexander & 650 16,683 17,333 5,106 11/88 N/A Note 8
Alexander Building II
Office Building
Baltimore, MD
13 16,932 16,945 5,096 08/71 N/A Note 8
Highland Mall
Retail Center
Austin, TX
3753/3763 Howard 4,064 12,732 16,796 211 10/91 06/96 Note 8
Hughes Parkway
Office Building
Las Vegas, NV
463 15,196 15,659 3,052 11/89 N/A Note 8
Parkside
Office Building
Columbia, MD
1,947 12,379 14,326 2,113 N/A 08/93 Note 8
Gateway Commerce Center #2
Industrial Building
Columbia, MD
-- 14,226 14,226 9,658 10/59 N/A Note 8
Midtown Square
Retail Center
Charlotte, NC
3930 Howard 2,809 10,196 13,005 261 12/94 06/96 Note 8
Hughes Parkway
Office Building
Las Vegas, NV
</TABLE>
IV-10
<PAGE>
Schedule III, continued
-----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
<TABLE>
<CAPTION>
Cost capitalized
Initial cost to subsequent to
Company acquisition
------------------- ------------------
Buildings
and Carrying
Encumbrances Improve- Improve- costs
Description (note 4) Land ments ments (note 2)
- ----------- ------------ --------- --------- -------- --------
(in thousand)
<S> <C> <C> <C> <C> <C>
30 Corporate Center 8,592 1,160 -- 11,578 --
Office Building
Columbia, MD
6601 Center Drive West 11,675 646 11,354 41 --
Office Building
Los Angeles, CA
Amdahl Building 3,573 927 -- 10,374 --
Office Building
Columbia, MD
Hickory Ridge
Village Center 9,341 907 -- 10,200 --
Village Center
Columbia, MD
American City Building -- -- -- 10,858 --
Office Building
Columbia, MD
Dorsey Search
Village Center 10,230 911 -- 9,893 --
Village Center
Columbia, MD
Montgomery Ward 6,440 695 8,257 23 --
Office/Industrial
Building
Las Vegas, NV
10 Corporate Center -- 753 -- 8,167 --
Office Building
Columbia, MD
</TABLE>
<TABLE>
<CAPTION>
Life on
Gross amount at which carried which
at December 31, 1996 Accumu- depre-
------------------------------ lated ciation
Buildings depre- Date of in latest
and ciation comple- income
Improve- and tion of state-
ments amorti- construc- Date ment is
Land (note 3) Total zation tion acquired computed
-------- --------- -------- -------- --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
30 Corporate Center 1,160 11,578 12,738 4,089 04/86 N/A Note 8
Office Building
Columbia, MD
6601 Center Drive West 646 11,395 12,041 187 12/91 06/96 Note 8
Office Building
Los Angeles, CA
Amdahl Building 927 10,374 11,301 4,171 06/81 N/A Note 8
Office Building
Columbia, MD
Hickory Ridge
Village Center 907 10,200 11,107 1,358 06/92 N/A Note 8
Village Center
Columbia, MD
American City Building -- 10,858 10,858 8,222 03/69 N/A Note 8
Office Building
Columbia, MD
Dorsey Search
Village Center 911 9,893 10,804 2,031 09/89 N/A Note 8
Village Center
Columbia, MD
Montgomery Ward 695 8,280 8,975 123 10/95 06/96 Note 8
Office/Industrial
Building
Las Vegas, NV
10 Corporate Center 753 8,167 8,920 3,422 09/81 N/A Note 8
Office Building
Columbia, MD
</TABLE>
IV-11
<PAGE>
Schedule III, continued
-----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
<TABLE>
<CAPTION>
Cost capitalized
Initial cost to subsequent to
Company acquisition
------------------- ------------------
Buildings
and Carrying
Encumbrances Improve- Improve- costs
Description (note 4) Land ments ments (note 2)
- ----------- ------------ -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Crossing Business
Center Phase I 8,073 1,221 7,322 28 --
Office Building
Las Vegas, NV
King's Contrivance
Village Center -- 1,072 -- 7,433 --
Village Center
Columbia, MD
3770 Howard
Hughes Parkway 5,750 659 7,633 147 --
Office Building
Las Vegas, NV
Metro Plaza 920 202 - 8,014 --
Retail Center
Baltimore, MD
Wilde Lake
Village Center -- 1,486 -- 6,116 --
Village Center
Columbia, MD
Plaza East 4,990 1,040 6,053 1 --
Office Building
Las Vegas, NV
Crossing Business
Center Phase II 5,780 332 6,750 (186) --
Office Building
Las Vegas, NV
First National Bank Plaza 5,410 -- -- 6,330 --
Office Building
Mt. Prospect, IL
</TABLE>
<TABLE>
<CAPTION>
Life on
Gross amount at which carried which
at December 31, 1996 Accumu- depre-
------------------------------ lated ciation
Buildings depre- Date of in latest
and ciation comple- income
Improve- and tion of state-
ments amorti- construc- Date ment is
Land (note 3) Total zation tion acquired computed
-------- --------- -------- -------- --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Crossing Business
Center Phase I 1,221 7,350 8,571 112 12/94 06/96 Note 8
Office Building
Las Vegas, NV
King's Contrivance
Village Center 1,072 7,433 8,505 2,344 06/86 N/A Note 8
Village Center
Columbia, MD
3770 Howard
Hughes Parkway 659 7,780 8,439 173 10/90 06/96 Note 8
Office Building
Las Vegas, NV
Metro Plaza 202 8,014 8,216 3,179 N/A 12/82 Note 8
Retail Center
Baltimore, MD
Wilde Lake
Village Center 1,486 6,116 7,602 2,871 07/67 N/A Note 8
Village Center
Columbia, MD
Plaza East 1,040 6,054 7,094 94 12/93 06/96 Note 8
Office Building
Las Vegas, NV
Crossing Business
Center Phase II 332 6,564 6,896 98 12/95 06/96 Note 8
Office Building
Las Vegas, NV
First National Bank Plaza -- 6,330 6,330 1,594 07/81 N/A Note 8
Office Building
Mt. Prospect, IL
</TABLE>
IV-12
<PAGE>
Schedule III, continued
-----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
<TABLE>
<CAPTION>
Cost capitalized
Initial cost to subsequent to
Company acquisition
------------------- ------------------
Buildings
and Carrying
Encumbrances Improve- Improve- costs
Description (note 4) Land ments ments (note 2)
- ----------- ------------ -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Crossing Business
Center Phase III 8,810 1,913 -- 4,374 --
Office Building
Las Vegas, NV
980 Kelly Johnson Drive 3,483 874 5,120 -- --
Office/Industrial
Building
Las Vegas, NV
420 Pilot Road -- 1,098 -- 4,845 --
Office/Industrial
Building
Las Vegas, NV
Joseph Square
Village Center 4,878 546 -- 5,345 --
Village Center
Columbia, MD
975 Kelly Johnson Drive 4,475 389 5,360 -- --
Office/Industrial
Building
Las Vegas, NV
6590 Bermuda Road 2,583 1,562 3,970 -- --
Office/Industrial
Building
Las Vegas, NV
950 Pilot Road 2,079 883 4,608 -- --
Office/Industrial
Building
Las Vegas, NV
Raytheon Building -- 344 4,977 -- --
Office/Industrial
Building
Las Vegas, NV
Plaza West 4,662 174 4,792 -- --
Office Building
Las Vegas, NV
</TABLE>
<TABLE>
<CAPTION>
Life on
Gross amount at which carried which
at December 31, 1996 Accumu- depre-
------------------------------ lated ciation
Buildings depre- Date of in latest
and ciation comple- income
Improve- and tion of state-
ments amorti- construc- Date ment is
Land (note 3) Total zation tion acquired computed
-------- --------- -------- -------- --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Crossing Business
Center Phase III 1,913 4,374 6,287 62 09/96 06/96 Note 8
Office Building
Las Vegas, NV
980 Kelly Johnson Drive 874 5,120 5,994 83 05/92 06/96 Note 8
Office/Industrial Building
Las Vegas, NV
420 Pilot Road
Office/Industrial Building 1,098 4,845 5,943 51 09/96 06/96 Note 8
Las Vegas, NV
Joseph Square
Village Center 546 5,345 5,891 2,320 09/71 N/A Note 8
Village Center
Columbia, MD
975 Kelly Johnson Drive
Office/Industrial Building 389 5,360 5,749 91 11/90 06/96 Note 8
Las Vegas, NV
6590 Bermuda Road 1,562 3,970 5,532 68 08/90 06/96 Note 8
Office/Industrial Building
Las Vegas, NV
950 Pilot Road 883 4,608 5,491 79 09/90 06/96 Note 8
Office/Industrial
Building
Las Vegas, NV
Raytheon Building 344 4,977 5,321 80 11/92 06/96 Note 8
Office/Industrial Building
Las Vegas, NV
Plaza West 174 4,792 4,966 68 11/95 06/96 Note 8
Office Building
Las Vegas, NV
</TABLE>
IV-13
<PAGE>
Schedule III, continued
-----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
<TABLE>
<CAPTION>
Cost capitalized
Initial cost to subsequent to
Company acquisition
------------------- ------------------
Buildings
and Carrying
Encumbrances Improve- Improve- costs
Description (note 4) Land ments ments (note 2)
- ----------- ------------- -------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Investments in
unconsolidated real
estate ventures 21,811 -- 32,713 49,044 --
Receivables under
finance leases 3,470 -- -- 94,876 --
Other properties and
related investments
less than 5% of total 162,254 21,488 57,379 82,567 --
--------- ------- ------- --------- -------
Total Operating
Properties 2,203,166 244,243 358,017 2,772,716 --
--------- ------- ------- --------- -------
</TABLE>
<TABLE>
<CAPTION>
Life on
Gross amount at which carried which
at December 31, 1996 Accumu- depre-
------------------------------ lated ciation
Buildings depre- Date of in latest
and ciation comple- income
Improve- and tion of state-
ments amorti- construc- Date ment is
Land (note 3) Total zation tion acquired computed
-------- --------- -------- -------- --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in -- 81,757 81,757 -- Various Various N/A
unconsolidated real
estate ventures
Receivables under -- 94,876 94,876 -- Various Various N/A
finance leases
Other properties and 21,488 139,946 161,434 31,413
related investments ------- --------- --------- -------
less than 5% of total
244,243 3,130,733 3,374,976 552,201
Total Operating ------- --------- --------- -------
Properties
</TABLE>
IV-14
<PAGE>
Schedule III, continued
-----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
<TABLE>
<CAPTION>
Cost capitalized
Initial cost to subsequent to
Company acquisition
------------------- ------------------
Buildings
and Carrying
Encumbrances Improve- Improve- costs
Description (note 4) Land ments ments (note 2)
- ----------- ------------ -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Properties in Development:
Beachwood Place Expansion 35,002 1,149 -- 41,545 --
Expansion of retail center
Beachwood, OH
Various Office Park Expansions -- 18,507 -- 21,402 --
Las Vegas, NV
Orlando -- 2,355 -- 17,952 --
Retail Center under development
Orlando, FL
Arizona Center -- -- -- 16,184 --
Developed/developable land
under master lease
Phoenix, AZ
Canyon Center -- 2,104 -- 7,296 --
Office Building under development
Las Vegas, NV
White Marsh Expansion -- 3,373 -- 5,519 --
Repositioning of department stores
Baltimore, MD
Willowbrook Expansion -- -- -- 7,122 --
Repositioning of department stores
Wayne, NJ
Plymouth Meeting Mall Expansion -- -- -- 5,046 --
Expansion of retail Center
Montgomery County, PA
</TABLE>
<TABLE>
<CAPTION>
Life on
Gross amount at which carried which
at December 31, 1996 Accumu- depre-
------------------------------ lated ciation
Buildings depre- Date of in latest
and ciation comple- income
Improve- and tion of state-
ments amorti- construc- Date ment is
Land (note 3) Total zation tion acquired computed
-------- --------- -------- -------- --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Properties in Development:
Beachwood Place Expansion 1,149 41,545 42,694 -- N/A N/A N/A
Expansion of Retail Center
Beachwood, OH
Various Office Park Expansions 18,507 21,402 39,909 -- N/A 06/96 N/A
Las Vegas, NV
Orlando 2,355 17,952 20,307 -- N/A N/A N/A
Retail Center under development
Orlando, FL
Arizona Center -- 16,184 16,184 N/A N/A N/A N/A
Developed/developable land
under master lease
Phoenix, AZ
Canyon Center 2,104 7,296 9,400 -- N/A 06/96 N/A
Office Building under development
Las Vegas, NV
White Marsh Expansion 3,373 5,519 8,892 -- N/A 08/95 N/A
Repositioning of department stores
Baltimore, MD
Willowbrook Expansion -- 7,122 7,122 -- N/A N/A N/A
Repositioning of department stores
Wayne, NJ
Plymouth Meeting Mall Expansion -- 5,046 5,046 -- N/A N/A N/A
Expansion of Retail Center
Montgomery County, PA
</TABLE>
IV-15
<PAGE>
Schedule III, continued
-----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
<TABLE>
<CAPTION>
Cost capitalized
Initial cost to subsequent to
Company acquisition
------------------- ------------------
Buildings
and Carrying
Encumbrances Improve- Improve- costs
Description (note 4) Land ments ments (note 2)
- ----------- ------------ -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Preconstruction costs -
Various projects -- -- -- 22,158 --
Preconstruction reserve -- -- -- (16,317) --
Other projects,
less than 5% of total -- 13,544 -- 7,121 --
------ ------ ------ ------- -----
Total Properties
in Development 35,002 41,032 -- 135,028 --
------ ------ ------ ------- -----
Properties held for sale:
Salem Mall 36,097 1,285 -- 20,617 --
Retail Center
Dayton, OH
Northwest Mall 22,839 6,649 -- 12,339 --
Retail Center
Houston, TX
Almeda Mall -- 4,641 -- 14,145 --
Retail Center
Houston, TX
Other properties held for sale,
less than 5% of total 6,587 1,453 -- 11,951 --
------ ------ ------ ------- -----
Total properties held for sale 65,523 14,028 -- 59,052 --
------ ------ ------ ------- -----
</TABLE>
<TABLE>
<CAPTION>
Life on
Gross amount at which carried which
at December 31, 1996 Accumu- depre-
------------------------------ lated ciation
Buildings depre- Date of in latest
and ciation comple- income
Improve- and tion of state-
ments amorti- construc- Date ment is
Land (note 3) Total zation tion acquired computed
-------- --------- -------- -------- --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Preconstruction costs -
Various projects -- 22,158 22,158 N/A N/A N/A N/A
Preconstruction reserve -- (16,317) (16,317) N/A N/A N/A N/A
Other projects,
less than 5% of total 13,544 7,121 20,665 N/A N/A N/A N/A
------ ------- -------
Total Properties
in Development 41,032 135,028 176,060
------ ------- -------
Properties held for sale:
Salem Mall 1,285 20,617 21,902 -- 10/66 N/A Note 8
Retail Center
Dayton, OH
Northwest Mall 6,649 12,339 18,988 -- 10/68 N/A Note 8
Retail Center
Houston, TX
Almeda Mall 4,641 14,145 18,786 -- 10/68 N/A Note 8
Retail Center
Houston, TX
Other properties held for sale,
less than 5% of total 1,453 11,951 13,404
------ ------- -------
Total properties held for sale 14,028 59,052 73,080
------ ------- -------
</TABLE>
IV-16
<PAGE>
Schedule III, continued
-----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
<TABLE>
<CAPTION>
Cost capitalized
Initial cost to subsequent to
Company acquisition
------------------- ------------------
Buildings
and Carrying
Encumbrances Improve- Improve- costs
Description (note 4) Land ments ments (note 2)
- ----------- ------------ -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Land held for development and sale:
Columbia 12,550 53,000 -- 56,449 --
Land in various stages
of development
Columbia, MD
Summerlin -- 89,076 -- -- --
Land in various stages of
development
Las Vegas, NV
Canyon Springs -- 16,000 -- 8,716 --
Land held for development
Riverside County, CA
Nevada Investment Land -- 20,631 -- -- --
Other properties,
less than 5% of total -- 245 -- -- --
---------- -------- -------- ---------- -------
Total land held for
development and sale 12,550 178,952 -- 65,165 --
---------- -------- -------- ---------- -------
Total Property $2,316,241 $478,255 $358,017 $3,031,961 $ --
========== ======== ======== ========== =======
</TABLE>
<TABLE>
<CAPTION>
Life on
Gross amount at which carried which
at December 31, 1996 Accumu- depre-
------------------------------ lated ciation
Buildings depre- Date of in latest
and ciation comple- income
Improve- and tion of state-
ments amorti- construc- Date ment is
Land (note 3) Total zation tion acquired computed
-------- --------- -------- -------- --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Land held for development and sale:
Columbia 109,449 -- 109,449 N/A N/A 09/85 N/A
Land in various stages
of development
Columbia, MD
Summerlin 89,076 -- 89,076 N/A N/A 06/96 N/A
Land in various stages of
development
Las Vegas, NV
Canyon Springs 24,716 -- 24,716 N/A N/A 07/89 N/A
Land held for development
Riverside County, CA
Nevada Investment Land 20,631 -- 20,631 N/A N/A 06/96 N/A
Other properties,
less than 5% of total 245 -- 245 N/A N/A Various N/A
-------- ---------- ---------- --------
Total land held for
development and sale 244,177 -- 244,117 N/A
-------- ---------- ---------- --------
Total Property $543,420 $3,324,813 $3,868,233 $552,201
======== ========== ========== ========
</TABLE>
IV-17
<PAGE>
Schedule III, continued
-----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (Note 1)
December 31, 1996
Notes:
(1) Reference is made to notes 2, 3, 4, 5, 9, 12, 13 and 16 to the
consolidated financial statements. Land was generally acquired one to three
years before completion of construction.
(2) The determination of these amounts is not practicable and, accordingly,
they are included in improvements.
(3) Buildings and improvements include deferred costs of $113,904,000 at
December 31, 1996.
(4) Encumbrances on office buildings are included in operating property
encumbrances.
(5) The changes in total cost of properties for the years ended December 31,
1996, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Balance at beginning of year $3,219,277 $3,144,015 $3,010,195
Additions, at cost 158,205 73,155 88,259
Cost of properties acquired 613,100 78,605 93,705
Additions to land held for
development and sale 48,474 16,091 16,270
Cost of land sales (57,204) (14,214) (15,804)
Retirements, sales and other
dispositions (85,167) (75,787) (30,049)
Additions to preconstruction reserve (2,700) (3,800) (3,400)
Receivables under finance leases, net 3,088 224 (632)
Investments in unconsolidated real
estate ventures, net (3,015) 16,577 (12,317)
Provision for loss on operating properties (25,825) (15,589) (2,212)
---------- ---------- ----------
Balance at end of year $3,868,233 $3,219,277 $3,144,015
========== ========== ==========
</TABLE>
In 1996, non-cash consideration of $34,610,000 in the form of purchase money
loans and debt assumed was given in acquisitions of properties.
IV-18
<PAGE>
Schedule III, continued
-----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (Note 1)
December 31, 1996
Notes, continued:
(6) The changes in accumulated depreciation and amortization for the years
ended December 31, 1996, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $519,319 $490,158 $429,070
Depreciation and amortization
charged to operations 79,990 73,062 74,186
Retirements, sales and other, net (47,108) (43,901) (13,098)
-------- -------- --------
Balance at end of year $552,201 $519,319 $490,158
======== ======== ========
</TABLE>
(7) The aggregate cost of properties for Federal income tax purposes is
approximately $3,834,130,000 at December 31, 1996.
(8) Reference is made to note 2(c) to the consolidated financial statements for
information related to depreciation.
(9) Reference is made to note 13 to the consolidated financial statements for
information related to provisions for losses on real estate assets.
IV-19
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
The Rouse Company
By: /s/Anthony W. Deering
-------------------------------------
Anthony W. Deering March 31, 1997
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
/s/Anthony W. Deering
-------------------------------------
Anthony W. Deering March 31, 1997
Chairman of the Board, President
and Chief Executive Officer
Principal Financial Officer:
/s/Jeffrey H. Donahue
-------------------------------------
Jeffrey H. Donahue March 31, 1997
Senior Vice President and
Chief Financial Officer
Principal Accounting Officer:
/s/George L. Yungmann
-------------------------------------
George L. Yungmann March 31, 1997
Senior Vice President and Controller
IV-20
<PAGE>
Board of Directors:
David H. Benson, Jeremiah E. Casey, Anthony W. Deering, Rohit M. Desai,
Mathias J. DeVito, Juanita T. James, William R. Lummis, Thomas J. McHugh, Hanne
M. Merriman, Roger W. Schipke, Alexander B. Trowbridge and Gerard J. M. Vlak.
By: /s/Anthony W. Deering
-------------------------------
Anthony W. Deering March 31, 1997
For Himself and as
Attorney-in-fact for
the above-named persons
IV-21
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
The Board of Directors
The Rouse Company:
We consent to the incorporation by reference in the Registration Statements of
The Rouse Company on Form S-8 (Registration Nos. 2-83612, 33-56231, 33-56233 and
33-56235), Form S-3 (Registration Nos. 2-78898, 2-95596, 33-52458, 33-57347, 33-
57707 and 333-20781) and Form S-4 (Registration No. 333-1693) of our report
dated February 25, 1997, relating to the consolidated financial statements and
related schedules of The Rouse Company and subsidiaries as of December 31, 1996
and 1995 and for each of the years in the three-year period ended December 31,
1996, which report appears in the Annual Report on Form 10-K of The Rouse
Company for the year ended December 31, 1996.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
March 31, 1997
IV-22
<PAGE>
CONSENT OF INDEPENDENT REAL ESTATE CONSULTANTS
----------------------------------------------
The Board of Directors
The Rouse Company:
We consent to the incorporation by reference in the Registration
Statements of The Rouse Company (the "Company") on Form S-8 (Registration Nos.
2-83612, 33-56231, 33-56233 and 33-56235), Form S-3 (Registration Nos. 2-78898,
2-95596, 33-52458, 33-57347, 33-57707 and 333-20781) and Form S-4 (Registration
No. 333-1693) of our report dated February 25, 1997 on our concurrence with the
Company's estimates of the total current value of its equity and other interests
in certain real property owned and/or managed by the Company and its
subsidiaries as of December 31, 1996 and 1995, which report appears in the
Annual Report on Form 10-K of the Company for the year ended December 31, 1996.
LANDAUER ASSOCIATES, INC.
Deborah A. Jackson
Senior Vice President
Director of Retail Valuation
New York, New York
March 31, 1997
IV-23
<PAGE>
Exhibit Index
Exhibit No.
- -----------
3 Articles of Incorporation and Bylaws
10 Material Contracts
11 Statement re computation of per share earnings
12.1 Ratio of earnings to fixed charges
12.2 Ratio of earnings to combined fixed charges and
Preferred stock dividend requirements
13 Annual report to security holders
21 Subsidiaries of the Registrant
24 Power of Attorney
27 Financial Data Schedule
99 Additional Exhibits:
99.1 Form 11-K Annual Report of The Rouse Company
Savings Plan for the year ended December 31, 1996
99.2 Factors affecting future operating results
<PAGE>
Exhibit 3. Articles of Incorporation and Bylaws.
The Amendments to the Articles of Incorporation of The Rouse Company adopted May
26, 1988 and the Amended and Restated Articles of Incorporation of The Rouse
Company, dated May 27, 1988, are incorporated by reference from the Exhibits to
the Company's Form 10-K Annual Report for the fiscal year ended December 31,
1988.
The Articles of Amendment to the Amended and Restated Articles of Incorporation
of The Rouse Company, which Articles of Amendment were effective January 10,
1991, are incorporated by reference from the Exhibits to the Company's Form 10-
K Annual Report for the fiscal year ended December 31, 1990.
The Articles Supplementary to the Charter of The Rouse Company, dated February
17, 1993, are incorporated by reference from the Exhibits to the Company's Form
10-K Annual Report for the fiscal year ended December 31, 1992.
The Articles Supplementary to the Charter of The Rouse Company, dated September
26, 1994, are incorporated by reference from the Exhibits to the Company's Form
S-3 Registration Statement (No. 33-57707).
The Articles Supplementary to the Charter of The Rouse Company, dated December
27, 1994, are incorporated by reference from the Exhibits to the Company's Form
S-3 Registration Statement (No. 33-57707).
The Articles Supplementary to the Charter of The Rouse Company, dated June 5,
1996, are incorporated by reference from the Exhibits to the Company's Form S-3
Registration Statement (No. 333-20781).
The Articles Supplementary to the Charter of The Rouse Company, dated June 11,
1996, are incorporated by reference from the Exhibits to the Company's Form S-3
Registration Statement (No. 333-20781).
The Articles Supplementary to the Charter of The Rouse Company, dated February
21, 1997, are incorporated by reference from the Exhibit to the Company's
Current Report on Form 8-K, dated February 26, 1997.
The Bylaws of The Rouse Company, as amended November 19, 1996 and January 30,
1997, are incorporated by reference from the Exhibits to the Company's Form S-3
Registration Statement (No. 333-20781).
All documents referred to above may be found in Commission file number 0-1743.
<PAGE>
Exhibit 10. Material Contracts.
The Company's 1985 Stock Option Plan and 1985 Stock Bonus Plan are incorporated
by reference from the Company's definitive proxy statement filed pursuant to
Regulation 14A on April 27, 1985, and the Amendment to The Rouse Company 1985
Stock Option Plan, effective as of May 12, 1994 is incorporated by reference
from the Company's Form 10-K Annual Report for the fiscal year ended December
31, 1994.
The Company's 1990 Stock Option Plan and 1990 Stock Bonus Plan are incorporated
by reference from the Company's definitive proxy statement filed pursuant to
Regulation 14A on April 12, 1990, and the Amendment to The Rouse Company 1990
Stock Option Plan, effective as of May 12, 1994, is incorporated by reference
from the Company's Form 10-K Annual Report for the fiscal year ended December
31, 1994.
The Company's 1994 Stock Incentive Plan is incorporated by reference from the
Company's definitive proxy statement filed pursuant to Regulation 14A on April
5, 1994.
The Amended and Restated Supplemental Retirement Benefit Plan of The Rouse
Company, made as of January 1, 1985 and further amended and restated as of
September 24, 1992, March 4, 1994, and May 10, 1995, is attached.
The Contingent Stock Agreement, effective as of January 1, 1996, by the Company
in favor of and for the benefit of the Holders and Representatives named
therein is incorporated by reference from the Exhibits to the Company's Form S-
4 Registration Statement (No. 333-1693).
The Rouse Company Deferred Compensation Plan for Outside Directors (Amended and
Restated), dated as of May 23, 1996, is attached.
The memorandum of agreement, dated December 19, 1996, between the Company and
Mathias J. DeVito, then Chairman of the Board of the Company, is attached.
All documents referred to above may be found in Commission file number 0-1743.
<PAGE>
THE ROUSE COMPANY
DEFERRED COMPENSATION PLAN
FOR OUTSIDE DIRECTORS
(AMENDED AND RESTATED)
PURPOSE
-------
The Rouse Company Deferred Compensation Plan for Outside Directors is
established (i) to enable an eligible Director to defer receipt of fees
otherwise payable by the Company for service in his or her capacity as a
Director or as a member of a committee of the Board of Directors and (ii) to
provide a program of credits to a Common Stock account for each Director based
on his or her period of service as a Director.
SECTION 1
DEFINITIONS
-----------
In this Plan, the following terms have the meanings stated:
(a) "Board of Directors" means the board of directors of the Company.
(b) "Company" means The Rouse Company and any affiliated, subsidiary or
successor corporation of or to The Rouse Company.
(c) "Deferred Compensation" means all compensation earned by a Participant
during the period of his or her participation in the Plan for services as a
Director or as a member of a committee of the Board of Directors, or so much
thereof as a Participant elects to defer. Deferred Compensation does not
include amounts payable to a Participant for reimbursement of expenses.
(d) "Deferred Compensation Account" means an account maintained under this
Plan by the Company for each Participant to which Deferred Compensation and
additional compensation is credited.
(e) "Deferred Retainer Account" means an account maintained under this Plan by
the Company for each Participant to which Retainer Contributions and, if
applicable, an Initial Contribution are made by the Company.
(f) "Director" means a member of the Board of Directors.
(g) "Initial Contribution" means an amount credited to a Deferred Retainer
Account as provided in Section 4(a)(1)(A).
(h) "Participant" means a Director who is participating in the Plan as provided
in Section 2.
<PAGE>
(i) "Plan" means The Rouse Company Deferred Compensation Plan for Outside
Directors (Amended and Restated) as set forth herein and as amended from time to
time.
(j) "Retainer Contribution" means an amount credited to a Deferred Retainer
Account as provided in Sections 4(a)(1)(B) and 4(a)(2).
SECTION 2
PARTICIPATION IN THE PLAN
-------------------------
A Director who is not an employee of the Company and who is receiving the
standard director's compensation:
(1) shall have a Deferred Retainer Account established for him or her upon
being elected as a director, and
(2) shall, upon giving the Company notice substantially in the form of Exhibit
A, have a Deferred Compensation Account established for him or her.
SECTION 3
DEFERRED COMPENSATION ACCOUNT
-----------------------------
(a) A Participant's Deferred Compensation shall be credited to his or her
Deferred Compensation Account. Effective May 12, 1994, and subject to such
rules as the Secretary of the Company, as Plan Administrator, shall establish, a
Participant may specify that his or her Deferred Compensation Account shall be
treated as if it were invested in any of the investment alternatives that are
available under The Rouse Company Savings Plan, as amended from time to time,
and such Deferred Compensation Account shall be credited with investment
earnings, gains or losses accordingly until the balance in the Deferred
Compensation Account has been fully distributed as provided in Section 6. A
Participant shall designate in writing to the Secretary of the Company:
(1) the percentage of his or her compensation as a Director that is to be
credited to the Plan as Deferred Compensation; and
(2) the percentage of Deferred Compensation that is to be credited to each
investment alternative elected by the Participant.
(b) Effective the first day of the next calendar quarter, a Participant may by
written notice to the Secretary of the Company substantially in the form of
Exhibit B to the Plan change any of the percentages specified in the preceding
sentence and reallocate any portion of the investment balances in his or her
Deferred Compensation Account.
<PAGE>
SECTION 4
DEFERRED RETAINER ACCOUNT
-------------------------
(a) A Participant's Deferred Retainer Account shall be credited with the
following amounts:
(1) a Director who is eligible to participate in the Plan on May 23, 1996
shall have credited to his or her Deferred Retainer Account:
(A) on May 23, 1996, an Initial Contribution equal to $2,750 multiplied by
such person's full years of service as a director as of May 23, 1996; and
(B) on each March 31, June 30, September 30 and December 31 of each year,
beginning on June 30, 1996, or on the next succeeding business day if any such
day is not a business day, a Retainer Contribution equal to 2 1/2% of the
annual director's retainer in effect on such date; and
(2) a Director who becomes eligible to participate in the Plan after May 23,
1996 shall have credited to his or her Deferred Retainer Account on each March
31, June 30, September 30 and December 31 of each year, or on the next
succeeding business day if any such day is not a business day, a Retainer
Contribution equal to 2 1/2% of the annual director's retainer in effect on
such date.
(b) With respect to a Director who is eligible to participate in the Plan on
May 23, 1996, the value of such Director's Deferred Retainer Account at the time
of his or her termination of participation as provided in Section 5 shall be the
greater of:
(1) the value of the Deferred Retainer Account based on the Initial
Contribution, any subsequent Retainer Contributions, dividends, other
investment earnings, and investment gains or losses, all as provided in
Sections 4(a) and 4(c); and
(2) the present value of the projected retirement benefit of the Director at
the time of his or her termination of participation based on the Board of
Directors retirement program as in effect immediately prior to May 23, 1996,
and utilizing the interest rates and mortality tables that are used to
calculate lump sum payments under The Rouse Company Pension Plan as of the date
of the director's termination of participation.
(c) All amounts credited to a Participant's Deferred Retainer Account shall be
treated as if they were invested in Common Stock of the Company and shall be
credited with dividends and any other investment earnings.
(d) If the Company's Common Stock changes as a result of stock dividends,
split-ups, recapitalization or the like, proportionate adjustments shall be made
automatically in the number of shares credited to each Participant's Deferred
Retainer Account. If the outstanding shares of the Company's Common Stock are
changed into
<PAGE>
or exchanged for a different number or kind of shares or other securities or
property (including cash) of the Company or of another corporation for any
reason, including by reason of reorganization, merger, sale or transfer of all
or substantially all of the Company's assets to another corporation, or exchange
of shares or consolidation, appropriate adjustments shall be made in the number
and kind of shares, other securities, or property credited to each Participant's
Deferred Retainer Account.
(e) For purposes of this Section and Section 6, the value of a share of the
Company's Common Stock shall be the closing New York Stock Exchange price on the
applicable date as reported in The Wall Street Journal (Eastern Edition).
-----------------------------------------
SECTION 5
TERMINATION OF PARTICIPATION
----------------------------
(a) Participation in the Plan will terminate if (i) the Participant ceases to
be a Director or becomes an employee of the Company or (ii) the Participant
dies, whichever event occurs first.
(b) A Director whose participation in the Plan has terminated under Section
5(a)(i) may elect to participate in the Plan again, provided he or she again
becomes eligible to participate under Section 2.
SECTION 6
DISTRIBUTION FROM DEFERRED COMPENSATION ACCOUNT
-----------------------------------------------
AND DEFERRED RETAINER ACCOUNT
-----------------------------
(a) At the time a Director becomes a Participant in the Plan, with respect to
a Deferred Retainer Account, or elects to participate in the Plan, with respect
to a Deferred Compensation Account, he or she shall elect the timing of
distributions from his or her Deferred Compensation Account or Deferred Retainer
Account, as applicable. Such election regarding the timing of distributions may
be changed by a Director if federal income tax laws then permit such a new
election without affecting the taxability of fees deferred or credited under the
Plan. Distributions will commence as provided in (b) and (c) below and will be
made in one lump sum or in up to 10 annual installments. If a Director chooses
payment in more than one installment, the amount of each installment shall be
equal to the amount in the Deferred Compensation Account or Deferred Retainer
Account on the date each installment is to be paid, divided by the number of
annual installments remaining. The Board of Directors may, in its discretion and
notwithstanding any election by the Director to the contrary, accelerate the
payment of any or all installments of a Director's Deferred Compensation Account
or Deferred Retainer Account once distribution of the Account has begun.
(b) Except as provided in Section 6(c), distribution from a Director's
Deferred Compensation Account or Deferred Retainer Account will commence on the
first day of the Director's tax year following termination of the Director's
participation in the Plan
<PAGE>
as provided in Section 5(a) above. Any subsequent installments will be paid on
each anniversary date of the initial installment until the Director has been
paid the balance of his or her Deferred Compensation Account or Deferred
Retainer Account. All distributions from a Director's Deferred Compensation
Account or Deferred Retainer Account shall be in cash. Payments to a Director
shall be suspended if the Director again becomes a Participant as provided in
Section 5(b) and will be resumed when the Director's participation later ceases.
(c) If a Director dies before receiving full payment of his or her Deferred
Compensation Account or Deferred Retainer Account, the balance of the Deferred
Compensation Account or Deferred Retainer Account on the date of his or her
death will be paid in cash to the beneficiary or beneficiaries designated by the
Director, or, if no designation has been made, to the Director's estate. The
unpaid balance will be paid within six months following the death of the
Director, regardless of any election by the Director to receive annual
installments. A Director may change his or her beneficiary or beneficiaries by
written notice to the Secretary of the Company substantially in the form of
Exhibit B to the Plan.
SECTION 7
NON-ASSIGNABILITY
-----------------
No assignment or transfer by any Director, former Director or his or her legal
representative of any interest under the Plan will be recognized (except by
designation of a beneficiary under the Plan or by will or the laws of descent
and distribution).
SECTION 8
OPERATION AND ADMINISTRATION
----------------------------
The Plan shall be operated under the direction of the Board of Directors and
administered by the Secretary of the Company, whose decision on all matters
involving the interpretation and application of the Plan shall be final and
binding.
SECTION 9
AMENDMENT AND DISCONTINUANCE
----------------------------
The Board of Directors may from time to time amend, suspend or discontinue the
Plan; provided, however, that no amendment, suspension or discontinuance of the
Plan may reduce any Deferred Compensation Account or Deferred Retainer Account
of a Participant or former Participant as of the date of the amendment,
suspension or discontinuance or, except with the consent of a Participant or
former Participant, result in the payment of amounts in a Deferred Compensation
Account or Deferred Retainer Account prior to the time provided in the Plan to a
person who is a Participant or former Participant at the time of the amendment,
suspension or discontinuance.
<PAGE>
SECTION 10
PLAN NOT FUNDED
---------------
The Plan is not funded. The Company will not reserve or otherwise set aside
funds or Common Stock for the payment of amounts in Deferred Compensation
Accounts or Deferred Retainer Accounts. Benefits will be paid solely from the
Company's general funds and are not secured by any form of trust, escrow or
otherwise.
SECTION 11
NOTICES
-------
All notices and consents shall be in writing, shall be given to the Secretary
of the Company and shall, except as otherwise stated in the notice or consent or
the Plan, take effect upon receipt.
SECTION 12
COPIES OF PLAN; STATEMENTS
--------------------------
Copies of the Plan and any and all amendments will be provided upon request by
the Secretary of the Company to the Directors and to any former Participant who
has an unpaid balance in his or her Deferred Compensation Account or Deferred
Retainer Account, and are available for inspection during normal business hours
at the office of the Secretary of the Company. A statement of transactions in a
Participant's or former Participant's Deferred Compensation Account or Deferred
Retainer Account shall be provided by the Company annually and upon a
Participant's or former Participant's request.
IN WITNESS WHEREOF, the Company has duly executed The Rouse Company Deferred
Compensation Plan for Outside Directors (Amended and Restated) as of the 23rd
day of May, 1996. The Secretary of the Company has joined herein for the
purpose of indicating acceptance hereof.
ATTEST: THE ROUSE COMPANY
____________________________ By:______________________
WITNESS: PLAN ADMINISTRATOR FOR
THE ROUSE COMPANY
DEFERRED COMPENSATION
PLAN FOR OUTSIDE
DIRECTORS
____________________________ By:______________________
Secretary
<PAGE>
THE ROUSE COMPANY
DEFERRED COMPENSATION PLAN
FOR OUTSIDE DIRECTORS
NOTICE OF ELECTION TO DEFER COMPENSATION
I, a Director of The Rouse Company and/or of affiliated or subsidiary
corporations of The Rouse Company (collectively, the "Company"), elect under The
Rouse Company Deferred Compensation Plan for Outside Directors (the "Plan") to
defer receipt of ___% [specify a percent up to 100%] of my compensation as a
Director, as a member of Committees of the Board of Directors of the Company
and, if applicable, as Chairman of any Committee of the Board of Directors,
earned after ____________________, 19__.
I further elect that such compensation shall be allocated within my Deferred
Compensation Account as follows:
1. Equity Account - Common Stock -- ___ %
2. TRC 9 1/4% Quarterly Income Preferred
Securities ___ %
3. Long-Term Income Fund -- ___ %
4. T. Rowe Price Prime Reserve
(Money Market) Fund -- ___ %
5. T. Rowe Price Spectrum Income Fund -- ___ %
6. T. Rowe Price Spectrum Growth Fund -- ___ %
7. T. Rowe Price New Horizons Fund -- ___ %
8. T. Rowe Price International
Stock Fund -- ___ %
9. T. Rowe Price Equity Index Fund -- ___ %
10. T. Rowe Price Small-Cap Value Fund -- ___ %
11. T. Rowe Price New America Growth Fund -- ___ %
12. T. Rowe Price Balanced Fund -- ___ %
13. Ariel Growth Fund ___ %
<PAGE>
I elect that all amounts deferred under the Plan, together with accumulated
additional compensation, shall be distributed to me in the following manner:
/ / in one lump sum
/ / in ____ [specify a number between 2 and 10, inclusive] annual
installments
[IF YOU DO NOT WISH AMOUNTS CONTAINED IN YOUR DEFERRED COMPENSATION ACCOUNT TO
BE PAID TO YOUR ESTATE UPON YOUR DEATH, PROVIDE THE NAME AND ADDRESS OF ONE OR
MORE BENEFICIARIES IN THE FOLLOWING PARAGRAPH.]
I designate the following person(s) as my beneficiary(ies) under the Plan:
____________________________________________________
____________________________________________________
____________________________________________________
IN WITNESS WHEREOF, I have signed my name on ______________, 19__.
______________________________
(Signature)
<PAGE>
THE ROUSE COMPANY
DEFERRED COMPENSATION PLAN
FOR OUTSIDE DIRECTORS
NOTICE OF CHANGE OF ELECTIONS
Effective the first day of the next calendar quarter following receipt by the
Company of this Notice of Change of Elections, I elect to make the following
changes in my previous elections under the Plan [COMPLETE ONLY THOSE ITEMS AS TO
WHICH YOU ARE CHANGING YOUR PREVIOUS ELECTION]:
A. I elect to defer receipt of ____% [specify a percent up to 100%] of my
compensation as a Director, as a member of Committees of the Board of Directors
and, if applicable, as Chairman of any Committee of the Board of Directors.
B. I elect that my director's fees that are deferred in the future shall be
allocated within my Deferred Compensation Account as follows:
1. Equity Account - Common Stock -- ___ %
2. TRC 9-1/4% Quarterly Income Preferred Securities -- ___ %
3. Long-Term Income Fund -- ___ %
4. T. Rowe Price Prime Reserve
(Money Market) Fund -- ___ %
5. T. Rowe Price Spectrum Income Fund -- ___ %
6. T. Rowe Price Spectrum Growth Fund -- ___ %
7. T. Rowe Price New Horizons Fund -- ___ %
8. T. Rowe Price International
Stock Fund -- ___ %
9. T. Rowe Price Equity Index Fund -- ___ %
10. T. Rowe Price Small-Cap Value Fund -- ___ %
11. T. Rowe Price New America Growth Fund -- ___ %
12. T. Rowe Price Balanced Fund -- ___ %
13. Ariel Growth Fund -- ___ %
<PAGE>
C. I elect to reallocate the balances in my Deferred Compensation Account as
follows:
1. Equity Account - Common Stock -- ___ %
2. TRC 9-1/4% Quarterly Income
Preferred Securities -- ___ %
3. Long-Term Income Fund -- ___ %
4. T. Rowe Price Prime Reserve
(Money Market) Fund -- ___ %
5. T. Rowe Price Spectrum Income Fund -- ___ %
6. T. Rowe Price Spectrum Growth Fund -- ___ %
7. T. Rowe Price New Horizons Fund -- ___ %
8. T. Rowe Price International
Stock Fund -- ___ %
9. T. Rowe Price Equity Index Fund -- ___ %
10. T. Rowe Price Small-Cap Value Fund -- ___ %
11. T. Rowe Price New America Growth Fund -- ___ %
12. T. Rowe Price Balanced Fund -- ___ %
13. Ariel Growth Fund -- ___ %
D. I designate the following person(s) as my beneficiary(ies) under the
Plan and revoke all previous designations:
_______________________________________________________
_______________________________________________________
_______________________________________________________
IN WITNESS WHEREOF, I have signed my name on ________________________, 19__.
______________________________
(Signature)
<PAGE>
December 19, 1996
TO: Mathias J. DeVito
FROM: Anthony W. Deering
RE: Service on Board of Directors
-----------------------------
This memorandum is intended to set forth our understanding with regard to
your service on the Board of Directors.
1. You will retire as Chairman of the Board of Directors of The Rouse Company
at the February 1997 Board meeting, at which time you will assume the
honorary title of Chairman Emeritus. Until your retirement from the Board
at age 70 (May, 2001, the "Retirement Date"), you will continue to be
Chairman of the Executive Committee of the Board, but you will not be a
member of any other standing committee of the Board.
2. You will remain on the Contributions Committee until such time as I
determine that a different composition of the Committee would be
desirable, and you will remain Chairman of that Committee until such time
as I designate someone to succeed you as Chairman.
3. You will receive your current Board compensation of $100,000 per year
through December 31, 1997. Commencing January 1, 1998 and continuing until
your retirement from the Board, you will receive a Board fee of $50,000
per annum which shall be paid in lieu of all Board and meeting fees which
would otherwise be payable to you as a member of the Board. This annual
fee shall be increased in proportion to any general increase in Board
retainers, meeting or committee fees.
If the foregoing accurately sets forth our understandings, please acknowledge
by signing below.
By: /s/ Anthony W. Deering
----------------------
Anthony W. Deering
ACKNOWLEDGED AND AGREED:
By: /s/ Mathias J. DeVito
---------------------
Mathias J. DeVito
<PAGE>
Exhibit 11. Statement re Computation of Per Share Earnings
THE ROUSE COMPANY AND SUBSIDIARIES
Computation of Fully Diluted Earnings Per Share
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Earnings before extraordinary losses $17,886 $ 5,850 $ 6,606
Add after tax interest expense applicable to
convertible subordinated debentures 4,859 4,859 4,859
------- ------- -------
Earnings before extraordinary losses,
as adjusted 22,745 10,709 11,465
Extraordinary losses, net of related income
tax benefits (1,453) (8,631) (4,447)
------- ------- -------
Net earnings, as adjusted $21,292 $ 2,078 $ 7,018
======= ======= =======
Shares:
- -----------------------------------------------
Weighted average number of common shares
outstanding 55,572 47,814 47,565
Assuming conversion of convertible
Preferred stock 7,587 10,600 10,600
Assuming conversion of convertible
subordinated debentures 4,541 4,541 4,541
Assuming exercise of options and warrants
reduced by the number of shares which
could have been purchased with the
proceeds from the exercise of such options 1,224 247 175
------- ------- -------
Weighted average number of shares outstanding
as adjusted 68,924 63,202 62,881
======= ======= =======
Earnings per common share assuming full
dilution:
Earnings before extraordinary losses $ .33 $ .17 $ .18
Extraordinary losses (.02) (.14) (.07)
------- ------- -------
Net earnings $ .31 $ .03 $ .11
======= ======= =======
</TABLE>
This calculation is submitted in accordance with Regulation S-K item 601 (b)
(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it
produces an anti-dilutive result.
<PAGE>
Exhibit 12.1
The Rouse Company and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings (loss) before income taxes, extraordinary loss
and cumulative effect of change in accounting principle $ 43,605 $ 10,169 $ 13,336 $ 3,072 $(20,783)
Fixed charges:
Interest costs 230,960 219,838 220,971 219,705 221,907
Capitalized interest (10,579) (6,875) (7,388) (8,899) (15,098)
Amortization of debt issuance costs 2,066 2,527 2,146 2,801 3,571
Distributions on Company-obligated mandatorily redeemable
preferred securities of a trust holding solely Parent Company
subordinated debt securities 12,719 1,204 -- -- --
Portion of rental expense representative of
interest factor (1) 8,487 8,266 10,788 15,988 14,739
Support for debt service costs provided to affiliates
accounted for under the equity method -- -- -- 31 389
Adjustments to earnings (loss):
Minority interest in earnings of majority-owned subsidiaries
having fixed charges 1,164 2,026 2,234 1,909 1,747
Undistributed earnings of less than 50%-owned subsidiaries (88) (189) (564) (68) (84)
Previously capitalized interest amortized into earnings:
Depreciation of operating properties (2) 3,866 3,764 3,670 3,605 3,474
Cost of land sales (3) 1,778 1,421 1,580 1,627 1,295
________ ________ ________ ________ ________
Earnings available for fixed charges $293,978 $242,151 $246,773 $239,771 $211,157
======== ======== ======== ======== ========
Fixed charges:
Interest costs $230,960 $219,838 $220,971 $219,705 $221,907
Amortization of debt issuance costs 2,066 2,527 2,146 2,801 3,571
Distributions on Company-obligated mandatorily redeemable
preferred securities of a trust holding solely Parent Company
subordinated debt securities 12,719 1,204 -- -- --
Portion of rental expense representative of
interest factor (1) 8,487 8,266 10,788 15,988 14,739
Support for debt service costs provided to affiliates
accounted for under the equity method -- -- -- 31 389
________ ________ ________ ________ ________
Total fixed charges $254,232 $231,835 $233,905 $238,525 $240,606
======== ======== ======== ======== ========
Ratio of earnings to fixed charges (4) 1.16 1.04 1.06 1.01 --
======== ======== ======== ======== ========
</TABLE>
(1) Includes (a) 80% of minimum rentals, the portion of such rentals considered
to be a reasonable estimate of the interest factor and (b) 100% of
contingent rentals of $3,844,000, $3,644,000, $6,232,000, $10,006,000 and
$8,106,000 for the years ended December 31, 1996, 1995, 1994, 1993 and
1992, respectively.
(2) Represents an estimate of depreciation of capitalized interest costs based
on the Company's established depreciation policy and an analysis of
interest costs capitalized since 1971.
(3) Represents 10% of cost of Columbia land sales, the portion of such cost
considered to be a reasonable estimate of the interest factor.
(4) Total fixed charges exceeded the Company's earnings available for fixed
charges by $29,449,000 for the year ended December 31, 1992.
<PAGE>
Exhibit 12.2
The Rouse Company and Subsidiaries
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividend Requirements
(dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Earnings (loss) before income taxes, extraordinary loss
and cumulative effect of change in accounting principle $ 43,605 $ 10,169 $ 13,336 $ 3,072 $ (20,783)
Fixed charges:
Interest costs 230,960 219,838 220,971 219,705 221,907
Capitalized interest (10,579) (6,875) (7,388) (8,899) (15,098)
Amortization of debt issuance costs 2,066 2,527 2,146 2,801 3,571
Distributions on Company-obligated mandatorily redeemable
preferred securities of a trust holding solely Parent Company
subordinated debt securities 12,719 1,204 -- -- --
Portion of rental expense representative of interest
factor (1) 8,487 8,266 10,788 15,988 14,739
Support for debt service costs provided to affiliates
accounted for under the equity method -- -- -- 31 389
Adjustments to earnings (loss):
Minority interest in earnings of majority-owned subsidiaries
having fixed charges 1,164 2,026 2,234 1,909 1,747
Undistributed earnings of less than 50%-owned
subsidiaries (88) (189) (564) (68) (84)
Previously capitalized interest amortized into earnings:
Depreciation of operating properties (2) 3,866 3,764 3,670 3,605 3,474
Cost of land sales (3) 1,778 1,421 1,580 1,627 1,295
-------- -------- -------- -------- --------
Earnings available for fixed charges and
Preferred stock dividend requirements $293,978 $242,151 $246,773 $239,771 $211,157
======== ======== ======== ======== ========
Combined fixed charges and Preferred stock dividend
requirements:
Interest costs $230,960 $219,838 $220,971 $219,705 $221,907
Amortization of debt issuance costs 2,066 2,527 2,146 2,801 3,571
Distributions on Company-obligated mandatorily redeemable
preferred securities of a trust holding solely Parent Company
subordinated debt securities 12,719 1,204 -- -- --
Portion of rental expense representative of
interest factor(1) 8,487 8,266 10,788 15,988 14,739
Support for debt service costs provided to
affiliates accounted for under the equity method -- -- -- 31 389
Preferred stock dividend requirements 17,555 24,402 21,802 18,968 --
-------- -------- -------- -------- --------
Total combined fixed charges and Preferred
stock dividend requirements $271,787 $256,237 $255,707 $257,493 $240,606
======== ======== ======== ======== ========
Ratio of earnings to combined fixed charges and Preferred stock
dividend requirements (5) 1.08 -- -- -- --
======== ======== ======== ======== ========
</TABLE>
(1) Includes (a) 80% of minimum rentals, the portion of such rentals considered
to be a reasonable estimate of the interest factor and (b) 100% of
contingent rentals of $3,844,000, $3,644,000, $6,232,000, $10,006,000 and
$8,106,000 for the years ended December 31, 1996, 1995, 1994, 1993 and
1992, respectively.
(2) Represents an estimate of depreciation of capitalized interest costs based
on the Company's established depreciation policy and an analysis of
interest costs capitalized since 1971.
(3) Represents 10% of cost of Columbia land sales, the portion of such cost
considered to be a reasonable estimate of the interest factor.
(4) Represents estimated pre-tax earnings required to cover Preferred stock
dividend requirements. All amounts are calculated based on actual
Preferred stock dividends and an estimated effective tax rate of 40%.
(5) Total combined fixed charges and Preferred stock dividend requirements
exceeded the Company's earnings available for combined fixed charges and
Preferred stock dividend requirements by $14,086,000, $8,934,000,
$17,722,000 and $29,449,000 for the years ended December 31, 1995, 1994,
1993 and 1992, respectively.
<PAGE>
Exhibit 13. Annual report to security holders
The annual report to shareholders has not been completed as of this filing and
will be filed with the Securities and Exchange Commission in its entirety on or
before April 4, 1997.
The financial section of the annual report, which is incorporated by reference,
is final and is enclosed as Exhibit 13. This financial section includes all the
information incorporated by reference in Parts I, II and IV of this Form 10-K
Annual Report for the fiscal year ended December 31, 1996.
<PAGE>
REPORT OF INDEPENDENT REAL ESTATE CONSULTANTS
Landauer Associates, Inc.
666 Fifth Avenue
New York, New York 10103
KPMG PEAT MARWICK LLP AND
THE BOARD OF DIRECTORS AND SHAREHOLDERS
THE ROUSE COMPANY:
We have reviewed estimates of the market value of equity and other interests in
certain real property owned and/or managed by The Rouse Company (the Company)
and its subsidiaries as of December 31, 1996 and 1995. The properties reviewed
at December 31, 1996 include all the projects identified as "In Operation" on
the "Projects of The Rouse Company" table on pages 64 through 66 of the Annual
Report for 1996, investment land and land held for development and sale, and
certain parcels of land in development and certain other properties held for
sale. The properties reviewed at December 31, 1995 were the same, except for the
properties which were acquired or disposed during 1996.
The total values of its equity and other interests estimated by the Company
were $2,839,570,000 and $2,444,218,000 at December 31, 1996 and 1995,
respectively.
Based upon our review, we concur with the Company's estimates of the total
value of the property interests appraised. In our opinion, the aggregate value
estimated by the Company varies less than 10% from the aggregate value we would
estimate in a full and complete appraisal of the same interests. A variation of
less than 10% between appraisers implies substantial agreement as to the most
probable market value of such property interests.
The data used in our review were supplied to us in summary form by the
Company. We have relied upon the Company's interpretation and summaries of
leases, operating agreements, mortgages and partnership, joint venture and
management agreements. We have had complete and unrestricted access to all
underlying documents and have confirmed certain information by reference to such
documents. We have found no discrepancies in the data and, to the best of our
knowledge, believe all such data to be accurate and complete. The basic
assumptions used by the Company and the individual value estimates prepared by
the Company were, in our opinion, fair and reasonable. No assumption has been
made with respect to a bulk sale of the entire holdings or groups of property
interests. We have also physically inspected, within the past three years,
substantially all of the properties which were reviewed.
We certify that neither Landauer Associates, Inc. nor the undersigned have any
present or prospective interest in the Company's properties, and we have no
personal interest or bias with respect to the parties involved. To the best of
our knowledge and belief, the facts upon which the analysis and conclusions were
based are materially true and correct. No one, other than the undersigned
assisted by members of our staff, performed the analyses and reached the
conclusions resulting in the opinion expressed in this letter. Our fee for this
assignment was not contingent on any action or event resulting from the
analyses, opinions, or conclusions in, or the use of, this review. Our review
has been prepared in conformity with the Uniform Standards of Professional
Appraisal Practice.
Sincerely,
Landauer Associates, Inc.
/s/ James C. Kafes /s/ Deborah A. Jackson
James C. Kafes, MAI, CRE Deborah A. Jackson
Managing Director Senior Vice President
Director of Retail Valuation
February 25, 1997
23
<PAGE>
The Rouse Company and Subsidiaries
CONSOLIDATED COST BASIS AND
CURRENT VALUE BASIS BALANCE SHEETS
December 31, 1996 and 1995 (in thousands)
<TABLE>
<CAPTION>
1996 1995
------------------------- --------------------------
Current Value Cost Current Value Cost
Basis (note 1) Basis Basis (note 1) Basis
------------ --------- ------------- ----------
<S> <C> <C> <C> <C>
Assets
Property (notes 5, 9, 16 and 17):
Operating properties:
Property and deferred costs
of projects $4,662,590 $3,374,976 $4,323,010 $3,006,356
Less accumulated depreciation
and amortization 552,201 519,319
------------ ---------- ---------- ----------
4,662,590 2,822,775 4,323,010 2,487,037
Properties in development 181,368 176,060 62,030 56,151
Properties held for sale 73,080 73,080 22,687 22,687
Investment land and land held for
development and sale 322,136 244,117 149,239 134,083
------------ ---------- ---------- ----------
Total property 5,239,174 3,316,032 4,556,966 2,699,958
------------ ---------- ---------- ----------
Prepaid expenses, deferred charges and
other assets 196,952 187,689 160,854 151,068
Accounts and notes receivable (note 6) 92,369 92,369 36,751 36,751
Investments in marketable securities 3,596 3,596 2,910 2,910
Cash and cash equivalents 43,766 43,766 94,922 94,922
------------ ---------- ---------- ----------
Total $5,575,857 $3,643,452 $4,852,403 $2,985,609
============ ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
<TABLE>
<CAPTION>
1996 1995
-------------------------- ---------------------------
Current Value Cost Current Value Cost
Basis (note 1) Basis Basis (note 1) Basis
------------ ---------- ------------- -----------
<S> <C> <C> <C> <C>
Liabilities
Debt (note 9):
Property debt not carrying a Parent
Company guarantee of repayment $2,290,406 $2,290,406 $1,990,041 $1,990,041
------------ ---------- ------------ -----------
Parent Company debt and debt carrying a
Parent Company guarantee of repayment:
Property debt 179,540 179,540 138,488 138,488
Convertible subordinated debentures 133,419 130,000 126,750 130,000
Other debt 244,491 235,300 231,884 221,000
------------ ---------- ------------ -----------
557,450 544,840 497,122 489,488
------------ --------- ------------ ----------
Total debt 2,847,856 2,835,246 2,487,163 2,479,529
------------ ---------- ------------ -----------
Obligations under capital leases (note 16) 60,201 60,201 58,786 58,786
Accounts payable, accrued expenses and
other liabilities 298,562 298,562 185,561 185,561
Deferred income taxes (note 12) 410,928 134,794 445,613 81,649
Company-obligated mandatorily redeemable
preferred securities of a trust holding
solely Parent Company subordinated
debt securities (note 10) 139,563 137,500 136,125 137,500
Commitments and contingencies (notes 16 and 17)
Shareholders' equity (notes 14, 15 and 18)
Series A Convertible Preferred stock with
a liquidation preference of $225,250 in 1995 -- -- 45 45
Common stock of 1c par value per share;
250,000,000 shares authorized; issued
66,742,871 shares in 1996 and
47,922,749 shares in 1995 667 667 479 479
Additional paid-in capital 488,849 488,849 309,943 309,943
Accumulated deficit (312,367) (312,367) (267,883) (267,883)
Revaluation equity 1,641,598 -- 1,496,571 --
------------ ---------- ------------ -----------
Total shareholders' equity 1,818,747 177,149 1,539,155 42,584
------------ ---------- ------------ -----------
Total........................................... $5,575,857 $3,643,452 $4,852,403 $2,985,609
============ ========== ============ ==========
</TABLE>
25
<PAGE>
The Rouse Company and Subsidiaries
CONSOLIDATED COST BASIS STATEMENTS OF OPERATIONS
Years ended December 31, 1996, 1995 and 1994
(in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues $831,917 $672,821 $671,171
Operating expenses, exclusive of provision for bad debts,
depreciation and amortization 468,366 347,560 356,958
Interest expense (note 9) 220,381 212,963 213,583
Provision for bad debts 3,688 3,318 5,185
Depreciation and amortization (note 5) 79,990 73,062 74,186
Gain (loss) on dispositions of assets and other provisions, net (note 13) (15,887) (25,749) (7,923)
-------- -------- --------
Earnings before income taxes and extraordinary losses 43,605 10,169 13,336
-------- -------- --------
Income taxes (note 12):
Current--primarily state 123 620 735
Deferred--primarily Federal 25,596 3,699 5,995
-------- -------- --------
25,719 4,319 6,730
-------- -------- --------
Earnings before extraordinary losses 17,886 5,850 6,606
Extraordinary losses, net of related income tax benefits (note 9) 1,453 8,631 4,447
-------- -------- --------
Net earnings (loss) $ 16,433 $ (2,781) $ 2,159
======== ======== ========
Net earnings (loss) applicable to common shareholders $ 5,900 $(17,422) $(10,922)
======== ======== ========
Earnings (loss) per share of common stock after
dividends on Preferred stock (note 14):
Earnings (loss) before extraordinary losses $ .14 $ (.18) $ (.14)
Extraordinary losses (.03) (.18) (.09)
-------- -------- --------
Total $ .11 $ (.36) $ (.23)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
The Rouse Company and Subsidiaries
CONSOLIDATED COST BASIS STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994 (in thousands)
<TABLE>
<CAPTION>
Series A
Convertible Additional
Preferred Common paid-in Accumulated
stock stock capital deficit
----------- ------ ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $40 $476 $281,533 $(168,898)
Net earnings -- -- -- 2,159
Dividends declared:
Common stock -- $ .68 per share -- -- -- (32,349)
Preferred stock -- $3.25 per share -- -- -- (13,081)
Proceeds from exercise of stock options, net -- -- 108 --
Amortization of restricted common stock -- -- 2,225 --
Issuance of Preferred stock (note 14) 5 -- 22,808 --
--- ---- -------- ---------
Balance at December 31, 1994 45 476 306,674 (212,169)
Net loss -- -- -- (2,781)
Dividends declared:
Common stock -- $ .80 per share -- -- -- (38,292)
Preferred stock -- $3.25 per share -- -- -- (14,641)
Proceeds from exercise of stock options, net -- 3 2,139 --
Amortization of restricted common stock -- -- 1,130 --
--- ---- -------- ---------
Balance at December 31, 1995 45 479 309,943 (267,883)
Net earnings -- -- -- 16,433
Dividends declared:
Common stock -- $ .88 per share -- -- -- (50,384)
Preferred stock -- $2.44 per share -- -- -- (10,533)
Proceeds from exercise of stock options, net -- 4 1,038 --
Amortization of restricted common stock -- -- 1,903 --
Conversion of Preferred stock (note 14) (45) 106 (61) --
Purchases of common stock -- (2) (7,005) --
Common stock issued in acquisition of
The Hughes Corporation (note 3) -- 78 178,008 --
Common stock issued pursuant to
Contingent Stock Agreement (note 15) -- 2 5,023 --
--- ---- -------- ---------
Balance at December 31, 1996 $-- $667 $488,849 $(312,367)
=== ==== ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
27
<PAGE>
The Rouse Company and Subsidiaries
CONSOLIDATED COST BASIS STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994 (in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received $ 685,990 $ 625,373 $ 622,033
Proceeds from land sales 122,245 33,233 37,482
Interest received 11,939 10,323 10,297
Land development expenditures (50,099) (16,874) (16,760)
Operating expenditures:
Operating properties (349,947) (308,425) (315,607)
Land sales, development and corporate (35,358) (18,738) (11,880)
Interest paid:
Operating properties (206,870) (202,120) (195,751)
Land sales, development and corporate (9,774) (15,771) (16,039)
--------- --------- ---------
Net cash provided by operating activities 168,126 107,001 113,775
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for properties in development and improvements to
existing properties funded by debt (123,985) (61,591) (78,628)
Expenditures for acquisition of The Hughes Corporation,
net of acquired cash (36,331) -- --
Expenditures for property acquisitions (18,152) (28,206) (94,113)
Expenditures for improvements to existing properties funded
by cash provided by operating activities:
Tenant leasing and remerchandising (8,095) (8,344) (8,121)
Building and equipment (12,691) (4,688) (5,155)
Proceeds from sales of operating properties 26,345 -- --
Purchases of marketable securities (8,903) (5,411) (70,189)
Proceeds from redemptions or sales of marketable securities 8,217 32,650 74,443
Other (9,400) 10,595 3,212
--------- --------- ---------
Net cash used in investing activities (182,995) (64,995) (178,551)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of property debt 291,373 288,851 446,628
Repayments of property debt:
Scheduled principal payments (39,048) (36,446) (46,750)
Other payments (251,807) (413,438) (304,977)
Proceeds from issuance of other debt 141,337 124,831 --
Repayments of other debt (109,685) (42,440) (8,968)
Proceeds from issuance of Company-obligated mandatorily
redeemable preferred securities -- 132,951 --
Purchases of common stock (7,007) -- --
Proceeds from exercise of stock options 1,042 2,142 108
Dividends paid (60,917) (52,933) (45,423)
Other (1,575) -- --
--------- --------- ---------
Net cash provided by (used in) financing activities (36,287) 3,518 40,618
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (51,156) 45,524 (24,158)
Cash and cash equivalents at beginning of year 94,922 49,398 73,556
--------- --------- ---------
Cash and cash equivalents at end of year $ 43,766 $ 94,922 $ 49,398
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE>
<TABLE>
<CAPTION>
RECONCILIATION OF NET EARNINGS (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Net earnings (loss) $ 16,433 $ (2,781) $ 2,159
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 79,990 73,062 74,186
(Gain) loss on dispositions of assets and other provisions, net 15,887 25,749 7,923
Extraordinary losses, net of related income tax benefits 1,453 8,631 4,447
Additions to preconstruction reserve 2,700 3,800 3,400
Provision for bad debts 3,688 3,318 5,185
Decrease (increase) in:
Accounts and notes receivable (26,862) (3,836) (3,150)
Other assets (5,694) 1,357 5,323
Increase (decrease) in accounts payable, accrued expenses
and other liabilities 54,729 (10,690) 5,754
Deferred income taxes 25,596 3,699 5,995
Other, net 206 4,692 2,553
-------- -------- --------
Net cash provided by operating activities $168,126 $107,001 $113,775
======== ======== ========
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Debt and other liabilities assumed in acquisition of The Hughes
Corporation, net (note 3) $334,155 $ -- $ --
Common stock issued in acquisition of The Hughes
Corporation (note 3) 178,086 -- --
Common stock issued pursuant to Contingent Stock
Agreement (note 15) 5,025 -- --
Debt assumed by purchasers of land (16,991) -- --
Notes received from sales of operating properties 8,440 -- --
Value of noncash consideration given in acquisitions of
interests in properties 13,520 79,811 1,129
Mortgage and other debt assumed in acquisitions of
interests in properties 21,090 6,175 --
Mortgage debt extinguished on dispositions
of interests in properties -- 20,779 15,681
Capital lease obligations incurred 3,789 1,837 613
Series A Convertible Preferred stock issued in
satisfaction of mortgage debt -- -- 23,000
======== ======== ========
</TABLE>
29
<PAGE>
The Rouse Company and Subsidiaries
CONSOLIDATED CURRENT VALUE BASIS STATEMENTS OF
CHANGES IN REVALUATION EQUITY
Years ended December 31, 1996, 1995 and 1994 (in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revaluation equity at beginning of year $1,496,571 $1,519,219 $1,412,455
Revaluation equity attributable to interests in operating
properties sold or disposed (5,493) 3,082 5,609
---------- ---------- ----------
1,491,078 1,522,301 1,418,064
---------- ---------- ----------
Value of acquired interests in properties 114,887 8,152 --
Change in value of interests in other operating properties,
including properties held for sale (41,680) 39,233 101,168
Change in value of land in development and investment land and land
held for development and sale, including effects of sales and
transfers to operating properties (1,580) (5,827) 1,007
---------- ---------- ----------
Change in value of interests in operating properties,
land in development and investment land and land held for
development and sale 71,627 41,558 102,175
Change in value of other property (523) 1,053 (337)
Change in value attributable to debt, exclusive of operating
debt, and redeemable preferred securities (8,414) (34,509) 32,068
Change in present value of potential income taxes, net of cost
basis deferred income taxes 87,830 (33,832) (32,751)
---------- ---------- ----------
150,520 (25,730) 101,155
---------- ---------- ----------
Revaluation equity at end of year $1,641,598 $1,496,571 $1,519,219
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE>
The Rouse Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(1) CURRENT VALUE BASIS FINANCIAL STATEMENTS
(a) CURRENT VALUE REPORTING
The Company's interests in operating properties, land held for development and
sale and certain other assets have appreciated in value and, accordingly, their
aggregate current value substantially exceeds their aggregate cost basis net
book value determined in conformity with generally accepted accounting
principles. The current value basis financial statements present information
about the current values to the Company of its assets and liabilities and the
changes in such values. The current value basis financial statements are not
intended to present the current liquidation values of assets or liabilities of
the Company or its net assets taken as a whole.
Management believes that the current value basis financial statements more
realistically reflect the underlying financial strength of the Company. The
current values of the Company's interests in operating properties, including
interests in unconsolidated real estate ventures, represent management's
estimates of the value of these assets primarily as investments. These values
will generally be realized through future cash flows generated by the operation
of these properties over their economic lives. The current values of land held
for development and sale represent management's estimates of the value of these
assets under long-term development and sales programs.
Shareholders' equity on a current value basis was $1,818,747,000 or $27.25 per
share of common stock at December 31, 1996 and $1,539,155,000 or $26.30 per
share of common stock at December 31, 1995. The per share calculation at
December 31, 1995 assumes conversion of the Preferred stock.
The process for estimating the current values of the Company's assets and
liabilities requires significant estimates and judgments by management. These
estimates and judgments are made based on information and assumptions considered
by management to be adequate and appropriate in the circumstances; however, they
are not subject to precise quantification or verification and may change from
time to time as economic and market factors, and management's evaluation of
them, change.
The current value basis financial statements are not presented as part of the
Company's quarterly reports to shareholders. The extensive market research,
financial analyses and testing of results required to produce reliable current
value information make it impractical to report this information on an interim
basis.
(b) BASES OF VALUATION
INTERESTS IN OPERATING PROPERTIES--The current value of the Company's interests
in operating properties is the Company's share of each property's equity value
plus the outstanding balance of debt specifically related to the properties.
Equity values are determined based on the present values of forecasted net cash
flows and residual values, if applicable, or on the application of a
capitalization rate to stabilized net operating income (primarily for office
properties in 1996). The current value of the Company's interests in
unconsolidated real estate ventures is the present value of the Company's share
of forecasted net cash flow, including incentive management fees, and residual
value of the respective real estate ventures.
The forecasts of net cash flow generally cover periods of eleven years, are
based on an evaluation of the history and future of each property and are
supported by market studies, analyses of tenant lease terms and projected sales
performance and detailed estimates of revenues and operating expenses. The
internal rates of return used in determining present values and capitalization
rates vary by project and between years as investor yield requirements change.
The resulting values recognize the considerable differences between properties
in terms of quality, age, outlook and risk as well as the prevailing yield
requirements of investors for income-producing properties.
PROPERTIES IN DEVELOPMENT--Properties in development are carried at the same
amounts as in the cost basis financial statements except that certain parcels of
land are carried at their estimated current values. Management believes that
properties in development have values in excess of their historical cost, but
has followed a practice of not recognizing any value increment until these
properties are completed and operating.
INVESTMENT LAND AND PROPERTIES HELD FOR SALE--Investment land and properties
held for sale are carried at their estimated fair values less costs to sell.
Fair values are based on contract prices,
31
<PAGE>
negotiations with prospective purchasers or management's estimates of future
cash flows from operations and/or sale of the properties, where appropriate.
LAND HELD FOR DEVELOPMENT AND SALE--The current value of land held for
development and sale is based on the present value of forecasted net cash flows
under development and sales programs. These programs set forth the proposed
timing and cost of all improvements necessary to bring the properties to
saleable condition, the pace and price of sales and the costs to administer the
programs and sell the properties.
DEBT--Debt and obligations under capital leases specifically related to
interests in operating properties are carried at the same amount as in the cost
basis balance sheets since the value of the Company's equity interest in each
property is based on net cash flow after payments on the debt or leases. The
current values of publicly-traded debt not specifically related to interests in
properties are determined using quoted market prices. The current values of
other debt and obligations under capital leases are carried at the same amount
as in the cost basis balance sheets since the difference between the stated and
estimated market interest rates for such obligations is not material.
DEFERRED INCOME TAXES--Because the current value basis financial statements are
prepared on the assumption that values will generally be realized over the long-
term through operating cash flows and not through liquidation, the deferred
income tax obligation on a current value basis is the estimated present value of
income tax payments which may be made based primarily on long-term projections
of taxable income. The projections of taxable income reflect all allowable
deductions and the Company's state income tax planning strategies. The discount
rates used to compute the present value of income tax payments are based on the
Company's assessment of the uncertainty with respect to the ultimate timing and
amounts of income tax payments.
OTHER ASSETS AND LIABILITIES--Substantially all other assets and liabilities are
carried in the current value basis balance sheets at the lower of cost or net
realizable value or, where applicable, fair value less costs to sell--the same
stated value as in the cost basis balance sheets.
(c) REVALUATION EQUITY
The aggregate difference between the current value basis and cost basis of the
Company's assets and liabilities is reported as revaluation equity in the
shareholders' equity section of the consolidated current value basis balance
sheets.
The components of revaluation equity at December 31, 1996 and 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Value of interests in operating properties:
Retail centers $ 2,042,670 $ 2,038,316
Office, mixed-use and other 440,868 256,165
Value of investment land and land held for
development and sale 309,693 134,012
Value of land in development 46,339 15,725
----------- -----------
Total equity value 2,839,570 2,444,218
Debt related to equity interests 2,328,203 2,141,610
----------- -----------
Total asset value 5,167,773 4,585,828
Depreciated cost of interests in operating properties
and costs of investment land and land held for
development and sale, land in development
and certain other assets (3,244,632) (2,728,820)
Present value of potential income taxes related
to revaluation equity, net of cost basis
deferred income taxes (276,134) (363,964)
Other, net (5,409) 3,527
----------- -----------
Total revaluation equity $ 1,641,598 $ 1,496,571
=========== ===========
</TABLE>
32
<PAGE>
(2) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
The Company acquires, develops and/or manages income-producing properties
located throughout the United States and develops and sells land for
residential, commercial and other uses, primarily in Columbia, Maryland and Las
Vegas, Nevada. The income-producing properties consist of retail centers, office
buildings, mixed-use and other properties. The retail centers are primarily
regional shopping centers in suburban market areas, but also include specialty
marketplaces in certain downtown areas and several village centers primarily in
Columbia. The office properties are primarily suburban buildings in the
Columbia, Baltimore and Las Vegas market areas or components of large-scale
mixed-use properties located in urban markets which also include retail, parking
and other uses. Land development and sales operations are predominantly related
to large-scale, long-term community developments.
The proportionate revenues of the Company's lines of business are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Retail centers 61% 73% 73%
Office, mixed-use and other properties 22 22 22
Land sales 17 5 5
---- ---- ----
Total 100% 100% 100%
==== ==== ====
</TABLE>
(b) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The Rouse Company,
all subsidiaries and partnerships in which it has a majority interest and
control and the Company's proportionate share of the assets, liabilities,
revenues and expenses of unincorporated real estate ventures in which it has
joint interest and control with other venturers. Investments in other ventures
are accounted for using the equity or cost methods as appropriate in the
circumstances. Significant intercompany balances and transactions are eliminated
in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities and disclosures of
contingencies at the date of the financial statements and revenues and expenses
recognized during the reporting period. Significant estimates are inherent in
the preparation of the Company's historical cost basis financial statements in a
number of areas, including evaluation of impairment of long-lived assets
(including operating properties to be held and used, investment land and land
held for development and sale), determination of useful lives of assets subject
to depreciation or amortization, evaluation of collectibility of accounts and
notes receivable, measurement of pension and postretirement obligations and
evaluation of whether deferred tax assets will be realized. Actual results could
differ from those estimates.
Certain amounts for prior years have been reclassified to conform with the
presentation for 1996.
(c) PROPERTY
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of." Statement No. 121
establishes new standards for measurement and recognition of impairment of long-
lived assets. Initial adoption of the Statement by the Company in 1996 did not
have a material effect on the financial position or results of operations
reported by the Company.
Properties to be developed or held and used in operations are carried at cost
reduced for impairment losses, where appropriate. Properties held for sale are
carried at cost reduced for valuation allowances, where appropriate.
Acquisition, development and construction costs of operating properties,
properties in development and land development projects are capitalized
including, where applicable, salaries and related costs, real estate taxes,
interest and preconstruction costs. The preconstruction stage of development of
an operating property (or an expansion of an existing property) includes efforts
and related costs to secure land control and zoning, evaluate feasibility and
complete other initial tasks which are essential to development. These costs are
transferred to construction and development in progress when the precon-
33
<PAGE>
struction tasks are completed. Provision is made for potentially unsuccessful
preconstruction efforts by charges to operations. Costs of significant
improvements, replacements and renovations at operating properties are
capitalized, while costs of maintenance and repairs are expensed as incurred.
Certain costs associated with financing and leasing of operating properties are
capitalized as deferred costs and amortized over the periods benefited by the
expenditures.
Depreciation of operating properties is computed using the straight-line
method. The annual rate of depreciation for most of the Company's retail centers
is based on a 55-year composite life and a salvage value of approximately 10%,
producing an effective annual rate of depreciation for new properties of 1.6%.
The other retail centers, all office buildings and other properties are
generally depreciated using composite lives of 40 years producing an effective
annual rate of depreciation for such properties of 2.5%.
If events or circumstances indicate that the carrying value of an operating
property to be held and used or a land development project may be impaired, a
recoverability analysis is performed based on estimated nondiscounted future
cash flows to be generated from the property or project. If the analysis
indicates that the carrying value is not recoverable from future cash flows, the
property or project is written down to estimated fair value and an impairment
loss is recognized.
Properties held for sale are carried at the lower of their carrying value
(i.e., cost less accumulated depreciation and any impairment loss recognized,
where applicable) or estimated fair value less costs to sell. The net carrying
values of operating properties are classified as properties held for sale when
marketing of the properties for sale is authorized by management. Depreciation
of these properties is discontinued at that time, but operating revenues,
interest and other operating expenses continue to be recognized until the time
of sale.
(d) SALES OF PROPERTY
Gains from sales of operating properties and revenues from land sales are
recognized using the full accrual method provided that various criteria relating
to the terms of the transactions and any subsequent involvement by the Company
with the properties sold are met. Gains or revenues relating to transactions
which do not meet the established criteria are deferred and recognized when the
criteria are met or using the installment or cost recovery methods, as
appropriate in the circumstances. For land sale transactions under terms of
which the Company is required to perform additional services and incur
significant costs after title has passed, revenues and costs of sales are
recognized proportionately on a percentage of completion basis.
Cost of land sales is generally determined as a specified percentage of land
sales recognized for each land development project. The cost percentages used
are based on estimates of development costs and sales revenues to completion of
each project and are revised periodically for changes in estimates or in
development plans. The specific identification method is used to determine cost
of sales of certain parcels of land.
(e) LEASES
Leases which transfer substantially all the risks and benefits of ownership to
tenants are considered finance leases and the present values of the minimum
lease payments and the estimated residual values of the leased properties, if
any, are accounted for as receivables. Leases which transfer substantially all
the risks and benefits of ownership to the Company are considered capital leases
and the present values of the minimum lease payments are accounted for as
property and debt. Direct costs of negotiating and consummating tenant leases
are deferred and amortized over the terms of the related leases.
In general, minimum rent revenues are recognized when due from tenants;
however, estimated collectible minimum rent revenues under leases which provide
for varying rents over their terms are averaged over the terms of the leases.
(f) INCOME TAXES
Deferred income taxes are accounted for using the asset and liability method.
Under this method, deferred income taxes are recognized for temporary
differences between the financial reporting bases of assets and liabilities and
their respective tax bases and for operating loss and tax credit carryforwards
based on enacted tax rates expected to be in effect when such amounts
34
<PAGE>
are realized or settled. However, deferred tax assets are recognized only to the
extent that it is more likely than not that they will be realized based on
consideration of available evidence, including tax planning strategies and other
factors. The effects of changes in tax laws or rates on deferred tax assets and
liabilities are recognized in the period that includes the enactment date.
(g) INVESTMENTS IN MARKETABLE SECURITIES AND CASH AND CASH EQUIVALENTS
The Company's investment policy defines authorized investments and establishes
various limitations on the maturities, credit quality and amounts of investments
held. Authorized investments include U.S. government and agency obligations,
certificates of deposit, bankers acceptances, repurchase agreements, commercial
paper, money market mutual funds and corporate debt and equity securities.
Investments with maturities at dates of purchase in excess of three months are
classified as marketable securities and carried at amortized cost as it is the
Company's intention to hold these investments until maturity. Short-term
investments with maturities at dates of purchase of three months or less are
classified as cash equivalents, except that any such investments purchased with
the proceeds of loans which may be expended only for specified purposes are
classified as investments in marketable securities. At December 31, 1996 and
1995, investments in marketable securities consist primarily of U.S. government
and agency obligations with maturities of less than one year which are held for
restricted uses.
(h) INTEREST RATE EXCHANGE AGREEMENTS
The Company makes limited use of interest rate exchange agreements, including
interest rate caps and swaps, primarily to manage interest rate risk associated
with variable rate debt. Under interest rate cap agreements, the Company makes
initial premium payments to the counterparties in exchange for the right to
receive payments from them if interest rates on the related variable rate debt
exceed specified levels during the agreement period. Premiums paid are amortized
to interest expense over the terms of the agreements using the interest method
and payments receivable from the counterparties are accrued as reductions of
interest expense. Under interest rate swap agreements, the Company and the
counterparties agree to exchange the difference between fixed rate and variable
rate interest amounts calculated by reference to specified notional principal
amounts during the agreement period. Notional principal amounts are used to
express the volume of these transactions, but the cash requirements and amounts
subject to credit risk are substantially less. Amounts receivable or payable
under swap agreements are accounted for as adjustments to interest expense on
the related debt.
Parties to interest rate exchange agreements are subject to market risk for
changes in interest rates and risk of credit loss in the event of nonperformance
by the counterparty. The Company does not require any collateral under these
arrangements but deals only with highly rated financial institution
counterparties (which, in certain cases, are also the lenders on the related
debt) and does not expect that any counterparties will fail to meet their
obligations.
(i) OTHER INFORMATION ABOUT FINANCIAL INSTRUMENTS
Fair values of financial instruments approximate their carrying value in the
financial statements except for debt and related interest rate exchange
agreements for which fair value information is provided in note 9.
(j) EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Earnings (loss) per share of common stock is computed by dividing net earnings
(loss), after deducting dividends on Preferred stock, by the weighted average
number of shares of common stock outstanding during the year. The numbers of
shares used in the computations were 55,572,000 for 1996, 47,814,000 for 1995,
and 47,565,000 for 1994. Common stock equivalents have not been used in
computing earnings (loss) per common share because their effects are not
material or are anti-dilutive.
35
<PAGE>
(k) STOCK-BASED COMPENSATION
The Company uses the intrinsic value method to account for stock-based employee
compensation plans. Under this method, compensation cost is recognized for
awards of shares of common stock to employees only if the quoted market price of
the stock at the grant date (or other measurement date, if later) is greater
than the amount the employee must pay to acquire the stock.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Statement No. 123 permits companies to adopt a new fair value-
based method to account for stock-based employee compensation plans or to
continue using the intrinsic value method. Information concerning the pro forma
effects on net earnings (loss) and earnings (loss) per share of common stock of
using a fair value-based method to account for stock-based compensation plans,
as permitted by Statement No. 123, is provided in note 15.
(3) ACQUISITION OF
THE HUGHES CORPORATION
AND RELATED MATTERS
On June 12, 1996, the Company acquired all of the outstanding equity interests
in The Hughes Corporation and its affiliated partnership, Howard Hughes
Properties, Limited Partnership (together, "Hughes"). In connection with the
acquisition, the Company issued 7,742,884 shares of common stock valued at
$178,086,000 and incurred or assumed debt and other liabilities of $370,486,000
(net of certain receivables and other current assets acquired). As discussed in
note 15, additional shares of common stock (or, in certain circumstances,
Increasing Rate Cumulative Preferred Stock) may be issued to the former Hughes
owners or their successors pursuant to terms of a Contingent Stock Agreement.
The acquisition was accounted for using the purchase method. The total purchase
cost approximated the aggregate fair value of the assets acquired which consist
primarily of a regional shopping center and a large-scale, master-planned
community in Las Vegas, Nevada, and four large-scale, master-planned business
parks and various other properties in Nevada and Southern California.
The consolidated cost basis statement of operations for the year ended
December 31, 1996 includes revenues and costs and expenses from the date of
acquisition. The Company's unaudited pro forma consolidated results of
operations for the years ended December 31,1996 and 1995, assuming the
acquisition of Hughes occurred on January 1, 1995, are summarized as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Revenues $883,686 $956,094
Earnings before extraordinary losses 20,990 29,504
Net earnings 19,537 20,873
Earnings per share of common stock after
dividends on Preferred stock:
Earnings before extraordinary losses .17 .26
Net earnings .15 .11
======== ========
</TABLE>
The unaudited pro forma revenues and earnings summarized above are not
necessarily indicative of the results that would have occurred if the
acquisition had been consummated on January 1, 1995 or of future results of
operations of the combined companies.
(4) REAL ESTATE VENTURES
The Company has joint interest and control with other venturers in various
operating properties which are accounted for using the proportionate share
method. These projects are managed by the Company. The consolidated financial
statements include the Company's proportionate share of its historical cost of
these projects and depreciation based on the Company's depreciation policies
which differ, in certain cases, from those of the joint ventures.
36
<PAGE>
The condensed, combined balance sheets of these ventures and the Company's
proportionate share of their assets, liabilities and equity at December 31, 1996
and 1995 and the condensed, combined statements of earnings of these ventures
and the Company's proportionate share of their revenues and expenses for 1996,
1995 and 1994 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Combined Proportionate Share
------------------ -------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total assets, primarily property $296,232 $339,121 $119,702 $151,195
======== ======== ======== ========
Liabilities, primarily long-term debt $223,480 $313,282 $ 98,436 $145,113
Venturers' equity 72,752 25,839 21,266 6,082
-------- -------- -------- --------
Total liabilities and venturers' equity $296,232 $339,121 $119,702 $151,195
======== ======== ======== ========
Combined Proportionate Share
---------------------------- -----------------------------
1996 1995 1994 1996 1995 1994
-------- -------- -------- -------- -------- --------
Revenues $118,360 $128,979 $143,573 $ 56,105 $ 58,085 $ 65,650
Operating and interest expenses 65,862 77,223 83,492 29,535 35,336 38,592
Depreciation and amortization 11,257 13,071 13,281 2,588 3,472 3,680
-------- -------- -------- -------- -------- --------
Net earnings $ 41,241 $ 38,685 $ 46,800 $ 23,982 $ 19,277 $ 23,378
======== ======== ======== ======== ======== ========
</TABLE>
The Company holds minority interests in certain real estate ventures which are
accounted for using the equity or cost methods, as appropriate. Most of these
projects are managed by the Company and the agreements relating to them
generally provide for preference returns to the Company when operating results
or sale or refinancing proceeds exceed specified levels. The condensed, combined
balance sheets of these ventures at December 31, 1996 and 1995 and their
condensed combined statements of earnings for 1996, 1995 and 1994 are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Total assets, primarily property $1,340,699 $1,507,438
=========== ==========
Liabilities, primarily long-term debt $ 540,418 $ 481,528
Venturers' equity 800,281 1,025,910
----------- ----------
Total liabilities and venturers' equity $1,340,699 $1,507,438
========== ==========
1996 1995 1994
---------- ---------- ---------
Revenues $202,879 $209,100 $200,728
Operating and interest expenses 138,460 141,509 133,470
Depreciation and amortization 35,634 39,701 37,701
Loss on disposition -- -- 25,722
-------- -------- --------
Net earnings $ 28,785 $ 27,890 $ 3,835
======== ======== ========
</TABLE>
The Company's share of net earnings of these ventures was $4,348,000,
$5,691,000 and $2,926,000 in 1996, 1995 and 1994, respectively.
(5) PROPERTY
Operating properties and deferred costs of projects at December 31, 1996 and
1995 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Buildings and improvements $2,822,164 $2,516,625
Land 244,243 185,265
Deferred costs 113,904 118,930
Receivables under finance leases 94,876 81,632
Investments in unconsolidated real estate ventures 81,757 84,772
Furniture and equipment 18,032 19,132
---------- ----------
Total $3,374,976 $3,006,356
========== ==========
</TABLE>
37
<PAGE>
Depreciation expense for 1996, 1995 and 1994 was $66,689,000, $59,247,000, and
$59,914,000, respectively. Amortization expense for 1996, 1995 and 1994 was
$13,301,000, $13,815,000, and $14,272,000, respectively.
Properties in development include construction and development in progress and
preconstruction costs, net. The construction and development in progress
accounts include land and land improvements of $41,032,000 at December 31, 1996
and $16,056,000 at December 31, 1995.
Changes in preconstruction costs, net, for 1996 and 1995 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Balance at beginning of year, before
preconstruction reserve $ 21,463 $20,633
Costs incurred 20,189 12,451
Costs transferred to construction and development
in progress (16,742) (7,405)
Costs transferred to operating properties (990) (1,686)
Costs of unsuccessful projects written off (1,762) (2,530)
-------- --------
22,158 21,463
Less preconstruction reserve 16,317 15,379
-------- --------
Balance at end of year, net $ 5,841 $ 6,084
======== ========
</TABLE>
Properties held for sale at December 31, 1996 and 1995 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Retail centers (six properties in 1996 and
four properties in 1995) $ 70,775 $ 15,493
Office and other properties 2,305 7,194
-------- --------
Total $ 73,080 $ 22,687
======== ========
</TABLE>
Revenues relating to properties held for sale were $29,600,000 in 1996 and
$8,355,000 in 1995, and operating losses relating to these properties were
$810,500 in 1996 and $1,174,000 in 1995. All of the properties held for sale at
December 31, 1996 are expected to be sold in 1997.
Investment land and land held for development and sale at December 31, 1996
and 1995 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land under development $ 87,301 $ 49,106
Finished land 59,913 45,388
Raw land 96,903 39,589
-------- --------
Total $244,117 $134,083
======== ========
</TABLE>
(6) ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable at December 31, 1996 and 1995 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accounts receivable, primarily accrued rents and
income under tenant leases $ 67,527 $ 58,916
Notes receivable from sales of properties 16,929 1,900
Notes receivable from sales of land 36,066 403
-------- --------
120,522 61,219
Less allowance for doubtful receivables 28,153 24,468
-------- --------
Total $ 92,369 $ 36,751
======== ========
</TABLE>
Accounts and notes receivable due after one year were $41,654,000 and
$13,967,000 at December 31, 1996 and 1995, respectively.
38
<PAGE>
Credit risk with respect to receivables from tenants is not highly
concentrated due to the large number of tenants and the geographic
diversification of the Company's operating properties. The Company performs
credit evaluations of prospective new tenants and requires security deposits in
certain circumstances. Tenants' compliance with the terms of their leases is
monitored closely, and the allowance for doubtful receivables is established
based on analyses of the risk of loss on specific tenant accounts, historical
trends and other relevant information. Notes receivable from sales of land are
primarily due from builders operating at the Company's Summerlin project in Las
Vegas. The Company performs credit evaluations of the builders and requires
substantial down payments (20% or more) on all land sales that it finances.
These notes and notes from sales of operating properties are generally secured
by first liens on the related properties.
(7) PENSION PLANS
The Company has a defined benefit pension plan (the "funded plan") covering
substantially all employees. The Company's policy is to fund, at a minimum,
current service costs and amortization of unfunded accrued liabilities subject
to the limits of the Internal Revenue Code. In addition, the Company has
separate, nonqualified unfunded retirement plans (the "unfunded plans") covering
directors and employees whose defined benefits exceed the limits of the funded
plan. Benefits under the pension plans are based on the participants' years of
service and compensation.
The net pension cost includes the following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 2,989 $ 2,382 $ 2,904
Interest cost on projected benefit obligations 3,107 3,309 3,425
Actual return on funded plan assets (4,997) (5,422) (1,930)
Other, net 4,022 3,262 927
-------- -------- --------
Net pension cost $ 5,121 $ 3,531 $ 5,326
======== ======== ========
</TABLE>
The funded status of the pension plans at December 31, 1996 and 1995 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
Funded Unfunded Funded Unfunded
Plan Plans Plan Plans
-------- -------- -------- --------
<S> <C> <C> <C>
Accumulated benefit obligations:
Vested $ 30,589 $ 2,610 $ 31,045 $ 4,658
Nonvested 3,386 193 2,983 393
-------- -------- -------- --------
Total $ 33,975 $ 2,803 $ 34,028 $ 5,051
======== ======== ======== ========
Projected benefit obligations $ 38,567 $ 4,322 $ 38,808 $ 6,801
Plan assets at fair value (38,990) -- (34,084) --
-------- -------- -------- --------
Excess of projected benefit
obligations over plan assets (423) 4,322 4,724 6,801
Unamortized prior service cost (1,888) (2,081) (2,124) (3,067)
Unrecognized net loss (8,513) (330) (10,783) (1,077)
Unrecognized net obligation at
January 1, 1987, net of
amortization (598) (676) (664) (810)
Additional minimum liability -- 1,568 -- 3,204
-------- -------- -------- --------
Accrued (prepaid) pension cost $(11,422) $ 2,803 $ (8,847) $ 5,051
======== ======== ======== ========
</TABLE>
The projected benefit obligations for the plans were determined using discount
rates of 7.75% and 7.25% in 1996 and 1995, respectively. The rate of
compensation increases assumed was 4.5% in 1996 and 1995. The expected long-term
rate of return on plan assets of the funded plan was 8% in 1996 and 11% in 1995.
The assets of the funded plan consist primarily of pooled separate accounts with
an insurance company and marketable equity securities.
39
<PAGE>
The Company also has a deferred compensation program which permits directors
and certain management employees to defer portions of their compensation on a
pretax basis. The participants designate the investment of the deferred funds,
based on various alternatives, and under certain of the plans, the Company
matches a percentage of the participants' contributions in common stock. Total
deferred compensation liabilities at December 31, 1996 and 1995 were $6,584,000
and $4,416,000, respectively.
(8) OTHER POSTRETIREMENT BENEFITS
The Company has a retiree benefits plan that provides postretirement medical and
life insurance benefits to full-time employees who meet minimum age and service
requirements. The Company pays a portion of the cost of participants' life
insurance coverage and makes contributions based on years of service to the cost
of participants' medical insurance coverage, subject to a maximum annual
contribution.
<TABLE>
<CAPTION>
The postretirement benefit cost includes the following components (in thousands):
1996 1995 1994
------ ------- ------
<S> <C> <C> <C>
Service cost $ 640 $ 607 $ 741
Interest cost on accumulated benefit obligation 932 853 823
Amortization of transition obligation at January 1, 1993 333 484 485
Amortization of net gain -- (26) --
------ ------ ------
Net postretirement benefit cost $1,905 $1,918 $2,049
====== ====== ======
</TABLE>
The status of the postretirement benefit plan at December 31, 1996 and 1995
is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 8,475 $ 3,195
Other fully eligible participants 1,514 1,720
Other active participants 6,138 8,186
------- -------
16,127 13,101
Unrecognized net gain (loss) 987 (502)
Unrecognized transition obligation (5,331) (8,235)
------- -------
Accrued postretirement benefit cost $11,783 $ 4,364
======= =======
</TABLE>
The net increase in the accrued postretirement benefit cost in 1996 includes
the effects of the admission of former employees of Hughes to the plan (with
credit for prior service) and an amendment to the plan to reduce the Company's
share of life insurance premium costs effective January 1, 1996.
The weighted average discount rates used to determine the accumulated
postretirement benefit obligation were 7.75% and 7.25% in 1996 and 1995,
respectively. The transition obligation at January 1, 1993 is being amortized to
postretirement benefit cost over 20 years. Because the Company's contributions
are fixed, health care cost trend rates do not affect the accumulated
postretirement benefit obligation.
(9) DEBT
In recognition of the various characteristics of real estate financing, debt is
classified as follows:
(a) "Property debt not carrying a Parent Company guarantee of repayment" which
is subsidiary company debt having no express written obligation which would
require the Company to repay the principal amount of such debt during the
full term of the loan (nonrecourse loans); and
(b) "Parent Company debt and debt carrying a Parent Company guarantee of
repayment" which is debt of the Company and subsidiary company debt with an
express written obligation of the Company to repay the principal amount of
such debt during the full term of the loan (Company and recourse loans).
With respect to nonrecourse loans, the Company has in the past and may in the
future, under some circumstances, support those subsidiary companies whose
annual obligations, including debt service, exceed operating revenues. At
December 31, 1996 and 1995, nonrecourse loans include $475,754,000 and
$443,440,000, respectively, of mortgages and bonds relating to operating
properties of subsidiary companies which are subject to agreements with
40
<PAGE>
lenders requiring the Company to provide support for operating and debt
service costs, where necessary, for defined periods or until specified
conditions relating to the operating results of the properties are met.
Debt at December 31, 1996 and 1995 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Mortgages and bonds $2,279,971 $1,997,998
Convertible subordinated debentures 130,000 130,000
Medium-term notes 115,300 100,300
Credit line borrowings 64,000 --
Other loans 245,975 251,231
---------- ----------
Total $2,835,246 $2,479,529
========== ==========
</TABLE>
Mortgages and bonds are secured by deeds of trust or mortgages on properties
and general assignments of rents. This debt matures at various dates through
2025 and, at December 31, 1996, bears interest at a weighted average effective
rate of 8.68%, including lender participations. At December 31, 1996,
approximately $594,482,000 of this debt is subject to payment of additional
interest based on the operating results of the related properties in excess of
stated levels. In addition, certain of this debt provides for payments to
lenders of shares of the related properties' residual values, if any, upon sale
or refinancing or at maturity. At December 31, 1996, approximately
$1,035,000,000 of the mortgages and bonds were payable to one lender.
The convertible subordinated debentures bear interest at 5.75% and mature in
2002. The debentures are convertible at the option of holders into one share of
common stock for each $28.63 of par value and are redeemable at the option of
the Company at any time at a price equal to par value plus accrued interest.
The Company has registered $150,000,000 of unsecured, medium-term notes which
may be issued to the public from time to time. The notes may be issued, subject
to market conditions, for varying terms (nine months to 30 years) and at fixed
or variable interest rates based on market indices at the time of issuance. The
notes outstanding at December 31, 1996, mature at various dates from 1997 to
2015, bear interest at a weighted average effective rate of 7.52% (including an
average rate of 6.36% on $43,800,000 of variable rate notes) and have a weighted
average maturity of 5.6 years.
The Company and certain of its subsidiaries have credit lines from banks and
other lenders aggregating $248,120,000, including outstanding borrowings at
December 31, 1996. These credit lines are unsecured, bear interest at variable
rates based on specified market indices and may be used for various purposes,
including land and project development costs, property acquisitions and other
corporate needs, subject to specific use limitations and/or lender approvals in
certain cases. The credit line borrowings outstanding at December 31, 1996, are
due at various dates in 1999 and 2000 and bear interest at a weighted average
effective rate of 6.96%.
Other loans include $120,000,000 of 8.5% unsecured notes due in 2003, various
property acquisition and land loans and certain other borrowings. These loans
include aggregate unsecured borrowings of $209,705,000 and $229,372,000 at
December 31, 1996 and 1995, respectively, and at December 31, 1996, bear
interest at a weighted average effective rate of 8.76%.
The agreements relating to the medium-term notes, certain of the lines of
credit, the 8.5% unsecured notes, and certain other loans impose limitations on
the Company. The most restrictive of these limit the Company's ability to incur
certain types of additional debt if the Company does not maintain specified debt
service coverage ratios. The agreements also impose restrictions on sale, lease
and certain other transactions, subject to various exclusions and limitations.
These restrictions have not limited the Company's normal business activities.
41
<PAGE>
The annual maturities of debt at December 31, 1996 are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
Nonrecourse Company and
Loans Recourse Loans Total
----------- -------------- ----------
<S> <C> <C> <C>
1997 $ 113,218 $ 11,307 $ 124,525
1998 70,726 22,624 93,350
1999 174,884 32,824 207,708
2000 171,099 58,285 229,384
2001 130,733 40,838 171,571
Subsequent to 2001 1,629,746 378,962 2,008,708
---------- --------- ----------
Total $2,290,406 $544,840 $2,835,246
========== ========= ==========
</TABLE>
The nonrecourse loans maturing in 1997 include two retail center mortgages
aggregating $58,250,000 due in the second quarter. The Company is in the process
of obtaining securitized mortgage loans to refinance these loans and has
received a commitment from a lender for an interim loan for up to six months
pending completion of the securitized loans. The Company expects to repay the
mortgages at their scheduled maturity date.
At December 31, 1996, the Company had interest rate cap agreements which
effectively limit the average interest rate on $66,050,000 of mortgages to 9.72%
through April 1997. The Company also had an interest rate cap agreement related
to a line of credit. The agreement effectively limits the interest rate on
advances up to $55,000,000 to 10% through April 1998 and to 9.08% on advances up
to $60,000,000 thereafter until April 1999.
The interest rate swap agreements outstanding at December 31, 1996 were not
material. Interest rate exchange agreements did not have a material effect on
the weighted average effective interest rates on debt at December 31, 1996 and
1995 or interest expense for the years ended December 31, 1996, 1995 and 1994.
Total interest costs were $230,960,000 in 1996, $219,838,000 in 1995, and
$220,971,000 in 1994 of which $10,579,000, $6,875,000, and $7,388,000 were
capitalized, respectively.
During 1996, 1995 and 1994, the Company incurred extraordinary losses, related
to extinguishments of debt prior to scheduled maturity or required partial early
redemptions of debt of $2,236,000, $13,278,000, and $6,824,000, respectively,
less related deferred income tax benefits of $783,000, $4,647,000, and
$2,377,000, respectively. The sources of funds used to pay the debt and fund the
prepayment penalties, where applicable, were provided by refinancings of
properties, the medium-term notes and the Company-obligated mandatorily
redeemable preferred securities issued in 1995 and the 8.5% unsecured notes and
Preferred stock issued in 1993.
The estimated fair value of debt is determined based on quoted market prices
for publicly-traded debt and on the discounted estimated future cash payments to
be made for other debt. The discount rates used approximate current market rates
for loans or groups of loans with similar maturities and credit quality. The
estimated future payments include scheduled principal and interest payments,
cash flows under interest rate exchange agreements, where applicable, and
lenders' participations in operating results and residual values of the related
properties, where applicable. The carrying amount and estimated fair value of
the Company's debt at December 31, 1996 and December 31, 1995 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Fixed rate debt $2,405,382 $2,466,854 $2,195,137 $2,249,968
Variable rate debt 429,864 429,864 284,392 284,392
---------- ---------- ---------- ----------
$2,835,246 $2,896,718 $2,479,529 $2,534,360
========== ========== ========== ==========
</TABLE>
Fair value estimates are made at a specific point in time, are subjective in
nature and involve uncertainties and matters of significant judgment. Settlement
of the Company's debt obligations at fair value may not be possible and may not
be a prudent management decision.
42
<PAGE>
(10) COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
The redeemable preferred securities consist of 5,500,000 Cumulative Quarterly
Income Preferred Securities (preferred securities), with a liquidation amount of
$25 per security, which were issued in November 1995 by a statutory business
trust that is wholly-owned by the Company. The trust used the proceeds of the
preferred securities and other assets to purchase at par $141,753,000 of junior
subordinated debentures (debentures) of the Company due in November 2025, which
are the sole assets of the trust.
Payments to be made by the trust on the preferred securities are dependent on
payments that the Company has undertaken to make, particularly the payments to
be made by the Company on the debentures. Compliance by the Company with its
undertakings, taken together, would have the effect of providing a full,
irrevocable and unconditional guarantee of the trust's obligations under the
preferred securities.
Distributions on the preferred securities are payable from interest payments
received on the debentures and are due quarterly at a rate of 9.25% of the
liquidation amount, subject to deferral for up to five years under certain
conditions. Distributions payable are included in operating expenses.
Redemptions of the preferred securities are payable at the liquidation amount
from redemption payments received on the debentures.
The Company may redeem the debentures at par at any time after November 27,
2000, but redemptions at or prior to maturity are payable only from the proceeds
of issuance of capital stock of the Company or of securities substantially
comparable in economic effect to the preferred securities.
(11) OPERATING RESULTS AND ASSETS BY LINE OF BUSINESS
Operating results before gain (loss) on dispositions of assets and other
provisions, net, income taxes and extraordinary losses are summarized by line of
business as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Operating properties:
Revenues $690,569 $636,646 $633,047
Operating expenses, exclusive of provision
for bad debts, depreciation and
amortization 345,863 313,525 322,278
Interest expense 205,750 197,249 196,690
Provision for bad debts 3,688 3,318 5,185
Depreciation and amortization 79,990 73,062 74,186
-------- -------- --------
55,278 49,492 34,708
-------- -------- --------
Land sales:
Revenues 137,853 33,403 35,232
Operating costs and expenses 107,787 17,827 19,877
Interest expense 1,658 5,071 5,028
-------- -------- --------
28,408 10,505 10,327
-------- -------- --------
Development:
Operating costs and expenses 4,964 7,288 6,494
Interest expense 361 358 495
-------- -------- --------
(5,325) (7,646) (6,989)
-------- -------- --------
Corporate:
Interest income 3,495 2,772 2,892
Interest expense 12,612 10,285 11,370
Other expenses 9,752 8,920 8,309
-------- -------- --------
(18,869) (16,433) (16,787)
-------- -------- --------
Operating income $ 59,492 $ 35,918 $ 21,259
======== ======== ========
</TABLE>
43
<PAGE>
The assets by line of business at December 31, 1996, 1995 and 1994 are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Operating properties $3,084,445 $2,656,527 $2,617,045
Land sales 308,014 141,275 136,986
Development 178,076 63,732 68,863
Corporate 72,917 124,075 92,966
---------- ---------- ----------
Total $3,643,452 $2,985,609 $2,915,860
========== ========== ==========
</TABLE>
(12) INCOME TAXES
Income tax expense is reconciled to the amount computed by applying the Federal
corporate tax rate as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Tax at statutory rate on earnings
before income taxes and extraordinary losses $15,262 $ 3,560 $ 4,668
State income taxes, net of Federal income
tax benefit 1,023 759 2,062
Nondeductible portion of distributions
under Contingent Stock Agreement 9,434 -- --
------- -------- --------
Income tax expense $25,719 $ 4,319 $ 6,730
======= ======== ========
Effective rate 58.9% 42.5% 50.5%
======= ======== ========
</TABLE>
The net deferred tax liability at December 31, 1996 and 1995 consists of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Total deferred tax liabilities $355,182 $299,717
Total deferred tax assets 220,388 218,068
-------- --------
Net deferred tax liability $134,794 $ 81,649
======== ========
</TABLE>
The tax effects of temporary differences and carryforwards that are included
in the net deferred tax liability at December 31, 1996 and 1995 relate to the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Property, primarily differences in depreciation and
amortization, the tax basis of acquired assets and
treatment of interest and certain other costs $ 329,413 $ 273,585
Accounts and notes receivable, primarily
differences in timing of recognition of rent
revenues and doubtful receivables 4,368 5,684
Accrued expenses, primarily differences in timing of
recognition of interest, compensation and pension
expenses 4,296 (4,925)
Operating loss and tax credit carryforwards (203,283) (192,695)
--------- --------
Total $ 134,794 $ 81,649
========= =========
</TABLE>
The net operating losses carried forward from December 31, 1996 for Federal
income tax purposes aggregate approximately $568,000,000.
As indicated above, the deferred tax assets relate primarily to operating loss
carryforwards for Federal income tax purposes. These loss carryforwards will
begin to expire in 1998, and the ultimate realization of these assets is
dependent upon the generation of sufficient future taxable income to use the
loss carryforwards before they expire. Based on projections of future taxable
income over the loss carryfoward period (which projections reflect, among other
things, the effects of numerous significant transactions completed in the last
several years, including debt refinancings and restructurings for various
properties, acquisitions/expansions of new and existing properties and
dispositions of several properties that were generating operating losses) and
the scheduled reversal of deferred tax liabilities (particularly those relating
to depreciation
44
<PAGE>
of property), management believes that it is more likely than not that the
Company will realize the benefits of the operating loss carryforwards at
December 31, 1996. The amount of the deferred tax asset considered realizable
could be reduced, however, if estimates of future taxable income are reduced.
(13) GAIN (LOSS) ON DISPOSITIONS OF ASSETS AND OTHER PROVISIONS, NET
Gain (loss) on dispositions of assets and other provisions, net, is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Litigation judgment $ 8,716 $(12,321) $ --
Net loss on operating properties (25,903) (13,210) (7,496)
Other, net 1,300 (218) (427)
-------- -------- -------
Total $(15,887) $(25,749) $(7,923)
======== ======== =======
</TABLE>
The litigation judgment relates to the matter involving a former tenant at the
Riverwalk Shopping Center discussed in note 17. In 1996, a portion of the
provision recorded in 1995 was reversed following settlement of the matter.
The net loss on operating properties in 1996 relates primarily to provisions
for losses recognized on five retail centers the Company decided to sell.
The net loss on operating properties in 1995 relates primarily to provisions
for losses recognized on four retail centers the Company decided to sell
($15,589,000). These provisions were partially offset by a gain on disposition
of a retail center ($2,379,000).
The net loss on operating properties in 1994 relates primarily to losses
incurred on dispositions of interests in two retail centers, a hotel and an
office building ($8,045,000) and a provision for loss on an industrial building
($2,212,000). These losses were partially offset by a gain on disposition of an
interest in a retail center ($2,761,000).
(14) PREFERRED STOCK
The Company has authorized 50,000,000 shares of Preferred stock of 1c par value
per share of which (a) 4,505,168 shares have been classified as Series A
Convertible Preferred; (b) 10,000,000 shares have been classified as Increasing
Rate Cumulative Preferred; and (c) 37,362 shares have been classified as 10.25%
Junior Preferred, Series 1996. In February 1997, 4,600,000 shares were
classified as Series B Convertible Preferred and 4,000,000 of these shares were
issued (see note 18).
The Company sold 4,025,000 shares of the Series A Convertible Preferred stock
in a public offering in 1993 and issued 480,168 shares valued at $23,000,000 in
1994 in connection with a modification of terms of a debt agreement related to a
retail center. The shares of Series A Convertible Preferred stock had a
liquidation preference of $50 per share and earned dividends at an annual rate
of 6.5% of the liquidation preference. Each share was convertible into shares of
the Company's common stock at a conversion rate of approximately 2.35 shares of
common stock for each share of Preferred stock, subject to certain conditions.
On September 30, 1996, the Company redeemed all of the then outstanding shares
of Series A Convertible Preferred stock. In 1996 and 1995, the Company issued
10,598,721 and 75 shares respectively, of common stock in exchange for 4,504,579
and 32 shares, respectively, of Series A Convertible Preferred stock. If all of
the shares of Series A Convertible Preferred stock had been converted to shares
of common stock on January 1, 1994, the pro forma earnings (loss) per share of
common stock would have been $0.26 in 1996, $(0.05) in 1995 and $0.04 in 1994.
Shares of the Increasing Rate Cumulative Preferred stock are issuable only to
former Hughes owners or their successors pursuant to the Contingent Stock
Agreement described in note 15. These shares are issuable only in limited
circumstances, and at December 31, 1996, no shares of Increasing Rate Cumulative
Preferred stock were outstanding. There were also no shares of 10.25% Junior
Preferred stock, Series 1996, outstanding at December 31, 1996.
45
<PAGE>
(15) COMMON STOCK
At December 31, 1996, shares of authorized and unissued common stock are
reserved as follows: (a) 19,801,763 shares for issuance under the Contingent
Stock Agreement discussed below; (b) 3,151,084 shares for issuance under the
Company's stock option and stock bonus plans; (c) 4,540,692 shares for
conversion of the convertible subordinated debentures; and (d) 500,000 shares
for exercise of the warrants discussed below.
In connection with the acquisition of Hughes, the Company entered into a
Contingent Stock Agreement for the benefit of the former Hughes owners or their
successors (the beneficiaries). Under terms of the agreement, additional shares
of common stock (or in certain circumstances, Increasing Rate Cumulative
Preferred Stock) are issuable to the beneficiaries based on the appraised values
of four defined groups of assets acquired in the purchase of Hughes at specified
"termination dates" from 2000 to 2009 and/or cash flows generated from the
development and/or sale of those assets prior to the termination dates (the
"earnout periods"). The distributions of additional shares, based on cash flows,
are payable semiannually as of June 30 and December 31 and, at December 31,
1996, a distribution of approximately 591,000 shares ($16,697,000) was payable
to the beneficiaries. The Contingent Stock Agreement is, in substance, an
arrangement under which the Company and the beneficiaries will share in cash
flows from development and/or sale of the defined assets during their respective
earnout periods and the Company will issue additional shares of common stock to
the beneficiaries based on the value, if any, of the defined asset groups at the
termination dates. The Company accounts for the beneficiaries' share of earnings
from the assets subject to the Contingent Stock Agreement as an operating
expense and will account for any distributions to the beneficiaries as of the
termination dates as an additional cost to acquire the related assets (i.e.,
contingent consideration). At the time of acquisition of Hughes, the Company
reserved 20,000,000 shares of common stock for possible issuance under the
Contingent Stock Agreement. The number of shares reserved was determined based
on conservative estimates in accordance with the provisions of the Agreement.
The actual number of shares issuable will be determinable only from events
occurring over the term of the Agreement and could differ significantly from the
number of shares reserved.
Under the Company's stock option plans, options to purchase shares of common
stock and stock appreciation rights may be awarded to directors, officers and
employees. Stock options are generally granted with an exercise price equal to
the market price of the common stock on the date of grant, typically vest over a
three- to five-year period, subject to certain conditions, and have a maximum
term of ten years. The Company has not granted any stock appreciation rights. A
summary of changes in options outstanding under the plans is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- ----------------------- ---------------------
Weighted- Weighted- Weighted-
average average average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 2,227,400 $19.89 2,228,102 $19.68 1,709,302 $20.10
Options granted 654,000 21.09 200,500 18.63 566,000 18.59
Options exercised (87,371) 18.61 (179,452) 5.36 (8,700) 13.04
Options canceled (28,250) 22.82 (21,750) 24.41 (38,500) 24.13
--------- --------- ---------- -------- --------- --------
Balance at end of year 2,765,779 $20.18 2,227,400 $19.89 2,228,102 $19.68
========= ========= ========== ======== ========= ========
</TABLE>
A summary of information about stock options
outstanding at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ ------------------------------
Weighted-
Range of average Weighted- Weighted-
Exercise Remaining average average
Prices Shares Life (Years) Exercise Price Shares Exercise Price
- ----------------- --------- ------------ -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$13.50 to $19.875 1,931,279 7.4 $18.38 755,344 $17.75
$23.75 to $27.00 834,500 4.4 24.34 694,500 24.21
--------- ------- ---------- ----------- ----------
2,765,779 6.5 $20.18 1,449,844 $20.84
========= ======= ========== =========== ==========
</TABLE>
46
<PAGE>
At December 31, 1995 and 1994, options to purchase 1,229,000 and 1,063,000
shares, respectively, were exercisable at weighted average prices of $21.50 and
$20.96, respectively.
The per share weighted-average estimated fair value of options granted during
1996 and 1995 was $5.44 and $5.24, respectively. These fair values were
estimated on the dates of each grant using the Black-Scholes option-pricing
model with the following assumptions: risk-free interest rates of 6.0% in 1996
and 7.2% in 1995; dividend yield of 4% in both years; expected lives of 7 years
in both years; and volatility of 28% in both years.
The option prices were equal to the market prices at the date of grant for all
of the options granted in 1996 and 1995 and, accordingly, no compensation cost
has been recognized for stock options in the financial statements. If the
Company had applied a fair value-based method to account for options granted,
net earnings for 1996 would have been $15,369,000 ($.09 per share of common
stock) and the net loss for 1995 would have been $3,036,000 ($.37 per share of
common stock). The pro forma amounts reflect only options granted in 1996 and
1995. Therefore, the full impact of calculating compensation cost for stock
options under a fair value-based method is not reflected in the pro forma
amounts because compensation cost is reflected over the options' vesting periods
and compensation cost for options granted prior to January 1, 1995 is not
required to be considered.
Under the Company's stock bonus plans, shares of common stock may be awarded
to officers and employees. Shares awarded under the plans are typically subject
to forfeiture restrictions which lapse at defined annual rates. Awards granted
in 1996 and 1995 aggregated 415,000 and 200,000 shares, respectively, with a
weighted average market value per share of $20.99 and $18.63, respectively. In
connection with the stock bonus plan awards, the Company typically makes loans
to the recipients for the payment of related income taxes, which loans are
forgiven in installments subject to the recipients' continued employment. The
total loans outstanding at December 31, 1996 and 1995 were $6,565,000 and
$3,829,000, respectively.
The Company recognizes any forgiven loan installments, amortization of the
fair value of the stock awarded and certain related costs as compensation costs
over the terms of the awards. Such costs amounted to $4,923,000 in 1996,
$2,763,000 in 1995 and $1,663,000 in 1994.
In 1992, seven investors acquired 8,500,000 shares of the Company's common
stock in a private placement from a stockholder. Stock warrants allowing the
seller to purchase 500,000 shares of common stock at a price of $18 per share
until September 1997 were issued by the Company to facilitate the transaction.
(16) LEASES
The Company, as lessee, has entered into operating leases expiring at various
dates through 2076. Rents under such leases aggregated $9,648,000 in 1996,
$9,421,000 in 1995, and $11,927,000 in 1994, including contingent rents, based
on the operating performance of the related properties, of $3,844,000,
$3,644,000, and $6,232,000, respectively. In addition, real estate taxes,
insurance and maintenance expenses are obligations of the Company. The minimum
rent payments due under operating leases in effect at December 31, 1996 are
summarized as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 5,744
1998 5,687
1999 5,663
2000 5,672
2001 5,680
Subsequent to 2001 237,851
--------
Total $266,297
========
</TABLE>
Obligations under capital leases relate to the Company's headquarters building
and certain operating properties and equipment. The property and other asset
accounts include costs of $67,718,000 and $66,790,000 and accumulated
depreciation of $19,632,000 and $19,531,000 at December 31, 1996 and 1995,
respectively, related to these leases. The mini-
47
<PAGE>
mum rent payments due under capital leases and their present value at December
31, 1996 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 9,898
1998 9,250
1999 8,620
2000 8,239
2001 7,906
Subsequent to 2001 187,901
---------
231,814
Imputed interest at rates ranging from 8.49% to 13.0% (171,613)
---------
Obligations under capital leases $ 60,201
=========
</TABLE>
Space in the Company's operating properties is leased to approximately 6,400
tenants. In addition to minimum rents, the majority of the retail center leases
provide for percentage rents when the tenants' sales volumes exceed stated
amounts, and the majority of the retail center and office leases provide for
other rents which reimburse the Company for certain of its operating expenses.
Rents from tenants are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Minimum rents $348,296 $310,149 $303,425
Percentage rents 14,830 15,362 17,144
Other rents 223,949 217,037 220,532
-------- -------- --------
Total $587,075 $542,548 $541,101
======== ======== ========
</TABLE>
The minimum rents to be received from tenants under operating leases in effect
at December 31, 1996 are summarized as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 352,048
1998 305,798
1999 271,053
2000 238,937
2001 199,534
Subsequent to 2001 566,794
----------
Total $1,934,164
==========
</TABLE>
Certain of the Company's tenant leases are accounted for as finance leases
since the terms of the leases transfer substantially all of the risks and
benefits of ownership to the tenants. Rents under such leases aggregated
$9,645,000 in 1996, $8,780,000 in 1995, and $8,511,000 in 1994. The net
investment in finance leases at December 31, 1996 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Total minimum rent payments to be received
over lease terms $178,275 $167,050
Estimated residual values of leased properties 7,567 3,123
Unearned income (90,966) (88,541)
-------- --------
Net investment in finance leases $ 94,876 $ 81,632
======== ========
</TABLE>
The minimum rent payments to be received from tenants under finance leases in
effect at December 31, 1996 are $10,551,000, $10,626,000, $10,643,000,
$10,729,000 and $11,480,000 for 1997, 1998, 1999, 2000 and 2001, respectively.
48
<PAGE>
(17) OTHER COMMITMENTS AND CONTINGENCIES
Commitments for the construction and development of land and properties in the
ordinary course of business and other commitments not set forth elsewhere amount
to approximately $47,000,000 at December 31, 1996.
At December 31, 1996, subsidiaries of the Company have contingent liabilities
of approximately $21,320,000 with respect to future minimum rents under long-
term lease obligations of certain joint ventures and approximately $4,069,000
with respect to bank letters of credit issued to secure their obligations under
certain agreements. In addition, the Company had contingent liabilities with
respect to debt of certain joint ventures aggregating approximately $19,824,000.
On November 6, 1990, Robert P. Guastella Equities, Inc. ("Plaintiff"), a
former tenant at the Riverwalk Shopping Center in New Orleans, Louisiana
("Riverwalk"), which is owned and operated by New Orleans Riverwalk Associates,
an affiliate of the Company ("NORA"), filed suit in the Civil District Court of
Orleans Parish, Louisiana against NORA, the Company, two Company affiliates, and
a partner of NORA (collectively, "Defendants"). Plaintiff alleged that
Defendants breached Plaintiff's lease agreement with NORA for the operation of a
restaurant at Riverwalk and that as a result of these breaches it suffered
losses and could not pay the rentals due under the lease agreement, as a result
of which the lease and its tenancy were terminated by NORA. Plaintiff sought
damages of approximately $600,000 for these alleged breaches.
In addition, on September 3, 1992, Plaintiff claimed $33,000,000 for alleged
lost future profits which it claimed it would have earned had its lease not been
terminated. The Defendants filed answers denying the claims of Plaintiff and
asserting other defenses. NORA also asserted a counterclaim against Plaintiff
and its individual guarantors for past due rentals and other charges in the
approximate amount of $300,000 plus interest and attorneys' fees as provided for
in the lease agreement. The case was tried before a jury and, on October 28,
1993, the jury returned a verdict against Defendants upon which judgment was
entered by the trial court on January 7, 1994, in the total net amount of
approximately $9,128,000 (including a net award for lost future profits of
approximately $8,640,000) plus interest and attorneys' fees. On May 6, 1994, the
trial court denied all post-trial motions of both Plaintiff and Defendants. The
trial court also entered an amended judgment in which it awarded the Plaintiff
$450,000 in attorneys' fees and awarded Defendants $25,000 in attorneys' fees.
On May 23, 1994, Defendants appealed this judgment to the Louisiana Court of
Appeal, Fourth Circuit. On November 16, 1995, the Louisiana Court of Appeal
reduced the judgment by $240,000, but otherwise affirmed the damage award to
Plaintiff. Defendants subsequently filed a motion for reconsideration with the
Louisiana Court of Appeal, which was denied on December 19, 1995. On January 18,
1996, Defendants filed a petition requesting the Louisiana Supreme Court to
consider a further appeal of this judgment. On April 8, 1996, the Louisiana
Supreme Court granted Defendants' petition. Subsequently, the parties entered
into settlement discussions which culminated in a July 25, 1996 Settlement
Agreement which dismissed all claims and counterclaims with prejudice. The
Company recorded a pre-tax provision in the amount of $12,321,000 in 1995,
representing the full amount of the modified award (including attorneys' fees)
plus interest, less pre-tax provisions previously recorded totaling $1,150,000.
Additional provisions for interest totaling $295,000 were recorded in the six
months ended June 30, 1996. The Company satisfied its financial and other
obligations under the Settlement Agreement in July 1996 and reversed $8,716,000
of the previously recorded provision for loss on this matter in the third
quarter of 1996.
The Company and certain of its subsidiaries are defendants in various other
litigation matters arising in the ordinary course of business, some of which
involve claims for damages that are substantial in amount. Some of these
litigation matters are covered by insurance. In the opinion of management,
adequate provision has been made for losses with respect to all litigation
matters, where appropriate, and the ultimate resolution of all such litigation
matters is not likely to have a material effect on the consolidated financial
position of the Company. Due to the Company's modest and fluctuating net
earnings (loss) it is not possible to predict whether the resolution of these
matters is likely to have a material effect on the Company's consolidated net
earnings (loss) and it is, therefore, possible that the resolution of these
matters could have such a material effect in any future quarter or year.
On December 14, 1996, Riverwalk Shopping Center was struck by a grain
freighter, causing significant damage to the property and requiring the Company
to close the entire retail
49
<PAGE>
center for a period of several weeks. Work to repair the property damage is in
process, and substantially all of the repair costs will be covered by related
insurance. There is also insurance covering loss of tenant rental revenues as
result of this incident. Due to uncertainties as to when certain tenants will be
able to reopen for business and how certain portions of the loss will be
measured, it is not possible to estimate the amount of this claim at this time;
however, the ultimate resolution of this matter is not expected to have a
material effect on the consolidated financial position or results of operations
of the Company.
In connection with the acquisition of Hughes, the Company obtained minority,
limited partner interests in two partnerships which own a property known as
Playa Vista in Los Angeles, California. The partnerships are in the preliminary
stages of developing a master-planned community on the property (which includes
approximately 1,100 acres of land) and have experienced significant financial
losses. As a result, the partners have been involved in extensive negotiations
with lenders and others to restructure and recapitalize the partnerships. Under
the partnership agreements, the Company is not required to make additional
capital contributions to the partnerships and has no obligations, fixed or
contingent, with respect to their business, properties or other assets. Under
the Contingent Stock Agreement, the Company is obligated to make payments of
$10,000,000 with respect to Playa Vista. These payments may be in the form of
contributions to the partnerships (subject to certain conditions) or, if
aggregate contributions are less than $10,000,000 at the date the obligation
terminates, the balance is distributable in stock to the beneficiaries pursuant
to the Agreement. The Company recorded the obligation under the Agreement in
accounting for the purchase of Hughes and, at December 31, 1996, the unpaid
balance was approximately $8,963,000. While the outcome of the partnerships'
negotiations with lenders and others is not predictable, the Company's
obligations with respect to Playa Vista are limited as described above and the
ultimate resolution of this matter will not have an adverse effect on the
consolidated financial position or results of operations of the Company.
(18) SUBSEQUENT EVENT
In February 1997, the Company registered to sell up to an aggregate of
$500,000,000 (based on the public offering price) of common stock, Preferred
stock and debt securities. The stock and debt may be issued from time to time at
prices, in amounts and on terms to be determined at the time of offering. In
February 1997, pursuant to this registration, the Company issued 4,000,000
shares of the Series B Convertible Preferred stock in a public offering. The
shares of Preferred stock have a liquidation value of $50 per share (an
aggregate of $200,000,000 for the issued shares) and earn dividends at an annual
rate of 6% of the liquidation preference. At the option of the holders, each
share of the Preferred stock is convertible into shares of the Company's common
stock at a conversion rate of approximately 1.311 shares of common stock for
each share of Preferred stock, subject to adjustment in certain circumstances.
In addition, beginning April 1, 2000, the shares of Preferred stock are
redeemable for shares of common stock at the option of the Company, subject to
certain conditions. The net proceeds of the offering of approximately
$194,600,000 are to be used primarily for new development projects, retail
center expansions and/or acquisitions and to repay property debt. Any remaining
net proceeds will be used for general corporate purposes and, until required for
development or acquisition opportunities, a portion of the net proceeds will be
used, on an interim basis, to reduce or retire credit line borrowings and
property debt.
50
<PAGE>
Five Year Comparison of Selected Financial Data
Year ended December 31 (in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating results data:
Revenues from continuing operations $ 831,917 $ 672,821 $ 671,171 $ 646,805 $ 597,105
Earnings (loss) from continuing operations 17,886 5,850 6,606 (1,291) (15,849)
Earnings (loss) from continuing operations applicable to
common shareholders per share of common stock .14 (.18) (.14) (.27) (.33)
Balance sheet data:
Total assets-cost basis 3,643,452 2,985,609 2,915,860 2,874,982 2,726,281
Total assets-current value basis 5,575,857 4,852,403 4,736,961 4,588,636 4,217,819
Debt and capital leases 2,895,447 2,538,315 2,532,920 2,473,596 2,498,983
Shareholders' equity (deficit):
Historical cost basis 177,149 42,584 95,026 113,151 (34,848)
Current value basis 1,818,747 1,539,155 1,614,245 1,525,606 1,188,896
Shareholders' equity (deficit) per share of common stock (note 1):
Historical cost basis 2.65 .73 1.63 1.98 (.74)
Current value basis 27.25 26.30 27.75 26.75 25.50
Other selected data:
Earnings before depreciation and deferred taxes
from operations (note 2) 139,359 108,360 94,710 78,281 52,282
Net cash provided by (used in):
Operating activities 168,126 107,001 113,775 101,149 66,630
Investing activities (182,995) (64,995) (178,551) (154,446) (144,836)
Financing activities (36,287) 3,518 40,618 47,068 98,914
Dividends per share of common stock .88 .80 .68 .62 .60
Dividends per share of convertible Preferred stock 2.44 3.25 3.25 2.83 --
Market price per share of common stock at year end 31.75 20.13 19.25 17.75 18.00
Market price per share of convertible Preferred stock
at year end -- 51.63 48.50 53.75 --
Weighted average common shares outstanding 55,572 47,814 47,565 47,411 47,994
</TABLE>
Note 1--For the years ended December 31, 1995, 1994 and 1993, historical cost
basis shareholders' equity (deficit) per share of common stock and
current value basis shareholders' equity per share of common stock
assume the conversion of the Series A Convertible Preferred stock. The
Series A Convertible Preferred Stock was issued in 1993 and redeemed for
common stock on September 30, 1996.
Note 2--Earnings before depreciation and deferred taxes (EBDT) is not a measure
of operating results or cash flows from operating activities as defined
by generally accepted accounting principles. Additionally, EBDT is not
necessarily indicative of cash available to fund cash needs, including
the payment of dividends and should not be considered as an alternative
to cash flows as a measure of liquidity. See the "Earnings Before
Depreciation and Deferred Taxes" section of Management's Discussion and
Analysis of Financial Condition and Results of Operations on page 56 for
a full discussion of EBDT.
Interim Financial Information (Unaudited)
Interim consolidated results of operations are summarized as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Quarter ended
------------------------------------------------------------------------------------------
December September June March December September June March
31, 1996 30, 1996 30, 1996 31, 1996 31, 1995 30, 1995 30, 1995 31, 1995
---------- ---------- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 252,044 $ 227,675 $ 179,050 $ 173,148 $ 177,505 $ 169,165 $ 163,636 $162,515
Operating income 25,796 11,477 11,061 11,158 13,385 11,380 6,499 4,654
Earnings (loss) before extraordinary
losses 7,291 (2,456) 6,308 6,743 1,911 3,169 1,403 (633)
Net earnings (loss) 7,199 (2,502) 6,308 5,428 634 3,032 1,403 (7,850)
========== ========== ========== ========== ========= ========== ========== ==========
Earnings (loss) per common share:
Earnings (loss) before extraordinary
losses $ .11 $ (.10) $ .05 $ .07 $ (.03) $ (.01) $ (.05) $ (.09)
Extraordinary losses -- -- -- (.03) (.03) -- -- (.15)
---------- ---------- ---------- ---------- --------- ---------- ---------- ----------
Total $ .11 $ (.10) $ .05 $ .04 $ (.06) $ (.01) $ (.05) $ (.24)
========== ========== ========== ========== ========= ========== ========== ==========
</TABLE>
Note--Net earnings for the third and fourth quarters of 1996 include provisions
for losses on dispositions of retail centers of $3,939,000 ($.07 per
share) and $6,196,000 ($.09 per share), respectively. The provision for
loss in the third quarter was partially offset by the reversal of a
provision for a litigation matter of $5,665,000 ($.10 per share). Net
earnings for the quarter ended December 31, 1995 includes a provision for
the litigation matter of $8,009,000 ($.17 per share). Net earnings (loss)
for the first, second and third quarters of 1995 include provisions for
losses on disposition of operating properties of $3,156,000 ($.07 per
share), $3,617,000 ($.08 per share) and $3,665,000 ($.08 per share),
respectively. The provision for loss in the second quarter was partially
offset by a gain on disposition of a retail center property of $1,261,000
($.03 per share).
Price of Common Stock and Dividends
The Company's common stock began trading on the New York Stock Exchange in
November 1995. Prior to that time it was traded over the counter. The prices
and dividends per share were as follows:
<TABLE>
<CAPTION>
Quarter ended
-------------------------------------------------------------------------------------
December September June March December September June March
31, 1996 30, 1996 30, 1996 31, 1996 31, 1995 30, 1995 30, 1995 31, 1995
-------- ------- -------- -------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High bid or sales price $ 32.25 $ 26.00 $ 26.13 $ 22.13 $ 22.00 $ 22.63 $ 20.69 $ 19.88
Low bid or sales price 30.88 24.88 25.75 21.88 18.63 19.50 17.00 18.00
Dividends .22 .22 .22 .22 .20 .20 .20 .20
</TABLE>
Number of Holders of Common Stock
The number of holders of record of the Company's common stock as of February 21,
1997 was 2,294.
51
<PAGE>
The Rouse Company and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The Company's primary business is the acquisition, development and management of
income-producing real estate projects. The Company operates a diversified
portfolio of retail centers, office buildings and mixed-use and other properties
located throughout the United States. In addition, the Company develops and
sells land for residential, commercial and other uses, primarily in Columbia,
Maryland, and Summerlin, Nevada.
On June 12, 1996, the Company purchased all of the outstanding equity
interests in The Hughes Corporation and its affiliated partnership, Howard
Hughes Properties, Limited Partnership (together, Hughes). The acquired assets
consist primarily of a regional shopping center and a large-scale, master-
planned community (Summerlin) in Las Vegas, Nevada, and four large-scale,
master-planned business parks and various other properties in Nevada and
Southern California. The acquisition of Hughes enabled the Company to diversify
its portfolio of properties while establishing a significant presence in the
fast-growing Las Vegas market. For additional information about the acquisition
of Hughes, see note 3 to the consolidated financial statements.
Management believes that the Company's financial position is sound and that
its liquidity and capital resources are adequate. As shown in the supplemental
current value basis financial statements, current value shareholders' equity,
which is an important indication of the Company's financial strength, was $1.82
billion at December 31, 1996, up from $1.54 billion at December 31, 1995.
The Company has continued to achieve strong financial results in recent
periods, despite the generally difficult environment for retail businesses.
Earnings before depreciation and deferred taxes (EBDT), which is defined and
discussed in detail below, increased 28% in 1996 and 14% in 1995, including
increases of 10% and 12%, respectively, in EBDT from operating properties and an
increase of 170% in 1996 in EBDT from land sales. These results have been made
possible by several factors, including the acquisition of Hughes, expansions of
and/or acquisitions of ownership interests in certain retail centers, consistent
earnings from land sales and operating properties in Columbia, refinancing of a
significant amount of project-related debt at lower interest rates and, to a
lesser extent, dispositions or modifications of the terms of agreements relating
to properties which were incurring losses before depreciation and deferred
taxes.
Management believes that the outlook is for continued solid growth in EBDT in
1997. Prospects for growth in EBDT from land sales and office/mixed-use
properties are excellent as the Company will have the benefit of a full year of
operations of the Hughes portfolio and conditions in the major markets in which
the Company operates are stable or improving. EBDT from retail centers is also
expected to grow in 1997. The rate of growth may continue at the modest rate
realized in 1996 given the continued difficult retailing environment, but the
Company intends to focus considerable effort and resources on leasing and
remerchandising its existing retail centers. The Company will also focus on
developing its land assets in Las Vegas and Columbia, opportunities to expand
existing retail centers and development of new projects in growing markets.
Management is continually reviewing and evaluating the portfolio of properties
to identify expansion, renovation and/or remerchandising opportunities and
properties that may not have future prospects consistent with the Company's
long-term objectives. The Company will continue to dispose of properties that
are not meeting and/or are not considered to have the potential to meet its
investment criteria, particularly smaller properties in smaller market areas.
While disposition decisions may cause the Company to recognize gains or losses
that could have material effects on reported net earnings (loss) in future
quarters or fiscal years, they are not anticipated to have a material effect on
the overall consolidated financial position or operating income of the Company.
The objective is to refine and continually upgrade the portfolio so that it is
comprised of top tier properties that will produce consistently strong increases
in earnings and increases in current values.
OPERATING RESULTS
This discussion and analysis of operating results covers each of the Company's
four business segments as management believes that a segment analysis provides
the most effective means of understanding the Company's business. Note 11 to the
consolidated financial statements and the information relating to revenues and
expenses in the Five Year Summary of Earnings Before Depreciation and Deferred
Taxes from Operations and Net Earnings (Loss) on page 60 should be referred to
when reading this discussion.
52
<PAGE>
OPERATING PROPERTIES: The Company reports the results of its operating
properties in two categories: retail centers ("retail" properties) and office,
mixed-use and other properties ("office/mixed-use" properties).
The Company's tenant leases provide the foundation for the performance of its
retail and office/mixed-use properties. In addition to minimum rents, the
majority of retail and office tenant leases provide for other rents which
reimburse the Company for most of its operating expenses. Substantially all of
the Company's retail leases also provide for additional rent based on tenant
sales (percentage rent) in excess of stated levels. As leases expire, space is
re-leased, minimum rents are generally adjusted to market rates, expense
reimbursement provisions are updated and new percentage rent levels are
established for retail leases.
Most of the Company's operating properties are financed with long-term, fixed
rate, nonrecourse debt and, therefore, are not directly affected by changes in
interest rates. Although the interest rates on this debt do not fluctuate,
certain loans provide for additional payments to the Company's lenders based on
operating results and, in some instances, a share of a property's residual value
upon sale or refinancing or at maturity.
Operating results of retail properties are summarized as follows (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Revenues $508.4 $491.7 $486.5
Operating expenses, exclusive of
depreciation and amortization 260.0 246.7 253.1
Interest expense 129.1 128.2 128.8
------ ------ ------
119.3 116.8 104.6
Depreciation and amortization 50.1 45.9 46.8
------ ------ ------
Operating income $ 69.2 $ 70.9 $ 57.8
======= ====== ======
</TABLE>
Revenues from retail properties increased $16.7 million in 1996 and $5.2
million in 1995. The increase in 1996 was attributable primarily to acquisitions
of interests in four properties (two in the third quarter of 1995, one in
connection with the acquisition of Hughes in the second quarter of 1996 and one
in the third quarter of 1996), increased lease termination payments due to
tenant restructurings and downsizings and higher rents on re-leased space. These
increases were partially offset by the effects of lower average occupancy (88.8%
in 1996 compared to 90.9% in 1995) and dispositions of interests in properties
in the second quarter of 1995 and first quarter of 1996. The increase in 1995
was attributable to the operations of expansions opened in third quarter of 1994
and first quarter of 1995, purchases of ownership interests in two properties
and higher rents on re-leased space. These increases were partially offset by
the effects of lower average occupancy (90.9% in 1995 compared to 92.3% in
1994), lower recoveries of operating expenses due to expense reduction efforts
and dispositions of interests in properties in the first quarter of 1994 and
second quarter of 1995.
Total operating and interest expenses (exclusive of depreciation and
amortization) for retail properties increased $14.2 million in 1996 and
decreased $7 million in 1995. The increase in 1996 was attributable primarily to
the operations and financing of the acquired properties referred to above. These
increases were partially offset by the property dispositions referred to above
and reductions in interest expense due to debt repayments and refinancings
completed in 1995 and early 1996. The decrease in 1995 was attributable
primarily to the effects of lower average occupancy levels, lower operating
expenses due to expense reduction efforts, the dispositions referred to above
and reductions in interest expense due to debt repayments and refinancings
completed in 1994 and early 1995 at certain properties. These decreases were
partially offset by increases in expenses associated with the operations and
financing of the properties opened or acquired referred to above. Depreciation
and amortization expense for retail properties increased $4.2 million in 1996
and decreased $.9 million in 1995. These changes were due primarily to the net
effect of changes in the Company's portfolio of retail properties referred to
above.
53
<PAGE>
Operating results of office/mixed-use properties are summarized as follows (in
millions):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Revenues $182.2 $145.0 $146.6
Operating expenses, exclusive of
depreciation and amortization 89.5 70.1 74.4
Interest expense 76.7 69.1 67.9
------ ------ ------
16.0 5.8 4.3
Depreciation and amortization 29.9 27.2 27.4
------ ------ ------
Operating loss $(13.9) $(21.4) $(23.1)
====== ====== ======
</TABLE>
Revenues from office/mixed-use properties increased $37.2 million in 1996 and
decreased $1.6 million in 1995. The increase in 1996 was attributable primarily
to operations of the properties acquired in the Hughes transaction and higher
occupancy levels at hotel and other office properties. These increases were
partially offset by decreases in tenant lease termination payments and the
disposition of a property in the second quarter of 1995. The decrease in 1995
was attributable primarily to dispositions of properties in the third quarter of
1994 and second quarter of 1995 and lower recoveries of operating expenses due
to lower occupancy levels and reduced operating expenses at certain projects.
These decreases were partially offset by increased revenues at certain hotel and
office properties in Columbia due to higher occupancy levels and increases in
tenant lease cancellation payments.
Total operating and interest expenses (exclusive of depreciation and
amortization) for office/mixed-use properties increased $27 million in 1996 and
decreased $3.1 million in 1995. The increase in 1996 was attributable primarily
to operations of the properties acquired in the Hughes transaction and expenses
associated with higher occupancy levels. These increases were partially offset
by the dispositions of a vacant industrial property in the second quarter of
1996 and an office property in the second quarter of 1995. The decrease in 1995
was attributable primarily to the dispositions of properties referred to above
and lower operating expenses at certain projects. These decreases were partially
offset by expenses related to two industrial buildings in Columbia which began
operations in the second quarter of 1994 and higher interest expense on a mixed-
use project. Interest on this project's loan was lower in 1994 because the
Company exercised an option in the loan agreement to make a specified payment
and reduce the effective interest rate on the loan retroactive to the beginning
of its term. The payment was less than the interest previously accrued, and the
difference was recorded as a reduction to interest expense in 1994. Depreciation
and amortization for office/mixed-use properties increased $2.7 million in 1996.
The increase was attributable primarily to the acquired properties referred to
above.
LAND SALES: The Company's land sales operations relate primarily to the
communities of Columbia, Maryland, and Summerlin, Nevada. Generally, revenues
and operating income from land sales are affected by such factors as the
availability to purchasers of construction and permanent mortgage financing at
acceptable interest rates, consumer and business confidence, availability of
saleable land for particular uses and management's decisions to sell, develop or
retain land.
54
<PAGE>
Operating results for land sales are summarized as follows (in millions):
<TABLE>
<CAPTION>
1996
-----------------------------
Columbia
Hughes and
Division Other Total 1995 1994
-------- -------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues $98.4 $39.5 $137.9 $33.4 $35.2
Operating costs and
expenses 83.4 24.4 107.8 17.8 19.9
Interest expense .7 1.0 1.7 5.1 5.0
------- ------- ------- ------ ------
Operating income $14.3 $14.1 $ 28.4 $10.5 $10.3
======= ======= ======= ====== ======
</TABLE>
Revenues and operating income from Hughes Division land sales for 1996 include
$90.4 million and $14 million, respectively, relating to Summerlin and $8
million and $.3 million, respectively, relating to other land holdings. The cost
of sales for land acquired in the purchase of Hughes is relatively high as a
percentage of revenues as the land sold consists primarily of inventory on which
development was completed or in progress at the date of acquisition. Cost of
sales for land acquired in the purchase of Hughes is expected to be lower as a
percentage of revenues in future periods as the inventory of land on which
development was completed or in progress at the date of acquisition is depleted.
Revenues from land sales in Columbia increased $6.1 million in 1996 and
decreased $1.8 million in 1995. The increase in 1996 was due primarily to higher
sales of land for commercial/other uses, partially offset by lower sales of
residential land. The decrease in 1995 was due primarily to lower sales of land
for commercial/other uses.
Columbia and other land sales costs and expenses increased $6.6 million in
1996 and decreased $2.1 million in 1995. These changes were attributable
primarily to the changes in land sales revenues referred to above.
DEVELOPMENT: Development expenses were $5.3 million in 1996, $7.6 million in
1995 and $7 million in 1994. These costs consist primarily of additions to the
preconstruction reserve and new business costs.
The preconstruction reserve is determined on a project-by-project basis and is
maintained to provide for costs of projects in the preconstruction phase of
development, including retail center renovation and expansion opportunities,
which may not go forward to completion. Additions to the preconstruction reserve
were $2.7 million in 1996, $3.8 million in 1995 and $3.4 million in 1994. New
business costs relate primarily to the initial evaluation of potential
acquisition and development opportunities. These costs were $1.8 million in
1996, $3.5 million in 1995 and $3.1 million in 1994. The decrease in
preconstruction reserve additions in 1996 was due to the progress of several
significant projects. The decrease in new business costs in 1996 was
attributable to the Company's focus on the Hughes acquisition which deferred
evaluation of other opportunities, particularly during the first half of 1996.
The increases in preconstruction reserve additions and new business costs in
1995 were attributable to the Company's more active pursuit of potential
development and acquisition opportunities.
CORPORATE: Corporate revenues consist primarily of interest income earned on
temporary investments, including investments of unallocated proceeds from
refinancings of certain properties. Corporate interest income was $3.5 million
in 1996, $2.8 million in 1995 and $2.9 million in 1994. The changes in income in
1996 and 1995 were attributable primarily to changes in the average investment
balances.
Corporate expenses consist of certain interest and operating expenses, as
discussed below, reduced by costs capitalized or allocated to other business
segments. Interest is capitalized on corporate funds invested in projects under
development, and interest on corporate borrowings and distributions on the
Company-obligated mandatorily redeemable preferred securities which are used for
other segments are allocated to those segments. Accordingly, corporate interest
expense consists primarily of interest on the convertible subordinated
debentures, the unsecured 8.5% notes and unallocated proceeds from refinancings
of certain prop-
55
<PAGE>
erties, net of interest capitalized on development projects or allocated to
other segments, and corporate operating expenses consist primarily of general
and administrative costs and distributions on the redeemable preferred
securities, net of distributions allocated to other segments.
Corporate interest costs were $18 million in 1996, $14 million in 1995 and
$13.9 million in 1994. Of such amounts, $5.4 million, $3.7 million and $2.6
million were capitalized in 1996, 1995 and 1994, respectively, on funds invested
in development projects. The increase in corporate interest costs in 1996 was
attributable primarily to a higher level of credit line borrowings for
development projects and for other corporate purposes. The higher level of
interest capitalized in 1996 and 1995 reflects the higher level of corporate
funds invested in projects under development.
GAIN (LOSS) ON DISPOSITIONS OF ASSETS AND OTHER PROVISIONS, NET: The loss on
dispositions of assets and other provisions, net, for 1996 consisted primarily
of provisions for losses totaling $25.9 million recognized on five retail
centers the Company decided to sell. These losses were partially offset by the
reversal of a portion of the provision recorded in 1995 for the litigation
matter discussed in note 17 to the consolidated financial statements.
The loss on dispositions of assets and other provisions, net, for 1995
consisted primarily of a provision for loss of $12.3 million on a litigation
judgment involving a former tenant as discussed in note 17 to the consolidated
financial statements and provisions for losses totaling $15.6 million recognized
on retail centers the Company decided to sell. These losses were partially
offset by a gain of $2.4 million on disposition of a retail center.
The loss on dispositions of assets and other provisions, net, for 1994
consisted primarily of losses totaling $8 million incurred on dispositions of
interests in two retail centers, a hotel and an office building and a provision
for loss of $2.2 million on an industrial building. These losses were partially
offset by a gain of $2.8 million on disposition of an interest in a retail
center.
EXTRAORDINARY LOSSES, NET OF RELATED INCOME TAX BENEFITS: The extraordinary
losses in 1996, 1995 and 1994 resulted from early extinguishments or required
partial early redemptions of debt and aggregated $2.2 million, $13.3 million and
$6.8 million, respectively, less deferred income tax benefits of $.8 million,
$4.6 million and $2.4 million, respectively.
NET EARNINGS (LOSS): The Company had net earnings of $16.4 million in 1996, a
net loss of $2.8 million in 1995 and net earnings of $2.2 million in 1994. The
Company's operating income (after depreciation and amortization) was $59.5
million in 1996, $35.9 million in 1995 and $21.3 million in 1994. The
improvements in operating income in 1996 and 1995 were due primarily to the
factors described above. Net earnings (loss) for each year was affected by
unusual and/or nonrecurring items. The most significant of these are the items
discussed above in gain (loss) on dispositions of assets and other provisions,
net, and extraordinary losses, net of related income tax benefits. Net earnings
(loss) was also affected by income taxes. The Company's effective tax rate was
58.9% in 1996, 42.5% in 1995 and 50.5% in 1994. The effective rate is higher in
1996, primarily because a portion of the distributions payable to the former
Hughes owners (or their successors) under the Contingent Stock Agreement is not
deductible for income tax purposes.
EARNINGS BEFORE DEPRECIATION AND DEFERRED TAXES: The Company uses a supplemental
performance measure along with net earnings (loss) to report its operating
results. This measure, referred to as Earnings Before Depreciation and Deferred
Taxes (EBDT), is not a measure of operating results or cash flows from operating
activities as defined by generally accepted accounting principles. Additionally,
EBDT is not necessarily indicative of cash available to fund cash needs and
should not be considered as an alternative to cash flows as a measure of
liquidity. However, the Company believes that EBDT provides relevant information
about its operations and is necessary, along with net earnings (loss), for an
understanding of its operating results.
Depreciation and amortization are excluded from EBDT because, as shown in the
current value basis balance sheets, the Company's portfolio of operating
properties is worth substantially more than its undepreciated historical cost.
Deferred income taxes are excluded
56
<PAGE>
from EBDT because payments of income taxes have not been significant and are
not anticipated to become significant in the near term. Current Federal and
state income taxes are included as reductions of EBDT. Gain (loss) on
dispositions of assets and other provisions, net, and extraordinary losses, net
of related income tax benefits, represent unusual and/or nonrecurring items and
are therefore excluded from EBDT. EBDT is reconciled to net earnings (loss) in
the Five Year Summary of Earnings Before Depreciation and Deferred Taxes from
Operations and Net Earnings (Loss) on page 61.
EBDT was $139.4 million in 1996, $108.4 million in 1995 and $94.7 million in
1994. The increase in EBDT in 1996 was due primarily to the acquisition of
Hughes. The increase in EBDT in 1995 was due primarily to improved results from
the operating properties business segment, particularly retail properties. The
significant changes in revenues and expenses comprising EBDT by segment are
described above.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Management believes that the current values of the Company's assets and
liabilities are the most realistic indicators of the Company's financial
strength and future profitability. Current values of the Company's interests in
operating properties (including interests in unconsolidated real estate
ventures) and land held for development and sale represent the present values of
forecasted net operating cash flows from these properties--the Company's most
significant assets. Since 1976, revaluation equity, the aggregate increment of
current value over cost basis net book value of the Company's assets and
liabilities, has increased at a compound annual rate of 14%. The majority of
revaluation equity relates to larger, major market retail centers which continue
to be a favored real estate investment. Revaluation equity increased $145
million or 10% to $1.64 billion at December 31, 1996. This increase was due
primarily to the current values of properties, particularly land, obtained in
the Hughes acquisition and a decrease in current value deferred income taxes.
The decrease in current value deferred income taxes is principally due to the
effects of implementing certain state income tax planning strategies which are
expected to significantly reduce future state income tax payments. The increase
in revaluation equity for 1996 was partially offset by decreases in current
values of certain retail and other properties due to the effects of competitive
factors in certain markets and continued consolidation in the retail industry.
During 1996, investor yield requirements for all property types remained
substantially unchanged from 1995.
Cost basis shareholders' equity increased to $177.1 million at December 31,
1996 from $42.6 million at December 31, 1995. The increase was due primarily to
the issuance of common stock in the Hughes acquisition and the Company's net
earnings. These increases were partially offset by the payment of regular
quarterly dividends on the common and Preferred stocks. In 1996, substantially
all of the outstanding shares of Series A Preferred stock were converted into
approximately 10.6 million shares of common stock. The conversion had no effect
on shareholders' equity.
The Company had cash and cash equivalents and investments in marketable
securities totaling $47.4 million and $97.8 million at December 31, 1996 and
1995, respectively.
Net cash provided by operating activities was $168.1 million, $107 million and
$113.8 million in 1996, 1995 and 1994, respectively. The changes in cash
provided by operating activities were due primarily to the factors discussed
above in the analysis of operating results. The level of net cash provided by
operating activities is also affected by the timing of receipt of revenues
(including land sales proceeds) and the payment of operating and interest
expenses and land development costs. In particular, net cash provided by
operating activities for 1995 was reduced due to payment of certain pension
obligations and other liabilities.
In 1996 and 1995, over 80% of the Company's debt consisted of mortgages and
bonds collateralized by operating properties. Scheduled principal payments on
property debt were $39 million, $36.4 million and $46.8 million in 1996, 1995
and 1994, respectively. The decreases in 1996 and 1995 from the 1994 level were
due primarily to early repayments of property debt.
57
<PAGE>
The annual maturities of debt for the next five years are as follows (in
millions):
<TABLE>
<CAPTION>
Scheduled Balloon
Payments Payments Total
--------- -------- -------
<S> <C> <C> <C>
1997 $ 49.6 $ 74.9 $124.5
1998 47.4 45.9 93.3
1999 46.5 161.2 207.7
2000 45.2 184.2 229.4
2001 51.5 120.1 171.6
--------- -------- -------
$240.2 $586.3 $826.5
========= ======== =======
</TABLE>
The balloon payments for 1997 include $58.3 million related to two retail
center mortgages due in the second quarter. The Company is in the process of
obtaining securitized mortgage loans to refinance these loans and has received a
commitment from a lender for an interim loan for up to six months pending
completion of the securitized loans. The Company expects to repay the mortgages
at their scheduled maturity date.
The Company has historically relied primarily on fixed rate, nonrecourse loans
from private institutional lenders to finance its operating properties and
expects that it will continue to do so in the future. In recent years, however,
the Company has made greater use of the public capital markets to meet its
capital resource needs. Since 1993, the Company has completed public debt and
equity offerings aggregating over $800 million (including the unused portion of
the medium-term notes and the proceeds of the Series B Convertible Preferred
stock issued in February 1997 described in note 18 to the consolidated financial
statements), the proceeds of which have been or will be used primarily to repay
or refinance corporate and property debt and to provide funds for other
corporate purposes. These transactions were completed on terms which allowed the
Company to reduce its overall cost of capital while restructuring its debt
maturities and increasing its financial flexibility. The Company is continually
evaluating sources of capital, and management believes there are satisfactory
sources available for all requirements without necessitating property sales.
Cash expenditures for properties in development and improvements to existing
properties funded by debt were $124 million, $61.6 million and $78.6 million in
1996, 1995 and 1994, respectively. The increase in these expenditures in 1996
was due to increased project development activity, including approximately $38.5
million relating to the development of office and industrial properties acquired
in the Hughes purchase. A substantial portion of the costs of properties in
development is financed with construction or similar loans and/or borrowings on
revolving lines of credit. Typically, long-term fixed rate debt financing is
arranged concurrently with the construction financing or before completion of
construction. Management also intends to finance certain future development
costs with proceeds from the Series B Convertible Preferred stock issued in
February 1997.
Improvements to existing properties funded by debt consist primarily of costs
of renovation and remerchandising programs and other capital improvement costs.
The Company's share of these costs has been financed primarily from proceeds of
refinancings of the related properties or other properties, credit line
borrowings and a portion of the proceeds of the 8.5% unsecured notes.
Cash expenditures for the acquisition of Hughes were $36.3 million in 1996 and
were financed primarily by credit line borrowings. Cash expenditures for
acquisitions of interests in properties were $18.1 million in 1996, $28.2
million in 1995 and $94.1 million in 1994. These costs were financed primarily
by nonrecourse debt. The acquisitions in 1996 consisted of purchases of
partners' interests in two retail centers, one of which was financed in part by
the seller. The acquisitions in 1995 consisted of purchases of partners'
interests in two retail centers, which were financed in whole or in part by the
sellers, and purchase of a minority interest in a third retail center. The
acquisitions in 1994 consisted primarily of the purchase of land underlying a
retail center and the related equity interest of the former ground lessor.
The Company has available sources of capital in addition to those discussed
above. The Company's equity interests in its operating properties, investment
land and land held for
58
<PAGE>
development and sale and land in development represent a source of funds
either through sales or refinancings. The aggregate equity value of these
interests at December 31, 1996, was approximately $2.84 billion. The Company
also has lines of credit aggregating $248.1 million of which $184.1 million was
available at December 31, 1996. These lines of credit can be used for various
purposes, including land and project development costs, property acquisitions,
liquidity and other corporate needs, subject to specific use limitations and/or
lender approvals in certain cases. In addition, the Company may issue additional
medium-term notes of up to $29.7 million and additional common stock, Preferred
stock and/or debt securities of up to $300 million.
The agreements relating to certain of the lines of credit, the 8.5% unsecured
notes, the medium-term notes and certain other loans impose limitations on the
Company. The most restrictive of these limit the Company's ability to incur
certain types of additional debt if the Company does not maintain specified debt
service coverage ratios. The agreements also impose restrictions on sale, lease
and certain other transactions, subject to various exclusions and limitations.
These restrictions have not limited the Company's normal business activities and
are not expected to do so in the foreseeable future.
IMPACT OF INFLATION
The major portion of the Company's operating properties, its retail centers, is
substantially protected from declines in the purchasing power of the dollar.
Retail leases generally provide for minimum rents plus percentage rents based on
sales over a minimum base. Generally, increases in tenant sales (whether due to
increased unit sales or increased prices from demand or general inflation) will
result in increased rental revenue to the Company. A substantial portion of the
tenant leases (retail and office) also provide for other rents which reimburse
the Company for certain of its operating expenses; consequently, increases in
these costs do not have a significant impact on the Company's operating results.
The Company has a significant amount of debt which, in a period of inflation,
will result in a holding gain since debt will be paid off with dollars having
less purchasing power.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This Annual Report to Shareholders of the Company includes forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties, including those identified below which could
cause actual results to differ materially from historical results or those
anticipated. The words "believe," "expect," "anticipate" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. The following are among the factors that could cause actual
results to differ materially from historical results or those anticipated: (1)
real estate investment risks; (2) development risks; (3) liquidity of real
estate investments; (4) dependence on rental income from real property; (5)
effect of uninsured loss: (6) lack of geographical diversification; (7) possible
environmental liabilities; (8) difficulties of compliance with Americans with
Disabilities Act; (9) competition; and (10) changes in the economic climate.
For a more detailed discussion of these and other factors, see Exhibit 99.2 of
the Company's Form 10-K for the fiscal year ended December 31, 1996.
59
<PAGE>
The Rouse Company and Subsidiaries
FIVE YEAR SUMMARY OF EARNINGS BEFORE DEPRECIATION AND
DEFERRED TAXES FROM OPERATIONS AND NET EARNINGS (LOSS)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Operating properties:
Retail centers:
Minimum and percentage rents $256,880 $245,192 $238,222 $227,140 $210,909
Other rents and other revenues 251,535 246,488 248,253 236,458 217,571
Office, mixed-use and other:
Minimum and percentage rents 106,246 80,319 82,347 81,415 76,302
Other rents and other revenues 75,908 64,647 64,225 62,617 60,335
-------- -------- -------- -------- --------
690,569 636,646 633,047 607,630 565,117
Land sales 137,853 33,403 35,232 35,313 29,137
Corporate interest income 3,495 2,772 2,892 3,862 2,851
-------- -------- -------- -------- --------
831,917 672,821 671,171 646,805 597,105
-------- -------- -------- -------- --------
Operating expenses, exclusive of depreciation
and amortization:
Operating properties:
Retail centers 260,027 246,747 253,095 251,386 241,395
Office, mixed-use and other 89,524 70,096 74,368 76,148 69,589
-------- -------- -------- -------- --------
349,551 316,843 327,463 327,534 310,984
Land sales 107,787 17,827 19,877 19,387 16,330
Development 4,964 7,288 6,494 3,853 4,421
Corporate 9,752 8,920 8,309 6,184 5,927
-------- -------- -------- -------- --------
472,054 350,878 362,143 356,958 337,662
-------- -------- -------- -------- --------
Interest expense:
Operating properties:
Retail centers 129,091 128,215 128,798 124,204 115,744
Office, mixed-use and other 76,659 69,034 67,892 65,601 69,199
-------- -------- -------- -------- --------
205,750 197,249 196,690 189,805 184,943
Land sales 1,658 5,071 5,028 4,093 2,959
Development 361 358 495 495 495
Corporate 12,612 10,285 11,370 16,413 18,412
-------- -------- -------- -------- --------
220,381 212,963 213,583 210,806 206,809
-------- -------- -------- -------- --------
Current income taxes-primarily state 123 620 735 760 352
-------- -------- -------- -------- --------
692,558 564,461 576,461 568,524 544,823
-------- -------- -------- -------- --------
Earnings before depreciation and deferred
taxes from operations $139,359 $108,360 $ 94,710 $ 78,281 $ 52,282
======== ======== ======== ======== ========
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Earnings before depreciation and deferred taxes
from operations by segment:
Operating properties:
Retail centers $119,297 $116,135 $103,978 $ 87,248 $ 70,966
Office, mixed-use other 15,852 5,839 4,273 2,283 (2,127)
-------- -------- -------- -------- --------
135,149 121,974 108,251 89,531 68,839
Land sales 28,404 10,502 10,330 11,833 9,847
Development (5,325) (7,646) (6,989) (4,348) (4,916)
Corporate (18,869) (16,470) (16,882) (18,735) (21,488)
-------- -------- -------- -------- --------
Earnings before depreciation and
deferred taxes from operations $139,359 $108,360 $ 94,710 $ 78,281 $ 52,282
======== ======== ======== ======== ========
Reconciliation to net earnings (loss):
Earnings before depreciation and deferred
taxes from operations $139,359 $108,360 $ 94,710 $ 78,281 $ 52,282
Depreciation and amortization (79,990) (73,062) (74,186) (70,200) (68,163)
Deferred income taxes applicable to operations (25,596) (3,699) (5,995) (3,603) 5,286
Gain(loss) on dispositions of assets and
other provisions, net (15,887) (25,749) (7,923) (5,769) (5,254)
Extraordinary losses, net of related income
tax benefits (1,453) (8,631) (4,447) (8,051) (348)
-------- -------- -------- -------- --------
Net earnings (loss) $ 16,433 $( 2,781) $ 2,159 $ (9,342) $(16,197)
======== ======== ======== ======== ========
</TABLE>
Note: Earnings before depreciation and deferred taxes (EBDT) is not a measure of
operating results or cash flows from operating activities as defined by
generally accepted accounting principles. Additionally, EBDT is not
necessarily indicative of cash available to fund cash needs, including the
payment of dividends and should not be considered as an alternative to cash
flows as a measure of liquidity. See the "Earnings Before Depreciation and
Deferred Taxes" section of Management's Discussion and Analysis of Financial
Condition and Results of Operations on page 56 for a full discussion of EBDT.
61
<PAGE>
PROJECTS OF THE ROUSE COMPANY
<TABLE>
<CAPTION>
RETAIL CENTERS IN OPERATION
DATE OF OPENING RETAIL SQUARE FOOTAGE
CONSOLIDATED CENTERS OR ACQUISITION DEPARTMENT STORES TOTAL CENTER MALL ONLY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Almeda Mall, Houston, TX (a) 10/68 Foley's; JCPenney 802,000 294,000
- ------------------------------------------------------------------------------------------------------------------------------------
Augusta Mall, Augusta, GA (a) 8/78 Rich's; R.H. Macy; JCPenney; Sears 902,000 313,000
- ------------------------------------------------------------------------------------------------------------------------------------
Bayside Marketplace, Miami, FL (b) 4/87 -- 223,000 223,000
- ------------------------------------------------------------------------------------------------------------------------------------
Beachwood Place, Cleveland, OH (a) 8/78 Saks Fifth Avenue; Dillard's 453,000 228,000
- ------------------------------------------------------------------------------------------------------------------------------------
Cherry Hill Mall, Cherry Hill, NJ (a) 10/61 Strawbridge & Clothier, R.H. Macy; JCPenney 1,285,000 544,000
- ------------------------------------------------------------------------------------------------------------------------------------
The Mall in Columbia, Columbia, MD (a) 8/71 Hecht's; Sears; JCPenney 876,000 421,000
- ------------------------------------------------------------------------------------------------------------------------------------
Eastfield Mall, Springfield, MA (a) 4/68 Sears; Filene's; JCPenney 674,000 217,000
- ------------------------------------------------------------------------------------------------------------------------------------
Echelon Mall, Voorhees, NJ (a) 9/70 Strawbridge & Clothier; JCPenney; Boscov's 1,065,000 481,000
- ------------------------------------------------------------------------------------------------------------------------------------
Exton Square, Exton, PA (a) 3/73 Strawbridge & Clothier 443,000 253,000
- ------------------------------------------------------------------------------------------------------------------------------------
Faneuil Hall Marketplace, Boston, MA (a) 8/76 -- 215,000 215,000
- ------------------------------------------------------------------------------------------------------------------------------------
Fashion Show Mall, Las Vegas, NV (b) 6/96 R.H. Macy; Dillard's; Saks Fifth Avenue; 840,000 308,000
Neiman Marcus; Robinson's-May
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Park, Toledo, OH (b) 7/71 Hudson's; JCPenney; Jacobson's; Lion 1,082,000 313,000
- ------------------------------------------------------------------------------------------------------------------------------------
The Gallery at Market East, Philadelphia, PA(a)(c) 8/77 Strawbridge & Clothier; Clover 1,320,000 360,000
- ------------------------------------------------------------------------------------------------------------------------------------
Governor's Square, Tallahassee, FL (b) 8/79 Burdine's; Sears; JCPenney; Dillard's 1,031,000 340,000
- ------------------------------------------------------------------------------------------------------------------------------------
The Grand Avenue, Milwaukee, WI (a) 8/82 Marshall Field; The Boston Store 842,000 242,000
- ------------------------------------------------------------------------------------------------------------------------------------
Greengate Mall, Greensburg, PA (a) 8/65 Lazarus; Montgomery Ward 612,000 233,000
- ------------------------------------------------------------------------------------------------------------------------------------
Harborplace, Baltimore, MD (a) 7/80 -- 136,000 136,000
- ------------------------------------------------------------------------------------------------------------------------------------
Harundale Mall, Glen Burnie, MD (b) 10/58 Value City 309,000 232,000
- ------------------------------------------------------------------------------------------------------------------------------------
Highland Mall, Austin, TX (b) 8/71 Dillard's; JCPenney; Foley's 1,099,000 367,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hulen Mall, Ft. Worth, TX (a) 8/77 Foley's; Montgomery Ward; Dillard's 924,000 327,000
- ------------------------------------------------------------------------------------------------------------------------------------
The Jacksonville Landing, Jacksonville, FL (a) 6/87 -- 128,000 128,000
- ------------------------------------------------------------------------------------------------------------------------------------
Mall St. Matthews, St. Matthews, KY (a) 3/62 JCPenney; Bacon's; Dillard's 1,092,000 353,000
- ------------------------------------------------------------------------------------------------------------------------------------
Midtown Square, Charlotte, NC (a) 10/59 Burlington Coat Factory 235,000 190,000
- ------------------------------------------------------------------------------------------------------------------------------------
Mondawmin (a)/Metro Plaza(b), Baltimore, MD 1/78;12/82 -- 496,000 496,000
- ------------------------------------------------------------------------------------------------------------------------------------
The Shops at National Place, Washington, D.C. (a)(c) 5/84 -- 125,000 125,000
- ------------------------------------------------------------------------------------------------------------------------------------
North Star, San Antonio, TX (b) 9/60 Dillard's; Foley's; Saks Fifth Avenue; 1,288,000 487,000
Marshall Field; Mervyn's
- ------------------------------------------------------------------------------------------------------------------------------------
Northwest Mall, Houston, TX (a) 10/68 Foley's; JCPenney 800,000 292,000
- ------------------------------------------------------------------------------------------------------------------------------------
Oakwood Center, Gretna, LA (a) 10/82 Sears; Dillard's; Mervyn's; Maison Blanche 960,000 362,000
- ------------------------------------------------------------------------------------------------------------------------------------
Owings Mills, Baltimore County, MD (a) 7/86 R.H. Macy; Hecht's 809,000 325,000
- ------------------------------------------------------------------------------------------------------------------------------------
Paramus Park, Paramus, NJ (a) 3/74 R.H. Macy; Sears 755,000 279,000
- ------------------------------------------------------------------------------------------------------------------------------------
Perimeter Mall, Atlanta, GA (b) 8/71 Rich's; JCPenney; R.H. Macy 1,224,000 444,000
- ------------------------------------------------------------------------------------------------------------------------------------
Plymouth Meeting, Plymouth Meeting, PA (a) 2/66 Strawbridge & Clothier; Boscov's 784,000 415,000
- ------------------------------------------------------------------------------------------------------------------------------------
Riverwalk, New Orleans, LA (a) 8/86 -- 179,000 179,000
- ------------------------------------------------------------------------------------------------------------------------------------
St. Louis Union Station, St. Louis, MO (a) 8/85 -- 172,000 172,000
- ------------------------------------------------------------------------------------------------------------------------------------
Salem Mall, Dayton, OH (a) 10/66 Lazarus; Sears; JCPenney 817,000 312,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
RETAIL CENTERS IN OPERATION
- ------------------------------------------------------------------------------------------------------------------------------------
DATE OF OPENING RETAIL SQUARE FOOTAGE
CONSOLIDATED CENTERS OR ACQUISITION DEPARTMENT STORES TOTAL CENTER MALL ONLY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Santa Monica Place, Santa Monica, CA (a) 10/80 The Broadway; Robinson's-May 570,000 287,000
- ------------------------------------------------------------------------------------------------------------------------------------
South Street Seaport, New York, NY (a) 7/83 -- 257,000 257,000
- ------------------------------------------------------------------------------------------------------------------------------------
Tampa Bay Center, Tampa, FL (b) 8/76 Burdine's; Sears; Montgomery Ward 883,000 325,000
- ------------------------------------------------------------------------------------------------------------------------------------
White Marsh, Baltimore County, MD (a) 8/81 R.H. Macy; JCPenney; Hecht's; Sears 1,178,000 359,000
- ------------------------------------------------------------------------------------------------------------------------------------
Willowbrook, Wayne, NJ (b) 9/69 R.H. Macy; Stern's; Sears 1,499,000 485,000
- ------------------------------------------------------------------------------------------------------------------------------------
Woodbridge Center, Woodbridge, NJ (a) 3/71 JCPenney; Stern's; Fortunoff; Sears; Lord 1,544,000 560,000
and Taylor
- ------------------------------------------------------------------------------------------------------------------------------------
Community Centers in Columbia, MD (9) and
Summerlin, NV (1) (a) (b) Various -- 904,000 904,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Consolidated Centers* 31,832,000 13,783,000
- ------------------------------------------------------------------------------------------------------------------------------------
NONCONSOLIDATED/MANAGED CENTERS
- ------------------------------------------------------------------------------------------------------------------------------------
Burlington Center, Burlington, NJ (d) 8/82 Strawbridge & Clothier; Sears; JC Penney 669,000 246,000
- ------------------------------------------------------------------------------------------------------------------------------------
The Citadel, Colorado Springs, CO (d) 8/80 Mervyn's; JCPenny; Foley's; Dillard's 1,128,000 460,000
- ------------------------------------------------------------------------------------------------------------------------------------
College Square, Cedar Falls, IA (d) 8/80 Von Maur; Younkers; Wal-Mart 560,000 313,000
- ------------------------------------------------------------------------------------------------------------------------------------
Collin Creek Mall, Plano, TX (d) 9/95 Dillard's; Foley's; Sears; JCPenney;
Mervyn's 1,123,000 333,000
- ------------------------------------------------------------------------------------------------------------------------------------
Marshall Town Center, Marshalltown, IA (d) 8/80 JCPenney; Younkers; Menard's; Stage 340,000 141,000
- ------------------------------------------------------------------------------------------------------------------------------------
Muscatine Mall, Muscatine, IA (d) 8/80 JCPenney; Wal-Mart 347,000 178,000
- ------------------------------------------------------------------------------------------------------------------------------------
North Grand, Ames, IA (d) 8/80 JCPenney; Sears; Younkers 350,000 157,000
- ------------------------------------------------------------------------------------------------------------------------------------
Northwest Arkansas Mall, Fayetteville, AR (d) 8/80 JCPenney; Sears; Dillard's 814,000 242,000
- ------------------------------------------------------------------------------------------------------------------------------------
Randhurst, Mt. Prospect, IL (d) 7/81 Carson, Pirie, Scott; JCPenney; Montgomery 1,324,000 591,000
Ward; Kohls
- ------------------------------------------------------------------------------------------------------------------------------------
Ridgedale Center, Minnetonka, MN (d) 1/89 Dayton's; JCPenney; Sears 1,039,000 334,000
- ------------------------------------------------------------------------------------------------------------------------------------
Salem Centre, Salem, OR (d) 6/90 Meier & Frank; JCPenney; Mervyn's; Nordstrom 649,000 211,000
- ------------------------------------------------------------------------------------------------------------------------------------
Sherway Gardens, Toronto, ONT (c) 12/78 Eaton's; The Bay 968,000 524,000
- ------------------------------------------------------------------------------------------------------------------------------------
Southland, Taylor, MI (d) 1/89 Hudson's; Mervyn's; JCPenney 903,000 320,000
- ------------------------------------------------------------------------------------------------------------------------------------
Staten Island Mall, Staten Island, NY (d) 11/80 Sears; R.H. Macy; JCPenney 1,224,000 618,000
- ------------------------------------------------------------------------------------------------------------------------------------
Town and Country Center, Miami, FL (c) 2/88 Sears; Marshalls; Mervyn's 645,000 467,000
- ------------------------------------------------------------------------------------------------------------------------------------
Westland Mall, West Burlington, IA (d) 8/80 JCPenney; Younkers 344,000 175,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Nonconsolidated/Managed Centers 12,427,000 5,310,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Retail Centers in Operation* 44,259,000 19,093,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not including 1,301,000 square feet and 636,000 square feet, respectively, of
Total Center and Mall Only space in five mixed-use properties listed on the
following page.
65
<PAGE>
<TABLE>
<CAPTION>
OFFICE, MIXED-USE AND OTHER PROPERTIES IN OPERATION
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED MIXED-USE PROPERTIES LOCATION SQUARE FEET
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Arizona Center (a) Phoenix, AZ
The Shops at Arizona Center 151,000
One Arizona Center Office Tower 330,000
Two Arizona Center Office Tower 449,000
- ------------------------------------------------------------------------------------------------------------------------------------
The Gallery at Harborplace (a) Baltimore, MD
The Gallery at Harborplace 139,000
Office Tower 265,000
Renaissance Hotel 622 rooms
- ------------------------------------------------------------------------------------------------------------------------------------
Pioneer Place (a) Portland, OR
Saks Fifth Avenue 60,000
Retail Pavillion 160,000
Office Tower 283,000
- ------------------------------------------------------------------------------------------------------------------------------------
Village of Cross Keys (a) Baltimore, MD
Village Shops 68,000
Village Square Offices 79,000
Quadrangle Offices 110,000
Cross Keys Inn 148 rooms
- ------------------------------------------------------------------------------------------------------------------------------------
Westlake Center (a) Seattle, WA
Nordstrom and Bon Marche 605,000
Retail Pavillion 118,000
Office Tower 342,000
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED OFFICE AND OTHER PROPERTIES
- ------------------------------------------------------------------------------------------------------------------------------------
Columbia Office and Industrial (14 buildings) (a) Columbia, MD 2,432,000
- ------------------------------------------------------------------------------------------------------------------------------------
Columbia Inn (a) Columbia, MD 289 rooms
- ------------------------------------------------------------------------------------------------------------------------------------
Hughes Center (10 buildings) (a) Las Vegas, NV 774,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hughes Airport Center (27 buildings) (a) Las Vegas, NV 1,453,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hughes Cheyenne Center (2 buildings) (a) Las Vegas, NV 267,000
- ------------------------------------------------------------------------------------------------------------------------------------
Summerlin Commercial (9 buildings) (a) Summerlin, NV 432,000
- ------------------------------------------------------------------------------------------------------------------------------------
Howard Hughes Center (2 buildings) (a) Los Angeles, CA 141,000
- ------------------------------------------------------------------------------------------------------------------------------------
Lucky's Center (3 buildings) (a) Los Angeles, CA 142,000
- ------------------------------------------------------------------------------------------------------------------------------------
Owings Mills Town Center (4 buildings) (b) Baltimore County, MD 728,000
- ------------------------------------------------------------------------------------------------------------------------------------
Other Office Projects (4 buildings) (a) Various 284,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Consolidated Office, Mixed-Use and
Other Properties** 9,812,000
- ------------------------------------------------------------------------------------------------------------------------------------
NONCONSOLIDATED/MANAGED OFFICE, MIXED-USE AND
OTHER PROPERTIES
- ------------------------------------------------------------------------------------------------------------------------------------
Properties owned by Rouse-Teachers Properties, Inc. (d) Baltimore-Washington Corridor 4,608,000
(29 buildings)
- ------------------------------------------------------------------------------------------------------------------------------------
300 East Lombard (d) Baltimore, MD 233,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Nonconsolidated/Managed Office, Mixed-Use
and Other Properties 4,841,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Office, Mixed-Use and Other
Properties in Operation** 14,653,000
- ------------------------------------------------------------------------------------------------------------------------------------
** Including 1,301,000 square feet of department store and retail
space in the mixed-use properties.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
RETAIL CENTERS UNDER CONSTRUCTION RETAIL SQUARE FOOTAGE
OR IN DEVELOPMENT DEPARTMENT STORES TOTAL CENTER MALL ONLY
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Marketplace at Oviedo Crossing, Orlando, FL Dillard's, Gayfer's 700,000 300,000
- ------------------------------------------------------------------------------------------------------------------------------
Beachwood Place Expansion, Cleveland, OH Nordstrom 462,000 120,000
- ------------------------------------------------------------------------------------------------------------------------------
Northwest Arkansas Mall Expansion, Fayetteville, AR -- 35,000 35,000
- ------------------------------------------------------------------------------------------------------------------------------
Oakwood Center Expansion, Gretna, LA JCPenney 125,000 --
- ------------------------------------------------------------------------------------------------------------------------------
Plymouth Meeting Expansion, Plymouth Meeting, PA -- 48,000 48,000
- ------------------------------------------------------------------------------------------------------------------------------
Perimeter Mall Expansion, Atlanta, GA Nordstrom 240,000 15,000
- ------------------------------------------------------------------------------------------------------------------------------
The Mall In Columbia Expansion, Columbia, MD Nordstrom 220,000 50,000
- ------------------------------------------------------------------------------------------------------------------------------
Augusta Mall Expansion, August, GA J.B. White 160,000 --
- ------------------------------------------------------------------------------------------------------------------------------
Echelon Mall Expansion, Vorhees, NJ Sears 140,000 --
- ------------------------------------------------------------------------------------------------------------------------------
Exton Square Expansion, Exton, PA Boscov's, JCPenny, Sears 555,000 110,000
- ------------------------------------------------------------------------------------------------------------------------------
Owings Mills Expansion, Baltimore County, MD Sears 120,000 --
- ------------------------------------------------------------------------------------------------------------------------------
River Hill Village Center, Columbia, MD -- 94,000 94,000
- ------------------------------------------------------------------------------------------------------------------------------
The Village Center at The Trails, Summerlin, NV -- 175,000 175,000
- ------------------------------------------------------------------------------------------------------------------------------
Fairwood Village Center, Fairwood, MD -- 80,000 80,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Retail Centers Under Construction or
in Development 3,154,000 1,027,000
- ------------------------------------------------------------------------------------------------------------------------------
OFFICE, MIXED-USE AND OTHER PROPERTIES UNDER
CONSTRUCTION OR IN DEVELOPMENT TYPE OF SPACE SQUARE FEET
- ------------------------------------------------------------------------------------------------------------------------------
Pioneer Place Expansion, Portland, OR Retail 150,000
- ------------------------------------------------------------------------------------------------------------------------------
Hughes Center (2 buildings), Las Vegas, NV Office 99,000
- ------------------------------------------------------------------------------------------------------------------------------
Hughes Airport Center (3 buildings), Las Vegas, NV Industrial 149,000
- ------------------------------------------------------------------------------------------------------------------------------
Hughes Cheyenne Center (1 building), Las Vegas, NV Industrial 110,000
- ------------------------------------------------------------------------------------------------------------------------------
Summerlin Commercial (2 buildings), Summerlin, NV Office 179,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Office, Mixed-Use and Other Properties
Under Construction or in Development 687,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(a) Projects are wholly-owned by subsidiaries of the Company.
(b) Projects are owned by joint ventures or partnerships and are managed by
subsidiaries of the Company for a fee. The Company's ownership interest,
through its subsidiaries, is at least 50% (except for North Star and
Willowbrook in which the Company has 37 1/2% interests).
(c) Projects are managed by subsidiaries of the Company for a fee plus a share
of cash flow.
(d) Projects are owned by partnerships or wholly-owned (Burlington Center,
Randhurst and Staten Island) by subsidiaries of the Company and are managed
by subsidiaries of the Company for a fee plus a share of cash flow and a
share of proceeds from sales or refinancings. The Company's ownership
interest in the partnerships is less than 20%, except for Collin Creek Mall
in which the Company has a 30% interest.
67
<PAGE>
EXHIBT 21. Subsidiaries of the Registrant.
The Registrant had no parent at December 31, 1996.
As of December 31, 1996, the Registrant owned 100% of the voting securities of
the following domestic and foreign subsidiaries included in the consolidated
financial statements:
State of
Subsidiary Incorporation
---------- -------------
Directly owned subsidiaries of the Company. All
shares are Common Stock unless otherwise noted.
American City Corporation, The Maryland
Baltimore Center, Inc. Maryland
Beachwood Property Holdings, Inc. Maryland
Charlottetown, Inc. Maryland
Charlottetown North, Inc. Maryland
Community Research and Development, Inc. Maryland
Cuyahoga Land Company, Inc. Maryland
Exton Acquisition, Inc. Pennsylvania
Exton Shopping, Inc. Maryland
Exton Square, Inc. Pennsylvania
Four Owings Mills Corporate Center, Inc. Maryland
Gallery Maintenance, Inc. (Note 1) Maryland
Gallery II Trustee, Inc. Maryland
Harbor Overlook Investments, Inc. Maryland
Harborplace, Inc. (Note 2) Maryland
Harborplace Management Corporation Maryland
Harundale Mall, Inc. Maryland
Hermes Incorporated Maryland
Howard Research And Development
Corporation, The (Note 3) Maryland
The Hughes Corporation (Note 4) Delaware
Huntington Properties, Inc. (Note 5) Maryland
It's Showtime of Maryland, Inc. Maryland
Kalimba Marketplace, Inc. Maryland
Louisville Shopping Center, Inc. Kentucky
Mondawmin Corporation Maryland
O. M. Guaranty, Inc. Maryland
O. M. Land Development, Inc. Maryland
O. M. Mall Corporation Maryland
O. M. Management Company, Inc. Maryland
One Owings Mills Corporate Center, Inc. Maryland
<PAGE>
Owings Mills Finance Corporation Maryland
Plymouth Meeting Food Court, Inc. Maryland
Plymouth Meeting Mall, Inc. (Note 6) Pennsylvania
PT Funding, Inc. Maryland
Rouse-Brandywood, Inc. Maryland
Rouse-Camden Warehouse, Inc. Maryland
Rouse Capital (Note 7) Delaware
Rouse-Columbus, Inc. Maryland
Rouse-Commerce, Inc. Maryland
Rouse Company at Owings Mills, The Maryland
Rouse Company Financial Services, Inc., The Maryland
Rouse Company of Alabama, Inc., The Alabama
Rouse Company of Alaska, Inc., The Maryland
Rouse Company of Arkansas, Inc., The Maryland
Rouse Company of California, Inc., The (Note 8) Maryland
Rouse Company of Colorado, Inc., The (Note 9) Maryland
Rouse Company of Connecticut, Inc., The (Note 10) Connecticut
Rouse Company of Florida, Inc., The (Note 11) Florida
Rouse Company of Georgia, Inc., The (Note 12) Georgia
Rouse Company of Idaho, Inc., The Maryland
Rouse Company of Illinois, Inc., The Maryland
Rouse Company of Iowa, Inc., The (Note 13) Maryland
Rouse Company of Kentucky, Inc., The Maryland
Rouse Company of Louisiana, The (Note 14) Maryland
Rouse Company of Maine, Inc., The Maryland
Rouse Company of Massachusetts, Inc., The
(Note 15) Maryland
Rouse Company of Michigan, Inc., The (Note 16) Maryland
Rouse Company of Minnesota, Inc., The (Note 17) Maryland
Rouse Company of Mississippi, Inc., The Maryland
Rouse Company of Montana, Inc., The Maryland
Rouse Company of Nevada, Inc., The (Note 18) Nevada
Rouse Company of New Hampshire, Inc., The Maryland
Rouse Company of New Jersey, Inc., The (Note 19) New Jersey
Rouse Company of New Mexico, Inc., The Maryland
Rouse Company of New York, Inc., The (Note 20) New York
Rouse Company of North Carolina, Inc., The
(Note 21) Maryland
Rouse Company of North Dakota, Inc., The Maryland
Rouse Company of Ohio, Inc., The (Note 22) Ohio
Rouse Company of Oklahoma, Inc., The Maryland
Rouse Company of Oregon, Inc., The (Note 23) Maryland
Rouse Company of Pennsylvania, Inc., The (Note 24) Pennsylvania
<PAGE>
Rouse Company of Rhode Island, Inc., The Maryland
Rouse Company of South Carolina, Inc., The
(Note 25) Maryland
Rouse Company of South Dakota, Inc., The Maryland
Rouse Company of Tennessee, Inc., The Maryland
Rouse Company of Texas, Inc., The (Note 26) Texas
Rouse Company of the District of Columbia, The Maryland
Rouse Company of Utah, Inc., The Maryland
Rouse Company of Vermont, Inc., The Maryland
Rouse Company of Virginia, Inc., The (Note 27) Maryland
Rouse Company of Washington, Inc., The (Note 28) Maryland
Rouse Company of West Virginia, Inc., The Maryland
Rouse Company of Wisconsin, Inc., The Maryland
Rouse Company of Wyoming, Inc., The Maryland
Rouse-Consulting, Inc. Maryland
Rouse Credit Corporation Maryland
Rouse Development Company of California, Inc.,
The Maryland
Rouse Event Marketing, Inc. Maryland
Rouse-Fairwood Development Corporation Maryland
Rouse Fashion Show Management, Inc. Maryland
Rouse Gallery II Management, Inc. Maryland
Rouse-Hagerstown, Inc. Maryland
Rouse-Harford County, Inc. Maryland
Rouse Holding Company, The Maryland
Rouse Holding Company of Arizona, Inc., The
(Note 29) Maryland
Rouse-Inglewood, Inc. Maryland
Rouse Investing Company (Note 30) Maryland
Rouse Management, Inc. Maryland
Rouse Management Services Corporation Maryland
Rouse Management Services Corporation of
Arkansas, Inc. Maryland
Rouse Management Services Corporation
of Louisiana, Inc. Maryland
Rouse Metro Plaza, Inc. Maryland
Rouse-Metro Shopping Center, Inc. Maryland
Rouse-Milwaukee, Inc. Maryland
Rouse-Milwaukee Garage
Maintenance, Inc. Maryland
Rouse Missouri Holding Company
(Note 31) Maryland
Rouse-Oakwood Shopping Center, Inc. Maryland
Rouse-Oakwood Two, Inc. Maryland
Rouse Office Management, Inc. Maryland
Rouse Office Management of Pennsylvania, Inc. Maryland
Rouse-Owings Mills, Inc. Maryland
<PAGE>
Rouse Owings Mills Management Corporation Maryland
Rouse Philadelphia, Inc. Maryland
Rouse Philadelphia Three, Inc. Maryland
Rouse-Phoenix Cinema, Inc. Maryland
Rouse-Randhurst Shopping Center, Inc. Maryland
Rouse-Santa Monica, Inc. Delaware
Rouse Service Company, The Maryland
Rouse SI Shopping Center, Inc. Maryland
Rouse Tristate Venture, Inc. Texas
Rouse Venture Capital, Inc. Maryland
Rouse-Wates, Incorporated (Note 32) Delaware
RREF Holding, Inc. (Note 33) Texas
Salem Mall, Incorporated Maryland
Santa Monica Place, Inc. Maryland
Saratoga Equipment Corporation, The Maryland
Six Owings Mills Corporate Center, Inc. Maryland
SMPL Management, Inc. Maryland
Three Owings Mills Corporate Center, Inc. Maryland
TRC Central, Inc. Maryland
TRCD, Inc. (Note 34) Delaware
TRC Holding Company of Washington, D.C. (Note 35) Maryland
TRC Property Management, Inc. Maryland
Two Owings Mills Corporate Center, Inc. Maryland
White Marsh Equities Corporation Maryland
Foreign subsidiaries:
Rouse Service (Canada) Limited Canada
Notes:
1. Gallery Maintenance, Inc. owns all of the outstanding capital stock of Rouse
Gallery Management, Inc., a Maryland corporation.
2. Harborplace, Inc. owns all of the outstanding Series A Preferred Stock of RFT
One, Inc., a Delaware corporation.
3. The Howard Research And Development Corporation owns all of the outstanding
capital stock of the following Maryland corporations:
Columbia Crossing, Inc.
Columbia Development Corporation, The
Columbia Gateway, Inc.
Columbia Management, Inc.
Columbia Town Homes Investor, Inc.
<PAGE>
Dorsey's Search Village Center, Inc.
ExecuCentre, Inc., The
Fifty Columbia Corporate Center, Inc.
Forty Columbia Corporate Center, Inc.
Gateway Retail Center, Inc.
GEAPE II, Inc.
Hickory Ridge Village Center, Inc.
Hickory Heights Investor, Inc.
HRD Parking, Inc.
King's Contrivance Village Center, Inc.
Lakefront North Parking, Inc.
Oakland Ridge Commercial, Inc.
Oakland Ridge Industrial Development Corporation
Pointer's Run Buildings Group, Inc.
Rouse-River Hill Village Center, Inc.
The Columbia Development Corporation owns all of the outstanding capital
stock of each of the following Maryland corporations:
Dobbin Road Commercial, Inc.
Guilford Industrial Center, Inc.
Rouse Hotel Management, Inc.
GEAPE II, Inc. owns all of the outstanding capital stock of
GEAPE III, Inc., a Maryland corporation.
4. The Hughes Corporation owns all of the outstanding capital stock of The
Howard Hughes Corporation, a Delaware corporation, and Howard Hughes Realty,
Inc., a Nevada corporation. The Howard Hughes Corporation owns all of the
outstanding capital of the following corporations:
HHC LP Corp., a Delaware corporation
HHP-California Corporation, a Nevada corporation
HHP Merger Corporation, a Delaware corporation
H-Tex, Incorporated, a Texas corporation
Summa Corporation, a Delaware corporation
Summerlin Corporation, a Delaware corporation
5. Huntington Properties, Inc. owns all of the outstanding capital stock of
Huntington Realty Interests, Ltd., a Maryland corporation. Huntington Realty
Interests, Ltd. owns all of the outstanding capital stock of the following
Maryland corporations:
HRIL, Inc.
Huntington Capital Investors, Ltd.
Regency-Huntington, Inc.
<PAGE>
6. Plymouth Meeting Mall, Inc. owns all of the outstanding common stock of 1150
Plymouth Associates, Inc., a Maryland corporation, and all of the outstanding
Series A Preferred Stock of RFT Five, Inc., a Delaware corporation.
7. Rouse Capital is a statutory business trust formed under Delaware law. All of
the Common Securities of Rouse Capital are owned by the Company. The
Preferred Securities of Rouse Capital were sold in a public registered
offering in 1995.
8. The Rouse Company of California, Inc. owns all of the
outstanding capital stock of each of the following Maryland corporations:
Rouse-Canyon Springs, Inc.
Rouse-Irvine, Inc.
Rouse-Oakland, Inc.
Rouse-Palm Springs II, Inc.
Rouse-Sacramento, Inc.
9. The Rouse Company of Colorado, Inc. owns all of the outstanding capital stock
of each of the following Maryland corporations:
Rouse Management Services Corporation of Colorado, Inc.
Rouse-Tabor Center, Inc.
10. The Rouse Company of Connecticut, Inc. owns all of the outstanding capital
stock of each of the following Maryland corporations:
Rouse Chapel Square, Inc.
Rouse Chapel Square Finance, Inc.
Rouse New Haven Parking Management, Inc.
Rouse New Haven Shopping Center, Inc
11. The Rouse Company of Florida, Inc. owns all of the outstanding common stock
of each of the following corporations:
Bayside Entertainment Company, a Maryland corporation
Governor's Square, Inc., a Florida corporation
Howard Retail Investment Corporation, a Maryland corporation
New River Center, Inc., a Florida corporation
Rouse-Bayside, Inc., a Maryland corporation
Rouse-Coral Gables, Inc., a Maryland corporation
Rouse-Fort Myers, Inc., a Maryland corporation
Rouse-Jacksonville, Inc., a Maryland corporation
Rouse Kendall Management Corporation, a Maryland corporation
Rouse-Marina, Inc., a Maryland corporation
Rouse-Miami, Inc., a Maryland corporation
Rouse Office Management of Florida, Inc., a Maryland corporation
<PAGE>
Rouse-Orlando, Inc., a Maryland corporation
Rouse Retail Management - Bayside, Inc., a Maryland corporation
Rouse-Sunrise, Inc., a Maryland corporation
Rouse-Tampa, Inc., a Florida corporation
Rouse-West Dade, Inc., a Maryland corporation
Rouse-Tampa, Inc. owns all of the outstanding Series A Preferred Stock of RFT
Four, Inc., a Delaware corporation.
12. The Rouse Company of Georgia, Inc. owns all of the outstanding capital
stock of each of the following Maryland corporations:
Augusta Mall, Inc.
Outlet Square of Atlanta, Inc.
Perimeter Center, Inc.
Perimeter Mall, Inc.
Perimeter Mall Management Corporation
Rouse-Atlanta, Inc.
Rouse Columbus Square, Inc.
Rouse Columbus Square Management Corporation
Rouse South DeKalb, Inc.
South DeKalb Mall Management Corporation
13. The Rouse Company of Iowa, Inc. owns all of the outstanding capital stock of
each of the following Maryland corporations:
Rouse Management Services Corporation of Iowa, Inc.
Rouse Management Services Corporation Two of Iowa, Inc.
14. The Rouse Company of Louisiana owns all of the outstanding
capital stock of each of the following Maryland corporations:
Riverwalk Operating Company, Inc.
Rouse-New Orleans, Inc.
15. The Rouse Company of Massachusetts, Inc. owns all of the outstanding
capital stock of each of the following Maryland corporations:
Eastfield Mall, Incorporated
Faneuil Hall Marketplace, Inc.
Marketplace Grasshopper, Inc.
16. The Rouse Company of Michigan, Inc. owns all of the outstanding capital
stock of each of the following Maryland corporations:
Rouse Southland, Inc.
Rouse Southland Management Corporation
Southland Security, Inc.
Southland Shopping Center, Inc.
<PAGE>
17. The Rouse Company of Minnesota, Inc. owns all of the outstanding capital
stock of each of the following Maryland corporations:
Ridgedale Shopping Center, Inc.
Rouse-Maple Grove, Inc.
Rouse Ridgedale, Inc.
Rouse Ridgedale Management Corporation
18. The Rouse Company of Nevada, Inc. owns all of the outstanding capital stock
of each of the following entities:
Cherry Hill Center, Inc., a Maryland corporation
Columbia Mall, Inc., a Maryland corporation
Echelon Holding Company, Inc., a Delaware corporation
Echelon Mall, Inc., a Maryland corporation
Harborplace, Inc., a Maryland corporation
One Willow Corporation, a Delaware corporation
Paramus Equities, Inc., a Texas corporation
Paramus Park, Inc., a Maryland corporation
Rouse Fashion Show, Inc., a Nevada corporation
Two Willow Corporation, a Delaware corporation
The Village of Cross Keys, Incorporated, a Maryland corporation
White Marsh Mall, Inc., a Maryland corporation
Woodbridge Center, Inc., a Maryland corporation
Columbia Mall, Inc. owns all of the outstanding capital stock of Seventy
Columbia Corporate Center, Inc., a Maryland corporation.
Paramus Park, Inc. owns all of the outstanding Series A Preferred Stock of RFT
Two, Inc., a Delaware corporation.
The Village of Cross Keys, Incorporated owns all of the outstanding capital
stock of The Roost, Inc., a Maryland corporation.
19.The Rouse Company of New Jersey, Inc. owns all of the outstanding Series A
Preferred Stock of Rouse Woodbridge Funding, Inc., a Delaware corporation, and
all of the outstanding common stock of each of the following Maryland
corporations:
Echelon Urban Center, Inc.
Paramus Equities II, Inc.
Paramus Mall Management Company, Inc.
Rouse-Atlantic Gateway, Inc.
Rouse-Burlington, Inc.
Rouse-Echelon, Inc.
The Willowbrook Corporation
Willmall Holdings, Inc.
Willowbrook Management Corporation
<PAGE>
20. The Rouse Company of New York, Inc. owns all of the outstanding capital
stock of each of the following Maryland corporations:
DM Shopping Center, Inc.
Rouse-Seaport Retail Venture, Inc.
Rouse SI Shopping Management, Inc.
Seaport Marketplace, Inc.
Seaport Marketplace Theatre, Inc.
Seaport Theatre Management Corporation
21. The Rouse Company of North Carolina, Inc. owns all of the outstanding
capital stock of each of the following Maryland corporations:
Rouse-Charlotte, Inc.
Rouse-Durham, Inc.
Rouse Office Management of North Carolina, Inc.
22. The Rouse Company of Ohio, Inc. owns all of the outstanding common
stock of each of the following corporations:
Beachwood Place, Inc., a Maryland corporation
Cuyahoga Development Corporation, a Maryland corporation
Franklin Park Mall, Inc., a Maryland corporation
Franklin Park Mall Management Corporation, a Maryland corporation
Plaza Holding Corporation, an Ohio corporation
Beachwood Place, Inc. owns all of the outstanding Series A Preferred Stock of
RFT Three, Inc. a Delaware corporation.
Franklin Park Mall, Inc. owns all of the outstanding Series A Preferred Stock of
Rouse Funding Two, Inc. a Delaware corporation.
23. The Rouse Company of Oregon, Inc. owns all of the outstanding capital stock
of each of the following Maryland corporations:
Rouse Office Management of Oregon, Inc.
Rouse-Portland, Inc.
Rouse Salem Centre, Inc.
Rouse Salem Centre Management Corporation
24. The Rouse Company of Pennsylvania, Inc. owns all of the outstanding capital
stock of Whiteland I, Inc. and Whiteland II, Inc., both Maryland corporations.
25. The Rouse Company of South Carolina, Inc. owns all of the outstanding
capital stock of Rouse-Spartanburg, Inc., a Maryland corporation.
26. The Rouse Company of Texas, Inc. owns all of the outstanding capital stock
of each of the following corporations:
Almeda Mall, Inc., a Maryland corporation
AM Management Corporation, a Texas corporation
AU Management Corporation, a Texas corporation
Austin Mall, Inc., a Maryland corporation
Collin Creek, Inc., a Maryland corporation
Collin Creek Mall Management Company, Inc., a Maryland corporation
<PAGE>
DK Management Corporation, a Texas corporation
DK Shopping Center, Inc., a Texas corporation
Greengate Mall, Inc., a Pennsylvania corporation
NC Shopping Center, Inc., a Maryland corporation
North Star Mall, Inc., a Texas corporation
Northwest Mall, Inc., a Maryland corporation
NS Management Corporation, a Texas corporation
NW Management Corporation, a Texas corporation
Rouse-Air Cargo, Inc., a Maryland corporation
Rouse-Air Cargo (DFW), Inc., a Maryland corporation
Rouse-Almeda, Inc., a Maryland corporation
Rouse-Carillon Management Company, Inc., a Maryland corporation
Rouse-Carillon Shopping Center, Inc., a Maryland corporation
Rouse Central Park Shopping Center, Inc., a Maryland corporation
Rouse Fort Worth, Inc., a Maryland corporation
Rouse Holding Company of Texas, Inc., a Texas corporation
Rouse Management Services Corporation of Texas, Inc., a Maryland
corporation
Rouse-Northwest, Inc., a Maryland corporation
Rouse-Southlake, Inc., a Maryland corporation
Rouse-Tarrant, Inc., a Maryland corporation
SDK Mall, Inc., a Texas corporation
South DeKalb Mall, Inc., a Texas corporation
27. The Rouse Company of Virginia, Inc. owns all of the outstanding capital
stock of each of the following Maryland corporations:
Rouse Airport Retail, Inc.
Rouse-Military Circle, Inc.
Rouse-Richmond, Inc.
Rouse-Military Circle, Inc. owns all of the outstanding capital stock of Rouse
Hotel Management of Virginia, Inc., a Maryland corporation.
28. The Rouse Company of Washington, Inc. owns all of the outstanding capital
stock of Rouse-Seattle, Inc., a Maryland corporation.
29. The Rouse Holding Company of Arizona, Inc. owns all of the outstanding
capital stock of each of the following Maryland corporations:
Rouse-Arizona Center, Inc.
Rouse Office Management of Arizona, Inc.
Rouse-Phoenix Development Corporation
Rouse-Phoenix Parking, Inc.
Rouse-Phoenix Parking Two, Inc.
Rouse-Phoenix Two Corporate Center, Inc.
<PAGE>
30. Rouse Investing Company owns all of the outstanding capital stock of each
of the following corporations:
Deerfield Homes, Inc., a Florida corporation
306 Corporation, a Texas corporation
Wilmington Homes, Inc., a North Carolina corporation
Wilmington Homes, Inc. owns all of the outstanding capital stock of Echo Farms
Golf and Country Club, Inc., a North Carolina corporation.
31. Rouse Missouri Holding Company owns all of the outstanding capital stock of
each of the following Maryland corporations:
The Rouse Company of Missouri, Inc.
Rouse Missouri Management Corporation
St. Louis Union Station Beergarten, Inc.
The Rouse Company of Missouri, Inc. owns all of the outstanding capital stock of
The Rouse Company of St. Louis, Inc., a Maryland Corporation.
32. Rouse-Wates, Incorporated owns all of the outstanding capital stock of
each of the following corporations:
Norbury Construction Company, a Delaware corporation
Owen Brown B Development Company, a Maryland corporation
33. RREF Holding, Inc. owns all of the outstanding capital stock of
RII Holding, Inc. a Texas corporation.
Norbury Construction Company, a Delaware corporation
Owen Brown B Development Company, a Maryland corporation
34. TRCD, Inc. owns all of the outstanding common stock of the following
Delaware corporations:
Austin Mall Corporation
Collin Creek Property, Inc.
The Franklin Park Corporation
Mall St. Matthews Corporation
North Star Mall Corporation
One Franklin Park Corporation
One Gallery Corporation
RFT One, Inc.
RFT Two, Inc.
RFT Three, Inc.
RFT Four, Inc.
<PAGE>
RFT Five, Inc.
Rouse Funding Corporation
Rouse Funding Three, Inc.
Rouse Funding Two, Inc.
Rouse-MTN, Inc.
Rouse Woodbridge Funding, Inc.
TRCDE, Inc.
TRCDE Two, Inc.
TRCDF, Inc.
Two Franklin Park Corporation
Two Gallery Corporation
Willowbrook Mall, Inc.
The Franklin Park Corporation owns 50% of the outstanding capital stock of
Franklin Park Finance, Inc., a Delaware corporation. Rodamco U.S.A., Inc. owns
the remaining 50%.
One Gallery Corporation and Two Gallery Corporation each own 50% of the
outstanding shares of Philadelphia Gallery II, a Pennsylvania business trust.
Willowbrook Mall, Inc. owns 37.5% of the outstanding capital stock of
Willowbrook Finance Corporation, a Delaware corporation. Rodamco U.S.A., Inc.
owns the remaining 62.5%.
35.TRC Holding Company of Washington, D.C. owns all of the outstanding capital
stock of Rouse-National Press Management, Inc., a Maryland corporation.
<PAGE>
Exhibit 24. Power of Attorney.
The Power of Attorney, dated February 25, 1997, is attached.
<PAGE>
THE ROUSE COMPANY
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned directors
of THE ROUSE COMPANY, a Maryland corporation, constitute and appoint ANTHONY W.
DEERING, JEFFREY H. DONAHUE and BRUCE I. ROTHSCHILD, or any one of them, the
true and lawful agents and attorneys-in-fact of the undersigned, with full power
of substitution and resubstitution, and with full power and authority (i) to
sign for the undersigned, and in their respective names as officers and
directors of the Company, the Company's Annual Report on Form 10-K that is filed
or to be filed from time to time with the Securities and Exchange Commission,
Washington, D.C., under the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder, and any amendment or amendments to such
Annual Reports on Form 10-K, and (ii) to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all acts taken by such
agents and attorneys-in-fact, as herein authorized.
Dated: February 25, 1997
/s/ David H. Benson (SEAL)
--------------------------
David H. Benson
/s/ Jeremiah E. Casey (SEAL)
--------------------------
Jeremiah E. Casey
<PAGE>
Power of Attorney for Form 10-K
Annual Report
February 25, 1997 /s/ Mathias J. DeVito (SEAL)
--------------------------
Mathias J. DeVito
/s/ Anthony W. Deering (SEAL)
--------------------------
Anthony W. Deering
/s/ Rohit M. Desai (SEAL)
--------------------------
Rohit M. Desai
/s/ Juanita T. James (SEAL)
--------------------------
Juanita T. James
/s/ William R. Lummis (SEAL)
--------------------------
William R. Lummis
/s/ Thomas J. McHugh (SEAL)
--------------------------
Thomas J. McHugh
/s/ Hanne M. Merriman (SEAL)
--------------------------
Hanne M. Merriman
/s/ Roger W. Schipke (SEAL)
--------------------------
Roger W. Schipke
/s/ Alexander B. Trowbridge(SEAL)
--------------------------
Alexander B. Trowbridge
/s/ Gerard J. M. Vlak (SEAL)
--------------------------
Gerard J. M. Vlak
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE IS SUBMITTED IN ACCORDANCE WITH REGULATION S-K ITEM
601(C)(2). THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-K FOR THE ANNUAL PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 43,766
<SECURITIES> 3,596
<RECEIVABLES> 120,522
<ALLOWANCES> (28,153)
<INVENTORY> 0
<CURRENT-ASSETS> 132,816<F1>
<PP&E> 3,868,233
<DEPRECIATION> (552,201)
<TOTAL-ASSETS> 3,643,452
<CURRENT-LIABILITIES> 423,087<F2>
<BONDS> 2,835,246
0
0
<COMMON> 667
<OTHER-SE> 176,482
<TOTAL-LIABILITY-AND-EQUITY> 3,643,452
<SALES> 831,917
<TOTAL-REVENUES> 831,917
<CGS> 0
<TOTAL-COSTS> 548,356
<OTHER-EXPENSES> 15,887
<LOSS-PROVISION> 3,688
<INTEREST-EXPENSE> 220,381
<INCOME-PRETAX> 43,605
<INCOME-TAX> 25,719
<INCOME-CONTINUING> 17,886
<DISCONTINUED> 0
<EXTRAORDINARY> 1,453
<CHANGES> 0
<NET-INCOME> 16,433
<EPS-PRIMARY> .11
<EPS-DILUTED> .31
<FN>
<F1>Current assets include cash, unrestricted marketable securities, current
portion of accounts and notes receivable and prepaid expenses and deposits.
<F2>Current liabilities include the current portion of long-term debt and
accounts payable, accrued expenses and other liabilities.
</FN>
</TABLE>
<PAGE>
Exhibit 99. Additional Exhibits.
99.1 Form 11-K Annual Report of The Rouse Company Savings Plan for the year
ended December 31, 1996.
99.2 Factors affecting future operating results.
<PAGE>
Exhibit 99.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 for the fiscal year ended December 31, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the transition period from ___________ to ____________
Commission File Number 0-1743
----------
A. Full title of the plan and address of the plan:
The Rouse Company Savings Plan
c/o Personnel Division
The Rouse Company Building
10275 Little Patuxent Parkway
Columbia, Maryland 21044
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive offices:
The Rouse Company
The Rouse Company Building
10275 Little Patuxent Parkway
Columbia, Maryland 21044
<PAGE>
REQUIRED INFORMATION
Since The Rouse Company Savings Plan (the "Plan") is subject to the Employee
Retirement Income Security Act of 1974, the Plan financial statements for the
fiscal year ended December 31, 1996 will be filed on or before June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the Plan) have duly caused this annual
report to be signed by the undersigned hereunto duly authorized.
THE ROUSE COMPANY SAVINGS PLAN
- ------------------------------
Date: March 31, 1997 By /s/ William D. Boden
-------------- -------------------------------------
William D. Boden, Administrator
and
Date: March 31, 1997 By /s/ George L. Yungmann
-------------- ------------------------------
George L. Yungmann, Trustee
<PAGE>
Exhibit 99.2
FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-K, the Company's Annual Report to Shareholders, any Form
10-Q or any Form 8-K of the Company or any other written or oral statements made
by or on behalf of the Company include forward-looking statements that reflect
the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below that could cause actual results
to differ materially from historical results or anticipated results. The words
"believe," "expect," "anticipate" and similar expressions identify forward-
looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The following factors could cause actual results to differ materially
from historical results or anticipated results:
REAL ESTATE DEVELOPMENT AND INVESTMENT RISKS. General. Real property
investments are subject to varying degrees of risk. Revenues and property
values may be adversely affected by the general economic climate, the local
economic climate and local real estate conditions, including (i) the perceptions
of prospective tenants or purchasers as to the attractiveness of the property;
(ii) the ability to provide adequate management, maintenance and insurance;
(iii) the inability to collect rent due to bankruptcy or insolvency of tenants
or otherwise; and (iv) increased operating costs. Real estate values may also
be adversely affected by such factors as applicable laws, including tax laws,
interest rate levels and the availability of financing.
Development Risks. New project development is subject to a number of
risks, including risks of availability of financing, construction delays or cost
overruns that may increase project costs, risks that the properties will not
achieve anticipated occupancy levels or sustain anticipated lease or sales
levels, and new project commencement risks such as receipt of zoning, occupancy
and other required governmental permits and authorizations and the incurrence of
development costs in connection with projects that are not pursued to
completion.
Lack of Geographical Diversification. A significant portion of the
Company's properties is geographically concentrated. The Company's land sales,
for instance, relate primarily to land in and around Columbia, Maryland, and Las
Vegas, Nevada. These sales are affected by the economic climate in Howard
County, Maryland, the Baltimore-Washington area and the greater Las Vegas,
Nevada area, and by local real estate conditions and other factors, including
applicable zoning laws and the availability of financing for residential
development. Similarly, most of the office/industrial buildings that the
Company manages are located in the Baltimore-Washington corridor, including
Columbia, Maryland, and the greater Las Vegas, Nevada metropolitan area. Due to
the geographic concentration of this portfolio, the Company's operating results
in managing these buildings and selling property for development depend
especially on the local economic climate and real estate conditions, including
the availability of comparable, competing buildings and properties.
Illiquidity of Real Estate Investments. Real estate investments are
relatively illiquid and therefore may tend to limit the ability of the Company
to react promptly in response to changes in economic or other conditions.
<PAGE>
Exhibit 99.2
Dependence on Rental Income from Real Property. The Company's cash
flow and results of operations would be adversely affected if a significant
number of tenants were unable to meet their obligations or if the Company were
unable to lease a significant amount of space in its income-producing properties
on economically favorable lease terms. In the event of a default by a tenant,
the Company may experience delays in enforcing its rights as lessor and may
incur substantial costs in protecting its investment. The bankruptcy or
insolvency of a major tenant may have an adverse effect on an income-producing
property.
Effect of Uninsured Loss. The Company carries comprehensive
liability, fire, flood, extended coverage and rental loss insurance with respect
to its properties with insured limits and policy specifications that it believes
are customary for similar properties. There are, however, certain types of
losses (generally of a catastrophic nature, such as wars, floods or earthquakes)
which may be either uninsurable, or, in the Company's judgment, not economically
insurable. Should an uninsured loss occur, the Company could lose both its
invested capital in and anticipated profits from the affected property.
ENVIRONMENTAL MATTERS. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may become liable for the costs of the investigation,
removal and remediation of hazardous or toxic substances on, under, in or
migrating from such property. Such laws often impose liability without regard
to whether the owner or operator knew of, or was responsible for, the presence
of such hazardous or toxic substances. The presence of hazardous or toxic
substances, or the failure to remediate properly such substances when present,
may adversely affect the owner's ability to sell or rent such real property or
to borrow using such real property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic wastes may also be liable for the
costs of the investigation, removal and remediation of such wastes at the
disposal or treatment facility, regardless of whether such facility is owned or
operated by such person. Other federal, state and local laws, ordinances and
regulations require abatement or removal of certain asbestos-containing
materials in the event of demolition or certain renovations or remodeling,
impose certain worker protection and notification requirements and govern
emissions of and exposure to asbestos fibers in the air.
Certain of the Company's properties contain underground storage tanks
which are subject to strict laws and regulations designed to prevent leakage or
other releases of hazardous substances into the environment. In connection with
its ownership, operation and management of such properties, the Company could be
held liable for the environmental response costs associated with the release of
such regulated substances or related claims. In addition to remediation actions
brought by federal, state and local agencies, the presence of hazardous
substances on a property could result in personal injury or similar claims by
private plaintiffs. Such claims could result in costs or liabilities which
could exceed the value of such property. The Company is not aware of any
notification by any private party or governmental authority of any non-
compliance, liability or other claim in connection with environmental conditions
at any of its properties that it believes will involve any expenditure which
would be material to the Company, nor is the Company aware of any environmental
condition with respect to any of its properties that it believes will involve
any such material expenditure. However, there can be no assurance that any such
non-compliance, liability, claim or expenditure will not arise in the future.
-2-
<PAGE>
Exhibit 99.2
AMERICANS WITH DISABILITIES ACT COMPLIANCE. Under the Americans with
Disabilities Act (the "ADA"), all public accommodations and commercial
facilities are required to meet certain federal requirements related to access
and use by disabled persons. These requirements became effective in 1992. The
Company has surveyed each of its properties and believes that it is in
substantial compliance with the ADA and that it will not be required to make
substantial capital expenditures to address the requirements of the ADA. In
addition, the Company has developed an ADA Compliance Plan and has budgeted for
and moved forward with the removal of those barriers to access that are readily
achievable. The Company believes that implementation of its ADA Compliance Plan
will not have a material adverse effect on its financial condition.
COMPETITION. There are numerous other developers, managers and owners
of real estate that compete with the Company in seeking management and leasing
revenues, land for development, properties for acquisition and disposition and
tenants for properties, and there can be no assurance that the Company will
successfully respond to or manage competitive conditions.
CHANGES IN ECONOMIC CONDITIONS. The Company's business and operating
results can be adversely affected by changes in the economic environment
generally. For example, an increase in interest rates will affect the interest
payable on the Company's outstanding floating rate debt and may result in
increased interest expense if debt is refinanced at higher interest rates.
Moreover, in a recessionary economy, credit conditions may be inflexible and
consumer spending conservative, which could adversely affect the Company's
revenues from its retail centers.
INTEREST RATE EXCHANGE AGREEMENTS. The Company makes limited use of
interest rate exchange agreements, including interest rate caps and swaps,
primarily to manage interest rate risk associated with variable rate debt.
Under interest rate cap agreements, the Company makes initial premium payments
to the counterparties in exchange for the right to receive payments from them if
interest rates on the related variable rate debt exceed specified levels during
the agreement period. Premiums paid are amortized to interest expense over the
terms of the agreements using the interest method, and payments receivable from
the counterparties are accrued as reductions of interest expense. Under interest
rate swap agreements, the Company and the counterparties agree to exchange the
difference between fixed rate and variable rate interest amounts calculated by
reference to specified notional principal amounts during the agreement period.
Notional principal amounts are used to express the volume of these transactions,
but the cash requirements and amounts subject to credit risk are substantially
less. Amounts receivable or payable under swap agreements are accounted for as
adjustments to interest expense on the related debt.
Parties to interest rate exchange agreements are subject to market
risk for changes in interest rates and risk of credit loss in the event of
nonperformance by the counterparties. Although the Company deals only with
highly rated financial institution counterparties (which, in certain cases, are
also the lenders on the related debt) and does not expect that any
counterparties will fail to meet their obligations, there can be no assurance
that this will not occur.
RISKS RELATING TO NEVADA PROPERTIES. General. The Company, through
its subsidiaries and affiliates owns approximately 3.2 million rentable square
feet of office and industrial space primarily around Las Vegas, Nevada, a 75%
partnership interest in Fashion Show Mall, an 840,000 square foot regional
shopping center located on the "Strip" in Las Vegas, the Tournament Players
Club golf club at
-3-
<PAGE>
Exhibit 99.2
Summerlin and approximately 16,500 acres of development and investment land
located in Summerlin, Nevada. These properties could be adversely affected by
the following risks.
Water Availability in the Las Vegas Metropolitan Area. The Las Vegas
metropolitan area is a desert environment where the ability to develop real
estate is largely dependent on the continued availability of water. The Las
Vegas metropolitan area has a limited supply of water to service future
development, and it is uncertain whether the metropolitan area will be
successful in obtaining new sources of water. If the Las Vegas metropolitan
area does not obtain new sources of water, development activities could be
materially hindered.
Air Quality. The Las Vegas Valley is classified as a moderate carbon
monoxide and a serious PM-10 nonattainment area by the U.S. Environmental
Protection Agency ("EPA"). The EPA is currently assessing whether the Las Vegas
Valley meets certain regulatory requirements with respect to levels of ozone.
Efforts are underway to develop air quality plans to achieve and maintain
applicable EPA standards. However, there are also ongoing efforts to relax
certain requirements under the Clean Air Act and to modify the EPA's authority
thereunder. The outcome of these efforts may significantly affect real estate
development activities in the Las Vegas Valley.
Availability of Infrastructure. As with most growing communities, the
rate of growth in the Las Vegas metropolitan area is straining the capacity of
the community's infrastructure, particularly with respect to schools, water
delivery systems, transportation, flood control and sewage treatment. Certain
responsible federal, state and local government agencies finance the
construction of infrastructure improvements through a variety of means,
including general obligation bond issues, some of which are subject to voter
approval. The failure of these agencies to obtain financing for or to complete
such infrastructure improvements could materially delay development in the area
or materially increase development costs through the imposition of impact fees
and other fees and taxes, or require the construction or funding of portions of
such infrastructure. The availability of infrastructure or water has not had a
negative impact on the Company's development or investment activities to date.
Non-Nevada Gaming. Until this decade, the gaming industry was
principally limited to the traditional markets of Nevada and New Jersey.
Several states, however, have legalized casino gaming and other forms of
gambling in recent years. In addition, several states have negotiated compacts
with Indian tribes pursuant to the Indian Gaming Regulatory Act of 1988 that
permit certain forms of gaming on Indian lands. These additional gaming venues
create alternative destinations for gamblers and tourists who might otherwise
have visited Las Vegas. The Company is not able to determine whether current or
future legalized gaming venues will have an adverse impact on the Las Vegas
economy and thereby adversely affect the Company's properties in the Las Vegas
area.
-4-
