PROSPECTUS SUPPLEMENT
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(TO PROSPECTUS DATED FEBRUARY 6, 1997)
1,493,976 SHARES
THE ROUSE COMPANY
COMMON STOCK
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The Rouse Company (the "Company") is one of the largest
publicly-traded real estate companies in the United States. All of the
1,493,976 shares of Common Stock offered hereby (the "Shares") are being
sold by the Company.
The Common Stock is traded on the New York Stock Exchange (the "NYSE")
under the symbol "RSE." On April 23, 1998, the last sale price of the
Common Stock as reported on the NYSE was $31.1250 per share.
The Underwriter has agreed to purchase the Shares from the Company at
a price of $29.4909 per share, resulting in aggregate proceeds to the
Company of $44,058,697 before payment of expenses by the Company estimated
to be $50,000, subject to the terms and conditions set forth in the
Underwriting Agreement. The Underwriter intends to deposit the Shares,
valued at the last reported sales price, with the trustee of the Equity
Investor Fund Cohen & Steers Realty Majors Portfolio (a Unit Investment
Trust) (the "Trust") in exchange for units in the Trust. The units of the
Trust will be sold to investors at a price based upon the net asset value
of the securities in the Trust. For purposes of this calculation, the value
of the Shares as of the evaluation time for units of the Trust on April 23,
1998 was $31.1250 per Share.
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SEE "RISK FACTORS" BEGINNING ON PAGE S-2 HEREIN FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SHARES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS TO WHICH IT RELATES. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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The Shares are offered by the Underwriter, subject to prior sale,
when, as and if issued to and accepted by it, subject to approval of
certain legal matters by counsel for the Underwriter and certain other
conditions. It is expected that delivery of the Shares will be made in New
York, New York on or about April 29, 1998.
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MERRILL LYNCH & CO.
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The date of this Prospectus Supplement is April 23, 1998.
THE UNDERWRITER MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR
OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH TRANSACTIONS MAY
INCLUDE THE PURCHASE OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE INFORMATION
CONTAINED ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND SHOULD PARTICULARLY CONSIDER
THE FOLLOWING MATTERS WITH RESPECT TO THE COMPANY, ITS SUBSIDIARIES AND
AFFILIATES (COLLECTIVELY AND INDIVIDUALLY, THE "COMPANY"):
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 of 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 or sales 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.
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 Las Vegas, Nevada metropolitan 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 area, including Columbia, Maryland,
and the 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. See "--Risks Relating to Nevada 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.
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 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.
Although the Company generally conducts environmental reviews with
respect to properties which it acquires and develops, and intends to do so
in connection with the acquisition of the TrizecHahn Centers, Inc.
("TrizecHahn") regional shopping centers described under "Recent
Developments" herein, there can be no assurance that the review conducted
by the Company will be adequate to identify environmental or other problems
prior to such acquisition.
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 CLIMATE
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 revenue from its
retail centers.
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.
At December 31, 1997, the Company had outstanding approximately
$241,728,000 aggregate principal amount of variable rate debt (8.3% of
total debt). Of such variable rate debt, 29.5% was subject to interest rate
cap or interest rate swap agreements. The acquisition of the TrizecHahn
regional shopping centers described under "Recent Developments" herein may
result in the Company assuming debt associated with such centers. In
addition, the Company may require debt financing to fund part or all of the
purchase price for the acquisition.
RISKS RELATING TO NEVADA PROPERTIES
GENERAL. Affiliates of the Company own approximately 3.5 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,
two Tournament Players Club golf clubs in Summerlin, Nevada and
approximately 16,500 acres (11,500 saleable acres) of development and
investment land located in Summerlin. In addition, the acquisition
agreement relating to the TrizecHahn regional shopping centers described
under "Recent Developments" herein provides for the Company to acquire the
remaining 25% partnership interest in Fashion Show Mall and an interest in
the Fashion Outlet shopping center in Primm, 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 adversely
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.
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.
CONSEQUENCES OF FAILURE TO MAINTAIN STATUS AS A REIT
The Company intends to elect to be taxed as a real estate investment
trust (a "REIT") under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Code"), commencing with its taxable year
beginning January 1, 1998. In order to qualify for and maintain REIT
status, an entity must meet a number of organizational and operational
requirements. The Company believes under current law its organization and
proposed method of operation will enable it to meet the requirements for
qualification as a REIT. However, qualification for REIT status under
current law requires compliance with certain complex limitations on the
type and amount of income and assets a REIT can receive or hold. There can
be no assurance that the Company will be owned and organized and will
operate in a manner so as to qualify or remain qualified as a REIT. See
"--Recently Proposed Tax Legislation."
If the Company fails to qualify, or fails to maintain its
qualification as, a REIT, the Company will be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
corporate rates, and distributions, if any, to its stockholders (the
"Stockholders") will no longer be deductible by the Company. In addition,
unless entitled to relief under certain statutory provisions, the Company
will also be disqualified from treatment as a REIT for the four taxable
years following the year in which qualification was so lost. This treatment
would reduce the net earnings of the Company available for investment or
distribution to Stockholders because of the additional tax liability to the
Company for the year or years involved. In addition, during the period of
disqualification, the Company would no longer be required by the Code to
make any distributions as a condition to REIT qualification. To the extent
that distributions to Stockholders would have been made in anticipation of
the Company's continuing to qualify as a REIT, the Company might be
required to borrow funds or to liquidate certain of its investments on
adverse terms to pay the applicable tax. In any year in which the Company
did not qualify as a REIT, corporate Stockholders generally would be
entitled to a dividends received deduction with respect to dividends paid
by the Company. See "Federal Income Tax Consequences."
RECENTLY PROPOSED TAX LEGISLATION
The President's fiscal year 1999 budget contains a number of
REIT-related provisions which, if enacted, would change certain of the REIT
qualification rules described above. Specifically, a REIT would be
prohibited from owning more than 10% of the stock of any one corporate
issuer, determined either by vote or by value. Currently this 10% test is
applied only by reference to voting power. This proposal would be effective
with respect to stock acquired on or after the date of first committee
action. To the extent that a REIT's stock ownership was grandfathered by
virtue of this effective date, the grandfathered status would terminate if
the subsidiary corporation engaged in a new trade or business or acquired
substantial new assets on or after that date. The proposal would also
expand upon the Five or Fewer Requirement (described under "Certain Federal
Income Tax Considerations--Qualification as a REIT") to prohibit any person
(including any type of entity) from owning more than 50% of the stock of
the REIT determined by vote or by value. The current "closely-held"
restriction prohibits more than 50% of the REIT from being owned by five or
fewer individuals but does not apply to entities. As proposed, these
changes would be effective for entities electing REIT status for taxable
years beginning on or after the date of first committee action on the
proposals. It is anticipated that, because of the proposed effective date
provision, these new rules, if enacted, would not apply to the Company's
current activities. However, if these new rules are enacted, it may impact
the Company's ability to expand the activities of the current taxable
subsidiaries of the Company or to invest in the future in taxable
subsidiaries which are engaged in activities not suitable for a REIT.
Further, if these new rules are enacted, it may impact the Company's future
ability to invest in certain closely-held REITs. There can be no assurance
that the proposals will be enacted in the form proposed or with the
proposed effective date. Any legislation, if enacted, may adversely affect
the status of the Company as a REIT or its ability to expand certain
segments of its business. See "Federal Income Tax Consequences."
EFFECT OF DISTRIBUTION REQUIREMENTS
In order to maintain its qualification as a REIT, the Company must
make distributions to Stockholders, aggregating annually at least 95% of
its REIT taxable income (which does not include net capital gains). The
actual amount of the Company's future distributions to its Stockholders
will be based on the cash flows from operations from its properties and
from any future investments and on the Company's net income.
Under certain circumstances, the Company may be required to accrue as
income for tax purposes interest and rent earned but not yet received. In
such event, the Company could have taxable income without sufficient cash
to enable the Company to meet the distribution requirements of a REIT.
Accordingly, the Company could be required to borrow funds or to sell
certain of its investments on adverse terms to meet such distribution
requirements subject to the limitations on leverage described herein. See
"Federal Income Tax Consequences."
THE COMPANY
The Company, which intends to elect to be taxed as a REIT effective
January 1, 1998, is one of the largest publicly-traded real estate
companies in the United States. Through its subsidiaries, affiliates and
non-REIT subsidiaries, the Company is engaged or has a material financial
interest 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 and community retail
centers, and the management of one retail center in Canada and (ii) the
development and sale of land in Maryland and Las Vegas, Nevada for
residential, commercial and industrial uses. The Company's principal
offices are located at The Rouse Company Building, 10275 Little Patuxent
Parkway, Columbia, Maryland 21044-3456, and its telephone number is (410)
992-6000.
RECENT DEVELOPMENTS
On April 6, 1998, the Company signed a definitive agreement with
TrizecHahn to acquire TrizecHahn's interests in seven regional shopping
centers located in Colorado, Iowa, Maryland, Nevada, New Jersey and Utah.
The purchase price for the centers is estimated to be approximately $1.1
billion (which includes the assumption of associated debt). The agreement
is subject to the satisfaction of certain conditions, including customary
due diligence review of the centers, and includes a provision for the
substitution of, or increase or decrease in the number of, centers to be
acquired. The Company expects to complete the acquisition by December 31,
1998.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Shares offered hereby are estimated to be approximately $44,008,697. The
net proceeds will be used primarily to fund a portion of the acquisition
price for TrizecHahn's interests in the shopping centers referred to above.
See "Recent Developments." Any remaining net proceeds will be used for
general corporate purposes. On an interim basis, the net proceeds will be
used to retire or reduce amounts outstanding under the Company's line of
credit. As of April 15, 1998, amounts outstanding under this line of credit
had an interest rate of 6.21%.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax
considerations applicable to the ownership and disposition of the Shares.
This discussion is for general information only and is not tax advice. The
information in this section is based on the Code, current, temporary and
proposed Treasury Regulations thereunder, the legislative history of the
Code, current administrative interpretations and practices of the Internal
Revenue Service (the "IRS") (including its practices and policies as
endorsed in private letter rulings, which are not binding on the IRS except
with respect to a taxpayer that receives such a ruling), and court
decisions, all as of the date hereof. No assurance can be given that future
legislation, Treasury Regulations, administrative interpretations or court
decisions will not significantly change the current law or adversely affect
existing interpretations of current law. Any such change could apply
retroactively to transactions preceding the date of the change. This
summary does not address all aspects of taxation that may be relevant to
certain types of Stockholders (including, but not limited to, insurance
companies, tax-exempt entities, financial institutions or broker-dealers,
and foreign persons and entities).
EACH INVESTOR IS ADVISED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE
TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND SALE OF THE SHARES,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF
SUCH ACQUISITION, OWNERSHIP, AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
GENERAL
The Company intends to elect to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its taxable year beginning January
1, 1998. The Company believes that for such taxable year it will be owned
and organized and will operate in conformity with the requirements for
qualification and taxation as a REIT under the Code, and the Company
intends to continue to operate in such a manner for subsequent years.
However, there can be no assurance that the Company will be owned and
organized and will operate in a manner so as to qualify or remain
qualified.
This discussion has been prepared by Tucker, Flyer & Lewis, special
tax counsel to the Company, and is based on various assumptions and
representations made by the Company as to certain factual matters,
including representations concerning the Company's business and properties
as set forth in this Prospectus Supplement and the accompanying Prospectus.
Moreover, qualification and taxation as a REIT depends upon the Company's
ability to meet, through actual annual operating results, distribution
levels and diversity of share ownership, the various qualification tests
imposed under the Code and discussed below under "--Qualification as a
REIT." In particular, qualification for REIT status under current law
requires compliance with certain complex limitations on the type and amount
of income a REIT can receive and the type of assets a REIT can own. In late
1996, the Company began an internal review of its operations, properties,
sources of income, investments in other corporations, joint ventures and
partnerships and diversity of share ownership as part of its consideration
of the feasibility of an election to be taxed as a REIT. In consultation
with independent legal counsel and accounting firms, the Company undertook
an intensive review of the ability of the Company to satisfy the REIT
qualification tests and developed restructuring plans for certain
properties and activities which are not suitable for a REIT. Further, the
Company obtained several favorable private letter rulings from the IRS as
to certain specific matters in connection with the Company's contemplated
election to be taxed as a REIT and has other requests pending on certain
other specific matters which it anticipates will be obtained in the near
future, although there can be no assurance in this regard. However, the
Company did not obtain, nor will the IRS issue, a private letter ruling
that the Company will satisfy generally the REIT qualification tests. Prior
to the end of calendar year 1997, the Company completed its restructuring
of certain activities and properties which are not suitable for a REIT so
as to enable the Company to operate in conformity with the requirements for
qualification and taxation as a REIT. No assurance can be given, however,
that the restructuring completed by the Company or the actual results of
the Company's operations for any one taxable year will satisfy such
requirements.
If the Company qualifies for tax treatment as a REIT, it will
generally not be subject to federal income tax on its ordinary income or
capital gains to the extent currently distributed to its Stockholders. This
substantially eliminates the "double taxation" on earnings (tax at both the
corporate and stockholder levels) that typically results from investment in
a corporation. However, as noted below under "--Federal Income Taxation of
Stockholders--General," corporate Stockholders will not be entitled to a
dividends received deduction with respect to dividends paid on the Shares.
Despite the REIT election, the Company may be subject to federal
income and excise tax as follows: (i) the Company will be taxed at regular
corporate rates on its undistributed REIT taxable income, including
undistributed net capital gains, (ii) the Company may be subject to the
"alternative minimum tax" on certain items of tax preference to the extent
that tax exceeds its regular tax, (iii) if the Company has net income from
the sale or other disposition of "foreclosure property" that is held
primarily for sale to customers in the ordinary course of business or other
nonqualifying income from foreclosure property, it will be subject to tax
at the highest corporate rate on such income, (iv) any net income that the
Company has from prohibited transactions (which are, in general, sales or
other dispositions of property held primarily for sale to customers in the
ordinary course of business, other than dispositions of foreclosure
property and dispositions of property that occur due to an involuntary
conversion) will be subject to a 100% tax, (v) if the Company should fail
to satisfy either the 75% or 95% gross income tests (as discussed below),
but nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on an amount equal
to (a) the gross income attributable to the greater of the amount by which
the Company failed the 75% or 95% test, multiplied by (b) a fraction
intended to reflect the Company's profitability, (vi) if the Company fails
to distribute during each year at least the sum of (a) 85% of its REIT
ordinary income for such year, (b) 95% of its REIT capital gain net income
for such year (other than capital gain that the Company elects to retain
and pay tax on) and (c) any undistributed taxable income from preceding
periods, the Company will be subject to a 4% excise tax on the excess of
such required distribution over the amounts actually distributed.
The Company intends to make an election under IRS Notice 88-19 to be
subject to rules similar to those imposed by Section 1374 of the Code upon
a conversion of a C corporation to an S corporation, which impose a
corporate level tax on pre-conversion built-in gain with respect to assets
held as of the date of the conversion which are disposed of within ten
years of such conversion. This election allows the Company to avoid the
recognition of pre-conversion built-in gain of its assets upon its election
to be taxed as a REIT. However, this election will subject the Company to a
corporate tax upon the disposition prior to January 1, 2008 of any asset
owned by the Company on January 1, 1998, to the extent of the built-in gain
of such asset as of such date.
The Company must also distribute all its accumulated earnings and
profits through December 31, 1997, prior to December 31, 1998, in order to
qualify as a REIT. The Company has undertaken an earnings and profits
analysis, and the Company is prepared to satisfy this requirement. The
Company anticipates that the qualifying distribution can be substantially
satisfied by its regularly scheduled dividend distributions.
QUALIFICATION AS A REIT
A REIT is defined in the Code as a corporation, trust or association:
(1) which is managed by one or more trustees or directors; (2) the
beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (3) which would be
taxable as a domestic corporation but for Sections 856 through 860 of the
Code; (4) which is neither a financial institution nor an insurance
company; (5) the beneficial ownership of which is held by 100 or more
persons in each taxable year of the REIT except for its first taxable year;
(6) not more than 50% in value of the outstanding stock of which is owned
during the last half of each taxable year, excluding the REIT's first
taxable year, directly or indirectly, by or for five or fewer individuals
(as defined in the Code to include certain entities) (the "Five or Fewer
Requirement"); and (7) which meets certain income and asset tests described
below. Conditions (1) to (4), inclusive, must be met during the entire
taxable year and condition (5) must be met during at least 335 days of a
taxable year of 12 months or during a proportionate part of a taxable year
of less than 12 months. For purposes of conditions (5) and (6), pension
funds and certain other tax-exempt entities are treated as individuals,
subject to a "look-through" exception in the case of condition (6).
As of the date of this Prospectus Supplement, based on publicly
available information, the Company satisfies the share ownership
requirements set forth in (5) and (6) above. Although the Company intends
to monitor the share ownership of the Company in accordance with the
regulatory rules in order to satisfy the Five or Fewer Requirement, the
Articles of Incorporation, as amended and supplemented, of the Company do
not contain any provisions designed to ensure compliance with the Five or
Fewer Requirement.
If the Company complies with regulatory rules pursuant to which it is
required to send annual letters to certain of its Stockholders requesting
information regarding the actual ownership of its stock, but does not know,
or exercising reasonable diligence would not have known, whether it failed
to meet the Five or Fewer Requirement, the Company will be treated as
having met the requirement described in (6) above. If the Company were to
fail to comply with these regulatory rules for any year, it would be
subject to a $25,000 penalty. If the Company's failure to comply was due to
intentional disregard of the requirement, the penalty is increased to
$50,000. However, if the Company's failure to comply was due to reasonable
cause and not willful neglect, no penalty would be imposed.
The Company may own and operate a number of properties through wholly
owned subsidiaries. Code Section 856(i) provides that a corporation which
is a "qualified REIT subsidiary" shall not be treated as a separate
corporation, and all assets, liabilities, and items of income, deductions,
and credit of a "qualified REIT subsidiary" shall be treated as assets,
liabilities and such items (as the case may be) of the REIT. Thus, in
applying the requirements described herein, the assets, liabilities and
items of income, deduction and credit of the Company's qualified REIT
subsidiaries will be treated as assets, liabilities and items of the
Company.
As part of the restructuring of certain operations and assets of the
Company in contemplation of the REIT election, certain activities formerly
conducted by the Company are currently owned and undertaken by certain
non-controlled subsidiaries which do not satisfy the qualified REIT
subsidiary requirements. The Company owns less than ten percent (10%) of
the voting shares, but all of the non-voting shares, which together with
its holding of voting shares, equate to approximately ninety-nine percent
(99%) of the economic interests, in five taxable subsidiaries (the
"Non-REIT Subsidiaries") which are engaged in certain activities which are
not suitable for a REIT. Due to a current "no-rule" administrative practice
of the IRS, the Company did not seek, nor would the IRS issue, a private
letter ruling with respect to the Company's ownership of the Non-REIT
Subsidiaries.
INCOME TESTS. There are two percentage tests relating to the sources
of the Company's gross income which the Company must satisfy annually.
First, at least 75% of the Company's gross income (excluding gross income
from certain sales of property held primarily for sale) must be directly or
indirectly derived each taxable year from "rents from real property," other
income from investments relating to real property or mortgages on real
property, or certain temporary investments. Second, at least 95% of the
Company's gross income (excluding gross income from certain sales of
property held primarily for sale) must be directly or indirectly derived
each taxable year from any of the sources qualifying for the 75% test and
from dividends, interest, and gain from the sale or disposition of stock or
securities. In applying these tests, if the Company invests in a
partnership, the Company will be treated as realizing its share of the
income and bearing its share of the loss of the partnership, and the
character of such income or loss, as well as other partnership items, will
be determined at the partnership level.
Rents received by the Company will qualify as "rents from real
property" for purposes of satisfying the gross income tests for a REIT only
if several conditions are met. First, the amount of rent must not be based
in whole or in part on the income or profits of any person, although rents
generally will not be excluded merely because they are based on a fixed
percentage of receipts or sales. Second, rents received from a tenant will
not qualify as "rents from real property" if the REIT, or an owner of 10%
or more of the REIT, also directly or constructively owns 10% or more of
such tenant. Third, if rent attributable to personal property leased in
connection with a lease of real property is greater than 15% of the total
rent received under the lease, then the portion of rent attributable to
such personal property will not qualify as "rents from real property."
Finally, for rents to qualify as rents from real property, the REIT
generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no income; provided, however, the
Company may directly perform certain services customarily furnished or
rendered in connection with the rental of real property in the geographic
area in which the property is located other than services which are
considered rendered to the occupant of the property. The Company is
permitted to receive up to 1% of the gross income from each property from
the provision of non-customary services and still treat all other amounts
received from such property as "rents from real property."
The term "interest" generally does not include any amount if the
determination of such amount depends in whole or in part on the income or
profits of any person, although an amount generally will not be excluded
from the term "interest" solely by reason of being based on a fixed
percentage of receipts or sales.
If the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT
for such year if it is eligible for relief under certain provisions of the
Code. These relief provisions will be generally available if the Company's
failure to meet such tests was due to reasonable cause and not due to
willful neglect, the Company attaches a schedule of the sources of its
income to its return, and any incorrect information on the schedule was not
due to fraud with intent to evade tax. It is not now possible to determine
the circumstances under which the Company may be entitled to the benefit of
these relief provisions. If these relief provisions apply, a 100% tax is
imposed on the net income attributable to the greater of the amount by
which the Company failed the 75% test or the 95% test as the case may be.
ASSET TESTS. At the close of each quarter of its taxable year, the
Company must also satisfy several tests relating to the nature and
diversification of its assets. At least 75% of the value of the Company's
total assets must be represented by real estate assets, cash, cash items
(including receivables arising in the ordinary course of the Company's
operation) and government securities. Of the other 25%, the value of any
one issuer's securities owned by the Company may not exceed 5% of the value
of the Company's total assets and the Company may not own more than 10% of
any one issuer's outstanding voting securities. The 5% and 10% rules do not
apply to securities which would satisfy the 75% asset test. Due to the
current "no rule" administrative practice of the IRS, the Company did not
seek, nor would the IRS issue, a private letter ruling to the effect that
the Company's ownership of securities of each Non-REIT Subsidiary
possessing less than 10% of the voting power of the issuer but
approximately 99% of the economic interests of the issuer does not violate
the 10% rule. Based upon advice received from Tucker, Flyer & Lewis,
special tax counsel to the Company, the Company believes that its ownership
of securities of the Non-REIT Subsidiaries does not violate the 10% rule.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to avoid being
taxed as a regular corporation, is required to make distributions (other
than capital gain distributions) to its Stockholders which qualify for the
dividends paid deduction in an amount at least equal to (A) the sum of (i)
95% of the Company's "REIT taxable income" (computed without regard to the
dividends paid deduction and the Company's net capital gain) and (ii) 95%
of the after-tax net income, if any, from foreclosure property, minus (B) a
portion of certain items of non-cash income. Such distributions must be
paid in the taxable year to which they relate, or in the following taxable
year if declared before the Company timely files its tax return for such
year and if paid on or before the first regular distribution payment after
such declaration. To the extent that the Company does not distribute all of
its net capital gain or distributes at least 95%, but less than 100%, of
its "REIT taxable income," as adjusted, it will be subject to tax thereon
at regular corporate tax rates. Finally, as discussed above, the Company
may be subject to an excise tax if it fails to meet certain other
distribution requirements. The Company intends to make timely distributions
sufficient to satisfy these annual distribution requirements.
It is possible that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the 95% distribution
requirement, or to distribute such greater amount as may be necessary to
avoid income and excise taxation, due to, among other things, (a) timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company, or (b) the
payment of severance benefits that may not be deductible to the Company. In
the event that such timing differences occur, the Company may find it
necessary to arrange for borrowings or, if possible, pay dividends in the
form of taxable stock dividends in order to meet the distribution
requirement.
Under certain circumstances, in the event of a deficiency determined
by the IRS, the Company may be able to rectify a resulting failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
Stockholders in a later year, which may be included in the Company's
deduction for distributions paid for the earlier year. Thus, the Company
may be able to avoid being taxed on amounts distributed as deficiency
distributions; however, it will be required to pay interest based upon the
amount of any deduction taken for deficiency distributions.
RECENTLY PROPOSED TAX LEGISLATION
The President's fiscal year 1999 budget contains a number of
REIT-related provisions which, if enacted, would change certain of the REIT
qualification rules described above. Specifically, a REIT would be
prohibited from owning more than 10% of the stock of any one corporate
issuer, determined either by vote or by value. Currently this 10% test is
applied only by reference to voting power. This proposal would be effective
with respect to stock acquired on or after the date of first committee
action. To the extent that a REIT's stock ownership was grandfathered by
virtue of this effective date, the grandfathered status would terminate if
the subsidiary corporation engaged in a new trade or business or acquired
substantial new assets on or after that date. The proposal would also
expand upon the Five or Fewer Requirement (described above under
"--Qualification as a REIT") to prohibit any person (including any type of
entity) from owning more than 50% of the stock of the REIT determined by
vote or by value. The current "closely-held" restriction prohibits more
than 50% of the REIT from being owned by five or fewer individuals but does
not apply to entities. As proposed, these changes would be effective for
entities electing REIT status for taxable years beginning on or after the
date of first committee action on the proposals. It is anticipated that,
because of the proposed effective date provision, these new rules, if
enacted, would not apply to the Company's current activities. However, if
these new rules are enacted, it may impact the Company's ability to expand
the activities of the current taxable subsidiaries of the Company or to
invest in the future in taxable subsidiaries which are engaged in
activities not suitable for a REIT. Further, if these new rules are
enacted, it may impact the Company's future ability to invest in certain
closely-held REITs. There can be no assurance that the proposals will be
enacted in the form proposed or with the proposed effective date. Any
legislation, if enacted, may adversely affect the status of the Company as
a REIT or its ability to expand certain segments of its business.
FAILURE TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST
If the Company fails to qualify for taxation as a REIT in any taxable
year, the Company will be subject to tax on its taxable income at regular
corporate rates. Distributions to Stockholders in any year in which the
Company fails to qualify as a REIT will not be deductible by the Company
nor will any particular amount of distributions be required to be made in
any year. All distributions to Stockholders will be taxable as ordinary
income to the extent of current and accumulated earnings and profits
allocable to such distributions and, subject to certain limitations, will
be eligible for the dividends received deduction for corporate
Stockholders. Unless entitled to relief under specific statutory
provisions, the Company also will be disqualified from taxation as a REIT
for the four taxable years following the year during which qualification
was lost. It is not possible to state whether in all circumstances the
Company would be entitled to such statutory relief. Failure to qualify for
even one year could result in the Company incurring indebtedness or
liquidating investments in order to pay the resulting taxes.
FEDERAL INCOME TAXATION OF STOCKHOLDERS
GENERAL. So long as the Company qualifies for taxation as a REIT,
distributions to Stockholders with respect to Shares made out of current or
accumulated earnings and profits allocable thereto (and not designated as
capital gain dividends) will be includable by such Stockholder as ordinary
income for federal income tax purposes. None of these distributions will be
eligible for the dividends received deduction for Stockholders which are
corporations. Distributions that are designated as capital gain dividends
will be taxed as long term capital gains (to the extent they do not exceed
the Company's actual net capital gain for the taxable year) without regard
to the period for which the Stockholder has held its Shares. For a
Stockholder who is an individual or an estate or trust, such capital gain
dividends generally will be taxable at the 28% rate applicable to mid-term
capital gain (i.e., gains from the sale of capital assets held for more
than one year but not more than 18 months) except to the extent the Company
designates the capital gain dividend as a 20% rate distribution or a 25%
rate distribution, as the case may be, based on certain IRS guidelines.
Stockholders which are corporations may be required to treat up to 20% of
certain capital gain dividends as ordinary income.
If the Company elects to retain and pay income tax on any net long
term capital gain, Stockholders would include in income, as long term
capital gain, their proportionate share of such net long term capital gain.
A Stockholder would also receive a refundable tax credit for its
proportionate share of the tax paid by the Company on such retained capital
gains and an increase in its basis in the Shares in an amount equal to the
Stockholder's includable capital gains less its share of the tax deemed
paid.
Stockholders may not include in their individual federal income tax
returns any net operating losses or capital losses of the Company. In
addition, any distribution declared by the Company in October, November or
December of any year payable to a Stockholder of record on a specified date
in any such month shall be treated as both paid by the Company and received
by the Stockholder on December 31 of such year, provided that the
distribution is actually paid by the Company no later than January 31 of
the following year.
The Company will be treated as having sufficient earnings and profits
to treat as a dividend any distribution by the Company up to the amount
required to be distributed in order to avoid imposition of the 4% excise
tax discussed under "--General", above, and "--Qualification as a
REIT-Annual Distribution Requirements" above. As a result, Stockholders may
be required to treat as taxable dividends certain distributions that would
otherwise result in a tax-free return of capital. Moreover, any
"deficiency dividend" will be treated as a dividend (an ordinary dividend
or a capital gain dividend, as the case may be), regardless of the
Company's earnings and profits. Any other distributions in excess of
current or accumulated earnings and profits will not be taxable to a
Stockholder to the extent that they do not exceed the adjusted basis of
such Stockholder's Shares. Stockholders will be required to reduce the tax
basis of their Shares by the amount of such distributions until such basis
has been reduced to zero, after which such distributions will be taxable as
capital gain. The tax basis as so reduced will be used in computing the
capital gain or loss, if any, realized upon sale of the Shares. Any loss
upon a sale or exchange of Shares which were held for six months or less
(after application of certain holding period rules) will generally be
treated as a long-term capital loss to the extent such Stockholder
previously received capital gain distributions with respect to such Shares.
TREATMENT OF TAX-EXEMPT STOCKHOLDERS. Tax-exempt entities, including
qualified employee pension and profit sharing trusts and individual
retirement accounts ("Exempt Organizations"), generally are exempt from
federal income taxation. However, they are subject to taxation on their
unrelated business taxable income ("UBTI"). While many investments in real
estate generate UBTI, the IRS has issued a published ruling that dividend
distributions from a REIT to an exempt employee pension trust do not
constitute UBTI, provided that the shares of the REIT are not otherwise
used in an unrelated trade or business of the exempt employee pension
trust. Based on this ruling, amounts distributed by the Company to Exempt
Organizations generally should not constitute UBTI. However, if an Exempt
Organization finances its acquisition of the Shares with debt, a portion of
its income from the Company will constitute UBTI pursuant to the "debt
financed property" rules. In addition, in certain circumstances, a pension
trust that owns more than 10% of the Company's stock is required to treat a
percentage of the dividends from the Company as UBTI. This rule applies to
a pension trust holding more than 10% of the Company's stock only if (i)
the percentage of income of the Company that is UBTI (determined as if the
Company were a pension trust) is at least 5%, (ii) the Company qualifies as
a REIT by reason of the modification of the Five or Fewer Rule that allows
beneficiaries of the pension trust to be treated as holding shares of the
Company in proportion to their actuarial interests in the pension trust,
and (iii) either (A) one pension trust owns more than 25% of the value of
the Company's stock or (B) a group of pension trusts individually holding
more than 10% of the value of the Company's stock collectively owns more
than 50% of the value of the Company's stock.
SALE, EXCHANGE OR REDEMPTION OF SHARES. Upon the sale or exchange of
any Shares to or with a person other than the Company or a sale or exchange
of all Shares (whether actually or constructively owned) with the Company a
Stockholder will generally recognize capital gain or loss equal to the
difference between the amount realized on such sale or exchange and the
Stockholder's adjusted tax basis in such Shares. Such gain will be capital
gain if the Stockholder held such Shares as a capital asset. For a
Stockholder who is an individual, such capital gain generally will be
taxable at the 28% rate applicable to mid-term capital gain (i.e., gains
from the sale of capital assets held for more than one year but not more
than 18 months) and at a 20% rate on capital gain from the disposition of
Shares held for more than 18 months.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Under certain
circumstances, a Stockholder may be subject to backup withholding at a rate
of 31% on payments made with respect to, or cash proceeds of a sale or
exchange of, Shares. Backup withholding will apply only if the holder (i)
fails to furnish the person required to withhold with its taxpayer
identification number ("TIN"), (ii) furnishes an incorrect TIN, (iii) is
notified by the IRS that it has failed to properly report payments of
interest and dividends, or (iv) under certain circumstances, fails to
certify, under penalty of perjury, that it has furnished a correct TIN and
has not been notified by the IRS that is it subject to backup withholding
for failure to report interest and dividend payments. Backup withholding
will not apply with respect to payments made to certain exempt recipients,
such as corporations and tax-exempt organizations. A Stockholder should
consult with a tax advisor regarding qualification for exemption from
backup withholding, and the procedure for obtaining such exemption. Backup
withholding is not an additional tax. Rather, the amount of any backup
withholding with respect to payment to a Stockholder will be allowed as a
credit against such Stockholder's United States federal income tax
liability and may entitle such Stockholder to a refund, provided that the
required information is provided to the IRS.
STATE, LOCAL AND FOREIGN TAXATION
The Company and its Stockholders may be subject to state, local or
foreign taxation in various state, local or foreign jurisdictions,
including those in which it or they transact business or reside. Such
state, local or foreign taxation may differ from the federal income tax
treatment described above. Consequently, prospective investors should
consult their own tax advisors regarding the effect of state, local and
foreign tax laws on an investment in the Company.
UNDERWRITING
Subject to the terms and conditions contained in an underwriting
agreement (the "Underwriting Agreement"), the Company has agreed to sell to
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter"), and
the Underwriter has agreed to purchase from the Company, 1,493,976 shares
of Common Stock. The Underwriting Agreement provides that the obligations
of the Underwriter are subject to certain conditions precedent, and that
the Underwriter will be obligated to purchase all of such shares if any are
purchased.
The Underwriter intends to deposit the Shares offered hereby with the
Trust, a registered unit investment trust under the Investment Company Act
of 1940, as amended, for which the Underwriter acts as sponsor and
depositor, in exchange for units of the Trust. The Underwriter is an
affiliate of the Trust.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriter may be
required to make in respect thereof.
In connection with the offering of the Shares (the "Offering"), the
rules of the Securities and Exchange Commission permit the Underwriter to
engage in certain transactions that stabilize the price of the Common
Stock. Such transactions may consist of bids or purchases for the purpose
of pegging, fixing or maintaining the price of the Common Stock. If the
Underwriter creates a short position in the Common Stock in connection with
the Offering (i.e., if it sells more shares of Common Stock than are set
forth on the cover page of this Prospectus Supplement), the Underwriter may
reduce that short position by purchasing Common Stock in the open market.
In general, purchases of a security for the purpose of stabilization
or to reduce a syndicate short position could cause the price of the
security to be higher than it might otherwise be in the absence of such
purchases. The imposition of a penalty bid might have an effect on the
price of a security to the extent that it were to discourage resales of the
security by purchasers in the Offering.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor the Underwriter makes any representation
that the Underwriter will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
In the ordinary course of its business, the Underwriter provides
investment banking, advisory and other financial services to the Company
for which it receives customary fees.
The Common Stock is listed on the NYSE under the symbol "RSE." The
Company has applied for listing of the Shares on the NYSE.
LEGAL MATTERS
The validity of the Shares being offered hereby will be passed upon
for the Company by Piper & Marbury L.L.P., Baltimore, Maryland. Certain
legal matters will be passed upon for the Underwriter by Piper & Marbury
L.L.P., Baltimore, Maryland. Piper & Marbury L.L.P. from time to time
provides legal services to the Company.
EXPERTS
The consolidated financial statements and schedules of the Company and
its subsidiaries as of December 31, 1997 and 1996, and for each of the
years in the three-year period ended December 31, 1997, incorporated by
reference in this Prospectus Supplement have been incorporated by reference
in reliance upon (1) the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein and upon the
authority of said firm as experts in accounting and auditing, and (2) with
respect to the current value basis financial statements as of December 31,
1996, the report of Landauer Associates, Inc., real estate counselors and
consultants, incorporated by reference herein, and upon the authority of
said firm as experts in real estate consultation.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents incorporated by reference or deemed
incorporated by reference in the accompanying Prospectus, the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997
10-K") is hereby incorporated in this Prospectus Supplement and
specifically made a part hereof by reference.
All other documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus Supplement and prior to the termination of the Offering shall be
deemed to be incorporated by reference in this Prospectus Supplement and to
be a part hereof from the respective dates of the filing of such documents.
Any statement contained herein or in a document all or a portion of
which is incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this
Prospectus Supplement to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus Supplement.
The Company will provide without charge to each person, including a
beneficial owner, to whom a copy of this Prospectus Supplement and the
accompanying Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any and all of the documents
incorporated herein by reference into this Prospectus Supplement, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies
should be directed to David L. Tripp, Vice President and Director of
Investor Relations and Corporate Communications, The Rouse Company, 10275
Little Patuxent Parkway, Columbia, Maryland 21044-3456, Telephone: (410)
992-6000.
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement, including the documents incorporated by
reference herein and in the accompanying Prospectus, contains
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 in "Risk Factors" above, which could cause actual results to
differ materially from historical results or those anticipated. See also
Exhibit 99.2 to the 1997 10-K. The words "believe," "expect," "anticipate"
and similar expressions identify forward-looking statements, which speak
only as of the dates on which they were made. 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.
Readers are cautioned not to place undue reliance on these forward-looking
statements.
========================================= =============================
NO DEALER, SALESPERSON OR OTHER
INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR
INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
IN CONNECTION WITH THE OFFERING COVERED
BY THIS PROSPECTUS SUPPLEMENT AND THE 1,493,976 SHARES
PROSPECTUS. IF GIVEN OR MADE, SUCH THE ROUSE COMPANY
INFORMATION OR REPRESENTATIONS MUST NOT COMMON STOCK
BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE
SHARES IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY
CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
----------------
TABLE OF CONTENTS
--------------
PROSPECTUS SUPPLEMENT
PROSPECTUS SUPPLEMENT
PAGE
----
Risk Factors............................ S-2 --------------
The Company............................. S-6
Recent Developments..................... S-6
Use of Proceeds......................... S-6
Federal Income Tax Consequences ........ S-6
Underwriting..................... ...... S-13
Legal Matters........................... S-13
Experts................................. S-13
Incorporation of Certain Documents
by Reference................... S-14
Forward-Looking Statements.............. S-14 MERRILL LYNCH & CO.
PROSPECTUS
Available Information................... 2
Incorporation of Certain Documents
by Reference.................... 2
The Company.............................. 3
Use of Proceeds.......................... 3
Ratio of Earnings to Fixed Charges....... 3
Description of Common Stock.............. 4 April 23, 1998
Description of Preferred Stock........... 6
Description of Debt Securities........... 11
Plan of Distribution..................... 15
Experts.................................. 16
Legal Matters............................ 16
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