<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITITES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31,1998
or
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (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
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(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 1 cent per share) New York Stock Exchange
- ----------------------------------------
9 1/4% Cumulative Quarterly Income Preferred Securities New York Stock Exchange
- -------------------------------------------------------
Series B Convertible Preferred Stock
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(par value 1 cent per share) New York Stock Exchange
- ------------------------------
Securities registered pursuant to Section 12(g) of the Act:
NONE
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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 for (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.
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As of March 17, 1999, there were outstanding 72,256,106 shares of the
registrant's common stock, par value 1 cent, 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 $1,634,126,080
Documents Incorporated by Reference
The specified portions of the Annual Report to Shareholders for the fiscal year
ended December 31, 1998 are incorporated by reference into Parts I, II, and IV.
Definitive Proxy Statement to be filed pursuant to Regulation 14A on or before
April 12, 1999 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,
affiliates and "Non-REIT Subsidiaries" (as defined below), 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
the Las Vegas, Nevada metropolitan area for residential, commercial and
industrial uses. "Non-REIT Subsidiaries" are companies as to which
substantially all (at least 98%) of the financial interest is held by the
Company, but in which The Rouse Company Incentive Compensation Statutory
Trust, an entity that is neither owned nor controlled by the Company, owns
91% of the voting stock.
In December 1997, the Company determined that it would elect to be taxed as a
real estate investment trust (REIT) effective January 1, 1998. The Company
believes that it met the qualifications for REIT status during 1998, and it
intends to continue to meet the qualifications in the future and to
distribute at least 100% of its REIT taxable income (determined after
taking into account any net operating loss deduction) to stockholders.
Accordingly, management does not believe that the Company will be liable
for payment of income taxes (except, possibly, in certain states).
Developments in 1998 and Early 1999
During the third and fourth quarters of 1998, subsidiaries of the Company
purchased ownership interests in seven retail centers from TrizecHahn
Centers Inc. for approximately $1.2 billion. The centers are Park Meadows
Mall in suburban Denver, Colorado, Towson Town Center in suburban
Baltimore, Maryland, The Fashion Show on "The Strip" in Las Vegas, Nevada
(in which a Company subsidiary already held a 75% ownership interest),
Fashion Place in Salt Lake City, Utah, Bridgewater Commons Mall in
Bridgewater, New Jersey, Valley Fair in San Jose, California and Westdale
Mall in Cedar Rapids, Iowa. Upon completion of the acquisitions,
I-1
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subsidiaries of the Company held 100% ownership interests in these centers,
except that the subsidiaries held a 50% interest in Valley Fair and a 20.5%
interest in Westdale Mall. At the time of the acquisitions, the Company
decided to hold for sale its interests in Valley Fair and Westdale Mall.
On November 30, 1998, a wholly owned subsidiary of the Company acquired for
approximately $373 million, from Teachers Properties, Inc. ("Teachers") its
interest in Rouse-Teachers Properties, Inc. ("RTPI"), an entity in which
Teachers held a 95% ownership interest and the Company held a 5% ownership
interest. The acquired assets of RTPI consisted of 22 office buildings in
metropolitan Baltimore, Maryland containing approximately 1,034,000 square
feet of leasable space, 26 industrial buildings in metropolitan Baltimore
containing approximately 1,675,000 square feet of leasable space, 8 office
buildings in Columbia, Maryland containing approximately 428,000 square
feet of leasable space, 10 office buildings in metropolitan Washington,
D.C. containing 1,227,000 square feet of leasable space, an office building
in suburban Harrisburg, Pennsylvania containing approximately 231,000
square feet of leasable space and approximately 107 saleable acres of land
in the Baltimore and Washington metropolitan areas. The Company sold three
of the acquired buildings in metropolitan Washington, D.C. on December 1,
1998 for an aggregate price of approximately $91 million.
On February 1, 1999, a wholly owned subsidiary of the Company completed the
establishment of a joint venture (the "Four State Venture"), relating to
four retail centers, with a venture (the "Morgan/NYSTRS Venture")
consisting of the J.P. Morgan Strategic Property Fund and the New York
State Teachers' Retirement System. The centers, all of which were acquired
in 1998 from TrizecHahn Centers Inc., are Park Meadows Mall, Towson Town
Center, Fashion Place and Bridgewater Commons Mall. The total cost of the
retail center assets and related liabilities contributed to the Four State
Venture was approximately $957 million and $542 million, respectively. The
Morgan/NYSTRS Venture made a $271 million cash contribution to the Four
State Venture, which is approximately 65% of the net cost. The Company
subsidiary effectively has a 35% ownership interest in the Four State
Venture, while the Morgan/NYSTRS Venture has a 65% ownership interest.
I-2
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Additional information regarding the above developments is contained in the
Company's Current Report on Form 8-K/A, filed on November 16, 1998, the
Company's Current Report on Form 8-K, filed on December 14, 1998, the
Company's Current Report on Form 8-K, filed on February 10, 1999, and the
Company's Current Report on Form 8-K/A, filed on February 16, 1999.
Item 1(b). Financial Information About Industry Segments.
Information required by Item 1(b) is incorporated herein by reference to note
9 of the notes to consolidated financial statements included in the 1998
Annual Report to Shareholders.
As noted in Item 1(a), the Company is a real estate company engaged, through
its subsidiaries, affiliates and having a material financial interest,
through its Non-REIT Subsidiaries, 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 development. These business segments
are further described below.
Item 1(c). Narrative Description of Business.
Retail Centers:
--------------
As set forth in Item 2, at December 31, 1998, the 49 regional retail centers
owned, in whole or in part, or operated by subsidiaries or affiliates of
the Company or by Non-REIT Subsidiaries, aggregated 44,006,000 square feet,
including 26,147,000 square feet owned by or leased to department stores.
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 store fronts, and
maintaining the building and common areas.
In conjunction with other partners or investors, the Company, through its
subsidiaries and affiliates and Non-REIT subsidiaries, acquires interests
in completed retail centers, with the Company (or, beginning December 31,
1997, its Non-REIT Subsidiaries) having management responsibility and
earning incentive fees including, in some instances, equity interests in
the centers. Affiliates of the Company (or, beginning December 31, 1997,
Non-REIT Subsidiaries)
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also provide 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, 1998,
Non-REIT Subsidiaries of the Company managed 9 such centers, which are
included in the figures in the preceding paragraph and aggregated 8,778,000
square feet of leasable space, 5,098,000 square feet of which was
department store space.
The Howard Research And Development Corporation ("HRD", a Non-REIT Subsidiary
of the Company) and its subsidiaries own and/or manage 12 community retail
centers with 890,000 square feet of leasable space, The Mall in Columbia
(which is included in the second preceding paragraph) and other properties
in Columbia, Maryland. Howard Hughes Properties, Limited Partnership
("HHPLP", a majority owned affiliate of the Company) and its subsidiaries
and affiliates own interests in 2 community retail centers with 238,000
square feet of leasable space in Summerlin, Nevada.
Office, Mixed-Use and Other Properties:
- --------------------------------------
HHPLP and its subsidiaries and affiliates own and/or manage 61 office and
industrial buildings with 3,914,000 square feet of leasable space, and
other properties in and around Las Vegas, Nevada and Los Angeles,
California. HRD and its subsidiaries own and/or manage 12 office and
industrial buildings with 1,188,000 square feet of leasable space and other
properties in Columbia, Maryland.
Other subsidiaries of the Company own and operate 5 mixed-use projects with a
total of 691,000 square feet of leasable retail space, a 90,000 square foot
cinema and 1,891,000 square feet of leasable office space. Other
subsidiaries of the Company own, in whole or in part, 72 office and
industrial buildings with a total of 4,909,000 square feet of leasable
space.
The activities involved in operating and managing office, mixed-use and other
properties 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 store
fronts, and maintaining the building and common areas.
Development:
- -----------
The Company, through its subsidiaries, affiliates and Non-REIT subsidiaries
renovates and expands existing retail centers and develops suburban and
downtown retail centers, mixed-
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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, affiliates and Non-REIT Subsidiaries are
in the construction or development stage of announced projects, primarily
the development of new retail centers, expansions of existing retail
centers and mixed-use projects, and expansions of existing master-planned
business parks in Las Vegas, Nevada.
Land Sales Operations:
- ---------------------
HRD, a Non-REIT Subsidiary of the Company, is the developing entity of Columbia,
Maryland, which is located in the Baltimore-Washington corridor. HRD owns
approximately 1,600 salable 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. The Hughes Corporation and Howard Hughes Properties, Inc.
(collectively "Hughes", Non-REIT Subsidiaries of the Company) and their
subsidiaries and affiliates are the developers of Summerlin, Nevada, which
is located immediately north and west of Las Vegas, Nevada. Hughes owns
approximately 8,700 salable acres of land in Summerlin, and develops and
sells this land to builders and other developers for residential and
commercial uses. Other affiliates or subsidiaries of the Company may also
purchase some of this land for their own development purposes. Non-REIT
Subsidiaries of the Company, directly or through affiliates, are also
presently involved in community development and related land sales
elsewhere in Maryland, and are developing or holding 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 and its subsidiaries, affiliates and Non-REIT
Subsidiaries operate
I-5
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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's affiliates and Non-REIT Subsidiaries also face 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 operating
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 operating 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, its subsidiaries and affiliates and Non-REIT Subsidiaries employed
4,126 full-time and part-time employees at December 31, 1998.
I-6
<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 in pages 50
through 53 of Exhibit 13 to this Form 10-K. The ownership of virtually all
properties is subject to mortgage financing. The table of projects
includes properties managed by Non-REIT Subsidiaries of the Company for a
fee as identified in notes (c) and (d) to the table. Excluding such
managed properties, 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 leases
are exercised. The properties subject to such leases in whole or part
(including properties owned by Non-REIT Subsidiaries) are as follows:
<TABLE>
<CAPTION>
Nature of Year 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. - Leasehold and fee 2000
American City Building
Columbia Mall, Inc. - Leasehold and fee 2012
Exhibit Building
Columbia Mall, Inc. - Leasehold 2062
Oakland Building
Echelon Mall Leasehold 2008
Faneuil Hall Marketplace Leasehold 2074
Fashion Place Mall Leasehold 2059
First National Bank Plaza Leasehold 2013
Franklin Park Leasehold and fee by joint 2024
venture
The Gallery at Market East Leasehold 2082
</TABLE>
I-7
<PAGE>
Item 2. Properties, continued.
<TABLE>
<CAPTION>
Nature of Year of expiration
Property interest of lease
-------- -------- --------
<S> <C> <C>
Governor's Square Leasehold 2054
Harborplace Leasehold 2054
Highland Mall Leasehold and fee by joint 2070
venture
The Jacksonville Landing Leasehold 2057
Mall St. Matthews Leasehold 2053
Midtown Square Leasehold 2055
Pioneer Place Leasehold 2076
Plymouth Meeting Leasehold 2063
Riverwalk Leasehold and fee by joint 2076
venture
South Street Seaport Leasehold 2031
Tampa Bay Center Leasehold and fee by joint 2047
venture
Westlake Center Leasehold by joint venture 2043
</TABLE>
I-8
<PAGE>
Item 3. Legal Proceedings.
None.
I-9
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None.
I-10
<PAGE>
Executive Officers of the Registrant.
The executive officers of the Company as of March 26, 1999 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 54 Chairman of the Board, 2/25/97 Chairman of the Board, President and
President and 2/25/93 Chief Executive Officer of the Company;
Chief Executive Officer 2/23/95 formerly President and Chief Executive
Officer of the Company; President and
Chief Operating Officer of the Company
Jeffrey H. Donahue 52 Executive Vice-President 12/3/98 Executive Vice-President and Chief Financial
and Chief Financial Officer 9/23/93 Officer of the Company; formerly Senior Vice-
President and Chief Financial Officer of the
Company
Duke S. Kassolis 47 Senior Vice-President 9/23/93 Senior Vice-President and Director of
and Director of Office 8/17/93 Office and Mixed-Use Operations of the
and Mixed-Use Operations Company
Paul I. Latta, Jr. 55 Senior Vice-President 9/23/93 Senior Vice-President and Director of
and Director of Retail 8/17/93 Retail Operations of the Company
Operations
Douglas A. McGregor 56 Vice Chairman and Chief 12/3/98 Vice Chairman and Chief Operating Officer;
Operating Officer formerly Executive Vice-President for
Development and Operations of the Company
Robert Minutoli 48 Senior Vice-President 9/23/93 Senior Vice-President and Director of
and Director of 8/17/93 New Business of the Company
New Business
</TABLE>
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Executive Officers of the Registrant.
<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>
Robert D. Riedy 53 Senior Vice-President 9/23/93 Senior Vice-President and Director of
and Director of Retail 8/17/93 Retail Leasing of the Company
Leasing
Alton J. Scavo 52 Senior Vice-President and 9/23/93 Senior Vice-President and Director of
Director of the 8/17/93 the Community Development Division of
Community Development the Company and General Manager of
Division and General Columbia
Manager of Columbia
Jerome D. Smalley 49 Executive Vice-President 12/3/98 Executive Vice-President - Development;
- Development formerly Senior Vice-President and Director
of the Commercial and Office Development
Division of the Company
</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, except with respect to Anthony W. Deering. See Exhibit 10 to this
Form 10-K.
None of the above-listed officers has any family relationship with any director
or other executive officer.
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Part II
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Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Information required by Item 5 is incorporated herein by reference to
page 35 of Exhibit 13.
Item 6. Selected Financial Data.
Information required by Item 6 is incorporated by reference to
page 34 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 36 through 49 of Exhibit 13.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Information required by Item 7A is incorporated herein by reference to
pages 45 and 46 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 35 of Exhibit 13.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
II-1
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Part III
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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 12, 1999.
III-1
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Part IV
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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.
(b) Reports on Form 8-K:
Current Report on Form 8-K/A filed October 9, 1998, disclosing
financial statements required under Rule 3-14 of Regulation S-X and
certain pro forma financial information.
Current Report on Form 8-K filed October 21, 1998, disclosing
acquisition of assets.
Current Report on Form 8-K filed November 5, 1998, disclosing
acquisition of assets.
Current Report on Form 8-K/A filed November 16, 1998, disclosing
financial statements required under Rule 3-14 of Regulation S-X and
certain pro forma financial information.
Current Report on Form 8-K filed December 14, 1998, disclosing
acquisition of assets.
Current Report on Form 8-K filed December 18, 1998, disclosing
acquisition of assets.
(c) Exhibits required by Item 601 of Regulation S-K.
Exhibit Index
Exhibit No.
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3 Articles of Incorporation and Bylaws
10 Material Contracts
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
23.1 Consent of KPMG LLP, Independent Auditors
23.2 Consent of KPMG LLP, Independent Auditors
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, 1998
99.2 Factors affecting future operating results
(d) Separate Financial Statements and Schedules of Subsidiaries not
consolidated:
Reference is made to the Index to Financial Statements and Schedules
on page IV-2.
IV-1
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The Rouse Company
Index to Financial Statements and Schedules
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report IV-3
Financial Statements:
The Rouse Company and Subsidiaries included on pages 4 through 35
of Exhibit 13 incorporated herein by reference:
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Operations and Comprehensive Income
for the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders' Equity for
the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Schedules:
Real Estate Ventures Owned by The Rouse Company Incentive
Compensation Statutory Trust and The Rouse Company:
Independent Auditors' Report IV-4
Combined Consolidated Balance Sheet at December 31, 1998 IV-5
Combined Consolidated Statement of Operations for the Year Ended
December 31, 1998 IV-6
Combined Consolidated Statement of Changes in Shareholders'
Equity for the Year Ended December 31, 1998 IV-7
Combined Consolidated Statement of Cash Flows for the Year Ended
December 31, 1998 IV-8
Notes to Combined Consolidated Financial Statements IV-10
The Rouse Company and Subsidiaries as of December 31, 1998 or for
the years ended December 31, 1998, 1997 and 1996:
Schedule II Valuation and Qualifying Accounts IV-19
Schedule III Real Estate and Accumulated Depreciation IV-20
Schedule IV Mortgage Loans on Real Estate IV-35
Real Estate Ventures Owned by The Rouse Company Incentive
Compensation Statutory Trust and The Rouse Company as of
December 31, 1998 or for the Year Ended December 31, 1998:
Schedule II Valuation and Qualifying Accounts IV-37
Schedule III Real Estate and Accumulated Depreciation IV-38
All other schedules have been omitted as not applicable or not
required, or because the required information is included in
the related financial statements or notes thereto.
</TABLE>
IV-2
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INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Shareholders
The Rouse Company:
We have audited the consolidated financial statements and the related
financial statement schedules of The Rouse Company and subsidiaries as listed
in the accompanying index except for those schedules relating to the Real
Estate Venture owned by The Rouse Company Incentive Compensation Statutory
Trust and The Rouse Company. 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 financial statements referred to above
present fairly, in all material respects, the financial position of The Rouse
Company and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedules referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG LLP
Baltimore, Maryland
February 24, 1999
IV-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
The Rouse Company Incentive Compensation Statutory Trust
and
The Board of Directors
The Rouse Company:
We have audited the accompanying combined consolidated financial statements and
the related financial statement schedules of Real Estate Ventures owned by The
Rouse Company Incentive Compensation Statutory Trust and The Rouse Company as
listed in the accompanying index. These combined consolidated financial
statements and financial statement schedules are the responsibility of the
Ventures' management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the combined consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Real Estate
Ventures owned by The Rouse Company Incentive Compensation Statutory Trust and
The Rouse Company as of December 31, 1998, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic combined
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG LLP
Baltimore, Maryland
February 24, 1999
IV-4
<PAGE>
Real Estate Ventures Owned by
The Rouse Company Incentive Compensation Statutory Trust and
The Rouse Company
COMBINED CONSOLIDATED BALANCE SHEET
December 31, 1998
(in thousands)
<TABLE>
<S> <C>
Assets
--------
Property (notes 2, 5, and 11):
Operating properties:
Property and deferred costs of projects.............. $326,860
Less accumulated depreciation and amortization....... 82,390
--------
244,470
Properties in development............................... 66,442
Investment land and land held for development and sale.. 278,155
--------
Total property....................................... 589,067
Accounts and notes receivable, including advances to
The Rouse Company of $112,310 (note 3)................... 187,046
Deferred income taxes (note 6)............................ 53,660
Prepaid expenses and other assets......................... 31,276
Investments in unconsolidated real estate ventures........ 32,765
--------
Total................................................... $893,814
========
Liabilities and Shareholders' Equity (Deficit)
----------------------------------------------
Liabilities:
Debt (note 5):
Borrowings from The Rouse Company....................... $ 488,363
Other borrowings........................................ 332,945
---------
Total debt........................................... 821,308
---------
Bank overdraft............................................ 17,382
Deferred revenue.......................................... 79,576
Accounts payable, accrued expenses and other liabilities.. 19,286
Redeemable Series A Preferred stock (note 8).............. 50,000
Commitments and contingencies (notes 9, 11 and 12)
Shareholders' equity (deficit) (note 1):
Common stock.............................................. 5
Additional paid-in capital................................ 141,495
Accumulated deficit....................................... (235,238)
---------
Net shareholders' deficit............................... (93,738)
---------
Total................................................... $ 893,814
=========
</TABLE>
The accompanying notes are an integral part of these statements.
IV-5
<PAGE>
Real Estate Ventures Owned by
The Rouse Company Incentive Compensation Statutory Trust and
The Rouse Company
COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31, 1998
(in thousands)
<TABLE>
<S> <C>
Revenues:
Land sales............................................... $165,461
Rentals and tenant services (note 9)..................... 73,811
Property management fees................................. 18,254
Golf club operations..................................... 14,938
Other (note 3)........................................... 9,546
--------
282,010
Cost of land sales and related administration.............. 97,169
Other operating expenses, exclusive of provision for bad
debts, depreciation and amortization (notes 4 and 10).... 63,822
Interest expense (note 5).................................. 68,146
Provision for bad debts.................................... 359
Depreciation and amortization (note 2)..................... 10,585
Equity in earnings of unconsolidated real estate ventures.. 811
Gain on dispositions of assets, net (note 7)............... 15,856
--------
Earnings before income taxes and extraordinary losses.... 58,596
--------
Income taxes, primarily federal (note 6):
Current.................................................. 5,478
Deferred................................................. 16,582
--------
22,060
--------
Earnings before extraordinary losses..................... 36,536
Extraordinary losses, net (note 5)......................... 1,127
--------
Net earnings............................................. $ 35,409
========
</TABLE>
The accompanying notes are an integral part of these statements.
IV-6
<PAGE>
Real Estate Ventures Owned by
The Rouse Company Incentive Compensation Statutory Trust and
The Rouse Company
COMBINED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Year ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Additional
Common paid-in Accumulated
stock capital deficit Total
------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1997...... $5 $141,495 $(265,797) $(124,297)
Net earnings...................... -- -- 35,409 35,409
Dividends declared-common stock... -- -- (4,850) (4,850)
------ ---------- --------- ---------
Balance at December 31, 1998 $5 $141,495 $(235,238) $(93,738)
====== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
IV-7
<PAGE>
Real Estate Ventures Owned by
The Rouse Company Incentive Compensation Statutory Trust and
The Rouse Company
COMBINED CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, 1998
(in thousands)
<TABLE>
<S> <C>
Cash flows from operating activities
Rents and other revenues received............................... $ 107,533
Proceeds from land sales........................................ 124,152
Interest received............................................... 479
Land development expenditures................................... (82,917)
Operating expenditures.......................................... (88,965)
Interest paid................................................... (69,017)
Income taxes paid............................................... (2,997)
---------
Net cash used by operating activities......................... (11,732)
---------
Cash flows from investing activities
Expenditures for properties in development and improvements to
existing properties funded by debt............................ (78,464)
Expenditures for property acquisitions.......................... (10,054)
Proceeds from sales of operating properties..................... 69,063
Other........................................................... (624)
---------
Net cash used by investing activities......................... (20,079)
---------
Cash flows from financing activities
Proceeds from issuance of property debt......................... 97,005
Repayments of property debt:
Scheduled principal payments.................................. (5,433)
Other payments................................................ (23,834)
Proceeds from issuance of other debt............................ 13,794
Repayments of other debt........................................ (47,483)
Increase in bank overdraft...................................... 2,984
Dividends paid.................................................. (4,850)
Other........................................................... (372)
---------
Net cash provided by financing activities..................... 31,811
---------
Net change in cash and cash equivalents......................... ---
Cash and cash equivalents at beginning of year.................. ---
---------
Cash and cash equivalents at end of year........................ $ ---
=========
</TABLE>
The accompanying notes are an integral part of these statements.
IV-8
<PAGE>
Reconciliation of Net Earnings to Net Cash
Used by Operating Activities
<TABLE>
<S> <C>
Net earnings................................................. $ 35,409
Adjustments to reconcile net earnings to net cash
used by operating activities:
Depreciation and amortization.............................. 10,585
Gain on dispositions of assets, net........................ (15,856)
Extraordinary losses, net.................................. 1,127
Provision for bad debts.................................... 359
Decrease (increase) in:
Accounts and notes receivable........................... (42,950)
Other assets............................................ 2,264
Increase in accounts payable, accrued expenses
and other liabilities................................... 5,069
Deferred income taxes...................................... 16,582
Other, net................................................. (24,321)
--------
Net cash used by operating activities $(11,732)
========
- ------------------------------------------------------------------------
Schedule of Noncash Investing and Financing Activities
Debt assumed by purchasers of land $14,836
=======
</TABLE>
IV-9
<PAGE>
Real Estate Ventures Owned by
The Rouse Company Incentive Compensation Statutory Trust and
The Rouse Company
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
<TABLE>
<S> <C>
(1) Summary of (a) Basis of presentation
significant The combined consolidated financial statements include the accounts of the real
accounting policies estate ventures (Ventures) owned by The Rouse Company Incentive Compensation
Statutory Trust (Trust) and The Rouse Company (Company). These ventures include
the following entities:
. The Howard Research And Development Corporation and subsidiaries
. The Hughes Corporation and subsidiaries
. Howard Hughes Properties, Inc.
. Rouse Property Management, Inc.
. HRD Properties, Inc. and subsidiaries
The combined consolidated financial statements also include the accounts of
partnerships in which the Ventures have majority interest and control.
Investments in other entities are accounted for using the equity method.
Significant intercompany balances and transactions are eliminated.
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 Ventures' financial statements. Actual results could differ
from those estimates.
The Ventures were initiated on December 31, 1997, when certain wholly owned
subsidiaries of the Company issued 91% of their voting common stock to the Trust,
an entity which is neither owned nor controlled by the Company, for an aggregate
consideration of $1,400,000. These sales were made at fair value and as part of
the Company's plan to meet the qualifications for status as a Real Estate
Investment Trust (REIT). The Company retained the remaining voting stock of the
Ventures and holds all outstanding shares of nonvoting common and/or preferred
stock and, in certain cases, mortgage loans receivable from the Ventures which,
taken together, comprise substantially all (at least 98%) of the financial
interest in them.
Due to the Company's continuing financial interest in the Ventures, the Ventures
retained the Company's historical cost basis of the assets acquired and
liabilities assumed on the date of sale of their voting common stock to the
Trust. The condensed, combined consolidated balance sheet of the Ventures at
December 31, 1997, is summarized as follows (in thousands):
Assets:
Operating properties, net................................................. $ 211,385
Properties in development................................................. 23,144
Investment land and land held for development and sale.................... 266,477
Properties held for sale.................................................. 46,289
Advances to the Company................................................... 131,832
Other..................................................................... 169,876
----------
Total................................................................... $ 849,003
==========
Liabilities and shareholders' deficit:
Borrowings from the Company............................................... $ 538,586
Other borrowings.......................................................... 280,595
Other liabilities......................................................... 104,119
Redeemable Series A Preferred stock....................................... 50,000
Shareholders' deficit..................................................... (124,297)
----------
Total................................................................... $ 849,003
==========
(b) Description of business
Through their subsidiaries and affiliates, the Ventures acquire, develop and/or
manage income-producing properties and develop and sell land for residential,
commercial and other uses. The income-producing properties consist of retail
centers and office and industrial properties. The retail centers include The
Mall in Columbia, a regional shopping center in Columbia, Maryland, and several
community shopping centers, in the Columbia area. The office and industrial
properties are located in Columbia. Land development and sales operations are
predominantly related to large-scale, long-term community development projects in
Columbia and Summerlin, Nevada.
</TABLE>
IV-10
<PAGE>
<TABLE>
<S> <C>
(c) Property
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 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 preconstruction tasks are completed. Provision
is made for potentially unsuccessful preconstruction efforts by charges to
operations. Development and construction costs and costs of significant
improvements, replacements and renovations at operating properties are
capitalized, while costs of maintenance and repairs are expensed as incurred.
Direct 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.
Properties are generally depreciated using composite lives ranging from 40 to 55
years producing effective annual rates of depreciation ranging from 1.6% to 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 values (i.e.,
cost less accumulated depreciation and any impairment loss recognized, where
applicable) or estimated fair values 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 date 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 Ventures
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 Ventures are 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 revenues 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 development plans. The specific identification method is used to
determine cost of sales of certain parcels of land.
</TABLE>
IV-11
<PAGE>
<TABLE>
<S> <C>
Certain of the land assets of the Ventures are the subject of a Contingent Stock
Agreement (Agreement) between the Company and the former owners of the land or
their successors (the beneficiaries). Under the Agreement, and subject to
various terms and conditions, the Company is required to issue shares of its
common stock (or, in certain circumstances, Increasing Rate Cumulative Preferred
stock) to the beneficiaries based on the appraised values of the assets at
specified "termination dates" from 2000 to 2009 and/or cash flows generated from
the development and/or sale of the assets prior to the termination dates.
The Company has retained full responsibility for its obligations under the
Agreement. These obligations are unsecured and have not been guaranteed by the
Ventures. Accordingly, the Agreement imposes no direct or contingent liabilities
on the Ventures and all related costs or expenses are recognized by the Company.
(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 Ventures are considered capital leases and the
present values of the minimum lease payments are accounted for as property and
debt.
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 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.
(g) Cash and cash equivalents
Short-term investments with maturities at dates of purchase of three months or
less are classified as cash equivalents.
(h) Information about financial instruments
Fair values of financial instruments approximate their carrying values in the
financial statements except for debt for which fair value information is provided
in note 5.
(2) Property Operating properties and deferred costs of projects at December 31, 1998 are
summarized as follows (in thousands):
Buildings and improvements................................................. $289,902
Land....................................................................... 26,023
Deferred costs............................................................. 10,472
Furniture and equipment.................................................... 463
Total................................................................... --------
$326,860
========
Depreciation expense for 1998 was $9,668,000 and amortization expense was
$917,000.
</TABLE>
IV-12
<PAGE>
<TABLE>
<S> <C>
Investment land and land held for development and sale at December 31, 1998 is
summarized as follows (in thousands):
Land under development..................................................... $131,663
Finished land.............................................................. 70,747
Raw land................................................................... 75,745
Total................................................................... --------
$278,155
========
(3) Accounts and notes Accounts and notes receivable at December 31, 1998 are summarized as follows (in
receivable thousands):
Accounts receivable, primarily accrued rents and
income under tenant leases............................................... $ 11,547
Notes receivable from sales of operating properties........................ 1,221
Notes receivable from sales of land........................................ 62,802
Interest bearing advances to the Company................................... 99,018
Noninterest bearing advances to the Company................................ 13,292
--------
187,880
Less allowance for doubtful receivables.................................... 834
--------
Total................................................................... $187,046
========
Accounts and notes receivable due after one year were $27,561,000 at December 31,
1998.
Credit risk with respect to receivables from tenants is not highly concentrated
due to the large number of tenants. The Ventures perform credit evaluations of
prospective new tenants and require 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
at the community development project in Summerlin. The Ventures perform credit
evaluations of the builders and generally require substantial down payments (at
least 20%) on all land sales that they finance. These notes and notes from sales
of operating properties are generally secured by first liens on the related
properties.
Advances to the Company are unsecured and without a stated due date. Interest is
charged (with limited exceptions) at the same rate that is charged on the Ventures'
credit facilities borrowings described in note 5. Interest on these advances was
$9,067,000 in 1998.
(4) Pension and postre- Substantially all of the employees of the Ventures are eligible to participate in
tirement plans a defined benefit pension plan (the "funded plan") sponsored by the Company. In
addition, employees whose defined benefits exceed the limits of the funded plan
are eligible to participate in separate, nonqualified unfunded plans sponsored by
the Company. Benefits under the pension plans are based on the participants'
years of service and compensation. The Ventures reimburse the Company for their
share of the annual benefit cost under the plan. The Ventures' pension cost was
$2,485,000 in 1998.
Full-time employees of the Ventures who meet minimum age and service requirements
are eligible to receive postretirement medical and life insurance benefits under
a plan sponsored by the Company. The Ventures reimburse the Company for their
share of the annual benefit costs under the plan, which include a portion of the
cost of participants' life insurance coverage and contributions (based on years
of service) to the cost of participants' medical insurance coverage, subject to a
maximum annual contribution. The Ventures' postretirement benefit cost was
$606,000 in 1998.
</TABLE>
IV-13
<PAGE>
<TABLE>
<S> <C>
(5) Debt Debt at December 31, 1998 is summarized as follows (in thousands):
Borrowings from the Company:
Deed of trust notes payable.............................................. $362,167
Credit lines............................................................. 61,855
Other loans.............................................................. 64,341
--------
488,363
Mortgages payable - other lenders.......................................... 317,176
Other debt................................................................. 15,769
--------
Total................................................................... $821,308
========
The deed of trust notes payable to the Company are secured by certain land and
operating properties and general assignments of rents. These notes are due
December 31, 2012, and minimum principal payments, based on a thirty-year amortization
schedule, are due quarterly. Specified principal payments are also required when
land is released from the deed of trust; however, payments made due to partial
releases reduce or offset the required quarterly payments. Notes aggregating 348,112,000
bear interest at 12.25% through December 2000, and at the greater of the prime
rate plus 3.75% or 10% thereafter to maturity or repayment. The remaining notes
bear interest at 12.25% throughout their terms. Interest on the notes was
$45,671,000 in 1998.
The Ventures have five separate credit line facilities with the Company that
provide for aggregate borrowings of up to $115,000,000. These facilities may be
used for various purposes, including acquisitions, development and other corporate
needs, subject to specified terms and conditions. The credit facilities are
available to December 31, 2012. Borrowings are secured by deeds of trust on
certain land assets. Borrowings under the credit facilities bear interest at 9%
through December 2001, and at the greater of the prime rate plus 3.75% or 10%
thereafter. Interest on the credit line facilities was $5,055,000 in 1998.
Other loans payable to the Company are unsecured and are due in equal annual
installments over periods to 2023. The notes bear interest at a variable rate (9%
at December 31, 1998) which is based on the weighted-average interest rate of
certain borrowings of the Company and subsidiaries. Interest on the other loans
was $6,476,000 in 1998.
The mortgages payable to other lenders are secured by deeds of trust or mortgages
on properties and general assignments of rents. This debt matures at various
dates through 2017 and, at December 31, 1998, bears interest at a weighted-average
effective rate of 7.70%. At December 31, 1998, approximately $220,952,000 of the
mortgages were payable to one lender.
Other debt includes special improvement district bonds and construction loans.
Other debt bears interest at a weighted-average effective rate of 7.26% at
December 31, 1998.
The annual maturities of debt at December 31, 1998 are summarized as follows (in
thousands):
Borrowings
from the Other
Company Borrowings Total
------------- ------------ ------------
1999........................................ $ 7,424 $ 5,510 $ 12,934
2000........................................ 3,828 4,281 8,109
2001........................................ 4,024 5,944 9,968
2002........................................ 4,247 7,249 11,496
2003........................................ 4,499 6,126 10,625
Subsequent to 2003.......................... 464,341 303,835 768,176
-------- -------- ------------
Total.................................... $488,363 $332,945 $821,308
======== ======== ============
Total interest costs were $83,411,000 in 1998, of which $15,265,000, were
capitalized.
</TABLE>
IV-14
<PAGE>
<TABLE>
<S> <C>
During 1998, the Ventures incurred extraordinary losses related to extinguishments
of debt prior to scheduled maturity of $1,863,000, less related deferred income
tax benefits of $736,000. The sources of funds used to pay the debt and fund the
prepayment penalties, where applicable, were refinancings of the related
properties.
The carrying amounts of the borrowings from the Company approximate fair value at
December 31, 1998. The carrying amounts and estimated fair values of the
Ventures' other debt at December 31, 1998 are summarized as follows (in thousands):
Carrying Estimated
Amount Fair Value
------------ ----------
Fixed rate debt.................................................. $326,060 $342,962
Variable rate debt............................................... 6,885 6,885
------------ ----------
$332,945 $349,847
============ ==========
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 Ventures' debt obligations at fair value may not be possible and may not be
a prudent management decision.
(6) Income taxes Income tax expense is reconciled to the amount computed by applying the Federal
corporate tax rate as follows for the year ended December 31, 1998 (in thousands):
Tax at statutory rate on earnings before
income taxes and extraordinary losses............................. $ 20,509
State income taxes, net of Federal income
tax benefit....................................................... 1,551
--------
Income tax expense........................................... $ 22,060
========
The net deferred tax asset at December 31, 1998 is summarized as follows (in
thousands):
Total deferred tax assets........................................... $ 75,027
Total deferred tax liabilities...................................... 21,367
--------
Net deferred tax asset............................................ $ 53,660
========
The tax effects of temporary differences and loss carryforwards included in the net
deferred tax asset at December 31, 1998 are summarized as follows (in thousands):
Property, primarily differences in depreciation and
amortization, the tax basis of land assets and
treatment of interest and certain other costs.................... $ 41,740
Operating loss and tax credit carryforwards......................... 11,295
Other............................................................... 625
--------
Total............................................................ $ 53,660
========
The net operating losses carried forward from December 31, 1998 for Federal income
tax purposes aggregate approximately $27,645,000. The loss carryforward will
begin to expire in 2005.
As indicated above, the deferred tax assets relate primarily to differences in the
book and tax bases of property (particularly land assets) and to operating loss
carryforwards for Federal income tax purposes. Based on projections of future
taxable income, management believes that it is more likely than not that the net
deferred tax asset will be realized. The amount of the net
</TABLE>
IV-15
<PAGE>
<TABLE>
<S> <C>
deferred tax asset considered realizable could be reduced in the near term, however,
if estimates of future taxable income are reduced.
(7) Gain on Gain on dispositions of assets, net, is summarized as follows for the year ended
dispositions December 31, 1998 (in thousands):
of assets, net
Net gain on operating properties.................................... $15,879
Other, net.......................................................... (23)
-------
Total............................................................ $15,856
========
The net gain on operating properties relates primarily to sales of a hotel
property and two office/industrial buildings.
(8) Series A Preferred Howard Hughes Properties, Inc. (HHPI) has issued 25,000 shares of Series A
Stock Preferred stock to the Company. The shares have a liquidation preference of
$2,000 per share and earn dividends at an annual rate of 9.9% of the liquidation
preference. Dividends are cumulative, however, no dividends were paid during 1998
because HHPI incurred a tax loss. Dividends in arrears at December 31, 1998
aggregated $4,450,000. At the option of the Company, the shares are redeemable at
any time to December 31, 2017 at a price of $2,000 per share.
(9) Leases The Ventures, as lessee, have entered into operating leases expiring at various
dates through 2076. Rents under such leases aggregated $448,600 in 1998. In
addition, real estate taxes, insurance and maintenance expenses are obligations of
the Ventures. Minimum rent payments due under operating leases in effect at
December 31, 1998 are summarized as follows (in thousands):
1999................................................................ $ 449
2000................................................................ 449
2001................................................................ 449
2002................................................................ 449
2003................................................................ 278
Subsequent to 2003.................................................. 16,326
--------
Total............................................................ $ 18,400
========
Space in the Ventures' operating properties is leased to approximately 700
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 Ventures for certain of their operating expenses. Rents
from tenants are summarized as follows (in thousands):
Minimum rents....................................................... $ 47,977
Percentage rents.................................................... 996
Other rents......................................................... 24,838
------------
Total............................................................ $ 73,811
============
</TABLE>
IV-16
<PAGE>
<TABLE>
<S> <C>
The minimum rents to be received from tenants under operating leases in effect at
December 31, 1998 are summarized as follows (in thousands):
1999........................................................... $ 44,419
2000........................................................... 39,630
2001........................................................... 34,477
2002........................................................... 26,663
2003........................................................... 20,235
Subsequent to 2003............................................. 63,877
--------
Total....................................................... $229,301
========
(10) Other transactions with Under an informal agreement, the Company provides various services to the Ventures, including
The Rouse Company accounting, data processing, legal, leasing, finance, and other administrative and support
functions. The Ventures reimburse the Company for the cost of these services, determined in
accordance with the Company's established cost accounting practices. Under terms of a
license agreement, the Ventures paid the Company a fee of $1,000,000 in 1998 in consideration
for the right to use the Company's name in their property management operations. The fee
under the license agreement is determined annually based on various operating factors.
Operating expenses for 1998 include license fees and service cost reimbursements to the
Company of approximately $8,305,000. The Ventures also reimburse the Company for costs of
any services it provides with respect to development of operating properties. These costs
were approximately $2,198,000 in 1998 and related primarily to development of an expansion of
a regional shopping center and new office buildings in Columbia and Summerlin.
(11) Other commitments Commitments for the construction and development of properties in the ordinary course of
and contingencies business and other commitments not set forth elsewhere amount to approximately $60,000,000 at
December 31, 1998.
Certain of the Ventures have guaranteed payment of the Company's obligations under its credit
facilities with a group of lenders, subject to various terms and conditions. At December 31,
1998, outstanding borrowings under the facilities were $602,000,000.
The Ventures are defendants in various 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 litigation matters, where appropriate, and
the ultimate resolution of such litigation matters is not likely to have a material effect on
the combined financial position of the Ventures. Due to the Ventures' 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 Ventures' combined net earnings (loss) and it is,
therefore, possible that the resolution of these matters could have such an effect in a
future period.
(12) Year 2000 issue The year 2000 issue relates to whether computer systems will properly recognize
date-sensitive information to allow accurate processing of transactions and data relating to
the year 2000 and beyond. In addition, the year 2000 issue relates to whether
non-Information Technology (IT) systems that depend on embedded computer technology will
recognize the year 2000. Systems that do not properly recognize such information could
generate erroneous information or fail.
As described above, the Company provides the Ventures with various services. The Venture is
dependent on the Company's IT systems being year 2000 compliant. The Company has adopted a
plan to replace virtually all of its management information systems and accounting systems.
In accordance with this plan, all mission critical IT systems have been or are being replaced
with systems that are year 2000 compliant. For non-IT systems, the Company has completed a
comprehensive review of computer hardware and software in mechanical systems and has
developed a program to repair or replace and test non-IT systems that are not year 2000
compliant by the third quarter of 1999. In addition, the Company is developing contingency
plans in the event that any critical non-IT system fails as a result of a year 2000 issue.
Costs to
</TABLE>
IV-17
<PAGE>
<TABLE>
<S> <C>
specifically remediate non-IT systems (e.g., escalators, elevators, security, heating, ventilating
and cooling systems, etc.) are not expected to be material. Management of the Company and the
Ventures do not believe that the year 2000 issue will pose significant problems in IT and non-IT
systems, or that resolution of any potential problems with respect to these systems will have a
material effect on the Ventures' financial condition or results of operations.
The Company and management of the Ventures believe that the Ventures' exposure to the year
2000 issue is widespread with no known major direct exposure. The Company and management of
the Ventures believe that their most likely worst-case exposure is at the indirect level,
involving vendors, suppliers and tenants. While it is not possible at this time to determine
the likely impact of these potential problems, the Company and management of the Ventures
will continue to evaluate these areas and develop contingency plans, as appropriate.
(13) New accounting In March 1998, the American Institute of Certified Public Accountants issued Statement of
standards not yet Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
adopted Internal Use" (SOP 98-1) which is required to be adopted by the Ventures no later than
January 1, 1999. SOP 98-1 provides guidance as to whether costs incurred relating to
internal-use software should be expensed or capitalized. The guidance in SOP 98-1 is
required to be applied to costs incurred subsequent to adoption and may not be applied to
costs incurred prior to initial application. The Ventures intend to adopt SOP 98-1 effective
January 1, 1999, and do not believe that adoption will have a material effect on their results
of operations.
In April 1998, the American Institute of Certified Public Accountants issued Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities" (SOP 98-5) which is required
to be adopted by the Ventures no later than January 1, 1999. SOP 98-5 requires that start-up
costs and organization costs, not otherwise addressed in existing authoritative literature,
be expensed as incurred. The Ventures intend to adopt SOP 98-5 effective January 1, 1999,
and the initial application will be reported as the cumulative effect of a change in
accounting principle. The Ventures do not believe that adoption will have a material effect
on their results of operations in future periods.
</TABLE>
IV-18
<PAGE>
Schedule II
-----------
THE ROUSE COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
Additions
-------------------------
Balance at Charged to Charged to Balance at
beginning Costs and other end of
Descriptions of year expenses accounts Deductions year
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful receivables $ 21,311 $ 7,735 $ --- $ 9,218 /(1)/ $ 19,828
========= ========= ========= ========= =========
Valuation allowance - properties held for sale $ 37,952 $ --- $ --- $ 37,952 /(2)/ $ ---
========= ========= ========= ========= =========
Preconstruction reserve $ 17,351 $ 1,700 $ --- $ 3,143 /(3)/ $ 15,908
========= ========= ========= ========= =========
Year ended December 31, 1997:
Allowance for doubtful receivables $ 28,153 $ 5,766 $ --- $ 12,608 /(1)/ $ 21,311
========= ========= ========= ========= =========
Valuation allowance - properties held for sale $ 35,671 $ 26,249 $ --- $ 23,968 /(2)/ $ 37,952
========= ========= ========= ========= =========
Preconstruction reserve $ 16,317 $ 2,800 $ --- $ 1,766 /(3)/ $ 17,351
========= ========= ========= ========= =========
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
========= ========= ========= ========= =========
</TABLE>
Notes:
(1) Balances written off as uncollectible.
(2) Allowance related to properties sold.
(3) Costs of unsuccessful projects written off.
IV-19
<PAGE>
Schedule III
------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized subsequent
Initial cost to Company to acquisition
--------------------------- ----------------------------
Buildings
and
Encum- Improve Improve Carrying
Description brances Land ments(Note 3) ments costs (note 2)
----------- --------- ---------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Operating Properties:
Park Meadows $175,337 $35,812 $265,031 $ 55 $ --
Retail Center
Denver, CO
Bridgewater Commons 150,000 24,715 242,660 -- --
Retail Center
Bridgewater, NJ
Towson Town Center 140,000 45,391 207,723 255 --
Retail Center
Towson, MD
Arizona Center 107,550 4,137 -- 151,391 --
Mixed-Use project
Phoenix, AZ
The Fashion Show 75,232 33,179 120,347 1,212 --
Retail Center
Las Vegas, NV
South Street Seaport 58,337 -- -- 146,274 --
Retail Center
New York, NY
Woodbridge Center 132,504 26,301 -- 119,126 --
Retail Center
Woodbridge, NJ
Beachwood Place 119,568 10,673 -- 129,893 --
Retail Center
Beachwood, OH
Fashion Place Mall 76,649 19,379 119,715 -- --
Retail Center
Salt Lake City, UT.
Owings Mills 61,000 17,006 -- 113,557 --
Retail Center
Baltimore County, MD
<CAPTION>
Gross amount at which carried
at close of period
Life on
Buildings Accumulated Date of which depre-
and depreciation completion ciation in
latest
Improve and of Date income state-
Description Land ments Total amortization construction acquired ment is computed
----------- -------- --------- --------- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Properties:
Park Meadows $35,812 $265,086 $300,898 $ 1,890 06/96 07/98 Note 9
Retail Center
Denver, CO
Bridgewater Commons 24,715 242,660 267,375 1,981 06/88 12/98 Note 9
Retail Center
Bridgewater, NJ
Towson Town Center 45,391 207,978 253,369 856 06/59 10/98 Note 9
Retail Center
Towson, MD
Arizona Center 4,137 151,391 155,528 31,081 07/83 N/A Note 9
Mixed-Use project
Phoenix, AZ
33,179 121,559 154,738 6,870 03/81 06/96 Note 9
The Fashion Show
Retail Center
Las Vegas, NV
South Street Seaport -- 146,274 146,274 29,924 07/83 N/A Note 9
Retail Center
New York, NY
Woodbridge Center 26,301 119,126 145,427 27,680 03/71 N/A Note 9
Retail Center
Woodbridge, NJ
10,673 129,893 140,566 11,562 08/78 N/A Note 9
Beachwood Place
Retail Center
Beachwood, OH
19,379 119,715 139,094 490 03/72 10/98 Note 9
Fashion Place Mall
Retail Center
Salt Lake City, UT.
Owings Mills 17,006 113,557 130,563 13,691 07/86 N/A Note 9
Retail Center
Baltimore County, MD
</TABLE>
IV-20
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized subsequent
Initial cost to Company to acquisition
--------------------------- -----------------------------
Buildings
and
Encum- Improve Improve Carrying
Description brances Land ments(Note 3) ments costs
----------- --------- --------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Pioneer Place $102,475 $ -- $ -- $122,687 $ --
Mixed-Use project
Portland, OR
Oviedo Marketplace 69,485 11,676 -- 108,374 --
Retail Center
Orlando, FL.
Westlake Center 93,175 10,582 -- 104,807 --
Mixed-Use project
Seattle, WA
The Gallery at Harborplace 106,562 6,648 -- 106,820 --
Mixed-Use project
Baltimore, MD
Mall St. Matthews 71,223 -- -- 102,124 --
Retail Center
Louisville, KY
Bayside Marketplace 76,838 -- -- 97,408 --
Retail Center
Miami, FL
Governor's Square 54,077 -- -- 85,379 --
Retail Center
Tallahassee, FL
Paramus Park 70,353 13,475 -- 82,935 --
Retail Center
Paramus, NJ
Moorestown Mall 42,000 13,577 65,596 -- --
Retail Center
Burlington County, NJ
Faneuil Hall Marketplace 53,362 -- -- 74,858 --
Retail Center
Boston, MA
Santa Monica Place -- 5,088 -- 69,762 --
Retail Center
Santa Monica, CA
<CAPTION>
Gross amount at which carried
at close of period
---------------------------------- Life on
Buildings Accumulated Date of which depre-
and depreciation completion ciation in latest
Improve and of Date income state-
Description Land ments Total amortization construction acquired ment is computed
----------- ------- --------- ----- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pioneer Place $ -- $122,687 $ 122,687 $ 26,253 03/90 N/A Note 9
Mixed-Use project
Portland, OR
Oviedo Marketplace 11,676 108,374 120,050 2,183 03/98 N/A Note 9
Retail Center
Orlando, FL.
Westlake Center 10,582 104,807 115,389 28,911 10/88 N/A Note 9
Mixed-Use project
Seattle, WA
The Gallery at Harborplace 6,648 106,820 113,468 26,622 09/87 N/A Note 9
Mixed-Use project
Baltimore, MD
Mall St. Matthews -- 102,124 102,124 17,853 03/62 N/A Note 9
Retail Center
Louisville, KY
Bayside Marketplace -- 97,408 97,408 17,925 04/87 N/A Note 9
Retail Center
Miami, FL
Governor's Square -- 85,379 85,379 7,509 08/79 N/A Note 9
Retail Center
Tallahassee, FL
Paramus Park 13,475 82,935 96,410 10,714 03/74 N/A Note 9
Retail Center
Paramus, NJ
Moorestown Mall 13,577 65,596 79,173 2,189 03/63 12/97 Note 9
Retail Center
Burlington County, NJ
Faneuil Hall Marketplace -- 74,858 74,858 13,105 08/76 N/A Note 9
Retail Center
Boston, MA
Santa Monica Place 5,088 69,762 74,850 11,787 10/80 N/A Note 9
Retail Center
Santa Monica, CA
</TABLE>
IV-21
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized subsequent
Initial cost to Company to acquisition
--------------------------- -----------------------------
Buildings
and
Encum- Improve Improve Carrying
Description brances Land ments(Note 3) ments costs
----------- -------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cherry Hill Mall $78,280 $14,767 $ -- $58,210 $ --
Retail Center
Cherry Hill, NJ
Riverwalk 10,833 -- -- 72,495 --
Retail Center
New Orleans, LA
Oakwood Center 53,615 14,750 -- 57,395 --
Retail Center
Gretna, LA
Augusta Mall 61,347 5,398 -- 66,130 --
Retail Center
Augusta, GA
Hulen Mall 64,102 5,064 -- 65,624 --
Retail Center
Ft. Worth, TX
Plymouth Meeting 34,785 702 -- 69,386 --
Retail Center
Montgomery County, PA
Echelon Mall 59,334 6,160 -- 63,317 --
Retail Center
Voorhees, NJ
Harborplace 36,611 -- -- 58,147 --
Retail Center
Baltimore, MD
Perimeter Mall -- -- -- 50,051 --
Retail Center
Atlanta, GA
Blue Cross & Blue Shield 31,400 1,000 -- 44,756 --
Building I
Office Building
Baltimore, MD
<CAPTION>
Gross amount at which carried
at close of period
Life on
Buildings Accumulated Date of which depre-
and depreciation completion ciation in latest
Improve and of Date income state-
Description Land ments Total amortization construction acquired ment is computed
----------- -------- --------- ----- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cherry Hill Mall $14,767 $58,210 $ 72,977 $ 18,187 10/61 N/A Note 9
Retail Center
Cherry Hill, NJ
Riverwalk -- 72,495 72,495 11,648 08/86 N/A Note 9
Retail Center
New Orleans, LA
Oakwood Center 14,750 57,395 72,145 9,887 10/82 N/A Note 9
Retail Center
Gretna, LA
Augusta Mall 5,398 66,130 71,528 5,879 08/78 N/A Note 9
Retail Center
Augusta, GA
Hulen Mall 5,064 65,624 70,688 12,055 08/77 N/A Note 9
Retail Center
Ft. Worth, TX
Plymouth Meeting 702 69,386 70,088 13,474 02/66 N/A Note 9
Retail Center
Montgomery County, PA
Echelon Mall 6,160 63,317 69,477 12,888 09/70 N/A Note 9
Retail Center
Voorhees, NJ
Harborplace -- 58,147 58,147 12,456 07/80 N/A Note 9
Retail Center
Baltimore, MD
Perimeter Mall -- 50,051 50,051 7,597 08/71 N/A Note 9
Retail Center
Atlanta, GA
Blue Cross & Blue Shield 1,000 44,756 45,756 10,142 07/89 N/A Note 9
Building I
Office Building
Baltimore, MD
</TABLE>
IV-22
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized subsequent
Initial cost to Company to acquisition
--------------------------- ----------------------------
Buildings
and
Encum- Improve Improve Carrying
Description brances Land ments(Note 3) ments costs
----------- -------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
3800 Howard Hughes Parkway $39,222 $3,622 $38,438 $ 1,806 $ --
Office Building
Las Vegas, NV
White Marsh 41,147 4,390 -- 33,549 --
Retail Center
Baltimore, MD
Exton Square 14,762 1,408 -- 34,220 --
Retail Center
Exton, PA
The Jacksonville Landing 12,911 -- -- 33,609 --
Retail Center
Jacksonville, FL
Tampa Bay Center 35,714 920 -- 31,391 --
Retail Center
Tampa, FL
Village of Cross Keys -- 925 -- 31,319 --
Mixed-Use project
Baltimore, MD
North Star -- 168 -- 30,629 --
Retail Center
San Antonio, TX
Willowbrook 38,435 853 -- 29,302 --
Retail Center
Wayne, NJ
3773 Howard Hughes Parkway 22,406 1,738 22,625 3,338 --
Office Building
Las Vegas, NV
Two Owings Mills 18,174 1,000 -- 25,865 --
Corporate Center
Office Building
Baltimore, MD
<CAPTION>
Gross amount at which carried
at close of period
----------------------------------
Life on
Buildings Accumulated Date of which depre-
and depreciation completion ciation in latest
Improve and of Date income state-
Description Land ments Total amortization construction acquired ment is computed
----------- ------- --------- ----- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
3800 Howard Hughes Parkway $3,622 $40,244 $ 43,866 $ 3,795 11/86 06/96 Note 9
Office Building
Las Vegas, NV
White Marsh 4,390 33,549 37,939 9,062 08/81 N/A Note 9
Retail Center
Baltimore, MD
Exton Square 1,408 34,220 35,628 9,850 03/73 N/A Note 9
Retail Center
Exton, PA
The Jacksonville Landing -- 33,609 33,609 11,663 06/87 N/A Note 9
Retail Center
Jacksonville, FL
Tampa Bay Center 920 31,391 32,311 10,534 08/79 N/A Note 9
Retail Center
Tampa, FL
Village of Cross Keys 925 31,319 32,244 10,786 09/65 N/A Note 9
Mixed-Use project
Baltimore, MD
North Star 168 30,629 30,797 8,740 09/60 N/A Note 9
Retail Center
San Antonio, TX
Willowbrook 853 29,302 30,155 7,301 09/69 N/A Note 9
Retail Center
Wayne, NJ
3773 Howard Hughes Parkway 1,738 25,963 27,701 1,669 11/95 6/96 Note 9
Office Building
Las Vegas, NV
Two Owings Mills 1,000 25,865 26,865 6,466 09/87 N/A Note 9
Corporate Center
Office Building
Baltimore, MD
</TABLE>
IV-23
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized subsequent
Initial cost to Company to acquisition
--------------------------- ------------------------------
Buildings
and
Encum- Improve Improve Carrying
Description brances Land ments(Note 3) ments costs
----------- ------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
The Gallery at Market East $ -- $ -- $ -- $24,166 $ --
Retail Center
Philadelphia, PA
Senate Plaza 16,067 3,488 20,379 -- --
Office Building
Camp Hill, PA.
3960 Howard Hughes Parkway -- 800 -- 22,364 --
Office Building
Las Vegas, NV
Franklin Park 25,498 653 -- 21,097 --
Retail Center
Toledo, OH
Hunt Valley 75 17,265 6,659 14,187 410 --
Office Building
Hunt Valley, MD.
The Grand Avenue -- -- -- 21,218 --
Retail Center
Milwaukee, WI
Mondawmin Mall 4,151 2,251 -- 18,327 --
Retail Center
Baltimore, MD
Highland Mall 5,426 13 -- 18,238 --
Retail Center
Austin, TX
One Owings Mills 11,385 650 -- 17,045 --
Corporate Center
Office Building
Baltimore, MD
Blue Cross & Blue Shield 11,453 1,000 -- 16,591 --
Building II
Office Building
Baltimore, MD
<CAPTION>
Gross amount at which carried
at close of period
-----------------------------------
Life on
Buildings Accumulated Date of which depre-
and depreciation completion ciation in latest
Improve and of Date income state-
Description Land ments Total amortization construction acquired ment is computed
----------- ------ --------- ----- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Gallery at Market East $ -- $24,166 $ 24,166 $ 7,393 08/77 N/A Note 9
Retail Center
Philadelphia, PA
Senate Plaza 3,488 20,379 23,867 42 07/72 12/98 Note 9
Office Building
Camp Hill, PA.
3960 Howard Hughes Parkway 800 22,364 23,164 354 4/98 6/96 Note 9
Office Building
Las Vegas, NV
Franklin Park 653 21,097 21,750 5,306 07/71 N/A Note 9
Retail Center
Toledo, OH
Hunt Valley 75 6,659 14,597 21,256 54 07/84 12/98 Note 9
Office Building
Hunt Valley, MD.
The Grand Avenue -- 21,218 21,218 10,824 08/82 N/A Note 9
Retail Center
Milwaukee, WI
Mondawmin Mall 2,251 18,327 20,578 7,425 01/78 N/A Note 9
Retail Center
Baltimore, MD
Highland Mall 13 18,238 18,251 6,236 08/71 N/A Note 9
Retail Center
Austin, TX
One Owings Mills 650 17,045 17,695 6,232 11/88 N/A Note 9
Corporate Center
Office Building
Baltimore, MD
Blue Cross & Blue Shield 1,000 16,591 17,591 3,379 08/90 N/A Note 9
Building II
Office Building
Baltimore, MD
</TABLE>
IV-24
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized subsequent Gross amount at which carried
Initial cost to Company to acquisition at close of period
----------------------- ---------------------------- -----------------------------
Buildings Buildings
and and
Encum- Improve Improve Carrying Improve
Description brances Land ments(Note 3) ments costs Land ments Total
----------- ------- ---- ------------- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3753 / 3763 Howard Hughes
Parkway $10,985 $3,844 $12,018 $ 687 $ -- $3,844 $12,705 $ 16,549
Office Building
Las Vegas, NV
Centerpointe 7,006 4,012 11,302 -- -- 4,012 11,302 15,314
Office Building
Hunt Valley, MD
Canyon Center 12,597 2,081 7,161 5,391 -- 2,081 12,552 14,633
Office Building
Las Vegas, NV
Midtown Square -- -- -- 14,620 -- -- 14,620 14,620
Retail Center
Charlotte, NC
3930 Howard Hughes Parkway 6,750 3,108 11,279 27 -- 3,108 11,306 14,414
Office Building
Las Vegas, NV
Shilling Plaza South 6,206 5,437 7,402 14 -- 5,437 7,416 12,853
Office Building
Hunt Valley, MD
3980 Howard Hughes 10,586 879 5,583 6,113 -- 879 11,696 12,575
Office Building
Las Vegas, NV
Crossing Business 8,509 2,842 1,416 8,287 -- 2,842 9,703 12,545
Center Phase III
Office Building
Las Vegas, NV
Shilling Plaza North 7,932 4,024 8,059 -- -- 4,024 8,059 12,083
Office Building
Hunt Valley, MD
Canyon Center -- 1,723 -- 10,129 -- 1,723 10,129 11,852
Office Building
Las Vegas, NV
<CAPTION>
Life on
Accumulated Date of which depre-
depreciation completion ciation in latest
and of Date income state-
Description amortization construction acquired ment is computed
----------- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C>
3753 / 3763 Howard Hughes
Parkway $ 1,003 10/91 6/96 Note 9
Office Building
Las Vegas, NV
Centerpointe 24 07/87 12/98 Note 9
Office Building
Hunt Valley, MD
Canyon Center 638 03/98 06/96 Note 9
Office Building
Las Vegas, NV
Midtown Square 10,396 10/59 N/A Note 9
Retail Center
Charlotte, NC
3930 Howard Hughes Parkway 1,196 12/94 06/96 Note 9
Office Building
Las Vegas, NV
Shilling Plaza South 15 07/87 12/98 Note 9
Office Building
Hunt Valley, MD
3980 Howard Hughes 526 04/97 06/96 Note 9
Office Building
Las Vegas, NV
Crossing Business 798 09/96 06/96 Note 9
Center Phase III
Office Building
Las Vegas, NV
Shilling Plaza North 17 02/80 12/98 Note 9
Office Building
Hunt Valley, MD
Canyon Center 133 06/98 06/96 Note 9
Office Building
Las Vegas, NV
</TABLE>
IV-25
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized subsequent Gross amount at which carried
Initial cost to Company to acquisition at close of period
----------------------- ---------------------------- -----------------------------
Buildings Buildings
and and
Encum- Improve Improve Carrying Improve
Description brances Land ments(Note 3) ments costs Land ments Total
----------- ------- ---- ------------- ------- -------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Riverspark 2/Building 2 $ 1,504 $ 3,358 $ 7,955 $ -- $ -- $ 3,358 $ 7,955 $ 11,313
Office Building/Industrial
Columbia, MD
Trails Village Center 9,948 3,082 -- 6,804 -- 3,082 6,804 9,886
Community Retail Center
Las Vegas, NV
Crossing Business 7,679 1,326 7,951 507 -- 1,326 8,458 9,784
Center Phase I
Office Building
Las Vegas, NV
Inglewood Office II 6,279 2,261 7,304 -- -- 2,261 7,304 9,565
Office Building
Landover, MD
3770 Howard Hughes Parkway 5,530 691 8,010 484 -- 691 8,494 9,185
Office Building
Las Vegas, NV
201 International Circle 4,097 5,168 3,763 172 -- 5,168 3,935 9,103
Office Building
Hunt Valley, MD
Metro Plaza 423 202 -- 8,240 -- 202 8,240 8,442
Retail Center
Baltimore, MD
Equinox @ CBC 7,052 1,257 398 6,631 -- 1,257 7,029 8,286
Office Building
Las Vegas, NV
Montgomery Ward 7,679 607 7,213 37 -- 607 7,250 7,857
Office Building / Industrial
Las Vegas, NV
Inglewood Office Center I 5,145 1,940 5,867 -- -- 1,940 5,867 7,807
Office Building
Landover, MD
<CAPTION>
Life on
Accumulated Date of which depre-
depreciation completion ciation in latest
and of Date income state-
Description amortization construction acquired ment is computed
----------- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C>
Riverspark 2/Building 2 $ 17 07/87 12/98 Note 9
Office Building/Industrial
Columbia, MD
Trails Village Center 108 05/98 06/96 Note 9
Community Retail Center
Las Vegas, NV
Crossing Business 591 12/94 06/96 Note 9
Center Phase I
Office Building
Las Vegas, NV
Inglewood Office II 15 07/26 12/98 Note 9
Office Building
Landover, MD
3770 Howard Hughes Parkway 901 10/90 06/96 Note 9
Office Building
Las Vegas, NV
201 International Circle 20 07/82 12/98 Note 9
Office Building
Hunt Valley, MD
Metro Plaza 3,696 N/A 12/82 Note 9
Retail Center
Baltimore, MD
Equinox @ CBC 233 12/97 06/96 Note 9
Office Building
Las Vegas, NV
Montgomery Ward 519 10/95 06/96 Note 9
Office Building / Industrial
Las Vegas, NV
Inglewood Office Center I 12 07/82 12/98 Note 9
Office Building
Landover, MD
</TABLE>
IV-26
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized Gross amount at which carried
Initial cost to Company subsequent to acquisition at close of period
----------------------- -------------------------- -------------------------
Buildings Buildings
and and
Encum- Improve Improve Carrying Improve
Description brances Land ments(Note 3) ments costs Land ments Total
----------- ------- --------- ------------- ------------ ------------ ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Crossing Business $5,583 $ 357 $7,097 $ -- $ -- $ 357 $7,097 $7,454
Center Phase II
Office Building
Las Vegas, NV
840 Grier 6,096 963 1,430 4,854 -- 963 6,284 7,247
Office Building / Industrial
Las Vegas, NV
Ambassador Center 4,377 1,385 5,282 -- -- 1,385 5,282 6,667
Office Building
Woodlawn, MD
Raytheon -- 422 6,133 -- -- 422 6,133 6,555
Office Building / Industrial
Las Vegas, NV
Inglewood Tech V 4,295 2,889 3,654 -- -- 2,889 3,654 6,543
Industrial Building
Landover, MD
First National Bank Plaza 5,117 -- -- 6,330 -- -- 6,330 6,330
Office Building
Mt. Prospect, IL
Plaza East 4,604 911 5,299 -- -- 911 5,299 6,210
Office Building / Industrial
Las Vegas, NV
420 Pilot 4,102 1,066 (140) 5,242 -- 1,066 5,102 6,168
Office Building / Industrial
Las Vegas, NV
USA Group 7,000 1,196 4,880 -- -- 1,196 4,880 6,076
Office Building / Industrial
Las Vegas, NV
Pulaski 11 3,909 1,099 4,708 -- -- 1,099 4,708 5,807
Industrial Building
Baltimore, MD
<CAPTION>
Life on
Accumulated Date of which depre-
depreciation completion ciation in latest
and of Date income state-
Description amortization construction acquired ment is computed
----------- ----------- ------------ --------- -----------------
<S> <C> <C> <C> <C>
Crossing Business $ 456 12/95 06/96 Note 9
Center Phase II
Office Building
Las Vegas, NV
840 Grier 300 03/97 06/96 Note 9
Office Building / Industrial
Las Vegas, NV
Ambassador Center 11 07/85 12/98 Note 9
Office Building
Woodlawn, MD
Raytheon 398 11/92 06/96 Note 9
Office Building / Industrial
Las Vegas, NV
Inglewood Tech V 8 07/86 12/98 Note 9
Industrial Building
Landover, MD
First National Bank Plaza 1,913 07/81 N/A Note 9
Office Building
Mt. Prospect, IL
Plaza East 395 12/93 06/96 Note 9
Office Building / Industrial
Las Vegas, NV
420 Pilot 403 09/96 06/96 Note 9
Office Building / Industrial
Las Vegas, NV
USA Group 8 11/98 06/96 Note 9
Office Building / Industrial
Las Vegas, NV
Pulaski 11 10 07/69 12/98 Note 9
Industrial Building
Baltimore, MD
</TABLE>
IV-27
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized Gross amount at which
Initial cost to Company subsequent to acquisition carried at close of period
----------------------- ------------------------- --------------------------
Buildings Buildings
and and
Encum- Improve Improve Carrying Improve
Description brances Land ments(Note 3) ments costs Land ments Total
- ---------------------------- ------- --------- ------------- ------------ ------------ ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rutherford 5 $ 2,280 $ 614 $ 5,123 $ -- $ -- $ 614 $ 5,123 $5,737
Industrial Building
Woodlawn, MD
Rutherford 60 3,834 1,250 4,445 -- -- 1,250 4,445 5,695
Industrial Building
Woodlawn, MD
Plaza West 4,395 195 5,360 103 195 5,463 5,658
Office Building / Industrial
Las Vegas, NV
980 Kelley Johnson 3,278 815 4,772 -- -- 815 4,772 5,587
Office Building / Industrial
Las Vegas, NV
Canyon Business Center -- 1,188 -- 4,432 -- 1,188 4,432 5,620
Phase V
Office Building / Industrial
Las Vegas, NV
975 Kelley Johnson 3,458 378 5,211 -- -- 378 5,211 5,589
Office Building / Industrial
Las Vegas, NV
Inglewood Tech IV 1,618 2,222 3,365 -- -- 2,222 3,365 5,587
Industrial Building
Landover, MD
Riverspark Building A 3,620 1,461 4,053 -- -- 1,461 4,053 5,514
Industrial Building
Columbia, MD
Hunt Valley 49 3,589 1,575 3,892 -- -- 1,575 3,892 5,467
Industrial Building
Hunt Valley, MD
3960/3980 Parking Garage -- 576 -- 4,678 -- 576 4,678 5,254
Parking Garage
Las Vegas, NV
<CAPTION>
Life on
Accumulated Date of which depre-
depreciation completion ciation in latest
and of Date income state-
Description amortization construction acquired ment is computed
- ---------------------------- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C>
Rutherford 5 11 07/72 12/98 Note 9
Industrial Building
Woodlawn, MD
Rutherford 60 9 07/72 12/98 Note 9
Industrial Building
Woodlawn, MD
Plaza West 388 11/95 06/96 Note 9
Office Building / Industrial
Las Vegas, NV
980 Kelley Johnson 358 05/92 06/96 Note 9
Office Building / Industrial
Las Vegas, NV
Canyon Business Center 79 05/98 06/96 Note 9
Phase V
Office Building / Industrial
Las Vegas, NV
975 Kelley Johnson 399 11/90 06/96 Note 9
Office Building / Industrial
Las Vegas, NV
Inglewood Tech IV 7 07/86 12/98 Note 9
Industrial Building
Landover, MD
Riverspark Building A 8 09/85 12/98 Note 9
Industrial Building
Columbia, MD
Hunt Valley 49 8 02/82 12/98 Note 9
Industrial Building
Hunt Valley, MD
3960/3980 Parking Garage 198 05/97 06/97 Note 9
Parking Garage
Las Vegas, NV
</TABLE>
IV-28
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized subsequent
Initial cost to Company to acquisition
----------------------------- -----------------------------
Buildings
and
Encum- Improve Improve Carrying
Description brances Land ments(Note 3) ments costs Land
----------- ------- ---- ------------- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Hunt Valley 36 $ 3,409 $ 1,239 $ 3,954 $ -- -- $ 1,239
Industrial Building
Hunt Valley, MD
950 Pilot 2,167 769 -- 4,185 -- 769
OfficeBuilding/Industrial
Las Vegas, NV
731 Pilot 4,016 862 -- 3,999 -- 862
OfficeBuilding/Industrial
Las Vegas, NV
711 Pilot 3,192 463 -- 4,362 -- 463
OfficeBuilding/Industrial
Las Vegas, NV
Rutherford 46 3,215 1,079 3,697 -- -- 1,079
Industrial Building
Woodlawn, MD
Other properties and related
investments less than
5% of total 112,229 59,280 76,778 98,998 -- 59,280
----------------------------------------------------------------------------------------
Total Operating Properties 2,905,340 488,114 1,388,375 2,842,238 -- 488,114
----------------------------------------------------------------------------------------
<CAPTION>
Gross amount at which carried
at close of period
----------------------------
Life on
Buildings Accumulated Date of which depre-
and depreciation completion ciation in
Improve and of Date income state-
Description ments Total amortization construction acquired ment is computed
- ---------------------------- ----- ----- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Hunt Valley 36 $ 3,954 $ 5,193 $ 8 02/76 12/98 Note 9
Industrial Building
Hunt Valley, MD
950 Pilot 4,185 4,954 364 08/90 06/96 Note 9
OfficeBuilding/Industrial
Las Vegas, NV
731 Pilot 3,999 4,861 245 10/95 06/96 Note 9
OfficeBuilding/Industrial
Las Vegas, NV
711 Pilot 4,362 4,825 229 11/95 06/96 Note 9
OfficeBuilding/Industrial
Las Vegas, NV
Rutherford 46 3,697 4,776 8 02/88 12/98 Note 9
Industrial Building
Woodlawn, MD
Other properties and related
investments less than
5% of total 175,776 235,056 18,832
---------------------------------------------
Total Operating Properties 4,230,613 4,718,727 578,309
-----------------------------------------------
</TABLE>
IV-29
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized subsequent Gross amount at which carried
Initial cost to Company to acquisition at close of period
-------------------------- ------------------------------ ---------------------------
Buildings
and
Encum- Improve Improve Carrying
Description Brances Land ments(Note 3) ments costs Land
----------- ------- ---- ------------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Properties in Development:
Exton Square Expansion $ -- $ 3,340 $ -- $ 42,643 $ -- $ 3, 340
Expansion of retail center
Exton, PA
The Fashion Show Expansion -- 24,796 -- -- -- 24,796
Expansion of retail center
Las Vegas, NV
Pioneer Place Expansion -- 2,813 -- 15,971 -- 2,813
Expansion of mixed-use project
Portland, OR
Arizona Center -- -- -- 12,992 -- --
Developed/developable land
under master lease
Phoenix, AZ
Rouse Commercial Properties, Inc -- 6,955 -- -- -- 6,955
Developed/developable land
Primarily Baltimore and Landover, MD
Owings Mills Expansion -- 4,665 -- 1,890 -- 4,665
Expansion of retail center
Baltimore County, MD
Plymouth Meeting Expansion -- -- -- 6,225 -- --
Expansion of retail center
Montgomery County, PA
<CAPTION>
Gross amount at which carried
at close of period
----------------------------
Life on
Buildings Accumulated Date of which depre-
and depreciation completion ciation in late
Improve and of Date income state-
Description ments Total amortization construction acquired ment is computed
----------- ----- ----- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Properties in Development:
Exton Square Expansion $ 42, 643 $ 45,983 $ -- N/A N/A N/A
Expansion of retail center
Exton, PAN
The Fashion Show Expansion -- 24,796 -- N/A N/A N/A
Expansion of retail center
Las Vegas, NV
Pioneer Place Expansion 15,971 18,784 -- N/A N/A N/A
Expansion of mixed-use project
Portland, OR
Arizona Center 12,992 12,992 -- N/A N/A N/A
Developed/developable land
under master lease
Phoenix, AZ
Rouse Commercial Properties, -- 6,955 -- N/A N/A N/A
Inc
Developed/developable land
Primarily Baltimore and Landover, MD
Owings Mills Expansion 1,890 6,555 -- N/A N/A N/A
Expansion of retail center
Baltimore County, MD
Plymouth Meeting Expansion 6,225 6,225 -- N/A N/A N/A
Expansion of retail center
Montgomery County, PA
</TABLE>
IV-30
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized Gross amount
Initial cost subsequent at which carried
to Company to acquisition at close of period
----------------------- -------------------- ------------------------
Buildings Buildings Accumulated
and and Depreciation
Encum- Improve Improve Carrying Improve and
Description brances Land ments ments costs Land ments Total amortization
----------- ------- ------ --------- ------ ---------- ------ --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Moorestown Mall Expansion $ -- $ -- $ -- $ 4,861 $ -- $ -- $ 4,861 $ 4,861 $ --
Expansion of retail center
Morrestown, NJ
Perimeter Mall Expansion -- -- -- 4,857 -- -- 4,857 4,857 --
Expansion of retail center
Atlanta, GA
Oviedo Marketplace Expansion -- -- -- 3,974 -- -- 3,974 3,974 --
Expansion of retail center
Orlando, FL
Oakwood Center Expansion -- 1,188 -- 2,620 -- 1,188 2,620 3,808 --
Expansion of retail center
Gretna, LA
Mall St. Matthews Expansion -- -- -- 2,969 -- -- 2,969 2,969 --
Expansion of retail center
Louisville, KY
Airport Center Bldgs 40 & 51 -- -- -- 816 -- -- 816 816 --
Office Building in development
Las Vegas, NV
Airport Center Bldg 50 -- -- -- 480 -- -- 480 480 --
Office Building in development
Las Vegas, NV
3993 Howard Hughes Parkway -- -- -- 776 -- -- 776 776 --
Office Building in development
Las Vegas, NV
<CAPTION>
Life on
Date of which depreciation
completion in latest
of Date income state-
Description construction acquired ment is computed
----------- ------------ -------- ------------------
<S> <C> <C> <C>
Moorestown Mall Expansion N/A N/A N/A
Expansion of retail center
Morrestown, NJ
Perimeter Mall Expansion N/A N/A N/A
Expansion of retail center
Atlanta, GA
Oviedo Marketplace Expansion N/A N/A N/A
Expansion of retail center
Orlando, FL
Oakwood Center Expansion N/A N/A N/A
Expansion of retail center
Gretna, LA
Mall St. Matthews Expansion N/A N/A N/A
Expansion of retail center
Louisville, KY
Airport Center Bldgs 40 & 51 N/A 06/96 N/A
Office Building in development
Las Vegas, NV
Airport Center Bldg 50 N/A 06/96 N/A
Office Building in development
Las Vegas, NV
3993 Howard Hughes Parkway N/A 06/96 N/A
Office Building in development
Las Vegas, NV
</TABLE>
IV - 31
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized
subsequent Gross amount at which carried
Initial cost to Company to acquisition at close of period
-------------------------- ----------------------- -----------------------------
Buildings Buildings
and and
Encum- Improve Improve Carrying Improve
Description brances Land ments ments costs Land ments Total
----------- -------- -------- ---------- ----------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pre-construction costs - $ -- $ -- $ -- $ 30,098 $ -- $ -- $ 30,098 $ 30,098
various projects
Pre-construction reserve -- -- -- (15,908) -- -- (15,908) (15,908)
Other projects less than 5% -- 6,987 -- 1,352 -- 6,987 1,352 8,339
of total
------------------------------ ---------------------- ---------------------------------
Total Properties
in Development -- 50,744 -- 116,616 -- 50,744 116,616 167,360
------------------------------ ---------------------- ---------------------------------
Properties held for sale :
Valley Fair Mall 40,000 39,504 109,888 (55) -- 39,504 109,833 149,337
Retail Center
San Jose, CA
Westdale Mall -- -- 13,664 306 -- -- 13,970 13,970
Investment in unconsolidated real
estate venture
Cedar Rapids, IO
Other properties held for
sale,
less than 5% of total 2,984 1,003 1,608 (24) -- 1,003 1,584 2,587
------------------------------------- ---------------------- ---------------------------------
42,984 40,507 125,160 227 -- 40,507 125,387 165,894
------------------------------------- ---------------------- ---------------------------------
Total Property $2,948,324 $579,365 $1,513,535 $2,959,081 $ -- $ 579,365 $4,472,616 $5,051,981
===================================== ====================== =================================
<CAPTION>
Life on
Accumulated which depreciation
depreciation Date of in latest
and completion of Date income statement
Description amortization construction acquired is computed
----------- --------------- -------------- ------------- -------------------
<S> <C> <C> <C> <C>
Pre-construction costs - N/A N/A N/A N/A
various projects
Pre-construction reserve N/A N/A N/A N/A
Other projects less than 5% N/A N/A N/A N/A
of total
Total Properties
in Development
Properties held for sale :
Valley Fair Mall -- 06/86 07/98 N/A
Retail Center
San Jose, CA
Westdale Mall -- 07/79 10/98 N/A
Investment in unconsolidated real estate
venture
Cedar Rapids, IO
Other properties held for
sale,
less than 5% of total --
---------------
--
===============
Total Property $578,311
===============
</TABLE>
IV - 32
<PAGE>
Schedule III continued
----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
Notes:
(1) Reference is made to notes 1, 4 and 7 to the consolidated financial
statements.
(2) The determination of these amounts is not practicable and, accordingly,
they are included in improvements.
(3) Buildings and improvements include deferred costs of $106,388,000 at
December 31, 1998.
(4) The changes in total cost of properties for the years ended December
31, 1998, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $3,332,363 $3,691,600 $3,052,873
Additions, at cost 336,002 317,705 158,205
Cost of properties acquired 1,593,062 84,743 602,944
Additions to land held for
development and sale --- 134,447 48,474
Cost of land sales (21,885) (131,310) (57,204)
Retirements, sales and other
dispositions (185,861) (114,435) (85,167)
Property of subsidiaries in which a
majority voting interest was sold
to an affiliate --- (621,338) ---
Additions to preconstruction reserve (1,700) (2,800) (2,700)
Provision for loss on operating properties --- (26,249) (25,825)
---------- ---------- ----------
Balance at end of year $5,051,981 $3,332,363 $3,691,600
========== ========== ==========
</TABLE>
(5) Reference is made to the consolidated statements of cash flows for
explanation of noncash consideration included in property additions.
(6) Reference is made to note 3 to the consolidated financial statements
for explanation of transactions with affiliates.
IV-33
<PAGE>
Schedule III continued
----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
Notes:
(7) The changes in accumulated depreciation and amortization for the years
ended December 31, 1998, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $ 515,229 $ 552,201 $ 519,319
Depreciation and amortization
charged to operations 84,068 86,009 79,990
Retirements, sales and other, net (20,986) (50,814) (47,108)
Accumulated depreciation on properties
of subsidiaries in which a majority
voting interest was sold to an
affiliate --- (72,167) ---
--------- --------- ---------
Balance at end of year $ 578,311 $ 515,229 $ 552,201
========= ========= =========
</TABLE>
(8) The aggregate cost of properties for Federal income tax purposes is
approximately $4,579,728,000 at December 31, 1998.
(9) Reference is made to note 1(c) to the consolidated financial statements
for information related to depreciation.
(10) Reference is made to note 11 to the consolidated financial statements
for information related to provisions for losses on real estate assets.
(11) Certain amounts for prior years have been reclassified to conform to
the presentation for 1998.
IV-34
<PAGE>
Schedule IV
THE ROUSE COMPANY AND SUBSIDIARIES
Mortgage Loans On Real Estate
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Principal amount
of loans
subject to
Final Carrying delinquent
maturity date Periodic Face amount amount of principal or
Description (Note 1) Interest rate (Note 1) payment terms Prior leins of mortgages mortgages interest
- ------------------------- ------------- -------------- ------------- ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Howard Research
And Development
Corporation and
Subsidiaries Note 2 Dec. 31, 2012 Note 1 N/A $ 179,422 $ 179,422 None
Howard Hughes
Properties, Inc. Note 2 Dec. 31, 2012 Note 1 N/A 168,690 168,690 None
HRD Properties, Inc.
and Subsidiaries Note 3 Dec. 31, 2012 Note 1 N/A 14,055 14,055 None
-------- --------
$ 362,167 $ 362,167
======== ========
</TABLE>
IV-35
<PAGE>
Schedule IV continued
THE ROUSE COMPANY AND SUBSIDIARIES
MORTGAGE LOANS ON REAL ESTATE
December 31, 1998
Notes:
(1) The deed of trust notes receivable of the Company are secured by certain
land and operating properties and general assignments of rents of the
Real Estate Ventures owned by The Rouse Company Incentive Compensation
Statutory Trust and The Rouse Company. These notes are due December 31,
2012 and minimum principal payments, based on a thirty-year amortization
schedule, are due quarterly. Specified principal payments are also
required when land is released from the deed of trust; however, payments
made due to partial releases reduce or offset the required quarterly
payments.
(2) The notes bear interest at 12.25% through December 2000, and at the
greater of the prime rate plus 3.75% or 10% thereafter to maturity or
repayment.
(3) The note bears interest at 12.25% throughout the term.
(4) Balance at beginning of year $ 380,232,000
Collections of principal (18,065,000)
-------------
Balance at end of year $ 362,167,000
=============
(5) The deed of trust notes are carried in investments in and advances to
unconsolidated real estate ventures on the Company's balance sheets
at December 31, 1998 and 1997. See note 3 to the consolidated financial
statements regarding the transactions that gave rise to the deed of
trust notes.
IV-36
<PAGE>
Schedule II
-----------
REAL ESTATE VENTURES OWNED BY
THE ROUSE COMPANY INCENTIVE COMPENSATION STATUTORY TRUST AND THE ROUSE COMPANY
Valuation and Qualifying Accounts
Year ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Additions
----------------------
Balance at Charged to Charged to Balance at
beginning Costs and other end of
Descriptions of year expenses accounts Deductions year
------------ ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful receivables $ 830 $ 359 $ --- $ 355(1) $ 834
========== ========== ========== ========== ==========
</TABLE>
Note:
(1) Balances written off as uncollectible.
IV-37
<PAGE>
Schedule III
------------
REAL ESTATE VENTURES OWNED BY
THE ROUSE COMPANY INCENTIVE COMPENSATION STATUTORY TRUST
AND THE ROUSE COMPANY
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized subsequent Gross amount at which
Initial cost to Company to acquisition carried at close of period
---------------------------- ---------------------------- ---------------------------
Buildings
Buildings and
and Carrying Improve
Emcum- Improve Improve costs ments
Description brances Land ments ments (notes 2) Land (note 3) Total
- ------------------------- ------- ---- ----- -------- --------- ---- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Properties:
The Mall in Columbia $204,185 $4,788 $ - $ 69,946 $ - $ 4,788 $ 69,946 $74,734
Retail center
Columbia, MD
White Marsh 41,147 6,392 - 43,020 - 6,392 43,020 49,412
Retail center
Baltimore, MD
Seventy Columbia Corp Ctr 28,677 856 - 24,246 - 856 24,246 25,102
Office building
Columbia, MD
Forty Columbia Corp Ctr 3,919 636 - 15,606 - 636 15,606 16,242
Office building
Columbia, MD
Fifty Columbia Corp Ctr 3,522 463 - 15,280 - 463 15,280 15,743
Office building
Columbia, MD
Thirty Columbia Corp Ctr 3,421 1,160 - 10,988 - 1,160 10,988 12,148
Office building
Columbia, MD
Hickory Ridge Village Ctr 13,754 907 - 10,186 - 907 10,186 11,093
Community retail center
Columbia, MD
Dorsey Search Village Ctr 14,881 911 - 9,752 - 911 9,752 10,663
Community retail center
Columbia, MD
<CAPTION>
Accumulated Life on
depreciation Date of which depreciation
and completion of Date in latest income
Description amortization construction acquired statement is computed
- ------------------------- ------------ ------------ -------- ---------------------
<S> <C> <C> <C> <C>
Operating Properties:
The Mall in Columbia $ 13,026 8/71 12/97 Note 7
Retail center
Columbia, MD
White Marsh 5,208 8/81 12/97 Note 7
Retail center
Baltimore, MD
Seventy Columbia Corp Ctr 5,244 6/92 12/97 Note 7
Office building
Columbia, MD
Forty Columbia Corp Ctr 5,274 6/87 12/97 Note 7
Office building
Columbia, MD
Fifty Columbia Corp Ctr 4,185 11/89 12/97 Note 7
Office building
Columbia, MD
Thirty Columbia Corp Ctr 4,438 4/86 12/97 Note 7
Office building
Columbia, MD
Hickory Ridge Village Ctr 1,817 6/92 12/97 Note 7
Community retail center
Columbia, MD
Dorsey Search Village Ctr 2,264 9/89 12/97 Note 7
Community retail center
Columbia, MD
</TABLE>
IV-38
<PAGE>
REAL ESTATE VENTURES OWNED BY
THE ROUSE COMPANY INCENTIVE COMPENSATION STATUTORY TRUST
AND THE ROUSE COMPANY
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized
subsequent Gross amount at which
Initial cost to Company to acquisition carried at close of period
------------------------ ------------------------ ----------------------------------
Buildings
Builidngs and
and Carrying Improve
Encum- Improve Improve costs ments
Description brances Land ments ments (note 2) Land (note 3) Total
----------- ------- ---- -------- ------- --------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Twenty Columbia Corp Ctr $ 2,405 $ 927 $ -- $ 9,619 $ -- $ 927 $ 9,619 $ 10,546
Office building
Columbia, MD
Harper's Choice 9,233 546 -- 9,323 -- 546 9,323 9,869
Community retail center
Columbia, MD
American City Building 2,812 -- -- 9,346 -- -- 9,346 9,346
Office building
Columbia, MD
Kings Contrivance 22,724 1,072 -- 7,187 -- 1,072 7,187 8,259
Community retail center
Columbia, MD
Ten Columbia Corp Ctr 2,732 733 -- 7,440 -- 733 7,440 8,173
Office building
Columbia, MD
Wilde Lake 20,252 1,486 -- 6,525 -- 1,486 6,525 8,011
Community retail center
Columbia, MD
Oakland Mills 1,141 447 -- 5,842 -- 447 5,842 6,289
Community retail center
Columbia, MD
Long Reach Village Ctr 4,693 1,009 -- 5,167 -- 1,009 5,167 6,176
Community retail center
Columbia, MD
<CAPTION>
Accumulated Life on
depreciation Date of which depreciation
and completion of Date in latest income
Description amoritization construction required statement is computed
----------- ------------- ------------- -------- ---------------------
<S> <C> <C> <C> <C>
Twenty Columbia Corp Ctr $ 3,912 6/81 12/97 Note 7
Office building
Columbia, MD
Harper's Choice 2,512 6/71 12/97 Note 7
Community retail center
Columbia, MD
American City Building 7,802 6/69 12/97 Note 7
Office building
Columbia, MD
Kings Contrivance 2,435 6/86 12/97 Note 7
Community retail center
Columbia, MD
Ten Columbia Corp Ctr 2,797 9/81 12/97 Note 7
Office building
Columbia, MD
Wilde Lake 3,294 7/67 12/97 Note 7
Community retail center
Columbia, MD
Oakland Mills 1,510 6/69 12/97 Note 7
Community retail center
Columbia, MD
Long Reach Village Ctr 1,090 6/74 12/97 Note 7
Community retail center
Columbia, MD
</TABLE>
IV-39
<PAGE>
REAL ESTATE VENTURES OWNED BY
THE ROUSE COMPANY INCENTIVE COMPENSATION STATUTORY TRUST
AND THE ROUSE COMPANY
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized
subsequent Gross amount at which
Initial cost to Company to acquisition carried at close of period
------------------------ ------------------------ ----------------------------------
Buildings
Builidngs and
and Carrying Improve
Encum- Improve Improve costs ments
Description brances Land ments ments (note 2) Land (note 3) Total
----------- ------- ---- -------- ------- --------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dobbin Road $ 3,724 $ 426 $ -- $ 4,848 $ -- $ 426 $ 4,848 $ 5,274
Community retail center
Columbia, MD
Columbia Crossing 5,973 945 -- 3,794 -- 945 3,794 4,739
Community retail center
Columbia, MD
Ridgley Building 11,334 670 -- 3,881 -- 670 3,881 4,551
Office building
Columbia, MD
Oakland Building 695 -- -- 4,150 -- -- 4,150 4,150
Office building
Columbia, MD
Sterrett Building 1,212 308 -- 3,689 -- 308 3,689 3,997
Office building
Columbia, MD
Teachers Building 8,679 -- -- 3,100 -- -- 3,100 3,100
Office building
Columbia, MD
Lynx Lane 8,123 150 -- 2,827 -- 150 2,827 2,977
Community retail center
Columbia, MD
Other properties and related
investments less than
5% of total 2,582 1,191 -- 15,075 -- 1,191 15,075 16,266
---------------------------------- ---------------------- ----------------------------------
Total Operating Properties 421,820 26,023 -- 300,837 -- 26,023 300,837 326,860
---------------------------------- ---------------------- ----------------------------------
<CAPTION>
Accumulated Life on
depreciation Date of which depreciation
and completion of Date in latest income
Description amoritization construction required statement is computed
----------- ------------- ------------- -------- ---------------------
<S> <C> <C> <C> <C>
Dobbin Road $ 1,545 6/83 12/97 Note 7
Community retail center
Columbia, MD
Columbia Crossing 235 11/98 12/97 Note 7
Community retail center
Columbia, MD
Ridgley Building 2,296 6/72 12/97 Note 7
Office building
Columbia, MD
Oakland Building 2,359 6/71 12/97 Note 7
Office building
Columbia, MD
Sterrett Building 2,172 6/72 12/97 Note 7
Office building
Columbia, MD
Teachers Building 1,021 6/69 12/97 Note 7
Office building
Columbia, MD
Lynx Lane 1,199 6/73 12/97 Note 7
Community retail center
Columbia, MD
Other properties and related
investments less than
5% of total 4,755
--------------
Total Operating Properties 82,390
--------------
</TABLE>
IV-40
<PAGE>
REAL ESTATE VENTURES OWNED BY
THE ROUSE COMPANY INCENTIVE COMPENSATION STATUTORY TRUST
AND THE ROUSE COMPANY
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized subsequent Gross amount at which
Initial cost to Company to acquisition carried at close of period
----------------------- ----------------------------- --------------------------
Buildings
Buildings and
and Carrying Improve
Encum- Improve Improve costs ments
Description brances Land ments ments (note 2) Land (note 3) Total
----------- ------- ---- ----- ------- -------- ---- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Properties in Development:
Columbia Mall $ -- $ 2,000 $ -- $ 38,352 $ -- $ 2,000 $ 38,352 $ 40,352
Expansion of retail center
Columbia, MD
60 Columbia Corporate Center 4,641 1,050 -- 8,356 -- 1,050 8,356 9,406
New Office Building
Columbia, MD
3993 Howard Hughes Parkway -- 332 -- 4,862 -- 332 4,862 5,194
New Office Building
Las Vegas, NV
Village 12 Arbors East 1 ,451 535 -- 4,068 -- 535 4,068 4,603
New Office Building
Las Vegas, NV
Airport Center 40/51 -- 547 -- 1,944 -- 547 1,944 2,491
New Office Building
Las Vegas, NV
Airport Center 50 -- 754 -- 1,504 -- 754 1,504 2,258
New Office Building
Las Vegas, NV
Other properties less than 5%
of total -- -- 2,138 -- -- 2,138 2,138
-------------------------- -------------------- ---------------------------------
Total Properties
in Development 6,092 5,218 -- 61,224 -- 5,218 61,224 66,442
-------------------------- -------------------- ---------------------------------
<CAPTION>
Accumulated Life on
depreciation Date of which depreciation
and completion of Date in latest income
Description amortization construction acquired statement is computed
----------- -------------- ------------ --------- ----------------------
<S> <C> <C> <C> <C>
Properties in Development: $ -- N/A 12/97 N/A
Columbia Mall -- N/A 12/97 N/A
Expansion of retail center
Columbia, MD
60 Columbia Corporate Center -- N/A 12/97 N/A
New Office Building
Columbia, MD
3993 Howard Hughes Parkway -- N/A 12/97 N/A
New Office Building
Las Vegas, NV
Village 12 Arbors East -- N/A 12/97 N/A
New Office Building
Las Vegas, NV
Airport Center 40/51 -- N/A 12/97 N/A
New Office Building
Las Vegas, NV
Airport Center 50 -- N/A 12/97 N/A
New Office Building
Las Vegas, NV
Other projects less than 5%
of total -- N/A 12/97 N/A
</TABLE>
IV-41
<PAGE>
REAL ESTATE VENTURES OWNED BY
THE ROUSE COMPANY INCENTIVE COMPENSATION STATUTORY TRUST
AND THE ROUSE COMPANY
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized subsequent Gross amount at which
Initial cost to Company to acquisition carried at close of period
----------------------- ----------------------------- --------------------------
Buildings
Buildings and
and Carrying Improve
Encum- Improve Improve costs ments
Description brances Land ments ments (note 2) Land (note 3) Total
----------- --------- ---- ----- ----- -------- ---- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment land and land
held for development
and sale:
Columbia $ 33,369 $ 53,000 $ -- $ 53,564 $ -- $106,564 $ -- $106,564
Land in various stages of
development
Columbia, MD
Summerlin 174,422 89,076 -- 6,421 -- 95,497 -- 95,497
Land in various stages of
development
Las Vegas, NV
Nevada Investment Land 38,149 20,631 -- 20,525 -- 41,156 -- 41,156
Canyon Springs 14,959 12,872 -- 11,898 -- 24,770 -- 24,770
Land held for development
Riverside County, CA
Bridgewater Commons -- 10,054 -- 59 -- 10,113 -- 10,113
Land held for sale
Bridgewater, NJ
Other less than 5% of total -- 55 -- -- 55 -- 55
---------------------------------- --------------------------- ------------------------------------
Total investment land and
land held for development
and sale 260,899 185,688 -- 92,467 -- 278,155 -- 278,155
----------------------------------- --------------------------- ------------------------------------
Total Property $688,811 $216,929 $ -- $ 454,528 $ -- $309,396 $362,061 $671,457
=================================== =========================== ====================================
<CAPTION>
Accumulated Life on
depreciation Date of which depreciation
and completion of Date in latest income
Description amortization construction acquired statement is computed
----------- ------------ ------------ --------- ----------------------
<S> <C> <C> <C> <C>
Land held for development
and sale:
Columbia N/A N/A 12/97 N/A
Land in various stages of
development
Columbia, MD
Summerlin N/A N/A 12/97 N/A
Land in various stages of
development
Las Vegas, NV
Nevada Investment Land N/A N/A 12/97 N/A
Canyon Springs N/A N/A 12/97 N/A
Land held for development
Riverside County, CA
Bridgewater Commons N/A N/A 12/97 N/A
Land held for sale
Bridgewater, NJ
Other properties held for
sale, less than 5% of total --
----------
--
----------
Total Property $ 82,390
==========
</TABLE>
IV-42
<PAGE>
Schedule III continued
REAL ESTATE VENTURES OWNED BY
THE ROUSE COMPANY INCENTIVE COMPENSATION STATUTORY TRUST
AND THE ROUSE COMPANY
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
Notes:
(1) Reference is made to notes 1, 2 and 5 to the combined consolidated
financial statements. As indicated in note 1, the Ventures retained
The Rouse Company's historical cost basis in the assets acquired and
liabilities assumed on December 31, 1997. Accordingly, historical
data have been presented with respect to the allocation of the gross
historical cost of properties at December 31, 1998 between initial cost
and costs capitalized subsequent to acquisition.
(2) The determination of these amounts is not practicable and, accordingly,
they are included in improvements.
(3) Buildings and improvements include deferred costs of $10,472,000 at
December 31, 1998.
(4) The changes in total cost of properties for the years ended December 31,
1998 is as follows (in thousands):
<TABLE>
<S> <C>
Balance at beginning of year $ 619,295
Additions, at cost 82,289
Cost of properties acquired 10,054
Additions to land held for
development and sale 82,656
Cost of land sales (77,771)
Retirements, sales and other
dispositions (45,066)
----------
Balance at end of year $ 671,457
==========
</TABLE>
IV-43
<PAGE>
Schedule III continued
----------------------
REAL ESTATE VENTURES OWNED BY
THE ROUSE COMPANY INCENTIVE COMPENSATION STATUTORY TRUST
AND THE ROUSE COMPANY
Real Estate and Accumulated Depreciation (note 1)
December 31, 1998
Notes:
(5) The changes in accumulated depreciation and amortization for the year
ended December 31, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Balance at beginning of year $ 72,000
Depreciation and amortization
charged to operations 10,585
Retirements, sales and other, net (195)
----------
Balance at end of year $ 82,390
==========
</TABLE>
(6) The aggregate cost of properties for Federal income tax purposes is
approximately $1,071,814,000 at December 31, 1998.
(7) Reference is made to note 1(c) to the combined consolidated financial
statements for information related to depreciation.
IV-44
<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 30, 1999
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 30, 1999
Chairman of the Board, President
and Chief Executive Officer
Principal Financial Officer:
/s/Jeffrey H. Donahue
---------------------------------------
Jeffrey H. Donahue March 30, 1999
Executive Vice President and
Chief Financial Officer
Principal Accounting Officer:
/s/George L. Yungmann
---------------------------------------
George L. Yungmann March 30, 1999
Senior Vice President and Controller
IV-45
<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 30, 1999
For himself and as
Attorney-in-fact for
the above-named persons
IV-46
<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 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 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 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 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 incorporated by
reference from the Company's Form 10-K Annual Report for the fiscal year ended
December 31, 1996.
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 incorporated by reference from the
Company's Form 10-K Annual Report for the fiscal year ended December 31, 1996.
The memorandum of agreement, dated December 19, 1996, between the Company and
Mathias J. DeVito, then Chairman of the Board of the Company, is incorporated
by reference from the Company's Form 10-K Annual Report for the fiscal year
ended December 31, 1996.
The employment agreement, dated May 1, 1996, between John L. Goolsby, The Rouse
Company and TRC Acquisition Company I is incorporated by reference from the
Company's 10-K Annual Report for the fiscal year ended December 31, 1997.
The Company's 1997 Stock Incentive Plan is incorporated by reference from the
Company's definitive proxy statement filed pursuant to Regulation 14A on
April 4, 1997.
The Rouse Company Special Option Plan, effective January 1, 1998, is
incorporated by reference from the Company's Form 10-K Annual Report for the
year ended December 31, 1997.
The Asset Purchase Agreement, dated as of April 6, 1998, between TrizecHahn
Centers, Inc., and The Rouse Company and Westfield America, Inc. is
incorporated by reference from the Company's Current Report on Form 8-K dated
August 14, 1998.
<PAGE>
The letter agreement, dated as of June 30, 1998, between The Rouse Company and
Teachers Properties, Inc. relating to the purchase of certain of the interests
in Rouse-Teachers Properties, Inc. is incorporated by reference from the
Company's Form 10-Q Quarterly Report for the quarterly period ended
September 30, 1998.
The Contribution Agreement, dated as of February 1, 1999, among The Rouse
Company of Nevada, Inc., HRD Properties, Inc., Rouse-Bridgewater Commons, LLC,
Rouse-Park Meadows Holding, LLC, Rouse-Towson Town Center LLC, Bridgewater
Commons Mall, LLC, Rouse-Fashion Place, LLC, Rouse-Park Meadows LLC, Towson TC,
LLC, TTC SPE, LLC and Fourmall Acquisition, LLC is incorporated by reference
from the Company's Current Report on Form 8-K dated February 10, 1999.
The employment agreement, dated September 24, 1998, between the Company and
Anthony W. Deering is attached.
All documents referred to above may be found in Commission file number 0-1743.
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This employment agreement ("Agreement") is entered into the 24th day
of September, 1998 (the "Effective Date"), by and between THE ROUSE COMPANY (the
"Company") and ANTHONY W. DEERING (the "Executive").
EXPLANATORY STATEMENT
---------------------
The Executive is currently employed by the Company and serves as the
Company's Chief Executive Officer. The Company recognizing the unique skills and
abilities of the Executive wishes to insure that the Executive will continue to
be employed by the Company until the Executive reaches age 60. The Executive
desires to continue in the employment of the Company as Chief Executive Officer
until age 60. Accordingly the parties desire to enter into this employment
agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties agree as follows:
1. Employment, Term and Duties.
---------------------------
1.1 Employment. The Company hereby employs the Executive and the
----------
Executive hereby accepts employment by the Company on the terms and conditions
set forth in this Agreement.
1.2 Term. The Executive's employment under this Agreement shall
----
commence on the Effective Date and shall terminate on January 31, 2005, unless
earlier terminated as provided in Section 4 below (the "Term").
1.3 Duties. During the Term, the Executive shall serve as
------
the Chief Executive Officer of the Company, with such customary duties and
responsibilities as are incident to such position, including such authority,
duties, and responsibilities as are set forth with respect to such office in the
Company's articles and bylaws. The parties acknowledge that the Executive
currently also holds the titles of Chairman of the Board and of President. The
Company reserves the right to elect another individual(s) to such positions and
such election shall not constitute "Good Reason" as hereinafter defined,
provided the Executive consents to such election. The Executive shall report
directly to the Board of Directors of the Company (the "Board"). The Executive
agrees to devote substantially all his attention and time during normal business
hours to the business and affairs of the Company and to use his reasonable best
efforts to perform faithfully and efficiently the duties and responsibilities of
his positions and to accomplish the goals and objectives of the Company as may
be established by the Board. Notwithstanding
<PAGE>
the foregoing, the Executive may engage in the following activities (and shall
be entitled to retain all economic benefits thereof including fees paid in
connection therewith) as long as they do not interfere in any material respect
with the performance of the Executive s duties and responsibilities hereunder:
(i) serve on corporate, civic, religious, educational and/or charitable boards
or committees, provided that the Executive shall not serve on any board or
committee of any corporation or other business which competes with the Business
(as defined in Section 3.1 below), (ii) deliver lectures, fulfill speaking
engagements or teach on a part-time basis at educational institutions and (iii)
make investments in businesses or enterprises and manage his personal
investments; provided that with respect to such activities Executive shall
comply with Business Conduct and Ethics Policy applicable to employees of the
Company and subsidiaries. The parties acknowledge that the Executives
participation as a director of the organizations listed on Exhibit A attached
hereto are acceptable.
2. Compensation and Other Benefits.
-------------------------------
2.1 Base Compensation. As compensation for services rendered
-----------------
during the Term, the Company shall pay to the Executive an annual salary of
$800,000 (the "Base Salary"). The Personnel Committee of the Board of Directors
of The Company (the "Committee") shall conduct a review of the Base Salary in
February, 1999, and thereafter at such time or times as the Committee reviews
the annual compensation of the executives of the Company in general, and the
Executive shall be entitled at such time or times to such annual increase in the
Base Salary as is in accordance with the then prevailing policy of The Company
with respect to executive compensation in general; provided, that such salary
may not be reduced at any time. The Base Salary shall be payable in accordance
with the payroll policies of The Company as from time to time in effect, less
such amounts as shall be required to be deducted or withheld therefrom by
applicable law and regulations.
2.2 Annual Bonus. In addition to the Base Salary, the Executive
------------
shall continue to be eligible to receive, for each calendar year or portion
thereof occurring during the Term, an annual bonus (the "Annual Bonus") in an
amount annually determined by the Committee in accordance with the standard
practice of such Committee relating to the incentive compensation program of The
Company. The Annual Bonus shall be paid to the Executive, less such amounts as
shall be required to be deducted or withheld therefrom by applicable law and
regulations, at such time or times as is in accordance with the then prevailing
policy of The Company relating to incentive compensation payments.
2.3 Stock Grant and Stock Options.
-----------------------------
(a) Stock Grant and Gross-Up; Repayment of Gross Up. Pursuant
-----------------------------------------------
to the resolutions adopted by the Board at its meeting on
-2-
<PAGE>
September 24, 1998, the Company hereby grants Executive a stock grant of 109,850
shares of The Company's Common Stock pursuant to The Company's 1997 Stock
Incentive Plan. The terms, conditions and restrictions with regard to such stock
grant shall be evidenced by a letter agreement between the Company and the
Executive in the form of Exhibit B attached hereto which shall be incorporated
---------
herein by reference and its terms, conditions and notifications shall be
considered a part of this Agreement.
In the event the Executive elects to be taxed in accordance with the
provisions of Section 83(b) of the Internal Revenue Code of 1986 (the "Code")
with regard to said stock grant, then Executive shall also receive a cash
payment (the "Gross-Up Payment") on or before December 31, 1998, in an amount
sufficient to pay all state and federal income taxes payable by Executive with
respect to the stock grant, including any tax payable with regard to the Gross-
Up Payment. The Gross-Up Payment shall be calculated based on the Executive's
actual items of income, expense and deductions for the year in which the Section
83(b) election is made and shall compensate the Executive for all additional
taxes payable by the Executive on account of his receipt of the Stock Grant and
the Gross-Up Payment.
In the event that, prior to January 31, 2005, the Executive's
employment is terminated for Cause pursuant to Section 4.2 hereof or the
Executive effects a Voluntary Termination of his employment under Section 4.4
hereof, then the Executive shall be obligated to repay to the Company the entire
amount of the Gross-Up Payment, such payment to be made in its entirety within
thirty (30) days of the date of termination.
If the Executive is required to repay the amount of the Gross Payment,
the Company shall have the right to set off such amount against any payments due
by the Company to the Executive.
b. 1998 Stock Options. Pursuant to the resolutions adopted by the
------------------
Board of Directors at its meeting on September 24, 1998, the Company grants
Executive effective as of September 24, 1998 a stock option for 300,000 shares
of the Company's Common Stock pursuant to The Company's 1997 Stock Incentive
Plan. The option price with respect to such stock option shall be $27.31 per
share. The maximum number of such options which qualify as "qualified stock
options" shall be granted as "qualified stock options" and the remainder of such
options shall be non-qualified stock options. The terms, conditions and
restrictions with regard to said stock options shall be evidenced by an
Incentive Stock Option Agreement (as to the qualified stock options) and a
Nonqualified Stock Option Agreement (as to the non-qualified stock options),
substantially in the forms attached hereto as Exhibit C-1 and Exhibit C-2
----------- -----------
respectively which shall be incorporated herein by reference and their terms,
conditions and restrictions shall be considered a part of this Agreement.
-3-
<PAGE>
c. Accelerated Stock Options. The Executive and the Company
-------------------------
acknowledge that the Executive would have been eligible, pursuant to the
Company's current policy, to receive a stock option grant in February 1999. The
parties wish to provide for the acceleration of such grant.
Accordingly, pursuant to the resolutions adopted by the Board at
its meeting on September 24, 1998, the Company hereby grants the Executive a
stock option for 300,000 shares of the Company's Common Stock pursuant to the
Company's 1997 Stock Incentive Plan. The option price with respect to such stock
options shall be $32.77 per share. The maximum number of such options which
qualify as "qualified stock options" shall be granted as "qualified stock
options" and the remainder of such options shall be non-qualified stock options.
The terms, conditions and restrictions with regard to said stock options shall
be evidenced by an Incentive Stock Option Agreement (as to the qualified stock
options) and a Non-Qualified Stock Option Agreement (as to the non-qualified
stock options), substantially in the forms attached hereto as Exhibit D-1 and D-
2, which are incorporated by reference and their terms, conditions and
restrictions shall be considered a part of this Agreement.
2.4 Retirement Supplement.
a. Retirement at 62 or thereafter. If the Executive fulfills
------------------------------
all the terms and conditions of this Agreement and the Executive retires from
the Company at age 62 or thereafter then the Executive's combined annual benefit
under The Rouse Company Pension Plan and the Supplemental Benefit Retirement
Plan shall be increased to an amount not less than fifty-five percent (55%) of
his Cash Compensation (as defined in The Rouse Company Pension Plan).
b. Retirement Before Age 62. If (i) the Executive is not then
------------------------
in default under this Agreement and this Agreement is terminated pursuant to the
provisions of Section 4.1 or Section 4.3 hereof, (ii) the Executive retires upon
the expiration of this Agreement, or (iii) the Executive retires after age 60
but before age 62 under circumstances that would constitute a "Voluntary
Termination" under Section 4.4, then the Executive's combined annual benefit (at
age 62) under The Rouse Company Pension Plan and the Supplemental Retirement
Benefit Plan shall be increased to an amount not less than fifty-five percent
(55%) of the Executive's Cash Compensation (as defined in The Rouse Company
Pension Plan) computed for the 12 months immediately preceding such date of
termination.
The amounts which may be paid to the Executive under this Section 2.4
are herein referred to as the "Retirement Supplement."
2.5 Participation in Employee Benefit Plans. The Company agrees to
---------------------------------------
permit the Executive during the Term to continue to participate in any group
life, hospitalization and/or disability insurance plan, health program,
-4-
<PAGE>
supplemental executive retirement plan, nonqualified compensation plan, pension
and/or savings plans, long-term incentive plan, receive "fringe benefits," e.g.,
----
club memberships and automobile allowance, and participate in such other benefit
plans or programs as may be maintained by the Company (collectively "Benefits").
The Company also agrees to implement such other benefit plans (the Other
Benefit Plans) for the benefit of Executive to the extent the Company offers its
other senior executives benefits that are not currently offered by the Company.
The Other Benefit Plans shall provide Executive benefits that are no less
favorable than those benefits which are available to the most senior executives
of The Company or its subsidiaries. For so long as the Company owns or leases a
corporate aircraft, Executive shall be entitled to use such aircraft for
personal use on terms and conditions no less favorable to Executive (exclusive
of tax effects) as those in existence on the Effective Date.
2.6 General Business Expenses. The Company shall pay or reimburse
-------------------------
the Executive for all expenses that are consistent with the Company policy and
reasonably and necessarily incurred by the Executive during the Term in the
performance of the Executive's duties under this Agreement. Such payment shall
be made upon presentation of such documentation as The Company customarily
requires of its executive employees prior to making such payments or
reimbursements.
3. Non-Competition.
---------------
3.1 Covenants Against Competition. The Executive acknowledges that
-----------------------------
as of the execution of this Employment Agreement (i) the Company is engaged in
the business of commercial and community real estate development and management
and office and industrial building development and management and other related
activities (the "Business"); (ii) the Company's Business is conducted currently
throughout the United States and in Canada and may be expanded to other
locations; (iii) his employment with the Company will have given him access to
confidential information concerning the Company; and (iv) the agreements and
covenants contained in this Agreement are essential to protect the business and
goodwill of the Company. Accordingly, the Executive covenants and agrees as
follows:
(a) Non-Compete. Without the prior written consent of the Board of
------------
Directors of the Company, the Executive shall not during the Restricted
Period (as defined below) within the Restricted Area (as defined below)
(except in the Executive's capacity as an officer of the Company or any of
its affiliates), (i) engage or participate in the Business; (ii) enter the
employ of, or render any services (whether or not for a fee or other
compensation) to, any person engaged in the Business; or (iii) acquire an
equity interest in any such person; provided, that the foregoing
restrictions shall not apply at any time if the Executive s employment is
terminated during the Term by the Executive
-5-
<PAGE>
for Good Reason (as defined in Section 4.3 below) or by the Company other
than for "Cause"; provided, further, that during the Restricted Period the
-------- -------
Executive may own, directly or indirectly, solely as a passive investment,
securities of any company traded on any national securities exchange or on
the National Association of Securities Dealers Automated Quotation System.
As used herein, "Restricted Period" shall mean the period commencing on the
Effective Date and ending on the earlier of (i) the third anniversary of
the Executive's termination of employment or (ii) January 31, 2006.
"Restricted Area" shall mean any place within the United States, Canada and
any other country in which the Company is then actively considering
conducting Business.
(b) Confidential Information; Personal Relationships. The Executive
------------------------------------------------
acknowledges that the Company has a legitimate and continuing proprietary
interest in the protection of its confidential information and has invested
substantial sums and will continue to invest substantial sums to develop,
maintain and protect confidential information. The Executive agrees that,
during and after the Restricted Period, without the prior written consent
of the Board, the Executive shall keep secret and retain in strictest
confidence, and shall not knowingly use for the benefit of himself or
others all confidential matters relating to the Company's Business
including, without limitation, operational methods, marketing or
development plans or strategies, business acquisition plans, joint venture
proposals or plans, and new personnel acquisition plans, learned by the
Executive heretofore or hereafter (such information shall be referred to
herein collectively as Confidential Information ); provided, that nothing
in this Agreement shall prohibit the Executive from disclosing or using any
Confidential Information (A) in the performance of his duties hereunder,
(B) as required by applicable law, (C) in connection with the enforcement
of his rights under this Agreement or any other agreement with the Company,
or (D) in connection with the defense or settlement of any claim, suit or
action brought or threatened against the Executive by or in the right of
the Company. Notwithstanding any provision contained herein to the
contrary, the term Confidential Information shall not be deemed to
include any general knowledge, skills or experience acquired by the
Executive or any knowledge or information known or available to the public
in general. Moreover, the Executive shall be permitted to retain copies of,
or have access to, all such Confidential Information relating to any
disagreement, dispute or litigation (pending or threatened) involving the
Executive.
(c) Employees of the Company and its Affiliates. During the Restricted
-------------------------------------------
Period, without the prior written consent of the Board of Directors of the
Company, the Executive shall not, directly or indirectly, hire or solicit,
or cause others to hire or solicit, for employment by any person other than
the Company or any affiliate or successor thereof, any employee of, or
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<PAGE>
person employed within the two years preceding the Executive's hiring or
solicitation of such person by, the Company and its affiliates or
successors or encourage any such employee to leave his employment. For this
purpose, any person whose employment has been terminated involuntarily by
The Company or the Company shall be excluded from those persons protected
by this Section 3.1(c) for the benefit of the Company.
(d) Business Relationships. During the Restricted Period, the
----------------------
Executive shall not, directly or indirectly, request or advise a person
that has a business relationship with the Company to curtail or cancel such
person's business relationship with the Company.
3.2 Rights and Remedies Upon Breach. If the Executive breaches,
-------------------------------
or threatens to commit a breach of, any of the provisions contained in Section
3.1 of this Agreement (the "Restrictive Covenants"), the Company shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or in equity.
(a) Specific Performance. The right and remedy to have the
--------------------
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the Company and
that money damages would not provide an adequate remedy to the Company.
(b) Accounting. The right and remedy to require the Executive to
----------
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by the Executive
as the result of any action constituting a breach of Restrictive Covenants.
3.3 Severability of Covenants. The Executive acknowledges and agrees
-------------------------
that the Restrictive Covenants are reasonable and valid in duration and
geographical scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect without regard to the invalid portions. The
provisions set forth in Section 3.1 above shall be in addition to any other
provisions of the Business Conduct and Ethics Policy applicable to employees of
The Company and its subsidiaries during the term of Executive s employment.
4. Termination.
-----------
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<PAGE>
4.1 Termination upon Death or Disability. If the Executive either
------------------------------------
dies or becomes entitled to benefits under a Company long-term disability plan
or program during the Term, the Term shall automatically terminate thereupon,
and the Executive or the Executive's estate, as the case may be, shall be
entitled to receive, in addition to any life insurance or disability benefits
which are payable after the separate determinations thereof,
(a) Base Salary at the rate in effect at the time of such
termination through the date of termination;
(b) any, otherwise payable with respect to the year in which the Term
is terminated, multiplied by (ii) a fraction, the numerator of which is the
number of days elapsed in such year as of the termination date and the
denominator of which is 365 (the "Accrued Annual Bonus");
(c) an amount equal to the product of (x) the lesser of 36 or the
number of months from the termination date until the end of the month in
which the Executive's 62nd birthday would have occurred (rounded to the
next highest whole month) times (y) the Monthly Salary Amount;
(d) any deferred compensation (including, without limitation, interest
or other credits in the deferred amounts) and any accrued vacation pay,
provided that any deferred compensation under the Supplemental Retirement
Benefit Plan of the Company (the "SERP") shall be paid in accordance with
the terms of the SERP;
(e) the Retirement Supplement;
(f) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans or
programs of the Company.
As used herein the term "Monthly Salary Amount" shall mean an amount equal
to one-twelfth of the sum of (w) the Executive's then current Base Salary plus
(z) the average Annual Bonus paid to the Executive during the three years
immediately preceding the termination date.
The amounts set forth above are in addition to and shall not reduce any
other benefits to which the Executive or his estate may be entitled (such as the
stock grant and the stock options).
4.2 Termination by the Company for Cause. The Company may
------------------------------------
terminate the Executive's employment hereunder for "Cause" (as defined
-8-
<PAGE>
below). If the Company terminates the Executive's employment hereunder for
Cause, the Executive shall be entitled to:
(a) Base Salary at the rate in effect at the time of such termination
through the date of termination;
(b) any deferred compensation (including, without limitation, interest or
other credits on such deferred amounts) and any accrued vacation pay,
provided that any deferred compensation under the SERP shall be paid in
accordance with the terms of the SERP;
(c) any other compensation and benefits as may be provided in accordance
with the terms and provisions of any applicable plans and programs of the
Company.
In any case described in this Section 4.2, the Executive shall be
given written notice authorized by a vote of at least a majority of the members
of the Board of Directors that the Company intends to terminate the Executive's
employment for Cause. Such written notice shall specify the particular act or
acts, or failure to act, which is or are the basis for the decision to so
terminate the Executive's employment for Cause. The Executive shall be given
the opportunity within 30 calendar days of the receipt of such notice to meet
with the Board of Directors to defend such act or acts, or failure to act, and
the Executive shall be given 15 business days after such meeting to correct such
act or failure to act. Upon failure of the Executive, within such latter 15 day
period, to correct such act or failure to act, the Executive's employment by the
Company shall automatically be terminated under this Section 4.2 for Cause.
Anything herein to the contrary notwithstanding, if, following a termination of
the Executive's employment by the Company for Cause based upon the conviction of
the Executive for a felony involving actual dishonesty as against the Company,
such conviction is overturned on appeal, the Executive shall be entitled to the
payments and the economic equivalent of the benefits that the Executive would
have received as a result of a termination of the Executive's employment by the
Company without Cause.
For purposes of this Section 4.2, a termination of the Executive's
employment by the Company shall be for "Cause" if the Executive is discharged
(i) due solely to an act or acts of gross or willful negligence or of
intentional wrongdoing or misconduct, which has a material adverse effect on the
Executive's ability to perform the duties of his position or on the good
standing, financial condition or profitability of the Company or (ii) as the
result of a material breach of this Agreement.
4.3 Termination Without Cause or Termination For Good Reason. The
--------------------------------------------------------
Company may terminate the Executive's employment hereunder
-9-
<PAGE>
without Cause and the Executive may terminate his employment hereunder for Good
Reason (defined below). If the Company terminates the Executive's employment
hereunder without Cause, other than due to death or Disability, or if the
Executive terminates his employment for Good Reason, the Executive shall be
entitled to:
(a) Base Salary at the rate in effect at the time of termination
through the date of Termination;
(b) the Accrued Annual Bonus, if any;
(c) a lump sum payment equal to the product of thirty-six (36) times
the Monthly Salary Amount (as defined in Section 4.2 hereof);
(d) any deferred compensation (including, without limitation, interest
or other credits on the deferred amounts) and any accrued vacation pay;
(e) the Retirement Supplement;
(f) continuation until the Executive attains age 60, of the health and
welfare benefits of the Executive and any long-term disability insurance
generally provided to senior executives of the Company (as provided for by
Section 2.5 of this Agreement) (or the Company shall provide the economic
equivalent thereof); provided, however if the Executive obtains new
employment and such employment makes the Executive eligible for health and
welfare or long-term disability benefits which are equal to or greater in
scope then the benefits then being offered by the Company, then the Company
shall no longer be required to provide such benefits to the Executive; and
(g) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans or
programs of the Company.
As used herein, "Good Reason" means and shall be deemed to exist if,
without the prior express written consent of the Executive, (a) the Executive is
assigned any duties or responsibilities inconsistent in any material respect
with the scope of the duties or responsibilities associated with the Executive's
position as Chief Executive Officer, as set forth and described in Section 1 of
this Agreement; (b) the Executive suffers a reduction in the duties,
responsibilities or effective authority associated with his position as Chief
Executive Officer, as set forth and described in Section 1 of this Agreement;
(c) the Executive is not appointed to, or is removed from, his position as Chief
Executive Officer; (d) the Company breaches this Agreement in any material
respect; (e) the Company fails to obtain the full
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<PAGE>
assumption of this Agreement by a successor entity in accordance with Section
6.4 of this Agreement; (f) the Company fails to use its reasonable best efforts
to maintain, or cause to be maintained, adequate directors and officers
liability insurance coverage for the Executive; (g) the Company purports to
terminate the Executive's employment for Cause and such purported termination of
employment is not effected in accordance with the requirements of this
Agreement. or (h) a Change in Control shall have occurred.
For purposes of this Agreement, a "Change of Control" shall mean (1) any
merger by the Company with or into another corporation or corporations; (2) any
acquisition (by purchase, lease or otherwise) of all or substantially all of the
assets of the Company by any person, corporation or other entity or group
thereof acting jointly; (3) the acquisition of beneficial ownership, directly or
indirectly, of voting securities of the Company (defined as Common Stock of the
Company or any securities having voting rights that the Company may issue in the
future) and rights to acquire voting securities of the Company (defined as
including, without limitation, securities that are convertible into voting
securities of the Company (as defined above) and rights, options warrants and
other agreements or arrangements to acquire such voting securities) by any
person, corporation or other entity or group thereof acting jointly, in such
amount or amounts as would permit such person, corporation or other entity or
group thereof acting jointly to elect a majority of the members of the Board of
Directors of the Company, as then constituted; or (4) the acquisition of
beneficial ownership, directly or indirectly, of voting securities and rights to
acquire voting securities having voting power equal to 20% or more of the
combined voting power of the Company's then outstanding voting securities by any
person, corporation or other entity or group thereof acting jointly unless such
acquisition as is described in this part (4) is expressly approved by resolution
of the Board of Directors of the Company passed upon affirmative vote of not
less than a majority thereof and adopted at a meeting of the Board held not
later than the date of the next regularly scheduled or special meeting held
following the date the Company obtains actual knowledge of such acquisition
(which approval may be limited in purpose and effect solely to affecting the
rights of Employee under this Agreement). Notwithstanding the preceding
sentence, (i) any transaction that involves a mere change in identity, form or
place of organization within the meaning of Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended, or a transaction of similar effect, shall not
constitute a "Change in Control."
4.4 Voluntary Termination. The Executive may effect a Voluntary
---------------------
Termination of his employment hereunder. A "Voluntary Termination" shall mean a
termination of employment by the Executive on his own initiative other than (a)
a termination due to death or disability, or (b) a termination for Good Reason.
A Voluntary Termination shall not be, nor shall it be deemed to be, a
breach of this Agreement and shall entitle the Executive to all of the rights
and
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<PAGE>
benefits which the Executive would be entitled in the event of a termination of
his employment by the Company for Cause.
4.5 Non-exclusivity of Rights. Nothing in this Agreement shall
--------------------------
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided or maintained by the
Company and for which the Executive may qualify, nor shall anything herein limit
or otherwise prejudice such rights as the Executive may have under any other
existing or future agreements with the Company. Except as otherwise expressly
provided for in this Agreement, amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plans or programs of the
Company at or subsequent to the date of termination shall be payable in
accordance with such plans or programs.
4.6 Vesting of Stock Grants and Stock Options. In the event of any
-----------------------------------------
termination described in Sections 4.1, 4.2, 4.3 and 4.4 above, Executive's
rights with regard to any stock grants, loan agreements or stock options shall
be as set forth in the respective agreement containing the terms and conditions
pertaining thereto.
4.7 Certain Additional Payments by the Company. Anything in this
------------------------------------------
Agreement to the contrary notwithstanding, in the event that it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (an "Excise Gross-Up Payment") in an amount such that after payment by
the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax imposed upon the Excise Gross-
Up Payment, the Executive retains an amount of the Excise Gross-Up Payment equal
to the Excise Tax imposed upon the Payments. Subject to the provisions of this
Section 4.8, all determinations required to be made hereunder, including whether
an Excise Gross-Up Payment is required and the amount of such Excise Gross-Up
Payment, shall be made by KPMG Peat Marwick or such other accounting firm which
at the time audits the financial statements of the Company (the "Accounting
Firm") at the sole expense of the Company, which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the date of termination of the Executive's employment under this
Agreement, if applicable, or such earlier time as is requested by the Company.
If the Accounting Firm determines that no Excise Tax is payable by the
Executive, the Accounting Firm shall furnish the Executive with an opinion that
he has substantial authority not to report any Excise Tax on his federal income
tax return. Any determination by the Accounting Firm shall be
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<PAGE>
binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Excise
Gross-Up Payments, which will not have been made by the Company should have been
made (an "Underpayment") , consistent with the calculations required to be made
hereunder. If the Company exhausts its remedies pursuant hereto and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Excise Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Executive
knows of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due) If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including (without limitation) accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith to contest
effectively such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided that the Company shall bear and pay directly all costs and expenses
- --------
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax or income tax, including interest and penalties with
respect thereto, imposed as a result of such representation and payment of costs
and expenses. Without limitation on the foregoing provisions hereof the Company
shall control all proceedings taken in connection with such contest and, at its
sole option, may
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<PAGE>
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine, provided that if the Company directs the Executive to
--------
pay such claim and sue for a refund, the Company shall advance the amount of
such payment to the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax, including interest or penalties with respect thereto, imposed with
respect to such advance or with respect to any imputed income with respect to
such advance, and further provided that any extension of the statute of
------- ---------
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which an Excise Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
If, after the receipt by the Executive of an amount advanced by the
Company pursuant hereto, the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements hereof) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant hereto, a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Excise Gross-Up Payment required to be paid.
4.8 Payment. Except as otherwise provided in this Agreement, any
-------
payments to which the Executive shall be entitled under this Section 4,
including, without limitation, any economic equivalent of any benefit, shall be
made as promptly as possible following the date of termination. If the amount
of any payment due to the Executive cannot be finally determined with 90 days
after the Date of Termination, such amount shall be estimated on a good faith
basis by the Company and the estimated amount shall be paid no later than 90
days after such Date of Termination. As soon as practicable thereafter, the
final determination of the amount due shall be made and any adjustment requiring
a payment to or from the Executive shall be made as promptly as practicable.
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<PAGE>
5. Indemnification.
----------------
5.1 General. The Company agrees that if the Executive is made a
--------
party or is threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that he is or was a director or officer of the Company is or
was serving at the request of the Company as a director, officer, member,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including, without limitation, service with respect
to employee benefit plans, whether or not the basis of such Proceeding is
alleged action in an official capacity as a director, officer, member, employee
or agent while serving as a director, officer, member, employee or agent, the
Executive shall be indemnified and held harmless by the Company to the fullest
extent authorized by applicable law (in accordance with the Articles of
Incorporation and/or bylaws of the Company), as the same exists or may hereafter
be amended, against all Expenses incurred or suffered by the Executive in
connection therewith, and such indemnification shall continue as to the
Executive even if the Executive has ceased to be an officer, director or agent,
or is no longer employed by the Company and shall inure to the benefit of his
heirs, executors and administrators.
5.2 Expenses. As used in this Agreement, the term "Expenses" shall
--------
include, without limitation, damages, losses, judgments, liabilities, fines,
penalties, excise taxes, settlements and costs, attorneys' fees, accountants'
fees, and disbursements and costs of attachment or similar bonds,
investigations, and any expenses of establishing a right to indemnification
under this Agreement.
5.3 Enforcement. If a claim or request under this Agreement is not
-----------
paid by the Company, or on their behalf, within fifteen days after a written
claim or request has been received by the Company, the Executive may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim or request and if successful in whole or in part, the Executive shall be
entitled to be paid also the expenses of prosecuting such suit. The burden of
proving that the Executive is not entitled to indemnification for any reason
shall be upon the Company.
5.4 Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Executive.
5.5 Partial Indemnification. If the Executive is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any Expenses, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify the Executive for the portion of such
Expenses to which the Executive is entitled.
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<PAGE>
5.6 Advances of Expenses. Expenses incurred by the Executive in
--------------------
connection with any Proceeding shall be paid by the Company in advance upon
request of the Executive that the Company pay such Expenses.
5.7 Notice of Claim. The Executive shall give to the Company notice
---------------
of any claim made against his for which indemnity will or could be sought under
this Agreement. In addition, the Executive shall give the Company such
information and cooperation as it may reasonably require and as shall be within
the Executive's power and at such times and places as are convenient for the
Executive.
5.8 Defense of Claim. With respect to any Proceeding as to which the
----------------
Executive notifies the Company of the commencement thereof:
5.8.1 The Company will be entitled to participate therein
at its own expense; and
5.8.2 Except as otherwise provided below, to the extent
that it may wish, the Company jointly with any other indemnifying party
similarly notified will be entitled to assume the defense thereof, with counsel
satisfactory to the Executive. The Executive also shall have the right to employ
his own counsel in such action, suit or proceeding and the fees and expenses of
such counsel shall be at the expense of the Company. The Company shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Company or as to which the Executive shall have reasonably
concluded that there may be a conflict of interest between the Company and the
Executive in the conduct of the defense of such action.
5.8.3 The Company shall not be liable to indemnify the
Executive under this Agreement for any amounts paid in settlement of any action
or claim effected without its written consent. The Company shall not settle any
action or claim in any manner which would impose any penalty or limitation on
the Executive without Executive's written consent. Neither the Company nor the
Executive shall unreasonably withhold or delay their consent to any proposed
settlement.
5.9 Non-exclusivity. The right to indemnification and the payment
----------------
of expenses incurred in defending a Proceeding in advance of its final
disposition conferred in this Section 5 shall not be exclusive of any other
right which the Executive may have or hereafter may acquire under any statute,
provision of the certificate of incorporation or by-laws of the Company,
agreement, vote of stockholders or disinterested directors or otherwise.
5.10 Directors and Officers Liability Policy. The Company agrees to
----------------------------------------
use reasonable efforts to obtain a directors and officers liability insurance
-16-
<PAGE>
policy covering the Executive. The Company shall use its reasonable efforts to
maintain during the Term (and for so long thereafter as is practicable in the
circumstances taking account of prevailing conditions as to availability of such
insurance) coverage to the Executive in a reasonable and adequate amount.
6. Other Provisions.
----------------
6.1 Notices. Any notice or other communication required or
-------
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, on the date of actual receipt thereof, as follows:
(i) If to the Company to:
The Rouse Company
10275 Little Patuxent Parkway
Columbia, MD 21044
Attn: General Counsel
(ii) If to the Executive, to:
Anthony W. Deering
6011 Charlesmeade
Baltimore, MD 21212
Any party may change its address for notice hereunder by notice
to the other party hereto.
6.2 Entire Agreement. This Agreement, including the attached
----------------
Schedules which are a part hereof for all purposes, contains the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes all prior agreements, written or oral, with respect
thereto.
6.3 Governing Law. This Agreement shall be governed and
-------------
construed in accordance with the laws of the State of Maryland.
6.4 Assignment. The obligations of the Executive hereunder are
----------
personal and may not be assigned or delegated by him or transferred in any
manner whatsoever, nor are such obligations subject to involuntary alienation,
assignment or transfer. The Company shall have the right to assign this
Agreement and to delegate all rights, duties and obligations hereunder, either
in whole or in part, to any parent, affiliate, successor or subsidiary
organization or company of the
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<PAGE>
Company, so long as the obligations of the Company under this Agreement remain
the obligations of the Company, provided, that the Company will require any
--------
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance reasonably acceptable to the
Executive, to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Nothing contained in this Section 6.4 is
intended to affect the Executive's rights under this Agreement if a Change of
Control shall occur.
7. Resolution of Disputes.
----------------------
7.1 Negotiation. The parties shall attempt in good faith to
-----------
resolve any dispute arising out of or relating to this Agreement promptly by
negotiations between the Executive and an executive officer of the Company or
member of the Board of Directors of the Company as may be designated by the
Board of Directors who has authority to settle the controversy. Any party may
give the other party written notice of any dispute not resolved in the normal
course of business. Within 10 days after the effective date of such notice, the
Executive and an executive officer of the Company shall meet at a mutually
acceptable time and place within the Baltimore-Washington metropolitan area, and
thereafter as often as they reasonably deem necessary, to exchange relevant
information and to attempt to resolve the dispute. If the matter has not been
resolved within 30 days of the disputing party's notice, or if the parties fail
to meet within 10 days, either party may initiate arbitration of the controversy
or claim as provided hereinafter. If a negotiator intends to be accompanied at a
meeting by an attorney, the other negotiator shall be given at least three
business days, notice of such intention and may also be accompanied by an
attorney. All negotiations pursuant to this Section 7.1 shall be treated as
compromise and settlement negotiations for the purposes of the federal and state
rules of evidence and procedure.
7.2 Arbitration. Any dispute arising out of or relating to
-----------
this Agreement or the breach, termination or validity thereof, which has not
been resolved by nonbinding means as provided in Section 7.1 within 60 days of
the initiation of such procedure, shall be finally settled by arbitration
conducted expeditiously in accordance with the Center for Public Resources, Inc.
("CPR") Rules for Non-Administered Arbitration of Business Disputes by three
independent and impartial arbitrators, of whom each party shall appoint one,
provided that if one party has requested the other to participate in a non-
binding procedure and the other has failed to participate, the requesting party
may initiate arbitration before the expiration of such period. Any such party
shall be appointed from the CPR Panels of Neutrals. The arbitration shall be
governed by the United States Arbitration Act and any judgment upon the award
decided upon the arbitrators may be entered by any court having jurisdiction
thereof. The arbitrators are not
-18-
<PAGE>
empowered to award damages in excess of compensatory damages and each party
hereby irrevocably waives any damages in excess of compensatory damages. Each
party hereby acknowledges that compensatory damages include (without limitation)
any benefit or right of indemnification given by another party to the other
under this Agreement.
7.3 Expenses. The Company shall promptly pay or reimburse the
--------
Executive for all costs and expenses, including, without limitation, court costs
and attorneys, fees, incurred by the Executive as a result of any claim, action
or proceeding (including, without limitation a claim action or proceeding by the
Executive against the Company) arising out of, or challenging the validity or
enforceability of, this Agreement or any provision hereof or any other agreement
or entitlement referred to herein.
8. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the Executive and his heirs, executors, administrators and legal
representatives. This Agreement shall be binding upon and inure to the benefit
of the Company and its successors and assigns.
9. No Mitigation or Set-Off. The provisions of this Agreement are
------------------------
not intended to, nor shall they be construed to, require that the Executive
mitigate the amount of any payment provided for in this Agreement by seeking or
accepting other employment, nor shall the amount of any payment provided for in
this Agreement be reduced by any compensation earned by the Executive as a
result of his employment by another employer or otherwise. The Company's
obligations to make the payments to the Executive required under this Agreement
and otherwise to perform its obligations hereunder shall not be affected by any
set off, counterclaim, recoupment, defense or other claim, right or action that
the Company may have against the Executive.
10. Amendment. This Agreement may be amended or modified only by an
---------
agreement in writing executed by all of the parties hereto.
11. Beneficiaries/References. The Executive shall be entitled to
-------------------------
select (and change) a beneficiary or beneficiaries to receive any compensation
or benefit payable hereunder following the Executive's death, and may change
such election, in either case by giving the Company written notice thereof. In
the event of the Executive's death or a judicial determination of his
incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to his beneficiary(ies), estate or other legal
representative(s), as the case may be.
12. Representation. The Company represents and warrants that it is
---------------
fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement
-19-
<PAGE>
between the Company and any other person, firm or organization or any applicable
laws or regulations.
13. Survivorship. The respective rights and obligations of the
-------------
parties hereunder shall survive any termination of this Agreement or the
Executive's employment hereunder to the extent necessary to the intended
preservation of such rights and obligations.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
for all purposes as of the date first above written.
THE ROUSE COMPANY
By: /s/ Mathias J. DeVito
------------------------------------
Name: Mathias J. DeVito
Title: Chairman of the
Executive Committee
of the Board of Directors
ANTHONY W. DEERING
/s/ Anthony W. Deering
--------------------------------------
-20-
<PAGE>
Exhibit A
List of Current Board Positions
1. T. Rowe Price
2. Baltimore Museum of Art
3. Mayor's Business Advisory Council
4. Greater Baltimore Committee
5. NAREIT
6. Parks and People
<PAGE>
EXHIBIT B
March 24, 1999
Mr. Anthony W. Deering
The Rouse Company
10275 Little Patuxent Parkway
Columbia, MD 21044
Dear Mr. Deering:
On September 24, 1998, the Board of Directors granted you a stock
bonus under the 1997 Stock Incentive Plan for 109,850 shares of the Company's
Common Stock (the "Bonus Shares"). This stock bonus is granted to you in
connection with the execution by you of an Employment Agreement of even date
herewith (the "Employment Agreement").
The Bonus Shares are granted subject to the restriction that you may
not sell, assign, transfer, pledge, hypothecate, encumber or otherwise dispose
of the Bonus Shares until January 31, 2005; provided, however, that this
restriction shall be of no force and effect if your Employment Agreement is
terminated pursuant to the provisions of Section 4.1 or 4.3 thereof.
However, if your Employment Agreement is terminated pursuant to the
provisions of Section 4.2 or Section 4.4 thereof, prior to January 31, 2005, all
of the Bonus Shares will be forfeited to the Company without payment therefor.
One certificate for 109,850 shares of the Company's Common Stock is
simultaneously being delivered to you. The legend on the reverse side of the
certificate describes the restrictions to which the stock is subject.
To acknowledge your agreement to the terms and restrictions to which
the Bonus Shares are subject, please sign and date the original of this letter
and return it to Bruce I. Rothschild.
<PAGE>
Page 2
October 19, 1998
If you have any questions concerning your stock bonus, please feel free to
contact me.
Sincerely yours,
THE ROUSE COMPANY
By /s/ Mathias J. Devito
---------------------
Mathias J. DeVito
Chairman of the Executive
Committee of the Board of
Directors
The undersigned agrees to the
above-described restrictions
to which the Bonus Shares are
subject.
Signature: /s/ Anthony W. Deering
----------------------
Date: October 22, 1998
----------------
<PAGE>
EXHIBIT C-1 1998 GRANT
THE ROUSE COMPANY
1997 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
THIS INCENTIVE STOCK OPTION AGREEMENT, effective the 24th day of
----
September, 1998, by and between THE ROUSE COMPANY, a Maryland corporation (the
- ---------
"Company"), and Anthony W. Deering ("Employee").
BACKGROUND
----------
By action of its Board of Directors and Stockholders, the Company has
adopted The Rouse Company 1997 Stock Incentive Plan (the "Plan"), under which
the Company may grant stock options and other stock awards to employees of the
Company. The Board of Directors has authority (i) to grant stock options to
officers and other key employees of the Company and, subject to the provisions
of the Plan, to determine the employees to whom and the time or times at which
options will be granted, the number of shares to be covered by each option, the
period of time and requisite conditions for exercising an option and the terms
and provisions of the option agreements and (ii) to determine the fair market
value, from time to time, of a share of Common Stock of the Company.
THE OPTION
----------
The Board of Directors has determined to grant a stock option to
Employee, and Employee, by his execution of this Agreement, agrees to accept the
stock option, subject to the provisions of the Plan and the following terms and
conditions:
SECTION 1. Grant of Option.
---------------
a. Number of Shares. The Company grants to Employee the right and
----------------
option to purchase, subject to the terms and conditions of this Agreement and
the Plan, a total of 3,661 shares of Common Stock of the Company, par value one
cent ($.01) per share ("Common Stock"), which shares are designated as shares
<PAGE>
granted under an incentive stock option (as that term is described in Section
1(d) below).
b. Option Price. The purchase price of all such shares of Common
------------
Stock shall be $27.3125 per share, which price is equal to the last sale price,
regular way, for Common Stock on September 23, 1998, the business day
immediately preceding the date such option was granted, as reported on the New
York Stock Exchange.
c. "Option" Defined. The option granted hereby and all of Employee's
----------------
rights under this Agreement and the Plan are referred to collectively as the
"Option."
d. Tax Status of Option. The option is designated as constituting an
--------------------
"incentive stock option" under Section 422 of the Internal Revenue Code of 1986,
as amended.
SECTION 2. Vesting of Option. The Option vests as to all 3,661
-----------------
shares of Common Stock on September 23, 2003. In addition, the Option
immediately vests as to all of the shares of Common Stock in the event of
Employee's death, total disability (as defined in Section 5(c) below) or
discharge without good cause (as defined in Section 3 below).
SECTION 3. "Discharge Without Good Cause" and "Change of Control"
-----------------------------------------------------
Defined.
- -------
a. "Discharge Without Good Cause." For purposes of this Agreement,
----------------------------
"discharge without good cause" shall mean (i) any discharge other than discharge
due solely to an act or acts of gross or willful negligence or of intentional
wrongdoing or misconduct, which has or have a material adverse effect on
Employee's ability to perform the duties of his position or on the good
standing, financial condition or profitability of the Company or (ii) any change
of control of the Company (as hereinafter defined).
b. "Change of Control." For purposes of this Agreement, a "change of
-----------------
control" shall mean (1) any merger by the Company with or into another
corporation or corporations; (2) any acquisition (by purchase, lease or
otherwise) of all or substantially all of the assets of the Company by any
person, corporation or other entity or group thereof acting jointly; (3) the
acquisition of beneficial ownership, directly or indirectly, of voting
securities of the Company (defined as Common Stock of
-2-
<PAGE>
the Company or any securities having voting rights that the Company may issue in
the future) and rights to acquire voting securities of the Company (defined as
including, without limitation, securities that are convertible into voting
securities of the Company (as defined above) and rights, options, warrants and
other agreements or arrangements to acquire such voting securities) by any
person, corporation or other entity or group thereof acting jointly, in such
amount or amounts as would permit such person, corporation or other entity or
group thereof acting jointly to elect a majority of the members of the Board of
Directors of the Company, as then constituted; or (4) the acquisition of
beneficial ownership, directly or indirectly, of voting securities and rights to
acquire voting securities having voting power equal to 20% or more of the
combined voting power of the Company's then outstanding voting securities by any
person, corporation or other entity or group thereof acting jointly unless such
acquisition as is described in this part (4) is expressly approved by resolution
of the Board of Directors of the Company passed upon affirmative vote of not
less than a majority thereof and adopted at a meeting of the Board held not
later than the date of the next regularly scheduled or special meeting held
following the date the Company obtains actual knowledge of such acquisition
(which approval may be limited in purpose and effect solely to affecting the
rights of Employee under this Agreement). Notwithstanding the preceding
sentence, (i) any transaction that involves a mere change in identity, form or
place of organization within the meaning of Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended, or a transaction of similar effect, and (ii)
any business combination involving solely the Company and Corporate Property
Investors which is approved by the Company's Board of Directors shall not
constitute a "change of control."
SECTION 4. Termination of Option.
---------------------
a. Termination for Cause. If Employee's employment is terminated by
---------------------
the Company for Cause (as defined in Section 4.2 of the Employee's Employment
Agreement of even date herewith), all unexercised rights under the Option shall
expire on the date of such termination.
b. Other Termination. If, before the Option vests as provided in
-----------------
Section 2 above, Employee's employment with the Company terminates for any
reason other than death, total disability (as defined in Section 5(c) below) or
discharge without good cause (as defined in Section 3 above), the Option
-3-
<PAGE>
shall terminate on the date of such termination, and Employee shall have no
rights under the Option or this Agreement.
SECTION 5. Exercise of Option.
------------------
a. Exercise Period. Employee may exercise the Option to purchase the
---------------
vested shares at any time (whether while serving as an employee of the Company
or after ceasing to be an employee of the Company), and from time to time (but
not as to less than 10 shares at any one time), on and after the date such
shares have vested as provided in Section 2 above through and including
September 23, 2008 (the "Expiration Date"), notwithstanding that Employee may
forfeit the favorable tax treatment afforded the Option if Employee exercises
the Option later than three (3) months after such termination.
b. Exercise Period - Death or Total Disability. If Employee becomes
-------------------------------------------
totally disabled (as defined in Section 5(c) below) or dies either while serving
as an employee of the Company or after ceasing to be an employee of the Company,
the Option may be exercised with respect to the vested shares by Employee or by
the executor, administrator or personal representative of Employee's estate or
other person entitled by law to Employee's rights under the Option at any time
through and including the Expiration Date.
c. "Total Disability" Defined. "Total disability" shall mean a
-------------------------
disability that has continued for a period of more than 180 days and has
prevented Employee from performing in a usual and proper manner the functions of
his position.
d. Exercise before the Expiration Date. Notwithstanding any other
-----------------------------------
provision of this Agreement, in no event may the Option or any portion of the
Option be exercised after September 23, 2008.
SECTION 6. Manner of Exercise; Notices. The Option shall be
---------------------------
exercised by sending to the Secretary of the Company a written notice of
Employee's intention to purchase such shares, specifying the number of shares
(but not less than 10 shares at any one time) and the date that the purchase is
to occur. Payment of the option price may be made (i) in U.S. dollars in cash
or by wire transfer, check, bank draft or money order payable to the Company,
(ii) through the delivery of Common Stock or other securities issued by the
Company that have a fair market
-4-
<PAGE>
value equal to the option price, or (iii) by a combination of the foregoing.
Full payment must be made for all shares to be purchased before the shares will
be released to Employee. The exercise notice shall be addressed to the Secretary
of the Company at The Rouse Company Building, 10275 Little Patuxent Parkway,
Columbia, Maryland 21044, or at such other address as the Company designates in
writing to Employee. Any notice to Employee shall be sent to his address as
shown in the records of the Company or at such other address as Employee
designates in writing to the Company. Any such notice shall be deemed to have
been duly given if it is personally delivered or registered and deposited,
postage and registry fee prepaid, in a United States Post Office. For purposes
of this Section 6, the "fair market value" of any Company securities that are
delivered in payment of the option price shall be equal to (i) the last sale
price for Company Common Stock or Preferred Stock for the business day
immediately preceding the date on which any portion of the Option is exercised
as reported on the New York Stock Exchange, or, if Company Common Stock or
Preferred Stock is not traded on the New York Stock Exchange, on the exchange on
which such Common Stock or Preferred Stock is principally traded, or, if no sale
price is reported for such day, the first preceding business day for which a
sale price for Common Stock or Preferred Stock is reported, or (ii) the value of
any other Company security, as determined by the Chief Financial Officer of the
Company in a manner consistent, to the extent possible, with the determination
of fair market value of Company Common Stock or Preferred Stock as provided in
clause (i).
SECTION 7. Reload Option. If, while Employee is employed by the
-------------
Company, Employee delivers shares of Common Stock in payment of the option price
of the Option, Employee shall be issued a new stock option (the "Reload
Option"), under any of The Rouse Company 1997 Stock Incentive Plan, The Rouse
Company 1994 Stock Incentive Plan, The Rouse Company 1990 Stock Option Plan or
any subsequently adopted Company Stock Incentive or Stock Option Plan
(collectively, the "Plans") that has Common Stock available for option grant,
upon the following terms: (i) the number of option shares of Common Stock
granted under the Reload Option shall be equal to the number of shares of Common
Stock that were delivered in payment of the option price of the Option; (ii) the
option exercise price of the Reload Option shall be equal to the last sale
price, regular way, for Common Stock on the New York Stock Exchange on the day
on which the Option was exercised, or, if Common Stock is not then traded on the
New York Stock Exchange, on the exchange on which such Common Stock is
-5-
<PAGE>
principally traded; (iii) the Reload Option shall have a term equal to the
remaining term of the Option; (iv) the Reload Option shall vest immediately,
except that Employee may, in Employee's discretion, specify that a later vesting
date shall be included in the stock option agreement for the Reload Option, and
(v) the other terms of the Reload Option shall be consistent with the terms of
the most recent stock options granted by the Committee.
SECTION 8. Tax Provisions. At the request of Employee, the Company
--------------
shall retain or accept a sufficient number of shares in connection with the
receipt or exercise of the Option or a sale of the underlying shares to satisfy
the Company's tax withholding obligations, if any, or Employee's tax liabilities
with respect to such transactions.
SECTION 9. Adjustments upon Certain Changes in the Common Stock. If,
----------------------------------------------------
after the date of this Agreement and prior to the full exercise of the Option,
the Company (without receiving compensation therefor) effects one or more stock
splits, stock dividends, recapitalizations or other increases or reductions in
the number of shares of its outstanding Common Stock, then, unless the Board of
Directors expressly determines otherwise, the number of shares with respect to
the unexercised portion of the Option and the per share purchase price shall be
adjusted as follows:
a. in the event of a net increase in the number of shares of its
outstanding Common Stock, the number of shares shall be proportionately
increased, and the per share purchase price shall be proportionately reduced; or
b. in the event of a net reduction in the number of shares of its
outstanding Common Stock, the number of shares shall be proportionately reduced,
and the per share purchase price shall be proportionately increased.
SECTION 10. Employee's Rights Prior to Issuance of Shares. Employee
---------------------------------------------
shall not be, nor shall Employee have any of the rights or privileges of, a
stockholder of the Company with regard to any of the shares issuable upon
exercise of the Option unless and until a physical stock certificate for such
shares has been issued or such shares have been credited to Employee's account
under a book entry or comparable system.
SECTION 11. Assignment or Transfer. Except for transfer by
----------------------
testamentary instrument or the laws of inheritance,
-6-
<PAGE>
descent and distribution, the Option may not be transferred, assigned, pledged
or hypothecated in any way (whether by operation of law or otherwise) and shall
not be subject to execution, attachment or similar process.
SECTION 12. Continued Employment. Employee shall have no duty or
--------------------
obligation to remain in the employ of the Company. Nothing in this Agreement
shall be deemed to confer upon Employee any right to continue in the employ of
the Company or to interfere in any way with the right of the Company to
terminate the employment of Employee, which is at will, at any time.
SECTION 13. Binding on Successors. This Agreement shall be binding
---------------------
upon and inure to the benefit of the Company and Employee and their respective
successors, representatives and assigns.
SECTION 14. Captions. The captions of this Agreement are for
--------
convenience and reference only and in no way define, describe, extend or limit
the scope or intent of any of its provisions.
SECTION 15. Amendments. This Agreement may only be amended in
----------
writing and with the mutual consent of the Company and Employee.
SECTION 16. Applicable Law. This Agreement and any disputes arising
--------------
under this Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland and any applicable laws of the United States of
America.
-7-
<PAGE>
IN WITNESS WHEREOF the Company and Employee have executed this
Agreement as of the day and year first above written.
ATTEST: THE ROUSE COMPANY
/s/ Bruce I. Rothschild By /s/ Mathias J. DeVito
- ------------------------ ---------------------------
Bruce I. Rothschild Mathias J. DeVito
Secretary Chairman of the
Executive Committee
of the Board of
Directors
/s/ Anthony W. Deering
-----------------------------
Anthony W. Deering
-8-
<PAGE>
EXHIBIT C-2 1998 GRANT
THE ROUSE COMPANY
1997 STOCK INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
-----------------------------------
THIS NONQUALIFIED STOCK OPTION AGREEMENT, effective the 24th day of
----
September, 1998, by and between THE ROUSE COMPANY, a Maryland corporation (the
- --------- ----
"Company"), and Anthony W. Deering ("Employee").
BACKGROUND
----------
By action of its Board of Directors and Stockholders, the Company has
adopted The Rouse Company 1997 Stock Incentive Plan (the "Plan"), under which
the Company may grant stock options and other stock awards to employees of the
Company. The Board of Directors has authority (i) to grant stock options to
officers and other key employees of the Company and, subject to the provisions
of the Plan, to determine the employees to whom and the time or times at which
options will be granted, the number of shares to be covered by each option, the
period of time and requisite conditions for exercising an option and the terms
and provisions of the option agreements and (ii) to determine the fair market
value, from time to time, of a share of Common Stock of the Company.
THE OPTION
----------
The Board of Directors has determined to grant a nonqualified stock
option to Employee, and Employee, by his execution of this Agreement, agrees to
accept the nonqualified stock option, subject to the provisions of the Plan and
the following terms and conditions:
SECTION 1. Grant of Option.
---------------
a. Number of Shares. The Company grants to Employee the right and
----------------
option to purchase, subject to the terms and conditions of this Agreement and
the Plan, a total of 296,339
-1-
<PAGE>
shares of Common Stock of the Company, par value one cent ($.01) per share
("Common Stock").
b. Option Price. The purchase price of all such shares of Common
------------
Stock shall be $27.3125 per share, which price is equal to the last sale price,
regular way, for Common Stock on September 23, 1998, the business day
immediately preceding the date such option was granted, as reported on the New
York Stock Exchange.
c. "Option" Defined. The option granted hereby and all of Employee's
----------------
rights under this Agreement and the Plan are referred to collectively as the
"Option."
d. Tax Status of Option. This option is designated as not
--------------------
constituting an "incentive stock option" under Section 422 of the Internal
Revenue Code of 1986, as amended. If, however, there is a change in law that
permits all or any portion of the shares granted under this Agreement to be
treated as shares granted under an "incentive stock option," the Company (by the
Chairman of the Board or Chief Executive Officer of the Company) and Employee
may mutually agree that such shares shall be treated as shares granted under an
"incentive stock option," and the Company and Employee may amend this Agreement
or enter into such other agreements as may be necessary or desirable to provide
that such shares shall be treated as shares granted under an "incentive stock
option."
SECTION 2. Vesting of Option. The Option vests as to 150,000 shares
-----------------
of Common Stock on September 23, 2002 and 146,339 shares of Common Stock on
September 23, 2003. In addition, the Option immediately vests as to all of the
shares of Common Stock in the event of Employee's death, total disability (as
defined in Section 5(c) below) or discharge without good cause (as defined in
Section 3 below).
SECTION 3. "Discharge Without Good Cause" and "Change of Control"
-----------------------------------------------------
Defined.
- -------
a. "Discharge Without Good Cause." For purposes of this Agreement,
----------------------------
"discharge without good cause" shall mean (i) any discharge other than discharge
due solely to an act or acts of gross or willful negligence or of intentional
wrongdoing or misconduct, which has or have a material adverse effect on
Employee's ability to perform the duties of his position or on the good
standing, financial condition or profitability of the
-2-
<PAGE>
Company or (ii) any change of control of the Company (as hereinafter defined).
b. "Change of Control." For purposes of this Agreement, a "change of
-----------------
control" shall mean (1) any merger by the Company with or into another
corporation or corporations; (2) any acquisition (by purchase, lease or
otherwise) of all or substantially all of the assets of the Company by any
person, corporation or other entity or group thereof acting jointly; (3) the
acquisition of beneficial ownership, directly or indirectly, of voting
securities of the Company (defined as Common Stock of the Company or any
securities having voting rights that the Company may issue in the future) and
rights to acquire voting securities of the Company (defined as including,
without limitation, securities that are convertible into voting securities of
the Company (as defined above) and rights, options, warrants and other
agreements or arrangements to acquire such voting securities) by any person,
corporation or other entity or group thereof acting jointly, in such amount or
amounts as would permit such person, corporation or other entity or group
thereof acting jointly to elect a majority of the members of the Board of
Directors of the Company, as then constituted; or (4) the acquisition of
beneficial ownership, directly or indirectly, of voting securities and rights to
acquire voting securities having voting power equal to 20% or more of the
combined voting power of the Company's then outstanding voting securities by any
person, corporation or other entity or group thereof acting jointly unless such
acquisition as is described in this part (4) is expressly approved by resolution
of the Board of Directors of the Company passed upon affirmative vote of not
less than a majority thereof and adopted at a meeting of the Board held not
later than the date of the next regularly scheduled or special meeting held
following the date the Company obtains actual knowledge of such acquisition
(which approval may be limited in purpose and effect solely to affecting the
rights of Employee under this Agreement). Notwithstanding the preceding
sentence, (i) any transaction that involves a mere change in identity, form or
place of organization within the meaning of Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended, or a transaction of similar effect, and (ii)
any business combination involving solely the Company and Corporate Property
Investors which is approved by the Company's Board of Directors shall not
constitute a "change of control."
SECTION 4. Termination of Option.
---------------------
-3-
<PAGE>
a. Termination for Cause. If Employee's employment is terminated by
---------------------
the Company for Cause (as defined in Section 4.2 of the Employee's Employment
Agreement of even date herewith), all unexercised rights under the Option shall
expire on the date of such termination.
b. Other Termination. If, before the Option vests as provided in
-----------------
Section 2 above, Employee's employment with the Company terminates for any
reason other than death, total disability (as defined in Section 5(c) below) or
discharge without good cause (as defined in Section 3 above), the Option shall
terminate on the date of such termination, and Employee shall have no rights
under the Option or this Agreement.
SECTION 5. Exercise of Option.
------------------
a. Exercise Period - General. Employee may exercise the Option to
-------------------------
purchase the vested shares at any time (whether while serving as an employee of
the Company or after ceasing to be an employee of the Company), and from time to
time (but not as to less than 10 shares at any one time), on and after the date
such shares have vested as provided in Section 2 above through and including
September 23, 2008 (the "Expiration Date").
b. Exercise Period - Death or Total Disability. If Employee becomes
-------------------------------------------
totally disabled (as defined in Section 5(c) below) or dies either while serving
as an employee of the Company or after ceasing to be an employee of the Company,
the Option may be exercised with respect to the vested shares by Employee or by
the executor, administrator or personal representative of Employee's estate or
other person entitled by law to Employee's rights under the Option at any time
through and including the Expiration Date.
c. "Total Disability" Defined. "Total disability" shall mean a
-------------------------
disability that has continued for a period of more than 180 days and has
prevented Employee from performing in a usual and proper manner the functions of
his position.
d. Exercise before the Expiration Date. Notwithstanding any other
-----------------------------------
provision of this Agreement, in no event may the Option or any portion of the
Option be exercised after September 23, 2008.
SECTION 6. Manner of Exercise; Notices. The Option shall be
---------------------------
exercised by sending to the Secretary of the Company a
-4-
<PAGE>
written notice of Employee's intention to purchase such shares, specifying the
number of shares (but not less than 10 shares at any one time) and the date that
the purchase is to occur. Payment of the option price may be made (i) in U.S.
dollars in cash or by wire transfer, check, bank draft or money order payable to
the Company, (ii) through the delivery of Common Stock or other securities
issued by the Company that have a fair market value equal to the option price,
or (iii) by a combination of the foregoing. Full payment must be made for all
shares to be purchased before the shares will be released to Employee. The
exercise notice shall be addressed to the Secretary of the Company at The Rouse
Company Building, 10275 Little Patuxent Parkway, Columbia, Maryland 21044, or at
such other address as the Company designates in writing to Employee. Any notice
to Employee shall be sent to his address as shown in the records of the Company
or at such other address as Employee designates in writing to the Company. Any
such notice shall be deemed to have been duly given if it is personally
delivered or registered and deposited, postage and registry fee prepaid, in a
United States Post Office. For purposes of this Section 6, the "fair market
value" of any Company securities that are delivered in payment of the option
price shall be equal to (i) the last sale price for Company Common Stock or
Preferred Stock for the business day immediately preceding the date on which any
portion of the Option is exercised as reported on the New York Stock Exchange,
or, if Company Common Stock or Preferred Stock is not traded on the New York
Stock Exchange, on the exchange on which such Common Stock or Preferred Stock is
principally traded, or, if no sale price is reported for such day, the first
preceding business day for which a sale price for Common Stock or Preferred
Stock is reported, or (ii) the value of any other Company security, as
determined by the Chief Financial Officer of the Company in a manner consistent,
to the extent possible, with the determination of fair market value of Company
Common Stock or Preferred Stock as provided in clause (i).
SECTION 7. Reload Option. If, while Employee is employed by the
-------------
Company, Employee delivers shares of Common Stock in payment of the option price
of the Option, Employee shall be issued a new stock option (the "Reload
Option"), under any of The Rouse Company 1997 Stock Incentive Plan, The Rouse
Company 1994 Stock Incentive Plan, The Rouse Company 1990 Stock Option Plan or
any subsequently adopted Company Stock Incentive or Stock Option Plan
(collectively, the "Plans") that has Common Stock available for option grant,
upon the following terms: (i) the number of option shares of Common Stock
granted under the Reload Option
-5-
<PAGE>
shall be equal to the number of shares of Common Stock that were delivered in
payment of the option price of the Option; (ii) the option exercise price of the
Reload Option shall be equal to the last sale price, regular way, for Common
Stock on the New York Stock Exchange on the day on which the Option was
exercised, or, if Common Stock is not then traded on the New York Stock
Exchange, on the exchange on which such Common Stock is principally traded;
(iii) the Reload Option shall have a term equal to the remaining term of the
Option; (iv) the Reload Option shall vest immediately, except that Employee may,
in Employee's discretion, specify that a later vesting date shall be included in
the stock option agreement for the Reload Option, and (v) the other terms of the
Reload Option shall be consistent with the terms of the most recent stock
options granted by the Committee.
SECTION 8. Tax Provisions. At the request of Employee, the Company
--------------
shall retain or accept a sufficient number of shares in connection with the
receipt or exercise of the Option or a sale of the underlying shares to satisfy
the Company's tax withholding obligations, if any, or Employee's tax liabilities
with respect to such transactions.
SECTION 9. Adjustments upon Certain Changes in the Common Stock. If,
----------------------------------------------------
after the date of this Agreement and prior to the full exercise of the Option,
the Company (without receiving compensation therefor) effects one or more stock
splits, stock dividends, recapitalizations or other increases or reductions in
the number of shares of its outstanding Common Stock, then, unless the Board of
Directors expressly determines otherwise, the number of shares with respect to
the unexercised portion of the Option and the per share purchase price shall be
adjusted as follows:
a. in the event of a net increase in the number of shares of its
outstanding Common Stock, the number of shares shall be proportionately
increased, and the per share purchase price shall be proportionately reduced; or
b. in the event of a net reduction in the number of shares of its
outstanding Common Stock, the number of shares shall be proportionately reduced,
and the per share purchase price shall be proportionately increased.
SECTION 10. Employee's Rights Prior to Issuance of Shares. Employee
---------------------------------------------
shall not be, nor shall Employee have any of the rights or privileges of, a
stockholder of the Company with
-6-
<PAGE>
regard to any of the shares issuable upon exercise of the Option unless and
until a physical stock certificate for such shares has been issued or such
shares have been credited to Employee's account under a book entry or comparable
system.
SECTION 11. Assignment or Transfer. The Option may not be
----------------------
transferred, assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise) (i) except that the Option may be transferred, assigned,
pledged or hypothecated, in whole or in part to any member of the immediate
family of Employee (i.e., any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law, including any adoptive
relationships) or to any trust, partnership, corporation or other entity for the
benefit of any member of the immediate family of Employee and (ii) except for
transfer by testamentary instrument or the laws of inheritance, descent and
distribution. The Option shall not be subject to execution, attachment or
similar process.
SECTION 12. Continued Employment. Employee shall have no duty or
--------------------
obligation to remain in the employ of the Company. Nothing in this Agreement
shall be deemed to confer upon Employee any right to continue in the employ of
the Company or to interfere in any way with the right of the Company to
terminate the employment of Employee, which is at will, at any time.
SECTION 13. Binding on Successors. This Agreement shall be binding
---------------------
upon and inure to the benefit of the Company and Employee and their respective
successors, representatives and assigns.
SECTION 14. Captions. The captions of this Agreement are for
--------
convenience and reference only and in no way define, describe, extend or limit
the scope or intent of any of its provisions.
SECTION 15. Amendments. This Agreement may only be amended in
----------
writing and with the mutual consent of the Company and Employee.
SECTION 16. Applicable Law. This Agreement and any disputes arising
--------------
under this Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland and any applicable laws of the United States of
America.
-7-
<PAGE>
IN WITNESS WHEREOF the Company and Employee have executed this
Agreement as of the day and year first above written.
ATTEST: THE ROUSE COMPANY
/s/ Bruce I. Rothschil By /s/ Mathias J. DeVito
- ----------------------------- ----------------------------
Bruce I. Rothschild Mathias J. DeVito
Secretary Chairman of the
Executive Committee
of the Board of
Directors
/s/ Anthony W. Deering
------------------------------
Anthony W. Deering
-8-
<PAGE>
EXHIBIT D-1 ACCELERATED GRANT--
REVISED
THE ROUSE COMPANY
1997 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
THIS INCENTIVE STOCK OPTION AGREEMENT, effective the 24th day of
September, 1998, by and between THE ROUSE COMPANY, a Maryland corporation (the
"Company"), and Anthony W. Deering ("Employee").
BACKGROUND
----------
By action of its Board of Directors and Stockholders, the Company has
adopted The Rouse Company 1997 Stock Incentive Plan (the "Plan"), under which
the Company may grant stock options and other stock awards to employees of the
Company. The Board of Directors has authority (i) to grant stock options to
officers and other key employees of the Company and, subject to the provisions
of the Plan, to determine the employees to whom and the time or times at which
options will be granted, the number of shares to be covered by each option, the
period of time and requisite conditions for exercising an option and the terms
and provisions of the option agreements and (ii) to determine the fair market
value, from time to time, of a share of Common Stock of the Company.
THE OPTION
----------
The Board of Directors has determined to grant a stock option to
Employee, and Employee, by his execution of this Agreement, agrees to accept the
stock option, subject to the provisions of the Plan and the following terms and
conditions:
SECTION 1. Grant of Option.
---------------
a. Number of Shares. The Company grants to Employee the right and
----------------
option to purchase, subject to the terms and conditions of this Agreement and
the Plan, a total of 3,051 shares of Common Stock of the Company, par value one
cent ($.01)
<PAGE>
per share ("Common Stock"), which shares are designated as shares granted under
an incentive stock option (as that term is described in Section 1(d) below).
b. Option Price. The purchase price of all such shares of Common
------------
Stock shall be $32.77 per share.
c. "Option" Defined. The option granted hereby and all of Employee's
----------------
rights under this Agreement and the Plan are referred to collectively as the
"Option."
d. Tax Status of Option. The option is designated as constituting an
--------------------
"incentive stock option" under Section 422 of the Internal Revenue Code of 1986,
as amended.
SECTION 2. Vesting of Option. The Option vests as to all 3,051
-----------------
shares of Common Stock on February 25, 2004. In addition, the Option
immediately vests as to all of the shares of Common Stock in the event of
Employee's death, total disability (as defined in Section 5(c) below) or
discharge without good cause (as defined in Section 3 below).
SECTION 3. "Discharge Without Good Cause" and "Change of Control"
-----------------------------------------------------
Defined.
- -------
a. "Discharge Without Good Cause." For purposes of this Agreement,
----------------------------
"discharge without good cause" shall mean (i) any discharge other than discharge
due solely to an act or acts of gross or willful negligence or of intentional
wrongdoing or misconduct, which has or have a material adverse effect on
Employee's ability to perform the duties of his position or on the good
standing, financial condition or profitability of the Company or (ii) any change
of control of the Company (as hereinafter defined).
b. "Change of Control." For purposes of this Agreement, a "change of
-----------------
control" shall mean (1) any merger by the Company with or into another
corporation or corporations; (2) any acquisition (by purchase, lease or
otherwise) of all or substantially all of the assets of the Company by any
person, corporation or other entity or group thereof acting jointly; (3) the
acquisition of beneficial ownership, directly or indirectly, of voting
securities of the Company (defined as Common Stock of the Company or any
securities having voting rights that the Company may issue in the future) and
rights to acquire voting securities of the Company (defined as including,
without
-2-
<PAGE>
limitation, securities that are convertible into voting securities of the
Company (as defined above) and rights, options, warrants and other agreements or
arrangements to acquire such voting securities) by any person, corporation or
other entity or group thereof acting jointly, in such amount or amounts as would
permit such person, corporation or other entity or group thereof acting jointly
to elect a majority of the members of the Board of Directors of the Company, as
then constituted; or (4) the acquisition of beneficial ownership, directly or
indirectly, of voting securities and rights to acquire voting securities having
voting power equal to 20% or more of the combined voting power of the Company's
then outstanding voting securities by any person, corporation or other entity or
group thereof acting jointly unless such acquisition as is described in this
part (4) is expressly approved by resolution of the Board of Directors of the
Company passed upon affirmative vote of not less than a majority thereof and
adopted at a meeting of the Board held not later than the date of the next
regularly scheduled or special meeting held following the date the Company
obtains actual knowledge of such acquisition (which approval may be limited in
purpose and effect solely to affecting the rights of Employee under this
Agreement). Notwithstanding the preceding sentence, (i) any transaction that
involves a mere change in identity, form or place of organization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended, or a transaction of similar effect, and (ii) any business combination
involving solely the Company and Corporate Property Investors which is approved
by the Company's Board of Directors shall not constitute a "change of control."
SECTION 4. Termination of Option.
---------------------
a. Termination for Cause. If Employee's employment is terminated by
---------------------
the Company for Cause (as defined in Section 4.2 of the Employee's Employment
Agreement of even date herewith), all unexercised rights under the Option shall
expire on the date of such termination.
b. Other Termination. If, before the Option vests as provided in
-----------------
Section 2 above, Employee's employment with the Company terminates for any
reason other than death, total disability (as defined in Section 5(c) below) or
discharge without good cause (as defined in Section 3 above), the Option shall
terminate on the date of such termination, and Employee shall have no rights
under the Option or this Agreement.
-3-
<PAGE>
SECTION 5. Exercise of Option.
------------------
a. Exercise Period. Employee may exercise the Option to purchase the
---------------
vested shares at any time (whether while serving as an employee of the Company
or after ceasing to be an employee of the Company), and from time to time (but
not as to less than 10 shares at any one time), on and after the date such
shares have vested as provided in Section 2 above through and including
September 23, 2008 (the "Expiration Date"), notwithstanding that Employee may
forfeit the favorable tax treatment afforded the Option if Employee exercises
the Option later than three (3) months after such termination.
b. Exercise Period - Death or Total Disability. If Employee becomes
-------------------------------------------
totally disabled (as defined in Section 5(c) below) or dies either while serving
as an employee of the Company or after ceasing to be an employee of the Company,
the Option may be exercised with respect to the vested shares by Employee or by
the executor, administrator or personal representative of Employee's estate or
other person entitled by law to Employee's rights under the Option at any time
through and including the Expiration Date.
c. "Total Disability" Defined. "Total disability" shall mean a
-------------------------
disability that has continued for a period of more than 180 days and has
prevented Employee from performing in a usual and proper manner the functions of
his position.
d. Exercise before the Expiration Date. Notwithstanding any other
-----------------------------------
provision of this Agreement, in no event may the Option or any portion of the
Option be exercised after September 23, 2008.
SECTION 6. Manner of Exercise; Notices. The Option shall be
---------------------------
exercised by sending to the Secretary of the Company a written notice of
Employee's intention to purchase such shares, specifying the number of shares
(but not less than 10 shares at any one time) and the date that the purchase is
to occur. Payment of the option price may be made (i) in U.S. dollars in cash
or by wire transfer, check, bank draft or money order payable to the Company,
(ii) through the delivery of Common Stock or other securities issued by the
Company that have a fair market value equal to the option price, or (iii) by a
combination of the foregoing. Full payment must be made for all shares to be
purchased before the shares will be released to Employee. The
-4-
<PAGE>
exercise notice shall be addressed to the Secretary of the Company at The Rouse
Company Building, 10275 Little Patuxent Parkway, Columbia, Maryland 21044, or at
such other address as the Company designates in writing to Employee. Any notice
to Employee shall be sent to his address as shown in the records of the Company
or at such other address as Employee designates in writing to the Company. Any
such notice shall be deemed to have been duly given if it is personally
delivered or registered and deposited, postage and registry fee prepaid, in a
United States Post Office. For purposes of this Section 6, the "fair market
value" of any Company securities that are delivered in payment of the option
price shall be equal to (i) the last sale price for Company Common Stock or
Preferred Stock for the business day immediately preceding the date on which any
portion of the Option is exercised as reported on the New York Stock Exchange,
or, if Company Common Stock or Preferred Stock is not traded on the New York
Stock Exchange, on the exchange on which such Common Stock or Preferred Stock is
principally traded, or, if no sale price is reported for such day, the first
preceding business day for which a sale price for Common Stock or Preferred
Stock is reported, or (ii) the value of any other Company security, as
determined by the Chief Financial Officer of the Company in a manner consistent,
to the extent possible, with the determination of fair market value of Company
Common Stock or Preferred Stock as provided in clause (i).
SECTION 7. Reload Option. If, while Employee is employed by the
-------------
Company, Employee delivers shares of Common Stock in payment of the option price
of the Option, Employee shall be issued a new stock option (the "Reload
Option"), under any of The Rouse Company 1997 Stock Incentive Plan, The Rouse
Company 1994 Stock Incentive Plan, The Rouse Company 1990 Stock Option Plan or
any subsequently adopted Company Stock Incentive or Stock Option Plan
(collectively, the "Plans") that has Common Stock available for option grant,
upon the following terms: (i) the number of option shares of Common Stock
granted under the Reload Option shall be equal to the number of shares of Common
Stock that were delivered in payment of the option price of the Option; (ii) the
option exercise price of the Reload Option shall be equal to the last sale
price, regular way, for Common Stock on the New York Stock Exchange on the day
on which the Option was exercised, or, if Common Stock is not then traded on the
New York Stock Exchange, on the exchange on which such Common Stock is
principally traded; (iii) the Reload Option shall have a term equal to the
remaining term of the Option; (iv) the Reload Option shall vest immediately,
except that Employee may, in Employee's
-5-
<PAGE>
discretion, specify that a later vesting date shall be included in the stock
option agreement for the Reload Option, and (v) the other terms of the Reload
Option shall be consistent with the terms of the most recent stock options
granted by the Committee.
SECTION 8. Tax Provisions. At the request of Employee, the Company
--------------
shall retain or accept a sufficient number of shares in connection with the
receipt or exercise of the Option or a sale of the underlying shares to satisfy
the Company's tax withholding obligations, if any, or Employee's tax liabilities
with respect to such transactions.
SECTION 9. Adjustments upon Certain Changes in the Common Stock. If,
----------------------------------------------------
after the date of this Agreement and prior to the full exercise of the Option,
the Company (without receiving compensation therefor) effects one or more stock
splits, stock dividends, recapitalizations or other increases or reductions in
the number of shares of its outstanding Common Stock, then, unless the Board of
Directors expressly determines otherwise, the number of shares with respect to
the unexercised portion of the Option and the per share purchase price shall be
adjusted as follows:
a. in the event of a net increase in the number of shares of its
outstanding Common Stock, the number of shares shall be proportionately
increased, and the per share purchase price shall be proportionately reduced; or
b. in the event of a net reduction in the number of shares of its
outstanding Common Stock, the number of shares shall be proportionately reduced,
and the per share purchase price shall be proportionately increased.
SECTION 10. Employee's Rights Prior to Issuance of Shares. Employee
---------------------------------------------
shall not be, nor shall Employee have any of the rights or privileges of, a
stockholder of the Company with regard to any of the shares issuable upon
exercise of the Option unless and until a physical stock certificate for such
shares has been issued or such shares have been credited to Employee's account
under a book entry or comparable system.
SECTION 11. Assignment or Transfer. Except for transfer by
----------------------
testamentary instrument or the laws of inheritance, descent and distribution,
the Option may not be transferred, assigned, pledged or hypothecated in any way
(whether by
-6-
<PAGE>
operation of law or otherwise) and shall not be subject to execution, attachment
or similar process.
SECTION 12. Continued Employment. Employee shall have no duty or
--------------------
obligation to remain in the employ of the Company. Nothing in this Agreement
shall be deemed to confer upon Employee any right to continue in the employ of
the Company or to interfere in any way with the right of the Company to
terminate the employment of Employee, which is at will, at any time.
SECTION 13. Binding on Successors. This Agreement shall be binding
---------------------
upon and inure to the benefit of the Company and Employee and their respective
successors, representatives and assigns.
SECTION 14. Captions. The captions of this Agreement are for
--------
convenience and reference only and in no way define, describe, extend or limit
the scope or intent of any of its provisions.
SECTION 15. Amendments. This Agreement may only be amended in
----------
writing and with the mutual consent of the Company and Employee.
SECTION 16. Applicable Law. This Agreement and any disputes arising
--------------
under this Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland and any applicable laws of the United States of
America.
-7-
<PAGE>
IN WITNESS WHEREOF the Company and Employee have executed this
Agreement as of the day and year first above written.
ATTEST: THE ROUSE COMPANY
/s/ Bruce I. Rothschild By /s/ Mathias J. DeVito
---------------------------- -------------------------
Bruce I. Rothschild Mathias J. DeVito
Secretary Chairman of the
Executive Committee
of the Board of
Directors
/s/ Anthony W. Deering
----------------------------
Anthony W. Deering
-8-
<PAGE>
EXHIBIT D-2 ACCELERATED GRANT--
REVISED
THE ROUSE COMPANY
1997 STOCK INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
-----------------------------------
THIS NONQUALIFIED STOCK OPTION AGREEMENT, effective the 24th day of
September, 1998, by and between THE ROUSE COMPANY, a Maryland corporation (the
"Company"), and Anthony W. Deering ("Employee").
BACKGROUND
----------
By action of its Board of Directors and Stockholders, the Company has
adopted The Rouse Company 1997 Stock Incentive Plan (the "Plan"), under which
the Company may grant stock options and other stock awards to employees of the
Company. The Board of Directors has authority (i) to grant stock options to
officers and other key employees of the Company and, subject to the provisions
of the Plan, to determine the employees to whom and the time or times at which
options will be granted, the number of shares to be covered by each option, the
period of time and requisite conditions for exercising an option and the terms
and provisions of the option agreements and (ii) to determine the fair market
value, from time to time, of a share of Common Stock of the Company.
THE OPTION
----------
The Board of Directors has determined to grant a nonqualified stock
option to Employee, and Employee, by his execution of this Agreement, agrees to
accept the nonqualified stock option, subject to the provisions of the Plan and
the following terms and conditions:
SECTION 1. Grant of Option.
---------------
a. Number of Shares. The Company grants to Employee the right and
----------------
option to purchase, subject to the terms and conditions of this Agreement and
the Plan, a total of 296,949
<PAGE>
shares of Common Stock of the Company, par value one cent ($.01) per share
("Common Stock").
b. Option Price. The purchase price of all such shares of Common
------------
Stock shall be $32.77 per share.
c. "Option" Defined. The option granted hereby and all of Employee's
----------------
rights under this Agreement and the Plan are referred to collectively as the
"Option."
d. Tax Status of Option. This option is designated as not
--------------------
constituting an "incentive stock option" under Section 422 of the Internal
Revenue Code of 1986, as amended. If, however, there is a change in law that
permits all or any portion of the shares granted under this Agreement to be
treated as shares granted under an "incentive stock option," the Company (by the
Chairman of the Board or Chief Executive Officer of the Company) and Employee
may mutually agree that such shares shall be treated as shares granted under an
"incentive stock option," and the Company and Employee may amend this Agreement
or enter into such other agreements as may be necessary or desirable to provide
that such shares shall be treated as shares granted under an "incentive stock
option."
SECTION 2. Vesting of Option. The Option vests as to 75,000 shares
-----------------
of Common Stock on February 25, 2001, February 25, 2002 and February 25, 2003
and as to 71,949 shares on February 25, 2004. In addition, the Option
immediately vests as to all of the shares of Common Stock in the event of
Employee's death, total disability (as defined in Section 5(c) below) or
discharge without good cause (as defined in Section 3 below).
SECTION 3. "Discharge Without Good Cause" and "Change of Control"
-----------------------------------------------------
Defined.
- -------
a. "Discharge Without Good Cause." For purposes of this Agreement,
----------------------------
"discharge without good cause" shall mean (i) any discharge other than discharge
due solely to an act or acts of gross or willful negligence or of intentional
wrongdoing or misconduct, which has or have a material adverse effect on
Employee's ability to perform the duties of his position or on the good
standing, financial condition or profitability of the Company or (ii) any change
of control of the Company (as hereinafter defined).
-2-
<PAGE>
b. "Change of Control." For purposes of this Agreement, a "change of
-----------------
control" shall mean (1) any merger by the Company with or into another
corporation or corporations; (2) any acquisition (by purchase, lease or
otherwise) of all or substantially all of the assets of the Company by any
person, corporation or other entity or group thereof acting jointly; (3) the
acquisition of beneficial ownership, directly or indirectly, of voting
securities of the Company (defined as Common Stock of the Company or any
securities having voting rights that the Company may issue in the future) and
rights to acquire voting securities of the Company (defined as including,
without limitation, securities that are convertible into voting securities of
the Company (as defined above) and rights, options, warrants and other
agreements or arrangements to acquire such voting securities) by any person,
corporation or other entity or group thereof acting jointly, in such amount or
amounts as would permit such person, corporation or other entity or group
thereof acting jointly to elect a majority of the members of the Board of
Directors of the Company, as then constituted; or (4) the acquisition of
beneficial ownership, directly or indirectly, of voting securities and rights to
acquire voting securities having voting power equal to 20% or more of the
combined voting power of the Company's then outstanding voting securities by any
person, corporation or other entity or group thereof acting jointly unless such
acquisition as is described in this part (4) is expressly approved by resolution
of the Board of Directors of the Company passed upon affirmative vote of not
less than a majority thereof and adopted at a meeting of the Board held not
later than the date of the next regularly scheduled or special meeting held
following the date the Company obtains actual knowledge of such acquisition
(which approval may be limited in purpose and effect solely to affecting the
rights of Employee under this Agreement). Notwithstanding the preceding
sentence, (i) any transaction that involves a mere change in identity, form or
place of organization within the meaning of Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended, or a transaction of similar effect, and (ii)
any business combination involving solely the Company and Corporate Property
Investors which is approved by the Company's Board of Directors shall not
constitute a "change of control."
SECTION 4. Termination of Option.
---------------------
a. Termination for Cause. If Employee's employment is terminated by
---------------------
the Company for Cause (as defined in Section 4.2 of
-3-
<PAGE>
the Employee's Employment Agreement of even date herewith), all unexercised
rights under the Option shall expire on the date of such termination.
b. Other Termination. If, before the Option vests as provided in
-----------------
Section 2 above, Employee's employment with the Company terminates for any
reason other than death, total disability (as defined in Section 5(c) below) or
discharge without good cause (as defined in Section 3 above), the Option shall
terminate on the date of such termination, and Employee shall have no rights
under the Option or this Agreement.
SECTION 5. Exercise of Option.
------------------
a. Exercise Period - General. Employee may exercise the Option to
-------------------------
purchase the vested shares at any time (whether while serving as an employee of
the Company or after ceasing to be an employee of the Company), and from time to
time (but not as to less than 10 shares at any one time), on and after the date
such shares have vested as provided in Section 2 above through and including
September 23, 2008 (the "Expiration Date").
b. Exercise Period - Death or Total Disability. If Employee becomes
-------------------------------------------
totally disabled (as defined in Section 5(c) below) or dies either while serving
as an employee of the Company or after ceasing to be an employee of the Company,
the Option may be exercised with respect to the vested shares by Employee or by
the executor, administrator or personal representative of Employee's estate or
other person entitled by law to Employee's rights under the Option at any time
through and including the Expiration Date.
c. "Total Disability" Defined. "Total disability" shall mean a
-------------------------
disability that has continued for a period of more than 180 days and has
prevented Employee from performing in a usual and proper manner the functions of
his position.
d. Exercise before the Expiration Date. Notwithstanding any other
-----------------------------------
provision of this Agreement, in no event may the Option or any portion of the
Option be exercised after September 23, 2008.
SECTION 6. Manner of Exercise; Notices. The Option shall be
---------------------------
exercised by sending to the Secretary of the Company a written notice of
Employee's intention to purchase such shares,
-4-
<PAGE>
specifying the number of shares (but not less than 10 shares at any one time)
and the date that the purchase is to occur. Payment of the option price may be
made (i) in U.S. dollars in cash or by wire transfer, check, bank draft or money
order payable to the Company, (ii) through the delivery of Common Stock or other
securities issued by the Company that have a fair market value equal to the
option price, or (iii) by a combination of the foregoing. Full payment must be
made for all shares to be purchased before the shares will be released to
Employee. The exercise notice shall be addressed to the Secretary of the Company
at The Rouse Company Building, 10275 Little Patuxent Parkway, Columbia, Maryland
21044, or at such other address as the Company designates in writing to
Employee. Any notice to Employee shall be sent to his address as shown in the
records of the Company or at such other address as Employee designates in
writing to the Company. Any such notice shall be deemed to have been duly given
if it is personally delivered or registered and deposited, postage and registry
fee prepaid, in a United States Post Office. For purposes of this Section 6, the
"fair market value" of any Company securities that are delivered in payment of
the option price shall be equal to (i) the last sale price for Company Common
Stock or Preferred Stock for the business day immediately preceding the date on
which any portion of the Option is exercised as reported on the New York Stock
Exchange, or, if Company Common Stock or Preferred Stock is not traded on the
New York Stock Exchange, on the exchange on which such Common Stock or Preferred
Stock is principally traded, or, if no sale price is reported for such day, the
first preceding business day for which a sale price for Common Stock or
Preferred Stock is reported, or (ii) the value of any other Company security, as
determined by the Chief Financial Officer of the Company in a manner consistent,
to the extent possible, with the determination of fair market value of Company
Common Stock or Preferred Stock as provided in clause (i).
SECTION 7. Reload Option. If, while Employee is employed by the
-------------
Company, Employee delivers shares of Common Stock in payment of the option price
of the Option, Employee shall be issued a new stock option (the "Reload
Option"), under any of The Rouse Company 1997 Stock Incentive Plan, The Rouse
Company 1994 Stock Incentive Plan, The Rouse Company 1990 Stock Option Plan or
any subsequently adopted Company Stock Incentive or Stock Option Plan
(collectively, the "Plans") that has Common Stock available for option grant,
upon the following terms: (i) the number of option shares of Common Stock
granted under the Reload Option
-5-
<PAGE>
shall be equal to the number of shares of Common Stock that were delivered in
payment of the option price of the Option; (ii) the option exercise price of the
Reload Option shall be equal to the last sale price, regular way, for Common
Stock on the New York Stock Exchange on the day on which the Option was
exercised, or, if Common Stock is not then traded on the New York Stock
Exchange, on the exchange on which such Common Stock is principally traded;
(iii) the Reload Option shall have a term equal to the remaining term of the
Option; (iv) the Reload Option shall vest immediately, except that Employee may,
in Employee's discretion, specify that a later vesting date shall be included in
the stock option agreement for the Reload Option, and (v) the other terms of the
Reload Option shall be consistent with the terms of the most recent stock
options granted by the Committee.
SECTION 8. Tax Provisions. At the request of Employee, the Company
--------------
shall retain or accept a sufficient number of shares in connection with the
receipt or exercise of the Option or a sale of the underlying shares to satisfy
the Company's tax withholding obligations, if any, or Employee's tax liabilities
with respect to such transactions.
SECTION 9. Adjustments upon Certain Changes in the Common Stock. If,
----------------------------------------------------
after the date of this Agreement and prior to the full exercise of the Option,
the Company (without receiving compensation therefor) effects one or more stock
splits, stock dividends, recapitalizations or other increases or reductions in
the number of shares of its outstanding Common Stock, then, unless the Board of
Directors expressly determines otherwise, the number of shares with respect to
the unexercised portion of the Option and the per share purchase price shall be
adjusted as follows:
a. in the event of a net increase in the number of shares of its
outstanding Common Stock, the number of shares shall be proportionately
increased, and the per share purchase price shall be proportionately reduced; or
b. in the event of a net reduction in the number of shares of its
outstanding Common Stock, the number of shares shall be proportionately reduced,
and the per share purchase price shall be proportionately increased.
SECTION 10. Employee's Rights Prior to Issuance of Shares. Employee
---------------------------------------------
shall not be, nor shall Employee have any of
-6-
<PAGE>
the rights or privileges of, a stockholder of the Company with regard to any of
the shares issuable upon exercise of the Option unless and until a physical
stock certificate for such shares has been issued or such shares have been
credited to Employee's account under a book entry or comparable system.
SECTION 11. Assignment or Transfer. The Option may not be
----------------------
transferred, assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise) (i) except that the Option may be transferred, assigned,
pledged or hypothecated, in whole or in part to any member of the immediate
family of Employee (i.e., any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law, including any adoptive
relationships) or to any trust, partnership, corporation or other entity for the
benefit of any member of the immediate family of Employee and (ii) except for
transfer by testamentary instrument or the laws of inheritance, descent and
distribution. The Option shall not be subject to execution, attachment or
similar process.
SECTION 12. Continued Employment. Employee shall have no duty or
--------------------
obligation to remain in the employ of the Company. Nothing in this Agreement
shall be deemed to confer upon Employee any right to continue in the employ of
the Company or to interfere in any way with the right of the Company to
terminate the employment of Employee, which is at will, at any time.
SECTION 13. Binding on Successors. This Agreement shall be binding
---------------------
upon and inure to the benefit of the Company and Employee and their respective
successors, representatives and assigns.
SECTION 14. Captions. The captions of this Agreement are for
--------
convenience and reference only and in no way define, describe, extend or limit
the scope or intent of any of its provisions.
SECTION 15. Amendments. This Agreement may only be amended in
----------
writing and with the mutual consent of the Company and Employee.
SECTION 16. Applicable Law. This Agreement and any disputes arising
--------------
under this Agreement shall be governed by, and
-7-
<PAGE>
construed in accordance with, the laws of the State of Maryland and any
applicable laws of the United States of America.
IN WITNESS WHEREOF the Company and Employee have executed this
Agreement as of the day and year first above written.
ATTEST: THE ROUSE COMPANY
/s/ Bruce I. Rothschild By /s/ Mathias J. DeVito
----------------------- ----------------------------
Bruce I. Rothschild Mathias J. DeVito
Secretary Chairman of the
Executive Committee
of the Board of
Directors
/s/ Anthony W. Deering
------------------------------
Anthony W. Deering
-8-
<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,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes, extraordinary items
and cumulative effect of change in accounting principle $105,152 $ 73,826 $ 43,605 $ 10,169 $ 13,336
Fixed charges:
Interest costs 229,478 231,098 230,960 219,838 220,971
Capitalized interest (19,914) (23,608) (10,579) (6,875) (7,388)
Amortization of debt issuance costs 1,424 1,645 2,066 2,527 2,146
Distributions on Company-obligated mandatorily
redeemable preferred securities of a trust holding
solely Parent Company subordinated debt securities 12,719 12,719 12,719 1,204 --
Portion of rental expense representative of interest factor (1) 6,943 7,949 8,487 8,266 10,788
Support for debt service costs provided to affiliates
accounted for under the equity method -- -- -- -- --
Adjustments to earnings:
Minority interest in earnings of majority-owned
subsidiaries having fixed charges 2,270 3,178 1,164 2,026 2,234
Undistributed earnings of less than 50%-owned
subsidiaries (2) (41,881) (34) (88) (189) (564)
Previously capitalized interest amortized into earnings:
Depreciation of operating properties (3) 4,192 3,962 3,866 3,764 3,670
Cost of land sales (4) -- 5,025 1,778 1,421 1,580
-------- -------- -------- -------- --------
Earnings available for fixed charges $300,383 $315,760 $293,978 $242,151 $246,773
======== ======== ======== ======== ========
Fixed charges:
Interest costs $229,478 $231,098 $230,960 $219,838 $220,971
Amortization of debt issuance costs 1,424 1,645 2,066 2,527 2,146
Distributions on Company-obligated mandatorily
redeemable preferred securities of a trust holding
solely Parent Company subordinated debt securities 12,719 12,719 12,719 1,204 --
Portion of rental expense representative of interest
factor (1) 6,943 7,949 8,487 8,266 10,788
Support for debt service costs provided to affiliates
accounted for under the equity method -- -- -- -- --
-------- -------- -------- -------- --------
Total fixed charges $250,564 $253,411 $254,232 $231,835 $233,905
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 1.20 1.25 1.16 1.04 1.06
======== ======== ======== ======== ========
</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 $2,330,000, $3,158,000, $3,844,000, $3,644,000, and
$6,232,000 for the years ended December 31, 1998, 1997, 1996, 1995 and
1994, respectively.
(2) Includes undistributed earnings of certain unconsolidated real estate
ventures, formed December 31, 1997, in which the Company holds
substantially all (at least 98%) of the financial interest but does not own
a majority voting interest. The Company's share of undistributed earnings
of these ventures was $41,720,000 in 1998.
(3) 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.
<PAGE>
Exhibit 12.1, continued
The Rouse Company and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(4) Represents 10% of the cost of Columbia land sales and 5% of the cost of
Summerlin land sales, the portions of such costs considered to be
reasonable estimates of the interest factor prior to 1998. On December 31,
1997 certain wholly owned subsidiaries, including those that conducted
substantially all of the Company's land sales and community development
activities, issued 91% of their voting common stock to The Rouse Company
Incentive Compensation Statutory Trust. These sales were made at fair value
and as part of the Company's plan to meet the qualifications for REIT
status. The Company retained the remaining voting stock of the ventures and
holds shares of nonvoting common and/or preferred stock which, taken
together, comprise substantially all (at least 98%) of the financial
interest in them. As a result of its disposition of the majority voting
interests in the ventures, the Company began accounting for its investment
in them using the equity method effective December 31, 1997. Accordingly,
the period after December 31, 1997 includes no adjustment for the interest
portion of the cost of land sales.
<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,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes, extraordinary items
and cumulative effect of change in accounting principle $105,152 $ 73,826 $ 43,605 $ 10,169 $ 13,336
Fixed charges:
Interest costs 229,478 231,098 230,960 219,838 220,971
Capitalized interest (19,914) (23,608) (10,579) (6,875) (7,388)
Amortization of debt issuance costs 1,424 1,645 2,066 2,527 2,146
Distributions on Company-obligated mandatorily redeemable
preferred securities of a trust holding solely Parent Company
subordinated debt securities 12,719 12,719 12,719 1,204 --
Portion of rental expense representative of interest factor (1) 6,943 7,949 8,487 8,266 10,788
Support for debt service costs provided to affiliates
accounted for under the equity method -- -- -- -- --
Adjustments to earnings:
Minority interest in earnings of majority-owned subsidiaries
having fixed charges 2,270 3,178 1,164 2,026 2,234
Undistributed earnings of less than 50%-owned subsidiaries (2) (41,881) (34) (88) (189) (564)
Previously capitalized interest amortized into earnings:
Depreciation of operating properties (3) 4,192 3,962 3,866 3,764 3,670
Cost of land sales (4) -- 5,025 1,778 1,421 1,580
-------- -------- -------- -------- --------
Earnings available for fixed charges and
Preferred Stock dividend requirements $300,383 $315,760 $293,978 $242,151 $246,773
======== ======== ======== ======== ========
Combined fixed charges and Preferred Stock dividend requirements:
Interest costs $229,478 $231,098 $230,960 $219,838 $220,971
Amortization of debt expense 1,424 1,645 2,066 2,527 2,146
Distributions on Company-obligated mandatorily redeemable
preferred securities of a trust holding solely Parent Company
subordinated debt securities 12,719 12,719 12,719 1,204 --
Portion of rental expense representative of
interest factor (1) 6,943 7,949 8,487 8,266 10,788
Support for debt service costs provided to affiliates
accounted for under the equity method -- -- -- -- --
Preferred Stock dividend requirements (5) 12,152 10,313 17,555 24,402 21,802
-------- -------- -------- -------- --------
Total combined fixed charges and Preferred stock
dividend requirements $262,716 $263,724 $271,787 $256,237 $255,707
======== ======== ======== ======== ========
Ratio of earnings to combined fixed charges
and Preferred stock dividend requirements (6) 1.14 1.20 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 $2,330,000, $3,158,000, $3,844,000, $3,644,000, and
$6,232,000 for the years ended December 31, 1998, 1997, 1996, 1995 and
1994, respectively.
(2) Includes undistributed earnings of certain unconsolidated real estate
ventures, formed December 31, 1997, in which the Company holds
substantially all (at least 98%) of the financial interest but does not own
a majority voting interest. The Company's share of undistributed earnings
of these ventures was $41,720,000 in 1998.
<PAGE>
Exhibit 12.2, continued
The Rouse Company and Subsidiaries
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividend Requirements
(3) 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.
(4) Represents 10% of the cost of Columbia land sales and 5% of cost of
Summerlin land sales, the portions of such costs considered to be
reasonable estimates of the interest factor prior to 1998. On December 31,
1997 certain wholly owned subsidiaries, including those that conducted
substantially all of the Company's land sales and community development
activities, issued 91% of their voting common stock to The Rouse Company
Incentive Compensation Statutory Trust. These sales were made at fair value
and as part of the Company's plan to meet the qualifications for REIT
status. The Company retained the remaining voting stock of the ventures and
holds shares of nonvoting common and/or preferred stock which, taken
together, comprise substantially all (at least 98%) of the financial
interest in them. As a result of its disposition of the majority voting
interests in the ventures, the Company began accounting for its investment
in them using the equity method effective December 31, 1997. Accordingly,
the period after December 31, 1997 includes no adjustment for the interest
portion of the cost of land sales.
(5) Represents estimated pre-tax earnings required to cover Preferred stock
dividend requirements. Amounts are calculated based on actual Preferred
stock dividends and an estimated effective tax rate of 0% for the years
ended December 31, 1998 and 1997. Amounts are calculated based on actual
Preferred stock dividends and an estimated effective tax rate of 40% for
the years ended December 31, 1996, 1995 and 1994. The Company will elect to
be taxed as a REIT beginning in 1998. Management believes that the Company
met the qualifications for REIT status as of December 31, 1998, intends for
it to continue to meet the qualifications in the future and does not expect
the Company will be liable for income taxes or significant taxes on "built-
in gains" on its assets at the Federal level or in most states in future
years. Accordingly, the Company eliminated substantially all of its
existing deferred tax assets and liabilities at December 31, 1997 and does
not expect to provide for Federal or most state deferred income taxes in
1998 or future years.
(6) 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, and $8,934,000 for
the years ended December 31, 1995 and 1994, respectively.
<PAGE>
The Rouse Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Property (notes 4 and 7):
Operating properties:
Property and deferred costs of projects............................. $ 4,718,727 $ 3,079,962
Less accumulated depreciation and amortization...................... 578,311 515,229
---------- ----------
4,140,416 2,564,733
Properties in development............................................... 167,360 232,349
Properties held for sale................................................ 165,894 20,052
---------- ----------
Total property...................................................... 4,473,670 2,817,134
Investments in and advances to unconsolidated
real estate ventures (notes 3 and 7).................................... 322,066 338,692
Prepaid expenses, receivables under finance leases and
other assets (note 15).................................................. 241,040 228,956
Accounts and notes receivable (note 5)....................................... 75,917 114,300
Investments in marketable securities......................................... 4,256 3,586
Cash and cash equivalents.................................................... 37,694 87,100
----------- -----------
TOTAL................................................................... $ 5,154,643 $ 3,589,768
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
LIABILITIES
Debt (note 7):
Property debt not carrying a Parent Company guarantee of repayment................. $2,923,119 $ 2,085,456
Parent Company debt and debt carrying a Parent Company guarantee of
repayment:
Property debt.................................................................. 161,986 158,093
Convertible subordinated debentures............................................ 128,515 130,000
Other debt..................................................................... 845,200 256,000
----------- ----------
1,135,701 544,093
----------- ----------
Total debt..................................................................... 4,058,820 2,629,549
----------- ---------
Obligations under capital leases........................................................ 9,639 54,591
Accounts payable, accrued expenses and other liabilities................................ 320,293 302,613
Company-obligated mandatorily redeemable preferred securities of a trust
holding solely Parent Company subordinated debt securities (note 8)................ 136,965 137,500
Commitments and contingencies (notes 15 and 16)
SHAREHOLDERS' EQUITY (notes 12 and 13)
Series B Convertible Preferred stock with a liquidation preference of $202,500 41 41
Common stock of 1 cent par value per share; 250,000,000 shares authorized;
issued 72,225,223 shares in 1998 and 66,910,901 shares in 1997..................... 723 669
Additional paid-in capital.............................................................. 836,508 686,976
Accumulated deficit..................................................................... (206,520) (222,171)
Accumulated other comprehensive income.................................................. (1,826) ---
----------- ----------
Net shareholders' equity........................................................... 628,926 465,515
----------- ----------
TOTAL.............................................................................. $ 5,154,643 $ 3,589,768
=========== ===========
</TABLE>
5
<PAGE>
The Rouse Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
Years ended December 31, 1998, 1997 and 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues .............................................................. $ 692,571 $ 916,771 $ 821,036
Operating expenses, exclusive of provision for bad debts,
depreciation and amortization..................................... 350,647 530,076 468,366
Interest expense (note 7).............................................. 209,564 207,490 220,381
Provision for bad debts................................................ 7,735 5,766 3,688
Depreciation and amortization (note 4)................................. 84,068 82,944 77,414
Equity in earnings of unconsolidated real estate ventures (note 3)..... 75,769 6,815 8,917
Loss on dispositions of assets and other provisions, net (note 11)..... 11,174 23,484 16,499
----------- ----------- -----------
Earnings before income taxes, extraordinary items and
cumulative effect of changes in accounting principle.......... 105,152 73,826 43,605
----------- ----------- -----------
Income tax provision (benefit) (note 10):
Current........................................................... (24) 8,137 123
Deferred---primarily Federal...................................... --- (124,203) 25,596
----------- ----------- -----------
(24) (116,066) 25,719
----------- ----------- -----------
Earnings before extraordinary items and cumulative effect
of changes in accounting principle............................ 105,176 189,892 17,886
Extraordinary gain (loss), net (note 7)................................ 4,355 (21,342) (1,453)
Cumulative effect at January 1, 1998 of change in accounting
for participating mortgages (note 1).............................. (4,629) --- ---
Cumulative effect at October 1, 1997 of change in accounting
for business process reengineering costs, net (note 1)............ --- (1,214) ---
----------- ----------- -----------
NET EARNINGS...................................................... 104,902 167,336 16,433
Other items of comprehensive income - minimum
pension liability adjustment...................................... (1,826) --- --
----------- ----------- -----------
COMPREHENSIVE INCOME.............................................. $ 103,076 $ 167,336 $ 16,433
=========== =========== ===========
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS.................... $ 92,750 $ 157,023 $ 5,900
=========== =========== ===========
EARNINGS PER SHARE OF COMMON STOCK (NOTE 14):
Basic:
Earnings before extraordinary items and cumulative effect
of changes in accounting principle........................ $ 1.36 $ 2.70 $ .13
Extraordinary items........................................... .07 (.32) (.03)
Cumulative effect of changes in accounting principle.......... (.07) (.02) ---
----------- ----------- -----------
Total..................................................... $ 1.36 $ 2.36 $ .10
=========== =========== ===========
Diluted:
Earnings before extraordinary items and cumulative effect
of changes in accounting principle........................ $ 1.34 $ 2.59 $ .12
Extraordinary items........................................... .07 (.28) (.03)
Cumulative effect of changes in accounting principle.......... (.07) (.02) ---
----------- ----------- -----------
Total..................................................... $ 1.34 $ 2.29 $ .09
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
The Rouse Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Series A Series B Additional other
Preferred Preferred Common paid-in Accumulated comprehensive
stock stock stock capital deficit income
--------- --------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
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) ---
Conversion of Series A Preferred stock (note 12) (45) --- 106 (61) --- ---
Purchases of common stock........................... --- --- (2) (7,005) --- ---
Common stock issued in acquisition of
The Hughes Corporation (note 2)................ --- --- 78 178,008 --- ---
Common stock issued pursuant to Contingent
Stock Agreement (note 13)...................... --- --- 2 5,023 --- ---
Proceeds from exercise of stock options, net........ --- --- 4 1,038 --- ---
Lapse of restrictions on common stock awards........ --- --- --- 1,903 --- ---
------ ------ ------- --------- ---------- ---------
BALANCE AT DECEMBER 31, 1996........................ --- --- 667 488,849 (312,367) ---
Net earnings........................................ --- --- --- --- 167,336 ---
Dividends declared:
Common stock -- $1.00 per share................ --- --- --- --- (66,827) ---
Preferred stock -- $2.65 per share............. --- --- --- --- (10,313) ---
Issuance of Series B Preferred stock (note 12)...... --- 41 --- 196,787 --- ---
Purchases of common stock........................... --- --- (8) (26,357) --- ---
Common stock issued pursuant to Contingent
Stock Agreement (note 13)...................... --- --- 8 23,305 --- ---
Proceeds from exercise of stock options, net........ --- --- 2 2,077 --- ---
Lapse of restrictions on common stock awards........ --- --- --- 2,315 --- ---
------ ------ ------- --------- ---------- ---------
BALANCE AT DECEMBER 31, 1997........................ --- 41 669 686,976 (222,171) ---
Net earnings........................................ --- --- --- --- 104,902 ---
Other comprehensive income.......................... --- --- --- --- --- (1,826)
Dividends declared:
Common stock -- $1.12 per share................ --- --- --- --- (77,099) ---
Preferred stock -- $3.00 per share............. --- --- --- --- (12,152) ---
Purchases of common stock........................... --- --- (21) (65,412) --- ---
Conversion of convertible subordinated debentures --- --- 1 1,484 --- ---
Common stock issued pursuant to Contingent
Stock Agreement (note 13)...................... --- --- 21 65,002 --- ---
Other common stock issued........................... --- --- 50 143,378 --- ---
Proceeds from exercise of stock options, net........ --- --- 3 484 --- ---
Lapse of restrictions on common stock awards........ --- --- --- 4,596 --- ---
------ ------ ------- --------- ---------- ---------
BALANCE AT DECEMBER 31, 1998........................ $ --- $ 41 $ 723 $ 836,508 $ (206,520) $ (1,826)
====== ====== ======= ========= ========== =========
</TABLE>
The accompanying notes are an integral part of these statements. 7
<PAGE>
The Rouse Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received................................. $ 666,080 $ 714,784 $ 685,990
Proceeds from land sales and on notes receivable from land
sales.......................................................... 80,017 159,932 122,245
Interest received................................................. 14,038 11,877 11,939
Land development expenditures..................................... --- (97,868) (54,343)
Operating expenditures............................................ (339,962) (395,528) (381,061)
Interest paid..................................................... (204,897) (207,681) (216,644)
Dividends, interest and other operating distributions from
unconsolidated majority financial interest ventures, net....... 45,907 --- ---
----------- ----------- -----------
Net cash provided by operating activities.................... 261,183 185,516 168,126
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for properties in development and improvements to
existing properties funded by debt........................... (306,950) (283,401) (123,985)
Expenditures for acquisition of The Hughes Corporation,
net of acquired cash......................................... --- --- (36,331)
Expenditures for property acquisitions............................ (882,404) (79,420) (18,152)
Expenditures for improvements to existing properties funded by
cash provided by operating activities:
Tenant leasing and remerchandising....................... (7,955) (5,964) (8,095)
Building and equipment................................... (13,873) (15,933) (12,691)
Proceeds from sales of operating properties....................... 130,070 81,281 26,345
Payments received on loans and advances to unconsolidated
majority financial interest ventures........................... 47,483 --- ---
Other............................................................. 1,429 (19,042) (10,086)
----------- ----------- -----------
Net cash used by investing activities........................ (1,032,200) (322,479) (182,995)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of property debt........................... 650,987 693,525 291,373
Repayments of property debt:
Scheduled principal payments................................. (50,689) (46,282) (39,048)
Other payments............................................... (347,725) (572,139) (251,807)
Proceeds from issuance of other debt.............................. 602,000 11,868 31,652
Repayments of other debt.......................................... (15,287) (1,520) ---
Proceeds from issuance of Series B Preferred stock................ --- 196,828 ---
Proceeds from issuance of common stock............................ 43,428 --- ---
Purchases of common stock......................................... (65,433) (26,365) (7,007)
Dividends paid.................................................... (89,251) (77,140) (60,917)
Other............................................................. (6,419) 1,522 (533)
----------- ----------- -----------
Net cash provided (used) by financing activities............. 721,611 180,297 (36,287)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.............. (49,406) 43,334 (51,156)
Cash and cash equivalents at beginning of year.................... 87,100 43,766 94,922
----------- ----------- -----------
Cash and cash equivalents at end of year.......................... $ 37,694 $ 87,100 $ 43,766
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
NET EARNINGS...................................................... $ 104,902 $ 167,336 $ 16,433
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization................................ 84,068 82,944 77,414
Undistributed earnings of majority financial interest
ventures................................................. (41,720) --- ---
Loss on dispositions of assets and other provisions, net..... 11,174 23,484 16,499
Extraordinary (gain) loss, net............................... (4,355) 21,342 1,453
Cumulative effect of change in accounting principle, net..... 4,629 1,214 ---
Additions to preconstruction reserve......................... 1,700 2,800 2,700
Participation expense pursuant to Contingent Stock Agreement. 44,075 35,832 28,844
Provision for bad debts...................................... 7,735 5,766 3,688
Decrease (increase) in:
Accounts and notes receivable............................ 32,507 (70,045) (26,862)
Other assets............................................. 1,845 (2,312) (5,694)
Increase in accounts payable, accrued expenses
and other liabilities.................................... 8,852 48,783 25,885
Deferred income taxes........................................ --- (124,203) 25,596
Other, net................................................... 5,771 (7,425) 2,170
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... $ 261,183 $ 185,516 $ 168,126
=========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
1998 1997 1996
----------- ----------- -----------
Common stock issued pursuant to Contingent Stock
Agreement (note 13).......................................... $ 65,023 $ 23,313 $ 5,025
Common stock and other noncash consideration issued
in acquisitions of property interests (note 4)............... 100,000 5,323 13,520
Mortgage and other debt assumed or issued in acquisitions of
property interests........................................... 599,795 --- 21,090
Mortgage debt extinguished on dispositions
of interests in properties................................... 19,875 --- ---
Termination of capital lease obligation........................... 46,387 --- ---
Common stock issued on conversion of convertible
subordinated debentures........................................ 1,485 --- ---
Capital lease obligations incurred................................ 2,743 1,101 3,789
Debt assumed by purchasers of land................................ 2 21,928 16,991
Mortgage and other debt of subsidiaries in
which a majority voting interest was sold
to an affiliate (note 3)..................................... --- 280,595 ---
Property of subsidiaries in which a majority voting
interest was sold to an affiliate (note 3)................... --- 547,295 ---
Debt and other liabilities assumed in acquisition of The Hughes
Corporation, net (note 2).................................... --- --- 334,155
Common stock issued in acquisition of The Hughes
Corporation (note 2)......................................... --- --- 178,086
Notes received from sales of operating properties................. --- --- 8,440
=========== =========== ===========
</TABLE>
9
<PAGE>
The Rouse Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(1) SUMMARY OF SIGNIFICANT (A) DESCRIPTION OF BUSINESS
ACCOUNTING POLICIES Through its subsidiaries and affiliates, 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. The
income-producing properties consist of retail
centers, office and industrial buildings and
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, Maryland.
The office and industrial properties are located
primarily in the Columbia, Baltimore and Las Vegas
market areas or are components of large-scale
mixed-use properties (which include retail,
parking and other uses) located in other urban
markets. Land development and sales operations are
predominantly related to large-scale, long-term
community development projects in Columbia and
Summerlin, Nevada.
(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 voting
interest and control and the Company's
proportionate share of the assets, liabilities,
revenues and expenses of unconsolidated 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
financial statements in a number of areas,
including evaluation of impairment of long-lived
assets (including operating properties and
properties held for development or sale),
determination of useful lives of assets subject to
depreciation or amortization, evaluation of
collectibility of accounts and notes receivable
and measurement of pension and postretirement
obligations. Actual results could differ from
those and other estimates.
Certain amounts for prior years have been
reclassified to conform to the presentation for
1998.
(C) PROPERTY
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
properties in development 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. Provision is made for potentially
unsuccessful preconstruction efforts by charges to
operations. Development and construction costs and
costs of significant improvements, replacements
and renovations at operating properties are
capitalized, while costs of maintenance and
repairs are expensed as incurred.
Direct costs associated with financing and
leasing of operating properties are capitalized as
deferred costs and amortized over the periods
benefited by the expenditures. Effective March 19,
1998, the Company adopted a policy of charging
internal staff costs associated with acquisitions
of operating properties to expense as incurred as
required by a consensus of the Emerging Issues
Task Force of the Financial Accounting Standards
Board. Prior to that date, such costs were
capitalized as part of the cost of properties
acquired. This change did not have a material
effect on net earnings for 1998.
10
<PAGE>
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 may be impaired, a recoverability
analysis is performed based on estimated
nondiscounted future cash flows to be generated
from the property. If the analysis indicates that
the carrying value is not recoverable from future
cash flows, the property 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 values (i.e., cost less
accumulated depreciation and any impairment loss
recognized, where applicable) or estimated fair
values 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 date of sale. Revenues and expenses
related to property interests acquired with the
intention to resell are not recognized.
(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 that 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
the terms of which the Company is required to
perform additional services and incur significant
costs after title has passed, revenues and cost of
sales are recognized on a percentage of completion
basis.
Cost of land sales is generally determined as
a specified percentage of land sales revenues
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 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.
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
In December 1997, the Company determined that it
would elect to be taxed as a real estate
investment trust (REIT) pursuant to the Internal
Revenue Code of 1986, as amended, effective
January 1, 1998. In general, a corporation that
distributes at least 95% of its REIT taxable
income to shareholders in any taxable year and
complies with certain other requirements (relating
primarily to the nature of its assets and the
sources of its revenues) is not subject to Federal
income taxation to the extent of the income which
it distributes. Management believes that the
Company met the qualifications for REIT status as
of December 31, 1998 and intends for it to
continue to meet the qualifications in the future
and to distribute at least 100% of its REIT
taxable income (determined after taking into
account any net operating loss deduction) to
shareholders in 1999 and subsequent years. As
discussed more fully in note 10, management also
does not expect that the Company will pay taxes on
"built-in gains" on its assets. Based on these
considerations, management does not believe that
the Company will be liable for income taxes at the
11
<PAGE>
Federal level or in most of the states in which it
operates in 1998 and future years. Accordingly,
the Company eliminated substantially all of its
existing deferred tax assets and liabilities at
December 31, 1997, and does not expect to provide
for deferred income taxes in future periods except
in certain states.
Where required, 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 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.
(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, 1998 and 1997,
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) DERIVATIVE FINANCIAL INSTRUMENTS
The Company makes limited use of interest rate
exchange agreements, including interest rate caps
and swaps, to manage interest rate risk associated
with variable rate debt. The Company may also use
other types of agreements to hedge interest rate
risk associated with anticipated project financing
transactions. These instruments are designated as
hedges and, accordingly, changes in their fair
values are not recognized in the financial
statements, provided that they meet defined
correlation and effectiveness criteria at
inception and thereafter. Instruments that cease
to qualify for hedge accounting are marked-to-
market with gains or losses recognized in income.
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
agreements, 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 values in the financial statements
except for debt and related interest rate exchange
agreements for which fair value information is
provided in note 7.
12
<PAGE>
(J) EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share (EPS) is computed by
dividing income available to common shareholders
by the weighted-average number of common shares
outstanding. Diluted EPS is computed after
adjusting the numerator and denominator of the
basic EPS computation for the effects of all
dilutive potential common shares outstanding
during the period. The dilutive effects of
convertible securities are computed using the "if-
converted" method and the dilutive effects of
options, warrants and their equivalents (including
fixed awards and nonvested stock issued under
stock-based compensation plans) are computed using
the "treasury stock" method.
(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 or
stock options 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. Information concerning the pro forma
effects on net earnings and earnings per share of
common stock of using an optional fair value-based
method, rather than the intrinsic value method, to
account for stock-based compensation plans is
provided in note 13.
(L) BUSINESS PROCESS REENGINEERING COSTS
Effective October 1, 1997, the Company adopted a
policy of charging costs of business process
reengineering activities to expense as incurred as
required by a consensus of the Emerging Issues
Task Force of the Financial Accounting Standards
Board. Prior to that date, such costs were
deferred and amortized over the period benefited
by the expenditures. The cumulative effect at
October 1, 1997 of this accounting change was to
reduce net earnings for 1997 by $1,214,000 ($.02
per share), net of related income tax benefits of
$654,000. The effect of this change on earnings
before extraordinary losses and net earnings for
1997, excluding the cumulative effect of the
change, was not material and application of the
new policy in 1996 would not have had a material
effect on reported earnings before extraordinary
losses, net earnings or related per share amounts.
(M) PARTICIPATING MORTGAGES
Effective January 1, 1998, the Company adopted the
American Institute of Certified Public
Accountants' Statement of Position 97-1
"Accounting by Participating Mortgage Loan
Borrowers." This Statement prescribes borrowers'
accounting for participating mortgage loans and
requires, among other things, that borrowers
recognize liabilities for the estimated fair value
of lenders' participations in the appreciation in
value (if any) of mortgaged real estate projects
and record such participations as interest over
the terms of the related loans. The Company had
not previously recognized lenders' participations
in the appreciation in value of mortgaged
properties. The cumulative effect of this
accounting change at January 1, 1998 was to reduce
net earnings by approximately $4,629,000 ($.07 per
share basic and diluted). The effect of this
change, excluding the cumulative effect of initial
adoption, was not material (approximately $.01 per
share basic and diluted) in 1998.
(N) COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted
Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." This
Statement establishes standards for reporting and
presentation of comprehensive income and its
components in financial statements. Comprehensive
income includes all changes in shareholders'
equity during a period, except those relating to
investments by and distributions to shareholders.
The Company's comprehensive income consists of net
earnings and adjustments to minimum pension
liability and is presented in the statements of
operations and comprehensive income. Accumulated
other comprehensive income is displayed as a
separate component of shareholders' equity. No
amounts were required to be reclassified to other
comprehensive income for 1997 and 1996.
(O) PENSION AND OTHER POSTRETIREMENT PLANS
Effective January 1, 1998, the Company adopted
Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pension and
Other Postretirement Benefits." This
13
<PAGE>
Statement revises disclosure requirements about
pension and other postretirement benefit plans,
but does not change the method of accounting for
them.
(2) THE HUGHES CORPORATION On June 12, 1996, the Company acquired all of the
ACQUISITION AND RELATED outstanding equity interests in The Hughes
MATTERS 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 13, additional
shares of common stock (or, in certain
circumstances, Increasing Rate Cumulative
Preferred stock) have been and may continue to 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 values of the
assets acquired which consisted primarily of a
regional shopping center in Las Vegas, a large-
scale, master-planned community in Summerlin,
Nevada, and four large-scale, master-planned
business parks and various other properties in
Nevada and Southern California.
The consolidated statement of operations
and comprehensive income 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 year ended December 31,
1996, assuming the acquisition of Hughes occurred
on January 1, 1996, are summarized as follows (in
thousands, except per share data):
<TABLE>
<S> <C>
Revenues................................................ $ 872,805
Earnings before extraordinary items..................... 20,990
Net earnings............................................ 19,537
Earnings per share of common stock:
Basic:
Earnings before extraordinary items................... .16
Net earnings.......................................... .14
Diluted:
Earnings before extraordinary items................... .16
Net earnings.......................................... .14
==========
</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,
1996.
(3) UNCONSOLIDATED REAL Investments in and advances to unconsolidated real
ESTATE VENTURES estate ventures at December 31, 1998 and 1997 are
summarized, based on the level of the Company's
financial interest, as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Majority interest ventures................. $ 270,085 $ 259,320
Joint interest and control ventures........ 1,140 3,412
Minority interest ventures................. 50,841 75,960
---------- ----------
Total.................................. $ 322,066 $ 338,692
========== ==========
</TABLE>
The equity in earnings of unconsolidated real
estate ventures for the years ended December 31,
1998, 1997 and 1996 is summarized, based upon the
level of the Company's financial interest, as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Majority interest ventures.......... $ 63,475 $ --- $ ---
Minority interest ventures.......... 12,294 6,815 8,917
-------- --------- --------
Total........................... $ 75,769 $ 6,815 $ 8,917
========= ========= ========
</TABLE>
14
<PAGE>
The ventures in which the Company has majority
financial interests were initiated on December 31, 1997,
when certain wholly owned subsidiaries issued 91% of their
voting common stock to The Rouse Company Incentive
Compensation Statutory Trust, an entity which is neither
owned nor controlled by the Company, for an aggregate
consideration of $1,400,000. These sales were made at fair
value and as part of the Company's plan to meet the
qualifications for REIT status. The Company retained the
remaining voting stock of the ventures and holds shares of
nonvoting common and/or preferred stock and, in certain
cases, mortgage loans receivable from the ventures which,
taken together, comprise substantially all (at least 98%) of
the financial interest in them. As a result of its
disposition of the majority voting interest in the ventures,
the Company began accounting for its investment in them
using the equity method effective December 31, 1997. Due to
the Company's continuing financial interest in the ventures,
it recognized no gain on the sales of stock for financial
reporting purposes and the ventures retained the Company's
cost basis of the assets acquired and liabilities assumed.
The assets of the ventures consist primarily of land to be
developed and sold as part of community development projects
in Columbia and Summerlin, other investment land, primarily
in Nevada, certain office and retail properties in Columbia
and contracts to manage various operating properties.
The condensed, combined balance sheets of these
ventures at December 31, 1998 and 1997 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Assets:
Operating properties, net........................ $ 244,470 $ 211,385
Properties in development........................ 66,442 23,144
Land held for development and sale............... 236,999 231,530
Investment land.................................. 41,156 34,947
Properties held for sale......................... --- 46,289
Advances to the Company.......................... 112,310 131,832
Other............................................ 192,437 169,876
---------- ----------
Total....................................... $ 893,814 $ 849,003
========== ==========
Liabilities and shareholders' deficit:
Loans and advances from the Company.............. $ 488,363 $ 538,586
Mortgages payable and other long-term debt....... 332,945 280,595
Other liabilities................................ 116,244 104,119
Redeemable Series A Preferred stock.............. 50,000 50,000
Shareholders' deficit............................ (93,738) (124,297)
---------- ----------
Total....................................... $ 893,814 $ 849,003
========== ==========
</TABLE>
The condensed combined statement of operations of these
ventures for 1998 is summarized as follows (in thousands):
<TABLE>
<S> <C>
Revenues, including interest on loans to the
Company of $9,067................................ $ 282,010
Operating expenses.................................... (161,350)
Interest expense, including interest on loans from
the Company of $53,340........................... (68,146)
Depreciation and amortization......................... (10,585)
Equity in earnings of unconsolidated real
estate ventures.................................. 811
Gain on dispositions of assets, net................... 15,856
Income taxes.......................................... (22,060)
Extraordinary losses, net............................. (1,127)
----------
Net earnings................................ $ 35,409
==========
</TABLE>
15
<PAGE>
The Company's share of the net earnings before
extraordinary losses of these ventures for 1998 is
summarized as follows (in thousands):
<TABLE>
<S> <C>
Share of net earnings based on ownership interest...... $ 35,055
Share of extraordinary losses.......................... 1,116
Participation by others in the Company's share of
earnings.......................................... (24,152)
Interest on loans and advances, net.................... 44,273
Eliminations and other, net............................ 7,183
----------
$ 63,475
==========
</TABLE>
The ventures in which the Company has joint interest
and control are accounted for using the proportionate share
method. These ventures are partnerships that own various
retail centers which are managed by affiliates of the
Company. The consolidated financial statements include the
Company's proportionate share of its historical cost of
these properties and depreciation based on the Company's
depreciation policies which differ, in certain cases, from
those of the ventures.
The condensed, combined balance sheets of these
ventures and the Company's proportionate share of their
assets, liabilities and equity at December 31, 1998 and 1997
and the condensed, combined statements of earnings of these
ventures and the Company's proportionate share of their
revenues and expenses for 1998, 1997 and 1996 are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
Combined Proportionate Share
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total assets, primarily property................ $ 315,576 $ 353,132 $ 140,983 $ 153,399
========= ========= ========= =========
Liabilities, primarily long-term debt........... $ 207,386 $ 247,949 $ 90,034 $ 109,852
Venturers' equity............................... 108,190 105,183 50,949 43,547
--------- --------- --------- ---------
Total liabilities and venturers' equity...... $ 315,576 $ 353,132 $ 140,983 $ 153,399
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Combined Proportionate Share
----------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $ 119,023 $ 123,802 $ 118,360 $ 52,390 $ 55,477 $ 56,105
Operating and interest expenses.. 58,311 69,825 65,862 25,621 31,528 29,535
Depreciation and amortization.... 11,915 12,013 11,257 3,876 3,657 2,588
--------- --------- --------- --------- --------- ---------
Net earnings.................. $ 48,797 $ 41,964 $ 41,241 $ 22,893 $ 20,292 $ 23,982
========= ========= ========= ========= ========= =========
</TABLE>
The ventures in which the Company holds minority
interests are accounted for using the equity or cost
methods, as appropriate. Most of these properties are
managed by affiliates of 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. At December 31, 1998,
these ventures are primarily partnerships and corporations
which own retail centers. Prior to December 1998, these
ventures also included a corporate joint venture which owned
various office and industrial properties. The Company
acquired the interest of the other venturer in the corporate
joint venture on November 30, 1998.
16
<PAGE>
The condensed, combined balance sheets of these
ventures at December 31, 1998 and 1997 and their condensed,
combined statements of earnings for 1998, 1997 and 1996 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Total assets, primarily property.................... $ 546,130 $1,101,163
========== ==========
Liabilities, primarily long-term debt............... $ 369,847 $ 491,436
Venturers' equity................................... 176,283 609,727
---------- ----------
Total liabilities and venturers' equity.......... $ 546,130 $1,101,163
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues............................................ $ 189,361 $ 212,614 $ 201,769
Operating and interest expenses..................... 134,411 148,065 138,460
Depreciation and amortization....................... 32,041 37,423 35,634
Gain (loss) on dispositions of assets............... 38,915 (11,097) 1,110
---------- ---------- ----------
Net earnings..................................... $ 61,824 $ 16,029 $ 28,785
========== ========== ==========
</TABLE>
The Company's share of net earnings of these ventures
was $12,294,000, $6,815,000, and $8,917,000 in 1998, 1997
and 1996, respectively.
(4) PROPERTY Operating properties and deferred costs of projects at
December 31, 1998 and 1997 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Buildings and improvements.......................... $4,113,654 $2,729,908
Land................................................ 488,114 231,935
Deferred costs...................................... 106,385 111,455
Furniture and equipment............................. 10,574 6,664
---------- ----------
Total............................................ $4,718,727 $3,079,962
========== ==========
</TABLE>
Depreciation expense for 1998, 1997 and 1996 was
$73,646,000, $70,751,000, and $64,113,000, respectively.
Amortization expense for 1998, 1997 and 1996 was
$10,422,000, $12,193,000, and $13,301,000, respectively.
On April 6, 1998, the Company and Westfield America,
Inc. agreed to purchase a portfolio of interests in retail
centers from TrizecHahn Centers Inc. (TrizecHahn). Under
terms of the agreement, the Company purchased ownership
interests in seven retail centers in a series of
transactions completed in the third and fourth quarters of
1998. The aggregate purchase price of the interests in the
retail centers was approximately $1,154,981,000, including
$352,529,000 in mortgage and other debt assumed. The net
purchase price was funded primarily by new mortgage debt
secured by the properties and borrowings under the Company's
revolving credit and bridge loan facilities. In February
1999, the Company contributed its ownership interests in
four of the retail centers to a joint venture and received a
35% ownership interest in the joint venture. The joint
venture assumed obligations under the bridge loan facility
of $271,000,000 which were subsequently repaid using cash
contributed by other venturers.
On November 30, 1998, the Company purchased a portfolio
of office and industrial properties and certain land parcels
from a corporate joint venture in which the Company held a
5% ownership interest. The portfolio consisted of 41 office
buildings and 26 industrial buildings. The purchase price of
the properties was approximately $373,000,000, including
approximately $112,000,000 of mortgage debt assumed. The net
purchase price was funded by issuing $100,000,000 of common
stock (3,525,782 shares), a $50,000,000 note secured by
certain of the properties, a $58,000,000 unsecured note and
by borrowings under the Company's revolving credit facility.
In December 1998, the Company sold three of the office
buildings to TrizecHahn for approximately $91,000,000.
Properties in development include construction and
development in progress and preconstruction costs, net.
Construction and development in progress includes land and
land improvements of $63,737,000 and $41,951,000 at December
31, 1998 and 1997, respectively.
17
<PAGE>
Properties held for sale are generally those
that, for various reasons, management has
determined do not meet the Company's investment
criteria or that the Company acquired with the
intention to sell. Properties held for sale at
December 31, 1998 and 1997 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Retails centers (two properties in 1998 and
three properties in 1997)................... $ 163,307 $ 10,499
Office and other properties.................... 2,587 9,553
---------- ----------
Total....................................... $ 165,894 $ 20,052
========== ==========
</TABLE>
In 1998, the Company acquired interests in
the retail centers held for sale at December 31,
1998, with the intention of selling them.
Accordingly, revenues of $6,395,000 and operating
losses of $723,000 relating to them are not
included in the consolidated statement of
operations and comprehensive income. Revenues
relating to other properties held for sale were
$1,405,000 in 1998, $17,642,000 in 1997 and
$29,600,000 in 1996 and these properties had
operating income of $859,000 in 1998 and incurred
operating losses of $3,558,000 in 1997 and
$811,000 in 1996. All of the properties held for
sale at December 31, 1998 are expected to be sold
in 1999.
(5) ACCOUNTS AND NOTES Accounts and notes receivable at December 31, 1998
RECEIVABLE and 1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Accounts receivable, primarily accrued rents and
income under tenant leases....................... $ 54,261 $ 49,424
Notes receivable from sales of properties........... 5,497 10,154
Notes receivable from sales of land................. 35,987 76,033
---------- ----------
95,745 135,611
Less allowance for doubtful receivables............. 19,828 21,311
---------- ----------
Total............................................ $ 75,917 $ 114,300
========== ==========
</TABLE>
Accounts and notes receivable due after one
year were $23,197,000 and $54,180,000 at December
31, 1998 and 1997, respectively. 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 at the
community development project in Summerlin. The
Company stopped financing land sales in 1998 and
does not anticipate financing any future land
sales. The Company performed credit evaluations of
the builders and generally required substantial
down payments (at least 20%) on all land sales
that it financed. These notes and notes from sales
of operating properties are generally secured by
first liens on the related properties.
(6) PENSION, POSTRETIREMENT The Company has a defined benefit pension plan
AND DEFERRED COMPENSA- (the "funded plan") covering substantially all
TION PLANS employees and employees of certain affiliates and
separate, nonqualified unfunded retirement plans
(the "unfunded plans") covering directors and
participants in the funded plan whose defined
benefits exceed the plan's limits. Benefits under
the pension plans are based on the participants'
years of service and compensation. The Company
also has a retiree benefits plan that provides
postretirement medical and life insurance benefits
to full-time employees and employees of certain
affiliates who meet minimum age and service
requirements. The Company pays a portion of the
cost of participants' life insurance coverage and
makes contributions to the cost of participants'
medical insurance coverage based on years of
service, subject to a maximum annual contribution.
18
<PAGE>
Information relating to the obligations, assets and
funded status of the plans at December 31, 1998 and 1997 and
for the years then ended is summarized as follows:
<TABLE>
<CAPTION>
Pension Postretirement
Plans Plan
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in benefit obligations:
Benefit obligations at beginning of year $ 57,440 $ 42,890 $ 14,668 $ 13,202
Service cost 4,609 3,373 718 578
Interest cost 4,549 3,702 1,024 990
Amendment - revision to benefit formula - 6,504 - -
Actuarial loss 17,194 8,515 282 539
Benefits paid (11,448) (7,544) (805) (641)
-------- -------- -------- --------
Benefit obligations at end of year 72,344 57,440 15,887 14,668
-------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of year 47,083 38,991 - -
Actual return on plan assets 7,900 7,870 - -
Employer contribution 11,449 7,766 805 641
Benefits paid (11,448) (7,544) (805) (641)
-------- -------- -------- --------
Fair value of plan assets at end of year 54,984 47,083 - -
-------- -------- -------- --------
Funded status (17,360) (10,357) (15,887) (14,668)
Unrecognized net actuarial (gain) loss 23,784 12,292 83 (199)
Unamortized prior service cost 7,652 9,062 - -
Unrecognized transition obligation 870 1,071 4,664 4,998
-------- -------- -------- --------
Net amount recognized $ 14,946 $ 12,068 $(11,140) $ (9,869)
======== ======== ======== ========
Amounts recognized in the balance sheets
consist of: $ 20,189 $ 15,378 $ - $ -
Prepaid benefit cost
Accrued benefit liability (11,382) (8,818) (11,140) (9,869)
Intangible asset 4,313 5,508 - -
Accumulated other comprehensive income
items 1,826 - - -
-------- -------- -------- --------
Net amount recognized $ 14,946 $ 12,068 $(11,140) $ (9,869)
======== ======== ======== ========
Weighted-average assumptions as of
December 31:
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected rate of return on plan assets 7.25 8.00 - -
Rate of compensation increase 4.50 4.50 - -
======== ======== ======== ========
</TABLE>
The assets of the funded plan consist primarily of
pooled separate accounts with an insurance company and
marketable equity securities. Because the Company's
contributions to the cost of participants' medical insurance
coverage are fixed, health care cost trend rates do not
affect the benefit obligation under the postretirement plan.
19
<PAGE>
The net pension cost includes the following components
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost.................................... $ 4,609 $ 3,373 $ 2,989
Interest cost on projected benefit obligations.. 4,549 3,702 3,107
Expected return on funded plan assets........... (3,479) (3,239) (2,807)
Prior service cost recognized................... 1,410 1,410 756
Net loss recognized............................. 1,281 436 875
Amortization of transition obligation........... 201 201 201
--------- --------- ---------
Net pension cost........................... $ 8,571 $ 5,883 $ 5,121
========= ========= =========
</TABLE>
The net postretirement benefit cost includes the
following components (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost...................................... $ 718 $ 578 $ 640
Interest cost on accumulated benefit obligations.. 1,024 990 932
Amortization of transition obligation............. 333 333 333
--------- --------- ---------
Net postretirement benefit cost.............. $ 2,075 $ 1,901 $ 1,905
========= ========= =========
</TABLE>
Affiliates that participate in the pension and
postretirement plans reimburse the Company for their share
of the annual benefit cost of the plans. The affiliates'
share of the benefit cost for 1998 was $3,091,000.
The Company also has a deferred compensation program
which permits directors and certain management employees of
the Company and certain affiliates 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's contributions are made in common stock. The
Company recognized deferred compensation expense related to
this program of $189,000, $73,000 and $84,000 in 1998, 1997
and 1996, respectively.
(7) 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 their operating revenues. At
December 31, 1998 and 1997, nonrecourse loans include
$185,574,000 and $416,335,000, respectively, of subsidiary
companies' mortgages and bonds which are subject to
agreements with 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 related properties
are met.
20
<PAGE>
Debt at December 31, 1998 and 1997 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Mortgages and bonds....................... $ 2,948,324 $ 2,159,418
Convertible subordinated debentures....... 128,515 130,000
Medium-term notes......................... 97,500 110,300
Bank credit facility borrowings:
Bridge facility......................... 304,000 ---
Revolving credit facility............... 298,000 ---
Other loans............................... 282,481 229,831
----------- -----------
Total................................ $ 4,058,820 $ 2,629,549
=========== ===========
</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 2024 and, at
December 31, 1998, bears interest at a weighted-average
effective rate of 7.65%, including lender participations in
operations. At December 31, 1998, approximately $312,008,000
of this debt provides for payments of additional interest
based on operating results of the related properties in
excess of stated levels.
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, 1998, mature at various dates from 1999 to 2015, bear
interest at a weighted-average effective rate of 7.6%
(including an average rate of 6.01% on $26,000,000 of
variable rate notes) and have a weighted average maturity of
4.5 years.
The Company has credit facilities with a group of
lenders that provide for aggregate unsecured borrowings of
up to $800,000,000, including $450,000,000 under a revolving
credit facility and $350,000,000 under a bridge facility.
Advances under the facilities bear interest at a variable
rate based on LIBOR (6.52% on the revolving credit facility
and 6.61% on the bridge facility at December 31, 1998). The
revolving credit facility is available to July 2001, subject
to a one-year renewal option. The bridge facility was
available solely for specified property acquisitions that
were completed in 1998 and related borrowings are due on or
before July 30, 1999. In February 1999, approximately
$271,000,000 of the outstanding borrowings under the bridge
facility were repaid by a joint venture formed to own four
of the acquired retail centers. At December 31, 1998,
availability under the bridge loan facility had been fully
utilized, and until it is repaid in full, the net proceeds
of any equity transactions and project refinancings must be
applied to reduce the balance. Payment of borrowings under
the credit facilities is guaranteed by certain of the
unconsolidated real estate ventures in which the Company has
a majority financial interest, and the Company has pledged
its stock in the ventures to the lenders under the credit
facilities.
Other loans include $120,000,000 of 8.5% unsecured
notes due in 2003, various property acquisition loans and
certain other borrowings. These loans include aggregate
unsecured borrowings of $258,213,000 and $208,019,000 at
December 31, 1998 and 1997, respectively, and at December
31, 1998, bear interest at a weighted-average effective rate
of 8.28%.
At December 31, 1998, approximately $1,376,844,000 of
the mortgages and bonds and $58,000,000 of the other loans
were payable to one lender.
The agreements relating to various loans impose
limitations on the Company. The most restrictive of these
limit the levels and types of debt the Company and its
affiliates may incur and require the Company and its
affiliates to maintain specified minimum levels of debt
service coverage and net worth. The agreements also impose
restrictions on the dividend payout ratio, and on sale,
lease and certain other transactions, subject to various
exclusions and limitations. These restrictions have not
limited the Company's normal business activities.
21
<PAGE>
The annual maturities of debt at December 31,
1998 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Nonrecourse Company and
Loans Recourse Loans Total
------------- ---------------- -------------
<S> <C> <C> <C>
1999......................... $ 159,407 $ 337,058 $ 496,465
2000......................... 57,080 104,622 161,702
2001......................... 171,241 358,189 529,430
2002......................... 121,051 163,440 284,491
2003......................... 439,696 120,092 559,788
Subsequent to 2003........... 1,974,644 52,300 2,026,944
----------- ------------ -----------
Total................... $ 2,923,119 $ 1,135,701 $ 4,058,820
=========== ============ ===========
</TABLE>
At December 31, 1998, the Company had
interest rate cap agreements which effectively
limit the average interest rate on $70,538,000 of
mortgages to 8.9% through May 2002. The interest
rate swap agreements outstanding at December 31,
1998 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, 1998 and 1997 or interest expense
for 1998, 1997 and 1996.
Total interest costs were $229,478,000 in
1998, $231,098,000 in 1997, and $230,960,000 in
1996, of which $19,914,000, $23,608,000, and
$10,579,000 were capitalized, respectively.
In 1998, the Company recognized net
extraordinary gains related to extinguishments of
debt prior to scheduled maturity of $3,626,000,
and in 1997 and 1996 incurred extraordinary losses
on such transactions of $32,834,000, and
$2,236,000, respectively, before deferred income
tax benefits of $729,000, $11,492,000 and
$783,000, respectively. The sources of funds used
to pay the debt and fund the prepayment penalties,
where applicable, were refinancings of properties,
the Series B Preferred stock issued in 1997, the
medium-term notes and the Company-obligated
mandatorily redeemable preferred securities issued
in 1995.
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, 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, 1998 and
1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------------------------ -------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed rate debt........ $3,099,949 $3,198,641 $2,390,590 $2,528,215
Variable rate debt..... 958,871 958,871 238,959 238,959
---------- ---------- ---------- ----------
$4,058,820 $4,157,512 $2,629,549 $2,767,174
========== ========== ========== ==========
</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.
(8) COMPANY-OBLIGATED The redeemable preferred securities consist of
MANDATORILY REDEEMABLE 5,500,000 Cumulative Quarterly Income Preferred
PREFERRED SECURITIES Securities (preferred securities), with a
liquidation amount of $25 per security, which were
issued in November 1995 by a statutory business
trust. 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
22
<PAGE>
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 an annual 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. During 1998, the Company
repurchased 21,400 of the preferred securities for
approximately $535,000.
(9) SEGMENT INFORMATION In 1998, the Company adopted Statement of
Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and
Related Information." This Statement establishes
standards for reporting financial information
about operating segments in interim and annual
financial reports and provides for a "management
approach" to identifying the reportable segments
in place of the industry segment approach used
previously.
The Company has five reportable segments:
retail centers, office, mixed-use and other
properties, land sales operations, development and
corporate. The retail centers segment includes the
operation and management of retail centers,
including regional shopping centers, downtown
specialty marketplaces and village centers. The
office, mixed-use and other properties segment
includes the operation and management of office,
industrial and mixed-use properties. The land
sales operations segment includes the development
and sale of land, primarily in large-scale, long-
term community development projects in Columbia
and Summerlin. The development segment includes
the evaluation of all potential new projects
(including expansions of existing properties) and
acquisition opportunities and the management of
them through the development or acquisition
process. The corporate segment is responsible for
cash and investment management and certain other
general and support functions. The Company's
reportable segments offer different products or
services and are managed separately because each
requires different operating strategies and
management expertise.
Segment operating results are measured and
assessed based on a performance measure referred
to as Funds from Operations (FFO). The National
Association of Real Estate Investment Trusts
defines FFO as net earnings (computed in
accordance with generally accepted accounting
principles), excluding cumulative effects of
changes in accounting principles, extraordinary or
unusual items and gains or losses from debt
restructurings and sales of properties, plus
depreciation and amortization, and after
adjustments for minority interests and to record
unconsolidated partnerships and joint ventures on
the same basis. The Company also excludes deferred
income taxes from its computation of FFO. The
method used by the Company to compute FFO may
differ from methods used by other REITs. FFO is
not a measure of operating results or cash flows
from operating activities as measured by generally
accepted accounting principles, and is not
necessarily indicative of cash available to fund
cash needs and should not be considered an
alternative to cash flows as a measure of
liquidity.
The accounting policies of the segments are
the same as those of the Company described in note
1, except that real estate ventures in which the
Company holds substantially all (at least 98%) of
the financial interest but does not own a majority
voting interest are accounted for on a
consolidated basis rather than using the equity
method, and the Company's share of FFO of
unconsolidated real estate ventures in which it
holds a minority interest is included in revenues.
23
<PAGE>
Operating results for the segments are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
Office, Mixed-
Retail use and Other Land
Centers Properties Sales Operations Development Corporate Total
---------- -------------- ---------------- ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
1998
- ----
Revenues..................... $ 559,821 $ 215,919 $ 197,706 $ --- $ 3,797 $ 977,243
Operating expenses,
exclusive of deprecia-
tion and amortization,
and current income taxes... 268,851 102,956 144,732 7,383 24,109 548,031
Interest expense............. 150,889 77,894 4,201 --- (8,614) 224,370
---------- ----------- ------------ --------- --------- ----------
FFO...................... $ 140,081 $ 35,069 $ 48,773 $ (7,383) $ (11,698) $ 204,842
========== =========== ============ ========= ========= ==========
1997
- ----
Revenues..................... $ 503,655 $ 216,571 $ 203,219 $ --- $ 4,485 $ 927,930
Operating expenses,
exclusive of deprecia-
tion and amortization,
and current income taxes... 258,229 108,104 151,842 4,747 16,128 539,050
Interest expense............. 122,325 81,905 4,287 --- (1,027) 207,490
---------- ----------- ------------ --------- --------- ----------
FFO...................... $ 123,101 $ 26,562 $ 47,090 $ (4,747) $ (10,616) $ 181,390
========== =========== ============ ========= ========= ==========
1996
- ----
Revenues..................... $ 508,415 $ 182,154 $ 137,853 $ --- $ 3,495 $ 831,917
Operating expenses,
exclusive of deprecia-
tion and amortization,
and current income taxes... 260,027 89,643 107,791 4,964 9,752 472,177
Interest expense............. 129,091 76,659 1,658 361 12,612 220,381
---------- ----------- ------------ --------- --------- ----------
FFO...................... $ 119,297 $ 15,852 $ 28,404 $ (5,325) $ (18,869) $ 139,359
========== =========== ============ ========= ========= ==========
</TABLE>
24
<PAGE>
Reconciliations of the total revenues and expenses
reported above to the related amounts in the financial
statements and of FFO reported above to earnings before
income taxes, extraordinary losses and cumulative
effect of changes in accounting principle in the
financial statements are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Total reported above..................... $ 977,243 $ 927,930 $ 831,917
Revenues of majority financial interest
ventures excluding interest on
advances to the Company............... (272,943) --- ---
Revenues representing the Company's
share of FFO of minority financial
interest ventures .................... (12,753) (11,159) (10,881)
Other.................................... 1,024 --- ---
---------- ---------- ----------
Total in financial statements......... $ 692,571 $ 916,771 $ 821,036
========== ========== ==========
Operating expenses, exclusive of
depreciation and amortization:
Total reported above....................... $ 548,031 $ 539,050 $ 472,177
Operating expenses of majority
financial interest ventures........... (161,350) --- ---
Current income taxes applicable to
operations............................ 24 (3,208) (123)
Participation by others in the Company's
share of earnings of majority
financial interest ventures........... (24,152) --- ---
Other.................................. (4,171) --- ---
---------- ---------- ----------
Total in financial statements......... $ 358,382 $ 535,842 $ 472,054
========== ========== ==========
Interest expense:
Total reported above..................... $ 224,370 $ 207,490 $ 220,381
Interest expense of majority financial
interest ventures excluding interest
on borrowings from the Company........ (14,806) --- ---
---------- ---------- ----------
Total in financial statements......... $ 209,564 $ 207,490 $ 220,381
========== ========== ==========
Operating results:
FFO reported above....................... $ 204,842 $ 181,390 $ 139,359
Depreciation and amortization............ (84,068) (82,944) (77,414)
Loss on dispositions of assets and
other provisions, net................. (11,174) (23,484) (16,499)
Depreciation and amortization,
gain on disposition of assets
and deferred income taxes of
unconsolidated real estate
ventures, net......................... (4,380) (4,344) (1,964)
Current income taxes (benefit)
applicable to operations.............. (24) 3,208 123
Other.................................... (44) --- ---
---------- ---------- ----------
Earnings before income taxes,
extraordinary items and cumulative
effect of changes in accounting
principle........................... $ 105,152 $ 73,826 $ 43,605
========== ========== ==========
</TABLE>
25
<PAGE>
The assets by segment at December 31,
1998, 1997 and 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Retail centers........................ $ 3,636,874 $ 2,144,334 $ 2,374,162
Office, mixed-use and other
properties........................ 1,417,622 1,127,640 796,329
Land sales operations................. 609,701 615,887 308,014
Development........................... 61,166 165,101 92,030
Corporate............................. 57,933 126,593 72,917
------------ ------------ ------------
Total............................. $ 5,783,296 $ 4,179,555 $ 3,643,452
=========== =========== ============
</TABLE>
Total segment assets exceeds total
assets reported in the financial statements
primarily because of the consolidation of
the majority financial interest ventures for
segment reporting purposes.
Additions to long-lived assets of the
segments are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
Retail centers:
Acquisitions...................... $ 1,042,846 $ 83,985 $ 191,564
Expansions and renovations........ 231,607 139,608 47,449
Improvements for tenants and other 18,105 15,960 13,796
------------- ------------- -------------
1,292,558 239,553 252,809
------------- ------------- -------------
Office, mixed-use and other properties:
Acquisitions...................... 288,694 550 302,773
Expansions and renovations........ 24,390 975 6,176
Improvements for tenants and other 10,688 7,667 7,421
------------- ------------- -------------
323,772 9,192 316,370
------------- ------------- -------------
Land sales operations:
Acquisitions...................... 16,993 --- 118,764
Development expenditures.......... 82,656 131,310 48,474
------------- ------------- -------------
99,649 131,310 167,238
------------- ------------- -------------
Development:
Construction and development
costs of new projects......... 112,184 153,620 58,581
------------- ------------- -------------
Total................. $ 1,828,163 $ 533,675 $ 794,998
============= ============= =============
</TABLE>
Approximately $169,860,000 of the
additions in 1998 relate to property owned
by the majority financial interest ventures.
(10) INCOME TAXES Income tax expense (benefit) for 1997 and
1996 is reconciled to the amount computed by
applying the Federal corporate tax rate as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Tax at statutory rate on earnings before
income taxes, extraordinary items and
cumulative effect of changes in
accounting principle............................ $ 25,839 $ 15,262
State income taxes, net of Federal income
tax benefit..................................... 3,147 1,023
Nondeductible portion of distributions
under Contingent Stock Agreement................ 13,381 9,434
Reduction of net deferred tax liabilities........... (158,433) ---
----------- ----------
Income tax expense (benefit)...................... $ (116,066) $ 25,719
=========== ==========
</TABLE>
26
<PAGE>
As discussed in note 1, the Company
qualified to be taxed as a REIT beginning in
1998. Management believes that the Company
continued to meet the qualifications for
REIT status as of December 31, 1998, and
intends for it to continue to meet the
qualifications in the future. Management
does not expect the Company will be liable
for significant income taxes at the Federal
level or in most states in 1998 and future
years. Accordingly, the Company eliminated
substantially all of its existing deferred
tax assets and liabilities at December 31,
1997 and no longer provides for Federal or
most state deferred income taxes.
At December 31, 1998, the income tax
bases of the Company's assets and
liabilities were approximately
$4,338,000,000 and $4,422,000,000,
respectively. The net operating losses
carried forward from December 31, 1998 for
Federal income tax purposes aggregate
approximately $281,000,000, and will expire
from 2005 to 2011.
In connection with its election to be
taxed as a REIT, the Company will also elect
to be subject to the "built-in gain" rules.
Under these rules, taxes may be payable at
the time and to the extent that the net
unrealized gains on the Company's assets at
the date of conversion to REIT status are
recognized in taxable dispositions of such
assets in the ten-year period following
conversion. Such net unrealized gains were
approximately $2,100,000,000 at January 1,
1998. Management believes that the Company
will not be required to make significant
payments of taxes on built-in gains
throughout the ten-year period due to the
availability of its net operating loss
carryforward to offset built-in gains which
might be recognized, and the potential for
the Company to make nontaxable dispositions,
if necessary (e.g., like-kind exchanges of
properties). At December 31, 1998, the net
regular tax operating loss carryforward is
sufficient to offset built-in gains on
assets the Company has identified for
disposition and no net deferred tax
liability for built-in gains taxes has been
recognized. It may be necessary to recognize
a liability for such taxes in the future, if
management's plans and intentions with
respect to asset dispositions, or the
related tax laws, change.
(11) LOSS ON DISPOSITIONS Loss on dispositions of assets and other
OF ASSETS AND OTHER provisions, net, is summarized as follows
PROVISIONS, NET (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- ----------
<S> <C> <C> <C>
Net loss on operating properties........ $ (6,109) $ (22,426) $ (26,515)
Litigation judgment..................... --- --- 8,716
Other, net.............................. (5,065) (1,058) 1,300
------------ ----------- ----------
Total............................... $ (11,174) $ (23,484) $ (16,499)
============ =========== ==========
</TABLE>
The net loss on operating properties in
1998 relates primarily to a loss on disposal
of a retail center. The other net loss for
1998 includes a fourth quarter loss of
$6,396,000 related to a treasury lock
contract that no longer qualified for hedge
accounting because the Company determined
that the related anticipated financing
transaction will not occur under the terms
and timing originally expected.
The net loss on operating properties in
1997 relates primarily to provisions for
losses recognized on several retail centers,
an industrial property and a hotel the
Company decided to sell, including
additional provisions of $3,653,000 related
to retail centers held for disposition prior
to 1997. These provisions were partially
offset by gains on dispositions of five
office buildings ($4,704,000).
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 litigation judgment relates to a
matter involving a former tenant at the
Riverwalk Shopping Center. In 1995, an
appellate court substantially affirmed a
trial court judgment against the Company and
certain of its affiliates in an action in
which the former tenant alleged various
breaches of its lease agreement and claimed
damages for lost future profits. The Company
recorded a provision for the full amount of
the appellate award ($12,321,000) at that
time. In 1996, a portion of the provision
recorded in 1995 was reversed following a
negotiated settlement of the matter.
27
<PAGE>
(12) PREFERRED STOCK The Company has authorized 50,000,000 shares
of Preferred stock of 1(cent)par value per
share of which (a) 4,505,168 shares have
been classified as Series A Convertible
Preferred; (b) 4,600,000 shares have been
classified as Series B Convertible
Preferred, (c) 10,000,000 shares have been
classified as Increasing Rate Cumulative
Preferred; and (d) 37,362 shares have been
classified as 10.25% Junior Preferred,
Series 1996.
The Company sold 4,050,000 shares of the
Series B Convertible Preferred stock in a
public offering in the first quarter of
1997. The shares have a liquidation
preference of $50 per share and earn
dividends at an annual rate of 6% of the
liquidation preference. At the option of the
holders, each share of the Series B
Convertible 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 Company sold 4,025,000 shares of the
Series A Convertible Preferred stock in a
public offering in 1993 and issued 480,168
shares 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, the Company issued
10,598,721 shares of common stock in
exchange for 4,504,579 shares of Series A
Convertible Preferred stock.
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 13. These shares are issuable only
in limited circumstances and no shares have
been issued. There were also no shares of
10.25% Junior Preferred stock, Series 1996,
outstanding at December 31, 1998 and 1997.
(13) COMMON STOCK At December 31, 1998, shares of
authorized and unissued common stock are
reserved as follows: (a) 16,843,281 shares
for issuance under the Contingent Stock
Agreement discussed below; (b) 7,678,776
shares for issuance under the Company's
stock option and stock bonus plans; (c)
4,489,607 shares for conversion of the
convertible subordinated debentures; and (d)
5,309,955 shares for conversion of the
Series B Convertible Preferred stock.
In connection with the acquisition of
Hughes, the Company entered into a
Contingent Stock Agreement ("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 acquired assets 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. At December 31,
1998, a distribution of approximately
589,000 shares ($16,207,000) was payable to
the beneficiaries.
The 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. Substantially all of the remaining
assets in the four defined asset groups were
owned by subsidiaries in which the Company
sold a majority voting interest to The Rouse
Company Incentive Compensation Statutory
Trust on December 31, 1997. However, the
Company retained full responsibility for its
obligations under the Agreement and,
accordingly, it accounts for the
beneficiaries' share of earnings from the
assets as a reduction of its equity in the
earnings of the related ventures. Prior to
1998, the Company accounted for the
beneficiaries' share of earnings from the
assets as an operating expense. The Company
will account for any distributions to the
beneficiaries as of the termination dates as
an additional investment in the related
ventures (i.e., contingent consideration).
At the time of acquisition of Hughes, the
Company reserved 20,000,000 shares of com-
28
<PAGE>
mon stock for possible issuance under the
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 determined 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. Changes in options
outstanding under the plans are summarized
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- -------------------- ---------------------
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............. 4,670,138 $ 24.90 2,765,779 $ 20.18 2,227,400 $ 19.89
Options granted.... 1,210,402 29.06 2,155,901 30.45 654,000 21.09
Options
exercised........ (263,076) 19.48 (239,942) 20.16 (87,371) 18.61
Options expired or
cancelled........ (183,250) 30.36 (11,600) 28.76 (28,250) 22.82
---------- -------- ---------- -------- --------- --------
Balance at
end of year... 5,434,214 $ 25.91 4,670,138 $ 24.90 2,765,779 $ 20.18
========== ======== ========== ======= ========= ========
</TABLE>
Information about stock options
outstanding at December 31, 1998 is
summarized 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 1,645,961 5.6 $18.68 1,130,995 $18.37
$23.75 to $32.875 3,788,253 7.7 29.04 799,923 26.08
---------- --- ------ ---------- ------
5,434,214 7.0 $25.91 1,930,918 $21.56
========== === ====== ========== ======
</TABLE>
At December 31, 1997 and 1996, options
to purchase 1,594,705 and 1,449,844 shares,
respectively, were exercisable at per share
weighted-average prices of $21.07 and
$20.84, respectively.
The per share weighted-average estimated
fair values of options granted during 1998,
1997 and 1996 were $3.17, $8.34, and $5.44,
respectively. These fair values were
estimated on the dates of each grant using
the Black-Scholes option-pricing model with
the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate......... 4.6% 6.0% 6.0%
Dividend yield.................. 6.0 3.5 4.0
Volatility factor............... 21.8 28.0 28.0
Expected life in years.......... 6.6 6.9 7.0
===== ==== ====
</TABLE>
The option prices were greater than or
equal to the market prices at the date of
grant for all of the options granted in
1998, 1997 and 1996 and, accordingly, no
compensation cost has been recognized for
stock options in the financial statements.
29
<PAGE>
If the Company had applied a fair
value-based method to recognize compensation
cost for stock options, net earnings and
earnings per share of common stock would
have been adjusted as indicated below (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net earnings:
As reported.................................. $ 104,902 $ 167,336 $ 16,433
Pro forma.................................... 99,653 164,445 15,397
Earnings per share of common stock:
Basic:
As reported............................... 1.36 2.36 .10
Pro forma................................. 1.28 2.32 .08
Diluted:
As reported............................... 1.34 2.29 .09
Pro forma................................. 1.27 2.25 .08
======== ======== =======
</TABLE>
The pro forma amounts reflect only
options granted after 1994. 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
1998, 1997 and 1996 aggregated 164,850,
49,000 and 415,000 shares, respectively,
with a weighted-average market value per
share of $27.54, $31.25 and $20.99,
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, 1998, 1997
and 1996 were $4,012,000, $5,710,000, and
$6,565,000, respectively. The Company
recognizes amortization of the fair value of
the stock awarded, any forgiven loan
installments and certain related costs as
compensation costs on a straight-line basis
over the terms of the awards. Such costs
amounted to $5,572,000 in 1998, $5,807,000
in 1997, and $4,923,000 in 1996.
30
<PAGE>
(14) EARNINGS PER SHARE Information relating to the calculations of
earnings per share of common stock for 1998,
1997 and 1996 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- ----------------
Basic Diluted Basic Diluted Basic Diluted
----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Earnings before extraordinary
items and cumulative effect
of changes in accounting
principle................. $105,176 $ 105,176 $ 189,892 $ 189,892 $ 17,886 $ 17,886
Dividends on Preferred stock.. (12,152) (12,152) (10,313) --- (10,533) (10,533)
Dividends on unvested
common stock awards....... (620) (425) (632) (552) (659) (659)
Interest on convertible
subordinated debentures... --- --- --- 7,475 --- ---
--------- --------- --------- -------- -------- --------
Adjusted earnings before
extraordinary items and
cumulative effect of changes
in accounting principle used
in EPS computation........ $ 92,404 $ 92,599 $ 178,947 $ 196,815 $ 6,694 $ 6,694
========= ========== ========= ========= ======== ========
Weighted-average shares
outstanding............... 67,874 67,874 66,201 66,201 54,913 54,913
Dilutive securities:
Convertible subordinated
debentures.............. --- --- --- 4,542 --- ---
Convertible Preferred stock --- --- --- 4,509 --- ---
Options, warrants and
unvested common stock
awards.................. --- 985 --- 753 --- 398
--------- --------- --------- --------- -------- --------
Adjusted weighted-average
shares used in EPS
computation............... 67,874 68,859 66,201 76,005 54,913 55,311
========= ========== ========= ========= ======== ========
</TABLE>
Effects of potentially dilutive securities
are presented only in periods in which they
are dilutive.
(15) LEASES The Company, as lessee, has entered into
operating leases expiring at various dates
through 2076. Rents under such leases
aggregated $8,096,000 in 1998, $9,147,000 in
1997, and $9,648,000 in 1996, including
contingent rents, based on the operating
performance of the related properties, of
$2,330,000, $3,158,000, and $3,844,000,
respectively. In addition, real estate
taxes, insurance and maintenance expenses
are obligations of the Company. Minimum rent
payments due under operating leases in
effect at December 31, 1998 are summarized
as follows (in thousands):
<TABLE>
<S> <C>
1999................................................................. $ 6,114
2000................................................................. 5,962
2001................................................................. 5,996
2002................................................................. 6,015
2003................................................................. 5,984
Subsequent to 2003................................................... 218,799
---------
Total............................................................ $ 248,870
=========
</TABLE>
31
<PAGE>
Space in the Company's operating
properties is leased to approximately 6,000
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>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Minimum rents......................... $ 383,974 $ 387,488 $ 348,296
Percentage rents...................... 13,071 14,999 14,830
Other rents........................... 204,862 213,005 223,949
----------- ----------- -----------
Total............................. $ 601,907 $ 615,492 $ 587,075
========== ========== ==========
</TABLE>
The minimum rents to be received from
tenants under operating leases in effect at
December 31, 1998, excluding leases of
properties held for sale and of retail
centers contributed to a joint venture in
February 1999, are summarized as follows (in
thousands):
<TABLE>
<S> <C>
1999..................................................................... $ 393,882
2000..................................................................... 358,232
2001..................................................................... 313,208
2002..................................................................... 271,192
2003 .................................................................... 220,097
Subsequent to 2003....................................................... 708,453
-----------
Total................................................................ $ 2,265,064
===========
</TABLE>
Rents under finance leases aggregated
$9,332,000 in 1998, $9,316,000 in 1997, and
$9,645,000 in 1996. The net investment in
finance leases at December 31, 1998 and 1997
is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C>
Total minimum rent payments to be received
over lease terms................................... $ 157,374 $ 166,706
Estimated residual values of leased properties......... 5,695 5,695
Unearned income........................................ (75,717) (83,237)
------------ ------------
Net investment in finance leases................... $ 87,352 $ 89,164
=========== ===========
</TABLE>
Minimum rent payments to be received
from tenants under finance leases in effect
at December 31, 1998 are $9,304,000,
$9,365,000, $10,190,000, $10,164,000, and
$10,261,000 for 1999, 2000, 2001, 2002 and
2003, respectively.
32
<PAGE>
(16) OTHER COMMITMENTS Commitments for the construction and
AND CONTINGENCIES development of properties in the ordinary
course of business and other commitments not
set forth elsewhere amount to approximately
$129,000,000 at December 31, 1998.
At December 31, 1998, subsidiaries of
the Company have contingent liabilities of
approximately $17,791,000 with respect to
future minimum rents under long-term lease
obligations of certain unconsolidated real
estate ventures and approximately
$10,795,000 with respect to bank letters of
credit issued to secure their obligations
under certain agreements.
At December 31, 1998, the Company had a
shelf registration statement for future sale
of up to an aggregate of $2.1 billion (based
on the public offering price) of common
stock, Preferred stock and debt securities.
Securities may be issued pursuant to this
registration statement in amounts and on
terms to be determined at the time of
offering.
The Company and certain of its
subsidiaries are defendants in various
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 litigation
matters, where appropriate, and the ultimate
resolution of such litigation matters is not
likely to have a material effect on the
consolidated financial position of the
Company. Due to the Company's fluctuating
net earnings, it is not possible to predict
whether the resolution of these matters is
likely to have a material effect on the
Company's net earnings and it is, therefore,
possible that the resolution of these
matters could have such an effect in any
future quarter or year.
(17) NEW ACCOUNTING In March 1998, the American Institute of
STANDARDS NOT YET Certified Public Accountants issued
ADOPTED Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1) which
is required to be adopted by the Company no
later than January 1, 1999. SOP 98-1
provides guidance as to whether costs
incurred relating to internal-use software
should be expensed or capitalized. The
guidance in SOP 98-1 is required to be
applied to costs incurred subsequent to
adoption and may not be applied to costs
incurred prior to initial application. The
Company intends to adopt SOP 98-1 effective
January 1, 1999, and does not believe that
adoption will have a material effect on its
results of operations.
In April 1998, the American Institute of
Certified Public Accountants issued
Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities" (SOP 98-5)
which is required to be adopted by the
Company no later than January 1, 1999. SOP
98-5 requires that start-up costs and
organization costs, not otherwise addressed
in existing authoritative literature, be
expensed as incurred. The Company intends to
adopt SOP 98-5 effective January 1, 1999,
and the initial application will be reported
as the cumulative effect of a change in
accounting principle. The Company does not
believe that adoption will have a material
effect on its results of operations in
future periods.
In June 1998, the Financial Accounting
Standards Board issued Statement of
Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and
Hedging Activities," (Statement 133) which
is required to be adopted by the Company no
later than January 1, 2000. The Company's
use of derivative instruments has consisted
primarily of interest rate swap and cap
agreements related to specific debt
financings. While the Company has not
completed its analysis of Statement 133 and
has not made a decision regarding the timing
of adoption, it does not believe that
adoption will have a material effect on its
financial position and results of operations
based on its current use of derivative
instruments.
33
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
Year ended December 31 (in thousands, except per share data)
- -------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Operating results data:
Revenues from continuing operations............. $ 692,571 $ 916,771 $ 821,036 $ 672,821 $ 671,171
Earnings from continuing operations............. 105,176 189,892 17,886 5,850 6,606
Basic earnings (loss) from continuing
operations
applicable to common shareholders
per share of common stock..................... 1.36 2.70 .13 (.19) (.14)
Diluted earnings (loss) from continuing
operations
applicable to common shareholders per share
of common stock............................... 1.34 2.59 .12 (.19) (.14)
Balance sheet data:
Total assets.................................... 5,154,643 3,589,768 3,643,452 2,985,609 2,915,860
Debt and capital leases......................... 4,068,459 2,684,140 2,895,447 2,538,315 2,532,920
Shareholders' equity ........................... 628,926 465,515 177,149 42,584 95,026
Shareholders' equity per share of
common stock (note 1) ........................ 8.11 6.45 2.65 .73 1.63
Other selected data:
Funds from Operations (note 2).................. 204,842 181,390 139,359 108,360 94,710
Net cash provided (used) by:
Operating activities.......................... 261,183 185,516 168,126 107,001 113,775
Investing activities.......................... (1,032,200) (322,479) (182,995) (64,995) (178,551)
Financing activities.......................... 721,611 180,297 (36,287) 3,518 40,618
Dividends per share of common stock............. 1.12 1.00 .88 .80 .68
Dividends per share of convertible
Preferred stock............................... 3.00 2.65 2.44 3.25 3.25
Market price per share of common stock
at year end................................... 27.50 32.75 31.75 20.13 19.25
Market price per share of convertible
Preferred stock at year end................... 43.38 50.50 --- 51.63 48.50
Weighted-average common shares
outstanding (basic)........................... 67,874 66,201 54,913 47,375 47,258
Weighted-average common shares
outstanding (diluted)......................... 68,859 76,005 55,311 47,375 47,258
</TABLE>
NOTES:
(1)---For 1998 and 1997, shareholders' equity per share of common stock assumes
conversion of the Series B Convertible Preferred stock issued in 1997. For
1995 and 1994, shareholders' equity per share of common stock assumes the
conversion of the Series A Convertible Preferred stock. The Series A
Convertible Preferred Stock was issued in 1993 and redeemed for common
stock in 1996.
(2)---Funds from Operations (FFO) is not a measure of operating results or cash
flows from operating activities as defined by generally accepted
accounting principles. Additionally, FFO 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 "Funds from Operations" section of Management's
Discussion and Analysis of Financial Condition and Results of Operations
on page 42 for a full discussion of FFO.
34
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
INTERIM FINANCIAL INFORMATION (UNAUDITED)
Interim consolidated results of operations are summarized as follows (in thousands, except per share data):
- ---------------------------------------------------------------------------------------------------------------------------------
Quarter ended
---------------------------------------------------------------------------------------------
December September June March December September June March
31, 1998 30, 1998 30, 1998 31, 1998 31, 1997 30, 1997 30, 1997 31, 1997
-------- -------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $193,714 $164,318 $155,377 $179,162 $240,096 $229,331 $239,602 $207,742
Operating income.............. 25,562 28,938 29,123 32,703 29,103 27,781 22,886 16,288
Earnings before extraordinary
items....................... 19,868 21,512 29,264 34,532 162,086 16,271 3,125 8,410
NET EARNINGS (LOSS)........... 19,549 19,611 36,755 28,987 151,852 16,164 (6,961) 6,281
======= ======= ======= ======== ======== ======== ========= =====
EARNINGS (LOSS) PER COMMON SHARE:
Basic:
Earnings before extraordinary
items.................... $ .24 $ .27 $ .38 $ .47 $ 2.40 $ .20 $ --- $ .10
Extraordinary gains (losses) -- (.03) .11 (.01) (.14) --- (.15) (.03)
Cumulative effect of accounting
change................... -- --- --- (.07) (.02) --- --- ---
------- ------- ------- -------- -------- -------- --------- -----
$ .24 $ .24 $ .49 $ .39 $ 2.24 $ .20 $ (.15) $ .07
======= ======= ======= ======== ======== ======== ========= =====
Diluted:
Earnings before extraordinary
items.................... $ .24 $ .27 $ .37 $ .46 $ 2.12 $ .20 $ --- $ .10
Extraordinary gains (losses) -- (.03) .11 (.01) (.11) --- (.15) (.03)
Cumulative effect of accounting
change................... -- --- --- (.07) (.02) --- --- ---
------- ------- ------ ------- -------- ------- ------- -------
TOTAL...................... $ .24 $ .24 $ .48 $ .38 $ 1.99 $ .20 $ (.15) $ .07
======= ======= ====== ======= ======== ======= ======= =======
</TABLE>
NOTE---Extraordinary gains (losses) relate to early extinguishments of debt. Net
earnings for the fourth quarter of 1998 includes a loss of $6,396,000
($.09 per share) related to a treasury lock contract that no longer
qualified for hedge accounting. Net earnings for the third quarter of
1998 includes a loss of $7,653,000 ($.11 per share) on disposal of a
retail center. Net earnings for the first quarter of 1998 includes the
Company's equity in gains on disposition of operating properties of an
unconsolidated real estate venture of $12,315,000 ($.18 per share). Net
earnings for the fourth quarter of 1997 includes the effect of
eliminating substantially all ($158,433,000) of the net deferred income
tax liability ($2.39 per share basic, $2.05 per share diluted) due to the
Company's determination to elect to be taxed as a REIT. Net earnings
(loss) for the second and fourth quarters of 1997 include provisions for
losses on operating properties of $8,964,000 ($.14 per share) and
$8,229,000 ($.13 per share basic, $.10 per share diluted), respectively.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
PRICE OF COMMON STOCK AND DIVIDENDS
The Company's common stock is traded on the New York Stock Exchange. The prices and dividends per share were as follows:
- ---------------------------------------------------------------------------------------------------------------------------------
Quarter ended
-----------------------------------------------------------------------------
December September June March December September June March
31, 1998 30, 1998 30, 1998 31, 1998 31, 1997 30, 1997 30, 1997 31, 1997
-------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High.......................... $ 28.88 $ 32.19 $32.81 $34.69 $ 33.00 $31.50 $ 29.50 $ 32.00
Low........................... 23.63 24.81 28.88 29.75 27.25 28.44 25.75 28.88
Dividends..................... .28 .28 .28 .28 .25 .25 .25 .25
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NUMBER OF HOLDERS OF COMMON STOCK
The number of holders of record of the Company's common stock as of February 18,
1999 was 2,105.
35
<PAGE>
The Rouse Company and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL Through its subsidiaries and affiliates, the Company acquires,
develops and manages a diversified portfolio of retail centers,
office and industrial buildings and mixed-use and other
properties (office/mixed-use properties) located throughout the
United States and develops and sells land for residential,
commercial and other uses, primarily in Columbia, Maryland, and
Summerlin, Nevada.
In December 1997, the Company determined that it would elect
to be taxed as a real estate investment trust ("REIT") effective
January 1, 1998 and, on December 31, 1997, completed certain
transactions that enabled it to meet the qualifications for REIT
status. As a REIT, the Company has greater flexibility in
acquisition and merger opportunities and its corporate income
taxes will be substantially lower in future periods.
One of the Company's primary objectives is to own and operate
premier properties - shopping centers, office and industrial
buildings and major mixed-use projects - in major markets across
the United States. In order to achieve this objective, management
is continually evaluating opportunities to acquire properties
owned by others that may have future prospects consistent with
the Company's long-term investment criteria and is continually
evaluating the future outlook for properties in its portfolio.
This includes considering opportunities to expand and/or renovate
the properties and assessing whether particular properties are
meeting or have the potential to meet the Company's investment
criteria. The Company plans to continue making substantial
investments to expand and/or renovate leasable space and/or add
new department stores to its existing properties to meet its
objectives. The Company is also continually evaluating
opportunities for new operating properties and/or land
development projects it believes have future prospects consistent
with its objectives. The Company has sold a number of properties
over the last several years and intends to continue to dispose of
properties that are not meeting and/or are not considered to have
the potential to continue to meet its investment criteria. 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.
In 1998, the Company completed several transactions designed
to upgrade the overall quality of its portfolio of operating
properties. In the third and fourth quarters, the Company
purchased ownership interests in eight retail centers, including
the interests of partners in two centers (The Fashion Show and
Governor's Square) in which the Company now holds 100% ownership
interests. In February 1999, the Company contributed its
ownership interests in four of the acquired centers (Bridgewater
Commons, Fashion Place Mall, Park Meadows and Towson Town Center)
to a joint venture in which it retained a 35% ownership interest.
The Company acquired the other two ownership interests with the
intent to sell them. The Company disposed of four retail centers
(Eastfield Mall, Greengate Mall, Salem Mall and St. Louis Union
Station) and its 5% ownership interests in six retail centers. In
the fourth quarter, the Company also acquired a portfolio of
office and industrial properties and salable land of an entity in
which the Company previously held a 5% ownership interest. The
acquired assets consisted of 64 buildings (excluding three which
were subsequently sold) and approximately 100 acres of land.
Substantially all of the acquired assets are in the Baltimore-
Washington metropolitan area. The Company and its affiliates
disposed of their interests in two hotels and certain industrial
buildings in Baltimore and Columbia and their office properties
in Los Angeles.
The Company has continued to achieve strong financial results
in recent years, despite the rapidly changing environment for
retail businesses. Funds from Operations ("FFO"), which is
defined and discussed in detail below, increased 13% in 1998 and
30% in 1997, including increases of 14% and 3%, respectively,
from retail centers, 32% and 68%, respectively, from office/mixed
use properties and 4% and 66%, respectively, from land sales.
These results are attributable to several factors, including:
. the acquisition of The Hughes Corporation and its affiliated
partnership, Howard Hughes Properties, Limited Partnership
(together "Hughes") in June 1996,
. other changes in the Company's portfolio of properties,
. expansions of certain retail properties,
. openings of new retail centers and office buildings,
36
<PAGE>
. higher occupancy levels in retail and office properties,
. refinancings of project-related debt at lower interest rates
and,
. repayments of certain project-related and corporate debt.
Management believes the outlook is for continued solid growth
in FFO in 1999. The Company will continue to focus considerable
effort and resources on leasing and remerchandising existing
retail centers. The prospects for growth from retail centers and
office/mixed-use properties are excellent as the Company should
benefit from a full year of operations of properties acquired
and/or opened in 1998 and continued strong occupancy levels in
existing projects. FFO from land sales should also remain strong
in 1999, assuming continued good market conditions in Columbia
and Summerlin.
OPERATING This discussion and analysis of operating results covers each of
RESULTS the Company's five business segments as management believes that
a segment analysis provides the most effective means of
understanding the business. Note 9 to the consolidated financial
statements and the information relating to revenues and expenses
in the Five Year Summary of Funds from Operations and Net
Earnings (Loss) on page 48, should be referred to when reading
this discussion and analysis. As discussed in note 9, the Company
adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" in 1998. As required by the Statement, segment
operating data are reported using the accounting policies
followed by the Company for internal reporting to management.
These policies are the same as those followed for external
reporting, except that real estate ventures in which the Company
holds substantially all (at least 98%) of the financial interest,
but does not own a majority voting interest, are reported on a
consolidated basis rather than using the equity method, and the
Company's share of FFO of unconsolidated real estate ventures in
which it holds a minority interest is included in revenues. These
differences affect only the reported revenues and operating and
interest expenses of the segments, and have no effect on the
reported net earnings of the Company. Revenues and operating and
interest expenses reported for the segments are reconciled to the
related amounts reported in the financial statements in note 9.
OPERATING PROPERTIES: The Company reports the results of its
operating properties in two segments: retail centers and
office/mixed-use properties. The Company's tenant leases provide
the foundation for the performance of its retail centers 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 (percentage rent) based on tenant
sales in excess of stated levels. As leases expire, space is
released, 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, accordingly, their
operating results 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
lenders based on operating results of the related properties in
excess of stated levels.
37
<PAGE>
RETAIL CENTERS: Operating results of retail centers are
summarized as follows (in millions):
<TABLE>
<CAPTION>
1998
------------------------------------------------
Majority Minority
Consolidated Interest Interest
Properties Ventures Ventures Total 1997 1996
------------ -------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... $ 489.3 $ 58.7 $ 11.8 $ 559.8 $ 503.6 $ 508.4
Operating expenses, exclusive of
depreciation and amortization.... 237.7 31.1 - 268.8 258.2 260.0
Interest expense.................. 138.3 12.6 - 150.9 122.3 129.1
--------- -------- -------- -------- -------- --------
113.3 15.0 11.8 140.1 123.1 119.3
Depreciation and amortization..... 55.8 4.9 2.4 63.1 51.2 50.1
--------- -------- -------- -------- -------- --------
Operating income.................. $ 57.5 $ 10.1 $ 9.4 $ 77.0 $ 71.9 $ 69.2
========= ======== ======== ======== ======== ========
</TABLE>
Revenues from retail centers increased $56.2 million in 1998
and decreased $4.8 million in 1997. The increase in 1998 was
attributable primarily to properties opened or expanded
(approximately $25 million) or acquired (approximately $38
million) in 1998 and 1997, higher average occupancy levels (92.5%
in 1998 as compared to 90.8% in 1997) and higher rents on re-
leased space. These increases were partially offset by
dispositions of interests in properties in 1998 and 1997
(approximately $25 million), and lower tenant lease termination
payments. The decrease in 1997 was attributable primarily to
dispositions of interests in properties in 1997 and 1996 and
lower tenant lease termination payments. This decrease was
partially offset by the effects of slightly higher average
occupancy (90.8% in 1997 as compared to 90.2% in 1996), the
operations of two properties which were opened or expanded in
1997 and a full year of operations of two properties in which the
Company acquired interests in 1996.
Total operating and interest expenses (exclusive of depreciation
and amortization) for retail properties increased $39.2 million
in 1998 and decreased $8.6 million in 1997. The increase in 1998
was attributable primarily to the properties opened or expanded
(approximately $19 million) or acquired (approximately $37
million) in 1998 and 1997. These increases were partially offset
by dispositions of interests in properties in 1998 and 1997
(approximately $24 million). The decrease in 1997 was
attributable primarily to the dispositions of interests in
properties referred to above and refinancings and repayments of
project-related debt. These decreases were partially offset by
the effects of a full year of operations of the properties in
which the Company acquired interests in 1996. Depreciation and
amortization expense for retail properties increased $11.9
million in 1998 and $1.1 million in 1997. These changes were due
primarily to the net effect of changes in the Company's portfolio
of retail properties referred to above.
38
<PAGE>
OFFICE, MIXED-USE AND OTHER PROPERTIES: Operating results of
office/mixed-use properties are summarized as follows (in
millions):
<TABLE>
<CAPTION>
1998
-------------------------------------------------
Majority Minority
Consolidated Interest Interest
Properties Ventures Ventures Total 1997 1996
------------ -------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 166.6 $ 48.2 $ 1.1 $ 215.9 $ 216.6 $ 182.2
Operating expenses, exclusive of
depreciation and amortization..... 70.5 32.4 - 102.9 108.1 89.6
Interest expense................... 68.6 9.3 - 77.9 81.9 76.7
--------- -------- -------- --------- --------- ---------
27.5 6.5 1.1 35.1 26.6 15.9
Depreciation and amortization...... 27.9 5.5 .8 34.2 34.8 29.9
--------- -------- -------- --------- --------- ---------
Operating income................... $ (.4) $ 1.0 $ .3 $ .9 $ (8.2) $ (14.0)
========= ======== ======== ========= ========= =========
</TABLE>
Revenues from office/mixed-use properties decreased $0.7
million in 1998 and increased $34.4 million in 1997. The decrease
in 1998 was attributable primarily to dispositions of certain
properties in Los Angeles and Las Vegas, and certain industrial
and hotel properties in Baltimore and Columbia (approximately $21
million). These decreases were substantially offset by the
acquisition of the 64 office and industrial buildings referred to
above (approximately $5 million), the openings of new office
properties in Las Vegas in 1998 and 1997 (approximately $7
million), the addition of a cinema to Arizona Center in 1998
(approximately $2 million) and higher occupancy levels (96.3% in
1998 and 93.4% in 1997) at comparable properties. The increase in
1997 was attributable primarily to a full year of operations of
the properties acquired in the Hughes transaction, openings of
new office and other properties in Las Vegas and higher occupancy
levels at hotel and Columbia office properties.
Total operating and interest expenses (exclusive of
depreciation and amortization) for office/mixed-use properties
decreased $9.2 million in 1998 and increased $23.7 million in
1997. The decrease in 1998 was attributable primarily to the
dispositions of properties referred to above (approximately $18
million) and to the repayment and refinancing of certain property
debt. These decreases were partially offset by the project
openings (approximately $5 million) and the acquisitions
(approximately $4 million) referred to above. The increase in
1997 was attributable primarily to a full year of operations of
the properties acquired in the Hughes transaction, the effects of
higher occupancy levels and the openings of new properties
referred to above.
LAND SALES OPERATIONS: 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
salable land for particular uses and decisions to sell, develop
or retain land.
39
<PAGE>
Operating results from land sales operations are summarized as
follows (in millions):
<TABLE>
<CAPTION>
1998
-------------------------------------
Majority
Consolidated Interest
Hughes Land Operations: Properties Ventures Total 1997 1996
------------ -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 33.7 $ 118.5 $ 152.2 $ 163.2 $ 98.4
Operating costs and
expenses........................... 24.2 96.3 120.5 130.0 83.4
Interest expense..................... .2 .1 .3 .5 .7
--------- -------- --------- --------- --------
Operating income..................... $ 9.3 $ 22.1 $ 31.4 $ 32.7 $ 14.3
========= ======== ========= ========= ========
Columbia and Other:
Revenues............................. $ -- $ 45.5 $ 45.5 $ 40.0 $ 39.5
Operating costs and
expenses........................... -- 24.2 24.2 21.8 24.4
Interest expense..................... .8 3.1 3.9 3.8 1.0
--------- -------- --------- --------- --------
Operating income (loss).............. (.8) $ 18.2 $ 17.4 $ 14.4 $ 14.1
========= ======== ========= ========= ========
Total Land Sales Operations:
Revenues............................. $ 33.7 $ 164.0 $ 197.7 $ 203.2 $ 137.9
Operating costs and
expenses........................... 24.2 120.5 144.7 151.8 107.8
Interest expense..................... 1.0 3.2 4.2 4.3 1.7
--------- -------- --------- --------- --------
Operating income..................... $ 8.5 $ 40.3 $ 48.8 $ 47.1 $ 28.4
========= ======== ========= ========= ========
</TABLE>
Revenues and operating income from Hughes land operations for
1998 include $99.6 million and $20.7 million, respectively,
relating to Summerlin and $52.6 million and $10.7 million,
respectively, relating to other land holdings. Revenues and
operating income from Hughes land operations for 1997 include
$128.8 million and $27.1 million, respectively, relating to
Summerlin and $34.4 million and $5.6 million, respectively,
relating to other land holdings. Revenues and operating income
from Hughes land operations for 1996 include $93.1 million and
$14.2 million, respectively, relating to Summerlin and $5.3
million and $.1 million, respectively, relating to other land
holdings. The decreases in revenues and operating income in 1998
relating to Summerlin were attributable primarily to lower levels
of land sold for residential purposes. The increases in revenues
and operating income in 1997 relating to Summerlin were
attributable primarily to a full year of Hughes land operations.
The increase in operating income in 1997 also reflects higher
margins on sales, primarily because land on which development was
completed or in progress at the time of the acquisition of Hughes
(which carried lower profit margins) comprised a smaller
proportion of sales in 1997 than in 1996. The increases in
revenues and operating income relating to other land holdings in
1998 were attributable to higher levels of land sales at the
Company's master planned business parks, including all of the
remaining land at Howard Hughes Center in Los Angeles,
California. These increases were partially offset by lower levels
of sales of investment land. The increases in revenues and
operating income in 1997 relating to other land holdings were
attributable primarily to sales of various investment land
parcels, particularly holdings in Nevada.
Revenues and operating income from land sales in Columbia
increased $5.5 million and $3.0 million, respectively, in 1998
and $.5 million and $1.3 million, respectively, in 1997. The
increases in revenues and operating income in 1998 were
attributable primarily to higher levels of land sales for
commercial purposes.
40
<PAGE>
DEVELOPMENT: Development expenses were $7.4 million in 1998,
$4.7 million in 1997 and $5.3 million in 1996. 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 and
mixed-use property renovation and expansion opportunities, which
may not go forward to completion. Additions to the
preconstruction reserve were $1.7 million in 1998, $2.8 million
in 1997 and $2.7 million in 1996. New business costs relate
primarily to the initial evaluation of potential acquisition and
development opportunities. These costs were $5.7 million in 1998,
$1.9 million in 1997 and $1.8 million in 1996. The lower level of
preconstruction reserve additions in 1998 was due to the progress
of several significant retail center projects. The higher level
of new business costs in 1998 was attributable to the Company's
focus on acquisition efforts.
CORPORATE: Corporate revenues consist primarily of interest
income earned on short-term investments, including investments of
unallocated proceeds from refinancings of certain properties.
Corporate interest income was $3.8 million in 1998, $4.5 million
in 1997 and $3.5 million in 1996. The changes in income during
these years were attributable primarily to changes in the average
investment balances, including in 1997, temporary investment of
the unused proceeds of the Series B Convertible Preferred stock
issued in the first quarter.
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, the medium-term notes, credit facility
borrowings and unallocated proceeds from refinancings of certain
properties, 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.
Corporate interest costs were $6.3 million in 1998, $13.9
million in 1997 and $18 million in 1996. Interest of $14.9
million, $14.9 million and $5.4 million was capitalized in 1998,
1997 and 1996, respectively, on funds invested in development
projects. The decreases in corporate interest costs in 1998 and
1997 were attributable primarily to allocations of debt to other
segments to fund property acquisitions and certain capital
expenditures. The higher level of interest capitalized in 1998
and 1997 reflects the higher level of corporate funds invested in
projects in development.
GAIN (LOSS) ON DISPOSITIONS OF ASSETS AND OTHER PROVISIONS, NET:
The loss on dispositions of assets and other provisions, net, for
1998 consisted primarily of a loss on the disposal of a retail
property ($7.7 million) and a loss related to a treasury lock
contract ($6.4 million) that no longer qualified for hedge
accounting because the related anticipated financing transaction
will not occur under the terms and timing originally expected.
Unconsolidated real estate ventures in which the company holds
substantially all of the financial interest recorded a net gain
on disposition of assets of $19 million relating primarily to the
sale of a hotel in Columbia.
The loss on dispositions of assets and other provisions, net, for
1997 consisted primarily of provisions for losses recognized on
several retail properties, an industrial property, and a hotel
the Company decided to sell, including additional provisions of
$3.7 million related to retail properties held for disposition
prior to 1997. These provisions were partially offset by gains on
dispositions of five office properties ($4.7 million).
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 properties the Company
decided to sell. These losses were partially offset by the
reversal of a portion ($8.7 mil-
41
<PAGE>
lion) of a 1995 provision for loss on a tenant litigation
judgment following a negotiated settlement of the matter.
EXTRAORDINARY ITEMS, NET OF RELATED INCOME TAX BENEFITS: The net
extraordinary gains in 1998, and extraordinary losses in 1997 and
1996 resulted from early extinguishments of debt and aggregated
$3.6 million, $32.8 million and $2.2 million, respectively,
before deferred income tax benefits of $.7 million, $11.5 million
and $.8 million, respectively.
NET EARNINGS: The Company had net earnings of $104.9 million in
1998, $167.3 million in 1997 and $16.4 million in 1996. The
Company's operating income (after depreciation and amortization)
was $116.3 million in 1998, $97.3 million in 1997 and $60.1
million in 1996. The improvements in operating income were due
primarily to the factors described above. Net earnings for each
year was affected by unusual and/or nonrecurring items discussed
above in gain (loss) on dispositions of assets and other
provisions, net, and extraordinary items, net of related income
tax benefits. In addition, net earnings for 1997 was affected by
the reversal of substantially all ($158.3 million) of the
recorded deferred income tax assets and liabilities at December
31, 1997 as a result of the Company's decision to be taxed as a
REIT effective January 1, 1998. The deferred income taxes were
reversed because management believes that the Company met the
qualifications for REIT status as of December 31, 1997, intends
for it to continue to meet the qualifications in the future and
does not expect that the Company will be liable for income taxes
or taxes on "built-in gains" on its assets at the Federal level
or in most states in future years. The Company's effective tax
rate was (157.2)% in 1997 and 58.9% in 1996. The effective rate
in 1997 was affected by the reversal of deferred tax assets and
liabilities discussed above. Excluding the effect of the
reversal, the effective rate for 1997 was 57.4%. The effective
rates were high in 1997 and 1996 because a portion of the
distributions payable to the former Hughes owners (or their
successors) under the Contingent Stock Agreement was not
deductible for income tax purposes.
FUNDS FROM OPERATIONS: The Company uses a supplemental
performance measure along with net earnings (loss) to report its
operating results. This measure is referred to as Funds from
Operations ("FFO"). The National Association of Real Estate
Investment Trusts defines FFO as net earnings (loss) (computed in
accordance with generally accepted accounting principles),
excluding cumulative effects of changes in accounting principles,
extraordinary or unusual items and gains or losses from debt
restructurings and sales of properties, plus depreciation and
amortization, and after adjustments for minority interests and to
record unconsolidated partnerships and joint ventures on the same
basis. The Company also excludes deferred income taxes from its
computation of FFO. The method used by the Company to compute FFO
may differ from methods used by other REITs. FFO is not a measure
of operating results or cash flows from operating activities as
defined by generally accepted accounting principles.
Additionally, FFO 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 FFO provides relevant information about its
operations and is necessary, along with net earnings, for an
understanding of its operating results.
The Company excludes deferred income taxes from FFO because
payments of income taxes have not been significant and are not
anticipated to become significant in the future. Current Federal
and state income taxes are included as reductions of FFO;
however, in 1997, current income taxes incurred as a result of
transactions completed to enable the Company to meet the
qualifications for REIT status are excluded. Management believes
this exclusion is appropriate as these taxes were nonrecurring
and were not related to operations. 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 FFO. FFO is
reconciled to net earnings (loss) in the Five Year Summary of
Funds from Operations and Net Earnings (Loss) on page 49.
42
<PAGE>
FFO was $204.8 million in 1998, $181.4 million in 1997 and
$139.4 million in 1996. The increase in FFO in 1998 was due
primarily to property acquisitions, expansions and dispositions
in 1998 and 1997, higher occupancy levels, and higher rents from
re-leased space. The increase in FFO in 1997 was due primarily to
the acquisition of Hughes. The results in 1997 were also affected
by refinancings of project debt at lower interest rates, debt
repayments from proceeds of the Series B Convertible Preferred
stock offering in the first quarter and openings and dispositions
of projects in both 1997 and 1996. The reasons for significant
changes in revenues and expenses comprising FFO by segment are
described above.
FINANCIAL Management believes that the Company's financial position is
CONDITION, sound and that its liquidity and capital resources are adequate
LIQUIDITY AND for near-term and longer-term requirements. Shareholders' equity
CAPITAL increased to $628.9 million at December 31, 1998 from $465.5
RESOURCES million at December 31, 1997. The increase was due primarily to
the issuance of common stock, including $43 million to a unit
investment trust and $100 million issued in the acquisition of
the 64 office and industrial properties in the fourth quarter of
1998, and net earnings for the year, partially offset by the
payment of regular quarterly dividends on the common and
Preferred stocks.
The Company had cash and cash equivalents and investments in
marketable securities totaling $41.9 million and $90.6 million at
December 31, 1998 and 1997, respectively.
Net cash provided by operating activities was $261.2 million,
$185.5 million and $168.1 million in 1998, 1997 and 1996,
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 proceeds of land sales financed by the
Company) and the payment of operating and interest expenses and
land development costs.
The Company relies 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. The Company has also made use of the public equity and
debt markets to meet its capital resource needs principally to
repay or refinance corporate and project related debt and to
provide funds for project development and acquisition costs and
other corporate purposes. In 1998, the Company obtained a $450
million revolving credit facility, which is available until July
2001, subject to a one year renewal option, and a $350 million
bridge loan facility from a group of lenders. The revolving
credit facility replaced a $250 million line of credit facility
previously maintained by the Company. The bridge loan facility
was available to fund certain property acquisitions made in the
third and fourth quarters of 1998. The Company is continually
evaluating sources of capital and management believes that there
are satisfactory sources available for all requirements without
necessitating sales of operating properties. However, selective
dispositions of properties are expected to provide capital
resources in 1999 and may also provide them in subsequent years.
Most of the Company's debt consists of mortgages
collateralized by operating properties. Scheduled principal
payments on property debt were $50.7 million, $46.3 million and
$39.0 million in 1998, 1997 and 1996, respectively. The increase
in 1997 was attributable primarily to principal payments on debt
assumed in the Hughes transaction.
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>
1999.............. $ 49 $ 447 $ 496
2000.............. 57 105 162
2001.............. 62 467 529
2002.............. 64 220 284
2003.............. 73 487 560
--------- -------- ---------
$ 305 $ 1,726 $ 2,031
========= ======== =========
</TABLE>
43
<PAGE>
Balloon payments due in 1999 include $304 million of
borrowings under the bridge loan credit facility which is due on
or before July 30, 1999. In February 1999, the Company
contributed to a joint venture four of the retail centers
acquired in 1998. These acquisitions were financed, in part, by
borrowings under the bridge loan credit facility. The Company
retained a 35% interest in the joint venture, and, in connection
with this transaction, the joint venture repaid approximately
$271 million of outstanding borrowings under the bridge loan
facility.
Balloon payments due in 1999 also include $40 million due on a
mortgage securing a property the Company expects to sell in the
second quarter of 1999. The Company expects the buyer to assume
the mortgage.
The remaining balloon payments, including payments under the
bridge loan credit facility, due in 1999 are expected to be paid
at or before the scheduled maturity dates of the related loans
from proceeds of the sale of the property interest referred to
above, property refinancings or credit facilities or other
available corporate funds.
Cash expenditures for properties in development and
improvements to existing properties funded by debt were $306.9
million, $283.4 million and $124 million in 1998, 1997 and 1996,
respectively. The increases in 1998 and 1997 were due to
increased project development activity, primarily new retail
properties, retail property expansions and development of new
office and industrial properties in Las Vegas. A substantial
portion of the costs of properties in development is financed
with construction or similar loans and/or credit line borrowings.
Typically, long-term fixed rate debt financing is arranged
concurrently with the construction financing or before completion
of construction.
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 and credit line
borrowings.
Due to the large number of projects under construction or in
development, the Company anticipates that the level of capital
expenditures for new development (excluding land development) and
improvements to existing properties will be over $300 million in
1999. A substantial portion of these expenditures relates to new
properties or retail center expansions and it is expected that
most of these costs will be financed by debt, including property-
specific construction loans and/or credit line borrowings.
Cash expenditures for acquisitions of interests in properties
were $882.4 million in 1998, $79.4 million in 1997 and $18.1
million in 1996. The acquisitions in 1998, consisting of
interests in the eight retail centers, 67 office and industrial
buildings and the land assets referred to above, had combined
purchase prices of approximately $1.58 billion, including
approximately $492 million of mortgage debt secured by the
acquired properties and assumed by the Company. The Company
issued $100 million of common stock, $108 million of mortgage and
other debt and $882.4 million of cash to the sellers as payment.
The required cash payments were funded by approximately $234
million of additional mortgage debt secured by the acquired
properties, proceeds of $91 million from the sale of three of the
acquired office buildings and by borrowings under the Company's
bridge loan and revolving credit facilities. The acquisitions in
1997 consisted primarily of a purchase of a retail center. The
acquisitions in 1996 consisted of purchases of partners'
interests in two retail centers, one of which was financed in
part by the seller. Acquisition cash requirements in 1997 and
1996 were financed primarily by nonrecourse debt.
Cash expenditures for the acquisition of Hughes were $36.3
million in 1996 and were financed primarily by credit line
borrowings.
In addition to its unrestricted cash and cash equivalents and
investments in marketable securities, the Company has other
available sources of capital. The Company has a line of credit
with a group of lenders that provides for aggregate unsecured
borrowings of up to $450 million, of which $152 million was
available at December 31, 1998. This line of credit can be used
for various purposes, including land and project development
costs, property acquisitions, liquidity and other corporate
needs. In addition, under an effective registration statement,
the Company may issue additional medium-term notes of up to $29.7
million. Also, the Company has a shelf registration statement for
the sale of up to an aggregate of approximately $2.25 billion
(based on the public offering price) of common stock, Preferred
stock and debt securities. At December 31, 1998, the Company had
issued approximately $158 million of common stock and debt
securities under the shelf registration statement, with a
remaining availability of approximately $2.1 billion.
44
<PAGE>
The agreements relating to various loans impose limitations on
the Company. The most restrictive of these limit the levels and
types of debt the Company and its affiliates may incur and
require the Company and its affiliates to maintain specified
minimum levels of debt service coverage and net worth. The
agreements also impose restrictions on the dividend payout ratio,
and 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.
MARKET RISK The market risk associated with financial instruments and
INFORMATION derivative financial and commodity instruments is the risk of
loss from adverse changes in market prices or rates. The
Company's market risk arises primarily from interest rate risk
relating to variable rate borrowings used to maintain liquidity
(e.g., revolving credit facility advances) or finance project
acquisition or development costs (e.g., acquisition bridge loan
facility or construction loan advances). The Company's interest
rate risk management objective is to limit the impact of interest
rate changes on earnings and cash flows. In order to achieve this
objective, the Company relies primarily on long-term, fixed rate
nonrecourse loans from institutional lenders to finance its
operating properties. In addition, long term, fixed rate
financing is typically arranged concurrently with or shortly
after a variable rate project acquisition or construction loan is
negotiated. The Company also makes limited use of interest rate
exchange agreements, including interest rate swaps and caps, to
mitigate its interest rate risk on variable rate debt. The
Company does not enter into interest rate exchange agreements for
speculative purposes and the fair value of these and other
derivative financial instruments is insignificant at December 31,
1998.
The Company's interest rate risk is monitored closely by
management. The table below presents the principal amounts,
weighted-average interest rates and fair values required to
evaluate the expected cash flows of the Company under debt and
related agreements and its sensitivity to interest rate changes
at December 31, 1998. The information relating to debt maturities
(in millions) is based on expected maturity dates which consider
anticipated refinancing or other transactions:
<TABLE>
<CAPTION>
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
----- ----- ----- ----- ----- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt $ 145 $ 54 $ 160 $ 215 $ 554 $ 1,972 $ 3,100 $ 3,199
Average interest rate 7.8% 7.8% 7.9% 8.0% 8.0% 8.0% 7.8%
Variable rate LIBOR debt $ 351 $ 108 $ 369 $ 69 $ 6 $ 56 $ 959 $ 959
Average interest rate 6.4% 6.4% 5.6% 5.3% 5.1% 5.1% 6.6%
</TABLE>
At December 31, 1998, approximately $304 million of the
Company's variable rate debt relates to borrowings under its
acquisition bridge loan facility and approximately $84.2 million
relates to borrowings under project construction loans.
Approximately $271 million of the borrowings under the bridge
loan credit facility were repaid in February 1999 as discussed
above. The borrowings under project construction loans are
expected to be repaid from proceeds of long-term fixed rate
loans at dates from 1999 to 2001 when construction of the related
projects is scheduled to be completed. At December 31, 1998, the
Company had interest rate cap agreements which effectively limit
the average interest rate on all of the variable rate LIBOR debt
maturing in 2002 to 8.9%.
As the table incorporates only those exposures that exist as
of December 31, 1998, it does not consider exposures or positions
which could arise after that date. As a result, the Company's
ultimate realized gain or loss with respect to interest rate
fluctuations will depend on the exposures that arise after
December 31, 1998, the Company's hedging strategies during that
period and interest rates.
45
<PAGE>
THE YEAR 2000 The year 2000 issue relates to whether computer systems will
ISSUE properly recognize date sensitive information to allow accurate
processing of transactions and data relating to the year 2000 and
beyond. In addition, the year 2000 issue relates to whether non-
Information Technology (IT) systems that depend on embedded
computer technology will recognize the year 2000. Systems that do
not properly recognize such information could generate erroneous
data or fail.
In 1996, the Company adopted a plan to replace virtually all
of its management information and accounting systems. This plan
was adopted in the context of the Company's long-term Information
Systems strategy. In accordance with this plan, all mission-
critical IT systems are being replaced with systems that have
been certified by the vendors as year 2000 compliant. The Company
has implemented new financial accounting, accounts payable,
property management, human resources, payroll and leasing
management systems that are year 2000 compliant except for
certain legacy systems that are still in use by Hughes. The
Company is in the process of migrating Hughes from its legacy
general ledger, accounts payable and property management systems
to the Company's new systems. This migration is scheduled to be
completed no later than October 1, 1999. The Company is in
the process of implementing a new cash management system, which
is expected to be operational by June 1, 1999 and which will be
year 2000 compliant. Also, the Company has commenced testing of
its new IT systems for year 2000 compliance and expects testing
and analysis of the results to be completed in the second quarter
of 1999. In addition, in connection with the Company's normal
upgrade and replacement process, all network and desktop
equipment meet the requirements for the year 2000. As a result,
the Company expects that the costs to specifically remediate year
2000 IT issues will be minimal. For non-IT systems, the Company
has completed a comprehensive review of computer hardware and
software in mechanical systems and has developed a program to
repair or replace non-IT systems that are not year 2000
compliant. It is anticipated that the program will be completed
in the third quarter of 1999. Costs to specifically remediate
non-IT systems (e.g., escalators, elevators, heating, ventilating
and cooling systems, etc.) that are non-compliant are not
expected to exceed $2 million. Management does not believe that
the year 2000 issue will pose significant problems in its IT or
non-IT systems, or that resolution of any potential problems with
respect to these systems will have a material effect on the
Company's financial condition or results of operations.
It is very difficult to identify "the most reasonably likely
worst-case scenario." The Company's exposure is widely spread,
with no known major direct exposure. The Company believes that
the most likely worst-case exposure is at the indirect level,
involving vendors, suppliers and tenants. For example, there
could be failures in the information systems of certain tenants
that may delay the payment of rents. While it is not possible at
this time to determine the likely impact of these potential
problems, the Company is evaluating these risks based on public
disclosures and, if desirable, direct contacts with certain major
vendors, suppliers and tenants of key Company properties. Based
on this evaluation, the Company will determine during the second
quarter of 1999 whether specific contingency plans should be
developed.
NEW ACCOUNTING In March 1998, the American Institute of Certified Public
STANDARDS Accountants issued Statement of Position 98-1, "Accounting for
NOT YET the Costs of Computer Software Developed or Obtained for Internal
ADOPTED Use" (SOP 98-1) which is required to be adopted by the Company no
later than January 1, 1999. SOP 98-1 provides guidance as to
whether costs incurred relating to internal-use software should
be expensed or capitalized. The guidance in SOP 98-1 is required
to be applied to costs incurred subsequent to adoption and may
not be applied to costs incurred prior to initial application.
The Company intends to adopt SOP 98-1 effective January 1, 1999,
and does not believe that adoption will have a material effect on
its results of operations.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5, "Reporting on the
Costs of Start-up Activities" (SOP 98-5) which is required to be
adopted by the Company no later than January 1, 1999. SOP 98-5
requires that start-up costs and organization costs, not
otherwise addressed in existing authoritative literature, be
expensed as incurred. The Company intends to adopt SOP 98-5
effective January 1, 1999, and the initial application will be
reported as the cumulative effect of a change in accounting
principle. The Company does not believe that adoption will have a
material effect on its results of operations in future periods.
46
<PAGE>
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," (Statement
133) which is required to be adopted by the Company no later than
January 1, 2000. The Company's use of derivative instruments has
consisted primarily of interest rate swap and cap agreements
related to specific debt financings. While the Company has not
completed its analysis of Statement 133 and has not made a
decision regarding the timing of adoption, it does not believe
that adoption will have a material effect on its financial
position and results of operations based on its current use of
derivative instruments.
IMPACT OF The major portion of the Company's operating properties, its
INFLATION 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. In many cases, 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 This Annual Report to Shareholders of the Company includes
RELATING forward-looking statements which reflect the Company's current
TO FORWARD- views with respect to future events and financial performance.
LOOKING These forward-looking statements are subject to certain risks and
STATEMENTS 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 trust risks; (2) real estate development and
investment 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;
(10) changes in the economic climate; and (11) changes in tax
laws or regulations. 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, 1998.
47
<PAGE>
The Rouse Company and Subsidiaries
Five Year Summary of Funds From Operations and Net Earnings (loss) (Note 1)
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Retail centers:
Minimum and percentage rents..................... $ 308,900 $ 271,743 $ 256,880 $ 245,192 $ 238,222
Other rents and other revenues................... 250,921 231,912 251,535 246,488 248,253
---------- ---------- ---------- ---------- ----------
559,821 503,655 508,415 491,680 486,475
---------- ---------- ---------- ---------- ----------
Office, mixed-use and other:
Minimum and percentage rents..................... 137,118 130,744 106,246 80,319 82,347
Other rents and other revenues................... 78,801 85,827 75,908 64,647 64,225
---------- ---------- ---------- ---------- ----------
215,919 216,571 182,154 144,966 146,572
---------- ---------- ---------- ---------- ----------
Land sales.......................................... 197,706 203,219 137,853 33,403 35,232
Corporate interest income........................... 3,797 4,485 3,495 2,772 2,892
---------- ---------- ---------- ---------- ----------
977,243 927,930 831,917 672,821 671,171
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES, EXCLUSIVE OF DEPRECIATION
AND AMORTIZATION:
Retail centers...................................... 268,786 257,848 260,027 246,747 253,095
Office, mixed-use and other......................... 102,945 108,063 89,524 70,096 74,368
Land sales.......................................... 144,709 151,800 107,787 17,827 19,877
Development......................................... 7,383 4,747 4,964 7,288 6,494
Corporate........................................... 18,813 13,384 9,752 8,920 8,309
---------- ---------- ---------- ---------- ----------
542,636 535,842 472,054 350,878 362,143
---------- ---------- ---------- ---------- ----------
INTEREST EXPENSE:
Retail centers...................................... 150,889 122,325 129,091 128,215 128,798
Office, mixed-use and other......................... 77,894 81,905 76,659 69,034 67,892
Land sales.......................................... 4,201 4,287 1,658 5,071 5,028
Development......................................... --- --- 361 358 495
Corporate........................................... (8,614) (1,027) 12,612 10,285 11,370
---------- ---------- ---------- ---------- ----------
224,370 207,490 220,381 212,963 213,583
---------- ---------- ---------- ---------- ----------
CURRENT INCOME TAXES APPLICABLE TO OPERATIONS
(NOTE 3)......................................... 5,395 3,208 123 620 735
---------- ---------- ---------- ---------- ----------
722,401 746,540 692,558 564,461 576,461
---------- ---------- ---------- ---------- ----------
FUNDS FROM OPERATIONS (NOTE 2)...................... $ 204,842 $ 181,390 $ 139,359 $ 108,360 $ 94,710
========== ========== ========== ========== ==========
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
FUNDS FROM OPERATIONS BY SEGMENT:
Retail centers...................................... $ 140,081 $ 123,101 $ 119,297 $ 116,135 $ 103,978
Office, mixed-use and other......................... 35,069 26,562 15,852 5,839 4,273
Land sales.......................................... 48,773 47,090 28,404 10,502 10,330
Development......................................... (7,383) (4,747) (5,325) (7,646) (6,989)
Corporate........................................... (11,698) (10,616) (18,869) (16,470) (16,882)
---------- ---------- ---------- ---------- ----------
FUNDS FROM OPERATIONS............................... $ 204,842 $ 181,390 $ 139,359 $ 108,360 $ 94,710
========== ========== ========== ========== ==========
RECONCILIATION TO NET EARNINGS (LOSS):
Funds from Operations............................... $ 204,842 $ 181,390 $ 139,359 $ 108,360 $ 94,710
Depreciation and amortization....................... (84,068) (82,944) (77,414) (73,062) (74,186)
Deferred income taxes applicable to operations...... --- 124,203 (25,596) (3,699) (5,995)
Certain current income taxes (note 3)............... --- (4,929) --- --- ---
Loss on dispositions of assets and
other provisions, net............................ (11,174) (23,484) (16,499) (25,749) (7,923)
Depreciation and amortization, gain on disposition
of assets and deferred income taxes of
unconsolidated real estate ventures, net......... (4,380) (4,344) (1,964) --- ---
Extraordinary gain (loss), net...................... 4,355 (21,342) (1,453) (8,631) (4,447)
Cumulative effect at January 1, 1998 of
change in accounting for participating
mortgages ....................................... (4,629) --- --- --- ---
Cumulative effect at October 1, 1997 of
change in accounting for business
process reengineering costs...................... --- (1,214) --- --- ---
Other............................................... (44) --- --- --- ---
---------- ---------- ---------- ---------- ----------
NET EARNINGS (LOSS)................................. $ 104,902 $ 167,336 $ 16,433 $ (2,781) $ 2,159
========== ========== ========== ========== ==========
</TABLE>
NOTES:
(1) Operating and Funds from Operations (FFO) data included in this five-year
summary are presented by segment. Consistent with the requirements of
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," segment data are
reported using the accounting policies followed by the Company for
internal reporting to management. These policies are the same as those
used for external reporting, except that real estate ventures in which
the Company holds a majority financial interest but does not own a
majority voting interest are reported on a consolidated basis rather
than using the equity method, and the Company's share of FFO of
unconsolidated real estate ventures in which it holds a minority interest
is included in revenues. These differences affect the revenues and
expenses reported in the summary of FFO to net earnings (loss), however,
they have no effect on the Company's net earnings or FFO.
(2) FFO is not a measure of operating results or cash flows from operating
activities as defined by generally accepted accounting principles.
Additionally, FFO 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 "Funds from Operations" section of Management's Discussion and
Analysis of Financial Condition and Results of Operations on page 42 for
a full discussion of FFO.
(3) FFO for 1997 excludes current income taxes arising from transactions
completed by the Company in connection with its determination to elect to
be taxed as a REIT.
49
<PAGE>
PROJECTS OF THE ROUSE COMPANY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Retail Centers in Operation
- ------------------------------------------------------------------------------------------------------------------------------------
Date of Opening Retail Square Footage
Consolidated Centers (note 1) or Acquisition Department Stores/Anchor Tenants Total Center Mall Only
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Augusta Mall, 8/78 Rich's; Macy's; JCPenney; Sears; 1,081,000 332,000
Augusta, GA (a) Dillard's
- ------------------------------------------------------------------------------------------------------------------------------------
Bayside Marketplace, 4/87 --- 223,000 223,000
Miami, FL (b)
- ------------------------------------------------------------------------------------------------------------------------------------
Beachwood Place, 8/78 Saks Fifth Avenue; Dillard's; 912,000 348,000
Cleveland, OH (a) Nordstrom
- ------------------------------------------------------------------------------------------------------------------------------------
Bridgewater Commons, 12/98 Lord & Taylor; Macy's; Stern's 875,000 372,000
Bridgewater, NJ (f)
- ------------------------------------------------------------------------------------------------------------------------------------
Cherry Hill Mall, 10/61 Strawbridge's, Macy's; JCPenney 1,292,000 543,000
Cherry Hill, NJ (a)
- ------------------------------------------------------------------------------------------------------------------------------------
The Mall in Columbia, 8/71 Hecht's; JCPenney; Sears; 1,235,000 423,000
Columbia, MD (e) Lord & Taylor
- ------------------------------------------------------------------------------------------------------------------------------------
Echelon Mall, 9/70 Strawbridge's; JCPenney; Boscov's; 1,140,000 429,000
Voorhees, NJ (a) Sears
- ------------------------------------------------------------------------------------------------------------------------------------
Exton Square, 3/73 Strawbridge's 434,000 253,000
Exton, PA (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Faneuil Hall Marketplace, 8/76 --- 215,000 215,000
Boston, MA (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Fashion Place Mall, 10/98 Dillard's; Nordstrom; Sears 966,000 400,000
Salt Lake City, UT (f)
- ------------------------------------------------------------------------------------------------------------------------------------
The Fashion Show, 6/96 Neiman Marcus; Saks Fifth Avenue; 840,000 308,000
Las Vegas, NV (a) Macy's; Dillard's; Robinsons-May
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Park, 7/71 Marshall Fields; JCPenney; Jacobson's; 1,099,000 313,000
Toledo, OH (b) Lion (Dillard's)
- ------------------------------------------------------------------------------------------------------------------------------------
The Gallery at Market East, 8/77 Strawbridge's; JCPenney; KMart 1,179,000 363,000
Philadelphia, PA(a)(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Governor's Square, 8/79 Burdines; Dillard's; Sears; JCPenney 1,044,000 340,000
Tallahassee, FL (a)
- ------------------------------------------------------------------------------------------------------------------------------------
The Grand Avenue, 8/82 The Boston Store 492,000 242,000
Milwaukee, WI (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Harborplace, 7/80 --- 136,000 136,000
Baltimore, MD (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Highland Mall, 8/71 Dillard's; Foley's; JCPenney 1,085,000 367,000
Austin, TX (b)
- ------------------------------------------------------------------------------------------------------------------------------------
Hulen Mall, Ft. 8/77 Foley's; Ward's; Dillard's 938,000 327,000
Worth, TX (a)
- ------------------------------------------------------------------------------------------------------------------------------------
The Jacksonville Landing, 6/87 --- 128,000 128,000
Jacksonville, FL (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Mall St. Matthews, 3/62 Dillard's; JCPenney; Bacon; 1,102,000 363,000
Louisville, KY (a) Lord & Taylor
- ------------------------------------------------------------------------------------------------------------------------------------
Midtown Square, 10/59 Burlington Coat Factory 235,000 190,000
Charlotte, NC (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Mondawmin Mall (a)/Metro Plaza (b), 1/78; --- 496,000 496,000
Baltimore, MD 12/82
- ------------------------------------------------------------------------------------------------------------------------------------
Moorestown Mall, 12/97 Strawbridge's; Boscov's; Sears 823,000 264,000
Moorestown, NJ (a)
- ------------------------------------------------------------------------------------------------------------------------------------
North Star, 9/60 Dillard's; Foley's; Saks Fifth 1,251,000 462,000
San Antonio, TX (b) Avenue; Macy's; Mervyn's California
- ------------------------------------------------------------------------------------------------------------------------------------
Oakwood Center, 10/82 Sears; Dillard's; Mervyn's California; 991,000 362,000
Gretna, LA (a) Maison Blanche (JCPenney)
- ------------------------------------------------------------------------------------------------------------------------------------
Oviedo Marketplace, 3/98 Dillard's; Parisian 820,000 340,000
Orlando, FL (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Owings Mills, 7/86 Macy's; Hecht's; JCPenney; Lord & 1,165,000 352,000
Baltimore, MD (a) Taylor; Sears; General Cinema 17
- ------------------------------------------------------------------------------------------------------------------------------------
Paramus Park, 3/74 Macy's; Sears 761,000 382,000
Paramus, NJ (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Park Meadows, 7/98 Dillard's; Foley's; Joslins (Lord & 1,640,000 594,000
Denver, CO (f) Taylor); Nordstrom; JCPenney
- ------------------------------------------------------------------------------------------------------------------------------------
Perimeter Mall, 8/71 Rich's; JCPenney; Macy's; Nordstrom 1,424,000 444,000
Atlanta, GA (b)
- ------------------------------------------------------------------------------------------------------------------------------------
Plymouth Meeting, 2/66 Strawbridge's; Boscov's; IKEA; 944,000 390,000
Plymouth Meeting, PA (a) General Cinema 12
- ------------------------------------------------------------------------------------------------------------------------------------
Riverwalk, 8/86 --- 179,000 179,000
New Orleans, LA (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Santa Monica Place, 10/80 Macy's; Robinsons-May 570,000 287,000
Santa Monica, CA (a)
- ------------------------------------------------------------------------------------------------------------------------------------
South Street Seaport, 7/83 --- 259,000 259,000
New York, NY (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Tampa Bay Center, 8/76 Burdines; Sears; Ward's 895,000 325,000
Tampa, FL (b)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Retail Centers in Operation
- ------------------------------------------------------------------------------------------------------------------------------------
Date of Opening Retail Square Footage
Consolidated Centers (note 1) or Acquisition Department Stores/Anchor Tenants Total Center Mall Only
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Towson Town Center, 10/98 Hecht's; Nordstrom; Nordstrom Rack 997,000 538,000
Baltimore, MD (f)
- ------------------------------------------------------------------------------------------------------------------------------------
White Marsh, 8/81 Macy's; JCPenney; Hecht's; Sears; IKEA; 1,148,000 359,000
Baltimore, MD (b) Lord & Taylor
- ------------------------------------------------------------------------------------------------------------------------------------
Willowbrook, 9/69 Lord & Taylor; Macy's; Stern's; Sears 1,530,000 502,000
Wayne, NJ (b)
- ------------------------------------------------------------------------------------------------------------------------------------
Woodbridge Center, 3/71 Lord & Taylor; Sears; Stern's; 1,546,000 560,000
Woodbridge, NJ (a) Fortunoff; JCPenney
- ------------------------------------------------------------------------------------------------------------------------------------
Community Centers in --- --- 890,000 890,000
Columbia, MD (12) (e)
- ------------------------------------------------------------------------------------------------------------------------------------
Community Centers in --- --- 238,000 238,000
Summerlin, NV (2) (b)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Consolidated Centers in Operation* 35,218,000 14,838,000
- ------------------------------------------------------------------------------------------------------------------------------------
Nonconsolidated/Managed Centers
- ------------------------------------------------------------------------------------------------------------------------------------
Burlington Center, 8/82 Strawbridge's; Sears; JCPenney 666,000 242,000
Burlington Township, NJ (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Collin Creek, 9/95 Dillard's; Foley's; JCPenney; Sears; 1,123,000 333,000
Plano, TX (d) Mervyn's California
- ------------------------------------------------------------------------------------------------------------------------------------
Randhurst, Mt. 7/81 Carson, Pirie, Scott; JCPenney; 1,304,000 581,000
Prospect, IL (d) Ward's; Kohl's
- ------------------------------------------------------------------------------------------------------------------------------------
Ridgedale Center, 1/89 Dayton's; JCPenney; Sears; Dayton's 1,027,000 334,000
Minneapolis, MN (d) Men & Home
- ------------------------------------------------------------------------------------------------------------------------------------
Sherway Gardens, 12/78 Eaton's; The Bay; Holt Renfrew; 972,000 444,000
Toronto, ONT (c) Sporting Life
- ------------------------------------------------------------------------------------------------------------------------------------
Southland Center, 1/89 Hudson's; Mervyn's California; JCPenney 903,000 320,000
Taylor, MI (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Staten Island Mall, 11/80 Sears; Macy's; JCPenney 1,229,000 622,000
Staten Island, NY (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Town & Country Center, 2/88 Sears; Marshalls 642,000 421,000
Miami, FL (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Nonconsolidated/Managed Centers 7,866,000 3,297,000
in Operation
- ------------------------------------------------------------------------------------------------------------------------------------
Total Retail Centers in Operation* 43,084,000 18,135,000
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Date of Opening Retail Square Footage
Properties Held for Sale or Acquisition Department Stores/Anchor Tenants Total Center Mall Only
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail Centers
- ------------------------------------------------------------------------------------------------------------------------------------
Valley Fair Mall, 7/98 Macy's (2); Nordstrom 1,138,000 469,000
San Jose, CA (b)
- ------------------------------------------------------------------------------------------------------------------------------------
Westdale Mall, 10/98 JCPenney; Von Maur; Younkers; Ward's 912,000 383,000
Cedar Rapids, IA (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Retail Centers Held for Sale 2,050,000 852,000
- ------------------------------------------------------------------------------------------------------------------------------------
Office/Mixed-Use Properties
- ------------------------------------------------------------------------------------------------------------------------------------
Lucky's Center, 6/96 --- 142,000 142,000
Los Angeles, CA (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Properties Held for Sale 2,192,000 994,000
- ------------------------------------------------------------------------------------------------------------------------------------
*Not including 691,000 square feet of retail space in five mixed-use properties listed on the following page.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
51
<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
Garden Office Pavilion 33,000
One Arizona Center Office Tower 330,000
Two Arizona Center Office Tower 449,000
AMC Cinemas 90,000
- ------------------------------------------------------------------------------------------------------------------------------------
The Gallery at Harborplace (a) Baltimore, MD
The Gallery 141,000
Office Tower 265,000
Renaissance Hotel 622 rooms
- ------------------------------------------------------------------------------------------------------------------------------------
Pioneer Place (a) Portland, OR
Saks Fifth Avenue 60,000
Retail Pavillion 147,000
Office Tower 283,000
- ------------------------------------------------------------------------------------------------------------------------------------
Village of Cross Keys (a) Baltimore, MD
Village Shops 74,000
Village Square Offices 79,000
Quadrangle Offices 110,000
- ------------------------------------------------------------------------------------------------------------------------------------
Westlake Center (b) Seattle, WA
Retail Pavillion 118,000
Office Tower 342,000
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Office and Other Properties (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
Columbia Office (11 buildings) (a) (e) Columbia, MD 993,000
- ------------------------------------------------------------------------------------------------------------------------------------
Columbia Industrial (9 buildings) (e) Columbia, MD 623,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hughes Center (13 buildings) (a) Las Vegas, NV 1,005,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hughes Airport Center (31 buildings) (a) Las Vegas, NV 1,575,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hughes Cheyenne Center (3 buildings) (a) Las Vegas, NV 377,000
- ------------------------------------------------------------------------------------------------------------------------------------
Summerlin Commercial (13 buildings) (a) Summerlin, NV 815,000
- ------------------------------------------------------------------------------------------------------------------------------------
Inglewood Business Center (7 buildings) (a) Prince Georges County, MD 538,000
- ------------------------------------------------------------------------------------------------------------------------------------
Owings Mills Town Center (4 buildings) (b) Baltimore, MD 731,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hunt Valley Business Center (24 buildings) (a) Baltimore, MD 1,834,000
- ------------------------------------------------------------------------------------------------------------------------------------
Rutherford Business Center (24 buildings) (a) Baltimore, MD 877,000
- ------------------------------------------------------------------------------------------------------------------------------------
Other Office Projects (5 buildings) (a) Various 501,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Consolidated Office, Mixed-Use and
Other Properties** 12,541,000
- ------------------------------------------------------------------------------------------------------------------------------------
**Including 691,000 square feet of retail space in the mixed-use properties.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Retail Centers Under Construction Retail Square Footage
or in Development Department Stores/Anchor Tenants Total Center Mall Only
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Mall in Columbia Expansion, Columbia, MD Nordstrom 270,000 110,000
- ------------------------------------------------------------------------------------------------------------------------------------
Exton Square Expansion, Exton, PA Sears; Boscov's; JCPenney 569,000 120,000
- ------------------------------------------------------------------------------------------------------------------------------------
Oviedo Marketplace Expansion, Orlando, FL Sears 125,000 ---
- ------------------------------------------------------------------------------------------------------------------------------------
Moorestown Mall Expansion, Moorestown, NJ Strawbridges; Lord & Taylor 321,000 ---
- ------------------------------------------------------------------------------------------------------------------------------------
Perimeter Mall Expansion, Atlanta, GA --- 75,000 75,000
- ------------------------------------------------------------------------------------------------------------------------------------
The Fashion Show Expansion, Las Vegas, NV Neiman Marcus; Saks Fifth Avenue;
Macy's; Robinsons-May; Lord & Taylor;
Dillard's; Bloomingdales 800,000 250,000
- ------------------------------------------------------------------------------------------------------------------------------------
Ft. Myers, Ft. Myers, FL Dillard's; Sears 900,000 350,000
- ------------------------------------------------------------------------------------------------------------------------------------
Bridgewater Commons Expansion, Bridgewater, NJ Bloomingdale's 400,000 150,000
- ------------------------------------------------------------------------------------------------------------------------------------
Fashion Place Expansion, Salt Lake City, UT Nordstrom; Dillard's; ZCMI 300,000 70,000
- ------------------------------------------------------------------------------------------------------------------------------------
Summerlin Town Center, Summerlin, NV Robinsons-May; Lord & Taylor; Dillard's;
Sears 1,050,000 350,000
- ------------------------------------------------------------------------------------------------------------------------------------
West Kendall, Dade County, FL Dillard's; Sears; Burdines 1,200,000 350,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Retail Centers Under Construction
or in Development 6,010,000 1,825,000
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Office, Mixed-Use and Other Properties Under
Construction or in Development Type of Space Square Feet
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pioneer Place Expansion, Portland, OR Saks Fifth Avenue; Sundance Cinema 150,000
- ------------------------------------------------------------------------------------------------------------------------------------
Arizona Center Expansion, Phoenix, AZ Embassy Suites 350 rooms
- ------------------------------------------------------------------------------------------------------------------------------------
The Village of Merrick Park, Coral Gables, FL Neiman Marcus, Nordstrom 360,000
Specialty retail shops 424,000
Office 80,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hughes Center (1 building), Las Vegas, NV Office 171,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hughes Airport Center (3 buildings), Las Vegas, NV Industrial 168,000
- ------------------------------------------------------------------------------------------------------------------------------------
Park Square, Columbia, MD Office 100,000
- ------------------------------------------------------------------------------------------------------------------------------------
Summerlin Commercial (1 building), Summerlin, NV Office 71,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Office, Mixed-Use and Other Properties
Under Construction or in Development 1,524,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1 Includes projects wholly owned by subsidiaries of the Company, projects
in which the Company has joint interest and control and projects owned by
affiliates in which the Company holds substantially all (at least 98%) of the
financial interest, but does not own a majority voting interest.
Additional Notes:
(a) Projects are wholly owned by subsidiaries of the Company.
(b) Projects are owned by joint ventures or partnerships and are managed by
affiliates 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 affiliates of the Company for a fee plus a share of
cash flow.
(d) Projects are owned by partnerships or by subsidiaries of the Company
(Burlington Center, Randhurst and Staten Island Mall) and are managed by
affiliates 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.
(e) Projects are owned and managed by affiliates in which the Company holds
substantially all (at least 98%) of the financial interest, but does not
own a majority voting interest.
(f) Projects were wholly owned by subsidiaries of the Company as of December
31, 1998, and contributed to a joint venture in February 1999. The Company
retains a 35% interest in the joint venture.
53
<PAGE>
EXHIBIT 21
Exhibit 21. Subsidiaries of the Registrant.
The Registrant had no parent at December 31, 1998.
As of December 31, 1998, The Rouse Company owned 100% of the voting
securities of the following domestic and foreign corporations included in the
consolidated financial statements:
<TABLE>
<CAPTION>
State of
Subsidiary Incorporation
---------- -------------
Directly owned subsidiaries of the Company. All
shares are Common Stock unless otherwise noted.
<S> <C>
American City Corporation, The Maryland
Baltimore Center, Inc. Maryland
Beachwood Property Holdings, Inc. Maryland
Charlottetown, Inc. Maryland
Charlottetown North, Inc. Maryland
Chesapeake Investors, Inc. (Note 1) Delaware
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 2) Maryland
Gallery II Trustee, Inc. Maryland
Harbor Overlook Investments, Inc. Maryland
Harborplace Management Corporation Maryland
Harundale Mall, Inc. Maryland
Hermes Incorporated Maryland
Huntington Properties, Inc. (Note 3) 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
Owings Mills Finance Corporation Maryland
Plymouth Meeting Food Court, Inc. Maryland
Plymouth Meeting Mall, Inc. (Note 4) Pennsylvania
PT Funding, Inc. Maryland
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Rouse-Brandywood, Inc. Maryland
Rouse-Camden Warehouse, Inc. Maryland
Rouse Capital (Note 5) 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 (Note 6) Alabama
Rouse Company of Alaska, Inc., The Maryland
Rouse Company of Arkansas, Inc., The Maryland
Rouse Company of California, Inc., The (Note 7) Maryland
Rouse Company of Colorado, Inc., The (Note 8) Maryland
Rouse Company of Connecticut, Inc., The (Note 9) Connecticut
Rouse Company of Florida, Inc., The (Note 10) Florida
Rouse Company of Georgia, Inc., The (Note 11) Georgia
Rouse Company of Idaho, Inc., The Maryland
Rouse Company of Illinois, Inc., The Maryland
Rouse Company of Iowa, Inc., The (Note 12) Maryland
Rouse Company of Louisiana, The (Note 13) Maryland
Rouse Company of Maine, Inc., The Maryland
Rouse Company of Massachusetts, Inc., The (Note 14) Maryland
Rouse Company of Michigan, Inc., The (Note 15) Maryland
Rouse Company of Minnesota, Inc., The (Note 16) Maryland
Rouse Company of Mississippi, Inc., The Maryland
Rouse Company of Montana, Inc., The Maryland
Rouse Company of Nevada, Inc., The (Note 17) Nevada
Rouse Company of New Hampshire, Inc., The Maryland
Rouse Company of New Jersey, Inc., The (Note 18) New Jersey
Rouse Company of New Mexico, Inc., The Maryland
Rouse Company of New York, Inc., The (Note 19) New York
Rouse Company of North Carolina, Inc., The (Note 20) Maryland
Rouse Company of North Dakota, Inc., The Maryland
Rouse Company of Ohio, Inc., The (Note 21) Ohio
Rouse Company of Oklahoma, Inc., The Maryland
Rouse Company of Oregon, Inc., The (Note 22) Maryland
Rouse Company of Pennsylvania, Inc., The (Note 23) Pennsylvania
Rouse Company of Rhode Island, Inc., The Maryland
Rouse Company of South Carolina, Inc., The Maryland
Rouse Company of South Dakota, Inc., The Maryland
Rouse Company of Tennessee, Inc., The Maryland
Rouse Company of Texas, Inc., The (Note 24) 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 25) Maryland
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Rouse Company of Washington, Inc., The (Note 26) 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 Development Company of California, Inc., The 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 27) Maryland
Rouse-Inglewood, Inc. Maryland
Rouse Investing Company (Note 28) 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 29) Maryland
Rouse-Oakwood Two, Inc. Maryland
Rouse Office Management, Inc. Maryland
Rouse Office Management of Pennsylvania, Inc. Maryland
Rouse-Owings Mills, Inc. Maryland
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 Transportation, Inc. Maryland
Rouse Tristate Venture, Inc. Texas
Rouse Venture Capital, Inc. Maryland
Rouse-Wates, Incorporated (Note 30) Delaware
RREF Holding, Inc. (Note 31) Texas
Salem Mall, Incorporated Maryland
Santa Monica Place, Inc. Maryland
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Six Owings Mills Corporate Center, Inc. Maryland
SMPL Management, Inc. Maryland
Stansfield-Laurel, Inc. Maryland
Three Owings Mills Corporate Center, Inc. Maryland
TRC Central, Inc. Maryland
TRCD, Inc. (Note 32) Delaware
TRC Holding Company of Washington, D.C. (Note 33) Maryland
TRC Property Management, Inc. Maryland
TRC Purchasing, Inc. Maryland
Two Owings Mills Corporate Center, Inc. Maryland
White Marsh Equities Corporation Maryland
Foreign subsidiaries:
- --------------------
Rouse Service (Canada) Limited Canada
</TABLE>
4
<PAGE>
Notes:
- -----
1. Chesapeake Investors, Inc. owns all of the outstanding capital stock of Rouse
Commercial Properties, Inc., a Maryland corporation:
Rouse Commercial Properties, Inc. owns all of the outstanding capital stock
of the following Maryland entities:
HRD Commercial Properties, Inc.
Hunt Valley Title Holding Corporation
Rouse Acquisition Finance, Inc.
Hunt Valley Title Holding Corporation owns 5% of the outstanding stock of
Rouse-Teachers Holding Company (a Nevada corporation).
2. Gallery Maintenance, Inc. owns all of the outstanding capital stock of Rouse
Gallery Management, Inc., a Maryland corporation.
3. 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.
4. Plymouth Meeting Mall, Inc. owns all of the outstanding common stock of 1150
Plymouth Associates, Inc., a Maryland corporation.
5. 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.
6. The Rouse Company of Alabama, Inc. owns all of the outstanding capital stock
of Rouse-Liberty Park, Inc., a Maryland Corporation.
7. 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-Palm Springs II, Inc.
Rouse-Sacramento, Inc.
8. The Rouse Company of Colorado, Inc. owns all of the outstanding capital stock
of Rouse Management Services Corporation of Colorado, Inc., a Maryland
corporation.
5
<PAGE>
9. The Rouse Company of Connecticut, Inc. owns all of the outstanding capital
stock of each of the following Maryland corporations:
Rouse Chapel Square Finance, Inc.
Rouse New Haven Parking Management, Inc.
10. 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-Governor's Square, Inc., a Maryland corporation
Rouse-Jacksonville, Inc., a Maryland corporation
Rouse Kendall Management Corporation, a Maryland corporation
Rouse-Miami, Inc., a Maryland corporation
Rouse Office Management of Florida, Inc., a Maryland corporation
Rouse-Orlando, Inc., a Maryland corporation
Rouse-Osceola, Inc., a Maryland corporation
Rouse-Sunrise, Inc., a Maryland corporation
Rouse-Tampa, Inc., a Florida corporation
11. 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 Development Management Company, Inc.
Rouse South DeKalb, Inc.
South DeKalb Mall Management Corporation
12. 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.
6
<PAGE>
13. The Rouse Company of Louisiana owns all of the outstanding capital stock of
Rouse-New Orleans, Inc., a Maryland corporation
14. The Rouse Company of Massachusetts, Inc. owns all of the outstanding capital
stock of each of the following Maryland corporations:
Faneuil Hall Marketplace, Inc.
Marketplace Grasshopper, Inc.
Rouse-Eastfield, Inc.
15. 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.
16. 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
17. The Rouse Company of Nevada, Inc. owns all of the outstanding capital stock
or units of ownership interest of each of the following entities:
250 Pilot Road, LLC, a Nevada limited liability company
585 Pilot Road, LLC, a Nevada limited liability company
625 Pilot Road, LLC, a Nevada limited liability company
10000 West Charleston Boulevard, LLC, a Nevada limited liability
company
10450 West Charleston Boulevard, LLC, a Nevada limited liability
company
Cherry Hill Center, 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-Bridgewater Commons, LLC, a Maryland limited liability company
Rouse F.S., LLC, a Maryland limited liability company
Rouse-Fashion Outlet, LLC, a Maryland limited liability company
Rouse-Fashion Place, LLC, a Maryland limited liability company
Rouse Fashion Show, Inc., a Nevada corporation
7
<PAGE>
Rouse-Las Vegas, LLC, a Nevada limited liability company
Rouse-Moorestown, Inc., a Maryland corporation
Rouse-Moorestown II, Inc., a Maryland corporation
Rouse-Park Meadows Holding, LLC, a Maryland limited liability company
Rouse-Towson Town Center, LLC, A Maryland limited liability company
Rouse-Valley Fair, LLC, a Maryland limited liability company
Rouse-Westdale, LLC, a Maryland limited liability company
Rouse-Wincopin, Inc., a Maryland corporation
Two Willow Corporation, a Delaware corporation
The Village of Cross Keys, Incorporated, a Maryland corporation
TTC Member, Inc., a Maryland corporation
White Marsh Mall, Inc., a Maryland corporation
Woodbridge Center, Inc., a Maryland corporation
One Willow Corporation owns all of the outstanding capital stock of Three
Willow Corporation, a Delaware corporation.
Rouse-Park Meadows Holding, LLC owns all of the outstanding units of Rouse-
Park Meadows, LLC, a Maryland limited liability company.
Rouse-Towson Town Center, LLC owns 99.5% of the outstanding units of Towson
Town Center, LLC, a Maryland limited liability company.
Towson Town Center, LLC owns all of the outstanding units of Route-TTC
Funding, LLC, a Maryland limited liability company
TTC Member, Inc. owns all of the outstanding units of TTC SPE, LLC and .5%
of the outstanding units of Towson Town Center, LLC.
The Village of Cross Keys, Incorporated owns all of the outstanding capital
stock of The Roost, Inc., a Maryland corporation.
18. 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.
The Willowbrook Corporation
Willmall Holdings, Inc.
Willowbrook Management Corporation
8
<PAGE>
19. 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
20. 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.
21. 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
22. 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
23. The Rouse Company of Pennsylvania, Inc. owns all of the outstanding capital
stock of Whiteland I, Inc. and Whiteland II, Inc., both Maryland
corporations.
24. 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
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
9
<PAGE>
DK Management Corporation, a Texas corporation
DK Shopping Center, Inc., a Texas corporation
Greengate Mall, Inc., a Pennsylvania corporation
North Star Mall, Inc., a Texas corporation
Northwest Mall, Inc., a Maryland corporation
NS 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-San Antonio, 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
25. 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.
26. The Rouse Company of Washington, Inc. owns all of the outstanding capital
stock of Rouse-Seattle, Inc., a Maryland corporation.
27. 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.
10
<PAGE>
28. 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
29. 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.
30. Rouse-Wates, Incorporated ("Rouse-Wates") and its consolidated subsidiaries
are accounted for as a discontinued operation in the consolidated financial
statements. Rouse-Wates owns all of the outstanding capital stock of Owen
Brown B Development Company, a Maryland corporation
31. RREF Holding, Inc. owns all of the outstanding capital stock of RII Holding,
Inc., a Texas corporation.
32. 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
Rouse Funding Corporation
Rouse Funding Two, Inc.
Rouse-MTN, Inc.
TRCDE, Inc.
TRCDE Two, Inc.
TRCDF, Inc.
Two Franklin Park Corporation
Two Gallery Corporation
Willowbrook Mall, Inc.
11
<PAGE>
The Franklin Park Corporation owns 90 shares of the outstanding capital
stock of Franklin Park Finance, Inc., a Delaware corporation, and Rodamco
U.S.A., Inc. owns the remaining 910 shares. Franklin Park Finance, Inc. has
3,000 shares of capital stock authorized, of which 1000 shares are issued
and outstanding as described above.
Willowbrook Mall, Inc. owns 90 shares of the outstanding capital stock of
Willowbrook Finance Corporation, a Delaware corporation, and Rodamco U.S.A.,
Inc. owns the remaining 910 shares. Willowbrook Finance Corporation has
3,000 shares of capital stock authorized, of which 1000 shares are issued
and outstanding as described above.
33. TRC Holding Company of Washington, D.C. owns all of the outstanding capital
stock of Rouse-National Press Management, Inc., a Maryland corporation
12
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
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-3 (File Nos. 2-78898, 2-95596, 33-52458,
33-57707 and 333-67137), Form S-8 (File Nos. 2-83612, 33-56231, 33-56233,
33-56235 and 333-32277) and Form S-4 (File No. 333-01693) of our report dated
February 24, 1999, relating to the consolidated financial statements and related
schedules of The Rouse Company and subsidiaries as of December 31, 1998 and 1997
and for each of the years in the three-year period ended December 31, 1998,
which report appears in the Annual Report on Form 10-K of The Rouse Company for
the year ended December 31, 1998.
KPMG LLP
Baltimore, Maryland
March 30, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Trustees
The Rouse Company Incentive Compensation Statutory Trust
and
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-3 (File Nos. 2-78898, 2-95596, 33-52458, 33-57707
and 333-67137), Form S-8 (File Nos. 2-83612, 33-56231, 33-56233, 33-56235 and
333-32277) and Form S-4 (File No. 333-01693) of our report dated February 24,
1999, relating to the combined consolidated financial statements and related
schedules of Real Estate Ventures owned by The Rouse Company Incentive
Compensation Statutory Trust and The Rouse Company as of and for the year ended
December 31, 1998, which report appears in the Annual Report on Form 10-K of The
Rouse Company for the year ended December 31, 1998.
KPMG LLP
Baltimore, Maryland
March 30, 1999
<PAGE>
Exhibit 24. Power of Attorney.
The Power of Attorney, dated February 25, 1999, is attached.
<PAGE>
THE ROUSE COMPANY
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the under- signed 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 directors of the
Company, the Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1998 that is to be filed 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 Report 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, 1999
/s/ David H. Benson (SEAL)
--------------------------
David H. Benson
<PAGE>
/s/ Jeremiah E. Casey (SEAL)
--------------------------
Jeremiah E. Casey
/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
<PAGE>
/s/ Alexander B. Trowbridge(SEAL)
--------------------------
Alexander B. Trowbridge
/s/ Gerard J. M. Vlak (SEAL)
--------------------------
Gerard J. M. Vlak
-2-
<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, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 37,694
<SECURITIES> 4,256
<RECEIVABLES> 95,745
<ALLOWANCES> 19,828
<INVENTORY> 0
<CURRENT-ASSETS> 146,172<F1>
<PP&E> 5,051,981
<DEPRECIATION> 578,311
<TOTAL-ASSETS> 5,154,643
<CURRENT-LIABILITIES> 816,758<F2>
<BONDS> 4,058,820
723
0
<COMMON> 41
<OTHER-SE> 628,162
<TOTAL-LIABILITY-AND-EQUITY> 5,154,643
<SALES> 692,571
<TOTAL-REVENUES> 692,571
<CGS> 0
<TOTAL-COSTS> 434,715
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,735
<INTEREST-EXPENSE> 209,564
<INCOME-PRETAX> 105,152
<INCOME-TAX> (24)
<INCOME-CONTINUING> 116,326
<DISCONTINUED> (11,174)
<EXTRAORDINARY> 4,355
<CHANGES> (4,629)
<NET-INCOME> 104,902
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.34
<FN>
<F1>CURRENT ASSETS INCLUDE CASH, UNRESTRICTED MARKETABLE SECURITUES, 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 99.1
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, 1998 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 Human Resources 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, 1998 will be filed on or before June 30, 1999.
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 30, 1999 By /s/ Janice A. Fuchs
------------------ -----------------------------------
Janice A. Fuchs, Administrator
and
Date: March 30, 1999 By /s/ Jeffery H. Donahue
------------------ -----------------------------------
Jeffery H. Donahue, 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 of The Rouse Company,
its subsidiaries, affiliates and Non-REIT Subsidiaries (collectively and
individually, the "Company") to differ materially from historical results or
anticipated results:
REIT Risks. Failure to Qualify as a REIT. Although the Company
believes that it is organized and intends to operate in such a manner as to
qualify as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986, as amended (the "Code"), no assurance can be given that the
Company will remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there are
only limited judicial or administrative interpretations. The complexity of
these provisions and applicable Treasury Regulations is also increased to the
extent a REIT holds some of its assets in partnership form. The determination
of various factual matters and circumstances not entirely within the Company's
control may affect its ability to qualify as a REIT. In addition, no assurance
can be given that legislation, new regulations, administrative interpretations
or court decisions will not significantly change the tax laws with respect to
qualification as a REIT or the Federal income tax consequences of such
qualification. Currently, there are proposals before Congress to make
significant changes to the requirements for qualifying as a REIT and to the
operations REITs may conduct.
If in any taxable year the Company fails to qualify as a REIT, the
Company would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to Federal income tax
(including applicable alternative minimum tax) on its taxable income at regular
corporate rates. As a result, the amount available for distribution to the
Company's shareholders would be reduced for the year or years involved. In
addition, unless entitled to relief under certain statutory provisions, the
Company would be disqualified from treatment as a REIT for the four taxable
years following the year during which it lost its qualification.
Notwithstanding that the Company currently operates in a manner
designed to qualify as a REIT, future economic, market, legal, tax or other
considerations may cause the Company to determine that it is in the best
interest of the Company and its shareholders to revoke its REIT election. The
Company would then be disqualified from electing treatment as a REIT for the
four taxable years following the year of such revocation.
Inability to Comply With REIT Distribution Requirements. To obtain
the favorable tax treatment for REITs qualifying under the Code, the Company
generally will be required to distribute to its shareholders at least 95% of its
otherwise taxable income (after certain adjustments, including for the Company's
net operating loss carryover). Such distributions must be paid either (i) in
the taxable year to which they relate or (ii) 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.
<PAGE>
Exhibit 99.2
In addition, the Company will be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to any
calendar year are less than the sum of 85% of its ordinary income for the
calendar year, 95% of its capital gains net income for the calendar year and any
undistributed taxable income from prior periods. Failure to comply with the 95%
distribution requirement would result in the Company failing to qualify as a
REIT and the Company's income being subject to tax at regular corporate rates.
The Company intends to make distributions to its shareholders to
comply with the 95% tax distribution provision of the Code and to avoid the
nondeductible excise tax discussed above.
Recently Proposed Tax Legislation. The President's fiscal year 2000
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. The proposal would allow an
exception to the 10% rule for "taxable REIT subsidiaries." "Taxable REIT
subsidiaries" would be subject to certain anti-stripping provisions limiting the
deductibility of payments from the taxable REIT subsidiaries to the REIT,
including a disallowance of interest payments to the REIT. This proposal, if
enacted, would be effective immediately. If these new rules are enacted, they
would limit the deductibility of interest payments by the Company's taxable
subsidiaries. In addition, the President proposes to expand upon the "five or
fewer requirement" 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, this change would be effective for entities electing REIT status for
taxable years beginning on or after the date of the first committee action on
the proposal. 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.
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
properties held by the Company's subsidiaries and affiliates is geographically
concentrated. 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 area, and by local real estate conditions and other
factors, including applicable zoning laws and
-2-
<PAGE>
Exhibit 99.2
the availability of financing for residential development. Similarly, most of
the office/industrial buildings that are owned by the Company's subsidiaries and
affiliates are located in the Baltimore-Washington corridor, including Columbia,
Maryland, and the greater Las Vegas metropolitan area. Due to the geographic
concentration of this portfolio, the operating results from owning 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.
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
-3-
<PAGE>
Exhibit 99.2
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, 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.
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.
-4-
<PAGE>
Exhibit 99.2
Risks Relating to Nevada Properties. General. Affiliates of the
Company own approximately 3.8 million rentable square feet of office and
industrial space primarily around Las Vegas, Nevada, Fashion Show Mall, an
840,000 square foot regional shopping center located on "Strip" in Las
Vegas, two Tournament Players Club golf clubs in Summerlin and approximately
8,700 saleable 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 many rapidly 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 development or investment activities of the
Company's affiliates 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. It is not possible to determine whether current or
future legalized gaming venues will have an adverse impact on the Las Vegas
economy and thereby adversely affect the properties held by Company affiliates
in the Las Vegas area.
-5-