<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 SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31,1999
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
------------------ ----------
(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:
<TABLE>
<S> <C>
Name of each exchange
Title of each class on which registered
- ------------------- -----------------------
Common Stock (par value 1c per share) New York Stock Exchange
- -------------------------------------
9 1/4% Cumulative Quarterly Income Preferred Securities New York Stock Exchange
- ---------------------------------------------------
Series B Convertible Preferred Stock
- ------------------------------------
(par value 1c per share) New York Stock Exchange
- ------------------------
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
----
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months 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. _____
As of March 17, 2000, there were outstanding 70,606,005 shares of the
registrant's common stock, par value 1c, which is the only class of common or
voting stock of the registrant. As of that date, the aggregate market value of
the shares of common stock held by nonaffiliates of the registrant (based on the
closing price as reported in The Wall Street Journal, Eastern Edition) was
----------------------------------------
approximately $1,487,138,980
Documents Incorporated by Reference
The specified portions of the Annual Report to Shareholders for the fiscal year
ended December 31, 1999 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, 2000 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 has met the qualifications for REIT status since
January 1, 1998, and it intends to meet the qualifications in the future
and to distribute at least 95% 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 significant income taxes (except, possibly, in certain
states). All dividends on common stock paid subsequent to December 31, 1997
have been distributions of ordinary income.
Developments in 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
I-1
<PAGE>
Fair in San Jose, California and Westdale Mall in Cedar Rapids, Iowa. Upon
completion of the acquisitions, 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. In June 1999, the Company sold
its interest in Valley Fair for proceeds approximating the acquisition
cost.
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 were acquired in 1998 from
TrizecHahn Centers Inc., and 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
were 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 Company's net cost of the
properties. The Company subsidiary effectively has a 35% ownership interest
in the Four State Venture, while the Morgan/NYSTRS Venture has a 65%
ownership interest.
In September 1999, the Company announced that it would pursue developing a
strategy to sell interests in certain office and industrial properties and
land parcels, and use the proceeds to repay debt and repurchase (subject to
certain price restrictions) up to $250 million of the Company's common
stock. Management subsequently identified the specific properties the
Company may sell (mostly office and industrial buildings in the Baltimore-
Washington corridor and certain business parks in Las Vegas) and was
developing alternative disposition plans and structures at December 31,
1999. As of December 31, 1999, the Company had repurchased approximately
1.6 million shares of common stock for approximately $34.8 million.
I-2
<PAGE>
Item 1(b). Financial Information About Industry Segments.
Information required by Item 1(b) is incorporated herein by reference to
note 8 of the notes to consolidated financial statements included in the
1999 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, 1999, the 46 regional retail
centers owned, in whole or in part, or operated by subsidiaries or
affiliates of the Company or by Non-REIT Subsidiaries, aggregated
42,791,000 square feet, including 25,012,000 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. Affiliates of the Company (or, beginning December
31, 1997, Non-REIT Subsidiaries) 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, 1999, Non-REIT Subsidiaries of the Company
managed 10 such centers, which are included in the figures in the preceding
paragraph and aggregated 10,608,000 square feet of leasable space,
6,061,000 square feet of which was department store space.
I-3
<PAGE>
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 914,000 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 65 office and
industrial buildings with 4,189,000 square feet of leasable space, and
other properties in and around Las Vegas, Nevada. HRD and its subsidiaries
own and/or manage 12 office and industrial buildings with 1,099,000 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 686,000 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 4,889,000 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-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
I-4
<PAGE>
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 1,500 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 8,200 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 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.
I-5
<PAGE>
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 4,140 full-time and part-time employees at December 31, 1999.
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
42 through 44 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 2020
American City Building
Columbia Mall, Inc. - Leasehold and fee 2012
Exhibit 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 venture 2024
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 venture 2070
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 venture 2076
South Street Seaport Leasehold 2031
Tampa Bay Center Leasehold and fee by joint venture 2047
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, 2000 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 55 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
Jeffrey H. Donahue 53 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 48 Senior Vice-President 7/1/99 Senior Vice-President and Director, Property
and Director, Property 9/23/93 Operations; formerly Senior Vice-President
Operations and Director of Office and Mixed-Use
Operations of the Company
Douglas A. McGregor 57 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 49 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>
I-11
<PAGE>
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 54 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 53 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 50 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
Daniel C. Van Epp 45 Senior Vice-President 5/13/99 Senior Vice-President of the Company and
of the Company and President of The Howard Hughes Corporation;
President of The Howard formerly Vice-President, West Coast Community
Hughes Corporation Development Division of the Company and
Executive Vice-President, The Howard Hughes
Corporation
</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.
I-12
<PAGE>
Part II
-------
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 28 of Exhibit 13.
Item 6. Selected Financial Data.
Information required by Item 6 is incorporated by reference to
page 27 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 29 through 38 of Exhibit 13.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Information required by Item 7A is incorporated herein by reference to
pages 37 and 38 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 28 of Exhibit 13.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
II-1
<PAGE>
Part III
--------
The information required by Items 10, 11, 12 and 13 (except that information
regarding executive officers called for by Item 10 that is contained in Part I)
is incorporated herein by reference from the definitive proxy statement that the
Company intends to file pursuant to Regulation 14A on or before April 12, 2000.
III-1
<PAGE>
Part IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. and 2. Financial Statements and Schedules:
Reference is made to the Index to Financial Statements and Schedules on
page IV-2.
(b) Reports on Form 8-K:
Current Report on Form 8-K filed February 24, 2000 disclosing that the
Company had adopted a classified board structure.
(c) Exhibits required by Item 601 of Regulation S-K.
Exhibit No.
-----------
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
IV-1, continued
<PAGE>
Part IV, Continued
------------------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K,
Continued
(c) Exhibits required by Item 601 of Regulation S-K, continued
Exhibit No.
-----------
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, 1999
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, continued
<PAGE>
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 31 of
Exhibit 13 incorporated herein by reference:
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997
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 Sheets at December 31, 1999 and 1998 IV-5
Combined Consolidated Statements of Operations for the Years Ended December 31, 1999 and 1998 IV-6
Combined Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the Years Ended
December 31, 1999 and 1998 IV-7
Combined Consolidated Statements of Cash Flows for the Year Ended December 31, 1999 and 1998 IV-8
Notes to Combined Consolidated Financial Statements IV-10
The Rouse Company and Subsidiaries as of December 31, 1999 or for the years ended December 31, 1999, 1998 and 1997:
Schedule II Valuation and Qualifying Accounts IV-18
Schedule III Real Estate and Accumulated Depreciation IV-19
Schedule IV Mortgage Loans on Real Estate IV-33
Real Estate Ventures Owned by The Rouse Company Incentive Compensation Statutory Trust and The Rouse
Company as of December 31, 1999 or for the years Ended December 31, 1999 and 1998:
Schedule II Valuation and Qualifying Accounts IV-35
Schedule III Real Estate and Accumulated Depreciation IV-36
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
<PAGE>
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. 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, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, 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, 2000
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 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 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, 1999 and 1998, and the results of
their operations and their cash flows for the years 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, 2000
IV-4
<PAGE>
Real Estate Ventures Owned by
The Rouse Company Incentive Compensation Statutory Trust and
The Rouse Company
COMBINED CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
Assets
------
Property: 1999 1998
---- ----
<S> <C> <C>
Operating properties:
Property and deferred costs of projects........................ $465,828 $326,860
Less accumulated depreciation and amortization................. 87,039 82,390
-------- --------
378,789 244,470
Properties in development......................................... 26,924 66,442
Investment land and land held for development and sale............ 257,773 278,155
-------- --------
Total property................................................. 663,486 589,067
Cash and cash equivalents........................................... 8,194 ---
Accounts and notes receivable, including advances to The Rouse
Company of $112,310 in 1998........................................ 88,765 200,748
Deferred income taxes............................................... 36,564 53,660
Prepaid expenses and other assets................................... 58,526 41,352
Investments in and advances to unconsolidated real estate ventures.. 107,813 22,689
-------- --------
Total............................................................. $963,348 $907,516
======== ========
Liabilities and Shareholders' Equity (Deficit)
----------------------------------------------
Liabilities:
Debt:
Borrowings from The Rouse Company................................. $514,792 $487,419
Other borrowings.................................................. 350,646 332,945
-------- -------
Total debt..................................................... 865,438 820,364
-------- -------
Bank overdraft...................................................... --- 17,382
Deferred revenue.................................................... 73,341 93,278
Accounts payable, accrued expenses and other liabilities............ 45,184 20,230
Redeemable Series A Preferred stock................................. 50,000 50,000
Commitments and contingencies
Shareholders' equity (deficit):
Common stock........................................................ 5 5
Additional paid-in capital.......................................... 141,495 141,495
Accumulated deficit................................................. (212,115) (235,238)
-------- --------
Net shareholders' deficit......................................... (70,615) (93,738)
-------- --------
Total............................................................. $963,348 $907,516
======== ========
</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 STATEMENTS OF OPERATIONS
Years ended December 31, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Revenues:
Land sales..................................................... $191,705 $165,461
Rentals and tenant services.................................... 75,212 73,811
Property management fees....................................... 16,375 18,254
Other.......................................................... 18,759 24,484
-------- --------
302,051 282,010
Cost of land sales and related administration.................... 110,923 97,169
Other operating expenses, exclusive of provision for bad debts,
depreciation and amortization.................................. 65,010 63,822
Interest expense................................................. 68,222 68,146
Provision for bad debts.......................................... 554 359
Depreciation and amortization.................................... 13,004 10,585
Equity in earnings (loss) of unconsolidated real estate ventures. (425) 811
Gain on dispositions of assets and other provisions, net......... 408 15,856
-------- --------
Earnings before income taxes and extraordinary losses.......... 44,321 58,596
-------- --------
Income taxes, primarily federal:
Current........................................................ 2,597 5,478
Deferred....................................................... 17,096 16,582
-------- --------
19,693 22,060
-------- --------
Earnings before extraordinary losses........................... 24,628 36,536
Extraordinary losses, net........................................ --- 1,127
-------- --------
Net earnings................................................... $ 24,628 $ 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 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1999 and 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 on common stock............................... --- --- (4,850) (4,850)
---------- --------- ---------- ----------
Balance at December 31, 1998............................ 5 141,495 (235,238) (93,738)
Net earnings............................................ --- --- 24,628 24,628
Dividends on common stock and other distributions, net.. --- --- (1,505) (1,505)
---------- --------- ---------- ----------
Balance at December 31, 1999............................ $ 5 $ 141,495 $ (212,115) $ (70,615)
========== ========= ========== ==========
</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 STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Cash flows from operating activities
Rents and other revenues received................................... $ 107,434 $107,533
Proceeds from land sales............................................ 155,702 124,152
Interest received................................................... 544 479
Land development expenditures....................................... (72,927) (82,917)
Operating expenditures.............................................. (75,697) (88,965)
Interest paid....................................................... (65,380) (69,017)
Income taxes paid................................................... (2,839) (2,997)
--------- --------
Net cash provided (used) by operating activities.................. 46,837 (11,732)
--------- --------
Cash flows from investing activities
Expenditures for properties in development and improvements to
existing properties funded by debt................................ (90,797) (75,302)
Expenditures for property acquisitions.............................. --- (10,054)
Expenditures for investment in unconsolidated real estate ventures.. (90,379) ---
Proceeds from sales of operating properties......................... 6,619 69,063
Expenditures for improvements to existing properties funded by
cash provided by operating activities.............................. (4,930) (3,162)
Repayments of advances to The Rouse Company, net.................... 112,310 19,522
Other............................................................... --- (624)
--------- --------
Net cash used by investing activities............................. (67,177) (557)
--------- --------
Cash flows from financing activities
Proceeds from issuance of property debt............................. 39,752 110,799
Repayments of property debt:
Scheduled principal payments...................................... (5,603) (5,433)
Other payments.................................................... (8,803) (23,834)
Borrowings (repayments) of other debt, net.......................... 27,373 (67,005)
Increase (decrease) in bank overdraft............................... (17,382) 2,984
Dividends on common stock and other distributions, net.............. (1,505) (4,850)
Other............................................................... (5,298) (372)
--------- --------
Net cash provided by financing activities......................... 28,534 12,289
--------- --------
Net change in cash and cash equivalents............................. 8,194 ---
Cash and cash equivalents at beginning of year...................... --- ---
--------- --------
Cash and cash equivalents at end of year............................ $ 8,194 $ ---
========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
IV-8
<PAGE>
Reconciliation of Net Earnings to Net Cash
Provided (Used) by Operating Activities
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net earnings................................................. $ 24,628 $ 35,409
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Depreciation and amortization.............................. 13,004 10,585
Gain on dispositions of assets, net........................ (2,635) (15,856)
Extraordinary losses, net.................................. --- 1,127
Provision for bad debts.................................... 554 359
Decrease (increase) in:
Accounts and notes receivable........................... (902) (42,950)
Other assets............................................ (3,944) 2,264
Increase (decrease) in accounts payable, accrued expenses
and other liabilities................................... (14,927) 5,069
Deferred income taxes...................................... 17,096 16,582
Other, net................................................. 13,963 (24,321)
-------- --------
Net cash provided (used) by operating activities............. $ 46,837 $(11,732)
======== ========
</TABLE>
================================================================================
Schedule of Noncash Investing and Financing Activities
<TABLE>
<CAPTION>
<S> <C> <C>
Debt assumed by purchasers of land........................... $ 16,616 $ 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, 1999 and 1998
(1) Summary of significant accounting policies
(a) Basis of presentation
The combined consolidated financial statements include the accounts of the real
estate ventures (Ventures) owned by The Rouse Company Incentive Compensation
Statutory Trust (Trust) and The Rouse Company (Company). The 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.
Certain amounts for 1998 have been reclassified to conform to the
presentation for 1999.
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
==========
IV-10
<PAGE>
(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 and Las Vegas, Nevada. Land development and
sales operations are predominantly related to large-scale, long-term community
development projects in Columbia and Summerlin, Nevada.
(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 using the interest or straight-
line methods, as appropriate, 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.
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 li-
IV-11
<PAGE>
abilities 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 liabilities.
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 6.
(2) Property
Operating properties and deferred costs of projects at December 31, 1999 and
1998 are summarized as follows (in thousands):
1999 1998
---------- -----------
Buildings and improvements.......... $398,469 $ 289,902
Land................................ 32,950 26,023
Deferred costs...................... 33,443 10,472
Furniture and equipment............. 966 463
---------- -----------
Total............................ $465,828 $ 326,860
========== ===========
Depreciation expense for 1999 and 1998 was $11,673,000 and $9,668,000,
respectively, and amortization expense was $1,331,000 and $917,000,
respectively.
Investment land and land held for development and sale at December 31, 1999
and 1998 is summarized as follows (in thousands):
1999 1998
--------- -----------
Land under development.............. $131,854 $ 131,663
Finished land....................... 70,107 70,747
Raw land............................ 55,812 75,745
--------- -----------
Total............................ $257,773 $ 278,155
========= ===========
(3) Investments in and advances to unconsolidated real estate ventures
Investments in and advances to unconsolidated real estate ventures at
December 31, 1999 and 1998 are summarized as follows (in thousands):
<TABLE>
1999 1998
--------- -----------
<S> <C> <C>
Investments in properties owned jointly with the Company....... $ 86,777 $ ---
Investments in other unconsolidated real estate ventures....... 21,036 22,689
--------- ---------
Total............................................... $ 107,813 $ 22,689
========= =========
</TABLE>
Investments in properties owned jointly with the Company consist of a
limited partnership interest
IV-12
<PAGE>
in a retail center and limited partnership interests in partnerships that own a
mixed-use property. The Ventures made additional capital contributions to the
limited partnerships in 1999 which then repaid certain loans from the Company.
The condensed, combined balance sheets of these limited partnerships at
December 31, 1999 and their condensed combined statements of operations for 1999
are summarized as follows (in thousands):
Total assets, primarily property............... $140,099
=========
Liabilities, primarily long-term debt.......... $ 96,576
Venturers' equity.............................. 43,523
---------
Total liabilities and venturers' equity...... $140,099
=========
Revenues....................................... $ 15,698
Operating and interest expenses................ 15,686
Depreciation and amortization.................. 3,656
---------
Net loss..................................... $ (3,644)
=========
The Ventures' share of the losses of these partnerships was approximately
$2,000,000 in 1999.
(4) Accounts and notes receivable
Accounts and notes receivable at December 31, 1999 and 1998 are summarized as
follows (in thousands):
1999 1998
--------- ----------
Accounts receivable, primarily accrued rents and
income under tenant leases........................... $ 11,934 $ 11,547
Notes receivable from sales of operating properties.... 1,197 1,221
Notes receivable from sales of land.................... 76,417 76,504
Interest bearing advances to the Company............... -- 99,018
Noninterest bearing advances to the Company............ -- 13,292
--------- ----------
89,548 201,582
Less allowance for doubtful receivables 783 834
--------- ----------
Total............................................. $ 88,765 $ 200,748
========= ==========
Accounts and notes receivable due after one year at December 31, 1999 and
1998 were $47,156,000 and $41,263,000, respectively.
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 6. Interest on
these advances was $2,647,000 in 1999 and $9,067,000 in 1998.
(5) Pension and postretirement plans
Substantially all of the employees of the Ventures are eligible to participate
in 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 $3,386,000 in 1999
IV-13
<PAGE>
and $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 $561,000 in 1999 and $606,000 in 1998.
(6) Debt
Debt at December 31, 1999 and 1998 is summarized as follows (in thousands):
1999 1998
---------- ----------
Borrowings from the Company:
Deed of trust notes payable......... $ 333,907 $ 362,167
Credit lines........................ 59,674 60,911
Other loans......................... 121,211 64,341
---------- ----------
514,792 487,419
Mortgages payable - other lenders...... 347,905 317,176
Other debt............................. 2,741 15,769
---------- ----------
Total............................... $ 865,438 $ 820,364
========== ==========
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 $319,907,000 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 $43,052,000 in 1999 and $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 $4,553,000
in 1999 and $1,193,000 in 1998.
Other loans payable to the Company are unsecured and are due in equal
annual installments over periods to 2024. The notes bear interest at a variable
rate (8.5% at December 31, 1999) which is based on the weighted-average interest
rate of certain borrowings of the Company and subsidiaries. Interest on the
other loans was $9,930,000 in 1999 and $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, 1999, bears interest at a
weighted-average effective rate of 7.70%. At December 31, 1999, approximately
$236,663,000 of the mortgages were payable to one lender.
Other debt bears interest at a weighted-average effective rate of 6.92% at
December 31, 1999.
The annual maturities of debt at December 31, 1999 are summarized as follows
(in thousands):
Borrowings
from the Other
Company Borrowings Total
---------- ---------- ---------
2000................................ $ 6,558 $ 5,725 $ 12,283
2001................................ 9,364 6,640 16,004
2002................................ 6,253 7,117 13,370
2003................................ 6,483 7,173 13,656
2004................................ 5,992 29,043 35,035
IV-14
<PAGE>
Subsequent to 2004.................. 480,142 294,948 775,090
---------- ---------- ---------
Total............................ $514,792 $350,646 $ 865,438
========== ========== =========
Total interest costs were $85,407,000 in 1999 and $83,411,000 in 1998, of
which $17,185,000 and $15,265,000, respectively, were capitalized.
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, 1999 and 1998. The carrying amounts and estimated fair
values of the Ventures' other debt at December 31, 1999 and 1998 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------------------------- ------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ ---------- ------------ -----------
<S> <C> <C> <C>
Fixed rate debt................ $ 348,950 $ 332,102 $ 326,060 $ 342,962
Variable rate debt............. 1,696 1,696 6,885 6,885
------------ ---------- ------------ -----------
Total.................... $ 350,646 $ 333,798 $ 332,945 $ 349,847
============ ========== ============ ===========
</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 Ventures' debt obligations at fair value may not be possible
and may not be a prudent management decision.
(7) Income taxes
Income tax expense is reconciled to the amount computed by applying the Federal
corporate tax rate as follows (in thousands):
1999 1998
-------- ---------
Tax at statutory rate on earnings before
income taxes and extraordinary losses......... $ 15,512 $ 20,509
Increase in valuation allowance................. 3,802 952
State income taxes, net of Federal income
tax benefit and valuation allowance
attributable to state taxes................... 379 599
-------- ---------
Income tax expense.............................. $ 19,693 $ 22,060
======== =========
The net deferred tax asset at December 31, 1999 and 1998 is summarized as
follows (in thousands):
1999 1998
-------- ---------
Total deferred tax assets....................... $ 70,093 $ 79,979
Valuation allowance............................. 4,754 952
Total deferred tax liabilities.................. 28,775 21,367
-------- ---------
Net deferred tax asset.......................... $ 36,564 $ 53,660
======== =========
The tax effects of temporary differences and loss carryforwards included in
the net deferred tax asset at December 31, 1999 and 1998 are summarized as
follows (in thousands):
1999 1998
--------- ----------
Property, primarily differences in depreciation and
amortization, the tax basis of land assets and
treatment of interest and certain other costs ....... $ 7,411 $ 41,740
Operating loss and tax credit carryforwards............ 26,031 11,295
Other.................................................. 3,122 625
--------- ----------
Total................................................ $ 36,564 $ 53,660
========= ==========
IV-15
<PAGE>
The net operating losses carried forward from December 31, 1999 for Federal
income tax purposes aggregate approximately $80,056,000. The loss carryforwards
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. A valuation
allowance has been established due to significant uncertainty of realizing
certain loss carryforwards. Based on projections of future taxable income,
management believes that it is more likely than not that the deferred tax
assets, net of the valuation allowance, will be realized. The amount of the
deferred tax assets considered realizable could be reduced in the near term,
however, if estimates of future taxable income are reduced.
(8) Gain on dispositions of assets and other provisions, net
Gain on dispositions of assets and other provisions, net, is summarized as
follows (in thousands):
1999 1998
-------- ---------
Net gain on operating properties............. $ 2,635 $ 15,879
Other, net................................... (2,227) (23)
-------- ---------
Total..................................... $ 408 $ 15,856
======== =========
The net gain on operating properties in 1999 relates primarily to the sale
of two office/industrial buildings. The other net loss for 1999 relates
primarily to the Ventures' share of the costs of the Company's consolidation of
the management and administration of its Retail Operations and Office and Mixed-
Use Operations divisions into a single Property Operations Division, integration
of certain operating, administrative, and support functions of the Hughes
Division into other divisions and adoption of a voluntary early retirement
program in which employees who met certain criteria were eligible to
participate.
The net gain on operating properties in 1998 relates primarily to sales of
a hotel property and two office/industrial buildings.
9) Series A Preferred Stock
Howard Hughes Properties, Inc. (HHPI) has issued 25,000 shares of Series A
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
1999 or 1998 because HHPI incurred tax losses. Dividends in arrears at December
31, 1999 aggregated $8,900,000. 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.
(10) Leases
The Ventures, as lessee, have entered into operating leases expiring at various
dates through 2062. Rents under such leases aggregated $473,000 in 1999 and
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, 1999 are summarized as follows (in thousands):
2000.................................. $ 428
2001.................................. 428
2002.................................. 428
2003.................................. 258
2004.................................. 258
Subsequent to 2004.................... 14,868
--------
Total............................... $ 16,668
========
IV-16
<PAGE>
Space in the Ventures' operating properties is leased to approximately 720
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):
1999 1998
--------- ---------
Minimum rents....................... $ 51,110 $ 47,977
Percentage rents.................... 1,067 996
Other rents......................... 23,035 24,838
--------- ---------
Total............................ $ 75,212 $ 73,811
========= =========
The minimum rents to be received from tenants under operating leases in
effect at December 31, 1999 are summarized as follows (in thousands):
2000................................ $ 49,181
2001................................ 44,026
2002................................ 37,596
2003................................ 32,092
2004................................ 23,619
Subsequent to 2004.................. 66,955
---------
Total............................ $ 253,469
=========
(11) Other transactions with The Rouse Company
Under an informal agreement, the Company provides various services to the
Ventures, including 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 fees of $500,000 and $1,000,000 in 1999 and 1998,
respectively, 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
1999 and 1998 include license fees and service cost reimbursements to the
Company of approximately $8,750,000 and $8,305,000, respectively. The Ventures
also reimburse the Company for costs of any services it provides with respect to
development of operating properties. These costs were approximately $2,073,000
in 1999 and $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.
(12) Other commitments and contingencies
Commitments for the construction and development of properties in the ordinary
course of business and other commitments not set forth elsewhere amount to
approximately $31,500,000 at December 31, 1999.
Certain of the Ventures have guaranteed payment of the Company's
obligations under a credit facility with a group of lenders, subject to various
terms and conditions. At December 31, 1999, outstanding borrowings under the
facility were $174,000,000.
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, 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 and it is, therefore, possible that the resolution
of these matters could have such an effect in a future period.
IV-17
<PAGE>
Schedule II
-----------
THE ROUSE COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998 and 1997
(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, 1999:
Allowance for doubtful receivables $ 19,828 $ 8,548 $ --- $ 3,503 /(1)/ $ 24,873
========== ========== ========== ========== ==========
Preconstruction reserve $ 15,908 $ --- $ --- $ 10,661 /(3)/ $ 5,247
========== ========== ========== ========== ==========
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
========== ========== ========== ========== ==========
</TABLE>
Notes:
(1) Balances written off as uncollectible.
(2) Allowance related to properties sold.
(3) Costs of unsuccessful projects written off and other deductions.
IV-18
<PAGE>
Schedule III
------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1999
(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- Improvements Improve Carrying Improve
Description brances Land (note 3) ments costs (note 2) Land ments Total
- ----------- -------- --------- ------------ ---------- -------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Properties:
The Fashion Show $ 73,255 $35,036 $120,347 $ 12,302 $- $35,036 $132,649 $167,685
Retail Center
Las Vegas, NV
Arizona Center 98,574 98 -- 154,955 98 154,955 155,053
Mixed-Use project
Phoenix, AZ
South Street Seaport 56,302 -- -- 147,653 -- -- 147,653 147,653
Retail Center
New York, NY
Woodbridge Center 130,646 26,301 -- 119,920 -- 26,301 119,920 146,221
Retail Center
Woodbridge, NJ
Beachwood Place 118,133 10,673 -- 129,427 -- 10,673 129,427 140,100
Retail Center
Beachwood, OH
Fashion Place Mall 116,033 19,379 119,715 766 -- 19,379 120,481 139,860
Retail Center
Salt Lake City, UT
Owings Mills 61,000 19,735 -- 115,914 -- 19,735 115,914 135,649
Retail Center
Baltimore County, MD
Oviedo Marketplace 69,485 11,745 -- 112,644 -- 11,745 112,644 124,389
Retail Center
Orlando, FL
Pioneer Place 122,810 -- -- 121,445 -- -- 121,445 121,445
Mixed-Use project
Portland, OR
Westlake Center 92,295 10,582 -- 101,242 -- 10,582 101,242 111,824
Mixed-Use project
Seattle, WA
</TABLE>
<TABLE>
<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>
Operating Properties:
The Fashion Show $ 13,734 03/81 06/96 Note 9
Retail Center
Las Vegas, NV
Arizona Center 36,721 07/83 N/A Note 9
Mixed-Use project
Phoenix, AZ
South Street Seaport 31,513 07/83 N/A Note 9
Retail Center
New York, NY
Woodbridge Center 30,682 03/71 N/A Note 9
Retail Center
Woodbridge, NJ
Beachwood Place 11,598 08/78 N/A Note 9
Retail Center
Beachwood, OH
Fashion Place Mall 2,526 03/72 10/98 Note 9
Retail Center
Salt Lake City, UT
Owings Mills 15,506 07/86 N/A Note 9
Retail Center
Baltimore County, MD
Oviedo Marketplace 4,666 03/98 N/A Note 9
Retail Center
Orlando, FL
Pioneer Place 27,580 03/90 N/A Note 9
Mixed-Use project
Portland, OR
Westlake Center 25,576 10/88 N/A Note 9
Mixed-Use project
Seattle, WA
</TABLE>
IV-19
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1999
(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- Improvements Improve Carrying Improve
Description brances Land Note 3 ments costs Land ments Total
----------- ------- ---- ------ ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Gallery at Harborplace $ 105,118 $ 6,648 $ -- $ 104,463 $ -- $ 6,648 $ 104,463 $ 111,111
Mixed-Use project
Baltimore, MD
Mall St. Matthews 70,374 -- -- 105,750 -- -- 105,750 105,750
Retail Center
Louisville, KY
Paramus Park 72,000 13,475 -- 85,260 -- 13,475 85,260 98,735
Retail Center
Paramus, NJ
Bayside Marketplace 75,504 -- -- 98,305 -- -- 98,305 98,305
Retail Center
Miami, FL
Governor's Square 69,922 -- -- 84,768 -- -- 84,768 84,768
Retail Center
Tallahassee, FL
Moorestown Mall 42,000 13,549 65,596 441 -- 13,549 66,037 79,586
Retail Center
Burlington County, NJ
Oakwood Center 53,070 15,938 -- 60,861 -- 15,938 60,861 76,799
Retail Center
Gretna, LA
Plymouth Meeting 34,327 702 -- 75,881 -- 702 75,881 76,583
Retail Center
Montgomery County, PA
Faneuil Hall Marketplace 52,761 -- -- 75,170 -- -- 75,170 75,170
Retail Center
Boston, MA
Cherry Hill Mall 77,404 14,767 -- 59,158 -- 14,767 59,158 73,925
Retail Center
Cherry Hill, NJ
Hulen Mall 63,338 7,575 -- 63,859 -- 7,575 63,859 71,434
Retail Center
Ft. Worth, TX
<CAPTION>
Accumulated Date of Life on
depreciation completion which depreciation
and of Date in latest income
amortization construction acquired statement is compute
------------ ------------ -------- --------------------
<S> <C> <C> <C> <C>
The Gallery at Harborplace $ 24,792 09/87 N/A Note 9
Mixed-Use project
Baltimore, MD
Mall St. Matthews 20,579 03/62 N/A Note 9
Retail Center
Louisville, KY
Paramus Park 12,838 03/74 N/A Note 9
Retail Center
Paramus, NJ
Bayside Marketplace 19,555 04/87 N/A Note 9
Retail Center
Miami, FL
Governor's Square 10,048 08/79 N/A Note 9
Retail Center
Tallahassee, FL
Moorestown Mall 3,325 03/63 12/97 Note 9
Retail Center
Burlington County, NJ
Oakwood Center 11,056 10/82 N/A Note 9
Retail Center
Gretna, LA
Plymouth Meeting 11,518 02/66 N/A Note 9
Retail Center
Montgomery County, PA
Faneuil Hall Marketplace 11,433 08/76 N/A Note 9
Retail Center
Boston, MA
Cherry Hill Mall 19,573 10/61 N/A Note 9
Retail Center
Cherry Hill, NJ
Hulen Mall 11,556 08/77 N/A Note 9
Retail Center
Ft. Worth, TX
</TABLE>
IV-20
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1999
(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- Improvements Improve Carrying Improve
Description brances Land Note 3 ments costs Land ments Total
----------- ------- ---- ------ ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Riverwalk $ 11,056 $ -- $ -- $ 70,982 $ -- $ -- $ 70,982 $ 70,982
Retail Center
New Orleans, LA
Augusta Mall 59,791 4,698 -- 64,974 -- 4,698 64,974 69,672
Retail Center
Augusta, GA
Echelon Mall 58,296 6,160 -- 63,063 -- 6,160 63,063 69,223
Retail Center
Voorhees, NJ
Harborplace 35,905 -- -- 57,602 -- -- 57,602 57,602
Retail Center
Baltimore, MD
Perimeter Mall 67,049 -- -- 52,078 -- -- 52,078 52,078
Retail Center
Atlanta, GA
Blue Cross & Blue Shield 29,097 1,000 -- 44,756 -- 1,000 44,756 45,756
Building I
Office Building
Baltimore, MD
3800 Howard Hughes Parkway 38,596 3,622 38,438 2,614 -- 3,622 41,052 44,674
Office Building
Las Vegas, NV
Exton Square 63,843 1,408 -- 42,685 -- 1,408 42,685 44,093
Retail Center
Exton, PA
White Marsh 40,544 4,390 -- 33,583 -- 4,390 33,583 37,973
Retail Center
Baltimore, MD
The Jacksonville Landing 11,851 -- -- 34,775 -- -- 34,775 34,775
Retail Center
Jacksonville, FL
Village of Cross Keys 14,855 925 -- 29,286 -- 925 29,286 30,211
Mixed-Use project
Baltimore, MD
<CAPTION>
Accumulated Date of Life on
depreciation completion which depreciation
and of Date in latest income
amortization construction acquired statement is compute
------------ ------------ -------- --------------------
<S> <C> <C> <C> <C>
Riverwalk $ 12,935 08/86 N/A Note 9
Retail Center
New Orleans, LA
Augusta Mall 6,303 08/78 N/A Note 9
Retail Center
Augusta, GA
Echelon Mall 11,386 09/70 N/A Note 9
Retail Center
Voorhees, NJ
Harborplace 9,723 07/80 N/A Note 9
Retail Center
Baltimore, MD
Perimeter Mall 5,932 08/71 N/A Note 9
Retail Center
Atlanta, GA
Blue Cross & Blue Shield 11,302 07/89 N/A Note 9
Building I
Office Building
Baltimore, MD
3800 Howard Hughes Parkway 5,330 11/86 06/96 Note 9
Office Building
Las Vegas, NV
Exton Square 10,658 03/73 N/A Note 9
Retail Center
Exton, PA
White Marsh 9,428 08/81 N/A Note 9
Retail Center
Baltimore, MD
The Jacksonville Landing 13,079 06/87 N/A Note 9
Retail Center
Jacksonville, FL
Village of Cross Keys 8,417 09/65 N/A Note 9
Mixed-Use project
Baltimore, MD
</TABLE>
IV-21
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1999
(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>
Willowbrook $ 38,436 $ 853 $ -- $ 29,249 $ -- $ 853 $ 29,249 30,102
Retail Center
Wayne, NJ
3773 Howard Hughes Parkway 22,040 1,738 22,625 3,502 -- 1,738 26,127 27,865
Office Building
Las Vegas, NV
North Star -- 168 -- 26,767 -- 168 26,767 26,935
Retail Center
San Antonio, TX
Alexander & Alexander 17,712 1,000 -- 25,820 -- 1,000 25,820 26,820
Building II
Office Building
Baltimore, MD
3960 Howard Hughes Parkway 23,920 800 -- 23,843 -- 800 23,843 24,643
Office Building
Las Vegas, NV
The Gallery at Market East -- -- -- 24,500 -- -- 24,500 24,500
Retail Center
Philadelphia, PA
Senate Plaza 15,818 3,488 20,379 299 -- 3,488 20,678 24,166
Office Building
Camp Hill, PA
Hunt Valley 75 16,883 6,659 14,187 704 -- 6,659 14,891 21,550
Office Building
Hunt Valley, MD
Franklin Park 25,499 653 -- 19,999 -- 653 19,999 20,652
Retail Center
Toledo, OH
Mondawmin Mall 3,218 2,251 -- 18,154 -- 2,251 18,154 20,405
Retail Center
Baltimore, MD
<CAPTION>
Accumulated Date of Life on
depreciation completion which depreciation
and of Date in latest income
Description amortization construction acquired statement is compute
----------- ------------ ------------ -------- --------------------
<S> <C> <C> <C> <C>
Willowbrook $ 8,014 09/69 N/A Note 9
Retail Center
Wayne, NJ
3773 Howard Hughes Parkway 2,444 11/95 6/96 Note 9
Office Building
Las Vegas, NV
North Star 4,561 09/60 N/A Note 9
Retail Center
San Antonio, TX
Alexander & Alexander 7,222 09/87 N/A Note 9
Building II
Office Building
Baltimore, MD
3960 Howard Hughes Parkway 2,011 04/98 6/96 Note 9
Office Building
Las Vegas, NV
The Gallery at Market East 7,776 08/77 N/A Note 9
Retail Center
Philadelphia, PA
Senate Plaza 737 07/72 N/A Note 9
Office Building
Camp Hill, PA
Hunt Valley 75 696 07/84 12/98 Note 9
Office Building
Hunt Valley, MD
Franklin Park 4,755 07/71 N/A Note 9
Retail Center
Toledo, OH
Mondawmin Mall 7,478 01/78 N/A Note 9
Retail Center
Baltimore, MD
</TABLE>
IV-22
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1999
(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>
Blue Cross & Blue Shield $ 10,613 $ 1,000 $ -- $ 16,591 $ -- $ 1,000 $ 16,591 $ 17,591
Building II
Office Building
Baltimore, MD
3753 / 3763 Howard Hughes 10,714 3,844 12,018 724 -- 3,844 12,742 16,586
Parkway
Office Building
Las Vegas, NV
Highland Mall 4,731 13 -- 16,535 -- 13 16,535 16,548
Retail Center
Austin, TX
Alexander & Alexander 10,878 650 -- 15,825 -- 650 15,825 16,475
Building I
Office Building
Baltimore, MD
Centerpointe 6,851 4,012 11,302 166 -- 4,012 11,468 15,480
Office Building
Hunt Valley, MD
3930 Howard Hughes Parkway 6,150 3,108 11,279 593 -- 3,108 11,872 14,980
Office Building
Las Vegas, NV
Canyon Center 12,338 2,081 7,161 5,348 -- 2,081 12,509 14,590
Office Building
Las Vegas, NV
Shilling Plaza South 6,068 5,437 7,402 1,408 -- 5,437 8,810 14,247
Office Building
Hunt Valley, MD
Canyon Center C&D -- 1,723 -- 11,835 -- 1,723 11,835 13,558
Office Building/Industrial
Las Vegas, NV
3980 Howard Hughes 10,406 879 5,583 6,230 -- 879 11,813 12,692
Office Building
Las Vegas, NV
<CAPTION>
Accumulated Life on
depreciation Date of which depreciation
and completion Date in latest income
Description amortization construction acquired statement is compute
----------- ------------ ------------ -------- --------------------
<S> <C> <C> <C> <C>
Blue Cross & Blue Shield $ 3,818 08/90 N/A Note 9
Building II
Office Building
Baltimore, MD
3753 / 3763 Howard Hughes 1,441 10/91 6/96 Note 9
Parkway
Office Building
Las Vegas, NV
Highland Mall 4,801 08/71 N/A Note 9
Retail Center
Austin, TX
Alexander & Alexander 5,330 11/88 N/A Note 9
Building I
Office Building
Baltimore, MD
Centerpointe 410 07/87 12/98 Note 9
Office Building
Hunt Valley, MD
3930 Howard Hughes Parkway 2,373 12/94 06/96 Note 9
Office Building
Las Vegas, NV
Canyon Center 1,099 03/98 06/96 Note 9
Office Building
Las Vegas, NV
Shilling Plaza South 438 07/87 12/98 Note 9
Office Building
Hunt Valley, MD
Canyon Center C&D 794 06/98 06/96 Note 9
Office Building/Industrial
Las Vegas, NV
3980 Howard Hughes 942 04/97 06/96 Note 9
Office Building
Las Vegas, NV
</TABLE>
IV-23
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1999
(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- Improvements Improve Carrying Improve
Description brances Land (note 3) ments costs Land ments Total
----------- ------- ---- ------- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Crossing Business
Center Phase III
Office Building
Las Vegas, NV $ 8,325 $2,842 $1,416 $8,303 $ -- $2,842 $9,719 $12,561
Shilling Plaza North
Office Building
Hunt Valley, MD 7,805 4,024 8,059 15 -- 4,024 8,074 12,098
Riverspark 2/Building 2
Office Building/Industrial
Columbia, MD 1,471 3,358 7,955 -- -- 3,358 7,955 11,313
Trails Village Center
Community Retail Center
Las Vegas, NV 10,030 2,921 -- 7,221 -- 2,921 7,221 10,142
Crossing Business
Center Phase I
Office Building
Las Vegas, NV 7,512 1,326 7,951 539 -- 1,326 8,490 9,816
3770 Howard Hughes Parkway
Office Building
Las Vegas, NV 5,397 691 8,010 916 -- 691 8,926 9,617
Inglewood Office II
Office Building
Landover, MD 6,179 2,261 7,304 -- -- 2,261 7,304 9,565
201 International Circle
Office Building
Hunt Valley, MD 4,004 5,168 3,763 295 -- 5,168 4,058 9,226
Metro Plaza
Retail Center
Baltimore, MD 136 202 -- 8,751 -- 202 8,751 8,953
Equinox @ CBC
Office Building
Las Vegas, NV 6,911 1,257 398 6,600 -- 1,257 6,998 8,255
<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
Center Phase III
Office Building
Las Vegas, NV $ 1,210 09/96 06/96 Note 9
Shilling Plaza North
Office Building
Hunt Valley, MD 291 07/80 12/98 Note 9
Riverspark 2/Building 2
Office Building/Industrial
Columbia, MD 287 07/87 12/98 Note 9
Trails Village Center
Community Retail Center
Las Vegas, NV 267 05/98 06/96 Note 9
Crossing Business
Center Phase I
Office Building
Las Vegas, NV 905 12/94 06/96 Note 9
3770 Howard Hughes Parkway
Office Building
Las Vegas, NV 1,760 10/90 06/96 Note 9
Inglewood Office II
Office Building
Landover, MD 264 07/86 12/98 Note 9
201 International Circle
Office Building
Hunt Valley, MD 193 07/82 12/98 Note 9
Metro Plaza
Retail Center
Baltimore, MD 3,976 N/A 12/82 Note 9
Equinox @ CBC
Office Building
Las Vegas, NV 466 12/97 06/96 Note 9
</TABLE>
IV-24
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1999
(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- Improvements Improve Carrying Improve
Description brances Land (note 3) ments costs Land ments Total
----------- ------- ---- ------------ ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inglewood Office Center I $ 5,028 $ 1,940 $ 5,867 $ 160 $ -- $ 1,940 $ 6,027 $ 7,967
Office Building
Landover, MD
Montgomery Ward 6,007 607 7,213 39 -- 607 7,252 7,859
Office Building/Industrial
Las Vegas, NV
Tampa Bay Center 24,714 920 -- 3,785 -- 920 3,785 4,705
Retail Center
Tampa, FL
Crossing Business 5,461 357 7,097 3 -- 357 7,100 7,457
Center Phase II
Office Building
Las Vegas, NV
840 Grier 5,933 963 1,430 4,959 -- 963 6,389 7,352
Office Building/Industrial
Las Vegas, NV
Ambassador Center 4,307 1,385 5,282 9 -- 1,385 5,291 6,676
Office Building
Woodlawn, MD
USA Group 7,102 1,196 4,880 551 -- 1,196 5,431 6,627
Office Building/Industrial
Las Vegas, NV
Inglewood Tech V 4,226 2,889 3,654 26 -- 2,889 3,680 6,569
Industrial Building
Landover, MD
Raytheon -- 422 6,133 -- -- 422 6,133 6,555
Office Building/Industrial
Las Vegas, NV
Canyon Business Center -- 1,188 -- 5,287 -- 1,188 5,287 6,475
Phase V
Office Building/Industrial
Las Vegas, NV
First National Bank Plaza 5,065 -- -- 6,330 -- -- 6,330 6,330
Office Building
Mt. Prospect, IL
<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>
Inglewood Office Center I $ 220 07/82 12/98 Note 9
Office Building
Landover, MD
Montgomery Ward 708 10/95 06/96 Note 9
Office Building/Industrial
Las Vegas, NV
Tampa Bay Center -- 08/79 N/A Note 9
Retail Center
Tampa, FL
Crossing Business 642 12/95 06/96 Note 9
Center Phase II
Office Building
Las Vegas, NV
840 Grier 533 03/97 06/96 Note 9
Office Building/Industrial
Las Vegas, NV
Ambassador Center 191 07/85 12/98 Note 9
Office Building
Woodlawn, MD
USA Group 238 11/98 06/96 Note 9
Office Building/Industrial
Las Vegas, NV
Inglewood Tech V 137 07/86 12/98 Note 9
Industrial Building
Landover, MD
Raytheon 569 11/92 06/96 Note 9
Office Building/Industrial
Las Vegas, NV
Canyon Business Center 465 03/98 06/96 Note 9
Phase V
Office Building/Industrial
Las Vegas, NV
First National Bank Plaza 2,074 07/81 N/A Note 9
Office Building
Mt. Prospect, IL
</TABLE>
IV-25
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1999
(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- Improvements Improve Carrying Improve
Description brances Land (note 3) ments costs Land ments Total
----------- ------- ------- -------------- ------------- ------------ ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Plaza East $4,472 $ 911 $5,299 $ 91 $ -- $ 911 $5,390 $6,301
Office Building/Industrial
Las Vegas, NV
420 Pilot 3,992 1,066 (140) 5,257 -- 1,066 5,117 6,183
Office Building/Industrial
Las Vegas, NV
Pulaski 11 3,849 1,099 4,708 -- -- 1,099 4,708 5,807
Industrial Building
Baltimore, MD
Rutherford 5 2,229 614 5,123 -- -- 614 5,123 5,737
Industrial Building
Woodlawn, MD
Rutherford 60 3,774 1,250 4,445 16 -- 1,250 4,461 5,711
Industrial Building
Woodlawn, MD
Plaza West 4,299 195 5,360 125 -- 195 5,485 5,680
Office Building/Industrial
Las Vegas, NV
Inglewood Tech IV 1,582 2,222 3,365 57 -- 2,222 3,422 5,644
Industrial Building
Landover, MD
980 Kelley Johnson 3,150 815 4,772 38 -- 815 4,810 5,625
Office Building/Industrial
Las Vegas, NV
975 Kelley Johnson 2,844 378 5,211 -- -- 378 5,211 5,589
Office Building/Industrial
Las Vegas, NV
Riverspark Building A 3,562 1,461 4,053 -- -- 1,461 4,053 5,514
Industrial Building
Columbia, MD
Hunt Valley 49 3,531 1,575 3,892 -- -- 1,575 3,892 5,467
Industrial Building
Hunt Valley, MD
<CAPTION>
Life on
which depre
Accumulated Date of ciation in
depreciation completion latest
and of Date income state-
Description amortization construction acquired ment is computed
----------- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C>
Plaza East $ 544 12/93 06/96 Note 9
Office Building/Industrial
Las Vegas, NV
420 Pilot 585 09/96 06/96 Note 9
Office Building/Industrial
Las Vegas, NV
Pulaski 11 170 07/69 12/98 Note 9
Industrial Building
Baltimore, MD
Rutherford 5 185 07/72 12/98 Note 9
Industrial Building
Woodlawn, MD
Rutherford 60 161 07/72 12/98 Note 9
Industrial Building
Woodlawn, MD
Plaza West 560 11/95 06/96 Note 9
Office Building/Industrial
Las Vegas, NV
Inglewood Tech IV 124 07/86 12/98 Note 9
Industrial Building
Landover, MD
980 Kelley Johnson 492 05/92 06/96 Note 9
Office Building/Industrial
Las Vegas, NV
975 Kelley Johnson 552 11/90 06/96 Note 9
Office Building/Industrial
Las Vegas, NV
Riverspark Building A 146 09/85 12/98 Note 9
Industrial Building
Columbia, MD
Hunt Valley 49 141 02/82 12/98 Note 9
Industrial Building
Hunt Valley, MD
</TABLE>
IV-26
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1999
(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- Improvements Improve Carrying Improve
Description brances Land (note 3) ments costs Land ments Total
----------- ------- ------- --------------- ------------ ------------ ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
750 Pilot $ -- $ 842 $ -- $4,461 $ -- $ 842 $4,461 $5,303
Office Building/Industrial
Las Vegas, NV
3960/3980 Parking Garage -- 576 -- 4,678 -- 576 4,678 5,254
Parking Garage
Las Vegas, NV
Hunt Valley 36 3,354 1,239 3,954 -- -- 1,239 3,954 5,193
Industrial Building
Hunt Valley, MD
The Grand Avenue -- -- -- 3,506 -- -- 3,506 3,506
Retail Center
Milwaukee, WI
950 Pilot 2,075 769 -- 4,186 -- 769 4,186 4,955
Office Building/Industrial
Las Vegas, NV
731 Pilot 3,908 862 -- 4,030 -- 862 4,030 4,892
Office Building/Industrial
Las Vegas, NV
711 Pilot 3,106 469 -- 4,376 -- 469 4,376 4,845
Office Building/Industrial
Las Vegas, NV
Owen Brown 2 -- 1,247 3,452 85 -- 1,247 3,537 4,784
Office Building/Industrial
Columbia, MD
Rutherford 46 3,165 1,079 3,697 -- -- 1,079 3,697 4,776
Industrial Building
Woodlawn, MD
Hunt Valley 72 -- 1,301 3,473 -- -- 1,301 3,473 4,774
Industrial Building
Hunt Valley, MD
Hunt Valley 70 -- 2,367 2,286 102 -- 2,367 2,388 4,755
Industrial Building
Hunt Valley, MD
<CAPTION>
Life on
which depre-
Accumulated Date of ciation in
depreciation completion latest
and of Date income state-
Description amortization construction acquired ment is computed
----------- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C>
750 Pilot $ 567 2/98 N/A Note 9
Office Building/Industrial
Las Vegas, NV
3960/3980 Parking Garage 198 05/97 06/96 Note 9
Parking Garage
Las Vegas, NV
Hunt Valley 36 143 02/76 12/98 Note 9
Industrial Building
Hunt Valley, MD
The Grand Avenue -- 08/82 N/A Note 9
Retail Center
Milwaukee, WI
950 Pilot 512 08/90 06/96 Note 9
Office Building/Industrial
Las Vegas, NV
731 Pilot 357 10/95 06/96 Note 9
Office Building/Industrial
Las Vegas, NV
711 Pilot 377 11/95 06/96 Note 9
Office Building/Industrial
Las Vegas, NV
Owen Brown 2 Office 126 6/82 12/98 Note 9
Building/Industrial
Columbia, MD
Rutherford 46 133 02/88 12/98 Note 9
Industrial Building
Woodlawn, MD
Hunt Valley 72 125 6/83 12/98 Note 9
Industrial Building
Hunt Valley, MD
Hunt Valley 70 88 6/82 12/98 Note 9
Industrial Building
Hunt Valley, MD
</TABLE>
IV-27
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1999
(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- Improvements Improve Carrying Improve
Description brances Land (note 3) ments costs Land ments Total
----------- ------- ---- ------------ ------- -------- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1181 Grier Drive $ 1,852 $ 565 $ 3,073 $ 1,005 $ -- $ 565 $ 4,078 $ 4,643
Office Building/Industrial
Las Vegas, NV
Riverspark 2/Building 3 1,104 1,334 3,159 132 -- 1,334 3,291 4,625
Office Building/Industrial
Columbia, MD
Hunt Valley 46 -- 2,193 2,416 -- -- 2,193 2,416 4,609
Industrial Building
Hunt Valley, MD
Rutherford 29 -- 673 3,866 7 -- 673 3,873 4,546
Industrial Building
Woodlawn, MD
Sheraton Parking Garage -- 1,789 2,722 -- -- 1,789 2,722 4,511
Parking Garage
Baltimore, MD
1151 Grier Drive 2,626 707 3,568 153 -- 707 3,721 4,428
Office Building/Industrial
Las Vegas, NV
21 Governors Court -- 988 3,158 156 -- 988 3,314 4,302
Office Building/Industrial
Baltimore, MD
Other properties and related
investments less than
5% of total 104,402 45,199 76,778 66,433 -- 45,199 143,211 188,410
------------------------------------- ----------------------- -----------------------------------
Total Operating
Properties 2,615,998 380,465 704,134 2,727,357 -- 380,465 3,431,491 3,811,956
------------------------------------- ----------------------- -----------------------------------
<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>
1181 Grier Drive $ 507 10/89 6/96 Note 9
Office Building/Industrial
Las Vegas, NV
Riverspark 2/Building 3 142 6/87 12/98 Note 9
Office Building/Industrial
Columbia, MD
Hunt Valley 46 87 6/67 12/98 Note 9
Industrial Building
Hunt Valley, MD
Rutherford 29 140 9/85 12/98 Note 9
Industrial Building
Woodlawn, MD
Sheraton Parking Garage 98 7/85 12/98 Note 9
Parking Garage
Baltimore, MD
1151 Grier Drive 480 5/88 6/96 Note 9
Office Building/Industrial
Las Vegas, NV
21 Governors Court 130 6/81 12/98 Note 9
Office Building/Industrial
Baltimore, MD
Other properties and related
investments less than
5% of total 23,563
-------
Total Operating Properties 574,837
-------
</TABLE>
IV-28
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Costs capitalized
Initial cost to subsequent Gross amount at which carried
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>
Properties in Development:
Exton Square Expansion $ -- $ 3,530 $ -- $94,821 $ -- $ 3,530 $94,821 $98,351
Expansion of retail center
Exton, PA
Pioneer Place Expansion -- 2,813 -- 43,565 -- 2,813 43,565 46,378
Expansion of mixed-use project
Portland, OR
The Fashion Show -- 27,166 -- 13,484 -- 27,166 13,484 40,650
Expansion
Expansion of retail center
Las Vegas, NV
Moorestown Mall Expansion -- -- -- 32,238 -- -- 32,238 32,238
Expansion of retail center
Morrestown, NJ
The Village of Merrick -- 12,177 -- 16,561 -- 12,177 16,561 28,738
Park
New Retail Center
Coral Gables, FL
Arizona Center 12,800 -- -- 12,992 -- -- 12,992 12,992
Developed/developable land
under master lease
Phoenix, AZ
Perimeter Mall Expansion -- -- -- 5,290 -- -- 5,290 5,290
Expansion of retail center
Atlanta, GA
Paramus Park Expansion -- -- -- 5,151 -- -- 5,151 5,151
Expansion of retail center
Paramus, NJ
Oviedo/Sears Expansion -- -- -- 3,016 -- -- 3,016 3,016
Expansion of retail center
Orlando, FL
<CAPTION>
Life on
Accumulated which depre-
depreciation Date of ciation in latest
and completion of Date income state-
Description amortization construction acquired ment is computed
- ----------- ------------ ------------ -------- ----------------
<S> <C> <C> <C> <C>
Properties in Development:
Exton Square Expansion $ -- N/A N/A N/A
Expansion of retail center
Exton, PA
Pioneer Place Expansion -- N/A N/A N/A
Expansion of mixed-use project
Portland, OR
The Fashion Show -- N/A N/A N/A
Expansion
Expansion of retail center
Las Vegas, NV
Moorestown Mall Expansion -- N/A N/A N/A
Expansion of retail center
Morrestown, NJ
The Village of Merrick -- N/A N/A N/A
Park
New Retail Center
Coral Gables, FL
Arizona Center -- N/A N/A N/A
Developed/developable land
under master lease
Phoenix, AZ
Perimeter Mall Expansion -- N/A N/A N/A
Expansion of retail center
Atlanta, GA
Paramus Park Expansion -- N/A N/A N/A
Expansion of retail center
Paramus, NJ
Oviedo/Sears Expansion -- N/A N/A N/A
Expansion of retail center
Orlando, FL
</TABLE>
IV-29
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1999
(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
----------- ----------- ----------- ---------- ----------- ---------- --------- ----------- ---------
Owings Mills $ -- $ 2,765 $ -- $ -- $ -- $ 2,765 $ -- $ 2,765
Developable land
Baltimore County, MD
Pre-construction costs - -- -- -- 8,589 -- -- 8,589 8,589
various projects
Pre-construction reserve -- -- -- (5,246) -- -- (5,246) (5,246)
Other projects less than
5% of total -- 4,197 -- 4,949 -- 4,197 4,949 9,146
------------------------------------ -------------------------- ----------------------------------
Total Properties
in Development 12,800 52,648 -- 235,410 -- 52,648 235,410 288,058
------------------------------------ -------------------------- ----------------------------------
Properties held for sale:
Westdale Mall -- -- 6,276 -- -- -- 6,276 6,276
Investment in unconsolidated
real estate venture
Cedar Rapids, IO
Midtown Square -- -- -- 4,708 -- -- 4,708 4,708
Retail Center
Charlotte, NC
Other properties held for
sale, less than 5% of total -- -- -- -- -- -- -- --
------------------------------------ -------------------------- ----------------------------------
Total Properties Held
For Sale -- -- 6,276 4,708 -- -- 10,984 10,984
------------------------------------ -------------------------- ----------------------------------
Total Property $2,628,798 $433,113 $710,410 $2,967,475 $ -- $433,113 $3,677,885 $4,110,998
==================================== ========================== ==================================
<CAPTION>
Life on
Accumulated which depre-
depreciation Date of ciation in
and completion of Date income state-
Description amortization construction acquired ment is computed
----------- ------------ ------------- -------- ----------------
<S> <C> <C> <C> <C>
Owings Mills N/A N/A N/A N/A
Developable land
Baltimore County, MD
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 N/A N/A N/A N/A
5% of total
Total Properties
in Development
Properties held for sale:
Westdale Mall -- 07/79 10/98 N/A
Investment in unconsolidated
real estate venture
Cedar Rapids, IO
Midtown Square -- 10/59 N/A N/A
Retail Center
Charlotte, NC
Other properties held for sale,
less than 5% of total --
------------
Total Properties Held For Sale --
------------
Total Property $ 574,837
============
</TABLE>
IV-30
<PAGE>
Schedule III continued
----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1999
Notes:
(1) Reference is made to notes 1, 3 and 6 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 $101,028,000 at
December 31, 1999.
(4) The changes in total cost of properties for the years ended December 31,
1999, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 5,051,981 $3,332,363 $3,691,600
Additions, at cost 228,759 336,007 317,705
Cost of properties acquired --- 1,593,062 84,743
Additions to land held for
development and sale --- --- 134,447
Cost of land sales (7,211) (21,885) (131,310)
Retirements, sales and other
dispositions (1,117,396) (185,866) (114,435)
Property of subsidiaries in which a
majority voting interest was sold
to an affiliate --- --- (621,338)
Additions to preconstruction reserve --- (1,700) (2,800)
Provision for loss on operating properties (45,135) --- (26,249)
------------- ---------- ----------
Balance at end of year $ 4,110,998 $5,051,981 $3,332,363
============= ========== ==========
</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 2 to the consolidated financial statements for
explanation of transactions with affiliates.
IV-31
<PAGE>
Schedule III continued
----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1999
Notes:
(7) The changes in accumulated depreciation and amortization for the years
ended December 31, 1999, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 578,311 $ 515,229 $ 552,201
Depreciation and amortization
charged to operations 100,329 84,068 86,009
Retirements, sales and other, net (103,803) (20,986) (50,814)
Accumulated depreciation on properties
of subsidiaries in which a majority
voting interest was sold to an
affiliate --- --- (72,167)
---------- --------- ---------
Balance at end of year $ 574,837 $ 578,311 $ 515,229
========== ========= =========
</TABLE>
(8) The aggregate cost of properties for Federal income tax purposes is
approximately $3,637,947,000 at December 31, 1999.
(9) Reference is made to note 1(c) to the consolidated financial statements for
information related to depreciation.
(10) Reference is made to note 10 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 1999.
(12) Total costs are reduced by impairment losses on certain buildings and
improvements. Reference is made to note 10 to the consolidated financial
statements for information related to the losses.
IV-32
<PAGE>
Schedule IV
-----------
THE ROUSE COMPANY AND SUBSIDIARIES
Mortgage Loans On Real Estate
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Principal
amount of loans
subject to
Final delinquent
maturity date Periodic Face amount Carrying principal or
Description (Note 1) Interest rate (Note 1) payment terms Prior liens of mortgages amount of 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 $178,724 $ 178,724 None
Howard Hughes
Properties, Inc. Note 2 Dec. 31, 2012 Note 1 N/A 141,183 141,183 None
HRD Properties, Inc.
and Subsidiaries Note 3 Dec. 31, 2012 Note 1 N/A 14,000 14,000 None
-------- --------
$333,907 $ 333,907
======== ========
</TABLE>
IV-33
<PAGE>
Schedule IV, continued
----------------------
THE ROUSE COMPANY AND SUBSIDIARIES
MORTGAGE LOANS ON REAL ESTATE
December 31, 1999
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.
<TABLE>
<CAPTION>
1999 1998
------------- --------------
<S> <C> <C>
(4) Balance at beginning of year $ 362,167,000 $ 380,232,000
Collections of principal (28,260,000) (18,065,000)
------------- -------------
Balance at end of year $ 333,907,000 $ 362,167,000
============= =============
</TABLE>
(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, 1999 and 1998. See note 2 to the consolidated financial
statements regarding transactions that gave rise to the deed of trust
notes.
IV-34
<PAGE>
REAL ESTATE VENTURES OWNED BY
THE ROUSE COMPANY INCENTIVE COMPENSATION STATUTORY TRUST AND THE ROUSE COMPANY
Valuation and Qualifying Accounts
Years ended December 31, 1999 and 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 (1) year
------------ ---------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful receivables $ 834 $ 554 $ --- $ 605 $ 783
========== ========= ========== ========= ========
Deferred tax asset valuation allowance $ 952 $ 3,802 $ --- $ --- $ 4,754
========== ========= ========== ========= ========
Preconstruction reserve $ --- $ 2,854 $ --- $ --- $ 2,854
========== ========= ========== ========= ========
Year ended December 31, 1998:
Allowance for doubtful receivables $ 830 $ 359 $ --- $ 355 $ 834
========== ========= ========== ========= ========
Deferred tax asset valuation allowance $ --- $ 952 $ --- $ --- $ 952
========== ========= ========== ========= ========
</TABLE>
Note:
(1) Balances written off as uncollectible.
IV-35
<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, 1999
(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
Encum- Improve Improve Carrying Improve
Description brances Land ments ments costs Land ments Total
----------- ------- ---- ----- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Properties:
The Mall in Columbia $ 189,142 $ 6,788 $ -- $ 171,891 $ -- $ 6,788 $ 171,891 $ 178,679
Retail Center
Columbia, MD
White Marsh 59,587 6,392 -- 43,051 -- 6,392 43,051 49,443
Retail Center
Baltimore, MD
Seventy Columbia Corp Ctr 28,677 856 -- 24,266 -- 856 24,266 25,122
Office Building
Columbia, MD
Forty Columbia Corp Ctr 15,590 636 -- 15,379 -- 636 15,379 16,015
Office Building
Columbia, MD
Fifty Columbia Corp Ctr 15,611 463 -- 15,253 -- 463 15,253 15,716
Office Building
Columbia, MD
Sixty Columbia Corp Ctr 14,863 1,050 -- 14,640 -- 1,050 14,640 15,690
Office Building
Columbia, MD
Thirty Columbia Corp Ctr 16,417 1,160 -- 10,455 -- 1,160 10,455 11,615
Office Building
Columbia, MD
Hickory Ridge Village Ctr 13,390 907 -- 9,969 -- 907 9,969 10,876
Village Center
Columbia, MD
<CAPTION>
Accumulated Life on
depreciation Date of which depreciation
and completion Date in latest income
amortization construction acquired statement is compute
------------ ------------ -------- --------------------
<S> <C> <C> <C> <C>
Operating Properties:
The Mall in Columbia $ 15,991 8/71 N/A Note 7
Retail Center
Columbia, MD
White Marsh 5,887 8/81 N/A Note 7
Retail Center
Baltimore, MD
Seventy Columbia Corp Ctr 6,039 6/92 N/A Note 7
Office Building
Columbia, MD
Forty Columbia Corp Ctr 5,411 6/87 N/A Note 7
Office Building
Columbia, MD
Fifty Columbia Corp Ctr 4,703 11/89 N/A Note 7
Office Building
Columbia, MD
Sixty Columbia Corp Ctr 374 2/99 N/A Note 7
Office Building
Columbia, MD
Thirty Columbia Corp Ctr 4,404 4/86 N/A Note 7
Office Building
Columbia, MD
Hickory Ridge Village Ctr 1,865 6/92 N/A Note 7
Village Center
Columbia, MD
</TABLE>
IV-36
<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, 1999
(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
Encum- Improve Improve Carrying Improve
Description brances Land ments ments costs Land ments Total
----------- ------- ---- ----- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dorsey Search Village Ctr $ 14,544 $ 911 $ -- $ 9,844 $ -- $ 911 $ 9,844 $ 10,755
Village Center
Columbia, MD
Twenty Columbia Corp Ctr 9,565 927 -- 9,628 -- 927 9,628 10,555
Office Building
Columbia, MD
American City Building 6,070 -- -- 10,251 -- -- 10,251 10,251
Office Building
Columbia, MD
Harper's Choice 9,550 546 -- 9,647 -- 546 9,647 10,193
Village Center
Columbia, MD
10000 W. Charleston Arbors -- 537 -- 9,312 -- 537 9,312 9,849
Office Building
Las Vegas, NV
Ten Columbia Corp Ctr 5,432 733 -- 7,668 -- 733 7,668 8,401
Office Building
Columbia, MD
Wilde Lake 3,264 1,486 -- 6,741 -- 1,486 6,741 8,227
Village Center
Columbia, MD
Kings Contrivance 11,271 1,072 -- 7,084 -- 1,072 7,084 8,156
Village Center
Columbia, MD
<CAPTION>
Accumulated Life on
depreciation Date of which depreciation
and completion Date in latest income
amortization construction acquired statement is compute
------------ ------------ -------- --------------------
<S> <C> <C> <C> <C>
Dorsey Search Village Ctr $2,541 9/89 N/A Note 7
Village Center
Columbia, MD
Twenty Columbia Corp Ctr 4,233 6/81 N/A Note 7
Office Building
Columbia, MD
American City Building 8,934 3/69 N/A Note 7
Office Building
Columbia, MD
Harper's Choice 2,952 6/71 N/A Note 7
Village Center
Columbia, MD
10000 W. Charleston Arbors 185 5/99 N/A Note 7
Office Building
Las Vegas, NV
Ten Columbia Corp Ctr 3,100 9/81 N/A Note 7
Office Building
Columbia, MD
Wilde Lake 3,679 7/67 N/A Note 7
Village Center
Columbia, MD
Kings Contrivance 2,470 6/86 N/A Note 7
Village Center
Columbia, MD
</TABLE>
IV-37
<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, 1999
(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
Encum- Improve Improve Carrying Improve
Description brances Land ments ments costs Land ments Total
----------- --------- --------- --------- --------- -------- ------- --------- --------
Columbia Crossing $ 8,255 $ 1,527 $ -- $ 6,376 $ -- $ 1,527 $6,376 $7,903
Village Center
Columbia, MD
Long Reach Village Ctr 5,646 1,009 -- 5,309 -- 1,009 5,309 6,318
Village Center
Columbia, MD
Oakland Mills 2,353 1,746 -- 3,860 -- 1,746 3,860 5,606
Retail Center
Columbia, MD
250 Pilot Road -- 335 -- 5,139 -- 335 5,139 5,474
Office Building
Las Vegas, NV
Dobbin Road 4,739 426 -- 4,912 -- 426 4,912 5,338
Village Center
Columbia, MD
585 Pilot Road -- 307 -- 4,200 -- 307 4,200 4,507
Office Building
Las Vegas, NV
625 Pilot Road -- 294 -- 3,321 -- 294 3,321 3,615
Office Building
Las Vegas, NV
Teachers Building 3,074 -- -- 3,155 -- -- 3,155 3,155
Office Building
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>
Columbia Crossing $ 466 11/98 N/A Note 7
Village Center
Columbia, MD
Long Reach Village Ctr 1,424 6/74 N/A Note 7
Village Center
Columbia, MD
Oakland Mills 390 6/69 N/A Note 7
Retail Center
Columbia, MD
250 Pilot Road 86 5/99 N/A Note 7
Office Building
Las Vegas, NV
Dobbin Road 1,784 6/83 N/A Note 7
Village Center
Columbia, MD
585 Pilot Road 60 6/99 N/A Note 7
Office Building
Las Vegas, NV
625 Pilot Road 93 6/99 N/A Note 7
Office Building
Las Vegas, NV
Teachers Building 865 6/69 N/A Note 7
Office Building
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, 1999
(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
Encum- Improve Improve Carrying Improve
Description brances Land ments ments costs Land ments Total
- --------------- -------- -------- ----------- --------- ---------- --------- --------- --------
Ridgley Building $ 2,255 $ 670 $ -- $ 3,132 $ -- $ 670 $ 3,132 $ 3,802
Office Building
Columbia, MD
Sterrett Building 2,297 308 -- 2,737 -- 308 2,737 3,045
Office Building
Columbia, MD
Lynx Lane 2,451 150 -- 2,842 -- 150 2,842 2,992
Retail Center
Columbia, MD
Other properties and related 14,310 1,714 -- 12,816 -- 1,714 12,816 14,530
--------------------------------- ----------------------- --------------------------------
investments less than
5% of total
Total Operating
Properties 458,353 32,950 -- 432,878 -- 32,950 432,878 465,828
--------------------------------- ----------------------- --------------------------------
Properties in Development:
3993 Howard Hughes Parkway -- 755 20,972 755 20,972 21,727
New Office Building
Las Vegas, NV
Columbia Mall -- -- -- 1,811 -- -- 1,811 1,811
Expansion of retail center
Columbia, MD
<CAPTION>
Accumulated Life on
depreciation Date of which depreciation
and completion of Date in latest income
amortization construction acquired statement is computed
------------ ------------- -------- ---------------------
<S> <C> <C> <C> <C>
Ridgley Building $ 1,608 6/72 N/A Note 7
Office Building
Columbia, MD
Sterrett Building 1,330 6/72 N/A Note 7
Office Building
Columbia, MD
Lynx Lane 1,332 6/73 N/A Note 7
Retail Center
Columbia, MD
Other properties and related 4,833
------------
investments less than
5% of total
Total Operating
Properties 87,039
------------
Properties in Development:
3993 Howard Hughes Parkway N/A N/A N/A Note 7
New Office Building
Las Vegas, NV
Columbia Mall N/A N/A N/A Note 7
Expansion of 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, 1999
(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
Encum- Improve Improve Carrying Improve
Description brances Land ments ments costs Land ments Total
----------- -------- -------- ---------- --------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona Hotel $ -- $ -- $ -- $ 1,422 $ -- $ -- $ 1,422 $ 1,422
New Hotel Ground Lease
Phoenix, AZ
Airport Center 50 -- -- -- 467 -- -- 467 467
New Office Building
Las Vegas, NV
Village 12 Arbors East 1,409 -- -- 262 -- -- 262 262
New Office Building
Las Vegas, NV
Other projects less than 5% of total -- -- -- 1,235 -- -- 1,235 1,235
-------------------------------- --------------------- ----------------------------
Total Properties
held in Development 1,409 755 -- 26,169 -- 755 26,169 26,924
-------------------------------- --------------------- ----------------------------
<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>
Arizona Hotel N/A N/A N/A N/A
New Hotel Ground Lease
Phoenix, AZ
Airport Center 50 N/A N/A N/A N/A
New Office Building
Las Vegas, NV
Village 12 Arbors East N/A N/A N/A N/A
New Office Building
Las Vegas, NV
Other projects less than 5% of total N/A N/A N/A N/A
Total Properties
held in Development
</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, 1999
(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
Encum- Improve Improve Carrying Improve
Description brances Land ments ments costs Land ments Total
----------- -------- ------- ---------- --------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Land held for development and
sale:
Columbia $ 45,912 $ 53,000 $ -- $ 45,230 $ -- $ 98,230 $ -- $ 98,230
Land in various stages of
development
Columbia, MD
Summerlin 148,318 89,076 -- 6,205 -- 95,281 -- 95,281
Land in various stages of
development
Las Vegas, NV
Nevada Investment Land 28,503 20,631 -- 13,246 -- 33,877 -- 33,877
Canyon Springs 14,000 12,872 -- 11,910 -- 24,782 -- 24,782
Land held for development
Riverside County, CA
Bridgewater Commons -- 5,469 -- 59 -- 5,528 -- 5,528
Land held for sale
Bridgewater, NJ
Other, less than 5% of
total -- 55 -- 20 -- 75 -- 75
------------------------------- ----------------------- --------------------------------
Total land held for
development and sale 236,733 181,103 -- 76,670 -- 257,773 -- 257,773
------------------------------- ----------------------- --------------------------------
Total Property $696,495 $214,808 $ -- $535,717 $ -- $291,478 $459,047 $750,525
=============================== ======================= ================================
<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 9/85 N/A
Land in various stages of
development
Columbia, MD
Summerlin N/A N/A 6/96 N/A
Land in various stages of
development
Las Vegas, NV
Nevada Investment Land N/A N/A 6/96 N/A
Canyon Springs N/A N/A 7/89 N/A
Land held for development
Riverside County, CA
Bridgewater Commons N/A N/A 7/89 N/A
Land held for sale
Bridgewater, NJ
Other, less than 5% of
total N/A
-------------
Total land held for
development and sale --
-------------
Total Property $ 87,039
=============
</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, 1999
Notes:
(1) Reference is made to notes 1, 2 and 6 to the combined 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 $33,443,000 at
December 31, 1999.
(4) The changes in total cost of properties for the years ended December 31,
1999 and 1998 is as follows (in thousands):
1999 1998
--------- ----------
Balance at beginning of year $ 671,457 $ 619,295
Additions, at cost 110,360 68,672
Cost of properties acquired --- 10,054
Additions to land held for
development and sale 73,240 124,674
Cost of land sales (92,515) (123,050)
Retirements, sales and other
dispositions (9,163) (28,188)
Additions to preconstruction reserve (2,854) ---
--------- ----------
Balance at end of year $ 750,525 $ 671,457
========= ==========
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, 1999
Notes:
(5) The changes in accumulated depreciation and amortization for the years
ended December 31, 1999 and 1998 is as follows (in thousands):
1999 1998
---- ----
Balance at beginning of year $ 82,390 $72,000
Depreciation and amortization
charged to operations 13,004 10,585
Retirements, sales and other, net (8,355) (195)
-------- -------
Balance at end of year $ 87,039 $82,390
======== =======
(6) The aggregate cost of properties for Federal income tax purposes is
approximately $956,039,000 at December 31, 1999.
(7) Reference is made to note 1(c) to the combined consolidated financial
statements for information related to depreciation.
IV-43
<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:________________________________________
Anthony W. Deering March 30, 2000
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:
___________________________________________
Anthony W. Deering March 30, 2000
Chairman of the Board, President
and Chief Executive Officer
Principal Financial Officer:
___________________________________________
Jeffrey H. Donahue March 30, 2000
Executive Vice President and
Chief Financial Officer
Principal Accounting Officer:
___________________________________________
Melanie M. Lundquist March 30, 2000
Vice President and Controller
IV-44
<PAGE>
Board of Directors:
David H. Benson, Jeremiah E. Casey, Platt W. Davis, Anthony W. Deering,
Rohit M. Desai, Mathias J. DeVito, Juanita T. James, Thomas J. McHugh, Hanne M.
Merriman, Roger W. Schipke, Alexander B. Trowbridge and Gerard J. M. Vlak.
By: _____________________________________
Anthony W. Deering March 30, 2000
For himself and as
Attorney-in-fact for
the above-named persons
IV-45
<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, 1998, are incorporated by reference from the Exhibit to the Company's
Current Report on Form 8-K, dated February 26, 1998.
The Bylaws of The Rouse Company, as amended November 19, 1996 and January 30,
1998, are incorporated by reference from the Exhibits to the Company's Form S-3
Registration Statement (No. 333-20781).
The Amendments to the Bylaws of The Rouse Company, effective February 24, 2000,
and the Articles Supplementary to the Charter of The Rouse Company, dated
February 24, 2000, are incorporated by reference from the Exhibits to the
Company's Current Report on Form 8-K, dated February 29, 2000.
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 incorporated by reference from the Company's Form 10-K
Annual Report for the fiscal year ended December 31, 1998.
The Company's 1999 Stock Incentive Plan is incorporated by reference from the
Company's Form 10-Q Quarterly Report for the quarterly period ended September
30, 1999.
The letter agreement, dated July 12, 1999, between The Rouse Company and Anthony
W. Deering is incorporated by reference from the Company's Form 10-Q Quarterly
Report for the quarterly period ended September 30, 1999.
The Executive Agreement, dated October 25, 1999, between The Rouse Company and
Daniel C. Van Epp is attached. The same Executive Agreement was entered into
with Jeffrey H. Donahue, Duke S. Kassolis, Douglas A. McGregor, Robert
Minutoli, Robert D. Riedy, Alton J. Scavo and Jerome D. Smalley.
All documents referred to above may be found in Commission file number 0-1743.
<PAGE>
EXECUTIVE AGREEMENT dated
October 25, 1999, between
THE ROUSE COMPANY,
(together with its subsidiaries and affiliates, the "Company"),
and DANIEL C. VAN EPP (the "Executive")
The Company and the Executive agree as follows:
SECTION 1. Definitions. As used in this Agreement:
-----------
(a) "Accrued Obligations" means the sum of the amounts described in Section
6(a) (i) (A) and Section 6(a) (ii) (A)(2).
(b) "Annual Base Salary" means the Executive's salary at a rate not less than
the Executive's annualized salary in effect immediately prior to the
Operative Date or the date that is six months prior to the Operative Date
(whichever date results in a larger salary).
(c) "Annual Bonus" means the Executive's annual bonus in an amount that is not
less than the highest annual bonus paid to the Executive with respect to
the three years preceding the Operative Date.
(d) "Board" means the Board of Directors of the Company.
(e) "Cause" means (i) the willful and continued failure of the Executive to
perform substantially the Executive's duties owed to the Company after a
written demand for substantial performance is delivered to the Executive
which specifically identifies the nature of such non-performance (other
than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure after
the issuance of a Notice of Termination by the Executive for Good Reason
pursuant to Section 5(d), (ii) willful gross misconduct by the Executive
that is significantly and demonstrably injurious to the Company, or (iii)
the Executive in the course of his or her employment is convicted of a
felony or willfully engages in a fraud that results in material harm to the
Company. No act or omission on the part of the Executive shall be
considered "willful" unless it is done or omitted in bad faith or without
reasonable belief that the action or omission was in the best interests of
the Company. For purposes of this Section 1(e), any act or failure to act
based upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of the Board, the Company's Chief Executive
Officer or other executive officer of the Company, or based upon the advice
of counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best
interests of the Company. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for Cause without (1)
reasonable notice to the Executive setting forth the reasons for the
Company's intention to terminate for Cause, (2) an opportunity for the
Executive, together with his counsel, to be heard before the Board, and (3)
delivery to the Executive of a Notice of Termination from the Board finding
that in the good faith opinion of three-quarters (3/4) of the Board the
Executive was guilty of conduct set forth in clause (i), (ii) or (iii)
above and specifying the particulars thereof in detail.
(f) A "Change in Control" shall mean and shall be deemed to have occurred if:
<PAGE>
(i) either of the following occurs: (a) the acquisition of
beneficial ownership, directly or indirectly, of voting securities of
the Company (defined as Common Shares 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 (b) 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
(b) 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 the Executive under this Agreement).
Notwithstanding the preceding, 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."
(ii) during any period of twenty-four (24) consecutive months
(not including any period prior to the effective date of this
Agreement), individuals who at the beginning of such period constitute
the Board and any new director (other than a director designated by a
Person who has entered into an agreement with the Company to effect a
transaction described in clause (i), (iii) or (iv) of this definition
or any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents) whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who either were
directors at the beginning of such period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board;
(iii) the shareholders of the Company approve a reorganization,
merger or consolidation, other than a reorganization, merger or
consolidation with respect to which all or substantially all of the
individuals and entities who were Beneficial Owners, immediately prior
to such reorganization, merger or consolidation, of the combined
voting power of the Company's then outstanding securities beneficially
own, directly or indirectly, immediately after such reorganization,
merger or consolidation, more than eighty percent (80%) of the
combined voting power of the securities of the corporation resulting
from such reorganization, merger or consolidation; or
<PAGE>
(iv) the shareholders of the Company approve (a) the sale or
disposition by the Company (other than to a subsidiary of the Company)
of all or substantially all of the assets of the Company, or (b) a
complete liquidation or dissolution of the Company.
(g) "Common Shares" means the Common Stock of the Company.
(h) "Date of Termination" means: (i) if the Executive's employment is
terminated by the Company for Cause or by the Executive for Good Reason,
the date of receipt of the Notice of Termination or any later date
specified therein, (ii) if the Executive's employment is terminated by the
Company other than for Cause or Incapacity, the Date of Termination shall
be the date on which the Company notifies the Executive of such
termination, and (iii) if the Executive's employment is terminated by
reason of death or Incapacity, the Date of Termination shall be the date of
death of the Executive or the Incapacity Effective Date, as the case may
be.
(i) "Dependents", as of any date, means the members of the Executive's family
who under the most liberal eligibility rules (as in effect on a date that
is six months prior to the Operative Date) of the plans or programs of the
Company (or any successor) which provide medical benefits, would, be
eligible for benefits under such plans or programs on such date.
(j) "Good Reason" means any failure by the Company to comply with any
of the provisions of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof from the Executive.
(k) "Incapacity" means, and shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a result of the
Executive's incapacity due to physical or mental illness, (i) the Executive
shall have been absent from the full-time performance of the Executive's duties
with the company for a period of six (6) consecutive months, (ii) the Company
gives the Executive a Notice of Termination for Incapacity, and (iii) the
Executive does not return to the full-time performance of the Executive's duties
within thirty (30) days after such Notice of Termination is given.
(l) "Incapacity Effective Date" means the date on which the period
described in Section 1(k)(iii) expires.
(m) "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under such provision, (iii) in the case of termination by the Company
for Cause, confirms that such termination is pursuant to a resolution of the
Board, and (iv) if the Date of Termination is other than the date of receipt of
such notice, specifies the termination date (which date shall be not more than
30 calendar days after the giving of such notice).
(n) "Operative Date" means the date on which a Change in Control
shall have occurred.
<PAGE>
(o) "Other Benefits" means any other amounts or benefits required to
be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company,
including earned but unpaid and stock and similar compensation, that is in
effect on the date that is six months prior to the Operative Date.
(p) "SERP" means the Supplemental Retirement Benefit Plan of The
Rouse Company as it now exists or may hereafter be amended prior to the date
that is six months prior to the Operative Date.
(q) "Term" means the term of this Agreement which shall begin as of
October 25, 1999, and shall continue to and remain in effect until the fourth
anniversary of such date (and any further extensions pursuant to Section 2) or,
if later, three years following an Operative Date occurring prior to the later
of (i) the fourth anniversary of October 25, 1999, or (ii) such later date to
which this Agreement has been extended pursuant to Section 2.
SECTION 2. Extension of this Agreement. If no Operative Date shall
---------------------------
have occurred on or before the 60th calendar day preceding the date on which the
Term is then scheduled to expire, then the Term shall automatically be extended
for one year unless either party shall have given the other party written notice
of its election not to extend the Term.
SECTION 3. Terms of Employment prior to Operative Date. Prior to the
-------------------------------------------
Operative Date, the terms and conditions of the Executive's employment,
including the Executive's rights upon termination of the Executive's employment,
shall be the same as they would have been had this Agreement not been entered
into by the Executive and the Company.
SECTION 4. Terms of Employment on and after Operative Date.
-----------------------------------------------
(a) Position and Duties. (i) On and after the Operative Date and
-------------------
during the Term of this Agreement, (A) the Executive's position (including,
without limitation, status, offices, titles, authority, duties and
responsibilities) shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned immediately prior to
the Operative Date and (B) the Executive's work location shall be based in
Columbia, Maryland and the Company shall not require the Executive to travel on
Company business to a substantially greater extent than required on the date
that is six months prior to the Operative Date, except for travel and temporary
assignments which are reasonably required for the full discharge of the
Executive's responsibilities and which are consistent with the Executive's being
based in Columbia, Maryland.
(ii) On and after the Operative Date and during the Term of this
Agreement, but excluding any periods of vacation and sick leave to which
the Executive is entitled, the Executive agrees to devote reasonable
attention and time during normal business hours to the business and affairs
of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities.
(b) Compensation. (i) Salary. On and after the Operative Date and
------------ ------
during the Term of this Agreement, the Executive shall receive compensation at
an annual rate not less than his Annual Base Salary.
<PAGE>
(ii) Stock Incentive, Savings and Other Retirement and Supplemental
--------------------------------------------------------------
Retirement Plans. On and after the Operative Date and during the Term of this
----------------
Agreement, the Executive will be entitled to participate in all stock
incentive, 401(k) savings, pension and other retirement and supplemental
retirement plans and programs that are generally available to full-time
officers or employees of the Company.
(iii) Welfare Benefit Plans. On and after the Operative Date and during the
---------------------
Term of this Agreement, the Executive and any persons who from time to time
thereafter are his Dependents shall be eligible to participate in and shall
receive (or, in the case of life insurance, shall be entitled to have the
Executive's beneficiary receive) all benefits under welfare benefit plans and
programs that are generally available to full-time officers or employees of the
Company.
(iv) Business Expenses. On and after the Operative Date and during the Term of
-----------------
this Agreement, the Company shall, in accordance with policies in effect
with respect to the payment of such expenses immediately prior to the
Operative Date, pay or reimburse the Executive for all reasonable out-of-
pocket travel and other expenses incurred by the Executive in performing
services hereunder. All such expenses shall be accounted for in such
reasonable detail as the Company may require.
(v) Vacations. On and after the Operative Date and during the Term of this
---------
Agreement, the Executive shall be entitled to periods of vacation not less
than those to which the Executive was entitled on the date that is six
months prior to the Operative Date.
(vi) Other Benefits. On and after the Operative Date and during the Term of
--------------
this Agreement, the Executive shall be entitled to all Other Benefits not
specifically provided for in subsections (i), (ii), (iii), (iv) and (v) of
this Section 4(b) that are generally available to full-time officers or
employees of the Company.
SECTION 5. Termination of Employment.
-------------------------
(a) Death or Incapacity. The Executive's employment shall terminate
-------------------
automatically upon the Executive's death. On and after the Operative Date, the
Executive's employment shall also terminate automatically on his Incapacity
Effective Date during the Term of this Agreement.
(b) Company Termination. After the Operative Date, the Company may
-------------------
terminate the Executive's employment for any reason, subject to the provisions
of this Agreement establishing obligations of the Company that arise with
respect to certain terminations.
(c) Executive Termination. After the Operative Date, the Executive
---------------------
may terminate his or her employment for any reason.
(d) Notice of Termination. On and after the Operative Date and
---------------------
during the Term of this Agreement, any termination by the Company for Cause or
Incapacity, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section 13.
The failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason, Incapacity or Cause shall not serve to waive any right of the Executive
or the Company, respectively, hereunder or preclude the Executive or the
Company,
<PAGE>
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
SECTION 6. Obligations of the Company upon Termination on or after
-------------------------------------------------------
the Operative Date.
- ------------------
(a) Termination for Good Reason or for Reasons other than for Cause,
----------------------------------------------------------------
Death or Incapacity. If, on or after the Operative Date and during the Term of
- -------------------
this Agreement, (x) the Company shall terminate the Executive's employment other
than for Cause, death or Incapacity or (y) the Executive shall terminate his
employment for Good Reason, then:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 calendar days after the Date of Termination the aggregate of
the following amounts:
(A) the sum of (1) the Executive's then Annual Base Salary through the Date of
Termination to the extent not already paid, plus (2) the product of (x) an
amount equal to his then Annual Bonus times (y) a fraction, the numerator
of which is the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365 plus (3) any accrued
vacation pay to the extent not already paid; and
(B) the amount equal to the product of (1) three, times (2) the sum of (x) the
Executive's then Annual Base Salary and (y) his then Annual Bonus; and
(ii) the Company shall:
(A) contribute, within 30 calendar days after the Date of
Termination, under Section 3 of the SERP an amount equal to the
sum of (1) three times the maximum amount that could be
contributed by the Company under Section 3(a)(i) of the SERP for
a full calendar year based on the Executive's Compensation (as
defined in The Rouse Company Savings Plan) computed for the 12
months immediately preceding such Date of Termination, and (2)
one times such maximum amount multiplied by a fraction, the
numerator of which is the number of days transpired in the year
of termination prior to and including the Date of Termination and
the denominator of which is 365; and
(B) accrue an additional benefit under Section 2 of the
SERP equal to the amount by which the accrued benefit, as of the
Date of Termination, of the Executive would be increased if the
Executive were (1) credited, for all purposes under the SERP and
the Pension Plan (as defined in the SERP), with three additional
years of service credit based on (A) the Executive's Cash
Compensation (as defined in the Pension Plan) computed for the 12
months immediately preceding such Date of Termination, and (B)
the assumption that the benefit calculations for Past Service
under the SERP and the Pension Plan are "updated", in a manner
consistent with past Company practice, on January 1, 2000 and
every third
<PAGE>
year thereafter, and (2) deemed, for all purposes under the SERP
and the Pension Plan, to be three years older in age.
(iii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall
continue benefits to the Executive and his Dependents at least equal
to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b)(iii)
if the Executive's employment had not been terminated or, if more
favorable to the Executive and his Dependents, as in effect generally
at any time thereafter;
(iv) the Executive and his Dependents shall continue to be
eligible to participate in and shall receive all benefits under any
plan or program of the Company providing medical benefits as are in
effect on the date six months prior to the Operative Date or under any
plan or program of a successor to the Company which provides medical
benefits that are not less favorable to the Executive and his
Dependents than such plans or programs of the Company until the date
the Executive and his Dependents are all eligible for Medicare
benefits (by reason of attaining the minimum age for such benefits
without regard to whether an application has been made therefor);
provided, however, that (A) in no event will a Dependent be eligible
for benefits as described in this clause (iv) after the date he ceases
to be a Dependent and (B) at all times after the expiration of the
three-year period described in clause (iii) above, the Executive shall
pay for such coverage at the same rate as is charged to other
similarly situated individuals electing continuation coverage under
Section 4980B of the Internal Revenue Code of 1986, as amended;
(v) all outstanding options and restricted shares granted to
Executive to purchase Common Shares under the Incentive Plans or under
any other option or equity incentive plan shall, to the extent not
already vested, immediately become fully vested and, in the case of
options, shall remain exercisable until the end of the original term
of such option without regard to Executive's termination of
employment;
(vi) the Company will continue to pay any premiums due on any
individual insurance policies in effect on the life of the Executive
for three years following the Date of Termination, after which time
the Company shall distribute such policy to the Executive without
requiring the Executive to repay any premiums paid by the Company;
(vii) notwithstanding any provisions to the contrary under any
loan agreement between the Company and the Executive, any obligation
of the Executive to the Company to repay any loans or other
indebtedness thereunder shall be forgiven;
(viii) the Company shall transfer any car made available to the
Executive for his use by the Company to the Executive for no
consideration, provided that
<PAGE>
the Executive pays any and all transfer taxes and agrees to be solely
responsible for insurance and the cost of insurance after the date of
transfer;
(ix) the Executive shall be entitled to keep any computer and/or
software provided to the Executive by the Company for home or travel
use for no consideration;
(x) the Company, at no cost to the Executive, shall provide the
Executive with outplacement services at a firm selected by the
Executive for the period commencing on the Date of Termination and
ending on the first to occur of (i) the first anniversary of the
Executive's Date of Termination and (ii) the date on which the
Executive obtains full-time employment as an employee;
(xi) immediate payment of any deferred compensation balances not
already paid to the Executive;
(xii) immediate vesting of any outstanding equity- and
performance-based awards; and
(xiii) to the extent not already paid or provided, the Company
shall timely pay or provide to the Executive all Other Benefits to the
extent accrued on the Date of Termination and not specifically
provided for in subsections (i) through (xii) of this Section 6(a).
(b) Death or Incapacity. If the Executive's employment is
-------------------
terminated on or after the Operative Date by reason of the Executive's death or
Incapacity, this Agreement shall terminate without further obligations to the
Executive or the Executive's legal representatives under this Agreement other
than for (i) timely payment of Accrued Obligations and (ii) provision by the
Company of death benefits or disability benefits for termination due to death or
Incapacity, respectively, in accordance with Sections 4(b)(iii) and 6(a)(vi) as
in effect at the Operative Date or, if more favorable to the Executive, at the
Executive's Date of Termination.
(c) Cause; Other than for Good Reason. If the Executive's
---------------------------------
employment shall be terminated on or after the Operative Date for Cause, this
Agreement shall terminate without further obligations to the Executive other
than timely payment to the Executive of (x) the Executive's then Annual Base
Salary through the Date of Termination and (y) Other Benefits, but in each case
only to the extent unpaid as of the Date of Termination. If the Executive
voluntarily terminates employment during the Term of this Agreement, excluding a
termination for Good Reason on or after the Operative Date, this Agreement shall
terminate without further obligations to the Executive, other than for the
timely payment of Accrued Obligations and Other Benefits.
SECTION 7. Non-exclusivity of Rights. Nothing in this Agreement
-------------------------
shall prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company and for which the
Executive may qualify, nor, subject to Section 15(c), shall anything herein
limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of, or any contract or agreement with, the Company at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice, program, contract or agreement except as explicitly
modified by this Agreement.
<PAGE>
SECTION 8. No Mitigation. The Company agrees that, if the
-------------
Executive's employment is terminated on or after the Operative Date and during
the Term of this Agreement for any reason, the Executive is not required to seek
other employment or to attempt in any way to reduce any amounts payable to the
Executive hereunder. Further, the amount of any payment or benefit provided
hereunder on or after the Operative Date shall not be reduced by any
compensation earned by the Executive as the result of employment with another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
SECTION 9. Resolution of Disputes.
----------------------
(a) 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 9(a) shall be treated as
compromise and settlement negotiations for the purposes of the federal and state
rules of evidence and procedure.
(b) 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 9(a) 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 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.
(c) 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.
<PAGE>
SECTION 10. 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 successor
provision 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 10, 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 LLP 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 binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code (or any
successor provision 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 10 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 he 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
<PAGE>
(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 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.
<PAGE>
SECTION 11. Successors; Binding Agreement.
-----------------------------
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement, in
form and substance satisfactory to the Executive, expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession will be a breach of this Agreement and
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled to hereunder had the Company
terminated the Executive for reason other than Cause or Incapacity on the
succession date. As used in this Agreement, "the Company" means the Company as
defined in the preamble to this Agreement and any successor to its business or
assets which executes and delivers the agreement provided for in this Section 11
or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law or otherwise.
(b) This Agreement shall be enforceable by the Executive's personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
SECTION 12. Nonassignability. This Agreement is personal in nature
----------------
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder, except
as provided in Section 11. Without limiting the foregoing, the Executive's
right to receive payments hereunder shall not be assignable or transferable,
whether by pledge, creation of a security interest or otherwise, other than a
transfer by his will or by the laws of descent or distribution and, in the event
of any attempted assignment or transfer by the Executive contrary to this
Section 12, the Company shall have no liability to pay any amount so attempted
to be assigned or transferred.
SECTION 13. Notices. For the purpose of this Agreement, notices and
-------
all other communications provided for herein shall be in writing and shall be
deemed to have been duly given when delivered by hand or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive - at the address included on the signature page.
If to the Company:
The Rouse Company
10275 Little Patuxent Parkway
Columbia, Maryland 21044
Attention: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
SECTION 14. Governing Law. The validity, interpretation,
-------------
construction and performance of this Agreement shall be governed by the laws of
the State of Maryland without reference to principles of conflict of laws.
<PAGE>
SECTION 15. Miscellaneous.
-------------
(a) This Agreement contains the entire understanding with the
Executive with respect to the subject matter hereof and supersedes any and all
prior agreements or understandings, written or oral, relating to such subject
matter. No provision of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is agreed to in a writing signed
by the Executive and the Company. The rights and obligations of the Company and
the Executive shall survive the expiration of the Term.
(b) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(c) Except as provided herein, this Agreement shall not be construed
to affect in any way any rights or obligations in relation to the Executive's
employment by the Company prior to the Operative Date or subsequent to the end
of the Term.
(d) This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same Agreement.
(e) The Company may withhold from any benefits payable under this
Agreement all Federal, state, local or other taxes as shall be required by law.
(f) The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
THE ROUSE COMPANY
By:
Name: Anthony W. Deering
Title: Chairman and Chief
Executive Officer
__________________________________
Daniel C. Van Epp
__________________________________
(Street Address)
__________________________________
(City, State, Zip Code)
<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,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes, extraordinary items
and cumulative effect of change in accounting principle $141,460 $105,152 $ 73,826 $ 43,605 $ 10,169
Fixed charges:
Interest costs 264,349 229,478 231,098 230,960 219,838
Capitalized interest (19,834) (19,914) (23,608) (10,579) (6,875)
Amortization of debt issuance costs 1,338 1,424 1,645 2,066 2,527
Distributions on Company-obligated mandatorily
redeemable preferred securities of a trust holding
solely Parent Company subordinated debt securities 12,719 12,719 12,719 12,719 1,204
Portion of rental expense representative of interest factor (1) 9,609 6,943 7,949 8,487 8,266
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 1,638 2,270 3,178 1,164 2,026
Undistributed earnings of less than 50%-owned
subsidiaries (2) (32,264) (41,881) (34) (88) (189)
Previously capitalized interest amortized into earnings:
Depreciation of operating properties (3) 4,554 4,192 3,962 3,866 3,764
Cost of land sales (4) --- --- 5,025 1,778 1,421
-------- -------- -------- -------- --------
Earnings available for fixed charges $383,569 $300,383 $315,760 $293,978 $242,151
======== ======== ======== ======== ========
Fixed charges:
Interest costs $264,349 $229,478 $231,098 $230,960 $219,838
Amortization of debt issuance costs 1,338 1,424 1,645 2,066 2,527
Distributions on Company-obligated mandatorily
redeemable preferred securities of a trust holding
solely Parent Company subordinated debt securities 12,719 12,719 12,719 12,719 1,204
Portion of rental expense representative of interest
factor (1) 9,609 6,943 7,949 8,487 8,266
Support for debt service costs provided to affiliates
accounted for under the equity method --- --- --- --- ---
-------- -------- -------- -------- --------
Total fixed charges $288,015 $250,564 $253,411 $254,232 $231,835
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 1.33 1.20 1.25 1.16 1.04
======== ======== ======== ======== ========
</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 $5,132,000, $2,330,000, $3,158,000, $3,844,000, and
$3,644,000, for the years ended December 31, 1999, 1998, 1997, 1996 and
1995, 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 $31,546,000 in 1999 and $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 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,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes, extraordinary items
and cumulative effect of change in accounting principle $141,460 $105,152 $ 73,826 $ 43,605 $ 10,169
Fixed charges:
Interest costs 264,349 229,478 231,098 230,960 219,838
Capitalized interest (19,834) (19,914) (23,608) (10,579) (6,875)
Amortization of debt issuance costs 1,338 1,424 1,645 2,066 2,527
Distributions on Company-obligated mandatorily redeemable
preferred securities of a trust holding solely Parent Company
subordinated debt securities 12,719 12,719 12,719 12,719 1,204
Portion of rental expense representative of interest factor (1) 9,609 6,943 7,949 8,487 8,266
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 1,638 2,270 3,178 1,164 2,026
Undistributed earnings of less than 50%-owned subsidiaries (2) (32,264) (41,881) (34) (88) (189)
Previously capitalized interest amortized into earnings:
Depreciation of operating properties (3) 4,554 4,192 3,962 3,866 3,764
Cost of land sales (4) -- -- 5,025 1,778 1,421
-------- -------- -------- -------- --------
Earnings available for fixed charges and
Preferred stock dividend requirements $383,569 $300,383 $315,760 $293,978 $242,151
======== ======== ======== ======== ========
Combined fixed charges and Preferred stock dividend requirements:
Interest costs $264,349 $229,478 $231,098 $230,960 $219,838
Amortization of debt expense 1,338 1,424 1,645 2,066 2,527
Distributions on Company-obligated mandatorily redeemable
preferred securities of a trust holding solely Parent Company
subordinated debt securities 12,719 12,719 12,719 12,719 1,204
Portion of rental expense representative of
interest factor (1) 9,609 6,943 7,949 8,487 8,266
Support for debt service costs provided to affiliates
accounted for under the equity method -- -- -- -- --
Preferred stock dividend requirements (5) 12,150 12,150 10,313 17,555 24,402
-------- -------- -------- -------- --------
Total combined fixed charges and Preferred stock
dividend requirements $300,165 $262,714 $263,724 $271,787 $256,237
======== ======== ======== ======== ========
Ratio of earnings to combined fixed charges
and Preferred stock dividend requirements (6) 1.28 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 $5,132,000, $2,330,000, $3,158,000, $3,844,000, and
$3,644,000, for the years ended December 31, 1999, 1998, 1997, 1996 and
1995, 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 $31,546,000 in 1999 and $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 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,
periods after December 31, 1997 include 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, 1999, 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 and 1995. The Company elected to be
taxed as a REIT beginning in 1998. Management believes that the Company
met the qualifications for REIT status as of December 31, 1999, intends for
it 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
subsequent periods.
(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, for the year ended
December 31, 1995.
<PAGE>
EXHIBIT 13
Exhibit 13. Annual report to security holders
The annual report to shareholders has not been completed as of this filing and
will be filed with the Securities and Exchange Commission in its entirety on or
before April 12, 2000.
The financial section of the annual report, which is incorporated by reference,
is final and is enclosed as Exhibit 13. This financial section includes all the
information incorporated by reference in Parts I, II and IV of this Form 10-K
Annual Report for the fiscal year ended December 31, 1999.
<PAGE>
The Rouse Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
1999 1998
------ -------
<S> <C> <C>
Assets
Property:
Operating properties:
Property and deferred costs of projects.................................... $3,811,956 $4,718,727
Less accumulated depreciation and amortization............................. 574,837 578,311
---------- ----------
3,237,119 4,140,416
Properties in development..................................................... 288,058 167,360
Properties held for sale...................................................... 10,984 165,894
---------- ----------
Total property............................................................. 3,536,161 4,473,670
Investments in and advances to unconsolidated
real estate ventures.......................................................... 533,341 321,122
Prepaid expenses, receivables under finance leases and
other assets.................................................................. 247,279 241,040
Accounts and notes receivable................................................... 61,224 75,917
Investments in marketable securities............................................ 23,321 13,262
Cash and cash equivalents....................................................... 25,890 28,688
---------- ----------
Total......................................................................... $4,427,216 $5,153,699
========== ==========
Liabilities
Debt:
Property debt not carrying a Parent Company guarantee of repayment............ $2,529,334 $2,865,119
Parent Company debt and debt carrying a Parent Company guarantee
of repayment:
Property debt.............................................................. 161,585 161,986
Convertible subordinated debentures........................................ --- 128,515
Other debt................................................................. 643,500 903,200
---------- ----------
805,085 1,193,701
---------- ----------
Total debt................................................................. 3,334,419 4,058,820
---------- ----------
Accounts payable, accrued expenses and other liabilities........................ 317,252 328,988
Company-obligated mandatorily redeemable preferred securities of a trust
holding solely Parent Company subordinated debt securities.................... 136,965 136,965
Commitments and contingencies
Shareholders' equity
Series B Convertible Preferred stock with a liquidation preference of $202,500.. 41 41
Common stock of 1c par value per share; 250,000,000 shares authorized;
issued 70,693,789 shares in 1999 and 72,225,223 shares in 1998................ 707 723
Additional paid-in capital...................................................... 808,277 836,508
Accumulated deficit............................................................. (169,974) (206,520)
Accumulated other comprehensive income (loss)................................... (471) (1,826)
---------- ----------
Net shareholders' equity...................................................... 638,580 628,926
---------- ----------
Total......................................................................... $4,427,216 $5,153,699
========== ==========
</TABLE>
<PAGE>
The Rouse Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
Years ended December 31, 1999, 1998 and 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ----------
<S> <C> <C> <C>
Revenues......................................................... $715,657 $691,345 $ 916,771
Operating expenses, exclusive of provision for bad debts,
depreciation and amortization.................................. 329,839 349,421 530,076
Interest expense................................................. 244,515 209,564 207,490
Provision for bad debts.......................................... 8,548 7,735 5,766
Depreciation and amortization.................................... 100,329 84,068 82,944
Equity in earnings of unconsolidated real estate ventures........ 76,468 75,769 6,815
Gain (loss) on dispositions of assets and other provisions, net.. 32,566 (11,174) (23,484)
-------- -------- ---------
Earnings before income taxes, extraordinary items and
cumulative effect of changes in accounting principle........ 141,460 105,152 73,826
-------- -------- ---------
Income tax provision (benefit):
Current........................................................ 284 (24) 8,137
Deferred---primarily Federal................................... --- --- (124,203)
-------- -------- ---------
284 (24) (116,066)
-------- -------- ---------
Earnings before extraordinary items and cumulative effect
of changes in accounting principle.......................... 141,176 105,176 189,892
Extraordinary gain (loss), net................................... (5,879) 4,355 (21,342)
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, net.................. --- --- (1,214)
-------- -------- ---------
Net earnings................................................... 135,297 104,902 167,336
Other items of comprehensive income (loss) - minimum
pension liability adjustment................................... 1,355 (1,826) ---
-------- -------- ---------
Comprehensive income........................................... $136,652 $103,076 $ 167,336
======== ======== =========
Net earnings applicable to common shareholders................. $123,147 $ 92,752 $ 157,023
======== ======== =========
Earnings per share of common stock
Basic:
Earnings before extraordinary items and cumulative effect
of changes in accounting principle........................ $ 1.79 $ 1.36 $ 2.70
Extraordinary items......................................... (.08) .07 (.32)
Cumulative effect of changes in accounting principle........ --- (.07) (.02)
-------- -------- ---------
Total..................................................... $ 1.71 $ 1.36 $ 2.36
======== ======== =========
Diluted:
Earnings before extraordinary items and cumulative effect
of changes in accounting principle........................ $ 1.77 $ 1.34 $ 2.59
Extraordinary items......................................... (.08) .07 (.28)
Cumulative effect of changes in accounting principle........ --- (.07) (.02)
-------- -------- ---------
Total..................................................... $ 1.69 $ 1.34 $ 2.29
======== ======== =========
</TABLE>
<PAGE>
The Rouse Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Series B Additional other
Preferred Common paid-in Accumulated comprehensive
stock stock capital deficit income (loss) Total
--------- ------- ----------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.................. $ --- $ 667 $ 488,849 $ (312,367) $ --- $ 177,149
Net earnings.................................. --- --- --- 167,336 --- 167,336
Dividends declared:
Common stock -- $1.00 per share............. --- --- --- (66,827) --- (66,827)
Preferred stock -- $2.65 per share.......... --- --- --- (10,313) --- (10,313)
Issuance of Series B Preferred stock.......... 41 --- 196,787 --- --- 196,828
Purchases of common stock..................... --- (8) (26,357) --- --- (26,365)
Common stock issued pursuant to Contingent
Stock Agreement............................. --- 8 23,305 --- --- 23,313
Proceeds from exercise of stock options, net.. --- 2 2,077 --- --- 2,079
Lapse of restrictions on common stock awards.. --- --- 2,315 --- --- 2,315
--------- ----- --------- ---------- ------------- ---------
Balance at December 31, 1997.................. 41 669 686,976 (222,171) --- 465,515
Net earnings.................................. --- --- --- 104,902 --- 104,902
Other comprehensive income (loss)............. --- --- --- --- (1,826) (1,826)
Dividends declared:
Common stock -- $1.12 per share............. --- --- --- (77,101) --- (77,101)
Preferred stock -- $3.00 per share.......... --- --- --- (12,150) --- (12,150)
Purchases of common stock..................... --- (21) (65,412) --- --- (65,433)
Conversion of convertible subordinated
debentures................................... --- 1 1,484 --- --- 1,485
Common stock issued pursuant to Contingent
Stock Agreement............................. --- 21 65,002 --- --- 65,023
Other common stock issued..................... --- 50 143,378 --- --- 143,428
Proceeds from exercise of stock options, net.. --- 3 484 --- --- 487
Lapse of restrictions on common stock awards.. --- --- 4,596 --- --- 4,596
--------- ----- --------- ---------- ------------- ---------
Balance at December 31, 1998.................. 41 723 836,508 (206,520) (1,826) 628,926
Net earnings.................................. --- --- --- 135,297 --- 135,297
Other comprehensive income (loss)............. --- --- --- --- 1,355 1,355
Dividends declared:
Common stock -- $1.20 per share............. --- --- --- (86,601) --- (86,601)
Preferred stock -- $3.00 per share.......... --- --- --- (12,150) --- (12,150)
Purchases of common stock..................... --- (29) (66,491) --- --- (66,520)
Conversion of convertible subordinated
debentures................................... --- --- 30 --- --- 30
Common stock issued pursuant to Contingent
Stock Agreement............................. --- 13 34,478 --- --- 34,491
Proceeds from exercise of stock options, net.. --- --- 32 --- --- 32
Lapse of restrictions on common stock awards.. --- --- 3,720 --- --- 3,720
--------- ----- --------- ---------- ------------- ---------
Balance at December 31, 1999.................. $ 41 $ 707 $ 808,277 $ (169,974) $ (471) $ 638,580
========= ===== ========= ========== ============= =========
The accompanying notes are an integral part
of these statements.
</TABLE>
<PAGE>
The Rouse Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ------------ ----------
<S> <C> <C> <C>
Cash flows from operating activities
Rents and other revenues received................................. $ 694,802 $ 664,854 $ 714,784
Proceeds from land sales and on notes receivable from land sales.. 24,754 80,017 159,932
Interest received................................................. 8,549 14,038 11,877
Land development expenditures..................................... --- --- (97,868)
Operating expenditures............................................ (344,987) (338,736) (395,528)
Interest paid..................................................... (242,328) (204,897) (207,681)
Dividends, interest and other operating distributions from
unconsolidated majority financial interest ventures.............. 59,170 45,907 ---
--------- ----------- ---------
Net cash provided by operating activities....................... 199,960 261,183 185,516
--------- ----------- ---------
Cash flows from investing activities
Expenditures for properties in development and improvements to
existing properties funded by debt.............................. (220,045) (306,950) (283,401)
Expenditures for property acquisitions............................ --- (882,404) (79,420)
Expenditures for improvements to existing properties funded
by cash provided by operating activities:
Tenant leasing and remerchandising........................... (781) (7,955) (5,964)
Building and equipment....................................... (16,539) (13,873) (15,933)
Proceeds from sales of operating properties....................... 255,218 130,070 81,281
Payments received on loans (advances made)
to unconsolidated majority financial interest ventures, net...... (49,304) 47,483 ---
Other............................................................. (4,278) (117) (26,502)
--------- ----------- ---------
Net cash used by investing activities........................... (35,729) (1,033,746) (329,939)
--------- ----------- ---------
Cash flows from financing activities
Proceeds from issuance of property debt........................... 316,282 650,987 693,525
Repayments of property debt:
Scheduled principal payments.................................... (51,581) (50,689) (46,282)
Other payments.................................................. (140,103) (347,725) (572,139)
Proceeds from issuance of other debt.............................. 200,000 602,000 11,868
Repayments of other debt.......................................... (316,948) (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......................................... (66,520) (65,433) (26,365)
Dividends paid.................................................... (98,751) (89,251) (77,140)
Other............................................................. (9,408) (6,419) 1,522
--------- ----------- ---------
Net cash provided (used) by financing activities................ (167,029) 721,611 180,297
--------- ----------- ---------
Net increase (decrease) in cash and cash equivalents.............. (2,798) (50,952) 35,874
Cash and cash equivalents at beginning of year.................... 28,688 79,640 43,766
--------- ----------- ---------
Cash and cash equivalents at end of year.......................... $ 25,890 $ 28,688 $ 79,640
========= =========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Reconciliation of Net Earnings to Net Cash
Provided by Operating Activities
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ----------
<S> <C> <C> <C>
Net earnings...................................................... $135,297 $104,902 $ 167,336
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization................................... 100,329 84,068 82,944
Undistributed earnings of majority financial interest ventures.. (31,546) (41,720) ---
Loss (gain) on dispositions of assets........................... (41,173) 11,174 23,484
Extraordinary (gain) loss, net.................................. 5,879 (4,355) 21,342
Cumulative effect of changes in accounting principle, net....... --- 4,629 1,214
Participation expense pursuant to Contingent Stock Agreement.... 30,180 44,075 35,832
Provision for bad debts......................................... 8,548 7,735 5,766
Decrease (increase) in:
Accounts and notes receivable................................ 288 32,507 (70,045)
Other assets................................................. (4,977) 1,845 (2,312)
Increase (decrease) in accounts payable, accrued expenses
and other liabilities........................................ (2,030) 8,852 48,783
Deferred income taxes........................................... --- --- (124,203)
Other, net...................................................... (835) 7,471 (4,625)
-------- -------- ---------
Net cash provided by operating activities $199,960 $261,183 $185,516
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Schedule of Noncash Investing and Financing Activities
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Common stock issued pursuant to Contingent Stock
Agreement................................................... $ 34,491 $ 65,023 $ 23,313
Property and other assets contributed to an unconsolidated
real estate venture......................................... 825,673 --- ---
Mortgage debt, other debt and other liabilities related to
property and other assets contributed to an
unconsolidated real estate venture.......................... 423,387 --- ---
Other debt repaid on formation of an unconsolidated
real estate venture......................................... 271,233 --- ---
Mortgage debt assumed by purchaser of a property.............. 40,000 --- ---
Common stock and other noncash consideration issued
in acquisitions of property interests....................... --- 100,000 5,323
Mortgage and other debt assumed or issued in acquisitions of
property interests.......................................... --- 599,795 ---
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...................................... 30 1,485 ---
Capital lease obligations incurred............................ 3,196 2,743 1,101
Debt assumed by purchasers of land............................ --- 2 21,928
Mortgage and other debt of subsidiaries in
which a majority voting interest was sold
to an affiliate............................................. --- --- 280,595
Property of subsidiaries in which a majority voting
interest was sold to an affiliate........................... --- --- 547,295
======== ======== ========
</TABLE>
<PAGE>
The Rouse Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(1) Summary of significant accounting policies
(a) Description of business
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 1999.
(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.
Provisions are 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 using the interest or
straight-line methods, as appropriate, over the periods benefited by the
expenditures.
Depreciation of operating properties is computed using the straight-line
method. The annual rate of depreciation for most of the Company's retail centers
is based on a 55-year composite life and a salvage value of approximately 10%,
producing an effective annual rate of depreciation for new properties of 1.6%.
The other retail centers, all office buildings and other properties are
generally depreciated using composite lives of 40 years producing an effective
annual rate of depreciation for such properties of 2.5%.
If events or circumstances indicate that the carrying value of an operating
property to be held and used 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. Fair values are
determined based on estimated future cash flows using appropriate discount and
capitalization rates.
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. Generally, revenues and expenses related to property interests acquired
with the intention to resell are not recognized.
<PAGE>
(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 liabilities.
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, 1999 and intends for it to meet the qualifications in the future
and to distribute at least 95% of its REIT taxable income (determined after
taking into account any net operating loss deduction) to shareholders in 2000
and subsequent years. Based on these considerations, management does not believe
that the Company will be liable for significant income taxes at the Federal
level or in most of the states in which it operates in 2000 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.
(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. Investments in marketable
equity securities are classified as trading securities and are carried at market
value.
(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
<PAGE>
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 6.
(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 12.
(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 basic and diluted), 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.
(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.
<PAGE>
(2) Unconsolidated real estate ventures
Investments in and advances to unconsolidated real estate ventures at
December 31, 1999 and 1998 are summarized, based on the level of the
Company's financial interest, as follows (in thousands):
1999 1998
---------- ---------
Majority interest ventures ....................... $349,991 $269,141
Joint interest and control ventures .............. -- 1,140
Minority interest ventures ....................... 183,350 50,841
-------- --------
Total ........................................ $533,341 $321,122
======== ========
The equity in earnings of unconsolidated real estate ventures is
summarized, based upon the level of the Company's financial interest, as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Majority interest ventures............... $ 61,920 $ 63,475 $ ---
Minority interest ventures............... 14,548 12,294 6,815
---------- ---------- ---------
Total................................ $ 76,468 $ 75,769 $ 6,815
========== ========== =========
</TABLE>
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. 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, investments in properties owned jointly with the Company and
contracts to manage various operating properties.
The combined balance sheets of these ventures at December 31, 1999 and 1998
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- --------
Assets:
<S> <C> <C>
Operating properties, net.............................. $ 378,789 $ 244,470
Properties in development.............................. 26,924 66,442
Land held for development and sale..................... 257,773 278,155
Investments in and advances to unconsolidated real
estate ventures...................................... 107,813 22,689
Advances to the Company................................ --- 112,310
Prepaid expenses, receivables under finance leases
and other assets..................................... 95,090 95,012
Accounts and notes receivable.......................... 88,765 88,438
Cash and cash equivalents.............................. 8,194 ---
---------- ---------
Total.............................................. $ 963,348 $ 907,516
========== =========
Liabilities and shareholders' deficit:
Loans and advances from the Company.................... $ 514,792 $ 487,419
Mortgages payable and other long-term debt............. 350,646 332,945
Other liabilities...................................... 118,525 130,890
Redeemable Series A Preferred stock.................... 50,000 50,000
Shareholders' deficit.................................. (70,615) (93,738)
---------- ---------
Total.............................................. $ 963,348 $ 907,516
========== =========
</TABLE>
<PAGE>
The combined statements of operations of these ventures are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Revenues, excluding interest on loans to the
Company................................................ $ 299,404 $ 272,943
Interest income on loans to the Company..................... 2,647 9,067
Operating expenses.......................................... (176,487) (161,350)
Interest expense, excluding interest on borrowings from
the Company............................................ (10,687) (14,806)
Interest expense on borrowings from the Company............. (57,535) (53,340)
Depreciation and amortization............................... (13,004) (10,585)
Equity in earnings (loss) of unconsolidated real
estate ventures........................................ (425) 811
Gain on dispositions of assets, net......................... 408 15,856
Income taxes................................................ (19,693) (22,060)
Extraordinary losses, net................................... --- (1,127)
---------- ---------
Net earnings....................................... $ 24,628 $ 35,409
========== =========
</TABLE>
The Company's share of the net earnings before extraordinary losses of
these ventures is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Share of net earnings based on ownership interest........... $ 24,382 $ 35,055
Share of extraordinary losses............................... --- 1,116
Participation by others in the Company's share of
earnings............................................... (28,796) (24,152)
Interest on loans and advances, net......................... 54,888 44,273
Eliminations and other, net................................. 11,446 7,183
---------- ---------
Equity in earnings of majority interest ventures... $ 61,920 $ 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, 1999
and 1998 and the condensed, combined statements of earnings of these ventures
and the Company's proportionate share of their revenues and expenses are
summarized as follows (in thousands):
<PAGE>
<TABLE>
<CAPTION>
Combined Proportionate Share
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total assets, primarily property......................... $ 393,827 $ 389,565 $ 186,431 $ 171,218
========== ========= ========== ==========
Liabilities, primarily long-term debt.................... $ 403,138 $ 273,398 $ 195,516 $ 131,790
Venturers' equity (deficit).............................. (9,311) 116,167 (9,085) 39,428
---------- --------- ---------- ----------
Total liabilities and venturers' equity (deficit).... $ 393,827 $ 389,565 $ 186,431 $ 171,218
========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Combined Proportionate Share
--------------------------------------- ------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $ 144,420 $ 136,447 $ 123,802 $ 64,834 $ 61,102 $ 55,477
Operating and interest expenses.. 80,182 71,146 69,825 36,524 32,039 31,528
Depreciation and amortization.... 13,212 13,440 12,013 4,627 4,502 3,657
---------- --------- --------- ---------- --------- ----------
Net earnings................. $ 51,026 $ 51,861 $ 41,964 $ 23,683 $ 24,561 $ 20,292
========== ========= ========= ========== ========= ==========
</TABLE>
<PAGE>
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, 1999
and 1998, these ventures were primarily partnerships and corporations which own
retail centers. These ventures include a joint venture formed in February 1999
in connection with the Company's contribution of its ownership interests in four
retail centers. The Company received a 35% ownership interest in the venture.
Prior to December 1998, these minority interest 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.
The condensed, combined balance sheets of these ventures at December 31,
1999 and 1998 and their condensed, combined statements of earnings are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------- ----------
<S> <C> <C>
Total assets, primarily property..................... $ 1,356,685 $ 560,185
=========== ==========
Liabilities, primarily long-term debt................ $ 825,540 $ 380,384
Venturers' equity.................................... 531,145 179,801
----------- ----------
Total liabilities and venturers' equity.......... $ 1,356,685 $ 560,185
=========== ==========
1999 1998 1997
----------- ----------- -----------
Revenues......................................... $ 219,766 $ 191,456 $ 212,614
Operating and interest expenses.................. 166,030 135,871 148,065
Depreciation and amortization.................... 32,668 32,327 37,423
Gain (loss) on dispositions of assets............ 33,121 38,915 (11,097)
----------- ----------- -----------
Net earnings................................. $ 54,189 $ 62,173 $ 16,029
=========== =========== ===========
</TABLE>
The Company's share of net earnings of these ventures was $14,548,000,
$12,294,000, and $6,815,000 in 1999, 1998 and 1997, respectively.
(3) Property
Operating properties and deferred costs of projects at December 31, 1999
and 1998 are summarized as follows (in thousands):
1999 1998
----------- ----------
Buildings and improvements................ $ 3,319,652 $4,113,654
Land...................................... 380,465 488,114
Deferred costs............................ 101,028 106,385
Furniture and equipment................... 10,811 10,574
----------- ----------
Total................................. $ 3,811,956 $4,718,727
=========== ==========
Depreciation expense for 1999, 1998 and 1997 was $87,133,000, $73,646,000,
and $70,751,000, respectively. Amortization expense for 1999, 1998 and 1997 was
$13,196,000, $10,422,000, and $12,193,000, 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 repaid obligations under the bridge loan facility of $271,233,000
using cash contributed by the other venturers. The fair value of the
consideration received in the formation of the joint venture was considered in
the Company's allocation of the initial acquisition costs of all of the property
interests acquired from TrizecHahn. Accordingly, no gain or loss was recognized
on the sale.
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 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.
<PAGE>
Properties in development include construction and development in progress
and preconstruction costs. Construction and development in progress includes
land and land improvements of $53,463,000 and $63,737,000 at December 31, 1999
and 1998, respectively.
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, 1999 and 1998 are summarized as follows (in thousands):
1999 1998
------- --------
Retails centers ............................... $10,984 $163,307
Office and other properties ................... -- 2,587
------- --------
Total ............................... $10,984 $165,894
======= ========
In 1998, the Company acquired the interests in the retail centers held for
sale at December 31, 1998, with the intention of selling them. Consequently,
revenues of $6,142,000 and operating income of $388,000 in 1999 and revenues of
$6,395,000 and operating losses of $723,000 in 1998 relating to them are not
included in the consolidated statements of operations and comprehensive income.
In June 1999, the Company sold one of these properties at a price approximating
its acquisition cost and, accordingly, recognized no gain or loss on the sale.
Revenues relating to other properties held for sale were $2,546,000 in 1999,
$1,405,000 in 1998 and $17,642,000 in 1997. Operating income from these
properties was $247,000 in 1999 and $859,000 in 1998 and an operating loss of
$3,558,000 was incurred on them in 1997. All properties held for sale at
December 31, 1999 are expected to be sold in 2000.
(4) Accounts and notes receivable
Accounts and notes receivable at December 31, 1999 and 1998 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------- ---------
<S> <C> <C>
Accounts receivable, primarily accrued rents and
income under tenant leases .......... $67,800 $ 54,261
Notes receivable from sales of properties ..... 3,744 5,497
Notes receivable from sales of land ........... 14,553 35,987
------- --------
86,097 95,745
Less allowance for doubtful receivables ....... 24,873 19,828
------- --------
Total ..................................... $61,224 $ 75,917
======= ========
</TABLE>
Accounts and notes receivable due after one year were $10,432,000 and
$23,197,000 at December 31, 1999 and 1998, 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 when the Company's majority
interest ventures began conducting land sales operations. 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.
<PAGE>
(5) Pension, postretirement and deferred compensation plans
The Company has a defined benefit pension plan (the "funded plan") covering
substantially all 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.
Information relating to the obligations, assets and funded status of the
plans at December 31, 1999 and 1998 and for the years then ended is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
Pension Postretirement
Plans Plan
1999 1998 1999 1998
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Change in benefit obligations:
Benefit obligations at beginning of year................... $ 72,344 $ 57,440 $ 15,887 $ 14,668
Service cost............................................... 4,593 4,609 666 718
Interest cost.............................................. 4,805 4,549 1,086 1,024
Actuarial loss (gain)...................................... (7,647) 17,194 (1,892) 282
Benefits paid.............................................. (5,175) (11,448) (852) (805)
-------- -------- -------- --------
Benefit obligations before special events.................. 68,920 72,344 14,895 15,887
Settlements................................................ (20,679) - - -
Special terminations....................................... 5,078 - - -
-------- -------- -------- --------
Benefit obligations at end of year...................... 53,319 72,344 14,895 15,887
-------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of year............. 54,984 47,083 - -
Actual return on plan assets............................... 12,199 7,900 - -
Employer contribution...................................... 18,203 11,449 852 805
Benefits paid.............................................. (5,175) (11,448) (852) (805)
Settlements................................................ (20,679) - - -
-------- -------- -------- -----
Fair value of plan assets at end of year................ 59,532 54,984 - -
-------- -------- -------- -----
Funded status.............................................. 6,213 (17,360) (14,895) (15,887)
Unrecognized net actuarial (gain) loss..................... 4,887 23,784 (1,809) 83
Unamortized prior service cost............................. 6,242 7,652 - -
Unrecognized transition obligation......................... 669 870 4,331 4,664
-------- -------- -------- --------
Net amount recognized................................... $ 18,011 $ 14,946 $(12,373) $(11,140)
======== ======== ======== ========
Amounts recognized in the balance sheets consist of:
Prepaid benefit cost....................................... $ 24,060 $ 20,189 $ - $ -
Accrued benefit liability.................................. (9,803) (11,382) (12,373) (11,140)
Intangible asset........................................... 3,283 4,313 - -
Accumulated other comprehensive income items............... 471 1,826 - -
-------- -------- -------- ---------
Net amount recognized................................... $ 18,011 $ 14,946 $(12,373) $(11,140)
======== ======== ======== =========
Weighted-average assumptions as of December 31:
Discount rate.............................................. 8.00% 7.00% 8.00% 7.00%
Expected rate of return on plan assets..................... 7.25 7.25 - -
Rate of compensation increase.............................. 4.50 4.50 - -
======== ======== ======== =======
</TABLE>
The assets of the funded plan consist primarily of fixed income and
marketable equity securities.
<PAGE>
The net pension cost includes the following components (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- --------
<S> <C> <C> <C>
Service cost................................................. $ 4,593 $ 4,609 $3,373
Interest cost on projected benefit obligations............... 4,805 4,549 3,702
Expected return on funded plan assets........................ (4,049) (3,479) (3,239)
Prior service cost recognized................................ 1,410 1,410 1,410
Net loss recognized.......................................... 1,408 1,281 436
Amortization of transition obligation........................ 201 201 201
-------- ------- -------
Net pension cost before special events.................. 8,368 8,571 5,883
Settlement loss.............................................. 1,691 --- ---
Special termination loss..................................... 5,078 --- ---
-------- ------- -------
Net pension cost........................................ $ 15,137 $ 8,571 $ 5,883
======== ======= =======
</TABLE>
The settlement and special termination losses relate to the
organizational changes and early retirement program more fully discussed
in note 10.
The net postretirement benefit cost includes the following components
(in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Service cost................................................. $ 666 $ 718 $ 578
Interest cost on accumulated benefit obligations............. 1,086 1,024 990
Amortization of transition obligation........................ 333 333 333
------- ------- -------
Net postretirement benefit cost......................... $ 2,085 $ 2,075 $ 1,901
======= ======= =======
</TABLE>
Because the Company's contributions to the cost of the majority of the
participants' medical insurance coverage are fixed, health care cost trend rates
do not significantly affect the benefit obligation or service cost under the
postretirement plan.
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 1999 and 1998 was $3,947,000 and
$3,091,000, respectively.
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. Compensation expense
related to this program was not significant in 1999, 1998 and 1997.
(6) Debt
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 expenditures, including debt service, exceed their operating revenues. At
December 31, 1999 and 1998, nonrecourse loans include $233,703,000 and
$185,574,000, 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.
<PAGE>
Debt at December 31, 1999 and 1998 is summarized as follows (in
thousands):
1999 1998
---------- ----------
Mortgages and bonds ........................... $2,572,496 $2,948,324
Convertible subordinated debentures ........... -- 128,515
Medium-term notes ............................. 91,500 97,500
Credit facility borrowings:
Revolving credit facility .................. 174,000 298,000
Bridge facility ............................ -- 304,000
Other loans ................................... 496,423 282,481
---------- ----------
Total ............................... $3,334,419 $4,058,820
========== ==========
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, 1999, bears interest at a weighted-average
effective rate of 7.78%, including lender participations in operations. At
December 31, 1999, approximately $309,137,000 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 bore interest at 5.75% and were
redeemed by the Company in 1999 at an amount 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, 1999, mature at various dates
from 2000 to 2015, bear interest at a weighted-average effective rate of 7.75%
(including an average rate of 6.24% on $20,000,000 of variable rate notes) and
have a weighted-average maturity of 3.8 years.
The Company has a credit facility with a group of lenders that provides for
unsecured borrowings of up to $450,000,000. Advances under the facility bear
interest at a variable rate based on LIBOR (6.6% at December 31, 1999). The
facility is available to July 2001, subject to a one-year renewal option. The
group of lenders also provided a bridge facility of up to $350,000,000 that was
available solely for specified property acquisitions that were completed in
1998. Borrowings under the bridge facility were repaid on or before July 30,
1999. Payment of borrowings under the credit facility 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 facility.
Other loans include $120,000,000 of 8.5% unsecured notes due in 2003,
$200,000,000 of 8% Senior Debt due in 2009, various property acquisition loans
and certain other borrowings. These loans include aggregate unsecured borrowings
of $472,118,000 and $258,213,000 at December 31, 1999 and 1998, respectively,
and at December 31, 1999, bear interest at a weighted-average effective rate of
8.01%.
At December 31, 1999, approximately $1,224,795,000 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.
The annual maturities of debt at December 31, 1999 are summarized as
follows (in thousands):
<PAGE>
<TABLE>
<CAPTION>
Nonrecourse Company and
Loans Recourse Loans Total
------------ --------------- -------------
<S> <C> <C> <C> <C>
2000........................................ $ 51,933 $ 19,660 $ 71,593
2001........................................ 165,552 245,877 411,429
2002........................................ 283,111 26,695 309,806
2003........................................ 218,250 122,435 340,685
2004........................................ 260,018 2,775 262,793
Subsequent to 2004.......................... 1,550,470 387,643 1,938,113
------------ --------------- -------------
Total................................... $ 2,529,334 $ 805,085 $ 3,334,419
============ =============== ============
</TABLE>
The annual maturities reflect the terms of existing loan agreements except
where refinancing commitments from outside lenders have been obtained. In these
instances, maturities are determined based on the terms of the refinancing
commitments.
<PAGE>
At December 31, 1999, the Company had interest rate cap agreements which
effectively limit the average interest rate on $63,935,000 of mortgages to 9.0%
through May 2002, and $36,000,000 of mortgages to 9.0% through July 2002. The
interest rate swap agreements outstanding at December 31, 1999 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, 1999 and
1998 or interest expense for 1999, 1998 and 1997. The fair values of interest
rate exchange agreements were insignificant at December 31, 1999 and 1998.
Total interest costs were $264,349,000 in 1999, $229,478,000 in 1998, and
$231,098,000 in 1997, of which $19,834,000, $19,914,000, and $23,608,000 were
capitalized, respectively.
In 1999 and 1997, the Company recognized net extraordinary losses related
to extinguishments of debt prior to scheduled maturity of $5,879,000 and
$32,834,000, respectively, before deferred income tax benefits of $11,492,000 in
1997. In 1998, the Company recognized net extraordinary gains of $3,626,000 on
such transactions, before deferred income tax benefits of $729,000. The sources
of funds used to pay the debt and fund the prepayment penalties, where
applicable, were refinancings of properties, the 8% Senior Debt issued in 1999
and the Series B Preferred stock issued in 1997.
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, 1999 and 1998 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------------- ------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Fixed rate debt.......................... $2,746,704 $ 2,628,268 $3,099,949 $3,198,641
Variable rate debt....................... 587,715 587,715 958,871 958,871
---------- ----------- ---------- ----------
Total................................ $3,334,419 $ 3,215,983 $4,058,820 $4,157,512
========== =========== ========== ==========
</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.
(7) Company-obligated mandatorily redeemable preferred securities
The redeemable preferred securities consist of 5,500,000 Cumulative Quarterly
Income Preferred Securities (preferred securities), with a liquidation amount of
$25 per security, which were issued in November 1995 by a statutory business
trust. The trust used the proceeds of the preferred securities and other assets
to purchase at par $141,753,000 of junior subordinated debentures (debentures)
of the Company due in November 2025, which are the sole assets of the trust.
Payments to be made by the trust on the preferred securities are dependent
on payments that the Company has undertaken to make, particularly the payments
to be made by the Company on the debentures. Compliance by the Company with its
undertakings, taken together, would have the effect of providing a full,
irrevocable and unconditional guarantee of the trust's obligations under the
preferred securities.
Distributions on the preferred securities are payable from interest
payments received on the debentures and are due quarterly at 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.
(8) Segment information
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
<PAGE>
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 Company defines FFO as
net earnings (computed in accordance with generally accepted accounting
principles), excluding deferred income taxes, 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's definition of
FFO differs from the definition of FFO developed by the National Association of
Real Estate Investments Trusts in October 1999 and may differ from definitions
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 (majority financial interest ventures)
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.
Operating results for the segments are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Office, Mixed-
Retail use and Other Land Sales
Centers Properties Operations Development Corporate Total
---------- ----------- ------------ --------- --------- -----------
1999
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 583,127 $ 256,163 $ 196,475 $ --- $ 2,084 $ 1,037,849
Operating expenses*......... 269,460 110,428 143,117 3,707 20,416 547,128
Interest expense............ 161,203 96,559 3,151 --- (5,711) 255,202
---------- ----------- ------------ --------- --------- -----------
FFO..................... $ 152,464 $ 49,176 $ 50,207 $ (3,707) $ (12,621) $ 235,519
========== =========== ============ ========= ========= ===========
1998
Revenues.................... $ 559,821 $ 214,693 $ 197,706 $ --- $ 3,797 $ 976,017
Operating expenses*......... 268,851 101,730 144,732 7,383 24,109 546,805
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*......... 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
========== =========== ============ ========= ========= ==========
</TABLE>
* Operating expenses include provisions for bad debts and current income taxes
and exclude depreciation and amortization.
<PAGE>
Reconciliations of the total revenues and expenses reported above to the
related amounts in the consolidated financial statements and of FFO reported
above to earnings before income taxes, extraordinary losses and cumulative
effect of changes in accounting principle in the consolidated financial
statements are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Total reported above............................................ $ 1,037,849 $ 976,017 $ 927,930
Revenues of majority financial interest ventures, excluding
interest on advances to the Company.......................... (299,404) (272,943) ---
Revenues representing the Company's share of FFO of
minority financial interest ventures......................... (22,128) (12,753) (11,159)
Other........................................................... (660) 1,024 ---
------------ ------------ ------------
Total in consolidated financial statements.................. $ 715,657 $ 691,345 $ 916,771
=========== =========== ============
Operating expenses, exclusive of depreciation and amortization:
Total reported above............................................ $ 547,128 $ 546,805 $ 539,050
Operating expenses of majority financial interest ventures...... (176,487) (161,350) ---
Current income taxes applicable to operations................... (284) 24 (3,208)
Participation by others in the Company's share of earnings of
majority financial interest ventures......................... (28,796) (24,152) ---
Other........................................................... (3,174) (4,171) ---
------------ ------------ ------------
Total in consolidated financial statements................. $ 338,387 $ 357,156 $ 535,842
=========== =========== ============
Interest expense:
Total reported above............................................ $ 255,202 $ 224,370 $ 207,490
Interest expense of majority financial interest ventures,
excluding interest on borrowings from the Company............ (10,687) (14,806) ---
------------ ------------ ------------
Total in consolidated financial statements................... $ 244,515 $ 209,564 $ 207,490
=========== =========== ============
Operating results:
FFO reported above.............................................. $ 235,519 $ 204,842 $ 181,390
Depreciation and amortization................................... (100,329) (84,068) (82,944)
Gain (loss) on dispositions of assets and other provisions, net. 32,566 (11,174) (23,484)
Depreciation and amortization, gain on dispositions of assets
and deferred income taxes of unconsolidated real estate
ventures, net................................................ (26,580) (4,380) (4,344)
Current income taxes (benefit) applicable to operations......... 284 (24) 3,208
Other........................................................... --- (44) ---
----------- ----------- ------------
Earnings before income taxes, extraordinary items and
cumulative effect of changes in accounting principle
in consolidated financial statements...................... $ 141,460 $ 105,152 $ 73,826
=========== =========== ============
</TABLE>
The assets by segment at December 31, 1999, 1998 and 1997 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Retail centers...................................... $ 2,873,837 $ 3,636,874 $ 2,144,334
Office, mixed-use and other properties.............. 1,462,780 1,417,622 1,127,640
Land sales operations............................... 434,195 452,507 552,920
Development......................................... 34,680 61,166 165,101
Corporate........................................... 105,605 57,933 126,593
----------- ----------- ------------
Total........................................... $ 4,911,097 $ 5,626,102 $ 4,116,588
=========== =========== ============
</TABLE>
<PAGE>
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>
1999 1998 1997
------------ ------------ -------------
Retail centers:
<S> <C> <C> <C>
Expansions and renovations........................... $ 172,633 $ 231,607 $ 139,608
Improvements for tenants and other................... 23,015 18,105 15,960
Acquisitions......................................... --- 1,042,846 83,985
------------- ------------- -------------
195,648 1,292,558 239,553
------------- ------------- -------------
Office, mixed-use and other properties:
Improvements for tenants and other................... 17,931 10,688 7,667
Expansions and renovations........................... 27,893 24,390 975
Acquisitions......................................... --- 288,694 550
------------- ------------- -------------
45,824 323,772 9,192
------------- ------------- -------------
Land sales operations:
Development expenditures............................. 73,240 82,656 131,310
Acquisitions......................................... --- 16,993 ---
------------- ------------- -------------
73,240 99,649 131,310
------------- ------------- -------------
Development:
Construction and development
costs of new projects............................. 71,890 112,184 153,620
------------- ------------- -------------
Total.................................... $ 386,602 $ 1,828,163 $ 533,675
============= ============= =============
</TABLE>
Approximately $163,042,000 and $169,860,000 of the additions in 1999 and
1998, respectively, relate to property owned by the majority financial interest
ventures.
(9) Income taxes
The income tax benefit for 1997 is reconciled to the amount computed by applying
the Federal corporate tax rate as follows (in thousands):
Tax at statutory rate on earnings before income taxes, extraordinary items
and cumulative effect of changes in accounting
principle...................................................... $ 25,839
State income taxes, net of Federal income
tax benefit.................................................... 3,147
Nondeductible portion of distributions
under Contingent Stock Agreement............................... 13,381
Reduction of net deferred tax liabilities....................... (158,433)
----------
Income tax benefit.......................................... $ (116,066)
==========
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, 1999, and intends for it 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 1999 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, 1999, the income tax bases of the Company's assets and
liabilities were approximately $3,148,000,000 and $3,673,000,000, respectively.
The net operating loss carryforward at December 31, 1999 for Federal income tax
purposes aggregated approximately $220,000,000, and will expire from 2005 to
2011.
<PAGE>
In connection with its election to be taxed as a REIT, the Company also
elected to be subject to the "built-in gain" rules. In February 2000, temporary
nd proposed regulations were issued providing guidance regarding the application
of the "built-in gain" rules to REITs and are retroactive to June 10, 1987. The
regulations require a REIT to refile its election to be subject to the "built-in
gain" rules. The Company intends to refile its election with respect to assets
owned by the Company on the date of conversion to REIT status. Under these
rules, taxes will 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. At December 31, 1999, net unrealized gains
increased to approximately $2,465,000,000 as a result of certain property
acqusitions in 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
certain built-in gains which might be recognized and the potential for the
Company to make nontaxable dispositions, if necessary. At December 31, 1999, the
regular tax net operating loss carryforward is sufficient to offset certain
built-in gains on assets the Company has classified as held for sale 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.
The REIT Modernization Act (RMA) was included in the Tax Relief Extension
Act of 1999, which was enacted into law on December 17, 1999. the RMA includes
numerous amendments to provisions governing the qualification and taxation of
REITs. These amendments are effective January 1, 2001. The Company is in the
process of evaluating the effects of these amendments.
(10) Gain (loss) on dispositions of assets and other provisions, net
Gain (loss) on dispositions of assets and other provisions, net, is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ------------
<S> <C> <C> <C>
Net gain (loss) on operating properties..... $ 41,173 $ (6,109) $ (22,426)
Other, net.................................. (8,607) (5,065) (1,058)
----------- ----------- ----------
Total.................................. $ 32,566 $ (11,174) $ (23,484)
============ =========== ==========
</TABLE>
The net gain on operating properties in 1999 relates primarily to a gain on
a retail center sold in the fourth quarter ($61,970,000) and a gain on an other
property sold in the second quarter ($6,384,000), partially offset by impairment
losses on two retail centers ($28,142,000). During the fourth quarter, the
Company changed its plans and intentions as to the manner in which these two
centers would be operated in the future and revised estimates of the most likely
holding periods. As a result, the Company evaluated the recoverability of the
carrying amounts of the centers, determined that the carrying amounts of the
centers were not recoverable from future cash flows and recognized impairment
losses. The other net loss in 1999 relates primarily to the Company's
consolidation of the management and administration of its Retail Operations and
Office and Mixed-Use Operations divisions into a single Property Operations
Division during the second quarter and the integration of certain operating,
administrative and support functions of the Hughes Division into other
divisions. The costs relating to these organizational changes, primarily
severance and other benefits to terminated employees, aggregated approximately
$6,600,000. Also, in October 1999, the Company adopted a voluntary early
retirement program in which employees who met certain criteria were eligible to
participate. The Company recognized a provision of approximately $2,500,000 for
costs associated with this program for employees who accepted early retirement
prior to December 31, 1999.
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 would 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).
<PAGE>
(11) 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 redeemed all of the outstanding shares of Series A Convertible
Preferred stock in exchange for common stock in 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.
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 12. These shares are issuable only in limited
circumstances and no shares have been issued. There were no shares of 10.25%
Junior Preferred stock, Series 1996, outstanding at December 31, 1999 and 1998.
(12) Common stock
At December 31, 1999, shares of authorized and unissued common stock are
reserved as follows: (a) 15,571,192 shares for issuance under the Contingent
Stock Agreement discussed below; (b) 8,299,597 shares for issuance under the
Company's stock option and stock bonus plans; (c) 5,309,955 shares for
conversion of the Series B Convertible Preferred stock; and (d) 1,929,000 shares
for conversion of convertible property debt.
In connection with the acquisition of The Hughes Corporation (Hughes) in
1996, 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, 1999, a distribution of approximately 657,000 shares
($14,208,000) 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 common stock
for possible issuance under the Agreement. The number of shares reserved was
determined based on 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.
<PAGE>
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>
1999 1998 1997
------------------------ ----------------------- ----------------------
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........... 5,434,214 $ 25.91 4,670,138 $ 24.90 2,765,779 $ 20.18
Options granted........................ 1,125,641 22.90 1,210,402 29.06 2,155,901 30.45
Options exercised...................... (128,232) 16.89 (263,076) 19.48 (239,942) 20.16
Options expired or cancelled........... (168,395) 26.38 (183,250) 30.36 (11,600) 28.76
-------- -------- -------- -------- --------- --------
Balance at end of year................. 6,263,228 $ 25.54 5,434,214 $ 25.91 4,670,138 $ 24.90
========= ======== ========= ======== ========= ========
</TABLE>
<PAGE>
Information about stock options outstanding at December 31, 1999 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> <C> <C>
$13.50 to $19.875 1,527,729 4.7 $18.87 1,323,827 $18.72
$20.94 to $31.375 4,344,827 7.3 27.24 1,572,761 27.54
$31.50 to $32.875 390,672 7.1 32.69 86,144 32.43
---------- --- ------ ---------- ------
6,263,228 6.6 $25.54 2,982,732 $23.77
========== === ====== ========== ======
</TABLE>
At December 31, 1998 and 1997, options to purchase 1,930,918 and 1,594,705
shares, respectively, were exercisable at per share weighted-average prices of
$21.56 and $21.07, respectively.
The per share weighted-average estimated fair values of options granted
during 1999, 1998 and 1997 were $3.15, $3.17, and $8.34, respectively. These
fair values were estimated on the dates of each grant using the Black-Scholes
option-pricing model with the following assumptions:
1999 1998 1997
---- ---- ----
Risk-free interest rate ............. 5.4% 4.6% 6.0%
Dividend yield ...................... 5.5 6.0 3.5
Volatility factor ................... 20.0 21.8 28.0
Expected life in years .............. 6.7 6.6 6.9
==== ==== ====
The option prices were greater than or equal to the market prices at the
date of grant for all of the options granted in 1999, 1998 and 1997 and,
accordingly, no compensation cost has been recognized for stock options in the
financial statements.
If the Company had applied a fair value-based method to recognize
compensation cost for stock options, net earnings and earnings per share of
common stock would have been adjusted as indicated below (in thousands):
1999 1998 1997
---- ---- ----
Net earnings:
As reported ................... $ 135,297 $ 104,902 $ 167,336
Pro forma ..................... 129,763 99,653 164,445
Earnings per share of common stock:
Basic:
As reported ................ 1.71 1.36 2.36
Pro forma .................. 1.63 1.28 2.32
Diluted:
As reported ................ 1.69 1.34 2.29
Pro forma .................. 1.62 1.27 2.25
=========== =========== ===========
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. No
awards were granted in 1999. Awards granted in 1998 and 1997 aggregated 164,850
and 49,000 shares, respectively, with a weighted-average market value per share
of $27.54 and $31.25, 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,
1999, 1998 and 1997 were $2,523,000, $4,012,000, and $5,710,000, 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
$5,123,000 in 1999, $5,572,000 in 1998, and $5,807,000 in 1997.
<PAGE>
(13) Earnings per share
Information relating to the calculations of earnings per share of common stock
is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- -------------------------- ------------------------
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............ $ 141,176 $ 141,176 $ 105,176 $105,176 $ 189,892 $ 189,892
Dividends on unvested common
stock awards and other............. (466) (909) (622) (427) (632) (552)
Dividends on Preferred stock......... (12,150) (12,150) (12,150) (12,150) (10,313) ---
Interest on convertible
subordinated debentures............ --- 3,222 --- --- --- 7,475
--------- ---------- ---------- ------------ ---------- -----------
Adjusted earnings before
extraordinary items and
cumulative effect of changes in
accounting principle used in
EPS computation.................... $ 128,560 $ 131,339 $ 92,404 $ 92,599 $ 178,947 $ 196,815
========= ========= ========= ======== ========= =========
Weighted-average shares outstanding 71,705 71,705 67,874 67,874 66,201 66,201
Dilutive securities:
Options, warrants and unvested
common stock awards.............. --- 563 --- 985 --- 753
Convertible Preferred stock...... --- --- --- --- --- 4,509
Convertible subordinated
debentures..................... --- 1,931 --- --- --- 4,542
--------- ---------- ---------- ------------ ---------- -----------
Adjusted weighted-average shares
used in EPS computation............ 71,705 74,199 67,874 68,859 66,201 76,005
========= ========== ========== ============ ========== ===========
</TABLE>
Effects of potentially dilutive securities are presented only in periods in
which they are dilutive.
(14) Leases
The Company, as lessee, has entered into operating leases expiring at various
dates through 2076. Rents under such leases aggregated $10,728,000 in 1999,
$8,096,000 in 1998, and $9,147,000 in 1997, including contingent rents, based on
the operating performance of the related properties, of $5,132,000, $2,330,000,
and $3,158,000, 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, 1999 are summarized as follows
(in thousands):
2000 ............................................ $ 7,165
2001 ............................................ 7,202
2002 ............................................ 7,230
2003 ............................................ 7,206
2004 ............................................ 6,660
Subsequent to 2004 .............................. 278,149
--------
Total .................................... $313,612
========
<PAGE>
Space in the Company's operating properties is leased to approximately
5,250 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):
1999 1998 1997
------------ ----------- ---------
Minimum rents .............. $434,744 $384,900 $387,488
Percentage rents ........... 12,210 13,071 14,999
Other rents ................ 212,279 204,862 213,005
-------- -------- --------
Total .................. $659,233 $602,833 $615,492
======== ======== ========
The minimum rents to be received from tenants under operating leases in
effect at December 31, 1999 are summarized as follows (in thousands):
2000 ................................................... $ 392,990
2001 ................................................... 345,818
2002 ................................................... 302,872
2003 255,142
2004 ................................................... 211,246
Subsequent to 2004....................................... 665,075
-----------
Total.............................................. $ 2,173,143
===========
Rents under finance leases aggregated $9,055,000 in 1999, $9,332,000 in
1998, and $9,316,000 in 1997. The net investment in finance leases at December
31, 1999 and 1998 is summarized as follows (in thousands):
1999 1998
------------ -----------
Total minimum rent payments to be received
over lease terms.............................. $ 141,466 $ 157,374
Estimated residual values of leased properties.. 3,890 5,695
Unearned income................................. (65,996) (75,717)
----------- ------------
Net investment in finance leases.......... $ 79,360 $ 87,352
========== ===========
Minimum rent payments to be received from tenants under finance leases in
effect at December 31, 1999 are $8,468,000, $9,191,000, $9,256,000, $9,256,000
and $9,452,000 for 2000, 2001, 2002, 2003 and 2004, respectively.
<PAGE>
(15) Other commitments and contingencies
Commitments for the construction and development of properties in the ordinary
course of business and other commitments not set forth elsewhere amount to
approximately $60,000,000 at December 31, 1999.
At December 31, 1999, subsidiaries of the Company have contingent
liabilities of approximately $17,505,000 with respect to future minimum rents
under long-term lease obligations of certain unconsolidated real estate ventures
and approximately $9,053,000 with respect to bank letters of credit issued to
secure their obligations under certain agreements.
At December 31, 1999, the Company had a shelf registration statement for
future sale of up to an aggregate of $1.9 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.
(16) New accounting standards not yet adopted
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 (Statement 137), an amendment to
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," (Statement 133), issued in June 1998.
Statement 137 defers the required adoption date of Statement 133 for the Company
to no later than January 1, 2001. 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 limited use of
derivative instruments.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Five Year Comparison of Selected Financial Data Years ended December 31 (in
thousands, except per share data)
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Operating results data:
Revenues from continuing operations...... $ 715,657 $ 691,345 $ 916,771 $ 821,036 $ 672,821
Earnings from continuing operations...... 141,176 105,176 189,892 17,886 5,850
Basic earnings (loss) from continuing
operations applicable to common
shareholders per share of common
stock.................................. 1.79 1.36 2.70 .13 (.19)
Diluted earnings (loss) from continuing
operations applicable to common
shareholders per share of common
stock.................................. 1.77 1.34 2.59 .12 (.19)
Balance sheet data:
Total assets............................. 4,427,216 5,153,699 3,589,768 3,643,452 2,985,609
Debt and capital leases.................. 3,345,361 4,068,459 2,684,140 2,895,447 2,538,315
Shareholders' equity..................... 638,580 628,926 465,515 177,149 42,584
Shareholders' equity per share of
common stock (note 1).................. 8.40 8.11 6.45 2.65 .73
Other selected data:
Funds from Operations (note 2)........... 235,519 204,842 181,390 139,359 108,360
Net cash provided (used) by:
Operating activities................... 199,960 261,183 185,516 168,126 107,001
Investing activities................... (35,729) (1,033,746) (329,939) (182,995) (64,995)
Financing activities................... (167,029) 721,611 180,297 (36,287) 3,518
Dividends per share of common stock...... 1.20 1.12 1.00 .88 .80
Dividends per share of convertible
Preferred stock........................ 3.00 3.00 2.65 2.44 3.25
Market price per share of common stock
at year end............................ 21.25 27.50 32.75 31.75 20.13
Market price per share of convertible
Preferred stock at year end............ 32.63 43.38 50.50 --- 51.63
Weighted-average common shares
outstanding (basic).................... 71,705 67,874 66,201 54,913 47,375
Weighted-average common shares
outstanding (diluted).................. 74,199 68,859 76,005 55,311 47,375
</TABLE>
NOTES:
(1)---For 1999, 1998 and 1997, shareholders' equity per share of common stock
assumes conversion of the Series B Convertible Preferred stock issued in
1997. For 1995, 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 35 for further discussion of FFO.
<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, 1999 30, 1999 30, 1999 31, 1999 31, 1998 30, 1998 30, 1998 31, 1998
--------- --------- -------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $183,370 $175,644 $176,601 $180,042 $201,024 $164,008 $154,741 $171,572
Operating income.............. 25,831 26,742 29,427 26,894 25,562 28,938 29,123 32,703
Earnings before extraordinary
items....................... 56,631 26,657 29,962 27,926 19,868 21,512 29,264 34,532
Net earnings ................. 51,665 26,654 29,052 27,926 19,549 19,611 36,755 28,987
======= ======= ====== ======= ======== ======== ======== ========
Earnings per common share
Basic:
Earnings before extraordinary
items.................... $ .75 $ .33 $ .37 $ .34 $ .24 $ .27 $ .38 $ .47
Extraordinary gains (losses) (.07) --- (.01) --- --- (.03) .11 (.01)
Cumulative effect of accounting
..................change --- --- --- --- --- --- --- (.07)
----- ------ ----- ------ ------ ------- ------ ------
$ .68 $ .33 $ .36 $.34 $.24 $ .24 $ .49 $ .39
======= ======= ====== === === ==== ==== ====
Diluted:
Earnings before extraordinary
items.................... $ .73 $ .32 $ .37 $.34 $.24 $ .27 $ .37 $ .46
Extraordinary gains (losses) (.07) --- (.01) --- --- .11 (.01)
Cumulative effect of accounting (.03)
..................change --- --- --- --- --- --- --- (.07)
----- ----- ---- ------ ------ ------- ------ ------
Total...................... $ .66 $ .32 $ .36 $ .34 $ .24 $ .24 $ .48 $ .38
======= ======= ====== ======= ======= ======== ======= =======
</TABLE>
Note--- Extraordinary gains (losses) relate to early extinguishments of debt.
Net earnings for the fourth quarter of 1999 includes a gain on sale of a
retail center of $61,970,000 ($.86 per share basic, $.84 per share
diluted) and provisions for impairment losses on two retail centers of
$28,142,000 ($.39 per share basic, $.38 per share diluted). 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).
<PAGE>
<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, 1999 30, 1999 30, 1999 31, 1999 31, 1998 30, 1998 30, 1998 31, 1998
--------- --------- -------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
High.......................... $ 23.25 $ 25.19 $27.06 $27.44 $ 28.88 $ 32.19 $ 32.81 $ 34.69
Low........................... 19.88 22.56 21.25 21.94 23.63 24.81 28.88 29.75
Dividends..................... .30 .30 .30 .30 .28 .28 .28 .28
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Number of Holders of Common Stock
The number of holders of record of the Company's common stock as of February 24,
2000 was 2,013.
<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.
One of the Company's primary objectives is to own and operate premier
operating properties - shopping centers, geographically concentrated 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 and evaluating the outlook for
properties in its portfolio that have prospects consistent with the Company's
long-term investment criteria. 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 mall space and/or add new department stores and/or other
anchor tenants to its existing properties to meet its objective. The Company is
also continually evaluating opportunities for new operating properties and/or
land development projects it believes have prospects consistent with its
objectives. The Company has disposed of interests in more than 35 properties
since 1993 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. In September 1999, the Company announced that it would
pursue developing a strategy to sell interests in certain office and industrial
properties and land parcels, and use the proceeds to repay debt and repurchase
(subject to certain price restrictions) up to $250 million of the Company's
common stock. Management subsequently identified the specific properties the
Company may sell (mostly office and industrial buildings in the
Baltimore-Washington corridor and certain business parks in Las Vegas) and was
developing alternative disposition plans and structures at December 31, 1999.
The Company may also selectively dispose of properties for other reasons. These
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, and, taken together with the use of sales proceeds, may have a
material effect on the overall consolidated financial position of the Company.
In 1999, 1998 and 1997, the Company and its affiliates completed several
acquisition and disposition transactions designed to upgrade the overall quality
of its portfolio of operating properties. This acquisition and disposition
activity is summarized as follows:
Acquisitions
------------
<TABLE>
<CAPTION>
Retail Centers Date Acquired Office, mixed-use and other Date Acquired
- -------------- ------------- --------------------------- -------------
<S> <C> <C> <C>
Moorestown Mall December 1997 Inglewood Business Center (2) December 1998
Park Meadows (1) August 1998 Hunt Valley Business Center (2) December 1998
Fashion Place Mall (1) October 1998 Rutherford Business Center (2) December 1998
The Fashion Show (3) October 1998 Senate Plaza (2) December 1998
Towson Town Center (1) October 1998
Governor's Square (3) November 1998
Bridgewater Commons (1) December 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dispositions
------------
Retail Centers Disposition Date Office, mixed-use and other Disposition Date
- -------------- ---------------- --------------------------- ----------------
<S> <C> <C> <C>
Almeda Mall October 1997 Howard Hughes Center (1 building) May 1997
Northwest Mall October 1997 Hughes Center (1 building) December 1997
The Citadel (4) December 1997 Hughes Airport Center (1 building) December 1997
Harundale Mall December 1997 Columbia Inn March 1998
Salem Centre (4) December 1997 Cross Keys Inn March 1998
Eastfield Mall April 1998 Howard Hughes Center (1 building) March 1998
Salem Mall June 1998 Gateway Commerce Center June 1998
College Square (4) June 1998 (2 buildings)
Marshall Town Center (4) June 1998 Lucky's Center June 1998
Muscatine Mall (4) June 1998
North Grand (4) June 1998
Westland Mall (4) June 1998
Greengate Mall August 1998
St. Louis Union Station September 1998
Northwest Arkansas Mall (4) December 1998
Santa Monica Place October 1999
</TABLE>
Notes:
(1) Properties were contributed to a joint venture in which the Company
retained a 35% ownership interest in February 1999.
(2) Properties are primarily office and industrial buildings (64 in total) in
the Baltimore- Washington metropolitan area which were acquired from an
entity in which the Company held a 5% ownership interest.
(3) The Company purchased partners' ownership interests.
(4) The Company held a 5% ownership interest in these properties.
In 1999, 1998 and 1997, the Company and its affiliates completed a number
of development projects to enhance the property portfolio. This development
activity is summarized as follows:
Development activities
----------------------
<TABLE>
<CAPTION>
Retail Centers Date Opened Office, mixed-use and other Date Opened
- -------------- ----------- --------------------------- -----------
<S> <C> <C> <C>
Beachwood Place Expansion October 1997 Hughes Airport Center (3 buildings) March 1997
River Hill Village Center November 1997 Hughes Center (3 buildings) May 1997
Summerlin Village Centers February 1998 Summerlin Commercial (3 buildings) June 1997
Perimeter Mall Expansion February 1998 Hughes Cheyenne Center (1 building) September 1997
Augusta Mall Expansion March 1998 Hughes Airport Center (2 buildings) February 1998
Oviedo Marketplace March 1998 Arizona Center Cinema March 1998
Paramus Park Expansion July 1998 Summerlin Commercial (2 buildings) March 1998
White Marsh Expansion September 1998 Hughes Center (3 buildings) May 1998
Echelon Mall Expansion October 1998 Park Square, Columbia Office January 1999
Mall St. Matthews Expansion October 1998 Hughes Airport Center (1 building) May 1999
The Mall in Columbia Summerlin Commercial (3 buildings) September 1999
Expansion-Phase I November 1998 Hughes Center (1 building) October 1999
Owings Mills Expansion November 1998
Plymouth Meeting Expansion December 1998
Columbia Village Center
Redevelopment Various 1998
Oakwood Center Expansion March 1999
The Mall in Columbia
Expansion-Phase II September 1999
Exton Square Expansion November 1999
Moorestown Mall Expansion November 1999
</TABLE>
<PAGE>
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 15% in 1999 and 13% in 1998, including increases of 9% and 14%,
respectively, from retail centers, 40% and 32%, respectively, from
office/mixed-use properties and 3% and 4%, respectively, from land sales
operations. These results are attributable to several factors, including:
. the acquisition, disposition and development activities referred to
above,
. higher occupancy levels in retail and office properties,
. higher rents on re-leased space,
. corporate cost reduction measures,
. 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
2000. The prospects for growth from retail centers remain positive as the
Company should benefit from a full year of operations of properties expanded in
1999 and continued strong occupancy levels in existing projects. The Company
also expects continued strong performance from its office/mixed-use properties
however; FFO from these properties may decline if possible sales of certain
properties referred to above are completed. FFO from land sales should also
remain strong in 2000, assuming continued favorable market conditions in
Columbia and Summerlin.
Operating results
This discussion and analysis of operating results covers each of the Company's
five business segments as management believes that a segment analysis provides
the most effective means of understanding the business. Note 8 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 40, should be referred to when reading this discussion and
analysis. As discussed in note 8, 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 or FFO 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
8.
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.
<PAGE>
Retail Centers: Operating results of retail centers are summarized as follows
(in millions):
1999 1998 1997
--------- --------- --------
Revenues ............................... $ 583.1 $ 559.8 $ 503.6
Operating expenses, exclusive of
depreciation and amortization .......... 269.4 268.8 258.2
Interest expense ....................... 161.2 150.9 122.3
------- ------- -------
152.5 140.1 123.1
Depreciation and amortization ......... 80.2 63.1 51.2
------- ------- -------
Operating income ...................... $ 72.3 $ 77.0 $ 71.9
======= ======= =======
Revenues increased $23.3 million in 1999 and $56.2 million in 1998. The
increase in 1999 was attributable primarily to properties opened or expanded
(approximately $17 million) and acquired (approximately $14 million) in 1999 and
1998, higher average occupancy levels (94.5% in 1999 as compared to 92.5% in
1998) and higher rents on re-leased space. These increases were partially offset
by dispositions of interests in properties in 1999 and 1998 (approximately $19
million). The increase in 1998 was attributable primarily to properties opened
or expanded (approximately $25 million) and 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).
Total operating and interest expenses (exclusive of depreciation and
amortization) increased $10.9 million in 1999 and $39.2 million in 1998. The
increase in 1999 was attributable primarily to properties opened or expanded
(approximately $20 million) and acquired (approximately $5 million) in 1999 and
1998. These increases were partially offset by dispositions of interests in
properties in 1999 and 1998 (approximately $18 million). The increase in 1998
was attributable primarily to properties opened and 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). Depreciation and amortization expense
increased $17.1 million in 1999 and $11.9 million in 1998. These increases were
due primarily to the net effect of changes in the Company's portfolio of retail
properties referred to above.
Office, Mixed-Use and Other Properties: Operating results of office/mixed-use
properties are summarized as follows (in millions):
1999 1998 1997
-------- -------- --------
Revenues .............................. $ 256.2 $ 214.7 $ 216.6
Operating expenses, exclusive of
depreciation and amortization ......... 110.4 101.7 108.1
Interest expense ...................... 96.6 77.9 81.9
-------- -------- --------
49.2 35.1 26.6
Depreciation and amortization ......... 40.9 34.2 34.8
-------- -------- --------
Operating income (loss) .............. $ 8.3 $ .9 $ (8.2)
======== ======== ========
Revenues increased $41.5 million in 1999 and decreased $1.9 million in
1998. The increase in 1999 was attributable primarily to properties acquired in
1998 (approximately $38 million) and new properties opened in 1999 and 1998
(approximately $9 million). These increases were partially offset by
dispositions of properties in 1999 and 1998 (approximately $7 million). The
decrease in 1998 was attributable primarily to dispositions of properties in
1998 (approximately $21 million). These decreases were substantially offset by
properties acquired in 1998 (approximately $5 million) and opened in 1998 and
1997 (approximately $9 million), and higher average occupancy levels (96.3% in
1998 as compared to 93.4% in 1997) at comparable properties.
Total operating and interest expenses (exclusive of depreciation and
amortization) increased $27.4 million in 1999 and decreased $10.4 million in
1998. The increase in 1999 was attributable primarily to properties acquired in
1998 (approximately $32 million) and new properties opened in 1999 and 1998
(approximately $5 million). These increases were partially offset by
dispositions of properties in 1999 and 1998 (approximately $6 million) and by
lower expenses due to the integration of certain operating, administrative and
support functions of the Hughes Division into other divisions.
<PAGE>
The decrease in 1998 was attributable primarily to the dispositions of
properties in 1998 and 1997 (approximately $18 million) and to the repayment and
refinancing of certain property debt. These decreases were partially offset by
the properties acquired (approximately $4 million) and opened (approximately $5
million) in 1998 and 1997. Depreciation and amortization expenses increased $6.7
million in 1999. This increase was attributable primarily to the net effect of
the changes of the Company's portfolio of office/mixed-use 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. Operating
results from land sales operations are summarized as follows (in millions):
Hughes Land Operations: 1999 1998 1997
Revenues: ------- ------- -------
Summerlin............... $ 108.6 $ 99.6 $ 128.8
Other................... 23.8 52.6 34.4
Operating costs and expenses:
Summerlin............... 85.5 78.6 101.2
Other................... 21.5 41.9 28.8
Interest expense........ .2 .3 .5
------- ------- -------
Operating income........ $ 25.2 $ 31.4 $ 32.7
======= ======= =======
Columbia and Other:
Revenues................ $ 64.1 $ 45.5 $ 40.0
Operating costs and expenses 36.1 24.2 21.8
Interest expense........ 3.0 3.9 3.8
------- ------- -------
Operating income........ $ 25.0 $ 17.4 $ 14.4
======= ======= =======
Total Land Sales Operations:
Revenues................ $ 196.5 $ 197.7 $ 203.2
Operating costs and expenses 143.1 144.7 151.8
Interest expense........ 3.2 4.2 4.3
------- ------- -------
Operating income........ $ 50.2 $ 48.8 $ 47.1
======= ======= =======
The increases in revenues and operating income in 1999 relating to
Summerlin were attributable to higher levels of land sold for residential
purposes. The decreases in revenues and operating income relating to other
Hughes land holdings in 1999 were attributable to lower levels of land sales at
master planned business parks. 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
relating to other Hughes land holdings in 1998 were attributable to higher
levels of land sales at 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 in
1998.
Revenues and operating income from land sales in Columbia and other
developments increased $18.6 million and $7.6 million, respectively, in 1999 and
$5.5 million and $3.0 million, respectively, in 1998. These increases were
attributable primarily to higher levels of land sales for commercial purposes.
Development: Development expenses were $3.7 million in 1999, $7.4 million
in 1998 and $4.7 million in 1997. These costs consist primarily of
preconstruction expenses and new business costs. Preconstruction expenses relate
to retail and mixed-use property development opportunities which may not go
forward to completion. Preconstruction expenses were $1.9 million in 1999, $1.7
million in 1998 and $2.8 million in 1997. New business costs relate primarily to
the initial evaluation of potential acquisition and development opportunities.
These costs were $1.8 million in 1999, $5.7 million in 1998 and $1.9 million in
1997. The higher level of new business costs in 1998 was attributable to the
Company's focus on acquisition efforts.
<PAGE>
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 $2.1 million
in 1999, $3.8 million in 1998 and $4.5 million in 1997. 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. Corporate interest expense
consists primarily of interest on the 8% Senior Debt, 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, current federal income taxes and distributions on the
redeemable preferred securities.
Corporate interest costs were $8.6 million in 1999, $6.3 million in 1998
and $13.9 million in 1997. Interest of $14.3 million, $14.9 million and $14.9
million was capitalized in 1999, 1998 and 1997, respectively, on funds invested
in development projects. The increase in corporate interest costs in 1999 was
attributable primarily to interest expense incurred on the 8% Senior Debt issued
in May 1999, partially offset by lower interest expense on the convertible
subordinated debentures that were repaid using a portion of the proceeds from
the issuance of the 8% Senior Debt. The decrease in corporate interest costs in
1998 was attributable primarily to allocations of debt to other segments to fund
property acquisitions and certain capital expenditures.
Gain (Loss) on Dispositions of Assets and Other Provisions, Net: Gain (loss) on
dispositions of assets and other provisions, net, including the Company's share
of those recorded by unconsolidated real estate ventures, is summarized as
follows (in millions):
1999 1998 1997
--------- ---------- ---------
Net gain (loss) on operating properties $ 44,018 $ 12,284 $(22,426)
Other, net............................. (10,815) (4,494) (1,058)
--------- --------- ---------
$ 33,203 $ 7,790 $(23,484)
========= ========= =========
The net gain on operating properties in 1999 consisted primarily of a gain
on a retail center sold in the fourth quarter ($62 million) and gains on three
other properties sold during the year ($9 million), partially offset by
impairment losses on two retail centers ($28 million). During the fourth
quarter, the Company changed its plans and intentions as to the manner in which
these centers would be operated in the future and revised estimates of the most
likely holding periods. As a result, the Company evaluated the recoverability of
the carrying amounts of the centers, determined that the carrying amounts were
not recoverable from future cash flows and recognized impairment losses. The
other net loss in 1999 relates primarily to the Company's consolidation of the
management and administration of its Retail Operations and Office and Mixed-Use
divisions into a single Property Operations Division during the second quarter
and the integration of certain operating, administrative and support functions
of the Hughes Division into other divisions. The costs relating to these
organizational changes, primarily severance and other benefits to terminated
employees of the Company and its affiliates, aggregated approximately $7.4
million. Also, in October 1999, the Company and its affiliates adopted voluntary
early retirement programs in which employees who met certain criteria were
eligible to participate. The Company and its affiliates recognized provisions of
approximately $4 million for costs associated with this program for employees
who accepted early retirement prior to December 31, 1999.
The net gain on operating properties in 1998 consisted primarily of gains
on a hotel and industrial properties sold by an affiliate ($16 million) and a
gain on the sale of an interest in a portfolio of retail centers ($3 million),
partially offset by a loss on the disposal of a retail center ($8 million). The
other net loss in 1998 related primarily to a loss on a treasury lock contract
($6 million) that no longer qualified for hedge accounting because the Company
determined that the related anticipated financing transaction would not occur
under the terms and timing originally expected.
The net loss on operating properties in 1997 consisted primarily of losses
recognized on several retail centers, an industrial property and a hotel the
Company decided to sell, partially offset by gains on the sales of five office
buildings ($5 million).
<PAGE>
Extraordinary Items, Net of Related Income Tax Benefits: The extraordinary
losses resulting from early extinguishment of debt were $5.9 million and $32.8
million in 1999 and 1997, respectively, before deferred income tax benefits of
$11.5 million in 1997. In 1998, the Company and its affiliates recognized
extraordinary gains from early extinguishment of debt of $3.6 million before
deferred income tax benefits of $.8 million.
Net Earnings: The Company had net earnings of $135.3 million in 1999, $104.9
million in 1998 and $167.3 million in 1997. The Company's operating income
(after depreciation and amortization) was $108.9 million in 1999, $116.3 million
in 1998 and $97.3 million in 1997. The changes in operating income were due
primarily to the factors discussed 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 meet
the qualifications in the future and does not expect that the Company will be
liable for significant 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. 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
rate was high in 1997 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 Company defines FFO as net
earnings (loss) (computed in accordance with generally accepted accounting
principles), excluding deferred income taxes, 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 definition used by the
Company to compute FFO differs from that used by the National Association of
Real Estate Investment Trusts (NAREIT) and may differ from definitions 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. 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 were excluded. Management believes this exclusion
is appropriate because 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 41.
FFO was $235.5 million in 1999, $204.8 million in 1998 and $181.4 million in
1997. The increases in FFO in 1999 and 1998 were due primarily to the property
acquisitions, expansions and dispositions referred to above, higher occupancy
levels, and higher rents from re-leased space. The reasons for significant
changes in revenues and expenses comprising FFO by segment are discussed above.
In October 1999, NAREIT clarified the definition of FFO to address diversity
in practice with respect to the treatment of unusual and/or nonrecurring items.
Under the revised definition, FFO will include deferred income taxes and all
unusual and/or nonrecurring items that are included in net income, except for
gains and losses from sales of depreciable operating properties and items that
are defined as extraordinary items under generally accepted accounting
principles. The clarified definition is effective January 1, 2000 and is
applicable retroactively. If the change had been effective for 1999, 1998 and
1997, the Company's FFO calculated in accordance with the revised definition
would have been $218.2 million, $190.2 million and $299.6 million (including the
reversal of recorded deferred tax assets and liabilities referred to above),
respectively.
<PAGE>
Financial condition, liquidity and capital resources
Management believes that the Company's liquidity and capital resources are
adequate for near-term and longer-term requirements. Shareholders' equity
increased to $638.6 million at December 31, 1999 from $628.9 million at December
31, 1998. The increase was due primarily to net earnings for the year, partially
offset by the payment of regular quarterly dividends on the common and Preferred
stocks and net repurchases of common stock.
The Company had cash and cash equivalents and investments in marketable
securities totaling $49.2 million and $41.9 million at December 31, 1999 and
1998, respectively. Net cash provided by operating activities was $200.0
million, $261.2 million and $185.5 million in 1999, 1998 and 1997, 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 rents and other revenues (including proceeds of land sales financed by the
Company prior to 1998) and the payment of operating and interest expenses. The
level of cash provided by operating distributions from unconsolidated majority
financial interest ventures is affected by the timing of receipt of their land
sales revenues, payment of operating and interest expenses and other sources and
uses of cash.
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 from a group of
lenders. The facility is available until July 2001 and is subject to a one year
renewal option. The group of lenders also provided a bridge facility that was
available solely for specified property acquisitions that were completed in
1998. Related borrowings were repaid on or before July 30, 1999. 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 2000 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 $51.6 million,
$50.7 million and $46.3 million in 1999, 1998 and 1997, respectively. The annual
maturities of debt for the next five years are as follows (in millions):
Scheduled Balloon
Payments Payments Total
2000.................... ----------- ----------- ---------
2001.................... $ 55 $ 17 $ 72
2002.................... 61 350 411
2003.................... 63 247 310
2004.................... 67 274 341
67 196 263
------- -------- --------
$ 313 $ 1,084 $ 1,397
======= ======== ========
Of the balloon payments due in 2001, $174 million represents borrowings
under the Company's credit facility. The Company has an option to renew this
facility for one year. The remaining balloon payments due in 2001 are expected
to be paid at or before the scheduled maturity dates of the related loans from
property refinancings, credit facility borrowings or other available corporate
funds.
Cash expenditures for properties in development and improvements to existing
properties funded by debt were $220.0 million, $307.0 million and $283.4 million
in 1999, 1998 and 1997, respectively. These expenditures relate primarily to
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 facility borrowings. In many cases,
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 tenant 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 facility borrowings.
Due to the large number of projects in development, the Company anticipates
that the level of capital expenditures for new development and improvements to
existing properties will exceed $200 million in 2000. A substantial portion of
these expenditures relates to new properties or retail center expansions and it
is expected that a majority of these costs will be financed by debt, including
property-specific construction loans and/or credit facility borrowings. The
Company may also develop certain of these projects in joint ventures, with the
other venturers funding a portion of development costs.
<PAGE>
Cash expenditures for acquisitions of interests in properties were $882.4
million in 1998 and $79.4 million in 1997. The acquisitions in 1998, consisting
of the interests in the retail centers, 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 and $108 million of mortgage and other debt and paid
$882.4 million of cash to the sellers as payment. The 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 financed primarily by nonrecourse debt.
In addition to its unrestricted cash and cash equivalents and investments in
marketable securities, the Company has other sources of capital. Availability
under the Company's credit facility was $276 million at December 31, 1999. This
credit facility 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, 1999, the Company had issued
approximately $358 million of common stock and debt securities under the shelf
registration statement, with a remaining availability of approximately $1.9
billion.
As discussed above, at December 31, 1999, the Company was developing
alternative disposition plans and structures with respect to certain office and
industrial buildings in Las Vegas and in the Baltimore-Washington corridor. The
Company began marketing some of these properties in the first quarter of 2000.
The Company expects that some or all of these properties will be sold in 2000
and that any proceeds will be used to repay debt, repurchase common stock and/or
fund project development costs. The Company may also sell interests in other
operating properties. The Company and its affiliates also consider certain
investment and other land assets as significant sources of cash flows and may
decide to accelerate sales in order to provide cash for other purposes,
including the funding of development activities.
Also as discussed above, the Company has approval to repurchase, subject to
certain pricing restrictions, up to $250 million of common stock. As of December
31, 1999, the Company had repurchased approximately 1.6 million shares under
this program for approximately $34.8 million.
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 information
The market risk associated with financial instruments and 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.,
credit facility advances) or finance project development costs (e.g.,
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, 1999.
<PAGE>
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, 1999. Information relating to debt maturities is based on expected
maturity dates which consider anticipated refinancing or other transactions and
is summarized as follows (dollars in millions):
<TABLE>
<CAPTION>
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
----- ----- ----- ------ ----- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt $ 52 $ 160 $ 128 $ 337 $ 258 $1,811 $2,746 $2,628
Average interest rate 7.8 % 7.9 % 7.9 % 7.8 % 7.9 % 7.9 % 7.8 %
Variable rate LIBOR debt $ 20 $ 251 $ 181 $ 4 $ 5 $ 127 $ 588 $ 588
Average interest rate 7.1 % 7.4 % 7.1 % 7.1 % 7.1 % 7.1 % 7.1 %
</TABLE>
At December 31, 1999, approximately $133.3 million of the Company's variable
rate debt relates to borrowings under project construction loans. The borrowings
under project construction loans are expected to be repaid from proceeds of
long-term, fixed rate loans at dates from 2000 to 2001 when construction of the
related projects is scheduled to be completed. At December 31, 1999, the Company
had interest rate cap agreements which effectively limit the average interest
rate on $100 million of the variable rate LIBOR debt maturing in 2002 to 9.0%.
As the table incorporates only those exposures that exist as of December 31,
1999, 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, 1999, the Company's hedging strategies during that period and
interest rates.
New accounting standards not yet adopted
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 (Statement 137), an amendment to
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (Statement 133), issued in June 1998.
Statement 137 defers the required adoption date of Statement 133 for the Company
to no later than January 1, 2001. 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 inflation
The major portion of the Company's operating properties, its retail centers, is
substantially protected from declines in the purchasing power of the dollar.
Retail leases generally provide for minimum rents plus percentage rents based on
sales over a minimum base. 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 fixed rate debt
which, in a period of inflation, will result in a holding gain since debt will
be paid off with dollars having less purchasing power.
Information relating to forward-looking statements
This Annual Report to Shareholders of the Company includes forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties, including those identified below which could
cause actual results to differ materially from historical results or those
anticipated. The words "believe", "expect", "anticipate" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. The following are among the factors that could cause actual
results to differ materially from historical results or those anticipated: (1)
real estate investment trust
<PAGE>
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, 1999.
<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,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Retail centers:
Minimum and percentage rents..................... $ 317,548 $ 308,900 $ 271,743 $ 256,880 $ 245,192
Other rents and other revenues................... 265,579 250,921 231,912 251,535 246,488
---------- ---------- ---------- ---------- ----------
583,127 559,821 503,655 508,415 491,680
---------- ---------- ---------- ---------- ----------
Office, mixed-use and other:
Minimum and percentage rents..................... 181,582 138,043 130,744 106,246 80,319
Other rents and other revenues................... 74,581 76,650 85,827 75,908 64,647
---------- ---------- ---------- ---------- ----------
256,163 214,693 216,571 182,154 144,966
---------- ---------- ---------- ---------- ----------
Land sales.......................................... 196,475 197,706 203,219 137,853 33,403
Corporate interest income........................... 2,084 3,797 4,485 3,495 2,772
---------- ---------- ---------- ---------- ----------
1,037,849 976,017 927,930 831,917 672,821
---------- ---------- ---------- ---------- ----------
Operating expenses, exclusive of depreciation
and amortization:
Retail centers...................................... 269,252 268,786 257,848 260,027 246,747
Office, mixed-use and other......................... 110,387 101,719 108,063 89,524 70,096
Land sales.......................................... 143,089 144,709 151,800 107,787 17,827
Development......................................... 3,707 7,383 4,747 4,964 7,288
Corporate........................................... 17,812 18,813 13,384 9,752 8,920
---------- ---------- ---------- ---------- ----------
544,247 541,410 535,842 472,054 350,878
---------- ---------- ---------- ---------- ----------
Interest expense:
Retail centers...................................... 161,203 150,889 122,325 129,091 128,215
Office, mixed-use and other......................... 96,559 77,894 81,905 76,659 69,034
Land sales.......................................... 3,151 4,201 4,287 1,658 5,071
Development......................................... --- --- --- 361 358
Corporate........................................... (5,711) (8,614) (1,027) 12,612 10,285
---------- ---------- ---------- ---------- ----------
255,202 224,370 207,490 220,381 212,963
---------- ---------- ---------- ---------- ----------
Current income taxes applicable to operations
(note 3)......................................... 2,881 5,395 3,208 123 620
---------- ---------- ---------- ---------- ----------
802,330 771,175 746,540 692,558 564,461
---------- ---------- ---------- ---------- ----------
Funds from Operations (note 2)...................... $ 235,519 $ 204,842 $ 181,390 $ 139,359 $ 108,360
=========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Funds from Operations by segment:
Retail centers...................................... $ 152,464 $ 140,081 $ 123,101 $ 119,297 $ 116,135
Office, mixed-use and other......................... 49,176 35,069 26,562 15,852 5,839
Land sales.......................................... 50,207 48,773 47,090 28,404 10,502
Development......................................... (3,707) (7,383) (4,747) (5,325) (7,646)
Corporate........................................... (12,621) (11,698) (10,616) (18,869) (16,470)
---------- ---------- ---------- ---------- ----------
Funds from Operations............................... $ 235,519 $ 204,842 $ 181,390 $ 139,359 $ 108,360
========== ========== ========== ========== ==========
Reconciliation to net earnings (loss):
Funds from Operations............................... $ 235,519 $ 204,842 $ 181,390 $ 139,359 $ 108,360
Depreciation and amortization....................... (100,329) (84,068) (82,944) (79,990) (73,062)
Deferred income taxes applicable to operations...... --- --- 124,203 (25,596) (3,699)
Certain current income taxes (note 3)............... --- --- (4,929) --- ---
Gain (loss) on dispositions of assets and
other provisions, net............................ 32,566 (11,174) (23,484) (15,887) (25,749)
Depreciation and amortization, gain on dispositions
of assets and deferred income taxes of
unconsolidated real estate ventures, net......... (26,580) (4,380) (4,344) --- ---
Extraordinary gain (loss), net...................... (5,879) 4,355 (21,342) (1,453) (8,631)
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)................................. $ 135,297 $ 104,902 $ 167,336 $ 16,433 $ (2,781)
========== ========== ========== ========== ==========
</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
reconciliation 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 35 for further
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.
<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, Augusta, GA (a) 8/78 Rich's; Macy's; JCPenney; Sears; Dillard's 1,066,000 317,000
Bayside Marketplace, Miami, FL (b) 4/87 -- 227,000 227,000
Beachwood Place, Cleveland, OH (a) 8/78 Saks Fifth Avenue; Dillard's; Nordstrom 914,000 350,000
Cherry Hill Mall, Cherry Hill, NJ (a) 10/61 Strawbridge's; Macy's; JCPenney 1,283,000 534,000
The Mall in Columbia, Columbia, MD (e) 8/71 Nordstrom; Hecht's; JCPenney; Sears; 1,262,000 450,000
Lord & Taylor
Echelon Mall, Voorhees, NJ (a) 9/70 Strawbridge's; JCPenney; Boscov's; Sears 1,140,000 429,000
Exton Square, Exton, PA (a) 3/73 Strawbridge's; Boscov's; Sears 748,000 253,000
Faneuil Hall Marketplace, Boston, MA (a) 8/76 -- 217,000 217,000
Fashion Place, Salt Lake City, UT (d) 10/98 Dillard's; Nordstrom; Sears 935,000 369,000
The Fashion Show, Las Vegas, NV (a) 6/96 Neiman Marcus; Saks Fifth Avenue; 869,000 309,000
Macy's; Dillard's; Robinsons-May
Franklin Park, Toledo, OH (b) 7/71 Marshall Field's; JCPenney; Jacobson's; 1,109,000 323,000
Dillard's; JCPenney Home Store
The Gallery at Market East, 8/77 Strawbridge's; JCPenney; KMart 1,009,000 193,000
Philadelphia, PA (a)
Governor's Square, Tallahassee, FL (a) 8/79 Burdines; Dillard's; Sears; JCPenney 1,043,000 339,000
The Grand Avenue, Milwaukee, WI (a) 8/82 The Boston Store 492,000 242,000
Harborplace, Baltimore, MD (a) 7/80 -- 143,000 143,000
Highland Mall, Austin, TX (b) 8/71 Dillard's (two stores); Foley's; JCPenney 1,086,000 368,000
Hulen Mall, Ft. Worth, TX (a) 8/77 Foley's; Montgomery Ward; Dillard's 938,000 327,000
The Jacksonville Landing, 6/87 -- 125,000 125,000
Jacksonville, FL (a)
Mall St. Matthews, Louisville, KY (a) 3/62 Dillard's (two stores); JCPenney; 1,110,000 361,000
Lord & Taylor
Mondawmin Mall (a)/Metro Plaza (b), 1/78; 12/82 -- 442,000 442,000
Baltimore, MD
Moorestown Mall, Moorestown, NJ (a) 12/97 Strawbridge's; Boscov's; Sears 913,000 339,000
North Star, San Antonio, TX (b) 9/60 Dillard's; Foley's; Saks Fifth Avenue; 1,254,000 465,000
Macy's; Mervyn's California
Oakwood Center, Gretna, LA (a) 10/82 Sears; Dillard's; JCPenney 947,000 349,000
Mervyn's California
Oviedo Marketplace, Orlando, FL (a) 3/98 Dillard's; Parisian; Regal Cinema 830,000 335,000
Owings Mills, Baltimore, MD (a) 7/86 Macy's; Hecht's; JCPenney; 1,223,000 410,000
Lord & Taylor; Sears; General Cinema 17
Paramus Park, Paramus, NJ (a) 3/74 Macy's; Sears 779,000 312,000
Perimeter Mall, Atlanta, GA (b) 8/71 Rich's; JCPenney; Macy's; Nordstrom 1,416,000 436,000
Plymouth Meeting, 2/66 Strawbridge's; Boscov's; 813,000 365,000
Plymouth Meeting, PA (a) General Cinema 12
Riverwalk, New Orleans, LA (a) 8/86 -- 175,000 175,000
South Street Seaport, New York, NY (a) 7/83 -- 261,000 261,000
Tampa Bay Center, Tampa, FL (b) 8/76 Sears; Montgomery Ward 895,000 325,000
White Marsh, Baltimore, MD (b) 8/81 Macy's; JCPenney; Hecht's; Sears; 1,146,000 357,000
Lord & Taylor
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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>
Willowbrook, Wayne, NJ (b) 9/69 Lord & Taylor; Macy's; Stern's; Sears 1,528,000 500,000
Woodbridge Center, Woodbridge, NJ (a) 3/71 Lord & Taylor; Sears; Stern's; Fortunoff; 1,546,000 560,000
JCPenney
Community Centers in Columbia, MD (12) (e) -- -- 914,000 914,000
Community Centers in Summerlin, NV (2) (b) -- -- 238,000 238,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Consolidated Centers in Operation* 31,036,000 12,659,000
- ------------------------------------------------------------------------------------------------------------------------------------
Date of Opening Retail Square Footage
Nonconsolidated/Managed Centers or Acquisition Department Stores/Anchor Tenants Total Center Mall Only
- ------------------------------------------------------------------------------------------------------------------------------------
Bridgewater Commons, Bridgewater, NJ (d) 12/98 Lord & Taylor; Macy's; Stern's 888,000 385,000
Collin Creek, Plano, TX (d) 9/95 Dillard's; Foley's; JCPenney; Sears; 1,121,000 331,000
Mervyn's California
Park Meadows, Littleton, CO (d) 7/98 Dillard's; Foley's; Lord & Taylor; 1,557,000 606,000
Nordstrom; JCPenney
Randhurst, Mt. Prospect, IL (d) 7/81 Carson, Pirie, Scott; JCPenney; 1,335,000 612,000
Montgomery Ward; Kohl's
Ridgedale Center, Minneapolis, MN (d) 1/89 Dayton's Women's; JCPenney; Sears; 1,036,000 343,000
Dayton's Men & Home
Sherway Gardens, Toronto, ONT (c) 12/78 Sears; The Bay; Holt Renfrew; 972,000 444,000
Sporting Life
Southland Center, Taylor, MI (d) 1/89 Hudson's; Mervyn's California; JCPenney 905,000 322,000
Staten Island Mall, Staten Island, NY (d) 11/80 Sears; Macy's; JCPenney 1,229,000 622,000
Town & Country Center, Miami, FL (c) 2/88 Sears; Marshalls; Publix; AMC Theatre 597,000 344,000
Towson Town Center, Baltimore, MD (d) 10/98 Hecht's; Nordstrom; Nordstrom Rack 968,000 538,000
Total Nonconsolidated/Managed Centers
in Operation 10,608,000 4,547,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Retail Centers in Operation* 41,644,000 17,206,000
- ------------------------------------------------------------------------------------------------------------------------------------
Date of Opening Retail Square Footage
Properties Held for Sale or Acquisition Department Stores/Anchor Tenants Total Center Mall Only
- ------------------------------------------------------------------------------------------------------------------------------------
Retail Centers
Midtown Square, Charlotte, NC (a) 10/59 Burlington Coat Factory 235,000 190,000
Westdale, Cedar Rapids, IA (d) 10/98 JCPenney; Ward's; 912,000 383,000
Von Maur; Younkers
- ------------------------------------------------------------------------------------------------------------------------------------
Total Properties Held for Sale 1,147,000 573,000
</TABLE>
*Not including 776,000 square feet of retail space in five mixed-use properties
listed on the following page.
<PAGE>
<TABLE>
<CAPTION>
Office, Mixed-Use and Other Properties in Operation
- ------------------------------------------------------------------------------------------------------
Consolidated Mixed-Use Properties (note 1) Location Square Feet
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Arizona Center (a) Phoenix, AZ
The Shops at Arizona Center 144,000
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 139,000
Office Tower 265,000
Renaissance Hotel 622 rooms
- -------------------------------------------------------------------------------------------------------
Pioneer Place (a) Portland, OR
Saks Fifth Avenue 60,000
Retail Pavilion 158,000
Office Tower 283,000
- -------------------------------------------------------------------------------------------------------
The Village of Cross Keys (a) Baltimore, MD
Village Shops 74,000
Village Square Offices 79,000
Quadrangle Offices 110,000
- -------------------------------------------------------------------------------------------------------
Westlake Center (a) Seattle, WA
Retail Pavilion 111,000
Office Tower 342,000
- -------------------------------------------------------------------------------------------------------
Consolidated Office and Other Properties (note 1)
- -------------------------------------------------------------------------------------------------------
Columbia Office (12 buildings) (a) (e) Columbia, MD 1,099,000
Columbia Industrial (8 buildings) (e) Columbia, MD 428,000
Hughes Center (14 buildings) (a) Las Vegas, NV 1,176,000
Hughes Airport Center (34 buildings) (e) Las Vegas, NV 1,745,000
Hughes Cheyenne Center (3 buildings) (a) Las Vegas, NV 368,000
Summerlin Commercial (14 buildings) (a) Summerlin, NV 900,000
Owings Mills Town Center (4 buildings) (b) Baltimore, MD 731,000
Inglewood Business Center (7 buildings) (a) Prince George's County, MD 538,000
Hunt Valley Business Center (24 buildings) (a) Baltimore, MD 1,818,000
Rutherford Business Center (24 buildings) (a) Baltimore, MD 873,000
Other Office Projects (5 buildings) (a) Various 501,000
- -------------------------------------------------------------------------------------------------------
Total Office, Mixed-Use and Other
Properties in Operation** 12,844,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
** Including 776,000 square feet of retail space in the mixed-use properties.
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.
<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 L.L. Bean 125,000 125,000
Exton Square Expansion, Exton, PA JCPenney 238,000 120,000
Oviedo Marketplace Expansion, Orlando, FL Sears 125,000 --
Moorestown Mall Expansion, Moorestown, NJ Lord & Taylor 120,000 --
Perimeter Mall Expansion, Atlanta, GA -- 78,000 78,000
- -------------------------------------------------------------------------------------------------------------------------
The Fashion Show Expansion, Las Vegas, NV Neiman Marcus; Saks Fifth Avenue;
Macy's; Robinsons-May; Lord & Taylor;
Dillard's; Bloomingdale's 1,000,000 280,000
- -------------------------------------------------------------------------------------------------------------------------
Bridgewater Commons Expansion, Bridgewater, NJ Bloomingdale's 400,000 150,000
Fashion Place Expansion, Salt Lake City, UT Nordstrom; Dillard's 475,000 115,000
Summerlin Town Center, Summerlin, NV Robinsons-May; Lord & Taylor;
Dillard's; Macy's 1,050,000 350,000
La Cantera, San Antonio, TX Dillard's; Foley's 1,300,000 400,000
Maple Grove, Minneapolis, MN Dayton's; Nordstrom 1,000,000 350,000
Cincinnati, Cincinnati, OH Nordstrom 800,000 350,000
West Kendall, Dade County, FL Dillard's; Sears; Burdine's 1,200,000 350,000
Nashville, Nashville, TN Nordstrom 800,000 350,000
Total Retail Centers Under Construction or
in Development 8,711,000 3,018,000
- -------------------------------------------------------------------------------------------------------------------------
Office, Mixed-Use and Other Properties
Under Construction or in Development Type of Space Square Feet
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Place Expansion, Portland, OR Saks Fifth Avenue; Sundance Cinemas 155,000
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 435,000
Office 110,000
Corporate Pointe, Summerlin, NV Office/Industrial 112,000
Total Office, Mixed-Use and Other Properties
Under Construction or in Development 1,172,000
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(a) Projects are wholly owned by subsidiaries of the Company.
(b) Projects are owned by joint ventures or partnerships and are managed by
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
(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
40%.
(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.
<PAGE>
Exhibit 21. Subsidiaries of the Registrant.
The Registrant had no parent at December 31, 1999.
As of December 31, 1999, The Rouse Company owned 100% of the voting
securities of the following domestic and foreign corporations included in the
consolidated financial statements:
State of
Subsidiary Incorporation
---------- -------------
Directly owned subsidiaries of the Company. All
shares are Common Stock unless otherwise noted.
American City Corporation, The Maryland
Baltimore Center, Inc. Maryland
Beachwood Property Holdings, Inc. Maryland
Charlottetown, Inc. Maryland
Charlottetown North, Inc. Maryland
Chesapeake Investors, Inc. (Note 1) Delaware
Community Research and Development, Inc. Maryland
Cuyahoga Land Company, Inc. Maryland
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. 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
One Owings Mills Corporate Center, Inc. Maryland
Owings Mills Finance Corporation Maryland
Plymouth Meeting Food Court, Inc. Maryland
Plymouth Meeting Mall, Inc. (Note 3) Pennsylvania
PT Funding, Inc. Maryland
1
<PAGE>
Rouse-Camden Warehouse, Inc. Maryland
Rouse Capital (Note 4) 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 5) Alabama
Rouse Company of Alaska, Inc., The Maryland
Rouse Company of Arkansas, Inc., The Maryland
Rouse Company of California, Inc., The (Note 6) Maryland
Rouse Company of Colorado, Inc., The (Note 7) Maryland
Rouse Company of Connecticut, Inc., The (Note 8) Connecticut
Rouse Company of Florida, Inc., The (Note 9) Florida
Rouse Company of Georgia, Inc., The (Note 10) Georgia
Rouse Company of Idaho, Inc., The Maryland
Rouse Company of Illinois, Inc., The Maryland
Rouse Company of Iowa, Inc., The (Note 11) Maryland
Rouse Company of Louisiana, The (Note 12) Maryland
Rouse Company of Maine, Inc., The Maryland
Rouse Company of Massachusetts, Inc., The (Note 13) Maryland
Rouse Company of Michigan, Inc., The (Note 14) Maryland
Rouse Company of Minnesota, Inc., The (Note 15) Maryland
Rouse Company of Mississippi, Inc., The Maryland
Rouse Company of Montana, Inc., The Maryland
Rouse Company of Nevada, Inc., The (Note 16) Nevada
Rouse Company of New Hampshire, Inc., The Maryland
Rouse Company of New Jersey, Inc., The (Note 17) New Jersey
Rouse Company of New Mexico, Inc., The Maryland
Rouse Company of New York, Inc., The (Note 18) New York
Rouse Company of North Carolina, Inc., The (Note 19) Maryland
Rouse Company of North Dakota, Inc., The Maryland
Rouse Company of Ohio, Inc., The (Note 20) Ohio
Rouse Company of Oklahoma, Inc., The Maryland
Rouse Company of Oregon, Inc., The (Note 21) Maryland
Rouse Company of Pennsylvania, Inc., The (Note 22) 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 23) 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 24) Maryland
2
<PAGE>
Rouse Company of Washington, Inc., The (Note 25) Maryland
Rouse Company of West Virginia, Inc., The Maryland
Rouse Company of Wisconsin, Inc., The Maryland
Rouse Company of Wyoming, Inc., The Maryland
Rouse Development Company of California, Inc., The 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 26) Maryland
Rouse-Inglewood, Inc. Maryland
Rouse Investing Company (Note 27) 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 28) Maryland
Rouse-Oakwood Two, Inc. Maryland
Rouse Office Management, Inc. Maryland
Rouse Office Management of Pennsylvania, Inc. Maryland
Rouse Owings Mills Management Corporation Maryland
Rouse Philadelphia, 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 29) Delaware
RREF Holding, Inc. (Note 30) Texas
Salem Mall, Incorporated Maryland
Santa Monica Place, Inc. Maryland
3
<PAGE>
Six Owings Mills Corporate Center, Inc. Maryland
SMPL Management, Inc. Maryland
Three Owings Mills Corporate Center, Inc. Maryland
TRC Central, Inc. Maryland
TRCD, Inc. (Note 31) Delaware
TRC Holding Company of Washington, D.C. (Note 32) 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
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:
Hunt Valley Title Holding Corporation
Rouse Acquisition Finance, Inc.
Rouse Commercial 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 Plymouth Meeting Mall, Inc. owns all of the outstanding common stock of 1150
Plymouth Associates, Inc., a Maryland corporation.
4. 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.
5. The Rouse Company of Alabama, Inc. owns all of the outstanding capital stock
of Rouse-Liberty Park, Inc., a Maryland Corporation.
6. 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.
7. The Rouse Company of Colorado, Inc. owns all of the outstanding capital stock
of Rouse Management Services Corporation of Colorado, Inc., a Maryland
corporation.
8. The Rouse Company of Connecticut, Inc. owns all of the outstanding capital
stock of each of Rouse Chapel Square Finance, Inc., a Maryland corporation.
9. The Rouse Company of Florida, Inc. owns all of the outstanding common stock
or units of ownership interest of each of the following entities:
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
5
<PAGE>
Rouse-Coral Gables, Inc., a Maryland corporation
Rouse-Fort Myers, Inc., a Maryland corporation
Rouse-Governor's Square, Inc., a Maryland corporation
Rouse-East Jacksonville, LLC, a Maryland limited liability company
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
10. 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 Development Management Company, Inc.
Rouse South DeKalb, Inc.
South DeKalb Mall Management Corporation
11. 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.
12. The Rouse Company of Louisiana owns all of the outstanding capital stock of
Rouse-New Orleans, Inc., a Maryland corporation
13. 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.
14. The Rouse Company of Michigan, Inc. owns all of the outstanding capital
stock of each of the following Maryland corporations:
Rouse-Ann Arbor, Inc.
Rouse Southland, Inc.
Rouse Southland Management Corporation
6
<PAGE>
Southland Security, Inc.
Southland Shopping Center, Inc.
15. 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
Rouse-St. Elmo, Inc.
16. 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
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.
7
<PAGE>
Rouse-Bridgewater Commons, LLC owns all of the outstanding units of
ownership interest of Bridgewater Commons Mall, LLC, a Maryland limited
liability company.
Rouse-Park Meadows Holding, LLC owns all of the outstanding units of
ownership interest of Rouse-Park Meadows, LLC, a Maryland limited liability
company.
Rouse-Towson Town Center, LLC owns 99.5% of the outstanding units of
ownership interest of Towson Town Center, LLC, a Maryland limited liability
company.
Towson Town Center, LLC owns all of the outstanding units of ownership
interest of Route-TTC Funding, LLC, a Maryland limited liability company.
TTC Member, Inc. owns .1% of the outstanding units of ownership interest of
TTC SPE, LLC and .5% of the outstanding units of Towson Town Center, LLC.
17. 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-Burlington, Inc.
The Willowbrook Corporation
Willmall Holdings, Inc.
Willowbrook Management Corporation
18. The Rouse Company of New York, Inc. owns all of the outstanding capital
stock of each of the following Maryland corporations:
Rouse SI Shopping Management, Inc.
Seaport Marketplace, Inc.
Seaport Marketplace Theatre, Inc.
Seaport Theatre Management Corporation
19. 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 Office Management of North Carolina, Inc.
20. 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
8
<PAGE>
Rouse-Brentwood, Inc., a Maryland corporation
21. 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 Management Corporation
22. The Rouse Company of Pennsylvania, Inc. owns all of the outstanding capital
stock of Whiteland I, Inc. and Whiteland II, Inc., both Maryland
corporations.
23. 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
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-Almeda, 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
24. The Rouse Company of Virginia, Inc. owns all of the outstanding capital
stock of each of the following Maryland corporations:
Rouse-Military Circle, Inc.
Rouse-Richmond, Inc.
25. The Rouse Company of Washington, Inc. owns all of the outstanding capital
stock of Rouse-Seattle, Inc., a Maryland corporation.
26. 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.
9
<PAGE>
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.
27. Rouse Investing Company owns all of the outstanding capital stock of each
of the following corporations:
Deerfield Homes, Inc., a Florida corporation
Wilmington Homes, Inc., a North Carolina corporation
28. 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.
29. 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
30. RREF Holding, Inc. owns all of the outstanding capital stock of RII
Holding, Inc., a Texas corporation.
31. 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.
10
<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.
32. TRC Holding Company of Washington, D.C. owns all of the outstanding capital
stock of Rouse-National Press Management, Inc., a Maryland corporation
11
<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,
2000, relating to the consolidated financial statements and related schedules of
The Rouse Company and subsidiaries as of December 31, 1999 and 1998 and for each
of the years in the three-year period ended December 31, 1999, which report
appears in the Annual Report on Form 10-K of The Rouse Company for the year
ended December 31, 1999.
KPMG LLP
Baltimore Maryland
March 30, 2000
<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,
2000, 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 December 31, 1999 and
1998, which report appears in the Annual Report on Form 10-K of The Rouse
Company for the year ended December 31, 1999.
KPMG LLP
Baltimore Maryland
March 30, 2000
<PAGE>
Exhibit 24. Power of Attorney.
The Power of Attorney, dated February 24, 2000, 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 GORDON H. GLENN, 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,
1999 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 24, 2000
/s/ David H. Benson (SEAL)
---------------------------
David H. Benson
/s/ Jeremiah E. Casey (SEAL)
---------------------------
Jeremiah E. Casey
<PAGE>
/s/ Mathias J. DeVito (SEAL)
---------------------------
Mathias J. DeVito
/s/ Anthony W. Deering (SEAL)
---------------------------
Anthony W. Deering
/s/ Platt W. Davis, III (SEAL)
---------------------------
Platt W. Davis, III
/s/ Rohit M. Desai (SEAL)
---------------------------
Rohit M. Desai
/s/ Juanita T. James (SEAL)
---------------------------
Juanita T. James
/s/ Thomas J. McHugh (SEAL)
---------------------------
Thomas J. McHugh
/s/ Hanne M. Merriman (SEAL)
---------------------------
Hanne M. Merriman
/s/ Roger W. Schipke (SEAL)
---------------------------
Roger W. Schipke
/s/ Alexander B. Trowbridge (SEAL)
---------------------------
Alexander B. Trowbridge
/s/ Gerard J. M. Vlak (SEAL)
---------------------------
Gerard J. M. Vlak
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE IS SUBMITTED IN ACCORDANCE WITH REGULATION S-K ITEM
601(C)(2). THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
10-K FOR THE ANNUAL PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 25,890
<SECURITIES> 23,321
<RECEIVABLES> 86,097
<ALLOWANCES> 24,873
<INVENTORY> 0
<CURRENT-ASSETS> 100,057<F1>
<PP&E> 4,110,998
<DEPRECIATION> 574,837
<TOTAL-ASSETS> 4,427,216
<CURRENT-LIABILITIES> 388,845<F2>
<BONDS> 3,334,419
0
41
<COMMON> 707
<OTHER-SE> 637,832
<TOTAL-LIABILITY-AND-EQUITY> 4,427,216
<SALES> 715,657
<TOTAL-REVENUES> 715,657
<CGS> 0
<TOTAL-COSTS> 430,168
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8,548
<INTEREST-EXPENSE> 244,515
<INCOME-PRETAX> 141,460
<INCOME-TAX> 284
<INCOME-CONTINUING> 108,894
<DISCONTINUED> 32,566
<EXTRAORDINARY> (5,879)
<CHANGES> 0
<NET-INCOME> 135,297
<EPS-BASIC> 1.71
<EPS-DILUTED> 1.69
<FN>
<F1> CURRENT ASSETS INCLUDE CASH, UNRESTRICTED MARKETABLE SECURITIES, CURRENT
PORTION OF ACCOUNTS AND NOTES RECEIVABLE AND PREPAID EXPENSES AND DEPOSITS.
<F2> CURRENT LIABILITIES INCLUDE THE CURRENT PORTION OF LONG-TERM DEBT AND
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES.
</FN>
</TABLE>
<PAGE>
Exhibit 99. Additional Exhibits.
99.1 Form 11-K Annual Report of The Rouse Company Savings Plan for
the year ended December 31, 1999.
99.2 Factors affecting future operating results.
<PAGE>
Exhibit 99.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the fiscal year ended December 31, 1999 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, 1999 will be filed on or before June 29, 2000.
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, 2000 By ______________________________
--------------- Janice A. Fuchs, Administrator
and
Date: March 30, 2000 By ______________________________
--------------- Jeffrey 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
<PAGE>
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. 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.
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.
<PAGE>
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 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
<PAGE>
regulated substances or related claims. In addition to remediation actions
brought by federal, state and local agencies, the presence of hazardous
substances on a property could result in personal injury or similar claims by
private plaintiffs. Such claims could result in costs or liabilities which could
exceed the value of such property. The Company is not aware of any notification
by any private party or governmental authority of any non-compliance, liability
or other claim in connection with environmental conditions at any of its
properties that it believes will involve any expenditure which would be material
to the Company, nor is the Company aware of any environmental condition with
respect to any of its properties that it believes will involve any such material
expenditure. However, there can be no assurance that any such non-compliance,
liability, claim or expenditure will not arise in the future.
Although the Company generally conducts environmental reviews with respect
to properties which it acquires and develops, 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.
-4-
<PAGE>
Parties to interest rate exchange agreements are subject to market risk for
changes in interest rates and risk of credit loss in the event of nonperformance
by the counterparties. Although the Company deals only with highly rated
financial institution counterparties (which, in certain cases, are also the
lenders on the related debt) and does not expect that any counterparties will
fail to meet their obligations, there can be no assurance that this will not
occur.
Risks Relating to Nevada Properties. General. Affiliates of the Company own
approximately 4.2 million rentable square feet of office and industrial space
primarily around Las Vegas, Nevada, Fashion Show Mall, an 869,000 square foot
regional shopping center located on the "Strip" in Las Vegas, two Tournament
Players Club golf clubs in Summerlin and approximately 8,200 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-
