-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wvu0NzS28BSAsPyeQEfve5aUbQ3X/Pm2o7MsuYDKmYbiRbAe5z0apUEtCM/siMw6 1UWCFfrI/4NhiZVfQrDZOA== 0000928385-96-000159.txt : 19960306 0000928385-96-000159.hdr.sgml : 19960306 ACCESSION NUMBER: 0000928385-96-000159 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960305 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROUSE COMPANY CENTRAL INDEX KEY: 0000085388 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 520735512 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11543 FILM NUMBER: 96531449 BUSINESS ADDRESS: STREET 1: 10275 LITTLE PATUXENT PKWY CITY: COLUMBIA STATE: MD ZIP: 21044-3456 BUSINESS PHONE: 4109926000 MAIL ADDRESS: STREET 1: 10275 LITTLE PATUXENT PARKWAY CITY: COLUMBIA STATE: MD ZIP: 21044 FORMER COMPANY: FORMER CONFORMED NAME: COMMUNITY RESEARCH & DEVELOPMENT INC DATE OF NAME CHANGE: 19660913 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) COMMISSION FILE No 0-1743 THE ROUSE COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MARYLAND 52-0735512 ------------------------------- ------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 10275 LITTLE PATUXENT PARKWAY COLUMBIA, MARYLAND 21044-3456 ---------------------------------------- ---------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (410) 992-6000 -------------- Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ------------------- --------------------- Common Stock (par value 1 cent per share) New York Stock Exchange - ----------------------------------------- Series A Convertible Preferred Stock - ------------------------------------- (par value 1 cent per share) New York Stock Exchange - ---------------------------- 9 1/4% Cumulative Quarterly Income Preferred - -------------------------------------------- Securities New York Stock Exchange - ---------- Securities registered pursuant to Section 12(g) of the Act: NONE ---- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ____ ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. __ As of February 20, 1996, there were outstanding 47,922,749 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 non-affiliates of the registrant (based on the closing price as reported in The Wall Street Journal, Eastern Edition) was ---------------------------------------- approximately $906,134,036. Documents Incorporated by Reference The specified portions of the Annual Report to Shareholders for the fiscal year ended December 31, 1995 are incorporated by reference into Parts I, II and IV. Definitive Proxy Statement to be filed pursuant to Regulation 14A on or before April 7, 1996 is incorporated by reference into Part III. PART I ------ Item 1. Business. Item 1(a). General Development of Business. The Rouse Company (the "Company") was incorporated as a business corporation under the laws of the State of Maryland in 1956. Its principal offices are located at The Rouse Company Building, Columbia, Maryland 21044. Its telephone number is (410) 992-6000. The Company, through its subsidiaries and affiliates, is engaged in (i) the ownership, management, acquisition and development of income-producing and other real estate in the United States, including retail centers, office buildings, mixed-use projects, community retail centers and two hotels, and the management of one retail center in Canada, and (ii) the development and sale of land to builders and other developers, primarily around Columbia, Maryland, for residential, commercial and industrial uses. RECENT DEVELOPMENTS. On February 27, 1996, the Company entered into certain merger agreements whereby the Company agreed, subject to certain conditions, to acquire The Hughes Corporation, a Delaware corporation ("THC"), its affiliated partnership, Howard Hughes Properties, Limited Partnership ("HHPLP"), a Delaware limited partnership, and their subsidiaries and affiliates. THC and HHPLP are primarily engaged in real estate management and development. The assets of THC and its subsidiaries include four large-scale, master-planned business parks (three in Las Vegas and one in Los Angeles), a 75% partnership interest in a regional shopping center in Las Vegas, a 22,500 acre master planned, new community in Las Vegas and a number of other land parcels and commercial buildings in both Nevada and Los Angeles. The Company agreed to acquire all the capital stock of THC ("THC Common Stock") through a merger of THC into a wholly owned subsidiary of the Company (the "Merger"). The Company agreed to acquire the 48% of the partnership interests of HHPLP which are not currently owned by THC through a merger of another wholly owned subsidiary of the Company into HHPLP (the "HHPLP Merger"). The purchase price includes debt presently encumbering the assets of THC and its subsidiaries. In the Merger, holders of THC Common Stock are to receive (i) shares of Rouse Common Stock or, in the event that the number of shares of Rouse Common Stock issuable in the Merger would otherwise exceed 19.9% of the currently outstanding Rouse Common Stock, a combination of Rouse Common Stock and cash, in each case having a value of $176.4 million, (ii) a note of up to $15 million and (iii) contractual rights to receive additional shares of Rouse Common Stock or, if the Company is I-1 Item 1. Business, continued. unable for any reason to deliver shares of Rouse Common Stock, shares of a new series of increasing rate Preferred Stock, par value $0.01 per share, of the Company over a period of up to 15 years following the consummation of the Merger based upon certain formulas relating to the cash flow and appraised value of certain assets of THC and its subsidiaries. The number of shares to be issued in the Merger will be determined by the average closing price of the stock for the 30 trading days ending five days prior to the closing date subject to maximum and minimum prices. Pursuant to the HHPLP Merger, holders of partnership interests in HHPLP (other than THC) will be entitled to receive an amount of cash equal to (i) the sum of (x) $40 million plus (y) the aggregate amount of cash and cash equivalents held by THC and its subsidiaries at December 31, 1995 minus (ii) certain expenses, subject to certain adjustments. The transactions are conditioned upon approval by the requisite vote of the holders of THC Common Stock and certain other closing conditions and, accordingly, there can be no assurance that the transactions will be consummated. See Exhibit 99.2 for a description of the risks related to these transactions. The transactions are expected to close in the second quarter of 1996. I-2 Item 1. Business, continued. Item 1(b). Financial Information About Industry Segments. Information required by Item 1(b) is incorporated herein by reference to note 13 of the notes to consolidated financial statements included in the 1995 Annual Report to Shareholders. As noted in Item 1(a), the Company is a real estate company engaged in most aspects of the real estate industry, including the management, acquisition and development of income-producing and other properties, both retail and commercial, community development and management, and land sales. These business segments are further described below. I-3 Item 1. Business, continued. Item 1(c). Narrative Description of Business. Operating Properties: -------------------- As set forth in Item 2, at December 31, 1995, the 66 regional retail centers owned, in whole or in part, or operated by subsidiaries or affiliates of the Company, aggregated 21,435,000 square feet of leasable space, including 1,067,000 square feet leased to department stores and 402,000 square feet of office space. The activities involved in operating and managing retail centers include: negotiating lease terms with present and prospective tenants, identifying and attracting desirable new tenants, conducting local market and consumer research, developing and implementing short- and long-term merchandising and leasing programs, assisting tenants in the presentation of their merchandise and the layout of their stores and storefronts, and maintaining the buildings and common areas. In conjunction with other partners or investors, the Company has a program of acquiring completed retail centers, with the Company having management responsibility and earning incentive fees including, in some instances, equity interests in the centers. The Company also has a program of providing 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, 1995, the Company managed 19 such centers, which are included in the figures in the preceding paragraph and aggregated 6,097,000 square feet of leasable space. In addition to Columbia Mall, which is included in the figures in the second preceding paragraph, The Howard Research And Development Corporation ("HRD", a wholly-owned subsidiary of the Company) and its subsidiaries own and/or manage 17 office and industrial buildings and retail centers with 3,081,000 square feet of leasable office space, 8 village centers with 824,000 square feet of leasable retail space and other properties and additional commercial space, including the 289-room Columbia Inn in Columbia, Maryland. Other subsidiaries of the Company own, in whole or in part, and operate 11 office buildings with a total of 2,685,000 square feet of leasable space and the 146-room Cross Keys Inn located at The Village of Cross Keys in Baltimore, Maryland. The Company also has a 5% interest in Rouse-Teachers Properties, Inc., which owns 76 office/industrial buildings with 5,101,000 I-4 Item 1. Business, continued. Item 1(c). Narrative Description of Business, continued: square feet of space and 308 acres of land. A wholly owned affiliate of the Company is responsible for the operation, management and development of all buildings and land owned by Rouse-Teachers Properties, Inc. Development: ----------- The Company renovates and expands existing retail centers and develops suburban and downtown retail centers and mixed-use projects, 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 and mixed-use projects include: initial market and consumer research, evaluating and acquiring land sites, obtaining necessary public approvals, engaging architectural and engineering firms to design the project, estimating development costs, developing and testing pro forma operating statements, selecting a general contractor, arranging construction and permanent financing, identifying and obtaining department stores and other tenants, negotiating lease terms, negotiating partnership and joint venture agreements and promoting new, renovated or expanded retail centers and mixed-use projects. The Company and certain subsidiaries or affiliates are in the construction or development stage of announced projects, primarily expansions of existing centers. Land Sales: ---------- HRD is the developing entity of Columbia, Maryland, which is located in the Baltimore-Washington corridor. HRD owns approximately 1,837 saleable acres of land in and around Columbia, and, through its subsidiaries and affiliates, develops and sells this land to builders and other developers for residential, commercial and industrial uses. The Company, through its subsidiaries and affiliates, also is presently involved in community development and related land sales elsewhere in Maryland and is developing for sale a parcel of land in California. In all aspects of the Company's business pertaining to the ownership, management, acquisition or development of income-producing and other real estate, the Company operates in highly competitive markets. With respect to the leasing and operation or management of developed properties, each project faces I-5 Item 1. Business, continued. Item 1(c). Narrative Description of Business, continued: market competition from existing and future developments in its geographical market area. The Company competes with developers and other buyers with respect to the acquisition of development sites or centers and for financing opportunities in the money markets. The Company also faces competition in and around Columbia, Maryland with respect to the development and sale of land for residential, commercial and industrial uses. Neither the Company's business, taken as a whole, nor any of its industry segments, is seasonal in nature. Federal, state and local statutes and regulations relating to the protection of the environment have previously had no material effect on the Company's business. Future development opportunities of the Company may involve additional capital and other expenditures in order to comply with such statutes and regulations. It is impossible at this time to predict with any certainty the magnitude of any such expenditures or the long-range effect, if any, on the Company's operations. Compliance with such laws has had no material adverse effect on the operating results or competitive position of the Company in the past; the Company anticipates that they will have no material adverse effect on its future operating results or its competitive position in the industry. None of the Company's industry segments depends upon a single customer or a few customers, the loss of which would have a materially adverse effect on the segment. No customer accounts for 10 percent or more of the consolidated revenues of the Company. The Company and its subsidiaries had 4,283 full- and part- time employees at December 31, 1995. I-6 Item 2. Properties. The Company leases its headquarters building (approximately 127,000 square feet) in Columbia, Maryland for an initial term of 30 years which expires in 2003 with options for two 15-year renewal periods. The lease on the headquarters building is accounted for as a capital lease. Information respecting the Company's operating properties is incorporated herein by reference to the "Projects of The Rouse Company" table on pages 58 through 62 of Exhibit 13 to this Form 10-K. In addition to the properties presented in the table, the Company owned Outlet Square in Atlanta, Georgia and Talbottown in Easton, Maryland as of December 31, 1995. These properties were sold in February, 1996. The ownership of virtually all properties is subject to mortgage financing. The table of projects includes retail centers managed by the Company for a fee as identified in notes (c) and (d) to the table. Excluding such managed centers, certain of the remaining properties are subject to leases which provide an option to purchase (or repurchase) the property and/or to renew the leases for one or more renewal periods. The years of expiration indicated below assume all options to extend the terms of the leases are exercised. The properties subject to such leases in whole or in part are as follows: Year of Nature of expiration Property interest of lease - --------------------------- -------------------------- ------------- Arizona Center Leasehold Various dates from 2017 to 2050 Augusta Mall Leasehold by joint venture 2068 Bayside Marketplace Leasehold by joint venture 2062 Columbia Mall, Inc. - American City Building Leasehold and fee 2000 Columbia Mall, Inc. - Columbia Cinema Leasehold and fee 2003 Columbia Mall, Inc. - Exhibit Building Leasehold and fee 2012 Columbia Mall, Inc. - Oakland Building Leasehold 2062 Echelon Mall Leasehold 2008 Faneuil Hall Marketplace Leasehold 2074 First National Bank Plaza Leasehold 2013 I-7 Item 2. Properties, continued. Year of Nature of expiration Property interest of lease - --------------------------- -------------------------- ------------- Franklin Park Leasehold and fee by joint venture 2024 The Gallery at Market East Leasehold 2082 Governor's Square Leasehold by joint venture 2054 Greengate Mall Leasehold 2070 Harborplace Leasehold 2054 Harundale Mall Leasehold and fee owned jointly with others 2059 Highland Mall Leasehold and fee by joint venture 2070 The Jacksonville Landing Leasehold 2057 Mall St. Matthews Leasehold 2053 Midtown Square Leasehold 2055 Pioneer Place Leasehold 2076 Plymouth Meeting Leasehold and fee 2063 Riverwalk Leasehold by joint venture 2076 St. Louis Union Station Leasehold 2060 South Street Seaport Leasehold 2031 Tampa Bay Center Leasehold and fee 2047 Westlake Center Leasehold by joint venture 2043 I-8 Item 3. Legal Proceedings. On November 6, 1990, Robert P. Guastella Equities, Inc. ("Plaintiff"), a former tenant at the Riverwalk Shopping Center in New Orleans, Louisiana ("Riverwalk"), which is owned and operated by New Orleans Riverwalk Associates, an affiliate of the Company ("NORA"), filed suit in the Civil District Court of Orleans Parish, Louisiana against NORA, the Company, two Company affiliates - Rouse-New Orleans, Inc. and New Orleans Riverwalk Limited Partnership - and Connecticut General Life Insurance Company, which is a general partner of NORA (collectively, "Defendants"). Plaintiff alleged that Defendants breached Plaintiff's lease agreement with NORA for the operation of a restaurant at Riverwalk by (i) failing to prevent the leased premises from flooding, (ii) refusing to permit entertainment on the leased premises, (iii) interfering with the operation of air conditioning equipment on the leased premises and (iv) failing to provide adequate security. Plaintiff claimed that as a result of these breaches it suffered losses and could not pay the rentals due under the lease agreement, as a result of which the lease and its tenancy were terminated by NORA. Plaintiff sought damages of approximately $600,000 for these alleged breaches. In addition, on September 3, 1992, Plaintiff claimed $33,000,000 for alleged lost future profits which it claimed it would have earned had its lease not been terminated. All Defendants filed answers denying the claims of Plaintiff and asserted other defenses. NORA also asserted a counterclaim against Plaintiff and its guarantors, Robert Guastella and Charles Kovacs, for past due rentals and other charges in the approximate amount of $300,000 plus interest and attorneys' fees as provided for in the lease agreement. The case was tried before a jury and, on October 28, 1993, the jury returned a verdict against Defendants upon which judgment was entered by the trial court on January 7, 1994, in the total net amount of approximately $9,128,000 (which included a net award for lost future profits of approximately $8,640,000) plus interest from the date the suit was filed and attorneys' fees in an amount to be determined. On May 6, 1994, the trial court denied all post-trial motions of both Plaintiff and Defendants. The trial court also entered an amended judgment in which it awarded Plaintiff $450,000 in attorneys' fees and awarded Defendants $25,000 in attorneys' fees. On May 23, 1994, Defendants appealed this judgment to the Louisiana Court of Appeal, Fourth District. On November 16, 1995, the Louisiana Court of Appeal in a 2 to 1 decision reduced the judgement by $240,000, but otherwise affirmed the damage award to Plaintiff. Defendants subsequently filed a motion for reconsideration with the Louisiana Court of Appeal, which was denied on December 19, 1995, again in a 2 to 1 decision. On January 18, 1996, Defendants filed a petition requesting the Louisiana Supreme Court to consider a further appeal of this judgment. Plaintiff filed an opposition to this petition on February 2, 1996, and Defendants submitted a reply brief on February 21, 1996. I-9 The Company recorded in the fourth quarter of 1995 a pre-tax provision in the amount of $12,321,000, representing the full amount of the modified award (including attorneys' fees) plus interest, less pre-tax provisions previously recorded totaling $1,150,000. The Company believes that the ultimate disposition of this matter will not have a material adverse effect on the Company's consolidated financial position. I-10 Item 4. Submission of Matters to a Vote of Security Holders. None. I-11 Directors and Executive Officers. The executive officers of the Company as of March 1, 1996 are:
Present office and Date of election Business or professional position with the or appointment to experience during the past five Executive Officer Age Company present office years - -------------------- --- ------------------------- ------------------ -------------------------------- Anthony W. Deering 51 President and 2/25/93 President and Chief Executive Chief Executive Officer 2/23/95 Officer of the Company; formerly President and Chief Operating Officer of the Company; and Executive Vice President - Finance and Administration and Chief Financial Officer of the Company Jeffrey H. Donahue 49 Senior Vice-President, 9/23/93 Senior Vice-President and Chief Chief Financial Officer 9/23/93 Financial Officer of the and Director of the 8/17/93 Company and Director of the Finance Division Finance Division; formerly Vice-President and Treasurer of the Company Duke S. Kassolis 44 Senior Vice-President 9/23/93 Senior Vice-President and and Director of Office 8/17/93 Director of Office and Mixed- and Mixed-Use Operations Use Operations of the Company; formerly Vice-President and Director of Office and Commercial Properties of the Company Paul I. Latta, Jr. 52 Senior Vice-President 9/23/93 Senior Vice-President and and Director of Retail 8/17/93 Director of Retail Operations Operations of the Company; formerly Vice- President and Associate Division Director, Operating Properties Division of the Company
I-12 Directors and Executive Officers, continued.
Present office and Date of election Business or professional position with the or appointment to experience during the past five Executive Officer Age Company present office years - -------------------- --- ------------------------- ------------------ -------------------------------- Douglas A. McGregor 53 Executive Vice-President 8/17/93 Executive Vice-President for for Development and Development and Operations of Operations the Company; formerly Executive Vice-President - Development and Director of the Office and Community Development Division of the Company Robert Minutoli 45 Senior Vice-President 9/23/93 Senior Vice-President and and Director of 8/17/93 Director of Acquisitions of the Acquisitions Company; formerly Vice- President for Development of the Company Robert D. Riedy 50 Senior Vice-President 9/23/93 Senior Vice-President and and Director of Retail 8/17/93 Director of Retail Leasing of Leasing the Company; formerly Vice- President for Development of the Company Alton J. Scavo 49 Senior Vice-President, 9/23/93 Senior Vice-President and Director of the 8/17/93 Director of the Community Community Development Development Division of the Division and General Company and General Manager of Manager of Columbia Columbia; formerly Vice- President and Associate Director of the Community Development Division of the Company Jerome D. Smalley 46 Senior Vice-President 9/23/93 Senior Vice-President and and Director of the 8/17/93 Director of the Commercial and Commercial and Office Office Development Division of Development Division the Company; formerly Vice- President for Development of the Company
I-13 Directors and Executive Officers, continued.
Present office and Date of election Business or professional position with the or appointment to experience during the past five Executive Officer Age Company present office years - -------------------- --- ------------------------- ------------------ -------------------------------- George L. Yungmann 53 Senior Vice-President, 9/23/93 Senior Vice-President and Controller and Director 7/26/72 Controller of the Company and of the Controller's 7/26/72 Director of the Controller's Division Division; formerly Vice- President, Controller and Director of the Controller's Division
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. None of the above-listed officers has any family relationship with any director or other executive officer. I-14 Part II ------- Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. Information required by Item 5 is incorporated herein by reference to page 46 of Exhibit 13. Item 6. Selected Financial Data. Information required by Item 6 is incorporated herein by reference to page 46 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 47 through 53 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 46 of Exhibit 13. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. II-1 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 7, 1996. III-1 PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1 and 2. Financial Statements and Schedules: Reference is made to the Index to Financial Statements and Schedules on page IV-2. 3. Exhibits: Reference is made to the Exhibit Index. (b) Reports on Form 8-K: A report on Form 8-K was filed on November 20, 1995, to report the decision of the Louisiana Court of Appeals in the litigation matter described in Item 3 -- Legal Proceedings and the Company's decision to record an additional provision for loss relating to the matter. IV-1 THE ROUSE COMPANY AND SUBSIDIARIES Index to Financial Statements and Schedules
Page ---- Independent Auditors' Report IV-3 Report of Independent Real Estate Consultants included on page 21 of Exhibit 13 incorporated herein by reference Financial Statements: The Rouse Company and Subsidiaries included on pages 22 through 45 of Exhibit 13 incorporated herein by reference: Consolidated Cost Basis and Current Value Basis Balance Sheets at December 31, 1995 and 1994 Consolidated Cost Basis Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993 Consolidated Cost Basis Statements of Shareholders' Equity for the Years Ended December 31, 1995, 1994 and 1993 Consolidated Cost Basis Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 Consolidated Current Value Basis Statements of Changes in Revaluation Equity for the Years Ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Schedules: The Rouse Company and Subsidiaries as of December 31, 1995 or for the years ended December 31, 1995, 1994 and 1993: Schedule II Valuation and Qualifying Accounts IV-4 Schedule III Real Estate and Accumulated Depreciation IV-5
All other schedules have been omitted as not applicable or not required, or because the required information is included in the consolidated financial statements or notes thereto. IV-2 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors and Shareholders The Rouse Company: We have audited the consolidated cost basis financial statements and the related financial statement schedules of The Rouse Company and subsidiaries as listed in the accompanying index. We have also audited the supplemental consolidated current value basis financial statements listed in the index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated cost basis financial statements referred to above present fairly, in all material respects, the financial position of The Rouse Company and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated cost basis financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As more fully described in note 1 to the consolidated financial statements, the supplemental consolidated current value basis financial statements referred to above have been prepared by management to present relevant financial information about The Rouse Company and its subsidiaries which is not provided by the cost basis financial statements and are not intended to be a presentation in conformity with generally accepted accounting principles. In addition, as more fully described in note 1, the supplemental consolidated current value basis financial statements do not purport to present the net realizable, liquidation or market value of the Company as a whole. Furthermore, amounts ultimately realized by the Company from the disposal of properties may vary from the current values presented. In our opinion, the supplemental consolidated current value basis financial statements referred to above present fairly, in all material respects, the information set forth therein on the basis of accounting described in note 1 to the consolidated financial statements. KPMG PEAT MARWICK LLP Baltimore, Maryland February 22, 1996 IV-3 Schedule II ----------- THE ROUSE COMPANY AND SUBSIDIARIES Valuation and Qualifying Accounts Years ended December 31, 1995, 1994 and 1993
Additions ------------------------ Balance at Charged to Charged to Balance at beginning costs and other end of Descriptions of year expenses accounts Deductions year ------------ ---------- ---------- --------- ---------- ---------- (in thousands) Year ended December 31, 1995: Allowance for doubtful receivables $25,124 $ 3,318 $ - $3,974 /(1)/ $ 24,468 ======= ====== ======= ====== ======= Valuation allowance - properties held for sale $ - $15,589 $ - $ - $ 15,589 ======= ======= ======= ====== ======== Pre-construction reserve $14,109 $ 3,800 $ - $2,530 /(2)/ $ 15,379 ======= ======= ======= ====== ======== Year ended December 31, 1994: Allowance for doubtful receivables $24,036 $ 5,185 $ - $4,097 /(1)/ $ 25,124 ======= ======= ======= ====== ======== Valuation allowance - properties held for sale $ - $ - $ - $ - $ - ======= ======= ======= ====== ======== Pre-construction reserve $12,822 $ 3,400 $ - $2,113 /(2)/ $ 14,109 ======= ======= ======= ====== ======== Year ended December 31, 1993: Allowance for doubtful receivables $23,129 $ 4,741 $ - $3,834 /(1)/ $ 24,036 ======= ======= ======= ====== ======== Valuation allowance - properties held for sale $ - $ - $ - $ - $ - ======= ======= ======= ====== ======== Pre-construction reserve $11,127 $ 2,900 $ - $1,205 /(2)/ $ 12,822 ======= ======= ======= ====== ========
Notes: (1) Balances written off as uncollectible. (2) Costs of unsuccessful projects written off. IV-4 Schedule III ------------ THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1995
Cost capitalized Initial cost to subsequent to Gross amount at which carried Company acquisition at December 31, 1995 --------------- -------------------- --------------------------------- Buildings Buildings and Encum- and Carrying Improve- brances Improve- Improve- costs ments Description (note 4) Land ments ments (note 2) Land (note 3) Total - ----------- ------- ------- -------- -------- -------- ---- -------- ------ (in thousands) Operating Properties: Woodbridge Center $135,701 $- $- $142,447 $- $26,301 $116,146 $142,447 Retail Center Woodbridge, NJ South Street Seaport 52,000 - - 140,480 - - 140,480 140,480 Retail Center New York, NY Arizona Center 120,847 97 - 137,058 - 97 137,058 137,155 Mixed-use project Phoenix, AZ Pioneer Place 97,875 - - 122,055 - - 122,055 122,055 Mixed-use project Portland, OR Westlake Center 95,351 10,582 - 101,658 - 10,582 101,658 112,240 Mixed-use project Seattle, WA The Gallery at Harborplace 111,694 6,648 - 103,176 - 6,648 103,176 109,824 Mixed-use project Baltimore, MD Owings Mills 56,016 13,408 - 86,358 - 13,408 86,358 99,766 Retail Center Baltimore, MD Bayside Marketplace 84,375 - - 97,662 - - 97,662 97,662 Retail Center Miami, FL Mall St. Matthews 73,468 - - 91,599 - - 91,599 91,599 Retail Center Louisville, KY Life on which depreciation Accumulated Date of in latest depreciation completion income and of Date statement is amortization constrution acquired computed ------------ ----------- -------- ------------ (in thousands) Operating Properties: Woodbridge Center $19,099 3/71 N/A Note 8 Retail Center Woodbridge, NJ South Street Seaport 22,047 7/83 N/A Note 8 Retail Center New York, NY Arizona Center 18,889 11/90 N/A Note 8 Mixed-use project Phoenix, AZ Pioneer Place 17,752 3/90 N/A Note 8 Mixed-use project Portland, OR Westlake Center 19,716 10/88 N/A Note 8 Mixed-use project Seattle, WA The Gallery at Harborplace 19,974 9/87 N/A Note 8 Mixed-use project Baltimore, MD Owings Mills 8,631 7/86 N/A Note 8 Retail Center Baltimore, MD Bayside Marketplace 14,496 4/87 N/A Note 8 Retail Center Miami, FL Mall St. Matthews 10,495 3/62 N/A Note 8 Retail Center Louisville, KY
(Continued) IV-5 Schedule III, continued ----------------------- THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1995
Cost capitalized Initial cost to subsequent to Gross amount at which carried Company acquisition at December 31, 1995 --------------- -------------------- --------------------------------- Buildings Buildings and Encum- and Carrying Improve- brances Improve- Improve- costs ments Description (note 4) Land ments ments (note 2) Land (note 3) Total - ----------- ------- ------- -------- -------- -------- ---- -------- ------ (in thousands) Paramus Park 70,353 13,475 - 69,290 - 13,475 69,290 82,765 Retail Center Paramus, NJ White Marsh 58,202 2,627 - 72,887 - 2,627 72,887 75,514 Retail Center Baltimore, MD Santa Monica Place - 5,088 - 68,207 - 5,088 68,207 73,295 Retail Center Santa Monica, CA Riverwalk 10,252 - - 72,211 - - 72,211 72,211 Retail Center New Orleans, LA Oakwood Center 55,000 14,750 - 56,888 - 14,750 56,888 71,638 Retail Center Gretna, LA Faneuil Hall Marketplace 54,871 - - 71,476 - - 71,476 71,476 Retail Center Boston, MA Cherry Hill Mall 86,713 14,767 - 56,221 - 14,767 56,221 70,988 Retail Center Cherry Hill, NJ Hulen Mall 66,058 5,064 - 63,953 - 5,064 63,953 69,017 Retail Center Ft. Worth, TX St. Louis Union Station - - - 67,093 - - 67,093 67,093 Retail Center St. Louis, MO Life on which depreciation Accumulated Date of in latest depreciation completion income and of Date statement is amortization constrution acquired computed ------------ ----------- -------- ------------ (in thousands) Paramus Park 5,196 3/74 N/A Note 8 Retail Center Paramus, NJ White Marsh 10,649 8/81 N/A Note 8 Retail Center Baltimore, MD Santa Monica Place 7,973 10/80 N/A Note 8 Retail Center Santa Monica, CA Riverwalk 10,400 8/86 N/A Note 8 Retail Center New Orleans, LA Oakwood Center 6,117 10/82 N/A Note 8 Retail Center Gretna, LA Faneuil Hall Marketplace 8,619 8/76 N/A Note 8 Retail Center Boston, MA Cherry Hill Mall 15,506 10/61 N/A Note 8 Retail Center Cherry Hill, NJ Hulen Mall 7,790 8/77 N/A Note 8 Retail Center Ft. Worth, TX St. Louis Union Station 14,734 8/85 N/A Note 8 Retail Center St. Louis, MO
IV-6 (Continued) Schedule III, continued ----------------------- THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1995
Cost capitalized Initial cost to subsequent to Gross amount at which carried Company acquisition at December 31, 1995 --------------- ---------------- ----------------------------- Buildings Buildings and Encum- and Carrying Improve- brances Improve- Improve- costs ments Description (note 4) Land ments ments (note 2) Land (note 3) Total - ----------- ------- ---- -------- -------- -------- ---- -------- ----- (in thousands) Echelon Mall 62,000 6,160 - 53,910 - 6,160 53,910 60,070 Retail Center Voorhees, NJ The Mall in Columbia 47,414 4,788 - 46,663 - 4,788 46,663 51,451 Retail Center Columbia, MD Blue Cross & Blue Shield Building I 38,295 1,000 - 44,580 - 1,000 44,580 45,580 Office Building Baltimore, MD Harborplace 32,891 - - 44,398 - - 44,398 44,398 Retail Center Baltimore, MD Village of Cross Keys - 1,083 - 40,189 - 1,083 40,189 41,272 Mixed-use Project Baltimore, MD Northwest Mall 23,426 6,649 - 27,320 - 6,649 27,320 33,969 Retail Center Houston, TX The Jacksonville Landing 15,211 - - 33,401 - - 33,401 33,401 Retail Center Jacksonville, FL Tampa Bay Center 48,000 920 - 30,579 - 920 30,579 31,499 Retail Center Tampa, FL Salem Mall 36,929 1,285 - 29,010 - 1,285 29,010 30,295 Retail Center Dayton, OH Life on which Accumu- depre- lated ciation depre- Date of in latest ciation comple- income and tion of state- amorti- constr- Date ment is zation uction acquired computed ------- ------ -------- -------- (in thousands) Echelon Mall 9,373 9/70 N/A Note 8 Retail Center Voorhees, NJ The Mall in Columbia 9,591 8/71 N/A Note 8 Retail Center Columbia, MD Blue Cross & Blue Shield Building I 6,735 7/89 N/A Note 8 Office Building Baltimore, MD Harborplace 9,931 7/80 N/A Note 8 Retail Center Baltimore, MD Village of Cross Keys 14,305 9/65 N/A Note 8 Mixed-use Project Baltimore, MD Northwest Mall 5,458 10/68 N/A Note 8 Retail Center Houston, TX The Jacksonville Landing 8,455 6/87 N/A Note 8 Retail Center Jacksonville, FL Tampa Bay Center 8,719 8/76 N/A Note 8 Retail Center Tampa, FL Salem Mall 8,422 10/66 N/A Note 8 Retail Center Dayton, OH
IV-7 (Continued) Schedule III, continued ----------------------- THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1995
Cost capitalized Initial cost to subsequent to Gross amount at which carried Company acquisition at December 31, 1995 --------------- ---------------- ----------------------------- Buildings Buildings and Encum- and Carrying Improve- brances Improve- Improve- costs ments Description (note 4) Land ments ments (note 2 Land (note 3) Total - ----------- ------- ---- -------- -------- -------- ---- -------- -------- (in thousands) Governors Square 28,115 - - 30,288 - - 30,288 30,288 Retail Center Tallahassee, FL Almeda Mall - 4,641 - 24,961 - 4,641 24,961 29,602 Retail Center Houston, TX Gateway Commerce Center #20 - 6,200 - 22,279 - 6,200 22,279 28,479 Industrial Building Columbia, MD North Star - 168 - 28,063 - 168 28,063 28,231 Retail Center San Antonio, TX Augusta Mall 21,314 1,601 - 26,117 - 1,601 26,117 27,718 Retail Center Augusta, GA Beachwood Place 41,228 3,276 - 23,982 - 3,276 23,982 27,258 Retail Center Beachwood, OH Plymouth Meeting 16,831 702 - 25,856 - 702 25,856 26,558 Retail Center Plymouth Meeting, PA Alexander & Alexander Building I 22,469 1,000 - 25,021 - 1,000 25,021 26,021 Office Building Baltimore, MD Perimeter Mall 25,791 3,006 - 22,682 - 3,006 22,682 25,688 Retail Center Atlanta, GA Life on which Accumu- depre- lated ciation depre- Date of in latest ciation comple- income and tion of state- amorti- constr- Date ment is zation uction acquired computed ------- ------ -------- -------- (in thousands) Governors Square 3,926 8/79 N/A Note 8 Retail Center Tallahassee, FL Almeda Mall 6,132 10/68 N/A Note 8 Retail Center Houston, TX Gateway Commerce Center #20 3,350 N/A 8/93 Note 8 Industrial Building Columbia, MD North Star 6,761 9/60 N/A Note 8 Retail Center San Antonio, TX Augusta Mall 4,530 8/78 N/A Note 8 Retail Center Augusta, GA Beachwood Place 6,413 8/78 N/A Note 8 Retail Center Beachwood, OH Plymouth Meeting 10,672 2/66 N/A Note 8 Retail Center Plymouth Meeting, PA Alexander & Alexander Building I 4,989 9/87 N/A Note 8 Office Building Baltimore, MD Perimeter Mall 5,574 8/71 N/A Note 8 Retail Center Atlanta, GA
IV-8 (Continued) Schedule III, continued ----------------------- THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1995
Cost capitalized Initial cost to subsequent to Gross amount at which carried Company acquisition at December 31, 1995 --------------- ----------------- ------------------------------ Buildings Buildings and Encum- and Carrying Improve- brances Improve- Improve- costs ments Description (note 4) Land ments ments (note 2) Land (note 3) Total - ----------- ------- ---- -------- -------- -------- ---- -------- ----- (in thousands) Exton Square 8,683 3,173 - 22,054 - 3,173 22,054 25,227 Retail Center Exton, PA Ryland Group Headquarters 21,000 856 - 24,280 - 856 24,280 25,136 Office Building Columbia, MD The Gallery at Market East - - - 23,785 - - 23,785 23,785 Retail Center Philadelphia, PA South Dekalb 772 3,534 - 18,849 - 3,534 18,849 22,383 Retail Center Decatur, GA Willowbrook 33,750 853 - 20,818 - 853 20,818 21,671 Retail Center Wayne, NJ Franklin Park 24,500 653 - 20,652 - 653 20,652 21,305 Retail Center Toledo, OH The Grand Avenue 12,633 - - 20,447 - - 20,447 20,447 Retail Center Milwaukee, WI Columbia Inn 20,333 1,384 - 18,994 - 1,384 18,994 20,378 Hotel Columbia, MD Mondawmin 6,519 2,251 - 17,509 - 2,251 17,509 19,760 Retail Center Baltimore, MD RWD Building 11,544 2,596 - 16,038 - 2,596 16,038 18,634 Office Building Columbia, MD Life on which Accumu- depre- lated ciation depre- Date of in latest ciation comple- income and tion of state- amorti- constr- Date ment is zation uction acquired computed ------- ------ -------- -------- (in thousands) Exton Square 7,481 3/73 N/A Note 8 Retail Center Exton, PA Ryland Group Headquarters 2,877 6/92 N/A Note 8 Office Building Columbia, MD The Gallery at Market East 6,193 8/77 N/A Note 8 Retail Center Philadelphia, PA South Dekalb 3,359 7/78 N/A Note 8 Retail Center Decatur, GA Willowbrook 7,100 9/69 N/A Note 8 Retail Center Wayne, NJ Franklin Park 4,059 7/71 N/A Note 8 Retail Center Toledo, OH The Grand Avenue 8,457 8/82 N/A Note 8 Retail Center Milwaukee, WI Columbia Inn 5,792 6/72 N/A Note 8 Hotel Columbia, MD Mondawmin 5,755 1/78 N/A Note 8 Retail Center Baltimore, MD RWD Building 5,017 7/86 N/A Note 8 Office Building Columbia, MD
IV-9 (Continued) Schedule III, continued ----------------------- THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1995
Cost capitalized Initial cost to subsequent to Gross amount at which carried Company acquisition at December 31, 1995 --------------- ---------------- ----------------------------- Buildings Buildings and Encum- and Carrying Improve- brances Improve- Improve- costs ments Description (note 4) Land ments ments (note 2) Land (note 3) Total - ----------- ------- ---- -------- -------- -------- ---- -------- -------- (in thousands) Blue Cross & Blue Shield Building II 14,000 1,000 - 16,616 - 1,000 16,616 17,616 Office Building Baltimore, MD Alexander & Alexander Building II 12,989 650 - 16,711 - 650 16,711 17,361 Office Building Baltimore, MD Eastfield Mall 5,000 1,077 - 15,467 - 1,077 15,467 16,544 Retail Center Springfield, MA Highland Mall 7,157 12 - 16,525 - 12 16,525 16,537 Retail Center Austin, TX Parkside Office Building 11,940 463 - 15,064 - 463 15,064 15,527 Columbia, MD Midtown Square - - - 14,247 - - 14,247 14,247 Retail Center Charlotte, NC Gateway Commerce Center #2 - 1,947 - 10,360 - 1,947 10,360 12,307 Industrial Building Columbia, MD 30 Corporate Center 12,917 1,160 - 10,461 - 1,160 10,461 11,621 Office Building Columbia, MD Amdahl Building 6,909 927 - 10,351 - 927 10,351 11,278 Office Building Columbia, MD Life on which Accumu- depre- lated ciation depre- Date of in latest ciation comple- income and tion of state- amorti- constr- Date ment is zation uction acquired computed ------- ------ -------- -------- (in thousands) Blue Cross & Blue Shield Building II 2,141 8/90 N/A Note 8 Office Building Baltimore, MD Alexander & Alexander Building II 4,728 11/88 N/A Note 8 Office Building Baltimore, MD Eastfield Mall 4,976 4/68 N/A Note 8 Retail Center Springfield, MA Highland Mall 4,806 8/71 N/A Note 8 Retail Center Austin, TX Parkside Office Building 2,644 11/89 N/A Note 8 Columbia, MD Midtown Square 9,312 10/59 N/A Note 8 Retail Center Charlotte, NC Gateway Commerce Center #2 1,407 N/A 8/93 Note 8 Industrial Building Columbia, MD 30 Corporate Center 3,512 4/86 N/A Note 8 Office Building Columbia, MD Amdahl Building 3,691 6/81 N/A Note 8 Office Building Columbia, MD
IV-10 (Continued) Schedule III, continued ----------------------- THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1995
Cost capitalized Initial cost to subsequent to Gross amount at which carried Company acquisition at December 31, 1995 --------------- ---------------- ----------------------------- Buildings Buildings and Encum- and Carrying Improve- brances Improve- Improve- costs ments Description (note 4) Land ments ments (note 2) Land (note 3) Total - ----------- ------- ---- -------- -------- -------- ---- --------- -------- (in thousands) Hickory Ridge Village Center 9,583 907 - 10,174 - 907 10,174 11,081 Village Center Columbia, MD American City Building 3,282 - - 11,023 - - 11,023 11,023 Office Building Columbia, MD Dorsey's Search Village Center 10,298 911 - 9,889 - 911 9,889 10,800 Village Center Columbia, MD 10 Corporate Center 4,937 733 - 7,957 - 733 7,957 8,690 Office Building Columbia, MD Life on which Accumu- depre- lated ciation depre- Date of in latest ciation comple- income and tion of state- amorti- constr- Date ment is zation uction acquired computed ------- ------ -------- -------- (in thousands) Hickory Ridge Village Center 1,049 6/92 N/A Note 8 Village Center Columbia, MD American City Building 7,770 3/69 N/A Note 8 Office Building Columbia, MD Dorsey's Search 1,833 9/89 N/A Note 8 Village Center Village Center Columbia, MD 10 Corporate Center 3,157 9/81 N/A Note 8 Office Building Columbia, MD
IV-11 (Continued) Schedule III, continued ----------------------- THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1995
Cost capitalized Initial cost to subsequent to Gross amount at which carried Company acquisition at December 31, 1995 -------------------- ---------------- ----------------------------- Buildings Buildings and Encum- and Carrying Improve- brances Improve- Improve- costs ments Description (note 4) Land ments ments (note 2) Land (note 3) Total - ----------- -------- ---- -------- -------- -------- ---- -------- ----- (in thousands) King's Contrivance Village Center 7,665 1,072 - 7,348 - 1,072 7,348 8,420 Village Center Columbia, MD Metro Plaza 1,129 202 - 7,932 - 202 7,932 8,134 Retail Center Baltimore, MD Investments in unconsolidated real estate ventures 21,811 - 32,713 52,059 - - 84,772 84,772 Receivables under finance leases - - - 81,632 - - 81,632 81,632 Other properties and related investments less than 5% of total 42,974 3,618 - 97,419 - 3,618 97,419 101,037 --------- ------- ------ --------- -------- ------- --------- --------- Total Operating Properties 2,001,015 158,964 32,713 2,814,679 - 185,265 2,821,091 3,006,356 --------- ------- ------ --------- -------- ------- --------- --------- Life on which Accumu- depre- lated ciation depre- Date of in latest ciation comple- income and tion of statement amorti- constr- Date is zation uction acquired computed -------- ------- -------- --------- (in thousands) King's Contrivance Village Center 2,167 6/86 N/A Note 8 Village Center Columbia, MD Metro Plaza 2,980 N/A 12/82 Note 8 Retail Center Baltimore, MD Investments in - Various Various Note 8 unconsolidated real estate ventures Receivables under finance leases - Various Various Note 8 Other properties and related investments less than 5% of total 35,637 Various Various Note 8 ------- Total Operating 519,319 Properties -------
IV-12 (Continued) Schedule III, continued ----------------------- THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1995
Cost capitalized Initial cost to subsequent to Gross amount at which carried Company acquisition at December 31, 1995 ---------------- ------------------ ----------------------------------- Buildings Buildings and Encum- and Carrying Improve- brances Improve- Improve- costs ments Description (note 4) Land ments ments (note 2) Land (note 3) Total - ----------- -------- ---- -------- -------- --------- ---- --------- -------- (in thousands) Properties in Development: Arizona Center - - - 15,967 - - 15,967 15,967 Developed/developable land under master lease Phoenix, AZ Beachwood Place Expansion - 1,149 - 9,326 - 1,149 9,326 10,475 Expansion of retail center Beachwood, OH White Marsh Expansion - 3,373 5,003 - - 3,373 5,003 8,376 Expansion of retail center Baltimore, MD Pre-construction costs - Various projects - - - 21,463 - - 21,463 21,463 Pre-construction reserve - - - (15,379) - - (15,379) (15,379) Other projects, less than 5% of total 6,209 11,534 - 3,715 - 11,534 3,715 15,249 ----- ------ ----- ------- ------- ------ ------- ------- Total Properties in Development 6,209 16,056 5,003 35,092 - 16,056 40,095 56,151 ----- ------ ----- ------- ------- ------ ------- ------- Properties held for sale, less than 5% of total - - - 22,602 - - 22,602 22,602 ----- ------ ----- ------- ------- ------ ------- ------- Life on which Accumu- depre- lated ciation depre- Date of in latest ciation comple- income and tion of state- amorti- constr- Date ment is zation uction acquired computed ------- ------ -------- -------- (in thousands) Arizona Center N/A N/A N/A Note 8 Developed/developable land under master lease Phoenix, AZ Beachwood Place Expansion - N/A N/A Note 8 Expansion of retail center Beachwood, OH White Marsh Expansion - N/A 8/95 Note 8 Expansion of retail center Baltimore, MD Pre-construction costs - Various projects N/A N/A N/A N/A Pre-construction reserve N/A N/A N/A N/A Other projects, less than 5% of total N/A N/A N/A N/A Total Properties in Development Properties held for sale, less than 5% of total N/A Various Various N/A
IV-13 (Continued) Schedule III, continued ----------------------- THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1995
Cost capitalized Initial cost to subsequent to Gross amount at which carried Company acquisition at December 31, 1995 ----------------- -------------------- ----------------------------- Buildings Buildings and Emcum- and Carrying Improve- brances Improve- Improve- costs ments Description (note 4) Land ments ments (note 2) Land (note 3) Total - ----------- ---------- ------- -------- -------- -------- -------- ---------- -------- (in thousands) Land held for development and sale: Columbia 12,633 53,000 - 55,714 - 108,714 - 108,714 Land in various stages of development Columbia, MD Canyon Springs - 16,000 - 8,716 - 24,716 - 24,716 Land held for development Riverside County, CA Other properties, less than 5% of total - 738 - - - 738 - 738 ------ ------ ------- ---------- -------- -------- ---------- --------- Total land held for development and sale 12,633 69,738 - 64,430 - 134,168 - 134,168 ------ ------ ------- ---------- -------- -------- ---------- ---------- Total Property $2,019,857 $271,059 $37,716 $2,910,502 $ - $335,489 $2,883,788 $3,219,277 ========== ======== ======= ========== ======== ======== ========== ========== Life on which Accumu- depre- lated ciation depre- Date of in latest ciation comple- income and tion of state- amorti- constr- Date ment is zation uction acquired computed ------- ------ -------- -------- (in thousands) Land held for development and sale: Columbia N/A N/A 9/85 N/A s Land in various stages of development Columbia, MD Canyon Springs N/A N/A 7/89 N/A Land held for development Riverside County, CA Other properties, less than 5% of total N/A N/A Various N/A -------- Total land held for N/A N/A Various N/A development and sale -------- Total Property $519,319 ========
IV-14 (Continued) Schedule III, continued ----------------------- THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1995 Notes: (1) Reference is made to notes 2, 3, 4, 5, 6, 7, 11, 15 and 18 to the consolidated financial statements. Land was generally acquired one to three years before completion of construction. (2) The determination of these amounts is not practicable and, accordingly, they are included in improvements. (3) Buildings and improvements include deferred costs of $118,930,000 at December 31, 1995. (4) Encumbrances on office buildings are included in operating property encumbrances. (5) The changes in total cost of properties for the years ended December 31, 1995, 1994 and 1993 are as follows (in thousands):
1995 1994 1993 ----------- ----------- ----------- Balance at beginning of year $3,144,015 $3,010,195 $2,827,379 Additions, at cost 73,155 88,260 88,973 Cost of properties acquired 78,605 93,705 106,048 Additions to land held for development and sale 16,091 16,270 21,388 Cost of land sales (14,214) (15,804) (16,270) Retirements, sales and other dispositions (75,787) (30,049) (21,307) Additions to pre-construction reserve (3,800) (3,400) (2,900) Receivables under finance leases, net 224 (632) 8,061 Investments in unconsolidated real estate ventures, net 16,577 (12,317) 4,255 Provision for loss on operating properties (15,589) (2,212) (5,432) ---------- ---------- ---------- Balance at end of year $3,219,277 $3,144,015 $3,010,195 ========== ========== ==========
In 1995 non-cash consideration in the form of purchase money loans was given in acquisitions of properties and investments in unconsolidated real estate ventures of $64,175,000 and $21,811,000, respectively. IV-15 Schedule III, continued ----------------------- THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1995 Notes, continued: (6) The changes in accumulated depreciation and amortization for the years ended December 31, 1995, 1994 and 1993 are as follows (in thousands):
1995 1994 1993 --------- --------- --------- Balance at beginning of year $490,158 $429,070 $375,903 Depreciation and amortization charged to operations 73,062 74,186 70,200 Retirements, sales and other, net (43,901) (13,098) (17,033) -------- -------- -------- Balance at end of year $519,319 $490,158 $429,070 ======== ======== ========
(7) The aggregate cost of properties for Federal income tax purposes is approximately $3,334,400,000 at December 31, 1995. (8) Reference is made to note 2(c) to the consolidated financial statements for information related to depreciation. (9) Reference is made to note 15 to the consolidated financial statements for information related to provisions for losses on real estate assets. IV-16 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Rouse Company By: /s/ Anthony W. Deering ------------------------------------- Anthony W. Deering March 5, 1996 President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Principal Executive Officer: /s/ Anthony W. Deering ------------------------------------- Anthony W. Deering March 5, 1996 President and Chief Executive Officer Principal Financial Officer: /s/ Jeffrey H. Donahue ------------------------------------- Jeffrey H. Donahue March 5, 1996 Senior Vice President and Chief Financial Officer Principal Accounting Officer: /s/ George L. Yungmann ------------------------------------- George L. Yungmann March 5, 1996 Senior Vice President and Controller IV-17 Board of Directors: David H. Benson, Jeremiah E. Casey, Anthony W. Deering, Rohit M. Desai, Mathias J. DeVito, Juanita T. James, Hanne M. Merriman, Thomas J. McHugh, Roger W. Schipke and Alexander B. Trowbridge. By: /s/ Anthony W. Deering -------------------------------- Anthony W. Deering March 5, 1996 For Himself and as Attorney-in-fact for the above-named persons IV-18 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS --------------------------------------------------- The Board of Directors The Rouse Company: We consent to the incorporation by reference in the Registration Statements of The Rouse Company on Form S-8 (Registration Nos. 2-68258, 2-83612, 33-56231, 33- 56233 and 33-56235) and Form S-3 (Registration Nos. 2-78898, 2-95596, 33-52458, 33-56646, 33-57347, 33-57584, 33-57707 and 33-63279) of our report dated February 22, 1996, relating to the consolidated financial statements and related schedules of The Rouse Company and subsidiaries as of December 31, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995, which report appears in the Annual Report on Form 10-K of The Rouse Company for the year ended December 31, 1995. KPMG PEAT MARWICK LLP Baltimore, Maryland March 5, 1996 IV-19 CONSENT OF INDEPENDENT REAL ESTATE CONSULTANTS ---------------------------------------------- The Board of Directors The Rouse Company: We consent to the incorporation by reference in the Registration Statements of The Rouse Company (the "Company") on Form S-8 (Registration Nos. 2-68258, 2-83612, 33-56231, 33-56233 and 33-5625) and Form S-3 (Registration Nos. 2-78898, 2-95596, 33-52458, 33-56646, 33-57347, 33-57584, 33-57707 and 33-63279) of our report dated February 22, 1996 on our concurrence with the Company's estimates of the total current value of its equity and other interests in certain real property owned and/or managed by the Company and its subsidiaries as of December 31, 1995 and 1994, which report appears in the Annual Report on Form 10-K of the Company for the year ended December 31, 1995. LANDAUER ASSOCIATES, INC. Deborah A. Jackson Senior Vice President Director of Retail Valuation New York, New York March 5, 1996 IV-20 Exhibit Index Exhibit No. - ----------- 3 Articles of Incorporation and Bylaws 10 Material Contracts 11 Statement re computation of per share earnings 12.1 Ratio of earnings to fixed charges 12.2 Ratio of earnings to combined fixed charges and preferred stock dividend requirements 13 Annual report to security holders 21 Subsidiaries of the Registrant 24 Power of Attorney 27 Financial Data Schedule 99 Additional Exhibits: 99.1 Form 11-K Annual Report of The Rouse Company Savings Plan for the year ended December 31, 1995 99.2 Factors affecting future operating results EX-3 2 ARTICLES OF INCORPORATION AND BYLAWS EXHIBIT 3 Exhibit 3. Articles of Incorporation and Bylaws. The Amendments to the Articles of Incorporation of The Rouse Company adopted May 26, 1988 and the Amended and Restated Articles of Incorporation of The Rouse Company, dated May 27, 1988, are incorporated by reference from the Exhibits to the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1988. The Articles of Amendment to the Amended and Restated Articles of Incorporation of The Rouse Company, which Articles of Amendment were effective January 10, 1991, are incorporated by reference from the Exhibits to the Company's Form 10- K Annual Report for the fiscal year ended December 31, 1990. The Articles Supplementary to the Charter of The Rouse Company, dated February 17, 1993, are incorporated by reference from the Exhibits to the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1992. The Articles Supplementary to the Charter of The Rouse Company, dated September 26, 1994, are incorporated by reference from the Exhibits to the Company's Form S-3 Registration Statement (No. 33-57707). The Articles Supplementary to the Charter of The Rouse Company, dated December 27, 1994, are incorporated by reference from the Exhibits to the Company's Form S-3 Registration Statement (No. 33-57707). The Bylaws of The Rouse Company, as amended September 22, 1994, are incorporated by reference from the Exhibits to the Company's Form 10-Q Quarterly Report for the quarter ended September 30, 1994. All documents referred to above may be found in Commission file number 0-1743. EX-10 3 MATERIAL CONTRACTS EXHIBIT 10 Exhibit 10. Material Contracts. The Company's 1985 Stock Option Plan and 1985 Stock Bonus Plan are incorporated by reference from the Company's definitive proxy statement filed pursuant to Regulation 14A on April 27, 1985, and the Amendment to The Rouse Company 1985 Stock Option Plan, effective as of May 12, 1994 is incorporated by reference from the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1994. The Rouse Company Deferred Compensation Plan for Outside Directors, dated as of January 1, 1986, is incorporated by reference from the Exhibits to the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1985. 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 letter agreement, dated September 24, 1992, between the Company and Mathias J. DeVito, then Chairman of the Board and Chief Executive of the Company, is incorporated by reference from the Exhibits to the Company's Form S-3 Registration Statement (No. 33-56646). The Rouse Company Division Incentive Programs 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 Retirement Agreement, dated November 30, 1994, between the Company and Mathias J. Devito, then Chairman of the Board and Chief Executive Officer of the Company, is incorporated by reference from the Exhibits to the Company's Form S-3 Registration Statement (No. 33-57707). The Amended and Restated Supplemental Retirement Benefit Plan of The Rouse Company, made as of January 1, 1985 and further amended and restated as of September 24, 1992, March 4, 1994, and May 10, 1995, is attached. All documents referred to above may be found in Commission file number 0-1743. AMENDED AND RESTATED -------------------- SUPPLEMENTAL RETIREMENT BENEFIT PLAN ------------------------------------ OF -- THE ROUSE COMPANY ----------------- THIS AMENDED AND RESTATED SUPPLEMENTAL RETIREMENT BENEFIT PLAN (the "Plan") is made as of the 1st day of January, 1985, and further amended and restated as of the 24th day of September, 1992, the 4th day of March, 1994, and the 10th day of May, 1995, by The Rouse Company (hereinafter referred to as the "Company"). Background Statement: -------------------- The Company maintains a defined benefit plan for its employees known as the Pension Plan and Trust Agreement of The Rouse Company (Amendment and Restatement Effective January 1, 1989) (hereinafter referred to, including as amended from time to time, as the "Pension Plan"). The Company also maintains a savings plan for its employees known as The Rouse Company Savings Plan (Restated and with Amendments Generally Effective January 1, 1987) (hereinafter referred to, including as amended from time to time, as the "Savings Plan"). The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of 1986, as amended (the "Code"), place certain limits on the benefits that may be accrued and paid from the Pension Plan and on the maximum annual additions that may be made to a Participant's accounts under the Savings Plan. Certain of these limits were further restricted by the Retirement Protection Act of 1994, as amended (the "RPA"). In addition, the Company wishes to permit eligible employees to defer all or any portion of their incentive cash bonus that the Board of Directors approves. For these reasons, the Company desires to amend and restate this Plan (i) to provide for the payment of benefits to those eligible employees whose pension benefit under the Pension Plan or whose annual additions under the Savings Plan could be affected by the limiting provisions of the Code or ERISA, including those modified by the RPA, whether as presently existing or as subsequently enacted, to the end that the total benefits available to such eligible employees may be determined on the same basis as is applicable to all other employees of the Company who are not subject to limitations on benefits paid under the Pension Plan or on annual additions under the Savings Plan due to the requirements of the Code and ERISA, including the RPA, and (ii) to permit eligible employees to defer all or any portion of their incentive cash bonuses that the Board of Directors approves. The Plan -------- Accordingly, and pursuant to due authorization by the Board of Directors of the Company, the Company further amends and restates this Plan. SECTION 1 ELIGIBILITY ----------- All employees of the Company who are determined by the Plan Administrator to be in the special salary ranges shall be eligible to participate in this Plan according to its terms. Each eligible employee is hereafter referred to as a "Participant." SECTION 2 AMOUNT OF BENEFIT RELATING TO THE PENSION PLAN ---------------------------------------------- A Participant who is vested and entitled to benefits under the Pension Plan shall receive a benefit under this Section, credited to his or her Pension Account, equal to the difference, if any, between (i) and (ii) where: (i) is the benefit which would have been paid to such Participant or, on his behalf, to his beneficiary(ies) under the Pension Plan, if the provisions of the Pension Plan were administered without regard to any special benefit limitations of the Pension Plan required by any existing or subsequently enacted provision of the Code or ERISA; and (ii) is the benefit which is payable to such Participant or, on his behalf, to his beneficiary(ies) under the terms and conditions of the Pension Plan, as amended from time to time. The reference in clause (i) above to special benefit limitations required by the Code or ERISA shall include, for example, the limitations which are imposed by the Code as a result of the Retirement Protection Act of 1994, as amended, on the maximum amount of benefits that can be paid to a Participant under the Pension Plan when benefits are payable before the Participant's Social Security Retirement Age, or when they are payable in a form other than a straight life annuity, such as a lump sum. -2- SECTION 3 AMOUNT OF BENEFIT RELATING TO THE SAVINGS PLAN ---------------------------------------------- (a) A Contribution Account shall be established for each Participant. A Participant's Contribution Account shall be credited with the difference, if any, between (i) and (ii) where: (i) is the sum of Matching Contributions and Basic Contributions that the Participant could elect to make under the Savings Plan if the Savings Plan were administered without regard to any special annual additions limitations provisions in the Savings Plan required by any existing or subsequently enacted provision of the Code or ERISA; and (ii) is the annual additions limitation under the Savings Plan as required by any existing or subsequently enacted provision of the Code or ERISA. (b) Subject to such rules as the Plan Administrator shall establish, a Participant may specify that his or her Contribution Account shall be treated as if it were invested in any of the investment alternatives that are available under The Rouse Company Savings Plan, as amended, and such Contribution Account shall be credited with investment earnings, gains or losses accordingly. SECTION 4 DEFERRAL OF INCENTIVE CASH BONUS -------------------------------- (a) Each Participant shall be entitled to make an election as provided in this Section 4 to defer the receipt of a percentage, or a stated dollar amount, to be specified by the Participant, of any incentive cash bonus otherwise payable by the Company to the Participant in the future. (b) The Participant's deferral election shall be made subject to such rules and in accordance with such terms and conditions as the Personnel Committee of the Board of Directors of the Company or, if delegated by the Personnel Committee, the Plan Administrator shall establish. Consistent with such rules, terms and conditions, such election must be made prior to the time the Participant earns the deferred amounts, and the Participant's election shall specify the deferral period and the manner of payment of the deferred amounts. Once made, the election shall be irrevocable and binding on both the Company and the Participant; provided, however, that the Participant may, with the consent of the Plan Administrator, (i) amend the deferral election to change the payment method or postpone the scheduled payment date and (ii) make hardship withdrawals. The Participant shall have the right to designate any beneficiary or beneficiaries to receive payments upon the Participant's death. -3- (c) A Deferred Bonus Account shall be established for each Participant electing to defer his or her incentive cash bonus under this Section 4, which Account shall be credited with such deferred bonuses. Subject to such rules, terms and conditions as the Plan Administrator shall establish, a Participant may specify that his or her Deferred Bonus Account shall be treated as if it were invested in any of the investment alternatives that are available under The Rouse Company Savings Plan, as amended, and such Deferred Bonus Account shall be credited with investment earnings, gains or losses accordingly. (d) The amount of each Participant's incentive cash bonus that the Participant elects to defer under this Section 4 shall be deemed to be compensation under the Company's Pension Plan, Savings Plan and welfare and fringe benefit plans (including, but not limited to, its life insurance and disability plans) only to the extent specifically provided in such plans. For purposes of calculating the amount of a Participant's benefits under Section 2(i) or contributions under Section 3(a)(i), amounts deferred under this Section 4 shall be treated as compensation. SECTION 5 PAYMENT OF BENEFITS ------------------- (a) Benefit relating to Pension Plan - With respect to a Participant's -------------------------------- benefit under Section 2 of this Plan, payment of benefits under this Plan shall be made to, or at the direction of, the Participant in accordance with the benefit payments provisions of the Pension Plan. In addition, the Participant may select any form of benefit that is permitted under the Pension Plan. The Participant may designate any beneficiary or beneficiaries to receive the Participant's benefit upon his or her death, and if the participant is predeceased by all beneficiaries, any death benefit shall be paid to his or her estate. (b) Benefit relating to Savings Plan - With respect to a Participant's -------------------------------- benefit under Section 3 of this Plan, payment of benefits under this Plan shall be made to, or at the direction of, the Participant in accordance with the benefit payments provisions of the Savings Plan. In addition, the Participant may select any form of benefit that is permitted under the Savings Plan, and the Participant may designate any beneficiary or beneficiaries to receive the Participant's benefit upon his or her death, and if the Participant is predeceased by all beneficiaries, any death benefit shall be paid to his or her estate. (c) Benefit relating to Deferred Bonus - With respect to a ---------------------------------- Participant's incentive cash bonus that is deferred under Section 4 of this Plan, payment of such deferred bonus shall be made to, or at the direction of, the Participant in accordance -4- with the payment provisions of Sections 4(b) and (c) of this Plan. The Participant may designate any beneficiary or beneficiaries to receive the Participant's deferred bonus upon his or her death, and if the participant is predeceased by all beneficiaries, any death benefit shall be paid to his or her estate. (d) Additional Payment Provisions - In addition to the payment options ----------------------------- provided in Sections 5(a)-(c) above, the Plan Administrator may, in his or her sole discretion, establish additional or alternative provisions with respect to the timing and form of payment of benefits under Sections 2 - 4 above (including the payment of interest or other investment earnings, gains or losses on any benefits that are paid in a form other than a lump sum upon the Participant's termination), and under this Section 5 establish procedures for a Participant's election. In such case, the additional or alternative provisions and the election procedures shall be set forth in writing in the form of rules of general application, signed by the Plan Administrator. Such rules shall be attached as an exhibit to this Plan and shall be binding on all Participants. The Plan Administrator may subsequently amend, modify or delete such provisions or procedures in the same manner. (e) Special Provision - Notwithstanding any other provision of this ----------------- Plan, a Participant who has attained age 62 and who is or may be subject to mandatory retirement policies under federal or state law may, anytime after attaining age 62, request a distribution (actual or deferred, each of which is referred to hereinafter as a "Distribution") of all or any portion of his or her excess Pension Plan benefit specified in Section 2 or excess Savings Plan benefit specified in Section 3 or both. The Company may, in its sole discretion and with the prior approval of either the Board of Directors or the Personnel Committee of the Board of Directors, approve or deny the request in whole or in part and may specify the terms and conditions of any Distribution, including, without limitation, the amount of the Distribution, the timing of the Distribution, the form of payment of the Distribution and additional amounts, if any, that will be credited to the Participant under this Plan (including additional amounts with respect to any undistributed benefit of the Participant under the Pension Plan or Savings Plan). SECTION 6 FUNDING ------- Benefits under this Plan shall be unsecured and payable solely in cash from the general revenues and assets of the Company. This Plan shall be administered as a non-funded Plan which is not intended to meet the qualification requirements of Section 401 of the Code. In no event shall any benefit payable under this Plan be made from the trust funds of the Pension Plan -5- or the Savings Plan. Participants hereunder, to the extent that any benefits become payable under the provisions of this Plan, shall be deemed to be general creditors of the Company. SECTION 7 OPERATION AND ADMINISTRATION ---------------------------- This Plan shall be operated under the direction of the Personnel Committee of the Board of Directors of the Company and administered by the Plan Administrator of the Pension Plan, whose decision on all matters involving the interpretation and application of this Plan shall be final and binding. SECTION 8 AMENDMENT AND DISCONTINUANCE ---------------------------- The Company shall continue this Plan for so long as the Pension Plan or Savings Plan is in effect. The Plan may be amended, at any time and from time to time, by the Board of Directors of the Company or the Personnel Committee of the Board of Directors of the Company, except that the Personnel Committee shall have no authority (i) to adopt any amendment to the Plan that would increase the Company's imputed annual funding costs by more than five percent (5%), or (ii) to terminate the Plan. However, no amendment of this Plan (or termination coincident with termination of the Pension Plan and Savings Plan) shall reduce any benefits vested or accrued by a Participant under this Plan as of the date of such action. In the event of a discontinuance (or an amendment which reduces a Participant's accrued benefit), the Company shall be liable for the full amount of any benefit accrued as of a date immediately prior to the effective date of such amendment or discontinuance, such benefit to be determined by assuming that each affected Participant had terminated employment as of such earlier date. SECTION 9 VESTING ------- Each Participant's interest in his accrued benefit under this Plan shall be fully vested. SECTION 10 NON-ALIENATION OF BENEFITS -------------------------- None of the payments, benefits or rights of any Participant or beneficiary shall be subject to any claim of any creditor, and, in particular, to the fullest extent permitted by law, all such payments, benefits and rights shall be free from attachment, garnishment, trustee's process or any other legal or equitable process available to any creditor of such Participant or beneficiary. No Participant or beneficiary shall have the right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments that he or she may expect -6- to receive, contingently or otherwise, under this Plan, except the right to designate a beneficiary or beneficiaries as provided above. SECTION 11 NO CONTRACT OF EMPLOYMENT ------------------------- (a) The Plan shall not be deemed to constitute a contract between the Company and a Participant, or to be a consideration for, or a condition of, employment of any Participant. Neither the establishment of this Plan, nor any modification thereof, nor the creation of any fund or account, nor the payment of any benefits shall be construed as giving any Participant the right to be retained in the service of the Company, and all Participants shall remain subject to discharge to the same extent as if this Plan had never been adopted. (b) Notwithstanding any provision of Section 11(a), the terms and conditions of any Distribution (without regard to whether it is an actual or deferred distribution) under Section 5(e) shall constitute unconditional contractual obligations of the Company that may not be modified except with the written approval of both the Company, with the prior approval of either the Board of Directors or the Personnel Committee of the Board of Directors, and the Participant. SECTION 12 HEIRS, ASSIGNS AND PERSONAL REPRESENTATIVES ------------------------------------------- This Plan shall be binding upon the Company and any subsidiary or affiliate of the Company that may, with the consent of the Board of Directors of the Company, adopt this Plan. This Plan shall inure to the benefit of the heirs, executors, administrators, successors and assigns of the parties, including each Participant and beneficiary (subject to the right of a Participant to change beneficiaries from time to time), present and future, all of whom are intended to be and shall be third party beneficiaries hereunder. SECTION 13 GENDER AND NUMBER ----------------- Except where otherwise clearly indicated by context, the masculine shall include the feminine and neuter, the singular shall include the plural, and vice versa. -7- SECTION 14 CONSTRUCTION ------------ This plan is intended to be an unfunded "Excess Benefit Plan," as defined by section 3(36) of ERISA, as to that portion of the Plan that provides benefits in excess of the limitations of section 415 of the Code, and an unfunded plan that is maintained primarily for the purpose of providing deferred compensation for a select group of management and highly compensated employees, within the meaning of section 201(2), 301(a)(3), and 401(a)(1) of ERISA, as to the remaining portion of the Plan. The Plan shall be administered and construed accordingly. SECTION 15 CONTROLLING LAW --------------- This Plan shall be construed and enforced according to the laws of the State of Maryland. IN WITNESS WHEREOF, the Company has duly executed this Amended and Restated Supplemental Retirement Benefit Plan as of May 10, 1995. The Plan Administrator has joined herein for the purpose of indicating acceptance hereof. ATTEST: THE ROUSE COMPANY _____________________________ By: ----------------------------- WITNESS: PLAN ADMINISTRATOR FOR THE SUPPLEMENTAL RETIREMENT BENEFIT PLAN OF THE ROUSE COMPANY _____________________________ By: ----------------------------- -8- EXHIBIT 5(C) DEFERRAL OF INCENTIVE CASH BONUS Effective March 4, 1994, and pursuant to Section 4(b) of the Amended and Restated Supplemental Retirement Benefit Plan of The Rouse Company, the terms and conditions of a Participant's election to defer his or her incentive cash bonus and the manner of payment of the deferred amounts shall be as provided in Attachment 1. _____________________________ William D. Boden Plan Administrator Attachment 1 RESPONSE REQUIRED BY DECEMBER 8, 1995 =================== TO: FROM: William D. Boden Re: Cash Bonus Deferral Program --------------------------- In 1994, the company established a program as part of its Supplemental Retirement Benefit Plan under which you may defer all or any portion of your incentive cash bonus that the Board may approve annually. If you defer all or part of your bonus, you benefit by avoiding current taxation on the bonus (except that you must currently pay the Medicare portion of FICA, or 1.45%, and the 1.45% will be treated as taxable income) and having the fulll amount of the bonus (less the 1.45%) available for investment growth. IF YOU WISH TO DEFER ANY PORTION OF YOUR BONUS THAT MAY BE GRANTED IN 1996, YOU MUST COMPLETE AND RETURN THE ATTACHED INCENTIVE CASH BONUS DEFERRAL FORM TO ME BY DECEMBER 8, 1995. NO DEFERRAL ELECTION THAT IS RECEIVED AFTER THAT DATE WILL BE HONORED. The basic terms of the bonus deferral program are as follows: 1. You may defer any dollar amount or percentage of your annual bonus. 2. The deferral decision must be made by completing and returning an Incentive Cash Bonus Deferral Form prior to the end of the calendar year to which the bonus relates. For administrative purposes, a decision to defer a cash bonus that is granted in 1996 (if any) must be made by December 8, 1995. 3. You may invest your deferred bonus, on paper, in any of the investments that are available under the Company's Savings Plan. Your deferred bonus will be adjusted, up or down, to reflect the investment performance of these hypothetical investment options. NOTE THAT YOUR ACCOUNT IS UNFUNDED, YOU HAVE NO RIGHTS TO ANY SPECIFIC ASSETS OF THE COMPANY, Page November 10, 1995 AND YOU ARE A GENERAL CREDITOR OF THE COMPANY WITH YOUR BENEFITS PAYABLE ONLY FROM THE GENERAL ASSETS OF THE COMPANY. 4. While you are employed by the Company, you may reallocate your investments once a month, with a minimum reallocation of 30% of your account balance or $500, whichever is less. After you terminate employment, you may reallocate your investments once a year on the anniversary of your termination, subject to the same minimums. Reallocations will be effective as of the first day of the following month. 5. With respect to each bonus deferral, you will specify a future date on which distribution of the bonus, as adjusted for all related earnings or losses, is to commence, either the first day of any future calendar quarter or upon termination of employment, whichever occurs first. Once the election is made, you may not begin to receive the bonus on an earlier or later date except as provided in paragraphs 7, 8 and 9 below. 6. When you elect to defer your bonus, you also will elect the form of payment when the bonus is distributed to you. You may choose to receive the distribution in a lump sum or in up to 10 annual installment payments. While you are employed by the Company, you may change the form of payment for a scheduled distribution if you do so at least one year before the scheduled date. 7. Disability receives special treatment. With respect to each bonus deferral, you may elect whether to receive a distribution if you become totally disabled and, if so, whether the distribution is to be in a lump sum or in annual installments (up to 10). You are considered to be totally disabled if you meet the standards under the Company's Long-Term Disability Plan or any successor plan. 8. Your account balance will be distributed in a lump sum upon your death. 9. With the consent of the Plan Administrator, you may receive a distribution if a severe financial hardship occurs as a result of an unanticipated emergency and no alternative funds are available. You may not receive a loan against your account. 10. You may select anyone as your beneficiary, and you may name alternate beneficiaries. If you die before all payments are made to you under the Plan, your beneficiary(ies) will receive a lump sum payment of your account balance. Page November 10, 1995 If all of your named beneficiaries predecease you, your account balance will be paid in a lump sum to your estate. SEVERAL POINTS NEED TO BE EMPHASIZED. THE PLAN IS A NONQUALIFIED, UNFUNDED PLAN, AND YOUR BENEFITS ARE PAYABLE ONLY FROM THE GENERAL ASSETS OF THE COMPANY. THE TERMS OF THE PLAN ARE BASED ON CURRENT TAX LAWS. IF SUCH LAWS CHANGE, THE TERMS OF THE PLAN MAY NEED TO BE CHANGED. FEDERAL TAX LAWS PROVIDE THAT YOU MAY NOT ACCRUE BENEFITS UNDER THE COMPANY'S QUALIFIED PENSION PLAN WITH RESPECT TO A DEFERRED BONUS. IF YOU DECIDE TO DEFER A BONUS, YOU WILL, HOWEVER, ACCRUE PENSION BENEFITS RELATING TO THE DEFERRED BONUS IN THE SAME AMOUNT UNDER THE EXCESS PENSION PLAN PORTION OF THE COMPANY'S SUPPLEMENTAL RETIREMENT BENEFIT PLAN, WHICH IS A NONQUALIFIED, UNFUNDED PLAN. IN SHORT, IF YOU DEFER A BONUS, YOUR COMBINED PENSION BENEFIT UNDER THE QUALIFIED PENSION PLAN AND THE NONQUALIFIED EXCESS PENSION PLAN WILL NOT CHANGE. YOU SHOULD CONSULT WITH YOUR COUNSEL OR PERSONAL TAX ADVISER TO DETERMINE THE FULL TAX CONSEQUENCES OF DEFERRING YOUR BONUS AND THE ADVANTAGES AND DISADVANTAGES IN YOUR PERSONAL CIRCUMSTANCES. FINALLY, NOTHING IN THIS PLAN SHOULD BE TAKEN TO IMPLY THAT ANY INDIVIDUAL HAS A RIGHT TO RECEIVE A BONUS, OR ANY PARTICULAR AMOUNT. Please give me a call if you have any questions about how the Plan operates. REMEMBER, YOU MUST RETURN THE INCENTIVE CASH BONUS DEFERRAL FORM TO ME BY DECEMBER 8, 1995 IF YOU WISH TO DEFER ANY BONUS THAT IS GRANTED TO YOU IN 1996. THE ROUSE COMPANY SUPPLEMENTAL RETIREMENT BENEFIT PLAN INCENTIVE CASH BONUS DEFERRAL FORM To: From: William D. Boden Plan Administrator Under one portion of The Rouse Company Supplemental Retirement Benefit Plan, you may defer any dollar amount or percentage of your annual incentive cash bonus (if any), but only if this Deferral Form is signed and returned to me by December 8. In addition, you must elect when and how you want the deferred amounts, as adjusted for all related investments earnings or losses, paid out to you. (For example, do you want your deferral to be paid to you beginning when you terminate employment, or at some specific earlier date, and do you want a lump sum or annual installments?) THIS ELECTION CANNOT BE CHANGED, EXCEPT THAT WHILE YOU ARE EMPLOYED BY THE COMPANY, YOU MAY CHANGE THE FORM OF PAYMENT FOR A SCHEDULED DISTRIBUTION IF YOU DO SO AT LEAST ONE YEAR BEFORE THE SCHEDULED DATE. For example, if you defer your bonus until July 1, 1999, funds will be raised to you only at that time unless you terminate --------------------------------------------- employment, become totally disabled ( and you previously elected a distribution if you became totally disabled) or die before then. In addition, funds may be released at the discretion of the Plan Administrator if a severe financial hardship occurs as a result of an unanticipated emergency and no alternative funds are available. If you wish to defer any portion of any incentive cash bonus that may be granted to you in 1996 for the year 1995, fill out this Deferral Form, sign it at the bottom and return it to me. THIS FORM MUST BE RETURNED TO ME BY DECEMBER 8, 1995 IF IT IS TO BE EFFECTIVE FOR ANY BONUS THAT MAY BE GRANTED TO YOU IN 1996. This Deferral Form is only applicable to the incentive cash bonus granted to you in 1996. You will be provided with a new Deferral Form annually that will permit you to defer your incentive cash bonus that is granted to you in the following year (if any). Page 14 Incentive Cash Bonus Deferral Form Page 15 Incentive Cash Bonus Deferral Form DEFERRAL ELECTIONS 1. SOURCE OF DEFERRED INCOME I elect to defer the following percentage or dollar amount of any annual incentive cash bonus that I am granted in 1996: $_______________ or ________________% I understand that the Medicare portion of FICA (currently 1.45%) will be deducted from any deferral, and that the 1.45% will be treated as taxable income. 2. DATE OF DEFERRED PAYMENT I elect to receive payment of the above deferred amount (as adjusted for all related investment earnings or losses) in the following manner (check one and fill in any blanks): ___ A lump sum payment on the earlier to occur of my termination of employment or the following specified date: _______________________. The specified date must be the first day of any calendar quarter (i.e., January 1, April 1, July 1 or October 1). ___ Annual installment payments beginning on the earlier to occur of my termination of employment or the following specified date: _______________________, and continuing for a total of the following number of years _______________ (insert any whole number up to 10). The specified date must be the first day of any calendar quarter (i.e., January 1, April 1, July 1 or October 1). 3. TOTAL DISABILITY In the event of my total disability, I elect to receive payment of the above deferred amount (as adjusted for all related investment earnings or losses) in the following manner (check one): ___ A lump sum payment. ___ Annual installment payments beginning when my total disability is established under the Company's Long-Term Disability Plan or any successor plan and continuing for a total of the following number of years _______ (insert any whole number up to 10). ___ Follow my payment election specified in paragraph 2 above. If you do not select one of the above alternatives, your payment election specified in paragraph 2 above relating to this deferred bonus will be followed. Page 16 Incentive Cash Bonus Deferral Form 4. INVESTMENT ALLOCATION You may invest your deferred bonus, on paper, in any of the investments that are available under the Company's Savings Plan. As with the Savings Plan, the minimum amount that may be allocated to any investment is 10%. NOTE THAT THIS PLAN IS A NONQUALIFIED, UNFUNDED PLAN, AND BENEFITS ARE PAYABLE ONLY FROM THE GENERAL ASSETS OF THE COMPANY. AS A RESULT, YOUR ACCOUNT IS UNFUNDED, YOU HAVE NO RIGHTS TO ANY SPECIFIC ASSETS OF THE COMPANY AND YOU ARE A GENERAL CREDITOR OF THE COMPANY. YOUR DEFERRED BONUS AND ANY INVESTMENT EARNINGS OR LOSSES ARE CREDITED TO YOUR ACCOUNT "ON PAPER" ONLY, UNTIL PAID. Please indicate how you prefer to allocate your deferred bonus. Your deferred bonus will be adjusted, up or down, to reflect the investment performance of these hypothetical investment options. The Company reserves the right to change the options offered on a prospective basis. I direct that my deferred bonus be allocated among these investment options as follows (total must equal 100%): ALLOCATION INVESTMENT OPTION ___________% The Rouse Company Common Stock Fund ___________% The Rouse Company Preferred Stock Fund ___________% Long-Term Income Fund ___________% Ariel Growth Fund ___________% T. Rowe Price Prime Reserve (Money Market) Fund ___________% T. Rowe Price Spectrum Income Fund ___________% T. Rowe Price Spectrum Growth Fund ___________% T. Rowe Price New Horizons Fund ___________% T. Rowe Price International Stock Fund ___________% T. Rowe Price Index Fund ___________% T. Rowe Price Small-Cap Value Fund ___________% T. Rowe Price New America Growth Fund ___________% T. Rowe Price Balanced Fund 100% TOTAL While you are employed by the Company, you may reallocate your investments once a month, with a minimum reallocation of 30% of your account balance or $500, whichever is less. After you terminate employment, you may reallocate your investments once a year on the anniversary of your termination, subject to the same minimums. Reallocations will be effective as of the first day of the following Page 17 Incentive Cash Bonus Deferral Form month. To reallocate your investments, give the Director of Personnel (and not T. Rowe Price) a call. 5. BENEFICIARY DESIGNATION You may select anyone as your beneficiary, and you may name alternate beneficiaries. If you die before all payments relating to your deferred bonus are made to you under the Plan, then your beneficiary(ies) will receive a lump sum payment of your remaining deferred amounts, including any adjustments to those amounts as a result of investment earnings or losses. If all named beneficiaries predecease you, your remaining deferred amounts will be paid to your estate. Your beneficiary election remains in effect until you change it. To do so, please call the Manager of Benefits in the Personnel Division to request a Change Form. PRIMARY BENEFICIARY(IES) Name(s): __________________________________________________ ____________________________________________________________ Relation(s) to Me: ________________________________________ Address(es): ______________________________________________ ______________________________________________ SECONDARY BENEFICIARY(IES) Name(s): __________________________________________________ ____________________________________________________________ Relation(s) to Me: ________________________________________ Address(es): ______________________________________________ ______________________________________________ SPECIFIC BENEFICIARY INSTRUCTIONS _________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ In witness whereof, I have executed this Deferral Form with the intent to be legally bound by its terms. Signed: __________________________________ Date: __________________________________ EXHIBIT 5(d) ADDITIONAL OPTIONS - FORM OF PAYMENT AND TIMING, ELECTION PROCEDURES AND INVESTMENT ALTERNATIVES Effective May 10, 1995, and pursuant to Section 5(d) of the Amended and Restated Supplemental Retirement Benefit Plan of The Rouse Company (the "Plan"), a Participant may elect to receive his or her benefits under Section 2-4 of the Plan pursuant to the following provisions: 1. Form of Payment - A Participant may elect to receive any --------------- benefit under Sections 2-4 of the Plan: A. In any form that is permitted under the Pension Plan or the Savings Plan; or B. In installments, payable no more frequently than quarterly, over a period of up to 10 years. 2. Timing of Payment - A Participant may specify the date or ----------------- dates on which payment of his or her benefits under Sections 2-4 of the Plan is to occur, which may be any date on or after his or her termination date. 3. Additional Flexibility - A Participant who is entitled to ---------------------- benefits under more than one Section of Sections 2-4 of the Plan may elect a different form of benefit payment with respect to each such Section and a different date or dates on which payment of his or her benefits under each such Section is to occur. 4. Election Procedures - A Participant's election(s) with respect ------------------- to the form and timing of the benefit payments under Sections 2-4 of the Plan shall be made in writing at least six months prior to his or her termination date, except that the Plan Administrator may, in his or her sole discretion, permit such elections to be made on less than six months' notice with respect to: A. Terminations that occur during the six-month period beginning on May 10, 1995, the date on which the Personnel Committee of the Board of Directors approved the amendments to the Plan that are reflected in Section 5(d); and B. Involuntary terminations. 5. Investment Alternatives - A Participant who elects to ----------------------- receive payment of his or her benefits under Sections 2-4 of the Plan in any form other than a lump sum payment upon termination may elect to have the deferred benefit treated as if it were invested, on paper, in any of the investment alternatives that are available under the Savings Plan and to be credited with investment earnings, gains or losses accordingly. Investments may be reallocated (i) once a year on or before the anniversary of the Participant's termination date, with the reallocations to be effective on the first day of the month following the anniversary of the Participant's termination date or (ii) with such greater frequency as is permitted with respect to investments under the Savings Plan. Other provisions relating to such investments (such as the minimum amount that may be allocated to any investment) shall be the same as are provided with respect to investments under the Savings Plan. _____________________________ William D. Boden Plan Administrator EX-11 4 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 Exhibit 11. Statement re Computation of Per Share Earnings THE ROUSE COMPANY AND SUBSIDIARIES Computation of Fully Diluted Earnings (Loss) Per Share (Unaudited, in thousands except per share amounts)
Years ended December 31, ---------------------------- 1995 1994 1993 -------- -------- -------- Earnings (loss) before extraordinary losses $ 5,850 $ 6,606 $(1,291) Add after tax interest expense applicable to convertible subordinated debentures 4,859 4,859 6,236 ------- ------- ------- Earnings before extraordinary losses, as adjusted 10,709 11,465 4,945 Extraordinary losses, net of related income tax benefits (8,631) (4,447) (8,051) ------- ------- ------- Net earnings (loss), as adjusted $ 2,078 $ 7,018 $(3,106) ======= ======= ======= Shares: - ------ Weighted average number of common shares outstanding 47,814 47,565 47,411 Assuming conversion of convertible Preferred stock 10,600 10,600 8,251 Assuming conversion of convertible subordinated debentures 4,541 4,541 5,917 Assuming exercise of options and warrants reduced by the number of shares which could have been purchased with the proceeds from the exercise of such options 247 175 224 ------- ------- ------- Weighted average number of shares outstanding as adjusted 63,202 62,881 61,803 ======= ======= ======= Earnings (loss) per common share assuming full dilution: Earnings before extraordinary losses $ .17 $ .18 $ .08 Extraordinary losses (.14) (.07) (.13) ------- ------- ------- Net earnings (loss) $ .03 $ .11 $ (.05) ======= ======= =======
This calculation is submitted in accordance with Regulation S-K item 601 (b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result. EX-12.1 5 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 The Rouse Company and Subsidiaries Computation of Ratio of Earnings to Fixed Charges (dollars in thousands)
Year ended December 31, ------------------------------------------ 1995 1994 1993 1992 1991 ------ ----- ------ ------ ----- Earnings (loss) before income taxes, extraordinary loss and cumulative effect of change in accounting principle $ 10,169 $ 13,336 $ 3,072 $ (20,783) $ 5,245 Fixed charges: Interest costs 219,838 220,971 219,705 221,907 219,538 Capitalized interest (6,875) (7,388) (8,899) (15,098) (21,243) Amortization of debt issuance costs 2,527 2,146 2,801 3,571 3,173 Distributions on Company-obligated mandatorily redeemable preferred securities of a trust holding solely Parent Company subordinated debt securities 1,204 -- -- -- -- Portion of rental expenses representative of interest factor (1) 8,266 10,788 15,988 14,739 15,265 Support for debt service costs provided to affiliates accounted for under the equity method -- -- 31 389 1,106 Adjustments to earnings (loss): Minority interest in earnings of majority-owned subsidiaries having fixed charges 2,026 2,234 1,909 1,747 2,118 Undistributed earnings of less than 50%-owned subsidiaries (189) (564) (68) (84) (540) Previously capitalized interest amortized into earnings: Depreciation of operating properties (2) 3,764 3,670 3,605 3,474 3,145 Cost of land sales (3) 1,421 1,580 1,627 1,295 928 -------- -------- -------- -------- -------- Earnings available for fixed charges $242,151 $246,773 $239,771 $211,157 $228,735 ======== ======== ======== ======== ======== Fixed charges: Interest costs $219,838 $220,971 $219,705 $221,907 $219,538 Amortization of debt expense 2,527 2,146 2,801 3,571 3,173 Distributions on Company-obligated mandatorily redeemable preferred securities of a trust holding solely Parent Company subordinated debt securities 1,204 -- -- -- -- Portion of rental expenses representative of interest factor (1) 8,266 10,788 15,988 14,739 15,265 Support for debt service costs provided to affiliates accounted for under the equity method -- -- 31 389 1,106 -------- -------- -------- -------- -------- Total fixed charges $231,835 $233,905 $238,525 $240,606 $239,082 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges (4) 1.04 1.06 1.01 -- -- ======== ======== ======== ======== ========
(1) Includes (a) 80% of minimum rentals, the portion of such rentals considered to be a reasonable estimate of the interest factor and (b) 100% of contingent rentals of $3,644,000, $6,232,000, $10,006,000, $8,106,000 and $8,458,000 for the years ended December 31, 1995, 1994, 1993, 1992 and 1991 respectively. (2) Represents an estimate of depreciation of capitalized interest costs based on the Company's established depreciation policy and an analysis of interest costs capitalized since 1971. (3) Represents 10% of cost of land sales, the portion of such cost considered to be a reasonable estimate of the interest factor. (4) Total fixed charges exceeded the Company's earnings available for fixed charges by $29,449,000 and $10,347,000 for the years ended December 31, 1992 and 1991, respectively. EX-13 6 ANNUAL REPORT TO SECURITY HOLDERS 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 7, 1996. 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, 1995. REPORT OF INDEPENDENT REAL ESTATE CONSULTANTS Landauer Associates, Inc. 666 Fifth Avenue New York, New York 10103 KPMG Peat Marwick LLP and The Board of Directors and Shareholders The Rouse Company: We have reviewed estimates of the market value of equity and other interests in certain real property owned and/or managed by The Rouse Company (the Company) and its subsidiaries as of December 31, 1995 and 1994. The properties reviewed at December 31, 1995 include all the projects identified as "In Operation" on the "Projects of The Rouse Company" table on pages 58 through 62 of the Annual Report for 1995, land held for development and sale, certain parcels of land in development and certain other properties held for sale. The properties reviewed at December 31, 1994 were the same, except for the properties which were aquired or disposed of during 1995. The total values of its equity and other interests estimated by the Company were $2,444,218,000 and $2,338,624,000 at December 31, 1995 and 1994, respectively. Based upon our review, we concur with the Company's estimates of the total value of the property interests appraised. In our opinion, the aggregate value estimated by the Company varies less than 10% from the aggregate value we would estimate in a full and complete appraisal of the same interests. A variation of less than 10% between appraisers implies substantial agreement as to the most probable market value of such property interests. The data used in our review were supplied to us in summary form by the Company. We have relied upon the Company's interpretation and summaries of leases, operating agreements, mortgages and partnership, joint venture and management agreements. We have had complete and unrestricted access to all underlying documents and have confirmed certain information by reference to such documents. We have found no discrepancies in the data and, to the best of our knowledge, believe all such data to be accurate and complete. The basic assumptions used by the Company and the individual value estimates prepared by the Company were, in our opinion, fair and reasonable. No assumption has been made with respect to a bulk sale of the entire holdings or groups of property interests. We have also physically inspected, within the past three years, substantially all of the properties which were reviewed. We certify that neither Landauer Associates, Inc. nor the undersigned have any present or prospective interest in the Company's properties, and we have no personal interest or bias with respect to the parties involved. To the best of our knowledge and belief, the facts upon which the analysis and conclusions were based are materially true and correct. No one, other than the undersigned assisted by members of our staff, performed the analyses and reached the conclusions resulting in the opinion expressed in this letter. Our fee for this assignment was not contingent on any action or event resulting from the analysis, opinions, or conclusions in, or the use of, this review. Our review has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice. Sincerely, Landauer Associates, Inc. James C. Kafes, MAI, CRE Deborah A. Jackson Managing Director Senior Vice President Director of Retail Valuation February 22, 1996 21 The Rouse Company and Subsidiaries CONSOLIDATED COST BASIS AND CURRENT VALUE BASIS BALANCE SHEETS December 31, 1995 and 1994 (in thousands)
1995 1994 ---------------------------- -------------------------- Current Value Cost Current Value Cost Basis (note 1) Basis Basis (note 1) Basis -------------- ----- -------------- ----- Assets Property (notes 4, 5, 6, 7, 11 and 18): Operating properties: Property and deferred costs of projects......... $4,323,010 $3,006,356 $4,232,913 $2,937,565 Less accumulated depreciation and amortization.............. 519,319 490,158 ---------- ---------- --------- ---------- 4,323,010 2,487,037 4,232,913 2,447,407 Properties in development.. 62,030 56,151 70,866 65,348 Properties held for sale... 22,602 22,602 8,809 8,809 Land held for development and sale.................. 149,324 134,168 153,637 132,293 ---------- ---------- --------- ---------- Total property............. 4,556,966 2,699,958 4,466,225 2,653,857 ---------- ---------- --------- ---------- Prepaid expenses, deferred charges and other assets... 160,854 151,068 159,956 151,223 Accounts and notes receivable (note 8)....... 36,751 36,751 31,233 31,233 Investments in marketable securities................ 2,910 2,910 30,149 30,149 Cash and cash equivalents.. 94,922 94,922 49,398 49,398 ---------- ---------- ---------- ---------- Total...................... $4,852,403 $2,985,609 $4,736,961 $2,915,860 ========== ========== ========== ==========
The accompanying notes are an integral part of these statements. 22
1995 1994 ---------------------------- -------------------------- Current Value Cost Current Value Cost Basis (note 1) Basis Basis (note 1) Basis -------------- ----- -------------- ----- Liabilities Debt (note 11): Property debt not carrying a Parent Company guarantee of repayment.............. $1,990,041 $1,990,041 $1,998,445 $1,998,445 ---------- ---------- ---------- ---------- Parent Company debt and debt carrying a Parent Company guarantee of repayment: Property debt.............. 138,488 138,488 223,731 223,731 Convertible subordinated debentures................ 126,750 130,000 105,950 130,000 Other debt................. 231,884 221,000 116,500 120,700 ---------- ---------- ---------- ---------- 497,122 489,488 446,181 474,431 ---------- ---------- ---------- ---------- Total debt................. 2,487,163 2,479,529 2,444,626 2,472,876 ---------- ---------- ---------- ---------- Obligations under capital leases (note 18).......... 58,786 58,786 60,044 60,044 Accounts payable, accrued expenses and other liabilities............... 185,561 185,561 205,317 205,317 Deferred income taxes (note 14)................. 445,613 81,649 412,729 82,597 Company-obligated mandatorily redeemable preferred securities of a trust holding solely Parent Company subordinated debt securities (note 12)................. 136,125 137,500 -- -- Shareholders' equity (notes 16 and 17) Series A Convertible Preferred stock with a liquidation preference of $225,250 in 1995 and $225,252 in 1994......... 45 45 45 45 Common stock of 1 cent par value per share; 250,000,000 shares authorized; issued 47,922,749 shares in 1995 and 47,571,046 shares in 1994................... 479 479 476 476 Additional paid-in capital. 309,943 309,943 306,674 306,674 Accumulated deficit........ (267,883) (267,883) (212,169) (212,169) Revaluation equity......... 1,496,571 -- 1,519,219 -- ---------- ---------- --------- ---------- Total shareholders' equity. 1,539,155 42,584 1,614,245 95,026 ---------- ---------- --------- ---------- Commitments and contingencies (notes 18, 19 and 20) Total...................... $4,852,403 $2,985,609 $4,736,961 $2,915,860 ========== ========== ========== ==========
23 The Rouse Company and Subsidiaries CONSOLIDATED COST BASIS STATEMENTS OF OPERATIONS Years ended December 31, 1995, 1994 and 1993 (in thousands, except per share data) [CAPTION] 1995 1994 1993 ---- ---- ---- Revenues................... $ 672,821 $ 671,171 $ 646,805 Operating expenses, exclusive of provision for bad debts, depreciation and amortization............. 347,560 356,958 352,217 Interest expense (note 11). 212,963 213,583 210,806 Provision for bad debts.... 3,318 5,185 4,741 Depreciation and amortization (note 4)..... 73,062 74,186 70,200 Gain (loss) on dispositions of assets and other provisions, net (note 15)................. (25,749) (7,923) (5,769) ---------- ---------- ---------- Earnings before income taxes and extraordinary losses.................... 10,169 13,336 3,072 ---------- ---------- ---------- Income taxes (note 14): Current--primarily state... 620 735 760 Deferred--primarily Federal 3,699 5,995 3,603 ---------- ---------- ---------- 4,319 6,730 4,363 ---------- ---------- ---------- Earnings (loss) before extraordinary losses...... 5,850 6,606 (1,291) Extraordinary losses, net of related income tax benefits (note 11)........ 8,631 4,447 8,051 ---------- ---------- ---------- Net earnings (loss)........ $ (2,781) $ 2,159 $ (9,342) ========== ========== ========== Net loss applicable to common shareholders....... $ (17,422) $ (10,922) $ (20,723) ========== ========== ========== Loss per share of common stock after provision for dividends on Preferred stock (note 16): Loss before extraordinary losses.................... $(.18) $(.14) $(.27) Extraordinary losses....... (.18) (.09) (.17) ---------- ---------- ---------- Total...................... $(.36) $(.23) $(.44) ========== ========== ==========
The accompanying notes are an integral part of these statements. 24 The Rouse Company and Subsidiaries CONSOLIDATED COST BASIS STATEMENTS OF SHAREHOLDERS' EQUITY Years ended December 31, 1995, 1994 and 1993 (in thousands)
Series A Convertible Additional Preferred Common paid-in Accumulated stock stock capital deficit ----------- ------ ---------- ----------- Balance at December 31, 1992...................... $ -- $ 473 $ 83,450 $ (118,771) Net loss................... -- -- -- (9,342) Dividends declared: Common stock -- $ .62 per share..................... -- -- -- (29,404) Preferred stock -- $2.83 per share................. -- -- -- (11,381) Proceeds from exercise of stock options, net........ -- 3 446 -- Amortization of restricted common stock.............. -- -- 2,068 -- Issuance of Preferred stock (note 16)........... 40 -- 195,569 -- ---------- ---------- ---------- ---------- Balance at December 31, 1993...................... 40 476 281,533 (168,898) Net earnings............... -- -- -- 2,159 Dividends declared: Common stock -- $ .68 per share..................... -- -- -- (32,349) Preferred stock -- $3.25 per share................. -- -- -- (13,081) Proceeds from exercise of stock options, net........ -- -- 108 -- Amortization of restricted common stock.............. -- -- 2,225 -- Issuance of Preferred stock (note 16)........... 5 -- 22,808 -- ---------- ---------- ---------- ---------- Balance at December 31, 1994...................... 45 476 306,674 (212,169) Net loss................... -- -- -- (2,781) Dividends declared: Common stock -- $ .80 per share..................... -- -- -- (38,292) Preferred stock -- $3.25 per share................. -- -- -- (14,641) Proceeds from exercise of stock options, net........ -- 3 2,139 -- Amortization of restricted common stock.............. -- -- 1,130 -- ---------- ---------- ---------- ---------- Balance at December 31, 1995...................... $ 45 $ 479 $ 309,943 $ (267,883) ========== ========== ========== ==========
The accompanying notes are an integral part of these statements. 25 The Rouse Company and Subsidiaries CONSOLIDATED COST BASIS STATEMENTS OF CASH FLOWS Years ended December 31, 1995, 1994 and 1993 (in thousands)
1995 1994 1993 ---- ---- ---- Cash flows from operating activities Rents and other revenues received.................. $ 625,373 $ 622,033 $ 600,594 Proceeds from land sales... 33,233 37,482 33,830 Interest received.......... 10,323 10,297 9,712 Land development expenditures.............. (16,874) (16,760) (20,407) Operating expenditures: Operating properties....... (308,425) (315,607) (309,130) Land sales, development and corporate............. (18,738) (11,880) (9,034) Interest paid: Operating properties....... (202,120) (195,751) (184,278) Land sales, development and corporate............. (15,771) (16,039) (20,138) ---------- ---------- ---------- Net cash provided by operating activities...... 107,001 113,775 101,149 ---------- ---------- ---------- Cash flows from investing activities Expenditures for properties in development and improvements to existing properties funded by debt........... (61,591) (78,628) (87,243) Expenditures for property acquisitions.............. (28,206) (94,113) (34,967) Expenditures for improvements to existing properties funded by cash provided by operating activities: Tenant leasing and remerchandising........... (8,344) (8,121) (7,374) Building and equipment..... (4,688) (5,155) (5,967) Purchases of marketable securities................ (5,411) (70,189) (88,594) Proceeds from redemptions or sales of marketable securities................ 32,650 74,443 72,400 Other...................... 10,595 3,212 (2,701) ---------- ---------- ---------- Net cash used in investing activities................ (64,995) (178,551) (154,446) ---------- ---------- ---------- Cash flows from financing activities Proceeds from issuance of property debt............. 288,851 446,628 358,995 Repayments of property debt: Scheduled principal payments.................. (36,446) (46,750) (20,735) Other payments............. (413,438) (304,977) (405,772) Proceeds from issuance of other debt................ 124,831 -- 120,329 Repayments of other debt... (42,440) (8,968) (160,657) Proceeds from the issuance of Company-obligated mandatorily redeemable preferred securities..... 132,951 -- -- Proceeds from issuance of Preferred stock........... -- -- 195,609 Proceeds from exercise of stock options............. 2,142 108 449 Dividends paid............. (52,933) (45,423) (41,150) ---------- ---------- ---------- Net cash provided by financing activities...... 3,518 40,618 47,068 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents. 45,524 (24,158) (6,229) Cash and cash equivalents at beginning of year...... 49,398 73,556 79,785 ---------- ---------- ---------- Cash and cash equivalents at end of year............ $ 94,922 $ 49,398 $ 73,556 ========== ========== ==========
The accompanying notes are an integral part of these statements. 26 Reconciliation of Net Earnings (Loss) to Net Cash Provided by Operating Activities
1995 1994 1993 ---- ---- ---- Net earnings (loss)........ $ (2,781) $ 2,159 $ (9,342) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization.............. 73,062 74,186 70,200 (Gain) loss on dispositions of assets and other provisions, net. 25,749 7,923 5,769 Extraordinary losses, net of related income tax benefits.................. 8,631 4,447 8,051 Additions to pre-construction reserve.. 3,800 3,400 2,900 Provision for bad debts.... 3,318 5,185 4,741 Decrease (increase) in: Accounts and notes receivable................ (3,836) (3,150) (407) Other assets............... 1,357 5,323 (3,373) Increase (decrease) in accounts payable, accrued expenses and other liabilities............... (10,690) 5,754 21,437 Deferred income taxes...... 3,699 5,995 3,603 Other, net................. 4,692 2,553 (2,430) ---------- ---------- ---------- Net cash provided by operating activities...... $ 107,001 $ 113,775 $ 101,149 ========== ========== ========== Schedule of Non-Cash Investing and Financing Activities 1995 1994 1993 ---- ---- ---- Value of non-cash consideration given in acquisitions of interests in properties............. $ 79,811 $ 1,129 $ 13,416 Mortgage and other debt assumed in acquisitions of interests in properties................ 6,175 -- 71,995 Mortgage debt extinguished on dispositions of interests in properties................ 20,779 15,681 -- Capital lease obligations incurred.................. 1,837 613 1,541 Series A Convertible Preferred stock issued in satisfaction of mortgage debt............. -- 23,000 -- ========== ========== ==========
27 The Rouse Company and Subsidiaries CONSOLIDATED CURRENT VALUE BASIS STATEMENTS OF CHANGES IN REVALUATION EQUITY Years ended December 31, 1995, 1994 and 1993 (in thousands)
1995 1994 1993 ---- ---- ---- Revaluation equity at beginning of year......... $1,519,219 $1,412,455 $1,223,744 Revaluation equity attributable to interests in operating properties sold or disposed.............. 3,082 5,609 -- ---------- ---------- ---------- 1,522,301 1,418,064 1,223,744 ---------- ---------- ---------- Value of interests in operating properties opened or acquired........ 8,152 -- 7,075 Change in value of interests in other operating properties, including properties held for sale............. 39,233 101,168 226,258 Change in value of land in development and land held for development and sale, including effects of sales and transfers to operating properties................ (5,827) 1,007 (10,761) ---------- ---------- ---------- Change in value of interests in operating properties,land in development and land held for development and sale. 41,558 102,175 222,572 Change in value of other property.................. 1,053 (337) (456) Change in value attributable to debt, exclusive of operating property debt... (34,509) 32,068 (3,818) Change in present value of potential income taxes, net of cost basis deferred income taxes.................... (33,832) (32,751) (29,587) ---------- ---------- ---------- (25,730) 101,155 188,711 ---------- ---------- ---------- Revaluation equity at end of year................... $1,496,571 $1,519,219 $1,412,455 ========== ========== ========== The accompanying notes are an integral part of these statements.
28 The Rouse Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 (1) Current value basis financial statements (a) Current value reporting The Company's interests in operating properties, land held for development and sale and certain other assets have appreciated in value and, accordingly, their aggregate current value substantially exceeds their aggregate cost basis net book value determined in conformity with generally accepted accounting principles. The current value basis financial statements present information about the current values to the Company of its assets and liabilities and the changes in such values. The current value basis financial statements are not intended to present the current liquidation values of assets or liabilities of the Company or its net assets taken as a whole. Management believes that the current value basis financial statements more realistically reflect the underlying financial strength of the Company. The current values of the Company's interests in operating properties, including interests in unconsolidated real estate ventures, represent management's estimates of the value of these assets primarily as investments. These values will generally be realized through future cash flows generated by the operation of these properties over their economic lives. The current values of land held for development and sale represent management's estimates of the value of these assets under long-term development and sales programs. Shareholders' equity on a current value basis was $1,539,155,000 or $26.30 per share of common stock at December 31, 1995 and $1,614,245,000 or $27.75 per share of common stock at December 31, 1994. The per share calculations assume the conversion of the Preferred stock. The process for estimating the current values of the Company's assets and liabilities requires significant estimates and judgments by management. These estimates and judgments are made based on information and assumptions considered by management to be adequate and appropriate in the circumstances; however, they are not subject to precise quantification or verification and may change from time to time as economic and market factors, and management's evaluation of them, change. The current value basis financial statements are an integral part of the Company's annual report to shareholders but they are not presented as part of the Company's quarterly reports to shareholders. The extensive market research, financial analysis and testing of results required to produce reliable current value information make it impractical to report this information on an interim basis. (b) Bases of valuation Interests in operating properties--The current value of the Company's interests in operating properties is the Company's share (based on its underlying ownership interest) of each property's equity value (i.e., the present value of its forecasted net cash flow and residual value, if applicable, after deducting payments on debt specifically related to the property) plus the outstanding balance of related debt. The current value of the Company's interests in unconsolidated real estate ventures is the present value of the Company's share of forecasted net cash flow, including incentive management fees, and residual value of the respective real estate ventures. The forecasts of net cash flow generally cover periods of eleven years, are based on an evaluation of the history and future of each property and are supported by market studies, analyses of tenant lease terms and projected sales performance and detailed estimates of revenues and operating expenses. The present values of forecasted net cash flows are determined using internal rates of return which vary by project and between years as investor yield requirements change. The resulting values recognize the considerable differences between properties in terms of quality, age, outlook and risk as well as the prevailing yield requirements of investors for income-producing properties. Properties in development--Properties in development are carried at the same amounts as in the cost basis financial statements except that certain parcels of land are carried at their estimated current values. Management believes that properties in development have values in excess of their historical cost, but has followed a practice of not recognizing any value increment until these properties are completed and operating. 29 Properties held for sale--Properties held for sale are carried at their estimated fair value less costs to sell. Fair values are based on contract prices, negotiations with prospective purchasers or management's estimates of future cash flows from operations and sale of the properties, where appropriate. Land held for development and sale--The current value of land held for development and sale is based on the present value of forecasted net cash flows under development and sales programs. These programs set forth the proposed timing and cost of all improvements necessary to bring the properties to saleable condition, the pace and price of sales and the costs to administer the programs and sell the properties. Debt--Debt and obligations under capital leases specifically related to interests in operating properties are carried at the same amount as in the cost basis balance sheets since the value of the Company's equity interest in each property is based on net cash flow after payments on the debt or leases. The current values of publicly-traded debt not specifically related to interests in properties are determined using quoted market prices. The current values of other debt and obligations under capital leases are carried at the same amount as in the cost basis balance sheets since the difference between the stated and estimated market interest rates for such obligations is not material. Deferred income taxes--Because the current value basis financial statements are prepared on the assumption that values will generally be realized over the long- term through operating cash flows and not through liquidation, the deferred income tax obligation on a current value basis is the estimated present value of income tax payments which may be made based on projections of taxable income through 2047. The projections of taxable income reflect all allowable deductions permitted under the Internal Revenue Code. The discount rates used to compute the present value of income tax payments are based on the internal rates of return used to compute the current values of assets, adjusted to reflect the Company's assessment of the greater uncertainty with respect to the ultimate timing and amounts of income tax payments. Other assets and liabilities--Substantially all other assets and liabilities are carried in the current value basis balance sheets at the lower of cost or net realizable value--the same stated value as in the cost basis balance sheets. (c) Revaluation equity The aggregate difference between the current value basis and cost basis of the Company's assets and liabilities is reported as revaluation equity in the shareholders' equity section of the consolidated current value basis balance sheets. The components of revaluation equity at December 31, 1995 and 1994 are as follows (in thousands):
1995 1994 ---- ---- Value of interests in operating properties: Retail centers................................................. $2,038,316 $1,981,731 Office, mixed-use and other.................................... 256,080 208,187 Value of land held for development and sale.................... 134,097 138,182 Value of land in development................................... 15,725 10,524 ---------- ---------- Total equity value............................................. 2,444,218 2,338,624 Debt related to equity interests............................... 2,141,610 2,142,510 ---------- ---------- Total asset value.............................................. 4,585,828 4,481,134 Depreciated cost of interests in operating properties and costs of land held for development and sale, land in development and certain other assets........................................... (2,728,820) (2,668,766) Present value of potential income taxes related to revaluation equity, net of cost basis deferred income taxes............... (363,964) (330,132) Other, net..................................................... 3,527 36,983 ---------- ---------- Total revaluation equity....................................... $1,496,571 $1,519,219 ========== ==========
30 (2) Summary of significant accounting policies (a) Description of business The Company acquires, develops and/or manages income-producing properties located throughout the United States and develops and sells land for residential, commercial and other uses, primarily in Columbia, Maryland. The income-producing properties consist of retail centers, office buildings and mixed-use and other properties. The retail centers produce over 70% of the Company's revenues and are primarily regional shopping centers in suburban market areas. Retail centers also include specialty marketplaces in certain downtown areas and several village centers in Columbia. The office, mixed-use and other properties produce over 20% of the Company's revenues. The office properties are primarily suburban buildings in the Columbia and Baltimore market areas or components of large-scale mixed-use properties located in urban markets which also include retail, parking and other uses. Land development and sales operations produce about 5% of the Company's annual revenues and are predominantly related to large-scale, long-term community developments. (b) Basis of presentation The consolidated financial statements include the accounts of The Rouse Company, all subsidiaries and partnerships in which it has a majority interest and control and the Company's proportionate share of assets, liabilities, revenues and expenses of unincorporated real estate ventures in which it has joint interest and control with other venturers. Investments in other ventures are accounted for using the equity or cost methods as appropriate in the circumstances. Significant intercompany balances and transactions are eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingencies at the date of the financial statements and revenues and expenses recognized during the reporting period. Actual results could differ from those estimates. Certain amounts for prior years have been reclassified to conform with the presentation for 1995. (c) Property Properties to be developed or held and used in operations are carried at cost reduced for impairment losses, where appropriate, based on estimated undiscounted future cash flows. Properties held for sale are carried at cost reduced for applicable valuation allowances. Acquisition, development and construction costs of operating properties, properties in development and land development projects are capitalized including, where applicable, salaries and related costs, real estate taxes, interest and pre-construction costs. The pre- construction 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 pre-construction tasks are completed. Provision is made for potentially unsuccessful pre-construction efforts by charges to operations. Costs of significant improvements, replacements and renovations at operating properties are capitalized, while costs of maintenance and repairs are expensed as incurred. Certain costs associated with financing and leasing of operating properties are capitalized as deferred costs and amortized over the periods benefited by the expenditures. Depreciation of operating properties is computed using the straight-line method. The annual rate of depreciation for most of the Company's retail centers is based on a 55 year composite life and a salvage value of approximately 10%, producing an effective annual rate of depreciation for new properties of 1.8% of depreciable cost. The other retail centers, all office buildings and other properties are generally depreciated using composite lives ranging primarily from 40 years to 50 years, producing effective annual rates of depreciation for such properties ranging from 2.5% to 2.0%. Properties held for sale are carried at the lower of cost less accumulated depreciation or estimated net realizable value. Operating properties are classified as properties held for sale when marketing of the properties for sale is authorized by management. 31 In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed of." Statement No. 121 establishes new standards for measurement and recognition of impairment of long- lived assets. The Statement will be effective with respect to the Company in 1996 and initial adoption is not expected to have a material effect on the financial position or results of operations reported by the Company. (d) Sales of property Gains from sales of operating properties and revenues from land sales are recognized using the full accrual method provided that various criteria relating to the terms of the transactions and any subsequent involvement by the Company with the properties sold are met. Gains or revenues relating to transactions which do not meet the established criteria are deferred and recognized when the criteria are met or using the installment or cost recovery methods, as appropriate in the circumstances. For land sale transactions under terms of which the Company is required to perform additional services and incur significant costs after title has passed, revenues and costs of sales are recognized proportionately on a percentage of completion basis. Cost of land sales is generally determined as a specified percentage of land sales recognized for each land development project. The cost percentages used are based on estimates of development costs and sales revenues to completion of each project and are revised periodically for changes in estimates or in development plans. The specific identification method is used to determine cost of sales of certain parcels of land. (e) Leases Leases which transfer substantially all the risks and benefits of ownership to tenants are considered finance leases and the present values of the minimum lease payments and the estimated residual values of the leased properties, if any, are accounted for as receivables. Leases which transfer substantially all the risks and benefits of ownership to the Company are considered capital leases and the present values of the minimum lease payments are accounted for as property and debt. Direct costs of negotiating and consummating tenant leases are deferred and amortized over the terms of the related leases. In general, minimum rent revenues are recognized when due from tenants; however, estimated collectible minimum rent revenues under leases which provide for varying rents over their terms are averaged over the terms of the leases. (f) Income taxes Deferred income taxes are accounted for using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including tax planning strategies and other factors. The effects of changes in tax laws or rates on deferred tax assets and liabilities are recognized in the period that includes the enactment date. (g) Investments in marketable securities and cash and cash equivalents Investments with maturities at dates of purchase in excess of three months are classified as marketable securities and carried at amortized cost as it is the Company's intention to hold these investments until maturity. Short-term investments with maturities at dates of purchase of three months or less are classified as cash equivalents, except that any such investments purchased with the proceeds of loans which may be expended only for specified purposes are classified as investments in marketable securities. At December 31, 1995 and 1994, investments in marketable securities consist primarily of U.S. government and agency obligations with maturities of less than one year and include $2,910,000 and $2,001,000, respectively, which are held for restricted uses. 32 (h) Interest rate exchange agreements The Company makes limited use of interest rate exchange agreements, including interest rate caps and swaps, primarily to manage interest rate risk associated with variable rate debt. Under interest rate cap agreements, the Company makes initial premium payments to the counterparties in exchange for the right to receive payments from them if interest rates on the related variable rate debt exceed specified levels during the agreement period. Premiums paid are amortized to interest expense over the terms of the agreements using the interest method and payments receivable from the counterparties are accrued as reductions of interest expense. Under interest rate swap agreements, the Company and the counterparties agree to exchange the difference between fixed rate and variable rate interest amounts calculated by reference to specified notional principal amounts during the agreement period. Notional principal amounts are used to express the volume of these transactions, but the cash requirements and amounts subject to credit risk are substantially less. Amounts receivable or payable under swap agreements are accounted for as adjustments to interest expense on the related debt. Parties to interest rate exchange agreements are subject to market risk for changes in interest rates and risk of credit loss in the event of nonperformance by the counterparty. The Company deals only with highly rated financial institution counterparties (which, in certain cases, are also the lenders on the related debt) and does not expect that any counterparties will fail to meet their obligations. (i) Other information about financial instruments Fair values of financial instruments approximate their carrying value in the financial statements except for debt and related interest rate exchange agreements for which fair value information is provided in note 11. (j) Earnings (loss) per share of common stock Earnings (loss) per share of common stock is computed by dividing net earnings (loss), after deducting dividends on Preferred stock, by the weighted average number of shares of common stock outstanding during the year. The numbers of shares used in the computations were 47,814,000 for 1995, 47,565,000 for 1994 and 47,411,000 for 1993. Common stock equivalents have not been used in computing earnings (loss) per common share because their effects are not material or are anti-dilutive. (k) Stock-Based Compensation The Company uses the intrinsic value method to account for stock-based employee compensation plans. Under this method, compensation cost is recognized for awards of shares of common stock to employees only if the quoted market price of the stock at the grant date (or other measurement date, if later) is greater than the amount the employee must pay to acquire the stock. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Statement No. 123 permits companies to adopt a new fair value based method to account for stock- based employee compensation plans or to continue using the intrinsic value method. If the intrinsic value method is used, information concerning the pro forma effects on net earnings (loss) and earnings (loss) per share of common stock of adopting the fair value based method is required to be presented in the footnotes to the financial statements. The Statement also requires additional footnote disclosures about stock-based employee compensation arrangements, regardless of the method used to account for them. The Company intends to continue using the intrinsic value method to account for its stock-based employee compensation plans and will provide the pro forma and additional disclosures about the plans in its 1996 financial statements, as required by Statement No. 123. (3) Real estate ventures The Company has joint interest and control with other venturers in various operating properties which are accounted for using the proportionate share method. These projects are managed by the Company. The consolidated financial statements include the Company's proportionate share of its historical cost of these projects and depreciation based on the Company's depreciation policies which differ, in certain cases, from those of the joint ventures. 33 The condensed, combined balance sheets of these ventures and the Company's proportionate share of their assets, liabilities and equity at December 31, 1995 and 1994 and the condensed, combined statements of earnings of these ventures and the Company's proportionate share of their revenues and expenses for 1995, 1994 and 1993 are summarized as follows (in thousands):
Combined Proportionate Share -------- ------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Total assets, primarily property......... $339,121 $389,987 $151,195 $179,868 ======== ======== ======== ======== Liabilities, primarily long-term debt.... $313,282 $325,309 $145,113 $153,238 Venturers' equity........................ 25,839 64,678 6,082 26,630 -------- -------- -------- -------- Total liabilities and venturers' equity. $339,121 $389,987 $151,195 $179,868 ======== ======== ======== ======== Combined Proportionate Share -------- ------------------------- 1995 1994 1993 1995 1994 1993 ---- ---- ---- ---- ---- ---- Revenues................................. $128,979 $143,573 $144,564 $ 58,085 $ 65,650 $ 66,432 Operating and interest expenses.......... 77,223 83,492 87,290 35,336 38,592 40,689 Depreciation and amortization............ 13,071 13,281 12,396 3,472 3,680 3,833 -------- -------- -------- -------- -------- -------- Net earnings............................ $ 38,685 $ 46,800 $ 44,878 $ 19,277 $ 23,378 $ 21,910 ======== ======== ======== ======== ======== ========
The Company holds minority interests in certain real estate ventures which are accounted for using the equity or cost methods, as appropriate. Most of these projects are managed by the Company and the agreements relating to them generally provide for preference returns to the Company when operating results or sale or refinancing proceeds exceed specified levels. The condensed, combined balance sheets of these ventures at December 31, 1995 and 1994 and their condensed combined statements of earnings for 1995, 1994 and 1993 are summarized as follows (in thousands):
1995 1994 ---- ---- Total assets, primarily property.................................. 1,507,438 $1,200,252 ========= ========== Liabilities, primarily long-term debt............................. 481,528 $ 373,303 Venturers' equity................................................. 1,025,910 826,949 --------- ---------- Total liabilities and venturers' equity.......................... 1,507,438 $1,200,252 ========= ========== 1995 1994 1993 ---- ---- ---- Revenues.......................................................... $209,100 $200,728 $ 197,333 Operating and interest expenses................................... 141,509 133,470 142,740 Depreciation and amortization..................................... 39,701 37,701 36,768 Loss on disposition............................................... -- 25,722 -- -------- -------- --------- Net earnings..................................................... $ 27,890 $ 3,835 $ 17,825 ======== ======== ==========
The Company's share of net earnings of these ventures was $3,712,000 in 1995, $1,856,000 in 1994 and $723,000 in 1993. (4) Operating properties Property and deferred costs of projects at December 31, 1995 and 1994 are summarized as follows (in thousands):
1995 1994 ---- ---- Buildings and improvements........................................ $2,516,625 $2,457,926 Land.............................................................. 185,265 181,169 Deferred costs.................................................... 118,930 124,643 Investments in unconsolidated real estate ventures................ 84,772 68,195 Receivables under finance leases.................................. 81,632 81,408 Furniture and equipment........................................... 19,132 24,224 ----------- ---------- Total............................................................ $3,006,356 $2,937,565 ========== ==========
34 Depreciation expense for 1995, 1994 and 1993 was $59,247,000, $59,914,000 and $55,508,000, respectively. Amortization expense for 1995, 1994 and 1993 was $13,815,000, $14,272,000 and $14,692,000, respectively. (5) Properties in development Properties in development include construction and development in progress and pre-construction costs, net. The construction and development in progress accounts include land and land improvements of $16,056,000 at December 31, 1995 and $11,216,000 at December 31, 1994. Changes in pre-construction costs, net, for 1995 and 1994 are summarized as follows (in thousands):
1995 1994 ------- ------- Balance at beginning of year, before pre-construction reserve............................. $20,633 $18,473 Costs incurred........................................ 12,451 10,337 Costs transferred to construction and development in progress............................................. (7,405) (3,663) Costs transferred to operating properties............. (1,686) (2,401) Costs of unsuccessful projects written off............ (2,530) (2,113) ------- ------- 21,463 20,633 Less pre-construction reserve......................... 15,379 14,109 ------- ------- Balance at end of year, net.......................... $ 6,084 $ 6,524 ======= =======
(6) Properties held for sale At December 31, 1995, operating properties held for sale include four retail centers with an aggregate net carrying value of $15,493,000 and an industrial building with a net carrying value of $7,109,000. Revenues and operating losses relating to these properties for 1995 were $8,355,000 and $1,174,000, respectively. All of the properties are expected to be sold in 1996. (7) Land held for development and sale Land held for development and sale at December 31, 1995 and 1994 is summarized as follows (in thousands):
1995 1994 ---- ---- Land under development................................ $ 87,196 $ 84,872 Undeveloped land...................................... 42,921 42,794 Finished land......................................... 4,051 4,627 -------- -------- Total................................................ $134,168 $132,293 ======== ========
(8) Accounts and notes receivable Accounts and notes receivable at December 31, 1995 and 1994 are summarized as follows (in thousands):
1995 1994 ---- ---- Accounts receivable, primarily accrued rents and income under tenant leases............................ $ 58,916 $ 53,674 Notes receivable from sales of properties............. 2,303 2,683 -------- -------- 61,219 56,357 Less allowance for doubtful receivables............... 24,468 25,124 -------- -------- Total................................................ $ 36,751 $ 31,233 ======== ========
Accounts and notes receivable due after one year were $13,967,000 and $15,469,000 at December 31, 1995 and 1994, respectively. 35 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 in- depth 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 relate primarily to sales of land and operating properties and are generally secured by first liens on the related properties. (9) Pension plans The Company has a defined benefit pension plan (the "funded plan") covering substantially all employees. The Company's policy is to fund, at a minimum, current service costs and amortization of unfunded accrued liabilities subject to the limits of the Internal Revenue Code. In addition, the Company has separate, non-qualified unfunded retirement plans (the "unfunded plans") covering employees whose defined benefits exceed the limits of the funded plan and directors. Benefits under the pension plans are based on the participants' years of service and compensation. The net pension cost includes the following components (in thousands):
1995 1994 1993 ---- ---- ---- Service cost..................................................... $ 2,382 $ 2,904 $ 2,191 Interest cost on projected benefit obligations................... 3,309 3,425 2,991 Actual return on funded plan assets.............................. (5,422) (1,930) (1,790) Other, net....................................................... 3,262 927 897 ------- -------- ------- Net pension cost............................................... $ 3,531 $ 5,326 $ 4,289 ======= ======== ======= The funded status of the pension plans at December 31, 1995 and 1994 is summarized as follows (in thousands): 1995 1994 ------------------ -------------------- Funded Unfunded Funded Unfunded Plan Plans Plan Plans -------- ------ ------- ------- Accumulated benefit obligations: Vested......................................................... $ 31,045 $ 4,658 $ 24,059 $ 9,380 Nonvested...................................................... 2,983 393 3,040 338 -------- ------- -------- ------- Total........................................................ $ 34,028 $ 5,051 $ 27,099 $ 9,718 ======== ======= ======== ======= Projected benefit obligations.................................... $ 38,808 $ 6,801 $ 30,173 $10,746 Plan assets at fair value........................................ (34,084) -- (27,465) -- -------- ------- -------- ------- Excess of projected benefit obligations over plan assets................................... 4,724 6,801 2,708 10,746 Unamortized prior service cost................................... (2,124) (3,067) (2,359) (3,559) Unrecognized net gain (loss)..................................... (10,783) (1,077) (3,836) 391 Unrecognized net obligation at January 1, 1987, net of amortization........................... (664) (810) (730) (945) Additional minimum liability..................................... -- 3,204 -- 3,085 -------- ------- -------- ------- Accrued (prepaid) pension cost................................... $ (8,847) $ 5,051 $ (4,217) $ 9,718 ======== ======= ======== =======
The projected benefit obligations for the plans were determined using discount rates of 7.25%, 8.875% and 7.5% in 1995, 1994 and 1993, respectively. The rate of compensation increases assumed was 4.5% in 1995, 1994 and 1993. The expected long-term rate of return on plan assets of the funded plan was 11% in 1995, 1994 and 1993. The assets of the funded plan consist primarily of pooled separate accounts with an insurance company and marketable equity securities. 36 (10) Other Postretirement Benefits The Company has a retiree benefits plan that provides postretirement medical and life insurance benefits to full-time employees who meet minimum age and service requirements. The Company pays the full cost of participants' life insurance coverage and makes contributions based on years of service to the cost of participants' medical insurance coverage, subject to a maximum annual contribution. The postretirement benefit cost includes the following components (in thousands):
1995 1994 ---- ---- Service cost........................................................ $ 607 $ 741 Interest cost on accumulated benefit obligation..................... 853 823 Amortization of transition obligation at January 1, 1993............ 484 485 Amortization of net gain............................................ (26) -- ------- ------- Net postretirement benefit cost..................................... $ 1,918 $ 2,049 ======= ======= The status of the postretirement benefit plan at December 31, 1995 and 1994 is summarized as follows (in thousands): 1995 1994 ---- ---- Accumulated postretirement benefit obligation: Retirees............................................................ $ 3,195 $ 2,964 Other fully eligible participants................................... 1,720 1,637 Other active participants........................................... 8,186 5,748 ------- ------- 13,101 10,349 Unrecognized net gain (loss)........................................ (502) 1,028 Unrecognized transition obligation.................................. (8,235) (8,719) ------- ------- Accrued postretirement benefit cost................................. $ 4,364 $ 2,658 ======= =======
The weighted average discount rates used to determine the accumulated postretirement benefit obligation were 7.25%, 8.875% and 7.5% in 1995, 1994 and 1993, respectively. The transition obligation at January 1, 1993 is being amortized to postretirement benefit cost over 20 years. Because the Company's contributions are fixed, health care cost trend rates do not affect the accumulated postretirement benefit obligation. (11) Debt In recognition of the various characteristics of real estate financing, debt is classified as follows: (a) "Property debt not carrying a Parent Company guarantee of repayment" which is subsidiary company debt having no express written obligation which would require the Company to repay the principal amount of such debt during the full term of the loan (nonrecourse loans); and (b) "Parent Company debt and debt carrying a Parent Company guarantee of repayment" which is debt of the Company and subsidiary company debt with an express written obligation of the Company to repay the principal amount of such debt during the full term of the loan (Company and recourse loans). With respect to property debt not carrying a Parent Company guarantee of repayment, the Company has in the past and may in the future, under some circumstances, support those subsidiary companies whose annual obligations, including debt service, exceed operating revenues. At December 31, 1995 and 1994, property debt not carrying a Parent Company guarantee of repayment includes $443,440,000 and $675,825,000, respectively, of mortgages and bonds relating to operating properties of subsidiary companies 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 properties are met. 37 Debt at December 31, 1995 and 1994 is summarized as follows (in thousands):
1995 1994 --------- --------- Mortgages and bonds.................. $1,997,998 $2,063,978 Convertible subordinated debentures.. 130,000 130,000 Medium-term notes.................... 100,300 -- Other loans.......................... 251,231 278,898 --------- ---------- Total............................... $2,479,529 $2,472,876 ========== ==========
Mortgages and bonds are secured by deeds of trust or mortgages on properties and general assignments of rents. This debt matures in installments through 2025 and, at December 31, 1995, bears interest at a weighted average effective rate of 8.70%, including lender participations. At December 31, 1995, approximately $589,641,000 of this debt is subject to payment of additional interest based on the operating results of the related properties in excess of stated levels. In addition, certain of such debt provides for payments to lenders of shares of the related properties' residual values, if any, upon sale or refinancing or at maturity. The convertible subordinated debentures bear interest at 5.75% and mature in 2002. The debentures are convertible into one share of common stock for each $28.63 of par value. The Company has registered $150,000,000 of unsecured, medium-term notes which may be issued to the public from time to time through February 1997. 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, 1995, mature at various dates from 1996 to 2015, bear interest at a weighted average effective rate of 7.68% (including an average rate of 6.61% on $38,800,000 of variable rate notes) and have a weighted average maturity of 6.5 years. Other loans include $120,000,000 of 8.5% unsecured notes due in 2003, various property acquisition and land loans and certain other borrowings. These loans include aggregate unsecured borrowings of $229,372,000 and $259,751,000 at December 31, 1995 and 1994, respectively, and at December 31, 1995, bear interest at a weighted average effective rate of 8.61%. The annual maturities of debt as of December 31, 1995 are summarized as follows (in thousands):
Company and Nonrecourse Recourse Recourse Loans Loans Total -------------- ----------- --------- 1996.................... $ 11,507 $ 98,922 $ 110,429 1997.................... 8,044 110,492 118,536 1998.................... 22,017 60,157 82,174 1999.................... 32,051 136,829 168,880 2000.................... 60,316 161,492 221,808 Subsequent to 2000...... 355,553 1,422,149 1,777,702 -------- ---------- ---------- Total.................. $489,488 $1,990,041 $2,479,529 ======== ========== ==========
Approximately $65,000,000 of nonrecourse debt maturing in 1996 relates to a retail center mortgage due in August. The Company expects to refinance this mortgage on a long-term basis at or prior to its scheduled maturity. At December 31, 1995, the Company had entered into interest rate cap agreements which expire in December 1996 and April 1997. These agreements limit the average interest rate on $58,250,000 of mortgages to 9.86% through April 1997 and limit the interest rate on advances up to $55,000,000 under a line of credit to 11.55% through December 1996. The interest rate swap agreements outstanding at December 31, 1995 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, 1995 and 1994 or interest expense for the years ended December 31, 1995, 1994 and 1993. 38 Total interest costs were $219,838,000 in 1995, $220,971,000 in 1994 and $219,705,000 in 1993 of which $6,875,000, $7,388,000 and $8,899,000 were capitalized, respectively. During 1995, 1994 and 1993, the Company incurred extraordinary losses, related to extinguishments of debt prior to scheduled maturity or required partial early redemptions of debt, of $13,278,000, $6,824,000 and $12,322,000, respectively, less related deferred income tax benefits of $4,647,000, $2,377,000 and $4,271,000, respectively. The sources of funds used to pay the debt and fund the prepayment penalties, where applicable, included refinancings of properties in each of the three years, issuance of the medium-term notes and the Company- obligated mandatorily redeemable preferred securities in 1995 and issuance of the 8.5% unsecured notes and Preferred stock in 1993. At December 31, 1995, the Company had available unused lines of credit totaling $158,920,000. The agreements relating to certain of the lines of credit, the 8.5% unsecured notes, the medium-term notes and certain other loans impose limitations on the Company. The most restrictive of these limit the Company's ability to incur certain types of additional debt if the Company does not maintain specified debt service coverage ratios. The agreements also impose restrictions on sale, lease and certain other transactions, subject to various exclusions and limitations. These restrictions have not limited the Company's normal business activities. In accordance with the Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," the estimated fair value of debt is determined based on quoted market prices for publicly-traded debt and on the discounted estimated future cash payments to be made for other debt. The discount rates used approximate current market rates for loans or groups of loans with similar maturities and credit quality. The estimated future payments include scheduled principal and interest payments, cash flows under interest rate exchange agreements, where applicable, and lenders' participations in operating results and residual values of the related properties, where applicable. The carrying amount and estimated fair value of the Company's debt at December 31, 1995 and December 31, 1994 are summarized as follows (in thousands):
1995 1994 ---------------------- --------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value --------- ---------- --------- ---------- Fixed rate debt..... $2,195,137 $2,249,968 $2,152,270 $2,105,794 Variable rate debt.. 284,392 284,392 320,606 320,606 ---------- ---------- ---------- ---------- $2,479,529 $2,534,360 $2,472,876 $2,426,400 ========== ========== ========== ==========
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. (12) Company-obligated mandatorily redeemable preferred securities The redeemable preferred securities consist of 5,500,000 Cumulative Quarterly Income Preferred Securities (preferred securities), with a liquidation amount of $25 per security, which were issued in November 1995 by a statutory business trust that is wholly-owned by the Company. The trust used the proceeds of the preferred securities and other assets to purchase at par $141,753,000 of junior subordinated debentures (debentures) of the Company due in November 2025, which debentures 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 these undertakings, taken together, would have the effect of providing a full, irrevocable and unconditional guarantee of the trust's obligations under the preferred securities. Distributions on the preferred securities are payable from interest payments received on the debentures and are due quarterly at a rate of 9.25% of the liquidation amount, subject to deferral for up to five years under certain conditions. Distributions payable are included 39 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. (13) Operating results and assets by line of business Operating results before gain (loss) on dispositions of assets and other provisions, net, income taxes and extraordinary losses are summarized by line of business as follows (in thousands):
1995 1994 1993 ---- ---- ---- Operating properties: Revenues............................................................ $ 636,646 $ 633,047 $ 607,630 Operating expenses, exclusive of provision for bad debts, depreciation and amortization....................................................... 313,525 322,278 322,793 Interest expense................................................... 197,249 196,690 189,805 Provision for bad debts............................................ 3,318 5,185 4,741 Depreciation and amortization...................................... 73,062 74,186 70,200 ---------- ---------- ---------- 49,492 34,708 20,091 ---------- ---------- ---------- Land sales: Revenues............................................................ 33,403 35,232 35,313 Operating costs and expenses........................................ 17,827 19,877 19,387 Interest expense.................................................... 5,071 5,028 4,093 ---------- ---------- ---------- 10,505 10,327 11,833 ---------- ---------- ---------- Development: Operating costs and expenses........................................ 7,288 6,494 3,853 Interest expense.................................................... 358 495 495 ---------- ---------- ---------- (7,646) (6,989) (4,348) ---------- ---------- ---------- Corporate: Interest income..................................................... 2,772 2,892 3,862 Interest expense.................................................... 10,285 11,370 16,413 Other expenses...................................................... 8,920 8,309 6,184 ---------- ---------- ---------- (16,433) (16,787) (18,735) ---------- ---------- ---------- Operating income.................................................... $ 35,918 $ 21,259 $ 8,841 ========== ========== ========== The assets by line of business at December 31, 1995, 1994 and 1993 are as follows (in thousands): 1995 1994 1993 ---- ---- ---- Operating properties................................................ $2,656,527 $2,617,045 $2,556,237 Land sales.......................................................... 141,275 136,986 140,673 Development......................................................... 63,732 68,863 63,656 Corporate........................................................... 124,075 92,966 114,416 ---------- ---------- ---------- Total.............................................................. $2,985,609 $2,915,860 $2,874,982 ========== ========== ==========
40 (14) Income taxes Income tax expense is reconciled to the amount computed by applying the Federal corporate tax rate as follows (in thousands):
1995 1994 1993 ---- ---- ---- Tax at statutory rate on earnings before income taxes and extraordinary losses.................. $ 3,560 $ 4,668 $ 1,075 State income taxes, net of Federal income tax benefit................................................... 759 2,062 1,398 Effect of increase in Federal tax rate.......................... -- -- 1,890 -------- -------- -------- Income tax expense.............................................. $ 4,319 $ 6,730 $ 4,363 ======== ======== ======== Effective rate.................................................. 42.5% 50.5% 142.0% ======== ======== ======== The net deferred tax obligations at December 31, 1995 and 1994 consist of the following (in thousands): 1995 1994 ---- ----- Total deferred tax liabilities.................................. $ 299,717 $ 285,713 Total deferred tax assets....................................... 218,068 203,116 --------- --------- Net deferred tax obligations.................................. $ 81,649 $ 82,597 ========= =========
The tax effects of temporary differences and carryforwards that are included in the net deferred tax obligations at December 31, 1995 and 1994 relate to the following (in thousands):
1995 1994 ---- ---- Property, primarily differences in depreciation and amortization and treatment of interest and certain other costs............................. $ 273,585 $ 260,457 Accounts and notes receivable, primarily differences in timing of recognition of rent revenues and doubtful receivables................... 5,684 5,070 Accrued expenses, primarily differences in timing of recognition of interest, compensation and pension expenses............................................ (4,925) (58) Operating loss and tax credit carryforwards........... (192,695) (182,872) --------- --------- Total............................................... $ 81,649 $ 82,597 ========= =========
The net operating losses carried forward from December 31, 1995 for Federal income tax purposes aggregate approximately $538,000,000. As indicated above, the deferred tax assets relate primarily to operating loss carryforwards for Federal income tax purposes. These loss carryforwards will begin to expire in 1998, and the ultimate realization of these assets is dependent upon the generation of sufficient future taxable income to use the loss carryforwards before they expire. Based on the scheduled reversal of the deferred tax liabilities (particularly those relating to depreciation of property) and projections of future taxable income over the loss carryforward period, management believes that it is more likely than not that the Company will realize the benefits of the operating loss carryforwards at December 31, 1995. The amount of the deferred tax asset considered realizable could be reduced, however, if estimates of future taxable income are reduced. (15) 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):
1995 1994 1993 ---- ---- ---- Provision for a litigation judgment.. $(12,321) $ -- $ -- Net loss on operating properties..... (13,210) (7,496) (5,432) Other, net........................... (218) (427) (337) -------- -------- --------- Total.............................. $(25,749) $ (7,923) $ (5,769) ======== ======== =========
41 The provision for a litigation judgment in 1995 relates to the matter involving a former tenant at the Riverwalk Shopping Center discussed in note 19. The net loss on operating properties in 1995 relates primarily to provisions for losses recognized on retail centers the Company decided to sell ($15,589,000). These provisions were partially offset by a gain on disposition of a retail center ($2,379,000). The net loss on operating properties in 1994 relates primarily to losses incurred on dispositions of interests in two retail centers, a hotel and an office building ($8,045,000) and a provision for loss on an industrial building ($2,212,000). These losses were partially offset by a gain on disposition of an interest in a retail center the Company continues to manage ($2,761,000). The net loss on operating properties in 1993 relates to a provision for loss recognized on a retail center. This loss was recognized based on management's determination that the Company would not continue to support the property under the arrangements with the lenders, public authorities and others involved and that it was unlikely that the Company would fully recover its investment in the property based on forecasts of future cash flows. (16) Series A Convertible Preferred stock The Company has authorized issuance of 50,000,000 shares of Preferred stock of 1c par value per share of which 4,505,168 shares have been classified as Series A Convertible Preferred. At December 31, 1995 and 1994, 4,505,009 and 4,505,041 shares, respectively were issued. The Company sold 4,025,000 shares of the Series A Convertible Preferred stock in a public offering in 1993 and issued 480,168 shares valued at $23,000,000 in 1994 in connection with a modification of terms of a debt agreement related to a retail center. The shares of Series A Convertible Preferred stock have a liquidation preference of $50 per share and earn dividends at an annual rate of 6.5% of the liquidation preference. At the option of the holders, each share of Preferred stock is convertible into shares of the Company's common stock at a conversion rate of approximately 2.35 shares of common stock for each share of Preferred stock, subject to adjustment in certain circumstances. In addition, beginning March 1, 1996, the shares of Preferred stock are redeemable for shares of common stock at the option of the Company, subject to certain conditions. (17) Common stock At December 31, 1995, shares of authorized and unissued common stock are reserved as follows: (a) 2,471,580 shares for issuance under the Company's stock option and stock bonus plans; (b) 4,540,692 shares for conversion of the convertible subordinated debentures; (c) 10,600,020 shares for the conversion of the Preferred stock; and (d) 500,000 shares for exercise of the warrants issued to Trizec Investments Corporation discussed below. Under the Company's stock option plans, options to purchase shares of common stock and stock appreciation rights may be awarded to officers and employees. Stock options are granted with an exercise price equal to the market price of the common stock on the date of grant and typically vest over a three- to five- year period, subject to certain conditions. The Company has not granted any stock appreciation rights. A summary of changes in the outstanding stock options under the stock option plans is as follows:
1995 1994 1993 ---- ---- ---- Balance at beginning of year.. 2,228,102 1,709,302 1,438,542 Options granted............... 200,500 566,000 350,000 Options exercised: $11.17 per share............. -- -- (41,340) $11.83 per share............. -- (5,700) (2,400) $14.75 per share............. (2,600) -- -- $15.33 per share............. (174,602) (3,000) (9,500) $18.00 per share............. (2,250) -- -- Options cancelled............. (21,750) (38,500) (26,000) --------- --------- --------- Balance at end of year....... 2,227,400 2,228,102 1,709,302 ========= ========= =========
42 Options to purchase 1,229,000 shares are exercisable at December 31, 1995 at prices ranging from $13.50 to $27.00 per share. 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. 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, 1995 and 1994 were $3,829,000 and $2,620,000, respectively. The Company recognizes any forgiven loan installments, amortization of the fair value of the stock awarded and certain related costs as compensation costs over the terms of the awards. Such costs amounted to $2,763,000 in 1995, $1,663,000 in 1994 and $2,415,000 in 1993. In 1992, seven investors acquired 8,500,000 shares of the Company's common stock in a private placement from Trizec Investments Corporation (Trizec). Stock warrants allowing Trizec to purchase 500,000 shares of common stock at a price of $18 per share until September 1997 were issued by the Company to facilitate the transaction. (18) Leases The Company, as lessee, has entered into operating leases expiring at various dates through 2076. Rents under such leases aggregated $9,421,000 in 1995, $11,927,000 in 1994 and $17,483,000 in 1993, including contingent rents, based on the performance of the related properties, of $3,644,000, $6,232,000 and $10,006,000, respectively. In addition, real estate taxes, insurance and maintenance expenses are obligations of the Company. The minimum rent payments due under operating leases in effect at December 31, 1995 are summarized as follows (in thousands): 1996................................................... $ 5,775 1997................................................... 5,717 1998................................................... 5,653 1999................................................... 5,621 2000................................................... 5,621 Subsequent to 2000..................................... 242,039 -------- Total................................................. $270,426 ========
Obligations under capital leases relate to the Company's headquarters building and certain operating properties and equipment. The property and other asset accounts include costs of $66,207,000 and $70,651,000 and accumulated depreciation of $19,130,000 and $21,249,000 at December 31, 1995 and 1994, respectively, related to these leases. The minimum rent payments due under capital leases and their present value at December 31, 1995 are summarized as follows (in thousands): 1996.................................................... $ 9,289 1997.................................................... 8,904 1998.................................................... 8,255 1999.................................................... 7,806 2000.................................................... 7,554 Subsequent to 2000...................................... 194,825 --------- 236,633 Imputed interest at rates ranging from 5.59% to 13.00%.. (177,847) --------- Obligations under capital leases, net.................. $ 58,786 =========
43 Space in the Company's operating properties is leased to approximately 6,300 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):
1995 1994 1993 ------- ------- ------- Minimum rents..... $310,149 $303,425 $289,422 Percentage rents.. 15,362 17,144 19,133 Other rents....... 217,037 220,532 219,168 -------- -------- -------- Total............ $542,548 $541,101 $527,723 ======== ======== ========
The minimum rents to be received from tenants under operating leases in effect at December 31, 1995 are summarized as follows (in thousands): 1996............................................ $ 288,219 1997............................................ 262,700 1998............................................ 232,995 1999............................................ 200,765 2000............................................ 173,551 Subsequent to 2000.............................. 532,880 ---------- Total.......................................... $1,691,110 ==========
Certain of the Company's tenant leases are accounted for as finance leases since the terms of the leases transfer substantially all of the risks and benefits of ownership to the tenants. Rents under such leases aggregated $8,780,000 in 1995, $8,511,000 in 1994 and $6,601,000 in 1993. The minimum rent payments to be received from tenants under finance leases are approximately $8,900,000 in each of the next five years. The net investment in finance leases at December 31, 1995 and 1994 is summarized as follows (in thousands):
1995 1994 -------- -------- Total minimum rent payments to be received over lease terms............................... $167,050 $175,609 Estimated residual values of leased properties.. 3,123 3,123 Unearned income................................. (88,541) (97,324) -------- -------- Net investment in finance leases............... $ 81,632 $ 81,408 ======== ========
(19) 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 $10,000,000 at December 31, 1995. At December 31, 1995, subsidiaries of the Company had contingent liabilities of approximately $25,138,000 with respect to future minimum rents under long-term lease obligations of certain joint ventures and approximately $18,000,000 with respect to bank letters of credit issued to secure their obligations under certain agreements. In addition, the Company had contingent liabilities with respect to debt of certain joint ventures aggregating approximately $37,454,000. On November 6, 1990, Robert P. Guastella Equities, Inc. ("Plaintiff"), a former tenant at the Riverwalk Shopping Center in New Orleans, Louisiana ("Riverwalk"), which is owned and operated by New Orleans Riverwalk Associates, an affiliate of the Company ("NORA"), filed suit in the Civil District Court of Orleans Parish, Louisiana against NORA, the Company, two Company affiliates, and a partner of NORA (collectively, "Defendants"). Plaintiff alleges that Defendants breached Plaintiff's lease agreement with NORA for the operation of a restaurant at Riverwalk and that as a result of these breaches 44 it suffered losses and could not pay the rentals due under the lease agreement, as a result of which the lease and its tenancy were terminated by NORA. Plaintiff sought damages of approximately $600,000 for these alleged breaches. In addition, on September 3, 1992, Plaintiff claimed $33,000,000 for alleged lost future profits which it claimed it would have earned had its lease not been terminated. The Defendants filed answers denying the claims of Plaintiff and asserting other defenses. NORA also asserted a counterclaim against Plaintiff and its individual guarantors for past due rentals and other charges in the approximate amount of $300,000 plus interest and attorneys' fees as provided for in the lease agreement. The case was tried before a jury and, on October 28, 1993, the jury returned a verdict against Defendants upon which judgment was entered by the trial court on January 7, 1994, in the total net amount of approximately $9,128,000 (including a net award for lost future profits of approximately $8,640,000) plus interest and attorneys' fees. On May 6, 1994, the trial court denied all post-trial motions of both Plaintiff and Defendants. The trial court also entered an amended judgment in which it awarded the Plaintiff $450,000 in attorneys' fees and awarded Defendants $25,000 in attorneys' fees. On May 23, 1994, Defendants appealed this judgment to the Louisiana Court of Appeal, Fourth Circuit. On November 16, 1995, the Louisiana Court of Appeal reduced the judgment by $240,000, but otherwise affirmed the damage award to Plaintiff. Defendants subsequently filed a motion for reconsideration with the Louisiana Court of Appeal, which was denied on December 19, 1995. On January 18, 1996, Defendants filed a petition requesting the Louisiana Supreme Court to consider a further appeal of this judgment. The Company recorded in the fourth quarter of 1995 a pre-tax provision in the amount of $12,321,000, representing the full amount of the modified award (including attorneys' fees) plus interest, less pre-tax provisions previously recorded totaling $1,150,000. The Company and certain of its subsidiaries are defendants in various other litigation matters arising in the ordinary course of business, some of which involve claims for damages that are substantial in amount. Some of these litigation matters are covered by insurance. In the opinion of management, adequate provision has been made for losses with respect to all litigation matters, where appropriate, and the ultimate resolution of all such litigation matters is not likely to have a material effect on the consolidated financial position of the Company. Due to the Company's modest and fluctuating net earnings (loss) it is not possible to predict whether the resolution of these matters is likely to have a material effect on the Company's consolidated net earnings (loss) and it is, therefore, possible that the resolution of these matters could have such a material effect in any future quarter or fiscal year. (20) Possible acquisition of The Hughes Corporation and related matters On February 22, 1996, the Company's Board of Directors approved the terms of agreements to acquire all of the issued and outstanding shares of common stock of The Hughes Corporation and the ownership interests of stockholders of The Hughes Corporation in an affiliated partnership (together "Hughes"). The assets of Hughes consist primarily of a regional shopping center and a large-scale, master-planned community in Las Vegas, Nevada, four large-scale, master-planned business parks and various other properties in Nevada and Southern California. The total purchase cost is approximately $520,000,000 consisting primarily of debt to be assumed or incurred in connection with the acquisition (including $10,000,000 payable to the owners of Hughes) and shares of common stock of the Company valued at $176,400,000. Additional shares of common stock of the Company may be issued to the owners of Hughes subsequent to closing based on the values of certain specified assets at various termination dates from 2001 to 2010 and the cash flows generated from development and/or sale of those assets prior to the termination dates. The acquisition will be accounted for using the purchase method and is expected to close in the second quarter of 1996. However, the transactions are conditional upon approval by the requisite vote of the holders of the common stock of The Hughes Corporation and certain other closing conditions and, accordingly, there can be no assurance that the transactions will be consummated. 45 ================================================================================ Five Year Comparison of Selected Financial Data Year ended December 31 (in thousands, except per share data) - --------------------------------------------------------------------------------
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Operating results data: Revenues from continuing operations...................... $ 672,821 $ 671,171 $ 646,805 $ 597,105 $ 573,498 Earnings (loss) from continuing operations...................... 5,850 6,606 (1,291) (15,849) 2,424 Earnings (loss) from continuing operations applicable to common shareholders per share of common stock.................... (.18) (.14) (.27) (.33) .05 Balance sheet data: Total assets-cost basis.......... 2,985,609 2,915,860 2,874,982 2,726,281 2,637,452 Total assets-current value basis. 4,852,403 4,736,961 4,588,636 4,217,819 4,174,093 Debt and capital leases.......... 2,538,315 2,532,920 2,473,596 2,498,983 2,374,527 Shareholders' equity (deficit): Historical cost basis.......... 42,584 95,026 113,151 (34,848) 17,328 Current value basis............ 1,539,155 1,614,245 1,525,606 1,188,896 1,274,070 Shareholders' equity (deficit) per share of common stock (note 1): Historical cost basis........ .73 1.63 1.98 (.74) .36 Current value basis.......... 26.30 27.75 26.75 25.50 26.60 Other selected data: Earnings before depreciation and deferred taxes from operations (EBDT) (note 2)................. 108,360 94,710 78,281 52,282 46,820 Net cash provided by (used in): Operating activities........... 107,001 113,775 101,149 66,630 67,226 Investing activities........... (64,995) (178,551) (154,446) (144,836) (96,210) Financing activities........... 3,518 40,618 47,068 98,914 17,271 Dividends per share of common stock........................... .80 .68 .62 .60 .60 Dividends per share of convertible Preferred stock..... 3.25 3.25 2.83 -- -- Market price per share of common stock at year-end............... 20.13 19.25 17.75 18.00 18.25 Market price per share of convertible Preferred stock at year-end........................ 51.63 48.50 53.75 -- -- Weighted average common shares outstanding..................... 47,814 47,565 47,411 47,994 48,157
Note 1--Historical cost basis shareholders' equity (deficit) per share of common stock and current value basis shareholders' equity per share of common stock assume the conversion of the Series A Convertible Preferred stock. Note 2--Earnings before depreciation and deferred taxes (EBDT) is not a measure of operating results or cash flows from operating activities as defined by generally accepted accounting principles. Additionally, EBDT is not necessarily indicative of cash available to fund cash needs, including the payment of dividends and should not be considered as an alternative to cash flows as a measure of liquidity. See the "Earnings Before Depreciation and Deferred Taxes" section of Management's Discussion and Analysis of Financial Condition and Results of Operations on page 50 for a full discussion of EBDT. ================================================================================ Interim Financial Information (Unaudited) Interim consolidated results of operations are summarized as follows (in thousands, except per share data): - --------------------------------------------------------------------------------
Quarter ended ------------------------------------------------------------------------------------ December September June March December September June March 31, 1995 30, 1995 30, 1995 31, 1995 31, 1994 30, 1994 30, 1994 31, 1994 -------- -------- -------- -------- -------- -------- -------- -------- Revenues.................................... $177,505 $169,165 $163,636 $162,515 $172,325 $172,650 $163,662 $162,534 Operating income............................ 13,385 11,380 6,499 4,654 9,922 7,314 1,853 2,170 Earnings (loss) before extraordinary losses. 1,911 3,169 1,403 (633) 4,451 4,146 576 (2,567) Net earnings (loss)......................... 634 3,032 1,403 (7,850) 2,767 4,146 (2,030) (2,724) ======== ======== ======== ======== ======== ======== ======== ======== Earnings (loss) per common share: Earnings (loss) before extraordinary losses. $ (.03) $ (.01) $ (.05) $ (.09) $ .02 $ .02 $ (.06) $ (.12) Extraordinary losses........................ (.03) -- -- (.15) (.03) -- (.05) (.01) -------- -------- -------- -------- -------- -------- -------- -------- Total...................................... $ (.06) $ (.01) $ (.05) $ (.24) $ (.01) $ .02 $ (.11) $ (.13) ======== ======== ======== ======== ======== ======== ======== ========
Note--Net earnings for the quarter ended December 31, 1995 includes a provision for a litigation judgment of $8,009,000 ($.17 per share). Net earnings (loss) for the first, second and third quarters of 1995 includes provisions for losses on disposition of operating properties of $3,156,000 ($.07 per share), $3,617,000 ($.08 per share) and $3,665,000 ($.08 per share), respectively. The provision for loss in the second quarter was partially offset by a gain on disposition of a retail center property of $1,261,000 ($.03 per share). Net earnings (loss) for the quarters ended December 31, 1994 and March 31, 1994 includes provisions for losses on dispositions of operating properties of $1,644,000 ($.03 per share) and $5,023,000 ($.11 per share), respectively. The provision for loss in the quarter ended March 31, 1994 was partially offset by a gain on disposition of an interest in a retail center the Company continues to manage of $1,908,000 ($.04 per share.) ================================================================================ Price of Common Stock and Dividends - -------------------------------------------------------------------------------- The Company's common stock began trading on the New York Stock Exchange in November 1995. Prior to that time it was traded over the counter. The prices and dividends per share were as follows:
Quarter ended ------------------------------------------------------------------------------------ December September June March December September June March 31, 1995 30, 1995 30, 1995 31, 1995 31, 1994 30, 1994 30, 1994 31, 1994 -------- -------- -------- -------- -------- -------- -------- -------- High bid or sales price. 22 22 5/8 20 11/16 19 7/8 19 1/2 20 20 19 Low bid or sales price... 18 5/8 19 1/2 17 18 17 1/4 18 3/4 18 16 1/4 Dividends................ .20 .20 .20 .20 .17 .17 .17 .17
Number of Holders of Common Stock The number of holders of record of the Company's common stock as of February 20, 1996 was 2,269. 46 The Rouse Company and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations General The Company's primary business is the acquisition, development and management of income-producing real estate projects. The Company operates a diversified portfolio of retail centers, office buildings and mixed-use and other properties located throughout the United States. In addition, the Company develops and sells land for residential, commercial and other uses, primarily in Columbia, Maryland. Management believes that the Company's financial position is sound and that its liquidity and capital resources are adequate. As shown in the supplemental current value basis financial statements, current value shareholders' equity, which is an important indication of the Company's financial strength, was $1.54 billion at December 31, 1995, slightly down from $1.61 billion at December 31, 1994. The Company has continued to achieve strong financial results in recent periods, despite the generally difficult environment for retail businesses. Earnings before depreciation and deferred taxes (EBDT), which is defined and discussed in detail below, increased 14% in 1995 and 21% in 1994, including increases of 12% and 19%, respectively, in EBDT from retail centers. These results have been made possible by several factors, including strong performances from the Company's larger, major market retail centers, expansions of certain retail centers and retail centers in which the Company has acquired ownership interests, consistently good earnings from land sales and operating properties in Columbia, refinancing of a significant amount of project-related debt at lower interest rates and, to a lesser extent, dispositions or modifications of the terms of agreements relating to properties which were incurring losses before depreciation and deferred taxes. Management believes that the outlook is for continued satisfactory growth in EBDT from existing properties. Prospects for growth in EBDT from land sales and office/mixed-use properties in 1996 are good given the solid or improving conditions in the major markets in which the Company operates. EBDT from retail centers is also expected to grow in 1996, although the rate of growth is expected to slow given the continued difficult retailing environment. The planned acquisition of The Hughes Corporation (Hughes) will allow the Company to capitalize on its existing strengths in retail and office/mixed-use projects and large-scale land development projects and to establish a significant presence in the fast-growing Las Vegas market. The acquisition is scheduled to close in the second quarter of 1996 and is expected to contribute significantly to the growth in EBDT in 1996. For the longer term, the Company intends to focus its development efforts on Columbia, the assets acquired in the purchase of Hughes, opportunities to expand and/or revitalize existing retail centers and new projects in growing markets which have not had excessive retail development. The Company will also continue to selectively dispose of retail centers that do not appear to have future prospects consistent with the Company's objectives, particularly smaller centers in smaller markets. The objective is to refine and continually upgrade the portfolio so that it is comprised of top tier properties that will produce consistently strong increases in earnings and current values. Operating Results This discussion and analysis of operating results covers each of the Company's four business segments as management believes that a segment analysis provides the most effective means of understanding the Company's business. Note 13 to the consolidated financial statements and the information relating to revenues and expenses in the Five Year Summary of Earnings Before Depreciation and Deferred Taxes from Operations and Net Earnings (Loss) on page 54 should be referred to when reading this discussion. Operating Properties: The Company reports the results of its operating properties in two categories: retail centers ("retail" properties) and office, mixed-use and other properties ("office/mixed-use" properties). The Company's tenant leases provide the foundation for the performance of its retail and office/mixed-use properties. In addition to minimum rents, the majority of retail and office tenant leases provide for other rents which reimburse the Company for most of its operating expenses. Substantially all of the Company's retail leases also provide for additional rent based on tenant sales (percentage rent) in excess of stated levels. As leases expire, space is re-leased, minimum rents are generally adjusted to market rates, expense reimbursement provisions are updated and new percentage rent levels are established for retail leases. Most of the Company's operating properties are financed with long-term, fixed rate, nonrecourse debt and, therefore, are not directly affected by changes in interest rates. Although 47 the interest rates on this debt do not fluctuate, certain loans provide for additional payments to the Company's lenders based on operating results and, in some instances, a share of a property's residual value upon sale or refinancing or at maturity. Revenues from retail properties increased $5,205,000 in 1995 and $22,877,000 in 1994. The increase in 1995 was attributable to the operations of expansions opened in August 1994 and March 1995, higher effective rents on re-leased space and purchases of ownership interests in two retail centers. These increases were partially offset by the effects of lower average occupancy (90.9% in 1995 compared to 92.3% in 1994), lower recoveries of operating expenses due to expense reduction efforts and dispositions of interests in properties in the first quarter of 1994 and second quarter of 1995. The increase in 1994 was attributable to the operations of expansions opened in 1994, a full year of operations of expansions opened and properties acquired in 1993 and higher effective rents on re-leased space. The increase was also due to higher occupancy levels at the Company's larger, major market retail centers and increased lease cancellation payments received as a result of tenant restructurings or downsizings. These increases were partially offset by the disposition of a retail center in the first quarter of 1994. Total operating and interest expenses for retail properties decreased $7,661,000 in 1995 and increased $8,965,000 in 1994. The decrease in 1995 was attributable primarily to the effects of lower average occupancy levels, lower operating expenses due to expense reduction efforts, lower bad debt expenses due to recoveries of amounts previously reserved, the dispositions referred to above and reductions in interest expense due to debt repayments and refinancings completed in 1994 and early 1995 at certain properties. These decreases were partially offset by increases in expenses associated with the operations and financing of the properties opened or acquired referred to above. The increase in 1994 was attributable to costs relating to expansions opened in 1994 and a full year of operations of expansions opened and properties acquired in 1993, higher occupancy levels at many of the Company's larger, major market retail centers and higher interest costs related to floating rate debt. These increases were partially mitigated by the effects of the disposition of a retail center in the first quarter of 1994 and to lower interest expense on fixed rate property debt due to debt repayments and refinancings at certain properties. Revenues from office/mixed-use properties decreased $1,606,000 in 1995 and increased $2,540,000 in 1994. The decrease in 1995 was attributable primarily to dispositions of properties in the third quarter of 1994 and second quarter of 1995 and lower recoveries of operating expenses due to lower occupancy levels and reduced operating expenses at certain projects. These decreases were partially offset by increased revenues at certain hotel and office properties in Columbia due to higher occupancy levels and increases in tenant lease cancellation payments due to tenant restructurings and downsizings. The increase in revenues in 1994 was attributable primarily to higher occupancy levels at office and hotel properties and a full year of operations of properties opened in 1993, partially offset by lower recoveries of operating expenses at two office properties where the tenants began paying certain operating expenses directly in 1994. Total operating and interest expenses for office/mixed-use properties decreased $3,324,000 in 1995 and increased $1,835,000 in 1994. The decrease in 1995 was attributable primarily to the dispositions of properties referred to above, lower bad debt expense due to recoveries of amounts previously reserved and lower operating expenses at certain projects. These decreases were partially offset by expenses related to the openings of two industrial buildings in Columbia in the second quarter of 1994 and higher interest expense on a mixed- use project. Interest on this project's loan was lower in 1994 because the Company exercised an option in the loan agreement to make a specified payment and reduce the effective interest rate on the loan retroactive to the beginning of its term. The payment was less than the interest previously accrued, and the difference was recorded as a reduction to interest expense in 1994. The increase in 1994 was due primarily to a full year of operations of properties opened in 1993 and higher occupancy levels at office and hotel properties, partially offset by lower operating expenses at the two office properties referred to above. Also, lower interest expense at certain properties due to debt reductions and refinancings and the exercise of the interest rate reduction option referred to above mitigated the overall increase in interest and operating expenses in 1994. 48 Land Sales: The Company's land sales operations relate primarily to the city of Columbia. Generally, revenues and operating income from land sales are affected by such factors as the availability to purchasers of construction and permanent mortgage financing at acceptable interest rates, consumer and business confidence, availability of saleable land for particular uses and management's decisions to sell, develop or retain land. Land sales revenues were $33,403,000 in 1995, $35,232,000 in 1994 and $35,313,000 in 1993. The decrease in revenues in 1995 was due primarily to lower sales of land for commercial/other uses in Columbia. Land sales costs and expenses were $22,898,000 in 1995, $24,905,000 in 1994 and $23,480,000 in 1993. The decrease in 1995 was attributable to lower cost of sales due to the lower land sales revenues referred to above. The increase in 1994 was attributable primarily to higher operating and interest expenses due to a lower level of land development activity on projects other than Columbia. Development: Development expenses were $7,646,000 in 1995, $6,989,000 in 1994 and $4,348,000 in 1993. These costs consist primarily of additions to the pre- construction reserve and new business costs. The pre-construction reserve is maintained to provide for costs of projects in the pre-construction phase of development, including retail center renovation and expansion opportunities, which may not go forward to completion. Additions to the pre-construction reserve were $3,800,000 in 1995, $3,400,000 in 1994 and $2,900,000 in 1993. New business costs relate primarily to the initial evaluation of potential acquisition and development opportunities. These costs were $3,488,000 in 1995, $3,094,000 in 1994 and $953,000 in 1993. The increases in pre-construction reserve additions and new business costs in 1995 and 1994 were attributable to the Company's more active pursuit of potential development and acquisition opportunities. Corporate: Corporate revenues consist of interest income earned on temporary investments, including investments of unused proceeds from refinancings of certain properties. Corporate interest income was $2,772,000 in 1995, $2,892,000 in 1994 and $3,862,000 in 1993. The decreases in 1995 and 1994 were attributable primarily to lower average investment balances. Corporate expenses consist of certain interest and operating expenses, as discussed below, reduced by costs capitalized or allocated to other segments. Interest is capitalized on corporate funds invested in projects under development, and interest on the proceeds of corporate borrowings and distributions on the proceeds of the Company-obligated mandatorily redeemable preferred securities which are used for other segments are allocated to those segments. Accordingly, corporate interest expense consists primarily of interest on the convertible subordinated debentures, the unsecured 8.5% notes and unused proceeds from refinancings of certain properties, net of interest capitalized on development projects or allocated to other segments, and corporate operating expenses consist primarily of general and administrative costs and distributions on the redeemable preferred securities, net of distributions allocated to other segments. Corporate interest costs were $14,032,000 in 1995, $13,934,000 in 1994 and $18,571,000 in 1993. Of such amounts, $3,747,000, $2,564,000, and $2,158,000, were capitalized in 1995, 1994 and 1993, respectively, on funds invested in development projects. The decrease in corporate interest costs in 1994 was attributable primarily to redemption of a $100,000,000 issue of convertible subordinated debentures in May 1993. The higher level of interest capitalized in 1995 reflects the higher level of corporate funds invested in development projects, consistent with the Company's more active pursuit of development opportunities. Gain (Loss) on Dispositions of Assets and Other Provisions, Net: The loss on dispositions of assets and other provisions, net, for 1995 consisted primarily of a provision for loss of $12,321,000 (recorded in the fourth quarter) on a litigation judgment involving a former tenant as discussed in note 19 to the consolidated financial statements and provisions for losses totaling $15,589,000 recognized on retail centers the Company decided to sell. These losses were partially offset by a gain of $2,379,000 related to the disposition of a retail center. 49 The loss on dispositions of assets and other provisions, net, for 1994 consisted primarily of losses totalling $8,045,000 incurred on dispositions of interests in two retail centers, a hotel and an office building and a provision for loss of $2,212,000 on an industrial building. These losses were partially offset by a gain of $2,761,000 on disposition of an interest in a retail center the Company continues to manage. The loss on dispositions of assets and other provisions, net, for 1993, consisted primarily of a provision for loss on investment in a retail center recorded in the fourth quarter. This loss was recognized based on management's determination that the Company would not continue to support the property under the existing arrangements with lenders, public authorities and others involved and that it was unlikely that the Company would recover all of its investment in the property based on forecasts of future cash flows. Extraordinary Losses, Net of Related Income Tax Benefits: The extraordinary losses in 1995, 1994 and 1993 resulted from early extinguishments or required partial early redemptions of debt and aggregated $13,278,000, $6,824,000 and $12,322,000, respectively, less deferred income tax benefits of $4,647,000, $2,377,000 and $4,271,000, respectively. Net Earnings (Loss): The Company had a net loss of $2,781,000 in 1995, net earnings of $2,159,000 in 1994 and a net loss of $9,342,000 in 1993. The Company's operating income (after depreciation and amortization) was $35,918,000 in 1995, $21,259,000 in 1994 and $8,841,000 in 1993. The improvements in operating income in 1995 and 1994 were due primarily to the factors described above. Net earnings (loss) for each year was affected by unusual and/or nonrecurring items. The most significant of these are the items discussed above in gain (loss) on dispositions of assets and other provisions, net, and extraordinary losses, net of related income tax benefits. Earnings Before Depreciation and Deferred Taxes: The Company uses a supplemental performance measure along with net earnings (loss) to report its operating results. This measure, referred to as Earnings Before Depreciation and Deferred Taxes (EBDT), is not a measure of operating results or cash flows from operating activities as defined by generally accepted accounting principles. Additionally, EBDT is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to cash flows as a measure of liquidity. However, the Company believes that EBDT provides relevant information about its operations and is necessary, along with net earnings (loss), for an understanding of its operating results. Depreciation and amortization are excluded from EBDT because, as shown in the current value basis balance sheets, the Company's portfolio of operating properties is worth substantially more than its undepreciated historical cost. Deferred income taxes are excluded from EBDT because payments of income taxes have not been significant and are not anticipated to become significant in the near term. Current Federal and state income taxes are included as reductions of EBDT. Gain (loss) on dispositions of assets and other provisions, net, and extraordinary losses, net of related income tax benefits, represent unusual and/or nonrecurring items and are therefore excluded from EBDT. EBDT is reconciled to net earnings (loss) in the Five Year Summary of Earnings Before Depreciation and Deferred Taxes from Operations and Net Earnings (Loss) on page 55. EBDT was $108,360,000 in 1995, $94,710,000 in 1994 and $78,281,000 in 1993. The increases in EBDT in 1995 and 1994 were due primarily to improved results from the operating properties business segment, particularly retail properties. The significant changes in revenues and expenses comprising EBDT by segment are described above. Financial Condition, Liquidity and Capital Resources Management believes that the current values of the Company's assets and liabilities are the most realistic indicators of the Company's financial strength and future profitability. Current values of the Company's interests in operating properties (including interests in unconsolidated real estate ventures) and land held for development and sale represent the present values of forecasted net operating cash flows from these properties--the Company's most significant assets. Since 1976, revaluation equity, the aggregate increment of current value over cost basis net book value of the Company's assets and liabilities, has increased at a compound annual rate of 14%. The majority of revaluation equity relates to larger, major 50 market retail centers which continue to be a favored real estate investment. However, revaluation equity decreased $23 million or 1.5% to $1.50 billion at December 31, 1995. The decrease was due primarily to increases in the current value of deferred income taxes (e.g., the present value of estimated future tax payments) and the current value of publicly-traded debt not specifically related to interests in properties. Also, the rate of increase in the current values of properties moderated significantly in 1995 compared to 1994 and 1993. While investors' yield requirements for top tier retail centers did not change significantly during the year, the yield requirements for certain other properties increased. As a result, the modest increases in values of the Company's larger, major market retail centers in 1995 were largely offset by decreases in the values of certain other properties. In addition, the projected growth in cash flows was reduced for many retail centers in 1995 as compared to 1994, primarily because of slower assumed growth in tenant sales as a result of the continued difficult retail environment. Cost basis shareholders' equity decreased to $42,584,000 at December 31, 1995 from $95,026,000 at December 31, 1994. The decrease was due primarily to the payment of regular quarterly dividends on the common and Preferred stocks. The Company had cash and cash equivalents and investments in marketable securities totalling $97,832,000 and $79,547,000 at December 31, 1995 and 1994, respectively, including $2,910,000 and $2,001,000, respectively, held for restricted uses. Net cash provided by operating activities was $107,001,000, $113,775,000 and $101,149,000, in 1995, 1994 and 1993, respectively. The changes in cash provided by operating activities were due primarily to the factors discussed above in the analysis of operating results. In addition, the level of net cash provided by operating activities is affected by the timing of receipt of revenues (including land sales proceeds) and the payment of operating and interest expenses and land development costs. In particular, net cash provided by operating activities for 1995 was reduced due to payment of certain pension obligations and other liabilities. In 1995 and 1994, over 80% of the Company's debt consisted of mortgages and bonds collateralized by operating properties. Scheduled principal payments on property debt were $36,446,000, $46,750,000 and $20,735,000 in 1995, 1994 and 1993, respectively. The decrease in 1995 was due primarily to early repayments of property debt, and the increase in 1994 was due primarily to the effects of refinancing certain office/mixed-use properties. The annual maturities of debt for the next five years include balloon payments of $75,742,000 in 1996, $80,430,000 in 1997, $42,524,000 in 1998, $132,200,000 in 1999 and $184,330,000 in 2000. The balloon payments for 1996 include $65,000,000 related to a retail center mortgage due in August. The Company expects to refinance the mortgage on a long-term basis at or prior to its scheduled maturity. The Company is confident that it will be able to make the other balloon payments or arrange to refinance or extend their maturities at or prior to their scheduled repayment dates. The Company has historically relied primarily on fixed rate, nonrecourse loans from private institutional lenders to finance its operating properties and expects that it will continue to do so in the future. In recent years, however, the Company has made greater use of the public capital markets to meet its capital resource needs. Since 1993, the Company has completed public debt and equity offerings aggregating over $600,000,000 (including the unused portion of the medium-term notes), the proceeds of which have been used primarily to repay or refinance corporate and property debt and to provide liquidity and funds for other corporate purposes. These transactions were completed on terms which allowed the Company to reduce its overall cost of capital while restructuring its debt maturities and increasing its financial flexibility. The Company is continually evaluating sources of capital, and management believes there are reasonable and satisfactory sources available for all requirements without necessitating property sales. Cash expenditures for properties in development and improvements to existing properties funded by debt were $61,591,000, $78,628,000 and $87,243,000 in 1995, 1994 and 1993, respectively. A substantial portion of the costs of properties in development is financed with construction or similar loans. Typically, long- term fixed rate debt financing is arranged concurrently with the construction financing prior to the commencement of construction. Management anticipates that acceptable methods of financing development projects with fixed rate, nonrecourse debt will continue to be available. Improvements to 51 existing properties funded by debt consist primarily of costs of renovation and remerchandising programs and other capital improvement costs. The Company's share of these costs has been financed primarily from proceeds of refinancings of the related properties or other properties, credit line borrowings and a portion of the proceeds of the 8.5% unsecured notes. Cash expenditures for acquisitions of interests in properties were $28,206,000 in 1995, $94,113,000 in 1994 and $34,967,000 in 1993. These costs were financed primarily by nonrecourse debt. The acquisitions in 1995 consisted of the purchases of partnership interests in three retail centers, two of which were financed in whole or in part by the sellers. The acquisitions in 1994 consisted primarily of the purchase of land underlying a retail center and the related equity interest of the former ground lessor. The acquisitions in 1993 consisted primarily of purchases of partners' interests in retail properties. The Company has available sources of capital in addition to those discussed above. The Company's equity interests in its operating properties, land held for development and sale and land in development represent a source of funds either through sales or refinancings. The aggregate equity value of these interests as of December 31, 1995 was approximately $2,444,000,000. The Company also has lines of credit available totalling $158,920,000 which can be used to fund property acquisition costs, finance other corporate needs, repay existing indebtedness or provide corporate liquidity, subject to approval by the lenders. In addition, the Company may issue additional medium-term notes of up to $49,700,000 through February 1997. The agreements relating to certain of the lines of credit, the 8.5% unsecured notes, the medium-term notes and certain other loans impose limitations on the Company. The most restrictive of these limit the Company's ability to incur certain types of additional debt if the Company does not maintain specified debt service coverage ratios. The agreements also impose restrictions on sale, lease and certain other transactions, subject to various exclusions and limitations. These restrictions have not limited the Company's normal business activities and are not expected to do so in the foreseeable future. Possible Acquisition of The Hughes Corporation On February 22, 1996, the Company's Board of Directors approved the terms of agreements to acquire all of the issued and outstanding shares of common stock of The Hughes Corporation and the ownership interests of stockholders of The Hughes Corporation in an affiliated partnership. Consummation of the transactions is subject to certain closing conditions. For additional information about this transaction, refer to note 20 to the consolidated financial statements and Exhibit 99.2 of this Form 10-K. New Accounting Standards In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed of." Statement No. 121 establishes new standards for measurement and recognition of impairment of long- lived assets. The Statement will be effective with respect to the Company in 1996 and initial adoption is not expected to have a material effect on the financial position or results of operations reported by the Company. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Statement No. 123 permits companies to adopt a new fair value based method to account for stock-based employee compensation plans or to continue using the intrinsic value method. If the intrinsic value method is used, information concerning the pro forma effects on net earnings (loss) and earnings (loss) per share of common stock of adopting the fair value based method is required to be presented in the footnotes to the financial statements. The Statement also requires additional footnote disclosures about stock-based employee compensation arrangements, regardless of the method used to account for them. The Company intends to continue using the intrinsic value method to account for its stock-based employee compensations plans and will provide the pro forma and additional disclosures about the plans in its 1996 financial statements, as required by Statement No. 123. 52 Impact of Inflation The major portion of the Company's operating properties, its retail centers, is substantially protected from declines in the purchasing power of the dollar. Retail leases generally provide for minimum rents plus percentage rents based on sales over a minimum base. Generally, increases in tenant sales (whether due to increased unit sales or increased prices from demand or general inflation) will result in increased rental revenue to the Company. A substantial portion of the tenant leases (retail and office) also provide for other rents which reimburse the Company for certain of its operating expenses; consequently, increases in these costs do not have a significant impact on the Company's operating results. The Company has a significant amount of debt which, in a period of inflation, will result in a holding gain since debt will be paid off with dollars having less purchasing power. Information Relating to Forward-looking Statements This Form 10-K 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 factors could cause actual results to differ materially from historical results or those anticipated: (1) real estate investment risks; (2) development risks; (3) illiquidity 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 the Americans with Disabilities Act; (9) competition; (10) changes in the economic climate; and (11) factors relating to the proposed Hughes acquisition. For a more detailed discussion of these factors, see Exhibit 99.2 of the Company's Form 10-K for the fiscal year ended December 31, 1995. 53 The Rouse Company and Subsidiaries FIVE YEAR SUMMARY OF EARNINGS BEFORE DEPRECIATION AND DEFERRED TAXES FROM OPERATIONS AND NET EARNINGS (LOSS)
Year ended December 31, ----------------------------------------------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (in thousands) Revenues: Operating properties: Retail centers: Minimum and percentage rents..................... $245,192 $238,222 $227,140 $210,909 $208,560 Other rents and other revenues.................. 246,488 248,253 236,458 217,571 207,641 Office, mixed-use and other: Minimum and percentage rents..................... 80,319 82,347 81,415 76,302 71,629 Other rents and other revenues.................. 64,647 64,225 62,617 60,335 59,379 -------- -------- -------- -------- -------- 636,646 633,047 607,630 565,117 547,209 Land sales................. 33,403 35,232 35,313 29,137 24,111 Development fees........... -- -- -- -- 375 Corporate interest income.. 2,772 2,892 3,862 2,851 1,803 -------- -------- -------- -------- -------- 672,821 671,171 646,805 597,105 573,498 -------- -------- -------- -------- -------- Operating expenses, exclusive of depreciation and amortization: Operating properties: Retail centers............. 246,747 253,095 251,386 241,395 233,730 Office, mixed-use and other 70,096 74,368 76,148 69,589 69,129 -------- -------- -------- -------- -------- 316,843 327,463 327,534 310,984 302,859 Land sales................. 17,827 19,877 19,387 16,330 12,848 Development................ 7,288 6,494 3,853 4,421 5,681 Corporate.................. 8,920 8,309 6,184 5,927 6,567 -------- -------- -------- -------- -------- 350,878 362,143 356,958 337,662 327,955 -------- -------- -------- -------- -------- Interest expense: Operating properties: Retail centers............. 128,215 128,798 124,204 115,744 117,843 Office, mixed-use and other 69,034 67,892 65,601 69,199 63,474 -------- -------- -------- -------- -------- 197,249 196,690 189,805 184,943 181,317 Land sales................. 5,071 5,028 4,093 2,959 2,728 Development................ 358 495 495 495 495 Corporate.................. 10,285 11,370 16,413 18,412 13,755 -------- -------- -------- -------- -------- 212,963 213,583 210,806 206,809 198,295 -------- -------- -------- -------- -------- Current income taxes--primarily state.... 620 735 760 352 428 -------- -------- -------- -------- -------- 564,461 576,461 568,524 544,823 526,678 -------- -------- -------- -------- -------- Earnings before depreciation and deferred taxes from operations..... $108,360 $ 94,710 $ 78,281 $ 52,282 $ 46,820 ======== ======== ======== ======== ========
54
Year ended December 31, ------------------------------------------------------------------------------ 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (in thousands) Earnings before depreciation and deferred taxes from operations by segment: Operating properties: Retail centers............. $116,135 $103,978 $ 87,248 $ 70,966 $ 64,097 Office, mixed-use and other 5,839 4,273 2,283 (2,127) (1,591) -------- -------- -------- -------- ------- 121,974 108,251 89,531 68,839 62,506 Land sales................. 10,502 10,330 11,833 9,847 8,634 Development................ (7,646) (6,989) (4,348) (4,916) (5,801) Corporate.................. (16,470) (16,882) (18,735) (21,488) (18,519) -------- -------- -------- -------- -------- Earnings before depreciation and deferred taxes from operations..... $108,360 $ 94,710 $ 78,281 $ 52,282 $ 46,820 ======== ======== ======== ======== ======== Reconciliation to net earnings (loss): Earnings before depreciation and deferred taxes from operations..... $108,360 $ 94,710 $ 78,281 $ 52,282 $ 46,820 Depreciation and amortization.............. (73,062) (74,186) (70,200) (68,163) (65,735) Deferred income taxes applicable to operations.. (3,699) (5,995) (3,603) 5,286 (2,393) Gain (loss) on dispositions of assets and other provisions, net. (25,749) (7,923) (5,769) (5,254) 23,732 Extraordinary losses, net of related income tax benefits.................. (8,631) (4,447) (8,051) (348) (90) Cumulative effect of change in accounting principle................. -- -- -- -- 13,463 -------- -------- -------- -------- -------- Net earnings (loss)........ $ (2,781) $ 2,159 $ (9,342) $(16,197) $ 15,797 ======== ======== ======== ======== ========
Note: Earnings before depreciation and deferred taxes (EBDT) is not a measure of operating results or cash flows from operating activities as defined by generally accepted accounting principles. Additionally, EBDT is not necessarily indicative of cash available to fund cash needs, including the payment of dividends and should not be considered as an alternative to cash flows as a measure of liquidity. See the "Earnings Before Depreciation and Deferred Taxes" section of Management's Discussion and Analysis of Financial Condition and Results of Operations on page 50 for a full discussion of EBDT. 55 PROJECTS OF THE ROUSE COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------ Retail Square Footage Date of Opening Total Mall Retail Centers in Operation or Acquisition Department Stores Center Only - ----------------------------------------------------------------------------------------------------------------------------------- Almeda Mall, Houston, TX (a) 10/68 Foley's; JCPenney 802,000 294,000 The Shops at Arizona Center, Phoenix, AZ (a) 11/90 -- 151,000 151,000 Augusta Mall, Augusta, GA (b) 8/78 Rich's; R.H. Macy; JCPenney; Sears 902,000 313,000 Bayside Marketplace, Miami, FL (b) 4/87 -- 223,000 223,000 Beachwood Place, Beachwood, OH (b) 8/78 Saks Fifth Avenue; Dillard's 453,000 228,000 Burlington Center, Burlington, NJ (d) 8/82 Strawbridge & Clothier; Sears.. 567,000 246,000 Cherry Hill Mall, Cherry Hill, NJ (a) 10/61 Strawbridge & Clothier, R.H. Macy; JCPenney 1,285,000 544,000 The Citadel, Colorado Springs, CO (d) 8/80 Mervyn's; JCPenney; Foley's; Dillard's 1,128,000 460,000 College Square, Cedar Falls, IA (d) 8/80 Von Maur; Younkers; Wal-Mart 560,000 313,000 Collin Creek, Plano, TX (b) 9/95 Dillard's; Foley's; Sears; JCPenney; Mervyn's 1,123,000 333,000 The Mall in Columbia, Columbia, MD (a) 8/71 JCPenney; Hecht's; Sears 876,000 421,000 Eastfield Mall, Springfield, MA (a) 4/68 Sears; Filene's; JCPenney 674,000 217,000 Echelon Mall, Voorhees, NJ (a) 9/70 Strawbridge & Clothier; JCPenney; Boscov's 1,065,000 481,000 Entertainment Center at Irvine Spectrum, Irvine, CA (c) 11/95 Edwards Theatre 218,000 108,000 Exton Square, Exton, PA (a) 3/73 Strawbridge & Clothier 443,000 253,000 Faneuil Hall Marketplace, Boston, MA (a) 8/76 -- 215,000 215,000 Fashion Island, Newport Beach, CA (c) 8/90 The Broadway; Bullock's; Robinson's--May; 1,205,000 593,000 Neiman Marcus Franklin Park, Toledo, OH (b) 7/71 Hudson's; JCPenney; Jacobson's; Lion 1,082,000 313,000 The Gallery at Harborplace, Baltimore, MD (a) 9/87 -- 139,000 139,000 The Gallery at Market East, Philadelphia, PA(a)(c) 8/77 Strawbridge & Clothier; Clover 1,320,000 360,000 Governor's Square, Tallahassee, FL (b) 8/79 Burdine's; Sears; JCPenney; Dillard's 1,031,000 340,000 The Grand Avenue, Milwaukee, WI (a) 8/82 Marshall Field; The Boston Store 842,000 242,000 Greengate Mall, Greensburg, PA (a) 8/65 Lazarus; Montgomery Ward 612,000 233,000 Harborplace, Baltimore, MD (a) 7/80 -- 136,000 136,000 Harundale Mall, Glen Burnie, MD (b) 10/58 Value City 309,000 232,000 Highland Mall, Austin, TX (b) 8/71 Dillard's; JCPenney; Foley's 1,099,000 367,000 Hulen Mall, Ft. Worth, TX (a) 8/77 Foley's; Montgomery Ward; Dillard's 924,000 327,000 The Jacksonville Landing, Jacksonville, FL (a) 6/87 -- 128,000 128,000 Mall St. Matthews, Louisville, KY (a) 3/62 JCPenney; Bacon's; Dillard's 1,092,000 353,000 Marshall Town Center, Marshalltown, IA (d) 8/80 JCPenney; Younkers; Menard's; Stage 340,000 141,000 Midtown Square, Charlotte, NC (a) 10/59 Burlington Coat Factory 235,000 190,000 Mondawmin (a)/Metro Plaza(b), Baltimore, MD 1/78;12/82 -- 496,000 496,000 Muscatine Mall, Muscatine, IA (d) 8/80 JCPenney; Wal-Mart 347,000 178,000 The Shops at National Place, Washington, D.C. (a)(c) 5/84 -- 125,000 125,000 North Grand, Ames, IA (d) 8/80 JCPenney; Sears; Younkers 350,000 157,000
58
- ------------------------------------------------------------------------------------------------------------------------------------ Retail Square Footage Date of Opening Total Mall Retail Centers in Operation or Acquisition Department Stores Center Only - ----------------------------------------------------------------------------------------------------------------------------------- North Star, San Antonio, TX (b) 9/60 Dillard's; Foley's; Saks Fifth Avenue; 1,288,000 487,000 Marshall Field; Mervyn's Northwest Arkansas Mall, Fayetteville, AR (d) 8/80 JCPenney; Sears; Dillard's 554,000 242,000 Northwest Mall, Houston, TX (a) 10/68 Foley's; JCPenney 800,000 292,000 Oakwood Center, Gretna, LA (a) 10/82 Sears; Dillard's; Mervyn's; Maison Blanche 960,000 362,000 Owings Mills, Baltimore, MD (a) 7/86 R.H. Macy; Hecht's 809,000 325,000 Paramus Park, Paramus, NJ (a) 3/74 R.H. Macy; Sears 755,000 279,000 Perimeter Mall, Atlanta, GA (b) 8/71 Rich's; JCPenney; R.H. Macy 1,224,000 444,000 Pioneer Place, Portland, OR (a) 3/90 Saks Fifth Avenue 220,000 160,000 Plymouth Meeting, Plymouth Meeting, PA (a) 2/66 Strawbridge & Clothier 784,000 415,000 Randhurst, Mt. Prospect, IL (d) 7/81 Carson, Pirie, Scott; JCPenney; 1,324,000 591,000 Montgomery Ward; Kohls Ridgedale Center, Minnetonka, MN (d) 1/89 Dayton's; JCPenney; Sears 1,039,000 334,000 Riverwalk, New Orleans, LA (a) 8/86 -- 179,000 179,000 St. Louis Union Station, St. Louis, MO (a) 8/85 -- 172,000 172,000 Salem Centre, Salem, OR (d) 6/90 Meier & Frank; JCPenney; Mervyn's; Nordstrom 649,000 211,000 Salem Mall, Dayton, OH (a) 10/66 Lazarus; Sears; JCPenney 817,000 312,000 Santa Monica Place, Santa Monica, CA (a) 10/80 The Broadway; Robinson's-May 570,000 287,000 Sherway Gardens, Toronto, ONT (c) 12/78 Eaton's; The Bay 968,000 524,000 South DeKalb, Decatur, GA (a) 7/78 Rich's; JCPenney 691,000 329,000 Southland, Taylor, MI (d) 1/89 Hudson's; Mervyn's; JCPenney 903,000 320,000 South Street Seaport, New York, NY (a) 7/83 -- 257,000 257,000 Staten Island Mall, Staten Island, NY (d) 11/80 Sears; R.H. Macy; JCPenney 1,224,000 618,000 Mall St. Vincent, Shreveport, LA (c) 8/80 Sears; Dillard's 557,000 200,000 Tampa Bay Center, Tampa, FL (b) 8/76 Burdine's; Sears; Montgomery Ward 883,000 325,000 Town and Country Center, Miami, FL (c) 2/88 Sears; Marshalls; Mervyn's 645,000 467,000 Underground Atlanta, Atlanta, GA (c) 6/89 -- 219,000 219,000 Village of Cross Keys, Baltimore, MD (a) 9/65 -- 68,000 68,000 Westlake Center, Seattle, WA (b) 10/88 Nordstrom; Bon Marche 723,000 118,000 Westland Mall, West Burlington, IA (d) 8/80 JCPenney; Younkers 344,000 175,000 White Marsh, Baltimore, MD (a) 8/81 R.H. Macy; JCPenney; Hecht's; Sears 1,178,000 359,000 Willowbrook, Wayne, NJ (b) 9/69 R.H. Macy; Steinbach's; Stern's; Sears 1,499,000 485,000 Woodbridge Center, Woodbridge, NJ (a) 3/71 JCPenney; Stern's; Steinbach's; Fortunoff; Sears 1,544,000 560,000 Total Retail Centers in Operation 46,344,000 19,966,000
59
- ------------------------------------------------------------------------------------------------------------------------------------ Retail Square Footage Retail Centers Under Construction Total Mall or in Development Department Stores Center Only - ----------------------------------------------------------------------------------------------------------------------------------- The Marketplace at Oviedo Crossing, Orlando, FL Dillard's; Gayfer's 700,000 400,000 Beachwood Place Expansion, Beachwood, OH Nordstrom 462,000 120,000 Northwest Arkansas Mall Expansion, Fayetteville, AR JCPenney; Dillard's 302,000 42,000 Oakwood Center Expansion, Gretna, LA JCPenney 125,000 -- Perimeter Mall Expansion, Atlanta, GA Nordstrom 225,000 -- Burlington Center Expansion, Burlington, NJ. JCPenney 102,000 -- Total Retail Centers Under Construction or in Development 1,916,000 562,000 - ----------------------------------------------------------------------------------------------------------------------------------- Office Projects in Operation Location Square Feet - ----------------------------------------------------------------------------------------------------------------------------------- 300 East Lombard (c) Baltimore, MD 233,000 Quadrangle at Cross Keys (a) Baltimore, MD 110,000 Village Square at Cross Keys (a) Baltimore, MD 79,000 Legg Mason Tower (a) Baltimore, MD 265,000 Schilling Center (a) Hunt Valley, MD 55,000 Alexander & Alexander Building I (b) Baltimore, MD 143,000 Alexander & Alexander Building II (b) Baltimore, MD 198,000 Blue Cross & Blue Shield Building I (b) Baltimore, MD 270,000 Blue Cross & Blue Shield Building II (b) Baltimore, MD 117,000 One Arizona Center (a) Phoenix, AZ 330,000 Two Arizona Center (a) Phoenix, AZ 449,000 First National Bank Plaza (a) Mt. Prospect, IL 66,000 Faneuil Hall Marketplace (a) Boston, MA 147,000 Pioneer Place (a) Portland, OR 283,000 Westlake Center (b) Seattle, WA 342,000 Total Office Projects in Operation 3,087,000 - ------------------------------------------------------------------------------------------------------------------------------------ Hotel Projects in Operation Location Rooms - ------------------------------------------------------------------------------------------------------------------------------------ Cross Keys Inn (a) Baltimore, MD 146 Stouffer Harborplace Hotel Baltimore, MD 622
60
- ------------------------------------------------------------------------------------------------------------------------------------ Columbia Properties in Operation Type of Project Square Feet - ------------------------------------------------------------------------------------------------------------------------------------ The Mall in Columbia* (a) Retail 876,000 Gateway Plaza (a) Retail 24,000 Dobbin Center (b) Community Retail 219,000 Dorsey's Search Village Center (a) Community Retail 86,000 Harper's Choice Village Center (a) Community Retail 81,000 Hickory Ridge Village Center (a) Community Retail 97,000 King's Contrivance Village Center (a) Community Retail 107,000 Long Reach Village Center (a) Community Retail 77,000 Oakland Mills Village Center (a) Community Retail 62,000 Wilde Lake Village Center (a) Community Retail 95,000 10 Corporate Center (a) Office 89,000 30 Corporate Center (a) Office 134,000 Amdahl Building (a) Office 105,000 American City Building (a) Office 111,000 Columbia Center Building (a) Office 44,000 Dorsey's Search Office Building (a) Office 20,000 Exhibit Building (a) Office 20,000 Parkside (a) Office 113,000 RWD Building (a) Office 137,000 Re/Max Building (a) Office 39,000 Reliance Building (a) Office 38,000 The Ryland Group Headquarters (a) Office 167,000 Oakland Building (a) R&D/Industrial 145,000 Gateway Commerce Center 1, 2 & 20 (a) Industrial 1,895,000 Columbia Inn (a) Hotel 289 rooms Total Columbia Properties in Operation 4,781,000
* Also listed in previous table of Retail Centers in Operation (a) Projects are wholly-owned subsidiaries of the Company. (b) Projects are owned by joint ventures or partnerships and are managed by subsidiaries of the Company for a fee (except for Collin Creek which the Company will begin managing in 1997). 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 and Collin Creek in which the Company has a 30% interest). (c) Projects are managed by subsidiaries of the Company for a fee plus a share of cash flow. (d) Projects are owned by partnerships or wholly-owned (Staten Island Mall, Randhurst and Burlington Center) by subsidiaries of the Company and are managed by subsidiaries of the Company for a fee plus a share of cash flow and a share of proceeds from sales or refinancings. The Company's ownership interest in the partnerships is determined based upon the results of operations. 61
- ------------------------------------------------------------------------------------------------------------------------------------ Office Projects Owned by Rouse-Teachers Properties, Inc. Location Square Feet - ------------------------------------------------------------------------------------------------------------------------------------ Triangle Business Center Baltimore, MD 75,000 Owen Brown I Columbia, MD 46,000 Sieling Tech Center Columbia, MD 76,000 RiversPark I & II Columbia, MD 306,000 Center Pointe Hunt Valley, MD 130,000 201 International Circle Hunt Valley, MD 79,000 Loveton Center 9 Hunt Valley, MD 53,000 11011 McCormick Road Hunt Valley, MD 57,000 Schilling Plaza North Hunt Valley, MD 99,000 Schilling Plaza South Hunt Valley, MD 108,000 One Hunt Valley Hunt Valley, MD 215,000 Inglewood Office Centres 1, 2 Prince George's County, MD 222,000 Inglewood Tech Centers I, II, III, IV & V Prince George's County, MD 316,000 Silver Spring Metro Plaza Silver Spring, MD 690,000 Ambassador Center Woodlawn, MD 83,000 15-17 Governor's Court Woodlawn, MD 29,000 21 Governor's Court Woodlawn, MD 56,000 Parkview Center Woodlawn, MD 58,000 Harbourside Tampa, FL 147,000 One & Two Prestige Place Tampa, FL 144,000 McCormick Centre I, II & III Tampa, FL 202,000 Senate Plaza Camp Hill, PA 231,000 Total Office Projects Owned by Rouse-Teachers Properties, Inc 3,422,000 - ------------------------------------------------------------------------------------------------------------------------------------ Industrial Projects Owned by Rouse-Teachers Properties, Inc Location Square Feet - ------------------------------------------------------------------------------------------------------------------------------------ Pulaski Industrial Park Essex, MD 157,000 Hunt Valley Business Community Hunt Valley, MD 950,000 Rutherford Business Center Woodlawn, MD 572,000 Total Industrial Projects Owned by Rouse-Teachers Properties, Inc. 1,679,000
62 EX-21 7 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 Exhibit 21. Subsidiaries of the Registrant The Registrant had no parent at December 31, 1995. As of December 31, 1995, the Registrant owned 100% of the voting securities of the following domestic and foreign subsidiaries included in the consolidated financial statements: State of Subsidiary Incorporation ---------- ------------- Directly owned subsidiaries of the Company. All shares are Common Stock unless otherwise noted. American City Corporation, The Maryland Baltimore Center, Inc. Maryland Charlottetown, Inc. Maryland Charlottetown North, Inc. Maryland Community Research and Development, Inc. Maryland Exton Shopping, Inc. Maryland Exton Square, Inc. Pennsylvania Four Owings Mills Corporate Center, Inc. Maryland Gallery Maintenance, Inc. (Note 1) Maryland Gallery II Trustee, Inc. Maryland Harbor Overlook Investments, Inc. Maryland Harborplace, Inc. (Note 2) Maryland Harborplace Management Corporation Maryland Harundale Mall, Inc. Maryland Hermes Incorporated Maryland Howard Research And Development Corporation, The (Note 3) Maryland Huntington Properties, Inc. (Note 4) Maryland It's Showtime of Maryland, Inc. Maryland Kalimba Marketplace, Inc. Maryland Louisville Shopping Center, Inc. Kentucky Mondawmin Corporation Maryland O. M. Guaranty, Inc. Maryland O. M. Land Development, Inc. Maryland O. M. Mall Corporation Maryland O. M. Management Company, Inc. Maryland One Owings Mills Corporate Center, Inc. Maryland Plymouth Meeting Mall, Inc. (Note 5) Pennsylvania Plymouth Meeting Food Court, Inc. Maryland PT Funding, Inc. Maryland Rouse-Brandywood, Inc. Maryland Rouse-Camden Warehouse, Inc. Maryland Rouse Capital (Note 6) Delaware Rouse-Columbus, Inc. Maryland Rouse-Commerce, Inc. Maryland Rouse Company at Owings Mills, The Maryland Rouse Company Financial Services, Inc., The Maryland Rouse Company of Alabama, Inc., The Alabama Rouse Company of Alaska, Inc., The Maryland Rouse Company of Arkansas, Inc., The Maryland Rouse Company of California, Inc., The (Note 7) Maryland Rouse Company of Colorado, Inc., The (Note 8) Maryland Rouse Company of Connecticut, Inc., The (Note 9) Connecticut Rouse Company of Florida, Inc., The (Note 10) Florida Rouse Company of Georgia, Inc., The (Note 11) Georgia Rouse Company of Idaho, Inc., The Maryland Rouse Company of Illinois, Inc., The Maryland Rouse Company of Iowa, Inc., The (Note 12) Maryland Rouse Company of Kentucky, Inc., The Maryland Rouse Company of Louisiana, The (Note 13) Maryland Rouse Company of Maine, Inc., The Maryland Rouse Company of Massachusetts, Inc., The (Note 14) Maryland Rouse Company of Michigan, Inc., The (Note 15) Maryland Rouse Company of Minnesota, Inc., The (Note 16) Maryland Rouse Company of Mississippi, Inc., The Maryland Rouse Company of Montana, Inc., The Maryland Rouse Company of 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 (Note 23) Maryland Rouse Company of South Dakota, Inc., The Maryland Rouse Company of Tennessee, Inc., The Maryland Rouse Company of Texas, Inc., The (Note 24) Texas Rouse Company of the District of Columbia, The Maryland Rouse Company of Utah, Inc., The Maryland Rouse Company of Vermont, Inc., The Maryland Rouse Company of Virginia, Inc., The (Note 25) Maryland Rouse Company of Washington, Inc., The (Note 26) Maryland Rouse Company of West Virginia, Inc., The Maryland Rouse Company of Wisconsin, Inc., The Maryland Rouse Company of Wyoming, Inc., The Maryland Rouse-Consulting, Inc. Maryland Rouse Credit Corporation Maryland Rouse Development Company of California, Inc., The Maryland Rouse Event Marketing, Inc. Maryland Rouse-Fairwood Development Corporation Maryland Rouse Fashion Island Management Company, Inc. Maryland Rouse Gallery II Management, Inc. Maryland Rouse-Hagerstown, Inc. Maryland Rouse-Harford County, Inc. Maryland Rouse Holding Company, The Maryland Rouse Holding Company of Arizona, Inc., The (Note 27) Maryland Rouse-Inglewood, Inc. Maryland Rouse Investing Company (Note 28) Maryland Rouse Management, Inc. Maryland Rouse Management Services Corporation Maryland Rouse Management Services Corporation of Arkansas, Inc. Maryland Rouse Management Services Corporation of Louisiana, Inc. Maryland Rouse Metro Plaza, Inc. Maryland Rouse-Metro Shopping Center, Inc. Maryland Rouse-Milwaukee, Inc. Maryland Rouse-Milwaukee Garage Maintenance, Inc. Maryland Rouse Missouri Holding Company (Note 29) Maryland Rouse-Oakwood Shopping Center, Inc. Maryland Rouse-Oakwood Two, Inc. Maryland Rouse Office Management, Inc. Maryland Rouse Office Management of Pennsylvania, Inc. Maryland Rouse Philadelphia, Inc. Maryland Rouse Philadelphia Three, Inc. Maryland Rouse-Randhurst Shopping Center, Inc. Maryland Rouse-Santa Monica, Inc. Delaware Rouse Service Company, The Maryland Rouse SI Shopping Center, Inc. Maryland Rouse Tristate Venture, Inc. Texas Rouse Venture Common, Inc. Maryland Rouse-Wates, Incorporated (Note 30) Delaware RREF Holding, Inc. (Note 31) Texas Salem Mall, Incorporated Maryland Santa Monica Place, Inc. Maryland Saratoga Equipment Corporation, The Maryland Six Owings Mills Corporate Center, Inc. Maryland SMPL Management, Inc. Maryland Three Owings Mills Corporate Center, Inc. Maryland TRC Central, Inc. Maryland TRCD, Inc. (Note 32) Delaware TRC Holding Company of Washington, D.C.(Note 33) Maryland TRC Property Management, Inc. Maryland Two Owings Mills Corporate Center, Inc. Maryland Village of Cross Keys, Incorporated, The (Note 34) Maryland White Marsh Equities Corporation Maryland White Marsh Mall, Inc. Maryland Foreign subsidiaries: - -------------------- Rouse Service (Canada) Limited Canada Notes: - ----- 1. Gallery Maintenance, Inc. owns all of the outstanding capital stock of Rouse Gallery Management, Inc., a Maryland corporation. 2. Harborplace, Inc. owns all of the outstanding Series A Preferred Stock of RFT One, Inc., a Delaware corporation. 3. The Howard Research And Development Corporation owns all of the outstanding capital stock of the following Maryland corporations: Columbia Development Corporation, The Columbia Gateway, Inc. Columbia Management, Inc. Columbia Town Homes Investor, Inc. Dorsey's Search Village Center, Inc. ExecuCentre, Inc., The Fifty Columbia Corporate Center, Inc. Forty Columbia Corporate Center, Inc. Gateway Retail Center, Inc. GEAPE II, Inc. Hickory Ridge Village Center, Inc. HRD Parking, Inc. King's Contrivance Village Center, Inc. Lakefront North Parking, Inc. Oakland Ridge Commercial, Inc. Oakland Ridge Industrial Development Corporation Pointer's Run Buildings Group, Inc. Rouse-River Hill Village Center, Inc. The Columbia Development Corporation owns all of the outstanding capital stock of each of the following Maryland corporations: Columbia Mall, Inc. Dobbin Road Commercial, Inc. Guilford Industrial Center, Inc. Rouse Hotel Management, Inc. Columbia Mall, Inc. owns all of the outstanding capital stock of Seventy Columbia Corporate Center, Inc., a Maryland corporation. GEAPE II, Inc. owns all of the outstanding capital stock of GEAPE III, Inc., a Maryland corporation. 4. Huntington Properties, Inc. owns all of the outstanding capital stock of Huntington Realty Interests, Ltd., a Maryland corporation. Huntington Realty Interests, Ltd. owns all of the outstanding capital stock of the following Maryland corporations: HRIL, Inc. Huntington Capital Investors, Ltd. Regency-Huntington, Inc. 5. Plymouth Meeting Mall, Inc. owns all of the outstanding common stock of 1150 Plymouth Associates, Inc., a Maryland corporation, and all of the outstanding Series A Preferred Stock of RFT Five, Inc., a Delaware corporation. 6. 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. 7. The Rouse Company of California, Inc. owns all of the outstanding capital stock of each of the following Maryland corporations: Rouse-Canyon Springs, Inc. Rouse-Irvine, Inc. Rouse-Oakland, Inc. Rouse-Palm Springs II, Inc. Rouse-Sacramento, Inc. 8. The Rouse Company of Colorado, Inc. owns all of the outstanding capital stock of each of the following Maryland corporations: Rouse Management Services Corporation of Colorado, Inc. Rouse-Tabor Center, Inc. 9. The Rouse Company of Connecticut, Inc. owns all of the outstanding capital stock of each of the following Maryland corporations: Rouse Chapel Square, Inc. Rouse Chapel Square Finance, Inc. Rouse New Haven Parking Management, Inc. Rouse New Haven Shopping Center, Inc. 10. The Rouse Company of Florida, Inc. owns all of the outstanding common stock of each of the following corporations: Bayside Entertainment Company, a Maryland corporation Governor's Square, Inc., a Florida corporation Howard Retail Investment Corporation, a Maryland corporation New River Center, Inc., a Florida corporation Rouse-Bayside, Inc., a Maryland corporation Rouse-Fort Myers, Inc., a Maryland corporation Rouse-Jacksonville, Inc., a Maryland corporation Rouse Kendall Management Corporation, a Maryland corporation Rouse-Marina, Inc., a Maryland corporation Rouse-Miami, Inc., a Maryland corporation Rouse Office Management of Florida, Inc., a Maryland corporation Rouse-Orlando, Inc., a Maryland corporation Rouse Retail Management - Bayside, Inc., a Maryland corporation Rouse-Sunrise, Inc., a Maryland corporation Rouse-Tampa, Inc., a Florida corporation Rouse-West Dade, Inc., a Maryland corporation Rouse-Tampa, Inc. owns all of the outstanding Series A Preferred Stock of RFT Four, Inc., a Delaware corporation. 11. The Rouse Company of Georgia, Inc. owns all of the outstanding capital stock of each of the following Maryland corporations: Augusta Mall, Inc. Outlet Square of Atlanta, Inc. Perimeter Center, Inc. Perimeter Mall, Inc. Perimeter Mall Management Corporation Rouse-Atlanta, Inc. Rouse Columbus Square, Inc. Rouse Columbus Square Management Corporation Rouse South DeKalb, Inc. South DeKalb Mall Management Corporation 12. The Rouse Company of Iowa, Inc. owns all of the outstanding capital stock of each of the following Maryland corporations: Rouse Management Services Corporation of Iowa, Inc. Rouse Management Services Corporation Two of Iowa, Inc. 13. The Rouse Company of Louisiana owns all of the outstanding capital stock of each of the following Maryland corporations: Riverwalk Operating Company, Inc. Rouse-New Orleans, Inc. 14. The Rouse Company of Massachusetts, Inc. owns all of the outstanding capital stock of each of the following Maryland corporations: Eastfield Mall, Incorporated Faneuil Hall Marketplace, Inc. Marketplace Grasshopper, Inc. 15. The Rouse Company of Michigan, Inc. owns all of the outstanding capital stock of each of the following Maryland corporations: Rouse Southland, Inc. Rouse Southland Management Corporation Southland Security, Inc. Southland Shopping Center, Inc. 16. The Rouse Company of Minnesota, Inc. owns all of the outstanding capital stock of each of the following Maryland corporations: Ridgedale Shopping Center, Inc. Rouse-Maple Grove, Inc. Rouse Ridgedale, Inc. Rouse Ridgedale Management Corporation 17. The Rouse Company of New Jersey, Inc. owns all of the out- standing 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: Cherry Hill Center, Inc. Echelon Mall, Inc. Echelon Urban Center, Inc. Paramus Equities II, Inc. Paramus Mall Management Company, Inc. Paramus Park, Inc. Rouse-Atlantic Gateway, Inc. Rouse-Burlington, Inc. Rouse-Echelon, Inc. The Willowbrook Corporation Willowbrook Management Corporation Woodbridge Center, Inc. Paramus Park, Inc. owns all of the outstanding Series A Preferred Stock of RFT Two, Inc., a Delaware corporation. 18. The Rouse Company of New York, Inc. owns all of the outstanding capital stock of each of the following Maryland corporations: DM Shopping Center, Inc. Rouse-Seaport Retail Venture, Inc. Rouse SI Shopping Management, Inc. Seaport Marketplace, Inc. Seaport Marketplace Theatre, Inc. Seaport Theatre Management Corporation 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 (a) Franklin Park Mall Management Corporation, a Maryland corporation Plaza Holding Corporation, an Ohio corporation Beachwood Place, Inc. owns all of the outstanding Series A Preferred Stock of RFT Three, Inc., a Delaware corporation. Franklin Park Mall, Inc. owns all of the outstanding Series A Preferred Stock of Rouse Funding Two, Inc., a Delaware corporation. 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, 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 South Carolina, Inc. owns all of the outstanding capital stock of Rouse-Spartanburg, Inc., a Maryland corporation. 24. The Rouse Company of Texas, Inc. owns all of the outstanding capital stock of each of the following corporations: Almeda Mall, Inc., a Maryland corporation AM Management Corporation, a Texas corporation AU Management Corporation, a Texas corporation Austin Mall, Inc., a Maryland corporation Collin Creek, Inc., a Maryland corporation Collin Creek Mall Management Company, Inc., a Maryland corporation DK Management Corporation, a Texas corporation DK Shopping Center, Inc., a Texas corporation Greengate Mall, Inc., a Pennsylvania corporation NC Shopping Center, Inc., a Maryland corporation North Star Mall, Inc., a Texas corporation Northwest Mall, Inc., a Maryland corporation NS Management Corporation, a Texas corporation NW Management Corporation, a Texas corporation Paramus Equities, Inc., a Texas corporation Rouse-Air Cargo, Inc., a Maryland corporation Rouse-Air Cargo (DFW), Inc., a Maryland corporation Rouse-Almeda, Inc., a Maryland corporation Rouse-Carillon Management Company, Inc., a Maryland corporation Rouse-Carillon Shopping Center, Inc., a Maryland corporation Rouse Central Park Shopping Center, Inc., a Maryland corporation Rouse Fort Worth, Inc., a Maryland corporation Rouse Holding Company of Texas, Inc., a Texas corporation Rouse Management Services Corporation of Texas, Inc., a Maryland corporation Rouse-Northwest, Inc., a Maryland corporation Rouse-Southlake, Inc., a Maryland corporation Rouse-Tarrant, Inc., a Maryland corporation SDK Mall, Inc., a Texas corporation South DeKalb Mall, Inc., a Texas corporation 25. The Rouse Company of Virginia, Inc. owns all of the out- standing capital stock of each of the following Maryland corporations: Rouse Airport Retail, Inc. Rouse-Military Circle, Inc. Rouse-Richmond, Inc. Rouse-Military Circle, Inc. owns all of the outstanding capital stock of Rouse Hotel Management of Virginia, Inc., a Maryland corporation. 26. The Rouse Company of Washington, Inc. owns all of the outstanding capital stock of Rouse-Seattle, Inc., a Maryland corporation. 27. The Rouse Holding Company of Arizona, Inc. owns all of the outstanding capital stock of each of the following Maryland corporations: Rouse-Arizona Center, Inc. Rouse Office Management of Arizona, Inc. Rouse-Phoenix Development Corporation Rouse-Phoenix Parking, Inc. Rouse-Phoenix Parking Two, Inc. Rouse-Phoenix Two Corporate Center, Inc. 28. Rouse Investing Company owns all of the outstanding capital stock of each of the following corporations: Deerfield Homes, Inc., a Florida corporation 306 Corporation, a Texas corporation Wilmington Homes, Inc., a North Carolina corporation Wilmington Homes, Inc. owns all of the outstanding capital stock of Echo Farms Golf and Country Club, Inc., a North Carolina corporation. 29. Rouse Missouri Holding Company owns all of the outstanding capital stock of each of the following Maryland corporations: The Rouse Company of Missouri, Inc. Rouse Missouri Management Corporation St. Louis Union Station Beergarten, Inc. The Rouse Company of Missouri, Inc. owns all of the outstanding capital stock of The Rouse Company of St. Louis, Inc., a Maryland Corporation. 30. Rouse-Wates, Incorporated owns all of the outstanding capital stock of each of the following corporations: Norbury Construction Company, a Delaware corporation Owen Brown B Development Company, a Maryland corporation 31. RREF Holding, Inc. owns all of the outstanding capital stock of RII Holding, Inc., a Texas corporation. 32. TRCD, Inc. owns all of the outstanding common stock of the following Delaware corporations: Austin Mall Corporation Collin Creek Property, Inc. Echelon Holding Company, Inc. The Franklin Park Corporation Mall St. Matthews Corporation North Star Mall Corporation One Franklin Park Corporation One Gallery Corporation One Willow Corporation RFT One, Inc. RFT Two, Inc. RFT Three, Inc. RFT Four, Inc. RFT Five, Inc. Rouse Funding Corporation Rouse Funding Three, Inc. Rouse Funding Two, Inc. Rouse-MTN, Inc. Rouse Woodbridge Funding, Inc. TRCDE, Inc. TRCDE Two, Inc. TRCDF, Inc. Two Franklin Park Corporation Two Gallery Corporation Two Willow Corporation Willowbrook Mall, Inc. The Franklin Park Corporation owns 50% of the outstanding capital stock of Franklin Park Finance, Inc., a Delaware corporation. Rodamco U.S.A., Inc. owns the remaining 50%. One Gallery Corporation and Two Gallery Corporation each own 50% of the outstanding shares of Philadelphia Gallery II, a Pennsylvania business trust. Willowbrook Mall, Inc. owns 37.5% of the outstanding capital stock of Willowbroook Finance Corporation, a Delaware corporation. Rodamco U.S.A., Inc. owns the remaining 62.5%. 33. TRC Holding Company of Washington, D.C. owns all of the outstanding capital stock of Rouse-National Press Management, Inc., a Maryland corporation. 34. The Village of Cross Keys, Incorporated owns all of the outstanding capital stock of The Roost, Inc., a Maryland corporation. EX-24 8 POWER OF ATTORNEY EXHIBIT 24 Exhibit 24. Power of Attorney. The Power of Attorney, dated March 8, 1988, is incorporated by reference from the Exhibits to the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1987, which may be found in Commission file number 0-1743. The Powers of Attorney, dated December 3, 1992 and March 16, 1993, respectively, are incorporated by reference from the Exhibits to the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1992, which may be found in Commission file number 0-1743. EX-27 9 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1995 DEC-31-1995 94,922 2,910 61,219 (24,468) 0 143,114 3,219,277 (519,319) 2,985,609 302,638 2,479,529 479 0 45 42,060 2,985,609 672,821 672,821 0 420,622 25,749 3,318 212,963 10,169 4,319 5,850 0 8,631 0 (2,781) (.36) .03
EX-99 10 FORM 11-K ANNUAL REPORT EXHIBIT 99 Exhibit 99. Additional Exhibits. 99.1 Form 11-K Annual Report to The Rouse Company Savings Plan for the year ended December 31, 1995. 99.2 Factors affecting future operating results. EX-99.1 11 FORM 11-K 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, 1995 or [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________ to ____________ Commission File Number 0-1743 ---------- A. Full title of the plan and address of the plan: The Rouse Company Savings Plan c/o Personnel Division The Rouse Company Building 10275 Little Patuxent Parkway Columbia, Maryland 21044 B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive offices: The Rouse Company The Rouse Company Building 10275 Little Patuxent Parkway Columbia, Maryland 21044 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, 1995 will be filed on or before July 1, 1996. Signature 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 5, 1996 By /s/ William D. Boden ------------- -------------------------------- William D. Boden, Administrator and Date: March 5, 1996 By /s/ George L. Yungmann ------------- ---------------------------- George L. Yungmann, Trustee EX-99.2 12 FACTORS AFFECTING FUTURE OPER. RESULTS 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 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 discussed below that 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 factors could cause actual results to differ materially from historical results or those anticipated: Real Estate Investment Risks. 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 of the attractiveness of the property; (ii) the ability to provide adequate management, maintenance and insurance; (iii) the inability to collect rent due to bankruptcy or insolvency of tenants or otherwise; and (iv) increased operating costs. Real estate values may also be adversely affected by such factors as applicable laws, including tax laws, interest rate levels and the availability of financing. Development Risks. New project development is subject to a number of risks, including risks of availability of financing, construction delays or cost overruns that may increase project costs, risks that the properties will not achieve anticipated occupancy levels or sustain anticipated lease 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. Illiquidity of Real Estate Investments. Real estate investments are relatively illiquid and therefore may tend to limit the ability of the Company to react promptly in response to changes in economic or other conditions. Dependence on Rental Income from Real Property. The Company's cash flow and results of operations would be adversely affected if a significant number of tenants were unable to meet their obligations or if the Company were unable to lease a significant amount of space in its income-producing properties on economically favorable lease terms. In the event of a default by a tenant, the Company may experience delays in enforcing its rights as lessor and may incur substantial costs in protecting its investment. The bankruptcy or insolvency of a major tenant may have an adverse effect on an income-producing property. Effect of Uninsured Loss. The Company carries comprehensive liability, fire, flood, extended coverage and rental loss insurance with respect to its properties with insured limits and policy specifications that it believes are customary for similar properties. There are, however, certain types of losses (generally of a catastrophic nature, such as wars or earthquakes) which may be either uninsurable, or, in the Company's judgment, not economically insurable. Should an uninsured loss occur, the Company could lose both its invested capital in and anticipated profits from the affected property. Lack of Geographical Diversification. A significant portion of the Company's properties is geographically concentrated. The Company's land sales, for instance, relate primarily to land in and around Columbia, Maryland. These sales are affected by the economic climate in Howard County, Maryland and the Baltimore-Washington area, and by local real estate conditions and other factors, including applicable zoning laws and the availability of financing for residential development. Similarly, most of the office/industrial buildings that the Company manages are located in the Baltimore-Washington corridor, including Columbia, Maryland. Due to the geographic concentration of this portfolio, the Company's operating results in managing these buildings depend especially on the local economic climate and real estate conditions, including the availability of comparable, competing office/industrial buildings. Environmental Matters. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may become liable for the costs of the investigation, removal and remediation of hazardous or toxic substances on, under, in or migrating from such property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of hazardous or toxic substances, or the failure to remediate properly such substances when present, may adversely affect the owner's ability to sell or rent such real property or to borrow using such real property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic wastes may also be liable for the costs of the investigation, removal and remediation of such wastes at the disposal or treatment facility, regardless of whether such facility is owned or operated by such person. Other federal, state and local laws, ordinances and regulations require abatement or removal of certain asbestos-containing materials in the event of demolition or certain renovations or remodeling, impose certain worker protection and notification requirements and govern emissions of and exposure to asbestos fibers in the air. Certain of the Company's properties contain underground storage tanks which are subject to strict laws and regulations designed to prevent leakage or other releases of hazardous substances into the environment. In connection with its ownership, operation and management of such properties, the Company could be held liable for the environmental response costs associated with the release of such regulated substances or related claims. In addition to clean up 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. Notwithstanding the above, the Company has not been notified 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 material expenditure, nor is the Company aware of any environmental condition with respect to any of its properties that it believes will involve any material expenditure. 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. Changes in Economic Climate. The Company's business and operating results can be adversely affected by changes in the economic environment generally. For example, an increase in interest rates will affect the interest payable on the Company's outstanding floating rate debt and may result in increased interest expense if debt is refinanced at higher interest rates. Moreover, in a recessionary economy, credit conditions may be inflexible and consumer spending conservative, which could adversely affect the Company's revenue from its retail centers. Hughes Acquisition. The consummation of the Merger and the HHPLP Merger described in "Recent Developments" under Item 1 above is subject to the satisfaction of many conditions, including, but not limited to obtaining requisite THC stockholder approval of the transactions and the receipt of any necessary regulatory and other consents from various federal and state governmental authorities. There can be no assurance that all or any of the conditions to the Merger and the HHPLP Merger will be satisfied, and accordingly, there can be no assurance that such mergers will be consummated. If these mergers are consummated, the Company will be assuming debt and issuing, at the time of the mergers, a significant amount of Common Stock and will be required under the terms of the mergers to issue additional shares of Common Stock and/or other securities in the future based on certain formulas relating to the cash flow and appraised value of certain assets of THC and its subsidiaries. In addition, the Company's results of operations could be adversely affected by the future operating performance of the real estate assets acquired in the mergers. This future operating performance is subject to a number of risks, including risks similar to those set forth above, risks relating to the location of those real estate assets in Nevada and California and other risks or potential risks. EX-12.2 13 RATIO OF EARNINGS TO COMBINED FIXED CHARGES Exhibit 12.2 [CAPTION] The Rouse Company and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements (dollars in thousands) Year ended December 31, ------------------------------------------------------------- 1995 1994 1993 1992 1991 --------- -------- -------- -------- -------- Earnings (loss) before income taxes, extraordinary loss and cumulative effect of change in accounting principle $ 10,169 $ 13,336 $ 3,072 $(20,783) $ 5,245 Fixed charges: Interest costs 219,838 220,971 219,705 221,907 219,538 Capitalized interest (6,875) (7,388) (8,899) (15,098) (21,243) Amortization of debt issuance costs 2,527 2,146 2,801 3,571 3,173 Distributions on Company-obligated mandatorily redeemable preferred securities of a trust holding solely Parent Company subordinated debt securities 1,204 - - - - Portion of rental expense representative of interest factor (1) 8,266 10,788 15,988 14,739 15,265 Support for debt service costs provided to affiliates accounted for under the equity method - - 31 389 1,106 Adjustments to earnings (loss): Minority interest in earnings of majority-owned subsidiaries having fixed charges 2,026 2,234 1,909 1,747 2,118 Undistributed earnings of less than 50%-owned subsidiaries (189) (564) (68) (84) (540) Previously capitalized interest amortized into earnings: Depreciation of operating properties (2) 3,764 3,670 3,605 3,474 3,145 Cost of land sales (3) 1,421 1,580 1,627 1,295 928 Earnings available for fixed charges and --------- -------- -------- -------- -------- Preferred stock dividend requirements $242,151 $246,773 $239,771 $211,157 $228,735 ========= ======== ======== ======== ======== Combined fixed charges and Preferred stock dividend requirements: Interest costs $219,838 $220,971 $219,705 $221,907 $219,538 Amortization of debt expense 2,527 2,146 2,801 3,571 3,173 Distributions on Company-obligated mandatorily redeemable preferred securities of a trust holding solely Parent Company subordinated debt securities 1,204 - - - - Portion of rental expense representative of interest factor (1) 8,266 10,788 15,988 14,739 15,265 Support for debt service costs provided to affiliates accounted for under the equity method - - 31 389 1,106 Preferred stock dividend requirements (4) 24,402 21,802 18,968 - - --------- -------- -------- -------- -------- Total fixed charges $256,237 $255,707 $257,493 $240,606 $239,082 ========= ======== ======== ======== ======== Ratio of earnings to fixed combined charges and Preferred stock dividend requirements (5) - - - - - ========= ======== ======== ======== ========
(1) Includes (a) 80% of minimum rentals, the portion of such rentals considered to be a reasonable estimate of the interest factor and (b) 100% of contingent rentals of $3,644,000, $6,232,000, $10,006,000, $8,106,000 and $8,458,000 for the years ended December 31, 1995, 1994, 1993, 1992, and 1991, respectively. (2) Represents an estimate of depreciation of capitalized interest costs based on the Company's established depreciation policy and an analysis of interest costs capitalized since 1971. (3) Represents 10% of cost of land sales, the portion of such cost considered to be a reasonable estimate of the interest factor. (4) Represents estimated pre-tax earnings required to cover Preferred stock dividend requirements. All amounts are calculated based on actual Preferred stock dividends and an estimated effective tax rate of 40%. (5) Total combined fixed charges and Preferred stock dividend requirements exceeded the Company's earnings available for combined fixed charges and Preferred stock dividend requirements by $14,086,000, $8,934,000, $17,722,000, $29,449,000 and $10,347,000 for the years ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively. -----END PRIVACY-ENHANCED MESSAGE-----