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.
Item 1(b). Financial Information About Industry Segments.
Information required by Item 1(b) is incorporated herein by reference to note 11 of the notes to consolidated financial statements included in the 1994 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.
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Item 1. Business, continued.
Item 1(c). Narrative Description of Business.
Operating Properties: --------------------
As set forth in Item 2, at December 31, 1994, the 67 regional retail centers owned, in whole or in part, or operated by subsidiaries or affiliates of the Company, aggregated 21,345,000 square feet of leasable space, including 982,000 square feet leased to department stores and 534,000 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, 1994, the Company managed 18 such centers, which are included in the figures in the preceding paragraph and aggregated 5,959,000 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 3,080,000 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 2,673,000 square feet of leasable space and the 148-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 78 office/industrial buildings with 5,284,000 square feet of space and 454 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.
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Item 1. Business, continued.
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 also develops retail centers for others, with the Company earning incentive fees and, in some instances, equity interests in the centers.
The Company and certain subsidiaries or affiliates are in the construction or development stage of announced projects, including two new regional retail centers and several 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 1,953 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 and selling a parcel of land in California.
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Item 1. Business, continued.
Item 1(c). Narrative Description of Business, continued:
In all aspects of the Company's business pertaining to the ownership, management, acquisition or development of income-producing and other real estate, the Company operates in highly competitive markets. With respect to the leasing and operation or management of developed properties, each project faces market competition from existing and future developments in its geographical market area. The Company competes with developers and other buyers with respect to the acquisition of development sites or centers and for financing opportunities in the money markets. The Company also faces competition in and around Columbia, Maryland 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 earnings or competitive position of the Company in the past; the Company anticipates that they will have no material adverse effect on its future earnings 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 4,695 full- and part-time employees at December 31, 1994.
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Item 2.
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 54 through 58 of the Annual Report to Shareholders for 1994 that is an Exhibit to this Form 10-K. The ownership of virtually all properties is subject to mortgage financing. The table of projects includes retail centers managed by the Company for a fee as identified in notes (c) and (d) to the table. Excluding such managed centers, certain of the remaining properties are subject to leases which provide an option to purchase (or repurchase) the property and/or to renew the leases for one or more renewal periods. The years of expiration indicated below assume all options to extend the terms of the leases are exercised. The properties subject to such leases in whole or in part are as follows:
I-5
Item 2. Properties, continued.
I-6
Item 3.
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 alleges 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 claims 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 seeks damages of approximately $600,000 for these alleged breaches and $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, asserting other defenses and raising a counterclaim. 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 and entered an amended judgment in which it awarded Plaintiff $450,000 in attorneys' fees and awarded Defendants $25,000 in attorneys' fees. Defendants believe that the verdict and judgment as entered to date are contrary to the facts and applicable law. On May 23, 1994, Defendants appealed this judgment to the Louisiana Court of Appeals, Fourth District. Defendants intend to vigorously pursue their rights of appeal. Oral argument was held on March 8, 1995. For additional information about this suit, see Note 17 - Other Commitments and Contingencies to the Consolidated Financial Statements.
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Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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Directors and Executive Officers.
The executive officers of the Company as of March 31, 1995 are:
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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.
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Part II
Item 5.
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 43 of the 1994 Annual Report to Shareholders.
Item 6.
Item 6. Selected Financial Data.
Information required by Item 6 is incorporated herein by reference to page 43 of the 1994 Annual Report to Shareholders.
Item 7.
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 44 through 49 of the 1994 Annual Report to Shareholders.
Item 8.
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 43 of the 1994 Annual Report to Shareholders.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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Part III
The information required by Items 10, 11, 12 and 13 (except that information regarding executive officers called for by Item 10
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1 and 2. Financial Statements and Schedules:
Reference is made to the Index to Financial Statements and Schedules on page IV-2.
3. Exhibits: Reference is made to the Exhibit Index.
(b) Reports on Form 8-K:
None.
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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 19 of the 1994 Annual Report to Shareholders incorporated herein by reference
Financial Statements: The Rouse Company and Subsidiaries included on pages 20 through 42 of the 1994 Annual Report to Shareholders, incorporated herein by reference: Consolidated Cost Basis and Current Value Basis Balance Sheets at December 31, 1994 and 1993 Consolidated Cost Basis Statements of Operations for the Years Ended December 31, 1994, 1993 and 1992 Consolidated Cost Basis Statements of Shareholders' Equity for the Years Ended December 31, 1994, 1993 and 1992 Consolidated Cost Basis Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992 Consolidated Current Value Basis Statements of Changes in Revaluation Equity for the Years Ended December 31, 1994, 1993 and 1992 Notes to Consolidated Financial Statements
Schedules:
The Rouse Company and Subsidiaries as of December 31, 1994 or for the years ended December 31, 1994, 1993 and 1992:
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.
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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, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, 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 21, 1995
IV-3
Schedule II ----------- THE ROUSE COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts Years ended December 31, 1994, 1993 and 1992 ---
Notes:
(1) Balances written off as uncollectible.
(2) Costs of unsuccessful projects written off.
(3) Reclassification of pre-construction reserve related to a project in which the Company has an equity investment.
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Schedule III ------------ THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1)
December 31, 1994
(Continued)
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Schedule III, continued -----------------------
THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1)
December 31, 1994
(Continued)
IV-6
Schedule III, continued -----------------------
THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1)
December 31, 1994
Notes:
(1) Reference is made to notes 2, 3, 4, 5, 6, 10, 13 and 16 to the consolidated financial statements. Land was generally acquired one to three years before completion of construction.
(2) The determination of these amounts is not practicable and, accordingly, they are included in improvements.
(3) Buildings and improvements include deferred costs of $124,643,000 at December 31, 1994.
(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, 1994, 1993 and 1992 are as follows (in thousands):
(Continued)
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Schedule III, continued -----------------------
THE ROUSE COMPANY AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1)
December 31, 1994
Notes, continued:
(6) The changes in accumulated depreciation and amortization for the years ended December 31, 1994, 1993 and 1992 are as follows (in thousands):
(7) The aggregate cost of properties for Federal income tax purposes is approximately $2,895,656,000 at December 31, 1994.
(8) Reference is made to note 2(c) to the consolidated financial statements for information related to depreciation.
(9) The provision for loss on investment in an operating property in 1993 relates to a retail center and was recognized based on management's determination that the Company would not continue to support the project (which is financed by non-recourse loans) 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 project based on forecasts of future cash flows.
(10) The provision for loss on investment in an operating property in 1994 relates to an industrial building which is subject to a contract for sale.
IV-8
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.
Principal Executive Officer:
/s/Anthony W. Deering ------------------------------------- Anthony W. Deering March 31, 1995 President and Chief Executive Officer
Principal Financial Officer:
/s/Jeffrey H. Donahue ------------------------------------- Jeffrey H. Donahue March 31, 1995 Senior Vice President and Chief Financial Officer
Principal Accounting Officer:
/s/George L. Yungmann ------------------------------------- George L. Yungmann March 31, 1995 Senior Vice President and Controller
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 31, 1995 For Himself and as Attorney-in-fact
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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 and 33-57707) of our report dated February 21, 1995, relating to the consolidated financial statements and related schedules of The Rouse Company and subsidiaries as of December 31, 1994 and 1993 and for each of the years in the three-year period ended December 31, 1994, which report appears in the Annual Report on Form 10-K of The Rouse Company for the year ended December 31, 1994.
KPMG PEAT MARWICK LLP
Baltimore, Maryland March 31, 1995
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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 33-56235) and Form S-3 (Registration Nos. 2-78898, 2-95596, 33-52458, 33-56646, 33-57347, 33-57584 and 33-57707) of our report dated February 21, 1995 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, 1994 and 1993, which report appears in the 1994 Annual Report to Shareholders which is incorporated by reference in the Annual Report on Form 10-K of the Company for the year ended December 31, 1994.
LANDAUER ASSOCIATES, INC.
/s/ Deborah A. Jackson Deborah A. Jackson Senior Vice President Director of Retail Valuation
New York, New York March 31, 1995
IV-11
Exhibit Index
Exhibit No. -----------
3 Articles of Incorporation and Bylaws
10 Material Contracts
11 Statement re computation of per share earnings
13 Annual report to security holders
21 Subsidiaries of the Registrant
24 Power of Attorney
27 Financial Data Schedule
99 Additional Exhibits:
Form 11-K Annual Report of The Rouse Company Savings Plan for the year ended December 31, 1994
The Company agrees to furnish to the Commission upon request a copy of all constituent instruments defining the rights of holders of long-term debt of the Company and all its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed under which instruments the total amount of securities authorized does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis.