Crescent, Rouse Plan $400M-Plus Property Swap

This morning, Crescent will hold a conference call to discuss the transaction. According to a press release issued last night, Crescent will sell a 52.5% economic interest, including the earned promote, in the Woodlands, a 27,000-acre, master-planned community located north of Houston, to Rouse for $202 million in cash. The Columbia, MD-based Rouse, in turn, will sell the Hughes Center office portfolio in Las Vegas to Crescent for $223 million, with $96 million in debt to be assumed at the closing. The Fort Worth-based REIT also agreed to pay $10 million for 13 acres of undeveloped land in Hughes Center: $2.5 million in cash and the balance in a note with a December 2005 due date.

In a separate press release, Rouse calculated the gross value of Crescent's stake in the Woodlands at $387 million, with the closing bringing $202 million in cash and $185 million in related debt. On the Hughes Center trade, Rouse said it will get $95.5 million in cash and Crescent's total debt assumption would be $137.5 million. The end result is Rouse's net cash requirement will be $80.3 million after its receipt of this year's estimated partnership distributions.

"The Woodlands has been a lucrative investment for us since its acquisition in 1997," John C. Goff, Crescent's vice chairman and CEO, said in a press release. "The strategic plan that we've been articulating for some time now has been to selectively increase the size of our core business of owning and managing class A office properties and decrease over time our non-core holdings such as our residential development." The minority stake or 47.5% in the Woodlands is owned by Morgan Stanley Real Estate Fund II LP.

Since 2003 began, the Woodlands has been undergoing changes. It's top exec retired, commercial properties and acreage have been culled and its in-house commercial property team let go, pulling 50 employees from the 1,125-member workforce. In mid-October, the 45-building portfolio's management was turned over to PM Realty Group, which picked up 34 of the laid-off workers, while leasing the then-80%-occupied package was handed to Binswanger/Conine & Robinson.

If the deal closes, Rouse will take control of 8,400 gross acres, of which 4,300 are tagged for the residential development of 12,500 single-family lots in two villages; 1,200 commercial acres, primarily along Interstate 45 and adjacent to the 1,100-acre town center, of which less than half is built out; 520,000 sf in seven office buildings; five office buildings that are now up for sale; three golf courses; a resort conference center and the Marriott Waterway Hotel; and miscellaneous assets.

"We have for several years sought opportunities for high-quality, master-planned communities in the Houston market," Anthony W. Deering, chairman and CEO of the Rouse Co., said in the release. "Earlier this year we announced the purchases of a total of 8,700 acres on the northwestern side of the city for a new master-planned community. Today, we are extremely excited at the prospect of adding the Woodlands to our portfolio. While this transaction may be slightly dilutive to 2004's funds from operations and net earnings on a per share basis, we believe it will be accretive in 2005 and thereafter."

Rouse's Hughes Center, located in the Central East submarket, consists of eight class A office buildings, totaling 1.1 million sf, and nine ground leases. The 94%-leased portfolio was developed between 1986 and 1999. The complex includes leased restaurant parcels and enough land to hold up to 400,000 sf of additional office product.

"We see this transaction as highly strategic and an opportunity to become the dominant player of premier office assets in a high-growth market," Goff said in the release. "We believe this investment represents a win for both Crescent and Rouse.