Crescent, Rouse Tie $620M Knot for Property Swap

The deal closed without any changes from the mid-November announcement, Keira D. Moody, Crescent's vice president of investor relations, tells GlobeSt.com. The Columbia, MD-headquartered Rouse's tab totals $387 million; the Fort Worth-based Crescent's payout is $223 million.

Rouse put up $202 million in cash and took on $185 million in debt for the 52.5% interest in the Woodlands, a deal that delivered a gross gain of about $87 million for Crescent's coffer. Moody says the sale ensures Crescent will reach the upper end of the previously issued 2003 guidance of $1.55 to $1.80 per share. Woodlands land sales, she explains, always run through the FFO. The bulk sale "does imply that it's going to be a nice pop," she says.

Rouse got control of 8,400 gross acres, of which 4,300 are ticketed for 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; three golf courses; a resort conference center and the Marriott Waterway Hotel; and miscellaneous assets.

Before the Dec. 31 closing, Rouse paid $18 million of the $202-million cash component to Crescent in the form of partnership distributions net of working capital adjustments. Rouse is sharing control of the management company, Woodlands Operating Co. LP, with Morgan Stanley Real Estate Fund II LP, which holds a 47.5% economic stake in the Woodlands.

On closing day, Crescent got 200,000 sf in two office buildings and will acquire six more, two of which are held in joint-venture arrangements with other partners, along with seven leased restaurant parcels by the first quarter's close. For the first leg of the deal, Crescent put up $29 million in cash and assumed $10 million in debt. The larger closing will require $97 million in cash and the assumption of $87 million in debt. When all is said and done, Crescent will have laid out $126 million in cash and assumed $97 million in debt for the 94%-leased Hughes Center, including the restaurant leases, for an inroad as the dominant player in a four-million-sf market that it's eyed for years.

Besides 1.1 million sf of class A product in the Central East submarket, the REIT intends to buy 13 acres of undeveloped land in Hughes Center from Rouse. The transaction will close in March, with $2.5 million in cash up front and the issuance of a $7.5-million note with a due date of December 2005. The land could hold up to 400,000 sf of additional office product.

Moody says Crescent has been "approached with some opportunities to develop" the acreage, but has no immediate plan to build. Development will be dictated by demand, as the REIT has always done. In the case of Five Houston Center, the development trigger was pulled when pre-leasing exceeded 50%. Hughes Center is primed with development opportunity from within the development and outside its bounds. The center's largest tenant on the 140-company roster holds less than 6% of the total space while the city has just two suburban office buildings, totaling 95,000 sf, coming out of the ground.

During last November's conference call, John C. Goff, Crescent's vice chairman and CEO, said 16% of the leases roll in 2005, but it "doesn't translate to exposure" due to the market dynamics. The complex, which has 5% annual rent growth, is getting $26 per sf to $28 per sf.