GGP-Rouse Pact Puts Ratings on Review

The preferred stock ratings of General Growth Properties Inc., Chicago, have been placed on review for possible downgrade by Moody's Investors Service and Fitch Ratings in the wake of GGP's announced agreement to acquire another real estate investment trust, The Rouse Co., Columbia, Md., for an estimated $12.6 billion.Moody's also placed its debt ratings on GGP's subsidiaries and its debt and preferred stock ratings on Rouse on review for possible downgrade, while Fitch placed its unsecured debt rating on Price Development Co. LP, a GGP subsidiary, on review for possible downgrade. Moody's said the strategic benefits of the transaction, such as scale, diversity, and increased market share, are "mitigated by the substantial pro forma leverage, and in particular variable-rate debt, and weaker coverage measures for General Growth over the short term." The acquisition should boost GGP's earnings, while "extending the REIT's competitive position with higher-end and fashion-oriented retailers," Moody's said. Fitch cited the "highly leveraged financing" of the proposed acquisition as the basis for its rating action. It said the acquisition of Rouse, especially its mall assets, is "consistent" with GGP's strategy and likely to "upgrade" the current GGP portfolio.