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Chula Vista Center deal part of $1.34B transaction

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The 880,000-square-foot Chula Vista Center is being spun off into a new portfolio held by a Rouse Property Co. subsidiary.

The mall is just one component in what The CoStar Group (Nasdaq: CSGP) has billed as a 143 property, 30-mall $1.34 billion portfolio being transferred from General Growth Properties (NYSE: GGP) to Rouse (NYSE: RSE).

The CoStar announcement follows a Bloomberg News Jan. 12 report that the malls had been transferred into the Rouse portfolio, which itself just became a publicly traded REIT on Jan. 12.

Bloomberg didn't specifically mention The Chula Vista mall, which was included as part of CoStar's data.

The center is anchored by a Sears, along with an accompanying auto center that had been owned by the retailer but has been acquired and placed into the Rouse portfolio, according to CoStar. Other anchors at the center include Macy's, UltraStar Cinemas, JC Penney and Olive Garden.

The portfolio sale does not include the 800,000-square-foot Otay Ranch Town Center, which was hit very hard by the recession, in Eastern Chula Vista.

Chicago-based General Growth did not return calls; it wasn't clear whether the Otay Ranch Town Center will be placed into the Rouse Portfolio at a future date.

That center was built in 2006, while the Chula Vista Center dates back to the 1970s.

While the Chula Vista Center has performed well, since the recession's end, it had some trouble before.

It lost a Mervyn's store late in the last decade, along with a film company and an Uno Restaurant,among some other sizable tenants.

The Otay Ranch Town Center had its own problems. The eastern Chula Vista property was hurt by the wave of foreclosures that hit eastern Chula Vista.

While a huge partnership that owned the Chula Vista Center filed for bankruptcy in April 2009, the big retail REIT managed to keep other properties including the Otay Ranch Town Center, out of bankruptcy court.

The bankruptcy was huge enough. In fact, with $27 billion in debt, it was then billed as the largest real estate bankruptcy in U.S. history.

A single German lender was owed the equivalent of $2.59 billion U.S. dollars at the time.

The Chula Vista Center, which underwent significant renovations in 2004, has continued to perform quite well during the past year.

It is 95 percent leased or perhaps a little better, according to CoStar, and has solid tenants ranging from Olive Garden to Burlington Coat Factory. Other malls in the package also seem to be faring well.

“It’s not a troubled portfolio,” Craig Guttenplan, an analyst at CreditSights Inc. in London, told Bloomberg News. “It’s just properties with less growth potential.”

Rouse’s 30 malls are 88 percent occupied and generate sales of about $280 per square foot, wrong Nathan Isbee, an analyst at Stifel Nicolaus & Co. , NYSE:SF) (NYSE: SF), in a Nov. 11 report.

General Growth had tenant sales of $471 a square foot on a trailing 12-month basis as of Sept. 30, and a 92.7 percent occupancy rate for its regional malls, the company said on Nov. 9.

Rouse, based in New York, plans to spend $200 million on property redevelopment by the end of 2015 to boost net operating income, the company said in a regulatory filing last month. It did not say how much might be spent here.

General Growth has emerged from bankruptcy, and its balance sheet looks better today.

The mall REIT posted $256.57 million in net income on $684.77 million in revenues for the three months ended Sept. 30 -- compared to a loss of $233.77 million on $687.43 million in revenues for the like period a year earlier.

For the nine months ended Sept. 30, General Growth posted $54.66 million on $2.02 billion in revenues -- compared to a $297.05 million loss on $2.06 million in revenues for the comparable period in 2010.

General Growth, which paid $7.2 billion for Rouse in 2004, reported the spinoff will allow the company to focus on its better-performing centers.

The newly created Rouse REIT has managed to obtain a 3 ½-year, $100 million revolving credit facility from Brookfield Asset Management, Inc. (NYSE: BAM) to help fund its future acquisitions.

The spinoff gives Rouse malls in 19 states encompassing approximately 21 million square feet of space.

Andrew Silberfein took over as chief executive officer of Rouse on Jan. 2, according to a regulatory filing.

Silberfein previously was executive vice president of retail and finance at Forest City Ratner Cos., where he had worked since 1995.

Bloomberg News contributed to this report.

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Chula Vista Center

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555 Broadway, Suite 1019
Chula Vista, CA 91910