The Rouse Co. is working with the Internal Revenue Service to resolve tax issues that could affect its plans to sell itself to a Chicago mall developer by mid-November, according to documents filed yesterday with regulators.
Rouse discovered tax issues related to its status as a real estate investment trust (REIT) while preparing for the sale, according to a filing with the Securities and Exchange Commission by the buyer, General Growth Properties Inc. It said Rouse asked the IRS to take "corrective actions," or else "Rouse likely will not be able to satisfy one of the conditions of the closing of the merger."
If so, the filing said, Columbia-based Rouse could pursue other alternatives that would require IRS approval.
Some analysts and lawyers familiar with the deal cast the problem as a minor one that most likely will be worked out before the deal closes.
In previous filings, Rouse said the solution to the problem with the IRS probably would be for it to pay an extraordinary dividend of $2.30 to $3.40 prior to the deal's closing. Paying out the $3.40 dividend would lower the price that its shareholders would receive for the sale to $67.40 per share from the $67.50 per share originally announced.
A REIT is a corporation that owns primarily real estate. But REITS do not pay corporate income tax if they comply with an array of technical tax laws. For instance, REITs must pay out 90 percent of taxable net income every year in the form of dividends, and five or fewer of its shareholders cannot control more than 50 percent of the company, said Jay Leupp, managing director of RBC Capital Markets, who tracks both Rouse and General Growth.
"Nothing about this alarms me yet," Leupp said. But "because it's a tax-related issue, and no analyst has access to a company's tax records, we can't tell what the true issue is until they disclose it."