Patriot and Wyndham Reach a Decision Regarding Restructuring

Patriot American Hospitality and Wyndham International recently said they would maintain the paired share structure Patriot acquired in July 1997. Patriot's decision followed by roughly one month a decision by Starwood Hotels & Resorts to convert to a conventional, tax-paying C corporation (see Property, September/ October 1998, p. 6). The move by Patriot and Starwood was prompted by the recent passage (July 22, 1998) and subsequent signing by President Clinton of the IRS Restructuring and Reform Bill which, among other changes, precluded the future application of the paired share structure to the ownership and management of real estate assets acquired after March 26 of this year. Paul Nussbaum, Patriot's chairman and chief executive officer, said the decision to maintain the paired share structure was consistent with Patriot's and Wyndham's priority of maximizing the companies' internal growth potential. "As we were reviewing several well-conceived alternatives, we could not ignore the simple fact that the acquisitions we've completed thus far are protected within the language of the IRS Restructuring Bill. Our investment of $4.5 billion in nine corporate acquisitions increased the size of our portfolio by 105 owned assets, 258 management contracts, 136 leases, and nine franchises, representing a total of 91,315 rooms in a one-year period. This amassed portfolio will continue to provide us with significant internal growth opportunities." He added that the companies' internal growth strategy, which focuses on broadening the distribution among the existing assets of its core Wyndham and Grand Bay proprietary brands and continuing to realize economies of scale through the integration of its acquired companies, is consistent with achieving the companies' internal growth goals. Specifically, Nussbaum said, Patriot will continue to convert owned assets to the proprietary Wyndham brand, with 23 owned properties slated for conversion to the core brand in the next 12 months. "Since Patriot American announced its definitive merger agreement to acquire Wyndham Hotel Corp. in April 1997, a transaction which was completed in January 1998, a total of 24 owned hotel assets representing 6,708 rooms have been converted to the Wyndham brand." With regard to future development and acquisitions, Nussbaum stressed, "We are not dependent on future acquisitions to grow. However, we expect to continue to explore development and acquisition opportunities that may prove strategic for the company in broadening the distribution of our core Wyndham and Grand Bay brands, and we will make these acquisitions in a manner that does not violate the recently passed anti-paired share legislation. That is, we would proceed with future development and acquisition opportunities through joint ventures or by establishing taxable subsidiaries on an as-needed basis."

Taubman Completes Property Swap

The General Motors Pension Trusts' holdings in The Taubman Realty Group Limited Partnership have been redeemed in exchange for ownership of 10 Taubman properties together with a pro rata share of debt. The transaction, valued at approximately $1.7 billion, was part of a major restructuring announced in August that also included simplification of Taubman's governance, recapitalization of its balance sheet, and significant reductions in its cost structure (see Property, September/October 1998, pp. 14-15). Taubman continues to manage the GMPT-owned properties under third-party management agreements. GMPT continues to own 8.4 million shares of Taubman Centers' common stock. "With the closing of the GMPT transaction, we have nearly completed our restructuring," said Robert Taubman, Taubman Centers' president and chief executive officer. "Taubman Centers is now a majority owner of TRG, and we have dissolved the TRG Partnership Committee. Our debt tender was successful, with $702 million of $708 million of notes tendered, and we are in the process of replacing this unsecured debt with longer-term secured financing. We have implemented about two-thirds of the $10 million general and administrative cost savings we announced last month and are confident that the remainder will be in place before year end."

Analysts Contend the REIT Market Has Overreacted

While Wall Street has some sound reasons for driving down REIT prices, this year's selloff has been an overreaction and out-of-line with the fundamental strength of the real estate industry, a team of NationsBanc Montgomery Securities real estate industry analysts told investors at the 28th Annual NationsBanc Montgomery Securities Investment Conference held recently in San Francisco. "As long as momentum investors win out over fundamental investors, REIT prices will be weak," said Margaret Galloway, a NationsBanc Montgomery Securities' real estate analyst. "Investors appear to be focused on the potential worst-case scenarios for the real estate industry rather than evaluating companies on a case-by-case basis," she added. "There's no escaping the fact that over the past two years, REITs have severely underperformed the Standard & Poor's 500-Stock Index," remarked Christopher Hartung, another NationsBanc Montgomery Securities' analyst. While investors may have valid concerns—such as overbuilding, slowing rent growth, an uncertain U.S. economic outlook, and the limitations of the REIT's structure—Hartung said that such fears were overshadowed by the solid performance of the industry during 1997 and 1998 and the expected continuation of that pattern in 1999. REIT earnings grew 13.1% in 1997 and 14% in the second quarter of 1998, and are projected to grow between 10% and 11% next year, Hartung added. Among the reasons to be optimistic about public real estate companies is that occupancy levels are extremely high and rents continue to grow, albeit at a slower pace. The real estate analysts indicated that there were many potentially lucrative ways to invest in REITs, particularly by focusing on niche operators, consolidators/innovators, and "safe haven" companies. William C. Marks, another NationsBanc Montgomery Securities' real estate analyst, defined niche operators as companies with a unique product mix, defensible advantages, and specialized management expertise. He cited Catellus Development Corp. and Alexandria Real Estate as examples. The hallmarks of a consolidator/innovator, Marks added, include critical market mass, the ability to attract and retain personnel, and innovating real estate use practices. Examples include: Equity Office Properties, Equity Residential Properties, and Simon Property Group, as well as one property service company—CB Richard Ellis, Marks added. Marks explained that safe haven companies are characterized by stable business strategies, high yield, rock solid cash flow, and prices at a discount to their net asset value. Marks said Brandywine Realty Trust, Cornerstone Properties, and Prentiss Properties belong in that category.

First Union Proposes Rights Offering

First Union Real Estate Equity and Mortgage Investments has filed a proposed rights offering with the Securities and Exchange Commission. According to the filing, the company's shareholders will receive nontransferable rights to subscribe for and purchase 31,431,000 common shares at $5 per share. Shareholders also will have an oversubscription privilege permitting them to purchase any common shares that are not subscribed for through the exercise of rights. The record date for the distribution of the rights has not yet been determined. If all of the rights are exercised, the cash proceeds to the company would be approximately $157 million. To ensure that the proceeds from the rights offering will be sufficient to repay all amounts due and payable under the company's $90 million bridge loan, including interest and fees, Gotham Partners, L.P., Gotham Partners III, L.P., and Elliott Associates, L.P., shareholders of the company, have agreed to purchase, at the subscription price offered to the public, those common shares that are not purchased through the exercise of rights or the oversubscription privilege.

Simon Shareholders Approve Merger With Corporate Property Investors

Simon DeBartolo Group announced that more than the requisite two-thirds of its common stockholders approved the company's merger with Corporate Property Investors. As a result, the merger was completed on September 24. Upon completion of the merger, the company's name was changed to Simon Property Group.

Cornerstone and Wilson To Complete Merger

The necessary majority of investors in William Wilson & Associates' office opportunity funds has consented to a merger with Cornerstone Properties. Under the terms of the deal announced on June 22, 1998, Cornerstone will acquire the Wilson operating company and 9.1 million square feet of Wilson's office buildings located primarily in the San Francisco Bay Area, Southern California, Phoenix, Salt Lake City, and Seattle. The total purchase price for Wilson and its portfolio will be $1.81 billion. Cornerstone will issue to Wilson and its investors approximately $528 million in shares and operating partnership units, valued at $17.25 per share, and pay cash for the remaining equity. In addition, Cornerstone will assume or repay approximately $785 million of existing indebtedness. Cornerstone's major investors, representing 45% of its voting shares, have already consented to the transaction. Cornerstone expects to initiate proxy solicitation of the remaining shareholders in October in order to obtain the necessary 51% shareholder approval by the end of October. The merger is expected to close during the fourth quarter of this year.

New Plan and Excel Tie the Knot

The shareholders of New Plan Realty Trust and Excel Realty Trust have approved the merger of the two companies. The combined entity, New Plan Excel Realty Trust, will trade on the New York Stock Exchange under the symbol NXL. New Plan Excel has a total capitalization of over $3 billion. With headquarters in New York, New Plan Excel owns and manages 297 retail properties with over 38 million square feet of retail space in 31 states. New Plan Excel's multifamily residential holdings include 54 properties with 13,000 apartment units in 14 states.

United Dominion and American Apartment Communities Plan Merger

United Dominion Realty Trust has agreed to acquire American Apartment Communities, a San Francisco-headquartered private REIT, from a fund managed by Lazard Freres Real Estate Investors, LLC and other investors for $787 million. The transaction includes 54 properties with 14,141 apartment homes. When the transaction closes in October 1998, United Dominion will own 86,000 completed apartments and operate nationally in 35 major U.S. markets. Approval by United Dominion shareholders is not required.

Boston Properties Signs Binding Agreement To Acquire Embarcadero Center

Boston Properties has signed a binding agreement to acquire Embarcadero Center in San Francisco. The portfolio of six buildings will be acquired from Prudential Insurance Company of America and David Rockefeller and Associates for a total purchase price of approximately $1.216 billion. As consideration for its equity interest in Embarcadero Center, Rockefeller will receive approximately $305.3 million in convertible preferred operating partnership units. At any time after the fourth anniversary of their issuance, the preferred OP units may be converted at the holder's option into common OP units at a conversion price of $38.10. For its interest, Prudential will receive $10.1 million in convertible preferred OP units and approximately $331.4 million of other consideration. In a separate transaction, Prudential has agreed to purchase $100 million of Boston Properties' convertible preferred stock. The preferred stock will have a conversion price of $38.10. The convertible preferred OP units will pay distributions of 5.0% through March 31, 1999, increasing to 5.5% through December 31, 1999, 5.625% for the year 2000, 6.0% for the year 2001, 6.5% for the year 2002, 7.0% for the next 61¼2 years, and 6.0% thereafter. The preferred stock will provide for dividends which will follow the same rate schedule.

Golf Trust Adds Two Orlando Courses

Golf Trust of America has closed its acquisitions of Wekiva Golf Club and Sweetwater Country Club located near Orlando, Florida. Wekiva, a semi-private course, and Sweetwater, a private club, are 18-hole facilities, located within two miles of each other. Both properties will be leased to Diamond Players Club, a professional golf management company whose headquarters will be located at Sweetwater Country Club. The initial term of the lease will be 10 years with four 5-year renewal options. The triple-net lease is structured to permit GTA to participate in increased revenues at both facilities.

American Industrial Adds Suburban Dallas Property

American Industrial Properties has bought 2121 Glenville in Richardson, Texas (a Dallas suburb), for $1.8 million. The property, which is 100% leased, consists of 20,645 square feet of office space situated on approximately 1.7 acres.

Highwoods Commits to Build-To-Suit

Highwoods Properties will develop a corporate headquarters campus at Highwoods Preserve in Tampa, Florida for Nasdaq-listed Intermedia Communications. The 800,000-square-foot campus will include three 200,000-square-foot general-purpose office buildings, a 30,000-square-foot amenities building, and a 170,000-square-foot national network operations center. Construction of the first phase will commence in early 1999, with completion in early 2000, and will include three buildings encompassing 400,000 square feet. The second phase will commence in late 1999 and includes a 200,000-square-foot building. The final phase will commence in late 2000 and also includes a 200,000-square-foot office property. Highwoods Preserve will be a 1.5-million-square-foot mixed-use project on 200 acres on the north end of the I-75 corridor in an area commonly known as "New Tampa." Highwoods will develop the office portion of the project which, when fully built, will encompass approximately 1.3 million square feet. Harrison-Bennett Properties, a Tampa Bay retail developer, will develop 200,000 square feet for retail and entertainment.

Mack-Cali Acquires Fairfield County Property

Mack-Cali Realty Corp. has acquired a 145,000-square-foot office property in Fairfield County, Connecticut. The seven-story office property at 40 Richards Avenue in Norwalk, Connecticut has 401 parking spaces on three structured levels. The building was constructed in 1985 and is currently 100% leased to 31 tenants, including Executone Information Systems, Chartrec International, and Western International Media. At the purchase price of $18.6 million, or $128 per square foot, the company said the property was acquired at approximately 20% below replacement cost. The acquisition was financed through the issuance of 414,114 operating partnership units in Mack-Cali Realty, L.P. valued at $12.6 million and from the company's cash reserves.

Konover Buys Cinema Complex; Plans Development

Konover Property Trust (formerly known as FAC Realty Trust) has acquired a 12-screen cinema complex in Cary, North Carolina and begun the development of an adjacent community shopping center. The project, to be called Park Place, will be built at Highway 54 and the extension of Cary Parkway and will include both the fully operational 60,124-square-foot Carmike theater as well as 73,827 square feet of retail space currently under construction. The company expects the shopping center to be completed by the spring of 1999. Anchored by a 38,000-square-foot Food Lion, the center is 70% preleased. An additional 41,000 square feet of retail space can be built in the future. The total project cost, including the acquisition of the theater, will be approximately $15 million.

Great Lakes Buys Chicago Property

Great Lakes REIT has purchased 191 Waukegan Road in Northfield, Illinois. The property was purchased through a private-sale transaction for $5 million (64% of replacement cost, according to the company) with an unleveraged first year cash-on-cash yield of 11.6%. Built in 1983, the three-story office building consists of 62,374 rentable square feet and is situated on 3.5 acres. The property is located across the street from the 1,120-acre Glenview Naval Air Station redevelopment project. Current occupancy is 98.9%. With the purchase of the Northfield property, Great Lakes said its total square footage for the Chicago market totals nearly two million square feet.

Prime Group Realty Trust Terminates Deal; Disputes Litigation

Prime Group Realty Trust terminated its contract to purchase the IBM Plaza office tower in downtown Chicago and the National City Center office tower in Cleveland for an aggregate purchase price of approximately $355.8 million in mid-September. Prime said it terminated the contract "in accordance with the terms of the contract because the seller had failed to satisfy a material condition." On September 25, Prime stated it was being sued for wrongfully terminating its contract to purchase the two properties. In dispute, according to Prime, was $20 million of earnest money being held in escrow. Richard Curto, president and chief executive officer said, "We dispute these claims and intend to vigorously defend the litigation and pursue other available remedies."

Allstate Sells Properties to Westbrook

The Allstate Corporation has sold its 10-million-square- foot investment property portfolio for approximately $965 million to Westbrook Partners. The sale does not include corporate properties such as Allstate's Northbrook, Illinois headquarters. The portfolio includes Allstate Plaza in Glendale, California; Regents Square in LaJolla, California; and O'Hare Plaza in Chicago. Allstate will retain an approximately $150 million interest in the portfolio. After completion of the sale, Allstate's portfolio will include approximately $1 billion in real estate equity securities which are not being sold. Allstate also will continue to own approximately $4 billion in commercial mortgages and commercial mortgage-backed securities. The Allstate Corporation is the parent of Allstate Insurance Co.

First Industrial Forms Partnership With The Carlyle Group

First Industrial Realty Trust and The Carlyle Group, a private equity investment firm based in Washington, D.C., have formed a partnership to co-invest in the ownership of industrial facilities across the United States. The partnership will acquire approximately $300 million of bulk-warehouse and light-industrial properties. First Industrial and Carlyle will jointly select acquisitions, and First Industrial will provide property management and asset management for the partnership. The partnership anticipates completing the acquisition program by year end.

United Investors Authorizes Share Repurchase...The board of United Investors Realty Trust has approved the repurchase of up to 75,000 shares of the company's common shares, or 1% of its shares outstanding. Lew Sandler, UIRT's chief executive officer said, "In light of the recent market price, the board has elected to go into the open market to buy back a number of shares equivalent to that which was issued to management in connection with the initial public offering at $10 per share." Great Lakes OKs Buyback...The board of Great Lakes REIT has authorized the repurchase of up to one million shares of its common stock in the open market and through privately negotiated purchases. This represents approximately 6% of the company's outstanding shares. Konover Repurchases Shares; Increases Buyback...Konover Property Trust (formerly FAC Realty Trust) has repurchased a total of 1,491,500 shares of its common stock for a total of approximately $10.8 million, or an average of $7.27 per share. The repurchases reduced the company's outstanding shares by approximately 7%. Nearly 98% of the repurchases were made in the open market between August 14 and September 10. On September 11, Konover's board, which last year had authorized a buyback of up to two million shares, voted to increase its total repurchase program to four million shares. Capital Automotive Plans Share Repurchase...Capital Automotive REIT's board has authorized the repurchase of up to three million shares, or approximately 10% of its outstanding common stock. Purchases will be made from time to time in open market transactions at prevailing prices or in negotiated private transactions at management's discretion. Asset Investors Plans Buyback...Asset Investors Corp. plans to repurchase up to 800,000 shares of its common stock in open market and privately negotiated transactions. The shares will be repurchased with available working capital and proceeds from borrowings against the company's real estate assets. Prime Plans Share Buyback...Prime Group Realty Trust's board of directors has authorized the repurchase in open market purchases and privately negotiated purchases of up to 1.55 million shares of its common stock, representing approximately 10% of the company's outstanding shares.

Konover Reinstates Dividend...Konover Property Trust (formerly FAC Realty Trust) intends to reinstate dividend payments beginning in the first quarter of 1999. The company's board set 50 cents per share as the annual dividend rate. Mack-Cali Raises Payout … Mack-Cali Realty Corp. has raised its quarterly dividend by 10%, from 50 cents to 55 cents per share, effective for the quarter ending September 30, 1998. Sovran Boosts Dividend...Sovran Self Storage has raised its quarterly dividend nearly 4%, from 54 cents to 56 cents per share. The increase is effective with the third quarter 1998 dividend. Liberty Increases Dividend...Liberty Property Trust has raised its quarterly dividend by just over 7%, from 42 cents to 45 cents per share. This increased dividend will be paid on October 15, 1998. "This dividend increase is significantly larger than previous increases, and is necessary in order to meet the minimum REIT distribution requirements," explained George Alburger, the company's CFO. Great Lakes Hikes Payout...The board of Great Lakes REIT has increased the company's quarterly dividend nearly 7%, from 30 cents to 32 cents per share. The increase is effective with the third quarter 1998 dividend.

TriNet Names Holman CEO...Robert Walter Holman Jr. has been appointed chief executive officer of TriNet Corporate Realty Trust. Holman is chairman of the board of directors and was a co-founder of TriNet and its predecessor nearly 15 years ago. He served as TriNet's CEO from its inception as a public company through 1996. Holman, who is TriNet's single largest individual shareholder, replaces Mark Whiting, who resigned to spend more time with his family and pursue his personal business interests. FelCor Promotes Three Executives...Jack Eslick has been named senior vice president and director of asset management for FelCor Lodging Trust. Over the past two years, Eslick has been responsible for the repositioning/rebranding of hotels and working with the hotel management companies for FelCor's portfolio. June McCutchen has been appointed senior vice president and director of design and construction; and Larry Mundy has been promoted to senior vice president and director of hotel acquisitions for FelCor, which is headquartered in Irving, Texas. Sunstone Names CFO...Douglas Sutten has been named senior vice president and chief financial officer of Sunstone Hotel Properties, the affiliated lessee of Sunstone Hotel Investors. Sutten joins Sunstone following a 13-year career with Westin Hotels & Resorts, where he served as vice president of finance. Ponder Joins Essex...James Ponder Jr. has been hired as vice president of operations for Essex Property Trust. Ponder joins Essex from Great West Management where his responsibilities included managing a portfolio consisting of approximately 7,000 multifamily units. Weaver Hired by Capital Automotive...John McElhinney Weaver has been named vice president and general counsel of Capital Automotive REIT. Weaver joins Capital Automotive from Shaw, Pittman, Potts & Trowbridge, a Washington, D.C.-based law firm.