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Two REITs, one brand
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April 2, 1998: 10:44 a.m. ET
Real estate investment trusts join in $1.7B merger; will mint new name
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NEW YORK (CNNfn) - Seeking to take the marketing stigma out of their clunky-sounding title, two major apartment real-estate investment trusts are trying to mint what they hope will become a household brand.
Under a deal announced Thursday, Denver-based Security Capital Pacific Trust will acquire Atlanta-based Security Capital Atlantic Inc. in a $1.15 billion stock swap, and rename the merged REIT Archstone Communities. Pacific Trust will also assume $527 million in Atlantic debt.
The merger is expected to close in August 1998, subject to approval by shareholders of both companies.
Security Capital Group Inc. of Santa Fe, N.M., an investment company with large stakes in both companies, has agreed to vote in favor of the merger. Security Capital owns 33 percent of Security Capital Pacific and 49.6 percent of Security Capital Atlantic.
The new company will be led by R. Scot Sellers, Pacific Trust's current president and chief executive officer. Sellers described the branding strategy as a product of customer research over the past year suggesting that "an attractive opportunity exists to create sustained brand identity."
The merger comes amid a rapid trend of consolidation among REITs as they strive to shed costs and broaden their access to capital. Yet it marks the first instance of national-level branding in the burgeoning apartment industry.
The transaction will be structured as a tax-free merger and accounted for as a purchase. It will spawn a combined multifamily company with a total market capitalization of $5.3 billion and interests in 304 communities.
Archstone's portfolio will embrace 90,166 apartments in 19 states and Washington, D.C., including more than 25,400 developmental units that are either under construction or in planning.
After completion, dividends of the new company will be adjusted to an annualized level of $1.42 per share, a 4.4 percent increase over Pacific Trust's current dividend of $1.36 per share.
Analysts said the new branding concept is a carry-over from the hotel industry, where a premium is put on brand identity. The goal is to foster a sense of brand loyalty among tenants who until now have rarely associated far-flung REIT properties with a single brand name.
Superior financial strength
Constance Moore, Atlantic's co-chairman and chief operating officer, who will retain her title after the merger, estimated the merger would result in overhead cost savings of $5 million in 1999.
"Together, we will have superior financial strength, providing more efficient access to capital, which further positions us to take advantage of significant growth opportunities in our markets," Moore said.
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