Pan Pacific Retail Properties agreed Tuesday to buy rival Western Properties Trust in a deal worth $240 million in stock plus debt, making it the West Coast's largest real estate investment trust specializing in neighborhood shopping centers.
Vista-based Pan Pacific will exchange 0.62 of its shares for each Western share, valuing Emeryville, Calif.-based Western at $12.75. Western shares fell 25 cents to close at $12.25 on the American Stock Exchange. Pan Pacific will also assume about $200 million in Western debt.
The purchase would increase Pan Pacific's holdings more than 50% to 110 properties with 14.3 million square feet of space. Pan Pacific would get a bigger presence around the San Francisco Bay Area, where tough zoning laws restrict new developments.
By getting bigger, Pan Pacific believes it will attract a larger following on Wall Street, which would help lower its cost of capital and allow the company to make more acquisitions.
"Both are smaller companies and don't have significant trading volume," said Katherine Flores, an analyst at Sutro & Co. "This will put them on the radar screens of many more investors."
The shares of Pan Pacific fell 25 cents to close at $20.31 on the New York Stock Exchange. Western's real estate is worth about $12.53 a share, according to Salomon Smith Barney Inc. Flores called the price "fair."
"The transaction will enhance Pan Pacific's liquidity, presence and visibility in the capital markets and will position Pan Pacific as the leading consolidator of shopping centers on the West Coast," said Stuart Tanz, Pan Pacific president and chief executive. The transaction, scheduled to close in the fourth quarter, is expected to add to Pan Pacific's earnings in 2001 and produce combined savings of $3 million in general and administrative expenses, the company said. As part of the transaction, Pan Pacific said it would boost its quarterly dividend to 45.5 cents a share from 42 cents.
Neighborhood shopping centers are typically smaller properties anchored by a grocery store and drug store. After the purchase, Raley's Supermarket will be the company's biggest tenant, representing about 6% of annual revenue.
Neighborhood shopping centers were rated the third-most-attractive property type for investment behind apartments and downtown office buildings in a second-quarter survey of real estate professionals across the country by Real Estate Research Corp.