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Pacific Gulf Agrees to Acquisition by Prudential Affiliate

Real estate: The deal for the Newport Beach investment trust includes $78 million in cash and assumption of $65 million in debt.


Real estate investment trust Pacific Gulf Properties Inc., spurred by its low stock price to sell its properties, said Friday it has agreed to be acquired by an affiliate of Prudential Insurance Co. of America for $78 million in cash.

The Newport Beach company, which has been selling its holdings since early last summer, said Prudential's FountainGlen Properties LLC also will assume $65 million in Pacific Gulf debts.

The acquisition would mark the end for a company that was finding it increasingly difficult to borrow money during what it called an "ongoing weakness" in real estate trust stocks over the last few years.

But its sale comes as investors in recent months have been bailing out of technology stocks and rushing to the consistent earnings growth and steady dividend returns of real estate trusts and more predictable companies.

REIT stock prices, in general, gained about 25% last year--most of it in the closing months--as investors' confidence in real estate allowed larger real estate trusts to trade closer to the value of their holdings, said F. Brian O'Flanagan, an analyst at Mercury Partners LLC, a Chicago real estate investment bank.

While larger firms weathered the downturn, smaller companies had a harder time raising funds as stock prices fell. "A lot of companies have not kept pace with the rally in 2000 and have continued to trade at discount prices compared to their assets," O'Flanagan said.

FountainGlen was created by Prudential to acquire Pacific Gulf's senior housing division and its corporate office building in a deal that amounts to $3 per share for stockholders, who must approve the transaction.

Pacific Gulf said it will continue to market its remaining holdings, six industrial properties and an apartment building. Any of those properties still unsold at the time the deal with FountainGlen closes, which is expected in midsummer, would be placed into a liquidating trust.

In total, shareholders could receive up to $6.40 per share once all properties are sold, said Glenn Carpenter, Pacific Gulf's chairman. "That's a nice profit," he said.

That amount, however, was 5 cents lower than Thursday's closing price. Wall Street drove down the stock 66 cents Friday to a close of $5.79 a share on the New York Stock Exchange.

The deal will not result in any layoffs, Carpenter said. About 60 employees from its senior division will be hired by FountainGlen, and five managers already have decided to pursue opportunities elsewhere, he said.

Pacific Gulf has a dozen senior citizen properties called the Fountains in various stages of development, including one each in Huntington Beach, Anaheim Hills, Rancho Santa Margarita and Laguna Niguel.

At its peak in 1999, Pacific Gulf's $900-million portfolio contained about 3,000 family and senior apartment units and 72 industrial properties with a total of 15.5 million square feet of space.

In November, Pacific Gulf sold 66 industrial properties for about $853 million to CalWest Industrial Properties LLC and sold five multifamily apartment properties for a total of $38.2 million.

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