Ailing Texas S&L; Considers Selling Its Stake in Builder J.M. Peters Inc.
A troubled Texas thrift says it is considering selling its stake in J. M. Peters Co. Inc. of Newport Beach, one of Southern California’s largest home builders.
A sale has long been expected, as San Jacinto Savings & Loan Assn. of Houston has been ailing for some time; the thrift reported a loss of $100 million for the fiscal year that ended in June.
San Jacinto said late last week that it had hired the investment banking firm of Shearson Lehman Hutton Inc. to evaluate its alternatives with respect to Peters and to two other subsidiaries, including the sale of those.
San Jacinto is itself a subsidiary of a troubled company, Southmark Corp. of Dallas. Southmark reported a loss of $1 billion for its third quarter, and it filed for bankruptcy last month.
Peters says a sale would not interrupt its business, which is building expensive homes in Southern California.
Peters’ stock has been rising the last few weeks on speculation that San Jacinto would sell its 87% stake in Peters. Stock analysts say the company could fetch more than $250 million. San Jacinto bought Peters in 1985, reportedly for $21 million.
Hiring an investment banker to study selling Peters--one of Southmark’s crown jewels--is the latest chapter in the saga of Southmark, a once high-flying real estate investment firm brought low by the crash in Texas real estate.
Southmark raised $10.5 million in 1987 by selling nearly 13% of Peters’ stock--1.75 million shares--to the public. In the last few years, Southmark has been forced to consider selling as much as $500 million in assets to meet its debt payments.
San Jacinto tried to sell Peters early last year to another troubled real estate investor, MDC Holdings Inc. of Denver, for $100 million in notes. That deal fell through last year at the last minute.
What is likely to happen to Peters? San Jacinto will not say, but stock analysts posit two plausible scenarios: (1) that the rest of Peters’ stock--about 12 million shares--may be sold to the public; (2) that San Jacinto may sell its stake to another company.
Having so little Peters’ stock in the public’s hands--about 2 million shares--has kept the price down, stock analysts say. The tie to Southmark probably hurt the stock price, too, they say. With that tie severed, and with more stock on the market, the price is likely to go up.
‘Severe Discount’
“There was a severe discount (in the stock’s price) because of the small float,” said Kidder, Peabody & Co. analyst Barbara Allen.
With a sale to another company, Allen said, a buyer from out of state eager to break into the hot California market would be most likely, although a foreign buyer is a possibility too.
In that case, the company might sell for as much as $20 a share, or $280 million, Allen said. She said investors have undervalued Peters stock, now trading at $13.75 a share on the American Stock Exchange. (The stock closed up 12.5 cents Monday as 17,000 shares changed hands.)
Others aren’t quite so sure. Michael Kirby, who follows real estate investment trusts at Newport Beach’s Green Street Advisors Inc., says he thinks home builders’ earnings have peaked and that investors will probably lose interest in that stock.
“These companies have seen some extremely high earnings, which can’t be sustained,” Kirby said. “I’d be surprised if somebody paid a large premium to buy a company like Peters.”
A third possibility is that Jim Peters, who founded the company in 1975, could buy it. Analysts, however, do not think that scenario is likely because the company would have to take on a massive debt.
Peters, like San Jacinto, will not say what form a sale is likely to take.
The company expects another strong year after the bedlam of 1988, when whole sections of subdivisions would sell out moments after going on the market. Prices went through the roof--Orange County houses are among the most expensive in the nation--and builders’ profits surged.
Things are quieter this year, although there is still enough action for Peters to make substantial money. The company says it has had fewer houses to sell recently because of the timing of its construction projects.
Peters sold $57.5 million worth of houses during its first quarter ended May 31; the first-quarter figure for last year was $89.6 million. Profits were $5 million for the first quarter and $7.3 million for the period last year. Peters said the company expects to have a much stronger second quarter, when it will finish many more new houses.
