Irvine Co. Offers the Public a Stake in Apartment Holdings : Real estate: Landowner plans to reduce debt by selling about a third of that business through an investment trust.

For the first time in the 100-year history of the Irvine Co., the average person can buy a piece of the giant landowner--in return for helping pay down its debt.

The company said this week that it expects to net $204.5 million by selling the public about one-third of its apartment business--including its 43 apartment complexes--through a real estate investment trust.

The REIT will use $180 million from the stock offering to pay off or reduce the interest rates on loans, according to a document filed with the Securities and Exchange Commission and made public Thursday.

After the offering, the REIT will still owe its lenders $490 million. But the Irvine Co. contends that with lower debt payments, the 11,334 apartment units in Irvine, Newport Beach and Tustin will generate enough income to attract investors.

The deal also helps the Irvine Co. improve its own financial position, said real estate experts, by clearing that debt off its balance sheet and pushing it onto its new public offspring.

Much of the remaining $24.5 million from the offering will be used to buy or build new apartment complexes, the company told the SEC.

Citing SEC regulations barring companies from promoting their new stock issues, the Irvine Co. declined comment Thursday.

Real estate investment trusts are in the middle of a comeback on Wall Street; investors like their higher returns and the fact that REITs can pass most of their income on to shareholders without being taxed, although some experts warn investors to be wary of their higher risks.

“Wall Street wants debt to be lower than many developers might normally carry,” said real estate consultant Gregory Lubushkin of accountants Price Waterhouse. “So the company is trying to show the world its REIT is not heavily leveraged.”

The figures the company had to furnish the SEC on apartment revenue and profits offer the first glimpse in years into the inner workings of a corner of the highly private development company.

Not since a huge lawsuit that dragged on for much of the 1980s has the public had a look inside the company, which owns about a sixth of the land in Orange County and wields considerable influence on local politics and issues like land use and the environment.

The Irvine Co. told the SEC that rents from its apartments brought in $81 million in 1988, when its annual interest expense was $39 million. The apartment division lost $9.6 million that year.

By 1992, when the company had more units and rents had risen a little, the apartments brought in $119 million; interest expense was $49 million, and the company lost only $1.6 million. Heavy debt payments accounted in part for the losses.

But experts rely more on cash flow--profits plus depreciation--in evaluating real estate investment trusts. Cash flow--called “funds from operations” in REIT parlance--was $7.4 million in 1988, $19.7 million last year.

With lighter interest payments after the debt is paid down, the Irvine Co. said, funds from operations this year will total a much larger $48 million, most of which will be paid out in dividends.

So is this REIT a good deal for investors? It’s too early to tell, said analysts.

The REIT, to be called Irvine Apartment Communities Inc., wants to sell 10.6 million shares in late November at about $21 a share.

“They’ve done a pretty good job trying to contain the conflicts of interest between the REIT and the Irvine Co.,” said Jon Fosheim of Green Street Advisors Inc., which advises institutional investors on REITs. “And the apartment complexes are solid properties.

“But the key question is what’s the right price, and we won’t know that until we dig further.”

And will the deal have much effect on the company’s renters? Probably not, said Clarence J. Turner, mayor of Newport Beach.

He said he doubts the company would try to cut corners by, say, neglecting maintenance to squeeze out a bigger return for investors on their money.

“When you cut corners, you don’t maximize returns,” said Turner, who is himself in the real estate business.

Carlyle W. Hall Jr., a onetime public interest lawyer who sued to bring affordable housing to Irvine, also said the new REIT probably will not affect renters much.

“It’s never the case that new owners want to get less than they’re currently making,” he said, “so you might think there would be some upward pressure on rents.”

But because the company will still control the properties--and it is difficult to raise rents in these tough economic times--it is unlikely that rents would go up more than usual anytime in the near future, Hall said.

Marc Goldstone, a planning commissioner in Irvine and an Irvine Co. critic, said he wishes the company had sold the apartments outright. “New landlords are far easier to deal with than the Irvine Co.,” he said. “It’s so large it doesn’t have to care.”

Going Public

These apartment complexes owned by the Irvine Co. will make up the company’s first real estate investment trust. The company is offering a one-third stake in its apartment holdings to the public for more than $200 million. Properties and number of units by city: IRVINE

Project Units Amherst Court 162 Berkeley Court 152 Cedar Creek 176 Columbia Court 58 Cornell Court 109 Cross Creek 136 Dartmouth Court 294 Deerfield 288 Harvard Court 112 Northwood Park 168 Northwood Place 604 Orchard Park 60 Park West 880 The Parklands 121 Parkwood 296 Rancho San Joaquin 368 San Carlo 354 San Leon 248 San Marco 426 San Marino 200 San Mateo 283 San Paulo 382 San Remo 248 Stanford Court 320 Turtle Rock Canyon 217 Turtle Rock Vista 252 Windwood Glen 196 Windwood Knoll 248 Woodbridge Oaks 120 Woodbridge Pines 220 Woodbridge Villas 258 Woodbridge Willows 200

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NEWPORT BEACH

Project Units Bayport 104 Bayview 64 Baywood 388 Mariner Square 114 Newport North 570 Promontory Point 520

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TUSTIN

Project Units Rancho Alisal 356 Rancho Maderas 266 Rancho Mariposa 238 Rancho Tierra 252 Sierra Vista 306

Source: the Irvine Co.