Western National Preparing to Go Public : Finance: Apartment giant has requested state approval to consolidate its partnerships to form a real estate investment trust.
Western National Group, the largest apartment developer and manager in Orange County, expects to go public with a real estate investment trust offering, according to documents filed with the state.
A privately held company with more than $1 billion in assets and 26,909 apartment units under management, Western National has asked the state for permission to consolidate the assets and liabilities of 65 existing partnerships--its first step toward going public, according to the state Department of Corporations.
If the consolidation is approved, Western National would own and operate the various general and limited partnerships’ portfolio of 71 apartment buildings and the company’s headquarters building, all in Southern California, with a high concentration in Orange County.
“Western National Group . . . expects to qualify as a real estate investment trust, (and) will be the sole general partner of the operating partnership,” the filing states. “The founders . . . have proposed the consolidation, the public offering and the refinancing primarily because these transactions would . . . (take) advantage of the currently favorable public market valuation of REIT equity securities.”
Lindsey Kozberg, a spokeswoman for the Department of Corporations, confirmed that the 30-year-old company has requested state approval to consolidate its partnerships, though a date for a public hearing on the matter has not been set.
Western National hopes to sell its REIT this year and follow in the steps of the Irvine Co., which sold a portion of its apartment business to outside investors last year in a successful public offering.
Real estate investment trusts have been popular recently on Wall Street; investors like their higher returns and the fact that REITs can pass most of their income to shareholders without being taxed, although the securities pose a higher risk to investors. Developers, often strapped for cash, view REITs as a way to raise capital.
Before any public offering, the consolidation would have to be approved by enough of the limited partners to represent at least 70% of their total interests. It would also have to be approved by all of the general partners, the filing states. If the consolidation is approved, the general and limited partners, in exchange for giving up control, would receive units in the company that could be exchanged for stock in the REIT.
To go public with a REIT, the company would still have to file with the federal Securities and Exchange Commission. The dollar amount of the planned public offering, which would be traded on the New York Stock Exchange, was not revealed in the state documents.
Western National, which employs 985 people, owns 10,489 apartment units in Southern California. Some it builds and operates for its own account; others it builds and manages under contract for clients like the Irvine Co. As of Jan. 3, its management company provided management services for 16,420 apartments in 90 separate properties throughout California and other states.
Company President Michael Hayde would not comment on the deal but in an earlier interview said his company had plans to start aggressively building apartments again. He said the credit crunch made construction and land-acquisition loans scarce last year, making it difficult to raise capital for building.
He also said in the March, 1993, interview that the company’s future growth would be sparked by acquiring management companies, so Western National could be planning to use the REIT proceeds for such acquisitions.
“To do this REIT, they have to consolidate their partnerships. Western National couldn’t come to the public markets unless they did that,” said Craig Leupold, an analyst with Green Street Advisors Inc. in Newport Beach, which advises institutional investors on REITs.
“They’ve got to figure out how many units they are going to give to all these partnerships. From this point forward, it’s hard to say how long it will take for them to get to the market.”
Founded in Orange County by Merton Douglas, the company was initially called Income Property Services. In 1980, Douglas stepped down and a partnership group was formed to buy the company, which changed its name to Western National Group.
In 1983, the company started building large apartment complexes throughout Orange County and formed partnerships with such entities as the William Lyon Co., the Santa Margarita Co. and Chevron Land & Development.
However, by the late 1980s, Western National was one of the first to recognize that a real estate downturn was coming and stopped buying land. Instead, the company survived the slowdown by doing work for others under contract. It became a major in-house contract apartment developer for the Irvine Co.’s apartment division, now a public company called Irvine Apartment Communities. In 1989, the company started a home building group, Western National Homes.
Western National
Group at a Glance
* Founded: 1963
* Headquarters: Orange
* Chief operating officer: Michael K. Hayde
* Employees: 985
* Assets: More than $1 billion
* Business: Apartment developer and manager
Source: Western National Group
Researched by JANICE L. JONES / Los Angeles Times
