Santa Anita Rethinks Future, Will Sell Stake
Santa Anita Cos. agreed Monday to sell a 45% stake to a Los Angeles real estate firm in a move that presages a wholesale reconsideration of its development plans in Arcadia and elsewhere.
The buyer is Colony Capital Inc., which has extensive development holdings in Hawaii and throughout the U.S. Colony would pay $138 million for its stake in a series of complex transactions over two years. The deal, which amounts to $15 a share, requires shareholder approval.
The move comes as Santa Anita, owner and operator of the racetrack that is one of Southern California’s best-known landmarks, continues to grapple with two costly burdens: declining wagering at the track and a dearth of successful ideas for developing its 400 acres in and around Arcadia.
Santa Anita has considered several ideas in recent years to improve its sagging fortunes, including a proposed $100-million entertainment complex for the track’s sprawling parking lot. The concern also made an unsuccessful investment in a card club in Bell, which has since shut down.
Plans for the entertainment complex have been mothballed, and other proposals for expanding and developing the rest of its real estate are now all up for review in light of the Colony investment, said William C. Baker, the Arcadia-based company’s chairman.
“We’re going back to the drawing board,” he said.
Santa Anita Cos. actually comprises two companies that trade as a pair on the New York Stock Exchange: Santa Anita Operating Co., which runs the landmark track, and Santa Anita Realty Enterprises, a real estate investment trust that owns the track and surrounding land, a 50% interest in the nearby Santa Anita Fashion Park and interests in other real estate developments.
The Colony deal may already have hastened an internal restructuring at the two companies; in conjunction with announcing the deal, Santa Anita disclosed that two top executives have quit. They are Stephen F. Keller, who resigned as chairman and chief executive of Santa Anita Operating Co., and Sherwood C. Chillingworth, executive vice president and vice chairman of Santa Anita Realty Enterprises, who retired.
Keller was replaced by Baker, who is chairman of the realty company. Chillingworth was succeeded by Brian L. Fleming, who will be acting chief executive at Realty until the Colony deal closes.
Santa Anita’s stock rose on the Colony announcement, gaining 62.5 cents to close at $14.25 a share on the New York Stock Exchange.
Nevertheless, the deal was immediately attacked by Santa Anita’s biggest stockholder, Mario Gabelli, a New York money manager who holds about 10% of the companies’ stock for clients.
“The deal stinks,” Gabelli said, contending that Santa Anita--including its land--should be valued at more than $30 a share. That is double the sale price to Colony.
He further complained that his holdings, and those of other Santa Anita investors, will be sharply diluted because the company will issue new shares to Colony.
Santa Anita’s Baker defended the Colony deal as a major boost. The proposal is “an extremely positive transaction,” he said.
Santa Anita said the capital it received from Colony will be available for the purchase of “real estate-based sports, entertainment and leisure assets.”
While not identifying any targets by name, Baker said the companies would eye amusement parks, restaurants and movie theaters. Such acquisitions might serve to counter the long-term stagnation of horse-racing revenues in Southern California, which currently has three major tracks: Santa Anita, Hollywood Park in Inglewood, and Del Mar. There has even been industry speculation that Santa Anita and Hollywood Park might some day consider consolidating their operations at a single track.
Santa Anita certainly needs a spark. On-site wagering at the park has steadily declined (although wagering via satellite has grown), and the company has been shedding many of its real estate assets outside Arcadia to pay down debt and raise cash for development.
The company last year lost $27.5 million on revenue of $81.2 million, mainly because of several one-time charges. In the last four years, it hasn’t come close to matching its 1991 results, when it earned $9.9 million on revenue of $91.6 million.
That hasn’t been lost on investors. In the same period, Santa Anita’s stock has shed more than half its value, forcing the company to scrap a public offering of 3 million shares last year.
