Santa Anita, Meditrust in $383-Million Merger Deal

Santa Anita Cos., owner of the landmark Arcadia racetrack, said Sunday that it agreed to merge with Meditrust, a health-care real estate investment trust, in a deal valued at about $383 million.

Santa Anita Chairman William Baker said the deal would allow the track to continue operating as a racing facility. The track’s future has been uncertain since declining attendance and a string of unsuccessful development ventures for the company’s land holdings around Arcadia prompted it to seek a partner eight months ago.

Meditrust Chairman Abraham Gosman said his firm is committed to keeping Santa Anita in horse racing. But he said the appeal of the merger for his firm lies in Santa Anita’s company structure, which provides a major tax advantage, and not its operations, which lost $7 million in the last quarter of 1996.

Santa Anita consists of two companies that trade as a pair on the New York Stock Exchange: Santa Anita Operating Co., which runs the 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 firm is one of only four REITs in the nation that is allowed to both own properties and manage non-real estate businesses while preserving its corporate income tax exemption. Such arrangements, allowed because the concerns already had the structure when tax laws changed in 1984, have made these entities some of the hottest stocks in real estate.

“We want to be in the operating business,” said Gosman, whose company has investments in 431 health-care facilities with total assets of about $2.4 billion.

“After the merger, [Santa Anita] will only account for 12% to 15% of [our] outstanding shares of stock, so any decline in profitability won’t have much effect,” Gosman said. “What we’re doing is buying a franchise and that’s the paired-share REIT structure.”

In a similarly motivated deal, Patriot American Hospitality Inc., another REIT, agreed last year to pay $195 million for California Jockey Club and Bay Meadows Operating Co., whose primary asset consists of a racetrack in San Mateo, but that also has a paired-share structure. Shares of Starwood Lodging Trust, a third paired-share REIT, have gained 81% in the last 12 months.

The transaction, under which Meditrust would give Santa Anita shareholders the option of receiving $31 per share for up to 3.2 million Santa Anita shares, would give shareholders a 13% premium on the stock, which closed Friday at $27.385.

In accepting Meditrust’s offer, Santa Anita spurned a coalition of firms that had long been jockeying for control of the company. As recently as Friday, Los Angeles real estate firm Colony Capital Inc. and Koll Co. of Newport Beach--former rival suitors who subsequently joined forces--said they had upped their bid from $27 to $30.50 per share.

But a source close to Santa Anita said the Colony-Koll deal structure would have required the racetrack company to borrow $150 million, and would not have provided equal compensation to all of the shareholders.

Executives of Colony and Koll couldn’t be reached for comment.

Under the terms of the agreement with Meditrust, a so-called reverse merger, each existing Meditrust shareholder will receive 1.2016 paired shares of Santa Anita in a tax-free exchange. After the transaction is completed later this year, Meditrust will adopt the paired-share structure.

The new firm, to be called Meditrust Corp., would have a market capitalization of $2.6 billion and be based in Needham, Mass.