Santa Anita Enters Sales Derby
Just one year after purchasing Santa Anita Park, Meditrust is selling the landmark Arcadia racetrack to help pay down about $500 million in debt, say sources familiar with the company’s plans.
The sale, expected to be announced this week, is part of a larger restructuring of the Needham, Mass.-based real estate investment trust, analysts say. Meditrust also owns the La Quinta hotel chain, golf courses and medical facilities.
Meditrust officials declined comment, but industry observers say the 64-year-old thoroughbred racing track, which posted $10.3 million in earnings the first half of this year, could fetch as much as $150 million in a sale, far less than the $458 million Meditrust paid for it almost a year ago.
An agent for Meditrust, NationsBanc Montgomery Securities, contacted several potential buyers last week, including the owners of Hollywood Park. Owners of the competing track made an offer that was rejected, said Mike Finnegan, chief financial officer of Hollywood Park. NationsBanc officials did not return phone calls.
Also interested in buying Santa Anita, analysts say, is a group of investors led by William Baker, who was chairman of the track’s operating company before Meditrust bought it last November. Joining Baker in that group is B. Wayne Hughes, president of Glendale-based Public Storage Inc. They would continue to operate Santa Anita as a racetrack, sources predict, unlike some other investors who might be more interested in the property’s developable land.
Meditrust, one of the nation’s largest REITs, began accumulating a huge burden of debt last year when it embarked on an aggressive plan to diversify from its core business of operating medical facilities into lodging, golf courses and other businesses. Along the way, the aggressive REIT purchased Santa Anita, La Quinta Inns and Cobblestone Golf Group.
Santa Anita Cos., the owner and operator of the racetrack, was the object of intense bidding last year because of the tax advantages it enjoyed as a paired-share REIT. Numerous parties competed with Meditrust to buy it, including Apollo Real Estate Advisors and Los Angeles-based Colony Capital.
By purchasing the racetrack operator, Meditrust, like only three other REITs around the country, was allowed to both own and manage its own properties and preserve its exemption from corporate income tax.
Paired-share REITs operate as two companies, one a tax-exempt firm that owns property, and a second operating company, which avoids taxes by paying most of its income as rent to the REIT.
Analysts say, in hindsight, Santa Anita wasn’t worth what Meditrust paid for it. At the time of the deal, the company valued the paired-share structure at $200 million, a costly mistake in light of recent events. In July, new legislation was signed into law barring paired-share REITs from extending the tax exemption to future acquisitions.
Meditrust shares have plunged 57% to $17 from a 52-week high of $39.13 last December, on news of the legislation, and as the public’s appetite for REIT shares has waned on fears REITS were overpaying for properties and might overdevelop their land. And investor discontent over the firm’s acquisition strategy prompted Chairman and Chief Executive Abraham Gosman to resign in August. A permanent successor has not yet been named.
Wall Street disapproved of the turmoil. Several analysts have cut the stock from “buy” to “hold.” And in recent weeks, Meditrust’s debt rating was also cut, to “junk” or non-investment-grade status by Duff & Phelps Credit Rating Co., because of its high debt levels. Debts include a $500-million term loan that will be due in the middle of next year and a $272-million stock purchase agreement that Meditrust negotiated with Merrill Lynch & Co.
The company says it will produce a restructuring plan this week to address analysts’ concerns. Already the company has announced plans to raise money by selling in an auction at Sotheby’s 10 paintings by famed artist Alfred J. Munnings that hung in Santa Anita’s Turf Club. Those paintings are valued between $10 million and $12 million, according to company officials.
Last week, Meditrust sold off $63.7 million in health-care facilities to Sunrise Assisted Living of Fairfax, Va. But analysts think some of the REIT’s biggest changes are yet to come.
For instance, the hotel business would trade as one company, with or without the golf courses, and its core health-care-oriented real estate business would be held in another company. “The stock is valued right now as if it were purely a hotel REIT,” says Silvers, pointing out that these stocks trade at the lowest price-to-earnings multiples among REIT stocks.
In the first six months of 1998, the company’s funds from operations, a key measure of a REIT’s performance, rose to $121.4 million from $95.3 million in the same period last year, but dipped slightly per share as the number of company shares swelled. Net income for the six months increased to $100 million versus $83 million for the same period in 1997.
Times staff writer James F. Peltz and correspondent Stephen Gregory contributed to this report.
