Bren’s REIT Offer at Low End of Estimated Value

Billionaire real estate developer Donald Bren’s offer to take Irvine Apartment Communities Inc. private for $569 million, or $34 a share, is at the low end of the company’s estimated value, according to a regulatory report filed Thursday.

Morgan Stanley Dean Witter & Co., which advised the Newport Beach-based apartment developer on the offer, estimated the value of the assets owned by the company at $33 to $40 a share, according to the report filed with the Securities and Exchange Commission.

The document also revealed that Bren put together the buyout bid after a rift over the company’s 1999 business plan during a board meeting in October.

Irvine Apartment’s management projected a rental growth rate of 5% for the year, but Bren, chairman of Irvine Apartment, thought the growth should be closer to 12%, the report said. He described the projected 5% growth rate as “too conservative in light of existing conditions.”

Indeed, the county’s robust job creation is driving up demand for rental units. That, in turn, is pushing monthly rents higher.

In the fourth quarter last year, the typical Orange County renter paid a record $969 a month, 7% higher than a year earlier, according to RealFacts, a real estate research group.

Representatives of Irvine Apartment didn’t return phone calls seeking comment.

Earlier this month, Irvine Apartment Communities accepted Bren’s sweetened offer to buy the company. Bren raised his bid after some analysts and investors said the original offer of $32.40 a share was too low.

A special committee of independent directors, headed by Anthony Frank, a former U.S. postmaster general, and Bowen McCoy, head of real estate consulting firm Buzz McCoy Associates, was formed to evaluate the bid in December.

McCoy and Frank will receive $50,000 each for serving as chairmen of the special committee, according to the filing. That is in addition to their annual compensation of $30,000 each as directors.

“A few companies pay their independent directors for serving on a special committee, but it’s not standard,” said Rhoda Edelman, managing director of Pearl Meyer & Partners, a compensation consulting firm.

The $34-a-share bid exceeds the stock’s all-time high of $33.50 on Oct. 8, 1997. The company’s shares closed Thursday at $32.88, up 38 cents.

Bren is making the offer through a unit of his Irvine Co. The sale is subject to the approval of investors owning at least two-thirds of Irvine Apartment’s shares.

“They moved up the price, but it still might not be enough,” said Fred Carr, head of the Penobscot Group, an independent real estate securities firm.

But other analysts disagreed, saying the offer was fair, given the lackluster stock market performance of real estate investment trusts.

“I don’t think any shareholders should be disappointed,” said Art Havener, vice president of A.G. Edwards & Sons.

In all, Irvine Apartment owns 18,758 apartment properties. The company was spun off from Irvine Co. in 1993. Its properties are owned through a partnership with Irvine Co., which owns a 55% stake in the partnership. Irvine Co. also owns 3.4 million of Irvine Apartment’s 20.1 million shares.

Irvine Co. owns and is developing Irvine Ranch, the nation’s largest master-planned community. Irvine Apartment has the exclusive right to develop apartments on the ranch. In recent years, Irvine Apartment has expanded beyond its core business on the ranch, buying and developing high-end apartments in Silicon Valley, northern San Diego County and Los Angeles.

Irvine Apartment expects to earn $2.62 a share in 1999 and $2.92 in 2000, according to the filing. Analysts polled by First Call Corp. expect the company to earn $2.57 in 1999 and $2.87 in 2000.