Pacific Gulf to Be Acquired by Prudential Unit

Real estate investment trust Pacific Gulf Properties Inc., spurred by its low stock price to sell its properties, said Friday that it has agreed to be acquired by an affiliate of Prudential Insurance Co. of America for $78 million in cash.

The Newport Beach company, which has been selling its holdings since early last summer, said Prudential’s FountainGlen Properties also will assume $65 million in Pacific Gulf debts.

The acquisition would mark the end for a company that was finding it difficult to borrow money during what it called an ongoing weakness in real estate trust stocks in the last few years.

But its sale comes as investors in recent months have been bailing out of technology stocks and rushing to the consistent earnings growth and steady dividend returns of real estate trusts and more predictable companies.

REIT stock prices in general gained about 25% last year--most of it in the closing months--as investors’ confidence in real estate allowed larger real estate trusts to trade closer to the value of their holdings, said F. Brian O’Flanagan, an analyst at Mercury Partners, a Chicago real estate investment bank.

Although larger firms weathered the downturn, smaller companies had a harder time raising funds as stock prices lagged. “A lot of companies have not kept pace with the rally in 2000 and have continued to trade at discount prices compared to their assets,” O’Flanagan said.

FountainGlen was created by Prudential to acquire Pacific Gulf’s senior housing division and its corporate office building in a deal that amounts to $3 per share for stockholders, who must approve the transaction.

Pacific Gulf said it will continue to market its remaining holdings, six industrial properties and an apartment building. Any of those properties still unsold at the time the deal with FountainGlen closes, which is expected in midsummer, would be placed into a liquidating trust.

In total, shareholders could receive as much as $6.40 per share once all properties are sold, said Glenn Carpenter, Pacific Gulf’s chairman.

That amount, however, was 5 cents lower than Thursday’s closing price. Wall Street drove down the stock 66 cents Friday to a close of $5.79 a share on the New York Stock Exchange.

The deal will not result in any layoffs, Carpenter said. About 60 employees from its senior division will be hired by FountainGlen, and five managers have decided to pursue opportunities elsewhere, he said.

Pacific Gulf has a dozen senior properties, called the Fountains, in various stages of development, including one each in Huntington Beach, Anaheim Hills, Rancho Santa Margarita and Laguna Niguel.