Office Firm to Go Public
Thomas Properties Group Inc., the co-owner of downtown Los Angeles landmark Arco Plaza, said Friday that it planned to sell as much as $250 million in stock in an initial public offering.
The company founded by James L. Thomas -- who helped redefine the downtown skyline in the 1980s and early 1990s -- would be seeking investors at a time when many real estate stocks are under pressure because of rising interest rates.
In a filing with the Securities and Exchange Commission, Thomas Properties said its strategy was “sustainable long-term growth” through property acquisitions, redevelopment and fees earned from real estate advisory services to big investors.
The firm isn’t planning to adopt the real estate investment trust structure, which would require that 90% of its income each year be paid to shareholders in the form of cash dividends.
Thomas Properties listed a number of transactions it would make with proceeds from its stock offering, including the purchase of a bigger stake in Arco Plaza, a 2.7-million-square-foot office and retail complex on Flower Street where the firm is based.
Thomas Properties, which owns Arco Plaza with the California State Teachers’ Retirement System, would boost its stake to 21.3% from 4.3%, if CalSTRS agreed.
Founder Jim Thomas “has a reputation in the real estate community for being very smart, very savvy and very well connected politically,” said analyst Jim Sullivan of Green Street Advisors. “His stature and track record are things the public market will look to rather favorably.”
A company representative said Thomas, 67, could not comment on the planned offering, citing the “quiet period” during which companies that have filed to sell shares are restricted from disclosing information beyond what is in regulatory filings.
Thomas came to prominence as a co-founder of Maguire Thomas Partners, which developed some of downtown’s biggest offices, including the 73-story Library Tower (now called U.S. Bank Tower), the tallest building in the West. Thomas left in 1996 as the company contracted in the recession. He is a former co-owner of the Sacramento Kings basketball team.
Thomas Properties led an investor group’s 2003 purchase of Arco Plaza for $270 million and announced plans for a $125-million upgrade of the 32-year-old property, which is 50% leased.
The company owns or manages 7.4 million square feet of commercial space, most of it in Southern California and Philadelphia.
Thomas Properties last year had a net loss of $2.6 million on revenue of $46.3 million, according to the SEC filing.
If the offering is completed as planned, Thomas Properties’ holdings will include 89% stakes in One Commerce Square and Two Commerce Square, which encompass 1.9 million square feet in Philadelphia.
Other holdings would include 25% stakes in 800 S. Hope St. in Los Angeles, Valencia Town Center in Valencia and Newport Beach’s Pacific Financial Plaza.
The firm did not disclose how many shares it expected to sell or give an expected price range.
It also did not say whether it would pay a cash dividend, but that its directors “may consider establishing a regular dividend policy.”
Real estate companies that have adopted the real estate investment trust structure have been popular with investors in recent years, in part because of the firms’ high dividends.
The REIT structure offers substantial corporate tax benefits, said Sullivan, but it also can make it more difficult to develop new buildings or trade properties quickly.
Robert Maguire, Thomas’ former partner in Maguire Thomas, raised $700 million in June when he created a REIT called Maguire Properties Inc. Maguire was unavailable for comment Friday. Since going public at $19 a share, Maguire shares have risen 23%. They closed Friday at $23.35, down 24 cents.
But REIT stocks and other real-estate-related shares have tumbled during the last two weeks as interest rates have surged. Investors are worried that higher rates will make it tougher for real estate companies to finance and own properties and that higher-yielding bonds will compete with REIT stocks for investor funds.
Still, the market shift has not spoiled the opportunity for a successful real estate public offering, Sullivan said. “It still looks good,” he said. “Two weeks ago it was exceptional.”
