MART to buy 9 shopping centers $129.2 million deal with Pechter includes 2 office buildings

April 03, 1997|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Mid-Atlantic Realty Trust, in a move that will greatly expand the Linthicum-based company's retail portfolio, said yesterday that it intended to buy nine area shopping centers for $129.2 million.

Purchasing the nine retail centers as well as two office buildings from the Pechter family of Towson and affiliates of its Tristar Management Co. will nearly double MART's holdings here, cementing a critical mass in metropolitan Baltimore.

In all, the Pechter properties -- from Ellicott City to Timonium -- total 1.1 million square feet and are more than 90 percent occupied. MART currently operates eight retail projects totaling 1.3 million square feet in the area.

"This would give us 11 more projects in the heart of where we live and breathe," said F. Patrick Hughes, MART's president and chief executive. "The market tells us to be focused geographically and by property type, and this transaction furthers that."

As part of the deal, Tristar owner Jack H. Pechter will become a MART deputy chairman, the ninth member of its board and a senior real estate adviser to the real estate investment trust, whose flagship property is the Harford Mall.

The purchase, slated for completion before June 30, also will significantly alter MART's corporate structure. Upon completing the Pechter deal, MART plans to convert to an "umbrella partnership real estate investment trust (REIT)," in which projects are owned by an operating partnership and the company is the general partner.

Various other retail-oriented REITs, such as Simon DeBartolo Corp., Taubman Centers Inc., First Washington Realty Trust and Saul Centers Inc., also operate under the so-called "UPREIT" format.

The UPREIT structure will enable MART to acquire the Pechter properties for partnership units rather than cash. MART plans to issue 3.4 million units valued at $13 each to Pechter partnerships in exchange for the 11 projects, the REIT said.

"It gives us an extra tool in our box to help sellers of property and us to increase our portfolio," Hughes said.

MART will also assume roughly $85 million in mortgage debt owed by the projects, bringing its total liabilities to about $170 million. MART's assets are valued in excess of $300 million.

Shares of MART closed at $11, down 12.5 cents, on the American Stock Exchange yesterday.

The UPREIT structure benefits Pechter as well, since it allows individuals to contribute partnership interests to REITs and defer taxes until the units are converted to cash or company stock.

"Small fish don't swim well in big waters," Pechter said of the MART transaction. "The small entrepreneur today has problems competing, especially in the areas of leasing and financing. And we needed to do some estate planning, so this makes a lot of sense."

"Also, we've known MART's executives for a long time, and we felt comfortable with their integrity and the way they do business."

Pechter-controlled apartment complexes totaling 4 million square feet in the Baltimore area will not be affected by the sale.

The largest of the nine retail projects is the Timonium Shopping Center, at 206,000 square feet. Other notable Pechter retail projects involved in the MART purchase include the Enchanted Forest Shopping Center in Ellicott City and the Perry Hall Shopping Center.

The Pechter properties "appear to fit in with MART's strategy," said Alex Hart, a Ferris, Baker Watts Inc. analyst who follows the company. "They've proved themselves quite adept at their business, and I see no reason they shouldn't be able to make this work."

MART declined to provide an estimate on how the Pechter properties might affect its earnings, however. Last year, MART generated funds from operations -- a key measure of a REIT's financial health -- of $8.6 million, a 16 percent gain from 1995.

The properties

The 11 properties being acquired by MART:

Enchanted Forest Shopping Center, Ellicott City

Shawan Plaza, Hunt Valley

Glen Burnie Village

Ingleside Shopping Center, Timonium

Timonium Shopping Center

Timonium Crossing

Club Centre at Pikesville

Perry Hall Shopping Center

Orchard Square Medical Office, Towson

Dorsey Hall Medical Center, Columbia

Radcliffe Center at Towson

Pub Date: 4/03/97

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