Constellation to sell its 41% stake in REIT

8.6 million shares of Corporate Office Properties on block

Part of larger offering

Energy firm's aim is to rid itself of noncore assets

February 16, 2002|By Meredith Cohn | Meredith Cohn,SUN STAFF

Constellation Energy Group Inc. is selling its 41.5 percent stake in Corporate Office Properties Trust, a Columbia real estate company, in an effort to get out of the property ownership business.

The move will bring to an end a relationship with the real estate investment trust that goes back about three years. Constellation Energy had sold 16 office buildings to Corporate Office Properties in 1998 and received 8.6 million shares, making it the largest shareholder in the REIT.

Constellation will be selling those shares as Corporate Office Properties sells another 800,000 shares in a future stock offering.

Constellation also has two seats on Corporate Office Properties' board. Those members will be replaced in 2003 when their terms expire.

The Baltimore energy company's officials said last month that they planned to sell all of the company's real estate holdings and focus on its core energy businesses.

Many shareholders and analysts thought Constellation was distracted by its real estate interests, and sometimes hurt by them.

The company invested in the properties in the early 1980s and took a hit when the market crashed in the latter part of the decade. The properties are now mostly leased.

"We had announced this at an analysts meeting in New York in January," said Charles Welsh, Constellation's director of external communications. "We are concentrating on generating energy, wholesale marketing of energy and retail energy services. The shares we're selling are clearly in noncore assets. This is pretty straightforward."

Corporate Office Properties is an owner and manager of suburban office buildings and is one of the largest owners in the Baltimore-Washington corridor.

Randall M. Griffin, the company's president and chief operating officer, said the shares will be marketed and would likely reflect the price of the company's stock the week of Feb. 25. The company's shares closed yesterday at $12.05, down 36 cents.

Corporate Office Properties also plans to use the proceeds from the sale of its 800,000 shares to pay down the company's lines of credit, which are used to acquire more properties, Griffin said.

Griffin said the company was selling more shares, which it hasn't done in about three years, to show Constellation that "it cares about the price Constellation gets for its shares and to raise equity."

The lead underwriters for the transaction will be Credit Suisse First Boston, A.G. Edwards & Sons Inc., Legg Mason Wood Walker Inc., and McDonald Investments. In addition, BB&T Capital Markets and Ferris, Baker Watts will act as co-managers.

Real estate investment trust shares are currently popular because they tend to offer large dividends.

The attention from the sale as well as increased volume of trades should help boost the share price, Griffin said. The sale will not dilute the company's stock because most of the shares are already outstanding.

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