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Consolidation Watch:Pan Pacific to buyCenter Trust

Pan Pacific Retail Properties announced yesterday that it plans to purchase rival Center Trust, which would make it the largest West Coast public neighborhood shopping center REIT. If the stock-swap transaction, valued at around $600 million is completed, Vista, Calif-based Pan Pacific would add 5.2 million sq. ft. to its portfolio, boosting its total owned GLA to 19.4 million sq. ft., including 138 properties.

Manhattan Beach-based Center Trust brings a healthy portfolio of grocery-anchored centers in Los Angeles and San Diego infill markets, says Stuart Tanz, president and CEO at Pan Pacific. The immediate result, he says, will be to help the company achieve 10% FFO per share growth in 2003.

If Pan Pacific shareholders approve the deal, which is expected in the first quarter of next year, Center Trust stockholders will receive 0.218 shares of Pan Pacific per Center Trust share.

The Pan Pacific deal is a preview of a 2003 merger wave that finance executives at ICSC's Open Air Centers Conference in Chicago predicted Wednesday. "After the music stops, the REITs that are left will be bigger and stronger. Stay tuned, the upcoming mergers will not just be public/public, but private/private as well," says Michael Errichetti, managing director at New York-based JP Morgan Securities Inc., which helped shepherd the recent Rodamco mega-transaction.

Such mergers have been common among mall REITs, but now the consolidation is moving down to grocery-anchored strip malls. That may not be a positive development, says James Easler, managing director of New York-based Teachers Insurance Annuity Association (TIAA), which plans to invest $600 million in retail properties in 2003. "We view consolidation as a positive on the mall side," he says."It creates economies of scale and increases access to capital. We're not so sure about the consolidation among smaller in-line shop companies. Strip centers are a local business and owners need to stay in touch with the demands of the local market." Also, he adds, with smaller players there is more likelihood of post-merger ego clashes. "No one will agree as to who's the CEO," he says.

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