Insurance and Real Estate & Retail

BEHIND THE NEWS: Big investors turn up heat on tiny Century Realty

May 23, 2005

Big money from the coasts has been pouring into one of the nation's most obscure publicly traded real estate companies-India n a p o l i s - b a s e d apartment owner Century Realty Trust-helping to propel the sleepy stock more than 50 percent higher over the past year.

Here's a sure bet: The investors didn't become interested because they're suddenly enamored with 74-year-old Chairman Jack Bradshaw's slow-and-steady management approach.

Quite the opposite, says one of the investors, Greenwich, Conn.-based Mercury Real Estate Advisors LLC, in a caustic May 11 letter asking the company's nine-person board of directors to sell the company.

Century "serves no purpose as a public company and is far too small to exist," says the letter. "As trustees representing the interests of shareholders, you have consistently ignored the painful but obvious reality of your situation. You have collectively acted as an imperial, entrenched and oblivious board."

While Mercury casts itself in the role as shareholders' savior, market watchers say it has a less altruistic motivation: The investment firm believes Century's worth more liquidated than as an operating company, and it wants to pocket a fast profit by forcing the board's hand.

Securities and Exchange Commission filings show Mercury has been scarfing up shares this year and now owns a 5.2-percent stake worth $1.6 million. San Francisco-based Prana Securities, a big shareholder since 2002, also has been buying lately and now owns a 15-percent stake worth $4.5 million. Joining the fray last fall was New York-based Oppenheimer Group, which now has a 7.5-percent stake worth $2.3 million.

Since Mercury sent the letter, and circulated a copy publicly, the silence has been deafening. Representatives of all major investors either didn't return calls or declined to comment. Likewise, Bradshaw, who joined the company when it formed in 1973 and has been CEO since 1982, said he could not comment.

In a May 13 filing with the Securities and Exchange Commission, the company kept all options open, saying the board "has no plan of liquidation under consideration at this time but will consider [options]... to maximize shareholder value."

Boosting the stock

All the maneuvering has been a blessing for long-term shareholders, helping to trigger a runup in the stock since last fall that ballooned the company's market value to $30 million.

Also helping lift shares higher is improved company performance. Century Realty reported a small loss in '03 before rebounding last year to earn $2.7 million on revenue of $10.4 million. In the first quarter, it earned $176,474, compared with a loss of $59,306 a year earlier.

But in its letter Mercury says that for Century to maximize returns for shareholders, it needs to either sell the company outright or liquidate its portfolio of 14 Indiana apartment complexes and four other commercial properties.

In the letter, Mercury notes that Century's market value is about $1 billion less than the average real estate investment trust, and says the company lacks the critical mass to operate efficiently as a public company.

Because Century outsources management of its apartments, it has just five employees. In its letter, Mercury says Century might be the only public company in the country with more directors than employees.

Liquidation pushed before

Mercury is not the first major Century investor to push publicly for a sale. At the company's annual meeting a year ago, Nolton LLC, an Illinois-based reinsurance company that then held a 10-percent stake, sponsored a proposal that the company liquidate its portfolio.

Century's board opposed the proposal, which nevertheless won support from holders of 50.4 percent of the common stock. Since then, the company has said nothing to suggest it's set a new course.

"Despite that mandate," Mercury says in its letter, "the board has made pitiful progress toward the approved goal. ... You have disregarded your fiduciary obligations and, worse, engaged in a cynical exercise of lip service, denial and delay."

Mercury may have good reason to believe its saber rattling will yield results. For one thing, such tactics have a way of propelling companies into play. A case in point: Indianapolis-based Meridian Insurance Group Inc., whose tangles with a minority shareholder ultimately spawned the company's $228 million sale to Ohio-based State Automobile Financial Corp. five years ago.

Then there's the presence of new faces on the Century board. After amassing their stakes, Oppenheimer and Prana sought board slots. Shareholders elected a representative from each at the company's annual meeting May 4.

No doubt, some fascinating conversations are occurring behind the scenes.

If the board finally does sell, the investor that first tried to spark action won't be around for the spoils. Nolton LLC unloaded its holdings a few months after the 2004 shareholder vote.

There were compelling reasons for Century to sell long before now, Nolton official Michael Reiss told IBJ last week. Why the board has stayed the course is "the $64,000 question," he said.

"When you get a group of people who have become pretty much used to the status quo, it is pretty difficult to get them unentrenched and going in any direction. You get a certain allergy to change."
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