BEHIND THE NEWS: Coastal cash flowed into tiny firm, yielding big payoff

Keywords Real Estate
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Century Realty Trust is but a grain of sand in the universe of real estate companies. But within the last few years, the Indianapolis firm has caught the attention of investors on the coasts, and they’re the richer for it.

Now that Century Realty is selling nearly all its properties to Indianapolis-based apartment owner Buckingham Properties and liquidating, its investors likely will collect from $20.50 a share to $21 a share, according to a filing with the U.S. Securities and Exchange Commission.

That translates into a handsome return for San Francisco-based Prana Securities, which was paying about $11 a share for the stock when its ownership stake surpassed 5 percent in 2002. It now owns 15 percent of the company, a stake worth more than $5.4 million.

Also faring well was Greenwich, Conn.-based Mercury Real Estate Advisors, which bought shares for around $16 apiece last year and now owns 9 percent of the stock, worth $3.2 million. Another East Coast player, New York-based Oppenheimer Group, amassed a big stake in 2004, unloading much of it last year for a tidy profit.

That’s quite a collection of heavyweights, considering Century’s minuscule size. It has just five employees, in part because for several years it’s been outsourcing to Buckingham management of its 13 Indiana apartment complexes. Buckingham is paying $46.5 million and assuming $11.6 million in mortgages to acquire those and three Indiana commercial properties. Century will sell its remaining holding, a Carmel industrial property, separately.

The investment firms did not return calls seeking comment. But you can be sure of one thing: They didn’t invest because they were looking to be long-term Century shareholders. Their end game: to stir up a sale to reap plump profits.

Consider the caustic letter to Century’s nine-person board that Mercury released publicly a year ago. It said the company “serves no purpose as a public company and is far too small to exist. As trustees representing the interests of shareholders, you have consistently ignored the painful but obvious reality of your situation. You have acted as an imperial, entrenched and oblivious board.”

Mercury said it was frustrated because at the annual meeting in 2004, shareholders had passed a non-binding proposal that Century liquidate its portfolio, but the company still had not done so.

Even now, all is not serene among Century shareholders and board members.

The shareholders will vote on the Buckingham sale Aug. 30. The newly filed proxy statement for that meeting reveals that “some of the trustees believed that the trust’s assets should have garnered a higher price.”

It says the board is withholding recommendation whether to accept or reject the Buckingham deal-an unusual move but not one observers think will jeopardize it.

One of the directors, Jack Bradshaw, Century’s 75-year-old CEO, would not identify board members dissatisified with the price, which represents 100 percent of the properties’ appraised values. The board includes representatives of Oppenheimer and Prana, but not Mercury.

According to the proxy, Century last fall hired City Securities Corp. as its adviser, and by early this year it had received more than 75 inquiries from suitors.

Ultimately, Century and City narrowed the list to 10, with Buckingham offering the richest payoff for shareholders.

Several weeks before Century and Buckingham signed their agreement in March, the proxy says, “one of the trustees expressed frustration both about the price being offered and the fact that the highest bidder was the manager of the apartment buildings owned by the trust. In a vote with respect to the proposed letter of intent, the board of trustees deadlocked, with one trustee abstaining.”

Board Chairman Murray Wise, a Century Realty investor for two decades, thinks board members who were concerned have come around.

“It is my belief that today, 100 percent of the board is signed on to the transaction,” said Wise, CEO of Westchester Group, an agricultural-asset management firm headquartered in Champaign, Ill.

It’s a happy ending for Wise, whose cost basis on his shares is around $8.50. A sale was the best way to unlock value for shareholders, he said, because Century was too small to operate efficiently as a public company. Bradshaw, who’s led Century since it was formed in 1973 from the remnants of several failed REITs, echoed the sentiment.

So perhaps Century would have reached this point even without prodding from the coastal investors. But it sure didn’t hurt. The proxy statement says that even after the liquidation proposal won shareholder approval in 2004, the board “resisted the motion based on a lack of conviction that a publicly demanded sale of the assets would maximize shareholder value.”

Instead, the board began focusing on improving Century’s properties to ready them for a sale. It wasn’t until a year later, after Mercury unleashed its letter, that the board finally told shareholders that it was open to all options to maximize value.

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