BTR Realty Inc. officials explained their proposal to convert the company to a real estate investment trust yesterday, saying they hoped the move would free up funds for dividends and raise the price of BTR's depressed stock.
The Linthicum-based company said Friday that plans for the conversion came too late for the move to be voted on at yesterday's annual shareholders' meeting at the World Trade Center in Baltimore.
The small development company's projects include the Harford Mall, York Road Plaza at the Baltimore city-county line and Rolling Road Plaza in Catonsville.
"The company owes a lot of debt and might be paying 8 or 9 percent interest," Chairman Archibald E. MacKay told the crowd. "Instead of paying that money to our creditors, we can pay it as a dividend to our shareholders."
A real estate investment trust (REIT) is an income-oriented method of organizing a real estate company. Federal tax laws exempt the trust from taxes in exchange for a promise to pay 95 percent of the company's net income as dividends each year. Many REITs pay more, because depreciation rules mean they often have better cash flow than net income. The government then collects taxes from the stockholders who are paid the dividends.
A REIT usually gets money to grow and build new projects from making secondary stock offerings, BTR President F. Patrick Hughes said. That lessens the REIT's dependence on bank financing, which remains difficult for developers to receive on favorable terms.
"If the experts have it right, securitization is the wave of the future in real estate financing," Mr. Hughes said. "We share that view."
The company's plan calls for the creation of a REIT, called Mid-Atlantic Realty Trust, that would raise $60 million to $100 million by selling stock or convertible bonds. Most of that money would go to pay down BTR's $145 million debt before Mid-Atlantic takes over BTR.
Converting the debt to equity would make the company more stable and cut interest costs, officials said. It might also allow the company to resume paying a dividend, which it has not done since 1990.
The dividend cut was a major reason the company's stock has slipped as low as $1.50 a share, well below the $6.20 a share the company says it is worth. It has rebounded somewhat recently, reaching $3 last month and closing at $2.875, up 12.5 cents, yesterday.
"If we didn't think it would help the stock price, we wouldn't do it," Mr. Hughes said after the meeting.
Mr. MacKay also said the company's future focus would be on developing and running strip shopping centers in the mid-Atlantic region. A late-1980s burst of speculative development left BTR with troublesome investments in raw land and other problems with shopping centers on the outskirts of Phoenix, Ariz.