BGE holdings to be merged into REIT Phila. investment trust to pay $203 million for 16 properties; Office, retail buildings; Utility to be largest single shareholder of corporate specialty firm; Real estate


Constellation Real Estate Group, the part of Baltimore Gas and Electric Co.'s real estate arm that holds suburban office buildings and shopping centers, is being merged into Corporate Office Properties Trust, a small, but fast-growing real estate investment trust based in Philadelphia.

Under the terms of the deal announced yesterday, Corporate Office Properties will pay BGE $203 million, consisting of $107 million in cash and assumed debt, $72 million in Corporate Office Properties common stock and $24 million of convertible preferred stock.

In return, BGE's real estate group will contribute 16 properties composed of 1.6 million square feet of office and retail space.

The merger will make BGE, through its Constellation Enterprises Inc. subsidiary, the REIT's biggest single shareholder, with 41 percent of the common stock of Corporate Office Properties (31 percent when all stock options and convertible preferred stock is factored in). BGE also will get two seats on the merged company's nine-member board.

The transaction, expected to close in the third quarter, must be approved by Corporate Office Properties shareholders.

The deal is a way for BGE to get value for property that it has nursed back to health from the early 1990s recession while keeping a stake in expected future growth. Better yet, officials said, it puts the property into the hands of a company whose main focus is real estate.

"You couldn't write a better script," said Randall M. Griffin, 53, president of Constellation Real Estate Group (CREG) who will become president

and chief operating officer of the merged company.

Griffin will report to Clay W. Hamlin III, Corporate Office Properties chief executive officer. The combined company will operate out of both Philadelphia and Columbia, where Constellation's activities have been based.

The deal isn't a panacea for BGE, however: It doesn't free the utility from the drag of other property that's not part of the deal: about 4,000 acres of land, a failed entertainment complex in Orlando, Fla., and Piney Orchard, a 2,000-acre planned development in Anne Arundel County that's behind schedule. Some of that property has forced BGE to take financial write-offs.

"This represents a partial exit from the real estate business," said Steven D. Kesler, president of Constellation Investments Inc. "The piece that remains behind -- we're going to continue the same strategy we've been pursuing for a number of years position it until we can realize acceptable value."

The properties being acquired from BGE will boost Corporate Office Properties' portfolio by 59 percent.

The 12 office buildings and four shopping centers are either completed or under construction, total 1.6 million square feet, and are 96 percent leased, said Griffin. The properties are located in both the Baltimore region and in Northern Virginia.

Constellation Realty Management, a property management company formed by the merger two years ago of KLNB Inc. and some Constellation asset management divisions, will become an independent company, with ownership shared by KLNB and Corporate Office Properties.

Corporate Office Properties also gets options and rights of first refusal to acquire 92 acres of CREG land, part of the vast land holdings that stay with BGE as Constellation Properties Inc.

BGE's seats on the Corporate Office Properties board will be occupied by Edward A. Crooke, 59, chairman of Constellation Enterprises and vice chairman of BGE; and Kesler, 46, the Constellation Investments president.

Corporate Office Properties intends to keep acquiring new properties. That will dilute BGE's ownership percentage in the REIT, but should boost the value of its overall stake as Corporate Office Properties stock price increases.

"Aggressive and frequent," was how Griffin described the acquisition pace the REIT intends to set.

Earlier this month, Corporate Office Properties acquired 12 buildings near the Baltimore-Washington International Airport in Linthicum.

The REIT's shares, traded on the New York Stock Exchange, closed yesterday at $10.875, up 6.25 cents. BGE closed at $30.625, down 25 cents.

Pub Date: 5/16/98

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