Price sells three sites to its real estate arm - Price REIT

Discount Store News, August 3, 1992

LA JOLLA, Calif. -- The Price Co. reported an $11.2 million pretax gain from the sale of three sites for $62.5 million to the Price REIT, the real estate investment trust it sponsored last year that previously acquired nine sites from the company.

The Price REIT acquired the Price Club in Corona, Calif., along with the adjacent 389,000-sq.-ft., 42-tenant Corona Hills Shopping Center anchored by Home Depot, Levitz, Ross Stores and Drug Emporium, and the 172,000-sq.-ft., 10-tenant College Square Shopping Center in Cerritos, Calif., anchored by Home Depot.

The Price Co. is likely to sell other company-owned and developed sites to the Price REIT, trade observers said, as this can provide Price with an important source of funds for expansion. At the same time, the company is expected to continue to purchase and develop sites for its clubs to retain control of the facilities while benefiting from the higher value of outparcel shopping centers that feed off the Price Club traffic.

The Price REIT deal enabled the price Co. to report a 13.4% rise in net income to $28.5 million from $25.1 million for the third quarter ended June 7. Sales for the period rose 10.2% to $1.658 billion from $1.504 billion. For the 40-week period, sales rose 12% to $5.631 billion from $5.028 billion, but net earnings were flat at $99.5 million against $100 million in the period in 1991.

However, earnings from operations excluding the real estate transaction were down 6% in the quarter, the company reported. This was an improvement from second quarter operating earnings, which were off 15%.

Robert Price, chairman and ceo, said the poor performances in both quarters was due to "substantial capital invest[ments] in Price Clubs not yet opened, losses in some of the new Price Clubs, cannibalization [by new stores from older clubs] and the weak California economy."

He noted that the club opened in Bensalem [Philadelphia], "has started very slowly. We are one of four clubs in the Philadelphia market, none of which appear to be doing well." Slow starts due to cannibalization were also reported for new clubs in Litteton, Colo., Maple Shade, N.J., Richmond, Va., and New Britain, Conn., but the initial unit in Dallas--which marks its entry into Texas and inaugurated head-to-head competition with Sam's Club--was reported off to a good start.

Robert Price said sales in the Price Club de Mexico--its joint venture with Controtradora Commercial Mexicana, S.A. in Mexico City--were "excellent and plans are being developed for expansion in major markets throughout Mexico."

He added that "a substantial amount of U.S. product is being shipped to Mexico and we are forming a trading company to facilitate the shipment of Mexican products to the U.S. and Canada."

(Wal-Mart, which preceded Price Co. into Mexico with Club Aurrera, a joint venture with CIFRA, N.A., formed a trading company with its Mexican partner to further commerce between the two nations.)

The Price REIT financed its three-site acquisition through loans of $25.5 million from CoreStates Bank and $39.5 million from "entities affiliated with Sol Price," a Price Co. founder and Price REIT shareholder.