ROYALE BECOMES OFFICE REIT
PHILADELPHIA, October 14, 1997 --Royale Investments, Inc. (Nasdaq: RLIN), a real
estate investment trust, announced today that the company has acquired the
Mid-Atlantic suburban office operations of The Shidler Group, a national real
estate investment firm.
The $170 million transaction included the acquisition of a 1.5 million square
foot Mid-Atlantic suburban office portfolio and the entire management team of
The Shidler Group's Philadelphia-based organization.
OFFICE FOCUS
Since its IPO in December, 1991, Royale has specialized in triple-net leased
retail properties. The transaction is part of Royale's new strategic plan to
focus on the suburban office market which continues to strengthen.
The acquisition allows Royale to:
- Immediately transform itself into an internally-managed REIT.
- Become a meaningful player in the Mid-Atlantic suburban office
property market with a core office portfolio.
-2-
- Add Jay H. Shidler as Chairman of the Board, a recognized leader in
successfully managing and growing public REITS.
- Add proven management team experienced in the acquisition, development
and management of office properties.
- Have greater access to the debt and equity capital markets.
TRANSACTION SUMMARY
The acquisition of the suburban office properties was accomplished through the
formation of an Operating Partnership with Royale acting as sole general
partner. In connection with the transaction, Royale issued .8 million new common
shares. Royale's Operating Partnership FCO, L.P. issued 2.6 million common
partnership units and 2.1 million convertible preferred partnership units and
assumed $100 million of fixed rate debt.
The common partnership units will receive a distribution yield equal to the
dividend yield of Royale's common stock and will be convertible into common
stock of Royale on a one-for-one basis beginning one year after the closing of
the transaction. The convertible preferred partnership units will have a
distribution yield of 6.5% and will be convertible into common partnership units
at a conversion price of $7.00 per share in two years. The Operating
-3-
Partnership will also assume a $100 million, 7.5% fixed rate, pre-payable,
mortgage debt which is non-recourse to Royale.
The Company has also arranged for a $100 million acquisition facility from
Bankers Trust.
MANAGEMENT
Jay H. Shidler, founder and Managing Partner of The Shidler Group will serve as
the Company's Chairman of the Board. In addition to his ownership interest in
the Operating Partnership, Mr. Shidler will own approximately 13% of Royale's
outstanding common stock.
Mr. Shidler is the co-founder and director of TriNet Corporate Realty Trust,
Inc. (NYSE: TRI) and is also co-founder and Chairman of the Board of First
Industrial Realty Trust, Inc. (NYSE: FR).
TriNet, with a $1.3 billion total market capitalization, is one of the nation's
largest public owners of net leased corporate properties. First Industrial, with
a $2.0 billion total market capitalization, is now one of the nation's largest
owners of industrial properties.
-4-
"This strategic transaction is the first step of a well-defined strategy to
increase shareholder value," said Mr. Shidler. "It's our goal to grow Royale to
a $1.0 billion REIT."
Clay W. Hamlin, III, formerly the Managing Director of The Shidler Group's
Mid-Atlantic region, is serving a Royale's President and Chief Executive
Officer. In addition to his ownership interest in the Operating Partnership, Mr.
Hamlin will own approximately 13% of Royale's outstanding common stock. Mr.
Hamlin, a 25-year veteran of the commercial real estate industry, will also
serve on the Company's Board of Directors.
Vernon R. Beck and John Parsinen, co-founders of Royale, will remain officers of
the Company and will continue to manage the retail portfolio of Royale. Mr. Beck
will also continue as a Director.
WESTBROOK PARTNERS INVESTMENT
As a result of Westbrook Partners prior investment in The Shidler Group's
Mid-Atlantic suburban office portfolio, Westbrook will own aproximately 10% of
Royale's consolidated equity capital including common partnership units and
convertible preferred partnership units. In addition,
-5-
Bill Walton, Managing Partner of Westbrook has joined Royale's Board of
Directors.
Westbrook is a significant investor in real estate and real estate operating
companies including strategic investments in Essex Property Trust, Inc. and
Sunstone Hotel Investors, Inc., two publicly traded REITS. Established in 1944
by former senior real estate executives of Morgan Stanley Group, Inc., Westbrook
currently controls $2.5 billion in real estate assets and maintains offices in
New York, Los Angeles and Dallas.
In commenting on the transaction, Bill Walton said "We are excited about the
future prospects of Royale given its strategic acquisition of The Shidler
Group's Mid-Atlantic office operations. The Shidler Group's track record of
successfully growing public companies was a significant factor in our decision
to invest in Royale."
PORTFOLIO
The total portfolio has over 1.8 million square feet and will have an 81% office
and 19% freestanding retail by square footage.
-6-
The office portfolio includes ten institutional quality, suburban office
buildings comprising 1.5 million square feet. The portfolio has high occupancy
stability and is currently 99.8% leased to major corporate tenants, including
Unisys Corporation, IBM Corporation, Teleport Communications Group and Merck.
The multi-tenant buildings are leased to such tenants as Hershey Foods, Pitney
Bowes, Ernst & Young and McGraw-Hill.
PRO FORMA FINANCIAL RESULTS
The transaxction is expected to be accretive and should increase Royale's funds
form operations (FFO) and funds available for distribution (FAD).
With the operating Partnership's results consolidated with those of Royale, the
pro forma quarterly results should be as projected below. FFO increases from the
pre-transaction target of $236,000 to $1,155,000 on a combined basis,
representing a 389% increase. Treating the common partnership units as having
been converted, FFO per share/common unit increases from $.166 to $.238,
representing a 43% increase, while the corresponding FFO payout ratio based on
its common stock dividend/common unit distribution decreases to 52%.
-7-
Pro Forma Quarterly Financial Results (1)
(in thousands except per share/common unit data
Current Consolidated Change
------- ------------ ------
Operating Results
Total Revenues $627 $5,162 723%
Funds From Operations 236 1,155 389%
(FFO)(2)
Funds Available for
Distribution (FAD)(2)
149 840 464%
Per Share/Common Unit
FFO .166 .238 43%
FAD .104 .173 66%
Payout Ratio(3)
FFO 75% 52% (31)%
FAD 120% 72% (40)%
The above consolidated financial pro forma is based on current property income
and expense information and reflects the payment of debt service on all existing
and assumed indebtedness.
- ----------
1 Assumes combination of present operations for a full quarter.
2 Weighted average common shares and common units outstanding are 1,420 and
4,847 for current and consolidated, respectively. Assumes all common
partnership units are converted into common stock at the beginning of the
period. All figures are after the payment of the quarterly distributions to
the operating partnership's convertible preferred partnership units which
are not convertible for two years.
3 Based on current quarterly dividends/distributions of $.125 per
share/common unit.
-8-
Statements in this press release are "forward-looking"
and are subject to many risks and uncertainties which affect Royale's business,
and could cause actual results to differ materially from these projections and
forecasts. The pro forma results do not account for any possible onetime charges
associated with the transaction and do not reflect any subsequent acquisitions
or capital activities. Additional uncertainties include competition within the
office industry, the balance between supply and demand for office space, the
effect of economic conditions, credit and the availability of capital to finance
planned growth.