The Baltimore Sun, Baltimore, Maryland
Sunday, January 29, 1995

IGC to step back to its core business

Real estate firm sheds race interests

By Kevin L. McQuaid, Sun Staff Writer

Three decades in the business had taught James J. Wilson about real estate cycles - sharp spurts of growth followed by steep plunges.

He was determined to avoid those, if possible, for his company, Interstate General Co. Ltd. Partnership. And the secret, Mr. Wilson concluded, lay in diversity.

So much so, that he has worked tirelessly to transform the St. Charles-based real estate apartment investor, homebuilder and community developer into such diverse businesses as horse racing and waste conversion.

Unfortunately for the publicly traded IGC, potential investors either didn't agree with or simply failed to recognize the diversity in light of the company's real estate activities, which include a 9,100-acre planned community in Charles County and a similar, but smaller, 435-acre effort in Puerto Rico.

"The picture as a whole was in some ways too complicated for most analysts and the investing public to understand," said Ray Swanson, a stockbroker with Scott & Stringfellow in North Carolina, who follows IGC.

Whether complicated or not, the unique diversity has contributed in part to IGC's stagnant per-share stock price of $7, nearly eight years after debuting at $9.50.

The price wouldn't be so vexing were it not for the company's clear success in at least one element of its diversity - the horse racing industry, which it entered in 1989 when a subsidiary bought the El Comandante race track in Puerto Rico for $68 million.

Since then, the appraised value of the track has more than doubled to $124.3 million, thanks in part to IGC's creation of a 610-strong electronic off-track betting system that increased El Comandante's handle - the amount bet on races - by a compound annual rate of 22 percent, to roughly $275.5 million last year.

But instead of ranting over market forces beyond its control, IGC intends to spin off its racing interests into a new publicly traded partnership known as Equus Gaming Co. L.P. early next month.

IGC believes ponying up the racing division to the NASDAQ stock market is the best way to generate a true value for current shareholders that is unattainable as long as it remains harnessed to the company's stable.

Under the plan, existing IGC unit holders will receive one Equus unit for every two IGC units held on Feb. 6.

Although IGC declined to predict Equus' trading price, shares are expected to trade between $5 and $7, according to industry stock averages and stockbrokers who follow the company.

The company's frustration is understandable. Normally real estate companies are criticized by Wall Street for not having enough diversity, because common market logic and history dictate that diversity serves as a shield to the cyclical nature of the real estate business.

"From an analytical perspective, we expect the Equus distribution to greatly benefit shareholders," said Gregory G. Kreizenbeck, IGC's president and chief operating officer since March 1994.

"Years ago, conglomerates with different operations were admired, and the parts were recognized by the market at different multiples. It doesn't seem to be that way now, however."

With the racing concern spun off, IGC intends to refocus efforts on its real estate activities, which range from owning and managing 31 apartment complexes and developing St. Charles to running residential building division American Family Homes Inc. and developing 431 acres outside San Juan known as Parque Escorial.

"Real estate is really our core business, and will continue to be," Mr. Kreizenbeck said.

"Whereas we had been diversified through racing and waste technology, our diversity going forward will be geographical."