There has been an increase in mergers and acquisitions in real estate investment trusts in recent years. For instance, the number of REIT deals in 2020 has increased by 50% compared to 2019, but the value has declined. By August 2020, 1300 REIT deals had been announced, but their worth was $56 billion. In contrast, by August 2019, 850 REIT deals worth $83 billion were announced. Among the many reasons for the trend is that investors seek to continuously invest in undervalued REITs. With the pandemic leaving businesses on their knees, the financially able businesses are using the opportunity to win bids for bankrupt companies. The last decade has seen a few favorable deals, and here are the five we think were the best REITs acquisitions.
Brookfield Bought Forest City for $11.4 billion
In July 2018, Brookfield Asset Management announced that it would buy Forest City for $11.4 billion. The agreement meant that Brookfield would acquire office space measuring 6.3 million sq. ft., 2.3 sq. ft. of life science facilities, 2.2 million sq. ft. of retail, five developmental projects, and 18,500 multi-family units. According to Commercial Property Executive, the deal was closed in December 2018. Besides acquiring a 51% in a 406-unit residential tower project in Arlington, Brookfield purchased all outstanding common stock shares of Forest City at $25.35. It also assumed the unconsolidated and consolidated debt. David LaRue, Forest City’s CEO, remarked of how glad they were that Brookfield recognized what Forest City was offering. It had previously declined a non-binding proposal from a large investor on March 22, 2018, because the prospective investor did not want to eliminate third party consents.
Simon Property Acquired Taubman for $3.6 Billion
When Simon Property Group announced that it would buy Taubman Centers shares in February 2020, Taubman’s stock increased by 52%. Simon Property Group planned on buying the Taubman shares at $52.50, which equated to a 51% premium. The deal also included that Taubman would continue to own 20% of the Taubman Realty Group LP and would sell a third of the stake. Analysts concluded that the $3.6 billion arrangement was worth it; thus, Taubman shares were upgraded from hold to sell. Among the assets acquired included 24 retail properties, 3 of which are in Asia and the rest are in the US
Blackstone and Ivanhoe Cambridge Acquired Pure Industrial for $2billion
According to Reuters, Blackstone offered to buy Pure Industrial shares at C$8.10, which was a 20% premium. The deal was all-cash, and the transaction would amount to C$3.8 billion. At the time, Pure Industrial said it was still considering accepting any superior offer before payment of the $77 termination fee. However, it seems it did not get any because the deal was closed in May 2018 when Blackstone and Ivanhoe Cambridge owned 62% and 38%, respectively. Pure Industrial had continued paying monthly subscriptions until the deal closed. Among the acquired assets include 5371 Premier Park, logistics facilities, submarket, 119,165 sq. ft. warehouse, and many more.
Blackstone Acquisition of Gramercy Property Trust for $7.6 billion
In May 2018, Gramercy Property Trust announced it had entered into a definitive agreement with Blackstone Real Estate Partners. Blackstone would acquire its shares at $27.50 in a $7.6 billion all-cash transaction. The $27.50 share price was a 15% premium over the day’s close price and a 23% premium over the 30-day weighted average share price. As reported by Business Wire, some of the conditions to be met included waiting until the Gramercy shareholder approved of the transaction.
In October 2018, the deal was finalized, giving Blackstone control of the Gramercy owned 81 million sq. ft. of real estate properties across the country. The holdings enjoyed 96.7% occupancy, so Blackstone was sure of good returns. Besides, Gramercy managed commercial real estate assets totaling about $2.4 million and ownership interests in 33 properties.
American Realty Capital Properties Acquisition of America Realty Capital Trust for $3.1 billion
As published by Financial Advisor Magazine, Nichols, the CEO of both companies which are under the same management company, was on the hunt to expand the firm into one of the largest single-tenant landlords in the country. Consequently, before even this acquisition of American Realty Capital Trust, American Realty Capital Properties Inc. had acquired more properties such as General Electric’s 447 properties and CapLease Inc, the latter setting the REIT back $2.2 billion. Nichols added that since January 2013, they had braced themselves to build their portfolio that year in preparation for the future.
Both companies’ respective boards approved the $3.1 billion acquisition in February 2013. Following the acquisition, American Realty Properties Inc. increased its assets to 2,579 single-tenant properties across 48 states, making it the second-largest single-tenant REIT after California’s Realty Income Corp. Their income significantly improved since the property had an annual rental income of $527 million.
Sometimes REITs Acquisitions Are the Only Option
Even in business, perseverance is one of the traits of a good businessman, but there comes a time when you must let go or change the strategy. JC Penney is a department store chain that has been around for over a century, and according to CNBC, even when the times have gotten so hard that it filed for bankruptcy, it still avoided going the acquisition route. Despite experiencing deteriorating sales for a while, it still held on and therefore decided to spin its real estate into a REIT.
The REIT created would help the store have additional funding by selling a 35% stake to a third party investor. It was also considering selling real estate and leasing it back to deal with the cash flow problem. However, that strategy had some hiccups because JC Penney had to have a business plan and meet certain terms; otherwise, an acquisition was the only way out of the predicament. Eventually, JC Penney did not have its way. In early September 2020, Simon Property Group and Brookfield Property were announced to have an interest in acquiring J.C Penny such that both REITs would take on $500 million in debt and pay $300 million.