New York REIT shareholders aren’t nearly as chuffed about the company’s proposed merger with JBG Companies as the executives involved.
The company’s stock dropped more than 8 percent to close at $9 per share Thursday, one day after the company announced that it had agreed to merge with JBG, a Maryland-based private real estate firm. The deal brings JBG’s assets under New York REIT’s publicly-traded umbrella and creates a new combined company, JBG Realty Trust, with around $8.4 billion in assets focused in the New York City and Washington, D.C. markets.
The transaction – should it be approved by New York REIT stockholders — will end a months-long strategic review process for the beleaguered REIT, which hired Eastdil Secured last fall to vet an entity-level sale of the company after increasing shareholder discontent over New York REIT’s performance and direction.
That strategic review was “a robust process that generated over 80 executed nondisclosure agreements” with potential investors, New York REIT chair Randolph Read said on a conference call Wednesday evening hosted by New York REIT and JBG executives to discuss the merger.
Read said after considering all the alternatives, including an outright sale of the company and a liquidation of its assets, New York REIT is “extremely pleased” with a deal he described as “nothing short of transformative” for the company.
“As a standalone publicly traded company, we do face some challenges that are well known to the market,” New York REIT CEO Michael Happel said on the call, adding the merger “is the best alternative to maximize value to our stockholders over the long term.”
He noted additional obstacles including the company’s external management contract with Nicholas Schorsch’s AR Global – which will be terminated after the deal’s completion — and its “modest internal growth opportunities.”
Happel, who will remain with the company in an advisory capacity during the course of the merger before leaving his position, also said JBG’s “track record of accessing institutional capital” will aid New York REIT, which has a $270 million outright purchase option on its One Worldwide Plaza office tower in Midtown next year. The company owns 49 percent of the 2.1 million-square-foot property, and shareholders have expressed concerns that the company doesn’t have the capital necessary to exercise the outright option.
But New York REIT’s stock performance Thursday indicates concerns remain over the deal, with various analysts who follow the company expressing reservations. Evercore ISI’s Sheila McGrath said in an analyst’s note in wake of the merger’s announcement that “the jury is out” on the transaction. The REIT, she wrote, “owes its shareholders a lot more transparency quantitatively why this transaction is better than all viable alternatives.”
SunTrust Robinson Humphrey’s Michael Lewis said a preliminary analysis of the deal indicates a dilution in net asset value for New York REIT shareholders.
And earlier this month – after news emerged that New York REIT and JBG were in merger discussions — investors Michael Ashner and Steve Witkoff penned a letter to the New York REIT board criticizing the company for ignoring overtures from an unnamed public company, contacted by Ashner, that was “enthusiastic” about a possible acquisition of the REIT.
The merger is slated for completion in the fourth quarter of this year, should New York REIT shareholders sign off on the transaction. JBG executives Matt Kelly and David Paul will serve as JBG Realty Trust’s CEO and president/COO, respectively, while Todd Rich, a JBG partner and an alumnus of Tishman Speyer, will lead the integration process.
JBG executives said on the call that they will look for a “dedicated head of New York operations” to lead the company’s interests in the city, as JBG Realty Trust will be based out of JBG’s current headquarters in Chevy Chase, MD.