CreXus rejects Starwood bid to create mega US mortgage REIT

Barry Sternlicht has been forced to put plans to create one of the largest commercial mortgage REITs in the US on hold after CreXus Investment Corporation rejected a $254 million takeover bid from Starwood Property Trust.

The board of directors at CreXus’, a commercial mortgage REIT managed by the mortgage-backed securities REIT, Annaly Capital Management, revealed on Monday night it had rejected the offer and would instead go ahead with a $539 million rights offering. The equity from the share sale will finance the acquisition of a $586 million portfolio of 30 loans from Barclays Capital Real Estate.

As part of its offer, though, Starwood had called for the rights offering to be suspended. Offering $14 a share for CreXus, or a roughly 20 percent premium to its trading price on Monday, the deal would have created a commercial mortgage REIT with a market cap of more than $2.5 billion.

Barry Sternlicht

Sternlicht said in a statement, the combine REITs would be “accretive to [Starwood Property Trust’s] earnings, provide the potential for higher dividends for [Starwood] and CreXus shareholders and allow shareholders of both companies to share in the cost savings and accretion created by the combination”.

However, he also cast doubt on the BarCap portfolio deal saying more than 50 percent of the portfolio was set to mature before the end of the year, a factor that could affect CreXus’ dividend.

CreXus offered no explanation in statements for rejecting Starwood’s offer, but it said the rights offering, which was expected to raise gross proceeds of $575 million and net proceeds of $539 million, would be used to fund the BarCap portfolio deal. The portfolio of loans consists of commercial mortgage loans, subordinate notes and mezzanine loans across the hotel, office, condo, multifamily and retail sectors. It is expected to close in mid-April.

Starwood last week revealed it had invested $650 million of gross capital since December, 76 percent on new originations and 24 percent on acquisitions. Among the latest deals was the origination of a $165.5 million first mortgage, mezzanine loan and corporate loan secured against six California hotels, a $30 million mezzanine loan origination on a Manhattan hotel and the discounted purchase of a $188 million mezzanine loan secured against a portfolio of 10 office buildings in Northern Virginia.