The JBG Companies, a Chevy Chase, Maryland-based private equity real estate company, plans to merge with New York REIT (NYRT), a New York-based real estate investment trust, the companies said last week.
The deal would create a Chevy Chase-based public company called JBG Realty Trust that would oversee 14.5 million square feet of real estate assets in New York and Washington DC, with 9.7 million square feet of office, 1 million square feet of retail and about 4,500 residential units.
“JBG is a company that wanted to go public and this feels like a low-cost, good way to accomplish it,” Michael Lewis, an analyst at SunTrust Robinson Humphrey, told PERE. “They'll also gain a toehold in New York. We're still working through what JBG is worth, but most people think the price paid here is close to fair value. It feels like a really good outcome for them.”
The outcome may not be so bright for NYRT, with other analysts joining Lewis in expressing concern about a material dilution in net asset value for NYRT shareholders – though Lewis notes that even after the sale, the new company might still trade in the short-term under net asset value, like many of its peer REITs currently. Lewis said he talked with many of the company's shareholders last week who have reservations about the price JBG will pay for the REIT. JBG emerged the winner after 60 companies signed nondisclosure agreements to pursue a sale, but Lewis said in an analyst note that shareholders will scrutinize other options to ensure JBG's offer is the best deal.
“Based on what we know now, we suspect there could be some who just want a sale of the company's assets and the return of their money at something north of where the stock currently trades,” Lewis wrote in his note last week. “We wonder if anyone thinks voting down the deal and turning the company over to a new Board/management team is a more attractive option – we seriously doubt it, as long as there is an adequate explanation that Eastdil turned over every stone and found the JBG deal to be the best available alternative for shareholders.”
There is a $10 million fee if investors vote down the merger and a $55 million fee if NYRT chooses a better offer, which Lewis wrote is unlikely. For the last few months, activist shareholders have nudged the REIT to rework its board and boost shareholder value through seeking a buyer for the company or selling off its properties. Starting last Friday, investors now have 30 days to nominate candidates to the board. Timing for a shareholder vote on the deal has not yet been made public.
JBG, founded in 1960, has closed a series of nine value-added funds, the most recent of which closed in 2014 on $680 million, according to its website. The firm also raised $2.5 billion in 2007 for an urban fund, and has managed various standalone vehicles, most recently a $280 core venture fund launched year. The firm's latest publicly-disclosed transaction was the April sale of a 1.9 acre development site in Alexandria, Virginia for $10 million, according to real estate data provider Real Capital Analytics. The firm could not be reached for comment by press time.