AMERICAS NEWS: Moving in reverse

The JBG Companies is in the middle of a reverse merger that is proving more difficult than executives expected.

The Chevy Chase, Maryland-based private equity real estate firm announced in late May that it would combine with New York REIT, a New York-based real estate investment trust. The combined entity, JBG Realty Trust, would oversee about $8.4 billion in assets, with 14.5 million square feet of office, residential and multifamily assets in New York and Washington DC.

While a spokesperson for JBG Companies declined to comment, PERE understands that the firm first began pursuing an initial public offering (IPO) in 2014, similar to New York-based Paramount Group’s record-setting $2.3 billion offering. When volatile markets caused JBG to shelve its IPO, the firm instead opted to do a reverse merger with NY REIT.

Since last November, New York REIT had more than 80 companies sign nondisclosure agreements to pursue a sale before JBG emerged as the winner in a deal valued at $2.9 billion, given the company’s stock price at the end of May.
“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 when the deal was announced. “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.”

However, some shareholders have publicly expressed concern that the sale price is considerably below the perceived net asset value (NAV) of the REIT’s underlying assets. Several activist investors have criticized the merger as detrimental to the interests of shareholders, and the REIT’s stock dropped 8 percent the day after the merger was announced. Despite activist pressure to not go forward with this sale, JBG executives believe “there is a higher likelihood of the merger closing than many currently seem to think,” Lewis wrote in a June analyst note after meeting with the management team. As of press time, the shareholder vote had not yet been scheduled.

Other industry onlookers also showed support for JBG’s reverse merger. “In the recent past, the REIT IPO market has been somewhat anemic,” said Gil Menna, lawyer and co-chair of Goodwin Procter’s REIT practice. “Although one can quibble about the economic and non-economic terms of the proposed transaction, a reverse merger is a thoughtful way to bring a portfolio like JBG Companies’ portfolio to market in this environment.”