(Read more on the debt and equity markets.)
WASHINGTON, DC-After months of hints such a move was in the offing, Republic Property Trust announced it has signed a definitive merger agreement to be acquired by Malvern, PA-based Liberty Property Trust in an all cash transaction for approximately $850 million, or $14.70 per share. The purchase price per share represents a 28% premium over Republic's closing share price on July 23.
Earlier this year, Republic Property Trust formed a special committee to evaluate strategic alternatives, including acquisition. Indeed, the company informed shareholders that it had received an unsolicited indication of interest from another public REIT. Because of these public maneuverings Friedman, Billings, Ramsey & Co. analyst Wilkes Graham says in a research note, the price paid for the REIT is surprising high. "The company's intention to be acquired has been public for four months. We estimate a 5.8% cap rate on the transaction and believe the price paid is well above the market's expectations," he wrote.
Not surprisingly, he continued, Liberty Property shareholders are not likely to be pleased with the acquisition. "Several REITs had previously told us that they could not be comfortable with Republic Property Trust's assets above $11 per share given the high exposure to the Dulles Corridor," he wrote.
Conversely, Northern Virginia-exposed REITs such as Duke Realty Corp. and Corporate Office Properties Trust Inc. and DC-exposed REITs Boston Properties Inc. and Vornado Realty Trust do benefit as investors reprice these companies' assets in the area.
Frederic Ruffy, an analyst with the investor education firm Optionetics, agrees that Liberty Property Trust shareholders may be feeling a bit of sticker shock. "On May 14, shares of Republic Property Trust surged 23% following news that the company's board of trustees had formed a special committee to explore strategist alternatives, which included the possible sale of the company," he tells GlobeSt.com. "In addition, the news comes after Liberty reported a 23% decline in year-over-year second quarter earnings. Shares fell 2.3% ahead of the news on Monday."
Liberty's stock is down 12.7% so far this year, he notes. Today, it has sunk $1.12 to $41.79--its lowest levels since May 2006. "In sum, the weakness in the share price is a sign that investors aren't confident that the merger is the best solution to the company's recent problems."
According to Liberty Property Trust, the acquisition is an entrée point into the DC market. "We have been strategically focused on entering this market for some time and are pleased to be able create such a critical mass of office assets in the DC market through a single transaction," says CEO and chairman William P. Hankowsky. "We view our entry into the Washington, DC market as a natural complement to our Baltimore/Washington corridor presence."
After the completion of the transaction, which is subject to customary closing conditions and shareholder approval, Liberty will own 2.6 million sf of office properties in the Greater Washington, DC area. The Republic portfolio consists of 13 operating properties consisting of 24 office buildings. Also, Republic has a redevelopment property which, upon completion, will comprise 176,000-sf of prime office space in downtown Washington, DC.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
