Monmouth Bids Signal Stepped-Up M&A Activity

July 14, 2021

While Monmouth Real Estate Corp.’s board of directors considers an unsolicited bid for its industrial REIT, other M&A activity is heating up.

Image Mohamed Mahmoud Hassan via Creative Commons

Industrial REIT Monmouth Real Estate Corp., which was set to be purchased by Sam Zell’s Equity Commonwealth in a $3.4 billion deal later this year, is now considering a second offer after receiving an unsolicited takeover bid this week reportedly from Starwood Capital Group.

The all-cash offer from the unidentified “large private investment firm,” which included commitment letters from a major global bank to cover debt financing and provide an equity bridge, came barely two months after Monmouth had signed a definitive agreement with Equity Commonwealth for sale of 65 percent of the REIT in an all-stock deal. The new bid, which came from Barry Sternlicht’s Starwood Capital Group, would be for the entire REIT, according to Bloomberg, which broke the news. If Monmouth goes with the new bid, it would have to pay a $62 million termination fee for the original deal with Equity Commonwealth, which is part of Zell’s Equity Group Investments LLC.

Monmouth, based in Holmdel, N.J., specializes in single tenant, net-leased industrial properties, subject to long-term leases, primarily to investment-grade tenants. The company’s portfolio includes 120 properties spread across 31 states, totaling 24.5 million square feet. The majority of the facilities are Class A buildings located near airports, seaports or transportation hubs.

So far, Monmouth has only said its board of directors had not yet responded to the new offer, but would be evaluating it in light of the company’s and its shareholders interests. J.P. Morgan Securities and CS Capital Advisors are acting as financial advisors and Stroock & Stroock & Lavan is providing legal counsel to Monmouth.

M&A activity heating up

This is the third offer Monmouth has received in recent months to sell its business. In December, Blackwells Capital LLC made a $3.8 billion all-cash offer to buy the REIT but it was rejected after a one-month review.

Jahn Brodwin, senior managing director, FTI Consulting. Image courtesy of FTI Consulting

Commercial real estate and REIT experts say it’s no surprise that mergers and acquisitions activity is picking up, particularly after the pandemic slowed or killed M&A deals last year.

“There’s always a certain level of this type of activity every year but because of the pandemic there was a delay, a period of a year or year and a half when nobody was doing anything,” said Jahn Brodwin, senior managing director in FTI Consulting’s New York office.

Because of those delays, he expects this year’s M&A deals to accelerate and multiply.

“If there were five transactions a year, now we’ll have 10 to catch up,” Brodwin told Commercial Property Executive.

The private investment firms like those run by Sternlich and Zell are also eager to spend money on big deals.

“Many big public equity shops have a tremendous amount of cash waiting to be deployed and they can do these multi-billion dollars deals,” Brodwin said.

Cheap debt is also helping spur M&A activity, he said. Stephen Boyd, a senior director in Fitch Ratings’ Corporates Group, agreed.

“M&A activity has been broad-based, including private equity funds positioning for a cyclical rebound and taking advantage of accommodative debt markets, as well as strategic REIT buyers in search of additional scale and/or looking to bolster positions in higher growth, Sunbelt markets,” Boyd said.

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While we wait to see how the Monmouth situation plays out, there are several other big REIT deals pending. Several of them involve REITs in the same sector making strategic mergers.

In late June, healthcare REIT Ventas, Inc. and New Senior Investment Group announced they had entered into a definitive merger agreement in an all-stock transaction valued at about $2.3 billion. Under the deal, Ventas would acquire New Senior’s portfolio of 103 senior living communities in 36 states totaling 12,404 units.

Also late last month, Griffin-American Healthcare REIT III, Inc. and Griffin-American Healthcare REIT IV, Inc. announced they had agreed to merge, with GAHR IV acquiring GAHR III in a stock-for-stock transaction that would create a combined company with approximately $4.2 billion in healthcare real estate assets.

In April, Kimco Realty Corp. and Weingarten Realty Investors entered into a definitive merger agreement under which Weingarten will merge into Kimco. The transaction would bring together two industry-leading retail real estate platforms with complementary portfolios of open-air shopping centers and mixed-use properties to create a company with a combined enterprise value of about $20.5 billion.