New York REIT investors are unhappy about the company’s planned merger with Maryland-based real estate investment and management firm JBG Companies.
The deal, which was announced last week, resulted in immediate repercussions after analysts questioned its benefits for investors.
The company’s stock price dropped 8.1 percent a day after the agreement was announced. The decline was the largest since April 2014, when the company’s shares started trading in the New York Stock Exchange. The company closed at $10.75 during its first day of trading.
“The jury is out and New York REIT’s board owes its shareholders a lot more transparency quantitatively why this transaction is better than all viable alternatives in the short, medium and long term,” Sheila McGrath, an Evercore ISI analyst, wrote in a note last Wednesday.
Meanwhile, a “very rough analysis” from SunTrust analyst Robinson Humphrey pointed to dilution of net asset value for New York REIT shareholders.
The deal, if it gains approval from New York REIT shareholders, would result in the creation of a combined company called JBG Realty Trust. The proposed company will have an enterprise value of $8.4 billion, with a portfolio that covers 14.5 million s/f in New York City and Washington DC.
The combined company, which is expected to have 22 percent of its portfolio in New York City, will have its headquarters in Chevy Chase, Maryland.
There are three ways that the New York REIT/JBG deal can collapse. Shareholders can vote against the deal, triggering a breakup fee of about $10 million. If the deal falters because of a competing bid, it would require a breakup fee of $55 million. Lastly, the board can also be ousted.
The approval of the deal may hinge on the vote of activist investors such as Jonathan Litt and Michael Ashner. The pair has yet to comment on the proposed deal. Litt, the founder and CIO of Land and Buildings Investment Management, previously called for the ouster of half of New York REIT’s board.
Meanwhile, Ashner, along with developer Steve Witkoff, criticized the company for its “ugly discourtesy to potential suitors.”
Rumors over the deal first surfaced from a Reuters report earlier this month. When the story first came out, it had the opposite effect on New York REIT stocks. It resulted in a price hike for New York REIT shares, with values jumping by as much as 12.6 percent.