What happened
Shares of real estate investment trust (REIT) Bluerock Residential Growth (BRG) took off at the open of trading on Dec. 20, rising as much as 78% at one point in the first half hour of the day. That gain is likely to be fairly sticky, as the rise is related to an acquisition offer from a real estate business owned by Blackstone (BX -0.34%). For reference, Blackstone was down a couple of percentage points, though that likely had more to do with the market's broader declines than this rather complicated deal.
So what
The first piece of this acquisition is fairly easy to understand. Blackstone will pay $24.25 per share in cash for each share of Bluerock Residential. That's a tidy 124% premium over where Bluerock Residential's shares traded on Sept. 15, before the fact that the two companies were talking hit the newswires. Blackstone will basically be acquiring all of Bluerock's 30 apartment assets and loans on 24 additional multi-family properties. Now for the complicated part.
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In addition to this multi-family portfolio, Bluerock Residential also owns interests in 3,400 single family homes that are being rented out. It seems that Blackstone doesn't want these assets, so they are being spun off to Bluerock Residential shareholders as a separate company, to be managed by Bluerock Real Estate, prior to the consummation of the Blackstone deal. Bluerock Residential estimates the net asset value (NAV) of this spinoff at $5.60 per share. The Blackstone acquisition is expected to occur in the second quarter of 2022, but is contingent on the single-family-home spinoff.
Now what
There are a lot of moving parts here. Just because the NAV of the single-family assets is pegged at $5.60 per share doesn't mean the new shares will trade there. For truly conservative investors, it's probably best to just take the cash and run. That said, more aggressive types looking for focused exposure to single-family homes might want to stick around. The biggest risk is that the spinoff doesn't take place and the Blackstone deal gets scuttled, in which case Bluerock Residential's stock would likely tank.