Shares of office-focused real estate investment trust (REIT) Healthcare Realty Trust (HR) fell in early trading on Feb. 28, losing as much as 10.5% of its value. By roughly 2 p.m. ET the stock was still off by about 10%. Meanwhile, office peer Healthcare Trust of America's (HTA) shares were down as much as 4% at 2 p.m. ET, which is a bit odd, given that there's an acquisition going on here.
Healthcare Realty Trust and Healthcare Trust of America have agreed to combine their businesses, with Healthcare Trust of America shareholders receiving total compensation of $35.08 per share, according to the news release issued before the market opened today. That said, $4.82 of that will come from a special dividend paid to Healthcare Trust of America shareholders, with the rest coming in the form of stock. But it isn't that simple, because this is designed as a reverse merger, with Healthcare Trust of America buying Healthcare Realty Trust. So the dividend is the only tangible thing shareholders of Healthcare Trust of America will receive, the rest of the value is "implied" based on the planned 1-for-1 stock exchange.
When all the dust settles, Healthcare Trust of America shareholders will own 61% of the combined company while Healthcare Realty Trust shareholders will own 39%. That makes sense given that Healthcare Trust of America is the buyer, but the combined entity will be renamed Healthcare Realty Trust, change its ticker to Healthcare Realty Trust's "HR," the leadership team from Healthcare Realty Trust will be running it, and Healthcare Realty Trust will have more board representation. The dividend, meanwhile, will be set at Healthcare Realty Trust's $0.3025 per share per quarter and not Healthcare Trust of America's higher $0.325 per share per quarter, effectively leaving the latter REIT's shareholders with a dividend cut.
If all of this seems complicated, well, it is. Perhaps overly so, but that's how Wall Street works sometimes. However, digging in just a little here helps explain why both stocks fell on the kind of news that usually sends one stock higher and another other lower. Basically, investors aren't pleased with the final, and complex, outcome and they are voting with their feet.
The logic for this transaction is that it will increase Healthcare Realty Trust's scale and allow for cost synergies between the two companies. That makes some sense, but investors are clearly taking a show-me attitude, given that both of the healthcare REITs involved fell on the news. To be fair, a big down day on Wall Street probably didn't help investor sentiment any, but this complex deal doesn't seem to be particularly alluring for shareholders even though Healthcare Realty Trust is clearly going to end up a bigger REIT at the end of it all.