The latest marriage proposal in the real estate investment trust (REIT) world wasn't making its suitor popular on Wednesday. Investors traded out of Independence Realty Trust's (IRT -4.27%) stock after the company and its target revealed plans for what's tantamount to a buyout. Independence's shares declined by more than 4% across the trading session.
Creating a large new REIT
That morning, Independence and fellow residential REIT Centerspace (CSR +8.82%) announced they would combine in an all-stock deal. The companies said that fusing their businesses together would create a REIT with a pro forma market cap of around $5 billion and an enterprise value of roughly $8.1 billion.
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Under the terms of this agreement, Centerspace investors are to receive 3.8 shares of Independence's common stock for each Centerspace share they own. Independence will issue around 67.7 million new shares of common stock and common partnership units. At closing, it's estimated that current Independence investors will own 78% of the company, and Centerspace investors the rest.
The boards of directors of both companies have approved the arrangement, giving it significant traction, although it's still subject to a green light from investors in the two REITs. The deal is expected to close as early as the end of this year.
NYSE: IRT
Key Data Points
The usual deal dynamic
As this is essentially an acquisition and an acquirer's stock price tends to fall on deal news, Independence's shares took a hit post-announcement. In this instance, investors were likely concerned about share dilution given the pending new equity issue -- plus other issues such as transaction costs on such a large-scale deal.
Operationally, though, I feel this makes sense for Independence. Blending with Centerspace will create a significantly wider geographic footprint in this country, with vibrant real estate markets in states such as Minnesota and Colorado. I wouldn't have been so quick to sell out of Independence's equity.
