Real estate investment trust Equity Commonwealth announced this week that it will acquire Monmouth Real Estate Corporation in an all-stock transaction valued at approximately $3.4 billion. The merger agreement includes the assumption of debt. Equity Commonwealth and Monmouth shareholders are expected to own approximately 65% and 35%, respectively, of the pro forma company following the close of the transaction.
Monmouth’s portfolio currently comprises 120 properties that total 24.5 million square feet. The company also has six properties totaling 1.8 million square feet under contract and leased to investment grade tenants. The acquisitions are expected to close in 2021 and 2022. Monmouth’s properties are also deemed high quality. The company’s portfolio consists of single-tenant, net-leased industrial assets that are located across 31 states, mostly in the eastern part of the U.S. Many of the properties are located near airports, seaports, transportation hubs and are situated within or near major population centers. The property locations position Monmouth’s portfolio well to serve both the first and last mile of supply chain.
Equity Commonwealth expects the acquisition to be a win for both parties. The combination of its sponsorship and strong balance sheet and the income stability of Monmouth’s portfolio should provide the combined company with stable, recurring cash flows for future acquisitions. Plus, Equity Commonwealth is already positioned to execute its growth strategy, which is not dependent on raising more debt or equity capital. The company is expected to have approximately $2.5 billion of pro forma cash on its balance sheet when the acquisition is complete. Meanwhile, Equity Commonwealth plans to shed its four office properties, which total 1.5 million square feet along with Monmouth’s portfolio of marketable securities and reinvest the revenue into future acquisitions.
Deal to Provide Stable Cash Flows
“The transaction provides Equity Commonwealth with a high-quality, net-leased industrial business with stable cash flows while preserving EQC’s balance sheet capacity for future acquisitions,” Sam Zell, Chairman of the Board of Equity Commonwealth, said in a statement.
“Monmouth provides an attractive and scalable platform,” David Helfand, President, Chief Executive Officer and Trustee of Equity Commonwealth said. “With significant cash and balance sheet capacity, we have the ability to grow the platform and create long-term value for shareholders.”
This deal will also help Monmouth diversity its portfolio. The company’s largest tenant accounted for 55% of its annual rent for the first quarter of this year. Equity Commonwealth will look to diversify its tenant bases and industry focuses as the portfolio expands.
“Following a strategic alternatives process, our Board unanimously determined that the merger with Equity Commonwealth is the best outcome to maximize value for Monmouth stockholders,” Michael P. Landy, President and CEO of Monmouth said in a statement. “Our stockholders will benefit from Equity Commonwealth’s preeminent leadership team, which has an exceptional track record of delivering shareholder value, its strong balance sheet and its focused strategy to build on Monmouth’s over 50 years of success creating a market leading industrial REIT.”
Joe Dyton can be reached at email@example.com.