U.S. REITs – What to Expect from the Gramercy and Chambers Merger

geographic locationGramercy Property Trust (NYSE:GPT) leads the sector rankings of mixed industrial/office REITs; that is no secret. They did not even disclose all the data needed for peer comparison. Because of its aggressive acquisition program, the company has been ahead in nearly all growth metrics. The question is what we should expect of their proposed merger with Chambers Street Properties (NYSE:CSG). Gramercy has recently scheduled a special meeting to vote on the merger.

This 100 percent stock transaction — called a “merger of equals” — is set to maintain a split between industrial and office properties in their portfolios, although upon closing, they want to change. The merged company plans to sell suburban offices in certain markets and keep the office footprint near 25 percent. They also aim to maintain/reduce the leverage ratio as both businesses present total debt-to-capitalization just over 40 percent, the current one certainly being in line with the sector average; a more conservative target would slow down the merged company’s growth.

merger

The managements of both companies say the new entity will endure market cycles better for the portfolio’s diverseness and robustness. The merger will also make the company more prominent — it will certainly be in the sector’s top three — the component companies both being small for their sector in terms of market capitalization.

Although 56 percent of Chambers’ shareholders will own the new share pool, the new company will carry Gramercy’s name and ticker, and its CEO and chairman will be the current officeholders of Gramercy and Chambers respectively. Each company will choose five board members.

Gramercy-Chambers probably will not grow as much as Gramercy, but will likely continue leading the charts. Chambers placed second in the ranking, so this is really the combination of the sector’s two best performing REITs operationally.

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s