What Gramercy Property Trust and Chambers Street Properties are labeling as a merger of equals will be completed by them currently this week. The REITs may be taken into consideration as equals because of the relativity of the size of its market capitalization. But it must be noted that here is where the resemblance ceases to exist. Mixed feelings have come about due to the merger for the shareholders of both companies. For Chambers shareholders specifically, doubt is high in regards to whether they will be okay with an exchange of a decreased dividend yield for increased growth.
Dividend policies are distinct for these net lease REITs. Gramercy, because of having a more aggressive acquisition program in place, is considerably more conservative with its payout for dividends as compared to Chambers.
Additionally, the growth strategies are not the same. During 2015 in the period of the first nine months, the AFFO per share of Chambers had not experienced much growth in comparison to Gramercy’s growth that was amazingly impressive reaching 59 percent.
Management has taken the liberty already to announce that the newly combined company will provide a payout for AFFO at the rate of 70 to 80 percent, which is very much higher than the 49 percent that is offered by Gramercy, but which is lower than that of Chambers at 92 percent (at least in Q3). Under the current scenario, a lower payout will mean a lower dividend rate and a lower dividend yield.
It is yet unknown if a decreased dividend yield will please the Chambers shareholders. An intermediary dividend that is somewhere between the spectrum of 3.2 percent by Gramercy and 7.0 percent by Chambers will most seemingly be the outcome in 2016. It is estimated that the newly defined dividend will be set to pay out somewhere in the range of 5.5 percent to 6.5 percent.
Since the announcement last June that there could be a possible transaction taking place, there was a 7 percent drop in the shares of Gramercy, with the shares of Chambers also experiencing a drop of 3 percent. At first, excitement was stirring, but it has quickly subsided. There was an increase of 3 percent in the MSCI US REIT index during this time period.
The combined portfolio will be balanced by both industrials and office/banking centers. Under the Gramercy name, the combined entity provides for a tax-free exchange of shares in which the shareholders of Chambers will possess ownership at approximately 56 percent, while shareholders of Gramercy will possess ownership of the estimated remaining 44 percent. The new company will be under the direction of Gramercy management.
Companies: Gramercy Property Trust, Inc. (NYSE:GPT), Chambers Street Properties (NYSE:CSG).
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