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2 hotel REITs to combine in $1.3B deal; activists keep up the pressure


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2 hotel REITs to combine in $1.3B deal; activists keep up the pressure

The week ending April 15 turned the spotlight on the select-servicelodging space, with Apple Hospitality REIT and Apple REIT Ten agreeing to mergein a $1.3 billion cash-and-stock deal. Investor criticisms of MGM Resorts' REITplan and the outcome of Ashford Hospitality Prime's strategic review, as well asBrixmor's appointment of a permanent CEO also led headlines during the week.

Last bite of the Apple

Apple HospitalityREIT Inc. reached a deal to acquire nontraded cousin in a $1.3 billion tie-up.

Apple Ten is the only remaining nontraded Apple REIT after AppleREIT Seven Inc. and Apple REIT Eight Inc. mergedinto Apple REIT Nine Inc., which changed its name to Apple Hospitality REIT followingthe 2014 deal and listed publicly on the NYSE in 2015.

According to a statement issued Thursday, Apple Hospitality agreedto take over Apple REITTen in a cash-and-stock deal with an implied value of $1.3 billion. The merged entityis expected to have a portfolio of 234 hotels across 33 states and an enterprisevalue of roughly $5.7 billion. The transaction has already been approved by thecompanies' respective boards and should be finalized during the third quarter, pendingshareholder and other approvals.

In a conference call, Apple Hospitality executives said theybelieve that shared leadership as a result of the merger will prove to be a for the company.

Canaccord Genuity Inc. analyst Ryan Meliker is also bullish aboutthe potential merger, saying in a note that he does not expect any higher offersto materialize even as the deal provides for a 45-day "go-shop" periodthat allows Apple REIT Ten to accept bids from other parties.

"The possibility of this merger is something we had beenbullish on since initiation, as the size, scale, geographic diversification, qualityof assets, balance sheet, and asset management is highly aligned with that of thelegacy APLE portfolio," the analyst added.

A pair of FBR & Co. analysts likewise offered a favorableview of the transaction, saying it "provides further diversity and bulk tothe APLE story, which should further lower the cost of capital and synergisticallyimprove margins."

Active activists

MGM Resorts Internationaland Ashford Hospitality Prime Inc.also made news this week as activist investors put pressure on their respectivecorporate initiatives.

* Although MGM Resorts earned muted praise from Land & BuildingsInvestment Management LLC for its plan to create a REIT, the activist investor hurled criticisms at the company's proposed IPO. The activist investor, in particular, took issue withthe fact that MGM Resorts failed to inject all of its real estate into MGM GrowthProperties, while opting to control the REIT.

In a letter to MGM Resorts shareholders, Land and Buildings founderand Chief Investment Officer Jonathan Litt argued that MGM Resorts Chairman andCEO Jim Murren "has taken a half-step to unlock the value of MGM, which isbetter than no step at all," adding that "it is perplexing why he wouldnot go all the way and decisively unlock the inherent value in MGM Resorts."

* Ashford Prime, meanwhile, took more flak from activist investor Sessa Capital (Master)LP following the conclusionof its strategic reviewprocess.

Sessa lambastedthe REIT's board for coming up with "a repackaged and rehashed set of proposalsthat depend on follow through from an incumbent board that hasn't produced in thepast."

Unconvinced of the merit of the board's proposed initiatives,which include the sale of four hotel assets, the activist investor reiterated itscalls for Ashford Prime's shareholders to replacethe incumbent directorswith its own slate of nominees.

No vacancy

More than two months since it was plagued by an that led to the exit ofsome of its top executives, BrixmorProperty Group Inc. found a permanent leader to take the reins.

The New York-based shopping center REIT said Tuesday it James Taylor, the CFO andtreasurer of Federal Realty InvestmentTrust, to serve as its new CEO and president. Taylor willstep down at Federal Realty, effective May 19, and will take the corner office atBrixmor on May 20. The company's stock received a boost at midday Tuesday following the announcement.

Daniel Hurwitz, who has been filling in as Brixmor's interimpresident and CEO since the accounting scandal came to light in February, will continueto serve on the company's board.

Specialty REITs go shopping

A pair of specialty REITs also made headlines after announcingthat they recently hit the acquisition trail.

* Crown CastleInternational Corp. on April 8 announced that it a tower development vehicle whollyowned by Berkshire Partners.

The Houston-based wireless telecom REIT said it paid roughly$461 million in cash to acquire Tower Development Corp., which has a portfolio of336 towers across the U.S. and Puerto Rico. The transaction is expected to injectabout $25 million to $27 million into the company's site rental gross margin duringits first full year of ownership.

The acquisition "represents an attractive and accretiveinvestment opportunity that further enhances Crown Castle's portfolio of wirelessinfrastructure," President and CEO Ben Moreland said in a release.

* Corrections Corp.of America revealed Monday that it bought out Correctional Management Inc., a privately heldcommunity corrections firm operating seven prison facilities with 605 beds in Colorado.

The Nashville, Tenn.-based prison REIT said it paid roughly $35.0million in cash for the acquisition, which expanded its portfolio to 24 residentialre-entry facilities across six states.

Exploring options

American FarmlandCo. announced Thursday that it initiated a strategic review process barely six months after becominga publicly traded company.

With its stock consistently trading at a "substantial"discount to NAV since its October 2015 IPO,the farmland REIT is hoping to enhance shareholder value, potentially through anoutright sale of the company, joint ventures and asset sales, among other strategicoptions.

To aid it in the process, the company engaged Citigroup GlobalMarkets Inc. and Raymond James & Associates Inc. as its financial advisers andGoodwin Procter LLP as legal counsel.

Bulk buying

An industrial REIT and a shopping center REIT each announcedlarge-volume property transactions this week.

* Rexford IndustrialRealty Inc. said Monday it is on track to add nine industrial assetsin Southern California infill markets via an estimated $191.0 million struck with a private REIT.

The Los Angeles-based industrial REIT aims to use proceeds fromthe exercise of an accordion feature on its $125.0million unsecured term loan and a recently launched public to help fund the transaction.

The industrial assets in the portfolio are spread across OrangeCounty, Los Angeles-San Gabriel Valley, Inland Empire West and Central San Diego,with a total area of 1,530,814 net rentable square feet.

* Wheeler RealEstate Investment Trust Inc. on Tuesday announced its biggest assetacquisition to date.

The Virginia Beach, Va.-based shopping center REIT, in particular,acquired a portfolio of14 grocery-anchored properties spanning 603,142 gross leasable square feet in SouthCarolina and Georgia in a roughly $71.0 million transaction.

Thanks to the acquisition, the company said it boosted its 2016full-year AFFO guidance to a per-share range of 16 cents to 17 cents from a priorper-share estimate of between 11 cents and 12 cents.

Taking full ownership

Kimco Realty Corp.on Monday announced that it has gained full ownership of two assets in Hollywood, Fla.

The New Hyde Park, N.Y.-based shopping center REIT said it from Canada Pension PlanInvestment Board the remaining 45% stake it did not already own in the 900,000-square-footOakwood Plaza shopping center and the Dania Pointe mixed-use development project.

The company paid $299.2 million for the stake acquisition andassumed $100.0 million of mortgage debt.

On the block

A trio of interlinked buildings jointly owned by and Jeff Sutton inManhattan, N.Y., are tipped to be onthe market for a full or partial sale.

The Real Deal reportedMonday that the partners have tapped Eastdil Secured to market the three-buildingasset at 530-536 Broadway in SoHo. The partners could rake in roughly $450 millionif the property is sold in its entirety, according to the report.

Moving forward

RioCan Real EstateInvestment Trust and AlliedProperties REIT are pressingforward with their joint venture development project in Toronto.

The project involves the construction of the King-Portland Centreat 602-620 King St. West, with a targeted completion of early 2019.

The companies said Monday that they will develop a new structureon the 61,608-square-foot-site, which will offer 255,565 square feet of office GLA,13,035 square feet of retail GLA and about 116 residential units.

Now featured

Conference Chatter:Early-2016 volatility dented CMBS market, but the money is there for prime realestate, execs say: Despite expectations of sharply reduced CMBS volumein 2016, high-quality real estate should not have trouble attracting financing,executives said at the NYU Schack Institute of Real Estate's annual REIT conference.

Conference Chatter:Analyst asks panel, 'Should the nontraded REIT industry even exist?':S&P Global Market Intelligence rounds up a few conversational highlights fromNYU's annual REIT Symposium this week in New York.

Conference Chatter:Zell, GGP's Mathrani predict recession, but the upshot for real estate is unclear:In appearances at New York University's annual REIT symposium, both executives arguedthat a coming downturn would be mild compared to the last recession. Other executiveswere split on the effect the broader economy would have on real estate.

Conference Chatter:With so many REITs trading at discounts, where is the M&A?: At anNYU-sponsored conference, industry observers debated the rationale for scale andoffered M&A projections for 2016.

Conference Chatter:Blackstone's Gray talks potential privatization wave, confirms sale of StrategicHotels to Anbang: The private equity firm's real estate chief discusseda range of topics, including the future of Invitation Homes, at New York University'sannual REIT symposium.

Data Dispatch:Small-cap REITs forecast to have high FFO growth potential, despite underperformance:Large-cap REITs have outperformed small-cap REITs in recent total return, price-to-NAVand price-to-FFO, yet median Cap IQ estimates show small-cap REITs with nearly 3xthe forecast FFO growth for 2016.

Data Dispatch:US equity REITs' Q1 capital raising activity down 38.4% YOY: Publiclytraded U.S. equity REITs had raised $13.59 billion via capital offerings throughMarch 31, 38.4% less than the $22.03 billion raised during the same period in 2015.

Data Dispatch:As fight with founder rages, data paints a mixed picture at PulteGroup:While PulteGroup founder William Pulte demands the immediate removal of Chairmanand CEO Richard Dugas Jr., arguing the company has dramatically underperformed itspeers under his leadership, SNL data indicates that the situation at the homebuilderis not quite as dire as Pulte asserts.

Real Estate Rundown:Nontraded REIT sales dry up in Q1: With the industry undergoing significantchange, the top-sponsors list after the first quarter looked very different thanthe 2015 rankings, with a new leader in place.

Real Estate Rundown:Investors find something to like in Ashford Prime's muted strategic-review news:Though the roughly eight-month review yielded no major transaction and analystswere lukewarm on the results, Ashford Prime share prices have risen in recent days.

Conference Chatter:Analyst asks panel, 'Should the nontraded REIT industry even exist?':S&P Global Market Intelligence rounds up a few conversational highlights fromNYU's annual REIT Symposium this week in New York.

Shared leadershipis a boon in Apple REIT Ten acquisition, Apple Hospitality execs say:The executives discussed the roughly $1.3 billion deal in an April 14 conferencecall.

Vornado still weighingDC spinoff, Roth says: Vornado's chairman and CEO briefly addressedthe possibility of a spinoff transaction in his annual letter to shareholders.

Brixmor sharesget boost with new CEO in place: The search for a permanent CEO replacementfollowing the accounting discrepancy that came to light in February was expectedto take longer.

Tax changes couldboost overseas investments in US pipelines, REIT assets: Recent changesin tax laws for foreign investors in U.S. real estate and real estate investmenttrusts may encourage overseas funds to explore investments in oil and gas pipelinesor other qualifying assets organized under a REIT.

Recurring reports

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Hires and Fires: RealEstate moves through April 13, North America edition