CRE Merger Mania Continues with JBG-NYRT Deal

New York REIT Inc. is set to acquire the majority of JBG's properties, together with its management business.
The Twitter Building, New York

The Twitter Building, New York

New YorkNew York REIT Inc. and JBG Cos. just made a move that will change the list of the largest U.S. REITs owning premier office and mixed-use properties in infill locations. The companies have entered into an agreement calling for NYRT to acquire the majority of JBG’s properties and its management business in a transaction that will create a REIT with an estimated enterprise value of $8.4 billion.

While the initial release seemed to suggest NYRT would be acquiring all of JBG’s properties, a recent regulatory filing detailing the deal disclosed that JBG and its affiliates would hold onto about $1.8 billion in assets, the Washington Business Journal and The Washington Post reported. These assets include mostly residential or hotel properties.

In a prepared statement, Randolph Read, chairman of the Board of NYRT, described the deal as “nothing short of transformative for New York REIT.”

JBG Realty Trust is the entity that will emerge from the transaction, which will leave JBG with 319.9 million shares of NYRT common stock and operating partnership units for contributing its properties and management arm to the new REIT. Per terms of the agreement, JBG equityholders will claim approximately 65.2 percent of JBG Realty’s shares and units as its own, and NYRT stockholders will own the remaining 34.8 percent. The deal is expected to close in the fourth quarter of 2016.

When all is said and done, JBG Realty will boast a portfolio exceeding 14.5 million square feet of office, residential and retail assets in transit-oriented submarkets of the New York City and Washington, D.C., metro areas, two of the top commercial real estate markets in the country. The majority of the portfolio, 78 percent, will be sited in Washington, D.C., and the balance of the collection will be found in New York and include such properties as the 280,000-square-foot Twitter headquarters building in Manhattan, which NYRT acquired for $335 million in 2014. Office properties will dominate the portfolio, accounting for 9.7 million square feet. The remainder of the group of assets will consist of 1 million square feet of retail and 4,500 multifamily residences.

The agreement comes approximately eight months after NYRT tapped Eastdil Secured to help identify strategic options for maximizing value for the company over the long term.

The level of commercial real estate M&A activity was quite high in 2015, and industry experts are forecasting the same for 2016. According to a report by global advisory services firm EY, “Expect more leveraged buy-outs involving public REITs going private, REIT consolidations and strategic investments. The availability of capital, strong CRE valuations and a positive economic outlook should keep M&A activity buoyant in the near term.”