Starwood Submits Rival Bid To Acquire Monmouth, Threatening Deal With Equity Commonwealth

Barry Sternlicht
Courtesy of Walker & Dunlop
Starwood Capital Group Ceo Barry Sternlicht On The Walker & Dunlop Weekly Webcast

The famously acquisitive Starwood Capital Group is attempting to overtake a rival and snap up an industrial real estate investment trust.

Monmouth Real Estate Investment Corp. announced on Monday that it has received an all-cash takeover offer worth $18.70 per share from a "large private investment firm," which a Bloomberg report on Tuesday identified as Starwood. The new bid comes after Monmouth's board had agreed to be acquired in May by Sam Zell's Equity Commonwealth in an all-stock transaction that valued Monmouth at $19.40 per share at the time of the offer.

The top-line number on Starwood's offer is actually $19.51 per share, but the overall value would be impacted by a $62M fee to terminate the transaction with Equity Commonwealth, Monmouth's board said while acknowledging that it is considering the deal, Bloomberg reports. The Equity Commonwealth deal would see Monmouth shareholders receive 0.67 shares in Equity for each Monmouth share they owned, valuing Monmouth at $3.4B.

At the close of markets on Monday, Monmouth's stock price sat at $19 per share. A dip in Equity Commonwealth's share price means that if its acquisition were to close now, Monmouth shareholders would be paid an equivalent of $18.10 per share in Equity stock, plus a dividend of $0.18 per share, Bloomberg reports. Blackwells Capital, a minority shareholder of Monmouth that made a takeover offer of its own, had objected to the deal with Equity, calling it "wholly inadequate" and asking to nominate four new members to Monmouth's board in response.

Monmouth's portfolio of 120 net-leased, single-tenant distribution centers is understandably coveted in a market that still has 664M SF of excess demand, according to a JLL research report from late June. Monmouth's portfolio totals 24.5M SF, with another 1.8M SF set to be added in transactions that will close over the balance of this year and next.

Starwood has loaded up billions of dollars for acquisitions in the year-plus following the outbreak of the coronavirus pandemic, having set a fundraising target of $11B as of last June. Starwood CEO Barry Sternlicht declared as early as last April that his company was in acquisition mode, saying, "We're on offense."

Being on offense has left Sternlicht unwilling to play defense in one sector where Starwood's assets have been battered by the pandemic: shopping malls. Starwood ceased loan payments on many of its mall properties last year, surrendering billions of dollars in assets. This year, it has sold even more malls at deep losses to avoid a $2B debt bill in the form of commercial mortgage-backed securities, Bloomberg reports. Starwood now owns eight malls after entering the pandemic with 30.

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