Regency Centers Goes Public with $430 Million Bid for AmREIT
REIT Analyst Think Bid Could Go Higher
July 10, 2014
After its private efforts to negotiate a deal out of the limelight were rebuffed, Regency Centers Corp. went public with its offer to acquire AmREIT Inc. for $22 per share (about $430 million in total value based on outstanding shares). Regency said it could buy the share for cash or a combination of cash and its stock.
The 'bear hug' offer by the Jacksonville, FL-based REIT, which owns 218 retail shopping centers in 22 states and holds partial interests in another 187 retail shopping centers through joint ventures, represents a 20% premium based on the average closing price of AmREIT’s common stock over the last 30 days and also exceeds AmREIT’s all-time high stock price by more than $2 share.
The smaller AmREIT is a 29-year-old equity real estate investment trust focused on neighborhood and community shopping centers and mixed-use properties located in in affluent submarkets of five primary markets: Houston, Dallas, San Antonio, Austin and Atlanta.
Regency released a letter outling its proposal that it sent to AmREIT's Chairman and board of directors outlining its proposal. In addition to representing a 20% premium to the average closing price of AmREIT’s common stock over the 30-day period ended July 9, 2014, the offer reflects an FFO consensus multiple of 21.3X and exceeds AmREIT’s all-time high common stock price by more than $2.00, which Regency said is higher than all analysts’ public one-year target prices for AmREIT common stock and would provide AmREIT shareholders with "more value... than AmREIT can reasonably expect to achieve on its own in the foreseeable future."
"We are making this letter public because we feel that the potential benefits of a combination are just too great to ignore," said Regency’s Chairman and CEO Hap Stein, in a release announcing the letter. Regency also said it would consider increasing its offer if AmREIT provide Regency with the requested company information.
"We are well prepared to undertake a focused and expedited due diligence review, as we are an active participant in the markets where AmREIT properties are located and have already conducted an extensive review of the information available in AmREIT’s public filings," the letter stated. "If AmREIT will provide us with access to the relevant information, and if that information demonstrates additional value, particularly in relation to the company’s pending densification projects, we are prepared to consider increasing the consideration in our proposal."
Regency said it already owns approximately 4.2% of AmREIT’s outstanding common stock, and has enlisted Wells Fargo Securities, Sullivan & Cromwell and Foley & Lardner in its effort to acquire the firm.
AmREIT confirmed that it had received the unsolicited proposal from Regency and said its board planned to meet and evaluate the proposal.
A pair of AmREIT shareholders holding a collective 1.7% ownership stake in the Houston-based REIT wasted little time in calling the Regency offer inadequate.
JCP Investment Management and Joshua Schechter issued a statement saying the Regency Proposal was "deeply inadequate and significantly undervalues the company.
"We believe Regency's offer for $22 does not come close to fairly reflecting AmREIT's true value," the investors stated. "We believe now, more than ever, AmREIT represents an attractive acquisition target for potential buyers. The time is right for AmREIT to seek out and capitalize on opportunities to maximize shareholder value, including through a sale of the Company to the highest bidder."
Kim Bin Kim, a REIT analyst for SunTrust Robinson Humphrey, said Regency’s offer may not be enough to convince shareholders, despite the premium to AmREIT’s stock prices earlier this week.
"While the offer is at a significant premium to yesterday’s close price and at an all-time high, we believe that the $22 per share offer price is too low," Kim said. "The offer basically gives zero credit for the upside at the Uptown Park redevelopment. On a conservative basis, we estimate the NPV of Uptown park to be worth $0.85 per share today to AMRE. To Regency it could be worth much more."
Uptown Park is a low-density, single-story project located on 17 acres at the intersection of Post Oak and Loop 610 in Houston. The redevelopment site is now occupied by one single-story building with GLA of 12,200 square feet housing three tenants.
AmREIT has said that the site is best suited for an expanded retail footprint and a for-rent multifamily tower above.
It has been in the process of trying to execute a ground lease with an experienced luxury multi-family developer that would develop and own the multifamily improvements, with AmREIT continuing to own the planned retail component in a condominium interest.
“We understand it doesn’t make sense for Regency to pay up for all future upside today, but $22 per share is too low in our view," continued Kim. "We think at least $24 per share makes more sense, and we remain buy rated on AMRE for now, given the optionality, Kim said.
CoStar News Director Tim Trainor contributed to this report.