CHICAGO AND HOLMDEL, N.J. — Equity Commonwealth (NYSE: EQC) and Monmouth Real Estate Investment Corp. (NYSE: MNR) have agreed to merge, signaling their intent to build a leading industrial real estate business and participate in the long-term growth of the sector. Based on the structure of the deal, Equity Commonwealth would acquire Monmouth in an all-stock transaction valued at approximately $3.4 billion, including the assumption of debt. The combined company is expected to have a pro forma equity market capitalization of approximately $5.5 billion.
Under the terms of the agreement, Monmouth shareholders will receive 0.67 shares of Equity Commonwealth stock for every share of Monmouth stock they own. Equity Commonwealth and Monmouth shareholders are expected to own approximately 65 percent and 35 percent, respectively, of the pro forma company following the close of the transaction.
Source: Monmouth 1) Data as of March 31, 2021 and excludes a 60,400-square-foot property in Carlstadt that sold in April (click to view larger)
Monmouth’s portfolio comprises 120 industrial properties totaling 24.5 million square feet. The Holmdel-based company is also under contract to purchase six properties totaling 1.8 million square feet, with the deals expected to close later this year or early next.
Equity Commonwealth is a Chicago-based office REIT with a portfolio of four properties totaling 1.5 million square feet.
“The transaction provides Equity Commonwealth with a high-quality, net-leased industrial business with stable cash flows while preserving Equity Commonwealth’s balance sheet capacity for future acquisitions,” says Sam Zell, chairman of the board of Equity Commonwealth.
“Following a strategic alternatives process, our board unanimously determined that the merger with Equity Commonwealth is the best outcome to maximize value for Monmouth stockholders,” says Michael Landy, president and CEO of Monmouth.
In mapping out the rationale for the merger, the companies point to the income stability of Monmouth’s portfolio coupled with Equity Commonwealth’s sponsorship and strong balance sheet. They expect the merger “to provide the combined company with stable recurring cash flows and significant dry powder for future acquisitions.”
The single-tenant, net-leased industrial assets within the portfolio are geographically located across 31 states with a focus on the East. The weighted average building age is 9.9 years.
Equity Commonwealth says its growth strategy is not dependent on raising additional debt or equity capital. Upon closing of the acquisition, Equity Commonwealth is expected to have approximately $2.5 billion of pro forma cash on its balance sheet. The company plans to dispose of its four remaining office assets and reinvest the proceeds in future acquisitions. Equity Commonwealth plans to diversify Monmouth’s existing tenant base and industry concentrations as the portfolio grows.
David Helfand, president and CEO of Equity Commonwealth, will lead the combined company along with the existing senior management team. Upon closing, the number of trustees on Equity Commonwealth’s board will expand to 10, adding two individuals designated by Monmouth’s board. Sam Zell will remain the chairman of the board of trustees.
The transaction is expected to close during the second half of 2021, subject to customary closing conditions, including approval by the common shareholders of both companies.
Equity Commonwealth’s stock price opened at $27.48 per share on Wednesday, May 5, down from $33.87 per share one year ago. Monmouth’s stock price opened at $18.47 per share Wednesday, up from $12.62 per share one year ago.
— Kristin Hiller