BRE Properties Inc. (BRE), a San Francisco-based apartment landlord, rose to a two-month high after Land & Buildings said it and an investor group offered to buy the company for about $4.6 billion.
Land & Buildings, an investment firm focused on real estate securities, is part of a consortium that made an offer of $60 a share last month, the Greenwich, Connecticut-based company said in a statement today. Land & Buildings asked the real estate investment trust to form a committee to consider a sale.
“We strongly disagree with management’s response that they believe it is better to remain independent rather than pursue a sale,” Land & Buildings Chief Executive Officer Jonathan Litt said in a letter to BRE. “The company’s consistent underperformance and persistent discount to net asset value is best resolved through strategic alternatives.”
BRE rose 2.7 percent to $53.06 at the close of New York trading, the highest since May 21. In intraday trading, the shares climbed to the highest since October 2007. The takeover offer represents a 16 percent premium to BRE’s closing share price of $51.67 yesterday. The REIT, with a market value of about $4 billion, has 77.1 million shares outstanding, according to data compiled by Bloomberg.
“Land & Buildings operates an investment fund with less than $200 million in total assets under management, which has neither the capital capacity nor demonstrated transaction experience to execute an acquisition of BRE,” the REIT said today in a statement. BRE said it hasn’t received a response to a request for information on Land & Buildings’ funding sources, and the “proposal received today does not evidence a viable opportunity for the company to consider.”
Litt said he met with BRE Chief Executive Officer Constance Moore in March to discuss buying the company in the mid-$50 range and was told he would need to start negotiations at $60 a share. After assembling a consortium of investors, Litt went back to Moore in June with an offer of $60 per share, to which he never received a response, he said. Litt will disclose his partners, a group of “core, traditional investors,” as soon as a formal process begins, he said.
“Our offer is legitimate, and the company should take it seriously,” Litt said in a telephone interview. “We think it’s the optimal way for shareholders to maximize the value of the company as the current management team has been unable to do over the past 10 years.”
Land & Buildings owns 169,686 BRE shares, according to data compiled by Bloomberg. The company most recently sold 55,900 shares, in the first quarter. Before he founded Land & Buildings in 2008, Litt was a managing director and real estate analyst at Citigroup Inc.
BRE is underperforming its peers in the apartment sector this year, Rod Petrik, a Baltimore-based REIT analyst at Stifel Nicolaus & Co., said today in a research note on the company’s second-quarter earnings, announced yesterday.
“This can be attributed to the company’s relatively large development pipeline, that investors perceive could deliver subpar yields and be dilutive near term,” he said.
BRE has four projects under construction for $724 million, with $292.5 million remaining to be funded, according to Stifel.
BRE management must start meeting and exceeding the growth of its peers in the multifamily sector soon or sell the company in order to retain shareholder confidence, said Richard Anderson, a REIT analyst at BMO Capital Markets in New York. He cut his rating on BRE to underperform at the end of last year based on his assumption the company was a takeover target.
“These are superstar players, but the question is, do they play well together?” Anderson said in a phone interview, adding that some investments by the company have failed. The problems “individually aren’t the end of the world, but collectively it makes people wonder if this management team is working in the cohesive fashion that shareholders are paying them to work in.”
Second-quarter funds from operations, a measure of cash flow used by REITs, rose to $48.9 million, or 63 cents a share, from $45.8 million, or 59 cents, a year earlier, BRE said yesterday.
Analysts have previously speculated about a combination of BRE and Palo Alto, California-based Essex Property Trust Inc. (ESS), said Jeffrey Langbaum, a Bloomberg Industries analyst. BRE has historically traded at a discount to Essex, its most comparable peer, Langbaum said today in a note.
BRE “will consider any legitimate proposals it receives,” Moore said on an earnings conference call today. While BRE has a strategy for remaining independent, “that is not to say that the door is bolted shut” for consideration of an offer.
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