Equity Commonwealth (NYSE: EQC) will acquire Monmouth Real Estate Investment Corp. (NYSE: MNR) in an all-stock transaction valued at approximately $3.4 billion, including debt, the two companies said May 5.
Once the acquisition closes, 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 office properties and Monmouth’s portfolio of marketable securities over time and reinvest the proceeds in future acquisitions.
Equity Commonwealth President and CEO David Helfand said Monmouth provides “an attractive and scalable platform” that the company can grow, given its significant cash and balance sheet capacity.
Sam Zell, chairman of Equity Commonwealth, said the transaction provides Equity Commonwealth with a high-quality, net-leased industrial business with stable cash flows while preserving the REIT’s balance sheet capacity for future acquisitions.
During a conference call, Zell acknowledged that the industrial space is “very crowded at the moment,” but added that not many players have $5 billion of buying capability and cash on the balance sheet. “It’s going to be up to us to take advantage of that set of circumstances,” he said.
Zell denied a suggestion that Equity Commonwealth was late in entering the industrial sector, which he said, “still has a very significant amount of room yet to grow.” As for the office sector, Zell noted that the market was oversupplied even before the pandemic. “Oversupply is going to impact that sector very significantly over the next few years.”
Helfand noted during the call that the office properties are not currently being marketed and that the company will “look for opportunities when it makes sense.”
Meanwhile, Michael Landy, president and CEO of Monmouth, said that following a strategic alternatives process, the board unanimously determined that the merger was the best outcome to maximize value for Monmouth stockholders.
The transaction states that Monmouth shareholders will receive 0.67 shares of Equity Commonwealth for each share they own. Based on the closing price for Equity Commonwealth on May 4, this represents approximately $19.40 per Monmouth share, versus the May 4 closing price of $18.55.
The combined company is expected to have a pro forma equity market capitalization of approximately $5.5 billion.