Wednesday, July 16, 2014

Shut Up Already

The Financial Times published another apparent non-story last week.  (Sorry, no link to the story but you can Google it.) This one was on the alleged acquisition by NorthStar Realty Finance (NRF) of Griffin-American Healthcare REIT II at a price tag of $3.7 billion to $4.0 billion.  In late May the same FT reporter, Ed Hammond, had a story that Dividend Capital's Industrial Income Trust was looking to sell itself for $4 billion.  I discussed that article here

Nothing has happened yet with Industrial Income Trust, and a week and a half later I've read nothing else on a NRF / Griffin-American Healthcare REIT II combination.  In early May, Griffin-American Health REIT II was subject of a Wall Street Journal article on another impending sale that never happened.  I noted the WSJ article here.  I'm not sure what's going on with these rumors, but suspect they are attempts to drive up merger prices by attracting additional potential buyers.  From now on until Bruce Kelly reports a combination I'm not going to take any story seriously.

Based on data in the May Wall Street Journal article, a price of $3.7 billion to $4.0 billion for Griffin-American Healthcare REIT II would result in share price of $12.63 to $13.66.  If the merger leaks are an attempt to drive the price for Griffin-American higher, whoever is blabbing to reporters should stop.  A price per share range of $12.63 to $13.66 is excellent, especially since the REIT finished its equity raise less than a year ago at prices of $10.00 to $10.22 per share and paid a load of 12% on that equity. 

A NorthStar / Griffin-American Healthcare REIT II merger presents more narrative than was addressed in the short FT article.  Both Griffin and NorthStar operate respected syndication businesses.  Where do these play into the merger, if at all?  A combination of this business would be interesting and have more implications than just a single REIT's liquidity event.

Separately, but tangentially, Griffin-American Health REIT II shareholders are being solicited by mini-tender offers.  The companies that issue these tender offers usually make offers at deep discounts to prices paid by investors for their shares.  The current tender offer price for Griffin-American is $10.00 per share, essentially no discount to the price most investors paid for their shares.


Anonymous said...

If the Financial Times numbers are correct in terms of estimated liquidity value, why did Griffin-American's management repond with a "neutral" recommendation to the tender offer at $10.00? I think someone miss something in their estimated per share value of the suspected deals.

Anonymous said...

If their board is engaged in discussions to merge or sell, then they couldn't provide anything other than a "neutral" recommendation. To make a positive or negative recommendation would indicate an opinion on the value of the shares prior to a public announcement of a material event. The SEC is not a big fan of that kind of activity.