Three REITs Tagged as Potential Takeover Targets

Includes: CSA, FR, HR
by: Brad Case

The Wall Street Journal yesterday published an article by Angela Pruitt focusing on M&A activity by publicly traded REITs in the wake of the two big deals announced earlier this spring: the AMB (NYSE:AMB)-ProLogis (NYSE:PLD) merger and the acquisition by Ventas (NYSE:VTR) of Nationwide Health Properties (NYSE:NHP).

While most analysts and investors assumed there would be a pickup in acquisition activity this year following the drought during the commercial real estate crisis of the past two years, the sheer size of the Ventas and AMB Property deals signaled landlords will be more aggressive than expected when scouting deals.

The article quotes Jeff Horowitz of Bank of America Merrill Lynch as saying that

M&A activity will include public companies buying large private companies, public companies combining with other public companies, and an acceleration of single-asset acquisitions.

Noting that "portfolio managers are on the hunt for the next takeover candidates," the article relays the belief by Jay Leupp, REIT portfolio manager for Grubb & Ellis, that "industrial and health care are sectors likely to see the most consolidation" and mentions three potential targets in particular:

Mr. Leupp said he likes First Industrial Realty (NYSE:FR). "We own shares in First Industrial because we believe it will be an ideal acquisition candidate," he said, adding the company's portfolio trades at a 20% to 25% discount to its net asset value.

Mr. Leupp also likes Cogdell Spencer (NYSE:CSA), citing the fact the company trades between a 15% to 20% discount to its NAV and a "robust pace of consolidation in the health care space that will continue."

Analysts said that investors are keen on Healthcare Realty Trust (NYSE:HR) because its focus is almost solely on medical office buildigns, and that would make it an attractive purchase for a larger landlord that wants to diversify.

The current cash dividend yield for the health care REIT sector is 5.29%, while for industrial REITs it's 3.72%.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I am long Vanguard REIT Index Fund and ING Global Real Estate Fund.

Disclaimer: The opinions expressed in this post are my own and do not necessarily reflect those of the National Association of Real Estate Investment Trusts ((NAREIT)). Neither I nor NAREIT are acting as an investment advisor, investment fiduciary, broker, dealer or other market participant, nor is any offer or solicitation to buy or sell any security investment being made. This information is solely educational in nature and not intended to serve as the primary basis for any investment decision.