In mid-March Columbia Properties Trust (CXP), a REIT which owns office assets located primarily in the "Gateway" markets of New York, San Francisco and Washington, D.C., confirmed that it had received an unsolicited acquisition proposal at $19.50 per share, representing an 18.4% premium to the prior day closing price. The bid was submitted by a consortium of Arkhouse Partners, LLC, The Sapir Organization and 8F Investment Partners (together, the "Arkhouse Group"), following several months of behind-the-scenes engagement with CXP. At the time of this writing the arb-spread stands at ~4% without an agreed upon transaction.
Besides the obvious implications for CXP, the situation is particularly meaningful for several reasons:
- This marks the second recent case involving an unsolicited takeover proposal for a Gateway office REIT - Paramount Group, Inc. (PGRE) rejected an unsolicited bid by activist shareholder Bow Street, LLC in late-2020
- CXP did not reject the proposal, rather as of 4/8 had hired financial and legal advisors and continues to evaluate the bid / engage with Arkhouse while exploring broader strategic options
- CXP has been an obvious takeout candidate for years after cleaning up its portfolio, given its small scale and relative lack of an operating platform. Management previously shopped the company in late-2018 and rejected bids in the ~$26 per share range
- In a world where the office transaction and leasing markets essentially shut down post-COVID, investors have been clawing for any data points that illuminate declines in office values - comparing this proposal to the prior deal can serve as a useful "mile marker" on how the pandemic and related shutdowns have impacted investor views on office values
- At a high level, the Arkhouse bid represents a ~25% reduction in per share value and a ~17% reduction in gross asset value versus late-2018, which is probably about right given anticipated declines in net effective rents in these markets thus far
- The updated bid values the portfolio at a 5.3% cap rate on in-place cash NOI (up +90bps) and ~$800psf (down -17%), versus 4.4% and ~$960psf, respectively, as of late-2018
- Finally, the deal illuminates the importance of transaction costs (transfer taxes, deal fees, debt breakage, etc.), which we estimate could be over $2 per share or ~7% of the transaction value
- The following figure shows these calculations:
