Chambers Street Properties and Gramercy Property Trust to Merge, Creating a Premier Net Lease REIT (7/01/15)
Gordon DuGan to be CEO; Charles Black to be Non-Executive Chairman
Combined Company Will Have Enterprise Value of $5.7 Billion, Creating Larger, More Diversified Portfolio with Increased Financial Strength
Well Positioned for Value Creation through Continued Growth in Earnings
Transaction Expected to Generate $15 Million of Estimated Annual Gross G&A Savings
PRINCETON, NJ. & NEW YORK--(BUSINESS WIRE)--Chambers Street Properties (NYSE:CSG) (“Chambers Street”) and Gramercy Property Trust Inc. (NYSE:GPT) (“Gramercy”) today announced that they have entered into a definitive agreement to merge, creating the largest industrial and office net lease real estate investment trust, with an expected enterprise value of approximately $5.7 billion. The Board of Trustees of Chambers Street and the Board of Directors of Gramercy have unanimously approved the merger agreement and the transaction.
Under the terms of the agreement, Gramercy shareholders will receive 3.1898 shares of Chambers Street for each share of Gramercy common stock they own. Upon closing, Chambers Street shareholders will own approximately 56% and Gramercy shareholders will own approximately 44% of the combined company. The stock-for-stock transaction is expected to be tax-free to shareholders.
The combination brings together two complementary portfolios focused on industrial and office real estate, comprising 288 properties and 52 million square feet in major markets throughout the U.S. and Europe. The combined company is expected to have larger size and scale, broader tenant diversification, increased financial flexibility, and a more efficient operating platform to drive growth. The Gramercy management team will lead the combined company, with Gordon F. DuGan as Chief Executive Officer, Benjamin P. Harris as President and Jon W. Clark as Chief Financial Officer. Martin A. Reid, Chambers Street’s Interim President and Interim Chief Executive Officer, and Chief Financial Officer, will be Head of Transition of the combined company.
The combined company will have a ten-person board consisting of five trustees designated by Chambers Street and five trustees designated by Gramercy. Charles E. Black, currently chairman of the Chambers Street Board, will be the non-executive board chairman and Mr. DuGan will also serve as a director of the combined company. The combined company will retain the Gramercy name and is expected to continue to trade on the New York Stock Exchange under Gramercy’s current ticker symbol. The merger is expected to close in the fourth quarter of 2015, and is subject to customary closing conditions, including approval of the transaction by shareholders of both companies.
Mr. Black stated, “We’re thrilled to combine with Gramercy to create an industry leader well positioned for long-term growth. We believe the Gramercy management team has an unparalleled track record of value creation, exceptional operating expertise and deep experience repositioning, releasing and optimizing asset portfolios. Since Gordon became CEO of Gramercy, he and his team have delivered total shareholder return of more than 140%, making Gramercy the top-performing U.S. REIT over that time period. We are pleased to have the opportunity to combine two complementary portfolios and join with the Gramercy management team whom we are confident will continue to drive market-leading returns for shareholders.”
Mr. DuGan, CEO of Gramercy stated, “This strategic combination is the next logical step for Gramercy in creating a best-in-class net lease REIT. We expect that combining with Chambers Street will create a market leader with greater scale, broader tenant and geographic diversification across the United States and Europe, and additional financial flexibility. With a larger and more diverse platform, we believe the new Gramercy will be better positioned to pursue larger acquisition opportunities, which we anticipate going forward.”
The merger of Chambers Street and Gramercy is expected to create a number of significant operational and financial benefits, including:
• GREATER SIZE AND SCALE. The combined company will create a leading industrial and office net lease REIT with 288 properties and 52 million of square feet focused in major markets throughout the U.S. and Europe. The combined company’s greater scale, financial flexibility and portfolio diversification are expected to enhance its ability to pursue larger opportunities, improve future earnings predictability and increase its flexibility to recycle capital over time.
• INCREASED PORTFOLIO DIVERSIFICATION; HIGH-QUALITY TENANT BASE. The top ten tenants of the combined company will represent less than 30% of total annualized base rent with no one tenant representing more than 7.5%. Eighty-five percent of the combined company’s real estate assets will be in target markets, such as New York/New Jersey, Dallas, Baltimore/Washington, D.C., Los Angeles and South Florida. The combined portfolio will have an average lease term of more than seven years and 43% of its tenants will be investment grade.
• INCREASED FINANCIAL STRENGTH AND FLEXIBILITY. As a larger entity, the combined company is expected to have greater and more cost-effective access to capital, a stronger balance sheet, a better ability to absorb market cycles and a stronger and more predictable earnings and dividend growth trajectory. Additionally, the combined company will have a higher unencumbered asset base, giving it enhanced flexibility to sell assets and reposition portions of the portfolio with minimal prepayment expense.
• MORE EFFICIENT OPERATING PLATFORM AND COST SAVINGS. With a greatly expanded asset base and operating platform and minimal additional administrative expenses, the combined company will be significantly more efficient compared to its asset base. The combination is expected to realize approximately $15 million in run-rate annual cost synergies by the end of 2016.
• SEASONED AND PROVEN LEADERSHIP TEAM WITH STRONG TRACK RECORD OF GROWTH AND COMMITMENT TO CORPORATE GOVERNANCE. Gramercy’s industry-leading total shareholder returns include a dividend that has grown approximately 43% since it was reinstated in the second quarter of 2014. In addition, Gramercy’s Core FFO per share grew 126% year-over-year from the first quarter of 2014 through the first quarter of 2015. Gramercy’s management team is also committed to high corporate governance standards and has waived their change of control provisions in order to maintain their long term incentive plans, which align their interests with shareholders.
Each company intends to continue its current dividend policy until the close of the transaction. Following the close of the transaction, the new company expects its dividend payout ratio to be lower than the current Chambers Street payout ratio and higher than the current Gramercy payout ratio.
Following the close of the transaction, the combined company also intends to pursue the disposition of certain suburban office properties in order to reduce the level of these holdings to approximately 25% of its total portfolio over the long term, in line with Gramercy’s stated targets. In addition, the combined company expects to continue to be an active acquirer of single-tenant net leases and properties. It also intends to accelerate the growth of its European operations.
J.P. Morgan Securities LLC served as financial advisor to Chambers Street and Paul, Weiss, Rifkind, Wharton & Garrison LLP and Clifford Chance US LLP served as legal advisors to Chambers Street. Morgan Stanley served as financial advisor to Gramercy and Wachtell, Lipton, Rosen & Katz and Morgan, Lewis & Bockius served as legal advisors to Gramercy.
A conference call to discuss this announcement will be held at 8:30 a.m. EDT July 1, 2015. The call will be broadcast live over the Internet and can be accessed through the Gramercy and Chambers Street websites at www.gptreit.com and www.chambersstreet.com. The call will also be accessible via telephone by dialing (866) 547-1509 (domestic) or (920) 663-6208 (international); Passcode: 76137174. The audio transmission with the slide presentation will be available on both websites for replay within two to three hours following the live broadcast, and can be accessed by dialing (800) 585-8367 (domestic) or (404) 537-3406 (international); Passcode: 76137174.
About Chambers Street Properties
Chambers Street is a real estate investment trust focused on acquiring, owning and operating net leased industrial and office properties, leased to creditworthy tenants. As of March 31, 2015, Chambers Street owned or had a majority interest in 127 properties located across 19 U.S. states, France, Germany, and the United Kingdom encompassing approximately 37.6 million rentable square feet.
About Gramercy Property Trust
Gramercy Property Trust Inc. is a leading global investor and asset manager of commercial real estate. Gramercy specializes in acquiring and managing single-tenant, net-leased industrial and office properties purchased through sale-leaseback transactions or directly from property developers and owners. Gramercy focuses on income-producing properties leased to high-quality tenants in major markets in the United States and Europe. http://www.businesswire.com/news/home/20150701005696/en/Chambers-Street-Properties-Gramercy-Property-Trust-Merge#.VZPRF4nbKUk