Equity Commonwealth (EQC.N), a U.S. real estate investment trust (REIT) focused on office space and chaired by property mogul Sam Zell, has approached Forest City Realty Trust Inc (FCEa.N) to discuss a possible merger, people familiar with the matter said.Forest City is open to a potential merger ever since it began a process to consider divestiture or transformation. It should be noted that Equity is a much smaller company, albeit with much less debt, with a market capitalization (total value of stock) of $3.77 billion, while Forest City has a market cap of $6.65 billion.
Combining the two companies would create an office- and apartments-focused REIT worth more than $10 billion, making it one of the biggest mergers in the sector this year.
Alternatively, Forest City has total assets of $8.12 billion, and then liabilities (including debt) of $4.32 billion and total equity of $3.8 billion. Equity Commonwealth has total assets of $4.26 billion, and then liabilities (including debt) of $.94 billion and total equity of $3.32 billion. (As noted here, assets are not the whole story.)
In terms of some common investor ratios, Equity appears less of a bargain compared to Forest City, on three of four metrics, though for both the price/earnings ratio is high:
- price/earnings: 68.65; 55.14
- price/sales: 10.2; 7.18
- price/book: 1.18; 1.97
- price/cash flow: 24.08; 19.01
Reuters notes that, like Forest City, Equity Commonwealth "has also transformed itself in response to activist pressure, changing its name, hiring new management, and selling off billions of dollars of properties."
Updated Nov. 13
Crain's Cleveland Business reports:
Forest City's board has been pursuing a potential sale, merger transactions and structural alternatives for the company's assets since Sept. 11. Both real estate investment trusts share the same problems: relatively small sizes in the REIT space, and stock prices far below the value of their underlying properties. Both also have been also under pressure from activist shareholders.
Forest City has a market capitalization of $6.6 billion while Equity Commonwealth's is $3.8 billion. However, Equity Commonwealth is sitting on $2.5 billion in cash. Equity has pared its portfolio with $5 billion in asset sales to 20 properties in select markets 156 since December 31, 2014, according to a September investor supplement by the company.