Takeover Alert: Should You Buy This Retail REIT Ahead Of A Potential Deal?

Real estate investment trusts (REITs) are often prime takeover targets. They usually have attractive assets that companies feel they can improve upon and extract value. Blackstone, for example, has taken several REITs private over the last few years, including, most recently, Apartment Income REIT. 

When rumors that a company may be taken over arise, the stock often shoots up and investors must ask themselves if it's time to buy. When takeover attempts are announced, there's no guarantee that it will happen. A good example of this happened with Macy's over the summer. It rebuffed a strong takeover attempt and now investors who bought based on the potential for a fast payout are left wondering what is next. 

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The latest takeover target is Whitestone REIT WSR, a retail REIT with a market cap of around $721 million. It operates and develops open-air retail centers in fast-growing cities, especially in the Sunbelt, including Phoenix, Austin, Dallas-Fort Worth, Houston and San Antonio. The centers cater to service tenants, including restaurants, gyms and grocery stores.

Whitestone has been performing well, as have many retail REITs, which are benefiting from strong demand and limited supply. In the second quarter, revenue was up by 3.3% and same-store net operating income was up by 6.1%. Occupancy was at a strong 93.5%. 

The takeover attempt is from MCB Real Estate, a commercial real estate developer and investment management firm with around $3 billion in assets under management. The company released a letter to the board of trustees of Whitestone. This new letter increased a previous proposal to acquire the company in an all-cash transaction. 

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Whitestone shareholders would receive $15 per share in cash, up from the previous offer of $14. This would represent a 14.5% premium as of June 3, 2024. MCB is currently Whitestone's third-largest shareholder. "Our interests are aligned with the company's other owners and we are committed to pursuing a transaction that maximizes value," said MCB Managing Partner and Co-Founder P. David Bramble.

In the letter to trustees, MCB said it believes Whitestone is underperforming its peers since the potential takeover was announced. The letter points out that the new offer is higher than where Whitestone has closed anytime over the last eight years. 

Given these facts, does buying and hoping the deal goes through make sense? If it doesn't, shareholders would still receive a 3.67% dividend yield with an annual payout of just $0.50. The dividend has stayed low after a 60% drop during the pandemic. According to Benzinga Pro data, most analysts have set the price target at $15 at the high end, meaning that even if the deal doesn't go through, the company may still achieve that target.

Whitestone may yet choose to go it alone. Potential investors interested in capitalizing on the takeover price should be aware that the stock price could drop if the deal doesn't go through. The 52-week low was $9.18 and the stock was trading at around $13 before the potential takeover was announced. However, there is also the potential that Whitestone could continue to thrive in a tight retail market, delivering even more than this takeover offer would provide. 

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