Regency Centers Corp. has never been the kind of company to make waves, so it was somewhat surprising last week to see the Jacksonville-based shopping center developer publicly announce an unsolicited acquisition offer for AmREIT Inc.
Regency wants to buy the smaller competitor for more than $400 million in cash and/or stock but apparently became frustrated when AmREIT wouldn’t come to the bargaining table, so the company publicly released a letter Thursday from Regency CEO Hap Stein to AmREIT Chairman H. Kerr Taylor.
“While we hoped to be able to explore a potential transaction with AmREIT on a non-public basis, unfortunately to date you have declined our requests to share information and otherwise engage in the kind of process that would enable us to move forward toward that end. We are making this letter public because we feel that the potential benefits of a combination are just too great to ignore,” Stein’s letter said.
Regency operates 332 shopping centers around the country while AmREIT has just 32 retail properties. That includes 17 shopping centers in Texas and two in Atlanta, properties that are apparently attractive enough to spur Regency into action.
“Regency is making a bet that the tremendous fundamental growth we have been discussing for several quarters going on in Houston and Dallas will continue. In recent months, all three markets where AmREIT is concentrated (including Atlanta) have shown very strong growth in aggregate demand,” Wunderlich Securities analyst Craig Kucera said in a research note.
Kucera thinks AmREIT will accept Regency’s offer of $22 a share, which is almost 15 percent higher than AmREIT’s closing price on Wednesday before the offer was made public.
However, two other analysts who follow Regency and Am-
REIT think AmREIT will want more.
“While the offer is at a significant premium to yesterday’s closing price and at an all-time high, we believe that the $22 a share offer price is too low,” SunTrust Robinson Humphrey analyst Ki Bin Kim said in a research note Thursday.
“Bottom-line, we do not expect AmREIT to accept the proposal,” Robert W. Baird analyst Jonathan Pong said in his research note.
“Regency, or another bidder such as Federal Realty Investment Trust or Weingarten Realty Investors, could step in with a topping offer closer to about $25,” he said.
Pong also said AmREIT has an attractive portfolio of shopping centers.
“AmREIT’s portfolio is in high-barrier-to-entry markets, evidenced by a demographic mix of household income and population density that is near the top of its peer group. Moreover, with high-quality locations, beleaguered retailers would likely vacate an AmREIT property as a last resort. Additionally, AmREIT would likely have an easier time than its peers in back-filling the space,” he said.
Wall Street sent a clear message that it expects a higher offer, as AmREIT’s stock rose $3.25 to $22.45 Thursday after Regency’s announcement.
After the market closed Thursday, AmREIT said in a news release that its board of directors “will evaluate the proposal carefully and respond in due course.”
PHH CEO hints at more job cuts
As PHH Corp. last week completed the sale of its fleet management services business, CEO Glen Messina dropped hints that more job cuts could be coming in its mortgage banking business.
“It is essential that we take decisive and aggressive action to re-engineer and further reduce our cost structure,” Messina said in a conference call with analysts to discuss the company’s strategy to build up the mortgage business.
He said actions will include “managing staffing levels.”
PHH last week completed the previously announced sale of its fleet management business to Element Financial Corp. for $1.4 billion, leaving the company with only its mortgage banking business.
The mortgage business runs out of PHH’s corporate headquarters in Mount Laurel, N.J., and a second operations center in Jacksonville.
PHH last year cut 365 jobs in Jacksonville, leaving it with about 700 people at its Southside offices.
PHH spokesman Dico Akseraylian said by email last week that the company is not commenting further on possible changes in its mortgage business beyond what was said in a news release and the conference call.
Messina said the sale of the fleet management business will help the company.
“We believe the completion of this transaction is an important step forward for PHH, enabling us to return significant capital to shareholders, strengthen our balance sheet, enhance our financial flexibility and provide the requisite capital to position the mortgage business for success,” he said.
With the added capital from the sale, PHH plans to invest up to $200 million in the existing mortgage operations and up to $150 million in growth opportunities.
Sterne, Agee & Leach analyst Henry Coffey said in a research note last week “the path to profitability will not be an easy one” for PHH, but he is optimistic.
“Our confidence in the plan outlined by management on Tuesday’s call is relatively high given their past success at setting goals and meeting objectives,” he said.
However, Moody’s Investors Service last week downgraded PHH’s corporate family rating from Ba2 to Ba3 and affirmed a “not prime” short-term rating on the company after the fleet sale.
“In selling the operationally and financially more stable and more profitable fleet business, PHH becomes a cyclical, low margin, lower franchise strength prime mortgage banking business,” Moody’s said in a release.
Quasar Aerospace enters the pot business
Quasar Aerospace Industries Inc. emerged on the scene in 2009 with promises of big deals that never actually materialized, but the Jacksonville-based company finally has completed an acquisition that is setting a new path for its future.
It bought a “hydroponic and scientific grow supply store” in Colorado Springs for $250,000 to serve Colorado’s legal marijuana industry.
“The parent company believes that it can brand, grow and implement sales strategies that will greatly improve the historical revenues and profits as well as broaden the reach through expansion of the corporation along with the explosive growth of the legal and medical marijuana industry,” Quasar said in a news release last week.
Publicly traded companies in the pot industry have actually become very common. There is even a website, marijuanastocks.com, devoted to the industry.
Quasar has been an aerospace company that operates a flight training school at Herlong Airport on Jacksonville’s Westside, and in 2009 it made a series of announcements about pending acquisitions that it said would add $150 million to the company’s revenue in 2010. However, those deals never came to fruition.
The following years brought several lawsuits and a federal grand jury investigation into the company’s dealings under previous management, but no criminal charges were ever announced.
Quasar’s stock is still listed on the OTC pink sheets under the ticker symbol “QASP” with a price of less than a penny per share.
In financial filings with the OTC, Quasar reported revenue of $28,473 and a net loss of $67,480 from its flight training operations in the first quarter this year.
Body Central begins OTC trading
As the company had announced the previous week, Body Central Corp.’s stock ceased trading in the Nasdaq market Wednesday and began trading in the OTC Pink Marketplace.
Jacksonville-based Body Central voluntarily delisted from Nasdaq after selling $18 million in notes that can be converted into shares of common stock, without getting prior shareholder approval. That’s a violation of Nasdaq listing rules.
The fashion retailer’s shares continue to trade under the same ticker symbol, “BODY,” and the change in markets seemed to have little impact on the stock. After closing at 61 cents on Nasdaq on Tuesday, Body Central’s stock opened at 58 cents Wednesday on the OTC.
Meanwhile, the largest investor in the $18 million in notes, 683 Capital Management LLC, indicated in an SEC filing last week that it would be Body Central’s largest shareholder if it converts its notes into common stock.
The New York investment firm does not currently own any common shares, according to the filing, but if it converts its $4.5 million in notes into shares of stock, it would own 12.86 million shares.
That would give 683 Capital 18.9 percent of Body Central’s shares outstanding, assuming all of the other investors in the notes also converted their notes into shares of stock.
Stein Mart sales up again
Jacksonville’s other fashion retailer, Stein Mart Inc., continues to grow its sales.
Stein Mart last week said that total sales for the five-week period ended July 5 rose 3.8 percent to $113.2 million and comparable-store sales, or sales at stores open more than one year, rose 2.6 percent.
The company had 265 stores at the end of June this year, compared with 262 last year.
Avondale Partners analyst Mark Montagna lowered his second-quarter earnings forecast for Stein Mart by a penny to 10 cents a share after the report, “due to lower sales projections and less expense leverage.”
However, Montagna also said in his research note that “Stein Mart remains one of the best performing retailers in a very challenging environment.”
S&P downgrades Rayonier
Standard & Poor’s Ratings Services last week downgraded its corporate credit rating on Rayonier Inc. from BBB-plus to BBB after Jacksonville-based Rayonier spun off its performance fibers business into a separate public company called Rayonier Advanced Materials Inc.
S&P said in a news release that it lowered the rating “to reflect its smaller size, less diverse operations, and somewhat higher debt leverage following the separation.” Rayonier consists of its forest resources and real estate development operations after the spinoff.
“The rating outlook is stable based on Rayonier’s operating and financial flexibility; relatively steady earnings and free cash flow; and, in our view, moderate amount of debt considering the company’s valuable timberland assets,” S&P credit Thomas Nadramia said in the news release.
House-rental company enters local market
A California-based company that rents out single-family homes called Reven Housing REIT Inc. entered the Jacksonville market last week by acquiring 46 houses in the area.
Reven said it paid $3.18 million for the 46 homes, which average 1,322 square feet.
“It marks our expansion from Atlanta, Georgia, and Houston, Texas, to one of the new markets that we have been evaluating and have identified as an attractive investment opportunity, as we continue to execute on our business plan,” Reven CEO Chad Carpenter said in a news release.
The publicly traded company says that its strategy is to buy rental houses from investors who bought them at low prices and fixed them up for rentals.