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Sam Zell Chairman of the Board of Trustees Equity Commonwealth | | | Eugene W. Landy Chairman of the Board of Directors Monmouth Real Estate Investment Corporation |
Q: | What will MNR common shareholders receive in the proposed merger under the amended merger agreement? |
A: | At the effective time of the merger, each MNR common share issued and outstanding immediately prior to the effective time of the merger will convert into the right to receive, at the election of the holder of such share, subject to proration and adjustment, either (i) the “cash consideration,” which consists of $19.00 in cash or (ii) the “stock consideration,” which consists of 0.713 EQC common shares (we refer to such number of shares as the “exchange ratio”). Each MNR shareholder should specify in the election form (1) the number of MNR common shares that such shareholder elects to have exchanged for the cash consideration and (2) the number of MNR common shares that such shareholder elects to have exchanged for the stock consideration. Any holder of MNR common shares who does not make a valid and timely election for all such holder’s MNR shares will be deemed to have made an election to receive EQC common shares as the common merger consideration with respect to the MNR common shares held by such holder for which no election was made. Cash will be paid in lieu of fractional shares. The EQC common shares to be issued and the cash payable in the merger, including cash paid in lieu of the issuance of fractional shares, are referred to collectively as the “common merger consideration.” |
Q: | What happens if the market price of EQC common shares or MNR common shares changes before the closing of the merger? |
A: | No change will be made to the common merger consideration if the market price of EQC common shares or MNR common shares changes before the closing of the merger. As a result, the number of shares of stock consideration will not change but the value of the stock consideration to be issued at the closing of the merger will increase or decrease depending on the market price of EQC common shares at the effective time of the merger. |
Q: | What are the reasons for the change in transaction structure and consideration to be received by MNR shareholders compared to the original merger agreement? |
A: | EQC increased the value of the consideration to MNR shareholders and introduced a cash/stock election feature, primarily for the following reasons, among others: |
• | To offer an election for MNR shareholders to make the structure more attractive: The new cash component of the revised offer provides greater certainty of value and optionality to MNR’s common shareholders while also increasing the overall value of the offer. The revised offer increases the exchange ratio from 0.67 to 0.713, representing a 6.4% premium over the previous all-stock offer based on EQC’s closing price on August 13, 2021 of $26.65; |
• | To preserve the potential for tax deferral while enhancing the structure: The revised transaction structure enabled EQC and MNR to introduce a cash/stock election feature while generally preserving the potential for tax deferral with respect to the stock consideration, as described in further detail in the section entitled “Updates to the Merger—Material United States Federal Income Tax Considerations” beginning on page 46 of this Amendment; |
• | To respond to the Starwood proposals: On July 8, 2021, Starwood Real Estate Income Trust, Inc. (“Starwood”) made an unsolicited, non-binding proposal, as later amended, to acquire all of MNR’s outstanding common shares for net cash consideration of approximately $18.88 per share, reflecting a stated per share purchase price of $19.51 per share, reduced by the termination fee payable under the original merger agreement by MNR to EQC of $62,161,697, or approximately $0.63 per share, if MNR were to decide to terminate the original merger agreement with EQC and accept Starwood’s proposal; and |
• | To address the concerns raised by Institutional Shareholder Services Inc. (“ISS”): On August 6, 2021, ISS issued a report on the pending merger stating that, absent structural changes to the EQC transaction and additional detail on EQC’s strategic plan for the Combined Company going forward, a recommendation in favor of the transaction was not, in ISS’s view, warranted. |
Q: | What are the changes to the anticipated U.S. federal income tax consequences to me of the amended merger agreement? |
A: | EQC and MNR intend that the merger, as amended by the amended merger agreement, will continue to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. The closing of the merger continues to be conditioned on the receipt by each of EQC and MNR of a written opinion from its respective counsel to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. Assuming that the merger qualifies as a reorganization, the U.S. federal income tax consequences to U.S. holders of MNR common shares who receive EQC common shares and/or cash in exchange for their MNR common shares pursuant to the merger generally will be as follows: |
• | if a MNR shareholder receives solely EQC common shares in exchange for its MNR common shares, such shareholder generally will not recognize any gain or loss in connection with the merger, except with respect to cash received in lieu of fractional EQC common shares; |
• | if a MNR shareholder receives solely cash in exchange for its MNR common shares, such shareholder generally will recognize gain or loss equal to the difference between the amount of cash received and the shareholder’s tax basis in its MNR common shares surrendered; and |
• | if a MNR shareholder receives a combination of EQC common shares and cash in exchange for its MNR common shares, such shareholder generally will recognize gain (but not loss) in an amount equal to the lesser of (1) the sum of the cash and the fair market value of the EQC common shares received, less the shareholder’s tax basis in its MNR common shares surrendered, and (2) the amount of cash received. |
Q: | What will holders of MNR equity awards receive in the proposed merger under the amended merger agreement? |
A: | Under the amended merger agreement, at the effective time of the merger, each MNR stock option, whether vested or unvested, that is outstanding as of immediately prior to the effective time of the merger will be canceled and converted into the right to receive the stock consideration in respect of each net option share covered by such stock option. The number of net option shares is calculated by dividing (i) the aggregate intrinsic value of such stock option less applicable tax withholdings by (ii) the volume weighted average price per MNR common share on the NYSE for the five consecutive trading days immediately preceding the fifth trading day prior to the closing date of the merger. |
Q: | How do I make an election for the type of common merger consideration that I prefer to receive? |
A: | Each holder of record of MNR common shares may complete and submit an election form (the “election form”) to indicate the type of common merger consideration that they prefer to receive with respect to each MNR common share held by such holder. The election form must be submitted no later than 5:00 p.m., New York City time, on the closing date of the merger (the “election deadline”), which is currently expected to be September 9, 2021. We will use reasonable efforts to make an election form available to all holders of record as of the business day before the closing date of the merger to permit the completion and submission of the election form prior to the election deadline of 5:00 p.m., New York City time, on the closing date of the merger. Holders of MNR common shares that do not express a preference by completing and returning the election form will be treated as having elected to receive EQC common shares. |
Q: | Will MNR shareholders receive the form of common merger consideration that they request on the election form? |
A: | Not necessarily. The aggregate amount of cash and the aggregate number of EQC common shares to be delivered to MNR shareholders and holders of MNR restricted stock awards pursuant to the amended merger agreement is fixed. If there is an oversubscription of the aggregate amount of cash available to be paid as common merger consideration due to the elections of MNR shareholders and holders of MNR restricted stock awards, the aggregate amount of cash payable by EQC in the merger will not be increased. Similarly, if there is an oversubscription of the aggregate number of EQC common shares available to be issued as common merger consideration due to the elections of MNR shareholders and holders of MNR restricted stock awards (or failures to make an election), the aggregate number of EQC common shares to be issued in the merger will not be increased. Rather, in either such case, the exchange agent will allocate between cash and EQC common shares in the manner described in “Updates to the Merger Agreement—Common Merger Consideration” so that the total amount of cash paid (excluding cash paid in lieu of fractional shares) equals $641 million. |
Q: | What is the deadline for making an election? |
A: | An election must be received by Equiniti Trust Company, the exchange agent for the merger, which we refer to as the “exchange agent,” at its designated office by the election deadline, which is 5:00 p.m. New York City time on the closing date of the merger, which is currently expected to be September 9, 2021. EQC and MNR will publicly announce the anticipated election deadline at least five business days before the anticipated closing date of the merger. |
Q: | What happens if I do not send an election form or make a valid election or my election form is not received by the election deadline? |
A: | If the exchange agent does not receive your properly completed election form at or prior to the election deadline, then you will be deemed to have elected to receive stock consideration with respect to all of your |
Q: | Can I change my election after the election form has been submitted? |
A: | Yes. You may revoke your election at or prior to the election deadline by submitting a written notice of revocation to the exchange agent. Revocations must specify the name in which your shares are registered on the share transfer books of MNR and any other information that the exchange agent may request. If you wish to submit a new election, you must do so in accordance with the election procedures described in this Amendment and the election form. If you instructed a bank, broker, trust or other nominee holder to submit an election for your shares, you must follow directions from your bank, broker, trust or other nominee for changing those instructions. The submission of a properly completed election form prior to the election deadline will automatically revoke and supersede any prior elections for your shares. The notice of revocation and any new election form must be received by the exchange agent at or prior to the election deadline in order for the revocation or new election, as the case may be, to be valid. |
Q: | May I transfer MNR common shares after making an election? |
A: | Yes, a MNR holder of record that has properly made an election may transfer such holder’s MNR common shares, but only if you revoke your election or the amended merger agreement is terminated. Once a holder of record properly makes an election with respect to any MNR common shares, you will be unable to sell or otherwise transfer those shares, unless you properly revoke your election or the amended merger agreement is terminated. |
Q: | If I am a MNR shareholder do I need to do anything with my stock certificates now? |
A: | You will be required to tender the stock certificates, if any, representing your MNR common shares at the time you submit an election form to the exchange agent. If you do not submit a properly completed election form to the exchange agent and tender your shares at or prior to the election deadline, then you will be deemed to have elected to receive stock consideration with respect to your MNR common shares, and in such event, if the merger is consummated, the exchange agent will send you a letter of transmittal and instructions for exchanging your MNR common shares for EQC common shares pursuant to the terms of the amended merger agreement. Following submission of an executed election form and/or letter of transmittal and other required documents described in the instructions and tender of a certificate or book-entry shares, if the merger is consummated, the shares evidenced by such certificate or such book-entry shares will be cancelled and the applicable MNR shareholder will receive the applicable merger consideration pursuant to the terms of the amended merger agreement. |
• | an amount of cash, without interest and less any applicable withholding taxes, equal to the product (rounded down to the nearest two decimal places) of (i) the per share cash election consideration and (ii) a fraction, the numerator of which will be the maximum cash amount and the denominator of which will be the total cash election amount (which we refer to as the “cash fraction”) and |
• | a number of EQC common shares equal to the product of (i) 0.713 EQC common shares (which we refer to as the “exchange ratio”), multiplied by (ii) one minus the cash fraction. |
• | an amount of cash, without interest and less any applicable withholding taxes, equal to the amount (rounded down to the nearest two decimal places) by which the maximum cash amount exceeds the total cash election amount divided by the number of stock electing shares (we refer to such quotient as the “per share excess cash amount”) and |
• | a number of EQC common shares equal to the product of (i) the exchange ratio and (ii) a fraction, the numerator of which will be the per share cash election consideration minus the per share excess cash amount and the denominator of which will be the per share cash election consideration (which we refer to as the “stock fraction”). |
Number of cash electing shares | | | 88,597,114 |
Number of stock electing shares | | | 10,000,000 |
Number of cash electing shares | | | 88,597,114 |
Per share cash election consideration | | | $19.00 |
Total cash election amount | | | $1,683,345,166(1) |
Maximum cash available | | | $641,000,000 |
(1) | Determined by multiplying the number of cash electing shares by the per share cash election consideration. |
• | Each cash electing share would receive (as illustrated below) $7.23 in cash and 0.44149716 EQC common shares. |
• | Each stock electing share would receive 0.713 EQC common shares. |
Per share cash election consideration | | | $19.00 |
Cash fraction | | | 0.38078940(1) |
Per share cash amount paid | | | $7.23(2) |
(1) | Determined by dividing the maximum cash amount ($641,000,000) by the total cash election amount ($1,683,345,166). |
(2) | Determined by multiplying the per share cash election consideration ($19.00) by the cash fraction (0.38078940). |
Exchange ratio | | | 0.713 |
One minus the cash fraction | | | 0.61921060 |
Per share stock consideration issued | | | 0.44149716(1) |
(1) | Determined by multiplying (x) the exchange ratio (0.713) by (y) one minus the cash fraction (0.61921060). |
Number of cash electing shares | | | 28,597,114 |
Number of stock electing shares | | | 70,000,000 |
Number of cash electing shares | | | 28,597,114 |
Per share cash election consideration | | | $19.00 |
Total cash election amount | | | $543,345,166(1) |
Maximum cash amount | | | $641,000,000 |
(1) | Determined by multiplying the number of cash electing shares by the per share cash election consideration. |
• | Each cash electing share would receive $19.00 in cash. |
• | Each stock electing share would receive (as illustrated below) $1.39 in cash and 0.66083842 EQC common shares. |
Per share cash election amount | | | $543,345,166 |
Maximum cash amount | | | $641,000,000 |
Per share cash amount paid | | | $1.39(1) |
(1) | Represents the amount of cash (rounded down to the nearest two decimal places) determined by calculating the amount by which the maximum cash amount exceeds the cash election amount ($97,654,834) and dividing such number by the number of stock electing shares (70,000,000). |
Exchange ratio | | | 0.713 |
Stock fraction | | | 0.92684211(1) |
Per share stock consideration issued | | | 0.66083842(2) |
(1) | Determined by dividing (x) the amount received by each cash electing share minus the cash portion of consideration ($17.61) by (y) the amount received by each cash electing share ($19.00). |
(2) | Determined by multiplying the exchange ratio (0.713) by the stock fraction (0.92684211). |
• | The Transaction Delivers Significant Strategic and Financial Benefits. The EQC Board believes that the merger will provide a number of significant potential strategic and financial benefits, including the following: |
○ | Attractive Entry Point into the Industrial Sector to Build a Long-Term Business: The merger provides EQC shareholders an attractive entry point into the industrial sector as well as a platform to build a leading industrial business, a fast-growing sector with robust long-term fundamentals driven by the growth of e-commerce. |
○ | High-Quality Modern Portfolio: The MNR portfolio is comprised of newer properties, consisting of single tenant, net-leased industrial assets, the vast majority of which are leased to investment grade companies or their subsidiaries with long weighted average lease terms. The portfolio is primarily located in the Eastern United States with locations near airports, seaports, transportation hubs, and situated within or near major population centers, positioning the portfolio well to serve both the first and last mile of the supply chain. With a weighted average building age of 10.1 years,1 much of the portfolio consists of Class A logistics facilities with modern building features. |
○ | Scale, Stability and Potential for Significant Growth: The MNR portfolio generates a base of strong stable cash flows, and the merger provides the Combined Company the opportunity to build a leading industrial business with approximately $4 billion of balance sheet capacity for future acquisitions that the EQC Board believes will provide long-term net asset value accretion to shareholders. |
○ | Fully-Funded Growth Strategy: The Combined Company’s growth strategy is not dependent on raising additional equity capital. After closing, the Combined Company is expected to have approximately $2.5 billion of pro forma cash on the balance sheet, including proceeds from EQC’s four office properties totaling 1.5 million square feet that EQC plans to sell over time that will be reinvested into new industrial acquisitions. The Combined Company’s growth strategy includes leveraging existing relationships with large industrial owners, leading real estate brokers and merchant builders to source future industrial investments. Such future investments may include multi-tenant properties and investments with leasing and development risk acquired through single-asset acquisitions, portfolio deals and merger opportunities where EQC can achieve risk-adjusted returns. |
○ | Improved Balance Sheet: In connection with the merger, EQC will cash out MNR’s $550 million Series C preferred stockholders for $25.00 per share plus accrued dividends, which will create immediate savings for the Combined Company of approximately $34 million per annum. Going forward, the Combined Company anticipates having a strong balance sheet and a conservative financing strategy with long-term leverage targets in line with the industrial REIT sector. The Combined Company also expects to transition to become an unsecured borrower over time. |
○ | Improved Access to Capital: Given the Combined Company’s leadership team, its history of conservative balance sheet management and the intention to grow the portfolio, the Combined Company is expected to benefit from improved access to capital as it considers opportunities for debt financing to provide flexibility and lower borrowing costs. In addition, after closing, the increase in shares outstanding for the Combined Company is expected to provide increased liquidity for shareholders. |
1 | As of June 30, 2021. |
○ | Increased Diversification Over Time: With approximately $4 billion of balance sheet capacity, the Combined Company has the opportunity to make investments in industrial real estate assets where strong fundamentals offer compelling risk-adjusted returns and opportunities for long-term value creation. The Combined Company currently plans to diversify its tenant base and industry concentrations as the industrial portfolio grows. The Combined Company intends to focus on high-quality industrial assets in attractive markets across the U.S. supported by strong demand and to reshape the portfolio by concentrating on select markets and reducing large tenant exposure through growth and dispositions. |
○ | Strong Corporate Governance and Leadership: EQC’s commitment to strong corporate governance that promotes transparency as well as alignment with and accountability to shareholders will continue at the Combined Company. Sam Zell will remain the Chairman of the Board of Trustees of the Combined Company, which will continue to be led by EQC’s President and Chief Executive Officer David Helfand and the existing EQC senior management team. The EQC management team has a demonstrated record in real estate and public REIT management, including consistent execution of EQC’s strategic goals under the supervision and direction of the EQC Board. Following completion of the merger, the board of trustees of the Combined Company will consist of (i) all of the members of the EQC Board serving immediately prior to the effective time of the merger and (ii) Michael P. Landy and Sonal Pande, who have been designated by the MNR Board to serve on the board of trustees of the Combined Company following the completion of the merger in accordance with the terms of the amended merger agreement. |
• | Fixed Exchange Ratio. The EQC Board also considered that the fixed exchange ratio component of the stock consideration, which will not fluctuate as a result of changes in the market prices of EQC common shares or MNR common shares, provides certainty as to the respective pro forma ownership of the Combined Company. |
• | Cash Component of Revised Offer. The EQC Board also considered the benefits of the cash component of the revised offer, including by providing existing EQC common shareholders with greater pro forma ownership and future upside of the Combined Company as well as the expectation that it will provide (i) significant improvement in per share earnings metrics for the Combined Company as compared to earnings under the previous all-stock transaction, and (ii) higher dividend per share due to fewer EQC common shares outstanding following the merger. |
• | Opinion of Financial Advisor. The EQC Board considered the oral opinion of Goldman Sachs delivered to the EQC Board on August 15, 2021, subsequently confirmed by delivery of a written opinion, dated August 15, 2021, to the EQC Board, to the effect that, as of the date of Goldman Sachs’ written opinion, and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion as set forth therein, the stock consideration and cash consideration in the aggregate to be paid by EQC for the outstanding MNR common shares pursuant to the amended merger agreement was fair, from a financial point of view, to EQC; for additional information, see the section entitled “The Merger—Opinion of EQC’s Financial Advisor” and the full text of the written opinion of Goldman Sachs attached as Annex A to this Amendment. |
• | EQC and MNR Commitment to Completing the Merger. The EQC Board considered the commitment on the part of both parties to complete the merger as reflected in their respective obligations under the terms of the amended merger agreement, and the likelihood that the shareholder approvals needed to complete the merger would be obtained in a timely manner. |
• | the risk of diverting management focus and resources from other strategic opportunities while working to implement the merger; |
• | the risk that, notwithstanding EQC’s and MNR’s commitment to completing the merger, the merger may not be completed, or that completion may be unduly delayed, including the effect of the pendency of the merger and the effect such failure to be completed may have on the trading price of EQC common shares and operating results, particularly in light of the costs incurred in connection with the proposed transaction; |
• | the risk that, under the terms of the amended merger agreement, EQC must reimburse MNR for its expenses up to $10.0 million in the event the amended merger agreement is terminated because EQC’s shareholders fail to approve the issuance of EQC common shares in connection with the merger; |
• | the risk associated with the fact that the merger represents a strategic transition for EQC’s business into the industrial sector, and, while the Combined Company expects to have access to the appropriate resources, relationships and expertise to manage and grow the business, there can be no assurance of success; |
• | the risk that the Combined Company may not be able to find attractive sale opportunities for the remaining office properties in connection with EQC’s strategic transition into the industrial sector; |
• | the risk that the anticipated strategic and financial benefits of the merger may not be realized; |
• | the risk of other potential challenges in integrating the two companies and their respective operations; |
• | the substantial costs to be incurred in connection with the transaction, including the transaction expenses arising from the merger and the costs of integrating the businesses of EQC and MNR; |
• | the restrictions on the conduct of EQC’s business prior to the completion of the merger, which could delay or prevent EQC from undertaking certain actions it would otherwise take with respect to its business absent the pending completion of the merger; and |
• | other matters described under the section “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” |
• | the $19.00 per share value of the cash consideration, which represented a 6.4% premium over the all-stock transaction pursuant to the original merger agreement and a 23.1% premium to the 30-day average unaffected trading price of the MNR common shares as of December 18, 2020; |
• | the ability of the MNR common shareholders to elect to receive the common merger consideration in the form of cash, EQC common shares or a combination of cash and EQC common shares, subject to proration as described in “Updates to the Merger Agreement—Allocation of Common Merger Consideration and Illustrative Elections and Calculations” beginning on page 7 of this Amendment and “Updates to the Merger—Election Procedures” beginning on page 9 of this Amendment; |
• | the significant cash component of the common merger consideration equal to $641 million (equal to approximately 34% of the total common merger consideration based on the implied value of the stock consideration as of August 13, 2021); |
• | With respect to the cash consideration, the opportunity provided to shareholders for liquidity; |
• | With respect to the stock consideration, the opportunity to maintain an ownership stake in the Combined Company, which is expected to provide a number of significant potential strategic opportunities and benefits, including the following: |
○ | shareholders of the Combined Company will have the opportunity to benefit as the Combined Company seeks to build a leading industrial real estate business and thereby to continue to participate in the long-term growth of the industrial real estate sector; |
○ | the income stability of the Combined Company’s property portfolio, which is expected to consist of MNR’s 122 properties and EQC’s four office properties based on the expected timing for closing of the merger and the expected timing for one of MNR’s pending acquisitions, coupled with EQC’s sponsorship, management expertise and strong balance sheet, is expected to provide shareholders of the Combined Company with stable recurring cash flows and significant financial resources to pursue future acquisitions; |
○ | EQC is well-positioned to execute on the Combined Company’s growth strategy, which is not dependent on raising additional debt or equity capital, as the Combined Company is expected to have approximately $1.8 billion of cash on its balance sheet following the closing of the merger; |
○ | MNR’s common shareholders are expected to benefit from a strengthened balance sheet, as MNR’s outstanding Series C preferred stock will be paid off in connection with the merger, resulting in immediate preferred dividend savings of approximately $34 million per year; |
○ | shareholders of the Combined Company will benefit from increased tenant and industry diversification, as EQC plans to broaden MNR’s tenant base and reduce MNR’s industry concentrations as the portfolio grows; |
○ | the Combined Company is expected to have significant cost of capital advantages as a result of its strong balance sheet and access to liquidity; |
○ | MNR’s common shareholders are expected to benefit from a significant increase in market liquidity given the Combined Company’s expected public equity market capitalization of approximately $4.5 billion based on the closing price of EQC’s common shares on August 13, 2021 of $26.65 per share, the latest practicable trading day before the date of this Amendment; |
○ | as compared to the all-stock transaction pursuant to the original merger agreement, the issuance of fewer EQC common shares is expected to result in significant improvement in per share earnings metrics for the Combined Company as compared to per share earnings following the merger under the original merger agreement had it remained in effect and the per share dividend is expected to be higher; |
• | the amended merger agreement permits MNR to continue to pay MNR’s common shareholders regular quarterly cash dividends of up to $0.18 per MNR common share through consummation of the merger, and, because EQC agreed not to declare or pay any equalizing dividends to its common shareholders with respect to (i) the regular quarterly common dividend of $0.18 per share previously declared by the MNR Board and paid on June 15, 2021 and (ii) the regular quarterly common dividend of $0.18 per share declared by the MNR Board on July 1, 2021 and payable on September 15, 2021 (unless the merger is completed prior to September 15, 2021, in which case the dividend payment will be accelerated and paid immediately prior to the effective time of the merger), these two quarterly $0.18 per share cash dividend payments further enhance value for MNR common shareholders; |
• | the exchange ratio for the stock consideration is fixed and will not fluctuate as a result of changes in the market value of MNR common shares or EQC common shares, which provides certainty as to the pro forma percentage ownership of MNR common shareholders in the Combined Company and limits the impact of external factors on the merger; |
• | the stock consideration in the form of EQC common shares will be listed for trading on the NYSE and will continue to provide liquidity for MNR common shareholders receiving EQC common shares who desire to monetize their investment after the merger; |
• | the financial analyses presented to the MNR Board by each of J.P. Morgan and CSCA and the August 15, 2021 oral opinions delivered by J.P. Morgan and CSCA to the MNR Board, which were confirmed by delivery of written opinions dated August 15, 2021, to the effect that, as of August 15, 2021 and based upon and subject to the assumptions made, procedures followed, matters considered, and limitations on the review undertaken by J.P. Morgan and CSCA in preparing their respective opinions, the aggregate common merger consideration to be received by MNR common shareholders pursuant to the amended merger agreement was fair, from a financial point of view, to MNR common shareholders, as more fully described in “Updates to the Merger—Opinions of MNR’s Financial Advisors” beginning on page 25 of this Amendment; |
• | the robust pre-signing strategic alternatives sale process conducted by J.P. Morgan and CSCA at the direction and under the supervision of the Strategic Alternatives Committee of the MNR Board, which involved outreach to more than 90 qualified potential interested parties, including financial sponsors, real estate investment trusts, sovereign wealth funds, pension funds, real estate managers and other financial and strategic investors, the execution of non-disclosure agreements with 36 potential counterparties, and the receipt of first round indications of interest from four potential counterparties, second round proposals from three potential counterparties and “best and final” proposals from each of EQC and Starwood; |
• | the merger is intended to qualify as a reorganization for U.S. federal income tax purposes, resulting in the receipt by MNR common shareholders of the portion of the common merger consideration consisting of EQC common shares on a tax-efficient basis; |
• | immediately following the closing of the merger, the EQC Board will consist of ten trustees, including Michael P. Landy and Sonal Pande, who were designated by the MNR Board, which will provide former MNR common shareholders holding EQC common shares with continuing representation on the EQC Board; |
• | the quality, breadth and experience of EQC’s senior management team, which has successfully completed and integrated other acquisitions; |
• | favorable conditions for sale transactions in the industrial real estate market generally, including prices for assets being at or near historical highs while capitalization rates are at or near historical lows, the moderate interest rate environment and the possibility that interest rates may rise in the near future; |
• | information with respect to the business, operating results, financial condition and future plans of EQC, including the substantial amount of cash on its balance sheet and EQC’s intention to sell its office properties and focus its activities on industrial real estate following the merger; |
• | the approval of the merger by the holders of at least two-thirds of the outstanding MNR common shares required by Maryland corporation law and the approval of the issuance of EQC common shares in the merger by at least a majority of the votes cast on the proposal by EQC shareholders as required by NYSE rules; |
• | the continued ability of the MNR Board under the amended merger agreement, under certain specified circumstances, to consider an alternative proposal and the right of the MNR Board, under certain specified circumstances, to withdraw its recommendation and to terminate the amended merger agreement following such withdrawal in order to enter into an agreement with respect to a Superior Proposal, subject to payment by MNR of an approximately $72 million termination fee, as well as the right of the MNR Board, under certain specified circumstances, to withdraw its recommendation following the occurrence of an Intervening Event; |
• | the commitment on the part of each of MNR and EQC to complete the merger as reflected in their respective obligations under the terms of the amended merger agreement, the fact that there are no financing or diligence conditions to consummation of the merger, the absence of any required material governmental consents (other than a post-effective amendment to the Form S-4 Registration Statement being declared effective by the SEC), the fact that the November 24, 2021 outside date under the amended merger agreement should allow sufficient time to complete the merger, the belief that the shareholder approvals required to complete the merger under the amended merger agreement would be obtained in a timely manner, and the fact that MNR is entitled to specific performance of EQC’s obligations under the amended merger agreement; |
• | the other terms of the amended merger agreement, including representations, warranties and covenants of the parties, as well as the conditions to their respective obligations under the amended merger agreement; |
• | the proposed terms of the merger and the amended merger agreement as compared to the proposals received from other bidders, including the amended July 8 Proposal submitted by Starwood; and |
• | the course of negotiations with EQC, which were conducted at arm’s length and during which the MNR Board and the MNR Strategic Alternatives Committee were advised by MNR’s legal and financial advisors. |
• | that, because the exchange ratio for the stock consideration is fixed in the amended merger agreement and will not fluctuate as a result of changes in the market value of MNR common shares or EQC common shares, a decline in the value of EQC common shares unmatched by a similar decline in the value of MNR common shares, or an increase in the value of MNR common shares without a similar increase in the value of EQC common shares, would reduce the relative value of the EQC common shares received by MNR common shareholders in the merger; |
• | that, because the cash consideration and the stock consideration payable in the merger are fixed, the form of consideration that MNR common shareholders elect to receive in the merger is subject to proration to the extent either cash or stock is oversubscribed; |
• | the fact that the cash consideration received by MNR common shareholders in the merger will generally be taxable; |
• | the risk that the dividend per share expected to be paid by the Combined Company following the consummation of the merger may be significantly lower than the dividend per share historically paid by MNR; |
• | that, following the merger, MNR would no longer exist as a stand-alone public company and MNR shareholders would not participate in any future growth MNR might have achieved on a stand-alone basis; |
• | the risk that the strategic, financial and other benefits to the MNR shareholders expected to result from the merger might not be fully realized or realized at all, including as a result of possible changes in the real estate market or the industrial real estate business affecting the markets in which EQC will operate or as a result of potential difficulties integrating the two companies and their respective operations; |
• | the risk that an alternative transaction or different strategic alternative potentially could be more beneficial to MNR shareholders than the proposed merger with EQC; |
• | that, under the terms of the amended merger agreement, MNR must pay EQC an $72 million termination fee, which is an increase of approximately $9.8 million over the termination fee payable under the original merger agreement, if the amended merger agreement is terminated under certain circumstances or if an alternative transaction is consummated under certain circumstances following termination of the amended merger agreement, which might discourage or deter other parties from proposing an alternative transaction that may be more advantageous to MNR shareholders; |
• | that the terms of the amended merger agreement continue to place limitations on the ability of MNR to initiate or solicit, or knowingly facilitate or encourage the making of any proposal or offer that constitutes or would reasonably be expected to lead to a Takeover Proposal (as defined below) or engage in or otherwise participate in any discussions or negotiations that would reasonably be expected to lead to a Takeover Proposal (as defined below), or provide any access to its properties, books or records or any non-public information to any person relating to MNR or any of its subsidiaries in connection with the foregoing; |
• | the risk that the required approval of MNR shareholders and/or EQC shareholders for the merger and the other transactions contemplated by the amended merger agreement (in the case of MNR shareholders) or the issuance of EQC common shares in the merger (in the case of EQC shareholders) may not be obtained; |
• | the risk that one or more of the other conditions to the parties’ obligations to complete the merger will not be satisfied or waived; |
• | the risk of diverting management focus and resources from operational matters and other strategic opportunities while working to implement the merger and the risk that if the merger is not completed, MNR’s employees will have expended extensive time and efforts to complete the transaction and will have experienced significant distractions from their work during the pendency of the transaction, which would adversely affect MNR’s business; |
• | the possibility that the merger may not be completed, or may be unduly delayed, for reasons beyond the control of MNR or EQC; |
• | provisions in the amended merger agreement that continue to restrict operation of MNR’s business during the period between the signing of the amended merger agreement and consummation of the merger may delay or prevent MNR from undertaking business opportunities that may arise or other actions MNR would otherwise take with respect to its operations absent the pending completion of the merger; |
• | the expenses to be incurred in connection with the merger; |
• | MNR’s continuing obligation under the amended merger agreement to reimburse EQC for up to $10.0 million of transaction expenses incurred by EQC if the merger is not completed due to the failure of MNR shareholders to approve the merger and the other transactions contemplated by the amended merger agreement; |
• | the fact that under Maryland law, MNR shareholders are not entitled to dissenters’ or appraisal rights in connection with the merger; and |
• | the types and nature of the risks described under the section entitled “Risk Factors” beginning on page 22 of the joint proxy statement/prospectus and on page 5 of this Amendment. |
• | the amended merger agreement; |
• | the annual reports to shareholders and Annual Reports on Form 10-K of EQC and MNR for the five fiscal years ended December 31, 2020 and September 30, 2020, respectively; |
• | certain interim reports to shareholders and Quarterly Reports on Form 10-Q of EQC and MNR; |
• | certain other communications from EQC and MNR to their respective shareholders; |
• | certain publicly available research analyst reports for EQC and MNR; |
• | certain internal financial analyses and forecasts for MNR prepared by its management (shown by the management of EQC on a pro forma basis for the sale of a specified asset, using EQC’s projection for the specified asset) and approved for Goldman Sachs’ use by EQC, which we refer to as the “MNR Forecasts;” |
• | certain updated internal financial analyses and forecasts for EQC on a stand-alone and pro forma basis, giving effect to the merger, in each case, as prepared by the management of EQC and approved for Goldman Sachs’ use by EQC, which we refer to collectively, together with the MNR Forecasts, as the “Forecasts;” and |
• | certain operating synergies projected by the managements of EQC and Monmouth to result from the merger, as approved for Goldman Sachs’ use by EQC, which we refer to as the “Synergies” for purposes of this section “ -Opinion of EQC’s Financial Advisor.” |
• | reviewed a draft dated August 15, 2021 of the amended merger agreement; |
• | reviewed certain publicly available business and financial information concerning MNR and EQC and the industries in which they operate; |
• | compared the proposed financial terms of the merger with the publicly available financial terms of certain transactions involving companies J.P. Morgan deemed relevant and the consideration paid for such companies; |
• | compared the financial and operating performance of MNR and EQC with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of MNR common shares and EQC common shares and certain publicly traded securities of such other companies; |
• | reviewed certain internal financial analyses and forecasts prepared by or at the direction of the management of MNR and EQC relating to the respective businesses, as discussed more fully under “—Certain MNR Unaudited Prospective Financial Information” beginning on page 44 of this Amendment, under “Certain Supplemental Disclosures” beginning on page 49 of this Amendment and under “—Certain MNR Unaudited Prospective Financial Information” beginning on page 97 of the |
• | performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion. |
• | STAG Industrial, Inc. |
• | Lexington Realty Trust |
• | MNR |
• | Cousins Properties Incorporated |
• | Highwoods Properties, Inc. |
• | Piedmont Office Realty Trust, Inc. |
• | Franklin Street Properties Corp. |
• | EQC |
| | P/2021E AFFO | | | P/2021E FFO | | | Implied Capitalization Rate | |
STAG Industrial, Inc. | | | 22.6x | | | 20.7x | | | 4.8% |
Lexington Realty Trust | | | 19.2x | | | 17.5x | | | 5.1% |
MNR | | | 22.6x | | | 22.3x | | | 4.8% |
| | Implied Capitalization Rate | |
Cousins Properties Incorporated | | | 5.7% |
Highwoods Properties, Inc. | | | 6.9% |
Piedmont Office Realty Trust, Inc. | | | 7.4% |
Franklin Street Properties Corp. | | | 7.7% |
EQC | | | 7.4% |
| | Implied Per Share Equity Value | ||||
| | Low | | | High | |
MNR P/2021E AFFO | | | $16.00 | | | $18.75 |
MNR P/2021E FFO | | | $15.25 | | | $19.50 |
MNR Implied Capitalization Rate | | | $17.50 | | | $19.75 |
| | Implied Per Share Equity Value | ||||
| | Low | | | High | |
EQC Implied Capitalization Rate | | | $26.50 | | | $27.50 |
| | Implied Per Share Equity Value | ||||
| | Low | | | High | |
MNR Discounted Cash Flow | | | $13.00 | | | $21.00 |
EQC Discounted Cash Flow | | | $27.75 | | | $29.00 |
| | Implied Exchange Ratios | ||||
| | Low | | | High | |
Implied Capitalization Rate | | | 0.636x | | | 0.745x |
Discounted Cash Flow | | | 0.448x | | | 0.757x |
• | Reviewed the (i) audited financial information for MNR for the twelve-month periods ended September 30, 2018, 2019, and 2020, respectively, (ii) unaudited financial information for MNR for the three-month and nine-month periods ended June 30, 2021, respectively, (iii) unaudited financial information for MNR for the three-month and nine-month periods ended June 30, 2020, and (iv) projected financial information relating to the business, earnings, cash flow, assets, liabilities and capitalization of MNR, all of the foregoing as prepared and provided by MNR management; |
• | Reviewed the (i) audited financial information for EQC for the twelve-month periods ended December 31, 2018, 2019, and 2020, respectively, (ii) unaudited financial information for EQC for the three-month and six-month periods ended June 30, 2021, respectively, (iii) unaudited financial information for EQC for the three-month and six-month periods ended June 30, 2020, respectively, and (iv) projected financial information relating to the business, earnings, cash flow, assets, liabilities and capitalization of EQC, all of the foregoing as prepared and provided by EQC management; |
• | Reviewed certain publicly available audited and unaudited financial statements and other publicly available business, financial and other information of MNR, including but not limited to the Annual Report filed on Form 10-K for the fiscal year ended September 30, 2020 and related supplementary financial information thereto, and the Quarterly Report on Form 10-Q and related supplementary information for each of the fiscal quarters ended June 30, 2021, March 31, 2021, and December 31, 2020; |
• | Reviewed certain publicly available audited and unaudited financial statements and other publicly available business, financial and other information of EQC, including but not limited to the Annual Report filed on Form 10-K for the fiscal year ended December 31, 2020 and related supplementary financial information thereto, and the Quarterly Report on Form 10-Q and related supplementary information for each of the fiscal quarters ended June 30, 2021, March 31, 2021, and September 30, 2020; |
• | Reviewed other non-public financial and operating information of MNR, including detailed 5-year financial projections prepared by management, information relating to its existing leases, existing debt and related prepayment penalties, historical capital expenditures and related projections, historical re-leasing history and related projections, pending property acquisitions (as to which there can be no assurance of such acquisitions closing) and related leases and financing, among others, as discussed more fully under “Certain Supplemental Disclosures” beginning on page 49 of this Amendment, and under “—Certain MNR Unaudited Prospective Financial Information” beginning on page 97 of the joint proxy statement/prospectus; |
• | Reviewed other non-public financial and operating information relating to EQC's commercial real estate assets, including but not limited to rent rolls and 10-year property level projections for its office portfolio, among others; |
• | Reviewed drafts of the amended merger agreement, the most recent draft dated August 15, 2021, and each of MNR and EQC’s disclosure schedules thereto; |
• | Compared certain publicly available financial information of MNR with similar publicly available information of other comparable publicly traded industrial and net lease REITs, as CSCA deemed relevant to its analyses; |
• | Compared certain publicly available and non-publicly available financial information of EQC with publicly available information of other comparable publicly traded office REITs, as CSCA deemed relevant to its analyses; |
• | Reviewed the terms, to the extent publicly available, of certain comparable transactions, and compared such terms to the terms of the merger, as CSCA deemed relevant to its analysis; |
• | Reviewed the stock price history of each of MNR and EQC and compared such prices to the terms of the merger, as CSCA deemed relevant to its analysis; |
• | Performed various financial analyses as CSCA deemed appropriate, using generally accepted analytical valuation methodologies; and |
• | Performed such other analyses, inquiries and investigations and consideration of such other factors as CSCA deemed appropriate for the purposes of its opinion, including its knowledge of the REIT, industrial and office real estate sectors, as well as its experience in connection with similar transactions and securities valuation generally. |
• | W.P. Carey Inc.; |
• | STAG Industrial, Inc.; |
• | Lexington Realty Trust; and |
• | Broadstone Net Lease, Inc. |
Industrial Peer Group | | | Implied Cash Capitalization Rate | | | Price / CY 2021E FFO | | | Price / CY 2021E AFFO | | | Prem/(Disc.) to NAV |
W.P. Carey Inc. | | | 5.6% | | | 17.5 x | | | 15.8 x | | | 18.4% |
STAG Industrial | | | 4.9% | | | 20.7 x | | | 23.0 x | | | 9.8% |
Lexington Realty Trust | | | 5.2% | | | 17.5 x | | | 19.5 x | | | 16.9% |
Broadstone Net Lease, Inc. | | | 5.0% | | | 19.6 x | | | 20.9 x | | | 32.9% |
Industrial Peer Group | | | Low | | | Mean | | | Median | | | High |
Implied Cash Capitalization Rate | | | 5.6% | | | 5.2% | | | 5.1% | | | 4.9% |
Price / CY 2021E FFO | | | 17.5x | | | 18.8x | | | 18.6x | | | 20.7x |
Price / CY 2021E AFFO | | | 15.8x | | | 19.8x | | | 20.2x | | | 23.0x |
Prem/(Disc.) to NAV | | | 9.8% | | | 19.5% | | | 17.6% | | | 32.9% |
| | MNR Metrics | | | Industrial Peer Group Metrics | | | Implied Equity Value Per Share | |
Implied Cash Capitalization Rate | | | $171 | | | 4.9% – 5.6% | | | $14.60 – $18.58 |
Price / CY 2021E FFO | | | $0.87 | | | 17.5x – 20.7x | | | $15.28 – $18.07 |
Price / CY 2021E AFFO | | | $0.83 | | | 15.8x – 23.0x | | | $13.18 – $19.12 |
Prem/(Disc.) to NAV | | | $16.90 | | | 9.8% – 32.9% | | | $18.51 – $22.38 |
• | Cousins Properties Incorporated; |
• | Highwoods Properties, Inc.; |
• | Corporate Office Properties Trust; |
• | Brandywine Realty Trust; and |
• | Piedmont Office Realty Trust, Inc. |
Office Peer Group | | | Implied Cash Capitalization Rate |
Cousins Properties Incorporated | | | 5.6% |
Highwoods Properties, Inc. | | | 6.9% |
Corporate Office Properties Trust | | | 6.5% |
Brandywine Realty Trust | | | 5.7% |
Piedmont Office Realty Trust, Inc. | | | 7.5% |
Office Peer Group | | | Low | | | Mean | | | Median | | | High |
Implied Cash Capitalization Rate | | | 7.5% | | | 6.4% | | | 6.5% | | | 5.6% |
| | EQC Metric | | | Office Peer Group Metrics | | | Implied Equity Value Per Share | |
Implied Cash Capitalization Rate | | | $30 | | | 5.6% – 7.5% | | | $26.20 – $27.34 |
| | MNR Implied Equity Value Per Share | | | Per Share Cash Election Consideration | | | Implied Exchange Ratio | | | Common Exchange Ratio | |
High | | | $22.38 | | | | | 0.8496 x | | | ||
Low | | | $13.18 | | | $19.00 | | | 0.5006 x | | | 0.713 x |
Date Announced | | | Acquiror | | | Target | | | Implied Cash Capitalization Rate |
August 2021 | | | Blackstone Real Estate Income Trust | | | WPT Industrial REIT | | | 4.2% |
May 2018 | | | The Blackstone Group LP | | | Gramercy Property Trust | | | 6.1% |
July 2015 | | | Global Logistic Properties Limited | | | Industrial Income Trust Inc. | | | 5.1% |
Precedent Transactions | | | Mean | | | High | | | Low |
Implied Cash Capitalization Rate | | | 5.2% | | | 4.2% | | | 6.1% |
| | MNR Metric | | | Implied Cash Capitalization Rates | | | Implied Equity Value Per Share | |
Implied Cash Capitalization Rate | | | $171 | | | 4.2% – 6.1% | | | $11.91 – $24.41 |
| | MNR Implied Equity Value Per Share | | | Per Share Cash Election Consideration | | | Implied Exchange Ratio | | | Common Exchange Ratio | |
High | | | $24.41 | | | | | 0.9267 x | | | ||
Low | | | $11.91 | | | $19.00 | | | 0.4521 x | | | 0.713 x |
| | MNR Metric | | | Implied Cash Capitalization Rates | | | Implied Equity Value Per Share | |
Capitalization Rate Valuation Analysis - MNR | | | $171 | | | 4.50% – 5.25% | | | $16.59 – $22.05 |
| | EQC Metric | | | Implied Cash Capitalization Rates | | | Implied Equity Value Per Share | |
Capitalization Rate Valuation Analysis - EQC | | | $30 | | | 4.50% – 6.00% | | | $27.02 – $28.37 |
| | MNR Implied Equity Value Per Share | | | Per Share Cash Election Consideration | | | EQC Implied Equity Value Per Share | | | Implied Exchange Ratio | | | Common Exchange Ratio | |
High | | | $22.05 | | | | | $28.37 | | | 0.8161 x | | | ||
Low | | | $16.59 | | | $19.00 | | | $27.02 | | | 0.5848 x | | | 0.713 x |
Transaction Announcement Date | | | Acquiror | | | Target |
August 2021 | | | Blackstone Real Estate Income Trust | | | WPT Industrial REIT |
July 2021 | | | Kite Realty Group Trust | | | Retail Properties of America, Inc. |
June 2021 | | | Ventas | | | New Senior Investment Group |
April 2021 | | | Realty Income Corporation | | | Vereit, Inc. |
April 2021 | | | Kimco Realty Corp | | | Weingarten Realty Investors |
October 2019 | | | Prologis, Inc. | | | Liberty Property Trust |
July 2019 | | | AXA Investment Managers-Real Assets | | | NorthStar Realty Europe |
May 2019 | | | Park Hotels & Resorts | | | Chesapeake Lodging Trust |
March 2019 | | | Cousins Properties | | | Tier REIT, Inc. |
January 2019 | | | Omega Healthcare Investors | | | MedEquities Realty Trust |
September 2018 | | | Pebblebrook Hotel Trust | | | LaSalle Hotel Properties |
July 2018 | | | Brookfield Asset Management | | | Forest City Realty Trust |
June 2018 | | | Greystar Investment Group | | | Education Realty Trust |
May 2018 | | | Blackstone Group LP | | | Gramercy Property Trust |
April 2018 | | | Prologis, Inc. | | | DCT Industrial Trust |
March 2018 | | | Brookfield Property Partners | | | GGP |
July 2017 | | | Greystar Growth and Income Fund LP | | | Monogram Residential Trust |
June 2017 | | | Canada Pension Plan Investment Board | | | Parkway |
June 2017 | | | Government Properties Income Trust | | | First Potomac Realty Trust |
June 2017 | | | Digital Realty Trust | | | Dupont Fabros Technology |
May 2017 | | | Sabra Health Care REIT | | | Care Capital Properties |
April 2017 | | | RLJ Lodging Trust | | | FelCor Lodging Trust |
February 2017 | | | Tricon Capital Group | | | Silver Bay Realty Trust |
January 2017 | | | Starwood Capital Group | | | Milestone Apartments REIT |
November 2016 | | | Regency Centers Corp. | | | Equity One |
August 2016 | | | Mid-America Apartment Communities | | | Post Properties |
April 2016 | | | Cousins Properties | | | Parkway Properties |
January 2016 | | | Brookfield Asset Management | | | Rouse Properties |
December 2015 | | | DRA Advisors | | | Inland Real Estate Corporation |
December 2015 | | | American Homes 4 Rent | | | American Residential Properties |
October 2015 | | | Harrison Street Real Estate Capital | | | Campus Crest Communities |
October 2015 | | | Blackstone Group LP | | | Biomed Realty Trust |
September 2015 | | | Blackstone Group LP | | | Strategic Hotels & Resorts |
June 2015 | | | Lone Star Investment Advisors | | | Home Properties |
April 2015 | | | Brookfield Asset Management | | | Associated Estates Realty |
April 2015 | | | Blackstone Group LP | | | Excel Trust |
October 2014 | | | Omega Healthcare Investors | | | Aviv REIT |
September 2014 | | | Washington Prime Group | | | Glimcher Realty Trust |
August 2014 | | | Health Care REIT | | | HealthLease Properties REIT |
June 2014 | | | Ventas | | | American Realty Capital Healthcare |
December 2013 | | | Essex Property Trust | | | BRE Properties |
October 2013 | | | American Realty Capital Properties | | | Cole Real Estate Investments |
June 2013 | | | Mid-America Apartment Communities, Inc. | | | Colonial Properties Trust |
May 2013 | | | American Realty Capital | | | CapLease |
| | MNR Metrics | | | Premium Range (25th to 75th Percentile) | | | Implied Equity Value Per Share | |
1-Day | | | $16.99 | | | 12.6% – 20.1% | | | $19.13 – $20.41 |
5-Day | | | $16.16 | | | 12.1% – 21.3% | | | $18.11 – $19.60 |
2-Week | | | $15.22 | | | 12.3% – 23.7% | | | $17.09 – $18.82 |
30-Day | | | $14.16 | | | 15.5% – 26.7% | | | $16.36 – $17.94 |
| | MNR Implied Equity Value Per Share | | | Per Share Cash Election Consideration | | | Implied Exchange Ratio | | | Common Exchange Ratio | |
High | | | $20.41 | | | | | 0.7748 x | | | ||
Low | | | $16.36 | | | $19.00 | | | 0.6212 x | | | 0.713 x |
Terminal Value Range | | | Discount Rate | | | Implied Equity Value Per Share |
20.0 x – 23.0 x | | | 6.00% – 6.50% | | | $16.37 – $21.96 |
Terminal Value Range | | | Discount Rate | | | Implied Equity Value Per Share |
14.0 x – 16.0 x | | | 6.75% – 7.25% | | | $26.96 – $27.57 |
| | MNR Implied Equity Value Per Share | | | Per Share Cash Election Consideration | | | EQC Implied Equity Value Per Share | | | Implied Exchange Ratio | | | Common Exchange Ratio | |
High | | | $21.96 | | | | | $27.57 | | | 0.8147 x | | | ||
Low | | | $16.37 | | | $19.00 | | | $26.96 | | | 0.5937 x | | | 0.713 x |
• | an assumed closing date for the merger of June 30, 2021; |
• | the issuance of approximately 46.2 million EQC common shares as common merger consideration; |
• | the assumption by EQC of MNR's existing mortgages, and a new $300mm facility to replace MNR's existing term loan and revolving credit facility which are assumed to be repaid with balance sheet cash at closing; |
• | the cash out of MNR’s 6.125% Series C Preferred Stock using EQC’s cash on balance sheet at closing, resulting in an interest savings of $34 million per year; |
• | $83 million of transaction costs funded with cash on balance sheet at closing; |
• | the sale of EQC’s office properties in 2022 for gross proceeds of $750 million and MNR’s securities portfolio post completion of the merger; |
• | general and administrative expense of approximately $41 million in 2021, $39 million in 2022, $32 million in 2023 and annual growth of 2.5% thereafter for the projected period; |
• | contracted acquisitions of $119 million in 2021 and $79 million in 2022, at an average capitalization rate of 5.8%, and new acquisitions of industrial properties of $1.6 billion in 2022 and $1.4 billion in 2023, all at a capitalization rate of 4.5% with same-store net operating income growth of 3.5% per year; and |
• | no issuance of new common equity or preferred equity. |
($ thousands) | | | 2021 | | | 2022 | | | 2023 | | | 2024 |
Net Operating Income(1) | | | $190,728 | | | $247,042 | | | $285,905 | | | $315,409 |
EBITDA(2) | | | 150,041 | | | 208,191 | | | 253,584 | | | 282,281 |
Adjusted EBITDA(3) | | | 155,470 | | | 210,903 | | | 254,441 | | | 282,351 |
FFO(4) | | | 111,237 | | | 168,350 | | | 206,223 | | | 224,229 |
Unlevered Free Cash Flow(5) | | | (9,852) | | | (824,252) | | | (1,200,559) | | | 256,067 |
(1) | Net operating income as used by EQC is a non-GAAP measure and is defined as recurring rental and tenant reimbursement revenue and other income including lease termination fees received from tenants and the impact of GAAP adjustments such as straight-line rent adjustments and amortization of above-market intangible lease assets and below-market lease intangible liabilities, less real estate taxes and property operating expenses, such as insurance, utilities and repairs and maintenance. |
(2) | EBITDA represents earnings before interest income (including any dividend income from securities) and expense, taxes, depreciation and amortization, and is calculated beginning with net operating income and deducting general and administrative expenses. |
(3) | Adjusted EBITDA defined as EBITDA plus interest income and dividend income from securities. |
(4) | FFO, or Funds from Operations, is calculated in accordance with standards established by the National Association of Real Estate Investment Trusts, or Nareit. Nareit defines FFO as net income (loss), calculated in accordance with GAAP, excluding real estate depreciation and amortization, gains (or losses) from sales of depreciable property, impairment of depreciable real estate, and the portion of these items related to equity investees and non-controlling interests. |
(5) | Unlevered Free Cash Flow was arithmetically derived from the EQC management forecasts by removing the effects of straight-line rents from EBITDA and deducting income tax expense, capital expenditure, acquisitions and dispositions. Unlevered Free Cash Flow was provided by EQC management to Goldman Sachs and approved for Goldman Sachs’ use by the EQC Board. |
| | 6 Months Ending December 31, 2021E | | | Calendar Year Ending December 31, | ||||||||||
| | 2022E | | | 2023E | | | 2024E | | | 2025E | ||||
| | ($ in millions) | |||||||||||||
Unlevered Free Cash Flow – MNR(1) | | | $(121) | | | $(74) | | | ($47) | | | $(33) | | | $36 |
(1) | Unlevered Free Cash Flow – MNR was determined by making adjustments (including straight-line rent adjustment, capital expenditures and acquisitions) to projected Adjusted EBITDA (excluding Interest/Dividend Income). |
| | 6 Months Ending December 31, 2021E | | | Calendar Year Ending December 31, | ||||||||||
| | 2022E | | | 2023E | | | 2024E | | | 2025E | ||||
| | ($ in millions) | |||||||||||||
Unlevered Free Cash Flow – EQC(2) | | | $(7) | | | $(9) | | | $11 | | | $19 | | | $31 |
(2) | Unlevered Free Cash Flow – EQC was determined by making adjustments (including straight-line rent adjustment, G&A and capital expenditures) to projected property-level NOI. |
| | Fiscal Year Ending September 30, | |||||||||||||
| | 2021E | | | 2022E | | | 2023E | | | 2024E | | | 2025E | |
| | ($ in millions, except per share values) | |||||||||||||
Net Income | | | $91 | | | $66 | | | $72 | | | $78 | | | $85 |
Cash Net Operating Income (Cash NOI)(1) | | | $153 | | | $173 | | | $187 | | | $202 | | | $217 |
Adjusted EBITDA (ex. Interest/Dividend Income)(2) | | | $147 | | | $165 | | | $179 | | | $193 | | | $207 |
FFO per Share(3) | | | $0.84 | | | $0.96 | | | $1.05 | | | $1.12 | | | $1.18 |
AFFO per Share(4) | | | $0.80 | | | $0.93 | | | $1.03 | | | $1.10 | | | $1.16 |
| | Calendar Year Ending December 31, | |||||||||||||
| | 2021E | | | 2022E | | | 2023E | | | 2024E | | | 2025E | |
| | ($ in millions, except per share values) | |||||||||||||
Net Income | | | $73 | | | $67 | | | $73 | | | $79 | | | $87 |
Cash Net Operating Income (Cash NOI)(1) | | | $159 | | | $177 | | | $191 | | | $206 | | | $219 |
Adjusted EBITDA (ex. Interest/Dividend Income)(2) | | | $152 | | | $169 | | | $183 | | | $196 | | | $210 |
FFO per Share(3) | | | $0.87 | | | $0.99 | | | $1.07 | | | $1.14 | | | $1.19 |
AFFO per Share(4) | | | $0.83 | | | $0.96 | | | $1.05 | | | $1.12 | | | $1.17 |
Very truly yours, | | | |
| | ||
| | ||
/s/ GOLDMAN SACHS & CO. LLC | | | |
(GOLDMAN SACHS & CO. LLC) | | |
(i) | CSCA reviewed the (i) audited financial information for the twelve-month periods ended September 30, 2018, 2019, and 2020, respectively, (ii) unaudited financial information for the three-month and nine-month periods ended June 30, 2021, respectively, (iii) unaudited financial information for the three-month and nine-month periods ended June 30, 2020, respectively, and (iv) projected financial information relating to the business, earnings, cash flow, assets, liabilities and capitalization, all of the foregoing as prepared and provided by Company management; |
(ii) | CSCA reviewed the (i) audited financial information for the twelve-month periods ended December 31, 2018, 2019, and 2020, respectively, (ii) unaudited financial information for the three-month and six-month periods ended June 30, 2021, respectively, (iii) unaudited financial information for the three-month and six-month periods ended June 30, 2020, respectively and (iv) projected financial information relating to the business, earnings, cash flow, assets, liabilities and capitalization, all of the foregoing as prepared and provided by Parent management; |
(iii) | CSCA reviewed certain publicly available audited and unaudited financial statements and other publicly available business, financial and other information of the Company including but not limited to the Annual Report filed on Form 10-K for the fiscal year ended September 30, 2020 and related supplementary financial information thereto, and the Quarterly Report on Form 10-0 and related supplementary information for each of the fiscal quarters ended June 30, 2021, March 31, 2021, and December 31, 2020; |
(iv) | CSCA reviewed certain publicly available audited and unaudited financial statements and other publicly available business, financial and other information of Parent including but not limited to the Annual Report filed on Form 10-K for the fiscal year ended December 31, 2020 and related supplementary financial information thereto, and the Quarterly Report on Form 10-0 and related supplementary information for each of the fiscal quarters ended June 30, 2021, March 31, 2021, and September 30, 2020; |
(v) | CSCA reviewed other non-public financial and operating information of the Company including detailed 5-year financial projections prepared by management, information relating to its existing leases, existing debt and related prepayment penalties, historical capital expenditures and related projections, historical re-leasing history and related projections, pending property acquisitions (as to which there can be no assurance of such acquisitions closing) and related leases and financing, among others; |
(vi) | CSCA reviewed other non-public financial and operating information relating to Parent's commercial real estate assets, including but not limited to rent rolls and 10-year property level projections for its office portfolio, among others; |
(vii) | CSCA reviewed drafts of the Merger Agreement, the most recent draft dated August 15, 2021, and the Disclosure Schedules thereto, (collectively, the “Merger Documents”); |
(viii) | CSCA compared certain publicly available financial information of the Company with similar publicly available information of other comparable publicly traded industrial and net lease REITs, as CSCA deemed relevant to its analyses; |
(ix) | CSCA compared certain publicly available and non-publicly available financial information of the Parent with publicly available information of other comparable publicly traded office REITs, as CSCA deemed relevant to its analyses; |
(x) | CSCA reviewed the terms, to the extent publicly available, of certain comparable transactions, and compared such terms to the terms of the Merger, as CSCA deemed relevant to its analysis; |
(xi) | CSCA reviewed the stock price history of each of the Company and Parent and compared such prices to the terms of the Merger, as CSCA deemed relevant to its analysis. |
(xii) | CSCA performed various financial analyses as CSCA deemed appropriate, using generally accepted analytical valuation methodologies; and |
(xiii) | CSCA performed such other analyses, inquiries and investigations and consideration of such other factors as CSCA deemed appropriate for the purposes of this Opinion, including its knowledge of the REIT, industrial and office real estate sectors, as well as its experience in connection with similar transactions and securities valuation generally. |
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