MONMOUTH REAL ESTATE INVESTMENT CORP : Entry into a Material Definitive Agreement, Other Events, Financial Statements and Exhibits (form 8-K)
Item 1.01 Entry into a Material Definitive Agreement.
As previously announced, on November 5, 2021, Monmouth Real Estate Investment
Corporation, a Maryland corporation (“Monmouth”), Industrial Logistics
Properties Trust, a Maryland real estate investment trust (“ILPT”), and Maple
Delaware Merger Sub LLC, a Delaware limited liability company and wholly owned
subsidiary of ILPT (“Merger Sub”), entered into an Agreement and Plan of Merger
(the “Merger Agreement”) under which, subject to the terms and conditions
thereof, ILPT will acquire Monmouth in an all-cash transaction (the “Merger”).
Under the terms and subject to the conditions set forth in the Merger Agreement,
Monmouth will merge with and into Merger Sub, with Merger Sub surviving as a
wholly owned subsidiary of ILPT. Upon the closing of the Merger (the “Effective
Time”), each share of common stock, par value $0.01 per share, of Monmouth that
is issued and outstanding immediately prior to the Effective Time (other than
shares owned by Monmouth, ILPT or Merger Sub) will be automatically converted
into the right to receive $21.00 per share in cash, without interest and subject
to applicable withholding tax, and each share of 6.125% Series C Cumulative
Redeemable Preferred Stock, par value $0.01 per share, of Monmouth that is
issued and outstanding immediately prior to the Effective Time (other than
shares owned by Monmouth, ILPT or Merger Sub) will be automatically converted
into the right to receive an amount in cash equal to $25.00 plus accumulated and
unpaid dividends to, but not including, the date the Merger is completed.
On February 7, 2022, Monmouth, ILPT, and Merger Sub entered into Amendment No. 1
(the “Amendment”) to the Merger Agreement, pursuant to which, as a result of
ILPT transferring all of the issued and outstanding limited liability company
interests of Merger Sub to a direct wholly owned subsidiary of ILPT and Merger
Sub thereby becoming an indirect wholly owned subsidiary of ILPT, the parties
have agreed to amend certain representations and warranties of ILPT and Merger
Sub.
The foregoing description of the Amendment is qualified in its entirety by
reference to the Amendment, a copy of which is filed as Exhibit 2.1 hereto and
incorporated herein by reference.
Item 8.01 Other Events.
On December 21, 2021, Monmouth filed with the Securities and Exchange Commission
(the “SEC”) a definitive proxy statement (the “Definitive Proxy Statement”) with
respect to the special meeting of shareholders of Monmouth scheduled to be held
on February 17, 2022 in connection with the Merger (the “Special Meeting”).
Litigation Relating to the Merger
Beginning on December 13, 2021, purported shareholders of Monmouth filed seven
lawsuits in federal courts against Monmouth and members of Monmouth’s board of
directors, challenging disclosures related to the Merger. These lawsuits, Wang
v. Monmouth Real Estate Investment Corporation, et al., No. 1:21-cv-10632
(S.D.N.Y.), Whitfield v. Monmouth Real Estate Investment Corporation, et al.,
No. 1:21-cv-10854 (S.D.N.Y.), Wallace v. Monmouth Real Estate Investment
Corporation, et al., No. 1:21-cv-07088 (E.D.N.Y.), Wilson v. Monmouth Real
Estate Investment Corporation, et al., No. 3:22-cv-00074 (D.N.J.), Cohen v.
Monmouth Real Estate Investment Corporation, et al., No. 1:22-cv-00184
(S.D.N.Y.), Jones v. Monmouth Real Estate Investment Corporation, et al., No.
3:22-cv-00105 (D.N.J.), and Waterman v. Monmouth Real Estate Investment
Corporation, et al., No. 2:22-cv-00102 (E.D. Pa.), allege, among other things,
that Monmouth and its directors violated Section 14(a) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14a-9
promulgated thereunder and that Monmouth’s directors violated Section 20(a) of
the Exchange Act by causing the filing of a proxy statement relating to the
Merger with the SEC that misstates or omits certain allegedly material
information.
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These lawsuits seek injunctive and other relief, including, among other things,
enjoining the consummation of the Merger, rescission of the Merger to the extent
implemented (or rescissory damages), directing the defendants to disseminate a
proxy statement that does not contain any untrue statements of material fact and
that states all material facts required in it or necessary to make the
statements contained therein not misleading, accounting for damages, a
declaration that Monmouth and its directors violated Sections 14(a) and/or 20(a)
of the Exchange Act and Rule 14a-9 thereunder, and an award of the plaintiff’s
costs, including attorneys’ and experts’ fees.
In addition, Monmouth and members of Monmouth’s board of directors are
defendants in a putative class action lawsuit filed on August 4, 2021, and
amended on January 14, 2022, by a purported shareholder of Monmouth (Ross v.
Conway et al., No. 24-C-21-003425CN (Md. Cir. Ct. Balt.)) (the “Ross Complaint”)
that alleges, among other things, that the defendants violated fiduciary duties
by misrepresenting or omitting allegedly material information in the Definitive
Proxy Statement and that plaintiff’s counsel is entitled to attorneys’ fees and
expenses in connection with disclosures related to Monmouth’s now-terminated
merger agreement with Equity Commonwealth. The Ross Complaint seeks relief
including, among other things, enjoining the vote on the Merger, compensatory
damages, awarding plaintiff the costs of the action, and awarding plaintiff’s
counsel attorneys’ fees and expenses.
Monmouth believes that the claims asserted in the federal lawsuits and the Ross
Complaint (the “Complaints”) are without merit and that no further disclosure is
required under applicable law. Nothing in this Current Report on Form 8-K shall
be deemed an admission of the legal necessity or materiality under applicable
laws of any of the disclosures set forth herein. To the contrary, Monmouth
specifically denies all allegations in the Complaints that any additional
disclosure was or is required.
Supplemental Disclosures to Definitive Proxy Statement
This supplemental information to the Definitive Proxy Statement should be read
in conjunction with the Definitive Proxy Statement, which should be read in its
entirety. All page references in the information below are to pages in the
Definitive Proxy Statement, and all terms used but not defined below shall have
the meanings set forth in the Definitive Proxy Statement.
The following underlined language is added to the penultimate paragraph in the
section of the Definitive Proxy Statement entitled “The Merger-Background of the
Merger” that appears on page 32.
Also on November 4, 2021, Monmouth, with the approval of its board of directors,
entered into an agreement with Blackwells pursuant to which Blackwells would
withdraw its proposals, support the proposed transaction and enter into various
standstill, solicitation and support arrangements. The agreement provided for
Monmouth’s partial expense reimbursement to Blackwells of $3.85 million for
certain of Blackwells’s documented, actual out-of-pocket third party
professional fees and expenses. Monmouth simultaneously entered into an
agreement with its former general counsel and Blackwells to settle and dismiss
all claims between them in the New Jersey litigation, which agreement provided
for mutual partial reimbursement of litigation expenses, with net reimbursement
payable by Monmouth to Blackwells of $4 million.
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The following paragraph and table are added after the third paragraph in the
section of the Definitive Proxy Statement entitled “The Merger-Opinions of
Monmouth’s Financial Advisors-Opinion of J.P. Morgan-Public Trading Multiples”
that appears on page 38.
The P/2022E AFFO, P/2022E FFO and Implied Capitalization Rate for each selected
company with respect to Monmouth are as follows:
Implied
P/2022E AFFO P/2022E FFO Capitalization Rate
STAG Industrial, Inc. 22.3 x 20.4 x 4.7 %
Lexington Realty Trust 21.5 x 19.4 x 4.8 %
Monmouth 21.1 x 21.1 x 4.9 %
The following underlined language is added to the fourth paragraph in the
section of the Definitive Proxy Statement entitled “The Merger-Opinions of
Monmouth’s Financial Advisors-Opinion of CSCA-Selected Precedent Transactions
Analysis” that appears on page 45.
CSCA applied the range of implied cash capitalization rates from the selected
precedent transactions to Monmouth’s pro forma cash NOI, reflecting projected CY
2022 Cash NOI as reflected in Monmouth management forecasts described under “The
Merger-Summary of Certain Monmouth Unaudited Prospective Financial
Information-Monmouth Multi-Year Projected Cash Flows” and adjusted to reflect
the full year run rate effect of acquisitions under contract and expansions
in-progress as provided by Monmouth’s management, to calculate the range of
implied gross real estate values. To determine the implied equity values for
Monmouth, CSCA added certain tangible assets and subtracted certain tangible
liabilities, each based on information provided by Monmouth management. The
following table sets forth the results of such analyses.
The following underlined language is added to the first paragraph in the section
of the Definitive Proxy Statement entitled “The Merger-Opinions of Monmouth’s
Financial Advisors-Opinion of CSCA-Capitalization Rate Valuation Analysis” that
appears on page 45.
In performing the capitalization rate valuation analysis with respect to
Monmouth, CSCA utilized a range of property-level cash capitalization rates
selected by CSCA and informed from a variety of sources including, but not
limited to, the Industrial Peer Group, precedent transactions and industry
research, among other sources, as well as based on its professional judgment. An
estimated range of real estate values was calculated by applying a range of cash
capitalization rates from 4.50% to 5.25% to Monmouth’s pro forma cash NOI, as
provided by Monmouth management. To determine the implied equity values for
Monmouth, CSCA added certain tangible assets and subtracted certain tangible
liabilities, each based on information provided by Monmouth management. The
following table sets forth the results of such analyses.
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The following underlined language is added to, and the following
stricken-through language is deleted from, the first paragraph in the section of
the Definitive Proxy Statement entitled “The Merger-Opinions of Monmouth’s
Financial Advisors-Opinion of CSCA-Discounted Cash Flow Analysis” that appears
on page 47.
CSCA performed a discounted cash flow analysis with respect to Monmouth by
calculating the estimated present value as of September 30, 2021 of (i)
estimates of unlevered free cash flow for Monmouth from October 1, 2021 through
December 31, 2026, as reflected in Monmouth management forecasts described under
“The Merger-Summary of Certain Monmouth Unaudited Prospective Financial
Information-Monmouth Multi-Year Projected Cash Flows” and (ii) a range of
terminal values of Monmouth based on annualized December 2026 EBITDA excluding
dividend and interest income and straight-line rent as of December 2026, all of
which were discussed with, and approved by, Monmouth for use by CSCA in its
analysis. For purposes of its analysis, CSCA utilized a range of discount rates
from 6.00% to 6.50%, which CSCA derived utilizing the capital asset pricing
model which requires certain company-specific inputs, including Monmouth’s
capital structure weightings, the cost of long-term debt, and a beta for
Monmouth, as well as certain financial metrics for the United States financial
markets generally. The range of estimated terminal values of approximately $4.3
billion to $5.0 billion for Monmouth was calculated by applying a selected range
of EBITDA multiples of 20.0x to 23.0x to annualized December 2026 EBITDA as
described above, selected by CSCA based in part on the historical EBITDA trading
multiples of the Industrial Peer Group and in part on CSCA’s professional
judgment.
The following underlined language is added to the last paragraph in the section
of the Definitive Proxy Statement entitled “The Merger-Opinions of Monmouth’s
Financial Advisors-Opinion of CSCA-General” that appears on page 48.
CSCA is acting as non-exclusive financial advisor to Monmouth in connection with
the Merger and will receive a non-contingent fee from Monmouth for its services
of $1.0 million which became payable upon the delivery of CSCA’s opinion (in
addition to the $2.0 million of fees paid to CSCA for the delivery of CSCA’s
prior opinions in connection with the now-terminated transaction with EQC). In
addition, Monmouth has agreed to reimburse CSCA for certain reasonable
out-of-pocket expenses and indemnify CSCA for certain liabilities that may arise
out of its engagement by Monmouth and the rendering of CSCA’s opinion. Pursuant
to the terms of the engagement, CSCA may be paid customary additional fees at
CSCA’s standard hourly rates for any time incurred should CSCA be called upon to
support its findings or provide further services related to its opinion
subsequent to the delivery of its opinion. CSCA will also receive a success fee,
which is contingent upon the consummation of the Merger, equal to 0.70% of the
transaction value, which is estimated to be approximately $14.5 million. The
prior opinion fees paid to CSCA will be fully credited against the success fee,
and the opinion fee with respect to this transaction will be 50% credited
against the success fee. Pursuant to a separate advisory agreement with Monmouth
dated December 8, 2020, CSCA has received and will receive quarterly advisory
fees from Monmouth until such agreement is terminated. In the two years
preceding the date of its opinion, CSCA has provided certain financial advisory
services for Monmouth, having received approximately $2.2 million for such
services, including the $2.0 million of fees paid for the delivery of prior
fairness opinions in connection with the now-terminated transaction with EQC,
reimbursement of approximately $0.1 million of related expenses and
approximately $0.2 million of quarterly advisory fees. In the two years
preceding the date of its opinion, CSCA has not provided any investment banking
or advisory services to ILPT or RMR. CSCA may in the future provide investment
banking and advisory services to ILPT or RMR for which it may receive customary
fees and reimbursement of expenses.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit
Number Description
2.1 Amendment No. 1 to Agreement and Plan of Merger, dated as of February
7, 2022, by and among Monmouth Real Estate Investment Corporation,
Industrial Logistics Properties Trust, and Maple Delaware Merger Sub
LLC
104 Cover Page Interactive Data File, formatted in inline XBRL.
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Additional Information and Where to Find It
In connection with the Special Meeting, Monmouth filed the Definitive Proxy
Statement with the SEC on December 21, 2021 and commenced mailing of the
Definitive Proxy Statement to the common shareholders of Monmouth. Monmouth may
also file other relevant documents with the SEC regarding the Merger. This
document is not a substitute for the Definitive Proxy Statement or any other
document that Monmouth has filed or may file with the SEC. INVESTORS AND
SECURITY HOLDERS ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT AND ANY OTHER
RELEVANT DOCUMENTS THAT HAS BEEN OR MAY BE FILED WITH THE SEC OR OTHERWISE
BECOME AVAILABLE, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS
CAREFULLY AND IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY
CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT MONMOUTH, ILPT, AND THE
PROPOSED MERGER. Investors and security holders are able to obtain free copies
of the Definitive Proxy Statement and other documents filed with the SEC by
Monmouth (in the case of such other documents, when they become available)
through the website maintained by the SEC at www.sec.gov. In addition, investors
and security holders are able to obtain free copies of the Definitive Proxy
Statement and other documents filed with the SEC (in the case of such other
documents, when they become available) on Monmouth’s website at www.mreic.reit.
Participants in the Solicitation
Monmouth and certain of its directors and executive officers and other employees
may be deemed to be participants in a solicitation of proxies from Monmouth’s
shareholders under the rules of the SEC. Investors may obtain information
regarding the names, affiliations and interests of directors and executive
officers of Monmouth in Monmouth’s definitive proxy statement on Schedule 14A
for its 2021 annual meeting of shareholders, which was filed with the SEC on
November 15, 2021. Other information regarding the participants in the proxy
solicitation and a description of their direct and indirect interests, by
security holdings or otherwise, is contained in the Definitive Proxy Statement
and other relevant materials to be filed with the SEC in respect of the proposed
Merger.
Forward-Looking Statements
Some of the statements contained in this Current Report on Form 8-K constitute
forward-looking statements within the meaning of the federal securities laws,
including, but not limited to, statements regarding consummating the Merger. Any
forward-looking statements contained in this Current Report on Form 8-K are
intended to be made pursuant to the safe harbor provisions of Section 21E of the
Exchange Act. Forward-looking statements relate to expectations, beliefs,
projections, future plans and strategies, anticipated events or trends and
similar expressions concerning matters that are not historical facts. In some
cases, you can identify forward-looking statements by the use of forward-looking
terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,”
“anticipates,” “believes,” “estimates,” “predicts,” “potential,” or the negative
of these words and phrases or similar words or phrases which are predictions of
or indicate future events or trends and which do not relate solely to historical
matters. You can also identify forward-looking statements by discussions of
strategy, plans or intentions.
The forward-looking statements contained in this communication reflect
Monmouth’s current views about future events and are subject to numerous known
and unknown risks, uncertainties, assumptions and changes in circumstances that
may cause actual results to differ significantly from those expressed in any
forward-looking statement, including, without limitation, (i) inability to
complete the proposed Merger because, among other reasons, one or more
conditions to the closing of the proposed Merger may not be satisfied or waived;
(ii) uncertainty as to the timing of completion of the proposed Merger; (iii)
potential adverse effects or changes to relationships with tenants, employees,
service providers or other parties resulting from the announcement or completion
of the proposed Merger; (iv) the outcome of any legal proceedings instituted
against the parties and others related to the proposed Merger; (v) possible
disruptions from the proposed Merger that could harm Monmouth’s business,
including current plans and operations; (vi) unexpected costs, charges or
expenses resulting from the proposed Merger; (vii) legislative, regulatory and
economic developments; and (viii) unpredictability and severity of catastrophic
events, including, but not limited to, acts of terrorism, outbreak of war or
hostilities and epidemics and pandemics, including COVID-19, as well as
management’s response to any of the aforementioned factors. Monmouth does not
guarantee that the proposed Merger and events described will happen as described
(or that they will happen at all). For a further discussion of other factors
that could cause Monmouth’s future results to differ materially from any
forward-looking statements, see the section entitled “Risk Factors” in
Monmouth’s most recent Annual Report on Form 10-K and in its Quarterly Reports
on Form 10-Q for subsequent quarters and the section entitled “Cautionary
Statement Regarding Forward-Looking Statements” in Monmouth’s Definitive Proxy
Statement.
While forward-looking statements reflect Monmouth’s good faith beliefs, they are
not guarantees of future performance. Monmouth disclaims any obligation to
publicly update or revise any forward-looking statement to reflect changes in
underlying assumptions or factors, of new information, data or methods, future
events or other changes.
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