Blackwells Capital, LLC, an alternative investment management firm
that, together with its affiliates, owns 4.17% of Monmouth Real
Estate Investment Corporation (NYSE: MNR), today issued a letter to
its fellow shareholders urging them to vote against the proposed
sale to Equity Commonwealth (NYSE: EQC).
The full text of the letter follows.
August 5, 2021
Dear Fellow Monmouth Shareholders:
As Monmouth’s fourth largest shareholder, we are writing to urge
you to vote “AGAINST” the proposed transaction
with EQC. The proposed all-stock transaction is banefully flawed
and, we believe, is intended to benefit the Landy family in a
manner different from other shareholders. Our view is
that the Landys’ contempt for the democratic shareholder process,
an overriding desire to protect themselves from criticism and
accountability, and a ‘win at all cost’ attitude towards preserving
employment and financial positions in Monmouth have guided their
every decision. As a result, the Landys shaped a sale process that
attempts to force Monmouth shareholders to accept a deal that
values each share they hold at only $17.25 based on yesterday’s
closing price of EQC.1 Meanwhile, Monmouth shares are currently
worth $18.88 per share.2
Monmouth has been a laggard in its industry for many years, and
for more than five years has consistently ranked among the poorest
performing industrial REITS in America.3 In 2019, Monmouth’s
governance was rated as among the worst of any publicly listed
industrial REIT, and was also among the worst even among all REITs
more generally.4 Blackwells began its engagement with Monmouth late
last year with the intention of unlocking years of suppressed
value.
It came as little surprise to Blackwells, when in December of
2020 upon submitting an all-cash proposal to acquire Monmouth, we
were met with intransigence and indignation. The Landy family
scrambled to find an outcome addressing their needs, while
Blackwells nominated candidates to run for election to Monmouth’s
Board at this year’s Annual Meeting, which is typically held in
June. No Annual Meeting was held, and the Monmouth Board continues
to evade its responsibility to hold one.
A public company cannot be run this way.
The proposed merger was flawed ab
initio
Upon the announcement of the proposed merger agreement, the
combined equity market value of EQC and Monmouth was $5.5 billion.5
Today, only 90 days since the announcement, the value of the
combined entity has fallen below $5.0 billion.6 While the proposed
merger has destroyed half a billion dollars of value, Monmouth just
this week released a presentation, which begins on page three by
describing the proposed merger as an “Outstanding
Transaction for MNR Shareholders.”
Blackwells believes that all shareholders should recognize that
there is nothing “outstanding” about this transaction. What “stands
out” to us about the proposed deal is the lousy negotiation that
led up to it, giving Monmouth shareholders no protections against
EQC’s cratering share price, exposing shareholders to a $62 million
breakup fee (and another $10 million of EQC expenses), and
seemingly sweeping other higher, all-cash offers under the rug.
We can think of only two reasons for this pitiable outcome:
either a Landy-led Board sought to protect its ultra-low basis in
Monmouth’s stock through a tax-deferred all-stock deal (alluded to
in Monmouth’s own presentation from earlier this week on slide 23),
while taking steps to ensure the preservation of their salaries and
significance at the combined company, or the leaders of the process
that resulted in this outcome were in over their heads.
The proposed merger plainly undervalues
Monmouth
The merger agreement with EQC, which was approved and negotiated
by the Company’s Board, values the Company at a price that is far
below the value at which Monmouth has traded during each of
the 90 trading days since the transaction was announced on
May 4.
EQC’s all-stock offer values Monmouth below Blackwells’ all-cash
offer in December 2020 of $18.00 per share and fails to adequately
compensate shareholders for the substantial upward re-rating of the
industrial REIT sector so far in 2021. Equity research from J.P.
Morgan, Monmouth’s own financial advisor, implied a valuation of
between $23.26 per share and $27.13 per Monmouth share at the time
the transaction was announced7 and a current valuation of between
$25.32 and $28.72 per share.8
While the market’s reaction to the proposed merger has been
decidedly negative, the Landy-led Board of Monmouth continues to
trumpet the supposed merits of the “outstanding transaction.” We
don’t understand this behavior, and we expect that you, our fellow
shareholders, are scratching your heads too.
EQC and Monmouth tied two rocks together to see if they
will float
EQC is a poor merger partner: it owns just four small office
buildings and has $2.9 billion of net cash. There is no strategic
value in either of these assets nor are there any operational
efficiencies between the two companies. Post-merger, EQC
will be cash-dragged with an illogical combination of industrial
REIT assets on an office REIT platform. And, it will offer a lower
dividend than Monmouth shareholders currently receive.
The proposed all-stock transaction is not a “strategic merger”
at all, but rather an agglomeration of two underperforming
companies with well-known challenges (along with newly acquired
ones) that will continue to impair shareholders returns: The Landys
will remain involved in critical managerial and governance roles,
the portfolio will continue to be sub-scale and have significant
tenant concentration, the combined company will have an odd
portfolio with a need for rationalization, and the capital
structure will be even worse than Monmouth presently has.
A lurid affront to shareholder governance
Monmouth has a byzantine governance structure under which Eugene
Landy, Monmouth’s Chairman, and a director for the last 53 years,
has distinctive control.9 More pointedly, the Monmouth Board
empaneled a Strategic Alternatives Committee comprised of Landy
family members, close family associates and insiders.
A disregard of public shareholder interests appears to be a
strong part of Monmouth’s culture: Its own corporate governance
landing page encourages shareholders to read featured articles,
such as “Long-Term Investors Have a Duty to Bring Back the
Staggered Board (And Proxy Advisors Should Get on Board)” and
asserts that proxy advisory firms create “lasting adverse effects
on the U.S. economy as a whole.” Similar guiding principles seem
apparent throughout the Strategic Alternatives Committee process.
Following Blackwells’ cash offer, the Board repeatedly refused to
engage with us, despite our offer being well above the value of
EQC’s initial bid, as well as above most other first round
bids.
The Board also appears to have sidelined Starwood and its
all-cash offer, in what we believe to be a flagrant attempt to push
the sale process toward an all-stock transaction aligned with the
Landy family’s needs. We wonder how many other superior offers were
similarly disregarded.
Finally, when it came time to justify the proposed merger to
shareholders, Monmouth’s financial advisors cherry-picked peers
from incomplete sets for valuation purposes. J.P. Morgan, for
instance, excluded industrial REITs that are used by its own
research team, while CS Capital Advisors included a host of real
estate companies with altogether different asset portfolios than
Monmouth’s premium industrial properties.
Even now, despite having at least two active, well-capitalized
counterparties in EQC and Starwood, the Monmouth Board fails to
take steps that could result in increased consideration for
Monmouth shareholders. The current Board, pressured by its own
governance failings, has proven they are unable to negotiate proper
value for Monmouth’s shareholders.
From the flop of a sale process, to slipshod valuation
gymnastics, and poorly managed competing offers, the current Board
has failed its shareholders. The result: a binding agreement that
exposes Monmouth shareholders to a significant breakup fee in
return for an EQC offer that today values your Monmouth
shares at substantially less than every bona fide all-cash offer
received during the entire sale process.
The compelling alternative: reject the EQC transaction
and elect new directors who are capable of unlocking the value of
your Monmouth shares.
Monmouth’s industrial properties have great durable value. We
are confident that through a new process, overseen by a committee
of the Board that is focused, that is committed to creating value
for the public shareholders and that can skillfully negotiate
conflict-free and pressure-free, Monmouth shareholders will garner
the consideration they deserve.
Once the EQC transaction is voted down, Monmouth must
immediately call its overdue Annual Meeting to allow shareholders
to elect new directors to the Board, ones who are capable of
ensuring that the interests of all shareholders – not just the
Landy family – are fully protected, and that value for Monmouth’s
shareholders is maximized.
Please join us in voting “AGAINST” the proposed
transaction with EQC, to begin a more successful chapter.
Sincerely,
Jason Aintabi
Chief Investment OfficerBlackwells Capital, LLC
Monmouth investors can access Blackwells’ materials and other
shareholder resources at www.MaximizeMNR.com.
CERTAIN INFORMATION CONCERNING THE
PARTICIPANTS
BLACKWELLS STRONGLY ADVISES ALL STOCKHOLDERS OF THE COMPANY TO
READ THE DEFINITIVE PROXY STATEMENT AND OTHER PROXY MATERIALS AS
THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. SUCH PROXY MATERIALS WILL BE AVAILABLE AT NO CHARGE ON
THE SEC’S WEBSITE AT HTTP://WWW.SEC.GOV. IN ADDITION, THE
PARTICIPANTS IN THIS PROXY SOLICITATION WILL PROVIDE COPIES OF THE
PROXY STATEMENT WITHOUT CHARGE, WHEN AVAILABLE, UPON REQUEST.
REQUESTS FOR COPIES SHOULD BE DIRECTED TO BLACKWELLS.
The participants in the proxy solicitation are Blackwells and
Jason Aintabi (collectively, the “Participants”).
As of the date hereof, Blackwells beneficially owns 320,100
shares of the Company’s common stock, par value $0.01 per share
(the “Common Stock”). As of the date hereof, Mr. Aintabi
beneficially owns 4,100,954 shares of Common Stock, including (i)
320,100 shares of Common Stock owned by Blackwells, of which Mr.
Aintabi may be deemed the beneficial owner, as Managing Partner of
Blackwells, and (ii) 3,762,854 shares of Common Stock beneficially
owned by BW Coinvest Management I LLC, including 50,000 shares
underlying call options exercisable within sixty (60) days, which
Mr. Aintabi, as the owner and President & Secretary of
Blackwells Asset Management LLC, the owner and sole member of BW
Coinvest Management I LLC, may be deemed to beneficially own.
Collectively, the Participants beneficially own in the aggregate
approximately 4,100,954 shares of Common Stock, including 50,000
shares of Common Stock underlying call options exercisable within
sixty (60) days of the date hereof, representing approximately
4.17% of the outstanding shares of Common Stock.
About Blackwells Capital
Blackwells Capital was founded in 2016 by Jason Aintabi, its
Chief Investment Officer. Since that time, it has made investments
in public securities, engaging with management and boards, both
publicly and privately, to help unlock value for stakeholders,
including shareholders, employees and communities. Throughout their
careers, Blackwells’ principals have invested globally on behalf of
leading public and private equity firms and have held operating
roles and served on the boards of media, energy, technology,
insurance and real estate enterprises. For more information, please
visit www.blackwellscap.com
Contacts:
Investors:Morrow SodaliMike Verrechia 800-662-5200
(stockholders)202-658-9400 (banks and
brokers)Blackwells@morrowsodali.com
Media:Gagnier CommunicationsDan Gagnier / Jeffrey Mathews
646-569-5897Blackwells@gagnierfc.com
_______________________
1 Monmouth common shareholders receive 0.67 of a share of EQC;
EQC share price closed at $25.75 on August 4, 2021.2 Monmouth share
price closed at $18.88 on August 4, 2021.3 Source: Bloomberg total
shareholder return data through November 30, 2020, for publicly
traded industrial REITs: TRNO, EGP, PLD, DRE, FR, STAG, MNR.4 ISS’s
2019 Review of Monmouth Real Estate Investment Corp rated
Monmouth’s Board Structure 9 and Shareholder Rights 10 on scale of
1 to 10, with 10 being worst grade.5 EQC – MNR Merger presentation
dated May 5, 2021.6 Source: Bloomberg closing share price data as
of August 4, 2021, for EQC and MNR.7 JPMorgan REIT Equity Research
dated May 3, 2021.8 JPMorgan REIT Equity Research dates August 2,
2021.9 Monmouth Audit Committee Charter, as amended and
supplemented.
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