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.
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.
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:
|
|
|
P/2022E AFFO
|
|
|
P/2022E FFO
|
|
|
Implied
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.
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.