Blackwells makes unsolicited offer for Monmouth Reit

BLACKWELLS Capital has made an unsolicited proposal to acquire the portion of Monmouth Real Estate Investment Corp that it doesn't already own in a transaction valued at about US$3.8 billion, including debt.

The all-cash offer at US$18 a share was made Friday, and is the second time Blackwells has proposed acquiring the remaining interest in the industrial real estate investment trust, according to a statement on Monday that confirmed an earlier Bloomberg News report.

The price is a 6 per cent premium to Monmouth's closing share price on Friday, and about a 22 per cent premium to the price on Dec 1 when Blackwells made the previous offer, which was rebuffed.

Shares in Monmouth rose 4.3 per cent in trading on Monday to close at US$17.71 a piece, giving the company a market value of US$1.74 billion.

Holmdel, New Jersey-based Monmouth confirmed the two proposals on Monday in a statement. The board determined the US$16.75 per-share offer didn't reflect Monmouth's strategic value or future prospects, and wasn't in the best interests of the company. It said its board would review the higher proposal at its next meeting.

"The Monmouth board is well advised and regularly considers opportunities to create stockholder value," the company said. "The board and management team are confident in Monmouth's business plan and are excited about the company's prospects for continued growth and value creation in 2021 and beyond."

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New York-based Blackwells has called on Monmouth's board to create a special committee to review the proposal that excludes affiliates and members of the company's founding Landy family. It has asked that the company engage in exclusive bilateral talks with Blackwells followed by a go-shop period if a deal can be reached.

Blackwells, which owns less than a 5 per cent stake in Monmouth, said the company is undervalued and has underperformed its peers. Blackwells believes there are several reasons for Monmouth's underperformance, including its poor capital allocation and weak corporate governance, and could more effectively make the changes it needs as a private company, people familiar with its thinking said.

Chief among those concerns is the expensive financing it has taken on to fund its expansion over the years, and the company's portfolio of securities in other Reits that have been a drag on earnings, the people said. Monmouth said last month it had more than US$10 million in unrealised losses on its securities portfolio during its fiscal fourth quarter. At the end of September, those investments included CBL & Associates Properties, which filed for bankruptcy protection in November, according to regulatory filings.

Blackwells also believes Monmouth's 13-member board is too large for a company with only 14 full-time employees, and that it's populated with friends and members of the founding Landy family, the people said. Three family members - chairman Eugene Landy, chief executive officer Michael Landy and Samuel Landy - are among the directors who are expected to stand for re-election at this year's annual general meeting, according to regulatory filings.

Blackwells wants to acquire Monmouth, sell its money-losing Reit securities portfolio and shrink the size of its board. It would then like to grow the firm's industrial real estate footprint from roughly 24 million square feet today to 100 million square feet in the next three years, the people said, asking not to be identified because the matter is private.

The transaction would be the first for Blackwells, an alternative investment management firm founded in 2016 by Jason Aintabi, its chief investment officer. The firm has lined up a combination of equity and debt to finance the transaction, the people said.

Prior to its investment in Monmouth, Blackwells agitated for changes at Tom Barrack's Colony Capital Inc, which resulted in the sale of its industrial warehouse portfolio to the Blackstone Group Inc for US$5.7 billion last year. Blackwells has also pushed for changes at Colony Credit Real Estate Inc, as well as at grocer, Supervalu Inc, before it was sold to United Natural Foods Inc in 2018. BLOOMBERG