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Broadstone trims fat with management merger

Broadstone Net Lease, the Rochester, NY-based public non-listed REIT, is bringing its management functions in-house.

The company announced it has entered into an agreement providing for the internalization of the external management functions currently performed for BNL by Broadstone Real Estate, LLC and its affiliates through a series of transactions involving the acquisition of the Manager by BNL’s operating company, Broadstone Net Lease, LLC.

Upon closing, upfront consideration paid to the manager will be $300 million in cash, stock and operating partnership units, with the potential for additional earnout consideration of $75 million over four tranches of increasing performance incentives.

The transaction is expected to close early in the first quarter of 2020, subject to the satisfaction of certain conditions to closing.

“This internalization transaction is the result of a diligent and detailed process led by the BNL Special Committee,” said Laurie Hawkes, Lead Independent Director and Chairperson of the Special Committee.

CHRIS CZARNECKI

“We believe that the transaction has numerous positive benefits for BNL shareholders, the most important of which are the substantial cash savings and alignment of management interests, as compared to the existing external management structure.”

“The BNL management team is very excited about this transition and the continuity it provides in our management of Broadstone Net Lease,” said Chris Czarnecki, BNL’s CEO & President.

“The entire team remains deeply committed to our mission of growing shareholder value and believes this internalized format provides opportunity for more accretive growth into the future.”

Through elimination of the asset, property, and transaction-based fees currently payable under the management agreements with the manager, and excluding the one-time costs associated with the transaction, the Internalization is expected to result in cash savings of over $25 million in the first year while facilitating increasing economies of scale as BNL’s equity and asset base grows.

The Internalization will simplify BNL’s structure through the unification of all of its investment activity, corporate operations, and resources under a single, transparent corporate structure, and provide BNL with the ability to control key functions that are important to the growth of its business.

Internalizing management will also mitigate perceived or actual existing conflicts of interest between BNL and the Manager resulting from the current external management structure.

Upon closing of the Internalization, BNL’s existing management team and corporate staff, who are currently employees of the manager, including BNL’s current executive officers, will become employees of BNL.

The merger sgreement will consist of an upfront purchase price of $300 million, consisting of approximately $206 million for equity of the manager, of which more than 80 percent will be paid in shares of BNL’s common stock and membership units of the Operating Company, plus assumption of debt of approximately $94 million, payable upon closing of the Internalization.

Additional “earnout” consideration of up to an aggregate of $75 million payable in four tranches of $10 million, $15 million, $25 million, and $25 million if certain milestones are achieved during specified periods of time following the closing of the Internalization.

Under the terms of the Merger Agreement, if BNL does not complete an IPO by December 31, 2020, then the former owners of the manager who receive shares of BNL’s common stock and/or OP Units will be granted certain redemption rights as a means to provide additional liquidity in the absence of an IPO.

There are currently more than 3,650 stockholders in BNL. Earlier this year, the REIT closed it’s biggest deal to date with its acquisition of a portfolio of 23 fully leased industrial and office or flex assets for about $735.7 million.

The properties, totaling 6.9 million rentable square feet of space, are scattered across 14 U.S. states and Canada.

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