NEW YORK, Aug. 4, 2017 /PRNewswire/ -- Bluerock
Residential Growth REIT, Inc. (NYSE MKT: BRG) (the "Company") and
its external manager, BRG Manager, LLC (the "Manager"), have
entered into a definitive agreement to internalize the external
management function currently performed by the Manager.
The transaction was negotiated and approved by a special
committee comprised entirely of independent and disinterested
members (the "Special Committee") of the Board of Directors of the
Company (the "Board") and provides for the internalization of the
external management of the Company and the direct employment of the
Manager's existing management team and certain other employees. The
consideration will be calculated pursuant to a formula established
in the Management Agreement at the time of the Company's initial
public offering and is expected to be approximately $41 - $42 million. To further align the interests
of our management team with those of our stockholders, 99.9% of the
consideration will be paid in equity, comprised of units of limited
partnership interest ("OP Units") in the Company's operating
partnership and shares of Class C Common Stock, which are being
issued to provide the recipients with a voting franchise
commensurate with their economic interest in the OP Units. As
part of the transaction, the recipients have agreed to limit their
voting rights to 9.9% of the then-outstanding voting rights of the
Company's capital stock. The Special Committee believes that the
internalization of management will reduce expenses as the Company
grows and further align the interests of management, the Board and
stockholders.
In addition to the internalization, the Company announced that
the Board is undertaking a review of the Company's dividend policy
for the Company's Class A Common Stock.
Key Aspects of the Internalization
"Since our IPO, we have communicated to the market that we would
internalize management upon achieving a $500
million equity base, at which point an internal structure
was expected to become accretive for our stockholders. We are
delivering on that promise today, positioning the Company with a
more robust institutional structure for its next phase of growth,
while providing strategic, operational and financial benefits that
are expected to enhance stockholder value," said Ramin Kamfar, Chief Executive Officer.
Potential benefits of the internalization include:
- Immediate Cost Savings and Accretion – Excluding the
one-time costs associated with the internalization, the Company
expects to experience savings of approximately $3.8 million over the first 12 months based on
the annualized run rate for the third quarter of 2017.
- Increasing Economies of Scale with Growth – Through
elimination of the 1.5% base management fee on equity and the 20%
incentive management fee currently payable under the Management
Agreement, the internalization facilitates increasing economies of
scale as the Company's equity capital grows.
- Alignment of Interests through Ownership – The increased
equity ownership of the Company by key executives as a result of
the internalization is expected to further align the interests of
such key executives with those of the Company's stockholders.
- Mitigation of Conflicts – The proposed transaction will
mitigate perceived or actual existing conflicts of interest between
the Company and the Manager.
- Simplified Structure with Control of Key
Functions – The proposed transaction will simplify the
Company's structure through the unification of all of the Company's
and the Manager's investment activity and resources under a single,
transparent corporate structure, and enable the Company the ability
to control key functions that are important to the growth of its
business.
- Potential for Expanded Institutional Investor Base – The
Company believes an internal management structure is preferred by
the investment community over an external management structure and
has the potential to attract new institutional investors, thereby
improving the Company's ability to raise capital.
- Continuity of Management Team – The existing management
team of the Manager, including the Company's current executive
officers, will become employees of the Company. The Company will
enter into employment agreements with each of its Chief Executive
Officer, its President and Chief Operating Officer, its Chief
Investment Officer, its Chief Acquisitions Officer, its Chief Legal
Officer, and its Chief Financial Officer, providing a seamless
transition and clarity as to future senior leadership.
The proposed transaction was unanimously approved by the Special
Committee, which was formed to review, consider and negotiate the
terms and conditions of the internalization, including the
composition of the consideration payable in connection with the
internalization, and to recommend to the full Board whether to
pursue the internalization and, if so, on what terms and
conditions. The full Board also unanimously approved the proposed
transaction.
Duff & Phelps, LLC acted as financial advisor to the
independent Special Committee in connection with the transaction
and issued a fairness opinion to the Special Committee in
connection with the transaction.
The proposed transaction is expected to close promptly after the
Company's annual meeting of stockholders, currently scheduled for
October 26, 2017, and must close on
or before February 3, 2018, pursuant
to the Contribution Agreement, which sets forth the material terms
of the internalization. The proposed transaction remains subject
to: (i) the approval of the issuances of equity by a majority of
the Company's stockholders and disinterested stockholders voting at
the Company's annual meeting of stockholders; and (ii) other
customary closing conditions.
Dividend Evaluation by the Company's Board of
Directors
In addition, the Board has initiated, in conjunction with a
financial advisor, a comprehensive review of the appropriate
dividend policy for the Company's Class A Common Stock. The
Board's goal will be to pursue a long-term dividend strategy that
it believes will be competitive, sustainable and covered, while
enabling the Company to deliver long-term growth in the share price
of our Class A Common Stock. The Board's evaluation will
consider factors including, but not limited to, achieving a
sustainable dividend covered by current recurring AFFO (vs. pro
forma AFFO), multifamily and small cap peer dividend rates,
multifamily and small cap peer payout ratios, providing financial
flexibility for the Company, and achieving an appropriate balance
between the retention of capital to invest and grow net asset
value, and the importance of current distributions. The Board
is expected to complete its review of the dividend policy for the
Company's Class A Common Stock in the fourth quarter of
2017.
The Board's review will address the dividend policy for the
Company's Class A Common Stock only. The terms of each series
of the Company's issued and outstanding preferred stock provide for
fixed annual dividend rates, and are not subject to adjustment at
the Board's discretion.
About Bluerock Residential Growth REIT, Inc.
Bluerock Residential Growth REIT, Inc. (NYSE MKT: BRG) is a real
estate investment trust that focuses on acquiring a diversified
portfolio of Class A institutional-quality apartment properties in
demographically attractive growth markets to appeal to the renter
by choice. The Company's objective is to generate value through
off-market/relationship-based transactions and, at the asset level,
through improvements to operations and properties. The Company
generally invests with strategic regional partners, including some
of the best-regarded private owner-operators in the United States, enabling the Company to
operate as a local sharpshooter in each of its markets while
enhancing its off-market sourcing capabilities. The Company's Class
A Common Stock is included on the Russell 2000 and Russell 3000
Indexes. The Company has elected to be taxed as a real estate
investment trust (REIT) for U.S. federal income tax purposes.
Advisors
Duff & Phelps, LLC acted as financial advisor to the Special
Committee in connection with the proposed internalization. Morrison
& Foerster LLP acted as legal advisor to the Special Committee
in connection with the proposed internalization. Kaplan Voekler Cunningham & Frank PLC acted
as legal advisor to the Company in connection with the proposed
internalization. Vinson & Elkins LLP acted as legal advisor to
the Manager in connection with the proposed internalization. FPL
Associates L.P. acted as an executive compensation consultant to
the compensation committee of the Board with respect to the
employment agreements discussed herein.
Cautionary Statement Regarding Forward-Looking
Statements
This press release contains statements that are
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and other federal
securities laws. Forward-looking statements are statements that are
not historical, including statements regarding management's
intentions, beliefs, expectations, representations, plans or
predictions of the future, and are typically identified by such
words as "believe," "expect," "anticipate," "intend," "estimate,"
"may," "will," "should" and "could." Because such statements
include risks, uncertainties and contingencies, actual results may
differ materially from those expressed or implied by such
forward-looking statements. These forward-looking statements are
based upon the Company's present expectations, but these statements
are not guaranteed to occur,including, without limitation, with
respect to the completion of the proposed internalization on the
terms described or at all and the expected benefits of the proposed
internalization.Among others, the following uncertainties
and other factors could cause actual results to differ from those
set forth in the forward-looking statements: the failure to
receive, on a timely basis or otherwise, the required approvals by
the Company's stockholders, governmental or regulatory agencies and
third parties; the risk that a condition to closing of the proposed
internalization may not be satisfied; and the Company's ability to
consummate the proposed internalization. Furthermore, the Company
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. Investors should not place undue reliance
upon forward-looking statements.
Additional Information and Where to Find It
This press release is being made in respect of the proposed
internalization involving the Company, the Operating Partnership,
the Manager and certain other parties. The proposed internalization
will be submitted to the stockholders of the Company for their
consideration. In connection with the proposed internalization, the
Company intends to file a proxy statement and other documents
regarding the proposed internalization with the United States
Securities and Exchange Commission (the "SEC"). INVESTORS AND
STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THE PROXY STATEMENT
(INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO) REGARDING THE
PROPOSED INTERNALIZATION AND OTHER DOCUMENTS RELATING TO THE
PROPOSED TRANSACTION THAT WILL BE FILED WITH THE SEC CAREFULLY AND
IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED INTERNALIZATION.
The definitive proxy statement will be mailed to the Company's
stockholders. You may obtain copies of all documents filed with the
SEC concerning the proposed internalization, free of charge, at the
SEC's website at www.sec.gov, including the Company's Current
Report on Form 8-K filed with the SEC on August 4, 2017. In addition, stockholders may
obtain free copies of the documents filed with the SEC by the
Company through its website at http://www.bluerockresidential.com.
The information on our website is not, and shall not be deemed to
be a part hereof or incorporated into this or any other filings
with the SEC. You may also request them in writing, by telephone or
via the Internet at:
Bluerock Residential Growth REIT, Inc.
712 Fifth Avenue, 9th Floor
New York, New York 10019
(212) 843-1601
Attn: Ryan MacDonald
Website: http://www.bluerockresidential.com
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SOURCE Bluerock Residential Growth REIT, Inc.