AXA Investment Managers – Real Assets has agreed to acquire NorthStar Realty Europe Corp, a European-focused commercial real estate company. According to details of the deal, NRE stockholders will receive an estimated $17.03 per share.
NEW YORK–(BUSINESS WIRE)–NorthStar Realty Europe Corp. (NYSE: NRE) (the “Company” or “NRE”) today announced that following a comprehensive strategic review it has entered into a definitive merger agreement with AXA Investment Managers – Real Assets (“AXA IM – Real Assets”), a global leader in real asset investments, acting on behalf of a client, for the acquisition of all of the outstanding shares of common stock of the Company. The estimated per share merger consideration of US$17.03 is based on the three-month forward foreign exchange rates and represents a 16.4% premium to the Company’s unaffected closing stock price of US$14.63 on November 6, 2018, the last reporting day before NRE announced its strategic review process. Since NorthStar Realty Europe completed its spin-off on November 2, 2015, stockholders will realize an approximate 16% IRR on their investment assuming the estimated per share merger consideration of US$17.03.
The estimated merger consideration reflects a gross asset value for the Company’s assets in line with the Company’s most recently reported independent portfolio valuationii by Cushman & Wakefield LLP, which was reflected in the March 31, 2019 EPRAiii Net Asset Value (“EPRA NAV”) per share of NRE. The Company’s March 31, 2019 EPRA NAV per share of US$20.48 per share is reduced to reflect (i) approximately $1.54 per share related to the remaining portion of the termination payment to our external manager and transaction related costs, (ii) approximately $0.21 per share related to the issuance of annual compensation and retention shares subsequent to March 31, 2019, (iii) approximately $0.57 per share related to the accelerated vesting of performance shares in connection with the Merger, (iv) approximately $0.13 per share related to currency changes since March 31, 2019, (v) approximately $0.23 per share due to dividends net of projected cash flows, and (vi) approximately $0.58 per share related to local jurisdiction latent capital gains taxes and net working capital adjustments. Pro forma for these adjustments and assuming a transaction close at September 30, 2019, the Company’s Adjusted EPRA NAV per share is approximately US$17.22. For more information and a reconciliation of the Company’s March 31, 2019 EPRA NAV, please refer to the tables on the following pages.
Under the terms of the merger agreement, NRE stockholders will receive in cash at closing, for each share of common stock, US$1.68 plus the U.S. Dollar equivalent of €9.26 and £3.82, representing an estimated per share merger consideration of US$17.03 based on three month forward foreign exchange rates.iv This reflects the geographic location of assets across the U.K., France and Germany. Based on spot foreign exchange rates of 1.1290 EUR/USD and 1.2595 GBP/USD as of July 2, 2019, per Bloomberg, the estimated per share merger consideration is US$16.95 per share, implying a 15.8% premium to the Company’s unaffected closing stock price.
In connection with the transaction, NRE has entered into six-month forward contracts for the purchase of U.S. Dollars for €482 million and £199 million, the approximate aggregate amount of the merger consideration denominated in Euros and Pound Sterling. In connection with the closing of the merger, these forward contracts will be settled and the portion of the merger consideration denominated in Euro and Pound Sterling will be paid to NRE stockholders in U.S. Dollars reflecting the final exchange rate received in settlement of the forward contracts (which may be at rates greater or less than the currently estimated exchange rates, depending on the closing date).
Assuming an early fourth quarter 2019 closing, stockholders are expected to receive the equivalent of the three month forward foreign exchange rate consideration of US$17.03 with an additional nominal adjustment to proceeds to account for the interest rate differential from the period of original settlement date to the closing date.
The announcement follows a comprehensive review of strategic alternatives by the Strategic Review Committee (the “SRC”) of the Company’s Board of Directors (the “NRE Board”). The SRC, comprised solely of independent directors, has unanimously recommended the transaction to the Board of Directors, which has unanimously approved the transaction.
Mahbod Nia, Chief Executive Officer and President of the Company, stated, “The SRC ran a comprehensive strategic review process, considering all options and engaging with a wide group of potential buyers. We are pleased that the process has culminated in a transaction that unlocks the significant value we have created for NRE stockholders since inception, realizing an approximate 16% IRR assuming the estimated per share merger consideration of $17.03.”
John O’Driscoll, European Head of Transactions at AXA IM – Real Assets, stated, “The acquisition of NRE through this public to private transaction is a rare opportunity to secure a significant portfolio of prime modern offices located in the major cities of Europe’s largest economies of France, the U.K. and Germany, in a single transaction. The properties have high occupancy and produce strong levels of income that are ideally suited to our clients and we look forward to utilizing our extensive European network of expert real estate managers to create further value from the portfolio in the future.”
The Client of AXA IM — Real Assets will finance the transaction through the arrangement of equity financing and the Company’s available cash at closing. The transaction is not subject to any financing condition.
Pursuant to the merger agreement executed by the parties, the closing of the transaction is subject to customary closing conditions, including approval by a majority of the Company’s stockholders. The closing is expected to occur in the fourth quarter of 2019, subject to satisfaction of all closing conditions. Prior to closing, NRE expects to pay its final quarterly dividend of $0.15 per share in August 2019.
On March 23, 2017, the Board of Directors established the SRC, consisting solely of independent directors of NRE to negotiate on behalf of NRE amendments to the Company’s management agreement with its external manager, an affiliate of Colony Capital, Inc. (NYSE:CLNY) (the “Asset Manager” or “CLNY”). The management agreement then provided for a 20 year term from October 31, 2015 with automatic renewals for additional 20 year terms and no right on the part of the Company to terminate other than for “cause.”
On November 9, 2017, NRE and CLNY entered into an amended management agreement allowing NRE to terminate the agreement on December 31, 2022. This amended agreement provided for a minimum term of 5 years. It also provided for payment of a termination fee of three times (3x) the base management fee plus potential incentive fees in connection with a change of control transaction, which could only occur after the minimum term.
On November 7, 2018, NRE and CLNY entered into a further amendment to the management agreement allowing NRE to terminate the management agreement upon a sale of the Company (or in connection with the internalization of the management of NRE) in exchange for a payment to CLNY of $70 million, minus the amount of any incentive fee previously paid to CLNY. In connection with this amendment, NRE announced that the SRC was conducting a process to review strategic alternatives in an effort to maximize stockholder value.
As part of the strategic review process, NRE and its advisors conducted detailed discussions with a broad group of potential counterparties starting in December 2018 to ascertain their interest in a potential transaction. In addition to a sale of the Company as a whole, the SRC explored in detail, with the assistance of its advisors, the feasibility of selling the Company’s different asset portfolios in separate transactions (followed by a wind-down of the Company), as well the internalization of the management of NRE. Based on its extensive analysis, the SRC concluded that the proposed sale of NRE would deliver superior stockholder value compared to the other alternatives potentially available to the Company.
The Strategic Review Committee is being advised by Goldman Sachs & Co. LLC and is receiving legal counsel from Fried, Frank, Harris, Shriver & Jacobson LLP. The Company is receiving legal counsel from Sullivan & Cromwell LLP, Clifford Chance LLP and Venable LLP, compensation and benefits counsel from Goodwin Procter LLP and tax counsel from Vinson & Elkins LLP.
AXA IM — Real Assets is being advised by Deutsche Bank Securities Inc. and is receiving legal counsel from DLA Piper LLP. In addition, KPMG provided accounting, financial, and tax due diligence advisory services and CBRE provided real estate advisory services.
About NorthStar Realty Europe
NorthStar Realty Europe Corp. (NYSE: NRE) is a European-focused commercial real estate company with predominantly high quality office properties in Germany, the United Kingdom and France, organized as a REIT and managed by an affiliate of Colony Capital, Inc. (NYSE:CLNY), a leading global real estate and investment management firm. For more information about NorthStar Realty Europe Corp., please visit www.nrecorp.com