NEW YORK--(BUSINESS WIRE)--BRE Select Hotels Corp (the “Company”) has recently been informed of an unsolicited tender offer by affiliates of MacKenzie Capital Management, LP (collectively “MacKenzie”) to buy up to 1,000,000 shares of the Company’s 7% Series A Cumulative Redeemable Preferred Stock (the “Preferred Shares”) at a price of $1.30 per share, less any cash distributions made by the Company after February 27, 2015 (the “MacKenzie Offer”).
After careful evaluation of the terms of the MacKenzie Offer, neither the Company nor the Company’s board of directors makes any recommendation, and none of them has authorized any person to make any recommendation, as to whether the holders of Preferred Shares should tender or refrain from tendering Preferred Shares in the MacKenzie Offer. However, shareholders should consider the following:
- MacKenzie’s offer price of $1.30 per share represents an approximately 32% discount to the initial liquidation preference of $1.90 per Preferred Share. The offer price is also lower than the $1.9281 per share price that the Company recently paid for the redemption of 24,650,000 Preferred Shares on December 31, 2014 (the “2014 Redemption”). The redemption price in the 2014 Redemption equaled the $1.90 liquidation preference per share plus accumulated and unpaid dividends to and including the redemption date. Although the Company may, at its option, redeem all or a portion of the Preferred Shares at any time and will, under certain circumstances specified in the terms of the Preferred Shares, be required to redeem all of the Preferred Shares at a redemption price per share equal to the liquidation preference (as it may be adjusted from time to time) plus any accumulated and unpaid dividends, the Company does not currently intend to, and there can be no assurance that in the future the Company will, redeem any Preferred Shares, unless it is required to do so under the terms of the Preferred Shares. On September 30, 2013, BRE Select Hotels Holdings LP, the holder of all of the Company’s outstanding common stock (“BRE Holdings”), purchased approximately 2 million Preferred Shares for $1.30 per share as part of a tender offer extended to all holders of Preferred Shares in response to a prior tender offer by MacKenzie. BRE Holdings does not intend to provide shareholders with an offer in response to the pending MacKenzie Offer.
- In evaluating the Company’s acquisition of Apple REIT Six, Inc. (“Apple Six”), the board of directors of Apple Six considered, among other things, the advice of its financial advisor. As part of its financial analyses provided on November 29, 2012 to the Apple Six board of directors, Apple Six’s financial advisor calculated an implied value range of approximately $1.67 to $1.82 per Preferred Share, assuming that no adjustments were made to the initial liquidation preference. The financial analyses are described on pages 58 to 64 of the proxy statement/prospectus dated April 2, 2013 (the “Proxy Statement”) that was sent to the former Apple Six shareholders in connection with the special meeting held on May 9, 2013, at which the Apple Six shareholders approved the acquisition of Apple Six, and filed with the SEC on April 2, 2013. Although these analyses were provided more than two years ago and, accordingly, have not been updated to reflect circumstances existing since they were prepared, including changes in the general economy or industry conditions or changes affecting the Company, the implied valuation range for the Preferred Shares was significantly higher than the price per share of $1.30 offered by MacKenzie.
- As described in the Proxy Statement, the initial liquidation preference of $1.90 per share is subject to downward adjustment should net costs and payments relating to certain litigation and regulatory legacy matters exceed $3.5 million from the date of the merger agreement between Apple Six, BRE Holdings and the Company (November 29, 2012). The legacy matters are described under “Legal Proceedings” on page 24 of the Company’s Quarterly Report on Form 10-Q that was filed with the SEC on November 12, 2014. As of today, the initial liquidation preference of $1.90 per Preferred Share has not been adjusted.
- The MacKenzie Offer is limited to approximately 1.4% of the outstanding Preferred Shares, only 1,000,000 shares out of the 72,382,848 outstanding Preferred Shares. MacKenzie offers to purchase the 1,000,000 shares on a “first-come, first-buy” basis, based upon the dates on which MacKenzie receives completed assignment forms. The MacKenzie Offer therefore coerces holders of Preferred Shares to tender their shares to MacKenzie as soon as possible, which could deprive them of adequate time to evaluate the MacKenzie Offer.
- The coercive nature of the MacKenzie Offer is exacerbated by the fact that holders of Preferred Shares will not have withdrawal rights. Thus shareholders who tender shares to MacKenzie will not be able to withdraw their shares. If a holder of Preferred Shares changes his, her or its decision to tender during the term of the MacKenzie Offer, whether due to changed circumstances relating to the Company or relating to such holder, or to other factors, such holder will not be able to withdraw tendered shares.
- There is no guarantee that the MacKenzie Offer will be completed. As stated in “Terms, Conditions, Risks, and Disclosures” enclosed with the offer letter dated January 16, 2014, MacKenzie will be able to rescind its offer if there is a material adverse change in the operations of the Company, and MacKenzie purports to define “material adverse change” as a change that “would likely cause a reasonable shareholder to reconsider the decision to buy or sell Shares.”
Holders of Preferred Shares must make their own decision whether to continue to hold their Preferred Shares or to tender their Preferred Shares to MacKenzie and, if so, how many shares to tender, upon their own assessment of the value of the Preferred Shares, and taking into account that the Preferred Shares are not listed on any securities exchange and no public market for the Preferred Shares exists, their liquidity needs and any other factors they deem relevant. In doing so, holders of Preferred Shares should read and evaluate carefully the information in the offer materials provided by MacKenzie, the information about the Company in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 28, 2014, the Company’s Quarterly Report on Form 10-Q that was filed with the SEC on November 12, 2014 and its other filings with the SEC, and the information about the terms of the Preferred Shares in the Proxy Statement.
Neither the Company nor the Company’s board of directors or management has hired any investment bank or other third party professional to evaluate the fairness of the price offered by MacKenzie or the other terms of the MacKenzie Offer. Holders of Preferred Shares should consult with their personal financial advisor or other legal, tax or investment professional(s) regarding their individual circumstances.
About BRE Select Hotels Corp
BRE Select Hotels Corp (the “Company”) is a non-listed real estate investment trust (REIT) focused on the ownership of upscale, extended-stay and select-service hotels. The Company’s hotels operate under the Homewood Suites by Hilton®, Hilton Garden Inn®, Hampton Inn®, Hampton Inn & Suites®, Courtyard® by Marriott®, Fairfield Inn® by Marriott®, Residence Inn® by Marriott®, SpringHill Suites® by Marriott®, TownePlace Suites® by Marriott® and Marriott®, brands. The Company’s focus is on the ownership of high-quality real estate that generates attractive returns for its investors. Its portfolio consists of 62 hotels, containing a total of 7,347 guestrooms diversified among attractive markets in 18 states. Additional information about the Company can be found online at www.bre-select-hotels.com.
Forward-Looking Information
This press release contains forward-looking statements. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include the Company’s qualification as a REIT, which involves the application of highly technical and complex provisions of the Internal Revenue Code, and the factors discussed in the section entitled “Risk Factors” in its Annual Report on Form 10-K filed with the SEC on March 28, 2014.