IPO Report: ETRE REIT (ESSF)

Francis Gaskins |

ETRE REIT (ESSF) is a newly organized Delaware series limited liability company that has been formed to permit public investment in individual commercial real estate properties, each of which will be held by a separate property-owning subsidiary owned by a separate series of limited liability company interests, or Series, that ESSF intends to establish.  It is based in New York, NY.

Three other companies are scheduled for the week of July 20. The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: Sandler O'Neill + Partners, Evercore ISI, Nomura
Co-managers: BTIG, JMP Securities, LOYAL3 Securities, RCS Capital, SMBC Nikko

End of lockup (180 days):
End of 25-day quiet period:

ESSF scheduled a $173 million IPO with a market capitalization of $173 million at a price range midpoint of $15 for the week of July 20, 2015 on Nasdaq.

ETRE REIT Summary

ESSF is a newly organized Delaware series limited liability company that has been formed to permit public investment in individual commercial real estate properties, each of which will be held by a separate property-owning subsidiary owned by a separate series of limited liability company interests, or Series, that ESSF intends to establish. 

ESSF will acquire an indirect 48.87% interest in State Street Financial Center, a 36-story office tower, also known as One Lincoln Street, located in Boston, Massachusetts.

ETRE REIT Valuation

Glossary

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

ETRE REIT (ESSF)

$180

n/a

n/a

1.0

1.0

96%

             

ETRE REIT Conclusion

Neutral

REIT for Boston properties

Price to book of 1

ETRE REIT Business

ESSF is a newly organized Delaware series limited liability company that has been formed to permit public investment in individual commercial real estate properties, each of which will be held by a separate property-owning subsidiary owned by a separate series of limited liability company interests, or Series, that ESSF intends to establish. 

Each Series ESSF may establish in the future will be a separate Series and not itself a separate legal entity under Delaware law.  As a separate Series, the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Series are segregated and enforceable only against the assets of such Series, as provided under Delaware law. 

ESSF intends for each Series to elect and qualify to be taxed as a separate real estate investment trust, or REIT, for U.S. federal income tax purposes, commencing with the first taxable year ending after the completion of the initial public offering of shares of such Series.

This is the initial public offering of ESSF’s Series A-1 common shares, which represent limited liability company interests of Series A-1 of its company, or the A-1 Series.  ESSF is selling only its Series A-1 common shares in this offering. 

The A-1 Series has been established to allow persons who acquire Series A-1 common shares in this offering to own an interest in State Street Financial Center, a 36-story office tower, also known as One Lincoln Street, located in Boston, Massachusetts, or the Property. Following the contribution transactions described herein, the A-1 Series will own an indirect 48.87% interest in the Property through a general partner interest in ETRE Property A-1, L.P., or the Property A-1 Subsidiary.  ESSF has applied to have its Series A-1 common shares listed on the NASDAQ under the symbol "ESSF."

In connection with the contribution transactions, the A-1 Series has executed a contribution agreement with the current owners of the Property.

Pursuant to this contribution agreement, the A-1 Series will use substantially all of the net proceeds of this offering and the concurrent private placement to acquire the indirect 48.87% interest in the Property, and the net proceeds of this contribution will be distributed to the current owners of the Property, who will retain an indirect 51.13% interest in the Property through a limited partner interest in the Property A-1 Subsidiary.

ESSF and the current owners of the Property negotiated contribution consideration and related payments that reflect a valuation of approximately $1.11 billion for the Property. Based on the offering price of $15.00 per share, the total equity value of the Property A-1 Subsidiary would be approximately $354.0 million, with the current owner's interest representing approximately $181.0 million and the A-1 Series' interest representing approximately $173.0 million.

ETRE REIT Intellectual Property

Nothing

ETRE REIT Competition

The leasing of real estate is highly competitive in Boston, Massachusetts. 

he A-1 Series and the Property A-1 Subsidiary will compete with numerous acquirers, developers, owners and operators of commercial real estate, many of which own or may seek to acquire or develop properties similar to the Property in the same market in which the Property is located. 

The principal means of competition are rent charged, location, services provided and the nature and condition of the facility to be leased. 

In addition, the A-1 Series and the Property A-1 Subsidiary will face competition from other real estate companies including other REITs, private real estate funds, domestic and foreign financial institutions, life insurance companies, pension trusts, partnerships, individual investors and others that may have greater financial resources or access to capital than the A-1 Series and the Property A-1 Subsidiary. 

If the A-1 Series' and the Property A-1 Subsidiary's competitors offer space at rental rates below current market rates, below the rental rate that the A-1 Series and the Property A-1 Subsidiary, through the Property Owner, currently charges the Tenant, in better locations within the Property's market or in higher quality facilities, the A-1 Series and the Property A-1 Subsidiary may lose potential tenants and ESSF may be pressured to reduce the Property's rental rate below the rate that the A-1 Series and the Property A-1 Subsidiary currently charges, through the Property Owner, or offer other concessions in order to retain the Tenant when the Tenant's office and garage leases expire.

ETRE REIT 5% Shareholders Pre-IPO

Jesse Stein  100%

ETRE REIT Dividends

ESSF intends for the A-1 Series to elect and qualify to be taxed as a REIT for U.S. federal income tax purposes, commencing with the taxable year ending December 31, 2015.  U.S. federal income tax law requires that a REIT distribute annually at least 90% of its REIT taxable income, excluding net capital gains and determined without regard to the dividends‑paid deduction, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income.

To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income and excise tax, ESSF intends for the A-1 Series to make regular quarterly distributions to holders of Series A-1 common shares out of legally available funds.

The A-1 Series' current policy is to distribute all cash available for distribution other than reserves on a quarterly basis.   ESSF expects that the first distribution following this offering will be declared in respect of the second quarter of 2015.

ETRE REIT Use of Proceeds

ESSF expects to receive $161 million from its IPO and use it for the following:

ESSF will allocate the net proceeds from this offering and the concurrent private placement exclusively to the A-1 Series, which, in connection with the contribution transactions, will use substantially all of the net proceeds of this offering and the concurrent private placement to acquire an indirect 48.87% interest in the Property, and the net proceeds of this contribution will be distributed to the current owners of the Property, who will retain an indirect 51.13% interest in the Property.

The total transaction costs of this offering, the concurrent private placement and the contribution transactions to be paid by the A-1 Series consist of:

$155 million to be distributed to the current owners of the Property;

$4.7 million of closing costs related to this offering, the concurrent private placement and the contribution transactions; and

$3.0 million to fund certain cash reserves associated with the existing loan on the Property.

The $4.7 million of closing costs to be paid by the A-1 Series include:

$500,000 to reimburse out-of-pocket expenses that ETRE and its affiliates have advanced on behalf of the A-1 Series in connection with the formation of the A-1 Series and this offering(approximately $300,000 of which was incurred in connection with this offering and $200,000 of which was incurred in connection with the contribution transactions);

$2.5 million to reimburse costs incurred by ETRE in connection with this offering and the concurrent private placement and the contribution transactions (approximately $1.3 million of which was incurred in connection with this offering and $1.2 million of which was incurred in connection with the contribution transactions); and

$1.7 million to pay the one-time portion of an administrative services fee to its Administrative Agent.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
ESSF ESSF n/a n/a n/a 0

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