Monarch Alternative Capital made a non-binding $12-a-share offer for Paramount Group, a roughly 30% premium to the closing stock price of February 24. The number of outstanding shares as of February 1, 2022, was 219,105,492, which would be a $2.6 billion price.
“As one of Paramount’s largest stockholders, with over 12 million shares, we believe that your team has assembled a high quality portfolio of properties,” the offer letter from Monarch read. “However, we think these assets have been, and will continue to be, significantly undervalued in the public markets. Accordingly, we believe that it is in the best interests of Paramount’s stockholders to sell the Company to Monarch, a highly qualified buyer that can deliver expeditiously and with certainty an all-cash transaction at an attractive premium. Given reporting requirements in connection with our level of holdings, we intend to promptly file a Schedule 13D and this letter will be made public as part of that filing.”
According to its 2021 annual report, Paramount owns or manages a portfolio of 13.9 million square feet including 8.6 million wholly and partially owned square feet across seven buildings in New York and 4.3 million square feet over six buildings in San Francisco, mostly office space. There are an additional six managed properties of 1 million square feet split between New York and Washington, D.C.
In New York, the weighted average annualized rent is $82.34 per square feet; in San Francisco, it’s $91.67. The ten largest tenants are in leases that expire anywhere from 2023 to 2034.
Rental revenues rose from $679 million in 2020 to $690 million in 2021. But losses from unconsolidated joint ventures swung the company last year from a roughly $2.1 billion income from continuing operations to a net loss of $21.5 million.
Monarch emphasized the size of its holdings, which are significant but not enough to break into the set of owners that hold at least 5% of shares. The latter include such names as the Vanguard Group, Norges Bank, BlackRock, and members of the Otto family. Together, their holdings comprise 53.7% of all shares.
“Monarch is a leading investment manager, with over $9.5 billion of discretionary assets under management, and has invested $53 billion of equity capital across strategies since its formation 20 years ago,” the letter continued. “We are exceptionally experienced in the real estate space, having invested over $11 billion of equity capital in 80+ transactions. Our current real estate portfolio represents over 15 million square feet of directly controlled assets, in addition to a portfolio of debt investments as well as significant interests in growing platforms. Monarch is specifically experienced in the office sector, with over 6 million square feet of total holdings in our current portfolio.”