Morgan Stanley Investment Banking Pitch Book
.
Project Roosevelt
Monroe has a number of key
structural factors to consider
when assessing valuation and
a range of actionable
alternatives
• Specific challenges include:
- CEO, development team and
other roles not currently filled
- Funding required by debt-
yield covenant maintenance
payments on the owned hotel
mortgage through maturity
- Preferred equity rate ratchet
to 20% in Oct 2016
- Difficulty transitioning to an
asset-light model given
relatively small size of
management platform
Morgan Stanley
MONROE SELECTED INFORMATION
Monroe Today - Issues & Considerations
Scale
Liquidity / Cash
Availability
Management
Team / Board
Leverage
Negative
Sentiment /
Confusion
Strictly Confidential
Undersized relative to peers
High G&A load as compared to asset base
• Not enough liquidity for large investors to buy / sell without materially impacting share price
• Monroe is projected to have $14MM of cash as of 6/30/2016 (1), down from $46MM at year-end
• Cash generation projected to be negative in 2016/2017, leaving limited dry powder to build pipeline
and operate the business
Owned assets are fully levered
• Yucaipa preferred securities' coupon rate rising from 10% to 20% on October 15, 2016
• Lack of capital to de-lever from sector high leverage
Instability of management team (interim CEO)
• Is the existing team able to run the business appropriately post-downsizing in 2014? Do they have
capacity to invest in current client relationships? Hiring a permanent CEO could help drive growth by
attracting new contracts and third-party capital, but it may not be required in a standalone scenario
High leverage relative to peers
• Current debt / LTM EBITDA in excess of 16x (2) versus sector average of 3.6x
• Debt / total market capitalization of approximately 76% versus Tier 1 comp average of -23%
Uncertainty surrounding near term and long term strategy
Negative press around Monroe
· Burkle consent rights
Difficulty attracting new contracts in the US
• Several key positions have been recently vacated, potential for increased employee turnover
• Narrow research analyst coverage limits investor access to independent perspectives
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Notes
1. Per management standalone projection model; includes impact of yield maintenance payment ($28.2MM) and termination fees received from Mondrian SB and Shore Club ($3.9MM)
2. Pro forma for $28.2MM loan paydown that occurred in Feb. 2016
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