Real Estate — August 15, 2012True North Apartment REIT Announces Proposed Acquisition of 2,076 Suite Property Portfolio and $50 Million Public Offering of Subscription Receipts
TORONTO, ONTARIO--(Marketwire - Aug. 15, 2012) -
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- the REIT agrees to acquire a portfolio of 26 properties comprising an aggregate of 2,076 suites, for an aggregate purchase price of $138.95 million
- acquisition expected to be accretive to both FFO and AFFO per Unit
- decrease the REIT's debt to gross book value from 69% to 63%
- increases the size of the REIT's portfolio by more than doubling the total number of suites from 1,657 to 3,733
- significantly diversifies the REIT's portfolio by reducing Montreal suite weighting from 81% to 39%
- public float of the REIT's equity value will be increased from approximately $70 million to over $120 million, improving liquidity for unitholders
- the REIT will sell, on a bought-deal basis, $50 million of subscription receipts, each representing the right to receive one unit of the REIT at a price of $4.27 per subscription receipt to finance the cash component of the purchase price of the acquisition and the costs in connection with the acquisition and the offering
- the acquisition must be approved by the affirmative vote of a majority of minority REIT unitholders at a meeting that will be scheduled for late September, 2012
- a special committee of independent REIT trustees was established and retained CBRE Limited to prepare independent appraisals of the acquisition properties and Stonecap Securities Inc. to provide a fairness opinion on the acquisition
- the independent trustees of the REIT unanimously recommend that unitholders vote in favour of the acquisition
- at closing, the REIT will enter into a $15 million credit facility with a Canadian chartered bank
True North Apartment Real Estate Investment Trust (the "REIT") (TSX VENTURE:TN.UN) announced today that it has agreed to acquire (the "Acquisition") a portfolio of 26 properties (the "Acquisition Properties") comprising an aggregate of 2,076 suites, currently owned and operated by Blue-Starlight LP ("Blue-Starlight"), an entity controlled by Daniel Drimmer. The Acquisition Properties are located in Ontario, New Brunswick and Nova Scotia and were originally acquired by Blue-Starlight in connection with the privatization of TransGlobe Apartment Real Estate Investment Trust ("TransGlobe") which was completed on June 29, 2012.
Denim Smith, Chair of the special committee of independent trustees established for the purpose of considering the Acquisition, commented on the Acquisition: "The Acquisition is expected to immediately strengthen the REIT's position across multiple operating and financial metrics. Not only is the acquisition accretive to unitholders on both an FFO and AFFO per Unit basis, but it allows the REIT to meaningfully diversify into new geographic markets, reduce leverage and extend the weighted average debt maturity from approximately 3.8 to approximately 5 years. Furthermore, the REIT will more than double the number of rental suites under management from 1,657 to 3,733 units and increase the available public float."
Daniel Drimmer, Chair of the Board of Trustees of the REIT, commented on the Acquisition: "We are very pleased with this strategic acquisition which will further develop our national footprint by expanding into Nova Scotia and New Brunswick and significantly increase our presence in the Province of Ontario. This is a logical move for us to enhance our platform in markets with significant upside potential. One of our stated goals is to expand and further diversify our portfolio in high-growth markets across Canada. This represents a unique opportunity for the REIT to take advantage of a high quality portfolio with below market average rent of $686 per suite which is being purchased at an attractive price per suite of approximately $67,000, well below replacement cost. Over time, we expect to reduce operating costs, streamline marketing and drive rental growth, thereby providing long-term unitholder value."
The REIT will acquire the property portfolio by acquiring control of Blue-Starlight. The purchase price for the Acquisition Properties of $138.95 million implies a capitalization rate of approximately 6.25% and will be satisfied by a combination of: (i) approximately $44.7 million in cash, (ii) the assumption of approximately $58.6 million aggregate principal amount of existing mortgage debt, (iii) approximately $13.8 million aggregate principal amount of new mortgage debt, including a $900,000 five year mortgage which bears interest at 2% and is payable as to interest only from an entity related to Daniel Drimmer, (iv) an approximate $6.8 million draw-down on the REIT's newly established $15 million credit facility with a Canadian chartered bank, and (v) the issuance of approximately $15 million of Class B LP Units (the "Class B LP Units") of Blue-Starlight, at the $4.27 per unit offering price (which Class B LP Units are economically equivalent to and exchangeable for trust units of the REIT ("Units")) and accompanying Special Voting Units of the REIT (which will provide the holder thereof with equivalent voting rights in respect of the REIT to holders of Units).
The new and assumed mortgages have a weighted average interest rate of approximately 3.4% and an expected weighted average term to maturity of approximately 6.4 years. This improves the weighted average term to maturity of the REIT's debt from approximately 3.8 years to 5 years. The Acquisition Properties have an occupancy rate of approximately 97.6%, inclusive of the Property Vista lease commitment referred to below.
Management expects that after giving effect to the Acquisition and the issuance of the Class B LP Units and the Units issuable upon exchange of all Subscription Receipts (excluding the Subscription Receipts issuable upon exercise of the Over-Allotment Option) that the transaction will be accretive to the REIT's fully-diluted FFO per unit and AFFO per unit on a run rate basis. Additionally, management expects that upon completion of the Acquisition, the REIT's debt to gross book value will decrease from approximately 69% to 63%.
Following the completion of the Acquisition and the Offering (as defined below), it is expected that Mr. Drimmer will hold an approximate 15.4% effective interest (or an approximate 14.7% effective interest after giving effect to the Over-Allotment Option (as defined below)) in the REIT through his ownership of, or control or direction over, Units, Class B LP Units and Special Voting Units of the REIT or its subsidiary entities.
As part of the Acquisition, the REIT will enter into a lease (the "Property Vista Lease") with a party related to Mr. Drimmer that will rent 105 suites in the Acquisition Properties at a rate of approximately $76,000 per month. The Property Vista Lease shall have a term expiring September 30, 2013. The implied capitalization rate referred to above is inclusive of this lease commitment.
Completion of the Acquisition will be conditional upon the receipt of the Unitholder Approval, certain other regulatory, TSX Venture Exchange (the "TSXV") and Competition Act approvals and upon the satisfaction of other customary conditions. Completion of the Acquisition is expected to occur in early October, 2012.
The Acquisition constitutes a "related party transaction" under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"). Pursuant to MI 61-101, the REIT is required to obtain prior approval of the Acquisition by a majority of the minority unitholders of the REIT at a special meeting of unitholders of the REIT ("Unitholders") held to consider the Acquisition (the "Unitholder Approval"). A special meeting (the "Special Meeting") of the Unitholders for the purpose of, among other things, approving the Acquisition, is scheduled to be held in late September 2012. Pursuant to Section 5.5(b) of MI 61-101, the REIT is exempt from obtaining a formal valuation for the Acquisition and related issuance of Class B LP Units as the REIT's securities are not listed for trading on any of the stock exchanges specified in that Section.
A special committee of independent trustees of the REIT, consisting of Denim Smith (Chair), Jason Underwood, Robert McKee and Alon Ossip (the "Special Committee") was established by the REIT on July 18, 2012 for the purposes of, among other things, considering the Acquisition. The Special Committee retained CBRE Limited ("CBRE") to prepare independent appraisals of each of the Acquisition Properties. The Special Committee also retained Stonecap Securities Inc. ("Stonecap") to act as financial advisor and to provide its opinion (the "Fairness Opinion") regarding the fairness of the Acquisition to the REIT and to the REIT's unitholders from a financial point of view. Stonecap has concluded, in the Fairness Opinion, that the terms of the Acquisition are fair, from a financial point of view, to the unitholders of the REIT, other than Daniel Drimmer and his affiliated entities. The Fairness Opinion is subject to a number of assumptions and limitations and will be included in the materials to be provided to unitholders in connection with the Special Meeting to approve the Acquisition.
The independent appraisals prepared by CBRE indicated that the estimated aggregate value of the Acquisition Properties as of July 25, 2012 was $140.6 million which increases to $145 million to $148 million with the inclusion of a 3% to a 5% portfolio premium. The independent appraisals state that the appraisals and analyses were performed in accordance with Canadian Appraisal Standards and are subject to a number of assumptions and limitations. A summary of the independent appraisals will be posted by the REIT on its website and on www.sedar.com concurrent with the filing of its preliminary short form prospectus described below.
The Special Committee has advised the board of trustees of the REIT that, based on a number of factors, the Acquisition is in the best interests of the REIT and has unanimously recommended to the board that the board recommend that REIT unitholders vote in favour of the Acquisition at the Special Meeting. The board has unanimously resolved to recommend that REIT unitholders vote in favour of the Acquisition at the Special Meeting.
Management and Trustee Developments
On July 25, 2012, the trustees appointed Leslie Veiner as the Chief Executive Officer of the REIT, effective August 27, 2012.
At the Special Meeting, the REIT intends to nominate Graham L. Rosenberg and Mr. Veiner to stand for election to be added to the current Board of Trustees.
The following sets forth certain information regarding each of Messrs. Rosenberg and Veiner: Graham L. Rosenberg is the Co-CEO and President of Dental Corporation of Canada Inc. ("Dental Corp."), a company he co-founded in 2011 to acquire and partner with dental practices across Canada. He has over 20 years' experience in principal investing and company building, across a variety of industries, in North America and internationally.
Prior to founding Dental Corp., Mr. Rosenberg founded BCM Bancorp Inc. in 2009, a boutique merchant bank, providing mid-market North American companies with strategic and financial resources to accelerate growth and maximize value. This culminated with his co-founding of Dental Corporation.
Mr. Rosenberg was a Managing Director at MDC Partners Inc. (TSX:MDC.A) for eight years until 2009, where he played a leading role in repositioning and restructuring MDC from a diversified business services firm to ninth largest marketing & advertising company in the world. Prior to joining MDC, Mr. Rosenberg was a Managing Director with Clairvest Group Inc. (TSX:CVG), a merchant bank which during his eight year tenure, grew its asset base from $150 million to $600 million.
Mr. Rosenberg has served on the boards of numerous private and public company boards, most recently as Chairman of the Board, Lead Trustee and member of the Audit Committee of TransGlobe.
Leslie Veiner was most recently the Chief Financial Officer of TransGlobe. Mr. Veiner was a consultant to various entities controlled by Daniel Drimmer from February 2010 to March 2010. From April 2008 to February 2010, Mr Veiner was principal of Hippo Capital Corporation, a consulting firm to the seniors housing industry, and Senior Vice-President, Real Estate of Chartwell Senior Housing Real Estate Investment Trust from 2005 to 2008.
Financing of the Acquisition
In order to finance the cash component of the purchase price of the Acquisition and the costs in connection with the Acquisition, the REIT has agreed to sell, on a bought deal basis by way of a short-form prospectus (the "Offering"), 11,710,000 subscription receipts (the "Subscription Receipts") each representing the right to receive one Unit at a price of $4.27 per Subscription Receipt for aggregate gross proceeds of $50 million to a syndicate of underwriters (the "Underwriters") co-led by CIBC and Raymond James Ltd. The REIT has also granted the underwriters an over-allotment option (the "Over-Allotment Option") to purchase up to an additional 1,756,500 Subscription Receipts (or, in certain circumstances, Units) at the same offering price, exercisable no later than 30 days after the closing of the Offering which, if exercised in full, would bring the gross offering size to $57 million. The REIT has made application to list the Subscription Receipts on the TSXV. Listing is subject to the REIT fulfilling all of the listing requirements of the TSXV.
On closing of the Acquisition: (i) one Unit will be automatically issued in exchange for each Subscription Receipt (subject to customary anti-dilution protection), without payment of additional consideration, (ii) an amount per Subscription Receipt equal to the amount per Unit of any cash distributions made by the REIT for which record dates have occurred during the period that the Subscription Receipts are outstanding will become payable in respect of each Subscription Receipt, and (iii) the proceeds from the sale of the Subscription Receipts will be released from escrow to the REIT. If the Acquisition fails to close by November 30, 2012, or the Acquisition is terminated at an earlier time, the gross proceeds and pro rata entitlement to interest thereon will be paid to holders of the Subscription Receipts.
The REIT expects to file a preliminary short form prospectus relating to the issuance of the Subscription Receipts with the securities commissions or other similar regulatory authorities in each of the provinces and territories of Canada on or before August 21, 2012. Closing of the Offering is expected to occur on or about September 11, 2012, subject to the receipt of TSXV and other necessary regulatory approvals.
There are 16,392,678 Units outstanding and 3,818,750 Class B LP Units outstanding. The completion of the financing described above will result in an additional 11,710,000 Units being issued (assuming the exchange of the Subscription Receipts and prior to the exercise of the Over-Allotment Option), representing a 70% increase in outstanding Units. The Acquisition will result in an additional 3,515,118 Class B LP Units exchangeable for Units being issued to an entity related to Daniel Drimmer.
Description of the Acquisition Properties
The Acquisition Properties consist of 26 properties currently owned and operated by Blue-Starlight, comprising an aggregate of 2,076 residential suites in one high-rise building clusters, 8 mid-rise building clusters, 12 low-rise building clusters, 3 clusters of both mid-rise and low-rise buildings, and one townhouse complex located in Ontario, New Brunswick and Nova Scotia. The following table highlights certain information about the Acquisition Properties:
|Property||City||Province||Units||Year Built||Asset Type|
|4, 8, 12, 14 & 16 Cartier Court and 1390, 1400 & 1410 Kensington Parkway||Brockville||Ontario||162||1987-1990||Low-Rise|
|89 Willow Road||Guelph||Ontario||68||1967||Mid-Rise|
|511 7th Avenue||Hanover||Ontario||57||1980||Mid-Rise|
|351, 361, 369 & 375 London Road||Sarnia||Ontario||128||1940-1975||Mid-Rise & Low-Rise|
|269 & 275 Finch Avenue||Sarnia||Ontario||162||1980||Mid-Rise|
|104 Confederation Drive||St. Thomas||Ontario||118||1979||High-Rise|
|5 Lamers Court||Tillsonburg||Ontario||58||1980||Mid-Rise|
|72 Devonshire Avenue||Tillsonburg||Ontario||39||1982||Low-Rise|
|558 Durham Crescent||Woodstock||Ontario||46||1972||Mid-Rise|
|715, 735 Laurier Street||Dieppe||New Brunswick||48||1988||Low-Rise|
|678 Evangeline Street||Dieppe||New Brunswick||24||1988||Low-Rise|
|270 Parkside Drive||Fredericton||New Brunswick||28||1979||Low-Rise|
|6 Donald Avenue||Moncton||New Brunswick||42||1973||Low-Rise|
|1, 3-5, 9-11, 13 Ivan Court||Moncton||New Brunswick||139||1973||Low-Rise|
|25-27, 44- 44 1/2 Oakland Avenue, 130 First Avenue, 91-91 1/2 Melville Street||Moncton||New Brunswick||84||1968-1973||Low-Rise|
|50, 60 MacAleese Lane, 111 Redmond Street, 111 Vail Street||Moncton||New Brunswick||117||1973-1974||Low-Rise|
|10, 11 & 20 Charlie Grace Terrace||Saint John||New Brunswick||36||2009-2011||Low-Rise|
|1, 11 Drysdale Road & 22, 24, 26, 36, 38, 40 River Road||Halifax||Nova Scotia||122||1971-1972||Low-Rise|
|13, 15, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 45, 47, 49, 51, 53, 55 & 57 Willowbend Court, 211, 213, 215, 217, 219 & 221 Glenforest Drive & 185, 187, 189, 191, 193, 195, 197 & 199 Willett Street||Halifax||Nova Scotia||50||1974||Townhouses|
|1, 6, 7, 10 Crystal Drive||Dartmouth||Nova Scotia||114||1966 -1980||Mid-Rise & Low-Rise|
|1 & 3 Farthington Place||Dartmouth||Nova Scotia||94||1968||Mid-Rise|
|2, 4 Franklyn Court & 87 Pinecrest Drive||Dartmouth||Nova Scotia||139||1969-1982||Mid-Rise & Low-Rise|
|11 Glenview Drive||Dartmouth||Nova Scotia||36||1983||Mid-Rise|
|31, 35 Highfield Park Drive & 11 Joseph Young Street||Dartmouth||Nova Scotia||109||1989||Low-Rise|
|356 Windmill Road||Dartmouth||Nova Scotia||44||1985||Mid-Rise|
|141 Albro Lake Road||Dartmouth||Nova Scotia||12||1991||Low-Rise|
Pro Forma Portfolio Breakdown
Approximately 57% of the suites in the Acquisition Properties contain two or more bedrooms. The portfolio distribution of the Acquisition Properties by size of rental suite, together with the pro forma portfolio distribution of the REIT's properties, after giving effect to the Acquisition, is as follows:
|Portfolio Breakdown by Size of Suites (Acquisition Properties)||Portfolio Breakdown by Size of Suites (Pro Forma REIT)|
Approximately 98% of the suites in the Acquisition Properties have rental rates that are not in excess of $1,000 per month. The suite distribution of the Acquisition Properties by monthly in place rent paid per suite, together with the pro forma suite distribution of the REIT's properties by monthly in place rent paid per occupied suite, after giving effect to the Acquisition, is as follows:
|Monthly Rental Rate Breakdown (Acquisition Properties)||Monthly Rental Rate Breakdown (Pro Forma REIT)|
The Acquisition will allow the REIT to diversify its NOI, with no province contributing more than 40% of the REIT's NOI.*
(Pro Forma REIT)
|*(excluding the effect of the 14-month Property Vista commitment)|
Description of the New Credit Facility
The REIT has entered into an agreement with a Canadian chartered bank that, upon closing of the Acquisition, will provide the REIT with a revolving credit facility (the "Facility") in the amount of $15 million subject to a borrowing base that will currently allow the REIT to draw a maximum of $10.3 million. Approximately $6.8 million of the Facility is expected to be drawn down in order to finance a portion of the Acquisition.
Certain statements contained in this press release constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking statements are provided for the purposes of assisting the reader in understanding the REIT's financial position and results of operations as at and for the periods ended on certain dates and to present information about management's current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. Forward-looking information may relate to the REIT's future outlook and anticipated events, including completion of the Acquisition and the Offering, respectively, or results and may include statements regarding the financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives of or involving the REIT. Particularly, statements regarding future results, performance, achievements, prospects or opportunities for the REIT or the real estate industry are forward-looking statements. In some cases, forward-looking information can be identified by such terms such as "may", "might", "will", "could", "should", "would", "occur", "expect", "plan", "anticipate", "believe", "intend", "seek", "aim", "estimate", "target", "project", "predict", "forecast", "potential", "continue", "likely", "schedule", or the negative thereof or other similar expressions concerning matters that are not historical facts.
Forward-looking statements necessarily involve known and unknown risks and uncertainties, that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, many of which are beyond the REIT's control, affect the operations, performance and results of the REIT and its business, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results. These factors include, but are not limited to, the risks discussed in the REIT's materials filed with Canadian securities regulatory authorities from time to time on www.sedar.com. . The reader is cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements as there can be no assurance that actual results will be consistent with such forward-looking statements.
Information contained in forward-looking statements is based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including management's perceptions of historical trends, current conditions and expected future developments, including the closing of the Offering and the Acquisition, as well as other considerations that are believed to be appropriate in the circumstances, including the following: the Canadian economy will remain stable over the next 12 months; inflation will remain relatively low; interest rates will remain stable; conditions within the real estate market, including competition for acquisitions, will be consistent with the current climate; the Canadian capital markets will continue to provide the REIT with access to equity and/or debt at reasonable rates when required; Starlight will continue its involvement as asset manager of the REIT in accordance with its current asset management agreement; and the risks identified or referenced above, collectively, will not have a material impact on the REIT. While management considers these assumptions to be reasonable based on currently available information, they may prove to be incorrect.
The forward-looking statements made in this press release are dated, and relate only to events or information, as of the date of this press release. Except as specifically required by law, the REIT undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
Non-IFRS Financial Measures
Net Operating Income ("NOI") is a measure of operating performance based on income generated from the properties of the REIT. Management considers this non-IFRS measure to be an important measure of the REIT's operating performance.
Funds from operations ("FFO") is a measure of operating performance based on the funds generated from the business of the REIT before reinvestment or provision for other capital needs. Management considers this non-GAAP measure to be an important measure of the REIT's operating performance.
Adjusted funds from operations ("AFFO") is calculated as FFO subject to certain adjustments. Management considers AFFO to be an important performance measure to determine the sustainability of future distributions paid to holders of Units after provision for maintenance capital expenditures. AFFO should not be interpreted as an indicator of cash generated from operating activities as it does not consider changes in working capital.
NOI, FFO and AFFO do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to profit/loss, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS. Such measures as computed by the REIT may differ from similar measures as reported by other trusts or companies in similar or different industries.
The Subscription Receipts have not been, and will not be, registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States without registration or an applicable exemption from the registration requirements of that Act. This new release does not constitute an offer to sell the Subscription Receipts in the United States.
The REIT is an unincorporated, open-ended real estate investment trust established under the laws of the Province of Ontario. Additional information concerning the REIT may be obtained from the management information circular dated May 4, 2012 of Wand Capital Corporation and is available at www.sedar.com.
The REIT focuses on a long-term strategy to generate stable cash distributions on a tax-efficient basis for unitholders. The REIT intends to actively look for opportunities to expand its asset base and increase its distributable cash flow through acquisitions of additional multi-suite residential rental properties across Canada, the United States and other jurisdictions where opportunities may arise.
The REIT currently owns properties consisting of an aggregate of 1,657 residential suites located in the cities of Guelph, Waterloo and Kitchener, Ontario and in the borough of Saint Laurent, Montréal, Québec.
True North Apartment Real Estate Investment Trust
President and Chief Executive Officer
True North Apartment Real Estate Investment Trust
Chief Financial Officer and Secretary
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