Non-core retail property sold and funds
deployed in acquisition of accretive office portfolio in
Fredericton; 89% of REIT revenue
to be generated by government/credit-rated tenants
/NOT FOR DISTRIBUTION IN THE U.S. OR OVER U.S.
NEWSWIRES/
TORONTO, June 30, 2015 /CNW/ - True North
Commercial Real Estate Investment Trust (TSX: TNT.UN) (the
"REIT") today announced that it has entered into a purchase
agreement to acquire (the "Acquisition") a portfolio
consisting of four office buildings in Fredericton, New Brunswick (the "New
Brunswick Office Portfolio") for approximately $35 million, representing an implied
capitalization rate of 7.1%. The REIT has also sold its non-core
Coronation Mall retail property ("Coronation Mall") in
Duncan, British Columbia for gross
proceeds of approximately $17
million, representing an implied capitalization rate of
5.6%.
The Acquisition is expected to be immediately accretive to Funds
from Operations ("FFO") and Adjusted Funds from Operations
("AFFO") per trust unit of the REIT ("Unit").
Following closing, the REIT will significantly increase its
geographic footprint in New
Brunswick, owning a total of eight office properties, six of
which are located in Fredericton.
This positions the REIT with an outstanding opportunity to take
advantage of economies of scale in the province.
Following the Acquisition and divestiture of Coronation Mall,
the size of the REIT's portfolio is expected to increase by 20%.
Consistent with the REIT's unique value proposition, occupancy is
expected to be 98% with an average remaining lease term of 4.2
years. Government and credit-rated tenants remain a strategic
priority and will generate approximately 89% of gross revenue. The
REIT's debt to gross-book-value ratio will be approximately
59.3%.
"We are very pleased to expand the REIT's presence in the
attractive secondary market of Fredericton with this accretive four property
acquisition," said Daniel Drimmer,
the REIT's Chief Executive Officer. "In accordance with our
strategic plan, this office portfolio is primarily leased to
government or credit-rated tenants and will generate secure cash
flow, supporting unitholder distributions. As a small, retail
property, Coronation Mall was not a core portfolio asset and the
disposition of the property has enabled us to re-deploy the net
proceeds in a manner consistent with our strategic plan."
The purchase price is expected to be satisfied by a combination
of the following funding sources: (i) approximately $5 million in cash from the proceeds of the sale
of Coronation Mall; (ii) approximately $300,000 in cash from the proceeds of a
non-brokered private placement of 45,454 Units at a price of
$6.60 per Unit to D.D. Acquisitions
Partnership, an entity controlled by Daniel
Drimmer, the REIT's President, Chief Executive Officer and
Chairman of the Board, and an affiliate of Starlight Investments
Ltd., the asset manager of the REIT (the "Private
Placement"); (iii) the issuance to the vendor of the New
Brunswick Office Portfolio of 909,090 class B limited partnership
units of True North Commercial Limited Partnership ("Class B LP
Units") at $6.60 per Class B LP
Unit representing, in aggregate, approximately $6.0 million; and (iv) approximately $24.5 million aggregate principal amount of new
mortgage financing with a five-year term and an expected fixed rate
of approximately 2.99%.
The purchase agreement in connection with the Acquisition
contains customary representations and warranties for a transaction
of this nature. Subject to customary closing adjustments and the
satisfaction or waiver of conditions precedent, the Acquisition is
scheduled to close on or about July 15,
2015. There is no assurance that the Acquisition will be
successfully completed and, if so completed, will be completed on
the basis of terms described in this news release.
The New Brunswick Office Portfolio
The New Brunswick Office Portfolio comprises four standalone
office buildings totaling approximately 233,000 rentable square
feet. Three of the four properties share a common parking lot and
are within one kilometer of the REIT's property located at 551 King
Street. Based on gross revenue, government and credit rated tenants
account for 82% of the New Brunswick Office Portfolio.
470 York Street is a four-level office building completely
renovated in 2009. The property is located approximately six blocks
from downtown Fredericton with an
approximate gross leasable area of 59,000 square feet and is 93%
occupied. Major tenant at this property is the Province of
New Brunswick.
495 Prospect Street is a three-level office building located in
the uptown business district, a primary retail and highway
commercial district for the City of
Fredericton and surrounding communities. Originally
constructed in 1985 with expansions in 1986 and 1989, the property
has approximately 425 onsite paved parking spaces. The building has
a gross leasable area of approximately 85,000 square feet and is
93% occupied. Major tenants at this property are Aditya Birla
Minacs Worldwide and Accenture.
414-422 York Street is a three-level office building that was
completely retrofitted in the mid-1970's to provide for office
accommodations. The building was further retrofitted in 1995
and 1996. The property is located approximately six blocks from
downtown Fredericton with an
approximate gross leasable area of 33,000 square feet and is 79%
occupied. Major tenant at this property is NB
Power.
500 Beaverbrook Court is a five-level office building located in
the midtown district of Fredericton. Originally constructed in 1979
and retrofitted in 1994 through 1996, the building is situated on a
1.93 acre site with an approximate gross leasable area of 56,000
square feet, has approximately 160 onsite paved parking spaces and
is 100% occupied. Major tenants at this property are the
Federal Government of Canada and
the Province of New Brunswick.
Coronation Mall
The REIT has agreed to divest of its
Coronation Mall property for gross proceeds of approximately
$17 million, which represents an
implied capitalization rate of 5.6%. Originally acquired in
connection with the REIT's qualifying transaction in December, 2012
for approximately $14.6 million
dollars, Coronation Mall is a retail shopping centre
comprised of three buildings with approximately 51,600 square
feet. The REIT recently enhanced the property with the
construction of a 2,600 square foot stand-alone building, which has
been fully-leased to Burger King. This addition significantly
improved the property, increasing its attractiveness to third party
purchasers.
The Private Placement
Daniel
Drimmer, the REIT's President, Chief Executive Officer and
Chairman of the Board, through D.D. Acquisitions Partnership, an
entity controlled by Mr. Drimmer, intends to subscribe for 45,454
Units at a price of $6.60 per Unit on
a non-brokered private placement basis in connection with the
Acquisition. No commission or other fees will be paid in connection
with the Private Placement. The proceeds from the Private Placement
are expected to be utilized by the REIT to finance a portion of the
cash component of the purchase price for the Acquisition.
The Private Placement constitutes a "related party transaction"
under Multilateral Instrument 61-101 – Protection of Minority
Security Holders in Special Transactions ("MI 61-101").
Pursuant to Section 5.5(a) and 5.7(1)(a) of MI 61-101, the REIT is
exempt from obtaining minority approval of the REIT's unitholders
because the fair market value of Mr. Drimmer's participation in the
Private Placement will be below 25% of the REIT's market
capitalization for purposes of MI 61-101. The Private Placement was
approved unanimously by the Board of Trustees of the REIT (other
than Mr. Drimmer, who declared his interest in the Private
Placement and was recused from voting) in accordance with the
REIT's amended and restated declaration of trust.
As of June 30, 2015, there were
16,965,106 Units and 3,422,247 Class B LP Units outstanding. As of
the date of this news release, Mr. Drimmer (together with his
affiliates) holds an approximate 19.56% effective interest in the
REIT through the ownership of, or direction or control over,
2,907,491 Units, 828,123 Class B LP Units, 828,123 special voting
units of the REIT (the "Special Voting Units") which were
issued in conjunction with the Class B LP Units to provide voting
rights with respect to the REIT to the holders of the Class B LP
Units, and 252,084 options to acquire Units. Following his
subscription for Units pursuant to the Private Placement and the
closing of the Acquisition, it is expected that Mr. Drimmer
(together with his affiliates) will hold an approximate 18.90%
effective interest in the REIT through his ownership of, or control
or direction over, Units, Class B LP Units, Special Voting Units
and options to acquire Units.
Completion of the Private Placement is expected to close on or
about July 15, 2015 and is
conditional upon the satisfaction of customary conditions,
including approval of the Toronto Stock Exchange.
About True North Commercial REIT
The REIT is an
unincorporated, open-ended real estate investment trust established
under the laws of the Province of Ontario. The REIT is focused on acquiring and
operating commercial rental properties across Canada and such other jurisdictions where
opportunities exist.
For complete financial statements and management's discussion
and analysis, and any other information relating to the REIT,
please visit www.sedar.com or the REIT's website at
www.truenorthreit.com.
Non-IFRS Financial Measures
The REIT's consolidated
financial statements are prepared in accordance with International
Financial Reporting Standards ("IFRS"). FFO per Unit, AFFO
per Unit and debt to gross book value ratio as well as other
measures discussed elsewhere in this news release, do not have a
standardized definition prescribed by IFRS and are, therefore,
unlikely to be comparable to similar measures presented by other
reporting issuers. The REIT uses non-IFRS measures to better assess
the REIT's underlying performance and financial position and
provides these additional measures so that investors may do the
same. Details on non-IFRS measures are set out in the REIT's
Management's Discussion and Analysis for the period ended
March 31, 2015 and available on the
REIT's profile at www.sedar.com.
Forward-Looking Statements
Certain statements
contained in this news 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 the completion of
the Acquisition, the Private Placement, or other financial or
operating results and may include statements regarding the
financial position, business strategy, budgets, financing rates and
costs, the capitalization rate attributable to the Acquisition,
taxes and 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 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, assumptions may not be correct and 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, including management's
perceptions of historical trends, current conditions and expected
future developments, including the completion of the Acquisition,
the Private Placement, as well as other considerations that are
believed to be appropriate in the circumstances, such as: 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 news release are
dated, and relate only to events or information, as of the date of
this news 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.
SOURCE True North Commercial Real Estate Investment Trust