$700 M DEAL - Northern Property REIT to Create $3 Billion National Multi-Family REIT Through Acquisition of True North Apartment REIT and $53
Northern Property REIT to Create $3 Billion National Multi-Family REIT Through Acquisition of True North Apartment REIT and $535MM
Multi-Family Portfolio from Starlight Investments Ltd.
Highlights
- Creation of a national platform for both NPR and True North unitholders with significant scale and portfolio diversification
- NPR to be renamed Northview Apartment Real Estate Investment Trust
and listed on the TSX under the proposed symbol NVU.UN
- Northview portfolio to consist of approximately 25,000 residential suites across Canada
- The transactions have received unanimous approval from the Boards
of Trustees of both NPR and True North
CALGARY, ALBERTA AND TORONTO, ONTARIO -- (Marketwired) -- 08/10/15 --
Northern Property Real Estate Investment Trust ("NPR") (TSX:
NPR.UN) and True North Apartment Real Estate Investment Trust ("True North") (TSX: TN.UN)(TSX: TN.DB) today announced the creation of Canada's third-largest publicly-traded multi-family REIT. NPR will acquire True North through a plan of arrangement whereby True North unitholders will receive 0.3908 NPR trust units for each of their
True North trust units, representing a premium of 16.4% over the
closing price of True North units on Friday, August 7 (the "Arrangement"). In addition, NPR has agreed to acquire a 4,650 suite, multi-family portfolio from Starlight Investments Ltd. ("Starlight")
as well as from a joint venture between the Public Sector Pension Investment Board ("PSP Investments") and Starlight (collectively, the "Institutional Portfolio") for an aggregate purchase price of $535 million to be satisfied by the payment of cash, the assumption of
debt, and the issuance of NPR trust units and class B limited partnership units ("Class B LP Units"), which are economically equivalent to and exchangeable for trust units of NPR. As part of the transactions, NPR will change its name to Northview Apartment Real Estate Investment Trust ("Northview") to reflect the new national character of Northview's portfolio and its future growth strategy.
Benefits of the Transactions
-- Creation of a National Platform: With a portfolio of approximately
25,000 residential suites (including execusuites) located across eight
provinces and two territories, and an expected enterprise value in
excess of $3 billion, Northview will be the third-largest publicly-
traded multi-family REIT in Canada. Northview will benefit from a
nationwide asset and property management platform with approximately 800
employees operating out of its head office in Calgary and regional
offices across Canada.
-- Portfolio Diversification: Northview's property portfolio will be
diversified across more than 60 Canadian markets, including the Greater
Toronto Area and Montreal, further enhancing financial stability for
unitholders of both NPR and True North. Northview will continue to enjoy
a significant presence in some of NPR's traditional northern Canadian
markets, including Yellowknife and Iqaluit, which are expected to
continue to provide strong returns. While Northview's geographic
diversification should reduce volatility in performance, Northview will
also be well-positioned to take advantage of a recovery in resource-
oriented markets.
-- Enhanced Access to Capital and Greater Unitholder Liquidity: Northview
is expected to have a market capitalization of approximately $1.2
billion, which should broaden and deepen its access to capital, provide
unitholders of both REITs with increased market trading liquidity, and
over time, reduce Northview's cost of capital. These benefits should
significantly bolster Northview's competitiveness in future investment
activities.
-- Strong Internal Management Team: Led by Mr. Todd Cook as President and
Chief Executive Officer and Mr. Leslie Veiner as Chief Operating
Officer, Northview will have one of the most experienced and capable
management teams among publicly-traded REITs in Canada. Northview will
also benefit from continuity in the oversight of the True North
portfolio and the Institutional Portfolio, through a transitional
service agreement with Starlight, a company controlled by Mr. Daniel
Drimmer, Chairman of True North.
-- New Investor Relationship: Through the ownership of trust units and
Class B LP Units, Mr. Drimmer will become Northview's largest unitholder
with an approximate 14.5% effective interest. Together with his board
nomination rights and the transitional service agreement through
Starlight, Mr. Drimmer will make an important contribution to the future
success of Northview. In addition, through Starlight's extensive market
presence and investment activities, Northview is expected to have access
to acquisition opportunities not generally available, of which the
acquisition of the Institutional Portfolio from Starlight announced in
this news release is an example.
-- Significant Opportunities for Future Growth: With its national presence,
Northview is expected to have access to additional acquisition and
development opportunities. Further, greater diversification and scale
will enable Northview to make substantial value-add investments in
existing properties without materially impacting short-term financial
performance.
Mr. Cook, President and CEO of NPR commented, "We are excited about creating a leading multi-family Canadian REIT. Northview's national platform and diverse portfolio will provide unitholders of both NPR
and True North with a unique opportunity to build a great Canadian business. This transformative transaction builds upon the solid financial results released by NPR last week and will provide NPR unitholders with improved access to capital and opportunities for
growth outside our traditional mid-market communities."
"This acquisition immediately creates value for True North
unitholders and accelerates our goal of creating scale," said Mr. Veiner, President and Chief Executive Officer of True North. "Over
the long-term, this transformative transaction will benefit our unitholders through enhanced access to capital which, along with
reduced leverage and a lower payout ratio, will result in increased financial stability."
Summary Transaction Terms
Under the terms of the Arrangement, each True North unitholder will receive 0.3908 units of NPR per True North unit. Based on the closing price of NPR trust units and True North trust units on the Toronto
Stock Exchange ("TSX") on Friday, August 7, 2015, the consideration
is valued at $9.00 per True North trust unit, representing a 16.4% premium. The Arrangement will occur on an income tax deferred basis
for Canadian residents.
The Institutional Portfolio is being acquired for $535 million at a going-in capitalization rate of 5.5% and comprises 33 properties with
a total of 4,650 residential suites located in Ontario, New Brunswick and Nova Scotia. The purchase price for the Institutional Portfolio
will be satisfied by a combination of $316 million in cash, $49
million of assumed mortgages, the issuance to the vendors of approximately 5.1 million trust units of NPR valued at a $23.03 per trust unit, and the issuance to the vendors of approximately 2.3
million of Class B LP Units valued at $23.03 per Class B LP Unit. NPR has obtained a fully-committed $325 million bridge facility from Scotiabank and Canadian Imperial Bank of Commerce to fund the cash portion of the Institutional Portfolio purchase price, and intends to replace this financing with long-term mortgages on the Institutional Portfolio properties over time. Following the completion of the transactions, PSP Investments will hold an approximate 9.8% interest
in Northview.
"This is an exciting opportunity as these transactions enable True
North unitholders to invest in a REIT with a size and scale that
would have taken significantly longer to achieve organically," said
Mr. Drimmer. "The consolidation of these complimentary portfolios
under a strong management team will better position Northview to
create long term value for unitholders. As was the case for True
North, Northview will have access to Starlight's property pipeline
and expansive network of real estate professionals identifying attractive on and off-market acquisition opportunities in Northview's diverse markets."
Board Recommendations
True North's Board of Trustees, based on the recommendation of a
special committee of independent trustees, has determined that the consideration to be received by True North unitholders pursuant to
the Arrangement is fair, from a financial point of view, that the Arrangement is in the best interests of True North and has
recommended that True North unitholders vote in favour of the Arrangement. True North's special committee has received an opinion
from its financial advisor, CIBC World Markets Inc., that, as of the date thereof and subject to the assumptions, limitations and qualifications set forth therein, the consideration to be received by unitholders of True North (other than Mr. Drimmer and his affiliates) pursuant to the Arrangement is fair, from a financial point of view,
to unitholders of True North (other than Mr. Drimmer and his affiliates).
NPR's Board of Trustees has determined that the Arrangement and Institutional Portfolio acquisition is in the best interests of NPR
and has recommended that NPR unitholders vote in favour of the transactions. NPR's Board of Trustees has received opinions from each
of its financial advisors, Scotiabank and Salman Partners Inc. that,
as of the dates thereof and subject to the assumptions, limitations
and qualifications set forth therein, the consideration to be paid by NPR under the transactions is fair, from a financial point of view,
to unitholders of NPR.
In addition, each of the Trustees and executive officers of True
North, including Mr. Drimmer and certain of his associates, who collectively hold approximately 41.9% of True North's outstanding
voting units, have agreed to vote their units in favour of the Arrangement. Similarly, each of the Trustees and executive officers
of NPR, who collectively hold approximately 0.5% of NPR's outstanding trust units, have agreed to vote their trust units in favour of the transactions.
Governance and Management
Mr. Cook will serve as President and Chief Executive Officer of Northview, and Mr. Veiner will join Northview as Chief Operating Officer, bringing significant industry experience in the central Canadian market and continuity to management of the True North portfolio.
"The addition of Leslie to our management team brings significant experience in our sector, along with the continuity of management for both True North and the Institutional Portfolio required to integrate the operations seamlessly, and leaves us with one of the strongest
teams in the REIT sector poised to capitalize on future
opportunities," added Mr. Cook.
In connection with the closing of the transactions, Starlight will
enter into a transitional service agreement with Northview to provide certain support services with respect to the newly acquired
properties located in Ontario, Quebec, New Brunswick and Nova Scotia. Under the terms of this agreement, Northview will pay an annual
service fee of 0.125% of the value of the properties acquired in
those provinces for a period of three years, with two one-year
extension options in favour of Northview. This transitional service agreement may be terminated early by Northview in respect of the New Brunswick and Nova Scotia properties after two years. The service fee
in the first year following completion of the transactions is
expected to be approximately $1.6 million. The agreement also contemplates a fee payable by Northview in the event that it acquires properties sourced by Starlight (including those acquired as part of
the Institutional Portfolio), other than those which are wholly-owned
by Starlight.
Following the completion of the transactions, the Northview Board of Trustees will be comprised of ten members. Pursuant to an agreement
to be entered into between Northview and Mr. Drimmer, Mr. Drimmer
will have the right to nominate two Trustees to the Board of
Northview, one of whom must be independent pursuant to Canadian securities laws. Upon closing, Mr. Drimmer and Mr. Graham Rosenberg
will join the Northview Board along with NPR's existing Trustees,
with Mr. Douglas H. Mitchell continuing to serve as Chairman of the Board.
Northview Property Portfolio
Northview will own 24,323 multi-family residential suites, 419 execusuites and hotel rooms and 1.2 million square feet of commercial space located across eight provinces and two territories.
Total
Multi- Execusuites Residential Commercial % of Multi-
Family & Hotel (units) (sq. ft.) Family
----------------------------------------------------------------------------
ON 8,235 - 8,235 - 34%
AB 3,795 - 3,795 83,000 16%
BC 2,975 - 2,975 86,000 12%
QC 2,285 - 2,285 - 9%
NL 1,728 142 1,870 225,000 7%
NT 1,329 160 1,489 537,000 5%
NS 1,288 - 1,288 - 5%
NB 1,163 - 1,163 - 5%
NU 1,096 117 1,213 243,000 5%
SK 429 - 429 - 2%
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Total 24,323 419 24,742 1,174,000 100%
The pro forma occupancy level of the combined multi-family portfolio is 93.4%.
Northview expects that approximately 50% of its Net Operating Income will be generated in central and Eastern Canada, approximately 30% in Western Canada, and approximately 20% in Northern Canada.
Financial Impact of the Transactions
The transactions are expected to result in a run-rate FFO per unit
that is consistent with management's 2015 expectations for NPR of between $2.38 and $2.43 per unit. Over time, the transactions should become accretive upon achievement of operating synergies through the integration of the portfolios being acquired.
Northview's distributions are expected to be at NPR's current distribution level of $1.63 per unit on an annual basis or $0.1358 monthly. The FFO distribution payout ratio target is expected to be approximately 70%.
Mr. Robert Palmer, Chief Financial Officer of NPR said, "We are
taking advantage of NPR's balance sheet strength and considerable unutilized leverage capacity for the purposes of this unique opportunity. On a pro-forma basis, as at March 31, 2015 our Debt to Gross Book Value will be 59%, a level at which we are comfortable,
with strong coverage ratios that are among the best in the Canadian
REIT market."
Mr. Cook commented, "We are very pleased to be able to announce these transformative transactions while maintaining current FFO levels,
payout ratios and conservative balance sheet and financial metrics. Looking forward, Northview will be in a strong position to continue
to execute on business plan initiatives and take advantage of opportunities for growth in the future."
Net Operating Income, FFO, and Debt/Gross Book Value are non-GAAP measure. See "Non-GAAP and Additional GAAP Measures" below.
Details of the Arrangement
The Arrangement will be subject to the approval of at least 66 2/3%
of the votes cast at a special meeting of True North unitholders, and subject to the approval of a majority of the votes cast at such
meeting, other than votes controlled by Mr. Drimmer. In addition, the transactions will also be subject to the approval of a 50.1% majority
of votes cast at a special meeting of NPR unitholders.
It is expected that each of True North and NPR will prepare and mail meeting circulars to their respective unitholders within the next few weeks, and that the special unitholder meetings will be held in mid-October. The transaction is expected to close in October 2015,
and in no event later than December 15, 2015. Unitholders are
encouraged to review the detailed information contained in the
meeting circulars concerning the transactions.
The Arrangement is subject to regulatory approvals (including under
the Competition Act (Canada) and by the TSX), approval of the Court
of Queen's Bench of Alberta, as well being subject to the receipt of certain third party consents and the satisfaction or waiver of other customary closing conditions, all as shall be more particularly set forth in the meeting circulars.
The Arrangement provides for, among other things, customary
reciprocal board support and non-solicitation covenants, with
"fiduciary out" provisions that allow each party to accept a superior proposal in certain circumstances and a five business day "right to match period" in favour of the other party. The Arrangement also provides for a reciprocal termination fee of $10.5 million if the Arrangement is terminated in certain specified circumstances and a reimbursement of expenses, up to a maximum of $2 million, if the Arrangement is terminated in other certain specified circumstances.
Prior to closing, holders of True North's convertible unsecured subordinated debentures may convert their debentures in accordance
with their terms and participate in the Arrangement on the same basis
as other True North unitholders. Any True North convertible
debentures outstanding at the time of closing of the Arrangement will
be assumed by Northview, and following closing, holders of the convertible debentures will be entitled to receive trust units of Northview upon conversion based on the exchange ratio contemplated by the Arrangement. Important details regarding the terms of True
North's convertible debentures are set out in the indenture governing such debentures, which has been publicly filed under True North's profile at www.sedar.com. Holders of convertible debentures are encouraged to read the full text of the indenture.
Upon completion of the Arrangement, True North's class B limited partnership units, which currently are exchangeable for trust units
of True North, will become exchangeable for trust units of Northview pursuant to an exchange agreement based on the exchange ratio contemplated by the Arrangement.
Institutional Portfolio Acquisition
The following table highlights certain information about the Institutional Portfolio properties, including occupancy levels and average monthly rent per residential suite, which is set out as at
June 2015:
Year Built
Property City / Renovated Suites Occupancy AMR
----------------------------------------------------------------------------
Ontario
59 Concession St Cambridge 1973 131 100.0% $1,047
39 Willow Rd Guelph 1970 80 100.0% $887
351 Eramosa Rd Guelph 1970 55 100.0% $901
111-187 Brybeck Cres Kitchener 1981 - 1987 282 91.1% $892
Traynor & Vanier Kitchener 1972 - 1974 279 99.6% $864
545, 547 & 565 Belmont
Ave Kitchener 1978 - 1984 279 87.5% $1,091
100-170 Old Carriage Dr Kitchener 1987 - 1988 216 97.2% $1,091
6, 16, 32 & 88 Brybeck
Cres Kitchener 1969 - 1971 98 93.9% $859
297 & 301 Base Line Rd London 1972 - 1973 331 96.1% $764
St.
165 Ontario St Catharines 1963 157 91.7% $797
53 First Ave Orangeville 1988 29 96.6% $1,023
124 Park Rd N Oshawa 1964 65 96.9% $1,169
100 Dundas St Mississauga 1968 169 97.6% $1,160
120 Dundas St Mississauga 1968 155 92.3% $1,228
60 Exeter Rd Ajax 1966 96 99.0% $1,304
19 Rosemount Dr Toronto 1960 71 100.0% $1,076
252 King St E Bowmanville 1965 52 100.0% $1,068
1-4 Balmoral Pl Brockville 1972 158 98.7% $857
Beaverbrook & Varley Kanata 1968 - 1969 196 100.0% $1,319
53 Adelaide St N Lindsay 1974 76 100.0% $1,114
1001 Talwood Dr Peterborough 1974 124 94.4% $991
700 Parkhill Pl Peterborough 1976 128 99.2% $987
1200 Talwood Dr Peterborough 1974 115 89.6% $973
1189 Talwood Crt Peterborough 1976 103 100.0% $1,120
Nova Scotia
36, 60, 65 & 81 Primrose
St Dartmouth 1969 - 1972 242 91.3% $648
15, 25 & 35 Leaman Dr Dartmouth 1965 - 1968 161 99.4% $654
Nivens, Middle & Farrell Dartmouth 1960 - 1970 107 95.3% $650
175 Albro Lake Rd Dartmouth 1968 50 98.0% $667
New Brunswick
378 & 380 Gauvin Rd Dieppe 2002 - 2003 109 96.3% $750
100 Rue du Marche Dieppe 2008 69 98.6% $898
Essex, Caissie, Pascal,
Rachel Moncton 1989 - 2008 273 96.0% $735
112 & 114 Murphy Ave Moncton 2001 102 96.1% $786
Elmwood and Drummond Moncton 1986 - 1990 92 97.8% $720
----------------------------------------------------------------------------
Total 4,650 95.9% $927
Conference Call
NPR and True North will host an investor conference call and webcast
on Monday August 10, 2015 at 11am EDT. Senior management of NPR and
True North will be available to discuss the details of the
transactions. An investor presentation will be made available on the
NPR and True North respective websites immediately prior to the call (please visit: www.npreit.com or www.truenorthreit.co m).