/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES
OR FOR DISSEMINATION IN THE UNITED
STATES/
MISSISSAUGA, ON, May 18, 2018 /CNW/ - R&R Real Estate
Investment Trust (the "REIT") (TSXV: RRR.UN) today announced that
it has, through certain of its subsidiaries, entered into an
agreement to purchase five properties (the "Acquisition
Properties") for an aggregate purchase price of US$31.5 million (the "Acquisition") from entities
(the "Vendors") controlled by Majid
Mangalji, Executive Chairman and Trustee of the REIT and the
largest beneficial unitholder of the REIT (on a fully diluted
basis), and Michael Klingher,
President and Chief Executive Officer of the REIT.
Highlights
- The REIT agrees to acquire a portfolio of five economy
extended-stay hotels located in the
United States and comprising a total of 656 rooms for an
aggregate purchase price of US$31.5
million
- The Acquisition will increase the size of the REIT, from 10
hotel properties with 1,152 rooms currently (not including the
previously announced disposition of three hotel properties with 335
rooms to an arm's length third party (the "Disposition Properties")
that is expected to be completed in July
2018 (the "Disposition")) to 15 hotel properties with 1,808
rooms (12 hotel properties with 1,437 rooms assuming completion of
the Disposition), furthering the REIT's strategy of providing
investors with the opportunity to indirectly acquire and own US
hotel properties while also providing exposure to the US dollar
- The acquisition price of US$31.5
million is below the aggregate appraised value of the
Acquisition Properties
- The Acquisition is expected to be immediately accretive to the
funds from operations ("FFO") and adjusted funds from operations
("AFFO") per unit of the REIT
- As partial consideration, the Vendors will receive
approximately US$11 million of Class
B limited partnership units ("Class B LP Units") of newly-formed
limited partnerships that will hold the Acquisition Properties at
closing (economically equivalent to and exchangeable for units of
the REIT), at a price of C$0.20 per
Class B LP Unit, and attached special voting units in the REIT,
which will increase the Vendors' and their affiliates' effective
aggregate interest in the REIT, assuming conversion of all Class B
LP Units, from approximately 85.6% to approximately 90.3% (assuming
an exchange rate of C$1.28 to
US$1.00)
- The Acquisition must be approved by the affirmative vote of a
majority of the minority REIT unitholders (excluding units held by
Mr. Mangalji, Mr. Klingher and their respective affiliates)
- A special committee of independent REIT trustees (the "Special
Committee") was established to consider the Acquisition and
reviewed independent appraisals of the Acquisition Properties from
Colliers International, Valuation & Advisory Services,
Hospitality & Leisure Group and received a verbal fairness
opinion on the Acquisition from Raymond James Ltd.
- The independent trustees of the REIT unanimously recommend that
unitholders vote in favour of the Acquisition
Description of the Acquisition Properties
The Acquisition Properties consist of five economy extended-stay
hotels located in the United
States that are currently owned and operated by the Vendors,
comprising an aggregate of 656 rooms. Three of the Acquisition
Properties operate under the HomeTowne Studios brand, one operates
under the HomeTowne Suites brand and the last operates under the
Suburban by Choice brand. The following table highlights certain
key characteristics of the Acquisition Properties:
Brand
|
Location
|
Year
Built
|
Rooms
|
HomeTowne
Studios
|
Atlanta,
GA
|
1998
|
149
|
HomeTowne
Studios
|
Orlando,
FL
|
1999
|
143
|
HomeTowne
Studios
|
Columbus,
OH
|
2009
|
121
|
HomeTowne
Suites
|
Charlotte,
NC
|
2003
|
101
|
Suburban by
Choice
|
Orlando,
FL
|
1998
|
142
|
Following the closing of the Acquisition, the REIT's portfolio
will be comprised of 15 hotels located in 12 states across
the United States, representing an
aggregate of 1,808 rooms (assuming completion of the
Disposition, the REIT's portfolio will be comprised of 12 hotels
located in nine states across the United
States, representing an aggregate of 1,473 rooms).
Acquisition Funding
The total cost of approximately US$32.1
million (including closing costs) will be satisfied by a
combination of: (i) the assumption of approximately US$20.5 million aggregate principal amount of
existing mortgage debt relating to the Acquisition Properties; (ii)
the issuance to the Vendors of approximately US$11 million of Class B LP Units, at a price of
C$0.20 per Class B LP Unit, and
attached special voting units in the REIT; and (iii) approximately
US$0.6 million in cash.
Acquisition Details
The Acquisition will be completed pursuant to a purchase and
sale agreement among the REIT and the Vendors (the "Purchase
Agreement") and will be conditional upon the satisfaction of
certain conditions including lender consents, the approval of the
unitholders of the REIT, and TSX Venture Exchange approval, as well
as other customary conditions for such a transaction. The Purchase
Agreement also contains customary provisions for transactions of
this nature, including representations, warranties, covenants and
indemnities of the parties. A copy of the Purchase Agreement will
be filed by the REIT under its profile on www.sedar.com.
Assuming all conditions to the completion of the Acquisition are
satisfied or waived, the Acquisition is expected to occur in the
third quarter of 2018.
An annual and special unitholder meeting (the "Meeting") has
been called by the REIT to approve, among other things, matters
relating to the Acquisition. As the Acquisition constitutes a
"related party transactions" under Multilateral Instrument 61-101 –
Protection of Minority Security Holders in Special
Transactions ("MI 61-101"), it must be approved by a majority
of the minority unitholders of the REIT (excluding units held by
Mr. Mangalji, Mr. Klingher and their respective affiliates). The
Meeting has been called for June 28,
2017. An information circular containing additional details
regarding the business of the Meeting will be mailed to unitholders
in advance of the Meeting.
A special committee of independent trustees was established by
the REIT for the purposes of considering the Acquisition and
related matters. The Special Committee reviewed independent
appraisals of the Acquisition Properties from Colliers
International, Valuation & Advisory Services, Hospitality &
Leisure Group, which concluded that the estimated aggregate market
value of the Acquisition Properties, based on valuation dates
ranging from April 2, 2018 to
April 6, 2018, was US$40.4 million. The Special Committee also
received a verbal opinion from Raymond James Ltd. that, as at
the date thereof and subject to certain assumptions, limitations
and qualifications, the consideration to be paid by the REIT in
connection with the Acquisition is fair, from a financial point of
view, to the REIT. The Special Committee has advised the board of
trustees of the REIT that the Special Committee is of the view
that, based on a variety of factors, the Acquisition is in the best
interests of the REIT and the Special Committee has unanimously
recommended to the board that the board recommend that REIT
unitholders vote in favour of the Acquisition. The board has, in
turn, resolved (with Mr. Mangalji, declaring his interest and
recusing himself from voting) to recommend that REIT unitholders
vote in favour of the Acquisition.
Advisors
Blake, Cassels & Graydon LLP and Greenberg Traurig, LLP
acted as legal counsel to the REIT. Raymond James Ltd. acted as
financial advisor to the Special Committee.
Forward Looking Statements
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 performance, financial position and cash flows 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 such statements may not be
appropriate for other purposes. Forward-looking information may
relate to future results, performance, achievements, events,
prospects or opportunities for the REIT or the real estate industry
and may include statements regarding the completion of the
Acquisition, including receipt of all necessary unitholder,
regulatory and other approvals required in connection therewith. In
some cases, forward-looking information can be identified by such
terms such as "may", "will", "should", "occur", "expect", "plan",
"intend", "estimate", "potential", "schedule", or the negative
thereof or other similar expressions concerning matters 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, risks related to the
Acquisition, risks related to the units and risks related to the
REIT and its business. 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 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, including management's perceptions of historical
trends, current conditions and expected future developments,
including the closing of 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 provide the REIT with access to
equity and/or debt at reasonable rates when required; and that the
risks 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 Measures
FFO and AFFO are not measures defined under IFRS as prescribed
by the International Accounting Standards Board, 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. FFO and AFFO as computed by the REIT are
unlikely to be comparable to similar measures as reported by other
trusts or companies in similar or different industries.
FFO assumes that the value of real estate investments does not
decrease on a systematic basis over time and it adjusts for items
included in net income and comprehensive income that do not
necessarily provide the best indicator of operating performance,
such as gains or losses on the sale of assets, provisions for
impairment (and impairment reversals) of assets as well as changes
in the fair value of certain equity-based financial instruments
classified as financial liabilities. FFO is used by industry
analysts and investors in the determination of the REIT's
valuation, its ability to fund distributions and investors'
investment return requirements. As a result, management believes
FFO is a useful supplemental measure of its operating performance
for investors.
AFFO is calculated as FFO subject to certain adjustments. AFFO
is an important measure for management as a guideline through which
operating and financial decisions are made and is an integral part
of the investment decision for investors and potential
investors.
For a reconciliation of FFO and AFFO to the most directly
comparable measures calculated in accordance with IFRS, see the
REIT's management's discussion and analysis for the year ended
December 31, 2017, which can be found
under the REIT's profile on www.sedar.com.
About R&R REIT
R&R REIT is an open-ended real estate investment trust
focused on increasing unitholder value through the acquisition and
ownership of hotel properties located in the United States.
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in policies of the TSX Venture
Exchange) accepts responsibility for the adequacy or accuracy of
this release.
SOURCE R&R Real Estate Investment Trust