InnVest Real Estate Investment Trust
TSX : INN.UN

InnVest Real Estate Investment Trust

July 06, 2015 16:41 ET

InnVest Real Estate Investment Trust Announces Agreement to Acquire Interests in Two Hotel Properties and a $42 Million Equity Offering

TORONTO, ONTARIO--(Marketwired - July 6, 2015) -

NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES

InnVest Real Estate Investment Trust ("InnVest") (TSX:INN.UN) announced today that it has entered into definitive agreements to acquire interests in two hotel properties, representing an aggregate 799 rooms, for $70 million (collectively, the "Acquisitions"). The Acquisitions consist of a 100% interest in Hotel Saskatchewan in Regina, Saskatchewan and a 33% interest in the Courtyard by Marriott in Downtown Toronto, Ontario. The properties are being acquired at a weighted average capitalization rate of 8.3% based on 2016 estimated Net Operating Income for both hotels.

Hotel Saskatchewan is a full-service, 224-room upscale hotel located in downtown Regina. The hotel features a restaurant and lounge, a tea room, 14,000 square feet of meeting space, 3,600 square feet of leased commercial space, and a 92-space adjacent parking lot. The hotel is currently undergoing a repositioning from Radisson to the Marriott Autograph Collection with Marriott Hotels, which will be completed in late 2015. The hotel is being acquired for a net purchase price of $37 million and is expected to close in September 2015.

The Courtyard by Marriott is a select-service, 575-room hotel located in downtown Toronto. The hotel consists of two towers situated on 1.5 acres of land on Yonge Street, just north of College Street. It features 14,000 square feet of meeting space, two restaurants, 4,600 square feet of leasable retail and a 101-space underground parking garage. InnVest is acquiring a 33% interest in the hotel for a net purchase price of $33 million, KingSett Real Estate Growth LP No. 5 ("KingSett") will be acquiring the remaining 67% interest. The acquisition is expected to close in August 2015.

Management believes the Acquisitions offer numerous benefits to InnVest unitholders, including:

  • Accretive to 2016 adjusted funds from operations ("AFFO") per unit;
  • Reduction of InnVest's pro forma leverage by 60 basis points;
  • Addition of two high quality, highly visible hotel properties located in high barrier to entry hotel markets in central downtown locations;
  • Hotel Saskatchewan represents a top positioned asset in the capital of Saskatchewan, a region in Canada where InnVest is under-represented;
  • The Courtyard by Marriott in Toronto is located in the core of Canada's largest city, in a neighbourhood that is in the midst of an urbanization renaissance. The hotel will stand to benefit from the intensification and gentrification of the surrounding neighbourhood;
  • Demonstrates the benefit of a strategic relationship entered into with KingSett Capital who structured and facilitated this opportunity; and
  • Provides the opportunity for further growth in Net Operating Income through focused InnVest asset management and value-enhancing capital expenditures.

Drew Coles, President & Chief Executive Officer of InnVest added, "We are very pleased with the continued enhancement of the quality of InnVest's portfolio through the acquisition of two strategically-located hotels. Hotel Saskatchewan is a dominant hotel in downtown Regina that provides us with geographic diversification in a Province where we are looking to increase our exposure. The investment in the Courtyard by Marriott increases our presence in Downtown Toronto, Canada's most significant economic hub, and continues to illustrate the value of our strategic partnership with KingSett Capital and increases our relationship with Marriott Hotels."

Debt Financing

InnVest intends to place new mortgage financing in respect of Hotel Saskatchewan of approximately $22MM, representing 60% of the purchase price, bearing an anticipated interest rate of 4.0%. InnVest will also draw approximately $12MM from its operating line of credit, representing 36% of the purchase price of its 33% interest in the Courtyard by Marriott, which bears interest at either the Canadian bank prime rate plus 1.75% or the Canadian Bankers' Acceptance rate plus 2.75%.

Bought Deal Equity Offering

In connection with the Acquisitions, InnVest also announced today that it has reached an agreement with a syndicate of underwriters, co-led by RBC Capital Markets and BMO Capital Markets, to sell on a bought deal basis, 8,400,000 units at a price of $5.00 per unit for aggregate gross proceeds of $42,000,000 (the "Offering"). InnVest has granted the underwriters an over-allotment option to purchase up to an additional 1,260,000 units on the same terms and conditions, exercisable at any time, in whole or in part, up to 30 days after the closing of the Offering.

Highlighting their support and commitment to the long-term growth of InnVest, funds managed by KingSett Capital, and Orange Capital, LLC two of InnVest's largest unitholders, together with certain trustees and officers of InnVest have agreed to purchase an aggregate of approximately $12 million in units at the offering price. KingSett Capital currently holds an approximate 18.1% interest in InnVest, and Orange Capital, LLC currently holds an approximate 9.9% interest in InnVest. After the Offering, their percent ownership in InnVest on an aggregate basis will remain the same.

The Offering is expected to close on or about July 15, 2015 and is subject to customary conditions, including regulatory approval. InnVest intends to use the net proceeds from the Offering to fund the Acquisitions, for capital expenditures, debt repayment, potential future acquisitions, and general trust purposes.

This press release shall not constitute an offer to sell, or the solicitation of an offer to buy, any securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. The securities being offered have not been and will not be registered under the U.S. Securities Act of 1933 as amended and may not be offered or sold in the United States absent registration or pursuant to applicable exemption from registration.

Other Financing Developments

On June 5, 2015, InnVest closed a $100 million operating, acquisition and capital expenditure line that will ultimately be secured by 24 hotel properties by the end of August 2015, with a syndicate of two major Canadian financial institutions. InnVest has also entered into a commitment for an $82.5 million mortgage loan with a U.S. Financial Institution to finance the Fairmont Palliser in Calgary for a 10-year term, which is expected to close in July 2015. InnVest has entered into a forward interest rate agreement to effectively fix the interest rate on this mortgage at 4.0%.

CAUTIONARY AND FORWARD LOOKING STATEMENTS

References to Net Operating Income and capitalization rate in respect of the hotels or hotel interests being acquired by InnVest reflect management's appraisal of the hotels and expected net operating income of the hotels based on past results. There can be no assurance that the appraised value of the hotels is an accurate reflection of the value of the hotel as at the date hereof or on any other date. In addition, there can be no assurance that the valuation method or the capitalization rate(s) used in appraising the hotels was appropriate for such properties as at the date hereof or on any other date.

"AFFO" (Adjusted Funds from Operations) is a non-IFRS financial measure and does not have any standardized meaning prescribed by IFRS. Non-IFRS financial measures are unlikely to be comparable to similar financial measures used by other organizations.

Statements contained in this press release that are not historical facts are forward-looking statements. These forward-looking statements include statements with respect to assumptions and forecasts of future results, the Acquisitions and the Offering. These forward-looking statements are based on current expectations of management and involve risks and uncertainties which could cause actual results to differ materially from those expressed in the forward-looking statements. Among the key factors that could cause such differences are InnVest's capital requirements and available sources of funds, changes to InnVest's business strategy (including InnVest's ability to divest of assets, its intent to internalize asset management and return expectations on capital investments completed); real estate investment risks, hotel industry risks, competition and the status of InnVest as a REIT for Canadian federal income tax purposes in any year. These and other factors are discussed in InnVest's annual information form for the year ended December 31, 2014, which is available at www.sedar.com In making such forward-looking statements, management has relied upon a number of material factors and assumptions, including with respect to: the expected future financial performance of the hotels forming part of the Acquisitions; general economic and financial conditions; the terms and conditions on which the Acquisitions will be completed, including mortgage financing and the Offering; the use of proceeds of the Offering; and the expected financial impact of the Acquisitions on InnVest. Although management of InnVest believes that the expectations with respect to such forward-looking statements are reasonable, such forward-looking statements are subject to known and unknown risks and uncertainties and, accordingly, there can be no assurance that such expectations will prove to be correct. Readers are cautioned that the foregoing list is not exhaustive. The forward-looking statements included herein are made as of the date hereof and InnVest disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by applicable securities law.

INNVEST PROFILE

InnVest Real Estate Investment Trust is an unincorporated open-ended real estate investment trust which owns a portfolio of 109 hotels across Canada representing approximately 15,000 guest rooms operated under internationally recognized brands. InnVest also holds a 50% interest in Choice Hotels Canada Inc., one of the largest franchisors of hotels in Canada.

InnVest's units and convertible debentures trade on the Toronto Stock Exchange (the "TSX") under the symbols INN.UN, INN.DB.E, INN.DB.F and INN.DB.G.

Contact Information

  • InnVest Real Estate Investment Trust
    Denise Achonu
    Vice President, Finance
    (416) 607-2333
    www.innvestreit.com