InnVest Real Estate Investment Trust

TSX : INN.UN


InnVest Real Estate Investment Trust

March 13, 2014 08:00 ET

InnVest REIT Announces Settlement With Orange Capital and Introduces KingSett Capital as Strategic Capital Partner

- InnVest REIT asset management to be internalized

- Board of Trustees to be increased to nine (9), with six (6) new appointees

- Westmont's hotel management agreement to be amended and extended granting the REIT greater flexibility and incentive compensation with respect to portfolio management

- InnVest looks to accelerate its strategic plan and position itself as the leading growth platform in Canada's hospitality industry

TORONTO, ONTARIO--(Marketwired - March 13, 2014) - InnVest Real Estate Investment Trust (TSX:INN.UN), ("InnVest" or the "REIT") announces that it has reached a settlement (the "Settlement") between InnVest, and Orange Capital, LLC ("Orange Capital") with the support of Westmont Hospitality Group ("Westmont"). KingSett Capital, Canada's leading private equity real estate investor and a pre-existing 7.1% owner of InnVest units, played a key role in facilitating the Settlement outcome and has agreed to become a strategic capital partner of the REIT.

The Settlement is unanimously supported by the Special Committee of the Board of Trustees of InnVest (the "Special Committee"). As part of the Settlement, Orange Capital has agreed to withdraw its request for a special meeting of unitholders scheduled for May 27, 2014.

"The Settlement eliminates the need for a costly proxy campaign and removes market uncertainty," said Laurence Geller, Chairman of the Special Committee of Independent Trustees. "All parties agreed that it is in the best interests of InnVest unitholders for Westmont to remain an important partner of the REIT, and the settlement ensures the REIT is well positioned for future growth" added Mr. Geller.

"The Special Committee and the Parties to the Settlement were committed to reaching a successful resolution for the benefit of all unitholders. We thank the Special Committee for facilitating an excellent outcome for InnVest unitholders. In addition, we are very pleased that KingSett Capital could play a constructive role in the settlement process." said Majid Mangalji
Chairman of InnVest.

Highlights of the Settlement include:

  • Asset management of InnVest will be internalized effective November 30, 2014 at no cost to the REIT;
  • The Board of Trustees (the "Board") will be increased to nine (9) members and there will be six (6) new trustees appointed to the Board;
  • A committee made up of independent trustees will commence a search for a permanent full-time Chief Executive Officer ("CEO") to be employed by InnVest;
  • The existing Westmont management agreement with InnVest will be amended and extended on terms consistent with hospitality industry practice to allow for greater flexibility with respect to portfolio management and incentive compensation; and
  • The Board will immediately begin to develop a new strategic growth plan, including accelerating InnVest's existing program for the orderly sale of non-core assets with the proceeds used to bolster the balance sheet and position InnVest for growth.

Internalized Asset Management

Effective November 30, 2014, Westmont's asset management agreement will terminate at no cost to the REIT and InnVest will internally asset manage all of its properties. As a result, InnVest will no longer pay asset management fees to Westmont effective December 1, 2014. A CEO search committee, made up of independent trustees, will immediately commence a search for a full-time CEO to be employed by InnVest, with the goal to have the CEO in place prior to November 30, 2014 to allow for a constructive transition period.

New Board Composition

The Board will be reconstituted and expanded to include (9) nine trustees, (7) seven of whom will be independent. The new Board will consist of:

  • Existing Board members Mr. Majid Mangalji, who will remain as Chair, Mr. Fereed Mangalji, and Mr. Edward Boomer;
  • Mr. Jon Love, Managing Partner of KingSett Capital;
  • Mr. Daniel Lewis, Managing Partner of Orange Capital; and
  • Four (4) new independent trustees from Orange Capital's proposed nominees, being Ms. Heather-Anne Irwin, Mr. Robert McFarlane, Mr. Edward Pitoniak, and Mr. Robert Wolf.

InnVest would like to thank Messrs. Frank Anderson, Laurence Geller, Morton Gross and Fernand Perreault for their years of service and contributions to InnVest. The new Board has considerable experience in real estate, operations management, corporate finance, and corporate governance and is committed to transforming InnVest into the premier growth oriented hospitality REIT in Canada.

"At the start of this process we sought certain changes to better align the REIT manager's interests with unitholders. We met these objectives and believe this Settlement will benefit all InnVest unitholders," said Daniel Lewis, Managing Partner of Orange Capital. "During these last few weeks it became clear that all parties, including the Special Committee, Westmont, and KingSett Capital, wanted to work together in good faith to reach a constructive resolution. We look forward to working with Westmont and the new trustees. I am most grateful to the seven original trustee nominees proposed by Orange Capital and for the unitholder expressions of support we received throughout the process," added Mr. Lewis.

Strategic Capital Partner - KingSett Capital

KingSett Capital, on behalf of its KingSett Real Estate Growth LP No. 5, as a pre-existing substantial unitholder reached out to the parties to facilitate the Settlement. With a view to building a long-term growth vehicle, KingSett has offered to the new Board to become a strategic capital partner of InnVest. Orange Capital and its trustee nominees are supportive of KingSett Capital's participation as a strategic capital partner. Among other things, KingSett Capital has agreed to provide debt financing and offered to participate in any non-core hotel asset sale program initiated by the REIT. KingSett Capital's participation would be consistent with Orange Capital's original plan to reduce InnVest's reliance on convertible indebtedness and to increase the sale of non-core assets. Any such undertakings between InnVest and KingSett Capital will be subject to Board approval and the negotiation and entering into of definitive agreements.

"We are fortunate to have KingSett Capital as a prospective capital partner and a meaningful InnVest unitholder. We believe KingSett Capital's support will expedite the REIT's plan to solidify its balance sheet and position InnVest as the premier growth platform in Canada's hospitality industry," said Mr. Mangalji.

Westmont Hotel Management Agreement

In addition to the internalization of the asset management function of the REIT, Westmont has agreed to amend and extend its existing Hotel Management Contract on the following terms:

  • Westmont's base management fee will be reduced from 3.375% to 2.95% with a new incentive fee structure that will allow Westmont to earn up to 3.80% of Gross Revenue each year;
  • Westmont will no longer have the exclusive right to manage InnVest's newly acquired hotels and will be released from its non-compete arrangements;
  • The REIT will have greater flexibility with regard to its portfolio management; and
  • The new amended contract will expire in March 2024.

TRUST PROFILE

InnVest is an unincorporated open-ended real estate investment trust which owns a portfolio of 125 hotels across Canada representing approximately 15,500 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 under the symbols INN.UN, INN.DB.C, INN.DB.D, INN.DB.E, INN.DB.F and INN.DB.G.

Forward-Looking Statements

This press release contains certain information or statements that may constitute forward-looking information within the meaning of securities laws, which reflect the current view of InnVest with respect to InnVest's objectives, plans, goals, strategies, future growth, results of financial and operating performance and business prospects and opportunities. In some cases, forward-looking information can be identified by the use of terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "forecast", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts. In particular, forward-looking information included in this press release includes, but is not limited to, the creation of a committee of independent trustees to search for a permanent full-time CEO, the development by the new independent trustees of a strategic growth plan, the reconstitution of the board of trustees and the amendment of the existing Westmont Hotel Management Agreement. Forward-looking information should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the statements and information in this press release containing forward-looking information are qualified by these cautionary statements.

Forward-looking statements are based on information available at the time they are made, underlying estimates and assumptions made by management and management's good faith belief with respect to future events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally which could cause actual results to differ materially from what is currently expected. Such risks and uncertainties include, but are not limited to, InnVest's risks associated with investment in real property, the hotel industry, competition, the availability of cash flow, the inability to guarantee cash distributions which fluctuate with InnVest's performance, borrowing, the availability of additional capital, the reliance on franchisees by Choice Canada, the unpredictability and volatility of InnVest's unit price, labour risks, acquisition risk, environmental risks and other risk factors more particularly described in InnVest's most recent Annual Information Form available on SEDAR at www.sedar.com. Additional risks and uncertainties not presently known to InnVest or that InnVest currently believes to be less significant may also adversely affect InnVest.

InnVest cautions readers that the list of factors is not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by InnVest will be realized or, even if substantially realized, that they will have the expected consequences to, or effect on, InnVest. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date.

InnVest disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

Contact Information