InnVest Real Estate Investment Trust
TSX : INN.UN

InnVest Real Estate Investment Trust
KingSett Real Estate Growth LP No. 5

KingSett Real Estate Growth LP No. 5
Ivanhoé Cambridge

Ivanhoé Cambridge

October 28, 2014 08:00 ET

InnVest REIT, KingSett Capital and Ivanhoe Cambridge Announce Agreement to Acquire the Fairmont Royal York Hotel

TORONTO, CANADA--(Marketwired - Oct. 28, 2014) - InnVest Real Estate Investment Trust ("InnVest") (TSX:INN.UN) and KingSett Real Estate Growth LP No. 5 ("KingSett"), announced today that they have entered into a definitive agreement with Ivanhoé Cambridge ("Ivanhoé Cambridge"), to acquire an aggregate 80% interest in the Fairmont Royal York Hotel in Toronto (the "Royal York Hotel") in a joint venture where Ivanhoé Cambridge will retain a 20% interest in the property.

The joint venture will acquire the 1,363-room Royal York Hotel for an aggregate price of $186.5 million, or $137,000 per room, with InnVest's 20% share in the joint venture being acquired for approximately $37.3 million. The joint venture expects to finance the acquisition with conventional mortgage financing. InnVest will fund its proportionate share of the acquisition equity with available cash and capacity under its existing credit facilities. The transaction is expected to close on January 30, 2015 and is subject to customary closing conditions.

KingSett, with its 60% interest in the joint venture, will become the managing partner of the joint venture. InnVest will become the hotel asset manager and will oversee the property's hospitality operations, working with Fairmont Hotels and Resorts, the operator of the Royal York Hotel.

The parties to the joint venture believe in the long term future success of the Royal York Hotel and will invest over $50 million of additional funds for renovations over the 24 months following the completion of the acquisition.

InnVest believes the Royal York Hotel acquisition offers numerous benefits to InnVest unitholders, including:

  • Provides InnVest with an interest in one of Canada's largest first-class hotels, in Canada's largest city, with one of Canada's leading hotel brands;
  • Represents compelling value with an attractive price per room entry point for an iconic asset in an irreplaceable fortress location;
  • Accretive to adjusted funds from operations per unit in the medium-term with expected significant income growth opportunity from recent and ongoing investments in the Royal York Hotel and surrounding areas;
  • Demonstrates the benefit of the strategic capital relationship entered into with KingSett Capital who structured and facilitated this opportunity; and
  • In order to facilitate long-term ownership of the Royal York Hotel, the joint-venture arrangement provides each joint-venture partner with a right of first offer to acquire the joint venture partners' interests in the property.

Ed Pitoniak, Managing Director of InnVest added, "We are delighted to partner with KingSett and Ivanhoé Cambridge on what we believe is one of Canada's most prestigious hotel properties. We are also looking forward to extending our relationship with Fairmont."

Mr. Pitoniak continued, "With the nearing completion of the Union Station enhancements, as well as the introduction of the Pearson Airport Rail Link, the Fairmont Royal York's location places it at the commercial, cultural and transportation crossroads of Toronto. With the extensive renovations to the Royal York Hotel's infrastructure and guestrooms, this asset is poised to deliver strong earnings growth and benefit from its irreplaceable location in Toronto's city center."

"This transaction illustrates the value of our strategic partnership with KingSett Capital and is a key step in our becoming the leading growth platform in the Canadian lodging industry. Our relationship with KingSett provides us with optionality and scale to grow our portfolio as we continue to look at other opportunities in key markets," said Mr. Pitoniak.

The Fairmont Royal York Hotel, built in 1929, is well into a $100 million renovation project, which has moved from significant infrastructure projects to a phased guest room renovation program to drive higher top line performance. By the end of January 2015, over 500 guestrooms are expected to have been fully renovated. Further, there are several potential redevelopment possibilities to capitalize on the surrounding market's growth, including re-configuration of the Hotel's retail space. The Hotel features 1,363 guest rooms including 82 Fairmont Gold Rooms and 92 suites, and offers over 65,000 square feet of meeting space, 30,000 square feet of retail space and six food and beverage outlets.

ABOUT KINGSETT CAPITAL

KingSett Capital is Canada's leading private equity real estate investment business, co-investing with institutional and high net worth individuals, using active management to deliver premium risk weighted returns. KingSett invests through its Growth, Income and Mortgage funds and has over $5 billion of assets under management.

ABOUT IVANHOE CAMBRIDGE

Ivanhoé Cambridge is a world-class real estate company that leverages its high-level expertise in all aspects of real estate including investment, development, asset management, leasing and operations, to deliver optimal returns for its investors. Its assets, held through multiple subsidiaries and located mainly in Canada, the United States, Europe, Brazil and Asia, totalled more than Cdn$40 billion as at December 31, 2013. Its portfolio consists mainly of shopping centres, office and multi-residential properties. Ivanhoé Cambridge is a real estate subsidiary of the Caisse de dépôt et placement du Québec www.lacaisse.com, one of Canada's leading institutional fund managers. For further information: www.ivanhoecambridge.com.

ABOUT INNVEST

InnVest Real Estate Investment Trust is an unincorporated open-ended real estate investment trust which owns a portfolio of over 110 hotels across Canada representing approximately 14,000 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.D, INN.DB.E, INN.DB.F and INN.DB.G.

CAUTIONARY AND FORWARD-LOOKING STATEMENTS

Adjusted funds from operations ("AFFO") is a non-IFRS financial measures of earnings and cash flow commonly used by industry analysts. Non-IFRS financial measures do not have a standardized meaning and 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 for the Royal York Hotel. 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, 2013, 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: current and future levels of investment in and renovations of the Royal York Hotel; the Royal York Hotel's expected future financial performance; general economic and financial conditions; plans related to Toronto infrastructure and transportation enhancements; the terms and conditions on which the acquisition of the Royal York Hotel will be completed; and the expected financial impact of the acquisition of the Royal York Hotel 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.

Contact Information

  • InnVest Real Estate Investment Trust
    Chantal Nappert
    Vice President, Finance and Investor Relations
    (905) 624-7806
    (905) 206-7114 (FAX)
    www.innvestreit.com