InStorage Real Estate Investment Trust
TSX VENTURE : IS.UN

InStorage Real Estate Investment Trust

March 16, 2007 08:07 ET

InStorage REIT Announces $111.6 Million in New Self-Storage Investments and $105 Million Bought Deal Equity Financing

TORONTO, ONTARIO--(Marketwire - March 16, 2007) -

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Attention Business Editors:

InStorage Real Estate Investment Trust (the "REIT") (TSX VENTURE:IS.UN) announced today that, together with InScotia Developments LP ("InScotia Developments"), it has agreed to purchase the "Apple Self Storage" portfolio of 11 high quality self-storage properties located in Ontario and Quebec. The REIT will acquire 10 of the properties (the "REIT Properties") for an aggregate purchase price of approximately $111,550,000 (subject to customary adjustments). The REIT Properties account for total gross rentable area of approximately 725,000 square feet and house approximately 5,760 storage units. The REIT's development partner, InScotia Developments, has conditionally agreed to acquire the remaining property (the "Development Property") for a purchase price of approximately $1,150,000 (subject to customary adjustments). Subject to applicable conditions and approvals, the acquisitions are expected to close on or about April 30, 2007.

"The acquisition announced today, combined with the recently announced StorageNOW portfolio acquisition, clearly represents an important strategic opportunity for InStorage REIT to become the dominant player in the Canadian self-storage market. Upon completion of these transactions, we will be the largest owner/operator of self-storage facilities in Canada", says T. James Tadeson, the Chief Executive Officer of the REIT. He adds, "These two important transactions strengthen our position in multiple key markets, establish a new presence in Quebec, and are expected to be accretive to the REIT's funds from operations ("FFO", see "Non-GAAP Measures" below). We will continue to pursue our strategy of acquiring facilities that are accretive to the REIT's FFO in our quest to increase distributions and unitholder value."

With the Apple Self Storage and StorageNOW acquisitions, the REIT will have purchased portfolios of high quality assets, the majority of which are located in important urban centres. These properties have a weighted average occupancy level of 72%, with several newly constructed facilities which are currently in lease-up. As the occupancy at these properties increases to stabilized levels, the REIT expects the Apple Self Storage and StorageNOW properties to generate an annual net operating income (see "Non-GAAP Measures" below) of approximately 7.25% of the purchase price. This expectation is based on the following assumptions: the occupancy of the Apple Self Storage and StorageNOW properties will increase to stabilized levels, rental rates will be successfully increased and maintained, and the REIT will achieve its expected operational improvements and efficiencies of scale with the addition of these two portfolios.

Including the investments announced today and the acquisition of the 11-property StorageNOW portfolio announced on February 19, 2007, the gross book value of the REIT's consolidated real estate assets and mezzanine loans will have grown to approximately $402 million, from approximately $8 million upon its debut as a publicly traded real estate investment trust on August 4, 2006. Upon completion of the Apple Self Storage and StorageNOW portfolio acquisitions, the REIT's portfolio will be comprised of 46 self-storage facilities with a total gross rentable area of 2.6 million square feet and approximately 22,900 storage units.

The REIT also announced today that it has entered into a bought deal financing agreement with a syndicate of underwriters led by Canaccord Adams and including RBC Dominion Securities Inc., Scotia Capital Inc., TD Securities Inc., National Bank Financial Inc., Blackmont Capital Inc. (the "Underwriters") for a $105 million offering (the "Offering") of trust units ("Units") by way of short form prospectus in each of the provinces of Canada. The offering price for the Units will be $1.45 per Unit and the Offering is expected to close on or about April 3, 2007. The Underwriters have been granted an over-allotment option to acquire Units representing up to an additional 10% of the Offering for a period of 30 days following the closing of the Offering. The proceeds of the Offering are intended to be used to satisfy the cash portion of the purchase price for the Apple Self Storage and the StorageNOW portfolio investments and to provide cash for future acquisitions and for the REIT's mezzanine lending activities.

Details Concerning the Apple Self Storage Investments

The REIT Properties will be acquired pursuant to acquisition agreements (the "Acquisition Agreements") between the REIT's operating subsidiary, InStorage Limited Partnership ("InStorage LP"), and the vendors of the Apple Self Storage portfolio (the "Vendors"). The REIT Properties consist of the following:



Province and Address City Operating Name
-------------------------- ----------- ------------------

Ontario
-------
140 Armstrong Avenue Georgetown Apple Self Storage
2032 Commerce Park Drive Innisfil Apple Self Storage
10345 Keele Street Maple Apple Self Storage
81 Arrow Road Toronto Apple Self Storage
25 Crouse Road Toronto Apple Self Storage
875 Don Mills Road Toronto Apple Self Storage
555 Trethewey Drive Toronto Apple Self Storage

Quebec
------

745 St. Martin Ouest Blvd. Laval Forteresse
9265 Pascal Gagnon Blvd. Montreal Forteresse
2249 Leon-Harmel Street Quebec City SecureMax


Under the Acquisition Agreements, InStorage LP initially agreed to purchase the REIT Properties and the Development Property from the Vendors for an aggregate purchase price of $112,700,000 (subject to customary adjustments). In a separate assumption agreement between InStorage LP and InScotia Developments, InScotia Developments has conditionally agreed to assume the obligation of InStorage LP under the Acquisition Agreements to pay the purchase price with respect to the Development Property, being a parcel of land for development located on Walkley Road in Ottawa, Ontario. As a result, InScotia Developments will, in effect, purchase the Development Property directly from the Vendors for a purchase price of approximately $1,150,000 (subject to customary adjustments).

In connection with InScotia Developments' acquisition of the Development Property, the REIT has agreed to fund InScotia Developments at closing with mezzanine loan financing in the principal amount of $980,000 (the "Mezzanine Loan"). InScotia Developments will use the proceeds of the Mezzanine Loan, together with its own equity, to acquire the Development Property. Additional mezzanine financing in the amount of $693,000 will be advanced in the future to fund development costs associated with the Development Property. The Mezzanine Loan will be made pursuant to the terms of the amended and restated development agreement (the "Development Agreement") between InStorage LP and InScotia Developments and will bear interest at the rate of 10% per annum. Pursuant to the terms of the Development Agreement, the REIT will have a first right and a first option to purchase the Development Property following stabilization. The terms of the Development Agreement will be summarized in the short form prospectus (including documents incorporated by reference therein) to be filed in connection with the Offering.

The investments in the Apple Self Storage portfolio remain subject to customary closing conditions under the Acquisition Agreements and to TSX Venture Exchange approval. There can be no assurance that the closing conditions will be satisfied, that exchange approval will be granted or that the investments will be completed. If the conditions under the acquisition agreement are fulfilled, the acquisition is scheduled to close on or about April 30, 2007.

InStorage Real Estate Investment Trust

The REIT is an unincorporated open-ended real estate investment trust that invests primarily in self-storage properties and ancillary businesses throughout Canada. The REIT indirectly owns 24 self-storage properties located in Ontario and Alberta, and is presently the second largest owner/operator of self-storage facilities in Canada. The completion of the acquisitions described above would make the REIT the largest owner/operator of self-storage facilities in Canada and would firmly establish the REIT's position as Canada's leading self-storage industry consolidator.

Additional information concerning the REIT and a copy of the Development Agreement may be obtained on the REIT's website, www.instoragereit.ca, or on the SEDAR website at www.sedar.com, under the REIT's profile.

Non-GAAP Measures

FFO and net operating income ("NOI") are not recognized measures under Canadian generally accepted accounting principles ("GAAP"). They are non-GAAP measures often used by Canadian real estate investment trusts as indicators of financial performance. The REIT calculates FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciated real estate and extraordinary items, plus depreciation and amortization, plus future income taxes and after adjustments for equity-accounted-for entities and non-controlling interests. The REIT calculates NOI as net income (computed in accordance with GAAP), excluding gain (or losses) from sale of depreciated real estate and extraordinary items and including income guarantees on three of the StorageNOW properties, plus depreciation and amortization, plus asset management fees paid to Carttera Management Inc., plus interest expense net of interest income, plus future income taxes if any and after adjustments for equity-accounted-for entities and non-controlling interest. NOI and FFO are not intended to represent operating profits for a period or from the Apple Self Storage and StorageNOW properties nor should they be viewed as an alternative to net income, cash flow from operating activities or other measures of financial performance calculated in accordance with GAAP.

Forward-Looking Information

This press release contains forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the REIT to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Examples of such statements include: the intention or ability of the REIT to complete the Apple Self Storage and StorageNOW portfolio transactions mentioned above and the Offering, in each case as disclosed or at all; the accretive nature of the transactions to the REIT's FFO; the estimated NOI of the Apple Self Storage and StorageNOW properties; and the estimated growth in consolidated real estate assets and mezzanine loans of the REIT mentioned above. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this press release. Such forward-looking statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to: the ability of the REIT and the Underwriters to complete the Offering; the ability and desire of the REIT and its subsidiaries to obtain other necessary financing, satisfy conditions under the transaction agreements and complete the Apple Self Storage and StorageNOW portfolio transactions; the ability and desire of the parties to the transactions to comply with the terms of the transaction agreements; the accuracy of the financial information reviewed and expectations of the REIT with respect to the acquisitions; the ability of the REIT to increase the occupancy of the Apple Self Storage and StorageNOW properties to stabilized levels; the ability of the REIT to successfully increase and maintain rental rates at these properties; the ability of the REIT to achieve its expected operational improvements and efficiencies of scale with the addition of the Apple Self Storage and StorageNOW portfolios; the level of activity in the underlying self-storage business of the REIT, the self-storage industry and in the economy generally; consumer interest in the services and products of the REIT's subsidiaries; competition; and anticipated and unanticipated costs. While the REIT anticipates that subsequent events and developments may cause its views to change, it specifically disclaims any obligation to update these forward-looking statements. These forward-looking statements should not be relied upon as representing the REIT's views as of any date subsequent to the date of this press release. Although the REIT has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The factors identified above are not intended to represent a complete list of the factors that could affect the REIT. Additional factors are noted under "Risks and Uncertainties" in the Management's Discussion and Analysis of the REIT for the quarter and year to date period ended September 30, 2006, a copy of which may be obtained on the SEDAR website at www.sedar.com.

The securities being offered have not, nor will they be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons absent U.S. registration or an applicable exemption from the U.S. registration requirements. This release does not constitute an offer for sale of securities in the United States.

Contact Information

  • InStorage Real Estate Investment Trust
    T. James Tadeson
    Chief Executive Officer
    (416) 867-9705
    Website: www.instoragereit.ca