NorRock Realty Finance Corporation
TSX VENTURE : RF.H

NorRock Realty Finance Corporation

March 30, 2012 13:09 ET

NorRock Realty Finance Corporation Announces 2011 Financial Results

TORONTO, ONTARIO--(Marketwire - March 30, 2012) - NorRock Realty Finance Corporation ("NorRock" or the "Corporation") (TSX VENTURE:RF.H) announces the release of its financial statements and management report of fund performance ("MRFP") for the year ended December 31, 2011. All capitalized terms used and not defined in this press release have the meaning given to them in the MRFP.

The Corporation reports the following operational and financial highlights.

Transaction with Partners Real Estate Investment Trust

On October 17, 2011 NorRock entered into an acquisition agreement ("Acquisition Agreement") with Partners Real Estate Investment Trust ("Partners REIT") whereby Partners REIT acquired substantially all of the assets of NorRock. The transaction was approved by NorRock Shareholders on January 13, 2012 and closed on February 1, 2012.

In connection with the closing, Partners REIT made the following payments:


--  19,941,844 Partners REIT units at $1.73 a unit plus cash of $344,050 to
    the preference Shareholders of NorRock for total consideration of
    $34,843,625 in settlement of the preferred share liability; 
--  9,633,489 Partners REIT units at $1.73 a unit to be paid to the Class A
    shareholders of NorRock for a total consideration $16,665,936; 
--  $1,425,000 for reimbursement of transaction costs 
--  Partners REIT issued 3,074,160 non-transferable contingent value rights
    ("CVR") to holders of NorRock Class A shares and holders of NorRock SARs
    which have an estimated value of $1.47 per CVR. 

The CVR entitles the holder to receive Partners REIT units (or at Partners REIT's discretion a cash payment in lieu of all or a portion of such units). The value of the CVR is dependent on the following:


--  Partners REIT realizing a minimum of $9.4 million from the Accepted
    Mortgage Portfolio as listed in the consolidated Statement of Investment
    portfolio valued at $9.9 million before the fair value adjustment; and 
--  80% of the amount realized on the Other Mortgages and Real Property and
    the Investment in Private Entity ("Non-Cash Assets") as listed in the
    Consolidated Statement of Investment portfolio. 

After closing, Partners REIT may choose to sell the above assets at any time before July 1, 2012 and the amount realized is the net sale price. If Partners REIT continues to hold any such assets on July 1, 2012, these assets will be valued by two independent and qualified valuators by August 1, 2012. The average valuation of these valuations will be considered the realized value for these assets.

The CVR will be converted to Partners REIT units based on the 5-day volume-weighted average price or cash, at the sole discretion of Partners REIT, within 90 days following the earlier of:


--  The liquidation of all Non-Cash Assets acquired by Partners REIT; and 
--  August 1, 2012 

The CVR is non-transferable and is not listed on any stock exchange.

To facilitate the transaction NorRock sold the publicly traded securities held at December 31, 2011 and transferred an investment valued at $1.2 million to Partners REIT. NorRock also terminated its forward and management contracts and paid termination penalties of $150,000 and $1,733,300, respectively. These termination penalties were accrued in the December 31, 2011 financial statements.

Update on the Manager

Transaction with Green Tree

On May 12, 2011, Green Tree Capital Management Corp. ("Green Tree") completed its acquisition of 966,160 Class A shares of the Corporation from C.A. Bancorp Inc., being all of the Class A shares held by C.A. Bancorp Inc., which it held directly and indirectly. The Corporation's shares acquired represented approximately 32% of the outstanding Class A shares of the Corporation; and after the purchase, Green Tree and its subsidiary NorRock Realty Management Services Ltd. (the "Manager") owned 966,160 Class A shares and 3,500 Preferred Shares of the Corporation, representing approximately 32% of the Corporation's Class A shares.

In conjunction with the share purchase, Green Tree also acquired from C.A. Bancorp Inc. all of the issued and outstanding shares of the Manager and NorRock Realty Mortgage Inc. (formerly C.A. Bancorp Realty Finance Inc.).

In addition, Green Tree assumed C.A. Bancorp Inc.'s obligations under the commitment agreement dated January 31, 2008 between C.A. Bancorp Inc. and the Corporation. The Manager continued to be responsible for the note payable to the Corporation.

Approval of the transaction was obtained from Preferred Shareholders and Class A Shareholders (collectively, the "Shareholders") of the Corporation voting separately as a class in each case by greater than 2/3 majority pursuant to a meeting of Shareholders held on May 5, 2011.

Mortgage Portfolio Highlights

For the year ended December 31, 2011, the Corporation:


--  had a total of 15 mortgages totaling $21.6 million in value that were
    repaid or partially repaid; 
--  extended 5 loans in the aggregate amount of $8.l4 million with a current
    average effective yield of 14.0%; 
--  funded no new mortgages. 

As at December 31, 2011:


--  the principal outstanding (less unamortized fees) in the Corporation's
    Mortgage Portfolio was approximately $15.6 million compared to $37.4
    million at year end 2010; 
--  the effective yield of the Mortgage Portfolio was approximately 12.8%
    compared to 10.9% in 2010; 
--  the fair value adjustment on the Mortgage Portfolio was $2.6 million;
    and 
--  the fair value on the Mortgage Portfolio was $13.0 million 
--  the Mortgage Portfolio had three non-performing mortgages with an
    aggregate principal balance of approximately $6,000,000. 

Below is a breakdown of the Mortgage Portfolio by mortgage type, asset type and geographic location.


--------------------------------------------------
BY MORTGAGE TYPE                    #    Weighting 
   1st Mortgages                    4        69.2% 
   2nd Mortgages                    4        28.4% 
   Other loans and mortgages        1         2.3% 
                                    9       100.0% 
-------------------------------------------------- 

-------------------------------------------------- 

BY GEOGRAPHY                        #    Weighting
--------------------------------------------------
   Ontario                          6        63.4%
   East                             3        36.6%
--------------------------------------------------
                                    9       100.0%
--------------------------------------------------

--------------------------------------------------

BY ASSET TYPE                      #    Weighting
-------------------------------------------------
   Retail                          4        40.3%
   Land                            2        22.2%
   Recreational                    1        25.6%
   Hotel                           1         9.6%
   Residential Condominiums        1         2.3%
-------------------------------------------------
                                   9       100.0%
-------------------------------------------------

Since December 31, 2011, no mortgages have been repaid and discharged. As at December 31, 2011, the carrying value of the Mortgage Portfolio is approximately $13.0 million.

Cash on Hand and Publicly Traded Securities

As at December 31, 2011, the Corporation:


--  had cash and cash equivalents of $36.6 million (December 31, 2010 -
    $18.4 million); and 
--  held Publicly Traded Securities such as debentures and convertible
    debentures in real estate corporations and REIT's which had a carrying
    value of approximately $7.3 million. 

Net Asset Value

As at December 31, 2011 the Corporation's net assets were $21.2 million representing a net asset value per Class A Share of $7.26.

Distributions to Shareholders

In 2011, aggregate cash distributions declared per Preferred Share were $1.6875. No distributions were paid on the Class A Shares throughout 2011. Preferred Shares distributions were in line with the investment objectives of the Corporation. The Class A Share distributions were suspended in March 2011 until such time as the Corporation had further visibility on the reinvestment of its excess cash. Notwithstanding the strong financial position of the Corporation, the Corporation had not experienced the deal flow required to earn the returns necessary to maintain the Class A Share distribution and distributions remained suspended throughout 2011.


2011 Financial Results                                                

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Statement of Operations                                               
Highlights                                                            
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                                              Period ended    Period ended
                                              December 31,    December 31,
In Canadian $ millions                                2011            2010
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Revenue                                               $3.4           $6.0 
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Expenses                                              (8.2)          (4.7)
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Net (loss) income before other items                 ($4.8)          $1.3 
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Other items                                           (0.7)          (0.2)
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Net (decrease) increase in net assets from                                
Operations(1)                                        ($5.5)          $1.0 
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Distributions paid to Class A Shareholders                           (2.4)
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Net (decrease) for the year(1)                       ($5.5)         ($1.4)
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(1) Rounding                                                          


Statement of Net Assets Highlights                                        
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In Canadian $ millions except per share        December 31,   December 31,
amounts                                                2011           2010
--------------------------------------------------------------------------
Cash                                                  $36.6         $18.4 
Publicly traded securities                              7.3           6.4 
Mortgage Portfolio                                     12.9          36.4 
Investment in private entity                            0.8           0.8 
Note receivable from Manager                            1.5           1.5 
Preferred Shares, net of deferred issue                                   
costs                                                 (34.8)        (34.3)
Warrants                                                0.0          (0.1)

All Other, net(1)                                     21.20         (1.40)
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Total Net Assets                                      $24.3         $27.6 
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Number of shares outstanding (millions)                2.92          3.06 
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Net asset value per Class A Share                     $7.26         $9.01 
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(1)Includes the common share basket, the forward contract, non-controlling
interest and other assets and liabilities The Manager does not generally  
view the common share basket, the forward Contract and non-controlling    
interest as critical from an investor's perspective in understanding the  
economic risk of the Corporation. For further information on the structure
please refer to the Corporation's prospectus filed on SEDAR.              

Subsequent to Year-end

On October 17, 2011 NorRock entered into the Acquisition Agreement with Partners REIT whereby Partners REIT acquired substantially all of the assets of NorRock. The transaction was approved by NorRock Shareholders on January 13, 2012 and closed on February 1, 2012.

The Preferred Shares were cancelled on February 1, 2012 pursuant to the transaction with Partners REIT.

The Corporation contracted with the Manager and Green Tree under a management agreement dated February 1st, 2012 between the Corporation and the Manager and contracted NorRock Realty Management Services Ltd. (the "Investment Advisor") under a new investment advisor agreement. The proposed management agreement was amended to provide that the Manager is not entitled to payment of a termination fee, is not entitled to payment of fees until completion of a transaction resulting in the Corporation holding an interest in an operating business sufficient to enable the Corporation to be listed on the Toronto Stock Exchange or the TSX Venture Exchange and provided that, at such time, the Corporation is an investment fund or Mortgage Investment Corporation.

The investment advisor agreement replaces the original investment advisor agreement among NorRock Realty Finance G.P. Inc., NorRock Realty Finance L.P. and the Corporation dated February 22, 2008, as amended, and is substantially the same as the original investment advisor agreement save and except for the following: (1) No fees are payable from the Corporation to the Investment Advisor until the completion of a transaction which results in the Corporation holding an interest, directly or indirectly, in a business sufficient to enable the Corporation to be listed on the Toronto Stock Exchange or the TSX Venture Exchange provided that, at such time, the Corporation is an investment fund as defined in securities legislation in the provinces and territories of Canada or a mortgage investment corporation as defined by the Income Tax Act.

The partnership between NorRock Realty Finance L.P. formerly C.A.B. Realty Finance L.P. (the "Reference L.P.") and the General Partner was dissolved on January 31, 2012 as a condition precedent to the asset sale by NorRock to Partners REIT.

On February 27, 2012, the Corporation amalgamated with NorRock Realty Finance G.P. Inc. The name of the amalgamated corporation is NorRock Realty Finance Corporation.

On March 2nd 2012 the Class A Shares were voluntarily delisted from the TSX and listed as of March 5th 2012 on the NEX under the symbol RF.H.

Additional Information

To assist with readability and in order to better reflect economic reality rather than legal ownership, we refer to the Mortgage Portfolio and the mortgages and loans contained within that portfolio as if they are directly held by the Corporation rather than by NorRock Realty Finance L.P., the partnership holding the Mortgage Portfolio to which the Corporation has exposure.

For additional information, please see the Corporation's audited financial statements and management report of fund performance for the period ended December 31, 2011 which will be available under the Corporation's profile on SEDAR at www.sedar.com.

The Corporation

The Corporation is a mutual fund corporation under the Income Tax Act (Canada), incorporated under the laws of Ontario. The Manager is a wholly-owned subsidiary of Green Tree Capital Management Corp., an Ontario based private holding company.

The Corporation is a mutual fund corporation incorporated under the laws of the Province of Ontario. The Corporation was created to obtain exposure to the investment performance of an actively managed portfolio of secured loans and investments in the Canadian commercial real estate sector on a tax-efficient basis.

Certain statements included in this news release constitute forward-looking statements including statements identified by the words "plan", "will" and "intend", and similar expressions or the negative thereof. The forward-looking statements are not historical facts but reflect the Corporation's current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. Readers are cautioned not to place undue reliance on forward-looking information. The Corporation undertakes no obligation to update publicly or otherwise revise any forward-looking statement or information except as required by law.

Neither TSX Venture Exchange nor its Regulator Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • NorRock Realty Finance Corporation
    Jacqueline Boddaert
    Chief Executive Officer
    (416) 479-9510 x305
    1-866-362-2469 (FAX)
    info@norrock.ca
    www.norrock.ca