Transglobe Apartment REIT
TSX : TGA.UN

December 16, 2010 15:30 ET

TransGlobe Apartment REIT Announces Significant Portfolio Acquisition, Public Offering of $95.5 Million of Subscription Receipts and Financial Update

TORONTO, ONTARIO--(Marketwire - Dec. 16, 2010) - TransGlobe Apartment Real Estate Investment Trust (TSX:TGA.UN) -

NOT FOR DISTRIBUTION IN THE U.S. OR OVER U.S. NEWSWIRES

Highlights

  • the REIT agrees to acquire a portfolio of 20 residential properties from TGIM for approximately $277 million
  • purchase price for the properties implies a capitalization rate of approximately 6.4% and the acquisition is expected to be approximately 1.8% or $0.015 per unit accretive to the REIT's AFFO on an annualized basis
  • the REIT will sell, on a bought-deal basis, $95.5 million of Subscription Receipts at a price of $10.30 per subscription receipt to finance the cash component of the purchase price and acquisition costs
  • TGIM will take approximately $18 million of Class B units of new REIT limited partnerships at the subscription receipt offering price to retain a significant interest in the REIT
  • the acquisition must be approved by the affirmative vote of a majority of minority REIT unitholders at a meeting scheduled for January 2011
  • a special committee of independent REIT trustees was established and retained CB Richard Ellis and Stonecap Securities to, among other things, prepare independent valuations of the properties and instalment notes and to provide a fairness opinion on the acquisition
  • the REIT's board of trustees recommends that unitholders vote in favour of the acquisition

TransGlobe Apartment Real Estate Investment Trust (the "REIT") (TSX:TGA.UN) announced today that it has entered into agreements to indirectly acquire a portfolio of 20 residential properties (the "Acquisition Properties") comprising 48 buildings and one townhouse complex that contain approximately 3,100 residential suites and are principally located in urban centres and geographic areas in the Provinces of Ontario and Quebec where the REIT has an established presence. The Acquisition Properties are currently operated and owned or co-owned by affiliates of TransGlobe Investment Management Ltd. (collectively, "TGIM"). Additionally, in consideration for the REIT assuming certain mortgages secured by the Acquisition Properties, TGIM will make instalment payments to the REIT pursuant to instalment notes (the "Notes") in order to achieve an effective weighted average interest rate of 3.59% per annum on all assumed mortgages.

The purchase price for the Acquisition Properties and the Notes (the "Acquisition") of approximately $277 million implies a capitalization rate of approximately 6.4% and will be satisfied by a combination of approximately $89.4 million in cash, the assumption of approximately $169.6 million aggregate principal amount of mortgage debt on the Acquisition Properties, and the issuance to TGIM of approximately $18 million of Class B units of new limited partnerships (the "New LPs") to be formed by the REIT to hold the Acquisition Properties (which will be economically equivalent to and exchangeable for REIT units) and accompanying special voting units of the REIT. 

The Acquisition is expected to close in late January 2011 and is subject to a unitholder vote and customary closing conditions, including satisfactory due diligence and lender consents.

Upon completion of the Acquisition, TGIM will be responsible for the day-to-day administration and operation of the Acquisition Properties held through the New LPs and for providing strategic advisory services to the New LPs, as required by the REIT's current external management structure established as part of the initial public offering (the "IPO") of the REIT. 

It is expected that the Acquisition will be approximately 1.8% or $0.015 per unit accretive to the REIT's adjusted funds from operations ("AFFO") on an annualized basis (excluding the Subscription Receipts issuable upon exercise of an over-allotment option as noted below). See "Financial Update" and "Non-GAAP Measures" below.

Financing of the Acquisition

In order to finance the cash component of the purchase price of the Acquisition and acquisition costs, the REIT has agreed to sell, on a bought-deal basis, $95.5 million of subscription receipts (the "Subscription Receipts") at a price of $10.30 per Subscription Receipt to a syndicate of underwriters led by CIBC. The REIT has also granted the underwriters an over-allotment option to purchase up to an additional 1,390,770 Subscription Receipts (or, in certain circumstances, REIT units) at the same offering price, exercisable no later than 30 days after the closing of the offering.

On closing of the Acquisition, (i) one REIT unit will be automatically issued in exchange for each Subscription Receipt (subject to customary anti-dilution protections), without payment of additional consideration, (ii) an amount per Subscription Receipt equal to the amount per REIT unit of any cash distributions made by the REIT for which record dates have occurred during the period that the Subscription Receipts are outstanding will become payable in respect of each Subscription Receipt, and (iii) the proceeds from the sale of the Subscription Receipts will be released from escrow to the REIT. 

If (i) the closing of the Acquisition doesn't occur on or before March 1, 2011, (ii) the REIT delivers a notice declaring that one or more of the Acquisition agreements have been terminated or that the REIT will not be proceeding with the Acquisition, or (iii) the REIT publicly announces by press release that it does not intend to proceed with the Acquisition, each Subscription Receipt will entitle the holder thereof to receive an amount equal to the full offering price and a pro rata share of interest thereon.

On or before December 22, 2010, the REIT will file with the securities commissions or other similar regulatory authorities in each of the provinces and territories of Canada, a preliminary short form prospectus relating to the issuance of the Subscription Receipts. Closing of the offering is expected to occur on or about January 13, 2011, subject to TSX and other necessary regulatory approvals.

In addition to the issuance of the Subscription Receipts, TGIM has agreed to take approximately $18 million of Class B units of the New LPs at the $10.30 offering price. Following completion of the Acquisition, it is expected that TGIM will hold an approximate 18.1% effective interest in the REIT through its ownership of REIT units and Class B units of limited partnerships controlled by the REIT, including the New LPs.

As noted above, the remainder of the purchase price will be satisfied by the assumption of approximately $169.6 million aggregate principal amount of mortgage debt on the Acquisition Properties. The assumed mortgages have an effective weighted average interest rate, after giving effect to the payments to be made on the Notes, of 3.59% per annum and an expected weighted average term to maturity of 3.3 years.

Recommendation of the Board of Trustees of the REIT

As TGIM currently owns an approximately 18.9% effective interest in the REIT through ownership of REIT units and Class B units of limited partnerships controlled by the REIT, the Acquisition constitutes a "related party transaction" under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101") and therefore the Acquisition must be approved by the affirmative vote of a majority of minority REIT unitholders at a unitholders' meeting scheduled for January 2011. The information circular and form of proxy in respect of such meeting is expected to be mailed to REIT unitholders in December 2010.

A special committee (the "Special Committee") of independent trustees consisting of Graham Rosenberg (Chair), Michael Cooper and Eric Slavens was established by the REIT for the purposes of considering the Acquisition. The Special Committee retained Heenan Blaikie LLP as separate legal counsel and, in accordance with MI 61-101, retained CB Richard Ellis, Limited ("CBRE") to prepare independent valuations of the Acquisition Properties and Stonecap Securities Inc. ("Stonecap", and together with CBRE, the "Valuators") to prepare an independent valuation of the Notes. The Special Committee also retained Stonecap to act as financial advisor and to provide its opinion (the "Fairness Opinion") regarding the fairness of the consideration to be paid by the REIT pursuant to the Acquisition from a financial point of view to the REIT's unitholders (other than the vendors of the Acquisition Properties).

Stonecap has concluded, in the Fairness Opinion, that the consideration to be paid by the REIT pursuant to the Acquisition is fair, from a financial point of view, to the REIT's unitholders (other than the vendors of the Acquisition Properties). The Special Committee has advised the board of trustees of the REIT that, based on a variety of factors, the Acquisition is in the best interests of the REIT and has unanimously recommended to the board that the board recommend that REIT unitholders vote in favour of the Acquisition.

The board has, in turn, resolved to recommend that REIT unitholders vote in favour of the Acquisition.

Description of the Acquisition Properties

"We are extremely pleased to announce our first major acquisition. This Acquisition, following our recently announced purchase on Bathurst Street in Toronto, further evidences the successful implementation of a key component of our growth strategy of leveraging our relationship with TGIM to access acquisition opportunities that are immediately accretive for the REIT. In addition, the equity offering will substantially increase our public float and should enhance liquidity for our unitholders. We are also delighted that TGIM continues to show its commitment to the REIT by taking back additional Class B units, thereby retaining a significant minority interest in the REIT," said REIT Chief Executive Officer, Kelly Hanczyk.

Upon completion of the Acquisition, the REIT will indirectly acquire a portfolio of 20 residential properties currently operated and owned or co-owned by TGIM, comprising an aggregate of approximately 3,100 residential suites in 10 high rise, 12 mid rise and 26 low rise buildings and one townhouse complex located in the Provinces of Ontario and Quebec. 

The following table highlights information about the Acquisition Properties as at December 1, 2010:

Property   Total Suites   Year Built (approx.)   Asset Type   Net Rentable Area (Square Feet)   Occupancy Level (%)   Average Monthly Rent/ Suite ($)
Kitchener, Cambridge and Other Ontario:                        
  60 Centreville Street, Kitchener   29   1974   Townhouses   49,590   100.0   972
  21 Holborn Drive and 75 Old Chicopee Drive, Kitchener   154   1970   Low Rise   169,640   88.3   854
  301 & 341 Traynor Avenue and 551 & 553 Vanier Drive, Kitchener   279   1970   Low Rise   238,120   99.6   789
  204 Hespeler Road, Cambridge   146   1971-73   Mid Rise & High Rise   119,435   92.5   836
  221 Glenridge Avenue, St. Catharines   138   1976   High Rise   108,363   99.3   909
Total Kitchener, Cambridge and Other Ontario   746           685,148   95.8   841
Greater Toronto Area:                        
  1750 Bloor Street and 3315 Fieldgate Drive, Mississauga   302   1968   High Rise   228,560   98.7   973
  2465 Hurontario Street, Mississauga   137   1965   High Rise   115,881   98.5   1,037
  50 Thorncliffe Park Drive, Toronto   57   1961   Mid Rise   50,084   100.0   1,020
  6020 & 6030 Bathurst Street, Toronto(1)   393   1966-67   High Rise   360,488   94.7   1,130
  321 Sherbourne Street, Toronto   67   1960   Mid Rise   40,932   98.5   983
  392 Sherbourne Street, Toronto   128   1963   High Rise   70,591   93.8   948
  274-278 Cedar Avenue, Richmond Hill   95   1972   Mid Rise   69,854   98.9   1,087
Total Greater Toronto Area   1,179           936,390   96.9   1,042
Eastern Ontario:                        
  4-16 Cartier Court and 1390-1410 Kensington Parkway, Brockville(2)   162   early 1980's   Low Rise   126,220   96.0   689
  344 & 360 Dundas Street, Ottawa   60   1956   Low Rise   40,921   95.0   700
  50 Selkirk Street and 350 Mayfield Avenue, Ottawa   134   1959   Mid Rise   72,103   94.8   666
  1435 & 1455 Morisset Avenue, Ottawa   132   1960-75   Low Rise & Mid Rise   95,747   94.7   745
  1825 Russell Road, Ottawa   104   1973   Mid Rise   58,790   96.2   730
Total Eastern Ontario   592           393,781   95.4   705
Montréal, Québec:                        
  939-959 Boulevard de la Cote-Vertu, Montréal   89   1965   Mid Rise   66,595   94.4   658
  2125 Rue Saint-Marc, Montréal   322   1976   High Rise   172,388   98.8   798
  335 Boulevard Deguire, Montréal(2)   180   1978   High Rise   134,122   94.0   784
Total Montréal, Québec   591           373,105   96.7   773
Total   3,108           2,388,424   96.3   878
(1) Rentable suites and net rentable area figures include 7 new suites currently being created at 6020 & 6030 Bathurst Street, Toronto.
   
(2) Each of these properties will be subject to a head lease with TGIM. Occupancy level shown is the level underlying the head lease obligations.

Financial Update

The REIT expects that AFFO for the period from May 14, 2010 to March 31, 2011, excluding the contribution from the recently announced acquisition of 118 units on Bathurst Street in Toronto (the "Bathurst Acquisition") and excluding the Acquisition and this offering of subscription receipts, will be materially in line with the forecasted AFFO included in the IPO prospectus pro-rated for the same period. 

The REIT further expects that the Acquisition on an annualized basis will be 1.8% or $0.015 accretive to AFFO per unit after giving effect to the issuance of the Class B units of the New LPs and the REIT units issuable upon exchange of all Subscription Receipts (excluding the Subscription Receipts issuable upon exercise of the above-noted over-allotment option). 

The Acquisition and the offering of the Subscription Receipts are not expected to have a material impact on AFFO per unit for the 12 month period ending March 31, 2011 as presented in the financial forecast that was included in the IPO prospectus (pro-rated from the date of commencement of operation of the REIT on May 14, 2010 to March 31, 2011) as a result of the timing difference between the closing of the subscription receipt offering on or about January 13, 2011 and the closing of the Acquisition, which is expected to take place in late January 2011.

The foregoing update to the financial forecast included in the IPO prospectus has been prepared using assumptions that reflect management's intended course of action for the REIT for the periods covered, given management's assumption as to the most probable set of economic conditions. The assumptions used in preparing the updated amounts, although considered reasonable at the time of preparation, may not materialize as forecasted and unanticipated events and circumstances may occur subsequent to the date hereof. Accordingly, there is a significant risk that the actual results achieved for the three month periods ending December 31, 2010 and March 31, 2011 and the 12 month period ending March 31, 2011 (on a pro-rated basis as noted above), in each case, after giving effect to the Bathurst Acquisition and the Acquisition, will vary from the forecast results and the variations may be material. See "Forward-Looking Information" below.

The Subscription Receipts and the REIT units underlying the Subscription Receipts have not been, and will not be, registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States without registration or an applicable exemption from the registration requirements of that Act. This new release does not constitute an offer to sell the Subscription Receipts or the REIT units underlying the Subscription Receipts in the United States.

About the REIT

TransGlobe Apartment REIT is an unincorporated, open-ended real estate investment trust established under the laws of the Province of Ontario. The REIT was initially formed to indirectly acquire 65 residential rental properties containing approximately 8,200 suites principally located in urban centres in Alberta, Ontario, Québec, New Brunswick and Nova Scotia that were previously owned or co-owned and operated by affiliates of TransGlobe Investment Management Ltd. TransGlobe Investment Management Ltd. and an affiliate administer and operate the assets of the REIT in order to support the REIT's external management structure.

Forward-looking Statements

Certain statements contained in this press release constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking statements are provided for the purposes of assisting the reader in understanding the REIT's financial position and results of operations as at and for the periods ended on certain dates and to present information about management's current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. Forward-looking information may relate to the REIT's future outlook and anticipated events or results and may include statements regarding the financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives of or involving the REIT. Particularly, statements regarding future results, performance, achievements, prospects or opportunities for the REIT or the real estate industry are forward-looking statements. In some cases, forward-looking information can be identified by such terms such as "may", "might", "will", "could", "should", "would", "occur", "expect", "plan", "anticipate", "believe", "intend", "seek", "aim", "estimate", "target", "project", "predict", "forecast", "potential", "continue", "likely", "schedule", or the negative thereof or other similar expressions concerning matters that are not historical facts.

Forward-looking statements necessarily involve known and unknown risks and uncertainties, that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, many of which are beyond the REIT's control, affect the operations, performance and results of the REIT and its business, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results. These factors include, but are not limited to, the risks discussed in the REIT's materials filed with Canadian securities regulatory authorities from time to time. The reader is cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements as there can be no assurance that actual results will be consistent with such forward-looking statements.

Information contained in forward-looking statements is based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including management's perceptions of historical trends, current conditions and expected future developments, including the closing of the Acquisition, as well as other considerations that are believed to be appropriate in the circumstances, including the following: the Canadian economy will remain stable over the next 12 months; inflation will remain relatively low; interest rates will remain stable; conditions within the real estate market, including competition for acquisitions, will be consistent with the current climate; the Canadian capital markets will provide the REIT with access to equity and/or debt at reasonable rates when required; TGIM and its affiliates will continue their involvement with the REIT; and the risks identified or referenced above, collectively, will not have a material impact on the REIT. While management considers these assumptions to be reasonable based on currently available information, they may prove to be incorrect.

The forward-looking statements made in this press release are dated, and relate only to events or information, as of the date of this press release. Except as specifically required by law, the REIT undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

Non-GAAP Measures

Adjusted funds from operations (or AFFO), capitalization rate and net operating income (or NOI) are not measures defined by Canadian generally accepted accounting principles ("GAAP"), do not have standardized meanings prescribed by GAAP and should not be construed as alternatives to net income/loss, cash flow from operating activities or other measures of financial performance calculated in accordance with GAAP. AFFO, capitalization rate and NOI as computed by the REIT may differ from similar measures as reported by other trusts or companies in similar or different industries.

AFFO has the meaning ascribed thereto in the REIT's IPO prospectus. AFFO is presented because management considers this non-GAAP measure to be an important performance measure to determine the sustainability of future distributions paid to the REIT's unitholders after provision for maintenance capital expenditures. AFFO should not be interpreted as an indicator of cash generated from operating activities as it does not consider changes in working capital.

Capitalization rate represents the ratio between NOI produced by a property or portfolio of properties and the purchase price therefor, expressed as a percentage. Capitalization rate is presented because management considers this non-GAAP measure, which is commonly used in the real estate market, to be an useful measure in valuing a property or portfolio of properties.

NOI has the meaning ascribed thereto in the REIT's IPO prospectus. NOI is presented because management considers this non-GAAP measure to be an important measure of the REIT's operating performance and uses this measure to assess the REIT's property operating performance on an unlevered basis.

Contact Information

  • TransGlobe Apartment REIT
    Kelly Hanczyk
    Chief Executive Officer
    (416) 234-8444
    or
    TransGlobe Apartment REIT
    Leslie Veiner
    Chief Financial Officer
    (416) 234-8444