True North Apartment Real Estate Investment Trust

True North Apartment Real Estate Investment Trust

January 07, 2013 16:47 ET

True North Apartment REIT Announces Proposed Acquisition of A 1,570 Suite Property Portfolio and an Approximate $55.5 Million Public Offering of Subscription Receipts

TORONTO, ONTARIO--(Marketwire - Jan. 7, 2013) -


True North Apartment Real Estate Investment Trust ("True North," or the "REIT") (TSX VENTURE:TN.UN) announced today that it has agreed to acquire (the "Acquisition") a portfolio of 17 properties (the "Acquisition Properties") and the installment note for an aggregate purchase price of $152.8 million. The Acquisition Properties are currently owned and operated by D.D. Acquisitions Partnership (the "Vendor"), an entity controlled by Daniel Drimmer, a trustee and significant unitholder of the REIT.


  • True North agrees to acquire a portfolio of 17 properties comprising a total of 1,570 units
  • The acquisition price of $152.8 million is below both the replacement cost and appraised value of the Acquisition Properties
  • The Acquisition Properties are located in Alberta, British Columbia, Ontario, and Québec
  • The Acquisition will increase the number of suites in the REIT's portfolio by approximately 40%
  • The Acquisition is expected to be accretive to both FFO and AFFO per Unit
  • The REIT will partially finance the Acquisition through the sale, on a bought deal basis, of approximately $55.5 million of subscription receipts
  • The public float of the REIT's equity value will be increased from approximately $118 million to over $174 million, improving liquidity for unitholders
  • The REIT's trustees unanimously recommend that unitholders vote in favour of the Acquisition

The purchase price of $152.8 million implies a capitalization rate of approximately 5.5%, or approximately $97,300 per suite, well below replacement cost. The purchase price will be satisfied by a combination of cash, assumed and new mortgages, and the issuance of Class B LP Units. The REIT's debt to gross book value will be approximately 62% following the Acquisition.

The geographic diversity of True North's current property portfolio will be enhanced by the addition of the Acquisition Properties, which include 510 units in the Greater Toronto Area and 262 units in Peterborough, Ontario. The overall quality of the REIT's current property portfolio will also be enhanced, as the Vendor has invested approximately $10 million in capital improvements on the Acquisition Properties, the majority of which funds were expended within the last 12 months. Furthermore, as part of the Acquisition, the Vendor has agreed to spend a further $1.2 million in additional improvements to the Acquisition Properties, and will be receiving, as partial consideration for the Acquisition Properties, $15 million Class B Units at a price of $4.27 per unit. The Acquisition Properties' current average monthly rent is $834 per suite.

"True North is very pleased to announce this acquisition, which represents the continued execution of our stated growth strategy," stated Leslie Veiner, the REIT's Chief Executive Officer. "I am particularly pleased that we will now have a presence in the Greater Toronto Area, where 32% of the acquired suites are located. In addition, we will continue to develop our national footprint by expanding into Alberta and British Columbia. Furthermore, the considerable scale of this acquisition will increase the size of our property portfolio by approximately 40% and enable the REIT to benefit from the synergies associated with owning a larger portfolio."

Mr. Veiner continued, "One of True North's stated goals is to expand and further diversify our portfolio in markets across Canada. This acquisition provides a unique opportunity to purchase a high quality, well-maintained portfolio at a price that is well below its replacement cost. The benefits of owning these properties will grow over time, as we intend to reduce their operating costs, streamline their marketing, and drive rental growth. As a result, this acquisition will create positive long-term unitholder value."

"Acquiring this portfolio should immediately strengthen True North's position across multiple operating and financial metrics," stated Denim Smith, Chair of a special committee of independent trustees (the "Special Committee") that the REIT established for the purposes of, among other things, evaluating the Acquisition. "We expect the acquisition will be accretive to unitholders on both an FFO and AFFO per unit basis and reduce the FFO and AFFO payout ratios."

The Offering

In order to finance a portion of the cash component of the purchase price of the Acquisition and costs related to the Acquisition, as well as for general trust purposes and future acquisitions, the REIT has agreed to sell, on a bought deal basis by way of a short-form prospectus (the "Offering"), 13,870,000 subscription receipts (the "Subscription Receipts") to a syndicate of underwriters (the "Underwriters") co-led by CIBC and Raymond James Ltd. Each Subscription Receipt represents the right to receive one unit of the REIT (a "Unit") at a price of $4.00 per Subscription Receipt, for aggregate gross proceeds of approximately $55.5 million to be held in escrow pending closing of the Acquisition. The REIT has also granted the underwriters an over-allotment option (the "Over-Allotment Option") to purchase up to an additional 2,080,500 Subscription Receipts (or, in certain circumstances, Units) at the same offering price, exercisable no later than 30 days after the closing of the Offering which, if exercised in full, would bring the gross offering size to $63.8 million.

On closing of the Acquisition: (i) one Unit will be automatically issued in exchange for each Subscription Receipt (subject to customary anti-dilution protection), without payment of additional consideration, (ii) an amount per Subscription Receipt equal to the amount per 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 the Acquisition fails to close by April 1, 2013, or the Acquisition is terminated at an earlier time, the gross proceeds and pro rata entitlement to interest thereon will be paid to holders of the Subscription Receipts.

The REIT expects to file a preliminary short form prospectus relating to the issuance of the Subscription Receipts with the securities commissions or other similar regulatory authorities in each of the provinces and territories of Canada on or before January 11, 2013. Closing of the Offering is expected to occur on or about January 30, 2013, subject to the receipt of TSX Venture Exchange ("TSXV") and other necessary regulatory approvals.

As of January 7, 2013, there were 30,052,415 Units and 7,331,628 class B limited partnership units (economically equivalent to and exchangeable for Units) ("Class B LP Units") outstanding. Following the completion of the Offering and the Acquisition, (excluding the exercise of the Over-Allotment Option) there will be 43,922,415 Units outstanding, representing a 46.2% increase. The Acquisition will result in an additional 3,512,878 Class B LP Units being issued to an entity related to Daniel Drimmer, such that Mr. Drimmer will hold an approximate 16.6% effective interest in the REIT (or an approximate 16.0% effective interest after giving effect to the exercise of the Over-Allotment Option) through his ownership of, or control or direction over, Units, Class B LP Units, and the accompanying special voting units of the REIT (the "Special Voting Units"), which provide the holder with equivalent voting rights in respect of the REIT to holders of Units. Mr. Drimmer's Class B LP Units will be issued at a price of $4.27 per unit.

The Acquisition

The Acquisition will be completed pursuant to an acquisition agreement among the REIT, D.D. Acquisitions Partnership and True North General Partner Corporation (the "Acquisition Agreement"), and will be conditional upon the satisfaction of certain conditions including lender consents, completion of the Offering, the approval of the unitholders of the REIT ("Unitholders"), Competition Act (Canada) approval and final TSXV approval. The Acquisition Agreement contains customary provisions for transactions of this nature, including representations, warranties, covenants and indemnities of the parties. A copy of the Acquisition Agreement will be filed by the REIT on Completion of the Acquisition is expected to occur on or about March 1, 2013.

The purchase price for the Acquisition Properties and the installment note of $152.8 million implies a capitalization rate of approximately 5.5% and will be satisfied by a combination of: (i) approximately $36.5 million in cash, (ii) the assumption of approximately $68.3 million aggregate principal amount of existing mortgage debt, (iii) approximately $33 million aggregate principal amount of new mortgage debt, including $5 million from an entity related to Daniel Drimmer (the "VTB"), and (iv) the issuance to the Vendor of approximately $15 million of Class B LP Units of a newly formed limited partnership that will hold the Acquisition Properties at closing, at a price per Class B LP Unit of $4.27 and accompanying Special Voting Units. The VTB will have a five year term (commencing from the date of completion of the Acquisition), and will bear interest at a rate of 2% per annum for the first year of the term, 4% for the second year of the term and thereafter will bear interest at a rate of 5% per annum. The VTB shall be fully open for prepayment without penalty during the first year of the term.

The Vendor is providing an interest rate subsidy on the assumed debt in the form of an instalment note (the "Instalment Note"). The effective interest rate after giving effect to the Instalment Note shall be 2.5% per annum. The debt matures in September, 2013. The relatively short remaining term on the assumed debt is intended to provide management with the opportunity to refinance with longer term debt at favourable rates during 2013. In addition, in the event that the refinanced interest rate exceeds 2.5% per annum, the Vendor has agreed to provide the REIT with a cash payment of up to $500,000, which may be utilized to subsidize the interest expense on the refinanced mortgage debt.

The new and assumed mortgages (after giving effect to the Installment Note referred to above) have an expected weighted average interest rate of approximately 2.7% and an expected weighted average term to maturity of approximately 2.1 years. This will result in the weighted average term to maturity of the REIT's debt being approximately 3.5 years. The Acquisition Properties have an occupancy rate of approximately 97.2%, inclusive of the Property Vista Leases referred to below.

Management expects that the Acquisition will be accretive to the REIT's fully diluted FFO per unit and AFFO per unit on a run rate basis. Additionally, management expects that upon completion of the Acquisition, the REIT's debt to gross book value will be approximately 62%.

As part of the Acquisition, the REIT will enter into leases in respect of 67 suites within the Acquisition Properties with a party related to Daniel Drimmer (the "Property Vista Leases") at a monthly rent of approximately $51,000 for a term expiring between 12 and 18 months following completion of the Acquisition. The implied capitalization rate referred to above is inclusive of this lease commitment.

The Acquisition constitutes a "related party transaction" under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"). Pursuant to MI 61-101, the REIT is required to obtain prior approval of the Acquisition and the VTB by a majority of the minority Unitholders at a special meeting (the "Special Meeting"), which will be scheduled for late February, 2013. Pursuant to Section 5.5(b) of MI 61-101, the REIT is exempt from obtaining a formal valuation for the Acquisition and related issuance of Class B LP Units as the REIT's securities are not listed for trading on any of the stock exchanges specified in that Section.

The members of the Special Committee are Denim Smith (Chair), Jason Underwood, Robert McKee and Alon Ossip. The Special Committee retained CBRE Limited ("CBRE") and Collingwood Appraisals Ltd. ("CAL") to prepare independent appraisals of each of the Acquisition Properties. The Special Committee also retained Stonecap Securities Inc. ("Stonecap") to both act as financial advisor and provide its opinion (the "Fairness Opinion") regarding the fairness, from a financial point of view, of the terms of the Acquisition to both the REIT and the REIT's Unitholders. Stonecap has concluded that the terms of the Acquisition are fair, from a financial point of view to the REIT's Unitholders, with the exception of Daniel Drimmer and his affiliated entities. The Fairness Opinion is subject to a number of assumptions and limitations, and will be included in the materials provided to Unitholders in connection with the Special Meeting.

The independent appraisals prepared by CBRE and CAL indicate that the estimated aggregate value of the Acquisition Properties as of August 15, 2012 and August 31, 2012, was $156.9 million, excluding any portfolio premium. The independent appraisals state that the appraisals and analyses were performed in accordance with Canadian Appraisal Standards and are subject to a number of assumptions and limitations. A summary of the independent appraisals will be posted by the REIT on in conjunction with the filing of its preliminary short form prospectus, as described below.

The Special Committee has advised the board of trustees of the REIT (the "Board") that, based on a number of factors, the Acquisition is in the best interests of the REIT. As a result, the Special Committee has unanimously recommended to the Board that it recommend that Unitholders vote in favour of the Acquisition at the Special Meeting. The Board has unanimously resolved to recommend that Unitholders vote in favour of the Acquisition at the Special Meeting.

Description of the Acquisition Properties

The Acquisition Properties consist of 17 properties currently owned and operated by the Vendor, comprising an aggregate of 1,570 residential suites in four high-rise buildings, seven mid-rise buildings and six low-rise buildings. The buildings are located in Ontario, Québec, Alberta, and British Columbia. The following table highlights certain information about the Acquisition Properties, including occupancy levels and average monthly rent per suite which is set out as at January 1, 2013 (inclusive of those properties subject to the Property Vista Leases):

To view the table associated with rentable suites, please visit the following link:

Pro Forma Portfolio Breakdown

Approximately 54% of the suites comprising the Acquisition Properties contain two or more bedrooms. The portfolio distribution of the Acquisition Properties by size of rental suite, together with the pro forma portfolio distribution of the REIT's properties, after giving effect to the Acquisition, is as follows:

Portfolio Breakdown by Size of Suites (Acquisition Properties) Portfolio Breakdown by Size of Suites (Pro Forma REIT)
Five Bedrooms - 15
Three Bedrooms 99 720
Two Bedrooms 747 2,769
One Bedroom 650 1,852
Bachelor 74 167
Total 1,570 5,523
Approximately 93% of the suites comprising the Acquisition Properties have rental rates that are not in excess of $1,000 per month. The suite distribution of the Acquisition Properties by monthly in place rent paid per suite, together with the pro forma suite distribution of the REIT's properties by monthly in place rent paid per occupied suite, after giving effect to the Acquisition, is as follows:
Monthly Rental Rate Breakdown (Acquisition Properties) Monthly Rental Rate Breakdown (Pro Forma REIT)
<$700 19 % 41 %
$701-$800 20 % 31 %
$801-$900 28 % 15 %
$901-$1,000 26 % 9 %
>$1,000 7 % 4 %
The Acquisition will allow the REIT to diversify its suite base, with no single province contributing more than 39% of the REIT's suite base. The geographic distribution of the suites comprising the Acquisition Properties, together with the pro forma geographic distribution of the REIT's suite base after giving effect to the Acquisition, is as follows:
Breakdown by Suite
(Acquisition Properties)
Breakdown by Suite
(Pro Forma REIT)
British Columbia 3 % 1 %
Alberta 6 % 2 %
Ontario 63 % 39 %
Québec 29 % 36 %
New Brunswick -- 9 %
Nova Scotia -- 13 %

Acquisition Portfolio Net Operating Income ("NOI") for Nine Month Period and Consolidated Projected NOI for the Acquisition Properties

The following projection of NOI for the Acquisition Properties for the twelve months ending September 30, 2013 has been prepared by management of the REIT as part of its evaluation of the Properties to be acquired. The REIT does not, as a matter of course, publish its business plans, budgets, strategies or make external projections or forecasts including of its anticipated financial position and results of operations. Pursuant to applicable securities laws, the REIT is required to update the projection during the relevant period by identifying any material changes from the projection resulting from events that have occurred since it was issued by comparing such projection with annual audited actual results and interim unaudited actual results for the periods covered. The results of this comparison will be set out in the REIT's management's discussion and analysis accompanying the annual or interim financial statements of the REIT for the relevant period. Subject to applicable securities law, the REIT does not intend to or anticipate that it will, and disclaims any obligation to, furnish updated business plans, budgets, strategies, projections or forecasts or similar forward looking information to holders of securities issued by the REIT or to include such information in documents required to be filed with the applicable securities regulatory authorities or otherwise make such information publicly available.

The projection has been prepared in accordance with Canadian GAAP applicable to public enterprises relating to measurement, presentation and disclosure of financial projections. While presented in this press release with numeric specificity, the projection was not, when made, and is not a historical fact, but is a forward looking statement about, among other things, the financial condition, results of operations and business of the REIT and is subject to important risks, uncertainties and assumptions detailed below. The projection has been prepared based on management's estimates and using assumptions that reflect management's intended course of action for the periods presented, given management's judgment as to the most probable set of economic conditions with an effective date of December 31, 2012. The projection has been prepared after giving effect to the Offering and the Acquisition. The projection assumes the closing of the Acquisition having occurred on or about March 1, 2013. The projection is only intended to illustrate the projected financial performance of the Acquisition Properties and may not be appropriate for other purposes. The projection has not been audited.

The assumptions used in the preparation of the projection, although considered reasonable by management at the time of preparation, may not materialize as projected and unanticipated events and circumstances may occur subsequent to the date of the projection. Accordingly, there is a significant risk that actual results achieved for the projected period will vary from the projected results and that such variations may be material. There is no representation by the REIT that actual results achieved during the projected period will be the same in whole or in part as those projected. Important factors that could cause actual results to vary materially from the projection include those disclosed under "Risk Factors" discussed in the REIT's materials filed with the Canadian securities regulatory authorities from time to time on and those set out under the heading "Forward-Looking Statements" in this press release.

The financial projection should be read in conjunction with the historical financial statements for the Acquisition Properties contained in the prospectus to be filed in connection with the Offering.

Audited financial statements for the nine months ended September 30, 2012 indicate that NOI for this period was $5.03 million. NOI for this nine month period on an annualized basis was $6.71 million. Management's projected NOI for the twelve months ending September 30, 2013 is $8.46 million. The primary differences between these figures are comprised of management's anticipated:

  1. Increases in revenue related to the Property Vista Leases; rent increases from annual rent step ups; moving below market rents to market rents upon tenant turnover; new antenna and other revenue increases; and

  2. Decreases in expenses related to reductions in repairs & maintenance expenses based on the REIT's capital expenditure capitalization policy; and, decreases in general and administrative expenses related to non-recurring transaction related expenses that were incurred over the past nine months.

(in thousands of Canadian dollars)
Three months ended-December 31, 2012
Three months ended March 31, 2013 (unaudited) Three months ended June 30, 2013
Three months ended September 30, 2013 (unaudited) Twelve months ended September 30, 2013 (unaudited)
Revenue from property operations $ 3,914 $ 3,937 $ 3,982 $ 4,020 $ 15,853
Property operating costs 1,290 1,635 1,264 1,208 5,397
Realty taxes 500 500 500 500 2,000
Net operating income $ 2,124 $ 1,802 $ 2,218 $ 2,312 $ 8,456


  1. Revenue from property operations:

Revenue from property operations includes residential tenant rental income, parking income, laundry income, cable income and other miscellaneous income paid by tenants under the terms of their existing leases.

Projected revenue from property operations is based on rents from existing leases as well as expected income from the lease up of units that are vacant or due to become vacant due to lease expiries.

Existing tenants are assumed to fulfill their current contractual lease obligations and remain in occupancy and pay rent for the term of their leases. Upon expiry of their leases, approximately 70% of existing tenants are assumed to be retained based on historical retention experience.

Rents for retained tenants are calculated by increasing in-place rents by the mandated provincial guideline growth rate (where applicable); where no provincial guideline is applicable, rents are expected to renew at a rate including an inflationary increase. The weighted average occupancy rate during the projected period is assumed to be approximately 96.7% (including the Property Vista Leases). The actual occupancy rate including the Property Vista Leases at January 1, 2013 was approximately 97.2%.

  1. Property operating costs:

The major components of property operating costs consist of utilities, repairs and maintenance expenditures, insurance, general and administrative and property management.

Property operating costs have been projected with reference to the operating plans and budgets for the Acquisition Properties. The projection reflects historical data adjusted for future estimates of utility rates, the REIT's arrangements with property managers, management's estimates and market trends.

  1. Realty taxes:

Projected realty taxes are based on estimates provided by an independent realty tax consultant.

Forward-looking Statements

Certain statements contained in this press release constitute forward-looking information or "FOFI" 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, including completion of the Acquisition and the Offering, respectively, the ability of management to refinance the assumed debt at favourable rates when such debt matures or other financial or operating results and may include statements regarding the financial position, business strategy, budgets, litigation, the capitalization rate attributable to the Acquisition, projected costs, capital expenditures (including capital expenditures to be made by the Vendor in connection with the Acquisition), financial results, taxes and 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 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 on 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 Offering and 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 continue to provide the REIT with access to equity and/or debt at reasonable rates when required; Starlight Investments Ltd. will continue its involvement as asset manager of the REIT in accordance with its current asset management agreement; 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-IFRS Financial Measures

Certain terms used in this press release such as Funds from Operations ("FFO"), Adjusted Funds from Operations ("AFFO") and Net Operating Income ("NOI") are not measures defined under IFRS as prescribed by the International Accounting Standards Board, do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to profit/loss, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS. NOI, FFO and AFFO as computed by the REIT are unlikely to be comparable to similar measures as reported by other trusts or companies in similar or different industries.

NOI is a measure of operating performance based on income generated from the properties of the REIT. Management considers this non-IFRS 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.

FFO is a measure of operating performance based on the funds generated from the business of the REIT before reinvestment or provision for other capital needs. Management considers this non-GAAP measure to be an important measure of the REIT's operating performance.

AFFO is calculated as FFO subject to certain adjustments.

Management considers AFFO to be an important performance measure to determine the sustainability of future distributions paid to holders of Units 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.

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 in the United States.

About the REIT

The REIT is an unincorporated, open-ended real estate investment trust established under the laws of the Province of Ontario.

The REIT focuses on a long-term strategy to generate stable cash distributions on a tax-efficient basis for unitholders. The REIT intends to actively look for opportunities to expand its asset base and increase its distributable cash flow through acquisitions of additional multi-suite residential rental properties across Canada, the United States and other jurisdictions where opportunities may arise. Additional information concerning the REIT is available at

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

Contact Information

  • True North Apartment Real Estate Investment Trust
    Leslie Veiner
    Chief Executive Officer
    (416) 234-8444

    True North Apartment Real Estate Investment Trust
    Martin Liddell
    Chief Financial Officer and Secretary
    (416) 234-8444