/NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES/
TORONTO, Nov. 18, 2019 /CNW/ – (TSX:CAR.UN) â Canadian Apartment Properties Real Estate Investment Trust (“CAPREIT” or the “REIT”) announced today that it has agreed to sell, subject to regulatory approval 6,530,000, units at a price of $53.60 per unit for aggregate gross proceeds of $350,008,000 (the “Offering”) to a syndicate of underwriters led by RBC Capital Markets on a bought-deal basis. CAPREIT has granted the underwriters an over-allotment option (the “Over-Allotment Option”), exercisable in whole or in part up to 30 days after closing of the Offering, to purchase up to an additional 979,500 units to cover over-allotments, if any. CAPREIT also announced its intention to acquire six Canadian multi-residential properties, comprising 604 suites for an aggregate purchase price of $194 million.
CAPREIT will, within the next few days, file with the securities commissions and other similar regulatory authorities in each of the provinces and territories of Canada, a preliminary short form prospectus relating to the issuance of the units. Closing of the Offering is expected to occur on or about December 6, 2019.
CAPREIT intends to use the net proceeds of the Offering:
i. to finance the REIT’s acquisition of approximately $194 million of unencumbered multi-residential properties (the “Q4 Acquisitions”);
ii. to repay approximately $127 million of the REIT’s acquisition and operating facility, which was used to fund $88 million of recently closed unencumbered acquisitions (the “Closed Acquisitions”) and the acquisition of $39 million of Irish Residential REIT (“IRES”) shares;
iii. to finance approximately $14 million to exercise existing operating lease buyouts (“Operating Lease Buyouts”), converting two Toronto properties to traditional fee simple property interests; and
iv. the remainder, if any, to finance future acquisitions in CAPREIT’s robust pipeline, to fund intensification opportunities within CAPREIT’s existing portfolio, for revenue-enhancing capital expenditures, and for general trust purposes.
CAPREIT intends to acquire six unencumbered Canadian multi-residential properties totalling 604 suites for approximately $194 million. The Q4 Acquisitions are located in the Greater MontrÃ©al Area, Greater Vancouver Region, Calgary and Halifax, and are being acquired at a weighted average capitalization rate of approximately 4.2%. Four of the six properties are newly constructed properties, and two represent value-add opportunities.
The Q4 Acquisitions include 288 suites being acquired for approximately $75 million that are expected to close in the fourth quarter of 2019 and the first quarter of 2020. The Q4 Acquisitions also include 316 suites expected to be acquired for approximately $119 million that are currently either subject to non-binding letters of intent or to customary conditions, including due diligence. There can be no assurance that these Q4 Acquisitions will be completed on their currently proposed terms, or at all.
The Closed Acquisitions consist of three Canadian multi-residential properties totalling 659 suites, which were recently announced and acquired for approximately $88 million, and were initially funded by drawing on CAPREIT’s acquisition and operating facility. The Closed Acquisitions are located in Southwestern Ontario and Prince Edward Island, and were acquired at a weighted average capitalization rate of approximately 5.0%. The Closed Acquisitions are 98.9% occupied.
Operating Lease Buyouts
CAPREIT’s portfolio currently includes 15 properties located in Toronto that are subject to operating leases. The operating lease payments were fully prepaid upon signing of the operating leases. Each operating lease has fixed price purchase options that can be paid any time between the 25th year and the 35th year (the “Operating Lease Buyouts”), which, if exercised, would allow CAPREIT to become the fee simple owner of the property.
CAPREIT has agreed to accelerate the Operating Lease Buyouts on two of the properties for approximately $14 million, which is less than the price specified in the respective operating leases. Accelerating the Operating Lease Buyouts and converting CAPREIT’s operating leasehold interest in these properties to traditional fee simple interests is estimated to result in an $18 million fair market value gain to CAPREIT, net of the $14 million Option Lease Buyouts. Additionally, exercising the Operating Lease Buyouts is expected to provide additional liquidity to execute on its acquisition pipeline and the intensification opportunities within its portfolio.
Impact of the Offering and the Acquisitions
After giving effect to the Q4 Acquisitions, the Closed Acquisitions, the Operating Lease Buyouts (collectively, the “Acquisitions”), and the Offering, the REIT’s Debt to Gross Book Value ratio is expected to decrease from approximately 37.4% currently to approximately 35.7%. After the Acquisitions and the Offering, CAPREIT expects to have approximately $375 million of capacity on its acquisition and operating facility. Prior to any other acquisitions closing from CAPREIT’s robust acquisition pipeline, the impact on NFFO accretion will be approximately flat.
Mark Kenney, President and CEO of CAPREIT, said “In addition to making some fine acquisitions, this equity offering will de-lever CAPREIT’s balance sheet and reload our credit facility, providing productive financing capacity to allow us to capitalize on exciting future acquisition and intensification opportunities, which are expected to be accretive to CAPREIT’s NFFO on a leverage-neutral basis. Over its 22 years, CAPREIT has become highly experienced and successful in integrating acquisitions to maximize NOI, NFFO and NAV growth, such that its compounded annual total return since its 1997 initial public offering is approximately 15%. With CAPREIT’s proven internal management platform, deep market knowledge and demonstrated economies of scale, CAPREIT is eager to continue to accretively expand its portfolio, but also to continue to improve margins and narrow the significant gap between in-place and market rents, which we estimate to be approximately 20% in our existing portfolio, including approximately 30% in the Greater Toronto Area.”
CAPREIT intends to make monthly cash distributions to unitholders of record on each record date, on or about the 15th day of the month following the record date. CAPREIT’s current monthly cash distribution is $0.1150 per unit ($1.38 annually). The first cash distribution to which purchasers of the units under this Offering will be entitled to participate will be for the month of December, with a record date of December 31, 2019 and a payment date of January 15, 2020.
This press release shall not constitute an offer to sell, or the solicitation of an offer to buy, any securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. The securities being offered have not been and will not be registered under the U.S. Securities Act of 1933 as amended and may not be offered or sold in the United States absent registration or pursuant to applicable exemption from registration.
CAPREIT is a growth-oriented investment trust managing 63,907 suites and sites across Canada, the Netherlands, and Ireland. It owns interests, directly in Canada, and indirectly in the Netherlands through its investment in ERES, a total of 60,241 residential units, comprising 48,566 residential suites and 72 manufactured home communities comprising 11,675 sites, all located in and near major urban centres. CAPREIT is a 2019 AON-Hewitt Best Employer in Canada. For more information about CAPREIT, its business and its investment highlights, please refer to our website at www.caprent.com or www.capreit.net, and our public disclosure which can be found under our profile at www.sedar.com.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
All statements in this press release that do not relate to historical facts constitute forward-looking statements. These statements represent CAPREIT’s intentions, plans, expectations and beliefs and are subject to certain risks and uncertainties, including that the Q4 Acquisitions do not close, the projected net operating income for the Closed Acquisitions and for the Q4 Acquisitions on which the cap rates cited are based on is not achieved, that could result in actual results differing materially from these forward-looking statements. These risks and uncertainties are more fully described in regulatory filings that can be obtained on SEDAR at www.sedar.com.
SOURCE Canadian Apartment Properties Real Estate Investment Trust (CAPREIT)
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