Melcor REIT Announces $54.8 Million Third-Party Property Acquisition, $40.0 Million Convertible Debentures Offering, up to $15.0 Million Private Placement of Class B LP Units to Melcor Developments and Intention to Redeem Outstanding $34.5 Million Convertible Debentures

NOT FOR DISTRIBUTION TO U.S. NEWSWIRES OR DISSEMINATION IN THE UNITED STATES

EDMONTON, Alberta, Oct. 10, 2019 (GLOBE NEWSWIRE) — Melcor Real Estate Investment Trust (TSX:MR.UN) (the “REIT”) announced today that it has entered into an agreement to acquire from an arm’s length third party (the “Vendor”) a commercial property (the “Acquisition”) for an aggregate purchase price of approximately $54.8 million, subject to certain customary adjustments.

Highlights

• The Acquisition property is a multi-building open retail power centre containing 283,235 square feet of gross leasable area (“GLA”) developed on a 33.3-acre site located in Grande Prairie, Alberta
• Represents the REIT’s continued growth as a high quality diversified REIT increasing the portfolio to 3.21 million square feet of GLA and $766.5 million of Gross Book Value
• The Acquisition will increase the GLA in the REIT’s portfolio by approximately 9.7%
• The Acquisition is expected to be immediately accretive to the AFFO per trust unit of the REIT and to reduce the REIT’s AFFO payout ratio
• The REIT will issue $40 million of convertible debentures on a “bought deal” basis with up to an additional $6 million aggregate option granted (the “Over-Allotment Option”) to cover over-allotments, if any, and for market stabilization purposes
  • The convertible debentures will have a coupon of 5.10%, a conversion price of $8.90 and a maturity date of December 31, 2024 (the “Maturity Date”)
• Melcor Developments Ltd. (“Melcor”) to subscribe for Class B LP Units in an amount equal to the greater of (i) $15 million less the gross proceeds to the REIT from the Over-Allotment Option (if any) and (ii) $10 million, thereby increasing effective interest in the REIT

The REIT intends to partially satisfy the purchase price for the Acquisition and related transaction costs using the net proceeds of the $40.0 million convertible debentures offering (the “Offering”). The balance of the purchase price for the Acquisition will be funded by a combination of proceeds of the Concurrent Private Placement and a draw on the REIT’s revolving credit facility. Following the closing of the Acquisition, the REIT intends to obtain approximately $35.6 million of new mortgage financing (the “Post-Acquisition Mortgage Financing”) in respect of the Acquisition property. 

In connection with the Acquisition, Melcor REIT Limited Partnership (the “Partnership”) will issue to Melcor, on a private placement basis, Class B LP Units for gross proceeds to the REIT of between $10.0 million and $15.0 million (the “Concurrent Private Placement”). Each such Class B LP Unit will have an issue price equal to a 1.5% premium to the 5-day VWAP of the trust units of the REIT on the TSX as at the end of trading on the trading day immediately prior to closing of the Acquisition (the “Unit Price”).  The completion of the Concurrent Private Placement is conditional upon the successful completion of the Acquisition. 

The REIT intends to redeem in full (the “Redemption”) its series 5.50% coupon $34.5 million aggregate principal amount convertible debentures currently outstanding and scheduled to mature on December 31, 2019 (the “2014 Debentures”). The REIT intends to provide a formal notice of redemption to holders of the 2014 Debentures following the funding of the Post-Acquisition Mortgage Financing.  The Redemption will be partially funded by the net proceeds received from the Post-Acquisition Mortgage Financing. The balance of the Redemption will be funded by cash-on-hand or a draw on the REIT’s revolving credit facility.

Darin Rayburn, President and Chief Executive Officer of the REIT, commented:
“This acquisition again demonstrates Melcor REIT’s ability to execute on our growth strategy. This latest acquisition increases our portfolio gross leasable area by 9.7% and is expected to be immediately accretive to AFFO per Unit. The property is 98.9% occupied with a complementary mix of tenants. This acquisition is an important step in building value for Unitholders and demonstrates the strong accretive growth potential of the REIT.”

Description of Acquisition Property
The Acquisition property, located in Grande Prairie, Alberta, is a multi-building open retail power centre containing 283,235 square feet of GLA developed on a 33.3 -acre site. The Acquisition property, comprising 15 buildings, was constructed in phases between 1997 and 2006 and has parking for 1,264 vehicles (approximately 4.46 stalls per 1,000 square feet).

As at October 1, 2019, the property was 98.9% leased to 29 tenants (which includes 1 tenant in the fixturing stage), had a weighted average lease term of 4.4 years and is shadow anchored by a Walmart Supercentre and a Save On Foods. The property is located in Grande Prairie on 108th Street (Highway 40/43) and 100th Avenue (Highway 43), a regional destination corridor, and has approximately 2,400 feet of highway frontage.

Key Tenants	Area Leased (sq. ft.)	Percentage of Total GLA	Lease Expiry Date
RONA	40,145(1)	14.18%	February 2022
London Drugs	31,801	11.23%	November 2023
Cineplex Odeon	30,806	10.88%	December 2023

Note 1. This does not include 15,940 sq. ft. of storage space leased to RONA for which RONA does not pay rent.

The Offering
In connection with the Acquisition, the REIT also announced today that it has entered into an agreement with a syndicate of underwriters (the “Underwriters”) led by CIBC Capital Markets (the “Lead Underwriter”), to sell on a bought deal basis $40 million aggregate principal amount of convertible unsecured subordinated debentures (the “Debentures”). The Offering is expected to close on or about October 29, 2019 (“Closing”). The REIT has also granted the Underwriters an Over-Allotment Option to cover over-allotments, if any, and for market stabilization purposes, exercisable in whole or in part, at any time not later than the 30th day following Closing, which entitles the Underwriters to purchase up to an additional 15% of the Offering.

The Debentures will bear interest at a rate of 5.10% per annum, payable semi-annually in arrears on June 30 and December 31 in each year commencing on December 31, 2019 until the Maturity Date. The first payment, representing a short coupon, will include accrued and unpaid interest for the period from the date of Closing to, but excluding, December 31, 2019.

The Debentures will be convertible at the option of the holder into Units at a conversion rate of 112.3596 Units per $1,000 principal amount of Debentures, which is equal to a conversion price of $8.90 per Unit. The Maturity Date for the Debentures will be December 31, 2024.

The Debentures will be offered in Canada pursuant to a short form prospectus to be filed with the securities commissions and other similar regulatory authorities in each of the provinces and territories of Canada, pursuant to National Instrument 44-101 – Short Form Prospectus Distributions, and will be eligible for sale in the United States by way of private placement in accordance with Rule 144A. The Debentures offered, and the Units issuable on conversion or redemption thereof, have not and will not be registered under the U.S. Securities Act of 1933, as amended (the “Act”), and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements under the Act.  This press release does not constitute an offer to sell or a solicitation of any offer to buy the common shares in the United States.

The Offering is subject to certain conditions, including, but not limited to, receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange (“TSX”). The completion of the Offering is not conditional upon the successful completion of the Acquisition. If the Acquisition is not completed, the REIT intends to use the net proceeds of the Offering to fund the Redemption and reduce the indebtedness under the Revolving Credit Facility, which such amount will then be available to be drawn on by the REIT, as required, for future acquisitions and general trust purposes.

Concurrent Private Placement
In connection with the Acquisition, the Partnership will issue to Melcor, on a private placement basis, Class B LP Units for an aggregate subscription price equal to the greater of: (i) $15 million less the gross proceeds to the REIT from the exercise of the Over-Allotment Option (if any).; and (ii) $10 million. Each such Class B LP Unit will have an issue price equal to the Unit Price.   The completion of the Concurrent Private Placement is conditional upon the successful completion of the Acquisition.

Melcor currently holds an approximate 53.1% effective interest in the REIT through ownership of all of the Class B LP Units of the Partnership. Pursuant to the Exchange Agreement, each Class B LP Unit is exchangeable at the option of the holder for one Unit and has attached a Special Voting Unit, providing for voting rights in the REIT. As a result of the foregoing relationship, the Concurrent Private Placement constitutes a “related party transaction” under MI 61-101. MI 61-101 provides a number of circumstances in which a transaction between an issuer and a related party may be subject to valuation and minority approval requirements.  However, an exemption from such requirements is available under MI 61-101 where the fair market value of the transaction does not exceed 25% of the market capitalization of the issuer. Given that the gross proceeds to the REIT from the Concurrent Private Placement will not exceed $15.0 million, the Concurrent Private Placement will not be subject to the valuation and minority approval requirements of MI 61-101.

Additional information will be included in the prospectus.

About Melcor REIT
Melcor REIT is an unincorporated, open-ended real estate investment trust. Melcor REIT owns, acquires, manages and leases quality retail, office and industrial income-generating properties in western Canada. Its portfolio is currently made up of interests in 38 properties representing approximately 2.93 million square feet of gross leasable area located across Alberta and in Regina, Saskatchewan and Kelowna, British Columbia. For more information, please visit www.melcorREIT.ca.

Forward-Looking Statements
This press release contains “forward-looking information” as defined under applicable Canadian securities law (“forward-looking information” or “forward-looking statements”) which reflect management’s expectations regarding objectives, plans, goals, strategies, future growth, results of operations, performance, business prospects and opportunities of the REIT. Statements other than statements of historical fact contained in this press release may be forward-looking information. Some of the specific forward-looking statements in this press release include, but are not limited to, statements with respect to: the closing of the Offering and the Acquisition and the expected terms and closing dates thereof; the REIT’s features and terms of the Acquisition Property including in connection with tenancy and debt; intended use of proceeds of the Offering; the issuance of Class B LP Units to Melcor; expectations regarding accretion to the REIT’s AFFO and the impact of the Acquisition on the REIT’s business, operations and financial performance; and expectations, projections or other characterizations of future events or circumstances and the future economic performance of the REIT. The REIT has based these forward-looking statements on its current expectations and assumptions about future events, which may prove to be incorrect.

When relying on forward looking statements to make decisions, readers are cautioned not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results and do not take into account the effect of transactions or other items announced or occurring after the statements are made. All forward-looking information in this press release speaks as of the date of this press release. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements. The REIT does not undertake any obligation to update any such forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable law.

Forward-Looking Statements
AFFO is a non-IFRS measure. Refer to the Non-Standard Measures section in the Q2 Management’s Discussion & Analysis and the Non-IFRS Measures section in the forthcoming prospectus, both of which are available on SEDAR at www.sedar.com.

Contact Information:
Nicole Forsythe, Director, Corporate Communications | Tel: 780-945-4707 | ir@melcorREIT.ca