REITS(canadian) - Choice Properties to acquire Canadian REIT at $53.61 a unit - REITS(canadian) - InvestorVillage
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Msg  4871 of 4878  at  2/15/2018 10:18:54 AM  by

carswell


Choice Properties to acquire Canadian REIT at $53.61 a unit

Choice Properties to acquire Canadian REIT at $53.61 a unit

2018-02-15 06:35 ET - News Release

Also News Release (C-REF) Canadian Real Estate Investment Trust

Mr. John Morrison of Choice reports

CHOICE PROPERTIES AND CANADIAN REAL ESTATE INVESTMENT TRUST COMBINE TO FORM CANADA'S LARGEST REIT IN A $6.0 BILLION TRANSACTION

Choice Properties Real Estate Investment Trust and Canadian Real Estate Investment Trust have signed an agreement pursuant to which Choice Properties will acquire all of Canadian REIT's assets and assume all of its liabilities, including long-term debt and all residual liabilities. Canadian REIT will then redeem all of its outstanding units for an aggregate of $22.50 in cash and 2.4904 Choice Properties units per Canadian REIT unit, on a fully prorated basis. Using the Choice Properties closing unit price on Feb. 14, 2018, of $12.49, this represents $53.61 per Canadian REIT unit, which is a 23.1-per-cent premium to the Canadian REIT closing unit price on Feb. 14, 2018.

John Morrison, president and chief executive officer of Choice Properties, commented: "We are excited to be creating Canada's leading diversified REIT. Choice Properties' expanded diversified real estate portfolio, anchored by Canada's largest retailer, will provide unitholders of both Choice Properties and CREIT the opportunity to capitalize on the future growth and value creation opportunities of this strategic transaction. Relying on the depth of tenant relationships of both organizations, the combined real estate will provide tenants with best-in-class real estate solutions across an extensive national portfolio."

Stephen Johnson, CEO of Canadian REIT, said: "This transformational combination creates immediate value for CREIT and provides tremendous opportunity for Choice Properties to capitalize on Canada's leading development pipeline and create long-term value. Together, the combined REIT is uniquely positioned to deliver results for unitholders as the owner, manager and developer of a high-quality portfolio of diversified assets."

Together, Choice Properties and Canadian REIT will form Canada's largest REIT with an enterprise value of approximately $16-billion. The resulting enterprise will have industry-leading operating and development capabilities as well as an unparalleled diversified portfolio comprising 752 properties with 69 million square feet of gross leasable area.

This combined entity will be Canada's preeminent diversified REIT. The retail portfolio (78 per cent of net operating income) is focused on necessity based retailers (85 per cent of the retail assets) and provides a solid foundation of stable and growing cash flows. The balance of the portfolio is diversified by high-quality industrial assets (14 per cent of NOI) and office assets (8 per cent of NOI) located in Canada's largest markets.

The consolidated development pipeline presents meaningful value creation opportunities. This expanded pipeline includes potential to capitalize on an established retail development and intensification program and to leverage joint venture partnerships to access attractive sites to fuel additional development. The combined REIT is in an enviable position with more than 60 sites prime for creating exciting residential-focused mixed-use communities, many of which are in close proximity to public transportation where people want to live, work, play and shop.

"This transformational acquisition leads to the creation of a real estate investment trust with resilient characteristics and adds value creation opportunities to Choice Properties' existing strong portfolio of retail assets," said Galen G. Weston, chairman and chief executive officer of Loblaw and GWL. "Loblaw and GWL continue to be fully committed to Choice Properties as a strong pillar of growth within the Weston group of companies. In the combined REIT, John Morrison will become the vice-chairman of the board of trustees and Stephen Johnson will be the president and CEO."

Key transaction terms

The total consideration will consist of approximately 58 per cent in Choice Properties units and 42 per cent in cash. Canadian REIT unitholders will have the ability to choose whether to receive $53.75 in cash or 4.2835 Choice Properties units for each Canadian REIT unit held, subject to proration. The maximum amount of cash to be paid by Choice Properties will be approximately $1.65-billion and approximately 183 million units will be issued, based on the fully diluted number of Canadian REIT units outstanding.

Generally, the transaction will provide a tax-deferred rollover for Canadian resident Canadian REIT unitholders who receive Choice Properties units in respect of their Canadian REIT units. Canadian REIT unitholders resident in Canada who receive cash generally will receive capital gains treatment on the redemption of their Canadian REIT units. The arrangement agreement provides that Canadian REIT is subject to non-solicitation provisions and provides that the board of trustees of Canadian REIT may, under certain circumstances, terminate the agreement in favour of an unsolicited superior proposal, subject to payment of a termination fee of $95-million to Choice Properties and subject to a right of Choice Properties to match the superior proposal in question.

Capital structure and transaction financing

The combined entity will continue to maintain a stable and prudent capital structure, prioritizing risk management, liquidity and financial flexibility. The pro forma entity is expected to have leverage in the range of 45 to 46 per cent debt to total assets, a debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio of approximately eight times and an $11.3-billion pool of unencumbered assets.

The transaction financing has been structured with the intent of maintaining Choice Properties' current BBB credit rating. Choice Properties will finance the cash portion of the transaction with committed credit facilities fully underwritten by TD Securities totalling $3.6-billion. These committed facilities consist of an $850-million bridge facility that Choice Properties intends to refinance through the issuance of senior unsecured debentures and a $1.25-billion term loan. The term loan is structured in tranches maturing in three, four and five years. Choice Properties will consider hedging the term loan to manage floating interest rate exposure. Choice Properties has also arranged a new $1.5-billion committed revolving credit facility, that will replace its and Canadian REIT's existing credit facilities ensuring that Choice Properties will have maximum flexibility to support continuing growth prospects including acquisitions and development.

To facilitate Choice Properties' financing for the transaction, Loblaw has agreed to convert all of its outstanding Class C LP units of Choice Properties LP with a face value of $925-million into Class B LP units of Choice Properties LP on closing. The Class C LP units are convertible by their terms into Class B LP units commencing in 2027 and the conversion of the Class C LP units on closing of the transaction will be effected in accordance with those terms. Each Class C LP unit will be valued at $10 and the Class B LP units issuable will be valued at the 20-day volume-weighted average price (VWAP) of Choice Properties units on the Toronto Stock Exchange at closing. Choice Properties plans to issue a maximum of approximately 70.9 million units upon the conversion and, if required, to pay any shortfall in value on closing in cash.

The TSX has granted Choice Properties an exemption from the minority unitholder approval requirement that would otherwise technically apply to the conversion given that the number of Class B LP units to be issued to Loblaw exceeds 10 per cent of the total number of outstanding units of Choice Properties (including Class B LP units/special voting units) on a stand-alone basis before giving effect to the transaction and the conversion of the Class C LP units is being accelerated to facilitate the financing of the transaction. As a condition of the exemption, Loblaw will undertake to not exercise its right to vote the special voting units of Choice Properties issued in connection with the Class B LP units, or to exchange or transfer the Class B LP units, until the date on which the Class C units would otherwise have become convertible in accordance with their terms.

Canadian REIT's outstanding unsecured debentures will become debentures of Choice Properties on closing, ranking equally with existing Choice Properties unsecured debentures, and will remain outstanding.

Following the transaction, Loblaw and GWL will own approximately 62 per cent and 4 per cent of the pro forma entity, respectively. The public unitholder base for Choice Properties will significantly increase, with approximately 35 per cent of the pro forma entity owned widely by the public. This will increase liquidity for the proforma Choice Properties units, which is expected to make them eligible for inclusion in relevant indices.

Canadian REIT unitholders, who will own approximately 27 per cent of the combined company, stand to benefit from substantial upside over the long term, driven by the combined entity's financial stability, diversity and growth prospects.

Choice Properties intends to maintain its current distribution of 74 cents per unit on an annual basis.

Board recommendations

Canadian REIT's board of trustees has unanimously (other than trustees who have abstained from voting or recused themselves) determined that the transaction is in the best interest of Canadian REIT and Canadian REIT unitholders and is unanimously recommending that Canadian REIT unitholders vote in favour of the transaction. Canadian REIT's board of trustees has received an opinion from its financial adviser, RBC Capital Markets, that as of the date thereof and subject to the assumptions, limitations and qualifications set forth therein, the consideration to be received by unitholders of Canadian REIT pursuant to the transaction is fair, from a financial point of view, to unitholders of Canadian REIT.

Choice Properties' board of trustees has unanimously determined that the transaction is in the best interests of Choice Properties. Choice Properties' board of trustees has received an opinion from its financial adviser, TD Securities Inc., that as of the date thereof, and subject to the assumptions, limitations and qualifications set forth therein, the consideration to be paid by Choice Properties to Canadian REIT unitholders pursuant to the transaction is fair, from a financial point of view, to Choice Properties.

The trustees and executive officers of Canadian REIT have agreed to vote their units in support of the transaction.

Leadership and organization

Upon closing, Mr. Morrison will step down as president and chief executive officer of Choice Properties and will serve as non-executive vice-chairman of the combined REIT, providing guidance to the combined organization. Assuming leadership roles at Choice Properties will be Mr. Johnson as president and chief executive officer, Rael Diamond as chief operating officer, and Mario Barrafato as chief financial officer.

Approvals and closing conditions

The transaction will be carried out by way of a court-approved plan of arrangement and will require the approval of at least 66-2/3rds per cent of the votes cast by the unitholders of Canadian REIT at a special meeting expected to take place in April, 2018.

Under applicable TSX rules, the transaction also requires the approval of Choice Properties' unitholders by majority vote, as the number of Choice Properties units to be issued in the transaction exceeds 25 per cent of the total number of outstanding Choice Properties units. Loblaw, Choice Properties' controlling unitholder, has entered into a voting agreement in support of the transaction. The TSX has advised Choice Properties that, as Loblaw holds an approximately 82-per-cent voting interest in Choice Properties, it will accept Loblaw's agreement to support the transaction as evidence of unitholder approval and not require Choice Properties to hold a unitholder meeting.

In addition to unitholder and court approvals, the transaction is subject to compliance with the Competition Act and certain other closing conditions customary in transactions of this nature. Choice Properties and Canadian REIT anticipate that the transaction will be completed in the second quarter of 2018.

Further information regarding the transaction will be included in the management proxy circular expected to be mailed to Canadian REIT unitholders in March, 2018. Choice Properties also intends to file an information statement containing further information regarding the transaction. Copies of the arrangement agreement, management proxy circular and information statement will be available on SEDAR.

Conference call

Choice Properties and Canadian REIT will host an investor conference call and webcast on Feb. 15, 2018, at 8 a.m. ET. Dial-in numbers are 647-427-7450 or 888-231-8191. Senior management of Choice Properties and Canadian REIT will be available to discuss the details of the transaction. A playback will be made available two hours after the event at 416-849-0833, access code: 4295779. To access the conference call via webcast, a link is available at the Choice Properties website in the events and webcast section under news and events. An investor presentation will be made available on the Choice Properties and Canadian REIT respective websites immediately prior to the call.

Advisers

TD Securities Inc. is acting as financial adviser to Choice Properties and RBC Capital Markets is acting as financial adviser to Canadian REIT. Torys LLP is acting as legal counsel to Choice Properties and Blake, Cassels & Graydon LLP is acting as legal counsel to Canadian REIT.

About Choice Properties Real Estate Investment Trust

Choice Properties is an owner, manager and developer of well-located retail and commercial real estate across Canada. Choice Properties' portfolio spans approximately 44.1 million square feet of GLA and consists of 546 properties primarily focused on supermarket and drug store anchored shopping centres and stand-alone supermarkets and drug stores.

About Canadian Real Estate Investment Trust

Canadian REIT is a real estate investment trust focused on accumulating and aggressively managing a portfolio of high-quality real estate assets and delivering the benefits of real estate ownership to unitholders. The primary benefit is a reliable and, over time, increasing monthly cash distribution.

We seek Safe Harbor.



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