FREDERICTON,
March 25, 2013 /CNW/ - Plazacorp
Retail Properties Ltd. (TSXV: PLZ) ("Plazacorp") announced
today that it has entered into a definitive agreement with KEYreit
(TSX: KRE.UN) ("KEYreit") to acquire 100% of the issued and
outstanding trust units (the "Units") of KEYreit.
KEYreit unitholders will have the option to tender their Units for
either $8.00 per Unit in cash,
subject to a maximum aggregate cash amount of approximately
$59.5 million, representing
approximately 50% of the consideration, 1.6326 Plazacorp shares or
any combination thereof, subject to proration (the "Offer").
A tax-free rollover may be available for KEYreit unitholders
receiving Plazacorp shares. The Offer is valued at approximately
$119 million. The Offer
represents a premium of 29% to the closing price of the KEYreit
units on the Toronto Stock Exchange ("TSX") on January 28, 2013, the last trading day before
Huntingdon Capital Corp. ("Huntingdon") announced its intention to
make an unsolicited partial offer for KEYreit units, and a
significantly more attractive offer than Huntingdon's unsolicited amended offer of
$7.50 per unit.
The acquisition is being made pursuant to the
terms of a support agreement (the "Agreement") entered into
between Plazacorp and KEYreit. The Board of Trustees (the
"Trustees") of KEYreit, acting on the unanimous
recommendation of its Special Committee comprised solely of
independent directors, has unanimously approved the Offer and
unanimously recommends that KEYreit unitholders tender to the bid.
As part of the Agreement, all Trustees of KEYreit intend to tender
all of their Units to the Offer.
Full details of the Offer will be included in a
take-over bid circular which is expected to be mailed to
unitholders of KEYreit by early-to-mid April
2013. Once mailed, the Offer will be open for acceptance for
a period of 35 days unless withdrawn or extended and will be
conditional upon, among other things, Plazacorp acquiring such
number of Units that represent at least 66-2/3% of the outstanding
Units calculated on a fully-diluted basis, receipt of customary
regulatory consents and approvals. In accordance with the
order of the Ontario Securities Commission dated March 14, 2013, the unitholder rights plan of the
REIT will be permanently cease traded two business days following
the public announcement of the Offer.The Agreement entered into by
KEYreit and Plazacorp contains, among other things, a termination
fee of $5.0 million payable by
KEYreit in certain circumstances, including the acceptance of an
unsolicited superior proposal from a third party. Plazacorp has
also been granted a right to match in respect of competing
proposals.
John Bitove, CEO
of KEYreit and who beneficially owns or controls approximately
16.5% of the issued and outstanding Units, has entered into a lock
up agreement to tender all of his Units to the Offer. Mr.
Bitove, as owner of JBM Properties Inc. ("JBM") (the
external asset and property manager of KEYreit), has also agreed to
terminate the asset and property management agreements between
KEYreit and JBM upon closing of the transaction for a termination
fee, which will be funded 50% in cash and 50% in Plazacorp shares,
cash, or any combination thereof, at the discretion of
Plazacorp.
"This acquisition represents a significant
growth opportunity for Plazacorp", commented Earl Brewer, Chairman of the Board of
Plazacorp. "Plazacorp and KEYreit have a common largest
tenant in Shoppers Drug Mart and we have both specialized in
smaller footprint retail properties, primarily in eastern and
central Canada, so this is a great
fit for us."
Michael Zakuta,
Plazacorp's President and CEO added, "Most importantly, the
acquisition of KEYreit is expected to be immediately accretive to
Plazacorp's AFFO per share, while keeping us near our target
debt-to-gross-book-value ratio. Plazacorp has been
under-levered for quite some time in anticipation of an opportunity
to make a meaningful acquisition. At Plazacorp, we do all of
our own leasing and development, so we are looking forward to
managing the former KEYreit properties and surfacing, over time,
the many development and intensification opportunities that
exist. With our hands-on management approach and our access
to a lower cost of capital, we believe that KEYreit's unitholders,
who elect to take Plazacorp shares as part of this transaction,
will be very pleased with our ability to enhance the value of this
portfolio while they are benefitting from ownership of a more
diversified, internally managed real estate investment."
Plazacorp will fund the acquisition with a
secured term credit facility from RBC Capital Markets that will be
in-place on close of the acquisition, and the issuance of shares
for up to 50% of the consideration. Plazacorp does not intend to
issue shares to the public to fund this acquisition.
Plazacorp believes the Offer will bring a number
of benefits to its shareholders and to KEYreit unitholders who
elect to receive Plazacorp shares under the Offer, including:
(i) Immediate
Accretion: The acquisition is estimated to immediately deliver
high single digit accretion to Plazacorp's 2013E Adjusted Funds
From Operations ("AFFO") per share. Such accretion
assumes completion of the acquisition, the secured term credit
facility financing, and anticipated synergies as a result of
Plazacorp's internalized management team. Plazacorp's
debt-to-gross-book-value ratio is estimated to be between
approximately 57% to 58% post transaction (including KEYreit's
convertible debentures, but excluding Plazacorp's well-in-the-money
convertible debentures), which is close to its target debt-to-gross
book value ratio of 55%. Modest de-levering may occur after
the transaction as a result of a small number of property sales.
Given the higher coupon rates on many of KEYreit's mortgages and
its convertible debentures, it is expected that many favourable
refinancing opportunities will exist over time.
(ii) Compatible
Properties: KEYreit's properties are compatible with
Plazacorp's portfolio. Plazacorp is acquiring 228 properties
(the "Properties"), comprising approximately 1.2 million
square feet of gross leasable area (or "GLA") in nine
provinces. Many of KEYreit's leases are "quadruple net" and
the portfolio has an attractive weighted average lease term of
approximately 8 years, which is approximately equal to that of
Plazacorp. Post closing, Plazacorp will own approximately 346
retail properties totaling approximately 6.4 million square
feet. Shoppers Drug Mart will remain as Plazacorp's largest
tenant on a pro forma basis, representing approximately 26% of
Plazacorp's combined minimum rent. Both KEYreit's and
Plazacorp's portfolios are approximately 96% to 97% leased.
(iii) Enhanced
Geographic Diversification: The integration of the Properties
will enhance the pro forma geographic diversification of
Plazacorp. Plazacorp's properties in Atlantic Canada will change from approximately
71% to 60% of GLA and its Ontario
properties will change from approximately 5% to 12% of GLA.
(iv) Improved
Profile for KEYreit Unitholders: KEYreit unitholders, who elect
to receive Plazacorp shares, are expected to benefit from: a pro
forma market capitalization that is approximately 3.3x that of
KEYreit, a pro forma asset base that is approximately 3x greater
than that of KEYreit, greater tenant and geographic
diversification, a sustainable AFFO payout ratio, a lower debt
level, internal management, and access to lower cost debt and
equity to fuel growth. KEYreit unitholders who receive Plazacorp
shares will be investing in a public company that has raised its
dividends at least once every year for the past 10 years with an
average annual growth rate of over 10%. Since the time of KEYreit's
IPO in 2005, Plazacorp has provided approximately 123% appreciation
in its share price and a total return of approximately 223%.
Plazacorp intends to convert to a REIT later in 2013 once it
receives a favourable advance tax ruling to allow it to do so.
DESCRIPTION OF THE PROPERTIES
The following table provides a summary
description of the KEYreit properties. Under the Agreement, upon
the closing of the acquisition, Plazacorp will acquire 228
properties comprising approximately 1.2 million square feet of
gross leasable area in nine provinces.
|
|
GLA |
Province / City |
# of
Properties |
Total
SF (000's) |
% of
Total |
Calgary |
8 |
27 |
2.1% |
Subtotal Alberta |
16 |
114 |
9.2% |
|
|
|
|
Vancouver |
3 |
4 |
0.3% |
Subtotal B.C. |
6 |
10 |
0.8% |
|
|
|
|
Subtotal Saskatchewan |
1 |
5 |
0.4% |
|
|
|
|
Winnipeg |
6 |
30 |
2.4% |
Subtotal Manitoba |
9 |
38 |
3.0% |
|
|
|
|
Greater Toronto Area |
23 |
87 |
7.0% |
Ottawa |
11 |
131 |
10.5% |
Subtotal Ontario |
93 |
485 |
39.0% |
|
|
|
|
Greater Montreal Area |
41 |
282 |
22.7% |
Subtotal Quebec |
76 |
432 |
34.7% |
|
|
|
|
Subtotal New Brunswick |
9 |
17 |
1.3% |
|
|
|
|
Subtotal Nova Scotia |
16 |
76 |
6.1% |
|
|
|
|
Subtotal Prince Edward Island |
2 |
68 |
5.4% |
|
|
|
|
TOTAL KEYREIT PORTFOLIO1 |
228 |
1,244 |
100.0% |
|
|
|
|
- Represents KEYreit's portfolio as at December 31, 2012,
adjusted to reflect: i) The sale of one property, located in Quebec
City, Quebec representing 1,152 square feet of GLA, and; ii) The
announced acquisition of two Alberta properties totaling 50,494
square feet of GLA (as press released by KEYreit on March 18,
2013)
|
ADVISORS
RBC Capital Markets is acting as exclusive
financial advisor to Plazacorp and has committed to provide the
secured term credit facility to Plazacorp. Davies Ward
Phillips & Vineberg LLP is acting as legal advisor to
Plazacorp.
NON-IFRS or non-gaap MEASURES
Adjusted Funds From Operations (AFFO) is an
industry measure widely used to help evaluate dividend or
distribution capacity. AFFO as calculated by Plazacorp may
not be comparable to similar titled measures reported by other
entities. AFFO primarily adjusts FFO for non-cash revenues
and expenses and operating capital and leasing requirements that
must be made merely to preserve the existing rental stream.
Most of these maintenance capital expenditures would normally be
considered investing activities in the statement of cash
flows. Capital expenditures which generate a new investment
or revenue stream, such as the development of a new property or the
construction of a new retail pad during property expansion or
intensification would not be considered as maintenance capital
expenditures and would not be included in determining AFFO.
ABOUT PLAZACORP
Plazacorp is a mutual fund corporation and is
one of Atlantic Canada's leading
retail property owners and developers. Plazacorp's current
portfolio includes interests in 118 properties totaling 5.2 million
square feet and additional lands held for development.
Plazacorp's properties include a mix of strip plazas, stand-alone
small box retail outlets and enclosed shopping centres anchored by
approximately 90% national tenants including Shoppers Drug Mart,
Dollarama, Staples, Mark's Work Warehouse, Sobeys, and
others. Our top ten tenants contribute just over 53% of total
rent. Plazacorp is fully internalized, therefore providing
shareholders directly with the synergies that come with an
internalized management structure. Plazacorp has proven its
strong "value-add" capabilities to develop, redevelop and acquire
retail real estate throughout Atlantic
Canada, Quebec and
Ontario. Plazacorp has a
strong track record of generating growth in distributions, having
increased its distributions at least once every year in the last 10
years. As a result of its capabilities, its performance and
its ability to increase dividends, Plazacorp's share price has also
increased significantly since inception.
More information about Plazacorp can be found on
our website at: www.plaza.ca or at www.sedar.com.
CAUTIONARY STATEMENTS REGARDING FORWARD
LOOKING INFORMATION
This news release contains forward looking
statements relating to our operations and the environment in which
we operate, which are based on our expectations, estimates,
forecasts and projections. These statements are not future
guarantees of future performance and involve risks and
uncertainties that are difficult to control or predict. Therefore,
actual outcomes and results may differ materially from those
expressed in these forward looking statements. Readers, therefore,
should not place undue reliance on any such forward looking
statements. Further, a forward looking statement speaks only as of
the date on which such statement is made. We undertake no
obligation to publicly update any such statement, to reflect new
information or the occurrence of future events or circumstances,
except for forward-looking information disclosed in prior
disclosures which, in light of intervening events, requires further
explanation to avoid being misleading.
Neither the TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in policies
of the TSX Venture Exchange) accepts responsibility for the
adequacy or accuracy of this release.
SOURCE PLAZACORP RETAIL PROPERTIES LTD.