/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE
SERVICES OR FOR DISSEMINATION IN THE
UNITED STATES/
- Unitholders to benefit from opportunity to participate in a
larger fund with further upside potential
- Portfolio to be comprised of 15 properties across three UK
primary markets
TORONTO, June 19,
2024 /CNW/ - Padlock Partners UK Fund I
("Fund I"), Padlock Partners UK Fund II ("Fund II")
and Padlock Partners UK Fund III ("Fund III", and together
with Fund I and Fund II, the "Padlock Funds") today
announced the entering into of an agreement to consolidate the
assets of the Padlock Funds through an acquisition of Fund II and
Fund III by Fund I by way of a plan of arrangement (the
"Arrangement"). Following completion of the Arrangement, the
consolidated fund will be named Padlock Euro Storage Fund I (the
"Merged Fund").
"We are excited to announce entering into an agreement to
consolidate the Padlock Funds into one unified Padlock Euro Storage
Fund I. We expect the new fund scope and efficiencies to provide
even greater unitholder value, all while continuing to provide best
in class service to our customers, team members and communities",
says Padlock Funds CEO John
Stevenson."
Arrangement
Details
The arrangement agreement among each of the Padlock Funds and
Padlock Canadian Holdco 1, Padlock Canadian Holdco 2 Limited and
Padlock Canadian Holdco 3 Limited, (the "Arrangement
Agreement") includes customary business conduct covenants and
an expense reimbursement payable in specified termination
circumstances. Existing units of each of the Padlock Funds
("Existing Units") will be redesignated or exchanged, as
applicable, for the designated Merged Fund Units, with existing
Padlock Fund unitholders ("Unitholders") receiving an
equivalent number of Merged Fund Units commensurate with the number
of Existing Units held.
The "carried interest" represented by the Class B shares of the
UK holding company sitting beneath each Padlock Fund will not be
crystallized or paid out as part of the Arrangement and will
continue to accumulate based on the returns attributable to
investors of each of the Padlock Funds.
The Merged Fund will target a 10-12% pre-tax, pre-carried
interest, internal rate of return upon disposition either at or
before the targeted two-year investment horizon, subject to the
two, one-year extensions.
Benefits to the Merged Fund Unitholders
- Superior investment in a larger, more geographically
diversified fund with further upside potential – The Merged
Fund's portfolio (consisting of the combined properties of the
Padlock Funds) will be comprised of stabilized, recently
constructed in lease-up, and stabilized with additional expansion
opportunity properties located in attractive UK markets with
favourable demographic trends, supply demand ratios, strong
employment growth and increasing population, resulting in continued
store-level performance. The Merged Fund also intends to acquire
additional properties in attractive UK markets to provide further
geographical concentration, diversification and growth potential.
Furthermore, the Merged Fund declaration of trust will also provide
the ability for the Merged Fund to acquire additional self-storage
assets in Spain, up to a maximum
of 10% of the net asset value of the Merged Fund. Additional
property acquisitions of the Merged Fund would be in compliance
with the investment objectives of the Padlock Funds, as amended to
include the ability to access the Spanish market, and additional
liquidity expected to be provided by a new loan facility secured
upon completion of the Arrangement.
Upon completion of the Arrangement, the Merged Fund will have 15
properties comprising 615,392 square feet of maximum lettable area,
appraised at approximately GBP140
million as at December 31,
2023, and is expected to benefit from increased geographical
diversity across the London,
commuter markets to London, and
South East UK markets. The asset managers of the Padlock Funds (the
"Managers") believe that additional growth remains to be
realized in these markets and that further geographic property
diversification across the property portfolio mitigates the risk
and exposure to any one market.
- Potential to increase overall return by accessing improved
debt terms — Currently, there are four loans across the three
Padlock Funds. Each loan and its associated terms were secured and
priced pursuant to the then-current market conditions and status of
the applicable property at acquisition as either stabilized,
stabilized with expansion opportunity, conversion, and/or ground up
construction. The loans are nearing maturity and most of the
properties have achieved practical completion, thereby negating the
development risks priced into the current loan terms. The Managers
expect less favourable terms and greater expenses negotiating each
of the Padlock Funds' replacement loans separately, as compared to
negotiating a consolidated Merged Fund debt facility.
- Maintained distributions — The Managers expect the
unitholders of the Merged Fund ("Merged Fund Unitholders")
to continue earning an attractive cash distribution commensurate
with each Padlock Fund's established and ongoing distribution while
participating in the potential future growth in value of the Merged
Fund's real estate assets. The Merged Fund will target an annual
pre-tax distribution yield of 6.0% per unit of the Merged Fund
("Merged Fund Unit") based on its original Investment per
Merged Fund Unit (as set out in the table below).
- Potential for greater cost efficiencies — The Managers
believe that the proposed Arrangement to form the Merged Fund
presents a compelling opportunity to unlock cost efficiencies and
synergies, thereby optimizing the management of working capital and
enhancing overall performance. Duplicative costs such as legal,
accounting and auditing fees and costs associated with operating
the Padlock Funds as separate funds (including separate public
company costs) will be eliminated. By consolidating resources and
operations onto an enlarged platform, the Managers believe they can
streamline administrative processes, reduce overhead expenses, and
eliminate redundancies. This consolidation is also expected to
enable the Merged Fund to leverage economies of scale in
procurement, financing, and asset management, resulting in lower
transaction costs and enhanced profitability. Additionally, the
expanded scope of the Merged Fund's platform is expected to allow
for improved diversification across the Padlock Funds' current
assets and submarkets, mitigating risk and enhancing resilience to
market fluctuations.
- Tax deferral for existing unitholders — Unitholders
resident in Canada are expected to
be able to defer capital gains tax as Existing Units can be
exchanged for units of the Merged Fund without creating a taxable
event. Please consult the management information circular and
letter of transmittal for further information.
- Continued management by experienced executives with proven
track record of value creation — The Managers are subsidiaries
of Clear Sky, a privately owned real estate investment management
and development company with a history of value creation. The
Merged Fund will continue to benefit from the management team
provided by the Managers, at the same cost as currently provided to
each of the Padlock Funds.
Unitholder
Approvals
A special resolution of each Padlock Fund must be passed by at
least (i) 66 2/3% of the votes cast by Unitholders present in
person or represented by proxy at the applicable security holder
meeting voting as a single class, and (ii) subject to receipt of a
discretionary exemption from the Ontario Securities Commission
("OSC"), a majority of the votes attached to the Existing
Units voted by disinterested unitholders at each meeting pursuant
to Multilateral Instrument 61-101 — Protection of Minority
Security Holders in Special Transactions ("MI
61-101") voting as a single class, as further described
below. In the event that the exemptive relief referred to below is
not obtained from the OSC, each class of Existing Units of each
Padlock Fund will have a separate majority vote on a class-by-class
basis in accordance with the provisions of MI 61-101.
MI 61-101 requires approval of the Arrangement to be received
from a majority of the votes attached to the Existing Units voted
by disinterested unitholders voting separately on a class-by-class
basis at each of the Padlock Fund's meetings. However, each of the
Padlock Funds has applied to the OSC for exemptive relief on the
basis that, among other reasons (i) each Padlock Fund's governing
declaration of trust provides that unitholders vote as a single
class unless the nature of the business to be transacted at the
meeting affects holders of one class of units in a manner
materially different from its effect on holders of another class of
units, and each Padlock Fund, the Managers and the independent
trustees of each Padlock Fund have determined that the Arrangement
does not affect holders of one class of Existing Units in a manner
materially different from its effect on holders of another class of
Existing Units of that Padlock Fund; (ii) as the relative returns
(and, accordingly, the number of units of the Merged Fund to be
received on exchange of Existing Units of each class of each
Padlock Fund) are to be determined in accordance with the terms
established in the governing declaration of trust of each Padlock
Fund that were set at the time of each such issuer's initial public
offering when investors selected their preferred class and
purchased their Existing Units, the interests of the holders of
each class of Existing Units of each Padlock Fund are aligned in
respect of the Arrangement, and (iii) the Arrangement is subject to
a number of procedural mechanisms to ensure the collective
interests of the Unitholders were protected, including, but not
limited to, that (a) negotiation of the Arrangement has been
overseen by the independent trustees of each Padlock Fund, (b) both
the independent trustees of each Padlock Fund and the Boards (as
defined below) have received a fairness opinion, (c) each Padlock
Fund will hold its respective meeting to allow Unitholders to
consider and, if deemed advisable, approve the Arrangement, and (d)
the Padlock Funds will prepare and deliver to its Unitholders an
information circular which describes the Arrangement.
As of the date hereof and to the knowledge of each of the
Padlock Funds, pursuant to MI 61-101, no Existing Units are held by
Unitholders that would not be "disinterested unitholders" within
the meaning of MI 61-101.
In the event that any of the above approvals of unitholders from
each of the Padlock Funds is not obtained, the Arrangement
Agreement will be terminated and the Arrangement will not proceed.
Completion of the Arrangement is also subject to the approval by
the Court, and the satisfaction or waiver of the other conditions
specified in the Arrangement Agreement.
Subject to obtaining Court approval and the satisfaction or
waiver of all other conditions specified in the Arrangement
Agreement, if unitholder approvals from each of the Padlock Funds
are obtained at each respective meeting, it is anticipated that the
Arrangement will be completed in late-July
2024.
Board
Recommendation
In connection with the Arrangement, the independent members of
each board of trustees of each of the Padlock Funds (the
"Boards") were required to approve the transaction. In
connection with such approvals, each of the Boards retained Evans
& Evans as its independent financial advisor to provide advice.
Evans & Evans has provided an opinion to each of the Boards
stating that, and based upon and subject to the assumptions,
limitations and qualifications therein, the Arrangement is fair,
from a financial point of view, to the Unitholders of each of the
Padlock Funds. Based on the fairness opinions, the reasons set out
above and other considerations, the trustees of each of the Padlock
Funds have unanimously concluded (with Marcus Kurschat declaring his interest and
refraining from consideration and voting in the case of each of the
Padlock Funds) that the Arrangement is in the best interests of
each of its respective Padlock Funds (and unitholders of each of
the Padlock Funds) and, accordingly, have each unanimously approved
the Arrangement and related matters and each unanimously recommends
that Unitholders vote IN FAVOUR of the Arrangement and
related matters.
Transaction
Advisors
CIBC World Markets Inc. is acting as exclusive financial advisor
to the Padlock Funds in connection with the Arrangement. Evans
& Evans has provided a fairness opinion to the Boards in
connection with the Arrangement. Blake, Cassels & Graydon LLP
is counsel to the Padlock Funds and Wildeboer Dellelce LLP is
counsel to the independent trustees of each Padlock Fund.
Management Information Circular
and Meeting Date
Full details of the Arrangement, including detailed information
on the implications for holders of the different classes of
Existing Units in the Padlock Funds, as well as procedures to
submit proxies and other related materials relating to the Merged
Fund, can be found in the joint management information circular
that will be mailed to unitholders in early July. The management
information circular will also be viewable on each Padlock Fund's
profile at www.sedarplus.ca.
The Boards of the Padlock Funds have selected the close of
business (Toronto time) on
June 20, 2024 as the record date for
each special meeting. Accordingly, unitholders of the Padlock Funds
as at the close of business (Toronto time) on June
20, 2024 will be eligible to vote at the special meetings.
Proxy forms must be received by TSX Trust Company, at 100 Adelaide
Street West, Suite 301, Toronto,
Ontario M5H 4H1 200 University Avenue, Suite 300,
Toronto, Ontario M5H 4H1
Attention: Proxy Department or by fax to (416) 595-9593 or by
internet at www.voteproxyonline.com, prior to the deadline set out
in the management information circular. It is anticipated that the
special meeting of each Padlock Fund will take place on
July 24, 2024, and that the
Arrangement will be completed in late-July
2024.
About the Padlock
Funds
Each of the Padlock Funds is an unincorporated investment trusts
formed under the laws of the Province of Ontario and was established for the primary
purpose of investing in a diversified portfolio of income producing
commercial real estate properties in the United Kingdom with a focus on self-storage
and mixed-use properties. Currently, the Padlock Funds have
acquired self-storage properties in Bicester, Letchworth,
Leighton Buzzard, Wimbledon, Chippenham, Enfield, Huntingdon, Brentwood, Newmarket, Houghton Regis, Brighton, Watford, Woking, Southend and Seaford.
Forward-Looking
Statements
This news release includes certain statements which may
constitute forward-looking information within the meaning of
Canadian securities laws, including, but not limited to, statements
or information relating to the successful completion of the
Arrangement and timing thereof, the benefits of the Arrangement,
including the earning of stable returns, future cash distributions
and increases in property values, the target pre-tax internal rate
of return, the performance of the UK real-estate markets, the
ability of security holders to defer taxes, the meeting date for
each special meeting and receipt of the requested relief from the
OSC. Such forward-looking information, in some cases, can be
identified by terminology such as "may", "will", "would", "expect",
"plan", "anticipate", "believe", "intend", "target", "potential",
"continue", or the negative thereof or other similar expressions
concerning matters that are not historical facts.
By their nature, forward-looking statements and information
involve known and unknown risks, uncertainties and other factors
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
may not be achieved. A variety of factors, many of which are beyond
the control of the Padlock Funds, affect the operations,
performance and results of such issuer's and their respective
businesses, and could cause actual results to differ materially
from current expectations of estimated or anticipated events or
results. The reader is cautioned to consider these and other
factors, uncertainties and potential events carefully and not to
put undue reliance on forward-looking information as there can be
no assurance that actual results will be consistent with such
forward-looking information. These risks include, but are not
limited to, the risk of failure to satisfy the conditions to
completion of the Arrangement, the risk that the anticipated
benefits of the Arrangement may not be realized, including as
concerns regarding the performance of the UK self-storage
real-estate markets, the risk of not receiving the requested relief
from the OSC, the availability of mortgage financing for properties
or debt financing in general, and general economic and market
factors, including interest rates, business competition and changes
in government regulations or in tax laws. For more information on
risks relating to the Arrangement and risks relating to the Merged
Fund, read the management information circular that will be mailed
to unitholders and shareholders in early-July.
Information contained in forward-looking statements are based
upon certain material assumptions that were applied in drawing a
conclusion or making a forecast or projection, including the
perceptions of management of the Padlock Funds and the Merged Fund
of historical trends, current conditions and expected future
developments, as well as other considerations that are believed to
be appropriate in the circumstances, including the following: the
inventory of self-storage real estate properties; the availability
of properties for acquisition and the price at which such
properties may be acquired; the availability of mortgage financing
and current interest rates; the extent of competition for
properties; the population of self-storage real estate market
participants; assumptions about the markets in which the Merged
Fund will operate; the ability of the manager of the Merged Fund to
manage and operate the properties; the global, UK and European
economic environment; foreign currency exchange rates; and
governmental regulations and tax laws.
These forward looking statements are made as of the date of this
news release and, except as expressly required by law, the Padlock
Funds undertake 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.
Exchange Values
Existing
Padlock
Fund
|
Initial
Investment
per Unit
|
Value of
Unit at
Exchange
|
Merged
Fund Unit
|
Exchange
Ratio
|
Initial
Annual
Distribution
|
Pro Forma
Annual
Distribution
|
Padlock Partners UK
Fund I
|
Class A - C$
|
$10.00
|
$11.83
|
Series 1,
Class A - C$
|
1.0x
|
$0.60
|
$0.60
|
Class F - C$
|
$10.00
|
$12.21
|
Series 1,
Class F - C$
|
1.0x
|
$0.60
|
$0.60
|
Class U -
UK£
|
£10.00
|
£12.20
|
Series 1.
Class U -
UK£
|
1.0x
|
$0.60
|
$0.60
|
Padlock Partners UK
Fund II
|
Class A - C$
|
$10.00
|
$10.22
|
Series 2,
Class A - C$
|
1.0x
|
$0.60
|
$0.60
|
Class F - C$
|
$10.00
|
$10.55
|
Series 2,
Class F - C$
|
1.0x
|
$0.60
|
$0.60
|
Class U -
UK£
|
£10.00
|
£10.40
|
Series 2,
Class U -
UK£
|
1.0x
|
$0.60
|
$0.60
|
Padlock Partners UK
Fund III
|
Class A - C$
|
$10.00
|
$11.26
|
Series 3,
Class A - C$
|
1.0x
|
$0.60
|
$0.60
|
Class F - C$
|
$10.00
|
$11.62
|
Series 3,
Class F - C$
|
1.0x
|
$0.60
|
$0.60
|
Class U -
UK£
|
£10.00
|
$10.38
|
Series 3,
Class U -
UK£
|
1.0x
|
$0.60
|
$0.60
|
SOURCE Padlock Partners UK Fund I