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Agellan Commercial Real Estate Investment Trust (the “REIT”) (TSX: ACR.UN) announced today that it has entered into an arrangement agreement (the “Arrangement Agreement”) pursuant to which Elad Genesis Limited Partnership (“El-Ad”), an affiliate of El-Ad Group, Ltd., has agreed to acquire all of the outstanding trust units of the REIT (each, a “Unit”) for C$14.25 in cash per Unit (the “Transaction”), other than Units already owned by El-Ad or its affiliates. The Transaction values the REIT at approximately C$680 million, including the REIT’s net debt.
“The special committee of independent trustees and our board of trustees have unanimously concluded that this transaction is in the best interests of the REIT and its unitholders. We are pleased that this transaction provides significant value and liquidity to unitholders,” said Mr. Glen Ladouceur, Chair of the board of trustees of the REIT (the “Board”).
- The consideration of C$14.25 per Unit represents a premium of approximately 10% to the REIT’s 20-day volume-weighted average price on the TSX for the period ending November 13, 2018 and a total return of approximately 123% (approximately 15% on a compounded annual basis) for the period from the REIT’s initial public offering in January 2013 until November 13, 2018;
- The Transaction is the culmination of a comprehensive strategic review process that the REIT commenced following the sale of its Parkway Place property and which was announced by the REIT on September 13, 2018. As part of this strategic review process, the REIT and its advisors contacted approximately 100 potential financial and strategic purchasers and the consideration offered in the Transaction represents the highest offer received in the process;
- The Units are thinly traded on the TSX, which makes it very difficult for a large number of the REIT’s unitholders (“Unitholders”) to realize the current trading price for their Units. Under the Transaction, Unitholders are offered 100% cash consideration for all of their Units, providing Unitholders with certainty of value and liquidity at an attractive price;
- The Transaction reflects an attractive value for the REIT’s portfolio of properties and a premium to the REIT’s IFRS book value per Unit and to the current research consensus net asset value per Unit estimate;
- A special committee of the Board comprised of independent trustees (the “Special Committee”) unanimously recommended that the Board approve the Transaction and the Board is unanimously recommending that Unitholders vote in favour of the Transaction; and
- Certain affiliates of Sandpiper Group, which collectively hold approximately 4,304,396 Units, representing approximately 12.7% of the issued and outstanding Units, have entered into voting and support agreements with El-Ad to vote in favour of the Transaction. The trustees and officers of the REIT, who as of the date hereof collectively hold approximately 5.1% of the issued and outstanding Units, have also entered into voting and support agreements with El-Ad to vote in favour of the Transaction.
Special Committee and Board of Trustees Recommendation
El-Ad and its affiliates are the REIT’s largest Unitholder, owning 6,239,246 Units which represent approximately 18.4% of the issued and outstanding Units. Mr. Rafael Lazer, Chief Executive Officer of Elad Canada Inc., an affiliate of El-Ad, serves as a trustee of the REIT. Accordingly, the Transaction, if consummated, will constitute a “business combination” for purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”). The Special Committee is comprised of Glen Ladouceur, Renzo Barazzuol, Dayna Gibbs and Aida Tammer and was formed to, among other things, review and evaluate the terms of all proposals received as part of the REIT’s strategic review process, make recommendations to the Board in respect of such proposals, negotiate the terms of any transaction, and supervise the preparation of a formal valuation of the fair market value of the Units in accordance with MI 61-101.
Desjardins Securities Inc. (“Desjardins”) was retained by the Special Committee as independent financial advisor and to prepare, under the Special Committee’s supervision, a formal valuation in accordance with the requirements of MI 61-101. RBC Dominion Securities Inc. (“RBC Capital Markets”) and Wells Fargo Securities, LLC (“Wells Fargo Securities”) were retained by the Board as financial advisors to the REIT.
Desjardins has provided its conclusion that, as of November 13, 2018, the fair market value of the Units was between C$14.25 and C$16.25. Desjardins has also provided a fairness opinion to the Special Committee and each of RBC Capital Markets and Wells Fargo Securities has provided a fairness opinion to the Board, stating that, in its opinion, subject to the assumptions, limitations and qualifications contained therein, as of the date of the opinion the consideration to be received by Unitholders (other than El-Ad and its affiliates) pursuant to the Arrangement Agreement is fair, from a financial point of view, to such Unitholders.
After consideration of, among other things, the conclusions of Desjardins as to the fair market value of the Units, Desjardins’ fairness opinion, the advice of its legal advisors and the terms and conditions set forth in the Arrangement Agreement, the Special Committee unanimously recommended that the Board approve the Transaction and recommend to Unitholders that they vote in favour of the Transaction.
The Board, after receiving financial and legal advice and following receipt of the fairness opinions of RBC Capital Markets and Wells Fargo Securities and the unanimous recommendation of the Special Committee, unanimously approved the Transaction and recommended that Unitholders vote in favour of the Transaction. Mr. Lazer recused himself from consideration of and voting on the Transaction.
Copies of the fairness opinions of Desjardins, RBC Capital Markets and Wells Fargo Securities and a copy of a formal valuation of the fair market value of the Units in accordance with MI 61-101 to be prepared by Desjardins, and other relevant background information, will be included in the management information circular (the “Circular”) of the REIT to be prepared in connection with a special meeting of Unitholders expected to be held in January 2019 to consider and vote on the Transaction. The REIT will send the Circular and certain related documents to Unitholders and copies will be filed under the REIT’s profile on SEDAR at www.sedar.com.
The Transaction is structured as a statutory plan of arrangement under the Business Corporations Act (Ontario) and the Trustee Act (Ontario). The Transaction requires approval of at least 66 2/3% of the votes cast by Unitholders, as well as the approval by a simple majority of votes cast by disinterested Unitholders, excluding El-Ad and its affiliates and any other Unitholders required to be excluded under MI 61-101. The Transaction is also subject to approval of the Ontario Superior Court of Justice and the satisfaction of other customary closing conditions.
The Arrangement Agreement provides for, among other things, customary representations, warranties and covenants, including customary non-solicitation covenants from the REIT and a “fiduciary out” that allows the Board to accept a superior proposal in certain circumstances, subject to a “right to match” in favour of El-Ad and payment by the REIT of a C$16 million termination fee to El-Ad.
The Transaction is expected to be completed in February 2019.
The foregoing summary is qualified in its entirety by the provisions of the Arrangement Agreement, a copy of which will be filed under the REIT’s profile on SEDAR at www.sedar.com.
The REIT now anticipates that the special distribution to be paid to Unitholders in connection with the sale of the Parkway Place property by the REIT will be comprised entirely of newly issued Units. As provided in the REIT’s amended and restated declaration of trust, immediately following this special distribution of Units, the REIT will consolidate the number of outstanding Units so that each Unitholder will hold exactly the same number of Units after the consolidation as was held immediately prior to such special distribution, except in the case of a Unitholder not resident in Canada for Canadian federal income tax purposes in which case such Unitholder will hold a lesser number of Units. The special distribution is expected to be declared on or prior to December 31, 2018.
The REIT will continue to pay its normal monthly distributions in the ordinary course, consistent with past practice, through closing of the Transaction. However, effective following the payment on November 15, 2018 of its previously-announced distribution of $0.0675 per Unit to Unitholders of record as at October 31, 2018, the REIT will, pursuant to the Arrangement Agreement, suspend its distribution reinvestment plan (the “DRIP”).
RBC Capital Markets and Wells Fargo Securities (together with its affiliate, Eastdil Securities, LLC) are serving as financial advisors and Torys LLP is serving as legal counsel to the REIT.
Desjardins is serving as independent financial advisor to the Special Committee and formal valuator and Blake, Cassels & Graydon LLP is serving as legal counsel to the Special Committee.
Stikeman Elliott LLP and Kirkland & Ellis LLP are serving as legal counsel to El-Ad.
About Agellan Commercial Real Estate Investment Trust
The REIT is an unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. The REIT has been created for the purpose of acquiring and owning industrial, office and retail properties in select target markets in the United States and Canada.
The REIT’s 46 properties contain 8.3 million square feet of gross leasable area, with the REIT’s ownership interest at 7.0 million square feet. The properties are primarily located in major urban markets in the United States.
This press release contains forward-looking information within the meaning of applicable securities legislation, which reflects the REIT’s current expectations regarding future events. Forward-looking information includes, but is not limited to: statements concerning the proposed Transaction referred to in this press release, including necessary court, regulatory and unitholder approvals and other conditions required to complete the Transaction; the timing for the meeting of Unitholders at which the Transaction will be considered and the anticipated timing for completion of the Transaction; the suspension of the DRIP and any other statements regarding the REIT’s expectations, intentions, plans and beliefs.
Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the REIT’s control that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. These include, but are not limited to, the failure to obtain necessary approvals or satisfy the conditions to closing the Arrangement Agreement; the occurrence of any event, change or other circumstance that could give rise to the termination of the Arrangement Agreement; material adverse changes in the business or affairs of the REIT; either party’s failure to consummate the Transaction when required; competitive factors in the industries in which the REIT operates; interest rates; prevailing economic conditions; and other factors, many of which are beyond the control of the REIT. Additional factors and risks which may affect the REIT or its business are described in the REIT’s annual information form and the REIT’s management’s and discussion and analysis for the year ended December 31, 2017 and in the other reports filed under the REIT’s profile on www.sedar.com.
The forward-looking information contained in this press release are made as of the date of this press release and, except as expressly required by applicable law, the REIT assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
For more information, please contact:
Glen Ladouceur, Trustee, Chairman
Agellan Commercial Real Estate Investment Trust
Tel: (416) 593-6800
Fax: (416) 593-6700