/NOT FOR DISTRIBUTION TO UNITED
STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES./
WINNIPEG, MB, Feb. 16, 2021 /CNW/ - Marwest Apartment Real
Estate Investment Trust ("Marwest Apartment REIT" or the
"REIT") (TSXV: MAR.P), a capital pool company (as defined
under Policy 2.4 – Capital Pool Companies (the "CPC
Policy") of the TSX Venture Exchange (the "TSXV")), is
pleased to announce that it has entered into an agreement dated
February 15, 2021 (the "Qualifying
Transaction Agreement") relating to a proposed qualifying
transaction (the "Qualifying Transaction") under the CPC
Policy involving, among other things, the acquisition of two
limited partnerships (the "Target LPs") owning an aggregate
of two multi-family residential properties comprising a total of
251 suites in Winnipeg, Manitoba
(the "Target Properties").
Target LPs and Target Properties
The first Target LP is Marwest Apartments I L.P. ("Kenwood
LP"), a Manitoba limited
partnership which owns "Kenwood Court", a property consisting of
two (2) three-storey buildings comprising 103 units located at
333-337 Warde Avenue in Winnipeg,
Manitoba (the "Kenwood Property"). Constructed
in 2006, the Kenwood Property has a suite mix of 101 two-bedroom
suites and two (2) three-bedroom suites.
The second Target LP is Marwest Apartments VII L.P. ("Brio
LP"), a Manitoba limited
partnership which owns two complexes comprising a total of 148
units located at 160 Eaglewood Drive ("Brio I") and 140
Eaglewood Drive ("Brio II") in Winnipeg, Manitoba (the "Brio
Property"). Constructed in 2018, Brio I consists of five
(5) two-storey buildings comprising of 74 units located at 160
Eaglewood Drive in Winnipeg. Constructed in 2019, Brio II
consists of five (5) two-storey buildings comprising 74 units
located at 140 Eaglewood Drive in Winnipeg, Manitoba. The suite mix of the
Brio Property is comprised of 40 one-bedroom suites, 58 two-bedroom
suites, 44 three-bedroom suites and six (6) four-bedroom
suites.
The only material assets and liabilities of Kenwood LP relate to
the Kenwood Property. As of March 31,
2021, the sole mortgage loan secured against the Kenwood
Property will have a remaining principal amount of $12,057,853. It is on a 10-year term
expiring on May 1, 2030, bearing
interest at a fixed annual rate of 1.71%, and is amortized over a
25-year period.
The only material assets and liabilities of Brio LP relate the
Brio Property. There are two first charge mortgage loans, one
secured against Brio I and the other secured against Brio II. As of
March 31, 2021 the mortgage loan
secured against Brio I will have a remaining principal amount of
$12,949,717. It is on a 5-year
term expiring on October 1, 2023,
bearing interest at a fixed annual rate of 4.014%, and is amortized
over a 30-year period. As of March 31,
2021 the mortgage loan secured against Brio II will have a
remaining principal amount of $17,170,695. It is on a 10.5-year term
expiring on June 1, 2030, bearing
interest at a fixed annual rate of 2.62%, and is amortized over a
40-year period.
Target LP Historical Financial Information
Separate audited annual financial statements of the Target LPs
for the fiscal years ended December 31,
2020 and December 31, 2019 are
in the process of being prepared and will be included by the REIT
in the management information circular to be prepared in connection
with a special meeting of unitholders to be called for the purpose
of approving the Qualifying Transaction.
Qualifying Transaction
Subject to various conditions of closing, the REIT, through a
subsidiary limited partnership (the "Partnership") has
agreed or proposes to acquire:
(a)
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all of the issued and
outstanding limited partnership units ("Kenwood LP Units")
of Kenwood LP from the holders thereof (each, a "Kenwood LP
Unitholder" and, collectively, the "Kenwood LP
Unitholders"), for an aggregate purchase price of $8,192,147
(the "Aggregate Kenwood LP Purchase
Price"). The Aggregate Kenwood LP Purchase Price
reflects the value attributed to the Kenwood Property by the
Kenwood LP Unitholders who are parties to the Qualifying
Transaction Agreement in the amount of $20,700,000.00, less
the existing mortgage indebtedness on the Kenwood Property as at
March 31, 2021 in the amount of $12,507,853; and
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(b)
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all of the issued and
outstanding limited partnership units ("Brio LP Units") of
Brio LP from the holders thereof (each, a "Brio LP
Unitholder" and, collectively, the "Brio LP
Unitholders") for an aggregate purchase price of $3,379,588
(the "Aggregate Brio LP Purchase Price"), which
reflects the value attributed to the Brio Property by the Brio LP
Unitholders who are parties to the Qualifying Transaction Agreement
in the amount of $33,500,000.00, less the existing aggregate
mortgage indebtedness in respect of the Brio Property as at March
31, 2021 in the amount of $30,120,412.
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The Aggregate Kenwood LP Purchase Price and the Aggregate Brio
LP Purchase Price (collectively, the "Aggregate Purchase
Price") will be satisfied entirely through the issuance of
Class B limited partnership units ("Exchangeable LP Units")
of the Partnership at a deemed value of $1.00 per Exchangeable LP Unit or, in the case of
holders of Kenwood LP Units or Brio LP Units who are individuals
and do not transfer their Kenwood LP Units or Brio LP Units to a
taxable Canadian corporation prior to closing, in trust units of
the REIT ("Trust Units") at a deemed value of
$1.00 per Trust Unit. An
aggregate of 11,571,736 Exchangeable LP Units and/or Trust Units
will be issued in satisfaction of the Aggregate Purchase Price.
Each Exchangeable LP Unit will entitle the holder thereof to
exchange it at any time for one Trust Unit and will be accompanied
by a special voting unit (a "Special Voting Unit") of the
REIT entitling the holder thereof to receive notice of, attend and
vote at meetings of holders of Trust Units (and Special Voting
Units). Each Kenwood LP Unitholder and each Brio LP
Unitholder receiving Exchangeable LP Units will be entitled to
elect to "roll in" their Kenwood LP Units or Brio LP Units to the
Partnership on a tax-deferred basis by way of a joint election with
the Partnership under the Income Tax Act (Canada).
The Partnership will also acquire all of the shares of the
general partners of the Target LPs.
Non-Arm's Length Qualifying Transaction
The Qualifying Transaction is a "related party transaction"
within the meaning of TSXV Policy 5.9 ("TSXV Policy 5.9")
and a Non-Arm's Length Qualifying Transaction within the meaning of
the CPC Policy and closing is subject to receipt of unitholder
approval, including on a "majority of the minority" basis, at a
special meeting of unitholders.
Marwest Asset Management Inc. ("Marwest") a company
controlled by Mr. William C.
Martens, Chief Executive Officer and a trustee, and Mr.
Armin W. Martens, Executive
Vice-President, Cornelius W. V.
Martens and Karl Martens and
owned equally by their respective families (collectively, the
"Marwest Management Group"), and the REIT will enter into an
asset management and property management agreement (the
"Management Agreement") effective on the closing of the
Qualifying Transaction.
In addition to owning 100% of the shares of the general partner
of Kenwood LP and 50% of the shares of the general partner of Brio
LP, members of the Marwest Management Group and other members of
the Martens family (the "Marwest Group") own an aggregate of
125 Kenwood LP Units, representing 30.34% of the outstanding
Kenwood LP Units and an aggregate of 6,000 Brio LP Units,
representing 50% of the outstanding Brio LP Units, all of which
will be sold to the Partnership in consideration for Exchangeable
LP Units. As a result of the Qualifying Transaction:
(a)
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in the event of the
completion of a private placement of a minimum of 500,000 Trust
Units, without factoring in any purchases by the Marwest Group
thereunder, the Marwest Group will control and/or beneficially own
approximately 4,915,273 Trust Units and Exchangeable LP Units
representing approximately 35.43% of the issued and outstanding
Trust Units on a fully diluted basis (assuming the exchange of all
Exchangeable LP Units); and
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(b)
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in the event of the
completion of a private placement of a maximum of 1,000,000 Trust
Units, without factoring in any purchases by the Marwest Group
thereunder, the Marwest Group will control and/or beneficially own
approximately 4,915,273 Trust Units and Exchangeable LP Units,
representing approximately 34.20% of the issued and
outstanding Trust Units on a fully diluted basis (assuming the
exchange of all Exchangeable LP Units).
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Independent Trustee Review and Approval Process
Mr. Luke Cain and Ms.
Kim Riley, the independent trustees
of the REIT as at the date of the Qualifying Transaction Agreement,
negotiated and approved the terms of the Qualifying Transaction
Agreement and the key terms of the agreements to purchase the
Kenwood LP Units and Brio LP Units and the Management
Agreement.
Independent Appraisals of Target Properties
Although the REIT was not required to obtain a formal valuation
(within the meaning of TSXV Policy 5.9) of the Kenwood LP Units or
the Brio LP Units, the REIT obtained an independent appraisal for
each of the Kenwood Property and the Brio Property which support
the consideration to be paid for Kenwood LP and Brio LP. The
independent appraisals are subject to customary assumptions,
qualifications and limitations and will be summarized in the
management information circular to be prepared in connection with
the annual and special meeting of unitholders to be called for the
purpose of approving the Qualifying Transaction.
Management Agreement
Pursuant to the Management Agreement, Marwest will be appointed
to provide asset management services and property management
services to the REIT for an initial term of 10 years, with five
year successive renewals thereafter, subject to earlier termination
in accordance with its terms.
Pursuant to the Management Agreement, Marwest will be entitled
to appoint the executive officers of the REIT from time to time.
The Management Agreement will also provide Marwest with the right
to nominate the Chief Executive Officer to the board of trustees of
the REIT and one (1) additional trustee where Marwest and its
ownership group own 10% or more of the outstanding voting
securities of the REIT and the board of trustees is comprised of
five (5) members or more.
The Management Agreement entitles Marwest to receive, in its
capacity as asset manager: (i) commencing when the REIT completes
its first acquisition following the completion of the Qualifying
Transaction, an annual base asset management fee equal to 0.25% of
the Gross Book Value (as defined in the REIT's declaration of
trust), payable monthly; (ii) commencing with the REIT's first
acquisition following the completion of the Qualifying Transaction,
an acquisition fee in respect of property acquisitions based on a
sliding scale of between 1.0% of the purchase price and 0.5% of the
purchase price; (iii) commencing for the fiscal year ended
December 31, 2023, an incentive fee
equal to 15% of the year-over-year increase in adjusted funds from
operations (AFFO) per unit from the AFFO per unit as at the end of
the prior year, multiplied by the number of outstanding units
(subject to an annual cap in a fiscal year equal to 100% of the
base asset management fee payable in the applicable fiscal year);
and (iv) a construction management fee equal to 5.0% of hard
construction costs up to $1 million
and 4.0% of hard constructions costs above $1 million. The construction management fee is
subject to a tender process and periodic review by the independent
trustees of the REIT. The Management Agreement also entitles
Marwest to receive a fee equal to 4.0% of gross revenues as a
property management fee.
The Management Agreement may be terminated by the REIT in
respect of asset management and/or property management services in
certain circumstances, including: (i) at the end of the initial
term or each renewal term for cause and with the approval of a
majority of the independent trustees; or (ii) upon a decision by a
majority of the independent trustees to internalize services at any
time (including during a term) after the REIT reaches $750 million in market capitalization, provided
that the REIT enters into executive contracts with each of the
REIT's executive officers on market terms, and in either case upon
payment of a fee equal to the 12 months trailing fees paid in
respect of the terminated services.
Marwest may terminate the agreement upon a defined change of
control of the REIT and in such event shall be entitled to a
termination payment equal to three times the 12 months trailing
fees.
Subject to approval of the TSXV and unitholders, Marwest will
have the right to elect to receive up to 50% of any payment of its
annual base asset management fee and up to 50% of any payment of
any incentive fee in Trust Units, at a price equal to the
twenty-day volume-weighted average trading price of the Trust Units
on the payment date (the "20-Day VWAP"), provided that until
the market capitalization of the Trust Units reaches $20 million, the price shall be the greater of
the 20-Day VWAP and the price that Trust Units were issued at the
last public offering or private placement of Trust Units.
To secure an acquisition pipeline, the REIT may from time to
time provide real estate entities owned or controlled by Marwest or
other companies comprising the Marwest group of companies with
mezzanine loans in respect of development properties. The
terms and conditions of any mezzanine loan and the rights granted
to the REIT in connection with any such loan will be negotiated
between the independent trustees of the REIT and Marwest at the
time that a mezzanine loan is agreed to and will be subject to all
applicable regulatory and unitholder approvals.
Executive Officers of the REIT and of Marwest
Following the Qualifying Transaction, William C. Martens will continue as Chief
Executive Officer of the REIT, Armin W.
Martens will continue as Executive Vice-President of the
REIT and Jennifer Nazimek will
continue as Chief Financial Officer of the REIT. Mr.
Cornelius W. V. Martens, an
executive officer of Marwest, will provide assistance to the
executive officers of the REIT, including with respect to investor
relations.
The directors and executive officers of Marwest are William C. Martens (Director and Chief Executive
Officer), Armin W. Martens (Director
and Executive Vice-President), Jennifer
Nazimek (Chief Financial Officer), Cornelius W.V. Martens (Executive
Vice-President) and Karl Martens
(Executive Vice-President).
Trustees of the REIT
Following review and approval of the Qualifying Transaction by
the independent trustees, Ms. Kim
Riley tendered her resignation as a trustee effective
February 16, 2021 due to another
professional commitment and the trustees of the REIT approved and
appointed Mr. Jason Pellaers to fill
the vacancy on the board of trustees and to serve as the chair of
the REIT's audit committee.
Mr. Pellaers, age 45, is currently Vice-President, Finance at
NFI Group Inc. ("NFI"), a TSX-listed issuer (TSX: NFI) that
is a leading global bus manufacturer. In his role as
Vice-President, Finance, Mr. Pellaers is responsible for NFI
internal controls over financial reporting (ICFR) and NFI's
external financial reporting requirements. Mr. Pellaers works
directly with the NFI audit committee in reviewing financial
statements and related public disclosures. Mr. Pellaers has
played an integral role in NFI's mergers and acquisitions activity,
having led two recent acquisitions by NFI and participating as a
finance lead member on multiple other acquisitions. Prior to
assuming his current position in January
2017, Mr. Pellaers held other important positions at NFI,
including Director of Finance since August 2010. Mr. Pellaers
is a member of the Chartered Professional Accountants of
Canada and is a CPA (CA) and
received a Bachelor of Commerce (Honours) from the University of Manitoba in 1998.
Subject to TSXV approval, Mr. Pellaers will purchase Ms.
Riley's 20,000 seed Trust Units, which will continue to held in
escrow in accordance with the requirements of the CPC Policy.
Concurrent Private Placement
The REIT has engaged Canaccord Genuity Corp. (the
"Agent") to conduct, on a commercially reasonable "best
efforts" basis, a brokered private placement of a minimum of
500,000 Trust Units and up to a maximum of 1,000,000 Trust Units at
a price of $1.00 per Trust Unit for
gross proceeds of a minimum of $500,0000 and a maximum of $1,000,000 (the "Private Placement").
The net proceeds of the Private Placement will be used to
fund a portion of the expenses of the Qualifying Transaction and
for working capital and general purposes of the REIT.
The REIT has agreed to pay a fee to the Agent equal to seven
percent (7%) of the gross proceeds of sales of Trust Units pursuant
to the Private Placement.
The directors and officers of the REIT and/or of Marwest may
purchase Trust Units pursuant to the Private Placement.
Other Terms of the Qualifying Transaction
Subject to approval of the TSXV and unitholders, the REIT
proposes to adopt an Equity Incentive Plan on the closing of the
Qualifying Transaction which provides for the issuance of deferred
trust units (accompanied by Special Voting Units), restricted trust
units and unit options.
Conditions of Closing
The Qualifying Transaction is currently anticipated to close in
April 2021. The completion of the
Qualifying Transaction is subject to a number of closing conditions
including acceptance of the offer to purchase Kenwood LP Units by
third party Kenwood LP Unitholders, TSXV approval, unitholder
approval on a "majority of the minority" basis, lender consents,
satisfactory due diligence with respect to the Kenwood Property and
the Brio Property and no material adverse change occurring in the
Brio LP (or the Brio Property) or the Kenwood LP (or the Kenwood
Property), all of which must occur by June
30, 2021 or such later date as the parties may agree.
Cash Distribution Policy
The Board of Trustees will consider a cash distribution policy
in the future when income and liquidity allow for it. The REIT's
objective is to pay a stable and sustainable cash distribution to
unitholders which grows over time from a portfolio of quality
multi-family residential properties.
General
In connection with the closing of the Qualifying Transaction,
the REIT will apply to meet the initial listing requirements of the
TSXV for a real estate issuer. Following the Qualifying
Transaction, the REIT intends to continue focusing on the
acquisition of multi-family residential properties located in
western Canada, although the REIT
is not excluded from investing in properties located in other
jurisdictions of Canada or
the United States.
In light of the concurrent brokered private placement, the REIT
will be requesting a waiver of the sponsorship requirements of TSXV
Policy 2.2 - Sponsorship and Sponsorship Requirements but
there is no assurance that such waiver will be granted.
The REIT's head office will continue to be located at
5th Floor, 220 Portage Avenue in Winnipeg, Manitoba.
Forward-looking Statements
The information in this news release includes certain
information and statements about management's views of future
events, expectations, plans and prospects that constitute forward–
looking statements. These statements are based upon assumptions
that are subject to significant risks and uncertainties. Because of
these risks and uncertainties and as a result of a variety of
factors, the actual results, expectations, achievements or
performance may differ materially from those anticipated and
indicated by these forward–looking statements. Forward–looking
statements in this news release include, but are not limited to,
the potential completion of a qualifying transaction and related
transactions, including a private placement. Any number of
factors could cause actual results to differ materially from these
forward–looking statements as well as future results.
Although management of the REIT believes that the
expectations reflected in forward– looking statements are
reasonable, it can give no assurances that the expectations of any
forward– looking statements will prove to be correct. Except as
required by law, the REIT disclaims any intention and assumes no
obligation to update or revise any forward–looking statements to
reflect actual results, whether as a result of new information,
future events, changes in assumptions, changes in factors affecting
such forward–looking statements or otherwise.
Neither the TSXV nor its Regulation Services Provider (as
that term is defined in the policies of the TSXV) accepts
responsibility for the adequacy or accuracy of this news
release.
Completion of the qualifying transaction is subject to a
number of conditions, including but not limited to TSX Venture
Exchange approval, unitholder approvals (including on a "majority
of minority" basis) and third party agreements and consents.
The qualifying transaction cannot close until the required
unitholder approvals are obtained. There can be no assurance
that the qualifying transaction will be completed as proposed or at
all. Investors are cautioned that, except as disclosed in the
management information circular to be prepared in connection with
the qualifying transaction, any information released or received
with respect to the qualifying transaction may not be accurate or
complete and should not be relied upon. Trading in the securities
of a capital pool company should be considered highly speculative.
The TSX Venture Exchange Inc. has in no way passed upon the merits
of the proposed qualifying transaction and has neither approved nor
disapproved the contents of this press release. The offered Trust
Units will not be registered under the United States Securities Act
of 1933, as amended (the "U.S. Securities Act") and may not be
offered or sold within the United
States or to or for the account or benefit of U.S. persons,
except in certain transactions exempt from the registration
requirements of the U.S. Securities Act. This press release does
not constitute an offer to sell, or the solicitation of an offer to
buy, securities of the REIT in the United
States.
Information regarding Target LPs and Target
Properties
This press release sets forth certain information relating to
the Target LPs and the Target Properties. Such information was
provided by the general partners of the Target LPs. Neither
the REIT nor any other person makes any representation or warranty
regarding the accuracy of such information contained in this press
release and readers are cautioned not to place undue reliance on
such information.
SOURCE Marwest Apartment Real Estate Investment Trust