Automotive Properties REIT Announces Agreement to Acquire Two Dealership Properties from the Dilawri Group, $80 Million Equity Offering and Termination of Administration Agreement

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TORONTO, Dec. 3, 2019 /CNW/ - Automotive Properties Real Estate Investment Trust (TSX: APR.UN) (the "REIT") announced today that it has agreed to purchase two automotive dealership properties from the Dilawri Group for a total purchase price of approximately $28.9 million (the "Dilawri Acquisitions").

The REIT also announced that it has entered into an agreement to sell 6,870,000 units of the REIT (the "Units") on a bought deal basis at a price of $11.65 per Unit (the "Offering Price") to a syndicate of underwriters bookrun by TD Securities Inc., BMO Capital Markets and Scotiabank for gross proceeds of approximately $80.0 million (the "Offering").

In addition, the REIT has granted the syndicate of underwriters an over-allotment option, exercisable in whole or in part at any one time up to 30 days following closing of the Offering, to purchase up to an additional 1,030,500 Units at the Offering Price (the "Over-Allotment Option") which, if exercised in full, would increase the gross proceeds of the Offering to approximately $92.0 million.

In connection with the Offering, 893353 Alberta Inc. ("Dilawri") has exercised its pre-emptive right and will purchase 1,800,000 Units in the Offering at the Offering Price, subject to Toronto Stock Exchange approval. Following the completion of the Offering, Dilawri's effective ownership interest in the REIT will be approximately 26.1% on a fully diluted basis (approximately 25.5% if the Over-Allotment Option is exercised in full).

Furthermore, the REIT announced today that the REIT's independent trustees have notified Dilawri of the REIT's intention to terminate the existing Administration Agreement between the REIT and Dilawri entered into in conjunction with the REIT's initial public offering in July 2015 effective December 31, 2019. On termination, the REIT's management, operating and administrative support personnel will be employed directly by the REIT. As the termination of the Administration Agreement is being done in accordance with its terms, the REIT will not pay Dilawri any termination fees. 

The Dilawri Acquisitions

Pursuant to the strategic alliance agreement entered into with the Dilawri Group at closing of the REIT's initial public offering (the "Strategic Alliance Agreement"), the REIT has a right of first offer to acquire any REIT-suitable property from the Dilawri Group. The REIT and Dilawri have agreed in principle to the purchase by the REIT of (i) a BMW automotive dealership property located in Regina, Saskatchewan ("Regina BMW") and (ii) an Acura property located in North Vancouver, British Columbia ("Acura North Vancouver"). On closing of the applicable Dilawri Acquisition, the tenant of the Regina BMW property will enter into a 20-year triple-net lease with the REIT and the tenant of the Acura North Vancouver property will enter into an 18-year triple-net lease with the REIT. The leases will include four 5-year renewal options, a contractual 1.5% annual rent increase after the first year of the lease term and will be indemnified by Dilawri.

The Regina BMW property, located at 1001 Broad Street in Regina, Saskatchewan, includes a 19,619 square foot newly-built full-service BMW automotive dealership facility, located on 3.04 acres of land and with accessibility to major provincial highways. Currently, 1.46 acres of land is being used by the BMW dealership, with an additional 1.58 acres of land available for future development potential.

The Acura North Vancouver property, located at 828 Automall Drive in Vancouver, British Columbia, includes a full-service automotive dealership facility that is undergoing a renovation, expected to result in a total of 37,700 square feet of gross leasable area, and which is scheduled to be completed in March 2020. The Acura North Vancouver property occupies 2.4 acres of land, with access to major provincial highways.

The REIT expects to finance the Dilawri Acquisitions through a portion of the net proceeds of the Offering. The Dilawri Acquisitions are expected to close by the end of Q1 2020, subject to the REIT and Dilawri entering into definitive purchase agreements, satisfactory diligence and customary closing conditions.

"The Dilawri Acquisitions continue to demonstrate the REIT's commitment to growing the REIT's AFFO on an accretive basis while maintaining a flexible balance sheet," said Milton Lamb, President and CEO of the REIT.

The REIT is also in various stages of negotiations and due diligence in respect of other potential acquisitions, including under the Strategic Alliance Agreement. There can be no assurance that these negotiations will result in acquisitions or, if they do, what the final terms or timing of such acquisitions would be. There can also be no assurance that either or both of the Dilawri Acquisitions will close on the terms described herein, or at all. Furthermore, the REIT has agreed to make an aggregate of approximately $20 million in capital investments in certain existing automotive dealership properties owned by the REIT, as well as in respect of the Acura North Vancouver property should that Dilawri Acquisition close. The REIT expects to continue current negotiations and discussions and actively pursue other acquisition and investment opportunities.

The Offering

The REIT intends to use the net proceeds from the Offering (i) to fund the purchase price and related closing costs in respect of the Dilawri Acquisitions, (ii) to fund the purchase price and related closing costs in respect of the previously-announced acquisition of the Straightline Kia automotive dealership property located in Calgary, Alberta, and (iii) for general trust purposes, including the repayment of indebtedness and funding of previously-announced capital commitments.

Closing of the Offering is expected to occur on or about December 23, 2019, and is subject to certain customary conditions, including approval of the Toronto Stock Exchange. The Offering is not conditional on the closing of the Dilawri Acquisitions. Following closing of the Offering, completion of the Dilawri Acquisitions and payment of certain other commitments, the REIT expects to have a debt to gross book value¹ ratio of approximately 46%, providing for additional liquidity to fund future acquisitions.

The Units will be offered by way of a short form prospectus to be filed on or about December 9, 2019 with the securities commissions and other similar regulatory authorities in each of the provinces of Canada.

The first distribution which purchasers under the Offering are expected to be entitled to receive is expected to be payable on or about January 15, 2020 to unitholders of record on December 31, 2019.

The securities offered have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. This news release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

Termination of Administration Agreement

The termination of the Administration Agreement will be effective December 31, 2019, with limited transition services being provided between the REIT and Dilawri on a reimbursement of cost basis for a limited period of time thereafter. On termination, the REIT's management, operating and administrative support personnel will be employed directly by the REIT. There are no termination fees payable to Dilawri, and the existing Strategic Alliance Agreement between Dilawri and the REIT will remain intact, demonstrating Dilawri's continued support of the REIT.

It has been the publicly stated intention of the REIT to have management functions performed on a full-time basis by individuals employed directly by the REIT once the market capitalization and size of the REIT reached a point where such internalization of management could be achieved on an economic basis. The independent trustees believe that the REIT's current market capitalization and size is such that internalization of management and operations is in the best interests of unitholders.

On termination of the Administration Agreement, a $1.48 million signing bonus in the form of Deferred Units of the REIT at a grant price equal to the Offering Price will be made to the REIT's management to enhance alignment. Approximately $740,000 of such Deferred Units will vest and be accounted for in the fourth quarter of 2019, with the balance vesting over a three to five-year period from the date of grant and accounted for accordingly. The Deferred Units that vest in the fourth quarter of 2019 will be subject to a two-year hold period, subject to customary exceptions. The internalization of management and operations will also increase the REIT's general and administrative expenses by an additional approximately $75,000 in the fourth quarter of 2019 and approximately $450,000 (including incentive plans) for the 2020 fiscal year.

Pursuant to an agreement with Dilawri to be entered into concurrently with the termination of the Administration Agreement, the independent trustees, the REIT's President & CEO, and Dilawri have agreed that the REIT's President and CEO will no longer source and develop properties for Dilawri, except for existing projects. The existing Strategic Alliance Agreement between Dilawri and the REIT, as described in the REIT's current Annual Information Form, will continue in effect in accordance with its terms, notwithstanding the termination of the Administration Agreement.

The termination of the Administration Agreement and the resultant internalization of management and operations of the REIT was unanimously approved by the independent trustees of the REIT. The independent trustees were advised by Meridian Compensation Partners, LLC, an independent executive compensation and corporate governance consultant.

About Automotive Properties REIT

Automotive Properties REIT is an unincorporated, open-ended real estate investment trust focused on owning and acquiring primarily income-producing automotive dealership properties located in Canada. The REIT's portfolio currently consists of 61 income-producing commercial properties, representing more than two million square feet of gross leasable area, in metropolitan markets across British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Québec. Automotive Properties REIT is the only public vehicle in Canada focused on consolidating automotive dealership real estate properties. For more information, please visit: www.automotivepropertiesreit.ca.

(1) Non-IFRS Financial Measures
This news release contains financial measures which are not defined under IFRS and may not be comparable to similar measures presented by other real estate investment trusts or enterprises. Gross book value and debt to gross book value are measures of financial position defined by agreements to which the REIT is a party. These measures are not defined by IFRS and do not have standardized meanings prescribed by IFRS, and therefore should not be construed as alternatives to net income or cash flow from operating activities calculated in accordance with IFRS. Please refer to the REIT's MD&A most recently filed on SEDAR for further discussion of these non-IFRS financial measures.

Forward-Looking Information
This news release contains forward-looking information within the meaning of applicable securities legislation, which reflects the REIT's current expectations regarding future events and in some cases can be identified by such terms as "will" and "expected". Forward-looking information includes statements regarding the Dilawri Acquisitions, including the timing of closing of the acquisitions of one or more of the properties, statements regarding the REIT's future acquisitions, acquisition capacity and capital investments, and statements regarding the expected effective date of termination of the Administration Agreement and the expected increase to the REIT's general and administrative expenses resulting therefrom. 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. Such risks and uncertainties include, but are not limited to, the failure to successfully close the Dilawri Acquisitions on the terms described, or at all, and the factors discussed under "Risks and Uncertainties" in the REIT's MD&A for the year ended December 31, 2018 and in the REIT's annual information form dated March 21, 2019, both of which are available on SEDAR (www.sedar.com). The REIT does not undertake any obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law. This forward-looking information speaks only as of the date of this news release.

SOURCE Automotive Properties Real Estate Investment Trust

Bruce Wigle, Investor Relations, Bay Street Communications, Tel: [phone]; Milton Lamb, President & CEO, Automotive Properties REIT, Tel: [phone]; Andrew Kalra, CFO & Corporate Secretary, Automotive Properties REIT, Tel: [phone]

Related Links

www.automotivepropertiesreit.ca