FAM Real Estate Investment Trust announces entry into an amended and restated management agreement with Huntingdon and letter of intent to purchase a portfolio of office properties from Slate Properties

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Highlights

• Slate to acquire Huntingdon, assume the FAM Management Agreement and reposition FAM as a Canadian Office REIT
• FAM enters into a non-binding letter of intent to acquire seven office properties located in the GTA from Slate for $190 million, consisting of $144 million in cash and 5.1 million units issued to Slate at a price of $9.00 per unit, subject to due diligence and receipt of requisite approvals
• Slate brings a strong track record as a successful real estate asset manager, two decades of experience with over $2.5 billion in completed acquisitions and significant experience in office real estate
• Amended FAM Management Agreement will provide the ability to internalize management upon FAM achieving a market capitalization of $750 million after December 28, 2022

TORONTO, Aug. 12, 2014 /CNW/ - FAM Real Estate Investment Trust (TSX: F.UN) (TSX: F.WT) (the "REIT") announces today that, in connection with the announcement by Huntingdon Capital Corporation ("Huntingdon") that Huntingdon has entered into a definitive agreement with Slate Capital Corporation, an affiliate of Slate Properties Inc. ("Slate") whereby Slate will purchase all of the issued and outstanding shares of Huntingdon pursuant to a plan of arrangement transaction (the "Huntingdon Transaction"), the REIT has entered into an amended and restated management agreement (the "Management Agreement") with Huntingdon that will become effective upon the completion of the Huntingdon Transaction. Upon completion of the Huntingdon Transaction, Slate will become the REIT's manager (the "Manager") and will assume Huntingdon's responsibilities in its capacity as manager.  The REIT has also entered into a non-binding letter of intent to purchase a portfolio of seven office properties  from Slate GTA Suburban Office Inc. ("Slate GTA"), an affiliate of Slate Properties Inc. (the "Slate Office Portfolio") (the "Office Properties Purchase") for $190 million.

Amended and Restated Management Agreement

Slate has a strong track record as a comprehensive commercial real estate owner and asset manager as well as significant experience in office real estate.  The Toronto-based firm has significant transaction expertise having completed $2.5 billion of acquisitions across North America. The REIT believes that its new relationship with Slate will enhance the REIT's growth strategy, provide it with future strategic opportunities to purchase additional properties as well as benefit from Slate's strong relationships within the commercial real estate industry.

Change in Strategic Focus     

The REIT has agreed that upon the Management Agreement becoming effective, the REIT's strategy will shift to concentrate on the Canadian office market. The repositioning of the REIT as a Canadian office REIT will focus the REIT's growth strategy and allow the REIT to benefit from what it believes are compelling growth opportunities available in this sector and the limited number of pure-play Canadian office REITs relative to diversified REITs listed on the Toronto Stock Exchange.

New Termination Rights of the REIT

The REIT will have the right to terminate the Management Agreement at any time after December 28, 2022 upon achieving an equity market capitalization of $750 million, if (i) a majority of the independent trustees of the REIT have determined it is in the best interests of the REIT to internalize the services provided pursuant to the Management Agreement and (ii) such internalization is approved by at least two-thirds of votes cast by unitholders and holders of special voting units (excluding any units and special voting units held by the Manager and its affiliates).

Gary Samuel, Chairman of the Special Committee of the REIT, said, "Slate's assumption of the Management Agreement, coupled with the Office Properties Purchase, is transformational for the REIT. With a focused growth strategy, a proven asset manager with aligned interests given their ownership in the REIT, and a clear path to internalization, we believe that unitholders will immediately benefit from the transaction."

Blair Welch, Partner and co-founder of Slate, commented, "We are excited to partner with FAM through this transformative transaction.  We believe that FAM, combined with the Slate office assets, provides a strong foundation on which to build a highly compelling pure-play Canadian office REIT.  We look forward to assuming the responsibilities of the REIT's manager, and creating value for unitholders in the years to come."

Office Properties Purchase

The REIT has entered into a non-binding letter of intent to purchase the Slate Office Portfolio which includes seven office properties in the GTA for $190 million ($177 per square foot), which represents a capitalization rate of approximately 6.8%.  The Office Properties Purchase is expected to be financed through current liquidity in FAM, new mortgage debt financing and the issuance of 5.1 million FAM units to Slate GTA at a price of $9.00 per unit. The Slate Office Portfolio consists of approximately 1.1 million square feet of GLA, which is currently 91% leased, and will increase the REIT's asset base by approximately 59% to over 2.9 million square feet, with an enhanced footprint in the GTA.

Gary Samuel said, "We are very pleased with the portfolio of GTA office properties being purchased from Slate. We believe this is a value enhancing alternative for FAM as the properties are being acquired at a discount to replacement cost and have embedded NOI growth through below market rents and strong contractual income growth."

The Office Properties Purchase is expected to result in accretion to AFFO per unit. While the Office Properties Purchase will require the REIT to temporarily increase its leverage, the REIT intends to align its capital structure through future dispositions of non-core assets which will complete its repositioning as a Canadian office REIT.

The Office Properties Purchase is subject to due diligence, the completion of the Huntingdon Transaction, the receipt of approval of the unitholders of the REIT in accordance with Multilateral Instrument 61-101 Special Transactions and the rules of the Toronto Stock Exchange, approval of the Toronto Stock Exchange, and other customary closing conditions. 

It is expected that a meeting of unitholders of the REIT will take place in September 2014 to consider the approval of the Office Properties Purchase, with closing expected to occur as soon as possible following closing of the Huntingdon Transaction, subject to the receipt of required approvals and other customary closing conditions for a transaction of this nature.

Huntingdon currently owns 30% of the outstanding units of the REIT, assuming conversion of outstanding Class B limited partnership units of a subsidiary of the REIT ("LP Units"). Following completion of the Huntingdon Transaction and the Office Properties Purchase, Slate and its affiliates will own or control approximately 48% of the outstanding units of the REIT, assuming conversion of the LP Units. Slate has agreed that, for a period of two years from the date of completion of the Huntingdon Transaction, subject to certain limited termination rights, it shall vote all of the units and special voting units of the REIT that Slate owns or controls in favour of the REIT's current independent trustees (or any replacements) nominated for election by the REIT's Compensation, Nominating and Governance Committee to serve on the board of trustees of the REIT.

Board of Trustees and Special Committee Unanimously Approve Management Agreement

The Huntingdon Transaction, the entry by the REIT into the Management Agreement and the letter of intent in respect of the Office Properties Purchase is the result of Huntingdon's previously announced strategic review and the REIT's formation of a Special Committee to evaluate the impact of such strategic review on, and all options available to, the REIT. The Board of Trustees of the REIT, based on the unanimous recommendation of the REIT's Special Committee and upon consultation with its financial and legal advisors, has unanimously determined that the entry into the Management Agreement, including the shift in the REIT's strategic business focus, is in the best interests of the REIT and its unitholders.

It is expected that a meeting of shareholders of Huntingdon will take place in September 2014 to consider the approval of the Huntingdon Transaction, with closing expected to occur as soon as possible thereafter, subject to the receipt of required approvals and other customary closing conditions for a transaction of this nature.

TD Securities Inc. acted as financial advisor to the Special Committee of the REIT, with Blake, Cassels & Graydon LLP as legal advisors. BMO Capital Markets acted as financial advisor to Slate, with McCarthy Tétrault LLP as legal advisors.

About FAM Real Estate Investment Trust

The REIT is presently a diversified commercial real estate investment trust currently focused on owning and acquiring strategically well-located office, industrial and retail real estate located primarily across Canada's large population centres.

About Slate Properties Inc.

Slate is a Toronto-based commercial real estate investor and asset manager.  Slate's founding partners each have nearly two decades of experience in the industry managing complex real estate transactions in domestic and international markets.  Since 2005, the company has acquired over C$2.5 billion of commercial real estate assets across North America. The company currently co-invests in and manages various investment vehicles, including Slate Retail REIT (TSX: SRT.UN/SRT.U), an open-ended investment trust that is listed on the Toronto Stock Exchange. Slate also owns and manages a portfolio of Canadian office properties with domestic institutional equity. For more information, visit www.slateproperties.ca

Forward-Looking Information and Cautionary Statements:

This press release contains forward-looking statements with respect to the REIT and its operations, strategy, financial performance and financial condition. These statements generally can be identified by the use of forward-looking words such as "forecast", "may", "will", "would", "expect", "estimate", "anticipate", "intend", "believe" or "continue" or the negative thereof or similar variations. Some of the specific forward-looking statements in this press release include, but are not limited to, statements with respect to the closing of the transactions contemplated herein and the effect of the transactions contemplated herein on the financial performance of the REIT. The actual results and performance of the REIT and the office properties discussed herein could differ materially from those expressed or implied by such statements. See the risk factors in the public filings of the REIT. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Some important factors that could cause actual results to differ materially from expectations include, among other things, general economic and market factors, competition, and changes in securities or other laws or regulations or the application thereof. The cautionary statements qualify all forward-looking statements attributable to the REIT and persons acting on its behalf. The assumptions made in making forward-looking statements are referred to in the public filings of the REIT. There can be no assurance that the REIT will enter into definitive documentation in respect of the Office Properties Purchase on the terms described herein or that such transaction will close.

Unless otherwise stated, all forward-looking statements speak only as of the date of this press release. Except as required by applicable law, the REIT specifically disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. Additional information about these assumptions and risks and uncertainties is contained in the REIT's filings with securities regulators, including its latest annual information form and MD&A. These filings are also available at the REIT's website at www.famreit.com.

SOURCE: FAM Real Estate Investment Trust

Zachary R. George, Chairman, FAM REIT, Email: [email protected]