NexLiving Communities Announces Transformational Merger to Double Portfolio Size
- Acquisition of 991 units almost doubles the Company's portfolio to 2,157 units
- Complementary assets provide immediate scale, financial accretion and diversification
- Materially improved free cash flow & debt metrics enhance NexLiving's de-leveraging strategy
- Combined company to continue focus on Canada's high-growth secondary markets
HALIFAX, NS, Jan. 22, 2024 /CNW/ - (TSXV: NXLV) – NexLiving Communities Inc. ("NexLiving" or the "Company") is pleased to announce that it has entered into an agreement dated January 21, 2024 (the "Agreement") to acquire a portfolio of multi-family assets in eastern Ontario and Québec consisting of 16 properties and 991 units (the "Acquisition Portfolio"), with revenue of $13.1 million for the 12 months ended September 30, 2023, and an appraised value of $224 million as of October 2023,1 from Devcore Group Inc. and related entities ("Devcore") in exchange for share consideration and the assumption of existing mortgages (collectively, the "Transaction"). Upon completion of the Transaction, NexLiving's portfolio will increase approximately 85% to 2,157 units. Furthermore, the Transaction provides significant geographic diversification, while maintaining NexLiving's focus on high-growth secondary markets and building on NexLiving's track record of completing highly accretive acquisitions.
Transaction Highlights
Immediate Scale and Meaningful Financial Accretion: Giving effect to the Transaction, as at January 1, 2024 the combined 2,157 unit portfolio would have an in-place net operating income ("In-Place NOI")2 of approximately $22 million3 representing an increase of over 80% relative to NexLiving's standalone In-Place NOI of approximately $12 million. The Company's in-place fully diluted funds from operations ("In-Place FFO") per share4 would also increase over 30% to approximately $0.24 per share, compared to NexLiving's current standalone In-Place FFO per share of approximately $0.18.
Strategic Geographic Diversification: Accelerates a long-term goal of the Company to achieve further geographic diversification, while maintaining the Company's focus on high-growth secondary markets. Giving effect to the Transaction, portfolio concentration would be 34% Moncton, NB (currently 63% of NexLiving's portfolio), 29% National Capital Region (Ottawa-Gatineau), 15% Saint John, NB, 18% other Ontario and 4% other Québec.
Attractive Mortgage Portfolio & De-Levering Strategy: The Acquisition Portfolio brings a staggered maturity mortgage portfolio with an attractive weighted average interest rate of approximately 2.70% resulting in a combined weighted average mortgage portfolio interest rate of 3.20% for NexLiving post completion of the Transaction. This represents a 48 basis point decrease from NexLiving's current weighted average interest rate of 3.68%5. Furthermore, the combined entity will have a material improvement in free cash flow, which NexLiving will direct towards de-leveraging the balance sheet, while also maintaining its growth strategy.
Multi-Channel Growth Pipeline: Devcore is an active apartment developer focused on new ground-up construction and value-add buildings throughout Ontario and Québec. Devcore will retain a portfolio of approximately 2,000 units following the completion of the Transaction, which along with other existing and future projects, provides an attractive and captive complementary growth pipeline for NexLiving.
High-Growth Asset Portfolio: The Company expects to benefit from the significant upside provided by the embedded 'mark-to-market' opportunities across the combined portfolio of properties and the value-add strategy focused in Ontario and Québec.
Strong and Aligned Board: Upon closing of the Transaction, Jeff York, Co-owner of the seller and former co-CEO at Farm Boy Inc will be appointed as Chairman of NexLiving's board of directors (the "Board") and Rick Turner will serve as Vice Chairman of the Board.
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2 In-Place NOI is a Non-IFRS measure. See "Non-IFRS Financial Measures". |
3 In-Place NOI is based on rent rolls as of January 2024 and management expectations of property level expenses using currently in-place contracts and management estimates for expenses. |
4 In-Place FFO per share is a Non-IFRS measure. See "Non-IFRS Financial Measures". |
5 Estimated as at December 31, 2023. |
All officers, directors and certain shareholders representing approximately 43% of the shares outstanding have entered into voting support agreements.
Stavro Stathonikos, President & CEO commented: "We are excited to announce this transformational combination and welcome Devcore as long-term partners. This acquisition immediately adds scale to the business, almost doubling the Company's portfolio size, meaningfully reduces our G&A as a percentage of NOI, and yields significant accretion to FFO per share. We intend to use the significant free cash generation of the combined business to continue our successful high-growth, secondary market strategy and to de-lever the balance sheet over time. The commitment from a successful multi-family group like Devcore to take 100% of the Transaction consideration entirely in NexLiving shares, speaks to their confidence in the NexLiving portfolio and our free cash flow strategy. We are excited to execute on our shared vision to become a leader in Canada's high-growth secondary markets."
Jeff York commented: "This Transaction represents a pivotal moment for both NexLiving and Devcore. We see great value in NexLiving's Atlantic Canada portfolio and we believe that there is additional upside to unlock by scaling the platform. Prudent capital allocation with a view to acquiring undervalued, cash generating properties in Canada's high-growth secondary markets will put us in the position to de-lever the balance sheet, lower our cost of capital and have a platform primed for significant growth."
As a result of the Transaction, 8985979 Canada Inc. (controlled by Jeffrey York and Jean-Pierre Poulin) will become a Control Person of NexLiving (as defined in the policies of the TSX-V).
Description of the Transaction
As consideration for the Acquisition Portfolio, NexLiving will issue approximately 16.5 million shares of NexLiving to Devcore, representing approximately 49% of the outstanding shares of the Company following the closing of the Transaction and valued at approximately $31.7 million based on the closing price of the shares of the Company on January 19, 2024, and will directly or indirectly assume approximately $166 million of mortgage principal.6
The implementation of the Transaction will be subject to the approval of a simple majority of votes cast by NexLiving shareholders at a special meeting expected to be convened by NexLiving shareholders in the first half of 2024 (the "Meeting"), the receipt of applicable regulatory approvals, including Competition Act and CMHC approval, the approval of the TSX Venture Exchange, and certain other customary closing conditions. The Agreement provides for, among other things, customary support and non-solicitation covenants from NexLiving, including customary "fiduciary out" provisions that allow NexLiving to accept a superior proposal in certain circumstances, subject to payment of a fee in the amount of $1.5 million. NexLiving has agreed to reimburse Devcore for certain transaction expenses. The Transaction is expected to close during the end of the second quarter of 2024.
On closing, Jeff York and Jean-Pierre Poulin, the principals of Devcore and their related entities, will enter into a standstill and investor rights agreement with NexLiving, pursuant to which they will be entitled, among other things, to nominate up to three members of the Board on closing, ongoing nomination and committee membership rights, and consent rights in connection with certain material transactions and changes to Board committees and management depending on their ownership interest in NexLiving. Pursuant to the standstill and investor rights agreement, Jeff York and Jean-Pierre Poulin will agree to a three-year standstill, subject to certain exceptions, pursuant to which they will, directly or indirectly, be restricted from acquiring NexLiving shares, among other things. They will also agree to a two-year lock-up, subject to certain exceptions, pursuant to which they will, directly and indirectly, be restricted from transferring, selling or otherwise disposing of their NexLiving shares. Ten percent of the shares will be released from the lock-up six months following closing, with the remainder of the shares released in equal tranches monthly during the final year of the lock-up.
Following closing of the Transaction, NexLiving will continue to be managed by the current NexLiving management team and the Board will consist of Jeff York (Chairman), Rick Turner (Vice Chairman), Stavro Stathonikos (CEO), Michael Anaka, Bill Hennessey, Jean-Pierre Poulin and Francis Pomerleau. Assuming a successful closing of the Transaction, Dr. Brian Ramjattan, David Pappin, Drew Koivu and Andrea Morwick are expected to step down from the current board. We look forward to working with them for the coming months as we approach closing and thank them for all their hard work and service to NexLiving since its inception. The pro forma Board, as well NexLiving's senior management will agree to a lock-up on substantially similar terms as Jeff York and Jean-Pierre Poulin under their standstill and investor rights agreement.
The foregoing summary is qualified in its entirety by the provisions of the Agreement and the investor rights agreement, copies of which will be filed under the Company's profile on SEDAR+ at www.sedarplus.ca. More detailed information will be contained in the management information circular for the Meeting which will be available on the Company's profile on SEDAR+ at www.sedarplus.ca. NexLiving's shareholders are urged to read those and other relevant materials when they become available.
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6 Estimated as at December 31, 2023.
NexLiving Board and Shareholder Approval
The NexLiving Board has unanimously determined that the Transaction is in the best interests of the Company and has recommended that shareholders vote in favour of the Transaction at the Meeting. Each director has entered into voting support agreements pursuant to which, among other things, each director has agreed to vote in favour of the Transaction.
Echelon Capital Markets has provided a fairness opinion to the Board that, subject to the assumptions, limitations and qualifications set out in such fairness opinion, the consideration to be paid by NexLiving is fair, from a financial point of view, to the Company.
Trading in NexLiving Shares
In accordance with the policies of the TSXV, trading in the shares of NexLiving was halted and will remain halted until all proper documentation is received by the TSXV.
Advisors
Stikeman Elliott LLP is acting as legal counsel to NexLiving.
Cormark Securities Inc. is acting as financial advisor and Norton Rose Fulbright LLP is acting as legal counsel to Devcore.
Investor Presentation
More information regarding the transaction can be found on the NexLiving website https://nexliving.ca/investors/corporate-presentation.
The Company continues to execute on its plan to acquire recently built or refurbished, highly leased multi-residential properties in bedroom communities across Canada. The Company aims to deliver exceptional living experiences to our residents and provide comfortable, affordable housing solutions that cater to a wide range of demographics. The properties offer a range of modern and updated suites, with a variety of amenities and features that allow residents to experience a hassle-free and maintenance-free lifestyle. The Company is committed to investing in its properties to ensure that they are modern and up-to-date. For its recently acquired properties in Ontario, the Company has undertaken a targeted value-add capital program to modernize and reposition the large existing suites. The Company currently owns 1,166 units in New Brunswick and Ontario. NexLiving has also developed a robust pipeline of qualified properties for potential acquisition. By screening the properties identified to match the criteria set out by the Company (proximity to healthcare, amenities, services and recreation), management has assembled a significant pipeline of potential acquisitions for consideration by the Board.
For more information about NexLiving, please refer to our website at www.nexliving.ca and our public disclosure at www.sedarplus.ca.
Devcore is a real estate development, construction, and management company based out of Ottawa-Gatineau with nearly 20 years of experience building and renovating a multitude of projects, including single-family homes, townhomes, condos, apartments, offices, and shopping centres. Devcore has developed a portfolio of multi-family assets, in collaboration with Jeff York, of nearly 3,000 units across Ontario and Québec.
Jean-Pierre is a serial entrepreneur. He founded Devcore in 2004 and has grown the company into an esteemed real estate company with expertise in land development, residential construction and property management and assets with an approximate value of $400 million. Outside of Devcore, Jean-Pierre is the founder and majority owner of 1VALET. The platform is a smart building operating system that makes residential apartments and condominiums smarter and safer places to live. 1VALET has been used by Devcore to create significant value across the real estate portfolio which has been instrumental in allowing the Devcore portfolio to triple in size in the last 4 years.
Jeff York is the former co-CEO at Farm Boy Inc., where he was instrumental in the scaling of the business and ultimate sale to Empire Co. Ltd for approximately $800 million in 2018. Before Farm Boy, Jeff was the president of Giant Tiger and was instrumental in the sustained growth the company experienced during his leadership.
Francis Pomerleau is a Director on Pomerleau's Board of Directors and the company's former Chief Executive - National Strategies. Pomerleau is a leading Canadian construction company with over 60 years of experience in the construction industry, approximately 5,000 employees, and nearly 200 active project sites across the country.
This news release contains forward-looking information within the meaning of applicable Canadian securities laws ("forward-looking statements"). All statements other than statements of historical fact are forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "projects", "estimates", "forecasts", "intends", "continues", "anticipates", or "believes", or variations (including negative variations) of such words and phrases. Forward-looking statements may also state that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements contained in this news release include, but are not limited to, statements concerning management's expectations of NexLiving and the Acquisition Portfolio's In-Place NOI and In-Place FFO, potential additional upside and increased geographic diversification from the combination of the Acquisition Portfolio with NexLiving's existing assets, additional rental increases to come into effect by year end and the further enhancement of the Company's financial results. Such forward-looking statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. These forward-looking statements reflect the current expectations of the Company's management regarding future events and operating performance, but involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual events could differ materially from those projected herein and depend on a number of factors. These risks and uncertainties are more fully described in NexLiving's regulatory filings, which can be obtained on SEDAR+ at www.sedarplus.ca under NexLiving's profile, as well as under the "Risk Factors" section of the Company's MD&A released on November 27, 2023. Although forward-looking statements contained in this news release are based upon what management believes are reasonable assumptions, there can be no assurance that the Company's actual results will be consistent with these forward-looking statements. Accordingly, readers should not place undue reliance on the forward-looking statements contained in this news release. The forward-looking statements in this new release speak only as of the date of this news release. Except as required by applicable securities laws, the Company does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable law.
Non-IFRS Financial Measures
The Company prepares and releases unaudited consolidated interim financial statements and audited consolidated annual financial statements prepared in accordance with IFRS. In this and other news releases, as a complement to results provided in accordance with IFRS, NexLiving discloses financial measures not recognized under IFRS which do not have standard meanings prescribed by IFRS, which include In-Place NOI, FFO, FFO per share – diluted, and In-Place FFO ("Non-IFRS Measures"). Certain Non-IFRS Measures are further defined and discussed in the Company's MD&A dated November 27, 2023, which should be read in conjunction with this news release.
In-Place NOI is based on rent rolls as of January 2024 and management expectations of property level expenses using currently in-place contracts and management estimates for certain expenses. In-Place FFO is estimated as In-Place NOI less management's expected normalized administrative expenses, net interest expense, and amortization of deferred financing costs. Since these measures are not recognized under IFRS, they may not be comparable to similar measures reported by other issuers. The Company presents the Non-IFRS measures because management believes these Non-IFRS measures are relevant measures of the ability of NexLiving to earn revenue and to evaluate its performance and cash flows. A reconciliation of certain Non-IFRS measures is included in the Company's MD&A dated November 27, 2023. The Non-IFRS measures should not be construed as alternatives to net income (loss) or cash flows from operating activities determined in accordance with IFRS as indicators of the Company's performance.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.
Non-IFRS Reconciliation
Reconciliation of In-Place Net Operating Income |
||
Three months ended September 30, 2023 |
||
Revenue |
4,747,734 |
|
Property operating expenses |
(1,785,089) |
|
Net operating income ("NOI") |
2,962,645 |
|
Adjustments: |
||
Revenue growth1 |
190,000 |
|
Operating expense growth2 |
(205,000) |
|
Quarterly In-Place NOI |
2,947,645 |
|
In-Place NOI |
11,790,580 |
|
Reconciliation of Funds From Operations |
||
Three months ended September 30, 2023 |
||
Net income (loss) |
(3,009,696) |
|
Fair value adjustments on investment properties |
4,192,667 |
|
Deferred tax expense (recovery) |
(350,000) |
|
Accretion expense |
- |
|
Funds From Operations ("FFO") |
832,971 |
|
Weighted average shares outstanding - diluted |
16,745,721 |
|
FFO per share - diluted |
$0.05 |
|
Reconciliation of In-Place FFO |
||
Three months ended September 30, 2023 |
||
FFO |
832,971 |
|
Adjustments: |
||
NOI growth1,2 |
(15,000) |
|
G&A growth3 |
(20,000) |
|
Interest expense4 |
(39,000) |
|
Amortization expense4 |
(19,000) |
|
Interest income5 |
35,000 |
|
Quarterly In-Place FFO |
774,971 |
|
In-Place FFO |
3,099,884 |
|
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2 Operating expense growth represents the increase in contractual expenses along with expected increases in certain expenses and also includes a seasonality adjustment to accurately reflect the cost profile for a full year of operations. |
3 G&A growth represents management's forecasted administrative expense growth. |
4 Higher interest and amortization expense is due to NexLiving's refinancing activities subsequent to the three-month period ended September 30, 2023. |
5 Increase in interest income is attributable to the Company's cash balance of approximately $5.0 million as a result of the aforementioned refinancing activity. |
SOURCE NexLiving Communities Inc.
Stavro Stathonikos, Chief Executive Officer and President, 416-876-6617
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