Home > News > Slate Office REIT Announces Plan to Acquire Seven Asset Office Portfolio for $191.4 Million and Bought Deal Offering Comprised of $90 Million of Subscription Receipts and $25 Million of Convertible Debentures
Wednesday, January 17, 2018

Slate Office REIT Announces Plan to Acquire Seven Asset Office Portfolio for $191.4 Million and Bought Deal Offering Comprised of $90 Million of Subscription Receipts and $25 Million of Convertible Debentures

TORONTO, ON – Slate Office REIT (TSX: SOT.UN) (the "REIT") announced today that it has agreed to acquire seven office properties located in the Greater Toronto Area and Atlantic Canada for an aggregate purchase price of $191.4 million (the “Acquisitions”) representing $192 per square foot.

In conjunction with the Acquisitions, the REIT has entered into an agreement with a syndicate of underwriters co-led by BMO Capital Markets and National Bank Financial Inc. (the “Underwriters”) to issue $90 million of subscription receipts and $25 million aggregate principal amount of convertible unsecured subordinated debentures, in each case on a “bought deal” basis (collectively, the “Offerings”).

The Acquisitions are part of a portfolio of real estate assets to be sold by Cominar Real Estate Investment Trust (“Cominar”) and which are the subject of a sale contract among Slate Acquisitions Inc. (on behalf of Slate Canadian Real Estate Opportunity Fund I (“SCREO”)) and Cominar.  The REIT will acquire the assets that comprise the Acquisitions for $191.4 million.

Highlights of the Acquisitions

  • The purchase price for the Acquisitions is $191.4 million, representing $192 per square foot

  • The Acquisitions are expected to be immediately accretive to the REIT’s 2018 AFFO per unit on a leverage-neutral basis

  • Strategically located in markets where the REIT has an existing presence with scale

  • 93% occupied

  • Weighted average lease term of 4.9 years

  • Total of 995,091 square feet of gross leasable area (“GLA”), increasing total GLA to 7.4 million square feet

  • The Acquisitions will increase the occupancy of the REIT’s portfolio by approximately 100 basis points

Summary of the Acquisitions

Asset

Location

GLA (square feet)

Occupancy

81 Albert Street

Moncton, NB

64,954

100%

84-86 Chain Lake Drive

Halifax, NS

77,666

97%

570 Queen Street

Fredericton, NB

69,708

87%

225 Duncan Mill Road

Toronto, ON

155,872

89%

105 Moatfield

Toronto, ON

248,981

100%

95 Moatfield

Toronto, ON

156,426

100%

5500 North Service Road

Burlington, ON

221,484

80%

Total/weighted average

 

995,091

93%

 

Subscription Receipts
In conjunction with the Acquisitions, the REIT has agreed to sell to the Underwriters, on a bought deal basis 11,112,000 subscription receipts (the “Subscription Receipts”) of the REIT at a price of $8.10 per Subscription Receipt for gross proceeds of approximately $90 million. The REIT has also granted the underwriters an over-allotment option to purchase up to an additional 15% of the Subscription Receipts (or in certain circumstances, units of the REIT (“Units”)) on the same terms and conditions, exercisable at any time, in whole or in part, up to 30 days after the closing of the Offering. On closing of the Acquisitions: (i) one Unit will be automatically issued in exchange for each Subscription Receipt (subject to customary anti-dilution protection), without payment of additional consideration or further action by the holder thereof, (ii) an amount per Subscription Receipt equal to the amount per Unit of any cash distributions made by the REIT for which record dates have occurred during the period that the Subscription Receipts are outstanding, net of any applicable withholding taxes, will become payable in respect of each Subscription Receipt, and (iii) the net proceeds from the sale of the Subscription Receipts will be released from escrow to the REIT. The net proceeds from the sale of the Subscription Receipts will be used to fund a portion of the purchase price for the Acquisition and will be held by an escrow agent pending the fulfillment or waiver of all outstanding conditions precedent to closing of the Acquisitions. The Acquisitions will be conditional upon the satisfaction of certain conditions including completion of the sale of the Subscription Receipts and minority unitholder approval at a meeting of unitholders (the “Unitholder Meeting”). There can be no assurance that closing conditions will be met or that the Acquisitions will be consummated. If the Acquisitions fail to close as described above by July 31, 2018, or the Acquisitions are terminated at an earlier time, the gross proceeds of the sale of the Subscription Receipts and pro rata entitlement to interest earned or deemed to be earned on the Subscription Receipts, net of any applicable withholding taxes, will be paid to holders of the Subscription Receipts and the Subscription Receipts will be cancelled. The Acquisitions are expected to close by the end of March 2018.

Debentures
The REIT has also agreed to sell to the Underwriters, on a bought deal basis, $25 million aggregate principal amount of convertible, unsecured subordinated 5.25% debentures (the “Debentures”).  The REIT has also granted the underwriters an over-allotment option to purchase up to an additional 15% of the Debentures (or in certain circumstances) on the same terms and conditions, exercisable at any time, in whole or in part, up to 30 days after the closing of the Offering.

Each Debenture will be convertible into freely tradeable Units at the option of the holder at any time prior to the close of business on the earliest of (i) the last business day before February 28, 2023 (the “Maturity Date”); or (ii) if called for redemption, the business day immediately preceding the date specified by the REIT for redemption of the Debentures, at a conversion price of $10.53 per Unit (the “Conversion Price”), being a ratio of approximately 94.9668 Units per $1,000 principal amount of Debentures, and representing a premium of approximately 30% to the offering price of the concurrent offering of Subscription Receipts. The conversion right shall be subject to standard anti-dilution provisions. Debenture holders converting their Debentures will, in addition to the applicable number of Units to be received on conversion, receive accrued and unpaid interest, if any, for the period from the last interest payment date on their Debentures to and including the last record date set by the REIT occurring prior to the date of conversion for determining the unitholders entitled to receive a distribution on the Units.

The Debentures may not be redeemed by the REIT prior to February 28, 2021. On and from February 28, 2021, and prior to February 28, 2022, the Debentures may be redeemed by the REIT, in whole at any time, or in part from time to time, at a price equal to the principal amount thereof plus accrued and unpaid interest on not more than 60 days’ and not less than 30 days’ prior written notice, provided that the volume weighted-average trading price of the Units on the Toronto Stock Exchange (the “TSX”) for the 20 consecutive trading days ending five trading days preceding the date on which notice of redemption is given (the “Current Market Price”) is not less than 125% of the Conversion Price. On and from February 28, 2022, and prior to the Final Maturity Date, the Debentures may be redeemed by the REIT, in whole at any time or in part from time to time, at a price equal to the principal amount thereof plus accrued and unpaid interest on not more than 60 days’ and not less than 30 days’ prior written notice.

The net proceeds from the sale of the Debentures will initially be used to reduce outstanding indebtedness under the REIT’s credit facility (which may be subsequently redrawn and applied as needed to fund future acquisitions and for general trust purposes).

Closing of the Subscription Receipts and Convertible Debentures
The Offering is being made under the REIT's base shelf prospectus dated September 7, 2016. The REIT intends to file a prospectus supplement relating to the issuance of the Subscription Receipts and Debentures by January 19, 2018 with the securities commissions and other similar regulatory authorities in each of the provinces and territories of Canada. The Offering is subject to the receipt of all necessary approvals, including the approval of the TSX. Closing of the Offering is expected to take place on or about January 26, 2018. The Subscription Receipts and the Debentures have not been and will not be registered under the United States Securities Act of 1933 and accordingly will not be offered, sold or delivered, directly or indirectly within the United States, its possessions and other areas subject to its jurisdiction, or to, or for the account or for the benefit of, a U.S. persons, except pursuant to applicable exemptions from the registration requirements. This press release does not constitute an offer to sell or a solicitation of an offer to buy any Subscription Receipts or Debentures in the United States or to, or for the account or for the benefit of, U.S. persons.

Unitholder Approval
Pursuant to Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”), the transactions could be considered a “related party transaction” for the REIT by virtue of the relationship between the REIT and SCREO, and as such, the REIT will obtain minority unitholder approval of the Acquisitions at the Unitholder Meeting. 

The board of trustees of the REIT (the “Board”) appointed a “Special Committee” of independent elected trustees for purposes of, among other things, considering the transactions, supervising the process to be carried out by the REIT and its professional advisors in connection with the transactions, determining whether the transactions in the best interests of the REIT and, as the Special Committee may determine to be necessary or advisable, report and make recommendations to the Board with respect to the transactions. The Special Committee retained Blair Franklin Capital Partners to prepare independent appraisals of each of the properties to be acquired by the REIT. The Special Committee has advised the Board that, based on a number of factors, the Acquisitions are in the best interests of the REIT. As a result, the Special Committee unanimously recommended to the Board that it recommend that unitholders vote in favour of the transactions at the Unitholder Meeting. The Unitholder Meeting is expected to be held on or prior to March 15, 2018.

Forward-Looking Statements
Certain information herein constitutes “forward-looking information” as defined under Canadian securities laws which reflect management’s expectations regarding objectives, plans, goals, strategies, future growth, results of operations, performance, business prospects and opportunities of the REIT. The words “plans”, “expects”, “does not expect”, “scheduled”, “estimates”, “intends”, “anticipates”, “does not anticipate”, “projects”, “believes”, or variations of such words and phrases or statements to the effect that certain actions, events or results “may”, “will”, “could”, “would”, “might”, “occur”, “be achieved”, or “continue” and similar expressions identify forward-looking statements. Some of the specific forward-looking statements contained herein include, but are not limited to statements with respect to the following: the timing for the filing of the prospectus supplement; the intention of the REIT and the vendor to complete the Acquisitions and the Offering on the terms and conditions described herein; and the date on which the closings of the Acquisitions and the Offering are expected to occur. Such forward-looking statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations, including that the transactions contemplated herein are completed. Forward-looking statements are necessarily based on a number of estimates and assumptions that, while considered reasonable by management as of the date hereof, are inherently subject to significant business, economic and competitive uncertainties and contingencies. When relying on forward-looking statements to make decisions, the REIT cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not the times at or by which such performance or results will be achieved. A number of factors could cause actual results to differ, possibly materially, from the results discussed in the forward-looking statements. Additional information about risks and uncertainties is contained in the filings of the REIT with securities regulators, including the REIT’s base shelf prospectus dated September 7, 2016 and the REIT’s annual information form dated March 6, 2017.

Non-IFRS Financial Measures
The REIT has employed certain non-IFRS financial measures including AFFO and NOI, which are not generally accepted accounting principles as defined under International Financial Reporting Standards (“IFRS”). Management believes that in addition to conventional measures prepared in accordance with IFRS, investors in the real estate industry use these non-IFRS financial measures to evaluate the REIT’s performance and ability to generate cash flows. Accordingly, these non-IFRS financial measures are intended to provide additional information and should not be considered in isolation or as a substitute for performance measures prepared in accordance with IFRS. In addition, they do not have standardized meanings and may not be comparable to measures used by other issuers in the real estate industry or other industries.

About Slate Office REIT (TSX: SOT.UN)
Slate Office REIT is an open-ended real estate investment trust. The REIT's portfolio currently comprises 38 strategic and well-located real estate assets located primarily across Canada's major population centres. The REIT is focused on maximizing value through internal organic rental and occupancy growth and strategic acquisitions. Visit slateofficereit.com to learn more.

About Slate Asset Management L.P.
Slate Asset Management L.P. is a leading real estate investment platform with over $4.5 billion in assets under management. Slate is a value-oriented manager and a significant sponsor of all of its private and publicly-traded investment vehicles, which are tailored to the unique goals and objectives of its investors. The firm's careful and selective investment approach creates long-term value with an emphasis on capital preservation and outsized returns. Slate is supported by exceptional people, flexible capital and a proven ability to originate and execute on a wide range of compelling investment opportunities. Visit slateam.com to learn more.

For Further Information
Investor Relations
Slate Office REIT
+1 416 644 4264
ir@slateam.com