Capital BLF Inc. Announces Property Acquisitions and Private Placement Equity Offering

MONTREAL, March 4, 2013 /CNW Telbec/ - Capital BLF Inc. (the "Corporation"), a company listed on the TSX Venture Exchange (the "TSX-V", (symbol: BLF)), announced today that it has entered into agreements to acquire three apartment properties (the "Acquisition Properties") in the province of Québec for an aggregate purchase price of $55 million (the "Acquisitions"). In addition to the Acquisitions, the Corporation announced a number of strategic and structural initiatives, including:

  • A proposed private placement of between $20 million and $25 million of common shares (the "Private Placement")
  • Confirmation of QSSP II eligibility
  • Amendments to the Corporation's management agreements
  • Implementation of a dividend policy
  • Initiation of a feasibility study in connection with a possible conversion into a real estate investment trust

The Acquisitions

The Acquisition Properties consist of three properties comprised of a total of 554 apartment suites, with two properties comprised of 330 suites located in Québec City and one property comprised of 224 suites located in Montréal. The aggregate purchase price of $55 million, to be paid in cash, represents a capitalization rate of approximately 6.0% and an implied value of approximately $99,000 per suite. The weighted average occupancy at the Acquisition Properties is 99%, with an average monthly rent of $795 per suite. The Corporation obtained independent third-party appraisals for each of the Acquisition Properties, which valued the Acquisition Properties at approximately $57 million in aggregate, or $2 million in excess of the proposed aggregate purchase price. Two of the three Acquisition Properties were sourced off-market on an exclusive basis, and demonstrate the Corporation's ability to leverage its deep local relationships to efficiently locate and secure acquisition opportunities throughout the province of Québec.

"Our goal is to become the preeminent consolidator and landlord of multi-residential real estate in the Province of Québec, Canada's largest rental market.  These acquisitions fully reflect the new focus of our company which is to leverage our local, entrepreneurial and prominent presence in our target markets in order to identify attractive and accretive acquisition opportunities for the company," said Mathieu Duguay, President and CEO.

The Acquisitions are expected to close in March 2013, subject to obtaining the required financing and TSX-V approval.

No finder's fee is payable by the Corporation in connection with any of the Acquisition Properties. In addition, each of the sellers of the Acquisitions Properties is acting at arm's length with the Corporation and its insiders.

Property Descriptions

Domaine de Brugnon ("Brugnon")

Brugnon is a 246 suite apartment complex located on Père-Lelièvre Blvd in Québec City, just south of the Galeries de la Capitale shopping complex. Brugnon was built as a "condo-style" residence in 1995, and consists of 42 individual buildings with direct tenant access to large apartment suites. The property offers a number of attractive community amenities including two heated swimming pools, a volleyball court and a mini-putt course. Brugnon is currently 100% occupied.  The annual normalized net operating income for Brugnon is approximately $1.9 million and the purchase price for Brugnon represents a capitalization rate of approximately 5.7%.  The sellers of Brugnon are 9092-6064 Québec inc. and Stéphan Huot.

1111-1121 Mistral Street ("Mistral")

Mistral is a 224 suite apartment complex located in the Villeray neighbourhood of Montréal with close access to major transportation routes including highway 40 and Christophe Colomb Avenue. The property consists of two towers of six storeys each, was constructed in 1977 and has had major repair and upgrading work done over the past ten years. The property has 38 interior and 123 exterior parking spaces, and offers tenants desirable amenities such as a swimming pool which are unavailable to tenants at many of the surrounding six-storey properties. Mistral is currently 99% occupied. The annual normalized net operating income for Mistral is approximately $1.0 million and the purchase price for Mistral represents a capitalization rate of approximately 6.7%.  The seller of Mistral is La Société en commandite les immeubles 1111-21 Mistral.

111-115 Johnny-Parent ("Loretteville")

Loretteville is an 84 suite apartment complex located in the "Haute St-Charles" borough in the northwest part of Québec City, and is strategically located along major transportation routes including highway 40 and highway 573. The property consists of four, three-storey buildings, and was built in 1971 with renovations between 2003 and 2008. The property contains 100 parking spaces and a recently renovated swimming pool, and is situated near many small shopping centres. Loretteville is currently 95% occupied. The annual normalized net operating income for Loretteville is approximately $400,000 and the purchase price for Loretteville represents a capitalization rate of approximately 6.0%.  The sellers of Loretteville are Danyel Rodrigue, Jocelyne Morisette, Monique Badeau and Arcadius Audet.

The annual normalized net operating income of each of the Acquisition Properties is derived from the historical financial information made available to management of the Corporation in the course of management's due diligence.  Management has normalized the historical figures for certain non-recurring expenses, for revenues derived from leases and renewals entered into after the date of the financial information, as well as for updated expenses estimates since such historical data was made available.  The normalized net operating income for Brugnon includes a contractual income guarantee which is determined by a formula based upon revenue derived from lease renewals already signed for contracts beginning July 1, 2013.

Financing for the Acquisitions

The Corporation intends to finance the Acquisitions through approximately $38 million of new and assumed CMHC insured mortgage financing with a weighted average interest rate of 3.1% and a weighted average term to maturity of 9.3 years, with the balance coming from the net proceeds of the Private Placement.

The Corporation is also in discussions with a lender to provide a $10 million revolving acquisition facility that would be available to the Corporation to finance future acquisitions.

The Private Placement

The Corporation has entered into an agency agreement with Scotiabank and National Bank Financial Inc., as co-lead agents, to complete a private placement of common shares, at an issue price of $0.23 per share, on a best-efforts basis of between $20 million and $25 million. In connection with the Private Placement, the co-lead agents will receive a fee equal to 4% of the gross proceeds raised from investors other than Mathieu Duguay, the President Chief Executive Officer of the Corporation, upon closing. Mr. Duguay has indicated his intention to purchase shares for an amount equal to 20% of the proceeds of such Private Placement, subject to a maximum amount of $4.7 million. In addition, Mr. Claude Blanchet, Chairman of the Board of the Corporation, has indicated his intention to purchase shares in the Private Placement for an amount equal to $500,000. Following closing of the Private Placement, assuming gross proceeds raised of $23.5 million, Mr. Duguay and Mr. Blanchet will hold an ownership interest in the Corporation representing approximately 19.99% and 3.27%, respectively.

In connection with the Private Placement, the Corporation is relying on an exemption from the requirement to obtain minority approval under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions given the fact that Fonds immobilier de solidarité FTQ II, s.e.c. ("FIS"), a shareholder of the Corporation acting at arm's length with Mr. Duguay and Mr. Blanchet and owning approximately 20.56% of the issued and outstanding common shares of the Corporation, confirmed that it will not participate in the Private Placement and that it supports the Private Placement.

The Private Placement will be subject to all applicable regulations, including a four month hold period on the shares issued, and closing of the Private Placement will be subject to the applicable conditions of Canadian securities laws and the TSX-V being met.

Pro Forma Financial Profile of the Corporation

Management estimates that upon closing of the Acquisitions and the Private Placement, assuming gross proceeds raised of $23.5 million at an issue price of $0.23 per share, the pro forma net asset value of the Corporation would be $0.22 per share, the pro forma adjusted funds from operations of the Corporation for 2012 would be $0.012 per share and the pro forma debt/gross book value of the Corporation would be 58%.

QSSP II Eligibility

The Corporation has obtained an advance ruling from the Ministère du Revenu du Québec confirming that the Corporation is a qualified corporation for the purposes of the Québec Stock Savings Plan II ("QSSP II") and that the common shares to be issued as part of the Private Placement will be "qualified shares" for a QSSP II qualified mutual fund.

Amendments to Management Agreements

The Corporation has made a number of amendments to the previously announced conditional asset management agreement with First Investor, L.P. and conditional property management agreement with Société de gestion Cogir s.e.n.c. (the "Amended and Restated Asset Management Agreement" and "Amended and Restated Property Management Agreement", respectively).

As per the terms of the Amended and Restated Asset Management Agreement and the Amended and Restated Property Management Agreement, these agreements will become effective upon closing of the Private Placement.

The following is a summary of the amendments to the agreements:

New Asset Management Agreement

The incentive fee payable to First Investor in connection with the Amended and Restated Asset Management Agreement will be equal to 15% of the Corporation's AFFO per share (as such term is defined in the Amended and Restated Asset Management Agreement) in excess of an AFFO per share hurdle rate of $0.012 (the "AFFO Hurdle"), multiplied by the Corporation's number of shares outstanding. The AFFO Hurdle will be adjusted yearly on the basis of 50% of the increase in the weighted average consumer price index. Previously, the incentive fee was based on the Corporation's FFO per share.

The acquisition fee payable to First Investor in connection with the Amended and Restated Asset Management Agreement will now be 0.75% of the purchase price paid by the Corporation for the first $200 million of acquisitions in any given year, and 0.50% of the purchase price paid by the Corporation on all acquisitions in that year thereafter. Previously, the acquisition fee payable was 0.75% of the purchase price paid by the Corporation for all acquisitions.

The incentive fee and the acquisition fee may be payable in shares, subject to TSX-V approval.

The term of the Amended and Restated Asset Management Agreement will now expire at the earlier of i) five (5) years or ii) the time the Corporation reaches an equity market capitalization of $500 million. Previously, the Amended and Restated Asset Management Agreement had an initial term of ten (10) years, renewable for three additional five (5) year periods.

New Property Management Agreement

The term of the Amended and Restated Property Management Agreement will now expire at the earlier of i) five (5) years or ii) the time the Corporation reaches an equity market capitalization of $500 million. Previously, the Amended and Restated Property Management Agreement had an initial term of ten (10) years, renewable for three additional five (5) year periods.

Dividend Policy

Conditionally upon closing of the Acquisitions and the Private Placement, the Board of Directors of the Corporation will implement a dividend policy whereby the Corporation intends to pay a monthly cash dividend to holders of its common shares. The Corporation intends to pay dividends on or about the 15th of each month to shareholders of record on the last business day of the preceding month. Conditionally upon closing of the Acquisitions and the Private Placement, the Corporation's first dividend, in the amount $0.0008 per share (representing an annualized dividend of $0.0092 per share) is expected to be paid on May 15, 2013 to shareholders of record on April 30, 2013. The amount and timing of any future dividends will be determined by the Directors of the Corporation in their absolute discretion. After closing of the Acquisitions and the Private Placement, the Corporation will issue a press release confirming the payment of a monthly cash dividend to holders of its common shares.

Stock Options

Conditionally upon closing of the Acquisitions and the Private Placement, the Board of Directors of the Corporation will grant to certain members of management and its directors stock options for common shares representing, in the aggregate, 5% of the issued and outstanding common shares of the Corporation at closing. The stock options will have a term of 5 years, an exercise price to be determined on the basis of the closing price per share the day before the grant but of at least $0.28 per share and they will vest after a period of 2 years.

Feasibility Study of REIT Conversion

Following closing of the Acquisitions, the Board of Directors of the Corporation intends to investigate the feasibility of converting the Corporation to a real estate investment trust (the "REIT Conversion"). Following consultations with its legal, tax and financial advisors, if the Board determines that it would be in the best interests of the Corporation's shareholders to undertake the REIT Conversion, the Board will make a proposal to shareholders for approval.

About Capital BLF Inc.

The principal business of the Corporation is acquiring, holding, developing, maintaining, improving, leasing, managing or otherwise dealing with income-producing multi-unit residential properties located throughout Canada, primarily in the province of Québec. The Corporation currently owns four properties consisting of nine individual buildings located in Montréal, Dorval and Québec City.

Forward-Looking Information

This press release contains forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "estimates", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements involved known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements expressed or implied by the forward-looking statements. Accordingly, readers should not place undue reliance on forward-looking statements. The factors identified above are not intended to represent a complete list of the factors that could affect the Corporation.

There can be no assurance that the acquisitions will be completed or that an equity financing will be completed. Investors are cautioned that any information released or received with respect to such transactions may not be accurate or complete and should not be relied upon. Management disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or circumstances, except as required by law.

The TSX-V has in no way passed upon the merits of the proposed transactions and has neither approved nor disapproved the contents of this press release.

Neither the TSX-V nor its Regulation Services Provider (as that term is defined in policies of the TSX-V) accepts responsibility for the adequacy or accuracy of this release.

SOURCE: CAPITAL BLF INC.

For further information:

Mr. Mathieu Duguay
President and Chief Executive Officer
450 766-2400

Organization Profile

CAPITAL BLF INC.

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