Huntingdon REIT and IAT Air Cargo Facilities Agree to Merge



    WINNIPEG and RICHMOND, BC, Aug. 18 /CNW/ - Huntingdon Real Estate
Investment Trust ("Huntingdon REIT" or "HREIT") (TSX: HNT.UN) and IAT Air
Cargo Facilities Income Fund ("IAT") (TSX: ACF.UN) announced today that they
have agreed to merge. The combined entity will have an enterprise value of
approximately $370 million based on current unit trading prices, will own,
lease and operate 88 properties across Canada, with a total rentable area in
excess of 5.8 million square feet, and will benefit from a diversified tenant
base comprising approximately 670 tenants. The combined entity will have a
presence in Manitoba, British Columbia, Ontario, Saskatchewan, Alberta and the
Northwest Territories.
    Under the terms of the combination agreement, the proposed merger
involves a unit-for-unit exchange through which IAT unitholders will receive
11.75 units of Huntingdon REIT for each IAT unit held. On completion of the
proposed transaction, IAT's existing unitholders will own approximately 53% of
the combined entity and Huntingdon REIT's existing unitholders will own
approximately 47%.
    The combination of HREIT and IAT will meaningfully reduce HREIT's
leverage ratios and result in an improved financial position. Based on the
book values reported for HREIT on its June 30, 2009 balance sheet, HREIT's
Debt to Gross Book Value Ratio ("D/GBV") is approximately 63%. The D/GBV,
calculated using the aggregated book values reported for both HREIT and IAT on
their respective June 30, 2009 balance sheets, declines to approximately 53%,
which is in-line with many large capitalization Canadian REITs. Furthermore,
the combination will provide HREIT with significant incremental cash flow to
fund ongoing capital expenditures and mortgage principal payments without the
need for additional asset sales or high-cost debt financing. In addition to
the estimated $5 million of annual AFFO (Adjusted Funds From Operations) to be
contributed by IAT, the combined entity will benefit from internalizing
Huntingdon REIT's asset management function and is expected to derive
approximately $1.5 million of additional cost savings through the elimination
of duplicate public company costs and other reductions in G&A (general &
administrative) expenses. These initial synergies do not take into account any
future leasing of vacant space, new accretive acquisitions, other operating
synergies or the potential benefit of restructuring or internalizing property
management of Huntingdon REIT's assets and reducing leasing and construction
fees paid in the future, which could provide approximately $750,000 of
additional savings. Huntingdon REIT has previously announced plans to divest
certain assets and to reduce debt, and such plans will continue in the
combined entity, with additional property sales currently under conditional
contracts of sale.
    The combination of Huntingdon REIT and IAT will result in increased scale
and diversification for IAT and cash flow stability for HREIT. Together, this
is expected to result in a lower cost of capital for the combined entity than
is currently available to either Huntingdon REIT or IAT. In addition, IAT has
a number of unencumbered assets that will provide the combined entity with
additional borrowing capacity in the event additional capital is required in
the future.
    "We are very excited about the combination of these two entities. It will
bring considerable benefits to unitholders of both HREIT and IAT by creating a
larger, more efficient and competitive REIT in terms of size, scope and
portfolio diversification," said Zachary George, who is President and CEO of
IAT and who will assume the same role with the combined entity. "Through a
combination of synergies and the internalization of asset management, we are
targeting a pro forma reduction of our combined expenses of approximately $1.5
million. Our strategic plan includes the conservative management of our
capital structure, reducing the risk of future dilution and the repurchase of
our units if deemed to be an optimal use of capital. In addition, while the
combined entity will not declare or pay distributions for a period of time
post closing, the new management team's strategic plan contemplates
reinstating a regular cash distribution at the appropriate time."
    Gary Goodman, Chairman of the Special Committee of Huntingdon REIT's
Board of Trustees, added, "The combination of Huntingdon REIT and IAT will
meaningfully reduce HREIT's leverage while increasing its annual free cash
flow and will create a larger and stronger player in the Canadian commercial
real estate market. With the integration of our combined assets, operations
and people, we are confident that an internalized approach to asset management
will add value for all unitholders. The principals and senior officers of IAT,
who will have an approximate 26% indirect equity stake in the combined entity,
will be dedicated to the management of the combined entity and will not be
providing management services to any other real estate entities. In addition
to the elimination of asset management fees, an anticipated reduction in third
party property management fees and other overhead costs could potentially
generate additional meaningful returns for unitholders of the combined entity
over the long-term."
    The Boards of Trustees of Huntingdon REIT and IAT believe the combination
will provide substantial benefits to both entities' unitholders, including:

    
    -   Enhanced Market Position: The combined entity will own, lease and
        operate 88 properties across Canada with a total rentable area in
        excess of 5.8 million square feet. The number of properties of
        Huntingdon REIT will increase by approximately 26% (a 24% increase in
        GLA) as a result of the merger while IAT unitholders will benefit
        from participating in a more diversified pool of 88 properties versus
        its current 18-property portfolio. In addition, current Huntingdon
        REIT unitholders will benefit from the increased exposure to the
        historically stable industrial sector.

    -   Broadened Geographic Diversification: The merger will improve tenant,
        geographic and asset mix diversification through the combination of
        these portfolios. The combined entity will have 43% of its portfolio
        by square footage in Manitoba, 26% in Ontario, 14% in British
        Columbia and 9% in Alberta with the balance of the portfolio located
        in Saskatchewan and the Northwest Territories. The merger of the two
        entities reduces each entity's reliance on any one particular market
        or tenant. Specifically, HREIT's concentration in Winnipeg will be
        reduced from 47% to 38%, and IAT's concentration in the Vancouver
        Airport market will be reduced from 65% to 13%.

    -   Exposure to Vancouver Airport Industrial Market: Vancouver is the
        "Gateway to Asia" and, when combined with recent infrastructure
        improvements to Vancouver International Airport, demand for
        industrial space is expected to remain strong.

    -   Enhanced Financial Position: The merger will produce a larger entity,
        a stronger balance sheet and, most importantly, increased cash flow
        which will provide Huntingdon REIT with improved financial stability.
        The larger platform and anticipated reduction in the combined
        entity's cost of capital should better position the combined entity
        to make accretive acquisitions and increase equity value over time.
        The combined entity's near term objectives will be to reduce costs
        and improve cash flow, aggressively manage the portfolio and debt
        maturities and to use free cash flow to delever, all towards a view
        of generating higher equity value and a potential reinstatement of a
        regular cash distribution at the appropriate time. The improved cash
        flow and balance sheet are anticipated to result in an improvement in
        the valuation of the combined entity's units and shrink the multiple
        discount at which HREIT currently trades compared to its REIT/REOC
        peers.

    -   Better Alignment of Interests: The proposed new CEO will indirectly
        (as a principal of FrontFour Capital Group LLC ("FrontFour"), which
        has existing ownership positions in HREIT and IAT) control
        approximately 26% of the combined entity after completion of the
        merger and will have primary responsibility for overseeing the asset
        management of the combined entity going forward. Asset management
        will be internalized as soon as practicable after closing and it is
        contemplated as part of the proposed new management team's strategic
        plan to consider the qualitative and financial benefits of
        internalizing property management in the future as well. The
        post-merger ownership structure is expected to produce a superior
        alignment of interests compared to the current Huntingdon REIT
        structure and the combined entity will be the only real estate entity
        managed by the new leadership team.

    -   Cost Savings: The combined entity is expected to benefit from
        significant cost savings estimated at $1.5 million per year resulting
        from G&A reductions and the internalization of the asset management
        function. There is also the potential for approximately $750,000 or
        more of additional cost savings through the internalization or
        restructuring of existing third party property management
        arrangements in the future.

    -   Improved Operational Capabilities: With an effective marketing
        strategy, a renewed focus on managing existing tenant relationships,
        an understanding of existing tenants' strategic plans and the early
        renewal of tenant leases, the proposed new management team of the
        combined entity believes that meaningful operational improvements
        will likely also result from the merger. Early in 2009, IAT completed
        an internalization of its property and asset management at nominal
        cost to the IAT unitholders and IAT management has been successful
        driving incremental cash flow to the bottom line through their
        proactive approach to property and asset management.

    -   Improved Liquidity: IAT's free cash flow contribution and its
        unencumbered assets are expected to improve the combined entity's
        liquidity position and mitigate any debt refinancing risks in the
        combined portfolio. Unitholders are also expected to benefit from
        increased trading liquidity as a result of the increase in the market
        float resulting from a combination of HREIT and IAT. Based on HREIT's
        closing price on August 17, 2009 of $0.395 per unit, the combined
        entity will have a market capitalization of approximately
        $61 million, compared to a current market capitalization of
        $29 million for HREIT and $26 million for IAT.

    -   Rationalization of Portfolio: Pursuant to a strategy implemented by
        the Trustees of Huntingdon REIT earlier this year, HREIT has sold
        several properties already in 2009, generating cash proceeds that
        have been used to repay debt or fund principal repayments. Huntingdon
        REIT currently has several non-core assets under contract that are
        expected to generate additional cash proceeds. Any cash proceeds from
        dispositions will, depending on where the maximum return can be
        achieved, be (i) reinvested in core properties, (ii) used to
        repurchase units subject to regulatory approval, (iii) used for
        investment in real estate equities or for new accretive property
        acquisitions, (iv) applied against any remaining high-cost debt in
        the combined portfolio, or (v) used to fund upcoming convertible
        debenture maturities or repurchases. The combined entity's intention
        will be to continue to divest non-core assets, allowing management to
        focus its operational expertise on core income producing properties
        and those assets with value-added opportunities.

    -   Chief Operating Officer: Upon successful completion of the proposed
        merger transaction, Mr. Patrick J. Kryczka, a real estate industry
        veteran with over 20 years of experience, has agreed to join the
        combined entity. Having a full-time dedicated COO is expected to be
        viewed positively by tenants and produce improved results in
        occupancy rates, cash flow and equity value. Mr. Kryczka previously
        held senior industry positions in organizations such as Realex
        Properties Corp., Redcliff Realty Group, Deloitte & Touche LLP,
        TrizecHahn Office Properties and Bramalea Limited.
    

    Both Boards of Trustees have received fairness opinions from their
financial advisors, have determined that the proposed merger is in the best
interests of their respective unitholders, and have recommended (in the case
of Huntingdon REIT, upon the unanimous recommendation of the Special
Committee) that their respective unitholders vote in favour of the merger at
unitholder meetings that are expected to be held in October 2009. It is
expected that a joint information circular will be sent to the unitholders of
each trust in September 2009. The required unitholder approval of the proposed
merger will be two-thirds of the votes cast by IAT unitholders and a simple
majority of the votes cast by Huntingdon REIT unitholders other than
FrontFour.
    FrontFour, IAT's largest unitholder owning approximately 45% of the IAT
units outstanding, has entered into a voting agreement in support of the
transaction. "We are very pleased that approximately 45% of IAT's unitholders
have already expressed their support for the transaction," Mr. Goodman said.
    The merger is also subject to stock exchange approvals, certain required
consents and other customary closing conditions.
    There are no Canadian tax consequences to a HREIT unitholder as a result
of this transaction. For IAT unitholders, the transaction will trigger a
taxable disposition such that an IAT unitholder generally will realize a
capital gain or capital loss depending on their respective tax position. Upon
completion of the transaction, the combined entity intends to take the
necessary steps to qualify for the REIT exemption prior to January 1, 2011
under the SIFT legislation. The combination agreement provides that each party
is subject to non-solicitation provisions and for payment of a fee of $2
million to either party in the event that the merger is not completed for
certain reasons other than, among other things, failure to obtain unitholder
approval.
    The combined entity's Board of Trustees is expected to comprise seven
trustees consisting of three members from IAT's current board, three members
from Huntingdon REIT's current board and Zachary George in his role as
President and CEO. Gary Goodman will serve as Chairman of the new Board of
Trustees.
    "We are very pleased that Zach George, who will have an approximate 26%
indirect equity interest in the merged entity through his position as a
portfolio manager at, and a minority shareholder of, FrontFour, will be
leading the team as President and CEO," Mr. Goodman said. "Zach has
demonstrated a passion for the real estate business and a track record of
taking action for the benefit of all stakeholders as evidenced by his recent
internalization of asset and property management services at IAT at a nominal
cost, his hands-on approach to asset and property management, and his focus on
maintaining and enhancing tenant, lender and airport authority relationships."
    "We look forward to working with IAT's Board of Trustees, Zach and his
management team," Mr. Goodman concluded.
    RBC Capital Markets is acting as financial advisor to Huntingdon REIT in
connection with the transaction and Dundee Securities is acting as financial
advisor to IAT. Aikins, MacAulay & Thorvaldson LLP is acting as legal counsel
to Huntingdon REIT, and Davies Ward Phillips & Vineberg LLP is counsel to the
Special Committee of the Huntingdon REIT Board of Trustees. Clark Wilson LLP
is acting as legal counsel to IAT.
    For further information regarding the proposed merger transaction please
refer to the detailed investor presentation posted on both HREIT's
(www.hreit.ca) and IAT's (www.iat-yvr.com) websites.

    Huntingdon REIT is a real estate investment trust, which is listed on the
Toronto Stock Exchange under the symbols HNT.UN (Trust Units) and HNT.DB.C
(Series C Convertible Debentures). Huntingdon REIT owns 70 income producing
office, industrial, retail and standalone parking lot properties that have a
total gross leaseable owned area of 4.7 million square feet; two land parcels
held for development and other development and expansion opportunities within
the existing portfolio. The properties are located in Manitoba, Ontario,
Saskatchewan, Alberta, British Columbia and Northwest Territories. Huntingdon
REIT also owns CRESI Inc., a third party property management business. More
information about Huntingdon REIT can be found on its website at www.hreit.ca.

    IAT is an unincorporated, open-ended mutual fund trust under the laws of
British Columbia, which is listed on the Toronto Stock Exchange under the
symbol ACF.UN. IAT owns all of the shares of International Aviation Terminals
Inc. ("IAT Inc.") and IAT Management Limited Partnership ("IAT Management
LP"). IAT, IAT Inc. and IAT Management LP, specialize in the ownership,
construction, management and marketing of aviation-related facilities. IAT
currently owns, leases and manages approximately 1.1 million square feet of
air cargo and aviation related facilities, on ground-leased land at five of
Canada's leading international airports. Approximately 65% of IAT's holdings
are located at Vancouver International Airport, Canada's second largest
airport, with the balance of the facilities located in Calgary, Edmonton,
Saskatoon and Winnipeg. IAT Management LP provides management, operation and
administrative services to IAT. More information about IAT Air Cargo
Facilities Income Fund can be found on its website www.iat-yvr.com.

    Forward-Looking Information:

    The forward-looking statements contained in this news release represent
expectations as of the date hereof, and are subject to change after such date.
HREIT, IAT and the new combined entity disclaim any intention or obligation to
update or revise any forward-looking statements whether as a result of new
information, future events or otherwise, except as required under applicable
securities regulations.
    This press release may contain forward-looking statements with respect to
HREIT, IAT and the new combined entity and their respective operations,
strategy, financial performance and condition. These statements generally can
be identified by use of forward looking words such as "anticipate", "plan",
"should", "may", "will", "expect", "estimate", "intends", "believe" or
"continue" or the negative thereof or similar variations. The combined
entity's actual results could differ materially from those anticipated in
these forward-looking statements as a result of regulatory decisions,
competitive factors in the industries in which the REIT operates, prevailing
economic conditions, and other factors, many of which are beyond the control
of the combined entity. Such statements are qualified in their entirety by the
inherent risks and uncertainties surrounding future expectations, including
that the transaction contemplated herein is completed. Important factors that
could cause actual results to differ materially from expectations, or could in
certain circumstances result in a termination of the combination agreement
discussed herein, include, among other things, general economic and market
factors, competition, changes in government regulation and the factors
described under "Risk Factors" in the annual information forms of each of
HREIT and IAT. The cautionary statements qualify all forward-looking
statements attributable to HREIT, IAT and the new combined entity and persons
acting on their behalf. Unless otherwise stated, all forward-looking
statements speak only as of the date of this press release and the parties
have no obligation to update such statements.

    This press release shall not constitute an offer to sell, or the
solicitation of an offer to buy, any securities in any jurisdiction. The
issuance of this press release is not an admission that any entity named in
this press release owns or controls any units of HREIT or IAT or is a joint
actor with any other entity.

    Adjusted Funds From Operation ("AFFO") is not a measure recognized under
Canadian generally accepted accounting principles ("GAAP") and does not have a
standardized meaning prescribed by GAAP. AFFO is referenced in this press
release because the proposed new management team of the combined entity
believes that this non-GAAP measure is a relevant measure of the combined
entity's profitability. AFFO computed by HREIT, IAT or the new combined entity
may differ from similar computations as reported by other similar
organizations and, accordingly, may not be comparable to the AFFO reported by
such organizations.

    
    The Toronto Stock Exchange has not reviewed or approved the contents of
    this press release and does not accept responsibility for the adequacy or
    accuracy of this press release.
    





For further information:

For further information: IAT Contact, Zachary R. George, President and
Chief Executive Officer, Tel: (604) 249-5119, Fax: (604) 249-5101, Email
zgeorge@iat-yvr.com; Huntingdon Contact, Gary Goodman, Trustee and Chairman of
Special Committee, Tel: (416) 929-0108, Fax: (416) 646-2673, Email:
ggoodman@ridc.com

Organization Profile

IAT AIR CARGO FACILITIES INCOME FUND

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