/NOT FOR DISTRIBUTION TO UNITED STATES NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES/
Symbol: PVT.UN (TSX-V)
TORONTO, Sept. 7, 2012 /CNW/ - Proventure Income Fund ("Proventure") (TSXV: PVT.UN) today announced that it has signed a subscription agreement with Founders Asset Management Corp. ("Founders") for a private placement (the "Founders Private Placement") of 8,200,000 trust units (the "Units") at a price of $0.32 per Unit for proceeds of $2,624,000. Prior to closing of the Founders Private Placement, Founders has the right to assign its rights under the subscription agreement to entities that include individuals that are members of senior management of Founders such that the entities and individuals would subscribe for the Units directly. The closing of the Founders Private Placement is expected to occur on September 25, 2012. Proventure also announced that Founders has informed Proventure that it has contracted to purchase a portfolio of four industrial properties in Canada for an aggregate purchase price of $50.1 million (the "Real Estate Portfolio"). Founders has further informed Proventure that, upon the closing of the Founders Private Placement, Founders anticipates that the right to acquire the Real Estate Portfolio will be assigned to Proventure (the "Acquisition") and Proventure will complete the acquisition which is expected to occur on September 27, 2012.
Founders has informed Proventure that Founders' intention is to grow Proventure by making acquisitions of industrial real estate properties in Canada that are accretive on a per unit basis. Proventure may also sell certain of the assets that it currently owns as part of its future plans. Founders has also informed Proventure that the current intention is that distribution may not commence until either asset value of Proventure reaches $200 million or one year after the date of the Acquisition.
Proposed Founders Private Placement
The Founders Private Placement is subject to the approval of the TSX Venture Exchange ("TSX-V") as well as certain customary conditions, including the resignations of all of the trustees and officers of Proventure save for Peter Lacey, the current CEO, and the appointment of the trustees and officers noted below. A copy of the subscription agreement for the Founders Private Placement will be filed under Proventure's profile on SEDAR at www.sedar.com.
The Founders Private Placement will result in the issuance of new units of Proventure representing approximately 51% of the then outstanding Units of Proventure. The TSX-V has advised Proventure that it requires consent from disinterested shareholders, holding more than 50% of the issued and outstanding Units of Proventure, to the Founders Private Placement. TSX-V policies provide that shareholder approval may be obtained by ordinary resolution at a general meeting of unitholders or by the written consent of unitholders holding more than 50% of the issued units of Proventure. Accordingly, Proventure sought and has received written consent of its disinterested unitholder, Peter Lacey, who owns or controls, approximately 70% of the Units of Proventure held by disinterested unitholders for the Founders Private Placement.
Founders has informed Proventure that the proceeds from the Founders Private Placement will be used to partially fund the Acquisition and for general working capital purposes.
New Trustees and Officers
Subject to TSX-V approval, the trustees and senior officers of Proventure upon the closing of the Founders Private Placement will be:
Peter Lacey - Trustee
Mr. Lacey has served as the President, Chief Executive Officer and a trustee of Proventure Income Fund since its formation in 2005. From 1982 to 2012, Mr. Lacey served as the President and CEO of Cervus Equipment Corporation and its predecessors, during which time he spearheaded its growth from a private company with a single equipment dealership in Alberta, to a public company listed on the TSX, that acquires and manages authorized agricultural, commercial, industrial and transportation equipment dealerships with interests in 56 dealerships located in Western Canada, New Zealand and Australia. Mr. Lacey currently serves as the Executive Chairman of Cervus Equipment Corporation. In addition, Mr. Lacey was the Chairman of Eveready Energy Services until it was acquired by Clean Harbors, a NYSE listed company in 2009, and served as a director of Collicutt Energy Services until it was acquired by Finning Canada in 2008. Mr. Lacey was also Chairman of the Board of Governors of Red Deer College for seven years until 2006. Mr. Lacey has also been President of the Canada West Equipment Dealers Association, and is currently the Past President of this trade association.
Mr. Lacey is currently a director of Entrec Transportation Services Ltd., a company listed on the TSX-V and BioExx Specialty Proteins Ltd., a company listed on the Toronto Stock Exchange.
Mr. Lacey resides in Red Deer, Alberta and currently owns or controls 5,514,240 units of Proventure and will not be purchasing any Units under the Founders Private Placement such that on the closing of the Founders Private Placement he will own or control 34.3% of the outstanding units on an undiluted basis.
Louis J. Maroun - Trustee
Mr. Maroun began his real estate career in 1982 following seven years with the Nova Scotia Department of the Attorney General. In 1996 he launched Summit Real Estate Investment Trust, and under his tenure as CEO, it grew to become one of Canada's largest REIT's and the country's largest publicly traded owner and manager of industrial real estate with approximately $3.5 billion in assets. Following Summit Real Estate Investment Trust's successful privatization by ING Real Estate in 2006, Mr. Maroun became Executive Chairman of ING Real Estate Canada until 2009. Mr. Maroun is also a former board member and former Lead Director of Acadian Timber Income Fund and former Chairman of InStorage REIT.
Currently, Mr. Maroun is the Chair of the Board of Trustees of Partners Real Estate Investment Trust, and the Executive Chairman of Sigma Real Estate Advisors Limited, an investment advisory firm specializing in the Canadian, United States and Bermuda real estate markets. Mr. Maroun is also a board member of Brookfield Infrastructure Partners, a TSX and NYSE listed public company and Brookfield Renewable Energy Partners, and is an advisor to, and board member of, two emerging Canadian technology companies.
In 2006, Mr. Maroun was honoured by his election to the position of Fellow of the Royal Institute of Chartered Surveyors.
Mr. Maroun resides in Devonshire, Bermuda and immediately after the Founders Private Placement will own 3,145,000 Units representing approximately 19.6% of the outstanding units of Proventure on an undiluted basis.
Paul Dykeman, CA - Trustee and CEO
Mr. Dykeman began his real estate career in 1990 as Controller of Roycom, a pension and mutual fund real estate advisor, prior to which he spent six years in a variety of increasingly senior roles with an international audit and accounting firm. In 1996, he, along with Mr. Maroun, launched Summit Real Estate Investment Trust and in 1998 was appointed its CFO. With Summit Real Estate Investment Trust's acquisition by ING Real Estate in 2006, Mr. Dykeman was appointed CEO of ING Real Estate Canada, responsible for all aspects of its operations, including real estate transactions, investment and property management, finance and ING Real Estate Canada's strategic direction.
Currently, Mr. Dykeman is CEO of Sigma Real Estate Advisors LLP, an investment advisory firm specializing in the Canadian, United States and Bermuda real estate markets. Mr. Dykeman is also a trustee of Partners Real Estate Investment Trust and Chairman of its Audit Committee.
Mr. Dykeman obtained a Bachelor of Commerce degree from Dalhousie University in 1984, and his chartered accountant designation in 1986.
Mr. Dykeman resides in Dartmouth, Nova Scotia and immediately after the Founders Private Placement will own 3,145,000 Units representing approximately 19.6% of the outstanding units of Proventure on an undiluted basis.
Jim Tadeson - Independent Trustee
Mr. Tadeson began his real estate career in 1987 and progressed through various acquisition, development and asset management roles, including as a partner with Ticor Realty Investment Advisors and Vice President, Acquisitions & Development for Morguard Investments Limited. In 1998 he joined Talisker Corporation where he was Senior Vice President, and was responsible for acquiring, structuring, financing, developing, re-developing, managing and disposing of a wide and varied portfolio of real estate assets in Canada, the U.S. and the U.K..
Mr. Tadeson founded Carttera Private Equities Inc. in 2005 and is the CEO of Carttera and each of its investment vehicles. Since founding Carttera, he has led the acquisition, financing, development and sale of over $1.4 billion of real estate held within six investment vehicles, raising capital from public, private and institutional sources. In April 2006, Mr. Tadeson founded InStorage Real Estate Investment Trust where he served as a trustee and the CEO until the company was taken private in March 2009.
Mr. Tadeson obtained an Honours Business Administration degree from the University of Western Ontario in 1987, and his Chartered Financial Analyst (CFA) designation in 1998.
Mr. Tadeson resides in Toronto, Ontario and immediately after the Founders Private Placement he will not own any units of Proventure.
Saul Shulman - Independent Trustee
Mr. Shulman began his career as a partner at Goodman & Carr LLP, where he worked for 39 years. He is a former Director of the Advisory Board of Brookfield Renewable Power Inc.; former Trustee of Brookfield Renewable Power Trust and a member of its Audit Committee; former Director of Brookfield Asset Management and a member of the Audit Committee and for a time, lead director; former Director of Tricon Capital Group Inc.; a former Director Summit Real Estate Investment Trust.; former Director of St. Andrew Goldfields Ltd.; a former Director of Trizec Corporation Ltd.; a former Director of Triumph Energy Corporation; a former Director of JDS Investments Limited. Mr. Shulman was appointed as Special Counsel to the Board of Directors of Mascan Corp. (the Board was appointed by the Supreme Court of Ontario).
Currently, Mr. Shulman is the CEO of MLG Management Inc., a position he has held since January 2005. In addition, he is a member of the Investment Committee of Tricon Capital GP Inc. and Tricon USA Inc.; a Trustee of Partners Real Estate Investment Trust and a board member and a member of the Audit Committee of Acadian Timber Corp; a Director of 1381216 Ontario Inc. (Castlemore Golf & Country Club/Intracorp Developments Ltd).
Mr. Shulman obtained a Bachelor of Commerce degree from the University of Windsor in 1960. He graduated from Osgoode Hall Law School in 1963 and was called to the Ontario Bar in 1965. Mr. Shulman was appointed Queen's Counsel, 1984.
Mr. Shulman resides in Toronto, Ontario and immediately after the Founders Private Placement will he will not own any units of Proventure.
Ross Drake, CA - CFO
Mr. Drake began his real estate career over 20 years ago. In 1995, he joined Roycom, a pension and mutual fund real estate advisor. In 1998, Mr. Drake joined Summit Real Estate Investment Trust where he served in a variety of increasingly senior roles. Following Summit Real Estate Investment Trust's acquisition by ING Real Estate in 2006, Mr. Drake joined ING Real Estate Canada, where he served as a director responsible for financial analysis from 2006 - 2008, and then as the company's Senior Vice President of Research and Analysis from 2008 - 2010.
Mr. Drake obtained a Bachelor of Arts from St. Francis Xavier University in 1981, a Masters in Business Administration from Dalhousie University in 1984, and his chartered accountant designation in 1986.
Mr. Drake resides in Dartmouth, Nova Scotia and immediately after the Founders Private Placement will own 455,000 Units representing approximately 2.83% of the outstanding units of Proventure on an undiluted basis.
Founders has informed Proventure that additional trustees may be added to the board in the future.
Founders has also informed Proventure that a new audit committee of Proventure will be appointed and the members of that committee will be Jim Tadeson, Saul Shulman and Peter Lacey.
Upon the closing of the Founders Private Placement, Founders has advised that Proventure will enter into a management agreement (the "Management Agreement") with Founders pursuant to which Founders will provide Proventure with the services necessary to manage the day-to-day operations of Proventure on the terms hereinafter set forth. The Management Agreement will have an initial term of ten years, subject to earlier termination in certain circumstances, and will be automatically renewed for successive five-year terms. At least six months prior to the end of each renewal term, the Trustees of Proventure who are independent of Founders will review the performance of Founders in carrying out its duties under the Management Agreement. If the independent Trustees determine that Founders has not met its obligations, they may determine that the termination of the Management Agreement should be submitted to a vote of Unitholders at a meeting. If termination of the Management Agreement is approved by at least two-thirds of the votes cast by the Unitholders at such a meeting, Proventure will have the right to terminate the Management Agreement upon at least 12 months' prior written notice, and the payment to Founders of an amount equal to 12 months' total fees.
The Management Agreement will, among other things, set out the fees payable to Founders for the services to be provided to Proventure, such fees being:
- a base annual management fee equal to 0.25% of the gross value of Proventure's assets;
- an incentive fee equal to 15% of Proventure's AFFO per unit, in excess of a hurdle amount;
- an acquisition fee for the purchase price paid by Proventure on the acquisition of a property equal to 1% of the first $50 million of the purchase price, 0.75% of the next $50 million of the purchase price, and 0.50% of any portion of the purchase price in excess of $100 million, payable so long as the gross book value of the properties owned by Proventure does not exceed $1 billion;
- a development fee in any amount to be negotiated between Founders and Proventure, not to exceed the fair market value for comparable services;
- a property management fee equal to 3.5% of the gross rental income from each multi-tenant property, and 2.5% of the gross rental income from each single-tenant property;
- a leasing fee equal to $1.00 per rentable square foot only for those properties where Founders provides leasing services.; and
- a capital expenditures fee equal to 5% of all hard construction costs incurred on any capital project of Proventure, where Founders is the project manager for the project and the hard construction costs of the project are in excess of $200,000.
Founders can elect to take all (or any percentage of all) fees payable to it under the Management Agreement (and any property management agreement) in the form of units of Proventure, rather than in cash. If units are to be issued in lieu of cash, such units will be issued at a price per unit equal to the greater of: (a) 95% of the weighted closing price of the units for the five previous days on the exchange on which the units are the most actively traded during that period, and (b) such price stipulated by such stock exchange, to a maximum of the weighted closing price of the units for the five previous days on the exchange on which the units are the most actively traded during that period. Prior to issuing units in lieu of cash, Founders will enter into an escrow agreement that (subject to certain exceptions) prohibits the trading of such units for a period of four years from the date of issue.
In the event of a change of control of Proventure, Founders will be entitled to payment equal to three years payment of all fees that would otherwise be payable in accordance with the terms of the Management Agreement.
The services of Founders being provided to Proventure are not exclusive to it. Subject to the provisions of a non-competition agreement to be entered into by Proventure and Founders, the Management Agreement does not prevent Founders from providing similar services to other clients or from engaging in other activities. However, pursuant to the terms of the Management Agreement, the affairs of Proventure are to be managed by Founders exclusively, such that Proventure is prevented from retaining any other person to perform any asset management or administrative services on its behalf, without the consent of Founders.
Founders has also informed Proventure that in addition to Paul Dykeman, as CEO, and Ross Drake, as CFO, being involved in the day to day management of Proventure, Jon Robbins, VP of Acquisitions of Founders, and Kim Hill, VP of Asset Management, Founders will also be involved with managing Proventure as part of their other employment duties with Founders. Mr. Robbins immediately after the Founders Private Placement will own 1,000,000 Units representing approximately 6.2% of the outstanding units of Proventure on an undiluted basis and Ms. Hill will own 455,000 Units representing approximately 2.8% of the outstanding units of Proventure on an undiluted basis.
Proventure also announced that Founders has advised that it has contracted to purchase the Real Estate Portfolio for an aggregate purchase price of $50.1 million which is expected to close on September 27, 2012 subject to obtaining the required financing and TSX-V approval. Founders has further advised that the vendor of the Real Estate Portfolio is at arm`s length from Founders and Proventure; the Real Estate Portfolio was marketed by BMO Capital Markets; the transaction is on terms that represent fair market value as determined between arm`s length parties; and the purchase agreement in respect of the Acquisition contains customary representations, warranties and conditions for transactions of this nature in Canada. Founders has also advised Proventure that, upon the closing of the Founders Private Placement, Founders anticipates that the right to acquire the Real Estate Portfolio will be assigned to Proventure and Proventure will complete the Acquisition.
The four properties that make up the Real Estate Portfolio are summarized as follows:
501 Palladium Drive - Distribution Warehouse
501 Palladium Drive is located in the City of Ottawa, Ontario and is a two-storey assembly and warehouse facility totaling 258,371 square feet, with approximately 18% office, located on a 15.38 acre site. Office and amenity space comprises 46,344 square feet, with the remaining space split evenly between warehousing and manufacturing. It is currently 100% occupied. The property was completed in 2007 to consolidate SMART Technologies' existing facilities in Ottawa into one centralized location. This operations and research facility provides a state-of-the-art environment that includes space for assembly, warehousing, research and development, administration and amenities (including a cafeteria and recreation room). High-level windows in the manufacturing area and skylights presiding over the two-storey lobby provide natural light into the building. The centred entrance and office area allows for tenant expansion of the facility. The entire property is currently under lease to SMART Technologies' until April 2017 and the entire property is currently available for sublease, with SMART Technologies occupying the office portion of the building. 501 Palladium Drive is located on the southwest corner of Palladium Drive and Silver Seven Road in the Kanata South Business Park ("KSBP"). KSBP is bounded by the Trans Canada Trail to the north, Eagleson Road to the east, Fernbank Road to the south and Terry Fox Drive to the west. Many smaller high-tech companies are home to the KSBP. The property is located down the street from Scotiabank Place, an 18,500-seat sports and entertainment complex, concert hall and home of the NHL's Ottawa Senators.
200 Iber Road - Distribution Warehouse
200 Iber Road is located in the City of Ottawa, Ontario and is a one-story, warehouse building totaling 75,743 square feet of gross leasable area. It is currently 100% occupied. The property is surrounded by a surface parking lot that has a total of 189 spaces with 3 designated trailer parking spaces at the west end of the property. The property is fully leased to four tenants, with an average remaining lease term of 6.2 years and weighted average rent of $6.65 per square foot. San Remo Lighting, one of the tenants, recently expanded by an additional 22,189 square feet effective March 2012 with an expiry in February 2022. 200 Iber Road is located at the northwest corner of the intersection of Iber Road and Abbott Street East in Kanata. The property benefits from excellent access to Hazeldean Road, Terry Fox Drive, Highway 417 and Highway 7. In addition, the property offers prime visibility on Iber Road and Abbott Street.
240 Laurier Boulevard - Cold Storage
240 Laurier Boulevard is located in the City of Brockville, Ontario and consists of a one-storey freezer/cooler warehouse facility having a total rentable area of 68,093 square feet. It is currently 100% occupied by Giant Tiger on a lease with a remaining lease term of over 13 years (December 2025). The property is demised into approximately 43,100 square feet of freezer warehouse, 14,500 square feet of cooler warehouse, 8,500 square feet of dock/warehouse and 2,000 square feet of office area. In addition, there is 2,007 square feet of mezzanine space not accounted for in the rentable area. The property was originally constructed in 2005 and expanded by an additional 30,200 square feet in 2010. 240 Laurier Boulevard is located on the southwest corner of the intersection of Laurier Boulevard and Broome Road, just north of Highway 401 in the John G. Broome Industrial Park. Brockville's location in Eastern Ontario offers great accessibility to all major markets in Ontario and Quebec, as well as the eastern US. Within a 500 km radius, a market of 135 million people can be serviced, and with two bridges connecting the city to the US, Brockville offers great access to international markets.
710 Neal Drive - Warehouse and Manufacturing
710 Neal Drive is located in the City of Peterborough, Ontario and consists of a one-storey, warehouse and manufacturing building totaling 101,601 square feet of gross leasable area, with approximately 10% office, located on an 8.69 acre site. It is currently 100% occupied on a lease to Dynacast Ontario Mouldings until July, 2018. The original section of the building was constructed in 1973 with later additions constructed in 1980 to the east, and 1984 and 1992 to the west of the original building. In 2001, approximately 46,700 square feet was added to both the west and north sides of the building. Currently, the building is undergoing a program of renovation, including complete roof replacement and mechanical equipment upgrades and overhauls, as well as interior lighting upgrades. The renovation began in 2010 and is scheduled to continue through to 2015, all of which will be at the tenant's expense. 710 Neal Drive is located on the south side of Highway 115, at the northeast corner of Neal Drive and Pido Road in Peterborough. The property is located in the Peterborough Industrial Park. The Park's demand is driven by nearby Highway 115, also known as the Peterborough Bypass and the Trans-Canada Highway which runs through Peterborough and connects the area to the Greater Toronto Area, Ottawa and Montreal. Industrial users seek to locate near this major roadway which provides excellent access for Peterborough to the rest of the province.
Proventure has been informed by Founders that Founders retained Cushman and Wakefield, an independent appraiser, for the purposes of the Acquisition who valued each property in support of the purchase price of the properties.
Environmental Site Assessments
Proventure has been informed by Founders that the Real Estate Portfolio was also assessed on June 6, 2012 by Golder Associates and peer reviewed on August 1, 2012 by RiskCheck Environmental Ltd. As a result of that assessment, a Phase II assessment was recommended for 710 Neal Drive in Peterborough which is underway and expected to be completed on September 19, 2012. There were no material issues identified 501 Palladium Drive, 200 Iber Road or 240 Laurier Boulevard.
Founders has informed Proventure that If any material issues are uncovered as a result of the Phase II assessment on 710 Neal Drive it will not be purchased by Proventure.
Financial Information on the Acquisition
Attached to this press release as Schedule "A" is the combined statement of financial position for Proventure compiled by Founders for Proventure to include in this release assuming Proventure had completed the Acquisition as at June 30, 2012 along with a financial forecast for the 12 months ended September 30, 2013. This financial information has been prepared internally by Founders based on information provided by the vendor of the Real Estate Portfolio along with publicly available information on Proventure and neither such statements, nor the financial information underlying such statements, have been audited.
It is anticipated that Proventure will prepare audited operating statements for the Real Estate Portfolio and include them in the BAR report required under National Instrument 51-102 that will be filed on SEDAR within 75 days of closing of the Acquisition.
If the Founders Private Placement is completed, Founders is proposing that Proventure finance the Acquisition by:
- entering into a debt financing ("Acquisition Debt Financing") with a Canadian chartered bank for up to $32 million; and
- conducting a private placement (the "Acquisition Private Placement") of units of Proventure for gross proceeds of between $25 million to $30 million.
Founders has informed Proventure that Founders is anticipating that Proventure will obtain the Acquisition Debt Financing from BMO Capital Markets ("BMO"), as agent and lead arranger in an amount of up to 65% of the appraisal value of the Real Estate Portfolio, not to exceed $32 million in the aggregate. The Acquisition Debt Financing will initially be used to finance the Acquisition; however, subsequent to its completion, the Acquisition Debt Financing will be available for general corporate purposes, including short-term financing of future acquisitions of commercial real estate investments. The Acquisition Debt Financing will mature on or about September 30, 2014, with Proventure having the option to prepay any amounts without penalty, subject to Proventure providing prior written notice to BMO. Founders have further advised Proventure that the Acquisition Debt Financing will be secured by the Real Estate Portfolio and an assignment of its leases and rents. BMO's security over the Real Estate Portfolio will rank in first priority and, subject to ordinary exceptions, no other charges will be permitted against the Real Estate Portfolio.
Founders has advised Proventure that, in connection with the Acquisition Private Placement, BMO will act as sole placement agent and receive a commission equal to 6% of the gross proceeds of the Acquisition Private Placement payable on the closing of the Acquisition Private Placement provided that no commission will be paid for any units purchased by the trustees or senior officers of Proventure or Founders in connection with such financing. The price per unit sold in the Acquisition Private Placement will be determined by negotiations between Proventure, BMO and the purchasers of the units under the Acquisition Private Placement. Currently, it is anticipated that upon completion of the Acquisition Private Placement, Founders (or entities and individuals to whom Founders has assigned its subscription rights) will hold an interest in Proventure representing approximately 18% of the then outstanding Units of Proventure.
Assuming the above financing is obtained and all other conditions are satisfied in respect of the Acquisition, including obtaining TSX-V approval, it is anticipated that Proventure will close the Acquisition shortly after the closing of the Founders Private Placement. If the Founders Private Placement does not close, Proventure will not complete the acquisition of the Real Estate Portfolio nor will it complete the Acquisition Debt Financing or the Acquisition Private Placement.
The Acquisition is a "Fundamental Acquisition" in accordance with the policies of the TSX-V. Both the acquisition of the Real Estate Portfolio and the Acquisition Private Placement are subject to TSX-V approval.
Completion of the transactions is subject to a number of conditions, including TSX-V acceptance. In addition, the private placement and related transactions cannot close until the required disinterested shareholder approval is obtained. There can be no assurance that the transactions will be completed as proposed or at all.
TSX-V has in no way passed upon the merits of the proposed transactions and has neither approved or disapproved the contents of this press release.
This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities of Proventure in the United States. The securities have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or unless an exemption from such registration is available.
Proventure is an open-ended mutual fund trust established under laws of the Province of Alberta. Proventure is in the commercial property development business and leases real estate to various parties. The units of Proventure are listed on the TSX-V and trade under the symbol "PVT.UN".
Caution Regarding Forward Looking Information
This news release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. More particularly and without limitation, this news release contains forward looking statements and information concerning the completion of the Founders Private Placement, the Acquisition, the Acquisition Debt Financing, the Acquisition Private Placement, the commencement of distributions and the forecast. The forward-looking statements and information are based on certain key expectations and assumptions made by Proventure and Founders, including the ability to obtain the various approvals required and general economic conditions. Although Proventure believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward looking statements and information because Proventure can give no assurance that they will prove to be correct. By its nature, such forward-looking information is subject to various risks and uncertainties, which could cause the actual results and expectations to differ materially from the anticipated results or expectations expressed. These risks and uncertainties, include, but are not limited to, tenant risks, current economic environment, environmental matters, general insured and uninsured risks and Proventure being unable to obtain any required financing and approvals. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date hereof, and to not use such forward looking information for anything other than its intended purpose. Founders and Proventure undertake no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.
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 release.
| Proventure Combined Statement of Financial Position
unaudited (thousands of Cdn $)
as at June 30, 2012
|Trade and other accounts receivable||60|
|Investment properties held for sale||4,440|
|Total current assets||4,500|
|Income producing properties||59,263|
|Total non-current assets||59,263|
|Trade and other accrued liabilities||168|
|Preferred units payable||1,125|
|Loans and borrowings on properties held for sale||2,547|
|Loans and borrowings||215|
|Total current liabilities||28,055|
|Loans and borrowings||5,828|
|Total non-current liabilities||5,828|
Proventure Forecasted Income Statement
| 12-months Ended
Sept 30, 2013
|Results from operating activities||$||4,922.5|
|Carrying costs on properties held for sale||(50.9)|
|General and Administrative Expenses||(459.4)|
|Net finance income (costs)||$||(1,745.1)|
|Profit before income taxes expenses||3,177.4|
|Income tax expense||-|
The above financial information and forecast has been prepared by management of Founders and been provided to Proventure for use in this press release for purposes of Proventure's continuous disclosure obligation using assumptions with an effective date of September 7, 2012. The forecast is forward-looking information. See "Caution Regarding Forward Looking Information" in the release that this Schedule A is a part of.
The financial information and forecast has not been reviewed by the auditors of Proventure or Founders. Proventure is not obligated and does not intend to update this forecast at any time in the future.
The financial information and forecast has been prepared using the assumptions described below under "Significant Assumptions", including those that reflect Founders', assuming it becomes the manager of Proventure, intended courses of action for Proventure for the periods covered, given Founders' judgment as to the most probable set of economic conditions. The forecast has been prepared after giving effect to the incurrence of certain amount of senior secured debt plus the issuance of equity of Proventure and the other transactions contemplated in the press release. The forecast assumes no acquisitions (other than the Acquisition) are completed during the period and that the capital structure at closing of the Acquisition is maintained throughout the forecast period.
|1|| Net finance income (costs) and adjusted funds from operations (''AFFO'') are not measures recognized under International Financial Reporting Standards (''IFRS'') and do not have standardized meanings prescribed by IFRS. Net finance income (costs) and AFFO are supplemental measures of a Canadian real estate investment trust's performance and Proventure has been informed by Founders that Founders believes that net finance income (costs) and AFFO are relevant measures of its ability to earn and distribute cash returns to Unitholders. The IFRS measurement most directly comparable to net finance income (costs) and AFFO is net income and a reconciliation of which is included above.
The assumptions used in the preparation of the above information, although considered reasonable by Founders at the time of preparation, may not materialize as forecasted as a result of unanticipated events and circumstances that occur subsequent to the date hereof. Accordingly, there is a significant risk that actual results achieved for the forecast period will vary from the forecast results and that such variations may be material. There is no representation by Proventure or Founders that actual results achieved during the forecast period will be the same in whole or in part as those forecast. Important factors that could cause actual results to vary materially from the forecast include those disclosed under "Risk Factors" set out below.
(A) Balance sheet
The financial forecast assumes that on September 25, 2012, Proventure will raise gross proceeds of $2.624 million from a private placement with Founders. The forecast assumes that a second private placement on September 27, 2012 will raise gross proceeds of $26.6 million. Costs relating to the private placement, including underwriters' fees are forecast to be $1.65 million and are charged directly to unitholders' equity. The forecast includes a fair value increase of the Proventure assets of $1.5 million to reflect current market value.
The forecast assumes that 2 properties in Proventure will be sold for $4.4 million and the proceeds of the sale will be partially used to repay $2.5 million of mortgages payable and $1.3 million of related party indebtedness. This transaction is assumed to occur as of March 31, 2013.
On closing it is assumed that Proventure will acquire 4 properties for a purchase price of $50.1 million and closing costs of $1.525 million. The acquisition will be financed from the proceeds of the 2 private placements and through drawing $24 million from a $32 million acquisition line of credit with a major Canadian Chartered bank.
(B) Revenue from income producing properties
Forecast revenue is based on rents from existing leases. The portfolio is 100% occupied and there are no leases that expire during the forecast period. The financial forecast assumes that existing tenants fulfill their current contractual lease obligations and remain in occupancy and pay rent for the forecast period. Revenue from income producing properties includes all base rent, operating costs, realty taxes and administration fee recoveries, and straight line rent of $0.2 million.
(C) Operating costs
Operating costs consist of repairs and maintenance, landscaping and snow removal realty tax expenses. The operating costs are based on the historical costs for the properties adjusted for changes in costs due to inflation and anticipated changes in realty tax rates.
(D) Carrying costs on properties held for sale
The forecast assumes that Proventure will incur interest costs of 4% on $2.5 million on mortgages on properties held for sale.
(E) Interest expense
Current mortgages payable of approximately $3.3 million and the acquisition line of credit drawn of $24 million have interest costs of the bank prime lending rate plus 1%. For the period of the forecast the bank prime-lending rate is assumed to be 3% resulting in an interest cost of 4%. The balance of the interest costs is based on interest rates on specific mortgages and the preferred units payable.
(F) Trust expenses
Trust expense reflect management's best estimate of legal fees, audit fees, trustee fees and the investment management fee payable to Founders.
(G) Size of Offering
The financial forecast assumes that the second private placement will raise gross proceeds of $26.6 million dollars. The private placement could raise up to $50 million. A private placement of $50 million would revise the forecast as follows: i) the equity in Proventure would increase from $29.9 million to $51.8 million; ii) the bank indebtedness would be reduced from $24 million to $2 million; and iii) the financing costs would be reduced by $878,000.
The value of real property and any improvements thereto depends on the credit and financial stability of tenants, and upon the vacancy rates of the properties. Net income will be adversely affected if a significant number of tenants are unable to meet their obligations under their leases. In the event of default by a tenant, delays or limitations in enforcing rights as lessor may be experienced and substantial costs in protecting Proventure's investment may be incurred. Furthermore, at any time, a tenant of any of the properties in which Proventure has an interest may seek the protection of bankruptcy, insolvency or similar laws that could result in the disclaimer and termination of such tenant's lease, any of which events could have an adverse effect on Proventure's financial condition and results of operations.
Current Economic Environment
Continued concerns about the uncertainty over whether the economy will be adversely affected by inflation, deflation or stagflation, and the systemic impact of increased unemployment, volatile energy costs, geopolitical issues, the availability and cost of credit, the Canadian mortgage market and a distressed commercial real estate market have contributed to increased market volatility and weakened business and consumer confidence. In addition, such market uncertainty could also have an adverse impact on the ability of Proventure's tenants and operators to maintain occupancy rates in Proventure's properties, which could harm Proventure's financial condition. If these economic conditions continue, Proventure's tenants and operators may be unable to meet their rental payments and other obligations due to Proventure, which could have a material adverse effect on Proventure.
Environmental legislation and regulations have become increasingly important in recent years. As an owner of interests in real property in Canada, Proventure is subject to various Canadian federal, provincial and municipal laws relating to environmental matters. Such laws provide that Proventure could be, or become, liable for environmental harm, damage or costs, including with respect to the release of hazardous, toxic or other regulated substances into the environment, and the removal or other remediation of hazardous, toxic or other regulated substances that may be present at or under its properties. Further, liability may be incurred by Proventure with respect to the release of such substances from Proventure's properties to properties owned by third parties, including properties adjacent to Proventure's properties. The failure to remove or otherwise address such substances or properties, if any, could potentially result in claims against Proventure by public or private parties by way of civil action. Proventure is not aware of any material non-compliance with environmental laws at any of its properties, and is not aware of any pending or threatened investigations or actions by environmental regulatory authorities in connection with any of its properties.
Proventure has been informed by Founders that the necessary capital and operating expenditures will be made to comply with environmental laws and address any material environmental issues and such costs relating to environmental matters may have a material adverse effect on Proventure's business, financial condition or results of operation. However, environmental laws can change and Proventure may become subject to even more stringent environmental laws in the future, with increased enforcement of laws by the government. Compliance with more stringent environmental laws, which may be more rigorously enforced, the identification of currently unknown environmental issues or an increase in the costs required to address a currently known condition may have an adverse effect on Proventure's financial condition and results of operation.
General Insured and Uninsured Risks
The business carried on by Proventure entails an inherent risk of liability. Proventure expects that from time to time it may be subject to lawsuits as a result of the nature of its business. Proventure will carry comprehensive general liability, fire, flood, extended coverage and rental loss insurance with customary policy specifications, limits and deductibles. Proventure will have insurance for earthquake risks, subject to certain policy limits, deductibles and self-insurance arrangements, and will continue to carry such insurance if it is economical to do so. There can be no assurance, however, that claims in excess of the insurance coverage or claims not covered by the insurance coverage will not arise or that the liability coverage will continue to be available on acceptable terms. A successful claim against Proventure not covered by, or in excess of, Proventure's insurance could have a material adverse effect on Proventure's business, operating results and financial condition. Claims against Proventure, regardless of their merit or eventual outcome, also may have a material adverse effect on their ability to attract tenants or expand their businesses, and will require management to devote time to matters unrelated to the operation of the business.
The forecast results contained in this press release were prepared using assumptions that reflect the Founders's intended course for Proventure for the periods covered, given the judgment of the proposed new management of Proventure as to the most probable set of economic conditions. There can be no assurance that the assumptions reflected in the forecast will prove to be accurate. Actual results for the forecast period may vary from the forecast results and those variations may be material. There is no representation by Proventure that actual results achieved in the forecast period will be the same, in whole or in part, as those forecasted herein. See ''Caution Regarding Forward-Looking Information."
SOURCE: Proventure Income Fund
For further information:
Peter Lacey - President & CEO
of Proventure Income Fund
Telephone: (403) 567-0339
Fax: (403) 567-0392
Email: [email protected]
Randy Muth - Chief Financial Officer
of Proventure Income Fund
Telephone: (403) 567-0339
Fax: (403) 567-0392
Email: [email protected]