TORONTO, July 2, 2013 /CNW/ - WPT Industrial Real Estate Investment Trust (the "REIT") (TSX: WIR.U) announced today that it has entered into an agreement with Welsh Property Trust, LLC ("Welsh"), the external asset and property manager of the REIT, and certain others, pursuant to which the REIT, through WPT Industrial, LP (the "Partnership") (the REIT's operating subsidiary), will indirectly acquire from Welsh an industrial property for a total purchase price of approximately US$53 million (exclusive of closing and transaction costs and acquisition fee).
The proposed acquisition is expected to close in July 2013 and is subject to the completion of Welsh's indirect acquisition of the property and customary closing conditions.
The property, located in Pontoon Beach, Illinois, is a single-tenant bulk distribution building, totalling approximately 1.3 million square feet of gross leaseable area with 32-foot clear ceiling height, cross-dock configuration, ample trailer storage on three sides of the building, 185-foot truck court depth and ESFR sprinkler systems. The property is currently 100% leased to Conopco, Inc. dba Unilever Home & Personal Care USA, a division of Unilever (NYSE: UN), with a lease expiration of June 30, 2023.
"We are pleased to announce our first acquisition since the completion of our initial public offering in April 2013," commented Scott Frederiksen, Chief Executive Officer. "In addition to expanding our geographic footprint into the St. Louis market, the purchase will be immediately accretive to the REIT's adjusted funds from operations and aligns with our objective to acquire stabilized, high quality industrial properties in attractive U.S. markets that are expected to enhance the predictability and sustainability of the REIT's cash distributions to unitholders."
The property is currently owned by a third party that has entered into a purchase and sale agreement with Welsh to sell the property to Welsh. The property is being acquired by the REIT from Welsh pursuant to provisions related to the REIT's right of first opportunity under a non-competition and non-solicitation agreement among the REIT, the Partnership and Welsh. Pursuant to that agreement, the purchase price to the REIT to acquire the property from Welsh is equal to Welsh's cost of acquisition plus certain permitted expenses incurred by Welsh and Welsh will be entitled to be paid by the REIT the acquisition fee set out in the asset management agreement among the REIT, the Partnership and Welsh. The acquisition fee for the proposed acquisition will be approximately US$530,000.
The total purchase price for the proposed acquisition (exclusive of closing and transaction costs and acquisition fee) will be satisfied by: (i) the indirect assumption by the Partnership of a senior secured promissory note in the principal amount of US$31.8 million with a per annum floating interest rate of 2.25% plus the one-month LIBOR rate and a 90-day maturity date, which note will be secured by a mortgage on the property and will be pre-payable without premium or penalty, at any time and from time to time, in whole or in part; and (ii) the issuance by the Partnership of 2,192,347 Class B partnership units of the Partnership ("Class B Units"). The REIT expects the promissory note to be repaid on or prior to the maturity date for the note by obtaining from a third party financial institution mortgage financing secured by the property.
The number of Class B Units to be issued to a subsidiary of Welsh has been determined applying a price of US$9.67 per unit, which is the 20-trading day volume-weighted average price for the trust units of the REIT for the period up to and including June 28, 2013. The closing price of the trust units on the Toronto Stock Exchange (the "TSX") on June 28, 2013 was US$9.60 per unit.
Welsh currently owns 10,867,362 Class B Units. Following the proposed acquisition, Welsh will directly and indirectly own 13,059,709 Class B Units, representing an approximate 53.3% effective interest in the REIT (assuming all Class B Units are redeemed for Units, but otherwise on a non-diluted basis).
Under the agreement for the acquisition, the REIT and Welsh have agreed to certain terms that will apply to the Class B Units to be issued under the agreement unless and until the REIT has received all necessary acceptances and approvals from the TSX for the issuance and listing on the TSX of such Class B Units, including a restriction on the transfer or redemption of such Class B Units and a liquidity right exercisable whereby the holder may request the Partnership to purchase for cancellation all or any portion of such Class B Units. It is expected that any such purchases would be financed by a sale of trust units or other equity securities of the REIT.
Since the proposed acquisition constitutes a "related party transaction" under Multilateral Instrument 61- 101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"), the proposed acquisition was reviewed and considered by the independent members of the board of trustees of the REIT. The Lead Trustee took a lead role in respect of the examination and review of the proposed acquisition by the independent trustees.
Based upon, among other things, the recommendations of, and discussions with management of the REIT, discussions with management of Welsh, considering the advice of its financial and legal advisors and its own review and consideration of the proposed acquisition and related agreements, the independent members of the board of trustees reviewed and determined the proposed acquisition to be in the best interests of the REIT and unanimously approved the proposed acquisition.
MI 61-101 provides a number of circumstances in which a transaction between an issuer and a related party may be subject to valuation and minority approval requirements. An exemption from such requirements is available when the fair market value of the transaction is not more than 25% of the market capitalization of the issuer. The REIT has been granted exemptive relief from the requirements of MI 61-101 that, subject to certain conditions, permits it to be exempt from the minority approval and valuation requirements for transactions that would have a value of less than 25% of the REIT's market capitalization, if the Class B Units held by Welsh and any of its permitted transferees (as set out in section 11.3A(1) of the limited partnership agreement governing the Partnership) are included in the calculation of the REIT's market capitalization. As a result, the 25% threshold, above which the minority approval and valuation requirements would apply, is increased to include the approximately 48.7% indirect effective interest held by Welsh and any of its permitted transferees in the REIT in the form of Class B Units (assuming all Class B Units are redeemed for Units, but otherwise on a non-diluted basis). Consequently, the proposed acquisition is not subject to the valuation and minority approval requirements under MI 61-101.
This press release is being issued less than 21 days before the expected closing date of the proposed acquisition. The board of trustees of the REIT has determined that it was both reasonable and necessary to complete the transaction on an expedited basis in order to achieve certain efficiencies by completing the review and indirect acquisition of the property by the Partnership contemporaneously with the review and indirect acquisition of the property by a Welsh subsidiary from a third party vendor.
About WPT Industrial Real Estate Investment Trust
WPT Industrial Real Estate Investment Trust is an unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. The REIT has been formed to own and operate an institutional-quality portfolio of primarily industrial properties located in the United States, with a particular focus on warehouse and distribution industrial real estate. WPT Industrial, LP (the REIT's operating subsidiary) indirectly owns a portfolio of properties consisting of approximately 8.6 million square feet of gross leasable area, comprised of 35 industrial properties and two office properties located in 12 states in the United States. Welsh Property Trust, LLC is the external asset manager and property manager of the REIT.
This press release contains "forward-looking information" as defined under applicable Canadian securities law ("forward-looking information" or "forward-looking statements") 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 in this press release include, but are not limited to, statements with respect to: the closing of the proposed acquisition and the expected closing date; the REIT's expectation that the senior secured promissory note indirectly assumed by the Partnership in connection with the purchase of the property will be repaid on or prior to the maturity date for the note by obtaining mortgage financing secured by the property from a third party financial institution; expectations regarding accretion to the REIT's adjusted funds from operations and enhancement of the predictability and sustainability of the REIT's cash distributions; and the expectation that purchases for cancellation of Class B Units pursuant to the liquidity right under the agreement for the acquisition would be financed by a sale of trust units or other equity securities of the REIT. Forward-looking statements are necessarily based on a number of estimates and assumptions that, while considered reasonable by management of the REIT as of the date of this press release, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The REIT's estimates, beliefs and assumptions, which may prove to be incorrect, include the various assumptions set forth herein, including, but not limited to, the REIT's and the property's future growth potential, results of operations, future prospects and opportunities, the demographic and industry trends remaining unchanged, no change in legislative or regulatory matters, future levels of indebtedness, the tax laws as currently in effect remaining unchanged, the continual availability of capital, the current economic conditions remaining unchanged, and continued positive net absorption and declining vacancy rates in the markets in which the REIT's properties are located.
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, 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 materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under "Risk Factors" in the REIT's final prospectus dated April 18, 2013, which is available under the REIT's profile on SEDAR at www.sedar.com. These forward-looking statements are made as of the date of this press release and, except as expressly required by applicable law, the REIT assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Funds from operations ("FFO") and adjusted funds from operations ("AFFO") are not measures recognized under International Financial Reporting Standards as issued by the International Accounting Standards Board and as adopted by the Canadian Institute of Chartered Accountants in Part I of The Canadian Institute of Chartered Accountants Handbook — Accounting, as amended from time to time ("IFRS") and do not have standardized meanings prescribed by IFRS. FFO and AFFO are supplemental measures of a Canadian real estate investment trust's performance and the REIT believes they are relevant measures of the ability of the REIT to earn and distribute cash returns to investors in the REIT's trust units and to evaluate the REIT's performance. The IFRS measurement most directly comparable to FFO and AFFO is net income.
"FFO" is defined as net income in accordance with IFRS, (i) plus or minus fair value adjustments on investment properties; (ii) plus or minus gains or losses from sales of investment properties; (iii) plus or minus other fair value adjustments; (iv) plus amortization of tenant incentives; (v) plus transaction costs expensed as a result of the purchase of a property being accounted for as a business combination; (vi) plus distributions on redeemable or exchangeable units treated as interest expense; (vii) plus or minus any negative goodwill or goodwill impairment; and (viii) plus deferred income tax expense, after adjustments for equity accounted entities and joint ventures calculated to reflect FFO on the same basis as consolidated properties. FFO has been prepared consistently with the definition presented in the White Paper on funds from operations prepared by the Real Property Association of Canada for all periods presented.
"AFFO" is defined as FFO subject to certain adjustments, including: (i) amortization of fair value mark-to-market adjustments on long-term debt and amortization of financing costs; (ii) adjusting for any differences resulting from recognizing property rental revenues or expenses on a straight-line basis; (iii) amortization of grant date fair value related to compensation incentive plans; (iv) adjusting for any non-cash compensation expense; and (v) deducting a reserve for normalized maintenance capital expenditures, tenant inducements and leasing commissions, as determined by the REIT. Other adjustments may be made to AFFO as determined by the trustees of the REIT in their sole discretion.
FFO and AFFO should not be construed as alternatives to net income and comprehensive income determined in accordance with IFRS as indicators of the REIT's performance. The REIT's method of calculating FFO and AFFO may differ from other issuers' methods and accordingly may not be comparable to measures used by other issuers.
SOURCE: WPT Industrial Real Estate Investment Trust
For further information:
Scott Frederiksen, Chief Executive Officer
WPT Industrial Real Estate Investment Trust
Tel: (952) 897-7737
Fax: (952) 842-7737