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TORONTO, Nov. 15, 2021 /CNW/ - Slate Office REIT
(TSX: SOT.UN) (the "REIT"), an owner and operator of office real
estate, announced today that it has reached agreement with Yew
Grove REIT Plc ("Yew Grove"), on the terms of the proposed cash
offer pursuant to which an indirect wholly-owned subsidiary of the
REIT would acquire all of the issued and outstanding shares of Yew
Grove, for cash consideration of €1.017 per share (the "Proposed
Acquisition"). The Proposed Acquisition remains conditional on,
amongst other things, the closing of the Offering, following which
the REIT will make a formal offer to acquire Yew Grove, and the
approval of Yew Grove's shareholders. The Proposed Acquisition was
announced today by the REIT and Yew Grove by way of an announcement
of a possible offer in accordance with the requirements of Rule 2.4
of the Irish Takeover Panel Act 1997, Takeover Rules 2013 (the
"Irish Takeover Rules"). A copy of that announcement can be
accessed on the REIT's website at
slateofficereit.com/regulatory-filings.
Yew Grove is a REIT that is dual-listed on the Euronext Dublin
(Ireland) and London stock exchanges. Yew Grove owns a high
quality, fit-for-purpose portfolio of 23 office, life sciences and
lite-industrial properties located in Ireland (the "Portfolio").
The Proposed Acquisition is valued at C$254.8 million1 (€177.4 million), and
the Board of Yew Grove have confirmed their recommendation of the
Proposed Acquisition, conditional only on the closing of the
Offering (as defined below) and the making of a firm offer by the
REIT in accordance with Rule 2.5 of the Irish Takeover Rules.
"This is a transformational opportunity for Slate Office REIT to
acquire a portfolio of modern properties underpinned by exceptional
quality tenants," said Steve
Hodgson, Chief Executive Officer of Slate Office REIT. "The
Proposed Acquisition, upon completion, would improve the REIT's
portfolio metrics and the durability of our cash flows, generating
immediate accretion for unitholders. With this initial acquisition
in Ireland, we would be well
positioned to pursue other attractive growth opportunities across
Europe."
Brady Welch, a Trustee of the
Board of the REIT and a London-based Founding Partner of Slate Asset
Management ("Slate"), the REIT's manager, added: "We have developed
a deep understanding of the landscape in Europe since entering the market in 2013,
having underwritten over €21 billion of office opportunities in the
last few years alone. These are quality properties in a
rapidly-growing market with strong real estate fundamentals, and we
are very pleased to be investing alongside the Offering and
supporting the Proposed Acquisition with our established platform
in the region."
HIGHLIGHTS OF THE PROPOSED ACQUISITION
- Entry into a growing new market below replacement
cost:
-
- Ireland's pro-business
environment, leading GDP growth, strong foreign direct investment
("FDI") and growing, highly educated workforce make it an
attractive market in Europe
- Well-located Portfolio being acquired below replacement
cost
- Improves portfolio metrics and accretive to adjusted funds
from operations ("AFFO"):
-
- Improves the REIT's operating metrics and income growth
potential, with a Portfolio occupancy of 94.8%, an 8.9 year
weighted average lease term ("WALT") and in-place rents that are
below market
- Increases exposure to credit-quality tenants, with 95% of the
Portfolio's income secured by investment grade, FDI and government
occupiers
- Expected to be immediately accretive to funds from operations
("FFO") per unit and AFFO per unit
- Increases portfolio's scale, diversification and pipeline
for future growth:
-
- Adds high-quality life sciences and technology tenants driving
strong local office demand
- Further diversifies and derisks the REIT's revenue streams,
with 65% of pro forma net operating income ("NOI") derived from
Canada, 18% from the U.S. and 17%
from Ireland
- Significantly increases the REIT's future acquisition
pipeline
- Supported by Slate's established platform in Europe:
-
- Slate is investing in the deal through a private placement to
maintain its 9.5% pro-rata ownership interest in the REIT
- Slate's approximately €1.2 billion European platform has
offices in London, Dublin, Frankfurt and Luxembourg with 20 professionals who provide
local market knowledge and relationships
Subject to the satisfaction of certain conditions, the Proposed
Acquisition is expected to close in Q1 2022.
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1 Assumes
EUR-CAD exchange rate of 1.4365
|
FINANCING FOR THE PROPOSED ACQUISITION
The Proposed
Acquisition will be financed through: (i) the sale, on a "bought
deal" basis, of C$55.0 million of
subscription receipts (the "Subscription Receipts") and
C$75.0 million aggregate principal
amount of 5.50% extendible convertible unsecured subordinated
debentures (the "Debentures") (collectively, the "Offering"), (ii)
a C$5.8 million private placement of
units of the REIT to Slate (the "Private Placement"), (iii)
approximately C$134.4
million2 of new property-level debt at an
attractive effective interest rate of 2.65%, and (iv) existing
balance sheet liquidity.
Through a cross currency interest rate swap, the REIT intends to
exchange the Canadian dollar denominated principal and interest
payments for the Debentures to Euro denominated principal and
interest payments, resulting in an effective interest rate to the
REIT of approximately 3.70% for the Debentures.
In addition to the previously completed disposition of 1 Eva
Road in Toronto, ON and 4 Herald
Avenue in Corner Brook, NL for
approximately C$37 million,
management intends to continue to selectively recycle capital and
has earmarked approximately C$100
million of properties to dispose of in early 2022
(collectively, the "Dispositions"). Pro forma for the Proposed
Acquisition, the Offering, the Private Placement and the
Dispositions, the REIT's leverage is expected to be approximately
59%. The REIT intends to actively lower its leverage ratio towards
its long-term target of approximately 55%.
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2 Assumes
EUR-CAD exchange rate of 1.4365
|
PORTFOLIO OVERVIEW
The properties are well located in
major markets across Ireland, with
52% of assets in the Portfolio located in the Dublin catchment. Life sciences and technology
occupiers comprise nearly half of the Portfolio by net rent,
increasing the REIT's exposure to emerging industries that are
fueling strong office demand in the region. Importantly, 95% of the
Portfolio's NOI is secured by credit-quality tenants, complementing
the REIT's existing high quality tenant base. Throughout the
COVID-19 pandemic, the portfolio demonstrated best-in-class
resilience, with rent collections averaging approximately 99%.
MANAGEMENT PLATFORM
Upon completion of the Proposed
Acquisition, Slate would onboard the existing Yew Grove team to
ensure continuity. The team has a strong track record of growth in
Ireland and in-depth local market
knowledge and relationships, which would position the REIT to
capitalize on a significant pipeline.
IRELAND MARKET
OVERVIEW
Slate has reviewed over €21 billion of office
opportunities across Europe in
recent years and identified Ireland as a compelling new growth market that
has the potential to complement and significantly expand the REIT's
existing platform. According to the European Commission's Summer
2021 Economic Forecast, Ireland's
2021 GDP growth is forecast to be 7.2%, the second highest growth
level in the European Union ("EU"). The country's growing economy
is supported by the Industrial Development Agency ("IDA"), a
government agency focused on business development and FDI into
Ireland. It is the only
English-speaking nation in the EU and, according to Eurostat, has
one of the youngest and fastest growing populations in the region,
with 33% being under the age of 25 years old. The country's
pro-business environment, strong economic profile and compelling
investment fundamentals have attracted many of the world's largest
and most influential businesses to the region.
Dublin's position as a top
global technology city of the future is driving strong demand for
office space. Office fundamentals across broader Ireland remain robust, with positive leasing
momentum in Q3 2021. Dublin rents
in particular are forecasted to grow after 2022, as projects under
construction, which are estimated to be 40% pre-let, come online
and office fundamentals continue to strengthen. Likewise,
industrial fundamentals remain strong across Ireland, with vacancy rates at near all-time
lows and limited new construction supporting strong rental
levels.
THE OFFERING AND PRIVATE PLACEMENT
In connection with
the Proposed Acquisition, the REIT has entered into an agreement
with a syndicate of underwriters (the "Underwriters") led by RBC
Capital Markets and BMO Capital Markets (the "Lead Underwriters"),
to sell on a "bought deal" basis: (i) 11,225,000 Subscription
Receipts of the REIT at a price of C$4.90 per Subscription Receipt for gross
proceeds of approximately C$55.0
million, and (ii) C$75.0
million aggregate principal amount of Debentures. In
addition, the REIT has granted the Underwriters over-allotment
options to purchase up to an additional 1,683,750 Subscription
Receipts and C$11.3 million aggregate
principal amount of Debentures on the same terms and conditions,
exercisable at any time, in whole or in part, until the earlier of
(i) 30 days following closing of the Offering, and (ii) the
occurrence of a Termination Event (as defined below).
In addition to the Offering, Slate has agreed to purchase
approximately C$5.8 million of units
of the REIT pursuant to a private placement. The closing of the
Private Placement will constitute an Escrow Release Condition (as
defined below). As a result of the Private Placement, Slate's
effective ownership interest in the REIT is expected to remain at
approximately 9.5% (before the exercise of the over-allotment
option).
On satisfaction of the Escrow Release Conditions: (i) one unit
of the REIT (each, a "Unit") will be automatically issued in
exchange for each Subscription Receipt (subject to customary
anti-dilution adjustments), without payment of additional
consideration or further action by the holder thereof, (ii) an
amount per Subscription Receipt equal to the amount per Unit of any
cash distributions made by the REIT for which record dates have
occurred during the period from closing of the Offering to the date
immediately preceding the date upon which the Units are issued or
deemed to be issued to the holders of the Subscription Receipts,
pursuant to the terms of the agreement governing the Subscription
Receipts (the "Subscription Receipt Agreement"), net of any
applicable withholding taxes, will become payable in respect of
each Subscription Receipt, and (iii) the net proceeds from the sale
of the Subscription Receipts and the Debentures will be released
from escrow to or as directed by the REIT.
The net proceeds from the sale of the Subscription Receipts and
the Debentures will be held by an escrow agent pending satisfaction
or waiver of (A) all conditions precedent to the Proposed
Acquisition in accordance with the terms of the material documents
relating to the Proposed Acquisition, without amendment or waiver
in a manner that would be materially adverse to the terms and
conditions upon which the REIT proposes to effect the Proposed
Acquisition, unless the consent of the Lead Underwriters is given
to such amendment or waiver, other than (i) the payment of the
consideration to be paid for the Proposed Acquisition for which the
escrowed funds are required, and (ii) such conditions precedent
that by their nature are to be satisfied at the time of the closing
of the Proposed Acquisition, and (B) all conditions precedent to
the Private Placement in accordance with the terms of the material
agreements relating to the Private Placement, without amendment or
waiver in a manner that would be materially adverse to the terms
and conditions upon which the REIT is effecting the Private
Placement, in each case unless the consent of the Lead Underwriters
is given to such amendment or waiver, other than the payment of the
consideration to be paid for the Private Placement that will occur
concurrently with the delivery of an escrow release notice in
accordance with the terms of the Subscription Receipt Agreement
(the "Escrow Release Conditions"). There can be no assurance that
any requisite approvals will be obtained, closing conditions will
be met or that the Proposed Acquisition will be consummated on the
terms described herein, if at all.
The Debentures will bear an interest rate of 5.50% per annum,
payable semi-annually in arrears on June
30 and December 31 in each
year commencing June 30, 2022. The
June 30, 2022 interest payment will
represent accrued interest for the period from closing of the
Offering to June 30, 2022.
The maturity date for the Debentures will initially be the date
upon which a Termination Event occurs (the "Initial Maturity
Date"). If the Proposed Acquisition closing occurs prior to the
occurrence of a Termination Event, the maturity date for the
Debentures will automatically be extended to December 31, 2026 (the "Final Maturity Date").
Provided that the maturity date for the Debentures has been
automatically extended to the Final Maturity Date, each Debenture
will be convertible into Units at the option of the holder prior to
the close of business on the earliest of: (i) the last business day
before the Final Maturity Date, or (ii) if called for redemption,
the business day immediately preceding the date specified by the
REIT for redemption of the Debentures at a conversion rate of
approximately 153.8462 Units per C$1,000 principal amount of Debentures, which is
equal to a conversion price of C$6.50
per Unit.
Upon the occurrence of a Termination Event, the gross proceeds
of the Offering and pro rata entitlement to interest earned or
deemed to be earned on the Subscription Receipts, net of any
applicable withholding taxes, will be paid to holders of the
Subscription Receipts, and the Subscription Receipts will be
cancelled.
A "Termination Event" means the earliest to occur of any of: (i)
the failure to satisfy (or to be deemed to have satisfied) the
Escrow Release Conditions on or before 5:00
p.m. (Toronto time)
March 4, 2022 as such date may be
extended upon written agreement by the REIT and the Lead
Underwriters, (ii) the REIT delivering to the Lead Underwriters a
notice declaring that the Proposed Acquisition has been terminated
or that the REIT will not be proceeding with the Proposed
Acquisition, or (iii) the REIT formally announcing to the public by
way of a press release that it does not intend to proceed with the
Proposed Acquisition.
The Subscription Receipts and Debentures will be offered by way
of a prospectus supplement to the REIT's short form base shelf
prospectus dated April 29, 2021,
which prospectus supplement is expected to be filed with the
securities commissions and other similar regulatory authorities in
each of the provinces and territories of Canada on or about November 16, 2021. Further information regarding
the Offering, the Private Placement and the Proposed Acquisition,
including related risk factors, will be set out in the prospectus
supplement. The Offering and the Private Placement are subject to
the receipt of all necessary approvals, including the approval of
the Toronto Stock Exchange. Closing of the Offering is expected to
take place on or about November 19,
2021, and closing of the Private Placement is expected to
occur immediately prior to the closing of the Proposed
Acquisition.
The Subscription Receipts and the Debentures have not been, nor
will they be, registered under the United States Securities Act of
1933, as amended, (the "1933 Act") and may not be offered, sold or
delivered, directly or indirectly, in the
United States, or to, or for the account or benefit of,
"U.S. persons" (as defined in Regulation S under the 1933 Act),
except pursuant to an exemption from the registration requirements
of the 1933 Act. This press release does not constitute an offer to
sell or a solicitation of an offer to buy any Subscription Receipts
or Debentures in the United States
or to, or for the account or benefit of, U.S. persons.
About Slate Office REIT (TSX: SOT.UN)
Slate Office
REIT is an owner and operator of office real estate. The REIT owns
interests in and operates a portfolio of 32 strategic and
well-located real estate assets across Canada's major population centres and includes
two assets in downtown Chicago,
Illinois. 61% of the REIT's portfolio is comprised of
government or credit rated tenants. The REIT acquires quality
assets at a discount to replacement cost and creates value for
unitholders by applying hands-on asset management strategies to
grow rental revenue, extend lease term and increase occupancy.
Visit slateofficereit.com to learn more.
About Slate Asset Management
Slate Asset Management is
a global alternative investment platform focused on real estate. We
focus on fundamentals with the objective of creating long-term
value for our investors and partners. Slate's platform spans a
range of investment strategies, including opportunistic, value add,
core plus and debt investments. We are supported by exceptional
people and flexible capital, which enables us to originate and
execute on a wide range of compelling investment opportunities.
Visit slateam.com to learn more.
Statements required by the Irish Takeover Rules
The
trustees of the REIT accept responsibility for the information
contained in this announcement. To the best of the knowledge and
belief of the trustees of the REIT (who have taken all reasonable
care to ensure that this is the case) the information contained in
this announcement is in accordance with the facts and does not omit
anything likely to affect the import of such information.
Forward-Looking Statements
Certain information herein
constitutes "forward-looking information" as defined under Canadian
securities laws which reflect management's expectations regarding
objectives, plans, goals, strategies, future growth, results of
operations, performance, business prospects and opportunities of
the REIT. Some of the specific forward-looking statements contained
herein include, but are not limited to, statements with respect to
the intention of the REIT to complete the closing of the Proposed
Acquisition, the Offering, the Private Placement and the related
transactions contemplated herein on the terms and conditions
described herein, the effect of the Proposed Acquisition, the
Offering, the Private Placement and the related transactions
contemplated herein on the financial performance of the REIT, the
expected timing for completion of the Proposed Acquisition, the
closing date of the Offering and the Private Placement and the use
of proceeds of the Offering and the Private Placement. 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. Such forward-looking statements are qualified in their
entirety by the inherent risks and uncertainties surrounding future
expectations.
Forward-looking statements are necessarily based on a number of
estimates and assumptions that, while considered reasonable by
management as of the date hereof, are inherently subject to
significant business, economic and competitive uncertainties and
contingencies. When relying on forward-looking statements to make
decisions, the REIT cautions readers not to place undue reliance on
these statements, as forward-looking statements involve significant
risks and uncertainties and should not be read as guarantees of
future performance or results, and will not necessarily be accurate
indications of whether or not the times at or by which such
performance or results will be achieved. A number of factors could
cause actual results to differ, possibly materially, from the
results discussed in the forward-looking statements. Additional
information about risks and uncertainties is contained in the
filings of the REIT with securities regulators.
SOT-AD
SOURCE Slate Office REIT