MONTREAL,
March 4, 2013 /CNW Telbec/ - Capital
BLF Inc. (the "Corporation"), a company listed on the TSX
Venture Exchange (the "TSX-V", (symbol: BLF)), announced
today that it has entered into agreements to acquire three
apartment properties (the "Acquisition Properties") in the
province of Québec for an aggregate purchase price of $55 million (the "Acquisitions"). In
addition to the Acquisitions, the Corporation announced a number of
strategic and structural initiatives, including:
- A proposed private placement of between $20 million and $25 million of common shares (the
"Private Placement")
- Confirmation of QSSP II eligibility
- Amendments to the Corporation's management agreements
- Implementation of a dividend policy
- Initiation of a feasibility study in connection with a possible
conversion into a real estate investment trust
The Acquisitions
The Acquisition Properties consist of three
properties comprised of a total of 554 apartment suites, with two
properties comprised of 330 suites located in Québec City and one
property comprised of 224 suites located in Montréal. The aggregate
purchase price of $55 million, to be
paid in cash, represents a capitalization rate of approximately
6.0% and an implied value of approximately $99,000 per suite. The weighted average occupancy
at the Acquisition Properties is 99%, with an average monthly rent
of $795 per suite. The Corporation
obtained independent third-party appraisals for each of the
Acquisition Properties, which valued the Acquisition Properties at
approximately $57 million in
aggregate, or $2 million in excess of
the proposed aggregate purchase price. Two of the three Acquisition
Properties were sourced off-market on an exclusive basis, and
demonstrate the Corporation's ability to leverage its deep local
relationships to efficiently locate and secure acquisition
opportunities throughout the province of Québec.
"Our goal is to become the preeminent
consolidator and landlord of multi-residential real estate in the
Province of Québec, Canada's
largest rental market. These acquisitions fully reflect the
new focus of our company which is to leverage our local,
entrepreneurial and prominent presence in our target markets in
order to identify attractive and accretive acquisition
opportunities for the company," said Mathieu Duguay, President and CEO.
The Acquisitions are expected to close in
March 2013, subject to obtaining the
required financing and TSX-V approval.
No finder's fee is payable by the Corporation in
connection with any of the Acquisition Properties. In addition,
each of the sellers of the Acquisitions Properties is acting at
arm's length with the Corporation and its insiders.
Property Descriptions
Domaine de Brugnon ("Brugnon")
Brugnon is a 246 suite apartment complex located
on Père-Lelièvre Blvd in Québec City, just south of the Galeries de
la Capitale shopping complex. Brugnon was built as a "condo-style"
residence in 1995, and consists of 42 individual buildings with
direct tenant access to large apartment suites. The property offers
a number of attractive community amenities including two heated
swimming pools, a volleyball court and a mini-putt course. Brugnon
is currently 100% occupied. The annual normalized net
operating income for Brugnon is approximately $1.9 million and the purchase price for Brugnon
represents a capitalization rate of approximately 5.7%. The
sellers of Brugnon are 9092-6064 Québec inc. and Stéphan Huot.
1111-1121 Mistral Street
("Mistral")
Mistral is a 224 suite apartment complex located
in the Villeray neighbourhood of Montréal with close access to
major transportation routes including highway 40 and Christophe
Colomb Avenue. The property consists of two towers of six storeys
each, was constructed in 1977 and has had major repair and
upgrading work done over the past ten years. The property has 38
interior and 123 exterior parking spaces, and offers tenants
desirable amenities such as a swimming pool which are unavailable
to tenants at many of the surrounding six-storey properties.
Mistral is currently 99% occupied. The annual normalized net
operating income for Mistral is approximately $1.0 million and the purchase price for Mistral
represents a capitalization rate of approximately 6.7%. The
seller of Mistral is La Société en commandite les immeubles 1111-21
Mistral.
111-115 Johnny-Parent ("Loretteville")
Loretteville is
an 84 suite apartment complex located in the "Haute St-Charles"
borough in the northwest part of Québec City, and is strategically
located along major transportation routes including highway 40 and
highway 573. The property consists of four, three-storey buildings,
and was built in 1971 with renovations between 2003 and 2008. The
property contains 100 parking spaces and a recently renovated
swimming pool, and is situated near many small shopping centres.
Loretteville is currently 95%
occupied. The annual normalized net operating income for
Loretteville is approximately
$400,000 and the purchase price for
Loretteville represents a
capitalization rate of approximately 6.0%. The sellers of
Loretteville are Danyel Rodrigue, Jocelyne Morisette, Monique Badeau and Arcadius Audet.
The annual normalized net operating income of
each of the Acquisition Properties is derived from the historical
financial information made available to management of the
Corporation in the course of management's due diligence.
Management has normalized the historical figures for certain
non-recurring expenses, for revenues derived from leases and
renewals entered into after the date of the financial information,
as well as for updated expenses estimates since such historical
data was made available. The normalized net operating income
for Brugnon includes a contractual income guarantee which is
determined by a formula based upon revenue derived from lease
renewals already signed for contracts beginning July 1, 2013.
Financing for the Acquisitions
The Corporation intends to finance the
Acquisitions through approximately $38
million of new and assumed CMHC insured mortgage financing
with a weighted average interest rate of 3.1% and a weighted
average term to maturity of 9.3 years, with the balance coming from
the net proceeds of the Private Placement.
The Corporation is also in discussions with a
lender to provide a $10 million
revolving acquisition facility that would be available to the
Corporation to finance future acquisitions.
The Private Placement
The Corporation has entered into an agency
agreement with Scotiabank and National Bank Financial Inc., as
co-lead agents, to complete a private placement of common shares,
at an issue price of $0.23 per share,
on a best-efforts basis of between $20
million and $25 million. In connection with the Private
Placement, the co-lead agents will receive a fee equal to 4% of the
gross proceeds raised from investors other than Mathieu Duguay, the President Chief Executive
Officer of the Corporation, upon closing. Mr. Duguay has indicated
his intention to purchase shares for an amount equal to 20% of the
proceeds of such Private Placement, subject to a maximum amount of
$4.7 million. In addition, Mr.
Claude Blanchet, Chairman of the
Board of the Corporation, has indicated his intention to purchase
shares in the Private Placement for an amount equal to $500,000. Following closing of the Private
Placement, assuming gross proceeds raised of $23.5 million, Mr. Duguay and Mr. Blanchet will
hold an ownership interest in the Corporation representing
approximately 19.99% and 3.27%, respectively.
In connection with the Private Placement, the
Corporation is relying on an exemption from the requirement to
obtain minority approval under Multilateral Instrument 61-101 -
Protection of Minority Security Holders in Special
Transactions given the fact that Fonds immobilier de solidarité
FTQ II, s.e.c. ("FIS"), a shareholder of the Corporation
acting at arm's length with Mr. Duguay and Mr. Blanchet and owning
approximately 20.56% of the issued and outstanding common shares of
the Corporation, confirmed that it will not participate in the
Private Placement and that it supports the Private Placement.
The Private Placement will be subject to all
applicable regulations, including a four month hold period on the
shares issued, and closing of the Private Placement will be subject
to the applicable conditions of Canadian securities laws and the
TSX-V being met.
Pro Forma Financial Profile of the
Corporation
Management estimates that upon closing of the
Acquisitions and the Private Placement, assuming gross proceeds
raised of $23.5 million at an issue
price of $0.23 per share, the pro
forma net asset value of the Corporation would be $0.22 per share, the pro forma adjusted funds
from operations of the Corporation for 2012 would be $0.012 per share and the pro forma debt/gross
book value of the Corporation would be 58%.
QSSP II Eligibility
The Corporation has obtained an advance ruling
from the Ministère du Revenu du Québec confirming that the
Corporation is a qualified corporation for the purposes of the
Québec Stock Savings Plan II ("QSSP II") and that the common
shares to be issued as part of the Private Placement will be
"qualified shares" for a QSSP II qualified mutual fund.
Amendments to Management Agreements
The Corporation has made a number of amendments
to the previously announced conditional asset management agreement
with First Investor, L.P. and conditional property management
agreement with Société de gestion Cogir s.e.n.c. (the "Amended
and Restated Asset Management Agreement" and "Amended and
Restated Property Management Agreement", respectively).
As per the terms of the Amended and Restated
Asset Management Agreement and the Amended and Restated Property
Management Agreement, these agreements will become effective upon
closing of the Private Placement.
The following is a summary of the amendments to
the agreements:
New Asset Management Agreement
The incentive fee payable to First Investor in
connection with the Amended and Restated Asset Management Agreement
will be equal to 15% of the Corporation's AFFO per share (as such
term is defined in the Amended and Restated Asset Management
Agreement) in excess of an AFFO per share hurdle rate of
$0.012 (the "AFFO Hurdle"),
multiplied by the Corporation's number of shares outstanding. The
AFFO Hurdle will be adjusted yearly on the basis of 50% of the
increase in the weighted average consumer price index. Previously,
the incentive fee was based on the Corporation's FFO per share.
The acquisition fee payable to First Investor in
connection with the Amended and Restated Asset Management Agreement
will now be 0.75% of the purchase price paid by the Corporation for
the first $200 million of
acquisitions in any given year, and 0.50% of the purchase price
paid by the Corporation on all acquisitions in that year
thereafter. Previously, the acquisition fee payable was 0.75% of
the purchase price paid by the Corporation for all
acquisitions.
The incentive fee and the acquisition fee may be
payable in shares, subject to TSX-V approval.
The term of the Amended and Restated Asset
Management Agreement will now expire at the earlier of i) five (5)
years or ii) the time the Corporation reaches an equity market
capitalization of $500 million.
Previously, the Amended and Restated Asset Management Agreement had
an initial term of ten (10) years, renewable for three additional
five (5) year periods.
New Property Management Agreement
The term of the Amended and Restated Property
Management Agreement will now expire at the earlier of i) five (5)
years or ii) the time the Corporation reaches an equity market
capitalization of $500 million.
Previously, the Amended and Restated Property Management Agreement
had an initial term of ten (10) years, renewable for three
additional five (5) year periods.
Dividend Policy
Conditionally upon closing of the Acquisitions
and the Private Placement, the Board of Directors of the
Corporation will implement a dividend policy whereby the
Corporation intends to pay a monthly cash dividend to holders of
its common shares. The Corporation intends to pay dividends on or
about the 15th of each month to shareholders of record
on the last business day of the preceding month. Conditionally upon
closing of the Acquisitions and the Private Placement, the
Corporation's first dividend, in the amount $0.0008 per share (representing an annualized
dividend of $0.0092 per share) is
expected to be paid on May 15, 2013
to shareholders of record on April 30, 2013. The amount and timing
of any future dividends will be determined by the Directors of the
Corporation in their absolute discretion. After closing of the
Acquisitions and the Private Placement, the Corporation will issue
a press release confirming the payment of a monthly cash dividend
to holders of its common shares.
Stock Options
Conditionally upon closing of the Acquisitions
and the Private Placement, the Board of Directors of the
Corporation will grant to certain members of management and its
directors stock options for common shares representing, in the
aggregate, 5% of the issued and outstanding common shares of the
Corporation at closing. The stock options will have a term of 5
years, an exercise price to be determined on the basis of the
closing price per share the day before the grant but of at least
$0.28 per share and they will vest
after a period of 2 years.
Feasibility Study of REIT Conversion
Following closing of the Acquisitions, the Board
of Directors of the Corporation intends to investigate the
feasibility of converting the Corporation to a real estate
investment trust (the "REIT Conversion"). Following
consultations with its legal, tax and financial advisors, if the
Board determines that it would be in the best interests of the
Corporation's shareholders to undertake the REIT Conversion, the
Board will make a proposal to shareholders for approval.
About Capital BLF Inc.
The principal business of the Corporation is
acquiring, holding, developing, maintaining, improving, leasing,
managing or otherwise dealing with income-producing multi-unit
residential properties located throughout Canada, primarily in the province of Québec.
The Corporation currently owns four properties consisting of nine
individual buildings located in Montréal, Dorval and Québec City.
Forward-Looking Information
This press release contains forward-looking
statements. Often, but not always, forward-looking statements can
be identified by the use of words such as "plans", "expects" or
"does not expect", "is expected", "estimates", "intends",
"anticipates" or "does not anticipate", or "believes", or
variations of such words and phrases or state that certain actions,
events or results "may", "could", "would", "might" or "will" be
taken, occur or be achieved. Forward-looking statements involved
known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements expressed or
implied by the forward-looking statements. Accordingly, readers
should not place undue reliance on forward-looking statements. The
factors identified above are not intended to represent a complete
list of the factors that could affect the Corporation.
There can be no assurance that the acquisitions
will be completed or that an equity financing will be completed.
Investors are cautioned that any information released or received
with respect to such transactions may not be accurate or complete
and should not be relied upon. Management disclaims any intention
or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or
circumstances, except as required by law.
The TSX-V has in no way passed upon the merits
of the proposed transactions and has neither approved nor
disapproved the contents of this press release.
Neither the TSX-V nor its Regulation Services
Provider (as that term is defined in policies of the TSX-V) accepts
responsibility for the adequacy or accuracy of this
release.
SOURCE CAPITAL BLF INC.