- Melcor REIT Unitholders will receive $4.95 in cash per Trust
Unit
- The transaction represents a premium of 61.3% to the REIT’s
30-day volume weighted average unit price on the TSX
- Melcor REIT’s 5.10% convertible unsecured subordinated
debentures, with a maturity date of December 31, 2024, will be paid
out in cash upon closing of the Transaction
- The REIT will have a 30-day “go-shop” period during which it is
permitted to solicit superior proposals
- The REIT's Board of Trustees unanimously recommends that
Unitholders vote in favour of the transaction
Melcor Developments Ltd. ("Melcor" or the
“Company”) (TSX: MRD) and Melcor Real Estate Investment Trust
("Melcor REIT" or the "REIT") (TSX: MR.UN) today announced that
they have entered into an arrangement agreement (the “Arrangement
Agreement”) under which Melcor will acquire its unowned equity
interest (approximately 45%) in Melcor REIT Limited Partnership
(“REIT LP”) for $4.95 per unit in cash consideration (the “REIT LP
Sale”). Melcor’s unowned equity interest in REIT LP comprises all
REIT LP’s outstanding Class A LP Units (approximately 13.0 million
units). The REIT will use the proceeds from the REIT LP Sale to
repurchase and cancel (collectively with the REIT LP Sale, the
“Transaction”) all of the REIT’s outstanding participating trust
units (“Trust Units”).
Holders of Trust Units (the “REIT Unitholders”)
will receive $4.95 per Trust Unit in cash (the “Consideration”),
representing a premium of 46.0% to the REIT’s closing unit price on
September 12, 2024, the last trading day prior to the announcement
of the Transaction, and a 61.3% premium to the 30-day volume
weighted average unit price. Additionally, on or about the closing
of the Transaction, Melcor will cause the redemption of, and will
pay out in cash, all $46.0 million (plus any accrued and unpaid
interest) of the REIT’s 5.10% convertible unsecured subordinated
debentures having a maturity date of December 31, 2024 (the
“Debentures”).
The REIT's Board of Trustees (the “REIT Board”),
based on the recommendation of a special committee of independent
trustees of the REIT Board (the "REIT Independent Committee"), has
unanimously recommended that unitholders (the "Unitholders") vote
in favour of the Transaction. BMO Capital Markets, financial
advisor to the REIT, and Ventum Financial Corp. (“Ventum Capital
Markets”), independent financial advisor and independent valuator
to the REIT Independent Committee, have each rendered fairness
opinions to the effect that, as at September 12, 2024, subject to
the assumptions and limitations described therein, the
Consideration to be received by the REIT Unitholders pursuant to
the Transaction is fair, from a financial point of view. In
addition, Ventum Capital Markets delivered its independent formal
valuation pursuant to which it concluded that, as at September 12,
2024, that, subject to the assumptions and limitations described
therein, the fair market value of the Trust Units is in the range
of $3.50 to $5.00 per Trust Unit.
Timothy Melton, Melcor’s Executive Chair and
Chief Executive Officer, commented: “On behalf of the Board of
Directors, I advise Melcor’s shareholders that the Company has
entered into this significant and strategic transaction that will
bring Melcor’s income property portfolio back under Melcor’s full
ownership.”
Richard Kirby, Trustee of the REIT and Chair of
the REIT Independent Committee, commented: “Following an in-depth
strategic review process, the REIT Independent Committee is pleased
to announce this important transaction, which represents a 46.0%
premium to the REIT’s closing unit price on September 12, 2024 and
maximizes value for REIT Unitholders.”
Transaction Details
The Transaction is structured as a statutory
plan of arrangement under the Business Corporations Act (Alberta).
Completion of the Transaction, which is expected to occur in the
fourth quarter of this year, is subject to customary closing
conditions, including court approval and the approval of holders of
Trust Units and Special Voting Units (as defined below), among
others. The plan of arrangement will include a distribution by the
REIT to REIT Unitholders of record immediately prior to closing in
an amount equal to the REIT’s estimate of its taxable income,
including taxable income to be allocated from the REIT LP to the
REIT, in its current taxation year. Such distribution will be
payable by the issuance of additional Trust Units which will
immediately be consolidated.
With respect to the redemption of the REIT’s
Debentures, Melcor, the REIT and the REIT LP have entered into a
credit agreement (the “Backstop Loan Agreement”) pursuant to which
Melcor will loan to the REIT an amount sufficient to repay the
principal amount of the outstanding Debentures on or before
December 31, 2024 if the Transaction is not completed prior to
December 17, 2024 (subject to certain prescribed exceptions). Any
amount advanced under the Backstop Loan Agreement will bear
interest at a rate of 12% per annum, payable semi-annually, and
have a maturity date three years following the date of advance.
Pursuant to the Arrangement Agreement, the REIT
will have a 30-day go-shop period that will extend from September
12, 2024 to October 14, 2024 (the "Go-Shop Period"), during which
it is permitted to solicit third-party interest in submitting a
proposal which is superior to the proposal made by Melcor. Melcor
will have the right to match a superior proposal during and after
the Go-Shop Period. There can be no assurance that the go-shop
process will result in a superior proposal. If the REIT is
successful in soliciting a superior proposal as a result of the
go-shop process, there will be a fee payable to Melcor of $2.9
million (a “Go-Shop Fee”). The Arrangement Agreement also includes
customary provisions, including non-solicitation by the REIT of
alternative transactions following the conclusion of the Go-Shop
Period, and a $5.8 million termination fee payable to Melcor under
certain customary circumstances where a Go-Shop Fee is not
otherwise payable.
Completion of the Transaction will be subject to
various closing conditions, including the approval of at least (i)
two-thirds (66 2/3%) of the votes cast by the REIT Unitholders and
holders of special voting units of the REIT (the “Special Voting
Units”) present in person or represented by proxy at the special
meeting to be called to approve the Transaction (the “Special
Meeting”), voting as a single class (each holder of Trust Units and
Special Voting Units being entitled to one vote per Trust Unit or
Special Voting Unit, as applicable) and (ii) the majority of the
holders of Trust Units present in person or represented by proxy at
the Special Meeting, excluding the votes of Melcor, and any other
unitholders whose votes are required to be excluded for the
purposes of “minority approval” under Multilateral Instrument
61-101 – Protection of Minority Security Holders in Special
Transactions (“MI 61-101”). Further details regarding the
applicable voting requirements will be contained in a management
information circular (the “Circular”) to be filed with applicable
regulatory authorities and mailed to holders of Trust Units and
Special Voting Units in connection with the Special Meeting to
approve the Transaction.
Copies of the Arrangement Agreement and the
Backstop Loan Agreement will be filed with Canadian securities
regulators and will be available on the SEDAR+ profile of each of
Melcor and the REIT at www.sedarplus.ca. In addition, a copy of the
Circular will also available on the REIT’s SEDAR+ profile at
www.sedarplus.ca. All parties desiring details with respect to the
Transaction are urged to read those and other relevant materials
when they become available.
Subject to and upon completion of the
Transaction, the Trust Units and the Debentures will cease to be
listed on the TSX.
Advisors
CIBC Capital Markets is acting as exclusive
financial advisor to Melcor and Bryan and Company LLP is acting as
legal counsel to Melcor. ATB Capital Markets is acting as strategic
advisor to the independent committee of Melcor.
BMO Capital Markets is acting as exclusive
financial advisor to the REIT and Ventum Capital Markets is acting
as independent financial advisor and independent valuator to the
REIT Independent Committee.
DLA Piper (Canada) LLP is acting as legal
counsel to the REIT Independent Committee and legal counsel to the
REIT in connection with the Transaction.
Melcor Early Warning
Disclosure
Melcor currently owns 16,125,147 Special Voting
Units of the REIT and 14,899,325 Class B LP Units of REIT LP (each
of which is exchangeable for a Trust Unit). Such Special Voting
Units and Class B LP Units together represent a 55.4% effective
ownership interest in the REIT. Following the completion of the
transaction, Melcor will have a 100% effective ownership interest
in the REIT.
About Melcor Developments Ltd.
Melcor is a diversified real estate development
and asset management company that transforms real estate from raw
land through to high-quality finished product in both residential
and commercial built form. Melcor develops and manages mixed-use
residential communities, business and industrial parks, office
buildings, retail commercial centres and golf courses. Melcor owns
a well diversified portfolio of assets in Alberta, Saskatchewan,
British Columbia, Arizona and Colorado.
Melcor has been focused on real estate since
1923. The company has built over 170 communities and commercial
projects across Western Canada and today manages 4.79 million sf in
commercial real estate assets and 460 residential rental units.
Melcor is committed to building communities that enrich quality of
life - communities where people live, work, shop and play.
Melcor’s headquarters are located in Edmonton,
Alberta, with regional offices throughout Alberta and in Kelowna,
British Columbia and Phoenix, Arizona. Melcor has been a public
company since 1968 and trades on the Toronto Stock Exchange
(TSX:MRD).
About Melcor REIT
Melcor REIT is an unincorporated, open-ended
real estate investment trust. Melcor REIT owns, acquires, manages
and leases quality retail, office and industrial income-generating
properties in western Canadian markets. Its portfolio is currently
made up of interests in 37 properties representing approximately
3.12 million square feet of gross leasable area located across
Alberta and in Regina, Saskatchewan; and Kelowna, British
Columbia.
Forward Looking Statements
This news release includes forward-looking
information within the meaning of applicable Canadian securities
laws. In some cases, forward-looking information can be identified
by the use of words such as “may”, “will”, “should”, “expect”,
“intend”, “plan”, “anticipate”, “believe”, “estimate”, “predict”,
“potential”, “continue”, and by discussions of strategies that
involve risks and uncertainties, certain of which are beyond
Melcor's and the REIT’s control. In this news release,
forward-looking information includes, among other things,
statements relating to expectations with respect to the timing and
outcome of the Transaction and the anticipated benefits of the
Transaction to the parties and their respective security holders.
The forward-looking information is based on certain key
expectations and assumptions made by each of Melcor and the REIT,
including with respect to the structure of the Transaction and all
other statements that are not historical facts. The timing and
completion of the Transaction is subject to customary closing
conditions, termination rights and other risks and uncertainties
including, without limitation, required regulatory, court, and
unitholder approvals. Although management of each of Melcor and the
REIT believe that the expectations reflected in the forward-looking
information are reasonable, there can be no assurance that any
transaction, including the Transaction, will occur or that it will
occur on the timetable or on the terms and conditions contemplated
in this news release. The Transaction could be modified,
restructured or terminated. Readers are cautioned not to place
undue reliance on forward-looking information. Additional
information on these and other factors that could affect Melcor and
the REIT are included in reports on file with Canadian securities
regulatory authorities and may be accessed through the SEDAR+
website (www.sedarplus.ca).
By its nature, such forward-looking information
necessarily involves known and unknown risks and uncertainties that
may cause actual results, performance, prospects and opportunities
in future periods of Melcor and the REIT to differ materially from
those expressed or implied by such forward-looking statements.
Furthermore, the forward-looking statements contained in this news
release are made as of the date of this news release and neither
Melcor, nor the REIT nor any other person assumes responsibility
for the accuracy and completeness of any forward-looking
information, and no one has any obligation to update or revise any
forward-looking information, whether as a result of new
information, future events or such other factors which affect this
information, except as required by law.
Contact Information:
Investor Relations
Tel: 1.780-945-4795
ir@melcor.ca
Melcor Developments (TSX:MRD)
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