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R and R Real Estate Investment Trust TSX Venture: RRR-UN-X

Today's Change
Real-Time Last Update TSX Venture Last Sale

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R&R REIT Announces US$52.0 Million Portfolio Acquisition

CNW Group - CND - Thu Aug 8, 7:18PM CDT


R&R Real Estate Investment Trust (the "REIT") (TSXV:RRR-UN.VN) today announced that it has, through certain of its subsidiaries, entered into an agreement to purchase eight properties (the "Acquisition Properties") for an aggregate purchase price of approximately US$52.0 million (the "Acquisition") from entities (the "Vendors") controlled by an arm's length third party and that Majid Mangalji, Executive Chairman and Trustee of the REIT and the largest beneficial unitholder of the REIT (on a fully diluted basis), and Michael Klingher, President and Chief Executive Officer of the REIT (as well as certain employees of Westmont Hospitality Group ("WHG"), which is controlled by Mr. Mangalji), have minority interests in.


--  The REIT agrees to acquire a portfolio of eight economy hotels
        located in the United States and comprising a total of 906
        rooms for an aggregate purchase price of approximately US$52.0
        million, subject to adjustment

    --  The Acquisition will increase the size of the REIT, from 12
        hotel properties with 1,473 rooms currently (subject to the
        pending disposition to an arm's length third party of the
        property located at 148 Regency Park, O'Fallon, IL 62269 and
        commonly referred to as "HomeTowne Suites O'Fallon" (the
        "Disposition Property") with 89 rooms that is expected to be
        completed in September 2019 (the "Disposition")) to 20 hotel
        properties with 2,379 rooms (19 hotel properties with 2,290
        rooms assuming completion of the Proposed Disposition),
        furthering the REIT's strategy of providing investors with the
        opportunity to indirectly acquire and own US hotel properties

    --  The Acquisition is expected to be immediately accretive to the
        funds from operations ("FFO") and adjusted funds from
        operations ("AFFO") per unit of the REIT

    --  As partial consideration, the Vendors will receive
        approximately US$9.6 million of Class B limited partnership
        units ("Class B LP Units") of a newly-formed limited
        partnership that will indirectly hold the Acquisition
        Properties (economically equivalent to and exchangeable for
        units of the REIT), at a price of C$0.20 per Class B LP Unit,
        and attached special voting units in the REIT, which, since
        these units are expected to ultimately be owned by entities
        controlled by Mr. Mangalji and Mr. Klingher (and in which the
        other WHG employees have an interest), will increase Mr.
        Mangalji's, Mr. Klingher's and their affiliates' effective
        aggregate interest in the REIT, assuming conversion of all
        Class B LP Units, from approximately 88% to approximately 90%
        (assuming an exchange rate of C$1.31 to US$1.00)

    --  The Acquisition must be approved by the affirmative vote of a
        majority of the minority REIT unitholders (excluding units held
        by Mr. Mangalji, Mr. Klingher, the other involved employees of
        WHG and their respective affiliates)

    --  A special committee of independent REIT trustees (the "Special
        Committee") was established to consider the Acquisition and
        reviewed independent appraisals of the Acquisition Properties
        from Cushman & Wakefield, Inc. and received a fairness opinion
        from Canaccord Genuity Corp.

    --  The independent trustees of the REIT unanimously recommend that
        unitholders vote in favour of the Acquisition

Description of the Acquisition Properties

The Acquisition Properties consist of eight economy hotels located in the United States, comprising an aggregate of 906 rooms. Four of the Acquisition Properties operate under the Red Roof Inn brand and the remaining four operate under the Red Roof Plus+ brand. The following table highlights certain key characteristics of the Acquisition Properties:


              Location    Year Built Rooms


        Red Roof Inn
     Canton, OH                   1975    108


        Red Roof Inn
     St. Clairsville, OH          1983    108


        Red Roof Inn
     Louisville, KY               1985    109


        Red Roof Inn
     Asheville, NC                1986    109


        Red Roof Plus+
     West Springfield, MA         1988    111


        Red Roof Plus+     Chicago Naperville, IL       1989    119


        Red Roof Plus+
     Phoenix Airport, AZ          1999    125


        Red Roof Plus+
     Boston Saugus, MA            2002    117


In 2018, the Acquisition Properties had aggregate revenues of US$18.3 million and aggregate hotel operating income of US$6.3 million.

Following the closing of the Acquisition, the REIT's portfolio will be comprised of 20 properties located in 12 states across the United States, representing an aggregate of 2,379 rooms (assuming completion of the Disposition, the REIT's portfolio will be comprised of 19 properties in 12 states across the United States, representing an aggregate of 2,290 rooms).

Acquisition Funding

The total acquisition cost of approximately US$53.6 million (including closing costs), subject to adjustment, will be satisfied by a combination of: (i) a mortgage loan of approximately US$34.0 million aggregate principal amount from a third party lender; (ii) the issuance of approximately US$9.6 million of Class B LP Units, at a price of C$0.20 per Class B LP Unit, and attached special voting units in the REIT; (iii) a US$7.0 million vendor-take back loan (the "VTB Loan") (which loan is ultimately expected to be held by entities controlled by Mr. Mangalji and Mr. Klingher (and in which entities the other WHG employees have an interest)); and (iv) approximately US$3.0 million in cash.

The VTB Loan will be separated into two tranches. The first tranche of US$3.5 million will be due March 2020 and will bear interest at a rate of 5.0% per annum. The second tranche of US$3.5 million will be due September 2021 and will bear interest at a rate of 6.0% per annum. The REIT will have the option to repay both tranches at any time without penalty.

Acquisition Details

The Acquisition will be completed pursuant to a purchase and sale agreement among the REIT and the Vendors (the "Purchase Agreement") and will be conditional upon the satisfaction of certain conditions including the approval of the unitholders of the REIT and TSX Venture Exchange approval, as well as other customary conditions for such a transaction. The Purchase Agreement also contains customary provisions for transactions of this nature, including representations, warranties, covenants and indemnities of the parties. A copy of the Purchase Agreement will be filed by the REIT under its profile on

Assuming all conditions to the completion of the Acquisition are satisfied or waived, the Acquisition is expected to occur in the third quarter of 2019.

A special unitholder meeting (the "Meeting") has been called by the REIT to approve matters relating to the Acquisition. As the Acquisition and VTB Loan constitute "related party transactions" under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"), they must be approved by a majority of the minority unitholders of the REIT (excluding units held by Mr. Mangalji, Mr. Klingher, the other involved WHG employees and their respective affiliates). The Meeting has been called for September 17, 2019. An information circular containing additional details regarding the business of the Meeting will be mailed to unitholders in advance of the Meeting.

A special committee of independent trustees was established by the REIT for the purposes of considering the Acquisition, the VTB Loan and related matters. The Special Committee reviewed independent appraisals of the Acquisition Properties from Cushman & Wakefield, Inc., which concluded that the estimated aggregate market value of the Acquisition Properties, based on valuation dates ranging from May 1, 2019 to May 13, 2019, was US$55.9 million. The Special Committee also received an opinion from Canaccord Genuity Corp. that, as at the date hereof and subject to certain assumptions, limitations and qualifications, the consideration to be paid by the REIT in connection with the Acquisition is fair, from a financial point of view, to unitholders of the REIT other than Mr. Mangalji and Mr. Klingher. The Special Committee has advised the board of trustees of the REIT that the Special Committee is of the view that, based on a variety of factors, the Acquisition (including the VTB Loan) is in the best interests of the REIT and the Special Committee has unanimously recommended to the board that the board recommend that REIT unitholders vote in favour of the Acquisition and the VTB Loan. The board has, in turn, resolved (with Mr. Mangalji declaring his interest and recusing himself from voting) to recommend that REIT unitholders vote in favour of the Acquisition and the VTB Loan.


Blake, Cassels & Graydon LLP and Winston & Strawn LLP acted as legal counsel to the REIT. Canaccord Genuity Corp. acted as financial advisor to the Special Committee.

Forward Looking Statements

Certain statements contained in this press release constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking statements are provided for the purposes of assisting the reader in understanding the REIT's financial performance, financial position and cash flows as at and for the periods ended on certain dates and to present information about management's current expectations and plans relating to the future, and readers are cautioned such statements may not be appropriate for other purposes. Forward-looking information may relate to future results, performance, achievements, events, prospects or opportunities for the REIT or the real estate industry and may include statements regarding the completion of the Acquisition, including receipt of all necessary unitholder, regulatory and other approvals required in connection therewith. In some cases, forward-looking information can be identified by such terms such as "may", "will", "should", "occur", "expect", "plan", "intend", "estimate", "potential", "schedule", or the negative thereof or other similar expressions concerning matters are not historical facts.

Forward-looking statements necessarily involve known and unknown risks and uncertainties, that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, assumptions may not be correct and objectives, strategic goals and priorities will not be achieved. A variety of factors, many of which are beyond the REIT's control, affect the operations, performance and results of the REIT and its business, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results. These factors include, but are not limited to, the risks discussed in the REIT's materials filed with Canadian securities regulatory authorities from time to time on, risks related to the Acquisition, risks related to the units and risks related to the REIT and its business. The reader is cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements as there can be no assurance actual results will be consistent with such forward-looking statements.

Information contained in forward-looking statements is based upon certain material assumptions that were applied in drawing a conclusion, including management's perceptions of historical trends, current conditions and expected future developments, including the closing of the Acquisition, the terms of the VTB Loan, closing of the Disposition, as well as other considerations that are believed to be appropriate in the circumstances, including the following: the Canadian economy will remain stable over the next 12 months; inflation will remain relatively low; interest rates will remain stable; conditions within the real estate market, including competition for acquisitions, will be consistent with the current climate; the Canadian capital markets will provide the REIT with access to equity and/or debt at reasonable rates when required; and that the risks referenced above, collectively, will not have a material impact on the REIT. While management considers these assumptions to be reasonable based on currently available information, they may prove to be incorrect. The forward-looking statements made in this press release are dated, and relate only to events or information, as of the date of this press release. Except as specifically required by law, the REIT undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

Non-IFRS Measures

FFO and AFFO are not measures defined under IFRS as prescribed by the International Accounting Standards Board, do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to profit/loss, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS. FFO and AFFO as computed by the REIT are unlikely to be comparable to similar measures as reported by other trusts or companies in similar or different industries.

FFO assumes that the value of real estate investments does not decrease on a systematic basis over time and it adjusts for items included in net income and comprehensive income that do not necessarily provide the best indicator of operating performance, such as gains or losses on the sale of assets, provisions for impairment (and impairment reversals) of assets as well as changes in the fair value of certain equity-based financial instruments classified as financial liabilities. FFO is used by industry analysts and investors in the determination of the REIT's valuation, its ability to fund distributions and investors' investment return requirements. As a result, management believes FFO is a useful supplemental measure of its operating performance for investors.

AFFO is calculated as FFO subject to certain adjustments. AFFO is an important measure for management as a guideline through which operating and financial decisions are made and is an integral part of the investment decision for investors and potential investors.

For a reconciliation of FFO and AFFO to the most directly comparable measures calculated in accordance with IFRS, see the REIT's management's discussion and analysis for the three months ended March 31, 2019, which can be found under the REIT's profile on

About R&R REIT

R&R REIT is an open-ended real estate investment trust focused on increasing unitholder value through the acquisition and ownership of hotel properties located in the United States.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE R&R Real Estate Investment Trust

View original content:

SOURCE: R&R Real Estate Investment Trust

Bob Choo, Chief Financial Officer, R&R Real Estate Investment Trust, at 905-206-7102
or e-mail

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