NorRock Realty Finance Corporation and Partners REIT Enter into Acquisition Agreement - Partners REIT to Acquire the Assets of NorRock

 

October 17, 2011 - NorRock Realty Finance Corporation (“NorRock”) (TSX: RF.A; RF.PR.A; RF.WT) and Partners Real Estate Investment Trust (“Partners REIT”) (TSXV: PAR.UN) announced today that they have entered into an acquisition agreement whereby Partners REIT will acquire all the assets of NorRock, consisting of cash, cash equivalents, mortgages and other assets from NorRock in exchange for the issuance of Partners REIT units, certain rights to acquire Partners REIT units and cash. The transaction will be carried out by NorRock as a plan of arrangement (the “Arrangement”) under the Business Corporations Act (Ontario).

It is anticipated that, at closing, holders of NorRock preferred shares will receive $23.75 per share in Partners REIT units (based on an agreed issue price of $1.73 per Partners REIT unit), and holders of NorRock Class A shares will receive $5.94 per share in Partners REIT units together with Rights (described below) to receive additional value of approximately $1.47 per share, resulting in proceeds potentially totalling approximately $7.41 per NorRock Class A share. The Rights will represent the right to receive a pro rata share of the net value (determined as described below) of the mortgages and other non-cash assets that Partners REIT will purchase from NorRock at closing, to the extent that such net value exceeds $12.6 million. If the net value of those assets so determined reflects NorRock's current book value for those assets, then the Rights will have a value of approximately $1.47 per NorRock Class A share.

“We believe the proposed transaction will provide Partners REIT with new growth capital and we look forward to investing this new capital in accretive growth initiatives that will increase cash flow and add value for our unitholders,” commented Lou Maroun, Chairman of the Independent Committee and the Board of Trustees of Partners REIT. “In addition to providing further capital to Partners which will allow it to continue to acquire retail real estate assets, we are pleased that we will also be expanding our unit holder base substantially, and providing the shareholders of NorRock with the opportunity to receive monthly distributions on their investment and to grow with us,” Mr. Maroun stated.

“This transaction offers the holders of both Class A and preferred shares of NorRock a significant premium to the current market prices as well as the opportunity to participate in a more liquid growth oriented security which pays a monthly distribution” said Gordon Pridham, Chairman of the Independent Committee and the Board of Directors of NorRock.

The Transaction

At closing, Partners REIT will pay for the cash and cash equivalents held by NorRock, currently valued at approximately $38.3 million (the “Cash at Closing Payment”). In addition, it will pay for the non-cash assets of NorRock through an initial payment of $12.6 million (the “Assets at Closing Payment”), subject to adjustment as described below. To the extent that assets are sold prior to closing, the amount of the net proceeds will be deducted from the Assets at Closing Payment and added to the Cash at Closing Payment.

After closing, Partners REIT may retain or may sell the non-cash assets acquired from NorRock.

Partners REIT will make the Cash at Closing Payment and Assets at Closing Payment by transferring to NorRock the following units and cash (excluding the accrued dividend and payments to stock appreciation rights holders which will be funded by NorRock), which would, under the Arrangement, be distributed to NorRock shareholders on the following basis:

  1. for each NorRock preferred share, 13.72824 Partners REIT units, a number derived by dividing $23.75 (the implied selling price of the preferred shares) by $1.73 (the implied issue price per Partners REIT unit) together with cash equal to any accrued dividend, or, at the option of a holder, 12.71676 Partners REIT units and $1.75 in cash together with cash equal to any accrued dividend;

  2. for each NorRock Class A share, that number of Partners REIT units calculated by determining the amount of the Cash at Closing Payment and Assets at Closing Payment, less an amount equal to the number of issued and outstanding NorRock preferred shares multiplied by $23.75, and dividing the result by the number of outstanding NorRock Class A shares (the amount per share being the “NorRock Class A Share Consideration”) and then dividing by $1.73 (the implied issue price per Partner unit); and

  3. for each of the 150,000 NorRock stock appreciation rights outstanding, an amount in cash equal to the NorRock Class A Share Consideration minus $5.11.

The NorRock preferred shares will be cancelled in connection with the distribution under the Arrangement. The holders of NorRock Class A shares and the holder of the NorRock Class J share will continue to hold their shares and be the sole shareholders of NorRock following the transaction.

The number of units of Partners REIT that holders of NorRock shares will receive at closing is based on an agreed price of $1.73 per Partners REIT unit, which issue price may be higher or lower than the market price of such units on the date of issue.

As holders of the Partners REIT units, the current holders of the NorRock Preferred and Class A shares will be entitled to monthly distributions on the Partners REIT units received by them. In addition, the holders of NorRock Class A shares and the holders of stock appreciation rights may be entitled to receive additional Partners REIT units as described below.

At Closing, Partners will issue non-transferable rights (“Rights”) to NorRock and such Rights will be distributed pro rata to the holders of Class A shares and stock appreciation rights as part of the Arrangement. These Rights will entitle the holder to receive Partners REIT units (or, in Partners REIT’s discretion, a cash payment in lieu of all or a portion of such units) corresponding to that holder’s pro rata share of the Deferred Payment described below. The number of Partners REIT units to be issued will be calculated based on the five day volume weighted average trading price of the Partners REIT units determined at the time of issue.

It is expected that holders of NorRock Class A shares and stock appreciation rights will receive additional payments after closing pursuant to the Rights, which will be paid on a pro rata basis based upon the number of Class A shares and stock appreciation rights held by them at closing. The aggregate of such payments (the “Deferred Payment”) will be equal to (A) the Liquidated Value, plus (B) the Retained Value, less (C) the Assets at Closing Payment less (D) 20% of the amount (if any) by which the Liquidated Value exceeds the Assets at Closing Payment.

After closing, Partners REIT may choose to sell the mortgages and other non-cash assets it has purchased from NorRock. If Partners REIT chooses to sell any of such assets before July 1, 2012, such assets will be valued at the net sale price (in the case of a sale to parties that are arm’s-length to Partners REIT, or at a price equal to or above an independent valuation if such asset is sold to a party that is not arm’s-length to Partners REIT) (the “Liquidated Value”). If Partners REIT continues to hold any such assets on July 1, 2012, it will have such assets valued as of July 1, 2012 by two independent and qualified valuators by August 1, 2012. The average valuation will be considered to be the “Retained Value” for such assets.

In accordance with the terms of the Rights, the Deferred Payment will be made up to 90 days following the earlier of (i) the liquidation of all non-cash assets acquired by Partners REIT from NorRock and (ii) August 1, 2012. If the Deferred Payment reflected the full principal amount of the mortgages and non-cash assets, then it is estimated that this will result in additional net value of approximately $1.47 per NorRock Class A share and stock appreciation right. However, there can be no assurance that $1.47 per NorRock Class A share will be realized.

At closing, based on the assumptions set out in this press release it is expected that approximately 29,432,120 Partners REIT units will be issued at closing (representing approximately 92% of the currently issued and outstanding Partners REIT units). In payment of the Deferred Payment (and assuming that in calculating the number of Partners REIT units to be issued in payment of the Deferred Payment that the five day volume weighted average trading price of the Partners REIT units is $1.73), up to approximately another 2,543,352 Partners REIT units will be issued (representing approximately 8% of the currently issued and outstanding Partners REIT units).

Recommendation of the Boards

A special committee of independent trustees was established by Partners REIT and a special committee of independent directors was established by NorRock to consider this transaction.

The NorRock board of directors has concluded, based in part on the recommendation of the NorRock special committee, a fairness opinion received from Cormark Securities Inc., and the preliminary valuation of M Partners Inc. referred to below, that the proposed transaction is in the best interests of NorRock and is fair to holders of NorRock Class A shares and holders of NorRock preferred shares and will recommend that NorRock shareholders vote in favour of the Arrangement.

The trustees of Partners REIT have concluded, based in part on the recommendation of the Partners REIT independent committee, a fairness opinion received from Brookfield Financial Corp., and the preliminary valuation of Capital Canada Limited referred to below, that the acquisition of the Transferred Assets and the issuance of units in Partners REIT is fair to holders of Partners REIT units and will recommend that Partners REIT unit holders vote in favour of the transaction and the issuance of Partners REIT units.

Each of NorRock and Partners REIT has obtained preliminary valuations from M Partners Inc. and Capital Canada Limited, respectively, in respect of the proposed transaction.

Plan of Arrangement and Shareholder Approval

The transaction is structured as a plan of arrangement and is subject to certain conditions precedent, including the granting of interim and final orders of the Ontario Superior Court of Justice, approval of regulatory authorities including approval of the TSX Venture Exchange and the Toronto Stock Exchange, and the approval by the shareholders of NorRock and by the unit holders of Partners.

The affirmative vote of 66-2/3% of the votes cast by holders of NorRock preferred shares present in person or by proxy at the NorRock shareholders’ meeting, 66-2/3% of the votes cast by holders of NorRock Class A shares present in person or by proxy at the NorRock shareholders’ meeting and the affirmative vote of the NorRock Class J share, is required to approve the Arrangement. In addition, the affirmative vote of a majority of the holders of the NorRock preferred shares and the NorRock Class A shares excluding votes attaching to the 966,160 NorRock Class A shares and the 3,500 NorRock preferred shares held directly or indirectly by Green Tree Capital Management Corp. (approximately 33% of the NorRock Class A shares and 0.2% of the NorRock preferred shares issued and outstanding) will also be required for reasons that will be set out in the meeting circular. Green Tree and the holder of the NorRock Class J share have entered into support agreements agreeing to support the Arrangement.

The proposed issuance of Partners REIT units as consideration for the NorRock assets must be approved by the affirmative vote of 66-2/3% of the votes cast by holders of Partners REIT units present in person or by proxy at the Partners REIT meeting. In addition, the affirmative vote of a majority of the holders of the Partners REIT units, excluding votes attaching to the 12,812,860 units (approximately 41% of the units issued and outstanding) held by IGW Public Limited Partnership and its affiliates will also be required for reasons that will be set out in the meeting circular. IGW Public Limited Partnership has entered into a support agreement agreeing to support the Arrangement and the issuance of Partners REIT units.

It is anticipated that the meetings of the NorRock securityholders and the Partners REIT unitholders will be held on or about November 30, 2011. The information circular and form of proxy in respect of such meetings are expected to be mailed to securityholders on or about October 31, 2011. The transaction is expected to be completed in December, 2011.

Conference Call

On Monday, October 17, 2011 at 11:00 a.m. Eastern Time Partners REIT and NorRock will host a conference call to discuss the transaction. The call can be accessed by dialing 1-866-400-2270 (North America) or 416-849-2698 (Toronto).

About NorRock

NorRock is a mutual fund corporation incorporated under the laws of the Province of Ontario. It was created to obtain exposure to the investment performance of an actively managed portfolio of mortgages and secured loans in the Canadian commercial real estate sector on a tax-efficient basis.

About Partners REIT

Partners REIT is a growth-oriented real estate investment trust, which currently owns (directly or indirectly) 20 retail properties located in British Columbia, Ontario, Manitoba and Quebec, aggregating approximately 1.6 million square feet of leaseable space. Partners REIT focuses on expanding and managing a portfolio of retail and mixed-use community and neighbourhood shopping centres located in both primary and secondary markets across Canada.

For further information:

Partners REIT:
Patrick Miniutti, President and Chief Operating Officer (250) 940-5500

NorRock Realty Finance Corporation:
Jacqueline Boddaert, Chief Executive Officer (416) 479-9510 ext. 305

Forward-looking Statements

Certain statements included in this press release constitute forward-looking statements, including, but not limited to, those identified by the expressions “believe”, "expect," "will", “offers the opportunity”, “intend, “look forward” and similar expressions to the extent they relate to Partners REIT and NorRock. The forward-looking statements are not historical facts but reflect Partners REIT's and NorRock’s current expectations regarding future results or events. These forward looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including the anticipated value to be received by holders of NorRock Class A shares and stock appreciation rights; our ability to obtain court, regulatory, securityholder and other approvals; the fulfillment of conditions precedent to closing the transaction and the successful completion of the transaction; our expectations regarding an increase in funds available to Partners REIT as a result of the acquisition, our expectations regarding the retention or sale of the mortgages and other assets acquired by Partners REIT in connection with the transaction; our expectations regarding an additional payment to the holders of NorRock Class A shares and stock appreciation rights after the closing of the transaction; Partners REIT’s intention to continue to grow and diversify its portfolio, intended acquisitions and general economic and industry conditions. Although each of Partners REIT and NorRock believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and, accordingly, readers are cautioned not to place undue reliance on such statements due to the inherent uncertainty therein.

Neither the 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.