CAPREIT Advances Toronto Operating Lease Buyout Strategy
TORONTO, June 03, 2020 (GLOBE NEWSWIRE) -- Canadian Apartment Properties Real Estate Investment Trust (“CAPREIT”) (TSX:CAR.UN) announced today that it has agreed to prepay the buyout of eight
operating leases (“8 Lease Buyouts”) for eight properties in Toronto, which are expected to close by June 30, 2020. The properties are located at 88 Isabella Avenue, 30 Livonia Place, 500
Murray Ross Parkway, 10 San Romanoway, 411 Duplex Avenue, 77 Huntley Street and 33 Orchardview Boulevard. CAPREIT has executed binding agreements for these Operating Lease Buyouts, other than for
the one located at 33 Orchard View Boulevard, which remains conditional but is expected to close.
CAPREIT previously closed the early buyout of three of its operating leases in Toronto located at 20 Shallmar Avenue, 124 Broadway Avenue and 111 Davisville Avenue (together with the 8 Lease Buyouts, the “Operating Lease Buyouts”). When completed, CAPREIT will have successfully converted eleven of its fifteen operating lease properties to traditional fee simple ownership interests.
The aggregate purchase price for the Operating Lease Buyouts is approximately $154 million, representing a 29% discount to the aggregate purchase price for the buyouts set out in the respective operating leases, which buyouts would have been exercisable beginning in 2024. The Operating Lease Buyouts are expected to be financed by a draw on CAPREIT’s Acquisition and Operating Facility. CAPREIT expects to replace the draw with mortgage financing in the near-term. In addition, the vendors of the 8 Lease Buyouts have the right to elect to receive Class B LP units in CAPREIT Limited Partnership (“Class B LP Units”) for all or part of the proceeds. The Class B LP Units, which are exchangeable into CAPREIT trust units on a 1-for-1 basis, will be issued at an agreed upon price of $48.00 per Class B LP Unit.
CAPREIT estimates that the Operating Lease Buyouts will result in an increase in fair market value in excess of approximately $300 million, which, after deducting the cost of prepaying the Operating Lease Buyouts, represents a net fair value gain of over $150 million, of which $130 million has been previously recognized by CAPREIT. The Operating Lease Buyouts are expected to provide CAPREIT with significant additional financing capacity due to the anticipated increase in fair market value of the eleven properties, the current low leverage on these properties, as well as the elimination of lending restrictions applicable to the operating lease structure. CAPREIT expects that the fee simple properties could have incremental mortgage capacity of over $500 million, above the amount of mortgages currently outstanding on the properties.