FAM REIT Announces $43 Million Toronto Office Acquisition

FAM Real Estate Investment Trust (TSX: F.UN, F.WT)  announced that it has agreed to acquire a 170,000 square foot urban office building municipally known as 4211 Yonge Street, Toronto, Ontario. The acquisition is expected to close on or about May 2, 2013. The purchase price is $43 million (exclusive of closing costs), subject to certain adjustments, representing an attractive going-in capitalization rate of approximately 6.7%.
4211 Yonge is currently 92% leased with a 5.4 year weighted average remaining lease term. The property is well-located in a prime transit-oriented office node just south of Highway 401, along the Yonge-University-Spadina TTC subway line. The property also includes a 320 stall indoor parking lot representing 1.9 stalls per 1,000 square feet, providing a healthy mix of parking and transit options for tenants.
Management believes that in place net rental rates at 4211 Yonge are approximately 25% below estimated current market net rents, providing an opportunity to increase cash flow. Existing zoning allows for additional retail uses at 4211 Yonge, providing attractive optionality to this asset given the large number of recently completed affluent residential condominium units within walking distance  that currently lack the benefit of ground-level retail amenities.
Shant Poladian, Chief Executive Officer of FAM REIT, commented, "The acquisition of 4211 Yonge completes our two-stage capital redeployment initiative which commenced with the previously announced agreement to sell our 50% non-managing interest in 220 Portage Ave. We estimate these transactions will immediately generate 3% accretion to our annualized Adjusted Funds From Operations ("AFFO") per diluted unit on a leverage neutral basis. It is also important to note these transactions did not require the issuance of any new equity, with FAM REIT's improved risk-reward profile fully accruing to the benefit of our existing unitholders."
Financing for the acquisition consists of the following:
  (i) a new $25 million first mortgage from a Canadian Schedule I bank, with a 10-year term, 25-year loan amortization, and bearing a fixed interest rate equal to 200 basis points above the 10-year Government of Canada bond yield, or approximately 3.9% (based on the current benchmark government bond yield);
  (ii) approximately $13.5 million of net cash proceeds from the disposition of FAM REIT's 50% interest in the property municipally known as 220 Portage Avenue, Winnipeg, Manitoba ("220 Portage") pursuant to the exercise of the Put Option, as defined below; and
  (iii) the remaining balance from FAM REIT's existing liquidity.
Put Option Exercise for 220 Portage Ave
FAM REIT also announced today that it has exercised its previously disclosed irrevocable right and option (the "Put Option") to compel Artis Real Estate Investment Trust ("Artis") to buy the REIT's interest in the property municipally known as 220 Portage.  FAM REIT currently owns a 50% non-managing interest in 220 Portage.  The aggregate purchase price under the Put Option will be $20.5 million, subject to certain adjustments.  The disposition is expected to close on or about April 30, 2013.
FAM REIT will recognize a gain on its interest in 220 Portage, which will be included in its financial results for the quarter ended March 31, 2013. After taking into account repayment of the existing first mortgage, estimated debt extinguishment costs and closing adjustments, FAM REIT expects the net cash proceeds will be approximately $13.5 million.
Shant Poladian further commented, "The sale of our interest in 220 Portage and purchase of 4211 Yonge meaningfully increase our diversification. In particular, the annualized Net Operating Income ("NOI") of our portfolio in primary markets (GTA and Calgary) increases significantly to 39% from 24%, while our Winnipeg concentration declines to 40% from 53%. These actions further strengthen the quality and reliability of our cash distribution."
For further information:
FAM Real Estate Investment Trust

on March 27, 2013