True North Commercial REIT Proposed New Brunswick Acquisition and Private Placement

True North Commercial Real Estate Investment Trust announced that it has agreed to acquire an office property located at 551 King Street in Fredericton, New Brunswick . The Acquisition is expected to be immediately accretive to the REIT's adjusted funds from operations.
 
King Street Property
 
The purchase price for the King Street Property of approximately $17.0 million, subject to customary adjustments and closing costs, represents an implied capitalization rate of approximately 7.1%. The Acquisition is expected to be satisfied through the payment of approximately $2.1 million of cash and the issuance to the vendor of 454,545 class B limited partnership units of True North Commercial Limited Partnership ("Class B LP Units"), which are economically equivalent to, and exchangeable for, the REIT's trust units ("Units"), at a price of $6.60 per Class B LP Unit, with the balance of the purchase price funded by a new five year mortgage in the amount of approximately $11.9 million with an expected interest rate of approximately 3.9%. The Class B LP Unit consideration paid to the vendor will be subject to applicable first trade restrictions under applicable Canadian securities laws. Upon completion of the Acquisition, the REIT is expected to have a debt to gross book value of approximately 57.9%.
 
The King Street Property is a stand-alone premier office building situated in the heart of downtown Fredericton, New Brunswick with a total of 84,915 rentable square feet. Built in 2002, the property is 100% occupied with an average lease term of 8.9 years remaining and is well situated with accessibility to major arterial highways and routes including the Trans-Canada Highway. The tenant base of the King Street Property is comprised of a number of government or credit rated tenants including the Government of New Brunswick and National Bank of Canada, providing for long-term visible credit-backed cash flow and representing 98.4% of the King Street Property's gross revenue.
 
Daniel Drimmer, the REIT's Chief Executive Officer and Chairman of the Board of Trustees stated, "We are very pleased to acquire this off-market office property which meets the REIT's acquisition criteria and will help to contribute to the overall quality of the REIT's portfolio. This acquisition strengthens the REIT's presence in New Brunswick and confirms our ability to execute on our stated strategy of acquiring quality properties at competitive capitalization rates that are accretive to the REIT's key operating and financial metrics. With the addition of this property, it is expected the REIT's aggregate portfolio gross revenue from government or credit rated tenants will increase to 88%."
 
The purchase and sale agreement for the acquisition of the King Street Property contains customary provisions for transactions of a similar nature, including representations, warranties and covenants of the parties. A copy of the purchase agreement, as amended, will be available at www.sedar.com. Completion of the Acquisition is expected to occur on or about November 13, 2013 and is conditional upon the satisfaction of customary conditions, including approval of the Toronto Stock Exchange (the "TSX").
 
Private Placement
 
To finance the cash component of the purchase price for the Acquisition and related closing costs, the REIT has agreed to sell, on a non-brokered private placement basis, 386,364 Units at a price of $6.60 per Unit (the "Private Placement") for aggregate gross proceeds of approximately $2.55 million. D.D. Acquisitions Partnership, an affiliate of Daniel Drimmer, has agreed to purchase 378,788 Units pursuant to the Private Placement. Each of the subscription agreements in connection with the Private Placement contains customary provisions for transactions of a similar nature, including representations, warranties and covenants. The Units issued pursuant to the Private Placement will be subject to applicable first trade restrictions under applicable Canadian securities laws. Closing of the Private Placement is expected to occur concurrently with the Acquisition and is subject to the approval of the TSX.
 
Following the completion of the Private Placement, Mr. Drimmer will hold an approximate 21.74% effective interest in the REIT (based on the number of issued and outstanding Units and Class B LP Units as at September 30, 2013 and including the Class B LP Units and Units issued in connection with the Acquisition and the Private Placement, but excluding Mr. Drimmer's options to purchase Units) through his ownership of, or control or direction over, Units, Class B LP Units, and the accompanying special voting units of the REIT, which provide a holder of Class B LP Units with equivalent voting rights in respect of the REIT to holders of Units.
 
The Private Placement constitutes a "related party transaction" under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"). Pursuant to Section 5.5(a) and 5.7(1)(a) of MI 61-101, the REIT is exempt from obtaining a formal valuation and minority approval of the REIT's unitholders due to the fair market value of Mr. Drimmer's participation in the Private Placement being below 25% of the REIT's market capitalization for purposes of MI 61-101. The Private Placement was approved unanimously by the Board of Trustees of the REIT (other than Daniel Drimmer, who declared his interest in the Private Placement and was recused from voting) in accordance with the REIT's amended and restated declaration of trust made as of December 14, 2012. The REIT will file a material change report in respect of the Acquisition and the Private Placement; however, the material change report is expected to be filed less than 21 days prior to the closing of the Acquisition and the Private Placement. The shorter time period is necessary in order to permit the REIT to close the Acquisition and the Private Placement in the time frame contemplated in the agreement of purchase and sale.
 
Asset Management
 
Upon completion of the Acquisition, Starlight Investments Ltd. ("Starlight") will be paid an acquisition fee of $144,075 (inclusive of applicable tax) pursuant to an asset management agreement with the REIT dated as of December 14, 2012 which is available at www.sedar.com.
 

on October 25, 2013