Firm Capital Apartment REIT Announces Acquisition of $26.8 Million Real Estate Joint Venture in Houston; $3.5 million, 12% preferred equity investment and C$13 million bridge loan


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All amounts are in US dollars unless otherwise specified.

TORONTO, April 18, 2022 (GLOBE NEWSWIRE) — Firm Capital Apartment REIT (the “Trust”), (TSXV: FCA.U), (TSXV: FCA) is pleased to announce the acquisition of a 50% interest in another of the Trust’s equity accounted investments located in Houston, in Texas, based on a valuation of $26.8 million (the “Transaction in Houston” and or “Houston Property”); $3.4 million, 12% preferred equity investment and C$13 million bridge loan (the “Bridging loan”):

  • $26.8 million buyout in Houston real estate joint venture: The Trust is pleased to announce that it will acquire from its independent partner its 50% interest in another of the Trust’s equity accounted investments in Houston, Texas. The price to buy out the unrelated partner’s 50% interest is based on a $26.8 million valuation for 100% of the Houston property that was received through an unsolicited offer from an unrelated third party. related. The Houston property was originally purchased in 2018 in a 50/50 joint venture with the third party for $15.3 million. Based on the existing first mortgage of $11.1 million and the Trust’s current common and preferred investment of $4.7 million, the Trust will acquire the independent partner for approximately $4.9 million ( excluding closing costs). The Trust will finance the Houston transaction from the proceeds received from the bridge loan as set out below. Based on the $26.8 million valuation, the Trust acquires the controlling interest at an expected five-year return on equity or ROE of approximately 7.5% and a weighted average capitalization rate of 6 .7%. Upon closing, the Trust will control 100% of the Houston Property and will report it going forward as investment property in the Trust’s financial statements. The Houston property will continue to be managed by the same independent third-party manager that currently manages the property. The Houston Transaction is expected to close in the first half of 2022. The Trust continues to implement its strategy to grow its portfolio of wholly owned investments through, in part, the redemption of its joint venture relationships;
  • $3.5 million, 12% preferred capital investment: The Trust has agreed to provide $3.5 million in preferred capital to an unrelated third party for the recapitalization of a multi-residential portfolio located in Sioux Falls, South Dakota. The terms of the three-year preferred capital investment are as follows: (i) 12% interest per annum for the full three-year term, of which 7% per annum is current remuneration, the remaining 5% per annum owing accrue and be compounded monthly for the first year; (ii) 8% per annum, with the remaining 4% per annum to accrue and compound monthly for the second year; (iii) 9% per annum, with the remaining 3% per annum to accrue and compound monthly during the third year. The closing of the preferred equity investment is expected in the first half of 2022 and will also be funded by the proceeds received from the bridge loan, as indicated below; and
  • C$13 million bridge loan: The Trust will enter into an agreement with an entity affiliated with the Trust’s asset manager, to borrow up to C$13 million to be used for the transaction and the preferred capital investment. The summarized terms of the bridge loan are (i) an interest rate equal to the greater of 6.0% per annum or the Canadian chartered bank prime rate plus a spread; (ii) two-year term; (iii) fully open for redemption at any time prior to maturity; (iv) 1% commitment fee; (v) an undertaking to pledge all net excess cash flow generated by all mortgage refinancings and capital increases carried out by the Trust until full repayment of the bridge loan and (vi) a general guarantee agreement . The bridge loan will take the form of a drawing facility that can be drawn down in $1 million increments. The closing of the bridge loan remains subject to obtaining regulatory approval. The bridge loan will be provided by a related party of the Trust. In addition, the Trust has agreed to guarantee the payment and performance of the bridge loan. As such, the provision of the Guarantee and Bridge Loan by and to the Trust constitutes a “related party transaction” within the meaning of National Instrument 61-101 Protection of Minority Security Holders in Special Transactions (“MI 61-101“), but is exempt from the valuation requirement and the minority approval requirement pursuant to Sections 5.5(a) and 5.7(a) of NI 61-101, respectively, as the value of the bridge loan and related collateral does not represent more than 25% of the market capitalization of the Trust, as determined in accordance with NI 61-101 The entity providing the bridge loan to the Trust is a related entity of the Trust because certain officers and trustees have an interest therein, the guarantee provided by the Trust in this respect has been approved by the Trustee of the Trust who is independent with respect to the operations. transaction will be filed less than 21 days prior to the closing of the transaction, as the Trust wishes to proceed with the transaction as soon as possible.

ABOUT FIRM CAPITAL APARTMENT REAL ESTATE INVESTMENT TRUST Firm Capital Apartment Real Estate Investment Trust is a US-focused real estate investment trust that seeks income producing multi-residential real estate and debt-related investments, both wholly owned and joint venture. The Trust holds interests in a total of 1,846 apartments located in Florida, Connecticut, Texas, New York, New Jersey, Georgia and Maryland.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Certain information contained in this press release constitutes forward-looking statements under applicable securities laws. All statements contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are often identified by words such as “may”, “should”, “anticipate”, “expect”, “intend” and similar expressions.

Forward-looking statements necessarily involve known and unknown risks, including, without limitation, risks associated with general economic conditions; adverse factors affecting the US real estate market generally or the specific markets in which the Trust holds properties; real estate price volatility; inability to access sufficient capital from internal and external sources and/or inability to access sufficient capital on favorable terms; industry and government regulation; changes in legislation, income tax and regulatory matters; the Trust’s ability to implement its business strategies; competition; currency and interest rate fluctuations and other risks. Other risk factors that could affect the Trust or cause actual results and performance to differ from the forward-looking statements contained herein are set forth in the Trust’s Annual Information Form under the heading Factors Risk (a copy of which can be obtained under the Trust’s profile on www.sedar.com).

Readers are cautioned that the foregoing list is not exhaustive. Readers are further cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. Such information, although considered reasonable by management when prepared, may prove to be incorrect and actual results may differ materially from those anticipated. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement. Except as required by applicable law, the Trust undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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

For more information, please contact:
Sandy Poklar Marc Goldrich
President and CEO Financial director
(416) 635-0221 (416) 635-0221
For investor relations information, please contact:
Victoria Moayedi
Director, Investor Relations
(416) 635-0221

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Source: Firm Capital Apartment Real Estate Investment Trust

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