WINNIPEG, MB – February 16, 2021 – Marwest Apartment Real Estate Investment Trust
(“Marwest Apartment REIT” or the “REIT”) (TSXV: MAR.P), a capital pool company (as defined
under Policy 2.4 – Capital Pool Companies (the “CPC Policy”) of the TSX Venture Exchange (the
“TSXV”)), is pleased to announce that it has entered into an agreement dated February 15, 2021 (the
“Qualifying Transaction Agreement”) relating to a proposed qualifying transaction (the
“Qualifying Transaction”) under the CPC Policy involving, among other things, the acquisition of
two limited partnerships (the “Target LPs”) owning an aggregate of two multi-family residential
properties comprising a total of 251 suites in Winnipeg, Manitoba (the “Target Properties”).
Target LPs and Target Properties
The first Target LP is Marwest Apartments I L.P. (“Kenwood LP”), a Manitoba limited partnership
which owns “Kenwood Court”, a property consisting of two (2) three-storey buildings comprising 103
units located at 333-337 Warde Avenue in Winnipeg, Manitoba (the “Kenwood Property”).
Constructed in 2006, the Kenwood Property has a suite mix of 101 two-bedroom suites and two (2)
three-bedroom suites.
The second Target LP is Marwest Apartments VII L.P. (“Brio LP”), a Manitoba limited partnership
which owns two complexes comprising a total of 148 units located at 160 Eaglewood Drive (“Brio
I”) and 140 Eaglewood Drive (“Brio II”) in Winnipeg, Manitoba (the “Brio Property”). Constructed
in 2018, Brio I consists of five (5) two-storey buildings comprising of 74 units located at 160
Eaglewood Drive in Winnipeg. Constructed in 2019, Brio II consists of five (5) two-storey buildings
comprising 74 units located at 140 Eaglewood Drive in Winnipeg, Manitoba. The suite mix of the
Brio Property is comprised of 40 one-bedroom suites, 58 two-bedroom suites, 44 three-bedroom suites
and six (6) four-bedroom suites.
The only material assets and liabilities of Kenwood LP relate to the Kenwood Property. As of March
31, 2021, the sole mortgage loan secured against the Kenwood Property will have a remaining
principal amount of $12,057,853. It is on a 10-year term expiring on May 1, 2030, bearing interest at
a fixed annual rate of 1.71%, and is amortized over a 25-year period.
The only material assets and liabilities of Brio LP relate the Brio Property. There are two first charge
mortgage loans, one secured against Brio I and the other secured against Brio II. As of March 31,
2021 the mortgage loan secured against Brio I will have a remaining principal amount of $12,949,717.
It is on a 5-year term expiring on October 1, 2023, bearing interest at a fixed annual rate of 4.014%,
and is amortized over a 30-year period. As of March 31, 2021 the mortgage loan secured against Brio
II will have a remaining principal amount of $17,170,695. It is on a 10.5-year term expiring on June
1, 2030, bearing interest at a fixed annual rate of 2.62%, and is amortized over a 40-year period.
Target LP Historical Financial Information
Separate audited annual financial statements of the Target LPs for the fiscal years ended December
31, 2020 and December 31, 2019 are in the process of being prepared and will be included by the
REIT in the management information circular to be prepared in connection with a special meeting of
unitholders to be called for the purpose of approving the Qualifying Transaction.
Qualifying Transaction
Subject to various conditions of closing, the REIT, through a subsidiary limited partnership (the
“Partnership”) has agreed or proposes to acquire:
(a) all of the issued and outstanding limited partnership units (“Kenwood LP Units”) of Kenwood
LP from the holders thereof (each, a “Kenwood LP Unitholder” and, collectively, the
“Kenwood LP Unitholders”), for an aggregate purchase price of $8,192,147 (the “Aggregate
Kenwood LP Purchase Price”). The Aggregate Kenwood LP Purchase Price reflects the
value attributed to the Kenwood Property by the Kenwood LP Unitholders who are parties to
the Qualifying Transaction Agreement in the amount of $20,700,000.00, less the existing
mortgage indebtedness on the Kenwood Property as at March 31, 2021 in the amount of
$12,507,853; and
(b) all of the issued and outstanding limited partnership units (“Brio LP Units”) of Brio LP from
the holders thereof (each, a “Brio LP Unitholder” and, collectively, the “Brio LP
Unitholders”) for an aggregate purchase price of $3,379,588 (the “Aggregate Brio LP
Purchase Price”), which reflects the value attributed to the Brio Property by the Brio LP
Unitholders who are parties to the Qualifying Transaction Agreement in the amount of
$33,500,000.00, less the existing aggregate mortgage indebtedness in respect of the Brio
Property as at March 31, 2021 in the amount of $30,120,412.
The Aggregate Kenwood LP Purchase Price and the Aggregate Brio LP Purchase Price (collectively,
the “Aggregate Purchase Price”) will be satisfied entirely through the issuance of Class B limited
partnership units (“Exchangeable LP Units”) of the Partnership at a deemed value of $1.00 per
Exchangeable LP Unit or, in the case of holders of Kenwood LP Units or Brio LP Units who are
individuals and do not transfer their Kenwood LP Units or Brio LP Units to a taxable Canadian
corporation prior to closing, in trust units of the REIT (“Trust Units”) at a deemed value of $1.00 per
Trust Unit. An aggregate of 11,571,736 Exchangeable LP Units and/or Trust Units will be issued in
satisfaction of the Aggregate Purchase Price. Each Exchangeable LP Unit will entitle the holder
thereof to exchange it at any time for one Trust Unit and will be accompanied by a special voting unit
(a “Special Voting Unit”) of the REIT entitling the holder thereof to receive notice of, attend and
vote at meetings of holders of Trust Units (and Special Voting Units). Each Kenwood LP Unitholder
and each Brio LP Unitholder receiving Exchangeable LP Units will be entitled to elect to “roll in”
their Kenwood LP Units or Brio LP Units to the Partnership on a tax-deferred basis by way of a joint
election with the Partnership under the Income Tax Act (Canada).
The Partnership will also acquire all of the shares of the general partners of the Target LPs.
Non-Arm’s Length Qualifying Transaction
The Qualifying Transaction is a “related party transaction” within the meaning of TSXV Policy 5.9
(“TSXV Policy 5.9”) and a Non-Arm’s Length Qualifying Transaction within the meaning of the CPC
Policy and closing is subject to receipt of unitholder approval, including on a “majority of the
minority” basis, at a special meeting of unitholders.
Marwest Asset Management Inc. (“Marwest”) a company controlled by Mr. William C. Martens,
Chief Executive Officer and a trustee, and Mr. Armin W. Martens, Executive Vice-President,
Cornelius W. V. Martens and Karl Martens and owned equally by their respective families
(collectively, the “Marwest Management Group”), and the REIT will enter into an asset
management and property management agreement (the “Management Agreement”) effective on the
closing of the Qualifying Transaction.
In addition to owning 100% of the shares of the general partner of Kenwood LP and 50% of the shares
of the general partner of Brio LP, members of the Marwest Management Group and other members
of the Martens family (the “Marwest Group”) own an aggregate of 125 Kenwood LP Units,
representing 30.34% of the outstanding Kenwood LP Units and an aggregate of 6,000 Brio LP Units,
representing 50% of the outstanding Brio LP Units, all of which will be sold to the Partnership in
consideration for Exchangeable LP Units. As a result of the Qualifying Transaction:
(a) in the event of the completion of a private placement of a minimum of 500,000 Trust Units,
without factoring in any purchases by the Marwest Group thereunder, the Marwest Group will
control and/or beneficially own approximately 4,915,273 Trust Units and Exchangeable LP
Units representing approximately 35.43% of the issued and outstanding Trust Units on a fully
diluted basis (assuming the exchange of all Exchangeable LP Units); and
(b) in the event of the completion of a private placement of a maximum of 1,000,000 Trust Units,
without factoring in any purchases by the Marwest Group thereunder, the Marwest Group will
control and/or beneficially own approximately 4,915,273 Trust Units and Exchangeable LP
Units, representing approximately 34.20% of the issued and outstanding Trust Units on a fully
diluted basis (assuming the exchange of all Exchangeable LP Units).
Independent Trustee Review and Approval Process
Mr. Luke Cain and Ms. Kim Riley, the independent trustees of the REIT as at the date of the
Qualifying Transaction Agreement, negotiated and approved the terms of the Qualifying Transaction
Agreement and the key terms of the agreements to purchase the Kenwood LP Units and Brio LP Units
and the Management Agreement.
Independent Appraisals of Target Properties
Although the REIT was not required to obtain a formal valuation (within the meaning of TSXV Policy
5.9) of the Kenwood LP Units or the Brio LP Units, the REIT obtained an independent appraisal for
each of the Kenwood Property and the Brio Property which support the consideration to be paid for
Kenwood LP and Brio LP. The independent appraisals are subject to customary assumptions,
qualifications and limitations and will be summarized in the management information circular to be
prepared in connection with the annual and special meeting of unitholders to be called for the purpose
of approving the Qualifying Transaction.
Management Agreement
Pursuant to the Management Agreement, Marwest will be appointed to provide asset management
services and property management services to the REIT for an initial term of 10 years, with five year
successive renewals thereafter, subject to earlier termination in accordance with its terms.
Pursuant to the Management Agreement, Marwest will be entitled to appoint the executive officers of
the REIT from time to time. The Management Agreement will also provide Marwest with the right to
nominate the Chief Executive Officer to the board of trustees of the REIT and one (1) additional
trustee where Marwest and its ownership group own 10% or more of the outstanding voting securities
of the REIT and the board of trustees is comprised of five (5) members or more.
The Management Agreement entitles Marwest to receive, in its capacity as asset manager: (i)
commencing when the REIT completes its first acquisition following the completion of the Qualifying
Transaction, an annual base asset management fee equal to 0.25% of the Gross Book Value (as defined
in the REIT’s declaration of trust), payable monthly; (ii) commencing with the REIT’s first acquisition
following the completion of the Qualifying Transaction, an acquisition fee in respect of property
acquisitions based on a sliding scale of between 1.0% of the purchase price and 0.5% of the purchase
price; (iii) commencing for the fiscal year ended December 31, 2023, an incentive fee equal to 15%
of the year-over-year increase in adjusted funds from operations (AFFO) per unit from the AFFO per
unit as at the end of the prior year, multiplied by the number of outstanding units (subject to an annual
cap in a fiscal year equal to 100% of the base asset management fee payable in the applicable fiscal
year); and (iv) a construction management fee equal to 5.0% of hard construction costs up to $1 million
and 4.0% of hard constructions costs above $1 million. The construction management fee is subject
to a tender process and periodic review by the independent trustees of the REIT. The Management
Agreement also entitles Marwest to receive a fee equal to 4.0% of gross revenues as a property
management fee.
The Management Agreement may be terminated by the REIT in respect of asset management and/or
property management services in certain circumstances, including: (i) at the end of the initial term or
each renewal term for cause and with the approval of a majority of the independent trustees; or (ii)
upon a decision by a majority of the independent trustees to internalize services at any time (including
during a term) after the REIT reaches $750 million in market capitalization, provided that the REIT
enters into executive contracts with each of the REIT’s executive officers on market terms, and in
either case upon payment of a fee equal to the 12 months trailing fees paid in respect of the terminated
services.
Marwest may terminate the agreement upon a defined change of control of the REIT and in such event
shall be entitled to a termination payment equal to three times the 12 months trailing fees.
Subject to approval of the TSXV and unitholders, Marwest will have the right to elect to receive up
to 50% of any payment of its annual base asset management fee and up to 50% of any payment of any
incentive fee in Trust Units, at a price equal to the twenty-day volume-weighted average trading price
of the Trust Units on the payment date (the “20-Day VWAP”), provided that until the market
capitalization of the Trust Units reaches $20 million, the price shall be the greater of the 20-Day
VWAP and the price that Trust Units were issued at the last public offering or private placement of
Trust Units.
To secure an acquisition pipeline, the REIT may from time to time provide real estate entities owned
or controlled by Marwest or other companies comprising the Marwest group of companies with
mezzanine loans in respect of development properties. The terms and conditions of any mezzanine
loan and the rights granted to the REIT in connection with any such loan will be negotiated between
the independent trustees of the REIT and Marwest at the time that a mezzanine loan is agreed to and
will be subject to all applicable regulatory and unitholder approvals.
Executive Officers of the REIT and of Marwest
Following the Qualifying Transaction, William C. Martens will continue as Chief Executive Officer
of the REIT, Armin W. Martens will continue as Executive Vice-President of the REIT and Jennifer
Nazimek will continue as Chief Financial Officer of the REIT. Mr. Cornelius W. V. Martens, an
executive officer of Marwest, will provide assistance to the executive officers of the REIT, including
with respect to investor relations.
The directors and executive officers of Marwest are William C. Martens(Director and Chief Executive
Officer), Armin W. Martens (Director and Executive Vice-President), Jennifer Nazimek (Chief
Financial Officer), Cornelius W.V. Martens (Executive Vice-President) and Karl Martens (Executive
Vice-President).
Trustees of the REIT
Following review and approval of the Qualifying Transaction by the independent trustees, Ms. Kim
Riley tendered her resignation as a trustee effective February 16, 2021 due to another professional
commitment and the trustees of the REIT approved and appointed Mr. Jason Pellaers to fill the
vacancy on the board of trustees and to serve as the chair of the REIT’s audit committee.
Mr. Pellaers, age 45, is currently Vice-President, Finance at NFI Group Inc. (“NFI”), a TSX-listed
issuer (TSX: NFI) that is a leading global bus manufacturer. In his role as Vice-President, Finance,
Mr. Pellaers is responsible for NFI internal controls over financial reporting (ICFR) and NFI’s external
financial reporting requirements. Mr. Pellaers works directly with the NFI audit committee in
reviewing financial statements and related public disclosures. Mr. Pellaers has played an integral role
in NFI’s mergers and acquisitions activity, having led two recent acquisitions by NFI and participating
as a finance lead member on multiple other acquisitions. Prior to assuming his current position in
January 2017, Mr. Pellaers held other important positions at NFI, including Director of Finance since
August 2010. Mr. Pellaers is a member of the Chartered Professional Accountants of Canada and is
a CPA (CA) and received a Bachelor of Commerce (Honours) from the University of Manitoba in
1998.
Subject to TSXV approval, Mr. Pellaers will purchase Ms. Riley’s 20,000 seed Trust Units, which
will continue to held in escrow in accordance with the requirements of the CPC Policy.
Concurrent Private Placement
The REIT has engaged Canaccord Genuity Corp. (the “Agent”) to conduct, on a commercially
reasonable “best efforts” basis, a brokered private placement of a minimum of 500,000 Trust Units
and up to a maximum of 1,000,000 Trust Units at a price of $1.00 per Trust Unit for gross proceeds
of a minimum of $500,0000 and a maximum of $1,000,000 (the “Private Placement”). The net
proceeds of the Private Placement will be used to fund a portion of the expenses of the Qualifying
Transaction and for working capital and general purposes of the REIT.
The REIT has agreed to pay a fee to the Agent equal to seven percent (7%) of the gross proceeds of
sales of Trust Units pursuant to the Private Placement.
The directors and officers of the REIT and/or of Marwest may purchase Trust Units pursuant to the
Private Placement.
Other Terms of the Qualifying Transaction
Subject to approval of the TSXV and unitholders, the REIT proposes to adopt an Equity Incentive
Plan on the closing of the Qualifying Transaction which provides for the issuance of deferred trust
units (accompanied by Special Voting Units), restricted trust units and unit options.
Conditions of Closing
The Qualifying Transaction is currently anticipated to close in April 2021. The completion of the
Qualifying Transaction is subject to a number of closing conditions including acceptance of the offer
to purchase Kenwood LP Units by third party Kenwood LP Unitholders, TSXV approval, unitholder
approval on a “majority of the minority” basis, lender consents, satisfactory due diligence with respect
to the Kenwood Property and the Brio Property and no material adverse change occurring in the Brio
LP (or the Brio Property) or the Kenwood LP (or the Kenwood Property), all of which must occur by
June 30, 2021 or such later date as the parties may agree.
Cash Distribution Policy
The Board of Trustees will consider a cash distribution policy in the future when income and liquidity
allow for it. The REIT’s objective is to pay a stable and sustainable cash distribution to unitholders
which grows over time from a portfolio of quality multi-family residential properties.
General
In connection with the closing of the Qualifying Transaction, the REIT will apply to meet the initial
listing requirements of the TSXV for a real estate issuer. Following the Qualifying Transaction, the
REIT intends to continue focusing on the acquisition of multi-family residential properties located in
western Canada, although the REIT is not excluded from investing in properties located in other
jurisdictions of Canada or the United States.
In light of the concurrent brokered private placement, the REIT will be requesting a waiver of the
sponsorship requirements of TSXV Policy 2.2 – Sponsorship and Sponsorship Requirements but there
is no assurance that such waiver will be granted.
The REIT’s head office will continue to be located at 5th Floor, 220 Portage Avenue in Winnipeg,
Manitoba.
For further information, please contact Mr. William C. Martens, Chief Executive Officer, Telephone:
(204) 947-1200.
Forward-looking Statements
The information in this news release includes certain information and statements about management’s
views of future events, expectations, plans and prospects that constitute forward‐ looking statements.
These statements are based upon assumptions that are subject to significant risks and uncertainties.
Because of these risks and uncertainties and as a result of a variety of factors, the actual results,
expectations, achievements or performance may differ materially from those anticipated and indicated
by these forward‐looking statements. Forward‐looking statements in this news release include, but
are not limited to, the potential completion of a qualifying transaction and related transactions,
including a private placement. Any number of factors could cause actual results to differ materially
from these forward‐looking statements as well as future results. Although management of the REIT
believes that the expectations reflected in forward‐ looking statements are reasonable, it can give no
assurances that the expectations of any forward‐ looking statements will prove to be correct. Except
as required by law, the REIT disclaims any intention and assumes no obligation to update or revise
any forward‐looking statements to reflect actual results, whether as a result of new information, future
events, changes in assumptions, changes in factors affecting such forward‐looking statements or
otherwise.
Neither the TSXV nor its Regulation Services Provider (as that term is defined in the policies of the
TSXV) accepts responsibility for the adequacy or accuracy of this news release.
Completion of the qualifying transaction is subject to a number of conditions, including but not limited
to TSX Venture Exchange approval, unitholder approvals (including on a “majority of minority”
basis) and third party agreements and consents. The qualifying transaction cannot close until the
required unitholder approvals are obtained. There can be no assurance that the qualifying
transaction will be completed as proposed or at all. Investors are cautioned that, except as disclosed
in the management information circular to be prepared in connection with the qualifying transaction,
any information released or received with respect to the qualifying transaction may not be accurate
or complete and should not be relied upon. Trading in the securities of a capital pool company should
be considered highly speculative. The TSX Venture Exchange Inc. has in no way passed upon the
merits of the proposed qualifying transaction and has neither approved nor disapproved the contents
of this press release. The offered Trust Units will not be registered under the United States Securities
Act of 1933, as amended (the “U.S. Securities Act”) and may not be offered or sold within the United
States or to or for the account or benefit of U.S. persons, except in certain transactions exempt from
the registration requirements of the U.S. Securities Act. This press release does not constitute an offer
to sell, or the solicitation of an offer to buy, securities of the REIT in the United States.
Information regarding Target LPs and Target Properties
This press release sets forth certain information relating to the Target LPs and the Target Properties.
Such information was provided by the general partners of the Target LPs. Neither the REIT nor any
other person makes any representation or warranty regarding the accuracy of such information
contained in this press release and readers are cautioned not to place undue reliance on such
information.
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DISSEMINATION IN THE UNITED STATES