TORONTO, July 31, 2018 (GLOBE NEWSWIRE) -- WPT Industrial Real Estate Investment Trust (the “REIT”) (TSX:WIR.U), is pleased to announce the internalization of management (the “Internalization”) and acquisition of the private capital business (the “Acquisition”) of WPT Capital Advisors, LLC (“WPTCA”) (collectively, the (“Transaction”)).
-- Fully-internalized management platform with experience in all facets of industrial real estate brought into the REIT under a single, transparent and simplified organizational structure -- Additional capital resources through ownership and control of a private capital business with established assets under management and institutional partnership -- Immediate access to a pipeline of 4.0M sq. ft. of modern industrial assets across the U.S., including high barrier markets -- Enhanced and diversified cash flows through management and incentive fees on third-party capital -- New private capital venture with Canada Pension Plan Investment Board (“CPPIB”) and Alberta Investment Management Corporation (“AIMCo”), which together with the REIT, will target investing up to US$1B of combined equity to pursue value-add and development investments, creating a significantly expanded proprietary acquisition pipeline for the REIT with a right of first opportunity to acquire managed assets on an off-market basis -- Increased long-term alignment between REIT management, public unitholders and private capital partners
Overview of the Acquisition and Venture
WPTCA – a strategic joint venture between senior management of the firm and affiliates of AIMCo – served as the external manager of the REIT and as manager for private capital investments on behalf of select institutional investors. WPTCA’s latest private capital venture (the “Venture”) will target value-add and development investments in select U.S. industrial markets. Venture investors include CPPIB, AIMCo and the REIT, which combined will target allocating equity of up to US$1B.
Properties acquired through the Venture are expected to be held for two distinct periods: a value-add or development period and a stabilized (long-term hold) period. The initial value-add period will typically be two to three years under a 45% (CPPIB), 45% (AIMCo) and 10% (REIT) joint venture. After stabilization, Venture property ownerships may be rebalanced for a long-term hold, with the REIT having a right of first opportunity to acquire additional interests at that time. The REIT’s economic returns on Venture investments will be enhanced by management and incentive fees earned from CPPIB and AIMCo.
WPTCA also has existing assets under management representing approximately 4.0M sq. ft. of industrial properties across the U.S., including assets in high-barrier coastal markets. Following the Acquisition, the REIT will receive management and incentive fees from WPTCA’s third-party assets under management. Beginning in late 2018/early 2019, approximately 2.0M sq. ft. of properties managed by WPTCA are expected to be available for direct, off-market acquisition by the REIT through the exercise of the REIT’s right of first opportunity.
“The U.S. industrial sector provides an attractive investment opportunity, driven by trends such as growth in ecommerce, as well as the evolution and modernization of global supply-chains,” said Hilary Spann, Managing Director, Head of Americas, Real Estate Investments, CPPIB. “We are pleased to be partnering with WPT and AIMCo to expand our presence in this sector.”
“As the REIT’s largest unitholder, we are pleased to see the company take the next step in its evolution with a full internalization of management. AIMCo also looks forward to expanding our relationship with WPT through a new U.S. industrial venture alongside CPPIB,” said Micheal Dal Bello, Senior Vice President, Real Estate of AIMCo. “The venture capitalizes on the scale and synergies of our respective investment programs and creates a long-term investment platform to generate the returns required of our clients and stakeholders.”
“We are thrilled to partner with two premier global real estate investors that share our long-term vision for the industrial sector,” said Scott Frederiksen, Chief Executive Officer of the REIT. “We appreciate the continued confidence and support of AIMCo and look forward to building our relationship with CPPIB through the growth and success of the venture.”
Overview of the Internalization
As part of the Internalization, WPTCA senior executives have committed to employment agreements with the REIT that will ensure continuity of operations and management over the next five years. The REIT now directly employs 20 professionals with expertise in all facets of industrial real estate, including capital formation, asset/property management, construction/development, financing, leasing, legal and financial reporting. Combined with the REIT’s fully-integrated private capital business, the REIT management platform now has internal capabilities to invest multiple sources of capital across the entire risk/return spectrum.
Rationale for Transaction
-- Immediate Cash Accretion; Economies of Scale with Growth: The Transaction is expected to result in cash accretion after accounting for the elimination of fees that would be payable under the management agreements, incremental general and administrative expenses, and the fees expected to be earned from the private capital business. Through elimination of asset management, property management, construction management and acquisition fees, the Internalization facilitates increasing economies of scale as the REIT’s asset base grows. Cash accretion is expected to significantly increase as the private capital platform scales and the Transaction is expected to be increasingly accretive on a cash basis for 2019. -- Private Capital Business Embedded in REIT:The REIT will become part of a select group of public REITs with a substantial embedded private capital business, which includes a long-term, strategic relationship with two premier global investors. -- Enhanced Acquisition Pipeline: An established private capital business provides the REIT with an on-going acquisition pipeline of functional, high-quality industrial properties in strategic markets, including high-barrier coastal markets. The REIT’s private capital business also diversifies its equity funding sources and allows the REIT to deploy financial resources more efficiently. -- Increased Alignment of Interests:A significant portion of the consideration for the Acquisition is to be paid in equity (with long-term transfer restrictions) and management’s aggregate beneficial ownership is expected to increase significantly. Go-forward compensation arrangements have also been designed to promote long-term alignment between the REIT’s management team, public unitholders and private capital partners. Employment agreements include non-compete arrangements between the REIT and its senior executives and to further facilitate retention and increase alignment of management, the REIT has awarded deferred equity with long-term, back-ended vesting and lock-up restrictions to new REIT employees (the “Deferred Equity Grant”). -- Reflects Investor Preference for Fully-Internalized Management Structures:The Internalization mitigates perceived conflicts of interest inherent in external management or shared employee structures and lays the foundation for earnings multiple expansion and access to a deeper universe of global institutional investors. -- Ensures Continuity of Senior Management; Brings Comprehensive Platform into the REIT:The REIT’s senior management team has an average of 20 years of industry experience and an average tenure of 12 years with WPTCA and its predecessors. The Internalization allows the REIT to retain a seasoned and aligned management team in a competitive industrial market, providing clarity as to future executive leadership. And the REIT now has a comprehensive, scalable management platform with internal expertise to invest in and manage assets through all points in the market cycle.
Process and Transaction details
A special committee of independent trustees consisting of Pamela Spackman (Chair), Louie DiNunzio and Robert Wolf was established by the REIT’s board of trustees at the end of October 2017 to review and evaluate certain strategic options available to the REIT including a potential internalization of management transaction. The committee engaged FTI Consulting, a global independent consulting firm with significant experience in public REIT compensation and REIT internalizations, and Desjardins Capital Markets (“Desjardins”), a Canadian investment banking and financial advisory firm, to assist with its review process. The committee met, both with its legal and financial advisors and independently, in excess of 15 times over an eight month period to review and discuss alternatives to the Transaction, various structural proposals to implement the Transaction, the consideration payable in connection with the Transaction, appropriate compensation and incentivization of management following the Transaction and benefits of, and risks arising from, the Transaction in respect of the REIT and its unitholders, including unaffected unitholders.
Desjardins has provided an opinion, subject to the assumptions, qualifications and limitations set out therein, that the consideration paid by the REIT in connection with the Transaction, including the Deferred Equity Grant, is fair, from a financial point of view, to the REIT. The fee paid to Desjardins in connection with the delivery of its fairness opinion was not contingent on the successful implementation of the Transaction.
Transaction details related to the Internalization are as follows:
-- Termination Payment for Management Agreements: Approximately US$6.8M in cash to be paid upon Internalization, which equals the gross fees paid to WPTCA over the preceding 12 months and is based on the termination provisions set out in the management agreements. -- Employee Incentive/Initial Equity Stake Awards: Deferred Equity Grant (US$9.8M) to retain and align new REIT employees with the interests of public unitholders. 50% of the Deferred Equity Grant will vest upon each of the fourth and fifth anniversaries of the award date, plus the awards are subject to an additional lock-up period of three years after vesting (meaning that no awards may be sold until the seventh anniversary of the grant date).
Transaction details related to the Acquisition are as follows:
-- Purchase Price for the Acquisition:US$20.0M consisting of US$10.0M in cash and US$10.0M in Class B limited partnership units of WPT Industrial, LP (“Class B LP Units”). The principals of WPTCA will receive all the Class B LP Units (with lock-up provisions providing for a release of one-third per year beginning in year three) and AIMCo will receive all its consideration in cash.
“While an external management structure was more appropriate at the time of our IPO in 2013, when the REIT was smaller, the Board of Trustees believes that, today, internalization of management is in the best interest of unitholders. The Board also believes the acquisition of WPT Capital Advisors’ private capital business and the resulting integration of all the REIT’s investment activity and resources under a single, aligned and transparent structure will best position the REIT for its next phase of growth and success over the long term,” said Robert Wolf, Lead Independent Trustee of the Board of Trustees of the REIT.
Multilateral Instrument 61-101
As a result of the relationship between the REIT and AIMCo and certain principals of WPTCA (collectively, the “Insiders”), each of the Insiders is considered a related party of the REIT and therefore the Transaction constitutes a “related party transaction” under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”). However, it is not subject to the formal valuation and minority approval requirements of MI 61-101 as the fair market value of the Transaction is not more than 25% of the REIT’s market capitalization (assuming all Class B LP Units are exchanged for trust units of the REIT). To the knowledge of the REIT, no valuations in respect of the subject matter of the Transaction have been prepared in the past 24 months.
The Transaction closed on the date hereof. The REIT believes the timing for closing was reasonable in the circumstances in that it facilitated pricing and completion of the documentation creating the Venture. The Acquisition is not expected to materially affect control of the REIT.
Upcoming Conference Call
A conference call hosted by the REIT’s management team will be held on Thursday, August 9, 2018 at 9:00 a.m. Eastern Time, in connection with the issuance of the REIT’s results for the second quarter.
The telephone numbers to participate in the conference call are:
Canada Toll Free: (855) 669-9657 U.S. Toll Free: (888) 249-8268 International: (412) 902-4153
The conference call will also be webcast over the REIT’s web site at www.wptreit.com. Please click on “Investors” and follow the link. Participants are requested to dial-in or access the webcast at least ten minutes before the start time.
The telephone numbers to listen to the call after it is completed (Instant Replay) are Canada Toll Free (855) 669-9658, U.S. Toll Free (877) 344-7529 and International (412) 317-0088. The Passcode for the Instant Replay is 10121780#. A recording of the call will also be archived on the REIT’s web site at www.wptreit.com.
About WPT Industrial Real Estate Investment Trust
WPT Industrial Real Estate Investment Trust is an unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. The REIT has been formed to own and operate an institutional-quality portfolio of primarily industrial properties located in the United States, with a particular focus on warehouse and distribution properties. As of March 31, 2018, WPT Industrial, LP (the REIT’s operating subsidiary) indirectly owned a portfolio of properties consisting of approximately 17.6 million square feet of gross leasable area, comprised of 52 industrial properties and one office property located in 15 states within the United States.
This press release contains “forward-looking information” as defined under applicable Canadian securities law (“forward-looking information” or “forward-looking statements”) which reflect management’s expectations regarding objectives, plans, goals, strategies, future growth, results of operations, performance, business prospects and opportunities of the REIT, including statements concerning the Transaction providing access to additional capital resources and enhanced and diversified cash flows, achievement of the targeted US$1B in equity for the Venture, achievement of increased property acquisitions through the Venture pipeline, the expected Venture property holding categories and periods, expected private capital management and incentive fees, expected availability of WPTCA-managed properties for acquisition, the length of employment of internalized management, expected cash savings and accretion from the Internalization, and expected increased economies of scale and expansion opportunities from the Internalization. The words” plans”, “expects”, “does not expect”, “scheduled”, “estimates”, “intends”, “anticipates”, “does not anticipate”, “projects”, “believes” or variations of such words and phrases or statements to the effect that certain actions, events or results “may”, “will”, “could”, “would”, “might”, “occur”, “be achieved” or “continue” and similar expressions identify forward-looking statements. Forward-looking statements are necessarily based on a number of estimates and assumptions that, while considered reasonable by management of the REIT as of the date of this press release, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The REIT’s estimates, beliefs and assumptions, which may prove to be incorrect, include the various assumptions set forth herein, including, but not limited to, the REIT’s and each property’s future growth potential, results of operations, future prospects and opportunities, the demographic and industry trends remaining unchanged, no change in legislative or regulatory matters, future levels of indebtedness, the tax laws as currently in effect remaining unchanged, the continual availability of capital, the current economic conditions remaining unchanged, continued positive net absorption and declining vacancy rates in the markets in which the REIT’s properties are located, stability in composition of management personnel, and ability to capitalize on potential benefits of the Transaction.
When relying on forward-looking statements to make decisions, the REIT cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties, including that there can be no assurance that announced acquisitions will be completed and if completed on the described terms, and should not be read as guarantees of future performance or results and will not necessarily be accurate indications of whether or not the times at or by which such performance or results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under “Risk Factors” in the REIT’s annual information form for the year ended December 31, 2017, which is available under the REIT’s profile on SEDAR at www.sedar.com. These forward-looking statements are made as of the date of this press release and, except as expressly required by applicable law, the REIT assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
For further information, please contact: Scott Frederiksen, Chief Executive Officer WPT Industrial Real Estate Investment Trust Tel: (612) 800-8501 Fax: (612) 800-8535 www.wptreit.com