NADG NNN Real Estate Investment Trust to Sell its Entire Interest in Portfolio of Real-Estate Properties in the U.S.

TORONTO, Aug. 21, 2023 /CNW/ - NADG NNN Real Estate Investment Trust (the "REIT") is pleased to announce today that it and NADG NNN Holding L.P. (the "Seller"), a wholly-owned subsidiary of the REIT, have entered into an interest purchase agreement (the "Interest Purchase Agreement") with NADG NNN Operating LP (the "Buyer"), an investment vehicle domiciled in the U.S. with similar objectives to those of the REIT, pursuant to which the Buyer will indirectly acquire the Seller's entire approximately 50% interest (the "REIT Portfolio") in a portfolio of 54 income-producing commercial real estate properties in the U.S. (the "Portfolio") in a transaction (the "Transaction") that will provide liquidity in the form of all-cash consideration to unitholders of the REIT ("Unitholders").

The Transaction values the Portfolio at approximately US$138.25 million. The purchase price payable by the Buyer pursuant to the Transaction will be adjusted for, among other things, indebtedness related to the REIT Portfolio. The REIT expects the net pre-tax cash proceeds, including an estimate for transaction and closing costs, and other customary costs, for the REIT Portfolio to be approximately US$26.33 million (the "Consideration"). In connection with the Transaction, the Seller expects to distribute the net proceeds from the sale of the REIT Portfolio to the REIT, with the REIT expecting to distribute its net assets to Unitholders, cancel all issued and outstanding units of the REIT (the "Units") and dissolve the REIT, all in accordance with the Declaration of Trust (as defined below).

The distributions in connection with the Transaction to Class I Unitholders (as of the date hereof), before deducting taxes required to be withheld and including an estimate for transaction and closing costs and other customary costs, are expected to be approximately $9.00 per Class I Unit (comparable Class A distributions are expected to be approximately $8.70 per Class A Unit and comparable Class U distributions are expected to be approximately US$8.23 per Class U Unit). Total return of capital through the investment period, inclusive of the Transaction, for Class I Units is estimated to be approximately $11.25 per Class I Unit, compared with an original cost of $10.00 per Class I Unit (comparable Class A total return of capital is estimated to be approximately $10.88 per Class A Unit, compared with an original cost of $10.00 per Class A Unit, and comparable Class U total return of capital is estimated to be approximately US$10.35 per Class U Unit, compared with an original cost of US$10.00 per Class U Unit).  It is expected that normal course distributions will continue through the closing of the Transaction, further enhancing the aforementioned total returns. There will be no Carried Interest (as such term is defined in the final long form prospectus of the REIT dated July 26, 2017) payable to North American Asset Management Corp. (the "Canadian Manager") in connection with the Transaction and the dissolution of the REIT. The actual distributions to Unitholders may differ from the estimated amounts described above based on the final amounts of transaction and closing costs, taxes and other customary costs to be deducted.

The Transaction has received the unanimous recommendation of an independent committee (the "Special Committee") of the board of trustees of the REIT (the "REIT Board") comprised of Messrs. Warren McClure, David Cooperman and Thomas Wheat and the unanimous approval of the REIT Board (with interested trustees abstaining).

The Special Committee, in recommending the Transaction, considered, among other things, the following factors:

Certainty of Value and Liquidity - The Consideration is all cash and is not subject to a financing condition, which provides Unitholders with certainty of value and immediate liquidity. 

Attractive Transaction Relative to Alternatives - After consultation with management of the REIT, as well as its independent financial and legal advisors, the Special Committee believes that the Transaction is an attractive proposition to Unitholders based on its review of strategic alternatives, including an extension of the term of the REIT for a further one-year period to allow the REIT to complete a Liquidity Event with no certainty as to when such a Liquidity Event would take place and on what terms, and the risks and ongoing costs associated with pursuing an alternative Liquidity Event. While Unitholders would continue to be entitled to receive distributions (which are net of asset management fees and the ongoing expenses of the REIT) by extending the term of the REIT, they would have no ability to sell or otherwise transfer their Units.

Reasonable Valuation - The Transaction values the REIT Portfolio greater than the appraised value of the REIT's approximate 50% non-controlling fractional interest in the Portfolio. Furthermore, the appraisal of the Portfolio prepared by Joseph J. Blake and Associates, Inc. dated May 5, 2023 with a valuation date of April 1, 2023 was based on an April 1, 2023 valuation date and market conditions have deteriorated since then. Additionally, the Transaction value compares favourably to the fair value of the REIT Portfolio as set out in the REIT's financial statements for the three-month period ended March 31, 2023.

Arm's Length Negotiations and Oversight - The Special Committee, with the assistance of its independent financial and legal advisors, engaged in arm's length negotiations with the Buyer and its representatives in entering into the Transaction. Such advice included detailed financial advice from Blair Franklin Capital Partners Inc. ("Blair Franklin"), including a review of the strategic alternatives available to the REIT.

Supporting Financial Advisor Opinion. Blair Franklin has provided an oral opinion to the Special Committee to the effect that, based upon and subject to the assumptions, limitations and qualifications contained in such opinion the consideration to be received by Unitholders (which excludes, among others, directors and senior officers of the REIT, the Seller and their affiliates, as well as the Buyer and its affiliates) pursuant to the Transaction is fair, from a financial point of view, to Unitholders.

The Interest Purchase Agreement provides for, among other things, customary representations, warranties and covenants, including customary non-solicitation covenants from the REIT and the Seller, and a "fiduciary out" that allows the REIT to accept a superior proposal in certain circumstances, subject to a "right to match" in favour of the Buyer and payment of a termination fee of up to US$1.25 million to the Buyer. The foregoing summary is qualified in its entirety by the provisions of the Interest Purchase Agreement, a copy of which will be filed on SEDAR+ at www.sedarplus.ca.

The Transaction is expected to close in the fourth quarter of 2023, subject to the satisfaction or waiver of certain closing conditions, including Unitholder approval of the Transaction, as described below, and certain other customary closing conditions.

Following closing of the Transaction, the REIT will apply to cease to be a reporting issuer in each of the provinces of Canada in which it is presently a reporting issuer and the REIT will be dissolved.

The REIT expects to hold a special meeting of Unitholders to seek approval of the Transaction (the "Meeting") in October 2023. The REIT will mail a management information circular and certain related documents to Unitholders in connection with the Meeting, copies of which will be filed on SEDAR+ at www.sedarplus.ca.

The Transaction constitutes a "related party transaction" within the meaning of Multilateral Instrument 61-101 ? Protection of Minority Security Holders in Special Transactions ("MI 61-101"), as the Buyer is a "related party" of the REIT under MI 61-101, and as a consequence of the Transaction the REIT is indirectly selling assets to the Buyer. The REIT is exempt from the requirement to obtain a formal valuation in reliance on section 5.5(b) of MI 61-101.

Subject to receipt of exemptive relief from the applicable provincial securities regulators (the "Commissions"), Unitholders must approve the Transaction by at least a majority of the votes attached to the Units held by Unitholders present in person or represented by proxy, voting as a single class, at the Meeting, excluding for this purpose votes cast by Unitholders that are required to be excluded pursuant to MI 61-101; if such exemptive relief is not obtained, the Unitholders will vote on a class by class basis. Votes cast by North American Realty Services, LLLP (the "US Manager" and, together with the Canadian Manager, the "Managers") in respect of the 100,000 Units held by it, representing approximately 2.6% of the issued and outstanding Units, will be excluded for purposes of the majority of minority vote described above.

MI 61-101 requires approval of the Transaction to be received from a majority of the votes attached to the Units voted by disinterested Unitholders voting separately on a class-by-class basis. However, the REIT applied for exemptive relief from the Commissions from the requirement that the REIT obtain approval separately for each class of Units on the basis that, among other reasons: (i) the Declaration of Trust provides that Unitholders vote as a single class unless the nature of the business to be transacted at the Meeting affects holders of one class of Units in a manner materially different from its effect on holders of another class of Units, and the REIT, the Canadian Manager and the Special Committee have each determined that the Transaction will not affect holders of one class of Units in a manner materially different than holders of another class of Units; (ii) the relative returns are fixed pursuant to a formula established in the Declaration of Trust that was set at the time of the REIT's initial public offering when investors selected their preferred class and purchased their Units, the interests of the holders of each class of Units are aligned in respect of the Transaction; (iii) the Transaction was subject to a number of procedural mechanisms to ensure the collective interests of the Unitholders were protected, including, but not limited to, that (a) negotiation of the Transaction has been overseen by the Special Committee, (b) both the Special Committee and the REIT Board have received the Fairness Opinion (as defined below), (c) the REIT will hold the Meeting to allow Unitholders to consider and, if deemed advisable, approve the Transaction, and (d) the REIT has prepared and will deliver to its Unitholders a management information circular describing the Transaction; (v) the REIT Board believes that providing a class vote would provide disproportionate voting power to a potentially small number of Unitholders; and (vi) to the best of the knowledge of the REIT and the Managers, there is no reason to believe that Unitholders of any particular class would not approve the Transaction. There can be no assurance that the requested relief will be granted by the Commissions.

The REIT Board constituted the Special Committee to oversee negotiation of the Transaction for the REIT.

The Special Committee retained Blair Franklin as its financial advisor, which has provided an oral fairness opinion to the Special Committee to the effect that the consideration to be received by Unitholders (which excludes, among others, directors and senior officers of the REIT, the Seller and their affiliates, as well as the Buyer and its affiliates) pursuant to the Transaction is fair, from a financial point of view, to Unitholders (the "Fairness Opinion"). 

The Special Committee unanimously determined that the Transaction is in the best interests of the REIT and fair to Unitholders and, accordingly, recommended that the REIT Board approve the Transaction and related matters and recommend that Unitholders vote in favour of the Transaction and related matters.

The REIT Board unanimously concluded (with Messrs. Robert S. Green and Stephen S.B. Preston declaring their interest and recusing themselves from consideration and voting other than for quorum purposes) that the Transaction is in the best interests of the REIT and fair to Unitholders and, accordingly, unanimously approved the Transaction and recommends that Unitholders vote in favour of the Transaction and related matters.

Blair Franklin has provided the Fairness Opinion to the Special Committee and the REIT Board in connection with the Transaction. Blake, Cassels & Graydon LLP is counsel to the REIT and Miller Thomson LLP is counsel to the Special Committee in connection with the Transaction.

Fried, Frank, Harris, Shriver & Jacobson LLP is acting as U.S. counsel and Dentons Canada LLP is acting as Canadian counsel to the Buyer in connection with the Transaction.

The REIT is an open-ended trust established in accordance with the laws of the Province of Ontario pursuant to a declaration of trust dated June 8, 2017, as amended and restated on July 26, 2017 (the "Declaration of Trust") for the primary purpose of indirectly acquiring, owning and leasing a portfolio of interests in diversified income producing commercial real estate properties in the U.S. with a focus on outparcel properties leased to national or regional operators pursuant primarily to triple-net leases. The REIT currently indirectly owns 54 investment properties on a 50/50 basis with NADG NNN Property Fund, LP, a limited partnership formed under the laws of the State of Delaware.

For the REIT's complete consolidated financial statements and management's discussion and analysis for the first quarter of ended March 31, 2023 and any other information relating to the REIT, please visit the REIT's SEDAR+ profile at www.sedarplus.ca. 

Certain statements made in this news release, including statements relating to matters that are not historical facts and statements of the REIT's beliefs, intentions and expectations about developments, results and events which will or may occur in the future, contain "forward-looking information" within the meaning of applicable Canadian securities legislation. Forward-looking information relates to future events or future performance, reflects current expectations or beliefs regarding future events and are typically identified by words such as "anticipate", "believe", "could", "estimate", "expect", "intend", "likely", "may", "plan", "seek", "should", "will" and similar expressions suggesting future outcomes or statements regarding an outlook. Specific forward-looking statements in this document include, but are not limited to, statements with respect to the timing of various steps to be completed in connection with the Transaction (including the mailing of the information circular, the holding of the Meeting and the closing of the Transaction); the amount of distributions to be received by Unitholders; the timing and quantum of the proposed distribution of net assets of the REIT to Unitholders; and the anticipated benefits of the Transaction.

By its nature, forward-looking information is subject to numerous risks and uncertainties, some of which are beyond the REIT's control. The forward-looking information contained in this news release is based on certain key expectations and assumptions made by the REIT, including expectations and assumptions concerning the anticipated benefits of the Transaction, the receipt, in a timely manner, of Unitholder approval in respect of the Transaction and the estimates of transaction and closing costs and other customary costs to be deducted from the net assets of the Trust.

Forward-looking information is subject to various risks and uncertainties which could cause actual results and experience to differ materially from the anticipated results or expectations expressed in this news release. The key risks and uncertainties include, but are not limited to: general global economic, market and business conditions; governmental and regulatory requirements and actions by governmental authorities; relationships with employees, customers, business partners and competitors; and diversion of management time on the Transaction. There are also risks that are inherent in the nature of the Transaction, including failure to satisfy the conditions to the completion of the Transaction and failure to obtain any required Unitholder approval (or to do so in a timely manner), and the possibility of not receiving the requested relief from the Commissions.

Readers are cautioned that undue reliance should not be placed on forward-looking information as actual results may vary materially from the forward-looking information. A comprehensive discussion of other risks that impact the REIT can also be found in the REIT's public reports and filings which are available under the REIT's SEDAR+ profile at www.sedarplus.ca. The REIT does not undertake to update, correct or revise any forward-looking information as a result of any new information, future events or otherwise, except as may be required by applicable law.

SOURCE NADG NNN Real Estate Investment Trust