Owner of self-storage facilities InStorage Real Estate Investment Trust (IS-UN.TO), announced Wednesday it has agreed to buy its third-party development partner InScotia Developments Limited Partnership for approximately C$68 million. The acquisition is expected to benefit InStorage and its unitholders by acquiring a high quality portfolio of income producing properties with considerable upside.
According to the company, InScotia's portfolio comprises of interests in eight high quality self-storage properties that are currently in their lease-up phase and a land parcel zoned to permit construction of a 93 thousand square foot self storage facility. InStorage estimates stabilized net operating income from the acquired properties to be in the range of C$5.5 million on an annualized basis.
The company noted that it would pay about C$68 million for InScotia, funded with the issuance of C$14.3 million of convertible debentures that will bear no interest and have a three-year term to the InScotia vendors, the assumption of C$33.6 million of first mortgage and construction loans, and the repayment of C$20.2 million in mezzanine loans to it.
Further, the convertible debentures can be converted into trust units of InStorage, subject to certain conditions, after January 1, 2011 at a price of C$5.00 per unit.
InStorage also noted that given the challenging credit markets and the fact that four of the eight InScotia properties already scheduled to be acquired over the next 15 months, it is prudent to internalize its development capabilities, refinance commercial mortgage backed securities debt and to reduce its monthly cash distributions to C$0.021 per unit or C$0.252 on an annualized basis.
The company expects the transaction to close by late October, subject to receiving all required consents.
InStorage also announced that it has refinanced certain floating rate mortgages on four of its properties that mature in November and December 2008. The new financing consists of a C$25 million interest-only three-year bridge loan that bears interest at 9.65% and is repayable after eighteen months. The balance of the C$29.25 million of the maturing mortgages will be repaid through cash on hand and drawings on existing credit facilities, the REIT said.
Shares of IS-UN.TO are currently trading at C$2.40, down C$0.40 or 14.29%, on Toronto Stock Exchange.
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