Summit Industrial Income REIT signed an agreement with its external manager to internalize its asset and property management functions.
The industrial real estate investment trust expects to eliminate the fees it pays to Sigma Asset Management Ltd., including those related to property management, acquisition and incentives, as a result of the internalization.
Under the terms of the deal, Summit will buy all the issued and outstanding shares of Sigma for C$95.0 million, of which C$20.0 million will be paid in cash and C$75.0 million will be satisfied with 6,666,666 units of the REIT.
The REIT expects to fund the cash portion of the consideration with its revolving operating facility. The units to be issued are based on the 30-day volume-weighted average price of Summit's units ended March 20 of C$11.25 per unit, and will be subject to contractual lock-up periods and to the approval of the Toronto Stock Exchange.
A special committee of independent Summit trustees unanimously recommended the deal for the REIT's unit holder approval. In addition to eliminating the annual asset management fee, the special committee cited improved net operating income, a reduction in Summit's general and administrative expenses, an increase in its funds from operations and adjusted funds from operations per unit, and the capital markets' preference for internally managed REITs as among the key reasons for its recommendation. The committee also expects the transaction to be immediately accretive to Summit's AFFO per unit by about 2.8%.
The internalization is scheduled to close on or about May 17, pending unit holder approval and other customary conditions.
Scotia Capital Inc. was financial adviser to the special committee, and Bennett Jones LLP and McCarthy Tétrault LLP were the legal advisers to the special committee and Summit, respectively. Graham Gow was legal counsel to Sigma.