Subsidiaries of Canada's R&R Real Estate Investment Trust have entered into an agreement to purchase five U.S. economy hotels, totaling 656 rooms, for US$31.5 million.
The company's agreement to purchase the hotels, which are in Ohio, Georgia, North Carolina and Florida, was made with entities controlled by R&R's Executive Chairman and trustee Majid Mangalji and President and CEO Michael Klingher. Mangalji is the company's largest beneficial unit holder on a fully diluted basis, according to a press release.
The agreement calls for the entities to receive attached special voting units in the REIT and approximately US$11 million worth of class B limited partnership units of newly formed limited partnerships that will hold the acquisition properties at 20 Canadian cents per unit. R&R will also assume approximately US$20.5 million of mortgage debt on the properties and pay the entities approximately US$600,000 in cash.
If the acquisition is approved, Mangalji, Klingher and their entities' effective aggregate interest in R&R will increase, assuming the conversion of all class B units, from approximately 85.6% to 90.3%, with an assumed exchange rate of C$1.28 to US$1.00.
R&R's acquisition of the portfolio must be approved by a majority of the company's unit holders, excluding the units controlled by Mangalji and Klingher, at a special meeting on June 28. R&R created a special committee of independent trustees to consider the deal, which unanimously recommended unit holders vote in favor of the acquisition.
The committee reviewed independent appraisals of the portfolio by Colliers International, Valuation & Advisory Services and Hospitality & Leisure Group. The company also received a verbal fairness opinion on the deal from Raymond James Ltd.
If approved, the deal is expected to close in the third quarter of 2018.
Blake Cassels & Graydon LLP and Greenberg Traurig LLP acted as legal advisers to R&R, and Raymond James acted as financial adviser to the special committee.