October 28, 2014

Innvest REIT, Kingsett Capital and Ivanhoé Cambridge announce agreement to acquire The Fairmont Royal York Hotel

InnVest and KingSett announced today that they have entered into a definitive agreement with Ivanhoé Cambridge to acquire an aggregate 80% interest in the Fairmont Royal York Hotel in Toronto

Toronto, Canada – InnVest Real Estate Investment Trust (“InnVest”) (TSX:INN.UN) and KingSett Real Estate Growth LP No. 5 (“KingSett”),  announced today that they have entered into a definitive agreement with Ivanhoé Cambridge (“Ivanhoé Cambridge”), to acquire an aggregate 80% interest in the Fairmont Royal York Hotel in Toronto (the “Royal York Hotel”) in a joint venture where Ivanhoé Cambridge will retain a 20% interest in the property.

The joint venture will acquire the 1,363-room Royal York Hotel for an aggregate price of $186.5 million, or $137,000 per room, with InnVest’s 20% share in the joint venture being acquired for approximately $37.3 million. The joint venture expects to finance the acquisition with conventional mortgage financing. InnVest will fund its proportionate share of the acquisition equity with available cash and capacity under its existing credit facilities. The transaction is expected to close on January 30, 2015 and is subject to customary closing conditions.

KingSett, with its 60% interest in the joint venture, will become the managing partner of the joint venture. InnVest will become the hotel asset manager and will oversee the property’s hospitality operations, working with Fairmont Hotels and Resorts, the operator of the Royal York Hotel.

The parties to the joint venture believe in the long term future success of the Royal York Hotel and will invest over $50 million of additional funds for renovations over the 24 months following the completion of the acquisition.

InnVest believes the Royal York Hotel acquisition offers numerous benefits to InnVest unitholders, including:

  • Provides InnVest with an interest in one of Canada’s largest first-class hotels, in Canada’s largest city, with one of Canada’s leading hotel brands;
  • Represents compelling value with an attractive price per room entry point for an iconic asset in an irreplaceable fortress location;
  • Accretive to adjusted funds from operations per unit in the medium-term with expected significant income growth opportunity from recent and ongoing investments in the Royal York Hotel and surrounding areas;
  • Demonstrates the benefit of the strategic capital relationship entered into with KingSett Capital who structured and facilitated this opportunity; and
  • In order to facilitate long-term ownership of the Royal York Hotel, the joint-venture arrangement provides each joint-venture partner with a right of first offer to acquire the joint venture partners’ interests in the property.

Ed Pitoniak, Managing Director of InnVest added, “We are delighted to partner with KingSett and Ivanhoé Cambridge on what we believe is one of Canada’s most prestigious hotel properties.  We are also looking forward to extending our relationship with Fairmont.”

Mr. Pitoniak continued, “With the nearing completion of the Union Station enhancements, as well as the introduction of the Pearson Airport Rail Link, the Fairmont Royal York’s location places it at the commercial, cultural and transportation crossroads of Toronto. With the extensive renovations to the Royal York Hotel’s infrastructure and guestrooms, this asset is poised to deliver strong earnings growth and benefit from its irreplaceable location in Toronto’s city center.”

“This transaction illustrates the value of our strategic partnership with KingSett Capital and is a key step in our becoming the leading growth platform in the Canadian lodging industry. Our relationship with KingSett provides us with optionality and scale to grow our portfolio as we continue to look at other opportunities in key markets,” said Mr. Pitoniak.

The Fairmont Royal York Hotel, built in 1929, is well into a $100 million renovation project, which has moved from significant infrastructure projects to a phased guest room renovation program to drive higher top line performance.  By the end of January 2015, over 500 guestrooms are expected to have been fully renovated. Further, there are several potential redevelopment possibilities to capitalize on the surrounding market’s growth, including re-configuration of the Hotel’s retail space. The Hotel features 1,363 guest rooms including 82 Fairmont Gold Rooms and 92 suites, and offers over 65,000 square feet of meeting space, 30,000 square feet of retail space and six food and beverage outlets.

About KingSett Capital
KingSett Capital is Canada’s leading private equity real estate investment business, co-investing with institutional and high net worth individuals, using active management to deliver premium risk weighted returns. KingSett invests through its Growth, Income and Mortgage funds and has over $5 billion of assets under management.

About InnVest
InnVest Real Estate Investment Trust is an unincorporated open-ended real estate investment trust which owns a portfolio of over 110 hotels across Canada representing approximately 14,000 guest rooms operated under internationally recognized brands. InnVest also holds a 50% interest in Choice Hotels Canada Inc., one of the largest franchisors of hotels in Canada.

InnVest’s units and convertible debentures trade on the Toronto Stock Exchange (the “TSX”) under the symbols INN.UN, INN.DB.D, INN.DB.E, INN.DB.F and INN.DB.G.


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