HOM.UN BSR Real Estate Investment Trust

Transaction Highlights:

• Strategic disposition of 2,701 apartment units to AvalonBay Communities for US$618.5 million
• Validates IFRS carrying value of the REIT's portfolio
• Significantly reduces ownership and influence of legacy holders of Class B Units
• Facilitates redeployment of proceeds of a cross section of the REIT's stabilized assets into potential higher growth acquisitions

LITTLE ROCK, Ark. and TORONTO, Feb. 27, 2025 /CNW/ - BSR Real Estate Investment Trust ("BSR" or the "REIT") (TSX: HOM.U) (TSX: HOM.UN) today announced that it has entered into two agreements to sell an aggregate of nine properties, consisting of 2,701 apartment units, to AvalonBay Communities, Inc. ("AVB") (NYSE: AVB) for gross consideration valued at approximately US$618,500,000 (collectively, the "Transaction"). The value ascribed to the nine properties to be sold by the REIT pursuant to the Transaction is approximately in line with the REIT's IFRS carrying value, implying a price per apartment unit of approximately US$229,000. The Transaction is expected to simplify the REIT's restrictive capital structure, strategically positioning the REIT for value enhancing initiatives.

Under the Transaction, in a stand-alone sale, BSR Trust, LLC ("BSR Trust"), the operating subsidiary of the REIT, will sell three properties comprising 857 apartment units located in Austin, TX to AVB valued at US$187,000,000 in the aggregate, directly for cash consideration (the "Direct Asset Sale Transaction"). Under a separate contribution transaction (the "Contribution Transaction"), BSR Trust will sell six properties comprising 1,844 apartment units located in Dallas, TX to AVB valued at US$431,500,000 in the aggregate, in exchange for a mix of (i) up to US$220,000,000 (expected US$193,000,000) in cash consideration, a portion of which is to be used to extinguish all existing mortgage debt on the contributed properties and the remainder to be used for repayment of other indebtedness, transaction expenses and general corporate purposes, and (ii) the exchange and cancellation of up to 15,000,000 (approximately 75%) of the Class B units of BSR Trust ("Class B Units") into equity of a newly formed "DownREIT" partnership entity of AVB (the "AVB DownREIT Partnership"). In connection with the Contribution Transaction, the contractual rights held by a subset of legacy holders of Class B Units, including consent rights over certain fundamental sale transactions, will be eliminated.

"This is a transformative and strategic transaction for BSR with a well-respected buyer," said Dan Oberste, Chief Executive Officer of BSR. "Once again, the REIT has executed a transaction substantiating the IFRS carrying value of a cross section of BSR's stabilized assets, while realizing an approximate US$111,000,000 value lift relative to the REIT's original acquisition price of these assets. Upon completion of the transaction, the REIT will have substantial dry powder to redeploy into properties in our core Texas Triangle investment markets that could offer higher returns for unitholders. Executing on this unique opportunity is a testament to our platform's track-record of generating value for unitholders through asset rotations. This transaction also strengthens our governance by reducing the influence of legacy unitholders, better positioning the REIT to pursue growth and value enhancing initiatives."

A special committee (the "Special Committee") of the REIT's board of trustees (the "Board"), comprised solely of independent trustees, was appointed to review, consider, negotiate and evaluate the Transaction, including relative to potential alternatives and the status quo business plan of the REIT. The Special Committee retained an independent financial advisor and independent legal counsel to assist in the discharge of its mandate.

Benefits of the Transaction
The Special Committee and Board, supported by advice from financial and legal advisors, believe that the Transaction is in the best interests of the REIT and holders of trust units of the REIT ("REIT Units") for a number of reasons, including:

• Validates market value of portfolio and substantiates IFRS net asset value: The REIT Units currently trade at a significant discount to IFRS net asset value ("NAV") per unit. The Transaction validates the REIT's portfolio value and IFRS NAV per unit, given the nine properties will be sold near their IFRS carrying value. BSR is effectively disposing of approximately 30% of its assets for approximately 40% of the market value of its total portfolio.
• Reduces ownership and influence of Class B Units and positions the REIT for value maximization initiatives: The Contribution Transaction eliminates up to 15,000,000 Class B Units and unencumbers the REIT from contractual consent rights over certain material sale transactions, in respect of which holders of Class B Units and holders of REIT Units may have differing motivations and tax positions, better positioning the REIT for value enhancing initiatives in the future.
• Facilitates asset rotations into potentially higher growth assets: The Transaction results in an attractive foundation to recycle capital into new assets to drive enhanced growth, with continued focus on strategically investing proceeds into core Texas Triangle investment markets.
• Leverages BSR management's proven track record in portfolio repositioning: The Transaction enables BSR management to divest a cross section of its portfolio and utilize its expertise in maintaining a high-quality, diversified multifamily strategy through successful portfolio recycling.

Transaction Overview & Use of Proceeds
The Transaction portfolio consists of a cross section of the REIT's assets located in Texas throughout Austin and Dallas metropolitan statistical areas (MSAs):

The consideration for the Transaction is expected to consist of US$380,000,000 in cash, as well as equity of AVB DownREIT Partnership issued to participating holders of Class B Units (the "Participating Unitholders") with a notional value of up to US$238,500,000. A portion of the cash proceeds will be used to repay existing mortgage indebtedness of approximately US$48,400,000 on the contributed properties. Net remaining cash proceeds will be used to repay certain indebtedness, to pay transaction expenses and for general corporate purposes. Management intends to redeploy approximately US$190,000,000 into acquisition targets in its core investment markets. The potential acquisition targets include properties with greater growth potential relative to the sale portfolio, with potential for the REIT's internal platform to execute on value enhancing initiatives.

Management also intends to retain approximately US$109,000,000 of secured Fannie Mae mortgage indebtedness with an interest rate of approximately 2.7% that currently encumbers properties under the Direct Asset Sale Transaction, which it intends to use to secure substitute properties.

Transaction Details
Direct Asset Sale

Pursuant to the Direct Asset Sale Transaction, BSR Trust will sell Cielo I & II, valued at US$136,000,000, and Retreat at Wolf Ranch, valued at US$51,000,000, for an aggregate of US$187,000,000 in cash consideration. The agreement governing the Direct Asset Sale Transaction provides for, among other things, customary representations, warranties and covenants of the parties. The Direct Asset Sale Transaction is an arm's length real estate transaction which the Special Committee and Board have determined is in the best interests of the REIT and have approved unconditional on the Contribution Transaction proceeding. Subject to the satisfaction of all conditions precedent, the Direct Asset Sale Transaction is expected to close on or around March 31, 2025.

Contribution Transaction

Pursuant to the agreement governing the Contribution Transaction, among other things, (i) BSR Trust will indirectly contribute six properties to a newly formed wholly-owned subsidiary ("BSR Holdco"), (ii) AVB will make a loan in cash to BSR Holdco, which funds will be guaranteed by electing Participating Unitholders, (iii) BSR Holdco will use a portion of the loan proceeds to extinguish all debt securing the properties, (iv) the remaining loan proceeds will be distributed by BSR Holdco to BSR Trust in cash, (v) the Participating Unitholders will exchange their elected Class B Units for units in BSR Holdco, which Class B Units will then be cancelled, and (vi) the equity interests in BSR Holdco will then in turn be exchanged for units ("AVB DownREIT Units") in AVB DownREIT Partnership. Accordingly, pursuant to the Contribution Transaction, Participating Unitholders will cease to hold their Class B Units that are exchanged under the Contribution Transaction and will become equity holders in the AVB DownREIT Partnership, which will own the contributed properties and other assets. The AVB DownREIT Units are customary "DownREIT" partnership units that track the value of AVB's stock listed on the New York Stock Exchange (the "AVB Shares"). AVB DownREIT Units received by Participating Unitholders will be subject to a 12-month lock-up, following which they will be redeemable, at a Participating Unitholder's election for a period of 15 years, for cash, or at AVB's election, acquired by AVB for AVB Shares (initially on a one-for-one basis). The holders of AVB DownREIT Units will also be afforded certain tax protection covenants for seven years to preserve tax deferral as well as customary registration rights.

Class B Units are, in all material respects, economically equivalent to the REIT Units on a per unit basis, but are non-voting. A subset of the legacy holders of Class B Units that founded BSR Trust (the "Bailey/Hughes Holders") are parties to an investor rights agreement (the "Investor Rights Agreement") entered into at the time of the REIT's initial public offering in 2018 and pursuant to which such Bailey/Hughes Holders were granted certain contractual rights, provided their collective ownership interest remains above specified thresholds, including board nomination rights, pre-emptive rights on equity issuances, tag-along rights, demand registration rights and consent rights over certain fundamental sale transactions. The Investor Rights Agreement is available under the REIT's profile on SEDAR+ at www.sedarplus.ca.

Because the individual tax positions of the holders of Class B Units are tied to properties in the REIT's portfolio, certain strategic cash transactions that do not afford tax deferral for U.S. tax purposes are not likely to be supported by the Bailey/Hughes Holders under their existing consent rights. However, as consideration to facilitate the Contribution Transaction, the Investor Rights Agreement will be amended to extinguish all pre-emptive rights, tag-along rights, registration rights, and importantly, the transaction consent rights, providing more flexibility to the REIT moving forward. The Bailey/Hughes Holders will retain one nominee on the Board (down from three nominees currently) provided they maintain a collective ownership interest in the REIT above 10%.

John S. Bailey, W. Daniel Hughes, Jr., Patricia Bailey and their respective controlled entities, all of whom are Bailey/Hughes Holders, executed the agreement governing the Contribution Transaction as significant holders of Class B Units who will be participating in the Contribution Transaction in respect of some or all of their Class B Units (the "Supporting Unitholders"). All other holders of Class B Units that are "accredited investors" within the meaning of applicable U.S. securities laws and residents of the United States will be offered the opportunity to participate in the Contribution Transaction, in respect of up to 15,000,000 Class B Units in the aggregate (the "Participation Offer") pursuant to an offering memorandum (the "Offering Memorandum"). Following the Contribution Transaction, John S. Bailey, a founder and former Chief Executive Officer and former Executive Vice-Chair of the REIT, will remain the largest unitholder of the REIT and will continue to hold both REIT Units and Class B Units.

The agreement governing the Contribution Transaction provides for, among other things, customary representations, warranties and covenants of the parties. The completion of the Contribution Transaction is subject to, among other things, the satisfaction or waiver of certain closing conditions set forth in the agreement. The parties also have rights to terminate the agreement in certain circumstances, including a right of AVB to terminate at any time in its discretion. A termination fee of US$7,500,000 will be payable by BSR Trust to AVB in respect of a termination by AVB for certain BSR breaches or a failure to close by a specified date due to certain matters relating to the structure of the Contribution Transaction. A termination fee of US$15,000,000 will be payable by AVB to BSR Trust for certain AVB breaches or if AVB terminates the agreement for any reason in its discretion.

Subject to the satisfaction of all conditions precedent, the Contribution Transaction is expected to close in Q2 of 2025. A copy of the agreement governing the Contribution Transaction will be available under the REIT's profile on SEDAR+ at www.sedarplus.ca.

Class B Unit Participation Offer
Pursuant to the Offering Memorandum, eligible holders of Class B Units who are "accredited investors" for purposes of applicable U.S. securities laws and residents of the United States will have the option to elect to exchange, pursuant to a reorganization transaction, all or a portion of their Class B Units for AVB DownREIT Units at an exchange ratio of 0.0707 AVB DownREIT Units per Class B Unit, rounded to the nearest whole number of AVB DownREIT Units for each Participating Unitholder. The election is subject to a maximum of 15,000,000 Class B Units, representing approximately 75% of the issued and outstanding Class B Units, and Participating Unitholders may be prorated down if the Participation Offer is oversubscribed. The REIT anticipates the Participation Offer will be fully subscribed. The Offering Memorandum is expected to be delivered to holders of Class B Units in early March, 2025.

Only holders of Class B Units who qualify as "accredited investors" for purposes of applicable U.S. securities laws and are residents of the United States will be permitted to receive AVB DownREIT Units in connection with the Contribution Transaction. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

Regulatory Matters
The Contribution Transaction constitutes a "related party transaction" for purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101"), as the repurchase of Class B Units by BSR Trust from Participating Unitholders and the corresponding transfer of units in BSR Holdco constitute "related party transactions", and each of the Supporting Unitholders is a "related party" of the REIT for purposes of MI 61-101. The Contribution Transaction is exempt from the minority approval and formal valuation requirements of MI 61-101 in accordance with sections 5.5(a) and 5.7(1)(a) thereof, respectively, because neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the Contribution Transaction, insofar as it involves "interested parties" within the meaning of MI 61-101, exceeds 25% of the REIT's market capitalization (as calculated in accordance with MI 61-101 and, for such purpose, including issued and outstanding REIT Units and Class B Units in accordance with the exemptive relief order granted to the REIT by the Ontario Securities Commission on December 11, 2024).

Pursuant to the agreement governing the Contribution Transaction, it is a condition to closing of the Contribution Transaction that Participating Unitholders who are not "related parties" of the REIT within the meaning of MI 61-101 participate in the Participation Offer with respect to at least such number of Class B Units as is required to ensure that the Contribution Transaction remains exempt from the minority approval and formal valuation requirements of MI 61-101 (the "Minimum Participation Condition").

Each of Dan Oberste, Chief Executive Officer, Susan Rosenbaum, Interim Chief Financial Officer and Chief Operating Officer, and Bill Halter, a trustee of the REIT, is a "related party" of the REIT for purposes of MI 61-101, but will not be participating in the Contribution Transaction in respect of his or her Class B Units. Excluding W. Daniel Hughes, Jr., a trustee of the REIT who is a Supporting Unitholder, no other executive officers or trustees of the REIT own or have control or direction over Class B Units.

Special Committee and Board Approval
The Special Committee has reviewed, considered and evaluated the Transaction relative to reasonable alternatives available to the REIT, including the continuance of its status quo business plan. The Special Committee was directly involved in the oversight and negotiation of the Transaction. For the reasons noted above, supported by advice from the Special Committee's independent financial and legal advisors, the Special Committee believes that the Transaction is in the best interests of the REIT and holders of REIT Units.

The Board (with interested trustees abstaining), acting on the unanimous recommendation of the Special Committee, has unanimously approved both the Direct Asset Sale Transaction and the Contribution Transaction. In making its recommendation regarding the Contribution Transaction, the Special Committee considered a number of factors, including among others, the Special Committee's receipt of a fairness opinion from Scotiabank, which concluded that, as of the date of such opinion, in Scotiabank's opinion, and based upon and subject to the assumptions, limitations, and qualifications set forth therein, the consideration to be received by the REIT (indirectly through BSR Trust) pursuant to the Contribution Transaction is fair, from a financial point of view, to the REIT.

In approving the Contribution Transaction, the Board considered a number of factors, including among others, the recommendation of the Special Committee and the Board's receipt of a fairness opinion from BMO Capital Markets ("BMO"), which concluded that, as of the date of such opinion, in BMO's opinion, and based upon and subject to the assumptions, limitations, and qualifications set forth therein, the consideration to be received by the REIT (indirectly through BSR Trust) pursuant to the Contribution Transaction is fair, from a financial point of view, to the REIT.

A description of the fairness opinions and the factors considered by the Special Committee and Board, as well as other relevant background information with respect to the Contribution Transaction, will be included in a comprehensive material change report that will be made available under the REIT's profile on SEDAR+ at www.sedarplus.ca.

Pro Forma Ownership
The Bailey/Hughes Holders beneficially own, or have control or direction over, 16,079,276 Class B Units and 4,908,626 REIT Units in the aggregate, together representing an approximate 39% ownership interest in the REIT (assuming that all Class B Units are redeemed for REIT Units).

The Supporting Unitholders, each of whom is a Bailey/Hughes Holder, beneficially own, or have control or direction over, 12,259,104 Class B Units and 4,303,936 REIT Units in the aggregate, together representing an approximate 31% ownership interest in the REIT (assuming that all Class B Units are redeemed for REIT Units).

John S. Bailey, who is both a Supporting Unitholder and a Bailey/Hughes Holder, beneficially owns, or has control or direction over, 6,383,625 Class B Units and 4,098,628 REIT Units in the aggregate, together representing an approximate 20% ownership interest in the REIT (assuming that all Class B Units are redeemed for REIT Units).

Individual participation by holders of Class B Units in the Participation Offer is not yet known and will be confirmed on closing of the Contribution Transaction once all elections are received pursuant to the Offering Memorandum. The number of participating Class B Units of Supporting Unitholders will be prorated down to the extent the Participation Offer is oversubscribed.

Following the Contribution Transaction, subject to the Minimum Participation Condition, the Bailey/Hughes Holders will have significantly reduced ownership in remaining Class B Units but are expected to continue to hold an over 10% ownership interest in the REIT (assuming that all Class B Units are redeemed for REIT Units). John S. Bailey will remain the largest holder of REIT Units of the REIT and will continue to own Class B Units (the number of which will be determined on closing of the Contribution Transaction).

Conference Call / Webcast and Investor Presentation
The REIT will host a conference call and webcast for analysts and investors on Thursday, February 27, 2025 at 8:30 am (ET). A slide deck outlining the Transaction is available on the REIT's website at: https://www.bsrreit.com/Presentations-&-Events.

To join the conference call without operator assistance, participants can register at Https://emportal.ink/3XgGzX0 to receive an instant automated call back. Alternatively, they can dial 416-945-7677 or 888-699-1199 to reach a live operator who will join them into the call. The webcast will be available at: Https://app.webinar.net/Zpkoe8aJ8gl.

A replay of the call will be available until March 6, 2025. To access the replay, dial 289-819-1450 or 888-660-6345 (Code: 80264 #). A transcript of the call will be archived on the REIT's website.

Advisors
Goodmans LLP is acting as legal counsel and BMO Capital Markets is acting as financial advisor to the REIT in respect of the Transaction. Goldman Sachs & Co. LLC is acting as financial advisor to BSR Trust in respect of the Transaction. McMillan LLP is acting as independent legal counsel and Scotiabank is acting as independent financial advisor to the Special Committee in connection with the Transaction. Scotiabank was paid a fixed fee for its services and is not entitled to any fee that is contingent on the successful completion of the Transaction.

Mitchell, Williams, Selig, Gates & Woodyard P.L.L.C. is acting as legal counsel to the Supporting Unitholders.

About BSR Real Estate Investment Trust
BSR Real Estate Investment Trust is an internally managed, unincorporated, and open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. The REIT owns a portfolio of multifamily garden-style residential properties located in attractive primary and secondary markets in the Sunbelt region of the United States.

Forward-Looking Statements
This news release contains forward-looking information within the meaning of applicable Canadian securities legislation (collectively, "forward-looking statements"). Forward-looking statements in this news release include, but are not limited to: the anticipated closing of the Transaction; the anticipated participation in the Participation Offer; the benefits of the Transaction; the economic and strategic impact of the Transaction; the satisfaction of the conditions to closing the Transaction and the timing thereof; the use of proceeds in respect of the Transaction; and future acquisitions. The words "expects", "expectation", "anticipates", "anticipated", "believes", "may", "could", "will" or variations of such words and phrases identify forward-looking statements herein. Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding future events or circumstances. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the REIT's control that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. The REIT's estimates, beliefs and assumptions, which may prove to be incorrect, include assumptions relating to: the satisfaction of all closing conditions for the Transaction; the receipt of all approvals for the Transaction; the closing of the Transaction and anticipated timing thereof; full participation in the Participation Offer; the anticipated benefits of the Transaction and ability of the REIT to execute value-enhancing growth initiatives; the REIT's future growth potential, results of operations, demographic and industry trends; no changes in legislative or regulatory matters; the tax laws as currently in effect; stability of the general economy over 2025; lease renewals and rental increases; the ability to re-lease or find new tenants; the timing and ability of the REIT to sell and acquire certain properties; project costs and timing; a continuing trend toward land use intensification at reasonable costs and development yields, including residential development in urban markets; access to equity and debt capital markets to fund, at acceptable costs, future capital requirements and ability to refinance debts as they mature; the availability of investment opportunities for growth in the REIT's target markets; the valuations to be realized on property sales relative to current IFRS carrying values; and the market price of the REIT Units. When relying on forward-looking statements to make decisions, the REIT cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties. The risks and uncertainties that may impact such forward-looking information include, but are not limited to, the failure to obtain necessary approvals or satisfy (or obtain a waiver of) the conditions to closing the Transaction; the occurrence of any event, change or other circumstance that could give rise to the termination of the agreements in respect of the Transaction; material losses in respect of the properties to be sold pursuant to the Transaction; the REIT's ability to obtain any approvals for the Transaction; either party's failure to consummate the Transaction when required or on the terms as originally negotiated; risks related to the disruption of management time from ongoing business operations due to the Transaction; potential litigation relating to the Transaction, including the effects of any outcomes related thereto; the possibility of unexpected costs and liabilities related to the Transaction; the REIT's ability to execute its growth strategies; the REIT's ability to execute future acquisitions; the impact of changing conditions in the U.S. multifamily housing market; increasing competition in the U.S. multifamily housing market; the effect of fluctuations and cycles in the U.S. real estate market; the marketability and value of the REIT's portfolio; changes in the attitudes, financial condition and demand of the REIT's demographic market; fluctuation in interest rates and volatility in financial markets; the impact of U.S. and global tariffs; developments and changes in applicable laws and regulations; the impact of climate change and the factors discussed under "Risks and Uncertainties" in the REIT's most recent Management's Discussion and Analysis dated November 7, 2024 and in the REIT's Annual Information Form dated March 12, 2024, both of which are available on SEDAR+ (www.sedarplus.ca). If any risks or uncertainties with respect to the above materialize, or if the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking information. The REIT does not undertake any obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law. This forward-looking information speaks only as of the date of this news release.

These forward-looking statements have been approved by management to be made as at the date of this news release. Certain material factors, estimates or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in this news release and actual results could differ materially from such conclusions, forecasts or projections. There can be no assurance that actual results, performance or achievements will be consistent with these forward-looking statements. The forward-looking statements contained in this document are expressly qualified in their entirety by this cautionary statement.

SOURCE BSR Real Estate Investment Trust