Rebel Capital Inc. Announces Definitive Agreement for Proposed Qualifying Transaction and Launch of $35 Million Equity Financing

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VANCOUVER, British Columbia, July 11, 2019 — Rebel Capital Inc. (“Rebel” or the “Corporation”) (TSXV: RBL.P), a capital pool company listed on the TSX Venture Exchange (the “TSXV”), is pleased to provide an update with respect to its previously announced proposed acquisition of a property (the “Property”) located in Pittsburgh, Pennsylvania containing a 91,790 square foot data center with a three-storey connected 43,800 square foot office property on an approximately 7.65 acre site (the “Proposed Transaction”) and related financing activities, including (i) the execution of a definitive purchase and sale agreement in respect of the Proposed Transaction; (ii) the completion of a non-brokered financing to fund the deposit payable under the terms of the letter of intent in respect of the Proposed Transaction (the “Letter of Intent”); and (iii) the launch by Springhurst Capital Holdings Inc. (a company to be amalgamated with a wholly-owned subsidiary of Rebel in connection with the closing of the Proposed Transaction) (“SCHI”) of a brokered private placement offering of subscription receipts of SCHI (each, a “Subscription Receipt”), a portion of the proceeds of which will be used to fund the Purchase Price (as defined below) for the Property.
The Proposed Transaction is intended to constitute Rebel’s “Qualifying Transaction” in accordance with TSXV Policy 2.4 – Capital Pool Companies.Entry into Definitive Agreement in respect of Proposed TransactionOn July 11, 2019, DLC Pittsburgh Data Center 1 LLC, a wholly-owned subsidiary of Rebel, entered into a definitive purchase and sale agreement (the “Definitive Agreement”) with Chief Commercial Construction L.P., a Pennsylvania limited partnership, to acquire the Property for a total cash purchase price (the “Purchase Price”) of US$32 million, subject to customary adjustments and standard real estate acquisition terms. Closing of the Proposed Transaction is subject to the approval of the TSXV and the completion of the Concurrent Financing (as defined below), as well as additional customary closing conditions. The Definitive Agreement supersedes and replaces the Letter of Intent.It is intended that, in connection with the closing of the Proposed Transaction, SCHI will amalgamate with a wholly-owned subsidiary of Rebel (“Rebel Subco”) (the “Amalgamation”). The Amalgamation will be structured as a three-cornered amalgamation. Pursuant to the Amalgamation, the common shares of SCHI (each, a “SCHI Common Share”) will be exchanged for Resulting Issuer Common Shares (as defined below) based on an exchange ratio to be agreed upon by Rebel and SCHI and in accordance with the terms of the amalgamation agreement to be entered into by SCHI, Rebel and Rebel Subco (the “Amalgamation Agreement”).Contemplated Continuance of Rebel to Ontario and Name Change to “Digital Lease Capital Inc.”Subject to shareholder and regulatory approval, (i) immediately prior to the Amalgamation, it is intended that Rebel will continue into Ontario (the “Continuance”) and (ii) immediately following the Amalgamation, it is intended that Rebel will complete a name change (the “Name Change”) to “Digital Lease Capital Inc.”  For the purposes of this press release, the terms “Digital Lease Capital” and “Resulting Issuer” are used to describe the Corporation following the completion of the Continuance, the Amalgamation and the Name Change.The Proposed Transaction will not be a Non-Arm’s Length Qualifying Transaction (as that term is defined under the TSXV policies), and as a result, the approval of the shareholders of Rebel of the Proposed Transaction will not be required. Shareholders of Rebel will, however, be asked to approve the Continuance and the Name Change at a special meeting of Rebel shareholders to be held for such purpose. Shareholders of Rebel will also be asked to elect several new directors, including T. Richard Turner and Andrew Oppenheim.  See “Changes to the Proposed Management and Directors and Insiders of the Resulting Issuer” below for a description of the anticipated Board of Directors and management team of the Resulting Issuer.Launch of Concurrent FinancingSCHI has launched a “best efforts” brokered private placement on an agency basis of 140,000,000 Subscription Receipts at a price per Subscription Receipt of C$0.25 (the “Issue Price”) for gross proceeds of C$35 million (the “Concurrent Financing”). The net proceeds of the Concurrent Financing will be used primarily to fund the Purchase Price for the Property, as well as to pay the expenses of the Concurrent Financing and for general working capital purposes. SCHI has granted the Agents (as defined below) an option to arrange for the sale, on a “best efforts” basis, of an additional 21,000,000 Subscription Receipts at the Issue Price (the “Agents’ Option”). Such option is exercisable at any time up to 48 hours prior to the closing date of the Concurrent Financing (the “Closing Date”).Canaccord Genuity Corp. and Echelon Wealth Partners Inc. will act as co-lead agents (the “Co-Lead Agents”, and together with the other agents in the syndicate, the “Agents”) in connection with the Concurrent Financing. In connection with the Concurrent Financing, the Agents will be paid a cash commission equal to 6.0% of the gross proceeds of the Concurrent Financing (including the gross proceeds pursuant to any exercise of the Agents’ Option) and, subject to regulatory approval, compensation options (the “Compensation Options”) exercisable at any time up to 18 months following the date of the satisfaction of the Escrow Release Conditions (as defined below) to purchase up to that number of Common Shares as is equal to 6.0% of the number of Subscription Receipts sold pursuant to the Concurrent Financing, at an exercise price equal to the Issue Price (collectively, the “Agents’ Commission”).On the Closing Date, the gross proceeds of the offering less certain costs and expenses of the Agents (the “Escrowed Proceeds”) will be deposited with a subscription receipt agent mutually acceptable to the Co-Lead Agents, Rebel and SCHI (the “Subscription Receipt Agent”) and invested in an interest bearing account (the Escrowed Proceeds, together with all interest and other income earned thereon, the “Escrowed Funds”) pursuant to the terms of a subscription receipt agreement to be entered into by and among the Subscription Receipt Agent, SCHI, Rebel, and the Co-Lead Agents.Upon the satisfaction certain escrow release conditions (the “Escrow Release Conditions”) to be specified in the Subscription Receipt Indenture (including, among other things, (i) the satisfaction or waiver of all conditions precedent to the Proposed Transaction (any waiver being subject to the consent of the Co-Lead Agents, acting reasonably), other than the Amalgamation and the payment of the Purchase Price, which shall be paid forthwith upon release of the Escrowed Funds, (ii) the satisfaction or waiver of all conditions precedent to the Amalgamation (any waiver being subject to the consent of the Co-Lead Agents, acting reasonably), (iii) receipt of all shareholder, regulatory and third-party approvals required in connection with the Amalgamation and the Proposed Transaction and (iv) the common shares of the Resulting Issuer (each, a “Resulting Issuer Common Share”) being conditionally approved for listing on the TSXV) on or prior to the date that is no more than 120 days following the Closing Date, the Agents’ Commission will be released to the Agents and the balance of the Escrowed Funds will be released from escrow to or as directed by SCHI and each Subscription Receipt will be automatically exchanged (without any further action on the part of the holder thereof and without payment of additional consideration) immediately prior to the completion of the Amalgamation and the Proposed Transaction for one SCHI Common Share (subject to adjustment in certain events). Each such SCHI Common Share will be exchanged for Resulting Issuer Common Shares promptly thereafter in accordance with the terms of the Amalgamation Agreement and the Compensation Options shall be exchanged for economically equivalent broker warrants of the Resulting Issuer.A portion of the Purchase Price is expected to be satisfied by a new conventional first mortgage to be secured against the Property, to be arranged prior to the closing of the Concurrent Financing.  SCHI has received indicative terms from three commercial banks to provide approximately US$10 million of non-recourse financing.Closing of the Concurrent Financing is expected to occur on or about August 8, 2019.Closing of Non-Brokered Private Placement Financing and Payment of Earnest Money DepositSCHI completed a non-brokered private placement of SCHI Common Shares at a price of C$0.10 per SCHI Common Share for gross proceeds of C$1,140,000. US$640,000 of the proceeds from the non-brokered private placement financing was deposited as earnest money with the Chicago Title Insurance Company as required pursuant to the Letter of Intent. The SCHI Common Shares issued in the non-brokered private placement will be exchanged for Resulting Issuer Common Shares in accordance with the terms of the Amalgamation Agreement.Investment Highlights and Growth Strategy Unique vehicle in a high growth sector: Following the completion of the Proposed Transaction, Digital Lease Capital will be the first and only pure-play data center focused investment vehicle to be publicly listed in Canada. Data centers have proliferated as an asset class in the United States, with 6 publicly traded peers having a combined market capitalization of approximately US$89 billion (Source: Bloomberg, Capital IQ as at July 9, 2019). Compared to traditional commercial real estate, data centers have been the fastest growing asset class on a number of key metrics over the past five years including revenue growth, AFFO (as defined below) growth, and share price performance.
 
Strong underlying industry fundamentals: Demand for data center capacity has been driven by the convergence of a number of factors, including cloud computing, the Internet-of-Things, big data, machine-to-machine learning, 5G, artificial intelligence, e-commerce, and many more.  As a result, global IT workloads are expected to increase at a compounded annual growth rate (CAGR) of 7.3% between 2018 and 2031 while actual data stored in data centers is expected to increase at a CAGR of 35.9% between 2016 and 2021 (Source:  Cisco Global Cloud Index: Forecast and Methodology, 2016-2021 White Paper).
 
Low-risk initial property: The Property currently generates annual NOI (as defined below) of approximately US$3.3 million (unaudited) which represents a going-in capitalization rate of approximately 10.3% based on the Purchase Price. The Property is 100% occupied by Atos, a publicly traded (EPA: ATO) investment grade global information technology services company, pursuant to a triple-net lease on a 5-year term with annual rent escalations and minimal landlord capital expenditure obligations. Management believes that the Property is being acquired at a significant discount to replacement cost, and the in-place lease rate is at a significant discount to market rates for comparable properties.
 
Experienced and conflict-free management: Digital Lease Capital’s management will be fully internalized from inception. The management team, to be led by Shant Poladian, and the anticipated Board of Directors has significant experience in data center development, financing, acquisitions, leasing, operations, capital markets and corporate governance.
 
Platform for growth: Following the completion of the Proposed Transaction, Digital Lease Capital’s external growth strategy will be to seek out additional data center property acquisitions to build a larger and complementary portfolio of properties. To date, management has identified and is in discussions in respect of four further potential acquisitions of data centers in North Carolina, Ohio, Arizona, and Minnesota, although there can be no assurance that such discussions will result in any such acquisitions being completed.
 
Compelling financial metrics: Following the completion of the Proposed Transaction, Digital Lease Capital is expected to have a strong balance sheet with low leverage (approximately 30% debt to gross book value) and a conservative payout ratio (below 60% of AFFO) providing financial flexibility for growth.  Following the closing of the Proposed Acquisition, Digital Lease Capital intends to initiate a quarterly dividend, with a target yield of approximately 3.5% based on the Issue Price.CapitalizationAs of the date hereof, on a non-diluted basis, Rebel has (i) 4,660,000 common shares (each, a “Rebel Share”) in the capital of Rebel issued and outstanding, (ii) 200,000 stock options exercisable for Rebel Shares at an exercise price of C$0.10 per Rebel Share and (iii) 200,000 common share purchase warrants exercisable into Rebel Shares at an exercise price of C$0.10 per Rebel Share.Immediately following the completion of the Amalgamation and the closing of the Proposed Transaction, it is anticipated that existing holders of Rebel Shares will hold approximately 3.0% of the Resulting Issuer Common Shares, existing holders of SCHI Common Shares will hold approximately 7.3% of the Resulting Issuer Common Shares and investors in the Concurrent Financing will hold approximately 89.7% of the Resulting Issuer Common Shares.Changes to Proposed Management and Directors of the Resulting IssuerOn completion of the Proposed Transaction, it is currently anticipated that the Board of Directors of the Resulting Issuer will be comprised of four directors. Subject to approval of the TSXV, it is anticipated that the composition of the Board of Directors and the management team of the Resulting Issuer will be as follows (which reflects a change from the information provided in Rebel’s press release dated May 31, 2019):Shant Poladian, Director and Chief Executive OfficerMr. Poladian has over 20 years of experience in real estate and capital markets, including as the founding Chief Executive Officer of FAM REIT which developed, leased and financed a 3 MW 64,000 square foot mission critical data center in Winnipeg, Manitoba for Bell MTS. In addition, Mr. Poladian has acted as a director of Amica Mature Lifestyles Inc., Equity Research Analyst at Canaccord Genuity and Managing Director – Investment Banking at Eight Capital.Wilbur Wong, Chief Investment Officer and Interim Chief Financial OfficerMr. Wong has over 10 years of experience in real estate and capital markets, including VP of Investments for FAM REIT. Mr. Wong is a former VP of Investment Banking at Eight Capital, Director of Asset Management at KEYreit, Asset Manager for Great West Life, and Real Estate Analyst for Delta Hotels and Blackwood Partners.Scott Metcalfe, Chief Development Officer and Head of Global Sales and MarketingMr. Metcalfe has a 20 plus year track record of data center industry success, having worked with Colliers International, Rogers Communications, Ehvert Mission Critical, JLL Data Center Solutions, TELUS, Ainsworth Electric and 151 Front Street West (Canada’s carrier hotel).  Most recently, Mr. Metcalfe worked with Ascent Corp. LLC, Alcatel Lucent, Nokia, Ehvert, Cologix, Cara and WIND Mobile – assisting with data centre and wireless site acquisition and development programs.  Scott has specialized CMO-level experience, particularly in the burgeoning edge computing and 5G space.T. Richard Turner, Independent DirectorMr. Turner currently serves as Board Chair of ViveRE Communities Inc. He has acted as chair and/or director of many public real estate companies/REITs, including Pure Industrial Real Estate Trust, Invesque Inc., HealthLease Properties Real Estate Trust, IAT Air Cargo Income Fund and Sunrise Senior Living Real Estate Trust.Andrew Oppenheim, Independent DirectorMr. Oppenheim is a partner and corporate lawyer at Gowlings WLG and has acted as the lead independent director of Amica Mature Lifestyles Inc.Anish Chopra, Independent DirectorMr. Chopra is a Managing Director and Portfolio Manager at Portfolio Management Corp. Mr. Chopra has acted as a Managing Director and Head of the Innovative Solutions Group at TD Asset Management.Each of the anticipated directors and members of management of the Resulting Issuer listed above would be an insider of the Resulting Issuer for purposes of the policies of the TSXV.  Further details regarding the anticipated insiders of the Resulting Issuer will be disclosed in a further press release.Filing Statement and Information CircularIn connection with the Proposed Transaction and pursuant to the requirements of the TSXV, Rebel will file a filing statement on its issuer profile on SEDAR at www.sedar.com, which will contain details regarding the Proposed Transaction, the Concurrent Financing and the Property.SponsorshipThe parties will be seeking a waiver of any requirement for a sponsor, but in the event a waiver is not available, the parties will update the markets accordingly.Trading HaltRebel Shares are currently halted and Rebel anticipates that trading will remain halted until the documentation required by the TSXV for the Proposed Transaction can be provided to the TSXV.GeneralOn closing of the Proposed Transaction, it is anticipated that the Resulting Issuer will be classified as a “Tier 1” real estate issuer that will meet the TSXV's initial listing requirements applicable therefor.For further information, please contact:Shant Poladian
647-930-1089
[email protected]
Completion of the Proposed Transaction is subject to a number of conditions, including but not limited to, TSXV acceptance and if applicable pursuant to TSXV, majority of the minority shareholder approval. Where applicable, the Proposed Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Proposed Transaction will be completed as proposed or at all.Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the Proposed Transaction, any information released or received with respect to the Proposed Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.The TSX Venture Exchange Inc. has in no way passed upon the merits of the Proposed Transaction and has neither approved nor disapproved the contents of this press release. Neither the TSXV nor its Regulation Services Provider (as defined in the policies of the TSXV) accepts responsibility for the adequacy or accuracy of this release.Cautionary Statements Regarding Forward-Looking InformationThis press release contains forward-looking information within the meaning of Canadian securities laws. Such information includes, without limitation, information regarding the completion of the Proposed Transaction; Rebel’s ability to obtain required financing; the Continuance, the Name Change and the Amalgamation; shareholder, director and regulatory approvals; the composition of the board of directors of the Resulting Issuer upon completion of the Proposed Transaction and the ability to execute on management’s strategy, including the ability to complete subsequent property acquisitions. Although Rebel believes that such information is reasonable, it can give no assurance that such expectations will prove to be correct.Forward looking information is typically identified by words such as: “believe”, “expect”, “anticipate”, “intend”, “estimate”, “postulate” and similar expressions (including negative and grammatical variations), or are those, which, by their nature, refer to future events. Rebel cautions investors that any forward-looking information provided by Rebel is not a guarantee of future results or performance, and that actual results may differ materially from those in forward looking information as a result of various factors, including, but not limited to: Rebel's ability to complete the Proposed Transaction; the expected timing of the Proposed Transaction and the related private placement; the state of the financial markets for Rebel's securities; the state of the real estate sector in the event the Proposed Transaction is completed; recent market volatility; Rebel's ability to raise the necessary capital or to be fully able to implement its business strategies; and other risks and factors that Rebel is unaware of at this time. The reader is referred to Rebel's initial public offering prospectus for a more complete discussion of applicable risk factors and their potential effects, copies of which may be accessed through Rebel’s issuer page on SEDAR at www.sedar.com.The forward-looking statements contained in this press release are made as of the date of this press release. Rebel disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.Non-IFRS MeasuresThis press release makes reference to certain non-IFRS measures, such as funds from operations (FFO), adjusted funds from operations (AFFO) and net operating income (NOI), which are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS. As a result, these measures may not be comparable to similar measures reported by other corporations. These measures are intended to provide additional information to the reader and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS.AFFO” is defined as FFO plus/minus certain adjustments, including: (i) accrued rental revenue relating to straight-line rents; and (ii) recoverable and non-recoverable capital expenditures (including leasing commissions, tenant improvements & allowances).
FFO” is defined as NOI minus non-property specific overhead expenses including selling, general and administrative costs, minus net financing costs (interest expense).
NOI” is defined as income from properties after operating expenses have been deducted, but before deducting interest expense, amortization expense, general and administrative expenses, income taxes, leasehold improvement and external leasing costs, capital expenditures, and before adjustments for fair value changes and gains/losses on the disposition of investment properties.
About RebelRebel is incorporated under the provisions of the Business Corporations Act (British Columbia) with its registered and head office in Vancouver, British Columbia. Rebel is a “reporting issuer” in the provinces of Ontario, British Columbia and Alberta. Rebel Shares are listed for trading on the TSXV under the symbol “RBL.P”.SOURCE: Rebel Capital Inc.

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About the Author: Sidney Martin

Sidney Marin Is a researcher and law student at York University (TORONTO). He has worked as the Director of the Graduate Lawyering Program. He worked for American law firms in Moscow, Russia for three years. Hegraduated from Columbia Law School, Columbia School of International and Public Affairs and Harvard College. He research interest is in human rights and health law, with a particular focus on the law and policy of vaccination.