Sereno Capital Corporation Announces Proposed Qualifying Transaction

TORONTO, ONTARIO--(Marketwired - May 24, 2013) -

NOT FOR DISSEMINATION IN THE U.S. OR THROUGH U.S. NEWSWIRES

Sereno Capital Corporation ("Sereno" or the "Company") (TSX VENTURE:SZZ.H) is pleased to announce that it has entered into a letter of intent (the "LOI") dated May 24, 2013 with an arm's length party, Delavaco Properties Inc. ("Delavaco"), a company incorporated under the laws of Ontario, to effect a business combination and acquire all of the issued and outstanding shares of Delavaco by way of a court approved plan of arrangement (the "Proposed Transaction"). As consideration for the issued and outstanding shares of Delavaco, Sereno will issue: (i) common shares in the capital of Sereno in exchange for outstanding common shares of Delavaco in an aggregate amount determined by formula, and (ii) convertible securities of Sereno in exchange for outstanding convertible securities of Delavaco with appropriate adjustments.

As part of the Proposed Transaction, Sereno will convert into a new real estate investment trust to be named "Delavaco Residential Properties Trust" (the "Resulting Issuer"). The LOI will be superseded by a definitive agreement (the "Definitive Agreement") to be entered into between Sereno and Delavaco. The Company is a capital pool company listed on the NEX market of the TSX Venture Exchange (the "Exchange") and the Proposed Transaction would constitute the Company's qualifying transaction under the Exchange's Policy 2.4 - Capital Pool Companies.

None of the insiders of the Company, or their associates and affiliates, have any interest in the Proposed Transaction or are otherwise an insider of, or have any relationship with, Delavaco or its direct and indirect shareholders, and the transaction is not a Non-Arm's Length Qualifying Transaction as defined under the Exchange policies (as such terms are defined by the Exchange).

The Company and Delavaco anticipate settling and entering into the Definitive Agreement by June 30, 2013. Completion of the Proposed Transaction is subject to approval by the Company's shareholders. The Company anticipates filing a management information circular detailing the Qualifying Transaction and related matters in the near future.

Trading in the common shares of the Company will be halted pending the release of further disclosure regarding the Proposed Transaction, the satisfaction of the initial filing requirements of the Exchange and a preliminary review by the Exchange.

About Delavaco

Delavaco was incorporated on January 27, 2011 and since that time has been investing in single-family homes and multi-family properties. Delavaco invests in single-family homes and multi-family properties at prices below replacement costs located in major markets in the United Sates that were hard-hit by the housing correction but which Delavaco believes now offer substantial upside to the housing recovery and that exhibit favourable demographics, positive economic growth and solid rental demand. In particular, Delavaco seeks to grow a stable, cash generating portfolio of single-family and multi-family properties in the Southeast United States and Texas with the following characteristics:

• With respect to single-family homes:
  
  

  • distressed, foreclosed or undervalued single-family homes, duplexes, triplexes or quadplexes with purchase prices of approximately US$45,000 - US$95,000 per unit;

  • rentable square footage of 1,000 - 2,000 square feet;

  • properties requiring cosmetic renovations of less than US$15,000 on average and possessing no structural deficiencies;

  • located in robust, working class neighbourhoods either in, or in close proximity to, major metropolitan areas with populations in excess of 500,000;

  • property level cap rate between 10% - 14%, occasionally higher; and

  • priced 30-50% below estimated replacement cost (with little to no value placed on land) and 60% below peak prices providing potential for meaningful long-term property value appreciation.
    
    

• With respect to multi-family properties:
  
  

  • class B buildings in attractive infill locations;

  • limited new land for development nearby, with the expectation that any new projects will be class A (due to the cost of the land) and thus not direct competitors;

  • building exteriors in excellent shape but interiors require renovation (target internal rate of return of 15% or more on renovations);

  • strong historical occupancy and low turnover; and

  • located within good school districts.
    
    

As of the date hereof, Delavaco owns 461 single-family homes in Florida and 171 single-family homes in Georgia and 65 residential units across four multi-family buildings in Florida (collectively, the "Existing Portfolio"). The Existing Portfolio was acquired by Delavaco in several independent transactions between January 2011 and May 2013. The Existing Portfolio occupancy is 84.5% and will be vended to the Company for US$45.1 million at a blended cap rate of 11.25% on a current run rate annual net operating income of US$5.07 million or a price per residential unit of US$64,677. As the Existing Portfolio's occupancy continues to increase each month, the projected occupancy from new acquisitions upon completion of the Offering (as defined below) is estimated by Delavaco to be approximately 91% given Delavaco's focus on acquiring occupied single-family homes. In addition, Delavaco has an in-house platform with 40 employees and consultants, which provides Delavaco with the ability to perform all aspects of acquisition (which includes adhering to a stringent due diligence process), renovation and maintenance.

It is expected that prior to the closing of the Proposed Transaction, Delavaco will acquire all of the issued limited partnership units in certain partnerships which are related parties of Delavaco and that directly own four multi-family properties (collectively comprising 627 residential units with current occupancy of 95.6%), including the Park Colony Apartment Homes in Hollywood, Florida (316 residential units); Summerfield Apartment Homes in Sunrise, Florida (153 residential units); The Enclave in Austin, Texas (90 residential units); and South Congress Commons in Austin Texas (68 residential units) (the "Multi-Family Properties"). Delavaco expects to acquire the Multi-Family Properties for US$75.6 million based on a blended cap rate on current run rate annual net operating income of 5.74% or a price per residential unit of US$120,577.

Delavaco's single-family properties segment is expected to generate stable cash flow by renting homes at cap rates of 10% to 14% with a substantial portion of credit risk (currently approximately 60%) transferred to the U.S. Government through the "Section 8" program, while its multi-family properties segment will represent a broad platform for future growth.

Mr. Andrew DeFrancesco, Chief Executive Officer and Chairman of the Board of Trustees has taken the initiative in founding and organizing Delavaco. Upon completion of the Proposed Transaction, Mr. DeFrancesco is expected to own or control, directly or indirectly, approximately 17.2% of the outstanding units of the Resulting Issuer. In addition, Dynamic Power Hedge Fund, PowerOne Capital Corp. and Mardis Group are expected to own or control, directly or indirectly, approximately 13.8%, 13.0% and 11.4%, respectively, of the outstanding units of the Resulting Issuer. Mr. DeFrancesco is a resident of United States. Each of the other foregoing investors is resident in the Province of Ontario. There are currently 35 shareholders of Delavaco.

Management of Delavaco has agreed with Dundee Securities Ltd. (the lead agent for the Offering, as defined below) to lock-up their shares for 36 months with a third of the total released annually on the anniversary date. In addition, the Board of Trustees of Delavaco has agreed to lock-up 100% of their shares for 6 months.

The principal registered and head office of Delavaco is located at 1 Richmond Street West, Suite 500, Toronto, Ontario, M5H 3W4. Financial information on Delavaco will be disclosed in a subsequent news release.

Transaction Terms

Acquisition of Shares of Delavaco

Pursuant to the terms of the Proposed Transaction, Sereno will: (i) acquire all of the issued and outstanding securities of Delavaco, and as consideration, Sereno will issue 414,313,618 common shares in the capital of Sereno (the "Consideration Shares") in exchange for the outstanding common shares of Delavaco in an aggregate amount as determined by formula; and (ii) issue convertible securities of Sereno in exchange for outstanding convertible securities of Delavaco with like terms and appropriate adjustments (the "Replacement Convertible Securities").

As part of the Proposed Transaction, the issued and outstanding common shares of Sereno (including the Consideration Shares) will be consolidated on an 8 to 1 basis, such that the total number of issued and outstanding units of the Resulting Issuer following the completion of the Proposed Transaction will be 52,376,702 (on a non-diluted basis). In addition, the exercise terms of the convertible securities (including the Replacement Convertible Securities) will also be adjusted to reflect the 8 to 1 consolidation.

The table below outlines the number and terms of the convertible securities of the Resulting Issuer after giving effect to the 8 to 1 consolidation.

Type of Security		Number	Conversion Price	Expiration / Description
Warrants
	Delavaco class A warrants	200,000	$1.00	July 27, 2014
	Delavaco class B warrants	632,000	$1.25	July 27, 2014
	Delavaco class C warrants	3,850,000	$1.18	June 3, 2017
	Delavaco class D warrants	358,432	$1.25	Expiry 5 years following the closing of the transaction
Options
	Delavaco options	2,500,000	$0.10	33.3% vested December 31, 2012 and the balance vesting equally on December 31, 2013 and 2014
	Sereno options	32,813	$2.00	May 16, 2016

Private Placement

It is expected that Delavaco will complete a private placement of 5-year, 6.0% secured debentures (the "Debentures"), convertible into common shares (or units of the Resulting Issuer) at US$1.35 per share for aggregate gross proceeds of approximately US$30 million (the "Offering"). The Debentures will be issued at par. Assuming the completion of an offering for proceeds of US$30 million, the conversion of all of the Debentures would result in the issuance of approximately 22,222,222 units of the Resulting Issuer. The Offering is expected to be completed prior to completion of the Proposed Transaction. A portion of the proceeds of the Offering will be released to Delavaco upon completion of the Offering and the remaining portion of the proceeds will be released upon completion of the Proposed Transaction. The proceeds of the Offering will be used in part to acquire additional single-family homes. The Debentures will be secured by, among other things, the single-family homes to be acquired with the proceeds of the Offering, as well as unencumbered single-family homes currently within the Existing Portfolio. The terms of the Offering will include a 3 month cash interest holiday from closing to allow for the proceeds to be deployed.

Upon closing of the Offering, Management of Delavaco will be issued 4,800,000 common shares for past services under an existing agreement (which will be converted into 600,000 units of the Resulting Issuer after giving effect to the Proposed Transaction).

Delavaco has entered into an engagement letter dated May 15, 2013, with Dundee Securities Ltd., as lead agent for the Offering. Dundee Securities Ltd. will be paid customary compensation for such agency services.

Delavaco also intends to enter into a consulting services agreement with PowerOne Capital Markets Limited ("PowerOne"), pursuant to which PowerOne will provide certain consulting and advisory services to Delavaco regarding its business. PowerOne will be paid customary compensation for such consulting services.

Concurrent Debt Conversion

In conjunction with the Offering, US$15.25 million of secured debt due August, 31, 2013 incurred in connection with the Multi-Family Properties and US$10 million of unsecured debt due December 20, 2014 will convert to units of the Resulting Issuer at a price of US$1.15 and US$1.06 per unit, respectively. In addition US$1,000,000 of the debt on the Park Colony Apartment Homes in Hollywood, Florida will be converted to units at US$1.25 per unit.

Canadian Subsidiary

Sereno will, if requested by Delavaco to facilitate the Proposed Transaction, prior to the completion of the Proposed Transaction, establish a special purpose subsidiary under the laws of the Province of Ontario.

Conversion to a Real Estate Investment Trust

As part of the Proposed Transaction, Sereno, Delavaco and their respective shareholders will effectively convert Sereno into a new real estate investment trust to be named "Delavaco Residential Properties Trust".

Management and Board of Trustees

Subject to Exchange approval, on completion of the Proposed Transaction, the management team and the board of trustees of the Resulting Issuer will include the persons identified below:

Andrew DeFrancesco - Chief Executive Officer and Chairman of the Board of Trustees

Andrew DeFrancesco, a graduate of University of Western Ontario, is the Co-Founder, Chairman & Chief Executive Officer of Delavaco. His capital raising experience includes having funded, jointly funded, or arranged funding in excess of $1.1 billion. He carries over 18 years of capital markets experience through various roles, including as head equity trader at C.M. Oliver Inc., an independent investment bank and President of Apollo Capital, a private fund specializing in hedge fund and private equity investments. Mr. DeFrancesco carries a breadth of corporate experience, having been an executive for numerous companies. He is the Chairman and Chief Executive Officer of the Delavaco Group, a private equity firm with a focus on real estate, retail and certain natural resource investments. Mr DeFrancesco was the founder, Chairman and Chief Executive Officer of Delavaco Energy Inc., a Canadian Oil and Gas company that sold for $102 million which is now part of Pacific Rubiales. He was also founder and Chief Executive Officer of Dalradian Resources Inc., an Irish mineral exploration company that trades on the TSX. Mr. DeFrancesco was Co-Founder and former Chairman of APO Energy and P1 Energy Corp - two oil and gas companies that merged for $447 million. In 2011, Mr. DeFrancesco sold Colcan Energy, a company he founded and acted as Chairman to Sintana Energy, a publicly traded oil and gas company with operations in Colombia in partnership with Exxon Mobile. Mr. DeFrancesco sits on the boards of Santa Maria Petroleum, Tolima Gold and North America's Favorite Brands. Along with being a strategic investor, Mr. DeFrancesco has spearheaded, with fellow trustee Michael Serruya, the funding and turnaround of a number of companies in the retail and consumer product sectors including Jamba Juice, American Apparel, Swisher Hygiene and most recently Crumbs Bake Shops, all of which are companies listed on the NASDAQ stock market. Mr. DeFrancesco is active in a number of charities including Sunnybrook Hospitals' Natal Unit.

Marc Muzzo - Trustee

Marc Muzzo, a graduate from the University of Toronto with a B.A. in Economics, is a principal in the Muzzo Group of Companies, which encompasses but is not limited to Marel Contractors, Canada's largest drywall contractor and The Pemberton Group, one of Canada's leading condominium developers. Mr. Muzzo is also Director & Vice President of Consolidated HCI Holdings Corporation, a publicly traded real estate company based in Ontario, Canada. The Muzzo Group of Companies are also affiliates of numerous privately owned corporations. Mr. Muzzo's philanthropic contributions include chairing the Muzzo Family Charitable Foundation and serving as Vice Chair of the G.U./Prostate cancer team at the Princess Margaret Hospital Foundation. In addition, Mr. Muzzo is a member of the board of directors for the Toronto General and Western Hospital Foundation.

Keith L. Ray - Trustee

Keith L. Ray carries a breadth of experience in various real estate companies, including both private and public REITs. Mr. Ray served for 27 years as a partner at KPMG and its predecessor firm. As an audit partner at KPMG, he helped oversee the first initial public offering of a REIT in Canada. He carried the role of audit partner and relationship partner for H&R REIT until his retirement in 2007. In addition, Mr. Ray was an audit partner for Firm Capital, an income trust, which operated as a mortgage lender primarily in Ontario. Throughout his professional career, Mr. Ray has acted as a consultant for large, private, family-owned business - primarily with real estate operations. Mr. Ray's community involvement includes involvement with the audit committees of Mount Sinai Hospital and the UJA Federations. Mr. Ray's educational experience includes a B. Comm from the University of Toronto and a Chartered Accountant (C.A.) designation.

Michael Serruya - Trustee

Michael Serruya co-founded Coolbrands International Inc. in 1986 and served as its President and Chief Executive Officer from November 17, 2006 to November 2010. Mr. Serruya served as President and Chief Executive Officer of Yogen Fruz from 1995 to February 2000. He served as Chairman of Coolbrands International Inc. until 2010. He served as Chairman of Yogen Fruz from 1995 to February 2000. He has been Director of Response Genetics, Inc. since March 2000. He was a Director of Jamba Inc. from 2009 to 2011, and has been a Director of Swisher Hygience Inc. since 2010. Mr. Serruya has served as a Director of Coolbrands International Inc. from September 1994 to 2010. He has also served as Member of the Board of Ontario Jobs and Investment.

Kelly Hanczyk - Trustee

Kelly Hanczyk currently serves as Chief Executive Officer at Edgefront Realty Corp. His past experience includes Chief Executive Officer at TransGlobe Apartment Real Estate Investment Trust from October 2007 until June 2012, when it was sold for approximately $1 billion. Mr. Hanczyk also served as Vice President of Whiterock Real Estate Investment Trust from September 2006 to October 2007. Mr. Hanczyk carries a Bachelor of Business Administration in Finance from Acadia University.

Dallas Wharton - Chief Operating Officer

Dallas Wharton is the co-founder and current Chief Operating Officer of Dalland Properties LP, and has over 15 years of experience in the real estate, construction and property management industries in both Toronto, Ontario and Florida. Having obtained a degree from the University of Florida, Mr. Wharton was involved in the development and management of a real estate portfolio comprised of over two million square feet of industrial, commercial and automotive dealership assets located in Toronto, Ontario. In 2007, Mr. Wharton established a private management company focusing on the foreclosure property management business, for which he maintained and managed bank-owned properties scheduled for eventual disposition. Mr. Wharton has also developed, managed and sold numerous residential projects throughout southern Florida and has secured many third-party management contracts ranging from apartment buildings to single-family residences.

Michael Galloro - Chief Financial Officer

Michael Galloro is a member of the Institute of Chartered Accountants with over 18 years of experience having earned his designation while working for KPMG LLP. While engaged as Vice President of Finance for a public company that was listed on the Toronto Stock Exchange, Mr. Galloro gained experience in finance and capital markets, corporate governance, human resources and administration. Mr. Galloro pursued a consulting career working on various projects in securities legislation compliance, valuations, mergers and acquisitions and initial public offerings. His experience stems internationally having been exposed to various global markets. He has been an officer and/or director of both private and publicly-listed companies operating domestically and in emerging markets.

Resulting Issuer

The following table sets forth the pro forma capitalization of the Resulting Issuer after giving effect to the Proposed Transaction (including the proposed consolidation) but before giving effect to the Offering.

Equity
Units held by Delavaco shareholders	25,075,000
Units held by current Sereno shareholders	587,500
Units to be issued with respect to Multi-Family Properties	2,641,568
Units to be issued with respect to US$15.25 million concurrent debt conversion	13,260,870
Units to be issued with respect to US$1 million concurrent debt conversion	800,000
Units to be issued with respect to Delavaco convertible debenture	9,411,765
Units to be issued for executive services rendered	600,000
Units underlying warrants	5,040,432
Units underlying options	2,532,813
Total (fully-diluted)	59,949,947
Debt
Secured debt due 2016	US$25,000,000
Multi-Family mortgages	US$47,050,000
Secured debt due 2014	US$9,000,000

Conditions of Completion

The Proposed Transaction is subject to a number of terms and conditions, including but not limited to, the entering into by the parties of the Definitive Agreement (such agreement to include representations, warranties, conditions and covenants typical for a transaction of this nature), the completion of satisfactory due diligence investigations by Sereno, the approvals from each of the board of directors of Sereno and Delavaco and the approval and acceptance of the Exchange.

Sponsorship

Sponsorship of a Qualifying Transaction of a capital pool company is required by the Exchange, unless an exemption from the sponsorship requirement is available. Sereno intends to apply to the Exchange for an exemption from the sponsorship requirement. There is no assurance that the Company will be able to obtain such an exemption.

Information contained herein pertaining to Delavaco and the proposed members of Management and the Board of Trustees of the Resulting Issuer has been furnished to Sereno by Delavaco.

Completion of the transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and if applicable pursuant to Exchange Requirements, majority of the minority shareholder approval. Where applicable, the transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the 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 transaction, any information released or received with respect to the 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.

Certain information in this news release constitutes forward-looking statements under applicable securities law. Any statements that are contained in this news release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are often identified by terms such as "may", "should", "anticipate", "expect", "intend" and similar expressions. Forward-looking statements in this news release include, but are not limited to, statements with respect to the closing or completion of the Qualifying Transaction. Forward-looking statements necessarily involve known and unknown risks, including, without limitation, risks that closing of the Proposed Transaction may not occur; risks related to the receipt of approval by the Exchange, the completion of the Qualifying Transaction; risks associated with general economic conditions; adverse industry events; marketing costs; loss of markets; volatility of real estate prices; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favourable terms; industry and government regulation; changes in legislation, income tax and regulatory matters; the ability of the Resulting Issuer to implement its business strategies; competition; currency and interest rate fluctuations; and other risks. Readers are cautioned that the foregoing list is not exhaustive.

Readers are further cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

The forward-looking statements contained in this news release represent the expectations of the Company and Delavaco as of the date of this news release, and, accordingly, are subject to change after such date. Neither the Company nor Delavaco undertakes any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities law.

The Exchange has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.