On August 10, 2015, Northern Property Real Estate Investment Trust and True North Apartment Real Estate Investment Trust announced the creation of Canada’s third-largest publicly-traded multi-family REIT. NPR will acquire True North through a plan of arrangement whereby True North unitholders will receive 0.3908 NPR trust units for each of their True North trust units, representing a premium of 16.4% over the closing price of True North units on August 7. In addition, NPR has agreed to acquire a 4,650 suite, multi-family portfolio from Starlight Investments Ltd. as well as from a joint venture between the Public Sector Pension Investment Board and Starlight (collectively, the “Institutional Portfolio”) for an aggregate purchase price of $535 million to be satisfied by the payment of cash, the assumption of debt, and the issuance of NPR trust units and class B limited partnership units, which are economically equivalent to and exchangeable for trust units of NPR. As part of the transactions, NPR will change its name to Northview Apartment Real Estate Investment Trust to reflect the new national character of Northview’s portfolio and its future growth strategy.
With a portfolio of approximately 25,000 residential suites (including execusuites) located across eight provinces and two territories, and an expected enterprise value in excess of $3 billion, Northview will be the third-largest publicly-traded multi-family REIT in Canada.
Northview will benefit from a nationwide asset and property management platform with approximately 800 employees operating out of its head office in Calgary and regional offices across Canada. Northview’s property portfolio will be diversified across more than 60 Canadian markets, including the Greater Toronto Area and Montreal, further enhancing financial stability for unitholders of both NPR and True North. Northview will continue to enjoy a significant presence in some of NPR’s traditional northern Canadian markets, including Yellowknife and Iqaluit, which are expected to continue to provide strong returns. While Northview’s geographic diversification should reduce volatility in performance, Northview will also be well-positioned to take advantage of a recovery in resource-oriented markets.
Northview is expected to have a market capitalization of approximately $1.2 billion, which should broaden and deepen its access to capital, provide unitholders of both REITs with increased market trading liquidity, and over time, reduce Northview’s cost of capital. These benefits should significantly bolster Northview’s competitiveness in future investment activities.
Under the terms of the arrangement, each True North unitholder will receive 0.3908 units of NPR per True North unit. Based on the closing price of NPR trust units and True North trust units on the Toronto Stock Exchange on Friday, August 7, 2015, the consideration is valued at $9.00 per True North trust unit, representing a 16.4% premium. The arrangement will occur on an income tax deferred basis for Canadian residents.
The Institutional Portfolio is being acquired for $535 million at a going-in capitalization rate of 5.5% and comprises 33 properties with a total of 4,650 residential suites located in Ontario, New Brunswick and Nova Scotia. The purchase price for the Institutional Portfolio will be satisfied by a combination of $316 million in cash, $49 million of assumed mortgages, the issuance to the vendors of approximately 5.1 million trust units of NPR valued at a $23.03 per trust unit, and the issuance to the vendors of approximately 2.3 million of Class B LP Units valued at $23.03 per Class B LP Unit. NPR has obtained a fully-committed $325 million bridge facility from Scotiabank and Canadian Imperial Bank of Commerce to fund the cash portion of the Institutional Portfolio purchase price, and intends to replace this financing with long-term mortgages on the Institutional Portfolio properties over time. Following the completion of the transactions, PSP Investments will hold an approximate 9.8% interest in Northview.