Northview Apartment REIT (NVU-UN.TO) – Merger Arbitrage – 10% Upside

Current Price: C$32.97

Offer Price: C$36.25

Upside: 10%

Expected Closing: by Q3 2020

Press Release

 

Canadian REIT Northview Apartment is getting acquired by two large PE firms - Starlight Group (real estate investment) and Kingsett Capital (real estate investment/development). Consideration stands at C$36.25/unit in cash. 2/3rd of NVU unitholder approval + majority of disinterested votes are required. Shareholder meeting will take place on the 25th of May. Buyers own 13% of the outstanding units. Closing is expected by Q3'20.

  • The announcement was made on the 20th of Feb and initially NVU traded at a zero/negative spread, which after the market fall at one point increased to 40%+.
  • NVU seems to fit well within existing Starlight portfolio. Northview is one of the largest Canadian multi family REITs and has 27k apartment units. Starlight has a C$14bn of AUM out of which C$10bn is focused on Canadian multi-family real estate (400+ properties, 33k units).
  • Kingsett Capital has C$12bn of AUM. Transaction is not subject to financing.
  • Looking at the acquisition price in pre-COVID times (questionable if this is still relevant), it did not seem like buyers were overpaying - the offer came at 21.8x AFFO multiple, which used to be somewhere in the lower end of peer valuation (Jan'20 presentation slide below). The most recent (Oct'19) Canadian multifamily REIT acquisition - Cortland Partners/Pure Multifamily REIT (7k units) -  was also done at a higher multiple - 23x AFFO.

NVU

  • Go-shop period ended on the 23rd of March and so far it seems that the transaction is still ongoing.
  • NVU is currently trading at around pre-announcement price, however if in case the deal gets cancelled the downside could be significant. Since the market fall peer REITs (InterRent, CAP and Killam) are currently down 25% on average, while Boardwalk fell 45% so far.

 

 

Note: Due to recent market crisis spreads have exploded for numerous M&A transactions. Although the return might seem attractive, the risk - both of transaction termination and materially larger downside - has increased substantially. There have already been several instances (e.g. TTLO) of merger cancellations.

7 COMMENTS

  1. Ilja

    Several updates:
    – Proxy statement was released yesterday and so far it looks like the merger is still ongoing.
    – Monthly dividend of C$0.1358/unit was announced payable on the 15th of May.
    – NVU has collected 95% of rents in April.
    – Remaining upside stands at 3%.

  2. Ilja

    Upside has increased once again and now stands at 8% (although I haven’t found any correspondent news that could explain the move).

    On the contrary, it seems that the transaction is still proceeding (meeting will take place on the 25th of May) and NVU has reported relatively decent Q1 results:
    – 97% of rents collected in April. 88% of May rents were collected by the 11th of May – consistent with the April’s numbers (at the same amount of days).
    – Only 0.5% of residential tenants were given rent deferrals.
    – FFO up to C$0.47/share vs C$0.45/share YoY.
    – Same door NOI increased by 6.5%
    – Same door revenue growth was 2.6% YoY.
    – Multi-family portfolio occupancy was 93.9% – in line with YoY numbers.

    The company has also announced a quarterly dividend of C$0.1358/share payable on the 15th of June to record holders at the 29th of May.

    https://sedar.com/GetFile.do?lang=EN&docClass=8&issuerNo=00017689&issuerType=03&projectNo=03060182&docId=4726913
    https://sedar.com/GetFile.do?lang=EN&docClass=8&issuerNo=00017689&issuerType=03&projectNo=03058726&docId=4724463

    1. jwestern

      Thanks for the update. I believe that’s a monthly dividend, not quarterly.

  3. Ilja

    Shareholders have elected only C$66m of the total consideration (~C$2.5bn) to be paid in the high yield fund units.

    Also, another monthly dividend of C$0.1358/share will be payable on the 15th of July to record holders on the 29th of June.

    Closing is still estimated in Q3 subject to approvals from regulators and certain lenders of the company.

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