Current Price: C$32.97
Offer Price: C$36.25
Expected Closing: by Q3 2020
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.
- 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.