Canadian Apartment Properties Real Estate Investment Trust is selling 41 multi-residential properties in The Netherlands to European Commercial REIT in a transaction which will see CAPREIT also become its majority shareholder.
If all aspects of the $634-million deal are approved, ECREIT (ERE-UN-X) will change its name to ERES, CAPREIT (CAR-UN-T) will own up to 83 per cent of its shares, and the new entity will be Canada’s first European-focused, multi-residential REIT.
The properties involved in the transaction contain a total of 2,091 suites.
“Multi-residential fundamentals in Europe currently are very attractive and significant acquisition opportunities are available to drive growth,” CAPREIT says in a release announcing the deal.
Owned, managed by CAPREIT
ERES will be majority-owned and -managed by CAPREIT, Canada’s largest multi-residential property owner and manager. CAPREIT currently owns nearly 50,000 Canadian and 3,348 European multi-residential units and has an established European-based property management platform.
“CAPREIT has very successfully grown its Canadian multi-residential business over the past 21 years,” said Michael Stein, chairman of CAPREIT, in the release. “In 2014, we successfully launched I-RES, a publicly listed entity in Ireland that currently owns over 2,600 multi-residential units. CAPREIT asset and property manages and owns an 18% interest in I-RES.
“CAPREIT has also successfully established a management platform to invest in multi-residential properties in the Netherlands. We always have indicated that CAPREIT ultimately would create a separate entity for our European multi-residential business.”
Funding for the transaction includes:
* $239 million through the issuance of 59.6 million ECREIT shares to CAPREIT at a price of $4.00 per unit;
* $88 million through a cash payment, or to the extent ECREIT is unable to satisfy the portion of the purchase price in cash, through the issuance of additional ECREIT shares at $4 per unit to CAPREIT;
* and $307 million through the assumption by ECREIT of CAPREIT’s mortgages on the properties.
ECREIT’s shareholders also will receive a one-time special distribution of 50 cents per unit at closing, funded by an $8-million cash payment by CAPREIT to ECREIT.
CAPREIT will hold approximately 58 per cent of ERES’ units if the $88-million portion of the purchase price is satisfied through a cash payment (to be funded through a planned public share offering) or approximately 83 per cent if it is satisfied through the issuance of additional ERES units to CAPREIT.
The transaction will mark a dynamic transformation for ECREIT, providing scale and shifting its strategic focus to European multi-residential assets. Assets will increase from approximately $150 million to approximately $780 million, consisting of 2,091 multi-residential suites in 41 properties and approximately 400,000 square feet of office area in three properties.
Additionally, the parties say, ECREIT will have a well-capitalized, institutional-quality majority unitholder to support ERES’ growth initiatives and access to capital.
Burns to become ERES CEO
ECREIT’s CEO Phillip Burns will become an employee of CAPREIT and will become CEO of ERES.
A special meeting of ECREIT unitholders is expected to be held in early 2019, at which ECREIT unitholders will be asked to approve the transaction. Closing is expected to occur in Q1 2019.
ECREIT established a special committee of independent trustees to review and negotiate the terms. The independent committee unanimously recommended its approval by ECREIT’s board of trustees.
“We are delighted to welcome CAPREIT and their sponsorship to our REIT,” said Ira Gluskin, director and chairman of ECREIT’s independent committee, in the release.
“We believe the transaction represents an exciting opportunity for ECREIT unitholders and we are fully supportive of the transaction.”
As one of Canada’s largest residential landlords, CAPREIT is a growth-oriented investment trust owning interests in 51,743 residential units, comprising 45,151 residential suites and 32 manufactured home communities comprising 6,592 land lease sites located in and near major urban centres across Canada and the Netherlands.