By David Paddon, THE CANADIAN PRESS and Mario Toneguzzi, Calgary Herald
A Calgary-based real estate trust would control one the largest collections of rental apartments in Canada under a proposed three-way deal involving nearly 25,000 residential suites in eight provinces and two territories.
Under the friendly deal announced Monday, Northern Property Real Estate Investment Trust of Calgary will acquire True North Apartment Real Estate Investment Trust (TSX:TN.UN) of Toronto.
Northern would also acquire a 4,650-suite portfolio of multi-family properties managed by Starlight Investments Ltd., which is controlled by True North chairman Daniel Drimmer.
Drimmer, 42, would become the largest investor in the merged company, to be named Northview Apartment Real Estate Investment. Drimmer would have a 14.5 per cent interest and have the right to name two members of its board.
The company would have 3,795 units in Alberta out of a total of 24,742 units. Northern Property is in the process of building a 140-unit apartment complex in Airdrie and has plans for 420 units in the Skyview Ranch area of northeast Calgary. It is part of a suburban development program with opportunities in larger cities like Calgary.
Northview is expected to be listed as NPR.UN on the Toronto Stock Exchange, where Northern Property and True North units are also traded. It would become Canada’s third-largest publicly traded apartment-oriented real estate business after Canadian Apartment Properties REIT and Boardwalk REIT.
“The benefits of the proposed transaction are significant,” Northern Property president and chief executive Todd Cook said in a conference call.
“NPR’s portfolio will expand into Eastern Canada while True North gains exposure to Canada’s North and an expanded presence in Western Canada.”
In addition, Cook said the larger, combined company would have better access to capital markets that provide funding and to real estate opportunities — including through thousands of additional residential units through its relationship with Starlight.
“We anticipate providing the same quality of service (to residents) that we provide now. There may be different signs on the building but there will be little or no impact for our tenants,” Cook said.
In an interview with the Herald, Cook said the REIT started construction on an apartment project in the southeast corner of Airdrie of 140 units earlier this year which should be completed by the end of the year.
“I think Airdrie has been an under-served apartment market,” he said.
Cook added that the REIT has plans for a development in the northeast Skyview Ranch area of about 420 units. He said construction is expected later this fall with completion by next summer. The first phase would have about 260 units to start the project which would include five buildings.
“The multi-family markets, there’s a glut of apartments in the early 1980s . . . There hasn’t been a lot of new purpose-built rentals frankly in Canada until the last two years,” said Cook. “So the rental stock is getting older. People are moving into subdivisions.
“We looked at it and after 25-30 years, the rent levels and the costs sort of seemed to align to say you know what, you can get a decent return building purpose-built rentals. You look at that. You look at population growth. Even though Calgary is looking at slowing, there’s still positive population growth. The condos and rental piece has been in the core area. They tend to focus closer to downtown. I think there’s an opportunity for a suburban development program in larger cities like Calgary.”
Northern Property has a total of 3,047 units in Alberta: 867 in Fort McMurray; 247 in Slave Lake; 828 in Grande Prairie; 230 in Jasper; 687 in Lloydminster; 134 in St. Paul; and 54 in Bonnyville.
True North has a total of 748 units in the province: 24 in Brooks; 35 in Calgary; 597 in Lethbridge; and 92 in Medicine Hat.
True North president and chief executive Leslie Veiner, who would be operations chief for the combined business, said he plans to leverage the strength of each management team and a services agreement with Starlight over a three-year transition period.
He also said Northview will be looking at regional asset management, opportunities to stabilize occupancy, maximize revenue generation and improve profitability.
In total, the Northview would have suites in more than 60 markets in every province but Prince Edward Island and Manitoba, as well as about 800 employees. The largest number of suites is 8,235 in Ontario.
Under the proposed deal, True North shareholders would receive 0.3908 of a share of Northern Property for each share. Based on Friday’s closing price, the offer was worth $9 per share when the deal was announced, which was 16 per cent above True North’s closing price of $7.73 per share.
In addition, Northern Property would pay $535 million — including $316 million cash, $49 million of assumed debt and $170 million equity issued by the trust — to acquire a portfolio of apartment suites from a joint venture between Starlight and Public Sector Pension Investment Board, which manages funds for the RCMP, Canadian Forces and the reserves.
mtoneguzzi@calgaryherald.com
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