Pure Multi-Family REIT LP recently revealed that the special committee of independent directors, appointed to run a strategic process including the potential sale of the REIT, has terminated the formal process to explore the potential sale of the REIT revealed on April 5, 2018.
As The REIT Wire reported, the sale process was commenced following the issuance of a news release by Electra America on April 3, 2018 announcing that it had made a proposal to the Board to acquire all of the class A inits of the REIT for US$7.59 per Unit. The news release stated that Electra’s proposal was not conditional on financing and that Electra would be able to move quickly and effectively to close the transaction upon completion of due diligence.
As disclosed by the REIT in its own news release on April 3, 2018, the REIT initially received a conditional proposal from Electra on December 12, 2017 to acquire all of the Class A Units for US$7.54 per Unit. The Board, on the recommendation of the Special Committee following its receipt of financial and legal advice, rejected that proposal on January 17, 2018 as inadequate. On March 26, 2018, the REIT received a marginally more favourable proposal from Electra, pursuant to which it agreed to pay an additional US$0.05 per Unit, for a total of US$7.59 per Unit. Following the receipt of financial and legal advice, the REIT concluded that the revised proposal remained inadequate.
On April 5, 2018, the REIT announced that, as part of a strategic review, it would commence a formal process to explore the potential sale of the REIT. The REIT also noted that Electra’s proposals were highly conditional, required a 30-day exclusivity period and would be withdrawn if their existence was publicly disclosed.
The sale process was conducted by the REIT over several months with the assistance of Scotiabank. 86 parties were contacted out of which 24 parties executed non-disclosure agreements and were provided access to Pure Multi-Family’s data room. During phase one of the process, the REIT received feedback from potential buyers as to likely ranges of values that they would be prepared to pay, including comments that, despite their overall positive views on the quality of the REIT’s portfolio: (i) the price that had been publicly disclosed by Electra effectively established a “floor” and (ii) several multi-family real estate portfolios in excess of $1 billion were being concurrently marketed. Additionally, there were media articles and unitholder activity relating to the REIT’s annual meeting that may have created some uncertainty for potential bidders. Potential bidders were asked to submit phase one non-binding proposals by June 6, 2018.
Two potential bidders submitted proposals at the end of phase one, the highest of which was US$7.71 per Unit and not conditional on financing. Both interested parties were selected to participate in phase two and were provided with further due diligence materials and an offer of access to the REIT’s properties in order to conduct site visits. A form of arrangement agreement was provided to the interested parties by the REIT. The bid deadline for phase two final binding bids was July 30, 2018. Despite extensive site visits, requests for additional site visits for third party reports and active negotiation of the arrangement agreement, no bids were received on that date.
One of the bidders advised that, while it would not be submitting a bid, it would like to meet to discuss the possibility of reaching an agreement outside the formal process. On August 7, 2018, Robert King, Chair of the Special Committee, travelled to join Scotiabank at a meeting with that bidder’s advisors to discuss terms of a potential deal. The bidder advised that it was prepared to make an offer of US$7.64 per Unit, although its proposal in phase one was US$7.71. The bidder also asked for an exclusivity period in order to explore financing options, to complete confirmatory due diligence and to settle on a form of arrangement agreement. Over the course of the following two weeks, the Special Committee sought to resolve all key deal terms with a view to bringing a transaction to unitholders for approval. On August 23, 2018, the bidder advised that it was no longer pursuing a potential transaction with the REIT.
A significant amount of the REIT’s time and resources have been committed to the sale process. From the beginning of the process through the subsequent negotiations with the one bidder, the Special Committee and the Board held over 50 meetings with its financial and/or legal advisors so the REIT could respond in a timely fashion during every step of the process. Given the outcome of the process, the Board and management will re-focus their efforts on existing operations and will consider potential future strategic opportunities that may become available to the REIT to maximize unitholder value.
Pure Multi-Family is a Canadian based, publically traded vehicle which offers investors exclusive exposure to attractive, institutional quality US multifamily real estate assets.