Northern Property to Buy Apartment REIT True North

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Northern Property Real Estate Investment Trust agreed to buy True North Apartment REIT and a separate portfolio of residential buildings to create one of Canada’s largest multifamily landlords.

True North stockholders will get 0.39 Northern Property trust units for each share, the companies said in a statement Monday. The deal values True North shares at C$9 ($6.85) apiece, about 16 percent more than Friday’s closing price. Calgary-based Northern Property also agreed to buy a multifamily portfolio from Starlight Investments Ltd. and that firm’s joint venture with a pension fund for C$535 million.

The combined company, which will be renamed Northview Apartment Real Estate Investment Trust, will have about 25,000 apartment units and an enterprise value of at least C$3 billion, the companies said. That would make it Canada’s third-largest residential REIT, data compiled by Bloomberg show. Northern Property, which has about a quarter of its properties in Alberta, will gain access to provinces including Nova Scotia and New Brunswick through the deals.

“To diversify nationally with that much scale in one transaction, those opportunities don’t come along every day,” Northern Property Chief Executive Officer Todd Cook, who will lead the combined company, said in a telephone interview Monday. “The strategic benefits are overwhelmingly positive. It just made sense.”

Stock Decline

Shares of Northern Property tumbled on concern that the company may have overpaid and that some assets will be managed externally for a fee by Starlight, which is run by Daniel Drimmer, who is also chairman of True North. The stock fell 8.4 percent to close at C$21.09 in Toronto, the biggest decline since October 2008. True North rose 4.3 percent to C$8.06, the biggest gain since July 2013.

Analysts on a conference call after the deal’s announcement questioned Northern Property’s price for True North and the justification for taking on increased leverage. The 12-month target price of True North based on five analyst estimates is C$8.88 a share, Bloomberg data show.

“I’m just trying to get my head around the strategy,” Jimmy Shan, an analyst with GMP Securities, said on the call. “I know you spoke about the long-term benefits and the rationale but it used to be not too long ago things got pricey and you decided to focus on developments.”

True North didn’t market its assets to other companies, according to Cook, who said the deal stemmed from discussions between him and Drimmer that began in March. The board would consider higher bids if approached, True North CEO Leslie Veiner said on the conference call.

Increased Scale

Heather Kirk, a Bank of Montreal analyst, said the transactions provide Northern Property with “significant scale and diversification” and increase its access to acquisitions through the Starlight partnership. They also reduce the company’s exposure to Alberta, a province reliant on its oil industry, she said in a note to clients Monday.

Northern Property has at least a quarter of its 11,184 residential units in Alberta, according to financial documents. The vacancy rate at its properties increased to 14 percent in the second quarter from 6.8 percent last year as lower oil prices hurt commodity-reliant jobs and tenants’ ability to pay rent.

The True North acquisition is expected to close in October. Veiner will become chief operating officer of the combined company and Drimmer will become the largest Northview shareholder, with a 14.5 percent stake, according to the statement. Most True North employees will transfer to Northview, Cook said.

Northview will seek more multifamily acquisitions following the integration of the new assets, which will take as long as 12 months, Cook said. Starlight will manage Northview’s assets for at least three years as the REIT sets up internal abilities. In the future, Northview may consider changes to management of buildings, which True North does externally and Northern Property does itself, Cook said.

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