PSPIB, Drimmer bid $318M for Starlight US Multi-Family fund

IMAGE: Starlight CEO Daniel Drimmer is a partner with PSPIB in a bid to purchase a Starlight U.S. multifamily fund. (Courtesy Starlight)

Starlight CEO Daniel Drimmer is a partner with PSPIB in a bid to purchase a Starlight U.S. multifamily fund. (Courtesy Starlight)

A limited partnership involving Public Sector Pension Investment Board and real estate executive Daniel Drimmer is making an offer to purchase the Starlight U.S. Multi-Family (No. 1) Value-Add Fund (SUVA.A-X) for $318 million.

Drimmer is also the president and CEO of Starlight, and CEO and director of the general partner of the fund.

The limited partnership making the acquisition, known as the Clearwater U.S. Multi-Family (No. 2) Holding LP, plans to indirectly acquire the fund’s portfolio of three U.S. multifamily properties totaling 1,193 units.

In a release Thursday morning, the purchasers say the price “represents a cumulative pre-tax internal rate of return equal to approximately 17 per cent for class-A and class-U unitholders.”

The transaction includes cash payment of approximately $122.2 million to the fund, with Clearwater also indirectly assuming the fund’s existing debt of about $196 million. After the sale, the fund will distribute the net proceeds to unitholders and dissolve the fund.

Distributions to unitholders, before taxes, are expected to be $12.35 per class-A unit and US$12.38 per class-U unit, representing premiums of 18.1 per cent and 21.9 per cent, respectively. The figures are based on current exchange rates and values.

Starlight board approves transaction

The transaction has received unanimous approval of an independent committee of the Starlight U.S. Multi-Family (No. 1) board of directors, the general partner of the fund, and the board of directors (with interested directors abstaining).

“Under Starlight’s management, the income and value of the underlying assets in the fund have grown significantly, exceeding our targeted internal rate of return for unitholders,” explained Evan Kirsh, president of the Fund GP.

“Given the terminal life of the fund, entering into the proposed transaction at this time is a compelling opportunity for unitholders to realize a return on their initial investment in excess of the targeted amount.”

The transaction is not subject to due diligence.

It is expected to close in January 2020, subject to the satisfaction or waiver of certain closing conditions including: unitholder approvals of the transaction at a special meeting being planned for January 2020, fund lender consents, approval of the transaction from the TSX-V and certain other customary closing conditions.

The fund GP board and executive officers of the fund GP have also entered into support agreements, agreeing to vote their units (approximately 7.92 per cent of outstanding units) in favour of the transaction.

Origin Merchant Partners provided a fairness opinion to the special committee in connection with the transaction and related special distribution. Blake, Cassels & Graydon LLP is counsel to the fund and Wildeboer Dellelce LLP is counsel to the special committee.

Davies Ward Phillips & Vineberg LLP are acting as legal advisors to the purchaser.

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