After weeks of relative silence, Pure and Cortland made the announcement on Thursday night. If approved, the agreement means Cortland will acquire all of Pure’s outstanding class-A units for US$7.61 per share (Cdn$9.96 based on the exchange rate of $1.31 being used by the companies).
Vancouver-based Pure Multi-Family owns and operates 22 apartment communities consisting of 7,085 apartment units in Texas and Arizona, two of the U.S. Sunbelt’s leading economies.
“Today’s announcement can be attributed to Pure Multi-Family’s high-quality portfolio of multi-family properties located in the most dynamic economies of the U.S. Sunbelt, our recently internalized state-of-the art property management platform, and the high quality of our team who have repeatedly demonstrated tremendous commitment, passion and integrity,” Stephen Evans, Pure Multi-Family’s founder and CEO, said in the release.
Completion of the transaction is subject to customary conditions, including approval by unitholders at a special meeting, court approval and regulatory approvals.
25-day “go shop” clause
The deal also includes a 25-day “go shop” period during which Pure can seek higher bids from other potential suitors. This could include American Landmark/Electra America (ALEA), which had also made two bids for Pure during the past year. The most recent bid process had been the subject of several press releases during recent weeks, as ALEA sought to become part of the negotiation process with Pure.
Pure’s management had acknowledged the ALEA bid, but said it was in “exclusive” negotiations with another buyer — now identified as Cortland. Pure had had no other comment on the bids until Thursday’s release.
Under the Cortland deal, shareholders will receive US$7.61 per unit in cash, a premium of 15 per cent on the closing price on the TSX on June 26, as well as the 20-day volume-weighted average price prior to the announcement of the bid.
In the release, Pure’s management says the transaction “reflects an attractive value for Pure Multi-Family’s apartment portfolio.” The offer is a premium of 12 per cent to Pure Multi-Family’s IFRS book value (US$6.793 per unit) and five per cent above the research consensus NAV per unit (US$7.24).
“Under Pure Multi-Family’s management, the income and value of the investment properties have grown significantly,” Evans said in the release. “Pure Multi-Family delivered the second-best total unitholder returns in the Canadian REIT sector since our initial public offering in July 2012, using Canadian dollar returns. Pure Multi-Family ranked 12th in the Canadian REIT sector, during that same period, using US dollar returns.”
Cortland sought Pure Multi-Family for a year
The parties say Cortland has financing in place for the purchase, which is not subject to due diligence. It is backstopped by Cortland with a US$50 million reverse termination fee.
“After participating in last year’s sale process, we continued to closely monitor Pure Multi-Family’s performance and updated our underwriting regularly,” said Steven DeFrancis, the CEO of Cortland, in the release. “We believe the terms put forward in the transaction are highly attractive to Pure Multi-Family’s unitholders.
“We are thrilled to add Pure Multi-Family’s high-quality communities to the Cortland family and further expand our platform in markets that we know very well.”
Cortland is a multi-family real estate investment, development, and management company. The firm in-sources most of its development, design, construction, renovation, management, and ownership functions.
It is invested in and manages more than 155 apartment communities with over 50,000 homes in the U.S. with regional offices in Charlotte, Dallas, Denver, Houston, and Orlando, in addition to its Atlanta headquarters.
Internationally, Cortland maintains a global materials sourcing office in Shanghai and a development platform in the U.K.
Cortland is a National Multifamily Housing Council (NMHC) Top-50 Owner and Manager and is ranked sixth among Atlanta’s “Top Workplaces” in the large employer category (2019).
Pure Multi-Family’s 18-month strategic review
The agreement is the culmination of a strategic review which Pure management began in April 2018. The trusts’s advisor, Scotiabank, contacted approximately 90 potential strategic and financial purchasers.
Should Pure find a bidder willing to pay more, the deal includes termination fees of US$9.5 million until Aug. 20, 2019 and US$22.5 million thereafter.
Pure’s management, excluding the chief executive officer, recommend shareholders vote in favour of the transaction. In addition, Pure’s senior officers and directors, including the CEO, will enter into voting and support agreements in favour of the transaction.
“Since our initial public offering in July 2012, Pure Multi-Family has generated a total unaffected return in excess of 176 per cent, approximately 16 per cent on a compounded annual basis,” said Robert King, chairman of Pure’s board of directors and the special committee of independent directors, in the release.
“We have accomplished significant growth over the past seven years, having built an institutional quality multi-family apartment portfolio in highly desirable markets in the U.S. Sunbelt.
“We believe that Cortland’s all-cash transaction provides certainty from a well-respected organization, and represents significant value for our unitholders with the flexibility to explore other potential superior proposals. “
Pure Multi-Family will continue to pay its normal monthly distributions through closing of the transaction, which is expected to occur by Q4 2019.