Perhaps it can be attributed to late summer doldrums or the fact that TransGlobe Apartment REIT, TGA.UN-T had previously announced the transaction, but little notice was paid to the fact that the Toronto-based REIT last week received unitholder approval to make the single-largest transaction in the multi-residential space this year.
TransGlobe Apartment REIT acquired a portfolio of 57 properties (the “Acquisition Properties”) comprising an aggregate of approximately 7,500 residential suites in 94 residential buildings and three townhouse complexes and 13,000 square feet of commercial space for $740.4 million.
Deemd an internal transaction, the properties acquired were previously owned or co-owned and operated by affiliates of TransGlobe Investment Management Ltd. (collectively “DrimmerCo”).
Additionally, in consideration for the REIT assuming certain mortgages secured by the Acquisition Properties, DrimmerCo will make instalment payments to the REIT pursuant to instalment notes in order to achieve an effective weighted average interest rate of 3.5% per annum on such mortgages.
As part of the purchase, the REIT acquired from DrimmerCo all of the assets (including all “TransGlobe” trademarks), and assumed certain obligations, that are related or required to manage the properties of the REIT, the REIT terminated certain commercial relationships with DrimmerCo (including the non-competition agreement among the parties), and Daniel Drimmer (formerly the REIT’s chairman) and Alon Ossip resigned from the REIT's board of trustees.
Kelly Hanczyk, chief executive officer of TransGlobe, said that the transaction is more than a simple shuffling of assets. “It’s a really big deal because within TransGlobe,” he said. The connected but privately held REIT has sold its assets and “disappears entirely,” boosting TransGlobe’s asset base and simplifying its operational structure at the same time.
“It is just the REIT. We manage our own properties, (are) publicly traded and the old chairman is gone, so the Drimmer family is no longer represented on the board, they are just a major shareholder,” said Hancyzk.
TransGlobe REIT grew out of the Drimmer family private holding in May of 2010 and it was this past May that the board decided that it made sense to buy the assets held by its founders.
Hancyzk said the new structure will greatly simplify operation. “The property management used to have three different ways of managing. They managed for the REIT, they managed for the private co, the buildings in the private co (and) they managed the private co’s joint venture with a pension fund. Now, you manage everything as a REIT. So everyone is kind of focused on REIT performance.”
The TransGlobe chief said the torrid pace of acquisition that the REIT has set over the past year will slow following the massive acquisition of the Drimmer portfolio. “We have grown significantly, from 8,000 units to 21,000. That is pretty extreme growth in just over a year,” he said. “So we will slow down from here. We will slow down, focus on our operations, get the economies of scale of a bigger platform.
“But we will still continue to make acquisitions. We will make through raising equity in the public market to allow it and we also have a credit line that allows us a fairly significant acquisition pipeline as well.”
Following the transaction, DrimmerCo will remain a key shareholder of TransGlobe. At the close of the deal, it owned or controlled over 14,800,462 Trust Units (assuming conversion to Trust Units, on a one-for-one basis, of all issued and outstanding Class B limited partnership units of limited partnerships controlled by the REIT), giving it an approximate 20.5% effective interest in the REIT.