In a scenario reminiscent of the summer of 2018, Pure Multi-Family REIT’s largest shareholder Vision Capital Corp. is again voicing “serious questions” with how management is handling a possible sale of the trust.
In a release issued Monday, Vision urges Pure’s management to respond to a purchase offer by U.S.-based American Landmark/Electra America. ALEA disclosed its bid in June after failing to receive a response from Pure (RUF-UN-X), whose management says they are in “exclusive” talks with another potential.
ALEA’s offer is to acquire all Pure’s class-A units for US$7.61 per share ($10.03 in Canadian funds on June 26, the day the enhanced offer was made).
“Vision has been contacted by a number of institutional and retail unitholders of Pure who have expressed their concerns with respect to the lack of response by the Board of Directors of Pure’s general partner (the “Board”) to ALEA’s proposal,” reads Monday’s release, “and believes the views of these unitholders are consistent with those of Vision set out herein.”
Vision says, based on information compiled by Bloomberg, it is the trust’s largest unitholder.
The release adds the “concerned unitholders” believe ALEA’s offer is “a compelling opportunity for Unitholders to exit their investment in Pure at an attractive price.”
Vision Capital: “We are concerned . . .”
ALEA says it has financing in place to act immediately on the offer, that it only requires limited due diligence and is prepared to enter into non-exclusive negotiations. ALEA has also submitted a proposed form of definitive agreement to Pure, including a US$40-million payment to secure its reverse break fee obligation.
“We are concerned that Pure has not yet responded to ALEA nor has it given any indication of when and whether it intends to do so,” the Vision release reads.
Pure said in an earlier release it has been in exclusive negotiations with an “arm’s length third party.” However, the REIT also said that exclusivity agreement could be terminated at any time. Vision wants Pure to act on that clause.
“These exclusive negotiations have now lasted for nearly one month (or more), which is a long time for Pure to have precluded itself from pursuing other alternatives, particularly in consideration of the fact that another genuine and attractive all-cash premium offer has been presented to it,” Vision’s release states.
It goes on to allege Pure management might have an obligation to shareholders to do so.
“Given the price and terms of the ALEA proposal, the Concerned Unitholders believe that the fiduciary duties of the Board require it to seriously consider the ALEA proposal and conduct its current negotiations with the unnamed third party in a way that allows Pure to engage with ALEA and accept the ALEA proposal if it is the best available alternative.”
Previous bid for Pure Multi-Family
Pure and ALEA spent almost eight months through the first half of 2018 discussing a possible sale before the process was terminated by Pure in August 2018. Pure said, among other reasons, it believed the offer did not reflect the value of its assets.
Vision had encouraged Pure’s management to accept the 2018 offer.
At that time, in an interview with RENX, Vision president, CEO and portfolio manager Jeffrey Olin called Pure’s portfolio “exceptionally high-quality and extremely well-maintained.”
Flash-forward to 2019, when ALEA made a new written proposal on June 18 for a cash price of US$7.54 per unit — the same amount it had offered a year ago. ALEA says the proposal expired “without a definitive response from Pure’s board.” That’s when it went public with an enhanced offer at US$7.61 per share.
“ALEA appears to be a very experienced and capable acquiror,” the Vision release reads. “It currently owns and manages approximately 28,000 multi-family apartment units valued at over US$4 billion.
“The principals of ALEA have worked in both the private and public sectors of multi-family real estate and we understand have acquired over US$1 billion of U.S. apartments so far in 2019.”
About Vision Capital
Toronto-based Vision manages the Vision Opportunity Funds, which are private equity funds and liquid alternative mutual funds focused on publicly traded real estate securities. Vision says its funds focus on unique market inefficiencies that allow it to buy real estate more cheaply through the stock market than via the property market.
The funds target superior risk-adjusted total returns through long and short investments.
Since its inception in 2008, the Vision Opportunity Fund Limited Partnership class-A units have delivered a compound annual growth rate of approximately 13.3 per cent.