The intrigue behind how Pure Multi-Family REIT was put in play
Vancouver-based Pure Multi-Family REIT began the process of formally putting itself in play this month, but not before considerable intrigue involving a would-be U.S. suitor and Pure’s largest shareholder.
The drama began in December, when a private Florida-based company called Electra America made an offer for Pure, which owns “institutional quality U.S. multi-family real estate assets.”
Neither Electra America nor Pure disclosed the December proposal.
Electra persevered, however, and in April made a second conditional unsolicited proposal: It would be prepared to offer US$7.59 — a nickel more than it had talked about in late December.
Electra, presumably as part of a plan to make the matter public, disclosed its second proposal — which prompted a response from the target: Still inadequate.
Vision Capital Corp., which manages funds that own 7.26 per cent of the REIT, then entered the fray. Vision had a different view and urged fellow unit holders to voice their frustration to the company.
Vision’s message was direct: The board can’t simply say the proposal is inadequate, but needs to engage in discussions with Electra and try to negotiate a higher price.
By failing to engage with Electra, the company was “serving to entrench management and the Board by ignoring or putting off a compelling opportunity for unit-holders that would supplant them,” Vision said in a release.
Other Vision unit holders responded. “I received about 30 calls,” from a mix of institutional and retail investors, said Jeffrey Olin, chief executive at Vision Capital.
Vision issued a couple of warnings to the company: If, they said, the proposed price of US$7.59 was inadequate, then that price should set a level below which Pure Multi-Family should not issue equity; and, if things don’t change, Vision, on behalf of the many shareholders it has heard from, would lead a proxy contest.
Vision liked what Electra was proposing. The offer was at a healthy premium (about 25 per cent above the recent market price) and it represented a premium to both the valuation published by the analysts and to the company’s IFRS valuation (US$6.53) of its net asset value. And an all-cash sale would have meant the end of any alternative dilutive transaction.
And that may have been the real motivation for Vision to go public with its views: It didn’t want the target spending time trying to round up an alternative transaction.
One such alternative transaction could have been a vending in of some privately held real estate assets, a move that would have been dilutive if the vendor had been paid in stock. And it may not have been shareholder friendly, given that such stock issuance may not have required a shareholder vote.
And an acquisition, if that was the plan, presumably would have required issuing shares (not cash) to the vendor. How come? Raising equity at a price below what Electra was prepared to offer would seem to be an obvious non-starter.
Andrew Greig, Pure’s vice-president of investor relations, said any questions about issuing equity, and at what price, was “a hypothetical situation.”
As for taking on additional bank or mortgage debt to make an acquisition, that seems unlikely given that the issuer touted its success in reducing its debt-to-gross book value ratio when it released in 2017 financial statements in March.
What’s next?
Greig said the board and the special committee overseeing the strategic review is going through its process. “It’s beginning,” he said, adding, “Electra has not been withdrawn from the list of potential suitors. We are opening the doors to others.”
• bcritchley@postmedia.com