If only one industry could pull off a Canadian initial public offering in these markets, it had to be real estate. The sector has been on fire for years – though its capital gains are starting to wane – and 2012 has already seen a number of successful real estate takeovers.
Given those fundamentals, Morguard North American Residential Real Estate Investment Trust has successfully closed its $75-million IPO. The new REIT will initially own 14 multi-residential Canadian properties in Ontario and Alberta and three U.S. properties in Louisiana. Seventy-five per cent of the company’s assets will rest in the Greater Toronto Area.
It was easy for the new REIT to get its hands on these properties: it bought them from parent company Morguard Corp, which wanted to raise capital in order to fund growth in its remaining portfolio. (Morguard owns 101 office, retail, multi-res and industrial properties.)
But it’s not as though Morguard is selling the new REIT its crappy assets. The REIT’s properties have an average five-year occupancy of 97 per cent and an average building age of about 32 years. Both statistics are on par with the multi-res assets that the parent retained.
And in case you’re wondering why Louisiana properties were involved, they aren’t so random. These assets are near the oil and gas industry, as well as hospitals and medical facilities, so they stay true to the REIT’s focus on properties in urban centres and major suburban regions.
In the future the REIT plans to acquire more properties from Morguard, provided the market holds up. Under a pre-established agreement, the REIT now has a right of first refusal on any North American multi-res properties that Morguard sells.
Upon closing, Morguard retained 70 per cent interest in the new REIT, which is led by Morguard chief executive officer Rai Sahi. The company started trading at a 6 per cent yield, and its debt to gross book value was 57 per cent.
The initial public offering was co-led by RBC Dominion Securities and TD Securities. Stikeman Elliot and Torys offered legal advice.