Starlight and KingSett Capital to buy Northview Apartment REIT for $4.8-billion

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Starlight Investments and KingSett Capital plan to buy Northview Apartment REIT for $4.8-billion in an all-cash deal that would give the two private Canadian real estate companies control over thousands of apartments across the country at a time when rents are soaring.

This is the second major apartment acquisition for Starlight in less than six months and the latest multibillion-dollar deal that involves investors taking a publicly traded real estate company private.

Starlight and KingSett are offering $36.25 for every unit of Northview Apartment Real Estate Investment Trust, a 12-per-cent premium over the trust’s closing price on Wednesday.

The companies did not say how they would split the purchase price. Spokesmen for the companies and Northview REIT said no one was available for interviews.

The proposal gives unit-holders the option of keeping a stake in Northview’s portfolio, by offering them units in a publicly listed fund that will be created if the deal is approved.

Apartment vacancy rates in Canada are at their lowest level in years, and rents are climbing because of a lack of housing and home prices that are beyond the reach of many Canadians.

Northview owns approximately 27,000 residential units and a few hundred short-term rental apartments in eight provinces and two territories, according to its most recent investor presentation. It also owns other commercial property, such as warehouses and office buildings.

One-third of Northview’s operating income is derived from Ontario, where the average monthly rent for a one-bedroom apartment has climbed 20 per cent to $1,180 over a three-year period, according to federal government data.

The steady increase in rents has landlords and investors racing to snap up apartments and redevelop retail properties and other low-rise buildings into residential units.

Starlight, which says it has $14-billion in assets under management, is already a big player in apartments with more than 400 multifamily properties in Canada and more than 40 in the United States. KingSett has residential units in the major Canadian cities and also owns office towers and other commercial real estate.

The two private-equity companies first approached Northview with an unsolicited proposal in early October. That was when Northview was trading below $30 a unit and about a month before Starlight swooped in with a last-minute $1.7-billion bid for apartment owner Continuum, which scrapped plans to go public as a REIT when Starlight made its offer.

Although Northview’s board is recommending that unit-holders vote in favour of the deal, Northview and its financial adviser have been given 30 days to find a higher bid.

The deal announced by Starlight and KingSett on Thursday is at the high end of Northview’s independent financial adviser’s fair-market value of between $33.25 to $36.75 a unit. After the deal was announced, units of Northview rose 13 per cent to close at $36.63 apiece in Toronto.

The deal requires support from two-thirds of Northview’s unitholders, as well as approval from the majority of unit-holders not controlled by Northview management and Starlight. Starlight’s chief executive Daniel Drimmer beneficially owns or controls 13 per cent of the REIT’s outstanding units, according to the press release.

It is not known whether Northview’s executive team will remain if the deal succeeds. In the press release, Mr. Drimmer said Starlight had “high regard” for Northview’s management and intends to retain “substantially all” of Northview’s site-level employees and operational staff, as well as its offices in Calgary and Toronto.

The companies said the deal is expected to close in the third quarter of this year.

The Starlight-KingSett proposal, which includes the assumption of debt, is one of the priciest real estate deals in Canada over the past five years, according to data from Refinitiv. Pure Industrial was bought by Blackstone Property Partners for US$2.9-billion and Milestone Apartments was purchased by Starwood Capital Group for US$2.6-billion, according to Refinitiv.

Michael Waters, chief executive of apartment owner Minto Group Inc., said the Northview proposal is evidence of strength in the multiresidential property sector. He declined to comment on whether Minto has received unsolicited bids and said his company has plans to expand in the major Canadian cities.

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