Retirement Residences Real Estate Investment Trust has found a white knight investor for its ailing portfolio of seniors homes, striking an $800-million deal with a federal pension plan.
The Public Sector Pension Investment Board, or PSPIB, a Crown corporation that manages $27.7-billion in retirement funds for the federal civil service, the Canadian Forces and the Royal Canadian Mounted police, has agreed to pay $8.35 a unit for the REIT. The offer is valued at $2.8-billion, when debt is included, and requires the approval of two-thirds of shareholders.
The bid is endorsed by the REIT's board and carries a $19-million break fee. It comes after a nine-month review of the firm, which has seen the REIT struggle to manage the bidding process while its losses mounted and potential buyers left the table. It also follows an announcement last week by Paul Reichmann, a former trustee and major investor in the firm, that he intended to bid $8.60 a unit for the portion of the REIT he did not own.
While his proposed offer is higher, it is conditional on a number of factors and several analysts have suggested that its main purpose may have been to press the hand of other bidders such as the pension fund. They also questioned the financing of the bid.
In endorsing the pension fund's offer, the REIT's board stressed its ability to close as a major selling point. "More than any other party, PSPIB demonstrated the financial means and capability to complete this transaction at a price that provides fair value to unitholders," Calvin Stiller, chairman of Retirement REIT's special committee, said in a statement.
Units of the REIT closed up 67 cents or 8.6 per cent at $8.46 on the Toronto Stock Exchange yesterday.
In the past year, PSPIB, based in Montreal, has quietly made several real estate investments as a way of diversifying its holdings, although this deal is by far its largest in the sector. The pension fund has set a long-term 10-per-cent target for the asset class, and in 2004, it hired industry veteran André Collin as vice-president of real estate investments to lead that effort.
Friday, there was little expectation of another offer. "We believe the chances of a higher bid are remote," said Bank of Nova Scotia analyst Himalaya Jain. Given the break fee on the deal, any counteroffer would have to exceed $8.55 a unit, said Royal Bank analyst Neil Downey, calling that "a low probability."
Terms of the offer will be mailed to shareholders later this month and the transaction is expected to close early next year.