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Exteriors of Chartwell Select Scarlett Heights building at Eglinton Ave. West and Scarlett Rd., a rental retirement residence in Toronto's west end.

Fred Lum/Fred Lum/The Globe and Mail

Just two years after going public, TransGlobe Apartment REIT has struck a deal with Starlight Investments to be privatized for just over $1-billion.

Starlight, already an owner of Canadian residential properties, is buying TransGlobe at $14.25 per unit, equating to a 19 per cent premium over the REIT's 20-day volume-weighted average price.

The takeover is the third major Canadian real estate investment trust acquisition this year, after Cominar bought Canmarc, and Dundee acquired Whiterock.

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In the latest deal, the buyer and seller have a tight relationship. Starlight head Daniel Drimmer owns DrimmerCo, which has sold many properties to TransGlobe. Last July, for instance, TransGlobe bought 57 properties that were operated and owned or co-owned by DrimmerCo entities. Drimmer's company also used to manage TransGlobe properties until the REIT internalized this activity last fall.

At December 31, 2011, Drimmer held an approximate 20.5 per cent effective interest in TransGlobe.

But Starlight isn't the only buyer. It turns out that some of TransGlobe's properties will be spun out through the deal. Cap REIT will take 14 of the properties, Timbercreek Asset Management will pick up 26, Starlight gets 63 to itself, and a joint venture between Starlight and the Public Sector Pension Investment Board will own 72.

To ensure unitholders get a fair value, TransGlobe will now enter a 45-day go-shop period that ends June 9. Surprisingly, Starlight has agreed to a clause that does not give it the right to match a superior proposal, should one materialize. On top of this, Starlight and PSP, who together hold 26 per cent of TransGlobe's outstanding units, have both agreed to tender them to any superior proposal.

However, if Starlight gets out-bid, TransGlobe must pay a $21-million break fee.

TD Securities was TransGlobe's financial advisor, while Blake, Cassels & Graydon offered its legal opinions. CIBC World Markets, Cassels, Brock & Blackwell and Bloom Lanys advised Starlight. National Bank Financial put together the independent valuation.

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