Blackstone bought Toronto-based apartment owner Tricon Residential Inc. for US$3.5-billion in 2024.Jeenah Moon/Reuters
U.S. private equity funds and one of Canada’s largest pension plans are in talks to acquire H&R Real Estate Investment Trust HR-UN-T as an activist investor pushes the company to disclose bidders for its $10.5-billion property portfolio.
Last Friday, Toronto-based H&R disclosed that since February, it has received multiple proposals to buy all or part of the company, which owns residential, industrial, office and retail properties across Canada and the United States. The REIT’s board appointed a committee to evaluate the offers, advised by bankers and lawyers, but did not disclose the bidders.
On Tuesday, K2 & Associates Investment Management Inc. published a press release in which chief investment officer and chairman Shawn Kimel calls on H&R to “immediately disclose the material terms of the viable bids, and to put the best options to unitholders for their approval.”
Toronto-based K2 is a significant investor in H&R and staged a successful activist campaign in 2023 to put two trustees on the company’s board. The fund manager said: “Given the REIT’s complex structure, buyers capable of pursuing such a transaction can be hard to come by and K2 would view it as a failure if the board were to fumble this unique opportunity.”
Large global real estate funds are circling H&R and attempting to build a consortium that could buy all or parts of the REIT, according to four sources familiar with the process. The REIT has a $3.2-billion market capitalization.
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New York-based Blackstone Inc., BX-N a significant investor in Canadian apartment buildings and warehouses, is interested in buying H&R’s residential and industrial properties, according to the sources.
Blackstone is working in a consortium with another Wall Street investment fund, TPG Inc., that is also a major real estate investor, according to one of the sources. TPG declined to comment.
In 2014, H&R struck a partnership on its industrial properties with the Public Sector Pension Investment Board (PSP Investments), based in Montreal, and fund manager Crestpoint Real Estate Investments Ltd., which is headquartered in Toronto.
PSP Investments and Crestpoint are in talks to join a consortium bid for H&R and want to continue to own the 50-per-cent stake in the company’s Canadian industrial real estate and 49.5-per-cent holding in the REIT’s U.S. portfolio, according to one of the sources.
PSP Investments has $300-billion of assets under management, while Crestpoint oversees $11-billion of investments in more than 300 properties.
H&R REIT, K2, Blackstone, PSP Investments and Crestpoint declined to comment on the sales process. On Friday, H&R said in a press release: “There can be no assurance that the special committee’s process will result in any potential transaction.”
The price of H&R units jumped by 17 per cent on Friday when the company disclosed it has been in takeover talks since February. In its press release on Tuesday, K2 said: “Five months is more than enough time to surface value. Instead of running a transparent process, the board has decided to keep unitholders completely in the dark about potential paths forward.”
H&R hired two investment banks – National Bank Financial and CIBC Capital Markets – and two law firms – Fasken Martineau Dumoulin LLP and Blake Cassels & Graydon LLP – to help the company navigate a potential transaction. On Tuesday, K2 called on the board “to stop spending fees on external advisers who are not accountable to unitholders.”
As part of its 2023 campaign for seats on H&R’s board, K2 supported the REIT’s strategy of selling its office and retail real estate. The company is still attempting to unload these properties.
Global fund managers have been buying Canadian REITs in recent years, with the pace of deals picking up after the companies’ valuations dropped when interest rates began to rise in March, 2022. Many REITs trade at valuations that are lower than the value of the buildings they own.
In 2018, Blackstone teamed up with Ivanhoé Cambridge Inc., a subsidiary of Caisse de dépôt et placement du Québec, to acquire Pure Industrial REIT for $3.8-billion, including debt. In 2022, Blackstone opened an office in Toronto and recruited former Canada Pension Plan Investment Board executive Janice Lin as head of its real estate in Canada.
Last year, Blackstone bought Toronto-based apartment owner Tricon Residential Inc. for US$3.5-billion. Blackstone is one of the world’s largest fund mangers, overseeing more than US$1-trillion in assets. TPG has US$258-billion of assets under management.
In May, the executive chair of InterRent Real Estate Investment Trust, Mike McGahan, offered to acquire the apartment owner for $2-billion, with the backing of Singapore sovereign wealth fund GIC.