The executive chair of InterRent Real Estate Investment Trust, Mike McGahan, is offering to acquire the apartment owner for $2-billion with the backing of Singapore sovereign wealth fund GIC.
On Tuesday, Ottawa-based InterRent announced CLV Group, a private company owned by Mr. McGahan, and GIC are bidding $13.55 per unit for InterRent, which owns more than 12,000 apartment units in three provinces. Mr. McGahan is the REIT’s former chief executive officer.
InterRent’s unit price jumped by 15 per cent to $13.62 on the Toronto Stock Exchange on news of the bid, slightly above the price of the offer from CLV Group and GIC. The units closed at $13.59, still above the takeover offer.
InterRent said the takeover offer is worth $4-billion, including the REIT’s debt. The REIT is widely held and Mr. McGahan owns 7.8 per cent of its units.
The offer to take InterRent private comes after the REIT faced an activist campaign from Toronto-based asset manager Anson Funds, which built a 9-per-cent stake in the company. The takeover bid is priced at a 35-per-cent premium to the price of InterRent units on March 7, when media first reported on Anson’s campaign.
Anson pushed for a sale or restructuring of InterRent because its units were trading well under their net asset value, which analysts estimate is $14.13 per unit.
A special committee of InterRent’s board members hired National Bank Financial to do a valuation of the REIT. On Tuesday, InterRent said NBF estimated the fair value of the company is between $12.75 and $14 per unit.
InterRent’s board has set up a 40-day “go-shop” period to allow the REIT to solicit a better offer. The Globe and Mail previously reported a number of real estate companies approached InterRent with potential takeover offers. The go-shop process ends on July 6.
“While we are pleased to see the InterRent Board take a concrete step towards closing its valuation discount, we will see how the go-shop process unfolds as we believe there is potential for more value to be realized,” said a spokesperson for Anson in an e-mail.
“We are pleased to provide immediate and certain premium value to our unitholders through this all-cash transaction with CLV Group and GIC, while also allowing InterRent to solicit superior proposals through a go-shop period of 40 days,” said Brad Cutsey, InterRent’s CEO, in a news release.
“We are delighted to partner together with GIC on this transformative transaction,” said Mr. McGahan in a news release.
InterRent may attract a higher offer from a real estate company or asset manager, according to analysts. Last April, New York-based Blackstone Inc. acquired Toronto-based apartment owner Tricon Residential Inc. for US$3.5-billion, including debt.
“We view InterRent’s portfolio and operating platform as attractive assets to any investors looking for immediate scale in Canada,” said a team of three analysts at TD Securities in a report. They said: “The fact there appears to have been no formal process prior to this announcement suggests to us the possibility of a higher offer.”
Historically, apartment REITs have been acquired at a slight premium to their net asset value, while the offer for InterRent is at a discount, the TD analysts said.
“While we do not dismiss the possibility of a higher bid, we believe that there is a low possibility,” said analyst Jimmy Shan at RBC Capital Markets in a report. “We believe in the private market today, the level of interest in large portfolios is not deep.”
InterRent will pay CLV Group and GIC a $49-million break fee if the transaction is terminated during the go-shop period, and a $79-million fee if the purchase is shut down after July 6.
CLV Group and GIC will pay the REIT $89-million in a reverse break fee if their offer is terminated. The transaction is expected to close by early 2026.
Mr. McGahan is CEO of CLV Group, which served as property manager for InterRent until 2018. He previously served as CEO of the REIT for 12 years.
Mr. McGahan began investing in real estate while a student and hockey player at the University of Ottawa. In an interview with the Ottawa Business Journal, he joked about adding value to properties by enticing teammates into helping him renovate homes, then paying them in beer.
GIC is one of the world’s largest fund managers, with approximately US$800-billion of assets under management.
This article has been updated with new information about Mike McGohan’s holdings in InterRent. A previous version stated that he had a 4-per-cent stake. This version has been updated to state that he owns a 7.8-per-cent stake.