Author: Andrew Willis

The domestic energy industry got a vote of confidence from institutional investors on Monday as dealmaker Adam Waterous closed the final round of a third private equity fund with $1.4-billion of capital, money earmarked for acquisitions in Alberta’s oil sands.

Calgary-based Waterous Energy Fund (WEF) won institutional investor support for its plan to consolidate oil and gas properties in the Athabasca region, just south of Fort McMurray, by acquiring properties from foreign companies and private investors. The fund will initially focus on backing expansion at an oil sand company WEF already controls, Greenfire Resources Ltd. GFR-T

Over the past six months, WEF invested $450-million from the first round of its third fund to build a controlling 56-per-cent stake in Calgary-based Greenfire. The company’s properties are near massive oil sands developments owned by Cenovus Energy Inc. CVE-T, Suncor Energy Inc. SU-T and MEG Energy MEG-T.

WEF’s backers include domestic and international insurance companies, banks, asset managers and family offices.

WEF is acquiring oil sands properties at a time when foreign energy companies continue to exit the region and smaller private players are selling rather than trying to raise the money needed to build a producing property. The dominant oil sands companies, including Canadian Natural Resources Ltd. CNQ-T, Cenovus and Suncor, are also bulking up.

“If we were real estate investors, we would be the folks who buy one house in a great neighbourhood full of elderly homeowners, then keep buying great houses as they come to market,” said Mr. Waterous, managing partner and chief executive officer at WEF, in an interview.

Foreign energy companies exited the oil sands over concerns that included carbon emissions, the regulatory environment and the high cost of building facilities. Mr. Waterous said WEF backers recognize the region’s long-life assets and focus on lowering emissions with measures including carbon capture and sequestration.

“At WEF, we have learned to navigate the sometimes choppy waters of Canadian regulation,” Mr. Waterous said.

A former investment banker, Mr. Waterous founded the asset manager in 2017. Since then, WEF has raised a total of $3.44-billion.

Investing in domestic oil and gas plays has been out of fashion since commodity prices declined sharply in 2014, ending an Alberta energy boom. WEF is responsible for attracting approximately 75 per cent of all Canadian oil and gas private equity capital since 2017.

WEF’s first fund invested $1.9-billion in Strathcona Resources Ltd. SCR-T, which eventually went public on the Toronto Stock Exchange. With WEF’s backing, Strathcona made 10 acquisitions in five years, building a large oil sands business in the Cold Lake region northeast of Edmonton, using the same steam-assisted gravity drainage approach Greenfire utilizes to get oil out of the ground.

WEF has tripled the value of its investment in Strathcona, a company with a $6.2-billion market capitalization. WEF now owns approximately 80 per cent of Strathcona and Mr. Waterous said the fund manager will continue to distribute shares in the energy company to institutional backers over the next few years.

In July, Strathcona struck a $2-billion partnership with the Canada Growth Fund to build carbon capture and sequestration infrastructure at the company’s oil sands operations. The fund, a federal government-based financing agency, will invest $1-billion. Strathcona will construct, operate and own the infrastructure, with the initial capital costs split 50/50 between the fund and the energy company.

Mr. Waterous previously ran Bank of Nova Scotia’s investment-banking division. He founded a Calgary-based advisory firm focused on oil and gas acquisitions and dispositions that Scotiabank acquired in 2005.

Earlier this month, Mr. Waterous and nine other pipeline-and-energy-company CEOs published an open letter to the leaders of the four major federal political parties. They urged the country’s leaders to declare an energy crisis and use emergency powers to reduce regulations in the sector, actions they said will increase domestic production and boost Canadian sovereignty.

Both the governing Liberals and opposition Conservatives, who are neck-and-neck in the polls, have announced policy changes that move away from some key existing climate initiatives designed to reduce carbon emissions in favour of boosting economic growth.

With files from Bill Curry and Jeff Jones

Activist investor Anson Funds has launched a campaign for change at InterRent Real Estate Investment Trust that potentially puts the Ottawa-based apartment owner up for sale, as acquisition-hungry private equity funds place a greater value on rental properties than public markets.

Toronto-based Anson holds approximately 9 per cent of InterRent, which owns 13,000 apartment units in British Columbia, Ontario and Quebec and has a $1.45-billion market capitalization.

In recent months, Anson pushed InterRent’s board and management to stop acquiring properties and instead focus on selling apartment buildings to pay down debt, according to two sources familiar with the matter. The Globe and Mail agreed not to name the sources because they are not authorized to speak for their companies.

Executives at InterRent and Anson declined to comment. Bloomberg first reported Anson’s stake in InterRent earlier this week.

Over the past 12 months, InterRent’s unit price fell by 28 per cent, and the Toronto Stock Exchange-listed REIT now trades at a 30-per-cent discount to the value of its assets. Over the same period, the S&P/TSX capped REIT index declined by 5.3 per cent.

InterRent’s unit price fell after the REIT acquired numerous apartment buildings over the past four years, and debt rose to $1.6-billion at the end of 2024.

In late February, InterRent chief executive officer Brad Cutsey announced plans to sell up to $250-million worth of properties over the next 12 months, which would generate up to $140-million in proceeds for the REIT. Mr. Cutsey said the money would be used to pay down loans and buy back units.

The shift in strategy won praise from analysts. Mario Saric at Bank of Nova Scotia said in a report that “concretely killing the idea of InterRent as a net buyer of assets should help” the REIT’s unit price.

In 2024, InterRent sold 10 buildings for a total of $143.5-million, at prices at or above their values on the company’s balance sheet, and used part of the money to buy back units.

Anson, a $3-billion fund manager with a track record for successful activist campaigns at REITs, is pushing for change at InterRent at a time when private equity funds are targeting publicly traded residential property companies, on the theory that retail investors who own the bulk of REIT units are overly pessimistic about the outlook for the sector.

Anson’s portfolio manager on its REIT investments is Michael Missaghie. He is also president of Arch Corp., a private real estate investment fund with $3-billion of assets under management.

Last year, New York-based Blackstone Inc., one of the world’s largest property investors, purchased apartment owner Tricon Residential Inc. for US$3.5-billion in a friendly takeover, paying a 30-per-cent premium to the Toronto-based company’s share price. As part of the transaction, Blackstone committed US$4.5-billion to expanding Tricon’s rental property portfolio.

In 2024, Blackstone also acquired Denver-based Northview Apartment REIT for US$10-billion.

After Anson, Blackrock is the second-largest unit holder in InterRent, with a 5.8-per-cent stake, according to regulatory filings. The REIT’s founder, executive chair Michael McGahan, owns 3.9 per cent.

InterRent’s plan to sell up to $250-million of apartments is a part of a ”strategy of opportunistically arbitraging public/private market disconnect” by selling buildings to institutional investors such as private equity funds and pension plans, analyst Jimmy Shan at RBC Capital Market said in a report. The same gap between the price that retail investors put on rental properties and what institutions are willing to pay could lead to a bid for the entire REIT.

Across the real estate industry, REIT boards and executives are frustrated their portfolios are trading for well below their net asset value while the companies are consistently able to sell properties at significant premiums to these valuations, Adam Jacobs, Colliers Canada’s head of research, said in a recent report. He said more REITs are likely to be sold if the situation persists.

“The predicted wave of REIT acquisitions, privatizations and mergers hasn’t materialized, as this requires large-scale borrowing,” Mr. Jacobs said. “A better financing environment may kick-start some more deal-making in this sector.”