Author: Andrew Willis

Larger rivals and an activist hedge fund are stalking InterRent Real Estate Investment Trust IIP-UN-T and the $1.6-billion apartment owner is staying silent on their overtures.

Ottawa-based InterRent reported financial results Thursday, with a longer-than-normal gap after the end of the quarter, and the numbers were slightly better than analysts’ expectations.

However, InterRent’s executives surprised analysts by consistently declining to comment on activist Anson Funds’ push for a sale of the REIT, and on Wall Street asset manager Blackrock Inc.‘s steadily growing stake.

“An uncharacteristically tardy first quarter report, management information circular still yet to be filed combined with recent price action suggest to us that perhaps the market was anticipating news bigger than just a simple earnings update,” analyst Jimmy Shan at RBC Capital Markets said in a report.

“Given the number of investor questions we got on InterRent’s late reporting date, we suspect an expectation for ‘news’ on top of quarterly results was building,” analyst Mario Saric at Bank of Nova Scotia said in a report.

Anson went public in March with news it had built a 9-per-cent stake in InterRent, which owns 12,000 apartment units in 18 cities in British Columbia, Ontario and Quebec. In recent weeks, Blackrock increased its holding in InterRent by 80,000 units to 8.8 million units, and now owns a 6-per-cent stake worth roughly $100-million.

In recent months, InterRent’s board has turned down takeover proposals from a number of suitors, including Blackrock, according to three sources familiar with the REIT. The Globe and Mail agreed not to name the sources because they are not permitted to speak for the company.

On Friday, InterRent’s unit price closed at $11.64 on the Toronto Stock Exchange. Mr. Shan said the REIT’s book value is $16.40 a unit.

InterRent’s board wants to avoid engaging in negotiations with a potential buyer when its units trade at a significant discount to their book value, according to one of the sources familiar with the REIT.

The price of InterRent units is up 15.7 per cent so far this year, partly because of takeover speculation. The benchmark S&P/TSX Capped REIT Index, by comparison, is up just 0.7 per cent year-to-date.

On Thursday, InterRent was the last domestic REIT to report quarterly results. The company highlighted $65.4-million of property sales, at prices above their book value. InterRent spent $49.5-million buying back its own units, “to address the disconnect between the intrinsic value of its units and their trading price,” it said in a press release.

InterRent chief executive officer Brad Cutsey said in a conference call on Friday that selling properties for more than their book value and using the cash to buy back units was a “no-brainer“ strategy with the REIT’s current valuation. Mr. Cutsey said the company had no further strategic initiatives to announce and declined to comment on questions about Anson’s activist campaign.

The REIT increased the rent it charged tenants by 5 per cent, year-over-year, and InterRent’s 96.9-per-cent occupancy rate was up slightly compared with the same period last year. Mr. Saric said: “Both occupied rent and occupancy exceeded our forecast.”

Potential InterRent suitors include Blackrock and Canadian Apartment Properties Real Estate Investment Trust, the country’s largest multifamily property REIT, with a $6.6-billion market capitalization, according to the sources. At least two of the country’s “Maple Eight” large pension funds have also looked at InterRent, the sources said.

Last year, Blackstone Inc., one of the world’s largest property investors, acquired Toronto-based apartment owner Tricon Residential Inc. for US$3.5-billion.

In 2022, Blackstone opened an office in Toronto and hired Jenny Lin to expand its domestic real estate platform. Ms. Lin previously served as chief investment officer for retirement-home chain Revera Inc. and held executive roles at the Canada Pension Plan Investment Board. Blackstone owns approximately $18-billion of real estate in Canada.

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 considering acquiring 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.

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.

In late February, Mr. 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. He said the money would be used to pay down loans and buy back units.

Editor’s note: A previous version of this story incorrectly identified Blackstone Inc. as a 6 per cent shareholder in InterRent Real Estate Investment Trust. Blackrock Inc. owns a 6 per cent stake in InterRent REIT.  

Dallas-based Sunoco LP SUN-N made a friendly takeover bid for Parkland Corp. PKI-T early Monday worth $7.7-billion, potentially ending the Calgary-based fuel distributor’s boardroom battle with its largest shareholder.

Sunoco offered $44 per share for Parkland, consisting of $19.80 in cash plus .295 of a unit in a subsidiary called SUNCorp, which the buyer said represented a 25-per-cent premium to the average price of Parkland and Sunoco shares over the past seven business days.

Sunoco will also take on Parkland’s debt, bringing the total value of the transaction to $9.1-billion.

Parkland owns more than 4,000 gas stations under the Esso, Pioneer and Ultramar brands, and the On the Run convenience store chain, making it one of the country’s largest retailers. The company also runs a refinery in Burnaby, B.C. that supplies fuel to the province’s lower mainland.

“This strategic combination is a compelling outcome for Parkland shareholders,” said Michael Jennings, executive chairman of Parkland, in a press release on Monday.

“The board unanimously recommends the proposed transaction, recognizing Sunoco’s commitment to safeguarding Canadian jobs, retaining the Calgary head office, and further investing in Canada,” said Mr. Jennings.

In 2023, Parkland turned down a takeover bid from Sunoco that valued the company at $45 per share, according to analysts and reports in The Globe and Mail.

Sunoco said buying Parkland will boost its distributable cash flow per unit by 10 per cent, and the company expects US$250-million cost savings from combining its businesses within three years of closing the transaction. Sunoco owns 7,400 gas stations and 14,00 miles of pipeline.

Parkland’s board of directors endorsed Sunoco’s offer, which comes as the company deals with an activist campaign from 19.8-per-cent shareholder Simpson Oil Ltd. and hedge fund Engine Capital aimed at replaced the Parkland board.

“Our initial thought is that competing bids will be few and far between,” said analyst Ben Isaacson at Scotiabank in a report on Monday. “To date, we haven’t seen any other interested parties in Parkland’s unique portfolio of energy infrastructure assets (either separately or combined).”

“We think investors will jump at the 25 per cent premium on a stock that has been stuck in the mud on investor fatigue for quite some time,” said Mr. Isaacson.

Early Monday, Parkland share price rose by 8 per cent to $39.20 on the Toronto Stock Exchange. Sunoco units dropped by 3.8 per cent in early trading on the New York Stock Exchange, valuing the company at US$7.5-billion.

In March, Parkland launched a strategic review of its operations that included the potential sale of the company.

Shortly after, Simpson Oil nominated nine directors for the 13-person Parkland board over concerns with the company’s performance and governance. On Friday, Simpson Oil said its slate of directors had support from more than 60 per cent of Parkland shareholders.

Parkland shareholders will vote on the transaction at an annual meeting that is now scheduled for June 24. It was previously to take place on Tuesday, May 6.

On Monday, Simpson Oil said it plans to push for the Parkland meeting to take place tomorrow, as scheduled, according to Amy Freedman, spokesperson for the Cayman Islands-based company. Simpson Oil declined comment on the Sunoco offer.

The Parkland acquisition will also require approval from the federal government at a time when relations between the U.S. and Canada are in a deep freeze due to President Donald Trump’s imposition of tariffs.

Earlier this year, federal Liberals pledged to heighten reviews of deals deemed predatory, due to any decline in value of the Canadian target because of U.S. trade practices.

Sunoco will fund the cash portion of the transaction with a US$2.65-billion bridge loan.

Investment banks Barclays and RBC Capital Markets advised Sunoco and provided the debt financing. Law firms Stikeman Elliott LLP, Weil, Gotshal & Manges LLP, and Vinson & Elkins LLP acted as Sunoco’s legal advisors.

Goldman Sachs Canada Inc. and BofA Securities advised Parkland.

Parkland’s board formed a special committee to deal with the takeover, which hired BMO Capital Markets. Law firm Norton Rose Fulbright Canada LLP acted as Parkland’s legal advisor. Torys LLP acted as legal advisor to Parkland’s special committee.