H&R REIT units climb as company reveals it held talks with potential buyers
One of the country’s largest property owners, H&R Real Estate Investment Trust, is up for sale after receiving a hostile takeover offer.
H&R REIT HR-UN-T, which owns $10.5-billion of residential, industrial, retail and office properties, announced on Friday it formed a special committee of independent directors in February to consider its strategic options “after receiving an unsolicited expression of interest.”
The Toronto-based company said in a press release that since February, it has received several other proposals on “potential transactions.”
H&R REIT has hired investment banks and law firms to advise the special committee and the company. The company did not disclose who made offers, and the price of the potential transactions.
The price of H&R REIT units jumped by 15 per cent to $12.25 on the Toronto Stock Exchange after the company released news of the takeover activity. H&R REIT’s market capitalization is $3.3-billion.
“No decision has been made as to whether the REIT should proceed with a potential transaction, nor has any agreement been reached with a counterparty,” H&R REIT said in a press release. “There can be no assurance that the special committee’s process will result in any potential transaction or any other alternative transaction.”
H&R REIT owns properties in Canada and the U.S., and its mix of real estate sets it apart from peers, which tend to specialize in one sector, such as residential apartments, malls or industrial buildings.
Residential properties make up 49 per cent of H&R REIT’s portfolio. The company holds 18 per cent of its assets in industrial and office buildings and 15 per cent in retail real estate.
H&R REIT units trade on the TSX at a discount to their net asset value (NAV), as do units of many domestic REITs. In a report on Friday, analysts Jimmy Shan and Pammi Bir at RBC Capital Markets said potential bidders would likely put a $14.50 per unit NAV on the REIT.
“This will not be an easy transaction as 1) we believe it is unlikely that one buyer is interested in all properties; and 2) the office assets are difficult to underwrite in a largely illiquid market,” said the RBC analysts. “Stating the obvious, there is a better chance that an acceptable bid surfaces in the presence of competition.”
In mid June, RBC Capital Markets hosted investor meetings for H&R REIT chief executive officer Tom Hofstedter and chief financial officer Larry Froom. In a report published on June 18, the analysts said the two executives “provided a rather sober outlook on the state of affairs.”
Three weeks after the investor meetings, H&R REIT publicly announced the strategic review that has been underway for five months.
In 2023, hedge fund K2 & Associates Investment Management Inc. ran a successful activist campaign that put two new trustees on the H&R REIT board. The K2 campaign supported selling H&R’s retail and office building portfolios, steps the company has yet to announced.
The discount between the trading price of domestic real estate companies and the underlying value of their properties has led to several large takeovers in the past year.
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.
Last year, New York-based asset manager Blackstone Inc. acquired apartment owner Tricon Residential Inc., which is headquartered in Toronto, for US$3.5-billion.
H&R REIT’s special committee hired National Bank Financial as its financial advisor and Fasken Martineau Dumoulin LLP as legal counsel.
The REIT hired CIBC Capital Markets is its financial advisor, along with law firm Blake, Cassels & Graydon LLP.