European Commercial Real Estate Investment Trust (ECREIT) has acquired a portfolio of multi-residential properties located in the Netherlands from Canadian Apartment Properties Real Estate Investment Trust (CAPREIT) for a total of $634 mln (€558 mln).
The transaction - which will create Canada’s first European-focused multi-residential REIT - will include $239 mln worth of new ECREIT units at a price of $4.00 apiece, $88 mln in cash or new ECREIT shares as well as $307 mln of CAPREIT’s mortgages on the properties. The deal reflects a cap rate of 4%.
Following the deal, CAPREIT will hold 58% of ECREIT’s units in the event the $88 mln cash payment or 83% of ECREIT’s units in the event the $88 mln is paid in shares.
ECREIT plans to change its name to ERES prior to closing of the transaction.
The deal will lift the value of ECREIT’s assets from $150 mln at present to $780 mln, consisting of 2,091 multi-residential suites in 41 properties covering around 400,000 sq ft of gross leasable office area. It will also provide ECREIT with a well-capitalized, institutional-quality majority unitholder that will support its growth initiatives and its access to capital in the future.
The company will benefit from 'CAPREIT’s proven multi-residential acquisition and property management expertise' as it seeks to 'significantly expand its European multi-residential business, with an initial focus on the Netherlands', it said in a statement.
Closing of the deal is expected to occur in the first quarter of 2019.
In connection with the transaction, ECREIT will consider raising net proceeds of $100 mln prior to closing, through a public equity offering aimed at increasing its public float and trading liquidity.
'ECREIT is very excited about this transaction,' said Phillip Burns, President and CEO of ECREIT. 'Our strategy is to provide access to Europe and deliver reliable income and growth to our unitholders. This acquisition simultaneously delivers a step-change in our scale; refocuses our asset strategy to multi-residential, which is exhibiting recurring, robust rental growth driven by supply-demand imbalances; partners ECREIT with a best-in-class multi-residential owner/manager with 20-year plus track record in Canada and Europe; positions us for growth in an attractive market with a pipeline funding arrangement; and increases our access to capital with a well-capitalized, cornerstone investor.'
CAPREIT initially entered Europe in 2014 with the launch of I-RES, a publicly listed entity in Ireland that currently owns over 2,600 multi-residential units.
'We always have indicated that CAPREIT ultimately would create a separate entity for our European multiresidential business,' said Michael Stein, chairman of CAPREIT. 'CAPREIT is very excited to now be joining with ECREIT to create a public vehicle that will not only allow CAPREIT’s and ECREIT’s existing unitholders, but also new unitholders, to invest in European multi-residential real estate. For CAPREIT’s unitholders, CAPREIT’s interest in ERES is expected to provide a larger, more direct and more diverse means to realize European multi-residential opportunities than could be possible within CAPREIT. The available opportunities in European multi-residential real estate are very significant.'
Multi-residential properties in many European countries share a number of the same investment attributes as in Canada, such as fragmented ownership, low vacancy, high demand and strong rental growth, but often to an even greater degree, he added. 'Europe also currently offers a more favourable spread between cap rates and debt financing rates than in Canada, which improves investment returns,' added Stein.
Upon closing, ECREIT’s existing management agreement with Maple Knoll Capital in Germany and Belgium will be terminated and the company will enter into a new asset and property management agreement with CAPREIT.
ECREIT’s CEO, Phillip Burns, will become an employee of CAPREIT and will remain as CEO.