Q: What is the proposed transaction with Starwood?
A: The proposed transaction is a going private transaction in which US$16.15 is being paid for every Unit, Class B Unit, Option (net of the exercise price) and Deferred Trust Unit. Pursuant to the Acquisition Agreement, among other things, (i) the Purchaser will acquire all of the REIT’s right, title and interest (legal and beneficial) in and to all of the assets of the REIT; (ii) the Partnership Merger Sub will merge with and into MMI LP and Class B Units will be converted into the right of the holders of such Class B Units to receive a cash payment equal to the amount of US$16.15 per Class B Unit; (iii) the REIT will purchase for a cash payment of US$16.15 per Unit the outstanding Options for cancellation (net of the exercise price) and settle all Deferred Trust Units in cash; (iv) all Units will be redeemed at a price of US$16.15 per Unit; and (v) the REIT will be terminated. For more information, see “The Transaction” in the Information Circular and the full copy of the Acquisition Agreement, which has been filed by the REIT on SEDAR at www.sedar.com.
Q: Was a Special Committee formed to examine the Transaction?
A: Yes. On November 10, 2016, the Board resolved to form a special committee of independent non-management Trustees (comprising of all Trustees other than the REIT’s Chief Executive Officer, Robert P. Landin) to consider, examine, evaluate and negotiate (or supervise the negotiation of) any going private transaction proposed by Starwood or others. For more information, see “Background to the Transaction – Background to the Transaction” in the Information Circular.
Q: What are the market uncertainties you point to?
A: There are a number of factors beyond our control that make the future increasingly uncertain:
- According to Green Street Advisors, an industry leader in independent U.S. real estate research, multifamily rental rate growth has started to decelerate, which could negatively impact the REIT’s ability to continue to increase rental rates and ROI.
- Capitalization rates are likely to expand amid a rising interest rate environment, which could negatively impact the REIT’s valuation, cost of capital, and ability to continue to grow accretively.
- Certain factors in the REIT’s markets that have been better than the national average since the REIT’s IPO, including payroll growth, are forecasted to decrease to be closer to the national averages, also potentially slowing the REIT’s growth.
- The REIT has benefitted from an appreciation of the U.S. dollar relative to the Canadian dollar but, according to the median forecast data compiled by Bloomberg, that trend is expected to continue to reverse, which could negatively impact unitholders’ Canadian dollar denominated investment in the REIT. The Starwood offer is an opportunity for Unitholders to maximize value amid market uncertainties.
Q: What were the Special Committee’s reasons for recommending the Transaction?
A: The Special Committee considered a number of factors in arriving at its determinations and recommendation to vote FOR the Transaction Resolution. Such factors include, but are not limited to: (i) that the Transaction reflects an attractive value for the REIT; (ii) that the all-cash US$16.15 price per Unit offers certainty of liquidity and removes the risks associated with the continued ownership of Units; (iii) that the future outlook for public real estate issuers is uncertain; (iv) that Starwood is a credible and reputable investment firm that has a history of executing on large transactions such as this; (v) that the Transaction is compelling relative to alternatives; (vi) that the REIT has the ability to respond to Superior Proposals; (vii) that the Purchaser is obligated to pay the REIT a US$100 million termination fee in certain circumstances; (viii) the Fairness Opinions, which indicate that the consideration to be received by Unitholders pursuant to the Transaction is fair, from a financial point of view, to Unitholders; (ix) the Support and Voting Agreements, pursuant to which the Supporting Unitholders who collectively beneficially own less than 1% of the outstanding Units and 14% of the outstanding fully-diluted Units (including non-voting Class B Units, Options and Deferred Trust Units), have agreed to vote their Units FOR the Transaction; (x) the tax efficient structure of the Transaction; (xi) the required Unitholder approval; (xii) the Special Committee’s belief that the terms and conditions of the Acquisition Agreement are reasonable; (xiii) the continued payment of the REIT’s monthly distribution in the ordinary course of business consistent with past practice through and until the Closing; (xiv) the payment of the Transaction consideration in U.S. dollars; and (xv) the interests of the REIT’s other securityholders. The Special Committee also identified and considered potentially negative factors to be balanced against the positive factors listed above but, on balance, unanimously determined that the Transaction was in the best interests of the REIT and is fair its Unitholders. For more information, see “Background to the Transaction – Reasons for the Recommendation” and “Risk Factors” in the Information Circular.
Q: How does the premium that is being offered compare to other similar transactions?
A: Based on confirmed pricing data from Real Capital Analytics, Starwood’s offer price of US$120,000 per apartment unit also represents an approximate 10% premium to all individual asset sale transactions of garden style apartments over the last 24 months with a minimum of 100 units, of similar age to the REIT’s apartments and in the same markets. Additionally, the Starwood Offer is consistent with share price premiums for recent comparable North American multifamily M&A transactions, as demonstrated below:
Q: Was the transaction structured efficiently from a tax perspective?
A: Yes. The transaction has been structured to result in Unitholders being taxed at capital gains rates and without incurring U.S. or Canadian withholding tax. For more information, see “Certain Canadian Federal Income Tax Considerations” and “Certain U.S. Federal Income Tax Considerations” in the Information Circular.
Q: What am I being asked to approve at the meeting?
A: At the meeting, Unitholders will be asked to consider and vote on the approval of the Transaction Resolution, the full text of which is set forth in Schedule “B” of the Information Circular, which approves certain transactions contemplated in the Acquisition Agreement including, without limitation, the: (i) sale of all of the assets of the REIT to the Purchaser; (ii) redemption of all of the outstanding Units as described in and in accordance with, the proposed amendments to the Declaration of Trust set forth in Schedule “B” to the Information Circular; and (iii) termination of the REIT. For more information, see “The Transaction” in the Information Circular.
Q: As a Unitholder of the REIT, what will I receive as a result of the completion of the transaction?
A: Unitholders will receive, for each Unit they own, US$16.15 per Unit in cash. All payments to be made pursuant to the Acquisition Agreement will be made in U.S. dollars; provided however, that Unitholders will have an opportunity to elect to instead receive the Canadian dollar equivalent, determined as of the date of such exchange and redemption from the Redemption and Exchange Agent of their REIT Consideration pursuant certain terms and conditions. For more information, see “The Transaction” in the Information Circular.
Q: Are management’s interests aligned with Unitholders?
A: Yes. Management’s interests are aligned with those of Unitholders. The REIT’s CEO, together with other senior management, own or control an approximate 13% interest in the REIT (including non-voting Class B Units, Options and Deferred Trust Units) and will not have continuing roles with the new company following closing.
Q: Was there a fairness opinion relating to the Transaction prepared for the Special Committee?
A: Yes. Each of BMO Capital Markets and National Bank Financial Inc. prepared fairness opinions for the Special Committee in exchange for fees that were paid at the time that the Acquisition Agreement was entered into. National Bank Financial Inc. was engaged to provide an independent fairness opinion and was paid a fee for the delivery of its fairness opinion regardless of its conclusion that was not contingent in any respect on the successful completion of the Transaction. BMO Capital Markets will also receive fees for its advisory services, a substantial portion of which is contingent on the completion of the Transaction. Each fairness opinion concluded that the consideration payable pursuant to the Transaction is fair from a financial point of view to Unitholders. For more information, see “Matters to be Considered at the Meeting: the Transaction – Fairness Opinions” in the Information Circular.
Q: How do the Trustees and executive officers intend to vote their Units in respect of the Transaction Resolution?
A: All of the Trustees and executive officers of the REIT who own Units have agreed in separate Support and Voting Agreements to vote the Units that they beneficially own “FOR” the approval of the Transaction Resolution. For more information, see “Support and Voting Agreements” in the Information Circular.
Q: When do you expect the transaction to be completed?
A: The REIT is working toward completing the transaction as quickly as possible and currently anticipates that the transaction will be completed early in the second quarter of 2017. Completion of the transaction is subject to, and may be delayed by, satisfaction of certain customary conditions. For more information, see “The Acquisition Agreement – Closing Conditions” in the Information Circular.
Q: Will the REIT continue to pay distributions prior to the effective time of the Transaction?
A: As permitted by the Acquisition Agreement, the REIT expects to continue paying its monthly distributions of US$0.05041 per Unit in the ordinary course of business consistent with past practice through and until the Closing. For more information, see “Information Concerning the REIT – Distribution Policy” in the Information Circular.
Q: How do I vote?