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CHP.UN Acquiring REF.UN

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  • May 10th, 2018 10:08 pm
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[OP]
Deal Addict
Nov 9, 2013
4065 posts
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Edmonton, AB

CHP.UN Acquiring REF.UN

This morning I read that Choice Properties (CHP.UN) - the REIT run by the Weston Family (of GWL / Loblaw's fame) - is acquiring Canadian REIT (REF.UN) for a cash / share deal that works out to $53.61 / share ( a ~ 23% premium over yesterday's close). As of writing REF.UN's share price is $51.25.

I'm a share holder of REF.UN, but not CHP.UN. I have two options - get cash (i.e. sell now or wait until deal closes and get $53.75 or get 4.2835 units of CHP.UN for each REF.UN unit I hold).

Looking at CHP.UN it's been around since ~2014 and the aFFO has been growing with time. The distribution has also been growing and the overall yield is higher than REF.UN. However I think they carry quite a bit more debt and are raising debt to finance this acquisition. I don't know what the metric is for either company at present, but at close after acquisition CHP.UN will carry a debt / ebitda of ~ 8X and and a debt to total assets of 0.45.

For shareholders of either company, what do you guys think of the deal?
Keep calm and go long
40 replies
Deal Addict
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May 25, 2008
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Toronto
I'm a long term holder of CREIT and not happy to see it go (15%+annualized returns + growing dividend). That said, the bump in price is nice. I haven't looked at the options in detail, but if available, i will go for the $53.75 rather than shares as I agree with you that the debt with CHP.UN looks scary.
Newbie
Nov 2, 2013
15 posts
1 upvote
Hamilton, ON
Despite this morning's pop, I am curious why CREIT is currently trading at $50.84, which is approx $2.90 below the per unit buyout price of $53.75?

Is the risk of the deal falling through that high?
Sr. Member
Mar 8, 2004
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Now trading at 49.92. It is interesting why there is such a gap from the transaction price.
Deal Fanatic
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Oct 9, 2008
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Thornhill
Gabriella wrote: Now trading at 49.92. It is interesting why there is such a gap from the transaction price.
That's not a bad premium at all to be honest if you have CAD sitting around. The risk is of course that the vote doesn't get approved but one can potentially net 7.3% (@ current $49.96) by second quarter 2018 if one deems the risk low.

"In addition to unit-holder and court approvals, the transaction is subject to compliance with the Competition Act and certain other closing conditions customary in transactions of this nature. Choice Properties and CREIT anticipate that the transaction will be completed in the second quarter of 2018."

http://www.choicereit.ca/English/news-a ... fault.aspx
[OP]
Deal Addict
Nov 9, 2013
4065 posts
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Edmonton, AB
Jeenyus1 wrote: That's not a bad premium at all to be honest if you have CAD sitting around. The risk is of course that the vote doesn't get approved but one can potentially net 7.3% (@ current $49.96) by second quarter 2018 if one deems the risk low.

"In addition to unit-holder and court approvals, the transaction is subject to compliance with the Competition Act and certain other closing conditions customary in transactions of this nature. Choice Properties and CREIT anticipate that the transaction will be completed in the second quarter of 2018."

http://www.choicereit.ca/English/news-a ... fault.aspx
You are right it is an interesting arb opportunity - you can also collect the monthly distribution while you wait for close.
Keep calm and go long
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Oct 9, 2008
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treva84 wrote: You are right it is an interesting arb opportunity - you can also collect the monthly distribution while you wait for close.
You might event squeeze out a tiny bit more premium if you wait for the next dividend.
Deal Addict
Dec 28, 2007
1028 posts
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From the news release:
CREIT will then redeem all of its outstanding units for an aggregate of $22.50 in cash and 2.4904 Choice Properties units per CREIT unit, on a fully prorated basis.
So the value of a REF.un unit depends on the price of CHP.un, which is down 5.5% today.
[OP]
Deal Addict
Nov 9, 2013
4065 posts
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Edmonton, AB
JUnit wrote: From the news release:



So the value of a REF.un unit depends on the price of CHP.un, which is down 5.5% today.
Near the bottom of the release (after what you mention above) they say -
CREIT unitholders will have the ability to choose whether to receive $53.75 in cash or 4.2835 Choice Properties units for each CREIT unit held, subject to proration.
As you point out, the value of each is interdependent - at time of writing REF.UN is down to 49.12. Divide this by 4.2835 and you get $11.47. At time of writing CHP.UN is 11.85.
Keep calm and go long
Newbie
Nov 2, 2013
15 posts
1 upvote
Hamilton, ON
"CREIT unitholders will have the ability to choose whether to receive $53.75 in cash or 4.2835 Choice Properties units for each CREIT unit held, subject to proration. "

If CREIT unitholders have the option of redeeming their shares for $53.74 in cash, then I don't see how the current price of CREIT would be affected by the price of CHP.UN. Thoughts?
Deal Addict
Dec 28, 2007
1028 posts
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yakadayaka wrote: "CREIT unitholders will have the ability to choose whether to receive $53.75 in cash or 4.2835 Choice Properties units for each CREIT unit held, subject to proration. "

If CREIT unitholders have the option of redeeming their shares for $53.74 in cash, then I don't see how the current price of CREIT would be affected by the price of CHP.UN. Thoughts?
Like you said, proration would be one factor. Another would be arbitrage between CHP.un and REF.un units. e.g. if REF.un/4.2835 is cheaper than CHP.un, one could profit by shorting CHP.un and buying REF.un, then waiting for the REF.un to convert to CHP.un to close the position. (The different distribution rate between each REIT would also need to be taken into account.)
Deal Addict
Mar 10, 2011
2314 posts
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Toronto
Any further thoughts on this now that the deadline is looming? Will probably take the cash and look for a different REIT.
[OP]
Deal Addict
Nov 9, 2013
4065 posts
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Edmonton, AB
Biff88 wrote: Any further thoughts on this now that the deadline is looming? Will probably take the cash and look for a different REIT.
I think this is what I'll be doing as well.
Keep calm and go long
Deal Fanatic
Dec 6, 2006
5200 posts
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Toronto
Biff88 wrote: Any further thoughts on this now that the deadline is looming? Will probably take the cash and look for a different REIT.
treva84 wrote: I think this is what I'll be doing as well.
Holding REF.un as well. So what do I need to do to get the $53 cash option?
[OP]
Deal Addict
Nov 9, 2013
4065 posts
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Edmonton, AB
I think you just basically wait for shareholders to approve the deal, and then when your broker asks you, you take the cash rather than the shares.
Keep calm and go long
Deal Addict
Mar 10, 2011
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Toronto
My discount broker sent me a letter with the 2 options and to call in with my election. Option 1 was Cash, Option 2 was Choice properties units. The default was option 1 if no election was made. Not sure if this is the case for everybody though. You should have received something from your broker.
[OP]
Deal Addict
Nov 9, 2013
4065 posts
3928 upvotes
Edmonton, AB
Biff88 wrote: My discount broker sent me a letter with the 2 options and to call in with my election. Option 1 was Cash, Option 2 was Choice properties units. The default was option 1 if no election was made. Not sure if this is the case for everybody though. You should have received something from your broker.
Yes, I received this letter today as well.
Keep calm and go long
Member
Aug 20, 2016
390 posts
339 upvotes
Take the Choice stock.
It is a reit it will have debt.
The weston family ie shoppers, loblaws, no frills, weston bakeries.
The reit is affected by rising interest rates.
Do you think loblaws, shoppers is going out of business?
[OP]
Deal Addict
Nov 9, 2013
4065 posts
3928 upvotes
Edmonton, AB
isd9999 wrote: Take the Choice stock.
It is a reit it will have debt.
The weston family ie shoppers, loblaws, no frills, weston bakeries.
The reit is affected by rising interest rates.
Do you think loblaws, shoppers is going out of business?
Personally I think the market doesn't like the merger and the shares will move lower after the acquisition.

Even right now you can buy REF.UN at an ~8% discount to the take over price, which implies that the market is betting the shareholders will vote it down.

If CHP.UN moves substantially lower then I'll consider buying. Otherwise I'll take the cash and then figure out where to re-deploy it.
Keep calm and go long

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