The largest joint venture between US and Canadian real estate investment trusts (Reits) took full advantage of the US Reit Diversification and Empowerment Act (RIDEA) of 2007.
The transaction saw US Health Care Reit (HCN) and Canadian Chartwell Senior Housing Reit partner in a $952 million acquisition of 42 Canadian senior housing and care communities from Maestro Residences Retirement Funds.
It was the first acquisition of a Canadian senior care facility by a US Reit using a Ridea structure. It is expected to prompt more US-Canadian Reit cooperation.
Rod Davidge, a partner with Osler Hoskin & Harcourt who represented Chartwell said Reits had performed fantastically in Canada. I think we are starting to see more American names up here, he said.
RIDEA allows US Reits to own property and retain interest if the operating entity is held by a taxable Reit subsidiary and facilities are managed by an eligible independent contractor. Chartwell fit the bill for both requirements. Additionally, as it did not technically qualify as a Reit, it was able to operate facilities and generate rental income, unlike HCN.
Goodmans partner, and counsel to HCN, Jon Northup said one of the things Chartwell brought to the table was its ability to act as the independent manager of the facilities. HCN could not complete this transaction entirely on its own, he said.
HCN and Chartwell each purchased 50% of 39 of the communities and Chartwell alone bought the remaining three. Chartwell is manager for all of the communities.
HCN was able to finance its share of the transaction through its own credit facilities and cash-on-hand. Financing for indebted Chartwell was more complicated.
Chartwell raised $135 million in convertible unsecured subordinated bonds, used to redeem previous convertible debentures and pay off some debt. A public offering of subscription receipts grossed another $204 million used to purchase the facilities. The offerings were carried out on a bought-deal basis with RBC Capital Markets leading a syndicate of underwriters.
Davidge said some purchasers of subscription receipts raised normal equity and took the risk if it didnt close they would take the equity and use it another way.
Financing on the Chartwell side was further complicated by a requirement to get consent from the Canadian Mortgage and Housing Corporation, Davidge said.
The transaction received approvals from the Competition Bureau and Investment Canada. Chartwells status as manager of all of the properties is thought to have alleviated any possible concerns under the Investment Canada Act.
Osler Hoskin & Harcourt and Stikeman Elliot were counsel to Chartwell. Health Care Reit was represented by Goodmans, Sidley Austin, Arnold & Porter and Schumaker Loop & Kendrick. Fasken Martineau DuMoulin advised Maestro Residences Retirement Funds.