Student-housing colossus is born
Finally “a real deal” in a sector that’s been around locally for about 18 months.
That was the reaction Thursday when Dundee Acquisition Ltd., the country’s first special purpose acquisition company ( SPAC), agreed to a transaction with CHC Student Housing Corp. That deal, eight months in the making and which still has some hurdles to clear, comes a few weeks after another SPAC, INFOR Acquisition, announced a qualifying transaction with a unit of Element Financial.
“This is a good SPAC deal for the industry,” said Mark Hansen chief executive of CHC Student Housing. “Dundee has done a great job on showing that SPACs work and from Day 1 we have been big believers in purpose- built student housing.”
But Dundee’s deal is a different league from INFOR’s, thanks in large part to the series of transactions that will occur prior to the merger, all part of a plan to create the country’s first large- scale purpose- built student housing company.
Dundee, which raised $ 112.3 million in the early part of last year and which has spent the time since seeking an acquisition, is essentially buying CHC’s existing portfolio of 832 beds. Those beds are in four operating properties — all within one kilometre of four Canadian universities. Dundee will also buy 2,000 units in four properties that are in a limited partnership and which are managed by CHC.
But as part of a plan to bulk up the new company Dundee plans to acquire additional student hous- ing properties from various third-party vendors. Dundee will pay $ 60 million in cash for six of those properties and $ 110 million ( in cash and shares) for another six. Those 12 properties are in various stages of being acquired. In all $ 420 million ( including Dundee’s cash) will be spent on acquisitions.
The resulting company will own and manage up to 20 properties that are home to about 4,700 beds. The invest- or presentation filed Thursday indicates 3,078 beds (located in Ontario, Quebec and New Brunswick) will be fully owned. The rest, seven properties, all in Ontario, will be 50-per-cent owned.
“The deal is very complicated. When is the last time you saw 16 separate transactions close simultaneously into a single vehicle?” asked Jonathan Turnbull, Dundee’s managing director. That complexity, coupled with the desire to close the transaction, helps explain why no western Canadian properties are included.
For CHC, the transaction comes about 15 months after it planned a $100-million capital raise to help fund the $ 163.5- million purchase of nine properties that were home to 2,732 beds. But the TSX-V listed company couldn’t close the deal because of valuation: It wanted to price the shares at 17.6 times adjusted funds from operations — a level above the industry benchmarks. On Thursday’s deal, the multiple is 15.6 times — or three percentage points below the benchmarks.
Thursday’s news boosted CHC’s share price: The stock closed at $ 4.85, up $ 2.35 or no less than 94 per cent. In April 2015 it reached a high of $9.80.
The next stage in the process is for Dundee to file a non-offering prospectus that will explain the transaction and all the moving parts. Later it will file a management information circular prior to the shareholders’ meeting. If more than 50 per cent of the shareholders vote in favour, the deal goes ahead. Those who want out can vote to accept an estimated cash payment of $10.08 a share.
BIG BELIEVERS IN PURPOSE BUILT STUDENT HOUSING.