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Latest Update: Pure Multi-Family Agrees to Strategic Review Process, Explore Potential Sale

Move Follows Criticism of REIT's Board from Major Shareholder for Refusing to Negotiate with Florida Bidder's Unsolicited Offer
April 5, 2018
In the latest development late Thursday, Pure Multi-Family REIT's board agreed to initiate a formal process to explore the potential sale of the company. The process will be overseen by the special committee of the REIT's independent directors.

The decision to engage the special committee follows criticism from some unitholders following the board's decision to reject an unsolicited offer from Florida-based Electra America after Pure's board concluded the proposals do not fully value its multifamily portfolio and that other potential buyers are capable of paying a higher value.

"Research analysts widely support Pure Multi-Family’s decision to reject Electra’s proposals, highlighting they do not fully reflect the value inherent in the REIT’s high quality portfolio," the company said in a statement, which included supporting quotes from several research analyst reports.

Scotiabank and Farris Vaughan Wills & Murphy LLP are acting as financial and legal advisors to the REIT's special committee.

The decision by Pure's board came after Vision Capital, one of the largest shareholders of Pure Multi-Family REIT LP, issued a scathing release on Wednesday criticizing the Vancouver-based company for refusing to negotiate with a buyer making an unsolicited bid for all its units.

In a letter addressed to Fraser Berrill, a director and chair of the nominating and governance committee of the REIT, which is listed in Canada but invests in multifamily apartments in major U.S. Sun Belt markets, Vision accused the board of "entrenching management" and suggested the company is looking at "alternative paths" that would not serve shareholders.

The letter, released late Wednesday after markets had closed, is the latest escalation in the increasingly bitter battle that went public this week when Lake Park, FL-based Electra America, which is owned by a Tel Aviv listed company, went public saying it has been trying to take over the Canadian REIT since December 2017.

Electra, which together with its affiliates has acquired, operated and sold more than 150 multifamily communities representing more than 40,000 apartment units valued at more than US$3 billion, said that on March 26, 2018, it extended an offer to acquire 100 percent of the outstanding Class A units of Pure for an all-cash price per unit of US$7.59, representing a 24 percent premium to the last closing volume-weighted-average trading price on the TSX Venture Exchange.

Electra said the latest offer is a premium to what it was willing to pay on Dec. 12, 2017, but Pure has rejected the bid as inadequate.

Vision, which owns about 6 percent of Pure, supports the bid and issued a direct plea to shareholders.

"Our perspective on the Electra proposal reflects the interests of not only Vision, acting in its fiduciary capacity as manager of the Vision Funds, but what we believe is in the best interests of Pure and all of its unitholders, many of whom have contacted us on an unsolicited basis since the issuance of Electra's last press release that referenced Vision’s support for Electra’s latest offer," the company said. It added Vision has received other calls from institutional shareholders supporting the bid.

Bay St. analysts have suggested a higher price could be the result of the battle but Dean Wilkinson, an analyst with CIBC World Markets, encouraged the REIT to at least enter discussions with Electra.

"The offer is arguably earlier than we would have otherwise expected, but we surmise most investors would likely be amenable to such a transaction and, despite the REIT's current position as expressed by the special committee, would perhaps like to see a higher level of engagement with Electra in regards to such proposal," said Wilkinson, in a note to clients, prepared with his research staff. "Absent such engagement, we suspect there is a possibility that Electra could take its offer to the unitholders directly, although we believe the best outcome for all parties would be a negotiated agreement with board support."

Vision has hinted that Pure will likely seek an alternative to fend off the hostile bid from Electra.

"In our experience, boards wanting to entrench themselves often pursue and promote an alternative transaction that does not come in the form of an immediate premium to unitholders, but rather is structured as an acquisition or business combination that may include the issuance of dilutive equity and/or the purchase of assets at a marked up value, but that keeps some or all of management and the Board in place," said Vision.

"The Board is also duty-bound not to promote or seek out an alternative (dilutive) transaction at the expense of the prospect of an all-cash premium buy-out for existing unitholders."

Garry Marr, Toronto Market Reporter  CoStar Group   
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