‘Ottawa’ Foreign Investment in Real Estate Revs Up as InnVest Goes in Cash Deal
The weak loonie continues to drive Asian investors to the Canadian marketplace as the currency likely played some part in the recent purchase of InnVest Real Estate Investment Trust, which counts a stake in Toronto’s famed Fairmont Royal York among its holdings.
Bluesky Hotels and Resorts Inc., which describes itself as Canadian-based company backed by Hong Kong capital, will pay $2.1 billion, including net debt, to acquire Toronto-based InnVest which owns 109 hotels representing 14,5000 guest rooms along with a 50 per cent share of franchiser Choice Hotels Canada. It owns a 20 per cent stake in the Royal York.
Unitholders of InnVest will received $7.25 cash per unit which is a 37 per cent premium over its 30-day volume-weighted average price of $5.28. The deal, announced Tuesday night, has been unanimously supported by InnVest’s board and has the support of 29.1 per cent of unitholders, including KingSett Real Estate Growth LP No. 5.
“This transaction is a winning outcome for all stakeholders,” said Drew Coles, chief executive of InnVest, in a release. Coles and the rest of the management team have said they will be staying on under the new company. “Bluesky is aligned with InnVest’s strategic objectives for the portfolio, and I look forward to continuing to lead InnVest on the path of asset quality driven growth,” he said.
The deal continues a trend that has seen Asian money pour into the Canadian marketplace, looking for investment opportunities. In February, Anbang Insurance Group Co. Ltd., a Beijing-based company with a reported US$114 billion in assets, bought what amounts to a 66 per cent stake in Bentall Towers I, II, III and IV — a sprawling commercial 1.5-million-square-foot office complex, with some retail, in the heart of Vancouver.
Anbang was set to pay US$14 billion to buy Starwood Hotels and Resorts Inc. but ultimately walked away from the the deal March.
Bill Stone, the executive vice-president of CBRE hotels, said the appetite from Asia for hotels is still strong and made up about eight to nine per cent of the $2.3 billion in purchases in 2015, which was one of the best years on record for hotel investment in Canada.
“The dollar indirectly is a factor, from a hotel (operations) standpoint it has a direct impact on leisure travel. The fundamentals in the hotel space from an operating to a financing level are all so attractive. The market itself is firing on all cylinders,” Stone said.
HVS, which tracks the hotel industry in Canada, said this week that RevPAR — revenue per available room — hit record levels in 2015 of $92. It forecast that number to climb to $95 in 2016 and then $98 by 2017.
Stone said he expects Asian capital to be a driving and growing force in 2016 and Wednesday’s deal will ultimately skew the investment numbers from the region this year. “The numbers are going to grow dramatically. I just came back from Hong Kong a week and half ago and we can see the level of interest,” he said.
CBRE, which acts as a broker, said marketing has become a global effort as the firm looks to all corners of the world with growing demand for Canada in Europe. “People do see Canada as a safe place and safe haven,” Stone said.
Lennon Sweeting, a Toronto-based foreign exchange dealer with CanadianForex Ltd., said that when you see a significant drop in the Canadian dollar it always drives investors here.
“It encourages foreign investors and that can come through mergers and acquisition activity on the corporate sector, or we see an uptick in (residential) investment,” he said. “Canada has a hot real estate market and that’s been an ongoing theme, but with the drop in the Canadian dollar there is a lot of money coming into real estate.”
Sam Damiani, an analyst with TD Securities Inc., said in a note to investors that he understood the offer from Bluesky was unsolicited and InnVest had not been looking to sell.
“It is possible that a new competing offer may come. However, given what we see as a strong pricing implied by the Bluesky offer, we believe that a competing offer is unlikely,” Damiani said, adding that investors should tender to the offer.
The deal, which includes a $32 million break fee and gives Bluesky a right to match any offer, is expected to close in the third quarter of 2016.
Based on a statement from its chief executive, Bluesky appears set to grow the InnVest portfolio. “This transaction is an investment that will establish a global platform from which Bluesky will continue to pursue growth opportunities in North America,” Li Chen said.