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A Vancouver-based office-focused REIT operating in U.S. Sun Belt markets has agreed to sell to an affiliate of Elliott Investment in a USD 1.1 billion all-cash transaction that includes debt. Shareholders are offered USD 7.00 per share roughly a 26% premium over recent trading levels which triggered a more than 24% jump in share price. The takeover hinges on approval and sale of its Phoenix portfolio and is expected to wrap by late this year. Stakeholder confidence is pegged on a hoped-for recovery in the challenged office sector.
City Office REIT, headquartered in Vancouver and holding roughly 5.4 million sq ft of office assets across U.S. Sun Belt cities such as Dallas, Denver, Orlando and Phoenix, has agreed to be taken private by MCME Carell, an affiliate of Elliott Investment and Morning Calm Management, for approximately USD 1.1 billion including assumed debt. Advertisement
MCME Carell will acquire all remaining outstanding shares for USD 7.00 each in cash, representing a roughly 26% premium over the REIT's last share price. On the back of that announcement, City Office's stock surged over 24% in pre-market trading, reaching levels unseen since early 2023.
City Office's chief executive James Farrar noted the deal "delivers immediate and significant value" for shareholders amid a difficult climate for office real estate, affected by weak demand due to remote and hybrid work models and historically high borrowing costs. Morning Calm Management emphasized that the transaction reflects its belief in a pending rebound for office properties and strategic interest in strong markets.
Completion of the takeover, slated for later this year, depends on shareholder and regulatory approvals, and critically the divestiture of the Phoenix asset portfolio. Fund-holders of 6.625% Series A cumulative preferred shares will receive USD 25 per share plus any unpaid distributions; the company will suspend future common stock dividends after distributing the second-quarter payout.
Analyst Robert Stevenson from Janney Montgomery Scott commented that the agreement offers shareholders a faster route to realise USD 7/share value, though at the expense of any further upside potential.
City Office, which owns about 54 buildings in growing U.S. Sun Belt metros, has seen rising vacancy rates and financing pressures since the pandemic. Metrics allow vacancy rates to climb near record levels almost 21% in Q2 and delinquent commercial mortgage-backed securities tied to office buildings have reached historic highs, adding strain to the sector.
Financial and legal advisors on the deal include Raymond James & Associates and JLL Securities for the seller; Eastdil Secured for the buyer; and legal counsel provided by DLA Piper, Hogan Lovells, and Gibson Dunn & Crutcher among others.
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