Complex, Cross-Border REITs Deal Completed

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By Tim Kiladze

The deal team that worked feverishly on Chartwell Seniors Housing REIT’s (OTC:CWSRF)[TSE:CSH.UN] $930-million cross-border joint venture finally has time to breathe. After a five-month sprint, the deal has closed – on time.

Over the course of the transaction, which saw Chartwell team up with U.S.-based Health Care REIT (NYSE:HCN) to buy more than 8,000 Canadian seniors housing suites, the deal team amassed more than 5,000 closing documents, enough to fill four large boardrooms, and they had to create two new entities for every single property purchased.

The intricacy stems from marrying U.S. real estate investment trust rules, which govern Health Care REIT, and Canada’s mutual fund trust regulations, which apply to Chartwell. The key problem: under U.S. rules, Health Care can’t manage the properties; its income must be passive (i.e. rental income.)

There also haven’t been many cross-border joint ventures between REITs, other than a few one-off type deals. That means there weren’t many precedent transactions to examine.

“You can imagine the complexity in this,” said Chris Murray, a partner at Osler, Hoskin & Harcourt LLP, who was Chartwell’s legal advisor. (RBC Dominion Securities advised on financial matters.)

To make the structure work, Chartwell and Health Care each took half the properties, most of which are located in Quebec and Ontario, but Chartwell took sole responsibility for managing them.

Still, even after that issue was resolved, the deal team had to co-ordinate a bought deal of subscription receipts and convertible debentures, as well as put together a backup bridge facility in case the deal didn’t close on time. (Remember that subscription receipts have a fixed end date on them.)

In the end, they pulled it off, and the closing date perfectly matched the expected close that was announced in the original press release.

Will more deals like this emerge? Mr. Murray said he expects more U.S. REITs to look north into Canada. And the cross-border activity has already picked up. Big players such as RioCan Real Estate Investment (OTCPK:RIOCF)[TSE:REI.UN] have been shopping south of the border for some time, and the most recent IPO, for HealthLease, is a cross-border deal.

REITs. There’s just no stopping them.

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