10 LEXPERT MAGAZINE
|
MARCH 2016
UP FRONT
LEXPERT: is deal was about getting that
elusive recognition as a "pure play." By un-
loading its properties, Fortis could refocus
on utilities. And by bulking up on office
assets, Slate, which used to be called FAM
REIT, could cement its status as a specialty
office REIT. So who made the first move?
Jim Reid (Davies Ward Phillips & Vineberg
LLP, for Fortis): It started with Fortis an-
nouncing in September 2014 that it was
going to conduct a strategic review of the
hotel and commercial real estate business
owned by its subsidiary, Fortis Properties.
All options were on the table, including a
sale of shares or assets or an IPO. Incoming
CEO Barry Perry was focused on building
on the strength of Fortis's core business in
regulated electric and gas utilities. Owning
and operating a real estate portfolio no lon-
ger fit with the business strategy.
Gabriella Lombardi (Davies): We looked at
selling the entire portfolio in a single deal,
but hotels and office buildings are distinct
asset classes that attract different buyers.
LEXPERT: And that's where Slate comes
into the picture, right?
John Currie (McCarthy Tétrault LLP, for
Slate Office REIT): e transaction was
a great representation of Slate's strategic
repositioning and focus on office assets.
e portfolio comprises some of Atlan-
tic Canada's highest-quality commercial
buildings, which are flagship properties in
their respective markets. It nearly doubled
the REIT's asset base.
Lombardi: Once Slate signaled its interest to
expand its office footprint, this deal came
together very quickly. A letter of intent was
signed and the legal deal teams got to work
negotiating the purchase agreement.
LEXPERT: Were there any other key drivers
behind this deal, besides just a refocusing of
the respective businesses?
Reid: For Fortis, this was a strategic deci-
sion to sell non-core assets that amounted
to 3 per cent of its total assets. So, yes, this
reflected Fortis's strategy to focus its capital
Executing the Pure Play
expenditure plan on growing its core busi-
ness and diversifying its asset base in the
regulated utility and energy infrastructure
space. e objective of the deal was to max-
imize value and sell on an expedited basis.
Jonathan See (McCarthy): Another key
driver involved the strategic partnerships
made by Slate. ere was a public offering
of subscription receipts of the
REIT with
a syndicate of underwriters, co-led by TD
Securities and BMO Capital Markets; two
bank facilities; a $35-million private place-
ment of REIT units to Fortis Inc.; and co-
ownership of three of the properties with a
Canadian institutional real estate fund.
LEXPERT: Dentons represented this insti-
tutional investor, correct?
Jillian Shortt (Dentons Canada LLP, for an
undisclosed investor): Our team was heav-
ily involved on behalf of our client, who en-
tered into a co-ownership agreement with
Slate for a number of the properties, from
about a month before closing.
LEXPERT: Lots of players in this one. Is it
fair to say that all sides were highly motivat-
ed, and if so, did that speed up the process?
Lombardi: Both sides were highly motivat-
ed — Fortis wanted to exit the commercial
real estate business, and Slate wanted to ex-
pand its holdings in Canada.
Shortt: e vendor, the purchasers and the
lenders were all motivated to get the deal
across the finish line. at not only sped up
the process but helped the parties get all of
the sale documentation and the co-owner
and financing documentation settled fairly
smoothly and very quickly.
LEXPERT: Generally speaking, are compa-
nies refocusing and moving toward pure
plays more oen these days as the economy
slumps and public companies look to in-
spire investor confidence?
One company's treasure is another company's 'non-core asset.'
INTERVIEW BY DAVID DIAS
John
Currie
McCarthy
Tétrault LLP
(for Slate
Office REIT)
James
Reid
Davies
Ward
Phillips
& Vineberg
LLP (for
Fortis Inc.)
Isabel
Henkelman
McCarthy
Tétrault LLP
(for Slate
Office REIT)
Jillian
Shortt
Dentons
Canada LLP
(for an
undisclosed
investor)
Jonathan
See
McCarthy
Tétrault LLP
(for Slate
Office REIT)
Gabriella
Lombardi
Davies
Ward Phillips
& Vineberg
LLP (for
Fortis Inc.)
Investors love focus. That was the idea behind the sale of an office real estate
portfolio by Fortis Inc., an energy utility. Slate Office
REIT, which had renamed
itself to focus on offices, was of a similar mind when they decided to buy.
ON THE DEAL
