City Office REIT to be taken private in near US$1.1 billion deal

A crane is seen at a condo development under construction as condo and office towers fill the downtown skyline in Vancouver on March 30, 2018. (Darryl Dyck / THE CANADIAN PRESS)

City Office REIT said on Thursday it has agreed to be taken private by MCME Carell, an affiliate of hedge fund Elliott Investment, in an all-cash deal valued at nearly US$1.1 billion, including the assumption of debt.

MCME Carell will acquire all the outstanding shares of the real estate company it does not already own for $7.00 per share, representing a 26 per cent premium to the stock’s last close.

Shares of City Office rose more than 24 per cent to $6.92 in morning trading, their highest since March 2023. They have risen 25 per cent since the start of the year.

“In light of a challenging environment for the office sector, this transaction delivers immediate and significant value to our shareholders,” CEO James Farrar said.

Morning Calm Management, another affiliate of MCME Carell, said the deal underscored its continued belief in the recovery of the office sector and its interest in acquiring high-quality office assets in strong growth markets.

The deal “provides a shorter timetable (for shareholders) to realizing $7/share of value, but obviously takes additional upside off the table,” said Robert Stevenson, analyst at financial advisory firm Janney Montgomery Scott.

Vancouver-based City Office owns and operates office properties mainly in Sun Belt markets. It owns about 54 office buildings in Dallas, Denver, Orlando and Phoenix among others.

A post-pandemic switch to hybrid and remote work models by companies knocked down demand for office spaces significantly below pre-pandemic levels and vacancy rates to historic lows.

At the same time, higher borrowing costs make it more expensive for builders to finance or re-finance their properties.

The deal, expected to close in the fourth quarter, is subject to certain agreements including among other things, the sale of the company’s Phoenix portfolio.

(Reporting by Abhinav Parmar in Bengaluru; Editing by Shailesh Kuber)