City Office REIT (CIO-N) has a definitive agreement to merge with two entities of U.S.-based MCME Carell and be taken private in a deal which values the Vancouver-based office properties owner at approximately $1.1 billion (all figures US).

Under the terms of the all-cash deal, MCME Carell Holdings, LP and MCME Carell Holdings, LLC are to acquire all of the issued and outstanding shares of City Office for $7 per share.

City Office REIT is an internally-managed real estate investment trust which owns and operates a 5.4 million-square-foot portfolio of office properties located predominantly in U.S. Sun Belt markets.

"After conducting an extensive process to explore potential strategic alternatives, we are pleased to have reached an agreement with MCME Carell," James Farrar, City Office's chief executive officer, said in the announcement Thursday morning. "In light of a challenging environment for the office sector, this transaction delivers immediate and significant value to our shareholders."

The transaction price represents a premium of 26 per cent to City Office's common stock closing share price on the NYSE Wednesday, and a 39 per cent premium to the volume weighted average share price on the NYSE over the previous 90 days.

City Office REIT's buyers

MCME Carell is an affiliate of Elliott Investment Management L.P. and Morning Calm Management, LLC.

Elliott Investment Management L.P. is a multi-strategy investment manager and one of the oldest funds of its kind under continuous management. As of Dec. 31, Elliott managed approximately $72.7 billion in assets.

Morning Calm Management, LLC is an investment and management firm focused on special situation investing and commercial real estate credit. It owns approximately 10 million square feet of commercial real estate on behalf of institutional and private capital and manages investment strategies across the real estate capital structure.  

Both Elliott and Morning Calm are based in Florida.

"We are pleased to have reached an agreement with City Office to effectuate this transaction. This opportunity underscores our partnership's continued belief in the recovery of the office sector and our interest in acquiring high-quality office assets in strong growth markets," said Mukang Cho, chief executive officer of Morning Calm Management, LLC, in the announcement.

Upon the closing, holders of City Office’s 6.625 per cent Series A Cumulative Preferred Stock will receive cash equal to $25 per share, plus all accrued and unpaid distributions. 

Financial details of the transaction

The $1.1 billion transaction value includes the assumption of indebtedness, the redemption of the company's issued and outstanding preferred stock, and the sale of the company's Phoenix portfolio. 

The transaction remains subject to standard closing conditions, and is scheduled to close in Q4.

City Office will pay its Q2 dividend today (July 24) but will suspend future quarterly common stock dividends. City Office will continue to pay regular quarterly dividends on its Series A Cumulative Preferred Stock.

The REIT does not plan to host a conference call to discuss its financial results for the quarter ended June 30, but expects to announce earnings before the market opens on July 31.

Raymond James & Associates, Inc. and Jones Lang LaSalle Securities, LLC acted as City Office financial advisors. DLA Piper LLP (US) served as City Office's special M&A legal counsel, and Hogan Lovells US LLP served as corporate legal counsel. 

Eastdil Secured acted as the buyer's financial advisor, and Gibson Dunn & Crutcher LLP served as legal counsel.