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DALLAS-Behringer Harvard REIT I has secured a $1.4-billion definitive agreement to buy Toronto-based IPC US REIT and its portfolio of 35 class A office buildings in the states. The deal, slated to close in late October or early November, breaks down to about $600 million in equity and $800 million of assumed debt.

The IPC REIT started to shop itself in January. The press release about the agreement was issued late yesterday. The IPC REIT release says its board of trustees unanimously agreed to the buy-out and will recommend approval to unit holders, who will meet in mid-October to vote on the offer.

The agreement builds in a “go-shop” clause, which expires Sept. 30. There is a $6-million breakup fee if the seller’s board changes its mind or takes a superior offer. Behringer Harvard also has the right to match any other deal that goes on the table. After Sept. 30, IPC REIT is free to respond to any unsolicited proposals, but is subject to a $12-million breakup fee.

The Canadian REIT’s portfolio is weighted with assets in CBDs or top-ranked submarkets like Houston’s Galleria, where it owns the 574,812-sf Loop Central at 4848 Loop Central Dr. and its only one in Texas since April’s sale of the843,728-sf 2100 Ross Ave. in Downtown Dallas. It also owns properties in Florida, Kansas, Kentucky, Louisiana, Massachusetts, Maryland, Nevada, New Hampshire, New Jersey, New York, Ohio, Pennsylvania and Tennessee.

When the deal closes, IPC REIT units will be redeemed for $9.75 per unit in cash plus receive any unpaid distributions and $0.0667 per unit on a prorated basis contingent upon the number of days that have elapsed in the month of the closing.

RBC Capital Markets and Banc of America Securities Canada Co. were IPC REIT’s financial advisers, which labeled the transaction as “fair from a financial point of view.” Additionally, PRF Holdings Inc., an entity owned by Paul Reichmann family and owner of a 13% economic interest, has indicated support and agreed to sell its interest at the same price per unit as other unit holders, according to the IPC REIT’s release.

“The transaction announced today represents fair value for unit holders while providing certainty that the transaction can be completed in the near term with a respected buyer that has demonstrated the financial means and capability to complete the transaction”, said the Hon. Donald S. Macdonald, board chairman. He added that the board reviewed several proposals and “strategic alternatives,” including remaining an independent publicly traded REIT, as part of its due diligence. “We have concluded that the Behringer Harvard offer represents the best alternative for unit holders,” he said.

The market run had attracted “a significant level of interest,” said Gary Goodman, IPC’s president and CEO. The “go-shop process” was a key point since it “will provide an opportunity for any other interested party to come forward,” he said.

In weighing the decision to continue as a publicly traded REIT, the conclusion was it was hampered in its ability to operate and pursue growth opportunities due to “current real estate valuations, rising borrowing rates and tightening credit market conditions, which have made it more challenging to find suitable accretive acquisitions.” Other challenges were the REIT’s “relative high cost of equity capital” in comparison to other buyers of US properties and the fact that its current annual distribution rate of 80 cents per unit exceeds adjusted funds from operations, according to the press release.

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