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CANADA
Deal Maker of the Year Awards 2013 WINNER - LORNE BURNS, FCA
DEAL: American Hotel Income Properties Reit has completed its initial public offering NAME: Lorne Burns, FCA COMPANY: KPMG POSITION: Partner, Audit TEL: +1 604 691 3144 EMAIL: lburns@kpmg.ca
BIO
Lorne Burns has assisted his clients in raising equity through several public offerings and other ventures through syndicated ownership structures for the past 20 years. He has served as the lead audit partner on several of the KPMG’s largest REOCs and REITs. Over the past two years, he has led KPMG’s Real Estate practice in achieving a dominant share of the Initial Public Offering of REIT securities in Canada. KPMG was the auditor of 11 of the past 16 IPOs in Canada and the tax advisor on two of those they did not audit. KPMG has been particularly known for its innovation in dealing with securities and tax challenges facing REITs as they simultaneously pursue an IPO and cross border investments.
Lorne has played several roles over his 31 years of experience with KPMG. From 1999 to 2003, Lorne served as a member of KPMG Canada’s Management Committee as the Chief Human Resources Officer, KPMG Canada. He was also a member of KPMG’s Global Human Resource Steering Group responsible for coordinating the strategic human resource initiatives for its global work force. From 2003 to 2009, Lorne was the Partner-in-Charge of KPMG’s Audit Practice in the Toronto. In that role, he was responsible for leading the activities of 58 Partners and 640 professional staff in providing audit and audit related services to our clients. In March 2011, he was
DEAL OVERVIEW
In February 2013, American Hotel income Properties REIT LP (“AHIP”) successfully completed its initial public offering of securities in Canada raising and immediately used the proceeds there from to acquire Lodging Enterprises Inc. (LE) of Wichita, Kansas for $127,500,000. The acquisition culminated a year- long pursuit effort by Rob O’Neill and his brother, John, the principals who founded Canadian Hotels Income Properties REIT in the mid-90s. LE operated a portfolio of limited service hotels across the United States focused primarily on serving the rail industry’s short term accommodation needs.
KPMG’s role in the transaction KPMG acted as the Auditor and Tax advisor to AHIP. KPMG played a key role in working with AHIP and its legal counsel to ensure that the relevant securities regulations were met and that its financial reporting was fairly presented. KPMG was also involved in providing tax advice to ensure that AHIP met the US REIT regulations and was efficiently structured so as to be attractive to Canadian investors. KPMG also worked jointly with counsel for the underwriters in providing both Canadian and US tax commentaries in the prospectus.
Q
What were the challenges or difficulties presented
As the principal business of AHIP post-closing of the IPO
was the legacy business of LE, LE was treated as the Issuer for the purposes of applying the securities rules for financial information included in the prospectus. This necessitated LE converting its financial statements for the past three years from US GAAP, its previous basis of reporting, to IFRS.
Neither
LE management nor its current auditors were conversant in reporting under IFRS. In addition, LE’s current auditors were not registered with either the Public Company Accountability Oversight Board or its Canadian equivalent, the Canadian Public Accountability Board.
As result, AHIP and LE management teams worked in collaboration to revise LE’s historical financial statements for the three prior years to be in accordance with IFRS. KPMG was then required to audit the revised financial statements for all years presented.
Q
What were the tax challenges or difficulties presented
AHIP encountered many challenges in the transaction as a result of being a complex cross-border structure involving US real estate. For example, AHIP had to carefully structure the asset ownership and operations to be in compliance with the US REIT rules. It also had to carefully navigate tax laws on both sides of the border to effectively manage the impact of the US
appointed National Industry Leader, Real Estate and Real Estate Leader for the Greater Vancouver Area.
Lorne obtained his Chartered Accountant designation in 1985 and was elected as a Fellow by the Institute of Chartered
Accountants of Ontario in 2009. The strength of our Real
Estate practice KPMG’s industry focus benefits our clients by addressing changing market dynamics with services that are tailored to meet their needs. We approach real estate as an industry and asset class. We recognize the issues unique to the industry and we continually focus on ways to help you compete, grow, and succeed. We have built one of the nation’s largest real estate practices, comprising audit, tax, and advisory professionals who focus exclusively on this industry. The result is an extensive knowledge and understanding of real estate investment assets, operations, and markets.
Our commitment to the real estate industry has enabled us to build a leadership position in the industry locally, nationally, and globally. We serve many of today’s real estate leaders.
Foreign Investment in Real Property Tax Act (FIRPTA), income tax on publicly traded partnerships and RRSP eligibility of equity interest held by its investors.
Q
How does the transaction fit in your overall business strategy
Prior to the recent wave of new public offerings, KPMG targeted the Real Estate industry for its potential to take advantage of that wave once it crested. In particular, close collaboration between various client, legal counsel and KPMG’s Canadian and US Tax specialists created new opportunities for US entities to pursue a public listing in Canada. In addition to AHIP, KPMG assisted Milestone Apartments REIT, Pure Multi Family REIT LP and WPT Industrial REIT in their successful completion of their Canada/US cross border IPOs. Other Canadian IPOs over the past 18 months have included Agellan Commercial Real Estate Investment Trust, HealthLease Properties Real Estate Investment Trust, Choice Properties Real Estate Investment Trust, FAM Real Estate Investment Trust, Regal Lifestyle Communities Inc., and Northwest Healthcare Properties Real Estate Investment Trust.
KPMG has achieved a dominant
market share having been the auditor of 11 of the previous 17 REIT IPOs in Canada and the tax advisor on 2 of those that it did not audit.
What are your plans following the transaction The current market for REIT IPOs is very soft.
Q The same
conditions applied when we initiated our focus on real estate IPOs. As a result, we will be patient and remain poised to assist new REIT candidates when capital markets improve. In the meantime, we are exploring other financing options as a means to support the growth of our clients.
With every successful IPO, a new entity emerges and moves forward. For example, AHIP has already completed a follow on financing in November 2013 and the acquisition of additional properties. It has plans to continue to pursue additional acquisitions in the near future. We intend to do all we can within our role to encourage their continued success. The same can be said for the other REIT IPOs with which we have been associated.
What are your thoughts and predictions for 2014 and beyond. The access to equity capital for REITs will return in 2014 although not to the frothy extent that we saw in 2012 and the first half of 2013. IPO activity will likely be fairly limited with only the highest quality and larger real estate offerings coming to market. REITs lacking in scale and/or geographic diversification may become attractive consolidation targets. For those REITS that survive, there will be an increased focus on creating growth by adding value within their existing portfolios rather than relying on accretive acquisitions as in the past two years.