Back in that magical year of 2016, I revealed to y’all that Dream Office REIT was, the largest holding in my TFSA. It alone made up approximately 31% of all assets in my special tax-free fund, or about an 8% total weighting in my portfolio.
I liked Dream because it was stuffed with what I thought was undervalued assets. When the shares dipped below $15 and net asset value was close to $30, I backed up the proverbial truck. NAV was subsequently wrote down to $22, which I thought was a little aggressive. I figured the trust’s true NAV was closer to $25.
Management has been busy in the last year and a half. They ended up selling much of the company’s portfolio, raising a tonne of cash in the process. The proceeds will be used to pay down debt, purchase other assets, and, most importantly for the purposes of this blog post, the company will do a big share buyback.
The rules of this share buyback are relatively simple. Dream has offered to buy 24.444444 million shares from current shareholders for $440 million. It will pay anywhere from $18 to $21 a share. What investors who are interested in selling have to do is tell their broker they’d like to tender their shares to Dream’s offer.
Here’s how you do that.
The Tender Process
I’m not even sure why I’m writing this blog post, to be honest. Tendering your shares is really easy.
First of all, any company who is going through the tender process will send you the full offer. Spend a little time and read it, but most of the important information will be on the very first page. It’ll tell you the price offered, the total number of shares that’ll be purchased, and so on.
Most tenders are pretty straightforward. The company offers to buy x number of shares for y price. Y is often a range, like with Dream, but it can also be a single amount. If too many shareholders say yes to the offer, then you’ll only sell a pro-rated amount. If it’s a range of values and the company buys the whole allotment at a level below your asking price, you’ll get nothing.
Odd Lot Tenders
One thing of note are odd-lot tenders. If you own an odd number of shares (anything not in equal increments of 100), then you’ll often get first dibs. A provision will be put in the offer saying that all odd-lot tenders will be filled first.
In certain situations, this is an easy way to make some guaranteed money. A couple of years ago, a company called Tier REIT did a tender offer. Shares were trading at $17.50 each. The offer was between $19 and $21 per share, with the guarantee odd-lot tenders would be processed first. So I did what any rational person would do — I bought 99 shares in both my accounts, tendered at $19, and pocketed the guaranteed $300.
The Dream Office tender also guarantees all odd-lot purchases will be filled first. The problem is setting your price. Shares trade hands at $19.40 as I type this. It’s likely people aren’t going to tender for anything under $19.50. But still, where do you set your price? Do you go for the full $21 and maximize your profit? Or do you take the conservative route and go for $20? Or even $19.75? Is such a trade even worth it for $50?
Why am I Tendering?
It’s pretty simple, really. The strategy is to lock in $21 per share today and then buy back at $19.50 or so. I may also decide to move on from Dream, since the dividend going forward is only going to be $1 a share annually. Remember, it was $2.25 annually a couple of years ago. $2.25 was too high, and $1 is probably too low.
$21 will also be a nice ~50% gain on my investment, not including the dividend. I’ve done well on it.
How to Tender
I can only speak of how to tender your shares using Questrade and Qtrade, the two brokers I use. Although the process is likely very similar with every other broker.
Questrade has a really easy system. First you go to My Questrade, and then click on requests. Then you hit corporate actions and fill out the form. Mine looks like this:
That’s some high quality account number removin!
It’s a tad bit more difficult if you’re doing this using QTrade. You have to physically call in and talk to someone. I can attest that at least once I’ve talked to someone who had no idea the tender offer existed, which is hella annoying. It’s usually a pretty painless process though.
And that’s it. You’re done. The tender process is easy.