The eight properties are spread throughout suburban Chicago and comprise approximately 314,000 square feet of gross leasable area. The deal represents a going-in capitalization rate of approximately 7.7 per cent.
“The REIT is excited to expand its presence in the Greater Chicago Area with this acquisition,” Agellan chief executive officer Frank Camenzuli said in a release detailing the transaction.
“The Chicago industrial market is the largest industrial market in the U.S. and the REIT expects to benefit from acquiring these high-quality U.S. industrial assets.”
Agellan says the properties are fully leased, and contain 17 tenants. The remaining weighted average lease term is 4.6 years. The tenants are diverse, and the largest single tenant occupies 14.3% of the gross leasable area of the properties.
Agellan says although the Chicago industrial market has experienced recent supply increases in the “big box distribution” sector, these properties offer differentiated products that have experienced consistent demand.
The release said Agellan expects the acquisitions to be “immediately accretive” to its adjusted funds from operations per unit.
Financing for the acquisitions will be done by drawing down Agellan’s operating credit facility and through arrangement of a first mortgage. The deal is expected to close prior to the end of the second quarter, and is subject to “certain closing conditions typical for a transaction of this type.”
Second major purchase
This is the second major purchase for Agellan in the past month. The REIT announced on April 26 the purchase of an industrial distribution facility in Flint, Mich. The $16-million transaction (before closing costs) includes 400,000 square feet of GLA, at a going-in capitalization rate of approximately 12 per cent.
The Flint facility is leased to General Motors LLC for slightly more than another four years. The purchase was financed via Agellan’s operating credit facility.
Agellan said the facility is located near GM’s Flint assembly plant, and facilitates just-in-time delivery of products to the 5.2-million-square-foot factory. GM has made almost $2 billion in investments at the Flint plant, Agellan said.
Also of note in the region is that market vacancy rates have declined from more than 10 per cent in 2011 to 3.8 per cent in 2016. Among warehouse and distribution properties, the vacancy rate was at 1.7 per cent.
Move into U.S. market
Agellan owns approximately 6.7 million square feet of gross leasable area in 36 properties located in major urban markets in the United States and Canada.
It is an unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. The REIT has been created for the purpose of acquiring and owning industrial, office and retail properties in select target markets in the U.S. and Canada.
In 2015, Agellan said it intended to focus on the U.S. market in an effort to make the REIT more attractive to investors. Up to that point, Agellan had developed properties such as Parkway Place, an 812,000-square-foot complex at 243, 245, 251 and 255 Consumers Road in North Toronto. It also owned properties in the U.S. and Canada.
At that time, Camenzuli told RENX moving forward, Agellan would be targeting multi-tenant industrial buildings.