Allied buying 6 office buildings from Choice for $794M

IMAGE: Allied Properties REIT president and CEO Michael Emory. (Courtesy Allied)

Allied Properties REIT president and CEO Michael Emory. (Courtesy Allied)

Allied Properties REIT has an agreement to acquire six urban office properties comprising about 1.2 million square feet of space from Choice Properties REIT for $794 million.

Three of the buildings are in Toronto, one in Montréal and two in Vancouver.

Allied (AP-UN-T) says it will issue trust units to Choice Properties (CHP-UN-T) to finance 75 per cent of the purchase price (at $50.30 per unit) and provide a promissory note for the remaining 25 per cent. The $594 million issuance involves 11,809,145 Class B LP Units of a subsidiary limited partnership.

“This is an extraordinary win-win transaction for Choice and Allied,” said Michael Emory, Allied’s president and CEO, in the announcement Monday morning. “It represents an important and compelling strategic refinement for Choice and a significant expansion of operating capability for Allied.

“By using Allied’s units as currency for 75 per cent of the purchase price and a promissory note for the balance, each of Choice and Allied will achieve important capital-allocation objectives.”

About the office properties

The properties are:

Property

GLA at Share

Occupancy

Underground Parking Stalls

Certification

Principal Tenant

1010 Sherbrooke St. W., Montréal (100% Freehold)

328,354

94.9%

276

BOMA Best Silver

McGill University

110 Yonge St., Toronto (Managing 50% Freehold)

80,384

89.7%

72

BOMA Best Silver

S.I. Systems

525 University Ave., Toronto (100% Freehold)

202,111

99.0%

178

BOMA Best Gold

Hospital for Sick Children

175 Bloor St. E., Toronto (Managing 50% Freehold)

304,731

80.9%

264

LEED O+M Gold

Klick Inc.

1508 West Broadway, Vancouver (100% Leasehold)

147,376

95.1%

265

BOMA Best Gold

Nicola Wealth

1185 West Georgia St, Vancouver (100% Freehold)

165,855

91.2%

157

BOMA Best Gold

Fluor Canada

Total

1,228,811

91.3%

1,212

(Data courtesy Allied Properties REIT)

“Our overriding objective in making this acquisition is to expand our operating capability in Montréal, Toronto and Vancouver,” said Tom Burns, Allied’s executive vice-president and COO.

“In particular, the acquisition will expand our ability to serve the biotech and life-sciences, education and TAMI sectors. It will also further our objective of becoming a leading provider of distinctive urban workspace in Vancouver.”

1010 Sherbrooke will increase Allied’s Montréal portfolio to 32 properties with over seven million square feet of GLA.

The three Toronto properties will increase that portfolio to 108 properties with 5.4 million square feet of GLA in Canada’s largest urban area.

1508 West Broadway and 1185 West Georgia will expand the Vancouver portfolio to 15 properties with just over a million square feet of GLA.

Life sciences, education, TAMI sectors

The acquisitions also expand Allied’s offerings in several sectors identified as targets for the REIT, from biotech and life sciences to education, as well as technology, advertising, media and information (the so-called TAMI sector).

Toronto’s Hospital for Sick Children occupies 60 per cent of 525 University, while Klick occupies 25 per cent of 175 Bloor E. Klick is the world’s largest independent commercialization partner for life sciences, focusing on developing, launching and supporting life-sciences brands.

Allied intends to operate both properties with a view to serving biotech and life sciences users.

The REIT already boasts George Brown College (230 Richmond St. E. in Toronto) and Farleigh Dickenson University (840 Cambie St. in Vancouver) as major education tenants, and reports that a leading American university has pre-leased all of the leasable area at QRC West, Phase II, in Toronto (about 93,134 square feet).

McGill University, which occupies 22 per cent of 1010 Sherbrooke W. in Montréal, will add to this sector. Allied will focus this property, along with 1001 Robert Bourassa, to serving educational and TAMI users, and related business accelerators and incubators.

Tech and TAMI have always been a focus for Allied.

According to Cushman & Wakefield, Allied completed 29 per cent of all leasing transactions (by area) with tech users in Toronto’s downtown market between March 1, 2020 and Jan. 31, 2022, During that period, Allied owned about five per cent of Toronto’s downtown office inventory during that timeframe.

The Montréal and Toronto properties to be acquired from Choice Properties currently serve a wide range of TAMI users and Allied will continue to make this sector a key focus.

With column-free floor plates and direct access to Toronto’s PATH network, the REIT believes 110 Yonge is particularly well-suited for TAMI users.

Allied and the Vancouver market

Allied’s Vancouver portfolio has grown from five properties comprising 285,476 square feet of GLA at the end of 2016 to 13 properties comprising 714,113 square feet of GLA at the end of 2021.

With the acquisition of 1508 West Broadway and 1185 West Georgia, the portfolio will grow to 15 properties comprising 1,027,344 square feet serving a combination of knowledge-based organizations, including TAMI, engineering and financial-services users.

“Strategic decision” for Choice

Choice Properties president and CEO Rael Diamond said the transaction is the result of the REIT’s decision to focus on other CRE sectors.

“We have made the strategic decision to focus our time and capital on the opportunities available in our core business of essential retail and industrial, our growing residential platform and our robust development pipeline,” Diamond said in a prepared statement. “The transaction allows us to exchange our interest in the portfolio for equity in Canada’s leading office operator, and gives us greater flexibility to manage capital allocation in future years.”

When the transaction closes, Choice Properties will continue to hold an interest in 10 office assets representing approximately four per cent of its portfolio, most of it in the Toronto area.

The transaction will offer Choice Properties “significant opportunities” to deploy capital to its core asset classes. These opportunities include a development pipeline of over 10.5 million square feet of GLA.

About Choice and Allied

Choice Properties owns, operates and develops commercial and residential properties across Canada.

Allied is an operator of distinctive urban workspace in Canada’s major cities and network-dense UDC space in Toronto.

Allied’s mission is to provide knowledge-based organizations with workspace and UDC space that is sustainable and conducive to human wellness, creativity, connectivity and diversity.

Both trusts are based in Toronto.






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