Artis REIT is acquiring another half-million square feet of downtown Calgary office property, eager to improve its portfolio in that hot market.
“I know you get swings in the Calgary office market,” says Armin Martens, Artis president and CEO, “but I am optimistic that there are several years of good runway ahead for any landlords of Calgary office properties.”
Last week, Artis announced the unconditional acquisition of the LaSalle Downtown Calgary Office Portfolio, comprised of four high profile modernized properties in the city’s financial core and the west side of downtown Calgary. The $189.3-million dollar sale is expected to close in Q2-12.
Only last month, the Winnipeg-based real estate investment trust closed on Trimac House – a 23-story Class-A office building in Calgary’s downtown featuring more than a quarter-million square feet of leasable space.
“The properties that we’ve acquired,” says Martens, “we feel the in-place rents are a healthy 20% below market in all cases. We studied them hard and I really don’t see any of these properties doing anything but helping us and improving our NOI (Net Operating Income) and growth.”
The LaSalle acquisition is part of a larger announcement made by Artis last week which includes a $100-million dollar equity offering and more than $335-million in acquisitions, namely:
• RER Industrial Portfolio – four industrial buildings in Minneapolis MN totalling 36.1 acres of land containing 500,524 square feet of leasable space. The Portfolio is 99% occupied with weighted-average lease terms to maturity of 4.4 years. The purchase price is US$38-million.
• Westbank Hub Shopping Centre – a four-building Class-A retail complex in Kelowna BC with 179,087 square feet of leasable area. The property is 100% occupied. The weighted-average lease term to maturity is 13.3 years. Artis is spending $29.3-million for a 75% share in the Centre which represents a going-in capitalization rate of 6%.
• Class-A office property in Scottsdale AZ – details of this US$79-million dollar deal will be made available upon closing, expected later this month.
Also last week, Artis announced closure on four more recent acquisitions, including Trimac House in Calgary for $100.9-million, and:
• Crowfoot Corner – a new, four-building retail development in Calgary featuring 50,965 square feet of leasable space. The purchase price of $35.5-million represented a cap rate of 6.4%
• Linden Ridge Shopping Centre – a seven-building retail centre in Winnipeg MB comprising 100,875 square feet of leasable area. The price of $32-million represented a going-in cap rate of 7.2%.
• Westbank Hub Centre North – Artis increased its interest to 75% on this Kelowna property with a $12.4-million dollar purchase price (subject to second phase closing once developments are complete).
In anticipation, Artis had revised its 2012 acquisition projections last quarter from 400-million to 600-million, which it has almost reached.
Upon all closings, the Artis portfolio will contain 177 properties with 19.3-million square feet of leasable space. Holdings are in BC (10%), Alberta (40%), Saskatchewan (5%), Manitoba (15%), the Greater Toronto Area (12%) and the US (17%).
“In terms of our western Canadian exposure, I am happy with us to be 40% weighted in Alberta,” says Martens. “Of that, half is in Calgary and most of that has always been Calgary office. That is where the biggest growth potential is.”
Third Time Lucky
Martens says Artis pursued two other downtown office buildings before landing Trimac House.
“We did submit a bid on Altius Centre,” he says, “and then later on Calgary Place. We definitely liked both of those properties.”
Trimac House boosts to 30 the properties that Artis has in Calgary: 17 office, 6 retail and 7 industrial. Office includes nearly 2.25-million square feet of leasable space spread through the downtown and suburbs, including the 336,000 sq. ft. TransAlta Place in the Beltline district.
“Calgary continues to be the strongest office market in North America,” says Martens. “We have recently increased our weighting in this asset class by approximately 700,000 square feet. All these are downtown properties and we are confident this is a good decision.”
Martens is hinting at more action in Alberta before the year is out. “We are expecting to tweak our portfolio,” he says, “and trim the hedges, if you will. You might see us selling some of the other properties that are becoming non-core assets for us.”
Artis reported a jump in revenues when the company released Q1-12 numbers last week.
Total gross revenue rose to $82.1-million, compared with $63.2-million in the first quarter of 2011. New acquisitions are pushing total debt to 57-58% but the REIT plans over time to reduce debt to 55%.
In releasing the figures, Artis CFO Jim Green said, “We expect accretion to be around 4-cents for the year, or a penny per quarter. Our budgets remain on-track to achieve this or a bit more.”
Green also announced that Artis is now performing all asset management with internal staff. Further, the REIT has assumed property management for 78 properties, with plans to include more Canadian holdings in the future.