“We have got a pretty simple message, we buy good quality industrial with good quality tenants in major markets in Canada and we just repeat that over and over again and people seem to like it,” said Darren Latoski, PIRET’s acting chief executive. “We don’t want to vary from that.”
Created in 2007 after ING acquired Summit REIT, PIRET doesn’t expect a lot of company in the industrial REIT space any time soon. “If you have a large (industrial) portfolio and you want to exit it, you will probably get as good an evaluation just selling it if you have accumulated a large portfolio, to a pension fund or another institutional buyer. So there is not a lot of reason for someone who owns a large portfolio of industrial to go public as a REIT. There is not a huge premium.”
The other option, to start small and grow, can be a challenge to simply cover and manage overhead expenses. That was a hurdle PIRET overcame in its early days by putting the operations costs with its other funds, which supported the REIT in its early days. “We basically carried the overhead of the REIT until it got to a $200-million market cap,” he said.
Slow and Steady Wins the Race
That slow and steady pace means finding $50 million to $60 million worth of assets, closing on them, waiting a few months and doing it again, and again. “You could grow responsibly. Which is hard to do, you have to have the infrastructure in place, which we had with our private equity funds.”
The latest chunk acquired by the Vancouver-based REIT is a portfolio of 20 industrial properties purchased in June for $70.1 million. The properties, with a total rentable area of 832,000 square feet and currently 95% leased, are primarily located in the Greater Toronto Area (80%), with the remainder in Edmonton (16%) and Calgary (4%). PIRET said the properties are located at major industrial and transportation nodes, and consist of more than 46 acres of land.
Latoski said the properties were acquired from Canadian Urban Ltd., which was acting for an investment group “that was just looking to exit their properties.”
After this latest deal, PIRET will have acquired more than 3.6 million sq. ft. of income producing properties valued at more than $384 million since August 2007.
Sunstone Gave Rise to PIRET
PIRET grew out of the private equity real estate operations of Sunstone Realty Advisors of Vancouver, which was founded in 2001 by Latoski and his partner Steve Evans. Its operating routine has been to assemble private equity pooled capital totalling about $50 million annually which is has since been invested in shopping center properties in Canada and multi-family and hotel properties in the U.S.
“We had a good track record and good success on those funds which allowed us to launch the REITs in `07,” he said.
Sunstone has about $400 million of assets in Canada and approximately $300 million of assets in the U.S. under management. The company also manages the Morguard Sunstone real estate income fund.
When it comes to PIRET, Latoski expects more of the same going forward. “Same as the past, just nice slow steady growth,” he said. “Find some good assets, we do bought deals for our financing which is nice, do a deal, make sure it is accretive and keep rolling along.
“The nice thing about industrial versus a lot of other real estate is it is very simple,” he added. “Our line is it is kind of a `B student” game. You can’t be stupid but you don’t have to be the sharpest guy in the class to do well at it. You just have to keep your head down and slowly plod along.”