“I think that we’re within reach in 2019,” he says. “We’re almost there.”
In 2013, Léonard told analysts and investors he expected BTB to double its assets to $1 billion during the next five years.
BTB’s asset value has now reached about $825 million after it announced in early January the REIT spent $25.3 million to acquire two office buildings at 3111 and 3131 Saint-Martin Boulevard West in Laval, Que., with a total leasable area of more than 152,000 square feet. The previous owner was Sun Life Financial’s real estate property management arm Bentall Kennedy.
Reaching $1 billion in assets would represent a milestone for the REIT and provide an incentive to continue to grow, Léonard says. “When you’re at a billion dollar mark, I think that it’s a different type of business” that “will be taken more seriously by institutional investors.”
BTB owns 67 properties
The Laval acquisition brings to 67 the number of retail, office and industrial properties owned by BTB, with a total leasable area of more than 5.4 million square feet.
Tenants with long-term leases in the two properties include Desjardins, law firm Therrien Couture, GPL Assurance, National Bank of Canada, Processia and Sun Life Financial.
Total vacancy in both properties “is just shy of 15 per cent,” Léonard says. That compares to an overall occupancy rate in its 67 properties of “slightly north of 90 per cent.”
The Laval properties are near the city’s courthouse and the CF Carrefour Laval shopping mall and are in an area seeing a substantial amount of construction, “so it creates an environment that is very sustainable on a long-term basis.”
Léonard says the acquisition of the Laval office buildings is in line with its positioning for the last 18 months to sell properties in smaller markets in order to buy properties in larger markets. The REIT is exiting secondary markets in order to concentrate on the Greater Montreal, Quebec City and Ottawa areas.
BTB recently sold properties in Sherbrooke and Drummondville, Que., and has about four more properties to sell in smaller markets.
Three target markets
Léonard would like to increase BTB’s holdings in Ottawa but says it is difficult to do so because prices are high.
Montreal, on the other hand, “is very buoyant” and “a great market for all classes,” he says. “We haven’t seen this in a long, long time. We were in the penalty box for quite a while in Montreal, and then all of a sudden it seems that we’re out of the penalty box.”
Quebec City is very stable and is worth investing in although the ability to increase rents in the city is not as high as it is in Montreal. However, many of the tenants in BTB’s Quebec City-area properties tend to be “a little bit of the Who’s Who in the province of Quebec, so that helps us greatly.”
Léonard says BTB is opportunistic when it comes to acquisitions and is looking at all asset classes.
“Because we want to conclude on acquisitions that are accretive, we cannot have a policy to say, ‘Well, this year we’re only going to buy industrial properties,’ because industrial properties are difficult to purchase these days because of their cap rates.”
Across BTB’s properties, “we should see a better same property NOI (net operating income) over the course of 2019, so that’s very, very positive.”
He says some REITs are divesting themselves of certain properties “and we’re definitely on their radar as buyers for those” as a way to increase BTB’s asset value.
Laval properties “non-core” to Sun Life
The acquisition of the former Sun Life-owned buildings in Laval illustrates that approach, he notes. Sun Life has decided to sell non-core properties and increase its concentration on downtown areas.
“We’re a natural buyer – non-core properties to them (are) core properties to us,” Léonard says.
BTB also considered buying the 11 Quebec retail properties which had been put on to the market in 2018 by Partners REIT (PAR-UN-T) (in early January, Partners subsequently announced an agreement to sell the properties to an unnamed buyer). However, “the prices they were able to glean from these transactions were too high for us. We couldn’t compete at those levels of cap rates.”
BTB’s stock market performance of late has been “lousy,” he admits. “I don’t think there’s another word for it. I’ve yet to speak with a CFO or CEO that was happy with his stock price.”
As with other REITs, BTB was hit hard late last year by turbulent markets. The share price closed at $4.11 on Dec. 31, 2018 though it did recover somewhat, opening at $4.49 on Jan. 11. Over the past few years, the stock has generally traded between about $4.50 and $4.90.
“The timing for the stock price in the last month of last year was horrible, and basically we went down to a level we haven’t seen in eight years, but it recovered nicely at the beginning of this year and hopefully it will continue,” Léonard says. “It’s not fun for anybody.”