Canadian Apartment Properties Real Estate Investment Trust (CAPREIT) announced Monday it is in the process of acquiring six multiresidential properties in four Canadian cities for a total of $194 million.
The REIT will also issue approximately $425 million in new units, using a portion of the proceeds to fund the new property acquisitions.
CAPREIT (CAR-UN-T) did not identify the properties it intends to purchase, but said they are in the Greater Montréal area, Greater Vancouver region, Calgary and Halifax. Together they comprise 604 units and are being acquired at a weighted average cap rate of 4.2 per cent.
Four of the six properties are newly constructed and two represent value-add opportunities.
The acquisitions include 288 suites being acquired for approximately $75 million that are expected to close in Q4 2019 or Q1 2020. The others include 316 suites expected to be acquired for approximately $119 million that are currently either subject to non-binding letters of intent or to customary conditions, including due diligence.
The offering is for 7,930,000 units at $53.60 per unit to a group of underwriters led by RBC Capital Markets, on a bought-deal basis. The underwriters have an over-allotment option to purchase up to an additional 1,189,500 units.
The offering is expected to close on or about Dec. 6. In addition to the purchase of the six properties, CAPREIT intends to use the net proceeds:
* to repay approximately $127 million of its acquisition and operating facility which was used to fund $88 million of recently closed acquisitions, plus the purchase of $39 million of Irish Residential REIT shares;
* to finance approximately $14 million to exercise existing operating lease buyouts, converting two Toronto properties to traditional fee simple property interests; and
* the remainder, if any, to finance future acquisitions, intensification opportunities, revenue-enhancing capital expenditures and general trust purposes.
“In addition to making some fine acquisitions, this equity offering will de-lever CAPREIT’s balance sheet and reload our credit facility,” Mark Kenney, president and CEO of CAPREIT, said in a release, “providing productive financing capacity to allow us to capitalize on exciting future acquisition and intensification opportunities, which are expected to be accretive to CAPREIT’s NFFO on a leverage-neutral basis.
“Over its 22 years, CAPREIT has become highly experienced and successful in integrating acquisitions to maximize NOI, NFFO and NAV growth, such that its compounded annual total return since its 1997 initial public offering is approximately 15 per cent.”
Closed acquisitions total 659 suites
Recently closed acquisitions consist of three apartment properties in Southwestern Ontario and Prince Edward Island, totaling 659 suites. They were acquired at a cap rate of approximately five per cent and are 98.9 per cent occupied.
“CAPREIT is eager to continue to accretively expand its portfolio, but also to continue to improve margins and narrow the significant gap between in-place and market rents, which we estimate to be approximately 20 per cent in our existing portfolio, including approximately 30 per cent in the Greater Toronto Area,” Kenney said in the release.
In buying out the operating leases at two Toronto properties, the trust estimates it will result in an $18-million fair market value gain.
If all the properties close, the offering is exercised in full and the REIT buys out the two operating leases, CAPREIT expects its debt-to-gross-book value ratio to decrease from 37.4 to 35.7 per cent.
After the acquisitions and the offering, the trust expects to have approximately $375 million available to its acquisition and operating facility.
CAPREIT is a growth-oriented investment trust managing 63,907 suites and sites across Canada, the Netherlands, and Ireland.
It owns interests, directly in Canada, and indirectly in the Netherlands through its investment in ERES, a total of 60,241 residential units, comprising 48,566 residential suites and 72 manufactured home communities comprising 11,675 sites, all located in and near major urban centres.