Crombie REIT (CRR-UN-T) will sell a majority non-managing interest in 15 additional grocery store-anchored retail properties across Canada to Oak Street Real Estate Capital of Chicago for $193 million.
This is the second major asset sale to be announced in recent weeks as Crombie recycles funds to invest in its ongoing development and redevelopment projects at other properties (see Crombie nears midpoint of $511M redevelopment plan). In April, Crombie announced a similar transaction with Oak Street, a majority non-managing share of 26 properties for $161 million.
“This partial disposition is another example of our team’s solid execution of our strategy,” said Don Clow, Crombie’s president and CEO, in a release. “Priced in line with IFRS fair values, it provides important funding to facilitate significant progress towards completion of our first five major development projects, which are expected to be nicely accretive to Net Asset Value and AFFO.
“This transaction strengthens our balance sheet through debt reduction and enables pre-funding of our major development activities well into 2020, aligning with our long-term funding strategy.”
In both transactions, Oak Street is receiving an 89 per cent interest in the properties. Crombie retains an 11 per cent ownership interest and will continue to manage and operate the properties.
The transaction is scheduled to close in the fall of 2019. The first transaction closed on April 25.
Portfolio 100 per cent occupied
None of the assets are included in Crombie’s mixed-use development pipeline.
“These properties are an excellent addition to our portfolio, which is designed to create stable long-term cash flow backed by investment-grade rated corporations,” said Marc Zahr, CEO and managing partner of Oak Street, in the release.
“Crombie’s industry leadership and long-term commitment to invest in these locations fits perfectly with our income-based strategy.”
The portfolio comprises about 721,000 square feet and is 100 per cent occupied. All the properties are subject to long-term leases with grocery stores under Sobeys or its related banners.
Crombie will headlease the properties from a new jointly owned entity, with terms that mirror the terms of the existing leases.
Oak Street will assume its share of 12 mortgages which will be assigned to the new jointly owned entity, with Crombie remaining as guarantor on a portion of the mortgages until maturity.
Proceeds to Crombie, net of costs, are estimated to be $102.6 million.
Crombie says it will reinvest the proceeds into its mixed-use major development pipeline, funding capital investments in Sobeys-occupied properties, repaying existing indebtedness, and general purposes.
The sale is subject to receipt of Competition Act approval and other customary approvals.
Property portfolio details:
|Property||Property Address||City, Province||Anchor Tenant||Property GLA|
|1||Bradford||40 Melbourne Dr||Bradford, ON||Sobeys||35,230|
|2||Castleridge||55 Castleridge Blvd NE||Calgary, AB||Safeway||56,437|
|3||Saddletowne Circle||850 Saddletowne Circle||Calgary, AB||Safeway||50,945|
|4||Chilliwack||45850 Yale Road||Chilliwack, BC||Safeway||51,801|
|5||Fort McMurray||9601 Franklin Ave||Fort McMurray, AB||Safeway||40,397|
|6||Kamloops||945 Columbia St. W||Kamloops, BC||Safeway||49,745|
|7||Lebourgneuf||555 Boulevard des Grandins||Quebec, QC||IGA Extra||58,568|
|8||Orangeville||500 Riddell Rd||Orangeville, ON||Sobeys||46,337|
|9||Panavista||612 Main St||Dartmouth, NS||Sobeys||47,897|
|10||Ropewalk Lane||45 Ropewalk Lane||St John’s, NL||Sobeys||50,420|
|11||Selkirk||318 Manitoba Ave||Selkirk, MB||Safeway||42,122|
|12||Spruce Grove||94 McLeod Ave||Spruce Grove, AB||Safeway||50,825|
|13||Sherbrooke||3950 Rue King Ouest||Sherbrooke, QC||IGA Extra||52,415|
|14||Smithers||3664 Hwy #16||Smithers, BC||Safeway||43,096|
|15||Stony Plain||4202 South Park Dr||Stony Plain, AB||Safeway||44,463|
BMO Capital Markets Real Estate Inc. is acting as exclusive advisor to Crombie REIT on this transaction.
Crombie’s developments, redevelopments
Crombie has a pipeline of two dozen sites for either development or redevelopment, executive vice president and COO Glenn Hynes told RENX in a recent interview. It is currently spending over $500 million on redevelopments at five existing properties in Oakville, Montreal, Vancouver, St. John’s and Langford, B.C.
The projects comprise about 1.4 million square feet of new leasable space; 452,000 square feet of commercial area and 976,000 square feet of residential rental space. The largest project is 520,000 square feet at the Bronte Village Mall in the Toronto suburb of Oakville, where Crombie has partnered 50-50 with Montreal’s PrinceDev on a $275-million addition of two rental apartment towers of 10 and 14 storeys, respectively.
“We think the value of those projects will be somewhere between $650 and $800 million, and that’s a big deal,” Hynes told RENX.
Crombie also recently acquired a $32.4-million, 20.25-acre industrial site in Pointe-Claire, Que. Crombie will develop and own a 285,000-square-foot customer fulfillment centre at the property for Empire Company Ltd.’s (EMP-A-T) online grocery home delivery service. Empire is the parent company of Sobey’s, which maintains an ownership stake in the REIT.
About Crombie and Oak Street
Crombie is one of the Canada’s leading national retail property landlords. Its strategy is to own, operate and develop a portfolio of grocery- and drugstore-anchored shopping centres, freestanding stores and mixed-use developments, primarily in Canada’s top urban and suburban markets.
Oak Street Real Estate Capital is a real estate investment management firm offering both commingled funds and separate accounts on behalf of both institutional and high-net-worth investors.
The firm focuses on acquiring properties net leased to investment grade-rated tenants and specializes in providing unique and flexible capital solutions to corporations, healthcare systems, universities, and government entities.
– With files from Kelly Roche