Dundee Industrial grows with friendly C2C purchase

Dundee Industrial REIT will grow its portfolio by more than 20% pending the completion of its $226 million acquisition of C2C Industrial Properties Inc.
The friendly deal, announced this week, calls for Dundee to pay $4.85 per C2C share, which is a premium of more than 30% to the average trading price of the C2C Shares on the TSX Venture over the 10 trading days prior to the announcement of the offer.
The deal seems almost tailor made for Dundee, and perhaps it was. It will allow the REIT to beef up its industrial holdings in major markets of Ontario, Quebec and Atlantic Canada and add a little bit to its key portfolio in the hot Alberta market.
C2C’s 2.5 million square foot portfolio is primarily located in Halifax, Edmonton, and both the Greater Toronto Area and Greater Montreal Areas, fitting neatly with Dundee’s major-city strategy, said Scott Hayes, President and Chief Executive Officer, Dundee Industrial REIT (picture top left).
“The C2C Portfolio is an ideal strategic fit within our current portfolio and meets our strategic objectives of investing in Canada's largest industrial markets, growing cashflows for our unitholders, and making our company safer by further reducing our exposure to any one tenant, region or industry sector,” he said.
The properties it will pick up from the acquisition are complementary to its existing portfolio: in the major markets Dundee is interested in, of similar size to its current portfolio, generating similar rents and having identical vacancy rates.
After the deal goes through, Dundee’s gross leasable area will grow from 11.4 million square feet to 14 million and its property count will grow from 158 to 183 while its average rent will fall slightly to $7.29 per sq. ft. from $7.57 currently. Its average tenant size will increase slightly to 11,987 sq. ft. from 11,850 currently.
Related news: C2C Industrial Properties Inc. Recent Acquisition a Blueprint for its Future, Property Biz Canada, June 21, 2011
Transaction involved properties, no staff
It is essentially a property-only transaction. No C2C employees will come over to Dundee and the Toronto-based REIT expects that it can manage the new properties with its existing base of employees, which is one of the reasons that it will add to earnings from day one.
“We have the manpower in place to manage the assets on closing,” said Hayes. “We are not at all concerned about our ability to digest the acquisition.”
The C2C deal provides a boost to the growth plans of Dundee Industrial, which had its IPO barely five months ago. “We were certainly not aware of this opportunity or the KingSett transaction when we launched although we had a good feeling that would be opportunities to grow the REIT in a very aggressive fashion,” said Hayes. “At the time of our IPO, October of last year, we weren’t exactly sure what those (acquisition opportunities) would look like.”
In November, Dundee purchased KingSett Capital’s 5.3 million square foot portfolio of industrial properties for approximately $498.5 million, cementing its status as the country’s largest industrial property owner.
Portfolio details from a Marketwire news release March 19, 2013

C2C approached with a friendly plan
Billed as a friendly purchase, the deal making was initiated by C2C’s financial advisor, GMP Securities L.P., which presented the case for Dundee acquiring the company a few months ago.
“We were approached fairly recently with the idea of the transaction,” said Hayes. “The management of C2C was known to us, it is a relatively small community, and they were unbelievably professional through the entire process.”
C2C’s management team hails from Toronto’s Strathallen Capital Corp., which will continue to operate a number of property funds following the sale of the industrial real estate company.
C2C’s directors and senior management, as well as Alberta Investment Management Corp. and Sentry Investments Inc., who collectively beneficially own or control approximately 41% of the outstanding C2C Shares, have agreed to tender their securities to Dundee’s offer.
Big market focus continues
Hayes said that Dundee is not picky about what provinces it buys properties in, but size does matter. “We don’t have a specific geographic allocation unlike some of the pension funds. But the one thing I will tell you is we are going to focus on the major markets in the country, principally because that gives us great predictability on the leasing market.”
If industrial space becomes vacant in a market like Calgary or Toronto, Dundee has a pretty good idea what it will re-lease at. “We deliberately avoid the secondary and tertiary markets just because we don’t have that level of predictability.”
One Dundee characteristic that likely won’t change is the company’s preference for the Alberta market, which boasts higher rents than anywhere else in the country.
The REIT’s Alberta portfolio weighting actually falls from 35% to 31% with the addition of C2C’s eastern Canada-heavy properties, but will still account for 3.45 million sq. ft. of its 14 million sq.ft. in holdings.
“We see the opportunity for real growth in Alberta,” said Hayes. “I don’t think I’m alone in the view that perhaps the growth will be a little bit more muted in Ontario for the next couple of years. But Calgary and Edmonton, are about one-eighth the size of Toronto, so continuing to grow in those markets is always challenging.”

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