Firm Capital Property Trust has acquired 25 industrial buildings in Montreal for $48.2 million, a deal that represents about 40 per cent of its total property holdings.
“It effectively almost doubles the size of the property trust asset base,” said Robert McKee, Firm Capital’s president and chief executive officer.
The purchase is comprised of 1,029,898 square feet, consisting of 17 multi-tenant and eight single-tenant industrial buildings near the Pierre Elliott Trudeau Airport and the Trans-Canada Highway. The portfolio is approximately 90 per cent occupied, Firm Capital said.
Firm Capital made the initial and ultimately successful approach to the unnamed seller about the properties, which were not marketed to a variety of prospective purchasers.
Plenty of room to grow
Firm Capital Property Trust (FCD.UN) got its start in November 2012, but already aims to be an active acquirer of similar sized transactions.
“We would look at deals up to and around $100 million,” McKee said.
The Toronto-based trust will not concentrate on one particular real estate asset, preferring to seek and secure the best deal.
“Our focus is in industrial, the medical office space, we like that sector, and we also like retail,” said McKee. “We also like multi-residential, just not at the current prices.
“Those are the four classes that we would do. I would expect that 60 per cent of our portfolio long-term will likely be industrial. That is probably the sector that is the most attractive to us at this point and provides the most opportunity for growth.
“Beyond that we will probably do an equal mix of retail and medical office,” he added. “Early on, it will just depend on what opportunities present themselves.”
Firm Capital’s initial portfolio of four properties consists of a trio of retail properties in Ontario and another in Nova Scotia. (Property Portfolio Fact Sheet)
Purchased from Calloway REIT, they are “shadow-anchored” properties with a Wal-Mart or Canadian Tire acting as anchors for Trust’s retail property on the site.
Sandwiched between its initial acquisition and this latest Montreal industrial acquisition, Firm Capital acquired a medical office building in Barrie, Ont.
Management alongside investors
Firm Capital’s Montreal acquisition illustrates the company’s novel approach to growth which it hopes will prove attractive to outside investors.
Ownership of the Montreal portfolio will be split equally between unitholders of the trust and a separate entity made up of senior management and a number of trustees of Firm Capital.
Firm Capital said the unusual deal structure “confirms the alignment of interests and is in accordance with the Trust’s stated business strategy of completing joint acquisitions with experienced real estate industry professionals.”
McKee, a TD Securities veteran who is managing director at Firm Capital Realty Partners Inc., has a simpler explanation: “The reality is we are splitting these deals. Management, board and a few others take 50 per cent of these acquisitions and the public company is getting 50 per cent of these acquisitions.”
The Montreal industrial portfolio purchase marked the first time it utilized the 50-50 ownership structure, but Firm Capital intends to stick with a similar approach for any future acquisitions.
“We believe that it shows that management is actually invested in the real estate alongside the public entity,” McKee said. “We are willing to put our money into a transaction where we buy that actual specific piece of real estate.
“We think that adds a higher sense of ownership to each acquisition we do.”
McKee believes his trust is well-positioned in today’s REIT space.
“We are probably a little bit lower-yielding than some of our competitors,” he said. “We think that on an (adjusted funds from operations) and a multiple basis going forward that we are very competitive and attractive compared to those entities. Our view is to earn a dollar and pay out 80 cents.
“Long-term our focus is on capital preservation first, growth second.”
That conservative approach was borne out by how the trust marketed itself to investors, he added.
“We wanted to make sure that this is a long-term successful vehicle. We didn’t go the CPC route where you issue a whole bunch of cheap, dilutive stock and make money by seeding the entity.
“We came in at the same price as the initial public (offering) so everybody came into our property trust at $5 (a unit) so without that dilutive up-front issue, you are able to do things on a smaller basis and have them make sense.”