Granite REIT (GRT-UN-T) has taken a major step toward reducing its exposure to Magna International, its primary tenant, with the sale of 10 properties in Canada and the U.S. for approximately $400 million.

1 Cosma Court (top) and 170 Edward St. (lower) in St. Thomas, Ontario courtesy of the Granite REIT website.

“The sale of these properties is another major value-creation milestone for Granite. It significantly reduces Granite’s exposure to Magna and the special purpose properties which are key strategic objectives of Granite,” Michael Forsayeth, Granite’s CEO, said in a news release.

Nine of the properties are in Canada, the other in the United States. Granite did not disclose the buyer.

Three of the 10 properties are referred to as “special-purpose”‘ by Granite, two in St. Thomas, Ont., and one in Bowling Green, Ky.  Combined, the three properties account for approximately $334 million of the total sale price. 

With a net operating income of approximately $24 million, Granite says in the release the capitalization rate on the sale is estimated to be seven per cent for the Bowling Green property and 7.3 per cent for the two St. Thomas properties.

Granite’s Canadian properties

The Granite REIT website lists two St. Thomas properties:

* 1 Cosma Court is an 85.3-acre site with a 1,155,476-square-foot industrial building built in 1956, shown as being tenanted by Formet Industries; and

* 170 Edward Street is a 23-acre property with a more modern 340,053-square-foot building constructed in 1976.

The Bowling Green property is a 133.4-acre site with a 938,378-square-foot building constructed around 2005 and located at  111 Cosma Drive.

The remaining seven properties are all contiguous and in Newmarket, just north of Toronto. Together, they comprise approximately 600,000 square feet on 45 acres of land.  The total sales price for these seven assets is $63 million and, with a combined NOI of $2.8 million, Granite estimates the capitalization rate on the sale to be 4.5 per cent.

Granite lists seven Newmarket properties on its website, at: 521 Newpark Boulevard, 550 Newpark Boulevard, 561 Newpark Boulevard, 564 Newpark Boulevard, 581 Newpark Boulevard, 594 Newpark Boulevard, 630 Newpark Boulevard.

$70 million above reported values

The $400-million sale price for the 10 properties is nearly $70 million in excess of the values reported for them in Granite’s Q3 2017 report, the trust says. 

“These tax-efficient transactions are accretive to Granite’s net asset value by approximately $1.50 per stapled unit,” Forsayeth said in the release. “We believe that these transactions unlock the embedded value and demonstrate the liquidity potential of these assets, and that the halo effect of these transactions will have meaningful positive valuation implications on Granite’s remaining special-purpose properties as well as its properties located in the GTA. 

“With our net leverage reduced to approximately 10 per cent, our  opportunity to deploy the balance sheet clearly increases and we  remain committed to and confident in our ability to effectively allocate capital in the best interests of Granite’s unitholders, including accelerating growth through more acquisitions similar to the high quality portfolio acquired in October 2017.”

Forsayeth was referring to Granite’s purchase of three U.S. industrial properties, comprising 2.2 million square feet of gross leasable area, for US$122.8 million. Two of the properties are located in Monroe, Ohio, north of Cincinnati  and the third in Olive Branch, Miss., southeast of Memphis. 

Highlights of the dispositions

Granite says the dispositions will result in the following:

* Granite’s Magna concentration will reduce from approximately 65 per cent to 61 per cent;
* the proportion of Granite’s portfolio comprising of high-quality warehouse and logistics properties is expected to increase by three per cent to approximately 31 per cent;
* the special-purpose properties will reduce by five per cent to approximately 36 per cent of Granite’s total portfolio;
* post-completion of the transactions, Granite’s estimated net debt-to-gross book value will be approximately 10 per cent; 
* and no change is anticipated to Granite’s monthly distribution to its unitholders as a result of the transactions.

About Granite REIT

Granite is a Canadian-based REIT engaged in the ownership and management of predominantly industrial, warehouse and logistics properties in North America and Europe.

Granite owns approximately 32 million square feet in more than 90 rental income properties. Its tenant base includes Magna International Inc. and its operating subsidiaries as its largest tenants, in addition to tenants from other industries.