H&R REIT says it will sell The Atrium in downtown Toronto for $640 million. (Google Street View)

H&R Real Estate Investment Trust (HR-UN-T) says it will capitalize on strong pricing for downtown Toronto office assets and sell its 1.1-million-square-foot The Atrium for $640 million.

KingSett Capital is the buyer, confirming the purchase in a LinkedIn social media post this morning by CEO Jon Love. He called it a “key acquisition” for CREIF, the firm’s core strategy income fund. 

H&R has owned the office and retail complex, which comprises a full city block at Yonge Street and Dundas Street West, since purchasing it for $344.8 million in 2011. The Atrium includes 595 Bay St., 20 and 40 Dundas St. West, and 306 Yonge St.

In a release late Wednesday night, H&R said the purchase price equates to a capitalization rate of 4.56 per cent.

“Given the strong investor demand for Toronto office properties and the substantial capital this asset will require over the next several years for redevelopment and intensification, we chose to take advantage of strong market pricing, and reallocate capital to both strengthen our balance sheet and to fund our value-creating developments,” H&R’s president and CEO Thomas Hofstedter said in the release.

Since acquiring The Atrium, H&R said it has increased annual net operating income at the property by $6.5 million.

The Atrium’s IFRS value as of March 31, 2019 was $600 million, up from $548 million three months earlier. H&R expects to record a gain of approximately $40 million, relative to its IFRS value, and a sale price approximately $295 million higher than its purchase price.

Features of The Atrium

The property currently comprises 907,247 square feet of class-A office space and 151,346 square feet of retail space.

H&R says The Atrium has the largest floor plan in downtown Toronto, with the ability to accommodate office tenants from as small as 1,500 square feet to as large as 88,000 square feet on a single floor.

It has direct access to the TTC subway network and Toronto’s PATH indoor pedestrian walkways. It’s also close to Toronto City Hall, Queen’s Park, the courthouse, major hospitals and Ryerson University.

The Atrium has been sold several times since being constructed In 1981. Most recently, the property was sold to H&R by Hines in 2011. Hines had purchased the site from a joint venture involving Brookfield Properties in 2007.

After purchasing the site, H&R conducted an extensive expansion, adding five floors to each of the towers and expanding the ground-level space.

Among the main tenants are CIBC Infrastructure Ontario, Legal Aid Ontario and HUB International.

The Atrium is currently unencumbered. Closing is subject to the customary conditions and approvals, and is expected to occur on or about June 6.

H&R will provide the purchaser with a vendor take-back mortgage of $256 million, bearing interest at an annual rate of 4.56 per cent and maturing on Jan. 2, 2020.

About H&R REIT

H&R REIT is one of Canada’s largest real estate investment trusts with total assets of approximately $14.7 billion as of Dec.  31, 2018.

H&R REIT has ownership interests in a North American portfolio of high-quality office, retail, industrial and residential properties comprising over 42 million square feet. 

As of Dec. 31, H&R had $1.6 billion of properties under development, with multiple additional high-return development, redevelopment and intensification opportunities embedded in its portfolio.