Enclosed shopping centre specialist Primaris REIT (PMZ.UN-T) has an agreement to acquire the million-square-foot Les Galeries de la Capitale in Quebec City for $325 million in one of the largest retail transactions in the country this year.

Primaris will fund the acquisition by a combination of $170 million in cash, the issuance of 2.5 million series A notes of the trust (raising approximately $55 million) and $100 million of units in a new limited partnership. 

The shopping centre is owned by Oxford Properties, which put the property up for sale earlier this year.

The BOMA BEST Platinum mall includes anchors Hudson Bay, Winners, Mountain Equipment Company and Simons. In all, it offers over 225 stores and services.

“Les Galeries de la Capitale is a market-leading regional enclosed shopping centre that exemplifies the type of property Primaris is targeting with its growth strategy,” Patrick Sullivan, president and chief operating officer of Primaris, said in the announcement. “The shopping centre sits on 91 acres of land with 26 per cent site coverage, is extremely well located in Quebec City along major highways with excellent accessibility and visibility, and is home to one of the region’s busiest bus terminals with over 400 buses per day.

“The opportunity for growth at this asset includes the conversion of tenants from variable to net rent deals, as well as leasing-up vacant space, including the former Sears department store.”

The acquisition is scheduled to close on Oct. 1.

Les Galeries de la Capitale

The property is located at the intersection of Highways 40/73 and 740 on 91 acres of land. With 1,015,000 square feet of rentable space, the shopping centre has a site coverage of approximately 26 per cent - which also leaves ample room for the possibility of intensification.

Galeries de la Capitale hosted 7.8 million visitors last year. It boasts 96.4 per cent occupancy, and 98.3 per cent committed occupancy.

Its former owner invested $165 million in redevelopments during the past decade, including a relocation of the Simons store, food court relocation and expansion and other upgrades.

“This transaction is highly beneficial for Oxford and speaks to our track record of actively managing and driving performance at top-tier shopping centres in Canada. While we are proud of the success of Les Galeries de la Capitale, it remains our only asset within Quebec City and, as such, is no longer a core holding for Oxford," an Oxford spokesperson told RENX in an email exchange. "Upon closing, this transaction will allow us to recycle capital from an asset where we have completed our asset management activities and redeploy it to strengthen our dominant GTA and Alberta shopping centres.

"This includes our plan to intensify the surrounding lands of shopping centres with thousands of new rental apartments as we continue to do our part to add new supply to help tackle the housing crisis in Canada.”

The mall also includes the renovated and redesigned Mega Parc amusement centre with 18 attractions, adjacent to the new food court. 

“This acquisition builds on Primaris’ profile as an attractive buyer of large, high-quality assets. Five of Canada’s 10 largest pension funds have now vended market-leading shopping centres to Primaris, taking back equity and convertible preferred equity investments in the REIT,” Alex Avery, the chief executive officer of Primaris, said in the release.

“Consistent with prior acquisitions, this property enhances the REIT’s value proposition with retailers, and offers a significant income growth opportunity consistent with the growth we see ahead for our existing assets.”

Opportunities to increase operating income include:

• the conversion of tenants on preferred rent deals to standard market leases;
• lease-up of approximately 110,000 square feet of temporarily tenanted or vacant space; and
• leveraging Primaris’ scalable management platform to deploy its cost management strategy.

“Closing this first acquisition in 2024, while maintaining industry-leading credit metrics, is a testament to the strategic advantages provided by Primaris REIT’s differentiated financial model,” Rags Davloor, the chief financial officer of Primaris, added in the announcement.

“Our commitment to maintain an extremely well capitalized balance sheet positions Primaris as a highly credible transaction counterparty, at a time when many other groups are finding access to capital, and particularly financing, challenging.”

About Primaris REIT

Primaris is Canada’s only enclosed shopping centre focused REIT, with ownership interests primarily in leading enclosed shopping centres in growing mid-sized markets. 

The current portfolio totals 12.4 million square feet valued at approximately $3.8 billion at Primaris’ share. 

CORRECTION: When originally published, this article contained an incorrect image, which did not represent Les Galeries de la Capital. The image has now been updated to reflect the property involved in the transaction. RENX apologizes for the error.