Despite a stumbling economy, Morguard Corporation chairman and chief executive officer K. Rai Sahi has his sights firmly set on Canada.

“The current economic environment in Canada is challenging,” Sahi said. “There are significant variables that make predicting 2016 extremely difficult.

“Our experience has taught us that while preserving capital is prudent in the current environment, some of the best opportunities come about during times like this. So we are also preparing to capitalize on any opportunities that may arise.”

To that end, Morguard (MRC-T) has finalized an agreement to acquire three hotels near Toronto’s Pearson International Airport for $33.5 million, excluding closing costs.

“The acquisition of the latest Toronto hotel portfolio is consistent with our strategy to acquire hotels in desirable submarkets with established demand patterns,” Sahi said of a Courtyard by Marriott, Residence Inn by Marriott and the independently branded Hotel Carlingview Toronto Airport. (Building at the bottom of the image.)

“The three hotels are located adjacent to Pearson International Airport, have easy access to major highways, are close to businesses in Mississauga and the west end of Toronto, and are in close proximity to the Toronto Congress Centre.”

The purchases are adjacent to Morguard’s full-service Toronto Airport Marriott Hotel, which the real estate and property management company secured in 2012. (Building on the top of image.)

Airport hotel synergies

“Our objective is to realize synergies amongst the cluster of four hotels,” said Sahi. “We believe there is a solid opportunity to bring Morguard’s asset management skills in the hotel segment to achieve increases in occupancy and average daily rates.”

The three new hotels were acquired from an American-based hotel company with which Morguard has an established relationship. They add 417 rooms to Morguard’s hotel portfolio, which now includes 1,473 rooms at nine properties. Sahi wouldn’t reveal the individual prices for the properties acquired via cash and a $20-million credit facility.

Morguard has also met or is expected to meet all conditions related to the assumption of managing Temple Hotels Inc. (TPH-T) and is working toward a transition date of April 1. Temple has 30 hotel properties with more than 4,000 rooms. 

Morguard acquired seven million common shares of Temple for $7.49 million late last year. Morguard became Temple’s largest shareholder and now has approximately 39.45 per cent of the issued and outstanding common shares on a partially diluted basis.

Temple Hotels management

“The Temple board of directors thought it was time to make a change since Temple seemed to be extremely undervalued, with the trading price of its common shares trading at a steep discount to their intrinsic value,” said Sahi.

“We see value in the Temple hotel portfolio and are bringing our experienced asset management team to the table and are committed to its long-term performance for all shareholders.”

Morguard has extensive retail, office, industrial, multi–suite residential and hotel holdings owned directly or through its investment in Morguard REIT (MRT.UN-T) and Morguard North American Residential REIT (MRG.UN-T). The company also provides real estate management services to institutional and other investors.

Morguard’s owned and managed portfolio of assets is valued at nearly $19 billion.

“Mature real estate assets continue to command top dollar, largely as a result of foreign capital aggressively bidding on assets that come to market,” said Sahi. “As a result, we continue to review development opportunities in Canada and the United States to achieve growth.”

Morguard completed a 49 per cent investment in Block 37, a 34-storey, high-rise complex in downtown Chicago with 691 suites that should be ready for tenants this summer. The U.S.$44-million investment adds to the company’s existing Chicago residential high-rise, Alta at K Station.

REIT acquires Ottawa’s 160 Chapel

Morguard North American Residential REIT recently purchased 160 Chapel, a rental apartment building in Ottawa, for $67 million (excluding closing costs) from a syndicate of Morguard’s institutional clients that had owned the building since 2003. Morguard managed the 21-storey, 370-suite building on behalf of the syndicate, which gave the REIT a unique perspective on how it had been run and maintained.

The building features furnished and unfurnished suites with a mix of bachelor units and one- and two-bedroom floor plans. It has a prime location in an existing multi-suite residential neighbourhood with stable occupancy. It’s immediately adjacent to transportation and is in close proximity to downtown, the University of Ottawa, Rideau Centre and Byward Market. 

A medical centre, pharmacy, hair salon and restaurant on the ground floor encompass 7,010 square feet and provide just over two per cent of the property’s overall revenue. 

The Ottawa apartment is the first Canadian acquisition since the REIT went public in 2012 with approximately $700 million in assets. Its holdings have since grown to more than $2 billion, primarily through multi-suite residential acquisitions in the U.S.

U.S. and Canadian growth

“The logic behind U.S. growth is simple,” said Sahi. “There are abundant opportunities to acquire assets at yields that are attractive to the REIT.

“In the Canadian market, there is a shortage of available product relative to the volume of capital looking to real estate for yield — and values are holding at the peak.”

The lack of new and existing apartment product for sale, coupled with aggressive foreign and domestic purchasers, has created a highly competitive environment.       

Morguard Corporation recently built The Heathview — a twin-tower, purpose-built rental totaling 587 suites at Spadina Road and St. Clair Avenue in midtown Toronto — to increase the apartment supply.

“There are not many locations in Toronto where enough rent can be generated in order to justify construction,” said Sahi. “The limited market supply signals that current owners realize multi-suite residential is a good, stable business to be in, which is why Morguard remains committed to the asset class.”

An institutional client partnered with Morguard North American Residential REIT to purchase a 252-suite, garden-style rental property in southeast Florida late last year. The REIT will continue to review acquisition opportunities in Canada and the U.S. 

Morguard North American Residential REIT now owns interests in more than 13,000 suites at 15 Canadian residential apartment communities in Alberta and Ontario and 31 American low-rise and mid-rise, garden-style apartment communities in Alabama, Colorado, Florida, Georgia, Louisiana, North Carolina and Texas.