Parkit Enterprises (PKT-X) is acquiring an almost 10 per cent investment in PROREIT (PRV-UN-T) as part of its compensation for the sale of six Winnipeg properties to the industrial real estate owner and operator.

The six buildings comprise 678,177 square feet of gross leasable area, and are being sold for $96.5 million. Approximately $40 million of the payment will be in PROREIT units - totalling 6.45 million units - giving Toronto-based Parkit a 9.6 per cent stake in PROREIT.

The issuance price of $6.20 per unit represents premiums of 21.8 per cent and 24.4 per cent to the closing price of the PROREIT units on May 12 and the 20-day volume-weighted average trading price of the units as at that date, respectively. 

"We are excited to make this significant investment in PROREIT and look forward to working with Gord (Lawlor, PROREIT’s president and CEO) and his team on future opportunities,” Steven Scott, the chair of Parkit’s board, said in his company's announcement. 

For PROREIT, this is the latest step in the trust’s transition from a general commercial real estate holder into a pure-play industrial owner and operator. It also brings on board a partner in Parkit which has also been growing its industrial holdings over the past couple of years, diversifying from being almost exclusively an owner/operator of parking facilities.

"This accretive acquisition meaningfully expands our industrial footprint in Winnipeg and supports our growth strategy focused on scaling our platform through high-quality industrial properties in strong secondary markets," Lawlor said in a release from PROREIT.

"As part of the transaction, we are pleased to establish a strategic relationship with Parkit through the issuance of units and by welcoming Parkit's Steven Scott to our board of trustees following closing. Given Parkit's value-add expertise and aligned interests, we see meaningful opportunities to pursue further growth together."

The portfolio, and PROREIT's industrial holdings

The acquisition will increase PROREIT's industrial exposure to approximately 88 per cent of GLA and 83 per cent of its base rent. It also expands PROREIT's Winnipeg small- and mid-bay portfolio to 22 properties (including one parcel of development land) and approximately 1.3 million square feet of GLA.

The price represents approximately $142 per square foot and a mid-six per cent capitalization rate, PROREIT states.

The portfolio is comprised of warehouse, light industrial and flex industrial spaces. It is currently 99.7 per cent leased to a diverse roster of 26 tenants, with a weighted average remaining lease term of approximately 4.2 years, and in-place leases within the portfolio are approximately eight per cent below current market industrial rents in Winnipeg. 

The properties are:

• 1725 Inkster Blvd. - 268,732 square feet;
• 1345 Redwood Ave. - 112,132 square feet;
• 2030 Notre Dame Ave. - 107,757 square feet;
• 961-975 Sherwin Rd. - 82,640 square feet;
• 310 De Baets St. - 74,196 square feet; and
• 90-120 Paramount Rd. - 32,720 square feet.

The properties will be held in the PROREIT Limited Partnership.

The investor rights agreement

While some conditions have been waived in relation to the transaction, others remain to be completed. The transaction is slated to close later in Q2.

Upon closing, PROREIT and Parkit will enter into an investor rights agreement which will include: one position on PROREIT’s board to be filled initially by Scott; pre-emptive rights for Parkit to acquire additional units of PROREIT offerings; registration rights for the sale of the trust units that Parkit acquires; and, other provisions.

Scott is also the chair and CEO of StorageVault Canada, principal and CEO of The Access Group of Companies, and director and treasurer of the Canadian Self Storage Association.

Upon completion of the transaction, PROREIT’s portfolio will be comprised of 118 income producing commercial properties representing approximately 6.7 million square feet of GLA and $1.1 billion of total assets.