Partners REIT (PAR-UN-T) CEO Jane Domenico says a piece of knowledge driven home while selling the trust’s Western Canadian assets led it to a decision to also put the “For Sale” sign on its 11 retail properties in Quebec.
Domenico already knew commercial real estate investment in the province has been heating up for the past year or two. She also knew properties with prospects for additional future development, or redevelopment, fetch more on the market.
What clicked during the REIT’s sale of its Western portfolio (which consisted of 11 retail sites) is just how strong that correlation would be in Quebec.
“It was a very strong (Western) portfolio, but a very specific buyer would be looking for that because there wasn’t as much development opportunity,” Domenico told RENX on Wednesday after also announcing the sale of nine of its 10 remaining properties in Western Canada.
“What we heard from potential purchasers was they had all wished there was more development opportunity.
“That’s a hallmark of our Quebec assets.”
A change in strategy
While the sale of the Western properties is expected to net proceeds of about $50 million, the Quebec properties are much more valuable. Partners expects upwards of $190 million if it divests all 11 sites.
“There are some fantastic redevelopment and development opportunities,” Domenico said. “Specifically Place Desormeaux in Longueuil, Centre Le Village (in Montreal) and Saint Remi (Shopping Centre in St. Remi). This portfolio is exactly what the market is looking for.”
A few months ago, Partners REIT was planning to use proceeds from the Western sale to help with redevelopments and intensifications at its Quebec and Ontario properties (see CEO Domenico creates a completely different Partners REIT). However, Domenico said a portion of that money will now go into a special distribution to Partners’ shareholders.
The trust will see what happens with the Quebec portfolio – at this point it is testing market interest in the sites – before making any further decisions.
“We wouldn’t put them on the market if we didn’t think they were going to transact, but at the end of the day we really need those results to make that determination,” she said. “But we will investigate every option in front of us.”
Partners still plans a previously announced residential redevelopment at its Cornwall Square mall in Ontario, but no other decisions have yet been made.
As for the change in strategy, she said Partners’ management does what’s best for its shareholders at any given time.
“At Partners REIT we make tough decisions, and we make thorough decisions,” she said. “I always say it’s active investment management, meaning we are going to look at all options.
“I’d love to be executing these, but we feel putting them on the market is best for our unitholders. That’s what we’re going to be driven to do. That is why we exist.”
Details of the portfolios
When it started the sale process, Partners held 34 retail properties from Quebec to British Columbia, comprising about 2.3 million square feet of leasable area.
In March, the trust announced it would consider selling its 11 properties in Manitoba, Alberta and British Columbia. The largest shopping centre, Mariner Square in Campbell River, B.C., was sold first in a separate transaction.
Wednesday’s announcement means only one Manitoba property remains to be divested.
“We met our market expectations, we knew there would be demand for these assets,” Domenico said. “The portfolio is 99.6 per cent occupied as of June.”
The buyer has not been publicly disclosed. Partners said in a release announcing the sale that due diligence has been completed, but closing remains subject to a number of other conditions. It is expected to be final on Oct. 22.
The sale will leave Partners with 24 retail properties, comprising about 1.9 million square feet of leasable space (including its Quebec holdings). BMO Capital Markets has been retained to canvass the market for potential buyers for the Quebec properties.
If it divests all the Quebec sites (about 1.2 million square feet of leasable area) and the remaining Manitoba store, Partners’ remaining properties would all be in Ontario.
Special distribution to shareholders
A portion of the proceeds from the pending western sale will be distributed to shareholders as part of a special cash distribution following the close of the sale. The amount of the distribution is yet to be determined, but will be determined based on a number of factors, including ongoing cash requirements of the REIT.
With the reduction in size of the REIT, the board of directors plans to reduce the ongoing monthly cash distribution following the special distribution. The reduction, it says, will be roughly in proportion to the amount of the special distribution.