Primaris REIT has agreed to a “landmark” acquisition of the Conestoga Mall in Waterloo from Ivanhoé Cambridge for $270 million.

The 585,000-square-foot regional shopping centre sits on 49.8 acres of land and features a range of major retailers including HBC, Galaxy Cinema, Sport Chek, Indigo and H&M. It is shadow-anchored by a Zehrs food store with direct access to the mall.

One key feature of the centre is regionally unique retailers including Apple, Lululemon and Nespresso, with other notable tenants including Aritzia, Sephora, Aerie, Old Navy and RW & Co.

“This landmark transaction is the culmination of months of collaboration with Ivanhoé Cambridge, and further validates and demonstrates support for Primaris’ platform, strategy and value proposition,” said Alex Avery, Primaris’ CEO, in the announcement. “Since the inception of Primaris REIT, we have been very clear about the significant opportunity to acquire additional market-leading Canadian shopping centres. 

“Primaris is uniquely positioned as a potential buyer, with institutional scale as the third largest owner-operator of enclosed shopping centres in Canada with pro forma assets of approximately $3.5 billion, a very well capitalized balance sheet, a differentiated financial model and a mandate for growth.”

Conestoga Mall features

Conestoga Mall is the leading enclosed shopping centre in the Kitchener-Waterloo region, which is located just west of the Greater Toronto Area. 

The property is adjacent to Conestoga station on the 19-station ION light-rail mass rapid transit system.

It boasts an annual all-store sales volume of $180.8 million and has 94.4 per cent in-place occupancy.

Ivanhoé Cambridge also completed a major $46-million redevelopment of the property in 2018.

“Conestoga was identified early in the process of evaluating potential acquisition targets for a number of notable characteristics, including its leading market position, strong sales performance, mass rapid transit connection and its attractive location within a growing market,” said Patrick Sullivan, president and chief operating officer for Primaris, in the announcement.

Primaris management feels that, similar to its existing portfolio, Conestoga Mall offers the opportunity for significant NOI growth potential in coming years. The property is currently unencumbered.

Two areas it identifies in the announcement are to lease up 58,000 square feet of vacant of “temporary tenanted” space, as well as converting tenants on preferred leasing deals to standard leases.

“Our team is very excited to add Conestoga Mall to our property portfolio, with significant income growth potential consistent with the growth we see ahead for our existing assets. With new and exciting retailers unique in the market including Apple, Lululemon and Nespresso, Conestoga Mall is amongst the top-15 most productive malls in Canada and will be highly accretive to Primaris’ overall portfolio quality."

Rags Davloor, chief financial officer of Primaris, said in the announcement. “Our differentiated financial model, including very low leverage, a low payout ratio and significant retained free cash flow is a major strategic advantage for Primaris. 

“We are very pleased to be able to execute a transaction of this quality while preserving our industry leading financial metrics within target ranges.”

Financing the acquisition

Ivanhoé Cambridge embarked on a strategy to divest some of its retail properties several years ago as it moved to further diversify its holdings and reduce exposure in the sector.

“We are very pleased to have executed this transaction with Primaris REIT, given their commitment to continue to unlock the full potential of this established shopping mall in the Kitchener-Waterloo area,” Annie Houle, head of Canada at Ivanhoé Cambridge, said in the announcement. “Primaris REIT’s defined business strategy, experienced management platform and prudent capital management supports this new investment.”

The acquisition is to be financed via $165 million in cash; $25 million of series A units of the trust at a price of either (the lower of) $21.49 per unit, or the NAV per REIT Unit disclosed in the trust’s most recently published financials; and $80 million of exchangeable preferred units in a new limited partnership.

The transaction is expected to close in July, pending a series of conditions including the approvals of the Toronto Stock Exchange and under the Competition Act (Canada).

CBRE acted as real estate advisors and TD Securities acted as financial advisors to Ivanhoé Cambridge. Real Asset Strategies Inc. is acting as investor relations advisor to Primaris REIT.

About Primaris and Ivanhoé Cambridge

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

Its portfolio totals 10.9 million square feet valued at approximately $3.1 billion at Primaris’ share.

Ivanhoé Cambridge develops and invests in real estate properties, projects and companies around the world.

Ivanhoé Cambridge holds interests in 1,500 buildings, primarily in the industrial and logistics, office, residential and retail sectors. Ivanhoé Cambridge held $77 billion in real estate assets as of Dec. 31, 2022 and is a real estate subsidiary of CDPQ, a global investment group.