PROREIT (PRV.UN-T) is continuing the rapid expansion of its industrial portfolio during 2021 with the pending acquisition of 16 additional properties for a total of $163.2 million. Fifteen of the properties are in Atlantic Canada and the other is in Winnipeg.
They will add almost 1.2 million square feet to PROREIT’s portfolio, increasing it to a total of 6.6 million square feel of GLA and a value of about $928 million.
“The acquisitions of these high-quality institutional assets represent a strategic transaction for the REIT and provide AFFO accretion,” said James Beckerleg, PROREIT’s CEO, in the announcement Monday afternoon. “The assets offer significant growth potential and substantially increase PROREIT’s exposure to the industrial sector across key markets.
“The acquisitions also demonstrate the REIT’s continued success and ability to source and acquire assets in the highly competitive industrial segment where we are focused.”
PROREIT also announced a bought-deal offering of trust units which could raise up to $69 million, and a concurrent private placement of $14 million of units with Collingwood Investments Incorporated, a member of the Nova Scotia-based Bragg Group of Companies. Collingwood is an existing investor in PROREIT.
They are the latest in a series of major acquisitions this year which has increased PROREIT’s holdings by almost a third. At the end of December 2020, PROREIT held 91 properties with a value of about $634 million.
Atlantic Canada and Winnipeg acquisitions
The latest acquisitions involve 14 properties in the Burnside Industrial Park, which PROREIT calls “Halifax’s most sought-after industrial node.” They will increase PROREIT’s presence in the park to 1.5 million square feet.
The other is in Moncton, N.B.
The Burnside properties total 1,074,269 square feet of GLA, contain 135 tenants, feature clear heights of 12 to 24 feet, have ample loading doors, and are comprised of warehouse, light industrial and flex office spaces. The properties are 99 per cent leased to a diverse mix of tenants with a weighted average lease term of 3.3 years.
Many of the in-place leases include contractual rent step escalations. Since the beginning of 2021, however, the cost to lease industrial space in Burnside has seen significant increases. Current rents in Halifax are $9.791 per square foot, above the portfolio’s weighted average in-place rent of $7.05 per square foot.
Burnside Industrial Park is the largest industrial node east of Montréal and north of Boston. Vacancy rates in the park are at all-time lows (2.6 per cent). The Atlantic Canadian economy, more specifically Nova Scotia, has significantly outperformed the rest of the country over the last few years, including during the pandemic, PROREIT states in the announcement.
The Winnipeg building comprises 106,737 square feet of GLA in an industrial park at Notre Dame Avenue and Dublin Avenue, in close proximity to both downtown and the Trans-Canada Highway. It has a clear height of approximately 16 feet and is fully occupied by a mix of commercial tenants with a weighted average lease term of 2.6 years.
With a weighted average in-place rent of $5.86 per square foot, the property is well-positioned to generate rental revenue upside as market industrial rates are around 44% higher at $8.41 per square foot in the Winnipeg West submarket.
Financing the acquisitions, and PROREIT’s portfolio
PROREIT expects to pay for the acquisitions via a combination of the following funding sources:
– approximately $54.6 million in cash from the offering and private placement;
– approximately $105 million from a bridge facility which will be replaced with new mortgage financing to be determined prior to closing, and
– an $8 million mortgage assumption.
PROREIT also has an agreement to sell three predominantly retail properties in New Brunswick for a $8.1 million. Proceeds will pay out $5 million in mortgages and the balance for other purposes.
When the transactions have closed, PROREIT’s portfolio will be comprised of 120 income-producing commercial properties with a weighted average lease term of 4.5 years.
The addition of the industrial properties will increase PROREIT’s portfolio exposure in that segment to 78 per cent by GLA and 63 per cent by base rent.
The acquisitions are subject to customary closing conditions, including regulatory approvals, and are expected to close in Q4 2021.