PROREIT (PRV-UN-T) and Crestpoint Real Estate Investments Ltd. have created a joint venture involving $455 million of mainly industrial properties, including a $228-million portfolio which they are acquiring in the Halifax Burnside Industrial Park.
On closing of the transactions, Montreal-based PROREIT and Toronto-headquartered Crestpoint will jointly own a portfolio of 42 properties, 41 in Halifax and one in Moncton. They will comprise nearly 3.1 million square feet of gross leasable area.
“This joint venture is a unique opportunity for PROREIT to increase its footprint in Halifax’s Burnside Industrial Park, one of Canada’s strongest industrial nodes,” said James W. Beckerleg, president and chief executive officer of PROREIT, in the announcement Tuesday morning.
“By joining forces with Crestpoint, a high-profile institutional real estate investor, collectively we will have an opportunity to achieve meaningful operational and leasing synergies in addition to diversifying our robust industrial tenant base.”
PROREIT and Crestpoint will each acquire 50 per cent interests in the 21-asset Burnside portfolio, which is currently owned by a third party, for $228 million.
Transactions add scale to PROREIT holdings
In conjunction with that transaction, PROREIT will sell a 50 per cent interest in 21 of its currently owned properties to Crestpoint for $113.5 million (valuing that portfolio at $227 million).
“Crestpoint is excited to take a significant presence in the Halifax industrial market with an ideal partner, PROREIT,” said Kevin Leon, president and CEO of Crestpoint, in the announcement.
“The City of Halifax has been such a strong beneficiary of population and economic growth in the last several years and we believe going forward it will continue to demonstrate these growth patterns as the dominant commercial centre for Eastern Canada.
“Combining Crestpoint’s national industrial expertise alongside PROREIT’s local industrial knowledge will result in a leading East Coast industrial platform. Crestpoint, with this acquisition, will have a significant presence from coast to coast which will contribute to Crestpoint’s leading position as one of Canada’s top investment managers.”
PROREIT, through its property management business Compass Commercial Realty, will act as the property manager for the portfolio.
PROREIT’s acquisition of the 50 per cent interest in the Burnside properties, which total 1.6 million square feet, will be financed via a 50 per cent interest in approximately $148 million of new mortgages. The $40-million balance will be paid in cash, including the proceeds of the sale of the existing properties to Crestpoint.
Crestpoint’s share in the PROREIT assets
The sale of the interest in the 21 currently owned properties will result in approximately $49 million in cash to Crestpoint, which also assumes a 50 per cent interest in approximately $129 million of mortgages currently held by PROREIT.
The balance of the proceeds to PROREIT, net of the acquisition payment, will be used to reduce the REIT’s credit facility.
The transaction is expected to close in the coming weeks and remains subject to customary closing conditions.
“We are pleased to manage and operate this highly desirable portfolio,” Beckerleg noted in the announcement.
“Given Halifax’s solid economy and tight industrial real estate market, we look forward to unlocking the significant market leasing upside embedded in these properties and to further benefit from the accretive effect that should result from the scale of this joint venture.”
When the transactions close, PROREIT will own interests in 42 properties in the Burnside Industrial Park. Burnside is the largest industrial node east of Montréal and north of Boston.
It benefits from strong market fundamentals with an all-time low vacancy of 2.5 per cent and “consistent growth in net rental rates,” according to PROREIT and Colliers’ 2022 Q1 industrial report for Halifax.
The 42-asset portfolio is comprised of warehouse, light industrial and flex office spaces. The properties are approximately 95 per cent leased to a diverse mix of tenants with a weighted average lease term of three years.
Many of the in-place leases contain contracted rent step escalations and/or are below current market rents, presenting substantial future rental upside upon turnover, PROREIT says.
About PROREIT and Crestpoint
PROREIT is an unincorporated open-ended REIT established under the laws of the Province of Ontario.
Founded in 2013, PROREIT owns a portfolio of Canadian commercial real estate properties with a strong industrial focus in robust secondary markets.
Crestpoint Real Estate Investments Ltd. is a commercial real estate and mortgage investment manager holding a diversified portfolio of commercial real estate assets.
Crestpoint’s current portfolio has a market value in excess of $8.5 billion and is comprised of over 31 million square feet of commercial properties.
Crestpoint is part of the Connor, Clark & Lunn Financial Group, a multi-boutique asset management company that provides investment management products and services to institutional and high-net-worth clients.
With offices across Canada and in Chicago, London, and Gurugram, India, Connor, Clark & Lunn Financial Group and its affiliates manage $104 billion in assets.