PROREIT (PRV-UN-T) president and CEO Gordon Lawlor sees great opportunity in Atlantic Canada for commercial real estate companies in the wake of the federal government awarding a multibillion-dollar military shipbuilding contract to Halifax-based Irving Shipbuilding Inc.

Irving is to construct a new generation of destroyers for the Royal Canadian Navy in a contract initially worth $8 billion. The investment is expected to create jobs and opportunities while boosting gross domestic product across the region.

The total contract is expected to be valued at $22.2 billion, with the work on the ships creating or maintaining 5,250 jobs annually until 2039.

While Irving Shipbuilding owns its Halifax Shipyard facility and three smaller related properties, PROREIT expects to be a beneficiary of the ancillary activity that will be spurred by the largest shipbuilding effort in Canada since World War II. 

PROREIT, co-founded by James Beckerleg and Lawlor in 2013, owns a $1-billion portfolio of 115 properties across all 10 Canadian provinces. It encompasses a gross leasable area of 6.1 million square feet and has a 97.8 per cent occupancy rate.

PROREIT’s strength in Atlantic Canada

But the bulk of its portfolio is in Atlantic Canada. Montreal-headquartered PROREIT owns 73 properties in the region, accounting for 52.6 per cent of its total base rents. 

That includes a 50-50 partnership with Crestpoint Real Estate Investments Ltd. that Lawlor — a Halifax native — said owns 3.1 million square feet in nearby Dartmouth's Burnside Industrial Park, the largest industrial park north of Boston and east of Montreal. 

“Anything that bodes well for the economy of Halifax will help that park,” Lawlor told RENX. 

PROREIT also owns more than 600,000 square feet of industrial space in Moncton, N.B., a large trans-shipment market and another Atlantic Canada hub. 

The trust also owns a 250,000-square-foot industrial building in the Ottawa suburb of Kanata where a tenant was exiting 120,000 square feet. Lawlor said the empty space was quickly filled by Thales, a French defence contractor with ties to the Halifax shipbuilding project, which signed a 15-year lease.

Increased focus on industrial assets

PROREIT was a diversified real estate investment trust when it launched, but over the past five years has become more industrial-focused and is reducing its retail and office exposure. Industrial properties now account for 80.8 per cent of base rents, with retail accounting for 14.9 per cent and office for 4.3 per cent.

The goal is to get 90 per cent of cash flow coming from industrial assets.

“What we basically focused on is small- and mid-bay buildings that range from 30,000 square feet to 200,000 square feet in secondary markets across Canada,” Lawlor explained.

These properties are largely concentrated in Halifax, Moncton, Montreal, Ottawa, southwestern Ontario and Winnipeg. Compass Commercial Realty was acquired by PROREIT in 2018 to become its property management arm and Lawlor said the trust is looking to acquire assets based on where its portfolio management is strongest.

“Our portfolio is valued at $160 a square foot,” Lawlor said. “New builds in industrial across Canada are $200 to $300 a square foot. 

“When people are building industrial, they're building large-bay for tenants of 100,000-plus square feet. The weighted average of our tenants is 6,000 to 8,000 square feet across the portfolio. Nobody's building those small-bay assets anymore because they're prohibitively expensive.”

While the industrial asset class may not be as hot as it was a couple of years ago, Lawlor said it’s still under-developed in Canada compared to the United States and has long-term upside.

Potential impact of tariffs

Tariffs imposed by the U.S. and retaliatory tariffs implemented by Canada are bound to hurt the Canadian economy and it remains to be seen how they’ll impact PROREIT.

“Less than 15 per cent of our square feet delivers to the U.S.,” Lawlor noted. “But who knows, of the 700 tenants we have, how much of their material comes from the U.S. that could be subject to reverse tariffs?”

Real estate generally performs well in recessionary environments with lower interest rates, according to Lawlor, but increased construction costs due to tariffs and other factors will make development more expensive and less likely.

PROREIT’s year-end results

PROREIT announced its 2024 financial and operating results on March 12, and Lawlor said “we had a pretty solid year.”

Cash flow on a same location basis was up more than five per cent in 2024 compared to 2023 and PROREIT has a five-year model that shows five to seven per cent annual cash flow growth.

“When you look at the metrics that we have, with our debt levels and cash flow growth, it's still a valuable opportunity to own some REIT stock . . .” Lawlor said.

PROREIT wasn’t impacted as much by higher interest rates over the past three years as some other companies because of the way it financed its debt on a long-term basis and staggered maturities. 

“We haven't been acquirers of real estate because REITs are out of favour in the equity market,” Lawlor added. “We've been challenged to grow since April 2022 when the interest rate scare started. We expect interest rates to come down again over time and we'll be back in a better spot.”

Dispositions and acquisitions

PROREIT sold nine non-strategic properties for $71.2 million and acquired one industrial property for $32.7 million in 2024. It expects to sell between $30 million and $60 million in non-core assets this year.

The trust sold a 50 per cent-owned, 60,000-square-foot industrial property in Halifax in February, for which it received $5.4 million. 

It was looking to lease the building but Lawlor said the buyer — a heating, ventilation and air conditioning system provider for marine vessels called Bronswerk Group — had previously been a tenant of the building and “came with a premium bid,” which prompted the sale. 

PROREIT has also sold a non-core property for $5.9 million and entered into a binding agreement for the sale of another non-core property for $1.1 million so far this year.