Congebec’s 200,000-sq.-ft. facility in Calgary is one of nine properties purchased by Skyline Commercial REIT. (Image courtesy Skyline)

Skyline Commercial REIT closed the purchase of nine temperature-controlled facilities in Quebec and Western Canada on Thursday afternoon from Quebec City-based Congebec Logistics for $190 million.

The facilities total 1.3 million square feet and are located in the Montreal area (with locations on the island of Montreal, Ste. Julie and Boucherville), Quebec City (three locations), Calgary, Saskatoon and Winnipeg.

“We really like the sector,” Michael Mackenzie, president of Skyline Commercial REIT, told RENX in an exclusive interview. Frozen food is “seeing double-digit annual growth right now. It’s virtually recession-proof in nature.”

Mackenzie notes that in moving into the cold-storage sector, “we’re actually not being pioneers here.” For example, Vancouver-based VersaCold is jointly owned by Toronto-based private equity real estate investment firm KingSett Capital and Montreal-based Ivanhoé Cambridge, the real estate subsidiary of institutional fund manager Caisse de depot et placement du Québec.

Congebec to manage facilities

Mackenzie adds Skyline Commercial likes Congebec and its management team, which will continue to manage the buildings. “For all intents and purposes, (Congebec) will do most of the heavy lifting. Our management teams are more on the supervisory level.”

The buildings Skyline Commercial is acquiring are primarily purpose-built freezer facilities designed to manage cold temperatures, with insulated ceilings and walls and glycol in the floors. The buildings have clear heights of around 38 feet.

Founded in 1974, Congebec is the largest provider of refrigerated services in Quebec, the second-largest in Canada and the 11th-largest in North America, Mackenzie says.

“These are relationship-type deals, because we’re going to be living together for 20 years,” Mackenzie says of Congebec. “That was part of our decision-making process because we think that this is a company that we can grow with.”

Skyline Commercial is buying the buildings at below replacement cost and the properties are “mission-critical” to tenants. “We felt it was a good investment for us,” says Mackenzie.

Skyline’s largest acquisition in recent years

It’s the largest transaction for Skyline Commercial REIT in the last three or four years.

They facilities are fully leased and all are on long-term leases. “For our purpose, they’re all single tenants.” One of the Quebec City buildings is leased directly by the grocer Metro on a long-term lease and is the only building of the nine not leased back to Congébec.

The facilities in Ste. Julie and Calgary – which was built in 2007 and has just been expanded significantly – are the largest at 200,000 square feet, while several are in the range of 100,000 to 130,000 square feet.

While there are no current plans to make changes to the properties, “there are some opportunities to expand facilities in certain markets and we’ll be looking at that” with Congebec, Mackenzie says.

The Congebec deal was brought to market by Colliers International last April. “I think that there were a number of regional bids, but I think we were the only ones that stepped up to do a national bid,” he says.

With the transaction, Skyline Commercial will have about 99 properties under management with an approximate portfolio value of $750 million.

“We’re looking for long-term, stable income in predominantly newer facilities, specifically for the purpose of providing a long-term stable income for our unitholders,” Mackenzie says.

REIT’s portfolio has evolved

The REIT’s portfolio has evolved over the years, he says: “When it began, it was primarily a multi-tenant product. We’ve been slowly reducing that focus to move on to larger single-tenant, higher-covenant type deals with longer-term income.”

Mackenzie says 2018 has been an “exceptional” year for Skyline Commercial. “Our debt is well-positioned as we’re watching interest rates rise,” he says. “We managed to take advantage of the market that was available to us over the last couple of years on the credit side.”

He adds the REIT is “well positioned to weather any changes.”

As it now stands, “our biggest challenge is continuing to find these kinds of acquisitions which you have to pounce on when the opportunity arises.”

The Skyline Group of Companies was founded in 1999 and has five investment products: Skyline Commercial REIT, Skyline Apartment REIT, Skyline Retail REIT, Skyline Clean Energy Fund and Skyline Mortgage Investment Trust. Together, they manage approximately $3.5 billion in assets.