Transit City Condos at the Vaughan Metropolitan Centre. (Rendering courtesy SmartCentres)

SmartCentres REIT (SRU.UN-T) and Penguin Group have announced a new joint venture which will allow for a major expansion of the multi-billion-dollar Vaughan Metropolitan Centre development just north of Toronto.

SmartCentres is buying a 50 per cent interest in an almost 16-acre parcel of land owned by Penguin, abutting the VMC property, for $109.2 million. The land is currently the site of a WalMart store, but the store will be relocated on the site and redeveloped to create a new prototype Walmart including a large dedicated picking facility, enhanced customer pickup experience and parking area.

The total mixed-use density available from the old Walmart store lands is expected to exceed 4.5 million square feet.

The remainder of the site will be redeveloped by the partners to create at least six new residential towers, as well as portions of the existing VMC development plan.

“We see this as a tremendous opportunity to unlock significant value for us on the lands beside the VMC subway station,” said Peter Forde, president & CEO of SmartCentres REIT, in a release.

“At the same time, we are able to provide Walmart with a new prototype store with great visibility, highway and transit access and proximity to this urban centre of Vaughan and provide convenient access to food and general merchandise to this new community which is expected to have an additional 40,000 to 50,000 residents when complete.”

New prototype WalMart store

Part of the deal includes a new lease agreement for WalMart, which is surrendering its existing long-term right to lease the 15.7-acre site. In return, WalMart will be able to move into a state-of-the-art facility in 2020 with an initial 22-year lease and options to renew for up to 55 more years.

Termination of the existing lease allows for what the partners call “full realization of the master plan vision for SmartVMC; the REIT and Penguin’s prized new Vaughan City Centre development at Highways 400 and 7.”

The land in the prime TTC Subway Precinct planning area of the VMC, steps from the new TTC VMC University Line subway station and the new York Region Bus Terminal.

In addition to the six newly announced, residential condominium and/or purpose-built rental towers, the transaction also provides additional lands required to complete the sold-out Transit City 1 and Transit City 2, 55-storey condominium towers and the 225,000 square foot mixed-use tower anchored by PwC’s recently opened, 77,000-square-foot offices.

VMC is a major, 100-acre master-planned community at the current northern terminus of the TTC University subway line.

The Vaughan Metropolitan Centre plan

The first task at the site is to begin immediately constructing the new 140,000 square foot Walmart Store. Development of the additional 1.7 million square feet of residential condominium and/or purpose-built residential rental buildings will follow over the next several years.

To accommodate the new store development, existing leases in the SmartCentres home office building and Kumon home office building on site were terminated by Penguin and the buildings were recently demolished.

SmartCentres will use funds from its recently announced senior unsecured debenture offering to finance the acquisition.

A special committee of independent trustees of the SmartCentres board reviewed the transaction and its merits and negotiated the terms of the transaction with Penguin. Penguin is owned by Mitchell Goldhar, the executive chairman of the REIT’s board and its largest shareholder.

About SmartCentres

SmartCentres is one of Canada’s largest real estate investment trusts with assets of approximately $9.7 billion. It owns and manages in excess of 34 million square feet in value-oriented, principally Walmart-anchored retail centres.

In addition, SmartCentres is a joint-venture partner in the Premium Outlets locations in Toronto and Montreal with Simon Property Group.

SmartCentres continues to grow its portfolio to include residential, retirement homes, office, and self-storage with an additional 59.3 million square feet (27.9 million square feet at SmartCentres’ share) in expected intensification and developments to commence over the next five years. The work is valued at $12.1 billion ($5.5 billion at SmartCentres’ share).

This growth will occur on its large urban properties such as SmartVMC at the Vaughan Metropolitan Centre or as additional intensified uses to its well-located existing shopping centres.

About Penguin Group of Companies

The Penguin Group of Companies is a private company owned by Goldhar. Penguin owns real estate across Canada at various stages of development including an interest in the VMC.

Penguin’s portfolio includes 12 properties co-owned with Walmart. Goldhar has also developed an emerging network of Penguin Pick-Up locations offering free pick-up for online purchases, and Penguin Fresh, an online food marketplace.

The Penguin Pick-Up network now has 118 locations, including some co-branded with Walmart.