The trust confirmed Monday (December 11) it has waived conditions and purchased the second portfolio in the sale. It also announced the fulfillment of a share offering which was made at the same time of the purchases; the offering raised $103.5 million.
The two purchases involve a total of 14 properties located mainly in the Greater Toronto Area, though one site is located in Montreal and another in Ottawa. The buildings contain close to 1.1 million square feet of leasable space, and give Summit a significant increase in its portfolio in the Toronto area — its key target market.
“We are pleased to announce the acquisition of these quality properties and the significant increase we will see in our GTA portfolio,” Summit CEO Paul Dykeman said in a release on December 4 announcing the sales. “Average rents in these properties are well below market, and we expect to generate solid organic growth over time as we renew tenant leases and lease-up vacant space.”
The first of the transactions involves four properties close to Pearson International Airport and major transportation routes. Summit waived conditions on these assets and will acquire a 100 per cent interest in these four properties for $66.1 million.
They comprise 358,734 square feet of gross leasable area and are 92.2 per cent occupied by eight regional, national and global tenants with an average remaining lease term of approximately 6.3 years. Summit says the purchase price represents a discount to replacement cost and a going-in capitalization rate of approximately 5.9 per cent.
Closing is expected on or before Dec. 31.
10 properties in GTA, Montreal, Ottawa
Summit is acquiring a 100 per cent interest in the 10-property portfolio for $72 million.
Eight properties comprising 553,556 square feet are located next to major transportation routes in the GTA while the other two, comprising 184,880 square feet, are in Ottawa and Montreal. Nine are single-tenant properties and one is a multi-tenant property. They are 100 per cent occupied with a weighted average lease term of approximately four years with an average rental rate of $5.25 per square foot.
The purchase price for the 10-property portfolio represents a going-in capitalization rate of approximately 5.4 per cent and a discount to replacement cost. Closing on this portfolio is also expected to take place by Dec. 31.
The portfolios are being acquired free and clear of mortgage financing, Summit says.
Over-allotment brings offering to $103.5M
Summit had increased the share offering it originally announced on December 4 to raise up to $90 million — from its original target of $80 million. The company said it made the increase due to “strong demand.”
The offering, which will fund a portion of the sales, was for 12,500,000 shares at $7.20 per unit (the same per share price as previously announced). BMO Capital Markets also exercised an expanded over-allotment for 1,875,000 shares on the same conditions.
That brought the total proceeds to $103.5 million.
The offering is subject to the customary conditions, including approval by the Toronto Stock Exchange.
Additional financing will come via debt financing arranged by BMO Capital Markets. This additional financing will give Summit access to up to $90 million. Summit says it will be used both to help fund the purchases, as well as to reduce outstanding indebtedness owing under Summit’s operating line. The debt financing will be secured by the properties Summit is purchasing.
With the completion of these transactions, Summit’s portfolio will grow to 83 properties aggregating 8.8 million square feet. Consistent with the trust’s strategy, the REIT’s portfolio allocation in Ontario is 70 per cent, with approximately 60 per cent its primary target market of the GTA.
Summit Industrial Income REIT is an unincorporated open-end trust focused on growing and managing a portfolio of light industrial properties across Canada.