In May, the end looked near for WPT Industrial REIT (WIR-U-T). The board of the Toronto-based trust announced the creation of a special committee “to explore strategic alternatives,” an all-encompassing phrase many observers interpreted as a complete selloff of assets in bits and pieces or in one large transaction.
Half a year later, perhaps no one is more surprised at the ultimate outcome of the strategic review process than Scott Frederiksen, the REIT’s chief executive. “The expectation that many had was we would sell the whole portfolio.”
The Minnesota-based Frederiksen was not intimately part of the strategic review process. He is and was in something of a unique position as CEO of Welsh Property Trust, the largest shareholder in WPT.
Under a deal announced this month, Alberta Investment Management Corporation (AIMCo) purchased a 19 per cent interest in WPT from Welsh (with rights to go up to 29%) and created a new jointly owned entity to which will “directly or indirectly assume Welsh’s rights and obligations under the asset and property management agreements with the REIT.”
So no sale of the WPT portfolio, an outcome RBC Dominion Securities analyst Neil Downey describes in a recent research report as “disappointing.”
He does, however, see potential positives: “the endorsement of WPT’s potential intrinsic value by a large and sophisticated Canadian institutional investor, at a premium valuation; and, 2) an avenue (via the WPT funds) for the REIT to participate in value-add activities while spreading risk, and offering a potentially enhanced propriety growth pipeline over time.”
New lease on life
For Frederiksen, the investment and new business relationship with AIMCo are easier to explain.
“The previous external managing partner was a great partner, but the difference was we were in a fund that was at the end of life, they were in a limited life debt, limited amount of capital investor. . . . So enter an infinite life, equity partner that isn’t constrained by time periods.”
AIMCo’s new pipeline of capital and potential deals will hopefully ramp up the REIT’s acquisition activity which had previously been constrained, said the CEO.
“Absent this transaction, the REIT really was relegated to core investments, to basically doing stabilized real estate deals.”
Previously, WPT could only make acquisitions “when it was a good time to buy real estate in the real estate market and a good time to raise capital in the capital market.
“With a stable investor like AIMCo, hopefully you can invest in all phases of the real estate market and not be relegated to raising capital when you need it,” he added. “It makes you a little less dependent on the phase of the market cycle and a lot less dependent on the capital markets, and as we know, they both cycle.”
AIMCo, one of Canada’s largest and most diversified institutional investment managers, has approximately $90 billion under management. The two sides have had a “relationship” stretching back two or three years, said the REIT CEO, “but this is the first time that we have formerly done anything together.”
WPT REIT’s portfolio of “institutional-quality” warehouse and distribution industrial properties currently comprises approximately 15 million square feet of gross leasable area in two 46 industrial properties and two office properties located in 13 U.S. states.
With the U.S. economy still on the rebound and industrial a hot sector, WPT wants to add to its portfolio and expand geographically. That has been a stated goal of the REIT for a long time, but the big difference is it now has the partner and structure to make it more realistic.
“Industrial is doing great. Logistics is where everyone wants to be,” said Frederiksen. “There is a lot of demand, there is new development. but demand has kept pace with that. There is still good development opportunities out there just about nationwide.
“So there is significant development opportunities still in the United States.”
The REIT chief is hesitant to make predictions for this year or next, noting the trust’s growth has surprised him to the upside and downside in the past.
“The good news is the fundamentals of the market are strong, rents are trending up, our space is performing well and there is good opportunity there.”