First Capital Real Estate Investment Trust sold Toronto’s upscale Hazelton Hotel and three other properties on Tuesday for a total of $184-million, the latest step in a plan to raise up to $1-billion for investment in new developments.
First Capital, a REIT focused on grocery store-anchored malls, sold the boutique Hazelton property in Toronto’s Yorkville neighborhood and a 50-per-cent stake in the attached ONE restaurant for $110-million to Hennick&Co., a private real estate company founded by billionaire Jay Hennick.
The REIT also sold a condominium development site in north Toronto that is currently a retail centre and two properties in Montreal, an apartment building and a residential site that was previously part of a First Capital mall.
The property sales come after First Capital faced an activist investor campaign that began with last September’s announcement of a plan to aggressively sell assets to pay for building new malls. Several fund managers initially objected to selling properties when rising interest rates and the threat of a recession could depress prices.
The showdown ended last month with two new directors joining the board, and former Toronto-Dominion Bank executive Paul Douglas becoming First Capital’s chair, but no shift in strategy.
Adam Paul, the REIT’s chief executive, said in the press release the company is now more than a third of the way to its two-year sales target, and the strategy is “demonstrating significant incremental value and future potential for First Capital’s unitholders.”
The four properties First Capital sold generated a total of $6.1-million in income last year, which translates into a 3.3 percent yield on the price they fetched. Mr. Paul said sale of these low-yield properties is consistent with the REIT’s growth strategy. The four properties sold for 18 percent above their book value.
First Capital acquired the Hazelton and a stake in ONE in three transactions over the past five years. The REIT used its ownership of the 77-room hotel to increase the density of its development at an adjacent mall - Yorkville Village Shopping Centre - owned by First Capital, and an attached condo and retail development that is 33 percent owned by the REIT.
Hennick&Co. was a founding investor in the Hazelton, which opened in 2007. The family-owned company also owns a stake in the St. Regis Hotel Toronto, formerly known as the Trump International Hotel, a number of properties in Toronto and Boston and a collection of real estate-related business. Chair Jay Hennick is also CEO of real estate management company Colliers International Group Inc. and chair of property manager FirstService Corp.
In Montreal, First Capital sold a portion of a Metro grocery store-anchored mall called Wilderton. The REIT rezoned the 1.5 acre site for residential development. The company also sold an apartment building, Carre Queen Mary, after renovating the building and releasing its first floor retail space, with drug store Jean Coutu as anchor tenant.
First Capital projects the four sales will close by the third quarter of 2023. The REIT owns approximately 145 properties in British Columbia, Alberta, Ontario and Quebec, valued at $9.6-billion.