BMO analyst updateExpanding Presence in Halifax Industrial With JV Agreement With Crestpoint
Bottom Line:
PRO REIT announced a joint venture (JV) partnership with Crestpoint Real Estate Investments Ltd., in which the JV will acquire 21 industrial properties in Halifax for $228M, and PRO REIT will also sell a 50% interest in 21 industrial properties (all but one in Halifax) to the JV for $114M. We view these transactions as a net positive, given the REIT's growing presence in Halifax's Burnside Industrial Park, alongside incremental fee income from property management for the entire 42-property portfolio. We maintain our Outperform rating and $7.75 target price.
Key Points
Entering a strategic Halifax JV with Crestpoint. PRO REIT announced it has formed a JV with Crestpoint Real Estate Investments Ltd., a commercial real estate investment manager that is part of Connor, Clark & Lunn Financial Group Ltd., to jointly own a portfolio of 42 industrial assets, with all but one (in Moncton, New Brunswick) located in Halifax's Burnside Industrial Park, a key logistics hub in Atlantic Canada. The contribution from each is outlined as follows:
• PRO REIT and Crestpoint, in a 50-50 JV, will acquire a portfolio of 21 industrial properties located in Halifax's Burnside Industrial Park from a third-party vendor, for total consideration of $228M ($114M at PRO REIT's interest), valuing the portfolio at $143psf. The transaction will be financed by $148M (65% LTV) of fixed-rate mortgages (we estimate the current market rate for a 5-year mortgage to be in the ~5% range), with the remainder in cash.
• Simultaneously, PRO REIT will sell a 50% interest in 21 industrial properties it already owns to Crestpoint for $113.5M ($151psf), with Crestpoint assuming a 50% interest in $129M of current fixed-rate mortgages, and $49M of cash.
The remaining proceeds net of the two transactions will be allocated to pay down PRO REIT’s outstanding credit facility. The transaction is expected to close in the coming weeks.
Transactions should be accretive. We note that no cap rates were disclosed for either transaction; however, management commented that the transactions are accretive for the REIT, as PRO REIT (through Compass Commercial Realty), will earn fee income from Crestpoint through the provision of property management services for the entire 42- property JV portfolio.