PRO Real Estate Investment 8 Convertible Unsecured Subod Debentures T.PRV.UN

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PROREIT (PRV.UN-T) C$6.24 Announces Halifax Industrial Property JV with Crestpoint Lorne Kalmar, CPA, CA Sam Damiani, CFA

Event PROREIT announced a 50/50 joint venture with Crestpoint to own 42 industrial properties aggregating 3.1mmsf of GLA, including 41 in Halifax's Burnside Industrial Park.

Impact: SLIGHTLY POSITIVE Our Take: The transaction is effectively balance sheet neutral for PROREIT, but is expected to be accretive to earnings as it will now collect management fees on the JV assets (TDS estimate ~$1mm/year).

We believe that this represents a unique way for PROREIT to both expand its presence in Burnside Park (now owns 50% interest in ~40% of Burnside Park GLA) the largest industrial market east of Montreal and north of Boston (2.5% vacancy), and diversify its tenant base, while also increasing the asset base on which it collects fees. The JV also establishes a relationship with Crestpoint, and creates opportunity for additional deals in the Halifax region down the road. The validation of its platform and the enhanced scale should also benefit PROREIT's valuation, in our view.

Transaction Overview: The JV has agreed to acquire a 21 asset portfolio aggregating 1.6mmsf of industrial properties in Burnside Park for $228mm ($142/ sf). PROREIT will also vend a 50% interest in its 21 asset Burnside Park portfolio aggregating 1.5mmsf into the JV (Exhibit), valued at $227mm ($151/sf; acquired for ~$138/sf in Nov. 2021). While cap rates were not provided, we estimate the favourable delta between the acquisition and disposition cap rates will offset the higher rate on the new mortgage debt (i.e. earnings neutral excluding management fees in year one). PROREIT will act as the manager of the JV. Closing is expected in the coming weeks. The JV portfolio will aggregate 3,059,635 square feet of warehouse, light industrial, and flex office assets with 95% current occupancy and a three-year WALT. In-place rents are below market, which should provide NOI upside.

PROREIT's 50% interest acquisition consists of $40mm in cash and its share of $148mm of new mortgages. The 50% sale will generate $49mm of cash with Crestpoint assuming its share of $129mm of mortgages. The ~$9mm in proceeds to PROREIT (before transaction costs) will be used to pay down its credit facility (i.e. effectively leverage neutral).