From TD: THE TD COWEN INSIGHT
PROREIT announced its first acquisition since its Halifax portfolio JV with Crestpoint in
June 2022. The $32.6mm urban warehouse is well-located near Montreal's airport,
with a stable tenant and steadily growing rents. NOI concentration in Industrial property
should reach or exceed 80%. Recent disposition activity has enabled PROREIT to pursue
opportunities like these.
Impact: SLIGHTLY POSITIVE
PROREIT announced this morning an agreement to acquire a 134,340sf industrial property
in Dorval (Montreal), Quebec for $32.6mm or $243/sf (representing a going-in cap rate of
6.7%). The transaction is expected to close in Q3 and marks PROREIT's first acquisition since
its Halifax portfolio JV with Crestpoint in June 2022 (link). The asset is strategically located
adjacent to the Montreal-Trudeau International Airport and is fully occupied by a national
logistics company (KD Services) under a long-term lease (rents at $16/sf with 3.5% annual
escalations) and a renewal option.
The acquisition will be financed with a new $21.2mm five-year mortgage at 5.1% (175bps
spread to the GOC bond yield at the time), with the balance funded through draws on
operating facilities and proceeds from recent non-core dispositions. Upon closing, the
acquisition could see industrial exposure modestly exceed 80% of NOI (Q2/24: ~80%
proforma dispositions), and puts PROREIT closer to management's 90% concentration
target in the next 3-5 years. As industrial property continues to account for a greater
portion of the REIT's overall portfolio NOI and value, and balance sheet deleveraging
continues via asset sales (including $32mm set to close in Q3), we see potential for its
relative valuation to improve somewhat from current levels.
Additional details. Located at 2945 Andr Avenue in Dorval, Quebec, the industrial asset is
a single-tenant building with a warehouse clear height of 24-27 feet, along with an efficient
loading configuration (see page 2 for picture/map). Upon closing, KD Services (who has
been under lease at this asset since 2013) will become PROREIT's fifth largest tenant by
revenue, we estimate. The building was previously owned by KingSett Capital and Candev
Immobilia, who purchased the asset from Skyline Commercial REIT in January 2022.
Valuation. PROREIT is trading at 12.9x 2024E AFFO/unit. This compares with Nexus
Industrial REIT, which we view as its closest peer, at 14.3x, and Granite REIT and Dream
Industrial REIT at an average of 15.2x.