In a Tuesday morning media release announcing the deal, Allied said it intends to fund the acquisition initially with its unsecured line of credit and on a long-term basis with proceeds from the sale to a Canadian pension fund of a non-managing undivided 50 per cent interest in two properties in its Montréal portfolio.
Allied indicated it has entered into a non-binding letter of intent with the pension fund and expects to close the sale in Q2 2020.
375 Water St. is located adjacent to Vancouver’s downtown in the trendy Gastown district, in an area reminiscent of the Toronto neighbourhood at King and Spadina and Montreal’s International Quarter.
It overlooks Vancouver harbor and the cruise ship terminal at Canada Place and is in close proximity to the Waterfront SkyTrain Station, SeaBus Terminal and West Coast Express.
The Landing is a stand-alone structure built in the early 1900s as a supply warehouse serving gold rush miners. It was initially restored in 1987 to what were then modern building codes and to preserve its history.
It is comprised of 148,355 square feet of office GLA, 27,115 square feet of retail GLA and 53 underground parking spaces.
Knowledge-based organizations tenants
Allied Properties expects the building, which is 99.3 per cent leased to knowledge-based organizations and distinctive retailers, to enhance its ability to serve the growing demand for unique office space in downtown Vancouver.
The REIT considers the leasing rates to be below market with a weighted average lease term of 3.3 years and anticipates being able to raise the rents in the near term.
Allied Properties REIT is expanding its portfolio of buildings in Vancouver as it pushes toward its goal of becoming a leading provider of distinctive urban workspace in the city.
After the closing of 375 Water St., it will own 12 properties with just over 643,000 square feet of GLA. Upon completion of 400 West Georgia in early 2021, it will grow to 820,000 square feet of GLA in Vancouver.
On closing in Q2 2020, 375 Water will be free and clear of mortgage financing.
Recycling capital to expand Allied’s portfolio
Allied Properties REIT CEO Michael Emory highlighted the unusual method for financing 375 Water through the recycling of capital in its news release.
The REIT considers the purchase of 375 Water through this unique method of financing as the first instance of Allied leveraging its national urban-workspace platform to acquire a property and that it also confirms the attraction of institutional investors to its portfolio.
Recycling of capital also facilitates geographical diversification for the REIT and uses the capital to purchase a property with significant near term rent growth.
“We currently regard this method of funding growth as the exception rather than the norm,” said Emory.
“However, we do envisage circumstances in the future where recycling capital would be preferable to accessing the public capital markets and we’ll be ready, willing and able when those circumstances arise.”
Allied Properties REIT in Montreal in 2019
In 2019, a primary focus of the REIT was growing its Montreal portfolio.
While the REIT acquired properties in Toronto, Vancouver , and Calgary in 2019, its Montreal acquisitions were “easily the largest and most significant” during the year, Emory said in an interview with RENX in January 2020.
The purchase of 375 Water in Vancouver reinforces the company’s expressed goal to build a portfolio that is comprised of buildings in all major urban areas across the country.