Summit Industrial Income REIT (SMU-UN-T) plans to purchase an “institutional-quality” portfolio of 37 light industrial properties in Alberta, totalling more than 3.3 million square feet, for $588 million.
Of the total, 22 properties (1.8 million square feet) are in Edmonton, 14 (1.4 million square feet) in Calgary, and one in Grande Prairie.
The agreement to purchase, announced Monday afternoon, also includes one parcel of land in Edmonton which is currently under lease.
“This important acquisition significantly increases the size and scale of our total portfolio to 145 properties aggregating 16.9 million square feet with an asset value of approximately $2.5 billion,” commented Paul Dykeman, chief executive officer of Summit, in the release.
“We are also pleased to have quickly and accretively recycled the funds generated from the sale of our non-core data centre properties into our core light industrial business where we have a proven track record of creating value for our unitholders.”
The seller is not identified in the release.
“Diverse, stable” group of tenants
Toronto-based Summit says in the release the properties contain a “diversified and stable tenant roster,” with an average remaining lease term of five years. It believes there is opportunity to enhance its yield through future lease-up, development and expansion of the properties.
The portfolio contains a mix of single tenant and multi-tenant properties. Approximately 67 per cent of the portfolio consists of modern class-A space, enhancing the quality of Summit’s overall portfolio.
The average age of the buildings is about 22 years old, with the Edmonton portfolio the oldest of the three. On average, those buildings have a completion date of 1994, compared to 2000 for the Calgary sites and 2006 for the single Grande Prairie property.
Almost 60 per cent of the total space consists of logistics buildings, a sector which remains in high demand.
Occupancy currently stands at approximately 91.7 per cent, providing the opportunity to enhance the yield on the acquisition through lease-up of the vacancies.
The tenant base consists primarily of transportation, warehouse and light manufacturing firms, with only 17 per cent exposure to the oil and gas industry.
Site coverage is approximately 22 per cent of total 349 acres being acquired, providing the opportunity for development, re-development and tenant expansions over time.
The $588-million purchase price represents a year-one capitalization rate of approximately 5.5 per cent.
The transaction is expected on or about November 1, 2019.
BMO Capital Markets Real Estate Inc. is acting as an exclusive advisor on the transaction.
$200M offering by Summit
To fund the purchases, Summit will use approximately $200 million from a subscription receipt offering, $382 million from a new bridge credit facility established in connection with the acquisitions and the balance from proceeds generated by the recent sale of its interests in two data centre properties in Toronto and Montreal.
The offering will be led by BMO Capital Markets. It will comprise, on a bought-deal basis, 15,510,000 subscription receipts at $12.90 per unit, for gross proceeds to Summit of approximately $200 million.
In addition, Summit has granted the underwriters an over-allotment option to purchase up to an additional 2,326,500 subscription receipts on the same terms and conditions.
The offering is subject to the receipt of all necessary approvals, including the approval of the Toronto Stock Exchange.
Closing of the offering is expected to take place on or about Oct. 17, 2019.