True North Commercial REIT’s purchase of a downtown Ottawa office building at 360 Laurier Avenue West isn’t one of its largest acquisitions, but it is significant because it is the final step in the trust’s strategy to be exclusively an office owner and operator.
True North (TNT-UN-T) bought the 11-storey, 107,066-square-foot Narono building with proceeds recycled from the sale of its last two industrial holdings in December, CFO Tracy Sherren told RENX in an interview. It paid $24.5 million for the building, which is located in the central business district next to an office building True North already owns at 340 Laurier.
“We’re predominantly office so what we decided to do is sell those two industrial properties and now we are just pure-play office,” Sherren said. “That is what we are and that is what it’s our intention to be in future.
“All of our comparables were in the diversified space, so we thought it was better if we were just pure-play office, that we’d get a better multiple in our valuation. We’re really good at office so we thought we’d stick with just that one office sector.
“We see a lot of opportunities there as well.”
The class-B building was attractive to True North for several reasons. First, there has been significant recent investment in the property, which was built in 1968 and most recently renovated in 2013 by previous owner Dream Office REIT (D-UN-T).
“Significant” investment in the building
The main tenant is the Correctional Service of Canada, which is also the anchor next door at the larger 340 Laurier office (it’s about 280,000 square feet).
“There has been a significant amount of capital put into the building over time, obviously. We’re expected to be LEED Gold, to get that certification in Q1 of 2019,” Sherren said, noting the work has been completed and the building is now in the monitoring period for the certification. “New mechanical, new electrical, that kind of stuff.
“Tenants are actually doing a lot of work in their spaces right now. So, while it’s older there have been lots of dollars invested to modernize and upgrade.”
The Narono Building is currently certified LEED Silver.
True North also “invested a lot of capital” in 340 Laurier after purchasing it in 2013, Sheren said, and it is also certified LEED Gold for an existing building.
Narono Building fully leased
In addition to the government offices, the building includes three ground-floor retail outlets, two food service outlets and a dry cleaner. The government tenancy was another attraction for True North, which counts public sector entities as its largest tenant base.
“We’ve been in the Ottawa market since 2013,” Sherren said. “Two of our original buildings we bought were in Ottawa. It’s always a target market for us because the Government of Canada is our largest tenant across the country, so obviously Ottawa is key for us.”
Corrections Canada has about three-and-a-half years remaining on its lease.
True North now owns five Ottawa office buildings, with a total of about 650,000 square feet of space. It will continue to expand in the capital if the right opportunities arise.
“We pick and choose; there are certain buildings that we would like to have depending on opportunities. It’s always on our radar just like other provincial capitals as well. The provincial governments across the country are also big tenants for us across the country, like B.C., Alberta, New Brunswick and Ontario.”
True North’s financing for purchase
Financing for the purchase includes proceeds from the two industrial sales (63 Innovation Drive in Hamilton, and 1035 Industrial Road in Waterloo, Ont.,) and a $17-million first mortgage at 3.8 per cent for a five-year term.
“We deployed the proceeds from the two industrial into this and it’s going to be good for our results,” Sherren said in conclusion. “It is going to solidify our presence in downtown Ottawa, so it kind of ticks all the boxes for us. It’s good.”
True North currently owns and operates a portfolio of 46 commercial properties consisting of approximately 3.73 million square feet in urban and select secondary markets across Canada.
The REIT is focused on growing its portfolio principally through acquisitions across Canada and such other jurisdictions where opportunities exist.