True North Commercial REIT (TNT.UN-T) capped off 2014 – and it hopes kicked off the new year, with the $60.8-million purchase of 10 office properties primarily in southwestern Ontario in two separate deals.
The biggest component of the late-year acquisitions was with London, Ont.,-based real estate developer Shmuel Farhi, who sold three properties in that Southwestern Ontario city: 199 Dundas St., 534 Queens Ave. and 417 Exeter Rd.
Farhi, who was featured in a London Free Press article that covered the sales, said he will continue to manage the properties for the REIT and has invested $5.5 million of the sale proceeds back into the REIT. “It was a good opportunity,” Farhi told the newspaper. “They’re looking within three years to have a billion dollars in assets. We got cash for assets.”
The acquisitions, along with the previously announced acquisition of 777 Brock Road in Pickering, Ont., are immediately accretive to the REIT’s funds from operations and adjusted funds from operations. The REIT said the acquisitions will also improve the REIT’s FFO and AFFO payout ratios.
Growth by design
Farhi’s properties, and the other seven True North Commercial acquired in the late 2014 flurry, fit with the REIT’s target profile, said Daniel Drimmer, who holds the titles of president, chief executive and chairman.
“The REIT’s main focus is credit quality,” he said. “So, rated tenants and government tenants on long-term leases and we would like to do more. We successfully added a portfolio of $80 million with long-term, mostly 90% government leases. In our REIT, what we are trying to do is provide stable and secure cash flow.”
Besides London, the acquired properties are located in Sarnia, Hamilton, Peterborough and Kirkland Lake and comprise a total of approximately 240,600 rentable square feet. Along with the Brock Road Property, the deals boost the size of the REIT’s portfolio by 38% and increase the average remaining lease term of the REIT’s property portfolio from 4.2 to 4.9 years. More than 94% of gross revenues in the 11 properties are generated from the federal government, Ontario government and credit-rated tenants.
Connections key to growth
Given True North Commercial’s acquisition criteria, finding, identifying the right properties takes time and connections, said Drimmer. “You have got to have the network and the resources to pull these off and to find them so we are lucky to have that.
“It is not easy,” he added. “You really have to have a national network because these opportunities can come from anywhere in Canada. If you only focus on one geography, it is hard to find. Because we have a broad network from our apartment expertise, and having been in almost 100 cities, we have a good network to be able to pry (out) some of these opportunities.”
Drimmer does not have a dollar target for acquisitions in 2015, but he does have a strategy: “We want to be opportunistic-driven. Size really depends on what comes across our table.”
Drimmer has a long history in the apartment business. A third-generation real estate investor, he founded TransGlobe Property Management Services Ltd. in the mid-’90s, the TransGlobe Apartment REIT in 2010 and Starlight Investments Ltd. in 2011. He then founded the True North Commercial REIT and True North Apartment REIT (TN.UN-T) in 2012.
Drimmer is looking to grow the size of the apartment REIT this year, but admits it is a tough slog. “I would say that apartments right now are the category where most investors are looking to place their money,” he said. “Canada, especially in apartments, you can’t really replace them” given there is only a “handful” of new purpose-built projects.
“It is ‘what you see is what you get,’ so we love the barrier to entry on apartments and the affordable housing factor is important; they can’t build it, so long-term that is a great place to invest.”
While shopping in Canada is admittedly tough, apartment shopping in the more dynamic U.S. market is also an option through a multi-family investment fund operated by Starlight.
“We’re in Texas and in Florida right now,” Drimmer said.