PRO Real Estate Investment Trust (TSXV: PRV.UN), an unincorporated open-ended real estate investment trust, announced earlier this morning that it has entered into a binding agreement to acquire 19 properties in British Columbia, Alberta, Saskatchewan and Ontario, the majority of which is anchored by Rexall pharmacies. The properties comprise both stand-alone drug stores and community service centres. The purchase price of the portfolio is $51.6 million, representing a going-in capitalization rate of 7.1%. The transaction is expected to close before December 31, 2017 and is subject to customary closing conditions.
“This is a major transaction for PROREIT. The acquisition of this portfolio represents a significant growth milestone, bringing our total assets to more than $350 million,” said James W. Beckerleg, President and Chief Executive Officer. “The portfolio acquisition will be accretive to unitholders and provide further upside potential from income growth.”
“The acquisition of the Rexall portfolio follows the REIT’s strategy of investing in properties with strong national and international tenants committed to long-term leases to ensure a strong foundation underlies core cash flows. The transaction increases our occupancy rate, extends our average lease term and establishes a national footprint for the REIT for the first time on a basis that is accretive to unitholders. It is also reflective of PROREIT’s retail strategy of focusing on community service centres, which are primarily pharmacy or grocery anchored.
The portfolio consists of 19 properties comprised of stand-alone stores with a total gross leasable area of 172,677 square feet. They include five properties in British Columbia, nine properties in Alberta, four properties in Saskatchewan and one property in Ontario. Of the 19 properties, 14 are Rexall Pharmacy Group anchored, representing approximately 72% of the portfolio net operating income, while five others are anchored by other strong tenants, including Shoppers Drug Mart.
The $51.6 million acquisition will be financed by a $38.7 million first mortgage on the portfolio, with a weighted average term of nearly 10 years at an estimated weighted average rate of approximately 4%. It will be comprised of a mix of 5, 10 and 15 year terms.The financing was arranged with a Tier 1 Canadian Chartered Bank. The balance of the purchase price of the portfolio will be settled from PROREIT’s lines of credit, in part freed up from the partial proceeds of the equity financing completed in June 2017.
“We continue to pursue our objective of creating a larger-capitalization real estate investment trust by acquiring strong commercial real estate in locations that include communities outside of Canada’s largest urban centres,” continued Mr. Beckerleg. “The Rexall Pharmacy Group properties are excellent examples of these strong commercial properties that provide critical services and goods to the immediate and extended community. Such properties provide our portfolio with a stable asset base that generates predictable and steady distributions for our unitholders.”